Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Wed, 23 Sep 2020, 4:58 PM


Economic Update - Malaysia Stimulus Package – 22nd Update: Proactive Stimulus Measures Supported Growth

Author: kltrader   |  Publish date: Wed, 23 Sep 2020, 4:58 PM

  • Hiring Incentive Programme and Training Assistance has benefited 33,688 employees compared to 28,577 in the previous week
  • Under the Moratorium on Loan Repayment, the value of the moratorium increased by RM3.8bn to RM89.6bn as at 11 September 2020
  • BNM's SME Soft Loans Funds, banks have approved loans worth RM10.5bn for over 22,822 SMEs, an increase of RM0.1bn from 22,688 SMEs in the previous week

Economic indicators showing improvement from the economic fallout

Ministry of Finance (MOF) guided in the twenty second update of the PRIHATIN and PENJANA stimulus packages that applications approved in the Wage Subsidy Programme (WSP) increased to 2.626mn workers as at 11 September, as compared to 2.622mn workers in previous week, where RM10.44bn was approved (RM10.41bn in the previous week). This was equivalent to about 75.7% of the total RM13.8bn allocation. Apart from the extended WSP, there are other measures such as Hiring Incentive Programme and Training Assistance, which benefited 33,688 employees as at 11 September (compared to 28,577 in the previous week). Both programmes are part of the efforts made by the Government to maintain employment due to the impact of Covid-19 pandemic.

Measures to help SMEs increase funds in order to support their capability and drive business activities include BNM's SME Soft Loans Funds where, as of 11 September, banks have approved loans worth RM10.5bn for 22,822 SMEs, an increase of RM0.1bn from 22,688 SMEs in the previous week. Further measures to assist the local businesses is through PENJANA SME financing where, as of 11 September 2020, a total of 2,566 applications have been approved (from 2,131 in the previous week), worth RM639.6mn (RM562.3mn in the previous week). This was equivalent to 32% from the RM2bn allocation.

In addition, through the TEKUN Business Recovery Scheme which aims to support cash flow of micro SMEs, as of 11 September, a total of RM71.2mn has been disbursed (RM62.7mn in the previous week) and has benefitted 10,649 micro SMEs (9,313 micro SMEs in the previous week). Moreover, as at 11 September, Moratorium on Loan Repayment increased by RM3.8bn to RM89.6bn, compared with RM85.8bn in previous week, where a total of RM31.4bn was utilised by business sector (from RM30bn in previous week) and RM58.2bn utilised by the public (from RM55.8bn). Details on the progress and achievement of other initiatives can be found in the Appendix I and II.

This week, Finance Minister (FM) Tengku Zafrul guided that stimulus packages announced earlier to support business and economic recovery would be enhanced, where feedback from industries will be incorporated and presented in the 2021 Budget in early November. We believe the strategies and efforts will be in line with the 2021 Budget themes of sustaining life, driving economic growth, caring for the welfare of the people and improving the public service delivery. FM further added that the investment in the bond market recorded RM23.1bn up to August 2020, coming from foreign investors, shows market confidence in Malaysia’s economic fundamental remaining strong. FM also highlighted possible various infrastructure projects, such Bandar Malaysia, with a gross development value of RM140bn, which will have potential positive multiplier effect on the country’s economy going forward. FM added the initiatives by the Northern Corridor Implementation Authority (NCIA), targeting to increase the economy of the Northern Corridor Economic Region (NCER) by RM300bn, as outlined in the newly launched NCER Strategic Development Plan (SDP) 2021-2025. We believe 2021 Budget to be an expansionary budget to stimulate domestic demand amid global economic uncertainty, where the focus will likely be on infrastructure spending revival, with possible increase in the budgetary allocation for development expenditure (DE) as well.

Source: Affin Hwang Research - 23 Sept 2020

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Global News 23 September 2020

Author: kltrader   |  Publish date: Wed, 23 Sep 2020, 4:57 PM


Stocks climb as dip buyers emerge after selloff

Stocks climbed as dip buyers emerged after the market selloff, tempering concern over remarks from Federal Reserve officials that pointed to a slow economic recovery. The dollar rose. The S&P 500 rose by 1.05% to 3,315.57 while Dow Jones was up 140.48 points (0.52%) to 27,288.18.

Evans says Fed plan allows hike before inflation averages 2%

The US central bank’s new guidance on interest rates doesn’t preclude tightening before inflation averages 2% for some period of time, Chicago Fed President Charles Evans said. “We’ve sort of said we’re looking to get inflation up to 2%, and then after that, we could be raising rates and still have an accommodative setting of monetary policy,” Evans said.

Fed’s Bullard says US has already delivered enough fiscal aid

Federal Reserve Bank of St. Louis President James Bullard said the US economy has enough momentum to continue its recovery from the coronavirus slump even if Congress fails to pass additional taxpayer support. “I don’t think there is as much of an imperative about a new fiscal package as there might have been” in July or August, Bullard said.

Europeans unwillingly hoarded cash during lockdowns, ECB says

Europeans struggled to spend their money in the midst of the coronavirus pandemic, sparking a surge in savings, according to the European Central Bank. With economies in lockdown and millions of consumers forced to stay at home, people in the euro area were unable -- rather than unwilling -- to consume as normal in the first half of the year, the ECB said in its economic bulletin.

Bailey plays down odds of BOE negative rates on virus risks

The Bank of England isn’t close to negative interest rates despite the resurgence of the coronavirus reinforcing downside risks to the UK economy, according to Governor Andrew Bailey. While the bank has “looked hard” at rate cuts and negative rates are in the toolbox, planned technical work on the policy is to examine whether it can be implemented rather than a signal it is coming, he said.

Indonesia sees economy contracting for first time since 1998

Indonesia’s economy is set to contract for the first time since the Asian financial crisis more than two decades ago as the country struggles to get virus cases under control. Gross domestic product is forecast to decline 0.6% to 1.7% this year, Finance Minister Sri Mulyani Indrawati said. The government previously had estimated the economy could grow 0.2% or shrink by as much as 1.1%.

Thai cabinet backs US$2.2bn cash aid to boost economy, jobs

Thailand’s cabinet backed several stimulus measures worth a combined budget of 70bn baht (US$2.2bn) to boost consumption and jobs to counter the economic downturn from the Covid-19 outbreak. The ministerial meeting also passed a resolution to add three additional holidays this year to encourage domestic travel, as the country’s vital tourism sector has been crushed by the absence of international tourists for months because of the pandemic.

Oil rebounds on stronger stocks as virus casts cloud over demand

Oil recovered from the steepest one-day loss in almost two weeks as equities advanced, though further gains may be limited by a resurgence in coronavirus cases and new lockdown measures. Brent crude for November settlement rose US$0.28 to US$41.72 per barrel.

Source: Affin Hwang Research - 23 Sept 2020

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Company Update – Malaysia Airports (SELL, Maintain) -A Long Road to Recovery

Author: kltrader   |  Publish date: Wed, 23 Sep 2020, 4:52 PM

  • Governments in Asia-Pacific are generally cautious about easing travel restrictions.
  • Malaysia’s government extended RMCO and tightened border control by banning citizens from countries with a high number of Covid-19 cases.
  • The closure of borders may last longer than our prior expectations. We cut our earnings forecasts and lower our TP to RM4.20. Maintain SELL.

In Asia-Pacific, the governments are cautious about easing travel restrictions

Based on a recent research by World Tourism Organization (UNWTO), 115 destinations (53% of all destinations worldwide) have eased travel restrictions. However, many countries remained extremely cautious; 93 destinations (43%) continued to have their borders completely closed to tourism, including Malaysia and a number of Malaysians’ favourite travel destinations.

Meanwhile, Malaysia has tightened its border control

The Malaysian government had on 28th August announced an extension of the RMCO to end-Dec20 and in early September, announced a ban on citizens from countries with a high number of Covid-19 cases from entering Malaysia. Separately, it was reported that the country’s travel bubble plans have been put on hold. In view of these developments, we believe that restrictions on cross-border tourism may last longer than our earlier expectations and negatively affect MAHB’s earnings.

Jul-Aug operating statistics for Malaysian operation were very weak

In July and August 2020, MAHB only registered 84k-91k international passenger movements for its Malaysia operations, a staggering decline of 98% yoy. While the domestic passenger movements fared relatively better during the period, the decline of 71-73% yoy was nevertheless very steep. Moving into 4Q20-1Q21, we expect passenger movements, especially for the international segment, to remain depressed due to travel restrictions and travellers’ cautious sentiment.

Cutting 2020-22E EPS forecasts maintain SELL with a lower TP of RM4.20

Taking into consideration the tightened border control, government’s cautious stance on Covid-19, extension of RMCO and weak operating statistics, we have lowered our passenger movement projections and cut our earnings forecasts for 2020-22E. In tandem, we have lowered our SOTP-derived price target to RM4.20 (from RM4.65). We maintain our SELL rating given its very challenging business outlook.

Source: Affin Hwang Research - 23 Sept 2020

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KESM Industries (HOLD, Maintain) - Earnings Collapsed, But Still in the Black

Author: kltrader   |  Publish date: Wed, 23 Sep 2020, 4:44 PM

  • FY20 profit down 95% due to weaker demand.
  • Results were below market and our expectations. We cut FY21-22E EPS by 20% and 12% respectively.
  • Maintain Hold but with a higher TP of RM8.60

Losses widened in 4QFY20, but largely due to a high tax charge

KESM reported a wider core net loss in 4QFY20 of RM3.6m. This was a result of lower revenue (-12% qoq) but also largely due to a jump in the tax paid of RM1.7m during the quarter, which exceeded the 4QFY20 pretax loss of RM1.6m. Earnings have continued to contract for the fourth consecutive quarter, but largely due to the weaker demand as a result of the ongoing Covid-19 pandemic.

FY20 earnings collapsed by 95%, below expectations

Full-year core profit of RM0.4m was well below our and street expectations of RM2.2m and RM4m respectively. The negative surprise was, however, largely due to the high tax charge in 4QFY20. Revenue and margins were largely in line with our expectations, with the sharp contraction a result of lower productivity due to lockdowns in China in the earlier part of the year and later in Malaysia. Overall, despite the weak performance, management has managed to preserve its EBITDA margins, which were down 0.8% yoy, despite the 22% YoY fall in revenue. Moreover, despite the weak performance, management has proposed a DPS of 6 sen or cumulatively 7.5 sen for FY20. This is commendable and backed by its healthy cashflows and strong net cash position of RM200m.

Maintain Hold

KESM posted its third consecutive year of profit decline in FY20, which was exacerbated by the Covid-19 pandemic. However, we believe that earnings are likely to have hit a trough, though a strong recovery may not be imminent because of the weak global macro environment. Nevertheless, we remain upbeat on KESM’s longerterm prospects, especially the onset of electric and autonomous vehicles. Being the largest independent burn-in provider globally, we think that KESM is poised to benefit from this secular trend. We ascribe a higher target P/BV of 1x on its CY21E Book Value and now value KESM at RM8.60, as the sector gradually improves and moves into recovery phase (previously RM7.30 based on 10-year mean P/BV of 0.84). Maintain HOLD. Key downside/upside risks include a loss/gain of customers and a reduction/gain in outsourcing opportunities.

Source: Affin Hwang Research - 23 Sept 2020

Labels: KESM
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Global News 22 September 2020

Author: kltrader   |  Publish date: Tue, 22 Sep 2020, 4:54 PM

Stocks pare losses as tech rally tempers bank rout

Stocks pared losses as a rebound in some tech giants tempered concern over cloudy prospects for economic stimulus and a report about suspicious transactions at global banks. Bonds and the dollar rose. The S&P 500 fell by 1.16% to 3,281.06 while Dow Jones was down 509.72 points (1.84%) to 27,147.70.

Fed’s Powell says US economy faces long, uncertain recovery

Federal Reserve Chair Jerome Powell said the US economy is improving but has a long way to go before fully recovering from the coronavirus pandemic. “Many economic indicators show marked improvement,” Powell said. “Both employment and overall economic activity, however, remain well below their pre-pandemic levels, and the path ahead continues to be highly uncertain,” he said.

Fed’s Kaplan, wary of bubbles, dissented to preserve flexibility

Federal Reserve Bank of Dallas President Robert Kaplan said he doesn’t want to commit the US central bank to too much monetary stimulus once the economy has recovered from the pandemic. Kaplan said he believes “strongly” that the Fed should keep its benchmark interest rate in a target range of zero to 0.25% until the economy has weathered the pandemic and is “well on track” to full employment and price stability, which could take at least two to three years.

Lagarde says ECB still has options if more stimulus needed

Christine Lagarde said the European Central Bank (ECB) has room to add stimulus and can adapt its already expansive toolkit if the economy needs more help. She said while the third quarter will see a rebound, the recovery from the coronavirus recession is still “uneven and incomplete.” The ECB is paying close attention to the euro’s appreciation and its knock-on effect on inflation.

UK house prices up most since 2016 as Britons seek more space

A boom in the UK housing market gathered pace this month as Britons’ pandemicdriven desire for more living space and a tax break on purchases pushed asking prices up by the most in four years. Advertised prices for homes gained 5% yoy, the most since September 2016, property website Rightmove said.

Philippines central bank chief says likely to keep easy policy

Bangko Sentral ng Pilipinas’ loose monetary policy “will be on the table for the next maybe 2 years” as uncertainties remain, Governor Benjamin Diokno said. “Right now, we have taken a pause, a deliberate pause, so that we’ll see how that 1.4t pesos is absorbed by the market,” he told, referring to the amount of funds that central bank’s liquidity-support measures have released into the financial system.

Korea’s early exports rise on more work days, growing demand

South Korea’s early trade data showed exports rebounding in September, buoyed by more work days and growing demand for cars and semiconductors from economies gradually reopening after coronavirus-triggered lockdowns. Exports rose 3.6% yoy in the first 20 days of September, the first rise in early trade data since March, according to customs office data released. Average daily shipments fell by 9.8% as the period had two more working days compared with last year.

WTI oil rebounds to near US$40 as Storm Beta approaches Texas coast

WTI oil pared some of Monday’s losses in Asia, with investors keeping an eye on a storm front threatening the US Gulf Coast and mounting concerns over prolonged coronavirus restrictions putting risk assets broadly under pressure. Brent crude for November settlement declined US$1.71 to US$41.44 per barrel.

Source: Affin Hwang Research - 22 Sept 2020

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Sector Update – Malaysia Auto & Autoparts (OVERWEIGHT, Maintain) - A Steady Recovery in Aug-20

Author: kltrader   |  Publish date: Tue, 22 Sep 2020, 4:49 PM

  • Aug-20 Total Industry Volume (TIV) rose marginally by 3% yoy to 53k units. However, Aug20 TIV was lower by 8% mom, after pent-up demand of orders, following the lockdown easing and Sales & Service tax (SST) exemption in July-20 as well as a shorter working month in Aug-20
  • Although 8M20 TIV of 285k units (-28% yoy) only accounted for 61% of our full-year forecasts, we believe the cheaper car prices from the SST exemption and new model launches should sustain sales momentum
  • Maintain Overweight. Our sector and country top pick is Sime Darby.

Both national carmakers continued to perform well

Proton’s Aug20 sales volume rose by 25% yoy to 62k units (-14% mom), with 8M20 sales volume of 62k units (+1% yoy). Proton is expected to launch the X50 SUV in Oct20, and targets to sell 4k units for 2020, which we think is achievable given that the all-new B-segment SUV has received >10k bookings. Meanwhile, Perodua’s performance was also commendable – Aug20 sales rose by 13% yoy to 23k units (- 3% mom), led by healthy demand for its existing Perodua line-up, maintaining its dominant position with a 42% market share (8M19: 40.6%). Overall, the national’s combined 8M20 market share stood firm at 63.7% (vs 8M19: 56%).

Mixed performance for the non-nationals

Performance for the Japanese brands were mixed in Aug20, with Mazda (+20% yoy, thanks to the extended warranty/service maintenance) and Toyota (+3% yoy) leading the pack, whereas Honda (-25% yoy) and Nissan (-42% yoy) were the laggards. However, we believe the latter two brands should see better sales volume in the remaining months as Honda and Nissan are expected to launch the Honda City and Nissan Almera in 4Q20. We are unable to ascertain the sales performance for BMW/Mini, Mercedes-Benz and Scania as these carmakers would only disclose their sales volumes on a quarterly basis.


Our 2020E TIV forecast remains unchanged at 465k units (-23% yoy), as we expect cheaper SST exempted car prices to support sales in the coming months. Sime Darby Sime; RM2.30, BUY) is our preferred sector and country pick. Sime is a good proxy to regional recovery - we anticipate the higher equipment deliveries and parts sales from Australasia and China as well as catch-up spending from affluent consumers will boost luxury car sales in China and Malaysia. Given our BUY rating for large-cap, Sime Darby, we keep our Overweight on the sector. Downside risks could come from: i) a prolonged tightening of auto financing hindering the borrowing ability of car buyers; ii) exchange rate risk; and iii) a slowdown in the economy.

Source: Affin Hwang Research - 22 Sept 2020

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