Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Wed, 19 May 2021, 5:27 PM


Sunway Construction - Slow Start to the Year

Author: kltrader   |  Publish date: Fri, 21 May 2021, 10:09 AM

  • Sunway Construction’s (SunCon) core earnings grew 22% yoy to RM20.3m in 1Q21 as Movement Control Order (MCO) 2.0 was not as disruptive as MCO 1.0
  • New contract wins of RM462m YTD are on track to meet its RM2bn target for 2021. Precast concrete revenue and profit margin improved in 1Q21 but rising steel prices will likely erode profit margins in subsequent quarters

  • We cut our core EPS by 5-14% in 2021-23E to reflect lower revenue and profit margins due to MCO disruptions and higher steel costs. We reiterate our BUY call with a lower 12-month RNAV-based target price (TP) of RM2.18

Below Expectations

The core net profit of RM20.3m (+22% yoy) in 1Q21 comprises 15% of the consensus full-year forecast of RM139.8m and 17% of our previous estimate of RM121.5m. Revenue and PBT margin were below our expectations due to operational disruptions caused by MCO 2.0 and higher steel costs. Core earnings fell 46% qoq in 1Q21 due to the one-off final settlement for its Uttar Pradesh project in India recognised in 4Q20.

Higher Revenue and Earnings in 1Q21

Revenue jumped 24% yoy to RM455.2m in 1Q21, mainly driven by higher construction revenue (+28% yoy). Pre-cast concrete revenue contracted 6% yoy due to the schedule of delivery to projects, which is expected to pick up in subsequent quarters. Group PBT surged 26% yoy to RM26m in 1Q21 on the back of the higher revenue. Construction PBT increased 14% yoy in 1Q21, but construction PBT margin was lower at 5.6% in 1Q21 compared to 6.2% in 1Q20 due to relatively lower profit margins for new projects secured in 2020, given the competitive construction landscape. Precast concrete PBT jumped 368% yoy in 1Q21 on higher revenue and a PBT margin of 10.8% compared to 2.1% in 1Q20.

Good Prospects to Replenish Order Book

SunCon’s high remaining order book of RM5bn will support earnings growth in 2021-23E, and it has good prospects of replenishing its order book with RM7bn of tenders submitted for new projects (50% overseas). Potential hospital and commercial projects worth RM0.7bn could be secured from its parent Sunway this year.

Maintain BUY Call With a Lower TP of RM2.18

We gather that the steel cost has jumped 33% yoy in 4M21, putting pressure on the profit margin. Given this and the MCO disruptions, we cut core EPS by 5-14% in 2021-23E. We maintain our BUY call with our RNAV-based TP trimmed to RM2.18 from RM2.22 to reflect lower valuation for its pre-cast concrete segment (reduced sustainable earnings). Key risks: a slow roll-out of infrastructure projects and higher building material costs.

Source: Affin Hwang Research - 21 May 2021

Labels: SUNCON
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Berjaya Sports Toto - Reversal in Recovery Due to MCO 2.0

Author: kltrader   |  Publish date: Fri, 21 May 2021, 10:08 AM

  • Berjaya Sports Toto (BST) reported a relatively weak set of results, as 9MFY21 core-PATAMI of RM171.1m (+1.0% yoy) fell below both our and consensus expectations
  • The weaker-than-expected performance was due to the significant decline in revenue per draw day after the introduction of MCO 2.0 in 3QFY21
  • We are lowering our EPS forecasts for FY21-23E by 0.1%-12.5% to factor in lower revenue per draw day, while maintaining our SELL call and DDM-based TP at RM1.80 after rolling forward our valuation base

Revenue Per Draw Day Takes a Hit Due to MCO 2.0

The revenue per draw day in 3QFY21 declined by 34% qoq to RM10.6m, which is also 46% below pre-Covid-19 levels. We believe that the reimplementation of MCO 2.0 in 3QFY21 resulted in a weaker consumer sentiment, forcing punters to change their spending pattern. Given that the government has introduced MCO 3.0 in 4QFY21, we believe that the revenue per draw day would remain under pressure. Even if the MCO is lifted in the following quarters, it would take time for earnings to recover, as pre MCO 2.0, the revenue per draw day was still 20% below pre-Covid-19 levels.

There Is Still Downside Risk to Our Forecasts

Our current earnings forecasts assumes that by early 2022, the revenue per draw day would recover to 80% of pre-Covid-19 levels, and by end of 2022, the revenue per draw day would recover to pre-Covid-19 levels. However, we believe that there could be downside risk to this, as consumer spending patterns might diverge from previous trends, and may no longer revert to pre-Covid-19 levels. Although historically, spending on NFOs have been relatively resilient during an economic downturn, similar patterns have not seemed to emerge during this Covid-19 crisis.

Maintain SELL With An Unchanged TP at RM1.80

We lower our EPS forecasts for FY21-23E by 0.1%-12.5% to factor in the weaker performance in 3QFY21 and also lower the revenue per draw day due to the recent reimplementation of MCO. However, we maintain our DDM-based TP at RM1.80, as we roll forward our valuation base, and therefore our SELL call. Upside risks include lower than-expected prize payout ratio and lower-than-expected operating expenses.

Source: Affin Hwang Research - 21 May 2021

Labels: BJTOTO
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Heineken Malaysia - a Good Quarter Despite MCO2.0

Author: kltrader   |  Publish date: Fri, 21 May 2021, 10:08 AM

  • 1Q21 core net profit of RM73.5m (+29.1% yoy) came in above our expectations on better-than-expected operating margin for the quarter
  • Sequential sales were higher by 6% qoq driven by festivals such as Chinese New Year and St. Patrick’s day celebration
  • We raise our 2021-23E earnings estimates by 0.4-3.5% and roll forward our base year to 2022 to arrive at a higher DCF-derived TP of RM26. Maintain HOLD

1Q21 Core Net Profit at RM73.5m (+29.1% Yoy)

Heineken Malaysia (HEIM) started off 2021 with a commendable set of results. Revenue grew by 6.2% yoy due to the gradual adaptation of businesses and consumers towards the pandemic and successful execution of promotional activities. Besides, the relative relaxation of the nationwide movement control order (MCO2.0 vs MCO1.0) also contributed to the higher sales compared to March 2020, when the group had to fully suspend its operations. Meanwhile, EBITDA margin improved by 3.1ppt yoy to 20.9% from better cost management and deferment of commercial costs. Excluding one-offs, core net profit came in at RM73.5m (+29.1% yoy), accounting for 32% of our previous full-year forecast and above our expectations due to a better-than-expected operating margin for the quarter.

Sequentially Stronger With Festive Sales

Sequentially, the group revenue increased 5.5% qoq boosted by festivals such as Chinese New Year and St. Patrick’s day celebration. Besides, the easing of dine-in restrictions and declining Covid-19 infection numbers also contributed to HEIM’s stronger qoq sales. Meanwhile, 1Q21 PBT increased by 43.4% qoq from higher revenue contribution, effective cost management and absence of RM14m one-off provision for organizational restructuring cost in 4Q20. No dividend was declared during the quarter.

Maintain HOLD

We raise our 2021-23E earnings estimates by 0.4-3.5% to factor in a slightly higher EBITDA margin of 18.9% for 2021E (from 18.4% previously) post the strong results. We also roll forward our base year to 2022E, resulting in a higher DCF derived TP of RM26. Maintain a HOLD call on Heineken Malaysia as we remain cautious on the stock’s near term upside at this juncture with the renewed MCO3.0 and the rising Covid-19 cases Malaysia. Up/downside risks: (i) earlier/later-than-expected containment of Covid-19 and (ii) sharp decline/spike in raw-material costs, and 3) regulatory risks which could dampen sales volumes

Source: Affin Hwang Research - 21 May 2021

Labels: HEIM
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Sector Update – Electronic Manufacturing Sector (OVERWEIGHT, Maintain) - Sell-down Offers Opportunity; No Change in Fundamentals

Author: kltrader   |  Publish date: Fri, 21 May 2021, 10:08 AM

  • Speculation about activist Andy Hall assessing the EMS sector on similar grounds as the glove sector has dented sentiment. However, we are not entirely surprised as he had already hinted he may look at several other sectors in Malaysia at a glove conference in early 2021
  • While our analysis shows that the market did not react negatively to those allegations for the glove sector initially, some investors have seen the implications and concerns may be valid. However, the key customer in mind here is a leading UK brand which we believe strictly adheres to labour laws. Thus the end results may not be the same
  • We remain positive on the sector for its structural growth and believe this pullback serves as a buying opportunity

The Big Event

The Malaysia EMS sector took a heavy beating yesterday on speculation that migrant w orker rights activist, Andy Hall (AH) is looking to assess the sector on any potential labor mistreatment issues. ATA IMS, SKP Resources and VS Industry saw share prices react negatively, declining by 18%, 13% and 7% respectively.

Info That We Know

From our multiple channel checks, w e gather this has indeed happened but w ith the issue targeting the “main customer level”, rather than the contract manufacturers (CM). From our sources, one of the CMs w as approached by AH but had subsequently diverted this issue to its customer. The underlying concerns at this point in time lies in the possibility of a repeat of Top Glove’s detention orders as imposed by the US Customs and Border Protection (CBP). All the CMs nevertheless w ere unable to guide on their revenue exposure to the US. How ever, w e believe the “main customer” being established in the UK is likely to have adopted and adhered to stringent labour law s. Also, w e take comfort that multiple audits are conducted annually on each CM’s value chain to ensure compliance. We thus see this situation being completely different than that of, w hereby EMS players (including at the customer level) show strong emphasis on staff w elfare such as providing a comfortable w orker accommodation environment, and bearing foreign labour recruitment fees and levies to name a few , from our ground checks.

Maintain Sector Overweight

Given the short-term overhang until better clarification from companies and w ith the fragile market sentiment, w e low er our target PER multiples on both VS and ATA to 18x (from 26x) and MTAG to 14x (from 17x). We lower target price on VS to RM1.64 (post bonus issue), ATA to RM3.06 and MTAG to RM0.99. We continue to like the EMS sector as we believe there is no change in fundamentals. The escalation in the trade war w ill continue to see MNCs shifting their operations out of China, benefiting local EMS players. More importantly, w e remain positive on the longer-term demand trend for consumer appliances due to higher expectations tow ards a better quality of living

Source: Affin Hwang Research - 21 May 2021

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Global News 21 May 2021

Author: kltrader   |  Publish date: Fri, 21 May 2021, 10:08 AM

Techs Lead US Equity Rebound After Jobs Report

Technology companies led a rebound in US equities after a report showing applications for state unemployment insurance fell last week to a fresh pandemic low rekindled optimism in the economic recovery. The S&P 500 rose by 1.06% to 4,159.12 while Dow Jones was up 188.11 points (0.55%) to 34,084.15.

Initial Jobless Claims in US Decline to Fresh Pandemic Low

Applications for US state unemployment insurance fell last week to a fresh pandemic low, signaling steady improvement in the job market as remaining business restrictions are lifted. Initial claims in regular state programs decreased by 34,000 to 444,000 in the week ended May 15. The drop in jobless applications shows the labor market continues to thaw as more Americans get vaccinated and return to work.

White House says Republican governors are pulling jobless benefits too soon

The White House pushed back against Republican governors curbing the extra jobless benefits for out-of-work Americans extended in President Joe Biden’s March pandemic-relief package. Cecilia Rouse, Chair of the Council of Economic Advisers noted that there will come a day when they do not need these additional supports. There’s no question, these were designed to get us to the end of the pandemic.

Bank of Canada Warns Home Buyers Rates Will Eventually Rise

Bank of Canada Governor Tiff Macklem said recent gains in home prices aren’t sustainable and warned households against taking on too much mortgage debt because interest rates will eventually rise. Macklem said some households have taken on “significantly” more debt, with many carrying very large mortgages relative to income.

UK City Apartments Back in Demand After Departures in Pandemic

Britain’s city-center apartments and smaller properties are selling again after a loosening of lockdowns that sent buyers fleeing for the suburbs. The online property site Rightmove said demand for homes in inner London rose 30% since January, while Norwich gained 62% and York by 76%. The findings suggest city living retains appeal as the government allows restaurants, bars and entertainment to reopen.

Australian Employment Dropped in April as Wage Subsidy Ended

Australian employers cut jobs in April, coinciding with the first full month after the government’s JobKeeper wage subsidy concluded, while the unemployment rate also declined as fewer people sought work. The economy shed 30,600 positions, led by a 64,400 drop in part-time roles. The jobless rate fell to 5.5% from an upwardly revised 5.7% in March, as the participation rate edged back to 66% from 66.3%.

Hong Kong Jobless Rate Drops for Second Month on Better Economy

Hong Kong’s unemployment rate fell for a second straight month in April as the city slowly emerges from an extended slump fueled by the pandemic and social unrest. The jobless rate fell to 6.4% in the February-to-April period from 6.8% previously. Hong Kong is showing increasing signs of rebounding from its unprecedented two-year recession, posting its fastest growth since 2010 in the first quarter with a revised 7.9% year-on-year jump.

Oil Slips With Potential Sanctions Relief on Iran Looming

Oil slumped to the lowest in nearly a month as traders focused on the likelihood of a renewed nuclear deal with Iran and the potential removal of sanctions on the country’s crude exports. Brent crude for July settlement dropped US$1.55 to US$65.11 per barrel.

Source: Affin Hwang Research - 21 May 2021

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ASEAN Weekly Wrap - Thailand Economy Remains Vulnerable to Covid-19

Author: kltrader   |  Publish date: Thu, 20 May 2021, 10:09 AM

  • Thailand real GDP growth contracted for the fifth consecutive quarter by 2.6% yoy in 1Q21 weighed by lower domestic demand and private consumption from sharp drop in tourism activity
  • Thai’s finance ministry lowered its 2021 GDP growth projection to 2.3% from 2.8% due to the third wave of Covid cases
  • In Singapore, the country’s non-oil domestic exports (NODX) rose for the fifth straight months to 6.0% yoy in April

Stronger Growth of Exports in Indonesia and Singapore

Thailand’s real GDP growth contracted for the fifth consecutive quarter by 2.6% yoy in 1Q21 but smaller than the decline of -4.2% in 4Q20. The slight improvement was supported by stronger investment, exports and manufacturing. However, the recent 3rd wave of Covid-19 cases provided dimmer outlook for the country, as reflected in lower domestic demand and private consumption from sharp drop in tourism activity. Last month, the Thai’s finance ministry lowered its 2021 GDP growth projection to 2.3% from 2.8% due to the third wave of Covid-19 cases. Although the ministry lowered the projection on arrival of foreign tourists from 5 million previously to 2 million for 2021, we believe there remain downside risks to the country’s tourism business in view of recent rising Covid-19 cases. However, the impact on domestic demand will be cushioned by expected growth, that will be supported by the recovery of merchandised trade, government expenditure and low growth base in 2020. Earlier this week, Thailand government approved an additional 700bn baht (US$22.3bn) borrowing to fund measures for Covid relief on top of the ongoing 1trn baht debt plan made to fund pandemic relief measures in 2020. With the additional borrowing the public debt to GDP ratio may rise to 58.6% by September.

In Singapore, the country’s non-oil domestic exports (NODX) rose for the fifth straight months by 6.0% yoy in April, but lower than 12.1% yoy recorded in March. The electronics export slowed to 10.9% yoy in April compared to 24.4% yoy previously, but non-electronic exports grew at 4.7% almost halved of the expansion 9.4% yoy in previous month. April’s imports rose to 25.9% from 17.9% in March, the second positive growth since April 2020. In the months ahead, we believe Singapore’s NODX will continue to be supported by electronic exports, due to higher demand from China and Asean partners.

Separately, Indonesia’s export growth expanded by 51.9% yoy in April from 30.5% in March, its sixth consecutive month of positive growth. Growth were driven by exports of precious metals, iron and steel. Imports rose by 29.9% yoy during the month compared to 25.7% in March. As a result, the trade balance remained in surplus of US$2.2bn (US$1.6bn in March), its twelfth straight month of trade surplus. On a cumulative basis, Indonesia recorded a higher trade surplus at US$7.7bn in Jan-Apr (US$2.2bn in Jan-Apr 2020) given stronger export demand due to recovery of Covid-19 pandemic in tandem with weaker import demand.

Source: Affin Hwang Research - 20 May 2021

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