Highlights

AmInvest Research Reports

Author: AmInvest   |   Latest post: Fri, 4 Dec 2020, 10:14 AM

 

Boilermech - Receives take-over offer from QL at RM0.95/share

Author: AmInvest   |  Publish date: Fri, 4 Dec 2020, 10:14 AM


Investment Highlights

  • We believe that Boilermech’s shareholders should accept QL Resources’ take-over offer of RM0.95/share. Our fair value for Boilermech is RM0.67/share, which is based on a FY21F PE of 15x.
  • We reckon that there is limited upside to Boilermech’s share price as the group’s valuations are expensive.
  • Boilermech is currently trading at a FY21F PE of 21.2x and FY22F PE of 20.7x. In addition, the general offer (GO) price of RM0.95/share is close to Boilermech’s 52-week high of RM0.965/share.
  • QL said that it intends to maintain the listing status of Boilermech.
  • We believe that prospects for the palm boiler industry are unexciting. Capex for palm oil mills is expected to decline in the long term as plantation companies in Indonesia have been reducing their new plantings of oil palm.
  • Also, we reckon that plantation companies are deferring plans to build palm oil mills unless absolutely necessary. Although CPO prices are high currently, plantation companies are keeping capex low to conserve cash.
  • Although Boilermech bought a solar company in May 2020, we believe that it would take time for earnings contribution to be significant.
  • QL was also obliged to extend a conditional mandatory general offer to the shareholders of Boilermech after its stake in the group rose to 48.15% from 44.15%.
  • QL’s stake in Boilermech rose as it acquired 20.6mil shares representing a 4.0% stake from Leong Yew Cheong for RM19.6mil cash or RM0.95/share. Leong is the managing director of Boilermech and a substantial shareholder.
  • Assuming a 100% acceptance rate, we estimate that it would cost about RM221.6mil for QL to privatise Boilermech (excluding Leong’s stake). QL had gross cash of RM446.5mil as at end-September 2020.

Source: AmInvest Research - 4 Dec 2020

Labels: BOILERM
  Be the first to like this.
 

Stocks on Radar - Media Prima (4502)

Author: AmInvest   |  Publish date: Fri, 4 Dec 2020, 10:11 AM


Media Prima jumped and touched the RM0.205 resistance level. With its RSI indicator pointing upwards, coupled with a higher low candle stick pattern, there is a good chance it will break out and head towards the shortterm target price of RM0.22, followed by RM0.23. The downside support is marked at RM0.19. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.205

Target: RM0.22, RM0.23 (time frame: 2-4 weeks)

Exit: RM0.19

Source: AmInvest Research - 4 Dec 2020

Labels: MEDIA
  Be the first to like this.
 

Stocks on Radar - Fajarbaru Builder Group (7047)

Author: AmInvest   |  Publish date: Fri, 4 Dec 2020, 10:09 AM


Fajarbaru Builder Group surged and tested the RM0.52 resistance level. With its 21-day moving average trending higher, coupled with higher trading volume, we see a possibility for a technical breakout. If this happens, we expect it to move towards the short-term target prices of RM0.55 and RM0.575. The downside support is projected at RM0.485. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.52

Target: RM0.55, RM0.575 (time frame: 2-4 weeks)

Exit: RM0.485

Source: AmInvest Research - 4 Dec 2020

Labels: FAJAR
  Be the first to like this.
 

Power Root - Distribution issues in non-GCC countries

Author: AmInvest   |  Publish date: Fri, 4 Dec 2020, 10:09 AM


Investment Highlights

  • We downgrade Power Root to HOLD from BUY with a lower fair value (FV) of RM2.34/share (vs. RM2.50/share previously). Our FV is based on a PE of 18x FY22F EPS.
  • We reduce our earnings forecast by 6% for both FY22F and FY23F to account for a slower-than-anticipated recovery as a result of long-lasting issues with non-GCC markets in the (Middle East and North Africa) MENA region, an uncertain growth trajectory in China and rising sugar and packaging prices. 
  • Key highlights from yesterday’s briefing include:
  1. Malaysian sales have largely stabilized. New products will be rolled out in CY2021 in contrast to competitors, which are focusing on cost minimization and price-slashing strategies.
  2. Gulf Cooperation Council (GCC) countries in the MENA region have seen decent recovery. However, non-GCC countries are facing severe distribution issues.
  3. Power Root intends to rectify this by appointing proper licensees and contract manufacturers – a process, which may only be completed in CY2022.
  4. China has seen a slight improvement in sales, though far from internal targets. The small improvement in sales can be attributed to the success of an online marketing strategy.
  5. Chinese consumers have very little brand loyalty and are easily swayed by flashy gimmicks, a trait which Power Root thinks it can utilize to expand within the market. This adds a degree of uncertainty to its growth trajectory.
  6. Going forward, the group intends to develop a factory based in Malaysia to expand its flavouring business. The manufactured flavours would be used for its products and for sale to 3rd parties.
  7. A cost-optimization exercise that is currently underway will improve future profit margins. This involves expenditure tracking and process refinement and standardization.
  8. Rising sugar and packaging prices are a concern. Other raw materials have been hedged until CY2022 or may be replaced by cheaper alternatives.

Source: AmInvest Research - 4 Dec 2020

Labels: PWROOT
  Be the first to like this.
 

Telecommunication - 3Q2020 earnings rebound

Author: AmInvest   |  Publish date: Fri, 4 Dec 2020, 10:07 AM


BInvestment Highlights

  • Better 3QFY20 report card. The telco sector’s 3Q2020 results have shown substantive improvement with Axiata Group and Telekom Malaysia (TM) beating market expectations while Maxis and Digi were in line. The top outperformer was Axiata which registered a sharp rebound in revenue growth and cost reduction following Covid-19 restrictions on subscriber accretions in 2Q2020. TM’s results, which came in above street’s, were nevertheless within our expectations as we have incorporated higher cost reduction assumptions. Time dotCom (UNRATED) likewise registered 9MFY20 results that were within expectations on revenue growth of 11% despite travel restrictions still slightly dampening their installation capabilities.
  • Celco earnings recovery. 3Q2020 celco core net profit recovered with an increase of 20% QoQ to RM925mil after contracting by 11% QoQ in 2Q2020 due to the impact of the MCO which dented service revenue, subscribers and ARPU parameters. The best performer was Axiata’s Celcom, which spearheaded a sizzling 66% QoQ surge to RM240mil in 3Q2020 after an 18% decline in 2Q2020. This was followed by Digi, which rose 11% QoQ and Maxis’ 8% QoQ.
  • Driven largely by higher service revenues. Celcos’ 3Q2020 service revenues rose 6% QoQ to RM5.4bil after decreasing by 8% in 2Q2020. This drove EBITDA by 8% QoQ and EBITDA margin increasing by 2 ppt to 16.2%. The higher service revenue stemmed from average revenue per user (ARPU) rising by RM2/month to RM42/month and postpaid subscribers increasing by 76K QoQ to 9.8mil.
  • However, net subscribers contracted. Cellular net subscribers tumbled by 188K to 30.2mil in 3Q2020 after registering a surprisingly strong 121K QoQ increase in 2Q2020. Maxis again was the main cause of the variation as the group registered an unexpected 618K reduction in subscribers vs. a net gain of 373K for Celcom and 57K for Digi. The main drag stemmed from a fall of 277K prepaid users to 20.2mil, wholly attributable to Maxis’ 683K drop with the removal of revenue-generating subscribers beyond 30 days, SIM consolidation and intense competition. This was the only prepaid decline amongst operators as Celcom managed to register a 339K rise with the launch on unlimited data packages while Digi rose by 67K.
  • Only Maxis has not provided FY20F guidance. Since April-May this year when telcos withdrew or were reviewing their guidance to investors, only Maxis has yet to provide fresh projection following its ‘flat to low single-digit increase’ for FY20F service revenue and normalised EBITDA. Axiata, which expects a softer 4Q2020, has indicated low single-digit decline for revenue and EBITDA for 2020 while TM expects low-to-mid single digit decline in revenue with EBIT at RM1.3bil–RM1.5bil.
  • Maxis loses prepaid lead to Digi. In 3Q2020, Maxis’ overall subscriber market share of 37% retained its lead over Digi’s 35% while Celcom remained third at 28%. However, Digi has now retaken its pole position in the prepaid segment with the highest market share of 38% from Maxis, which has fallen to 35% following its sharp 3Q2020 reduction. Recall that Digi has held the leading subscriber market share from 1Q2016 to 4Q2019 due to its strength in the prepaid segment, underpinned by the migrant population. Nevertheless, Maxis’ postpaid subscriber focus and convergence strategy with its fibre broadband services remains formidable as compared to Digi and Celcom’s.
  • Unrelenting competition in mobile and rising for fibre. In our view, U Mobile's RM30 prepaid package, which offers unlimited data and 6GB hotspot with speed cap of 6Mbps together with RM5/month top-up for unlimited calls, remains the frontline in the mobile wars. However, Digi’s current entry-level plans for prepaid packages at RM15/month and postpaid at RM38/month are gaining traction even with limited data quotas. Recall that in June, Digi also launched its Internet Chili Padi prepaid plan offering 3GB and unlimited social media (Facebook, Instagram and Twitter) at only RM15/month, half of its 3QFY20 prepaid ARPU of RM33/month. In the fibre broadband market, TM’s unifi has been aggressively competing for market share with recent promotions of free 42’ Sharp TV sets and redemption of the RM500 penalty fee for switching from Maxis Home Fibre. In Peninsular Malaysia, Celcom and Digi have begun to target selectively market segments in the Klang Valley for their fibre-to-home offerings.
  • Consolidation still on the cards. As we highlighted on 11 August 2020, declining data yields, new 5G spectrum fees and capex pressures are likely to drive players to seek consolidation amongst themselves to reduce costs, secure economies of scale and reduce rivalry. While the MCMC has shown a preference for maintaining competitive pressures to provide reduce broadband prices for consumers, we maintain our view that industry players will likely engage in merger and acquisition activities, which was reaffirmed during Axiata’s Analyst & Investor Day conference yesterday.
  • Maintain OVERWEIGHT with BUY calls for TM, which has shown significant cost improvements together with more compelling dividend yields, and Axiata, which offers bargain EV/EBITDA valuations with multiple opportunities for monetisation as the group aims for higher dividend payout policies. These valuations are even more compelling given their 3–4-star rating for ESG compliance on the FTSE4GOOD INDEX.

Source: AmInvest Research - 4 Dec 2020

Labels: MAXIS, DIGI, AXIATA
  Be the first to like this.
 

Axiata Group - Repositioning for higher dividends and consolidation

Author: AmInvest   |  Publish date: Fri, 4 Dec 2020, 10:05 AM


Investment Highlights

  • We maintain our BUY call on Axiata Group (Axiata) with unchanged forecasts and sum-of-parts-based fair value of RM4.50/share (Exhibit 1), which implies an FY20F EV/EBITDA of 5.3x – 1 standard deviation below its 3-year average of 6x.
  • The themes reverberating from Axiata’s Analyst & Investor Day online conference yesterday were the likelihood of near-term rerating catalysts from industry consolidation and doubling of dividends from organic growth driven by asset optimisation, cost reduction and reprioritising investment portfolios for shorter payback returns.
  • These are the salient highlights for Axiata’s target by 2024 with a vision to be the “Next Generation Digital Champion”:
    • The group will cut its cost/GB by 75% to below 10 sen from 60 sen in FY19 while raising group EBIT margin to above 20% from 14% in FY19 and dividend/share over 20 sen from 9.5 sen in FY19.
    • This will entail a normalised PATAMI of over RM1.8bil – 50% above our FY22F earnings. The assumptions are based on revenue growth of over RM6bil, reduction of opex growth by over RM3bil, cut depreciation and amortisation by RM1bil, decrease financing cost by over RM100mil and cap the ratio of mobile capex to revenue to below 20%.
    • In contrast to expectations of low single-digit growth for consumer mobile over the next 4 years due to the intense competition, management is projecting that the stronger revenue growth will be propelled by the enterprise (low % teens), tower infrastructure (low % teens), home (+40%) and digital (+50%) businesses.
    • Cost savings of RM3bil–RM4bil from virtual centralisation of a “Collective Brain” of operating companies (opco) leaders making group-wide decisions on IT, resources, procurement and end-to-end decisions. Of this, 60% of the savings will stem from network, 30% from procurement and 10% from IT.

Since FY17, Axiata has reduced both capex and opex by RM5.3bil with RM1.1bil expected in FY20F. For FY20F, savings from network, IT and procurement is projected to reach RM600mil.

  • The cost reduction programme will be partly aided by the lowering cost of debt by 0.7 ppt to 3.3% from the bond issue of US$1.5bil in August this year, translating to interest savings of RM60mil annually while extending average loan tenure from 2.6 years to 16 years.
  • Almost all the opcos will be revising dividend payout policies to a minimum 50% with the intention to reach 100%, subject to operating free cash flow. The only exception will be 63%- owned edotco, which will need to fund its tower footprint expansion with a lower minimum dividend payout ratio of 25%.
  • Management views consolidation as likely in Malaysia, Indonesia and Bangladesh which could mean collaborative alliances on resources or a business merger given the intense competition, high capex for 5G rollouts and spectrum acquisitions coupled with regulatory challenges from Covid-19-stricken regional countries.

This is not a surprise as management had earlier viewed that consolidation amongst players in the sector is inevitable in Indonesia and Malaysia as highlighted in our thematic update on 11 August 2020. Management revealed that the operators are currently in discussion amongst themselves.

Besides monetising edotco and Axiata Digital Services’ investments, management hinted of a possibility of an IPO for Celcom, given that the group views, as we do, that it is currently grossly undervalued as compared with its local peers.

  • For a regional telco operator with excellent opportunities to further unlock its under-valued assets and engage in merger and acquisition activities, Axiata currently trades at a bargain FY21F EV/EBITDA of 4x vs. Maxis' 12x. This is even more compelling given Axiata’s 3-star rating for ESG compliance on the FTSE4GOOD INDEX.

Source: AmInvest Research - 4 Dec 2020

Labels: AXIATA
  Be the first to like this.
 

Stocks on Radar - Media Prima (4502)

Author: AmInvest   |  Publish date: Fri, 4 Dec 2020, 8:37 AM


Media Prima jumped and touched the RM0.205 resistance level. With its RSI indicator pointing upwards, coupled with a higher low candle stick pattern, there is a good chance it will break out and head towards the shortterm target price of RM0.22, followed by RM0.23. The downside support is marked at RM0.19. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.205

Target: RM0.22, RM0.23 (time frame: 2-4 weeks)

Exit: RM0.19

Source: AmInvest Research - 4 Dec 2020

Labels: MEDIA
  Be the first to like this.
 

Stocks on Radar - Fajarbaru Builder Group (7047)

Author: AmInvest   |  Publish date: Fri, 4 Dec 2020, 8:36 AM


Fajarbaru Builder Group surged and tested the RM0.52 resistance level. With its 21-day moving average trending higher, coupled with higher trading volume, we see a possibility for a technical breakout. If this happens, we expect it to move towards the short-term target prices of RM0.55 and RM0.575. The downside support is projected at RM0.485. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.52

Target: RM0.55, RM0.575 (time frame: 2-4 weeks)

Exit: RM0.485

Source: AmInvest Research - 4 Dec 2020

Labels: FAJAR
  Be the first to like this.
 

Serba Dinamik Holdings - New jobs partly mitigate potential order book decline

Author: AmInvest   |  Publish date: Thu, 3 Dec 2020, 4:35 PM


Investment Highlights

  • We maintain our BUY call on Serba Dinamik Holdings (Serba) with unchanged forecasts and fair value of RM2.20/share, based on a 30% discount to our diluted sum-of-parts (SOP) valuation of RM3.15/share (Exhibit 3).
  • Serba secured 6 operation & maintenance (O&M) contracts, one engineering, procurement, construction and commissioning (EPCC) contract and 2 information, communication and technology (ICT) jobs from Malaysia, Indonesia, the UAE and Guinea.
  • The overseas jobs include building a 4.8MW biogas renewable energy power plant at Aceh Tamiang in Indonesia 1 Sep 2020–August 2021, providing maintenance services for microturbine generators in Indonesia 21 Sep 2020–20 Sep 2022, Indonesia-based virtual technology demo room rental services 9 Nov 2020–8 Dec 2021 and plant maintenance services in the UAE 30 Nov 2020–29 Nov 2023, and implementing telecommunications and ICT infrastructure in Guinea January 2021–Dec 2022.
  • The combined contracts with specific values from overseas reach RM466mil (US$114mil) while the O&M jobs in Malaysia are on a call-out basis which will be awarded at the clients’ discretion. These domestic O&M jobs were awarded by PTTEP, Sarawak Shell, JX Nippon Oil & Gas Exploration and BASF Petronas Chemicals.
  • Given Serba’s quarterly order book depletion of RM1.5bil, we expect its outstanding order book at RM18.5bil as at 3Q2020 to decline by 5% to RM18bil in 4Q2020 unless as the group manages to secure additional contracts by then.
  • Nevertheless, we would not be surprised by additional contracts soon as Serba aims to lease parts of the facilities to third parties. Serba would also be angling for fresh jobs in decommissioning, petrochemicals and renewable sectors following the recent conclusion of the purchase of the RM320mil Teluk Ramunia yard from Petronas.
  • As such, we are not unduly worried about the overall slowdown in the sector’s order awards as Serba’s outstanding book had already exceeded its FY20F year-end target of RM15bil (+50% YoY) since 1QFY20.
  • The group’s net gearing has risen from 76% in 2QFY20 to 89% in 3QFY20 from working capital needs with management aiming to cap it at below 1x. As such, the group’s good earnings visibility together with its recurring income profile translate to an unjustified FY21F PE of only 8x vs. its closest peer Dialog Group’s over 30x.

Source: AmInvest Research - 3 Dec 2020

Labels: SERBADK
  Be the first to like this.
 

Property & REIT - 3Q results largely below expectations

Author: AmInvest   |  Publish date: Thu, 3 Dec 2020, 8:56 AM


Investment Highlights

  • 3QCY20 results largely below expectations. The results of the companies under our coverage are largely below expectations. Out of the 8 companies, 6 came in below expectations while 2 was in line (Exhibit 2).
  1. For property developers, IOI Properties Group (IOIPG) is the only one whose profit came in within expectations while the results of Crest Builder, Mah Sing, MRCB, SimeProp and S P Setia were lower than expected.
  2. IOIPG’s property development segment recorded a 1QFY21 EBIT of RM265mil (+31% YoY) mainly due to stronger contribution from projects in Malaysia and China. All in all, the property development division chalked up new sales of RM473mil vs. YoY’s RM390mil whereby 49% was derived from Malaysia and 51% from China while its unbilled sales stood at RM696.8mil as compared to QoQ’s RM607mil. Meanwhile in Singapore, the construction progress of Central Boulevard development has resumed since August 2020 and the management is planning to catch up on lost time brought about by the circuit breaker that was imposed in April 2020.
  3. Meanwhile, all companies posted lower earnings or made losses 3QCY20 (Exhibit 2) mainly due to slower recognition as a result of the movement control order (MCO) related to the Covid-19 pandemic. Mah Sing, S P Setia and SimeProp have many projects that are ere still in their early stages, hence revenue recognition in 9M was lower compared with the previous year’s. MRCB reported a 9MFY20 core net loss of RM0.5mil vs. a net profit of RM17.4mil YoY attributed to deferments in construction works and progress billings.
  4. S P Setia and SimeProp registered 9MFY20 net losses of RM376.5mil and RM422.9mil respectively mainly on impairment of inventories in the Battersea project. Stripping the exceptional items, S P Setia and SimeProp’s 9MFY20 core net earnings came in at RM102.2mil and RM52.4mil respectively.
  • New sales YoY generally lower. Developers generally reported lower new sales YoY, by about 22% (Exhibit 2), due to the lacklustre market and the impact of the MCO and Covid-19 pandemic. Hence, we do not expect to see surprises in earnings over the next 12–18 months. Developers are more aggressive in clearing unsold units by offering discounts with the inventory level on a declining trend. We believe that this is a positive move to realise cash flow.
  • Consumer sentiment still weak. Most developers remain cautious, and are still assessing the economic situation before deciding to continue or defer future launches. We believe that consumer sentiment shall remain weak for the time being with spending mainly focused on necessities while big-ticket items such as properties will take a back seat for now.
  • Expect stronger performance in 4Q. 9M20 earnings were mainly weighed down by the MCO and the Covid-19 pandemic. Nevertheless, developers under our coverage have reasonable amount of unbilled sales (Exhibit 2). Also, with the resumption of business activities and construction work, we expect to see stronger recognitions in 4Q20.
  • REITs under pressure. Retail REIT managers are adopting a proactive stance in supporting their tenants through this difficult time. Pavilion REIT (PREIT) registered lower earnings of RM83.5mil (-57.4%) mainly due to the rental rebates given to tenants whose businesses were not of essential services during the MCO and CMCO, lower occupancy due to non-renewal of some expired tenancies and also deferment of rent commencement date for some tenants, as well as lower percentage of rent and advertising revenue. YTL Hospitality REIT’s (YTL REIT) lower earnings were mainly due to Covid-19 pandemic, rental deferment for properties in Malaysia and Japan, and a weaker performance from properties in Australia.
  • Maintain NEUTRAL. We retain our NEUTRAL view on the sector as we do not anticipate earnings surprises in the short to medium term. We have BUY calls on (1) IOIPG (FV: RM1.54) which is banking on the strong contribution from its property development projects; and (2) Mah Sing (FV: RM1.50), underpinned by the strong take-up rates of its recent launches and its upcoming rubber glove business. We maintain BUY on PREIT (FV: RM1.84) and YTL REIT (FV: RM1.26).

We may upgrade our stance for the property sector to OVERWEIGHT if: (1) banks are to ease lending policies on properties; or (2) consumer sentiment is to improve significantly.

Source: AmInvest Research - 3 Dec 2020

  Be the first to like this.
 

DRB Hicom - Ready for two more Geely-inspired models

Author: AmInvest   |  Publish date: Thu, 3 Dec 2020, 8:47 AM


Investment Highlights

  • We maintain our BUY call for DRB-Hicom with an unchanged SOP-based fair value of RM2.49/share (Exhibit 1). We make no changes to our FY20–22F earnings forecasts.
  • Key highlights from DRB’s analyst briefing:
  1. Bookings for the Proton X50 B-segment SUV have breached the 30.0K mark, with a monthly production volume of about 3.5K–4.0K per month.
  2. According to Paul Tan’s Automotive News, the Proton X50 has a local content of 40%. We understand that Proton plans increase its localization rate for the X50 over the next few years. This will improve Proton’s profit margins as it will likely be entitled to higher excise duties rebates.
  3. We gather that there will be two (2) more Geely-inspired products in the next 2 years. One of them, we believe, will be an MPV to boost its product line-up (which already consisted of 2 SUVs). We also understand that Proton will continue to do minor upgrades (facelift launches) for its existing PIES models. We take comfort in the fact that Proton is taking efforts to regain consumer confidence, as well as increase its sales volume and market share in the domestic auto market. There are also plans to increase the Tanjung Malim plant’s capacity to 400.0K over the next 2–3 years (from 250.0K currently).
  4. Composite Technology Research Malaysia (CTRM), a division of DRB’s automotive arm, has managed to remain profitable despite a significant drop in revenue of 30–40%. We gather that the lower revenue was due to Boeing and Airbus pushing back their orders as the Covid-19 pandemic has severely impacted the aviation and travel sectors globally. We expect CTRM to continue facing some headwinds in FY21F.
  5. Deftech will deliver the remaining 10% (total contract agreement was 259 vehicles) of the AV8 armoured vehicle to Ministry of Defence (Mindef) by 3QFY21, after being delayed from end-2020 previously (due to the Covid-19 pandemic). We understand that DRB will not have to bear any additional costs despite the extension of the contract.
  6. We note that there is a possibility of additional modification loss for Bank Muamalat in 4QFY20 due to the extension of the loan moratorium for the B40 and micro enterprises. We believe that this will not be as severe compared to the modification loss from the blanket moratorium of RM46mil in 2QFY20.
  • As the worst is now behind DRB, we think that all the negatives have already been priced in. We strongly believe that Proton’s PIES models, both the Proton X70 and X50 CKDs, along with the future two Geely-inspired models are expected to lift Proton’s sales volume, market share and earnings profile in the future. Proton’s products are competitively priced with advanced features for better consumer experience, offering good value for money. Maintain BUY.

Source: AmInvest Research - 3 Dec 2020

Labels: DRBHCOM
  Be the first to like this.
 

Oil & Gas - Earnings improve amid sluggish new orders

Author: AmInvest   |  Publish date: Thu, 3 Dec 2020, 8:43 AM


Investment Highlights

  • Largely in line 3QFY20 report card. The 3QFY20 results of the 8 companies under our coverage were largely in line with expectations as 6 were within consensus while 2 were above. MISC benefited from its heavy engineering division unexpectedly breaking even, cushioning the drop in tanker rates while Yinson’s earnings were propelled by accelerated recognition from the commencement of Petrobras’ floating production, storage and offloading (FPSO) vessel Anna Nery. While we have not revised our forecasts for Sapura Energy, we note that its engineering and construction division’s surprisingly strong 1HFY21 EBITDA margins were boosted by lumpy contract adjustments and cost reversals.
  • The sector’s core 3QFY20 net profit rose 13% QoQ to RM1.8bil largely due to Petronas Chemicals’ 2.5x surge from higher product prices following a depressed market in the previous quarter, and slightly supported by Yinson’s accelerated FPSO profit recognition. However, 3QFY20 EBITDA margin also slid 1 ppt to 36% due to Yinson’s lumpy revenue recognition.
  • Order awards still sluggish. While new contract awards to Malaysian operators halved YoY to RM4.6bil in 9M2020, we note that 3Q2020 orders rebounded 45% QoQ to RM2.4bil largely due to Serba Dinamik’s lumpy civil construction job to build a RM1.5bil data centre in the UAE. Excluding Serba’s UAE project, 3Q2020 orders instead shrank 45% QoQ to RM895mil. Even so, we view the slow order flow as the early stages of recovery for the sector which plummeted to a 3-year low of only RM569mil contracts in the Covid-19-inflicted 1Q2020.
  • Moving towards net-zero emission targets. Amid a target to reach net-zero carbon emissions by 2050, Petronas could be redeploying capital into more renewable energy projects. The group appears to be on track to meet its target to reduce capex by 21% and 12% opex this year due to the current Covid-19-impacted cyclical downturn which was exacerbated by the Saudi-Russian price war earlier this year. Even though a measure of optimism has returned for crude oil prices, we expect oil producers to remain cautious in rolling out projects next year amid the prolonged Covid-19 movement restrictions and social distancing measures across the new normal which could mean potentially structural changes in energy usage.
  • Remain cautious on selected highly geared companies. Against the backdrop of a sharp demand drop in upstream oil services, we remain cautious on companies with high gearing levels such as Sapura Energy, which needs to restructure its RM10bil debt soon. There is a risk that Velesto’s mounting losses from weak rig utilisation could develop into debt repayment difficulties next year. For now, we are not unduly concerned that Serba Dinamik may again need an equity placement exercise to fund the working capital of its multiple overseas projects.
  • Maintain 2020 oil price forecast at US$40–US$45/barrel and 2021 at US$45–50/barrel. YTD, Brent crude oil prices have averaged US$42/barrel with spot prices at US$48/barrel currently from the year-low of US$14/barrel on 22 April 2020. This is supported by US crude oil inventories declining by 10% to 488mil barrels currently from the all-time high of 541mil barrels in June this year. Hence, we maintain our crude oil price forecast at US$40–US$45/barrel for 2020 and US$45–US$50/barrel for 2021. For comparison, the EIA’s Short-Term Energy Outlook projects crude oil price at US$41/barrel for 2020 and US$47/barrel for 2021.
  • Maintain OVERWEIGHT call with 6 BUY calls vs. only 1 SELL and 1 HOLD. With Brent crude spot prices stabilizing above US$40/barrel, we believe that the down cycle has reached a bottom with the worst experienced in April this year when Brent spot prices plunged to a low of US$14/barrel while futures inverted to an abnormal negative price due to lack of storage capacity

We continue to like Yinson as its earnings growth momentum from the maiden contributions of FPSO vessels Helang, off Sarawak, Abigail-Joseph in Nigeria and Anna Nery in Brazil together with multiple charter opportunities in Brazil and Africa. We like Petronas Gas, as the group’s optimal capital structure strategy and resilient earnings base translate to highly compelling dividend yields.

We also recommend Dialog Group and Serba Dinamik Holdings due to their resilient non-cyclical tank terminal and maintenance-based operations. Even though Bumi Armada is still likely to experience asset impairments towards the end of the year, the company has shown improving core profitability from higher operating performance of FPSO Armada Kraken while its major shareholder provides support against balance sheet risks.

Source: AmInvest Research - 3 Dec 2020

  Be the first to like this.
 

Stocks on Radar - Thong Guan Industries (7034)

Author: AmInvest   |  Publish date: Thu, 3 Dec 2020, 8:39 AM


Thong Guan Industries jumped and touched the RM2.86 resistance level. With its RSI indicator pointing upwards, coupled with a bullish engulfing candle stick pattern, there is a good chance it will break out and head towards the short-term target price of RM3.00, followed by RM3.12. The downside support is marked at RM2.69. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM2.86

Target: RM3.00, RM3.12 (time frame: 2-4 weeks)

Exit: RM2.69

Source: AmInvest Research - 3 Dec 2020

Labels: TGUAN
  Be the first to like this.
 

Stocks on Radar - Cahya Mata Sarawak (2852)

Author: AmInvest   |  Publish date: Thu, 3 Dec 2020, 8:37 AM


Cahya Mata Sarawak continued to climb and tested the RM1.88 resistance level. With its RSI indicator pointing upwards, coupled with higher trading volume, we see a possibility for a technical breakout. If this happens, we expect it to move towards the short-term target prices of RM2.02 and RM2.16. The downside support is projected at RM1.74. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM1.88

Target: RM2.02, RM2.16 (time frame: 2-4 weeks)

Exit: RM1.74

Source: AmInvest Research - 3 Dec 2020

Labels: CMSB
  Be the first to like this.
 

Banking - Stable loan growth; further conservative provisions booked

Author: AmInvest   |  Publish date: Wed, 2 Dec 2020, 2:58 PM


Investment Highlights

  • Industry loan growth eased slightly to 4.3% YoY in Oct 2020 from 4.4% YoY in Sept 2020. Growth in household loans moderated marginally to 5.1% YoY while non-household loan growth was sustained at 3.2% YoY. YTD loan growth was 3.7% annualised in line with our expectation of a 3.0–4.0% growth for 2020. For 2021, we expect the industry’s loans to register a higher growth of 4.0–5.0%.
  • Interest margins of banks are expected to recover with no further interest rate cuts. On 3 Nov 2020, BNM kept the OPR unchanged at 1.75%. With no further interest rate cuts expected in 2021, banks’ interest margins are anticipated to recover from the earlier OPR reduction aided by the reprising of liabilities. With the industry’s deposit competition staying muted, banks' funding cost of banks is likely to continue to improve.
  • More stable MGS yields in recent months and banks’ FVOCI reserves remained high, leaving opportunities to still monetise gains on FVTOCI securities. MGS yields have turned more stable with no rate cuts in Sep and Nov 2020. We continue to see room for banks to monetize gains from the FVOCI securities when the opportunity arises as their FVOCI reserves remained high from the earlier favourable movements in MGS yields. This will support NOII of banks.
  • CASA continued to be robust, lifting banks’ CASA ratio further. CASA expanded by 22.2% YoY in Oct 2020 vs. 20.5% in Sep 2020, increasing CASA ratio to 30.2%. Sector LDR and LCR remained healthy at 88.2% and 153.0% respectively.
  • Uncertainties on asset quality remains but are comforted by banks’ continued action of proactively booking forwardlooking provisions in the form of management overlays. This is in addition to provisions from changes to the macroeconomic factors (MEFs) in 2020 for potential credit losses, leaving a cleaner slate for recovery on banks’ earnings moving into 2021. After the end of Sep 2020, the percentage of loans in Malaysia under the repayment assistance programmes for banks ranged between 8–15%, and this was much lower than that seen in the 6-month automatic blanket moratorium. The industry’s total GIL and NIL are still stable at 1.4% and 0.9% respectively. Oct 2020 saw a rise in provisions by 5.5% MoM for future credit losses, and we continue to expect banks to further front load their provisions, conservatively booking more provisions as management overlays in the remaining months of 4Q2020. This is anticipated to lead to a cleaner slate for recovery on banks’ earnings moving into 2021.
  • Maybank and BIMB have declared interim dividends in their recent 3Q20 results announcement. This should lead to improved sentiments on banking stocks.
  • Upgrade our sector call to OVERWEIGHT from NEUTRAL with BUYs on Hong Leong Bank (FV: RM19.30/share), RHB Bank (FV: RM6.15/share) and Maybank (FV: RM9.50/share) to ride on the economic recovery in 2021. For non-banks, we like HLFG (FV: RM19.00/share) which will leverage the improved fundamentals of Hong Leong Bank.

Source: AmInvest Research - 2 Dec 2020

  Be the first to like this.
 

Malaysia – November PMI suggests 4Q GDP could be slightly weaker

Author: AmInvest   |  Publish date: Wed, 2 Dec 2020, 8:52 AM


The manufacturing PMI remained in the contraction region for the fourth straight month in November, reading at 48.4 which is marginally lower than October’s 48.5. Our performance is somewhat in contrast with the Asean trend which rose to the 50 threshold (which separates expansion from contraction) for the first time since March.

The poor manufacturing PMI reading in November did not come as a surprise as it was inflicted by the rising Covid-19 cases both locally and and abroad, and the restrictive measures to contain the virus spread. these lowered the demand for manufactured goods while supply chains faced challenges to deliver inputs in a timely manner. Thus, businesses scaled back on their production.

Nonetheless, looking at the past two months’ manufacturing PMI data, the positive side of it is that it did not present a similar sharp drop as witnessed in April which fell to 35.6 due to the restrictive measures. This could in part be due to the CMCO being more targeted, with less adverse implications on both supply and demand.

Based on the first two months of manufacturing PMI data, it somewhat suggests that 4Q2020 GDP could lose some steam. A very preliminary estimation shows the GDP could fall within the range of 3.0%– 3.8%. This is in part due to subdued demand while businesses are experiencing capacity pressure with backlogs of work reducing that result in a dip in holdings of raw materials and semi-finished goods.

  • The manufacturing PMI remained in the contraction region for the fourth straight month. November’s manufacturing PMI came in at 48.4, marginally lower than October’s 48.5. Our performance is somewhat in contrast with the Asean trend which rose to the 50 threshold (which separates expansion from contraction) for the first time since March.
  • The poor manufacturing PMI reading in November did not come as a surprise. With the rise in the number of Covid-19 cases both locally and and abroad, added with the restrictive measures to contain the virus spread, these weighed on both the supply and demand. In the case of demand, there is a drop for manufactured goods. Supply chains were seen facing challenges to deliver inputs in a timely manner. Thus, businesses scaled back on their production.
  • Looking at the past two months’ manufacturing PMI data, the good side of it is that it did not present a similar sharp drop as witnessed in April which fell to 35.6 due to the restrictive measures. Benchmarking against the first wave of the virus spread and the restrictive measures imposed, this time around the drop is far more moderate. This could in part be due to the CMCO being more targeted, with less adverse implications on bot supply and demand.
  • Based on the first two months of manufacturing PMI data, it somewhat suggests that 4Q2020 GDP could lose some steam. A very preliminary estimation shows the GDP could fall within the range of 3.0%–3.8%. This is in part due to subdued demand while businesses are experiencing capacity pressure with backlogs of work reducing that result in a dip in holdings of raw materials and semi-finished goods.

Source: AmInvest Research - 2 Dec 2020

  Be the first to like this.
 

Top Glove Corp - Charges loom under Act 446 over worker accommodation

Author: AmInvest   |  Publish date: Wed, 2 Dec 2020, 8:48 AM


  • According to media reports, Top Glove is expected to face charges under the Workers' Minimum Standards of Housing and Amenities Act 1990 (Act 446). Labour Department director-general Asri Ab Rahman said 63 charges, involving a number of companies and employers including Top Glove, have been referred to the deputy public prosecutor's office for further action. A total 21 investigation papers have been opened with 19 of it involving six groups of companies under Top Glove.
  • Meanwhile, Senior Minister (Security Cluster) Datuk Seri Ismail Sabri Yaakob said in an earlier statement that employers who defy the Ministry of Human Resources’ regulations would be fined RM50,000 per worker.
  • Top Glove has issued a statement saying that the company is seeking more accommodation and efforts to improve existing worker accommodations are ongoing, in view of the large number of workers. It expects to complete implementing the measures by 31 December 2020.
  • While the investigation is still ongoing, we are not making any changes to our earnings forecasts at this juncture. However, the latest development could potentially raise the perceived risk premium to Top Glove, hence reducing our PER valuation to 25x from 28x. With the 25x PER, we arrive at a lower fair value of RM7.03 per share (previously RM7.88) based on CY22 EPS. Maintain HOLD recommendation.

Source: AmInvest Research - 2 Dec 2020

Labels: TOPGLOV
  Be the first to like this.
 

KPJ Healthcare - Seeks to grow public sector customer base

Author: AmInvest   |  Publish date: Wed, 2 Dec 2020, 8:46 AM


Investment Highlights

  • We maintain HOLD on KPJ Healthcare (KPJ), with an unchanged fair value (FV) of RM1.04/share. Our FV is based on an FY21F PE of 23x.
  • Here are the key takeaways from KPJ’s results briefing:

1. Although KPJ anticipates a steady recovery in 4QFY20, the group said that the quantum may not be as significant as previously anticipated, mainly due to the recurrence of the CMCO.

2. KPJ expects its four loss-making hospitals (KPJ Bandar Dato’ Onn, KPJ Batu Pahat, KPJ Perlis and KPJ Miri) to reach breakeven EBITDA in three to four years’ time, adding that the MCO effects have led to a delay of six months. The group intends to cut these losses by half by next year end.

3. The group is looking to grow a customer base of public-sector patients, following a successful government engagement to help alleviate the public sector’s Covid-19 burden.

4. KPJ is also seeking to raise its EBITDA margins to >20% levels (currently ~17%) within the next two to three years, through cost management optimization and its strong focus on quick returns and low gestational period developments.

5. In terms of expansion, KPJ has reached the closing stage of its more aggressive current expansion phase, with the focus now on upgrading and refurbishing older hospitals. Maintenance capex is now expected to take up two-thirds of its total capex budget, with the remainder allocated for expansion.

6. KPJ’s cost management initiatives include deploying technology applications to reduce manpower, incorporating cost centralization across the system and maintaining current staff levels. The group is targeting a 10–20% administrative expenses reduction as it consolidates its processes.

7. KPJ only has one new hospital in the pipeline, KPJ Damansara II Specialist Hospital, set to open in 1QFY22. Other notable developments include a relocation of KPJ Kluang and BDC Kuching Specialist Hospital as they are currently located at “shop lot” units that stifle growth.

8. KPJ is also looking at a potential restructuring of its Australian and Indonesian operations. Australian services have been seeing poor performances recently following a trend towards home care, as well as heightened pandemic costs.

9. The group may reconsider its capex strategy in the coming years, dependent on its full year’s results for FY20E.

  • We may re-rate the stock on the following: (1) stronger-than anticipated recovery; (2) a drastic change in expansion plans, following better-than-anticipated FY20E results; and (3) significant foreign operations restructuring.

Source: AmInvest Research - 2 Dec 2020

Labels: KPJ
  Be the first to like this.
 

Sime Darby - Disposing of its 3 Jining water ports

Author: AmInvest   |  Publish date: Wed, 2 Dec 2020, 8:45 AM


Investment Highlights

  • We maintain our BUY recommendation on Sime Darby with a slight increase in its fair value to RM2.87/share (from RM2.86/share previously) after stripping out the profit contribution from the 3 Jining water ports and adding the disposal proceeds of its stake in Jining Port Companies to our SOP-based valuation (Exhibit 1).
  • Sime Darby has announced that it is disposing of its entire 70% stake in Jining Port Companies, which consists of 3 river ports in Jining, China for a total cash consideration of RM181.6mil.
  • There are 3 parts to the announcement:

1) We gather from the short analyst briefing yesterday that the total net book value of Jining Port Companies as at end-October 2020 was approximately RM172.0mil. However, after accounting for transaction costs, M&A costs and other expenses incurred, we understand that the net loss from the disposal is around RM8.0mil. We also note that the total net profit contribution of Sime Darby’s 70% stake in Jining Port Companies is approximately RM5.0mil annually to the group. This accounts for less than 1% of the group’s FY21F total earnings.

2) The total proceeds of RM181.6mil will be paid over a period of 3 years, where we understand that the first RM155.7mil will be paid up first via an escrow. The remaining RM25.9mil will be paid after 3 years. However, the payment schedule of the total sales proceeds was not disclosed.

3) Sime Darby will also subscribe to 49% in a new vehicle with Jining Port and Shipping Development Group Co Ltd (JPSDG), called Jining Port and Shipping Port Services Co Ltd (JPSPS), for RM123.5mil. JPSDG will hold the remaining 51% stake. Sime Darby will then progressively exit JPSPS over the next 3 years for RM132mil.

  • We are stripping out Jining Port’s earnings contribution for the group’s FY21–23F earnings forecast, while adding in cash proceeds of RM155.7mil (1st payment from the sale of stake in Jining Port Companies) in the group’s net debt. The annual interest income from the cash proceeds (assuming 3% annually) will be approximately RM4.7mil per year, and this will be insignificant to Sime’s large earnings base.
  • We are slightly positive on this development as Sime Darby is monetizing and divesting its non-core businesses and assets. We understand that the group is also looking to dispose its Weifang seaport – which has a net book value of RM963.0mil as at 30 June 2020. Maintain BUY on Sime Darby.

Source: AmInvest Research - 2 Dec 2020

Labels: SIME
  Be the first to like this.
 

Plantation - 3Q2020 earnings review: A mixed bag

Author: AmInvest   |  Publish date: Wed, 2 Dec 2020, 8:43 AM


Investment Highlights

  • A mixed bag of results. Two plantation companies performed below market expectations in their 9MFY20 results while three companies exceeded consensus estimates. Another two companies were in line with market expectations. Genting Plantations (GenP), FGV Holdings and Sime Darby Plantation (SDP) were above market expectations. FGV recorded a double-digit QoQ growth in FFB production in 3Q2020 while SDP’s downstream earnings recovered. On the other hand, IOI and KLK were hit by a fall in refining and oleochemical profit margins resulting from an increase in the cost of feedstock.
  • Purer companies performed better than their integrated peers. Purer plantation companies had higher exposure to CPO prices in 3Q2020 while the downstream divisions of the integrated companies were affected by the higher cost of raw materials. The swift surge in CPO prices in 3Q2020 meant that the integrated companies were unable to increase the selling prices of their downstream products immediately.
  • For instance, GenP’s EBITDA climbed by 26.4% YoY to RM378.6mil in 9MFY20. IJM Plantations’ (IJMP) gross profit surged to RM65.9mil in 1HFY21 from RM2.4mil in 1HFY20. On the other hand, IOI’s core net profit (ex-forex changes) fell by 12.4% YoY in 1QFY21 while KLK’s core net profit (ex-disposal gains of RM105.8mil) in FY20 was flat YoY (partly due to a higher effective tax rate).
  • Most plantation companies recorded higher FFB production in 3Q2020 vs. 2Q2020. The plantation companies under our coverage registered QoQ increases in FFB production of 1.5% to 19.0% in 3Q2020. Exceptions were KLK, IJMP and SDP, which experienced QoQ declines in their FFB output in 3Q2020. We attribute the QoQ falls in FFB production in 3Q2020 to weak output in Indonesia. According to several industry players, CPO production in Indonesia would achieve its highest level in 4Q2020 instead of 3Q2020. The strongest QoQ increases in FFB production in 3Q2020 were registered by FGV Holdings (13.2%) and TH Plantations (19.0%).
  • Sizeable gap between the companies’ realised CPO prices (group basis including Indonesia) and MPOB spot prices in 3Q2020. Plantation companies in our coverage achieved average CPO prices of RM2,389/tonne to RM2,579/tonne in 3Q2020. These were RM174/tonne to RM364/tonne lower than the MPOB spot price of RM2,753/tonne in 3Q2020.
  • We attribute the wide discrepancy to sales of CPO locked in earlier at lower prices and the large discount between the prices of CPO in Malaysia and Indonesia. According to reports, CPO price in Indonesia has priced in a potential export levy of more than US$100/tonne even though the hike in export levy has not been implemented yet.
  • Erosion in downstream margins in 3Q2020 due to a higher cost of feedstock. IOI’s manufacturing division (refining and oleochemicals) achieved a small EBIT margin (including fair value changes in derivatives and associates) of 1.7% in 3Q2020 vs. 8.0% in 3Q2019 and 5.0% in 2Q2020. KLK’s plantation division (upstream and palm refining) recorded a lower EBIT QoQ in 3Q2020, which we partly attribute to weaker refining margins. SDP was the opposite. SDP’s downstream unit (bulk products, specialised products and trading) suffered during the Covid-19 lockdown in 2Q2020 and then recovered in 3Q2020. SDP’s downstream division registered a higher EBIT margin of 5.4% in 3Q2020 vs. 1.5% in 2Q2020.
  • Maintain NEUTRAL. We have raised our average CPO price assumption to RM2,500/tonne for 2021F from RM2,400/tonne previously. In spite of this, we are NEUTRAL on the plantation sector. Industry demand for palm products may ease in the short-term as CPO prices are currently close to soybean oil prices. In addition, discretionary demand for palm biodiesel may fall as CPO is more expensive than gasoil.

Source: AmInvest Research - 2 Dec 2020

  Be the first to like this.
 


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
Perform Technical & Fundamental Analysis on Stocks
MQ Affiliate
Earn rewards by referring your friends
 
 

546  656  538  392 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 YONGTAI 0.365+0.07 
 MTRONIC 0.135+0.015 
 HWGB 0.88+0.035 
 SAPNRG 0.125+0.005 
 AT 0.195+0.01 
 MTRONIC-WA 0.09+0.015 
 KNM 0.23+0.02 
 PHB 0.030.00 
 INIX 0.33+0.065 
 EAH 0.03-0.005 

FEATURED POSTS

1. The Equity Market Index Benchmark in Malaysia CMS
2. Trading Scenarios of Derivatives Bursa Derivatives Education Series
3. Derivatives 101 Bursa Derivatives Education Series
4. Why Trade FKLI? Bursa Derivatives Education Series
5. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!
PARTNERS & BROKERS