Petronas Dagangan 'buy', AWC 'add', Globetronics 'hold'

Petronas Dagangan Bhd



Target price: RM31

ANALYSTS expect Petronas Dagangan to generate stable operating margins in the coming years, with growing sales volume, post-implementation of effective inventory controls.

Its large network of retail stations should support further expansion in food & beverage offerings without any large capital expenditure (capex) requirements.

The group’s net cash position was solid at RM3.31 per share as at end 2017, or 12.7% of the last traded price.

Its business is divided into two major segments – petroleum retail and commercial (lubricant, diesel, aviation oil, etc).

The company is also the market leader in most of its business segments in Malaysia, with over 1,000 petrol stations, contributing 59.4% of total group EBIT. Non-oil revenue accounts for 10% of total group retail revenue.

Of note is the commercial division, which is the first non-Japanese lubricant company to be certified by Honda as its original equipment manufacturer, underlining its technical ability even among global players. The aviation oil business is still booming, with contracts signed with major airlines (AirAsia, Firefly and Malaysia Airlines), and continues to contribute to its division earnings.

There is also latent potential in untapped retail network with the Kedai Mesra outlets nationwide.

“In the future, we believe it has a huge advantage in providing more F&B offerings (i.e lunch sets or mini-café concepts) by merely capitalising on its existing store count,” the report stated.

The business contributes only 10% of total retail revenue now, but this is expected to increase to 20% by 2025.

Analysts added that the margins should remain stable over 2018-2020 due to lower inventory turnover days and their assumption that the automatic price mechanism will stay intact.



Add (no change)

Target price: RM1.26

AWC said financial year ended June 2018 net profit declined 1% year-on-year (y-o-y) as stronger results from its facilities division (FY18 profit before tax or PBT growth for this segment was 100%+ y-o-y) was offset by weak results from the engineering division where the financial year 2018 (FY18) PBT declined by 75.4% y-o-y.

The decline in profitability of its engineering business was owed to cost overruns from air-conditioning projects (most of these have since been completed) and unforeseen delays in certain projects.

AWC said it remained upbeat about Trackwork & Supplies Sdn Bhd’s (TWS) prospects.

AWC recently received shareholders’ approval to acquire a 60% stake in TWS for RM43.5mil.

“Despite cancellation and/or deferment of major rail projects in Malaysia, AWC is confident that TWS is well positioned to benefit from rail projects that have not been cancelled,” the report said.

Analysts have also gathered from AWC that TWS has an outstanding order book of RM70mil, and tender book of RM900mil.

CGS CIMB is also confident that would deliver stronger results in the forecast financial year 2019 (FY19F).

“While most of its engineering projects that faced cost overruns have been completed, we believe the group will also benefit from full-year contribution from new projects secured by the facilities management segment in FY18,” they stated in the report.

AWC will also start consolidating TWS’ earnings in the second quarter of 2019 (2Q19F).

Analysts note that TWS has given AWC a profit guarantee to deliver profit after tax of at least RM8mil in financial year ended September 2018 and RM12mil in FY19F.

Globetronics Technology Bhd

By UOB KayHian

Hold (maintained)

Target price: RM2.52

GLOBETRONICS Technology’s production for the sensor segment (both light and gesture sensors) has been on an increasing trend since June 2018.

The strong production visibility (with capacity utilisation rate of 90%-95%) could drive strong earnings growth in the second half of 2018 (2H18) which is estimated to increase 110%-150% half-on-half in 2H18.

The current strong production volume is expected to sustain till January 2019. Post this initial ramp-up, production volume would be very much dependent on consumers’ reception to its US end-client’s recently-launched smartphone models.

For 2019, analysts view that the key catalyst for sensor segment would still likely be driven by its ability to grow sensor content (per smartphone) with the US end-client.

Soraa’s laser headlamp could be a key revenue driver to increase earning contributions. Its revenue is seen to grow 400%-450% year-on-year in 2019, contributing 5% of its total revenue in 2019 (2018: 1%).

With a phase one investment of RM9mil capex, the small volume mass production of laser head lamps (for one car model) has just started, after more than two years’ stringent qualification process with its end customer from Germany. The qualification for second model would be in 2019.

“We expect Globetronics to continue focusing on growing its business on cutting-edge products – new sensor products and niche products within the LED segment. The business of matured timing and crystal quartz is expected to remain status quo but will not provide new catalysts,” UOB said.

Laser head lamps would continue to be a growth driver for the segment in 2020 as it would be designed and incorporated into more car models.

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