Highlights

JF Apex Research Highlights

Author: kltrader   |   Latest post: Fri, 20 Mar 2020, 5:19 PM

 

Top Glove Corporation Berhad - 2QFY20 : Better Quarter Ahead

Author: kltrader   |  Publish date: Fri, 20 Mar 2020, 5:19 PM


Result

  • Top Glove reported a net profit of RM116.0m in 2QFY20, up 4.1% QoQ and 8.7% YoY. Quarterly revenue stood at RM1229.7m, +1.7% QoQ and +6.6% YoY. Additionally, the group handed out an operating profit of RM149.3m which equated to 2.7% YoY growth.
  • Moderate 6MFY20 result. The group reported a revenue of RM2438.8m in 6MFY20 which increased marginally by 0.7% YoY. Besides, the group recorded a stagnant operating profit of RM305.1m (-4.7% YoY). As a result, net profit came at RM227.4m (+4.9% YoY).
  • Within our expectation and consensus. 6MFY20 net profit accounts for 49.0%/47.5% of our/consensus full year estimates.

Comments

  • Slightly better YoY performance. Top Glove’s revenue up 6.0% YoY due to higher average selling price of natural rubber glove (+9% YoY) as well as higher sales volume for nitrile gloves (+14% YoY). The Group’s operating profit increased 2.7% YoY because of lower nitrile latex raw material price (- 8% YoY), mild natural gas price hike (+3% YoY) and better operating efficiency from a large scale of production. Also, the group recorded marginally higher YoY net profit for its 6MFY20 to RM227.4m (+4.9%) because of lower tax expenses (- 23.7% YoY) pertaining to tax incentives. We believe the flattish of total sales volume (+1% YoY) due to fixed number of medical practitioners in our existing healthcare system globally and couldn’t be increased significantly in a short time of period. World Health Organization (WHO) estimates 76 million examination gloves needed per month.
  • Flattish QoQ result. The Group recorded gains of revenue (+1.7% QoQ), operating profit (+5.4% QoQ), and profit after tax (+3.8% QoQ). These were boosted by strong sales volume growth from latex powdered gloves (+16% QoQ) and surgical gloves (+18% QoQ). Also, better results from Aspion underpinned the overall bottom line in which 1HFY20 recorded 125% of FY19.
  • Expansion plans come at the right time. The Group has two new plants coming to serve namely F2B and F5A which will add extra 24 lines/3.2 billion capacity to the existing production lines. Aggregately, the current 711 production lines/73.4 billion of production believe to be able to cater the strong demand from America and Eurozone where the places in COVID-19 outbreaks.
  • Higher equity base. The Group issued a RM1.3 billion Sukuk (perpetual bond) on 27 February 2020 which will be utilized

for the future expansion plans. We opine that gearing up by issuing perpetual bond during the low interest rate environment is encouraging for the Group as it will strengthen its balance sheet with higher equity base to RM3981.2m (+55% YoY) from RM2536.9m. Likewise, the Group’s net gearing is reduced to 0.24 times.

  • Risks include: 1) Lower than expected demand for gloves, 2) Possible COVID-19 labour infection to disrupt production.

Earnings Outlook/Revision

  • We revise upward our FY20F earnings forecasts by +4.7% to RM487.6m from RM465.4m on the expectation of strong USD against MYR to be persisted in the next few months.

Valuation & Recommendation

  • Upgrade to BUY with a higher target price of RM6.50 (previous target price of RM4.73) after our earnings upgrade. Our revised target price is now pegged at 34x FY20F PER, which is at +1 standard deviation 5-year historical mean PE on the back of brighter outlook in respect of resilient glove demand.

Source: JF Apex Securities Research - 20 Mar 2020

Labels: TOPGLOV
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Industrial Production Index (IPI) – January'20 - Soothing Start for 2020

Author: kltrader   |  Publish date: Mon, 16 Mar 2020, 10:03 AM


Below expectations – Malaysia’s Industrial Production Index (IPI) started 2020 with a minor growth, only growing +0.6% y-o-y in Jan’20 as compared to +1.3% y-o-y in Dec’19. IPI growth was below ours and market expectation in view of easing momentum in Manufacturing and Mining production coupled with contraction in Electricity production. Also, Jan’20 IPI also grew +0.6% m-o-m as compared to +1.8% m-om in last month. Moreover, in tandem with easing IPI growth, Malaysia’s manufacturing Purchasing Managers’ Index (PMI) in Jan’20 also slowed to 48.8 from 50 from Dec’19 in view of lower output order deteriorated by slower global trading business.

Contraction in Food production – Manufacturing sector rose +2.1% y-o-y in Jan’20 as compared to +3.4% y-o-y in Dec’19. For export-oriented production, two subindustries eased their growths such as Woods products, furniture, paper products & printing (+3.0% y-o-y vs Dec’19:+4.9 % y-o-y) and Textiles, wearing apparel, leather & footwear printing (+3.2% y-o-y vs Dec’19:+4.9 % y-o-y) following minor productions in paper & paper products as well as leather & related products. Meanwhile, Petroleum, chemical, rubber & plastic products recorded same growths as the previous month which was +3.6% y-o-y (vs Dec’19:+3.6% y-o-y), buoyed by growths in coke & refined petroleum products, chemicals & chemical products as well as basic pharmaceutical products. Moreover, E&E production registered a higher growth of +3.2% y-o-y (vs Dec’19: +3.1% y-o-y) in view of massive production in computer, electronics & optical products. Domestic-oriented production wise, productions of food products, basic metals as well as motor vehicles, trailers & semi-trailers were slower which led to sooth growths in Food beverages & tobacco (+5.6% y-o-y vs Dec’19:+0.6 % y-o-y), Non-metallic mineral products (+3.9% y-o-y vs Dec’19:+4.6% y-oy) and Transport equipment & other manufacturers printing (+1.4% y-o-y vs Dec’19:+4.7 % y-o-y).

Electricity output turned to the red; Mining output narrowed its contraction – Electricity production turned to the red for the first time since May’17, registered a minor contraction of -0.01% y-o-y in first month of 2020 (vs Dec’19: +0.9% y-o-y). On the same note, Mining production narrowed its contraction to -3.9% y-o-y from -4.9% y-o-y in prior month dented by subdued growth in crude oil & condensate (-5.9% y-o-y vs Dec’19:-6.6% y-o-y) coupled with natural gas (-2.3% y-o-y vs Dec’19:-3.4% yo-y).

Food, beverages and tobacco sales dropped further – In tandem with slower manufacturing output, manufacturing sub-sectors’ sales also grew slower at +2.6% y-o-y during Jan’20 from +5.2% y-o-y during Dec’19. Subdued sales was due to massive drop in food, beverages and tobacco sales (-7.5% y-o-y vs Dec’19: -1.8% y-o-y) as well as other sub-sectors such as Textiles, Wearing Apparel, Leather & Footwear (+2.8% y-o-y vs Dec’19: +6.4% y-o-y), Wood Furniture, Paper Products & Printing (+2.5% y-o-y vs Dec’19: +6.4% y-o-y), Non-metallic mineral products, basic metal & fabricated metal products (+4.7% y-oy vs Dec’19: +6.5% y-o-y), and Transport Equipment & Other Manufacturers (+1.3% y-o-y vs Dec’19: +8.8% y-o-y). However sales of Petroleum, Chemical, Rubber & Plastic and E&E products were higher by +6.9% y-o-y and +4.3% y-o-y respectively (vs Dec’19:+5.8% y-o-y and +2.9% y-o-y). ). Amid higher domestic E&E production, global semiconductor sales recorded by Semiconductor Industry Association (SIA) also narrowed its negative sales growth to -0.3% y-o-y from -5.5% y-o-y during Dec’19.

Expecting a subdued IPI for 2020 –– For 2020, we foresee IPI to grow at a modest mode as we expect production activities to be dampened by the prevailing Covid-19 coronavirus outbreak. We expect industrial production in 1Q20 in negative trajectory as the outbreak will affect global activities as well our export-oriented outputs. However, we believe introduction of stimulus package of RM20b by government could ease the industry burden and to support the production growth. Overall, we cut our 2020 IPI forecast to +1.8% y-o-y from +2.5% y-o-y previously as global markets suffer significant macroeconomic headwinds pursuant to the pandemic. Moreover, other downside risk includes lower commodity prices especially crude oil and CPO.

Source: JF Apex Securities Research - 16 Mar 2020

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External Trade – January 2020 - A Subdued Start for 2020

Author: kltrader   |  Publish date: Thu, 5 Mar 2020, 5:04 PM


Negative starts for both exports and imports – Jan’20 exports contracted -1.5% y-o-y, substantially below our in-house forecast but marginally above consensus forecast. Meanwhile, imports deteriorated - 2.4% y-o-y which exceeded our in-house and market forecast. Disappointing exports growth was dented by massive decline in Mining goods as well as Agriculture goods despite improved Manufacturing goods. On the same note, imports were dragged down by contraction in Capital and Consumption goods despite stellar Intermediate goods. Therefore, the nation's trade surplus in Jan’20 stood at RM12b, up +4.3% y-o-y but down -4.6% m-o-m.

Moderate Exports of manufacturing goods – Export of Manufacturing goods which constituted 84.4% of market share, rising +1.1% y-o-y during Jan’20, thanks to positive growths in Petroleum products (+45.8% y-o-y vs Dec’19:+36.2% y-o-y), Machinery, equipment & parts (+5.7% y-o-y vs Dec’19:+6.9% yo-y) and Optical & scientific equipment (+0.2% y-o-y vs Dec’19:+12.0% y-o-y). However, other manufactured exports growth was depleted such as E&E products (-5.4% y-o-y vs Dec’19:-5.4% y-o-y), Chemicals & chemical products (-17.7% y-o-y vs Dec’19:-7.7% y-o-y) and Manufactures of metal (-2.8% yo-y vs Dec’19:-2.2% y-o-y).

Massive contraction in export of mining; agriculture extended its negative growth – Export of Mining outputs registered a massive decline of -20.1% y-o-y in Jan’20 (vs Dec’19:-28.7% y-o-y) following contraction in exports of crude petroleum (-10.9% y-o-y vs Dec’19:-24.3% y-o-y) in view of weaker volume and average unit value. Moreover, exports of LNG also dropped to -22.8% y-o-y from -13.6% y-o-y during Dec’19. Exports of Agriculture wise, the segment extended its negative growth to -4.2% y-o-y in Jan’20 despite marginal growth in Palm oil and palm oil based agriculture products (+0.5% y-o-y).

Trades with ASEAN, China declined – Exports to ASEAN slid 4.6% y-o-y in view of slower exports to Thailand (-19.8% y-o-y), Vietnam (-16.7% y-o-y) and Brunei (-2.6% y-o-y). Nevertheless, exports to Singapore, Indonesia, and Myanmar rose +0.9% y-o-y, 10.8% y-o-y and +35.7% y-o-y respectively following higher exports in petroleum products. Imports wise, imports with ASEAN tumbled -5.4% y-o-y in view of E&E products, machinery, equipment and parts as well as chemicals and chemical products despite higher imports of petroleum products, palm oil and palm oil-based agriculture products as well as LNG. On the same note, China exports and imports also depleted -5.7% y-o-y and -10.6% y-o-y respectively owing to lower exports of LNG, metalliferous ores and metal scrap, chemicals and chemical products as well as E&E products and slower imports of petroleum products, machinery, equipment and parts as well as iron and steel products.

Imports weighed down by Capital and Consumption goods – Imports slipped to -2.4% y-o-y following disappointing imports of Capital goods (-15% y-o-y vs Dec’19: -10.9% y-o-y) and Consumption goods (-1% y-o-y vs Dec’19: +3.2% y-o-y) in view of slower imports of machinery & mechanical appliances as well as apparels and clothing accessories. However, imports of Intermediate goods were higher which grew +3.7% y-o-y in Jan’19 from +6% y-o-y in Dec’19 arising from higher imports of mineral fuels and oils.

Moderate trade growths for 2020 – For 2020, we expect both exports and imports to grow at slower paces as it is being dampened by prevailing Covid-19 virus outbreak. Despite ongoing positive deal between US and China on the trade war, we foresee rising concern on the outbreak as well as lower commodity prices could lead to slower global growth activities, thus affecting our nation trade performance in the near future.

Source: JF Apex Securities Research - 5 Mar 2020

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Tan Chong Motor Holdings - FY19: a Poor Ending

Author: kltrader   |  Publish date: Mon, 2 Mar 2020, 10:19 AM


Result

  • Tan Chong Motor (TCM) registered a headline net loss of RM1m during 4Q19. After excluding the exceptional items such as provision/reversal and (write off) of receivables and inventories, gain on disposal of properties plant and equipment (PPE), PPE written off, forex loss, gain on derivatives, fair value adjustment on investment properties and impairment loss on PPE, TCM reported a core net loss of RM12m during this quarter as compared to core net profit of RM0.9m in last quarter and core net profit of RM117.5m a year ago.
  • As for full year FY19, the Group reported a core net profit and revenue of RM29.8m and RM4.2b respectively, which depleted 84.1% yoy and 14.1% yoy respectively.
  • Substantially below expectations. FY19 core net profit was substantially below ours and consensus expectations by only meeting 44.5% and 47.8% respectively of full year earnings estimates. The disappointing performance was due to subdued domestic car sales volume amid high-base effect due to tax holiday coupled with lower hire purchase receivables under Financial services segment.

Comment

  • Disappointing QoQ and YoY amid sluggish domestic Nissan car sales. TCM’s revenue down 7.2% qoq and 16.5% yoy during 4Q19. Domestic Nissan car sales deteriorated 29.4% yoy but rose 39.2% qoq. Disappointing YoY revenue was due to lower car sales due to stiff competition among car makers which resulted in total domestic Nissan vehicles sales slide 30.3% yoy during FY19 with 3% market share (vs FY18: 5%). However, PBT increased 10% qoq, spurred by improved margin in view of strengthening MYR against USD and JPY, we believe. However, PBT was down 72.6% yoy on quarterly basis. Looking forward, the Group expects to launch all-new Almera, Kicks and Sylphy/Sentra to spur FY20 performance.
  • Discouraging FY19. Overall, the Group’s revenue during FY19 dropped 14.1% yoy on the back of sluggish PBT which slid 36% yoy. The uninspiring performance was due to lower Nissan vehicle sales from Automotive segment as well as subdued hire purchase receivable from Financial services segment. On the same note, PBT margin also tumbled -0.9ppts during FY19.
  • Looking forward, the Group expects business prospects remain exigent amid massive competition among carmakers, subdued consumer sentiment towards big-ticket items and forex volatility which could weigh down the Group’s overall performance. Besides, the Group reckons that business confidence as well as consumer sentiment could be dampened by ongoing Covid-19 outbreak which may affect overall business growth. Having said that, the Group remains optimistic with the upcoming new models launches and will continue its strategy of focusing product mix which is skewed towards high margin rather than volume to boost their Group’s business.
  • Final dividend declared. The Group has announced a final single-tier dividend of 2sen/share amounting to RM13.1m for FY19.
  • Lacklustre outlook for domestic Nissan sales volume. Overall, we reckon that domestic Nissan car sales remains subdued for FY20 due to stiff competition from other car marques amid lack of volume-driven models.

Earnings Outlook/Revision

  • We cut our earnings forecasts for FY20 by 12.7% to RM61.9m to account for lower car sales volume and margin. Besides, we introduce FY21 earnings forecast of RM67.4m with +8.8% growth.

Valuation & Recommendation

  • Maintained HOLD with a lower target price of RM1.15 (from RM1.21) following our earnings cut. Our valuation is now pegged at 12.8x FY2020 PE with revised EPS of 9sen (11sen previously). Target P/E ratio assigned is below 5-years historical mean PE of 16x.

Source: JF Apex Securities Research - 2 Mar 2020

Labels: TCHONG
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Tasco Berhad - 3QFY20: Positive Earnings Surprise

Author: kltrader   |  Publish date: Fri, 28 Feb 2020, 5:28 PM


Results

  • Tasco Berhad (Tasco) reported a PATAMI of RM3.9m in 3QFY20, which surged 25.8% yoy but dropped 4.9% qoq. Meanwhile, revenue increased marginally by 2.9% yoy whilst flat qoq, -0.3%.
  • Result above expectations. 9MFY20 PATAMI of RM9.3m, - 14.7% yoy, exceeding ours and consensus expectations by meeting 90-100% of full year earnings estimates. This was mainly due to better-than-expected margins achieved by the Group, particularly for its Domestic Business Solutions (DBS).

Comments

  • Stellar performance posted by Contract Logistic Division (CLD) amid lackluster Cold Supply Chain (CSC). The stronger yoy performance of the Group for 3QFY20 was mainly driven by CLD (segmental PBT: +120.0% yoy and PBT margin: +5.1ppt yoy) pursuant to better showings posted by the Warehouse business as a result of improved occupancy rate of a warehouse located in Port Tg Pelepas coupled with reorganization by transferring lossmaking Convenient Retail Business from Warehouse division to CSC division. Also, increase in revenue and profit turnaround of Ocean Freight Forwarding (OFF) stemming from rising shipments volume on aerospace, chemical, paper products manufacturing, solar panel and healthcare further aided the Group’s bottom line (segmental revenue: +20.3% yoy). On the other hand, the performance of CSC remained uninspiring (segmental PBT: -81.8% yoy and PBT margin: - 10.8ppt yoy) as the segment was still affected by the reorganization exercise with transferring of loss-making Convenience Retail business from Warehouse business. Moreover, widening loss in Trucking division during this quarter also bogged down the overall group’s earnings.
  • 9MFY20 earnings dragged down by Air Freight Forwarding (AFF), CSC and Trucking divisions. Tasco achieved weaker 9MFY20 results no thanks to lower profits under the AFF (segmental PBT: -39.4% yoy) and Trucking (LBT of RM3.5m against PBT of RM0.1m a year ago) as a result of lower gross margins due to competitive environment. Meanwhile, the abovementioned loss-making Convenience Retail business, once again, further dented the Group’s overall earnings (segmental PBT: -73.6% yoy).
     
  • Expecting steady 4QFY20F. Thus far, the Group has yet to see the significant impact of the coronavirus outbreak on its coming 4Q results. However, the management believes that profound impact shall be felt by the Group should there be any protracted and expansion of the outbreak. This is further exacerbated by the slowing domestic business activities pursuant to recent political uncertainty, we believe.
  • Headwinds ahead. Moving forward, the Group foresees to face some downside risks such as: a) rising operational costs (new minimum wages which already came into effect on 1 Feb 2020, and higher salary threshold for overtime entitlements to RM4k which was announced in Budget 2020); b) substantial interest costs (of which Tasco only expects the finance costs to start reducing significantly in FY21F); and c) more competitive environment for its traditional core businesses.

Earnings Outlook

  • We lift our net profits forecasts for FY20F and FY21F by 40.2% and 26.2% to RM12.9m and RM18.3m respectively after increasing our margins assumptions for DBS, particularly the CLD.

Valuation/Recommendation

  • Maintain HOLD call on Tasco with an unchanged target price of RM1.10 which is pegged at 12x FY21F PE. The prospects of the Group are closely tied to the performance of the global and domestic economies, as the logistics industry is highly dependent on economic activity and international trade.

Source: JF Apex Securities Research - 28 Feb 2020

Labels: TASCO
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Engtex Bhd - Gloomy Outlook Persists

Author: kltrader   |  Publish date: Fri, 28 Feb 2020, 5:25 PM


Quarterly Results

  • Better YoY – Engtex’s 4Q19 net loss more than halved to RM3.1m from RM7.2m in 4Q18 on the back of better-controlled cost of sales. Gross profit margin improved slightly to 10% from 8% a year ago. The group’s profit before tax improved to RM2.9m (+156%) YoY from a net loss RM5.2m in 4Q18, lifted by higher non-operating income of RM5.6m (+300% YoY) and lower operating expenses RM24.8m (-5% YoY) as well as lower finance cost (-34%).
  • Sluggish QoQ – The group recorded a lower quarterly revenue to RM290.5m (-3% QoQ) due to lower contribution from Property Development (-66% QoQ) while other segments presented mix revenue contributions namely Wholesale & Distribution (-1% QoQ), Manufacturing (+2% QoQ), and Hospitality (+4% QoQ). 4Q19 operating profit posted a moderate result of RM14.6m (-2% QoQ) mainly dragged by Manufacturing (-50% QoQ), Property development (-143% QoQ) and Hospitality (-33% QoQ) despite higher contribution from Wholesale & Distribution (+50%) segment. Aggregately, profit before tax declined to RM2.9m (-11% QoQ).
  • 12MFY19 vs 12MFY18. No thanks to soft market demand and increased operating costs (+6% YoY) for metal and steel products, profit before tax slumped to RM11.9m (-47% YoY) from RM22.4m in 2018. After excluding a one-off gain from disposal of vacant industrial land at North Port Klang totaling RM6.6 million and inventories write down of RM3.8m, normalized PBT was RM9.1m (-59% YoY).

Valuation & Recommendation

  • Below street’s estimates. For the full year of 2019, the group posted a net loss of RM1.2m, which is well below ours and consensus estimates of RM3.4m & RM3.2m respectively. The shortfall was mainly caused by flattish revenue and higher cost of sales. However, 2019 revenue achieved 99% of our full year forecast of RM1124.9m.
  • We cut our FY21F net profit to RM6.6m (-50%) from RM13.2m on the back of lukewarm of local property market and potential product demand slowdown impacted by COVID-19 in 1HCY2020.
  • We are keeping our recommendation at HOLD with an unchanged target price of RM0.66, which is based on 0.4X FY20F P/B. The worst is yet to over as now cabinet reshuffle halted the new policy making on water infrastructure projects and the possibility of water tariff hike on hold.

Source: JF Apex Securities Research - 28 Feb 2020

Labels: ENGTEX
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