Highlights

HLBank Research Highlights

Author: HLInvest   |   Latest post: Thu, 22 Oct 2020, 5:01 PM

 

Mah Sing Group - Tapping Into Gloves

Author: HLInvest   |  Publish date: Thu, 22 Oct 2020, 5:01 PM


Mah Sing is proposing to undertake a proposed diversification to venture into glove manufacturing. Ideally, Mah Sing would be able to tap onto its expertise of its regional plastics business in order to synergise with this potential venture. Phase 1 (12 lines) of the expansion is targeted to be carried gradually over 2Q21 to 3Q21 while Phase 2 (12 lines) of the expansion is targeted to be carried gradually over 4Q21 to 1Q22. Capacity of the lines stand at 3.68bn pieces p.a. for each phases. Over the longer term, the Group intends to gradually expand up to 100 gloves production lines. We keep our forecasts unchanged for now and maintain BUY with an unchanged TP of RM0.85.

NEWSBREAK

Mah Sing is proposing to undertake a proposed diversification to venture into glove manufacturing. The Group will acquire initially 12 new gloves production lines which are expected to yield 38k pieces of gloves per production line per hour (or a total of 3.68bn pieces p.a.).

HLIB’s VIEW

Positive on the news. We remain positive on the news as this venture would help diversify Mah Sing’s earnings which is currently heavily reliant on the property market. The proposed diversification would enable the Group to take advantage of the glove business with positive long-term industry prospects and additional demand from the Covid-19 outbreak. Ideally, Mah Sing would be able to tap onto its expertise of its regional plastics business in order to synergize with this potential venture.

The plan. Mah Sing has entered into a tenancy agreement to occupy a land measuring 313.5k sqft with a single storey warehouse (229k sqft) together with a double storey office in Klang to commence its gloves business. Phase 1 is targeted to be carried out from 2Q21 to 3Q21, with a CAPEX of not more than RM150m. The Group’s target market for the exports are the US and Europe, amongst other countries. The plant will be located in Kapar, Klang, nearby the bigger players (Top Glove, Supermax, Kossan, and Smart Glove). Mah Sing is also planning for a Phase 2 of the expansion plan whereby an additional 12 new gloves production line will be located beside the aforementioned plant (providing an additional 3.68bn pieces p.a. to capacity) which will be carried out from 4Q21 to 1Q22. Over the longer term, the Group intends to gradually expand up to 100 glove production lines.

Potential earnings. Mah Sing has received letters of intent from numerous buyers (majority in the export market) for nitrile gloves of up to 9.41bn pieces, which will be sufficient to cater to its Phase 1 and 2 expansions. Sufficient supply for nitrile has been secured to cater to the Phase 1 lines. For illustrative purposes (looking into FY21), assuming a conservative net profit of USD15/1000 gloves, an exchange rate of MYR:USD 4:1, the 3.68bn production would generate c.RM110m of net profit. This amount is would add additional 83% to our current FY21 earnings forecast of RM136m. Note that the illustration assumes a conservative run rate pricing of USD45/1000 whereas spot prices are trading up to USD100/1000 gloves. By applying a conservative 15x PE, this implies an additional an RNAV/share of RM0.62/share in comparison to our current total estimate of RM2.14/share.

Challenges. The Group intends to obtain the FDA Certification (for exporting to the US) and CE Marking Certification (for exporting to the European region). Note that the Group has no prior experience in the glove business which includes the application for any medical certifications with local and foreign authorities for the sale of medical gloves. Nonetheless, the Group is confident in assembling a sufficient pool of talent with suitable technical expertise and is in the midst of liaising with authorities for the respective approvals. While venturing into an entirely new business could prove challenging, this is not the first time they have done so; back in the day Mah Sing’s core biz was plastics before it successfully embarked on property development.

Forecast. We keep our forecasts unchanged for now, pending further solidification in the plans. We note a potential upside to our FY21/22 earnings forecast.

Maintain BUY with an unchanged TP of RM0.85 based on an unchanged discount of 60% to a RNAV of RM2.14. Our buy call is premised upon its commendable take-up of recent launches, cover ratio of 1.1x to provide earnings visibility coupled with the positive sentiment associated with their foray into gloves. We see value in the stock as it is priced at a P/B valuation of 0.5x (-2SD of its 5-year mean), and is lower than its GFC trough of 0.68x. The focus on affordable products should garner strong responses (as seen in its recent launches) and dividend with a minimum payout ratio of 40% (FY20 yield: 3.2%, FY21 yield 4.3%) would hopefully serve as a support to share price.



 

 

 


 

Source: Hong Leong Investment Bank Research - 22 Oct 2020

Labels: MAHSING
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FGV Holdings - Expression of Interest From Syed Mokhtar

Author: HLInvest   |  Publish date: Thu, 22 Oct 2020, 5:00 PM


FGV received an expression of interest from PLSB (a wholly-owned unit by Tan Sri Syed Mokhtar Albukhary’s privately-owned Restu Jernih Sdn Bhd), which expressed its interest to participate in FGV via an injection of plantation assets into FGV. While details remain sketchy at this juncture, the latest development could trigger an MGO as PLSB had book value of circa RM1.9bn as at 31 Dec 2018 (vs. FGV’s book value of circa RM4.2bn as at 31 Dec 2019), and shareholders’ approval will be required during EGM. Besides, we note that FGV’s LLA would also be a key consideration in this matter. Maintain earnings forecast, SOPderived TP of RM1.08 and HOLD rating on the stock for now, given the sketchy details thus far. Nevertheless, we believe near-term share price sentiment will be lifted arising from the latest development.

Expression of interest from Syed Mokhtar. FGV announced that it has received an expression of interest from Perpesctive Lane (M) Sdn Bhd (PLSB), which expressed its interest to participate in FGV via an injection of plantation assets into FGV. The board wishes to assure shareholders and key stakeholders that it will discharge its fiduciary duty in any such deliberation and shall make further announcement if there are further material developments in respect of this matter.

More details on PLSB. PLSB is a wholly-owned unit by Tan Sri Syed Mokhtar Albukhary’s privately-owned Restu Jernih Sdn Bhd, and owns the Tradewinds group of companies, including Tradewinds (M) Bhd (which also owns Padiberas Nasional Bhd), Tradewinds Plantations Bhd and Central Sugar Refinery Sdn Bhd). Based on PLSB latest audited financial report, it had a book value of RM1.96bn and reported a net profit of RM1.06bn in FY12/18.

News of Syed Mokhtar’s interest in FGV had been circulating since Sep-19. We note that the news of Tan Sri Syed Mokhtar eyeing on FGV had been circulating since Sep-19, which he was reportedly scouting around meeting with financial intuitions (for funding of more than RM1bn) to facilitate the acquisition back then (when FGV was trading at below RM0.90/share).

Details remain sketchy at this juncture. While details remain sketchy at this juncture, the latest development could trigger a mandatory general offer (MGO), as PLSB had book value of circa RM1.9bn as at 31 Dec 2018 (vs. FGV’s book value of circa RM4.2bn as at 31 Dec 2019), and shareholders’ approval will be required during the Extraordinary General Meeting (EGM). Besides, we note that land lease agreement (LLA) would also be a key consideration in this matter.

Forecast. Maintain, as details remain sketchy at this juncture.

Maintain HOLD; TP: RM1.08. We maintain our HOLD rating on FGV, with an unchanged SOP-derived TP of RM1.08, given the sketchy details provided thus far. Nevertheless, we believe near-term share price sentiment will be lifted arising from the latest development.


 

Source: Hong Leong Investment Bank Research - 22 Oct 2020

Labels: FGV
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Traders Brief 22 Oct 2020 - Short Term Negative Unless Quickly Reclaiming Above 200D SMA Near 1496

Author: HLInvest   |  Publish date: Thu, 22 Oct 2020, 9:41 AM


MARKET REVIEW

Global. Asian markets ended mildly higher as investors continued to hope US lawmakers will eventually agree on a stimulus bill the earliest by end of this week despite major differences remain. Sentiment was also boosted by news that Moderna’s Covid -19 vaccine could be available for emergency use in December if it gets positive results from its interim trial in November. Overnight, the Dow slipped 98 pts at rose 28210 pts after a volatile trading session amid lingering concerns whether a fiscal stimulus deal might materialize before the 3 Nov election to bolster the flagging US economic recovery. Sentiment was also dampened by falling AstraZeneca shares after Brazilian health authority says a volunteer in Covid vaccine (developed with University of Oxford) study died.

Malaysia. In the midst of heavy selling pressures by foreign investors (-RM163m) on gloves and banks shares, KLCI tumbled 18.6 pts at 1492.4 amid rumours that PM may disssolve the Parliament in December (if the Budget 2021 is not passed) after he was given an audience with the King yesterday. Sentiment was also dampened by uncertainty due to the government WFH’s directives in CMCO areas, raising concerns among investors on the business continuity in the country. Trading volume decreased to 8.5bn shares valued at RM5.9bn against 11bn shares worth RM5.8bn on Tuesday. Market breadth was negative with 375 gainers as compared to 758 losers.

TECHNICAL OUTLOOK: KLCI

As forewarned, a sharp retreat below the 1496 supports (200D SMA and downtrend line from YTD high of 1618) could reignite a risk-off mode, potentially pushing the index lower towards 1488 (lower BB), 1474 (10 Sep low) and 1461 (50% FR) levels. On the contrary, only a successful reclaim above 1515 (10D SMA) and 1525 (50D SMA) overhead resistances would lift the index higher towards 1538-1550 levels next.

MARKET OUTLOOK

Following the breakdown below the critical 200D SMA support at 1496, KLCI is likely to engage in a tug-a-war between the bulls and bears amid rising headwinds ahead of the US presidential election and a resurgence in Covid-19 infections globally coupled with the domestic fluid politics. Moreover, a prolong targeted lockdowns amid spiking Covid-19 transmissions in Malaysia may dampen our expectations for a 2H20 economic and corporate earnings recovery

VIRTUAL PORTFOLIO POSITION-FIG1

In the Wake of the Market Uncertainty, We Took Profit on FPI (6.6% Gain) Yesterday.

Source: Hong Leong Investment Bank Research - 22 Oct 2020

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Economics 22 Oct 2020 - 7 Th Month of Negative Headline Inflation

Author: HLInvest   |  Publish date: Thu, 22 Oct 2020, 9:39 AM


Headline inflation continued to decline at a steady pace in September (-1.4% YoY; Aug: -1.4% YoY), slightly below the consensus estimate of -1.3% YoY. The decline in transport, housing, utilities & fuels and clothing & footwear contributed to the decrease in the overall index. Meanwhile, core inflation growth eased to +1.0% YoY (Aug: +1.1% YoY).

DATA HIGHLIGHTS

CPI declined for the seventh consecutive month in September (-1.4% YoY; Aug: -1.4% YoY), slightly below the consensus estimate of -1.3% YoY. On a monthly basis, CPI was unchanged (Aug: +0.2%) due to flat growth in transport (0%; Aug: +0.4%) and housing, utilities & fuels (0%; Aug: +0.2%). Meanwhile, food & non-alcoholic beverages registered a decline (-0.1%; Aug: +0.1%).

The decline in CPI was attributed to transport (-9.9% YoY; Aug: -9.9% YoY), housing, utilities & fuels (-3.0% YoY; Aug: -3.0% YoY) and clothing & footwear (-0.6% YoY; Aug: -0.6% YoY), which contributed 41.6% to the overall index. Moderation was recorded in recreation services & culture (+0.1% YoY; Aug: +0.6% YoY) and education (+0.7% YoY; Aug: +1.1% YoY). Growth picked up for food & non-alcoholic beverages (+1.4% YoY; Aug: +1.3% YoY), alcoholic beverages & tobacco (+0.5% YoY; Aug: +0.3% YoY) and furnishings, household equipment & maintenance (+0.1% YoY; Aug: -0.1% YoY).

The transport index posted a steady decline (-9.9% YoY; Aug: -9.9% YoY) amid lower RON95 (RM1.68; Sep 2019: RM2.08) and RON97 (RM1.98; Sep 2019: RM2.60) fuel prices relative to the previous year. On a monthly basis, growth was flat (Aug: +0.4%), due to negative growth in fuels & lubricants (-0.2%; Aug: -0.6%) and passenger transport by road (-0.1%; Aug: -0.2%) which offset positive growth in passenger transport by air (+1.5%; Aug: +18.3%).

Food inflation edged higher (+1.4% YoY; Aug: +1.3% YoY), supported by ‘food at home’ (+1.2% YoY; Aug: +0.9% YoY) amid steady growth in ‘food away from home’ (+1.9% YoY; Aug: +1.9% YoY). Subgroups that recorded an increase include vegetables (+5.1% YoY; Aug: +5.0% YoY), fruits (+1.8% YoY; Aug: +0.7% YoY), oils & fats (+1.7% YoY; Aug: +1.5% YoY), meat (+1.0% YoY; Aug: -0.3% YoY) and fish & seafood (+0.6% YoY; Aug: +0.3% YoY). On the global front, food inflation increased by +5.0% YoY (Aug: +2.0% YoY), with firmer prices of oils, cereals, sugar and dairy.

Services inflation maintained at +1.3% YoY (Aug: +1.3% YoY). Health (+1.1% YoY; Aug: +1.1% YoY), communication (+1.6% YoY; Aug: +1.6% YoY) and restaurants & hotels (+0.1% YoY; Aug: +0.1% YoY) posted steady growth, offsetting the moderation in education (+0.7% YoY; Aug: +1.1% YoY) and recreation services & culture (+0.1% YoY; Aug: +0.6% YoY).

Core inflation (DOSM) eased slightly to +1.0% YoY (Aug: +1.1% YoY) following marginal decline in transport (-0.1% YoY; Aug: +0.1% YoY) alongside moderation in education (+0.7% YoY; Aug: +1.1% YoY), recreation services & culture (+0.1% YoY; Aug: +0.6% YoY) and miscellaneous goods & services (+2.7% YoY; Aug: +3.1% YoY).

HLIB’s VIEW

Against the backdrop of weak oil price pressure and extension of discounts on electricity bills until December 2020, we lower our average 2020 headline inflation forecast to -1.0% YoY, from -0.5% YoY previously (2019: +0.7% YoY). With sluggish prospects for economic growth and inflation, we expect BNM to maintain OPR at the current low level until 2021.

Source: Hong Leong Investment Bank Research - 22 Oct 2020

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Axis REIT - Earnings Still Intact

Author: HLInvest   |  Publish date: Thu, 22 Oct 2020, 9:37 AM


Axis REIT’s 9M20 core net profit to RM92.8m (+8.2%) were within ours and consensus estimates. Overall, the improved performance was due to commencement of lease from newly acquired properties. We expect a resilient 4Q20 with contribution from the newly acquired properties. We maintain our forecast; reiterate our BUY call with unchanged TP of RM2.47.

Within expectations. 3QFY20 core net profit of RM31.8m (+2.4% QoQ, +13.7% YoY) brought the 9M20 sum to RM92.8m (+8.2%). The results were within our (75.1%) and consensus expectations (72.1%).

Dividend. Declared 3Q DPU of 2.25 sen, going ex on 4 th Nov 2020 (3QFY19: 2.35 sen). The lower DPU was due to issuance of new units from the equity placement exercise completed in Dec 2019.

QoQ. Revenue was higher (+3.4% QoQ) mainly due to contributions from newly acquired properties and higher carpark income (in 2Q the company gave waiver on season carpark rental for all its multi-tenanted buildings during the MCO). Property expenses was higher by 7.1% due to the enlarged size of the portfolio and also the higher maintenance cost. In turn, core net profit showed an increment of 2.4%.

YoY. Top line rose by 6.0% from the contribution of newly acquired properties. Total properties expenditure rose by 12.0% coming from higher maintenance expenses. However, core net profit increased by 13.7% from the lower Islamic financing cost (- 19.3%).

YTD. Revenue increased by 3.2% due to the commencement newly acquired properties; however, this was offset by the rental loss from Axis Industrial Facility @ Rawang. Property expenditure rose by 11.1% mainly due to the enlarged size of the portfolio and also building maintenance expenses (caused by the collapse of a retaining wall along Sungai Penchala that damaged the driveway at Axis Vista and Axis Technology Centre). Nonetheless, bottom line increased by 8.2% thanks to lower Islamic financing cost (-20.1%).

Occupancy & gearing. Out of 51 properties, 39 properties enjoyed 100% occupancy. Average portfolio occupancy remained stable at 92.7%; while weighted average lease expiry (WALE) is at 5.7 years. Gearing has increased to 31.9% (from 28.7% in FY19) due to the acquisition of new properties.

Outlook. We believe 4Q20 will remain resilient contributed by the newly acquired properties. Axis’s growth prospect remains promising as the company continues to aggressively source and evaluate potential acquisition targets that are deemed investable. The selection of properties will continue to focus on Grade A logistics facilities and manufacturing facilities with long leases from tenants with strong covenants as well as well-located retail warehousing in locations ideal for last-mile distribution.

Forecast. Maintain as Result Were Inline.

Maintain BUY, TP: RM2.47. We maintain our BUY call with an unchanged TP of RM2.47. To note, our valuation 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 diversifi ed 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 - 22 Oct 2020

Labels: AXREIT
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CIMB Group - Sluggish Performance at Thai

Author: HLInvest   |  Publish date: Thu, 22 Oct 2020, 9:35 AM


CIMB Thai’s 3Q20 core earnings fell 73% QoQ, largely within expectations. The poor results were owing to higher loan loss provision and negative Jaws. Also, loans growth lost momentum and NPL ratio has risen. Overall, no changes were made to forecasts. In our view, the stock’s risk-reward profile remains balanced despite its undemanding valuations and decade low foreign shareholding level, given short-term Covid-19 headwind uncertainties. Maintain HOLD and GGM-TP of RM3.30, based on 0.55x FY21 P/B.

Largely in-line. Excluding NPL sale gains in 3Q19, CIMB Thai (95%-owned) posted 3Q20 core earnings of THB82m (-73% QoQ, -77% YoY), which brought 9M20 sum to THB1.5b (+77% YoY). This was largely in line with our and consensus expectations, accounting for 83-85% of full-year forecasts (we believe loan loss provision will remain elevated in subsequent quarters due to impact from Covid-19 headwinds); typically its contribution to overall group’s PBT is minimal at <10% but given the 2 fraudulent O&G accounts dragging Singapore’s performance, this has risen to c.20%.

QoQ. Core profit decreased 73%, no thanks to higher loan loss provision (+22%) and negative Jaws (top-line contracted 1ppt faster than opex); net interest income shrank 11% as net loans fell 2% while net interest margin (NIM) was flat at 3.3%. However, non-interest income (NOII, +29%) provided some cushioning given stronger mark -tomarket (MTM, tripled), investment (+16%), and forex gains (+28%).

YoY. Similarly, the doubling of bad loan allowances, dragged core earnings down by 77%. Otherwise numbers would have been lifted by positive Jaws (opex dropped 11% due to strict cost controls).

YTD. Positive Jaws and lower effective tax rate (-12ppt) contributed to the 77% rise in core net profit. That said, higher impaired loan provision (+20%) eroded some gains.

Other key trends. Both net loans and deposits growth momentum slowed to 0% (2Q20: +3.7%) and 3.5% YoY (2Q20: +6.5%). In turn, sequential net loan-to-deposit ratio improved 4ppt QoQ to 113%. As for asset quality, gross NPL ratio climbed 10bp QoQ to 5.9%.

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 (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, asset quality is set to deteriorate further given current economic woes; we understand the Thai economy is gloomy due to its large exposure to tourism and export sectors along with ongoing social unrest.

Forecast. Unchanged as CIMB Thai’s 3Q20 Results Were Largely Within Expectations.

Retain HOLD and GGM-TP of RM3.30, based on 0.55x FY21 P/B with assumptions of 5.9% ROE, 8.2% COE, and 3.0% LTG. This is beneath both its 5-year average of 0.92x and the sector’s 0.75x; 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 -2SD and lower vs GFC’s level) and decade low foreign shareholding level, CIMB’s risk-reward profile is balanced, given short-term Covid-19 headwind uncertainties.

Source: Hong Leong Investment Bank Research - 22 Oct 2020

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