Highlights

AmInvest Research Reports

Author: AmInvest   |   Latest post: Wed, 18 May 2022, 4:12 PM

 

Petronas Chemicals Group - Value-accretive Swedish specialty chemical acquisition

Author: AmInvest   |  Publish date: Wed, 18 May 2022, 4:12 PM


Investment Highlights

  • We reiterate our BUY call on Petronas Chemicals Group (PChem) with a higher fair value of RM11.10 (from an earlier RM10.90/share), pegged to a rolled-forward FY23F EV/EBITDA of 8x and a premium of 3% for our ESG rating of 4 stars. This is at parity to PChem’s 2-year EV/EBITDA average against the backdrop of elevated oil prices trading at US$100/barrel currently.
  • We have also raised FY23F–FY24F earnings by 8%–9% to account for the value-accretive contribution from the group’s proposed acquisition of the entire equity interest in niche specialty chemicals group, Perstorp Holding AB, a sustainability-focused global specialty chemicals company, for €1.54bil (RM7bil or 9% of PChem’s market cap) cash from Financière Forêt S.à.r.l, a company under European private equity firm, PAI Partners.
  • While Perstorp recorded revenues of SEK13.5bil (RM6.5bil) and pretax profit of SEK1.3bil (RM611mil) in 2021, the company’s 1QFY22 pretax profit surged 8.2x YoY to SEK460mil (RM206mil) from higher product prices in tandem with the crude oil price upcycle.
  • Hence, based on 1QFY22 results and assuming European interest costs of 2%, we are projecting a higher 9% increase to our prospective earnings vs. PChem’s Bursa Malaysia announcement illustration of a 4% EPS rise based on FY21 historic results.
  • The proposed acquisition, expected to be completed in 2H2022, values Perstorp Group at an enterprise value of €2.3bil (RM10.5bil), including borrowings. Given the group’s gross cash of RM16bil and net cash of RM14bil, we expect PChem to internally fund this purchase.
  • We are positive on this development, which will strengthen PChem’s basic petrochemicals portfolio and accelerate its expansion into higher margin derivatives, specialty chemicals and solutions. This involves end markets such as paints and coatings, construction, automotive, personal care and food, feed and nutrition, and access to common end markets that offer significant cross-selling opportunities and growth prospects to the rest of the group’s operations.
  • We are not surprised by this acquisition as management has already highlighted intentions of expanding further into specialty chemicals. Recall that PChem acquired BRB Group (formerly known as the Da Vinci Group, NV), a leading global independent producer and formulator of silicones, lube oil additives and chemicals, for €163mil (RM761mil) in Sep 2019.
  • Established more than 140 years ago in Sweden, Perstorp is a leading niche specialty chemicals player in resins & coatings, engineered fluids and animal nutrition markets. With 7 manufacturing sites and 3 research and development centres worldwide, Perstorp is present in 26 countries including the US, Europe and the Asia Pacific region.
  • Perstorp has 1,500 employees and serves over 2,600 customers globally with 130 product offerings within 30 product groups. It is the global leader in products such as trimethylolpropane and pentaerythritol, and is recognised for its proprietary oxo and polyol chemistries. The company has developed a number of solutions such as the production of sustainable methanol from carbon dioxide, residue streams, biogas and green hydrogen at its Stenungsund site to replace a large portion of its fossil-based methanol feedstock by 2026.
  • All in, we remain bullish on PChem’s earnings prospects given the strong correlation to its share price as firmer naphtha costs will support petrochemical product prices. Hence, we expect stable near-term earnings as Brent crude oil prices were recently traded at or above the US$100/barrel threshold vs. a 4Q2021 average of US$79/barrel.
  • Given the improving earnings prospects of the group’s PIC operation in tandem with improved petrochemical price prospects, PChem currently trades at an attractive FY23F EV/EBITDA of 7x, below its 2-year average of 8x and offers compelling dividend yields of 5%.


 

Source: AmInvest Research - 18 May 2022

Labels: PCHEM
  Be the first to like this.
 

Petronas Chemicals Group - Strong synergies from Perstorp acquisition

Author: AmInvest   |  Publish date: Wed, 18 May 2022, 4:12 PM


Investment Highlights

  • We reiterate our BUY call on Petronas Chemicals Group (PChem) with unchanged forecasts and fair value of RM11.10/share, pegged to an unchanged FY23F EV/EBITDA of 8x and a premium of 3% for our ESG rating of 4 stars. This is at parity to PChem’s 2-year EV/EBITDA average against the backdrop of elevated oil prices at US$100/barrel currently.
  • We attended the group’s analyst briefing today on the proposed acquisition of the entire equity interest in Sweden-based Perstorp Holding AB for €1.54bil (RM7bil or 9% of PChem’s market cap) cash from European private equity firm, PAI Partners. These are the salient highlights:
  • The transaction represents part of PChem’s organic and inorganic growth strategy to build an additional 30% of revenue stream from non-traditional businesses by 2030. These involve specialty chemical pathways classified into: 1) food, feed and nutrition; 2) industrial additives; and 3) surfactants, household, industrial & institutional (HIBI) and personal care.
  • Perstorp is a niche specialty chemicals manufacturer with a global presence and growing exposure to ESG trends which offer sustainable products with margins that are 10%–15% higher than conventional commodities.
  • PChem plans to fully fund the entire enterprise value of RM10.5bil, including Perstop’s debt of €852mil (RM4bil) from its end-4QFY21 gross cash reserves of RM16bil as the acquiree’s cost of debt is currently high at 5%–6% given an FY21 net debt/EBITDA of 3x.
  • Post-acquisition, management plans to refinance at a lower interest rate, backed by PChem’s stronger credit profile which has a net cash balance of RM14bil.
  • Perstorp has 7 manufacturing sites globally (Exhibit 1) and does not derive any feedstock from Ukraine or Russia. It has ceased all business dealings with Russian customers, who have been a minor market for the group.
  • Europe, the Middle East and Africa made up 55% of Perstorp’s 1Q2022 revenue, Americas 21% and Asia Pacific 24%.
  • Perstorp’s €100mil–200mil annual capex for maintenence and growth will largely involve sustainable products such as green methanol under Project Air. These will expand the company’s current production capacity by 10% over the next 2–3 years and further entrench PChem’s ESG aspirations.
  • Management expects strong complementary synergies given that Perstorp’s methanol feedstock is among PChem’s core product segments.
  • All in, we remain positive on the proposed acquisition, which will strengthen PChem’s basic petrochemicals portfolio and accelerate its expansion into higher margin derivatives, specialty chemicals and solutions. This involves end-markets such as paints and coatings, construction, automotive, personal care and food, feed and nutrition, and access to common end markets which offer significant cross-selling opportunities and growth prospects to the rest of the group’s operations.
  • We also remain bullish on PChem’s earnings prospects given the strong correlation to its share price as firmer naphtha costs will support petrochemical product prices. Hence, we expect stable near-term earnings as Brent crude oil prices have recently traded at or above the US$100/barrel threshold vs. a 4Q2021 average of US$79/barrel.
  • Given the improving earnings prospects of the group’s PIC operation in tandem with improved petrochemical price prospects, PChem currently trades at an attractive FY23F EV/EBITDA of 7x, below its 2-year average of 8x and offers compelling dividend yields of 5%.


 

Source: AmInvest Research - 18 May 2022

Labels: PCHEM
  Be the first to like this.
 

Dialog Group - Stabilising earnings and project costs

Author: AmInvest   |  Publish date: Wed, 18 May 2022, 10:06 AM


Investment Highlights

  • We maintain BUY on Dialog Group with a lowered sum-of-partsbased (SOP) fair value of RM3.66/share (from an earlier RM3.75/share), which reflects a neutral ESG rating of 3 stars. This also implies a CY23F PE of 32x, near its 5-year average of 31x.
  • We reduce FY22F–FY24F earnings by 5%–10% largely due to higher project cost assumptions as Dialog’s 9MFY22 core net profit of RM390mil (-1% YoY) came in below expectations, accounting for 65% of our FY22F earnings and 69% of street’s. As a comparison, 9M accounted for 70%–76% of annual net profits over the past 3 years. Nevertheless, the group declared a slightly higher interim dividend of 1.3 sen (+0.1 sen YoY).
  • Dialog’s 3QFY22 net profit rose 4% QoQ to RM133mil from a 9% revenue increase to RM593mil as project execution improved slightly amid the relaxation of movement restrictions. This was partly offset by a 19% QoQ reduction in associate contribution to RM55mil on lower tank storage and utilisation rates given oil futures price backwardation currently and dwindling global supplies.
  • However, 3QFY22 EBITDA margin rose slightly by 1% point to 24.7% on slightly improved project costs, which remain pressured by high raw material/logistics costs driven by global supply chain disruptions.
  • While most of the group’s 9MFY22 pretax of RM424mil (-4% YoY) stemmed from Malaysia, the domestic share slid 2% points YoY to 92% with the Middle East rising to 7% from 3% previously from heightened regional oil & gas activities at the Jubail supply base in Saudi Arabia.
  • Looking forward, the group is endeavouring to recover the additional costs caused by Covid-19-related restrictions from clients together with higher raw material costs. Nevertheless, we have adopted more conservative margin assumptions given that past cost-compensation negotiations with clients are likely to be protracted. Even so, we are confident that Dialog, which has demonstrated savvy prudence during the pandemic, can safely navigate the current inflationary regime with further relaxation in foreign labour constraints.
  • We expect the group’s 4QFY22 earnings delivery to remain steady given the full-year contribution of Dialog Pengerang Phase 5’s 430K m3 capacity together with Tanjung Langsat 3 terminal's additional 85K m3 capacity by the end of 2021 against the backdrop of rising global economic activities. Longer term, the group still has ample acreage to double its Pengerang storage capacity with a remaining 500-acre zone comprising reclaimable land and the adjoining buffer zone.
  • Dialog currently trades at an attractive CY23F PE of 20x, well below its 5-year mean of 31x. We believe Dialog deserves above-peer premium valuations given its long-term recurring cash flow-generating businesses which are further underpinned by the Pengerang development’s multi-year value re-rating bonanza and low net gearing levels.

Source: AmInvest Research - 18 May 2022

Labels: DIALOG
  Be the first to like this.
 

Kim Loong - High ROE supported by healthy dividend payouts

Author: AmInvest   |  Publish date: Wed, 18 May 2022, 10:05 AM


Investment Highlights

  • We initiate coverage on Kim Loong Resources (KLR) with a HOLD recommendation on KLR and a fair value of RM2.05/share, as part of Bursa Malaysia’s RISE Scheme. We. Our fair value for KLR is based on FY24F fully diluted PE of 18x, which we use to value Hap Seng Plantations and TSH Resources. We ascribe a 3-star ESG rating to KLR.
  • Although KLR is fundamentally sound, we reckon that the group would be affected by the decline in CPO prices in 2H2022. We estimate that KLR’s net profit would fall by 5% for every RM100/tonne decrease in CPO price.
  • What differentiates KLR from other plantation companies is its high return on equity (ROE), which is underpinned by a high dividend payout of more than 60%. We forecast KLR’s ROE to be 22.6% in FY23F vs. 17.6% in FY22.
  • KLR’s earnings are generated almost equally by the milling and plantation divisions. Depending on the level of CPO prices and availability of FFB supply, milling can be more profitable than the plantation unit.
  • Pre-tax profit margin of KLR’s milling division was 5.8% in FY22 vs. the plantation unit’s 56.4%. Milling accounted for 44.5% of KLR’s pre-tax profit in FY22 while plantation made up a larger 55.5%.
  • Most of KLR’s plantation earnings come from its oil palm estates in Sabah. As at end-January 2021, KLR had planted landbank of 15,500ha in Malaysia. Out of these, 11,918ha were in Sabah, 1,133ha in Johor and 2,449ha in Sarawak. Average age of KLR’s oil palm trees is 13 years old.
  • KLR has strong free cash flows as its capex is low. The positive free cash flows allow the group to return a substantial amount of cash to shareholders every year. Dividend payouts ranged from 68% to 107% from FY18 to FY22.
  • KLR has low capex requirements as most of its landbank has already been planted. Annual capex consists mainly of replanting and maintenance of housing and infrastructure. We forecast a capex of RM40mil in FY23F compared with RM99.1mil in FY22.
  • KLR is currently trading at FYE1/24F PE of 17.0x vs. Hap Seng Plantations’ FYE12/23F PE of 22.7x and TSH Resources’ FYE12/23F PE of 17.8. KLR’s FYE1/24F dividend yield is forecast to be 6.2%.


 

Source: AmInvest Research - 18 May 2022

Labels: KMLOONG
  Be the first to like this.
 

FX Daily - Daily Highlights

Author: AmInvest   |  Publish date: Wed, 18 May 2022, 10:04 AM


  • Hopes for end to Shanghai lockdown reignite risk-on mode
  • MYR to fluctuate between 4.3850 and 4.4150 against USD

Global Highlights

Dollar Index The dollar extended its falling trend for the fourth consecutive session as it fell 0.79% to 103.36 as market players returned to risk-on mode. On the data front, retail sales in the US grew 0.9% m/m in April 2022 after a 1.4% growth in March and line with the market forecast. This indicates that consumer spending remained robust despite the high inflation although this is the slowest retail sales growth in four months. On a side note, the US Fed chair Jerome Powell stated last night that he will back rises in the interest rate until consumer prices start normalizing towards a “healthy level”, signalling that the Fed’s plan to raise interest rate will not be deterred by the recent pullback in inflation reading. He also warned that the economy could be hurt by the attempt.

US equities & sovereign bonds Wall Street turned green, rebounding from the previous losses as the Dow Jones rose 1.34% to 32,655, S&P 500 climbed 2.02% to 4,089 while the Nasdaq surged 2.76% to 11,985. The better performance was due to positive earnings results and economic data released throughout the day, providing something for market players to cheer about. The UST10Y benchmark added 10.4bps to 2.986%, while the UST2Y was at 2.700%, and bringing the differential yields to 28.5bps.

Euro Along with the recovery of the risk-on sentiment, the euro added 1.11% to 1.055. The 2nd Est of Euro Area’s GDP growth rate for the first quarter of 2021 was revised higher to 5.1% y/y from the initial 5.0% and above 4.7% in the previous period as countries rebounded from Covid-19 infections last year. One of ECB’s officials, Francois VIlleroy, stated on Monday that policymakers will monitor the development in the foreign exchange market, indicating their unwillingness to let the currency becomes too weak.

British pound The pound stretched its winning position as it climbed 1.41% to 1.249, the highest this week, benefitting from the recent upbeat labour market data. The unemployment rate in the UK fell to its lowest since 1974 at 3.7%, beating the market’s forecast of 3.8%. Also, average weekly earnings including bonuses expanded by 7.0% y/y, much higher than the market forecast of 5.4%. Adjusted for inflation, the regular pay declined by 1.2%, the sharpest fall since 2013, noting the high living costs in the UK.

Japanese yen The yen weakened 0.17% to 129.38, retreating from the recent two-week high it touched last week. The Japan Tertiary Industry Index rose 1.3% m/m in March 2022, stronger than expectations of 1.1% m/m and the biggest increase in 5 months.

Chinese yuan The yuan surged by 0.71% to 6.738 as it tried to recover losses made in the past one month. The risk-on mode in the global currency market was driven mainly by the easing of pandemic-related restrictions in Shanghai and a higher likelihood for it to end in the near future despite the sour economic data released this week. Authorities in Shanghai stated that they are targeting for the restrictions to end by 1 June 2022 over six weeks of lockdown.

Korean won – The won strengthened 0.72% to 1,274.90, taking cues from the more aggressive BoK comments recently.

Australian dollar – The Aussie dollar continued its bull run for the third session as it rose 0.83% to 0.703 after minutes of the Reserve Bank of Australia’s May meeting showed that the board is increasingly hawkish. The board considered a larger 40bps rate hike, before agreeing to a more modest 25bps rate increase and it is prepared to raise the cash rate by larger increments at upcoming meetings to tame inflation, if needed.

Commodities Highlights

Crude oil – Oil prices fell following the possibility that the US will ease some of the restrictions on Venezuela’s government, rekindling hopes for new oil supplies. Brent tumbled 2.02% to US$111 per barrel while WTI nose-dived 1.58% to US$112 per barrel.

Gold – The gold price fell further by 0.49% to 0.49% to US$1,815/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit appreciated slightly by 0.06% to 4.390 and traded within the range of 4.396 and 4.3865.

KLSE – The FBM KLCI edged up 0.27% to 1,549 amidst positive regional and major indices. Detailed transactions showed that local institutions were net buyers with RM57.7mil, offset by local retailers (RM5.7mil) and foreign investors’ (RM51.9mil) net selling flow.

Fixed Income – The MGS benchmark for the 5-year remained at 4.010%, while the 3-year was +0.5bps to 3.675%, 7-year +0.5bps to 4.435%, while the 10- year +2.0bps to 4.460%.

Rates – The IRS yield curve flattened with the (3Y) +6.5bps to 3.725%, (5Y) +2.5bps to 3.930%, (7Y) +1.0bps to 4.100%, while the (10Y) -4.5bps to 4.250%.

Against major currencies – The ringgit had the upper hand against the JPY, PHP and VND but fell against the EUR, GBP, CNY, AUD, SGD THB and IDR.

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.3800 and 4.3850 while our resistance is pinned at 4.4150 and 4.4350


 

Source: AmInvest Research - 18 May 2022

  Be the first to like this.
 

Stocks on Radar - Mycron Steel

Author: AmInvest   |  Publish date: Wed, 18 May 2022, 10:02 AM


Mycron Steel broke out from its 1-month bullish triangle pattern two candles back, implying that its previous uptrend may have resumed. With the stock posting another white candle and pushing near its 52-week high, the bullish momentum may be present now. A bullish bias may emerge above the RM0.725 level, with a stop-loss set at RM0.68, below 13 May’s low. Towards the upside, the near-term resistance level is seen at RM0.85, followed by RM0.90.

Entry : RM0.725–0.77

Target : RM0.85, RM0.90

Exit : RM0.68


 

Source: AmInvest Research - 18 May 2022

Labels: MYCRON
  Be the first to like this.
 

Mr. D.I.Y. Group (M) - Temporary hiccup; margin to gradually recover

Author: AmInvest   |  Publish date: Tue, 17 May 2022, 10:20 AM


Investment Highlights

  • We maintain our BUY call with a lower DCF-based fair value of RM4.10 (from RM4.45) due to reduced earnings. No changes to WACC of 6.4% and terminal growth rate of 1.5% in our DCF valuation assumptions.
  • MR D.I.Y. Group (M)’s (MR DIY) 1Q22 core net profit of RM101mil (-25% QoQ, -19% YoY) was below our and consensus’ expectations, accounting for 17% of our earlier FY22F earnings and 16% of consensus estimates. The negative variance is mainly attributed to the deterioration of gross margin and lower-than-expected sales. The company declared an interim dividend of 0.70 sen per share, which implies a payout ratio of 44%, in line with our expectation.
  • Post-results, we trim our 2022F earnings by 17% to reflect the lower-than-expected 1QFY22 earnings with a reduction in gross margin assumption to 42% from 43.5% for FY22F and 43% from 44.5% for FY23F. We also cut 2023F earnings by 15% and 2024F by 7% after imputing more conservative sales growth assumptions.
  • MR DIY’s revenue declined 7% QoQ due to lower number of transactions and basket size, in tandem with the rise in Covid- 19 cases in February and March (Exhibit 3). However, the company’s revenue grew 4% YoY despite same-store sales growth (SSSG) falling 11%, driven by the higher number of stores at 947 outlets vs. 788 in 1Q21.
  • The company maintains its 180 new stores target for 2022 (vs. our forecast of 175 stores), which predominantly will be in MR DIY and MR DIY Express formats. MR DIY added 47 net new stores in 1Q22, and is on track to achieve its target. Notably, 1Q22 average capex per store is lower at RM555K compared to RM667K in 1Q21 due to the inclusion of the smaller MR DIY Express store format.
  • 1Q22 gross margin dipped 1.2% points QoQ and 2.9% points YoY as a result of higher input and freight costs. Nevertheless, now that the “Price Lock” promotional campaign has ended, the company is revising product prices, taking rising costs into account. This is expected to result in a GP margin recovery by 1–2% points in the upcoming quarters.
  • We continue to like the stock as an inflationary environment would benefit MR DIY as consumers gravitate towards cheaper options to shop for household essentials. The company’s future earnings will be driven by its growing store network and expanding its catchment area while the temporary deterioration in margin may be offset by the ASP revision.
  • At 45x 2022F PE, the company is trading below its historical 2- year average of 50x (Exhibit 7).


 

Source: AmInvest Research - 17 May 2022

Labels: MRDIY
  Be the first to like this.
 

Inari Amerton - Commendable 9MFY22 performance

Author: AmInvest   |  Publish date: Tue, 17 May 2022, 10:19 AM


Investment Highlights

  • We maintain our BUY call on Inari Amertron (Inari) with a slightly higher fair value of RM3.72/share (previously RM3.69/share). Our target price is now pegged to a rolledforward CY23F PE of 25x (previously CY22F PE of 28x).
  • Our target PE represents a 30% premium above average peer CY23F PE of 19x for outsourced semiconductor assembly and test (OSAT) companies, reflecting the company’s position as a proxy for 5G applications growth through its radio frequency (RF) offerings. We maintain our 4-star ESG rating, which translates to a 3% premium to Inari’s fair value (Exhibit 4).
  • Our forecasts are unchanged as Inari’s 9MFY22 core profit of RM302mil (+28% YoY) came in within expectations on the back of resilient semiconductor demand. The results accounted for 77% of our FY22F earnings and 76% of consensus.
  • On a QoQ basis, 3QFY22 revenue fell 14% to RM360mil, which led to core profit contracting 18% to RM88mil. We view the seasonal decline as normal given that the group’s stronger performance during the calendar year-end typically matches the launch cycles of new products.
  • On a YoY basis however, 3QFY22 revenue grew 5% while core profit surged by 18%. The increase is primarily driven by: (i) a stronger USD; (ii) 5%-point increase in EBITDA margin to 35%; and (iii) 2.4x Surge in Interest Income From Fund Placements.
  • The group has declared a dividend of 2.2 sen for the quarter under review, translating to a dividend payout ratio of 94%. However, we view that the high payout ratio will not affect the group’s expansion plans given its robust net cash position of RM2bil (21% of market cap) as of March 2022.
  • The World Semiconductor Trade Statistics (WSTS) has raised global semiconductor sales growth in 2022 from 8.8% to 10%, reaching US$614bil. However, we note that global 5G smartphone sales penetration has surpassed 4G since January 2022. As Inari’s sales are concentrated in the smartphone business (65% in 1HFY22), we are of view that the segment’s growth may start to taper as higher 5G smartphone penetration could mean lower demand for upgrades from 4G.
  • In addition, Inari derived RM98mil or 8% of its 9MFY22 revenue from China. As local regulators remain firm on the zero-Covid policy, we remain cautious on this headwind and its repercussions. We expect further guidance from management on the lockdown impact and mitigation plan, as well as progress on its segment diversification in an investor briefing later today.
  • Nonetheless, we remain upbeat on Inari’s fundamentals and outlook. The group’s long-term prospects stem from:
    (i) the resilience of its RF earnings and margin due to higher chip complexity in 5G devices and its applications;
    (ii) strong net cash position of RM2bil as at March 2022, which translates to 21% of its market cap; and
    (iii) its plans to enhance and diversify revenue streams via joint ventures in outsourced semiconductor assembly and test manufacturing in China.


 

Source: AmInvest Research - 17 May 2022

Labels: INARI
  Be the first to like this.
 

Pentamaster Corp - All-time order book high of RM500mil

Author: AmInvest   |  Publish date: Tue, 17 May 2022, 10:18 AM


Investment Highlights

  • We upgrade our call on Pentamaster Corp (Pentamaster) to BUY from HOLD with a higher fair value of RM4.03/share (previously RM3.52/share), pegged to an unchanged FY23F PE of 23x. The target PE is 0.5 standard deviation below the group’s 3-year average forward PE of 31x. We make no adjustment to our 3-star ESG rating (Exhibit 3).
  • While our FY22F earnings remain largely unchanged, we raise our forecast earnings by 14–16% to RM125mil in FY23F and RM139mil in FY24F. This is premised on the group’s stronger-than-expected order book growth and higher average selling price (ASP), which enable the group to maintain its EBIT margin of 23% in the current inflationary environment, subsequently stabilising at 25% from FY23F onwards.
  • We attended Pentamaster’s 1QFY22 investors briefing last Friday, and here are the key takeaways:
    • Pentamaster’s order book grew 2.5x YoY, reaching an all-time high of RM500mil as of May 2022. 70% of the order book secured are by the automated test equipment (ATE) division, while the remaining 30% are from factory automated solutions (FAS). By industry segmentation, 40% of the order book are contributed by the automotive division.
    • Barring any unforeseen circumstances, the group expects the order book to be recognised in 6 to 9 months’ time, as communicated to its customers. Of the RM500mil order book, we learned that 60% are derived from new customers’ orders, which the group managed to negotiate for higher ASPs of up to 12%. We have factored in the higher ASP into our FY23F–24F revenue assumptions.
    • The group’s rising automotive segment will continue to drive the group’s growth, which management guided that its top 5 customers are in this division. Together, they contributed 58% of the group’s 1QFY22 total revenue.
    • Meanwhile, more than 40% of Pentamaster’s 1QFY22 revenue are derived from China. However, while local regulators remain committed to the zero-Covid policy, the group view the impact as mostly mitigated by its diversified customer base in China as the lockdown is largely limited to Shanghai. To note, the group also has customers in Suzhou, Shenzhen, Beijing and Chengdu.
  • In terms of capex, the group acquired a piece of leasehold land in Batu Kawan for RM28mil for its Campus 3 expansion. The proposed facility will add 600K sq ft of production space to cater for the growing FAS and medical devices segment, enabling Pentamaster to achieve its aspiration of 20% topline growth YoY to reach RM1bil by FY25F. Presently, the group’s headquarters has 140K sq ft for a design centre and prototyping while Campus 2 has 97K sq ft for contract manufacturing.
  • The management foresees Phase 1 of the Campus 3 to be completed by 1H2023 with Phase 2 in 2H2023. Furthermore, the group will be setting up a Germany office in 2H2022 in order to be closer to its customers and is looking into Middle East and Indonesia expansions for its warehouse solutions, riding on the regions’ growing ecommerce.
  • The stock currently trades at a bargain FY23F PE of 20x, substantively below the 3-year average PE of 31x. We are upbeat on the group’s prospects, as demonstrated by its commendable results and growth in the automotive segment. Pentamaster’s robust outlook continues to be supported by its:
    (i) portfolio diversification efforts across market segments and expansion of customer base;
    (ii) growth in FAS supported by the adoption of Industry 4.0; and
    (iii) robust offerings in automotive segment, which is able to provide solutions for both front-end and back-end customers.


 

Source: AmInvest Research - 17 May 2022

Labels: PENTA
  Be the first to like this.
 

Plantation - News flow for week 9-13 May

Author: AmInvest   |  Publish date: Tue, 17 May 2022, 10:16 AM


  • Bloomberg reported that global wheat prices are so high that African consumers are starting to remove the grain from their diet. Food producers in Kenya, Egypt, Democratic Republic of Congo, Nigeria and Cameroon say they are mixing cheaper alternatives into their breads, pastries and pasta. Local rice, manioc flour and sorghum are substituting for wheat, which has spiked about 40% this year. The domestic crops are less exposed to trade disruptions and global inflation, thus offering some protection from food prices.
  • According to Bloomberg also, India is planning to cut taxes on some edible oils to cool the domestic market after the war in Ukraine and Indonesia’s export ban on palm products sent prices skyrocketing. India is looking to cut the agriculture infrastructure and development cess on crude palm oil imports from 5%. The new tax amount is still being deliberated, according to sources. The cess is levied over and above basic tax rates on certain items and is used to finance agriculture infrastructure projects.
  • Bloomberg quoted an official with the Indonesia Palm Oil Association as saying that the export ban on crude and refined palm products may be lifted in 2 to 4 weeks’ time. This is so that the country can maximise the opportunity to meet demand from Europe during the current situation of tight supply.
  • The USDA has released its latest demand and supply projections for vegetable oils. In the report, the USDA introduced its projections for 2022F/2023F for the first time. The USDA has forecast US soybean inventory to increase to 310mil in 2022F/2023F from 235mil bushels in 2021/2022F. US soybean production is expected to rise by 4.6% to 4,640mil in 2022F/2023F on the back of higher planted areas. World soybean inventory is also envisaged to be higher at 99.6mil tonnes in 2022F/2023F vs. 85.2mil tonnes in 2021/2022F due to higher production in Argentina and Brazil. Soybean production in Brazil is anticipated to climb to 149mil tonnes in 2022F/2023F from 125mil tonnes in 2021/2022F while in Argentina, soybean output is expected to increase by 21.4% to 51mil tonnes. Recall that in 2021/2022F, soybean production in South America was severely affected by the drought.
  • Reuters quoted Agrinvest Commodities as saying that Brazilian farmers will raise soybean plantings by 1.5% next season. Brazil planted 40.8mil hectares of soybeans in 2021/2022F, a 4.1% expansion. Based on a survey, Agrinvest said that 72% of farmers intended to increase their planted areas in September with 40% saying that they would expand plantings above 5% and 32% by up to 5%. In relation to the use of fertiliser, 64% said that they would reduce applications by up to 20% while 15% sad that they would cut fertiliser use above that level. An industry expert said that it is open for debate whether soy yields will be affected by reduced applications. This is because Brazil is large and heterogeneous and the analysis is on a case-by-case basis.


 

Source: AmInvest Research - 17 May 2022

  Be the first to like this.
 

FX Daily - Daily Highlights

Author: AmInvest   |  Publish date: Tue, 17 May 2022, 10:16 AM


  • Malaysia’s economy grew by 5.0% y/y in first quarter

Global Highlights

Dollar Index The dollar posted a 0.36% decline to trade around 104.187. New York Fed president John Williams earlier said that the recent volatility in the financial market was expected due to uncertainty in the global economy. He also added that real rates need to return to zero within the next year.

US equities and sovereign bonds Wall Street was mixed with the Dow Jones gaining 0.08% to 32,223, the S&P 500 down 0.39% to 4,008 and the Nasdaq sliding 1.20% to 11,663. The yield differential between the UST10 and MGS10 was around 154bps Also, the yield differential between the UST10 and UST2 was 31.24bps where the UST2 was at 2.57%

Euro The euro gained 0.21% to 1.043. The European Commission (EC) has slashed its growth forecast outlook for the euro due to the ongoing war in Ukraine that further disrupts supply chain and pushing up energy prices. The EC now expects the Eurozone to expand by 2.7% this year, lower than the previous expectation of 4.0%.

British pound The pound rose 0.46% to 1.232. The Bank of England’s Michael Saunders, a voting member of the monetary policy committee, had said that Brexit may have made the UK’s inflation situation worse. Governor Andrew Bailey on the other hand, said that the high inflation is something that the central bank could not contain as it was mainly driven by external factors, including the war in Ukraine and slower growth in China.

Japanese yen The yen climbed 0.05% to 129.160. Japan’s wholesale price increased by 10.0% in April, making this the sharpest rise since the data was first collected in 1981. The primary reason was higher global commodity prices due to the situation in Ukraine. The higher energy and raw goods prices are expected to reduce corporates’ profit, and perhaps push consumer prices higher as more companies are expected to shift the rising costs to consumers.

Chinese yuan The yuan added 0.06% to 6.786. Macro indicators in China have signalled that the economy is paying its price due to the zero-Covid policy. The latest industrial production showed that the index fell by 2.9% y/y in April, the first decline since March 2020 during the early stages of the outbreak. China’s PMI continued to remain below the expansion threshold, suggesting that recovery is unlikely to occur soon.

Korean won The won slid 0.03% to 1,284.180. The Bank of Korea’s governor is not ruling a higher interest rate increase in the coming months due to interest rate premium as the Fed has become more hawkish towards its monetary policy. Currently, the interest rate stood at 1.50%.

Australian dollar – The Aussie dollar edged up 0.45% to 0.697. The general election will be held on 21 May, where economic issues such as high cost of living will be the main concern as Australians head to the poll. Recent inflation stood at 5.1% y/y, the highest reading relative to the past 10 years that forced the Reserve Bank of Australia (RBA) to hike the interest rates.

Commodities Highlights

Crude oil – Brent gained 2.41% to US$114.24 per barrel, and WTI up by 3.36% to US$114.20 per barrel.

Gold – The gold price was up 0.68% to US$1,824.14/oz.

Malaysia Highlights

Malaysian ringgit – The ringgit increased 0.14% to 4.393. Malaysia’s economy in the first quarter of 2022 grew by 5.0% y/y on the back of strong exports growth, robust production in the manufacturing sector and spending in the services sector. We maintain our growth forecast of 5.6% this year (base case), with an upside of 6.0% and downside of 4.5%.

KLSE – Bursa Malaysia was closed on Monday due to public holiday. The FBM KLCI was last seen at 1,544.

Fixed Income – The MGS benchmark for the 3-year down by 4.0bps to 3.670%, 5-year down 5.0bps to 4.010%, 7-year down 6.0bps to 4.430%, and 10-year down 1.0bps to 4.440%.

Rates – The IRS yield was unchanged on Monday due to public holiday. The (3Y) was at 3.672%, (5Y) at 4.022%, (7Y) at 4.424%, and (10Y) at 4.426%.

Against major currencies – The ringgit slid against the AUD, but gained against the JPY, CNY, THB, IDR, and VND, while unchanged against the EUR, GBP, SGD, and PHP.

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.3800 and 4.4100 while our resistance is pinned at 4.4150 and 4.4350


 

Source: AmInvest Research - 17 May 2022

  Be the first to like this.
 

Stocks on Radar - Texchem Resources

Author: AmInvest   |  Publish date: Tue, 17 May 2022, 10:14 AM


Texchem Resources’ buying interest is back after it broke out of the 2-week bullish flag pattern with a long white candle on Friday. As the stock closed at its all-time high, supported by its rising EMAs, this likely indicates that the upward momentum may be picking up. A bullish bias may emerge above the RM3.00 level, with a stop-loss set at RM2.68, below 10 May’s low. Towards the upside, the near-term resistance level is seen at RM3.50, followed by RM3.60.

Entry : RM3.00–3.15

Target : RM3.50, RM3.60

Exit : RM2.68


 

Source: AmInvest Research - 17 May 2022

Labels: TEXCHEM
  Be the first to like this.
 

FX Daily - Daily Highlights

Author: AmInvest   |  Publish date: Fri, 13 May 2022, 4:35 PM


  • Dollar hits 104-level on the back of safe-haven allure
  • MYR to fluctuate between 4.3900 and 4.4200 against USD

Global Highlights

Dollar Index The greenback hit a new 20-year high, rising 0.97% on daily changes to 104.85 due to its safe-haven lure amidst market’s worries that central banks’ policy path could pose major challenges for global growth. The worries intensified following the release of US inflation data that came in higher than expected despite the pullback. On the data front, producer prices in the US rose 0.5% m/m (cons.: 0.5%), much slower compared to the previous month of 1.6% m/m. On a yearly basis, it climbed 11%, higher than what the market expects (cons. 10.7%). Meanwhile, the weekly labour market indicator showed that the number of new claims for unemployment benefit increased to 203K last week, the highest reading since Feb’22.

US equities and sovereign bonds Overnight, Wall Street was mixed when the Dow Jones fell 0.33% to 31,730 and the S&P 500 declined 0.13% to 3,930. However, the tech heavyweight Nasdaq gained 0.06% to 11,371. The benchmark UST10Y fell 7.3bps to 2.848%, making the UST10/2 yield spread to hover around 29bps when the UST2 was at 2.559%.

Euro Despite the recent tone shift by the European Central Bank (ECB), the sentiment surrounding the euro remained grim. It tumbled 1.27% to 1.038, touching a new 5-year low. ECB official Gabriel Makhlouf called for the Governing Council to start acting on inflation, further adding a hawkish note on behalf of the ECB.

British pound The pound shed 0.40% to 1.220. The British economy grew 8.7% y/y during the first quarter of 2022, which is higher than the 6.6% in 4Q21, but still below the market forecast of 9.0%. Growth was driven by the services sector (9.9%), production (2.0%) and construction (7.4%).

Japanese yen The yen strengthened 1.25% to 128.34, the fastest gain made this week. According to BoJ officials’ summary of opinions at the April meeting, it is unsuitable to change the monetary policy for the sole purpose of controlling the exchange rate amidst weak recovery.

Chinese yuan The yuan weakened 0.96% to 6.786 following the People’s Bank of China’s (PBoC) statement that it will put stabilising domestic economic growth a “top priority” and further enhance support for shaky sectors. This is a sign that the central bank is ready to use more easing tools amidst a rising interest rate environment.

Korean won The won depreciated 1.09% to 1,289. On the political front, South Korea elected a new president Yoon Suk-yeol who is expected to face tough challenges such as the US-China relation dynamic, North Korean threat and growing income inequality domestically.

Australian dollar The Aussie dollar nose-dived 1.18% to 0.686, the lowest level since June 2020. The final figure of seasonally adjusted building permits contracted 18.5% m/m in Mar 2022 after a 42% growth in the prior month.

Commodities Highlights

Crude oil The oil market was mixed when the Brent edged 0.06% lower to US$107 per barrel while WTI inched higher by 0.40% to US$106 per barrel amidst thin trading. The possibilities of the EU banning oil from Russia could push prices higher but downside factors such slowing China economic growth and an aggressive US Fed in its policy path outweigh the rise in oil prices.

Gold The gold price tumbled 1.65% to US$1,821/oz.

Malaysia Highlights

Malaysian ringgit The ringgit dipped 0.39% to 4.394, which is the weakest level it reached in Mar’2020. The local currency was traded within the range of 4.394 and 4.3752. Based on data, distributive trade increased 10.8% y/y in Mar’22, faster than the 10.2% gain in the previous month. It marked the sixth straight month of increase in retail sales amid the lifting of Covid-19 restrictions.

KLSE The FBM KLCI lost 1.10% to 1,539 amidst weaker major and regional indices as investors became less risky. Detailed transactions showed that both local retailers and institutions were net buyers with RM103.8mil and RM41.4mil, respectively, while being offset by foreign investors selling flow of RM145.2mil.

Fixed Income The benchmark MGS yields steepened as the 3-year -12.0bps to 3.710%, 5-year -6.5bps to 4.060%, 7-year -3.0bps to 4.490%, but the 10-year +7.0bps to 4.450%.

Rates The IRS yield curve fell across the board: the (3Y) was -15.0bps to 3.655%, (5Y) -17.5bps to 3.920%, (7Y) -17.5bps to 4.090% and (10Y) -20.0bps to 4.270%.

Against major currencies The ringgit held the upper hand against the EUR, GBP, AUD, CNY, SGD, PHP and VND but lost against the JPY, THB and IDR.

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.3700 and 4.3900 while our resistance is pinned at 4.4000 and 4.4200


 

Source: AmInvest Research - 13 May 2022

  Be the first to like this.
 

Pentamaster Corp - Contribution from automotive segment up 4.6x YoY

Author: AmInvest   |  Publish date: Fri, 13 May 2022, 9:35 AM


Investment Highlights

  • We maintain our HOLD call on Pentamaster Corp (Pentamaster) with a higher fair value of RM3.52/share (previously RM3.24/share), pegged to a rolled-forward FY23F PE of 23x. The revised target PE, from an earlier 24x, represents a 0.5 standard deviation below the group’s 3-year average forward PE. We make no adjustment to our 3-star ESG rating.
  • We reduce our earnings slightly by 6–7% to RM91mil in FY22F, RM109mil in FY23F and RM120mil and FY24F by lowering growth assumptions for the electro-optical segment, partly offset by an increase in the automotive division.
  • Pentamaster’s 1QFY22 core profit of RM21mil increased 24% YoY and 52% QoQ. However, the results were slightly below expectations, coming in at 21% of ours and and 22% of consensus estimates.
  • The automated test equipment (ATE) division continued to be the largest contributor to the group’s top line at 78%. ATE’s 1QFY22 revenue surged 62% YoY to RM131mil on the back of substantively stronger contribution from the automotive segment, which escalated 4.6x YoY, and accounted for 36% of group revenue. Meanwhile, 1QFY22 electro-optical sales, which contributed 30% of group revenue, declined by 32% to RM44mil due to lower smart sensor development.
  • All in, ATE PBT improved 27% YoY and 33% QoQ to RM33mil. While the growth is commendable, the group indicates further upside could be attained, which was partly offset by cost pressures, key component shortages and higher logistics costs. Notably, the group’s inventory rose 19% QoQ and 2x YoY to RM86mil from management’s strategy of mitigating supply risk disruptions and longer lead delivery schedules.
  • Sales for factory automated solutions (FAS) contributed 22% of Pentamaster’s 1QFY22 revenue, a slight decrease of 8.9% YoY. This was due to the timing of revenue recognition from projects, which inherently requires longer project lead time.
  • Nonetheless, we remain upbeat on the FAS segment, driven by massive shift in trends towards factory automation in a postpandemic environment, and exacerbated by rising labour cost amid inflationary pressures. Despite the decrease in revenue, FAS PBT improved 62% YoY to RM3.6mil, compared to RM2.2mil in the previous year.
  • While the stock is fairly valued with limited upside at its current price, Pentamaster’s robust outlook continues to be supported by its:
    (i) portfolio diversification efforts across market segments and expansion of customer base;
    (ii) growth in FAS supported by the adoption of Industry 4.0; and
    (iii) strategic position to capture strong growth in key EV markets, such as Japan.


 

Source: AmInvest Research - 13 May 2022

Labels: PENTA
  Be the first to like this.
 

Plantation - Key takeaways from Bumitama's conference call

Author: AmInvest   |  Publish date: Fri, 13 May 2022, 9:33 AM


  • Bumitama Agri (BAL) (UNRATED) has released its 1QFY22 results. BAL’s annualised net profit in 1QFY22 was 70.7% above consensus estimates of Rp2 trillion. The group’s net profit climbed by 5.2x YoY to Rp873bil in 1QFY22 while turnover rose by 69% to Rp3.9 trillion. Average CPO price realised surged to Rp13,600/kg (RM3,975/tonne) in 1QFY22 from Rp7,700/kg (RM2,211/tonne) in 1QFY21.
  • Nucleus FFB production growth was -2.5% YoY but 18.9% QoQ in 1QFY22. BAL’s oil palm estates in Central Kalimantan recorded a 7% YoY decline in FFB production in 1QFY22. On a positive note, the West Kalimantan unit posted a 2% YoY improvement in FFB production in 1QFY22.
  • We understand that the impact of Indonesia’s export ban on palm oil has not been felt yet. Due to the Hari Raya holidays and wide spread between the bids and asking prices, there were minimal trades on cooking oil and CPO. We gather that in the past week, the bids for cooking oil were hovering at Rp13,500/kg while the asking prices were higher than the government’s target of Rp14,000/kg.
  • BAL believes that the export ban would be short-lived. This is because Indonesia produces more palm oil than it consumes. The Indonesia population only consumes a third of the country’s CPO production. In addition, about 15mil to 20mil of the population are working in the palm oil industry. Hence, the livelihood of many smallholders would be affected. We understand that FFB prices in Indonesia have plunged by 40% to 60%. Palm millers have reduced their purchases of FFB due to the export ban.
  • BAL’s nucleus FFB production is expected to grow by 5% to 10% in FY22F (1QFY22: -2.5% YoY). We understand that the group’s FFB output has been rising strongly on a monthly basis since March. 2H is envisaged to account for 53% of full year’s FFB production while 1H will make up the balance 47%. So far, weather conditions have been favourable.
  • BAL has storage tanks of 1-2 months of inventory.
  • BAL’s cash cost of FY22F CPO production is anticipated to increase by 20% to 25% to Rp5,500/kg (RM1,612/tonne). This is mainly due to a 60% to 80% surge in fertiliser costs. The group has not faced issues securing fertiliser, having already locked in fertiliser supply for the full year and received 70% to 80% of the tender. For comparison, BAL recorded a cash cost of production of Rp4,500/kg (RM1,319/tonne) in 1QFY22.


 

Source: AmInvest Research - 13 May 2022

  Be the first to like this.
 

REITS - Weaker consumer spending ahead of retail malls

Author: AmInvest   |  Publish date: Fri, 13 May 2022, 9:33 AM


Investment Highlights

  • Maintain our NEUTRAL stance on the REITs sector. Although 1Q2022 saw improvements in retail sales, footfalls and consumer sentiment, we expect a decline in consumer spending ahead due to higher interest rate and inflationary pressures. The spillover effect of a weakening consumer spending is envisaged to hold back the recovery in tenant sales. Hence, we expect rental reversion to stay flattish for malls in prime locations and possibly adverse reversion for less established malls. REIT distribution yields continue to be unattractive due to declining yield against the 10-year Malaysian Government Securities (MGS).
  • Discontinued Covid-19 rental rebates to tenants of shopping malls. With all retail stores allowed to fully operate after the reopening of the economy and borders with no further lockdown expectations, Covid-19-related support offered to tenants will cease in the coming quarter. This will lead to a normalisation of rental income in the retail segment.
  • Stronger recovery seen in malls in prime locations. According to the Department of Statistics Malaysia (DOSM), retail trade rose 10.8% YoY to RM49.9bil in March 2022, mainly contributed by an increase in e-commerce sales (Exhibit 4). Retail sales improved 9.4% YoY to RM148.6bil for 1Q2022. Based on the Malaysian Institute of Economic Research’s (MIER) survey, the consumer sentiment index rose to 108.9 points in 1QCY22 (Exhibit 3). This was marginally higher than the pre-pandemic 2019 level. Both retail footfall and tenant sales in prime malls such as Mid Valley Megamall, The Gardens Mall, Pavilion Kuala Lumpur and Sunway Pyramid have reached 90% of pre-Covid 19 levels in 1Q2022. The momentum is expected to continue into 2Q2022 with the Hari Raya Aidilfitri festive season as celebrations were dampened over the last 2 years due to strict Covid-19 SOPs and preventive measures.
  • Expect lower consumer spending moving forward due to higher interest rates and inflationary pressure. The DOSM reported that the Consumer Price Index (CPI) rose 2.7% YoY while core inflation climbed 2% YoY in March 2022 (Exhibit 2). The MIER noted a shift in consumers’ spending behaviour to “moderate spending” from “revenge spending” amid concerns about rising prices of consumer goods. On 11 May 2022, Bank Negara Malaysia (BNM) raised the overnight policy rate (OPR) by 25bps to 2.0% to lower inflationary pressures following the trend of interest rate hikes in developed countries such as the US, UK and Australia. Our in-house economist is now forecasting another OPR hike of 25bps in July 2022. The higher OPR rate is estimated to support the ringgit from further weakening against the US dollar due to the differential in interest rates between the 2 countries.
    Higher interest rates and inflation are anticipated to weigh on personal consumption expenditure due to higher borrowing costs and prices for consumer goods. Hence, tenant sales ahead are likely to soften as consumers may turn cautious in spending on discretionary goods. Rental reversion is expected to remain flattish in prime malls but could turn negative in unpopular malls with low footfalls in order to retain existing and attract new tenants. Given that retail malls are only able to renew tenancy agreements with higher rental rates if tenant sales improve.
  • Hawkish expectations of US Federal Reserve (Fed) rate hike triggered the surge in the 10-year US treasury yield (UST) which consequently led to an increase in the 10-year MGS yield. Last Wednesday, US Fed announced its second rate hike by another 50bps and alluded that it will reduce its US$9 trillion balance sheet from June 2022 onwards. Post-decision, the 10-year UST yield jumped to its highest at 3.14% (Exhibit 5). Elsewhere, the 10-year MGS yield rose to 4.5% on 6 May 2022 following the upward trend in the 10-year UST yield.
    On 11 May 2022, the US Bureau of Labor Statistics reported CPI rising 8.3% YoY in April 2022, higher than market expectations of 8.1%. While recent data showed some improvement in inflation, this was still at its 40-year high after the first rate hike in March 2022. Hence, we foresee more interest rate hikes ahead to curb the soaring cost of living. With higher interest rate expectations in the US, a further increase in the 10-year MGS and 10-year UST could result in a deeper contraction in the yield spread between REITs and the 10-year MGS. The yield spread of companies under our coverage is now mostly negative against the 10-year MGS (Exhibits 6, 7, 8 & 9). We believe that market sentiment on REITs will remain lackluster in the near term due to the unappealing offering to yield-seeking investors. The targeted average CY23F distribution yield for REITs under our coverage is 6.4%.
  • Our top BUY is Sunway REIT (fair value RM1.66/share) underpinned by its well-diversified income base, which could provide a cushion against potential downside risks. Its portfolio encompasses retail malls, offices, hotels, universities, hospitals and an industrial property across Malaysia. We are also positive about the outlook of Sunway eMall, which offers delivery and in-store collection for online shopping across its physical malls. The group is recognised for its environmental, social and governance (ESG) practices. Specifically, Sunway REIT is the first amongst its local peers to incorporate sustainability financial consideration into its capital management strategy.
  • Downside risks to our forecasts are: (i) a lower-than-expected tenancy renewal rate; (ii) extensive decline in yield spread against 10-year MGS due to higher-than-expected increase in interest rate; and (iii) reintroduction of rental rebates if lockdowns are implemented again due to the emergence of more harmful Covid-19 variants.


 

Source: AmInvest Research - 13 May 2022

  Be the first to like this.
 

Stocks on Radar - Tambun Indah Land

Author: AmInvest   |  Publish date: Fri, 13 May 2022, 9:30 AM


We think that the buying momentum in Tambun Indah Land may have returned following its breakout above the 4-week bullish rectangle pattern yesterday. The stock also posted three white candles in a row and hit its new 52-week high, likely suggesting that a bullish momentum is picking up. A bullish bias may emerge above the RM0.92 level, with a stop-loss set at RM0.87, below the 20-day EMA. Towards the upside, the near-term resistance level is seen at RM1.00, followed by RM1.05.

Entry : RM0.92–0.945

Target : RM1.00, RM1.05

Exit : RM0.87


 

Source: AmInvest Research - 13 May 2022

Labels: TAMBUN
  Be the first to like this.
 

FX Daily - Daily Highlights

Author: AmInvest   |  Publish date: Thu, 12 May 2022, 10:12 AM


  • Inflation in US recedes but remains high at 8.3%
  • BNM lifts OPR by 25bps to 2.00%

Global Highlights

Dollar Index The Dollar posted a 0.01% decline to trade around 103.846. Inflation in the US continued to stay at all-time high, where the latest number showed the Consumer Price Index rising by 8.3% y/y in April. Looking at the trend, inflation did recede relative to March’s reading of 8.5% y/y, but still above consensus expectation of 8.1% y/y.

US equities and sovereign bonds Wall Street was bathed in red with the Dow Jones losing 1.02% to 31,834, the S&P 500 down 1.65% to 3,935 and the Nasdaq sliding 3.18% to 11,364. The yield differential between the UST10 and MGS10 was around 139bps Also, the yield differential between the UST10 and UST2 was 35.37bps where the UST2 was at 2.64%

Euro The Euro declined 0.30% to 1.053. The OECD warned that the European economy should be expecting a further slowdown due to the situation in Ukraine and high energy prices. The composite leading indicator in Europe that measures new car registrations, manufacturing orders and building permits showed that growth momentum is slowing down. On the monetary policy front, the ECB’s Christine Lagarde made it clear that she will support raising the interest rates in July to keep inflation in check. Currently, inflation in the Euro Area stood at 7.5% in April.

British pound The Pound dipped 0.53% to 1.235. Three former Bank of England monetary policy committee members warned that the UK is in at risk of falling into a recession due to the central bank lifting interest rates to contain price pressure. At the moment, inflation in the UK stood at 7.0% in April, still showing an upward trend despite a gradual interest rate increase since last 2021, bringing the base rate to 1.00% in May 2022.

Japanese yen The Yen gained 0.37% to 129.970. A key index compiled by the government showed that the Japanese economy slightly improved in March as retail businesses showed some recovery after the lifting of Covid-19- related restrictions.

Chinese yuan The Yuan inched down 0.06% to 6.735. Inflation in China rose from 1.5% in March to 2.1% in April. The Producer Price Index however rose by 8.0%. The wide gap between consumer inflation and producer inflation could suggest that profit margins for producers were being squeezed to keep consumer prices

Korean won The Won shed 0.15% to 1,276.050. South Korea’s unemployment rate continued to remain low at 2.7% in April, which is a historical low since February. Total number of people employed rose by 3.2% y/y to 28.1 mil. The South Korean economy is on recovery track on the back of strong fundamentals, including a low unemployment rate and strong exports. The risk lies on an aggressive tightening by the Fed and soaring global commodity prices.

Australian dollar – The Aussie Dollar weakened 0.20% to 0.694. Consumer confidence in Australia deteriorated by 5.6% to 90.4 in May, the same level during the pandemic due to the rising cost of living. The election is two weeks away, and rising prices and cost of living are the main issues in Australia at the moment.

Commodities Highlights

Crude oil – Brent gained 4.93% to US$107.51 per barrel, and WTI was up by 5.96% to US$105.71 per barrel.

Gold – The gold price decreased 0.86% to US$1,838.27/oz.

Malaysia Highlights

Malaysian ringgit – The Ringgit gained 0.13% to 4.377. Bank Negara Malaysia yesterday decided to lift the OPR by 25bps to 2.00%. The normalisation was earlier than expected, where consensus was expecting the first OPR hike to commence in the next meeting in July.

KLSE – The FBM KLCI gained 0.09% to 1,556. Trading activities saw net selling from local institutions and foreign investors at RM40.5mil and RM2.1mil respectively. Local retailers were net buyers at RM42.6mil.

Fixed Income – The MGS benchmark for the 3-year up by 11.5bps to 3.830%, 5-year up 1.0bps to 4.125%, 7-year remained at 4.520%, and 10-year up 2.0bps to 4.380%.

Rates – The IRS yield for the (3Y) was 2bps higher at 3.805%, (5Y) +4.5bps to 4.095%, (7Y) +3.5bps to 4.265%, and (10Y) +5.0bps to 4.470%.

Against major currencies – The ringgit slid against the EUR, GBP, AUD, JPY, CNY, SGD, and PHP, while gaining against the THB, IDR and VND.

Ringgit Outlook for the Day

We expect the MYR to trade between our support level of 4.3700 and 4.3900 while our resistance is pinned at 4.4000 and 4.4200

 

Source: AmInvest Research - 12 May 2022

  Be the first to like this.
 

Banking - Accelerates 25bps OPR hike

Author: AmInvest   |  Publish date: Thu, 12 May 2022, 10:10 AM


Investment Highlights

  • Bank Negara Malaysia (BNM) announced an OPR hike of 25bps to 2.00% from 1.75%. This was earlier than our expectation of a 25bps increase in the benchmark interest rate in 2H2022.
  • The accelerated move appears to be in response to other central banks globally which have started to tighten monetary policies to lower inflationary pressures. A more aggressive tightening has been seen in the US with the Federal Reserve’s sequential increase in the benchmark interest rate by 50bps on 4 May 2022 after a 25bps rise on 16 March 2022. This has moved the Fed fund rate higher to 0.75%–1.00%. The effects of the hawkish rate hike expectations in the US have spilled over to bond yields in Asia, including MGS yields locally. This has resulted in the surge of the 10-year MGS yield to 4.4%.
  • Domestically, the rate hike is seen as the beginning of the easing in our monetary policy accommodation.
  • The MPC statement highlighted that the degree of normalisation in the monetary policy will be done on a measured and gradual manner. This is expected to be data-driven.
  • With the stronger 1Q22 GDP growth, the pace of further rate hikes is expected to hinge on signs of further improvement in GDP growth in the subsequent quarters. Also, it will depend on whether there will be further escalation of inflationary pressures coming from the developments in the Russia-Ukraine war and the movement restriction measures in China affecting supply chains.
  • We are now expecting another rate hike of 25bps, bringing the OPR higher from 2.00% to 2.25% in 2H2022.
  • As we already imputed into our estimate of banks’ earnings a 25bps increase in the OPR earlier, we are now factoring in another 25bps hike into our projected net profit for banks for 2022. This has resulted in a modest increase to the fair values of banks (Exhibit 3). The changes have not affected our stock recommendations.
  • Exhibit 3 shows the impact analysis of a 25bps OPR hike which will positively impact banks’ NIM by an average of 5–6bps and net profit by 3%.
  • Retain our OVERWEIGHT stance on the sector with our top BUYs being RHB Bank (fair value RM7.30/share), CIMB Group (FV RM6.60/share) and Maybank (FV RM10.00/share). For mid-cap banks, we like Alliance Bank (FV RM4.60/share) and Bank Islam (FV RM3.90/share). We remain positive on the sector due to the interest rate uptrend cycle which will benefit banks in terms of interest income as well as room for potential write-backs in management overlays going forward. Also, valuations for RHB Bank, CIMB Group, Alliance Bank and Bank Islam remain inexpensive, trading below FY23F P/BV of 1.0x.


 

Source: AmInvest Research - 12 May 2022

  Be the first to like this.
 

Syarikat Takaful Malaysia Keluarga - Stronger growth in gross written contributions

Author: AmInvest   |  Publish date: Thu, 12 May 2022, 10:08 AM


Investment Highlights

  • We maintain our BUY call on Syarikat Takaful Malaysia Keluarga (STMK) with an unchanged fair value of RM4.15/share, pegging the stock to FY23F P/BV of 2.4x supported by ROE of 22.0%, and factoring in the impact of FRS 17. Our valuation reflects a neutral 3-star ESG rating.
  • No changes to our earnings estimates as core earnings in 1Q22 were within expectations, accounting for 23% of our and 25% of consensus estimate.
  • 1Q22 core net profit after tax declined by 9% YoY to RM92mil despite higher gross written contributions (GWC) from the general and family takaful businesses.
  • The drop in earnings YoY was driven by higher fair value losses of RM37mil in 1Q22 from the family takaful business due to weaker equity market performance. 1Q22 saw higher death claims for the family takaful business and the normalisation of motor claims for the general takaful business after mobility restrictions were eased. Additionally, the group’s net profit was impacted by higher sales incentives which led to a surge in administration and management expenses.
  • The tax rate was higher at 28.8% in 1Q22 vs. 11.6% in 1Q21, attributed to Cukai Makmur. Also, effective from FY2022F, wakalah fees or any other fees received by the shareholder's fund in relation to the family takaful fund will be no longer be tax exempted. It will be taxed similar to the general takaful fund at 24%.
  • GWC from the family takaful business rose by 7.7% YoY contributed by the increase in sales of credit-related products. This was in tandem with the faster pace of financing growth of banks after the reopening of the economy. Meanwhile, the top line for its general takaful business climbed 12% YoY, attributed to higher sales from the fire, motor and liability class of business.
  • The group recorded a lower underwriting margin of 14% for 1Q22 due to higher net incurred claims. Net claims ratio climbed to 55% for 1Q22 vs. 42% in 1Q21.
  • Moving ahead, the claims ratio is anticipated to improve as we expect lower claims for the family takaful business. We do not expect a repeat in backlogged submissions by banks (bancassurrance partners) for claims on deceased borrowers as seen in 1Q22. Meanwhile, for the general takaful business, we envisage motor claims to be higher in FY22F from an increase in traffic volume. Nevertheless, to mitigate soaring motor claims, the group lowered its motor contributions as a percentage of the total general takaful business’s GWC to 43% in 1Q22 vs. 51% in 4Q21.
  • The group’s investment income increased by 8% YoY for 1Q22. This was largely driven by higher profit income from fixed income investments for both the family and general takaful businesses.
  • The group’s Indonesian subsidiary recorded a PBT loss of RM0.8mil in 1Q22 compared to a loss of RM0.2mil in 1Q21, attributed to the marked-to-market impact on valuation of securities.
  • The unallocated surplus fund for the family takaful business remained healthy at RM1.3bil while that of the general takaful business was at RM223mil.
  • As at the end of March 22, foreign shareholdings of STMK stood at 9.3%.
  • The stock is trading at a low 1.7x FY23 P/BV. Its valuation remains compelling with a superior ROE of 22% for FY23.
  • We continue to see improving top line growth ahead, particularly on the sales of credit-related products, leveraging the stronger financing growth of banks in tandem with the economic recovery.

 

Source: AmInvest Research - 12 May 2022

Labels: TAKAFUL
  Be the first to like this.
 


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
Earn MQ Points while trading with MQ Traders Group
MQ Affiliate
Earn side income from MQ Affiliate Program
 
 

331  400  612  909 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 SAPNRG 0.0750.00 
 TECHNAX 0.055-0.025 
 SERBADK 0.16-0.005 
 YONGTAI 0.08-0.02 
 DNEX 1.06+0.01 
 SMTRACK 0.095+0.025 
 EDUSPEC 0.020.00 
 SAPNRG-WA 0.050.00 
 WIDAD 0.355-0.005 
 SERBADK-WA 0.0550.00 
PARTNERS & BROKERS