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Tuesday, May 23, 2017

Tomypak 'reduce', Axiata 'neutral', Vitrox 'buy', Yinson 'buy'

Tuesday, 23 May 2017

TOMYPAK HOLDINGS BHD

By CIMB Research

Reduce

Target price: RM1.88

TOMYPAK’S first quarter 2017 revenue was up 4.9% year-on-year, while net profit growth rose by a surprising 80% year-on-year to RM6.3mil.

Earnings before interest, tax, depreciation and amortization (ebitda) margin was a strong 18.9% compared with 16.9% in the first quarter of 2016 because of lower cost of production.

“The higher first quarter 2017 ebitda margin was a positive surprise to us as its peer Daibochi Plastic indicated that average raw material prices rose by around 10% year-on-year in the first quarter,” said CIMB Research.

Given the completion of the new factory in Senai, Johor, the research house said Tomypak expected the group’s annual production capacity to rise by 80% to 35,000 tonnes annually.

“We believe it should not be easy for Tomypak to fill additional capacity, given weak domestic consumer sentiment, which would indirectly negatively affect domestic demand.

“In our view, Tomypak must focus on raising export revenue to fill the new factory’s production capacity of new factory and may have to sacrifice margin to this end.”

CIMB Research said Tomypak’s net debt was RM8.7mil or 0.05-times net gearing at end-March 2017.

“Most of the proposed RM80mil capital expenditure (capex) for the company’s first phase expansion was funded by the rights issue in 2016 that which raised around RM54mil proceeds.

“The rest of the capex was funded by internal borrowings.

Even after the capacity expansion exercise, Tomypak’s net gearing was healthy at 0.05 times at end-March 2017.”

AXIATA GROUP BHD

by MIDF Research

Neutral (maintained)

Target price: RM4.98

AXIATA Group Bhd has proposed to dispose of a 10% stake in Smart Axiata Co Ltd (Smart) to Mitsui & Co Ltd and its affiliate (Mitsui) for a total cash consideration of US$66mmil (RM285.7mil).

In addition, Axiata has also granted Mitsui a call option for US$92.4mil (RM400mil) to acquire an additional 10% stake which is exercisable within 12 months from the completion of the transaction end-May 2017.

Axiata will continue to hold controlling and majority interest in Smart at 72.5% should Mitsui exercise the call option.

The disposal proceeds will be used for general corporate purposes and repayment of existing debt.

Strategically, the corporate exercise will enable Axiata to tap into Mitsui’s expertise in digital series and Internet of Things (IoT) offerings. This will enable Smart to further strengthen its digital leadership in Cambodia.

As at Dec 31, 2016, the group’s net cash holdings amounted to RM16,927.5mil. Assuming that the whole proceeds will be utilised to pare down existing debt, the net cash position will improve by 4.1% to RM16,241.7mil.

“Despite the exercise being part of Axiata’s portfolio rebalancing strategy, we view that the positive impact on the disposal to the balance sheet is minimal,” MIDF said.

For FY16, Smart’s ebitda contribution to Axiata stands at 6.7% or RM538mil. Assuming the exercise took place in FY16, Smart’s Ebitda contribution would reduce by 21.6% to RM422mil.

“This would mean that Smart’s ebitda contribution would form 5.3% of the group’s total ebitda. As such, the dilution in ebitda is negligible as well,” it said.

YINSON HOLDINGS BHD

By UOB Kay Hian

Buy (Maintained)

Target price: RM3.75

THE announcement of first oil production from OCTP Ghana by Eni Ghana, the client of Yinson’s largest FPSO John Agyekum Kufuor (JAK), which is three months ahead of schedule, could potentially boost earnings for the group.

UOB Kay Hian said the original expectation was for half-year contribution from FPSO JAK in FY18, assuiming startup in August 2017, translating to about RM70mil in net profit.

“Management is still maintaining its guidance, awaiting the client’s final acceptance.

“Earnings will only flow in once final acceptance is concluded,” UON Kay Hiant said in a note.

The research house said the the final acceptance which was initially expected in August 2017, could be brought forward given the first oil achievement.

“Assuming the final acceptance date is brought forward by three months to end-May, we believe FY18 profits could see a boost of between RM30mil to RM40mil,” the research house said.

UOB Kay Hian maintained its profit forecasts, stating that the forecasts had room for an upward adjustment, given the possibility of the client concluding the final acceptance test earlier than August 2017.

“As mentioned earlier, we may upgrade our FY18 earnings forecast by between RM30mil to RM40mil if the final acceptance is concluded in end-May.

“This event does not alter our FY19-20F forecasts which already assume full-year contribution from FPSO JAK,” it said.

It also maintained its “buy” call on the counter, saying Yinson’s premium valuation was justified by its excellent track record for early delivery and it consistently meeting earnings expectations.

“Yinson remains a major beneficiary of FPSO project bids globally and securing new projects will boost its long-term earnings upside,” it said.

VITROX CORP BHD

By Hong Leong Investment Bank

Buy

Target price: RM7.03

AFTER achieving record high revenue and core net profit in the first quarter of 2017 (Q1FY17), Vitrox Corp Bhd is aiming for a back-to-back record breaking streak in the second quarter, said Hong Leong Investment Bank (HLIB).

The group’s machine vision system standard (MVSS) sales for Q1FY17 grew 59% year-on-year (y-o-y) and contributed 15% of overall sales.

Order backlog grew to 258 from 224 systems during the period, but lower than last year’s second quarter order backlog of 266 units.

Revenue from the MVSS segment for Q2FY17 is forecast to be about RM13mil to RM14mil, a 34% growth quarter-on-quarter (q-o-q) and 35% y-o-y.

Meanwhile, the machine vision system tray (MVST) segment sales in Q1FY17 expanded 78% q-o-q but fell 25% y-o-y, accounting for 17% of overall sales.

Vitrox expects to deliver seven to nine units in Q2FY17 as compared to 11 units in Q1FY17.

The order book is forecasted at six to eight machines in the next three months with softer demand in Q2FY17, especially from Taiwan while this is partly offset by improved interest from South-East Asia.

Sales in Q2FY17 is projected to be ranging RM8mil to RM10mil.

Vitrox will specially focus on China through engaging new strategic channel partners and direct hiring to improve customer coverage, market share and response rate.

Apart from that, its automated board inspection (ABI) sales surged 3% q-o-q and 40% y-o-y to account for 66% of Q1FY17 turnover.

The upcoming second and third quarters are expected to be solid with strong funnel from both new and existing clients, with Q2FY17 revenue estimated at RM50mil to RM55mil. Backlog orders as of early May stood at RM50mil.

Vitrox is qualified as a 3D advanced optical inspection (AOI) supplier to two top electronics maufacturing services companies.

It expects to receive 3D AOI orders from China contract manufacturers or original equipment manufacturers, with delivery in the second or third quarter this year and a backlog of more than 10 machines.

“By summing the mid-points of guidance above and assuming flat sequential growth in electronics communication system, Q2FY17 sales could potentially expand 36% y-o-y and 10% q-o-q to RM76.7mil, yet another record in the making.

“Key delivery risk lies in sourcing of critical components rather than floor space. There is no rush for Vitrox to move to Campus 2.0 as it may temporarily rent from the factory next door if required.


Read more at http://www.thestar.com.my/business/business-news/2017/05/23/analyst-reports/#13ByWKCTmvrm78Rf.99

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