By CIMB Research
Add (no change)
Target Price: RM3.25
Astro’s five-year targets were disclosed in its recent Investor & Analyst Day. The company is planning for revenue growth from RM5.6bil in financial year 2017 (FY17) to RM8.8bil in FY22 through stronger advertising expenditure (adex) and new growth initiatives such as Go Shop, Tribe, etc.
Specifically, Astro expects Go Shop’s revenue to grow by a compound annual growth rate of 48% during FY17-22, riding on the growing e-commerce market penetration in Malaysia. For example, Astro aims for the customer base to grow from one million to six million customers. According to CIMB Research, this is an ambitious target; however, Astro is optimistic as it expects the Malaysian e-commerce market to reach US$2.9bil in 2020.
Overall, Astro is targeting to more than double its profit after tax and minority interests (Patami) from RM629mil to RM1.5bil.
This seems achievable as CIMB Research expects Astro to experience depreciation.
Also, the amortisation expense is expected to taper down gradually, beyond FY18, in view of minimal capital expenditure (capex) and new subs acquisition cost.
Astro is looking to raise its spending on local vernacular and Asean intellectual properties (IPs) by 50% to capture growth in new segments. CIMB Research thinks the investing helps create a value differentiator from competitors and potentially new target markets such as millennials and kids.
CIMB Research expects stronger earnings recovery in FY18 through the robust 8% adex growth and higher average revenue per user (ARPU) of around RM102/month The ARPU was driven by the sport package price revision and higher take-up of value-added services. Relative to FY17, there is a reduction in sporting events, so CIMB Research expects lower content costs in FY18 forecast.
Moreover, further reduction in content cost from the appreciation of the ringgit against the US dollar is expected as well.
Since Astro’s stock is down by 20% from its three-year high, CIMB Research thinks the risk of declining pay-TV subscriptions is reflected in it, but Astro’s new initiatives to diversify its earnings beyond pay-TV are not.
Therefore, CIMB Research maintains the “add” recommendation with a discounted cash flow-based target price of RM3.25.
By UOB Kay Hian
Target Price: RM8.05
SIME Darby Bhd has announced the appointments of a new chairman and senior leadership for each of its three pure play companies - Sime Darby Plantation Bhd, Sime Darby Property Bhd and Sime Darby Bhd itself.
The former two are on track for listings at the end of this year. Sime Darby Plantation specifically will continue under the leadership of Tan Sri Datuk Sri Bakke, who has extensive knowledge of the plantation industry.
Management is targeting to launch the initial public offering (IPO) prospectus in November 2017, while the listings are scheduled for December 2017. Next step would be the lodge of draft prospectuses with the Securities Commission, which is expected to take place at end-August 2017. UOB Kay Hian makes no change to its earnings forecast, maintaining its recommendation to sell, with a target price of RM8.05, based on 22 times fully diluted financial year 2018 forecast (FY18F) price to earnings ratio. However, despite its “sell” on strength recommendation, UOB Kay Hian concedes that Sime’s share price is likely to hold up at current level given that investors need to own the share now to get the distribution-in-specie.
By Hong Leong Investment Bank Research
Price Target: RM4.65
ON the back of a 10.9 trillion rupiah turnover, Axiata Group Bhd’s (XL) first half of 2017 (1H17) core net profit of 114 billion rupiah was largely in line with HLIB Research’s full year forecast.
While gross revenue expanded 7.6% quarter-on-quarter (q-o-q), service revenue increased at a faster pace of 9.3% q-o-q. Core net profit strengthened more than four-fold to 114 billion rupiah, due to the earnings before interest, taxes, depreciation and amortisation (EBITDA) margin improvement of 150 basis points, resulting in a 80.9% rise in 1H17.
Postpaid 2Q17 performance was a mixed bag: where 42,000 subs were being added to bring the base to 582, there, the average revenue per user (arpu) contracted by 8,000 rupiah. As for prepaid, 2.5 million subscriptions were added in 2Q17 to reach a total base of 49.9 million, with a more solid arpu development of 1,000 rupiah q-o-q to 33,000 rupiah.
XL continues investing by adding 3G and 4G nodes of 2,400 and 3,300, respectively in 2Q17 to provide high quality internet services. This brings total base stations to around 93,500.
With the improved coverage, 70% of the total base (or 35.4 million users) are data users generating 543.4 petabytes of total traffic in 1H17, resulting in +175.6% y-o-y. As affordability increased, smartphone users also grew 14% q-o-q, reaching 33.8 million users. For financial year 2017 (FY17), HLIB Research expects revenue growth to be in-line with the market, with a stronger 2H17. Also, EBITDA margin is predicted to be set at high 30’s, and lastly, capital expenditure (capex) should not exceed seven trillion rupiah.
Therefore, HLIB Research recommends a “hold” position with an unchanged sum-of-parts (SOP) derived target price of RM4.65.
By BCT Asia Advisory
Target Price: RM5
NEW Hoong Fatt (NHF) Holdings Bhd’s turnover in the second quarter of financial year 2017 (2QFY17) was marginally higher at RM61.66mil when compared to 1QFY17.
However, both profit before tax (PBT) and net profit declined by 70%. This decline in profitability is evident with the earnings before interest and tax (EBIT) getting halved, as forex losses, higher manufacturing and raw material costs were the culprit.
For example, steel coil, which along with plastic resin accounts for 50% of production costs, has faced price rises over 20% since FY16. Due to the company’s exposure to both replacement and export markets, with exports making up 52% of the group’s FY16 revenue, the demand drivers come mainly from the growing pool of vehicles on the road, accident rates and maintenance requirements.
NHF has been embarking on increasing wider range of trading parts and more aggressive expansion of new products to cater to variety and non-national makes. In addition, it has moved more aggressively into service and maintenance market of wear and tear segment, previously under-served by the group.
The broader Asean market with a population base of 600 million people, total industry volume (TIV) sales of over 3 million units per annum and comparatively lower vehicle ownership will be the key growth drivers. Thailand will remain NHF’s key export market but the company’s growth will be driven by a more aggressive push into Indonesia’s replacement market.
BCT Asia Advisory believe that NHF will be able to sustain its gross margin at 28% as the research firm anticipates higher productivity/manufacturing output and gradual increase in selling prices.
To strengthen its cost competitiveness through cost efficiency, NHF has carried out continuous improvement programs such as Lean Production Systems and Kaizen in the factory.
On an annualised basis, 1HFY17’s net profit is below BCT Asia Advisory’s forecast mainly due to forex losses.
The research firm maintains its earnings forecast and “buy” recommendation on the stock, as it appreciates the positive dynamics of a growing car population, steady demand of the replacement market, a resilient earnings base as well as the long-term growth prospects from a more aggressive expansion into export markets.