OldTown, Malaysian Resources,Astro Malaysia 'hold"

OldTown Bhd

By Maybank IB Research

Rating: Hold

Target price: RM1.95

FOLLOWING OldTown Bhd’s share price gain, Maybank IB Research believes that the company’s stock is fairly valued with its near-term earnings potential largely in the price.

The research house expects 4% to 6% earnings growth for financial year 2017 and 2018 (FY17/18).

“We expect near-term earnings to be underpinned by gradual recovery of its food and beverages (F&B) operations and fast-moving consumer goods (FMCG) to sustain its positive momentum on an improved distribution network,” Maybank IB Research added.

Hence, the research house is keeping its earnings forecasts, but is increasing the company’s target price to RM1.95, after its valuation base is rolled forward to calendar year 2017 from FY17, with an unchanged price to earnings ratio of 14.8 times.

It believes that the company will keep its current pricing strategy for FMCG and F&B to increase its market share and benefit from favourable raw material prices.

Furthermore, Maybank IB Research feels the impact of minimum wage hike would be minimal to the company, as it only has about 100 staff members that are paid below the new minimum wage.

Effective July 1, 2016, the monthly minimum wage increased from RM900 to RM1,000 for Peninsular Malaysia and from RM800 to RM920 for Sabah, Sarawak and Labuan.

On the other hand, Maybank IB Research understands that OldTown is looking into mergers and acquisitions as the company has a strong balance sheet and net cash position of RM154mil at end-March 2016.

“While M&A is on the drawing board, we believe risks could be limited by the size of the acquisition. We maintain our assumption of 55% DPR for now but we do not rule out better than-expected payouts, as it sits on a growing cash pile,” it said.

Malaysian Resources Corp Bhd

By HongLeong Investment Bank

Rating: Hold

Target price: RM1.22

HONG Leong Investment Bank (HLIB) Research is maintaining Malaysian Resources Corp Bhd (MRCB) with a target price of RM1.22 based on a rather stretched financial year 2016 (FY16) to FY17 price-to-earnings of 35 times and 26 times.

The research house said MRCB remained cautious on the earnings delivery although it has been successful in participating in recent catalytic projects.

Last Friday, MRCB secured a contract worth RM188.7mil from the Department of Irrigation and Drainage to rebuild Pahang river estuary.

The contract involves extending an additional 345m length to the breakwater constructed under phase two and river protection works to be completed by July 2018.

With this contract in the bag, MRCB’s job wins year-to-date a total of RM893mil.

“We estimate its orderbook to currently stand at RM2.4bil, implying a healthy cover ratio of 3.1 times on FY15 construction revenue,” said HLIB research.

Last week, the research house said it has finalised the sale and purchase agreement with MRCB Quill REIT involving the disposal of Menara Shell to the latter for RM640mil.

“The purchase consideration will be satisfied via new MRCB-Quill shares issued to MRCB with an aggregate value of between RM110mil and RM152mil and the balance of RM488mil to RM530mil cash,” HLIB research added.

MRCB-Quill REIT is a 31.2% associate of MRCB.

The research house views the proposed asset disposal positively, as it has undergone a timeline extension twice since December 2015, adding that the company is expected to register a gain on disposal of RM139mil.

“Consistency in core earnings delivery remains lacking from quarter to quarter. As year-to-date job wins of RM893mil have surpassed our full year target of RM800mil, there is potential upside to our earnings estimate.

“However, judging from the razor thin construction margins recorded in first quarter of financial year 2016, we are in no hurry to revise our earnings estimate upwards,” it said.

Astro Malaysia Holdings Bhd

By UOB Kay Hian Malaysia Research

Rating: Hold

Target price: RM2.85

FOLLOWING Astro Malaysia Holdings Bhd’s move to revise its price for sports packages, UOB Kay Hian Malaysia Research is keeping a “hold” with a discounted cash flow target price of RM2.85 and price to earnings ratio of 23.9 times for financial year 2017 forecast (FY17F).

Astro will raise the price of its sports packages by RM8.48 which includes 6% Goods and Services Tax (GST) from August 1, 2016.

In return, Sport Pack subscribers will be compensated to 60 days’ preview of OD Plus, Astro Cricket and Setanta Sports channels from July 16, 2016 to September 16, 2016.

“Management had guided that it will review prices for its sports packages in the near future in an effort to meet its FY17 target average revenue per user (ARPU) of RM101 per month during the first quarter of FY17 (1QFY17) results briefing,” UOB Kay Hian said.

The research house believes that weak consumer sentiment in the country could lead to higher churn rate and limit Astro’s ARPU as the company’s last price increment led to a higher churn rate of 10.3% during 1QFY16.

UOB Kay Hian expects no change in earnings estimates as it has factored in a lower ARPU of RM100.30 per month for FY17 compared with management’s guidance of RM101 per month and a flat net pay-TV subscriber adds.

“Our conservative projection of a 1.3% year-on-year net profit growth in FY17 is largely premised on higher content cost and minimal net adds growth,” it noted.