Sime Darby Properties 'buy', Muhibbah Engineering 'buy', Dagang Nexchange 'add'


  • Business
  • Wednesday, 27 Dec 2017

SIME DARBY PROPERTY BHD

By Maybank IB Research

Buy (initiated)

Target price: RM1.58

MAYBANK IB Research expects Sime Darby Property to unleash greater potential from its vast and diversified land bank, as it develops its land parcels or monetise them for quick gains.

The property developer currently owns a huge land bank of 20,798 acres in the country with a market valuation of RM18.8bil.

“Thanks to its huge land bank, it has the best of both worlds as a developer and land seller. While the former ensures a more stable earnings income, the latter will provide an immediate boost to income.

“Apart from selling land, the company is also looking to divest some of its investment and hospitality properties. These properties are said to have a combined market value of RM246mil,” the research house said in a note.

Sime Darby Property’s product mix in strategic locations will help the company weather the slowdown in the property market.

About 58% of its remaining land bank is located in the Klang Valley and almost all its land bank or 82% of its total gross development value are township developments. Note that, township developments usually provide steadier sales and greater flexibility compared to high-rise niche properties.

Sime Darby Property is also set to benefit from the upcoming High-Speed Rail and Malaysian Vision Valley projects.

“Due to the nature of its business which involves land or asset sales, the company’s earnings trend tends to be more volatile than other developers, and likewise for its profit margins. We expect earnings for financial years 2016 to 2018 (FY16-18) to be around RM829mil.

“The 36% growth in earnings is mainly driven by the RM970.8mil worth of asset sales and lumpy earnings recognition from the remaining units handed over in the third quarter of 2017 under the Battersea Power Station (BPS) phase one project.

“Earnings will however decline by 35% year-on-year to RM541mil in FY19 in the absence of BPS contribution as the second phase will only come in by FY21, and lower asset or land sales assumption of RM500mil. This will however edge up to RM576mil in FY20 thanks to higher sales assumption of RM2.1bil in FY19,” said Maybank IB Research.

MUHIBBAH ENGINEERING (M) BHD

By RHB Research

Buy (maintained)

Target price: RM3.75

RHB Research is slightly positive on Muhibbah Engineering’s recent contract win as the contract value is within its order book replenishment assumption of RM1.1bil for the financial year 2017 (FY17).

Assuming a 5% net margin, the project is anticipated to yield a profit of RM9.3mil in total or 7.9% of RHB Research’s FY18 net profit forecast.

Recently, Muhibbah has clinched the RM189mil contract from Mass Rapid Transit Corp Sdn Bhd for the design, supply, installation, testing and commissioning of noise barriers and enclosures. The contract tenure is for two years.

“Project execution risk is low for Muhibbah, given its track record for engineering, procurement, construction and commissioning involving the Refinery and Petrochemical Integrated Development (Rapid) project as well as other oil and gas-related works.

“The job is expected to commence immediately and to be completed at end-2019,” said the research house in a note.

Overall, RHB Research remains sanguine on Muhibbah Engineering, largely attributed to the boom in the construction sector and recurring income base from its associate Cambodia Airports.

Cambodia Airports, which is 21%-owned by Muhibbah, is expected to register double-digit passenger growth in 2018, due to strong projected tourist arrivals. This is in line with the historical double-digit growth posted by the group.

“We anticipate more job wins in the near term with more infrastructure and marine-related projects to be secured. On the other hand, we believe its oil and gas-related jobs would account for a lower portion of its order book as its major Rapid-related contracts approach completion stages in 2018,” said RHB Research.

Muhibbah’s order book stands at RM2.1bil.

Dagang Nexchange Bhd

By CIMB Research

Add

Target price: 74 sen

DAGANG Nexchange (DNeX) is expected to stage better performance in 2018 following its National Single Window (NSW) concession extension and better prospects for its oil unit OGPC Sdn Bhd and associate Ping Petroleum Ltd.

On that note, CIMB Research raised its earnings per share (EPS) forecast for DNeX for 2018-2019 by 2.9% to 4.4% to reflect the extension of its NSW concession. Moreover, the brokerage expected stronger earnings contribution from OGPC on the back of higher portable container system (PCS) contract completion, and higher associate’s profit contribution from Ping on the back of higher crude oil prices.

Overall, CIMB projected DNeX to record a robust 2016-2019 net profit compounded annual growth rate of 18%.

The brokerage, however, cut its 2017 EPS forecast for DNeX by 2.6% to account for the delay in the remaining vehicle entry permit and road charges (VEP & RC) contract recognition.

It maintained “add” for DNeX, with an unchanged sum-of-parts-based target price of 74 sen.

CIMB Research, which met DNeX’s management last week, said the latter remained bullish on stronger 2018 earnings growth, driven by higher growth from IT services following the extension of its NSW concession, stronger revenue from its VEP & RC project, and higher completion for its PCS project.


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