Brokers Digest: Local Equities – Dagang NeXchange Bhd, Alliance Bank Malaysia Bhd, Press Metal Aluminium Holdings Bhd, OCK Group Bhd
Dagang NeXchange Bhd
Target price: RM1.70 ADD
CGS-CIMB RESEARCH (MAY 31): We attended DNeX’s virtual briefing on its post-3QFY22 results on May 30 hosted by group managing director, Tan Sri Syed Zainal Abidin. We gathered from management that DNeX is moving closer to a decision on the site location for its new 300mm wafers fabrication joint venture (JV) with Hon Hai Precision Industry (Foxconn) in Malaysia.
DNeX aims to finalise the site location and enter into a definitive agreement with Foxconn in 3QCY22. In the meantime, DNeX is in discussions with prospective investors interested in funding the project. We estimate that the new 300mm wafer fab may cost over US$4 billion (RM17.6 billion) to build.
The group is also looking to secure government incentives in the form of financial assistance 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 assist it in developing and carrying out technology transfer on 28-40nm process nodes.
The group highlighted that SilTerra’s Fab 1E expansion is on track to come online in early CY23. Fab 1E will raise SilTerra’s installed capacity by 10%. This will allow the group to increase its exposure in emerging technology, such as silicon photonics and microelectromechanical systems, which command 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 carry out a riser reinstatement plan for its debottlenecking exercise. DNeX expects this to help improve Ping’s production volume from FY23 onwards.
DNeX trades at an attractive 11.4 times CY23 PER, a 47%-62% discount to Malaysian outsourced semiconductor assembly and testing (OSAT) and automated test equipment (ATE) sectors’ five-year mean PER. Potential re-rating catalysts are stronger earnings in the coming quarters, an increase in institutional fund holdings (20% at end-March 2022), narrowing discount relative to Malaysian ATE and OSAT sectors, as well as higher crude oil prices. Downside risks include weakening sentiment in the global tech sector, delays in new capacity expansion at SilTerra and capital expenditure programme at Ping, as well as lower crude oil prices.
Alliance Bank Malaysia Bhd
Target price: RM4.20 BUY
TA SECURITIES (JUNE 1): Incorporating FY22 results, we adjust our FY23/24 net profit estimates to RM665.9/722.9 million from RM661.8/715.9 million, respectively. We forecast FY25 net profit to grow by around 10% to RM797.5 million.
Appearing more optimistic as economic activities pick up, management noted good progress in acquiring new-to-bank customers (FY22: +46% year on year). Strategic priorities in FY23 include further increasing new-to-bank customer acquisition by 40% (or more than 80,000 customers), deepening customer engagement by building business owners with dual personal and business relationships, and improving efficiencies via branch transformation through the improvement of digital customer adoption.
Guiding for better earnings in FY23, management foresees a stable net interest margin of around 2.5% (FY22: 2.53%) and a lower-the-credit-cost assumption of 40-45 basis points (FY22: 48.1bps). In the meantime, management continues to foresee better year-on-year loan growth of 4%-8% versus 4.6% in FY22.
We maintain ABMB’s target price at RM4.20. Our valuation is based on an implied P/BV of about 1.01 times based on the Gordon Growth Model. With that, we reiterate our “buy” recommendation on ABMB.
Press Metal Aluminium Holdings Bhd
Target price: RM6.68 OUTPERFORM
KENANGA RESEARCH (MAY 31): 1QFY22 core profit soared 49% quarter on quarter to RM424.5 million from RM284.8 million as revenue leapt 16% to RM3.92 billion on the back of rising aluminium prices, coupled with 3% production growth. The average London Metal Exchange (LME) aluminium spot price jumped 18% to US$3,261 per mt in 1QFY22 from US$2,754 per mt in 4QFY22. However, raw materials alumina and carbon anode saw declining prices by 5% and 1%, respectively, over the quarter. Logistics cost remained steep, similar to the preceding quarter. Overall, operating margin improved to 16% from 11%.
Meanwhile, share of associate profits inched up slightly by 2% to RM52.2 million as earnings from PMB Technology Bhd and PT Bintan Alumina Indonesia remained high.
Despite cutting estimates and valuation, we still like the stock given its earnings prospect. Thus, we continue to rate the stock an “outperform” but with a lower target price of RM6.68. Key risks to our recommendation are sharp falls in aluminium prices, an escalation of raw material prices, as well as major plant disruptions or closure.
OCK Group Bhd
Target price: 56 sen BUY
RHB INVESTMENT BANK (MAY 31): OCK’s outstanding contracting order book is at a high of more than RM280 million. After multi-year declines, we expect its contracting revenue to rebound in FY22 from aggressive fourth-generation (4G) site expansion under Jalinan Digital Negara (Jendela), the universal service provisioning clawback projects by the telcos, as well as the lumpy broadband wireless access contract worth RM115 million inked with Numix Engineering Sdn Bhd.
The group is well-positioned to capture new 5G sites to be deployed by Digital Nasional Bhd (DNB), which has a target to cover about 38% of populated areas by year end. OCK is also tendering for Phase 2 of the RM4 billion fibre point of presence project, which should further strengthen project revenues going forward if secured.
Regional site leasing revenues (including Malaysia) grew 7% quarter on quarter in 1Q2022, with a stronger contribution from Myanmar. We gather that OCK has acquired 237 sites in Vietnam year to date, with a total target of 800 new sites for end-FY22. In Myanmar, it continues to execute on the outstanding orders from Mytel for 150 built-to-suit sites.