Highlights

Logic Invest Research Blog

Author: loginvest   |   Latest post: Wed, 14 Oct 2020, 8:41 AM

 

Perstima - Dragged by Soft Demand, Cheap Imports

Author: loginvest   |  Publish date: Wed, 14 Oct 2020, 8:41 AM


Investment Thesis:

Maintain HOLD with target price (TP) of RM3.50. We believe the negatives for Perstima (PER) have been largely priced in, given that the stock is trading at 10x FY21 price-to-earnings (PE), equivalent to -1 SD (standard deviation) below its historical mean.

Expect weaker 2HFY21. Given that the bulk of PER’s revenue is from the domestic market, demand for tinplate in Malaysia has a large bearing on the group’s prospects. With sluggish consumer sentiment and increase of cheap imports, we expect earnings to be weaker in 2HFY21.

Cheaper imports remain a threat. We believe that the domestic market is still being affected by cheaper imports which continue to weigh on PER’s revenue and margin.

Valuation

Post PER’s earnings revision, we lower our TP to RM3.50, pegged to 12-month forward PE of 11x.

Where we differ:

We are the sole research house covering PER. We adopt a neutral stance on the stock and believe that it is fairly valued at this juncture.

Key Risks to Our View:

A stronger-than-expected recovery of earnings, largely from its Malaysia operations, could provide upside risk. In addition, anti-dumping duties for imported tinplate could allow PER more pricing power over its products.

Source: Alliance Research - 14 Oct 2020

Labels: PERSTIM
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Land & General Bhd - Lack of Catalysts

Author: loginvest   |  Publish date: Mon, 24 Aug 2020, 2:45 PM


  • 1QFY21 results buffered by earnings from education arm; met expectations
  • RM161m unbilled sales to sustain near term earnings visibility
  • Persistently weak market sentiment to dampen property sales
  • Maintain HOLD with RM0.11 TP

What’s New

1QFY21 in line. Stripping out write-backs of RM4.6m, Land & General Bhd (LGH) reported 1QFY21 core earnings of RM0.9m. While the impact of the government’s Movement Control Order (MCO) in response to the COVID-19 pandemic resulted in much lower progress billings for the property division during the quarter, this was buffered by LGH’s education arm which remained resilient.

Dragged by slow progress billings. LGH’s property segment recorded RM1.3m loss before interest and taxes (LBIT), compared to RM8.2m earnings before interest and taxes (EBIT) in 1QFY20. This was due to its lower segmental revenue which plunged 78% y-o-y to RM8.4m as the MCO had impeded construction site progress.

Weak property sales. LGH achieved low property sales of RM8m in 1QFY21. Nevertheless, unbilled sales remained steady at RM161m (-11% y-o-y) which will underpin its earnings visibility in the near term.

Resilient education arm. Its education business posted a strong quarterly EBIT of RM2.1m (+39% y-o-y) due to increased student enrolment for its international school with the opening of additional classes for upper primary and secondary levels. Its EBIT margin came in at 39% which was higher than the usual ~30% margin.

Outlook

Challenging property market. LGH has only launched the second phase of Damansara Foresta called Damansara Seresta (RM480m gross development value (GDV)) in 2HCY18 in view of the sluggish property market. We believe most of its pipeline will be further delayed until there is a turnaround in the operating environment. The delay has derailed LGH’s earnings growth momentum. A strong sales performance from Damansara Seresta will be critical to sustain its earnings growth given the declining trend of unbilled sales.

Healthy balance sheet. While the property market remains mired with challenges, LGH’s healthy balance sheet with a low net gearing level of 9% as at end-1QFY21 will help to tide over this difficult period.

Valuation and Recommendation

Maintain HOLD. We maintain our target price (TP) of RM0.11, based on an unchanged 80% discount to our revalued net asset value (RNAV). We believe it will take much longer for the company to monetise its deep land value given the persistently weak property market which has resulted in delays of its launches.

Source: Alliance Research - 24 Aug 2020

Labels: L&G
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Perstima - Dragged by Lower Volume and Selling Price

Author: loginvest   |  Publish date: Wed, 19 Aug 2020, 6:47 PM


  • 1QFY21 earnings drop 10% y-o-y due to lower sales volume and selling price
  • Outlook remains challenging mainly due to intense competition from imports
  • Corporate exercises approved during EGM
  • Maintain HOLD with unchanged TP of RM4.20

What’s New

1QFY21 earnings declined y-o-y, dragged by lower sales.

Perstima (PER) reported 1QFY21 earnings of RM10.4m (- 10.0% y-o-y, +127% q-o-q). The y-o-y decline in earnings was mainly due to lower volume and lower selling price. The group’s 1QFY21 earnings are within expectations, as we expect subsequent quarters to be weaker.

Malaysia operations – remains challenging. For Malaysia operations, the group reported a PBT of RM7m (-38.4% y-oy) on the back of lower revenue of RM116m (-26.3% y-o-y). The y-o-y decline in earnings was due to lower revenue and reduced profit margin. For its Vietnam business, revenue improved by 24.0% y-o-y to RM88m due to higher sales volume despite low selling prices. This helped improved its PBT to RM7m (65.6% y-o-y).

The Group’s Philippine operation is still at preliminary stage and did not register any revenue in 1QFY21. It recorded a RM0.5m loss mainly on rental and administration fees in the quarter

Reduced cash position. As of 1QFY21, the group has net cash of RM45m, reduced from RM91m in 4QFY20. This was largely due to increase in working capital in the quarter. Perstima did not announce a dividend for the quarter.

Outlook

Challenging environment. We expect the operating environment to remain challenging and competitive. The more intense competition from imports are expected to continue impacting the group’s growth and profitability.

Potential dilution to EPS. PER announced in early March that the group is going to undertake the following rights and bonus issues exercises that were approved during the EGM yesterday:

1. A rights issue of 19.9m shares (20% of its existing share base) on the basis of one new share for every five shares held at an issue price and entitlement date to be determined later.

2. A bonus issue of 9.9m shares on the basis of one bonus share for every two rights shares subscribed.

Assuming an indicative issue price of RM3.00, the group is expected to raise approximately RM59.6m. Some 92% of the proceeds raised (estimated RM54.8m) will be used to partially finance the electrolytic tinning and tin-free steel production line for the manufacturing plant in the Philippines. The remaining proceeds will be used for the purchase of raw materials and expenses for the proposals. The new plant has a manufacturing capacity of 200,000 MT per annum and is expected to be installed and fully commissioned by June 2021. Given that PER’s corporate exercises have yet to be completed, we are maintaining our earnings estimates for now.

Valuation and Recommendation

Maintain HOLD with RM4.20 TP. We maintain our HOLD recommendation for the group with an unchanged price (TP) of RM4.20, which is pegged to 12x FY21 PE. This is equivalent to its historical mean.

Source: Alliance Research - 19 Aug 2020

Labels: PERSTIM
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Chin Teck Plantations - Lifted by Strong FFB Production

Author: loginvest   |  Publish date: Wed, 29 Jul 2020, 10:21 AM


  • 3QFY20 core net profit above expectations due to lower than expected losses from JV
  • Young tree age profile moving into prime age will sustain long term earnings growth
  • Solid balance sheet with RM3.49 net cash/share or 60% of current share price
  • Maintain BUY with higher DCF-derived TP of RM8.15

What’s New

Supported by better CPO prices. Chin Teck Plantations (CTP) reported a stronger core net profit of RM11.2m for 3QFY20 after stripping off fair value gain on investment securities and foreign exchange (forex) gain. The significant q-o-q improvement in core net profit was due to stronger fresh fruit bunches (FFB) production, while better y-o-y core net profit was thanks to higher average crude palm oil (CPO) prices. 9MFY20 net profit was RM22.9m (-9.2% y-o-y). Revenue was within expectations, but core net profit came in stronger than expected due to higher than expected other income and lower than expected losses from joint venture (JV) and associates.

Stronger FFB growth q-o-q. 3QFY20 FFB production came in at 62.1k MT (+81.2% q-o-q, -5.6% y-o-y), while 9MFY20 FFB production decreased by 18% y-o-y. CPO production dropped 17.1% y-o-y (+62.4% q-o-q) in 3QFY20 as oil extraction rate (OER) was lower at 18.6% compared to 19.0% in 3QFY19.

The lower y-o-y FFB production was mainly due to the impact of dry weather which lagged from 2019. The drop in production was also in line with industry trend. CTP’s estates are located in Pahang, Negeri Sembilan and Kelantan. According to Malaysian Palm Oil Board (MPOB) data, Negeri Sembilan’s CPO production declined 19.9% y-o-y, followed by Pahang (-10.9% y-o-y) and Kelantan (-10.3% y-o-y).

Stronger CPO prices y-o-y. CTP’s better y-o-y results were mainly driven by stronger CPO prices. Average CPO prices strengthened 15.1% y-o-y to RM2,252/tonne in 3QFY20.

Dividend of 8 sen; total yield of 2.7%. CTP declared a second interim dividend of 8 sen to be paid on 28 August 2020. Total dividend declared for FY20 was 16 sen, translating into a dividend yield of 2.7%. We are forecasting dividend per share (DPS) of 17 sen or dividend payout ratio of 50% for FY20.

Associates continued to report losses. CTP’s associates continued to register losses in 3QFY20 due to wider losses incurred by investments in its oil palm plantation in Indonesia. 

Outlook

Still undervalued with excess cash. CTP’s war chest is still impressive with cash and bank balances of RM318.4m. CTP has a net cash per share of RM3.49 in 3QFY20 (vs RM3.30 in 2QFY20), approximately 60% of its current share price of RM5.69. The net cash per share of RM3.49 signifies a high floor for its share price. CTP’s net cash position will also enable it to withstand any weakness in CPO production and fall in CPO prices.

Valuation and recommendation

Maintain BUY with higher DCF-derived TP of RM8.15. We raise FY20F profit estimates by 29% to factor in higher other income and lower losses from joint venture and associates. Post earnings adjustment, our discounted cash flow (DCF)-based target price (TP) increases from RM8.05 to RM8.15. Despite the near term disruption to FFB production due to dry weather in 2019, we remain long-term positive on CTP due to its; i) young tree age profile with more trees moving into prime age that fetch higher FFB yield, ii) strong net cash position.

About 29% of CTP’s trees were 6-10 years in FY19 and will gradually move into prime age of 11-20 years with higher FFB yield of above 20 tonne/ha in the upcoming years. Apart from that, the resumption of exports to India due to restocking activity has reduced palm oil inventory which is positive for CPO prices in the near term and will likely support CTP’s share price.

Source: Alliance Research - 29 Jul 2020

Labels: CHINTEK
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PIE Industrial Bhd 1Q FY 2020 Update Report (HOLD)

Author: loginvest   |  Publish date: Tue, 30 Jun 2020, 4:54 PM


UPDATE REPORT

Semiconductor and memory prices continued to soften into 1Q 20 whilst economic conditions in Malaysia and Singapore continued to deteriorate. The interest rate cuts around the region continue to support our cautious outlook that we noted in our previous report. Taking into account the serious impact of the coronavirus outbreak in China and elsewhere,we remain cautious on the tech sector generally. On the bright side a weaker MYR may boost export margins. Though management seems optimistic on next year’s prospects, our outlook is much more cautious. PIE has a fairly clean balance sheet, but as above, growth prospects are being revised downwards in many of the largest economies.

INVESTMENT RISKS

Risks to our recommendation and target price include: i) a sharp reduction in consumer/business electronics demand, ii) a stronger USDMYR exchange rate, iii) an increase in the general level of interest rates, iv) labour shortages, and v) loss of key customers.

RECOMMENDATION

We have a HOLD recommendation on PIE with a reduced fair value estimate of MYR 0.78. At current prices the shares may have more downside given the challenging outlook facing many listed exporters. Looking ahead, average ROE is likely to be maintained at levels within 2- 5%, whilst P-BV stands on 1.1x trailing book value and 1.1x current year book value. PIE shares currently stand on a forward dividend yield above 3.0% based on our updated dividend forecast. Should PIE demonstrate it can raise margins and substantially increase revenue in these difficult times, we would likely raise our target price and review our HOLD recommendation.

COMPANY PROFILE

PIE provides a one-stop contract electronic manufacturing service for the computer, electronics and telecommunication industries, including assembly of various cables, and it also tests various electronic products including bar code scanner and PCB assemblies. Major markets include Malaysia, Europe, the United States, and other Asia Pacific countries. Taipei-based Hai Hon Precision Industry Co Ltd is a substantial shareholder of PIE. 20% of PIE’s revenue is derived from wires & cables whilst 80% comes from original equipment manufacturing of electronic manufacturing services (EMS) for box-builds and semi box-builds, and barcode scanners. 90% of PIE’s revenues are exported either directly or indirectly.

Source: Wilson & York Securities Research - 30 Jun 2020

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SHL Consolidated Bhd 4Q FY 2020 Update Report (HOLD)

Author: loginvest   |  Publish date: Wed, 24 Jun 2020, 10:10 AM


UPDATE REPORT

Residential and commercial property markets are softening throughout Malaysia. Meanwhile broad economic conditions in Malaysia continue to deteriorate. The recent rate cuts around the region support our cautious outlook that we noted in our previous report. The property industry is expected to remain sluggish due to tighter lending policies put in place by Bank Negara and a broadly weaker economic environment. SHL Consolidated Bhd (“SHL”) is a well run company with a good land bank that has years to run. The company’s emphasis on good value has helped it maintain positive earnings despite very challenging conditions; still, a deceleration in sales is once again visible in the YTD 4Q FY 20 results.

INVESTMENT RISKS

Residential and commercial property markets are softening throughout Malaysia. Meanwhile broad economic conditions in Malaysia continue to deteriorate. The recent rate cuts around the region support our cautious outlook that we noted in our previous report. The property industry is expected to remain sluggish due to tighter lending policies put in place by Bank Negara and a broadly weaker economic environment. SHL Consolidated Bhd (“SHL”) is a well run company with a good land bank that has years to run. The company’s emphasis on good value has helped it maintain positive earnings despite very challenging conditions; still, a deceleration in sales is once again visible in the YTD 4Q FY 20 results.

RECOMMENDATION

We maintain our HOLD recommendation whilst decreasing our fair value estimate to MYR 1.72. SHL has a very solid balance sheet and should be able to maintain prospective dividend yields above 7% over FY 2021- 2022. Also, the company has an excellent landbank and sound management; SHL recently formed a JV with Japan’s Marubeni Corp to construct a condominium project with an estimated GDV of RM327 mn at Bandar Sungai Long, Selangor in which SHL holds a 67% stake. The project sits on a 9.56 acre land consisting of 568 condominium units. Value investors will want to accumulate at levels below MYR 1.63.

COMPANY PROFILE

SHL Consolidated Bhd is an investment holding company and it provides strategic, financial and corporate planning services. SHL Consolidated Bhd. and its subsidiaries are an integrated commercial and residential property development group, which are also involved in granite quarrying and manufacturing of aggregates, general building construction, earthworks, infrastructure works, the ownership and operation of a golf resort, the manufacture of clay bricks, supply of finished brickworks of wall and other brick structures, the manufacture of aluminum framed doors and windows, the provision of soil and concrete laboratory testing services, the provision of professional construction management and geo-technical services, the marketing and distribution of building materials, rental of properties and money lending business. Its subsidiaries include SHL Corporate Services Sdn. Bhd., Goodstock (Tawau) Sdn. Bhd. and Wilayah Builders Sdn. Bhd.

Source: Wilson & York Securities Research - 24 Jun 2020

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