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Share
Price:
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MYR24.70
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Target
Price:
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MYR26.40
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Recommendation:
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Hold
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No surprises in
upcoming 3Q results
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We do not expect major earnings surprises in KLK’s
upcoming quarterly results release next month. In 3QFY9/17, its
stronger YoY upstream earnings will cover for anticipated still weak
downstream earnings. We are keeping our earnings forecasts. Maintain HOLD
with unchanged TP of MYR26.40 on 26x FY18 PER, pegged to its 5–year
mean.
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FYE Sep (MYR m)
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FY15A
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FY16A
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FY17E
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FY18E
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Revenue
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13,650.0
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16,505.8
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19,294.7
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19,003.3
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EBITDA
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1,578.0
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1,805.8
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2,009.3
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2,010.2
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Core net profit
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818.7
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824.5
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1,096.0
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1,084.6
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Core EPS (sen)
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76.7
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77.2
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102.7
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101.6
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Core EPS growth (%)
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(16.9)
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0.7
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32.9
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(1.0)
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Net DPS (sen)
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45.0
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50.0
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61.6
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61.0
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Core P/E (x)
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32.2
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32.0
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24.1
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24.3
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P/BV (x)
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2.7
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2.5
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2.4
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2.3
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Net dividend yield (%)
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1.8
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2.0
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2.5
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2.5
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ROAE (%)
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10.0
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15.8
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10.3
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9.8
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ROAA (%)
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5.4
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4.6
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5.9
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5.7
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EV/EBITDA (x)
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16.6
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16.0
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14.8
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14.5
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Net debt/equity (%)
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24.8
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22.5
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21.4
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16.0
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Share
Price:
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MYR1.69
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Target
Price:
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MYR1.70
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Recommendation:
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Hold
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Limited upside;
D/G to HOLD
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Pecca’s 4QFY6/17 results, due out on 22 Aug, could
disappoint on still suppressed production volumes by its major
customers. We lower our FY17/18/19 net profit forecasts by 5%-7% having
accounted for (i) lower volumes at the OEM and PDI segments but (ii) partially
offset by USDMYR forecasts of 4.25 (from 4.30) average for FY18/19.
Correspondingly, our TP is lowered to MYR1.70 (-6%), pegged on
unchanged 14.5x CY18 EPS (20% above peers). With limited upside, Pecca
is now a HOLD.
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FYE Jun (MYR m)
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FY15A
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FY16A
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FY17E
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FY18E
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Revenue
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129.5
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126.3
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125.0
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145.5
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EBITDA
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27.7
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22.6
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22.4
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29.8
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Core net profit
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17.9
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16.5
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15.9
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21.6
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Core EPS (sen)
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9.5
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8.8
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8.5
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11.5
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Core EPS growth (%)
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23.8
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(8.0)
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(3.6)
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35.9
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Net DPS (sen)
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4.4
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4.0
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4.2
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5.7
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Core P/E (x)
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17.7
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19.3
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20.0
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14.7
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P/BV (x)
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4.6
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2.0
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1.9
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1.8
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Net dividend yield (%)
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2.6
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2.4
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2.5
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3.4
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ROAE (%)
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27.6
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12.7
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9.9
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12.7
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ROAA (%)
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17.5
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11.3
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8.5
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11.0
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EV/EBITDA (x)
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na
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9.4
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10.0
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7.4
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Net debt/equity (%)
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net cash
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net cash
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net cash
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net cash
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MACRO RESEARCH
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FBMKLCI - Heading into Volatiles Month
by Nik
Ihsan Raja Abdullah
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FBMKLCI fell 2.99pts last Friday to close the week at
1,767.08 amid profit-taking on selective index-linked stocks. Market
breadth remained negative with losers outpacing gainers by 492 to
338. A total of 1.64b shares worth MYR2.20b changed hands. While market
is expected to be lackluster in the early going due to the lethargic
US markets, the surge in oil price will likely give local bourses a
much needed boost today.
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Nik Ihsan Raja
Abdullah
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Tee Sze Chiah
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NEWS
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Outside Malaysia:
U.S: Growth rate of 2.6% in 2Q 2017 underscores
resilience. Pickups in consumer and business-equipment spending powered a
U.S. economic rebound in the second quarter, signaling the eight-year
expansion is on track to be sustained. Gross domestic product rose at a
2.6% annualized rate from prior quarter while first-quarter growth
revised to 1.2% from 1.4%. Consumer spending which is the biggest part of
the economy grew by 2.8% after 1.9% gain. Nonresidential fixed investment
climbed 5.2%. Trade added to growth as exports rose faster than imports
while inventories were slight drag. (Source: Bloomberg)
E.U: Euro Area gets strong economic report card as ECB
ponders exit. Two of the biggest euro-area economies extended their solid
growth runs and confidence in the 19-nation bloc unexpectedly improved;
underpinning the momentum the European Central Bank is banking on to
boost inflation. Economic sentiment rose to a decade-high of 111.2 in
July amid increased optimism in services and construction, according to
the European Commission. Confidence in industry stayed at the highest in
more than six years. (Source: Bloomberg)
Japan: Industrial production rebounds in June as global
demand continued to support the nation’s economic recovery. Industrial
production increased 1.6% in June from May, when it fell 3.6%. The
decline in May partly reflected Golden Week holidays, when many factories
cut back output. Production is forecast to rise 0.8% in July and rise
3.6% in August. Measured year on year, production rose 4.9% YoY. (Source:
Bloomberg)
Qatar: Crisis back to square one as economy shows the
strain. The Saudi-led alliance that severed ties with Qatar reinstated a
list of 13 demands that must be met before talks to resolve the
eight-week crisis could start, just as as fresh economic data highlighted
the impact of the unprecedented boycott on the Gulf nation. The foreign
ministers of Saudi Arabia, the United Arab Emirates, Egypt and Bahrain
said there would be no compromise until Qatar ends its support for
terrorism -- a charge it has repeatedly denied. The bloc had initially
dropped the conditions, which included shuttering Al Jazeera television,
and instead referred to six broad principles it said Qatar must agree to,
fueling speculation that the crisis could soon be resolved. (Source:
Bloomberg)
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Other News:
Fajarbaru Builder Group: Awarded MYR101 works job.
Fajarbaru Builder Group has bagged a MYR101.3m contract for building
works of a commercial development in Semenyih, Selangor. The group’s
wholly owned subsidiary Fajarbaru Builder Sdn Bhd has accepted a letter
of acceptance dated July 26 from TYL Land & Development Sdn Bhd in
respect of the remaining building works and related external works for
the proposed commercial development. The contract period is 27 months
from date of commencement. Fajarbaru also received a job from Malaysia
Airports (Sepang) Sdn Bhd with a contract sum of MYR705,000. (Source: The
Sun Daily)
HeiTech Padu: Eyes 10% of software testing market by 2020.
HeiTech Padu is eyeing to secure 10% of the Malaysian software testing
market by 2020, as the group aims to set up a new software testing
business segment. The group is expecting the demand for software testing
to grow with the requirement for testing by an independent verification
and validation (IVV) partner being made mandatory in 2016. There are
currently four IVV partners in Malaysia, including HeiTech Padu. Most of
the investment in the software testing venture has been for getting its
employees qualified as certified testers and it costs the group about
MYR250,000 per person. To date, HeiTech Padu has certified 20 employees,
bringing the total investment to about MYR5m. (Source: The Edge)
AYS Ventures: Expects healthy earnings growth in FY18.
Steel product manufacturer AYS Ventures has earmarked about MYR35m for
capital expenditure in the current financial year ending March 31, 2018
(FY18) to install a fully automatic computer numerical control facility,
coupled with a warehouse complex building, within the Port Klang Free
Zone. The capex spent was expected to improve the group’s performance in
terms of achieving greater cost efficiency as well as cultivating better
earnings growth. This would enable AYS to venture into the industrialised
building systems (IBS) – a construction technique that the government is
urging construction firms to adopt. (Source: The Edge Financial Daily)
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