JF Apex Securities starts coverage on SCH Group, target 34 sen

by **Cals** Tue 14 Apr 2015, 19:02

JF Apex Securities starts coverage on SCH Group, target 34 sen

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By theedgemarkets.com / theedgemarkets.com | April 14, 2015 : 9:46 AM MYT

KUALA LUMPUR (April 14): [size=14]JF Apex Securities Research has initiated coverage on SCH Group Bhd, a quarry equipment and spare parts supplier, with a target price of 34 sen.

In a note today, JF Apex Securities said the under-researched counter deserves a re-rating given its strong fundamental, benefiting from a slew of infrastructure works (namely railway and highway projects to be kicked off locally) and its ambitious plan for regional expansion.

“We reckon that the group would benefit from the booming domestic construction sector as it is closely tied with the quarrying industry. Take off of several high profile and sizeable infrastructure works, namely railway (KVMRT 2, LRT 3 and proposed HSR), highway projects (WCE, EKVE, Pan-Borneo highway) and RAPID in Pengerang could benefit SCH significantly.

“Our study indicates that the group’s sales growth for the supply of spare parts segment is positively correlated to the GDP growth of the construction sector.

“Whilst sales growth for the supply of machineries segment is negatively correlated to the construction growth, we believe the inverse relationship is mainly due to capex spending on quarry machineries is traditionally ahead of the start of physical mining works to accommodate the demand of construction aggregate,” it said.

JF Apex Securities said while SCH does not maintain any dividend policy, it believes the group would still reward shareholders handsomely.

“We envisage SCH to declare 2 sen dividend each for FY2015F and FY2016F, which are higher than 1 sen paid out in FY2014.

“Thus, this will translate into decent dividend yield of 6.8%. Currently, the group is in net cash position,” it said.

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