Highlights

Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Thu, 23 Jan 2020, 4:55 PM

 

Economic Update – ASEAN Weekly Wrap - Asean Central Banks Likely to Ease Monetary Policy

Author: kltrader   |  Publish date: Fri, 24 Jan 2020, 4:50 PM


IMF Expects a Modest Pickup of Global GDP Growth in 2020

Bank of Indonesia (BI) left its policy rate unchanged at 5.0% for the third consecutive meeting in January. In 2019, BI lowered its policy rate by a total of 4 times. BI noted that it will monitor domestic and global economic development to maintain controlled inflation and external stability as well as to support economic growth momentum. Despite some optimism surrounding the Phase 1 Trade Deal which BI highlighted will reduced global financial market uncertainty, where global recovery outlook has also strengthened its domestic economic growth momentum, BI also cautioned that geopolitical risks continue to demand attention. We believe the focus of BI’s monetary policy stance in 2020 will still be on supporting economic growth. We expect there will be another rate cut by BI in 2020 if its GDP growth continues to slow down further, especially when there are uncertainties on the external front including geopolitical tension and Brexit, as well as possible renewed escalation of trade war between US and China.

The International Monetary Fund (IMF) revised downward its global GDP growth by 0.1ppt for 2019 which expanded by 2.9% from its previous projection of 3.0% in the October WEO forecast. The IMF has trimmed down the global GDP growth in 2019 six times since its initial target of 3.9%. The IMF guided that the downward revision was mainly due to the “negative surprises to economic activity in a few emerging market economies, notably India, which led to a reassessment of growth prospects over the next two years”. As the growth momentum in the global economy starts to recover only slowly, the IMF has also revised downward its global growth projection by 0.1 percentage point from initial target of 3.4% to 3.3% in 2020, with the expectation of the pickup in trade growth, reflected from a rebound in domestic demand, investment together with waning hindrances in the auto and tech sectors. Nevertheless, we expect global growth will remain tilted to the downside on the possibility of trade escalation between both US and China as we expect the ‘Phase two’ trade deal will only take place in 2021, possibly after the US Presidential elections in November 2020. Meanwhile, the earlier imposed of 25% tariffs on the US$250bn worth of Chinese imports have not been lowered or removed. For the ASEAN-5, the IMF also cut its 2019 GDP growth by 0.1ppt, from 4.8% in October WEO to 4.7% and foresees growth to increase slightly higher to 4.8% in 2020.

Separately, Philippines GDP growth picked up to 6.4% yoy in 4Q19 from 6.0% in the 3Q19, its highest growth since 1Q18, mainly supported by infrastructure spending by the Government. Nevertheless, for full year 2019, Philippines GDP growth slowed to 5.9% yoy after rising by 6.2% in 2018, the slowest annual GDP growth since 2011.

Source: Affin Hwang Research - 24 Jan 2020

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Pavilion REIT (HOLD, Maintain) - Weak Results, Cautious Outlook

Author: kltrader   |  Publish date: Fri, 24 Jan 2020, 4:49 PM


Pavilion REIT reported a weak set of results – 2019 realised net profit fell by 2.9% yoy to RM248m due to lower earnings from Da Men, Intermark and Pavilion Tower, mitigated by higher contribution from Pavilion KL and Elite Pavilion Mall. In tandem, the DPU fell by 3.1% yoy to 8.50 sen. The results were below market and our expectations due to weaker than expected contribution from Pavilion KL. We cut our 2020-21E earnings forecasts by 6% and lower our DDM-derived TP to RM1.75 (from RM1.85). Maintain HOLD. At 5.0% 2020E yield, PREIT now trades at 0.5 standard deviation below its 6-year average of 5.3%, which looks fair considering resilient earnings from Pavilion KL (85% of group NPI) and strong investor demand for defensive assets.

Weak 2019 Realised Profit of RM248m (-2.9% Yoy), Below Expectations

Pavilion REIT’s 2019 realised net profit fell by 2.9% yoy to RM247.6m due to weaker net property income from Da Men, Pavilion Tower and Intermark, mitigated by higher contributions from the Pavilion KL (Fig 2). In tandem, 2019 DPU slipped by 3.1% to 8.50 sen. The lower profit from Da Men was due to weaker occupancy rates and decline in rental while the decline in Intermark’s contribution was attributable to expiry of the profit guarantee. Overall, the results were below market and our expectations; 2019 net profit came in at 94% of consensus and 96% of our full-year forecasts. The earnings miss was due to lower-than-expected rental and higher operating costs at Pavilion KL and low rental rates at the Da Men.

Sequentially, 4Q19 Earnings Inched Up by 0.5%

Sequentially, Pavilion REIT’s 4Q19 realised net profit grew by 0.5% qoq to RM59.7m on higher contribution from Intermark, Da Men, and Elite Pavilion Mall which more than offset lower NPI from Pavilion KL and Pavilion Tower (Fig 2). Revenue from Pavilion KL has slipped by an unexpected 1.3% qoq while operating costs remained evaluated due to costs incurred for tenancy lots enhancement at Pavilion KL, market expenses incurred for Deepavali and Christmas and upgrading of advertising media.

Management Is Cautious on the 2020 Outlook

Management is cautious on the overall business outlook. Notwithstanding a higher traffic flow at Pavilion KL, management observed that consumer confidence has weakened and expects a flattish year for Pavilion KL. Elsewhere, occupancy at the Da Men mall has improved but the rental has fallen by c.15% yoy. Management is hopeful that the opening of cinema (scheduled to open in October 2020) to lift the mall’s vibrancy and 2021 rental growth.

Source: Affin Hwang Research - 24 Jan 2020

Labels: PAVREIT
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KLCCPSG (BUY, Maintain) - a Good End to the Year, DPS Grew 2.7% Yoy

Author: kltrader   |  Publish date: Fri, 24 Jan 2020, 4:48 PM


KLCC reported a solid set of results – 2019 core net profit grew by 0.8% yoy to RM732.1m on resilient contributions from the retail segment, despite its ongoing reconfiguration exercise and stronger performance from the hotel segment post the refurbishment exercise last year. In tandem, KLCC declared a higher distribution of 38 sen (+2.7% yoy). Overall, the results were in line with our expectations but below market. We maintain our BUY call with an unchanged TP of RM8.90. At 5.0% 2020E yield, valuations look attractive considering its defensive earnings profile and dividend payment.

Resilient Retail and Higher Hotel Contributions Boost Income

KLCC’s 2019 core net profit grew by 0.8% yoy to RM732.1m on the back of higher revenue (+1.2% yoy) and stable NPI margin of 72%. KLCC reported higher earnings across all segments (Fig 2); notably, the retail segment delivered an increase of 2.3% yoy to RM514.7m despite the reconfiguration exercise at the mall. Elsewhere Mandarin Oriental KL Hotel enjoyed better F&B performance and higher revenue per available room from higher occupancy (64% in 2019, from 55% in 2018) post refurbishment exercise. The full year DPS came in at 38 sen, an increase of 2.7% yoy. Overall, the results were within our expectations but below consensus forecasts.

4Q19 Core Net Profit Grew by 2.7% Qoq to RM186.4m

4Q19 core net profit grew 2.7% qoq, driven by higher revenue (+3.2% qoq), arising from higher contributions from the retail (+5.4% qoq) and hotel (+11.3%) segments, which more than offset a slight decrease in the office revenue (-0.5%). Meanwhile, EBIT margin remains sturdy at 71%. Management has declared a DPS of 11.60 sen in 4Q19 (from 8.80 in 3Q19); KLCC has typically declare higher dividend in the 4Q.

Maintain BUY With An Unchanged SOTP-derived TP of RM8.90

The Phase 1 of the reconfiguration exercise is now completed but the opening is slightly delayed, pending approvals from the authority. Meanwhile, the Phase 2 reconfiguration will commence in early February and scheduled to open in 2Q2020. We tweaked our 2020-21E EPS forecasts by -0.2% after incorporating the full year financial statements. We maintain our BUY rating on KLCC with an unchanged SOTP-derived TP of RM8.90. We continue to like KLCC REIT for its defensive rental income, backed by triple net leases, high asset occupancy and sustainable yields in times of an economic downturn. At a 5.0% 2020E yield, valuation looks attractive considering its defensive earnings and steady DPS growth. Downside risks: downturn in the retail mall and hospitality markets.

Source: Affin Hwang Research - 24 Jan 2020

Labels: KLCC
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Economic Update – Malaysia-OPR - BNM Cut Its OPR by 25bps to 2.75%

Author: kltrader   |  Publish date: Thu, 23 Jan 2020, 4:55 PM


Downside Risks to Global GDP Growth Remain in 2020

Bank Negara Malaysia (BNM) decided to cut its Overnight Policy Rate (OPR) by 25bps from 3.0% to 2.75%, after leaving it unchanged for three consecutive meetings since May 2019. This was its lowest level since April 2011. The ceiling and floor rate of the corridor of the OPR were also lowered to 3% and 2.5%, respectively. BNM guided that its decision to lower the OPR was a “preemptive measure to secure the improving growth trajectory amid price stability”.

In its latest assessment of the global economy, despite recent improvement in macro indicators and some easing of global trade tensions, which is reflected in the improvement in global trade activity, BNM cautioned that downside risks continue to persist, partly attributed to geopolitical tensions and policy uncertainties in a number of countries. This was also in line with International Monetary Fund’s (IMF) latest assessment on the global GDP outlook, in which it guided that the modest pickup in global growth in 2020 will hinge on further developments of the global trade war, as well as Brexit and economic ramifications of social unrest and geopolitical tensions. The IMF lowered its 2019 and 2020 growth projections by 0.1 percentage points to 2.9% and 3.3%, respectively.

As for the domestic economy, BNM anticipates the country’s economic growth in the fourth quarter of 2019 to be moderate as reflected in recent indicators and supply disruptions in commodity-related sectors. However, in 2020, BNM expects Malaysia’s GDP growth to improve bolstered by household spending and an improvement in export growth. Investment is also anticipated to turnaround albeit modestly supported by ongoing and new projects in the public and private sectors. However, BNM highlighted that downside risks to global and Malaysia’s economic growth remains, stemming from “uncertainty from various trade negotiations, geopolitical risks, weaker-than-expected growth of major trade partners, heightened volatility in financial markets, and domestic factors that include weakness in commodity-related sectors and delays in the implementation of projects”. On the inflation front, BNM projects headline inflation to likely average slightly higher in 2020 (0.7% in 2019) but this will be dependent on global oil and commodity prices as well as the timing of the implementation of the fuel subsidy programme.

We are maintaining our real GDP growth of 4.7% estimated for 2019 and likely to remain commendable albeit slower at 4.5% projected for 2020. We believe some of the Budget 2020 announced measures as well as healthy labour market condition to be supportive of domestic demand, especially private consumption. However, the possible escalation in trade war uncertainties will remain as a downside risk. Following the signing of the ‘Phase one’ trade deal, there remains uncertainty surrounding the progression of trade talks, as a ‘Phase two’ deal may only occur in 2021 after the Presidential elections in November 2020, in our view. We believe this would also suggest no roll back in the earlier imposed 25% tariffs on the US$250bn worth of Chinese imports. We believe the latest OPR cut by BNM may be partly attributed to the recent coronavirus (2019-nCoV) outbreak amid increasing number of confirmed cases of infection. This may be a pre-emptive measure in order to contain its implications on economic activity, especially in the tourism and retail sectors. Therefore, unless the coronavirus outbreak worsens, we anticipate BNM to keep its OPR unchanged throughout 2020 as it guided that the current OPR level of 2.75% is appropriate in sustaining economic growth with price stability.

Source: Affin Hwang Research - 23 Jan 2020

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IGB REIT (BUY, Maintain) - Stellar Earnings, DPU a Slight Disappointment

Author: kltrader   |  Publish date: Thu, 23 Jan 2020, 4:53 PM


IGB REIT reported a decent set of numbers – 2019 realised net profit grew by 4.0% yoy to RM315.9m on higher revenue (+3.1% yoy) and stable NPI margin. Nevertheless, 2019 distributable income grew by a muted 0.1% yoy due to higher management fees paid in cash, resulting in a 0.3% decline in DPU to 9.16 sen. Overall, the results were within market and our expectations. We maintain our BUY rating but lower our DDM-derived TP to RM2.12 (from RM2.15) after incorporating a higher cash / lower units payout for management fees. Looking ahead, we expect IGB REIT’s valuation to see further positive re-rating, driven by an increasing scarcity premium for highquality retail assets with robust growth prospects and low gearing.

Decent earnings but DPU slipped due to higher cash payments for management fees

IGB REIT reported a decent set of results – 2019 realised net profit grew by 4.0% yoy to RM315.9m on higher rental income (+3.1% yoy) and robust NPI margin of 72%. We believe the reconfiguration exercise involving 5% of NLA in Mid Valley (previously tenanted to AEON) has helped lift revenue and profitability. 2019 distributable income, however, increased by a mere 0.1% yoy due to higher cash / lower units payment for management fees. In 2019, IGB REIT paid 65% of management fees in units (from 100% previously). As a result, 2019 DPU declined by 0.3% yoy to 9.16 sen (FY18: 9.19 sen).

Earnings Sequentially Weaker Due to Higher Costs

IGB REIT’s 4Q19 realised net profit fell by 5.7% qoq to RM75.3m due to higher maintenance expense, which more than offset the 2.4% revenue growth. Moving ahead, we expect maintenance expenses to normalise to RM4.5m-RM6.5m / quarter (from the record RM9.8m in 4Q19).

Maintain BUY With a Lower TP of RM2.12

We tweaked our 2020-21E realised EPU forecasts by -0.1% / +0.2% and lowered our DPU forecasts by 3% after incorporating a higher cash (lower units) payment for the management fees. In tandem, we have revised our DDM-derived TP to RM2.12 from RM2.15. Maintain BUY. IGB REIT remains our top pick within the retail MREITs due to its stellar earnings track record, proactive management with innovative asset enhancement activities (AEI), efficient cost control and low gearing ratio. Downside risks: lower-than-expected earnings, reversal in global yield trend.

Source: Affin Hwang Research - 23 Jan 2020

Labels: IGBREIT
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Digi.Com (HOLD, Maintain) - Results in Line; Subdued Guidance for 2020

Author: kltrader   |  Publish date: Thu, 23 Jan 2020, 4:52 PM


Digi reported an uninspiring set of results: notwithstanding a 1.7% growth in service revenue, its 4Q19 net profit slipped by 3.7% due to higher upfront device costs for postpaid acquisitions. Cumulatively, 2019 net profit fell by 7% yoy to RM1,433m due to the adoption of MFRS16 (-4.2% impact on profit) and lower underlying profit (-3.0% yoy). Overall, the earnings are within our forecast but 3% below market expectation. Looking ahead, management expects a flat to low-singledigit decline in 2020 service revenue and EBITDA. We cut our 2020-21 earnings forecasts by 6%, introduce the 2022 forecasts, and lower our DCF-derived 12-month TP to RM4.25 (from RM4.55). At a 26x 2020E PER, Digi is trading at its 8-year average PER, which looks fair. We maintain our HOLD rating.

4Q19 net profit slipped by 4% qoq on high device costs, traffic charges

In spite of a higher 4Q19 revenue of RM1.68bn (+7.4% qoq) driven by higher device sales and 1.7% service revenue growth, Digi’s 4Q19 net profit slipped by 3.7% qoq to RM343m due to higher upfront devices costs (for postpaid acquisitions) and higher traffic charges. In tandem with the weaker earnings, management declared a lower 4Q19 DPS of 4.4 sen (3Q19: 4.5 sen).

2019 net profit fell by 7% yoy, below street expectation but within ours

Cumulatively, Digi’s 2019 net profit fell by 7.0% yoy due to the adoption of MFRS16 (leases) and lower underlying profit. The adoption of MFRS16 lowered Digi’s 2019 net profit by 4.2% (Fig 3) while its underlying profit slipped by 3% yoy (Fig 1) due to lower service revenue (-2.5% yoy) following a cut in mobile termination rates (MTR), partly cushioned by lower operating costs. Tracking the lower EPS, Digi’s 2019 full-year dividend fell by 7% yoy to 18.2 sen. Overall, the earnings were within our expectation but 3% below the consensus forecast.

Management expects flat to low-single-digit decline in 2020 service revenue and EBITDA; 2020 capex to be similar to that in 2019

Management expects a flat to low-single-digit decline in its 2020 service revenue and EBITDA. Another cut in the MTR (from 1.96 sen in 2019 to 0.99 sen) may supress its 2020 service revenue. The lower service revenue, coupled with higher device / network costs and lower non-recurring savings (RM125m non-recurring savings in 2019 from operating model shifts / contract renegotiations) may lead to a lower 2020 EBITDA. Elsewhere, management expects its 2020 capex to be similar to that in 2019 (RM753m).

Source: Affin Hwang Research - 23 Jan 2020

Labels: DIGI
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