Highlights

AmInvest Research Reports

Author: AmInvest   |   Latest post: Fri, 20 Sep 2019, 9:04 AM

 

Automobile Sector - Slowing Down in 3Q

Author: AmInvest   |  Publish date: Fri, 20 Sep 2019, 9:04 AM


Investment Highlights

  • 2Q19 results mostly in line with our expectations. Overall, the automotive and auto parts sector registered decent 2Q results, where 67% of core earnings of all companies under our coverage were in line while 33% were below our expectation. Negative surprises that resulted in a downward earnings revision were from Bermaz Auto (BAuto) and Pecca Group. BAuto’s core earnings came in below our estimates due to lower-than-expected vehicle car sales in both domestic and Philippine markets. Meanwhile, Pecca’s higher administrative expenses due to provisions for its employee performance programme dampened its earnings.

On the other hand, we raised MBM Resource’s (MBMR) valuations and earnings following an analyst briefing (FV: RM5.54) as we expect higher share of profit from its associate, Perodua ahead. Also, we have factored in higher estimates for sales volume which is expected to benefit from a refined delivery process and new Perodua launches.

  • Two major downgrades. We recently downgraded Sime Darby (FV: RM2.64) and BAuto (FV: RM2.50). Sime Darby’s share price has risen 9% since our upgrade on 14 August 2019, and we believe that the stock is now fairly traded with limited upside.

We downgraded BAuto as we expect an earnings contraction for FY20 due to: i) heightened competition in the local market’s SUV segment; ii) a shift of consumer’s preferences towards cheaper and better value-for-money cars which has negatively impacted the premium segment vehicle car sales. Furthermore, we also expect BAuto’s Philippine operations to continue being sluggish in the foreseeable future due to the implementation of Tax Reform for Acceleration and Inclusion (TRAIN) law.

  • 2Q2019 vs. 2Q2018. 2Q19 registered a total TIV sales of 153.3K units vs. 154.5K units in 2Q18, which is a marginal decline of 0.8% YoY. This was largely attributed to the tax holiday last year, which resulted in a positively skewed sales volume in June 2018. It is important to note that despite the absence of a major sales catalyst, Proton managed to outperform with a compelling sales volume of 25.2K units in 2Q19 compared with 14.3K units in 2Q18, translating into a whopping 77.0% growth in sales volume. This was backed by a slew of attractive and affordable new launches from the group’s volume-based models of Persona, Iriz and Saga.

Higher loan approval rate of 62.7% in 2Q19 vs. 54.0% in 2Q18. The average approval rate for loans in 2018 was 59.6%.

Cumulatively in 2Q19, core earnings of the automotive companies grew by 55% YoY to RM607.1mil. This was mainly attributed to two reasons: i) DRB-Hicom’s core earnings of RM45.6mil, which were supported by its improved automotive segment as it recorded operating profits compared with losses in 2Q18; and ii) Sime Darby’s significant 63% YoY earnings growth to RM315.0mil for the quarter, backed by the group’s stable deliveries of Caterpillar equipment. This was underpinned by growth in the mining industry in the Asia Pacific region with stronger demand for both mining equipment replacement cycles and expansions.

  • Expecting an overall YoY contraction in sales volume for 3Q. Due to a high base from 2018’s tax holiday from June to August, we witnessed ramped-up numbers of sales volume from all major car marques in our radar. Without any major catalyst to boost automobile/auto parts sales this year, we anticipate a YoY contraction for the upcoming quarter (3Q19).
  • New launches in 2H19:
  • Perodua: All-new Axia crossover (September) and facelift Bezza (tentatively December);
  • Honda: Facelift Civic 2019 (currently open for booking nationwide); tentative launch in 4Q19;
  • Toyota: All-new Toyota Corolla 2019 (currently open for booking); tentative launch in 4Q19;
  • Mazda: CX-3 (December), CX-5 CKD (September), CX-8 CKD (October), CX-30 (December).
  • Given the recent major downgrades in Sime Darby and BAuto, we are downgrading the sector to NEUTRAL from OVERWEIGHT as Sime Darby makes up 49% of our coverage’s weightage with a market capitalization of approximately RM15.9bil. Nevertheless, we continue to be optimistic on the national car marques Proton and Perodua while staying cautious on the foreign and premium car brands as consumers change their preferences towards cheaper and better value-for-money vehicles.
  • Our top picks for the auto sector are DRB-Hicom (FV: RM3.18) and MBM Resources (FV: RM5.54) riding on the strong sales of Proton and Perodua vehicles which command the bulk of the market share in terms of TIV sales.

Source: AmInvest Research - 20 Sept 2019

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Eco World Development - 9MFY19 PATMI Up 25.7%; Gearing Still High

Author: AmInvest   |  Publish date: Fri, 20 Sep 2019, 9:00 AM


Investment Highlights

  • We maintain our HOLD recommendation on Eco World Development (EcoWorld) with a lower fair value of RM0.70 (from RM0.71) per share (Exhibit 2). We cut our FY19, FY20 and FY21 earnings forecasts by 6%, 2% and 9% respectively to reflect the timing of revenue recognition.
  • EcoWorld’s 9MFY19 net profit of RM122.0mil (+25.7% YoY) came in below our and market expectations, at 69% of ours and 64% of consensus full-year estimates.
  • 9MFY19 earnings were largely contributed by: (i) Eco Majestic, Eco Forest, Eco Sanctuary and Eco Sky in Klang Valley; (ii) Eco Botanic, Eco Spring, Eco Summer, Eco Business Park I, Eco Business Park II, Eco Tropics and Eco Business Park III in Iskandar Malaysia; and (iii) Eco Meadows and Eco Terraces in Penang. Meanwhile, stronger results from JV projects namely Eco Grandeur & Eco Business Park V, Eco Horizon, Eco Ardence and Bukit Bintang City Centre (BBCC) have also contributed to the group’s higher earnings.
  • EcoWorld recorded new sales of RM1.94bil in the first 10 months in FY19 (RM2.0bil in FY18) of which RM1.71bil was secured in the first 6 months of the National Home Ownership Campaign (NHOC) which was launched in March 2019.
  • EcoWorld’s 27%-associate Eco World International (EWI) registered a 9MFY19 net profit of RM68.7mil compared with a loss of RM23.7mil YoY. This is mainly due to the completion and handover of two additional residential blocks at London City Island and the commencement of revenue and profit recognition of EcoWorld London’s builtto-rent (BtR) sales. Meanwhile, two residential blocks in London City Island and Embassy Gardens are expected to commence delivery to customers in 4QFY19. Additionally, EWI expects to hand over Wardian London in London as well as West Village in Sydney and Yarra One in Melbourne in FY2020.
  • We take note of the high gearing of 0.75x while interest coverage is still manageable at 2.1x. Nonetheless, we believe the outlook for FY19–FY20 remains stable supported by unbilled sales of RM5.9bil and an increasing number of maturing projects in Malaysia and overseas.

Source: AmInvest Research - 20 Sept 2019

Labels: ECOWLD
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Telecommunication Sector - Weighed Down by NFCP Objectives

Author: AmInvest   |  Publish date: Fri, 20 Sep 2019, 8:59 AM


Investment Highlights

  • NFCP officially launched. We attended the launch of the National Fiberisation and Connectivity Plan (NFCP) by Deputy Prime Minister Datuk Seri Dr Wan Azizah Wan Ismail, which was organised by the Malaysian Communications and Multimedia Commission (MCMC) yesterday. She recalled NPFP’s 5-year targets, which we had highlighted in our earlier updates, as follows:

i) Entry-level fixed broadband packages at 1% of gross national income (GNI) by 2020;

ii) Gigabits availability in selected industrial areas by 2020 and state capitals by 2023;

iii) 100% availability at a minimum speed of 500Mbps in state capitals and selected high-impact areas by 2021;

iv) 20% availability at up to 500Mbps in sub-urban and rural areas by 2022;

v) Fibre network coverage at 70% of schools, hospitals, libraries, police stations and post offices by 2022;

vi) Average speeds of 30Mbps in 98% of populated areas by 2023; and

vii) Improved mobile coverage along the Pan Borneo Highway upon completion.

Under the NFCP, the current 1.9mil premises with fibre access have to be increased by 1.5mil by 2021, 502K premises with Gigabits access have to be increased by 3mil by 2023, expand 25 industrial areas for Gigabits access by next year, 121K suburban and rural premises have to be increased by 1.2mil by 2022, another 6,195 towers (+18%) to be built by 2023 to expand 4G + coverage, and to widen coverage to 1,177 Felda and Orang Asli settlements by 2023.

Achieving these targets requires: i) heavy investments which could reach RM21.6bil, of which RM10–RM11bil will be funded from the MCMC’s Universal Service Provider fund; ii) sharing access to passive telco and civil infrastructure amongst operators and stakeholders; iii) continuous technology improvements; iv) optimising spectrum allocation for higher quality services; v) improved regulatory framework and policy certainty to support new investments in 5G; vi) reduction of costly, bureaucratic and uncoordinated state-level right-of-way in building telco infrastructure; and vii) improved regulatory coherence and consolidate action from all stakeholders to address issues on the ground.

  • Negative revenue outlook for NFCP players. Under the 11th Malaysia Plan, GNI is expected to reach RM47,720 by 2020. An entry-level package amounting to 1% of GNI translates to only RM40/month. This is half of TM’s Unifi Basic currently priced at RM79/month for 60GB data vs Celcom’s RM80/month for 30Mbps, Maxis’ RM89/month for 30Mbps, Time dotCom’s RM99/month at 100Mbps and Digi’s RM99/month at 50Mbps. For further comparison, TM’s 2QFY19 Unifi ARPU average was higher at RM177/month.

Hence, the government may again be looking at further broadband price cuts next year, which will negatively impact the average revenue per user (ARPU) trajectory of broadband network owners such as TM and Time dotCom. However, the margin impact may be largely mitigated for third-party operators like Maxis, Axiata’s Celcom and Digi, who may be leasing TM’s fibre network at correspondingly lower rates.

  • Higher capex, borrowing costs and depreciation for TM. Given TM's role as the national broadband provider, the group will likely bear up to half of the NFCP cost, which translates to RM2.2bil over the next 5 years. Besides TM's own capex requirements, the NFCP rollout alone translates to 19% of FY20F revenue – already above management's FY19F capex target of 18% and 8% in 1HFY19. Additionally, the thrust of the NFCP towards connecting the rural population could mean that revenue accretion from these investments will be minimal.

The earnings impact to TM will snowball as its capex mounts up to 2025 as higher borrowing costs and depreciation charges will gradually erode the group’s earnings. Doubling TM’s annual capex of RM2bil currently will slightly cut its net profit by 3% in FY20F but gradually worsen by 10% in FY21F, 19% in FY22F, 30% in FY23F, 48% in FY24F and 49% in FY25F under a worst case scenario. Nevertheless, we highlight that part of the NFCP spending may already be included in TM’s existing capex programme.

  • These costs exclude additional 5G spectrum fees and rollout capex. While 5G standards are expected to be finalised in April next year, these trials cover the usage of the 3.5GHz bandwidth and 22 millimetre wave lengths. 5G spectrum allocation has not been determined at this stage as it depends on the results of the trials, state of the ecosystem and device/equipment availability. While the MCMC alluded to a fair price for the spectrum to facilitate the rollout of this vastly faster service, we expect these additional fees and capex, which could be up to 10x 4G spending levels, to further raise the gearing levels of mobile operators.
  • Maintain NEUTRAL outlook on the sector given the escalating NFCP-driven capex requirements against the backdrop of government-targeted fiberized ARPU reductions. Our only BUY currently is Axiata, given its low EV/EBITDA valuations and rising prospects for monetisation of its multiple businesses.

Source: AmInvest Research - 20 Sept 2019

Labels: AXIATA, TM
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speakup really who the fark cares!
20/09/2019 9:41 AM

Stocks on Radar - KNM Group (7164)

Author: AmInvest   |  Publish date: Fri, 20 Sep 2019, 8:39 AM


KNM Group leapt above the resistance price of RM0.405 in the latest session. With the momentum indicator RSI above 60%, it may continue to climb to the near-term target price of RM0.44 followed by RM0.465. If it dips below RM0.405, expect a sideway consolidation again. On the downside, support is expected at RM0.38, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy on continuation above RM0.405

Target: RM0.44, RM0.465 (time frame: 3-6 weeks)

Exit: RM0.38

Source: AmInvest Research - 20 Sept 2019

Labels: KNM
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speakup buy lar
no just read, buy!
20/09/2019 9:44 AM

Stocks on Radar - Taliworks Corporation (8524)

Author: AmInvest   |  Publish date: Fri, 20 Sep 2019, 8:38 AM


Taliworks Corporation retreated after failing to break above the resistance price of RM0.93. With an RSI level above 50%, the uptrend momentum may resume if it breaks above RM0.93 in upcoming sessions. If this happens, its short-term target price will be RM0.98 followed by RM1.03. Support is anticipated at RM0.885, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy upon breakout above RM0.93

Target: RM0.98, RM1.03 (time frame: 3-6 weeks)

Exit: RM0.885

Source: AmInvest Research - 20 Sept 2019

Labels: TALIWRK
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Stocks on Radar - Homeritz Corporation (5160)

Author: AmInvest   |  Publish date: Fri, 20 Sep 2019, 8:37 AM


Homeritz Corporation rebounded to test the RM0.66 immediate resistance level. With a rising RSI, a bullish bias may be present above this mark with target prices of RM0.70 and RM0.74. The support price is expected at RM0.60, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy upon breakout above RM0.66

Target: RM0.70, RM0.74 (time frame: 3-6 weeks)

Exit: RM0.60

Source: AmInvest Research - 20 Sept 2019

Labels: HOMERIZ
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Stocks on Radar - Lii Hen Industries (7089)

Author: AmInvest   |  Publish date: Fri, 20 Sep 2019, 8:36 AM


Lii Hen Industries surged past the resistance price of RM2.98 in its latest session with higher trading volume. With the momentum indicator RSI above 70%, the short-term momentum could reach a target price of RM3.25, followed by RM3.37. If it dips below RM2.98, it will move sideways and consolidate. The support price is anticipated at RM2.86 whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy on continuation above RM2.98

Target: RM3.25, RM3.37 (time frame: 3-6 weeks)

Exit: RM2.86

Source: AmInvest Research - 20 Sept 2019

Labels: LIIHEN
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20/09/2019 9:01 AM

Bursa Malaysia - 25% Stake Buy in Bursa Derivatives Mildly Positive on FY20 Earnings

Author: AmInvest   |  Publish date: Thu, 19 Sep 2019, 9:10 AM


Investment Highlights

  • We maintain our HOLD recommendation with a revised fair value on Bursa Malaysia (Bursa) to RM6.70/share from RM6.50/share. Our valuation is based on an FY20 PE of 24.0x (5-year historical average PE). We continue to see the stock as fairly valued, trading at 23.0x FY20 PE. We raise both our FY20/21 by 4.0% to RM225mil/RM243mil by removing the minority interest following the announcement by Bursa to acquire the remaining 25.0% equity interest in Bursa Malaysia Derivatives (Bursa Derivatives).
  • Bursa will be acquiring the 25.0% stake (12,500,000 shares) in Bursa Derivatives that it does not own from CME Group Strategic Investments LLC (CMEGSI) through the exercise of put option by CME Group Inc (CME Group) on 16 Sep 2019. CMEGSI is the wholly-owned subsidiary of CME Group. CMEGSI acquired the 25% equity interest on 30 Nov 2009 for RM55mil.
  • The acquisition price has been fixed at RM162.4mil, to be fully satisfied by cash together with an additional sum to be determined later based on 25.0% of 70.0% of Bursa Derivatives’ operating profit before tax for the 2nd and 3rd quarters of FY19. Any dividend payments by Bursa Derivatives for the 2nd an 3rd quarters of FY19 will reduce the amount for the additional sum.
  • Funding for the acquisition will be from the disposal of quoted shares outside of Malaysia which are owned by Bursa. Hence, it will not have any impact on the group’s gearing position.
  • Presently, Bursa owns 75.0% of Bursa Derivatives. Upon completion of the transaction, Bursa Derivatives will become a wholly-owned subsidiary of Bursa.
  • Based on the audited financials for FY18, profits and net assets attributable to the 25.0% equity interest in Bursa Derivatives amounted to RM6.57mil and RM12.2mil respectively.
  • This transaction is expected to be completed by early Dec 2019. Hence, it will not have any material impact on FY19 EPS. However, for FY20 and FY21, the acquisition is accretive and slightly positive on EPS with the removal of minority interest.
  • Meanwhile on the proforma impact to its FY18 balance sheet, the initial settlement of RM162.4mil will decrease Bursa’s retained earnings by RM150.2mil and noncontrolling interest by RM12.3mil. These will consequently lower its net asset per share to RM0.90 from RM1.08.
  • Bursa will still collaborate with CME for derivatives with the latter continuing to host Bursa Derivatives products on CME Globex electronic trading platform (Globex).
  • Bursa and CME have agreed to make variations to the Globex Services Agreement (GSA) executed on 17 Sep 2009 which remained effective until 19 Sep 2020. Amongst the key variations include the revision to the tiered fee structure on the provision of Globex services by CME. This is expected to provide cost savings to Bursa Derivatives moving forward.
  • In addition, both parties have also agreed to extend the initial renewal term of the agreement from 3 years to 5 years, to be effective until 19 September 2025, and with the option of renewing it subsequently for terms of 3 years. Besides, the notice period for termination and the non-renewal of GSA has been extended from 18 to 24 months.

Source: AmInvest Research - 19 Sept 2019

Labels: BURSA
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TSH Resources - No Fires in Indonesian Estates

Author: AmInvest   |  Publish date: Thu, 19 Sep 2019, 9:08 AM


Investment Highlights

  • We are upgrading TSH Resources to HOLD from SELL as its share price is close to our fair value of RM0.88/share. Our fair value for TSH is based on an FY20F PE of 22x.
  • We have reduced TSH’s FY19E FFB production growth to 7% from 12% due to poor FFB yields. We have assumed an average group FFB yield of 24.0 tonnes/ha in FY19E compared with 25.3 tonnes/ha in FY18. TSH’s FFB yield in Indonesia is expected to ease in FY19E after two years of high productivity. TSH’s group FFB yields were 24.2 tonnes/ha in FY17 and 25.3 tonnes/ha in FY18.
  • Even though TSH’s FFB output is expected to pick up in 2HFY19, we reckon that on a full-year basis, our original assumption of 12% would still be too aggressive. TSH’s FFB output growth was a mere 1.0% YoY in 1HFY19.
  • In spite of our downward revision in TSH’s FFB production growth, the group’s FY19E net profit is unchanged as we have increased the contribution of the “Others” division (mainly cocoa and biomass activities). EBIT of the “Others” division is expected to grow by 10.4% in FY19E as cocoa prices are still positive.
  • We gather that fortunately, there have not been fires at TSH’s oil palm estates in Sumatra and Kalimantan. Also, there are no hotspots at TSH’s oil palm estates in Indonesia currently. In addition, the weather has been dry since July 2019. This means that rainfall has not been optimum for three consecutive months. Indonesia accounts for more than 80% of TSH’s FFB production.
  • Overall, we forecast TSH’s FY19E core net profit (ex-forex changes) to decline by 11.4% in FY19E dragged by weak palm product prices and rising production costs. The fall in TSH’s FY19E net profit is not expected to be as severe as other plantation companies. This is due to improved performance of the palm refinery in Kunak and insurance claims of RM26.2mil. The insurance claims came about due to a fire, which took place at Ekowood’s plant in Gopeng in February 2019.
  • We have assumed an average CPO price of RM2,000/tonne for TSH in FY19E vs. RM2,086/tonne achieved in FY18. We reckon that TSH’s ex-mill production cost in Indonesia would rise to RM1,700/tonne in FY19E from RM1,670/tonne in FY18 due to higher costs of fertiliser and wages.
  • We forecast TSH’s capex to fall to RM130mil in FY19E from RM151.1mil in FY18 as new plantings of oil palm in Indonesia decline. New plantings of oil palm in Indonesia are estimated to be less than 1,000ha in FY19E. We estimate TSH’s net gearing to be 96.7% as at end-FY19E compared with 98.2% as at end-FY18.

Source: AmInvest Research - 19 Sept 2019

Labels: TSH
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Banking Sector - BNM Financial Stability Report – 1H2019

Author: AmInvest   |  Publish date: Thu, 19 Sep 2019, 9:06 AM


Investment Highlights

BNM released the financial stability review report for 1H19 and held a briefing yesterday. Below are the key highlights:

  • The banking sector remained resilient despite a slowdown in global growth, volatile financial markets, softer property market conditions and still elevated household debt levels.
  • 1Q19 saw some recovery in the residential property market. Both volume and the value of housing transactions improved by 7.5% YoY and 10.6% YoY respectively. These were largely driven by demand for affordable houses, particularly properties priced below RM300,000.
  • On the non-residential property market, transactions for commercial property rose by 25.1% in 1Q19 (4Q18: 16.3%), underpinned by higher completed deals for shops. Nevertheless, an oversupply of office space and commercial complexes (OSSC) continued to persist. Vacancy rates for OSSC and retail space per capita remained higher in major cities domestically compared with regional peers with a substantial incoming supply of shopping complexes. We understand that banks remained watchful of the office space and commercial complex segment.
  • Annual growth of household debts climbed to 5.1% in 1H19 vs. 4.7% in 2018 (2017: 4.9%) contributed largely by a faster pace of loans for purchase of residential property and securities (mainly unit trust funds). For households, growth in financial assets of 6.8% YoY continued to outpace the rate of expansion of their debts. The ratio of household debt-to-GDP remained elevated, inching higher to 82.2% in 1H19 compared to 82.0% in 2018.
  • The financial asset-to-debt and liquid financial asset-to-debt ratios were stable at 2.2x and 1.5x respectively for the household sector in 1H19, thus reflecting adequate financial buffers.
  • The share of borrowings by those with income lower than RM3,000 per month (vulnerable borrowers) to the total household debts continued to decline to 18.5% (2018: 19.3%; 2016: 21.9%). The leverage ratio of households under this segment increased slightly to 8.9x in 1H19 (2018: 8.8x) due to housing loans which were made available through numerous loan assistance schemes.
  • The debt servicing ratio for 70% of the newly approved household loans continued stay below 60.0%. Meanwhile, the proportion for debt of borrowers with negative financial margins to total household debt, taking into consideration likely losses from default (debt-at-risk) remained low at 5.2%.
  • Overall, the asset quality of household loans continued to be stable with a GIL ratio of 1.3% in 1H19 (2018: 1.2%). However, there remains some pockets of risk, particularly housing loans for purchase of properties above RM500,000 as well as retail borrowers’ whose incomes are unstable in servicing their debts.

Source: AmInvest Research - 19 Sept 2019

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Stocks on Radar - Kelington Group (0151)

Author: AmInvest   |  Publish date: Thu, 19 Sep 2019, 9:04 AM


Kelington Group shot up and formed a long white candle in its lastest session. With an RSI level above 60%, it may continue to climb above the resistance price of RM1.32. If this happens, its short-term target price will be RM1.38 followed by RM1.41. Support price is anticipated at RM1.27, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy upon breakout above RM1.32

Target: RM1.38, RM1.41 (time frame: 3-6 weeks)

Exit: RM1.27

Source: AmInvest Research - 19 Sept 2019

Labels: KGB
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Stocks on Radar - Kronologi Asia (0176)

Author: AmInvest   |  Publish date: Thu, 19 Sep 2019, 9:03 AM


Kronologi Asia broke past the resistance price of RM0.625 in the latest session. With the momentum indicator RSI above 60%, it may continue to move towards the target price of RM0.66 followed by RM0.695. If it dips below RM0.625, expect a sideway consolidation again. In this case, support price is anticipated at RM0.595, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy on continuation above RM0.625

Target: RM0.66, RM0.695 (time frame: 3-6 weeks)

Exit: RM0.595

Source: AmInvest Research - 19 Sept 2019

Labels: KRONO
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Stocks on Radar - Leong Hup International (6633)

Author: AmInvest   |  Publish date: Thu, 19 Sep 2019, 9:01 AM


Leong Hup International has been consolidating sideways during the last few sessions, with an immediate resistance price of RM0.835. With an RSI above 50%, it may break the resistance level. If this happens, the short-term target prices will be RM0.90 and RM0.965. Support is anticipated at RM0.77, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy upon breakout above RM0.835

Target: RM0.90, RM0.965 (time frame: 3-6 weeks)

Exit: RM0.77

Source: AmInvest Research - 19 Sept 2019

Labels: LHI
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Stocks on Radar - Frontken Corporation (0128)

Author: AmInvest   |  Publish date: Thu, 19 Sep 2019, 9:00 AM


Frontken Corporation inched above the resistance level of RM1.70 in its latest session. With an RSI level above 60%, it may continue to climb above the resistance and move towards the short-term target price of RM1.82 followed by RM1.92. If it dips below RM1.70, expect a sideway consolidation. Support price is anticipated at RM1.60, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy on continuation above RM1.70

Target: RM1.82, RM1.92 (time frame: 3-6 weeks)

Exit: RM1.60

Source: AmInvest Research - 19 Sept 2019

Labels: FRONTKN
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N2N-Connect - 2H to improve with Asia Trading Hub launch

Author: AmInvest   |  Publish date: Wed, 18 Sep 2019, 9:30 AM


Investment Highlights

  • We maintain our HOLD recommendation on N2N Connect (N2N) with an unchanged fair value of RM0.70/share. We are keeping our earnings forecast, while our fair value is pegged to an FY19F PE of 25x.
  • During a recent meeting with N2N, the group indicated that revenue for 2HFY19 is expected to improve compared with 1HFY19. We also learnt that the company is ready to launch its Asia Trading Hub (ATH) platform in October 2019.
  • In line with company’s aim to move away from the one-off sale model, pricing of the new platform will be based on a subscription model plus profit sharing on matched trades.
  • Upon its launch, roadshows will be carried out throughout 4QFY19 with early adoption beginning only in 1QFY20. While the management is hopeful for ATH to be well received, we foresee it facing some teething problems before any meaningful contribution. We have yet to price in any significant impact from ATH.
  • The ATH platform will enable cross-border trading in Asian countries, allowing even more retailers to participate in regional equity markets. This will help propel trading volume for broking houses, especially local ones which are facing declining trade volume. The first phase of ATH will cover Malaysia, Singapore and Hong Kong while phase two will incorporate the Philippines Thailand and Indonesia. Vietnam and Taiwan will be included in the final phase.
  • Given the infancy of blockchain adoption and the lack of regulatory framework, N2N’s plan for a blockchain exchange will take a back seat for now. The company is working with SBI Group to include Japan in its ATH platform first before continuing with the blockchain exchange. N2N is working to introduce its platform and back office system (BOS) in Japan.
  • Currently, the company is in the midst of securing more BOS contracts with local and regional brokers. Earnings contribution from this will be spread out until FY2020, depending on the time of implementation.
  • We continue to like N2N due to: 1) its leading position in the online trading solutions space; and 2) the affordability of TCPro Global. However, we remain cautious on N2N’s revenue from transaction fees, which may remain subdued, owing to lacklustre trading activity in the equity market.

Source: AmInvest Research - 18 Sept 2019

Labels: N2N
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Digi.Com - Sustainable policies to penetrate youth segment

Author: AmInvest   |  Publish date: Wed, 18 Sep 2019, 9:29 AM


Investment Highlights

  • We maintain our HOLD rating on Digi.Com with an unchanged forecasts and DCF-based fair value of RM4.80/share based on a WACC of 6.3% and terminal growth rate of 1%, implying an FY19F EV/EBITDA of 12x — in line with its 2-year average.
  • We attended Digi's third Sustainability Day yesterday with the theme "Sustainability by Design: Practical steps for Malaysian Businesses" which aims to strengthen its brand and customer loyalty, with a strong focus towards the emerging affluent youth.
  • The speakers emphasised the increasing importance of millennials' awareness and appreciation of environmental, ethical and integrity issues which shape their spending patterns, employment preferences and digital experiences.
  • The need for business sustainability to be anchored in the changing cultural youth dynamics and expectations resonates in the conference. This is further reinforced by increasing corporate liability implications under the new Malaysian Anti-Corruption Commission (Amendment) Bill 2018 arising from employees' illegal actions.
  • The conference speakers advocate a continuing policy toward inculcating a business which can adapt and deliver changes in mindset and cultural and environmental priorities.
  • Digi, through its Yellow Heart initiative, seeks to distinguish itself from its peers, supported by a supply chain sustainability policy for its vendors and contractors. The group has developed a real-time Permit-to-Work app which monitors supplier approval, risk and conduct with an aim to reach 60% autopilot processes. This is supported by existing apps such as mobile sales agent MyDigi and myDigialSME to provide immediate information and response to its customers.
  • We view these strategies towards penetrating a larger market share in the youth segment as part of Digi’s wider efforts to expand its revenue base. On a QoQ comparison, Digi’s 2Q2019 subscribers rose 113K from gains in both prepaid and postpaid segments, leading to a pause in the consecutive prepaid declines since 3Q2018.
  • However, the group’s priorities in driving prepaid to postpaid conversions resulted in the higher value postpaid subscribers increasing by 71K vs. prepaid’s 42K in 2Q2019. The shift from prepaid subscribers has caused postpaid’s share of group revenue to rise to 46% from 41% in 2QFY18.
  • The stock currently trades at an undemanding FY20F EV/EBITDA of 12x – at parity to its 2-year average with decent dividend yields of 4%.

Source: AmInvest Research - 18 Sept 2019

Labels: DIGI
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IHH-Healthcare - Proposed Acquisition of Prince Court Hospital

Author: AmInvest   |  Publish date: Wed, 18 Sep 2019, 9:26 AM


Investment Highlights

  • We maintain our HOLD recommendation on IHH Healthcare with a slightly lower FV of RM5.50 (from RM5.53) based on DCF (WACC 8.3%; terminal growth rate 3.5%).
  • We also take this opportunity to recalibrate our financial model and cut earnings forecast for FY19F, FY20F and FY21F by 1.0%, 7.2% and 10.6% respectively. Earnings forecasts were reduced as we anticipate slightly longer gestational period for its recent acquisitions. We have not accounted for Prince Court’s earnings impact in our forecasts.
  • IHH announced on Bursa Malaysia that through Pantai Holdings Sdn Bhd, it has entered into a conditional share purchase agreement with Pulau Memutik Ventures Sdn Bhd (a subsidiary of Khazanah Nasional) to acquire the entire issued share capital of Prince Court Medical Centre Sdn Bhd (PCMC) for a cash consideration of RM1.02bil. 2. PCMC is a 277-licensed bed private healthcare facility located in the “Golden Triangle” of Kuala Lumpur. In FY18, PCMC recorded a revenue of RM260.0mil and EBITDA of RM44.0mil, translating to an EBITDA margin of circa 16.9% which is lower than IHH’s EBITDA margins of between 21 and 25%. PCMC’s core net profit of circa RM26.0mil is roughly 2.5% of IHH’s FY18 core net profit. The acquisition in expected to be completed by 1QFY20.
  • The key takeaways from yesterday’s teleconference briefing are as follows:

1. The key rationales behind the proposed acquisition are the strategic location and to further strengthen IHH’s position as the leading healthcare provider in Malaysia.

  • PCMC’s location in the “Golden Triangle” of Kuala Lumpur is expected to allow the group to further capture premium and corporate clientele within a 2km radius.
  • The acquisition is expected to complement its market positioning in the Malaysian operations and its existing hospitals in Klang Valley, gain a larger share of the medical tourism market, enables broader service offerings and cross sell its services to its existing customers and gain qualified and experienced medical professional team across a wide range of services.
  • IHH aims to leverage its established management and administration capabilities in order to drive synergies and achieve better economies of scales in its operations in Klang Valley. Hence, we can expect EBITDA margins to gradually improve on the back of streamlined operations post-acquisition.

2. The cash consideration is based on the mid-point range of PwC’s fair market value range for PCMC from RM0.96bil to RM1.08bil. PWC’s fair value for Prince Court is based on DCF valuation. Based on the latest quarter financials, IHH has an ample cash balance of RM5.0bil to fund the acquisition. However, in order to maximize the leverage in its balance sheet, the group is looking into a combination of internally generated funds and bank borrowings.

3. A termination clause was included allowing IHH to terminate the SPA prior to the completion of the proposed acquisition should there be any change relating to drug price controls which would impact the FY18 EBITDA of PCMC by at least 25%. This is in order to mitigate the risk of a potential adverse impact from an introduction of price control on drugs.

  • We are neutral on the acquisition as we believe the impact will be minimal. Its implied EV/EBITDA of 21.9x is quite high when compared with IHH Group’s 23.1x and Fortis’ 22.5x despite PCMC being a standalone hospital. The acquisition is expected to drag IHH’s earnings in the immediate term as PCMC’s earnings contribution of RM26.0mil will not be enough to cover the net financing cost of the acquisition. We estimate IHH’s net gearing in FY20F to go up by 0.03x to 0.36x. The implied PE is 39.2x.
  • We like IHH for its: (1) strong prospects in the private healthcare sector backed by rising affluence and the aging populations; and (2) its position in the premium segment of the private healthcare sector, translating to high EBITDA margins of over 20%. However, we are wary of the geopolitical risks from its Turkish and China operations due to volatile currency and political climate, which is reflected in our estimated WACC of 8.0%.
  • We expect the group to continue to grow on the back of sustained demand growth in all of its markets, expansion in multiple countries, continuous improvement in patient admission volumes, improved revenue intensity with more complex case and case mix, better operating leverage and tighter costs controls. However, these will be partly dragged by the possible impending drug pricing controls, pre-operating and start-up costs of new operations and wage inflation.

Source: AmInvest Research - 18 Sept 2019

Labels: IHH
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Stocks on Radar - Hartalega Holdings (5168)

Author: AmInvest   |  Publish date: Wed, 18 Sep 2019, 8:55 AM


Hartalega Holdings was testing the RM5.33 level during its intraday high. With an RSI level above 60%, it may move higher with a target price of RM5.53, followed by RM5.71. Meanwhile, it may drift sideways if it fails to cross RM5.33 in the near term. In this case, support is anticipated at RM5.15, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy upon breakout above RM5.33

Target: RM5.53, RM5.71 (time frame: 3-6 weeks)

Exit: RM5.15

Source: AmInvest Research - 18 Sept 2019

Labels: HARTA
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Stocks on Radar - Kim Hin Joo (Malaysia) (0210)

Author: AmInvest   |  Publish date: Wed, 18 Sep 2019, 8:55 AM


Kim Hin Joo (Malaysia) tested the RM0.32 resistance level in its latest session with higher trading volume. With a rising RSI, it may break above the resistance and move towards the target prices of RM0.355 and RM0.385. Meanwhile, it may move sideways if it fails to cross the RM0.32 mark in coming sessions. The downside support is anticipated at RM0.29, whereby traders may exit on a breach to avoid the risk of a further correction.

Trading Call: Buy upon breakout above RM0.32

Target: RM0.355, RM0.385 (time frame: 3-6 weeks)

Exit: RM0.29

Source: AmInvest Research - 18 Sept 2019

Labels: KHJB
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Stocks on Radar - Teo Seng Capital (7252)

Author: AmInvest   |  Publish date: Wed, 18 Sep 2019, 8:53 AM


Teo Seng Capital has been range-bound during recent sessions. With the momentum indicator RSI rising above 50%, there is a possibility it will break above the resistance price of RM1.13, and move towards the target prices of RM1.21 and RM1.27. The immediate support is anticipated at RM1.07, whereby traders may exit on a breach to avoid the risk of a further consolidation.

Trading Call: Buy upon breakout above RM1.13

Target: RM1.21, RM1.27 (time frame: 3-6 weeks)

Exit: RM1.07

Source: AmInvest Research - 18 Sept 2019

Labels: TEOSENG
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