Analyst report
The Star Online (02/02/2018) - KUALA LUMPUR KEPONG BHD image: https://cdn.thestar.com.my/Themes/img/chart.png By Maybank IB Research. Hold (maintained)
Target price: RM26.40 image: https://content.aimatch.com/default.gif
image: https://content.thestar.com.my/smg/settag/name=lotame/tags=all,tsol,Fatin_GSC_Insight_ALL
Maybank IB Research projects Kuala Lumpur Kepong Bhd’s (KLK) financial results for the first quarter of financial year 2018 (1Q18) to be “decent”, amid lower crude palm oil (CPO) price and fresh fruit bunches (FFB) output.
The plantation giant is expected to announce its results on Feb 12.
In its published note, Maybank IB Research said KLK’s core net profit in the first quarter will likely meet approximately 28% of its full-year forecast.
“KLK’s 1Q18 FFB output of 1.02 million tonnes, which was down by 2% year-on-year (y-o-y), was off to a slow start, below our projected 5% y-o-y growth for FY18
“We believe this was largely due to Indonesia’s temporarily slowdown in output recovery.
“Coupled with lower Malaysian CPO spot prices which averaged RM2,606 per ton in the fourth quarter of last year, we forecast KLK’s 1Q18 core net profit at approximately RM300mil, down by 16% y-o-y.
“We expect the lower upstream earnings to be mitigated by better downstream earnings given lower and stable feedstock costs,” stated the research firm.
With regard to the group’s upstream FFB output, Maybank IB Research pointed out that KLK guided for a 5% to 6% y-o-y growth in FY18. This was in line with the research house’s forecast of 5% y-o-y.
As for the downstream segment, KLK is expected to post a better margin in the current financial year. KLK is also anticipated to see a relatively flattish property earnings contribution.
On capital expenditure in FY18, KLK’s management has guided for a total of RM650mil. “We tweak our FY18-20 earnings per share (EPS) forecasts by 0%-1% on housekeeping following the release of KLK’s latest annual report, and incorporating fresh guidance on its capex targets.
“Given muted FY18 earnings growth outlook and limited upside to our slightly higher target price of RM26.40 post EPS forecasts uplift, KLK remains a ‘hold’,” said the research house.
UOA DEVELOPMENT BHD image: https://cdn.thestar.com.my/Themes/img/chart.png By AffinHwang Capital. Buy (maintained)
Target price: RM3.11
UOA has priced its property products appropriately within the affordable price range category (ie around RM500,000) that is attractive to first time home buyers.
Citing Bank Negara Malaysia, UOA said the maximum affordable home price in Kuala Lumpur is about RM450,000, based on a median household income of RM9,073 in 2016.
“The group’s strategy is to reduce the property size without reducing the price per sq ft, resulting in lower purchase price per unit. Hence, first-time home-buyers should stand to have a higher chance in securing home loans.
“As a result, UOA sees relatively low property booking cancellations, while preserving the group’s high gross margin.”
A good example, said AffinHwang, is UOA’s South Link serviced apartment project, which was launched at RM400,000 to RM720,000 per unit (RM800 per sq ft) with a built-up size of 500 sq ft to 900 sq ft in the fourth quarter of 2017.
“The project saw a good take-up rates (50%) due to its strategic location between two LRT stations in Bangsar South and accessibility to Federal Highway and New Pantai Expressway.”
The research house said UOA’s properties appeal to home buyers, as they have strategic location within the Greater KL area; good connectivity via major roads and highways; and close proximity to public transportation like the MRT and LRT.
“Despite the premium pricing to government affordable housing developed by PR1MA (RM100,000 to RM400,000), UOA is able to attract middle and upper-middle end customers (with incomes above the median household income) to buy its properties due to the above reasons.
“We like UOA’s strategy of rebranding its property development areas, like Kerinchi area to Bangsar South; and Segambut/Jalan Ipoh/ Kepong area to North Kiara by marketing mid- to high-end products in low- to mid-end areas.”
PETRONAS CHEMICAL GROUP BHD
By AmInvestment Bank Research. Hold
Fair value: RM8.35
AmInvestment Bank has downgraded its recommendation on Petronas Chemicals Group (PChem) to hold from buy as the stock’s six-month appreciation has narrowed the potential upside to its unchanged fair value of RM8.35 per share.
This is based on a 2018 enterprise value/earnings before interest, taxes, depreciation, and amortisation of nine-times, one standard deviation above its three-year average of eight-times.
The research house said its 2017 to 2019 earnings are maintained, as it expects that the group’s fourth quarter 2017 results, scheduled to be released on Feb 20, to come in within expectations on stable plant utilisation rate - with the recent completion of a methanol facility turnaround.
“Also, the reported gas leak and shut-in at the Sabah-Sarawak Gas Pipeline on Jan 10 this year has not affected PChem’s operations at PC Fertiliser Sabah in Sipitang.”
With crude oil prices lingering just below the US$70 per barrel range, AmInvestment Bank expects limited upside as the unusually cold winter season in the northern hemisphere recedes amid the unwinding of speculative futures positions.
“Our house view for crude oil price remains at US$55 to US$60 per barrel for 2018.”
The research house said the group’s product prices have a strong correlation to Brent crude oil prices, which have risen 20% since Sept 30, 2017 to over US$68 per barrel.
“In the fourth quarter of 2017, benzene has risen 29%, naphtha and polyethylene 10%. However, methanol has fallen by 5% due to oversupply with the completion of regional facilities’ turnarounds.
“As such, given the one-year correlation coefficient of 0.7 between PChem’s share price and Brent crude oil prices, we do not expect further significant share price appreciation,” said AmInvestment Bank.
Read more at https://www.thestar.com.my/business/business-news/2018/02/02/analyst-report/#c2YmweFzt8hQD76f.99