PublicInvest Research

Author: PublicInvest   |   Latest post: Mon, 27 May 2019, 9:14 AM


Technical Buy: SCH (0161)

Author: PublicInvest   |  Publish date: Mon, 27 May 2019, 9:14 AM

  • Target Price: RM0.150, RM0.160
  • Last closing price: RM0.130
  • Potential return: 15.3%, 23.0%
  • Support: RM0.125
  • Stop Loss: RM0.115

Possible for some upside. SCH is staging a potential recovery from its consolidation phase. Improving RSI and MACD indicators currently signal reasonable entry level, with anticipation of continuous improvement in both momentum and trend in near term. Should resistance level of RM0.150 be broken, it may continue to lift price higher to subsequent resistance level of RM0.160.

However, failure to hold on to support level of RM0.125 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 27 May 2019

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CJ Century Logistics Holdings - Dragged By Courier Segment

Author: PublicInvest   |  Publish date: Mon, 27 May 2019, 9:12 AM

Century Logistics reported a net loss of RM1.8m in 1QFY19, despite its topline growing 37% YoY. The results were below our and streets’ expectations of full year net profit of RM11m and RM10.3m respectively. No dividend was declared for the quarter. The weaker-than-expected results were mainly due to a start-up costs related to the courier segment. We maintain our forecast for now, as we expect better contribution in the 2H on the back of maiden contribution from the new multi-storey warehouse in Setia Alam which is expected to be operational by July 2019. Share price has declined by an average of c.24% since our last downgrade. Given an upside potential of 4.7% from current price, we upgrade our call from Underperform to Neutral with target price of RM0.42.

  • 1QFY19 revenue (QoQ: +44%, YoY: +37%) The group’s 1QFY19 revenue jumped 37% YoY to RM127m, driven by higher sales contribution from all segments mainly Procurement Logistics services (+88%). This was on the back of new additional orders for the assembly of electrical products e.g. television, air conditioners and fridges. For air conditioners, the volume is expected to be higher during 2Q and 3Q of the year due to warmer weather. Meanwhile, Courier sales contribution and Total Logistics business for 1Q19 also increased YoY to RM5.7m and RM63m respectively (Figure 2).
  • 1QFY19 core earnings. The Group’s reported a net loss of RM1.8m in 1Q19, compared to a net profit of RM2.6m in 1Q18. This was mainly dragged by its Courier service segment which registered a loss of RM3.9m (vs loss of RM1.4m in 1Q18), as it expands its operation since early FY18. Meanwhile, earnings from its Total Logistics business halved to RM1.3m, mainly due to lower margins from certain operations especially the oil & gas segment. Nevertheless, its Procurement Logistics services continue to report better contribution to RM3m (+24% YoY) due to higher export sales.
  • Construction progress of new warehouse. The construction of its new multi-storey warehouse in Setia Alam is expected to be completed by end May 2019 and to be occupied by July 2019. This will increase its total warehouse capacity by another c.450k sqft, with parcel sorting capacity of c.150k parcels/day. Upon commencement of this new warehouse, the Group expects to breakeven its courier segment by FY20F. For FY19F, it targets to increase its immediate sorting capacity to an average of c.30k parcels/day (from current 10k parcels/day). As of now, it has bought a total of 300 trucks and targeted to increase its fleet size to 400 trucks with 28 to 30 branches by end-FY19.

Source: PublicInvest Research - 27 May 2019

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Eastern & Oriental Berhad - RM1.5bn Property Launches Planned

Author: PublicInvest   |  Publish date: Mon, 27 May 2019, 9:10 AM

Eastern & Oriental (E&O) registered 4QFY19 net profit of RM38.2m (+16.3% YoY, NM QoQ) primarily driven by sales of inventory and billings from its reclamation works for STP 2A. For FY19, the Group accumulated net profit of RM61.9m (-34.3% YoY) which was below our and consensus full year estimates as some of the reclamation billings were carried forward into FY20. Sales achieved in FY19 were weak at RM331m, with unbilled sales at RM61.3m due to absence of property launches. We understand that it still has RM406m revenue outstanding to be billed to KWAP for the STP2 land sale. Inventory monetization is progressing well as the Group successfully reduced its inventory from RM456.6m in FY17 to RM216.1m currently. As for pipeline projects, it is still planning to launch projects worth RM1.5bn in the next 2 years to replenish the depleting unbilled sales. All told, we maintain our Neutral call and RM1.00 TP, pegged at c.75% discount to RNAV.

  • STP2A reclamation is 87% completed. We understand that the reclamation works for STP2A is progressing well with the island currently 87% completed and Gurney Wharf 70% completed. The CCC to be handed over in September 2019. The plan is to launch the maiden project in STP2A by mid-2020. To recap, the initial phase of STP2A is said to have a GDV of c.RM380m comprising 400 units of service apartments (600-1,200sf) and 16-20 retail lots. As for other new launches, the Group is still targeting to launch several new projects totaling c.RM1.5bn in the next 24 months which, among others, include 503 units of serviced apartments at the intersection of Jalan Conlay and Jalan Kia Peng — E&O’s second joint-venture project with the subsidiary of Japanese conglomerate Mitsui Fudosan — with an estimated gross development value (GDV) of RM900m, The Peak residential development in Damansara Heights (GDV RM278m).

Source: PublicInvest Research - 27 May 2019

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Kossan Rubber Industries Berhad - Lifted By Margin Expansion

Author: PublicInvest   |  Publish date: Mon, 27 May 2019, 9:07 AM

Kossan’s reported a better set of results for 1QFY19, with a 31.9% YoY increase in net profit to RM58.7m. The results were broadly in line with ours and street’s estimates, at 26.7% and 24.9% respectively. In our universe of coverage, only Kossan has managed to deliver a satisfactory and positive quarterly performance. All segments of Kossan posted stronger earnings in 1QFY19. TRP division’s PBT was up 35% YoY, gloves segment’s PBT up 43% YoY and cleanroom segment’s PBT up 38% YoY. Rolling forward our valuation to FY20F, we raise our TP to RM4.30 (from previous TP of RM3.50), based on an unchanged PE multiple of 21x. Given an upside potential of 13%, we upgrade Kossan to Trading Buy instead of an outright buy as we are not expecting its Bidor integrated plant to generate meaningful earnings in the near term, perhaps only in FY22F.

  • Gloves. Kossan’s gloves division saw a 7.1% YoY increase in its revenue, to RM497m this quarter. The growth was supported by higher glove sales (+18.8% YoY) and increased production capacity from Plant 17 (+1.5bn pcs pa) as it was fully commissioned in November 2018. Despite the higher revenue, ASP fell c.3-5% YoY and we attribute this to lower raw material prices and foreign exchange fluctuations. Blended ASP now hovers around USD 22-24 per thousand pcs of gloves. PBT margins for the glove segment improved to 13.7% in 1QFY19, from 11.3% in 1QFY18. We believe the margin improvement is the fruit of Kossan’s continuous cost savings effort while price competition in the industry does not seemed to have affected Kossan as much as its peers.
  • Expansion plan. Target full commission of Plant 18 (+2.5bn pcs pa) has been pushed back to 3QFY19 from the initial target of 2QFY19. As for Plant 19 (+3.0bn pcs pa), the target full commission date remain unchanged, by 4QFY19. Full commissioning of these two plants will boost Kossan’s installed capacity by c. 20%, to 32bn pcs pa. Production capacity from Plant 18 and 19 should be sufficient to support Kossan’s growth in FY20-21F.
  • Integrated manufacturing complex in Bidor. Land clearing work on the piece of Bidor land will begin in September 2019, to make way for its integrated manufacturing facility. It will take approximately 9 months to complete with the land clearing work and once completed, Kossan should be able to proceed with the constructions of plants. We understand that basic infrastructure like roads and flyover bridges are already being constructed. The entire expansion in Bidor will take some 8 years to complete.

Source: PublicInvest Research - 27 May 2019

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April 2019 CPI - Remains Expansionary

Author: PublicInvest   |  Publish date: Mon, 27 May 2019, 9:03 AM


The Consumer Price Index (CPI) expanded further in April thanks to a smaller effect of the reduction in RON95 pump prices that was also pushed by YoY rises in RON97 (+9.5%) and diesel (+0.3%). April’s CPI sustained March’s momentum of +0.2%, a back-to-back positive reading for the year following a brief contraction in January (-0.7%). YTD average CPI of -0.2% remained a contrast against a year ago however (YTD 18: 1.6%), though this comes with a fair chance of advancing later.

CPI outlook will be influenced by multitude of factors including the government’s decision to roll out petrol subsidy for the B-40 group. This could be the driver for a more significant elevation in the CPI reading as a sizeable number of the population (M40 group and above) will soon be subjected to the global movement of oil prices. This could be rolled out later this year but not in 2Q19 as initially expected as the government is still working out the finer details. The CPI may also stage a rebound should global macro conditions improve amid intense US China trade negotiations. Positive resolution of the latter could spark a rebound in global oil prices and hence, inflation momentum.

Prospects of expansionary monetary policy in the US could also be the added driver given the increasingly less-than-favourable growth momentum in the US. BNM’s expansionary monetary policy recently could also encourage spending which may subsequently boost inflation. Prospects of Malaysia slipping into a deflationary trap appear small. Additionally, weak CPI numbers are being caused by the weak momentum in the transportation segment (April: -2.6%; March: -3.0%; February: -6.8%; January: - 7.8%), suggesting that it could be transitory. This is however being offset by the rise in housing, water, electricity, gas and other fuels (YTD: 2.0%), F&B (YTD: 1.0%), alcoholic beverages, tobacco (YTD: 1.1%) and restaurants and hotels (YTD: 1.1%) suggesting that consumption activities have been sustained, but only weak.

On a monthly- and seasonally-adjusted basis, CPI was flat (0.0%), similar to the month before. The official measure of core inflation remained steady, matching March’s 0.5% YoY gain (February: 0.3%; January: 0.2%), though still a notable deceleration against 2018’s average of 0.8%. Six (6) out of twelve (12) sub components registered gains for the month led by housing, water, electricity, gas and other fuels (+2.0%), education (+1.2%), and alcoholic beverages & tobacco (+1.1%).


There is a fair chance that CPI may rebound in the near term driven by combination of factors as mentioned previously. This may also be driven by domestic cost factors including the rise in electricity tariff for businesses which is expected to be passed-through to consumers. Higher minimum wage (+4.7%; RM1,100) along with protracted weakness of the Ringgit may also support the rebound in CPI.

However, we also think that the CPI may get more lift from global conditions especially the outcome of US-China trade negotiations. A favourable outcome may spark a rally not only on commodity but also other asset class, a preamble of wealth creation and spending activities. On the flip side, however, a breakdown or prolonged negotiation may put a lid on the rise in inflation, conditions which we are facing at the moment.


OPR may stay at the current level unless global macro conditions slip further. This depends largely on the outcome of US-China trade negotiations. Barring unforeseen circumstances, OPR should remain steady for the rest of the year.

Source: PublicInvest Research - 27 May 2019

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PublicInvest Research Headlines - 27 May 2019

Author: PublicInvest   |  Publish date: Mon, 27 May 2019, 9:00 AM


US: Durable goods orders show notable pullback in April. After reporting a significant rebound in new orders for US durable goods in the previous month, the Commerce Department released a report on Friday showing durable goods orders pulled back in the month of April. The report said durable goods orders tumbled by 2.1% in April after jumping by a downwardly revised 1.7% in March. Economists had expected orders to slump by 2.0% compared to the 2.6% spike that had been reported for the previous month. Orders for transportation equipment led the pullback, plunging by 5.9% in April after surging up by 5.9% in March. The report said orders for non-defense aircraft and parts plummeted by 25.1% in April after soaring by 7.8% in the previous month. Excluding the steep drop in orders for transportation equipment, durable goods orders were unchanged in April following a revised 0.5% drop in March. Economists had expected a 0.2% uptick. (RTT)

EU: ECB's Weidmann sees no need for policy action. ECB policymaker and presidential hopeful Jens Weidmann said on Sunday he saw no need for the ECB to change its policy at present, despite a weaker euro zone economy. The ECB’s Governing Council is due to meet on June 5-6 and decide on the terms of its third round of cheap loans to banks - one of several measures it has deployed to stimulate lending in the bloc. “This isn’t a situation where prices are falling and we have to react now,” the head of Germany’s central bank said. Weidmann added decreasing spare capacity in the economy, namely the extent to which labor, capital and other resources are used below their maximum level, would eventually push up prices. (Reuters)

UK: Retail sales fall at fastest pace since late 2017 - CBI. UK retail sales declined at the fastest pace since Oct 2017, quarterly Distributive Trades Survey from the Confederation of British Industry showed Friday. A balance of -27% reported a decline in sales volume in May. However, a 7% forecast a pick-up in volume. The survey showed that 42 were retailers, also showed that the volume of sales for the time of year were at their poorest since March 2009. The volume of orders placed on suppliers slumped in the year to May, with the balance at - 41%. "This month's survey paints a dismal picture of business conditions for retailers, who face a grim combination of tough trading conditions, Brexit uncertainty and a burdensome outdated business rates regime, which have collectively pushed investment intentions to a record low," Anna Leach, CBI deputy chief economist, said. (RTT)

UK: May quitting throws BOE governor race into unknown. Theresa May’s resignation threatens to turn the race to lead the BOE on its head. A new prime minister, and the new chancellor of the exchequer that might accompany them, could have very different priorities from May and Philip Hammond, potentially opening the door for a different slate of candidates for the top BOE job. The finance chief is the one formally responsible for making the appointment. The prime minister’s decision also ups the uncertainty faced by the UK, which Hammond has previously acknowledged could deter candidates. Potential governors don’t have long to make up their mind. The closing date for applying for the BOE role is June 5, two days before May will stand down, with a decision due in Oct. A new prime minister is likely to be in place by the end of July. (Bloomberg)

China: US demand on its state-owned enterprises is 'invasion' on economic sovereignty. The US has called on China to curb the development of its state-owned enterprises (SOEs), a demand that China sees as an “invasion” on its economic sovereignty, Chinese state news agency Xinhua said on Saturday. Trade tensions between Washington and Beijing escalated sharply earlier this month after the Trump administration accused China of having “reneged” on its previous promises to make structural changes to its economic practices. As trade talks stalled, both sides have appeared to be digging in. China has denied it had walked back on its promises but reiterated it would not make concessions to “matters of principles” to defend its core interests, although no full details were given. (Reuters)

China: Accuses US officials of misleading public on trade war. China on Friday accused US officials of lying to the public about their trade war, as rising tensions between the world's two largest economies kept financial markets in a state of unease. Talks to end the trade dispute collapsed earlier this month, with the two sides in a stalemate over US demands that China change its policies to address a number of key US grievances, including theft of intellectual property and subsidies for state enterprises. Washington has slapped higher tariffs on USD200bn in Chinese goods, prompting Beijing to retaliate, and effectively banned US firms from doing business with Huawei Technologies Co Ltd, the world's largest telecom network gear maker. (Reuters)

Japan: All industry index falls further in March. Japan's all industry activity fell further in March, figures from the Ministry of Economy, Trade and Industry showed on Friday. The all industry activity index declined 0.4% MoM in March, following a 0.2% drop in Feb. Economists had forecast a monthly fall of 0.2%. Among components, construction industry activity increased 0.3%, slower than 1.5% rise in Feb. At the same time, industrial production declined 0.6%, reversing a 0.7% gain in Feb. Tertiary industry activity fell 0.4%, following a 0.6% decline in Feb. On a yearly basis, all industry activity dropped 0.4% in March, after a 0.3% increase in the previous month. (RTT)

Malaysia: Inflation steady in April. Malaysia's consumer price inflation remained steady in April, figures from the Department of Statistics showed on Friday. The consumer price index rose 0.2% YoY in April, the same as seen in March. Economists had expected the inflation to rise 0.4%. Among main groups, housing, water, electricity, gas and other fuels prices grew 2.0%. Prices of alcoholic beverages and tobacco, and education rose by 1.2% each and those of food and non alcoholic beverages, and restaurants and hotels gain 1.1% and 0.8%, respectively, in April. Compared to the previous month, consumer prices remained flat in April. The core CPI rose 0.5% YoY in April. (RTT)


Dayang (Neutral, TP: RM1.25): Bags four-year contract from Roc Oil Sarawak. Dayang Enterprise Holdings said it has won a contract to provide procurement, construction, installation, hook-up and commissioning services for Roc Oil (Sarawak) SB. The services will be provided under Roc’s Siprod (Simultaneous Production and Drilling) and Infill Drilling Campaign from 2019 to 2023. The value of the contract is based on work orders issued by Roc Oil throughout the four-year contract duration, with an option to extend for another one year, the company said. Dayang said the contract will also include other work and services generally related to the scope of works in the contract, at a fixed schedule of rates. (The Edge)

Taliworks: Concludes talks with Air Selangor. Taliworks has completed its negotiations with Pengurusan Air Selangor SB (Air Selangor) on the operations and maintenance of the Sungai Selangor Water Treatment Plant Works Phase 1 (SSP1). Taliworks said towards this end various agreements were executed by Sungai Harmoni and the relevant parties. These include the termination and settlement agreement between Sungai Harmoni, Air Selangor and Syarikat Pengeluar Air Sungai Selangor SB (Splash) for the settlement of Sungai Harmoni’s outstanding receivables arising from its existing operations and maintenance of SSP1; bulk water supply agreement (BWSA) for the continued operations and maintenance of SSP1 and the supply of treated water between Sungai Harmoni and Air Selangor with the agreement period extended for another seven years. (StarBiz)

D’nonce: Plans rights issue to repay borrowings. D'nonce announced it aims to raise gross proceeds of at least RM8m via a renounceable rights issue to repay bank borrowings. This involves the issuance of up to 315.11m rights shares and 315.11m irredeemable convertible preference shares (ICPS), on the basis of one rights share and one ICPS for every existing ordinary share in D'nonce. The rights issue comes with free detachable warrants on the basis of one free warrant-B for every two rights shares and two ICPS subscribed. The final issue price is yet to be fixed, but the minimum issue price is five sen per rights share. (The Edge)

PetChem: Lower revenue pulls down PetChem Q1 profit. PetChem’s net profit fell by 24.7% in the 1Q2019 due to lower revenue and higher operating expenditure. Its net profit fell to RM802m from RM1.065bn. Its revenue declined by 16.5% to RM4.13bn from RM4.95bil largely due to lower product prices and sales volumes, partially offset by the weakening of the MYR against the USD. EPS were lower at 10sen compared with 13sen a year ago. It recorded lower plant utilisation of 95% as compared to 100% a year ago, mainly due to higher level of maintenance and statutory turnaround activities at its methanol and aromatics plants respectively. Sales volumes were lower in line with lower production. (StarBiz)

Plantation: Kazakhstan keen to increase import of Malaysia's palm oil. Kazakhstan is keen to increase the import volume of Malaysia's palm oil into the Republic, said Counsellor of Kazakhstan Embassy in Kuala Lumpur, Dr Serik Amirov. He said the current amount of palm oil that is being shipped into the country, as well as other countries in the Central Asian region, is insufficient. "We are considering the increase of import of Malaysia's palm oil for two reasons; namely, Kazakhstan is considered as the hub for Malaysian products, including palm oil, in Central Asia and also the Eurasian Economic Union (EEU). "And also, the volume that we are importing now is not enough for the market. We see the potential for it (palm oil) to be distributed through Kazakhstan to other countries in the region,” he said. (The Edge)

Market Update

The FBM KLCI might open with a positive bias today after Wall Street closed higher Friday ahead of the long weekend as trade war fears receded somewhat following reports President Donald Trump may ease restrictions against Huawei Technologies Inc. as part of a bigger trade deal with China. The Dow Jones Industrial Average, however, fell for a fifth week straight, logging the longest weekly losing streak since June. The Dow gained 95.22 points, or 0.4%, to 25,585.69, while the S&P 500 index climbed 3.82 points, or 0.1%, to 2,826.06. The Nasdaq Composite Index advanced 8.72 points, or 0.1%, to 7,637.01. For the week, all indices ended lower with the Dow off 0.7%, the S&P 500 down 1.2% and the Nasdaq 2.3% lower. European markets also finished higher on Friday with shares in France leading the region. The CAC 40 was up 0.67% while London's FTSE 100 added 0.65% and Germany's DAX rose 0.49%.

Back home, the FBM KLCI index lost 3.55 points or 0.22% to 1,598.32 points on Friday. Trading volume decreased to 1.89bn worth RM1.55bn. Market breadth was negative with 342 gainers as compared to 449 losers. Stock markets in region ended mostly higher, with the Shanghai Composite added 0.02% while Hong Kong’s Hang Seng rose 0.3%.

Source: PublicInvest Research - 27 May 2019

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Technical Buy: DNONCE (7114)

Author: PublicInvest   |  Publish date: Fri, 24 May 2019, 11:10 AM

  • Target Price: RM0.505, RM0.530
  • Last closing price: RM0.470
  • Potential return: 7.4%, 12.7%
  • Support: RM0.450
  • Stop Loss: RM0.430

Possible for upside. DNONCE is staging a potential recovery from its consolidation phase. Improving RSI and MACD indicators currently signal reasonable entry level, with anticipation of continuous improvement in both momentum and trend in near term. Should resistance level of RM0.485 be genuinely broken, it may continue to lift price higher to subsequent resistance levels of RM0.505 and RM0.530.

However, failure to hold on to support level of RM0.450 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 24 May 2019

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Apex Healthcare Berhad - Hit By Higher Cost

Author: PublicInvest   |  Publish date: Fri, 24 May 2019, 11:09 AM

Apex Healthcare (ApexH) reported a 13.5% drop in 1QFY19 net profit, its first YoY decline since 4QFY16. The Group’s net profit for the quarter stood at RM11.4m, missing ours but was in line with consensus’ estimates, at 19% and 21% respectively. The discrepancy was mainly due to lower operating cost assumptions. Following the commencement of operations in SPP Novo, we expect FY19-20F to remain challenging for the Group, as it will take c.2 years for SPP Novo to reach optimal operating capacity while the increase in depreciation cost would also result in margin compression. As such, we cut our FY19F and FY20F earnings forecasts by 10% and 15% respectively and downgrade our call from Neutral to Underperform with a lower TP of RM7.00, based on 15x FY20F EPS.

  • Missing estimates. ApexH’s 1QFY19 revenue increased to RM178.2m (+6% YoY), on the back of higher contribution from the sale of own-brand products to the private sector, contract manufacturing for external parties and distribution of pharmaceutical products. In spite of the stronger revenue, net profit for the quarter fell 14% YoY, due to higher start-up cost on its new manufacturing facility, SPP Novo. Lower contribution from its associate company, Straits Apex, also contributed to the weaker earnings. Share of earnings from the associate company fell by 50% YoY, to RM0.8m, due to weaker sales. The decline in 1QFY19 marks the first YoY decline in net profit since 4QFY16.
  • Rocky times ahead. One of the main contributors for ApexH’s lacklustre 1QFY19 results was due to the higher start-up cost in SPP Novo. To recap, the manufacturing facility commenced its operations in late December 2019 and targets to breakeven by the end of FY20F. Upon commencement of operations, the Group was negatively impacted by the higher depreciation and operating cost, resulting in margin compression. PBT margin for 1QFY19 declined to 8%, as compared to 10% in 1QFY18. On top of that, reinvestment allowance that ApexH benefitted from in 2017 and 2018 has been fully used up. Therefore, we expect the effective tax rate to return to its pre-reinvestment allowance level of c.25% going forward.
  • Silver lining. We note that the Group has obtained regulatory approval for its SPP Novo plant on 16th May. This signifies that the Group would possibly be able to start selling and distributing the products produced by the SPP Novo plant in near future. We expect to see stronger revenue in 2HFY19. Additionally, the Group also remain committed to develop a larger range of own-brand products as it fetches higher margins. However, ApexH’s unwavering effort to develop more products would only benefit the Group in longer term as there would normally be a gestation period in developing and launching a new product.

Source: PublicInvest Research - 24 May 2019

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Genting Malaysia Berhad - Dragged By Outdoor Theme Park Provision

Author: PublicInvest   |  Publish date: Fri, 24 May 2019, 11:08 AM

Genting Malaysia (GENM) reported RM268.3m net profit for 1QFY19, down 25.1% YoY mainly due to the provision of costs as a result of contract terminations relating to the outdoor theme park, amounting to RM198.3m. The impact was partly offset by a gain of disposal of UK casino, Coastbright Ltd, amounting to RM123.8m. Malaysia’s leisure & hospitality segment delivered a 4% EBITDA growth as the impact of strong revenue growth of 19% was mostly offset by higher casino duties. At adjusted EBITDA level, the results were slightly above our estimates, accounting for 26% of our full-year forecast. We maintain our earnings forecasts and Underperform rating with an unchanged TP of RM2.70.

  • 1QFY19 revenue jumped 14% YoY to RM2.7bn. Malaysia’s leisure & hospitality business posted a 19% growth due to exceptionally high hold percentage in the mid to premium players segments. However, the overall business volume was lower due to reduction in incentives offered to the players as part of the cost rationalization initiatives. The US & Bahamas business delivered a 6% growth largely due to impact of stronger USD. Excluding forex impact, revenue from US & Bahamas increased by only 2%.
  • 1QFY19 net profit dropped 25.1%, mainly due to a provision amounting to RM198.3m in relation to the termination of contracts for the outdoor theme park at Resorts World Genting. However, this was partly offset by a gain of RM123.8m arising from the disposal of Maxims casino in Kensington, London. At adjusted EBITDA level, Malaysian operations only managed to chalk 4% growth as the impact of strong revenue growth was offset by higher casino duty. The Malaysian segment remained the largest profit contributor, accounting for 81% of group’s adjusted EBITDA.
  • Maintain Underperform. We believe the on-going lawsuit between GENM and the Twenty-First Century Fox group of companies would delay the opening of GENM’s outdoor theme park that was initially scheduled to take place by 1H2019. The theme park is deemed to be the crowd puller to Resorts World Genting. Without it, we reckon visitor arrival growth rate would be affected. Meanwhile, the amendment to tax incentives granted to GITP previously could effectively prolong the utilization period of the tax allowances. However, at this juncture, GENM has been granted leave to commence judicial review of the Ministry of Finance’s decision to amend the terms of the tax incentives. Hence, it remains uncertain if GENM’s earnings would be adversely affected as the impact is dependent on the result of the judiciary review.

Source: PublicInvest Research - 24 May 2019

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Hock Seng Lee Berhad - Within Expectations

Author: PublicInvest   |  Publish date: Fri, 24 May 2019, 11:07 AM

Hock Seng Lee (HSL) reported 1QFY19 revenue of RM146.7m, higher by 11.4% YoY. The performance was attributed to healthy growth in both construction and property division which saw growths of 10.0% and 20.6% YoY respectively. Despite the stronger revenue growth, HSL only reported a 2.0% growth in its net profit to RM14.1m as profit margins were lower with gross and pre-tax profit margin at 14.8% and 12.8% respectively (1QFY18: 17.1% and 14.1%) mainly due to changes in product mix with an increase in progress billings of low margin infrastructure projects. We deem the profit as in line with our and consensus expectations, accounting for 20.5% and 21.2% of full-year estimates respectively, and maintain our FY19-21 forecasts in anticipation of better contributions in the remaining quarters underpinned by a pick-up in construction progress from its RM2.5bn unbilled orderbook. We maintain our Neutral call, with TP of RM1.45, pegged at c.10x PER to our FY20 EPS of 13.4sen.

  • QoQ performance. HSL recorded slightly lower revenue of RM146.7m (-2.9% QoQ) in 1QFY19, mainly due to lower recognition from property division by 24.5% QoQ as some of the projects (such as Eden Commercial Centre shop houses and industrial buildings for Vista Industrial Park Block 1) were completed last year. This was partly offset by a 2.1% growth in the construction division. Margins improved slightly this current quarter with pre-tax profit margin of 12.8% (4QFY18: 10.1%) to lower administrative expenses and higher interest income.
  • Profit margins to remain at current level, ranging from 13.7% - 14.5% at gross level as the bulk of its balance orderbook is from low margin infrastructure projects which carry a margin of about 10% - 12%. This explains the -8.6% YoY contraction in its construction division’s pretax profit despite reporting a 10% topline growth.
  • Healthy outstanding orderbook at RM2.5bn translating to c. 4.8x of FY18 construction revenue, will underpin earnings visibility. To date, HSL has secured 2 contracts, with the latest awarded by JKR Sarawak for a project under the Sarawak Coastal Road worth RM299m. With this, HSL has successfully replenished a total of RM353.3m worth of projects this year. As for the property division, there is RM340m worth of projects that are currently ongoing. The Group is expected to launch approx. RM100m worth of new properties this year.

Source: PublicInvest Research - 24 May 2019

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