Is there upside potential for these 13 companies that turned profitable in 2022?

TheEdge Mon, Apr 10, 2023 02:00pm - 11 months View Original


THE pace at which the earnings of companies on Bursa Malaysia are recovering differs from one company to another. How quickly they return to the black depends very much on the financials, asset quality and cycle of a particular industry. 

Among some 60 companies that have a market capitalisation of more than RM250 million that were in the red in 2021, 13 have managed to stanch the flow of red ink in 2022, based on Bloomberg data compiled by The Edge. These 13 include companies in the oil and gas (O&G) and property sectors. To be sure, many of their bigger-cap sectoral peers were either never in the black in the first place or had already returned to the black earlier in 2021.

Among the 13 companies are Perdana Petroleum Bhd, Dayang Enterprise Holdings Bhd, Malaysia Marine and Heavy Engineering Holdings Bhd, MCT Bhd, UEM Sunrise Bhd and Tanco Holdings Bhd. In fact, some of them have seen their share price rebound in anticipation of an earnings recovery.

Oil and gas

Most O&G companies’ earnings have benefited from the sharp reduction in impairment loss.

Perdana Petroleum Bhd is one of them. The company recorded its first annual net profit since 2014, driven by the recovery in the offshore support vessel (OSV) market as upstream activities started to normalise after the pandemic. There is growing optimism that charter rates could be on an upward trend as demand improves.

For the financial year ended Dec 31, 2022 (FY2022), Perdana Petroleum raked in a net profit of RM11.39 million versus a cumulative net loss of RM328.27 million a year ago. Notably, Perdana Petroleum posted an operating profit of RM10.8 million versus an operating loss of RM62 million a year ago.

Apart from the higher utilisation rate of its assets, the turnaround was also due to lower depreciation charges and a reversal of impairment loss on property, plants and equipment.

Perdana Petroleum’s controlling shareholder, Dayang Enterprise Holdings Bhd, also returned to the black in FY2022 with a net profit of RM124.24 million against a net loss of RM316.6 million in FY2021. Its operating profit quadrupled to RM331.4 million compared with RM81.34 million in the previous year. FY2022 net profit was even higher than FY2020’s RM56.41 million.

All six analysts covering Dayang have “buy” calls on the company, according to Bloomberg, with a target price of RM1.90, suggesting a 41.8% upside potential against last Thursday’s closing price of RM1.34.

Hong Leong Investment Bank Research (HLIB Research) expects 2023 to be a good year for O&G players, being a laggard theme to the elevated oil price environment for the past year.

The investment bank notes that it expects Dayang’s steady and strong performance to be sustained in 2023. Recent checks on the ground have indicated that Dayang has seen improved job orders from regional oil majors. This comes amid elevated oil prices and better job contract values across the board for most service providers on the value chain — by more than 15% for MCM (maintenance, construction and modification) and i-HUC (integrated hook-up and commissioning) works.

Furthermore, HLIB Research expects higher average vessel utilisation rates and daily charter rates for both Dayang and Perdana Petroleum in FY2023. Dayang recently won a contract for the provision of an accommodation workboat from Petronas Carigali.

Apart from improved earnings, Dayang has a cash-rich balance sheet. It had a net cash position of RM43.2 million as at end-December 2022, following its improved financial performance.

Having been in the red since FY2018, Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE), which is involved in offshore fabrication and marine repair services, achieved a net profit of RM67.77 million for FY2022, against a net loss of RM270.41 million for FY2021, which incurred additional cost provisions recognised for ongoing heavy engineering projects.

At a consensus target price of 79 sen, analysts see an upside potential of 29.5% in MMHE, whose shares closed at 61 sen last Thursday.

MMHE is another rare O&G firm that is in a net cash position. Its net cash pile was at RM456.1 million, or 28.5 sen per share, as at end-December 2022. Its large cash coffers speak well for its ability to pay a generous dividend. Analysts believe the likelihood of a decent dividend payout is seen as a rerating catalyst for MMHE.

In FY2022, MMHE declared a 1.5 sen dividendper share, translating into a dividend yield of about 2.5%, which seems rather good compared with its peers in the O&G industry.

The dividend yields for Dialog Group Bhd and Yinson Holdings Bhd — the two largest energy firms on Bursa Malaysia by market cap — are only 1.5% and 1.24% respectively.

As these O&G firms’ profits in 2022 were mainly boosted by the reversal of impairments, some quarters believe that it remains to be seen whether an earnings recovery is sustainable amid the volatile crude oil prices and the headwinds in the global banking industry that may hit the world economy.

Nonetheless, analysts anticipate that both Dayang and MMHE will register earnings growth in 2023, based on Bloomberg data.

Dayang is estimated to register a higher net profit of RM156.4 million and RM173.6 million for FY2023 and FY2024 respectively. MMHE’s net earnings are also expected to climb further to RM70.47 million and RM86.87 million for FY2023 and FY2024 respectively.

Property

Property sales, particularly residential units, have started to normalise after two years of near zero activity during the pandemic.

A positive sign that has emerged is that residential property overhang units dropped below 30,000 for the first time in two years, with growth in both total transaction volume and value.

Compared with 36,863 in 2021, the number of overhang units fell by almost a quarter to 27,746, according to the National Property Information Centre (Napic) in its Property Market Report 2022. The total value of overhang units fell 19.2% to RM18.41 billion from RM22.79 billion during the same period.

The sales recovery helped steer a number of property firms back on the profit path.

MCT Bhd, which recently bought two parcels of land, reported a net profit of RM7.14 million for FY2022, compared to a net loss of RM9.11 million a year ago. The profit was partly attributed to savings realised upon finalisation of accounts from completed projects.

Its last net profit, achieved in FY2019, amounted to RM24.82 million. MCT slipped into the red in FY2020 and FY2021, owing to higher finance costs and cash flow hedge.

The property developer launched four projects with a total gross development value (GDV) of RM784 million in Subang, Cyberjaya and Dengkil, Selangor.

MCT is controlled by the Philippines’

Ayala Land Inc, which holds a 66.25% stake. It recently bought two parcels of land in Kuala Lumpur for RM122.65 million.

Last month, it paid RM58 million for a tract in Seputeh, Kuala Lumpur, to develop a high-rise project on a 1.57-acre tract with a GDV of RM320 million. This was followed by the purchase of a 3.9-acre freehold plot in Taman Desa, also in Kuala Lumpur, for RM64.65 million, to undertake a condominium project with a GDV of RM500 million.

Its net cash shrank, however, to RM21.1 million as at end-2022, from RM457.3 million a year ago, as it geared up borrowings of RM69.61 million plus RM197.55 million owed to its ultimate holding company.

Similarly, UEM Sunrise Bhd returned to the black with a net profit of RM80.54 million for FY2022, after two years of losses — RM213.05 million in FY2021 and RM277.28 million in FY2020 — owing to the disruption from Covid-19 lockdowns.

Its earnings were driven by lower operating expenses and better share of results from joint ventures and associates.

MCT is not on analysts’ radar. Meanwhile, investment analysts remain cautious of UEM Sunrise, judging by the nine “hold” calls on the company and only one “buy” call, with a target price of 26 sen, which offers little upside for now. Its shares closed at 27 sen last Thursday.

Analysts forecast that UEM Sunrise will achieve a lower net profit of RM78.67 million in FY2023, before it rebounds to RM89.24 million in FY2024.

Note that UEM Sunrise’s plan to buy freehold land near the Kuala Lumpur Convention Centre (KLCC) fell through recently after conditions precedent under the sale and purchase agreement were not fulfilled within the conditional period.

Meanwhile, Tanco Holdings Bhd posted a net profit of RM10.5 million for the first half ended Dec 31, 2022 (6MFY2023), attributable to higher revenue generated from property development/management and construction segments.

At the height of the pandemic, most property stocks were trading about one-third against their book value. Still, the valuation of these companies remains low currently.

Notably, the price-to-book value ratio has been on a decline from above one time in 2013. It has been hovering around 0.4 times to 0.5 times in the past three years.

Looking at the top three property developers by market cap, only UOA Development Bhd is trading relatively higher at 0.68 times its book value, compared with IOI Properties Bhd’s 0.28 times and Sime Darby Property Bhd’s 0.34 times.

Meanwhile, MCT and UEM Sunrise are trading at 0.3 times and 0.19 times respectively.

Consumer

The pandemic took a toll on the consumer sector, including the gaming industry, and RGB Holdings Bhd, which is involved in electronic gaming machines and equipment, was no exception.

The company posted a net profit of RM4.63 million in FY2022, following net losses of RM10.3 million and RM28.74 million in FY2021 and FY2020 respectively.

In view of the favourable market outlook — driven by the recovery in the tourism and hospitality industries, RGB expects to perform better in FY2023, supported by the strong orders secured so far.

Underpinned by strong car sales, DRB-Hicom Bhd, which owns 50.1% of Proton Holdings Bhd, returned to the black, registering a net profit of RM187.71 million against a net loss of RM296.42 million in FY2021, despite the lacklustre performance in the postal and property divisions.

Based on the consensus target price of RM1.82 for DRB-Hicom, it is estimated that the counter has a potential upside of 30%.

The conglomerate’s net profit is forecast to surge to RM324.5 million for FY2023, and even higher at RM374.5 million for FY2024.

The outlook for Atlan Holdings Bhd is improving. The autoparts maker and duty-free goods trader’s nine-month net profit ended Nov 30, 2022, (9MFY2023) came in at RM13.14 million against a net loss of RM4.66 million in the same period a year ago.

Owing to the impact of the lockdown, the company bled red ink in FY2021 and FY2022. Except for automotive, other business segments such as duty-free as well as property and hospitality made lower contributions.

Meanwhile, Karex Bhd regained lost ground by delivering a net profit of RM4.32 million for the first-half period ended Dec 31, 2022 (1HFY2023), after it suffered from losses in FY2021 and FY2022 on the back of logistics network disruptions and high raw material prices. It posted a record quarterly revenue of RM145.03 million in 1QFY2023.

The condom maker has said there is room to increase its profit margin in view of strong demand for its products. CGS-CIMB pegs its target price at 96 sen, suggesting a 49% upside potential against 64.5 sen.

CGS-CIMB forecasts that Karex will post RM14.25 million in net earnings for FY2023, and RM26.52 million for FY2024.

Both RGB and Atlan are in a net cash position, at RM75.6 million and RM80.3 million respectively, which may provide some financial muscle to declare dividends. Atlan has paid a dividend per share of four sen so far in FY2023, translating into a dividend yield of 1.4%, while RGB has declared no dividends since FY2020.

Industrial products 

In the industrial products segment, Can-One Bhd and APM Automotive Holdings Bhd turned profitable because of better business conditions.

Can-One fell into the red in FY2021, with a net loss of RM52.63 million, owing mainly to the write-down of inventories amounting to RM29.1 million, as well as the impairment loss on property, plant and equipment and right-of-use assets amounting to RM242.5 million. 

The metal can producer says the operating environment for FY2023 will be influenced by volatility in foreign exchange rates, prices of raw materials and other input cost pressures such as labour costs and rising pressure from interest rate hikes.

In May 2019, Can-One privatised aluminium can maker Kian Joo Can Factory Bhd for more than RM900 million.

From a net loss of RM11.25 million in FY2021, APM Automotive also turned profitable in FY2022, logging RM26.4 million in net profit, helped by a significant increase in orders for the original equipment manufacturer, following suppressed demand for passenger cars in 2020 and 2021. 

The improvement in its financials was also aided by a higher share of profits from joint ventures in Indonesia. In FY2020, the company incurred a net loss of RM10.47 million.

Having a presence in various countries, APM — which is involved in the design, manufacturing, assembly and production of auto parts — expects its overseas operation to fare well this year, especially with the continued turnaround for its Indonesian operations. 

At the same time, the company is pushing for further price adjustments and relocating certain low-value or labour-intensive work to its low-cost bases abroad. 

There is no analyst coverage of both Can-One and APM. Can One’s share price has eased 3.3%; APM’s share price has gained 4.4% over the past one year. 

APM has been in a net cash position in recent years. Its net cash pile stood at RM209.9 million as at end-2022. It declared a 14 sen dividend per share for FY2022, double the seven sen dividend paid in FY2021.

Transportation and logistics

Fuelled by the return of passenger traffic, Malaysia Airports Holdings Bhd (MAHB) posted an annual net profit of RM187.2 million in FY2022 — its first in four years since FY2019.

However, it was still much lower than the RM537.04 million net profit recorded in FY2019, before slipping into the red in FY2020 and FY2021, with net losses of RM1.12 billion and RM766.44 million respectively. 

Based on the consensus target price of RM7.47, it suggests that there is likely to be a potential upside of 10.5% for MAHB.

HLIB Research expects the group’s Malaysia operations to continue to perform in FY2023 as more airlines reinstate capacities to cater for robust air travel demand, especially with the recent reopening of China, Taiwan, Japan and Hong Kong. 

“MAHB has guided network capacity to reach 79% of 2019 by the end-2023 based on current airlines’ planned schedule,” it says in a March 1 note.

The airport operator previously guided to return to profitability in FY2023 at RM400 million to RM500 million despite traffic recovery of 70% as it continues to improve margins with ongoing cost optimisation measures. 

It also noted that the recently approved operating agreement will allow it to move forward with the development of the Subang Airport hub and the long-delayed expansion of Penang International Airport, with certainty of returns.

In comparison, MISC Bhd — the largest transportation and logistics stock by market cap — sees a lower upside potential of 9.8%, based on its target price of RM7.99, despite posting a flat net profit of RM1.82 billion in FY2022. 

RHB Research has revised upwards its FY2023/24 earnings forecasts by 2% to 5% after increasing its projected contributions from the heavy engineering and petroleum divisions. 

“Operating cash flow is expected to remain stable before seeing a bump-up from Mero 3, which is on track for delivery by mid-2024. MISC, stands a chance to win more gas projects,” the research house says in a Feb 16 note.

Healthcare 

Private hospitals are a beneficiary of the reopening of the global economy after reeling from the impact of the pandemic. 

KPJ Healthcare Bhd’s annual net profit soared 214% to RM171.99 million in FY2022, from RM54.79 million, after net profit for its fourth quarter ended Dec 31, 2022 jumped more than threefold to RM72.09 million from RM20.33 million a year ago.

Analysts are expecting a target price of RM1.29 for KPJ, representing an upside potential of 17.3%. The stock is trading at a forward 12-month price-earnings ratio of 22.9 times — a big gap compared with its peer IHH Healthcare Bhd, which is trading at a PER of 31 times. 

The premium valuation of IHH could be because of its regional presence in Asia. Nonetheless, IHH posted a lower net profit of RM1.55 billion for FY2022, compared with RM1.86 billion a year ago, owing to an impairment loss of RM305.9 million in relation to the group’s assets and goodwill in China in 4QFY2022.

At the target price of RM7.19, there is an upside of 25% against last Thursday’s closing of RM5.75. Of the 23 analysts covering the stock, 21 had a “buy” call and two had a “hold” call. 
 

The content is a snapshot from Publisher. Refer to the original content for accurate info. Contact us for any changes.






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