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- Market Daily Report: FBM KLCI down with S&P 500 mini futures
- Market Daily Report: KLCI rises with Asian markets after Macron win
Friday, December 30, 2016
KUALA LUMPUR (Dec 30): The FBM KLCI inched up at the eleventh hour to finish the last trading day of the year higher on window dressing in selected counters.
The benchmark index closed at 1,641.73 points, up 3.8 points or 0.23% when compared to Thursday's close.
Top gainers, which advanced in late trading, included British American Tobacco (Malaysia) Bhd (BAT), Nestle (Malaysia) Bhd, Petronas Dagangan Bhd and KLCC Stapled Group.
Earlier, Malacca Securities Sdn Bhd analyst Kenneth Leong told theedgemarkets.com that the market was down on profit-taking by some investors following three days of gains by the KLCI.
"The performance of the index [is] also in tandem with the weak performance from the overnight Wall Street," he added.
Going forward, he expects the key index to trade between 1,610 and 1,650 points as there was no catalyst in sight yet.
"Further, there was also uncertainty surrounding the policy of the Donald Trump presidency," he said.
Sector wise, Leong said investors may take a look at the oil and gas sector as oil price was trading at near 18-month high, underpinned by the optimism over a deal to curb outputs.
Overall market sentiment was mixed, with 404 advancers versus 362 decliners, while 349 counters were unchanged.
Total volume amounted to 1.45 billion shares worth RM1.76 million.
Gainers were led by BAT, while losers were led by Hang Seng Index related warrants HSI-H81 and HSI-C86, followed by Kuala Lumpur Kepong Bhd.
The most actively traded stock was Borneo Oil Bhd.
Across the region, Japan's Nikkei 225 fell 0.16%, but Hong Kong's Hang Seng gained 0.97%, Shanghai Composite Index rose 0.24% and South Korea's Kospi edged up 0.1%.
Reuters reported that Asian stocks looked set to end 2016 on an upbeat note, with the benchmark headed for its first annual gain in three years, while the US dollar reversed earlier losses and oil was poised to record its biggest gain in seven years.
Source: The Edge
Thursday, December 29, 2016
KUALA LUMPUR (Dec 29): The FBM KLCI rose for the third consecutive day today, rising 0.47% or 7.63 points to close at 1,637.93.
The broader market, however, was mixed with trading remaining subdued as most investors were staying away during this year-end holiday season.
Mercury Securities Sdn Bhd research head Edmund Tham said the local stock market is still performing below expectations.
"The sentiment is not that great as we speak and the market today is still not very sound," he said when contacted over the phone. "Trade volumes have yet to fully recover and we might only see some recovery once traders are back from the year-end break."
"However, the ringgit is stabilising, with oil prices hovering between US$53 (RM237.68) and US$54 per barrel. For starters, this is an advantage to us as we are an oil-exporting country," he added.
Going forward, he said investors are expected to pay close attention to the construction industry, especially sector players bidding for infrastructure jobs from the government.
There were 370 gainers and 371 losers on Bursa Malaysia today. A total of 1.77 billion shares valued at RM1.4 billion were traded.
The top three active counters were Sumatec Resources Bhd, Borneo Oil Bhd and Hibiscus Petroleum Bhd.
Reuters today reported that shares across Asian markets were subdued in view of the mild setback faced by Wall Street following weeks of gains, while a pullback in US yields stimulated year-end profit-taking in the US dollar.
Japan's Nikkei 225 dropped 1.32%, Hong Kong's Hang Seng rose 0.17%, and South Korea's Kospi nudged 0.1% higher.
Source: The Edge
Wednesday, December 28, 2016
KUALA LUMPUR (Dec 28): The FBM KLCI rose for the second consecutive day today after the Christmas holiday break, buoyed by positive regional indices. Trading, however, remained thin.
The KLCI's rise was helped by gains in select blue chips such as British American Tobacco (Malaysia) Bhd, Genting Bhd and Malayan Banking Bhd.
The indicator closed at the day's high of 1,630.30 points, a gain of 10.62 points or 0.66% compared with yesterday's close of 1,619.68 points.
The ringgit depreciated 0.1% against the US dollar to 4.4835 as at 4.41pm.
In commodities, international traded Brent Crude Index rose 0.37% to US$56.30 (RM252.34) per barrel while US Crude also increased 0.37% to US$54.10 as at 4.34pm.
Mercury Securities Sdn Bhd research head Edmund Tham said the local stock market's trend is likely to depend on external factors such as the performance of the US and Chinese markets.
"Trading volume is likely to remain thin as many traders and fund managers are away from their desks," he told theedgemarkets.com.
Tham expects the benchmark index to trade around the current level in the remaining trading days of the year.
A total of 1.41 billion shares worth RM1.45 billion changed hands today. Market breadth was positive, with 416 advancers versus 287 losers while 345 counters were traded unchanged.
The top gainers were led by Nestle (Malaysia) Bhd, which gained RM1.10 to settle at RM78.50, while the top loser was Dutch Lady Milk Industries Bhd, which closed 50 sen lower at RM55.
The most actively traded stock was Perisai Petroleum Teknologi Bhd — up 1.5 sen to close at nine sen, with 126.92 million shares traded.
Across the region, South Korea's Kospi retreated 0.87%, China's Shanghai Composite Index fell 0.54% and Japan Nikkei 225 saw a marginal drop of 0.01%. Hong Kong's Hang Seng Index, however, rose 0.83%.
Reuters reported that Asia's stocks followed Wall Street higher, while the US dollar firmed against the yen following the release of upbeat US economic data overnight.
Crude oil prices held large gains on expectations of supply tightening once oil-producing nations implement a scheduled output cut.
Source: The Edge
Tuesday, December 27, 2016
KUALA LUMPUR (Dec 27): Malaysian stocks closed higher on the first trading day after the long Christmas break, lifted by selected blue chips.
At closing bell, the key FBM KLCI gained 2.53 points or 0.16% to end the day at 1,619.68 points versus last Friday's closing of 1,617.15 points.
The rise in the index could be partially attributed to the increase in share price of British American Tobacco (Malaysia) Bhd (BAT), PPB Group Bhd and Kuala Lumpur Kepong Bhd (KLK), which were among the top gainers today.
"This is the final week of the year and I am expecting some late window dressing," TA Securities Holdings Bhd senior technical analyst Stephen Soo told theedgemarkets.com over the phone.
Technically, he said the index fell to a low of near to 1,616 points, signalling that the downside of the key index was mostly cushioned.
"Hence, I am looking for some potential window dressing by the local funds towards the end of the year," he added.
He expects the benchmark index to trade in the range of 1,685 points to 1,729 points towards the end of the year.
A total of 1.09 billion shares worth RM1.03 billion changed hands today. Market breadth was slightly negative, with 375 losers versus 333 gainers and 336 counters were traded unchanged.
The top gainers were led by BAT, which gained 56 sen to settle at RM43.06, while the top loser was Nestle (Malaysia) Bhd, falling 94 sen to close at RM77.40.
The most actively traded stock was Borneo Oil Bhd, inching up 0.5 sen to close at 18.5 sen, with 65.41 million shares traded.
Mixed performance was seen across the regional key indices. South Korea's Kospi settled 0.22% higher and Japan's Nikkei 225 inched up marginally by 0.03%. However, Hong Kong's Hang Seng was down 0.28%, while Shanghai Composite Index closed 0.25% lower.
Source: The Edge
Not Rated stock with a fair value of RM1.54
We are closing our position on TASCO. (Previous call: Trading Buy). While it may be poised for a recovery over the longer term, arising from its expansion plans, the current poor share price performance coupled with a stagnating earnings outlook in the short-to-medium term render limited upside to the stock. It is now a NOT RATED stock with a fair value of RM1.54.
Poor share price performance. We last highlighted TASCO in On Our Radar report series in May last year, with a Trading Buy call. However, its share price has plunged 27%, from RM2.06 (pre-adjustment: RM4.12) to close at RM1.50 last Friday, bogged down by a disappointing set of FY16 results, coming in at only 64% of our previous earnings projection on the core level (actual CNP of RM25.2m vs. previous projection of RM39.4m), arrived after stripping off RM5.4m gains on disposal of PPE. The poor results were mainly due to an overall low volume demand, particularly for its domestic segments. Earnings outlook is expected to remain stagnant, as we introduce our FY17-18E earnings projection with an implied CNP growth of - 5.5%/7.5%, mainly premised on the poorer international segments performances.
Neutral international outlook. After posting positive results for its international segments in FY16, with a segmental profit growth of 263%, 1H17 results were rather disappointing, growing at only 2.4% YoY, from RM5.5m to RM5.6m, despite posting a respectable revenue growth of 19.7% YoY from RM97.4m to RM116.6m. This was due to increased competition in business contracts, which resulted in higher operating costs – particularly for its Air Freight Forwarding business, where margins dropped to a meagre 1.8% from 5.9% in FY16. Going forward, we expect FY17E international earnings to normalise from the strong growth last year with a projected segmental earnings decline of 19.9%, before posting noticeable growth in FY18 with projected growth of 20.8%. Furthermore, we believe that the shipping-line merger between its parent NYK, K Line and MOL will have very minimal impact at TASCO level. One silver lining is that TASCO is a beneficiary of a stronger USD, with a sensitivity analysis suggesting PAT impact of c.RM2m for every 5% change of the USD.
Domestic earnings recovery. The domestic segments posted positive 1H17 results with a YoY earnings growth of 24.1%, from RM9.9m to RM12.3m, due to greater custom clearance and haulage volume coupled with improved bottom line from Southern region warehouses. While the growth is fairly healthy, it benefitted from the low base last year. While we project that FY17E domestic segments will see a 44.4% growth, recovering from the overly poor performance in FY16 when earnings plunged 60.4% from RM40.2m to RM15.9m, we expect the segment to maintain its sluggishness going into FY18 and beyond, with a mere 1% growth projection, as top line is capped by high utilisation of its warehouses while margins is expected to have thoroughly recovered. Contract logistics, one of the two divisions within its domestic segment, has been suffering deteriorating revenues for the past two FYs, while the trucking division continues its struggle to break even.
Future expansions. Management guided their intention to invest in cold chain logistics, aiming to make up c.15% of revenue in the next 3-4 years, with a planned total capex outlay of RM100m to RM150m. While we understand that cold chain logistics is a niche market, it is expected to fetch much higher margins given high capex and specialised services required. We identify TNLOGIS to be the closest competitor as it already has a stable footing in the cold chain industry. Additionally, TASCO also guided that they are aiming to expand its warehousing space to 500k sq ft within the same 3- 4 year time period, more than double the current 200k sq ft capacity, which contributed RM17m PBT in FY16, under its contracts logistics division.
NOT RATED, with Fair Value of RM1.54; derived based on a forward PER on FY18E of 12x, which is +0.5SD above its 5-year mean of 10x. We lowered our PER valuation by 0.5x from our last report, in view of the deteriorating outlook. Thus, with the limited upside, we are closing our previous Trading Buy position with a NOT RATED call.
Source: Kenanga Research - 27 December 2016
Friday, December 23, 2016
Maintain OUTPERFORM with unchanged target price (TP) of R17.76
9M17 CNP came in within expectations. Absence of dividend was expected. No changes made to our earnings estimate. It remains as our most preferred name in the NBFI space given its: (i) resilient earnings prospects on healthy gross financing receivables growth of 8-9%, (ii) decent asset quality with NPL at low 2-3%, (iii) healthy CAR of c.19%, (iv) high ROE of >20% as well as (v) decent yields of 4.5-4.8%. Moreover, valuation is still undemanding at 8.0x FY18E PER. Maintain OP with an unchanged TP of RM17.76.
Within expectations. The group reported 3Q17 core net profit (CNP) of RM63.4m (+22% QoQ; +27% YoY), widening its 9M17 CNP to RM174.5m (+17% YoY) which made up 72% of both our and consensus full-year forecasts. Note that the group’s 4Q is the seasonally strongest quarter. As expected, no dividend was declared. We are expecting the group to declare a total net DPS of 64.0 sen for FY17.
YoY, 9M17 total income grew by 14% driven by stellar performances in both net interest income and other operating income. Delving deeper, net interest income increased by 21% attributed to higher net financing receivables while higher growth of operating income (+13%) was due to stronger recovery of bad debts, better commission income from sale of insurance products and AEON Big loyalty programme’s processing fees. Meanwhile at the bottom line; despite the higher cost-to-income ratio (CIR; of +2.1ppts to 35.9% which was due to higher OpEx for investment in new systems, employees incentives and A&P costs for anniversary celebration) coupled with the higher effective tax rate of 25.4% (+1.3ppts), CNP still improved by 17%. Looking at other key metrics, Net Interest Margin (NIMs) continued to decline modestly to 12.8% (-0.7ppts) dragged by lower average lending yield (-0.69ppts). Nonetheless, asset quality improved as non-performing loan (NPL) ratio fell by 35bps to 2.33% (as of 3Q17), amid the marginal decline in the credit charge ratio (CCR) to 5.3% (from 6.1% in 3QFY16). Annualised ROE remained healthy at 27.6% (-0.2ppts) while CAR remained at c.19%.
Meanwhile on QoQ basis, 3Q17 CNP improved by 22% on: (i) lower allowance made for impairment losses (normalisation from the higher allowance made last quarter during the post Hari-Raya period) coupled with (ii) lower CCR of 5.2% (-0.8ppts) compared to 2Q17’s CCR of 6.0% (which was on higher employees incentives and A&P costs spent for anniversary celebration). Meanwhile, NPL ratio continued to improve to 2.33% (from 2.43%) which was helped by higher net financing receivables.
Continued to showcase its strength. Loan demand from AEONCR’s targeted customers - retail market is still resilient thanks to its niche market exposure, vis-à-vis most of the financial services providers that are facing tougher times in growing their loan portfolios amid the current economic condition. We are keeping our gross financing receivables growth assumption rates of c.9% for FY17-FY18. Besides its healthy loan growth, we also like its: (i) decent asset quality with NPL expected to hover between 2-3% (on seasonality), (ii) healthy CAR, which is expected to be at a comfortable 20% vs. Bank Negara Malaysia CAR requirement of 16%, (iii) higher ROE of >20% in FY17E-FY18E as well as (iv) decent dividend yields of 4.5%-4.8% (based on DPR of 38%); which are better than other NBFIs as well as most of the banking stocks.
Maintain OUTPERFORM with an unchanged TP of RM17.76. We made no changes to our earnings estimate. Thus, our TP is unchanged at RM17.76 based on an unchanged targeted 10.0x FY18E PER (which is at +0.5SD above its 5-year mean forward PER). Risks to our call include: (i) steeper margin squeeze, (ii) slower-than-expected financing receivable growth, and (iii) worse-than-expected deterioration in asset quality.
Source: Kenanga Research - 23 December 2016
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Retain HOLD with unchanged target price (TP) of RM6.32
- IHH Healthcare’s indirect wholly-owned subsidiary, M&P Investments Pte Ltd recently received the “Business License” from Chengdu Administration of Industry & Commerce for the establishment of a 70% owned Sino-foreign Equity Company named ParkwayHealth Chengdu Hospital Limited. The remaining 30% equity stake is owned by their local partner, Shanghai Broad Ocean Investments Co. Ltd. The license is valid for 20 years commencing 12 December 2016.
- ParkwayHealth Chengdu was established with a registered capital of RMB300m (RM192m) of which IHH’s investment via M&P is a cash subscription of RMB210m (RM134.6m).
- The principal activities of ParkwayHealth Chengdu are provision of specialized care and services such as obstetrics & gynecology, pediatrics, orthopedics, ophthalmology, respiratory, gastroenterology, oncology, cardiology and geriatrics.
- Last year M&P along with Broad Ocean had entered into an agreement with Perennial Real Estate Holdings Ltd to lease 48ksqm within the Perennial International Health and Medical Hub to operate a 350 bed multidisciplinary hospital.
- We are positive on the investment as this partnership will further solidify the group’s presence as an international healthcare provider in Greater China with their first tertiary facility in the Western Region.
- Chengdu is located within the Sichuan province, which has a population of circa 81m people. The hospital is expected to commence operation in 1H18.
- Financial Impact: We don’t expect the investment to have any material impact to the group in the near term. As end of 3Q16, the group has a cash war chest of RM2.0bn and gearing is at a comfortable 0.21x. The investment is less than 1% of their cash balance.
- The group is on course to open 850 beds in China (HK by end 1H17and Chengdu by 1H18) which is expected to boost their earnings in the midterm. Nonetheless, we still expect the group to face higher pre-operating expenses/losses and staff costs during gestation period. We expect IHH to continue its strategic investment within China as the government liberalizes its medical sector.
- Strategic geographic footprint in key gateway markets. Ageing population profile and rise in affluence in key markets will support demand for high quality healthcare.
- Regulatory / competitive / FOREX risks; #bull# Higher staff cost; and
- Inability to unlock synergies of the enlarged entity.
HOLD ↔ TP: RM6.32↔
- Whilst we like IHH for its exposure to key gateway markets, good management and strong reputation, earnings delivery in the near term will be hampered by higher pre-operational costs as the new hospitals are likely to take time to mature.
- Reiterate HOLD call with unchanged SOP-derived TP of RM6.32 .
Source: Hong Leong Investment Bank Research - 23 December 2016
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Thursday, December 22, 2016
KUALA LUMPUR (Dec 22): Malaysian stocks closed lower today following modest losses on Wall Street. The FBM KLCI closed down 6.39 points or 0.4 % to 1,623.20 at 5pm.
Yesterday, the Dow Jones Industrial Average closed down 0.16% and the S&P500 ended lower 0.25%, while the Nasdaq composite fell 0.23%. Prior to this, the US markets had been on an upward trajectory since US President-elect Donald Trump’s win in the November presidential elections.
JF Apex Securities Bhd senior analyst Lee Cherng Wee said the drop in the US markets had led to the KLCI’s decline today.
“I believe the index’s performance today is in line with the weaker US markets, as well as European markets, there are no local [growth] catalysts for the market at the moment,” he told theedgemarkets.com.
Regionally, markets were also in trend with the US’s lacklustre performance as Japan’s Nikkei 225 closed down 0.09%, Hong Kong’s Hang Seng index closed down 0.8% and South Korea’s KOSPI closed down 0.11%.
Reuters reported that Asian shares struggled on Thursday after a lacklustre performance on Wall Street as investors looked to US economic data later in the day for potential catalysts, as markets wind down ahead of the holidays.
The United States is due to release a third revision of its third-quarter gross domestic product, Reuters reported.
At press time, the ringgit has recovered by 0.06% to trade at 4.4763 against the US dollar, from its close of 4.4792 yesterday.
Against the Singapore dollar, the ringgit strengthened by 0.23% to trade at 3.0937 from its close of 3.1008 yesterday.
At the closing bell, the KLCI saw 1.05 billion shares valued at RM1.2 billion traded. Losers outweighed gainers, with 514 losing counters against 215 gainers, while 337 counters were unchanged.
Top gainers for the day included Hai-O Enterprise Bhd, Malaysian Pacific Industries Bhd and Globetronics Technology Bhd, while losing counters included Teck Guan Perdana Bhd, MISC Bhd and Genting Bhd.
Hibiscus Petroleum Bhd was the most actively traded counter, with 49.7 million shares changing hands.
Source: The Edge
Maintain BUY with unchanged target price (TP) of RM1.08
- MBSB has received approval from Bank Negara Malaysia (BNM) to commence negotiations on a proposed merger
- We are positive on the ongoing development towards becoming a full-fledged Islamic bank
- We maintain our earnings forecast at this juncture
- Hence we reaffirm our BUY recommendation with an unchanged TP of RM1.08
MBSB gets nod for negotiations on a proposed merger. MBSB yesterday has received a letter from BNM dated 21 December 2016 which states that BNM has no objection in principle for MBSB to commence negotiations with the existing shareholders of Asian Finance Bank Berhad (AFB) namely Qatar Islamic Bank, RUSB Investment Bank Inc, Tadhamon International Islamic Bank and Financial Assets Bahrain WLL for a proposed merger of MBSB and AFB. BNM requires that the negotiations be completed within six months from the date of BNM’s letter.
Positive on the proposed merger. We are positive with the on-going development on the proposed merger with AFB. We have little doubt that the proposed merger will be a profitable one as is the prospect of becoming a full-fledged Islamic bank. While the expansion of profit and assets are likely to be immaterial, the proposed merger will benefit MBSB in another way. The full bank licence will allow MBSB to be able tap into new financial services segments which it cannot offer at the moment (such as trade facilities, collecting CASA deposits and offering other interbank instruments) to expand the business. We expect the challenges of the proposed merger much will depend on an agreement on pricing. Given Malaysia’s banking sector has been trading below its 5- year historical PBV of 1.3x-1.5x, it is fair for MBSB to pay 1.1x-1.2x premium of 9MFY16 AFB’s book value of RM500.1m to obtain a full-bank licence, which would translate to a price of about MYR550m-600m.
Impact on earnings. We make no changes to our earnings forecast at this juncture until further clarification on the proposed merger.
Recommendation. We reaffirm our BUY recommendation on MBSB with an unchanged TP of RM1.08. Our valuation is pegged to PBV of 0.9x, which is 1 standard deviation below its 3-year average PBV of 1.6x.
Source: MIDF Research - 22 December 2016
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Maintain perform with higher target price (TP) of RM4.03
1H17 net profit of RM25.7m (+67% YoY) came above our expectation (62% of forecast). DPS of 5.0 sen was declared, as expected. Strong and sustained performance in MLM surprised us positively, which also reduced the risk of other operating divisions. Hence, FY17E-FY18E earnings forecasts are raised by 12%-13%. TP lifted to RM4.03 but MP call maintained as valuation is not compelling enough to warrant an upgrade.
Above expectation. 1H17 net profit of RM25.7m (+66.6% YoY) was above our expectation by matching 61.9% of our full-year forecast. Consensus comparison is not available as the stock is not widely tracked. The positive deviation can be attributed to the stronger- than-expected performance in MLM division. As expected, the Group declared DPS of 5.0 sen (vs. 1H16: 4.0 sen).
YoY, 1H17 revenue surged 38.4% to RM178.4m mainly driven by impressive growth in MLM division (+62.7%) thanks to the strengthening of distributor base to c.110k (+32.5%) from 83k in FY16 and strong sales of consumer products. 1H17 operating profit jumped 62.4% to RM32.8m again boosted by MLM division (+91.0%). The division contributed 78% of the 1H17 group operating profit (vs 66% in 1H16). As a result, 1H17 net profit grew 66.6% to RM25.7m.
QoQ, 2Q17 revenue climbed 26.8% to RM99.8m, supported by MLM division (+37.3%) thanks to the incentive trip promotion carried out during the quarter as well as the successful rebranding of its beverage product. 2Q17 operating profit surged 61.0% mainly driven by MLM division (+63.3%) on the back of strong revenue growth. As a result, 2Q17 net profit surged 63.3% to RM15.9m.
MLM continues to shine. We were positively surprised by the sustained growing momentum of the MLM division which was driven by both expansion in distributor base and the strong productivity on the back of the effective product strategy and rewarding incentive system. Besides, the increased contribution of MLM division has also reduced the risks of other operating divisions, including wholesale and retail divisions, which are exposed to the currency risk and weak consumer sentiment, respectively. Earnings growth momentum moving forward should be sustained, supported by MLM.
Earnings forecasts upgraded. We raise FY17E and FY18E net profits by 12.5% and 11.6%, respectively, after imputing higher growth assumption for its distributor base.
Maintain MARKET PERFORM with higher Target Price of RM4.03 (from RM3.60). Correspondingly with the earnings upgrade, our TP is raised to RM4.03, based on an unchanged 15.2x PER FY18E which implied +1 SD over the 5-year mean. While we are impressed with the strong growth achieved, the valuation is not compelling enough (last traded price at 14.2x PER FY18E, above +0.5 SD over 5-year mean) for us to upgrade the rating following the 61.8% YTD surge in share price as we believe the market may have already priced in most of the positives. As such, we are maintaining our neutral stance on the company on its strong brand names, sturdy balance sheet and generous dividend pay-out.
Source: Kenanga Research - 22 December 2016
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Maintain BUY with target price (TP) of RM1.95
- Wins contract at Iskandar. Mitrajaya announced that it has been awarded a RM159.4m contract for superstructure works for an office tower development at Medini, Iskandar. The job was awarded by Medini Development with a contract duration of 2 years, to be completed by Jan 2019.
- Good end to the year. With this job in the bag, Mitrajaya’s YTD job wins currently stands at RM736m, which has surpassed last year’s sum of RM469m. We estimate its orderbook balance to stand at RM1.5bn now, translating to a cover ratio of 2x on FY15 construction revenue.
- In the running for another job. It was recently reported in The Edge that Mitrajaya is in the running for a RM400m condo job in Ara Damansara. Mitrajaya is said to have submitted the most competitive bid for the job. Should this materialise, the contract would boost Mitrajaya’s orderbook by +27% to RM1.9bn.
- Compulsory land acquisition. Last week, Mitrajaya announced that it will be disposing 6 acres of its land at Pengarang, Johor. The disposal is on a compulsory acquisition basis for the development of the RAPID project. As compensation, Mitrajaya will receive RM31.4m. Based on the land’s book value of RM10.4psf, the disposal gains are estimated at RM28.8m. The disposal will reduce Mitrajaya’s net gearing from 35% to 30%. We are positive on this disposal as (i) there is no development plans for the said land; and (ii) it highlights the deep value of Mitrajaya’s land bank.
- Lower than expected orderbook replenishment could slow down its earnings growth potential that has been robust over the last 3 years.
- As YTD job wins of RM736m are still within our FY16 target of RM800m, we leave our earnings forecast unchanged. Rating Maintain BUY, TP: RM1.95
- Despite its earnings growing at a CAGR of 69% over the last 3 years, Mitrajaya continues to deliver commendable results. We continue to envisage growth, albeit at a slower pace now with CAGR of 11% given its significantly higher earnings base.
- Our SOP based TP of RM1.95 implies FY16-17 P/E of 13.2x and 12.0x respectively.
Source: Hong Leong Investment Bank Research - 22 December 2016
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Wednesday, December 21, 2016
KUALA LUMPUR (Dec 21): The FBM KLCI fell 4.93 points or 0.3% mainly on late selling of Petronas Dagangan Bhd and Kuala Lumpur Kepong Bhd (KLK) shares. The KLCI fell amid lower Bursa Malaysia share-trade volume possibly due to the year-end holiday season.
At 5pm, the KLCI closed at 1,629.59 points. Petronas Dagangan fell 22 sen to RM23.52 while KLK dropped 14 sen to RM23.66.
Petronas Dagangan and KLK were Bursa Malaysia's third and fifth-largest decliners respectively as investors took profit following both stock's recent gains.
Bursa Malaysia saw 1.16 billion shares valued at RM1.56 billion traded. There were 353 gainers and 369 decliners.
Yesterday, the bourse saw 1.29 billion shares transacted.
Today, Inter-Pacific Securities Sdn Bhd research head Pong Teng Siew said: "A lot of fund managers and investors are probably on vacation right now, which is apparent, looking at the thin trading volume of shares."
"Nonetheless, with careful stock picking, there could be some opportunities in some small caps, which are doing reasonably alright. The blue chips on the other hand are not that exciting at this point," he told theedgemarkets.com.
Source: The Edge
Tuesday, December 20, 2016
KUALA LUMPUR (Dec 20): The FBM KLCI rose 0.22 point after volatile trade while the ringgit weakened against the US dollar as investors evaluated the attacks in Germany, Switzerland and Turkey.
At Bursa Malaysia, the KLCI closed at 1,634.52 points at 5pm. The ringgit weakened to 4.4797 against the US dollar at 5:17pm.
The ringgit had earlier today weakened to a new one-year level at 4.4823 against a stronger US dollar in anticipation of further US interest rate hikes in 2017.
The 4.4823 exchange rate was last seen during the 1998 Asian financial crisis. During that year, the ringgit depreciated to its all-time weakest point at 4.8850 against the greenback.
Today, JF Apex Securities Bhd senior analyst Lee Cherng Wee said the KLCI lacked fresh catalysts. "The weak ringgit is already expected by investors, and I believe it's already factored in. Therefore, we do not see any major movement in the index today," he told theedgemarkets.com.
Bursa Malaysia saw 1.29 billion shares valued at RM1.41 billion traded. There were 348 gainers and 360 decliners.
Malaysian shares could have also taken the cue from recent attacks in Germany, Switzerland and Turkey. Bloomberg reported that Asian shares declined as geopolitical concerns intensified after the assassination of Russia's ambassador to Turkey and violent incidents in Germany and Switzerland.
German authorities began sifting for clues into what they called a "probable terrorist attack" on a Berlin Christmas market that killed 12 people and injured 48 others. Police were questioning a suspect arrested near the scene whom they believe to be the driver of a truck that rammed into crowds at the market in the heart of west Berlin Monday evening.
In Switzerland, three were injured during Monday's shooting, which took place after a man entered the mosque on Eisgasse at about 5:30pm local time. The victims, men aged 30, 35 and 56, have been hospitalised.
Source: The Edge
KUALA LUMPUR (Dec 19): The FBM KLCI fell 3.49 points or 0.2% as the ringgit weakened against the US dollar to levels seen during the 1998 Asian financial crisis.
At 5pm today, the KLCI closed at 1,634.30 points. The ringgit depreciated to its weakest level against the US dollar so far today at 4.4805. Bloomberg reported that the exchange rate was the weakest since January 1998.
Today, JF Apex Securities Bhd research head Lee Chung Cheng told theedgemarkets.com: "Basically the market's performance today is in line with US markets (which were also down) and weak ringgit. We believe there is a lack of catalysts to excite the local market at this point."
The ringgit weakened after the US Federal Reserve raised interest rates last week and indicated further hikes in 2017. Such sentiment was in anticipation of higher US inflation due to US President-elect Donald Trump's planned expansionary fiscal policies.
At Bursa Malaysia today, the exchange saw 1.33 billion shares valued at RM1.35 billion traded.
There were 307 gainers and 401 decliners.
Source: The Edge
Monday, December 19, 2016
Retain neutral with target price (TP) of RM2.50
AirAsia announced that the Board of Directors of AirAsia has considered and approved the subscription of up to IDR3,042bn (c.RM1.0bn) of perpetual capital securities to be issued by its 49%-associate in Indonesia AirAsia (IAA). The subscription would be done via conversion of existing amount due by IAA to the Group. This is the second equity injection in IAA to address the issue of the negative equity balance. We has adjusted the conversion of the debt by reducing the amount due and increased its investment in IAA. Our earnings estimate are however unchanged. We maintain our Neutral call and PE-based target price on AirAsia of RM2.50, based on enlarged share capital that includes the proposed share placement to Tune Live Sdn Bhd which is expected to complete by 1QFY17.
- To recap. Airlines operators in Indonesia were expected to maintain a positive equity position, as the new regulation was established by the Directorate General of Civil Aviation of the Republic of Indonesia (DGCA) since last year. This is to maintain the standard safety levels of the airlines. Failure to abide with the requirement, the new route approvals would be rejected by the Ministry of Transport or worst case suspending the airline operations. In October 2015, the first perpetual securities was issued by IAA amounting to IDR4.2trn (c.RM1.3bn), of which IDR2,058bn (c.RM624m) was subscribed by the Group, through a debt conversion.
- Equity subscription details. The amount of new perpetual capital securities subscription by AirAsia would amount to IDR3,042bn (c.RM1.0bn), through a conversion of the debt by IAA to the Group. This is the second equity injection into IAA, to address the negative equity balance of IDR2.2trn as at September 2016. The Board has also approved to align the periodical annual interest distribution rate from 12% in the first perpetual securities subscription to an initial periodic distribution rate of 2% per annum for the first year. Subsequently, the annual distribution rate is increased to 8% of the outstanding principal amount until the first call date, which is at the end of 7th year from the issuance date. After the 7th year, the rate will then step-up to 13% per annum.
- IAA performance. For 9MFY16, IAA reported a net profit of IDR445.2bn (c.RM148m), after including an additional audit adjustments for FY15 amounting to IDR710bn of deferred tax income. The performance is expected to improve in 4Q16 and 1Q17 on the back strong demand due to year-end holidays and festivities, which will improve its load factor and its average fare.
Source: PublicInvest Research - 19 December 2016
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Upgrade to outperform with new target price (TP) of RM5.50
Gamuda’s 1QFY17 net profit came in at RM162.1m (+6.6% QoQ, +0.6% YoY), which was within our and consensus expectations. The 1Q net profit constituted 23% and 22% of our and consensus full year estimates which we deem in line as we expect subsequent quarters to be stronger. Q1FY17’s performance indicates that earnings decline appears to be bottoming out, with construction and concessions divisions registered earnings growth while properties division continued to decline. Outstanding orderbook is now at RM8.9bn, with RM8.7bn secured in FY16. Near term, the Group is eyeing projects worth RM3-4bn from jobs such as LRT3, Gemas-JB double tracking and Pan Borneo Sabah. As for the long-drawn negotiations on the SPLASH disposal, we understand that a deal is expected to finalise in Q2 next year. All told, we adjusted our FY17F-18F earnings estimates by -1%/-6% after changing our billing assumptions for construction and properties division, Upgrade to Outperform (from Neutral) with a higher RM5.50 TP (from RM4.90), after we rolled over our valuations. We expect Gamuda’s earnings to pick up pace from FY17 and to continue to benefit from the large infrastructure projects expected to be rolled out over the next 2-3 years.
- Outstanding orderbook of RM8.9bn (from RM9.0bn). Outstanding orderbook depleted slightly with no new contract secure during the quarter. Earnings in Q1 rebounded, due to higher margins achieved.
- PBT improved 16% to RM59m despite 18% fall in revenue to RM696m. Outstanding orderbook stands at RM8.9bn, from jobs such as KVMRT2 Underground and Pan Borneo Sarawak Highway. In the next 12 months, it expects to add jobs worth RM3-4bn by participating in jobs such as LRT3, Gemas-JB double track project and Pan Borneo (Sabah portion). In the longer term, with its expertise in railway construction, it should participate in High Speed Rail and MRT3 and expects Penang Transport Masterplan (PTMP) to start contributing to its orderbook build-up. Elsewhere, the validity of its PTMP letter of agreement (LoA) has been extended to Feb 2017 with submission to DoE expected by end-2016 and first tender expected by mid-2018 at the earliest.
- Sold RM430m properties in Q1FY17. Property earnings continued to weaken in Q1 with revenue slipped 2% to RM272m and PBT declined 29% to RM48m. Group presales totaled RM430m in Q1, and on track to meet its full year gross sales target of RM2.1bn. Unbilled sales stood at RM1.9bn. Domestic presales expected to improved this financial year, driven by 3 new townships such as Gamuda Gardens, Kundang Estates and Twentyfive.7. Elsewhere, Vietnam projects are also expected to perform satisfactorily, and Q1 presales totaled c.RM170m.
Source: PublicInvest Research - 19 December 2016
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Friday, December 16, 2016
Market Daily Report: KLCI up in the final trading minutes on late buying on Axiata and Public Bank shares
KUALA LUMPUR (Dec 16): The FBM KLCI gained 0.8 point in the final trading minutes to close at 1,637.79 points on late buying of Axiata Group Bhd and Public Bank Bhd shares.
At 5pm, Axiata rose 18 sen to RM4.68 while Public Bank added 14 sen to RM19.80. KLCI-linked Axiata and Public Bank were Bursa Malaysia's fourth and seventh-largest gainers respectively.
The KLCI, which ended at its intraday high, had earlier fallen to its intraday low at 1,632.46 points. The KLCI had fallen as the ringgit weakened to a fresh one-year level against the US dollar today at 4.4785.
The ringgit fell after the US Federal Reserve (Fed) raised interest rates last Wednesday and indicated further hikes in 2017.
Reuters reported that the Fed raised interest rates by 25 basis points to between 0.5% and 0.75% on Wednesday as widely expected. The real mover came from the Fed signalling three hikes in 2017, up from around two flagged at its September policy meeting.
In Malaysia today, Public Investment Bank Bhd research head Ching Weng Jin told theedgemarkets.com the weak ringgit had been prevalent since Donald Trump's surprise win in the US presidential election.
Ching said the ringgit's depreciation continued to weigh on the KLCI.
"The KLCI has been down since the announcement of the US election results, which had led to the strengthening of the US dollar against the ringgit. This has been a long-running issue for the local market," he said.
Source: The Edge
Thursday, December 15, 2016
Maintain outperform with unchanged target price (TP) of RM16.16
Tenaga Nasional (TNB) made an announcement that the government has agreed to an electricity tariff rebate of 1.52sen/kWh for the period effective 1 January to 30 June 2017 under the Imbalance Cost Pass-Through (ICPT) mechanism, amounting to RM766.3m. There is no impact to TNB's earnings however as the rebates given to consumers for the first half of 2017 will be absorbed by the ICPT savings. Hence, we maintain our earnings forecast while our Outperform call on TNB is reaffirmed with an unchanged TP of RM16.16.
- ICPT rebates continue.. for now. The government has approved an ICPT rebate of 1.52sen/kWh for the period effective 1 January to 30 June 2017, applicable to all consumers except ones with monthly consumption of 300 kWh and below. Favourable generation cost through better performance of coal-fired power plants, lower liquefied natural gas (LNG) prices and lower usage of gas contributed to the RM766.33m in ICPT savings. Our concern remains on the recent spike in coal prices and the weakening Ringgit. The coal price base tariff is currently set at USD87.50/MT (RM3.14/USD). TNB’s anticipated annual coal consumption of 25.4m MT at an average coal price of USD100/MT (RM4.40/USD) will result in higher costs of approximately RM4.2bn, leading us to believe there may be a chance that the government may impose a surcharge instead in 2H 2017, though likely to be partially cushioned by its savings from the first generation PPA.
- Revision on subsidised gas price. Under the Incentive Based Regulation (IBR) framework, the regulated gas price for the first 1000mmscfd will be increased by RM1.50/mmBTU every 6 months until it reaches the market price, as part of the energy subsidy rationalisation programme. With effect from 1 January 2017, the regulated gas price for the power sector is being increased from RM19.70/mmBTU to RM21.20/mmBTU.
- No impact to earnings. The electricity base tariffs will remain at 38.53sen/kWh under the IBR framework for the regulatory period until end-CY2017. Meanwhile, the rebate given to consumers in the form of lower electricity tariffs will be absorbed by the ICPT savings hence having no impact to TNB's earnings. Correspondingly, we leave our earnings forecast and assumptions unchanged. Our Outperform call sand DCF-based target price of RM16.16 is reaffirmed.
- Change in dividend policy. Regarding TNB’s recent plan to change its dividend policy from 40%-60% of company’s free cash flow to 30%-50% of its core net profit with effect from FY17, we adjust our dividend payout estimation to 40% (previously 23%-25%), which translates into a higher DPS of 49 sen to 51 sen for FY17F-19F respectively.
Source: PublicInvest Research - 15 December 2016
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Wednesday, December 14, 2016
KUALA LUMPUR (Dec 14): The FBM KLCI fell 1.99 points or 0.1% on profit-taking as investors eyed the US Federal Reserve's interest rate decision at the conclusion of its two-day meeting today.
Analysts said the KLCI's decline was driven by profit taking amid uncertainty over whether the US would hike interest rates. Higher US rates do not bode well for Asian markets in anticipation that investors will shift their money into US dollar-denominated assets.
"The KLCI is down amid the looming decision by the Fed on the US interest rate. The consensus is that there will be a hike, which could drive outflows in emerging markets like Malaysia," an analyst who requested anonymity told theedgemarkets.com.
At 5pm, the KLCI pared losses at 1,643.29 points. Earlier, the index declined to its intraday low at 1,639.93 points.
Bursa Malaysia saw 1.44 billion shares worth RM1.64 billion exchanged. Decliners outnumbered gainers at 362 against 314 respectively.
Earlier today, Hong Leong Investment Bank Bhd said in a note that while profit-taking in the KLCI could continue this week, the research firm expected the index to rise as the year-end approaches.
"We still expect the KLCI to trend higher towards 1,650 to 1,665 by end-December, in anticipation of year-end window dressing activities, coupled with the potential election catalyst," Hong Leong said.
Source: The Edge
Retain outperform with unchanged target price (TP) of RM4.00
We came away from SCGM?s analyst briefing with some encouraging highlights. As expected, its biodegradable lunch boxes are receiving strong response in anticipation of the regulatory ban on polystyrene in several states effective next year. With the newly installed capacity at its new premise, the group?s extrusion capacity will expand by 33% to 33m kg/year and reach 36m kg/year by end-FY17 when the dual-colour extrusion is ready. In addition, it will also increase its selling prices across all its products by 10% to offset the recent hike in resin prices. Maintain Outperform call with an unchanged TP of RM4.
- Strong pick-up in lunch boxes. In view of the regulatory bans on polystyrene foam packaging in several states effective next year, there is increasingly strong demand for the biodegradable lunch boxes. It registered RM2m sales for the lunch boxes in the recent quarter compared to RM1.4m in 1QFY17, a healthy 42% QoQ growth. During the quarter, it also added 34 new local customers and 6 new international customers (Singapore, Australia, China, Indonesia and Philippines). The F&B industry (+18% YoY) made up 79% of 2QFY17 revenue followed by extrusion sheets (+6% YoY) at 12% and cups (+238% YoY), 9%. For the 1H, local sales accounted for 58% of the total sales while remainder came from exports.
- Price revision for all product selling prices. Effective 20 Dec 2016, the group will revise the selling prices of all its plastic packaging products by 10% to offset the recent spike in resin cost, which makes up more than 50% of its total production cost. Resin prices have increased more than 6%-12% since November in tandem with the recent rebound in crude oil prices. This is also the first price revision in more than 2 years. Management also guided that it will review its product selling prices every 6 months in view of the recent surge in oil prices.
- Rented premise has started commissioning. While waiting for the new plant to come on-stream by end-2018, management has rented a 20,000 sq ft premise in Kulai to temporarily house 2 extruders and 4 thermo-forming machines at a total capex of RM3.8m. Two extruders and two thermoforming machines are running while the other thermoformer will be operational 4QFY17. The rented premise will accommodate a total extrusion capacity of 8.2m kg/year. Meanwhile, there will be a dual-colour extruder installed at its existing plant, and expected to contribute an additional extrusion capacity of 2.8m kg/ year. All-in, it will increase the group?s total extrusion capacity from 25m kg/year to 36m kg/year by end-FY17.
- Updates on the new plant. Management has allocated RM125m for land acquisition and construction of the new plant, which will further increase its extrusion capacity from 36m kg/year to 62.6m kg/year. Construction activity is expected to commence in February 2017 and will take about 12-13 months to complete. About RM11.8m has been invested the land acquisition. As demand continues to pick up, management also plans to rent another premise to temporarily meet the demand for lunch boxes.
Source: PublicInvest Research - 14 December 2016
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Retain HOLD with unchanged target price (TP) of RM3.16
- Berjaya Sports Toto Berhad (BToto), through its 88.26%- owned subsidiary Berjaya Philippines Inc. (BPI) has proposed to acquire 6,589,934 shares (26.31% of the total outstanding shares) of H.R. Owen Plc (HR Owen) from Bentley Motors Limited (Bentley) for a total purchase price of �14.83m (~RM 83.82m) or �2.25 (~RM12.72) per share.
- Completion of the share purchase is to take place within six months, or no later than 8 June 2017. Following the completion of the acquisition of the shares, BPI will own 98.34% of the total outstanding shares of HR Owen.
- Recall that back in 2013, in H.R. Owen was acquired by BPI with a total stake of 72.03% after a mandatory takeover offer. Bentley remained as the second largest shareholders with 26.31% stake and the remaining 1.66% shares were with minority shareholders. H.R. Owen was then de-listed on the London Stock Exchange on 15 April 2014.
- We are neutral on this acquisition given that the EBIT contribution is only 4.24% of FY16 total EBIT, due to the low margin of less than 1% from HR Owen's operation.
- The quoted price is at 32.4% higher at 225 pence compared to 170 pence during the unconditional offer by BPI to acquire the remaining stake of HR Owen back in 2013.
- It would not be an issue for Btoto to fund such acquisition given the comfortable level of cash of RM506m and net gearing of ~34% as disclosed in the last available quarter financial results.
- Potential impact to income statement is rather insignificant only at the level of MI (circa 3% of our FY17 forecasted PAT), given that the results of BPI is consolidated into Btoto.
- Higher-than-expected prize payout ratio.
- Cannibalization from Magnum and PMP.
- Hike in pool betting duty/gaming tax.
- No change to our forecast at current juncture given that the impact is rather minimal.
- In view of the saturated NFO business in a challenging operating environment and rampant illegal gaming activities as well as uncertainty in H.R. Owen.
- Unchanged target price at RM3.16 based on DCF valuations with WACC of 9.18%.
Source: Hong Leong Investment Bank Research - 14 December 2016
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Maintain buy with target price (TP) of RM5.00
Axiata and its wholly-owned subsidiary, edotco Group (edotco) announced a USD600m primary and secondary equity private placement deal with Innovation Network Corporation of Japan (INCJ) and Khazanah Nasional (Khazanah). The maiden equity fund raising exercise for edotco sets a new benchmark as the largest global tower sector private placement in 2016. Currently managing 25,200 towers across five countries, edotco is the world's 11th largest tower company. With this fund raising exercise, we expect edotco to be more aggressive in M&A activities before pursuing its planned IPO in 2017. Meanwhile, we estimate that the secondary share placement by Axiata of USD200m would help to pare down FY17F gross debt/EBITDA from 2.2x to 2.0x. Overall, we are positive on this deal as it allows Axiata to unlock value of edotco in the future as well as reduce its gearing, albeit marginally. We maintain our Trading Buy call and DCF-based TP of RM5.00 as this juncture, pending finalisation of this exercise in Jan 2017.
- Equity private placement deal. Axiata entered into an agreement with INCJ for a primary placement of edotco shares that would raise up to USD400m (equivalent to RM1,769.9m). Simultaneously, Axiata would divest edotco shares to Khazanah for a cash consideration of USD200m (equivalent to RM885m). INCJ is a Japanese public private investment co and its key interests in edotco are the unique portfolio in Asia's high growth frontier markets, solid customer contracts and management team. The capital injection should enable edotco to execute its growth strategies which include expansion within Asia through M&A exercises. Domestically, we believe there are also opportunities for edotco to grow its tenancy ratio as industry's cost escalates due to rising competition.
- Lower gearing. The secondary share offering of USD200m should help to lower Axiata's high gearing level from 2.2x to 2.0x (gross debt/EBITDA). As at 30 September 2016, Axiata has an unhedged USD loan of 53% or USD1.4bn. We estimate that USD debt accounts for about 50% of Axiata's total borrowing. We believe Axiata would eventually pare down some of its stakes in overseas operating units in order to raise funds to further reduce its high gearing ratio.
- Maintain Trading Buy. We are positive on this private placement exercise as it allows Axiata to unlock value of edotco via an initial public offering in the future. Additionally, Axiata's valuation looks attractive at 20.5x forward PER. However, we see potential headwinds for Axiata - political and regulatory risks in overseas markets, impairment in India and lower earnings due to disposal of high-growth subsidiaries. As such, we only rate Axiata a Trading Buy.
Source: PublicInvest Research - 14 December 2016
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