This article first appeared in Capital, The Edge Malaysia Weekly on October 16, 2023 - October 22, 2023

Target price: RM7.76 ADD

CGS-CIMB RESEARCH (Oct 10): News reports on Oct 9 had it that MYAirline had not been paying its staff salaries and its suppliers on time, suggesting financial distress in our view. The airline is 98% owned by Datuk Goh Hwan Hua and 2% by its ex-CEO Rayner Teo Kheng Hock, who apparently resigned recently, according to the reports. MYAirline’s chief financial officer and chief commercial officer had also resigned.

MYAirline was founded in early 2021 and operated its first flight in December 2022 using an all-leased A320 narrowbody fleet. It currently has nine 180-seater A320 aircraft, with 80% of its seat capacity deployed on domestic routes from klia2 (Kota Kinabalu, Kuching, Tawau, Sibu, Miri, Kota Bharu, Langkawi and Penang) and 20% to Bangkok Suvarnabhumi and Bangkok Don Mueang.

Since Aug 21, MYAirline has cut its domestic seat capacity by 25%, having terminated Sibu and Miri, and is cutting back capacity to Kota Bharu. After mid-October, klia2 to Bangkok Suvarnabhumi will be terminated, while Bangkok Don Mueang flights will be halved.

Because MYAirline is primarily domestic in nature and had only 9% market share of the domestic Malaysia seat capacity at its peak in August, the impact on MAHB from a potential collapse of the airline will not be overly damaging in our view. Our estimates indicate that a bad debt write-off of MYAirline’s dues to MAHB could impact our FY23F group core net profit by 3% (or about 6% of MAHB’s Malaysia-only core net profit). We expect MAHB to make the necessary write-off in its 3Q23F or 4Q23F results announcement, if it has not already done so. We have not reflected any bad debt write-offs in our financial forecasts for now.

In other downside risks, investors should be prepared for the Malaysian Aviation Commission’s proposed aeronautical tariff increase from Jan 1, 2024, to be delayed as the regulator has not issued its final proposal, which also needs to be gazetted in parliament. We remain positive on MAHB, with rerating catalysts including the upward trajectory of international traffic, while commercial rents and revenues should recover sharply as it terminates rental discounts from Jan 1, 2024, and more airport shops reopen.

Target price: RM1.63 OUTPERFORM

PUBLIC INVESTMENT RESEARCH (Oct 11): Kerjaya Prospek Group was contracted to design and build Versa, a condominium development by Aspen Group, for RM226 million. The project comprises two 37-storey blocks with a total of 980 residential units, a 7-storey car park podium, community recreational facilities and shoplots. Construction will begin in 4QFY23 and completion is targeted for 2QFY27.

The group’s outstanding order book increased by 5% to RM4.97 billion after accounting for this job win, providing earnings visibility for the next three to four years. Our projections show that this job will contribute about RM4.5 million per annum on average from FY23-FY27F, assuming a low-teen profit margin. The group has replenished its order book by RM1.5 billion year to date, exceeding our earlier FY23 order book replenishment assumption of RM1.4 billion.

We revise our FY23 order book replenishment target upwards by 21% to RM1.7 billion as we expect additional job wins by 4QFY23. As such, we lift our earnings by 2.1% on average in FY23-25F due to the adjustments to our forecast. We reiterate our “outperform” call with a higher SOP-based target price of RM1.63 (previously RM1.55), pegged at a PER of 11 times as we roll over our valuation base to CY24.

Target price: RM2.08 BUY

HONG LEONG INVESTMENT BANK RESEARCH (Oct 11): Southmax Sdn Bhd, a 65%-owned subsidiary of ITMAX, has accepted the letter of award dated Oct 8 from the Pasir Gudang City Council (MBPG) in relation to the provision of video surveillance services, which include a smart command centre and a closed circuit camera system with artificial intelligence features on a service subscription basis in the area of MBPG for a period of 180 months plus seven months (for installation) commencing from Oct 10, 2023, to May 9, 2039, for a contract sum of RM79 million.

This development strengthens our belief that it will raise ITMAX’s earnings to the next level. The 15-year contract is one of the longest and will grant ITMAX the opportunity to upsell more features and expand coverage and job scope to MBPG.

The rental of each of the 340 cameras under this deal yields about RM1,200 per month. In turn, we expect its video surveillance and analytics services’ high margin to sustain. The MBPG contract includes a smart traffic light system involving 33 controllers, leaving much room for growth as there are more junctions in Pasir Gudang.

With this addition, it has a total unbilled order book of RM903 million, which will be recognised progressively up to May 2039. We maintain our “buy” call with an unchanged target price of RM2.08, pegged to a PER of 25 times on FY25F EPS.

Fair value: RM3.29 BUY

AMINVESTMENT RESEARCH (Oct 10): Our FY24F-FY25F revenue was adjusted slightly higher by 1% following a more stable supply of CBU (completely built up) models as the company gradually shifts the bulk of its car imports from Japan to Thailand. Moreover, the depreciation of the yen against the ringgit will further support the improved outlook for BAuto’s earnings.

Also, our FY24F-FY25F earnings increased by 2% to 3% as we foresee a boost in CX-8 CKD (completely knocked down) sales since BAuto is expected to launch promotional activities. The model currently delivers the highest profit margin. On average, CKD commands a margin that is three percentage points greater than CBU. At present, the ratio stands at 80% CKD and 20% CBU.

According to the Malaysian Automotive Association, Mazda marques recorded significant year-to-date sales of 13,000 units in August. The sales mainly comprised CX5 and CX30, which are seeing an average of 450 units in sales per month. Sales growth is expected to persist despite the end of the Sales and Service Tax exemption in June 2022, primarily due to a large order backlog and strong booking orders, with currently more than 1,300 bookings on average per month.

In view of these favourable conditions, BAuto’s group sales are on track to achieve our FY24F sales volume assumption of 23,000 units, mainly driven by improvement in Mazda sales.

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