Astro 'add', Deleum 'hold', JHM Consolidation 'buy', Ajinomoto 'hold'

Astro is perceived to be the biggest gainer should there be an intervention by the government on this matter, according to analysts.

Astro Malaysia Holdings BhdBy CGSCIMB

Rating: Add

Target Price: RM1.75

ASTRO completed its separation scheme in Feb 2019, with around 500 employees taking up the offer, said CGSCIMB.

Following the exercise, the group expects to save circa RM40mil in staff costs for the FY20, it said.

It added that with lighter sports content expenses, the company had guided for earnings before interest, taxes, depreciation and amortisation (ebitda) margin to expand by 1-2% in FY20.

“However, we expect revenue to be pressured by subscribers waning further. Overall, we raise FY20-FY21 forecasted earnings per share by 0.4%-2% to reflect lower operating costs,” CGSCIMB said.

“The opex savings will alleviate the pressure on the bottom line while Astro grows its non-subscribers revenue.

“Astro is in the midst of discussions with various Internet service providers to partner with for a bundled broadband package, which is an opportunity for Astro to upsell to new customers,” the research house added.

The research house said that the company is also developing new audience measurement methodology to help advertisers better target consumers, in hopes of bolstering its adex further.

The research house maintained its high-conviction “add” rating on the stock and the target price implies a circa 14% upside to current prices.

“Our unchanged discounted cashflow-based target price implies a 30% discount to its three-year enterprise value to ebitda mean of nine times, to factor in the risk of falling subscribers,” it said.

“We like Astro for its quick response to the changing industry dynamics.

There could be more upside if it succeeds in upselling its broadband bundle to its prepaid NJOI customers (which makes up circa 50% of the 5.7 million total subs), and if media piracy is clamped down,” it added.

Deleum BhdBy UOBKayHian Research

Rating: Hold (upgraded)

Target Price: RM1.03

DELEUM’S orderbook grew to RM2.3bil (from RM2bil in June 2018), on job replenishments and award of new contracts including 3+1 years slickline service contracts for Shell, Petronas Carigali and ExxonMobil all secured within August-Decrmbrt 2018, according to UOBKH.

There was also a 3+1 year gas lift valves contract for Petronas that was secured in Jan 2019.

“We understand that some of the slickline contracts are on additional requirements/new clientele, and will contribute to segmental profit. As a result, Deleum plans to spend about RM40mil to add about six to eight more slickline units on top of its fleet of 45 units-50 units (which makes up to around 50% market share in Malaysia),” it said.

This is despite the negative surprise in the fourth quarter of last year when slickline value-added works which fetch higher margins were absent, it added.

The research house said the management foresees overall activities increasing across all three segments and is guiding for profit growth of 15%-20% (in the previous year, guidance was ~10%).

“Nevertheless, management cautioned that margins or service rate compression is still in the picture, which we believe will affect the oilfield services profits the most.

“We assume power & machinery segment’s margins would remain stable as higher demand for critical overhauls should offset any risk of further customer discounts. For the integrated corrosion solution segment, we chose to assume more conservative 4% margins vs management’s 5%-10% margins, given that margins will be volatile on a quarterly basis,” it said.

The research house said it had upgraded its rating on the stock from a “sell” to a “hold”, and target price from 98 sen to RM1.03 after its share price had retraced 14% since the “sell” downgrade.

“Our target price is pegged to an unchanged 10 times 2019 forecasted price to earnings ratio and implies a 5% dividend yield. Although Deleum is still highly dependent on local upstream work orders, we take the view that visibility improved given the more positive outlook from its most recurring power & machinery segment,” it said.

UOBKH said its forecasts are conservative relative to management’s guidance and the probability of rising Petronas local upstream capital expenditure spending from RM12bil to RM15bil.

JHM Consolidation BhdBy RHB Research

Rating: Buy

Target Price: RM1.44

RHB Research said it is positive on news of a memorandum of understanding signed between Universal Alloy Corp Europe (UACE) and JHM Consolidation, marking a milestone in the latter’s long-awaited plans to diversify into the aerospace sector.

“This should be a game-changer and re-rating catalyst for JHM.

“We keep our forecasts and target price pending further details from management next week. We are the only broker covering this stock,” it said.

On March 26, JHM entered into a two-year MoU with UACE, where the latter will outsource metal machining and sub-assembling of aerospace products to the former.

UACE will also provide technical and manufacturing capability insertion programmes as and when needed to JHM. The two will collaborate to create an efficient and effective supply chain for machined sub-assembled aerospace components and products.

“We understand this MoU is one of four signed as part of the strategic objectives of Malaysia’s National Policy on Industry 4.0 for Industry 4WRD. We note there was also another MoU signed between JHM and MTC Aerosystems of Hungary – this is for the supply of software systems to the company,” RHB Research said.

It also said that the MoU was signed as a precursor to a subsequent detailed contract agreement.

RHB’s forecasts and RM1.44 target price which is based on 18 times FY19 forecasted price to earnings ratio remains unchanged for now, pending further details from management next week.

This is because there is no contract value for us to ascertain the accretive value at this current juncture, it said.

Ajinomoto (M) BhdBy JF Apex Research

Rating: Hold

Target Price: RM19.17

FOLLOWING the latest CPI data, we reckon that Ajinomoto (Malaysia) Bhd’s product pricing and demand are not affected by inflation/deflation trend as evidenced by the difference in movement of its sales and CPI.

“We believe monosodium glutamate (MSG) is one of the main ingredients in household meals as well as in the food and beverages industry. As such, Ajinomoto’s earnings will move steadily and not be overwhelmed by the current deflation, underpinned by stable demand from both retail consumer and industry segments,” JF Apex said.

The research house also noted that despite the company dominating the MSG market, the firm faces stiff competition in other food and seasoning products from local brands and overseas producers.

Based on its latest financial results, it noted that the management is cautious that foreign exchange fluctuations and trade tensions could inflate the cost of imported raw materials.

However, it said that the group will adopt the effective cost management as well as sales plan to strengthen overall sales and profit.

“We maintain our earnings forecast for FY19 but tweak down FY20 earnings by 5% due to higher cost of imported raw materials following fluctuation of foreign exchange,” it said.

It maintained its hold rating with a lower target price of RM19.17 (previously RM19.88) based on revised of 2.7 times FY20 price-to-book ratio (previously 2.8 times).

This implies +1 standard deviation above its three-year mean of 2.12 times of the price to book ratio, banking on its dominant position in the market, JF Apex said.

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