SCH GROUP BHD

By JF Apex Research Hold (maintained) Target price: 20 sen

QUARRY machinery and equipment ( M&E) supplier SCH has recorded a stronger-than-expected bottom line in financial year 2017 (FY17), said JF Apex Research.

The company returned into the black in the fourth quarter of FY17 after recording a net profit of RM600,000. SCH achieved RM1.8mil in net profit, increasing by 12.5% year-on-year (y-o-y) for the full year.

“Overall, SCH managed to chalk up better full-year results thanks to a strong sales rebound by its quarry M&E during this quarter amid lower gross profit margin.

“The result exceeds our full-year net profit estimate by 13% mainly attributable to better-than-expected before-tax profit margin in relation to lower administrative and selling expenses,” said the research house.

JF Apex Research expects SCH to register stronger financial results in future, underpinned by the company’s bright outlook.

“We witnessed the sign of earnings recovery as its main product, quarry M&E recorded a sales surge in this quarter, soaring four fold y-o-y. Moving forward, we envisage the group delivering better FY18 earnings as more quarrying operations will be required to meet the demand for quarry-based materials for use in major property development, construction and infrastructure projects.

“SCH could benefit from the take-off of several mega infrastructure projects such as MRT2, LRT3, Pan Borneo Highway, among others. The group also pins its hopes on new business ventures, the sales from its asphalt mixing plant, to further strengthen its current business,” said JF Apex Research.

With regard to SCH’s decision to scrap its plan to venture into the downstream quarry segment, the research house said there would be no earnings impact on the group even though it may lose its opportunity to further diversify its income stream and any vertical expansion.

JF Apex Research retained its net earnings forecasts for FY18 at RM2.8mil and FY19 at RM34mil.

It also maintained its “hold” recommendation on SCH’s shares, with an unchanged target price of 20 sen due to its steep valuation.