SCGM 'market perform', IJM 'neutral', DiGi 'hold', Muhibbah Engineering 'add'

  • Business
  • Wednesday, 03 May 2017


By Kenanga Research

Market perform (downgrade)

Target price: RM3.05

SCGM Bhd’s proposal for a one-for-three bonus issue and two-for-15 issue of new warrants will be positive in the long-term, according to Kenanga Research.

It said it was not overly surprised but considered the proposal to be positive in the long run as it would reward existing shareholders whilst enticing new investors.

It said proceeds from the warrants can be used for working capital to help facilitate its ongoing expansion plans at the new factory.

It also would improve trading liquidity, while new investors will deem the stock more tradeable at a lower entry price.

As for the proposed warrants, Kenanga is also positive in the long run as it provides funds for the group’s ongoing expansion plans at the new factory, minimising the need for any borrowings and would help accrete to earnings in the long run once the new factory is generating revenue.

All in, the research house made no changes to earnings of RM25.4mil and RM32.7mil for the 2017 and 2018 financial years.

However, Kenanga adjusted the per unit data based on a fully diluted (FD) basis to account for the bonus issue and full warrants conversion, increasing the FD share base to 213 million units from 145 million units.

Lastly, Kenanga expects net gearing in 2018 to reverse to a net cash position pending utilisation of the proceeds from the warrants.

The FD ex-all target price is based on a FD 2018 earnings’ per share of 15.3 sen post accounting for the bonus issue and full conversion of warrants (while the ex-price only accounts for adjustment from the bonus issue), and an unchanged forward price-to-earnings ratio of 19.9 times.


By MIDF Research

Neutral (maintained)

Target price: RM3.53

MIDF Research participated in IJM Plantation “Walk With The CEO” programme recently and came away feeling positive on the company’s long term outlook.

During the three-day event, the research house said it visited IJM Plantation estates, mills, the seed research centre, nursery and amenities for workers.

One of the key takeaways from the visit was fresh fruit bunches (FFB) growth to resume in financial year 2018.

IJM Plantation has recently registered FFB growth of 2% in financial year 2017 ended March 30 to 862,000 tonnes.

The low FFB growth is caused by tree stress (due to El Nino) which has affected its production throughout the first nine-month of 2017.

The company expected 2018 FFB volume to improve to 900,000 tonnes reflecting a 4% growth year-on-year with better recovery to be seen in 2019 to one million tonnes as young age profile of Indonesian estate to support long term FFB growth.

As IJM Plantation started its Indonesian estate planting progressively from 2009, MIDF Research estimated that its age profile should have reached six years old.

“This is a good age profile as oil palm trees tend to have high growth of FFB volume until it reach the peak at 10 years old,” the research house said.

Hence, the research house thought that the Indonesian estate should provide strong FFB growth for the next five years.

MIDF Research said it was maintaining earnings estimate for financial year 2017 and 2018 as the information gathered during the visit had been incorporated into its model previously. Bhd

By UOB KayHian

Hold (maintained)

Target price: RM5.20

WHILE Bhd continued its focus on stronger Internet proposition, intense competition in the prepaid segment coupled with headwinds from the migrant market led to a 5% year-on-year (y-o-y) and 6% quarter-on-quarter (q-o-q) drop in top-line in the first quarter of 2017.

The first quarter core net profit was RM373mil down by 7% y-o-y, coming in below expectations on a sharper-than-expected decline in prepaid revenue.

Digi has declared a first interim net dividend per share of 4.7 sen.

UOB KayHian projected 2017 net dividend of 20.1 sen per share reflecting a net yield of 4.1%.

Digi lost 523,000 subscribers in the first quarter of 2017, mainly due to a significant loss of prepaid subscribers.

The high prepaid churn reflected intense competition amid increasing headwinds in the migrant segment.

This led to faster-than-expected contribution from the price-sensitive prepaid segment. In all, prepaid subscribers stood at 9.6 millions.

UOB KayHian said the group continued to make progress in the post-paid segment, gaining 90,000 customers in the quarter with some natural migration (upgrades) from the prepaid segment.

It said the first quarter 2017 blended average revenue per user (ARPU) declined 5% q-o-q and y-o-y to RM40 per month.

This was mainly due to a sharp 9% y-o-y and 6% q-o-q contraction in prepaid ARPU to RM32 per month as the group recalibrated its IDD pricing and focused on better subscriber quality and margins. Going forward Digi is focused on profitability.

Muhibbah Engineering Bhd

By CIMB Research

Add (maintained)

Target price: RM3.09

MUHIBBAH bagged its second infrastructure contract year-to-date and its infrastructure order book rose 18% to an estimated RM1.7bil.

Muhibbah Viccana JV, an entity in which Muhibbah has a 51% equity interest, was awarded a contract by the Bintulu Port Authority to undertake the development of a supply base wharf and associated works in the second harbour basin at Bintulu Port in Sarawak.

This is a design and build contract with a total value of RM584.4mil, which involves the construction of a wharf, jetty and other associated facilities.

With this new contract in Bintulu and based on the group’s 51% joint-venture share, this brings the total value of wins this year to RM736mil versus CIMB Research assumption of RM800mil for the full year.

This award raises Muhibbah’s infra order book (excluding cranes and shipyards) by 18% to RM1.7bil.

CIMB Research expected pre-tax margins to be higher than the industry’s average open tender infra margin of 5% to 6% as this is a relatively specialised contract.

Assuming a pretax margin of 8-9%, the job would contribute 5-8% to financial year 2017 to 2019 earnings per share forecasts.

Though CIMB Research forecasts were retained (as the award forms part of its win assumption), this new contract is expected to underpin an improvement in infra margins from the 5% pretax margin achieved in financial year 2016.

CIMB Research said it continued to like Muhibbah as it offered a unique exposure to the marine and port infra segment with over 40 years of experience and track record.

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