Highlights

HLBank Research Highlights

Author: HLInvest   |   Latest post: Wed, 22 Jan 2020, 4:25 PM

 

Traders Brief - Cautious Trade With Key Support Near 1571

Author: HLInvest   |  Publish date: Fri, 24 Jan 2020, 3:48 PM


MARKET REVIEW

Asian markets ended lower again amid hagging concerns of a coronavirus outbreak in China sapped confidence. According to WHO, it was “a bit too early” to declare a new coronavirus a global health emergency as China put millions of people on lockdown amid an outbreak that has killed 18 people in the country and infected around 650 globally. The outbreak, from its origin in Wuhan has reached the US, Thailand, South Korea, Japan, Taiwan, Vietnam and Singapore.

Tracking sluggish regional markets and ahead of the long CNY holidays, KLCI lost 3.5 pts at 1574, recording its 4th straight decline. Trading volume increased to 3.07bn shares worth RM2.57bn as compared to Wednesday’s 2.66bn shares worth RM1.93bn. Market breadth was bearish with 294 gainers as compared to 536 losers.

The Dow slid as much as 219 pts intrday, weighed down by P&G and Travelers earnings failed to meet consensus estimates and investors continue to monitor closely the coronavirus outbreak that has rocked Chinese markets and threatens to hurt an already -fragile global economy. However, the losses were reduced to 26 pts at 29160 as investors took heart from a WHO’s decision to refrain from declaring China’s coronavirus outbreak a global emergency. Meanwhile, Intel shares rallied in the extended session Thursday after the chip maker’s quarterly results and outlook topped Wall Street estimates.

TECHNICAL OUTLOOK: KLCI

Following a mild rebound from a low of 1551 (24 Dec) to a high of 1617 (30 Dec), KLCI had retreated 43 pts to close at 1574 yesterday, below key multiple SMAs. Unless a decisive fall below 1571 neckline support, KLCI’s near term upward momentum remains intact. Key resistances are 1588 (50D SMA), 1600 and 1612 (200D SMA) levels. Conversely, failure to hold at 1571 may aggravate more selling spree towards 1566 (76.4% FR)/1550 levels. For now, we still expect the index to range trade between 1571 and 1612.

Following the 4th straight KLCI declines and further profit taking retracement on Dow after rallying 22% in 2019, the index is envisaged to lock in consolidation mode ahead of the long CNY holidays (half day trading on 24 Jan and reopens on 28 Jan). Overall, lingering worries over the coronavirus outbreak may continue to cloud market sentiment in the near term. Hence, gloves and healthcare-related companies’ share prices could stay firm amid buying support whilst airlines, tourism and retailing stocks could see persistent selling pressure. Meanwhile, technology stocks would remain in focus after a strong Intel results.

TECHNICAL OUTLOOK: DOW JONES

From an all-time high of 29374 on 17 Jan, the Dow had retraced 214 pts to 29160. Given the weakness in the MACD/RSI/stochastic readings, the Dow is likely to experience choppy sessions ahead. Nevertheless, uptrend remains intact for now unless key supports situated at 28858 (20D SMA) and 28645 (30D SMA) zones are violated. Formidable hurdles are 29500- 30000 levels.

We expect further volatility on Wall Street in the short term with traders seemingly reluctant to make significant moves due to fears of the coronavirus outbreak could grow into a global pandemic. Nevertheless, China’s strong efforts in containing the outbreak and the WHO’s view that it was “a bit too early” to declare a new coronavirus a global health emergency are likely to cushion further selldown. Meanwhile, sentiment is also likely to be supported by the de escalation of US-China trade disputes and the expectation of low Fed’s interest outlook ahead of the 28-29 Jan meeting (US time), as well as ongoing positive 4Q19 reporting season (as 75% of the S&P 500 companies reported beat EPS estimates). Key resistances are 29500- 30000 whilst supports are near 28600-28800 levels.

 

Source: Hong Leong Investment Bank Research - 24 Jan 2020

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Pavilion REIT - A Stable Quarter

Author: HLInvest   |  Publish date: Fri, 24 Jan 2020, 3:45 PM


Pavilion REIT’s 4Q19 core net profit of RM59.7m (+0.5% QoQ, -10.4% YoY) brought the FY19 sum to RM247.6m (-2.9% YoY) was within both ours and consensus expectations. Declared dividend of 4.10 sen per unit. A little blip on ther core PATAMI was due to lower occupancy and rental rate in Da Men Mall but was offset by higher rental in Pavilion KL and Pavilion Elite. FY20 will see 20% of NLA expiry and we are sanguine that Pavilion KL will achieve healthy occupancy rate and positive rental reversion due to its strategic location. Furthermore, with conjunction of Visit Malaysia 2020, we believe Pavilion KL will be benefitted due to their prime location. We maintain our forecast and HOLD call with unchanged TP of RM1.81.

Within expectations. 4Q19 core net profit of RM59.7m (+0.5% QoQ, -10.4% YoY) brought the FY19 sum to RM247.6m (-2.9% YoY). The results were within ours but below consensus expectations, accounting for 97% and 94%, respectively.

Dividend. Declared dividend of 4.10 sen, going on ex on the 7th February 2020. This brings FY19 dividend to 8.50 sen (FY18: 8.78 sen) per unit, in line with our expectations.

QoQ. Revenue was slightly up by 1.1% to RM146.0m, leading to core profit of RM59.7m (+0.5%); this was mainly due to higher other revenue (+15%). Furthermore, net property income (NPI) ticked up by 0.2%, due to flattish other operating expenses (+2.7%) incurred during the quarter.

YoY. Gross revenue slightly nudged down by 0.7% against the corresponding 4Q18, mainly due to lower occupancy and rental rate in Da Men Mall. Total operating expenses was higher by 18.7% owing to (i) costs incurred for tenancy lots enhancement at Pavilion KL and Da Men Mall, (ii) marketing and advertising expenses, and (iii) maintenance costs (+75.6%). These have resulted in low er NPI by 9.6% which in turn brought down core PATAMI by 10.4%.

YTD. FY19 revenue showed improvement of 5.5% that was significantly driven by the (i) income from Elite Pavilion Mall (acquired back in April 2018), (ii) higher revenue rent, and (iii) electricity income from Pavilion KL Mall. Nevertheless the improvement was brought down by lower rental income received from Da Men Mall. Total property operating expenses incurred was higher by 16.6% due to the same reasons as above. In turn, bottom-line has decreased to RM247.6m (-2.9%).

Outlook. Despite the challenging environment in general retail mall, we reckon Pavilion KL will continue to enjoy strong footfalls due to prime positioning with strong branding and well managed tenant mix. FY20 will see 20% of NLA expiry and we are sanguine that Pavilion KL will achieve healthy occupancy rate and positive rental reversion due to its strategic location. Furthermore, with conjunction of Visit Malaysia 2020, we believe Pavilion KL will be benefitted due to their prime location as one-stop centre for Malaysian lifestyle providing F&B and entertainment. Nevertheless, we remain cautious on the PREIT’s property expenses that have been rising in the last few quarters and downside risk of negative rental reversion from Da Men Mall.

Forecast. Maintain as the Results Were in Line.

Maintain HOLD, TP: RM1.81. Maintain our HOLD call with unchanged TP of RM1.81 based on targeted yield of 5.3% which is derived from 2 years historical average yield spread of Pavilion REIT and 10 year MGS.

 

Source: Hong Leong Investment Bank Research - 24 Jan 2020

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KLCC Stapled Securities - Nudged Down by Minority Interest

Author: HLInvest   |  Publish date: Fri, 24 Jan 2020, 3:44 PM


KLCCSS’ 4Q19 core PATAMI of RM125.9m (-30.6% QoQ, -24.3% YoY) brought the FY19 sum to RM671.7m (-5.1% YoY); the results were below both ours and consensus expectations due to higher-than-expected minority interests. Declared dividend of 8.80 sen per share. Overall, all segments showed a decent improvement, however, core PATAMI was affected due to higher-than-expected minority interest. We cut both earnings FY20-21 by 7% to reflect higher minority interest. We maintain our BUY call with a lower TP of RM8.42 (from RM8.53) based on targeted yield of 4.4%.

Below expectations. 4Q19 core PATAMI of RM125.9m (-30.6% QoQ, -24.3% YoY) brought the FY19 sum to RM671.7m (-5.1% YoY). The results were below both ours and consensus expectations, accounting for 91% and 92%, respectively. The deviation was due to higher-than-expected minority interests.

Dividend. Declared 4th interim dividend of 11.60 sen per share (KLCC REIT: 6.25 sen, KLCC Property: 5.35 sen) going ex on the 7th February 2020. This brought FY19 DPS to 38.0 sen (FY18: 37.0 sen).

QoQ. Top-line growth was up by 3.2% on the backed of improved performance of hotel operation (+11.3%) from higher occupancy. Whereas for retail, it also showed an increment of 5.4% where most seasonal events (i.e Christmas, pre New Year) occurred in 4Q19. However, core PATAMI was down by 15.9%

YoY. Revenue remained stable with a slight decrease of 0.4% due marginal decrease in retail segment by 0.3% mainly caused by lower advertising income and decrease in management service segment by 5.9% on the back of lower revenue from one-off projects. However, it was slightly mitigated by contribution from hotel segment by 7.4% due to higher occupancy in Mandarin Oriental, which in turn brought the core PAT to remain flattish (+1.4%). Nonetheless, due to higher-than-expected minority interest, core PATAMI fell by 24.3%.

YTD. Revenue increased marginally by 1.2% mainly contributed from retail segment (+2.3%), backed by higher rental rates and income from internal digital advertising, and improved performance from hotel operation (+3%) due to positive full year impact from the renovated rooms. Operating expenses ticked up marginally by 2.0% arising from higher depreciation in hotel and management service segment. Despite higher minority interest (+36.4%), core PATAMI remained stable at RM671.7m (-5.1%) on the back of improved performance.

Outlook. Management anticipates stable performance mainly on the back of its long term office tenancy agreements. Furthermore, we expect better contribution for FY20 due to full opening of anchor-to-specialty space reconfiguration at Suria KLCC by 1H20 and Visit Malaysia 2020, which expected to further boost its retail and hotel segments. Going forward, we also anticipate positive rental reversion from their office segment with the next rental revision happening as early as Jan 2020.

Forecast. We cut both earnings FY20-21 by 7% to reflect higher minority interest.

Maintain BUY, TP: RM8.42. We maintain our BUY call with a lower TP of RM8.42 (from RM8.53) based on FY20 forward DPS on targeted yield of 4.4% which is derived from 2 years historical average yield spread of KLCCSS and 10 year MGS. We like KLCCCS given its resilient office segment with long term triple-net tenancy, prime location retail and Shariah compliant scarcity amongst REITs (only 4/18).

 

Source: Hong Leong Investment Bank Research - 24 Jan 2020

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CIMB Group - Strong showing by Thai operations

Author: HLInvest   |  Publish date: Wed, 22 Jan 2020, 4:25 PM


CIMB Thai’s 4Q19 core profit jumped 84% QoQ, meeting estimates. The strong results were owing to lower allowance for bad loans and positive Jaws. Despite loans growth tapering, it was still at a robust level of +6.4% YoY. Besides, asset quality was stable with its NPL ratio staying flat sequentially at 4.6%. All in all, our forecasts were unchanged. We have turn positive on CIMB with a view that management will introduce a cash portion to its dividend payout (should help to defend ROE better) and it provides one of the best values (pricing-wise) among larger banks. Retain BUY and GGM-TP of RM5.70, based on 0.92x 2021 P/B.

Within expectations. Excluding NPL sale gains, CIMB Thai (95%-owned) registered 4Q19 core earnings of THB548m (+84% QoQ, vs -THB757m in 4Q18). This brought FY19 sum to THB1,103m (vs -THB220m in FY18), which were largely within our and consensus estimates, making up 101-102% of full-year forecasts; its contribution to overall group’s PBT is minimal (<10%).

QoQ. Core profit jumped 84%, thanks mainly to lower allowance for bad loans (-52%). Otherwise, pre-provision profit was up only 7%; this came from decent top-line growth (+3%) vs a slower opex increase (+2%), leading to positive Jaws. However, we note net interest margin (NIM) contracted during the quarter (-8bp).

YoY. Again, the fall in impaired loan provision (-82%) helped to lift up core earnings to THB548m (vs -THB757m in 4Q18). Also, the robust top-line (+11%) contributed to the overall better performance, given higher fee income from insurance and debt capital markets (+70%); this helped to mask the adverse effect of NIM slippage (-25bp).

YTD. Similar to above, core bottom-line has improved to THB1,103m (vs -THB220m in FY18), owing largely to smaller bad loan allowances (-49%). However, we noticed that pre-provision profit was dragged down 21% due to the presence of negative Jaws from weak total income (+3%) and higher opex (+16%).

Other key trends. Net loans growth decelerated to 6.4% YoY (3Q19: +10%) but was buoyed by the 7.5% YoY rise in deposits (3Q19: +6.2%). With these, sequential net loan-to-deposit ratio fell 1ppt QoQ to 116%. As for asset quality, gross NPL ratio was flat sequentially at 4.6%.

Outlook. While deposit competition in Thailand is currently stable, CIMB Thai may still have to contend with NIM compression as funding is needed to ramp-up its business activities. That said, this will be compensated by lower bad loan provision, as a result of its remedial actions to improve assets quality. Cost-wise, personnel expenses will continue to stay at elevated levels, owing to its Fast Forward expansion strategy.

Forecast. Unchanged as CIMB Thai’s 4Q19 results were within expectations.

Retain BUY and GGM-TP of RM5.70, based on 0.92x 2021 P/B with assumptions of 8.5% ROE, 9.0% COE, and 3.0% LTG. This is still below its 5-year mean and sector’s 1.00x. The discounts are fair given its lower ROE, which is 1ppt beneath its 5-year and industry average. We have turn positive on CIMB with a view that management will introduce a cash portion to its dividend payout (should help to defend ROE better) and it provides one of the best values (pricing-wise) among larger banks.

Source: Hong Leong Investment Bank Research - 22 Jan 2020

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Axis REIT - Leading Industrial REIT Player

Author: HLInvest   |  Publish date: Wed, 22 Jan 2020, 4:24 PM


FY19’s improved showing was mainly contributed by new revenue contribution from new assets. Occupancy rate remained flat at 92%, with 36/48 properties fully occupied. Gearing has fallen to 29% (-11ppt QoQ) due to recent placement exercise. Overall, we expect a better FY20 with full revenue contribution kicking in coupled with new asset injections. We retain our forecast and keep our BUY call with unchanged TP of RM2.03. We continue to like Axis REIT for its high occupancy diversified portfolio and being one of the few Shariah compliant REITs on Bursa.

We Left Axis REIT’s FY19 Results Briefing Yesterday With Positive Bias.

FY19 results recap. 4Q19 results came in within expectations with core net profit of RM29.4m (+4.9% QoQ, -18.5% YoY) which brought FY19 sum to RM115.2m (+1.5% YoY). The improvement was mainly contributed by newly acquired assets.

Portfolio. Portfolio size increased by 3 to a total of 48 properties (152 tenants) with 36 properties enjoying 100% occupancy. Average occupancy rate stayed flat at 92% (3Q19: 92%, FY18: 94%). Out of 2.1m sqft of space expiring in 2019, Axis REIT has successfully secured 96% leases with positive rental reversion of 2%.

Capital management. Gearing decreased to 29% (3Q19: 40.0%, FY18: 37.3%) due to recent placement exercise; which the funds raised was to repay its bank financing and provide Axis REIT with sufficient headroom to make future cash acquisitions of new property, in line with its capital management and growth strategy. Notably, Axis REIT has successfully concluded its 7th placement exercise with the listing of 198m new units on 15th Nov 2019 and 12th Dec 2019.

AEIs. A total of RM9m was spent in FY19 on asset enhancement works: (i) Wisma Academy Parcel with enhancement of washrooms, (ii) Axis Business Park with the installation of new above ground hydrant systems, (iii) Menara Axis with the building of façade improvement work and (iv) Seberang Prai Logistics Warehouse 3 with the enhancement of sewer, electrical and mechanical system.

Pipeline assets. There are 2 more pipeline assets from FY19 that have not been acquired yet (targeting to do so by 1H20): (i) 1 manufacturing facility in Shah Alam, Selangor (c.RM56m) and (ii) 1 manufacturing facility in Kota Kinabalu, Sabah (c. RM60m). Besides, Axis REIT is evaluating other assets to acquire, with an estimated total value of RM135m.

Outlook. We expect a better FY20 with full revenue contribution from acquired properties in FY19 as well as injection of new assets. Due to the surge in e-commerce activity (projected to grow at 11% CAGR according to A.T. Kearney), this has prompted more establishment of distribution centre by retailers and e-commerce players and enhancement of infrastructure development. Management is looking at pursuing quality acquisitions with focus on Grade A logistics and manufacturing facilities.

Forecast. Maintain forecast as the briefing yielded no surprises.

Maintain BUY, TP: RM2.03. We maintain BUY with unchanged TP of RM2.03. To note, our valuation is based on FY20f 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 also one of the few Shariah compliant REITs.

Source: Hong Leong Investment Bank Research - 22 Jan 2020

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Sasbadi - Challenging Outlook Remains

Author: HLInvest   |  Publish date: Wed, 22 Jan 2020, 4:23 PM


Sasbadi reported 1QFY20 core earnings of RM4.7m (>100% QoQ, -12% YoY) accounting for 73% and 70% of HLIB and consensus full year estimates. After accounting for seasonality, we deem this below expectations. We foresee a challenging outlook for Sasbadi to persist due to the weak retail sales market along with the prolonged ban for Standard 1 to 3 workbooks. In addition, we feel that the contribution from non-academic segment is still slow and unable to mitigate the falling contribution from the print segment. We are ceasing coverage of Sasbadi given the lack of near term upside catalysts and reallocation of our internal resources. Our previous forecast, SELL recommendation and TP of RM0.155 should no longer serve as a reference going forward.

Below expectations. Sasbadi’s 1QFY20 revenue came in at RM27.7m (-9% YoY, +83% QoQ), trickling to core earnings of RM4.7m (>100% QoQ, -12% YoY). Traditionally, 1Q (Sept-Nov) tends to be the strongest quarter for Sasbadi as textbook deliveries takes place before schools commence a new term in Jan. Still, with 1Q at 70% of our full year estimates (consensus: 73%), we deem this to be below expectations. Subsequent quarters (i.e. 2Q-4Q) will be seasonally much weaker and run the risk of potential inventory write downs which may result to quarterly losses. Putting things into perspective, 1Q accounted for 84% of full year earnings in FY19. No dividend was declared.

QoQ. Revenue increased by 83% to RM27.7m given a seasonally strong 1Q as explained earlier. Core earnings increased to RM4.7m vs. loss of -RM3m due to the better academic book sales and supply of textbook to schools. This was also aided by Sasbadi’s continuous efforts in optimising operational efficiency.

YoY. 1QFY20 revenue fell -9% on the back of lower contributions from all segments namely digital (-30.3%), ALP and STEM education (-17.9%) and print segment (- 7.7%). Despite higher academic book sales, print segment was weighed by lower textbook contracts which were significantly lower against last year. In turn, core earnings dropped -12% to RM4.7m due to the reasons mentioned above, but partially offset by lower operating expenses by -7%.

Outlook. We foresee the challenging outlook for Sasbadi to persist due to the weak retail sales market along with the prolonged ban for Standard 1 to 3 students workbook enforced within school compounds by the MoE. In addition, Sasbadi’s textbook contract secured is significantly lower than the previous years. We also feel that the contribution from non-academic is still slow and unable to mitigate the falling contribution from the print segment. Due to these factors, we believe it will remain challenging for Sasbadi going forward.

Cease coverage. We are ceasing coverage on Sasbadi due to a lack of near term upside catalysts and reallocation of our internal resources. Our previous forecast, SELL recommendation and TP of RM0.155 (based on 10x PE multiple tagged to CY20 EPS) should no longer serve as a reference going forward.

Source: Hong Leong Investment Bank Research - 22 Jan 2020

Labels: SASBADI
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