Sunday 24 Nov 2024
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This article first appeared in Capital, The Edge Malaysia Weekly on September 23, 2024 - September 29, 2024

Supercomnet Technologies Bhd

Target price: RM2.40 BUY

UOB KAY HIAN RESEARCH (SEPT 18): Supercomnet (KL:SCOMNET) is poised for a stellar performance going into 2025, underpinned by a strong pipeline in its medical segment with several upcoming new product launches. When the robust pipeline is paired with the anticipated organic growth and potential expansion within its existing customers’ product offerings, we expect Supercomnet’s medical segment to be the main driver of its significant earnings growth in 2025 and forecast a three-year net profit CAGR of 33% to 35%.

Principally involved in the medical equipment business through its subsidiary Supercomal Medical Products Sdn Bhd, Supercomnet specialises in the manufacturing of original equipment manufacturer medical cables, with key customers including New York Stock Exchange-listed Edwards Lifesciences and Denmark-based Ambu Medical. Earnings visibility for the medical segment appears strong as growing demand for existing products from Edwards and Ambu provides a strong baseline while the launch of several new products is expected to be a major driver for earnings going forward.

While organic growth for the medical segment is projected to be in the low double-digit range, earnings are expected to be supercharged by the launch of several key products from 2H2024 onwards. Supercomnet has identified potential opportunities for expansion from its key clientele, Customer A and E. Following Customer E’s sale of its critical care division to new Customer B, Supercomnet is looking to expand into Customer E’s three other divisions. Key products include transcatheter heart valves for which Supercomnet is currently researching and developing production capabilities. Given Customer E’s long-standing relationship with Super­comnet, it is looking to retain Supercomnet as its supplier. Customer A is also setting up a new plant in Mexico to serve the South American market. It currently controls around 5% of the global endoscope market and is looking to capture an additional 5% of market share within two years.

We update our earnings forecasts for 2024 to 2026, forecasting a net profit CAGR of 35% over the next three years. We maintain our “buy” call with a higher target price of RM2.40 from RM2.38, based on 30 times 2025 forecast PER, in line with its five-year mean and representing a price-to-earnings growth ratio of 0.65 times. We believe this valuation is justified given Supercomnet’s strong growth prospects and healthy balance sheet.

Muhibbah Engineering Bhd

Target price: RM1.34 ADD

CGS INTERNATIONAL (SEPT 17): The key takeaway from a recent meeting with Muhibbah’s (KL:MUHIBAH) management is possible large lumpy wins after a lull. Muhibbah’s order book (construction and cranes) remains resilient, at RM1.6 billion as at August 2024, albeit down from its recent November 2023 peak of RM2.4 billion.

It has yet to win any material contracts this year but has submitted a large tender for an engineering, procurement, construction and commissioning (EPCC) role for the Land Lebah gas field. Given its prior experience with similar projects in Gansar, Bekok and Bindu in Terengganu, we see it as a frontrunner for this project. We are also encouraged that its construction earnings delivery has picked up strongly in 2Q24, driven mainly by its EPCC and installation role for the Gansar project for Petronas Carigali.

We like Muhibbah for its cheap valuation at FY25F PER of eight times (versus the sector’s 17 times) and for being a proxy for a recovery in tourist arrivals via Cambodia Airports, while its Petroliam Nasional Bhd fabrication licence should enable it to clinch more Petronas jobs, in our view. Key downside risks are non-continuity in earnings delivery and higher raw material costs.

PGF Capital Bhd

Target price: RM2.76 BUY

TA SECURITIES (SEPT 17): PGF (KL:PGF) has entered into a sales and purchase agreement to acquire 30 acres of freehold land in the Kulim East Industrial Park, Kedah. Under Phase 1, a new manufacturing plant will be built to increase the group’s total annual insulation production capacity by 160% or 40,000 tonnes. Phase 2 will add a further 20,000 tonnes and boost the total capacity to 85,000 tonnes.

The expansion of capacity by more than double is crucial to deal with the overwhelming demand. PGF’s existing capacity has been fully used up to meet buoyant sales to the Australian and New Zealand housing markets. As such, we are positive on this land purchase as it would not only resolve issues relating to capacity shortage, but also cater for future expansion. At RM40 million, or RM38 psf, the purchase consideration is relatively cheap if compared with other industrial land in Kulim East, where the average asking price is between RM48 and RM60 psf.

PGF has net cash of RM9.6 million as at May 31, showing ample debt headroom to finance the entire capital expenditure requirement. We make no change to our FY25/FY26 profit projections, and maintain our “buy” call and target price.

SMRT Holdings Bhd 

Target price: RM2.28 BUY

HONG LEONG INVESTMENT BANK RESEARCH (SEPT 17): SMRT (KL:SMRT) concluded the financial year ended June 30, 2024 (FY24) on a high note, with managed site additions exceeding our expectations. Looking ahead to FY25, we expect strong site deployments to continue, supported by a robust pipeline from Pito AxM Platform Inc (PAPI), Tenaga Nasional Bhd (KL:TENAGA) and potential contributions from PT Perusahaan Listrik Negara (PLN) in Indonesia.

In particular, the upcoming Regulatory Period 4 (covering 2025-2027) is likely to drive higher deployments from Tenaga, bolstered by increased approved capital expenditure. We also anticipate strong deployment in both Indonesia and the Philippines, driven by PLN and PAPI respectively. We expect the group’s site deployment to chalk a linear growth in the next two quarters and thus stronger q-o-q earnings on the back of seasonally higher site deployment from the utilities companies.

Maintain “buy” with an unchanged target price, as we ascribe a PER of 30 times for SMRT pegged to FY26 earnings. Considering the substantial earnings potential from the utilities and financial services sectors and the growing recurring earnings base, we find SMRT’s FY26 forward PER of 14.9 times undemanding, making for a compelling [investment] case.

 

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