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Stocks In Focus MY (Caring, IFCA MSC, Muhibbah Engrg) – 05/02/15
Malaysia Daily Bulletin | 05 February 2015
By:

Caring’s Profit Margins Seen Under Pressure

  • Caring Pharmacy Group’s 1H15 results were below BIMB Securities’ estimates. Its year-on-year revenue grew by 5.4 percent due to contributions from the 12 outlets opened in 2H14 and four new outlets that opened in 1H15 while its year-on-year net profit rose to RM2.1 million, representing a 14.8 percent increase due to the presence of other income and lower taxation.
  • As at 30 November 2014, Caring has a total of 102 community pharmacies. Quarter-on-quarter, PBT rose from RM1.1 million to RM3 million in 2Q15 because of high advertising and promotional income generated by marketing and promotional activities. With the fierce market competition, Caring will be reviewing its marketing strategies.
  • However, the firm’s year-on-year profit before tax fell by 17.2 percent as a result of lower profit margins attributed to strong market competition. BIMB Securities expects its profit margins to be placed under pressure by the onset of the goods and services tax (GST) in April 2015 as well as flagging consumer sentiment, further squeezed by higher overheads.

Significance: The research house has downgraded the group’s rating to ‘Sell’ with target price of RM0.58. It has revised its FY15 and FY16 net earnings forecast from RM17.7 million and RM19.2 million, to RM8.4 million and RM10.5 million respectively after accounting for lower gross margins.

IFCA To Enjoy Short-Term Boost From GST Software Upgrades

  • This year, IFCA MSC is expected to receive a short-term boost from GST software upgrades. It estimates RM50 million to RM60 million in potential GST upgrading works, with an estimated RM15 million worth of works to be completed in 2014. Coupled with positive prospects in China and migration to a mobile-based platform, stronger top-line growth is projected.
  • With IFCA’s Chinese customers typically purchasing one software module at a time and it only having sold two to three modules out of the 13 it offers, not to mention the 46,000 property companies in China, of which currently only slightly over 100 are customers, the firm has huge potential in the Chinese market.
  • As for migration to mobile platforms, the group has roughly 1,400 customers in Malaysia at the moment. CIMB Research understands only around 50 companies have moved to its new mobile app-based platform. The group’s management is considering the possibility of “renting” its software online (using cloud) and setting its subscription on a monthly or annual basis. The migration to mobile platform is likely to continue making substantial contributions to the group’s growth.

Significance: CIMB Research has maintained its ‘Add’ rating on the stock, with at target price of RM1.48. Potential catalysts include strong earnings growth outlook, higher-than-expected China sales and its move to the Main Market Board this year. FY14 to FY16 earnings per share are raised by 16 percent and 46 percent to indicate the company’s stronger top-line growth.

Muhibbah Wins RM116m Contract

  • Muhibbah Engineering (M) has been awarded a US$32 million (RM116 million) contract by Spanish oil engineering company Tecnicas Reunidas to design and build temporary construction facilities and accommodation in Pengerang, Johor. According to the firm, the contract value does not include GST.
  • The group said that the contract was for Package III in the Refinery and Petrochemicals Integrated Development (Rapid) project of Petronas. It plans to start construction in 1Q15 and expects to finish it by 1Q16, with the contract expected to contribute positively to its earnings and net assets for the current and future financial years.
  • Despite a more than 40 percent tumble in the firm’s share price over the last six months in tandem with the fall in crude oil prices worldwide, CIMB Research noted that not only has its fundamentals not been affected by the oil price rout but also that its stock has displayed attractive value supported by Rapid and the project in Pengerang.

Significance: The research house has an ‘Outperform’ call on the group with a target price of RM3.40, underpinned by the potential for growth in its order book. Its target price compares well with the average target price of RM2.96 based on a Bloomberg poll.


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