Highlights

AmInvest Research Reports

Author: AmInvest   |   Latest post: Tue, 19 Feb 2019, 09:47 AM

 

Malayan Banking - Indonesia unit to focus on maintaining stable liquidity

Author: AmInvest   |  Publish date: Tue, 19 Feb 2019, 09:47 AM


  • We maintain our BUY call on Maybank with an unchanged FV of RM10.70/share. This is based on an ROE of 11.0% leading to an unchanged FY19 P/BV of 1.5x. No changes to our estimates.
  • Management of Maybank’s Indonesian subsidiary, Maybank Indonesia (MI) provided a briefing on its recently announced 4QFY18 results. MI recorded an improved net profit of Rp697bil (+23.5%QoQ) which led to a full FY18 net profit of Rp2.19tril (+21.6%YoY). The improved cumulative earnings were supported by higher net interest income (+5.2%YoY) and lower provisions (-38.7%YoY) partially offset by lower non-interest income (NOII) of 17.0%YoY. The decline in NOII was largely due to a non-repeat of a one-off income of Rp401bil from the sale of shares in FY17. The increase in market volatility, the US monetary tightening and Fed rate hike have lowered MI’s income from trading of bonds.
  • FY18 NIM rose 7bps YoY to 5.24% contributed largely by lower interest expense. For FY19, management has guided for MI’s NIMs to contract by 15 to 20bps owing to the potential built-up of excess liquidity moving towards the general election. The group has set its priorities in maintaining a stable liquidity for 2019. It is focused in driving CASA through community programs, value chain financings, capturing of customers’ operating accounts and promoting attractive funding programs to attract deposits in Indonesia. Management is expecting another 50bps rate hike in Indonesia due to potentially further increase in the Fed rate in 2019. This will be substantially lower than the quantum of rate increased cumulatively in 2018. Nevertheless, it remains to be seen if the subsidiary is able to fully pass it on to the lending rates of borrowers as Indonesia’s economic growth in 2019 is not expected to improve significantly over 2018.
  • The Indonesian subsidiary has guided for its loans to grow by 9.0–10.0% for FY19 with selective growth in all segments. Recall in FY18, it registered a loan growth of 6.3%YoY. FY18 loan growth was underpinned by the growth in CFS non-retail loans (+10.9%YoY) driven by business banking and SME loans as well as CFS loans (+3.1%YoY) from auto loans and credit cards. We understand that mortgage loans have contracted due to the recalibration of its business model, and it is expected to pick up pace after the completion of the initiative. Meanwhile, global banking loans expanded modestly by 2.9%YoY impacted by several corporate loan repayments.
  • Customer deposits shrank by 3.7%YoY in 2018 due to the tighter liquidity conditions in the market. CASA ratio slipped to 38.1% in 4QFY18 vs. 41.6% in 3QFY18. LCR of 118.6% was above the minimum regulatory requirement of 100.0%. MI’s LDR and modified LDR improved to 10.98% and 8.61% respectively in 4QFY18 compared to the preceding quarter. In FY19, MI is targeting for a deposit growth of 11.0–12.0%.
  • With active restructuring and sale of corporate NPLs, asset quality for MI has improved. GIL ratio and gross NPL ratio of MI declined to 3.10% and 2.59% respectively in 4QFY18 (3QFY18: 3.35% and 2.73%). Credit cost for FY18 stood at 1.30% vs. 1.69% in FY17. Management has guided a credit cost of 0.95% for FY19. Loan loss cover based on impaired loans and NPLs improved to 69.8% and 53.0% respectively. Including the collateral coverage, the ratios will be higher at 144.1% and 128.9%.
  • Capital position of MI strengthened with total CAR of 19.04% in FY19 vs. 17.53% in FY17. In June 2018, MI exercised a rights issue of Rp2.0tril.
  • In FY19, MI is targeting for a double-digit growth in ROE. We understand that MI will continue to focus on cost management, digital transformation, optimizing of branches and improving its productivity.

Source: AmInvest Research - 19 Feb 2019

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Petronas Gas - 4QFY18 decline prelude to longer term tariff erosion

Author: AmInvest   |  Publish date: Tue, 19 Feb 2019, 09:46 AM


Investment Highlights

  • We maintain our SELL recommendation for Petronas Gas (PGas) with an unchanged sum-of-parts-based (SOP) fair value of RM15.35/share, which implies an FY19F PE of 16x.
  • We have fine-tuned PGas’ FY19F-FY20F earnings even though FY18 core net profit of RM1,810mil was below expectations, coming in 6%-7% below our and consensus’ estimates. The earnings disappointment stemmed from 60%-owned Kimanis Power’s RM124mil one-off de-recognition of deferred tax assets together with higher maintenance costs and depreciation charges from the gas transportation and utilities segments.
  • However, the group declared a final dividend of 22 sen (+4 sen QoQ), which leads to a FY18 DPS of 72 sen — +6 sen above our forecast. This represents a payout ratio of 79% vs. 71%- 73% in FY16-FY17.
  • PGas’s 4QFY18 core net profit fell 38% QoQ to RM311mil, due to: 1) RM106mil associate loss from Kimanis Power due to the deferred tax de-recognition following the 7-year limitation under the new Finance Act 2018; 2) halving of utilities contribution due to higher maintenance and one-off asset impairments; 3) higher maintenance costs for gas transportation and regasification operations; and 4) 6-ppt increase in effective tax rate to 24%.
  • On a YoY comparison, the group’s FY18 revenue rose by 12% from the 490 mmscfd capacity Pengerang RGT commencement together with higher utilities tariffs commencing on 1 July 2017 and 1 January 2018. However, this was mostly offset by Kimanis Power’s losses and the newly completed Pengerang regasification facilities’ depreciation and capitalised interest costs. Hence, PGas’ FY18 core net profit rose by only 2%.
  • Recall that our valuations have already incorporated the backloaded value erosion from the new gas transportation tariff structure under the Energy Commission’s new guidelines for the two 3-year regulatory periods starting from 1 January 2020 to 31 December 2025, wherein the optimised replacement cost valuation being employed currently will be phased out and replaced with historical cost over these transitional periods.
  • Assuming a WACC of 8%, PGas will suffer a fall in the transportation segment’s annual revenue requirement by 5.6% in FY20F under RP1 and 17.9% in FY23F in RP2. Overall, this translates to a minimal PGas’ annual earnings reduction of 2% in FY20F while FY23F earnings will drop by a larger quantum of 7.5%.
  • The stock currently trades at an FY19F PE of 19x, 14% below its 3-year average of 22x. However, these valuations are unjustified given that PGas’ recurring income and margins will be declining progressively over a prolonged trajectory due to the new gas transportation framework. We will provide further updates pending an analyst briefing later today.

Source: AmInvest Research - 19 Feb 2019

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KL Kepong - Boosted by a low effective tax rate and forex gains

Author: AmInvest   |  Publish date: Tue, 19 Feb 2019, 09:45 AM


Investment Highlights

  • We are keeping our SELL recommendation on Kuala Lumpur Kepong (KLK) with an unchanged fair value of RM22.65/share. Our fair value is based on an FY19F PE of 27x.
  • KLK’s 1QFY19 core net profit was within our forecast but 9% below consensus estimates. Included in KLK’s 1QFY19 reported net profit were a RM22.5mil gain (1QFY18: RM13.6mil) on the disposal of land to the government and foreign currency gains of RM38mil (1QFY18 loss: RM120.4mil) on loans denominated in foreign currencies.
  • We believe that KLK’s 1QFY19 net profit would have been weaker YoY if the effective tax rate normalises at a range of 25% to 28%. KLK’s effective tax rate was a mere 19.3% in 1QFY19 compared with 27.9% in 1QFY18 due to tax exempt and non-taxable income and utilisation of previously unrecognised tax losses.
  • KLK’s plantation EBIT dropped by 60.4% YoY to RM122.1mil in 1QFY19 while manufacturing EBIT fell by 26.8% to RM110.2mil. On a positive note, farming EBIT (mainly wheat and cattle operations in Australia) surged by 92.2% to RM58.7mil in 1QFY19 from RM30.6mil in 1QFY18, underpinned by improved yields and larger harvesting areas.
  • The plantation division was affected by a decline in palm product prices. Average CPO shrank by 28.7% to RM1,840/tonne in 1QFY19 from RM2,581/tonne in 1QFY18. Average palm kernel price slid by 44.7% to RM1,375/tonne in 1QFY19 from RM2,488/tonne in 1QFY18. FFB production growth was 7.9% YoY in 1QFY19.
  • The manufacturing division was hit by a fall in selling prices of oleochemical products. Earnings from the China and Europe divisions fell YoY in 1QFY19, which offset earnings enhancements in the Malaysian unit.
  • EBIT margin of the manufacturing division slid to 5.0% in 1QFY19 from 6.1% in 1QFY18. Comparing 1QFY19 against 4QFY18, EBIT margin improved to 5.0% from 2.2%. The margin improvement in 1QFY19 was partly boosted by fair value gains on derivatives of RM21.4mil in 1QFY19 compared with a loss of RM9.4mil in 4QFY18.
  • In its results announcement, KLK said that if the recent recovery in CPO price is sustainable, prospects for the plantation division will be satisfactory in FY19F. The oleochemical division is anticipated to sustain its performance on the back of higher utilisation rates and margin improvements.
  • KLK’s net gearing stood at 25.1% as at end-December 2018 compared with 24.6% as at end-September. About 28.5% of KLK’s borrowings were denominated in foreign currencies as at end-December 2018.

Source: AmInvest Research - 19 Feb 2019

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Kossan Rubber - FY18 net profit up 9.3%

Author: AmInvest   |  Publish date: Tue, 19 Feb 2019, 09:42 AM


Investment Highlights

  • We maintain our HOLD recommendation with a slightly higher FV of RM 3.89/share (vs. RM3.82/share previously) after introducing Kossan’s FY21F net profit forecast of RM287.9mil. Our fair value for Kossan is based on DCF, which has a WACC of 6.7% and terminal growth of 2.5%. At our FV of RM3.89/share, the implied FY20 P/E is 20.4x with FY19F-FY22F earnings CAGR of 8.1%.
  • FY18 net profit of RM200.7mil (9.3% YoY) met both our and street’s estimates, accounting for 96.7%–97.8% of full-year forecasts respectively.
  • Key highlights of Kossan’s FY18 results include: 1. FY18 topline grew 9.5% YoY to RM2,144.2 mil (Gloves: +9.3% YoY and TRP +14.0%) due to a strong demand growth where sales volume increased 9.7% YoY. Kossan’s gloves’ ASP improved 6.1% YoY in terms of USD. However, this was dragged by a 6.2% strengthening of the MYR against the USD. 2. Comparing FY18 against FY17, Kossan’s EBITDA rose 10.5% to RM 345.8mil. Despite the 9.7% increase in sales volume, EBITDA margin only improved marginally by 0.1ppt due to higher costs. This was attributed to the higher natural gas prices which climbed by 22.8% YoY coupled with higher nitrile rubber price which increased 9.3% YoY.
  • Kossan’s product mix has shifted further towards nitrile with a nitrile-to-natural rubber split of 75:25 (70:30 previously). We believe Kossan will be facing some margin pressure stemming from heightened competition in the nitrile space as the big rubber glove producers ramp up their nitrile gloves capacity expansion (+14% in FY19). We anticipate Kossan’s EBITDA margin to remain around similar levels of circa 16.0% in FY19F.
  • Kossan’s Plant 18 (2.5bil pieces) is expected to be commissioned by 2QFY19 while Plant 19 (3bil pieces) is expected to be commissioned by 4QFY19. Kossan’s total production capacity is expected to reach 32bil pieces by end-FY19 (26.5bil pieces currently).
  • The next phase for Kossan’s expansion will be in Bidor, Perak. Construction of the plant will start in FY20F and be completed in eight years’ time.

Source: AmInvest Research - 19 Feb 2019

Labels: KOSSAN
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LPI Capital - Pressure on fire insurance underwriting margins ahead

Author: AmInvest   |  Publish date: Tue, 19 Feb 2019, 09:41 AM


Investment Highlights

  • We maintain our HOLD call on LPI Capital (LPI) amid a lack of earnings catalysts while valuation remain uncompelling. Our fair value is unchanged at RM15.60/share, pegging the stock to FY19 P/BV of 3.0x supported by an ROE of 15.3%. No changes to our estimates.
  • We met the management recently for updates. We understand that BNM will review Phases 1 and 2 of the adjustments to the fire and motor tariffs that have been completed after June 2019. Also, the central bank will assess the readiness of consumers and industry players for further liberalization in the sector.
  • Recall, tariff rates for motor are already liberalized, with the impact fully felt by industry players. The changes have further lowered underwriting margins for motor products, which the group is already experiencing high claims.
  • For fire insurance, these products are still subjected to tariff rates albeit at lower pricing after Phase 2 of the liberalization. Going forward, more pressure is anticipated on the premiums for fire. This could see a decline by 10–15% in the product’s underwriting margin should there be further easing of the tariff pricing. Nevertheless, we do not expect any major market disruptions should the sector liberalizes further. This is based on the impact seen from the full liberalization of the motor insurance pricing.
  • To mitigate the pricing pressure on motor and fire products, new products with additional coverage need to be introduced. These new products can be priced at a premium to tariff rates. Based on BNM’s guidelines, pricing for new fire and motor products with additional coverage could be in the range of +/- 30% and +/- 10% from the tariff rates respectively.
  • On fire insurance, the smaller segment (SMEs) makes up 60% of the group’s total fire policies and 40% of the all fire premiums. Meanwhile, for the mid and larger segment’s fire insurance, these comprised 40% of its total fire policies and 60% of the total fire premiums. LPI Capital has a market share of 17.0% on fire insurance and is still ranked number one.
  • Malaysian Motor Insurance Pool (MMIP) is gradually shrinking as some of the motor insurance business have been insured directly by companies. We gather that insurers are underwriting more of the motor insurance directly, leveraging the flexibility in pricing. Arising from this, insurance companies are expected to make lesser contributions to MMIP, resulting in a lower drag on their earnings in the future.

Source: AmInvest Research - 19 Feb 2019

Labels: LPI
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Stocks on Radar - Sapura Energy (5218)

Author: AmInvest   |  Publish date: Tue, 19 Feb 2019, 08:55 AM


Sapura Energy was testing the RM0.315 level in its latest session. With a moderate RSI level, a bullish bias may be present above this point with a target price of RM0.365, followed by RM0.38. Meanwhile, it may continue drifting sideways if it fails to cross the RM0.315 mark in the near term. In this case, support is anticipated at RM0.285 whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy on further rebound RM0.315

Target: RM0.365, RM0.38 (time frame: 3-6 weeks)

Exit: RM0.285

Source: AmInvest Research - 19 Feb 2019

Labels: SAPNRG
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Stocks on Radar - Sunway Construction (5263)

Author: AmInvest   |  Publish date: Tue, 19 Feb 2019, 08:55 AM


Sunway Construction was testing the RM1.60 level in its latest session. With a healthy RSI level, it may move higher above this point with a target price of RM1.68, followed by RM1.82. Meanwhile, it may continue trending sideways if it fails to break the RM1.60 mark in the near term. In this case, support is anticipated at RM1.51, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy on further rebound above RM1.60

Target: RM1.68, RM1.82 (time frame: 3-6 weeks)

Exit: RM1.51

Source: AmInvest Research - 19 Feb 2019

Labels: SUNCON
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Stocks on Radar - Prestariang (5204)

Author: AmInvest   |  Publish date: Tue, 19 Feb 2019, 08:49 AM


Prestariang was testing the RM0.46 level in its latest session. With a rising RSi level, it may move higher above this mark with a target price of RM0.515. Meanwhile, it may continue to drift sideways if it fails to cross the RM0.46 mark in the near term. In this case, support is anticipated at RM0.425, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy on further rebound above RM0.46

Target: RM0.515 (time frame: 3-6 weeks)

Exit: RM0.425

Source: AmInvest Research - 19 Feb 2019

Labels: PRESBHD
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Stocks on Radar - Malaysia Marine and Heavy Engineering (5186)

Author: AmInvest   |  Publish date: Tue, 19 Feb 2019, 08:47 AM


Malaysia Marine and Heavy Engineering was testing the RM0.71 level. With a rising RSI level, a bullish bias may be present above this mark with a target price of RM0.805, followed by RM0.84. Meanwhile, it may continue moving sideways if it fails to breach the RM0.71 mark in the near term. In this case, the immediate support is anticipated at RM0.645, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy on further rebound above RM0.71

Target: RM0.805, RM0.84 (time frame: 3-6 weeks)

Exit: RM0.645

Source: AmInvest Research - 19 Feb 2019

Labels: MHB
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moneykj Dolphin
19/02/2019 08:49

Plantation - News flow for week 11 – 15 Feb

Author: AmInvest   |  Publish date: Mon, 18 Feb 2019, 09:39 AM


  • The USDA has released its monthly projections of demand and supply of global vegetable oils. US soybean prices were little changed after the release of the data as soybean inventory is still expected to be high. The USDA has reduced its forecast of US soybean stockpiles for 2018/2019F by 4.7% to 910mil bushels from 955mil. The downward revision was mainly due to a lower estimate of soybean production resulting from a weaker yield of 51.6 bushels per acre vs. 52.1 bushels per acre previously. Comparing 2019F against 2018 however, US soybean inventory is expected to be at a record level. US soybean inventory is anticipated to surge by 107.8% to 910mil bushels in 2018/2019F from 438mil bushels in 2017/2018.
  • The USDA has also reduced its forecast of global inventory of soybeans for 2018/2019F to 106.7mil tonnes from 115.3mil. This is due to lower estimates of soybean stockpiles in the US and Argentina. Comparing 2019F against 2018, global inventory of soybeans is forecast to rise by 8.8% to 106.7mil tonnes from 98.1mil on the back of higher output in the US and Argentina. US soybean production is envisaged to increase by 3.0% to 123.7mil tonnes in 2018/2019F while in Argentina, soybean output is estimated to climb by 45.5% to 55mil tonnes. Soybean production in Argentina is expected to recover this year after being hit by the drought last year. Soybean production in Brazil is forecast to decline by 3.1% to 117mil tonnes in 2019F due to the dry weather.
  • Reuters reported that farmers in Brazil have halted sales of soybeans due to the strengthening of the Brazilian reai and China’s switch to US soybeans. Also an industry player said that spot sales have slowed as farmers are waiting for better prices. Farmers have sold about 46.6% of Mato Grosso’s soybean production for this season compared with the five-year average of 49.9%. Another industry expert said that Brazilian farmers, who lack storage, may be forced to sell. He added that whatever that is left in storage will only be sold after the peak season in June.
  • Financial Times reported that Elizabeth Warren, Bernie Sanders and other US senators have written to investment groups to urge them to disclose how they manage investments exposed to deforestation by palm oil. Eight senators signed the letters, which were sent to US financial companies such as BlackRock, JP Morgan and Fidelity Investments. The senators have asked the investment companies to respond by 1 March 2019 on whether they have a policy on deforestation-related investments or have plans to introduce one.
  • Nikkei Asian Review reported that Aeon has pledged to source only sustainable palm oil for its private brand by year 2020F. Also, Chinese membership in the RSPO has risen in the past five years. A major incentive for Japanese companies to act is Tokyo’s hosting of the 2020 Summer Olympics. According to an official from Fuji Oils, international attention could lead to environmental groups putting pressure on Japanese snack makers like what happened to Nestle.

Source: AmInvest Research - 18 Feb 2019

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Maxis - Expect lower margins moving into fiberised solutions

Author: AmInvest   |  Publish date: Mon, 18 Feb 2019, 09:38 AM


Investment Highlights

  • We maintain our UNDERWEIGHT recommendation on Maxis with a lower DCF-derived fair value of RM4.75/share (from an earlier RM5.20/share), based on a WACC discount rate of 6.4% and a terminal growth rate assumption of 2%, implying an FY19F EV/EBITDA of 13x and on par with its 3-year average.
  • We have lowered FY19F-FY20F earnings by 9%-16% as Maxis' FY18 normalised net profit of RM1,767mil (-16% YoY) came in below expectations – 7% and 9% below our and street’s estimates respectively.
  • The results included a RM250mil one-off cost for the marketing launch of fibre customer retention, mobilsation of enterprise business growth, network improvement and optimisation, and operating and maintenance expenses for productivity initiatives. However, we caution that some of these costs may recur in FY19F.
  • The group declared a 4QFY18 dividend of 5 sen, which leads to a flat YoY FY18 DPS of 20 sen and an 88% payout, above our FY18F assumption of 76%.
  • Maxis is moving from a consumer/mobile-centric telco to a converged digital solutions provider, similar to TM’s quadplay agenda over the past 5 years. However, we expect lower margins from these investments given that incumbents are already offering fibre packages while new operators may emerge.
  • For FY19F, management is guiding for low single-digit service revenue decline which will lead to mid-single digit EBITDA contraction. However, management expects to maintain base capex at RM1bil while investing an additional RM1bil over 3 years in fiberised solutions, digitalisation and productivity capabilities.
  • By effectively raising capex by 33%, the expected higher depreciation will translate to a FY19F–FY20F net profit decline of 8%–9%. We introduce FY21F with a flattish earnings trajectory given the higher depreciation base. Note that the increased capex guidance excludes additional spectrum payments, such as the upcoming 700MHz band.
  • The group’s focus in high-value customers has seen its postpaid share of service revenue gradually rising to 55% in FY18 from 52% in 1QFY17. Maxis’ 4QFY18 service revenue rose 1% as the decline in prepaid was more than offset by the postpaid segment. Against a flattish blended average revenue per user (ARPU) of RM53/month, 4QFY18 postpaid customers climbed 85K QoQ to 3.2mil while prepaid dropped 132K QoQ to 7.6mil.
  • Even though Maxis’ 4QFY18 revenue rose 8% QoQ driven by higher device sales, its normalised net profit halved QoQ to RM259mil from the one-off increase in costs together with a 17% increase in depreciation charge and a 2.7ppts increase in effective tax rate.
  • However, as dividends are likely to be compressed against the group’s rising capex targets amid high net debt/EBITDA of 1.9x, we view the premium FY19F EV/EBITDA of 14x vs. its 3-year average of 12x as unjustified.

Source: AmInvest Research - 18 Feb 2019

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Axiata Group - No surprise in M1 GO acceptance

Author: AmInvest   |  Publish date: Mon, 18 Feb 2019, 09:37 AM


Investment Highlights

  • We maintain our HOLD call on Axiata Group (Axiata) with an unchanged sum-of-parts-based fair value of RM3.86/share, which is at a 25% holding company discount to our sum-ofparts of RM5.14/share. This implies an FY19F EV/EBITDA of 5x, 2 SDs below its 3-year average of 7x.
  • As we have guided in our update on 27 September 2018, Axiata has accepted the offer by the special purpose vehicle called Konnectivity Pte Ltd held by Keppel Corporation and Singapore Press Holdings to sell its 29.7%-owned equity stake in SGX-listed M1 at S$2.06/share following Konnectivity’s voluntary general offer (GO) for the outstanding M1 shares.
  • The one-off gains of RM126.5mil from the disposal translate to 10% of FY19F earnings. However, given M1’s lower FY19F PE of 17x vs. Axiata’s 24x, we estimate a mild 3% earnings erosion for FY19F–FY20F core earnings, net of interest cost savings at 5%. Hence, as indicated in our earlier update, we are neutral on this development.
  • Recall that Axiata inherited its stake in M1 when Telekom Malaysia acquired an initial 17.7% stake for S$377mil in August 2005 and subsequently enlarged its stake to 29.7%. Telekom later demerged from Axiata in 2008.
  • While Axiata has indicated satisfaction in its M1 investment in the past, we had highlighted the intense competition by the fourth Singapore telco operator TPG Telecom and additional substantive capex requirements to improve network quality and connectivity towards 4G and beyond would likely to lead to this decision.
  • Additionally, the group has indicated interest in focusing on core investment holdings in which Axiata has management control with majority shareholding (in contrast with its current associate stake in M1) and in markets where it can secure or establish the top 2 position.
  • We expect the cash proceeds of S$546.7mil (RM1.6bil) to cause Axiata’s FY19F net debt/EBITDA to drop from 1.6x to 1.4x. Hence, the sale will provide the group additional financial resources to repay the contentious CGT addition of RM1.6bil for Nepal’s NCELL acquisition, redeploy to more strategically focused operations, in particular the modernization of IT and network infrastructure and digitalization initiatives.
  • Even though Axiata currently trades at a bargain FY18F EV/EBITDA of 5x, way below its Maxis’ 13x, the group’s likely weak 4QFY18 results announcement on 22 February from further year-end asset impairments amid deteriorating overseas risk profile from Nepal’s additional capital gains tax charge on NCELL acquisition and intense competition from both local and overseas mobile operations constrain upside momentum. Additionally, the government’s intention to reduce Khazanah Nasional’s GLC holdings casts possibilities of a share overhang over the medium term.

Source: AmInvest Research - 18 Feb 2019

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Axiata Group - Moderating XL revenue expectations

Author: AmInvest   |  Publish date: Mon, 18 Feb 2019, 09:36 AM


Investment Highlights

  • We maintain our HOLD call on Axiata Group (Axiata) with an unchanged fair value of RM3.86/share, which is at a 25% holding company discount to our unchanged sum-of-parts-based fair value of RM5.14/share. This implies an FY19F EV/EBITDA of 5x, which is 2 SDs below its 2-year average of 7x.
  • We have fine-tuned Axiata’s FY18F-FY20F earnings even though its 66.5%-owned XL Axiata’s (XL) FY18 loss of IDR3.3tril was worse than expected. This stemmed largely from the IDR4.2tril accelerated depreciation for 2G assets being replaced for 4G connectivity, and is unlikely to recur in FY19F. XL currently accounts for 9% of Axiata’s SOP.
  • Excluding these lumpy accelerated depreciation, IDR1tril tax impact and IDR100bil forex loss, XL’s FY18 normalised loss of IDR9bil was in fact better than our and consensus expectations. We also note that XL’s FY18 revenue and EBITDA were in line with our and street’s expectations.
  • XL’s 4QFY18 revenue trajectory continued to grow for the third consecutive quarter, rising 3.4% QoQ, underpinned by service revenue growth of 3.8% QoQ while EBITDA margin improved 1.6ppts to 38.9%.
  • The QoQ revenue growth stemmed from a 1mil increase in prepaid subscribers to 53.9mil and a 70K growth from the postpaid segment to 1mil, supported by an IDR1K increase in blended average revenue per user (ARPU) to IDR33K. Data share of 4QFY18 service revenue continues to expand to 82% from 77% in 1QFY18, up from 63% in 1QFY17.
  • XL’s FY18 operational costs were lower 1% YoY as the 26% increase in sales and marketing was more than offset by lower salaries (-24%), infrastructure (-1%), overheads (-14%) and interconnection charges (-2%).
  • While XL’s FY19F guidance for EBITDA margin remains in the high 30s, it has slightly moderated its revenue growth projection to “in line or better than market” from “above market” in FY18. FY19F capex remains on the growth trajectory, rising 10% to IDR7.5tril from IDR6.8tril capitalised in FY18. More than half will be spent ex-Java as the group intends to leverage its existing network.
  • While XL's revenue growth continues to be underpinned by its dual-brand transformation programme under XL and Axis, its sustainability may be constrained by rising competitive pressures over the longer term, while faster growing ex-Java revenues deliver lower EBITDA margins.
  • Even though Axiata currently trades at a bargain FY19F EV/EBITDA of 5x vs. Maxis’ 11x, the group’s likely weak 4QFY18 results announcement on 22 February from further year-end asset impairments amid deteriorating overseas risk profile from Nepal’s capital gains tax charge on NCELL and intense mobile completion both locally and regionally could limit any mediumterm share price upside. Additionally, the government’s intention to reduce Khazanah Nasional’s holdings in GLC-linked companies currently casts shadows of a share overhang.

Source: AmInvest Research - 18 Feb 2019

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Luxchem Corporation - Lower margins impact FY18; exports to drive growth ahead

Author: AmInvest   |  Publish date: Mon, 18 Feb 2019, 09:35 AM


Investment Highlights

  • We reiterate our BUY recommendation on Luxchem Corporation (Luxchem) with a revised fair value of RM0.64 pegged to a rolled forward 13x FY20F FD PE (previously RM0.74/share). We revise our FY19F–FY20F earnings downwards by 1–4% mainly to account for expectations of lower utilization rates anticipated for its unsaturated polyester resin (UPR) manufacturing arm Luxchem Polymer Industries (LPI).
  • Luxchem’s 4QFY18 core net profit came in slightly below our expectations at RM8.5mil (-8% QoQ, -1% YoY). This brings the group’s FY18 core net profit to RM37.8mil, missing 6% of ours and consensus’ full-year estimates.
  • FY18 core profit declined 8% YoY despite higher revenue due to lower gross profit margins and higher other operating expenses recognized during 4QFY18. Both trading and manufacturing PBT declined 13% and 8% YoY respectively.
  • On the trading side, declining raw material prices and the weaker USD against the MYR hurt trading margins. Average butadiene and styrene prices fell by 7% and 3% respectively from FY17 to FY18, translating to lower selling prices and margins for the group. Meanwhile, Luxchem’s USDdenominated exports would also be negatively impacted by a weaker USD against the MYR. The USD had declined 6% YoY against the MYR.
  • On the manufacturing side, LPI’s margins continue to be squeezed amid intense competition and a slower market with a current utilization rate of 63% of the group’s 40K MT/year capacity. Note that LPI contributes a larger portion of Luxchem’s manufacturing pie compared to its Transform Master (TMSB) manufacturing arm.
  • Meanwhile, Luxchem’s latex and latex-related chemicals manufacturing arm Transform Master (TMSB) has increased its capacity by 23% from producing 13.8K MT to 17K MT, with a current utilization rate of 65%. The group plans to further expand its capacity to 20K MT in the next few years, driven by growth in the glove sector. We have already factored the planned capacity expansions into our forecasts.
  • FY18 revenue was up 1% YoY overall, as both trading and manufacturing revenue rose 0.3% and 14.7% respectively. When analyzing geographical segments, the 4% increase in export market revenue was contributed mainly by higher sales in Indonesia, Cambodia and Philippines. The higher export sales were able to offset the decline in local sales of 0.1% that were mainly due to lower sales from the trading segment.
  • Moving ahead, Luxchem will continue to focus on growing its export markets supported by its increased production capacity in both its manufacturing arms. We reiterate our BUY recommendation on Luxchem premised upon: i) its exposure to industries with stable and commendable growth such as the glove sector; ii) large clientele (~1,000 customers) and wide application of its chemical products; and iii) capacity expansions planned for the group’s manufacturing segment particularly in TMSB for FY19 onwards driven by growth in the glove sector.

Source: AmInvest Research - 18 Feb 2019

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Malaysia – Upside surprise in growth

Author: AmInvest   |  Publish date: Fri, 15 Feb 2019, 10:27 AM


The economy expanded faster than expected by the market and our consensus of 4.5% in 4Q2018. It grew by 4.7% y/y compared with 4.4% y/y in 3Q2018. Hence, 2018’s calendar year growth averaged at 4.7% y/y amid trade escalation and tighter global financial conditions; marginally higher than our projection of 4.6% while slightly lower than the government’s 4.8% estimate.

For 2019, we project growth to hover around 4.5%–4.8%, lower than the official’s projection of 4.9%. Growth will continue to be supported by the private sector particularly on private consumption in view of the healthy labour market, stable inflation, conducive financing and higher minimum wages. Public consumption and investment will also remain muted with the continued fiscal consolidation path.

The challenge in 2019 remains elevated from both domestic and external headwinds. On the domestic front, downside risks include: (1) easing consumer confidence; and (2) volatile oil prices. However, 2018 inventories shaved 1.5ppts of GDP growth. It could mean that the inventory cycle could potentially provide some upside. Meanwhile, external demand is expected to be softer than in 2018 as key cyclical indicators are pointed to the downside. For now, we project global growth to moderate to 3.6% in 2019 should global risk is broadly balanced.

On the monetary policy, we maintain our vote that the OPR will remain at 3.25% as the current rates remain accommodative amid benign inflation environment. However, with the economy has limited fiscal space, there is some room for BNM to cut rates by 25bps in 2Q2019 should key challenges materialize.

  • The economy expanded faster than expected by the market and our consensus of 4.5% in 4Q2018. It grew by 4.7% y/y compared with 4.4% y/y in 3Q2018. Hence, 2018’s calendar year growth averaged at 4.7% y/y amid trade escalation and tighter global financial conditions; marginally higher than our projection of 4.6% while slightly lower than the government’s 4.8% estimate.
  • On the demand side, domestic demand moderated to 5.6% y/y from 6.9% y/y in 3Q2018 owing to slower growth in gross fixed capital formation, up 0.3% y/y from 3.2% y/y in 3Q2018. Nonetheless, private sector continued to perform favourably albeit at a slower pace. Private consumption continued to record a notable growth of 8.5% y/y in 4Q2018 from 9.0% y/y in 3Q0218. Despite the frontloading purchases during the tax holiday period in 3Q2108, consumption was largely supported by steady income and labour market as well as special payments to civil servants and pensioners.
  • Private investment growth however moderated to 4.4% y/y in 4Q2018 versus 6.9% y/y in 3Q2018, underpinned by sluggish capital spending across the major economic sectors. However, we expect private investment to be one of the key drivers in 2019 supported by ongoing multi-year projects as well as materialisation of approved investments, particularly in the manufacturing sector.
  • Public consumption expanded modestly to 4.0% y/y compared with 5.2% y/y in 3Q2018 owing to moderate growth in supply and services while public investment growth continued to decline albeit at a slower pace to -4.9% y/y from – 5.5% y/y in 3Q2018 owing to ongoing public spending rationalization.
  • On the supply side, we noticed the sector largely continued to expand save for agriculture. The services and manufacturing sectors continued to be the engine to the economy as they expanded by 6.9% y/y and 4.7% y/y respectively in 4Q2018 compared with 7.2% y/y and 5.0% y/y respectively in 3Q2018. Apart from the robust consumer spending supporting the services sector, we noticed demand picked up in the information and communication (ICT) subsector attributed to lower fixed broadband prices following the implementations of the Mandatory Standard Access Pricing (MSAP) mechanism. Meanwhile, the electrical & electronics (E&E) segment continued to be the key driver in the manufacturing sector due to global frontloading exercise in anticipation of higher trade tariffs.
  • Meanwhile, supply shocks from commodity-related sectors eased with mining rebounding to 0.5% y/y from -4.6% y/y in 3Q2018 supported by higher crude oil output while agriculture continued to decline at a slower pace of -0.4% y/y versus - 1.4% y/y in 3Q2018. Despite the supply disruption receding and new production facilities commencing, we remain cautious on these sectors due to volatile commodity prices.
  • Meanwhile, the current account balance of payment as a percentage of GNI (CABOP%GNI) widened to 3.0% in 4Q2018 compared with 1.1% in 3Q2018 following a larger trader goods surplus of RM33.0bil. Besides, CABOP%GNI was supported by small income deficit, particular in the primary income account at RM12.0bil in 4Q2018 from –RM15.0bil in 3Q2018 owing to higher income generated by Malaysian firms investing abroad and lower profits accrued to foreign investors in our economy.
  • For 2019, we project growth to hover around 4.5%–4.8%, lower than the official’s projection of 4.9%. Growth will continue to be supported by private sector, particularly on private consumption in view of the healthy labour market, stable inflation, conducive financing and higher minimum wages. Public consumption and investment will also remain muted with the continued fiscal consolidation path.
  • However, the challenge in 2019 remains elevated from both domestic and external headwinds. On the domestic front, the downside risk to consumption remains owing to easing consumer confidence. Besides, oil prices, which are currently below Budget 2019’s assumption of US$70/bbl, constitute a risk to both growth and the fiscal mathematics. However, 2018 inventories shaved 1.5ppts of GDP growth. It could mean that the inventory cycle could potentially provide some upside.
  • External demand is expected to be softer than in 2018 as key cyclical indicators are pointed to the downside. But further downside risk remains following uncertainties such as: (1) ongoing talks of the US-China trade war; (2) US Fed policy and the risk of US economy falling into recession; (3) rocky path for China’s growth: (4) a euro slowdown; and (5) political noises in Brexit. For now, we project global growth to moderate to 3.6% in 2019 should global risk is broadly balanced.
  • On the monetary policy, we maintain our vote that the OPR will remain at 3.25% as the current rates remain accommodative amid a benign inflation environment. However, with the economy having a limited fiscal space, there is some room for BNM to cut rates by 25bps in 2Q2019 should key challenges materialize.

Source: AmInvest Research - 15 Feb 2019

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Sunway REIT - Flat 1HFY19 NPI growth, distributable income down 5.9%

Author: AmInvest   |  Publish date: Fri, 15 Feb 2019, 10:25 AM


Investment Highlights

  • We maintain our HOLD recommendation on Sunway REIT (SREIT) with a revised fair value of RM1.69 (from RM1.68) after rolling over our 6% target yield from FY19 to FY20. We are revising our FY19–21 distributable income downwards by 5.2%, 4.0% and 3.1% respectively by factoring higher finance charges into our forecasts.
  • SREIT recorded its 1HFY19 revenue of RM282.6mil (+0% YoY), mainly contributed by stronger performance by retail (+1%) and office segment (+16%) but offset by weaker performance in hotel segment (-12%) as a result of disruption in income due to the closure of the Sunway Resort Hotel & Spa (SHRS) grand ballroom and meeting rooms; higher room preventive maintenance cost and lack of demand in group corporate bookings which impacted Sunway Putra Hotel. Meanwhile, PBT fell by 7.2% YoY as a result of higher finance expenses (+19.7%) due to higher principal loan amount, mainly to fund acquisitions and capex.
  • SREIT’s 1HFY19 distributable income of RM140mil (-5.9% YoY) came in slightly below expectation at 47% of both our full-year forecast and the full-year consensus estimates respectively. YTD NPI increased marginally by 0.2% to RM214.7mil due to lower operating expenses. SREIT recommended a DPU of 2.25 sen as compared with 2.38 sen YoY (QoQ: 2.48 sen).
  • The retail segment reported a 1HFY19 revenue of RM210.2mil (+1.4% YoY) supported by Sunway Pyramid Shopping Mall but partially offset by Sunway Putra Mall. Meanwhile, its NPI grew by 3.0% YoY to RM153.6mil due lower A&P expenses in Sunway Pyramid. Sunway Pyramid Shopping Mall’s revenue and NPI rose by +3.4% and 2.4% to RM161.0mil RM126.7mil respectively. YTD occupancy rates at Sunway Pyramid, Carnival and Putra Mall remained stable at 99.0%, 98.2% and 91.0% respectively (vs. 98.4%, 96.2% and 89.4% YoY).
  • The hotel sector’s 1HFY19 revenue and NPI slid by 12.5% and 17.2% to RM40.2mil and RM36.4mil respectively, mainly due to weaker performance in SHRS. SHRS recorded softer average occupancy rate of 64.2% in 1HFY18 versus 82.1% YoY, mainly attributable to the ongoing refurbishment of the grand ballroom and meeting rooms which has been completed by 2QFY19.
  • The office sector’s 1HFY19 revenue and NPI expanded by 16.0% and 34.4% to RM18.4mil and 10.3mil respectively on the back of improved performance from Sunway Putra Tower and Wisma Sunway, with commencement of new tenants and expansion from existing tenant, respectively.
  • Debt-to-total assets ratio increased to 38% vs. 33% YoY mainly due to higher investing activities. Nevertheless, it is still below the regulatory threshold of 50%.

Source: AmInvest Research - 15 Feb 2019

Labels: SUNREIT
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Yinson Holdings - Layang O&M escalates project IRR

Author: AmInvest   |  Publish date: Fri, 15 Feb 2019, 10:24 AM


Investment Highlights

  • We maintain our BUY call on Yinson Holdings (Yinson) with a higher sum-of-parts-based (SOP) fair value of RM5.90/share (from an earlier RM5.53/share), which implies an FY21F PE of 15x.
  • Our revised SOP reflects the higher-than-expected operation and maintenance (O&M) contract value for the Layang floating production, storage and offloading (FPSO) vessel, which could be commencing earlier in October this year as compared with the schedule by the end of this year.
  • The group has accepted a letter of award from JX Nippon to undertake the vessel’s O&M services for a firm period of 8 years with options for 10 annual extensions, which is estimated to be worth US$578mil (RM2.4bil). This is 67% of Layang’s bareboat charter of US$860mil (RM3.4bil) vs. circa 10%–25% of typical bareboat charters.
  • Recall that Yinson paid a novation fee of RM374mil in May last year to take over the Layang FPSO charter (to be renamed Helang), which was originally awarded to TH Heavy Engineering Holdings (THHE) back in November 2014. THHE, however, was unable to complete the project due to financial distress following the downturn in oil prices. The Layang oil & gas field is in close proximity to JX Nippon’s Helang gas development in SK10, off Sarawak, where the field development for the Beryl gas field has also been approved in October 2017.
  • Based on just the earlier bareboat charter alone, WACC of 6% and assuming a capex of US$400mil (which we understand could be lower), we estimate that the project IRR could only reach 9%. However, we have already assumed that Yinson would secure the O&M and hence have incorporated a project IRR of 12% to our earlier SOP. With the higher-than-expected Layang O&M revenues, we estimate that the project IRR would now increase to 15.8%. Hence, we have raised Yinson’s FY21F earnings by 9%.
  • Besides this project, Yinson is currently bidding for Petrobras’ Marlim I and Marlim II FPSOs, in which Modec appears to be the leading contender. However, Yinson is also expected to bid on 1 March this year for the FPSO for the integrated development of the Parque das Baleias (Parque), which has negligible local content requirement.
  • Assuming a capex of US$1.5bil similar to Bumi Armada’s Olombendo FPSO, project IRR of 11%, WACC of 7.7% and debtto-equity financing ratio of 80:20%, we estimate that a single win for any one of the Marlim 1, Marlim II or Parque FPSOs could enhance Yinson’s SOP by RM1.81/share and contribute earnings of RM200mil – 59% of FY21F EPS.
  • With the completion of FPSO Helang by the end of this year, Yinson’s project management team is comfortable securing a large project towards early 2019. Given its comfortable FY20F net debt-to-EBITDA of 3x, we do not foresee the need for any equity-raising exercise. Underpinned with locked-in earnings visibility from an outstanding order book of US$4.3bil (25x FY18F revenue), the stock currently trades at a bargain FY21F PE of 11x vs. over 20x for Dialog Group.

Source: AmInvest Research - 15 Feb 2019

Labels: YINSON
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Dialog - PDT 2 contingency write-backs boost earnings

Author: AmInvest   |  Publish date: Fri, 15 Feb 2019, 10:21 AM


Investment Highlights

  • We reiterate our BUY recommendation on Dialog Group with an unchanged sum-of-parts-based (SOP) fair value of RM3.66/share, which implies an FY20F PE of 38x – 17% below its 5-year peak of 46x. Our SOP values the 650-acre buffer land in Pengerang at RM80 psf.
  • We maintain Dialog’s FY19F-FY20F earnings as its 1HFY19 net profit of RM251mil was largely in line with our expectations, accounting for 51% of our FY19F net profit but 54% of consensus. As 2QFY19 results included lumpy cost contingency write-backs for the construction of the RM6.3bil Pengerang Deepwater Terminal (PDT) Phase 2, there is a likelihood that we may raise our FY19F earnings forecast if 3QFY19 results remain as strong.
  • As a comparison, 1HFY16–1QFY18 earnings accounted for 41%– 48% of their respective years. For comparison of core earnings, we have excluded the 2QFY18 exceptional fair value gain of RM66mil from the acquisition of an effective 36% equity stake in the Tanjung Langsat tank terminals in Johor for RM137mil cash from MISC.
  • Notwithstanding Dialog’s Malaysian revenue dropping by 14% QoQ, its 2QFY19 net profit rose 19% QoQ to RM137mil mainly due to the reversal of project contingencies for PDT Phase 2, as Phase 2A was completed in November 2018. This also drove contributions from associates/JV to rise 32% QoQ to RM41mil.
  • With the completion of Phase 2B by June this year, we expect further write-backs of cost contingencies in 2HFY19. Additionally, the group benefited from stronger 2QFY19 overseas contributions, which climbed 37% QoQ to RM22mil.
  • Notwithstanding Dialog’s extensive overseas operations, the group’s main earnings driver still stems from domestic operations which account for 88% of 1HFY19 pre-tax profit, down slightly from 89% in 1HFY89.
  • The group has already reached progress stage of 30% for land reclamation of Pengerang Phase 3, which involves the construction of petroleum/petrochemical storage and a third jetty at an indicative initial cost of RM2.5bil, in which Dialog will have an 80% equity stake and the Johor state 20%.
  • We expect any co-investments in petrochemical operations with multinational players to be associate-level, value-enhancing and internally funded without any equity-raising requirements. This will be part of a 500-acre zone comprising further reclaimable land and the adjoining buffer zone. Additionally, Dialog will be expanding its dormant Langsat Terminal 3 into a 300,000 m3 storage facility.
  • Dialog trades at a FY20F PE of 32x, below its 5-year peak of 46x. We view its higher-than-peer premium as justified given Dialog’s long-term recurring cash flow-generating businesses, which are largely cushioned from volatile crude oil price cycles, and further underpinned by the Pengerang development’s multi-year value re-rating bonanza together with a healthy net cash balance.

Source: AmInvest Research - 15 Feb 2019

Labels: DIALOG
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Media - Highlights of the KL Digital Content Anti-Piracy Summit

Author: AmInvest   |  Publish date: Fri, 15 Feb 2019, 10:13 AM


Investment Highlights

  • We attended the Kuala Lumpur Digital Content Anti-Piracy Summit where industry stakeholders converged to discuss among others: piracy’s impact to the industry, global best practices and regulatory frameworks required to combat piracy. The summit was organized by the Malaysian Communications and Multimedia Commission (MCMC) in collaboration with Coalition Against Piracy (CAP) and Asia Video Industry Association (AVIA) and supported by content providers such as Astro, Media Prima, dimsum and iflix.
  • The key points for each session are as follows:

Session 1: Digital piracy and consumer risk – the dark underbelly of piracy

o Although piracy’s damage to industry players is indisputable, damage to consumers themselves, particularly relating to adware and malware that are commonly spread by piracy sites, ought to be made more apparent. The need for increased consumer awareness and education of the dangers to consumers themselves is a unifying theme for the session. In a presentation by AVIA, malware such as remote access trojans (RATs) “not only causes financial losses but also theft of personal data and other risks of unwanted access and control”.

o 48% of mainstream ads are placed alongside high-risk advertisements (HRA), impacting brand image and supporting organized crime. Examples of HRAs relate to distribution of adult content, gambling ads, weight loss and other unregulated products, fake news and malware ads. Mainstream advertisers should participate in the fight against piracy as they might be unaware that their legitimate brands are being advertised on illegal pirated sites.

o During the session, piracy combatting efforts in the Philippines by Globe Telecom were shared and steps included consumer education, lobbying (which eventually led to the creation of a proposed law to stop piracy) and business integration.

Session 2: Site blocking best practices

o Discussion ensued on the practice of judicial and administrative site blocking in different countries as well as the effectiveness of site blocking in the UK given as a key example. In the UK, site blocking saw a substantial reduction in the usage of blocked sites and piracy sites in general, alongside increased visits to legitimate sites.

o Key focus of the session was dynamic site blocking which may be effective when faced by challenges such as site hopping and the application of blocking measures to extend to the illicit streaming device (ISD) ecosystem.

o The panel discussion for the session highlighted the importance of right owners being able to react quickly, supported by necessary legislation in place upon discovering piracy infringement and called for a collaborative effort in the industry to combat piracy.

Session 3: Impact of e-commerce & advertisement on piracy and global best practices

o The session discussed regulation of the sales of illicit streaming devices (ISDs) through e-commerce platforms and payment processers such as PayPal, MasterCard and Visa. As an example, Neil Gane from CAP shared that Amazon has put ISDs in the red flag transaction category as part of their effort to monitor ISD sales on its platform.

o It also emphasized the importance of brands being made aware of programmatic advertising on illegal sites which finances piracy networks and the need for shared responsibility by all parties to fight piracy.

Session 4: Impact of digital piracy to industry

o Vivek Couto from Media Partners Asia presented statistics related to the impact of piracy on the industry such as the following:

- Piracy is eating into consumer spend on legal video services, which currently stands at near US$1 billion as at 2018.

- PayTV subscriptions have declined in line with the acceleration of the cord-cutting phenomena in Malaysia with 0.3 million subscribers down in 2019 (at approx. 3.5 million subscribers) compared with 2016.

- Piracy leads to revenue leakage of US$200 million annually for the industry.

- Subscription video on demand (SVOD) as a percentage of population is at an all-time high of near 5% in 2019 from 0–1% in 2015 but there is limited legal online video adoption in Malaysia with only 4% of the Malaysian population legally subscribed to online video in 2018 (vs. 26% in the UK and 40% in the USA).

Session 5: Landscape of digital piracy and an overview of issues in Malaysia

o Communications and Multimedia Minister Gobind Singh Deo shared that the government acknowledges the need for it to be more proactive in the combat against piracy and the collective involvement of relevant law enforcement bodies, agencies, internet service providers (ISPs) and consumer associations are critical in ensuring efforts are carried out to battle piracy. He also shared that digital piracy has caused the industry significant impact with a RM1.05 billion loss in revenue, a loss RM157 million in taxes in 2016 to the government and 1,900 job losses in the filming and broadcasting industry.

o Meanwhile MCMC chairman Al-Ishsal Ihsak reiterated the need for a concerted effort from all stakeholders and the need to instil a culture of respecting others’ intellectual property rights and ownership.

o Actress Lisa Surihani highlighted the need to look into the various parties involved and decide on how wide a scale of enforcement should be taken while film producer Yusof Haslam opined that the laws are in place but there is a lack of enforcement that causes there to be a culture of taking the law lightly amongst those involved in piracy. Later in the Q&A session, film producer Shuhaimi Baba urged for the content intellectual property to be under the purview of the MCMC as it will be better coordinated under one roof.

Session 6: Legal and policy frameworks – next steps

o The common theme for the panel discussion regarding legislation was that the rapid change in technology would cause a need for the Copyright Act in Malaysia to be amended or for gaps in the existing law to be filled as the existing legal framework may not apply due to it being outdated. Furthermore, MCMC network security and enforcement sector chief officer Zulkarnain Mohd Yasin mentioned the need to streamline laws and allow for faster ways to deal with piracy due to the time factor.

o Meanwhile, Premier League senior commercial solicitor Stefan Sergot highlighted the importance of the existing legislation allowing for swift action to be taken and to be future-proof whichever direction piracy shifts to. He shared that the practice of sharing the repatriated the proceeds of the crimes to pay back the cost of resources taken to enforce the legislation would be a positive.

  • In conclusion, we saw that the common themes of the summit are: (i) the need for education and awareness of the severity and implication of being on both the supply and demand sides of piracy, (ii) the joint effort of all stakeholders in the industry to combat piracy, and (iii) the need for legal and policy frameworks that allow for fast reaction times for effective and successful implementation.
  • We maintain our NEUTRAL view on the media sector amid (i) the challenging monetization of digital initiatives, (ii) cautiously optimistic adex outlook expected for 2019 due to anticipation of steady but subdued consumer sentiment, (iii) ailing circulation and high newsprint prices continuing to drag print, and (iv) the upcoming analogue switch-off creating a hazy operating environment for the Free-To-Air (FTA) TV space.

Source: AmInvest Research - 15 Feb 2019

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Stocks on Radar - Edaran (5036)

Author: AmInvest   |  Publish date: Fri, 15 Feb 2019, 08:59 AM


Edaran was testing the RM0.605 level in its latest session. With a moderate RSI level, a bullish bias may be present above this point with a target price of RM0.66, followed by RM0.74. Meanwhile, it may continue drifting sideways if it fails to cross the RM0.605 mark in the near term. In this case, support is anticipated at RM0.55 whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy on further rebound RM0.605

Target: RM0.66, RM0.74 (time frame: 3-6 weeks)

Exit: RM0.55

Source: AmInvest Research - 15 Feb 2019

Labels: EDARAN
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