Stock Name: SILKHLD
Company Name: SILK HOLDINGS BERHAD
Research House: MIDF
SILK Holdings Bhd
(March 24, 40.5 sen)
Maintain buy at 39 sen, with target price of 46 sen: SILK's net profit for the first half of financial year ending July 31, 2010 (1HFY10) is below forecast, accounting for 38.3% of our full-year estimate. The variance was due to lower-than-expected revenue in the highway division, where it accounts for 23.5% of our full-year revenue forecast. The oil and gas (O&G) division's revenue accounts for 49.8% of our full-year revenue forecast.
SILK's 1HFY10 net profit increased by 71.2% year-on-year (y-o-y) registering RM11.2 million with most of the contribution coming from the O&G division.
O&G is the new focus. O&G revenue was 29.9% higher y-o-y in 2QFY10 following the commissioning of three new vessels and gains from the disposal of a vessel. It now accounts for 81.4% of the group's total revenue, evident that O&G is becoming the new focus for the group as it continues securing new medium- and long-term contracts.
The highway division is improving as well. There were improvements in the highway division as revenue increased by 16.3% y-o-y in 2QFY10, to register RM10.7 million. It may be possible that the improvement was due to the school holidays in December as Kajang becomes a destination for its famous satay.
As for prospects, since oil is trading within the US$80 (RM265.60) levels, we expect that the O&G division will see further growth. We believe most of the demand will be fuelled by China and India as they continue to lead the economic recovery. Any collapse in the oil price which would affect SILK's offshore support vessels is mitigated as all of its vessels are on long-term contracts of between one and seven years.
We expect the highway division would continue its steady growth, although more to a natural growth as we do not see any major new township development happening in the area. The highway division would continue to register accounting losses but will be on a declining basis as support for the highway increases.
We maintain our buy recommendation with a target price of 46 sen as SILK's earnings prospects are fairly bright, driven by the expected growth in the O&G sector. Our valuation is based on sum of parts; with a discounted cash flow valuation for the highway subsidiary, using a WACC (weighted average cost of capital) of 4.38% and at 10 times price-earnings ratio (PER) of our projected FY11 on the O&G subsidiary. - MIDF Research, March 24
This article appeared in The Edge Financial Daily, March 25, 2010.
Company Name: SILK HOLDINGS BERHAD
Research House: MIDF
SILK Holdings Bhd
(March 24, 40.5 sen)
Maintain buy at 39 sen, with target price of 46 sen: SILK's net profit for the first half of financial year ending July 31, 2010 (1HFY10) is below forecast, accounting for 38.3% of our full-year estimate. The variance was due to lower-than-expected revenue in the highway division, where it accounts for 23.5% of our full-year revenue forecast. The oil and gas (O&G) division's revenue accounts for 49.8% of our full-year revenue forecast.
SILK's 1HFY10 net profit increased by 71.2% year-on-year (y-o-y) registering RM11.2 million with most of the contribution coming from the O&G division.
O&G is the new focus. O&G revenue was 29.9% higher y-o-y in 2QFY10 following the commissioning of three new vessels and gains from the disposal of a vessel. It now accounts for 81.4% of the group's total revenue, evident that O&G is becoming the new focus for the group as it continues securing new medium- and long-term contracts.
The highway division is improving as well. There were improvements in the highway division as revenue increased by 16.3% y-o-y in 2QFY10, to register RM10.7 million. It may be possible that the improvement was due to the school holidays in December as Kajang becomes a destination for its famous satay.
As for prospects, since oil is trading within the US$80 (RM265.60) levels, we expect that the O&G division will see further growth. We believe most of the demand will be fuelled by China and India as they continue to lead the economic recovery. Any collapse in the oil price which would affect SILK's offshore support vessels is mitigated as all of its vessels are on long-term contracts of between one and seven years.
We expect the highway division would continue its steady growth, although more to a natural growth as we do not see any major new township development happening in the area. The highway division would continue to register accounting losses but will be on a declining basis as support for the highway increases.
We maintain our buy recommendation with a target price of 46 sen as SILK's earnings prospects are fairly bright, driven by the expected growth in the O&G sector. Our valuation is based on sum of parts; with a discounted cash flow valuation for the highway subsidiary, using a WACC (weighted average cost of capital) of 4.38% and at 10 times price-earnings ratio (PER) of our projected FY11 on the O&G subsidiary. - MIDF Research, March 24
This article appeared in The Edge Financial Daily, March 25, 2010.
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