Genting 'buy', Luxchem 'buy', OCK 'market perform', WCT 'buy'


  • Markets
  • Friday, 14 Feb 2020

GENTING BHD

By Affin Hwang IB

Buy (maintained)

Target price: RM7.25

Genting Group subsidiary Genting Singapore (GENS) reported a 2019 core profit after tax and minority interest (Patami) of S$705mil, a decline of 8% year-on-year (y-o-y), which was within expectations, as it constituted 104% and 103% of Affin Hwang IB and consensus forecasts.

Gaming revenue was down by 13% y-o-y for the quarter, as the negative impact from the entry levy hike continued.

The outlook for GENS will remain challenging over the next one to two quarters, as Affin Hwang IB expects both local and foreign visitation to decline due to the ongoing outbreak of Covid-19.

Despite the lower profit, GENS announced a higher final dividend per share of 2.5 cents, which came as a positive surprise.

“We believe that the weak gaming revenue in the fourth quarter of FY19 which declined 12.8% y-o-y, was impacted by lower visitation from locals, as local punters are still adjusting to the 50% entry levy hike in April 2019.

“The improvement of 7.4% quarter-on-quarter (q-o-q) was partly due to the seasonal holidays, which tend to attract higher visitation from foreign patrons, ” said Affin Hwang IB.

As the Covid-2019 outbreak continues with entry restrictions in place, the research house is expecting visitation for both local and foreign patrons to decline, at least for the first quarter of FY20.

The previous assumed visitation growth was around 2% for FY20.

Despite the coronavirus outbreak, Genting management has guided that the RWS2.0 expansion is moving according to schedule, and construction work is likely to start by mid-2020.

GENS is also bringing forward its refurbishment work of its hotel rooms, which make up 10% to 15% of its total room inventory, to use the opportunity of the current low visitation.

Luxchem Corp Bhd

By RHB Research

Buy (maintained)

Target price: RM0.59

Luxchem Corp is expected to issue its FY19 results by the end of this month.

The company has been experiencing higher demand recently from the glove manufacturing sector due to the coronavirus outbreak.

RHB Research forecasts Luxchem to register an FY19 profit after tax and minority interest (Patami) of RM38.9mil, a slight improvement from the RM38mil recorded in the previous year.

This figure in the first nine months of 2019 stood at RM28.1mil.

The coronavirus outbreak has seen the company receiving higher purchase orders from its glove-making clients.

However, as the situation is still evolving – particularly in terms of the possible duration of the outbreak, which varies amongst the experts – RHB Research is keeping its FY20 forecasts, pending a post results meeting with management.

“We understand that Luxchem’s manufacturing arm, Transform Master, completed its plant expansion at the end of 2019 – this was according to schedule.

“The expanded facility can now handle 18,000 tonnes per annum (tpa) from 13,800 tpa previously, ” the research house said.

Recall that Transform Master was acquired in 2016.

At the time of acquisition, it had a manufacturing capacity of 9,600 tpa.

RHB Research maintains its buy call target price for Luxchem, which is based on an unchanged 13 times FY20 price-earnings ratio (PE) on an earnings per share (EPS) of 4.5 sen

Luxchem’s stock has experienced increased market followings in the past three weeks as a thematic play.

This is arising from the coronavirus outbreak, given its exposure to the gloves sector.

Interest may sustain should the outbreak’s peak be delayed.

OCK Group Bhd

By Kenanga Research

Market perform

Target price: RM0.585

OCK announced that the group has acquired 100% equity interest in Solar System & Power Sdn Bhd (SSP) for a purchase consideration of RM12.5mil.

SSP is principally involved in the research and development, production of solar and renewable energy.

SSP is believed to own solar farms with 2MW capacity.

“We are positive with this development as it is the materialisation of OCK’s plan to expand its green energy and power segment.

“The group had raised RM52.3mil via private placement to bolster its own portfolio of eleven solar farm with a total 5.9MW solar energy production capacity.

“In Dec 2019, RM31.6mil went to the acquisition of Green Leadership Sdn Bhd which added 3.3 MW capacity.

“The balance of the proceeds is likely to be used to fund this latest acquisition, ” said Kenanga Research.

While these acquisitions should be earnings accretive, the research house noted that the overall contribution to the group could be minimal as the Green Energy and Power segment only makes up less than 10% of revenue and pre-tax profit.

Nonetheless, this diversification is in line with management’s plan to spin off its towerco operations (OCK SEA Towers) in the near future.

“That said, we opine the group could see steady momentum spilling over from the NFCP in the building of much needed infrastructure.

“On the flipside, the recent partnership with China Unicom could help the group develop a presence with the introduction of 5G applications in the country, with trial deployment runs in Penang currently, ” said Kenanga Research.

WCT Holdings Bhd

By MIDF Research

Buy

Target price: RM0.88

WCT has received the arbitral tribunal’s final award in respect of the arbitration proceedings from its solicitors in Dubai.

AWCTJV, which is a joint venture between Arabtec Construction LLC (ATC) and WCT Bhd (Dubai branch), was awarded a contract to build the Nad Al Sheba Racecourse by Meydan Group LLC back in September 2007 for a contract sum of AED4.6bil (RM5.18bil).

However, Meydan Group cancelled the construction contract in 2008.

A year after, a subcontract awarded to Triumpher Steel Construction Group (TSC) to undertake certain steel-related works for the racecourse project was terminated.

In 2015, Dubai International Arbitration Centre (DIAC) ruled that Meydan’s cancellation and purported termination of the contract was unlawful, invalid and of no effect.

Then in 2017, WCT’s joint venture with ATC faced a AED107.7mil (RM121.33mil) claim filed by TSC. The Zhejiang-based contractor had filed a request for arbitration naming the WCT Bhd (Dubai branch) and ATC as respondents.

The Arbitral Tribunal’s final award dismisses TSC’s claim against AWCTJV in its entirety.

As such, TSC shall be responsible for 70% of the arbitration costs (already paid in full by TSC) while AWCTJV shall be responsible for 30% of the arbitration costs (partially paid by TSC).

In this respect, AWCTJV is to reimburse TSC a sum of AED218,098 (RM24,5705.75) being AWCTJV’s portion of thearbitration costs paid by TSC. Meanwhile, AWCTJV will pay the balance of AWCTJV’s portion of the arbitration fees amounting to AED378,860 (RM42,6817.67) directly to DIAC.

In addition, TSC is to bear its own legal costs and pay to AWCTJV AED601,208.60 (RM67,7312.08) for AWCTJV’s legal costs. As of end-September 2019, WCT’s outstanding construction order book stood at RM5.6bil, which will provide earnings visibility for the next three years.

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