It said the Sarawak stocks included Hock Seng Lee Bhd (HSL), KKB Engineering Bhd, Sarawak Cable Bhd (SCable), Jaya Tiasa Holdings, Ta Ann, and Cahya Mata Sarawak Bhd.
“HSL has fallen about 10% from RM2 per share a month ago. We believe HSL deserves a higher valuation, following its securing of two major contracts over the last month.
“They are the RM750mil second package Kuching central wastewater project (75% stake: RM563mil) and the RM1.7bil Package 7 of the Pan Borneo Highway (70%: RM1,200mil). The primary question now is whether it can deliver the result,” AmInvestment said in a report.
It added that HSL was now currently trading at 11,3 times its FY16 forecast earnings per share (EPS) estimate. Its mean price-earnings (PE) ratio for the past three years is 12.5 times.
AmInvestment has a “buy” call on HSL with a target price of RM2.80 tagging it at 16.4 times FY16F (14 times FY17F and 11.9 times FY18x).
It said timber stocks Ta Ann and Jaya Tiasa have fallen about 6% and 10%, respectively, over the past one month. While it has partly to do with declining log prices from a high of US$270/cu m last year, “investors also feared an election result that could jeopardise their timber concessions”.
“All of their timber concessions have expired and are being extended annually, pending the state’s decision on longer term plan to grant the timber players a longer concession period of 60 years.
“Though the degree of decline of log prices is still not clear ahead of the companies’ result announcement this month, it could be over 20% from last year’s high, with the prices now averaging about US$220-225 per cu m,” it said.
Ta Ann has said it had already anticipated log prices to moderate in the beginning of the year but expected it to trend higher in the following months. Jaya Tiasa’s log prices are lower as a portion of its logs is sold in the domestic market.
“We maintain ‘hold’ on Ta Ann, with a fair value of RM5.28 per share. A 1-for-5 bonus issue is pending. Jaya Tiasa is still a ‘buy’, with a fair value of RM2.18 per share, as we continue to expect its FFB yield to recover, which will have a significantly impact on its palm oil division,” AmInvestment said.
On KKB, AmInvestment said its price had held steady, down 3% from a month high of RM1.68 per share on 22 April. It maintained a “buy”, with a fair value of RM2 per share.
It said KKB prospects remained promising with a package of the Pan Borneo Highway still within sight although it had expected KKB’s 1HFY16 results to be poor – given the lack of conventional job awards five months into 2016.
“As we have also previously noted, KKB stands also good chance in securing jobs to supply steel products for the massive highway project in the form of water pipes, steel poles, guardrails, and bridge steel beams and piles.
“Its 43% directly-owned associate Oceanmight, a Petronas-licensed fabricator, is in the midst of undertaking a major fabrication of a wellhead platform for Talisman Malaysia. We believe there are more fabrication jobs ahead for Oceanmight,” AmInvestment said.
For the other Sarawak stock under its coverage, SCable, the share price has declined by around 9% over the past month. It has puts a fair value of RM2.20 per share on the stock, with a “buy” call.
“We like SCable as a leading integrated power transmission line player in the region. SCable has an outstanding order book of RM1bil. It is looking to secure projects such as the Murum-Samalaju 275kV backup line (RM300mil), 500kV Sarawak backbone line, and TNB’s 500kV line worth RM98mil. Its 11MW mini hydro plant is slated for COF next month and will provide steady recurring income to the group,” it said, adding that SCable was also targeting to supply guardrails and lamp posts for the Pan Borneo highway project.