Highlights

AmInvest Research Reports

Author: AmInvest   |   Latest post: Fri, 30 Jul 2021, 5:30 PM

 

Telecommunication - FNP could escalate fibre competition

Author: AmInvest   |  Publish date: Fri, 30 Jul 2021, 5:30 PM


Investment Highlights

  • Freedom for fixed line subscribers. The Malaysian Communications and Multimedia Commission (MCMC) is currently reviewing plans for fixed number portability (FNP) which would allow land line subscribers, both residential and commercial, to change their telecommunication service providers and retain their existing phone numbers by the end of 2022. The MCMC views that FNP could exert a wider influence on competition across the telecoms market and benefit stakeholders given the rise of bundled services.
  • Similar to MNP. FNP, which will be reviewed by an industry working group to be set up by 3Q2021, is similar to mobile number portability (MNP). Implemented in 2008, MNP allows mobile users to port out to other mobile networks without relinquishing their original mobile numbers. Currently, a fixed line user will get a new phone number upon the change of networks, thereby creating hesitancy in switching, especially among corporations and SMEs.
  • Positive for consumers. With the convergence of voice, data and video services, freedom of choice and the ability to access new and innovative services over broadband and IP services for all Malaysian businesses, consumers will benefit as FNP will significantly improve the competitive landscape and accelerate innovation across the nation.
  • Good for pure cellular operators. This is positive for cellular operators without last-mile fibre connectivity and are currently offering bundled services with fixed broadband options. In our view, other than Maxis, which has a significant market share of 465K fibre subscribers vs. TM’s 2mil currently, the other incumbent cellular operators currently offer such bundled options only in selected locations in the country. As such, we believe Maxis would be the main beneficiary from FNP given its much stronger mobile market position vs. TM’s unifi mobile.
  • Negative for TM. We believe that FNP will be a negative for TM given the potential erosion to its dominant market share in the fibre business underpinned by the ownership of the High Speed Broadband and Sub-Urban Broadband networks. At this juncture, TM’s mobile business remains a distant direct competitor to the four largest cellular operators. Even so, this can be partly mitigated by TM becoming more aggressive in its value-added services offerings such as providing content via unifi TV or promotional discounts to switch operators.
  • Limited impact to Time. To some extent, Time dotCom could also experience some heightened competition given that the company does not have any mobile options at this juncture. However, this could be limited given that Time targets selected areas such as mass dwelling units, which TM had overlooked in the past, and commercial hubs.
  • Mitigated by upcoming 5G rollouts. For now, we maintain our forecasts for TM and Maxis given that FNP is scheduled to commence in FY23F onwards. Notwithstanding TM’s weak cellular market position, the upcoming 5G rollouts could level off current 2G/4G service coverage disparity between unifi mobile and other more established cellular incumbents, shifting the competitive advantage to TM. Recall that the government-owned Digital Nasional will own the 5G infrastructure and spectrum while providing wholesale services to cellular players. The initial 5G rollout will begin in selected areas in Kuala Lumpur, Putrajaya and Cyberjaya staring in December 2021 with the objective of achieving 80% nationwide population coverage by 2024.
  • 5G differentiation. As Maxis has shown its successful drive to differentiate through superior network quality, brand loyalty, customer care and convergence strategy by bundling with fibre solutions, competitors have also begun similar marketing campaigns. Increasingly, operators agree that ongoing intense competition globally will obviate any attempt to charge premium prices for 5G branding unless the provision of additional managed services and attractive content are offered to customers. As such, we believe that 5G marketing campaigns are likely to follow fixed broadband models in offering unlimited data limited by speed caps that will depend on the evolution of the ecosystem involving the innovation of new applications, devices and content.
  • Maintain OVERWEIGHT on the sector given the consolidation synergies for the 2 cellular operators which could partly alleviate intense price competition. Reiterate our BUY call for TM, which has shown significant cost improvements together with compelling dividend yields and HOLD for Maxis given the continuing competition from mobile virtual network operators and affordable segment players like U Mobile constrains revenue growth prospects.

Source: AmInvest Research - 30 Jul 2021

Labels: MAXIS, TM
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Cement - Upside to implied clinker capacity value

Author: AmInvest   |  Publish date: Fri, 30 Jul 2021, 10:07 AM


Investment Highlights

  • We streamline our building material sector coverage by focusing on the cement sector with an OVERWEIGHT stance. We believe the cement sector in Peninsular Malaysia has turned the corner following the sector consolidation in 2019. We believe a more rational competitive landscape, driven by production restraints following the consolidation, has at least solved half of the problem (i.e. supply), which should at least lift the implied value of clinker capacity. Beyond the pandemic and upon the recovery of the two key cement-consuming industries, i.e. property and construction, a demandfuelled re-rating is imminent, although visibility is still lacking at this juncture.
  • Cement producers may flex their pricing muscles a little. We project the average net cement selling price in Peninsular Malaysia to rise marginally by 2% to RM240/tonne in 2021F (vs. an estimated RM235/tonne in 2020). We believe the conditions are conducive for further price hikes with: (1) the emergence of a price leader in the market (controlling close to 60% of total industry clinker capacity) following YTL Cement’s acquisition of Malayan Cement in 2019; and (2) the easing supply pressure after Malayan Cement and CIMA put one clinker plant each offline, effectively removing annual clinker capacity totalling 2mil tonnes, equivalent to 8% of industry clinker capacity from the market.
  • With the price hikes, we expect players to return to the black in a more decisive manner in the coming quarters. They already broke even over the last three quarters, after persistent losses in recent years (Exhibit 1).
  • Flattish demand in 2021. Meanwhile, we project cement consumption in Peninsular Malaysia to be flat at 4.2mil tonnes in 2021F. The normalisation of construction activities (for both public infrastructure and property projects) during the early part of the year was short-lived. Following the introduction of a new nationwide lockdown from 1 June 2021, construction activities of critical public infrastructure projects have been capped at 60% of the normal level, while works on most property projects have been suspended entirely. However, we believe this will be temporary as it is our base-case assumption that Malaysia shall reach herd immunity against Covid-19 before the year is out. The national vaccination programme appears to have gathered significant momentum after the initial hiccups.
  • We may downgrade our recommendation to NEUTRAL or UNDERWEIGHT if the much anticipated recovery in both local and global economies fails to materialise.
  • Our top pick for the sector is Malayan Cement (BUY, fair value RM3.34). At its current share price, the market is effectively valuing Malayan Cement at a 20% discount to its replacement cost (based on the replacement cost for clinker capacity of US$120/tonne). We believe this is unjustified given that it is turning around with rational competition among players after the recent industry consolidation. We believe our valuation for Malayan Cement, based on a 10% discount to replacement cost, is more appropriate.

Source: AmInvest Research - 30 Jul 2021

Labels: MCEMENT
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UnicornP QUALITY
01/08/2021 9:39 AM

Economics - Malaysia – External trade stronger than expected

Author: AmInvest   |  Publish date: Fri, 30 Jul 2021, 10:07 AM


External trade continues to be upbeat in June, beating market expectations as it recorded a healthy 27.2% y/y growth at RM105.5bil of exports (cons. 11.7%), and 32.1%y/y increase at RM83.2bil of import (cons. 18.2%). This expanded the trade surplus by 11.7% y/y to RM22.2bil.

Despite the latest MCO restrictions imposed in June, some intended leeway was given to over 95,000 companies to operate during the time with limited capacity. Such move had helped the economy remain resilient against the downside pressure, hence performed persistently better than our expectations. Moving forward, as more states move to the subsequent phase of the National Recovery Plan (NRP), supported with the rapidly progressing vaccination rate, Malaysia will be well on the path towards economic recovery.

Currently, for the full year of 2021, we are cautiously optimistic, maintaining our forecast of growth of exports at 15% while growth for imports will be at the 13% level.

A. Highlights

  • Despite the diminishing low-base effect, exports are maintaining its strong performance in June, logging an increase of 27.2% y/y to RM105.5bil, compared to RM82.9bil in June last year. This is the third time it surpassed the RM100bil mark, after RM105.6bil recorded in April and RM104.9bil in March.
  • This brings the average exports for 1H2021 up to 31.9%, well above our current 15% forecast for the year 2021.
  • The manufacturing sector, which covers 86.6% share of total exports, contributed to the export growth with 25.8% y/y (vs. May 47.3% y/y) and was supported by the increased demand of petroleum products (113.6% y/y vs. 75.1% /y in May), rubber products (103.5% y/y vs. 133.2% in May) and E&E products (14.1% vs. 34.3% y/y in May).
  • Looking at imports, these expanded by 32.1% y/y to RM83.2bil, compared to RM62.9bil in June last year, following its fastest growth in May at 50.3% y/y since 1998.
  • The import figure was dominated by end-use products with a whopping 71.6% of total imports. Specifically, it was supported by intermediate goods (25.3% y/y growth vs. 52.4% in May), capital goods (+15.2% y/y vs. 34.0% in May) and consumption goods (+19.2% y/y vs. 37.8% y/y in May).
  • As a result, the trade surplus widened to RM22.2bil from RM13.7bil in May, bringing the trade balance for 1H2021 to RM115bil.
  • The government reimposed a third round of the MCO in June due to surging Covid cases that reached the 5,000 mark. This is in response to the spread of the contagious Delta variant.
  • To reduce the severity of pandemic restrictions’ effects, 18.4% from a total of 517K companies were given permission to operate during the lockdown with 60% capacity, at most. These sectors included manufacturing and manufacturing-related services, electrical & electronics, oil and gas, and etc.
  • Such move had helped the economy remain resilient against the downside pressure, supported by strong demand for Malaysia’s manufactured products, hence performed persistently better than our expectations.

B. Key Takeaways

  • Consequently, on a monthly basis, external trade rose across the board, with exports climbing 14.3%, and imports rising by 5.9%. Trade surplus soared 61.7% and total trade increased 10.4%.
  • Moving forward, foreign trade activities in July are expected to hit some obstacles as the nation went under tighter restrictions during the EMCO in early July. However, the downside will be less severe as more states moved into phase 2 of the NRP where more sectors and activities are allowed to operate with up to 80% capacity.
  • The current focus would be to ensure a better pandemic management while maintaining the momentum of the vaccination rate.
  • Any risk that could slow down the reopening of the economy and cause prolonged restrictions, would cloud a positive future prospect for bigger companies to continue operating in Malaysia.
  • With the national target of getting 100% adults fully vaccinated by October, we expect export activities to meet or even overshoot our 15% target for the whole year 2021, supported by strong demand towards E&E, rubber and chemical products.

Source: AmInvest Research - 30 Jul 2021

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Stocks on Radar - Hibiscus Petroleum (5199)

Author: AmInvest   |  Publish date: Fri, 30 Jul 2021, 9:57 AM


Hibiscus Petroleum consolidated and touched the RM0.665 resistance level. With its RSI indicator moving upwards, coupled with a higher low candle stick pattern, there is a good chance that it would experience a technical breakout and head towards the short-term target price of RM0.69, followed by RM0.70. The downside support is marked at RM0.64. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.665

Target: RM0.69, RM0.70 (time frame: 2–4 weeks)

Exit: RM0.64

Source: AmInvest Research - 30 Jul 2021

Labels: HIBISCS
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Stocks on Radar - Kim Loong Resources (5027)

Author: AmInvest   |  Publish date: Fri, 30 Jul 2021, 9:57 AM


Kim Loong Resources rose and tested the RM1.48 resistance level. With its RSI indicator in an uptrend, coupled with a 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 RM1.54 and RM1.56. The downside support is projected at RM1.42. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM1.48

Target: RM1.54, RM1.56 (time frame: 2–4 weeks)

Exit: RM1.42

Source: AmInvest Research - 30 Jul 2021

Labels: KMLOONG
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Bursa Malaysia - Lower trading revenue for securities market in 2Q21

Author: AmInvest   |  Publish date: Thu, 29 Jul 2021, 9:30 AM


Investment Highlights

  • We maintain our BUY call on Bursa Malaysia (Bursa) with a lower fair value of RM9.40 per share (previously: RM10.70 per share). We trim our FY21/22 net profit by 3.5%/6.1% after lowering our DATV assumptions for the securities market to RM3.6bil/RM3.2bil from RM4.0bil/RM3.5bil. We peg stock to a lower FY22 PER of 25x (previously: 26x). Our stock valuation reflects a 3-star ESG rating.
  • Bursa reported a lower net profit of RM89mil (-26.7% QoQ) in 2Q21. This was attributed to a decline in securities trading revenue while trading revenue for derivatives was stable QoQ with sustained average daily contracts traded (ADC). 2Q21 saw the daily average trading value (DATV) for onmarket trades (OMT) for securities slipping to RM3.8bil vs. RM5.1bil in 1Q21.
  • 1H21 net profit came in at RM210mil. It grew 39.4% YoY, underpinned by stronger securities trading revenue (+41.4% YoY), BSAS trading revenue (+5.8% YoY) and nontrading revenue (listing, issuer and depository services fees), partially offset by lower derivatives trading revenue.
  • The decline in derivatives trading revenue in 1H21 was contributed by the decrease in collateral management fee rate from 1.0% to 0.5% since 1 July 2020 and the drop in ADC for the FKLI.
  • Cumulative earnings accounted for 57.2% and 60.2% of our and consensus estimates respectively. We deem this to be within expectation as we anticipate a lower DATV for the securities market in 3Q21 compared to 2Q21.
  • Investor sentiment will be softer in 3Q21 from the continued lockdowns with Covid-19 cases rising further and political uncertainties. Nonetheless, investor sentiment is likely to improve, leading to stronger trading activities in the securities market in 4Q21 once herd immunity is achieved through vaccinations. The government intends to step up efforts to vaccinate 100.0% of Malaysian adults fully by October 2021. This compared to the earlier plan of fully vaccinating 80.0% of adults by 1Q22. More economic sectors will be opened once the vaccination target has been achieved. This is envisaged to lead to improved confidence in the securities market.
  • 1H21 DATV for securities market stood at RM4.4bil (+41.4% YoY). By segment, DATV of domestic institutions, retail and foreign institutions in 1H21 climbed to RM1.9bil (+32.1% YoY), RM1.7bil (+70.3% YoY) and RM0.7bil (+16.4% YoY) respectively.
  • 1H21’s net buy position of retail investors stood at RM8.2bil. The number of new retail investors’ CDS accounts climbed 67.0% YoY to 147,091 in 1H21.
  • Trades from retail investors accounted for 39.0% of the DATV while that from institutions made up the remaining 61.0%.
  • The DATV for Apr 2021, May 2021 and June 2021 was lower at RM4.0bil, RM4.0bil and RM3.3bil respectively compared to the first 3 months of 2021. In July 2021 (1–21 July), the DATV for the securities market continued to ease to RM3.1bil.
  • 2Q21 continued to see an outflow in foreign funds from the securities market to a total of RM2.5bil cumulatively (Apr 2021: -RM1.1bil, May 2021: -RM161mil and June 2021: -RM1.2bil) vs. -RM1.7bil in 1Q21.
     
  • There Were 14 New Listings in 1H21 Vs. 7 in 1H20.
     
  • ADC for derivatives continued to be stable at 79,784 contracts (-0.7% QoQ) in 2Q21. For 1H21, the ADC traded for derivatives rose modestly by 4.0% YoY to 80,061, supported by the higher trading of FCPO. Meanwhile, the ADC traded for the FKLI fell by 20.2% YoY in 1H21.
     
  • For BSAS, the ADV increased by 4.6% YoY to RM34.5bil, supported by the increase in trading participants. 1H21 saw the onboarding of 16 new participants (13 new local and 3 foreign i.e. 1 from Turkey and 2 from Kenya).
  • Opex in 1H21 rose by 14.9% YoY largely contributed by provisions for variable staff cost (performance rewards for its employees in line with improved earnings). Also, it was due to provisions for the SST on digital services and expenses on corporate social responsibility (CSR). Bursa is still awaiting the decision from the authorities and the MOF on the chargeability of taxes for digital services. Hence, Bursa continued to set aside provisions for the SST (RM7mil and RM13.6mil in 1H21 and FY20 respectively). The exchange will further set aside 1% of its profit after tax as expenses for CSR.
  • Foreign ownership of the securities market remained stable at 20.3% as at end June 2021. Meanwhile, the stock’s foreign ownership slipped to 19.1% in June 2021 vs. 19.8% in Mar 2021.
  • Bursa has declared a higher interim dividend of 24 sen/share (payout: 92.0%) in 1H21 vs. 17.0 sen/shares in 1H20 (payout: 91.0%).
  • With the recent retracement in its share price, the stock is trading at an attractive FY22 PE of 20x with decent dividend yield of close to 5.0%. We see value emerging on the stock with an upside potential of more than 15.0%.

Source: AmInvest Research - 29 Jul 2021

Labels: BURSA
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Stocks on Radar - MSM Malaysia Holdings (5202)

Author: AmInvest   |  Publish date: Thu, 29 Jul 2021, 9:29 AM


MSM Malaysia Holdings rose and touched the RM1.32 resistance level. With its RSI indicator moving upwards, coupled with a higher trading volume, there is a good chance that it would experience a technical breakout and head towards the short-term target price of RM1.38, followed by RM1.41. The downside support is marked at RM1.25. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM1.32

Target: RM1.38, RM1.41 (time frame: 2–4 weeks)

Exit: RM1.25

Source: AmInvest Research - 29 Jul 2021

Labels: MSM
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stockraider Be steady lah....on bjcorp & bjland lah....go for longer term loh!

Just invest like raider base on fundamental....u can be rich loh!
31/07/2021 8:25 AM

Stocks on Radar - Mobilia Holdings (0229)

Author: AmInvest   |  Publish date: Thu, 29 Jul 2021, 9:29 AM


Mobilia Holdings rebounded and tested the RM0.51 resistance level. With its RSI indicator in an uptrend, coupled with a higher low candle stick pattern, we see a possibility for a technical breakout. If this happens, we expect it to move towards the short-term target prices of RM0.53 and RM0.555. The downside support is projected at RM0.465. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy near RM0.51

Target: RM0.53, RM0.555 (time frame: 2–4 weeks)

Exit: RM0.465

Source: AmInvest Research - 29 Jul 2021

Labels: MOBILIA
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MSM Malaysia - Strong exports to make up for soft domestic demand

Author: AmInvest   |  Publish date: Wed, 28 Jul 2021, 6:10 PM


Investment Highlights

  • We maintain BUY on MSM Malaysia with an unchanged fair value of RM2.15/share. We have a BUY on MSM for its earnings turnaround in FY21E as it is expected to swing into the black on the back of higher selling prices, lower cost of raw sugar and absence of asset impairments.
  • Our fair value is based on a FY22F PE of 15x. We have raised MSM’s FY21E gross DPS to 6.0 sen from 2.0 sen based on a dividend payout of almost 50%. The gross DPS of 6.0 sen translates into a yield of 4.6%. We ascribe a three-star ESG rating to MSM.
  • We forecast MSM’s sales volume growth to be 3.5% in FY21E vs. 8.2% in FY20. The group’s strong export sales volume is expected to compensate for weak domestic demand in FY21E. We have assumed MSM’s export volumes to be 351,000 tonnes in FY21E, 30.0% stronger than in FY20.
  • MSM has already locked in 65% to 70% of its export orders. In spite of the Covid-19 outbreak in Vietnam, demand for refined sugar from the country is still positive. MSM plans to export 190,000 tonnes of refined sugar to Vietnam in FY21E vs. 118,000 tonnes in FY20. Vietnam is one of MSM’s top export markets.
  • To minimise the impact of the high cost of raw sugar, MSM may sell more refined sugar to the industries and export segments instead of the domestic retail market. MSM passes on the high cost of raw sugar to the industries and export markets in the form of higher selling prices. In contrast, price of refined sugar to the end retail customer in Malaysia is fixed at RM2.85/kg.
  • The retail market accounted for 29.4% of MSM’s sales volume in 1QFY21 while industries accounted for a larger 41.6%. Exports and sale of molasses made up the balance 29.0% of MSM’s sales volume in 1QFY21.
  • MSM has locked in 37% of FY22F’s raw sugar requirements for the domestic retail market at US$0.15 to US$0.16/pound. The cost of raw sugar for the domestic retail market in FY21E was US$0.13–US$0.15/pound.
  • The Johor sugar refinery is expected to achieve a utilisation rate of 50% by the end of FY21E. Currently, it is still below 30% as there are issues with the second boiler. This is expected to be resolved in 3QFY21. MSM plans to ramp up the utilisation rates at the Johor sugar refinery to 60% to 65% in FY22F and 75% to 80% in FY23F.

Source: AmInvest Research - 28 Jul 2021

Labels: MSM
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Kossan Rubber - Strong results despite MCO workplace restrictions

Author: AmInvest   |  Publish date: Wed, 28 Jul 2021, 6:09 PM


Investment Highlights

  • We maintain our HOLD recommendation on Kossan Rubber Industries (Kossan) with a higher fair value of RM3.06 (vs. RM2.96 previously) based on an unchanged PER of 15x FY23F EPS. There is no ESG-related adjustment based on our 3-star rating.
  • We raise our FY21E/22F/23F net profit forecast by 22%/16%/4% respectively as we increase our average selling price (ASP) projections to account for a resurgence in cases as a result of the Delta variant, as well as higher interest income.
  • Kossan’s 1HFY21 net profit of RM2.2bil accounted for 82% and 67% of our and consensus expectations respectively. This came in above our estimates as the impact of MCO workforce restrictions did not affect sales as severely as expected. We project a weaker 2HFY21 as Kossan’s ASP begins to decline and production restrictions tighten.
  • While valuations remain attractive, we are less optimistic of any lasting positive re-rating in share price in the next six months. Despite complications arising from the Delta variant benefiting share price in the short term, we are wary of the falling ASP, industry ESG concerns, inconsistent production due to pandemic restrictions, a possible imposition of windfall tax and supply-demand uncertainties in a postpandemic landscape.
  • Kossan’s revenue grew to RM2.2bil in 2QFY21, rising by 2.1% QoQ and 219% YoY. A 5–7% QoQ increase in ASP sustained the revenue growth in 2QFY21. This was partly offset by a drop in sales volume of 2–4% QoQ, largely due to MCO restrictions on workforce.
  • The group’s EBIT margin was flattish at 62.3% on a QoQ basis in 2QFY21. Despite higher ASP, a 2–4% higher nitrile rubber costs QoQ pushed up production costs. Going forward, nitrile rubber costs may ease due to a stronger supply. However, rubber and natural costs are still expected to remain high, which would exert pressure on operating profit margins.
  • On a QoQ basis, the group recorded a lower core net profit of RM1.06bil and a lower net profit margin of 47.6%. Higher tax expense and weaker technical rubber segment contributions resulted in the weaker profit.
  • The technical rubber and clean room divisions saw mixed results on a QoQ basis in 2QFY21. PBT of the two divisions were RM6.9mil and RM13.7mil respectively in 2QFY21, which implied growth rates of -22% and +19%.
  • Kossan announced a second interim dividend of 12.0 sen for 2QFY21 (30% payout), bringing total gross DPS to 24.0 sen year to date. We believe that the group will issue special dividends in 2HFY21, which will bring the payout ratio to 40% for FY21E, similar to FY20.

Source: AmInvest Research - 28 Jul 2021

Labels: KOSSAN
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Thematic - Malaysia – Managing the downgrade risk

Author: AmInvest   |  Publish date: Wed, 28 Jul 2021, 6:09 PM


The increasing possibility of a further upwards revision on Malaysia’s current public debt ceiling from 60% to 65% and a downgrade to the economic growth could raise the prospect of future rating downgrades by any one of the international rating agencies.

The downward pressure on Malaysia’s ratings could emerge over the next 12 to 24 months if the economic growth suffers a deeper or more prolonged downturn than expected, or if a weaker commitment to fiscal consolidation is evident. Both situations could result in a faster accumulation of net general government debt. This could be indicated by a change in net general government debt surpassing 4% on a sustained basis, net indebtedness crossing 80% of GDP, or interest paid by the general government exceeding 15% of revenue.

However, a downwards revision could be mitigated by a healthy external position, monetary policy flexibility and sustainable economic growth. Instead, an upward pressure on the ratings would emerge if prospects for fiscal consolidation were to improve significantly, particularly through measures that broaden the currently narrow revenue base, pointing to a sustained decline in the government debt burden and improvement in debt affordability.

  • In contrast to our earlier expectation that Malaysia’s economic growth would recover in 2021, and projected to expand by 5.5 %–6.0% (BNM: 6.0%–7.5%), we now believe that such view does not hold water anymore. Once again as the Covid-19 pandemic rears its ugly head in June in what is viewed as the “third wave”, the country found itself in a lockdown that was extended into July with some states put under the enhanced movement control order (EMCO). Such move has added pressure both economically and politically. Strains also emerged on the social climate. Rising Covid cases are emerging at a time when the number of individuals being vaccinated is also on the uptrend.
  • Owing to the indefinite extension of the national lockdown, the government unveiled another stimulus package, Pemulih, on 28 June. The RM150 billion package includes RM10 billion in direct fiscal spending by the government in the form of wage subsidies, unemployment assistance and financial aid.
  • While providing special grants for micro, small and medium-sized enterprises (MSMEs), the programme also aims to increase the capacity and expedite the provisions of vaccines, including RM400 million for vaccine purchases. Since 2020, the government has introduced eight stimulus packages, totalling RM530 billion or 37% of GDP to support the economy from the pandemic’s impact.
  • With the various stimulus measures, the government has raised its public debt ceiling to 60% from 55% previously with the fiscal deficit-to-GDP ratio increasing to 6.2% from 6.0%. There were some concerns then that the country’s risk would be downgraded by rating agencies like Moody’s, S&P and Fitch. However, the rating agencies reaffirmed the country’s ratings with Moody's retaining Malaysia's credit profile at ‘A3’ with a stable outlook in April. S&P maintained its ‘A-‘ long-term and ‘A-2’ short-term sovereign credit ratings, and ‘A’ long-term and 'A-1' short-term local currency ratings with a negative long-term outlook in June while Fitch affirmed Malaysia's long-term foreign-currency issuer default rating (IDR) at 'BBB+' with a stable outlook in July.
  • However, the recent lockdown that was extended into July with some states put under the EMCO has dented our initial growth projection. As result, we reduced Malaysia’s GDP growth for 2021 to 4.0%–4.5% from the previous 5.5%–6.0%. Added with the recent additional counter-cyclical stimulus measures of RM150 billion, these would further undermine the country’s already strained fiscal and debt settings.
  • Higher fiscal deficits in 2020 and this year, alongside a more muted near-term economic recovery, will keep the government's net indebtedness well above the current 60% debt ceiling. Coupled with the downwards revision to the economic growth, a further upwards revision to public debt ceiling is on the cards.
  • Besides, a heightened political uncertainty compounds the challenges that the government will face as it rapidly consolidates its finances over the next two to three years. This has raised some concerns on a potential downwards revision on our ratings.
  • The downward pressure on Malaysia’s ratings could emerge over the next 12 to 24 months if the economic growth suffers a deeper or more prolonged downturn than expected, or if a weaker commitment to fiscal consolidation is evident. Both situations could result in a faster accumulation of net general government debt. This could be indicated by a change in net general government debt surpassing 4% on a sustained basis, net indebtedness crossing 80% of GDP, or interest paid by the general government exceeding 15% of revenue.
  • The downward ratings pressure by international rating agencies could also intensify if political stability deteriorates to such that policymaking becomes materially less predictable, or if our external position weakens to such an extent that the economy’s gross external financing needs surpass its current account receipts plus usable reserves.
  • Meanwhile, we expect a growth reduction in the second quarter of 2021 from the impact of the tightened MCO. We expect the economy to recover at a gradual pace in the third quarter from the cautious reopening that the government has indicated. Some economic sectors will be allowed to operate with strict safety procedures. They will not be affected to the same extent as during the first MCO in the second quarter of 2020. Also, the economic recovery will gain pace as the national vaccination plan progresses, and targets are met for a border reopening of activities. These will provide some buffer to the ratings downgrade stress.
  • Looking at the next 12 to 24 months, if the economy expands at a credible rate of between 5% and 6%, and the policy environment becomes more conducive to credible fiscal consolidation, this will produce a stronger fiscal performance than expected. It will lead to a quicker stabilisation of government finances and hence will even open the door for an upwards re-rating.
  • Also, further enhancements to the institutional framework to raise governance standards and better policy credibility and effectiveness, including in the management of public finances supported by potential growth, would be credit positive.
  • All things considered; it will not significantly alter the view that the economy remains vulnerable. A future rating downgrades by any one of the international rating agencies could still happen. More so, with the increasing possibility of a further upwards revision on the current public debt ceiling of 60%.
  • However, this possible downwards revision could be mitigated by a healthy external position, monetary policy flexibility and sustainable economic growth. Instead, an upward pressure on the ratings would emerge if prospects for fiscal consolidation were to improve significantly, particularly through measures that broaden the currently narrow revenue base, pointing to a sustained decline in the government debt burden and improvement in debt affordability.

Source: AmInvest Research - 28 Jul 2021

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Maxis - New bundled combo starting from RM149/month

Author: AmInvest   |  Publish date: Wed, 28 Jul 2021, 6:09 PM


Investment Highlights

  • We maintain Maxis’ HOLD rating with unchanged forecasts and DCF-derived fair value of RM5.00/share. This is based on a WACC discount rate of 6.3% and terminal growth rate assumption of 2%, which reflects a neutral 3-star ESG score. This also implies an FY20F EV/EBITDA of 12x, on par with its 3- year average.
  • Maxis has introduced new bundled fibre combos with Hotlink Postpaid 60 starting from RM149/month. Under the Jaringan Prihatin programme, eligible subscribers can apply for a RM180 subsidy (12 months x RM15) with the plan.
  • 5 fibre options are available, ranging from 30Mbps to 800Mbps. All plans, which include a new WiFi 6 router, come with Hotlink Postpaid 60 offering unlimited calls and SMS together with 30GB of high-speed data and 30GB of YouTube data quota.
  • The base postpaid + 30Mbps fibre plan costs RM149/month while the higher 100Mbps combo charges RM189/month and 300Mbps combo option RM209/month. For higher speeds, the 500Mbps combo costs RM279/month and the 800Mbps combo RM359/month. These two plans also come with free 2x Mesh WiFi nodes to expand the wireless coverage in homes.
  • To get a TV, a monitor or a tablet, Maxis also offers devices on a contract which starts from RM1/month. For the Samsung 50″ UHD Smart TV, the plan will cost an additional RM1/month for 800Mbps combo customers or RM79/month for customers on the 30Mbps combo option.
  • While the new package for RM149/month costs more than the earlier RM99/month Hotlink Postpaid + fibre bundle, it offers 3x the mobile data quota. Even so, the lowest plan is 25% lower than the unlimited bundled plan for cellular and fibre combo currently priced at RM198/month for 30Mbps.
  • As such, we view the new plans as offering more flexible price points to new entrants while aiming to mitigate erosion in average revenue per user for the cellular and fibre segments.
  • Recall the group's strategy in providing converged solutions involves accelerating fibre penetration is in line with the National Fiberisation and Connectivity Plan to position its brand as the preferred partner to all types of businesses.
  • The group will continue to expand its Hotlink prepaid base among the youth segment, value seekers, B40 segment and foreign workers while building its postpaid division with familybased plans bundled with fibre and handset options.
  • We expect the group’s 1HFY21 results, which will be announced this Friday, to be within our expectations. Amid a matured cellular market with intense competition and tepid revenue growth prospects, the stock’s FY21F EV/EBITDA of 11x is slightly below with its 3-year average of 12x, supported by a decent dividend yield of 3%.

Source: AmInvest Research - 28 Jul 2021

Labels: MAXIS
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Stocks on Radar - IOI Corporation (1961)

Author: AmInvest   |  Publish date: Wed, 28 Jul 2021, 6:09 PM


IOI Corporation consolidated and is poised to touch the RM3.73 resistance level. With its RSI indicator trending upwards, there is a good chance that it would experience a technical breakout and head towards the short-term target price of RM3.85, followed by RM3.91. The downside support is marked at RM3.59. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM3.73

Target: RM3.85, RM3.91 (time frame: 2–4 weeks)

Exit: RM3.59

Source: AmInvest Research - 28 Jul 2021

Labels: IOICORP
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Stocks on Radar - Guan Chong (5102)

Author: AmInvest   |  Publish date: Wed, 28 Jul 2021, 6:09 PM


Guna Chong surged and tested the RM2.76 resistance level. With its RSI indicator in an uptrend, coupled with a higher high candle stick pattern, we see a possibility for a technical breakout. If this happens, we expect it to move towards the short-term target prices of RM2.85 and R2.89. The downside support is projected at RM2.66. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy near RM2.76

Target: RM2.85, RM2.89 (time frame: 2–4 weeks)

Exit: RM2.66

Source: AmInvest Research - 28 Jul 2021

Labels: GCB
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IGB REIT - Slower recovery from reimposition of lockdowns

Author: AmInvest   |  Publish date: Tue, 27 Jul 2021, 9:36 AM


Investment Highlights

  • Our BUY call is retained with a slightly lowered fair value of RM1.85 (from RM1.89 previously) based on a target distribution yield of 5% over IGB REIT’s FY23F distributable income with no adjustment for ESG based on our 3-star rating (Exhibit 2).
  • We cut our distributable income forecasts for IGB REIT by 19% to RM237.5mil for FY21F, 15% to RM276.1mil for FY22F and 2% to RM328.6mil for FY23F, factoring in higher rental rebates given to tenants due to the prolonged MCO. Likewise, our FY21–23F distribution projections have been reduced by 2%–19% to 6.7 sen, 7.8 sen and 9.2 sen respectively, translating into yields of 4.0%, 4.7% and 5.6% respectively.
  • This is because IGB REIT’s 1HFY21 distributable income of RM97.9mil (-1% YoY) came in below our and the streets’ expectations, accounting for 33% of our full-year forecasts and 39% of consensus’ full-year estimates. We believe the key variance came largely from higher-than-expected rental rebates and lower-than-expected occupancy rates at The Garden Mall.
  • IGB REIT’s 1HFY21 revenue contracted slightly by 1% YoY to RM184.4mil (vs. RM187mil in 1HFY20), mainly due to rental support provided to tenants and lower car park income caused by the various MCOs during the quarter.
  • Meanwhile, its net property income (NPI) was flattish at RM125.5mil (vs. RM125.8mil in 1HFY20), and distributable income declined slightly by 1% to RM97.9mil (vs. RM98.5mil in 1HFY21), partly cushioned by the lower utilities expenses. Hence, IGB REIT’s proposed distribution income for 1HFY21 improved by a slight 5% YoY to 2.68 sen per unit (from 2.56 sen per unit in 1HFY20).
  • QoQ, the company’s revenue deteriorated by 15% to RM84.9mil as compared to RM99.4mil in 1QFY21, mainly due to higher rental support provided to tenants. However, its NPI and distributable income improved slightly by 1% QoQ each, thanks to lower property maintenance expenses.
  • IGB REIT’s debt-to-asset ratio remains at 23%, which is well below the regulatory threshold of 60% (temporarily increased limit from 50% until 31 December 2022 as part of the relief measure implemented by the Securities Commission in light of Covid-19). At current levels, we believe IGB REIT still has ample headroom to gear up for future acquisitions. The company guided that it does not rule out potential acquisitions if yield accretive assets emerge, which will further drive the REIT’s medium-to-long term growth beyond recovery.
     
  • The Key Takeaways From Our Engagement With the Company Yesterday Are:
    • Under the recent lockdown, the retail malls (i.e. Mid Valley Megamall and The Garden Mall) under IGB REIT only recorded 10% of pre-pandemic footfalls during 2QFY21 as compared to 60%–70% before MCO 3.0 which commenced on 6 May 2021. The company is confident that footfalls will rebound strongly once SOPs are relaxed as vaccination rates continue to increase, similar to what happened in the past.
       
    • During MCO 3.0 in this quarter, only 10% of the tenants are in operation, as compared to almost all tenants/shops that were open (except for non-essential services that were prohibited to operate) before the lockdown was imposed.
       
    • The occupancy rate for Mid Valley Megamall remains excellent at 100% during the quarter. However, The Garden Mall’s occupancy rate was slightly lower at low 90%, mainly due to the remaining vacant net lettable areas (NLAs) which was previously occupied by Robinsons stores (closed down due to Covid-19 pressures). On a positive note, two-thirds of the NLAs have already been taken up by Isetan, pending renovation as construction works are currently restricted during the MCOs. The company guided that most of the tenancy contracts expiring by this year are being renewed at relatively flat rental rates.
       
  • At our valuation of RM1.85, IGB REIT offers a potential upside of over 10%. We like IGB REIT given its positive longterm outlook underpinned by strategically located assets in the heart of Klang Valley and more balanced footfall profile (i.e. only moderate exposure to tourists), which put the group in a position to capitalise on the recovery in domestic consumption while waiting for borders to reopen. We view IGB REIT as a recovery play with reasonable returns and dividend yields of more than 4.5% for FY22F and beyond against the backdrop of the current low interest rate environment.

Source: AmInvest Research - 27 Jul 2021

Labels: IGBREIT
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Stocks on Radar - Ann Joo Resources (6556)

Author: AmInvest   |  Publish date: Tue, 27 Jul 2021, 8:59 AM


Ann Joo Resources consolidated and touched the RM2.35 resistance level. With its 21-day moving average indicator trending upwards, coupled with a higher trading volume, there is a good chance that it would experience a technical breakout and head towards the short-term target price of RM2.45, followed by RM2.56. The downside support is marked at RM2.14. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM2.35

Target: RM2.45, RM2.56 (time frame: 2-4 weeks)

Exit: RM2.14

Source: AmInvest Research - 27 Jul 2021

Labels: ANNJOO
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Stocks on Radar - HPMT Holdings (5291)

Author: AmInvest   |  Publish date: Tue, 27 Jul 2021, 8:59 AM


HPMT Holdings surged and tested the RM0.53 resistance level. With its RSI indicator in an uptrend, coupled with a 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 RM0.55 and RM0.57. The downside support is projected at RM0.49. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy near RM0.53

Target: RM0.55, RM0.57 (time frame: 2-4 weeks)

Exit: RM0.49

Source: AmInvest Research - 27 Jul 2021

Labels: HPMT
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REIT - Vaccination progress to lead recovery

Author: AmInvest   |  Publish date: Mon, 26 Jul 2021, 9:52 AM


Investment Highlights

  • We maintain our OVERWEIGHT recommendation on the REIT sector. We believe retail REITs will largely be on a recovery path moving into 2H2021 as the economy reopens in stages. We assume the country’s economy is to reopen largely by the end of the year (which we believe is an opportune time to capture the year-end holiday season when people are most likely to spend). This is in line with our assumptions that domestic footfalls will fully recover by year-end or even exceed historical peaks as people are more likely to travel domestically while waiting for clarity on new regulations for international cross-border travel.

    Apart from that, 2H2021 retail sales recovery will also be fuelled by pent-up consumer demand after the lockdowns, similar to what has happened in the past as consumers tend to revenge spend and gather once movement restrictions are lifted. Based on the previous occasions when lockdowns were lifted, the malls under our coverage observed higher average sales per footfall. We believe earnings visibility and associated risks of REITs now are much better as compared to last year, thanks to the widening rollout of vaccines both locally and globally.
     
  • Opportunity to collect quality assets. We believe the current lacklustre performance in retail REITs’ share prices offers investors a good opportunity to invest in quality retail REITs assets, whose property values have remained largely intact despite the pandemic. This is supported by:
  1. better quality tenants, which are more likely to survive the economic downturn caused by the pandemic and thus support occupancy rates of the malls;
  2. the stronger market position that allows malls to enjoy a premium in chargeable rental rates as they act as the primary gateway for new international brands to enter the Malaysian market; and
  3. targeting markets mainly focused on consumers with better spending power and are more resilient during an economic downturn (thus support the recovery of footfalls and sales at the malls post-lockdown).

    Looking beyond 2021, we believe the recovery in international tourist traffic will further boost retail REITs’ earnings prospects.
  • Healthy occupancy rates. For the retail REITs under our coverage, we take comfort that the average occupancy rates at the anchor malls remain healthy at above 90% despite a slight decline observed as compared to pre-pandemic levels due to termination of tenancy contracts. However, this was quickly replaced by new tenants although the transition period took slightly longer than usual from delayed renovation works due to the various movement restrictions in place.
     
  • Comfortable debt-to-asset ratios. In terms of financial health, the REITs under our coverage continue to maintain a comfortable debt-to-asset ratio of 22%–42% vs. the regulatory threshold of 60% (which was temporarily raised from 50% until 31 December 2022 by the Securities Commission as a Covid-19 relief measure), which allows REITs to gear up for further acquisitions. We do not rule out potential acquisitions to materialise over the next 12–18 months for the REITs under our coverage with the emergence of yield-accretive assets, which could further drive inorganic growth over the medium to long term despite the short-term earnings headwinds.
     
  • We maintain our OVERWEIGHT recommendation on the REIT sector. Based on our estimates, the REITs under our coverage provide distribution yields of over 5% for FY22F and beyond compared to the current low interest rate environment. We like the sector as a recovery play as it is poised to benefit from the growth in Malaysia's post-pandemic economy

    Our top pick for the sector is Sunway REIT (fair value RM1.81), for its diversified investment portfolio (which includes retail malls, hotels and offices as well as a university and hospital) and a large pipeline of potential assets for future injection.
     
  • We may downgrade our stance to NEUTRAL if: (1) footfall recovery is slower than expected; (2) there is a massive decline in occupancy rate due to increased competition from the oversupply of retail spaces; and (3) consumer spending/sentiments deteriorate further or recover slower than expected.

Source: AmInvest Research - 26 Jul 2021

Labels: SUNREIT
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Mah Sing Group - Selling leftover Shah Alam land for RM9mil

Author: AmInvest   |  Publish date: Mon, 26 Jul 2021, 9:52 AM


Investment Highlights

  • We keep our HOLD recommendation on Mah Sing with an unchanged SOP-derived fair value of RM0.95/share and a neutral ESG rating of 3 stars. (Exhibits 1 & 2).
  • Our SOP has been reduced marginally by 0.2% or RM5mil to RM2.4bil arising from the disposal of a leasehold land measuring 3.2 acres (12,871 sq metres) at M Cahaya, No. 1, Jalan Utarid A U5/A, Mutiara Subang, Seksyen U5, Shah Alam, Selangor.
  • The land carried a gross development value (GDV) of RM155mil as at 31 March 2020 while the deal is expected to be completed by the end of 2021.
  • We estimate that the land sale to Inta Bina Group’s whollyowned Angkasa Senuri Sdn Bhd for RM9.3mil cash could generate a minimal net gain of RM3mil given a net book value of RM4.9mil in Mah Sing’s FY20 annual report. This translates to a slight 1% rise to our FY21F core net profit to RM177.5mil with a marginal 0.6% decline for FY22–23F.
  • The selling price translates to RM67.13 psf. While there are not many identical transactions within the area recently, the asking price for leasehold land surrounding Shah Alam, Selangor larger than 3 acres ranges from RM36 psf to RM60 psf based on our channel checks.
  • We understand that the undeveloped land parcel was left over from the earlier Mah Sing Industrial Park project (M Cahaya) in Sungai Buloh.
  • While insignificant to the group’s gearing levels, we expect the group to use the proceeds for land-banking activities or repay borrowings.
  • We are positive on the group’s strategy to monetise its undeveloped land in Klang Valley which is too small in scale to turn into meaningful projects. Meanwhile, it also allows the group to focus on existing projects with better market prospects.
  • At this stage, we remain cautious on the company’s short-term outlook stemming from its high exposure to local projects in its property segment, which account for 74% of SOP, as prolonged movement restrictions in the country from high Covid-19 infection rates could lead to a deterioration in earnings risk.
     
  • Currently, the Stock Trades at a Slightly Pricey FY21F PE of 12x Vs. Its 4-year Average of 10x.

Source: AmInvest Research - 26 Jul 2021

Labels: MAHSING
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Plantation - News flow for week 19 – 23 July

Author: AmInvest   |  Publish date: Mon, 26 Jul 2021, 9:51 AM


  • The Telegraph reported that BlackRock has ramped up its actions against executives failing to tackle climate issues. BlackRock voted against 255 board directors at companies, including Berkshire Hathaway and Exxon Mobil in the year ending 30 June 2021 as they failed to act on climate issues. This is more than four times the 55 executives it rejected the year before. BlackRock also rejected the management of a total of 319 companies for climaterelated issues. In addition, BlackRock held more than 2,300 conversations with executives on climate-related issues in the year through 30 June as tackling climate change becomes an increasing priority.
  • Reuters quoted sources as saying that the White House has delayed an annual process meant to decide how much ethanol and other biofuels that the US oil refiners need to blend into their fuel each year as it seeks a solution for an issue that pits refinery workers against corn farmers. Lawmakers, who represent constituents from both industries, have been pushing the Biden administration on the issue for months. Sources said that the White House has largely stayed out of the discussions but is now hoping to take control of the matter.
  • S&P Global Platts cited sources as saying that Brazil’s soybean exports to date in July are seen to be lower than a year earlier as farmers hoarding stocks stoke tight supply concerns. This is expected to support demand for US soybeans. Brazil exported 5.55mil tonnes of soybeans in the first three weeks of July, down from 6.18mil tonnes in the same period last year. Bids from China have also declined in recent weeks, sources said. Soybean crushers in China, which have been facing slim margins since February, have become price-sensitive and would rather wait for margins to improve before purchasing soybeans in bulk.
  • Bloomberg reported that in spite of the Covid-19 pandemic, Indonesia expects its palm oil supply to be resilient. According to an official with the Indonesian Palm Oil Association (GAPKI), zero cases have been reported so far this year by the member companies under GAPKI and the production of palm oil will go on undisrupted. The tighter movement curbs in Indonesia have not affected palm oil operations or logistics as it is considered an essential sector.
  • According to Bloomberg also, Cargill plans to invest US$350mil over the next two to three years in Indonesia. Cargill is allocating US$200mil for a palm refinery in Lampung and US$100mil for a corn processing plant in East Java. Both of the plants are expected to be completed in year 2022F.

Source: AmInvest Research - 26 Jul 2021

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calvintaneng Very good news from Indonesia

Palm oil production there continue as usual

And these Malaysia palm oil shares got operation in Indonesia

Tsh resources

Sime Darby plant

Thplant

Azrb
26/07/2021 10:26 AM


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