Highlights

AmInvest Research Reports

Author: AmInvest   |   Latest post: Fri, 24 May 2019, 6:26 PM

 

Petronas Chemicals Group - Dampened by lower plant utilisation and prices

Author: AmInvest   |  Publish date: Fri, 24 May 2019, 6:26 PM


Investment Highlights

  • We downgrade our recommendation on Petronas Chemicals Group (PChem) to HOLD from BUY with a lower fair value of RM9.50/share (from an earlier RM10.40/share) based on an unchanged FY20F EV/EBITDA of 9x — 1SD above its 5-year average of 8.2x against a backdrop of crude oil prices stabilising between US$65 and US$70/barrel.
  • We cut our PChem’s FY19F–FY21F earnings by 10%–13% on lower production volume assumptions as the group’s 1QFY19 net profit of RM802mil came in below expectations, accounting for 15%–18% above our and consensus FY19F earnings. The group did not declare any interim dividend, as expected.
  • The earnings disappointment stems from the group’s 1QFY19 average plant utilisation rate dropping 5ppts YoY to 95% due to maintenance activities at the methanol plant and statutory turnaround at the aromatics operations, which caused sales volume to drop by 14% YoY while its average product prices declined in tandem with average crude oil prices decreasing by 6% YoY.
  • PChem’s 1QFY19 revenue slid 18% QoQ to RM4,130mil mainly from lower average product prices and sales volume for methanol and the aromatics segment, even though average plant utilisation rose by 1ppt QoQ to 95%.
  • Together with associate losses of RM24mil from 40%-owned BASF Petronas Chemicals due to statutory turnaround activities, partly offset by a 3ppt decrease in effective tax rate to 9%, which benefits from Labuan’s Global Incentive For Trading (GIFT) incentive, 1QFY19 net profit tumbled 38% QoQ. Likewise, on a YoY comparison, 1QFY19 revenue dropped 17% which mainly contributed to the 34% decline in net profit.
  • The statutory turnaround for the aromatics plant was completed in April this year, while the MTBE plant was shut down this month. Nevertheless, we understand that the plant maintenance schedules this year will maintain the group’s utilisation levels above 90% as compared with 92% in FY18.
  • We are positive on the group’s plan to acquire Netherlandsbased Da Vinci Group BV for €163mil (RM762mil) cash from a group of investors including Bencis Capital Partners, which is part of the group’s strategy to expand its specialty chemicals’ current share of 5%–6% to group EBITDA.
  • With crude oil prices stabilising at current levels, the group’s product prices have a strong correlation to Brent crude oil prices which have climbed by 9%–15% since 31 March 2019 to almost US$69/barrel currently
  • PChem currently trades at a reasonable FY19F EV/EBITDA of 9x, which is near its 5-year average, while its dividend yields are fair at 4%.

Source: AmInvest Research - 24 May 2019

Labels: PCHEM
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Automobile - Deliveries of Iriz and Persona kicking in

Author: AmInvest   |  Publish date: Fri, 24 May 2019, 6:21 PM


Investment Highlights

  • April 2019 TIV was down 9% MoM and up 6% YoY to 50.0K units. On a cumulative basis, 4M19 TIV grew 6% YoY to 193.0K units compared with 182.2K units for 4M18. The YTD TIV was within our forecast of 603K (+0.8% YoY) for 2019, accounting for 32% of our full-year estimate.
  • We noted the following points from the April sales figures:

1) Perodua registered a total sales volume of 22.1K units (-5% MoM, +11% YoY). With a year-to-date (YTD) sales of 82.8K units, Perodua is currently well on track at 36% to achieving its 2019 target of 231.0K units. We continue to witness a steady delivery for passenger vehicles of 17.8K units which accounted for 80% of its total sales. We believe that this was due to the ongoing demand for the Myvi and we expect this trend to continue for Perodua in the foreseeable future. In April, the Aruz sold a record high of 3.2K units, accounting for 14.5% of total Perodua sales. Perodua has delivered 9.8K units of the Aruz of the reported bookings of over 20.0K units since its launch in mid-January 2019. We retain our projection of a 1.5% volume growth for Perodua in 2019 with the Aruz accounting for ~11% of the total Perodua sales.

2) Proton recorded an 8-month high in April at 7.0K units sold (+14% MoM, +75% YoY). This was largely due extraordinary sales of passenger vehicles of 4.0K units. We believe that this was due to deliveries of the newly-launched Iriz and Persona with very attractive and affordable price tags. The sales of the popular X70 declined to its lowest since its launch at 2.6K units in April and we believe this is unsurprising. We expect the sales of the SUV to taper off a little more to our estimates at 2K units/month as the hype slowly diminishes going forward.

3) Honda disappointed in April, only registering 6.2K units (-29% MoM, -20% YoY) in total sales. This was mainly due to lower sales in its major volume segments, achieving only 3.2K units (-27% MoM) and 2.1K units (-36% MoM) sold in the passenger cars and SUV segments respectively. In regards to the poor performance, Honda’s market share took a dip to 30% from 34% in March.

4) Toyota sold 5.5K units (-7% MoM, -1% YoY) in April. The UMWH management guided that this could be due to some potential buyers holding back purchases of the Vios in anticipation of the launch of the all-new Yaris in mid-April. It also highlighted that the hatchback proved to be a volume-driven model, having joined the Vios and Hilux as Toyota’s top three best-selling models for the month despite the late launch. Combined with the dampened sales of Honda and Perodua in April, we witnessed Toyota’s market share climbed to 26% in April from 23% in March. We believe that the volume increment needs to be much stronger in order to win back some of the market share from Honda. In the foreseeable future, Toyota will be focusing heavily on volume-oriented models such as the Vios and Yaris to achieve its ambitious sales volume growth of 14% for 2019. For our estimates, we retain our conservative sales growth projection of 8% for Toyota as we believe that the general market outlook is still not as vibrant as what UMW is expecting.

5) Mazda saw its sales volume normalizing after a slowdown for the past 2 months, registering total sales of 1.3K units (+29% MoM, 16% YoY) in April. The increase was backed by higher sales in passenger cars and SUVs at 0.4K units (+68% MoM) and 0.9K units (+20% MoM) respectively. We expect sales to improve ahead as there are upcoming launches this year for the group; namely the M3, CX-8 and CX-30 with tentative launches in June, September and December respectively.

  • We believe that the promotional campaigns for the festive season in May-June 2019 will provide a temporary boost to vehicle sales, similar to the tax holiday in 2018. In the longer run, a stronger growth in vehicle sales will ultimately depend on higher wage growth and improvement in economic conditions to lift households’ confidence levels.
  • The approval rate for loans on passenger cars stood at 67.0% in March, an increase of 3.4% from February and higher than the average rate of 59.6% in 2018.

Source: AmInvest Research - 24 May 2019

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MBM Resources - Lower losses in alloy wheel segment

Author: AmInvest   |  Publish date: Fri, 24 May 2019, 6:19 PM


Investment Highlights

  • We maintain our BUY call on MBM Resources with a lower FV of RM3.41 (from RM3.48 previously) based on an FY20F PE of 9.0x. We trimmed our FY20/21 estimates by 7.2%/6.6% to RM148.0mil/RM171.7mil to account for a lower share of profit from its associates, Hino Motor Sales (Malaysia) (HMSM) and Hino Motors Manufacturing (Malaysia) (HMMM). The group recently announced the disposal of its 22.0% stake in both HMSM and HMMM to Hino Motor for a total cash consideration of RM74.4mil. The completion of this deal will reduce MBM’s shareholdings in HMSM and HMMM to 20.0% from 42.0%.
  • MBMR’s 1Q19 core net profit was RM38.1mil (+15% YoY) after stripping a one-off gain of RM11.9mil from the sale of a property under its motor trading division. Core earnings was in line with our expectations, accounting for 25% and 24% of our and consensus forecasts respectively.
  • In terms of core PBT, the group’s pre-tax earnings were RM49.9mil (+27% YoY) with stronger showing from all major business segments.
  • The group’s motor trading division’s revenue grew by 17.1% YoY attributed to stronger vehicle sales volume (in units) from its subsidiaries, Daihatsu (Malaysia) (DMSB), DMMS Sales (DMMS) and Federal Auto (FA). DMSB’s sales for Daihatsu and Hino trucks improved by 8.9% YoY, and it surpassed the industry’s TIV growth of 5.9% YoY while DMMS’ Perodua vehicle sales rose by 5.2% YoY, underpinned largely by higher demand for the Myvi and Axia. Sales for the new SUV, Aruz, is expected to improve based on the strong bookings in recent months. Sales of FA shrank by 5.2%YoY due to slower demand for Volkswagen vehicles post-tax holiday which offset the improved demand from Volvo’s XC40. Excluding the aforementioned disposal gain of RM11.9mil, its core PBT for the motor trading division was RM5.6mil (+6.0% YoY).
  • The auto parts manufacturing division’s revenue rose by 3.2% YoY and it posted a lower loss before tax of RM0.4mil. The improved performance from Hirotako Acoustics (HASB) and Oriental Metal Industries with higher sales revenue of 13% and 2% respectively reduced the division’s losses. 1QFY19 saw an increase in supply of auto parts to Perodua to meet backorders and for restocking purposes. The group is in the midst of closing down the operation of its alloy wheel plant by mid- 2019. The removal of OMI Alloy will be positive on the group’s earnings as losses from this segment have been dampening its profits.
  • The group’s share of profits for its joint venture and associates’ improved to RM3.9mil (+16.3% YoY) and RM42.8mil (+16.4% YoY) respectively. This was on the back of Autoliv Hirotako’s higher sales revenue of 11.0% YoY.

Source: AmInvest Research - 24 May 2019

Labels: MBMR
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Automobile Sector - Deliveries of Iriz and Persona kicking in

Author: AmInvest   |  Publish date: Fri, 24 May 2019, 9:56 AM


Investment Highlights

  • April 2019 TIV was down 9% MoM and up 6% YoY to 50.0K units. On a cumulative basis, 4M19 TIV grew 6% YoY to 193.0K units compared with 182.2K units for 4M18. The YTD TIV was within our forecast of 603K (+0.8% YoY) for 2019, accounting for 32% of our full-year estimate.
  • We noted the following points from the April sales figures:

1) Perodua registered a total sales volume of 22.1K units (-5% MoM, +11% YoY). With a year-to-date (YTD) sales of 82.8K units, Perodua is currently well on track at 36% to achieving its 2019 target of 231.0K units. We continue to witness a steady delivery for passenger vehicles of 17.8K units which accounted for 80% of its total sales. We believe that this was due to the ongoing demand for the Myvi and we expect this trend to continue for Perodua in the foreseeable future. The Aruz however, disappointed again where we saw total sales of 1.1K units for April vs. its targeted average sales of 2.5K units/month. The UMW group guided that the Aruz recorded the highest number of registrations in April since it was launched and hence, we retain our projection of a 1.5% volume growth for Perodua in 2019 with the Aruz accounting for ~11% of the total sales.

2) Proton recorded an 8-month high in April at 7.0K units sold (+14% MoM, +75% YoY). This was largely due extraordinary sales of passenger vehicles of 4.0K units. We believe that this was due to deliveries of the newly-launched Iriz and Persona with very attractive and affordable price tags. The sales of the popular X70 declined to its lowest since its launch at 2.6K units in April and we believe this is unsurprising. We expect the sales of the SUV to taper off a little more to our estimates at 2K units/month as the hype slowly diminishes going forward.

3) Honda disappointed in April, only registering 6.2K units (-29% MoM, -20% YoY) in total sales. This was mainly due to lower sales in its major volume segments, achieving only 3.2K units (-27% MoM) and 2.1K units (-36% MoM) sold in the passenger cars and SUV segments respectively. In regards to the poor performance, Honda’s market share took a dip to 30% from 34% in March.

4) Toyota sold 5.5K units (-7% MoM, -1% YoY) in April. The UMWH management guided that this could be due to some potential buyers holding back purchases of the Vios in anticipation of the launch of the all-new Yaris in mid-April. It also highlighted that the hatchback proved to be a volume-driven model, having joined the Vios and Hilux as Toyota’s top three best-selling models for the month despite the late launch. Combined with the dampened sales of Honda and Perodua in April, we witnessed Toyota’s market share climbed to 26% in April from 23% in March. We believe that the volume increment needs to be much stronger in order to win back some of the market share from Honda. In the foreseeable future, Toyota will be focusing heavily on volume-oriented models such as the Vios and Yaris to achieve its ambitious sales volume growth of 14% for 2019. For our estimates, we retain our conservative sales growth projection of 8% for Toyota as we believe that the general market outlook is still not as vibrant as what UMW is expecting.

5) Mazda saw its sales volume normalizing after a slowdown for the past 2 months, registering total sales of 1.3K units (+29% MoM, 16% YoY) in April. The increase was backed by higher sales in passenger cars and SUVs at 0.4K units (+68% MoM) and 0.9K units (+20% MoM) respectively. We expect sales to improve ahead as there are upcoming launches this year for the group; namely the M3, CX-8 and CX-30 with tentative launches in June, September and December respectively.

  • We believe that the promotional campaigns for the festive season in May-June 2019 will provide a temporary boost to vehicle sales, similar to the tax holiday in 2018. In the longer run, a stronger growth in vehicle sales will ultimately depend on higher wage growth and improvement in economic conditions to lift households’ confidence levels.
  • The approval rate for loans on passenger cars stood at 67.0% in March, an increase of 3.4% from February and higher than the average rate of 59.6% in 2018.

Source: AmInvest Research - 24 May 2019

Labels: UMW
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Pos Malaysia - Details plans to return to the black

Author: AmInvest   |  Publish date: Fri, 24 May 2019, 9:52 AM


Investment Highlights

  • We maintain our SELL recommendation on Pos Malaysia (Pos) after lowering our fair value to RM1.16/share with a WACC of 8.1% and terminal growth rate: 1.5% (previously RM1.34/share). The share price dropped 22 sen (-13.9%) overnight following the release of its 4Q results.
  • We have also reduced our earnings forecasts and now project losses for FY20F and FY21F to account for depressed margin assumptions for its major segments after attending the group’s 4QFY19 analyst briefing.
  • Key takeaways from the briefing are as follows:
  • Introduced three key thrusts as Pos’ transformation plan to return to the black:

1. Active regulatory engagement in relation to the tariff rebalancing. The group believes that the tariff hike would be central to the self-sustainability of the postal segment to alleviate the effects of an accelerating decline in traditional mail volume and high USO costs as the tariff has remained unchanged since 2010. Through recent engagements, Pos is positive on receiving an official reply by the end of FY20.

2. Operating model innovations via:

o Establishing parallel new business targeting SMEs through partnerships e.g. Pos will focus on provision of first-mile and last-mile solutions for the SMEs while partnering with an e-commerce platform and a payment gateway to offer integrated SME solutions.

o Improving efficiency by consolidating all group transport activities under Pos ACE to allow for better end-to-end capacity planning and by realigning state operations to being customer-focused with the new structure being led by an experienced manager.

o Addressing last-mile concerns in major cities by:

(i) Crowdsourcing and outsourcing: Engaging riders and delivery personnel from agents as well as the general public and encouraging entrepreneurs’ participation by including more frequent payments i.e. on a weekly basis. The group has conducted a pilot project on this capability for one month at Wangsa Maju. Full implementation of crowdsourcing is targeted within the next 6 months.

(ii) Providing 170 parcel locker locations nationwide by June 2019: Instead of just catering to missed deliveries, these locations may also serve as pickup addresses for customers to collect their parcels at a more convenient time. The lockers will be placed near strategic areas such as universities, LRT stations and commercial areas.

(iii) Providing 24/7 self-service stations with current pilot sites within the KL/Selangor region.

o Expanding processing capacity to meet demand as IPC2 at the KLIA has been completed and will be able to process 230K/day while the capacity of IPC1 at Shah Alam is 300K/day. The combined processing capacity of 530K will be able to capitalise on the growth of the e-commerce sector. At peak, the aggregate capacity including all Pusat Pos Laju nationwide will be at 800K/day.

3. Elevating customer experience by having reliable systems, improving visibility via revamped digital and mobile apps and fixing basic customer main points. This ties in with increasing overall group productivity through digitalisation efforts such as improving its web platforms and mobile apps which will enable the creation of consignment notes and rescheduling of deliveries digitally as well as real-time tracking that would allow for better resource planning and improvement in last-mile execution. Meanwhile, the use of big data analytics will provide customer insights, thus serving them better while business insights will improve operations planning for Pos.

  • Update on DFTZ: The group shared that 90% of trade are via sea whereas the DFTZ pilot at KACT-1 only currently caters for trade by air. After discussion with regulators, Pos is currently undergoing a 6-month pilot to allow for tax exemption of up to RM500 for goods that are processed through KACT-1 in order to boost volume. Current utilization at KACT-1 stands at 50-60%.
  • FY19 profit dragged mainly by lower contribution for its courier, international and postal segments:

o Courier: Margins were impacted by one-off aircraft delivery costs of RM53mil, increase in staff and transport costs, and price competition despite higher volume (+15% YoY);

o International: Higher terminal dues due to being in the Universal Postal Union (UPU)’s target system;

o Postal: Accelerating decline in mail volume with persistently high USO costs.

  • Swung into an LBT of RM158mil in FY19 vs. a PBT of RM117mil in FY18 due to:

o Total segmental losses of RM196mil attributed to: (i) one-off aircraft redelivery costs of RM63mil associated with its courier segment; (ii) higher terminal dues for its international segment due to being in UPU’s target system; (iii) salary adjustments due to collective agreements; and (iv) decline in group revenue of 5% YoY.

o Higher other expenses (up by RM44mil) mainly due to impairment of goodwill for Pos Logistics of RM40mil;

o Lower other income (drop of RM31mil) due to lower unrealized forex gain and lower write-back of doubtful debts;

o Higher finance costs & zakat (up by RM4mil).

  • Although we believe that Pos’ transformation plan is a necessary step in the right direction, we remain concerned on the execution of its initiatives as a multitude of its efforts are still at the preliminary / pilot stage. We note that Pos outlook is still expected to remain challenging in the short term and thus maintain our SELL call on Pos as the deterioration of performance in nearly all its segments would mean that margin improvements need to be done at a more aggressive rate.

Source: AmInvest Research - 24 May 2019

Labels: POS
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MSM Malaysia - In the red in 1QFY19

Author: AmInvest   |  Publish date: Fri, 24 May 2019, 9:45 AM


Investment Highlights

  • We are maintaining our SELL recommendation on MSM Malaysia with a lower fair value of RM1.22/share (vs. RM1.55/share previously). Our fair value of RM1.22/share for MSM is based on an FY20F PE of 20x. We have reduced our PE assumption for MSM to 20x from 25x.
  • We believe that MSM does not deserve a premium PE valuation anymore as the imposition of the sugar tax in Malaysia and growing health awareness are expected to affect industry demand for sugar.
  • We have reduced MSM’s FY20F net profit by 13.8% to account for a lower sales volume of refined sugar products. We believe that MSM would be affected by the imposition of sugar tax in Malaysia from July 2019 onwards. We forecast sales volume of MSM’s sugar products to inch up by 0.6% in FY20F vs. 2% previously.
  • For FY19F, we have slashed MSM’s net profit by 73.4% to account for lower selling prices and higher depreciation expense and effective tax rate. MSM’s depreciation expense surged by 95.9% YoY to RM16mil in 1QFY19.
  • The rise in depreciation expense can be attributed to MSM’s sugar refinery in Johor, which commenced operations in November 2018. At the same time, we believe that revenue from the new sugar refinery was minimal in 1QFY19 as it sold less than 50,000 tonnes of refined sugar.
  • MSM’s 1QFY19 results were below our expectations and consensus estimates. The group reported a net loss of RM7.1mil in 1QFY19 compared with a net profit of RM15.8mil in 1QFY18 and a net loss of RM10.3mil in 4QFY18. MSM was hit by a 12% fall in overall selling price, higher depreciation expense and an increase in refining costs in 1QFY19.
  • MSM’s revenue shrank by 11.6% YoY to RM485.6mil in 1QFY19 dragged by lower selling prices. Recall that the selling price of sugar sold to the retail market was cut by 10 sen to RM2.85/kg in September 2018. Also, we believe that MSM lowered the selling prices of its sugar products sold to the industrial players due to competition from cheaper sugar imports.
  • Sales volume of refined sugar (ex-molasses) inched up by 0.9% to 224,000 tonnes in 1QFY19 from 222,000 tonnes in 1QFY18.
  • Breaking it down, sales volume of MSM’s refined sugar to the domestic wholesalers improved by 12% YoY to 121,000 tonnes in 1QFY19. However, sales volume to the industrial players slid by 7.4% to 87,000 tonnes in 1QFY19 from 94,000 tonnes in 1QFY18. Export volumes of refined sugar fell by 20.0% YoY to 16,000 tonnes in 1QFY19.

Source: AmInvest Research - 24 May 2019

Labels: MSM
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Gent Plantations - Dragged by lower palm product prices

Author: AmInvest   |  Publish date: Fri, 24 May 2019, 9:43 AM


Investment Highlights

  • We maintain our SELL recommendation on Genting Plantations (GenP) with an unchanged fair value of RM9.00/share. Our fair value for GenP is based on an FY20F fully diluted PE of 27x. We have reduced GenP’s FY20F net profit by 10.4% to account for a lower CPO price assumption of RM2,200/tonne vs. RM2,350/tonne previously.
  • For FY19F, we have cut GenP’s net profit by 29.3%. We have reduced the group’s property earnings, EBITDA margin for the plantation unit and average CPO price assumption to RM2,100/tonne from RM2,300/tonne for FY19F.
  • GenP’s 1QFY19 core net profit (ex-forex loss of RM5.5mil) of RM47.2mil was 28% below our expectations and consensus estimates. GenP’s core net profit declined by 35.2% to RM47.2mil in 1QFY19 from RM72.8mil in 1QFY18 due to the plunge in palm product prices and fall in plantation EBITDA margin. As a result, plantation EBITDA contracted by 29.9% YoY to RM107.0mil in 1QFY19.
  • The fall in CPO price could not be compensated by the 14% YoY increase in GenP’s FFB production in 1QFY19. GenP’s average CPO price shrank by 16.9% to RM1,974/tonne in 1QFY19 from RM2,375/tonne in 1QFY18.
  • GenP forecasts a FFB output growth of 10% to 15% for FY19F. Group FFB production climbed by 14% YoY in 1QFY19. FFB output in Malaysia improved by 5.9% YoY in 1QFY19 while in Indonesia, FFB production increased by 25.7%. Indonesia accounted for 45.1% of GenP’s FFB output in 1QFY19.
  • GenP recorded an all-in production cost of RM1,800/tonne in 1QFY19 compared with RM1,600/tonne in 1QFY18. The YoY increase in the production cost in 1QFY19 was mainly due to a fall in palm kernel credits. This caused a RM160/tonne increase in GenP’s cost of production in 1QFY19.
  • On a positive note, GenP’s downstream unit performed well in 1QFY19 underpinned by higher sales of biodiesel and improved utilisation rate at the palm refinery in Lahad Datu, Sabah. EBITDA of the downstream division surged to RM22mil in 1QFY19 from RM0.4mil in 1QFY18. Utilisation rate of the palm refinery rose to 70% in 1QFY19 from 30% to 40% in 1QFY18.
  • GenP’s net gearing inched down to 41.2% as at end-March 2019 from 44.6% as at end-Dec 2018. Operating cash flows were lower at RM128.7mil in 1QFY19 compared with RM155.8mil in 1QFY18 due to weaker palm product prices.

Source: AmInvest Research - 24 May 2019

Labels: GENP
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Inari Amertron - Lingering trade woes weigh on earnings

Author: AmInvest   |  Publish date: Fri, 24 May 2019, 9:41 AM


Investment Highlights

  • We maintain our HOLD recommendation on Inari Amertron (Inari) but trim our FY19F–FY21F forecasts by 11%–17% due to a prolonged weakness in the semiconductor industry, coupled with the escalating trade tension between the US and China. After rolling over our valuation period to FY20F, the revised fair value is RM1.45/share (from RM1.65/share). Our valuation is based on 17.5x FY20F EPS, representing a -0.5SD discount from the 5-year average of 20x.
  • Inari's 9MFY19 core net profit of RM150mil (-31% YoY) came in below expectation, accounting for 63% of our fullyear forecast and 68% of consensus estimates. 3QFY19 core net profit of RM32mil fell 45% QoQ and 60% YoY, partly due to seasonality.
  • The main reason for the decline is the trade war between the US and China that has been dragging on longer than expected, taking a toll on the company’s business as customers held back orders as a precautionary measure.
  • Earlier this month, the market expected conducive “final” trade talks between the US and China, but it ended with the US signing an executive order to ban Huawei from conducting business with US technology companies.
  • While this may paint a negative picture for the already lacklustre smartphone market as users refrain from purchasing Huawei devices until the dust settles, the US smartphone maker that is currently trailing behind the second-placed Huawei may potentially benefit by regaining market share, albeit marginally.
  • Inari’s new product, fine-pitch LED (<2mm pixel pitch) used for billboards, has yet to ramp up from its pilot stage, leaving a void caused by the decline in smartphone sales.
  • We still like Inari over a longer term for its: 1) RF, which benefits from the transition to 5G and rising content per device; 2) laser devices, which are boosted by increasing biometric and augmented reality (AR) applications in smartphones; and 3) LED, which rides on the increasing demand for high-resolution billboards in shopping malls.
  • However, we remain cautious in the immediate term as the fight for 5G between the US and China may potentially delay wide-spread deployment.

Source: AmInvest Research - 24 May 2019

Labels: INARI
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UEM Sunrise - 1QFY19 net profit climbs 19% YoY

Author: AmInvest   |  Publish date: Fri, 24 May 2019, 9:39 AM


Investment Highlights

  • We maintain our BUY recommendation on UEM Sunrise (UEMS) with an unchanged fair value of RM1.08 based on a discount of 40% to its RNAV (Exhibit 2). We make no changes to our FY19–21 net earnings forecasts.
  • UEMS registered its 1QFY19 net profit of RM30.1mil (+19% YoY). Despite making up 11% of both our and consensus full-year estimates, we reckon this to be in line with expectations as we expect earnings to be stronger in 2HFY19 with the completion of its Australian projects. The stronger 1QFY19 earnings were mainly contributed by a partial settlement of Conservatory and Aurora Melbourne Central.
  • UEMS chalked up new sales of RM215.2mil in 1QFY19 (-50% YoY) whereby 54% were derived from the central region developments at Symphony Hills, Residensi Astrea and Serene Heights. Meanwhile, 38% were mainly contributed by the southern region at Iskandar Puteri, namely Aspira ParkHomes, Almas and Denai Nusantara. The remaining 8% were from projects in Melbourne, particularly the Conservatory. UEMS maintains its sales target of RM1.2bil for 2019, whereby the bulk of them will come in 2H19 from overseas projects.
  • For the Australian projects, 207 units of the first separable portion of Aurora Melbourne Central, SP3 (GDV A$115.1mil) and 446 units of Conservatory (GDV A$322mil) have been completed with average settlement rates of 97% and 73% respectively. Meanwhile the SP4, SP5 and Ascendas bloc (remaining GDV A$638.8mil) of Aurora Melbourne Central are expected to be completed by 2H19 with full settlement by the end of 2019.
  • UEMS launched 2 projects worth over RM160mil year to date, namely Aspira ParkHomes @ Gerbang Nusajaya (from RM529K, GDV RM101.8mil, take-up rate 88%); and Dahlia Phase 2, Serene Heights Bangi in May 2019 (from RM621K, GDV RM58mil, take-up rate 8%).
  • We believe the outlook for UEMS remains stable premised on its unbilled sales of RM4.1bil while its FY19–20 earnings will be mainly supported by the Australian projects which are due for completion in 2H19. The handing over of the Australian projects will also reduce the company’s net gearing from 54% to 40% by the end of FY19. Maintain BUY.

Source: AmInvest Research - 24 May 2019

Labels: UEMS
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N2N Connect - US$150,000 settlement with SAKK Consulting Inc

Author: AmInvest   |  Publish date: Fri, 24 May 2019, 9:39 AM


Investment Highlights

  • We keep our BUY recommendation on N2N Connect (N2N) but trim our FY19F forecasts by a slight 2.5% after factoring in the settlement charges to SAKK Consulting Inc (SAKK). We adjust our fair value to RM0.93/share (previously RM0.95), pegged to an unchanged FY19F PE of 25x.
  • N2N announced yesterday that the company has agreed to settle the claim by SAKK for a consideration of US$150,000, approximately RM630,000. The settlement amount will be recognised in the upcoming quarter results but we deem the impact to be marginal.
  • Recall in Nov 2017, the company received a letter issued by the High Court of Hong Kong claiming for US$411,946 to be paid to SAKK for services rendered.
  • According to the letter, N2N engaged SAKK for merger and acquisition advisory services during the acquisition of AFE Solutions Limited (AFE) in Hong Kong but failed to pay for services rendered. The US$411,946 represents 2% of the company’s consideration for the acquisition of AFE.
  • After contesting the claim multiple times, N2N has finally agreed to settle all disputes and claims with SAKK for a sum of US$150,000.
  • Fundamentals of the company remain intact as the impact of the claim is negligible. Near-term earnings will be driven by the replacement of back office system (BOS). The company is currently in talks with clients from the Philippines and several local brokers, and expects to secure 2–3 more BOS contracts this year with total value estimated at RM12–36mil.
  • Earnings contribution from the BOS will be spread out until FY2020, depending on the time of implementation. The existing BOS system in local houses is not efficient enough to cope with new features, and with the implementation of new instruments such as the IDSS and T+2 settlement, the system needs to process transactions more frequently which necessitates an upgrade. The new T+2 settlement rule will likely lead to improved trading volume and trading value compared with the previous T+3 system.
  • We continue to like N2N due to: 1) its leading position in the online trading solutions space; 2) the acquisition of AFE, which offers tremendous earnings accretion; and 3) the affordability of TCPro Global, which could help the group win market share from global competitors such as Bloomberg and Thomson Reuters.

Source: AmInvest Research - 24 May 2019

Labels: N2N
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BIMB Holdings - Strong financing growth, income contribution from Syarikat Takaful

Author: AmInvest   |  Publish date: Fri, 24 May 2019, 9:36 AM


Investment Highlights

  • We maintain our BUY call on BIMB Holdings (BIMB) with a revised FV of RM5.20/share from RM4.90/share after raising our SOP valuation by ascribing a higher PB multiple of 3.8x (5-year historical average PB) from 3.0x for its insurance subsidiary, Syarikat Takaful Malaysia Keluarga (STMK). Our earnings estimates are unchanged.
  • The group reported strong results in 1QFY19 with a net profit of RM203mil (+25.5% QoQ; +17.6% YoY). On a YoY basis, earnings improved due to higher net income partially offset by a rise in operating expenses. Total net income grew by 18.1% YoY in 1QFY19 underpinned by high fund-based income from Bank Islam’s strong financing growth coupled with better income contribution from its insurance subsidiary, STMK. The stronger performance from the family takaful business arising from increased sales of credit-related products, coupled with lower claims, boosted the earnings of STMK.
  • BIMB’s 1QFY19 earnings were within expectations, making up 28.0% and 27.1% of our and consensus estimate respectively.
  • Gross financing growth remained strong 8.5% YoY in 1QFY19 vs. 8.9% YoY in the preceding quarter. Net financing growth of 8.7% YoY continued to be higher than the industry’s +4.9% YoY. Contributing to the expansion was consumer financing which rose 8.5% YoY while growth in commercial and corporate financing expanded by 8.7% YoY and 10.1% YoY respectively. Key drivers for consumer loans continued to be house and personal financing which grew 10.6% YoY and 9.5% YoY respectively. Meanwhile, growth in vehicle financing contracted while outstanding for credit cards grew by a modest 3.1% YoY.
  • Net income margin (NIM) slipped 2bps to 2.59% in 1QFY19 from 2.61% as at the end of FY18. This was attributed to higher funding cost as the mix of longer term deposits with higher rates increased. The group’s asset yield rose in 1QFY9 after the upward revision in its base rate and base financing rate by 13bps in Nov 2018 to mitigate some pressure on its cost of funds. Moving into 2QFY19, we expect NIM to ease further due to the 25bps cut in the OPR in May 2019, reducing its average asset rate. This impact on margin will be temporary as the group’s deposits are largely expected to be repriced lower after 1 to 2 quarters. For FY19, we have imputed a 6bps margin compression from FY18’s NIM.

Source: AmInvest Research - 24 May 2019

Labels: BIMB
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Hock Seng Lee - Flattish 1QFY19 YoY

Author: AmInvest   |  Publish date: Thu, 23 May 2019, 4:56 PM


Investment Highlights

  • We cut our FY19–21F net profit forecasts by 7% each, reduce our FV by 7% to RM0.99 (from RM1.07) based on 9x revised FY20F EPS, at a premium to our benchmark forward target P/E of 8x for small-cap construction stocks to reflect HSL’s niche strength in marine works/land reclamation. Maintain UNDERWEIGHT.
  • HSL’s 1QFY19 net profit disappointed us and the market, coming in at only 22% and 21% of our full-year forecast and full-year consensus respectively. We believe the variance against our forecast came largely from weakerthan-expected construction margins realised. We have lowered our assumption for construction margins.
  • 1QFY19 net profit only grew 2% YoY as stronger property profits were offset by lower construction earnings. Despite a 10% growth in its top line, construction EBIT fell 12% as EBIT margin contracted by 2.2ppts to 9%, which HSL attributed to “more projects secured via open tender and the general increase in cost of construction”.
  • At present, HSL’s outstanding construction order book stands at RM2.5bil, comprising largely remaining works for: 1. the RM1.2bil work package for the Pan Borneo Highway (total value for the work package is RM1.7bil, HSL has a 70% share); 2. the RM333mil Miri Wastewater Management System; and 3. the RM563mil Kuching City Central Wastewater Management System (Phase 2) (total contract value is RM750mil, HSL has a 75% share). So far in FY19F, HSL has secured new contracts worth about RM376mil. Our forecasts assume job wins of RM400mil annually in FY19–21F.
  • We maintain our view that a sustainable funding model for public infrastructure development in Sarawak is by tapping into federal funds vs. draining the state reserves of Sarawak. In any case, we believe the market could have adequately priced in the potential of a state reservesfuelled infrastructure boom in Sarawak (ahead of the Sarawak state election by Sep 2021) with HSL share price having held up at levels close to those prior to the 14th general election (GE14) in May 2018.
  • Also, with the altered political landscape following the GE14, we could potentially see greater participation of Peninsular players in the construction market in Sarawak, resulting in increased competition and hence reduced margins. This is mitigated by Sarawak being HSL’s home turf and its niche strength in marine works/land reclamation. HSL’s valuations are unattractive at 12–14x forward earnings on a muted sector outlook.

Source: AmInvest Research - 23 May 2019

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Velesto Energy - Improving utilisation from 2HFY19 onwards

Author: AmInvest   |  Publish date: Thu, 23 May 2019, 4:54 PM


Investment Highlights

  • We maintain our HOLD call on Velesto Energy with unchanged forecasts and book value-based fair value of RM0.34/share given a flattish regional rig charter rate trajectory while the group’s huge share base will dilute any incremental earnings from higher asset utilisation.
  • We remain cautious on Velesto’s earnings trajectory notwithstanding improving operational dynamics, as highlighted by an analyst briefing today:
  • Rig charter rates are slightly improving, with Velesto’s daily charter rates rising by US$1K QoQ and YoY to US$69K in 1QFY19 due to rising regional demand and supported by more favourable contractual terms.
  • Utilisation for Velesto’s fleet of 7 rigs fell to 66% in 1QFY19 from 91% in 4QFY18 due to temporary gaps between job assignments and 5 yearly special periodic surveys (SPS) for maintenance and overhaul, principally for Naga 2, 3, 5 and 6.
  • As mentioned in our report earlier today, Velesto’s 2QFY19 rig utilisation is likely to remain below breakeven levels at 70% given that Naga 2, 3, 5 and 6 will be partly out of charter due to SPS or awaiting the commencement of new contracts.
  • We expect earnings to recover in 3QFY19 with rig utilisation of over 85% as only Naga 7 will be out of charter from Murphy and undergoing SPS for 5 months until Dec this year. If the rig manages to secure a short-term charter from a nearby field operator, the utilisation level will surge above 90%.
  • While Naga 4 could drop out of Roc Oil’s charter in November this year, the group may be looking to negotiate a short-term option extension with its existing client or a longer term contract with other operators.
  • All in, this will mean that FY19F rig utilisation could be better than the 70%–73% achieved in FY17–FY18, but still below 80% at near breakeven levels. Hence, we maintain our FY19F breakeven vs. consensus’ median net profit of RM24mil.
  • However, visibility for rig utilisation recovery is improving in FY20F with levels likely to reach above 80%, as Naga 8 charter from Hess expires in April next year while 2 charters are expiring only towards 4QFY19 — Naga 7 and 4 contracts will be completed in October 2020 and November 2020 respectively.
  • Outstanding order book of RM1.5bil (including RM0.9bil options) and tender prospects worth RM2.3bil (32 shorter term and 7 long term charters) underpin longer term earnings prospects.
  • Against a regional rig market which is still struggling with below-breakeven utilisation levels of under 70%, we view the 14% share price discount to its book value as justified.

Source: AmInvest Research - 23 May 2019

Labels: VELESTO
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Plantation Sector - EU’s palm proposals come into effect 1 June

Author: AmInvest   |  Publish date: Thu, 23 May 2019, 10:12 AM


  • Bloomberg reported that the European Union (EU) has published a regulation setting new criteria for the use of palm oil in biofuels in its official journal. The new rules will be implemented from 1 June 2019 onwards.
  • The new rules restrict the types of palm-based biofuel that may be counted towards the EU renewable energy targets and introduces a new certification system. However, palm oil from smallholders, defined as estates smaller than two hectares, will be exempted. In Malaysia, a smallholder is defined as estates smaller than five hectares.
  • The regulations were proposed on 13 March and subjected to a two-month scrutiny period. During the period, none of the member states voiced objections.
  • The rulings have become official. This development is negative for palm oil as palm demand from the EU will fall in the long term. The use of palm oil in biodiesel in the EU will be capped at 2019’s levels until 2022. There will be a gradual phase-out of palm in biodiesel from 2023 onwards, leading towards a complete ban in 2030.
  • Although smallholders are exempted, we do not think that the EU’s demand for palm oil from the smallholders will be enough to offset the fall in demand from the bigger players. In addition, the EU’s definition of smallholders is tighter than Malaysia’s. Smallholders account for 40% of CPO production each in Malaysia and Indonesia.
  • The EU accounted for 11.6% or 1.9mil tonnes of Malaysia’s palm exports in 2018. According to Oil World, about 49.5% of palm products in the EU are used in the biofuel industry while another 29.8% are used in the food industry. The EU imported 435,000 tonnes of biodiesel from Malaysia and 786,000 tonnes of biodiesel from Indonesia in 2018.
  • Although there is no barrier against the use of palm oil in the food industry in the EU yet, there is risk that the negative sentiment against palm oil would affect demand from this segment.
  • Malaysia and Indonesia have said that they will lodge complaints with the World Trade Organisation (WTO) when the EU’s proposals become a law. Also, Indonesia has said that it may halt imports from the EU. The EU exports products such as machinery and equipment, airplanes, wine, dairy products and luxury goods to Malaysia and Indonesia.
  • We maintain an UNDERWEIGHT stance on the plantation sector. We reckon that CPO prices will continue to be in the doldrums dragged by high levels of inventory.

Source: AmInvest Research - 23 May 2019

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Pos Malaysia - Bloodbath in FY19

Author: AmInvest   |  Publish date: Thu, 23 May 2019, 10:10 AM


Investment Highlights

  • We downgrade our recommendation on Pos Malaysia (Pos) to SELL from UNDERWEIGHT as we lower FY20F– FY21F forecasts by 35–46% after updating our balance sheet forecasts and in anticipation of weaker courier volume due to competition between industry players. Our fair value is reduced to RM1.34/share (WACC: 7.3%, terminal growth rate: 1.5%), from RM1.65/share previously.
  • Pos recorded its third and largest quarterly core net loss to date in 4QFY19 of RM98mil, bringing FY19 to a core net loss of RM123mil. This is after stripping off one-off net losses mainly due to the RM40mil impairment of goodwill for Pos Logistics amid competitive market conditions.
  • The FY19 results came in much lower compared with our FY projected loss of RM35mil and consensus’ projected loss of RM26mil. The deviation from forecasts was attributed to the deterioration in performance across all of its major segments and higher operating expenses and other expenses from the impairment loss on goodwill.
  • We now recommend a SELL on Pos as it continues to face problems of cost inefficiency for its postal segment and structural issues that challenge efforts to boost earnings from the courier segment. We await more details on the company’s results and outlook in an upcoming analyst briefing.

Source: AmInvest Research - 23 May 2019

Labels: POS
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Beary Xi A malay institution finally crumble! But then again, i am sure Mahathir will help to bail it out using rakyat money! You can rely on Mahathir to help his cronies!
23/05/2019 10:21 AM
Haw Liao tahniah...red red ong ong mali
23/05/2019 11:28 AM
Jh Chin Nothing unusual. Just another failed Malay Crony Company after so many. Don't be surprise if there is more to come.
23/05/2019 11:35 AM
Panch PH needs to step up and hire the right people to manage the GLCs. Hire based on merit instead of the old boys club network. Make changes now instead of following UMNO/ BN policies. Get rid of all the deadwood.
23/05/2019 2:00 PM

Velesto Energy - Earnings trajectory still uncertain

Author: AmInvest   |  Publish date: Thu, 23 May 2019, 10:09 AM


Investment Highlights

  • We maintain our HOLD call on Velesto Energy with an unchanged book value-based fair value of RM0.34/share. Any near-term rerating remains a low probability given that rig charter rates remain weak while the group’s huge share base will dilute any incremental earnings from higher asset utilisation.
  • As we had forewarned in our past reports, Velesto registered a 1QFY19 core loss of RM23mil due to a sharp drop in rig utilisation vs. a 4QFY18 core net profit of RM26mil.
  • As rig utilisation could rise on the recently secured 4 charters, we expect a stronger 2HFY19 which could translate to an earnings rebound.
  • As such, we view the results as within our expectations but below consensus. Note that we are projecting an FY19 breakeven vs. consensus’ median net profit of RM24mil.
  • Velesto’s 1QFY19 revenue dropped 33% QoQ to RM127mil as rig utilisation rate sank to 66% with only 5 rigs operating from a near-fully utilised 91% in 4QFY18. Slightly exacerbated by lower other income and provision reversal, this led to the loss in this quarter.
  • YoY, the group’s 1QFY19 revenue rose 4% on a 1ppt rise in rig utilisation in contrast with core loss widening from RM13mil in 1QFY18, which benefited from lower operating costs and a RM4mil insurance claim.
  • Last month, Velesto secured 4 fresh jack-up rig charters worth US$105mil (RM432mil), which have tenures of 1 year with 2 annual extension options, from Petronas Carigali for Naga 2, 3, 5 and 6 commencing in April to July this year.
  • Naga 2, 3 and 5 have fallen out of charter in 1Q2019, which means that the group’s 2QFY19 rig utilisation could remain around 66% that will translate to further losses.
  • By end-August this year, Naga 4 rig charter will expire while there could be a short gap for Naga 7 in 2QFY19 before continuing another 6 months with Shell. Additionally, Naga 8 charter for Hess expires in November 2019 unless the client opts to extend the charter until May 2020.
  • As this quarterly loss reaffirms our view that rig operators’ earnings trajectory is still uncertain, we remain cautious on a sustainable rerating for the stock pending an analyst briefing later today. Hence, against a regional rig market which is still struggling with below-breakeven utilisation levels of around 60%, we view the 14% share price discount to its book value as justified.

Source: AmInvest Research - 23 May 2019

Labels: VELESTO
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Jh Chin One thing is certain : Shareholders can go to hell as long as directors masuk pocket.
23/05/2019 11:37 AM

UMW Holdings - Decent start to FY19

Author: AmInvest   |  Publish date: Thu, 23 May 2019, 10:06 AM


Investment Highlights

  • We maintain our HOLD call on UMW Holdings (UMWH) with a higher FV of RM5.88 (from RM5.49 previously). This is based on SOP valuation after rolling over our valuation to FY20 with a PE of 10x for its motor segment.
  • UMWH’s 1Q19 core net profit of RM86.7mil was broadly in line with our expectations, accounting for 18% and 17% of our and consensus forecast respectively. We expect that the group’s core earnings to improve in the next few quarters underpinned by deliveries of the new Yaris which was launched in mid-April and the new 2019 Vios. Also, we anticipate the group’s aerospace unit to deliver more fan cases in the subsequent quarters ahead moving towards breaking even.
  • UMWH registered a revenue of RM2.77bil, which was an impressive 15% YoY increase. The improved performance was contributed by a higher number of vehicles sold by its automotive segment and the increase in fan cases delivered by the aerospace unit in the M&E segment. All three core businesses achieved higher revenue on a YoY basis.
  • For the automotive segment, the group posted a higher revenue of RM2.16bil (+15% YoY) due to the overwhelming response for the new Vios. However, the PBT was marginally lower (-1% YoY) due to higher depreciation from the new Bukit Raja plant, which was partially offset by the better performance from its associate, Perodua.
  • Toyota sold 13.8K units in 1Q19 (+9% YoY) vs. 12.7K units in 1Q18. Its market share in 1Q19, including the Lexus, was 9.7%. The group targets to sell 30.0K units of the new Vios and 10K units of the new Yaris in 2019.
  • Meanwhile, the group’s equipment segment recorded a revenue of RM382.8 mil (+3% YoY) and a PBT of RM42.2 mil (-6% YoY). The lower PBT margin was due to competitive pricing for both the heavy equipment and industrial equipment businesses.
  • The M&E segment registered a higher revenue of RM237.1 mil (+41% YoY), contributed by the aerospace unit as a result of higher delivery of fan cases and stronger sales from the auto Component business. The segment swung into the black with a PBT of RM2.3mil in 1Q19, from a loss of RM2.9mil in 1Q18.
  • We believe that the growth this year will rely heavily on a higher sales volume for Toyota, the continued support from Perodua’s strong sales of the Myvi and the recent introduction of the Aruz. It will also depend on the continued improvement in its M&E segment as the aerospace unit gains momentum with an eye to break even in 2HFY20.

Source: AmInvest Research - 23 May 2019

Labels: UMW
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IOI Corporation - Oleo still holding up

Author: AmInvest   |  Publish date: Thu, 23 May 2019, 10:04 AM


Investment Highlights

  • We maintain our HOLD recommendation on IOI Corporation with a lower fair value of RM4.40/share (vs. RM4.60/share previously). Our fair value for IOI is based on an FY20F PE of 27x.
  • We have reduced IOI’s FY20F net profit by 3.8% to account for a lower average CPO price assumption of RM2,200/tonne compared with RM2,300/tonne previously.
  • IOI’s 9MFY19 core results (ex-net forex loss of RM26.7mil) were 5.8% below our forecast and 9.2% short of consensus estimates. We have revised IOI’s FY19F net profit downwards by 6.3% to account for a weaker CPO price of RM2,100/tonne vs. RM2,200/tonne originally and a lower plantation EBIT margin.
  • IOI’s 9MFY19 core net profit was affected by the plunge in palm product prices and a higher effective tax rate. IOI’s effective tax rate surged to 27.9% in 9MFY19 from 18.6% in 9MFY18 due to a revision in the real property gains tax. We do not know the details of IOI’s real property gains tax and as such, we would be checking with management soon.
  • On a positive note, the manufacturing division performed well in 9MFY19 as reflected in the 35.4% YoY rise in EBIT (ex-associates and fair value changes). We believe that IOI’s manufacturing division benefited from a lower cost of feedstock in 9MFY19. EBIT margin of the manufacturing division (ex-associates and fair value changes) rose to 6.2% in 9MFY19 from 3.7% in 9MFY18.
  • Comparing 3QFY19 against 2QFY19, manufacturing EBIT increased by 42.0% to RM145.4mil from RM102.4mil. EBIT margin was a high 7.9% in 3QFY19 vs. 5.6% in 2QFY19.
  • Plantation EBIT (excluding associates and fair value changes) plummeted by 60.4% to RM322.4mil in 9MFY19 from RM813.6mil in 9MFY18. Average CPO price realised eased by 21.4% to RM2,039/tonne in 9MFY19 from RM2,593/tonne in 9MFY18. FFB production declined by 5.8% YoY in 9MFY19.
  • In its results announcement, IOI said that its plantation division is expected to perform below average in 4QFY19. However, the oleochemical unit is envisaged to perform well in 4QFY19 on the back of positive demand and lower raw material costs.
  • Net gearing stood at 26.9% as at end-March 2019 compared with 29.5% as at end-December 2018. About 78.4% of IOI's RM4.8bil gross borrowings were denominated in USD. IOI's gross cash reserves were a high RM2.3bil as at end-March 2019.

Source: AmInvest Research - 23 May 2019

Labels: IOICORP
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Sunway Bhd - New property sales surge 58% YoY in 1QFY19

Author: AmInvest   |  Publish date: Thu, 23 May 2019, 10:02 AM


Investment Highlights

  • We maintain our BUY call on Sunway Bhd (Sunway) with a lower fair value of RM1.94 per share (from RM1.95) based on SOP valuations (Exhibit 2). We reduced our FY19–21 profit forecasts by 1.9%, 1.7% and 1.5% respectively. Our fair value and profit forecasts reduction are to reflect the recent revaluation and earnings downgrade on Sunway Construction.
  • Sunway reported its 1QFY19 revenue and PATMI of RM1,123.6mil (-14.1% YoY) and RM136.4mil (+11.9% YoY) respectively. PATMI of RM136.4mil constituted 22% of both our and consensus full-year estimates. Nonetheless, we reckon this to be in line with expectations as Sunway’s earnings are generally lower in 1Q.
  • The property development division’s 1QFY19 revenue came in at RM87.9mil (-33.6% YoY) while its PBT was RM32.8mil (+19.6%). The lower revenue is mainly due to lower sales and progress billings from local development projects while the stronger PBT is attributed to the reversal of provisions made in the previous year. Nonetheless, Sunway reported stronger new sales of RM263mil (+58% YoY) while unbilled sales of RM2.2bil (YoY: RM947mil; QoQ: RM2.1bil) will provide good earnings visibility in short to mid-term.
  • The property investment segment recorded 1QFY19 revenue of RM196.7mil (+1.9% YoY) and PBT of RM57.4mil (+0.5% YoY) mainly due to a higher contribution from Sunway Geo in Sunway South Quay, as well as improved contribution from the group’s theme parks.
  • The construction segment posted 1QFY19 revenue and PBT of RM346.2mil (-22% YoY) and RM43.7mil (+5.4% YoY) respectively. The weaker revenue was mainly due to lower progress billings from local construction projects and higher intra-group eliminations. Meanwhile, the higher PBT was boosted by lower intra-group profit eliminations. YTD, Sunway Construction has secured new jobs worth a total of RM1.01bil while its outstanding construction order book stands at RM5.7bil.
  • The healthcare segment chalked up 1QFY19 revenue of RM126.8mil (+24.4% YoY) and PBT of RM15.4mil (+43.4% YoY), contributed by higher occupancy from increased number of new beds and higher outpatient treatments.
  • We reduced our FY19–21 earnings forecasts by 1.9%, 1.7% and 1.5% respectively following our recent earnings downgrade on Sunway Construction. Nevertheless, we believe the outlook for Sunway remains positive premised on its unbilled sales of RM2.2bil, strong income contribution from property investment and a robust outstanding order book of RM5.7bil. Maintain BUY.

Source: AmInvest Research - 23 May 2019

Labels: SUNWAY
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Stocks on Radar - Supermax Corporation (7106)

Author: AmInvest   |  Publish date: Thu, 23 May 2019, 8:52 AM


Supermax Corporation surged past the resistance price RM1.64 in its latest session with higher trading volume. With the momentum indicator RSI above 60%, the short-term momentum could reach a target price of RM1.76, followed by RM1.87. If it dips below RM1.64, it will continue to move sideways. The support price is anticipated at RM1.53 whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy on continuation above RM1.64

Target: RM1.76, RM1.87 (time frame: 2-4 weeks)

Exit: RM1.53

Source: AmInvest Research - 23 May 2019

Labels: SUPERMX
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