Analyst report


  • Business
  • Tuesday, 16 Apr 2019

 

RHB Bank

By CIMB Research

Rating: Add

Target Price: RM6.50

CIMB Research is maintaining its add recommendation for RHB Bank following the bank’s base-rate hike of 10 basis points to 4% as the interest income earned will be raised from its loan portfolio.

According to the research house, this move does not come as a surprise as three other banks have also raised their base rate (BR) hikes, including Bank Islam to 4.03%, CIMB Bank (4.25%), and Hong Leong Bank (4.13%) respectively.

CIMB Research estimates the 10-basis point hike would increase RHB Bank’s net profit by around 5% and net interest margin (NIM) by seven basis points for financial years 2020 earnings forecast (FY20F) and FY21F.

“The expected increase of around 5% in RHB Bank’s FY20F and FY21F net profit will be able to offset our estimated reduction in FY20-21F net profit of around 5% in the event of a reduction in overnight policy rate later this year,” it said.

However, CIMB Research said RHB Bank increased the BR due to the increase in cost of funds and not because of the negative impact of any expected rate cut, adding that the bank expects interest rates to remain unchanged in this year’s forecast.

The research house raises RHB Bank’s earnings per share forecasts by 4% for FY19 forecast as it factors in the 10 basis points hike in the BR. As such, CIMB Research said it would boost RHB Bank’s dividend discounted model-based target price from RM6.38 to RM6.50.

“RHB Bank remains an add and our top pick for the sector given its attractive valuation at calendar year 2020 forecast (CY20F) price to earnings ratio of 8.1 times and price to book ratio of 0.8 times as well as improvements from the transformation programme.

“A potential re-rating catalyst is the higher net profit as a result of the BR hike. The downside risks to our call are deterioration in loan growth and asset quality,” it added.

 

 

Lafarge Malaysia Bhd

By AllianceDBS Research

Rating: Hold

Target Price: RM2.55

AllianceDBS Research is keeping its hold call on Lafarge Malaysia with a target price of RM2.55, pending further details of the revival of East Coast Rail Link (ECRL) project as the RM270mil contract suspension is likely to be lifted.

In March 2018, Lafarge Malaysia bagged a contract worth RM270mil from China Communications Construction (ECRL) Sdn Bhd to supply cement for all eight packages of work for the proposed ECRL project. However, the contract was suspended since July last year.

AllianceDBS Research said the contract suspension is likely to be lifted instead of being re-tendered given that the main contractor is still China Communications Construction Company Ltd (CCCC).

“As the cost reduction only resulted in a minimal cut in rail length alignment of around 6% (from 688km to 640km), we think the RM270mil contract amount might remain the same or if any, see an insignificant cut,” it added.

Should the RM270mil contract remains unchanged, AllianceDBS Research expects the cement demand to be around RM1.2mil metric tonnes (MT) over the next four years, corresponding to 300,000 tonnes per year.

“This is relatively small compared to Lafarge’s effective capacity of 8.2 million tonnes. As such, we think that more infrastructure projects are needed to support demand.”

With the lower revised cost of RM44bil of ECRL Project, AllianceDBS Research believes this to be a “small win” for Lafarge and positive for the cement industry due to the possibility of contract suspension to be lifted as well as potential revival of mega projects would boost demand.

 

 

SAPURA ENERGY

By AmBank Research

Rating: Buy

Fair Value: RM0.50

AmBank Research is maintaining its buy call on Sapura Energy with a fair value of 50 sen per share on the back of the company winning five separate contracts worth RM1.3bil which would support its financial year 2020 forecast (FY20F) growth.

The five secured contracts included charter extension from Petronas Carigali Sdn Bhd for semi tender assisted drilling rig Sapura Berani to drill nine wells, three-year charter for tender assist drilling rig Sapura T-9 from Exxonmobil Exploration and Production Malaysia Inc and installation of six subsea pipelines over 57km in the Morgan field at Gulf of Suez.

“Other bagged contracts include construction of pipeline, in-line Tee (ILT), deep water Pipeline End Terminations (PLETs) & pre-commissioning activities from ENI East Sepinggan Limited as well as submarine rescue services by Phoenix International Australia Pty Ltd for The Royal Australian Navy,” AmBank Research pointed out.

Overall, all these contracts are expected to commence this year and are likely to be finished in both FY19 and FY20.

“These new contracts for FY20F are in line and account for 19% of our new order assumption of RM8bil, which remains conservative versus RM9.3bil of new jobs secured n FY19. Hence, we maintain FY20F–FY22F earnings,” AmBank Research noted.

The research house expects the secured contracts to add 8% to Sapura’s outstanding order book to RM18.5bil, which is 3.4 times of FY20F revenue. AmBank Research said the outstanding order book was expected to grow as the group’s tenders have escalated 3.5 times year-on-year to US$11bil, driven by new markets in the Middle East and Africa accounting for 56% of the bid book. Currently, the stock is trading at a low FY21F price-to-earnings ratio of 14 times and price-to-book value ratio of 0.4 times.

 

BOILERMECH HOLDINGS BHD

By JF Apex Securities

Rating: Hold

Target Price: RM0.59

JF Apex Securities Bhd is keeping its hold call on Boilermech Holdings Bhd with a revised lower target price of RM0.59 on the back of challenging outlook in the plantation sector from the weaker crude palm oil prices.

The research house said the lower target price is pegged at 12.5times price to earnings ratio (PE) for financial year 2020 forecast (FY20F), adding that its valuation is slightly lower than its mean PE of 17.6 times. “We met Boilermech’s management recently and came back feeling slightly positive on the group’s future prospects. As for full year FY19, the group expects its overall performance to be slightly better from the previous year, banking on higher order book from both bio-energy and water treatment segments amid a recovery in the plantation industry,” it added.


   

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