By Hong Leong IB Research
Fair Value : RM4.23
HONG LEONG IB Research has maintained its “buy” recommendation on UEM Edgenta Bhd with a fair value of RM4.23 per share.
Hong Leong’s fair value is at a substantial premium to Edgenta’s current stock price, which closed at RM3.29 on Dec 28.
On Monday, the company announced that its wholly owned subsidiary, Edgenta Propel Bhd, had won a RM109.1mil contract from the Works Ministry to maintain state roads in Selangor for a period of five years.
Edgenta Propel currently maintains 1,000 km of roads including the North-South Expressway, North Klang Valley Expressway (NKVE) and Federal Highway Route 2, among others.
The research firm noted that the contribution from this contract was relatively modest. Assuming an incremental contribution of RM21.8mil annually over the five-year period, the figure made up only 3% of Edgenta Propel’s revenue in financial year 2014 (FY14), it said.
“We continue to like Edgenta as it is backed by a stable earnings base coming from Edgenta Propel and hospital integrated facilities management works. Its net cash status puts it in a good position to embark on earnings accretive acquisitions,” it said.
The firm’s target price of RM4.23 implies an earnings multiple of 19.2 times for FY2015 and 15.5 times for FY2016, it noted.
SAPURAKENCANA PETROLEUM BHD
By Maybank IB Research
Fair Value : RM2
MAYBANK IB Research has maintained its “buy” recommendation on SapuraKencana Petroleum Bhd with a fair value of RM2 per share.
The fair value is similar to the stock’s current price. It rebounded strongly from RM1.70 last week to RM1.99 on Monday following an encouraging set of earnings in its third quarter for the financial year ended Jan 31, 2016.
For the quarter, the group reported a net profit of RM129.86mil, down from RM348.4mil a year ago. On the other hand, revenue increased to RM2.89bil from RM2.41bil over the same quarter last year.
Despite the 50% quarter-on-quarter reduction in core earnings for the third quarter, the firm was actually expecting a steeper fall due to the challenging operating environment in the oil and gas sector.
Maybank IB noted that SapuraKencana’s results came ahead of expectations on better performances by its Brazilian joint venture and its engineering and construction (E&C) segment.
SapuraKencana benefited from a higher pre-tax profit, from E&C operations, a lower pre-tax loss at its energy division, and higher profit contribution from associates, it added.
“Values have emerged following a 19% month-on-month fall in its share price, factoring in most of the negatives. We also foresee SapuraKencana successfully prospecting for new gas finds, which is a re-rating catalyst,” the firm said.
By Maybank Investment Bank Research
Target price: RM 2.70
GAS Malaysia announced a 17.1% hike, or RM3.73 per million metric British thermal units (mmBtu) to RM25.53 per mmBtu in its average selling price of gas, effective Jan 1, 2016.
The company did not divulge the changes to its cost of gas but given the quantum of the hike, Maybank Investment Bank Research (Maybank IB) believes Gas Malaysia’s cost of subsidised gas has likely been raised by RM1.50 per mmBtu as scheduled.
The research house estimates this latest round of price hike will be sufficient to at least preserve Gas Malaysia’ spreads at around RM1.58 per mmBtu.
Gas Malaysia is down 27% year-to-date as earnings were hard hit by its inability to fully pass-on its higher cost of gas.
Going forward, the incentive-based regulation (a framework for the natural gas sector, which is being introduced by the Government from Jan 1, 2016) potentially promises earnings stability, which could lead to an expansion of Gas Malaysia’s valuation multiple.
This is nevertheless dependent on the pass-through mechanism being fully functional (Gas Malaysia’s cost and thus selling prices can only trend up in the coming years).
Maybank IB values Gas Malaysia on a discounted cashflow method, assuming 7% weighted average cost of capital and 2% long-term growth.
The research house’s target price implies a price-to-earnings ratio of 27.5 times and net yield of 3.6% in 2016.
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