Ta Ann Holdings Bhd
Target price: RM6.14 TO BUY
MIDF RESEARCH (MAY 24): Ta Ann reported sales of RM487.7 million in 1Q22, mainly due to the remarkable performance of oil palm and timber products, as the company managed to achieve average selling prices ( ASP) higher for crude palm oil (CPO), fresh fruit bunches (FFB) and plywood products. With the recognized higher ASPs and improved demand, the PBT and normalized profit reached RM114.8 million and RM74.4 million respectively. Overall, normalized earnings beat our expectations, but within consensus, at 40% and 23% of full-year guidance respectively.
Oil Palm’s contribution remained strong in 1Q22, with revenue growing 43.7% YoY to RM389.5m driven by higher ASPs from CPO (up 50%) and FFB (up 61%) achieved. As a result, PBT posted a strong gain of RM92.4 million, a year-on-year increase of 115.3% despite lower sales volume recorded due to the poor harvest season during the quarter.
Timber segment revenue jumped 41.4% year-on-year to RM98.2 million due to strong demand for plywood products on improved economic activities. We believe that the contribution of this segment will continue to be promising, thanks to an economic recovery in most countries.
A second 10-sen interim DPS was declared in May and will be kicked out on June 3. In 1Q22, a first interim DPS of 5 sen was paid.
We are maintaining our revenue and earnings estimates for FY22-23 at this stage, which are being revised for an imminent upgrade (pending a revision to our average CPO target prices for current years and coming). We believe that its plantation segment will continue to harvest higher CPO production in line with seasonal months and benefit from high CPO prices. We believe palm oil demand will remain high due to uncertainties related to a limited supply of oil substitutes and a protracted war between Russia and Ukraine.
We maintain our “buy” recommendation on the stock. Our target price of RM6.14 is based on an unchanged PER of 14.8x pegged to FY22F EPS of 41.5 sen.
Income Group Bhd
Target price: RM1.58 TO BUY
MAYBANK INVESTMENT BANK RESEARCH (MAY 24): The group reported a 21% year-on-year decline in sales due to lower terminal sales, but higher transaction processing value (TPV) led to an increase in the processing segment’s sales mix electronic transactions (ETP), resulting in a higher Ebit margin of 32.6%. Despite lower sales and a 31% increase in the effective tax rate, 3QFY22 profits were up 25% year-on-year. For 9MFY22, earnings were up 29% and were 87% of our full year guidance. We believe this is above expectations, given a potentially stronger quarter ahead due to higher demand during the holiday season.
3QFY22 revenue was down 21% year-on-year due to a 58% decline in the electronic data capture (EDC) terminal segment as the group saw lower device sales and rental fees during the quarter. This was partially cushioned by ETP segment revenue, which grew 146% year-over-year on higher TPV, driven by online channels. ETP’s sales mix improved to 47% in 3Q22, leading to higher margins for the quarter.
We expect the strong momentum to continue in 4QFY22 due to high holiday season demand. We are increasing FY22E EPS by 8% to reflect the latest execution rate, but are keeping our FY23-24E EPS as we believe consumer spending may weaken due to rising interest rates and the inflationary environment general, which could hamper the long-term growth rate of TPV.
Leong Hup International Bhd
Just value: 50 senses HOLD
INVESTMENT BOARD (25 MAY): Leong Hup’s 1QFY21 base net profit of RM20 million was 13% of our FY22F profit forecast and 12% of consensus. The variance was primarily attributed to a lower than expected operating margin due to high feed costs. This is despite the group recording a higher turnover of RM2.09 billion.
Yoy, all of its overseas operations saw improved sales, contributing to a 25% increase in group revenue. Despite higher sales, livestock segment EBITDA plunged 63% YoY, dragged down by high input costs
Despite positive signs of a sales recovery based on the return of demand from hotels, restaurants and cafes as the economy reopens, we believe high input costs are likely to limit Leong Hup’s earnings recovery potential. . Meanwhile, the government’s decision to ban the export of chickens from June 1 could negatively affect its operation in Singapore, which sources chickens from farms in Malaysia.
The main catalysts for the revaluation are the expansion of its downstream business-to-consumer channel to its overseas operations and the normalization of commodity prices.
SP Setia Bhd
Target price: RM1.83 TO ADD
CGS-CIMB RESEARCH (MAY 23): SP Setia’s 1Q22 core net loss of RM12m was lower than our full year net profit guidance of RM371m. The underperformance was due to lower than expected margins resulting from rising commodity prices and labor shortages. The basic net loss was primarily driven down by (1) lower revenues, due to project timing and slower site progress due to labor shortages, and (2 ) a lower gross margin, due to higher raw material prices.
1Q22 new property sales declined to RM679 million due to the absence of the 2022 home ownership drive. 1Q22 new property sales accounted for 17% of its sales target for the fiscal year 22F of RM4 billion. By the end of 1Q22, the group had secured RM655 million in bookings, which should soon be converted into new sales. The group launched residential and commercial projects worth up to RM505 million in gross development value in 1Q22. Total uninvoiced sales stood at RM9.8 billion at the end of March.
Management said construction costs would increase by 10% to 15% due to higher construction material prices, but the group is reducing overall costs through cost-cutting efforts to maintain its gross profit margin between 20% and 25%. We have reduced our FY22-24F EPS estimates by 8% to 24% to reflect higher costs and the change in project development schedule. We expect stronger earnings in 2H22F to be supported by the completion and delivery of overseas projects.