OCEANCASH PACIFIC BHD
By CIMB Research
Target price: 88 sen
THE company’s first quarter 2017 net profit was 17% of CIMB Research’s and Bloomberg’s consensus of financial year 2017 estimates.
CIMB Research expects stronger quarter-on-quarter (q-o-q) earnings ahead.
While revenue grew 18% year-on-year (y-o-y), Oceancash’s net profit rose to RM2mil, up 72.6% y-o-y.
The stronger performance was due to higher sales volume in both the hygiene and felt segments besides higher operating efficiencies.
Oceancash’s earnings before interest, taxes, depreciation and amortisation margins improved 7.7% y-o-y to 18%.
In 1Q17, the felt division staged an improved y-o-y performance as revenue rose 24% and pre-tax profit (PBT) rose over 100% y-o-y.
This was due to an uptick in sales volume and higher economies-of-scale. In the hygiene (non-woven) segment, revenue grew 14.4% y-o-y while PBT declined to RM1.1mil (-20% y-o-y).
This was mainly due to a less profitable product mix and higher start-up costs from an anticipated ramp-up in production.
However, the research house expected sequentially stronger quarters ahead due to higher demand.
It believed that the inclusion of Geely as Proton’s foreign strategic partner, after it acquired a 49.9% stake, is positive for Oceancash.
As the Geely-Proton partnership could lead to a substantial ramp-up in car production, this may result in higher demand for automotive felts and could be a potential catalyst for Oceancash given that the group supplies automotive felts to auto part manufacturers, which in turn supply assembled auto parts for Proton cars.
PIE INDUSTRIAL BHD
By Kenanga Research
Target price: RM2.87
A decent first quarter core net profit of RM9mil was reported, making up 14% of Kenanga’s full-year estimate.
The research house deemed the results to be within expectations as the first quarter typically only made up 5% to 17% of the past two years’ core net profit.
Year-on-year, revenue improved by 35% driven by its lion’s share in the manufacturing segment at 37%.
While the strong quantum of growth can be partly attributed to the low base in 1Q16, one should take note that this 1Q17 revenue was a record-high first quarter that the group has ever achieved thanks to the continuing orders from its existing customers.
While FY16 appears to be a muted one for the group given a series of unfortunate events, the group managed a swift turnaround to a record-high 4Q16 core net profit which made up for the shortfall in the first nine months of 2016.
Fast forward to 1Q17, while the core net profit was within our expectations, the record revenue was a positive surprise to Kenanga, which showcased its strength as an integrated EMS player that continued to push its limits of capability.
For the new projects, while it is still being negotiated (with one coming close to be secured), the fruition of nurturing growth with existing major customers are already showing positive results with meaningful orders expected to be secured for the next few quarters; largely at the expense of its competitors.
A&M REALTY BHD
By Rakuten Trade Research
Target price: RM2.20
RAKUTEN Trade Research has initiated coverage on A&M Realty Bhd with a “buy” call and a target price of RM2.20, underpinned by the property developer’s positive and exciting transformation ahead.
The research house indicated that A&M’s trump card moving forward is its 1,938-acre Pulau Carey landbank with a gross development value (GDV) of RM6.8bil.
“A&M’s Pulau Carey landbank is expected to be further boosted by potential spillover impacts from developments of an integrated maritime city on Pulau Carey spearheaded by Sime Darby Bhd, MMC Corp Bhd, Adani Ports & Special Economic Zone Ltd with total infrastructure investments of up to RM200bil,” said Rakuten Trade Research in a note.
The research house has likened A&M as the best proxy play on the potential port development at Pulau Carey, riding on Sime’s and MMC’s lead.
Earlier this year, it was reported that the Port Klang Authority has proposed to build a giant port on Pulau Carey. The island, measuring 13,000ha, is about 25 times the size of Singapore’s Sentosa Island.
Currently, A&M’s ongoing 125-acre Amerton Cove Golf and Island Resort on Pulau Carey has been in operation since 2013. The resort and its golf course remain a popular destination with more than 32,000 golfers monthly.
“Amerton Cove’s integrated township green concept tourism theme development would provide superior earnings visibility of up to 2025 for A&M. The property developer’s on-going property projects include Amverton Links in Klang and Amverton Hills in Sungai Buloh which are 70% completed and will be ready for launching in the second half of 2017 with GDV of RM205.1mil,” it said.
A&M has a massive GDV in the pipeline worth more than RM10.7bil, spanning over 1,410 acres of low cost land.
Rakuten Trade Research said that the company’s healthy balance sheet with zero borrowings, makes A&M an attractive value proposition. To note, A&M has a net cash of RM64.1mil.
The Main Market-listed A&M’s other divisions namely the plantation and manufacturing segments continue to be profitable, contributing more than 10% of the property developer’s net profit.
By AmInvestment Bank Research
Fair value: RM3.20
THE upside from OldTown Bhd’s venture into the vast untapped China market is expected to far outweigh the impact from the near-term lofty commodity prices and headwinds on OldTown’s food and beverages (F&B) business, according to AmInvestment Bank Research.
“As per our expectation, the outlook on OldTown’s F&B operations locally remains soft.
“However, we are pleasantly surprised over its foreign store expansion outlook in China and Myanmar. It will be on a licensing basis, resulting in minimal risks to OldTown.
“China coffee consumption is vastly undersaturated and OldTown has the right recipes for success,” said AmInvestment Bank Research in a note.
OldTown is expanding its business in China by appointing a local partner, with the first outlet in Fujian targeted for opening in the third quarter of this year.
The company has entered into a territorial licence agreement with Xiamen Kuaike Investment Management Co Ltd, which will give Xiamen Kuaike the rights to operate OldTown’s business under the “OldTown White Coffee” brand name in Fujian, China.
The research house said that it likes OldTown for its export-driven growth, its position as the top white coffee brand in all its core markets and outstanding operational track record.
In addition, AmInvestment Bank Research noted that OldTown’s fast-moving consumer goods (FMCG) sales in China for the quarter, has significantly increased.
“For the quarter, FMCG sales in China registered a 71% year-on-year increase. It is growing stronger than we expected, spearheaded by its online growth.
As a result, we double our China sales projection to 40% for the financial year of 2018 (FY18). As of FY17, China’s FMCG contribution is now close to 25% of total FMCG sales,” said the research house.
The research unit also said that it is optimistic about the doubling of OldTown’s capital expenditure in FY18.
“The incremental spending is expected to improve its FMCG operational efficiency through further automation. It is expected to be completed in the third quarter of FY18,” said AmInvestment Bank Research.
AmInvestment Bank Research has trimmed its earnings forecast by 7% and 2% respectively for the period of FY18-FY19. It has also reiterated its “buy” recommendation on OldTown’s shares, but lifted the fair value to RM3.20.