Highlights

HLBank Research Highlights

Author: HLInvest   |   Latest post: Fri, 22 Jan 2021, 10:33 AM

 

Aeon Co. (M) - Bracing through the storm

Author: HLInvest   |  Publish date: Fri, 22 Jan 2021, 10:33 AM


We expect softer retail sales in the near term given lower footfall in light of MCO2.0. Compared to the previous MCO, we opine the impact will be less severe as the group is more equipped having braced through the worst in MarMay 2020. We remain confident on the group’s longer term outlook with its strategic plans in (i) refurbishing existing malls to attract better foot traffic, (ii) expanding online presence, and (iii) introduction of specialist concept store to drive better margin. Lower FY20/21 earnings forecasts by -12%/-7.0% to reflect near term Covid/MCO2.0 headwinds. Maintain BUY with lower TP of RM1.17 (19x FY22 EPS). Despite the short term uncertainties, we reckon Aeon will be able to brace through another storm with their clear strategy to chart for recovery.

We came away from our meeting with Aeon’s management feeling hopeful about the group’s long term prospects despite short term headwinds.

Short term retail impact. We expect softer retail sales in the near term on back of lower footfall traffic in light of MCO2.0. We understand that all of the Aeon malls are allowed to open but only stores that are deemed “essentials” are operating. Compared to the MCO1.0, we opine the impact will be less severe as the group is more equipped having braced through the worst in Mar-May 2020. Additionally, AEON Mall Kuching Central in Sarawak is still operating as usual as the state is not placed under MCO2.0. To recap, in 2Q20 Aeon lapsed into losses of -RM9.6m for the first time given a -20% drop in top line.

Online expansion. Currently, Aeon is operating in three different online platforms namely (i) myaeon.com.my (started in June 2020); (ii) fresh.myaeon.com.my (started in Oct 2020); and (iii) myaeon-sg.com (started in Dec 2020) to cater for customers in Singapore that were unable to cross borders for their grocery needs. Though the user bases for its online platforms are still very low at this juncture, Aeon targets its online channels to contribute 15-25% of top line in 5 years’ time.

Focus on specialist store to drive margin. Aeon is in the midst of setting up its pilot project in specialist concept stores to drive better margin. In the pipeline currently are (i) Home Coordy, which focuses on household furniture, (ii) Kids Republic, for speciality in kids’ necessities, and (iii) Komaiso, flat-price concept store that scheduled to be rolled out in 2Q21.

Capex plan. The capex for FY21 is guided to be RM220m. From this, 50% are allocated for revamping the existing malls (improving amenities) while 30% will be for upgrading the technology to expand the digitalization effort for their online platform. Additionally, management budgets a bigger capex of RM500m for FY22 with the plan to roll out new malls in 3-5 years’ time.

Outlook. We opine that FY21 will likely pare off better YoY as restrictions in the latest MCO are not as tight as before. Despite that, we think that it may not fully recover to the pre-pandemic level and forecast that stronger recovery will only be seen with successful containment of Covid-19. Going into FY21, we expect retail spending to be positive YoY due to low base effect in 2020. We remain confident on the group’s longer term outlook with its strategic plans in (i) refurbishing existing malls to attract better foot traffic; (ii) expanding presence in online platform; and (iii) introduction of specialist concept store to drive better margin.

Forecast. We lower our FY20/21 earnings forecasts by -12%/-7.0% as we lower footfall traffic assumptions to reflect 4Q20’s domestic Covid-19 resurgence and the recent MCO2.0.

Maintain BUY with lower TP of RM1.17 (from RM1.25), based on unchanged 19x FY22 earnings. Despite the short term uncertainties, we reckon Aeon will be able to brace through another storm with their clear strategy to chart for recovery.

Source: Hong Leong Investment Bank Research - 22 Jan 2021

Labels: AEON
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Genting Malaysia - RWG closes again

Author: HLInvest   |  Publish date: Fri, 22 Jan 2021, 10:33 AM


RWG will close temporarily from 22 January to 4 February in-line with the government’s implementation of MCO in Pahang and GenM is expected to lose its main revenue source during the closed period. We have assume a 2 month closure and a c.20% fall in visitorship for RWG as we choose to remain conservative during this period of uncertainty. We have also assumed a 20% decrease in visitorship for its UK operations to factor in UK’s lockdown measures which were implemented in the first week of January. Overall, we cut our earnings forecast by 32% for FY21 while maintaining our FY22 forecast as we expect a V-shaped recovery in FY22. Maintain HOLD with a lower TP of RM2.27 (from RM2.43) based on 7.5x FY21 EV/EBITDA (unchanged).

NEWSBREAK

The government has announced that MCO will be implemented in various states including Pahang from 22 January to 4 February 2021. In line with this, RWG will be temporarily closed during this period. Essential resort-based services such as security, bomba, utilities and clinics will remain operational.

HLIB’s VIEW

RWG closure. This will be negative for the operations of GenM as the possibility of an extension of MCO is high. We view that the visitorship for RWG is expected to remain extremely subdued even if MCO restrictions in Pahang is lifted as the amount of cases in populous states like Kuala Lumpur, Selangor, Penang and Johor are still at very high levels. We have cut our YoY visitorship growth rate by c.20% as we have assumed a total effective lockdown period of about 2 months. Although it is still too early for us to gauge the effectiveness of the current MCO measures, we choose to be on the conservative side of things.

Lower UK visitorship expected due to lockdown measures and resurgence of Covid-19 cases. We also expect UK’s lockdown measures implemented in the first week of January to dampen its recovery in FY21. UK has hit its highest ever daily case recorded on the 8th of January (68,053 cases) but have since tapered down to below 40,000 cases on the 17th of January. With this, we have cut our YoY recovery growth rate by c.20% as well to factor in the aforesaid instance.

Steep V-shaped recovery expected in FY22. Despite our lower growth expectations in FY21, we expect a steep recovery in FY22 due to the roll-out of vaccines and better overall economic outlook, alongside a lower base effect.

Forecast. We cut our FY21 forecast by 32% to factor in our expectations on lower overall visitorship due to the resurgence of Covid-19 cases globally while maintaining our FY22 forecast as we are expecting a steep V-shaped recovery to happen in FY22.

Maintain HOLD with a lower TP of RM2.27 (from RM2.43). We have lowered our TP to RM2.27 (from RM2.43 previously) as we impute our lower EBITDA forecasts from our adjustments on visitorship in FY21 while leaving our EV/EBITDA multiple assumptions unchanged at 7.5x. We believe that investor sentiment would be muted at this juncture due to the uncertainties regarding the length of the lockdown period.

Source: Hong Leong Investment Bank Research - 22 Jan 2021

Labels: GENM
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CIMB Group - Thai unit swung to losses

Author: HLInvest   |  Publish date: Fri, 22 Jan 2021, 10:32 AM


CIMB Thai went into losses of THB290m in 4Q20 on the back of higher loan loss provision and drop in total income. Also, loans and NIM contracted but the sale of bad loans led to NPL ratio improvement. Overall, no changes were made to forecasts. While trading at an attractive price point (P/B at -1.5SD) and foreign shareholding level is at decade low, it is still a riskier investment proposition among large-sized banks, given less resilient asset quality. Maintain HOLD and GGM-TP of RM4.35, based on 0.73x FY21 P/B.

Within estimates. Excluding NPL sale gains, CIMB Thai (95%-owned) posted 4Q20 core loss of THB290m (vs THB82m in 3Q20 and THB790m in 4Q19), bringing FY20’s sum to THB1.2bn (-27% YoY). This was in line with our and consensus expectations, making up 102-104% of full-year forecasts. Typically, its contribution to overall group’s PBT is <10% but given the 2 fraudulent O&G accounts dragging Singapore’s showing, this has risen to c.15%.

QoQ. It went into the red, no thanks to higher loan loss provision (+26%) and the drop in total income (-7%); this was led by weak mark-to-market (MTM, -65%), investment (-87%), and forex gains (-20%). Also, net interest margin (NIM) contracted 40bp.

YoY. Similarly, the loss was driven by the quadrupling of bad loan allowances. Total income was also a culprit, falling by 14% due to NIM compression (-60bp), 4% decline in net loans, weaker fees (-51%) and lower investment gains (-86%).

YTD. Again, higher impaired loan provision (+60%) caused profit to fall 27%. This was cushioned by positive Jaws (top-line rose 8ppt faster than opex) and lower effective tax rate (-5ppt).

Other key trends. Both net loans and deposits contracted 4.4% (3Q20: flat) and 2.6% YoY (3Q20: +3.5%) respectively. That said, net loan-to-deposit ratio was still elevated at 114% (+1ppt sequentially). As for asset quality, gross NPL ratio fell 130bp QoQ to 4.6% due to some bad loans being sold during the quarter.

Outlook. We see CIMB Thai’s NIM to gradually stage a recovery in following quarters as Bank of Thailand appears inclined to pause its monetary easing cycle (but instead preferring fiscal and credit measures to combat Covid-19 headwinds). However, their plan to switch to lower-yielding but safer assets will cap expansion. Separately, loans growth is seen to remain tepid for now as Covid-19 related headwinds drag near-term performance but should pick up pace 6-12 months down the road. As for asset quality, Bank of Thailand’s move to extend the financial relief measures to troubled borrowers until Jun-21 will help to limit a significant deterioration in NPL ratio.

Forecast. Unchanged as CIMB Thai’s 4Q20 Results Were Within Expectations.

Retain HOLD and GGM-TP of RM4.35, based on 0.73x FY21 P/B with assumptions of 5.9% ROE, 6.9% COE, and 3.0% LTG. This is beneath both its 5-year average of 0.91x and the sector’s 0.87x; we feel the valuation is fair given its ROE output is 3ppt below its historical and industry mean. While trading at an attractive price point (P/B at -1.5SD) and foreign shareholding level is at decade low, it is still a riskier investment proposition among large-sized banks, given less resilient asset quality.

Source: Hong Leong Investment Bank Research - 22 Jan 2021

Labels: CIMB
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Traders Brief - Further consolidation amid looming domestic headwinds

Author: HLInvest   |  Publish date: Fri, 22 Jan 2021, 10:32 AM


MARKET REVIEW

Global. Tracking overnight record close on Dow, Asian bourses ended mostly higher amid optimism that of more US economic packages to cushion damage wreaked by the COVID19 pandemic, and hopes of Biden administration may adopt a more conciliatory and multilateral approach when dealing with China. The Dow eased 12 pts to 31176 on profit taking after a record close previously whilst the Nasdaq Composite rallied 0.6% to a record high at 13531. Sentiment was positive amid expectations of strong earnings from big tech companies next week, and more stimulus package and improved vaccines rollout will ensure a smoother and faster reopening.

Malaysia. In line with an overnight rally on Wall St, KLCI soared as much as 13.7 pts to 1615.2 but all the gains were wiped off as the index slipped 6.7 pts to end at 1594.8. Market breadth was negative with 347 gainers vs 812 losers amid fears of more MCO 2.0 extensions will further delay economic recovery. Trading volume increased to 6.7bn (5.8bn previously) while the value eased to RM4.3bn (RM4.4bn previously). Local retailers were the net buyers (RM173m) whilst the local institutional (-RM55m) and foreign (-RM118m) investors remained the sellers in equities.

TECHNICAL OUTLOOK: KLCI

KLCI extended its consolidation mode after retreating further from 1646 high (14 Jan) to end below 1600 psychological levels yesterday, registering its 6 th straight decline. As the benchmark is still unable to reclaim above the congested 1600-1618 overhead resistances, the bears seem to be in control again and further consolidation is expected, with major supports situated at 1588-1573-1563 territory. Only a decisive close above 1618 would augur well for a resumption in uptrend towards 1636-1650-1667 hurdles.

MARKET OUTLOOK

After violating the key multiple SMAs and 1600 psychological supports, KLCI is expected to engage in further consolidations (supports 1563-1573; resistances: 1600-1618-1634) as investors continue to weigh on the downside risks to economic and corporate earnings growth from MCO 2.0 coupled with the start of the upcoming 4Q20 results season.

On stock picks, we expect particle board companies such as EVERGRN (HLIB BUY-TP RM0.65) and HEVEA (HLIB BUY- TP RM0.83) to deliver improved earnings in the upcoming 4Q20 results driven by sustainable orderbook and ASPs, underpinned by the work-from-home global trend.

Source: Hong Leong Investment Bank Research - 22 Jan 2021

Labels: EVERGRN, HEVEA
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Axis REIT - Ended FY20 in line

Author: HLInvest   |  Publish date: Thu, 21 Jan 2021, 11:49 AM


Axis REIT’s FY20 core net profit of RM124.9m (+8.5% YoY) were within our estimates and consensus. Dividend of 2.25 sen per unit was declared. The improvement was primarily supported by contribution from the newly acquired assets (+4.4% YoY), and lower Islamic finance costs (-18.3%). Occupancy and gearing stood at 91% and 33.1% respectively. Axis REIT acquisition target will remain focus on Grade A logistics and manufacturing facilities. We maintain our forecasts, reiterate BUY call with unchanged TP of RM2.49 based on targeted yield of 4.7% on FY21 DPU.

Within expectations. 4Q20 core net profit of RM32.1m (+1.0% QoQ, +9.4% YoY) brought FY20’s sum to RM124.9m (+8.5% YoY). The results were within our estimates and consensus, accounting for 101% and 98%, respectively.

Dividend. Declared 4Q DPU of 2.25 sen/unit going ex on 4 Feb; of the portion, 1.10 sen/unit can be elected to be reinvested in new units under optional income distribution reinvestment plan (IDRP). This brings FY20 DPU to 8.75 sen (FY19: 9.3 sen).

QoQ. Revenue increased marginally to RM59.8m (+1.3%) thanks to newly acquired properties; Axis Shah Alam Distribution Centre 5 (10 Nov) and Axis Industrial Facility @ Shah Alam (3 Dec). Despite lower property expenses (-1.1%), the higher Islamic finance costs (+4.6%) resulted in a marginal improvement of core net profit (+1.0%).

YoY. Top line improved 7.9% driven by newly acquired properties. Property expenses increased in line with the additional properties. While administrative expenses jumped (+11.9%), it was mitigated with a decreased of Islamic finance costs (-12.7%); hence core net profit increased to RM32.1m (+9.4%).

FY20. Revenue for FY20 of RM232.2m improved (+4.4% YoY) on the back of newly acquired properties during the year; (i) Axis Facility 2 @ Nilai (28 Feb), (ii) Axis Facility 2 @ Bukit Raja (17 Mar), (iii) D37c Logistics Warehouse (9 Jun), (iv) Axis Shah Alam Distribution Centre 5 (10 Nov) and (v) Axis Industrial Facility @ Shah Alam (3 Dec). The decrease in Islamic finance costs (-18.3% YoY) brings about higher core net profit of RM124.9m (+8.5% YoY).

Occupancy and gearing. Axis REIT has 53 properties in its portfolio; an increase of 5 properties from FY19. Occupancy reduced marginally to 91% (from FY19: 92%); while gearing increased to 33.1% (from FY19: 28.7%).

Outlook. Axis REIT’s acquisition target for FY21 is RM135m with Grade A logistics and manufacturing facilities as their prime focus. We remain positive for FY21 with expectations of full year contribution from the newly acquired properties.

Forecast. Maintain Forecast as the Results Were in Line.

Maintain BUY, TP: RM2.49. We maintain BUY with unchanged TP of RM2.49 based on FY21 DPU on targeted yield of 4.7% which is derived from 1SD below 2-year historical average yield spread between Axis REIT and 10-year MGS yield in view of increased popularity in industrial properties, high occupant tenancy in its diversified portfolio and is also one of the few Shariah compliant REITs. The stock also has shown resilient earnings throughout the pandemic.

Source: Hong Leong Investment Bank Research - 21 Jan 2021

Labels: AXREIT
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Economics - OPR maintained at 1.75%

Author: HLInvest   |  Publish date: Thu, 21 Jan 2021, 11:48 AM


As forecasted, BNM maintained the OPR at 1.75% in the Jan 2021 MPC meeting. The committee noted that the global roll-out of vaccines is expected to lift growth prospects going forward. Nevertheless, they cautioned that the overall outlook is subject to downside risks from ongoing uncertainties surrounding the pandemic and vaccination programme. Hence, while BNM noted that the current monetary policy stance is appropriate and accommodative, they also noted that given the uncertainties surrounding the pandemic, the stance of monetary policy will be determined by new data and information. Hence, while we maintain our forecast for MPC to remain on hold at 1.75% in 2021, we do not rule out the possibility for another rate cut should economic conditions worsen (e.g. MCO 2.0 gets extended beyond Feb 21 or delay in global vaccine roll-out).

DATA HIGHLIGHTS

BNM maintained the OPR at 1.75% in the Jan 2021 MPC meeting. While MPC acknowledged the recent resurgences of Covid-19 cases and containment impact on the economy, it expects the roll-out of mass vaccination programmes and ongoing policy support to lift global growth prospects going forward. Nevertheless, the outlook is still subject to downside risks, primarily from more widespread virus transmissions and delays in vaccine administrations.

Domestically, the MPC noted that targeted containment measures have affected the recovery momentum in 4Q20, and now expects 2020 GDP to sit at the lower end of its forecasted range of -3.5% to -5.5% (HLIB: -5.5% YoY). For 2021, the committee acknowledged that the impact from the re-introduction of MCO 2.0 to near-term growth will be less severe than that of MCO 1.0 (MOF projects: RM600mn/day in MCO 2.0; MCO 1.0: RM2.4bn/day) with growth trajectory expected to improve in 2Q21 onwards. This is expected to be driven by the recovery in global demand, turnaround in spending amid continued policy support measures. In addition, the MPC expects the roll-out of vaccines in the coming months to improve sentiment, but cautioned there could be some hiccups along the way.

The MPC expects inflation to average higher in 2021 owing to improved global oil prices. Underlying inflation is projected to remain subdued amid continued spare capacity in the economy.

Meanwhile, as part of BNM’s effort to ensure sufficient liquidity in the financial system, BNM has announced an extension on banking institutions’ flexibility to fully recognise MGS and MGII to meet SRR compliance until 31 Dec 2022, from 31 May 2021 previously.

HLIB’s VIEW

Despite latest global and domestic developments, the Committee considers the current stance of monetary policy to be appropriate and accommodative. This could be due to the Committee’s forecast of lower negative impact of MCO 2.0 compared to MCO 1.0, expectations of vaccine-led global recovery going forward and assumption that Malaysia’s GDP would improve from 2Q21 onwards. Nevertheless, the Committee noted that given the uncertainties surrounding the pandemic, the stance of monetary policy will be determined by new data and information, and their implication on overall outlook for domestic growth and inflation. Hence, while we maintain our forecast for MPC to remain on hold at 1.75% in 2021, we do not rule out the possibility of another rate cut should economic conditions worsen (e.g. MCO 2.0 gets extended beyond Feb 2021 or delay in global vaccine roll-out)

Source: Hong Leong Investment Bank Research - 21 Jan 2021

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