‘Outperform’ call on Prestariang maintained
PRESTARIANG BHD
Outperform (maintain) Target Price: RM2.87
FOLLOWING Prestariang Bhd’s (Prestariang) proposal to acquire RM25mil-worth eight storeys of semi-detached signature corporate office or retail suites in Cyberjaya, PublicInvest Research foresees that the financial impact from the purchase will be minimal on the company and thus left its earnings forecast unaltered.
The acquisition will allow the information, communications and technology (ICT) service provider to house its new transformational businesses such as the EduCloud and the “Sistem Kawalan & Imigresen Nasional” (Skin) project, in future.
Recently, Prestariang inked a tri-partite memorandum of understanding with Alibaba Cloud and Singapore’s Conversant Solutions Pte Ltd to build an integrated education platform known as EduCloud.
EduCloud entails campus management, teaching and learning, entertainment, digital payment as well as online services and applications.
Prestariang will play the roles of platform owner, app developer and service provider, as well as training and certification delivery, among others.
The research house said the company will still be in a net cash position with excess cash of RM55mil, upon completion of the proposed acquisition.
“The excess cash will be retained for the roll-out of Skin project starting this year.
“The purchase of the eight-storey units, which is expected to be completed by March 31 this year, will be funded via cash and bank borrowings,” said PublicInvest Research in its note.
The research house said that it will be interesting to see how EduCloud will transform the education industry in Malaysia in the big data era, as the venture will be a maiden entry for Prestariang and also a first in the Malaysian education sector.
PublicInvest maintained its “outperform” recommendation on Prestariang, with an unchanged target price of RM2.87. AIRASIA BHD earings per share for FY17 by 5.7%,” said the research house, adding that price competition in the domestic aviation sector is also expected to become more fierce in FY17.
While Malaysia’s carriers increased their combined jet fleet by merely three units in FY16, both AirAsia and Malindo are planning for aggressive expansion of their respective fleets in FY17.
With the Malaysian Aviation Commission indicating the likelihood for an increase in Malaysia’s airport landing charges from Jan 1 next year, CIMB Research has projected a possible 30% hike.
Hence, AirAsia may be affected more significantly next year.
The research house noted that FY17’s forecast core earnings is expected to be more than 40% lower than the forecast peak earnings of FY16, considering a myriad of external factors that may negatively impact AirAsia.
CIMB Research retained its “add” call on AirAsia as it is optimistic that AirAsia will seal the deal to sell AirAsia Aviation and pay at least RM1.03 per share in special dividends.
However, the target price has been lowered to RM3.54, compared to RM4.15 previously. FRASER AND NEAVE BHD
Sell (maintain) Target price: RM21.63
TA Research does not expect a sharp contraction in Fraser and Neave Bhd’s (F&N) profit margin in 2017, despite its unabated margin pressure as F&N is expected to increase soft drink prices to pass on the cost pressure to consumers.
The research house said that F&N is anticipated to face added pressure from increasing sugar prices coupled with the possibility of sugar “sin tax” this year.
The present sugar price is 13.2% than the average sugar price in 2016. To note, sugar price has resumed its uptrend since December 2016.
“Looking forward, we expect the global soft commodity prices, including sugar, to escalate due to unfavourable weather causing output falling behind demand according to sugar market experts,” said TA Research.
The research house foresees a minimal impact of Price Control and Anti-Profiteering Act (PCAP) on F&N as the soft drink manufacturer is already in compliance with PCAP where there will be no mark-up in margins of products sold for FY17.
“However, considering the rise in sugar price and the consequent increase in production costs, prices of selected F&N products have been adjusted higher for FY17 to protect its profit margins.
“We believe this could affect near-term demand amid weak consumer confidence,” said the research house in its note.
TA Research also projected the revenue from F&N’s dairy business in FY17 to grow by approximately 6%, mirroring the similar trend of average yearly growth of 6% since 2012.
Margin wise, dairy business’ margin is expected to improve due to higher dollar sales from Thailand unit and higher operating efficiencies.
TA Research adjusted its foreacst earnings slightly lower by 1.1% for FY17 and slightly higher by 1.5% for FY18.
While the “sell” recommendation has been retained, the target price has been reduced to RM21.63. BONIA CORP BHD
Sell (maintain) Target price: RM0.49
WHILE Bonia Corp Bhd saw margin expansion in the first quarter of financial year 2017, Affin Hwang Capital Research remained cautious on the company’s top line which continued to be weak.
Although Bonia’s gross margins improved by four percentage points year-on-year (y-o-y) to 58.4%, its revenue fell significantly by 17% y-o-y in the first quarter of financial year 2017.
Affin Hwang attributed the improvement in gross margins to the company’s efforts in cost control, some form of price increase for certain new product ranges and a cut back on aggressive discounts used in FY16.
“While the group has been trimming counters and focusing on boutiques, we still maintain a relatively flat revenue growth of 2% yoy.
“We have assumed an earnings-per-share growth of 8.7% yoy for FY17, however this is a recovery from a low base.
“We remain cautious as price increases would be better for margins but may affect volume in times of weak consumer sentiment as Bonia specialises in consumer discretionary products,” said Affin Hwang in its note.
With regard to the impact of Price Control and Anti-Profiteering Act, Affin Hwang opines that Bonia will not be much affected by the act.
“According to the management, they will continue to reduce the discounts given as compared to FY16, introduce higher margined product lines, keep prices of existing stock constant but may look into increasing prices of new product ranges for the key brands Bonia and Braun Buffel by an average of 5%,” said the research house.
Affin Hwang kept its forecast earnings unchanged pending Bonia’s Q2’17 earnings which is expected to be released by end-Feb. The “sell” call on Bonia and the target price have also been retained.