JF Apex Research Highlights

Author: kltrader   |   Latest post: Mon, 19 Oct 2020, 10:15 AM


DiGi.Com Bhd - Earnings Rebound Towards Pre-Covid Levels

Author: kltrader   |  Publish date: Mon, 19 Oct 2020, 10:15 AM


  • Digi registered a net profit of RM321m in 3Q20. The reported net profit declined 10% YoY mainly due to higher COGS of RM407m (+28% YoY and +18% QoQ) due to higher device and digital costs to fuel rising demands for technology and digital adoption.
  • Higher revenue. Quarterly revenue climbed 1% YoY to RM1.58b following higher Device revenue of RM205m (+38% YoY and +52% QoQ). Revenue has now recovered to pre-Covid levels.
  • Strong QoQ rebound. Net profit climbed 12% QoQ thanks to lower finance cost and higher revenue (+9% QoQ) following higher Prepaid revenue (+10% QoQ) and Device revenue (+52% QoQ).
  • Lower EBITDA margin - Digi posted a lower EBITDA margin of 50% vs 53% in 2Q20 as COGS rose 28% QoQ to RM407m while Opex grew 8% QoQ to RM397m due to higher marketing costs.
  • Within expectation. 3Q20 net profit and revenue are within our expectation after accounting for 68% and 76% of ours full year estimates respectively.
  • Postpaid segment. Postpaid subscribers was flat at 3.0m (-0.3% QoQ but +1% YoY) while Postpaid ARPU was slightly lower at RM67 from RM68 in 2Q20 due to lower roaming and interconnect revenue.
  • Prepaid segment. Prepaid subscribers increased to 7.9m (+1% QoQ and -8% YoY). Prepaid ARPU was higher at RM33 vs RM29 in 2Q20. The improvement in subs and ARPU came after Digi launched new entry-level prepaid plans.
  • Higher operating cashflow. Operating cashflow was higher at RM652m vs RM545m while net debt to EBITDA was unchanged at 1.5x as cash reserves declined to RM365m vs RM519m in 2Q20 following loan repayments.
  • Dividend declared. The Group declared its 3rd interim dividend of 4.1 sen/share, taking 9M20 dividends to 12 sen. We expect full year dividend of 16 sen, which translates into a yield of 4%.
  • Guidance for 2020. Due to the lingering uncertainty on COVID-19, the management has adjusted its guidance slightly upwards to: a) low-to-medium single digit decline in service revenue, b) medium-to-high single digit decline in EBITDA, and c) capex to remain similar to 2019 at RM753m.


  • We expect Digi to remain resilient with continued discipline in cost efficiency and strong cashflow.
  • Major risks include intense more lockdowns due to COVID-19, market competition from other telcos, 5G capex investment and lower-than-expected profit margin.

Earnings Outlook/ Revision

  • We maintain our earnings forecast for FY20F as 3Q20 earnings came within our full year earnings expectation. We expect earnings momentum to carry into 4QH20.


  • Upgrade to BUY from HOLD with an unchanged target price of RM4.75 following the stock’s recent selldown with value re-emerges. Our target price is derived based on DCF valuation with a WACC of 5.8% and a long-term growth rate of 2%. Our target price also implies a 24.4x FY20F PE based on EPS of 18 sen.

Source: JF Apex Securities Research - 19 Oct 2020

Labels: DIGI
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AME Elite Consortium Berhad - Secures An Industrial Land Sale

Author: kltrader   |  Publish date: Thu, 15 Oct 2020, 6:01 PM

What’s new

  • Secured a sizeable deal. AME Elite Consortium Berhad (AME) has secured an industrial land deal to sell 6 pieces of land together with industrial buildings in i Park@Senai Airport City 3 to V.S. Industry.
  • A deal totaling RM98.7m. The land cum factory/office deal is worth total RM98.7m (18% of total GDV of RM555m). Construction of 2 properties are: - 69,770 square feet single storey detached factory with 2 storey office block valued at RM15.8m; and - 343,911.96 square feet single to three storey industrial building with 2 storey office block dealt valued at RM82.9m.


  • Earnings impact. We expect the deal to contribute moderately to the Group’s bottom line for FY21 while meaningfully in FY22. The industrial land sales will provide 1 – 2 years earnings visibility to AME. Assuming operating margin of 20%, the Group is expected to book in RM15.0m net profit during the tenure.
  • A strategic location for setting up a comprehensive value chain. The designated settings in AME’s industrial park is highly favoured by local and foreign corporates in which we have seen Enics from Eurozone and Jstar from China decided to expand their ASEAN footholds in Malaysia ahead of other countries. Subsequently, local EMS player V.S. Industry is willing to relocate its headquarter and manufacturing facilities to the industrial park, further enhancing the reputation and reliability of AME which has shown its vision as a provider of comprehensive industrial solutions. Moving forward, we believe the Group will clinch more deals benefiting from the US-China trade war as AME has seen overwhelming responses on its i-Park@Senai Airport City 1 & 2 (GDV: RM717m).
  • Capitalizing on economic recover with ready landbank. Earlier, AME had entered into a heads of agreement (HOA) with UEM Sunrise to acquire 169.8 acres of freehold industrial land in Nusajaya for a total purchase consideration of RM434.3m (land cost of RM59psf). AME has successfully replenished its landbank to capitalize on potential MNCs shifting out their manufacturing base from China to ASEAN countries post-pandemic.

Earnings Outlook/Revision

  • No change to our earnings estimates as we already factored in the yearly industrial property sales target of RM220m for FY21F and RM250m for FY22F.

Valuation & Recommendation

  • We maintain BUY call on AME with an unchanged target price of RM2.21. Our target price is pegged at PE multiple of 14.8x CY21F which is in line with -1SD of 5-year Bursa Malaysia Construction Index mean PER.
  • We like the stock for its: 1) potential landbanking in Klang Valley, 2) potential listing of industrial REIT in the immediate term; and 3) unique busines model which is relatively unfazed by prevailing pandemic and economic downturn.

Source: JF Apex Securities Research - 15 Oct 2020

Labels: AME
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Industrial Production Index (IPI) – August 2020 - Easing Momentum in Manufacturing

Author: kltrader   |  Publish date: Tue, 13 Oct 2020, 4:47 PM

Below forecasts – Aug’20 Malaysia’s Industrial Production Index (IPI) eased to +0.3% y-o-y from +1.2% y-o-y in July’20, which was marginally underneath our in-house and market forecasts. IPI during Aug’20 was underpinned by easing momentum in manufacturing production amid contractions in both mining and electricity outputs. As compared to the prior month, Aug’20 depleted to -1.1% m-o-m (vs July’20: +1.1% y-o-y) due to less production in manufacturing products. On a separate note, Malaysia’s manufacturing Purchasing Managers’ Index (PMI) for the month of Aug’20 was marginally down to 49.3 in view of weak foreign demand arising from limitation of respective export markets.

Sluggishness in Manufacturing production – Manufacturing sector, the key sector for industrial production eased its momentum for three consecutive months, which grew +2.4% y-o-y in Aug’20 as compared to +2.9% y-o-y in July’20. Domestic-oriented outputs were underpinned by stellar growths in Transport equipment & other manufacturers (+6.9% y-o-y vs July’20: +4.8% y-o-y) in view of higher production of motor vehicles, trailers and semi-trailers (+17.9% y-o-y). Nevertheless, it was offset by mild growths in Food, beverages & tobacco production (+4.7% y-o-y vs July’20:+6.3% y-o-y) as well as Nonmetallic mineral products (-6.3% y-o-y vs July’20:-9.8% y-o-y) in view of slower outputs of beverages (- 10.4% y-o-y) and fabricated metal products (-10.7% y-o-y). Exports-oriented wise, only E&E products coupled with Petroleum, chemical, rubber & plastic products showed positive growths. E&E products rose +6.9% y-o-y from +9.8% y-o-y on the back of stellar manufacturing of computer, electronics and optical products. Also, Petroleum products (+1.7% y-o-y vs July’20: +1.5% y-o-y) was spurred by production in rubber and plastics products. However, Woods products, furniture, paper products & printing tumbled to contraction, -2.5% y-o-y (vs July’20: +0.8% y-o-y) after posting positive growth for two consecutive months due to mild production in wood & products of wood & cork. Besides, Textiles, wearing apparel, leather & footwear printing retained its double-digit contraction (-11.0% y-o-y vs July’20: -12.9% y-o-y), no thanks to disappointing production of leather & related products.

Mining output widened its contraction despite narrowing Electricity output – Electricity outputs narrowed its contraction in Aug’20 to -1.2% y-o-y (vs July’20: -5.1% y-o-y). While, Mining outputs were extended its contraction to -6.7% y-o-y (vs July’20: -3.0% y-o-y) in view of major contractions in both crude oil & condensate (-5.0% y-o-y) and natural gas (-8.0% y-o-y).

Manufacturing sales also moderated – In tandem with slowing manufacturing outputs, manufacturing sales registered mild growth of +1.7% y-o-y from +1.9% y-o-y due to sluggish sales in Textiles, Wearing Apparel, Leather & Footwear (-12.5% y-o-y vs July’20:-12.8% y-o-y), Wood Furniture, Paper Products & Printing (-5.1% y-o-y vs July’20:-4.1% y-o-y), Petroleum, Chemical, Rubber & Plastic (-7.0% y-o-y vs July’20:+0.5% y-o-y) as well as Non-metallic mineral products, basic metal & fabricated metal products (- 13.6% y-o-y vs July’20:-15.1% y-o-y). Nevertheless, sales of Food, beverages and tobacco (+12.8% y-o-y vs July’20:+14.8% y-o-y), Transport Equipment & Other Manufacturers (+16.2% y-o-y vs July’20:+14.3% y-o-y) as well as E&E products (+7.1% y-o-y vs July’20:+8.4% y-o-y) were stellar during this period.

Anticipating subdued IPI for 2020 –– For 2H20, we expect IPI to register marginal growth, buoyed by improved production across sub-sectors, mainly Manufacturing sector. Overall, we retain our IPI forecast of -3.1% y-o-y in 2020. Overall, we foresee 2020 IPI to grow at a negative growth as we expect production activities to be dampened by the prevailing Covid-19 coronavirus outbreak. We expect minimal growth of industrial production as the outbreak will affect global activities as well as our export-oriented outputs. However, we believe the introduction of stimulus package by government could ease the industry burden and marginally support the production growth. Other downside risks include new waves of COVID-19 pandemic as well as relatively low commodity prices especially the crude oil and CPO.

Source: JF Apex Securities Research - 13 Oct 2020

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Hai-O Enterprise Berhad - Light at the End of the Tunnel

Author: kltrader   |  Publish date: Tue, 13 Oct 2020, 4:45 PM

What’s new

  • Getting better. We gathered latest corporate updates from Hai-O Enterprise Berhad (Hai-O) and prompted us feeling positive about the Group’s future outlook. Management guided that online marketing platform has helped them to address the negative impact of COVID-19 pandemic, particularly for its Multi-Level Marketing (MLM) segment. MLM segment benefited most from e-commerce platform as recent 1QFY21 revenue soared 37% yoy in view of higher volume of online businesses which spiked up more than 30%. However, Wholesale and Retail segments were lagged behind and still relied on physical sales to support the segments. Going forward, the Group remains committed to expand its conventional sales channel together with e commerce platform to boost its overall business growth trajectory.


  • Delivering strong 1QFY21 result amid pandemic. To recap, the Group posted stellar results for its 1QFY21 as revenue and net profit grew 32.6% qoq and 7.8% yoy as well as 7.3% qoq and 33% yoy respectively. The encouraging results were underpinned by higher MLM sales (+39.7% qoq and +17.1% yoy) arising from “Duit Raya” sales campaign and massive sales from its newly launched lady-wear items. On top of that, the Group’s PBT margin also improved +3.8ppts from the same period in the prior year following favourable sales mix from MLM and Wholesale segments, effective cost optimization as well as higher rental rebates. Looking forward, we reckon that 2QFY21 to perform better banking on better sales from MLM segment amid easing impact from COVID-19 pandemic.
  • E-commerce bringing into play. During MCO period, the MLM segment was mainly spurred by higher contribution from e-commerce platform. Hai-O acknowledges change in consumer consumption pattern to adapt to the ‘new normal’. Therefore, the Group enhanced its online platform to keep its business progressing. According to Hai-O, the e commerce platform is not solely focusing on sales transaction but also being used as a platform for business operations and management. We believe Hai-O’s existing members are making ‘impact’ by introducing and sharing their products knowledge online and promoting through social media (i.e. Facebook, Instagram, e.tc.), and even transacting through their online channel platforms. Additionally, the Group also offers “free membership” and the "Stay at home, Earn from home" campaign further attract more new members. Following better contribution from e-commerce platform, the management said that the business structure for MLM segment remains unchanged and incentives and commission for distributors/members will not be affected regardless through physical sales or online sales. Currently, number of Hai-O’s members are about 114k. Ultimately, the Group aims to reach 40% online transaction for its MLM segment in the immediate term.
  • Banking on small-ticket items for recurring sales. Hai O is confident to take dynamic approaches amid weakening consumer sentiment that affects overall purchasing power. The Group intends to maintain smaller unit or quantity of their selected stock keeping units (SKU), adopting its “value for money” strategy which includes affordable product with good quality as well as focusing on food and beverages, personal and household products which suit current market needs. Besides, the Group also aims to boost its health supplements and wellness products which offer at reasonable prices in view of high awareness on healthy lifestyle amid prevailing pandemic. Therefore, we expect small-ticket products would help to boost its recurring income as some consumers may experience salary pay cut or retrenchment as affected by the COVID-19 pandemic.
  • Seizing opportunity for Retail segment’s products. Retail segment which mainly focuses on Traditional Chinese Medical (TCM) is not significant to online sales platform and is heavily relied on brick-and-mortar sales. On recent financial quarter, this segmental revenue was down 2.5% yoy in view of negative impact from sales campaign arising from physical distancing measure. As such, the Group has taken proactive measures to market these segmental products and take opportunities to broaden its range of customers by tapping into e-marketplaces such as Lazada and Shopee. We are inspired by the bold measures initiated by Hai-O as both platforms are actively used by consumers nowadays.
  • A strategic move to dispose Indonesian stake. Sahajidah Hai-O Marketing Sdn. Bhd., a wholly owned subsidiary of the Group, has disposed 15% stake equity interest in PT Hai-O Indonesia (PTI). After the exercise, the Indonesian business partners own an aggregate of 60% of equity interest in PTI. According to the Group, this strategy will enable them to have greater flexibility in expanding and developing in Indonesian market as its local counterparts having better knowledge as well as networking in local market. Overall, we deem overseas contribution will still be minimal at this moment given that the market share is relatively small due to less established network and prolific team leaders.

Earnings Outlook/Revision

  • We lift our earnings forecasts for FY20F and FY21F by 98% and 46.3%% to RM41.4m and RM43.6m respectively, accounting for higher sales assumptions especially for MLM segment.
  • Risks include: 1) Higher-than-expected operating expenses (i.e. higher marketing and branding expenses), 2) Lower than-expected domestic spending due to higher cost of living, and 3) Depreciation of MYR against USD.

Valuation & Recommendation

  • Upgrade to HOLD from SELL with a higher target price of RM2.30 (previous target price of RM1.30) following our earnings upgrade. We believe worst is over for Hai-O and share price is well supported by its decent dividend yield of over 4% for FY21-22F. Our revised target price is now based on P/E multiple of 15.9x FY22F revised EPS of 14.5sen, pegged at 3-year historical mean P/E of 15.9x

Source: JF Apex Securities Research - 13 Oct 2020

Labels: HAIO
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Samaiden Group Berhad - a Glowing Outlook

Author: kltrader   |  Publish date: Wed, 7 Oct 2020, 4:58 PM

Investment Highlights

  • Solar energy proxy. Samaiden Group Berhad (Samaiden)’s revenue is mainly generated from Engineering, Procurement, Construction and Commissioning (EPCC) (98.0%), RE and Environmental Consulting Services (2.0%). Its listing would present a good opportunity for solar and renewable energy play.
  • Robust pretax profit compound annual growth rate (CAGR). We expect a 2-year pretax profit CAGR of 32.8% on the back of potential strong orders from LSS@MEnTARI which is expected to award to successful bidders in end of CY2020.
  • Net cash position. Samaiden has been sitting at a net cash position since FY2017. Moving forward, the Group plans to raise RM29m from equity market which bodes well for the Group in future expansion with its negligible debt and minimal finance cost.
  • Healthy orderbook. As of 30 Sept 2020, Samaiden’s orderbook stood at RM31.35m. Meanwhile, the Group is actively bidding jobs from Large Scale Solar Photovoltaic (LSSPV) Plant 3 and LSS@MEnTARI projects over the months to ensure the sustainability of orderbook. Samaiden is set to benefit greatly from the c.RM4 billion LSS@MEnTARI project, judging from its solid track records in LSSPV 1 & 2. We believe government will scrutinise the job bidders’ background closely and to prioritise the projects to companies with majority local shareholdings. 
  • Favourable industry outlook. Demand for solar PV system is anticipated to grow as the cost of global PV value chain pricing has been on a downtrend, allowing the market to enjoy low cost of solar PV system in this technology maturing cycle. The estimated total installed capacity in Malaysia (MWp) is expected to grow at a CAGR of 50% from 438 in 2018 to 3,322 in 2023.
  • Government initiatives to spur green energy. Malaysia has been actively participated in the solar industry with many policies being introduced such as the Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) incentives until 2023 extension was tabled in Budget 2020, along with 70% income tax exemption of up to 10 years

Source: JF Apex Securities Research - 7 Oct 2020

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Tan Chong Motor Holdings - New Brand Targeting for New Segment of Market

Author: kltrader   |  Publish date: Fri, 2 Oct 2020, 4:36 PM

What’s new

  • Tan Chong Motor (TCM) announced that its indirect wholly-owned subsidiary TC Manufacturing (Labuan) Pte. Ltd [TCMan (Labuan)] has entered into Memorandum of Understanding (MOU) with PT. SGMW Motor Indonesia (PT SGMW) to collaborate on potential business and feasibility study to distribute PT SGMW’s vehicle products in Malaysia and Thailand.
  • PT SGMW is a wholly-owned subsidiary of SAIC GM Wuling Automobile Co., Ltd. (SGMW), a joint venture between China’s companies which are SAIC Motor Corporation Limited, Liuzhou Wuling Motors Co Limited and GM China. PT SGMW located in Greenland International Industrial Centre, Jawa Barat, Indonesia which set up on 600,000 m2 land with a total capex of USD700mill. The plant’s production capacity is 120,000 units per annum.
  • Based on our findings, PT SGMW’s brand known as Wuling Motors which manufactures and distributes mostly Chinese brand of cars - few models namely Almaz, Cortez City, Cenfero S, and Formo.


  • Long way to go. We deem the Group to take longer time to conduct the feasibility study amid trembling automotive market condition arising from COVID-19 impact as well as stiff competition among existing car marques. Moreover, we believe the Group needs to study on preferences and suitability of the products to suit the target markets’ demand. Therefore, we expect the contribution is insignificant in the short-run.
  • Tremulous outlook for FY20. Overall, we reckon that business operations will be challenging for TCM in view of subdued domestic Nissan car sales for FY20 as automotive industry is dampened by COVID-19 pandemic. Moreover, intense competition from other car marques, tepid consumer sentiments towards big-ticket items as well as stringent loan approval could weigh on overall Group’s performance.

Earnings Outlook/Revision

  • No change for FY20F and FY21F forecast.

Valuation & Recommendation

  • Maintain SELL with an unchanged target price of RM0.89. Our valuation is pegged at 14.8x FY2021F PE with EPS of 6 sen. Target P/E ratio assigned is below 5- years historical mean PE of 18.4x.

Source: JF Apex Securities Research - 2 Oct 2020

Labels: TCHONG
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