A fruitful event. Kenanga Research hosted c.40 analysts and fund managers to its Corporate Day held at The Royale Chulan Kuala Lumpur on 13th October 2015. There were two events with separate themes on the day, namely “Food & Beverage Sector – Defensive Play Capitalising on Soft Commodities Prices and Ringgit Depreciation” and “Healthcare Sector – Resilient, Captive Earnings and Defensive Play”. The Corporate Day was graced by the participation of 6 established companies such as QL, HUPSENG, COCOLND in the consumer space, and IHH, PHARMA and BIOHLDG from the healthcare sector. Spokespersons from these corporates enlightened the audience of investment community with the insights of business updates, key investment merits as well as earnings prospects and outlook.

In the morning session, our event started with a presentation by Mr Freddie Yap, the Group Accountant from QL Resources (QL). Mr Yap started with an overview of the Group’s three operating segments, namely integrated livestock farming (ILF), marine products manufacturing (MPM), and oil palm activities (POA). He also highlighted their 3-pronged strategy in order to achieve yearly target earnings CAGR of 15%, which includes focusing on lengthening the value chain in all three of its operating segments, expanding via organic growth and acquisitions regionally, as well as engaging in brand building with greater distribution channels. All in all, we came away from the Corporate Day feeling assured and confident of QL’s earnings growth potential with the strategies in place. We maintain our MARKET PERFORM rating on QL with unchanged TP of RM4.16. The session was continued by Hup Seng Industries (HUPSENG), which was represented by Ms Kerk Chian Tung, the Group Executive Director. The audience were able to get a taste of cookies manufactured by HUPSENG, including the newly-launched ‘Naturell’ oat cookies that have received encouraging response from the market. Conclusively, we think that the outlook is positive for HUPSENG considering the resilient demand for the small-ticket food products while the new products might help in further driving sales growth. Meanwhile, the high dividend pay-outs are expected to be sustained in view of its strong balance sheet position and huge cash pile on hand. Lastly, we were honoured with the attendance of Cocoaland (COCOLND)’s Executive Director, Mr Liew Fook Meng and Finance Director, Mr Tai Chun Wah. Mr Tai gave an insightful presentation on COCOLND’s corporate profile, financial results’ analysis, as well as the expansion the company has gone through recently. He also took the opportunity to clarify the withdrawal of the takeover offer on COCOLND from a Hong Kong party recently. We think that COCOLND’s valuation is attractive as it is currently trading at 12.9x PER FY16E PER according to consensus forecast while the earnings growth rate is also encouraging, at forecasted average rate of 23.5% over the next two years.

For the healthcare-themed Corporate Day, we were privileged to have: (1) Dato’ Farshila Emran, Managing Director of Pharmaniaga and her management team, (2) Mr William Hon, Managing Director of BioAlpha, and (3) En Ahmad Shahizam, CEO, Pantai Operations, Parkway Pantai Limited of IHH Healthcare as our distinguished speakers. All three companies demonstrated defensive and captive earnings streams characteristics. We prefer Pharmaniaga for: (i) its defensive earnings being the sole concession holder to purchase, store, supplies and distribute approved drugs and medical products to Government hospitals and clinics nationwide, (ii) its growth exposure in the healthcare and pharmaceuticals industry supported by an ageing population, and (iii) decent dividend yield of 4.5%. BioAlpha is at its growth stage, amplified by its current expansion plan and on-going activities that include going upstream in manufacturing feed stocks for its end-products, production of new formulations and construction of a processing plant. We are positive on the company’s prospects underpinned by its: (i) expansion plans to drive growth going forward, (ii) venture into the Middle East market, targeting to penetrate UAE, (iii) development of 30 new product formulations, and (iv) competitive edge by having its own herbs farm. We like IHH over the longer term for its highly defensive and captive earnings streams, however, presently the stock is trading at rich valuations. The stock is currently trading at PERs of 53x for FY15E and 48x for FY16E, which appear rich as compared to its average net profit growth of 11% p.a. over FY15E and FY16E. We maintain our UNDERPERFORM call and sum-of-parts based TP of RM5.00. 

Source: Kenanga Research - 15 Oct 2015