Analyst Reports


  • Business
  • Tuesday, 03 Jul 2018

Cypark Resources Bhd

By CIMB Research

Add (maintained)

Target price: RM2.88

Cypark’s core earnings in the first half of financial year 2018 were within CIMB Research’s expectations at 49% of its full-year forecast. However, it was below Bloomberg consensus estimates at 43%.

In the six-month period, Cypark’s core net profit was up by 43% year-on-year (y-o-y), lifted by higher revenue and the absence of an employees share option scheme.

The group’s higher top line, which rose by 13% y-o-y in the period in review, was primarily attributable to stronger sales in all divisions, mainly Cypark’s environmental engineering (EE) division.

The EE division was boosted by large scale solar projects.

“We expect Cypark’s experience and expertise in providing EE solutions to help it secure more waste water treatment, sanitary landfills, waste management facilities and closure of dump sites projects.

“To date, its experienced team has successfully completed more than 600 acres of remediation and restoration works for contaminated ground spanning over 20 landfill projects across the country.

“The EE division contributed about 75% of FY17’s revenue and about 65% of FY17’s operating profit,” said the research firm.

Moving forward, CIMB Research remains positive on the stock and anticipates the company’s earnings to improve in the financial years of 2018 and 2019 (FY18-19).

This was largely because the first phase of Cypark’s waste-to-energy (WTE) project will commence operations in the second half of this year.

“We expect the WTE plant to generate stable revenues of about RM80mil per annum over the 25-year concession.

“The completion of the WTE plant will be a key milestone for the company as the plant is the single largest investment it has ever undertaken.

“Given the in-line results, we leave our numbers untouched. At only 7.5 times FY19 price-to-earnings ratio currently, the stock is the cheapest utilities stock under our coverage.

“It is also a good proxy for investors seeking exposure to the Malaysian renewable energy sector, in our view,” said the research house in a note.

Sapura Energy Bhd

By AmInvestment Bank Research

Buy (maintained)

Fair value: 79 sen

AmInvestment Bank Research expects Sapura Energy to record persistent losses over the medium term, and it has raised the group’s forecast loss in the financial year of 2019 (FY19) by three times higher.

The research house also lowered the earnings forecast for FY20 and FY21 by 28% and 9%, due to higher operating cost assumptions for the group’s exploration and production (E&P) division, together with lower margins for the drilling segment.

“Our lowered forecasts stem from Sapura Energy’s normalised loss of RM136mil in the first quarter of FY19 coming in below expectations, which already dwarfs our earlier FY19 loss of RM36mil and consensus’ RM82mil.

“Sapura Energy’s Q1FY19 normalised loss surged 4.7 times quarter-on-quarter (q-o-q) to RM136mil largely due to a sharp 66% q-o-q drop in E&P pre-tax to RM9mil as the proportion of lower-monetised gas rose to 40% of the group’s 1.1 million barrels of oil equivalent, leading to the E&P revenue decrease of 27% q-o-q,” stated the research firm in a note.

On the group’s job wins, AmInvestment Bank Research pointed out that the RM4.5bil worth of fresh contracts secured by Sapura Energy in FY19 to date have already accounted for 71% of its FY19 revenue.

As for the company’s outstanding order book size, the figure has slightly risen by 1% q-o-q to RM16.7bil, with additional orders expected from tender prospects worth up to US$13.1bil (RM52bil).

Tenaga Nasional Bhd

By Affin Hwang Capital

Buy (maintained)

Target price: RM18.70

The Government’s decision to maintain the current IBR (incentive-based regulation) and ICPT (imbalance cost pass-through) framework for regulatory period 2 (RP2) to determine the tariff every six months until 2020 is positive for Tenaga Nasional Bhd (TNB), said Affin Hwang Capital.

The research house explained that the decision reinforces the idea that any changes to the fuel price will continue to be earnings neutral to TNB.

It pointed out that the hike in the current effective tariff was the steepest since the introduction of the ICPT in 2014, and this is also the first time that a surcharge is being collected.

Additionally, the current rebate enjoyed by all users will also be abolished.

Affin Hwang said that this was a strong signal that there would only limited political influence in determining the tariff.

Before the announcement of the tariff, TNB’s share price had corrected by more than 13% over the past two months, mainly due to the uncertainty over the policy.

The ICPT mechanism is important to TNB, as it helps to maintain a steady cash flow for TNB, which allows it to continue with its current dividend payout policy – at least 30%-60% of its net profit to be returned to shareholders as dividends.

Affin Hwang reckoned that with the uncertainty removed, the risk associated with TNB is also now lower, which would be a catalyst for the stock.

It has maintained a “buy” call on TNB with an unchanged target price at RM18.70, as the increase in fuel cost will continue to be earnings neutral for TNB under the ICPT framework and supporting its current payout.

CIMB Group Holdings Bhd

By UOB Kay Hian Research

Buy

Target price: RM7.40

UOB Kay Hian Research said CIMB Group Holdings Bhd group chairman Datuk Seri Nazir Razak’s potential resignation or intention not to seek re-election as chairman is unlikely to affect the group’s operations.

The research house reckons that that Nazir’s role may be more of a consultative role on large decision-making processes.

According to news reports, Nazir, who is the face behind the country’s second largest lender, may leave the banking group.

Sources say Nazir has informed the CIMB board of directors that he will not be seeking a re-election as the chairman of the banking group and will leave when his term finishes next August.

While there is talk that Nazir could leave earlier than August, the source says so far, there has been no indication of him being “told to go”.

“He has not been called in by the Council of Eminent Persons or anyone else,” says the source. Tun Daim Zainuddin has said that it is entirely up to Datuk Seri Nazir Razak if he chooses to retire early or to see through his contract terms.

UOB pointed out that CIMB Group’s operations and strategy planning are largely spearheaded by the CEO Datuk Seri Zafrul Tengku Abdul Aziz, CFO Shahnaz Jammal and its management team, which also includes Renzo Veigas and Thomas Meow as advisors to the group CEO office.

In addition, Nasir’s stake in CIMB Group is only 0.47% and will not cause a share overhang if he were to sell down his stake.

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