Adventa 'buy', Pestech 'buy', Lafarge 'market perform'


Adventa Bhd

By HLIB Research

Buy (Maintain)

Target price: RM1.21

ADVENTA posted a revenue of RM34.8mil for the 2014 financial year (FY14) translating into core earnings of RM4.3mil, in line with HLIB Research’s expectations.

Turnover for the fourth quarter of FY14 improved by 106% year-on-year and 16% quarter-on-quarter. However, its earnings registered double-digit declines of 10.2% year-on-year and 14.3% quarter-on-quarter due to higher expenditure arising from the home dialysis business in which trials are still ongoing, but should be completed by the first quarter next year.

For the healthcare products sector, revenue increased more than 100% year-on-year to RM7.9mil. The improvement was achieved due to higher supplies contracts and introduction of new products.

For the sterilisation provider segment, sales increased by 26% year-on-year to RM3.9mil versus RM3mil in the third quarter of FY13, due to increased efficiency and capacity. HLIB Research said the performance from both segments drove a 27% year-on-year increase in revenue.

One of the risks Adventa faces is that the successful roll-out of the new and projected high-growth home renal dialysis business slated for the first quarter of FY15 is dependent on a smooth transition of patients from hospitals and private treatment centres to home treatment. Trials are ongoing with further investments on patient care education and training as well as extending its reach into rural regions.

HLIB cut its performance forecasts by 2% to 8% to reflect higher expenses and a less favourable market outlook.

Pestech International Bhd

By RHB Research

Buy (from Neutral)

Target price: RM4.16

FOLLOWING the recent share price retracement, RHB Research said Pestech’s valuation has become attractive.

Industry prospects remain intact, as Tenaga Nasional Bhd (TNB) is planning to spend RM23.3bil in capital expenditure in 2014 to 2017. Internally, Pestech is focusing on two new business segments to propel future growth and has a total orderbook of about RM546mil as at the end of September 2014.

The transmission and distribution segment has contributed over 80% of its total sales in the past few years since it was listed in 2010. Pestech has recently reshuffled its focus to look into two relatively new business segments, embedded system software and product development, and power generation and rail.

RHB Research believes the transmission and distribution segment will continue to be its bread and butter for the coming years.

RHB Research said Pestech would benefit from a higher capex from TNB. TNB has committed a capex of RM23.3bil to ensure stable electricity supply. Sixty-three per cent of the amount has been allocated for distribution while the remaining 37% is for transmission.

It added that Pestech’s earnings sustainability looked secure due to their RM546mil orderbook, including three major projects that would keep it busy for the next two years. The company has tendered for local and overseas jobs with a combined value of RM1.4bil to-date.

RHB Research raised its recommendation to buy from “neutral”, with an unchanged target price of RM4.16, pegged to an unchanged forecast FY15 target price-earnings ratio of 15 times.

LAFARGE MALAYSIA BHD

By Kenanga Research

Market Perform (Maintain)

Target price: RM10

LAFARGE Malaysia has been awareded a Petronas contract to supply concrete for the proposed refinery and petrochemicals integrated development (RAPID) project and other Petronas-related projects in Pengerang, Johor under Package 21D at an estimated value of 254mil for five years. Kenanga Research is positive on the Rapid contract win, which should improve earnings visibility and smoothen margins in Lafarge concrete segment for the next five years.

However, it added that the additional earnings contribution averaging RM50.8mil per year to Lafarge Malaysia was relatively small as it made up about 1% of estimated revenue for the 2015 financial year (FY15) onwards.

A mill acquisition from Lafarge Ciment (Romania) is within Kenanga Research’s expectations as it believes this is part of the ongoing mill expansion programme at Lafarge Malaysia’s Kanthan and Rawang cement plants. Once completed, Lafarge Malaysia should see increased capacity by 1.2 million tonnes to 14.2 million tonnes per year by mid-2016.

The research house believes the news is positive to Lafarge Malaysia’s long-term growth, but thinks the impact to share price should be limited due to the relatively small effect on earnings and because the earnings growth for the mill acquisition has already been priced in.

Despite expectations of robust domestic construction growth, the sector-wide capacity expansion is likely to intensify competition and result in depressed cement prices in the near term.

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