PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 29 May 2020, 10:15 AM


PublicInvest Research Headlines - 29 May 2020

Author: PublicInvest   |  Publish date: Fri, 29 May 2020, 10:15 AM


US: Pending home sales plummet more than expected in April. Pending home sales in the US plunged by more than expected in the month of April, the National Association of Realtors revealed in a report on Thursday. NAR said its pending home sales index plummeted by 21.8% to 69.0 in April after tumbling by 20.8% to 88.2 in March. Economists had expected pending home sales to slump by 15.0%. A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale. With nearly all states under stay-at-home orders in April, it is no surprise to see the markedly reduced activity in signing contracts for home purchases," said Lawrence Yun, NAR's chief economist. The steep drop in pending home sales in April reflected the biggest decline since NAR begin tracking such transactions in January 2001. (RTT)

US: Durable goods orders fall sharply for second straight month. US orders for durable goods sank sharply for a second month in April as the coronavirus pandemic wreaked havoc on the manufacturing industry. Bookings for goods meant to last at least three years decreased 17.2%, the most since August 2014, after a revised 16.6% decline in March, Commerce Department data showed Thursday. The median projection in a Bloomberg survey of economists called for a 19% decrease. Revised data on Thursday from the Commerce Department showed 1Q GDP shrank at an annualized 5% pace as consumer spending and business investment dropped sharply. Factories in the last two months bore the brunt of the sharp cutback in demand amid the nationwide lockdown. (Bloomberg)

US: Initial jobless claims drop to 2.1m. A report released by the Labor Department on Thursday showed a continued decrease in first-time claims for US unemployment benefits in the week ended May 23rd. The Labor Department said initial jobless claims dropped to 2.1m, a decrease of 323,000 from the previous week's revised level of 2.4m. Economists had expected jobless claims to fall to 2.1m from the 2.4m originally reported for the previous week. With the decrease, jobless claims pulled back further off the record high of 6.9m set in the week ended March 28th. While jobless claims have steadily decreased over the past several weeks, the number of claims since the coronavirus-induced lockdown now exceeds 40m. The Labor Department said the less volatile four-week moving average also fell to 2.6m, a decrease of 436,000 from the previous week's revised average of 3.0m. (RTT)

EU: Euro-area confidence inches up from record low as lockdown eased. Economic sentiment in the euro area rose from a record low after companies started to reopen across the continent following the easing of pandemic restrictions. A small pickup in the European Commission gauge is consistent with similar reports in recent weeks that suggest the 19-nation region is slowly working its way out of the worst crisis in living memory. At the same time, the loss of jobs and business to weeks of lockdowns is likely to leave lasting damage on the fabric of the economy. The recovery in industry confidence in May was driven entirely by higher production expectations, which reversed roughly half their slide of the previous two months. (Bloomberg)

EU: Italy producer prices fall for tenth month; consumer confidence weakens. Italy's producer prices fell for the tenth straight month in April, data from the statistical office Istat showed on Thursday. The producer price index declined 5.1% YoY in April, following a 3.7% fall in March. On a monthly basis, producer prices decreased 2.6% in April, following a 1.1% fall in the preceding month. In the domestic market, producer prices fell 3.4% MoM and declined by 6.7% from a year ago in April. Producer prices in the foreign market fell by 0.7% monthly in April and decreased 1.0% annually. Separate data from the statistical office showed that the consumer confidence decreased to 94.3 in May from 100.1 in March. Economists had expected a score of 88.5. The economic confidence index fell to 71.9 in May from 94.4 in March. The expectations index decreased modestly. (RTT)

UK: BOE's Saunders says too little stimulus to push economy into 'lowflation trap'. BOE policymaker Michael Saunders said the UK economy could slip into a 'lowflation trap' in case of too little stimulus. "If we overdo the stimulus somewhat and then find the economy recovers strongly, we have ample tools and time to tighten policy again before persistent excess demand and inflation become a problem," Saunders said on Thursday. However, a 'lowflation trap' caused by too little stimulus will be much harder to escape, with greater long-term costs from business failures and high unemployment, Saunders noted. "The costs of policy error are, to an extent, asymmetric at present," he said. It is safer to err on the side of easing somewhat too much rather than ease too little. (RTT)

China: Premier Li says economy can grow if key tasks done. China’s economy can grow this year if the key tasks set out by the government, including ensuring employment and people’s livelihoods are achieved, according to Premier Li Keqiang. It is “practical and realistic” to not set a numerical growth target this year as China is not immune from the economic shocks brought about by the pandemic, the premier said on Thursday. Li said the government has the ability to take further action should the outlook deteriorate. “We have also reserved policy space on the fiscal, financial, social security and other fronts, and we are in a strong position to quickly introduce new measures should the situation call for it, without any hesitation,” he said. “It is essential that we keep China’s economic development on a steady course.” (Bloomberg)

Taiwan: GDP to grow at slowest pace in 5 years. Taiwan's economy is forecast to grow at the slowest pace in five years in 2020 as Covid-19 pandemic has weighed on consumption, the Directorate General of Budget, Accounting & Statistics, or DGBAS, said on Thursday. GDP is forecast to grow 1.7% this year, much slower than the 2.7% growth logged in 2019. The 2020 full year outlook was downgraded from 2.4%. In the 1Q, GDP advanced 1.6% compared to the previous estimate of 1.5%. This was also slower than the 3.3% growth seen in the preceding quarter. On a QoQ, seasonally-adjusted annualized basis, GDP contracted 3.6% compared to 6.6% expansion seen a quarter ago. (RTT)

Japan: Economy worsening rapidly even as shutdowns ease. Japan’s government maintained its view that the economy continues to worsen sharply even as a nationwide state of emergency was lifted this week allowing businesses to start the slow process of reopening from shutdowns. Weakness in the jobs market is increasing, the Cabinet Office said in cutting its view of employment conditions. Business investment, which had been flat, is now showing signs of weakness, it said. The government also cut its view of exports, saying they are worsening rapidly. (Bloomberg)


Vizione: Unit wins RM96.3m construction contract. Vizione Holdings (VHB) wholly-owned subsidiary, Wira Syukur SB has been awarded a construction contract worth RM96.3m by Pinnacle Paradise SB. The contract is for the proposed construction of 214 condominium units and 31 units of superlink villas together with ancillary facilities in Bukit Rahman Putra, Shah Alam, Selangor. The work would commence in two phases; the first on May 27, 2020 and the second on Aug 27, 2020, to be completed within 29 months from the respective starting dates. (SunBiz)

Gadang: Secures two ECRL work packages worth RM81m. Gadang’s wholly-owned unit Gadang Engineering SB has secured two contracts worth a combined RM81.18m from China Communications Construction (ECRL) SB in respect of the ECRL project. The first contract, which commenced on May-28 and is expected to be completed on June 30, 2022, is worth RM24.11m, while the second contract, which shall start on June 15, 2020 and is slated for completion on Dec 15, 2022 and is worth RM57.07m. (The Edge)

LYC Healthcare: Makes second medical firm buy in Singapore in less than a month. LYC Healthcare is acquiring a controlling 51%-stake in Singapore-based HC Orthopaedic Surgery Pte Ltd (HCOS) for RM21.29m. The group will be acquiring 17,000 shares representing 17% of HCOS from the founder and main operator Dr Chan Ying Ho, and 34,000 shares representing 34% of HCOS from Beyond Wellness Group Pte Ltd (BWG). The deal is expected to be completed by the 4Q of the year and will be funded equally by internal funds and bank borrowings. (The Edge)

Hektar REIT: To raise up to RM14.8m via private placement. Hektar REIT proposed to undertake a private placement exercise of up to 23.1m new units, representing up to 5% of its total issued units to raise an estimated RM14.78m at an indicative price of 64 sen/unit. The private placement will allow it to raise the necessary funds for working capital and capital work in progress to help facilitate its existing day-to-day operations. The exercise will allow it to raise funds expeditiously without incurring interest cost as compared to bank borrowings. (The Edge)

Cypark: Buying Perak biogas plant for RM6m. Cypark said it is buying a 51% equity stake in biogas plant operator BAC Biogas (Kg Gajah) SB for a total consideration of RM6m. Cypark’s wholly-owned subsidiary Reviva SB had entered into an agreement to purchase 1.53m ordinary shares in BAC, representing a 51% share in the company. BAC is principally engaged in the business of developing and operating a 1.55 MW palm oil mill effluent biogas plant in Kg Gajah, Perak. The acquisition is to facilitate the group’s participation in renewable energy business. (The Edge)

Power Root: Record profit in FY2020. Power Root posted its highest ever net profit at RM51.4m in the FYE20 year ended from RM28.0m a year ago. The 83.5% increase in net profit was due to the higher topline, increased operational efficiency and improved cost management resulting from its transformation plan. Its domestic sales edged up 7.6% to RM177.4m from RM164.5m, while exports revenue jumped 20.3% to RM208.7m from RM173.5m previously. (NST)

Market Update

The FBM KLCI might open lower today after US stocks ended lower on Thursday as investors faced worries around an escalating US-China spat. The S&P 500 fell 0.2% to 3,030. The Dow Jones Industrial Average shed 148 points, or 0.6%, to 25,401, based on preliminary numbers. The Nasdaq Composite retreated 0.5% to 9,369. Equities turned south late in the session after President Donald Trump said he would hold a press conference on China on Friday. This comes as Washington and Beijing spar over a new national-security law on Hong Kong, raising concerns that its status as an Asian financial hub would come under threat. European markets closed meanwhile closed higher with shares in France leading the region. The CAC 40 was up 1.76% while London's FTSE 100 added 1.21% and Germany's DAX rose 1.06%.

Back home, the FBM KLCI closed 5.77 points or 0.4% higher tracking overnight gains on Wall Street on the back of optimism about the reopening of the US economy. The benchmark index closed at 1,457.5, after moving between 1,449.25 and 1,458.73. Elsewhere in region, Japan's Nikkei 225 grew 2.32%, while South Korea's Kospi fell 0.13% and Hong Kong’s Hang Seng was down 0.72%.

Source: PublicInvest Research - 29 May 2020

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Shariah-compliant Securities List- Less Fanfare

Author: PublicInvest   |  Publish date: Fri, 29 May 2020, 10:12 AM

Fourteenth review. While the previous November 2019 review could have been considered relatively active given the number of inclusions and exclusions, the current edition appears to be subdued with only 12 inclusions and 9 exclusions (November 2019 review: 38 inclusions, 29 exclusions) across the Main and ACE Markets. The number of shariah-compliant LEAP market securities remains unchanged. Full list of stocks included and excluded (with their respective sectors) are highlighted in Appendix 1.

Berjaya Food and C.I. Holdings are the notable inclusions, the latter making it back after having been dropped in the May 2019 review. Pentamaster Corporation and Asia Media Group made quick returns into the listing, having been dropped in the previous review. Two stocks (mTouche Technology, SCH Group) dropped in the May 2019 review made it back at the 2nd time of asking.

A slightly higher 697 (November 2019: 696) securities are now classified Shariah-compliant, though with the proportion remaining unchanged at 77% (November 2019: 77%) given the 900 (November 2019: 900) securities listed on Bursa Malaysia.

Sector-wise, inclusions were evenly spread out amongst Industrials (4), Consumer (3) and Telecommunications (3), though six (6) of which were in the ACE Market. As for exclusions, Industrials (4) dominated, followed by Consumer (2). A complete listing of changes is shown in Appendix 1.

Impact on our coverage. Since the last review, we dropped coverage on Ayer Holdings, KKB Engineering and Daya Materials, the latter shariah non-compliant.

With no significant changes in this review, the total number of compliant stocks under coverage is now 66 of the total 79 stocks under core coverage, or 83.5% (November 2019: 68 of 82, or 82.9%). The compliance status of our coverage list is in Appendix 3.

Market impact. Exclusions this time will have less fanfare as none appear (as per most recent Annual Reports) to have Shariah-based/Islamic institutional fund holdings amongst its listing of top 30 shareholders. While there is still no compulsion for anyone to sell should investments be out-of-money, past instances have suggested compliance (ie. immediate disposals) by funds regardless. Pentamaster Corporation was the biggest casualty in the recent review, though not surprising considering it was mostly in-the-money in the period leading up to the recent review. Appendix 4 highlights share price movements of 4 notable dropouts in the last round.

Consumer confidence and business sentiment has taken a severe hit from the Covid-19 pandemic with disruptions in demand-supply dynamics and break down in economic activities threatening a global recession, to which governments and central banks worldwide have unveiled massive fiscal and monetary measures to avert. While market sentiment appears decidedly positive at this juncture, global outlook remains shaky as major consuming economies, the United States and the European Union, may struggle to tackle business closures, job losses and wage declines. China’s apparent earlier-than-expected economic recovery is a boon, though likely to be insufficient to drive global growth. Fresh US – China tensions is also not helpful. 2020 will be another wash-out year, similar to 2019. Sector-wise, healthcare and gloves have shone amid this health crisis, both already on our Overweight calls since the end of last year. A temporarily-weak Ringgit should be good for the manufacturing sector (particularly exporters) though coronavirus-related concerns and its impact on global demand may impede upsides. Construction may be a hidden star. Optimistically, we still see the FBM KLCI closing at around the 1,480 point level by year-end.

Source: PublicInvest Research - 29 May 2020

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Uzma Berhad- Cautiously Optimistic

Author: PublicInvest   |  Publish date: Fri, 29 May 2020, 10:10 AM

Uzma hosted post-results briefing yesterday for updates and outlook moving forward. Despite reporting decent 3QFY20 results, management highlighted its cautious view on the sector given the Covid-19 pandemic as it has seen some impact to operations due to the Movement Control Order (MCO) which has restricted the movement of workers going offshore as well as equipment and materials from overseas. The cuts in capex and opex by the oil majors given the prolonged low oil price conditions is also a concern as earnings would be affected as a result of project deferment. Overall, we are neutral on this development as we have imputed conservative numbers in our projections while ascribing a lower PER multiple given the risks and weak sentiment on the sector. MCO aside, we are of the view that the group’s operations are relatively more intact as compared to peers given the variability of services which still need Uzma to keep working. We maintain our Trading Buy call at an unchanged TP of RM0.76 based on 8x PER over FY21 EPS. The other key highlight from the briefing includes cash inflows from termination of the Tg Baram RSC.

  • MCO to drag topline. 3QFY20 results had seen some impact to the Group’s operations due to the MCO. Although the sector has been classified under essential services that allows them to remain operational, stricter operating procedures still needs to be performed in order to protect their workforce while minimizing the risk of spread of infection. This has restricted the movement of workers as well as equipment and materials from overseas. Hence, QoQ topline declined by 17.8% though core net earnings improved 16.3% as profit margins expanded given the efficiency of its D18 asset. Management anticipates that this will continue in 4QFY20 though terms are slightly improved after execution of conditional MCO.
  • Capex and opex cut. The planned cuts in capex and opex by the oil majors given the prolonged low oil price conditions is also a concern as earnings would be affected as a result of project delays and deferments. While this will affect Uzma somewhat given the deferment of some projects, we are of the view that the impact to the group’s operations are still manageable as compared to peers given the variability of services which still need Uzma to keep working. Uzma’s long term key contract such as D18 will remain as the key performer while its “plug and abandon” contract is expected to continue. The Group’s outstanding orderbook currently stands at c. RM2bn translating to about 4x of revenue.
  • Cash inflows from Tg Baram termination. With the termination of the Tg Baram Small Field Risk Service Contract (RSC) with Petronas as it achieved economic cut-off during the 2Q and 3Q of 2019, Uzma is expected to get c. USD22m reimbursement from Petronas for the capex and opex spent on the field. It is understood that the borrowings in relation to the contract is USD13m which will be settled in 3 quarters with the final in February 2021. With this settlement, Uzma is expected to improve its gearing from 1.0x to 0.8x while interest savings upon its full completion will be around RM2.5m per year.
  • Earnings forecast is unchanged despite 9MFY20 already achieving about 87% of our full-year numbers. We are expecting weaker a 4QFY20 due to the MCO and project deferment. Hence, we maintain the conservative numbers in our projections, while already ascribing a lower PER multiple to valuations given the risks and weak sentiment on the sector.

Source: PublicInvest Research - 29 May 2020

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QL Resources Berhad- Remain Resilient

Author: PublicInvest   |  Publish date: Fri, 29 May 2020, 10:09 AM

We came away from our recent conference call with QL feeling confident that the group would remain resilient amid global economy uncertainty over the Covid-19 pandemic. While we tweak our earnings forecast for FY21- 22F by an average of 4% to account for the subdued growth in Family Mart’s expansion plans and lower sales from the export market, our estimates for FY20 remains unchanged. Nevertheless, we reiterate our Neutral call on QL as we roll forward our DCF valuation to FY21F, thus leading to an increase in our TP to RM8.85.

  • Marine Product Manufacturing (MPM) production remains largely unaffected as we understand that the segment gradually increased its workforce from 50% to 100% in order to ensure sufficient food supply locally. However, we opine that the lockdown on other countries will have an impact on QL’s export earnings although QL has since diverted some of its frozen prawn exports from China to Australia and have also started to increase its supply locally. Moving forward, we expect this segment to remain robust on the back stronger USD and resilient export demand supported by an increase in production of frozen and chilled surimi-based products. Meanwhile, QL recently acquired 2 pieces of land in Hutan Melintang for RM40m earmarked for expansion over the next 2 years with an estimated capex of RM100m.
  • Integrated Livestock Farming (ILF) is expected to benefit from lower raw material costs, increase in egg demand and favourable egg prices. Corn and soybean meal prices are expected to continue its downtrend, which should lead to an uptick in margins for 1HFY21. We understand that there has been a surge in egg demand especially during MCO in Malaysia and its regional operations ie Indonesia and Vietnam.
  • Palm Oil Activities (POA) outlook for FY21 remains cloudy in tandem with the retracement of CPO prices recently, currently trading at an average of RM2000/mt. Nonetheless, 4QFY20 and 1QFY21 are likely to benefit from the previous rally in CPO prices as we understand that QL has managed to lock-in forward contracts at a favourable CPO price of RM3000/mt.
  • Convenience Store (CVS). Based on our latest store count, QL has opened c.188 stores to date and has surpassed its target of opening 170 stores by FY20. However, we believe that the QL might not be able to achieve its target of opening 80 new Family Mart stores this year due to the Movement Control Order (MCO) restrictions. Therefore, we are lowering our assumptions on Family Mart’s contribution by c.10% as we factor in lesser store counts. In addition, we believe that sales were impacted during the MCO with shorter operating hours, temporary closure of several stores in shopping malls and airports as well as the lower foot traffic.
  • 4QFY20 earnings preview. QL’s 4QFY20 results are expected to be released on 29th June 2020. Our earnings estimates for FY20 remains unchanged as we believe consumers’ panic buying will likely to offset the impact of the MCO on Family Mart’s sales. In addition, higher plantation earnings due to stronger CPO prices should be reflected in 4QFY20.

Source: PublicInvest Research - 29 May 2020

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Mega First Corporation- Off To A Good Start

Author: PublicInvest   |  Publish date: Fri, 29 May 2020, 10:07 AM

Mega First posted a 1QFY20 earnings growth of +81.6% YoY to RM57.2m, bolstered by energy sales contribution from the Don Sahong Hydropower plant in Laos which is now under full commercial operation. The strong set of results were in line with our and street expectations, making up 25% and 20% of full year numbers respectively. In view of the stronger capacity utilization levels in the subsequent months as well as huge interest savings for its USD150m borrowings due to the US Federal Reserve rate cuts, we have revised up our FY20-22F earnings forecasts by 9%-14%, consequently, raising our SOP based TP from RM6.29 to RM6.74. Maintain Outperform call.

  • 1QFY20 revenue (QoQ: -17.9%, YoY: -27.6%). The Group’s revenue softened by 28% YoY to RM160.7m, mainly due to the absence of construction revenue in the power segment following the plant’s full commercial operation on 7 Jan 2020. Contribution from the segment was down 39.2% YoY to RM103.2m, which is based on the average energy availability factor of 70.7%, the lowest for the year as a result of the dry season. Revenue in the resources segment climbed 5% YoY to RM34.4m, led by a 6.5% YoY increase in sales of lime products to RM31.6m while contribution from other lime products was RM0.8m lower at RM2.9m. Sales volume of lime products grew 7.4% YoY on higher export demand, partially offset by weaker domestic sales as a result of the Movement Control Order starting from 18 March 2020. The average selling price of lime products remained steady YoY. Meanwhile, the newly introduced packaging & label segment saw its sales improve by 29.3% YoY to RM19.2m on the back of increased sales of paper bags as well as increased demand for flexible packaging products from new customers.
  • 1QFY20 core profit jumped 81.6% YoY to RM57.2m. The stronger earnings were mainly driven by both power and resources segments while packaging & labels earnings remained at RM0.5m. The power segment, which contributed 97% of the Group’s bottomline, saw its energy pre-tax profit up by 43.6% YoY to RM64.6m. The energy business commanded EBITDA and pre-tax margin of 88.1% and 62.6%, respectively. Meanwhile, pre-tax profit from resources segment rose 25.7% YoY to RM4.3m on i) higher sales volume, ii) increased plant utilization and iii) lower fuel costs. On a cheerful note, orders from the new Australian company, Newcrest Mining, which is expected to take up 150k mt of quicklime products p.a. has started to come in this month.
  • Expecting stronger utilization levels for the Don Sahong Hydropower station. Its recorded energy availability factor for the period stood at 70.7%, lowest for the year as a result of the dry period in Laos, which typically stretches from January to May. We understand that it is likely to run near full capacity next month when the wet period sets in, which will see higher water levels and stronger currents. Based on our latest forecast, we expect to see an average energy availability factor of 78% for 1H and 98% for 2H. Meanwhile, the Group has seen the payment collection period from EDL normalize, partly receiving the payment for billings in February.

Source: PublicInvest Research - 29 May 2020

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Sarawak Plantation Berhad- Start Off On the Right Foot

Author: PublicInvest   |  Publish date: Fri, 29 May 2020, 10:06 AM

1QFY20 core earnings of RM7.8m was in line with our and consensus expectations, making up 27% and 22%, respectively. The steady results were attributed to an increase in both CPO product prices and FFB production. Nevertheless, we expect earnings growth to slow in 2Q on lower CPO prices, though partly mitigated by stronger output growth. A first interim dividend of 5sen was declared for the quarter. Maintain Outperform call with an unchanged TP of RM1.92 based on 16x FY21 EPS.

  • 1QFY20 revenue (QoQ: -9.2%, YoY: +42.5%). The Group’s plantation sales jumped 43% YoY to RM98.9m, led by an increase in both CPO prices and FFB production. During the quarter, FFB production rose 11% YoY to 65,269 mt. It also had an external FFB production of 102,277 mt, making up 61% of the total FFB processed. Meanwhile, average realised CPO price jumped 32.5% YoY to RM2,643/mt. Average realized palm kernel price in 1QFY20 rose from RM1,142/mt to RM1,597/mt. FFB yield improved from mt to mt while oil extraction rate stood at 19.86%.
  • 1QFY20 core earnings jumped 37% to RM7.8m. Excluding the change in fair value of biological assets amounting to RM1.7m, the Group’s core earnings rose 37% YoY to RM7.8m, mainly driven by stronger plantation margin. During the quarter, EBIT margin improved from 8.3% to 10.3%. 1QFY20 all-in CPO cost of production (ex-palm kernel credit: RM200/mt- 300/mt) averaged at RM2,015/mt (FFB: RM315/mt).
  • Outlook guidance. Meanwhile, management has targeted a strong FFB production growth of 23% YoY to 346,000 mt this year on the back of yield improvement from 1,600ha enhancement area transferred to harvestable area after achieving FFB yield of 10.2mt/ha. For Jan-April, it jumped 18.6% YoY and we expect to see a strong catch-up in the subsequent months. It has allocated RM20m capex for FY20 with RM8.5m for the replanting of 1,100ha landbank, another RM4m for 2,800ha enhancement area, RM4m for the new planting activities of 500ha and RM3m for mill improvement. (1QFY20: RM4.1m of the budgeted capex already spent). Total encumbrance area stood at 6,400ha as of 1QFY20 with 500ha area expecting to be recovered this year. Total harvestable area is expected to expand from 19,000ha to 20,890ha this year (FY19: 19,000ha + new mature area: 1,390ha - replanting area: 1,100ha + enhancement area: 1,600ha). For FY20, management expects an additional mature area of 1,390ha with 990ha from northern already declared mature in early-2020 and remaining 400ha from the northern region will turn into mature area in the 2H. In terms of forward sales, it locked in three CPO sales contracts with collective outstanding CPO amount of 15,500mt (18% of full-year CPO production) at an average price of RM2,519/mt. Its CPO price target for the remaining quarters range at RM2,100/mt-2,200/mt.

Source: PublicInvest Research - 29 May 2020

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Three-A Resources Berhad- Strong Start for FY20

Author: PublicInvest   |  Publish date: Fri, 29 May 2020, 10:05 AM

Three-A Resources (3A) posted an improved 1QFY20 net profit of RM8.8m, up by 17.6% YoY on the back of favourable foreign exchange gains. Results were broadly in-line with our expectations, accounting for 28% of our full year forecast. We leave our earnings estimates unchanged and remain positive on 3A’s outlook given the resilient nature of the F&B industry supported by the downtrend in global tapioca prices which should lead to an uptick in margins moving forward. We reiterate our Outperform call on 3A, with an unchanged TP of RM0.95 based on a 15x PER pegged to FY20 EPS.

  • 1QFY20 revenue slipped by 2% YoY to RM100.6m, mainly attributable to a decrease in sales volume in Malaysia as well as lower average selling price. Sales in Malaysia fell by 19% YoY from RM66m to RM54m. The decline in domestic sales was partially offset by the stronger sales recorded in the export market, which grew by 26% YoY from RM36.7m to RM46.4m. On a QoQ basis, revenue was lower by 11.8% due to lower quantities of products sold.
  • 1QFY20 PBT surged by 27% to RM12.8m mainly due to the favourable foreign exchange gains and lower raw material costs, as reflected in the increase in PBT margins (1QFY19: 9.9% vs 1QFY20: 12.8%). Year-to-date, global tapioca prices has fallen by c.5%, which should lead to an uptick in margins moving forward. 3A’s PBT remained marginally unchanged QoQ as the lower sales volumes were partially mitigated by the favourable foreign exchange gains. Although the overall business environment remains challenging over Covid-19 pandemic, we remain positive as we expect to see improvement in margins in view of the down-cycle in global tapioca prices, on top of the group’s on-going efficiency initiatives to increase productivity and product quality.

Source: PublicInvest Research - 29 May 2020

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DKSH Holdings (M) Berhad- Within Expectations

Author: PublicInvest   |  Publish date: Fri, 29 May 2020, 10:03 AM

DKSH Holdings (M) Berhad (DKSH) reported a 1QFY20 net profit of RM10m, from a net loss of RM0.6m in 1QFY19, driven by the contribution from Auric Malaysia and the increase in consumer demand during the initial stages of the Movement Control Order (MCO). The 1QFY20 results were in-line our expectations, but were slightly below consensus’ forecasts, accounting for 23% and 20% of our full-year forecasts respectively. Moving forward, we believe that DKSH’s operating margins will continue to improve as the group continues to benefit from better cost control from its on-going growth and efficiency improvement project. While we maintain our TP for DKSH at RM2.65 based on 9x PER FY20 EPS, we downgrade our call from Outperform to Neutral as our valuation is suggesting a slight downside from current price.

  • 1QFY20 revenue grew by 10.3% YoY to RM1.72bn. Marketing & Distribution segment revenue increased by 14% on the back of the positive contribution from Auric Malaysia, new clients secured as well as the stronger sales recorded during the early stages of the MCO. Meanwhile, the Logistics segment revenue grew by 7.3% YoY due to the organic growth in both Healthcare and Telecommunications sales. On the other hand, the Other segment posted a 17.6% drop YoY as Famous Amos business operations were affected by the MCO. DKSH current operates a total of 101 Famous Amos outlets with 99 stores in Malaysia and 2 in Brunei.
  • 1QFY20 operating profit increased to RM27.9m. Marketing & Distribution segment managed to turnaround from a net loss of RM0.4m previously as DKSH is no longer incurring cost for its internal growth and efficiency project. The operating result for the Logistics segment grew by 16.8% YoY, likely supported by more favourable margin mix and better cost control from the growth and efficiency project. On the flip side, the Others segment net loss doubled to RM9.4m mainly due to unrealised derivatives loss recorded for interest rate swap and an increase in finance cost incurred for Auric’s acquisition.
  • Future outlook. We are anticipating subdued demand for consumer goods as consumer spending is likely to remain muted in the near term before normalising in 4QCY20 on the back of higher consumption ahead of festive seasons. Nonetheless, we believe that DKSH’s margins will continue to improve going forward as the group continues to reap the benefits from its on-going growth and efficiency improvement project, as reflected in the improvement in EBIT margins on a YoY basis (1QFY20: 1.6% vs 1QFY19: 0.5%)

Source: PublicInvest Research - 29 May 2020

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Technical Buy: NYLEX (4944)

Author: PublicInvest   |  Publish date: Fri, 29 May 2020, 10:02 AM

  • Target Price: RM0.850, RM0.910
  • Last closing price: RM0.810
  • Potential return: 4.9%, 12.3%
  • Support: RM0.780
  • Stop Loss: RM0.740

Possible congestion for further upside. NYLEX is staging a potential breakout from its current phase. Corresponding RSI and MACD indicators remain healthy following recent congestion phase, with anticipation of continuous improvement in both momentum and trend in the near term. Should resistance level of RM0.850 be genuinely broken with renewed buying interest, it may continue to lift price higher to subsequent resistance level of RM0.910.

However, failure to hold on to support level of RM0.780 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 29 May 2020

Labels: NYLEX
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Technical Buy- CMSB (2852)

Author: PublicInvest   |  Publish date: Fri, 29 May 2020, 10:00 AM

  • Target Price: RM1.78, RM1.83
  • Last closing price: RM1.57
  • Potential return: 13.3%, 16.5%
  • Support: RM1.50
  • Stop Loss: RM1.44

Possible for further upside. CMSB is attempting to extend its current uptrend following a short congestion phase. Slightly improved RSI and MACD indicators currently signal reasonable entry level, with anticipation of continuous improvement in both momentum and trend in the near term. Should resistance level of RM1.62 be genuinely broken with renewed buying interest, it may continue to lift price higher to subsequent resistance levels of RM1.78 and RM1.83.

However, failure to hold on to support level of RM1.50 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 29 May 2020

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