BY KENANGA RESEARCH
Outperform (maintained)
Target price: RM1.14
According to the research firm, the issue price of 79 sen represents a 20.2% discount to its theoretical ex-all price of 99 sen.
“Based on the issue price of 79 sen, MRCB is looking to raise RM2.25bil from the exercise instead of RM2.85bil from its earlier proposed issue price of RM1 due to weak market conditions.
“The exercise will bring down its existing net gearing of 0.99 times (as of 2Q17) to 0.24 times,” said Kenanga.
On the Larkin stadium construction, Kenanga said it was neutral on the job win as it was within its order-book replenishment assumption of RM1bil.
MRCB has to date won RM467.9mil worth of jobs, making up 47% of Kenanga’s order-book replenishment of RM1bil.
Apart from the stadium job, it also announced the contract win for MRT2 station works (package S210) totalling to RM145.8mil.
This, according to Kenanga, has no impact on its FY17-18E earnings as it has already factored this in its estimates given that work package S210 is part of package V210 worth RM648mil that the firm secured last year.
Moving into FY17, MRCB is maintaining its sales target at RM1.2bil, banking on planned launches of Sentral Suites, 9 Sputeh phase two, Bukit Rahman Putra and Bandar Sri Iskandar.
“MRCB’s remaining external construction order book stands at about RM7bil. Coupled with about RM1.5bil unbilled property sales, these numbers will provide the group at least four years of earnings visibility,” noted Kenanga.
Kenanga kept its “outperform” call on MRCB, but with a lower sum-of-parts driven target price of RM1.14, from RM1.23 previously, after accounting a lower rights issue price of 79 sen.
“We are positive the rights issue exercise will bring MRCB back to a better financial footing coupled with the potential sale of EDL highway, which would be an upcoming catalyst for the stock,” Kenanga said.
Downside risks include weaker than expected property sales, higher-than-expected administrative cost, negative real estate policies and tighter lending environment.
BY MIDF RESEARCH
Buy (maintained)
Target price: RM7.20
MIDF Research has reaffirmed a ‘buy’ rating with unchanged target price of RM7.20 per share, stating key catalysts for UMW’s growth include demerger of oil and gas (O&G) units, reversal of prior years’ market share loss, monetisation of UMW’s 711 acres Serendah land and quadrupling of mechanical and engineering segment earnings.
UMW’s sales have picked up since the launch of the four facelift models and new variants this months – Vios, Fortuner, Hilux and Innova.
The group is on tract to achieve, if not exceed its FY17 forevast target volume of 70,000 units (which implies a conservative 9.8% y-o-y growth).
Year-to-date, Toyota total industry volume (TIV) has far outstripped industry growth at 21.7% versus industry’s 4.7%.
On addressing foreign exchange (forex) volatility for autos, MIDF said other than UMW’s own measure to address forex volatility, MIDF thinks that the principal, Toyota Motor Corp has also been providing incentives to UMW on a case by case basis since early FY17 forecast.
“UMW has locked up rates till Sep 17 at a much lower RM4.24 (3% improvement versus first half of 2017) and this is expected to reduce further to RM4.21 in 4Q17. Spot rates currently stand at an even lower RM4.19.
“This should provide a big kicker to auto
earnings in 2H17. Every 1% change in USD impacts FY18F earnings by
4.7% on our estimates,” MIDF said.
On UMW’s non-listed O&G asset disposal, MIDF said this was in progress. There are 16 assets to exit within four different segments and these include drilling and exploration, oil country tubular goods (OCTG) and line pipe, fabrication as well as trading and oilfield services.
Meanwhile, MIDF said UMW is in talks with potential buyers of two plots of land in Serendah, which will unlock significant value.
To recap, total land owned by UMW is 861 acres, of which only 30 acres was occupied by UMW’s fan case manufacturing plant.
“Total value of UMW’s Serendah land is worth 40sen/share, easily 6% of our sum-of-parts valuation. The two buyers are high value manufacturing companies (tie-ups with foreign partners) and is part of UMW’s larger plan to create an aerospace industry cluster at Serendah.
“The remaining 551 acres is slated for mixed development in the future with a strategic partner. Interestingly, we understand UMW is exploring methods to bring forward the value unlocking and monetisation of its vast Serendah landbank,” noted MIDF.
By AFFIN HWANG CAPITAL
Buy (maintained)
Target price: RM21.80
KESM Industries Bhd’s FY17 core net profit grew by 40% year-on-year (y-o-y) and was above expectations, due to lower effective tax rate.
Nevertheless, Affin Hwang Capital said KESM’s growth momentum remained on an upward trajectory as the company recorded its 11th consecutive quarter of revenue growth, underpinned by structural growth in the automative segment.
To elaborate, KESM’s FY17 earnings before interest, tax, depreciation and amortisation (Ebitda) margin at 33.6% came in slightly above Affin Hwang’s forecast of 33%. This is probably due to a higher degree of testing work undertaken.
“At the core profit level, FY17 earnings were 12% above our forecast.
“This was however due to a negative tax charge in fourth quarter of 2017 (4Q17) and hence a lower than expected FY17 effective tax rate of 8% versus 15.3% in FY16.
“We suspect this could be due to investment tax allowance following
KESM’s aggressive capital expenditure plan (RM107mil in FY17, which is nearly equivalent to its Ebitda for the year),” said Affin Hwang.
Dividend per share (DPS) for the quarter amounted to 6 sen bringing FY17 DPS to 12.5 sen (FY16 was 7.5 sen) which was above our expectation of 8.5 sen.
Affin Hwang left its forecasts unchanged, stating that slight changes to the forecasts take into account minor adjustments post results.
“We keep our ‘buy’ rating on KESm for its existing growth prospects underpinned by the strong structural growth in the automative segment,” Affin Hwang added.
Key downside risks include loss of customers and reduction in outsourcing opportunities as customers increase their in-house burn-in and test functions.
By HONG LEONG INVESTMENT BANK
Hold (maintained)
Target price: RM0.65
ADVENTA Bhd’s profit after tax and minority interests (Patami) of RM0.4mil during the nine months of 2017 was below Hong Leong Investment Bank’s (HLIB) expectations, making up 21% of its FY17 forecasts.
This was mainly due to larger losses in the home dialysis segment amid slower than expected adoption.
“Adventa’s nine months 2017 revenue grew 9% y-o-y from RM29.4mil to RM32.1mil on the back of better contributions from the distribution business.
“However, Patami registered a decrease of 30% y-o-y from RM0.529mil to RM0.371mil due to higher operating costs and wider losses from the dialysis segment.
“Year-to-date revenue grew by 12% y-o-y, while earnings before interest and tax grew 21% y-o-y. We expect contributions from this segment to exhibit growth on the addition of new accounts and higher operational efficiency,” HLIB said.
On healthcare distribution segment, HLIB said the group continued to benefit from its shift from healthcare consumables to higher value products, while making headways in the private sector sales.
Meanwhile, losses widened in the quarter in the home dialysis segment to RM3.7mil y-o-y as operating costs outweighes patient uptake.
“Moving forward, we continue to expect higher investments in the segment on anticipation of a surfe in patient uptake in FY18, assuming Adventa acquires the appropriate regulatory approvals,” HLIB noted.
Success of the home renal dialysis business is dependent on a smooth transition of patients from hospitals and private treatment centres to home treatment post an elongated regulatory registration and clinical study period.
“We reduce our FY17 earnings per share by 69.6% to better reflect the
higher operating cost from the home dialysis segment amidst delays in the push for adoption at the domestic and international level for its home dialysis system,” the research firm added.
