Protasco 'buy', Dialog 'hold', Supermax 'hold', Carlsberg 'outperform'


By UOB Kay Hian Research

Rating: Buy

Target Price: RM1.50

PROTASCO recently announced that it had entered into a concession agreement with the government for the maintenance of federal roads in Sarawak that will commence in September 2018 and span over a 10 year period, covering a road length of about 751km, using a 30%-owned vehicle.

UOB Kay Hian said it expected this contract to top up its orderbook by some RM240mil.

“The winning of the concession is within expectations (given management’s long-standing relationship with the government and strong competency in running the business),” it said.

It also noted that the prior concession lasted for a longer tenure of 15 years (from June 2013 to August 2018) to maintain approximately 373km of roads.

“However, we note that this was fully-owned by its subsidiary back then,” it said.

The research house said the company’s new partner, D.A.L. Keluarga Realty SB, who came on board was a surprise, shaving Protasco’s share of profit by 70% for future Sarawak jobs.

“Based on historical maintenance works done at Sarawak, Protasco is able to generate RM40mil per annum. From our calculations, the company could possibly replenish its orderbook by RM240mil (outstanding amount as of September 2017 was RM4bil),” the research house said.

“With this new concession in place, we estimate that there could be only a 2-3% incremental bump up to our 2018-2019 revenue and earnings forecasts; this assumes a same 9% pretax profit margin run rate as with existing road maintenance jobs,” it added.

The research house maintained its “buy” rating on the stock with an unchanged sum of parts based target price of RM1.50.

“This implies 13 times price to earnings ratio (PER) against our 2019 earnings per share forecast, representing a slight premium to its five-year forward mean PER of 11 times, which we think is justifiable given the turnaround in earnings,” it said.


By UOB Kay Hian Research

Rating: Hold

Target Price: RM2.70

UOB Kay Hian Research said that Dialog’s first half FY18’s core result met 53% of its and 51% of consensus estimates.

“This excludes the RM66mil fair value gain of the Tanjung Langsat Centralised Terminals (now known as Dialog Terminals), and RM6mil disposal gain of assets. We deem the results to be above expectations, as the second half’s revenue is usually stronger,” the research house said.

“The positive variance is due to margin expansion across all segments, possibly due to further progress recognition of certain Engineering, Procurement, Construction and Commissioning (EPCC) works (like Rapid), an increasing mix of high-value projects, and better margins from upstream revenues given higher oil prices,” it added.

UOB Kay Hian said that this resulted in a 4 percentage points surge in pre-tax profit margin to 17% in the second quarter of FY18, which may be sustainable.

It noted that this also offset poorer performance from international revenues, specifically sales of specialist products.

Its balance sheets which turned from net cash position to <0.1 times net gearing, is within UOB Kay Hian’s expectations as loans were being drawn down to fund the storage terminal developments.

“The quarter saw the full consolidation of the Tanjung Langsat storage terminals from JV into revenue. Despite this movement, its joint venture income grew 55% due to: the LNG segment of Pengerang Phase 2 which achieved first commercial operations and cargo in Nov 2017,” it said.

“Our target price (implied 32x FY19 forward price to earnings ratio) factors in high EPCC revenue, valuation for Tanjung Langsat, and 41 sen per share Phase 3 ‘option value’,” it said.

The research house added that after a strong +72% outperformance, they see limited upside as current valuation has priced in all foreseeable expansion angles, unless the company can

continuously deliver major near-term earnings upgrades.


By CIMB Research

Rating: Hold

Target Price: RM2.35 (raised)

SUPERMAX’S first half FY18’s revenue rose by 28.1% year-on-year (y-o-y), mainly driven higher sales volume.

CIMB Research said the group managed to ramp up capacity from Plants 10 and 11 to capitalise on the current strong global demand for gloves.

It also noted that the first half earnings before interest and taxes margins improved 5.5% points y-o-y to 15.8% which it attributed to better economies of scale.

“Overall, first half’s net profit came in above ours and consensus expectations at 66% and 62%, respectively,” it said.

It noted that the stronger performance was mainly due to higher sales volume, decline in natural rubber prices (-10.9% quarter on quarter) and better cost efficiencies, especially as contribution from its new production lines increased due to higher automation.

CIMB Research attributed the higher sales volumes in the first half, particularly in the second quarter, to all the remaining six lines in Plant 10 and 11 being commissioned gradually in the period.

It also said that the group is in the midst of revamping some of its older plants which would increase overall efficiency as well as production output.

Most of these works are expected to be completed with commercial production to begin gradually from the first quarter of FY19.

“Given the stronger-than-expected second quarter results, we raise our FY18-20 forecasted earnings per share by 12.4%-19.0%. This is to mainly account for: higher utilisation rate leading to an increase in production volume, higher operating efficiency and lower raw material prices,” it said.

It maintained its hold rating, with higher target price of RM2.35.

“In tandem with our earnings per share increases, our target price is raised to RM2.35, still based on an unchanged 12 times calendar year 2019’s forecasted price to earnings ratio (which is a 50% discount to the glove sector),” it said.


By Kenanga Research

Rating: Outperform (upgraded)

Target Price: RM17.65 (raised)

KENANGA Research said Carlberg’s FY17’s results are within expectations.

“FY17 net profit of RM221.2mil is within our estimate but below consensus, making up 97% and 94% of respective estimates. The negative deviation from consensus is possibly due to better-than-expected results from its Singapore operations,” it said.

Kenanga said that the full-year dividend of 87 sen declared is above its 75 sen estimate as it had expected dividend payments to be only slightly above 100%.

The research house said that the group’s growing performance continued to be attributed to the successful launch and marketing of premium products.

“While we believe that less premium products registered uninspiring sales volume due to weaker consumer sentiment, the mid-year 2018 World Cup could potentially reinvigorate demand.

“Lion Brewery’s recent earnings could provide some relief that operation has fully recovered from the May 2016 floods,” Kenanga said.

Recall that in FY15, associate gains from the group amounted to RM16.1mil, it said.

Kenanga said it was positive on its management’s adoption of a 100% dividend policy.

“Post-results, we trim our FY18 forecasted earnings by 1.7% on slightly weaker Singapore dollar to Malaysian ringgit assumptions.

“We also increase our FY18 forecasted dividends to 82 sen (from 78 sen) to be closely in line with the new dividend policy,” the research house added.

It upgraded the stock to an outperform with a higher target price of RM17.65 (from RM15.05, previously).

“Our target price is based on a revised 19 times price to earnings ratio as we relook at the stock’s 3-year mean PER and roll over our valuation base-year to FY19.

Investors could react more positively with the turnaround of Sri Lanka operations. With the new dividend policy, the stock could offer yields of 4.9%/5.5% in FY18/FY19,” Kenanga said.