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Wednesday, November 30, 2016
KUALA LUMPUR (Nov 30): The FBM KLCI declined 7.81 points or 0.48% as late selling of Petronas Dagangan Bhd and Petronas Gas Bhd shares led to a sudden drop in the KLCI. The Petronas-linked shares fell as the Organization of Petroleum Exporting Countries (OPEC) deliberate over a potential output cut.
At 5pm, the KLCI closed at 1,619.12 points. Petronas Dagangan shares fell 52 sen to RM23 while Petronas Gas dropped 38 sen to RM20.98.
KLCI-linked Petronas Dagangan and Petronas Gas were the third and fourth largest decliners respectively across Bursa Malaysia.
JF Apex Securities Bhd senior analyst Lee Cherng Wee said: "The decision by OPEC could impact oil prices, which could hopefully support the market, but the KLCI doesn't seem to follow oil price trends closely anymore as compared to before."
Bursa Malaysia saw 1.88 billion shares worth RM3.23 billion exchanged. There were 526 decliners and 276 gainers.
Reuters reported that OPEC began on Wednesday debating a deal to curtail oil production and prop up the price of crude, with Iran and Iraq resisting pressure from Saudi Arabia to participate fully in any action.
Ministers from OPEC started an informal meeting at 0700 GMT at the Vienna Park Hyatt hotel and were due to begin a formal gathering at OPEC headquarters at 0900 GMT.
Source: The Edge
Maintain BUY with higher target price (TP) of RM2.66
- Kimlun reported 3QFY16 results with revenue coming in at RM224.2m (-9% QoQ, -7% YoY) and earnings of RM16.5m (-32% QoQ, -16% YoY). Cumulative 9M earnings totalled RM57.7m, increasing +17% YoY.
- 9M earnings made up 84% of our full year forecast (77% of consensus) which is above expectations.
- The stronger than expected results was attributed to the manufacturing division which enjoyed superior gross margins of 32% for the 9M period vs 24.8% last year. This was due to (i) stronger SGD against MYR and (ii) higher proportion of MRT deliveries last year which generally commands a lower margin.
- None declared.
- Orderbook remains healthy. Kimlun’s orderbook currently stands at RM2.1bn comprising RM1.8bn for construction and RM280m for manufacturing. Overall, this translates to a healthy cover ratio of 2x on FY15 revenue.
- Bags MRT2 TLS contract. Kimlun announced that it has been awarded a RM52.8m contract to supply tunnel lining segments (TLS) for the MRT2. The contract is expected to last until Sept 2019, slightly less than 3 years from now. This contract win is within our expectations as Kimlun was also one of the two TLS suppliers for the MRT1. Earlier in March, Kimlun also won a RM200m contract to supply segmental box girders (SBG) for the MRT2.
- Strong on job wins. YTD, Kimlun has managed to secure jobs in excess of RM1.3bn and is looking to add another RM200-300m for the remainder of the year. Looking ahead, potential job wins could stem from (i) the LRT3 where it has been prequalified for both the construction and precast roles, (ii) affordable housing under PR1MA and PP1AM in which it has already submitted some bids and (iii) the Central Spine Road. Kimlun has also successfully reduced its job flow dependency on Iskandar in view of the slowdown there..
- Slowdown in Iskandar could hamper job flow prospects.
- We raise FY16-18 earnings by 7%, 5% and 2% respectively as we impute higher margin assumptions for its manufacturing division.
- Maintain BUY, TP: RM2.66
- We like Kimlun as a prudently run construction outfit with commendable results delivery. Share price has fallen 8% from its peak this month, offering a good opportunity to accumulate.
- Following the earnings upgrade, our TP is raised from RM2.44 to RM2.66 based on an unchanged 11x P/E multiple (mean) applied to FY17 earnings.
Source: Hong Leong Investment Bank Research - 30 November 2016
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Retain outperform with lower target price (TP) of RM2.48
9M16 CNP of RM62.1m was below expectations, accounting for 68%/59% of our/streets? full-year estimates, respectively. The negative deviation was due to lower-than- expected operating margin stemming from the provisioning on its crane division coupled with a higher- than-expected contribution to its non-controlling interest. No dividend declared as expected. FY16-17E CNP was lowered by 7%-6%. No changes in call OUTPERFORM but lowered TP to RM2.48 (previously, RM2.53).
Below expectations. 9M16 CNP of RM62.1m came in below expectations, making up only 68% and 59% of our and streets? full- year estimates, respectively. We believe the negative deviation was due to lower-than-expected operating margins mainly driven by the provisioning incurred on its crane division coupled with a higher-than- expected contribution to its non-controlling interest. No dividend was declared, as expected.
Result highlights. YoY-Ytd, 9M16 NP saw an improvement of 12%, but its CNP registered a sharp decrease of 33% after excluding the net impact from the movement in forex and derivatives, albeit a healthy top line growth of 9%. The decline in CNP is mainly attributable to the compression in pre-tax margins for both its crane and shipyard division that was down by 3-6ppt to 14-15%, respectively.
QoQ, 3Q16 CNP fell by 64% underpinned by the 5% decrease in revenue. It registered a weaker performance for 3Q16 owing to lower billings recognised due to timing factor coupled with a higher provision for warranties coupled with a lower contribution from associates which saw a decline of 14%.
Outlook. Currently, MUHIBAH?s outstanding order book stands at c.RM1.7b, providing the group at least two years of visibility. To date, they only managed to secure c.RM320.0m vis-a-vis our FY16E target of RM1.0b. In the medium-to-near term, MUHIBAH?s focus remains unchanged on RAPID while bidding for MRT2 and other infrastructure jobs like LRT3, which would be sufficient to make up to our RM1.0b target. That said, we also expect MUHIBAH to register a better 4Q16 as we do not expect more provisioning from its crane division coupled with a stronger contribution from its associates in 4Q16.
Earnings downgrade. Post results, we revised our FY16-17E core earnings down by 7% and 6%, respectively, after we tweaked our operating margins lower coupled with a higher contribution to its non- controlling interest.
OUTPERFORM maintained. Post revision in our FY16-17E core earnings, lowered our SoP-driven Target Price to RM2.48 (previously, RM2.53) while maintaining our OUTPERFORM call on the stock as we still believe that they remain as one of the strong contenders in the construction industry, especially for infrastructure jobs. Our Target Price of RM2.48 implies FY17E PER of 11.5x. This TP is in line with our target small-and-mid caps construction peers? range of 9.0?13.0x.
Source: PublicInvest Research - 30 November 2016
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Maintain HOLD with new target price (TP) of RM56.20
- Dutch Lady’s 9M16 earnings of RM111.3m came in below expectation, making up only 68% of our full year forecast.
- Earnings fell 3.9% YTD mainly due to higher cost of sales and continued investments in support of the brand.
- Uptrend in milk prices putting pressure on company bottom line.
- We revised our FY16 and FY17 earnings forecast downwards to RM150.4m and RM163.7m respectively.
- Hold call retained with new target price of RM56.20. YTD earnings drop. Dutch Lady recorded a 9M16 revenue growth of 6.2% to RM776.1m due mainly to launch of the newly improved formula for Friso powdered milk which is specially targeted for children and introduction of Ready to Drink (RTD) UHT 125ml milk with Disney Marvel and Frozen character packaging. However, earnings dropped 3.9% YTD to RM111.3m from RM115.8m driven by i) higher costs of sales, and ii) greater advertising and promotion expenses in support of the brand as well as for new launches. This is reflected in the compression of EBIT margin by -2%.
Higher revenue pushed up qoq earnings. Earnings for 3Q16 improved 10.7% qoq to RM40.7m from RM36.7m. This is due to higher sales, up by 13.3% to RM279.6m as well as lower operating expenses incurred in this quarter.
Constant dividend paid. Dutch Lady had declared a standard single-tier interim dividend of 50 sen and special single-tier interim dividend of 60 sen for FYE 31 December 2016. As to date, a total of 110 sen DPS had been declared. We estimate that the whole year dividend would come to a total of 220 sen. This translates to a dividend yield of 4%.
Uptrend in milk prices is impairing earnings. Dutch Lady earnings are expected to be affected in the near future not only due to the current poor consumer sentiment but also to the uptrend in global milk prices. Milk prices have increased by 18% YTD to USD2150.4 from USD1916.5 per metric ton. We believe that the uptrend in milk prices is due to curtailment of production in New Zealand as a result of previous oversupply in world markets and higher demand from China. The rise in milk prices increases the input costs of Dutch Lady products. Continued advertising and promotion investments to maintain brand name would further increase costs to the company.
Hold recommendation maintain on lower earnings forecast. We revised our earnings forecast for FY16 and FY17 to RM150.4m (-8%) and RM163.7m (-9%) by factoring in our view of the diminished outlook brought about by higher raw material prices. We have derived a new target price of RM56.20 (previously: RM59) based on DCF methodology with WACC of 10%. Maintain Hold.
Source: BIMB Securties Research - 30 November 2016
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Upgrade outperform with an unchanged target price (TP) of RM1.31
reported a net loss of RM309.6m in 2QFY17 (2QFY16: net profit of RM3.9m). Cumulatively, its 1HFY17 net loss was RM478.9m. Excluding one-off loss on re-measurement of previously held equity interest in Pos Malaysia of RM130.2m as well as forex loss on borrowings and payables of RM98.3m, the core net loss for 1HFY17 was RM250.4m. It was below our and market expectations, making up 57% and more than 100% of full-year loss estimates. Its revenue for 2QFY17 increased by 5.7% QoQ to RM2.6bn, on the back of higher sales volume for Proton (+5.1%). Given a sharp fall of 27% in DRB’s share price since October, our unchanged TP of RM1.31 suggests a potential upside of 34%. We see the completion of its foreign strategic partner exercise as near term catalyst. Hence, we upgrade our call on DRB to Outperform.
- Automotive division. DRB’s automotive division recorded 2Q17 pre-tax loss of RM166.0m, from a PBT of RM11.4m in 2Q16. This was mainly due to lower contribution from its defence and aviation segment (-25.3% YoY), on the back of lower percentage completion of AV8 project. The division was also dragged by lower vehicle sales volume, through lower sales performance by Proton (-49.1% YoY), Audi (-62.3% YoY), Lotus (-21.5%) as well as in the absence of Suzuki marque. Nevertheless, revenue for auto division in 2Q17 increased by 7.9% QoQ to RM1.9bn. This was mainly due to improved sales volume by Proton (+5.1% QoQ), on the back of new launched of Persona and Saga model in August and September 2016 respectively.
- Services & PAC performance. Its services division pre-tax profit for 2Q17 declined by 28.8% YoY to RM56.4m due to higher operational cost and recognition of loss on re-measurement of previously held equity interest in Pos Malaysia of RM130.2m. Its revenue slightly increased by 3.6% YoY on the back of better performance from its banking (+8.7% YoY) and logistic (+14.3% YoY) businesses. As the Group has just completed the consolidation of its logistics businesses (i.e. KLAS, KLB and ACE) under Pos Malaysia in September 2016, we expect the numbers would only be reflected in 3Q17. Meanwhile, its property division recorded a pre-tax loss of RM9.4m (2Q16: PBT of RM4.4m) although revenue increased by 19.6% YoY from the on-going property development projects i.e. Glenmarie Johor, Proton City and Laman Glenmarie.
- Upgrade to Outperform. We expect recent new model launched by Proton (i.e. 4 new models since August to October 2016), will help to improve its performance for the automotive division in the 2HFY17, hence maintain our earnings forecast. In addition, Proton has already shortlisted three global auto companies and on track to complete its foreign strategic partner (FSP) exercises by 1H 2017, which provide an opportunity for them to increase its plant utilisation rate and cost efficiency.
Source: PublicInvest Research - 30 November 2016
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Retain outperform with target price (TP) of RM1.00
Wah Seong’s 9MFY16 performance continues to be affected by the lack of projects in the O&G segment fueled by the deferment of capital expenditure activities by oil majors. Revenue subsequently recorded RM946.4m (-32.0% YoY), and with a core loss of RM30.0m (->100.0% YoY). This was further hampered by the softer market in Malaysia and thus saw a reduction in renewable energy (RE) activities. Wah Seong’s results missed both ours and consensus’ estimates by >100.0%. On a positive note, the Group’s orderbook was boosted to RM3.6bn (2QFY16 - RM795m) to include the Nord Stream 2 award which affirms Wah Seong’s recovery going forward as the prevailing weaker performance is due to the depleting orderbook, and not from its execution capabilities. Our Outperform view on Wah Seong, is retained but with an adjusted TP of RM1.00 pegged to 8x PE and FY17F EPS of 12.5sen. Our adjustment is due to our lowered estimates from the Group’s associates in particular Petra Energy whereby we have adjusted our estimates from the weaker performance due to the weaker oil landscape.
- Orderbook boost. Wah Seong’s current orderbook for 3QFY16, stands at RM3.6bn (June 2016: RM795m) comprising of 92% O&G contracts, 5% renewable energy (RE) and 3% industrial trading and services (ITS). The O&G orderbook worth RM3.4bn, comprises of projects such as Nord Stream 2, USD18.2m award for the Johan Sverdrup Export Pipeline Project (JoSEPP), USD41.2m subcontract award from Schneider Electric France SAS for a project in Kazakhstan, Shell E6 field, offshore Sarawak and Petronas Carigali F12 Kumang Cluster gas field development.
- Updates. The Nord Stream 2 pipes have been delivered to its respective plants in Finland end-September and to Germany in October, and is targeted to begin coating by January. The operations have been funded by an upfront payment by the client, based on the LOI signed. We remain concerned on the project’s major financing status which is still pending however. The Gulf of Mexico contract is targeted to begin coating in 4QFY16, having won a USD74m job from Shell. We understand that the main contributions from this project will kick-in 2017/18. Meanwhile the Group is aggressively bidding for other jobs in this region, with values ranging between USD20m to USD40m.
- Maintain Outperform with a TP of RM1.00 pegged to 8x PE and FY17F EPS of 12.5sen. The stock has limited downside as the Group’s performance continues to be affected by the oil price sentiment and not due to its execution capabilities. Thus upon recovery of the oil markets, we should see further positive reflections in its price levels.
Source: PublicInvest Research - 30 November 2016
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Maintain outperform with an unchanged target price (TP) of RM2.23
The Group’s 9MFY16 net profit of RM57.5m (+8.4% YoY) came in within expectations, at 73% of our and 74% of consensus full-year estimates. With the group currently undertaking 16 on-going projects against the backdrop of a record-high unbilled sales amount of RM1.46bn, the company remains primed for sustained growth in the coming few financial years, particularly owing to its predominant focus on affordably-priced properties which stand it in better stead. Recent corporate exercises in which 1) the construction division was spun off into ML Global and 2) land acquisitions in Dengkil and Alam Perdana, are positive and underscores management’s focus on long-term shareholder value creation. While we leave FY16 estimates unchanged, we are lifting FY17 and FY18 net profits by 15.1% and 22.2% respectively, scaling back on our previously-conservative sales assumptions. Our Outperform call is affirmed with an unchanged target price of RM2.23 (30% discount to FD RNAV).
- Brisk business in Q3, with RM462m worth of properties sold in this one quarter alone and almost doubling Q2’s RM238m sales done. Bandar Saujana Putra continues to be a key driver to the Group’s earnings growth, with RM549m sold to-date. Other major contributors for the year are the D’Island and Desiran Bayu projects in Puchong (RM195m and RM245m respectively) while Cameron Golden Hills, Bandar Putera Indah, Sinar Mahkota and Midhills chimed in with a collective RM162m. Sales to-date (as at 20 November) now totals RM1.15bn, with its annual RM1.2bn target more than likely being met. Despite the challenging market environment, LBS’ current quarter sales has even outstripped the previous corresponding period’s RM372m, let alone outpacing Q1 (RM266m) and Q2 (RM238m) this year, reflection of the Group remaining focused on the customer segment it does and knows best, the mid- and mass-market segment which continues to see steady demand and financing availability.
- 2017 guidance. Management has indicated launches to the tune of RM1.55bn next year, c. 20% higher than 2016’s RM1.29bn. Sales mix is anticipated to be more spread out, with launches in flagship Bandar Saujana Putra only contributing RM330m (21%). Other major project contributors are its Bukit Jalil project (RM341m, 22%), the Langit and Lake project in Bandar Putra Perdana (RM361m, 23%), D’Island Residence (RM258m, RM17%), Centrum @ Cameron Highlands (RM183m, 12%) and Desiran Bayu (RM77m, 5%).
- Healthy earnings visibility. A major plus point for the Group remains the fact that most of its current developable land bank was acquired years ago in which costs were much lower, giving it the flexibility to alter its product mix to address whatever market cycle. Current unbilled sales at a record-high of RM1.46bn, coupled with its planned launches next year will underpin earnings visibility for the next 2-3 years.
Source: PublicInvest Research - 30 November 2016
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Maintain outperform with unchanged target price (TP) of RM0.93
9M16 PATAMI of RM14.6m came in largely within expectation. No dividend was declared, as expected. Moving forward, we expect the group to record a strong sequential quarter, in tandem with the telecom operators’ tendencies to ramp up capex in the 4Q of each financial year. We made no changes to our FY16E/FY17E earnings forecasts for now, pending today’s briefing. Maintained OUTPERFORM call with an unchanged TP of RM0.93 based on DCF valuation (WACC: 9.1%, TG: 1.5%).
Broadly in line. 9M16 PATAMI of RM14.6m (+12% YoY) came in largely within expectations at 53.2%/51.7% of our/market consensus’ full-year estimates (vs. the historical 9M contribution of 53%-58% range of full-year results for the past three years). Despite the 9M16 merely accounting for about half of our full-year estimate, we expect the group to record a strong 4Q underpinned by telecom operators, who tend to ramp up capex during the last quarter of each financial year.
YoY, 9M16 revenue soared to RM294m (+40%) on the back of higher telecommunication network services (“TNS”, +45% to RM244m) contribution, mainly underpinned by its regional business in Indonesia, Cambodia and Myanmar as well as higher contribution form contracting works in Malaysia. In addition, the group’s M&E division improved by 50% to RM18m, thanks to higher delivery of engineering works on existing projects. PBT enhanced 27% to RM26m, mainly driven by higher turnover but partially offset by heavier administrative, depreciation, and finance costs as a result of higher staff counts as well as larger tower portfolios.
QoQ, 3Q16 turnover dipped by 11%, largely due to lower revenue contribution from TNS (-7%), trading (-47%) and M&E Engineering Services. Despite lower top-line performance, its PBT improved by 17% with margin increasing by 250 bps to 10.8%, thanks to new projects from TNS segment with higher margin.
Outlook. OCK is expected to continue benefiting from the rapid network expansion plan undertaken by the local major telcos. We understand that the group aims to grow its recurring revenue business via own-build towers and acquiring existing tower-sites operators in ASEAN. Apart from focusing on the telecommunication business, we understand that the group is also sourcing for more business and/or investment opportunities in the sustainable energy sector that is rapidly growing in demand.
We continue to like OCK for: (i) its healthy cash flow on the back of escalating recurring income trend, (ii) spreading its wings in Myanmar and across Southeast Asia, (iii) its ability to ride with the passive infrastructure sharing trend, (iv) its EBITDA margin expanding trend, and (iv) potential growth through M&A activity.
Risks to earnings are: (i) project risks, (ii) dependence on directors and key personnel, and (iii) dependence on major customers/contracts.
Source: Kenanga Research - 30 November 2016
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Maintain UNDERPERFORM with lower target price (TP) of RM4.27
9M16 results came in below expectations. Negative deviation was largely in part due to greater losses in the O&G segment. No dividend was declared, as expected. Post-results, we forecast core NL for FY16 and cut FY17E core NP by 43% to account for greater losses assumption in the O&G segment. Maintain UNDERPERFORM with a lower TP of RM4.27 (from RM4.45, previously) based on SoP valuation.
9M16 results were below expectations, as the group reported a 9M16 core LATAMI of RM125.6m which missed our/consensus’ full-year core NP estimates of RM94.3/RM103.9m. Negative deviations were mainly due to significantly higher losses arising from the oil & gas segment from lower rig utilisation rates as well as highly competitive charter rates alongside steep overhead costs.
YoY, 9M16 revenue fell by 23% due to weakness across all segments. The auto segment saw a decline in total sales (-18%) as consumer demand for automobiles was undermined by poor sentiment from higher living costs. Sales in the equipment segment fell by 29% amidst slowing construction and mining activities in Myanmar due to state government restrictions. Meanwhile, the Oil & Gas segment (-62%) continued to slump as industry activity was dampened by discouraging oil prices, leading to lower rig utilisation by oil majors. In terms of PBT, the auto segment (- 43%) was dragged further due to higher import costs from unfavourable forex rates. The Oil & Gas segment (-529%) continued to be deeply affected by high overhead costs resulting from low operational efficiency from low rig utilisation. The underlying factors above led 9M16 LBT to record at RM55.7m (-109%).
QoQ, auto sales grew by 4% as recent model launches (i.e. Alphard, Vellfire and facelifted variants of the Camry, Innova and Vios) have reinvigorated market demand. Revenue from the Oil & Gas segment (- 62%) saw further downwards pressure as fewer rigs were charted during the quarter. Ultimately, the PBT decreased by 371% primarily as a result of the widening operating losses incurred by the Oil & Gas segment.
On the Auto Segment, management maintained their combined sales estimate for both Perodua and UMW of 286k units, broadly in line with our sales volume assumptions for FY16. With the launch of the Perodua Bezza as well as other fresh Toyota models to offer, we expect to see some recovery in terms of unit sales for the group, which should make up for the weaker sales garnered during the first half of the year. However, margins are expected to continue to be thin given the prevailing unfavourable forex.
On the Oil & Gas segment, we continue to anticipate weakness in the short to medium term judging by the softness and uncertainty in oil prices seen recently. Hence, oil majors may continue to keep their exploration activities at minimal levels. At this juncture, 5 rigs (NAGA 1, 3, 4, 5 and 7) are not being chartered with 2 other rigs only recently beginning their charters while another only commencing in 2Q17. As such, high overhead costs with lower returns are expected to stress the group’s FY16 segment earnings.
Post-results, we forecast losses for FY16 and reduce our FY17E core PATAMI (-43%) as we expect an extended drag from the weakness in the Oil and Gas segment, possibly only seeing a meaningful recovery in 2H17 where 3 rigs are anticipated to be chartered.
Maintain UNDERPERFORM but reduce our TP to RM4.27 (from RM4.45, previously) based on our SoP valuation to FY17E’s revised fundamentals, implying a 29.2x FY17E PER.
Source: Kenanga Research - 30 November 2016
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Tuesday, November 29, 2016
KUALA LUMPUR (Nov 29): The FBM KLCI fell 1.73 points or 0.1% with crude oil ahead of the crucial Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, tomorrow to deliberate over a potential output cut.
At 5pm today, the KLCI closed at 1,626.93 points on losses in oil and gas-related shares like SapuraKencana Petroleum Bhd and Petronas Gas Bhd.
"Although it might be true that (crude oil) markets will rebalance in 2017 whether a production cut is reached or not, oil bears are just waiting for a signal to push the sell button, and 15% decline towards US$40 (about RM178) looks very reasonable in case no significant deal was reached," FXTM chief market strategist Hussein Sayed wrote in a note today.
"However, markets still believe that a production cut of 500,000 to 1 million barrels per day is achievable tomorrow and this explains Monday's price action where both major benchmarks rose by more than 2%," Hussein said.
Bursa Malaysia saw 1.38 billion shares worth RM1.72 billion traded. Decliners overwhelmed gainers at 543 against 214 respectively.
An analyst told theedgemarkets.com that the KLCI lacked catalysts. "The KLCI continues to trade sideways amid a lack of catalysts, while the ringgit and oil prices remain weak," he said.
Reuters reported that Brent crude futures were trading at US$47.69 per barrel at 0741 GMT, down 55 cents or 1.14% from their last close. It was reported that oil prices fell on market jitters over whether producer cartel OPEC would be able to hammer out a meaningful output cut during a meeting on Wednesday, aimed at reining in a global supply overhang and propping up prices.
Source: The Edge
Maintain UNDERPERFORM with an unchanged target price (TP) of RM0.99
9M16 core net profit of RM150.5m was within expectations, accounting for 76% of our full-year estimates. No property sales data was available. As expected, no dividend was declared. No changes to FY16-17E core earnings. Maintain UNDERPERFORM with an unchanged Target Price of RM0.99 based on 5.5x FY17E PER.
Within expectation. 9M16 CNP of RM150.5m is in line with our expectation, accounting for 76% of our full-year estimate while there is no consensus available. No dividends declared as expected. Property sales data are not available, while we are expecting property sales of RM349.9m for FY16.
Results review. 9M16 CNP saw sharp decline of 26% underpinned by 23% decrease in revenue as a result of lower progressive billings for its property project attributable to weak property sales due to the challenging market environment, especially in Johor.
QoQ, its 3Q16 CNP picked up with an improvement of 8% backed by strong revenue growth of 18%. The revenue growth was driven by its property division revenue, which grew 24% driving its property operating profit to increase 13% despite 4ppt decline in operating margin of 43%. We believe that the boost in property revenue could be from the completion and handover of some of its projects.
Outlook. We continue to believe that the challenging operating environment in the property sector will persist in the near-term, especially in Johor due to the oversupply situation of high-rise projects coming from Chinese developers. That said, we are also concerned on KSL’s move in targeting the high-end segment away from affordable housing in Johor, as we believe that the slow demand for high-rise projects in Johor will persist.
Keeping FY16-17E earnings. Post earnings, we make no changes to our FY16-17E CNP of RM198.0-174.0m.
Maintain UNDERPERFORM. We maintain our UNDERPERFORM call on KSL with an unchanged Target Price of RM0.99 based on 5.5x FY17E PER. Our applied PER is based on the lower range of small-mid-cap peers’ Fwd. PER of 5.0-7.0x. At our current Target Price of RM0.99, it implies 86% discount on its RNAV of RM7.07, which is at its peak.
Upside risks include higher-than-expected sales and lower administrative costs, positive real estate policies, improvements in lending environments, and resumption in dividend payment.
Source: Kenanga Research - 29 November 2016
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Maintain PERFORM with lower target price (TP) of RM14.30
9M16 core net profit of RM157.9m (+2.6% YoY) missed our (66%) and market (66%) expectations. As expected, no DPS was declared. Weakness in Sri Lanka is not a big concern as production has resumed and earnings contribution is not too high. Outlook remains challenging on the back soft of consumer sentiment. FY16E/FY17E earnings trimmed by 7%/3%. Maintain MARKET PERFORM on CARLSBG with lower TP of RM14.30 (from RM14.70).
9M16 below expectations.
9M16 core net profit of RM157.9m (+2.6% YoY) was below expectations, accounting for 66% of our in-house forecast and 65% of consensus. The negative deviation can be attributed to the weaker-than-expected performance in Sri Lankan operations. Note that 9M15 core net profit has been adjusted for impairment loss of RM12.5m arising from the divestment of Luen Heng F&B Sdn Bhd (LHFB) in May 2015. No DPS was declared, as expected.
YoY, the Group reported 9M16 revenue of RM1.2b which was flattish (+0.6%) as compared to RM1.2b in 9M15. The growth would have been 6.7% after adjusting for the loss of sales arising from LHFB disposal, according to the Group with both operating markets recording healthy top line growths (Malaysia: 4.9%, Singapore: 10.6%). Meanwhile, 9M16 operating profit grew 7.5% to RM208.5m driven by both operating markets as well as effective cost management. However, Sri Lankan associate (25% stake) dipped into the red with loss of RM1.9m (from 9M15 net profit: RM 10.9m) mainly due to excise duty hike and a severe flood that disrupted local production. As a result, 9M16 net profit only inched up by 2.6% to RM157.9m.
QoQ, 3Q16 reported revenue of RM393.3m was 0.6% lower as compared to 2Q16. Sales contributions from both operating markets were lacklustre, dragged down by weak consumer sentiment. Meanwhile, operating margins from both operating markets eroded which we believe the scenario was owing to higher marketing expenses in between the quarters. This coupled with the deeper loss in Sri Lankan associate (-RM1.7m vs ?RM0.2m in 2Q16) dragged 3Q16 net profit down by 15.1% to RM43.6m.
Sri Lankan weakness not too damaging.
We are not too concerned with the loss-making associate as production has resumed on Nov 2016 (after being shut down for 3 months) and the losses will not affect the cash flow generation while earnings contribution is low at 7% in FY15. The Group expects the subdued consumer sentiment and challenging macroeconomics to remain in the near-term. However, we think innovation in product launches and effective marketing activities will continue to drive consumption. Besides, better product mix with more investment and brand building on the premium brands, including Somersby Apple Cider, Somersby Pear Cider and Kronenbourg to drive earnings growth as sales volume growth is expected to be subdued due to the soft outlook moving forward.
We cut FY16E/FY17E earnings forecasts by 7%/3% to account for weaker-than-expected performance in Sri Lankan associate.
Maintain MARKET PERFORM with lower Target Price of RM14.30 (from RM14.70).
Correspondingly, with the earnings cut, our TP is lowered to RM14.30, based on unchanged 17.6x FY17E, which is on par with its three-year mean.
Source: Kenanga Research - 29 November 2016
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Upgrade from sell to HOLD with target price (TP) of RM15.52
- Carlsberg reported its 9MFY16 net profit of RM157.9mn (+11.7% YoY). The results came within ours (71%) but below streets estimates (66%). No dividend was declared, similar to last corresponding period.
- YoY, the group revenue grew marginally by 0.6% to RM1.2bn. This was driven by positive contribution from Singapore segment. The segment recorded a double-digit growth of 10.6% to RM424.6mn supported by 1) stronger sales volume as well as 2) higher contribution from subsidiary company Maybev. Meanwhile, Malaysia segment logged a slight contraction of 3.9% to RM820.3mn underpinned by loss of contribution from Luen Heng business. Note that, Luen Heng is a distributor and supplier of wines and spirit and the disinvestment was completed last August 2015.
- For 9MFY16, the group’s operating profit expanded by 15.5% YoY to RM204.5mn owing to strong contribution from both segments. This was attributable to 1) effective costs control and positive products mix, 2) increased contribution from Maybev, and 3) strengthening of Singapore Dollar against MYR. Thus, the group’s EBIT margin lifted by 2.1p.p.
- No changes to our earnings forecasts at this juncture.
- With the acquisition of Maybev in April 2014, the group has been witnessing increased contributions from its Singapore operations. We take comfort that such geographical diversification has allowed the group to offset the slow performance seen in its Malaysian operations and positively benefitted from weak Ringgit.
- We maintain our target price at RM15.52 based on DCF methodology (COE: 7.6%, g: 2.5%). However, we upgrade the stock from Sell to Hold since the sharp drop in its share price recently
Source: TA Research - 29 November 2016
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Maintain BUY recommendation with target price (TP) of RM0.50
TRC Synergy delivered a much improved earnings performance in 3QFY16, due to improved margins and FX translation gains which bolstered its net profit to RM15.1m (+77.6% YoY, +251.2 QoQ). YTD, it registered 9MFY16 net of RM20.7m (-3.7% YoY). Stripping out FX gains (of c.RM7m), it registered net profit of RM8.1m during the quarter, or YTD net profit of RM13.7m, slightly above expectations or constituting c.78% of our full year estimates. FY16 earnings were adjusted upwards by c.40%, to account primarily for FX gains. Outstanding orderbook is estimated at c.RM1bn, driven by jobs such as Pan Borneo Highway (30% stake: contract value is RM1.31bn). Maintain Trading Buy and RM0.50 TP, pegged at PER multiple of c.10x of our FY17 EPS.
- Outstanding order book at estimated RM1bn. With no new jobs secured in 3QFY16, the Group’s outstanding orderbook is estimated at c.RM1bn. To recap, key job wins among others include development of new Kuala Lumpur Air Traffic Control Centre, jobs from MRT Corp and Pan Borneo Highway. Main on-going jobs are the Kelana Jaya LRT extension project, MRT1, and KL Eco City building contracts. Separately, one of the packages secured from MRT Corp was terminated yesterday. Further to the termination letter, TRC had initiated the negotiation and discussion with the MRT Corp’s Project Delivery Partner on the consequences of the termination and to ascertain the final quantum of compensation payable to TRC. The negotiation is still ongoing. The contract sum is small at only RM74.4m, and hence we believe will not have any material effect on earnings. Going forward, jobs in the pipeline, among others include LRT3, MRT2 rail links and Pan Borneo Sabah.
- Ara Damansara property development project. The long awaited Ara Damansara property project is now believed to be at the last stages of finalization, which consists of service apartments, hotel, office block and retail mall. The first launch is expected by 1QCY2017 and the expected GDV is c.RM1bn. We understand that the first phase is estimated to be c.RM300m.
Source: PublicInvest Research - 29 November 2016
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Maintain OUTPERFORM call with an unchanged target price (TP) of RM0.85
TDM 9MFY16 reported a core net profit of RM36.1m, making up 55% of our full year earnings forecasts after stripping out unrealized gain on the foreign exchange in fixed income securities amounting to RM8.4m and impairment loss on receivable, RM1.3m. Though it fell below our expectations, we think that it will be able to catch up in 4Q given the recovery in FFB production and sharp increase in CPO prices. Hence, our earnings forecasts remain unchanged. No dividend was declared for the quarter. We maintain our Outperform call with an unchanged TP of RM0.85.
- 3QFY16 revenue (QoQ: -0.3%, YoY: +4.3%). 3QFY16 revenue increased 4.2% YoY to RM102.8m, led by an improved revenue from healthcare segment while plantation sales remained steady. During the quarter, plantation sales fell slightly to RM57.9m as weaker FFB production (-26.7% YoY) was cushioned by stronger CPO prices (+25.2% YoY). Average CPO prices jumped from RM2,102/mt to RM2,631/mt while palm kernel prices surged from RM1,417/mt to RM2,288/mt. Healthcare sales registered a 14% YoY increase on the back of a 10% growth in the number of both inpatients and outpatients.
- 3QFY16 core earnings (QoQ: +76%, YoY: +85.2%). Though healthcare earnings dropped 26% YoY to RM1.7m, the Group’s earnings rose 85.2% YoY, boosted by plantation earnings after stripping out the RM2.1m unrealized FX gain in fixed income securities. Plantation earnings surged 130% YoY to RM19m, driven by stronger palm kernel price, which helped lower the production cost and lower start-up losses in Indonesian operation. On the other hand, healthcare earnings weakened due to higher admin costs as a result of higher staff costs and pre-operating costs at Kuala Terengganu Medical Specialist, which is scheduled to open soon.
- Maintain Outperform call. Though 9-month earnings met only 55% of our full-year forecasts, we remain upbeat on the 4Q earnings outlook, led by recovery of FFB production and stronger CPO prices. Healthcare arm is likely to register better earnings on the back of new hospital contribution.
Source: PublicInvest Research - 29 November 2016
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Maintain PERFORM with unchanged target price (TP) of RM3.60
1H17 CNP at RM55m was within expectations at 46% of both consensus? RM118m and our RM119m forecasts. No dividend was declared, as expected. We maintain our FY17-18E CNP forecasts at RM119-142m. No change to our MARKET PERFORM call and TP of RM3.60.
2Q17 meets expectations.
IJM Plantations Berhad (IJMPLNT) 1H17 CNP at RM55m came in within expectations at 46% of both consensus? RM118m forecast and our expected RM119m. Group production at 424.1k MT was within our expectations as well, at 47% of full-year forecast. No dividend was announced, as expected.
YoY, CNP rose 21% on flat FFB volume, driven by large increases in CPO prices in Malaysia (+23%), Indonesia (25%) and a sharp jump in PK prices (+74%) due to tight supply and rising demand for palm kernel oil as a coconut oil alternative. This led to a 57% improvement in Malaysian operations PBT, and a reversal in Indonesia PBT to RM25m, from a LBT of RM56m previously. QoQ, CNP jumped 76% as Malaysian PBT rose 1.7x on a volume jump of 43%, but Indonesian PBT weakened 59% due to softer volume (-6% to 79.5k MT) arising from lagged drought impact, and flat CPO prices.
Looking ahead, we think IJMPLNT should see stable earnings in the coming quarters as CPO prices have steadily improved with 3QFY17 quarter-to-date (QTD) improvement of 6% and 29% YoY. This should offset IJMPLNT?s historically weaker production in late 3Q and 4Q17 as production hits off-peak season. Note that net profit could see some volatility with the weaker ringgit, with the possibility of erasing year-to-date forex gains of RM14.8m. However, net impact will be neutral as forex movements are excluded from our core net profit calculations.
FY17-18E CNP maintained at RMM119-142m as 1H17 CNP is in line with our forecast.
Maintain MARKET PERFORM with unchanged TP of RM3.60. We maintain our TP at RM3.60 based on unchanged 23.5x Fwd. PER applied to CY17E EPS of 15.3 sen. Our Fwd. PER of 23.5x is based on +0.5SD valuation which we think is justified by IJMPLNT?s FY17-18E above-average FFB growth of 6-12% compared to the sector average CY16-17E growth of -2% and 10%. We continue to have a MARKET PERFORM call on IJMPLNT as slightly softer near-term production is offset by supportive CPO prices.
Source: Kenanga Research - 29 November 2016
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Monday, November 28, 2016
|FBM KLCI close higher by 1.4 points or 0.1% at 1,628.66 pts|
The FBM KLCI gained 1.4 points or 0.1%, along with Asian share markets, as crude oil's price fall curbs inflation and U.S. interest rate hike prospects, according to a report by TheEdgeMarkets.
At 5 p.m., the KLCI closed at 1,628.66 points.
Across Asian stock markets, Hong Kong’s Hang Seng gained 0.47%. while South Korea’s Kospi rose 0.19%.
Reuters reported oil prices fell on Monday, adding to Friday's steep losses as doubts re-emerged over the ability of major producers to agree on output cuts at a planned meeting on Wednesday aimed at reining in global oversupply. Brent crude futures fell 2% at one point, but regained ground to trade down 35 cents or 0.74% at US$46.89 per barrel at 0749 GMT.
In Malaysia, Kenanga Investment Bank Bhd research head Chan Ken Yew said the KLCI was still trapped in a rangebound pattern, as investors eyed a potential interest rate hike by the U.S. Federal Reserve next month.
The Federal Reserve's next Federal Open Market Committee (FOMC) meeting will be on Dec 13 and Dec 14 this year. The meeting will be the last for 2016.
Earlier, Federal Reserve Chair Janet Yellen had said U.S. interest rates might rise "relatively soon". Yellen's comment was in anticipation of higher U.S. inflation and interest rates, due to U.S. President-elect Donald Trump's planned expansionary fiscal policies.
Today, Chan said: “There is not much catalyst for the KLCI, currently. Investors are still waiting for the FOMC meeting next month."
“We still see the index to be rangebound, with support at 1,600 and 1,620. There could be some buying, if the index breaks the 1,640 – 1,650 level,” he said.
Across Bursa Malaysia, 1.32 billion shares. worth RM1.44 billion. were traded.
Decliners beat gainers at 594 versus 225, respectively.
Friday, November 25, 2016
KUALA LUMPUR (Nov 25): The FBM KLCI rose 3.05 points or 0.2% on late buying of index-linked plantation shares like Kuala Lumpur Kepong Bhd (KLK) and Sime Darby Bhd as the ringgit weakened to a new one-year level against the US dollar.
Plantation shares could have taken the cue from a weaker ringgit, which bodes well for Malaysian crude palm oil (CPO) exports and prices. The ringgit depreciated to its new one-year level at 4.4690 against the US dollar today on expectation of a US interest rate hike next month.
"Plantation counters' performance is better than other sectors as CPO prices climbed to more than RM3,000 a tonne," Malacca Securities Sdn Bhd analyst Kenneth Leong told theedgemarkets.com.
At 5pm, the KLCI ended at 1,627.26 points. KLK shares climbed 36 sen to RM24.10 to become Bursa Malaysia's second-largest gainer while Sime Darby rose six sen to RM8.10.
Reuters reported that Malaysian palm oil futures continued their uptrend, rising 0.73% in first-half trade on Friday, and were headed for a fifth consecutive session of gains due to a weak ringgit and declining output.
It was reported that benchmark palm oil futures for February delivery on the Bursa Malaysia Derivatives Exchange were up 0.73% at RM3,026 (US$678.48) a tonne at the midday break.
At 5pm, Bursa Malaysia saw 402 decliners versus 347 advancers. A total of 1.28 billion shares valued at RM1.24 billion changed hands.
Among major decliners, OldTown Bhd shares fell 15 sen to RM1.87 after the Securities Commission excluded OldTown from the regulator's Shariah-compliant securities list.
Source: The Edge
Maintain BUY recommendation with higher target price (TP) of RM1.75
- Protasco’s 3Q2016 net profit declined 7.0% Y.o.Y to RM14.3 mln, dragged down by the weakness in the maintenance segment due to the non-renewal of two state roads maintenance contracts, coupled with lower contributions from its property development segment with the near completion of Phase 1 of De Centrum project. Revenue for the quarter fell marginally by 0.4% Y.o.Y to RM302.8 mln.
- Cumulative 9M2016 net profit slipped 9.1% Y.o.Y to RM42.0 mln. Revenue for the period fell marginally, by 0.9% Y.o.Y to RM826.1 mln. Despite that, the reported earnings came slightly above our expectations, accounting to 77.2% of our previous full year net profit forecast of RM54.4 mln. The reported revenue, meanwhile, only amounted to 71.5% of our previous revenue forecast of RM1.16 bln.
- Segmentally, the maintenance division’s 3Q2016 pretax profit slumped 66.7% Y.o.Y to RM8.9 mln on the non-renewal of two state roads maintenance contracts. The construction segment’s pretax profit, however, surged 5.1x to RM0.9 mln on higher billings from Phase 1 of the PPA1M project, which is at 96% completion.
- Its property development segment’s pretax profit jumped 180.6% Y.o.Y to RM6.2 mln on minor cost adjustment after the completion of Phase 1, while Phase 2A is at 81.0% completion. The engineering services’ segment pretax profit sank 55.4% Y.o.Y to RM33,000 on lower geotechnical and soil works. The trading & manufacturing segment’s pretax profit added 64.1% Y.o.Y to RM0.9 mln, while the education segment’s pretax profit soared 320.9% Y.o.Y to RM0.8 mln on an increase in student intake. An interim dividend of 3.0 sen per share was declared.
We note that Protasco has secured its first major construction contract in 2016 through a joint-venture, valued at RM315.8 mln for works relating to the Sungai Besi-Ulu Kelang Expressway. Subsequently, the company’s outstanding construction orderbook of approximately RM900.0 mln (implying a relatively high 3.6x construction orderbook cover ratio vs. 2015’s construction revenue of RM247.8 mln), will continue to anchor the segment’s earnings growth until February 2019, backed by the aforementioned project and two relatively large scale PPA1M projects. Over at the maintenance segment, Protasco managed to clinch the state maintenance work for Kelantan state over a two year period for RM25.7 mln, renewable over the next 10-year period. We think the concession segment is already well supported by an outstanding orderbook of approximately RM4.40 bln which will provide earnings visibility over the next ten years. Meanwhile, we also think that the allocation of RM4.60 bln for the maintenance of state roads under the recent Budget 2017 announcement bodes well for Protasco. On its property development segment, the unbilled sales of RM23.4 mln will be recognised progressively towards the end of 2016 and 1H2017. Going forward, Phase 2B of DeCentrum, which carries a GDV of RM350.0 mln, and slated for launch in 2H2016 could be held back due to the slowdown in the general property market. Moving forward, Protasco aims to launch an affordable housing project with a GDV of RM600.0 mln in 2Q2017 in two phases.
Valuation And Recommendation
As the reported earnings came slightly above our forecast, we raised our earnings estimates for 2016 and 2017 by 8.0% and 7.4% to RM58.8 mln and RM61.9 mln respectively, after adjusting our earnings forecast to account for lower finance cost and lower effective tax rate of 31.0% (previously at 32.5%). Consequently, we maintain our BUYrecommendation on Protasco with a higher target price RM1.75 (from RM1.65). Our target price is derived from rolling over (to 2017) our unchanged target PER of 11.0x to its construction earnings, a target PER of 8.0x (unchanged) to its concession and engineering services’ earnings, while its education and trading earnings remain pegged at target PERs of 6.0x respectively due to their smaller scale businesses. Its property development division’s valuation remains unchanged at 0.6x of its BV. Risks to our forecast and target price include failure to achieve the targeted construction orderbook replenishment amount and failure or delay in concession contract renewals. Further tightening of monetary policies will also be unfavourable to its property development business.
Source: Mplus Research - 25 November 2016
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Maintain BUY with unchanged target price (TP) of RM2.21
- OldTown’s 2QFY17 net profit declined 9.0% q-o-q and 5.5% y-o-y to RM12.63mil. Meanwhile, quarterly revenue down 3.2% q-o-q while climbed 7.5% y-o-y to RM99.55mill.
- For 1HFY17, net profit was registered at RM26.51mill, up 16.1% y-o-y. Similarly, revenue up by 8.4% y-o-y to RM202.43mill.
- Within expectation- The Group’s 1HFY17 net profit was within expectations by accounting for 47% of our full year net profit forecast and market consensus mainly buoyed by positive performance in FMCG division coupled with slight recovery in F&B division in this quarter. We reckon that OldTown could achieve impressive earnings in 2HFY17, aided by better performance from both divisions in conjunction of Christmas and Chinese New Year celebrations.
- Better earnings of 1HFY17. The Group’s 1HFY17 net profit posted a positive growth amid its higher topline as the resilient performance of FMCG segment was strong enough to offset the fall in F&B segment in 1QFY17. Nonetheless, for quarterly basis, net profit declined for both yearly and quarterly basis mainly due to weaker result in FMCG segment in 2QFY17 amid higher selling and distribution expenses during this quarter.
- F&B division remained lacklustre in 1HFY17. The segment recorded a decline of 10% PBT for 1HFY17 mainly attributable to the lower earnings achieved in 1QFY17 owing to reduction in consumer spending as weaker sales recorded in Ramadhan fasting month which came earlier as compared to last year. Similarly, PBT for 2QFY17 declined by 15.8% y-o-y amid higher staff costs and depreciation in this quarter.
- Better growth shown by F&B division for quarterly basis. Nonetheless, F&B division managed to report PBT of RM4.54mil in 2QFY17, rising 4.9% q-o-q and in line with increase in revenue of 7.2% q-o-q, backed by aggressive promotional campaigns which launched from July to Sept 2016. We reckon that slight improvement in consumer sentiment as compared to last quarter also supported the earnings for the division.
- Encouraging performance of FMCG division in 1HFY17. FMCG segment expanded by 39.7% y-o-y in PBT for 1HFY17. The resilient performance was aided by higher
export sales generated with double-digit growth as well as positive impact from the stronger US Dollar versus the Ringgit coupled with cost saving initiatives, especially on packaging materials and direct labour expenses.
- Nonetheless, for 2QFY17, the division’s PBT recorded a decrease of 22.3% q-o-q amid negative growth in its topline. The sluggish performance was owing to the higher selling and distribution expenses incurred in the current quarter as well as seasonal factors. In addition, the weaker demand from local business also attributed to the negative growth in this quarter.
- Dividend declared. The Group has declared a dividend of 3.0 sen in 2QFY17 which will go ex on 25 Jan 2017. We expect the total dividend payout of 6.3 sen per share will be given by the group for FY17F or equivalent to yield of 3.1%.
- Future prospects. FY17 will be another challenging year for the group amid potential rise in cost for raw material coupled with increment of foreign workers’ salaries. Despite the challenging and competitive business environment, the group will continue to implement its future growth plan to strengthen its earnings growth going forward. For its F&B division, more new outlets will be opened in the forms of `generic’ outlets and low cost model (known as OldTown White Coffee Basic) as well as focusing more on family segment to attract more customers. In addition, the café operations will continue to serve a better quality of foods and beverages for its business in foreign markets including Singapore, Indonesia, Australia and China to strengthen its brand name beyond Malaysia.
- For FMCG segment, the group will continue to sustain its impressive growth by improving its manufacturing efficiency to drive cost savings and hence lifting its margin. The group will brush up its marketing activities to promote their products in domestic market as well as international market in order to maintain its market share and dominant position in the white coffee segment in Malaysia.
- We maintain our earnings forecast for FY17-18F.
Valuation & Recommendation
- Maintain BUY with an unchanged target price of RM2.21, based on FY17 EPS forecast 13 sen with blended industry PER of 17x. We are sanguine on OldTown’s expansion plans as we believe the group is able to strengthen its brand name in international market over the medium to long term.
Source: JF Apex Securities Research - 25 November 2016
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