Highlights

HLBank Research Highlights

Author: HLInvest   |   Latest post: Tue, 14 Jul 2020, 9:56 AM

 

Traders Brief - Profit Taking May Cap Further Rally at 1617-1626 Zones

Author: HLInvest   |  Publish date: Tue, 14 Jul 2020, 9:56 AM


MARKET REVIEW

Global: Asian markets were firmer, spurred by strong gains in Japan’s Nikkei 225 (+2.2%) and China’s SHCOMP (+1.8%) indices amid ongoing optimism on liquidity, policy support coupled with positive analysis from Gilead Sciences experimental remdesivir therapy, overshadowed worries over spiking Covid-19 cases worldwide and Beijing’s sanctions against U.S. officials and entities.

Overnight, the Dow rallied as much as 564 pts to 26639 while Nasdaq surged 207pts to a new record high at 10825 in early trades, boosted by positive news that the US FDA granted “fast track” status to a pair of vaccine candidates produced by Pfizer and BioNTech SE and chipmaker Analog Devices proposed to buy rival Maxim Integrated for US$21bn deal. However, the US markets staged a stunning reversal from intraday highs in the final hour as the Dow plunged 553 pts to finish only 11 pts higher at 26085 whilst Nasdaq tumbled 435 pts to end 227 pts lower to 10391, as rapidly-rising new daily virus cases led California’s governor to order businesses across the state to shutter once again.

Malaysia. Taking cues from positive recovery on Dow last Friday and Brent oil prices coupled with a strong performance by index-linked glove stocks given the surge in daily global Covid-19 infections, KLCI rallied 14.6 pts to a 6M high at 1606.4. Trading volume increased to 9.55bn shares worth RM5.7bn as compared to Friday’s 8.70bn shares valued at RM5.04bn. Nevertheless, market breadth was negative with 425 gainers vs 657 losers amid increasing profit-taking following strong gains in the past two weeks.

TECHNICAL OUTLOOK: KLCI

After hitting a low of 1476 on 29 June, KLCI continued to power ahead to finish 14.6 pts higher at 6M high at 1606 yesterday, recording its 9 gains in the last 11 trading sessions. In our view, the strong neckline resistance breakout above 1591 (9 June high) and bullish RSI/MACD indicators bode well for the benchmark to advance further towards 1617 (30 Dec high) and 1626 (weekly upper BB) before profit taking taking place. Overall, the negative Up/Down ratio (refer 10D market breadth table) on 10 & 13 July as well as steeply overbought stochastic reading could act as a yellow flag, warning that the upward momentum of the current uptrend may be slowing down. On the flipside, breaking the 1572 uptrend line support (from 1208 low) could witness further fierce selling pressure towards 1533 (LT downtrend line from 1896) and 1509 (200D SMA) levels.

MARKET OUTLOOK

In sync with a sluggish performance on Wall St overnight due to Covid-19 pandemic resurgence and the reintroduction of containment measures coupled with rising US-China geopolitical tensions after Washington rejecting Beijing’s claims in the South China Sea, KLCI is expected to face some selling pressures amid overbought daily and weekly slow stochastic readings after rallying 130 pts in the last 11 trading sessions (from 1476 low on 29 June). However, downside risk may be cushioned by active buying interests on benchmark glove stocks amid the virus resurgence. Key supports are near 1572/1561 whilst resistances fall at 1617/1626 zones.

On stock selection, we believe a 40% plunge from YTD high of RM0.77 (21 Feb) to RM0.465 yesterday has made Focusp’s (owns and operates eye care centres and F&B business i.e. café and bakery business under the brand name of “Komugi” and third party sales) valuation attractive again (9.3x FY21E P/E with 4.3% DY). Despite anticipating a weak 2Q20 results due to extended MCO, we expect a better 2H20 following its pivot to e commerce and cost savings from rental waivers and reduction in staff cost coupled with the expanding F&B sales to Family Mart and other food outlets (Sushi King, Secret Recipe) and potential entry of new clients.

Technically, Focusp has successfully staging a LT downtrend line breakaout with high volume yesterday. Given the widening upper Bollinger band, the stock is poised for a further upside to retest RM0.50-0.52-0.55 levels in the near term. Key supports are near RM0.43-0.42-0.40. Cut loss at RM0.39.

Source: Hong Leong Investment Bank Research - 14 Jul 2020

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DRB-Hicom - Proton Remains on Track

Author: HLInvest   |  Publish date: Tue, 14 Jul 2020, 9:52 AM


Post meeting with management, we remain positive on DRB’s outlook. Proton has registered a successful turnaround to RM169.4m in FY12/19 (since FY11) post restructuring exercises and new models introductions, and on track with its long term 10-year business plan. Management expects the overall automotive segment to rebound in 2HFY20 following introduction of SST exemptions and launching of several attractive models. However, Deftech, CTRM and Bank Muamalat are expected to remain subdued in the near term, affected by Covid-19. Property/Asset restructuring exercise is expected to complete by Sep 2020 while its concession assets remains stable. We reiterate our BUY recommendation with lower TP: RM2.52 (from RM2.75) based on 25% discount to SOP: RM3.35, following earnings adjustments.

Proton turnaround. Based on 9 months reporting of FY12/19 annual report, Proton reported a strong successful turnaround to profit of RM169.4m (from loss RM481.2m in 12 months FY03/12). We believe the core profits to be of similar amount as there were no significant EIs in DRB’s account. The improvements was mainly due to:

1) higher Proton sales volume;

2) improved sales mix from higher margin X70;

3) on-going cost cutting measures;

4) improvement in operation efficiencies; and

5) reduction in defects.

Despite the impact of Covid-19 in 1HFY20, Proton is targeting 100k unit sales for FY20 (37.1k units in 1HFY20) and maintain profitability for the year. We do not discount the possibility of Proton exceeding its sales target, given ongoing strong demand for existing models under SST exemption for new passenger car (15 Jun – 31 Dec 2020) and the upcoming highly anticipated X50 model in 4QFY20. Another new sedan model is also expected in 3QFY21. Proton has budgeted RM3bn for capex within 3 years for the production of Next-Gen models, which would be funded internally by Proton’s sales proceeds as well as available bank credit lines. Proton’s projected cash-flow proceeds is also strong enough to even finance the redemptions of RM1.5bn RCCPS (redeemable convertible cumulative preference shares) owned by government and DRB group. To recap on Proton’s initial 10 year business plan:

1) to return to a profitable position as soon as practical (achieved);

2) to regain leading position in Malaysia (reclaimed second behind Perodua); and

3) to become one of the top-three automotive brands in ASEAN (started export to Brunei).

Source: Hong Leong Investment Bank Research - 14 Jul 2020

Labels: DRBHCOM
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REIT - Defensive But Only Selectively

Author: HLInvest   |  Publish date: Tue, 14 Jul 2020, 9:48 AM


Outlook for office space remain lacklustre due to oversupply issue s, barring the offices of KLCCSS and MQREIT due to its niche assets and long-term tenancy with big corporations and MNCs. As for retail REIT, near-term outlook has been impaired by Covid-19 and we expect slow recovery in their earnings due to weak consumer sentiment. Industrial REIT remains defensive amid the crisis and we believe there’s strong growth potential driven by the surge of e commerce activity. We downgrade the sector to NEUTRAL (from Overweight) as Covid-19 crisis has impaired REIT earnings across most assets. Our top pick are Axis REIT (BUY, TP: RM2.47) and MQREIT (BUY; TP: RM0.79).

Office REIT: Oversupply issue remains concerning. The outlook for office space remains lacklustre due to an unabated glut coupled with more incoming supply. Hence, we believe rental reversion in office space will be under pressure and remain soft. Occupancy across office space has been impacted over the past few years in KL City due to the glut and we believe it will be deteriorating further in light of new supply, barring the offices of KLCCSS and MQREIT due to its niche assets and long term tenancy with big corporations and MNCs. We expect these REITs to remain sustainable and not impacted significantly by the MCO/CMCO/RMCO, at least in near term, alongside its healthy cash flow foundation.

Retail REIT: Expect slow recovery due to weak consumer sentiment. 1H20 has been hurtful for mall based REITs due to the rental assistance given to retailers. Although malls are already operating close to 100% in 2H20 and all REIT managers assured that rental assistance will not be extended into 2H20, we still expect weak earnings to persist in 2H20 as Covid-19 and MCO/CMCO/RMCO has placed a dent on the economy which has impaired consumer sentiment and the overall retail industry. As for rental reversion, we believe that expiring lease will register flattish or negative reversion amid the crisis, in order to sustain retailers’ occupancy.

Industrial REIT: Remain defensive against MCO/CMCO/RMCO. We see industrial REITs staying relatively resilient amid Covid-19 and MCO/CMCO/RMCO. We also see there is a demand in industrial properties driven by the surge in e-commerce activity (projected to grow at 11% CAGR according to A.T. Kearney), which has prompted more establishment of distribution centre by retailers and e -commerce players. Within this segment, we like Axis REIT as a leading player in industrial segment with its strategy of pursuing quality acquisitions with focus on Grade A logistics and manufacturing facilities.

Widened yield spread. The yield spread between M-REITs and the 10-year MGS (MAG10YR) is currently at 4.19%, which is above +2SD with its 5-year mean of 2.18%. We believe that the yield spread has widened drastically in recent times given the OPR cut and heightened risk aversion. Although historically the widened yield spread bodes well with REIT’s share price, this may not be the case for this time as concerns from Covid-19 and MCO/CMCO/RMCO has impaired retail industry, which constitute a large portion in Malaysian REITs. We expect REITs’ share price to remain subdued amid the crisis, with exception of the more defensive ones (i.e. Axis REIT and MQREIT), which may gain some interest among investors during this crisis. As for our MAG10YR yield assumption, we leave it unchanged at 3.25% vs the current level of 2.64%, (FY20 average: 3.02%).

Downgrade to NEUTRAL (from Overweight) as Covid-19 crisis has impaired REIT earnings across most assets. That said, at the current level, the average yield for our stocks in coverage seem decent at 4.7%. Our top pick are Axis REIT (BUY, TP: RM2.47) and MQREIT (BUY; TP: RM0.79) for their resilient earnings amid Covid 19 and MCO/CMCO/RMCO, and their high occupant tenancy in portfolio.

Source: Hong Leong Investment Bank Research - 14 Jul 2020

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Automotive - SST Exemption Booster

Author: HLInvest   |  Publish date: Tue, 14 Jul 2020, 9:46 AM


Despite May-YTD TIV fell 32.9% YoY (affected by Covid-19), we expect 2H20 to rebound strongly following the implementation of SST exemptions from 15 Jun to 31 Dec 2020. Consumers are expected to take advantage of the reduced new car prices. OEMs with exciting new models include Proton (DRB), Perodua (MBMR & UMW), Honda (DRB), Nissan (TCM) and Mitsubishi (DRB). We forecast 2020 TIV at 492k units. Maintain OVERWEIGHT on the sector with BUY recommendations on 1) DRB (TP: RM2.52); 2) MBMR (TP: RM5.00); 3) Pecca (TP: RM1.28); and 4) Sime (TP: RM2.55).

Jan-May TIV… dropped 32.9% YoY to 129.5k units, affected by Covid-19 on the implementation of MCO (Movement Control Order), slowdown of economy and deteriorated consumer sentiment. National OEMs continued to lead the market with Perodua capturing 40.9% market share and Proton 21.2%. Within the foreign OEMs, both Toyota and Honda lead with 10.7% market share respectively, followed by Nissan 2.6% and Mazda 2.5%. Honda was also partly affected by regulatory issues during the period.

2H20 TIV… is expected to rebound strongly following the introduction of SST exemptions on new passenger cars from 15 Jun to 31 Dec 2020. Consumers are expected to take advantage of the lower new car prices, which have reduced by 2-7% (paultan.org). OEMs with high inventory level and unaffected supply disruption will likely to outperform. In addition, attractive new model launches by OEMs in 2020 will continue to grab higher market share. OEMs with exciting new models include Proton (DRB) – X70 CKD & X50 CKD, Perodua (UMW & MBM) – Bezza & D55L SUV, Honda (DRB) – City, CR-V, Accord & Civic, Nissan (TCM) – Almera, and Mitsubishi (DRB) – Xpander. We have forecasted TIV for 2020 at 492k units.

RM depreciation. We expect RM/USD to average 4.23-4.28 in 2020 as compared to 4.14 in 2019, while RM/JPY to depreciate to average 3,900-4,000 level in 2020 (Bloomberg forecast) from 3,800 in 2019. Weakened RM will increase the effective input costs for imported CBU cars, CKD packs and raw materials, and subsequently affect OEMs’ margins. Major OEMs that have major exposure towards USD include Toyota (UMW) and Nissan (TCM), while JPY include Honda (DRB) and Mazda (BAuto). OEMs with new launches are in good position to price in the higher cost, in order to protect their margins.

Maintain OVERWEIGHT on a recovery play as we expect SST exemption to aid TIV revival in 2H20. Our BUY recommendations include: 1) DRB (TP: RM2.52); 2) MBMR (TP: RM5.00); 3) Pecca (TP: RM1.28); and 4) Sime (TP: RM2.55)

Source: Hong Leong Investment Bank Research - 14 Jul 2020

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Traders Brief- All Eyes on the Parliament Resitting Today

Author: HLInvest   |  Publish date: Mon, 13 Jul 2020, 10:36 AM


MARKET REVIEW

Global: In tandem with a sluggish Wall St overnight, Asian stock markets ended lower last Friday amid worries over spiking Covid-19 infections worldwide could derail a fragile economic recovery. Sentiment was also dampened by heightened US-China geopolitical tensions after China said that it would impose reciprocal sanctions against US officials after the US imposed sanctions on individuals and institutions for human rights abuses of Uighurs, a mostly Muslim ethnic minority living in China’s Xinjiang province.

Last Friday, Wall St ended higher as positive analysis from Gilead Sciences experimental remdesivir therapy to reduce the risk of mortality in Covid-19 patients helped to soothe investor worries over a record rise in coronavirus cases in the US. The Dow rallied 369 pts to 26075 (+1% WoW) whislt the Nasdaq surged 70 pts to 10617 (+4% WoW), its 27th record of 2020.

Malaysia. In wake of a fresh liquidity-driven buying after BNM cut OPR by 0.25% to 1.75% on 7 July (below the GFC low of 2.0%) and strong buying interests on selected index-linked glove, plantation and O&G stocks, KLCI jumped 8.6 pts to finish at 1591.8 (+39.4 pts WoW), surpassing the previous high of 1590.8 on 9 June. Trading volume decreased to 8.7bn shares worth RM5.04bn as compared to Thursday’s 10.24bn shares valued at RM5.18bn. Despite the headlines gain, market breadth was negative with 425 gainers vs 657 losers as investors remained cautious ahead of the parliament resitting on 13 July.

TECHNICAL OUTLOOK: KLCI

After hitting a low of 1553 on 6 July, KLCI continued to gain further strength to end at weekly high of 1592 last Friday, recording its 2nd consecutive gains (+39.4 pts WoW). In our view, the strong closure above 1562 uptrend line support from 1208 and bullish technical indicators bode well for the benchmark to advance towards 1600 psychological barrier and 1617 (30 Dec high) before a mild pullback taking place. Fomidable resistances are situated at 1647 (30M SMA) and 1680 (200W SMA). On the flipside, breaking the 1562 support would witness further selling pressure towards 1533 (LT downtrend line from 1896) and 1509 (200D SMA) levels.

 

Source: Hong Leong Investment Bank Research - 13 Jul 2020

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Matrix Concepts Holdings - Strong Bookings to Support FY21 Sales

Author: HLInvest   |  Publish date: Mon, 13 Jul 2020, 10:34 AM


To recap, Matrix reported 4QFY20 core PATMI of RM52.9m (-19% QoQ, -19.7% YoY), bringing FY20 core PATMI to RM231.5m (+6.4% YoY). RM1,041.7m worth of GDV will be launched in FY21, with 87% stemming from its key township at BSS while the rest from BSI. Menara Syariah in Indonesia is expected to face an approximate 6-month delay on its initial targeted completion date in 2021. FY21 sales is set at RM1.1bn which we believe will be achievable (despite market conditions) as we note that over RM700m worth of property bookings was made during the MCO period. Maintain forecasts and BUY rating with an unchanged TP of RM2.06 based on unchanged 30% discount to RNAV of RM2.94.

We Attended a Virtual Briefing With Matrix’s Management. Below Are the Key Takeaways.

4QFY20 recap. To recap, Matrix reported 4QFY20 core PATMI of RM52.9m (-19% QoQ, -19.7% YoY), bringing FY20 core PATMI to RM231.5m (+6.4% YoY). We view this positively as the quarterly earnings did relatively better in comparison to its property peers (which registered much wider decreases). FY20 sales came in at RM1bn, short of the initial RM1.3bn target. Management has clarified that the effective tax rate was higher in 4QFY20 largely due to a conservative approach towards deferred tax asset realisation.

Pipeline launches. We understand that RM1,041.7m worth of GDV will be launched in FY21, with 87% stemming from its key township at Bandar Sri Sendayan while the rest are from Bandar Sri Impian. We expect the high-rise projects in Klang Valley (in Puchong and Damansara Perdana) to only be launched earliest in FY22, depending on market conditions.

Menara Syariah, Indonesia. Prior to the halt in operations from Covid-19, the Menara Syariah Twin Towers was ahead of schedule with piling works done. However, an approximate 6-month delay in completion (subject to health advisory by the Indonesian authorities) is now expected as work on-site has yet to resume. To recap, the initial completion date was targeted for 2021. Management has clarified that the delay is not expected to cause losses for Matrix. Sales and marketing activities will be carried out once construction resumes.

Outlook. FY21 sales is set at RM1.1bn which we believe will be achievable (despite market conditions) as we note that over RM700m worth of property bookings was made during the MCO period. Earnings visibility will continue to be supported by new sales and unbilled sales of 0.8x cover (RM1bn). To compensate for the slowdown of construction progress during MCO, construction works are being ramped up to get it back on track (targeted to catch up within 6 months). In terms of dividends, we conservatively expect Matrix to be able to pay at least 10.5 sen per share for FY21 which translates to a yield of 5.7%. Furthermore, Matrix’s healthy balance sheet of 0.07x net gearing as of FY20 will provide the buffer to sustain through this challenging environment.

Forecast. Unchanged. Maintain BUY with an unchanged TP of RM2.06 based on a 30% discount to RNAV of RM2.94. We continue to like Matrix as it is well-positioned to ride on affordable housing theme within its successful townships with cheap land cost and sustained property sales. This is supported by an attractive dividend yield of 5.7% for FY21 and 6.8% for FY22, being one of the highest in the sector.

 

 

Source: Hong Leong Investment Bank Research - 13 Jul 2020

Labels: MATRIX
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