Thursday, May 25, 2017

Sarawak Cable: Unit bags MYR81.37m transmission line job from TNB. Its wholly-owned subsidiary Trenergy Infrastructure S/B has bagged an MYR81.37m job from Tenaga Nasional. The contract — for the double circuit 500kV overhead transmission line from Alor Gajah to Bahau


FEATURE
CALLS

China | Regional Auto
Proton-Geely eyes the ASEAN region
Ivan Yap







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Atlan Holdings | Exploring the value ZON-e
Kevin Wong







CIMB Group Holdings | Earnings expand on lower credit costs in 1Q17
Desmond Ch'ng







AirAsia Bhd | BUY opportunity emerged?
Mohshin Aziz







MBM Resources | Surprises on the downside
Ivan Yap







TSH Resources | Slow start to the year
Chee Ting Ong







TH Plantations | A relatively good start to 2017
Chee Ting Ong







7-Eleven Malaysia Holdings | 1Q17: Below expectations
Liew Wei Han







Harbour-Link Group | Plying at murky water
Yen Ling Lee









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COMPANY RESEARCH





Initiation





Atlan Holdings (ALN MK)
by Kevin Wong





Share Price:
MYR4.85
Target Price:
MYR6.00
Recommendation:
Buy




Exploring the value ZON-e

We like Atlan for its inorganic growth catalysts, resilient earnings, healthy balance sheet and favourable dividend support which could compensate for its limited near-term earnings growth. Atlan is deep in value from a SOP perspective. Potential total return is 27% based on our MYR6.00 SOP-TP and 3.2% FY18 net yield.



FYE Feb (MYR m)
FY16A
FY17A
FY18E
FY19E
Revenue
768.1
809.4
812.2
834.0
EBITDA
107.8
118.9
113.5
122.2
Core net profit
50.7
38.4
39.5
40.8
Core EPS (sen)
20.0
15.1
15.6
16.1
Core EPS growth (%)
40.4
(24.3)
2.9
3.4
Net DPS (sen)
17.5
22.5
15.6
16.1
Core P/E (x)
24.3
32.0
31.1
30.1
P/BV (x)
3.1
2.6
3.8
3.8
Net dividend yield (%)
3.6
4.6
3.2
3.3
ROAE (%)
10.8
12.4
9.8
12.6
ROAA (%)
6.5
4.4
4.0
3.8
EV/EBITDA (x)
11.4
9.8
11.9
10.8
Net debt/equity (%)
6.8
net cash
net cash
net cash










Results Review





CIMB Group Holdings (CIMB MK)
by Desmond Ch'ng





Share Price:
MYR6.13
Target Price:
MYR7.00
Recommendation:
Buy




Earnings expand on lower credit costs in 1Q17

1Q17 was a decent operating quarter for CIMB Group and our forecasts are maintained. ROEs are expected to expand further in FY18 and as it stands, our FY18E ROE of 10.2% trails management’s target of 10.5-11%. Amid better prospects ahead, we keep our BUY call with a higher TP of MYR7.00 (+70sen), pegging on a higher PBV of 1.2x to reflect the overall improvement in the operating environment and the potential for upside surprises to earnings if credit costs come in lower than expected.



FYE Dec (MYR m)
FY15A
FY16A
FY17E
FY18E
Operating income
15,395.8
16,065.3
16,982.4
17,970.3
Pre-provision profit
6,146.8
7,413.6
8,116.0
8,834.7
Core net profit
3,411.2
3,414.4
4,393.8
4,995.3
Core EPS (MYR)
0.40
0.39
0.50
0.56
Core EPS growth (%)
5.6
(2.4)
26.1
13.7
Net DPS (MYR)
0.14
0.20
0.25
0.28
Core P/E (x)
15.2
15.6
12.4
10.9
P/BV (x)
1.3
1.2
1.1
1.1
Net dividend yield (%)
2.3
3.3
4.1
4.6
Book value (MYR)
4.87
5.24
5.38
5.66
ROAE (%)
8.7
7.9
9.5
10.2
ROAA (%)
0.8
0.7
0.9
0.9










Results Preview





AirAsia Bhd (AIRA MK)
by Mohshin Aziz





Share Price:
MYR2.94
Target Price:
MYR3.75
Recommendation:
Buy




BUY opportunity emerged?

AirAsia’s share price tumbled by 14% in the past two days as investors take caution as many airlines have reported weak 1Q17 results. We believe that AirAsia’s 1Q17 profits will not disappoint as the short-haul market remains strong. We estimate a core net profit of MYR360m (-21% YoY), the lower YoY profit is expected as 2016 was an exceptional year. Valuations have turned attractive; AirAsia is the second cheapest LCC globally. BUY with a TP of MYR3.75, based on unchanged 10x 2017 PER.



FYE Dec (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
6,297.7
6,923.9
7,058.0
7,678.5
EBITDAR
2,629.9
3,276.6
2,900.0
2,801.7
Core net profit
177.7
1,557.6
1,238.9
1,280.7
Core EPS (sen)
6.4
56.0
37.4
38.6
Core EPS growth (%)
434.5
776.1
(33.2)
3.4
Net DPS (sen)
3.0
4.0
45.0
9.0
Core P/E (x)
46.0
5.3
7.9
7.6
P/BV (x)
1.8
1.2
1.3
1.1
Net dividend yield (%)
1.0
1.4
15.3
3.1
ROAE (%)
12.0
36.8
17.5
15.2
ROAA (%)
0.9
7.2
5.9
6.1
EV/EBITDAR (x)
5.2
4.6
4.1
4.9
Net debt/equity (%)
228.9
133.7
27.5
45.2










Results Review





MBM Resources (MBM MK)
by Ivan Yap





Share Price:
MYR2.42
Target Price:
MYR2.95
Recommendation:
Buy




Surprises on the downside

1Q17 core net profit of MYR19m (-53% QoQ, -2% YoY) missed estimates at just 16%/20% of our/consensus FY17 forecasts with underperformance coming from the auto parts manufacturing operations and its auto parts JV. Taking into account the weak 1Q17, and slower recovery of its auto parts operations, we cut FY17-19 earnings forecasts by 6%-12%. Correspondingly, our TP is lowered to MYR2.95, based on unchanged 10x FY18 PER peg. Maintain BUY on MBM for exposure to Perodua.



FYE Dec (MYR m)
FY14A
FY15A
FY16E
FY17E
Revenue
1,774.1
1,815.1
1,670.2
1,866.3
EBITDA
17.8
49.7
(24.3)
35.1
Core net profit
112.2
87.6
102.6
104.2
Core EPS (sen)
28.7
22.4
26.2
26.7
Core EPS growth (%)
(18.8)
(21.9)
17.1
1.6
Net DPS (sen)
8.0
10.0
6.0
8.0
Core P/E (x)
8.4
10.8
9.2
9.1
P/BV (x)
0.6
0.6
0.6
0.6
Net dividend yield (%)
3.3
4.1
2.5
3.3
ROAE (%)
7.6
5.4
4.2
6.3
ROAA (%)
4.6
3.7
4.3
4.3
EV/EBITDA (x)
91.1
28.2
nm
41.6
Net debt/equity (%)
11.2
8.8
10.5
10.0










Results Review





TSH Resources (TSH MK)
by Chee Ting Ong





Share Price:
MYR1.78
Target Price:
MYR1.75
Recommendation:
Hold




Slow start to the year

Adjusted for FX gains, TSH’s 1Q17 core earnings were within expectations. Earnings were off to a slow start as its post El Nino output recovery (+10% YoY) has lagged peers. Nonetheless, we expect output and earnings to play catch up in the coming quarters, especially in the final quarter. Trading at 19x FY17 PER, its 5-year historical mean, TSH remains a HOLD with unchanged TP of MYR1.75 on 19x 2017 PER.



FYE Dec (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
799.5
872.5
1,094.6
1,137.6
EBITDA
173.6
180.8
186.6
225.7
Core net profit
75.5
72.4
123.5
157.3
Core EPS (sen)
5.6
5.4
9.2
11.7
Core EPS growth (%)
(43.0)
(4.1)
70.6
27.4
Net DPS (sen)
2.0
2.0
2.8
3.5
Core P/E (x)
31.7
33.1
19.4
15.2
P/BV (x)
1.8
1.6
1.5
1.4
Net dividend yield (%)
1.1
1.1
1.5
2.0
ROAE (%)
(8.1)
4.0
8.0
9.6
ROAA (%)
2.6
2.2
3.5
4.3
EV/EBITDA (x)
23.7
22.4
21.0
17.4
Net debt/equity (%)
88.4
84.3
77.9
72.6










Results Review





TH Plantations (THP MK)
by Chee Ting Ong





Share Price:
MYR1.16
Target Price:
MYR1.22
Recommendation:
Hold




A relatively good start to 2017

1Q17 results were in-line. We are keeping our earnings forecasts unchanged as our estimated all-in cost of production of ~MYR2,200/t for 2017 remains a key concern as we anticipate lower CPO price in 2H17. Trading at 22x 2017 PER, THP remains a HOLD with an unchanged TP of MYR1.22 on 0.8x trailing P/NTA (-1SD of 3-year mean).



FYE Dec (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
455.3
562.3
532.0
569.1
EBITDA
110.2
172.7
195.8
203.5
Core net profit
13.3
46.1
47.4
49.4
Core EPS (sen)
1.5
5.2
5.4
5.6
Core EPS growth (%)
(61.4)
247.3
2.7
4.2
Net DPS (sen)
0.0
6.0
1.6
1.7
Core P/E (x)
77.2
22.2
21.6
20.8
P/BV (x)
0.8
0.7
0.7
0.7
Net dividend yield (%)
0.0
5.2
1.4
1.4
ROAE (%)
5.0
11.0
3.3
3.4
ROAA (%)
0.4
1.3
1.3
1.4
EV/EBITDA (x)
23.0
14.2
12.8
12.0
Net debt/equity (%)
71.4
63.6
63.4
59.3










Results Review





7-Eleven Malaysia Holdings (SEM MK)
by Liew Wei Han





Share Price:
MYR1.42
Target Price:
MYR1.10
Recommendation:
Sell




1Q17: Below expectations

1Q17 results fell short mainly due to weaker-than-expected sales growth and higher-than-expected operating expenses (ie. minimum wage hike). We believe that focus on cost efficiencies should continue in the near term. We cut FY17/18/19 earnings forecasts by 19%/14%/11% after lowering our new stores opening assumption to 145 p.a. for FY17-19 (from 160-180 p.a.) and assuming higher opex. Maintain SELL with a lower MYR1.10 TP (-20sen) on an unchanged 26x CY18 PER.



FYE Dec (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
2,006.3
2,103.4
2,170.7
2,434.1
EBITDA
127.4
126.5
116.0
133.5
Core net profit
55.8
54.0
41.0
52.5
Core EPS (sen)
4.6
4.4
3.3
4.3
Core EPS growth (%)
(3.3)
(3.3)
(24.0)
28.0
Net DPS (sen)
4.7
4.7
1.7
2.1
Core P/E (x)
31.2
32.2
42.4
33.2
P/BV (x)
10.2
49.4
31.2
21.2
Net dividend yield (%)
3.3
3.3
1.2
1.5
ROAE (%)
27.5
52.5
90.2
76.3
ROAA (%)
7.5
7.1
5.2
6.1
EV/EBITDA (x)
13.8
14.3
15.4
13.1
Net debt/equity (%)
net cash
188.2
88.5
7.5










TP Revision





Harbour-Link Group (HALG MK)
by Yen Ling Lee





Share Price:
MYR0.87
Target Price:
MYR0.77
Recommendation:
Sell




Plying at murky water

Substantially weaker 3QFY6/17 was below our expectation with all segments posted weaker earnings. Outlook is getting tougher due to the slow EPCC market as well as the scrapping of the cabotage policy (wef. Jun 2017), which may result in foreign shipping operators competing for the niche East-West Malaysia cargoes. We cut our FY17-19 EPS forecasts by 33-43% and also lower our SOP-based TP to MYR0.77 (-14%), indicating CY18 PER of 11x (mean: 7x). Downgrade to SELL (from HOLD).



FYE Jun (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
507.0
592.7
513.8
567.6
EBITDA
97.4
133.3
65.7
78.8
Core net profit
48.2
59.0
19.8
30.2
Core EPS (sen)
12.0
14.7
4.9
7.5
Core EPS growth (%)
44.2
22.5
(66.5)
52.7
Net DPS (sen)
2.5
2.0
1.0
1.5
Core P/E (x)
7.2
5.9
17.6
11.5
P/BV (x)
1.2
1.1
1.0
0.9
Net dividend yield (%)
2.9
2.3
1.1
1.7
ROAE (%)
na
na
na
na
ROAA (%)
9.0
10.0
3.3
4.9
EV/EBITDA (x)
5.1
3.1
5.7
4.5
Net debt/equity (%)
net cash
0.4
net cash
net cash







SECTOR RESEARCH






Proton-Geely eyes the ASEAN region
by Ka Leong Lo


Sector Note





In perhaps the most-anticipated marriage in Malaysia’s auto industry, Zhejian Geely (ZG), parent of Geely Automotive (175 HK, BUY, TP HKD12.80), has emerged as the new strategic partner of Proton. It has proposed to acquire 49.9% of Proton from DRB-HICOM (DRB MK, Not Rated). We view this development positively for Malaysia's auto sector, which could emerge as a secondary car export hub by riding on Geely's strong brand name and developed platforms to penetrate the ASEAN markets.












Rystad Energy’s Information Session: Key takeaways
by Thong Jung Liaw


Sector Note





Rystad Energy, an independent upstream database & advisory firm with its headquarter in Norway recently hosted its in-house O&G session, sharing its thoughts on shale development, OPEC’s strategy, assessment and outlook of the O&G sector, just to name a few. In total, it expects a stronger oil price outlook, increase in global investment spending and shale growth. Our key BUYs are SapE, Yinson, Dialog and Wah Seong.


Thong Jung Liaw







MACRO RESEARCH






Gold futures: Trend favours the bear
by Tee Sze Chiah


Technical Research





FBMKLCI rose 3.84pts to 1,771.01 yesterday. Sentiment, however, was cautious throughout the day. There were 546 losers and 419 gainers. Turnover was 3.37b shares valued at MYR2.89b. Today, expect market to remain lethargic as disappointing corporate earnings and worries over faster rate hike in the US would weigh on the benchmark. Technically, resistance is at 1,777 while downside supports are 1,754 and 1,744.







NEWS


Outside Malaysia:

U.S: Most Fed officials saw tightening soon, favored unwind plan. Most Federal Reserve officials judged “it would soon be appropriate” to tighten monetary policy again and backed a plan that would gradually shrink their USD 4.5tr balance sheet. “Most participants judged that if economic information came in about in line with their expectations it would soon be appropriate for the committee to take another step in removing some policy accommodation,” according to minutes from the Federal Open Market Committee’s May 2-3 gathering released in Washington. (Source: Bloomberg)

China: Moody’s Investors Service cut its rating on debt for the first time since 1989, challenging the view that the nation’s leadership will be able to rein in leverage while maintaining the pace of economic growth. Stocks and the yuan slipped in early trading after Moody’s reduced the rating to A1 from Aa3, with markets paring losses in the afternoon. Moody’s cited the likelihood of a “material rise” in economy-wide debt and the burden that will place on the state’s finances, while also changing the outlook to stable from negative. (Source: Bloomberg) Singapore: Posts smaller GDP contraction than earlier estimated, underpinned by a pick-up

Singapore: Posts smaller GDP contraction than earlier estimated, underpinned by a pick-up in manufacturing. Gross domestic product declined an annualized 1.3% in the first quarter from the previous three months, according to a revised estimate from the Ministry of Trade and Industry; it projected a 1.9% decline last month. Compared with a year earlier, GDP rose 2.7% YoY. The government maintained its GDP growth forecast for 2017 of 1% to 3%, and said the economy will likely grow faster than the 2% expansion in 2016, barring any downside risks. (Source: Bloomberg)

Thailand: Central bank held its key interest rate near a record low to support economic growth that’s lagging peers in Southeast Asia. The one-day bond repurchase rate was left at 1.5%, with monetary policy committee members voting unanimously in favor, the Bank of Thailand said. The central bank has kept rates steady since 2015, refraining from easing policy despite muted inflation pressures and calls by the International Monetary Fund to spur flagging consumption and investment. (Source: Bloomberg)

Crude Oil: OPEC set to prolong cuts as effort to clear oil glut goes slow. OPEC and its allies were poised to extend their production cuts for another nine months after last year’s agreement failed to clear a global supply glut or deliver a sustainable price recovery. Six months after forming an unprecedented coalition of 24 nations and delivering output reductions that exceeded all expectations, some of the world’s largest oil producers faced the fact that they’d fallen well short of their goal. The sluggish decline in fuel stockpiles isn’t their only concern. U.S. crude production rose to 9.32 million barrels a day last week, an increase of 550,000 this year to the highest since August 2015, according to data from the Energy Information Administration. That wipes out almost a third of the supply reduction from OPEC and its allies and the output surge could double by year-end, consultant IHS Markit Ltd. told the group at a meeting last week. (Source: Bloomberg)





Other News:

Sarawak Cable: Unit bags MYR81.37m transmission line job from TNB. Its wholly-owned subsidiary Trenergy Infrastructure S/B has bagged an MYR81.37m job from Tenaga Nasional. The contract — for the double circuit 500kV overhead transmission line from Alor Gajah to Bahau South in Melaka — is expected to contribute to its books from FY17 to FY19. (Source: The Edge Financial Daily)

Sentoria: Bags MYR61m design and build job. Its wholly-owned subsidiary Sentoria Bina S/B will undertake a construction project involving 506 units of single-storey semi-detached houses in Pahang worth MYR60.8m. The job was awarded by HA Properties S/B. It is set to start on July 1, to be completed by Jun 30, 2019. (Source: The Edge Financial Daily)

Hap Seng Plantations: 1Q profit jumps 105% with higher CPO prices.Net profit jumped 105% in its first quarter ended March 31 (1QFY17) to MYR34.1m from MYR16.6m a year ago, thanks to higher crude palm oil and palm kernel selling prices. Quarterly revenue climbed 38% to MYR144.10m from MYR104.16m last year. (Source: The Edge Financial Daily)

Sunsuria: 2Q net profit surges over fivefold on strong sales. Net profit for the second quarter ended March 31 (2QFY17) surged more than fivefold to MYR18m, from MYR3.15m on the back of strong sales. Quarterly almost tripled to MYR103.68m from MYR38.82m a year earlier. The group is venturing into construction, having acquired 51% stake in construction company Prosperspan Construction S/B — now known as Sunsuria Asas S/B — just last month. (Source: The Edge Financial Daily)


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