Stocks in Focus on September 23, 2019: ERW and AMANAH

Kaohoon Online has selected two stocks with a potential of high growth for investors to consider on September 23, 2019.

KSS – ERW

Krungsri Securities (KSS) expects The Erawan Group Public Company Limited (ERW) to deliver 20% p.a. earnings growth (CAGR) in 2020-21F, driven by an expanding hotel room portfolio, rebound in RevPar led by recovering tourist arrivals and asset-enhancement strategy, and higher profitability with improving economies of scale in both Thailand and the Philippines.

KSS forecasts revenue to grow at only 8.8% p.a. CAGR. However, improving economies of scale with an increasing number of rooms (+7.2% p.a. CAGR in 2020-21F) and rebound in RevPar will boost margins, and in turn, net profit.

Thus, KSS rates ERW a BUY with a TP of Bt7.2. The stock is currently trading at 12.8x fwd EV/EBITDA, slightly below its 5-year average historical multiple and our target of 13.7x FY20F fwd EV/EBITDA.

 

KTBST – AMANAH

KTB Securities (Thailand) (KTBST) reiterates BUY rating on Amanah Leasing Public Company Limited (AMANAH), and raises the target price to Bt3.60 from Bt3.20 and also rerate 2020 PBV from 2.0x to 2.2x, which is +2.5 SD above 3-yr average PBV, to reflect our upward revision in an earnings forecast.

KTBST raises 2019E/20E net profit forecast by 3-5% to Bt238mn (+45% YoY) /Bt290mn (+22% YoY) as KTBST cuts 1) NPL ratio assumptions to 6.3%/6.5%, 2) credit cost estimates to 250-260 bps, and 3) cost to income ratio to 41.8%/40.7% in view of rising loan and a decrease in repossession loss, as a result of AMANAN’s effective policy related to vehicle repossession, instead of loan composition.

AMANAH’s shares will likely continue to advance further following a sharp gain of 79% over the past six months, as the stock was added to FTSE Micro Cap on Friday, Sept. 23, and 2) earnings are expected to grow further in the wake of aggressive lending strategy after Mr. Rathian Srimongkhol took the reign of Islamic Bank of Thailand (IBank) and its repossession policy, instead of loan composition, which results in LGD/provision expense declining. As such, there is scope AMANAH may reverse its excess reserves to revenue.

3Q19E net profit to grow further. KTBST forecasts 3Q19E net profit of Bt65mn, up +66% YoY, +8% QoQ, as 1) loan would grow +12% YoY, +7% QoQ with the new loan account value of Bt356mn (loan accounts of Bt313mn in July-August and pending accounts of Bt43mn to be recorded in September), compared to Bt348mn in 2Q19; 2) loan yield would improve to 19% along with rising used car ATM lending, and 3) provision expense would decline -20% YoY along with lower NPL ratio of 6.4% (7.8% in 3Q18, 6.5% in 2Q19).

Key driver to loan growth largely contributes to the company’s aggressive lending strategy, in terms of an increase in both LTV to 100% from 80% for its clean-list customers and sales representatives, also known as Amanah Express.