MyEG SERVICES BHDBy UOB Kay Hian Research
Rating: Buy (maintained)
Target price: RM1.71
THE selldown on the counter is unwarranted as it could see an earnings growth of 20% in FY20 without any contract win, as long as its current concessions are intact.
UOB Kay Hian gathered that the latest government-to-government (G2G) meeting between Malaysia and Bangladesh has cleared most outstanding issues and both countries target to sign a Memorandum of Understanding (MoU) by the end of this year for the latter to reverse an earlier decision of not allowing its citizens to work in Malaysia.
This is expected to lift MyEG’s matching service volumes significantly, which have doubled since the Malaysian government lift the freeze on the intake of foreign workers on July 19.
Based on this, the research house forecasts 4QFY19 earnings to see a double-digit sequential growth quarter-on-quarter (q-o-q), indicating the first quarterly growth since the 14th general election.
It added that FY20 could also be the first year of robust growth as the clinching of new contracts like the e-visa, which UOB Kay Hian did not factor in, would significantly lift earnings forecasts.
MyEG is also in discussions to form a partnership with foreign funds where the funds would invest in foreign worker hostels that will subsequently be leased by MyEG.
Average monthly rental per foreign worker is about RM150 with expected net margin of 20% to 30%. This will boost MyEG’s annual profits by RM21mil to RM54mil over the longer term.
Meanwhile, the company is also expected to be a key contender as the concessionaire for the processing of foreign visa applications in a tender that is expected to be called by the government soon.
The research house remains confident that MyEG could be on the cusp of a re-energised growth period as its e-government services are expected to gain significant momentum.
Hartalega Holdings BhdBy JF Apex Securities Research
Rating: Sell (maintained)
Target price: RM4.60
THE group’s 2QFY20 results were better quarter-on-quarter (q-o-q) but it recorded a weaker y-o-y performance.
The quarterly net profit rose 10.4% q-o-q but decreased 13.7% on a y-o-y basis. Revenue increased 10.8% q-o-q to RM709.4mil but fell marginally by 0.7% y-o-y.
Net profit for 1HFY20 was also dragged down by 19.2% y-o-y.
Stiff competition and ample supply of nitrile gloves by competitors potentially caused Hartalega to cut down its selling prices to protect its market share.
Meanwhile, there seems to be some signs of the demand slowdown relenting as Hartalega ramped up its utilisation rate to 85% for 2Q2020 from 76% the previous quarter.
Better demand for glove is underpinned by healthcare which is deemed a non-cyclical industry, positive progression from the trade war between China and the United States and interest rate cuts from global central banks.
Hartalega’s expansion plan is also on track with its plant six targeting to commission its first line in 1QCY2020 and construction of Plant seven has commenced, with targets to commission the first line in 2HCY2020.
Plant seven will see a more diversified product mix by the group, catering to small orders and focussing on specialty product. It will have an annual installed capacity of 3.4 billion pieces.
JF Apex noted that the glove industry is still in a fast growing stage but the disruption of macro headwinds halted Hartalega’s performance for a while.
The group is also expected to benefit from the suspension of generalised system of preferences to Thailand starting April next year with an estimate of RM800mil of gloves that will be charged higher tariff upon exporting to the United States.
YTL POWER INTERNATIONAL BHDBy Kenanga Research
Rating: Outperform (maintained)
Target price: RM0.80
THE counter is oversold, having taken a 19% plunge year-to-date (y-t-d) to levels that were last seen 20 years ago during the 1998 Asian Financial Crisis.
Kenanga said YTL Power’s share price has been charting new lows on concerns over its near-term earnings while new earnings streams could take time to crystallise.
It believes that the counter is a bombed-out stock as the company has a stable fundamental, backed by key concession assets.
The value of Wessex Water alone, which is YTL Power’s key earnings contributor, has an estimated regulated capital value (RCV) of £2.87bil.
Deducting the group debt of RM9.97bil, the counter is worth 71 sen, which is higher than its current price.
It also pays a five sen dividend, which translates to a yield of more than 7%.
Wessex Water saw lower earnings in FY19 and it may see a lower return of rate, currently at 5% over its asset base under the new regulatory period in 2020 to 2025 where it planned a £1.2bil investment programme over this period.
Meanwhile, PowerSeraya expects to see widening losses again at least in the next two quarters before seeing improvements when the vesting contract ends next year and the “take-or-pay” gas contract expires in 2023.
Mobile unit YES posted a surprise pre-tax profit of RM10mil in 4QFY19 largely due to the positive contributions from 1BestariNet.
The non-renewal of the contract by the Education Ministry however, will put the unit back to the red again as the current 500,000 subscriber base of YES is insufficient to turn the unit around.
There is also possibility that this business segment may be on the lookout for M&A possibility, taking cue from the recent failed Telenor-Axiata merger talks.
JHM CONSOLIDATION BHDBy RHB Research
Rating: Buy (maintained)
Target price: RM1.61
THE 40-day strike by members of the United Automobile Workers had paralysed the car production of General Motors (GM) in the United States, hindering growth prospects in the automotive segment in FY19.
GM is one of JHM’s largest indirect customers, where the latter’s automotive LED lamp products are used in car brands such as Cadillac and Chevrolet.
The strike has caused a 20% downward revision of orders in 4Q an coupled with a slight weakness in the overall demand and end-of-life models, these may undermine growth in the automotive segment as a whole in FY19.
On a positive note, the outlook for the automotive segment remains robust, driven by wider product offerings such as new interior lighting and heavy vehicle projects.
RHB noted that JHM is currently awaiting orders from a new Japanese customer and that the company is also in talks with new potential customers, benefiting from the protracted US-China trade tensions.
It has also passed the first article inspection and began production of metal machining and sub-assemble aerospace products, following the inking of an MoU with Universal Alloy Corp Europe in March.
JHM is also in talks with a few other new aerospace customers, which it is confident to secure in FY20.
The company remains upbeat on the outlook, with potential new customers and projects in FY20F.
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