Highlights

HLBank Research Highlights

Author: HLInvest   |   Latest post: Fri, 15 Oct 2021, 9:43 AM

 

Matrix Concepts Holdings - Lockdown to Weigh Down Earnings in 2QFY22

Author: HLInvest   |  Publish date: Fri, 15 Oct 2021, 9:43 AM


The longer restrictions during Jul-Sept had affected Matrix’s construction activities and expected to weigh down the earnings in 2QFY22. However, booking of properties has been strong (RM700m achieved to date) and its conversion to sales started to pick up towards end-Aug as more government agencies began to operate at full capacity. Construction activities also started to resume since late Aug at >100% capacity. Hence, we believe any shortfall experienced during 2QFY22 will be compensated later through higher productivity. Maintain our forecast and BUY recommendation with an unchanged TP of RM2.20 based on 35% discount to RNAV of RM3.39.

We Hosted a Meeting With Matrix Recently With the Following Key Takeaways:

2QFY22 updates and expectations. Matrix guided that 2QFY22 will likely be its worst quarter due to longer days of restrictions from lockdown implemented by government. Nonetheless, we gathered that there could be some potential reprieve to earnings as its construction activities has been picking up (at more than 100% capacity) since late August. Earnings execution should improve in 3Q-4QFY22 in tandem with looser restrictions. To recap, after MCO1.0 was lifted last year, Matrix operated its construction works at 120% capacity and was able to catch up on its schedule within 6 months.

Sales and booking. Booking remained strong with RM700m achieved since June. Conversion from booking to sales has started to pick up towards end-Aug as more government agencies began to operate. Management shared that current conversion rate is at >50%. We understand that this could be slightly higher compared to pre pandemic levels if not for stringent bank approval and lockdowns that hindered the SPA process. Overall, management is still confident of achieving RM1.2bn sales target for FY22, having already achieved confirmed sales of RM300.9m in 1QFY22 and RM700m booking pipeline.

Launches. We understand that some of the targeted launches of RM1.6bn GDV might be pushed back to FY23 (RM375m worth of GDV from Cheras project potentially be postponed). A new phase of Bayu Sutera (average selling price of RM540k per unit) has been launched in Aug and received an encouraging take up rate of c.98% to date. Recently, management also did a soft launch on the new phase of Tiara Sendayan and is confident with the take up rate since it has been the best seller for Matrix.

Menara Syariah, Indonesia. The progress construction of Menara Syariah project (RM1bn GDV) is currently at 4th floor (out of 27th floor). Management is targeting to complete construction by FY23 and should contribute positively at JV level. Any launches and sales activities will be carried out once the project near completion.

Outlook. We believe Matrix sales momentum is sustainable given the appealing product mix that they have in pipeline. Hence, we believe any shortfall experience during these 2QFY22 will be compensated later through higher productivity.

Forecast. Maintain.

Maintain BUY with an unchanged TP of RM2.20 based on 35% discount to RNAV of RM3.39. 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 5.4-6.4% for FY22- 24, being one of the highest in the sector.

 

Source: Hong Leong Investment Bank Research - 15 Oct 2021

Labels: MATRIX
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Traders Brief - Facing Stiff Resistances at 1605-1623 Levels

Author: HLInvest   |  Publish date: Fri, 15 Oct 2021, 9:39 AM


MARKET REVIEW

Global. Tracking a rebound from the sharp losses in Wall St, Asian markets ended mostly higher as investors were optimistic of the run-up to the US 3Q21 earnings season and viewed an imminent end to the ultra-loose Fed monetary policy as a vote of confidence in the economy. The Dow surged 535pts or 1.6% to 34912 on a semiconductor-led surge in tech (following upbeat quarterly earnings and guidance from TSMC) and a slew of blowout quarterly 3Q21 earnings despite rising inflation and supply chain bottlenecks as sales growth was robust. Meanwhile, the lower-than-anticipated number of weekly jobless claims and Sep’s PPI also added to the positive sentiment.

Malaysia. After rallying 78 pts in seven days amid recent optimism from economic revival due to travel resumption and reopening of borders, KLCI finally succumbed to profit taking yesterday (on steeply overbought stochastic indicator) to end -7.9 pts at 1592.5. Market breadth was negative as G/L ratio fell to 0.85 after hovering above 1 in the last six days. Trade flows wise, foreigners were the major net buyers for a 7th consecutive session (+RM80m; 5D: +RM744m) whilst retailers (-RM33m; 5D: +RM7m) joined local institutions as net sellers (-RM47m; 5D: -RM751m).

TECHNICAL OUTLOOK: KLCI

In the wake of the grossly overbought stochastic readings, following a steep 87-pt rally from a low of 1515 (5 Oct) to a high of 1602 yesterday, strong profit-taking weighed on the index to end -7.9 pts at 1592.5. As long as the index can maintain its posture above 1574 (200D MA) levels, we remain optimistic that the benchmark could surpass 1605 to march higher towards 1623 zones after a mild consolidation to neutralize the overbought levels. Failure to hold at 200D MA would induce further selling pressure towards 1558-1576 territory.

MARKET OUTLOOK

In the wake of resumption in foreign inflows (~70% correlation between KLCI and foreign shareholding) and economic reopening gaining traction with interstate and overseas travels allowed for the fully vaccinated effective 11 Oct, as well as riding on elevated commodity prices, KLCI is expected to progress further as market risk appetite returns. However, stiff barrier remains at 1605 (1 Sep high), while 1623 (26 Apr high) should prove to be a tougher upside hurdle amid lingering concerns that unpopular taxes could be mooted in Budget 2022 to boost revenue and overbought stochastic reading.

 

Source: Hong Leong Investment Bank Research - 15 Oct 2021

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Technical Tracker - KRONO: Riding on the digitalized era

Author: HLInvest   |  Publish date: Fri, 15 Oct 2021, 9:38 AM


Listed in Dec 2013, Kronologi Asia Berhad (KRONO) provides on-site and off-site enterprise data management (EDM) and data storage solutions to Asia Pacific businesses. It offers customers backup, storage, and recovery services for digital data to ensure business continuity for its clients. Currently, KRONO derives its profit through exporting to countries such as Singapore (36.6% of FY20 revenue), Philippines (35.4% of FY20 revenue), China (6.2% of FY20 revenue), etc. The demand for data backup is expected to stay buoyant driven by the inevitable surge in the use of the internet usage due to the Covid-19 pandemic. On top of that, the adoption of advanced technologies such as IoT and Machines learning had boded well to the EDM markets with an expectation of 12.1% CAGR growth rate in the Asia Pacific market. As a result, we view KRONO's recent full acquisition of its China associate company positively as it will strengthen its vast untapped market share in China.

After sliding from a high of RM0.945 (22 Feb) to a low of RM0.58 (21 May) before closing at RM0.635 yesterday, KRONO is currently trading at an undemanding 1.22x trailing P/B (32% discount against its 5-years average of 1.8x). Going forward, the management expects KRONO’s prospect to remain promising as customers find increasing value in As-A-Service and Data Management hybrid solutions, with penetration in new markets.

To recap, KRONO had implemented multiple tranches of private placements ranging from RM0.63-0.66 since May 2021. Hence, downside risk is likely to be well cushioned. Technically, KRONO is poised for a LT downtrend line breakout soon with indicators showing uptick bias. A successful breakout above RM0.6 5 (downtrend resistance) would signal a new uptrend leg had begun and may spur the prices towards its RM0.68-0.70-75 levels. Cut lost at RM 0.59.

 

Source: Hong Leong Investment Bank Research - 15 Oct 2021

Labels: KRONO
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Petronas Chemicals Group - On-track to a Record High for FY21

Author: HLInvest   |  Publish date: Thu, 14 Oct 2021, 10:48 AM


We expect strong earnings delivery from PCHEM in 2H21, uplifted by both: (i) firm product spreads for its O&D segment, which can be seen from stable polyethylene product prices (HDPE, LDPE and LLDPE) and (ii) skyrocketing urea and methanol prices, which would be supportive of earnings from the group’s F&M segment. With that, we upgrade PCHEM to BUY (from Hold) with a higher TP of RM10.65 (from RM8.75 previously) as we view that PCHEM is on track to achieve its best-ever annual profits in FY21. Our valuation is based on 9.0x FY22F EV/EBITDA, which is at a slight discount to its 5-year historical pre pandemic mean EV/EBITDA of 9.5x.

1H21 results recap. PCHEM recorded a stellar 2Q21 core net profit of RM1,830m (+31% QoQ, +c.10x YoY). Cumulatively, 1H21 core net profit grew more than 4.5x YoY to RM3.2bn (from RM691m in 1H20). The strong 1H21 performance was boosted by a few key factors: (i) improved product spreads, backed by higher downstream polyethylene product prices, which led to commendable 1H21 revenue and profit of RM5.9bn (+46% YoY) and RM1.8bn (+129x YoY) respectively for its O&D segment and (ii) elevated urea and methanol prices in 2Q21, resulting in impressive 1H21 revenue of RM3.8bn (+47% YoY) and profit of RM1.4bn (+159% YoY).

Product spreads remained relatively steady in 3Q, uptick seen in early-4Q. We will be using HDPE, LDPE and LLDPE prices as indicators for PCHEM’s product spreads. Based on our tabulation from Bloomberg data, we find that average polyethylene product prices remained somewhat firm, with a slight decline of c.3-9% in 3Q21 from 2Q21. With that, we will not be surprised should there be a slight decline in profit contribution QoQ from PCHEM’s O&D segment in 3Q21. On the other hand, we highlight that product prices were up 37-61% YoY in 9M21. We also noticed a decent uptick and recovery in product prices in early-Oct 2021 (Figure #2), which we believe would augur well into the rest of 4Q21.

Skyrocketing urea and methanol prices. Both urea and methanol prices continued its uptrend in 3Q21, up 16% and 6% respectively from 2Q21. Cumulatively for 9M21, urea prices were up 75% YoY while methanol prices increased 66% YoY. We believe that urea prices will continue its uptrend in the near-medium due to the cost-push effect from elevated feedstock (natural gas) prices. Hence, we expect PCHEM’s F&M segment to buoy the group’s overall performance in the next few quarters.

3Q21 likely marginally higher QoQ, but significantly higher YoY. This is judging from 3 key highlights: (i) no major turnarounds from July-Sep 2021, (ii) relatively firm polyethylene product prices (only 3-9% decline QoQ, but 23-40% increase YoY) and (iii) higher urea and methanol prices (up 16 and 6% respectively QoQ, up 106% and 79% YoY respectively) – of cause, barring any unforeseen swings in cost structure. PCHEM’s 3Q21 results are tentatively scheduled for release on 22 or 23 Nov.

Outlook for 2H21. We expect PCHEM to deliver robust earnings in 2H21 on the back of its O&D and F&M core segments driven by: (i) resilient polyethylene product prices, and (ii) elevated urea and methanol prices due to the cost-push effect from elevated feedstock (natural gas) prices. We believe that PCHEM is also on-track to record its best-ever annual profits in FY21.

Upgrade to BUY with a higher TP of RM10.65. We upgrade PCHEM to BUY (from Hold) with a higher TP of RM10.65 (from RM8.75). Our valuation is based on 9x FY22 EV/EBITDA, which is at a slight discount to its 5-year historical pre-pandemic mean EV/EBITDA of 9.5x.

 

Source: Hong Leong Investment Bank Research - 14 Oct 2021

Labels: PCHEM
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Leong Hup International - Proxy to Economic Reopening

Author: HLInvest   |  Publish date: Thu, 14 Oct 2021, 10:46 AM


We anticipate LHI’s 3Q21 earnings to come in weaker (both QoQ and YoY) due to (i) lower livestock product prices and sales volume in 3Q21, (ii) significantly higher feed prices, and (iii) margin compression at feedmill segment. However, we expect LHI’s earnings to improve from 4Q21 onwards, as gradual economic reopening across operating countries augurs well for demand for livestock products. We tweak our FY21-22 core net profit forecasts lower by -21.4% and -3.7%, mainly to reflect higher feed cost assumptions. Post earnings revisions, we maintain our BUY rating on LHI with a lower TP of RM0.78 (based on 18x revised mid FY21-22 EPS of 4.4 sen).

Anticipating weak 3Q21. We anticipate LHI’s 3Q21 earnings (due out by end-Nov) to come in weaker (both QoQ and YoY) due to (i) lower livestock product prices and sales volume in 3Q21 (as demand for livestock products was hampered by lockdowns in most operating countries, particularly in Jul-Aug), (ii) significantly higher feed prices (as a result of soaring corn and soybean meal prices), which LHI was unable to pass on to its customers amid weak livestock demand, and (iii) margin compression at feedmill segment (as LHI was only able to pass a fraction of the rising raw material prices to its customers amid weak livestock product demand).

Better fortunes from 4Q21 onwards We expect LHI’s earnings to improve from 4Q21 onwards, as gradual economic reopening across operating countries (in particular, Malaysia and Indonesia, which collectively account for more than 50% of LHI’s revenue) augurs well for demand for livestock products, hence allowing LHI to have better flexibility in passing on higher feed costs to customers (through higher livestock product prices). Besides, we believe improving demand prospects for livestock products will result in better demand and pricing power at feedmill segment, as better livestock product prices encourages supply of livestock products.

Over the longer term… We understand that LHI is on track to achieve 160 TBC outlets by end-FY21 (200-210 outlets by end-FY22, and 280 outlets by end-FY23). The ongoing expansion in LHI’s business-to-consumer (B2C) channel (via the expansion of TBC outlets) will further mitigate the volatile livestock product prices (by channeling a portion of its its broiler supply from conventional wholesale market into ready-to-eat poultry products, i.e. roasted chicken directly to end consumers via TBC outlets) over the longer term. Based on our estimates, TBC will consume at least 30% of LHI’s broiler supply in Malaysian operations by FY24. Besides, such move wiil help boosting sales of its bakery products, which carry more superior margins relative to its ready-to-eat poultry products, which in turn helps stabilising earnings at Malaysian operations over the longer term

Forecast. We tweak our FY21-22 core net profit forecasts lower by -21.4% and -3.7%, mainly to reflect higher feed cost assumptions and lower livestock product prices (for FY21).

Maintain BUY, with lower TP of RM0.78. Post earnings revisions, we maintain our BUY rating on LHI with a lower TP of RM0.78 (based on 18x revised mid FY21-22 EPS of 4.4 sen). At RM0.665, LHI is trading at FY21-22 P/E of 19.3x and 12.7x, which is undemanding in our view, as LHI is a good proxy to economic reopening in the Southeast Asia region (given its exposure in Malaysia, Indonesia, Singapore, Vietnam and Philippines). Over the longer term, we believe further re-rating is warranted, should LHI succeed in replicating its B2C channel beyond Malaysia operations.

 

Source: Hong Leong Investment Bank Research - 14 Oct 2021

Labels: LHI
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Traders Brief - More Upside Towards 1605-1623 Before a Meaningful Pullback Emerges

Author: HLInvest   |  Publish date: Thu, 14 Oct 2021, 10:40 AM


MARKET REVIEW

Global. Asian markets ended mixed, as investors weighed on the run-up to the US 3Q21 earnings season and Sep FOMC minutes, coupled with the better-than-expected Sep trade data in China amid slowdown fears fanned by a power crunch and Evergrande’s debt crisis. The Dow tumbled as much as 263 pts following a higher-than-expected Sep CPI and profit-taking pullback in megabanks before ending flat at 34377, as investors viewed an imminent end to ultra-loose US monetary policy as a vote of confidence in the economy. The Fed's September minutes signalled the bond tapering program could start as soon as mid-Nov though they remained divided over how much of a threat high inflation poses and how soon they may need to raise interest rates.

Malaysia. Tracking higher ASEAN markets, KLCI rallied 16.5 pts to 1600.4, registering its 7th consecutive gains amid buying interests in banking, plantation and telco stocks. Market breadth remained positive for a 6th straight session with 577 gainers vs 460 losers. Trade flows wise, foreigners were the major net buyers for a 6th consecutive session (+RM262m; 5D: +RM797m) whilst retailers (-RM16m; 5D: +RM2m) joined local institutions as the net sellers (-RM246m; 5D: -RM796m).

TECHNICAL OUTLOOK: KLCI

As expected, KLCI finally retested our envisaged 1600 resistance following a successful breakout above 200D MA on 12 Oct. The long white candlestick coupled with the bullish MACD and RSI readings are likely to drive the benchmark higher to 1605-1623 territory before a meaningful pullback occurs (reflected by toppish stochastic reading). Key supports are now pegged at 1558-1576 territory.

MARKET OUTLOOK

In the wake of resumption in foreign inflows (~70% correlation between KLCI and foreign shareholding) and economic reopening gaining traction with interstate and overseas travels allowed for the fully vaccinated effective 11 Oct, as well as riding on elevated commodity prices, KLCI is expected to progress further as market risk appetite returns. However, further rally may be capped near 1605-1623 zones (key supports: 1558-1576 zones) amid lingering concerns that unpopular taxes could be mooted in Budget 2022 to boost revenue and overbought stochastic reading (+85 pts in 7 days).

 

Source: Hong Leong Investment Bank Research - 14 Oct 2021

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