This article first appeared in Capital, The Edge Malaysia Weekly on July 1, 2024 - July 7, 2024

Target price: 68 sen ADD

CGS International (June 24): On Mynews (KL:MYNEWS), we raise our core net profit estimates for FY24F/FY25F/FY26F by 49.5%/78.5%/20.9% post 2Q analysts’ briefing on June 24 as we factor in a faster earnings recovery, driven by higher revenue growth and recovery in gross margins.

We believe new store openings in FY24F and rising private consumption will support revenue growth and improve utilisation rates at Mynews’ food processing centre, which has been the key drag on Mynews’ earnings since its launch in 2019. This will drive Mynews back to profitability in FY24F and drive FY25F core net profit (RM33 million) above the pre-Covid-19 high (RM27.6 million).

Our ground checks at selected Mynews and CU outlets between May and June reaffirm our thesis. Footfall has significantly picked up, with larger format stores experiencing close to triple the number of customers in May and June compared to the first three months of 2024. We noticed healthy demand for its Mynews and CU fresh food. The working group favoured cold food like onigiri and lunch sets while the younger group preferred warm food such as sausages and popcorn chicken.

Improved policy direction by the government should be positive for economic growth in 24F. CGSI Research’s economics team forecasts 24F GDP growth of 5.2% year on year and private consumption growth of 6.9%. We see key drivers of consumer sentiment and spending over the next six to nine months to include flexible EPF Account 3 withdrawals, monthly cash handouts to lower[income households and higher civil servant salaries by at least 13% in 2025. All three measures should support demand for lower-value goods such as those sold by Mynews. A further recovery in tourist arrivals could drive footfall and support demand for convenience store goods.

We reiterate our Add call on Mynews as we are positive on its earnings recovery trajectory with a higher Gordon Growth Model-based TP of RM1.18 (ROE 13.7%, COE 7%, LT growth 4%) after we raise our core net profit forecasts.

Target price: RM1.72 BUY

MIDF Research (June 25): Mah Sing (KL:MAHSING) is confident of hitting its sales target of RM2.5 billion for FY24 as demand for its M-Series affordable homes remains resilient. It is also looking to expand its product range to the mid-high- or high-end markets as demand for higher-end properties is growing amid an improving outlook for the sector. Mah Sing is also growing its industrial portfolio by setting up the MSS Business Park in Sepang to ride the growing demand for industrial properties in Malaysia.

Meanwhile, its diversification into the data centre business via a collaboration agreement with Bridge Data Centres (BDC) is expected to increase its recurring income stream. Mah Sing is likely to have a stake of about 20% in the data centre collaboration and its earnings contribution is projected to be RM25 million per annum from FY26.

Although the operating profit of the manufacturing division (plastics and gloves) was minimal (less than 1% of total operating profit in 1QFY24), the segment has turned around from an operating loss in 1QFY23 due to improved efficiency in glove manufacturing.

We maintain our earnings forecast for FY24F/25F but revise our FY26F earnings forecast by +6.4% to factor in the income contribution from the data centre collaboration with BDC. We revise our TP for Mah Sing to RM1.94 from RM1.83 as we narrow the RNAV discount to 15% from 20% in view of the better earnings visibility and stable new sales prospects.

Target price: RM6.65 BUY

RHB Research (June 26): Gamuda’s (KL:GAMUDA) construction arm recorded a profit after tax of RM364 million (+3% YoY) for 9MFY24 as overseas projects (particularly Australian) played a role in filling up the void from the domestic front.

We expect overall construction margins to gradually trend upwards amid improved contributions from higher-margin local jobs such as the Penang Light Rail Transit (LRT) Mutiara Line and data centre jobs.

Gamuda’s construction order book stood at RM24 billion as at end-April with a cover ratio of circa four times. With a half-yearly burn rate of RM5 billion for its construction works executed and upcoming job wins, the group expects to attain a new order book level of more than RM30 billion by end-2024. This growth is supported by potential wins such as the Penang LRT (estimated at RM5 billion for Gamuda’s 60% share in SRS Consortium), the Upper Padas Hydroelectric Dam, including a water supply scheme (expected to be over RM3 billion), and the Suburban Rail Loop East tunnelling package (Glen Waverley-Boxhill) estimated at between A$1.2 billion (RM3.76 billion) and A$1.5 billion for Gamuda’s 50% share, among others.

No change to our earnings estimates as the results were deemed in line. As such, our SOP-derived TP of RM7.69 (which incorporates a 6% environment, social and governance (ESG) premium based on its 3.3 ESG score) is maintained.

Target price: RM2.38 OUTPERFORM

Kenanga Research (June 26): Keyfield (KL:KEYFIELD) is acquiring a second-hand accommodation workboat (AWB) and building a new one in China. The second-hand vessel is expected to start contributing in FY25, while the new one will be delivered in FY26.

We expect a strong 2Q and 3Q ahead, as all of Keyfield’s vessels will be operating near full capacity after the monsoon season. The majority of the AWBs are currently engaged in medium-term charters of six to nine months. Should demand for AWBs remain robust, we project that the group could secure a higher daily charter rate (DCR) for FY25. Given the tight supply of offshore support vessels in Malaysia for robust activities, we expect DCRs to continue rising in coming months.

We raise our FY25 net profit forecast by 6% after factoring in the contribution from MV Belait Barakah. We assume 75% vessel utilisation with a DCR of RM110,000.

We upgrade our TP by 6% to RM2.85 (from RM2.69), pegged to an unchanged 11 times FY25F PER, which is a slight premium to 10.2 times the median offshore support vessel multiple, owing to its younger fleet and higher fleet specifications.

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