Unisem - Outstanding quarter
Unisem’s 9M14 core net profit beat expectations, forming 105% of our and 91% of consensus full-year estimates. 3Q14 core net profit jumped to RM27.1m, the highest in 15 quarters, driven by stronger sales volume of higher-margin packages such as wafer-level CSP (WLCSP) and bumping. We raise our FY14-16 EPS by 7-54%, and maintain our Add rating with a higher target price of RM2.25, based on 16.7x CY16 P/E, 1 s.d. below its historical mean of 19x. There were no surprises from Unisem’s analyst briefing. However, we were encouraged to learn that the company plans to pare down its borrowings completely by FY15, and it expects to reward its shareholders with higher dividends as it progressively returns to profitability.
Pavilion REIT - A positive 3Q14 for Pavilion
Pavilion REIT's (Pavilion) 3Q14 core net profit of RM63m brought its 9M14 number to RM175.3m, which is above expectations at 79% of our full-year forecast, and 80% of the consensus figure. Net property income (NPI) grew by 16.3% yoy, underpinned by an 8.8% revenue growth and lower property expenses. We raise our FY14-16earnings forecast by 4-4.1% p.a. resulting in a higher DDM-based target price of RM1.50 vs. RM1.45 previously. Despite the positive results, we maintain our Hold call on the stock as: 1) we see few rerating catalysts in the near-term, and 2) current dividend yields of 5.4-5.5% imply further yield compression will be limited, that would not augur well for the share price. We prefer Axis REIT in this space.
SMRT Holdings Bhd - Oh my English!
We believe that SMRT is the cheapest education stock on Bursa. With 80% recurring revenue and a projected 35-50% 3-year EPS CAGR, in turn supported by its medical university and English language teacher training contracts, this under-researched gem is poised for a re-rating. SMRT is trading at only 9-11x FY16 P/E. Assuming SMRT’s FY16 net profit to be around RM21m to RM27.5m (without Pro ELT and with Pro ELT) and pegging the value of the stock at 16x FY16 P/E (in line with the education sector), it could trade up to RM1.04-1.38, giving investors 40-86% upside. Potential re-rating catalysts are its transfer from the ACE market to the Main Board and award of the Pro ELT contract.
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