• Overview. MRDIY’s 1QFY22 revenue increased by 4% yoy to RM905.2m, mainly due to contribution from a number of new stores and higher transactions. However, qoq revenue fell by 7% impacted by lower sales from a short-term resurgence in Covid-19 cases due to the Omicron variant resulting in lower foot traffic and number of operational days. Earnings dropped to RM100.5m (-25% qoq, -19% yoy) mainly attributed to the weakening ringgit vs renminbi and US dollar, higher freight costs, and a proactive 3-month “Price Lock” campaign. Overall, GP margin dropped to 39.2% (-1.2 ppts qoq, -2.9 ppts yoy).

• Key Highlights. The total number of stores jumped to 947 during the quarter (+20% yoy) and higher total transactions of 32.3m (+8.1% yoy), which partially offset a lower average basket size of RM27.8 (-3.7% yoy). Average sales per store declined 14.1% yoy.

• Against estimates: Above. 1QFY22 net profit, making up 26% and 16% of our and consensus FY22f respectively. We considered results above our FY22 forecast as we believe earnings to improve further on strongerthan-expected sales following the reopening of the economy.

• Dividend. Declared DPS of 0.7 sen, representing 44% payout (1QFY21: 0.8 sen, 40% payout). We estimate total FYE22 DPS of 3.2 sen, translating into a dividend yield of 0.9%

• Outlook. We remain upbeat on MRDIY’s business prospects as we anticipate continuous strong demand and higher store traffic across all its brands to benefit from the endemic phase and opening of borders. Management targets to have 1,080 stores in FY22 (+c.180 yoy new stores open). In addition, they have increased products prices effective 2Q22 to manage cost increases and protect its margin in the near term.

• Our call. We revised higher our FY22F/F23F earnings by 29%/35% after factoring higher sales and slight increase in our margin on the back of product price increase. In tandem with earnings revision, we have derived a higher TP of RM4.40 based on PER 45x pegged on FY23F EPS of 9.8 sen. Upgrade to BUY from HOLD.

Source: BIMB Securities Research - 17 May 2022

• Overview. Inari’s 3QFY22 core profit grew 20% yoy to RM89m in tandem with higher revenue and better sales for its high-margin products (RF products) which saw EBITDA margin expand 5ppts to 35% from 30%. However, on qoq basis, core profit fell 18% on lower sales volume loadings in RF business segment and declined in other business segments sales which were affected by raw material supply-chain constraints globally.

• Against estimates: below. 9MFY22 core profit rose 27% yoy to RM303m on stronger revenue contribution from RF business segment, higher interest income from fund placement, and favourable forex rates. Overall, 9MFY22 core profit trailed our forecast but inline with consensus’ estimate at 68%/76% respectively.

• Dividend. Inari declared a third interim DPS of 2.20 sen (3QFY21: 4.0 sen). This implies a dividend payout of 92% and brings 9MFY22 DPS of 7.8 sen.

• Earnings revision. We cut FY22/23/24 earnings forecast by 11-14% (Table 3) as we revised down overall Inari’s business segments contribution; RF, fibre optics, opto-electronics, and etc. following the impact of raw material shortage due to supply chain bottleneck as well as prolong Covid-19 lockdown in China would interrupt overall productions’ capacity. Still, we remain optimistic on Inari’s long-term business prospects underpinned by aggressive migration of 4G to 5G globally, particularly 5G adoption in smartphones would benefit Inari’s RF business segment.

• Our call. Maintain BUY at a lower TP of RM3.75 (from RM4.85) as we roll forward our valuation base to FY23 and pegged at 30x PER on FY23F EPS of 12.5 sen. At the current price level, the stock offers an attractive buying opportunity to investors. We believe the decline in the share price was due to negative market sentiment on concern of worsening supply chain bottleneck owing to prolong Covid-19 lockdown in China as well as Ukraine-Russia war, and sky-high inflation which led to slower economic growth.

Source: BIMB Securities Research - 17 May 2022

• GDP strengthened to 5.0% yoy and rose 3.9% qoq sa in 1Q22

• Higher consumption and investment activities supported domestic demand

• All sectors recorded positive growth in 1Q22 except mining and construction

• 1Q22 current account surplus declined to 9-year low

• FDI remained on uptrend, up by RM24.4bn

• Recovery in growth momentum to continue but risks to growth prospects remain

Malaysian economy expanded by 5.0% in 1Q22, up from a 3.6% growth in 4Q21. While exports helped, the key factor in the outperformance was the recovery in the domestic consumption, bolstered by labour market normalization. The economic performance was also measured on a monthly basis, where GDP in January rose by 4.3%, February accelerated to 5.2%, and March expanded to a positive 5.4%. On a quarter-on-quarter seasonally adjusted, GDP increased by 3.9% (4Q21: +4.6%; 3Q21: -2.7%; 2Q21: -0.8%; 1Q21: +2.4%).

The GDP had gained in 1Q22 due to sustained opening the economy and gradual removal of pandemic-related measures, which bolstered the domestic activities and domestic demand. Domestic demand recorded two consecutive quarters of gains as all components except public investment posted positive growth. On the supply side, all sectors gained traction in 1Q22 as shown by the growth in manufacturing, services, and agriculture sectors as well as smaller contraction in construction as increased output had lifted the overall performance during the quarter. However, mining sectors contracted further caused by production disruptions.

Source: BIMB Securities Research - 17 May 2022

• Distributive trade sales went up by 9.8% yoy

• Growth recorded in all wholesale and retail sub-sectors

• Global retail sales will grow but at a slower rate

• Retail sales will likely continue to stay supported

Malaysia’s distributive trade set a new record sale of RM123.8bn in March 2022, up by 9.8% yoy from an 8.4% gain in the previous month. The expansion was the sixth successive month of increase and the highest growth since June 2021. This expansion was attributed to motor vehicles which went up by 11.1%. Similarly, retail trade and wholesale trade also increased by +10.8% and +8.6%, respectively.

Sales value of motor vehicles sub-sector went up by 11.1% yoy (RM1.7bn) to RM16.7bn in March. This performance was attributable to the higher delivery during the month. A total of 73,222 units were delivered in March 2022, which was 28,171 units or 62.5% higher than the adjusted 45,051 units sold in February 2022. On a year-on-year basis, total industry volume (TIV) rose by 12.8% from 64,938 units sold in the same period a year earlier. Meanwhile, year-to-date March 2022, Malaysia's new vehicle sales went up by 7.8% to 159,752 units from 148,155 units.

Sales of retail trade grew by 10.8% yoy or RM4.9bn to a record high of RM49.9bn also the highest growth in 11 months. The positive growth was attributable to retail trade not in stores, stalls or markets (26.5%), retail sale in non-specialised stores (16.2%), retail sale via stalls & markets (11.8%), retail sale of cultural and recreation goods in specialised stores (11.4%), and retail sale of food, beverages & tobacco in specialised stores (9.9%). Meanwhile, wholesale trade generated a sales value of RM57.2bn in March, which rose by RM4.5bn (+8.6% yoy) due to the increase of wholesale of agricultural raw materials & live animals which up by 18.2% to settle at RM5.1bn. This was followed by wholesale of food, beverages & tobacco 9.4% and other household goods 9.0%.

On a monthly basis, the sales value of wholesale & retail trade went up by 5.7% in March, reversing a 2.6% drop in February. Sales of motor vehicles spiked by 33.9% mom during the month. Wholesale trade and retail sales recovered by 2.5% and 2.2%, respectively.

Source: BIMB Securities Research - 13 May 2022

• Foreign holdings of MYR debts securities declined to RM256.9bn in April

• Foreigners sold RM2.1bn of MGS and RM0.5bn of GII

• Total portfolio outflow of RM1.3bn for equities and debt securities combined

• Foreign demand for local bonds will likely remain pressured

Malaysia saw a second month of foreign portfolio outflows in April as a consequence of increased volatility in the global financial markets. Foreign investors pulled out RM2.1bn from Malaysian capital, bringing the accumulated total foreign holdings of Malaysia debt securities to RM256.9bn at end-April.

Looking into details, foreign investors pared down their holdings of MGS by RM2.1bn (Mar: -RM3.2bn; Feb: +RM0.5bn; Jan: +RM4.6bn) to RM189.3bn or 37.6% of total MGS outstanding. Overseas investors also sold their holdings of GII by RM0.5bn (Mar: -RM1.0bn; Feb: +RM1.7bn; Jan: -RM0.3bn) to RM44.4bn or 10.3% of total GII outstanding as at end-Apr. This resulted in foreign holdings of Malaysian government bonds (MGS & GII) to decline by RM2.6bn to RM233.7bn as at end-Apr, which was equivalent to 25.0% of total outstanding. Foreign holdings of PDS declined to RM13.4bn as RM0.5bn was sold for the month. Meanwhile, foreign holdings of discount instruments increased by RM1.0bn for the month as foreign investors bought Malaysian Islamic Treasury Bills (+RM0.8bn). As a result, in combined amounts (inclusive of short-term bills/notes and corporate bonds/sukuk), foreign holding levels in April 2022 were lower by RM2.1bn, bringing total foreign ownership of MYR bonds to RM256.9bn or 14.5%.

As at end-Apr 2022, foreign investors sold RM2.1bn of Malaysian bonds (Mar: - RM4.1bn; Feb: +RM3.1bn; Jan: +RM3.5bn). Meanwhile, foreign equity investors, who have been net sellers over the past 4 years, continued to remain net Malaysian buyers last month at RM826m (Mar: +RM3.3bn; Feb: +RM2.8bn; Jan: +RM0.3bn). Domestic institutions remained net sellers in April at RM1.0bn whilst domestic retail investors bought RM0.2bn. As a result, Malaysia recorded overall foreign portfolio outflow of RM1.3bn in April 2022 (Mar: -RM0.8bn; Feb: +RM5.9bn; Jan’22: +RM3.8bn). Year to date, foreign portfolio inflows amounted to RM7.6bn as foreign investors have been net buyers of both bonds and equity at RM0.4bn and RM7.2bn, respectively.

Bank Negara Malaysia’s international reserves declined for the fourth consecutive month, falling by USD3.1b or -2.7% mom to USD112.5bn as of end-April. In ringgit terms, the value of BNM reserves registered the largest decline in 52 months, falling by RM13.2bn to RM472.6bn. The latest reserves position is sufficient to finance 5.9 months of imports of goods and services (previously retained imports) and is 1.2 times total short-term external debt.

Global bonds extended selloff before the FOMC meeting. Yields reached key thresholds: 10y UST, UK Gilt and German Bund yields crossed 3.00%, 2.00% and 1.00% respectively, then retraced slightly lower. The Fed was widely expected to hike rate by 50bps on 4 May, and announce the balance sheet reduction plan. US Treasuries rally stalled as investors turned their attention back to bond supply and inflation. Overall, UST gained in the final week as investors rushed to perceived safe assets amid the renewed fear of a global growth crunch triggered by Beijing’s Covid outbreak. The overall benchmark yields ticked lower amid the robust demand for UST and USD. The 2Y yield closed at 2.69%, and the 10Y yield ended the month at 2.93%. The extended climb in yields cemented the view that the 10Y UST yield may soon reach 3.0% as the Fed begins to unwind its balance sheet and hike the fed funds. Elevated inflation and a looming global growth crunch resulting from China’s Covid situation amid tighter monetary policy continue to shape the narratives for the global economic outlook and the direction of the bond market.

In the local bond space, trading activities were lukewarm and sentiment continued to be cautious. In the final week of the month local govvies weakened alongside the extended selloff in the ringgit as investors dumped risk assets in favour of safe havens. The overall benchmark MGS/GII yields advanced, shifting the curves higher across. The benchmark 5Y MGS closed at 3.91% while the 10Y

MGS yields shot up to end the month at 4.38%. Bond sentiment remained bearish, but new supply was well absorbed as yields are trading near the highest levels since the global financial crisis.

Four auctions conducted in April:

I. 10.5-yr New Issue of MGII, RM4.5bn

II. 20.5-yr New Issue of MGS, RM5.0bn (RM2.5bn auction + RM2.5bn private placement)

III. 15-yr Reopening of MGII 07/36, RM5.0bn (RM2.5bn auction + RM2.5bn private placement)

IV. 7-yr New Issue of MGS, RM5.0bn

Source: BIMB Securities Research - 13 May 2022

• Overview. Gas Malaysia 1Q22 revenue declined 8% qoq to RM1.7bn mainly due to lower volume of natural gas sold during the quarter (1Q22:53.9GJ. 4Q21:56.9GJ). However, core earnings rose 32% qoq to RM91m mainly due to better shipping margin, boosting its EBITDA margin to 8.1% (4Q21: 6.1%). On a yoy basis, revenue rose 54.8% in tandem with higher average natural gas selling price and capacity reservations by shippers for the utilization of the Natural Gas Distribution System (“NGDS”) in 1Q22.

• Key highlights. In 2022, the GMB distribution tariff remains at RM1.715/GJ/day. No revenue cap adjustment is recognized in 1Q22 as the group’s performance is over-recovery.

• Against estimates: Above. 1QFY22 core profit of RM91m was above our and consensus’ forecast at 37.7% and 36.9% respectively.

• Outlook. Management expects to ramp up its RP1 CAPEX spending to c.RM290m in 2022 (2021: RM118m). This includes Kedah Rubber City, Chuping Valley (PPP with Perlis state), Padang Meha, Serendah and Proton City which will boost its regulated earnings in coming years. In the gas shipping segment, the company expects margin to be relatively stable as preceding year owing to most of its customers have already secured the utilization of NGDS.

• Earnings revision. We revised our FY22F/FY23F/FY24F earnings by 35%/32%/33% to RM351/RM358m/RM365m (see Table 3) as we revise higher our shipping margin to 3% from 1.5%.

• Our call. Maintain BUY on Gas Malaysia with higher TP of RM4.08 (from RM3.37) which implies 10.1x FY22F P/E. We like Gas Malaysia due to i) its ability to sustain recurring income from pipelines asset amidst market liberalization, ii) steady distribution tariff, and iii) stable shipping margin.

Source: BIMB Securities Research - 13 May 2022