This article first appeared in Capital, The Edge Malaysia Weekly on April 15, 2024 - April 21, 2024

Target price: RM1.15 ADD

CGS INTERNATIONAL (APRIL 5): We raise our FY24-FY25 EPS by 5% to 7% and introduce FY26 estimates. We raise FY24-FY25 revenue contribution from blockchain but lower transportation revenues, given the rapid market share decline for its renewal services. We estimate that MyEG generated RM90 million in total revenues (12% revenue mix) from its blockchain segment in FY23, with majority anchored by Zetrix token sales. Going into FY24, we expect this to rise to RM143 million, forming 18% of total revenue.

We understand that management aims to issue about one million Zetrix tokens per quarter through the two exchanges that the token is listed on. Management also guided that Malaysia-China ZTrade (a blockchain-based cross-border customs trade solution) could go live in May 2024, coinciding with the 50th anniversary of Malaysia-China diplomatic relations. This development is a key milestone that comes ahead of other government efforts; that is, the Philippines and Indonesia are also looking to onboard the platform.

In addition, we expect the group’s development cost to fall to around RM150 million in FY24 from about RM460 million in FY22 and FY23 as the current platform reaches operational readiness, likely leading to free-cash-flow improvement and lower gearing level from 22% in FY23 to 10% in FY24.

We believe the immigration segment could continue to benefit from vibrant foreign worker hiring activity in FY24. The Malaysian government has set May 31, 2024, as the deadline for employers to bring in foreign workers in the formal sector, with the aim to reach about 2.5 million total registered workers by mid-2024, from 2.13 million as at February 2024. This should expedite further sourcing of foreign workers by employers with hiring quota, which we believe will benefit MyEG’s permit renewal and job-matching businesses and cushion the ongoing decline in transportation segment revenue due to digitalisation of Road Transport Department services, which has dented MyEG’s legacy renewal services.

We maintain our “add” call but raise our target price to RM1.15 from RM1.10 — sustainable ROE is lifted from 18.2% to 18.8% — owing to MyEG’s attractive valuation (11.8 times FY24F PER, at close to 1 standard deviation below its post-14th General Election average of 16.2 times) and potential EPS upside from its blockchain business. Key downside risks are non-extension of its current concession services, loss of market share in ancillary businesses, and new blockchain solutions failing to materialise.

Target price: RM1.42 BUY

MIDF RESEARCH (APRIL 8): Mah Sing’s wholly-owned subsidiary, Venice View Development Sdn Bhd, entered into a conditional sale and purchase agreement with Amanah Raya Bhd for the proposed acquisition of 100.4 acres of freehold land in Mukim Pulai, Johor, for RM103.7 million.

The land acquisition is expected to be positive for Mah Sing, as it allows it to continue growing its exposure to the Johor property market. It intends to fund the land acquisition via a combination of internal funds and bank borrowings. The impact to the balance sheet is expected to be minimal, as net gearing should go up marginally to 0.11 times from 0.08 times in FY23. The balance sheet remains healthy, which gives it financial flexibility for future landbanking exercises.

We maintain our earnings forecasts for FY24/25/26. Our target price, raised from RM1.23, is based on a narrower discount to RNAV of 38% from 45%, owing to its growing exposure to the improving Johor property market. We maintain our “buy” call, as we like Mah Sing’s exposure to the affordable residential segment and growing presence in the industrial properties segment, which will further drive earnings growth. 

Fair value: 80 sen HOLD

AMINVESTMENT RESEARCH (APRIL 8): We upgrade TCM from “underweight”, with an unchanged fair value.TCM’s share price has plunged 12% since releasing its 4QFY23 results a month ago, and 14% YTD. Owing to the decline, the risk-reward is now balanced, hence the stock upgrade.

TCM’s management has recommenced its share buyback with a total purchase of 45,000 shares in the past month. We note the current pace of share buyback is not convincing, with aggregate purchase less than 0.2% since the approval of the share buyback programme. We visited two Nissan showrooms over the past week. We note that there is a crowd, with people testing out Nissan cars, in particular, the Almera Black edition. There are no “freebies” or “extra” discounts conferred, which we find perplexing, as every showroom of other marques that we visited are dangling carrots as part of the Hari Raya promotions.

Risks to our call include a weaker ringgit against the US dollar, which will continue to negatively impact operating costs; and slower-than-expected rollout of new car models. The stock currently trades at 0.22 times FY24F PBV, which is 10% higher than its three-year historical average.

Target price: RM6.30 BUY

RHB SEARCH (APRIL 8): The Western Australia government has selected AD Alliance — comprising Alstom Transport Australia and Gamuda’s wholly-owned subsidiary DT Infrastructure (DTI) — as the preferred proponent to design, supply, build and maintain the Public Transport Authority’s High Capacity Signalling (HCS) project on rail networks. [This] paves the way for contract negotiations to commence. We estimate the overall contract size to be well in excess of A$1 billion (RM3.1 billion).

As at Jan 31, DTI’s projects made up RM4.6 billion, or 19%, of Gamuda’s RM24 billion outstanding order book. DTI has secured about A$400 million of new contracts after the acquisition of Downer EDI’s projects by Gamuda in June 2023. If we assume DTI has a 50% share in the HCS project, it may see an order book accretion of at least A$500 million — potentially bringing DTI’s new job wins in FY24 to at least A$0.9 billion.

Based on our estimates, Gamuda has so far secured RM6 billion worth of new jobs (including DTI) for FY24. We make no changes to our earnings estimates; thus, our SOP-derived target price, which bakes in a 6% ESG premium, is unchanged.

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