MERCURY SECURITIES
SDN BHD (113193-W)
(A Participating Organisation of Bursa Malaysia
Securities Berhad)
16 December 2015
RESULTS REPORTS
Handal Resources
Berhad
Market Price:
RM0.355
Market Capitalisation:
RM56.8mil
Board:
Main Market
Recommendation:
HOLD
Sector:
Trading / Services
Target Price:
RM0.31
Stock Code/Name:
7253 / HANDAL
Key Stock Statistics
2015E
Earnings/Share (sen)
P/E Ratio (x)
Dividend/Share (sen)
NTA/Share (RM)
Book Value/Share (RM)
Issued Capital (mil shares)
52-weeks Low (RM)
52-weeks High (RM)
3.84
8.59
0.0
0.63
0.71
160.0
0.30
0.55
Major Shareholders:
.Dato' Mohsin Abdul Halim
.Zahari bin Hamzah
.Joel Emanuel Heaney
.Mallek Rizal bin Mohsin
.
% (est)
15.8
9.5
6.4
5.4
PERFORMANCE – 3Q/FY15
3Q / 30 Sept
Rev (RMm)
EBIT (RMm)
NPAT^(RMm)
EPS (sen)
3Q15
3Q14
yoy %
2Q15
qoq%
22.9
1.7
0.0
0.0
25.7
4.5
2.4
1.5
(10.7)
(60.9)
(98.2)
(98.0)
30.4
4.5
2.5
1.6
(24.7)
(61.3)
(98.3)
(98.1)
^NPATMI
“Q3 – Quarterly Revenue below expectation and
profit barely breakeven”
P&L Analysis (RM mil)
2012
2013
2014
2015E
Year end: Dec 31
Revenue
Operating Profit
Depreciation
Interest Expenses
Profit before Tax (PBT)
Effective Tax Rate (%)
Net Profit after Tax & MI
Operating Margin (%)
PBT Margin (%)
NPATMI Margin (%)
97.6
5.8
-3
-1.7
4.2
29.5
3
6
4.3
3.1
99.9
9.2
-3
-2.7
6.5
68.5
2.1
9.2
6.5
2.1
119.7
14.3
-3.6
-2.5
11.8
46.4
6.4
11.9
9.8
5.3
113.2
16.3
-3.6
-2.5
10.2
40
6.1
12.1
7.7
4.5
Ratios Analysis
2012
2013
2014
2015E
Book Value/Share (RM)
Earnings/Share (sen)
Dividend/Share (sen)
Div. Payout Ratio (%)
P/E Ratio (x)
P/Book Value (x)
Dividend Yield (%)
ROE (%)
Net Gearing (or Cash)(x)
0.62
1.90
2.00
105.9
26.0
0.8
4.1
3.1
0.1
0.63
1.30
0.00
0.0
37.9
0.8
0.0
2.1
0.2
0.67
4.00
0.00
0.0
15.1
0.6
0.0
6.0
0.6
0.71
3.84
0.00
0.0
8.6
0.5
0.0
5.4
0.6
We maintain our Hold Call with a target price of
RM0.31. Handal’s 3Q15 revenue fell to RM22.9mil,
down 10.7% from RM25.7mil due to the
challenging market conditions and disposal of its
“Supply of Telecommunication & Broadcasting
System” business while its profit barely break even,
compared to the RM2.4mil recorded in same period
last year, due to the provision for impairment losses
in a project amounting to RM2.5mil.
“Integrated Crane Services (ICS) revenue fell
while GP improved”
ICS being the key revenue contributor fell to
RM16.9mil from RM18.5mil while gross profit
margin improved marginally to 47% from 46% due
to an increase in operational efficiency.
Cranes Fabrication business segment (revenue
recognized based on percentage of completion
method) booked RM2.49mil sales compared to
RM1.17mil in same quarter last year, resulting in
an improved gross profit margin (3Q15:66% vs
3Q14:57%).
All information, views and advice are given in good faith but without legal responsibility. Mercury Securities Sdn. Bhd. or companies or individuals connected with it may have used research
material before publication and may have positions in or may be materially interested in any stocks in the markets mentioned.
This report has been prepared by Mercury Securities Sdn Bhd for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by Bursa Malaysia Berhad and has been compensated to
undertake the scheme. Mercury Securities Sdn Bhd has produced this report independent of any influence from CBRS or the subject company. For more information about CBRS and other
research reports, please visit Bursa Malaysia’s website at: http://www.bursamalaysia.com/market/listed-companies/research-repository/research-reports/
Page | 1
MERCURY SECURITIES SDN BHD
(113193-W)
(A Participating Organisation of Bursa Malaysia Securities Berhad)
Supply, fabrication & Servicing industrial
equipment & tank’s revenue decreased from
RM1.88mil to RM1.64mil with lower gross profit
margin of 9% compared to 24%.
On 14th December 2015, the group announced
that its wholly-owned Handal Engineering Sdn
Bhd has entered into a Heads of Agreement
(HOA) with Perbadanan Menteri Besar Kelantan
and Tirai Dimensi Sdn Bhd, for the purpose of
undertaking the development and implementation
of a tank farming project in Kelantan. The HOA
has a validity period of 1 year.
OUTLOOK/CORP. UPDATES
VALUATION/CONCLUSION
Workover Project Business segment revenue had
reduced from RM2.49mil to RM1.79mil due to a
decrease in business activity.
Handal’s management expect market conditions to
be challenging for the current financial year amidst
the current depressed crude oil price. However,
they are in the opinion that the Group is able to
sustain its performance in view of the nature of
business activities in a niche market as well as its
existing long term contracts.
“WTI crude oil futures – now below US$40”
The oil price outlook remain sober amid the threat
of a prolonged oversupply situation, therefore more
cost cutting and capex delay by Oil Majors remain
to be seen. As such, we remain cautious on Handal
and expect its earning to face negative impact from
those capex cuts. However its long-term
maintenance service contracts and healthy balance
sheet and cash flow shall be able to sustain the
Group to ride out the storm.
“Corporate news and developments”
Handal’s order book is about RM290mil currently
which it expects to last until 2018.
On 6th Nov15, Handal’s subsidiary Handrill Sdn
Bhd and Nabors Drilling International Ltd, a
subsidiary of New York-listed Nabor Industries Ltd
agreed to explore cooperating in developing new
business opportunities in Malaysia’s oil and gas rig
sector. Under the MoU, both firms would jointly
strive to secure new businesses comprising
workover projects, fabrication of offshore pedestal
cranes and related overhaul and maintenance
services as well as offshore crane rentals.
Handal (+4.4% YTD) has outperformed the
KLCI (-7.2% YTD) in 2015. Handal’s stock price
has been trading in the range of RM0.265RM0.395 and hover around moving average of
RM0.360. Since oil peaked in Jun 2014, the
sentiments have been dampened and remain
bearish and Handal relatively smaller market-cap
and thin trading volume put further pressure on
its market visibility compared to its peers.
“Maintain Hold Call”
We maintain our Hold recommendation with FYend Target Price (TP) of RM0.31 based on
estimated P/E of 8.0 times of Handal’s FY15
earnings/share which reflects a P/BV of 0.50
times of its FY15 F NTA/Share. The main risk
factors for Handal is further delays in E&P capital
expenditure by oil majors (such as Petronas), slow
implementation pace of major Oil/Gas/Energy
EPPs, higher steel costs for crane fabrication,
foreign exchange fluctuations and also stiff
competition with major international rival O&G
companies.
1-YEAR HISTORICAL SHARE PRICE
Source: Bloomberg
All information, views and advice are given in good faith but without legal responsibility. Mercury Securities Sdn. Bhd. or companies or individuals connected with it may have used research
material before publication and may have positions in or may be materially interested in any stocks in the markets mentioned.
This report has been prepared by Mercury Securities Sdn Bhd for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by Bursa Malaysia Berhad and has been compensated to
undertake the scheme. Mercury Securities Sdn Bhd has produced this report independent of any influence from CBRS or the subject company. For more information about CBRS and other
research reports, please visit Bursa Malaysia’s website at: http://www.bursamalaysia.com/market/listed-companies/research-repository/research-reports/
Page | 2