Luxchem 'buy', AWC 'add', Top Glove 'buy', Maxis 'hold'

Top company: Employees attach latex gloves to an air compressor as other gloves are inflated in the air-leak test room at a Top Glove factory in Setia Alam, Selangor. The glovemaker saw its quarterly revenue cross the RM1bil mark for the first time in the third quarter of fiscal 2018. — Bloomberg

Luxchem Corp Bhd

By RHB Research Institute


Target price: 69 sen

RHB Research Institute is keeping its forecast for Luxchem as the company’s first quarter 2018 profit after tax and minority interest made up 21% of the research house’s full year forecast.

“While we continue to expect pricing competition in the unsaturated polyester resin (UPR) segment to remain keen, in the near-term, this potential negative impact may be offset by the start-up of the commercial production for a new 10,000 tonnes per annum UPR manufacturing capacity,” the research house said.

RHB Research reckons the negative impact may also be offset by the continuous rebound in the dollar to the ringgit – which would benefit Luxchem given that around 25% of revenue is generated from overseas sales.

“The trading segment should also see demand normalise after posting a soft first quarter, partly supported by continued organic demand growth from the glove manufacturing sector,” it said.

The research house is of the view that dividend payout for 2018 is expected to be consistent with the prior three-year range of 45%, translating into dividend per share of 24 sen, yielding 4%.

“This is supported by zero net gearing and the absence of significant capital expenditure on the horizon.

“The development of the reclaimed land in Pulau Indah, budgeted at around RM10mil is not expected to take place this financial year, as the reclaimed land still requires time to settle and the development plan is still a work-in-progress,” it said.

Key risks to the stock, according to RHB Research, include the entry of new competitors, volatile raw materials prices, slower-than-expected demand growth, margins contraction, and unfavourable foreign exchange movement.

“Reiterate buy and 69 sen target price, with expected total return of 14%. While operationally, we continue to expect pricing competition for the UPR manufacturing segment, we keep earnings forecasts for now, pending the release of second quarter 2018 results – slated for end-July,” it added.


By CGS-CIMB Research


Target price: RM1

AWC expects its integrated facilities management (IFM) segment to continue to perform strongly, given better economies of scale, an increase in orderbook and higher recognition from its Critical Asset Refurbishment Programme (CARP), according to CGS-CIMB.

CARP is a 10-year programme (January 2016 to December 2025) for the replacement of old mechanical and electrical equipment in Government buildings at a pre-agreed schedule. The Government pays AWC on a monthly basis but AWC will only recognise the payment as earnings when work is done.

Moving forward, CGS-CIMB said AWC plans to secure more private jobs in the IFM segment, especially in the healthcare and commercial segments.

“AWC believes its experience and strong track record would make it very competitive in securing more private IFM jobs. Also, margins for private IFM contracts are also generally higher versus concession projects.

“For the IFM segment, we estimate that 55% of its existing total orderbook, including the CARP concession (up to December 2025), are for Government facilities.”

In the environment segment, CGS-CIMB said delays in progress billings led to a weak nine-months period for 2018.

“As AWC’s STREAM automated waste collection systems are installed towards the end of a construction project, unforeseen delays by the project’s main contractors resulted in slower progress billings.

Also, emergence of new players in this segment in Singapore had led to a more competitive environment there.

“However, AWC remains confident that the superior quality of its products will set it apart from its peers.”

The company also recently announced it has extended its target completion date for the acquisition of a 60% stake in Trackworks by three months to Sept 26, 2018.

“This was in relation to a demand letter for RM19mil in damages served by a customer to Trackworks’ vendors and international principal,” said CGS-CIMB.


By Maybank IB Research


Target price: RM12.90

Maybank IB Research has maintained its earnings forecast for Top Glove and expects a stronger fourth quarter (Q4’18) for the glovemaker on the back of the recent strengthening of the US dollar against the ringgit.

The research house said the group’s stronger Q3’18 results had come in within expectations, driven by strong demand growth from the emerging markets.

Top Glove saw its quarterly revenue cross the RM1bil mark for the first time in Q3’18.

The group’s sales revenue grow 26.6% to RM1.1bil from RM869.64mil in the corresponding period last year due to strong demand growth.

Its net profit for the period also grew 51.3% to RM117.57mil.

Maybank IB Research maintained its Buy call and target price of RM12.90 on the counter. The research house noted that the group’s 9MFY18 sales volume jumped 23% year-on-year, excluding Aspion.

It said the group could sustain this as the demand was driven by increasing awareness in the emerging markets.

“Key downside risk to our earnings forecasts lies in Aspion’s earnings delivery.

“To recap, there is a profit guarantee of RM81mil for FY10/18 but the latest earnings contribution from Aspion suggest a potential shortfall of about RM40mil.

“However, Top Glove believes it can improve Aspion’s earnings performance by tackling the procurement and sales distribution from July 2018 onwards,” it said.

Top Glove completed the RM1.37bil acquisition of Aspion in April to emerge as the world’s largest surgical glove manufacturer, further solidifying its leadership position as the world’s largest manufacturer of gloves.

The research house said changes in lenient regulatory requirements in developing markets would be an upside for the group as it could accelerate global glove demand growth.

A sharp fall in rubber prices and substantial rise in the strength of the US dollar against the ringgit are among other swing factors.

Maxis Bhd

By AmInvestment Bank Research


Fair Value: RM5.76

A merger between Maxis and Astro Malaysia Holdings Bhd would be a rational option given that both companies are facing intense competition on multiple fronts, said AmInvestment Bank Research.

“While Maxis currently endures increasingly competitive plans from rivals, over-the-top players like iflix and Netflix and other pay-TV options such as unifi’s HyppTV drive down Astro’s postpaid average revenue per user (ARPU) and erode its subscription base, and consequently advertising revenues,” it said.

The research house noted that a merger would lead to an entity with a market capitalisation of RM53bil (vs Maxis’ RM44bil) with a combined net profit of RM2.6bil.

Given Astro’s lower valuations, it said the merged entity’s FY18 enterprise value/earnings before interest, taxes, depreciation and amortisation (EV/Ebitda) could slightly drop to 10.3 times (x) with FY19 PE sliding to 20.8x.

However, it expects Astro’s higher FY18 net debt per Ebitda of 1.7x will cause the merged entities to rise slightly from 1.3x to 1.4x.

“We expect merger synergies from the convergence of Maxis and Astro’s services.

“For example, Maxis mobile and Home Fibre plans could be repackaged with Astro IPTV offerings, which could also be streamed to mobile devices. Even though this should be value-enhancing, we highlight that such a move is merely a rear guard manoeuvre to prevent revenue erosion from declining ARPUs and subscriber attrition,” it said.

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Business , analyst reports , Luxchem , AWC , Top Glove , Maxis , markets ,


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