This article first appeared in Capital, The Edge Malaysia Weekly on August 5, 2024 - August 11, 2024

Target price: 95 sen ADD

CGS INTERNATIONAL (JULY 29): We upgrade Ramssol Bhd (KL:RAMSSOL) from a “hold”, with a higher Gordon-growth-model-derived target price of 95 sen (versus 48 sen previously), on a strong 1HFY24 earnings beat and decent outlook across its multiple segments. Its valuation appears reasonable at 15.2 times FY24 PER, which is below its three-year mean of 17 times as well as regional human capital management (HCM) peers’ 22.9 times.

At an analyst briefing on July 25, management said there was a strong pickup in business activities across its HCM, training and marketing segments. For HCM, the group extended its collaboration and distributorship with external partners in a bid to broaden its market reach and project implementation capacity, given the growing demand for more effective HCM solutions. The group intends to leverage this broadening network to cross-sell its training and marketing solutions as part of its efforts to enhance operational efficiency.

With its outstanding orderbook of around RM60 million as of June across key HCM product implementations, that is Oracle, DarwinBox and ZingHR, we see greater visibility for earnings over the next few quarters. Meanwhile, Ramssol said the automotive business, that is RiderGate, is currently undergoing a vendor integration process with key government entities and will go live by early FY25, enabling monetisation via transaction of services.

Meanwhile, the recent 51% stake acquisition of Thailand-based GeekStart in June 2024 for RM6.9 million in a share swap deal comes with a profit guarantee in FY24-FY25 and provides business synergies with the group in terms of added capabilities in the digitalisation space and an expanded clientele base, according to Ramssol.

Following a resilient 1HFY24 results performance, we raise our FY24-FY26 EPS by 53% to 58% as we incorporate a higher revenue contribution from the HCM segment while bumping up our growth assumptions slightly for the marketing and training segments. We also model in revenue contribution of RM10 million-RM13 million from GeekStart for FY24-FY26 as it has secured projects to roll out digitalisation solutions for several key customers.

Heading into FY25F, we expect a maiden contribution from RiderGate upon going live. Overall, we project a strong 3-year EPS CAGR of 49.8%.

Key rerating catalysts are a strong orderbook build for HCM and traction in RiderGate usage while key downside risks are under-deliverance from GeekStart, rising competition in the HCM space and the emergence of a strong alternative to RiderGate.

Target price: 93 sen BUY

RHB RESEARCH (JULY 29): We maintain our “buy” and target price on DXN Holdings Bhd (KL:DXN). Its 1Q results for FY25 (ended February) broadly met expectations as key existing markets continued to deliver solid growth. The positive momentum should be sustainable, given its strategy to recruit new members and enhance overall member productivity, complemented by launches of new quality products.

Its current valuation is attractive in view of its consistent earnings track record post-listing, expansion of the Brazil market as a medium-term growth driver and sturdy balance sheet (1QFY25 net cash: RM469 million or 9.4 sen per share) to facilitate generous dividend payouts.

Its core net profit of RM82 million accounted for 22% of our and consensus’ full-year forecasts but we expect better quarters ahead with deeper market penetration. As such, we make no changes to our earnings forecasts and DCF-driven target price of 93 sen, which implies 12 times PER FY25. The valuation is below the consumer sector average, taking into account the highly regulated direct selling industry DXN is in.

DXN’s earnings growth should be supported by the relentless growth momentum in major markets.

Target price: RM3.23 OUTPERFORM

KENANGA RESEARCH (JULY 30): Dialog Group Bhd (KL:DIALOG) is expanding its storage capacity at Langsat Terminal 3 (DTL3) by an additional 150,000 cu m, of which two thirds will be dedicated to renewable products and the balance to petroleum products. We estimate that the latest investment will add 5 sen per share to its valuation. We maintain our call and forecasts but upgrade our target price by 2% from RM3.18.

The first 100,000 cu m is dedicated to EcoCeres Ltd while the remaining 50,000 cu m is expected to be leased to third-party customers such as multinational companies and trading houses.

The expansion is expected to be completed in 1QFY27.

Based on a tank terminal rate assumption of S$7 per month per cu m, we estimate that the new storage facility expansion will bring a recurring profit after tax of RM18 million per year to the group based on 90% utilisation. This is a significant win for the group as rates are more favourable for dedicated terminals. Additionally, the storage of renewable products like sustainable aviation fuel and hydrotreated vegetable oil dedicated to EcoCeres enhances Dialog’s ESG portfolio. Risks to our call include prolonged and intensifying cost pressures, delays in capacity expansion plans and reduced utilisation of tank terminals.

Target price: RM8.12 BUY

UOB KAY HIAN RESEARCH (JULY 30): Management remains optimistic that CIMB Group Holdings Bhd (KL:CIMB) will be able to meet its 11%-11.5% ROE target, driven by improving asset quality trends, strong non-interest income, more rational deposit competition and disciplined loan pricing that will support net interest margin (NIM) recovery. We anticipate an earnings tailwind from strong non-interest income growth momentum. We maintain our “buy” call while raising our target price to RM8.12 (1.14 times 2025 PBV, 11.5% ROE) from RM7.60 after rolling forward our valuation to 2025.

We have projected a 3bps NIM improvement for 2024, which we believe is achievable based on further easing of deposit competition and stabilisation in mortgage yields.

Given its solid Common Equity Tier 1 capital build-up from 12.9% to 15.0% over the past four years, management has not discounted the possibility of another special dividend in 2024. If the group maintains a dividend payout ratio of 65%, similar to 2023 by declaring a special dividend per share of 8 sen, this could provide a relatively lush dividend yield of 6.8% compared with our current forecast of 5.7%. However, this will be subject to Bank Negara Malaysia’s approval after conducting various stress tests.

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