Sunway 'hold', GD Express 'neutral', Cypark 'add', Construction 'neutral'


Sunway BhdBy Maybank IB Research

Rating: Hold

Target price: RM1.64

MAYBANK IB Research is “neutral” on Sunway Bhd’s acquisition of Blacktop Industries Sdn Bhd (BISB), as it is awaiting further information on production capacity and utilisation rate from the management.

Last week, Sunway’s wholly-owned subsidiary Sunway Holdings Sdn Bhd entered into a share sale agreement (SSA) with Datin Seri Lau Lai San, Chu Yuen Leng and Chu Yuen Mun to acquire a 100% stake in BISB for RM70.09mil in two tranches.

The first tranche is expected to be completed by the second quarter of 2019 (2Q19), while the second tranche is slated to be completed by 2Q20.

BISB is in the business of quarry and premix plant operators for the production and marketing of aggregates and bituminous premix as well as renting of mobile equipment.

Maybank IB Research said Sunway’s latest acquisition would allow the group to increase its existing quarry and premix plants from six and 13 to eight and 22 respectively.

Moreover, the research house added that acquisition would also allow the group to expand its market share and enter new markets such as Pahang.

However, Sunway’s net gearing is expected to increase marginally to 0.47 times, from 0.46 times.

As such, Maybank Research is keeping a “hold” call on Sunway and maintaining its earnings forecast..

“We keep our forecasts and target price unchanged for now pending further details from the management,” it said.

GD EXPRESS CARRIER BHDBy MIDF Research

Rating: Neutral

Target price: RM0.34

MIDF Research is maintaining its “neutral” call on GD Express Carrier Bhd (GDEX) with a revised target price to 0.34sen per share following a higher revised terminal growth rate of 3%.

The research house said that GDEX balance sheet has supported the group’s expansion plans including acquisition of SAP Express.

“They include the acquisition of a 44.5% stake in SAP Express, an Indonesian courier company and the on-going effort to secure a partnership in Vietnam by the end of calendar year 2019 facilitated by Webbytes through its cloud-based point-of-sale platform,” it added.

Given the gestation period, MIDF Research believes the earning accretion from the ventures is yet to be meaningful, while valuation remains “stretched” during this time as compared to the average industry price to earnings ratio of around 15 times.

Last week, GDEX inked a partnership with RedCargo Logistics, which was formed in March 2018 as the exclusive provider of cargo capacity for Air Asia Group Bhd.

This new partnership began yesterday, providing GDEX customers access to AIRASIA’s extensive network, permitting goods to be transported and delivered on more than 5000 weekly flights across Asia Pacific.

“We opine that that the impact towards GDEX earnings to be minimal at this juncture as it has yet to undergo its gestation period.

“As such we maintain our earnings estimates for financial year 2019 (FY19) and FY2020,” MIDF Research said.

However, it added there is ample network capacity available to be booked by logistics partners as there are already two logistics companies including GDEX forming a partnership with RedCargo.

“This bodes well for the growth in international parcel traffic which has been growing for the past three years,” the research house noted.

MIDF Research also said there could be special rates being offered by AirAsia to GDEX to attract more volume for its aircrafs, which would incentivise the express delivery provider to expand its services to a bigger network.

In the long-run, it believes the catalysts for GDEX would be slowdown in growth for last mile delivery start-up companies and stronger customer-to-customer business demand.

Cypark Resources BhdBy CIMB Equities Research

Rating: Add

Target price: RM1.83

CIMB Equities Research remains “positive” on Cypark Resources Bhd as it expects stronger earnings due to the commissioning of the large-scale solar photovoltaic (LSS 2) and waste-to-energy (WTE) plant.

The research house expects financial year 2019 (FY2019) and FY2021 forecast earnings to be stronger due to the commissioning of the first round large scale solar photovoltaic (LSS 1) in FY19 forecast and LSS 2 plant in FY21 forecast.

CIMB Equities Research said other factors include the upcoming LSS 3 tender and initiatives for the renewable energy industry, which are positive for renewable power players, especially Cypark Resources.

“Our sum-of-parts based target price is unchanged at RM1.83,” it added.

Cypark Resources core net profit in the first quarter of 2019 (1Q19) increased 6% year-on year (y-o-y) supported by higher revenue particularly from environmental engineering (EE) division due to new projects secured. The rise in net profit was also on the back of higher revenue from landscaping and infrastructure division due to increase in work activities for the preliminary works and site preparation works from the new projects secured.

Moreover, Cypark’s 1Q19 pre-tax profit improved by 9% y-o-y, largely driven by better profitability from EE division as well as landscaping and infrastructure segments due to increased work activities.

Meanwhile, the group’s green tech & renewable energy division’s profit before tax was slightly higher by 3% y-o-y despite flat revenue, due to savings achieved in finance costs.

For FY19, CIMB Equities Research expects two solar plants and one WTE plant to come on board, supporting Cypark’s earnings growth.

”Its two new solar plants under LSS 1 with a combined capacity of 11 megawatt (MW) from Jelebu 3MW and Ladang Tanah Merah 8MW have an initial operation date of end-Apr 2019.

“We estimate these two plants could contribute an additional RM8mil in revenue per year,” it said.

As of end February 2019, Cypark’s 20MW WTE plant is 98% completed. It plans to test run the WTE plant this month and expects the plant to achieve commercial operation date (COD) in June 2019.

“We expect the WTE plant to generate stable revenues of around RM80mil per annum over its 25-year concession,” CIMB Equities Reseach said.

“Completion of the WTE plant will be a key milestone for Cypark as it is the single-largest investment the company has ever undertaken; its completion would likely catalyse the stock,” it added.

CONSTRUCTION SECTOR

By KAF Research

Rating: Neutral

KAF Research is keeping its “neutral” stance on the construction sector as the Public Works Department of Sarawak has granted RM11bil worth of state funds to upgrade existing 896km of coastal roads.

The research house quoted Sarawak deputy chief minister Tan Sri James Masing, who said funds would be channelled to upgrade pavements and improvement works, construction of 232km Second Trunk Road (STR) and nine new bridges along Sarawak Coastal Roads (SCR).

“All said, the latest development validates our earlier stance of renewed infrastructure flows in Sarawak, as the Sarawak government intensifies the implementation of projects within the next two years ahead of the state’s elections, which must be held by May 2021,” KAF Research said.

Under the Gabungan Parti Sarawak alliance, the state government had earlier approved RM12bil for its budget this year, of which RM9bil will be set aside for development expenditure.

“This is on top of comfortable state reserves of over RM31bil, projected revenues of around RM3.9bil from the imposition of a 5% sales tax on petroleum products in the state and a federal allocation of RM4.3bil for this year,” KAF Research said.

With Sarawak’s funding mechanism intact, it expects the tender momentum to speed up in the coming months.

It also believes that the bulk of spending would be used to upgrade and enhance basic infrastructure projects in the Bornean state particularly within the rural areas such as RM10bil on SCR, STR (RM4bil to RM6bil) and Sarawak Water Grid (RM8bil) respectively.

“More importantly, our channel checks indicate that the Sarawak government has initiated several tenders under phase one of these project,” KAF Research said.

In February 2019, KKB Engineering Bhd won two contracts worth RM110mil for Package SR1 (Southern Region) of RM2.8bil Sarawak Water Grid phase one.

“For the two road projects, we believe that eleven packages worth an average of RM500mil are up for grabs. Each pre-qualified tenderer is allowed to bid for up to five packages.” KAF Research said.

Recently, the joint venture of Cahya Mata Sarawak and China Communications Construction Co (M) announced that it has accepted a letter of acceptance under Package 05 of SCR worth RM467mil to construct and complete the proposed Bintulu-Jepak Bridge Crossing Kuala Kenema in Bintulu division.

However, KAF Research believes that tender margins could be lower due to stiff competition from local consortia that have Chinese partners.

The research house’s top pick is TRC SYNERGY BHD for leverage to increased infrastructure spending in Sarawak.

“TRC is among the few West Malaysian contractors which possesses a Unit Pendaftaran Kontraktor (UPK) licence, which allows the group to participate directly in all state-initiated projects in Sarawak.

“It is also involved in a RM1.3bil package of the Pan Borneo Sarawak in partnership with two local construction outfits, Pembinaan Kuantiti and Endaya Construction.”


   

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