MALAYSIAN RESOURCES CORP BHD
By AmInvestment Bank Research
Fair value: RM1.89
MALAYSIAN Resources Corp Bhd’s (MRCB) capability in successfully undertaking the renovation and refurbishment of Kuala Lumpur Sports City, formerly known as the National Sports Complex, could stand as a testament in bidding for similar projects.
According to AmInvestment Bank Research, it is encouraged by MRCB’s refurbishment work on KL Sports City, which is near to completion ahead of schedule. Note that the current progress of the refurbishment works stands at 98% and the facilities are expected to be handed over to the government by the end of this month.
Recently, the research house was in a site visit to KL Sports City, arranged by the MRCB management. The visit also covered the National Stadium, the Axiata Indoor Stadium, the Aquatic Centre and the surrounding area.
The sports facilities have undergone refurbishment for the upcoming 29th SEA Games and the 9th Asean Para Games in August and September respectively.
“We believe MRCB has done a decent job in completing the refurbishment work and improving the facilities to international standards. We understand there were 22 consultants involved with the project, many of them international specialist firms.
“This was to ensure that the facilities comply with the international standards for the respective sport that is going to be held at the venue.
“We believe MRCB has proven its capability to undertake the renovation and refurbishment of the National Sports Complex successfully up to the required standards and we do not discount the possibility of the company bidding for similar projects in the future,” said the research house in a note.
As a compensation for the refurbishment works, MRCB will receive a 76.14 acres, located north of the KL Sports City. To recap, MRCB and the Employees Provident Fund will be jointly developing the land as an integrated development comprising commercial and residential properties, with a total gross development value of RM21bil.
AmInvestment Bank Research has retained its earnings forecasts and “buy” recommendation on MRCB, with a unchanged fair value of RM1.89.
TIONG NAM LOGISTICS HOLDINGS BHD
By Affin Hwang Capital Research
Target price: RM1.90
POST-MEETING with the management of Tiong Nam Logistics Holdings Bhd last week, Affin Hwang Capital Research projects stronger earnings for the logistics and warehousing provider in 2018.
The research house said Tiong Nam is expected to perform better next year on the back of its warehouse-capacity expansion and higher margins from its property division. Affin Hwang Capital Research opines that Tiong Nam’s move to expand regionally is timely and allows the company to stay competitive.
Tiong Nam’s warehouse capacity is projected to increase by 10.4% to 5.26 million sq ft by year-end. The capacity is expected to further increase by 35.1% to 7.11 million sq ft by end-2020.
To note, the firm’s warehouse capacity expansion includes new facilities in Yangon, Myanmar and Savannakhet, Laos. It is also setting up sales offices in emerging markets including in China, Vietnam, Laos, Myanmar and Thailand.
Tiong Nam’s property division’s margins are expected to trend higher as the bulk of unbilled sales should come from its Pinetree project, which has higher selling prices and stronger margins. Note that the group currently has total unbilled sales of RM132mil through Tiong Nam Business Park and Batu Pahat 8, Tiong Nam Business Park SiLC 7, Pinetree Residence.
As for the company’s logistics business, Affin Hwang Capital Research noted that changing trade patterns have led Tiong Nam to come under pressure.
“We expect 10% top-line growth on a year-on-year basis for the logistics division, underpinned by capacity expansion and revenue streams from new segments. Both cross-border services and parcel-delivery services commenced operations in May 2017.
“As Tiong Nam is the new kid on the block in last-mile delivery service, the company is only expecting revenue contributions of RM1mil from its e-commerce delivery service, Instant. We think the group’s effort to get a slice of the e-commerce market is commendable although it is still a small segment,” said the research unit in a note.
The research house reiterated its “buy” call on the logistics and warehousing provider, and left the target price unaltered at RM1.90.
KESM INDUSTRIES BHD
By Kenanga Research
Target price: RM17.60
KENANGA Research is sanguine on the prospects of KESM Industries Bhd, primarily driven by the marked acceleration of the company’s capital expenditure (capex) and faster-than-expected ramp-up of new testing equipments.
The research unit indicated that its prior estimates on KESM are overly conservative, following the latest positive developments of the company.
KESM which is the world’s largest independent burn-in and test service provider, is poised to achieve a record year on capital investment spend for the financial year of 2017 (FY17), after delayed roll-outs from its clients led to a slowdown in expansion plans last year.
“The quarterly statements for the first nine months of 2017 (9M17) reflected RM81.2mil in capex which is already more than double the entire FY16 capex of RM30mil and exceeds our full-year expectation of RM75mil.
“We understand from the management that the current pace in capex is likely to continue into the immediate quarters ahead, with focus on the addition of testing equipment for automotive semiconductors and the balance for upgrading and maintenance of existing machineries,” said Kenanga Research.
Recall, KESM posted a strong set of 9M17 results with revenue growing 17.5% year-on-year (y-o-y) to RM248.2mil and net profit jumping by 35.1% y-o-y to RM30.6mil. The strong top-line results were on the back of capital investments in prior quarters which allowed the company to capitalise on the higher demand for burn-in and testing services.
Kenanga Research has amended its net profit projections for KESM, underpinned by the increase in its capex assumption and the higher utilisation rate of existing machineries.
“We have upgraded our net profit growth projections for FY17 and FY18 to 33% and 16.4% respectively. This is in contrast to the earlier forecasts of 26.5% and 14.1% in FY17 and FY18.
“We continue to like KESM and believe the company is uniquely positioned to benefit from two salient trends namely rising car production by global automakers and the increased chip content within vehicles,” said the research house.
Kenanga Research maintained its “outperform” call on the independent burn-in and test service provider, but raised the target price to RM17.60 from RM15.20 previously.
AEON CREDIT SERVICE (M) BHD
By MIDF Research
Target price: RM21.40
AEON Credit Service (M) Bhd’s net profit of RM75.8mil in the first quarter of financial year 2018 were within expectations as bad debt recovery and commission earned from sale of insurance products partly boosted the company’s earnings, said MIDF Research.
Aeon Credit posted a strong bottom line in the first quarter as its net profit rose by 21% on a year-on-year (y-o-y) basis, on the back of stronger interest income and a fee income of RM35.7mil attributed to higher rate of bad debt recovery.
MIDF Research noted that the non-bank lender’s financing receivables expanded significantly, by 17.4% y-o-y to RM6.7bil. Meanwhile, interest income experienced strong growth driven by the expansion of the company’s loan book, which saw double-digit growth for the first quarter of financial year 2018.
“The positive earnings was also reflected by the improvement in operating expenses which registered at 58.2% against revenue, compared with 60.5% in the corresponding quarter of financial year of 2017.
“We are maintaining our earnings forecast as the results came in within estimates,” said the research unit.
Moving forward, MIDF Research is optimistic on the credit provider’s prospects in tandem with Malaysia’s overall economic growth this year.
“We are positive by the strong growth in Aeon Credit’s earnings. We believe that the positive growth trajectory will continue in the financial year, given the optimistic prospects in Malaysia’s gross domestic product performance this year,” said the research house.
MIDF Research maintained its “buy” recommendation on the Main Market-listed Aeon Credit’s shares and left the target price unchanged at RM21.40.