Page 12 - PowerPoint

BROKERS’ CALL 11
THURSDAY JULY 26, 2018 • THEEDGE FINANCIAL DAILY

Turnaround foreseen Velesto’s successful claim against
Frontier seen to lower fi nance costs

Velesto Energy Bhd
for I-Bhd’s property Maintain buy with an unchanged
(July 25, 30.5 sen)
target price of 35 sen: To recap,
Velesto Energy Bhd (previously
known as UMW Oil & Gas Corp
investment portfolio 2015 for an early termination of
Bhd) sued Frontier Oil in April
UMW Naga 7 for a total of US$19.2
million (RM77.95 million) as well
as Frontier’s failure to issue a US$5
million bank guarantee and a
US$15 million advance payment.
Velesto recently announced that
I-Bhd I-Bhd the claim was successful and the

(July 25, 53.5 sen) company was entitled to a total A file pic of UMW Naga 7. A lower

Affirm outperform with an un- FYE DEC (RM MIL) 2016A 2017A 2018F 2019F 2020F CAGR (%) damage claim of US$19.9 million, contribution to utilisation rates is
changed target price of 91 sen: Revenue 383.6 465.1 518.8 533.4 614.7 12.5 inclusive of accrued interest dur- expected from it in 2QFY18 as it
I-Bhd’s property development Pre-tax profit 88.2 105.4 116.7 119.1 136.7 11.6 ing the period. We are of the opin- underwent scheduled maintenance.
contributions continued to drive ion that the amount received will
earnings growth. Divisional pre- Net profit 66.6 75.5 88.7 90.4 103.8 11.7 be deployed for future working group’s near-term outlook as Pe-
1

tax profit of RM28.4 million for the FD EPS (sen) 5.1 5.7 6.7 6.9 7.9 11.7 capital requirements or utilised tronas has only started drilling
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second quarter of fi nancial year FD PER (x) 10.4 9.1 7.8 7.6 6.7 to repay loans in an effort to lower nine out of its targeted 22 to 24

2018 (2QFY18) was 18.1% high- DPS (sen) 1.9 2.3 2.7 2.7 3.1 its finance costs. As at the end of exploration wells thus far, signal-

1
er compared with the immediate Dividend yield 3.1 3. 7 4.3 4.4 5.0 the first quarter of fi nancial year ling more drilling contracts to be

preceding quarter’s RM24.1 mil- Note: 1 Fully-diluted share base: 1,315m shares (excluding warrants) 2018 (1QFY18), net debt stood at awarded.
lion, though a touch lower (-0.2% Sources: Company, PublicInvest Research estimates RM1.02 billion at a 0.39 times net We maintain our forecast
year-on-year) versus the previous gearing level. that Velesto will report a prof-
corresponding period’s RM28.5 Velesto is bidding for US$660 it in FY18. We expect utilisation
million. Margins have improved, million worth of jobs, which con- rates in 2QFY18 to be similar to
owing to a better sales mix and cost sist of 77% short-term and 23% 1QFY18, due to a lower contribu-

adjustments. The group’s longer- longer-term contracts. Of the total tion from UMW Naga 7 as it un-
term earnings visibility is secure 30 contracts, 15 are from Malay- derwent scheduled maintenance.
and will be underpinned by its sia, while the rest are from over- But the second half of FY18 will
current unbilled sales of RM305 seas tenders. Daily charter rates likely see utilisation rates rise to
million and increasing contribu- in Malaysia remain on the higher 80% to 85%, boosted by contract
tions from the 8 Kia Peng project end, ranging from US$68,000 to extensions and new contracts se-

in downtown Kuala Lumpur. US$70,000 per day, compared cured. This will result in a full-year
Its property investment port- with US$55,000 to US$65,000 per utilisation rate of 72%, in line with
folio, while still seeing negligible day for the overseas contracts. our existing forecasts. — Affin
contributions in 2QFY18, with pre- We remain optimistic about the Hwang Capital, July 25
tax losses of RM736,000 (1QFY18:
RM373,000), is poised to see a
marked turnaround in fortunes Velesto Energy Bhd
in the coming financial year with

the imminent opening of the mall FYE DEC (RM MIL) 2016A 2017A 2018E 2019E 2020E
by year end. An artist’s impression of 8 Kia Peng in Kuala Lumpur. I-Bhd’s long-term earnings Revenue 321.1 586.7 597.4 635.9 726.3
While the group’s cash hold- visibility will be partly underpinned by increasing contributions from 8 Kia Peng. Ebitda 43.0 229.0 259.6 283.5 328.2
ing has fallen a fair bit quar- Pre-tax profit (1,181.3) (1,130.5) 11.2 39.6 86.6
ter-on-quarter, a bit of which has
gone into the rapidly-concluding three-themed Liberty, Parisien the company’s focus will still be on Net profit (1,177.4) (1,127.0) 11.2 34.9 76.2
mall construction, the overall cur- and Hyde Towers with a total of clearing its existing stock in i-City EPS (sen) (14.3) (13.7) 0.1 0.4 0.9
rent ratio remains a healthy and 1,217 units will be handed over and 8 Kia Peng, the latter being its PER (x) nm nm 205.1 66.0 30.2
relatively liquid 2.4 times with zero to purchasers this fi nancial quar- sole development project out of Core net profit (430.2) (134.7) 11.2 34.9 76.2
borrowings, apart from the liability ter (90% sold on average), while Shah Alam, Selangor, which con- Core EPS (sen) (4.2) (1.6) 0.1 0.4 0.9
components of the unconverted the RM850 million mall will also tinues to see encouraging sales Core EPS growth (%) (780.2) 61.0 108.3 211.0 118.6
irredeemable convertible unse- be opened in November to add done contrary to the reportedly Core PER (x) nm nm 205.1 66.0 30.2
cured loan stocks and redeemable another level of vibrancy to the lacklustre market environment
convertible unsecured loan stocks. township and augment property for higher-end properties, particu- EV/Ebitda (x) 128.5 14.4 12.9 11.0 9.1

The second half of the year will investment-related income. With larly in downtown Kuala Lumpur. Affin/Consensus (%) 1.1 0.9 1.2
be a busy time for the group. Th e no planned launches for this year, — PublicInvest Research, July 25 Sources: Company, Bloomberg, Affin Hwang forecasts

PPB fundamentals expected to remain intact

PPB Group Bhd PPB Group Bhd A file pic of Wilmar’s

(July 25, RM16.72) headquarters in
FYE DEC (RM MIL) 2015A 2016A 2017A 2018F FY19F Maintain neutral with a lower Singapore. Historically,
Revenue 4,048 4,186 4,305 4,310 4,494 target price (TP) of RM16.16: PPB Wilmar’s profit

Group Bhd’s share price has been
Ebit 399 401 241 241 381 contribution to PPB
adjusted as it passed its ex-bonus
PBT 1,181 1,211 1,293 998 1,152 has accounted for 62%
issue date on Tuesday. Recall that
Net income 1,051 1,045 1,205 912 1,031 in May 2018, PPB announced its to 75% of PPB’s total
Core net income 1,051 1,045 1,205 912 1,031 proposal to undertake a one-for- earnings in the past
fi ve years.

EPS (sen) 88.7 88.1 84.7 64.1 72.5 five bonus issue. A total of 237.1
million shares will be issued, in-
Core EPS (sen) 88.7 88.1 84.7 64.1 72.5
creasing the group’s share base to We maintain our fi nancial year in a larger share base. Th e TP is
Net DPS (sen) 25.0 25.0 30.0 19.2 21.7
1,422.6 million shares. 2018 (FY18) earnings estimate of based on an unchanged valuation
Net dividend yield (%) 1.5 1.5 1.8 1.1 1.3 We expect PPB’s fundamentals RM912 million, which is a decline method of 1.1 times book value.
Core PER 18.9 19.0 19.8 26.2 23.2 to remain intact. In our view, PPB’s of 24% year-on-year (y-o-y), mainly Overall, the positive news fl ow sur-
NTA/share (RM) 16.74 17.63 14.64 13.46 13.96 earnings will be largely infl uenced due to expectations of lower earn- rounding Wilmar’s potential China
by Wilmar International Ltd. Histor- ings from Wilmar in FY18. For FY19, operation initial public off ering will
P/NTA 1.00 0.95 1.15 1.25 1.20
ically, Wilmar’s profi t contribution we maintain our earnings estimate keep PPB’s share price supported.
ROE (%) 5.3 5.0 5.8 4.7 5.2
to PPB has accounted for 62% to of RM1.03 billion. However, this is neutralised by a
ROA (%) 4.8 4.6 5.3 4.4 4.9
75% of PPB’s total earnings in the Our ex-bonus TP is RM16.16 high chance of earnings declining
Source: MIDF Research past fi ve years. (previously RM19.40) as we factor y-o-y. — MIDF Research, July 25