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Analyst Reports


 

PPB GROUP BHD

By UOB Kay Hian Malaysia Research

Hold (maintained)

Target price: RM17.45

UOB Kay Hian Malaysia Research expects PPB’s earnings growth in 2018 to be supported by an earnings improvement across all core businesses.

According to the research house, PPB will likely deliver satisfactory results this year.

“Post-analyst briefing, we remain positive on PPB’s long-term prospects. Wilmar, which is a subsidiary of PPB, should post another steady year with continuing growth from the oilseeds and grains segment and a recovery from the other two segments – tropical oils and sugar.

“We are expecting earnings growth of 15% year-on-year (y-o-y) for Wilmar in 2018 and about 70%-75% of PPB’s earnings to come from Wilmar,” it said in a note.

PPB is expected to see an increase in cost for its grains and agribusiness segment, given the anticipated increase in wheat price.

Wheat is the key raw material for the grains and agribusiness segment and accounts for about 90% of the cost of sales.

However, the strengthening of the ringgit and and PPB’s leading position in the flour market could mitigate the high cost risks.

UOB Kay Hian expects PPB’s grains and agribusiness revenue to grow 6% y-o-y in 2018.

The group’s environmental engineering and utilities (EE&U) and property segments are also projected to register stronger contribution, moving forward, following a lacklustre performance in the past two years.

“EE&U orderbook has increased to RM270mil as at Dec 17 as more contracts were secured, while earnings recognition should flow through in 2018-2019.

“For the property segment, the launch of Megah Rise is expected to contribute positively to PPB from 2018 onwards,” it said.

It also added that PPB’s expansion plan would help drive growth. The management is targeting capital expenditure of RM622mil to be utilised over the next four years.

 

SYARIKAT TAKAFUL MALAYSIA BHD

By MIDF Research

Buy (maintained)

Target price: RM4.65

MIDF Research is positive on Syarikat Takaful Malaysia Bhd’s (Takaful Malaysia) latest move to establish its new digital platform, which is expected to enhance its capability to increase the group’s overall takaful contribution.

The launch could also facilitate the strengthening of Takaful Malaysia’s digital footprint in the takaful market, going forward.

On March 2, Takaful Malaysia launched its new digital platform, “Click for Cover”. Following the launch, few partnerships have been created between Takaful Malaysia and other parties namely Fusionex, Lembaga Tabung Haji and Bank Islam.

Takaful Malaysia has partnered Fusionex, an established information technology software group that specialises in analystics and Big Data. Fusionex is expected to provide seamless customer experience for purchasing Takaful Malaysia products online.

Via a separate agreement with Bank Islam and Tabung Haji, Takaful Malaysia will be able to introduce online takaful products to their customers and depositors.

According to MIDF Research, the collaboration formed with Tabung Haji and Bank Islam serves as complimentary to Takaful Malaysia’s digitalisation strategy, as it forms a stronger distribution channels for its takaful products offered in the “Click to Cover” platform.

“Moving forward, as the new online channel reaches its maturity, we opine that underwriting margin will see improvement stemming from lower management expenses in the medium term.

“Also, we opine claim expenses in the future to stabilise, stemming from better risk-matching exercises in the general segment.

“Additionally, online platform will widen takaful products reach to consumers, leveraging on the high penetration rate of online presence in the local market,” said the research house.

It has retained earnings estimates of Takaful Malaysia for financial years 2018 and 2019, with no immediate impact from the new digital platform as the developments are still at nascent stage.

 

NESTLE (M) BHD

By Affin Hwang Capital

Sell (Maintain)

Target price: RM97.60

NESTLE guided that 2017 revenue growth of 4% y-o-y was mainly driven by volume growth.

Affin Hwang Capital believes that Nestle should see higher revenue growth in 2018, supported by improvement in consumer sentiment and higher disposable income spurred by the strengthening of the ringgit and a favourable Budget 2018.

Nestle’s continuous effort to launch new products should also help to sustain its growth in tandem with the 4% to 5% rise in food and beverage packaged sales value in Malaysia.

The research house is forecasting 16% earnings per share growth on revenue and margin improvement.

The gross margin in 2017 declined by 2.7 percentage points to 36.7% as compared to 39.4% in 2016, mainly due to higher raw material prices hedged in the first half of 2017 when raw material prices were still at elevated levels. Nevertheless, there was a quarter-on-quarter recovery in gross margin in the fourth quarter of 2017.

“In light of the decline in key raw material prices in second-half 2017, we expect sequential improvement in gross margin as Nestle’s raw material costs usually lags four to six months due to hedging contracts.

“We forecast 2018 gross margin to improve to 39%. Recent strength in the ringgit against US dollar is also positive to Nestle, given that an estimated 50% of its raw materials are imported,” said Affin Hwang Capital.

   

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