This article first appeared in Capital, The Edge Malaysia Weekly on July 25, 2022 - July 31, 2022
Target price: RM1.09 OUTPERFORM
KENANGA RESEARCH (JULY 19): We initiate coverage on Nova Wellness Group with an “outperform” call and target price of RM1.09 based on 15 times CY2023 EPS. We like Nova for its: (i) integrated business model, which encompasses the entire spectrum of the pharmaceutical value chain covering product conceptualisation starting from R&D and downstream to manufacturing and sales; (ii) superior margins due to its original business manufacturing business model; and (iii) earnings growth driven by capacity expansion, a widening distribution network and penetration into local public hospitals.
Over the years, Nova Wellness has evolved from being purely a trader in animal health products into a group involved in research, production and sales of nutraceutical and skincare products.
The stage is set for Nova Wellness to experience explosive growth over the next three years. Amplifying the growth potential is the surge in demand for health supplement products, as consumers take a more proactive stance towards their health and well-being, especially following the Covid-19 pandemic. As an indication, the group saw a doubling of distributors to over 900, with a target to increase this number to 1,200 by FY2025. In tandem with the increase in distributors, the average transaction by consumers has risen by 60% since FY2020. Over the past 12 months, the group has started penetrating into local public hospitals. It is looking to include more hospitals, which currently account for less than 5% of revenue for its nutritional products.
The two plants completed in 2020 and 2022 totalled about 169,000 sq ft. For illustration purposes, if we extrapolate the two plants, which are five times the size of the original plant completed in 2004, its incremental revenue is expected to rise from an average of RM30 million in FY2019 to RM120 million-RM150 million per year.
According to market research, in the long term, the global dietary supplements market is projected to grow at a CAGR of 9%. In tandem with industry sector growth, we forecast 17%/18% net profit growth for FY2023/FY2024. The earnings are expected to be driven by: (i) 18% revenue growth each in FY2023 and FY2024; (ii) average selling price and volume growth of 2% and 16%, respectively; and (iii) marginally lower Ebitda margin of 48%.
Target price: RM3.67 BUY
MERCURY SECURITIES (JULY 18): We initiate coverage on UWC with a “buy” recommendation and a target price of RM3.67 based on FY2023 EPS of 10.4 sen and a PER of 35.3 times, in line with the 10-year average of the technology industry. We like the stock for its attractive expansion plans and strong track record, well-positioned to leverage on the growing global semiconductor market, which is forecast by the World Semiconductor Trade Statistics to grow by 16.3% and 5.1% in 2022 and 2023.
The company has an order book of RM190 million, expected to be fully recognised within 1H2023 with the arrival of more workers. Under the leadership of group CEO Datuk Ng Chai Eng, who is responsible for the overall management and business operations of UWC, the company was able to achieve record revenue and net profit in FY2021, and a three-year revenue CAGR of 27.8% from FY2018 to FY2021, despite the pandemic in FY2020.
UWC is a one-stop solution centre providing modules to full turnkey assembly manufacturing of automated test equipment for industries ranging from semiconductors to life sciences.
Target price: 44 sen BUY
MIDF RESEARCH (JULY 18): Malaysian Resources Corp (MRCB) has been appointed by the Selangor government to undertake major refurbishment works for the Shah Alam Stadium. From a list of 16 companies, it was selected for the RM787 million job based on its technical and financial capabilities.
The project, scheduled to be completed in 2026, will be carried out on a public-private partnership basis. This will require MRCB to bear the entire cost of the project, to be repaid by the state government via a land swap that will allow MRCB to carry out developments that would cover the cost of the stadium refurbishment.
Judging from MRCB’s current financial strength with a net gearing of 28.6%, we opine that it has much headroom for further financing, if needed. One of the main focuses for MRCB in FY2022 is to raise its cash levels. While it is still unclear which land(s) will be transferred to MRCB, we are expecting it/them to be located in Shah Alam — which is positive for the group in terms of future developments — being the capital of Selangor. This would also boost MRCB’s land bank, which currently stands at 1,007.82 acres with a gross development value of RM33.35 billion.
Target price: 59 sen BUY
RHB RESEARCH (JULY 19): Media Prima’s leading exposure to free-to-air (FTA) advertising expenditure (adex) renders it susceptible to a slowdown if overall adex sentiment takes a turn for the worse. We pare down FY2022-FY2024 core earnings to reflect a weaker ad spending propensity.
We see a downside to adex in the coming months, with the heightened geopolitical risks, runaway inflation and interest rate up cycle. The negative impact would rub on media companies, especially those with higher reliance on mainstream adex. Adex revenue makes up more than 70% of Media Prima’s revenue.
We lower FY2022-2024 core earnings by 20%-24% to factor in the lower ad spending propensity, having also adjusted our margin assumptions. The holistic sales of ad inventories (via Omnia), where more optimal solutions are pushed to advertisers in the wake of the challenging environment, should provide some cushion to ad sales.
We believe our valuation is reasonable as the group returned to the black in FY2021 (after four consecutive years of losses) with a significantly resized cost base. In our view, the 22% share price decline over the past two months has priced in downside risks, to a certain extent.
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