Highlights

AmInvest Research Reports

Author: AmInvest   |   Latest post: Mon, 18 Oct 2021, 9:55 AM

 

Economics & FX Highlights - Risk-on sentiment permeates global market

Author: AmInvest   |  Publish date: Mon, 18 Oct 2021, 9:55 AM


  • Risk-on sentiment permeates global market
  • MYR to fluctuate in the range of 4.1480 and 4.1644 against US dollar

Global Highlights

The dollar index edged lower by 0.02% to 93.937 as the risk-on sentiment in the market recovered. The dollar may also have been supported by the unexpected strong retail data. Reports showed that September retail sales grew by 0.7% compared to the market expectations of 0.2% contraction. On the other hand, the University of Michigan’s consumer sentiment dropped to 71.4 for October from 72.8 and below the market forecast of 73.1.

Equities extended its gains when the Dow Jones rose 1.09% to 35,295 while the S&P 500 climbed 0.75% to 4,471. The UST 10- year yield rebounded as it gained 5.9bps to 1.570%. Gold tumbled sharply by 1.57% to US$1,768/oz.

The euro rose 0.03% to 1.160. Among local data, the euro area’s trade surplus narrowed significantly to €4.8bil for August from €20.7bil in July.

The British pound strengthened 0.57% to 1.375. Concerns are mounting on the UK economy over surging energy prices and a shortage of workers.

The Japanese yen continued to be on the losing side when it depreciated 0.48% to 114.22, approaching a level has not been seen since 2017. This is amid the BoJ's decision of not reversing its accommodative stimulus amidst recovering risk sentiment.

In the meantime, the Chinese yuan inched higher by 0.06% to 6.436. Investors await today’s GDP data for more insight on Beijing's policy outlook.

Crude oil continued its rally as Brent climbed 1.02% to US$84.9 per barrel while the WTI added 1.19% to US$82.3 per barrel over signs of a market demand and supply mismatch.

Malaysia Highlights:

The ringgit took a break from its six-day rally as it weakened by 0.08% to 4.158. It was traded at a high of 4.1602 and low of 4.1543. The FBM KLCI edged higher by 0.36% to close at 1,598. Local transactions showed that foreign investors were net buyers at RM303.2mil, while local institutions and retailers were net sellers, raking up RM221.1mil and RM82.2mil, respectively.

Meanwhile, National Recovery Council chairman Tan Sri Muhyiddin Yassin stated on Friday that the government is mulling the opening of the country's borders to fully vaccinated international travellers from selected countries without the need for quarantine.

Over in the local bond market, most yields remained stable. The 3-year, 5-year and 7-year stayed unchanged at 2.550%, 3.120%, 3.430%, respectively, while the 10-year was at -1.5bps to 3.545%.

The IRS yield curve shifted higher for most of durations – the 5Y +1.0bps to 2.895%, 7Y +2.3bps to 3.140%, 10Y +1.5bps to 3.380% while the 3Y was flat at 2.585%.

Against major currencies, the ringgit mostly weakened; vs. the EUR by 0.03% to 4.825, vs. the GBP by 0.19% to 5.706, vs. the AUD by 0.16% to 3.084, vs. the CNY by 0.18% to 1.547, but it strengthened against the JPY by 0.45% to 3.638. Regionally, the ringgit was mixed. It appreciated vs. the THB by 0.29% to 8.007, and vs. the PHP by 0.08% to 12.198, but depreciated vs. the SGD by 0.09% to 3.084, vs. the IDR by 0.43% to 3,384, and vs. the VND by 0.02% to 5,475.

MYR Outlook For The Day

We expect the MYR to trade between our support level of 4.1400 and 4.1480 while our resistance is pinned at 4.1644 and 4.1785.

 

Source: AmInvest Research - 18 Oct 2021

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IHH Healthcare - PNB to place out IHH shares?

Author: AmInvest   |  Publish date: Mon, 18 Oct 2021, 9:53 AM


  • We maintain our HOLD call on IHH Healthcare (IHH) with an unchanged fair value (FV) of RM6.29. We use DCF to value IHH Healthcare with WACC of 7% and terminal growth rate of 3.5%. Incorporated in our FV is a 3% premium for our ESG rating of 4 stars for the company. Over the weekend, media reported that PNB is placing out some of its shares in IHH Healthcare. We are neutral on the news pending a formal announcement on the placement.
  • The Edge Malaysia (TEM) weekly, citing a source familiar with the matter, reported that Permodalan Nasional Bhd (PNB) is placing out some of its shares in IHH Healthcare.
  • Based on its Annual Report 2020, PNB (through its various funds and subsidiaries) owns around 5.5% stake in IHH Healthcare. The top three shareholders for IHH Healthcare are Mitsui & Co Ltd (32.90%), Khazanah Nasional (25.81%) and the EPF (8.30%) as of 31 March 2021.
  • We are neutral on the news pending a formal announcement on the placement (if it materializes). IHH share price has done well this year with a YTD gain of 22% to RM6.72 (from RM5.50). This was supported by its strong EBITDA growth in 1H2021, surging by 107% to RM2.07bil.
  • On the 3Q2021 outlook, we reiterate our view that earnings for 3Q2021 should decline QoQ. We expect lower earnings from IHH Laboratory. Covid-19 daily new cases in India have eased to ~20,000 cases in September from a peak of ~400,000 cases in May. This should result in lower revenue for IHH Laboratory in 3Q2021 due to fewer Covid-19 tests. Recall that IHH Laboratory generated a revenue of RM975mil in 1H2021. India has the highest number of labs at over 420 (87% of the total 483 labs in 4 key markets). Although the number of elective surgeries may increase in 3Q2021, we expect that these would not be enough to offset the impact the lower earnings from laboratory tests.


 

Source: AmInvest Research - 18 Oct 2021

Labels: IHH
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Mah Sing Group - Sales and margins on track

Author: AmInvest   |  Publish date: Mon, 18 Oct 2021, 9:51 AM


Investment Highlights

  • We upgrade Mah Sing Group (Mah Sing) to BUY from HOLD as its 18% share price decline over the past 6 months has offered higher upside potential to our unchanged SOPbased fair value of RM0.95/share. We have a neutral ESG rating of 3 stars (Exhibits 1 & 2) for Mah Sing.
  • We are keeping our FY21F earnings forecasts pending the company’s 3QFY21 results to be announced by end November.
  • Here are the key takeaways from our recent engagement with the group’s executive director Datuk Steven Ng:
    • Recall that projects in Klang Valley remained the largest segment, contributing 88% of the group’s 1HFY1 sales, followed by Johor (9%) and Penang (3%). Given the improved prospect for Klang Valley’s property market as it moved to the National Recovery Plan Phase 4, the sales target of RM1.6bil is likely to be achievable. The group’s 8MFY21 secured sales at RM1.1bil accounted for 68% of its full-year sales target.
    • Construction progress is back to full force in September, and Mah Sing is confident that the projects will be mostly delivered on time as the group usually has a 6-month buffer period in its construction arrangements with contractors vs. handover to home buyers.
      Also, under the Temporary Measures for Government Financing [Coronavirus Disease 2019 (Covid-19)] (Amendment) Act 2021, the handover of vacant possession can be extended if it is due to delays caused by movement control orders. Hence, the possibility of being charged with liquidated ascertained damages is minimal at this stage.
    • Meanwhile, we think that rising raw material costs such as steel, tiles and sanitary items would not affect the margin of Mah Sing’s existing property projects as the corresponding sub-contracts have been awarded earlier. Contractors which have a long-term relationship with the group are less likely to pass the additional costs on to the developer as the contracts have already been signed.
      We also understand that the current construction environment remains lacklustre due to the lack of major rollouts of public infrastructure projects. Thus, we believe property developers, including Mah Sing, have more bargaining power on the bidding price for their future developments at this stage. Even so, the specifications of future project launches can be adjusted for any inflation in raw material costs.
    • Mah Sing reiterated its plan of listing the manufacturing arm (combination of plastic division and glove business) within the next 5 years, probably in the Hong Kong stock exchange. In 1HFY21, the plastic division contributed a substantial 21% of the group’s revenue and 10% of pre-tax profit. Over the past 3 years, this division registered a comfortable 1HFY18-–HFY21 CAGR revenue growth of 7.6%. On the other hand, we expect contributions from its glove manufacturing would only materialise in 4QFY21 given significant pre-operating costs while the EMCO halted production for 2 weeks in the 3QFY21. Presently, 8 out of 12 planned factory lines have commenced operations while 2 installed lines are at the testing stage. The final 2 lines are targeted to commence production by end-November.
    • We maintain our revenue projection of RM122mil for FY21F premised on a plant utilisation rate of 15% and glove average selling price (ASP) of US$52/1,000 pcs. For FY22F, we have also not changed our assumption of plant utilisation rate of 50% and ASP of US$34/1,000 pcs, which translates to a revenue of RM250mil.
    • The stock currently trades at FY21F PE of 11x vs. its 5-year average of 12x.


 

Source: AmInvest Research - 18 Oct 2021

Labels: MAHSING
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Telecommunication - Moving towards MCMC targets with 5G in sight

Author: AmInvest   |  Publish date: Mon, 18 Oct 2021, 9:47 AM


Investment Highlights

  • No changes with new minister. We attended the Malaysia Communications and Multimedia Commission’s (MCMC) 4th Quarterly Report on the National Digital Infrastructure Plan (JENDELA) last Friday which was presented by its chairman Dr Fadhlullah Suhaimi Abdul Malek. Notably, he indicated that the new Minister of Communications and Multimedia, Tan Sri Annuar Musa, who was appointed on 30 August 2021, has not changed the MCMC’s JENDELA targets and timelines.
  • Expect 5G rates at worst compared to 4G. While 5G wholesale rates are still currently being evaluated by the MCMC, the chairman affirmed that the mandatory standard access pricing (MSAP) between Digital Nasional and telco operators will lead to retail prices that are at least equal or lower than 4G rates per Mbps.

    For consumers, this could mean that the all-in prices of mobile plans are likely to remain largely unchanged. Telcos are likely to face a flattish revenue trajectory while bearing the additional wholesale charge from Digital Nasional, partly offset by leasing income from the operators existing network infrastructure that will be needed for 5G connectivity.

    Recall that Digital Nasional, which will own, execute and manage 5G spectrum together with the infrastructure that is expected to cost RM15bil, has appointed Ericsson to design and build the national 5G network at a total cost of RM11bil. This comprises RM7bil for tower rental and fibre leasing costs over a 10-year period and RM4bil for network equipment, deployment services, ongoing maintenance and network management. The government-owned 5G wholesaler expects the launch of its network in areas within Kuala Lumpur, Putrajaya and Cyberjaya beginning December 2021, with the objective of achieving 80% nationwide population coverage by 2024.
  • Reassurance for broadband prices. As in the previous engagement, the chairman reaffirmed his view that fixed broadband prices in the country are relatively affordable compared with the region, bringing a measure of clarity to the MSAP review being conducted currently. He also reiterated the difficulties of continued investment into unreached areas on social prerogatives against the backdrop of uncertainties in wholesale prices

    With an easing of broadband price pressures, this reduces longer term earnings risk to the wholesale segment of Telekom Malaysia (TM) and Time dotCom. Recall that under the JENDELA plan, the aim to achieve entry-level fixed broadband packages at 1% of GNI by 2020 could have cut fixed broadband prices to only RM40/month, less than half of unifi’s most affordable plan at RM89/month currently.
  • Phase 1 on track together with 5G rollout. JENDELA’s phase 1 progress is currently on track to reach its national target to provide access to broadband services to 7.5mil premises while achieving mobile broadband speed of 35Mbps and 4G coverage of 96.9% by the end of 2022. QoQ, fiberised premises have increased by 6% to 6.4mil while mobile broadband speeds rose by 19% to 31.3Mbps in 3Q2021 (Exhibits 2 & 3).

    During the quarter, fixed broadband premises increased by 378K, surpassing the MCMC’s target by 2.1x while new mobile sites rose by 67 (3% above target) and upgraded sites by 2,954 (9% above goal). To date, 1.2mil 3G customers have migrated to 4G, with only 413K remaining to reach the year-end target of 1.6mil. The only underperformance came from the slower 79K 3G carriers being switched off vs. a target of 82K due to MCO restrictions which also caused Time dotCom to miss 66% of its 3Q2021 target to fiberise premises.
  • Tower permit costs largely unchanged. Currently, all 14 state governments have established their digital infrastructure committees or councils to facilitate the planning and development of new properties, in which 10 states have adopted the MCMC’s Communication Infrastructure Planning Guideline with Selangor and Kelantan currently finalising the process. Even so, the costs to build towers have not changed significantly over the past 6 months.

    In September 2021, the median permit cost and fees to build new tower structures in the first year have risen by RM325 or 3% to RM11,250/site from RM10,925/site in March this year (Exhibit 5). However, the first-year median permit cost to build new rooftop structures declined by RM50 or 1% to RM8,150/site from RM8,200/site in March 2021 (Exhibit 6).


    Recall that state permits for tower deployment in Malaysia currently have a 6-year median cost of RM42K/site with the most expensive in Johor (RM117K) followed by Melaka (RM105K) and Sarawak (RM65K). Hence, the MCMC has been engaging with the states to reduce permit costs with the aim of speeding up 4G coverage expansion.

    JENDELA aims to improve 4G connectivity to all Malaysians and prepare the nation for a steady transition to 5G technology under the 12th Malaysia Plan (2021–2025), which will be implemented over 2 phases (Exhibit 4). The results of the tender to construct 1,661 new sites, potentially worth RM4.6bil, across unreached areas for 4G expansion have been extended to the end of this month from end-June 2021.
     
  • Differentiating 5G. As Maxis has shown its successful drive to differentiate through superior network quality, brand loyalty, customer care and convergence strategy by bundling with fibre solutions, competitors such as Celcom and Digi have also begun similar marketing campaigns. Even late comer U-Mobile is currently negotiating a wholesale contract with TM to bundle its mobile plans with fibre solutions.

    Increasingly, operators agree that the ongoing intense competition globally will obviate any attempt to charge premium prices for 5G branding unless additional managed services and attractive content are offered to customers. As such, we expect 5G marketing campaigns to follow fixed broadband models in offering unlimited data (limited by speed caps) that will depend on the evolution of the ecosystem involving new applications, devices and content.
     
  • Maintain OVERWEIGHT on the sector given the consolidation synergies for 2 cellular operators which could partly alleviate intense price competition and
    5G cost escalations from Digital Nasional’s wholesale arrangement. We reiterate our BUY call for TM, which has shown significant cost improvements together with compelling dividend yields and HOLD for Maxis given the continuing competition from mobile virtual network operators and affordable segment players like U Mobile constrains revenue growth prospects.


 

Source: AmInvest Research - 18 Oct 2021

Labels: TM, MAXIS
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Stocks on Radar - DRB-Hicom (1619)

Author: AmInvest   |  Publish date: Mon, 18 Oct 2021, 9:38 AM


DRB-Hicom climbed and touched the RM1.68 resistance level. With its RSI indicator moving upward, coupled with higher low candle stick pattern, there is a good chance that it would experience a technical breakout and head towards the short-term target price of RM1.75, followed by RM1.79. The downside support is marked at RM1.58. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM1.68

Target: RM1.75, RM1.79 (time frame: 2-4 weeks)

Exit: RM1.58
 

Source: AmInvest Research - 18 Oct 2021

Labels: DRBHCOM
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Stocks on Radar - OSK Holdings (5053)

Author: AmInvest   |  Publish date: Mon, 18 Oct 2021, 9:37 AM


OSK Holdings rose and tested the RM0.90 resistance level. With its RSI indicator in an uptrend, we see a possibility for a technical breakout. If this happens, we expect it to move towards the short-term target prices of RM0.935 and RM0.975. The downside support is projected at RM0.855. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.90

Target: RM0.935, RM0.975 (time frame: 2-4 weeks)

Exit: RM0.855
 

Source: AmInvest Research - 18 Oct 2021

Labels: OSK
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Economics & FX Highlights - Crude oil remains bullish amidst an energy crisis

Author: AmInvest   |  Publish date: Fri, 15 Oct 2021, 9:57 AM


  • Crude oil remains bullish amidst an energy crisis
  • MYR to fluctuate in the range of 4.1480 and 4.1644 against US dollar

Global Highlights

The dollar index retreated from its 13-month high when it shed 0.13% to close at 93.956 amidst a still bullish trend due to the Fed’s tapering prospect. In addition, weekly labour market data provided little to no support for the greenback. Data showed the number of new unemployment benefit claim has dropped to its lowest since March 2020 at 293K as of 9 October. Separately, the Producer Price Index (PPI) grew at slower pace of 0.5% m/m in September compared to August’s 0.7%.

Equities closed in the green when the Dow Jones rose 1.56% to 34,913 and S&P 500 gained 1.71% to 4,438. The UST 10-year yield benchmark dipped 2.61bps to 1.511%. Gold closed higher as it added 0.16% to US$1,796/oz.

The Common Currency Euro Was Up a Marginal 0.03% to 1.160.

Similarly, the British pound added 0.10% to 1.367. BoE official Silvana Tenreyro stated that the central bank should not react to the inflationary pressure by raising interest rates if it deems that the effects of surging prices are temporary. The statement came amidst an energy crisis that is still looming in the UK.

The Japanese yen weakened by 0.38% to 113.68. On the data front, a final report indicated the industrial output for August grew slower at 8.8% on an annual basis. But the same indicator contracted by 3.6% based on monthly changes, which is a much larger decline than July's 1.5% m/m. On the political front, the Japanese Prime Minister Fumio Kishida dissolved parliament on Thursday for a general election on 31 Oct as the lower house comes to the end of its four-year term. This could prompt a fluid situation for the currency after hitting a three-year low recently.

In the meantime, the Chinese yuan weakened by 0.18% to 6.440 following the release of inflation data. Inflation in China posted a slower growth in September at 0.7% y/y, compared to August’s 0.8% and below the forecast of 0.9%.

Crude oil was boosted by the ongoing supply and demand mismatch in the commodities market. Brent soared 0.99% to US$84.0 per barrel while WTI rose 1.08% to US$81.3 per barrel. The International Energy Agency said on Thursday that surging natural gas prices could jack up demand among power generators.

Malaysia Highlights:

The ringgit closed stronger as it appreciated by 0.14% to 4.154 and was traded at a high of 4.1573 and low of 4.15. So far, the ringgit has been bullish for sixth consecutive days.

The FBM KLCI paused its rally when it fell 0.49% to 1,593. Transaction details showed that foreign investors were net buyers with RM79.9mil, while local retailers and institutions were net sellers with RM32.8mil and RM47.1mil, respectively.

Over to the local bond market, the yield curve flattened when the 3-year yield rose 0.5bps to 2.550% but the 5-year was -2.0bps to 3.120%, 7-year -7.0bps to 3.430%, and 10-year -6.0bps to 3.560%.

The IRS yields fell across the duration; the 3Y at -2.0bps to 2.585%, the 5Y at -4.2bps to 2.885%, the 7Y -3.1bps to 3.118% and the 10Y was -9.5bps to 3.365%.

Against major currencies, the ringgit mostly rose as it appreciated vs. the JPY by 0.52% to 3.654 and vs. the CNY by 0.08% to 1.550, but depreciated vs. the EUR by 0.31% to 4.823, vs. the GBP by 0.46% to 5.695, and vs. the AUD by 0.70% to 3.079. Regionally, the ringgit also strengthened; vs. the THB by 0.07% to 7.984, vs. the PHP by 0.02% to 12.189, and vs. the VND by 0.14% to 5,477. The ringgit weakened vs. the SGD by 0.21% to 3.081 and vs. the IDR by 0.57% to 3,398.

MYR Outlook For The Day

We expect the MYR to trade between our support level of 4.1330 and 4.1480 while our resistance is pinned at 4.1644 and 4.1785.

 

Source: AmInvest Research - 15 Oct 2021

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Hong Leong Bank - Tighter criteria for interest waiver to have milder impact on earnings

Author: AmInvest   |  Publish date: Fri, 15 Oct 2021, 9:54 AM


Investment Highlights

  • We maintain our BUY call on Hong Leong Bank (HLBB) with an unchanged fair value of RM21.10/share. This is based on FY22 ROE of 10.9%, leading to P/BV of 1.3x. No changes to our earnings estimates.
  • We met up with the management in a virtual meeting recently for updates.
  • We understand that total loans under the outstanding payment relief assistance plan (PRAP) as of end-Aug 2021 stood at RM35.6bil vs. RM32.4bil in July 2021. These comprised loans to retail borrowers of RM26.3bil and SME & corporate borrowers of RM9.3bil.
  • Payment relief assistance was at a peak in July 2021. Since then, the increase in new loans under the PRAP has tapered. This alleviates concerns on the continued rise of new payment relief assistance that will require much higher top-ups in provisions in the form of management overlays.
  • We gather that loans to B40 retail borrowers accounted for 16.0% of HLBB’s retail loans. B40 makes up circa RM4.7bil or 18.0% of total retail loans that are under the PRAP.
  • Recently, the prime minister announced a loan repayment support programme (Urus) to B50 (borrowers with income of <RM5,880/mth). These included B40 borrowers with an income of <RM4,850/mth) and those in the lower income category in the M40 with an income of RM4,850– RM5,880/mth.
  • The options of assistance available under this programme are: i) 3 months of interest waiver or ii) 3 months of interest waiver together with reduced instalments for 24 months and lower interest rates for unsecured personal loans/financing and credit cards.
  • To be eligible for the loan repayment support programme, individual applicants must be: i) from the B50 income segment (income of <RM5,880/mth); ii) either unemployed or experienced a decline in income by 50.0%; and iii) have loans/financing of not more than 90 days in arrears at the time of application.
  • Applicants can start applying for the loan repayment assistance starting from 15 Nov 2021 to 31 Jan 2022.
  • We see the impact from the 3-month interest waiver to be manageable with no significant dent on the group’s earnings. Stringent parameters have been put in place to determine the eligibility of applicants. These included verification by banks to ensure that the applicants are either unemployed or have suffered a 50.0% reduction in monthly salary as well as the requirement that they need to already be in a repayment assistance programme (TRA, Pemerkasa, Pemulih, bank’s R&R or others) before 1 October 2021. This eliminates the chance for opportunistic borrowers to take advantage of the assistance offered under Urus. With the announcement of finer details on the mechanism for the assistance programme, we now expect the impact from the interest waiver to be milder than our earlier projection of RM54mil for HLBB.
  • On the Pemulih moratorium, management alluded to the recognition of a mod loss of RM31mil up until Aug 2021. This amount is likely to be reported in the upcoming 1Q22 results.
  • 1Q22 is likely to see further top-ups in management overlays but not significant in amount.
  • Despite the trend of tapering new payment relief assistance from the peak in July 2021, the group is likely to remain prudent and maintain the conservative provision buffers built up since FY20.
  • Write-backs in management overlays are only likely in 1H23 with more clarity on the containment of the pandemic and no further lockdown measures disrupting the repayment capacity of borrowers.
  • Management alluded to some FD campaigns recently for the tenures of 6, 9 and 12 months. The deposit competition is not as intense yet. However, this could change moving forward with the sector gradually facing keener deposit competition as banks continue to optimize their deposit mix to the max while allowing their LD ratios to rise. Besides, new funding from securities is likely to be pricier ahead as MGS yields continue to climb with the market anticipated to price in rate hikes.
  • On interest rates, no change in the OPR is expected for the rest for 2021. In 2022, management sees a potential rate hike of 25bps to 2.00% from 1.75% in 2H 2021. Typically, an OPR increase of 25bps will improve the group’s NIM by 2–3bps.
  • In view of the potential further rise in MGS yields ahead, gains from the further monetization of FVOCI securities will be limited unlike previous quarters. However, this will be mitigated by the improvement in other sources of NOII such as wealth management fees and fees from the card business with the pickup in retail spend. Besides, the improving outlook in provisions will also be supportive of the group’s earnings.
  • The group has submitted its application to participate in Dow Jones Sustainability Indexes and the outcome is expected to be known by Nov 2021.
  • On its associate Bank of Chengdu’s (BOC) raising of funds via convertible bonds to increase its CET1 ratio, we gather that the application has been submitted to the authorities in China and is pending approval.
  • Meanwhile, the group does not have any lending exposures (directly or indirectly) to Evergrande in China. On a comforting note, BOC’s exposure to the real estate and construction sectors in China is not significantly large, standing at circa 7% and 3% respectively.


 

Source: AmInvest Research - 15 Oct 2021

Labels: HLBANK
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LPI Capital - Improved combined ratio driven by lower claims

Author: AmInvest   |  Publish date: Fri, 15 Oct 2021, 9:47 AM


Investment Highlights

  • We maintain HOLD on LPI Capital (LPI) with unchanged fair value of RM14.30/share. Our fair value is based on FY22 P/BV of 2.4x, supported by an ROE of 15.9%. We are keeping our earnings estimates unchanged.
  • LPI registered an improved net profit after tax of RM105mil (+25.6% QoQ). This was on the back of higher net earned premium (NEP), investment income, lower net claims and management expenses.
  • Cumulatively for 9M21, the group recorded a higher net profit of RM272mil (+12.5% YoY) supported by an increase in NEP and lower claims incurred for motor and medical insurance.
  • 9M21 core earnings were within expectations, making up 77.9% of our and 78.9% of consensus estimate.
  • In 9M21, gross written premium (GWP) slipped by 0.8% YoY to RM1.19bil with restrictions on movements and operations of business sectors impacting demand for insurance. YTD FY21, the GWP for both fire and motor insurance was lower YoY.
  • 3Q21 saw the release of unearned premium reserves with a slowdown in GWP. This has resulted in a higher NEP of 3.5% QoQ in 3Q21 and 1.7% YoY for 9M21. LPI’s retention ratio slid to 62.3% in 9M21 vs. 65.2% in 9M20.
  • Underwriting margin for 9M21 improved to 37.1% vs. 30.1% in 9M20 mainly attributed to lower claims.
  • Claims ratio fell to 36.1% in 9M21 vs. 43.7% in 9M20, supported by lower claims for motor and medical insurance. With the easing of mobility restrictions resulting in more traffic on the roads and more economic sectors allowed to operate after achieving a high vaccination rate, the low motor and medical claims are poised to normalize in the quarters ahead.
  • 9M21 saw the group’s combined ratio improved to 62.9%. Commission and management expense ratios remained stable at 5.9% and 20.8% respectively for 9M21.


 

Source: AmInvest Research - 15 Oct 2021

Labels: LPI
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Stocks on Radar - Malayan Flour Mills (3662)

Author: AmInvest   |  Publish date: Fri, 15 Oct 2021, 9:45 AM


Malayan Flour Mills surged and touched the RM0.80 resistance level. With its RSI indicator moving upward, coupled with higher trading volume, there is a good chance that it would experience a technical breakout and head towards the short-term target price of RM0.835, followed by RM0.865. The downside support is marked at RM0.735. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.80

Target: RM0.835, RM0.865 (time frame: 2-4 weeks)

Exit: RM0.735
 

Source: AmInvest Research - 15 Oct 2021

Labels: MFLOUR
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Stocks on Radar - D&O Green Technologies (7204)

Author: AmInvest   |  Publish date: Fri, 15 Oct 2021, 9:45 AM


D&O Green Technologies is moving sideways, testing the RM5.80 support level. With its 21-day moving average indicator in an uptrend, we see a possibility for a technical rebound. If this happens, we expect it to move towards the short-term target prices of RM6.07 and RM6.15. The downside support is projected at RM5.50. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy near RM5.80

Target: RM6.07, RM6.15 (time frame: 2-4 weeks)

Exit: RM5.50
 

Source: AmInvest Research - 15 Oct 2021

Labels: D&O
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Economics & FX Highlights - Dollar pulls back following CPI data

Author: AmInvest   |  Publish date: Thu, 14 Oct 2021, 10:59 AM


  • Dollar pulls back following CPI data
  • MYR to fluctuate in the range of 4.1480 and 4.1590 against US dollar

Global Highlights

The dollar index took a break from its bullish trend when it fell 0.46% to close at 94.08. The minutes from the last FOMC meeting in September indicated that the Fed could start tapering the bond buying programme in mid-November. However, consensus has not been reached over how high the inflation threat is and how soon the Fed may need to hike the interest rate. Data showed that the headline inflation edged higher to 5.4% y/y in Sep from 5.3% y/y in August and the beating market forecast of 5.3%. Excluding volatile prices of foods and energy, the core inflation remained unchanged at 4% y/y.

Equities were mixed when the Dow Jones remained flat at 34,378 while the S&P 500 closed higher by 0.30% to 4,364. UST 10- year yield benchmark tumbled sharply by 4.01bps to 1.537%. Gold rebounded as it rose 1.86% to US$1,793/oz.

The euro gained 0.56% to 1.159, retreating from its nearly 15-month low. The positive industrial output data may have provided some support to the common currency. Data showed that industrial production in the Eurozone grew by 5.1% in August y/y but recorded a decline of 1.6% on a monthly basis.

The British pound added 0.52% to 1.366 amidst upbeat monthly production data. According to the Office for National Statistics, industrial output in the UK grew in August at 0.8%, faster than the July’s 0.3% and forecast of 0.2%. In addition, the GDP in the three months to August expanded by 2.9%, which is the slowest pace since June. Other than that, the trade deficit widened to £3.7bil in August from £2.9bil during the previous month.

The Japanese yen appreciated 0.32% to 113.25. On the data front, the machinery orders unexpectedly declined by 2.4% during the month of August compared to July 2021. But they logged a healthy growth of 17% if compared to August 2020.

The Chinese yuan strengthened 0.32% to 6.428, after two consecutive bearish days. Among local data, China’s trade surplus widened to US$66.7bil in September from US$58.3bil in August.

Crude oil lost some steam after its recent upside trend. Brent lost 0.29% to US$83.2 per barrel and WTI shed 0.25% to US$80.4 per barrel.

Malaysia Highlights:

The ringgit extended its gains as it strengthened 0.11% to close at 4.160. The local currency was traded at a high of 4.1752 and low of 4.1582.

The FBM KLCI rose 1.04% to settle at 1,600, touching the highest point since Aug 2021. Detailed transactions showed that the foreign investors remained net buyers with RM261.9mil, while both local institutions and retailers were net sellers with RM245.8mil and RM16.1mil, respectively.

On the local bond market, yields were mixed as the 3-year was +1.5bps to 2.545% while the 5-year was -2.0bps to 3.140%, 7- year -2.0bps to 3.500% and 10-year -1.0bps to 3.620%.

The IRS curve shifted lower; the 3Y was -1.5bps to 2.605%, 5Y -3.8bps to 2.927%, 7Y -3.7bps to 3.148% and 10Y -3.0bps to 3.460%.

Against major currencies, the ringgit rose vs. the EUR by 0.10% to 4.808, vs. the AUD by 0.33% to 3.058, and vs. the CNY by 0.03% to 1.549 but weakened vs. the GBP by 0.01% to 5.669 and vs. the JPY by 0.20% to 3.673. Against its Asean peers, the ringgit depreciated vs. the SGD by 0.07% to 3.075, vs. the THB by 0.29% to 7.978, and vs. the PHP by 0.12% to 12.186, but it appreciated against the IDR by 0.11% to 3,418 and the VND by 0.12% to 5,469.

MYR Outlook For The Day

We expect the MYR to trade between our support level of 4.1330 and 4.1480 while our resistance is pinned at 4.1590 and 4.1650.

 

Source: AmInvest Research - 14 Oct 2021

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Maxis - Acquiring fresh capabilities for enterprise segment

Author: AmInvest   |  Publish date: Thu, 14 Oct 2021, 10:55 AM


Investment Highlights

  • We maintain our HOLD recommendation on Maxis with an unchanged DCF-derived fair value of RM5.00/share based on an unchanged WACC discount rate of 6.3% and terminal growth rate assumption of 2%. This reflects a neutral ESG score of 3 stars, and implies an FY22F EV/EBITDA of 11x, below its 3-year average of 12x.
  • Our earnings forecasts are maintained as we do not expect any significant impact from Maxis’ acquisition of the entire stake in MyKRIS Asia Sdn Bhd from Bursa LEAP-listed MyKRIS International (which has a current market cap of RM192mil) for up to RM158mil cash with completion expected by 1Q2022.
  • The consideration will be paid via a base price of RM115mil and subsequent payments of up to RM42.5mil over 3 years depending on the attainment of revenue targets with RM55mil in year 1, RM65mil in year 2 and RM75mil in year 3.
  • MyKRIS Asia is primarily a managed network service (MNS) provider, specialising in the provision, design and installation of high-speed wireless and wired network services, and international leased circuit services to enterprises.
  • MyKRIS Asia operates predominantly in the Malaysian market, generating revenue mainly in the Klang Valley. Its operations in overseas markets include Myanmar, Singapore and Indonesia.
  • MyKRIS Asia offers managed network and security services with an end-to-end field delivery and support team which includes 70 engineers and a track record of 20 years in the Malaysian managed network services (MNS) market involving global and local partnerships.
  • The team of specialists are certified by global technology providers and include design, consulting, implementation, testing and audit augmented with a security and network operating centre.
  • This acquisition is envisioned to enhance and integrate with Maxis’ existing MNS and hybrid network capabilities for wired and wireless connectivity for businesses, strengthening the group’s strategy to offer converged solutions.
  • MyKRIS Asia’s revenue has risen by an average of 4% over the past 2 years to RM42mil FY March 2021 while its net profit doubled to RM8mil. Based on its FY21 net profit, the base purchase price of RM115mil and interest expense of 5%, we estimate negligible impact to Maxis’ FY22F earnings.
  • However, if MyKRIS Asia’s revenue was to increase by 79% from FY21 to RM75mil in FY25 as indicated in the sale & purchase agreement, we estimate that its net profit could surge 3.7x to RM30mil assuming an annual cost escalation of 10%. Partly offset by interest cost on the full purchase price of RM158mil, this translates to 2% to Maxis’ FY24F earnings.
  • Additionally, based on an EBITDA of RM15mil for FY March 2021 and the base purchase price, the acquisitive EV/EBITDA of 7.5x is slightly value-accretive given Maxis’ higher 12x currently.
  • From a balance sheet perspective, we estimate minimal impact to the group’s FY22F net/ debt/EBITDA of 2.3x given Maxis’ huge net debt of RM9bil while the potential goodwill of RM82mil is relatively small vs. the company’s intangible assets of RM11bil.
  • All in, we are mildly positive on this development given the expansion of the Maxis’ enterprise business (which currently accounts for 7% of 1HFY21 service revenue) with the fresh MNS and security capability that could have a slightly accretive impact to longer term earnings.
  • The stock currently trades at a fair FY22F EV/EBITDA, near at its 3-year average, while providing a decent dividend yield of 3%.


 

Source: AmInvest Research - 14 Oct 2021

Labels: MAXIS
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Perak Transit - Beneficiary of MCO relaxation

Author: AmInvest   |  Publish date: Thu, 14 Oct 2021, 10:52 AM


Investment Highlights

  • We maintain our forecasts and fair value (FV) of RM1.08 for Perak Transit, based on 15x fully-diluted FY22F EPS (with no ESG adjustment for its 3-star rating). This is at a 30% discount to our FY22F target PE of 22x for Malaysia Airports.
  • We use Malaysia Airport as the valuation benchmark for Perak Transit as we see many similarities between this operator of modern public transport terminals and an airport operator. Maintain BUY recommendation.
  • We believe that Perak Transit is on track to transform idle areas in its existing terminals into a logistics hub. It has secured two tenants comprising a courier services thirdparty logistics and a fast-growing delivery superapp startup, taking up an area of 10–30% in the terminals for both Terminal Meru Raya and Kampar Putra Sentral. This helps to improve the lettable area at the terminal, footfall and hence revenues for its IPTT operations.
  • We expect that the rental contribution from Kampar Putra Terminal will improve following the relaxation of movement restrictions, premised on: (i) the footfall recovery at the terminal once passengers and university traffic return when interstate travel is allowed; (ii) improved occupancy rate at the terminal to 60% (from 50% guided in 2Q). To recap, the commercial tenants at the terminal are currently enjoying free rental amidst the MCO.
  • We gather that the construction for Bidor Sentral remains on track, and the piling work is expected to commence at the end of this month. To recap, Bidor Sentral's revenue contribution is expected to kick in in 2HFY23.
  • For terminal management contracts (TMC), we believe that Perak Transit will continue to talk to third-party bus terminals for potential new projects/contracts although the discussions may have slowed down during the early stage of National Recovery Plan (NRP). As for existing contracts, we maintain our estimate that Terminal Bas Shahab Perdana should commence operation by April 2022 while revenue from Terminal Sentral Kuantan is stable as the terminal management fees are paid annually on a contract basis.


 

Source: AmInvest Research - 14 Oct 2021

Labels: PTRANS
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Stocks on Radar - Pertama Digital (8532)

Author: AmInvest   |  Publish date: Thu, 14 Oct 2021, 10:50 AM


Pertama Digital consolidated and touched the RM0.53 resistance level. With its RSI indicator moving upward, coupled with higher tradaing volume, there is a good chance that it would experience a technical breakout and head towards the short-term target price of RM0.555, followed by RM0.575. The downside support is marked at RM0.485. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM0.53

Target: RM0.555, RM0.575 (time frame: 2-4 weeks)

Exit: RM0.485
 

Source: AmInvest Research - 14 Oct 2021

Labels: PERTAMA
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Stocks on Radar - Samchem Holdings (5147)

Author: AmInvest   |  Publish date: Thu, 14 Oct 2021, 10:50 AM


Samchem Holdings surged and tested the RM0.94 resistance level. With its 21-day moving average indicator in an uptrend, coupled with a higher trading volume, we see a possibility for a technical breakout. If this happens, we expect it to move towards the short-term target prices of RM0.975 and RM1.00. The downside support is projected at RM0.88. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy near RM0.94

Target: RM0.975, RM1.00 (time frame: 2-4 weeks)

Exit: RM0.88
 

Source: AmInvest Research - 14 Oct 2021

Labels: SAMCHEM
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Economics - Malaysia - Continued IP Decline in August Within Expectations

Author: AmInvest   |  Publish date: Wed, 13 Oct 2021, 9:44 AM


As expected, the IP data in August continued to shrink due to the restrictive measures to contain the virus spread and domestic noises. This is also reflected in the retail business.

Based on our monthly projection, August’s GDP should be around -4.0%, better than the -8.4% estimated in July. We expect a negative growth of 2%–3% in our preliminary estimate for 3Q GDP.

However, 4Q GDP should improve. The easing of restrictions as more than 90% adults are fully vaccinated, greater stability on the domestic side while benefitting from global trade and firm commodity prices should lend support to growth. For the full year, the GDP is forecasted to be around 3.0%–3.5%.

A. Highlights

  • For the month of August, industrial production (IP) remained in the contraction zone albeit at a slight improvement compared to July. August’s data showed a 0.7% y/y contraction, which is smaller than the 5.1% y/y decline in July.
  • The drag came from mining, down by 4.2% y/y, and electricity which fell by 4.8% y/y. However, it was cushioned by the expansion in manufacturing, up 0.6% y/y (July: -6.5%), benefitting from export-led activities.
  • The impact from the lockdown also affected distributive trade. It declined by 12.2% y/y in August (July: -14.7%).
  • Poor showing was seen across the board – the retail segment (-7.5% y/y), motor vehicles (-57.6% y/y) and wholesale trade (-0.1% y/y).

B. Key Takeaways

  • The continuous IP’s downtrend did not come as a surprise. Likewise, the poor showing was also reflected in the retail business. The lockdown to contain the virus spread and domestic noises weighed down overall business, investment and consumer confidence.
  • On that note, the economy in 3Q of 2021 will likely take a strong hit. But the downside to the overall performance will be contained by exports and firm commodity prices.
  • Based on our monthly projection, August’s GDP should be around -4.0% from -8.4% estimated in July. We expect a negative growth of 2%–3% in our preliminary estimate for 3Q GDP.
  • However, 4Q GDP should improve. The easing of restrictions as more than 90% adults are fully vaccinated, greater stability on the domestic side while benefitting from global trade and firm commodity prices should lend support to growth. For the full year, the GDP is forecasted to be around 3.0%–3.5%.


 

Source: AmInvest Research - 13 Oct 2021

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Economics & FX Highlights - Ringgit strengthens for third consecutive session

Author: AmInvest   |  Publish date: Wed, 13 Oct 2021, 9:42 AM


  • Ringgit strengthens for third consecutive session
  • MYR to fluctuate in the range of 4.1587 and 4.1684 against US dollar

Global Highlights

The dollar index rallied by 0.21% to 94.516 and hitting a one-year high despite the slightly negative labour market development. The number of job openings fell to 10.4mil in August, missing the market forecast of 10.92mil.

On another note, the IMF has revised its global growth forecast downwards to 5.9% from 6.0% previously, attributing it to supply chain disruptions that are worsening the pandemic dynamics.

Equities lost their grounds as the Dow Jones slipped 0.34% to close at 34,378, while the S&P 500 fell 0.24% to 4,351. The UST 10-year benchmark yield tumbled 3.49bps to 1.577%. Gold added 0.34% to US$1,760/oz.

The euro shed 0.19% to 1.153 following the release of the ZEW Indicator of Economic Sentiment. The headline figure dropped for the fifth straight month to 21 in October from 31.1 in September, marking the lowest points since March 2021.

The British pound edged lower by 0.05% to 1.359 as the currency found little support from the labour market data. The unemployment rate in the UK for August down to 4.5% from 4.6% in July while the average earnings, including bonus in the same month, rose by 7.2%, Meanwhile, the number of people claiming for unemployment benefits declined by 51.1K in September.

The Japanese yen extended its losses, weakening by 0.26% to 113.63 as the surging US Treasury yields attract more investors.

In the meantime, the Chinese yuan strengthened despite an announcement made by the President Xi Jinping directing an investigation on state banks and other financial institutions.

Crude oil took a pause in its recent rally as the Brent fell 0.27% to US$83.4 per barrel, while the WTI rose 0.15% to US$80.6 per barrel amid concerns that higher energy costs could dampen the economic recovery.

Malaysia Highlights:

The ringgit strengthened by 0.14% to 4.165 and was traded at a high of 4.1778 and low of 4.163. Meanwhile, the FBM KLCI extended its gains for the fifth consecutive day as it rose 0.83% to 1,584. We also saw upbeat foreign inflows as the foreign investors and retailers both logged a net buying position of RM148.2mil and RM29.1mil, respectively. Local institutions were net sellers with RM177.3mil.

Over in the local bond market, we saw rising bonds prices while yields shifted lower. The 3-year was -3.0bps to 2.530%, 5-year -1.0bps to 3.160%, 7-year -4.5bps to 3.520% and 10-year -5.0bps to 3.630%.

The IRS yields were mixed as the 3Y was +0.2bps to 2.620% and 10Y +1.5bps to 3.490% while the 5Y was -2.0bps to 2.965% and 7Y -0.5bps to 3.490%.

Against major currencies, the ringgit was broadly stronger as it appreciated against the EUR by 0.11% to 4.813, the GBP by 0.36% to 5.668, the JPY by 0.40% to 3.666, and the CNY by 0.11% to 1.549, but weakened against the AUD by 0.27% to 3.068. Against its Asean peers, the ringgit also climbed; vs. the SGD by 0.25% to 3.073, the IDR by 0.21% to 3,414, the PHP by 0.16% to 12.201, and the VND by 0.09% to 5,462. But it depreciated against the THB by 0.71% to 8.002.

MYR Outlook For The Day

We expect the MYR to trade between our support level of 4.1413 and 4.1587 while our resistance is pinned at 4.1684 and 4.1826.

 

Source: AmInvest Research - 13 Oct 2021

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Malayan Flour Mills - Poultry demand is improving

Author: AmInvest   |  Publish date: Wed, 13 Oct 2021, 9:41 AM


Investment Highlights

  • We maintain BUY on Malayan Flour Mills (MFM) with an unchanged fair value of RM1.37/share. Our fair value is based on an FY22F PE of 18.0x and a 3% premium for a fourstar ESG rating. MFM is currently trading at an undemanding FY22F PE of 8.7x.
  • We expect MFM’s share of net loss in its joint venture to decline in 2HFY21 (2QFY21 loss: RM10.5mil). MFM’s 51% poultry joint venture with Tyson International is expected to benefit from higher demand and selling prices of processed poultry products.
  • Poultry prices are rising due to a shortage in supply and improved demand following the relaxation of MCO 3.0. Faced with weak demand at the peak of MCO 3.0 but rising production costs at the same time, some poultry producers have cut output. We gather than industry supply of poultry may have shrank by 20%–30%. On the other hand, feed meal costs have climbed by over 50% since last year due to the rise in soybean and corn prices.
  • We understand that average ex-farm live bird price is now higher than RM6.00/kg vs. the weekly low of RM3.74/kg in June. Also, according to the Department of Veterinary Services, average monthly price of processed standard chicken was RM8.45/kg in August vs. RM8.30/kg in January.
  • The poultry joint venture is expected to enjoy higher sales volume in 2HFY21 as dine-in restrictions in the Klang Valley have eased. The poultry plant in Lumut is currently operating at a utilisation rate of 50% compared with 20% to 30% during MCO 3.0. The poultry plant is envisaged to achieve a utilisation rate of 60% in FY22F, which would allow the plant to break even.
  • MFM is expected to benefit from the strategic partnership with Tyson from their collaborations on product offerings and processes to improve production efficiencies. Going forward, about 10% to 20% of MFM’s production volumes are expected to be channelled to Tyson. In the long term, MFM plans to tap into the halal export markets such as the Middle East via Tyson’s network.
  • MFM’s flour division is expected to perform well in FY21E in spite of the increase in wheat costs. We believe that the group has raised the selling prices of some of its flour products due to the higher cost of wheat. We also reckon that MFM’s flour division benefited from purchases carried out when prices of wheat plunged in 3QFY20.
  • We forecast EBIT of the flour division to grow by 34.3% to RM164.5mil in FY21E on the back of higher selling prices and sales volume. Flour EBIT margin is anticipated to be 7.0% in FY21E vs. 5.9% in FY20.

Source: AmInvest Research - 13 Oct 2021

Labels: MFLOUR
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Stocks on Radar - Kerjaya Prospek Group (7161)

Author: AmInvest   |  Publish date: Wed, 13 Oct 2021, 9:38 AM


Kerjaya Prospek Group rose and touched the RM1.28 resistance level. With its RSI indicator moving upward, coupled with higher tradaing volume, there is a good chance that it would experience a technical breakout and head towards the short-term target price of RM1.33, followed by RM1.36. The downside support is marked at RM1.22. Traders are advised to exit on a breach to avoid further losses.

Trading Call: Buy on breakout RM1.28

Target: RM1.33, RM1.36 (time frame: 2-4 weeks)

Exit: RM1.22
 

Source: AmInvest Research - 13 Oct 2021

Labels: KERJAYA
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