GENTING MALAYSIA BHD
By AllianceDBS Research
Rating: Hold (maintained)
Target Price: RM5.50
AllianceDBS Research has kept its hold rating on Genting Malaysia Bhd (GENM) with a target price of RM5.50.
The research house said although it was optimistic of the group’s growth prospects, which were supported by the progressive launch of the Genting Integrated Tourism Plan (GITP), it believed the stock offered limited upside at this point in view of its strong share price performance.
The house said GENM launched the Genting Highlands Premium Outlets in mid-June, which marked another key milestone for its GITP to progress.
Although additional gaming tables remain a key driver for its growth prospects, AllianceDBS emphasised that an increase in visitations will be key re-rating factor to sustain its earnings growth.
AllianceDBS said its target price was lower than consensus as it was relatively conservative on valuation metrics.
“We expect the number of visitors to improve from 19 million in 2015 to 24 million by 2018, on track to meet its target of 30m by 2020.
“The increased visitations, coupled with the potential availability of 300 new gaming tables, are expected to drive its earnings,” AllianceDBS said in its published note yesterday.
The research arm said it saw potential see potential downside risks on GENM’s investment on the First Light Resort and Casino project.
To recap, back in April 2016, GENM invested US$249.5mil interest-bearing promissory notes issued by the Mashpee Wampanoag (WM) Tribal Gaming Authority for the initial development phase of the First Light Resort & Casino in Taunton, Massachusetts, United States.
But this project hit a stumbling block due to an ongoing lawsuit against the tribe questioning the legality of the Native American status.
For now, we understand that there is no provisioning need for GENM’s US$249.5mil investment in interest-bearing promissory notes issued by the (WM) Tribal Gaming Authority.
“The group may need to write down this investment should the final verdict turn out to be unfavourable to the tribe and the casino development fails to proceed,” AllianceDBS said, adding that key risks included continued soft consumer sentiment.
BURSA MALAYSA SECURITIES BHD
By UOB KAY HIAN Research
Rating: Hold (maintained)
Target Price: RM10
Bursa Malaysia Securities Bhd’s average daily trading value (ADV) of RM2.46bil year-to-date is currently tracking a growth of 30% year-on-year (y-o-y) versus UOB Kay Hian Research’s full-year estimate of 16.5% y-o-y.
However, UOB Kay Hian said that June 2017 ADV had softened to RM2.24bil while July 2017 ADV had declined further to RM1.77bil so far versus the house’s full year estimate of RM2.29bil.
“This is in line with the decline in net foreign inflow from a monthly peak of RM4.35bil in March 2017 to June 2017 net inflow of RM0.34bil,” the research house said.
Should the general election (GE14) be held in the first half of 2018, the house expects second half of ADV to moderate further from the first half of 2017’s RM2.49bil, bringing 2017 ADV closer to our RM2.29bil forecast.
“Our ADV forecast for second half of this year stands at RM2.1bil (3Q17F: RM2bil, 4Q17F: RM2.2bil).
“With higher expectations that GE14 could be held later rather than sooner, we raise our 2018 ADV assumption from RM2.36bil to RM2.51bil, implying a 9.6% growth versus our initial 3% growth assumption,” UOB Kay Hian noted.
The declining crude palm oil prices and a slight softening in the equity market’s sentiment led to a 12.6% y-o-y decline in overall futures contract volumes traded in second quarter of 2017.
The group’s dividend payment per share was 34 sen for 2016 (94% payout ratio).
“Management reiterated its stance to maintain dividend payout at above 90% but is unlikely to distribute any special dividend in the near future.
“Even if the group does declare a special dividend, we estimate the group may have the capacity to distribute up to 20 sen-25 sen, which will help lift full-year dividend yield from the current 4% to 6%,” UOB Kay Hian said.
This is lower than the average implied yield of 8% when the group last paid special dividends in 2013 and 2014.
UOB Kay Hian kept its hold rating and target price of RM10 with current valuation at 27 times price to earnings.
BOILERMECH HOLDINGS BHD
By AmInvestment Bank Research
Rating: Hold (Initiate coverage)
Fair value: RM1.02
AmInvestment Bank Research (AmInvest) believes Boilermech is trading at a premium to its peers on the back of its strong market share in the boiler industry, proven track record and roster of blue chip clients.
“In spite of these positive attributes, we have a hold recommendation on the group as valuations are stretched and earnings growth is still in the early stage of recovery,” it said.
The research house said the capital expenditure cycle of the plantation industry was just starting to pick up after being affected by the downturn in crude palm oil prices in 2014 and 2015.
Boilermech manufactures boilers mainly for palm oil mills.
AmInvest said unlike some of its competitors, Boilermech offers a range of boilers with different grates and prices.
“Backed by a proprietary combustion technology, the boilers are efficient and reliable.
“Boilermech’s market shares are estimated at 40% to 50% in Malaysia and 30% in Indonesia. The group is the second largest boiler manufacturer in Indonesia presently.”
It said the group is on its way towards becoming an integrated player in the palm oil mill chain.
“With its water treatment and biogas operations, Boilermech is poised to take advantage of the Malaysian Palm Oil Board’s (MPOB) potential requirement that all palm oil mills must have biogas facilities in the future.
“Currently, most of Boilermech’s earnings are from the manufacturing and installation of boilers.”
AmInvest pointed out that Boilermech is also well positioned to capture a slice of the biogas market in Sarawak.
According to the MPOB, there are 76 palm oil mills in Sarawak currently.
PETRONAS DAGANGAN BHD
By MIDF Research
Rating: Buy (maintained)
Target price: RM28
Petronas Dagangan (PetDag) entered into two share purchase agreements with Phoenix Petroleum Philippines Inc to divest 100% equity interest in Petronas Energy Philippines Inc (PEPI) and 40% equity interest in Duta Inc for a total cash consideration of US$125mil (RM533mil).
MIDF Research said the purchase consideration for PEPI was RM515.7mil and RM16.8mil for Duta Inc.
PEPI is primarily engaged in the buying, selling, storing, distributing, and marketing at wholesale of all kinds of goods, including liquefied petroleum gas and other petroleum products.
“We are positive on the divestments as management prevoiusly guided that more focus will be placed back on Malaysian operations.
“Previously, PetDag has divested several industrial business interests in Vietnam,” said the research house.
It said there will be a gain on disposal of approximately RM370mil, as the original cost of investments for both PEPI and Duta Inc is approximately RM178mil.
“We are maintaining our earnings estimates as PEPI and Duta Inc have insignificant earnings impact on PetDag’s income position.
“For 2016, PEPI recorded net profit of RM13.1mil and Duta Inc reported net loss of RM800,000,” said MIDF Research.
The research house said it is maintaining its buy recommendation on PetDag with an unchanged target price of RM28.00 per share.
“The target price-to-earnings ratio is based on PetDag’s average four-quarter rolling price-to-earnings ratio over the past five years.
“The cash injection from the disposal of the aforementioned assets will contributed approximately 54 sen to PetDag’s share price,” the research house said.