AirAsia 'buy', Notion VTECH 'outperform', Yinson 'buy', GHL System 'neutral'

  • Business
  • Tuesday, 04 Apr 2017

GHL Systems Bhd

By RHB Research

Neutral (upgrade)

Target price: RM1

ACTIS, a private equity firm, has proposed to acquire a 44.4% stake in GHL Systems to become the single-largest shareholder.

Concurrently, Actis made a mandatory general offer for the remaining GHL Systems shares at an offer price of RM1.

RHB Research said it saw this as an excellent opportunity for shareholders to monetise their investment and, hence, it advised investors to accept the offer.

The offer price of RM1 implies a 15% discount over its five-day volume-weighted average price (VWAP) of RM1.18.

RHB Research, however, said this was reasonable given that it was largely on par with its six-month VWAP, and translated into an appealing 2018 and 2019 price-to-earnings ratio of 21.6 times and 19.5 times respectively.

It said the offer price implied a decent premium of 8.7% over its previous target price of 92 sen.

As such, RHB Research believed this as an excellent opportunity for investors to capitalise on, and hence advised shareholders to accept the offer.

The research house upgraded the stock to “neutral” with the target price revised to RM1 being the offer price.

On its existing operations, RHB Research remained cautious on near-term earnings visibility, as the current subpar retail climate in Malaysia could impede merchants’acceptance of its transaction payment acquisition (TPA) model.

On the regional front, while its Philippines operation is gradually gaining traction, the research house said that the intensified competition in Thailand remained a cause for concern.

“As such, we see this as a golden opportunity for investors to lock in their profits,” it added.


By Kenanga Research

Outperform (maintain)

Target price: RM1.58

KENANGA Research is “positive” on Notion Vtech’s proposed 10% placement, which will enlarge its share base up to 343.6 million.

The global supplier of high quality and precision-machined components plans to place out up to 31 million shares (on fully-diluted basis stemming from full warrants and long-term incentive plan (LTIP) options conversion) or minimum 26.8 million shares, representing around 10% of the issued and paid-up share capital, to investors to be identified later.

The proposed private placement may be implemented in one or more tranches within a period of six months from the date of the approval from Bursa Malaysia with the final issue price for each tranche to be determined separately in accordance with market-based principles.

Gross proceeds will be used for capacity expansion in precision manufacturing.

Although there could be short-term dilutive (of minimum 10% up to 28% assuming no earnings contribution from cash infusion; after accounting for full warrants conversion, full LTIP exercised and placement impact), Kenanga Research said it was “positive” on the exercise as it viewed the total cash infusion of minimum RM37mil to around RM77mil will be handy for the group to expand its business.

Going forward, Kenanga Research believes the company has bright prospects.

“The near-term earning driver namely the stack-up orders of automotive EBS components from its new customer are intact.

“All in, for automotive segment, the total volume growth could see a two-year cumulative average growth rate of 30% with another 50 computer numerical control machines to be invested next year,” said the research house.

It maintained the “outperform” rating with a fully diluted target price of RM1.58 from RM1.62.

Yinson Holdings Bhd

By UOB KayHian

Buy (maintain)

Target price: RM3.75

UOB reaffirmed that the potential floating production, storage and offloading (FPSO) contract termination was “positive” for the group.

Management shared several key updates during a analyst briefing that included updates on FPSO John Agyekum Kufuor, termination risks for FPSO Knock Allan, potential termination or renegotiation risks for FPSO Lam Son (JV in Vietnam), reasons for impairments and other strategies, which may involve discussions for a long-term dividend policy.

The information on FPSO Lam Son was new, however, UOB KayHian reaffirmed that potential contract termination was an overall “positive” to the group.

As highlighted in earlier reports, there remains high contract termination risk from Canadian Natural Resources (CNR) for FPSO Knock Allan as the field’s production has been at a critical low volume for too long.

“For FPSO Lam Son, we understand that the field encounters lower production volumes, especially in recent times.

“Although details were not disclosed, we note that this development could appear to be in tandem with PetroVietnam’s official guidance for lower first quarter of this year crude output, and further lower output towards late 2017,” it added.

UOB KayHian believed that in both cases of termination, the clients would have to incur full compensation of the remaining contract values to Yinson, although the timing was uncertain.

The research house estimated the group’s outstanding average firm contract tenure was 5.7 years as at end of March, based on five existing floating contracts in line with global peers’ average.

Excluding FPSO Allan and FPSO Lam Son (both expiring in 2019 and 2021 respectively), the remaining contract tenure would improve to 7.5 years, driven by the 15-year long-term contract from Ghana FPSO.


By CIMB Research

Overweight (maintain)

CIMB Research maintained an “overweight” call on the sector as it anticipated recovery in banks’ net profit growth from 1% in 2016 to 9.2% in 2017.

The industry’s loan growth moderated from 5.6% year-on-year (y-o-y) at end of January 2017 to 5.3% (y-o-y) at end of February 2017

This was mainly due to the slowdown in consumer loan momentum from 5.2% y-o-y at end of January 2017 to 5.1% y-o-y at end of February 2017.

However, end of January 2017 business loan growth of 5.4% y-o-y was sustained at end of February 2017.

The overall loan growth at end of February 2017 was broadly in line with its projected 5% to 6% for 2017.

The slowdown in consumer loan growth was due to the marginal deceleration in the momentum of residential mortgages from 9.1% yoy at end of January 2017 to 9% y-o-y at end of February 2017

This was within CIMB Research expectations, given the downturn in the property market since 2015.

The auto loans continued to contract by 0.7% y-o-y at end of February 2017, while personal loans and credit card receivables expanded by 4.5% y-o-y and 1.7% y-o-y, respectively, at end of February 2017.

The growth in leading loan indicators rebounded to double-digit rates in February 2017 – 21% y-o-y for loan applications and 17% y-o-y for loan approvals – partly due to the lower base a year ago.

The improvements mainly came from the residential mortgage segment. The applications for residential mortgages and auto loans expanded by a swift 34.5% y-o-y and 21.4% y-o-y, respectively, in February 2017.

CIMB Research believed the strong expansion in loan indicators will limit downside risks of further slide in loan growth in the next two to three months.

The industry’s gross impaired loan (GIL) ratio inched up from 1.61% at end of January 2017 to 1.63% at end of February 2017, lower than CIMB Research’s projected 2% for end of 2017.

This was mainly due to a 1.4% month-on-month (m-o-m) increase in the GIL in February 2017 against flattish (mom) loan base.

Despite the stable GIL ratio year-to-date as at February 2017, RHB Research still projected an increase in the ratio in 2017, as it thought that credit risks still persist in certain loan segments given the unfavourable economic environment.

According to the research house, the KLFIN index rose by a handsome 8.9% in Q1’17, outperforming the 6% increase in the KLCI over the same period.

While remaining “overweight” on the sector in anticipation of a recovery in banks’ net profit growth in 2017, the downside risks to its call are a spike up in impaired loans, and poorer-than-expected loan growth.

AirAsia BHD

By Hong Leong Investment Bank

Buy (maintained)

Target price: RM3.60

Hong Leong Investment Bank (HLIB) is “positive” on AirAsia establishing a new hub in Vietnam.

It said the move would help AirAsia penetrate into Vietnam’s growing market potential given its fast expanding economy as the government opened up the economy and encouraged foreign investments.

For the past two years, Vietnam experienced the fastest growth of air travel growth in the world.

AirAsia Vietnam (AAV) will operate from three hubs namely Hanoi, Ho Chi Minh and Danang.

AAV focus will be on increasing connectivity within the domestic market as well as regionally to South-East Asia, China, Korea and Japan.

HLIB expected AAV to implement similar AirAsia’s modus operandi such as utilising Airbuses, lease fleet from AirAsia (through AAC), leverage on ICT and similar product structures.

Hence, HLIB expected AAV to thrive on lean cost structure disciplines and strong connectivity (leveraging on AirAsia Group).

Despite the concern of the weak ringgit, HLIB said AirAsia was expected to remain on growth trajectory from the strong capacity expansion, high load factors and low jet fuel costs.

Asset monetisation and joint-venture and associates initial public offering exercises this year will enhance AirAsia’s valuation.


By TA Securities

Sell (downgrade)

Target price: RM3.02

TA Securities is “positive” on AirAsia’s plan to establish a low-cost carrier (LCC) in Vietnam as it will strengthen its network in South-East Asia.

AirAsia recently announced that it executed a shareholders agreement and a share subscription agreement with Gumin Company Ltd, Tran Trong Kien and Hai Au Aviation Joint Stock Company (HAA) to formalise cooperation between AirAsia, Gumin, Tran and HAA to establish a low-cost carrier (LCC) in Vietnam.

Importantly, the total capital committed to HAA by AirAsia is only RM67mil or as little as 1% of AirAsia’s shareholder funds.

As such, TA Securities said it was worth the effort and money to explore Vietnam’s aviation market, the fifth largest market in South East Asia after Indonesia, Thailand, Malaysia and Singapore, with a population of 95 million.

“As HAA is expected to operate both domestic and international flights in Vietnam, HAA can leverage on AirAsia’s strong brand name and capture meaningful market share in the international segment,” it said.

Currently, there are two existing players in the market namely, Jetstar Pacific and VietJet Air, which started low-cost carrier business models in 2007 and 2011 respectively.

Jetstar Pacific is owned by national carrier Vietnam Airlines (70%) and Qantas (30%) while VietJet is private owned by Sovico Holdings, HDBank and other institutional investors.

Jetstar Pacific and VietJet have a fleet size of 18 and 45 aircraft respectively, mostly the Airbus A320 family fleet, serving both domestic and international destinations.

“Looking at the total fleet size, we opine that the LCC market in Vietnam is not over-crowded and not dominated by a single airline company yet, like Malaysia and Indonesia dominated by AirAsia and LionAir.

“Also, judging from the bullish profit guidance from the CEO of Vietjet, TA Securities believes there is ample room for growth for a new comer,” it said.

As the share price has advanced 37% year-to-date, it believed the market had largely priced in the corporate exercises.

As such, the research house downgraded AirAsia to “sell” from “hold”.

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