Highlights

AmInvest Research Reports

Author: AmInvest   |   Latest post: Tue, 20 Oct 2020, 9:19 AM

 

Tan Chong Motor - Possibility Of Another Contract Assembly

Author: AmInvest   |  Publish date: Tue, 20 Oct 2020, 9:19 AM


Investment Highlights

  • We maintain our UNDERWEIGHT recommendation on Tan Chong Motor (TCM) with an unchanged fair value of RM0.77/share pegged to an FY21F PE of 9x.
  • TCM announced that its Vietnam subsidiary has entered into an MoU with King Long China, to discuss and negotiate for TCM to be the sole distributor of King Long microbus products in Vietnam for both its CKD and CBU models.
  • Currently, King Long has only one product in Vietnam, which we believe to be the CBU XMQ6829Y coach. TCM has been the sole distributor of the said model since 2018. King Long specializes in the design, production and sale of various buses, minibuses and coaches. It has three manufacturing bases in China and produces 25.0K buses and coaches, as well as 30.0K mini vans annually.
  • We are mildly positive on this news as it will help Tan Chong with additional CKD pipelines for its severely underutilized Danang plant in Vietnam. However, we understand that it is still in discussion and the group has not guided on a timeline on when the deal will be concluded. We also note that both the Nissan Vietnam CKD and CBU agreements with Nissan Japan have expired on 19 September and 30 September 2020 respectively.
  • On a separate note, we reiterate that TCM Vietnam was also appointed by SAIC Motor as the exclusive importer and distributor of CBU MG brand vehicles on 18 May 2020. From the previous briefing, TCM guided that it would start to have material impact only in 4QFY20, but we are expecting a delay to this venture due to the global Covid-19 pandemic.
  • We remain apprehensive on whether the entry of MG and King Long would be able to fully fill the void left by the exit of both Nissan CKD and CBU products.
  • With multiple changes in the Tan Chong Vietnam unit; i.e. entry of King Long and the MG brand, exit of both Nissan CKD and CBU products, we will seek further clarification on its overall impact on its FY21–22F profits in TCM’s 3Q analyst briefing next month. For now, we make no changes to our estimates.
  • We highlight that the all-new Nissan Almera 2020 will be launched this month in 3 variants, albeit no indication on price. We strongly believe it will face fierce competition against the Honda City CKD facelift and the Proton X50 – as these products share a similar price range and launch dates, but have more to offer in terms of driving experience, branding and product competitiveness.

Source: AmInvest Research - 20 Oct 2020

Labels: TCHONG
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Stocks on Radar - Tomypak Holdings (7285)

Author: AmInvest   |  Publish date: Tue, 20 Oct 2020, 9:15 AM


Tomypak Holdings surged to test the RM0.935 resistance level. With its RSI indicator pointing upwards, coupled with sustainable trading volume, we think there could be a technical breakout. If this happens, we expect it to move towards the short-term target prices of RM0.98 and RM1.00. The downside support is projected at RM0.89. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.935

Target: RM0.98, RM1.00 (time frame: 2-4 weeks)

Exit: RM0.89

Source: AmInvest Research - 20 Oct 2020

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Stocks on Radar - MTAG Group (0213)

Author: AmInvest   |  Publish date: Tue, 20 Oct 2020, 9:15 AM


MTAG Group jumped and flirted with the RM0.79 resistance level. With its RSI indicator pointing upwards, coupled with higher trading volume, there is a good chance for a technical breakout towards the short-term target price of RM0.825, followed by RM0.86. The downside support is marked at RM0.72. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.79

Target: RM0.825, RM0.86 (time frame: 2-4 weeks)

Exit: RM0.72

Source: AmInvest Research - 20 Oct 2020

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Leong Hup International - A Better 2H As Poultry Prices, Consumer Demand Improve

Author: AmInvest   |  Publish date: Tue, 20 Oct 2020, 9:07 AM


Investment Highlights

  • We maintain our BUY call on Leong Hup International (LHI) with a slightly higher fair value (FV) of RM0.96/share (vs. RM0.94/share previously). Our FV is based on an unchanged PE of 17x FY22F EPS.
  • We increase our earnings forecast by 3% for FY20E and 2% each for FY21F and FY22F. These are to account for stronger-than-anticipated poultry prices and solid showings by The Baker’s Cottage (TBC).
  • That said, we expect volatility in poultry prices resulting from the ongoing conditional movement control order (CMCO). LHI’s decision to forego previous expansion plans in favour of projects geared towards processed food may also limit earnings in the short term.
  • Key takeaways from LHI’s teleconference include:
    1. Poultry product prices continue to be volatile as the CMCO weakens demand from the HORECA industry.
    2. The lower demand for poultry is also expected to affect animal feed sales volume. Furthermore, raw material prices have been steadily rising.
    3. LHI’s expansion plans are recalibrated due to poorer demand: overall capex is lower and it could be looking towards processed food production.
    4. Following better poultry prices after the MCO, TBC sales have normalized. Store expansion is ahead of schedule.
  • With ongoing pandemic disruptions, the group anticipates poultry ASP to be volatile. Nonetheless, poultry prices have experienced a gradual recovery after the first MCO and we have adjusted our forecasts upwards, most notably for Malaysian products — by +27% to RM3.90 per kg for broiler chicken and +15% to RM1.36 for day-old-chicks (DOC) for FY20E.
  • We believe that our average price assumption of RM3.90/kg for broiler chicken for FY20E is conservative enough to account for any price decline following the second MCO in October 2020. \
  • Currently, Malaysian broiler and DOC ASP are priced at RM4.30 and RM1.50 respectively (FY19 average: RM4.17, RM1.50), with Indonesia at similar figures.
  • We believe that this pattern of poor demand will persist well into FY21F. Nevertheless, the mitigation factors are: (1) TBC provides an alternative means of inventory rundown; (2) Indonesia has executed market price stabilizing measures, including mass culling and limited egg hatching.
  • LHI expects lower sales from its feedmills as result of lower meat demand. Raw material prices have risen steadily since 1H20 — Corn: 15% QoQ; Soybean 16% QoQ — leading to a forecasted 15% QoQ increase of feed prices. Fortunately, gross margin contraction arising from lower feedmeal pricing is only temporary and not expected to affect profit margins significantly as the extra cost will eventually be passed on to customers.
  • Overall capex for FY20F is expected to fall to RM300mil from the previous estimation of RM500mil.
  • A number of LHI’s expansions plans in Indonesia and the Philippines have been put on hold. LHI has made small, forays into Myanmar and Cambodia but subsequently postponed all plans until the situation improves.
  • In Malaysia, capex is mainly used for its processed food plant and TBC expansion. From 28 outlets at time of takeover, LHI is slated to open 100 outlets by the end of the year, higher than its initial target of 85 outlets (which is the number of currently functional stores). The processed food plant is intended to widen TBC’s product range.
  • Following the relaxation of the first MCO, higher poultry prices have led to lower sales for TBC. Sales have declined to 100 birds per store daily (8.5K birds sold/day) from 300 birds sold/day during the height of the first MCO. However, this is still well within the group’s expectation of 8–9K birds daily. The group forecasts a slight boost in sales during the CMCO as the population refrains from eating out.
  • We believe that over a longer period, the current poor industry conditions will actually benefit LHI. The group has been steadily increasing market share in Malaysia — 25% DOC, 10% broilers — as smaller farms die out and provide it with further room for economies of scale. The group’s efforts to boost its processed food segment will provide a more diverse, stable earnings base.
  • However, in the short term, volatile prices, scrapped expansionary plans and weaker poultry and feed demand could exert downward pressures to the group’s profitability. Nonetheless, the group’s control of the whole supply chain through its TBC business, economy of scale benefits and product status as a consumer staple will maintain its decent performance for now.
  • We believe LHI’s performance will improve in 2HFY20 on the back of improving poultry prices and consumer demand. We forecast a 58% improvement in net profit in FY21F as better pandemic management continues to strengthen ASP and demand.

Source: AmInvest Research - 20 Oct 2020

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Yinson Holdings - Multiple Project Pipelines Despite PDB Re-Tender

Author: AmInvest   |  Publish date: Mon, 19 Oct 2020, 4:08 PM


Investment Highlights

  • We maintain our BUY recommendation on Yinson Holdings (Yinson) with an unchanged sum-of-parts based fair value of RM7.20/share, which implies an FY22F PE of 18x.
  • Our forecasts are unchanged as we have not incorporated any contribution from Petrobras’ re-tendered charter of a floating production, storage and offloading (FPSO) vessel to be deployed at the Parque das Baleias (PDB or Whale Park) revitalisation field in the Campos basin, off Brazil.
  • Last week, Petrobas cancelled the earlier PDB tender while authorising a new bidding process with an unchanged project scope to reduce the costs by opening it up to more competition. Recall that Yinson was expected to secure this tender as the company was the only remaining bidder. These are the salient highlights of the virtual analyst briefing today:
     
    • The new bid is likely to open next month with an award likely by mid-2021 for the commencement of the PDB FPSO to be rescheduled by a year to the end of 2024.
       
    • As VLCC size of the FPSO is unchanged, Yinson does not expect substantive reductions to the estimated capex of US$1bil, which was already lowered in the earlier bid during direct negotiations with Petrobras over the past months.
       
    • The bidding cost of below US$10mil is likely to be capitalized for the new bidding process for PDB as Yinson has completed the engineering design and costing process. Hence, the group is unlikely to incur any impairment provision from this development as this stage.
       
    • Besides PDB, Yinson is also looking at a charter from Brazilbased independent Enauta to provide a VLCC-sized FPSO in the Atlanta deepwater heavy oil field in the Santos basin, off Brazil. A tender is likely to be opened in 3QFY2021 with an award by end-2021.
       
    • In Malaysia, Yinson is eyeing at a re-tendered FPSO charter for the Limbayong field, off Sabah which is likely to be awarded in 2QFY21. While the capex could be reduced to US$600mil from US$700mil from the revised project scope, Yinson may bid for the charter alone instead of partnering with MISC in the earlier tender.
       
    • The group remains on the prowl for additional renewable energy projects, hoping to expand its portfolio by 500MW to 1GW from a 95% equity stake in a 160MW plant in Bhadla Solar Park II, Rajasthan India. This could mean additional investments of up to US$100mil, of which Yinson is likely to source from external borrowings.

Source: AmInvest Research - 19 Oct 2020

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Stocks-on-Radar - AT Systematization (0072)

Author: AmInvest   |  Publish date: Mon, 19 Oct 2020, 9:34 AM


AT Systematization surged and tested the RM0.08 resistance level. With its RSI indicator pointing upwards, coupled with higher trading volume, we see a possibility for a technical breakout. If this happens, we expect it to move towards the short-term target prices of RM0.09 and RM0.105. The downside support is projected at RM0.065. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy near RM0.08

Target: RM0.09, RM0.105 (time frame: 2-4 weeks)

Exit: RM0.065

Source: AmInvest Research - 19 Oct 2020

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Stocks-on-Radar - G Capital (7676)

Author: AmInvest   |  Publish date: Mon, 19 Oct 2020, 9:34 AM


G Capital jumped and flirted with the RM0.72 resistance level. With its RSI indicator pointing upwards, coupled with higher trading volume, there is a good chance for a technical breakout, heading towards the short-term target price of RM0.775, followed by RM0.83. The downside support is marked at RM0.66. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.72

Target: RM0.775, RM0.83 (time frame: 2-4 weeks)

Exit: RM0.66

Source: AmInvest Research - 19 Oct 2020

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Plantation - News Flow For Week 12 to 16 Oct

Author: AmInvest   |  Publish date: Mon, 19 Oct 2020, 9:30 AM


  • Bloomberg reported that Mars, the confectionery maker, has trimmed the list of its palm oil suppliers. Mars said that it has eliminated suppliers that cannot commit to deforestation. Mars is using satellite mapping to monitor land use and third-party validation, and has asked all of its suppliers to apply the same rules to production. Mars has cut off two major suppliers and 21 second-tier suppliers for not following its protocols. Mars added that not only a tighter supply chain is easier to regulate, it also allows the group to shorten the pipeline from the plantation to the refinery, hence lowering costs.
  • The USDA (US Department of Agriculture) has released its latest monthly demand and supply projections for vegetable oils. The USDA has reduced its estimate of US soybean inventory for 2020E/2021F by 37.0% to 290mil from 460mil bushels. This was due to an upward revision in soybean exports and a lower forecast of planted areas in the US.
  • The USDA is now expecting soybean planted areas in the US in 2020E/2021F to be 83.1mil vs. 83.8mil acres previously. US soybean exports in 2020E/2021F are anticipated to be 2,200mil compared with 2,125mil bushels originally on the back of robust demand from China. Overall, US soybean stockpiles are envisaged to decline by 44.6% to 290mil bushels in 2020E/2021F from 523mil bushels in 2019/2020E underpinned by lower carry-over inventory from the previous season and higher exports.
  • Due to a lower US soybean inventory, the USDA has reduced its forecast of world soybean stockpiles to 88.7mil tonnes for 2020E/2021F from 93.59mil tonnes. Comparing 2020E/2021F against 2019/2020E, world soybean inventory is expected to fall by 5.4% to 88.7mil tonnes from 93.75mil tonnes as US soybean stockpiles are envisaged to decline. Soybean inventory in Brazil is anticipated to inch up to 20.6mil tonnes in 2020E/2021F from 20.34mil tonnes in 2019/2020E driven by higher production. In Argentina, soybean stockpiles are estimated to be 27.7mil tonnes in 2020E/2021F vs. 26.4mil tonnes in 2019/2020E supported by an increase in output.
  • Reuters reported that environmentalists in Indonesia are calling for the reversal of a controversial law aimed at job creation as it is seen favouring business interests at the expense of the environment and labour. The previous law required Indonesian islands to have a forest cover of at least 30%. The requirement has been removed, raising concerns that palm oil plantations and mining companies could sharply step up land clearance. In previous regulations, companies were responsible for environmental damage in their concessions, even if there was no proof that the company is at fault. Under the new law, environmentalists said that the wording is vague and proof of wrongdoing is now required to prosecute the company. The new law also removes criminal punishment for the illegal handling of toxic waste.

Source: AmInvest Research - 19 Oct 2020

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FGV-Holdings - Felda To Terminate Land Lease?

Author: AmInvest   |  Publish date: Mon, 19 Oct 2020, 9:29 AM


  • According to press reports, Felda plans to take back the land it is leasing to FGV Holdings. On the compensation of the land with the termination of the lease, Datuk Seri Idris Jusoh, who is Felda’s chairman, said that it has not been discussed in detail.
  • To lease the land, FGV pays RM243.8mil cash and 15% of plantation profits attributed to the land, to Felda annually. FGV paid land lease payments of RM298.7mil in FY18 and RM248.7mil in FY19. FGV also pays for the replanting of the land every year.
  • There are several implications here. First, if Felda takes back the land, which is leased to FGV, we are unsure if Perspective Lane would still be interested to inject its plantation assets into FGV.  Second, FGV’s total landbank in Malaysia and Indonesia may drop to about 55,000ha to 60,000ha from more than 400,0000ha. According to FGV’s Annual Report 2016, FGV leases about 362,747ha of land from Felda. The leased land accounts for a third of FGV’s FFB processed.
  • Third, it is uncertain how much compensation FGV would receive from Felda. According to the land lease agreement, the compensation is partly determined by the profit per mature area and the size of the land. According to FGV’s balance sheet, the land lease agreement liability stood at RM4.3bil as at end-December 2019.
  • If Felda wants to terminate the land lease, it has to give an 18-month notice to FGV. After that, the compensation amount would be calculated. Then, the leased assets would be transferred back to Felda.
  • Fourth, FGV may be flushed with cash if Felda terminates the land lease and pays the compensation. The group would be able to look for investment opportunities.
  • As there are too many uncertainties currently, we maintain our HOLD recommendation on FGV with a fair value of RM1.14/share.

Source: AmInvest Research - 19 Oct 2020

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CIMB-Group - Refined Forward 23+ Strategy To Focus On Lifting ROE

Author: AmInvest   |  Publish date: Mon, 19 Oct 2020, 9:24 AM


Investment Highlights

  • We maintain HOLD on CIMB Group Holdings (CIMB) with an unchanged fair value of RM3.10/share based on a FY21 ROE of 4.9%, leading to a P/BV of 0.5x. We make no changes to our earnings estimates.
  • Management provided a briefing last Friday on the refined group strategy known as Forward 23+.
  • Despite its ranking as the 5th largest Asean universal bank by asset, the 2 nd and 6th largest in Malaysia and Indonesia respectively, the group still lags its peers in terms of ROE. CIMB’s ROE plummeted to 8.5% in 2019 from 15.0% in 2009.
  • Besides ROE, management has identified other areas which the group needs to improve on. These included portfolio allocation where low return businesses had been over invested while higher return businesses were under invested. Additionally, the group’s CI ratio at 55.5% (based on reported numbers) was higher than the peer average while its credit cost was elevated at 132bps in 1H20.
  • CIMB has RM9.7bil in total of goodwill and intangible assets contributed by its past acquisitions of banks and securities firms which lock up its capital. We understand that the dual holding company structure also has impacted the group’s efficiency.
  • Another challenge was the decline in Malaysia’s net promoter score (NPS) due to the downtime for CIMB Clicks. The group has managed to arrest the issue, raising the uptime on CIMB Clicks to 98.7% in 1H20 from 94.7% in 2019.
  • The group has been focusing on growing asset and revenue rather than earnings. Also, management recognised the need to invest in technology to further digitalise, provide greater stability and better analytics.
  • The recalibrated Forward 23+ has been extended to 2024 due to the Covid-19 pandemic. The refined strategy focuses on achieving the ranking of a top quartile bank in terms of ROE (ROE of around 12–13%), lowering CI ratio to 45.0% and attaining a CET1 ratio pof 13.0% by 2024.
  • The group aims to reshape its portfolio by accelerating profitable growth segments while fixing and turning around those underperforming businesses.

Exhibit 3 depicts the group’s plans to reshape the group’s portfolio by county.

  • To achieve higher cost efficiency, it will tighten the management of expenses, reset cost base, and raise productivity. Also, it intends to further digitalise, automate processes, eliminate duplication as well as streamlining the group structure and operating model. In FY20, the group aims to reduce its operating cost by RM500mil (-5%). So far, in 1H20, operating expenses have been lowered by 3.3% YoY. Between 2020 and 2024, CIMB is aiming for a sustainable cost growth of 2–3 per annum.
  • For Forward 23+, the group will be more selective on areas to compete in as shown in Exhibit 2. In Malaysia, the group will target all segments as a universal bank. Meanwhile, in Indonesia, it aims to be a focused universal bank competing in the consumer, SME and high-quality wholesale space. In Singapore, the focus will be on Asean wholesale segment and to be the preferred niche player in commercial business. The group also seeks to be a focused player in Thailand, focusing on Asean wholesale business and to become a niche player in consumer finance.
  • While the plans on cost management looks to be positive over the medium term, the achievement of a higher ROE target by 2024 will still be largely dependent on the containment of the Covid-19 pandemic and recovery of regional economies. A further prolonged duration of the pandemic will impact both the revenue and provisions of the group, and this could delay the achievement of the objectives/targets of the refined strategy.

Source: AmInvest Research - 19 Oct 2020

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Stocks on Radar - AppAsia (0119)

Author: AmInvest   |  Publish date: Fri, 16 Oct 2020, 9:34 AM


AppAsia surged and tested the RM0.625 resistance level. With its RSI indicator pointing upwards, coupled with higher trading volume, we see a possibility for a technical breakout. If this happens, we expect it to move towards short-term target prices of RM0.66 and RM0.695. The downside support is projected at RM0.56. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.625

Target: RM0.66, RM0.695 (time frame: 2-4 weeks)

Exit: RM0.56

Source: AmInvest Research - 16 Oct 2020

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Stocks on Radar - HLT Global (0188)

Author: AmInvest   |  Publish date: Fri, 16 Oct 2020, 9:34 AM


HLT Global consolidated and retook the RM1.78 resistance level. With its 21-day moving average pointing upwards, coupled with sustainable trading volume, there is a good chance for a technical breakout towards the shortterm target price of RM1.93, followed by RM2.03. The downside support is marked at RM1.53. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on pullback RM1.78

Target: RM1.93, RM2.03 (time frame: 2-4 weeks)

Exit: RM1.53

Source: AmInvest Research - 16 Oct 2020

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LPI Capital - Lower Net Claims Incurred; Drop In Investment Income

Author: AmInvest   |  Publish date: Fri, 16 Oct 2020, 9:29 AM


Investment Highlights

  • We maintain our HOLD recommendation on LPI Capital (LPI) with unchanged fair value of RM13.60/share. Our fair value is based on FY21 P/BV of 2.6x supported by an ROE of 17.1%. We make no changes to our earnings estimates.
  • LPI recorded a higher net profit of RM86mil (+11.3% QoQ) in 3Q20 attributed to lower net claims incurred.
  • 9M20 core earnings of RM241mil grew modestly by 2.4% YoY contributed by lower claims and higher fair value gains on investments by RM7.5mil. This was despite recording a drop in dividends and interest received on securities held by the group. Cumulative net profit was within expectations, making up 75.3% of our and 79.0% of consensus estimate respectively.
  • 3Q20 gross written premium (GWP) grew 11.7% QoQ to RM381mil attributed to higher growth of motor and insurance categorized under the miscellaneous segment. We believe that this was due to the resumption of business activities after the lockdown imposed during the movement control order (MCO). Also QoQ, the improvement in motor premiums was supported by the pickup in sales of new motor vehicles due to the announced sales tax exemption. For 9M20, GWP was flat at RM1.2bil (-0.002% YoY).
  • LPI’s net earned premium (NEP) for 9M20 was subdued at RM743 mil (-0.4% YoY). This was due to the decline in NEP for the marine, aviation and transit as well as the miscellaneous segment. The group’s retention ratio was sustained at 66.0% in 9M20.
  • Underwriting margin for 9M20 rose to 30.1% vs. 27.5% in 9M19 supported by lower claims, management and commission expense ratios.
  • Claims ratio improved slightly to 43.7% in 9M20 compared with 45.2% in 9M19 with the improvement of motor, marine, aviation & transit and the miscellaneous segments ratios. We understand that in 3Q20, claims overprovided for the marine, aviation & transit segment were written back. Meanwhile, claims ratio for fire insurance has held up at 13.2%.

Source: AmInvest Research - 16 Oct 2020

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Digi. Com - Adjusting To Medium-to-high-digit EBITDA Decline

Author: AmInvest   |  Publish date: Fri, 16 Oct 2020, 9:27 AM


Investment Highlights

  • We maintain our HOLD rating on Digi.Com with an unchanged DCF-based fair value of RM4.40/share derived from a WACC of 6.3% and terminal growth rate of 2%. This implies an FY20F EV/EBITDA of 12x — in line with its 2-year average together with a supportive dividend yield of 4%.
  • Our FY20F–FY22F earnings are unchanged as Digi’s 9MFY20 net profit of RM941mil (-14% YoY) was in line with our FY20F net profit, accounting for 76% of our FY20F earnings – similar to the past 3-year trend. However, the result is below consensus as our FY20F earnings are 5% below street’s.
  • The group declared an 11% QoQ increase in 3QFY20 DPS to 4.1 sen due to the stronger sequential earnings performance. However, 9MFY20 DPS still fell by 13% YoY to 12 sen on an almost 100% payout ratio due to the lower YTD performance.
  • Digi’s 3QFY20 net profit rose by 11% QoQ in tandem with a 9% growth in revenue, driven by a 52% surge in device sales and 4% increase in service revenue. Following lower subscribers in 2QFY20 with the temporary closure of physical outlets during the Covid-19 movement control order (MCO), service revenue gained momentum mainly from a 10% QoQ irise in prepaid revenue, partly offset by a 2% QoQ drop from the postpaid segment.
  • The prepaid segment enjoyed a 67K QoQ increase in subscribers and RM4/month QoQ gain in average revenue per user (ARPU) to RM33/month from new Abadi and NEXT packages. However, the postpaid segment still struggled with subscribers declining by 10K QoQ to 3mil and ARPU slipping by RM1/month QoQ to RM67/month despite the launch of new Phone Freedom 365 plans.
  • The higher revenue was partly offset by a 69% QoQ climb in cost of materials due to higher number of handsets sold, as well as an 8% increase in operating expenses, which led to a slight 2% rise in 3QFY20 EBITDA. The EBITDA improvement together with a 32% fall in interest expense to a more normalised RM49mil given 2QFY20 refinancing costs and 5% decline in depreciation to RM313mil propelled the 11% increase in 3QFY20 net profit.
  • Management has adjusted its FY20F guidance for service revenue decline from a low single-digit to low-to-medium single digit while EBITDA decrease from medium-single digit to medium-to-high single digit. As in the earlier guidance, capex is still expected to be similar to FY19, which translates to a capexto-service revenue of 14% vs. 13% in FY19 due to weaker service revenue..
  • Including asset retirement obligations to dismantle cellular sites, Digi’s 3QFY20 capex shrank 40% QoQ to RM134mil as management repositioned spending with its new RAN procurement agreement with ZTE. However, with 9MFY20 capex decreasing by 9% YoY to RM498mil, this implies a faster rollout and potential 1.9x QoQ increase in 4QFY20 spending.
  • The stock currently trades at a fair FY21F EV/EBITDA of 12x – at parity to its 2-year average with decent dividend yields of 4%.

Source: AmInvest Research - 16 Oct 2020

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FGV Holdings - Receives Offer From Perspective Lane

Author: AmInvest   |  Publish date: Fri, 16 Oct 2020, 9:27 AM


Investment Highlights

  • We maintain HOLD on FGV Holdings with an unchanged fair value of RM1.14/share. Our fair value of RM1.14/share for FGV is based on a P/BV of 1.0x.
  • We are neutral over Perspective Lane Sdn Bhd’s proposed injection of plantation assets into FGV via share consideration. We believe that Perspective Lane Sdn Bhd owns Tradewinds Plantation. We are unsure if there are other plantation assets in Perspective Lane.
  • FGV said that it would explore Perspective Lane’s proposition and make further announcements if there are material developments.
  • We believe that the proposed asset injection may result in an enlarged share base, which may be earnings dilutive. Also, we believe that a substantial portion of the oil palm estates are located in Sarawak, which sit on peat soil.
  • Assuming a market price of RM80,000/ha, Tradewinds Plantation’s 129,975ha of oil palm estates may be valued at RM10.4bil (ignoring the assumption of debts). Assuming FGV issues new shares at RM1.23/share, which is a 15% premium to its closing price, the group may be issuing additional shares of more than 8bil. FGV’s current share base is 3.6bil.
  • In the Bursa Announcement, FGV said that Perspective Lane would be its single largest shareholder if the exercise goes through.
  • The enlarged group may have 468,412ha of oil palm estates in Malaysia. Including the land leased from FELDA, FGV has 338,437ha of oil palm estates currently while Tradewinds Plantation has planted areas of about 129,975ha (according to its website).
  • We do not have Tradewinds Plantation’s latest net profit as the group was privatised at a share price of RM5.00 in 2013. Tradewinds Plantation recorded a net profit of RM142.3mil on the back of a revenue of RM2.8bil in FY12. Net gearing was 70.0%. Gross borrowings were RM1.47bil as at end-December 2012.

Source: AmInvest Research - 16 Oct 2020

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Mah Sing - Venturing Into Rubber Glove Manufacturing Business

Author: AmInvest   |  Publish date: Fri, 16 Oct 2020, 9:24 AM


Investment Highlights

  • We maintain our BUY call on Mah Sing Group (Mah Sing) with a higher fair value of RM1.50 per share (from RM0.99), based on SOP valuation (Exhibit 4). The increase in fair value is to reflect the contribution from the company’s glove manufacturing business in FY21. We make no changes to our FY20 numbers while raising FY21-FY22 net earnings forecasts by 43% and 91%. We value the glove business at 25x over FY21 earnings which is a discount over the glove sector PE of 35x. We believe the discount is justified as Mah Sing has no prior experience in glove manufacturing business.
  • Mah Sing proposed to venture into rubber glove manufacturing and healthcare related business. For phase 1, the company is planning to build 12 new gloves production lines with an estimated total production capacity of up to 3.68bil pieces of gloves per annum, located at Kapar, Klang (Exhibit 1). Capex for commissioning phase 1 is RM150mil. The land is rented at RM274k per month (from 1 November 2020) for 3 years with an option to renew for further four terms. Mah Sing has the first right of refusal to purchase the land at market price if the landlord intends to sell the land during the term of the tenancy agreement.
  • The first 6 lines are scheduled to commence production in 2QCY21 while the remaining 6 lines are expected to commence in 3QCY2021 (Exhibit 2). The second phase will put 12 additional production lines with similar output as phase 1. The glove making division will lead by a management team with more than 30 years of experience in the glove industry. Mah Sing intends to gradually expand up to 100 gloves production lines as part of the group’s future expansion plan.
  • Based on our average selling price (ASP) assumption of USD50/1,000 pieces (spot price), 80% average utilisation rate, nitrile price of RM5.60/kg and MYR/USD exchange rate of RM4.25; the glove division will provide additional net profit of RM51mil and RM105mil for FY21 and FY22 respectively. Hence, we increase our FY21 and FY22 net profit forecasts by 43% and 91% respectively. We believe the spot price to be lower in FY21 (presently >USD80/1,000 pieces) given the availability of covid19 vaccine and increase in glove supply as a result of expansion by other glove manufacturers. Nonetheless, management noted that indicative orders received has exceeded its phase 1 and 2 capacity (Exhibit 3).
  • We believe Mah Sing has the financial strength to venture into the glove manufacturing business given its current strong cashflow position coupled with the new issuance of RM100mil convertible sukuk. After paying RM150mil capex for phase 1, Mah Sing’s net gearing will increase from 0.4% to 4.8%. All in all, we see this is a positive move by the management given the good prospects in glove business amid the covid19 pandemic. We believe the demand of glove will remain stable post-covid19 due to increase in healthcare awareness and more stringent regulations. We maintain our BUY recommendation on Mah Sing with a fair value of RM1.50.

Source: AmInvest Research - 16 Oct 2020

Labels: MAHSING
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Stocks On Radar - Caely Holdings (7154)

Author: AmInvest   |  Publish date: Thu, 15 Oct 2020, 9:11 AM


Caely Holdings jumped and flirted with the RM0.495 resistance level. With its RSI indicator pointing upwards, coupled with higher trading volume, there is a good chance for a technical breakout towards the short-term target price of RM0.545, followed by RM0.57. The downside support is marked at RM0.45. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.495

Target: RM0.545, RM0.57 (time frame: 2-4 weeks)

Exit: RM0.45

Source: AmInvest Research - 15 Oct 2020

Labels: CAELY
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Stocks on Radar - Kawan Food (7216)

Author: AmInvest   |  Publish date: Thu, 15 Oct 2020, 9:09 AM


Kawan Food surged and tested the RM2.59 resistance level. With its RSI indicator pointing upwards, coupled with higher trading volume, we see a possibility for a technical breakout. If this happens, we expect it to move towards short-term target prices of RM2.70 and RM2.75. The downside support is projected at RM2.47. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy near RM2.59

Target: RM2.70, RM2.75 (time frame: 2-4 weeks)

Exit: RM2.47

Source: AmInvest Research - 15 Oct 2020

Labels: KAWAN
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Banking Sector - BNM Financial Stability Report – 1H2020

Author: AmInvest   |  Publish date: Thu, 15 Oct 2020, 9:06 AM


Investment Highlights

BNM released the Financial Stability Review for 1H20 and held a briefing yesterday for analysts. Below are the key highlights:

  • Despite the weaker earnings of banks in 1H20 weighed down by margin compression from consecutive OPR cuts and higher provisions for credit losses, banks maintained healthy capital and liquidity positions. Annualised credit cost rose to 56bps compared to an average of 20bps for 2010-2019. Liquidity coverage ratio (LCR) was sustained at 149.0% in June 2020 while excess capital buffers of RM121.6bil remained strong to withstand potential credit losses.
  • The banking sector recorded a CET1 capital ratio of 14.6% and total capital ratio of 18.3% in June 2020 compared to 14.6% and 18.6% respectively in Dec 2019.
  • Gross impaired loan ratio for the sector was at a low 1.5%. This was due to most retail and SME loans placed under the automatic blanket loan moratorium for 6 months (1st April to 30th Sept). Also, debt recovery efforts by banks have reduced the outstanding loan impairments for the sector.
  • As at 25 Sept 2020, 840,000 borrowers opted out of the loan moratorium. In Aug 2020, repayments of SME and retail loan were at 69% of the levels seen in Mar 2020 (before the commencement of loan moratorium).
  • Growth in household debts moderated to 4.0% in 1H20 from 5.5% in 2019 contributed by movement restrictions and decline in consumer spending with households turned more cautious. Despite the slower credit growth, household debtto-GDP ratio rose to 87.5% in 1H20 vs. 82.9% in 2019 amid the contraction in 2Q20 GDP.
  • Household continued to hold comfortable levels of financial asset as evidenced by the financial asset-to-debt and liquid financial asset-to-debt ratios of 2.2x and 1.4x, respectively.
  • The unemployment rate decreased to 4.7% in July 20 vs. 5.3% in May 2020. Debt servicing ratio of households for outstanding loans was 35.0% and for newly approved household loans, it was 43.0%.
  • Nevertheless, there remains stress on some households, particularly the lower income earners. Share of borrowings by borrowers with income below RM3,000 a month (vulnerable segment) to the total banking system loans ascended to 17.6% (2019: 16.7%). Leverage of these borrowers climbed to 9.5x owing to increase in borrowings for purchase of houses during the Home Ownership Campaign (HOC). Also, they continued to hold low liquidity buffers as evidenced by the low liquid asset-to-financial debt ratio of 0.7x which is below the prudent threshold of 1.0x.
  • Property market in Malaysia in 1H20 was weaker attributed to decline in market activity while the oversupply conditions in the non-residential property market persist. The Malaysian House Price Index (MHPI) grew at a slower pace of 1.1%.

Source: AmInvest Research - 15 Oct 2020

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Press Metal - Minimal Impact From Anti-dumping Duty In EU

Author: AmInvest   |  Publish date: Thu, 15 Oct 2020, 9:01 AM


Investment Highlights

  • We maintain our HOLD recommendation, forecasts and fair value of RM4.25 on Press Metal based on an 18x FY22F EPS. While the 18x multiple is in line with our target P/E for the FBM KLCI, it is at a substantial premium to the 10x average forward P/E of key global aluminium smelters. This is to reflect Press Metal’s favourable cost structure with the bulk of its energy costs (from hydro power) locked in at very competitive rates over the long term. Maintain HOLD.
  • European Commission has imposed a 38.2% provisional anti-dumping duties on products of Press Metal’s Chinabased aluminium extrusion operations (in Guangdong). The impact on Press Metal’s earnings are insignificant because:

    1. EU is a small market for Press Metal’s extrusion products produced in China. According to Press Metal, for FY19, its extrusion product exports from China to EU contributed only about 4.6% and 2.8% of its total revenue and profits. Similarly, for 1HFY20, we estimate that extrusion product exports from China to EU contributed only about 2% and 1% of its total revenue and EBIT; and

    2. Press Metal has the flexibility to realign its extrusion product exports geographically, as it also has an extrusion plant in Klang, Malaysia (that is not subject to the latest EU anti-dumping duties). We understand that in anticipation of the duties, steps have been taken to re-route exports to EU from the plant in Malaysia (from the one in China). Meanwhile, the plant in China will supply to South-East Asia region.
     
  • We remain cautious on Press Metal’s outlook as: (1) the upside to global aluminium prices is capped by a significant build-up of inventory (as aluminium production has not slowed down throughout the pandemic, while consumption takes time to recover); (2) the unusually high volatility in the cost of input alumina in recent years, more often than not resulting in severe margin squeeze to aluminium producers; and (3) the company’s premium valuations vs. its much larger global peers, capping the upside to its share price.
  • However, this could be partially mitigated by Press Metal’s recent signing of a 15-year power purchase agreement (PPA) with Sarawak Energy Bhd for the supply of 500MW of electricity, enabling it to power an additional annual aluminium smelting capacity of 320K tonnes. This will boost its overall smelting capacity by 42% to 1.08mil tonnes by 2021 from 760K tonnes currently.

Source: AmInvest Research - 15 Oct 2020

Labels: PMETAL
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