Highlights

PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 9 Jul 2020, 10:04 AM

 

Technical Buy- POS (4634)

Author: PublicInvest   |  Publish date: Thu, 9 Jul 2020, 10:04 AM


  • Target Price: RM1.00, RM1.06
  • Last closing price: RM0.940
  • Potential return: 6.3%, 12.7%
  • Support: RM0.930
  • Stop Loss: RM0.910

Possible for sideways breakout. POS remained resilient while trending sideways. Corresponding RSI and MACD indicators remain healthy while trending sideways, with anticipation of continuous improvement in both momentum and trend in the near term. Should resistance level of RM1.00 be genuinely broken with renewed buying interest, it may continue to lift price higher to subsequent resistance level of RM1.06.

However, failure to hold on to support level of RM0.930 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 9 Jul 2020

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Technical Buy- STAR (6084)

Author: PublicInvest   |  Publish date: Thu, 9 Jul 2020, 10:03 AM


  • Target Price: RM0.375, RM0.395
  • Last closing price: RM0.355
  • Potential return: 5.6%, 11.2%
  • Support: RM0.350
  • Stop Loss: RM0.340

Possible for sideways breakout. STAR remained resilient while trending sideways. Corresponding RSI and MACD indicators remain healthy while trending sideways, with anticipation of continuous improvement in both momentum and trend in the near term. Should resistance level of RM0.375 be genuinely broken with renewed buying interest, it may continue to lift price higher to subsequent resistance level of RM0.395.

However, failure to hold on to support level of RM0.350 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 9 Jul 2020

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Ocean Vantage Holdings Bhd- New Vantage Point

Author: PublicInvest   |  Publish date: Thu, 9 Jul 2020, 10:02 AM


Supporting the oil and gas (O&G) industry in both upstream and downstream activities, Ocean Vantage Holdings Bhd (OVH), through its subsidiaries, is principally involved in: i) engineering, procurement and construction (EPC) and project management, ii) supply of manpower, iii) supply of material tools and equipment, and iv) provision of drilling rig charter services. Presently, the group operates primarily in the upstream O&G segment. Although OVH has limited exposure to downstream O&G activities, the group is looking to expand its business in that segment. Malaysia is OVH's primary market, though the group also has exposure in various regions globally. Its customers comprise international drilling contractors, oilfield service companies, international and national oil companies. 

Apart from extension of its range of support services for the upstream O&G industry, OVH intends to further strengthen its downstream project management capabilities to capture opportunities in the downstream O&G segment. We derive a fair value of RM0.31 based on a 12x PE multiple to its FY2021F EPS of 2.6sen. The IPO is expected to raise approximately RM21.4m from the issuance of 82.2m new shares. Besides utilising 55.3% of the proceeds to expand its capabilities in order to provide a wider range of O&G support services to clients, 30.6% of the proceeds are allocated for general working capital purposes.

  • Growth drivers. OVH’s growth will be dependent on: i) further expansion of its range of support services for the upstream O&G industry, and ii) further strengthening of its downstream project management capabilities to capture opportunities in the downstream O&G segment.
  • Competitive strengths. OVH’s competitive strengths include: i) scalable operations in tandem with the demand for its services, ii) having PETRONAS license and the track record in various safety and quality standards, iii) having access to skilled human resources for the supply of manpower services, iv) having established relationships with its customers, and v) having an experienced key senior management team.
  • Catalysts. Key drivers may include: i) increasing oil and gas demand, ii) development of new technology for the exploitation of out-of-reach reserves, iii) stabilising crude oil prices, iv) increasing rig count, and v) government initiatives to boost the oil and gas industry in Malaysia.
  • Key risks. Key downside risks, among others, include i) competitive industry, ii) occurrence of pandemic and other possible similar future outbreaks, iii) delay or premature termination of projects, iv) fundamental change in PETRONAS' policies towards the O&G industry, v) dependency on major customers, vi) credit risk and potential default in payment by its customers, and vii) foreign exchange rate fluctuation.

Source: PublicInvest Research - 9 Jul 2020

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PublicInvest Research Headlines - 9 Jul 2020

Author: PublicInvest   |  Publish date: Thu, 9 Jul 2020, 9:58 AM


Economy

Global: Global economy to contract by 5.2% in 2020 – Report. The global economy is likely to contract by 5.2% in 2020 with the coronanvirus still spreading and the economic prospects of countries across the world looking muted. According to Dun and Bradstreet's (D&B) Country Risk and Global Outlook Report, the wider global context remains sombre and the global economy will not reach pre-pandemic levels of activity again before 2022. D&B is currently forecasting that the global economy will contract by 5.2% in 2020, the biggest decline since the Second World War and a far stronger contraction than the 1.7% recorded in 2009 during the global financial crisis. (Economic Times)

US: Consumer credit slumps more than expected in May. After reporting a sharp drop in US consumer credit in the previous month, the Fed released a report showing consumer credit continued to decline in the month of May. The Fed consumer credit slumped by USD18.2bn in May after plunging by a revised USD70.2bn in April. Economists had expected credit to decrease by USD15.5bn compared to the USD68.7bn nosedive originally reported for the previous month. The continued decrease in consumer credit came as another sharp drop in revolving credit more than offset a rebound in non-revolving credit. Revolving credit, which largely reflects credit card debt, tumbled by USD24.3bn in May after plummeting by USD58.2bn in April. Meanwhile, non-revolving credit, such as student loans and car loans, rose by USD6.0bn in May after slumping by USD12.0bn in the previous month. (RTT)

EU: Lagarde says ECB has time to assess stimulus effectiveness. Christine Lagarde signalled the ECB will keep policy unchanged at its next meeting after its massive emergency stimulus helped calmed markets. The ECB president said that measures unleashed in the wake of the pandemic have “demonstrated its efficiency and its effectiveness.” The Governing Council’s next decision is in just over a week, its first since it almost doubled the size of its pandemic purchase program to EUR1.35trn (USD1.52trn). Lagarde’s comments confirm the ECB has effectively switched to a wait-and-see mode after the economy began to bounce back. (Bloomberg)

EU: German economy likely to grow again from October or November – minister. Europe’s largest economy will likely start to grow again from October or November said the German Economy Minister Peter Altmaier. The German economy has been battered by the coronavirus crisis, with economic output contracting by 2.2% in the 1Q, its steepest rate since 2009. The government expects the economy to shrink by 6.3% this year, its worst recession since World War Two. (Reuters)

UK: Hiring activity continues to fall in June. UK hiring activity continued to fall in June as clients continued to freeze or cut back on their recruitment plans due to the coronavirus pandemic, the Report on Jobs compiled by IHS Markit showed. Both permanent staff placements and temporary billings decreased at notably weaker rates than in April and May when the covid-19 pandemic was at its most severe. However, rates of contraction remained sharp. (RTT)

UK: Sunak gambles GBP30bn on plan to save economy. Rishi Sunak set out a GBP30bn (USD37.6bn) blueprint to save jobs and inject confidence into the UK’s coronavirus-battered economy. In a statement to Parliament, the Chancellor of the Exchequer announced tax cuts on home-buying and dining out, and a new bonus program for employers who don’t fire their staff. (Bloomberg)

Japan: Has JPY1,176.8bn current account surplus. Japan posted a current account surplus of JPY1,176.8bn in May. That exceeded expectations for a surplus of JPY1,088.2bn and was up from JPY262.7bn in April. The trade balance showed a deficit of JPY556.8bn, down 18.1% on year. Exports tumbled 28.9% a year to JPY4.2trn, while imports sank an annual 27.7% to JPY4.75trn. (RTT)

Markets

AirAsia (Neutral, TP: RM0.78): Weighs raising RM1bn via rights issue. AirAsia Group is considering raising about RM1bn through a rights issue after an external auditor raised concerns about its viability, according to a person with knowledge of the matter. AirAsia is also weighing raising additional funds via the sale of stakes in its digital and cargo units in order to further strengthen its financial position, said the person. (Bloomberg)

Gagasan Nadi: To build affordable homes in Shah Alam worth RM777m. Gagasan Nadi Cergas is planning to build 4,319 units of affordable homes in Shah Alam worth RM777m under the Rumah Idaman programme. This would be its largest ever construction project. Group MD Wan Azman Wan Kamal said, the project is expected to contribute positively to the group in the FYE Dec 31, FY2021 to 2027. The overall duration of the project is over six years till 2026. (SunBiz)

Focus Dynamics: In early talks on potential F&B acquisitions. Focus Dynamics Group is exploring opportunities to expand its core business in the F&B segment via mergers and acquisitions (M&A) to enhance its earnings and improve its financial performance. “In addition, the group is currently in an exploratory stage for a potential merger/acquisition exercise with another company that has a sizeable assets base. (SunBiz)

Muar Ban Lee: Proposes 1-for-1 bonus issue. Muar Ban Lee Group (MBL) has proposed a 1-for-1 bonus issue of up to 147.1m shares. MBL said the bonus issue is not expected to have any material effect on its earnings for the FYE Dec 31, 2020. However, there will be a corresponding proportional dilution in MBL’s consolidated EPS, as a result of the increase in the number of issued MBL shares pursuant to the bonus issue, it added. The bonus issue is expected to be completed in the 3Q this year. (The Edge)

SEGi: To lease Subang Jaya space from HCK in related party deal. SEG International (SEGi) said it has agreed to lease space in HCK Capital's upcoming project in Subang Jaya for the expansion of SEGi College Subang Jaya. SEGI said the space comprises an indoor area of 141,253 sq ft and outdoor area of 7,020 sq ft in one of four towers and part of the podium of Edumetro @ Subang Jaya. SEGi said the total rental amount will be RM58.6m for the tenure of 12 years. (The Edge)

Nationwide Express: Sells Shah Alam property at a loss to boost financial position. Nationwide Express Holdings is disposing of a property in Shah Alam to real estate company Rubicon Lexington SB at below market price. The selling price of RM19.4m is a discount to the market value of RM22m, the group said. The disposal of the property would result in a net loss of RM3.8m. (The Edge)

Cymao: Disposes of loss-making laminated product business for RM9.1m. Cymao Holdings is disposing of its loss making laminated product business for RM9.1m in a related party transaction. It said it is selling its 100% stake in Poly-Ply Industries SB to Zinton SB which is equally owned by Taiwanese nationals Lin Kai-Min and Lim Yu-Lin. The proceeds from the sale of laminated product business would be used to fund its capital expenditure and working capitals. (The Edge)

Market Update

  • The FBM KLCI might open higher today as US stocks ended Wednesday higher, with the tech-heavy Nasdaq scoring an all-time record, as investors focused on stocks that can outperform amid an acceleration of coronavirus infections in about 30 American states and longer periods of working from home. The Dow Jones Industrial Average rose 177.10 points, or 0.7%, to end at 26,067.28, after trading as high as 26,109.49 at the start of the session. The S&P 500 climbed 24.62 points, or 0.8%, to finish at 3,169.94. The Nasdaq Composite added 148.61 points, or 1.4%, closing at a fresh 10,492.50 record, it’s 25th of the year. In European equities, the Stoxx Europe 600 index fell 0.7%, and London’s FTSE 100 shed 0.6%. 

    Back home, the FBM KLCI finished 16.78 points or 1.07% higher at 1,583.50 in heavy trading on liquidity-driven buying. In regional markets, Japan's Nikkei 225 dipped 0.78% and South Korea's Kospi sank 0.24%. Hong Kong’s Hang Seng Index, however, gained 0.59% while the Shanghai Stock Exchange Composite Index rose 1.74%.

Source: PublicInvest Research - 9 Jul 2020

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Technical Buy- ASDION (0068)

Author: PublicInvest   |  Publish date: Wed, 8 Jul 2020, 9:45 AM


  • Target Price: RM0.145, RM0.155
  • Last closing price: RM0.125
  • Potential return: 16.0%, 24.0%
  • Support: RM0.120
  • Stop Loss: RM0.110

Possible for chart pattern breakout. ASDION is staging a potential breakout from its descending triangle chart pattern. Corresponding RSI and MACD indicators remain healthy while trending sideways, with anticipation of continuous improvement in both momentum and trend in the near term. Should resistance level of RM0.135 be genuinely broken with renewed buying interest, it may continue to lift price higher to subsequent resistance levels of RM0.145 and RM0.155.

However, failure to hold on to support level of RM0.120 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 8 Jul 2020

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Technical Buy- ALAM (5115)

Author: PublicInvest   |  Publish date: Wed, 8 Jul 2020, 9:44 AM


  • Target Price: RM0.105, RM0.115
  • Last closing price: RM0.095
  • Potential return: 10.5%, 21.0%
  • Support: RM0.090
  • Stop Loss: RM0.080

Possible for further recovery. ALAM is recovering from its consolidation phase. Slightly improved RSI and MACD indicator currently signals reasonable entry level, with anticipation of continuous improvement in both momentum and trend in the near term. Should resistance level of RM0.105 be genuinely broken with renewed buying interest, it may continue to lift price higher to subsequent resistance level of RM0.115.

However, failure to hold on to support level of RM0.090 may indicate weakness in the share price and hence, a cut-loss signal

Source: PublicInvest Research - 8 Jul 2020

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Serba Dinamik Holdings Berhad- Divesting CSE Global

Author: PublicInvest   |  Publish date: Wed, 8 Jul 2020, 9:42 AM


Serba Dinamik (Serba) announced that it has disposed its 25.2% investment (representing 128,166,250 shares) in CSE Global in the open market on the Singapore Stock Exchange, for a cash consideration of SGD57.67m or equivalent to ~RM177.33m. This development comes as a surprise as Serba was expected to have tapped on the synergies developed with the Group to put it in on even stronger footing globally while expanding its client portfolio. Nonetheless, we don’t think it is a big issue either as Serba has the wherewithal to expand on its own. Serba already has a strong presence in 25 countries across 6 regions, incidentally. That said, we see our earnings forecast reduced slightly by an average 1.8% without CSE’s contributions. We maintain our Outperform rating on Serba with TP adjusted lower to RM2.45 (from RM2.49) after the adjustment, based on unchanged PER of ~13x.

  • Recap. The 25.2% stake in CSE was acquired by Serba on 13th April 2018 for RM170.6m in order to expand its geographical footprint to new markets like the USA, Mexico, Australia and New Zealand. CSE, which is listed on the Singapore Stock Exchange, generates more than 90% of its revenue outside Singapore, operating in 17 countries including the USA, Mexico, UK, UAE, Nigeria, Australia, New Zealand, India, China, South Korea, and Indonesia. It provides total integrated industrial automation, telecommunications and environmental solutions projects.
  • Our view. CSE has grown its orderbook from SGD175m during the acquisition to ~SGD350m currently while reporting core net profit of SGD13.3m in FY17. Based on CSE’s audited financial statements as at 31 Dec 2019, it reported a net profit of SGD23.66m hence contributing ~RM15m to Serba. With this disposal coming just 2 years after its acquisition and the potential loss from tapping on synergies with the Group (not to mention earnings contribution), the market is perplexed more so when minimal disposal gains are being realize. Management has indicated that the disposal is timely and that its initial objectives have been met (ie. achieving relevant financial targets and international presence). We don’t think it is a big issue as Serba has the wherewithal to expand on its own. YTD wins of RM9.4bn and an outstanding orderbook at RM17.5bn bears testament to this.
  • Minimal impact. Without CSE, we see our FY20-22 earnings forecast reduce slightly lower by an average 1.8%. The proceeds from the disposal will be utilised for working capital within 12 months after completion. Gain on disposal is relatively small, at around RM6.7m.

Source: PublicInvest Research - 8 Jul 2020

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Real Estate Investment Trust (REIT)- More Policy Stimulus

Author: PublicInvest   |  Publish date: Wed, 8 Jul 2020, 9:41 AM


Bank Negara Malaysia (BNM) cut its benchmark interest rate by another 25 basis points (bps) yesterday, after the 50 basis points cut in previous meeting, which took the overnight policy rate to 1.75%. BNM indicated that global economic conditions remain weak with global growth projected to be negative for the year, dampened by the Covid-19 pandemic. The rate adjustment could help some REITs (those with floating rates) to save ~1%, by our estimates. We, however, keep earnings estimates unchanged on expectations that asset owners (especially malls) could see earnings affected by on-going pandemic slowdown. All told, given current weak consumer sentiment, we still believe the REITs’ defensive attributes are being weakened further by higher risks of a credit crisis or a damaging recession. Maintain our Neutral stance for now.

  • OPR at lowest. Bank Negara is concerned that a broad-based weakness in labour markets and precautionary behaviour by households and businesses could affect the recovery going forward and hence cut OPR by another 25bps to 1.75%. Local economic activity has contracted sharply in the second quarter of the year due to pandemic-driven lockdowns. After the gradual and progressive re opening of the economy since early May, economic activities have begun to recover from the trough in the second quarter however. That said, BNM is still wary that prospects of further outbreaks of the pandemic could lead to re-impositions of containment measures, more persistent weakness in labour market conditions, and a weaker-than expected recovery in global growth.
  • Interest savings are minimal. As reported earlier, among the REITs under our coverage, Sunway REIT’s floating rate loans are at c.57%, with Axis REIT at c.21%. IGB REIT’s debt is all at fixed rates. Interest savings are estimated to be ~1% though as we believe the risk of a longer-than-expected economic slowdown and ensuing weakness in earnings could negate the interest savings

Source: PublicInvest Research - 8 Jul 2020

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Banking- Uncharted Waters

Author: PublicInvest   |  Publish date: Wed, 8 Jul 2020, 9:41 AM


In a largely expected move, Bank Negara Malaysia (BNM) made a fourth consecutive cut to its overnight policy rate (OPR) this year, though at a lowered 25bps as compared to the 50bps reduction in May. Downside risks to global growth and elevated risk aversions were cited, this coming about despite improvements seen in financial conditions. Though economic activity contracted sharply in 2Q 2020 due to measures introduced to contain the Covid-19 pandemic globally and domestically, BNM is of the view that this OPR cut will provide additional policy stimulus, in addition to the various other financial and monetary measures already announced, to accelerate the pace of economic recovery. With the overnight move, OPR is now at an all-time low of 1.75% (2.00% previously), with the ceiling and floor rates of the corridor correspondingly reduced to 2.00% and 1.50% respectively.

We are not overly concerned over the issue of margin compressions, though we concede there will be some (Table 4, page 5). We reckon banks would already have anticipated these moves by BNM and would have adopted mitigating measures (funding mix, etc). While the cumulative 1.25% reduction in OPR this year is an obvious negative (~5% to 7% hit to full-year earnings, of which we have adequately accounted for in estimates), the great overhang on the sector currently is asset quality. Total provisions to total financing ratio remains at an encouraging 1+% average, though the recent uptick is of some worry. We leave our earnings estimates unchanged, having already accounted for weaker loans growth, weaker asset quality and the multiple rate cuts previously.

While we retain our Neutral view on the sector, it continues to be with a positive bias given its lagging valuations relative to the broader market. Banks will undoubtedly find the going a little tougher in 2020 from the effects of interest rate cuts and asset quality degradation. A cyclical economic recovery bodes well and could spark life into a sector yet to recover to pre-Covid price levels. For sector exposure, we like Alliance Bank.

  • Negative impacts, on face value, are more severe for banks with higher levels of variable-based loans (ie. RHB Bank @ 89.4%) as loan rates are re-priced faster thereby hitting income faster. While CIMB Group also has a high proportion of variable rate loans (83.9%) in its portfolio, 39.2% of its total loans are overseas exposures not affected by this cut. Alliance Bank and Hong Leong Bank may also see more “pain” from this cut given their respective 83.3% and 82.1% variable-rate exposures.

Source: PublicInvest Research - 8 Jul 2020

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July 2020 Policy Decision- The Worst Is Almost Over

Author: PublicInvest   |  Publish date: Wed, 8 Jul 2020, 9:39 AM


July Policy Decision

Bank Negara Malaysia (BNM) made another 25 basis points cut to the Overnight Policy Rate (OPR) in its fourth policy meeting yesterday, pushing the benchmark rate to 1.75%, a new low which is even lower than during the 2008/09 Global Financial Crisis. Downside risks to growth remains amid the economy that was just reopened and therefore, could take time to recover. This is further weighed by a weak external environment no thanks to strong Covid- 19 headwinds in advanced economies such as the US, Eurozone and Japan.

Covid-19 tail risks have pushed the International Monetary Fund (IMF) to cut its global growth forecast this year to -4.9% from 3.0% previously, aptly describing the global struggle to contain the COVID-19 pandemic. Moderate inflation growth in 2020 provides room for policy rate to be adjusted given the limited upside for oil price.

On balance, our baseline forecast is for the Malaysian economy to remain on a weak growth path, projected to expand by a marginal 0.3% in 2020 (2019: 4.3%), consistent with the expectation of BNM (2020F: -2.2% - +0.5%). Immediate key risks could come from heightened uncertainties in global and domestic environment including a new wave of Covid-19 cases and prolonged weakness in commodity-related sectors especially CPO and crude oil.

Policy Outlook: Cautious Outlook

Our economy is almost fully opened now that Covid-19 cases have been brought down extensively. The strict Standard Operating Procedures (SOP) accompanying the reopening of the economy may see Malaysia emerging victorious in its fight against the coronavirus. On that score, the authorities may use other policy levers to reinvigorate the economy especially when the OPR has been cut to historic lows. Further policy rate cut may not produce the desired results as the economy is being dampened by weak demand due to weak job market which requires different policy prescriptions to address. The OPR is expected to remain status quo until the end of the year given this, barring unforeseen circumstances.

Conclusion

The worst is almost over for Malaysia amid our success in flattening the Covid- 19 curve. Malaysia’s recovery rate is now among the highest in the world whilst the number of new infections has been almost negligible. The authorities can now devote resources to rebuilding and reforming the economy amid the new normal post Covid-19. Our engine of growth is expected to recover more strongly in the 3Q that before accelerating further in the 4Q, barring unforeseen circumstances like a new outbreak new cases that could lead to periods of closure (again), persistent weakness in labour market and weaker-than expected recovery in global growth.

In any case, a too-low interest rate environment for too long may be counter productive as it could encourage excessive risk taking in speculative investment, a seed for inflation to spiral. Successive stimulus programs rolled out since February should produce tangible results in the 3Q which forms the basis of our expectation for interest rate normalization in 1H 2021

Source: PublicInvest Research - 8 Jul 2020

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