Highlights

AmInvest Research Reports

Author: AmInvest   |   Latest post: Fri, 29 May 2020, 4:56 PM

 

Bumi Armada- Cautious on further impairments ahead

Author: AmInvest   |  Publish date: Fri, 29 May 2020, 4:56 PM


Investment Highlights

  • We maintain our SELL recommendation on Bumi Armada with an unchanged fair value of RM0.10/share, based on its 5-year P/BV trough of 0.2x.
  • Our forecasts are maintained as the group’s 1QFY20 core net profit of RM90mil (+45% YoY), excluding one-off impairments of RM314mil for offshore marine services (OMS), was within expectations, coming in at 29% of ours and 31% of street’s FY20F earnings. As a comparison, 1Q accounted for 17%–38% of FY17–FY19 core net profit due to the volatility in Armada Kraken operating performance and OMS’ utilisation rates.
  • The impairments include RM170mil for the two subsea construction vessels (Armada Installer & Armada Constructor) and the balance for offshore support vessels (OSV). With 12 vessels currently cold-stacked, the group has sold 2 of its 32 units in the quarter.
  • While the operational performance of the Armada Kraken FPSO has substantively improved, the group’s 2 offshore construction vessels in the Caspian Sea are still unutilised amid poor contract visibility until next year. This could mean additional impairments this year if no contracts have been secured.
  • 1QFY20 floating production & operations (FPO) revenue rose 10% QoQ to RM462mil from Armada Kraken’s improved operations, which management guided could be representative for the full year. However, OMS revenue fell 6% QoQ to RM91mil despite a 2ppt increase in vessel utilisation to 56% due to the sale of 2 vessels and lower spot charter rates.
  • While group revenue rose by only 7% QoQ, core net profit surged 65% QoQ largely from the higher revenues, realised foreign exchange gains and lower lumpy repairs & maintenance costs from Armada Olombendo. This was partly offset by an associate loss of RM5mil from a positive gain of RM24mil in 4QFY19 due to higher one-off deferred tax provisions from its 49%-owned Armada Karapan Sterling III.
  • Even though the market remains subdued from the Covid-19- inflicted global oil production cuts, management is still planning to dispose of the OMS division, currently seen as a minor operation accounting for 16% of 1QFY20 group revenue.
  • As Enquest recently announced that the Kraken project’s output was ahead of expectations while retaining overall 2020 production guidance, Bumi Armada views that its long-term FPSO charters have low cancellation or termination risks while such possibility remains high for shorter-term OSV charters.
  • As we had earlier indicated, the group’s balance sheet, while still bearing an elevated net gearing of 2.9x, has improved with the reclassification of Armada Kraken’s short-term debt of RM1.3bil to long-term debt. The group’s FY20F EBITDA of RM1.1bil is likely to cover the remaining RM873mil short-term debt.
  • The stock’s P/BV of 0.4x could drop further due to additional impairments, potential contract cancellations amid high gearing levels as global oil & gas activities are being sharply reduced.

Source: AmInvest Research - 29 May 2020

Labels: ARMADA
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Stocks on Radar- Master-Pack Group (7029)

Author: AmInvest   |  Publish date: Fri, 29 May 2020, 9:58 AM


Master-Pack Group surged higher to touch the resistance level RM2.10. With an RSI pointing upwards, and coupled with higher trading volume, we think that it could break out from the immediate resistance. If this happens, it may climb towards the short-term target price of RM2.25 followed by RM2.30. In this case, the downside support is marked at RM1.92, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy on breakout RM2.10

Target: RM2.25, RM2.30 (time frame: 2-4 weeks)

Exit: RM1.92

Source: AmInvest Research - 29 May 2020

Labels: MASTER
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Stocks on Radar- Greatech Technology (0208)

Author: AmInvest   |  Publish date: Fri, 29 May 2020, 9:57 AM


Greatech Technology broke past the resistance level RM3.09 during its recent session. With an RSI above the threshold level 50%, we see the bullish momentum continue to propel towards the short-term target prices of RM3.35 and RM3.55. The downside support is anticipated at RM2.85, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy on breakout RM3.09

Target: RM3.35, RM3.55 (time frame: 2-4 weeks)

Exit: RM2.85

Source: AmInvest Research - 29 May 2020

Labels: GREATEC
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BIMB Holdings- Strong financing growth; stable asset quality

Author: AmInvest   |  Publish date: Fri, 29 May 2020, 8:52 AM


Investment Highlights

  • We maintain our BUY call on BIMB Holdings (BIMB) with a revised FV of RM3.90/share (previously: RM3.70/share) based on a higher derived SOP valuation as we roll forward our valuation for Bank Islam to FY21, pegging the bank to a P/BV of 1.1x. We tweak our FY20/21 earnings by -2.3%/- 4.9% to reflect a lower income contribution from the takaful business and a refinement in credit cost estimate to 0.30% from 0.35% previously.
  • The group reported a net profit of RM209mil (+3.3% YoY) in 1Q20. 1Q20 saw higher net income (before direct expenses and provisions) of 5.4% YoY to RM848.6mil, partially offset by higher allowances for loan losses and overhead expenses. Earnings were within expectations, making up 26.5% and 28.0% of our and consensus estimate respectively.
  • Bank Islam (BI), the 100% subsidiary of BIMB, recorded a decline in fund-based income by 1.8% YoY or RM14.3mil in 1Q20 due to two OPR cuts of 25bps each on Jan and Mar 2020. Net income margin of BI fell 11bps QoQ to 2.38%. Meanwhile, the subsidiary’s non-fund based income expanded by RM37.8mil. This was contributed by an increase in investment income.
  • BI’s gross financing accelerated to 9.3% YoY from 8.1% YoY in the preceding quarter (net financing growth: 9.5% YoY), higher than the industry’s expansion of 4.0% YoY. This was mainly supported by consumer and corporate loans of 5.9% YoY and 48.0% YoY respectively. Consumer loan growth was underpinned by an expansion of house and personal financing of 7.6% YoY and 6.4% YoY respectively. Meanwhile, growth in outstanding credit card receivables was subdued while that of vehicle financing slipped 14% YoY.
  • Growth of CASA and transactional investment account picked up pace at 5.2% YoY. This raised the CASA ratio to 35.9% in 1Q20 from 32.8% in 4Q19.
  • With a growth in operating expenses of 7.7% YoY, JAWs was a negative 2.3% for 1Q20. CI ratio was slightly higher at 56.7% in 1Q20 vs. 55.6% in 1Q19.
  • The group’s gross impaired loan balances declined by 1.4% QoQ or RM5.9mil to RM427mil in 1Q20.

Source: AmInvest Research - 29 May 2020

Labels: BIMB
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Power Root- FY20 core net profit up 35%, meets expectations

Author: AmInvest   |  Publish date: Fri, 29 May 2020, 8:51 AM


Investment Highlights

  • We maintain our BUY call on Power Root with an unchanged FV of RM2.55/share. Our FV is based on a PE of 18x CY21F EPS. Our PE multiple is in line with Old Town’s 2-year average forward PE. We introduce our FY23F earnings forecast of RM61.3mil.
  • We continue to like Power Root because of: (1) its strong earnings recovery from streamlining of costs and expected growth in its exports sales; (2) its scarcity premium for exposure to the instant coffee segment as Power Root is the closest to a pure play in the segment; and (3) a decent estimate dividend yield of 5–6.6% from FY21F to FY23F.
  • FY20 core net profit of RM46.6mil (excluding a reversal of impairment loss on trade receivable amounting RM4.8mil) accounted for 102% of our and 97% of street’s full-year earnings forecasts. The results were in line with our and street’s expectations.
  • FY20 revenue grew 14% YoY to RM386mil. This was on the back of an 8% increase in local sales and 21% increase in export sales.
  • However, 4QFY20 revenue dropped 11% QoQ (domestic -8%; exports -15%). This was mainly attributed to a slowdown of export sales in the UAE market. Recall that we had already expected lower sales in the UAE due to the impact of the 50% excise tax on sugar sweetened beverages imposed in the UAE starting 1 January 2020.
  • FY20 gross profit was higher by 19% YoY as gross margin expanded 2ppt to 54%. We believe this was due to cheaper raw material prices and favourable USD/MYR rates as shown in Exhibit 2–3. In FY20, prices fell for robusta coffee by 18% and arabica coffee by 4% while ringgit weakened against the USD by 4%.
  • We expect raw material prices to remain favourable for Power Root. The group has locked in coffee prices until June 2021. Since April 2020, coffee prices have remained relatively flat.
  • FY20 EBITDA surged 60% YoY to RM69mil on the back of a 5ppt increase in EBITDA margin to 18%. We believe the enhancement in EBITDA margin was driven by Power Root’s continuous efforts to optimize and develop its distribution networks and implementation of cost management measures like tightening its procurement system and establishing guidelines to instil capital expenditure discipline.

Source: AmInvest Research - 29 May 2020

Labels: PWROOT
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Econpile Holdings- Barely breaks even in 3QFY20

Author: AmInvest   |  Publish date: Fri, 29 May 2020, 8:50 AM


Investment Highlights

  • We cut our FY20-22F net profit forecasts by 52%, 10% and 22% respectively, and downgrade our FV by 14% to RM0.19 (from RM0.22) based on 8x revised FD CY21F EPS of 2.4 sen, in line with our benchmark forward target PE of 8x for small-cap construction stocks. Maintain UNDERWEIGHT.
  • Econpile’s 9MFY20 net profit disappointed significantly, at only 50% and 38% of our full-year forecast and full-year consensus estimates respectively. The main culprit was the 2-week impact from the movement control order (MCO) during 3Q which turned out to be much more damaging than expected (and shall continue to wreak havoc in 4Q). We have reflected this in our earnings downgrade.
  • Its 9MFY20 topline contracted 23% YoY as construction activities have come to a halt since 18 Mar 2020. We believe, not helping either, was the slow construction activities at infrastructure projects, particularly, the LRT3 (even before the MCO). Comparison at the EBIT level is not meaningful as Econpile made a loss a year ago. In terms of EBIT margin, at 8.4% in 9MFY20, it was a far cry from 16–17% that Econpile used to enjoy during the peak of the previous construction cycle in 2018.
  • YTD (FY June), Econpile has only secured new jobs worth RM156.9mil while its outstanding order book stands at RM700mil (Exhibit 2). Econpile has set itself a target for new job wins of RM600mil in FY20F (vs. RM643.7mil achieved in FY19). With only one more month to go before the end of FY20F, this has become a tall order. We therefore cut our FY20–22F assumption for job wins to RM300mil annually (from RM500mil).
  • Given the still elevated national debt and the still depressed oil prices (that will hurt petroleum revenues), we believe the government has very limited room for fiscal manoeuvre which means that it is unlikely to roll out new public infrastructure projects in a major way over the short term, such as the MRT3 and the KL–Singapore high-speed rail. On a brighter note, Econpile has been pre-qualified to participate in the East Coast Rail Link (ECRL) project. The main contractor of the 640km rail project recently started to dish out subcontracting jobs to local players.
  • We are also mindful of the acute oversupply situation in the high-rise residential, retail mall and office segments, which translates to weak prospects in property-related job wins for piling contractors like Econpile.
  • Econpile’s valuations are excessive at 23–37x forward earnings on muted earnings growth prospects.

Source: AmInvest Research - 29 May 2020

Labels: ECONBHD
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FGV Holdings- In the red even with higher CPO price

Author: AmInvest   |  Publish date: Fri, 29 May 2020, 8:48 AM


Investment Highlights

  • We maintain SELL on FGV Holdings (FGV) with an unchanged fair value of RM0.70/share. Our fair value of RM0.70/share for FGV implies a P/BV of 0.6x.
  • FGV reported a core net loss of RM159.7mil (ex-land lease changes) in 1QFY20 compared with a core net profit of RM1.4mil in 1QFY19. FGV suffered losses in the plantation and sugar units in 1QFY20.
  • We are now forecasting that FGV would record a net loss of RM49.6mil vs. a net profit of RM50.3mil originally due to weaker FFB production growth and a larger net loss in the sugar division. Recall that 51%-owned MSM Malaysia recorded a net loss of RM34.7mil in 1QFY20 (1QFY19: RM7.1mil net loss) due to higher interest and depreciation expenses.
  • FGV’s plantation division (upstream and downstream) sank into the red in 1QFY20 due to a 32.6% YoY drop in FFB production. Higher CPO price could not compensate for the negative impact of the sharp drop in FFB output in 1QFY20. On a quarterly basis, FGV’s FFB output shrank by 29.0% in 1QFY20.
  • The plantation division recorded a pre-tax loss of RM152.1mil in 1QFY20 vs. a pre-tax profit of RM39.8mil in 1QFY19. Average CPO price increased by 34.4% to RM2,669/tonne in 1QFY20 from RM1,986/tonne in 1QFY19.
  • Due to the group’s sizeable operations in Sabah, we believe that compared to its peers, FGV was more affected by the lagged impact of the drought and haze, which took place in 3QFY19.
  • FGV’s 1QFY20 FFB yield was also affected by lower fertiliser application in FY19. FGV only applied 65% of its full year fertiliser requirements in FY19.
  • FGV’s CPO production cost (ex-mill and land lease changes) surged to RM2,177/tonne in 1QFY20 from RM1,375/tonne in 1QFY19. The YoY increase in production cost per tonne in 1QFY20 was due to higher application of fertiliser, a fall in the production volume of CPO and higher cost of wages. In 1QFY19, FGV delayed fertiliser application by two months.
  • Pre-tax of the logistics division swung into a profit of RM9.7mil in 1QFY20 from a loss of RM16.8mil in 1QFY19. The YoY turnaround in earnings in 1QFY20 was driven by higher throughput and the absence of impairments. The division recorded a RM25mil provision for its employee separation scheme and a RM16.3mil impairment on overdue balances in 1QFY19.

Source: AmInvest Research - 29 May 2020

Labels: FGV
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Telecommunication- Report card portends a weaker 2Q

Author: AmInvest   |  Publish date: Fri, 29 May 2020, 8:47 AM


Investment Highlights

  • Less optimistic 1QFY20 report card. The telco sector’s 1Q2020 results performance was disappointing as Digi, Maxis and Axiata Group came in below expectations due to higher operating costs and IFRS 16 lease accounting-driven depreciation charges. TM’s normalised net profit, which fell 19% YoY from declining Streamyx subscribers and average revenue per users (ARPU), was in line with expectations. While registering an outstanding net profit growth of 55% YoY from strong overall revenue expansion amid non-recurring gains on contractual penalties and forex gains, Time dotCom’s (UNRATED) 1QFY20 results were still largely within consensus’ sanguine expectations.
  • Reviewing FY20F guidance. All telcos have withdrawn or currently reviewing their earlier FY20F guidance for revenue, EBITDA and capex due to the uncertain Covid-19 impact on net subscription rates for celcos with the closure of retail outlets commencing 18 March 2020 amid the Streamyx repricing process for TM. We highlight that net subscription rates have yet to account for the full impact of the ongoing Covid-19 movement restrictions.
  • Lower celco earnings. 1Q2020 celco core net profit fell by 7% QoQ to RM869mil largely on lower revenues and higher depreciation charges which include IFRS 16 lease charges and traffic costs. This was exacerbated by lower subscribers for Celcom’s postpaid and prepaid segments which experienced IT delays in new launches amidst Covid-19 movement restrictions.
  • Total subscriber trajectory continued its downward trend after a brief uptick in 2Q2019 amid the still intense mobile competition. Mobile subscribers decreased by 580K QoQ as prepaid declines of 704K were only able to be partially offset by postpaid additions of 124K. Only Maxis registered a 91K net increase while Celcom declined by 390K and Digi by 281K.
  • Lower service revenues. Celcos’ service revenues fell 9% QoQ to RM5.5bil largely from the prepaid segment for all operators and to a lesser extent, Celcom’s postpaid segment. This stemmed from lower subscribers together with lower ARPUs for both divisions as blended ARPU contracted RM3/month QoQ to RM45.70/month.
  • Maxis’ overall subscriber base retakes lead position. Since 1Q2016, Digi has held the leading subscriber market share due to its strength in the prepaid segment, underpinned by the migrant population. However, Maxis’ postpaid subscriber focus and convergence strategy with its fibre broadband services appear to be working out better than Digi and Celcom’s. In 1Q2020, Maxis’ subscriber market share of 37.2% has finally overtaken Digi’s 36.4% while Celcom remained a distant third at 26.4%.

    Additionally, Maxis remains the leader in the postpaid segment with an ARPU and subscriber base which are higher by 23% and 24% respectively compared to Digi’s. While the postpaid segment accounts for 34% of Maxis’ subscriber base, it makes up 58% of the group’s 1QFY20 group service revenue. As a comparison, Digi’s postpaid segment accounts for 28% and 47% of its subscriber base and group service revenue respectively in 1QFY20.
  • Intense mobile competition with unlimited data. Earlier this year, Celcom introduced a postpaid plan with unlimited data with its MEGA product launch at RM98/month with a hotspot quota of 5GB/month. U Mobile also has a new GX38 prepaid plan which offers unlimited data at a promotional price of RM35/month with a speed cap of 6Mbps, compared with 3Mbps for its existing GX30 plan priced at RM30/month. For comparison, Digi currently offers its Infinite online plan with unlimited data and calls at RM100/month while Unifi Mobile is priced at RM99/month. Maxis currently does not have an unlimited data plan, with the highest MaxisOne quota of 60GB priced at RM188/month. While operators are navigating cautiously under the current movement restrictions, we do not preclude future erosion in ARPUs from new pricing challenges.
  • Maintain NEUTRAL outlook on the sector given the unmitigated mobile competition amid escalating capex requirements against the backdrop of the National Fiberisation and Connectivity Plan (NFCP) agenda to improve national connectivity and affordability. Our only BUY currently is Axiata, given its low EV/EBITDA valuations and rising prospects for monetisation of its multiple businesses.
  • Sector can be de-rated on resumption of revenue declines against the backdrop of escalated mobile price war and potential cuts in fixed broadband prices this year under NFCP prerogatives. We are also cautious on possibilities of higherthan-expected increase in operating and capital cost requirements as operators need to further upgrade their network infrastructure for 5G rollouts.
  • Sector can be upgraded on renewed consolidation prospects amongst the current 6 main cellular operators which could lead to a moderation in mobile price competition, official suspension of the MCMC’s plans for further broadband price cuts and significant contraction in operating costs from increased infrastructure-sharing arrangements amongst operators.

Source: AmInvest Research - 29 May 2020

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Sunway Berhad- 1QFY20 earnings hit by Covid-19 but outlook still positive

Author: AmInvest   |  Publish date: Thu, 28 May 2020, 9:03 AM


Investment Highlights

  • We maintain our BUY call on Sunway Bhd (Sunway) with a lower FV of RM1.78 per share from RM1.81 based on SOP valuations (Exhibit 3). We cut our FY20 and FY21 net profit forecasts by 18.6% and 3.1% respectively to reflect the impact of the movement order control (MCO) and the Covid- 19 pandemic, and the timing of recognition and lower construction earnings. We make no changes to our FY22 net profit forecast.
  • Sunway reported 1QFY20 revenue and net earnings of RM971.4mil (-13.5% YoY) and RM78.3mil (-42.6% YoY) respectively. After the distribution to holders of perpetual sukuk (RM11.9mil), core PATMI of RM66.4mil (-51.3%) came in below our and market expectations at 11% and 9% of ours and consensus full-year estimates. The lower earnings were mainly due to: (i) the MCO and Covid-19 pandemic which caused disruption in the overall business; and (ii) the adoption of MFRS 15 which resulted in lower recognition of its property development projects in China and Singapore.
  • The property development division posted 1QFY20 revenue and PBT of RM139.2mil (+58.4% YoY) and RM39.1mil (+19.1%) respectively. The stronger PBT was mainly due to higher profit recognition and progress billings from local development projects. Sunway reported stronger new sales of RM581mil (+120% YoY) while unbilled sales of RM3.2bil (YoY: RM2.2bil; QoQ: RM2.7bil) will provide good earnings visibility in the short to mid-term.
  • The property investment segment registered 1QFY20 revenue of RM134.3mil (-31.7% YoY) and PBT of RM32.0mil (-44.3% YoY). The lower revenue was attributed to a weaker contribution from rental income as a result of the Covid-19 pandemic and the impact of the MCO.
  • The healthcare segment chalked up 1QFY20 revenue of RM149.2mil (+17.7% YoY) and loss before tax of RM4.5mil (- 128.9% YoY). The segment’s loss was mainly due to a sharp drop in the number of admissions and outpatient treatments at Sunway Medical Centre as a result of the MCO.
  • The construction segment’s 1QFY20 revenue and PBT came in at RM218.0mil (-37.0% YoY) and RM22.6mil (-43.4% YoY) respectively. The weaker performance was mainly due to lower recognition amid the subdued local and overseas market conditions and lower operating margins. YTD, Sunway Construction has secured new jobs worth RM0.7bil while its outstanding construction order book stands at RM5.4bil.
  • Sunway has proposed a renounceable rights issue of up to 1.1bil of new irredeemable convertible preference shares (ICPS) on the basis of 1 ICPS per 5 existing shares @ RM1.00 per ICPS. The tenure is 5 years at a dividend rate of 5.25% per annum, payable semi-annually. 50% of the outstanding ICPS shall be converted into new shares on the market day immediately preceding the 4th anniversary of the issue date of the ICPS at the conversion price of RM1.00 per share. The remaining balance of the ICPS shall be converted into new shares on the maturity date at a similar conversion price. The proposals are expected to be completed in 4QFY20.
  • To recap, we have cut our FY20–FY21 net profit forecasts by 15% and 13% respectively in our previous sector reports dated 19 March and 9 April 2020 to reflect the impact of the MCO and its spillover effects to the economy and the company’s business. We further reduce our FY20 and FY21 net profit forecasts by 18.6% and 3.1% respectively following our downgrade in Sunway Construction and the adoption of MFRS 15 to reflect the timing of recognition.
  • While we do not see any impact of the ICPS on our FV due to the higher cost of the ICPS plus the conversion price as compared to the current share price, we reduce our FV to RM1.78 per share from RM1.81 per share as a result of our FY20–FY21 earnings revision. Despite the temporary setbacks, we believe the outlook for Sunway remains positive premised on: (i) its improving unbilled sales of RM3.2bil; (ii) stable income contribution from property investment; (iii) a robust outstanding order book of RM5.4bil; and (iv) strong growth potential in healthcare business. Maintain BUY.

Source: AmInvest Research - 28 May 2020

Labels: SUNWAY
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Padini Holdings- 9MFY20 net profit falls 15% but meets expectations

Author: AmInvest   |  Publish date: Thu, 28 May 2020, 9:01 AM


Investment Highlights

  • We maintain our BUY call on Padini Holdings (Padini) with a higher fair value of RM3.15/share (from RM2.93/ share). Our fair value for Padini is based on a PE of 13x CY21F EPS (rolled over from FY21F EPS). Our PE multiple is based on Padini’s average historical forward PE multiple.
  • Padini’s 9MFY20 core net profit of RM90.5mil (-15% YoY) accounted for 84% of our and 70% of street’s full-year earnings forecasts respectively. We deem this as largely in line with our expectations as we anticipate a subdued performance in 4QFY20 due to the full-blown impact of Covid-19 on retail shopping.
  • We anticipate the adverse impact from the Covid-19 pandemic to be larger in 4QFY20 due to the extended MCO affecting most of the quarter from 1 April to 9 June 2020. However, the group plans to control costs, preserve cash, streamline operations and optimize working capital which should slightly lessen the negative impact. We also expect recovery to come in gradually in FY21F and FY22F postcontainment of Covid-19 pandemic.
  • Padini’s 3QFY20 revenue tumbled 27% YoY to RM347.3mil (-30% QoQ). This is despite the Chinese New Year festive season, which would normally drive the group’s sales in 3Q. The group was adversely impacted by the Covid-19 outbreak as well as the enforcement of the movement control order (MCO) from 18 March to 31 March 2020.
  • 3QFY20 gross margin grew 5ppt to 42.7% (+3ppt QoQ). We believe this was due to Padini’s cost control measures and cheaper raw materials from China due to the pandemic.
  • 3QFY20 PBT dropped 50% YoY to RM24.1mil (-68% QoQ) while PBT Margin fell 3ppt YoY to 6.9% (-8ppt QoQ). This was due to the lower sales during the MCO. The QoQ drop was also partly due to the bonus payout in 3QFY20.
  • 9MFY20’s topline fell 7% YoY to RM1,181mil (vs. RM1,267mil previously). The sharp drop in footfall at stores in 3Q had resulted in a plunge in sales that erased the cumulative revenue gain for the group (revenue grew 5% YoY in 1HFY20) due to the Covid-19 pandemic.
  • 9MFY20 PBT slid 14% to RM126.2mil while PBT margin fell 1ppt to 11%. The pressure on margin from lower sales during the outbreak was slightly alleviated by cheaper raw material as gross margin grew 2ppt YoY to 41%.
  • Padini’s effective tax rate slipped 0.5ppt to 27% as the group utilized deferred tax assets amounting to RM4.4mil in 9MFY20. The effective tax rate is slightly high due to some non-deductible expenses.

Source: AmInvest Research - 28 May 2020

Labels: PADINI
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IOI Corporation- Bunge Loders in the red in 3QFY20

Author: AmInvest   |  Publish date: Thu, 28 May 2020, 8:59 AM


Investment Highlights

  • We maintain HOLD on IOI Corporation with an unchanged fair value of RM3.17/share. Our fair value for IOI is based on an FY21F PE of 20x.
  • IOI’s 9MFY20 core net profit of RM569.1mil (ex-net forex loss of RM206.5mil) was below our forecast and consensus estimates.
  • We have reduced IOI’s FY20F net profit by 4.8% to account for weaker manufacturing EBIT margin and lower FFB production growth of -9% vs. zero previously.
  • IOI’s EBITDA fell by 6.7% YoY to RM975.0mil in 9MFY20 dragged mainly by a 29.0% decline in manufacturing EBIT (refining and oleochemicals).
  • Manufacturing EBIT margin (ex-associates and fair value changes) shrank to 4.3% in 9MFY20 from 6.2% in 9MFY19 due to a higher cost of feedstock and lower sales volume of oleochemical products. We believe that global demand for basic oleochemical products is soft currently due to the Covid-19 pandemic.
  • Although plantation EBIT (ex-associates and fair value changes) climbed by 23.2% YoY to RM397.3mil in 9MFY20, this was not enough to offset the slide in manufacturing profits. The YoY rise in plantation EBIT in 9MFY20 was underpinned mainly by higher CPO prices.
  • Average CPO price rose by 12.5% to RM2,294/tonne in 9MFY20 from RM2,039/tonne in 9MFY19. FFB production growth was -14% YoY in 9MFY20.
  • Comparing 3QFY20 against 2QFY20, IOI’s plantation division EBIT (ex-associates and fair value changes) slid by 12.5% QoQ to RM136.7mil in 3QFY20 due to lower FFB production. IOI’s FFB production dropped by 20.8% QoQ in 3QFY20. Average CPO price was RM2,704/tonne in 3QFY20 vs. RM2,246/tonne in 2QFY20.
  • Manufacturing EBIT (ex-associates and fair value changes) declined by 34.1% QoQ to RM52.2mil in 3QFY20 due to lower refining and oleochemical margins. Also, IOI recognised a share of loss of RM19.8mil in Bunge Loders Croklaan in 3QFY20 due to provision for doubtful debts and mark to market losses on commodity derivatives.
  • Going forward, IOI expects its plantation earnings in 4QFY20 to be similar to that of 3QFY20 as higher palm production would mitigate weaker CPO prices. In the oleochemical division, higher demand for personal hygiene products is expected to partly offset the reduced demand for non-healthcare products in FY20F.

Source: AmInvest Research - 28 May 2020

Labels: IOICORP
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KL Kepong- Lower manufacturing earnings

Author: AmInvest   |  Publish date: Thu, 28 May 2020, 8:57 AM


Investment Highlights

  • We maintain SELL on Kuala Lumpur Kepong (KLK) with an unchanged fair value of RM18.10/share. Our fair value for KLK is based on an FY21F PE of 20x.
  • KLK’s 1HFY20 core net profit of RM345.6mil (ex-unrealised forex loss of RM150.5mil) was below our expectations and consensus estimates.
  • We have reduced KLK’s FY20F net profit by 15.1% to account for a weaker plantation EBIT margin. KLK’s plantation EBIT margin was affected by a higher cost of production per tonne (resulting from lower volume of production) and unrealised fair value loss of RM16.0mil on derivative contracts in 1HFY20.
  • KLK’s EBIT rose by 4.9% YoY to RM541.8mil in 1HFY20 underpinned mainly by a 38.0% increase in plantation EBIT. This helped compensate for a 7.7% YoY decline in manufacturing EBIT and 89.8% YoY plunge in the earnings of the “others” division (mainly wheat and cattle farming in Australia) in 1HFY20. The “others” division was affected by lower crop yields and planted areas in 1HFY20.
  • KLK’s manufacturing EBIT slid by 7.7% to RM200.0mil in 1HFY20 from RM216.7mil in 1HFY19 dragged by weaker sales volume of oleochemical products and an unrealised fair value loss of RM21.8mil on derivative products (1HFY19: unrealised fair value gain of RM16.4mil). In spite of this, manufacturing EBIT margin inched up to 5.1% in 1HFY20 from 4.8% in 1HFY19. We attribute this to sales of higher value-added oleochemical products in Malaysia.
  • KLK’s plantation EBIT improved by 38.0% to RM320.8mil in 1HFY20 from RM232.5mil in 1HFY19 due to stronger CPO prices in 2QFY20 and higher refining profits.
  • Average CPO price realised was RM2,373/tonne in 1HFY20 compared with RM1,906/tonne in 1HFY19. On a quarterly basis, average CPO price climbed to RM2,572/tonne in 2QFY20 from RM2,207/tonne in 1QFY20.
  • KLK’s FFB production fell by 10.7% YoY in 1HFY20. Comparing 2QFY20 against 1QFY20, the group’s FFB output declined by 8.9%
  • Going forward, KLK said that its plantation profits would be satisfactory this year due to decent CPO prices achieved to date. The oleochemical division will focus on the recovery of its major customer markets although the operating environment is expected to be challenging this year.

Source: AmInvest Research - 28 May 2020

Labels: KLK
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MSM Malaysia- Still in the red in1QFY20

Author: AmInvest   |  Publish date: Thu, 28 May 2020, 8:56 AM


Investment Highlights

  • We downgrade MSM Malaysia to SELL from HOLD with a fair value of RM0.58/share. Our fair value of RM0.58/share implies a multiple of 0.4x on MSM’s NTA of RM1.46/share as at end-FY19.
  • We have raised MSM’s FY20F net loss to RM70.6mil from RM46.6mil as it would take time for the sugar refinery in Johor to swing into the black.
  • We believe that the offtake of refined sugar from the Tanjung Langsat refinery was still low in 1QFY20. The average utilisation rate of the refinery was about 34% in 1QFY20 vs. 30% in FY19.
  • MSM’s net loss widened to RM34.7mil in 1QFY20 from RM7.1mil in 1QFY19 due to a provision of RM5.0mil in respect of the closure of its Perlis operations and recognition of interest and depreciation expenses for the sugar refinery in Johor. MSM started recognising interest and depreciation for the Johor refinery only from 2QFY19 onwards.
  • The planned cessation of the Perlis refining operations will be on 30 June 2020 where the mobilisation of manpower and equipment from Perlis to the refineries in Johor and Penang will be conducted in stages and completed by 4QFY20.
  • On a positive note, MSM’s revenue improved by 5.2% YoY to RM511.0mil in 1QFY20 as sales volume rose by 5.3%. Average selling price of MSM’s refined sugar was flat YoY in Malaysia in 1QFY20 as competition from imported sugar dissipated.
  • Average selling price in the industrial customer segment edged down by 0.4% YoY to RM2,015/tonne in 1QFY20. Average selling price of sugar in the retail customers segment climbed by 7.2% YoY in 1QFY20.
  • Sales volume (ex-molasses) of MSM’s sugar products improved by 5.3% YoY to 235,928 tonnes in 1QFY20. Breaking it down, sales volume to the domestic retail market plunged by 33.1% YoY in 1QFY20 while sugar demand from the industries shot up by 52.9%. Sales volume of exports increased by 37.5% YoY in 1QFY20.

Source: AmInvest Research - 28 May 2020

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Stocks on Radar- JCY International (5161)

Author: AmInvest   |  Publish date: Thu, 28 May 2020, 8:54 AM


 

JCY International rebounded from its low to touch the resistance level RM0.32. Observe that the momentum indicator RSI is above 60%, and coupled with a rising trading volume, we see that it may soon break out from the resistance level. If this happens, the uptrend momentum will resume and move towards the short-term target prices of RM0.355 and RM0.375. In this case, the downside support is marked at RM0.28, whereby traders may exit on a breach to avoid the risk of a further correction

Trading Call: Buy on breakout RM0.32

Target: RM0.355, RM0.375 (time frame: 2-4 weeks)

Exit: RM0.28

Source: AmInvest Research - 28 May 2020

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Stocks on Radar- Gadang Holdings (9261)

Author: AmInvest   |  Publish date: Thu, 28 May 2020, 8:52 AM


Gadang Holdings was testing the resistance level RM0.49 in its recent session with higher trading volume. With the momentum indicator RSI pointing upwards, we see that it may soon break out from the resistance level. If this happens, expect it to travel towards the short-term target prices of RM0.53 and RM0.57. The downside support is anticipated at RM0.425, whereby traders may exit on a breach to avoid the risk of a further correction

Trading Call: Buy on breakout RM0.49

Target: RM0.53, RM0.57 (time frame: 2-4 weeks)

Exit: RM0.425

Source: AmInvest Research - 28 May 2020

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Public Bank- Steep compression in interest margin, higher provisions

Author: AmInvest   |  Publish date: Wed, 27 May 2020, 9:17 AM


Investment Highlights

  • We keep our HOLD call on Public Bank (PBB) as we continue to see declining ROEs which will reduce the its premium valuation compared to its peers. Our FV is revised to RM15.50/share from RM15.95/share, pegging the stock to a lower FY20 P/BV of 1.3x, supported by an ROE of 11.1%. We tweak our FY20/21/22 earnings by -0.5%/2.3%/3.1% on lower loan growth forecast of 2%/2%/4% and fine-tune our NIM assumptions.
  • The group reported a 1Q20 net profit of RM1.33bil, down 5.7% YoY due to lower net interest income from OPR cuts, higher overhead expenses and provisions.
  • Earnings were within expectations, making up 26.7% of our and 25.5% of consensus estimates. The group delivered an ROE of 12.2% for 1Q20.
  • The group’s loan growth (domestic and overseas) moderated to 3.9% YoY. Domestic loans grew 3.8% YoY, slightly behind industry’s 4.0% YoY growth.
  • Deposit growth slipped to 3.5% YoY in tandem with loans. However, CASA expanded by a faster pace of 3.2% YoY, resulting in a higher CASA ratio of 25.4%.
  • Group NIM fell by 12bps QoQ or 10bps YTD to 2.05% in 1Q20 due to OPR cuts of 25bps each on Jan and Mar 2020. In 2Q20, NIM is anticipated to be compressed again due to the 50bps reduction in OPR to 2.00% on 5 May 2020. Every 25bps cut in OPR will have an impact of 3– 4bps on the group’s NIM. With a YTD OPR cut of 100bps, management is now guiding for the group’s FY20 NIM to be compressed by 15bps compared to 5–10bps earlier.
  • The group’s 1Q20 NOII grew by 5.7% YoY to RM618mil. The improvement was contributed by gains from the disposal of FVTOCI securities of RM106mil, and higher unit trust and brokerage income.
  • It recorded a negative JAW of 6.0% YoY with opex outpacing income. CI ratio increased to 35.7% due to challenges on revenue growth.
  • The group's credit cost increased to 7bps in 1Q20 vs. 5bps in 4Q19 due to pre-emptive provisions taken for the impact of Covid-19. For FY20, we are maintaining our credit cost estimate of 18bps, which is slightly higher than management guidance of up to 15bps.

Source: AmInvest Research - 27 May 2020

Labels: PBBANK
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Sime Darby Property- Cash flow management is the priority for FY20

Author: AmInvest   |  Publish date: Wed, 27 May 2020, 9:16 AM


Investment Highlights

  • We maintain our HOLD recommendation on Sime Darby Property (SimeProp) with an unchanged FV of RM0.60 based on a 60% discount to RNAV (Exhibit 1). We make no changes to our FY20–FY22 net earnings forecast.
  • SimeProp held an analyst briefing yesterday to shed more light on its recently announced 1QFY20 results. Here are the key takeaways:

1) Sales target. SimeProp chalked up new sales of RM344.6mil (-14.5% YoY) in 1QFY20 whereby 56.1% were derived from residential properties. Management guided for a reduction of sales target by 30%-40% to about RM1.5bil for FY20.

2) Unbilled sale declined by 5.5% YoY to RM1,466.8mil, of which 69.1% were derived from projects in flagship townships (Elmina West, Bandar Bukit Raja and Serenia City).

3) New launches for 1QFY20. SimeProp launched projects worth RM496.6mil in GDV in 1QFY20 with its main focus on landed residential properties. These new launches received booking of between 64% and 78%.

4) Efforts to reduce inventory levels. SimeProp will carefully review its new launches, taking into account of its existing inventory level. Completed inventories were reduced by 29.3% YoY to RM588.5mil.

5) Key priorities for FY20. The company’s immediate priorities for FY20 will be on cash flow management, active marketing and sales campaigns, inventory management and cost reduction. SimeProp will remain focused on growing its core development business by offering properties within the affordable and mid-range price points in strategic locations.

  • To recap, SimeProp registered a core net profit of RM19.5mil (-67.8% YoY) for 1QFY20. The lower earnings are mainly due to the impact of the movement control order (MCO) and share of loss from Battersea project.
  • The company will continue to monitor the situation and revise its financial targets, including sales estimates, when necessary. At the same time, SimeProp will also continue to monetise its low-yielding assets to unlock value and channel the capital into business opportunities with better returns.
  • Nevertheless, we believe the long-term outlook for SimeProp remains stable, premised on inventory-clearing activities and a healthy balance sheet. As there is little upside potential, we maintain our HOLD recommendation on SimeProp.

Source: AmInvest Research - 27 May 2020

Labels: SIMEPROP
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Titijaya Land- Stay focused and remain prudent

Author: AmInvest   |  Publish date: Wed, 27 May 2020, 9:13 AM


Investment Highlights

  • We are maintaining our HOLD recommendation on Titijaya Land (Titijaya) with an unchanged fair value of RM0.28 based on a 50% discount to its RNAV (Exhibit 2). We cut our FY20 and FY21 net profit forecasts by 21.4% and 6.7% respectively to reflect the timing of recognition. We keep our FY22 numbers unchanged.
  • Titijaya's 9MFY20 net profit of RM7.1mil (-78.4%) came in below expectation at 65% of our full-year forecast. 9MFY20 revenue and net earnings declined by 46.2% and 78.4% YoY respectively due to lower progress recognition from the completed H2O, Mizu; and the impact of the movement control order (MCO).
  • 9MFY20 revenue was mainly contributed by Neu Suites @3rdNvenue, The Shore @ Kota Kinabalu and The Riv @ Riveria City.
  • Titijaya chalked up new sales of RM143mil for the same period while unbilled sales of RM470mil provide good earnings visibility for the next 2–3 years.
  • Financial leverage remains stable with a lower net gearing of 23.0% as compared with 24.4% QoQ.
  • Titijaya launched Seiring Residensi in August 2019, which is phase one of its Damaisuria township project. Consisting of four towers, Seiring Residensi offers units at sizes ranging from 668 sq ft to 972 sq ft, with up to four bedrooms. Developed over four phases, Damaisuria will have a total GDV of RM1.59bil, while the first phase Seiring Residensi will have a GDV of RM677mil.
  • Meanwhile in short to mid-term, Titijaya will remain prudent with fewer new launches and remain focused on developing affordable properties.
  • For future development, Titijaya has a remaining landbank of 155 acres with a combined GDV of about RM9.4bil, located mainly in the Klang Valley. The projects planned are Emporia @ Glemnarie (mixed development – GDV of RM1.51bil); Klang Sentral (serviced apartment – GDV of RM700mil); Damai Suria (township – GDV of RM1.48bil); Odeon @ Jalan TAR, KL (serviced apartment & retail mall – GDV of RM1.17bil); 3rdNvenue Phases 3 & 4 and retail (high-rise mixed – GDV of RM997mil); Taman Seri Residensi Phases 3A & 4 and Selangorku (landed residential – GDV of RM161mil); Riveria City @ KL Sentral Phases 2 & 3 and retail (integrated development – GDV of RM1.1bil); and Areca @ Batu Maung, Penang (mixed development – GDV of RM2.52bil).
  • Management indicated that several ongoing projects have progressed beyond the initial stage of construction, therefore the coming quarters should see a stronger performance. Maintain HOLD.

Source: AmInvest Research - 27 May 2020

Labels: TITIJYA
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Sime Darby Plantation- Dragged by higher tax rate

Author: AmInvest   |  Publish date: Wed, 27 May 2020, 9:12 AM


Investment Highlights

  • We maintain UNDERWEIGHT on Sime Darby Plantation (SDP) with an unchanged fair value of RM3.43/share. SDP is currently trading at a lofty FY21F PE of 35.9x. Our fair value of RM3.43/share for SDP is based on an FY21F PE of 25x.
  • Included in SDP’s reported net profit were a gain of RM262mil on the disposal of 366ha of land in Malaysia and a RM74mil gain on a reversal of foreign currency reserves resulting from the disposal of the Liberia assets in late 2019. SDP also recorded fair value gains of RM198mil on commodity futures contracts in 1QFY20 after registering fair value losses of RM175mil in 4QFY19 and zero in 1QFY19.
  • After stripping out the disposal gain and reversal of foreign currency reserves amounting to RM336mil in total (but including the RM198mil fair value gains on commodity futures contracts), SDP’s 1QFY20 core net profit of RM58.0mil fell short of our forecast and consensus estimates. We have reduced SDP’s FY20F net profit by 17% to account for weaker plantation and downstream EBIT margins.
  • SDP was dragged by a RM74mil write-down of deferred tax assets arising from the change in corporate tax rates in Indonesia in March 2020. As a result, SDP’s effective tax rate surged to 29.7% in 1QFY20 from 11.2% in 1QFY19.
  • Also interestingly, SDP’s average CPO price realised in Malaysia was only RM2,491/tonne in 1QFY20 compared with RM2,600/tonne to RM2,620/tonne achieved by several plantation companies (with operations in Malaysia and Indonesia) and MPOB average spot price of RM2,703/tonne.
  • Still, SDP benefited from the YoY surge in CPO prices in 1QFY20. EBIT of the upstream division in Malaysia climbed to RM175.0mil in 1QFY20 from RM113.0mil in 1QFY19 (partly driven by fair value gains) while in Indonesia, the upstream division registered a larger EBIT of RM39.0mil in 1QFY20 vs. a mere RM9.0mil a year ago. The PNG division recorded an EBIT of RM74.0mil in 1QFY20 compared to a loss of RM19.0mil in 1QFY19.
  • Group average CPO price realised rose by 29.5% to RM2,605/tonne in 1QFY20 from RM2,012/tonne in 1QFY19. Average CPO prices realised were RM2,491/tonne in Malaysia, RM2,613/tonne in Indonesia and RM2,828/tonne in PNG in 1QFY20.
  • Group FFB production growth was -16% YoY in 1QFY20. In Malaysia, FFB output fell by 23.0% YoY in 1QFY20 while FFB production in Indonesia slid by 3%. The PNG division registered a 9% YoY decline in FFB output in 1QFY20.

Source: AmInvest Research - 27 May 2020

Labels: SIMEPLT
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Rep20200527_CIMB-Group-200527.pdf

Author: AmInvest   |  Publish date: Wed, 27 May 2020, 9:09 AM


Investment Highlights

  • We downgrade our recommendation on CIMB Group Holdings (CIMB) to SELL from HOLD with a lower FV of RM3.00/share (previously RM3.60/share) based on a lower FY20 ROE of 5.1%, leading to a P/BV of 0.5x. We trim our FY20/21 net profit by 21.6%/17.1% to reflect higher credit cost of 1.00%0.95%.
  • CIMB reported a lower 1Q20 core net profit of RM508mil (-56.8% YoY) due to a weaker NOII from a decline in FX and trading income coupled with higher provisions.
  • 1Q20 net profit was below expectations, accounting for 13.5% of our and 12.5% of consensus estimates. The group delivered a low ROE of 3.7%.
  • The group's gross loans decelerated to 3.8% YoY largely due to slowdown of loans in Malaysia and Singapore. Malaysia loans grew 4.4% YoY, higher than the industry growth of 4.0% YoY.
  • NIM slipped 9bps QoQ to 2.44% mainly due to the OPR cuts of 25bps each in Jan and Mar 20 in Malaysia. Also, the interest margin compression was contributed by a 50bps reduction in benchmark interest rates in Indonesia (25bps each in Feb and Mar 2020).
  • Opex for 1Q20 grew marginally by 0.7% YoY (-0.1% YoY excluding FX impact). Except for higher marketing expenses for Touch ‘n Go, personal, establishment, admin and general expenses were well controlled. Twothirds of its capex for this year will be deferred. CI ratio for 1Q20 climbed to 56.0% due to the weaker revenue.
  • 1Q20 credit cost came in higher at 106.0% driven largely by the full provision of RM430mil for the default of loans extended to an oil trader in Singapore. Also, there were higher provisions for consumer loans in Malaysia due to rise in delinquency of circa RM100mil and a top-up in provisioning for corporate loans in Indonesia.
  • Apart from allowances taken for loans, the group also reported provisions of RM52mil for undrawn facilities and RM109mil for the foreclosure of assets in Thailand.
  • CIMB’s overall GIL ratio rose to 3.43% from 3.07% in the preceding quarter underpinned largely by the increase in loans impairments in Malaysia, Singapore and Indonesia.

Source: AmInvest Research - 27 May 2020

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