Maybank IB initiates coverage on Straits, Buy with TP of 38.5 sen
KUALA LUMPUR: Maybank Investment Bank Research has initiated coverage on bunkering firm Straits Inter Logistics Bhd with a Buy recommendation at a target price of 38.5sen.
Straits is a Malaysia based investment holding company engaged in the oil trading products and bunkering business.
Maybank said that Straits is one of the very few licensed bunker operators in a fragmented and unregulated environment in Malaysia.
“We posit that Straits investment angle emanates from rising upstream activities in Malaysia, structural changes to the bunkering business and the step-up in enforcement of illegal bunkering activities,” Maybank said.
“Straits offers a solid growth for an under-the radar micro stock (market cap of RM169mil).
“Our 38.5 Sen target price pegs Straits at 14.4 times (x) FY20 price earnings ratio ( PER),” the research house said, adding that at this upside, it offers a 40% compelling upside.
Straits business model has revolved from manufacturing and trading of water and air filter products to trading of oil products and offshore bunkering services.
Its bunker services growth is inorganic in nature following the purchase of a 55% stake in Tumpuan Megah Development in Sep 2018.
With that, Straits now operates at nine ports in Malaysia (from two previously) with a loaded capacity of 12 million litres per annum (vs. 1m litres before). This makes up 33% of the legal market share in Malaysia.
To further complement this, Straits targets to expand its bunkering services to include land logistics through its 70%-owned Straits Alliance Transport.
“Straits is a direct beneficiary from rising oil & gas activity in Malaysia. It is also in an entrenched position to capture increasing marine gas oil demand from the planned implementation of International Maritime Organization’s (IMO) global sulphur cap in 2020.
“As a licensed operator, a step-up in regulatory efforts to tackle the illegal and ‘dirty’ bunkering business (2/3 of the addressable market in Malaysia), will also directly benefit Straits,” said Maybank.
It added that Straits offers a 74% 3-year net profit compounded annual growth rate (CAGR) (FY18-21), driven by 3-year volume sales CAGR (77% YoY) arising mainly from the full-year impact from Tumpuan Megah while at the same time, still maintaining a decent net gearing level of 30%.
“Our 14.4x FY20 PER valuation is reasonable for a high growth stock with no direct comparison. The recent acquisitions were transacted at 13x PER,” concluded Maybank.
Source : TheStar