AirAsia 'sell', Press Metal 'hold', Serba Binamik 'buy', Malayan Cement 'hold'

  • Markets
  • Wednesday, 06 Nov 2019


Rating: Sell (maintained)

Target price: RM1.40

AIRASIA BHD’s current valuation is at the high end.

The group is expected to record a net profit of RM336mil for 2H19, which is below consensus’ expectation of RM341mil.

It had earlier reported a net profit of RM113mil for 1H19.

Meanwhile, AirAsia’s Indonesian associate recorded a net profit of 83 billion rupiah (RM25mil) for 3Q19, a reversal of its losses of 214 billion rupiah for the same period last year.

There would be some upside to the full-year estimate but the counter is currently trading at 1.5 times its 2019F book value, which is deemed “rich”.

The research house maintained its “sell” recommendation with a higher target price of RM1.40, which values AirAsia at one time its 2019F book value.


Rating: Hold (maintained)

Fair Value: RM3.83

THE new 1% atate sales tax proposed by the Sarawak government for exports of aluminium products beginning January is estimated to cost Press Metal RM64mil and RM89mil in FY20-21F.

This would erode the AmInvestment Bank’s net profit forecasts for the group by 6% to 8% and lower its fair value by about 7% to RM3.54.

The research house is keeping its earnings forecasts for now as Press Metal is believed to be in the midst of seeking clarification from the state government about the new tax.

Meanwhile, it remains cautious on Press Metal as earnings outlook for aluminium smelters globally is still cloudy due to the weak aluminium price and high cost of input alumina, resulting in margin squeeze.

The company’s valuations are also at a premium compared with its global peers, which mean that the upside to its share price may be capped.

This is however, mitigated by Press Metal’s recent signing of a 15-year power purchase agreement (PPA) with Sarawak Energy Bhd for the supply of 500MW of electricity.

This enables the company to power an additional annual aluminium smelting capacity of 320,000 tonnes, which will boost its overall smelting capacity by 42% to 1.08 million tonnes by 2021 from 760,000 tonnes currently.

On the average selling price of aluminium, the research house maintains its assumption of US$1,800 to US$2,000 per tonne for FY19-21F on the back of higher projected production growth of 6% to 7% versus projected consumption growth of 5% in China in 2019.

Alumina price is expected to be around US$390 to US$430 a tonne backed by the prevailing supply shortage in global alumina production.


Rating: Buy (maintained)

Target price: RM5.04

SERBA DINAMIK’s business operations in the United Arab Emirates (UAE), which was the largest revenue contributor of around 20% in 1H19, should continue to anchor growth in the Middle East.

Its workshops there are also used to support other business operations in the Middle East, Central and South Asia and Africa.

Management expects further growth in the Middle East, especially in the UAE, driven by continuous spending by Abu Dhabi National Oil Company (ADNOC) and wider product offerings.

RHB believes Serba Dinamik has the potential to deepen its footing in the UAE, riding on upcoming ADNOC-led petrochemical projects worth US$3bil to US$5bil each, which are likely to fetch attractive internal rate of returns (IRRs) of more than 15%.

The company’s vertical expansion into parts manufacturing will also lift its operations and maintenance (O&M) margins in the long run.

Serba Dinamik’s order book remains solid at RM9.7bil, but could potentially be RM11bil including the estimated work orders from master service agreements and it is targeting to hit RM13bil to RM14bil by the end of next year, backed by a robust tender book of RM16bil.

It’s Bintulu Integrated Energy Service Hub is expected to fully operate by the first quarter next year while the Pengerang Eco-Industrial Park (PeIP) is at 40% completion, slated for completion by the last quarter next year.

Separately, Serba Dinamik is also targeting to generate RM150mil from its IT-related business in FY19. after recording RM40mil in 1H19.

RHB Research expects US$200mil to US$300mil sukuk drawdown for both working capital and capex purposes with the company’s aggressive growth plans in the pipeline.Its net gearing as at 2Q19 stood at 0.65 times.

MALAYAN CEMENT BHDBy Affin Hwang Capital Research

Rating: Hold (maintained)

Target price: RM3.40

FORMERLY known as Lafarge Malaysia Bhd, the company is expected to be in the black from 2020 onwards, which is expected to be a result of improving cement prices, pick up in construction activities and lower operating costs.

Cement prices have improved to about RM210 to RM230 per tonne in October from RM190 in September, mainly due to more rational pricing post-consolidation of the industry.

As major infrastructure projects resume, this should also support domestic cement demand and a hike in cement prices.

Affin Hwang added that declining coal prices, which are now at the rate of 34% year-to-date, will aid an earnings turnaround.

Core net profit in 2020-21E is expected to be around RM16mil to RM35mil.

Although there are signs of improvement in cement selling prices, the research house believe industry prospects remain challenging on the back of a prolonged weak property market and excess capacity in the industry.

It also believes that Malaysia Cement has more room for cost improvement after having reduced its operating cost by 12% year-on-year (y-o-y) for 1H19, partly from lower selling and distribution costs which dropped 23% and administration expenses which were 29% lower.

This narrowed Malayan Cement’s 1H19 core net loss by 45% y-o-y to RM80.5mil, the research house pointed out.

Meanwhile, YTL Cement, which currently holds 76.98% in Malayan Cement, is expected to pare down its stake to comply with the 25% public spread.

The research house is also of the view that YTL’s cement assets will be injected into Malayan Cement to consolidate operations and maximise synergies between the two companies.

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