By RHB Research Institute
Target price: RM18.70
AEON Credit reported commendable 2017 (financial year ended February) results with net profit of RM265mil. RHB Research noted that the full-year earnings have beaten its and consensus’ expectations, making up 106% of the research house’s and 107% of consensus’ estimates.
“While top-line grew broadly in line with our expectations at 14%, higher-than-expected bad debt recovery and well-managed overheads led to a result above our earnings estimate.”
Loan growth for 2017 was in line with its estimates at 19% year-on-year, primarily driven by its personal financing and automobile financing portfolio.
The segments made up 25% and 30% of the group’s 2017 total loan book respectively. Non-performing loans ratio continued to trend downward at 2.3% for 2017, said RHB Research Institute.
“The group reported credit cost for 2017 of 3.4% which was in line with guided forecasts of below 4% for the year. We revise our credit cost to 3.67% for 2018 (from 3.89%) on the back higher recoveries expectations.”
The research house is raising its 2018 to 2020 earnings by 9% to 11% as it accounts for a higher growth in its receivables and expectations of higher bad debt recovery, going forward on the back of management’s stringent credit quality control.
“We now estimate financing receivables to grow at 18% (from 17%) for 2018 and 17% (from 15%) for 2019 to 2020.”
RHB Research pointed out that Aeon Credit is currently undertaking a one-for-two bonus issue and a two-for-one rights issue of a three-year irredeemable convertible unsecured loan stocks (iculs) with 3.5% coupon rate.
“We estimate earnings dilution from the iculs to be minimal in the near-term, but the conversion of the iculs could lead to a 15% dilution to our earnings per share forecasts.
“We have not reflected this in our forecasts, pending the completion of the iculs rights issue in September 2017.”
Sasbadi Holdings SDN BHD
By Hong Leong Investment Bank
Target price: RM1.73
SASBADI reported a first half (ended February) 2017 core earnings of RM9.7mil, accounting for 41.1% and 42.4% of Hong Leong Investment Bank (HLIB) and consensus full year estimates, respectively.
Its second quarter 2017 core net profit declined by 19.1% to RM5.4mil, in line with a 19.7% decline in revenue, mainly due to fewer contracts won in 2017.
HLIB said while it expected the company’s third quarter 2017 earnings to come in stronger (as students start purchasing revision books), the research house considered the results as below expectations.
“We remain positive on Sasbadi’s potential over the longer term as the company grows more solidly through its ongoing effort to cement its position as a sought-after educational publishing company.
“As we understand, ILearn Ace is gaining good momentum, recruiting an average of 350 to 500 agents monthly and currently has around 5,000 agents.”
HLIB also said Sasbadi is planning to franchise out its robotics education classes after getting its certification and is eyeing to acquire publishing companies of different genre.
“We like Sasbadi due to its strong annual free cashflow, high growth rate, its innovativeness in creating products that cater to tech-savvy youths and unique education exposure, which is closely linked to the country’s education system.”
By MIDF Research
Revised target price: RM5.32
GLOBETRONICS has reported first quarter (ended March) 2017 earnings of RM4.7mil. After excluding unrealised loss on foreign exchange amounting to RM200,000, fourth quarter 2016 normalised earnings came in at RM4.9mil, a reduction of 29.8% year-on-year.
The decline in earnings was mainly attributable to lower revenue recorded in the review period as a result of reduction in end customers’ demand.
MIDF said the first quarter normalised earnings account for 12% and 8.1% of its and consensus’ earnings estimates respectively.
“Despite the subdued quarterly performance, this came in within our expectations as we see much stronger volume loading in the second and third quarter of 2017, which will significantly boost the group’s top line contribution.”
Globetronics’ first quarter 2017 revenue declined by 15.2% year-on-year to RM49.8mil. This was mainly due to a 58.2% year-on-year decrease in revenue contributions from Singapore.
“Fortunately, this was partially supported by higher revenue contribution from Malaysia.
“We maintain our 2017 earnings estimate at this juncture. However, we raised our 2018 earnings estimate by 9% as we are assuming a higher revenue contribution from the sensor division,” the research house added.
For 2016, the group has declared a total dividend of 23 sen per share, which was above MIDF’s expectation of 21 sen per share. In view of this, the research house said it is raising the company’s 2017 and 2018 dividend estimates to 23 sen per share.
“We are rather perturbed with the soft volume loading of Globetronics’ products since 2016. Moreover, we reckon that the mass production of new sensors components could only be seen by the second quarter of 2017 to cater for new smartphone launches in the third quarter.
“Nonetheless, we view that the stock has an attractive dividend yield of at least 4%. All factors considered, we are maintaining our neutral recommendation on Globetronics.”
By CIMB Research
Target price: RM77.30
Hold (no change)
NESTLE has reported a first quarter 2017 (ended March) core net profit of RM212.6mil, making up 33% and 31% of CIMB’s and Bloomberg’s full-year consensus estimates.
CIMB Research said this was in line as the first quarter was historically its stronger quarter and made up more than 30% of its full-year net profit.
“As expected, no dividend was declared during the quarter,” said the research house.
Nestle’s first quarter 2017 revenue increased 4.4% year-on-year to RM1.3bil while reported net profit also improved 4.4% year-on-year to RM230.4mil.
The year-on-year improvement in the group’s topline was mainly supported by its domestic and export markets.
Stronger sales coupled with effective internal cost efficiencies helped offset the uptick in key raw material prices and led to much stronger core net profit.
On a sequential basis, Nestle reported healthy revenue and stellar net profit growth of 9.8% and more than 100% quarter-on-quarter, respectively. The group’s stronger topline was mainly driven by the Chinese New Year festivities in January.
Meanwhile, net profit growth was significantly higher as a result of improving cost efficiencies as well as the different timing of marketing expenses versus the fourth quarter.
While several key raw material prices have seen a year-on-year uptick, particularly coffee beans, milk powder and sugar, CIMB said it did not pose a significant risk to the group as it still has room to improve its internal operating efficiencies and automation of production facilities.
“The group will also look to expand the production capacities of almost all its product categories in 2017.”
Given the in-line results, CIMB said it makes no changes to its earnings forecasts for now and maintains its “hold” call, with an unchanged discounted cash flow-based target price of RM77.30.
“Even though we continue to like the group’s strong brand name and healthy product mix, we think Nestle is currently fairly valued. Its 2017 to 2019 dividend yields of 3.3% to 3.7% should shore up its share price.”
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