Analyst report

SUNWAY REAL ESTATE INVESTMENT TRUST (REIT)

By Hong Leong Investment Bank Research

Hold (maintained)

Target price: RM1.73

SUNWAY REIT’s financial result in the first quarter (Q1) of financial year 2018 (FY18) has exceeded expectations, according to Hong Leong Investment Bank (HLIB) Research.

The REIT’s revenue accounted for 27.4% and 28.1% of HLIB Research’s and consensus’ forecasts, respectively. Its strong financial performance was on the back of lower property operating expenses and the improved performance from all segments.

Sunway REIT’s bottom line in Q1 grew by 23.52% year-on-year (y-o-y) to RM79.23mil as compared to RM64.14mil previously. Its revenue recorded a growth of nearly 10% y-o-y to RM141.17mil.

HLIB Research said Sunway REIT’s retail segment registered improved net property income, driven by Sunway Pyramid and Sunway Carnival Mall on the back of higher base rent.

Its hotel businesses also recorded better net property income, following the re-opening of Sunway Pyramid Hotel after the completion of its refurbishment works.

The strong performance was also attributable to imroved contribution from Sunway Putra Hotel due to the impact of the SEA Games.

“We like Sunway REIT for its well-diversified portfolio, in which the prominent assets are located at its unique township planning, with large acquisition pipeline and strong backing from sponsor.

“However, we expect limited inorganic growth potential for the REIT in the short term due to limitation of gearing ratio.

“We have raised our FY18-FY19 earnings per unit forecast by 1.7% to 2.1% respectively after incorporating lower property operating expenses,” said the research house in a note.

On Sunway REIT’s outlook, HLIB Research said a moderate growth in distribution per unit is expected in FY18.

This is primarily attributed to the resumption in income contribution from Sunway Pyramid Hotel and a moderate growth in retail segment.

It is also due to income contribution from newly acquired assets and gradual improvement in the office segment.

The research house has maintained its “hold” call on Sunway REIT’s shares, with a higher target price of RM1.73.

SASBADI HOLDINGS BHD

By CIMB Research

Add (maintained)

Target price: RM1.32

WEAK retail sales and higher provisions have led Sasbadi Holdings Bhd to record a below-expectations bottom line in the financial year of 2017 (FY17), said CIMB Research.

The book publisher’s net profit was down by 52.1% year-on-year (y-o-y) to RM8mil, mainly due to RM1.1mil trade receivables impairment and higher amortisation charges.

Apart from that, the development cost incurred for its “Chuck Chicken” and pre-school books as well as higher operating costs have pulled down Sasbadi’s profit for the year.

Its revenue was up by just 0.3% y-o-y to RM93mil as retail book sales were weak in FY17.

“At 43% of our forecast, FY17 net profit was way below our and market expectations, mainly due to weak retail revenue, higher provisions and amortisation charges.

“FY17 was a disappointment but we are more positive on next year. Sasbadi’s iL-Ace multilevel marketing (MLM) sales are picking up and the company should see new sales from “Chuck Chicken” books and pre-school books.

“In addition, retail sales nationwide should get a boost in 2018 as the Government has announced in Budget 2018 that it is giving a RM250 book voucher to 1.2 million Form 6 students, amounting to RM300mil sales,” said the research unit in a note.

The iL-Ace MLM business, which has a distributor force of nearly 10,000, recorded a revenue of RM6.1mil in FY17.

CIMB Research has lowered its FY18 and FY19 sales target for the MLM business to RM40mil and RM70mil, respectively, due to tight domestic consumer disposable income.

Previously, it expected the MLM business to record RM50mil and RM80mil in sales in FY18 and FY19, respectively.

Sasbadi’s net gearing was at 0.17 times as at end-August 2017, which CIMB Research described as “undemanding”.

“In our view, this should allow the company to gear up for any potential mergers and acquisitions.

“We slash our FY18-FY19 earnings per share by 18.4% to 19.7% to reflect weak retail sales and slower-than-expected iL-Ace sales over the next two years. Upside surprise could come from sales of the ‘Chuck Chicken’ and pre-school books,” it said.

CIMB Research reiterated its “add” recommendation on Sasbadi, with a lower target price of RM1.32 from RM1.38 previously.

PERUSAHAAN SADUR TIMAH MALAYSIA BHD

By AllianceDBS Research

Fully valued

Target price: RM4

ALLIANCEDBS Research has initi- ated coverage on Perusahaan Sadur Timah Malaysia Bhd (Perstima) with a fully valued recommendation and target price of RM4.

The research house said it expected the intense competition arising from China’s exports of tinplates to Malaysia to weigh on Perstima’s near-term earnings outlook.

“We also believe that overseas contributions are not likely to make up for the earnings shortfall in the Malaysian market, given that the latter contributes more than 60% of the group’s revenue,” it said.

AllianceDBS said it is adopting a conservative stance on the stock due to its cloudy earnings prospects.

The research house noted that the company had reported a disappointing first half FY18 earnings of RM6.4mil (-75% year-on-year yoy), mainly impacted by a drop in gross margin.

This was because the company was not able to pass on production cost hikes to customers as it needed to maintain its price competitiveness in the face of strong competition from China.

Its RM4 valuation for the stock is pegged to 12 times calendar year 2018 price-to-earnings (PE) ratio.

“Our target PE valuation is based on its average historical PE and similar to the average PE of the FBM Small Cap Index,” it said.

Moving forward, AllianceDBS said although the company had been consistently paying a higher dividend per share on an absolute basis, its sluggish earnings prospects could reduce its absolute dividend payout, going forward, even as its balance sheet remained healthy with a net cash position of 76 sen per share.

PRESS METAL ALUMINIUM HOLDINGS BHD

By RHB Research

Buy

Target Price: RM5.30

RHB Research said the strengthening of aluminium prices had prompted it to raise its 2018-2019 earnings estimates by 13%-33%.

“Nonetheless, we are maintaining our 2017 earnings forecast due to forward hedging. With its market capitalisation now in excess of RM16bil, we also believe that the stock could be included in the FTSE Bursa Malaysia KL Composite Index by the end of the year,” it said.

It noted that although the company’s management had taken up a hedging policy up to the first half of FY18, the recent run-up in aluminium prices had opened up opportunities for management to hedge at much higher aluminium prices for the second half and beyond.

It also highlighted that aluminium spot contract prices on London Metal Exchange is hovering at above the US$2,100 per tonne mark, the highest in more than three years even as China imposed restrictions on industrial output over winter to reduce smog pollution.

RHB Research said the company’s market capitalisation is now ranked as 24th among FBM KLCI constituents. “We also think the stock could be included in regional benchmark indices.

Having said that, local institutional holdings remain low at around 9% while foreign institutional holdings are at 5.5%,” it said.

RHB Research has maintained its “buy” recommendation on the counter with a higher discounted cashflow derived target price of RM5.30 from RM3.80 previously.