MYEG SERVICES BHD
By UOB KayHian
Target price: RM1.62
INTERNET management services provider MyEG’s net cash level is expected to drop from RM36.8mil to RM1.4mil after the group’s acquisition of 45-sq-ft commercial space at the podium level below MyEG Tower at Empire City for RM35.4mil cash.
It has entered into a sales and purchase agreement with Cosmopolitan Avenue to acquire the space.
Separately, MyEG has also entered into a put option agreement with Cosmopolitan Avenue to sell the property back at the amount equal to 66.67% of the purchase consideration within six months from the date of delivery of vacant possession of the property to MyEG at the company’s sole discretion, should there be any unforeseen circumstances which may impact the group’s operations.
UOB KayHian said it is neutral on the share price as it understood that the property is to house the group’s customer service and showroom to showcase MyEG’s concession and commercial services in order to centralise its operations and relocate all employees under one roof.
It said it has maintained its target price of RM1.62, implying 20 times price-to-earnings ratio, as it did not expect a significant reaction should MyEG recognise a significant impairment for its goods and services tax monitoring investment.
Nevertheless, it has maintained its “hold” call until there are clearer signs of the new government loosening up related policies on migrant intake, which has slowed significantly in the past few weeks as they followed through one of their GE14 manifestos to reduce the numbers of foreign workers in Malaysia.
By CGS-CIMB Securities
Neutral (no change)
LOAN growth is expected to ease from September onwards on expectation that auto sales and consumer spending could ease following the introduction of the sales and service tax.
CGS-CIMB also see limited upside for business loan expansion, as some companies could hold back their investment plans in light of uncertainties arising from possible policy changes.
Loan growth is expected to be around 4% to 5% for 2018.
The growth inched up from 5.3% year-on-year (y-o-y) in July to 5.4% y-o-y in August, supported by the surge in the applications for auto loans and loans classified as “others”.
Meanwhile, the growth in loan approvals stalled (-0.1% y-o-y) in August, affected by the contraction in approvals for residential mortgages.
“We expect the growth impaired loan (GIL) ratio to increase to 1.8% at end-2018, with potential risks coming from the oil and gas and property sectors,” the research house said.
The GIL ratio was stable at 1.58% at end-July and end-August.
Although the uptrend in loan growth continued and the GIL ratio was tamed in August, the research house still see the risk of deterioration in these indicators, going forward. Another earnings risk for banks is margin erosion.
“As such, we retain our ‘neutral’ call on the sector. The potential upside or downside risks to our call are a pick-up or slowdown in loan and fee income growth,” CGS-CIMB said.
The brokerage said RHB Bank remained its top pick for the sector.
CYPARK RESOURCES BHD
By Public Investment Bank
Target price: RM2.45
CYPARK Resources Bhd, an environmental assessment group, reported a 9% increase in revenue year-on-year (y-o-y) for its nine-month period of financial year 2018 (FY18).
This is mainly driven by higher contribution from its environmental engineering (EE)-related segment to RM195.5mil due to progressive completion for the new large-scale solar (LSS) projects secured.
Meanwhile, its maintenance segment also reported higher revenue at RM5mil (versus RM2.5mil in the same period last year) mainly contributed by the specialist maintenance works performed on leachate treatment plants.
Its core net profit for the nine months of FY18 jumped 12% y-o-y to RM50.3mil mainly due to higher revenue from EE segment as well as lower finance cost of RM7.6mil due to green technology and renewable energy segment.
“Going forward, we expect higher contributions from its EE-related segment, with total engineering, procurement, construction and commissioning contracts for the LSS projects over the next two years valued at more than RM600mil,” Public Investment said.
Meanwhile, upon completion of the 30MWac of floating solar in Empangan Terip, Negri Sembilan, the research house also expected further contributions in the renewable energy segment from FY19 onwards from the sale of electricity to the national grid for the next 21 years.
This will be executed through a 40% stake in a special-purpose vehicle company with Revenue Vantage Bhd.
“However, this has yet to be accounted for in our earnings forecast,” the brokerage said.
Public Investment has maintained its “neutral” call on Cypark with an unchanged sum of parts-based target price of RM2.45.
PECCA GROUP BHD
By Rakuten Trade
Target price: RM1.09
AUTOMOTIVE group Pecca looks forward to the aviation division as its potential growth catalyst as it awaits production organisation approval from the Department of Civil Aviation for commercial aircraft seat cover placement programme to supply and refurbish leather seats for major airlines based in Malaysia.
Pecca was listed on the Main Market of Bursa Malaysia in April 2016 at RM1.42 and it remains the market leader with over 40% market share in the automotive leather upholstery, supplying to Perodua, Toyota, Nissan, Honda, Proton and Mitsubishi, among others, with 30% for export markets.
The group’s major client is Perodua’s bestseller Myvi, and the upcoming MPV launch will continue to provide room for growth.
Rakuten said its share price correction has made it an attractive value proposition, as earnings recovery is set to normalise while growth trajectory remained intact from the aviation segment.
Pecca’s balance sheet remained solid in net cash position with RM97mil, translating to 51 sen per share.
The group also has a minimum 40% dividend payout ratio, with current yield rate of above 6%.
Recovery for earnings will see earnings per share growth of 37% in FY19 and 15% in FY20.
“We call for a ‘buy’ with a target price of RM1.09 based on 14.6 times per financial year 2019, premised on the automotive sector averaging value,” Rakuten said.