Brokers Digest: Local Equities – Ta Ann Holdings Bhd, Revenue Group Bhd, Leong Hup International Bhd, S P Setia Bhd

Ta Ann Holdings Bhd

Target Price: RM6.14 BUY

MIDF RESEARCH (MAY 24): Ta Ann recorded a top line of RM487.7 million in 1Q22, mainly driven by the remarkable performance of oil palm and timber products, as the company managed to achieve higher average selling prices (ASPs) for crude palm oil (CPO), fresh fruit bunches (FFBs) and plywood products. Thanks to the higher ASPs recognised and improving demand, PBT and normalised earnings rose to RM114.8 million and RM74.4 million respectively. Overall, normalised earnings came in above our, but within consensus, expectations at 40% and 23% of full-year forecasts respectively.

Oil palm contribution remained solid in 1Q22, with revenue growing 43.7% year on year to RM389.5 million on higher ASPs of CPO (increasing 50%) and FFB (up 61%) realised. As a result, PBT showed a strong gain of RM92.4 million, a y-o-y increase of 115.3% despite lower sales volume registered due to low crop season during the quarter.

Revenue for the timber segment surged 41.4% y-o-y to RM98.2 million owing to strong demand for plywood products on improved economic activities. We reckon the contribution from this segment will continue to look promising, on the back of an economic recovery in most countries.

A second interim DPS of 10 sen was declared in May and will go ex on June 3. In 1Q22, a first interim DPS of 5 sen was paid out.

We are maintaining our FY22-23 revenue and earnings estimates at this juncture, which are under review for an imminent upgrade (pending a revision to our target average CPO prices for the current and forward years). We reckon its plantation segment will continue to reap higher CPO production in line with seasonal months as well as benefit from strong CPO prices. We believe the demand for palm oil will remain high due to the uncertainties of a tight supply of oil substitutes and a prolonged Russia-Ukraine war.

We are maintaining our “buy” recommendation on the stock. Our target price of RM6.14 is based on an unchanged PER of 14.8 times, pegged to an FY22F EPS of 41.5 sen.

Revenue Group Bhd

Target Price: RM1.58 BUY

MAYBANK INVESTMENT BANK RESEARCH (MAY 24): The group posted a 21% y-o-y decline in sales due to lower terminal sales, but the higher transaction processing value (TPV) has led to higher sales mix from the electronics transaction processing (ETP) segment, which led to a higher Ebit margin of 32.6%. Despite the lower sales and higher effective tax rate of 31%, 3QFY22 earnings were up 25% y-o-y. For 9MFY22, earnings were up 29% and made up 87% of our full-year forecast. We deem this to be above expectations, considering a potentially stronger quarter ahead due to higher demand during the festive season.

Revenue in 3QFY22 declined 21% y-o-y due to a 58% drop in the electronic data capture (EDC) terminals segment as the group recorded lower device sales and rental charges during the quarter. This was partially cushioned by revenue from the ETP segment, which was up 146% y-o-y on the back of higher TPV, driven by the online channels. Sales mix from ETP improved to 47% in 3QFY22, which led to margin accretion for the quarter.

We expect the strong momentum to remain going into 4QFY22 due to elevated demand related to the festive season. We raise FY22E EPS by 8% to reflect the latest run rate, but retain our FY23-24E EPS as we view consumer spending may soften due to rising interest rates and the general inflationary environment, which could impede the long-term TPV growth rate.

Leong Hup International Bhd

Fair Value: 50 sen HOLD

AMINVESTMENT BANK (MAY 25): Leong Hup’s 1QFY21 core net profit of RM20 million accounted for 13% of our and 12% of consensus’ FY22F earnings forecasts. The gap was mainly attributed to a weaker-than-expected operating margin due to high feed costs. This is despite the group reporting a stronger revenue of RM2.09 billion.

Y-o-y, all of its operations overseas reported an improvement in sales, contributing to a 25% increase in the group’s revenue. Notwithstanding the higher sales, the livestock segment’s Ebitda plunged 63% y-o-y, dragged down by elevated input costs

Despite positive signs of sales recovery premised on returning demand from hotels, restaurants and cafés as the economy reopens, we believe the elevated input costs are likely to cap Leong Hup’s earnings recovery potential. Meanwhile, the government’s decision to ban the export of chickens starting June 1 may negatively affect its Singapore operation, which sources chickens from farms in Malaysia.

Key rerating catalysts are the expansion of its downstream business-to-consumer channel to its operations overseas and the normalisation of raw material prices.

S P Setia Bhd

Target Price: RM1.83 ADD

CGS-CIMB RESEARCH (MAY 23): S P Setia’s 1Q22 core net loss of RM12 million was below our full-year net profit forecast of RM371 million. The underperformance was due to lower-than-expected margins, arising from higher raw material prices and labour shortage. The core net loss was mainly dragged down by (1) weaker revenue, due to project timing and slower site progress because of the labour shortage, and (2) weaker gross margin, owing to higher raw material prices.

1Q22 new property sales came in lower at RM679 million due to the absence of the Home Ownership Campaign in 2022. The 1Q22 new property sales represented 17% of its FY22F sales target of RM4 billion. As at end-1Q22, the group had secured RM655 million worth of bookings, which is likely to be converted into new sales soon. The group launched landed residential and commercial projects worth up to RM505 million in gross development value in 1Q22. Total unbilled sales stood at RM9.8 billion at end-March.

Management guided for construction costs to go up 10% to 15% due to rising building material prices, but the group is reducing overall costs through cost efficiency efforts to sustain its gross profit margin at 20% to 25%. We cut our FY22-24F EPS estimates by 8% to 24% to reflect the higher costs and change in project development timeline. We expect stronger 2H22F earnings to be supported by the completion and handover of overseas projects.


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