Analysts Reports


By AmResearch

Buy (maintained)

Fair value: 80 sen

AMRESEARCH is positive on the latest development following the award of a RM188.6mil substructure package for earthworks, piling, diaphragm wall and reinforced concrete works of Bukit Bintang City Centre by BBCC Development Sdn Bhd.

The research house has maintained its forecasts, fair value of 80 sen and “buy” call on Ikhmas following this award.

The latest contract has boosted Ikhmas’ year-to-date job wins to RM333.3mil and its outstanding order book to RM881.6mil.

AmResearch forecasts assumed an order book replenishment target of RM500mil annually in financial year 2017 to 2019, which is consistent with Ikhmas’ job wins of RM495mil in financial year 2016.

The research firm continued to like Ikhmas as it is a good proxy to the booming piling and foundation segment underpinned by current mega infrastructure projects such as mass rail transit 2, Pan Borneo Highway, SUKE and DASH Highways, as well as those that are getting off the ground over the short to medium term such as light rail transit 3, east coast rail link and KL-Singapore high-speed rail.

Its earnings visibility is good, backed by a sizeable order backlog which will keep it busy for the next 12 to 24 months.

The entry barrier to the sector is high, given the high costs of equipment and machinery as well as the limited availability of experienced operators. It is based on 13 times of financial year 2018 estimated earnings per share of 6.13 sen, at a slight premium to its one-year forward target price-to-earnings ratio of 10 times to 12 times for small-cap construction stocks, to reflect a relatively less competitive piling segment vis-à-vis general contracting.


Axiata Group Bhd 

By CIMB Research

Hold (maintained)

Target price: RM5.20 (cut)

AXIATA Group Bhd has announced that its subsidiary Ncell made another advance deposit of US$132mil (RM563mil) to Nepal’s Large Tax Payer Office (LTPO) on June 4 on behalf of TeliaSonera.

This is in addition to its earlier deposit of US$94mil, as payment for 15% capital gains tax (CGT), after both Ncell and LTPO came to an agreement on the amount of capital gains made by TeliaSonera on the sale of Ncell to Axiata.

The further deposit of US$132mil from Ncell is equivalent to 6.3 sen per Axiata share.

This is more than the earlier US$63mil (RM270mil) at three sen per Axiata share which CIMB Research estimated Axiata might be required to pay up in order to launch its 4G service.

To recap, at the end of May, the parliamentary Public Accounts Committee had instructed the regulator to bar Ncell from launching 4G services until the CGT issue was settled.

With the advance deposit, Axiata said Ncell has received a confirmation letter from the LTPO to conclusively certify that it has complied and is now fully cleared in relation to the CGT issue.

If it is true that the issue is now fully settled on Ncell’s end, it will bring to a close an outstanding issue which first emerged in May 2016 and provide more regulatory certainty, going forward. After the payments from Ncell, there remained an outstanding 10% CGT owed by TeliaSonera, according to the Nepalese government.

If the government fails to recover this from TeliaSonera and eventually decides to pursue Ncell for the amount, CIMB estimated it would be equivalent to US$151mil or 7.2 sen per Axiata share.

From an accounting perspective, Axiata has already booked in US$157mil under goodwill for the Ncell acquisition.

Based on the total CGT paid of US$226m (US$94mil plus US$132mil), Axiata may capitalise on the remaining US$70mil or RM298mil, if allowed by auditors.

Otherwise, it would write it off this year, which is equivalent to 29% of the research house’s 2017 core net profit forecast.

CIMB Research has maintained its “hold” call with target price cut by 2% to RM5.20 as it deducted the advance deposit of US$132mil made to Nepal’s LTPO from its SOP-based calculation.

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