Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Thu, 16 Aug 2018, 09:53 AM


Daily Technical Highlights – (KRONO, UNISEM)

Author: kiasutrader   |  Publish date: Thu, 16 Aug 2018, 09:53 AM

KRONO (Trading Buy, TP: RM0.865; SL: RM0.705)

  • Yesterday, KRONO gained 7.0 sen (+10.07%) to close at RM0.765.
  • Technical-wise, yesterday’s move represents a decisive breakout, thus confirming its bullish “ascending triangle” chart pattern, indicating a reversal from its prior downtrend. Furthermore, the breakout was also accompanied by exceptional trading volume indicating strong buying interest.
  • Likewise, KRONO’s key SMAs are in a “Golden Cross” state and key momentum indicators continue to show positive signals, which reinforce its upside potential.
  • From here, we expect KRONO to test its resistance of RM0.820 (R1) and further to RM0.880 (R2) should the first resistance level be taken out.
  • Conversely, downside bias should see support at RM0.720 (S1).

UNISEM (Not Rated)

  • UNISEM gained 9.0 sen (+3.27%) yesterday to close at RM2.84 on the back of increased trading volumes.
  • The technical outlook of the share is seemingly bullish at this juncture with the trend line staying positive after the share bottomed-out in May, while key SMAs remains in a “Golden Crossover” state.
  • Momentum indicators are also indicating for an uptrend continuation as displayed by the bullish MACD crossover and continuous upwards movements in RSI and Stochastic.
  • The RM3.00 (R1) psychological resistance is a crucial level to watch out, where a decisive break-through could see the share trend towards RM3.50 (R2).
  • Meanwhile, support levels are identified at RM 2.50 (S1) and RM2.20 (R2) further down.

Source: Kenanga Research - 16 Aug 2018

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KLCCP Stapled Group - 1H18 Within Expectations

Author: kiasutrader   |  Publish date: Thu, 16 Aug 2018, 09:49 AM

1H18 realised distributable income (RDI) of RM341m came in within our and consensus estimates at 47% and 46%, respectively. 1H18 NDPS of 16.26 sen is also within (46%). Maintain FY18-FY19E CNP of RM719-732m. Maintain UNDERPERFORM on an unchanged TP of RM6.80 as KLCCP’s net yield of 4.6% is below large cap MREITs’ average yield of 5.3%.

1H18 realised distributable income (RDI) of RM341m is within our and consensus estimates at 47% and 46%, respectively. 2Q18 GDPS of 8.70 sen (3.05 sen single-tier dividend plus 5.65 sen subject to 10% withholding tax), translate to NDPS of 8.14 sen, bringing 1H18 NDPS to 16.26 sen. This is also within expectation at 46% of our FY18E NDPS of 35.4 sen.

Results highlight. YoY-Ytd, top-line inched up (+2%) on improvements from all segments; (i) the hotel segment (+7%) on higher occupancy and room rates, (ii) office segment (+1%) on full occupancy at Menara Exxon Mobil, (iii) retail segment (+1%) on positive reversions, and (iv) management services segment (+6%) on new contracts. PBT margins remained flattish at 68% as higher operating cost (+6%) was offset by lower financing cost (-6%) upon repayment of borrowings. All in, bottom-line increased by 4%. QoQ, while top-line was flat as the office and retail segment remained flattish, while slight improvements in the management services segment (+13%) was offset by a decline in the hotel segment (-15%) due to postponement of events in 2Q18 being the election period. However, higher operating cost (+2%) and a marginal increase in financing cost (+1%) caused bottom-line to decrease marginally by 1%.

Outlook. The Group had previously renewed its shareholders’ approval for a 10% placement in Apr 2018. Phase 3 of Menara Dayabumi in still in the tendering process as management focuses on securing an anchor tenant before proceeding with the development. Phase 3 is expected to comprise of a 60-storey tower of mixed development, consisting retail, office and hotel portion and will likely be completed in FY21-22. Lot 185 and Lot M is still under development and is unlikely to be injected during the greenfield phase, while completion of construction is in 2022.

Earnings unchanged. We maintain FY18-19E CNP of RM719-732m, with growth driven by modest rental step-ups (low single-digit), and improvement of occupancy to 60% (from 50%) for Mandarin Oriental. FY18-19E NDPS of 35.4-36.0 sen implies 4.6-4.7% yields.

Maintain UNDERPERFORM and TP of RM6.80. Our TP is based on an unchanged target gross/net yield of 5.0%/4.6% on an unchanged FY18E GDPS/NDPS of 37.8 sen /35.4 sen on a +1.4ppt to our 10-year MGS target of 4.20%. Our applied spread is +0.5SD above historical average to serve as a buffer for near-term fluctuations to the MGS on oversupply issues and interest rate hikes, but we may look to remove this going forward once confidence returns to MREITs’ valuations. We maintain our UNDERPERFORM call, which is premised on our lacklustre outlook for the sector as we remain conservative on valuations. With most of the foreseeable positives already priced in, we are comfortable with our call as KLCCP’s net yield of 4.6% is below large cap MREIT peers’ average of 5.3%.

Risk to our call include: (i) bond yield compression, (ii) higher-than- expected rental reversions, and (iii) stronger-than-expected occupancy rates.

Source: Kenanga Research - 16 Aug 2018

Labels: KLCC
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Nestlé (Malaysia) Bhd - Leading the Pack

Author: kiasutrader   |  Publish date: Thu, 16 Aug 2018, 09:49 AM

We came away from NESTLE’s 1H18 results briefing feeling assured by their near-term prospects. Revenue looks to be supported by new product pipelines and recovering consumer sentiment. Near-term cost factors should ease thanks to better hedging positions while a new distribution centre should add to operating efficiency. However, rich valuations mean that the positives have already been largely factored in. Maintain UP and TP of RM132.55.

Steady sales. In the latest 1H18 results, group sales grew by 3% YoY following growth in both local and export markets. Domestic sales, which accounts for c.80% of NESTLE’s top-line, looks set to continue expanding with: (i) turnaround in consumer spending, and (ii) new launches of convenience Ready-to-Drink products. The group may also be poised to benefit from higher spending in 3Q18 from the “taxholiday” during the period. However, management is confident that the Nestle brands could achieve sustainable organic growth, regardless. Additionally, management attributed c.90% of 1H18’s sales expansion to volume growth.

Minimal need to increase prices with SST. Management does not expect major increase in prices following the implementation of the coming SST. This is led by the group’s primary focus to enhance operating efficiencies and savings, which would make up for any significant losses on margins, which may occur from the reintroduced tax.

Input costs environment to be stable in the near-term. Recall that in 2H17, gross profit margin recorded at 35.1%, a decline from 38.9% in 1H17. This was led by poorer raw material purchasing during that period, affected by high forex exposures and untimely hedges. Management foresees a more positive landscape for the rest of the year as they have secured more favourable positions. This should sustain the group from any short-term spikes in commodity prices. Recall that c.50% of the group’s raw materials are imported.

New National Distribution Centre up and running. In the recent quarter results release, the group explained that it had incurred a onetime relocation expense to operate the new facility. Expected to cost up to RM10.0m, this marks the beginning of the group to achieve better economies of scale in their distribution and logistics management. Further savings may be reaped in the medium-term as a fully optimised operation will enable the group to manage its entire domestic supply chain via in-house resources.

Post briefing, we made no changes to our FY18E/FY19E net earnings estimates.

Maintain UNDERPERFORM with an unchanged TP of RM132.55.

Our valuation is based on a 37.0x FY19E PER (at +1.0SD over 3-year mean PER, applied across large cap F&B stocks). We believe most positives have already been priced in following its stretched valuations post-inclusion into the key benchmark index. In addition, its dividend yields are less attractive at present price levels, generating 2.0%/2.4% for FY18/FY19.

Risks to our call include: (i) weaker-than-expected sales, (ii) unfavourable commodity prices, and (iii) higher-than-expected operating costs.

Source: Kenanga Research - 16 Aug 2018

Labels: NESTLE
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CIMB Group Holdings - CIMB Niaga: Softer LoansGrowth

Author: kiasutrader   |  Publish date: Thu, 16 Aug 2018, 09:48 AM

CIMB Niaga’s 6M18 CNP of IDR1,768b is within expectation accounting for 53% of market estimate with strong fee-based income mitigating poor performance from fund-based income as NIM comes under pressure. We resist from making any changes in forward earnings pending the Group’s 2Q18 results later this month as management guided for better performance from domestic operations mitigating weaker performance from Indonesia and Thailand. Maintain OUTPERFORM at a TP of RM6.85.

Within expectations. 6M18 core net profit (CNP) of IDR1,768b is within expectations accounting for both our/market estimates at 53% of full-year estimates. CNP growth of 28% was primarily driven by strong fee-based income aided by lower impairment allowances.

Strong earnings led by fee-based income. YoY, 6M18 earnings of IDR1,786b was driven by strong fee-based income (+13% YoY) and falling impairment allowances of 24% YoY. Top-line growth slid 1% YoY, dragged by falling fund-based income of 5% YoY as loans growth was soft at +3% YoY (vs. system growth of ~+11% YoY) with NIM compressing by 73bps to 4.9% (vs. guidance of ~5%). No concerns on asset quality as it improved further with GIL falling by 50bps to 3.4%; hence, credit charge fell 53bps to 1.8% (vs. guidance of ~2.0%). QoQ, it was a soft quarter, as top-line fell 5% dragged by falling fee-based income of 10%. CNP was weak at 2%, supported by falling opex and impairment allowances of 2% and 11%, respectively, as top-line softened. On a positive note, loans growth rebounded by 4% QoQ from the preceding quarter led by commercial banking (+4%) and corporate banking (+7%) mitigated by flattish consumer banking. NIM continued to be under pressure, falling by 20bps to 4.9%. Sequentially asset quality continued to improve as GIL fell another 11bps to 3.4% with credit charge easing another 22bps to 1.7%

Loan traction becoming a risk due to external and internal factors. While management is still hopeful of achieving its loan target of mid- single-digit and NIMs of ~5%, we find this challenging with incoming external and domestic headwinds. Downside risks to loans growth are becoming clear with additional impact coming from the protracted trade war and concerns of slowdown from the emerging markets adding to the stifling loans due the approaching presidential election in April 2019. Further downside pressure on NIM is expected despite the expected additional rate hikes in the later part of the year as repricing of deposits are concurrent with the rate hike with the added concern of re-pricing loans to customers stifling loans and adding risks of further deterioration in asset quality.

Forecasts unchanged for the Group as we wait for its 6M18 results expected end of the month. Our FY18E earnings is kept unchanged at RM5.1b, as we render existing assumptions to be conservative enough. Our FY18E assumptions are; (i) ROE at 10% (ii) Loans at 5% (iii) Credit cost of 58-60bps, and (iv) NIMs compression of 10bps. We, however, expect contribution from Niaga to overall Group PBT to be lower from 14.4% to <14% for FY18 due to revision of our loans growth expectations to <4% (from 5%) and NIM to be <5%.

Maintain TP of RM6.85 based on a FY19E PB/PE of 1.0x/12.4x. Both PB and PE are based on the 0.5SD level below the respective 5-year mean to price in view of potential risks ahead. Maintain OUTPERFORM due to a potential upside of ~20%.

Source: Kenanga Research - 16 Aug 2018

Labels: CIMB
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Public Bank Berhad - Within Expectations But Weakening

Author: kiasutrader   |  Publish date: Thu, 16 Aug 2018, 09:48 AM

As usual no surprises. PBBANK’s 6M18 core earnings came within expectations accounting for 48% of both our/market estimates. Despite the positive results, we cut our FY18E/FY19E earnings estimates slightly to reflect our cautious outlook for loans growth and interest margin ahead. TP reduced to RM23.85 with MARKET PERFROM call maintained.

Business as usual. 6M18 core net profit (CNP) of RM2.8b is in line, accounting for 48% of both our and consensus estimates. Earnings were supported by an able top-line with moderate increase in opex aided by lower- than-expected impaired allowances. A DPS of 32.0 sen was declared (within expectations). Moderate loans with healthy asset quality. 6M18 CNP of RM2,801b improved by +8.6% supported by moderate top-line (+3.8 YoY) and receding impairment allowances (- 8.6% YoY). Top-line was supported by rebound in fee-based income (+4.9% YoY) with Islamic banking income coming in strong at +6.7% YoY vs. fund-based income’s moderate performance of +3.1% YoY. The moderate performance was alluded to moderate loans growth (+4.1% YoY vs. expectations/guidance system loans growth of 5.2%/~5%) coupled with a NIM enhancement by 1bps (within expectations). Asset quality continued to be upheld as GIL was steady at 0.5% with credit charge of 0.06% vs. expectations/guidance of 0.10%/0.15%. Cost-to-Income (CIR) ratio maintained its excellent position among peers at 33.6% (vs. guidance/expectation of 33- 34%/32%) with industry CIR at 47.5%. Sequentially weaker. QoQ, earnings fell by 0.7%, as top-line fell by 3%, mitigated by lower impaired allowances (-73.1%). Top-line weakness was broad-based with feebased income, Islamic banking income and fee-based income all falling at 0.9%, 1.2% and 10.2%, respectively. QoQ, loans saw a slight traction but NIM fell by 4bps contributing to the weakened fund-based income. No change in GIL at 0.5% but credit charge dropped further by 7bps to 0.02%.

Cautious outlook ahead. As expected, management guided for a challenging environment ahead ranging from; (i) global trade friction, (ii) normalization of monetary policy globally, and (iii) capital outflow. Management revised its loans target for FY18 to 4-5% (from ~5% previously) with loans supported by demand from the retail segment (residential property and SME financing) with HP financing expected to taper with the implementation of SST. Despite healthy LDR/LTF of 94.2%/88.8% management guided for a low to mid-single digit compression (from single-digit compression) due to on-going funding competition. On a positive note, thanks to stringent asset quality beforehand, we do not expect any spike in GIL ahead, thus credit costs are likely to be muted despite management continued assessment of 15bps credit costs for 2018.

Forecast earnings revised downwards slightly. We revised our FY18E/FY19E earnings downwards by 1.8%1.6% to RM5.7b/RM6.2b as we input a NIM compression of 4bps for FY18 and lower loans of 4.2%/4.6% (5.2%/5.9% previously) for FY18/FY19. TP revised downwards, but MARKET PERFORM call maintained. As FY18E/FY19E numbers are tweaked slightly downwards, we lower our TP to RM23.85 (from RM24.65) based on a blended PB/PER of 2.2x/15.0 FY19E based on their 5-year average (from a 5-year average PB/PE of 2.4x/15.0x with a +0.5SD previously) to reflect a cautious outlook on loans growth ahead. Coupled with a decent dividend yield of 2.7% giving a potential marginal return of 0.12%, we reiterate MARKET PERFORM. Key risks to our earnings estimates are: (i) steeper margin squeeze, (ii) slower-than-expected loans & deposits growth, (iii) higher-thanexpected rise in credit charge and further slowdown in capital market activities, and (iv) adverse currency fluctuations.

Source: Kenanga Research - 16 Aug 2018

Labels: PBBANK
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AirAsia Berhad - Disposes Online Travel Agency

Author: kiasutrader   |  Publish date: Wed, 15 Aug 2018, 09:44 AM

AIRASIA is selling its remaining 25% stake in AAE to Expedia SEA for USD60.0m or RM240.0m. Positive on the disposal as it is in line with group’s direction to focus on core business and will lighten the balance sheet. Maintain FY18-19E CNP, but raised FY18E NP by 12% post disposal. Reiterate OUTPERFORM with an unchanged SoP-driven Target Price of RM4.80.

AAE Travel Pte Ltd disposed. Yesterday, AIRASIA announced the disposal of its remaining 25% in AAE Travel Pte Ltd (AAE) to Expedia Southeast Asia Pte Ltd (Expedia SEA) for a total consideration of USD60.0m or RM240.0m based on an exchange rate of USD1.00 to RM4.00. The transaction is expected to book in gains of disposal of c.RM181.6m, to be concluded by 3Q18.

Positive on disposal. We are positive on the disposal; (i) as it is in line with AIRASIA’s strategic direction to focus on their core airline business by growing its AOCs, and (ii) result in lighter balance sheet with net gearing reduced from 0.90x (as of 1Q18) to 0.87x. Nonetheless, we do not expect any special dividends from this particular disposal as we believe that it would be used for working capital.

Outlook. Moving forward, AIRASIA strives for One AirAsia whereby they intend to consolidate and own 100% effective stakes in Thai (current effective interest 45%), Philippines (current effective interest 19.6%), and Indonesia (current effective interest 49%) operations through share swaps. They are also targeting to list Philippines AOC by 2019. For FY18, AIRASIA plans to place higher focus on their domestic routes by transferring out their longer haul 4-hour flights (KUL- Changsa, KUL-Kaohsiang) to AAX for shorter haul domestic flights, which have shorter turnaround time and hence improving profitability from higher plane utilisation. We expect further improvement in utilisation post restructuring of routes. In terms of further asset divestment, we are looking forward to potential sale of Santan and Red Cargo.

Earnings estimates. Post disposal of AAE, we raised our FY18E NP by 12% after factoring the gain from the disposal. However, we made no changes to our FY18-19E CNP as we deem the disposal gain to be non-core earnings.

Reiterate OP but with SoP-derived TP of RM4.80 pegged to 9.0x FY18E PER (4-year average) on its core earnings, coupled with RM0.78/share special dividend. We deem our 9.0x FY18E PER on their core business (pegged at 4-year average) fair given: (i) AIRASIA’s much healthier net gearing post AAC disposal coupled with further asset monetization plans from Santan/Red Cargo/Expedia to honor their intention for special dividends every two years, (ii) the increased focus on higher turnaround domestic routes on the back of weak competition from other domestic airlines, and (iii) strong growth potential on the back of an expanding capacity. We foresee immediate- term catalyst from the finalization of special dividends (anticipating RM0.78) from the recent sale of AAC back in March.

Risks include lower-than-expected load factors and higher-than- expected fuel costs as well as operating costs.

Source: Kenanga Research - 15 Aug 2018

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