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Author: MalaccaSecurities   |   Latest post: Mon, 9 Dec 2019, 9:30 AM

 

Mplus Market Pulse - 23 Nov 2018

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  • The FBM KLCI eked-out gains after it seesawed between the positive and negative territory, owing to bargain-hunting in selected heavyweights. The majority of the lower liners retreated, with the exception of the FBM Ace (+0.7%), while the broader market constituents were mostly splashed in red.
  • Market breadth remained lackluster as the decliners won the advancers on a ratio of 484-to-310 stocks. Traded volumes also thinned by 14.4% to 1.75 bln shares as investors failed to find many noteworthy leads in the midst of the ongoing results reporting season
  • Winners on the Main Board include Genting (+9.0 sen), Petronas Gas (+8.0 sen), Malaysian Airports (+5.0 sen) and Hartalega (+5.0 sen). Sime Darby (+6.0 sen) also rose despite registering significantly lower 1QFY19 results due toone-off listing expenses of its subsidiaries. Meanwhile, notable gainers on the broader market were Fraser & Neave (+34.0 sen), Amway (+20.0 sen), Edaran (+12.0 sen), Dnonce Technology (+11.0 sen) and UMW Holdings (+11.0 sen).
  • On the flip side, Pos Malaysia (-62.0 sen), BAT (-58.0 sen), KESM Industries (-30.0 sen), Apex Healthcare (-26.0 sen) and Ideal United Bintang (-13.0 sen) retreated, while Nestle (-30.0 sen), Hong Leong Financial Group (-8.0 sen), Petronas Dagangan (-6.0 sen), Sime Darby Plantation (-5.0 sen) and Digi (-3.0 sen) led the FBM KLCI higher on Thursday.
  • Major regional bourses closed on a mildly upbeat tone due to holiday-thinned trading. The Nikkei gained 0.7% and finished higher, albeit capped by theweakness in banking stocks. Meanwhile, the Hang Seng index (+0.2%) also moved incrementally higher, in-tandem with the rally in internet-giant Tencent. The Shanghai Composite, however, struggled to stay afloat and closed in the red. Similarly, the majority of the ASEAN stockmarkets traded mostly lower yesterday.
  • Wall Street, meanwhile, was closed for Thanksgiving holidays.
  • European equities slipped into the bearish territory as sentiments remained muted amid rising Brexit risks and Italy’s budget uncertainty. The FTSE (-1.3%) gave up most of its Wednesday’s gains, alongside the DAX (-0.9%) and the CAC (- 0.8%).

THE DAY AHEAD

  • Although the key index eked-out gains yesterday, the market condition is still cautious and wary of the ongoing trade, interest rate and economic concerns that look to linger for longer.
  • Under the prevailing environment, we continue to think that stocks on Bursa Malaysia is likely to stay subdued as many market players are staying on the sidelines, awaiting for a clearer prognosis of the market’s direction before recommitting to stocks.
  • Already, this is evident from the thinner traded volumes of late as the lack of fresh positive catalysts is keeping market players away. Therefore, we see the 1,700 points level remaining the immediate hurdle for now, followed by the 1,710 level. The supports remain at 1,690 and 1,680 respectively.
  • The lower liners and broader market shares are also witnessing reduced following due to the lack of leads. The ongoing results reporting season remains largely on a mixed note with few noteworthy leads to entice retail players back to the market. As a consequence, we think the FBM Small Cap, Fledgling and ACE Market indices will continue to drift for longer.

COMPANY UPDATE

  • Engtex Group Bhd’s 3Q2018 net profit slumped 72.3% Y.o.Y to RM3.0 mln, dragged down by: (i) volatility in international and domestic metal prices that resulted in a margin erosion in both the manufacturing and wholesale and distribution segments, (ii) increased operating costs arising from the start-up of two new manufacturing plants, and (iii) higher operating cost from the completed property development projects in Kepong and Selayang. Revenue for the quarter, however, rose 21.2% Y.o.Y to RM315.2 mln.
  • For 9M2018, cumulative net profit dipped 54.7% Y.o.Y to RM19.2 mln. Revenue for the period, however, grew 12.6% Y.o.Y to RM899.5 mln. The reported earnings fell short of our expectations, amounting to only 47.9% of our previous estimated net profit of RM40.1 mln. The reported revenue, however, came within our expectations, accounting to 76.9% our full year estimated revenue of RM1.17 bln.
  • YTD, the lower-than-expected net profit was due to lower margins recorded in both the manufacturing and wholesale and distribution segments, coupled with the higher effective tax rate at 30.1% vs. our assumption of 27.0%.

Comments

  • With the reported earnings coming belowour forecast, we slashed our earnings estimates by 40.4% and 14.6% to RM24.0 mln and RM39.7 mln for 2018 and 2019 respectively to account for the lower margins from the manufacturing segment, arising from the additional costs from the two new manufacturing plants, coupled with the higher effective tax rate. We downgrade our recommendation on Engtex to SELL (from Hold) with a lower target price of RM0.80 (from RM1.05) amid the cut in its margins.
  • Our target price was derived from ascribing a unchanged target PER of 8.0x to our revised 2019 earnings forecast of its manufacturing and wholesale and distribution businesses, in line with its historical PER. Its property development segment’s valuation remains unchanged at 0.6x its BV due to its relatively smallscale property development projects, while its hospitality segment earnings is pegged to an unchanged PER of 6.0x to its 2019 earnings due to smaller contribution to the group.
  • HIL Industries Bhd (HIL) registered a 82.4% Y.o.Y drop in its 3Q2018 net profit to a mere RM1.1 mln, from RM6.4 mln in the previous corresponding period, largely due to lower property sales and production disruption by one of HIL’s major customer. Similarly, revenue was also down by 30.0% Y.o.Y to RM20.6 mln, from RM29.5 mln previously.
  • 9M2018 net profit, however, inched slightly higher to RM10.3 mln (+3.1% Y.o.Y), compared to RM10.0 mln earlier, mainly due to higher other income that was boosted by the one-off acquisition gain in 1Q2018 and lower tax charges. Meanwhile, cumulative 9M2018 revenue narrowed 4.3% Y.o.Y to RM69.7 mln, from RM72.9 mln last year.
  • Its 9M2018 net profit underperformed our projections, accounting for only 57.7% ofour previous full-year forecast, while revenue was only 64.4% of our estimated revenue. The shortfall was mainly driven by significantly lower contribution from the manufacturing segment, which we believe was potentially weighed down by supply issues to Perodua in August.

Comment

  • We slashed our forecast 2018 and 2019 net profit to RM14.1 mln (-20.0%) and RM17.7 mln (-36.8%) respectively, after accounting for the significantly weakerthan-expected third quarter and lower property sales, in-view of the still-weak property sentiment. Revenue was also adjusted lower by approximately 8.0% from 2018-2019.
  • Despite cutting our estimates, we maintain our BUY call on HIL but with a lower target price of RM0.70 (from RM0.74) after rolling forward the base year to 2019, as we believe HIL’s earnings is poised to improve in the longer-run as its key customer recovers from previous production disruption and recognition from its newly launched properties.
  • Our target price is premised on a sum-ofparts (SOP) approach, ascribing to an unchanged target PER of 9.0x to its 2019 manufacturing business and a discount of 50% to the revalued net asset value (RNAV) estimate of HIL’s property unit.
  • The target PER is similar to other smallto-mid cap peers and is at a slight discount to its closest competitor, APM Automotive Holdings due to the latter’s larger market capitalisation.

COMPANY BRIEF

  • AmBank Group Bhd’s 2QFY19 net profit rose 5.0% Y.o.Y to RM348.2 mln, boosted by improving trends in its incomemomentum, operating leverage and profitability. Revenue for the quarter increased 8.9% Y.o.Y to RM2.31 bln.
  • For 1HFY19, cumulative net profit added 5.5% Y.o.Y to RM695.7 mln. Revenue for the period rose 6.6% Y.o.Y to RM4.48 bln. An interim dividend of 5.0 sen a share was declared. (The Star Online)
  • Serba Dinamik Holdings Bhd's unit, Serba Dinamik Group Bhd has announced its proposed acquisition of 34.5 mln shares or about 10.0% stake in Green & Smart Holdings plc (GSH) for RM13.0 mln cash. The proposed acquisition is part of a strategy to expand into an asset ownership model as well to expand its EPCC business segment and capabilities.
  • GSH previously completed two bio-gas plants and awarded one EPCC contract to Serba Dinamik for a 2.7 MW biogas power plant in Teluk Intan, Perak. GSH is developing three other bio-gas plants with an estimated total project value of RM49.0 mln and could potentially embark on joint ventures with leading plantation owners to develop bio-gas plants that carry EPCC contracts valued at about RM40.0 mln.
  • Serba Dinamik Holdings presently owns a 15.0% indirect stake in GSH via its subsidiary Serba Dinamik International Ltd. Back on 2nd August 2018, Serba Dinamik International subscribed for 51.8 mln or about 15.0% of the enlarged number of issued shares in the company in a private placement exercise for about RM17.1 mln cash. (The Star Online)
  • Kenanga Investment Bank Bhd's (Kenanga IB) 3Q2018 net profit rose 6.9% to RM5.8 mln, helped by a bad debt recovery from a court case settlement, higher net interest income and management fees income generated, coupled with lower overhead expenses and share of losses from associates.Revenue for the quarter climbed 3.1% Y.o.Y to RM177.3 mln.
  • For 9M2018, cumulative net profit jumped 108.7% Y.o.Y to RM24.4 mln. Revenue for the period grew 2.2% Y.o.Y to RM526.8 mln. (The Edge Daily)
  • Malaysian Resources Corp Bhd’s (MRCB) 3Q2018 net profit declined 35.3% Y.o.Y to RM19.8 mln due to the absence of two major revenue contributors, namely the KL Sports City refurbishment project in Bukit Jalil and toll collection revenue from the Eastern Dispersal Link. Revenue for the quarter slipped 41.3% Y.o.Y to RM663.8 mln.
  • For 9M2018, however, cumulative net profit increased 18.2% Y.o.Y to RM74.8 mln. Revenue for the period fell 36.7% Y.o.Y to RM1.50 bln. (The Edge Daily)
  • MBM Resources Bhd’s 3Q2018 net profit surged 419.8% Y.o.Y to RM38.1 mln, thanks to the GST tax holiday. Revenue for the quarter rose marginally by 1.2% Y.o.Y to RM472.4 mln.
  • For 9M2018, cumulative net profit jumped 145.8% Y.o.Y to RM105.5 mln. Revenue for the period rose 10.9% Y.o.Y to RM1.42 bln. (The Edge Daily)
  • Boustead Plantations Bhd’s 3Q2018 net loss stood at RM21.9 mln vs. a net profit of RM557.7 mln recorded in the previous corresponding quarter, dragged down by the decline in palm product prices, lower crop production and increase in expenditure corresponding to a larger area under harvest. Revenue for the quarter fell 28.5% Y.o.Y to RM131.1 mln.
  • For 9M2018, cumulative net loss stood at RM38.9 mln vs. a net profit of RM598.0 recorded in the previous corresponding period. Revenue for the period declined 21.0% Y.o.Y toRM427.5 mln. (The Edge Daily)
  • HeveaBoard Bhd's 3Q2018 net profit dropped 55.8% Y.o.Y to RM3.2 mln, on the back of lower contributions across all segments, namely particleboard manufacturing, ready-to-assemble (RTA) manufacturing and fungi cultivation. Revenue for the quarter fell 13.8% Y.o.Y to RM101.7 mln.
  • For 9M2018, cumulative net profit plunged 80.0% Y.o.Y to RM9.8 mln. Revenue for the period slipped 21.6% Y.o.Y to RM323.1 mln. (The Edge Daily)
  • Allianz Malaysia Bhd's 3Q2018 net profit jumped 47.9% Y.o.Y to RM99.9 mln, thanks to higher contributions from the general insurance and life insurance segments. Revenue for the quarter rose 9.5% Y.o.Y to RM1.30 bln.
  • For 9M2018, cumulative net profit increased 37.7% Y.o.Y to RM277.0 mln. Revenue for the quarter grew 8.0% Y.o.Y to RM3.88 bln. (The Edge Daily)
  • Press Metal Aluminium Holdings Bhd’s 3Q2018 net profit rose 5.3% Y.o.Y to RM162.5 mln, aided by proceeds from insurance settlement. Revenue for the quarter grew 12.1% Y.o.Y to RM2.37 bln.
  • For 9M2018, cumulative net profit added 4.6% Y.o.Y to RM473.6 mln. Revenue for the period gained 15.5% Y.o.Y to RM6.94 bln. (The Edge Daily)

Source: Mplus Research - 23 Nov 2018

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