This article first appeared in Capital, The Edge Malaysia Weekly on September 2, 2024 - September 8, 2024

Target price: RM2.71 BUY

MAYBANK INVESTMENT BANK RESEARCH (AUG 29): Given that 2Q tends to be weak for AAX, we believe it fared well in 2Q24. We expect 3Q24 and 4Q24 to be better on lower fuel prices, a recovering ringgit and seasonally high fares. We lift earnings estimates by 61%-88%.

Ascribing six times FY25E PER, we lift our target price to RM2.71 from RM1.88. Efforts to raise RM1 billion in equity are underway. AAX also expects to complete the acquisition of Capital A Bhd’s five airlines by year end.

Core net loss of RM5.7 million in 2Q24 brought 6M24 core net profit to RM112.7 million, which was above our expectations at 133% of our full-year estimate. On closer inspection, the outperformance was largely due to the 6M24 fuel price coming in at US$106 per barrel, US$4 per barrel lower than we expected.

Note that 2Q results tend to be the weakest due to seasonally low demand and fares. That said, we are encouraged that the 2Q24 core net loss was 83% narrower y-o-y.

We note that the 2Q24 average fare of RM458 was a post-Covid-19 low. AAX explained that, other than seasonally low demand and fares, it was partially due to: (i) low promotional fares to and from Almaty, Kazakhstan, when the route was launched in mid-March 2024 — fares were raised to profitable levels in June 2024; and (ii) low demand and fares to and from Gold Coast, Australia; Busan, South Korea; and Amritsar, India — AAX intends to discontinue these routes in the near future.

We expect 3Q24 to report better results as jet fuel prices have eased to about US$95 (RM410) per barrel and the ringgit has recovered strongly to RM4.34 per US dollar from an average of RM4.73 in 6M24. Going into 4Q24, we expect AAX to report even better results thanks to seasonally high demand and fares then. We lift our FY24E/FY25E/FY26E earnings by 88%/68%/61% as we trim our average fuel price forecast to US$105 per barrel from US$110 per barrel.

Target price: RM2.20 ADD

CGS INTERNATIONAL (AUG 28): Power Root’s 1QFY25 core net profit fell 52.3% y-o-y to RM7.3 million, which came in below at 13%/14% of our/Bloomberg consensus FY25F estimates.

The lower core net profit y-o-y was mainly driven by lower revenue, higher advertising and promotion expenses and increased staff costs.

We expect Power Root’s earnings to improve in the subsequent quarters of FY25F as we see a pickup in private consumption growth in Malaysia, hence, in demand for its beverage products.

The company continued to struggle in the Middle East, with revenue from the region falling 12.3% y-o-y in 1QFY25, pushing down overall exports revenue by 12.9% y-o-y.

We believe improved policy direction by the government will be positive for economic growth in 2024F. We see key drivers for consumer sentiment and spending over the next six to nine months from: (i) flexible EPF Account 3 withdrawals; (ii) monthly cash handouts to lower-income households; and (iii) an increase in civil servant salaries by at least 13% in 2025F.

We maintain our “add” call on Power Root, with a Gordon growth model-based target price of RM2.20 (21.4% FY26F return on equity, 8.7% cost of equity and 4% long-term growth).

We like Power Root for its strong brand equity in the instant coffee segment and undemanding valuations at 12.2 times CY25 forecast PER (37% discount to 10-year average of 19 times). We await further details from Power Root’s management at its briefing to be held on Sept 5.

Target price: RM2.14 BUY

RHB RESEARCH (AUG 29): KPJ’s 2Q24 core earnings grew 66% y-o-y to RM79 million, bringing its 1H24 numbers to RM125 million, accounting for 43% and 42% of our and the street’s expectations.

We deem the results to be in line as we expect stronger quarters ahead underpinned by improvements in operating leverage from hospitals under gestation.

Our discounted cash flow-derived target price represents 15 times 2024F EV/Ebitda, two standard deviations above its five-year historical EV/Ebitda average of 12 times.

KPJ achieved a record high revenue of RM930.6 million in 2Q24, thanks to robust patient traffic numbers and better patient case mix. We deem its 1H24 results in line as we expect stronger quarters ahead led by improved operating efficiency of hospitals under gestation, steady growth of patient visitors and pickup in foreign patient visits.

The board has declared an interim DPS of one sen, up from 0.65 sen in 2Q23, representing a payout ratio of 56% (55% in 2Q23).

As bed occupancy rate improved one percentage point q-o-q (flattish y-o-y) to 66%, we believe KPJ is more prudent in increasing new beds.

Our basis of premium valuation on KPJ is premised on the group’s solid turnaround (which offers room for margin improvement from hospitals under the gestation period), potential opportunities to be unlocked via expansion into the health tourism segment and strategic move to upscale existing hospitals into tertiary care centres (will enable KPJ to tap more complex and uncommon procedures).

Target price: RM5.90 Hold

CIMB SECURITIES (AUG 29): Results for 1H24 beat expectations, making up 53%/54% of our consensus estimates due to better-than-expected sales volume from its Perodua dealers.

We raised our FY24-FY26F EPS by 8% to 11% as we revised Perodua sales volume forecast and assumed better margin delivery from its motor trading and assembly division driven by favourable foreign exchange movement following the strengthening in the ringgit against the US dollar and yen.

The national automaker keeps its sales volume of 330,000 units in 2024F unchanged. We estimate Perodua’s backlog orders stood at over 100,000 units as at end-June 2024, supported by robust demand for popular models such as Bezza and Myvi. We now expect Perodua to register 1.5% sales growth in 2024F (1.5% decline previously).

To recap, Perodua posted 17% y-o-y volume growth in 7M24. We still expect a lower y-o-y sales volume in 2H24F, ahead of the upcoming RON95 subsidy removal in 4Q24F.

However, we anticipate that: (i) the introduction of the EPF Flexible Account; (ii) an increase in civil servant salaries; and (iii) an accommodative interest rate environment will help to offset the inflationary impact of the subsidy removal.

We maintain our “hold” recommendation on the stock with a higher RM5.90 target price.

MBMR still offers attractive FY24-FY26F dividend yields of 6.3% to 7.1%, backed by a healthy net cash position of RM196 million (50 sen a share) as at end-June 2024.

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