Analyst Reports


MBM RESOURCES BHD

By RHB Research

Buy (upgraded)

Target price: RM2.70

 

MBM Resources has registered solid first half 2018 results, with net profit growing 89% year-on-year (y-o-y), mainly on better-than-expected sales of Perodua’s Myvi.

However, its third quarter 2018 earnings are likely to be sequentially softer, on lower Perodua sales volume – the result of a recent Myvi supply disruption.

RHB Research estimates the net profit for this period to come in at about RM18mil, implying 0.7% y-o-y and 48% quarter-on-quarter (q-o-q) declines in core earnings.

“Going forward, we expect some improvements with Perodua sales normalising, traction on Volvo sales (with the introduction of the XC40 SUV), and narrowing losses from the alloy wheels business.

“We still expect MBM to remain reliant on Perodua to drive earnings,” said RHB Research.

“Based on the latter’s strong track record in introducing the right product for the market, the research house expects Perodua to continue its local market leadership. It recently launched the updated Alza and has a B-segment SUV in the pipeline.

Volkswagen sales are likely to be softer, following weak September sales despite the tax holiday pricing extension until November 30 – on the absence of compelling new models.

Meanwhile, Volvo Malaysia recently added the XC40 to its SUV line-up, with the S60 sedan slated for launch in the third quarter of 2019. On the autoparts business, the outlook for MBM’s alloy wheels business remains challenging due to high casting wheel rejection and low utilisation rates.

 

PETRONAS DAGANGAN BHD

By CIMB Research

Hold (no change)

Target price: RM24.67

 

The government’s Budget 2019 unveiled several initiatives to be implemented, which CIMB Research believes will hurt the future trajectory of Petronas Dagangan’s (PetDag) retail and commercial volumes.

The first was a rationalisation of the RON95 motor gasoline (mogas) subsidy programme that will take effect in the second quarter of 2019 (2Q19), while the second was the imposition of an aviation departure levy for international travellers.

From 2Q19 onwards, the government will limit the retail subsidies for RON95 to a narrower group of people and with clear volume limits.

The current subsidy programme is indiscriminate in terms of the type of people who can benefit from it and unlimited in terms of how much subsidy the government is willing to bear. As the subsidy borne by the government is expected to fall from 2Q19 onwards, the weighted average cost of fuel borne by consumers is expected to rise, potentially hurting sales volumes of RON95.

“For now, the government will keep the price of retail diesel fixed but, if our thesis on the new International Maritime Organization’s global sulphur cap is correct, spot diesel prices and crude oil prices will rise and the government’s diesel subsidy will balloon in 2020.

“If this scenario materialises, we expect the diesel subsidy to be rationalised as well, leading to potentially lower retail sales volumes of diesel,” said CIMB Research. The government said in Budget 2019 that it will introduce a new aviation levy for international departures in mid-2019, which is on top of current airport Passenger Service Charges – likely to be increased in mid-2019.

 

E.A. TECHNIQUE (M) BHD

By PublicInvest Research

Outperform

Target price: RM0.73

 

E.A. Technique (EAT) has developed itself as a logistics provider which engages as an owner and operator.

Its core business, marine operations constitute 99.5% of revenue.

It is divided into two categories, marine transportation and offshore storage of oil and gas, as well as port marine services.

EAT’s outstanding orderbook in hand stands at RM930.5mil including contract extensions. This translates into 4.2 times of marine operations’ revenue as of FY17.

Furthermore, the group has submitted various tenders amounting to about RM1bil.

PublicInvest Research is nonetheless conservative in only assuming an RM150mil (15%) in FY19 replenishment, contrary to expectation of between 30% and 40% success rate.

The bulk (76%) of EAT’s fleet of 43 vessels are on long-term charters, with tenures stretching until 2027.

Only nine vessels have contracts expiring in the near-term while two vessels are under short-term time charter and spot voyages.

On average, EAT’s long-term contracts have outstanding periods of about six years.

This has resulted in high fleet utilisation of above 80%.

“We expect EAT to register strong growth of more than 100% and 26.6% in FY18 and FY19 on the back of its outstanding order book of RM930.5mil and tender book of RM1bil.

“For FY20, we are expecting marginal growth of only 6.6%, in line with our conservative order book replenishment assumption,” said PublicInvest Research.

 

POH HUAT RESOURCES HOLDINGS BHD

By Affin Hwang Capital

Buy (maintained)

Target price: RM1.71

 

The ongoing trade dispute between the US and China is making Malaysian furniture manufacturers more competitive compared to those in China.

Poh Huat stands to benefit from this as it has good relationships with US buyers, which make up an estimated 90% of sales.

Poh Huat’s current forward orders runup to March to April 2019.

The group has been updating and adjusting its product mix, mainly to meet the change in consumer preferences towards the middle and affordable products from high-end products previously.

On top of that, at the Vietnam operations, where competition is intense due to the rising number of furniture makers, Poh Huat has been trying to introduce more unique and differentiated furniture products that other furniture makers are not able to copy, and which is helping to keep orders resilient.

Currently, the group is in talks with an Australian company that sells furniture products online. The contribution from this venture is likely to be small, nevertheless, if Poh Huat manages to purchase the Australian company, this could be the group’s first foray in tapping the Australian furniture market.

“We lift our financial year 2019 (FY19) and FY20 core earnings for Poh Huat by 4.5% and 3.4%, mainly due to stronger US demand, but partly offset by rising production costs from higher raw material and labour costs.

“We reaffirm our buy call on Poh Huat and lift our 12-month target price to RM1.71 from RM1.64, based on a price-earnings ratio of 7.2 times applied to our 2019 core earnings per share,” it said.