Mega project: Part of the site which will be under construction for an ECRL station in Kota SAS in Indera Mahkota, Kuantan. The massive rail project is a priority under Budget 2018.
By MIDF Research
Neutral
Target price: RM1.24
for RM310mil. The proposed disposal is expected to be completed in the third quarter next year.MIDF Research said it is neutral on the land disposal as UEM Sunrise has always been exploring to monetise its vast landbanks in Iskandar Puteri in Johor.
UEM Sunrise has vast landbanks of more than 10,000 acres in Johor, while the remaining acreage for Iskandar Puteri stands at 6,552 acres, which makes up 50% of its total landbank. MIDF said the land disposal allows UEM Sunrise to unlock the value of its landbank, and is expected to improve the company’s balance sheet.
Based on disposal consideration of RM310mil, the research house estimated the net gearing of UEM Sunrise to improve to 0.42 times from 0.47 times as at end second quarter. Nonetheless, MIDF said its earnings forecast on UEM Sunrise remained unchanged, pending further details from the management.
It maintains UEM Sunrise’s core net income of RM240mil and RM199mil for FY17 and FY18, respectively.
On UEM’s share price, MIDF said it maintained neutral on the stock due to the flattish property market outlook for Johor, with an unchanged target price of RM1.24. The target price was based on on 40% discount to revised net asset value or RNAV.
By HLIB Research
Buy
Target Price: RM1.18
HLIB Research said Homeritz Corp Bhd’s core profit after tax and minority interests (PATAMI) for the financial ended Aug 31, 2017 (FY17) came in within expectation, accounting for 98% of its full year forecast.
Homeritz declared a final dividend of 2.2 sen, bringing year to date dividend to 4.2 sen.
This translated to a dividend yield of 4.4%, HLIB said. The company’s fourth quarter ended Aug 31 revenue and core PATAMI rose by 16.9% and 48.3% from a year ago to RM39.7mil and RM6.7mil, respectively, mainly due to an increase in sales volume by 11% and the strengthening of the US dollar against the ringgit.
On a year to date basis, Homeritz’s FY17 core PATAMI increased by 6.4% to RM29.4mil, mainly due to the increase in sales volume by 3% and the strengthening of the US dollar against the ringgit by 4%.
HLIB said it remains positive on Homeritz as the company continues to improve cost efficiencies via effective trainings for the workers and continuously seeking for automation opportunities. In addition, it expected Homeritz to have a plentiful harvest next year from its effort in active exhibition participation this year.
Among the risks include strengthening of the ringgit against the US dollar, high raw material prices, especially leather and log costs, which account for 44% of production cost, and escalating labour costs, HLIB said.
The research house maintained its forecasts earnings for FY18 and FY19 and expected FY20 core earnings forecast at RM36.8mil.
HLIB said it has maintained a “buy” call on Homeritz with target price of RM1.18 based on 11 times unchanged 2018 earnings per share of 10.7 sen. It said the company is still on expansion mode and stable growth in the global furniture market arising from the growing real estate industry and increasing number of global retail stores.
Construction
By CIMB Research
Overweight (No change)
MAJOR sector drivers are more in focused in Budget 2018, with rail, affordable housing, roads/highways and water infrastructure to benefit from the Government’s high impact project initiatives and spending next year.
The RM210bil compiled value of projects under Budget 2018 comprises rail and public transport (73%), rural infrastructure, private-finance initiative (PFI) and schools (19%), while the rest are roads, public housing and water infrastructure.
Notably, major contracts that will be implemented in five to eight years from 2018 are public transport/rail, including the RM55bil East Coat Rail Link (ECRL), the RM50bil to RM60bil KL-Singapore High Speed Rail (HSR), the RM40bil MRT 3 (Circle Line) and the RM9bil Gemas-JB electrified rail double tracking (though not highlighted in the budget).
The RM32bil MRT 2 (SSP Line) and RM9bil LRT 3 (Bandar Utama-Klang), which have largely been awarded, will ramp up construction works next year.
“The good news is that the MRT 3 (Circle Line) project is targeted to be completed in 2025, two years earlier than the original target of 2027.
“Our cost estimate based on an assumed 40km alignment and MRT 2-benchmarked RM1bil cost per km puts an RM40bil estimated price tag for the project, which could be up for Cabinet approval by mid-2018, going by our previous industry checks.
“Funding mechanism for the MRT 3, which will be the final high capacity rail network in Kuala Lumpur, was not detailed,” said CIMB Research. In addition, the launch of the feasibility study for the Labuan-Sabah bridge was not entirely a surprise as the project was first mentioned in the press in 2009, with a total length of 17km and an estimated cost of at least RM1bil. A positive surprise was the total RM3.1bil allocation water infrastructure, comprising non-revenue water (NRW, RM1.3bil) related contracts, off-river storage (water source, RM1.3bil) and RM420mil rural water supply for Sabah and Sarawak.
Compared to CIMB Research’s compilation for the Budget 2017, the combined allocation for public housing projects surged more than eight-fold to RM3.5bil under Budget 2018 while the budget for water/electricity infrastructure surged 60% to RM3.1bil.
Allocation for the construction of non-tolled roads (excluding road maintenance and Pan Borneo Highway) surged 81% to RM2.4bil. Separately, the RM2bil allocation for Pan Borneo Highway is likely to focus on the 11 awarded packages in Sarawak and the five awarded in Sabah.
“Overall, the Budget 2018 puts a priority on outstanding major rail contracts, mainly the RM55bil ECRL. The progress of other major rail jobs should catalyse sector news flow ahead of the 14th General Elections,” said CIMB Research.
