Kerja Prospex 'buy',SPH 'sell', Eita 'add', Aeon 'hold'
By UOB Kay Hian
Target price: RM3.69
IN spite of the sluggish property sector, Kerjaya was able to replenish its order book by RM1.5bil in 2016.
UOB Kay Hian assumes an order book replenishment rate of RM1bil for 2017 compared with the management’s modest target of RM800mil.
Based on the group’s track record, UOB Kay Hian believes that Kerjaya can easily surpass its guidance and the research house’s expectations.
Kerjaya sits on about RM128mil, or 8% of market capital of net cash.
Based on UOB Kay Hian’s estimates, free cash flow is expected to improve significantly from this year to 2018, in tandem with the construction progress of Kerjaya’s contracts.
The company is targeting a dividend payout ratio of 30% going forward, which implies a decent forward yield of 2.2%.
However, the research house does not discount a higher dividend payout, given its strong cash pile.
Kerjaya’s outstanding construction order book amounts to RM2.69bil as of December 2016, representing about 3.5 times of its 2016 construction revenue which would be able to sustain its earnings growth momentum for the next two to three years.
Notable jobs that the group is undertaking included the Arte Mont Kiara project worth RM339mil, a building job in Medini, Iskandar Malaysia worth RM313mil and the construction of a hotel and service residence in Malacca worth RM214mil.
“We are expecting a three-year earnings compund annual growth rate (CAGR) of 16.5% in 2016 to 2018, with the construction division being the key earnings growth driver, while the property development division is set to provide an additional boost.
“We expect the construction division’s revenue to grow 31.1% year-on-year (y-o-y) in 2016 to 2017, while the property division’s revenue is likely to increase by 123% y-o-y in 2017 as the construction of Vista Residences in Gohtong Jaya reaches a more advanced stage in billings,” said UOB Kay Hian.
The research house added that Kerjaya deserved a valuation re-rating given its fundamentals which included strong earnings growth, healthy net profit margins which are above its peers, high order book cover of 3.5 times, as well as its net cash position with net cash at 23 sen per share.
At the current share price, the stock trades at an undemanding 2018F excluding cash price-earnings multiple of 10.5 times.
“We like Kerjaya for its ability to deliver above-sector margins, strong earnings growth, and huge construction order book which could grow further in the near term.
“The stock would also continue to be supported by positive news flow on the anticipated new contract wins this year as well as a prospective dividend yield of 2.2%, based on a 30% payout ratio,” said UOB Kay Hian.
By UOB Kay Hian
Target price: S$3.29
SINGAPORE Press Holdings Ltd (SPH) reported second quarter financial year 2017 (Q2FY17) headline net profit of S$53.5mil on lower media revenue.
The company saw a S$11.7mil one-off gain from disposal of investments.
Excluding one-off items, core net profit was down 19.6% year-on-year (y-o-y) to S$39.4mil, forming 43% of UOB Kay Hian’s full-year core profit forecast.
This was within expectations, as Q2 is a seasonally weak quarter with the first half of the year typically forming about 45% of full year earnings.
Revenue from the display and classifieds segments fell by 19% and 16% y-o-y respectively.
This tied in with the declines of display at 9.5% and classifieds at 17.7% y-o-y, the research house noted from its page count for The Straits Times.
The decline was due to lower demand, as advertising rates were not cut.
Circulation revenue remained stable at S$39.6mil, as the decline in print subscriptions was offset by the increases in digital subscriptions.
Meanwhile, revenue from the property segment increased 1.3% y-o-y to S$62mil for Q2FY17.
The segment was helped by positive rental reversions of 4% to 8% during the quarter, with occupancy for its property assets remaining strong at 100%.
Other revenue increased to 6.5% y-o-y to S$8mil, led by the timing of its exhibitions and its online classified business.
Interim dividend was cut to six Singapore cents.
This represents a decline from seven Singapore cents declared in Q2FY16.
“We think the dividend payout is likely to range between 16 to 17 Singapore cents, depending on earnings performance in the second half of FY17 (H2FY17).
“We have however, reduced our assumption to 16 Singapore cents, as we expect further earnings weakness.
“Should an unexpected turnaround occur in the second half of FY17, dividend payout would be 17 Singapore cents at best,” said UOB Kay Hian.
SPH’s key media segment is expected to remain weak, reflecting the lacklustre Singapore economy.
In addition, all 12 trade segments in Singapore remained weak, with no particular trade segment leading the decline.
The weakness is expected to persist.
Diversification into other business segments has yet been able to supplant earnings from SPH’s traditional media business, and is not expected to happen in the near term.
“We understand from management that the interim cut was to soften the percentage decline in its final dividend.
“More notable was that the interim dividend cut was also in part due to the lower cash flows generated from the media business,” said UOB Kay Hian.
Assuming the media’s business decline accelerates, cash flow reduction could translate to sharper-than-expected cuts in dividend.
Furthermore, the divestment of Seletar Mall does not seem imminent, as income has yet to stabilise.
SPH prefers not to have to provide income support when injecting it into SPH Real Estate Investment Trust.
“We lower our earnings forecasts in the light of the sharper-than-expected decline in advertising revenue.
“Our revised core earnings forecasts are now at S$246mil (-1.9%), S$234mil (-5.2%) and S$232mil (-6.0%) for FY17 to FY19 respectively,” said UOB Kay Hian.
By CIMB Research
Add (Initiating coverage)
Target price: RM2.40
THE completion of the existing mass rapid transit (MRT) installation elevator project by the middle of this year should boost Eita’s track record, putting the company on a strong position to secure more elevator jobs like MRT 2 and LRT 3, which is expected to be awarded over the next few quarters.
Additionally, CIMB Research believed Eita’s elevator manufacturing business should also benefit from the constant flow of affordable condominium launches in the country over the next few years.
Property consultant Jones Lang Wotton has projected cumulative completed medium-cost condominiums in the Klang Valley to rise from 300,000 units currently to 420,000 by 2020, a 120,000-unit or 40% increase.
This is equivalent to a potential RM800mil elevator industry orderbook in the Klang Valley alone.
Listed on the main board, Eita’s core business is the manufacture and installation of elevators, escalators and busduct systems.
Other businesses include distribution of electrical and electronics (E&E) components and service maintenance of elevators.
In just 10 years, Eita has transformed from a manufacturer into the leading domestic player in the elevator market, with 10% market share nationwide.
This in an impressive achievement and an indication of the management’s strength and experience as this market is competitive, dominated by top international brands. In the elevator infra market, Eita is considered the No. 1 player after it secured the MRT job.
CIMB Research initiated coverage with an “add” call.
Valuation is attractive at 2018 8.4 times forward pric-to-earnings (PE) ratio, 43% discount to 2018 14.4 times PE for the small-cap construction sector.
As there are no listed companies in similar businesses, CIMB Research valued Eita at 2018 12 times PE, a 20% discount to the construction sector’s 15 times target PE. The discount to reflect its small market cap and indirect exposure to the sector – deriving a RM2.40 target price.
By Maybank IB Research
Target price: RM2.20
AFTER meeting with management, Maybank IB Research came out slightly more positive on this year’s earnings growth outlook.
It maintained earnings forecasts pending better visibility on earnings growth from the retailing segment.
Maybank IB Research anticipated a seasonally stronger year-on-year (y-o-y) first quarter financial year 2017 results in conjunction with the Chinese New Year festive shopping and higher contributions from new stores.
Aeon’s earnings continue to be supported by its stable property management services segment which constitutes 98% of our FY17E operating profit.
To recap, the retailing segment has achieved only RM3.3mil operating profit in 2016 against RM44.5mil largely due to high operating expenditure (opex) from its newer malls, soft consumer sentiment and stiff competition.
The research house believed this segment could grow y-o-y in 2017 as it understood that the newer malls such as those in Shah Alam are gaining traction via improving sales and shopper traffic and incurring less start-up opex.
Furthermore, Aeon expected better sales contribution from its Mid Valley Megamall outlet post major renovation works as the outlet had partial closures in 2016 which in turn, affected sales.
Nonetheless, CIMB Research maintained its retailing segment’s financial year 2017 operating profit forecast of RM4.6mil (growth of 40% y-o-y) for now. It noted that Aeon planned to open one new mall at Kempas, Johor in second half of this year and another in Kuching, Sarawak next year which are in line with CIMB Research’s forecast of one new outlet per annum.