By Kenanga Research
Target Price: RM2.00
GUAN Chong posted a first nine-month of 2012 net profit of RM94.3mil, which was below our expectations and the consensus estimate, making up only 66.4% and 70.3% of the two numbers respectively.
The third quarter net profit improved 5.7% year-on-year to RM27.4mil due to lower costs.
Meanwhile, the overall nine-month net profit registered a lower growth of 3.9% year-on-year. This was mainly due to the lower average selling price of cocoa despite a 12.5% increase in the sales volume.
However, the impact was cushioned by lower input costs, resulting in a year-on-year improved EBITDA margin of 13.5%, compared with 12% a year earlier.
A 2 sen net dividend per share was declared in the third quarter, bringing the total year-to-date dividend to 6.7 sen (adjusted).
Since our first report on Sept 11, the share price of Guan Chong has fallen by 23.2%. We believe this was partly due to the news that it would not proceed with its secondary listing on the Singapore Exchange Securities Trading Ltd as well as the depressed cocoa prices, which dampened the industry's outlook.
Nevertheless, we believe the sales of cocoa butter will gradually pick up to help fill the new additional total capacity of 200,000 tonnes a year next year.
With the double-digit sales volume growth registered to date and the additional capacity after the recent expansion, we believe the sales volume will rise to mitigate the impact of unfavourable cocoa prices and tap into a growing demand for cocoa-based food and beverage (F&B) products in the emerging markets when its traditional markets slow down.
Although the nine-month results usually make up 55% to 73% of the full-year results in the past years, we still prefer a conservative stance on the company due to the sluggish cocoa prices. Thus, we are cutting our earnings estimates for financial year 2012 estimated (FY12E) by 10.3% to RM127.4mil while generally maintaining our FY13E estimate at RM144.3mil on the back of a better outlook for next year.
The stock is currently trading at 6 times financial year 2011 price-earnings ratio (PER), 6 times FY12E PER and 5.3 times FY13E PER, which are undemanding compared with its five-year average PER of 6.9 times and the small cap F&B consumer stocks' trailling at current 12-month PER of 10.3 times.
In line with our earnings estimates adjustments, we have downgraded our target price on Guan Chong to RM2 from RM2.40 previously based on a conservative Fwd PER of 6.9 times (8 times PER previously) over FY13E earnings per share.
By OSK Investment
Target Price: RM4.90
WE see the progress in the construction of the first KV MRT line as a boon for Gamuda, which is set to see its earnings soar to a record high over the next two years. The group is likely add potential jobs such as the remaining two MRT lines, the Gemas-Johor Baru double track, as well as the Langat 2 water treatment plant to its existing RM4.5bil-strong orderbook, which would in turn spur interest in the stock.
Works on the underground portion of the Sungai Buloh-Kajang (SBK) MRT line is largely on track while preparatory works have started at all seven underground stations. Gamuda has procured 10 tunnel boring machines, of which the first two units will be delivered by end-March.
On the MRT's elevated portions, management has guided that works at all the viaduct packages are largely progressing on schedule. To date, 54 packages worth more than RM20bil have been awarded, while the remaining 32 packages totalling RM2bil to RM2.5bil will be handed out by the end of the first quarter of the calendar year 2013.
Gamuda registered RM330mil worth of property sales in the first quarter of the financial year ending July 31, 2013 (FY13), falling short of its previous full-year guidance of RM1.7bil but in line with our FY13's forecast of RM1.35bil, with unbilled sales at RM1.2bil.
Gamuda's local property sales have remained resilient, driven by continued interest in Bandar Botanic in Klang and Horizon Hills in Iskandar Malaysia. The year's new launches include Madge Mansions near Jalan Ampang and The Robertson along Jalan Pudu.
Gamuda's outstanding construction orderbook stands at RM4.5bil. With works on the SBK line largely on schedule and its double-tracking contract approaching the tail-end, attention will shift to securing new jobs in the near term. Management believes that at least one of the two remaining KV MRT lines may be awarded by end-2013.
The feasibility studies conducted by independent consultants have been completed while discussions are now underway between MRT Corp, the Land Public Transport Commission and the relevant authorities.
With the general election now likely to be held in first half of next year, we expect more news relating to the RM8bil Gemas-Johor Bahru double-tracking project, for which Gamuda will be partnering China Railway Construction in a joint bid, as well as the potential award of the Langat 2 water treatment plant in the second half of next year.
We continue to like Gamuda's strong execution, and with works on the SBK line largely intact, the company looks set to post its most profitable year yet. Moreover, we see it as the biggest beneficiary when the remaining two MRT lines are to be implemented come the second half of 2013. We maintain our “buy” call, with a sum-of-parts based fair value of RM4.90.
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