Highlights

Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Tue, 11 Aug 2020, 6:01 PM

 

Daily Technical Highlights - (PPHB, ORNA)

Author: kiasutrader   |  Publish date: Tue, 11 Aug 2020, 6:01 PM


Public Packages Holdings Bhd (Trading Buy)

  • PPHB is a total packaging solutions provider that focusses on the production and sale of paper packaging products such as cartons boxes.
  • The Group’s bottom-line has shown year-on-year growth in three of the last four years with net earnings increasing from RM14.2m in FY Dec 2015 to RM23.6m in FY Dec 2019 (or a CAGR of 14%).
  • In the most recent quarterly result, the Group turned in a net profit of RM2.6m (-44% YoY) as its performance was hit by weaker demand due to the Covid-19 disruptions. Nonetheless, its balance sheet remains financially strong, backed by net cash & short-term investments of RM21.1m (translating to 11 sen per share) as of end-March this year. 
  • Assuming a net profit base of RM19.4m (which is derived from its average earnings over the past three years), the stock is currently trading at an undemanding PER of 7.2x (or just slightly above its historical mean valuation).
  • From a technical perspective, PPHB’s share price – which has been inching up on high volume in recent days to close at RM0.74 yesterday – could see a breakout from its sideways trading pattern after cutting above the 100-day SMA line.
  • Riding on the positive momentum, the stock is expected to test its recent high of RM0.84 (which is our resistance target, R1) before climbing further to close the price gap (that was opened in February this year) and challenge the next resistance threshold of RM1.09 (R2). This represents upside potentials of 14% and 47%, respectively.
  • We have pegged our stop loss level at RM0.65 (12% downside risk)

Ornapaper Bhd (Trading Buy)

  • ORNA is involved in the business of manufacturing: (a) paper packaging (namely corrugated boards and cartons boxes, catering mainly to the food & beverage, electricals & electronics and furniture industries); and (b) paper-based stationery products.
  • Its bottomline has grown steadily from RM7.0m in FY Dec 2015 to RM13.2m in FY Dec 2019, representing a CAGR of 17%.
  • The Group was profitable in its latest quarterly result, registering a net profit of RM1.5m (-31% YoY) in 1QFY20, which was dragged down by slow demand amid the Covid-19 outbreak. As of end-March 2020, net debt stood at RM29.7m (translating to a low net gearing of 16.8%).
  • Based on the past three years’ average net profit of RM12.7m, the stock is presently trading at an undemanding PER valuation of 6.9x (or 0.5SD below its historical mean).
  • On the chart, ORNA’s share price has posted higher lows following its recovery from a trough of RM0.70 on 19 March this year.
  • After closing at RM1.18 yesterday, the stock – which saw renewed buying interest in recent weeks – could trend higher to test the resistance levels of RM1.33 (R1) and RM1.43 (R2), implying upside potentials of 13% and 21%, respectively.
  • Our stop loss level is set at RM1.04 (or a downside risk of 12%)

 

Source: Kenanga Research - 11 Aug 2020

Labels: PPHB, ORNA
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Kimlun Corporation - Acquiring Lands in Cheras

Author: kiasutrader   |  Publish date: Tue, 11 Aug 2020, 6:00 PM


Kimlun together with Bayu Damai Equity S/B in a 49%:51% vehicle (Bayu Damai S/B) will be acquiring 43.5 acres of land in Cheras for RM95m. We are slightly negative over this development as we find Kimlun’s aggressive land banking strategy slightly risky from the balance sheet front which will increase its net gearing to 0.61x (from 0.55x). Reduce FY21E earnings by 4% post land acquisition and lower TP to RM0.96 (from RM1.00). Maintain OP.

Acquiring lands in Cheras. Through a 49% share subscription in Bayu Damai S/B, Kimlun and its partner (Bayu Damai Equity S/B which owned the other 51%) will be acquiring 43.5 acres of land in Alam Damai (Cheras) for RM95m. In essence, Kimlun is effectively acquiring 49% stake in this land for RM41.9m – translating to RM45/sq ft. The land would be developed in phases over 10-15 years starting from 2022 comprising apartments, condominiums and shop lots with a tentative cumulative GDV of RM2.2b.

While we think the land is in a prime location, we are slightly negative over this move as we find Kimlun’s land banking strategy aggressive at this juncture given (i) the uncertain economic situation stemming from Covid-19 and (ii) the structural oversupply issue facing the property market in Malaysia. Post-completion of the acquisition in 4QFY20, Kimlun’s net gearing is expected to rise to a relatively high level of 0.61x (from current 0.55x) – resulting in limited debt headroom should credit risks from private clients emerge. To put its gearing level in a relative context, Kimlun’s peak net gearing was 0.64x back in 2013 just before a rights issuance was called.

Already high opportunity costs. To recap, back in 2017 and 2018, Kimlun had already embarked on an aggressive land banking by accumulating (i) 3 plot of lands in Johor for a cumulative sum of RM120m and (ii) 77 bungalow plots in Shah Alam for RM68m. Given the weak economic backdrop for properties, KIMLUN will have to bear the burden of the higher financing and opportunity costs in the near future. Case in point - 1QCY20 financing costs increased 15%/7% QoQ/YoY.

Reduce FY21E earnings by 4% after incorporating higher borrowings for the land acquisition.

Maintain OUTPERFORM with a lower Target Price of RM0.96 (from RM1.00) based on 7x FY21E PER. Overall, despite the riskier stance taken by management, we still like KIMLUN for its small earnings base and their all-round involvement in either big infra projects or smaller scale affordable homes which would play to their advantage when pump priming initiatives commence. Also, current FY21E PER of 5.7x is attractive given that it also offers exposure to the rising construction activities in Singapore.

Key risks for our call are: (i) lower-than-expected margins, and (ii) delay in construction works.

Source: Kenanga Research - 11 Aug 2020

Labels: KIMLUN
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Supermax Corporation - Great Set of Results, More to Come

Author: kiasutrader   |  Publish date: Tue, 11 Aug 2020, 5:58 PM


By Raymond Choo Ping Khoon l pkchoo@kenanga.com.my FY20 core net profit of RM526m (+345% YoY) beat expectations by 35%/31% of our/consensus full-year forecasts. The positive variance compared to our forecast was due to higher-than-expected ASP and margin. We raise our FY21E/FY22E net profit by 57%/58% taking into account higher ASP and margin. TP is raised from RM17.10 to RM25.45 based on 20.8x CY21E EPS. Reiterate OP.

Key results’ highlights. QoQ, 4QFY20 revenue rose 107%, largely due to higher ASPs and volume sales from new lines commissioned in Plant 12. The increase in overall sales was mainly due to surge from the group’s overseas distribution centres as a result of an exponential surge in demand due to the pandemic. 4QFY20 PBT rose 444% as PBT margin rose 34.6ppt to 55.9% from 21.3% in 3QFY20, largely due to higher ASP, better economies of scale on improved efficiencies from the new plant, and higher margins from Own Brand Manufacturing (OBM) in both Manufacturing & Distribution divisions. This brings 4QFY20 core net profit to RM400m (+462% QoQ) which was further boosted by a lower effective tax rate of 21% compared to 24% in 3QFY20. A final single-tier dividend was proposed via a share dividend distribution on the basis of 1 treasury share for every 45 ordinary shares implying 47.0 sen/share at current market price of RM21.20/share or 2.2% yield.

YoY, FY20 core net profit rose 345% to RM526m due to revenue growth (+39%) and further boosted by higher ASP. Net cash position rose to RM853m with cash & bank balances amounting to RM1.2b as of 30 June 2020 compared to net debt of RM218m in FY19. The cash deluge is mainly due to customers paying 30%, 40% and 50% deposits in advance to secure supply.

Key highlight is ASP anticipated to continue rising, Two bets for the price of one. The highest ASPs so far have not been reflected in this current quarter and we are optimistic that the group’s OBM-cum- distribution business model will exhibit even healthier performance in the coming quarters. Supermax is expected to gain from higher margins from both its gloves manufacturing and OBM distribution due to abnormal demand and acute supply tightness. Amplifying the pent-up demand, buyers are paying between 30% to 50% in advance deposits to secure glove supply and timely delivery. Supermax expects the heightened demand to continue for the next 1 to 1.5 years. As demand picks up, containers are shipping at prices higher than preceding months.

We upgrade FY21E/FY22E net profit by 57%/58% after raising ASP/1,000 pieces from USD36/USD40 to USD44/USD43 in FY21E/FY22E, and raising EBITDA margin from 36% to 48%.

Undemanding FY21E PER valuation of 17x compared to expected earnings growth of 200%. Correspondingly, our TP is raised from RM17.10 to RM25.45 based on 20.8x CY21 revised EPS of 122.3 sen (previously 22x) (at slightly below +2.0SD above the 5-year historical forward mean). We like Supermax because: (i) the stock is trading at an undemanding 17x FY21E EPS compared to expected explosive earnings growth of >100%, and (ii) its OBM model enables it to extract higher margin from distributor prices, compared to the OEM model at lower factory prices. Reiterate Outperform.

Key risk to our call is longer-than-expected commercial operations of new plants.

Source: Kenanga Research - 11 Aug 2020

Labels: SUPERMX
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stocktrade101 tp of 25 is low, imo.
11/08/2020 6:55 PM

Hartalega Holdings - Gaining from Pandemic-induced Demand

Author: kiasutrader   |  Publish date: Tue, 11 Aug 2020, 5:57 PM


In an announcement to Bursa Malaysia, Hartalega (HART) disclosed that it is buying a piece of land for RM158.3m which is strategically located adjacent to its existing NGC where all necessary infrastructures are readily available. We view this positively as it will bridge the production timeline gap between NGC1 and NGC2. We also raise our FY21E/FY22E net profit 18%/24% after raising ASP assumptions. TP is raised from RM24.66 to RM26.22 based on 38x CY21E revised EPS. Reiterate OP.

Land acquisition to enable capacity expansion to cope with surge in pandemic demand. In an announcement to Bursa Malaysia, Hartalega (HART) disclosed that it is buying a piece of land for RM158.3m measuring 60.6 acres strategically located adjacent to its existing NGC where all necessary infrastructures are readily available. The acquisition works out to RM60/sq feet. We are positive on this latest corporate development by HART which will bridge the production timeline gap between NGC1 and NGC2. NGC1 is expected to be fully completed by 2021 and there is a potential new production gap between NGC1 and NGC2; hence, the acquisition of this land. Recall, in March 2020, HART disclosed that it is buying a piece of land aptly named NGC2 for RM263m (RM63.5/sq feet) measuring 95.1 acres which is located approximately 23km away in Banting from NGC 1. This latest project known as NGC 1.5 is expected to have four plants built with an estimated capacity of 19b pieces and construction is expected to start some time in 2021. NGC 2 is expected to have 82 new production lines with a capacity of 32.3b pieces which we believe is mostly for nitrile gloves and expected to start in 1Q 2022. The acronym NGC refers to ‘Next Generation Integrated Glove Manufacturing Complex’. The RM153m land acquisition can comfortably be funded internally given its operating cash flows seen averaging RM1.9b per annum over the next 2 years; hence, the acquisition may not raise its net gearing. Coupled with the previous acquisition of 95 acres of land in Banting to build NGC 2.0, total annual installed capacity will increase to 95b pieces upon completion by year 2027.

Outlook. To date, the first 8 lines of Plant 6 (installed capacity of 4.7b pieces) have commenced commercial operations and the remaining 4 lines are expected to be gradually ramped up. Plant 7 is expected to be commissioned by end-2020, which will focus on small orders as well as specialty products with an installed capacity of 2.7b pieces. With the progressive commissioning of Plant 6 and 7, the group’s annual installed capacity is expected to increase from current 39bn to 44bn pieces by FY22.

Raised FY21E/FY22E net profit by 18%/24% after: (i) imputing higher ASP from USD34/1,000 pieces to USD41 and USD43/1,000 pieces FY21E/FY22E, and (ii) raising EBITDA margin from 39% to 42%.

Reiterate OP. TP is raised from RM24.66 to RM26.22 based on 38x CY21E revised EPS (previously 43x) (at <+1.0SD above 5-year historical forward mean). We lowered our PER rating as we believe valuations are already pegged to supernormal earnings; hence, upside to peak earnings should have been factored in. We like HART for: (i) its solid management, (ii) constantly evolving via innovative products development, and (iii) its booming nitrile gloves segment.

Risks to our call. Lower-than-expected ASP and volume sales.

Source: Kenanga Research - 11 Aug 2020

Labels: HARTA
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Plantation - July Inventory Falls 10.3% MoM

Author: kiasutrader   |  Publish date: Tue, 11 Aug 2020, 5:56 PM


Review of July figures:
July inventory of 1.70m MT (-10.6% MoM) came below our estimate of 1.90m MT (+0.4% MoM) but within consensus’ estimate of 1.67m MT (-11.8% MoM). The deviation was mainly due to: (i) lower-than-expected production (-4.1% MoM) vs. our estimate (-1.8% MoM), and (ii) higher-than-expected exports (+4.2% MoM) vs. our estimate (-9.4% MoM).The jump in exports is mainly attributable to two countries – India (+85.0% MoM) and Iran (+631.1% MoM), which we believe was due to: (i) pent-up demand, and (ii) 0% palm oil export tax for Jun-Dec 2020.

Our projection for August:
For August, we forecast: (i) dip in production (-1.4% MoM) to 1.78m MT as trees continue to take a breather, (ii) decline in exports to 1.70m MT (-4.5% MoM) as pent-up demand gradually fizzles out. Data from cargo surveyors for 1st–10thAugust have shown an average decline in exports of 5.5% MoM, corroborating our view. All-in, we expect total demand of 1.99m MT to outstrip total supply of 1.84m MT leading to lower ending stocks of 1.55m MT (-8.8% MoM) in August.

Our thoughts on the sector:
We anticipate a gradual rise in inventory levels beyond August, as: (i) pent-up demand fizzles out, and (ii) production enters peak season in 2HCY20 which should exert pressure on CPO price.Additionally, due to the recent CPO price rally, SBO-CPO spread hasturned negativetoc.USD-1/MT (vs.2-year averageofc.USD+106/MT), reducing CPO’s competitive edge against its rival oils.Stay NEUTRAL on the plantation sector.Our CY20 CPO price forecast of RM2,300/MT remains. For investors that require exposure in the sector, we recommend HSPLANT (OP; TP: RM1.95), a laggard play – trading at a more palatable -0.75SD valuation level (vs. peers’ mean to +0.5SD).

July 2020 CPO inventory fell (-10.6%) MoM to 1.70m metric tons (MT). This is below our estimate of 1.90m MT (+0.4% MoM) but within consensus’ estimate of 1.67m MT (-11.8% MoM). Key deviations were: (i) lower-than-expected production (-4.1% MoM) vs. our estimate (-1.8% MoM), and (ii) higher-than-expected exports (+4.2% MoM) vs. our estimate (-9.4% MoM). The jump in exports is mainly attributable to two countries – India (+85.0% MoM) and Iran (+631.1% MoM), which we believe was due to: (i) pent-up demand, and (ii) 0% palm oil export tax for JunDec 2020. Having said that, we caution on the sustainability of large exports after stockpiling activities are completed. Already, we are seeing signs of exports to China slowing (-17.9% MoM). Note that China reopened its economy earlier than India.

Forecasting August 2020 production to dip (-1.4% MoM) to 1.78m MT as trees continue to take a breather following the surge in production since Jan 2020 to Jun 2020. While this period may offer a brief relief to CPO prices, we emphasize on the peak production season that is yet to come. Most planters (especially those with estates primarily in Malaysia) believe that we should see another peak production in Sep-Oct 2020. Our view is in line with planters.

Expecting exports to decline (-4.5% MoM) to 1.70m MT in Aug 2020. We believe the recent spike in exports was mainly fueled by inventory replenishment efforts from India and China, alongside the 0% palm oil export tax for Jun-Dec 2020 (making Malaysian palm oil more competitive than Indonesia). Moving forward, we expect the pent-up demand to gradually fizzle out - India’s oils and fats ending stock for July has already recovered to 806k MT (-7.2% YoY) vs. June’s 616k MT (-24.7% YoY). We also expect China to ramp up soybean purchases which could possibly result in lower palm oil purchases. Meanwhile, CPO price (Aug-MTD MPOB average: RM2,852/MT) is 10.7% higher than July’s average of RM2,577/MT which could discourage exports. Taking all these into consideration, we forecast exports to decline 4.5% MoM to 1.70m MT in August 2020. Data from cargo surveyors (AmSpec, Intertek) for 1st – 10th August has also shown an average decline in exports of 5.5% MoM, corroborating our view.

August 2020 inventory to fall (-8.8% MoM) to 1.55m MT. All-in, we expect total demand of 1.99m MT to outstrip total supply of 1.84m MT, leading to lower ending stocks of 1.55m MT in August. We anticipate a gradual rise in inventory levels beyond August, as: (i) pent-up demand fizzles out, and (ii) production enters peak season in 2HCY20 which should exert pressure on CPO prices. In addition, due to the recent CPO price rally, soybean oil-palm oil (SBO-CPO) spread has turned negative to c.USD-1/MT (vs. 2-year average of c.USD+106/MT), potentially undermining CPO’s competitive edge against rival oils.

Stay NEUTRAL on the plantation sector. Our CY20 CPO price forecast of RM2,300/MT remains and we advise caution in the space. For investors that require exposure in the sector, we recommend HSPLANT (OP; TP: RM1.95), a laggard play – trading at a more palatable - 0.75SD valuation level (vs. peers’ mean to +0.5SD).

Source: Kenanga Research - 11 Aug 2020

Labels: HSPLANT
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Malaysia Distributive Trade - Reached Near Pre-pandemic Level in June on Impact of Economic Reopening

Author: kiasutrader   |  Publish date: Tue, 11 Aug 2020, 5:54 PM


  • Distributive trade sales fell for the fourth straight month, but at a smaller contraction in June (-8.4%; May: -23.8%)
    • Attributable to the resumption of economic activities under the Recovery Movement Control Order (RMCO), which started on 10 June.
    • MoM: expanded sharply for the second successive month (21.8%; May: 26.3%), reflecting a continued domestic recovery.
    • 2Q20: fell sharply (-22.6%; 1Q20: 1.6%) due to the impact of the Movement Control Order following the COVID-19 outbreak.
  • The improved performance was broad-based, steered mainly by the sales of motor vehicles, retail and wholesale trade
    • Retail trade: softer contraction (-9.2%; May: -16.1%) due to a smaller decline in sales of others in specialised store and household equipment as more businesses were allowed to resume operations.
    • Motor vehicles: dropped by less (-4.5%; May: -49.5%) as sales of vehicles, maintenance and repair, rebounded almost matching pre-pandemic level.
    • Wholesale trade: smaller drop (-8.7%; May: -23.6%) due to less decline in sales of other specialised and household goods.
  • Improved retail trade performance in the region
    • JP: fell for the fourth straight month (-1.3%; May: -12.4%) but at a smaller contraction amid persistence weakness in spending of general merchandise and big-ticket items.
    • SG: contraction eased (-27.8%; May: -52.0%) on the back of the gradual economic reopening, as Singapore entered phase one on 2 June and phase two on 19 June.
  • 2020 distributive trade sales forecast retained (-1.5% to -2.5%; 2019: 5.9%)
    • In spite of MoM double digit growth rebound in May and June, and supported by the larger economic stimulus package, the recovery pace is expected to be weighed by persisting COVID-19 rising infection fears.
    • Therefore, we maintain our private consumption forecast to moderate sharply to 1.5% in 2Q20 (1Q20: 6.7%), weighing overall 2Q20 GDP growth (-7.5%; 1Q20: 0.7%). Nevertheless, growth is expected to recover gradually, possibly registering a softer contraction in 3Q20 (-4.5%) on the impact of ongoing fiscal stimulus and monetary easing.

Source: Kenanga Research - 11 Aug 2020

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