Analyst reports


RHB Research maintains its “buy” call on Astro. But it has cut its target price for the counter to RM2.02 from RM2.30 previously after the group’s earnings for the nine months ended October 2018 fell short of the brokerage’s estimate.

RHB Research maintains its “buy” call on Astro. But it has cut its target price for the counter to RM2.02 from RM2.30 previously after the group’s earnings for the nine months ended October 2018 fell short of the brokerage’s estimate.

ASTRO MALAYSIA HOLDINGS BHD

By RHB Research Institute

Buy (maintain)

Target price: RM2.02

RHB Research believes the share price of Astro has bottomed out, following the sharp decline of about 52% year-to-date.

The brokerage maintains its “buy” call on Astro. But it has cut its target price for the counter to RM2.02 from RM2.30 previously after the group’s earnings for the nine months ended October 2018 fell short of the brokerage’s estimate.

Valuation-wise, RHB Research notes, Astro trades at an attractive 5.5 times the estimated enterprise-value-to-earnings before interest, taxes, depreciation and amortisation (EBITDA), which is below its historical mean.

In addition, the brokerage says the stock is supported by attractive dividend yields of 8%-10% for 2019-2019.

Meanwhile, RHB Research has cut its core earnings forecasts for Astro for financial years (FY) ending Jan 31, 2019, to 2021 by 11.4%; 10.8%; and 14% to factor in the management’s updated EBITDA margin guidance for FY19, lower subscriber growth/margin assumptions going forward and its latest house projection of US dollar-to-ringgit exchange rate.

The brokerage notes Astro has hedged its FY2020 content cost exposure at below the current spot rate.

“Management has embarked on a group-wide strategic review with the focus on cost optimisation. There could potentially be some one-offs in subsequent quarters, with opex savings from the exercise reinvested in growth areas,” RHB Research says.

“Astro has ceased its over-the-top (OTT) applications, Tribe (a regional OTT launched in 2016) and Tamago (live streaming platform launched in 2017) in response to the challenging market conditions,” it adds.

For the nine months of FY19, Astro’s revenue slipped a marginal 0.8% year-on-year (yoy), with continued decline in TV subscription (-4.3%) and radio revenues (-11%). TV net-additions of 173,000 year-to-date are tracking in line with the guidance of 250,000 net-adds for FY19. Adex revenue recovered strongly post the three-month tax holiday, up 10.7% quarter-on-quarter, while average revenue per user was steady at RM99.90 per month, supported by discretionary services.

KERJAYA PROSPEK GROUP BHD

By UOB Kay Hian Research

Buy (maintain)

Target price: RM1.69

UOB Kay Hian continues to favour Kerjaya for the company’s superior margins, high order book cover, net cash of RM181mil as of end-September 2018, and ability to clinch new contracts, given its strong track record.

Despite the uncertainties in the local construction industry, the brokerage says it has ascribed a higher price-earning multiple for Kerjaya against its peers largely due to the latter’s zero reliance on government-related projects and ability to clinch building jobs in the private sector.

On that note, UOB Kay Hian maintains its “buy” call on Kerjaya, with a target price of RM1.69 based on 14 times the estimated earnings of 12.1 sen per share for financial year ending Dec 31, 2019.

The brokerage notes that the recently secured RM211mil contract from PPB Hartabina Sdn Bhd is fifth job that Kerjaya has won this year. The new contract brings the year-to-date cumulative job wins to RM990mil, in line with UOB Kay Hian’s projection.

“We maintain our job replenishment target of RM1bil in 2019-2020, largely driven by high-rise buildings works in Klang Valley which are estimated to fetch up to RM450mil in 2019,” UOB Kay Hian said.

“Presently, its tender book stands at RM1.6bil, mainly comprising high-rise residential buildings,” it adds.

According to UOB Kay Hian, the contract from PPB, which is or the construction works for a proposed mixed development in Petaling Jaya, could contribute a total of RM21mil in profits for Kerjaya from 2019 to 2021.

“Assuming a 10% net margin, we estimate this project would contribute RM6mil, RM8mil, and RM7mil in net profits in 2019-2021 respectively,” it says.

With the new job lifting its outstanding order book to about RM3.08bil, Kerjaya now has an order book cover of 3.2 times its 2017 construction revenue.

BERJAYA FOOD BHD

By Maybank Investment Bank Research

Buy (maintain)

Target price: RM1.95

MAYBANK Investment Bank (IB) Research has raised its target price for Berjaya Food (BFood) to RM1.95 from RM1.70 previously. The brokerage says the higher target price is based on a rolled forward 27 times the estimated price-earnings ratio for 2019.

It maintains a “buy” call on BFood, noting that valuations remain undemanding, on the back of decent potential earnings growth.

Maybank IB says it expects BFood’s earnings to remain driven by the group’s Starbucks chain.

“We remain positive on Starbucks, premised on its prominent branding and positioning in Malaysia as the leading coffee chain operator. This, in turn, would lead to resilient sales volume,” the brokerage says.

“On the contrary, we remain cautious on Kenny Rogers Roaster’s (KRR) earnings outlook as competition has remained stiff for the entity,” it adds.

BFood’s core net profit rose 54% year-on-year (y-o-y) to RM6.9mil, excluding the forex gain of RM200,000, in the second quarter ended Oct 31, 2018. This brings the group’s core earnings to RM12.4mil, up 19% yoy, for the first half of its financial year ending April 30, 2019, representing 53% of Maybank IB’s full-year estimate.

The research body notes BFood’s second-quarter stronger core earnings was largely attributed to Starbucks and the disposal of loss-making KRR in Indonesia in November 2017. During the quarter in review, Starbucks recorded same-store sales growth of 2.7% y-o-y, while 21 new stores have been opened since end-October 2017, thus raising the number of Starbucks outlets to 269 at end-October 2018.

It is noted that BFood’s strong second-quarter earnings were partly pulled back by KRR in Malaysia, which continued to record weak performance with same-store sales decline of 10% y-o-y.