Brokers Digest: Local Equities - Senheng New Retail Bhd, Al-‘Aqar Healthcare REIT, Padini Holdings Bhd, IHH Healthcare Bhd

This article first appeared in Capital, The Edge Malaysia Weekly, on September 5, 2022 - September 11, 2022.
Brokers Digest: Local Equities - Senheng New Retail Bhd, Al-‘Aqar Healthcare REIT, Padini Holdings Bhd, IHH Healthcare Bhd
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Senheng New Retail Bhd

Target price: 90 sen ADD

CGS-CIMB SECURITIES RESEARCH (AUG 29): Senheng’s revenue for the first half of the year (1H22) rose 13.5% year on year to RM765 million, boosted by its strong 2Q22 performance on the back of the Raya festive sales and more new/upgraded stores, leading to higher sales particularly at its “senQ” digital stations (+11.3% y-o-y) and “Grand Senheng” stores (+51.1% y-o-y). We deem 1H22 core net profit to be above our expectations, at 48.3% of our FY22F estimate, because of better-than-expected gross profit and operating margins. The 1H22 GP margin expanded to 20.3% (+0.6 percentage point y-o-y) on a better product mix while Ebitda margin rose to 8.4% (+0.9pp y-o-y), which we attribute to its ongoing internal cost efficiency efforts (enhancing productivity by having its trucks cover a wider area and more delivery orders per truck fulfilled) and more cost-effective promotional activities, thanks to targeted marketing via automated digital marketing solutions.

Meanwhile, Senheng’s 2Q22 revenue increased 32.9% y-o-y to RM397.7 million, mainly driven by: (i) various marketing campaigns (such as the Raya festive sales, Member Month and 6.6 Macam-Macam Sales); (ii) higher per-store sales on six new/upgraded stores during the quarter; and (iii) higher footfall on the easing of the Omicron wave and full lifting of Covid-19 travel and business restrictions.

In addition, 2Q22 gross profit margin climbed 1.2pps y-o-y to 22.1% on a more favourable product mix due to its ongoing store expansion strategy with a wider higher-margin product selection, in our view. On top of that, operating expenditure as a percentage of revenue declined to 12.7% in 2Q22 (versus 2Q21: 13.3%), which we believe was due to its ongoing efficiency initiatives yielding higher operational efficiency.

We expect Senheng to post stronger half-on-half results in 2H22, premised on: (i) the seasonality factor (4Q typically being the strongest quarter, accounting for 42% to 44% of FY20/21 core net profit due to strong year-end and holiday promotional campaigns); (ii) a more favourable gross profit margin from its aggressive plan to grow its higher-margin in-house and exclusive products; and (iii) higher operational efficiency via ongoing internal efficiency projects and proprietary digital marketing solutions, which should lower its advertising and promotional costs.

We like Senheng for its leading position in consumer electronics, loyal customer base of 3.5 million PlusOne members, and wider product offerings compared with its peers.

Al-‘Aqar Healthcare REIT

Target price: RM1.42 BUY

MIDF RESEARCH (AUG 29): Al-‘Aqar’s 1HFY22 core net income of RM37.3 million came in within expectation, making up 52.5% of our full-year forecast. We have excluded foreign exchange loss in our core net income calculations. Meanwhile, Al-‘Aqar announced a second interim income distribution of two sen per unit. Sequentially, 2QFY22 core net earnings were little changed at RM18.6 million (-0.3% quarter on quarter) as rental income was flattish at RM27.3 million (+0.2% q-o-q), which drove 1HFY22 cumulative core net income higher to RM37.3 million (+6.22% y-o-y) despite lower top line (-6.6% y-o-y).

The lower top line was mainly due to the renewal of the 15-year lease of six properties at a lower rate. Nevertheless, the lower financing cost and lower property expenses were more than enough to offset the decline in rental income.

The lower property maintenance cost also helped earnings growth. We make no change to our earnings forecast for FY22/23F. Earnings are expected to improve in FY22 due to the absence of rental rebate. We see stable earnings outlook in the near term due to the defensive earnings from its healthcare assets.

Padini Holdings Bhd

Target price: RM4.10 BUY

KENANGA INVESTMENT BANK RESEARCH (AUG 29): Padini’s FY22 Patami exceeded our forecast and consensus estimates by 27% and 35% respectively. Its FY22 revenue grew 28.1%, driven by strong sales as consumers returned to the malls after the lifting of pandemic restrictions, as well as due to bumper spending ahead of festivities. Padini’s Patami almost doubled, thanks to a product mix that was skewed towards high-margin products, improved overhead absorption (due to a surge in sales) and a lower effective tax rate.

Apart from sustained spending by the middle-income group (which is Padini’s primary target customers), the company’s earnings will also be driven by tourist dollars as international borders reopen. Nonetheless, we are mindful of the high inflation, which, if not properly managed, could erode consumer spending power, stalling consumption, including of clothing.

Reflecting its optimism on sustained consumer spending, Padini reiterated its guidance for four to five new Brands Outlet and Padini stores over the next 12 months, with a capex outlay that we estimate at RM20 million. These new stores will be its key drivers for growth in FY23.

IHH Healthcare Bhd

Target price: RM7.42 BUY

RHB RESEARCH (AUG 29): IHH should benefit from the gradual rebound in medical tourism. Medical tourists to Singapore and Malaysia are now at 17% and 1.5% of pre-pandemic levels respectively, following the lifting of border restrictions in both countries since April. This, on top of the resilient demand for healthcare services, as well as continuing efforts to minimise its exposure to non-Turkish lira (TRY) revenue (32% of 1H22 total Turkey turnover versus 1H21’s 28%) from its Eastern European segment, justifies our call.

IHH expects the recovery of medical tourist numbers to be its key growth driver in the quarters ahead. As the Singapore segment booked numbers that were stronger than what management had anticipated (due to the upswing in foreign patients), we have tweaked our revenue intensity assumption for FY22 to S$12,848, from S$12,000.

We expect IHH’s depreciation and amortisation costs to increase by 4% y-o-y in 2023, until the effect of the Malaysian Financial Reporting Standards 129 is watered down. Although there could be a potential impairment risk, we regard this as a one-off entry.


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