Highlights

HLBank Research Highlights

Author: HLInvest   |   Latest post: Thu, 13 Jun 2019, 12:12 PM

 

Plantation - 10-month low stockpile

Author: HLInvest   |  Publish date: Thu, 13 Jun 2019, 12:12 PM


Palm oil inventory eased for the third consecutive month, by 10.3% MoM to 2.45m tonnes in May-19 (lowest since Aug-18), mainly on the back of higher shipments (led mainly by EU and USA) and domestic consumption. We believe stockpile will continue to ease in Jun-19, underpinned by Malaysian government’s move to exempt palm oil export duty (until end-2019) and seasonally lower palm output. We maintain our average CPO price assumptions of RM2,300/tonne for 2019 and RM2,400/tonne for 2020 (2018: RM2,235/tonne) for now, pending further review. Maintain our UNDERWEIGHT stance on the sector.

DATA HIGHLIGHTS

Stockpile eased further on stronger exports and domestic disappearance. Palm oil inventory declined for the third consecutive month, by 10.3% MoM to 2.45m tonnes in May-19, mainly on the back of higher exports and domestic disappearance, which more than offset a mild increase in palm oil output.

Against consensus, the stockpile was in line with Bloomberg consensus estimate of 2.46m tonnes

Output resumed on uptrend. Although Sabah continued to register lower output (for the second consecutive month), overall output increased by 1.3% MoM to 1.67m tonnes, boosted mainly by higher output from Johor, Pahang and Sarawak.

Exports increased for 3 straight months. Exports increased for the third consecutive month, by 3.5% MoM to 1.71m tonnes in May-19, as lower exports to China (-36.8%) and Pakistan (-10.1%) were more than mitigated by stronger exports to EU region (+42.7%) and USA (+161.2%).

Palm oil shipment for the first 10 days of Jun-19. SGS indicated that palm oil exports fell 32.6% to 377k tonnes for the first 10 days of Jun-19, as a strong surge in exports to China was more than offset by lower shipments to India and EU region.

HLIB’s VIEW

Forecast. We believe stockpile will continue to ease in Jun-19, underpinned by Malaysian government’s move to exempt palm oil export duty (until end-2019) and seasonally lower palm output (arising from Eid Mubarak, which historically resulted in lower palm production). We maintain our average CPO price assumptions of RM2,300/tonne for 2019 and RM2,400/tonne for 2020 (2018: RM2,235/tonne) for now, pending further review.

Maintain UNDERWEIGHT. We maintain our UNDERWEIGHT stance on the sector, underpinned by its pricey valuations, weak near-term outlook (arising from the absence of positive demand catalyst).

 

Source: Hong Leong Investment Bank Research - 13 Jun 2019

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Bermaz Auto - Record high finish

Author: HLInvest   |  Publish date: Thu, 13 Jun 2019, 12:06 PM


Reported a strong core PATMI of RM60.8m for 4QFY19, boosting FY19 to record high of RM266.6m, which was within expectations. Declared fourth interim dividend of 3.5 sen/share and special dividend of 7.0 sen/share. Malaysia operation is expected to be supported with the attractive new model line-up for FY20 including M3, CX-30, CX-8 and facelift CX-5. Maintain BUY with unchanged TP: RM3.08 based on unchanged 14x P/E CY20, as BAuto is also in a net cash position of RM320m (27.5 sen/share) with projected free cash-flow of RM150- 240m p.a., supporting a sustainable dividend payout of 16-20 sen/share, translating into an attractive 7.5-8.3% yield.

Within expectations. Reported another strong set of results with 4QFY19 core PATMI of RM60.8m, boosting FY19 core PATMI to a record high of RM266.6m. This was within our expectations at 104.7% of full year forecast (consensus: 105.1%). The record PATMI was driven by strong Mazda sales deliveries in Malaysia operation.

Dividend. Recommended a fourth interim dividend of 3.5 sen/share and a special dividend of 7.0 sen/share for the quarter, increasing YTD dividend payout to 21.25 sen/share, above both HLIB’s expectation and consensus.

QoQ. Core PATMI dropped 26.0% on overall lower sales volume of Mazda models (see figure #3) in both Malaysia and the Philippines markets.

YoY. Core PATMI was relatively flat at +1.9%, as the improved margins of Malaysia operation (improved product sales mix and higher selling prices) was offset by the decline in sales and margins of the Philippines operation and lower contribution from associates following the lower production volume of Mazda Malaysia.

FY19. Core PATMI jumped 96.7% on significant Mazda sales growth in Malaysia market and higher contribution from associates MMSB and Inokom (on higher Mazda CX-5 production volume), which were partially offset by Mazda sales decline in the Philippines market.

Outlook. BAuto’s Malaysia operation is expected to remain healthy with the expected attractive line up launches of new Mazda 3 (1QFY20), new CX-30 (2QFY20), new CX- 8 (2QFY20) and facelift CX-5 (3QFY20). On the other hand, Philippines near term outlook remains challenging due to implementation of TRAIN tax reform, while management continues to focus on expanding its dealership footprint to mitigate the lower sales volume per dealership.

Forecast. Unchanged.

Maintain BUY, TP: RM3.08. We maintain BUY recommendation on BAuto with unchanged TP of RM3.08, based on unchanged CY20 P/E of 14x, supported by: (i) healthy balance sheet with net cash position of RM320.2m (27.5 sen/share); (ii) attractive new model line up to sustain sales momentum, generating strong cash flow; and (iii) high dividend yield of 7.5-8.3%.

 

Source: Hong Leong Investment Bank Research - 13 Jun 2019

Labels: BAUTO
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Traders Brief - Profit taking activities are likely to emerge

Author: HLInvest   |  Publish date: Thu, 13 Jun 2019, 11:55 AM


MARKET REVIEW

With Wall Street taking a mild breather on Tuesday, Asia’s stock markets stalled for another session. In addition, markets were spooked by the ongoing protest in Hong Kong city over the China extradition law and sentiment was negative throughout the session. Hang Seng Index declined 1.73%, while Shanghai Composite Index and Nikkei 225 fell 0.56% and 0.35%, respectively.

Meanwhile, stocks on the local front traded on a lacklustre mood with the KLCI ending marginally lower by 0.03% to 1,650.74 pts and market breadth was negative with losers led gainers by a ratio of 4-to-3. In addition, market traded volumes were softer at 1.76bn (worth RM1.60bn) as compared to 2.24bn (worth RM2.03bn) in Tuesday. However, selected technology stocks such as Pentamaster and MPI were traded higher.

Wall Street closed lower for the second consecutive day as profit taking activities was observed amongst tech, energy and banking stocks on the back of unresolved trade war and investors were staying mildly cautious ahead of the FOMC meeting that will be held next week as well as a slump in overnight crude oil prices. The Dow and S&P500 slid 0.17% and 0.20%, respectively while Nasdaq down 0.38%.

TECHNICAL OUTLOOK: KLCI

Still, the FBM KLCI is hovering within the trading range of 1,642-1,658, trending sideways over the past 6 trading days. The MACD Histogram has turned flattish over the past few sessions, while the RSI and Stochastic oscillators are in the overbought region. Hence, with the softer momentum and overbought status on KLCI, the key index could be due for a slight retracement. Resistance will be set along 1,658-1,666, while support is located around 1,630. 

Taking cues from Wall Street, we expect sentiment to stay soft and profit taking activities may persist on the broader market on the back of the slump in Brent oil prices (trading below USD60). Furthermore, investors are likely to deploy a defensive approach ahead of the G20 summit and stay alert on any trade sensitive headlines in the near term.

TECHNICAL OUTLOOK: DOW JONES

The Dow closed lower yesterday and the MACD Line is hovering around the zero. Meanwhile, the Stochastic oscillator is overbought. Hence, we believe that the Dow may be due for further pullback over the near term. The support is envisaged around 25,432-25,500 and the resistance will be pegged around 26,500.

On Wall Street, we believe that the market participants will be taking a cautious view on markets direction on the back of the ongoing unresolved trade tensions between the US and China as President Trump and President Xi have not reach any trade agreement at this juncture, thus traders will be watching closely on any developments from now till G20 summit on the trade front.

TECHNICAL TRACKER: CLOSED POSITION

Took profit on DRBHCOM yesterday at RM2.14 (8.1% return).

Source: Hong Leong Investment Bank Research - 13 Jun 2019

Labels: DRBHCOM
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WTI - Downside bias ahead of the OPEC meeting (25-26 June) and G20 summit (28-29 June)

Author: HLInvest   |  Publish date: Thu, 13 Jun 2019, 11:36 AM


WTI sank 4% to a 5M low at US$51.1 (-23.3% from YTD high of US$66.6 on 23 Apr) after U.S. crude stockpiles jumped for the 2nd week in a row, as the market continues to grapple with concerns about weakening fuel demand due to the escalating US-China trade war. The US commercial crude inventories rose by 2.2m/barrels in the week through 7 June (consensus: -480k barrels), according to the U.S. Energy Information Administration (EIA). Technically, WTI further selldown towards US$48-50 levels unless prices can swiftly reclaim above the US$53-54 trajectory. 

US commercial crude inventories increased. Crude inventories rose by 2.2m/barrels in the week through 7 June (consensus: -480k barrels), according to the U.S. Energy Information Administration (EIA). The primary concerns are increasing crude supplies from U.S. and the U.S.-China trade dispute may lead to decelerating global growth and weigh on oil demand.

Choppiness prevails with key supports at US$48-50 levels. Following the 57% rally from Dec low of US42.4 (24 Dec) to a high of US$66.6, WTI has fallen 23% to end at US$51.2 yesterday. We see further near term downward consolidation amid negative technical and prices are hovering below 10D/20D/30D SMAs with key supports at US$48-50. More solid support is the long term support trend line at US$46. Stiff resistances are pegged at US$53.3-55 levels.

Source: Hong Leong Investment Bank Research - 13 Jun 2019

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Traders Brief - Likely to trend sideways in the near term

Author: HLInvest   |  Publish date: Wed, 12 Jun 2019, 3:49 PM


Asia’s stock markets ended higher led by the feel-good sentiment following the trade deal struck between US and Mexico, avoiding the tariffs for Mexican products. In addition, Beijing signalled an infrastructure boost, which has contributed towards the positive momentum in regional markets; the Shanghai Composite Index and Hang Seng Index rose 2.58% and 0.76%, respectively.

Despite the gains on Wall Street and regional stock markets, FBM KLCI ended lower by 0.27% to 1,651.20 pts. Market breadth, however was positive with gainers led losers by a ratio of 4-to- 3, accompanied by 2.24bn shares traded, valued at RM2.03bn for the session. Meanwhile, Bandar Malaysia thematic stocks such as IWCITY and EKOVEST and SKIN immigration project-related stocks like SCICOM, HTPADU and IRIS were traded actively.

After surging strongly at the opening bell following the special-purpose bond issuance by the China government to spur infrastructure activities, profit taking emerged and Wall Street snapped a 6-day winning streak without any fresh catalyst and market participants were staying cautious ahead of the FOMC meeting next week and G20 meeting later this month. The Dow and S&P500 slipped marginally by 0.05% and 0.03%, respectively.

TECHNICAL OUTLOOK: KLCI

The KLCI trended lower yesterday and it has been hovering within a narrow range of 1,644- 1,658 over the past 5 trading days. The MACD Histogram has turned flat, while both the RSI and Stochastic oscillators are trending along the overbought region; suggesting that the upside move for the KLCI may be limited around 1,658-1,666. Support will be pegged around 1,630, followed by 1,600.

Taking cues from Wall Street and the unresolved trade tensions between the US and China, we opine that the stocks on the local bourse may take a breather as some of the stocks have rebounded fairly decent over the past few days. Nevertheless, we believe some trading activities will be noticed amongst construction and e-government services stocks, while O&G stocks may rebound higher as Brent crude oil prices managed to stabilise near the USD60 level.

Source: Hong Leong Investment Bank Research - 12 Jun 2019

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Sasbadi Holdings - Print Still the Core Business

Author: HLInvest   |  Publish date: Wed, 12 Jun 2019, 11:41 AM


We walked away feeling neutral post meeting with Sasbadi’s management. The group still concentrates on print segment as core strength despite rapid growth in non-print segment. Sasbadi is active in participating in book fairs to clear out inventories. Maintain our earnings forecast but with lower TP of RM0.18 based on 10x P/E of CY20 earnings.

We met with Sasbadi recently, and came back feeling neutral on the group’s near and medium term outlooks. Below are the key takeaways.

To accelerate non-print contribution. The contribution of non-print segment has grown in the last 3 years from the shift of its business focus due to its highly cyclical business that hampered earnings delivery. Its non-print segment consists of (i) digital & network marketing; and (ii) ALP & STEM Education. Under the digital & network marketing, Sasbadi ventured into the business after securing the right from Ministry of Domestic Trade to promote i-learn Ace products. While for ALP & STEM, Sasbadi is a distributor of education Lego blocks to school and organiser of robot competitions.

Future of print segment. Sasbadi still treats the print segment as their bread and butter operation given their core strength, though the print business is highly cyclical due to the timing of textbook delivery. YTD textbook contracts secured is significantly lower at RM1.57m (1H18: RM8.37m), namely RM746k for arts education Year 4 and RM826k for Chinese Language Year 4. We understand that there is no slowdown in disbursement of government contracts, implying that Sasbadi has been losing out to other publishers. All is not lost as we understand that Sasbadi is tightening is operations to secure more textbook awards from Ministry of Education.

Digital contribution to accelerate. Despite early optimism on the back of higher number of agents, 1HFY19 MLM segment revenue fell 38% YoY to only RM2.5m. The setback was mainly weighed by loss of major distributors and coupled with the delay in replacing the key leadership personnel. We understand that the key leader who left previously now has re-joined the team. We can expect the sales to be revived on back of this.

To clear out inventory. Sasbadi is active and committed to reducing its inventory level that stood at RM73m as end of 2QFY19. Sasbadi is currently leveraging on the Big Bad Wolf book fair which is held on a monthly basis and the locations now involve more rural areas. Rural areas serve as an important market for Sasbadi especially for the school workbooks and we understand that Sasbadi is willing to sell at cost to clear inventories during this event.

Forecast. Post meeting, we left our earnings forecast unchanged despite 1HFY19 results have accounting for 90% of our full year estimate. We feel that 2H earnings delivery will be a drag due to (i) seasonally weak print segment; (ii) digital & network marketing needs more time to calibrate despite pickup of interest of i-Learn Ace; and (iii) possible inventories provision due to change in accounting treatment. As such, we feel it would be prudent to retain the conservative tilt to our projections.

Maintain HOLD but with lower TP of RM0.18. We believe Sasbadi’s efforts (to grow non-print revenue segment and cost cutting measures) are slowly starting to show positive results, however, the slowing print segment continues to remain its bread and butter. We roll our valuation into CY20 but tag to a lower PE multiple of 10x (from 12x), reflecting the prolonged time frame for print segment to recover.

 

Source: Hong Leong Investment Bank Research - 12 Jun 2019

Labels: SASBADI
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