Mah Sing Group Bhd
Target price: RM1.02 BUY
RHB RESEARCH (AUG 17): We believe Mah Sing will still be able to achieve its RM1.6 billion sales target this year. However, due to the interruptions at its construction sites and gloves production plant, as well as the lower average selling price (ASP) for gloves, we cut our FY21-22F earnings by 15%-20%. We also lower its target price from RM1.22 as we ascribe a lower PER for the gloves business.
Recall Mah Sing’s gloves production was up and running only at end-April. The manufacturing plant was operating intermittently in June and July (total shutdown for about two weeks in July, and at 60% capacity during the other periods), owing to the nationwide lockdown. In view of the delay in shipments, we reasonably expect earnings contribution from the gloves segment to be minimal in June, but substantially stronger in 2H21. Management recently said that 100% of its workforce in all business segments will be fully vaccinated by August/September.
Despite the lockdown, we believe management will likely retain its RM1.6 billion sales target. For the first five months, the company has already registered RM650.5 million in sales, and there are still more than RM500 million worth of bookings to be converted. Property sales during the lockdown period should be relatively decent as we understand that buyers are able to sign the sales and purchase agreements virtually while stamping by the authority is also done online. Mah Sing still plans to launch M Senyum in Sepang and M Astra in Setapak in 4Q21, which will likely help in contributing to property sales.
We cut our FY21-22F earnings by 15%-20% due to: (i) prolonged lockdown that affected construction progress and billings, (ii) interruptions in gloves manufacturing, and (iii) lower ASP assumptions for nitrile gloves, based on guidance on ASP and nitrile butadiene rubber prices provided by other bigger players. Mah Sing has unbilled sales of RM1.73 billion as at 1Q21. Our new target price is based on SOP, with a 75% discount applied to revised net asset value for the property division, 12 times PER for the plastic manufacturing segment and 5 times PER for the glove manufacturing segment.
PIE Industrial Bhd
Target price: RM3.38 BUY
MIDF RESEARCH (AUG 16): PIE’s 1HFY21 core net profit of RM18.5 million was below ours and consensus full-year estimates at 36.9% and 33.7% respectively.
The group reiterated that its major source of income, the electronics manufacturing services (EMS) subsegment, is expected to bring in more customers in the long run through its fully built-up vertical integrated manufacturing facilities. Investments in automation and a new R&D division in the beginning of the year are also expected to support this subsegment.
Following the lower-than-expected earnings, we revise our earnings estimates for FY21 downward by 8.11% to RM46.2 million. However, in view of the more sanguine outlook supported by the EMS subsegment, FY22 and FY23 earnings estimates were revised slightly upward to RM65 million and RM67 million respectively. We maintain our “buy” call and raise our target price to RM3.38 from RM3.21, by pegging the FY22 EPS of 16.92 sen to an unchanged forward PER of 20 times. The key risks to our call are drastic fluctuations in the foreign exchange rates and disruptions to the group’s supply chain should the global Covid-19 situation deteriorate.
Pentamaster Corp Bhd
Target price: RM6.20 BUY
UOB KAY HIAN RESEARCH (AUG 16): PCB’s 2Q21 results were in line with expectations. 2Q revenue was the highest ever. Order book backlog was RM270 million, which is 35% higher y-o-y and is expected to grow further. With its strategic exposure and robust demand for its highly customised test equipment and solutions, we expect the group to overtake its peak performance in 2019. We maintain our call and target price.
2020 was a washout period for PCB due the worldwide travel restriction alongside the Movement Control Order disruptions in Malaysia. We believe the worst could have been fully captured in the past few quarters, and the group has already gradually resumed cross-border travelling for its project site installation, although on a more constrained basis.
Since early 2021, PCB has been experiencing order intake momentum on the back of improving sentiment for the equipment market. In terms of end-market demand, the group expects better sales momentum from the electro-optical and automobile industry for 2H21.
The group is undergoing a high-growth phase with its structurally well-diversified revenue exposure in the electro-optical and automobile segments. We believe earnings recovery will be more apparent in 2021.
Target price: RM7.75 BUY
MAYBANK IB RESEARCH (AUG 15): MISC’s 2Q21 results were largely within expectations. However, sequential earnings may improve on firmer tanker rates and contribution from its new very large ethane carriers (VLECs). As such, our earnings forecast and target price are maintained. MISC currently trades at an attractive 12-month forward PER of 13 times (long-term mean: 16 times) and offers a solid dividend yield of 5%.
As a whole, 1H21 core earnings of RM1.034 billion was mostly in line and accounted for 49%/55% of ours/the street’s FY21 forecasts.
Although spot rates have remained weak from vessel oversupply and sluggish economic reopenings, there is cause for optimism in 2H21 as tanker rates pick up from: (i) the gradual easing of global lockdowns following successful vaccination drives, (ii) an increase in energy shipping activity along the US-Asia trade routes, (iii) charterers locking in rates during the downcycle in preparation for winter, and (iv) OPEC+’s decision to further increase crude output by two million bpd from August to December. Furthermore, the liquefied natural gas segment is set for fewer dry-docking days and the first full-quarter contribution from its six VLECs in 3Q21, while management is also cautiously optimistic of the petroleum segment breaking even in the quarter.