JF Apex Research Highlights

Author: kltrader   |   Latest post: Wed, 23 Dec 2020, 4:40 PM


Sapura Energy Bhd - On course to recovery

Author: kltrader   |  Publish date: Wed, 23 Dec 2020, 4:40 PM


  • Earnings improved – Sapura Energy posted a net profit of RM17.2m in 3QFY21 compared to a net loss of RM101m in 3QFY20 after operating cost was slashed by 58% YoY, higher other operating income and higher contribution from associates.
  • Drop in revenue - Quarterly revenue dropped 25% YoY to RM1.33b due to declines in contribution from both Engineering and Construction (E&C) and Drilling divisions.
  • Lower QoQ – Sapura’s net income of RM17.2m dropped 28% QoQ despite revenue climbing 9% QoQ as earnings growth from its Exploration & Production (E&P) JV failed to cushion the decline in E&C and Drilling.
  • Better margins in E&C – Quarterly revenue from the E&C segment dropped 35% YoY but climbed 16% QoQ to RM1.2b. However, the division posted profit before tax of RM156m (+870% YoY and -28% QoQ).
  • Drilling losses widened – Quarterly revenue from Drilling declined 28% YoY and 29% QoQ to RM133m with 6 rigs operating and 8 rigs being stacked. The division posted a loss before tax of RM73m (vs losses of RM48m in 2QFY20 and RM32m in 2QFY21 respectively).
  • E&P lifted by higher oil prices - Sapura’s E&P JV, Sapura OMV posted PBT of RM33m due to stronger oil prices and higher production. Number of barrels lifted rose to 2.9m barrels from 2.8m in 2QFY21 following higher production from SK408 fields. Average price increased to US$42.2/barrel from US$36.6/barrel in 1QFY20.
  • Clear visibility – Sapura’s orderbook stands at RM12.5b after new contract wins of RM2.2b year-todate. Going forward, RM2b of the orderbook will be booked in 4QFY21 followed by RM5.5b in FY22 and RM5b in FY23 and onwards. Going forward, Sapura is bidding for RM39b worth of jobs worldwide including renewable energy projects.
  • Stable gearing – Net debt to equity was steady at 1.06x (from 1.04x in 2QFY21) as cash reserves declined to RM500m vs RM732m in 2QFY21. The management is in the final stage of refinancing, which is expected to complete by January 2021. So far, it has secured RM1.2b of working capital to execute more projects and facilitate business growth.
  • Cost optimisation bears fruit – 9MFY21 EBITDA margin rose to 19% from 7% in 9MFY20 due to ongoing cost cutting. The management has recognised RM1.1b worth of value that could be saved out of which RM600m has been fully implemented with RM240m realized.

Earnings Outlook

  • Earnings below expectation – 9MFY21 net profit and revenue was within expectation after hitting 41% and 63% of our full year forecast respectively.
  • Forecasts lowered - We are reducing our FY21 profit estimates by 24% but keeping our revenue forecast. Earnings momentum will continue pursuant to the company’s cost rationalisation and higher oil prices.

Valuation & Recommendation

  • We are keeping our recommendation at BUY with a lower target price of RM0.17 (previously RM0.20) based on 3-year mean P/B and a NTA of RM0.60 per share.
Labels: SAPNRG
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Hai-O Enterprise Berhad - Recovery on Track

Author: kltrader   |  Publish date: Wed, 23 Dec 2020, 4:37 PM


  • Hai-O registered a net profit of RM10.4m during 2QFY21, which inched up 1.0% qoq and 42.5% yoy despite disappointing revenue which was down 7.2% qoq and 3.3% yoy.
  • As for 1HFY21, the Group recorded a net profit of RM20.6m which soared 36.4% yoy on the back of higher revenue which improved 2.2% yoy. The encouraging performance was spurred by higher sales from MLM segment on the back of improved margin given favourable change in sales mix.
  • Within expectations. 6MFY21’s net profit of RM20.7m was within our in-house (50%) and market (54.9%) expectation from full year earnings estimates.
  • Single-tier interim dividend declared. The Group has declared a single-tier interim dividend of 4sen/share during 2QFY21.


  • Recent spike in Covid-19 cases deteriorated MLM segment on quarterly basis despite higher Retail segment sales. Revenue depleted 7.2% qoq following disappointing sales from MLM segment (-10.3% qoq) and Wholesale segment (-3.0% qoq). Lower sales from MLM segment resulted from third wave of new Covid-19 cases (massive spike in Oct’20) which impacted the business activities as well as delivery service in East Malaysia. Nevertheless, sales in Retail segment picked up 3.8% qoq. Additionally, the Group’s PBT was down 1.5% qoq due to disappointing earnings from MLM and Retail segments (as PBT margin dropped 1.3ppts for both segments) given higher promotional rebates for MLM segment as well as higher outlet operating costs and personnel costs for Retail segment.
  • YoY performance bogged down by Wholesale and Retail segments despite sturdy result from MLM segment. Hai’O revenue tumbled 3.3% yoy, no thanks to dismal Wholesale and Retails revenue (decrease 9.2% yoy and 15.5% yoy respectively). Lower sales from Retail segment were due to sluggish sales of premium cooking wine to restaurant and goods sold to duty free market due to movement control order (MCO). Also, disappointing sales from Wholesale segment was dented by lesser impact from marketing activities following delayed in their half yearly members’ grand sales promotion campaign. Nevertheless,PBT managed to escalate 41.4% yoy to 6.5ppts, thank to better margin in MLM and Wholesale segments (PBT margin rose 1.2ppts and 28.8ppts respectively).
  • Improving 1HFY21. Cumulatively, Hai-O’s 6MFY21 revenue and PBT increased 2.2% yoy and 37.8% yoy given better sales in MLM segment on the back of improved earnings from all segments. MLM segment rose 10.5% yoy banking on e-commerce and social media platforms, success of its “Duit Raya” sales campaign coupled with its local incentive trip campaign as well as better sales from its newly launched lady wear product ranges. Meanwhile, earnings were spurred by favourable change in sales mix in their MLM segment. Meanwhile earnings in Wholesale segment lifted by better cost optimization strategies, higher margins for Chinese medicated tonic and premium cooking wine, as well as a one-off gain from the disposal of vintage tea amounting to RM0.8m.
  • Brighter business outlook. Looking forward, Hai-O is optimistic on their business outlook banking on recent developments on the vaccine as well as implementation of the PRIHATIN Supplementary Initiative Package from government to support businesses and households which could reduce the impact of Covid-19 pandemic. On the following quarter, management guided that new member recruitment for MLM segment will be offered with another attractive campaign, as an effort to attract membership. Also, the Group intends to continue with its monthly flash sales to boost the MLM’s topline. Additionally, the Group will extend slimming lady wear series as well as repackaging and reformulation of several star products as strategies to widen and strengthen its product portfolio in tandem with current market trend. As for Wholesale and Retail divisions, both segments will leverage on upcoming Chinese New Year (CNY) festive season through massive campaign activities and conventional channel as well as e-market platforms. Overall, Hai-O is committed to emphasis on several strategies for their business such as cost-optimism strategies, re-strategize business plans as well as works toward digital and e-commerce platforms.

Earnings Outlook/Revision

  • No change for our FY21F and FY22F earnings forecast.

Valuation & Recommendation

  • Maintain HOLD with an unchanged target price of RM2.30. Our target price is based on P/E multiple of 15.9x FY22F EPS of 14.5sen, slightly higher than 3-year historical mean P/E of 15.4x. We believe worst is over for Hai-O and share price is well supported by its decent dividend yield of over 4% for FY22F.
  • Risks include: 1) Higher-than-expected operating expenses (i.e. higher marketing and branding expenses) and 2) Lower-than-expected domestic spending due to higher cost of living. 3) COVID-19 pandemic weighed down overall business Group’s performance.

Source: JF Apex Securities Research - 23 Dec 2020

Labels: HAIO
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Top Glove Corporation Berhad - A marvellous start

Author: kltrader   |  Publish date: Thu, 10 Dec 2020, 4:36 PM


  • Top Glove posted a net profit of RM2.4b in 1QFY21, surging 83.9% qoq and 2032.7% yoy. On the same note, revenue stood at RM4.8b which climbed 53.1% qoq and 293.6% yoy.
  • Exceeding our expectation but within street estimates. 3MFY21 net profit of RM2.4b was substantially above our in-house expectation (50%) but in line with street estimates (27.9%). The better-than-expected results were spurred by robust gloves demand as well as higher average selling price (ASP).
  • Divided declared. The Group has declared a single-tier interim dividend of 16.5 sen/share (accounts for 16.8% of our full year dividend forecast) which is higher than 1QFY20 of 4sen/share and even exceeds full year FY20 dividend of 11.83 sen/share.


  • Robust QoQ growth. Top Glove’s revenue improved 53.1% qoq, buoyed by better sales quantities in natural rubber gloves (+6% qoq) coupled with vinyl gloves (+37% qoq) which offset disappointing sales quantities in nitrile gloves (-8% qoq) and surgical gloves (-15 qoq). We understand that contraction in nitrile gloves sales was due to closure of Klang factories while lower surgical gloves sales was due to change in production line to nitrile gloves in view of lesser demand. Also, ASPs were higher during this period as natural rubber gloves (+48% qoq), vinyl gloves (+61% qoq), nitrile gloves (+76% qoq) and surgical gloves (+34% qoq) following robust demand. Other than that, operating profit and PBT increased by 12.7ppts and 12.8ppts to 90.2% qoq and 90.7% qoq respectively.
  • Stellar YoY performance. Top Glove’s revenue soared 293.6% yoy given higher sales quantities of nitrile gloves (+18% yoy), natural rubber gloves (+18% yoy) and vinyl gloves (+116% yoy) despite soothing sales quantity of surgical gloves (-3% yoy). Additionally, ASP for nitrile gloves (+268% yoy), natural rubber gloves (+168% yoy), surgical gloves (+77% yoy) and vinyl gloves (+230% yoy) also inched up higher in tandem with prevailing market prices. Besides, operating margin/profit grew by 53.3ppts/2086.7% yoy while PBT inched up 54.7ppts/2366.5% yoy on the back of steady sales outputs, higher ASPs as well as greater utilization rate (>95%).
  • Lesser lead times and tapering off of ASP growth for nitrile and natural rubber gloves. The current lead times for nitrile and natural rubber gloves deteriorated to 510 days and 340 days from 620 days and 400 days respectively during Aug’20 following cancelation of orders by customers due to pricing issue and waiting time period. Nevertheless, the management guided that the proportion was minimal, less than 3% of total sales. Meanwhile, surgical and vinyl gloves’ lead times increased to 260 days and 170 days respectively (from 250 days and 110 days respectively in Aug’20) given its steady demand. On the other hand, its ASP growth is envisaged to taper off moving forward as we understand that its nitrile glove’s ASP is expected to grow to 15%/10%/5% mo-m for Dec/Jan/Feb 21 from 30%/15%/10% m-o-m in Oct/Nov/Dec 20. In a nutshell, the Group anticipates its blended ASP to grow 30% from current quarter to 2QFY21 given its outstanding orders.
  • Mid-term plan to lift workers’ housing conditions. In view of recent Covid-19 cases detected on Top Glove’s workers as well as investigation by Malaysian government over poor accommodation conditions of its foreign workers, the Group intends to allocate more capex of approximately RM100m on improving accommodation arrangement mainly for its new hostel and houses which will be fully equipped with better facilities and amenities. The Group plans to allocate RM70m for Klang and Banting areas while RM30m in other locations which include Perak, Kedah, Negeri Sembilan and Johor. Meanwhile, the Group said that all of its 28 Klang factories will start to operate in stages (currently at stage 1) and expect to see them to be fully reopened and running at normal productions within the next two to three weeks. Also, c.90% of its Covid-19 workers who had been tested positive earlier has recovered since then and able to return to works in a short period of time.
  • Continuous engagement with U.S. Custom and Border Protection (CBP). Currently, Top Glove is actively engaging with CBP to resolve the issue expeditiously and looking forward to wrap the case soon. In conjunction with the CBP matters, sales in America were affected as sales quantity in North America was down 2% yoy. Nevertheless, it was more than offset by Western Europe and Eastern Europe which experienced double-digit growths of 70.2% yoy and 56.3% yoy respectively given sudden surge of third waves of Covid19 cases.

Earnings Outlook/Revision

  • In view of our lower-than-expected forecast, we revise upwards our FY21F and FY22F net earnings by respective 70.2% and 138.5% to RM8.0b and RM3.1b. This is based on expectations of better profit margin and higher ASP (+30%) assumption for FY21F and FY22F. Overall, we envisage Top Glove’s net earnings to grow strongly, +357% yoy for FY21F before normalising in FY22F, +62% yoy.

Valuation & Recommendation

  • Maintain HOLD with an unchanged target price of RM6.83. Our target price is now pegged at 18.1x FY22F PER of 37.7sen. Our valuation is assigned to FY22, considering the impact of earnings normalisation after exponential yet exceptional strong profit growth in FY21F pursuant to the pandemic. Market is forward looking and hence we opine that current share price is looking beyond its prevailing peak earnings and start to price in recovery theme for next year upon successful massive vaccination.

Source: JF Apex Securities Research - 10 Dec 2020

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Boilermech Holdings Berhad - Mandatory Take-over by QL Resources

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

What’s new

  • Boilermech Holdings Berhad (Boilermech) has received a conditional mandatory take-over offer from its major shareholder QL Resource Berhad (QL) after QL’s wholly-owned subsidiary QL Green Resource Sdn Bhd had entered into unconditional share acquisition agreement with Boilermech’s Managing Director and existing substantial shareholder, Mr Leong Yew Cheong to acquire his 4% equity interest.
  • Triggering mandatory take-over offer. Currently, QL holds 44.15% equity interest in Boilermech. Upon completion, QL equity stake will increase to 48.15%, thus obliging to extend a conditional mandatory take-over offer to acquire all Boilermech’s remaining shares.
  • Cash settlement. The proposed acquisition will be settled by cash at RM0.95/share amounting to RM19.6m. QL Resources intends to retain the listing status of Boilermech upon completion of the exercise.


  • Positive deal. We are positive with the exercise given QL’s strong balance sheet which will help the Group to further expand in its clean energy businesses such as water treatment and solar energy segments. Moreover, we believe the acquisition will strengthen Boilermech’s existing presence in the industry biomass boiler given QL’s synergistic business plan as palm oil and milling activity is one of its core businesses. Meanwhile, the offer price is in line with current share price but 18.8% higher than our target price of RM0.80.
  • Solar business to drive earnings. Looking forward, we deem Boilermech’s new business venture into solar energy will boost its recurrent earnings, reducing reliance on its traditional business amid cyclical business nature of the plantation sector. Nevertheless, we remain cautious on the current pandemic which will affect the Group’s overall business growth in the near term.

Earnings Outlook

  • No change to our earnings forecasts for FY21F and FY22F.


  • Maintain HOLD for Boilermech with a higher target price of RM0.95 (RM0.80 previously) which is in line with the offer price. Our valuation is now pegged at 19.8x (16.7x previously) FY22F EPS of 4.8 sen. Target P/E ratio assigned is slightly higher than +1 standard deviation of 16.6x 3 years P/E.

Source: JF Apex Securities Research - 4 Dec 2020

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Axiata Group Bhd - Earnings Back to Pre-lockdown Levels

Author: kltrader   |  Publish date: Wed, 2 Dec 2020, 5:23 PM

  • Earnings surprise – Axiata’s reported 3Q20 PATAMI almost doubled YoY to RM353m while Underlying PATAMI rose 48% YoY to RM377m due to improved cost excellence and lower loss from ADS due to absence of e-Tunai Rakyat.
  • Flat revenue - Quarterly revenue dropped 1.6% YoY to RM6.1b due to lower contribution from operating companies (OpCos) such as Celcom, Ncell and Smart.
  • Better QoQ – 3Q20 underlying PATAMI surged over 600% QoQ due to revenue growth of 5.5% QoQ as operations recovered to pre-lockdown level as well as lower depreciation by RM55m and lower loss from ADS due to absence of e-Tunai Rakyat.
  • Challenges in Nepal – Due to the easing of lockdown restrictions, all OpCos showed QoQ improvement except for Ncell and Robi which saw PATAMI declined 34% QoQ and 33% QoQ respectively. Ncell was impacted by spectrum constraint, pricing challenges from ISPs and Nepal’s lockdown in September. Meanwhile, Robi’s profit was pressured by higher depreciation and finance cost.
  • Lower YTD – 9M20 reported PATAMI dropped 45% YoY to RM621m while underlying PATAMI declined 22% YoY to RM544m due to one-off items namely Celcom employee restructuring cost (RM77m) and XL’s gain from tower sale (RM299m), as well as forex loss (RM103m). Meanwhile, 9M20 revenue was 2.1% YoY lower at RM17.9b.
  • Higher gearing temporarily – Gross debt/EBITDA climbed to 2.89x from 2.64x in 2Q20 after the US$1.5b bond issurance in August but management noted gearing will revert to around 2.5x after debt repayment in November.

Earnings Outlook/Revision

  • Earnings above expectation – 9M20 revenue came within forecasts but normalized PATAMI of RM544m achieved 110% of our full year forecast.
  • Forecast raised – We are lifting our FY20 EPS forecast by 69% following the higher-than-expected earnings rebound.
  • Management guidance - The management has guided a low single digit % decline for revenue and EBITDA in 2020.

Valuation & Recommendation

  • Maintain BUY with a higher target price of RM4.53 (previously RM3.93) based on Sum-Of-Parts (SOP). We expect earnings growth to sustain given the increased demand for data amid the pandemic.
  • Risks include:
    • Covid-19 situation worsens
    • Higher competition and government CSR programme in Indonesia
    • Further delays for Ncell’s tech spectrum
    • Bad debt provision for edotco

Source: JF Apex Securities Research - 2 Dec 2020

Labels: AXIATA
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Padini Holdings Berhad - Cost Efficiency Elevates Margin

Author: kltrader   |  Publish date: Wed, 2 Dec 2020, 4:52 PM


  • Padini Holdings Berhad (Padini) returned to the black for 1QFY21 with net profit of RM22.5m as compared to a core net loss of RM17.6m in 4QFY20. Also, 1QFY21 net earnings surged 15.8% yoy. Besides, revenue stood at RM310.7m which soared 78.4% qoq but contracting 8.1% yoy.
  • Within forecasts. Padini’s 3MFY20 core net profit of RM22.5m is within our-in-house and market expectation, accounting for 24.8% and 20.3% of full year net profit forecasts respectively.


  • Rebound QoQ. Padini’s registered PBT of RM28.2m during 1QFY21 (vs LBT of RM18.8m during 4QFY20) on the back of stellar revenue which jumped 78.4% qoq. Better results arising from improved footfall during recovery mandatory control order (RMCO) as business operation was re-opened amid adhering standard operating procedure (SOP). Also, we reckon that improved sales were also attributable to better sales mix during Hari Raya Haji holiday period in July’20. Additionally, PBT margin achieved double-digit growth to 19.9ppts qoq during this period.
  • Better cost control spurred YoY earnings despite slumbering sales. The Group’s PBT margin inched up 1.1ppts yoy given better cost control such as lower staff cost and higher rental rebates received from malls operators. The Group has reduced its staff’s commissions as well as has not renewed its contract staff resulted in lower costs. However, revenue dropped 8.1% yoy due to high base, as sales affected by Covid-19 pandemic. During this period, effective tax rate was at 27% (vs 1QFY20:27%)
  • Softening 2QFY21 result expected. For 2QFY21, we expect result to be soft given recent spike in Covid-19 cases despite upcoming festive seasons [i.e. Deepavali, Christmas and year-end-sales (YES)]. Given rising number of Covid-19 cases stemming from malls recently, we already witnessed significant drop in consumer footfalls in visiting malls, thus affecting Padini’s brick-and-mortar sales.
  • Silver lining with positive newsflow on vaccine. Given recent news on effectiveness of Covid-19, we do not rule out the possibility of earlier vaccine availability in the near term. We expect gradual recovery for Padini, probably in 2HFY21 onwards with the Group back to pre-Covid-19 level backed by its resilient value-for-money product offerings. Also, the management will continue to implement cost optimisation strategies such as minimal store expansion as to maintain its cost, thus rendering better profit margin to its bottom line. We reckon that the Group will continue putting effort on its digital platform sales to mitigate impact of slower physical sales from its retail stores.
  • Downside risks include: (a) Stiff retail competition especially in apparel and footwear industry, (b) Strengthening of Chinese Renminbi against Ringgit Malaysia, (c) Higher operation costs, and (d) Prolonged Covid-19 outbreaks.

Earnings Outlook/Revision

  • No changed to our FY21F and FY22F earnings forecast.

Valuation & Recommendation

  • Maintain HOLD call with a higher target price of RM2.60 (RM2.10 previously) as we roll over our valuation to FY22F. Our valuation is now pegged at 13.4x FY22F PE with an EPS of 19.4 sen, slightly lower to its 5-year historical mean PE of 15x.

Source: JF Apex Securities Research - 2 Dec 2020

Labels: PADINI
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