Friday 29 Mar 2024
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This article first appeared in Capital, The Edge Malaysia Weekly on May 9, 2022 - May 15, 2022

ViTrox Corp Bhd

Fair value: RM9.89 BUY

AMINVESTMENT BANK RESEARCH (APRIL 29): Our FY22F–FY23F earnings are unchanged despite lower sales contributions expected from its machine vision system (MVS) for 2QFY22, as guided by management, as we believe the slower growth in China will be offset by other regions, particularly from the group’s automated board inspection (ABI) segment. As at April 3, ViTrox’s ABI funnel has grown to RM254 million, supported by growing segments in telecommunication, automotive and computing.

However, we have raised our FY24F earnings by 5% on the back of the group’s focus on manufacturing AI-­enabled machines, which support higher average selling prices (ASPs) and margins. We have also considered ViTrox’s capacity expansion with its new facility, which will add 30,000 sq ft of production floor space by 2HFY23F.

Facing material shortages, which resulted in higher raw material prices, the group has strategically increased its selling prices to mitigate margin erosion. In an effort to increase ASPs in the long run, the group has placed its focus on value-adding features such as AI and IR 4.0 capabilities to its products, complemented by its V-One data analytic platform. Currently, at least 10% of ViTrox’s machines contain AI capabilities.

ViTrox’s headwinds continue to be talent and supply shortages, and ongoing lockdowns in China as local regulators remain firm on the country’s zero-Covid policy. However, we remain optimistic on the group’s capabilities to overcome the constraints as it has demonstrated since the beginning of the pandemic.

We continue to like ViTrox for its attractive ABI and MVS product offerings, with a strong focus on developing AI capabilities. Along with its V-One data analytic platform, we believe this will create a whole manufacturing ecosystem to attract new customers while retaining existing ones. Prospects are further enhanced by the group’s diversified sales in terms of geographical region, and its continuous effort to reduce customers’ concentration.

As such, we opine that ViTrox’s forward PER of 36 times is justifiable and view that there is further upside as the current weak sentiment in the technology sector offers an opportunity to accumulate the stock.

Homeritz Corp Bhd

Target price: 89 sen BUY

HONG LEONG INVESTMENT BANK RESEARCH (APRIL 29): Core 2Q22 Patami of RM9.7 million brought 1H22’s sum to RM17.1 million, accounting for 54.6% and 58.2% of our and consensus full-year forecasts. The better-than-expected results were due to higher-than-expected sales volume and a strengthening US dollar. This is the company’s highest quarterly revenue and core earnings. The 2Q22 core Patami figure was arrived at after adjusting for foreign exchange gains of RM600,000. Homeritz achieved its highest quarterly revenue and core net profit on the back of stronger sales volume as a result of its improved capacity and efficiency, as well as better margin due to higher average selling price with stabilised raw material costs. Nonetheless, we note that there are near-term headwinds surrounding raw material costs and container shortages due to the Russia-Ukraine war and the recent lockdowns in China. Despite that, we anticipate Homeritz would be able to sustain its strong earnings moving forward due to: (i) its healthy order outlook; (ii) its improved capacity output contributed by its new factory and improved production efficiency and; (iii) current favourable US dollar to ringgit exchange rate of 4.36/USD. Also, given its healthy cash level of RM104 million, better earnings visibility and no capital expenditure anticipated, there is upside potential to the dividend payout for FY22.

Fraser & Neave Holdings Bhd

Target price: RM29.80 ADD

CGS-CIMB RESEARCH (APRIL 28): Revenue for 1HFY9/22 rose 1.8% y-o-y to RM2.2 billion, as higher sales from Malaysia offset lower contribution from its Thailand operations. However, the 1HFY22 Ebitda margin declined by four percentage points y-o-y to 12.6%, as a result of: (i) higher input costs; and (ii) lower economies of scale. Accordingly, 1HFY22 core net profit declined 17.9% y-o-y to RM201.7 million, despite a lower tax rate. On a q-o-q basis, Malaysia posted increases in both revenue and operating profit in 2QFY22. This was due to the lifting of lockdown measures, which led to a recovery in hotel/restaurant/catering (Horeca), and price increases undertaken. Thailand revenue and operating profit declined 7.2% and 23.1% q-o-q, respectively, due to: (i) weak consumer sentiment; (ii) price controls; and (iii) higher input prices. We expect FNH to post stronger h-o-h results in 2HFY22. Despite higher input costs, our view is premised on: (i) a recovery in sales volume, especially from the Horeca segment; (ii) continuous price increases, especially in Thailand; and (iii) higher economies of scale. We make no changes to our FY22-FY24F EPS estimates. We keep our dividend discount model-based target price at RM29.80.

Tasco Bhd

Target price: RM2.03 BUY

RHB RESEARCH (APRIL 29): Tasco booked a 4QFY22 core profit of RM25 million. In deriving our full-year core profit, we stripped out the RM15.9 million write-off related to the 3QFY22 demolition of its warehouse. Core FY22 profit of RM77.4 million exceeded expectations — thanks to the strong international business, which led to FY22 core profit increasing by 87.4% y-o-y. Profit before tax for FY22 for air and ocean freight forwarding shot up 110.7% and 381.3% y-o-y amid the pickup in business activities following the broader economic reopening. This was coupled with supply chain bottlenecks that saw clients resorting to air modes, as well as elevated freight rates. The domestic business also grew 25.7% y-o-y to close the year with a record. As the broader economic reopening continues to materialise amid a favourable GDP outlook, we continue to anticipate positive throughput volume growth for Tasco — complemented by its diverse clientele base. The persistent supply chain disruption points to an extended tightness in air and ocean freight as well as elevated freight rates, which are positives for Tasco’s international business segment. This has been made more attractive by NYK Group’s expansive global logistics network. Tasco will continue to benefit from the organic growth coming from its existing customers, with an additional boost from new business wins within the retail trading segment.

 

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