Bermaz Auto Bhd

Target price: RM2 ADD

CGS-CIMB RESEARCH (JUNE 21): Bermaz’s 4QFY21 core net profit jumped 90% quarter on quarter to RM64.4 million owing to better margin delivery from its Malaysian operations and stronger contribution from its 30%-owned associate Mazda Malaysia, on the back of higher sales volume. Revenue in 4QFY21 grew 7% q-o-q to RM641 million, the highest in the past nine quarters.

The company declared a combined interim and special dividend per share of 3.25 sen for the quarter, bringing its total dividend payout for FY21 to 6.5 sen — slightly below our expectation of 7 sen. Overall, its dividend payout fell from 85% in FY20 to 56% in FY21.

Operating profit margin in 4QFY21 nearly doubled q-o-q from 5.8 percentage points to 10.9 ppt, owing to improved margin delivery from the Malaysian operations as a result of: (i) the discontinuation of aggressive promotional campaigns now that 2021 models are given five-year warranty and free maintenance; (ii) the reversal of provisions for advertising and promotional expenses and dealers’ incentive; and (iii) favourable foreign exchange movements following the depreciation of the yen against the ringgit.

While we gather that Bermaz delivered high sales volume in May ahead of the Hari Raya holidays, we see lower sales volume in June due to the implementation of the Full Movement Control Order. Nevertheless, its outstanding order book remains healthy, hovering at nearly 1,900 units as at mid-June. Although its automotive plants remain closed, we learnt that the company has an inventory of about 1,100 units and expects to receive 450 completely built-up units of the facelifted CX-3 model in July.

We project a 20% sales volume growth in FY22, driven by the extension of the sales tax holiday in Malaysia until Dec 31, 2021, as well as higher contribution from the Mazda, Kia and Peugeot brands, on the back of new launches such as the facelifted Mazda CX-3 and BT-50, Peugeot 2008 SUV, and Kia Carnival and Sportage. Overall, we raise the FY22-23F EPS by 2% to 18% and expect Bermaz to register a three-year CY20-23F core EPS CAGR of 13%. The stock offers a decent dividend yield of 4.8% to 5.5% for CY21-22F.

Sunway Bhd

Fair value: RM1.98 BUY

AMINVESTMENT BANK RESEARCH (JUNE 21): In 1QFY21, the healthcare division’s revenue of RM171 million and pre-tax profit of RM14 million accounted for 17% and 16% of Sunway’s revenue and pre-tax profit respectively. Currently, the healthcare revenue mainly stems from two medical centres — Sunway Medical Centre (Towers A, B and C) in Bandar Sunway and Sunway Medical Centre Velocity in KL City Centre, with 802 and 240 hospital beds respectively. Meanwhile, there are seven hospital projects in the pipeline, with the earliest targeted completion in 1QFY22 involving the expansion of Sunway Medical Centre’s Towers D, E and F.

We peg its healthcare division’s FY22F target PER at a conservative 25 times versus 40 times for IHH Healthcare and KPJ Healthcare, which translates into a valuation of RM3.3 billion — 30% of our SOP valuation. Hence, the selling price of US$250 million (RM1 billion) for a stake of 20% to 25% [to Singapore’s GIC] represents a premium of 22% to 52% to our current valuation and a prospective FY22F PER of 30 to 38 times.

If it materialises, this development should enable Sunway to monetise its healthcare division while securing a strong strategic partner and investor. This higher valuation for the healthcare division will raise our SOP valuation to RM2.01-RM2.03, assuming a 20%-25% stake sale.

Gabungan AQRS Bhd

Target price: 75 sen BUY

MIDF RESEARCH (JUNE 21): We remain sanguine about AQRS’ earnings recovery prospects based on its healthy outstanding order book and prompt resumption of operations, as reflected in the increase in its 1QFY21 earnings despite the movement restrictions. This is mainly premised on the group’s solid outstanding order book of RM1.3 billion, with an earnings visibility over the next three years, and anticipated higher property sales on stamp duty exemption and lower mortgage financing rates. We expect continuous financial improvements in the coming quarters following the resumption of construction and business activities and 60% workforce capacity at work sites that are less affected by MCO 3.0. Moreover, there is a potential ramp-up of work pace to make up for lost time and this could speed up progress billings in 2HFY21.

We opine that AQRS will be one of the beneficiaries of the continuation of mega public infrastructure projects such as the MRT3, Pan Borneo Highway, Klang Valley Double Tracking Phase 2 and East Coast Rail Link as announced in Budget 2021, as well as a potential domestic KL-JB high-speed rail, which would bode well for its order book replenishment. This is largely predicated on the group’s extensive experience in railway projects as well as the Sungai Besi-Ulu Kelang Elevated Expressway that requires value-added engineering know-how.

George Kent (Malaysia) Bhd

Target price: RM1.06 BUY

RHB RESEARCH (JUNE 22): Results for the two months ended March 31 beat expectations. A third interim dividend of 1 sen per share was declared, bringing total 14MFY21 dividends to 3.5 sen. With shareholder approval for the glove venture obtained during George Kent’s extraordinary general meeting, we upgrade our call to “buy”. Its foray into glove manufacturing, via a 40% stake in Dynacare, should provide a healthy boost to its FY23F earnings.

George Kent’s metering division recorded a robust revenue of RM33.4 million for the two-month period, or 90% of 4QFY21 earnings. Ebit margins for the segment declined slightly by 0.7ppt to 27%. Meanwhile, its engineering division recorded minimal revenue of RM1.2 million with a loss before interest and tax of RM2.3 million as well as RM5 million from the share of results of the Light Rail Transit 3 joint venture.

We continue to expect additional contract wins of RM200 million for FY22F by March and RM300 million replenishment per year moving forward. Key downside risks include slow project rollouts and lower-than-expected earnings contributions from LRT3 and other ongoing projects as well as poor execution of the new glove venture.