OCK 'outperform', VS Industry 'buy', Titijaya 'buy', Oceancash 'add'


OCK Group Bhd

By Kenanga Research

Outperform (maintained)

Target price: 95 sen

OCK’s proposed collaboration with ISOC Infrastructures Inc (ISOC) to pursue the telecom tower business in Philippines is a welcome development.

According to Kenanga Research, the move could enhance OCK’s recurring revenue stream. But the brokerage is not making any change to its earnings forecasts for OCK for the financial years (FY) 2018 and 2019 yet.

“The execution of the MoU is not expected to have any financial impact to the group in FY18.

“Nevertheless, we understand that management is hoping for a positive contribution on its earnings in the future should the projects be finalised and commercialised,” Kenanga Research explained.

The brokerage maintained its “outperform” call on OCK, with an unchanged discounted-cash-flow-driven target price of 95 sen.

“The recent share price weakness could provide bargain hunting opportunities to long-term investors given the group’s intact prospect.

“We continue to like OCK for its healthy cash flow on the back of escalating recurring income trend, ability to ride with the passive infrastructure sharing trend, EBITDA margin expanding trend, and potential growth through M&A activity,” Kenanga Research said.

OCK on Wednesday announced that its subsidiary OCK Vietnam Towers Ptd Ltd had entered into an exclusive one-year MOU agreement with ISOC to pursue opportunities to acquire, install, operate, maintain and manage telecom tower assets in the Philippines.

Besides, the collaboration would also allow both parties to explore opportunities in the new towers’ roll-out/greenfield projects and potential sale-and-leaseback project from mobile telecom operators.

Kenanga Research said Philippines’ telecommunication industry has tremendous potential for growth, according to the management, given its lowest telecom towers per capita at 152 towers per one million capita vs the Asean’s average of 579. Besides, Philippines’ 4G access is also the lowest at 59% vs the Asean’s average of 72%.

It noted that OCK would expect the collaboration with ISOC to provide the group an advantageous platform to penetrate the Philippine market and drive the group’s future business growth.

VS Industry Bhd

By Maybank Investment Bank Research

Buy (maintained)

Target price: RM3.18

Despite a slight quarter-on-quarter (q-o-q) weakness in VS Industry’s (VSI) results for the second quarter (2Q) ended Jan 31, 2018, earnings would catch up in the second half (H2) of its financial year ending Jul 31, 2018.

Maybank Investment Bank Research (Maybank IB) attributed the earnings catch-up to utilisation of VSI’s new box-build production lines, which could gain traction given a key product launch recently by VSI’s largest client.

The brokerage made no change to its earning forecast for VSI and maintained its “buy” call on VSI, with an unchanged target price of RM3.18, based on 17.5 times 2019 earning estimates, which was in line with its peers.

MaybankIB said VSI’s fundamentals remained intact with visible growth over the next three years.

“For a growth stock with a three-year expected earnings CAGR (compounded annual growth rate) of 22%, valuations are inexpensive at 13.9 times 2019 earnings currently.

“As VSI continues to gain traction with its existing clients, its newfound economies of scale could also open up opportunity for job wins from new clientele,” the brokerage said.

According to Maybank IB, the slower q-o-q performance of VSI was a timing issue. This was due to the Malaysian operations, as revenue contracted 7%, attributed to seasonally lower contribution from Keurig. Coupled with higher start-up costs for its latest two box-build production lines for customer X which did not hit optimal utilisation, pretax profit margin for the Malaysian ops weakened.

But stronger quarters are expected ahead.

“We expect VSI to gain operational efficiency especially for the Malaysian ops in the coming quarters as volume shipment for Customer X climbs in order to fulfil demand for its newly launched flagship home cleaning products.

“On the assumption that all six box-build lines will achieve optimum utilisation, we expect VSI’s full earnings potential to be showcased in H2’18, we expect VSI to report stronger average quarterly net profits of RM54mil-RM60mil in the upcoming two quarters,” Maybank IB said.

Titijaya Land Bhd

By AmInvestment Bank Research

Fair value: 95 sen

Buy (maintained)

AmInvestment Bank, in its latest report on Titijaya, is maintaining its forecasts for the company with a buy call and a fair value of 95 sen.

“Titijaya has proposed to subscribe to a 99% equity interest in BJ Properties Sdn Bhd (BJ) for RM9.9mil cash. BJ owns a 6.8-acre leasehold residential land along Jalan Nipah, off Jalan Ampang, Ampang (behind private hospital Gleneagles KL).

“Titijaya intends to develop a residential project with some commercial elements with a total gross development value (GDV) of RM1.5bil on the land.”

The research house said BJ has about RM100mil in net debt, which means Titijaya is effectively paying about RM370 per sq ft for the land.

“Our research shows that the land has been on the market since 2014 (if not earlier), with an asking price that has been sliding from RM1,400 per sq ft then, to RM1,000 per sq ft at present.”

AmInvestment Bank said Titijaya and China’s CREC are developing a RM1.8bil residential/office project called 3rdNvenue on a 6.1-acre land just right opposite this piece of land.

“The 6.1-acre land was valued at about RM1,500 per sq ft in 2016, pursuant to the joint venture agreement.”

The research house believes Titijaya has struck a good deal for itself in its latest land acquisition.

“However, we are mindful that it is unrealistic to expect launches from the land over the short to medium term given the oversupply situation in the high-rise residential segment in the Klang Valley at present.”

AmInvestment Bank is also concerned about the potential “cannibalisation” on Titijaya’s 3rdNvenue project just across the road, should both projects be carried out concurrently.

“As such, we believe it is premature to factor in any future earnings from the project in our valuations for Titijaya,” it said.

Oceancash Pacific Bhd

By CIMB Research

Target price: 76 sen

Add

Oceancash’s 2017 revenue rose 7.2% to RM89.7mil, driven by a higher sales volume from both the felt and hygiene segments. Its net profit, however, declined 3.2% year-on-year to RM9.8mil.

“Besides a less profitable product mix and a weaker dollar to the ringgit, the management clarified that the year-on-year decline in net profit was due to transfer listing (to the Main Market) expenses of RM200,000 and one-off repair expenses of RM500,000.

“If we were to add back these one-off expenses, 2017 core net profit would stand at RM10.5mil, which is 3.4% year-on-year growth,” said CIMB Research.

Moving forward, it said Oceancash aims to expand its non-woven (hygiene) presence in Thailand, where the bulk of large scale diaper factories are located.

Initially, Oceancash will set up a warehouse facility there as most Thai customers would require a short delivery time.

If demand in Thailand is strong, Oceancash has plans to install two non-woven lines there (total of 2,400 tonnes per annum).

“Currently, the contribution from non-woven sales in Thailand is minimal and Oceancash believes there is a large potential to capture more Thailand-based customers,” the research house said.

For the felt segment, CIMB Research said Oceancash believes the Indonesian market remains competitive in terms of pricing.

“However, it is currently in talks with new Indonesian customers, including those in the mattress and air-conditioning industries.

“To be more competitive in Indonesia, Oceancash may lower its selling prices, in our view.

“Still, we view this potential move positively as its felt facility there is under-utilised at a 33% utilisation rate.

“In view of this, Oceancash expects the facility’s utilisation to increase from 33% to between 40% and 50% in 2018.”

Potential re-rating catalysts for the company include higher-than-expected demand for its felts in Indonesia and hygiene products in Thailand, and large contract awards from new customers in Indonesia, said CIMB Research.

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