Dagang NeXchange Bhd
Target price: RM1.70 TO ADD
CGS-CIMB RESEARCH (MAY 31): We attended DNeX’s virtual briefing on its post-3QFY22 results on May 30 hosted by the Group’s Managing Director, Tan Sri Syed Zainal Abidin. We have learned from management that DNeX is approaching a site location decision for its new 300mm wafer manufacturing joint venture (JV) with Hon Hai Precision Industry (Foxconn) in Malaysia.
DNeX aims to finalize the location of the site and enter into a definitive agreement with Foxconn in 3QCY22. In the meantime, DNeX is in talks with potential investors interested in financing the project. We estimate that the construction of the new 300mm wafer fab could cost over US$4 billion (RM17.6 billion).
The group is also seeking government incentives in the form of financial aid and tax breaks to fund the project. In addition, DNeX is looking to leverage its relationship with Belgium-based technology service provider and customer, Imec, to help develop and transfer technology on 28-40 nm process nodes.
The group highlighted that SilTerra’s Fab 1E expansion is on track to go live at the start of CY23. Fab 1E will increase SilTerra’s installed capacity by 10%. This will allow the group to increase its exposure to emerging technologies, such as silicon photonics and microelectromechanical systems, which command a higher average selling price (ASP) and better margins. Meanwhile, Ping Petroleum’s production volume fell 16.7% quarter-on-quarter, mainly due to swivel leaks. Ping has a scheduled shutdown from mid-June to complete a riser recovery plan for its debottlenecking exercise. DNeX expects this to help improve Ping’s production volume from FY23.
DNeX is trading at an attractive PER of 11.4 times CY23, a 47%-62% discount to the five-year average PER of Malaysia’s Outsourced Semiconductor Assembly and Testing (OSAT) and automated test equipment (ATE). Potential catalysts for revaluation are stronger earnings over the next few quarters, an increase in institutional fund holdings (20% at the end of March 2022), a reduction in the discount to the Malaysian sectors of ATE and OSAT, as well as higher crude oil prices. Downside risks include weakening sentiment in the global tech sector, delays to SilTerra’s new capacity expansion and Ping’s capital expenditure program, as well as lower crude oil prices.
Alliance Bank Malaysia Bhd
Target price: RM4.20 TO BUY
TA TITLES (JUNE 1): Incorporating FY22 results, we adjust our FY23/24 net profit estimates to RM665.9/722.9m from RM661.8/715.9m, respectively. We expect FY25 net profit to increase by around 10% to RM797.5 million.
Appearing more optimistic with the recovery in economic activity, management noted good progress in acquiring new banking customers (FY22: +46% YoY). FY23 strategic priorities include increasing new customer acquisition in the bank by 40% (or more than 80,000 customers), deepening customer engagement by creating business owners with both personal and professional relationships, and improving efficiency through branch transformation through digital enhancement. customer adoption.
To improve earnings in FY23, management expects a stable net interest margin of approximately 2.5% (FY22: 2.53%) and a lower cost of credit assumption of 40 to 45 basis points (EX22: 48.1 bps). In the meantime, management continues to expect better year-over-year loan growth of 4% to 8% from 4.6% in FY22.
We maintain ABMB’s target price at RM4.20. Our valuation is based on an implied P/BV of approximately 1.01 times based on Gordon’s growth model. With that, we reiterate our “buy” recommendation on ABMB.
Press Metal Aluminum Holdings Bhd
Target price: RM6.68 SURPASS
RESEARCH KENANGA (31 MAY): Q1 FY22 core profit climbed 49% quarter-on-quarter to RM424.5m from RM284.8m as revenue jumped 16% to 3.92 RM billion due to higher aluminum prices coupled with 3% production growth. The average aluminum spot price on the London Metal Exchange (LME) jumped 18% to $3,261 per tonne in 1Q22 from $2,754 per tonne in 4Q22. However, the raw materials alumina and carbon anode saw their prices fall by 5% and 1%, respectively, during the quarter. Logistics costs remained high, as in the previous quarter. Overall operating margin improved to 16% from 11%.
Meanwhile, associates’ profit share increased slightly by 2% to RM52.2 million, with profits at PMB Technology Bhd and PT Bintan Alumina Indonesia remaining strong.
Despite falling estimates and valuation, we still like the stock given its earnings outlook. Thus, we continue to rate the stock as an “outperformer” but with a lower target price of RM6.68. The main risks associated with our recommendation are sharp declines in aluminum prices, an escalation in commodity prices, as well as major plant disruptions or closures.
OCK Group Bhd
Target price: 56 senses TO BUY
RHB INVESTMENT BANK (31 MAY): OCK’s outstanding backlog hits a high of over RM280 million. After multi-year declines, we expect its contract revenue to rebound in FY22 thanks to aggressive expansion of fourth-generation (4G) sites under Jalinan Digital Negara (Jendela), service recovery projects universal by telecom operators, as well as the lumpy wireless broadband access contract worth RM115 million signed with Numix Engineering Sdn Bhd.
The group is well positioned to capture new 5G sites to be deployed by Digital Nasional Bhd (DNB), which aims to cover around 38% of populated areas by the end of the year. OCK is also tendering for Phase 2 of the RM4 billion Fiber Point of Presence project, which is expected to further boost the project’s revenue going forward if secured.
Rental revenue from regional sites (including Malaysia) increased 7% quarter-on-quarter in 1Q2022, with a stronger contribution from Myanmar. We assume that OCK has acquired 237 sites in Vietnam year-to-date, with a total target of 800 new sites by the end of FY22. In Myanmar, it continues to fulfill outstanding orders from Mytel for 150 custom sites.