Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Thu, 18 Jan 2018, 09:54 AM


Daily Technical Highlights - (WASEONG, SUPERMX)

Author: kiasutrader   |  Publish date: Thu, 18 Jan 2018, 09:54 AM

WASEONG (Not Rated)

  • WASEONG climbed 10.0 sen (7.94%) yesterday to reach a 30-month high of RM1.36.
  • The move showed strong buying interest as supported by the higher-than-average trading volumes coupled with the long white-candlestick formed.
  • The technical picture is positively biased, with “golden crossover” of key SMAs, coupled with uptrending display of MACD.
  • Share is in the midst of retesting its immediate resistance level at RM1.36 (R1). A decisive break above R1 will likely see further advancement towards RM1.50 (R2). Downside supports can be found at RM1.21 (S1) and RM1.13 (S2).

SUPERMX (Not Rated)

  • SUPERMX jumped 9.0 sen to RM 2.39 (3.9%) yesterday, accompanied by strong trading volumes.
  • Overall technical outlook is positively biased, with key indicators in positive states – i.e. “golden crossover” of key SMAs, and uptrending display of MACD.
  • From here, share is in the midst of retesting key resistance of RM2.38 (R1).
  • Keep close watch-out for coming few days, with decisive breakout of R1 to see likely movement towards RM2.54 (R2).
  • Downside support levels can be identified at RM2.22 (S1) and RM2.12 (S2).

Source: Kenanga Research - 18 Jan 2018

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Eversendai Corporation - Secures Two New Contracts

Author: kiasutrader   |  Publish date: Thu, 18 Jan 2018, 08:46 AM

SENDAI announced two new steel structure contracts worth RM272m. NEUTRAL on those contracts as they are within our FY18E replenishment target of RM1.8b. No change to earnings estimates. Maintain UP with lower TP of RM0.740 after rebasing our valuations lower to 8.0x FY18E PER (from 9x) in line with our applied small-mid cap range of 8-13x.

News. Yesterday, SENDAI announced it has secured two new contracts worth RM272m in Dubai: (1) One Za'abeel mix-used development, and (2) the Address Tower Residence IL Primo luxury high-end residential tower. The contracts are slated for delivery in 2020.

Neutral on wins. We are neutral on SENDAI’s first two wins of the year as it is well within our FY18E replenishment target of RM1.8b – accounting for 15% with another RM1.5b to be achieved. Assuming a 36-month span for the contracts coupled with PBT margins of 6%; the projects are expected to contribute c.RM4.1m p.a. to the bottom-line.

Outlook. Currently, SENDAI’s outstanding order-book stands at c.RM2.5b, providing visibility for the next 1-1.5 years. Meanwhile, SENDAI’s first lift boat initially scheduled for delivery for 3Q17 has been delayed to 1Q18 as certification and commissioning of the lift boat is more stringent than expected. Meanwhile, we note that delivery of the second lift boat which is at c.55-60% completion scheduled for delivery by 1H18 may be delayed to a later date given the longer than expected duration for certification as well. While we understand that the client - VAHANA Holdings - has obtained conditional financing for the first lift boat (whereby banks will only release payments to SENDAI if VAHANA manages to secure a charter contract for the first lift boat), we remain cautious on the second lift boat in case it fails to secure financing; potentially raising the risk of impairments. We highlight there is also a risk of impairment in FY19 for the first lift boat should VAHANA fail to secure a charter within 12 months once the first lift boat is ready for delivery in 1Q18. However, we opine that 12 months is relatively sufficient to secure a charter but will monitor the situation closely and review when necessary.

Maintain earnings. We make no changes to our FY17-18E CNP.

Maintain UNDERPERFORM with lower TP of RM0.740 (previously RM0.800) as we rebase our valuations lower to 8.0x FY18E PER (from 9.0x Fwd PER) in line with our applied small-mid cap range of 8-13x. We pegged SENDAI towards the lower end of our valuation range given: (i) the continuous delay in delivery of lift boats, (ii) SENDAI’s extremely volatile historical earnings, (iii) potential risk of impairments from the lift boats scheduled for delivery in FY18, and (iv) existing high gearing of 1.0x (as of 3Q17) vs. peers’ average of 0.10x.

Source: Kenanga Research - 18 Jan 2018

Labels: SENDAI
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Daily Technical Highlights - (JOHOTIN, HENGYUAN)

Author: kiasutrader   |  Publish date: Wed, 17 Jan 2018, 03:19 PM

JOHOTIN (Not Rated)

  • JOHOTIN advanced 19.0 sen (15.57%) yesterday to close at RM1.41.
  • The move was accompanied by strong trading volume and the MACD indicator is showing positive momentum.
  • Yesterday's bullish move signals that JOHOTIN has bottomed-out decisively, and is now poised for a recovery.
  • Expect follow-through buying from here to bring the share price up to RM1.46 (R1) with further advancement towards RM1.53 (R2). Firm downside support, however, can be identified at RM1.16 (S1).

HENGYUAN (Take Profit @ RM14.34)

  • Following technical “Trading Buy” call on HENGYUAN in our report dated 7-Nov-2017, the share price has performed remarkably, continuing its uptrend till early Jan 2018.
  • However, amidst past two consecutive days of bearish price performance, technical picture is turning more negative. Therefore, prompted us to take profit.
  • Taking profit at the current level would imply bagging total gains of 60% in a span of two months.
  • Indicators suggest earlier uptrend is losing momentum as MACD crossed below signal line and RSI breakdown from 50 line.
  • We reckon near-term consolidation may take place where the risk-reward ratio no longer deemed favourable to keep position.
  • Resistance level is identified at RM15.15 (R1) and RM19.20 (R2). Conversely, keen investors could look to a possible reentry at more attractive levels near supports at RM12.65 (S1) and RM10.63 (S2).

Source: Kenanga Research - 17 Jan 2018

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Telekom Malaysia Bhd - Accelerating National Broadband Reach

Author: kiasutrader   |  Publish date: Wed, 17 Jan 2018, 09:05 AM

Telekom Malaysia (TM) and Tenaga National Bhd (TNB) have signed a MoU to implement the Nationwide Fiberisation Plan. All in, we are NEUTRAL and keep our FY17E/FY18E earnings forecasts unchanged. We reiterate our OUTPERFORM call on TM with unchanged DCF-driven target price at RM6.85.

MoU signed to accelerate broadband reach for the nation. TM and TNB have signed a Memorandum of Understanding (MoU) to jointly develop an implementation plan to deliver the Government’s Nationwide Fiberisation Plan (NFP). The collaboration is set to capitalize on the combined strength of both government-linked companies (GLCs) in terms of reach, infrastructure and expertise, which could enable the most efficient cost structure, and further accelerate the country’s fiber broadband network reach. The MoU is subject to a definitive agreement to be signed between the parties upon finalization of the commercial terms.

Nationwide Fiberization Plan. To recap, the government has earlier announced the 2017-2019 Nationwide Fiberization Plan which aims to connect some six million premises, including an estimated two million premises in the rural areas to a fiber network. A 3-tier model would be established, where the First Tier would involve utilisting TNB’s fiber trunk network for wholesale backhaul services. The Second-Tier would involve on Wholesale Service Provider(s) to offer last mile access, while the Third-Tier providers would comprise existing telecommunication companies offering retail services to consumers and business. The plan is in line with Prime Minister Datuk Seri Najib Tun Razak’s 2017 Budget announcement to double broadband speeds at lower prices by 2019. The authority subsequently announced the appointment of Broadnet Network, in which the Ministry of Finance will own a golden share, to build a high-speed broadband infrastructure in December last year.

Consumers – the ultimate winner. The government’s nationwide fiberisation plan is set to expand the country’s fixed broadband infrastructure and benefit to the whole nation as many rural areas still do not have high-speed broadband. Despite several players providing broadband services, pricing and network quality are still incomparable against other countries. The government has launched several broadband initiative plans (i.e. HSBB, HSBB2 and SUBB) to increase the broadband penetration rate in different zones/areas (figure 1). With the right broadband policies and strategies in place, we believe the country is on the right track to achieve its targets set out in the 11th

Malaysia Plan (figure 2).

Maintain OUTPERFORM with unchanged DCF-driven TP of RM6.85. We are keeping our FY17/FY18E earnings forecasts unchanged as the definitive agreement is yet to be finalised. Having said that, we are NEUTRAL as the positive catalyst (where we believe TM is set be appointed as the key second-tier provider (under the Nationwide Fiberisation Plan) and thus allowing it to penetrate areas not covered by HSBB, HSBB2 and SUBB) could be overshadowed by the potential cut in broadband pricing by 2019. Maintain OUTPERFORM call on TM on: (i) less competition in its fixed-line broadband business, and (ii) its inroad to become a convergence champion) with an unchanged DCF-driven target price at RM6.85.

Source: Kenanga Research - 17 Jan 2018

Labels: TM
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Tenaga Nasional Bhd - Clarity on RP2 Tariff Structure

Author: kiasutrader   |  Publish date: Wed, 17 Jan 2018, 09:03 AM

The Energy Commission has confirmed a higher base tariff of 39.45 sen/kWh for 2018-2020 with a lower asset return of 7.3% from 7.5% which remains earnings neutral to TENAGA. We also believe that TENAGA will be able to adjust tariff accordingly to cost structure post GE14. This should re-rate the stock further. It remains our TOP PICK for the sector at target of RM17.17. OUTPERFORM retained.

A higher base tariff. Yesterday, the Energy Commission (EC) conducted a briefing for analysts and media to detail out the electricity tariff review in Peninsular Malaysia under the Regulatory Period 2 (RP2) for 2018-2020. To our surprise, the new base tariff was raised to 39.45 sen/kWh in RP2 from 38.53 sen/kWh previously for Regulatory Period 1 (RP1) for 2015-2017. This is contrary to TENAGA’s announcement in end-Dec 2017 that the tariff structure is to be maintained in RP2. In addition, the regulated return to TENAGA, i.e. WACC was reduced to 7.3% in RP2 from 7.5% in RP1.

Same as the actual cost in RP1. The generation costs makes up 69% of the average base tariff. Thus, the new base tariff of 39.45 sen/kWh is based on average generation cost assumption of 27.05 sen/kWh which takes into consideration the scheduled half-yearly hike of RM1.50 /mmbtu over to 1H19. On the other hand, assumption of LNG is reduced to RM35/mmbtu from RM41.68/mmbtu while coal cost is reduced to USD75/mt from USD87.50/mt but in MYR term the coal cost is raised to RM315.90/mt from RM271.25/mt as MYR against USD weakened to 4.212 from 3.10 previously. In fact, the actual average tariff in RP1 was 39.45 sen/kWh which is the same for RP2.

How it affects TENAGA? The new base tariff will not affect TENAGA’s profitability as the fuel costs are passed through to end-user under the Imbalance Cost Pass-through (ICPT) mechanism. In fact, the reduced WACC is unlikely to affect earnings as well as its asset base will grow over time as the Incentive-based Regulation (IBR) encourages capex to improve efficiency. In RP2, the assumption of asset base is RM57b on average as opposed to the average of RM42b in RP1. As such, the asset return is c.RM4.1b a year for TENAGA. Meanwhile, the total subsidy of RM929m to maintain tariff of 38.53 sen/kWh in 1H18 will be borne by TENAGA which will offset the saving of actual capex and opex spent of RM17.0b and RM17.5b against the approved numbers of RM18.5b and RM18.4b, respectively.

Main concern: does it allow surcharging end-users? Given the limited funds available, such as PPA Saving Fund, to offset subsidies, question remains on whether the government will allow TENAGA to raise tariff rates in the future should the ICPT rebate situation persist. Nonetheless, in the principle of ICPT framework, fuel cost risk is passed through to end consumer, thus with neutral impact to TENAGA’s earnings. In addition, GE14 is likely to be in 1H18; hence, the tariff rates were maintained for 1H18, in our opinion. Besides, there is c.RM500m fund available under the Kumpulan Wang Industri Elektrik which can be used to offset any future subsidy.

Still undervalued. We continue to like TENAGA for its earnings quality while RP2 offers better earnings clarity which was reflected in the recent strong accumulation of the stock. With its heavy index-weighted status, we still believe it is still undervalued at current PER level of 13x. It remains OUTPERFORM with unchanged price target of RM17.17 based on CY18 14.4x PER which is based on +1.5SD of 2-year moving average. Risks to our call include: (i) a slowdown in economy growth, which will affect electricity demand, and (ii) a sudden surge in fuel prices resulting in a short-term earnings weakness.

Source: Kenanga Research - 17 Jan 2018

Labels: TENAGA
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Daily Technical Highlights - (HUAYANG, HUAAN)

Author: kiasutrader   |  Publish date: Tue, 16 Jan 2018, 09:28 AM

HUAYANG (Not Rated)

  • HUAYANG jumped an impressive 6.5 sen (10.4% to RM0.69) yesterday, accompanied by exceptional trading volumes.
  • Share is now potentially showing signs of bottoming-out after hitting a “double-bottom” in December last year.
  • Over the past 1-2 months, MACD has been creeping upwards despite sideways movement of the share price – thus signalling an underlying build-up in momentum.
  • Expect follow-through buying from here, with resistances at RM0.74 (R1) and RM0.83 (R2). Conversely, firm downside support can be identified at low of RM0.595 (S1).

HUAAN (Not Rated)

  • HUAAN climbed up 4.5 sen (7.5%) yesterday to reach a 10-year high at RM0.645.
  • Technical outlook is bullish as shown by the string of white candlesticks formed over the past 2 weeks, which were supported by elevated trading volumes.
  • Momentum indicators are positive and are in a bullish convergence.
  • We expect the positive momentum to bring the share price up to RM0.700 (R1) and RM0.750 (R2). Any breaks below the RM0.600 (S1) and RM0.550 (S2) support levels are seen as a good entry point for buying

Source: Kenanga Research - 16 Jan 2018

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