Stock Name: PBA
Company Name: PBA HOLDINGS BHD
Research House: OSK
PBA Holdings Bhd
(May 24, RM 1.03)
Maintain buy at RM1 with higher revised fair value of RM1.35 (from RM1.22): PBA's 1QFY11 earnings beat our estimates with profit accounting for a third of our full-year forecast. ''
Higher earnings in this case are driven mainly by higher water tariffs chargeable to trade consumers coupled with the increase of registered trade consumers on a year-on-year (y-o-y) basis.
We are raising our profit estimates to account for the higher earnings base and we also raise our fair value for the stock to RM1.35 from RM1.22 previously.
PBA's profit in 1QFY11 accounted for 34% of our full-year forecast, on the back of higher water tariff rates chargeable to trade consumers (+27% since last November) and a water conservation surcharge (24 sen per cu m for consumption exceeding 35 cu m per month) to households.
Revenue in 1QFY11 reached a record high at RM56.3 million (+15.3% y-o-y; +11.8% quarter-on-quarter) with net profit at RM11.1m (+105% y-o-y; +26% q-o-q). Keeping its operating costs at bay, the higher tariff rates also translated into direct bottom line gains which lifted its net profit margins to 19.7% versus a year ago at 11%.
With a water tariff hike increase of 27% chargeable to trade consumers, better earnings are expected to flow in for PBA this year. On a y-o-y comparison, registered trade consumers (for water services) increased by 11% from 2010 to 2009.
Since Penang has been lauded as the state with the highest foreign direct investment (FDI) at 36% of total national FDI in 2010, we reckon the state's outperformance will continue to attract more businesses and further increase the number of registered trade consumers for PBA.
While household consumers in the long run should cut their water consumption, we believe the increase in trade consumption revenue will far offset the household decline given higher tariff rates. We expect trade consumption to be inelastic despite higher tariff charges as water costs often account for less than 5% of the operating cost structure of the typical business operation in Penang.
As at 2010, trade consumption and domestic household water consumption were at a 50:50 ratio.
We increase our profit estimates for PBA by 38% upon raising our consumption forecast from a decline of 4% to an increase of 2%.
We also project revenue to increase by 19% y-o-y from an increase of 9.2% previously. Premised on higher profit, we reckon PBA could be more generous in its dividend payout and hence raise our forecast to five sen per share for FY11 from four sen per share.
Our dividend estimate is premised on a payout ratio of 36.7%, ranging close to its previous year's 38%. On higher earnings forecast, we raise our discounted cash flow fair value for PBA to RM1.35 from RM1.22 previously. We reiterate our 'buy' recommendation for the little followed stock. ' OSK Research, May 24
This article appeared in The Edge Financial Daily, May 25, 2011.
Company Name: PBA HOLDINGS BHD
Research House: OSK
PBA Holdings Bhd
(May 24, RM 1.03)
Maintain buy at RM1 with higher revised fair value of RM1.35 (from RM1.22): PBA's 1QFY11 earnings beat our estimates with profit accounting for a third of our full-year forecast. ''
Higher earnings in this case are driven mainly by higher water tariffs chargeable to trade consumers coupled with the increase of registered trade consumers on a year-on-year (y-o-y) basis.
We are raising our profit estimates to account for the higher earnings base and we also raise our fair value for the stock to RM1.35 from RM1.22 previously.
PBA's profit in 1QFY11 accounted for 34% of our full-year forecast, on the back of higher water tariff rates chargeable to trade consumers (+27% since last November) and a water conservation surcharge (24 sen per cu m for consumption exceeding 35 cu m per month) to households.
Revenue in 1QFY11 reached a record high at RM56.3 million (+15.3% y-o-y; +11.8% quarter-on-quarter) with net profit at RM11.1m (+105% y-o-y; +26% q-o-q). Keeping its operating costs at bay, the higher tariff rates also translated into direct bottom line gains which lifted its net profit margins to 19.7% versus a year ago at 11%.
With a water tariff hike increase of 27% chargeable to trade consumers, better earnings are expected to flow in for PBA this year. On a y-o-y comparison, registered trade consumers (for water services) increased by 11% from 2010 to 2009.
Since Penang has been lauded as the state with the highest foreign direct investment (FDI) at 36% of total national FDI in 2010, we reckon the state's outperformance will continue to attract more businesses and further increase the number of registered trade consumers for PBA.
While household consumers in the long run should cut their water consumption, we believe the increase in trade consumption revenue will far offset the household decline given higher tariff rates. We expect trade consumption to be inelastic despite higher tariff charges as water costs often account for less than 5% of the operating cost structure of the typical business operation in Penang.
As at 2010, trade consumption and domestic household water consumption were at a 50:50 ratio.
We increase our profit estimates for PBA by 38% upon raising our consumption forecast from a decline of 4% to an increase of 2%.
We also project revenue to increase by 19% y-o-y from an increase of 9.2% previously. Premised on higher profit, we reckon PBA could be more generous in its dividend payout and hence raise our forecast to five sen per share for FY11 from four sen per share.
Our dividend estimate is premised on a payout ratio of 36.7%, ranging close to its previous year's 38%. On higher earnings forecast, we raise our discounted cash flow fair value for PBA to RM1.35 from RM1.22 previously. We reiterate our 'buy' recommendation for the little followed stock. ' OSK Research, May 24
This article appeared in The Edge Financial Daily, May 25, 2011.
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