STOCK FOCUS OF THE DAY
Bermaz Auto : Coming out of a rough
patch BUY
We maintain BUY on Bermaz Auto (BAuto) but lower our fair
value to RM2.30 (from RM2.45 previously) based on an unchanged PE of 13x. We
cut our FY17F-FY19F net profit projections by 7-26% on lower sales volume
assumptions for both Malaysia and Philippines given the softer market
conditions, which we believe will recover from FY18. There was a significant
core net profit erosion in 3QFY17 (-15%QoQ, -41%YoY) due to: (1) lower revenue
(-28%QoQ, -35%YoY) on poorer sales for both Malaysia and the Philippines; (2)
lower associate earnings (from its 30%-owned MMSB) of only RM0.1mil (vs.
previous average of ~RM3mil/quarter); profit contribution from associate has
been insignificant at 4-6% of group PBT.
What happened to sales in 3Q?: (1) Malaysia sales fell for
the seventh consecutive quarter (-28%QoQ, -40%YoY) on lower numbers for nearly
the entire line-up; (2) Philippine sales dropped (-13%QoQ, -21%YoY) due to the
supply constraint on one model and new launches by competitors. Core net profit
of RM93mil for 9MFY17 was lower by 35%YoY, hit mainly by poor sales in Malaysia
for the last two quarters and lower margins (EBIT margin for Malaysia dropped
3ppts to 10%, overshadowing Philippines' 4ppts increase to 13%). However, there
are some bright sparks and we highlight the following positives: (1) margins
rebounded in 3Q; (2) BAuto declared a third dividend of 2.75 sen/share,
bringing its total YTD payment to 8.5 sen or payout of 101% of EPS. We expect
earnings to improve in FY18. Also, the BAP IPO is on track and targeted for
next month. The main positives are: (1) the additional yield (estimated at
3.2-3.4%) to BAuto shareholders from the offer for sale (under the IPO) and
repatriation of a part of its cash pile which could be distributed as special
dividends; (2) the investment of IPO funds into building new outlets and
facilities for BAP to boost its business.
Others :
Lafarge Malaysia : Earnings to remain
positive HOLD
UMW Oil & Gas : Short-term charter from
Petrofac HOLD
Oil & Gas Sector : No upstream rebound yet despite
Petronas’ stronger 4Q results
NEUTRAL
STOCKS ON THE RADAR
Wellcall Holdings, Ewein,Sasbadi Holdings, LB Aluminium
ECONOMIC HIGHLIGHTS
China : Treading on thin ice
NEWS HIGHLIGHTS
F&B Sector : EKA Noodles reports board changes, new
biggest shareholder surfaces
Transportation Sector : Transocean in RM140mil reverse
merger deal, Nadzmi to give up control
Infrastructure Sector : RAM assessing impact on Sarawak
Hidro’s sukuk murabahah
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