Highlights

AmInvest Research Reports

Author: AmInvest   |   Latest post: Fri, 7 May 2021, 9:49 AM

 

AmBank Economics - Malaysia - No surprises from BNM’s MPC

Author: AmInvest   |  Publish date: Fri, 7 May 2021, 9:49 AM


There were no surprises in BNM’s MPC meeting. BNM’s decision to hold rates was in line with expectations. While inflation is expected to spike in 2Q21, it should stabilise thereafter. Higher inflation would primarily come from the cost side of the equation. Inflation is projected around 3.0%–3.5%. Meanwhile, the policy rate is expected to stay at current levels throughout 2021, although there is a 10%–20% window for rates to be repriced upwards in 2H21 by 25bps.

Growth is expected to trend upwards in 2021 supported by global GDP and trade growth, the semiconductor upcycle, firm commodity prices, stimulus measures that would benefit both private and public expenditure, a pick-up in primary-related and foreign investment commitments, especially in high value-add. Nevertheless, downside risk remains due to the pandemic uncertainty and financial markets volatility. GDP for 2021 is expected to be around 6.0% with the downside at 5.0% and upside at 7.0%.

  • The OPR was lowered by a total of 125bps in the first seven months of 2020 to a record low of 1.75%, where it has remained since. And the decision by Bank Negara Malaysia (BNM) to maintain the 1.75% policy rate was within expectations.
  • At this point in time, there is no real urgency for BNM to reprice the current policy rate. Recent economic indicators showed improving momentum to the economic performance.
  • The latest economic data is industrial production, which grew by 9.3% y/y in March (1.5% in February). Growth was supported by manufacturing, up 12.7% y/y (4.5% in February) while mining and electricity grew by -1.9% y/y (-6.0% y/y) and 10.3% y/y (-5.8% y/y) respectively. A low base also aided the IP’s performance in March. With that, preliminary estimation suggests that 1Q21 GDP is likely to hover between +0.3% and -1.0%.
  • Despite the recent reimposition of containment measures in selected locations, its impact will not be as severe given most of the economic sectors are allowed to operate.
  • With global GDP and trade outlook projected to expand, that would benefit Malaysia trade. The semiconductor upcycle, firm commodity prices, stimulus measures that would benefit both private and public expenditure, a pick-up in primaryrelated and foreign investment commitments, especially in high value-add would bode well to support growth.
  • However, downside risk remains. The recovery trajectory could be disrupted from the uncertain path on the pandemic. Also, there are potential risks of heightened financial market volatility.
  • While inflation is expected to spike in 2Q21, it should stabilise thereafter. Higher inflation would primarily come from the cost side of the equation. Inflation is projected around 3.0%–3.5% with GDP for 2021 expected to be around 6.0% with the downside at 5.0% and upside at 7.0%. The policy rate is likely to stay at 1.75% throughout 2021, although there is a 10%–20% window for rates to be repriced upwards in 2H21 by 25bps.

Source: AmInvest Research - 7 May 2021

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Berjaya Food - Leaner store formats to enhance margins

Author: AmInvest   |  Publish date: Fri, 7 May 2021, 9:48 AM


Investment Highlights

  • We maintain our BUY call on Berjaya Food (BFood) with a higher fair value (FV) of RM2.16/share (from RM1.72/share previously).
  • We have raised BFood’s net earnings forecast to account for a stronger-than-expected sales growth. Our FV is based on an unchanged PER of 17x on FY22F EPS. Our FV also incorporates a 3% price premium for our ESG rating of 4 stars.
  • BFood’s 9MFY21 net profit of RM33.1mil is above expectations, making up 95% and 93% of our and consensus expectations respectively. 3QFY21 brought in RM11.6mil, amongst the highest ever recorded profits. Both Starbucks and Kenny Rogers Roasters (KRR) posted solid results despite movement restrictions in 1Q2021.
     
  • We expect this momentum to continue onto the next quarter. As a result, we have raised our earnings forecasts for FY21E/FY22F/FY23F by 29%/22%/17% respectively.
  • Changing consumer preferences and elevated profitability margins bode well for the group’s outlook. We believe that the return of in-store consumption will start to improve revenue yields by FY22F.
  • Going forward, we are optimistic on growth driven by the opening of 25 to 30 new Starbucks outlets annually, KRR’s stronger performance and the group’s shift towards leaner store formats and ghost kitchens (no dining space, prepare only delivery meals). A recovery in travel restrictions would also benefit outlets located in shopping malls, highways, airports and tourist destinations.
  • We believe the Starbucks brand in particular is well suited to capitalize on consumer’s preference for takeaway and delivery. This is due to the brand’s effective advertising campaigns to a predominantly indoor population, ability to reach out to multiple customer segments and estimated sizeable contributions from its loyalty programme customer base.

Financial results

  • BFood’s 3QFY21 revenue saw a return to prepandemic levels. At RM182mil, the group saw a growth of 15% YoY and 4% QoQ. 9MFY21 revenue of RM537mil rose by 3% YoY. We attribute this to higher Starbucks store count, MCO 2.0’s looser movement restrictions as well as increased consumer willingness to order takeout or delivery.
  • Starbucks and KRR saw a YoY SSSG of 15% and 3% respectively for 3QFY21, although from a low base. It is worth noting that the average sales per store figures have yet to fully recover, as footfall still remains depressed (especially in mall outlets). We believe that average ticket price has risen as consumers choose to make less trips and to justify high delivery costs.
  • BFood recorded quarterly EBIT margins of 13% to 15% in the first three quarters in FY21E. In comparison, pre-pandemic EBIT margins were in the 6% to 8% range. Rental rebates and leaner store formats contributed to the rise in EBIT margins, particularly Starbucks’ drive-through format.
  • BFood’s foreign contribution remains underwhelming, with a RM20mil revenue and RM0.3mil loss in 3QFY21. We attribute the poor results to lower footfall.
  • BFood has announced a third interim dividend of 1.0 sen/share, bringing the total to 2.0 sen/share in FY21E.

Starbucks

  • Starbucks is slated to open more drive-through and Reserve format stores, given their lower payback periods than the 2.5 to three years required by core stores. Drive-through stores are estimated to have half the payback period. We believe that of the seven to eight remaining Starbucks stores are expected to be opened in FY21E, with at least 50% in drive-through format. Currently, there are 55 drive-through stores.
     
  • We believe that Starbucks outlets are still far from saturation in the Klang Valley, given the group’s ability to open multiple types of store or build one on a smaller site capacity. About 55% of Starbucks stores are centred in the Klang Valley. Assuming the current Klang Valley population is 12mil, this gives an approximate average population per store ratio of 65K in end-FY21E.
     
  • We like Starbucks for its willingness to reach out to multiple customer bases. Its Reserve format stores appeal to a population seeking higher end and artisanal experience. Also, BFood frequently partners with celebrities and icons with large follower bases, including Datuk Fazley Yaakob (chef/singer/actor) and Royal Selangor.
  • We award BFood a 4-star ESG rating. This is premised on Starbucks’ strict ethical sourcing policies, waste management campaigns and willingness to hire individuals with hearing disabilities for its special “signing stores”.

KRR and Sala

  • Going forward, we expect KRR’s EBIT contribution to remain positive. While KRR is still likely to be lossmaking in FY21F, we note that its EBIT has remained positive for the 3rd quarter in a row, as opposed to the predominately negative pre-pandemic figures. KRR’s closure of underperforming stores in addition to cost management initiatives seem to have reduced costs.
  • We expect KRR to open two stores and close two to three stores in 4QFY21. The group is targeting to open in residential areas, especially neighbourhood malls.
  • BFood’s new business venture Sala, a vegan TexMex restaurant, is not expected to provide meaningful earnings contributions for now. The group operates three functional restaurants, targeting to open three more in FY21F.

Source: AmInvest Research - 7 May 2021

Labels: BJFOOD
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MISC - Expanding fleet and improving tanker results

Author: AmInvest   |  Publish date: Fri, 7 May 2021, 9:45 AM


Investment Highlights

  • We maintain BUY on MISC with an unchanged sum-of-parts based fair value of RM7.75/share, which reflects a premium of 3% from our ESG rating of 4 stars. This also implies an FY21F EV/EBITDA of 9x, at parity to its 2-year average.
  • Following an analyst briefing yesterday, our forecasts are maintained. These are the briefing’s salient highlights:
    • MISC recognised a 1QFY21 cost provision of RM50mil–60mil (12%–14% of group’s 1QFY21 core net profit of RM434mil) for a heavy engineering project, which is at its tail end, due to Covid- 19-related delays. The group hopes to recover the costs from other scope of works of this project at a later stage. Also, MISC does not expect this to recur for other ongoing jobs currently.
       
    • MISC further impaired RM25mil in 1QFY21 for assets which are earmarked for disposals, which we believe may include idle vessels such as Puteri Firus (liquefied natural gas).
       
    • The group registered a construction profit of US$30mil (half of 1QFY21 offshore operating profit) from the US$2bil Mero 3 (to be renamed Marechal Duque de Caxias) floating, production and offloading vessel, which is expected to be delivered in 2H2024. Hence, over the next 3 years, this will continue to underpin MISC’s offshore performance, which contributed 42% of MISC’s 1QFY21 operating profit.
       
    • While spot LNG rates have dropped by 18% YoY to US$32,625/day, this division’s earnings are expected to be accretive as the vessels are secured on long-term charters notwithstanding a contract expiry annually over the next 2 years. The upward trajectory of this segment, which accounted for 52% of 1QFY21 group operating profit, will be supported by the addition of 2 very large ethane carriers in 2021 with another 2 in 2H2023 to the group’s current fleet of 33 vessels.
       
    • The petroleum segment’s commendable turnaround to a 1QFY21 operating profit of RM34mil from a 4QFY20 loss of RM78mil stems largely from a 25% QoQ increase in MISC’s Aframax charter rates, partly offset by a 15% decline in Suezmax and marginal decline in very large crude carriers (VLCC).
       
    • In line with management’s plan to reduce MISC’s exposure to volatile tanker spot rates, the proportion of spot-to-term charter for the petroleum and chemical division slid further to 33:67 from 35:65 in 4QFY20. However, the proportion of spot-to-fixed charters has fallen to 46% from 49% for Aframax and to 26% from 32% Suezmax, while VLCC rose to 11% from 6%. Looking forward, the gradual easing of Opec+ quotas in May–July 2021 and rollouts of Covid-19 vaccinations towards the second half of the year offer brighter prospects for the petroleum segment.
       
  • The stock currently trades at an undemanding FY21F EV/EBITDA of 8x – 1 standard deviation below its 3-year average of 9x, while sustaining a compelling dividend yield of 5%.

Source: AmInvest Research - 7 May 2021

Labels: MISC
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Inari Amertron - Proposes private placement of 10% shares

Author: AmInvest   |  Publish date: Fri, 7 May 2021, 9:43 AM


Investment Highlights

  • We maintain our HOLD recommendation on Inari Amertron (Inari) with unchanged forecasts and fair value of RM3.13/share, pegged to a CY22F PE of 28x after reflecting our 4-star ESG rating on the group.
  • Inari has proposed a private placement of 10% of its total issued shares (333mil ordinary shares) to an independent 3rd party investor at an indicative issue price of RM3.20 per share to raise RM1,049.0mil in net proceeds for its capex, acquisition and investments. The placement is expected to be completed in 2HCY21.
  • According to its announcement in Bursa Malaysia, the rationale of the placement is to accelerate its plans to acquire semiconductor and OSAT-related companies without tapping into its net cash of RM755.3mil as at 31st Dec 2020. The placement, together with the full exercise of all its outstanding ESOS options, would increase net cash to RM2,021mil.
     
  • The placement and full exercise of all its outstanding 91.5mil ESOS options with an average exercise price of RM2.37 each which would raise RM217.0mil in proceeds leading to a total of RM1,265.8mil raised from both exercises. Assuming an interest rate of 2%, interest income after tax of RM19.2mil would increase FY22F earnings by 5.6% with an adjusted EPS of 9.7 sen, which is a 7.6% dilution from our current forecasted EPS. This in turn would reduce our fair value to RM2.89/share.
     
  • The group intends to expand its production capacity for RF lines in line with the growing demand for 5G and will continue to work on improving the utilization of its existing opto-electronics and other business units as well as increase investments in automation to improve its margins moving ahead.
  • We continue to like Inari due to its role as a proxy for the growth of 5G through its radio frequency (RF) business which is set to benefit from the expected increase in demand for 5G smartphones, however we deem the stock to be fairly valued.

The group’s positive prospects arise from: (i) resiliency in RF earnings due to higher chip complexity in 5G phones, (ii) potential growth in laser devices from more biometrics and augmented reality applications, and (iii) its efforts to enhance and diversify revenue streams.

Source: AmInvest Research - 7 May 2021

Labels: INARI
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Stocks on Radar - MClean Technologies (0167)

Author: AmInvest   |  Publish date: Fri, 7 May 2021, 9:42 AM


MClean Technologies surged and touched the RM0.60 resistance level. With its higher low and higher high candlestick pattern, there is a good chance that it would experience a technical breakout and head towards the short-term target price of RM0.63, followed by RM0.645. The downside support is marked at RM0.555. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on pullback RM0.60

Target: RM0.63, RM0.645 (time frame: 2-4 weeks)

Exit: RM0.555

Source: AmInvest Research - 7 May 2021

Labels: MCLEAN
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Stocks on Radar - Econframe (0227)

Author: AmInvest   |  Publish date: Fri, 7 May 2021, 9:41 AM


Econframe consolidated and is poised to test the RM0.515 resistance level. With its 21-day moving average in an uptrend, coupled with sustainable 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 RM0.535 and RM0.555. The downside support is projected at RM0.48. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.515

Target: RM0.535, RM0.555 (time frame: 2-4 weeks)

Exit: RM0.48

Source: AmInvest Research - 7 May 2021

Labels: EFRAME
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MISC - Easing Opec+ quotas amid 2H recovery

Author: AmInvest   |  Publish date: Thu, 6 May 2021, 5:25 PM


Investment Highlights

  • We maintain BUY on MISC with a lowered sum-of-parts-based fair value of RM7.75/share (from RM8.50/share), which reflects a premium of 3% from our 4-star ESG rating. This also implies an FY21F EV/EBITDA of 9x, at parity to its 2-year average.
  • While awaiting an analyst briefing later today, we have cut MISC’s FY21F–FY23F earnings by 4%–16% on lower charter rate assumptions for the petroleum division given the ongoing soft demand for very large crude carriers (VLCC).
  • The group’s 1QFY21 core net profit of RM434mil, excluding net impairments of RM24mil and unrealised forex gains of RM20mil, came in below expectations, accounting for 20% of our FY21F net profit and 22% of consensus. As a comparison, 1Q accounted for a higher range of 24%–36% of FY18–FY20 core net profit. The group declared a first interim dividend of 7 sen (flat YoY), which was within our expectations.
  • The group’s 1QFY21 core net profit fell by 12% QoQ mainly due to the absence of a one-time gain, which materialised in 4QFY20 from a 5-year charter extension for MISC’s 49%-owned floating production, storage and offloading (FPSO) vessel Espirito Santo in the BC-10 field, Campos Basin off Brazil.
  • The liquefied natural gas (LNG) segment, which accounted for 52% of 1QFY21 operating profit, registered a 27% QoQ rise to RM301mil from higher chartering days. Likewise, the petroleum segment registered a turnaround, rebounding to a 1QFY21 operating profit of RM34mil from a 4QFY20 loss of RM78mil due to higher blended charter rates and vessel utilization.
  • The offshore segment’s 1QFY21 operating profit rose 39% QoQ to RM239mil from lumpy construction gains from the US$2bil Mero-3 FPSO (to be renamed Marechal Duque de Caxias). The worst performing division was heavy engineering which plunged to a 1QFY21 loss of RM102mil on reduced ongoing projects and marine repair & maintenance jobs during the prolonged winter season, together with additional cost provisions for a delayed project completion.
  • Following the wintering season, VLCC spot rates dropped 91% QoQ amid persistent weak demand. However, Aframax spot rates surged 3.6x QoQ to US$19,612/day while Suezmas climbed 83% QoQ to US$12,098/day due to a temporary blockage by the Evergreen container vessel at the Suez Canal.
  • Looking forward, the gradual easing of Opec+ quotas from May–July 2021 and gradual rollouts of Covid-19 vaccinations towards the second half of the year offer brighter prospects for the petroleum segment. Together with the upcoming delivery of 2 LNG carriers, 5 VLEC and 2 DPST this year, these underpin our FY22F earnings growth expectations. MISC currently trades at a fair FY21F EV/EBITDA of 8x – 1 standard deviation below its 3-year average of 9x.

Source: AmInvest Research - 6 May 2021

Labels: MISC
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Sunway Construction - Indian projects not derailed by Covid-19 catastrophe

Author: AmInvest   |  Publish date: Thu, 6 May 2021, 5:24 PM


Investment Highlights

  • We maintain our forecasts and fair value of RM1.80 based on 14x FY22F EPS plus a 3% premium to reflect a 4-star ESG rating as appraised by us (Exhibit 5). The 14x multiple is in line with our benchmark forward PE for large-cap construction stocks. Maintain HOLD.
  • Sunway Construction has returned to India since 2020 following the award of two highway projects based on a hybrid annuity model, both in Tamil Nadu, namely: (1) the Thorapalli Agraharam–Jittandahalli section of NH-844 (RM508mil); and (2) the Meensurutti–Chidambaram section of NH-227 (RM315mil). The two projects with a combined value of RM823mil now make up about 16% of Sunway Construction’s outstanding construction order book of RM5.2bil (Exhibit 2).
  • With the Covid-19 infection situation in India spinning out of control in recent weeks and potentially into a prolonged crisis, we believe there could be concerns on Sunway Construction over: (1) the progress of its projects in India, and hence the impact on its earnings; and (2) the safety of its staff in India, and hence the impact on its ESG rating.
  • Nevertheless, we draw comfort from these following findings, from both our recent engagement with the company as well as publicly available information:

1. The Tamil Nadu state at the southern tip of India is not considered one of the epicentres of India’s massive second Covid-19 wave, with only 16,233 confirmed cases per 1mil population, according to statistics compiled by crowd-sourced website Covid19India (Exhibit 1). This compares with 47,396 of the Kerala state and 39,057 of the Maharashtra state on the west coast, and 61,218 of Delhi;

2. The sites of both Sunway Construction’s projects are in the sparsely populated outskirt of the Tamil Nadu state – one in the Chidambaram municipality (with a population of 62,153 based on 2011’s Census of India) and the other in the Thorapalli village (with a population of 9,849 based on the 2011 Census of India); and

3. Sunway Construction only has a handful of staff members (Malaysia and India nationals) in India and they work remotely from Hyderabad in the Telangana state with relatively low confirmed Covid-19 cases.

  • We remain cautious on the outlook of the local construction sector. The recent news on the MRT3 potentially commencing work in the second half of the year aside, the fact remains that the government will have very limited room for fiscal manoeuvre given the elevated national debt, weighed down further by the economic impact of the pandemic (including reduced tax and petroleum revenues), as well as the massive relief spending to cushion the economic impact of the pandemic.
  • We believe Sunway Construction can weather the sector downturn better given its proven ability to compete under an open bidding system, coupled with the availability of building jobs from its parent and sister companies under the Sunway Group. However, valuations are fair at 13–17x forward earnings on muted sector prospects.

Source: AmInvest Research - 6 May 2021

Labels: SUNCON
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Stocks on Radar - Lagenda Properties (7179)

Author: AmInvest   |  Publish date: Thu, 6 May 2021, 9:37 AM


Lagenda Properties is moving sideways, touching the RM1.42 resistance level. With its higher low and higher high candlestick pattern, there is a good chance that it would experience a technical breakout and head towards the short-term target price of RM1.48, followed by RM1.50. The downside support is marked at RM1.37. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM1.42

Target: RM1.48, RM1.50 (time frame: 2-4 weeks)

Exit: RM1.37

Source: AmInvest Research - 6 May 2021

Labels: LAGENDA
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Stocks on Radar - Carimin Petroleum (5257)

Author: AmInvest   |  Publish date: Thu, 6 May 2021, 9:36 AM


Carimin Petroleum jumped and tested the RM0.74 resistance level. With its RSI indicator in an uptrend, 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 RM0.78 and RM0.81. The downside support is projected at RM0.685. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.74

Target: RM0.78, RM0.81 (time frame: 2-4 weeks)

Exit: RM0.685

Source: AmInvest Research - 6 May 2021

Labels: CARIMIN
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Sunway Construction - Indian projects not derailed by Covid-19 catastrophe

Author: AmInvest   |  Publish date: Thu, 6 May 2021, 9:32 AM


Investment Highlights

  • We maintain our forecasts and fair value of RM1.80 based on 14x FY22F EPS plus a 3% premium to reflect a 4-star ESG rating as appraised by us (Exhibit 5). The 14x multiple is in line with our benchmark forward PE for large-cap construction stocks. Maintain HOLD.
  • Sunway Construction has returned to India since 2020 following the award of two highway projects based on a hybrid annuity model, both in Tamil Nadu, namely: (1) the Thorapalli Agraharam–Jittandahalli section of NH-844 (RM508mil); and (2) the Meensurutti–Chidambaram section of NH-227 (RM315mil). The two projects with a combined value of RM823mil now make up about 16% of Sunway Construction’s outstanding construction order book of RM5.2bil (Exhibit 2).
  • With the Covid-19 infection situation in India spinning out of control in recent weeks and potentially into a prolonged crisis, we believe there could be concerns on Sunway Construction over: (1) the progress of its projects in India, and hence the impact on its earnings; and (2) the safety of its staff in India, and hence the impact on its ESG rating.
  • Nevertheless, we draw comfort from these following findings, from both our recent engagement with the company as well as publicly available information:

1. The Tamil Nadu state at the southern tip of India is not considered one of the epicentres of India’s massive second Covid-19 wave, with only 16,233 confirmed cases per 1mil population, according to statistics compiled by crowd-sourced website Covid19India (Exhibit 1). This compares with 47,396 of the Kerala state and 39,057 of the Maharashtra state on the west coast, and 61,218 of Delhi;

2. The sites of both Sunway Construction’s projects are in the sparsely populated outskirt of the Tamil Nadu state – one in the Chidambaram municipality (with a population of 62,153 based on 2011’s Census of India) and the other in the Thorapalli village (with a population of 9,849 based on the 2011 Census of India); and

3. Sunway Construction only has a handful of staff members (Malaysia and India nationals) in India and they work remotely from Hyderabad in the Telangana state with relatively low confirmed Covid-19 cases.

  • We remain cautious on the outlook of the local construction sector. The recent news on the MRT3 potentially commencing work in the second half of the year aside, the fact remains that the government will have very limited room for fiscal manoeuvre given the elevated national debt, weighed down further by the economic impact of the pandemic (including reduced tax and petroleum revenues), as well as the massive relief spending to cushion the economic impact of the pandemic.
  • We believe Sunway Construction can weather the sector downturn better given its proven ability to compete under an open bidding system, coupled with the availability of building jobs from its parent and sister companies under the Sunway Group. However, valuations are fair at 13–17x forward earnings on muted sector prospects.

Source: AmInvest Research - 6 May 2021

Labels: SUNCON
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Hartalega Holdings - Utilization rate drops in 4QFY21

Author: AmInvest   |  Publish date: Wed, 5 May 2021, 2:30 PM


Investment Highlights

  • We maintain our HOLD call on Hartalega with a higher fair value of RM9.90/share (previously RM9.86/share), reflecting a 3% premium for an ESG rating of 4 stars (Exhibit 8). Our valuation is based on an unchanged PER of 22x CY23F (rolled over from CY22F).
  • We have increased our FY22F and FY23F earnings estimates by 77% and 33% respectively as we raise our blended ASP to US$62/1,000 pcs and US$32/1,000 pcs respectively (Exhibit 2) from US$42/1,000pcs and US$31/1,000 pcs.
  • We believe that a resurgence in global Covid-19 cases, pent-up buyer demand and supply shortage in the US will result in Hartalega maintaining its strong ASP.
  • Here are some highlights of the results briefing:

Financial results:

  • Hartalega’s FY21 net profit came in at RM2.9bil, which is within expectations. It accounted for 102% and 95% of our and consensus expectations respectively.
  • The group posted 4QFY21 earnings of RM1.1bil (+12% QoQ) on the back of a sharp increase in blended ASP. This mitigated poor production volume, rising raw material prices and shipping disruptions.
  • Its 4QFY21 revenue came in at RM2.3bil (+8% QoQ) as blended ASP jumped to US$82.71 from US$54.55. A poor quarterly utilization rate of 64% as a result of factory outbreaks contributed to weaker sales volume.
  • Elevated nitrile butadiene rubber (NBR) prices have increased COG per glove by 25% QoQ and 54% YoY in 4QFY21. However, Hartalega is confident that NBR prices will normalize as the supply shortage begins to wear out within the next few months.
  • The group has declared a third interim dividend of 17.70 sen, with an entitlement date on 24 May. This brings total DPS for FY21 to 33.3 sen.

Blended ASP forecasts

  • We believe blended ASP will remain strong in 1HFY22 for a number of reasons:

1. Resurgence in global cases. We are less certain of a stable global recovery by end-2021F. Instead, a scenario where some countries have successful vaccination efforts, while others crumble from government mismanagement seems increasingly plausible.

2. Pent-up demand. Potential buyers have opted for a wait-and-see-approach in hopes of making their purchases as glove ASP begin to fall. Hartalega believes that inventory levels will likely run out before this happens.

3. A supply shortage in USA. With Top Glove being sanctioned by the US Customs and Border Protection, US customers have approached Hartalega for their needs. Gloves sold to US customers tend to have a premium, which we believe will be in the 5–10% range.

4. Hartalega’s prudent ASP increases. Market glove prices are falling roughly 3–5% MoM currently. This is due to the group’s peers having products in the US$110–120 range within the last few quarters before being hit by the effects of lower glove urgency.

  • Our forecasted prices and production metrics are shown in Exhibit 2.

Utilization rates

  • Utilization rates fell to 64% in 4QFY21 as a result of factory outbreaks. In the past three quarters, utilization rates were more than 95%. All in, this gives a utilization average rate of 89% for FY21.
  • We believe FY22F will enjoy a similar utilization rate for a number of reasons:

1. A resurgence of local Covid cases. We expect an increased number of factory and dorm outbreaks in the manufacturing industry in general.

2. Manpower shortages, coupled with rising production capacity. Hartalega has already seen an outflow of foreign workers, with 282 workers repatriated within the span of the pandemic.

Capacity expansion

  • Regarding NGC 1.5, the first line is targeted to commence towards 4QCY21.
  • Hartalega’s current capacity is 43bil gloves per annum. This value is expected to be maintained until end-CY2021.
  • The group is currently deliberating on whether to begin production on NGC2.0 or to delay it in favour of its Kedah venture, NGFZ (Exhibit 4). We do not discount the possibility of NGC 2.0 being cancelled.

ESG efforts

  • Hartalega has made considerable effort towards combating forced labour (Exhibit 5).
  • We assign a 4-star rating to Hartalega’s commendable effort towards improving worker welfare and standard of living. It’s worth noting that the group already took this seriously before the industry was thrust into the spotlight.
  • As a testament to their efforts, Labour Department director-general Asri Ab. Rahman cited Hartalega as an “industry champion” for other companies to emulate.

Source: AmInvest Research - 5 May 2021

Labels: HARTA
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Stocks on Radar - Bumi Armada (5210)

Author: AmInvest   |  Publish date: Wed, 5 May 2021, 9:58 AM


Bumi Armada consolidated and tested the RM0.415 resistance level. With its RSI indicator in an uptrend, 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 RM0.43 and RM0.445. The downside support is projected at RM0.385. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.415

Target: RM0.43, RM0.445 (time frame: 2-4 weeks)

Exit: RM0.385

Source: AmInvest Research - 5 May 2021

Labels: ARMADA
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banu3119 Armada shares will it goes to .50 cents or bellow
06/05/2021 11:59 PM

Stocks on Radar - Superlon Holdings (7235)

Author: AmInvest   |  Publish date: Wed, 5 May 2021, 9:58 AM


Superlon Holdings is poised to touch the RM0.92 resistance level. With its 21-day moving average indicator pointing upwards, coupled with a higher low candlestick pattern, there is a good chance that it would experience a technical breakout and head towards the short-term target price of RM0.95, followed by RM0.98. The downside support is marked at RM0.885. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.92

Target: RM0.95, RM0.98 (time frame: 2-4 weeks)

Exit: RM0.885

Source: AmInvest Research - 5 May 2021

Labels: SUPERLN
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Nestle (Malaysia) - Plant-based products to support long-term growth

Author: AmInvest   |  Publish date: Wed, 5 May 2021, 9:51 AM


Investment Highlights

  • We maintain our HOLD call on Nestle (Malaysia) with an unchanged fair value (FV) of RM134.00/share. We use a DCF valuation with a terminal growth rate of 2.5%. There is no ESG-related price adjustment for our rating of 3 stars.
  • We note the lack of short-term rerating catalysts. Nonetheless, Nestle’s new plant-based meals solution (PBMS) segment and its capacity expansion of its Batu Tiga factory should support long-term growth.
  • We are positive on Nestle’s efforts to streamline its factory operations and reduce costs. However, Covid-19 testing efforts, unfavourable commodity market movements and freight costs are likely to offset margin improvements, at least in the near term.
  • Here are some highlights of the results briefing:
     

Earnings and earnings pressure.

  • We are optimistic that Nestle will see a recovery in its Out of Home (OOH) food segment in 2HFY21, contingent on the success of seasonal festivals and pent-up demand being a strong driver of HoReCa recovery. We believe that the Malaysian government will issue more targeted, district-focused pandemic restrictions in its effort to preserve economic activities.
  • However, we believe that Nestle’s “other” category will continue to underperform, due to weak demand for its catering services this year.
  • Covid-19 prevention and testing measures will be a drag on earnings for now, although they have been effective in preventing severe production disruptions. About RM22mil of Covid-19-related expenses were incurred in 1QFY21, the bulk used for the 8,000–12,000 antigen tests performed each week.
  • The group intends to maintain its competitive price point. It does not intend to pass on higher COGS and operational expenses to its customers. Nestle has been hedging some of its raw materials to offset price volatility. The group has incurred higher storage costs in stocking up on these materials beforehand.

Capex

  • Nestle intends to invest RM300mil on capex, the bulk of which will be used for the capacity expansion of its Batu Tiga factory. Demand for Maggi products such as instant noodles has already begun to overtake supply, bolstered by strong export sales. In 1QFY21, export turnover made up 19% of total revenue and rose by 1.2% YoY.
  • We view Nestle’s efforts in digitalizing its processes positively, not merely as a means to improve margins but also to reduce reliance on workforce. Less manpower reliance is critical in minimizing the effects of Covid-19 outbreaks within the factory and lowering the number of Covid-19 testing. Additionally, Malaysia is currently experiencing a significant outflow of foreign workers, which is likely to result in manpower shortages within the year.

New products

  • We are optimistic of the ability of Nestle’s PBMS segment to tap into the middle-class market. Nestle intends to make this segment affordable, enough to appeal to the local middle class, as imported variations tend to be far too expensive. This is an initiative supported by the Malaysian government, with Nestle having claimed tax incentives for the group’s new PBMS factory.
  • We believe that the group’s strong brand presence compensates for restrictions on in-store tasting. It is worth noting that a number of the group’s new launches (e.g. Kit Kat Gold and Oreo ice creams) have been successful. We believe that the group’s ability to leverage its household brand names gives it a competitive edge over the rest.
  • The group is currently utilizing e-commerce platforms as a gauge of customer preferences. E-commerce channels such as Lazada and Shopee currently contribute to 4% of sales. Nestle uses these channels as testing tools to see which products appeal most to customers before producing them on a large scale.

Source: AmInvest Research - 5 May 2021

Labels: NESTLE
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Mah Sing Group - Quick turnaround for new 5-acre Setapak land

Author: AmInvest   |  Publish date: Wed, 5 May 2021, 9:47 AM


Investment Highlights

  • We maintain our BUY call on Mah Sing with an unchanged SOP-based fair value of RM1.28/share and a neutral ESG rating of 3 stars (Exhibits 2 & 3). Our SOP remains unchanged as Mah Sing’s latest land acquisition will only add a slight RM9.8mil, which incorporates a 40% discount to RNAV. We make no changes to our FY21F numbers but raise FY22–23F earnings slightly by 1%–2% from the new project.
  • In its second land deal of the year, Mah Sing will acquire a 5- acre parcel of leasehold land in Jalan Genting Kelang, Setapak, Kuala Lumpur from Teratai Constructors Sdn Bhd for RM89mil cash, which will be settled within 6 months from June 2021. The land has 3 frontages facing Jalan Usahawan 5, Jalan Kilang and Jalan Usahawan 6, and is predominantly flat. It currently houses the Sri Utama International School Kuala Lumpur (Exhibit 1).
  • The acquisition price translates to RM409 psf and implies a cost-to-gross development value (GDV) ratio of 14%, which is within the 10%–20% range for mixed development in Klang Valley. While there are few recent identical transactions within the immediate area, the asking prices surrounding the neighborhood with land area smaller than 5 acres (217,800 sq ft) have a wide range of RM230 psf to RM938 psf.
  • Mah Sing plans to develop 2 blocks of serviced suites with retail lots. Called M Astra, with an indicative GDV of RM618mil, it is targeted at the medium-income segment with selling prices starting from RM399K (RM469 psf). The project is scheduled for a quick launch by 3Q2021 and targeted for completion by 2025.
  • We are positive on the development given its strategic location in established neighborhoods such as Danau Kota and Wangsa Maju. It is a 20-minute drive to KLCC and well connected via major highways such as the MRR2 and Duke Expressway. With the amenities nearby including hypermarkets, shopping malls, hospitals and education institutions, we believe this project will garner strong residential and retail interest from the convergence of convenience and accessibility.
  • We expect the group’s 1QFY21 results, scheduled to be announced 31 May 2021, to be within our expectations, supported by the encouraging sales of RM250mil (in January and February) vs. RM247mil in 1Q2020 and savvy execution. We continue to like Mah Sing for its: (i) quick turnaround business model that launches new projects; (ii) strength in offering affordable properties at strategic locations; and (iii) strong contribution from its new glove manufacturing business from 2QFY21’s earnings onwards.

Source: AmInvest Research - 5 May 2021

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AmBank Economics - Malaysia - All-time high PMI

Author: AmInvest   |  Publish date: Tue, 4 May 2021, 9:27 AM


April’s manufacturing PMI of 53.9 is the highest since the survey began in July 2012. Strong manufacturing production was supported by improving market conditions abroad as reflected by strong export orders and improving domestic demand.

Manufacturing activities are expected to remain healthy going forward. However, the upside movement will depend much on the number of Covid cases, easing of restrictive measures, vaccine rollout and backlogs (due to supply constraints). This will exert price pressure in the near term, but should fade once production picks up.

The latest manufacturing PMI data showed that the economy is on track to report a strong growth in April. If manufacturing PMI remains above the “50” threshold for the remaining months of 2Q2021, supported by healthy exports, positive retail activities and a low base, 2Q GDP is expected to report a strong double-digit growth.

  • April’s manufacturing PMI of 53.9 is the highest since the survey began in July 2012. Despite the rising number of Covid cases, manufacturing output and new orders expanded.
  • Production in April reached the highest since June 2020, while new orders recorded their strongest since April 2014. Strong manufacturing production was supported by improving market conditions abroad as reflected by strong export orders and improving domestic demand.
  • Manufacturing activities are expected to remain healthy going forward. However, the upside movement will depend much on the number of Covid cases, easing of restrictive measures and vaccine rollout.
  • Besides, further development in supply-side constraints will weigh on manufacturing activities. The accumulation of backlogs at a rate not seen for four years showed firms are facing difficulties to produce enough goods to meet demand. The risk of backlogged work piling up going forward is high.
  • It also exposed the increased pressure on companies to raise prices and pass the higher costs to their consumers, an outcome that could add to the cocktail of inflationary forces. Low inventories will provide producers with strong pricing power. But this will fade as production capacity expands and inventories are rebuilt. At the consumer level, there is still much slack in the labour market to support such a significant increase in prices.
  • Based on the latest manufacturing PMI data, the economy is on track to report a strong growth in April. If manufacturing PMI remains above the “50” threshold for the remaining months of 2Q2021, supported by healthy exports, positive retail activities and a low base, 2Q GDP is expected to report a strong double-digit growth.

Source: AmInvest Research - 4 May 2021

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Stocks on Radar - Kim Loong Resources (5027)

Author: AmInvest   |  Publish date: Tue, 4 May 2021, 8:43 AM


Kim Loong Resources jumped and tested the RM1.50 resistance level. With its RSI indicator in an uptrend, 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 RM1.56 and RM1.58. The downside support is projected at RM1.44. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy near RM1.50

Target: RM1.56, RM1.58 (time frame: 2-4 weeks)

Exit: RM1.44

Source: AmInvest Research - 4 May 2021

Labels: KMLOONG
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Stocks on Radar - Malaysian Bulk Carriers (5077)

Author: AmInvest   |  Publish date: Tue, 4 May 2021, 8:42 AM


Malaysian Bulk Carriers climbed and touched the RM0.71 resistance level with higher trading volume. With its 21-day moving average indicator pointing upwards, coupled with a higher high candlestick pattern, there is a good chance that it would experience a technical breakout and head towards the short-term target price of RM0.75, followed by RM0.785. The downside support is marked at RM0.645. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.71

Target: RM0.75, RM0.785 (time frame: 2-4 weeks)

Exit: RM0.645

Source: AmInvest Research - 4 May 2021

Labels: MAYBULK
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Perak Transit - Forges ahead with business plans

Author: AmInvest   |  Publish date: Tue, 4 May 2021, 8:40 AM


Investment Highlights

  • We maintain our forecasts but tweak our fair value (FV) lower by 3% to RM1.21 (from RM1.25) to incorporate a slight discount to reflect a 2-star ESG rating as appraised by us (Exhibit 3). The basis of our FV is now 15x FY22F EPS (at a 30% discount to our FY22F target PE of 22x for Malaysia Airports) with a 3% ESG discount. We use Malaysia Airports as the valuation benchmark for Perak Transit as we see many similarities between this operator of modern public transport terminals and an airport operator. Maintain BUY.
  • We came away from our recent meeting with Perak Transit feeling positive. Here are key highlights from our meeting:

1. On the newly commissioned (in 2020) Kampar Putra Sentral Terminal, Perak Transit is hopeful that its occupancy rate will rise to 70% this year vs. 50% currently (our forecasts assume 60% in FY21F, rising to 70–80% in FY22–23F). The additional kicker shall come from the return of the more normalised student crowd in the campus town of Kampar once the pandemic comes under better control on the back of the rollout of the national vaccination programme.

As the terminal is still relatively new amidst the pandemic, its advertising and promotion (A&P) rates naturally have not been maximized. As a comparison, they are on average only at two-thirds of those of the more established Meru Raya Terminal. We see an upside potential over time and we project its A&P incomes to grow by 6% annually. Based on our forecasts, Kampar Putra Sentral Terminal will contribute 12–15% of the group’s revenue in FY21–23F.

2. Apart from its bread-and-butter “develop-own operate” (DOO) business model (of which it has two projects in the pipeline, i.e. the Bidor and Tronoh terminals, at present), Perak Transit also sees tremendous potential in the “terminal management contract” (TMC) business model.

Under the TMC model, Perak Transit provides largely expertise and assistance in managing third-party bus terminals (with some investment in upgrading and renovation works). This requires less capital expenditure, resulting in a shorter payback period of four years (vs. eight years under the DOO model).

Perak Transit guided for 4–5 such contracts in FY21F. Thus far in FY21F, it has secured two, i.e. Sentral Kuantan Terminal (Kuantan) and Shahab Perdana Bus Terminal (Alor Setar). We estimate that each TMC contract could contribute an additional RM1.5mil net profit to the company.

Despite the pandemic situation, we understand that A&P contracts at Meru Raya Terminal and Kampar Putra Sentral Terminal have been renewed with no discount being given. Typically, the A&P rates are revised annually. Meanwhile, for the up-and-coming Bidor terminal (slated for full opening in 2H 2023), the company is currently in talks with a potential hypermarket tenant. A deal will see it commencing operation at the terminal as soon as early 2022.

  • We continue to like Perak Transit for:

1. Its unique business model, i.e. the operation of modern public transport terminals that emulate airports with spacious and brightly lit shopping, dining and waiting areas, and clean public facilities particularly the washrooms. These entice visitors to spend more money and time in the terminal prior to their departure or upon their arrival, or while sending off or picking up their loved ones. This captive traffic is monetized in the form of rental incomes from commercial units and advertising space within the terminal;

2. It having proven the commercial viability of this business model in its Terminal Meru Raya in Ipoh (an interstate transportation hub) and the newly opened Kampar Putra Sentral. Kampar Putra Sentral is also buoyed by a large and fast-growing student population in the campus town of Kampar. This student population has high propensity to travel during school breaks and festivities, as well as during weekends for leisure; and

3. The vast opportunities to replicate this successful business model. Already, it has at least two more BOO projects in the pipeline, namely in Bidor and Tronoh, as well as expecting at least 2–3 more TMC projects this year.

  • At 8–10x forward earnings, we believe Perak Transit offers investors a good opportunity to own a defensive public infrastructure business that is replicable for growth at bargain valuations.

Source: AmInvest Research - 4 May 2021

Labels: PTRANS
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