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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 25 Sep 2020, 9:26 AM

 

Technical Buy - JASKITA (8648)

Author: PublicInvest   |  Publish date: Fri, 25 Sep 2020, 9:26 AM


  • Target Price RM0.135, RM0.145
  • Last closing price RM0.120
  • Potential return 12.5%, 20.8%
  • Support RM0.110
  • Stop Loss RM0.100

Possible for further upside. JASKITA is staging a potential recovery from its minor downtrend. Slightly improved 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 RM0.135 be broken with renewed buying interest, it may continue to lift price higher to subsequent resistance level of RM0.145.

However, failure to hold on to support level of RM0.110 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 25 Sept 2020

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Technical Buy - NWP (5025)

Author: PublicInvest   |  Publish date: Fri, 25 Sep 2020, 9:24 AM


  • Target Price RM0.195, RM0.215
  • Last closing price RM0.180
  • Potential return 8.3%, 19.4%
  • Support RM0.165
  • Stop Loss RM0.150

Possible for sideways breakout. NWP is staging yet another potential breakout of its current sideways channel. Corresponding RSI and MACD indicators remain healthy while trending sideways, with anticipation of continuous improvement in both momentum and trend in the near term. Should resistance level of RM0.195 be broken with renewed buying interest, it may continue to lift price higher to subsequent resistance level of RM0.215. .

However, failure to hold on to support level of RM0.165 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 25 Sept 2020

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Plantations - A Better 2H

Author: PublicInvest   |  Publish date: Fri, 25 Sep 2020, 9:21 AM


CPO prices have soared more than 45% to RM2,933/mt after hitting the low of RM2,022/mt in May. The strong rally was contributed by i) weaker CPO production in Indonesia, ii) low inventory levels recorded in Malaysia and iii) strong palm oil demand from China. It is a big cheer for the plantation sector as the strong CPO prices come amid the high production period. We expect to see stellar plantation earnings performance in the 2H on the back of strong margin expansion. In view of the better-than-expected CPO prices, we revise up our 2020 CPO price forecast from RM2,500/mt to RM2,600/mt, raising our EPS forecast by 5%-10% across plantation companies under coverage. We also increase our PE multiple by 1x to reflect the positive CPO price outlook in the near-term. Our top picks are Sarawak Plantation, Ta Ann and TSH given their more attractive valuations and stronger-than-average FFB production growth. Maintain Neutral on the sector as we expect a softer CPO price of RM2,500/mt in 2021. '

  • Demand from India making a comeback. Following the softer stance on the trade policy due to the improved diplomatic relations between Malaysia and India since May, we saw a strong palm oil demand from India, who is the world biggest palm oil consumer. India is currently our third largest export destination, making up 10.5% and is likely to climb to second spot in the coming months. Nevertheless, with the current high CPO prices and less competitive levels compared to other vegetable oils, we think India’s palm oil demand could soften in the coming months. Nevertheless, CPO is becoming less price sensitive compared to other vegetable oils, as such, we think India may switch into cheaper alternatives, leading to softer CPO demand in the coming months.
  • Double happiness for plantation companies. CPO prices normally trade lower in the second half due to the upward pressure on palm oil inventory as production is seasonally higher towards the year-end. Since 2007, there were only seven years that saw CPO prices traded above RM2,500/mt in the 2H and only three years, namely, 2010, 2011 and 2016, where the CPO price strength sustained towards the year-end. Given the supply concern and positive export data coupled with low inventory levels, CPO prices have been strengthening above RM2,700/mt since last month with a YTD average of RM2,580/mt, which is above the consensus forecasts. Plantation companies are benefitting from both higher production as well as stronger CPO prices. Therefore, we expect a sharp margin expansion for the plantation companies in the 2H.
  • Low inventory levels seen in Malaysia and Indonesia. YTD, palm oil inventory level in Indonesia and Malaysia have shrunk 21% and 15.5% to 3.62m mt and 1.69m mt, respectively. The current low inventory levels in the top two palm oil producing countries were mainly due to weaker production despite weaker exports. Palm oil supplies have become a main concern due to the issue with foreign labour shortage in Malaysia as border restriction is still in place.
  • Windfall tax making a comeback. In Dec 2019, the Malaysian Palm Oil Board (MPOB) said the windfall profit tax on planters is imposed only when the CPO prices surpass the threshold level set in 2009. To recap, oil palm planters in the Peninsular have to pay a 3% windfall tax per tonne when palm oil prices go beyond RM2,500/mt in the cash market. Planters in Sabah and Sarawak, however, only need to pay a 1.5% windfall tax per tonne if the price crosses RM3,000/mt. In our view, any adverse impact to earnings is relatively low given the sharp margin expansion.
  • Anticipating first annual production drop in Indonesia. The lack of fertilizer application between 2018 and 2019 as planters tried to contain cost pressure when prices were low and the dry weather in the middle of 2019, have resulted in diminished oil palm fruit yields, thereby, curbing the production growth in Malaysia and Indonesia. Indonesian Palm Oil Association, Gapki, has recently forecasted the Indonesia’s palm oil output to drop from 47.1m mt to 46m mt, the first annual decline since 2009. Meanwhile, Malaysian production is estimated to drop by 1% to 19.7 m mt this year, according to the Malaysian Palm Oil Council.
  • Concern on the emergence of La Lina event. Australia’s Bureau of Meteorology has recently forecasted above average rainfall for the remainder of the year. It raised the outlook to La Nina alert, meaning that there is at least a 70% chance of La Nina forming in 2020. A severe La Nina event could bring heavy rainfall in Malaysia and affect the transportation and harvesting activities in the palm oil estates. Over the last 12 years, there is occurrence of four La Nina events, which fell in the year of 1997/98, 2002/2003, 2006/2007 and 2009/2010. The impact of La Nina pose a bigger threat on soybean oil than palm oil as it can bring drier weather pattern to the crops in North and South America regions.
  • Labour shortage issue under control. Based on our channel checks, some plantation companies claimed that they have been suffering from the labour issues over the years but it is under control. Back in June, Malaysian government has frozen on recruitment of foreign workers until year-end. According to various reports, the industry is facing a shortage of 37,000 workers- nearly 10% of the workforce and the figure could balloon to as high as 70,000 when the borders reopen. The labour shortage will impact the year’s output due to the delay in harvesting the perishable fruits. Nevertheless, the government has relaxed the ruling by allowing the foreign workers, who have their employment contract expired, to be re-employed.
  • Limited upside for CPO prices. Despite the recent CPO price rally, we think CPO prices could turn weaker in the coming months from current strong levels on rising output and slower exports. Oil palm crop production is likely to increase gradually from Sept to Nov while the demand is expected to taper off from the high restocking activity in the major importing countries, while supported by festive demand during the Chinese Mooncake Festival and the Diwali celebration in Nov. Meanwhile, we raise our CPO price forecasts from RM2,500/mt to RM2,600/mt to reflect the stronger-than-expected CPO price performance in 2H. YTD, it averages at RM2,570/mt, 21% higher compared to 2019’s RM2,128/mt.
  • Weaker production seen. Almost all plantation companies (refer to Figure 10) except Sarawak Plantation registered weaker FFB production YTD. A couple of factors contributed to the weaker production, i) labour shortage, ii) weaker FFB yield due to the impact of a cut in fertliser application over the last 2 years and iii) lagged effect of dry weather. For the first 8 months, GENP registered the steepest drop, - 9.9%, followed by FGV’s -8.4%, IOI Corp’s -7.3% and Sime Plant’s -7.2%.
  • Prefer small-cap plantation companies. Following our upward revision in our 2020 CPO price forecast from RM2,500/mt to RM2,600/mt, we raise our FY20 EPS forecast by 5%-10% for the respective plantation companies our coverage except Sarawak Plantation, which will see exceptionally stronger earnings growth of more than 30% thanks to their strong FFB production growth. We also increase our PE multiple by 1x to reflect the positive CPO price outlook in the near-term. We upgrade Ta Ann (TP: RM3.68) to Outperform call given its current attractive valuations. Other outperform calls include Sarawak Plantation (TP: RM2.85) and TSH (TP: RM1.45). However, our Neutral call on the sector outlook remains. We suggest investors to look into small-mid cap plantation companies, which give more attractive upside compared to the big cap.

Source: PublicInvest Research - 25 Sept 2020

Labels: TAANN, SWKPLNT, TSH
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PublicInvest Research Headlines - 25 Sep 2020

Author: PublicInvest   |  Publish date: Fri, 25 Sep 2020, 9:14 AM


Economy

  • Global: Economic outlook ‘somewhat less dire’ than expected – IMF. The global economic outlook is not quite as dark as expected even just three months ago, a top International Monetary Fund official said, citing better-than-anticipated economic data from China and other advanced economies. However, IMF spokesman Gerry Rice told that the overall global outlook remained challenging as a result of the coronavirus pandemic and its impact on many economic sectors. The situation remained "precarious" in many developing countries and emerging markets other than China, he said, noting that the IMF was also concerned about rising debt levels. TIn June, it slashed its 2020 global output forecasts further, forecasting the global economy would shrink by 4.9%, compared with a 3% contraction predicted in April. (Reuters)
  • US: Weekly jobless claims unexpectedly inch up to 870k. In a sign of continued weakness in the labor market, the Labor Department released a report showing an unexpected uptick in firsttime claims for US unemployment benefits in the week ended September 19th. The report said initial jobless claims inched up to 870k, an increase of 4k from the previous week's revised level of 866k. The modest increase surprised economists, who had expected jobless claims to drop to 843k from the 860k originally reported for the previous week. Meanwhile, the Labor Department said the less volatile four-week moving average fell to 878.25k, a decrease of 35.25k from the previous week's revised average of 913.5k. The report said continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also slid by 167k to 12.58m in the week ended September 12th. (RTT)
  • US: New home sales unexpectedly jump to nearly 14-year high in August. A report released by the Commerce Department unexpectedly showed another significant increase in new home sales in the US in August. The Commerce Department said new home sales jumped by 4.8% to an annual rate of 1.011m in August after skyrocketing by 14.7% to an upwardly revised rate of 965k in July. Economists had expected new home sales to pull back by 1.2% to a rate of 890kfrom the 901k originally reported for the previous month. With the unexpected increase, new home sales surged up to their highest level since reaching 1.016m in September of 2006. (RTT)
  • US: Powell hints smalls business, unemployment aid most important. Federal Reserve Chair Jerome Powell indicated that aid to small businesses and support for the unemployed should be prioritized if Congress were to reallocate money away from backstopping the central bank’s emergency-lending programs. Powell said an expansion of the Paycheck Protection Program and “something more” for Americans who have lost their jobs because of the coronavirus pandemic would have the greatest economic impact. (Bloomberg)
  • EU: German business sentiment at 7-month high. German business confidence improved to a seven-month high in September as the economy showed signs of stabilization despite rising number of coronavirus infection, survey results from the ifo Institute showed. The business confidence index rose to 93.4 in September from 92.5 in August. This was the highest reading since February but was slightly below economists' forecast of 93.8. The very small increase in the business confidence for September is further evidence that the recovery has run out of steam, Andrew Kenningham, an economist at Capital Economics, said. (RTT)
  • UK: Retail rise most in 18 months – CBI. UK retail sales grew at the fastest pace since April 2019 with a surge in grocery sales, the Distributive Trades Survey from the Confederation of British Industry showed. The retail sales balance rose unexpectedly to +11% in September from -6% in August. The balance was forecast to fall to -10%. Respondents forecast retail sales to remain flat in October. "The latest results suggest that the recovery in retail spending over the summer months has continued into September, which is welcome news, but retailers appear cautious over the nearterm outlook," Ben Jones, CBI principal economist, said. (RTT)

Markets

  • Hextar (Outperform, TP: RM0.91): Secures RM30m financing from Al Rajhi Bank. Hextar Global has secured an RM30m Islamic financing facility from Al Rajhi Banking & Investment Corp (Malaysia) for working capital. Hextar said the facility — in the form of structured commodity financing (SCF-i) — would be used by its subsidiaries Hextar Chemicals SB, Halex (M) SB and Halex Woolton (M) SB. The SCF-i will be on a floating rate, and has a tenure of four months from the initial disbursement. It will be secured by a corporate guarantee made by Hextar Chemicals. Hextar said that as a result of securing the facility, its gearing is expected to rise to 0.83 times, from 0.67 times currently. (The Edge)
  • Axiata (Neutral, TP: RM3.70): Bangladesh unit gets IPO nod. Axiata Group Bhd's unit Robi Axiata Ltd has received approval from the the Bangladesh Securities and Exchange Commission (BSEC) for its listing on the Dhaka Stock Exchange Ltd and Chittagong Stock Exchange Ltd in Bangladesh. Axiata, which owns 68.69% of Robi, said further details will be announced upon the receipt by Robi of the approval letter from BSEC. (Bernama)
  • AirAsia (Underperform, TP: RM0.50): Plans to raise capital for digital venture. AirAsia Group is looking to raise capital to fund its digital venture arm, AirAsia Digital, said group CEO Tan Sri Tony Fernandes. He did not disclose the amount of the capital but said that it need not be huge to make the whole digital journey successful. "It could be convertible debt or equity. We built all of these (referring to AirAsia's digital initiatives) on our own capital so far, just like how we built AirAsia," he told a media briefing. (Bernama)
  • Sapura Energy (Neutral, TP: RM0.10): Refutes bribery, corruption allegations. Sapura Energy and its group of companies have refuted any involvement in bribery or corruption in its business dealings in Brazil and anywhere else in the world, in relation to the recent news of investigations into the group’s and Seadrill’s alleged bribery involvement relating to Petrobras contracts. In its Bursa filing, it clarified that an investigation by the Brazilian authorities in 2016 and 2017 had cleared Sapura Energy from all allegations of bribery or corruption. The group highlighted that it has a clause in all of its agreements on antibribery which will make the agreement void if bribery is involved or is suspected to be involved as part of its governance and processes. (The Sun Daily)
  • Ho Wah Genting: Encouraing progress in Covid-19 vaccine research. Ho Wah Genting’s wholly owned subsidiary, HWGB Biotech SB’s joint venture partner, E-Mo Biology Inc (EBI) is collaborating with a US-based lab facility to develop and produce companion diagnostic systems. Ho Wah Genting spokesman Dr Yaman Walid Kassab said the group is encouraged by the progress made with the clinical study programme undertaken in its joint venture with EBI. (The Sun Daily)
  • Mah Sing: To issue RM100m redeemable convertible sukuk for future investments and working capital. Mah Sing Group is issuing up to RM100m seven-year redeemable convertible sukuk Murabaha for investments and working capital. It is part of its RM1bn Islamic medium term notes programme. The sukuk can be converted into shares at 75.5 per share. (The Edge)

MARKET UPDATE

The FBM KLCI might open flat today as US stock benchmark indexes ended with modest gains Thursday, reflecting a market that has struggled to find its footing amid signs of softening economic data and a raft of uncertainties ahead. The Dow Jones Industrial Average rose 52.31 points, or 0.2%, to close at 26,815.44, after touching an intraday peak of 27,094.85. The S&P 500 picked up 9.67 points, or 0.3%, to end at 3,246.59, after earlier breaching a level below correction territory — defined as a drop of 10% from a recent peak — for the index at 3,222.76. The Nasdaq Composite Index gained 39.28 points, or 0.4%, finishing at 10,672.27. The pan-European Stoxx Europe 600 Index closed 1% lower and the U.K.’s benchmark FTSE 100 shed 1.3%.

Back home, renewed buying interest in glove counters helped to lift the FBM KLCI to close higher at 1,500.80, up 4.32 points, bucking the trend of its regional peers. In the region, Hong Kong’s Hang Seng Index tumbled 1.8% and the Shanghai Composite Index closed 1.7% lower. Japan’s Nikkei closed down 1.1%.

Source: PublicInvest Research - 25 Sept 2020

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Technical Buy - EWEIN (7249)

Author: PublicInvest   |  Publish date: Thu, 24 Sep 2020, 10:46 AM


  • Target Price RM0.330, RM0.360.
  • Last closing price RM0.315
  • Potential return 4.7%, 14.2%
  • Support RM0.295
  • Stop Loss RM0.270

Possible for further upside. EWEIN is breaking out of its sideways channel. Slightly improved 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 RM0.330 be broken with renewed buying interest, it may continue to lift price higher to subsequent resistance level of RM0.360.

However, failure to hold on to support level of RM0.295 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 24 Sept 2020

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Technical Buy - PLABS (0171)

Author: PublicInvest   |  Publish date: Thu, 24 Sep 2020, 10:44 AM


  • Target Price RM0.260, RM0.275
  • Last closing price RM0.245
  • Potential return 6.1%, 12.2%
  • Support RM0.240
  • Stop Loss RM0.230

Possible for recovery. PLABS remains relatively robust amid current market weaknesses. Corresponding RSI and MACD indicators remain healthy while trending sideways, with anticipation of continuous improvement in both momentum and trend in the near term. Should resistance level of RM0.260 be genuinely broken with renewed buying interest, it may continue to lift price higher to subsequent resistance level of RM0.275.

However, failure to hold on to support level of RM0.240 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 24 Sept 2020

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July 2020 Malaysian Economic Indicators - Rising Further

Author: PublicInvest   |  Publish date: Thu, 24 Sep 2020, 10:41 AM


OVERVIEW

Malaysia’s leading index (LI) showed an upbeat trend in July, expanding by 7.7% YoY (June: 4.6%) which is its multi-year high and indicates that the economy is recovering steadily from the shock of COVID-19. The LI rose further by 4.4% on a MoM basis from 3.8% in June 2020. The LI’s diffusion index also showed encouraging momentum after hitting 57.1-level (June: 42.9) on the back of encouraging expansion for most sub-indices. The rebound in LI shows encouraging signs that the economy picking up as the index is a combination of selected economic indicators that provide advance signals in economic direction.

The decision to re-open the economy since June is widely credited to an improvement in the engine of growth, a stark contrast against LI’s year low of - 5.7% in April which took place during the height of business closures. Economic activity is expected to accelerate in the near term propelled by massive government stimulus packages and the accommodative interest rate environment. The re-opening of ASEAN’s economies may also contribute positively to the normalization of supply chain in the region, especially manufacturing products and therefore, the macroeconomic momentum. The steady climb of the LI signals that the economy is expected to remain in a positive trajectory in the next two quarters.

Leading Index. There was a broad advancement of the LI components for the month led by Bursa Malaysia Industrial Index which emerged as the largest contributor (+1.8%) with the exception of Sales, Manufacturing (-0.1%) amid the interruption in supply chain post-MCO. The sub-index could have remained positive if not for the economic struggles in advanced economies (AEs) which remained troubled by the steady rise in new COVID-19 cases. Other notable contributor for the LI came from Real Money Supply (+0.5%), Real Imports of Semiconductor (+0.3%), Real Imports of Other Basic Precious and Other NonFerrous Metal (+0.7%) and Number of New Companies Registered (+1.0%). The Number of Residential Units Approved delivered another steady performance for the month, inching higher by 1.0% YoY, its third consecutive month of expansion (June: +1.5%; May: +1.9%). The LI’s Diffusion Index also signals a healthy momentum amid a jump to 57.1 from 42.9 in June.

Coincident Index. Coincident Index (CI) which reflects the overall economic condition also performed steadily, reflected by the 1.3% gain on a MoM basis though this is a slowdown against June’s +8.7% with growth primarily driven by Volume Index of Retail Trade (+1.3%) amid consumption that was supported, among others, by generous fiscal targeted transfer (Bantuan Sara Hidup). On a yearly basis, the CI improved further to -2.4% in July from -3.1% in June. The diffusion index for CI also showed encouraging momentum amid the month’s achievement of 16.7, its best in the last four months. This is an improvement against the year’s low in April, May and June consistent with an economy that slipped into a sharp decline in 2Q20 (-17.1%).

OUTLOOK

The encouraging economic indicators signal that the economy is on the right track to recover especially after the steep decline in 2Q. This is consistent with our expectation that the economy may rebound in 3Q before accelerating further in the 4Q. The economy is projected to turnaround in 2021 (+4.9%) driven, among others, by the expected containment of COVID-19 and the extended period of accommodative interest rates. All this will boost overall sentiment, further driving macroeconomic potential.

Source: PublicInvest Research - 24 Sept 2020

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August 2020 CPI - Sluggish, Courtesy of Oil Price

Author: PublicInvest   |  Publish date: Thu, 24 Sep 2020, 10:39 AM


OVERVIEW

The Consumer Price Index (CPI) was sluggish in August driven by weak petrol prices and uncertain economic outlook. CPI for August that declined by 1.4% YoY (July: -1.3%) was weighed by the drop in in pump prices amid volatile global oil prices. The challenging COVID-19 situation also hurt consumer sentiment. This is further reflected in a positive CPI ex-fuel that remained steady for the month (August: +0.2%; July: +0.2%). Note that this indicator covers all goods and services except Unleaded Petrol for RON95, RON97 and diesel. This is therefore an appropriate benchmark to gauge consumers’ sentiment without taking into account the sensitivity of petrol consumption to headline index. Inflation that was lackluster for the month was nonetheless driven by a slowdown in general prices led by transport (August: -9.9%) and housing, water, electricity, gas and other fuels (August: -3.0%).

Extension of the Recovery Movement Control Order (RMCO) until year-end is not expected to affect economic activity given that the government has allowed the re-opening of almost all economic sectors with the exception of entertainment-related sector. The prevailing cautious consumer sentiment may continue however amid a steady rise in new COVID-19 cases which could escalate into a more serious situation if not contained well. Though a full lockdown is unlikely, a targeted Enhanced Movement Control Order (EMCO) could be equally detrimental to economic activity especially if it involves a major city or industrial area. This uncertain situation may push consumers to remain cautious and preserve capital as a result. This may also push businesses to delay capacity expansion and job creation, by extension, with negative ramifications on macroeconomic conditions.

On a monthly basis, CPI that rose +0.2% in August (July: 0.7%) was predominantly underpinned by a rise in the transport index (August: +0.4%). Core index, which excludes volatile items like transport and F&B, rose by +1.1% in August (July: +1.2%) and was led by miscellaneous goods and services (August: +3.1%) and communication (August: +1.6%). Eight (8) out of twelve (12) sub-components registered gains for the month headed by miscellaneous goods and services (August: +3.1%) and food and communication (August: +1.6%)

Transport index remained lethargic for the month (August: -9.9%; July: -10.3%; June: -14.3%, May: -20.8%) no thanks to weak global oil prices amid the worsening COVID-19 situation in advanced economies - AEs (i.e. US; Germany) and major economies (i.e. India). Note that new global COVID-19 cases have surged past 30m with ~10m yet to recover – suggesting a high risk of transmission that may spill into 2021. The challenging global macroeconomic conditions have weighed on Brent crude that remained weak on a YoY basis (August: -25.0%). This resulted in petrol price slipping by 19.2% on a YoY basis (average) led by RON97 (-21.1%), RON95 (-19.3%) and diesel (-17.1%).

INFLATION: CAUTIOUS OUTLOOK IN 2020

CPI may remain benign in the near term no thanks to negative news flow on COVID-19 which shows no sign of slowing down. Limited upside on oil prices amid economic struggles especially in the AEs may also keep a lid on inflation. Economic uncertainties may push consumers to be cautious in spending. Capital preservation may also hit businesses - resulting in slow capital expenditures or worst, delays in expansion. This is expected to take a toll on job creation and macroeconomic conditions. This challenging situation may persist until there is a slowdown in the speed of COVID-19 transmission or should there be a successful breakthrough for a vaccine. Note that the speed COVID-19 transmission is worrying as the new global cases are rising by 1m a month.

Source: PublicInvest Research - 24 Sept 2020

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PublicInvest Research Market Strategy - Extending More Assistance

Author: PublicInvest   |  Publish date: Thu, 24 Sep 2020, 10:37 AM


KITA PRIHATIN: The government announced further initiatives under a package called KITA PRIHATIN which will involve an additional RM10bn in expenditure, necessary measures in times of need. While the economy is showing nascent signs of recovery, segments of society and businesses continue to be affected negatively by a pandemic situation which refuses to go away. To this end, the government will:

  • Roll out Program Subsidi Upah 2.0, in which employers who are still experiencing a 30% YoY drop in takings since the Recovery Movement Control Order period will be given RM600 in monthly wage subsidies for up to a maximum of 200 employees, from 1 October to 31 December this year. This measure will cost the government RM2.4bn.
  • Re-open Geran Khas PRIHATIN from 1 October to 31 October, to ensure more micro-businesses will be able to receive the necessary aid. This measure will cost the government RM600m.
  • Extend financial aid via Bantuan Prihatin Nasional 2.0 (which will cost the government about RM7bn) to the following:
    • 3.7m B40 households: RM1,000
    • 3.8m B40 singles: RM500
    • 1.4m M40 households: RM600
    • 1.7m M40 single: RM300

This latest stimulus package by the government will push its tally on Covid-19 related assistance to RM295bn or equivalent to 20% of Gross Domestic Product (GDP), one of the highest in the world, surpassed only by Japan (21.1%) but well ahead of US (13.2%), Germany (8.9%), China (7.0%) and France (5.0%). This short-term measure is expected to trickle down to the economy only in 2021 however. We remain cautious on the near-term outlook however given that Covid-19 remains a serious issue that could force governments around the world to revert back to a lockdown. This may take a toll not only on consumption but also investment and trade, sparking another interruption to the global supply chain.

KITA PERHATI: On a separate note, Opposition Leader and Port Dickson Member of Parliament Datuk Seri Anwar Ibrahim (DSAI) held a press conference at noontime yesterday to announce that he had the necessary numbers to form a new government and to assume the position of Prime Minister. Without providing further details other than to say the majority is convincing and that he seeks to have an audience with the Yang DiPertuan Agong soonest possible, the following few days promises to be eventful (or maybe not). This is made all the more interesting by comments from Sarawak-based Gabungan Parti Sarawak (with 18 parliamentary seats) in support of incumbent Prime Minister Tan Sri Muhyiddin Yassin (TSMY), and comments from Barisan Nasional and UMNO President Datuk Seri Ahmad Zahid Hamidi saying that many from his coalition and party have voiced support for DSAI.

The current ruling coalition has the slimmest of majorities (Table 1), with its position constantly under the microscope and under the threat of switched allegiances. But with the current opposition fractured into two separate camps and preventing it from mounting a credible challenge, where is DSAI’s convincing majority coming from?

The coming days: Heightened levels of uncertainty are likely to be the order of the day again. With no single bloc having an overwhelming majority, there appears to be many kingmakers in the fold. While it remains far from certain if anything will even happen, investors aren’t likely to take too kindly to uncertainties. The overnight 9-point (-0.6%) drop in the benchmark FBM KLCI doesn’t fully reflect the levels of anxiety in the local bourse. By comparison, the FBM Small Cap index fell 225.3pts or 1.7% while the FBM ACE Index slumped 417.6pts (-3.9%). Domestic retail investors who have been particularly active in the few months are likely to take their feet off the pedal pending further clarity on the situation. Foreign investors who have been exiting the market in droves (YTD 22 Sept: -RM21.5bn) may refrain from re-entering the market.

In the interim, the market will continue to throw up trading opportunities until the dust settles (if ever). Market valuations are attractive at current levels (16.2x 1-year forward earnings), though not yet compelling. From a shorter-term standpoint, the market is trading near one (1) standard deviation below its long-term average of 17.9x. The last 5 years, up until the recent Covid-19 pandemic, has been relatively “worry-free” hence investors willing to pay higher price-earnings multiples.

From a longer-term standpoint, the market offers very tempting propositions given that it has fallen back near its long-term average of 15.9x 1-year forward earnings, though still not as compelling (as compared to March 2020) as well. The inordinately long period (27-year sampling) captures various shocks (and “devastations”) to the market (ie. Asian Financial Crisis in 1997, DotCom bubble burst and 9/11 crisis in 2000/01, the Indian Ocean Tsunami in 2004, the Global Financial Crisis in 2008/09 and European Sovereign Debt Crisis in 2011/12).

In short, Figure 1 (trading-oriented stance) would suggest that a near-term bounce could be on hand, and timing may be opportune though not yet ideal. Figure 2 (fundamental-oriented leanings) would suggest that one still has time if accumulation is being sought. Given the current uncertainties however, investors may be betterserved waiting on more significant weaknesses before wading back into the market.

Sector-wise, a global economic recovery (albeit tepid) and by extension, consumption, will be a boon to the manufacturing sector, aided in part by the relatively weaker Ringgit. The furniture sector is a proxy to stronger US consumption spending. Gloves have been sold down recently, but will continue to attract trading interest owing to lack of fundamentally-stronger alternatives. Banks will find the going tough in 2020, but will benefit from eventual rate normalization (margin expansion) and expected economic recoveries (asset quality improvements and loans growth). Power, particularly renewable energy-related, should gain traction with the government’s resolve toward increasing its share in the generation mix.

Our year-end 2020 KLCI target of 1,480 points remains unchanged.

Source: PublicInvest Research - 24 Sept 2020

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PublicInvest Research Headlines - 24 Sep 2020

Author: PublicInvest   |  Publish date: Thu, 24 Sep 2020, 10:28 AM


Economy

  • EU: Private sector stagnates on virus resurgence. Following the resurgence of the coronavirus infection rates, the euro area private sector stagnated in September as faster growth in manufacturing was offset by a renewed downturn in the service sector, flash survey data from IHS Markit showed. The composite output index declined to 50.1 in September from 51.9 in August. Economists had forecast the reading to drop to 51.7. Having rebounded in July and August from Covid-19 lockdowns during the second quarter, the PMI has since indicated a near stalling of the economy as rising infection rates and ongoing social distancing measures curbed demand. The data suggest that the recovery is grinding to a halt, with activity in the services sector probably contracting, an economist at Capital Economics, said. And with some governments now imposing additional, stricter restrictions, there is a clear and growing risk that it goes into reverse, at least in the countries worst affected by the virus, the economist added. Manufacturing output growth accelerated in September to the fastest since February 2018, while services recorded the largest contraction of output since May. (RTT)
  • EU: German manufacturers benefit from foreign demand, but services lose steam – PMI. Germany’s private sector continued to recover from the coronavirus shock as foreign demand gave exportoriented manufacturers a boost which helped compensate for weakness in domestically-driven services, a survey showed. Markit’s flash composite PMI edged down to 53.7 in September from 54.4 in the previous month. This undershot the consensus forecast of analysts who had expected a smaller decline The main drag came from the service sector, where the flash PMI declined to 49.1, its lowest reading since June. Manufacturing proved more resilient, with the flash PMI rising to 56.6, its highest level in more than two years. Markit economist Phil Smith said the survey data showed a growing divergence in trends between manufacturing and services.to 54.1. (Reuters)
  • EU: German consumer confidence set to rise marginally in October. German consumer confidence is set to rise slightly in October, survey data from the market researcher GfK showed. The forward-looking consumer sentiment index rose to -1.6 in October from -1.7 in September. Despite rising infection figures and the increasing fear of tighter restrictions caused by the pandemic, the consumer climate has stabilized, Rolf Burkl, GfK consumer expert said. "The further course of the infection rate in Germany and the situation in the labor market will decide whether the previous month's downturn remains a flash in the pan and whether consumer mood is able to recover in the coming months." While economic and income expectations were on the rise, propensity to buy has taken a hit. Consumers assessed that the largest euro area economy is clearly on the road to recovery. The economic expectations index gained 12.4 points to 24.1 in September. A stable labor market and the falling number of short-time workers supported the rising economic optimism. (RTT)
  • UK: Private sector recovery loses momentum in September. The UK private sector growth eased in September due to the persistent disruptions to business operations caused by the coronavirus pandemic, flash survey data from IHS Markit showed. The IHS Markit/Chartered Institute of Procurement & Supply composite output index fell to 55.7 in from 59.1 in the previous month. The score was forecast to fall moderately to 56.3. The slowdown reflected weaker rises in both manufacturing production and service sector activity. The services PMI came in at 55.1, down from 58.8 a month ago and below economists' forecast of 56.0. Likewise, the manufacturing PMI declined to 54.3 in September from 55.2 in the prior month. The expected reading was 54.1. "The indication from the survey that growth momentum is quickly lost when policy support is withdrawn underscores our concern over the path of the labour market once the furlough scheme ends next month, and raises fears that growth could fade further as we head into the winter months, especially as lockdown measures are tightened further," Chris Williamson, chief business economist at IHS Markit, said. (RTT)
  • Japan: BoJ’s Kuroda vows to keep firms funded amid economic uncertainties. Bank of Japan (BoJ) governor Haruhiko Kuroda said the central bank will continue to work closely with the government to ease corporate funding strains, as the coronavirus crisis keeps the economic outlook highly uncertain. The BoJ will also pay heed to requests from businesses to keep assisting corporate funding, Kuroda said, signaling his readiness to extend the March 2021 deadline for programmes aimed at pumping money to companies hit by Covid-19. "It's true corporate funding remains tight. We'll of course monitor developments carefully and take additional easing steps without hesitation if necessary," Kuroda told. "We'd like to continue supporting corporate funding, working closely with the government," he said. With the immediate hit from the pandemic easing, the BoJ kept monetary policy steady and upgraded its view on the economy to say it was starting to pick up. (Reuters)
  • Singapore: Consumer prices decline further. Singapore's consumer prices continued to fall in August, data from the Monetary Authority of Singapore and the Ministry of Trade and Industry showed. The CPI fell 0.4% YoY in August, same as seen in June. Economists had expected a 0.5% decline. This fall in the CPI was largely due to a smaller decline in private transport costs. MAS core CPI, which excludes the costs of accommodation and private road transport, fell 0.3% annually in August, following a 0.4% decrease in the preceding month. The latest decline can be attributed to smaller declines in the costs of services, retail & other goods and electricity & gas. The statistical office expects external sources of inflation to remain benign in the coming quarters, amid weak global demand condition. Oil prices would remain low for a long period, while international food prices rises amid imporved supply chain condition, the agency said. Both MAS Core Inflation and CPI-All Items inflation are forecast to average between -1% and 0% in 2020, the statistical office and MAS said. (RTT)

Markets

  • Land & General: To launch two projects with RM677m GDV in 2021. Land & General aims to launch two new development projects in Shah Alam and Bandar Sri Damansara with a combined GDV of RM677m. He said unbilled sales now stand at RM160m, with its property overhang at RM30m. As for landbank, it has 1,423ha of land in Peninsular Malaysia including 1011.7ha of estate land earmarked for future township developments. (Bernama)
  • Ekovest: To list Duke in 3Q 2021, aims to raise RM2bn. Ekovest aims to list its toll concession arm in the 3Q of next year, targeting to raise about RM2bn to RM3bn to pare down debts and for working capital. The group's concession arm owns and operates the Duta-Ulu Kelang Expressway (Duke) comprising Duke 1, 2 and 3. Duke 1 and 2 are operational, while Duke 3 is under construction and set to collect tolls starting next year. (NST)
  • Favelle Favco: Clinches purchase orders totalling RM56.1m. Favelle Favco said it has bagged RM56.1m in purchase orders for its cranes since Aug 27. It will be supplying an offshore crane to ExxonMobile Exploration and Production Malaysia Inc, expected to be delivered in the 1Q2021. Two other contracts are to supply tower cranes to TES Inc and Noronha Holdings Pty Ltd respectively, to be delivered by 2Q21 and 4Q20 respectively. (The Edge)
  • WZ Satu: Files RM59m suit after subsidiary fails to meet profit guarantee. WZ Satu has filed a RM59.2m lawsuit over the failure by its subsidiary to achieve the profit guarantee and shareholders' fund guarantee given in 2014 when the subsidiary was acquired. The group said it is suing Datuk William Tan Chee Keong, Choi Chee Ken and Pacific Trustees over WZS BinaRaya SB's failure to achieve the two guarantees stated in the share sale agreement (SSA). (The Edge)
  • UMW: Court strikes out Deepak’s suit against UMW Toyota over Selangor land. The High Court has struck out a claim against UMW Holdings’ subsidiary UMW Toyota Motor SB made by carpet salesman Deepak Jaikishnan concerning three pieces of land in Selangor. The group said the court had also ordered Deepak to pay costs to UMW Toyota. (The Edge)
  • Encorp: Plans private placement to fund expansion activities and working capital. Encorp plans to raise RM5.5m via a private placement to fund its business expansion activities and working capital requirements, as well as to address its public shareholding spread. It said it will be placing 30.61m shares, representing 10% of its share capital to selected third-party investors. The exercise is expected to be completed in the 1Q of 2021. (The Edge)
  • Solution Group: Signs agreement with CanSino to distribute novel coronavirus vaccine. Solution Group's subsidiary Solution Biologics SB and China-based CanSino Biologics Inc signed a registration, manufacturing and commercialisation agreement, which will enable Solution Biologics to market and distribute in Malaysia the novel coronavirus vaccine developed by CanSino. It said Solution Biologics will register with Malaysia's National Pharmaceutical Regulatory Agency to apply for the market authorisation certificate. (The Edge)

MARKET UPDATE

The FBM KLCI might open lower today as major U.S. stock indices closed lower on Wednesday, sliding in the final hour of trade, as market participants struggled to shake off worries about a lack of a coronavirus aid package and rising COVID-19 cases. The Dow Jones Industrial Average tumbled 525.05 points, or 1.9%, to close at 26,763.13, while the S&P 500 lost 78.65 points, or 2.4%, ending at 3,236.92. The Nasdaq Composite Index shed 330.65 points, or 3%, finishing at 10,632.99, after plunging as low as 3%. On the economic front, Federal Reserve Vice Chairman Richard Clarida said Wednesday that policy makers won’t contemplate raising interest rates until inflation is clearly back at 2%—and possibly even beyond. Randal Quarles, the Fed’s vice chairman for banking supervision, said he’s optimistic about the outlook but also agreed with Fed Chair Powell that continued support will be required to sustain a robust recovery, in a Wednesday speech. A September composite purchasing managers index flash reading from IHS slipped to 54.4 in September from 54.6 in the prior month, signaling a slower pace of growth. The flash services purchasing managers index inched down to 54.6 from 55 in August. The flash manufacturing index rose to 53.5 in September from 53.1 in the prior month, still marking a 20-month high. The pan-European Stoxx Europe 600 Index closed 0.6% higher and the U.K.’s benchmark gained 1.2%.

Back home, the FBM KLCI dropped 0.62% amid news of a potential change in the Malaysian government, while other uncertainties including concerns over global economic recovery had spooked investors in Asia. At 5pm, the index posted a 9.3- point fall to close at 1,496.48 points, dragged by declines in blue chip heavyweights including Public Bank Bhd, Malayan Banking Bhd and CIMB Group Holdings Bhd. In the region, Hong Kong’s Hang Seng Index rose 1% and the Shanghai Composite Index closed 0.2% higher. Japan’s Nikkei slipped less than 0.1%.

Source: PublicInvest Research - 24 Sept 2020

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