In its strategy report issued on Friday, it was positive on Bonia Corp, DRB-Hicom and GHL Systems.
Below are the highlights of its report:
We are positive on Bonia on the back of expectations of: i) earnings recovery from the continued closure of its loss-making licensed brands and own brand boutiques; ii) higher contribution from its Indonesian unit – on the back of the full-year contribution from its newly added Braun Buffel boutiques; and iii) continued focus on brand building in Indonesia and Vietnam.
Our call is premised on the potential turnaround of Proton pending the entry of a foreign strategic partner (expected to conclude by 1H17), as a stipulated condition in the government’s soft loan handout. We expect the divestment to reduce Proton’s losses in the medium-term and DRB’s share of Proton losses in the short term.
The group's services segment has shown positive profit trends, which is a boon to the group as it consolidates its business segments and gradually reduce dependency on the automotive segment. The recent consolidation of its logistics business (within the services segment) under Pos Malaysia (now 53.5% owned by DRB) will allow the group to leverage and capitalise on the growing demand of e-commerce.
We like GHL for its dominant position as an independent payment services provider with over 138k points of sale terminals across Asean. We expect GHL to become the largest independent merchant acquirer in Asean under its transaction payment acquisition (TPA) programme. GHL is also a proxy for the Malaysian government’s initiatives to promote cashless payments.
As an export-orientated counter, we like Karex as a key beneficiary of the weak ringgit as it would benefit from currency gains. The stock would also benefit from the recovering tender market volumes given that NGOs/government orders are set to re-stock due to current minimum inventory holdings.
With the group continuing to grow its own brand manufacturing (OBM) segment aggressively, we believe that this would be earnings accretive in the long run given the OBM products generate better margins. Also, we believe that the stock deserves a scarcity premium as a pure condom manufacturing play.
The company’s existing operations are already running close to full capacity and the new factory has come at the right time. Kawan’s new factory should start commercial production by year-end, likely tripling the production capacity of its roti paratha and chapati products, which are its main products. The new warehouse is 5-6x the size of its existing warehouse. In addition, the stock is an attractive US$ play as more than 60% of its revenues are transacted in US$.
LBS Bina Group
We believe the rising sales and earnings, and an attractive dividend yield of 7% in 2017F are the key reasons to own this stock. LBS is also looking to get authorities' approval to upgrade its 60%-owned racing circuit in Zhuhai, China, into a tourist attraction.
We estimate that its stake is worth RM379m (about 35% of LBS market cap) in our RNAV but could be worth much more considering the land scarcity in China.
Muhibbah is the cheapest contractor under our coverage, at 8-9x FY17-18F P/E which is about 30% discount to the construction sector average of 15 times. 2017's outlook depends on a recovery in jobs, both domestic and overseas. The group is also a beneficiary of the stronger US$ (50-60% of group earnings) via its cranes business and Cambodian airport concessions. Medium-term upside toorder book looks good.
MY E.G. Services
With approvals for the GST monitoring project, MyEG can finally launch this project after more than a year’s delay. The company’s earnings are defensive and recurring, with growth from areas such as registration of illegal foreign workers. Projected 3-year EPS CAGR is a strong 53% and the proposed 1:1 bonus should be completed before the year-end.
Only World Group
Only World group is set to benefit from the increased tourist arrivals with the introduction of eVisa in 2017 for South Asian tourists to Malaysia. With the official opening of Komtar set for 18 Dec, we believe this would be a major rerating catalyst as we expect earnings to benefit substantially from the beginning of 1QFY17. The stock currently trades at a steep 50% discount to its F&B peers and we believe a significant P/E re-rating will be underway upon official opening of Komtar.
Its direct selling division promoting i-Learn Ace (iLA) should see strong sales once school starts in early Jan. Demand should be strong for iLA as we believe parents will find their children are more productive and efficient, using iLA. Sales momentum for ILA should pick up strongly from Jan-2017 onwards.
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