Analyst reports


Supermax Corp Bhd

By AffinHwang Capital

Buy (upgraded from hold)

Target price: RM3.10

One of the biggest investor concerns on Supermax is the stability of the management team, as its founder (Stanley Thai) was recently sentenced to jail for five years for insider trading (the case is on appeal).

The board had appointed Tan Chee Keong (Stanley’s nephew) and Cecile Jaclyn Thai (Stanley’s daughter) as executive directors to help ease concerns over the company’s succession planning.

AffinHwang Capital believes that the concerns have been priced into the current share price, and the result of the appeal is not likely to have further negative impact on the share price.

“Despite the concerns surrounding Supermax’s management team, we believe that it is business as usual for the company. Supermax, like its peers, will likely continue to benefit from the vinyl glove supply disruption in China, which should help drive its earnings growth for 2018,” it said.

The research house has raised its 2018 to 2020 earnings by 8% to 11% to factor in the better growth prospects.

“However, the consensus view is less optimistic on Supermax’s outlook, as the company’s annualised net profit based on the first quarter of 2018 is 10% higher than the consensus forecast; in our view, successful delivery of earnings growth would be the key re-rating catalyst for the stock in the near term.”

AffinHwang Capital has raised the company’s target price to RM3.10 (previously RM2.10) based on a higher multiple of 17.8 times 2018 price-to-earnings ratio (PER).

“Even at this higher target multiple, we believe that there is upside potential, as the stock would be trading at a 39% discount to the current sector forward PER of 29 times.

“Supermax has traded at a 16% discount to the sector since 2010.

“The biggest downside risk to our investment thesis would be even weaker-than-expected demand for gloves, longer time lag on passing through the higher production cost to its customers,” it said.

 

 
 

 

CENTURY LOGISTICS BHD

By Maybank Investment Bank Research

Hold

Target price: RM1.08

According to Maybank Investment Bank Research (Maybank IB), Century Logistics’ total logistics and procurement logistics units are in an arguably more mature stage.

“Growth opportunities lie in parcel delivery, which will ride on the growing importance of e-commerce. According to market research firm Euromonitor, Malaysia’s internet retail sales grew at a much faster pace (2011-2016 compounded annual growth rate (CAGR) of 29.7%) than the overall retail market (just 3.1% CAGR).

“Of note, growth in domestic parcel volumes in Malaysia mimics the growth in internet retail sales,” it said. The research house added that the tie-up with CJ Korea Express Asia (No.1 in South Korea with a 40% market share of parcel deliveries) provides knowledge transfer to Century Logistic and hubs and networks sharing. “Century Logistics will expand rapidly in South Korea and it is targeting 100 branches and 500 trucks by 2020 to capture both business-to-business and business-to-customer delivery volumes.”

One of the key risks to Maybank IB’s earnings estimates is execution.

“While Century Logistics may be able to leverage on CJ Korea Asia’s experience and technical knowledge in parcel deliveries, it has not managed such a large scale expansion before.

“And if competition heats up in this fragmented parcel delivery space, this could also weigh on Century Logistics,” it said.

Maybank IB forecasts decent revenue growth of 14.6% and 16.9% year-on-year for 2018 and 2019 respectively, mainly driven by the parcel delivery business under its total logistics services business.

“While Century Logistics is no longer cheap, we believe the stock is fairly valued, at 23.4-times 2018 PER,” the research house said.

 

 
 

 

Destini Bhd

By CIMB Research

Add

Target price: RM0.74

Destini managing director Datuk Rozabil took over the financially-troubled Satang Holdings Bhd in September 2011, restructured the company and renamed it Destini Bhd.

He transformed the group from a mere survival and safety maintenance, repair, and overhaul (MRO) service provider into a regional integrated engineering solutions provider with businesses in marine shipbuilding, aviation, land transport and the oil and gas industries.

Destini, listed on the Main Market, is a syariah-compliant stock.

The management’s long-term strategy is to grow Destini’s MRO asset base as it aspires to be a regional engineering MRO service provider.

Currently, its main MRO business is providing safety and survival equipment MRO services to the Royal Malaysian Air Force (RMAF) but there is potential to expand its MRO services to paramilitary ships and helicopters, as well as the railway company KTM.

Destini currently generates more than 80% of its revenue from the marine and aviation sectors.

Its main marine revenue contributor is the construction of New Generation Patrol Craft (NGPC) and Offshore Patrol Vessels (OPV) for the Marine Maritime Enforcement Agency (MMEA), to be delivered by 2018F and 2020F, respectively.

CIMB Research expects Destini to bid for the MRO of these vessels upon the completion of their construction.

The research house has not assumed any potential earnings from vessel MRO.

Destini is currently completing a RM62mil KTM job to supply 35 motor trolleys and two rail road vehicles by 2019.

“We think Destini could potentially secure a new MRO job with KTM in 2018.

“Negotiations have been ongoing for the past year.

“We have not assumed any potential KTM MRO jobs,” said CIMB Research.

The company is looking into mergers and acquisitions (M&As) to expand its commercial aircraft MRO business.

Negotiations with potential clients are ongoing but nothing has been finalised.

In 2017, the company set up a joint venture with Sapura Aero, a subsidiary of Sapura Resources Bhd, to undertake commercial aircraft MRO in the region.

As of September 2017, Destini’s balance sheet showed only 0.1 times net gearing.

As such, it has room to gear up if necessary to pursue M&As to grow its MRO business.

“We initiate coverage on Destini with an add recommendation.

“Our target price of RM0.74 is based on FY19 price-earnings ratio (P/E) of 17.6 times, at a 20% discount to our target price basis of 22 times FY19 P/E for Singapore’s ST Engineering to reflect Destini’s small market cap,” said CIMB Research.

 

 
 

 

JHM Consolidation Bhd

By RHB Research

Buy

Target price: RM3.67

RHB Research expects JHM Consolidation’s (JHM) automotive unit to gain further momentum as the current migration of automotive lighting towards light-emitting diodes (LEDs) will likely pick up pace.

The global automotive lighting market is anticipated to grow to US$35.9bil (RM143.69bil) by 2022, from US$25.7bil (RM102.86bil) in 2016.

This is mainly driven by higher adoption amongst mid-range and low-end cars due to increasing affordability.

The research house expects this trend to directly benefit JHM as the group is working closely with its existing customers for co-development of new products.

“Beyond that, we gather that the group is currently in active negotiations with several Tier-1 automotive LED lighting suppliers to explore potential electronics manufacturing services (EMS) opportunities.

“This may mark the group’s penetration into new markets such as the Japanese and European automotive components supply chain.

“Overall, we expect 14.8% to 28.6% revenue growth for its automotive segment for FY17 to FY19,” said RHB Research.

The company’s management is looking to penetrate into new sub-segments within the automotive industry over the next six to 18 months.

 

 
 

 

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