Globetronics 'buy', Pos 'buy', IJM 'buy',KLPI 'hold'

  • Markets
  • Wednesday, 05 Feb 2020




By UOBKayHian Research

Rating: Buy (upgraded)

Target Price: RM2.83

GLOBETRONICS will release its fourth quarter 2019 results on Feb 24.

UOB Kay Hian Research (UOBKH) said while it expected earnings to remain muted quarter-on-quarter on flat volume loadings from both lights and gesture sensors, the group could see a V-shaped earnings recovery premised on its new generation sensors that would start mass production as early as the second quarter of this year.

“For light sensors, while we expect gradual seasonal ramp-down in first-half 2020 from current volume loadings of 30 million per month to 28 million per month, the new-generation light sensor is already in the qualifying stage for the new 5G smartphone launch in the third quarter of 2020, ” it said.

Meanwhile, it said that for the gesture sensors, monthly volume loadings have improved further to 30 million per month since December 2019 (from 25 million per month in the third quarter of 2019).

It said there is also greater visibility for higher volume production of gesture sensors for the adoption to the latest US wireless earpieces.

“Additionally, further impetus could come from the introduction of a new sensor, for which the group is working with the same major customer, with commercialisation to take place in the next one to two quarters. We have yet to account this into our earnings estimates, ” UOBKH said.

The research house has upgraded Globetronics to a “buy” with a higher target price of RM2.83 (from RM2.19) and pegged it at a higher 2020 forecast price-to-earnings (PER) ratio of 25 times (from 20 times), which is close to +1 standard deviation above the three-year mean PER.

It expects an earnings recovery as well as industry-wide demand recovery in 2020.

“We believe most of the negatives have been fairly priced in after the disappointing third-quarter 2019 results, ” it said.

Pos Malaysia Bhd

By RHB Research

Rating: Buy (upgraded)

Target Price: RM1.70

SUBSEQUENT to the recent postal rate hikes, RHB Research said Pos Malaysia’s management is seeking to further address its tariff rebalancing mechanism in order to establish a sustainable and economical roadmap, given its mailing universal service obligation.

“Aside from that, the group will also aim for organic topline growth, driven by e-commerce’s rapid expansion fuelling its courier businesses, while managing its cost structure at the same time, ” the research house said.

RHB Research said this underscored Pos Malaysia’s plans to invest in digitalisation and automated systems to improve operational efficiencies as well as offer enhanced value-added services such as track-and-trace capabilities.

“Management expects staff expenses (circa 40% of operating expenditures) to improve, going forward, from crowd-sourcing of riders with an incentive scheme giving rise to lower costs per item delivered; lower labour intensity and expedited turnaround time with the implementation of semi and fully-automated sorting machine, ” it said.

The research house said there would also be lower call centre and servicing costs associated with the usage of online chat-bots as well as its mobile app. It noted that the minimum wage hike is expected to be manageable (circa RM6mil per year of incremental impact).

RHB Research said it made no changes to its earnings forecasts and target price of RM1.70 to the stock.

However, it has upgraded its call to the stock to a “buy” from “trading buy”, given its appealing valuation at 0.64 times financial year 2021 forecast price-to-book valuations and the improved earnings outlook.

IJM Corp Bhd

By Alliance DBS Research

Rating: Buy

Target Price: RM2.65

IJM’s diversified and defensive nature as well as strong execution track record makes it an ideal large-cap infrastructure proxy, Alliance DBS Research said.

“Moreover, its internal job pipeline, focus on more rail and hospital jobs locally and its legacy in India provide another avenue to grow order book. We expect a chunky contract win for Light Phase 2 in the first quarter of 2020, ” it said.

Alliance DBS Research said it believed IJM’s strong management and execution track record is a big plus in the changing construction market. It noted that the group’s solid balance sheet allowed it to fund and participate in larger-scale projects without having to raise equity.

“Surprisingly, its property division is also doing better than expected and it had managed to bring down inventory levels. It may look to monetise up to RM9bil of land bank, ” it said.

Alliance DBS also pointed out that Kuantan Port’s throughput would receive a boost from Alliance Steel and is set to improve further with more investments.

“The key share price driver for IJM appears to be new contract wins and to some extent earnings growth. In spite of its conglomerate structure, construction wins appear to be the most direct critical factor, ” it said.

“There is also a negative correlation of -0.7 times with steel prices as IJM has a fair share of building contracts in its orderbook. There is no direct correlation with crude palm oil prices as IJM Plantations is listed, ” it added.

Alliance DBS has maintained its “buy” rating and target price on the stock, noting that it liked the stock due to its proxy to the East Coast Rail Link as well as a general recovery in the Malaysian economy.

LPI Capital Bhd

By Affin Hwang Capital

Rating: Hold

Target Price: RM15.70

LPI’s 2019 net profit of RM322.4mil (+2.6% year-on-year) came in within Affin Hwang’s expectations and consensus.

“The industry has been challenging for LPI due to price competition while weak demand has capped its gross written premium growth at 4% year-on-year (y-o-y) in 2019. Due to challenges in operating expenses as well, LPI recorded a higher combined ratio of 69.8% for 2019 (from 67.3% in 2018), ” it said.

It noted that LPI’s overall claims ratio has not shown an improvement but crept up from 40.9% to 43.9% y-o-y arising from rising medical inflation and frequency of claims.

It remained cautious on LPI’s outlook due to expectations of slower auto sales growth and more cautious business sentiment.

“We make some minor adjustments to our forecast 2020-2021 net profit by 4%-7% as we project slower investment income growth, ” the research house said.

“We maintain our ‘hold’ rating on LPI but with a slightly lower target price of RM15.70, based on a revised price-to-book value of 3.07 times on 2020 forecast book value of RM5.12 per share subsequent to our earnings revisions, ” it added.

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