Highlights

HLBank Research Highlights

Author: HLInvest   |   Latest post: Mon, 14 Jun 2021, 10:53 AM

 

Traders Brief - FMCO extension to undermine sentiment

Author: HLInvest   |  Publish date: Mon, 14 Jun 2021, 10:53 AM


Global. Ahead of the key US May CPI data, Asian markets edged higher (MSCI Asia Ex Japan +0.3%) following a decline in US 10Y Treasury yield overnight despite an upbeat US May CPI, in anticipation that the Fed will maintain its accommodative policy during its 15-16 June FOMC meeting. Wall St ended higher as investors scaled back expectations for early policy tightening by the Fed after May’s CPI spike was envisaged as temporary. The Dow up 13 pts to 34479 (-0.4% WoW) whilst Nasdaq rose 49 pts to 14069 (+1.8% WoW).

Malaysia. KLCI fell 4.7 pts to 1575.2 (-3 pts WoW) to record its 3rd straight decline as investors gauged the recent domestic political development with regard to the meetings of major political party heads with the Agong as well as unabated Covid-19 daily numbers. Market breadth was negative as 531 losers beat 443 gainers. Foreign institutions (- RM143m; 5D: -RM427m) resumed selling for the 3rd day whilst retailers (+RM70m; 5D: +RM318m) and local institutions (+RM73m; 5D: +RM109m) were the major net buyers.

TECHNICAL OUTLOOK: KLCI

KLCI ended 3.3 pts WoW at 1575, a tad below the key 200D SMA at 1577. In the wake of the FMCO extension to 28 June and KLCI’s breakdown below the DTL (or 1600 levels) and multiple SMAs, we expect the KLCI near-term negative momentum has intensified with key supports at 1565 (lower BB) and 1552 (YTD low). If a decisive breakdown arises, the crucial supports are seen at 1545 and 1533 (20M SMA). On the upside, the near-term resistance level is anticipated at 1591 (50D SMA)-1,600 psychological mark.

MARKET OUTLOOK

While we still believe a recovery is an eventuality, investors turn more cautious about the heightened risks of economic and corporate earnings growth prospects following an extension of the FMCO to 28 June. Nevertheless, there is light at the end of the tunnel as we expect downside risks are cushioned by the government’s pledge to further ramp up in daily vaccination rates at 300k jabs/day by Aug (from 150k currently). We maintain our short term range bound call for now as the KLCI continues to trade within the 1565-1552- 1545 supports whilst resistances are pegged at 1591-1600-1623 levels.

To take a more defensive stand amid near term lockdown headwinds, HLIB’s BUYs recommendation includes a mix of value, growth picks, and yield focus i.e. MAYBANK (TP RM9.40), TENAGA (TP RM12.50), IJM (TP RM2.29), FRONTKN (TP RM3.88), SUNWAY (TP RM2.11), BURSA (TP RM11.82), AXREIT (TP RM2.54), ARMADA (TP RM0.80), INARI (TP RM3.81), MBMR (TP RM5.20), SENTRAL (TP RM0.98), FOCUSP (TP RM1.10), and TOPGLOV (TP RM6.76).

 


 

Source: Hong Leong Investment Bank Research - 14 Jun 2021

  Be the first to like this.
 

Evergreen Fibreboard - Improving Earnings Prospects

Author: HLInvest   |  Publish date: Mon, 14 Jun 2021, 10:38 AM


We met with Evergreen and we are cautiously optimistic on the group’s prospects going forward. We expect Evergreen’s future earnings to be driven by (i) its healthy order book with visibility of 2-9 months; and (ii) the strength in ASP supported by the strong demand from the local furniture makers as well as from the US market. Nonetheless, key challenges faced by the group include (i) risk of further extension to the FMCO shutdown period, (ii) any further increase in raw material price and raw material supply disruption, and (iii) limited shipping availability. We lower our FY21 forecast by -33.5% to account for the loss of capacity due to FMCO. After our earnings adjustment, our TP decreases to RM0.67 pegged to an unchanged P/B multiple of 0.5x based on FY21 BVPS. Maintain BUY.

We Met With Evergreen With the Following Key Takeaways:

Sales mix. Currently, the topline contribution from the product segments are: MDF (~60%), particleboards (~20%) and RTA and value-added boards (~20%).

Panel boards segment. The MDF segment is currently seeing a recovery in demand and ASP mainly driven by (i) increase in demand from Muar furniture makers due mainly to an increase in orders for furniture from the US market; and (ii) increase in demand from the Middle East due to panic buying from customers there to stock up more supply in view of the shipping constraint arising from the global shortage of containers. The utilization rate for the MDF segment is currently close to 100% with order visibility longer than previously. The particleboards segment of the group similarly enjoys an increase in demand from the local furniture makers in Malaysia. The utilization rate for this segment is currently at close to 100% with commendable order visibility.

RTA. The RTA segment of the group sees a surge in demand mainly from the US market, which is a new market with low penetration previously. The utilization rate for RTA segment is currently at close to 100% with strong order visibility. RTA originally has 15m to 20m capex planned. The group has put on hold major plans for expansion due to labour shortage.

Outlook and challenges. We expect Evergreen to post weaker earnings QoQ in 2Q21 due to the 4-weeks temporary production disruption from the FMCO. Nonetheless, we remain optimistic for the group’s overall outlook for FY21 on the back of (i) its healthy order book with visibility of 2-9 months; and (ii) the strength in ASP supported by the strong demand from the local furniture makers as well as from the US market. Key challenges faced by the group include (i) a further extension of the FMCO shutdown period, (ii) any further increase in raw material price and raw material supply disruption and (iii) limited shipping availability (the group mitigates this by supplying more to the local market).

Forecast. We lower our FY21 forecast by -33.5% to account for the 4 weeks loss of annual capacity in the Malaysia operations due to FMCO.

Maintain BUY. TP: RM0.67. After our earnings adjustment, our TP decreases to RM0.67 pegged to an unchanged P/B multiple of 0.5x based on FY21 BVPS. Despite near term challenges faced by the group, we remain optimistic on the group’s overall outlook supported by the strong demand and the strength in ASP across all its product segments.

 

Source: Hong Leong Investment Bank Research - 14 Jun 2021

Labels: EVERGRN
  Be the first to like this.
 

HeveaBoard - Bumpy Road to Recovery Ahead

Author: HLInvest   |  Publish date: Mon, 14 Jun 2021, 10:37 AM


We continue to see near term headwinds to Hevea’s earnings recovery path, as positive demand outlook (witnessed by its healthy order book of 2-4 months) and stabilised raw material prices will be hampered by output disruption arising from the FMCO and persistent labour shortfall. We lower our FY21 forecast by -46.3% to account for 4 weeks loss of annual capacity due to FMCO. Maintain HOLD with a lower TP of RM0.58 from RM0.65 pegged to a lower P/B of 0.8x from 0.9x based on FY21 BVPS. Despite having anticipated challenging near term prospects, we believe downside to Hevea’s share price will be cushioned by its healthy balance sheet of net cash RM38m (or NCPS of 6.7 sen).

We Met With Hevea With the Following Key Takeaways:

RTA segment. Despite seeing a strong demand for its RTA products, Hevea is having difficulty in scaling up its production due to prolonged labour shortage (as a result of border closure, which restricted the employment of foreign labour). In view of labour shortfall (which will likely remain for a while), Hevea has reshuffled its RTA production lines, in an attempt to improve its production efficiency further.

Particleboard segment. The particleboards segment is currently running at ~85% utilisation rate with production lead time of ~45 days. We understand that Hevea is still progressively raising its selling prices to withstand high raw material costs (which seem to have stabilised, at least for now). Currently, ~30% of particleboards are supplied to the group’s RTA segment, while the remaining ~70% are exported.

ESG initiatives. The group had recently acquired a 33% stake in Satria Megajuta (“SMSB”), a solar PV investment company (Figure #1). Through SMSB, a 1.48MW solar PV system was successfully installed on the rooftop of its RTA factories. In addition to a reduction in electricity costs, a portion of the RTA furniture will also be produced with green energy. On the “social” front, Hevea has invested over RM500k in FY20 to upgrade its workers’ hostel. Besides that, the group has also been proactive in its measures to prevent the spread of Covid-19 through voluntary screening of its employees. The Covid-19 cases detected back in Feb this year was a result of the second voluntary screening exercise carried out by the group.

Outlook and challenges. We continue to see near term headwinds to Hevea’s earnings recovery path, as positive demand outlook (witnessed by its healthy order book of 2-4 months) and stabilised raw material prices will be hampered by output disruption arising from the FMCO (cant’ operate as deemed “non essential”) and persistent labour shortfall. Besides, further extension of plant closure (should FMCO extend further) will thwart its earnings recovery.

Forecast. We lower our FY21 forecast by -46.3% (high operating leverage due to fixed cost) to account for the 4 weeks loss of annual capacity due to FMCO.

Maintain HOLD, TP: RM0.58. Given the bumpy recovery road ahead, we lower our P/B multiple from 0.9x to 0.8x (roughly -0.6SD below 5 year mean) to err on the side of caution. Our TP decreases to RM0.58 from RM0.65 based on FY21 BVPS. Despite having anticipated challenging near term prospects, we believe downside to Hevea’s share price will be cushioned by its healthy balance sheet with net cash RM38m (or NCPS of 6.7 sen).

 

Source: Hong Leong Investment Bank Research - 14 Jun 2021

Labels: HEVEA
  Be the first to like this.
 

Economics - Spike in IPI Growth

Author: HLInvest   |  Publish date: Mon, 14 Jun 2021, 10:36 AM


IPI growth spiked to +50.1% YoY in Apr (Mar: +9.3% YoY) due to low base effect, exceeding the consensus estimate of +47.9% YoY. Growth was contributed by surge in manufacturing (+68.0% YoY; Mar: +12.7% YoY) and electricity production (+22.9% YoY; Mar: +10.3% YoY), as well as rebound in mining production (+14.3% YoY; Mar: -1.9% YoY).

 

DATA HIGHLIGHTS

IPI growth spiked to +50.1% YoY in Apr (Mar: +9.3% YoY) due to low base effect, exceeding the consensus estimate of +47.9% YoY. The index grew on the surge in manufacturing (+68.0% YoY; Mar: +12.7% YoY) and electricity production (+22.9% YoY; Mar: +10.3% YoY), as well as rebound in mining production (+14.3% YoY; Mar: -1.9% YoY) (refer to Figure #1).

On a monthly seasonally adjusted basis, IPI growth only marginally rebounded (+0.1%; Mar: -2.2%), as lower manufacturing (-0.5%; Mar: -1.8%) and electricity production (- 2.3%; Mar: +3.2%) partly offset the turnaround in mining production (+1.9%; Mar: -4.6%).

Manufacturing production soared to +68.0% YoY (Mar: +12.7% YoY), driven by low base effect as the manufacturing sector felt the full brunt of the pandemic in Apr 2020. Export oriented sector growth (+62.2% YoY; Mar: +13.5% YoY) was attributed to higher production across all industries, which includes ‘textiles, wearing apparel, leather products & footwear’ (+230.6% YoY; Mar: +9.1% YoY), ‘wood products, furniture, paper products, printing’ (+212.6% YoY; Mar: +11.1% YoY), ‘electrical & electronics products’ (+70.1% YoY; Mar: +13.8% YoY), and ‘petroleum, chemical, rubber & plastic products’ (+37.5% YoY; Mar: +14.1% YoY).

The domestic-oriented sector also surged (+81.0% YoY; Mar: +11.0% YoY), owing to stronger growth in ‘transport equipment & other manufactures’ (+275.2% YoY; Mar: +20.9% YoY), ‘non-metallic mineral products, basic & fabricated metal products’ (+141.0% YoY; Mar: +8.0% YoY) and ‘food, beverages & tobacco’ (+12.6% YoY; Mar: +7.2% YoY).

Mining production recorded its first positive growth (+14.3% YoY; Mar: -1.9% YoY) after thirteen consecutive months of decline. This was due to improvements in natural gas (+23.9% YoY; Mar: +4.3% YoY) and crude petroleum production (+2.7% YoY; Mar: - 9.4% YoY), also owing to low base effect. Meanwhile, on a monthly basis, production decreased for both natural gas (-3.7%; Mar: +6.2%) and crude petroleum (-8.4%; Mar: +8.1%). Crude petroleum production could see an increase in May to July as OPEC+ agrees to ease production cuts by returning 2.1m bpd of supply to the market.

HLIB’s VIEW

On the global front, the manufacturing sector continued to expand at a robust pace in May (manufacturing PMI: 56.0; Apr: 55.9). Solid expansion was seen in some European countries and the US, where pandemic restrictions have eased. Domestically, while overall manufacturing IPI growth is expected to spike in 2Q21 due to low base effect from MCO 1.0, the magnitude of increase is expected to be capped by the four-week full lockdown from 1st – 28th June. Following the latest extension of FMCO (15th June – 28th June), our GDP projection is now 4.0% YoY. Despite the downside risk to our GDP forecast, we also note supportive factors such as recovering global demand from major economies and ramp-up in vaccination rates in Malaysia that will provide some respite to the economy. We maintain our expectation for BNM to maintain the OPR at 1.75% in 2021.

 

Source: Hong Leong Investment Bank Research - 14 Jun 2021

  Be the first to like this.
 

Plantation - Marginal Rise in Stockpile

Author: HLInvest   |  Publish date: Fri, 11 Jun 2021, 10:35 AM


Palm oil stockpile remained on uptrend, rising by 1.5% MoM to 1.57m tonnes in May-21, due mainly to higher output and lower exports, but partly offset by higher domestic disappearance and lower imports. Stockpile will likely remain at low level in coming months, as potentially weaker exports demand from India (arising from lockdown amidst Covid-19 pandemic) will likely be mitigated by resilient demand from China and low inventory levels. We maintain our CPO price assumptions of RM3,200/mt for 2021 and RM2,800/mt for 2022-23. We believe CPO price will trend down more noticeably in 2H21, on the back of seasonally stronger palm oil output in 2H21 and demand destruction (especially among price sensitive consuming countries) amidst current high edible oil prices. We maintain our NEUTRAL rating on the sector, as we believe current high CPO price will not sustain over the longer term. Our top picks are IOI Corp (BUY; TP: RM4.67) and KLK (BUY; TP: RM26.60).

DATA HIGHLIGHTS

Third consecutive month increase in palm oil stockpile. Palm oil stockpile remained on uptrend (albeit marginally), rising by 1.5% MoM to 1.57m tonnes in May-21, due mainly to higher output and lower exports, but partly offset by higher domestic disappearance and lower imports.

East Malaysia led output growth in May-21. Total output rose for the third consecutive month, by 2.8% MoM to 1.57m tonnes in May-21, driven mainly by higher output in East Malaysia (+5.8%, of which Sabah and Sarawak recorded MoM output growth of 8.6%, and 2.6% respectively).

Cumulatively, output fell 5.6% to 6.76m tonnes for the first five months of 2021, due mainly to border closure (arising from Covid-19 pandemic), which has in turn resulted in labour shortfall in oil palm plantation estates.

Exports fell 6% MoM. Exports fell 6.0% MoM to 1.27m tonnes in May-21, as higher exports to China (+30.0%), India (+6.2%) and Europe (+58.7%) were more than by lower exports to Pakistan (-19.7%) and other smaller key export destinations. Cumulatively, total exports eased 7.2% to 5.64m tonnes in 5M21, due mainly to lower palm oil output YTD (in our view).

Exports for the first 10 days of Jun-21. Preliminary data from independent cargo surveyor (Amspec Agri) indicated that palm oil exports declined by 14.3% to 402.5k tonnes for the first 10 days of Jun-21.

HLIB’s VIEW

Forecast. Stockpile will likely remain at low level in coming months, as potentially weaker exports demand from India (arising from lockdown amidst Covid-19 pandemic) will likely be mitigated by resilient demand from China and low inventory levels (as supply shortfall for major edible oils persists). YTD, CPO price averaged at RM4,110/tonne, driven mainly by persisting concerns on edible oil supply. We maintain our CPO price assumptions of RM3,200/mt for 2021 and RM2,800/mt for 2022-23. We believe CPO price will trend down more noticeably in 2H21, on the back of seasonally stronger palm oil output in 2H21 and demand destruction (especially among price sensitive consuming countries) amidst current high edible oil prices.

Stay Neutral. We maintain our NEUTRAL rating on the sector, as we believe current high CPO price will not sustain over the longer term. Our top picks are IOI Corp (BUY; TP: RM4.67) and KLK (BUY; TP: RM26.60).

 

Source: Hong Leong Investment Bank Research - 11 Jun 2021

Labels: IOICORP, KLK
  Be the first to like this.
 

CB Industrial Product - A Strong Start to FY21

Author: HLInvest   |  Publish date: Fri, 11 Jun 2021, 10:34 AM


CBIP’s core net profit of RM17.7m in 1Q21 (QoQ: -50.0%; YoY: +43.8%) beat expectations, accounting for 30.2-30.4% of our and consensus full-year estimates. The positive earnings surprise was due mainly to better-than-expected margin at oil mill engineering segment. We raise our FY21-23 core net profit forecasts by 6.3-7.0%, mainly to account for higher EBIT margin assumptions at oil mill engineering segment. We maintain our HOLD rating on CBIP, with a higher sum-of-parts TP of RM1.20 (from RM1.16 earlier), to reflect the upward revision in our core net profit forecasts and latest net debt position. Despite the positive surprise in results, we remain doubtful on the sustainability of recent good performance into the medium term (particularly, beyond FY21), given the rising steel plate prices and depleting orderbook at mill engineering segment.

Beat expectations. 1Q21 core net profit of RM17.7m (QoQ: -50.0%; YoY: +43.8%) beat expectations, accounting for 30.2-30.4% of our and consensus full-year estimates. The positive earnings surprise was due mainly to better-than-expected margin at oil mill engineering segment.

Exceptional items in 1Q21. Core net profit in 1Q21 was arrived after adjusting for (i) RM0.24m bad debt recovered and reversal of impairment loss on receivables, (ii) RM0.38m loss on derivative, and (iii) RM0.97m forex gain.

QoQ. Core net profit fell 50.0% to RM17.7m in 1Q21, due mainly to seasonal effect at oil mill engineering segment (we note that 4Q is traditionally a stronger quarter for segment due to project billing cycle), and lower associate and JV contributions (on the back of lower FFB output).

YoY. Core net profit surged 43.8% to RM17.7m, boosted by (i) turnaround at upstream plantation segment, JV and associates (as a result of significantly higher realised palm product prices, which more than mitigated lower palm output), and (ii) better margin at oil mill engineering segment.

Orderbook. Orderbook at oil mill engineering segment remained on downtrend, to RM289m as at 31 Mar 2021 from RM300m a quarter ago (as a result of border closure, which resulted in difficulty in securing new contracts in Indonesia). Orderbook at SPV segment, on the other hand, declined marginally to RM70m as at 31 Mar 2021 (from RM74m as at 31 Dec 2021).

Forecast. We raise our FY21-23 core net profit forecasts by 6.3%, 6.6% and 7.0%, respectively, mainly to account for higher EBIT margin assumptions at oil mill engineering segment.

Maintain HOLD with higher TP of RM1.20. We maintain our HOLD rating on CBIP, with a higher sum-of-parts TP of RM1.20 (from RM1.16 earlier), to reflect the upward revision in our core net profit forecasts and latest net debt position. Despite the positive surprise in results, we remain doubtful on the sustainability of recent good performance into the medium term (particularly, beyond FY21), given the rising steel plate prices and depleting orderbook at mill engineering segment.

 

Source: Hong Leong Investment Bank Research - 11 Jun 2021

Labels: CBIP
  Be the first to like this.
 


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
View Trading Signals and run Live Backtest
MQ Affiliate
Earn rewards with MQ Affiliate Program
 
 

361  365  575  1171 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 SERBADK 0.555-0.05 
 KNM 0.19+0.01 
 PWORTH 0.015-0.005 
 EDEN-WB 0.03+0.01 
 FOCUS 0.035-0.005 
 EDEN 0.18+0.005 
 NWP 0.205+0.005 
 SAPNRG 0.1350.00 
 DNEX 0.875+0.015 
 SEDANIA 0.795-0.18 

FEATURED POSTS

1. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!
PARTNERS & BROKERS