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Author: MalaccaSecurities   |   Latest post: Wed, 13 Nov 2019, 9:13 AM

 

Mplus Market Pulse - 29 Aug 2019

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Selling Looks To Ease

  • The FBM KLCI (-0.1%) trended lower for the third straight day after enduring a choppy trading session on weakness in selected banking shares. The lower liners, however, closed mostly higher as the FBM Fledgling and FBM ACE added 0.1% and 1.0% respectively, while the broader market finished mostly lower as the construction sector (-2.2%) closed at its two-month low.
  • Market breadth stayed negative as losers outnumbered gainers on a ratio of 5-to-3 stocks, while 377 stocks traded unchanged. Traded volumes fell 9.3% to 1.94 bln shares as most market players opted to remain on the sidelines, awaiting for calmer market condition.
  • Leading the local bourse decliners list were Nestle (-RM1.60), Hong Leong Bank (-22.0 sen), Hong Leong Financial Group (-20.0 sen), CIMB (-7.0 sen) and Maxis (-6.0 sen). Consumer products giants like Fraser & Neave (-RM1.06), Dutch Lady (-80.0 sen), Carlsberg (-26.0 sen) and Pansonic (-22.0 sen) also fell, while Tasek Corporation slipped 39.0 sen.
  • In contrast, notable winners on the broader market were Padini (+36.0 sen), Time dotCom (+21.0 sen), Bursa (+14.0 sen) and Telekom Malaysia (+13.0 sen) Opcom Holdings jumped 18.5 sen after the government approved a RM21.6 bln National Fiberisation and Connectivity Plan. Key winners on the local bourse were Petronas Gas (+28.0 sen), MISC (+24.0 sen), Petronas Dagangan (+22.0 sen), Tenaga (+14.0 sen) and AmBank (+11.0 sen).
  • Asian benchmark indices closed mostly lower on Wednesday as the Hang Seng Index (-0.2%) retreated for the third straight session, while the Shanghai Composite slipped 0.3% on the uncertainty surrounding the Sino-U.S. trade dispute. The Nikkei, however, gained 0.1% on buying support in defensive stocks in the telecommunications and consumerrelated companies. ASEAN equities, meanwhile, closed on a mixed note yesterday.
  • U.S. stockmarkets rebounded as the Dow (+1.0%) advanced above the 26,000 psychological level as bargain hunting activities took precedence. On the broader market, the S&P 500 climbed 0.7% with only the utilities sector (-0.3%) underperforming, while the Nasdaq closed 0.4% higher.
  • Earlier, European benchmark indices closed mostly lower as both the CAC and DAX shed 0.3% each after the Eurozone’s government bond yields sank to near record lows. The FTSE, however, added 0.4%, boosted by BP PLC (+1.2%) after agreeing to sell its Alaskan properties for US$5.60 bln.

THE DAY AHEAD

  • The touted recovery on Bursa Malaysia failed to materialise yesterday as fresh buying interest remains tepid. As it is, wariness over the market’s outlook is continuing to keep sentiments on the wayside and sending more market players to the sidelines.
  • The wait-and-see attitude is also leaving the key index directionless with the ongoing results reporting season hardly bringing much cheer as results are still on the mixed-to-lower side.
  • Still, we see the near term selling is easing and this could bring some mild relieve to the key index. We think that the downside is likely to find support around the 1,580-1,590 levels in the near term, but with few positivity, we also think that any recovery could be measured with the 1,600 points the likely target and further gains likely to be difficult to come by over the foreseeable future.
  • Meanwhile, the lower liners and broader market shares are also seeing few impetuses that could prompt a firmer rebound as sentiments are still indifferent. The spate of reported results also lack conviction to bring back market players en masse as yet and this could leave the FBM Small Cap, FBM Fledgling and FBM ACE indices to continue drifting.

COMPANY UPDATE

  • Econpile Holdings Bhd’s 4QFY19 net profit grew 19.0% Y.o.Y to RM23.2 mln as there were project delays and idling cost over-runs incurred in certain infrastructure projects in the previous corresponding quarter. Revenue for the quarter, however, fell 8.2% Y.o.Y to RM176.6 mln, dragged down by its depleting unbilled orderbook.
  • For FY19, cumulative net profit sank 70.7% Y.o.Y to RM25.5 mln. Revenue for the year decreased 8.9% Y.o.Y to RM663.3 mln.

Comments

  • The reported earnings came slightly above our expectation, amounting to 104.3% of our estimate of RM22.2 mln for the year. The reported revenue came within our expectations, amounting to 103.5% of our full-year forecast of RM640.7 mln. The variance is due to the lower effective tax rate at 22.2% vs. our assumption of 24.8%.
  • Despite the reported earnings coming slightly above our forecast, we made no changes to our earnings estimates as we expect margins to be slightly pressured moving into FY20 and FY21. Hence, we maintain our HOLD recommendation on Econpile with an unchanged target price of RM0.79.
  • Our target price is derived by ascribing an unchanged target PER of 13.0x to its normalised FY20 EPS of 6.1 sen (stripping off RM67.8 mln adjudication proceeds from ASM Development (KL) Sdn Bhd for the piling and foundation works for the mixed development). We reckon that its current share price that has rallied 98.4% YTD, is close to its fundamentals.
  • OCK Group Bhd’s 2Q2019 net profit climbed 65.6% Y.o.Y to RM7.0 mln, boosted by improved contribution from the mechanical & electrical engineering services and trading segment. Revenue for the quarter rose marginally by 0.3% Y.o.Y to RM115.8 mln.
  • For 1H2019, cumulative net profit added 31.8% Y.o.Y to RM12.3 mln. Revenue for the period increased 2.9% Y.o.Y to RM219.3 mln.

Comments

  • The reported earnings make up to 43.2% of our net profit forecast of RM28.5 mln for 2019. The reported revenue amounted to 43.9% of our estimated 2019 revenue of RM499.2 mln. We deem the results to be in line as we expect a stronger performance in the second half of the financial year, as traditionally displayed over the past years.
  • We deemed the earnings to be in-line as OCK’s first half results traditionally make up about 35%-45.0% of its full year earnings. Consequently, we maintain our BUY recommendation on OCK with an unchanged target price of RM0.75.
  • We adopt a sum-of-parts (SOP) approach as we valued its telecommunication network services and green energy & power solutions business segments on a discounted cash flow approach (key assumptions include a WACC of 9.5%, terminal growth rate of 1.5%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term. Meanwhile, we ascribed an unchanged target PER of 13.0x to both its fully-diluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in 2020.
  • Protasco Bhd remain in the black in 2Q2019 with net profit amounted to RM2.8 mln vs. a net loss of RM0.9 mln recorded in the previous corresponding quarter, underpinned by improved contribution from the construction sector, coupled with the completion of its right sizing exercised at end 2018. Revenue for the quarter, however, fell 22.1% Y.o.Y to RM188.6 mln, dragged down by lower contribution from the maintenance segment.
  • For 1H2019, cumulative net profit stood at RM4.0 mln vs. a net loss of RM3.1 mln recorded in 1H2018. Revenue for the period, however, declined 11.2% Y.o.Y to RM354.9 mln.

Comments

  • The reported earnings make-up to only 19.5% of our full year net profit forecast of RM20.4 mln for 2019. The reported revenue amounted to 36.9% of our full year estimate of RM961.7 mln. The variance is mainly due to the lower contribution from the maintenance segment, coupled with the higher effective tax rate at 51.0% vs. our assumption at 28.5%.
  • Although both the reported revenue and earnings makes up less than half of our estimates, we deem the figures to be in-line as the first half results are traditionally weaker, whilst effective tax rate should normalize going forward. Hence, we made no changes to our earnings forecast and we maintain our HOLD recommendation on Protasco with an unchanged target price of RM0.28.
  • We arrive our target price on a sum-ofparts basis by ascribing an unchanged target PER of 8.0x to its 2020 fully diluted construction earnings as well as a target PER of 8.0x (unchanged) to its fully diluted 2020 concession and engineering services’ earnings. Its education and trading units’ valuations remain pegged at target PERs of 6.0x respectively due to its smaller scale businesses, while its property development division’s valuation is derived from ascribing an unchanged 0.6x to its BV.
  • Chin Well Holdings Bhd‘s 4QFY19 net profit narrowed 35.2% Y.o.Y to RM11.7 mln, from RM18.0 mln a year ago, dragged down by lower margins in the fasteners segment, coupled with higher initial start-up costs. Quarterly revenue, however, rose 10.8% Y.o.Y to RM166.2 mln, from RM150.0 mln in the fourth quarter last year. Despite the softer quarter, the group declared a single tier second interim dividend of 3.35 sen, payable on 25th November 2019.
  • Cumulative full-year FY19 net profit inched higher to RM57.6 mln vs. RM55.9 mln in FY18, capped by lower fasteners sales and higher raw material, as well as start-up costs from the commencement of new production lines in April. Revenue, meanwhile, gained 15.1% Y.o.Y to RM680.7 mln, from RM591.3 mln last year.

Comments

  • The reported net profit came in slightly below our expectations as it only accounted for 92.9% of our full year earnings forecast of RM62.0 mln. On the positive side, revenue was in-line, accounting for 99.4% of our estimated revenue of RM684.6 mln. The difference was mainly attributed to lower-than-anticipated EBITDA margins and increased depreciation charges.
  • Even so, we largely maintain our FY20 forecast as we forwarded the continued growth in both Chin Well’s topline and bottomline, driven by increasing demand for fasteners in U.S. and gradual capacity expansion, albeit slightly capped by slowing orders from Europe amid rising competition.
  • We maintain our BUY call on Chin Well with an unchanged target price of RM2.05 by ascribing an unchanged target PER of 9.0x to Chin Well FY20 EPS of 22.9 sen by as we continue to believe in its long-term investment merits despite the current challenges, backed by its proven track record to generate cash and capacity expansion.
  • The group is currently trading at a forward PER of 7.6x, which is below its three-year average PER of 9.0x – indicating room for more upside, in our opinion.
  • The target PER is at a small premium to PER of its closest peer, Tong Herr Resources Bhd, premised on Chin Well’s higher margins and the positive growth outlook in the fasteners landscape in Europe.

COMPANY BRIEF

  • Inari Amertron Bhd‘s 4QFY19 net profit fell 33.0% Y.o.Y to RM38.3 mln, from RM57.1 mln a year ago, as revenue weakened by 10.0% Y.o.Y to RM270.7 mln vs. RM301.1 mln in the same period last year. The weaker net profit was also partly attributed to some RM23.7 mln being booked in as disposal gain in 4QFY18, coupled with higher depreciation costs and unfavourable product mix.
  • Consequently, full-year net profit was down to RM191.7 mln (-23.0% Y.o.Y), from RM249.3 mln in the previous financial year, while revenue narrowed to RM1.15 bln against RM1.38 bln previously. (The Edge Daily)
  • FGV Holdings Bhd is still looking to sell its 51.0%-stake in listed sugar refiner MSM Holdings Bhd, but plans to find a strategic partner that is adept at logistics to help with raw sugar supplies and expansion of export markets. The group opined that the sugar industry is still weak currently, and thus, is still searching for the best value to maximise returns for its stakes in the sugar maker.
  • The group also said that it controls about 59.0% of the local sugar industry, and so is not interested to partner with a player that is eyeing the same segment. (The Edge Daily)
  • IJM Corp Bhd posted a 5.3% Y.o.Y fall in its 1QFY20 net profit to RM59.4 mln, compared to RM62.8 mln a year ago, mainly due to income tax expense and lower contribution from the investment and others division. Quarterly revenue, however, gained 6.9% Y.o.Y to RM1.54 bln from RM1.44 bln a year ago. (The Star Online)
  • UEM Sunrise Bhd is planning to increase the size of its new launches next year, despite the overhang the weak sentiment in the property market. About RM2.02 bln worth of projects located in the Klang Valley and Johor is slated for launch in 2020, exceeding the RM1.2 bln target set for 2019
  • The majority of the property projects will be launched in 2H2020, which will see the bulk of its offerings of RM1.57 bln worth of properties launched. (The Star Online)
  • Paramount Corp Bhd is also expecting new property launches worth some RM900.0 mln in 2H2019 to achieve its RM1.0 bln sales target this year. Despite only recording property sales of some RM310.0 mln in 1H2019 compared to about RM600.0 mln last year, Paramount is maintaining its 2019 property sales target at RM1.0 bln.
  • As at end-June 2019, the group has unbilled sales of about RM978.0 mln, which is expected to provide earnings visibility for the group in the next three years. (The Edge Daily)
  • BIMB Holdings Bhd‘s 2Q2019 net profit surged 30.0% Y.o.Y to RM195.2 mln, from RM149.9 mln in the previous year's corresponding quarter, while revenue grew 16.0% Y.o.Y to RM1.16 bln, from RM992.17 mln previously.
  • The stronger bottomline was due to improvements in its Islamic banking operations, under Bank Islam Malaysia Bhd and the takaful segment under Syarikat Takaful Malaysia Keluarga Bhd. (The Edge Daily)
  • Subsequently, cumulative 1H2019 net profit increased 23.0% Y.o.Y to RM397.7 mln, from RM322.1 mln a year earlier, while revenue rose 17.0% Y.o.Y to RM2.34 bln, from RM1.99 bln in the same period last year.
  • Sime Darby Bhd has appointed Permodalan Nasional Bhd’s (PNB) President and Group Chief Executive Officer (CEO) Datuk Abdul Rahman Ahmad as Chairman and Non-Independent Non-Executive Director upon incumbent Tan Sri Dr Wan Abdul Aziz Wan Abdullah's retirement on 31st October 2019.
  • In the meantime, Abdul Rahman will be appointed Non-Independent NonExecutive Director on 1st September before assuming the role of Chairman. (The Star Online)

Source: Mplus Research - 29 Aug 2019

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