FW: Results: MMS Ventures (MMSV MK; BUY; TP: MYR2.02) - No surprises

 

 

Good morning,

 

We have a results note on MMSV today.

Results: MMS Ventures (MMSV MK; BUY; TP: MYR2.02) - No surprises

• Attractive entry point. Despite 1Q18 core net profit easing by 1% YoY, we keep our FY18 net profit forecast (-16% YoY) as we expect slower quarters ahead, due to a softer equipment replacement cycle. Against local automation equipment peers’ average 18.9x CY19 PER, MMSV’s valuation at just 9.0x CY19 PER (7.7x CY19 PER ex-cash) is attractive for a tech name with a strong global clientele. Our unchanged MYR2.02 TP is based on 13.5x CY19 PER (+1SD to 5-year mean of 9.4x).Maintain BUY
• QoQ results distorted by adoption of MFRS15. 1Q18 saw the adoption of MFRS15 which allows revenue recognition only upon transfer of control of goods & services to customers (i.e. upon installation of equipment whereby customers are able to use and benefit from the said equipment). Previously, revenue recognition was upon the transfer of risk to customers (i.e. upon delivery of equipment to customers’ designated premises). For this, MYR3.7m of revenue was moved from 4Q17 to 1Q18. Similarly some of 1Q18’s revenue has been deferred to 2Q18.

Comparing YoY results, despite an 8% improvement in 1Q18 revenue, core net profit declined by 1% YoY to MYR4.0m, meeting 23% of our FY18 forecast. YoY EBIT margin contraction of 2.4ppts was largely due to (i) forex losses (MYR0.5m in 1Q18 vs. MYR0.2m in 1Q17) from MYR’s strength YTD and (ii) fair value loss for its unit-trust investments (MYR0.1m loss in 1Q18 vs MYR0.2m gain in 1Q17).

• Imminent transfer to the Main Board. With shareholders’ approval in its EGM yesterday, MMSV’s proposed transfer from the ACE Market to the Main Market is on track and should complete by early June 2018. This should enhance visibility among institutional investors which would narrow its valuation gap to its peers.

 

 

Ivan Yap | Analyst, Equity Research

Maybank Investment Bank Berhad (15938-H)
7^th Floor, Tower C, Dataran Maybank, 1, Jalan Maarof, 59000, Kuala Lumpur, Malaysia

Tel: +603 2297 8612 | Fax: +603 2284 2137
Email: ivan.yap@maybank-ib.com

 

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