Axiata 'buy', Press Metal 'buy', LBS Bina 'outperform', CB Industrial 'outperform'

Axiata Group Bhd

By AmInvestment Bank

Buy (maintained)

Fair value: RM6.30

AMINVESTMENT Bank Research is maintaining its “buy” call on the company, with an unchanged sum-of-parts-based fair value of RM6.30 per share, on expectations of a value-enhancing re-merger with TM, which could reduce the valuation differential with its peers and re-energise its earnings prospects.

“Bloomberg reported that Axiata is tentatively planning a domestic listing of its 62%-owned edotco Group Sdn Bhd this year, which could raise US$500mil (RM2bil) in an initial public offering. The group may be inviting investment banks to formally pitch for a role in the deal this quarter.”

“As we had updated in April last year, Axiata placed out US$700mil (RM2.8bil) of edotco’s shares to Innovation Network Corp of Japan, Khazanah Nasional and Kumpulan Wang Persaraan which then valued edotco’s equity at US$1.5bil (RM6bil) based on a 2016 enterprise value / earnings before interest, taxes, depreciation, and amortisation (EV/ ebitda) of 12.5-times.”

“Management’s strategy is to continue to expand organically and via acquisitions, while tenancy ratio has improved to 1.5-times from 1.4-times in December 2016.”

“Hence, we are positive on Axiata’s potential unlocking of edotco’s embedded valuations, which could catalyse the group’s valuation re-rating while securing additional cash estimated at up to RM2bil – 14% of Axiata’s 2018 group debt, and reduce the group’s net debt to ebitda from 1.4-times to 1.2-times.

“Potential earnings impact will be minimal given the group’s huge base. Axiata currently trades at a bargain 2018 EV/ebitda of seven-times, way below its two-year average of eight-times compared with SingTel’s 14-times.

Press Metal ALUMINIUM HOLDINGS BHD

By RHB Research

Buy (maintained)

Target Price: RM5.95

ALUMINIUM prices have rebounded to hover above US$2,200 (RM8,786) per tonne after a temporary blip in early December 2017.

RHB Research believes the weaknesses are mainly due to seasonal factors, given slower economic activities in China during the winter months.

“As such, we make no changes to our aluminium price assumptions of US$1,925 (RM7,688) per tonne for 2018 and US$2,118 (RM8,459) per tonne for 2019.

“This is as we are also aware that most of the 2018’s – and around one-third of 2019’s – positions have been hedged.”

The research house said it sees potential upside on the aluminium prices, as currently half of the smelters in China are still loss-making from rising energy costs due to higher coal prices.

RHB Research said it expects another record year for Press Metal.

“We are expecting another record year in 2018 for Press Metal.

“Key drivers include Samalaju Port, which was commissioned last year, would help to cut inland logistics and shipping costs,” it said.

The research house added that increased value-added production will also enhance profitability, which is estimated to increase to 50% (from 30%) by end-2018.

RHB Research added that the 20% joint venture with Sunstone Development Co Ltd of China will help reduce carbon costs in 2018.

Potential upside in aluminium prices, with spot contracts at the London Metal Exchange hovering at above the US$2,200 (RM8,786) per tonne mark, will also be a boost to the company, said the research house.

LBS Bina Group Bhd

By Public Investment Bank Research

Outperform

Target price: RM2.87

THE GROUP unveiled its plans for the coming year to the media recently while also recapping on its performance in 2017, with group managing director Tan Sri Lim Hock San also indicating a sales target of RM1.8bil for 2018.

While seemingly daunting, Public Investment Bank Research (PIB Research) thinks this can be achieved considering that about RM1.4bil worth of on-going (and relatively sellable) projects are being carried over into the new year from the previous year.

“Unbilled sales are at a healthy RM1.52bil, underpinning earnings visibility for the next two years at the very least. With remaining land bank of 3,806 acres carrying an estimated RM29bil in gross development value (GDV), the LBS Bina Group will remain in the game for a long time yet.”

The research house pointed out that a total of 10 projects carrying a total GDV of RM2.33bil were launched in 2017, with sales of RM1.43bil achieved. About 69% (RM982mil) of the sales were done in the Klang Valley, with 58% of the properties priced below RM500,000 per unit.

For 2018, eight new projects worth RM2.19bil will be launched, with primary concentration in the Klang Valley.

“Of the total 5,255 units on offer throughout the year, close to 40% worth RM884mil will be landed properties, cementing its entrenched position as leading township developer in the domestic mass-market affordable housing segment. Price ranges are mostly sub-RM500,000.”

On its Zhuhai International Circuit (China), the research house said the group is continuing to assess possibilities, with its preferred course of action either a joint venture or a separate listing given the scale of investments involved.

CB INDUSTRIAL PRODUCT HOLDINGS BHD

By Kenanga Research

Outperform

Target Price : RM2.10

CB INDUSTRIAL Product Holdings Bhd (CBIP) announced that it has entered into a contract with PT Pratama Palm Abadi, a subsidiary of Oriental Holdings Bhd to build a 60/80 TPH palm oil mill in Sumatera Selatan, Indonesia.

Kenanga Research estimates that the value of the contract is divided into an imported portion at US$9.6mil (RM39.5mil) and a local portion at 73.7 billion rupiah (RM22mil). The total value of the contract is RM61.4mil.

“We are positive on the announcement as the first major order-book win announced for the year. We expect this contract to bring CBIP’s outstanding palm oil milling equipment (POME) order-book to around RM480mil, which provides earnings visibility over the next two years.

“The project value makes up around 10% of our 2018 order-book replenishment assumption of RM500mil. Assuming an earnings before interest margin of 25% for this project, this translates to bottom-line contribution of RM15.4mil. Our assumption is in line with nine-months 2017 POME margin of 25%.”

Kenanga Research said it expects CBIP’s earnings to remain stable on the back of good earnings visibility up to 2019.

“We continue to look forward to new developments in the company’s business model, such as recurring income streams from a build-operate-transfer model for its POME segment and fresh maintenance contracts in the Retrofitting Special Purpose Vehicles segment. “However, steel price volatility continues to pose short-term risk to margins.”

Risks to Kenanga Research’s ‘outperform’ call include higher-than-expected raw material cost, lower-than-expected order-book replenishment and weaker-than-expected plantation contributions.

“We maintain our 2017 to 2018 core net profit of RM95.3mil to RM102.1mil as the award falls within our order-book replenishment assumptions,” said Kenanga Research.