1. 4QFY16 Results Highlight

• In 4QFY16, turnover grew by 7.5% to RM80.63m driven mainly by property and water & wastewater divisions.

• Although PBT surged significantly to RM8.30m (4QFY16) from RM1.21m (4QFY15), it was mainly attributed to swings in exceptional items.

• In 4QFY15, there was an impairment loss on loans and receivables amounting to RM2.6m for its PCB manufacturing division.

• However, GUH benefited from forex gain of RM2.5m in 4QFY16 due to the stronger US$ (GUH Penang) and fair value gain on investment properties of RM1.7m (property division).

• Net profit came in at RM6.98m in 4QFY16 as compared with net loss of RM2.15m in 4QFY15.

• 4QFY16’s turnover of PCB manufacturing division was flat at RM68.86m as compared with RM67.59m in 4QFY15. However, PBT nearly doubled to RM9.38m from RM4.76m in 4QFY15 due mainly to forex gain of RM2.5m while there was an impairment loss on loans and receivables of RM2.6m in 4QFY15.

• The property division swung to a PBT of RM1.62m (4QFY16) from a pretax loss of RM0.89m (4QFY15) mainly due to fair value gain on investment properties of RM1.7m.

• Although there was a pick-up in progress billings, as turnover of water and wastewater division increased by 47.0% to RM5.69m in 4QFY16, it had yet to achieve profitability with a pretax loss of RM1.08m due to higher administrative expenses.

• The smaller divisions such as sale of electrical appliances and oil palm divisions combined reported a small PBT of RM0.10m in 4QFY16 as compared with RM0.05m in 4QFY15.

• GUH owns a 20% stake in Cambodia Utilities Pte Ltd (CUPL), which is a concession holder of a BOT power plant in Phnom Penh, Cambodia. This 18-years concession expired in May-15. In the absence of income from CUPL and coupled with forex loss, its non-operating segments recorded a pretax loss of RM1.71m in 4QFY16.

FY16 Results Highlight

• In FY16, turnover improved by 10.4% to RM315.12m due mainly to PCB manufacturing division (+10.6%) and water and wastewater division (+27.1%).

• Both PBT and net profit expanded by 24.3% and 90.1% to RM23.22m and RM18.88m respectively due mainly to forex gain in FY16 and impairment loss in FY15.

• This decline in associate contribution was attributed to the impact of the absence of profit contribution from CUPL at associate level.

2. Earnings Outlook

• GUH is an investment holding with diversified businesses in PCB manufacturing, property development as well as water and wastewater treatment. Its other smaller divisions are sale of electrical appliances and oil palm plantation.

• Its PCB manufacturing division will remain the growth driver. The growth momentum especially at GUH Penang can be sustainable, as its capacity expansion and capability enhancement programme (completed in end-FY14) has managed to secure the confidence and subsequently, more orders from MNC customers. The shift towards better margin car audio, automotive electronics, and home appliance and continuous operational improvement will sustain profit margin.

• For its property development division, Taman Bukit Kepayang, Seremban is its key property development project. It currently still has a landbank of 130 acres in Seremban, which can sustain its property development division for the next 5 years. The property sector is currently adversely affected by weak consumer spending and tighter lending by banks. However, GUH has built an established longterm reputational track record and strong financial position. In addition, its cheap land cost of around RM5.00 psf provides it with pricing and products flexibility. For the newly acquired Sungai Bakat land, it is planning a light industrial park with a gross development value (GDV) of RM150m on an enlarged land size of 17.3 acres. The project is targeted to be launched in 2017. The land is strategically located near the Batu Kawan Industrial Park, which has attracted an increasing number of MNCs setting up factories. This project, featuring 58 units of 3-storeys semidetached light industry factories, is targeting small and medium enterprises (SMEs). However, the finalisation of these new launches depends largely on the property market condition, which is currently dampened by weak market sentiment and more stringent bank lending policy.
   
• Water and wastewater treatment division under wholly-owned Teknoserv, offers promising prospects. It currently has 3 projects in hand with an unbilled sale of RM100m as at end-FY16. This will be progressively recognised over the next 18 months. It’s also currently tendering for 6 water and wastewater projects worth RM700m.

3. Valuation and Recommendation

• Its core PCB manufacturing is expected to experience a steadily increasing profit trend underpinned by order flow, better product mix, cost and quality control. Meanwhile, its water and wastewater divisions should see a turn-around in profit contribution in FY17. This is attributed to higher progress billings of existing projects.

• We are maintaining our Buy recommendation on the stock for its attractive valuation and rich assets. The stock is currently trading at a P/BV of only 0.4x over its book value of RM1.99 as at 4QFY16. We have arrived at a target price of RM1.60 after ascribing a 20% discount to its book value. It has a net cash position of around RM98.82m (RM0.37/share). The stock is currently trading at a P/E of 9.3x for FY17.

Source: BCT Asia Research - 28 Feb 2017