Gas Malaysia ‘add’, MSM ‘neutral’, MISC ‘outperform’, Serba Dinamik ‘buy”

Gas Malaysia Bhd

By CGS-CIMB Research

Add

Target Price: RM3.07

Under the third party access (TPA) regime, Gas Malaysia Bhd can sell gas to both power and non-power users.

Previously, its licence only allows the group to distribute gas to customers consuming up to 5 mmscfd, which limits Gas Malaysia in serving industrial customers in Malaysia.

CGS-CIMB expects that Gas Malaysia would be able to retain its market share in the near term, as it is one of the biggest domestic gas takers and could have some advantages in terms of gas cost.

In terms of earnings, the research house reckoned it would be stable in the next three years as the majority of Gas Malaysia’s customer contracts are only expiring at end-2022. For FY19-FY21 earnings per share, CGS-CIMB forecasted +1.5% to -1.3% to factor in lower associate contribution and new incentive-based regulation (IBR) tariffs.

It has adjusted its target price on Gas Malaysia’s share price to RM3.07 as it roll over its valuation to calendar year 2021 forecast, and pegged to a lower one-year mean price-earnings ratio (PE) of 19.9 times from previously 20.5 times due to the stock’s recent price retracement. “We like Gas Malaysia for its stable earnings profile and attractive dividend yield of about 5% for FY19 to FY21, ” CGC-CIMB said. The research house has maintained its “add” call on Gas Malaysia shares, with its attractive valuation and dividends as potential re-rating catalysts.

MSM Malaysia Holdings Bhd

By MIDF Research

Neutral

Target Price: 81 sen

The lower global supply of sugar is expected to be a boon for MSM Malaysia Holdings Bhd, according to MIDF Research.

The research house said for this year, sugar price is expected to remain buoyant due to the anticipated supply tightness of sugar, which is mainly driven by lower global sugar production, especially from India, which has lifted the commodity’s global price.

“We expect MSM’s profit margin to be improving gradually through higher average selling price (ASP) of its refined sugars as white-sugar prices have risen further than raw-sugar prices in the rally, ” MIDF said.

Currently, it said MSM is in the midst of negotiating a new wholesale business model that could fetch a higher pricing for its refined sugars which is expected to have a gain of RM25mil per year.

The current global sugar market is expected to be facing its largest supply shortage in five years of about 8.2 million tonnes in view of the anticipated production cuts in major sugar-producing countries such as India, Thailand and Central-South (CS) Brazil, EU and China this year.

Meanwhile, MIDF pointed out that MSM is currently undergoing cost regularisation initiatives. It said that MSM’s management has guided that the group’s high raw sugar contracts signed previously had ended and this enables them to renegotiate a better pricing for its raw materials.

MISC BHD

By Kenanga Research

Outperform

Target Price: RM8.90

MISC has been bidding for a contract for floating production storage and offloading (FPSO) vessel Petrobras’ Mero-3 in Brazil.

Kenanga Research said based on industry sources, the competition includes Japan’s Modec and Netherlands-based SBM Offshore.

Kenanga Research expects that the contract will be awarded in the fourth quarter of this year and should be a catalyst for MISC should it manage to get the contract.

From a back-of-envelope calculation, the research house estimated the contract would add incremental fair value of approximately 90 sen per share to its currenttarget price, based on assumptions of US$2bil capex, 12% internal rate of return (IRR). Currently, industry experts put SBM Offshore as the favourite to win, with the company having also previously won the Mero-2 contract, thus possibly giving them an operational and pricing advantage, and thus MISC is seen as a dark horse.

“Winning Mero-3 would mark as MISC’s maiden mega-sized FPSO project. Stronger earnings expected still, ” Kenanga said.

Outside of its FPSO bids, MISC is also actively increasing exposure to term charters as opposed to spot market, thereby improving future cash flows and earnings’ visibility.

Kenanga pointed out that MISC is currently scheduled to have seven shuttle tankers delivered throughout 2020, all of which have attached charter contracts of more than five years, and would help to drive earnings growth for FY20-21.

SERBA DINAMIK HOLDINGS BHD

By RHB Research

Buy

Target Price: RM2.81

Serba Dinamik is on track to expand its orderbook with its recent 12 newly secured contracts worth an estimated combined value of RM950mil.

Half of those contracts are international jobs, mainly from Indonesia and Oman, with total contract value of US$78mil or RM321mil.

The other six contracts, from Malaysia, are on a “call out basis” whereby work orders will be awarded at the discretion of the clients.

Nonetheless, RHB Research has maintained its earnings estimates on Serba Dinamik with the the company remaining as one of its O&G sector’s top picks due to consistent earnings growth – backed by a robust orderbook and contract flows.

“We are keeping our earnings estimates as it is within our FY20F orderbook replenishment assumption of MYR7.5bil, ” it said.

The biggest contract bagged by Serba Dinamik was from Petronas, which is the three-year instrument maintenance and services contract, involving five packages that cover plant turnaround maintenance for Peninsular Malaysia (East Coast and West Coast), Sarawak as well as Sabah and Labuan).

RHB said the deal could potentially be worth up to RM500mil. Interestingly, Serba Dinamik also won a six-month smart virtual reality health, safety and environmental (HSE) training centre contract from PT Pertamina Hulu Kalimantan Timur.

Source: TheStar