Shares: Puncak add, CREST Builder outperform, GD Express buy, Bumi Armada buy

Puncak Niaga Holdings Bhd

By CIMB Research

Add (maintained)

Target Price: RM4.28

THE company has formalised a sale and purchase agreement (SPA) for the divestment of its two water concessions for the cash offer of RM1.6bil by the Selangor government.

“The group has set aside RM534mil from the total proceeds to be distributed to shareholders as special dividends,” CIMB Research said.

It pointed out that the deal was expected to be completed in two months from the SPA.

“The valuation principles, including the terms and conditions of the state government’s offer, are consistent with the earlier offer,” it said.

However, CIMB Research said the board’s approval of RM1 per share special dividend that would be distributed to shareholders next year was a positive surprise.

It said it had expected 20 sen-30 sen per share. The attractive dividend deal, the research house said, translated to a 29% dividend yield, which would be realised in financial year 2015 as the deal should be wrapped up by the first quarter of 2015.

On the other hand, it said the share price fell by 8% from its 52-week high of RM3.71 in late-June as investors were concerned over the political change in Selangor and the delay in the water takeover deal.

However, the research house believed that the deal was positive for Puncak Niaga as “it would allow the group to pursue the expansion of its oil and gas business via merger and acquisitions, domestically and overseas, and beyond the existing transport and installation (T&I) contract from Petronas.”

Moreover, it added that surplus cash had also been put aside for working capital needs of its water infra construction segment.

“Puncak Niaga’s profit from the divestment will feature mainly its domestic oil and gas venture and the construction segment. This excludes the proforma RM415m gain from the disposal of the water assets,” it said.

CIMB Research said it was maintaining its earnings per share forecasts pending the completion of the deal.

Crest Builder Holdings Bhd

By Kenanga Research

Outperform (maintained)

Target Price: RM1.58

CREST Builder Holdings Bhd has proposed to carry out a placement of up to 10% of its issued and paid-up share capital.

Based on the illustrative issue price of RM1.42, the propose placement of 10% would raise up to RM29.8mil, Kenanga Research said.

It said the rationale for the cash call was for the preliminary fund costing of its Dang Wangi development project whereby construction works were currently in progress.

It said it was surprised with the cash-call but was “neutral to positive” with the move undertaken by the management, as it allowed the group to raise funds without incurring interest cost compared to bank borrowings.

It added this would help lower its net gearing of 1.3 times to 0.93 times for its second quarter 2014 based on a maximum scenario assumption whereby all of its 38.3 million outstanding warrants and 7.5 million employees share option scheme were fully converted.

Kenanga Research said the outlook for the group remained positive as the management was focusing on its bread and butter business, securing more quality construction orderbook replenishments with pre-tax margin ranging from 8% to 100%.

For its property segment, the research house said the construction works on its first Transit-Oriented Development (TOD) project at Dang Wangi LRT station was proceeding well and was expected to launch early next year.

“There would be no changes for its financial year 2014-2015 estimates,” it added.

Kenanga Research said it maintained an “outperform” call on Crest Builder Holdings with a target price of RM1.58 due to the enlarged share base from the proposed placement as Dang Wangi project of gross development value of RM1bil was a major earnings driver.

However, it added the risk factors included it being unable to launch its TOD projects, slower-than expected progressive billings and lower-than-expected construction orderbook replenishment.

GD Express Courier

By RHB Research Institute

Buy (maintained)

Target Price: RM2.42

THE company is expanding aggressively due to increased volume and is embarking into the logistics solutions segment, says RHB Research Institute.

The research house said the financial year 2015 (FY15) was an investment year for GD Express Courier (GDEX) and expected stronger growth for the company in FY16 and FY17.

Together with the steady improvements in its operating margins, it said the company had recorded a five-year revenue and net profit compounded annual growth rates of 18% and 39% respectively.

The research house believed there was huge growth potential for GDEX, as it not only focused on Malaysia, but also the Asean region with 600 million population. It also believed that the company had more room to grow as it followed the principles of e-commerce, which had changed the way business was done.

“Street thinks improvements in regional internet infrastructure will facilitate transaction volumes and allow the company to grow its business,” it said.

However, RHB Research said GDEX’s profitability may be affected because the industry was competitive, pricing power had been moderate and economic shutdown may result in lower business volumes.

“The stock may be trading at very high price-to-earning valuations, but we believe that its high potential growth could justify the valuations,”RHB added.

Bumi Armada

By Affin Hwang Capital Research

Buy (upgraded)

Target Price: RM1.75

BUMI Armada’s fundamentals, according to Affin Hwang Capital Research, seem largely intact as 80% of its 2015 estimate (2015E) earnings should be backed up by its long-term floating, production, storage and off-loading (FPSO) and transportation and installation (T&I) market.

“FPSO should be supported by RM18.5bil in contracts while T&I should be anchored by recurring work orders from Petronas and LukOi (Russia’s second largest oil company),” it said.

However, it added the company was hit by falling oil prices this year and its untimely listing of its right shares, which dragged its share price down by 43% year-to-date.

Due to FPSO segment being earnings-accretive, making up 85% of its orderbook and contributing 60% of its 2015E earnings, Affin Hwang Capital Research said it expected RM18.5bil in contracts to provide stable earnings up to 2018.

“The group has delivered five FPSO vessels to-date, and its sixth FPSO, Armada Sterling II, recently set sail on schedule from Keppel’s Singapore yard for India. Its seventh and eighth FPSOs, Kraken and 15/06, are now under conversion in Singapore, on schedule to be installed by late 2016,” it said.

The research house believed that execution was a critical factor in the FPSO business and that Bumi Armada had a strong track record.

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