C&C 'hold', MAHB 'hold', Gamuda 'buy', Lafarge hold'

  • Analyst Reports
  • Wednesday, 25 Jul 2018

Cycle & Carriage Bintang Bhd

By Affin Hwang Capital

Hold (maintain)

Target price: RM1.95

CYCLE & Carriage Bintang Bhd (CCB) reported a weak set of results recently. Affin Hwang Capital said CCB’s overall results were below its expectations due to the weaker than expected earnings before interest, tax, depreciation and amortization (ebitda) margin

For the first six-month of 2018, CCB revenue grew 11% year-on-year (y-o-y) on higher vehicle sales, but core net profit fell 33% y-o-y due to higher operating cost and a change in sales mix.

Nonetheless, the group’s first half of 2018 results was well cushioned by the RM11.2mil dividend income received from 49%-owned Mercedez-Benz Malaysia (MBM).

MBM is looking to outdo its 2017 sales of 12,000 units and plans to roll out five model launches during second half of 2018.

Affin Hwang said prospects for CCB remained challenging due to competition within the MBM’s dealers.

The research house has maintained its “hold” call on CCB with an unchanged target price of RM1.95 based on 0.7 times 2018 estimated book value and implied a 2019 estimated price-earnings ratio of 14 times.

Affin Hwang reckoned that CCB’s margins continued to be affected by a challenging market environment and higher operating cost.

It pointed out that the intense competition within MBM’s dealers and change in sales mix (skewed to lower-margin products) had suppressed CCB’s profit margin.

Affin Hwang has cut its earnings forecast on CCB for FY18 to FY2020 by 9%-20% to reflect a higher operating cost and lower ebitda margin business environment.

Malaysia Airports Holdings Bhd

By CIMB Research


Target price: RM8.25

AirAsia Group Bhd has been pushing hard to establish independent operatorship of Kota Kinabalu’s Terminal 2 (KK T2), which will have negative consequences for Malaysia Airports Holdings Bhd (MAHB) if AirAsia succeeds, CIMB Research said.

The research house reckoned that MAHB would need to lobby hard to prevent this from happening, and there are many defences which MAHB can employ.

AirAsia operated out of KK T2 until Dec 1, 2015 when it was moved to T1. AirAsia passengers are currently paying domestic passenger service charge (PSC) of RM11 (vs only RM6 when AirAsia operated at KK T2), and non-ASean international PSC of RM73 (vs RM32), although the PSC for Asean international flights has been RM35 since Jan 1, 2017.

CIMB said that MAHB clearly preferred higher PSC rates in order to bolster its profitability, while AirAsia preferred PSCs to be lower, in order to lower the price of travel and allow AirAsia to generate more passenger traffic.

Hence, AirAsia was unhappy with the regulator, Malaysian Aviation Commission’s move to raise PSCs on Jan 1, 2017.

If the Transport Ministry agrees that MAHB should hand over operatorship of KK T2 to an independent operator, upon which AirAsia will move from T1 to T2, MAHB will lose a valuable, growing, and financially-robust customer at KK.

A greater proportion of MAHB’s revenue will come from airlines like MAS and Malindo.

CIMB said it has maintained its “hold” call on MAHB with an unchanged DCF-based target price of RM8.25.

Gamuda Bhd

By UOB Kay Hian

Buy (maintain)

Target price: RM4.49

THE potential revival of shelved mega projects and disposal of Gamuda Bhd’s stake in water concession company Syarikat Pengeluar Air Selangor Sdn Bhd (Splash) reaffirmed UOB Kay Hian Research’s “buy” call on the group.

The research house said the company has been actively engaging various stakeholders to discuss the potential revival of shelved mega projects with alternative options.

“Also, the potential disposal of its 40% stake in Splash is expected to proceed when restructuring and takeover discussions are completed by early-August 2018,” it said.

The research house said it expected the RM32bil Penang Transport Masterplan (PTMP) to get the green light from Putrajaya soon.

It noted that the Penang state government indicated it would consider requesting for a RM1bil soft loan from the federal government to expedite the implementation of the project.

The project includes the development of the LRT and Pan Island Link 1 (highway) projects simultaneously, subject to approval from relevant authorities which is expected as early as the end of the year.

The research house added that it expected construction works for the PTMP to commence as early as mid-2019 and will keep the SRS consortium, in which Gamuda owns 60%, busy for the next six to 10 years until the completion of the project.

On Splash, UOB Kay Hian said the concession company’s woes were expected to end soon following recent reports highlighting that the takeover process is 80% completed and should be done by next month.


By Maybank IB Research


Target price: RM3.11

MAYBANK IB Research expects Lafarge Malaysia’s second quarter (2Q18) results to be disappointing, due to rampant competition and softer demand.

It raised its net loss for FY18 and now expects the company’s net losses to continue into FY19.

The research house also cut its FY20 earnings forecast by 86%.

“That said, while the outlook remains challenging, we believe that the negatives have been priced in following a 45% fall in share price year-to-date,” it said.

Due to this, it upgraded the counter to “hold”, with a lower target price of RM3.11.

Lafarge Malaysia is Malaysia’s largest cement player with market share of around 35%.

The research house said intense competition continued to suppress cement average selling prices (ASPs) in 2Q18 as construction activities slowed during the Ramadan/Hari Raya period.

It said there were no attempts made to raise cement ASPs since March 2018 as industry players took a defensive stance to protect sales.

Also, with spot coal prices on an uptrend, up 12% year-on-year, it expected the group’s earnings for the quarter to be lacklustre.

About 20% of Lafarge Malaysia’s annual coal requirement is sourced from the spot market.

“We believe any increase in cement ASPs will only occur when industry demand outlook improves. “Given that various mega-infrastructure projects have now either been cancelled or put under review, our previous expectations for an infrastructure-led demand growth in the seocnd half of 2018 may not materialise,” it said.

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