MISC 'hold', MAHB market perform', Kimlun 'hold',


  • Business
  • Thursday, 12 Jul 2018

MISC BHD

By Maybank Investment Bank Research

Hold

Target price: RM6.30

MISC announced last Friday that it had signed a 16-year long-term charter contract with Hess Exploration and Production Malaysia BV for the lease of a floating, storage and offloading facility (FSO), known as FSO Mekar Bergading, on a bareboat basis.

The contract value is estimated to be US$441mil (RM1.78bil) and will commence latest by Sept 1, 2018.

Maybank Investment Bank Research (Maybank IB) said the FSO job win is MISC’s first offshore job win this year.

“However, impact to earnings is minimal (3% to bottomline) and unlikely to excite the market. We maintain our earnings forecasts as we have already imputed for this FSO. Our hold call and sum-of-parts-based target price of RM6.30 are also retained.

“We think the poor share price performance (-20% year-to-date) has already priced in the weak second quarter 2018 and dividend yield of 5.1% should provide some support to the share price.”

The research house said it expected minimal impact to earnings.

“Based on the budgeted capital expenditure (capex) of US$250mil (RM1bil) to US$280mil (RM1.13bil) for this FSO and equity internal rate of return of 12%, as well as 70:30 debt-to-equity financing, we estimate that this FSO would contribute a pre-tax profit of around US$15mil (RM60mil) per annum or an additional 3% to MISC’s bottomline in 2019.”

Maybank IB said it was maintaining its earnings forecasts and sum-of-parts fair value as it was already imputed for the company’s capex spending and return.

“We remain lukewarm on the stock as we await the recovery in petroleum tanker rates, which may only take place from fourth quarter 2018 onwards as the demand-supply of petroleum tankers rebalances.”

MALAYSIA AIRPORTS HOLDINGS BHD

By Kenanga Research

Market perform

Target price: RM8;60

MALAYSIA Airports Holdings Bhd’s (MAHB) six-month 2018 passenger level registered growth of 5.2% year-to-date, which Kenanga Research deemed to be in line with its total growth forecast of 8.5%.

The research house expected to see stronger growth numbers, boosted by festive seasons such as the Hari Raya holiday season.

“For June, passengers in Malaysia grew 9.7% year-on-year. Hari Raya was the main driver for the growth in June passenger traffic. That said, two weeks of school holidays, which coincided with Hari Raya, was also one of the factors for the boost in traffic.”

Maybank IB said KLIA’s traffic in June grew 6.7% year-on-year, with international and domestic traffic increase by 7.3% and 4.5% respectively.

“KLIA’s positive traffic growth continued, at 12.5% year-on-year, mainly driven by the festive season as mentioned above. As for KLIA2, it was partly attributable to growth from AIRASIA as they increased their capacities through higher plane utilisation as well as the number of planes.”

The research house noted that the anticipated quality of service framework will still be implemented by the Malaysian Aviation Commission (Mavcom) in the third quarter of 2018 for airports (starting with KLIA and KLIA2) with objectives to achieve higher quality of service for passengers.

This could pose as downside risks for MAHB’s earnings given that Mavcom has proposed a financial penalty of up to 5% of aeronautical revenue, which could dent our 2018 core net profit by 7% for every 1% penalty.

“That said, in order to mitigate penalties, MAHB has increased its planned capital expenditure to RM600mil-RM700mil (from typically RM300mil) in 2018 to 2019 to upgrade infrastructure, such as trains, baggage systems and toilets.”

The research house added that its target price was based on price-to-book value of 1.72-times.

“Risks to our call include lower-than-expected passenger growth and any unexpected epidemic or terror attack,” it said.

KIMLUN BHD

By Maybank Investment Bank Research

Hold

Target price: RM1.45

CONSTRUCTION is expected to support earnings in 2018, with recovery at the manufacturing segment only expected in the second half of 2018.

“Kimlun has secured RM310mil of construction job wins year-to-date 2018, on track to hits its target of RM600mil to RM800mil for 2018. The remaining job wins in 2018 could potentially come from both government and private affordable housing projects,” said Maybank Investment Bank Research (Maybank IB).

“On its Pan Borneo Highway Sarawak work package, construction is ongoing with physical progress at 30%. Based on our checks with Kimlun and media releases, implementation of the project is likely to continue. However, what remains uncertain is whether the total project cost would be reviewed.”

Maybank IB said the stop-work order in March 2018 at selected packages of the MRT 2, which affected Kimlun’s manufacturing earnings in the first quarter of this year, has been progressively uplifted, with the affected third and final work packages resuming work towards end of the second quarter of 2018.

“Thus, we expect the second quarter 2018 manufacturing earnings to be flattish quarter-on-quarter, with significant recovery only in the second half of 2018.

“Year-to-date 2018, manufacturing job wins of RM150mil have already exceeded its earlier target of RM120mil for 2018. Kimlun has set a higher target of RM200mil, with the remaining job wins potentially coming from the Deep Tunnel Sewerage System 2 (DTSS 2) and projects in Singapore.

“We gather that Kimlun is still awaiting the results of two tenders for the DTSS 2.”

The research house said it is keeping its earnings forecasts intact, having already assumed construction and manufacturing order-book replenishment of RM700mil and RM200mil respectively for 2018.

“We estimate Kimlun’s outstanding order book at RM1.94bil as at end-March 2018. Our earnings forecasts have already been revised downwards during the recent first quarter 2018 results to reflect lower contribution from the manufacturing division.”

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