Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 3 Jul 2020, 9:44 AM


Star Media Group-Batten Down the Hatches

Author: kiasutrader   |  Publish date: Fri, 3 Jul 2020, 9:44 AM

We came away from its analysts’ briefing feeling cautious. The group is eyeing revenue streams expansion with its paywall so far showing positive traction. That said, we believe this might not be sufficient to weather through the lull in publishing and advertising caused by recent movement controls. Meanwhile, operational restructuring will be maintained to optimise costs. Maintain UNDERPERFORM and TP of RM0.300.

Building more pipelines. The group has been busy in expanding its digital presence with the development of more accessible mobile platforms of its existing portfolio (i.e. StarProperty, iBilik, Kuali). Its recently introduced paywall seems to be garnering a strong subscribership base since inception in March 2020, touting over 75k subscribers as of May 2020, according to management. Recall that the Star Online now implements limited access to certain web articles, exclusive to members of the RM9.90/month plan (introductory rate of RM1.90 for the second month). While we are encouraged by the take up to buffer declining print sales, it is unlikely that it will cushion the shortfall from physical distribution. That said, management views this as a complementary revenue stream as it still sees relevance in its bread-and-butter traditional newspaper channel. Meanwhile, the group has also embraced conducting more virtual fairs in place of physical ones held back by the MCO.

The group opines that the increase in digital traffic across its platforms will enhance its data analytics capabilities to allow better cross-selling and more efficient target marketing for advertisers. Especially spurred by larger homebound readership during the MCO, the total number of unique visitors of 21m for Star Online in March 2020 should be larger in the months ahead.

Acquisitions a steady process. Previously boasting a RM300m war chest for potential acquisitions, management presented that it will take its time to carefully consider its options, evaluating potential synergistic benefits. We believe any decisions could be more digital-centric given the diminishing performance of physical print. Consolidation of smaller print publishers could also be possibility to add to the group’s market share and online contents.

Bracing for the storm. Given the change in landscape brought by the MCO, we anticipate the group to face strong headwinds as demand for physical print was parched and advertisers are seeing cutbacks as a means to conserve their own cashflow against the economic deceleration. Against these top-line pressures, the group looks to keep cost rationalisation exercises going. Even with this, management describes that content quality will always be in mind, being its main consumable to customers. As far as its digital ventures goes, management aspires to keep capex low by tapping into in-house expertise with its product development. That said, we anticipate that these measures may not save the profitability for FY20, as economic recovery is also not expected to be an immediate process.

Post-update, we leave our assumptions unchanged.

Maintain UNDERPERFORM and TP of RM0.300. Our valuation is based on an unchanged 0.30x FY21E P/NTA which is 1.5SD below mean level. We believe this has sufficiently weighed in the bleak outlook for the group coupled with the lack of dividend prospects in the near-term. Although the company’s solid cash pile and books could tide it through the difficult times ahead, we anticipate stock sentiment to be curtailed especially as results come to light.

Key risks to our call include: (i) higher-than-expected adex revenue, and (ii) better-than-expected margins following various cost initiative plans

Source: Kenanga Research - 3 Jul 2020

Labels: STAR
  Be the first to like this.

Daily technical highlights – (SCGM, MAGNI)

Author: kiasutrader   |  Publish date: Fri, 3 Jul 2020, 9:43 AM

SCGM Bhd (Trading Buy)

  • SCGM’s share price has made a comeback after dropping from a 3-year high of RM3.35. This follows the group’s strengthening fundamentals arising from: (i) its shift to a new facility at Kulai Plant at the end of April last year, which resulted in better operational efficiency (via automation), (ii) obtaining better margins by tapping into the healthcare segment (PP products i.e Face Shield and Face Mask) recently, and (iii) shifting into higher margins customised products.
  • Yesterday, the stock declined marginally (-0.51%) to end at RM1.95 as it continues to display signs of a healthy uptrend based on the Ichimoku Cloud. We thus expect a likely breakout towards our resistance target of RM2.40 (R1) and RM2.70 (R2), which translates to potential upsides of 23% and 38%, respectively.
  • Our stop loss is positioned at RM1.60 (-18% from its last price).
  • From a fundamental perspective, the group has turned around with a profit of RM17.3m in FY20 (vs. a net loss of RM5.1m previously). In addition, we believe the group will be able to sustain its better margins going forward as seen in its 4Q20 results (which saw margin rising 8.5bps QoQ to 15.8%)

Magni-Tech Industries Berhad (Trading Buy)

  • MAGNI is seen as a beneficiary of better sales from its major customer Nike (U.S), which announced in its quarterly statement that it is experiencing strong growth in China. The group also stands to benefit from a stronger USD.
  • The stock has been staging a recovery since late March and was up 3.0 sen to end at RM2.13 (+1.4%) yesterday.
  • Based on Ichimoku Cloud indications, the stock has experienced a “Kumo Twist” recently, which serves as an uptrend confirmation. Should the trend persist, we expect the share to test its next resistance at RM2.50 (+17% potential upside) (R1). A further breakout may lift the stock to the next resistance level of RM2.75 (+29%) (R2).
  • Our stop loss level is set at RM1.85 (or 13% downside risk).
  • Fundamentally, MAGNI – which delivered a net profit of RM121.8m (+18.7% YoY) in FYApr20 – is currently trading at a low FY20 PER of 7.8x, and sits on a net cash and short-term investments of RM276.0m (or 63.0 sen per share)

Source: Kenanga Research - 3 Jul 2020

  Be the first to like this.

Daily technical highlights – (HEVEA, LATITUD)

Author: kiasutrader   |  Publish date: Thu, 2 Jul 2020, 9:50 AM

HeveaBoard Bhd (Trading Buy)

  • HEVEA shares could ride on the buying momentum of furniture-related stocks, playing catch-up with its peers as the likes of FIHB (+15.7%), POHUAT (+13.3%) and LIIHEN (+12.8%) saw positive price actions yesterday.
  • The stock, which rose 7.9% to end at RM0.41 yesterday, is on the verge of breaking out from a downward sloping price channel that stretches back to April 2018.
  • A likely breakout is expected to push the stock towards our resistance target of RM0.50 (R1), before possibly challenging the next resistance threshold of RM0.60 (R2) thereafter. This translates to potential upsides of 22% and 46%, respectively.
  • We have pegged our stop loss level at RM0.33 (or 20% downside risk).
  • From a fundamental perspective, HEVEA – which made a net profit of RM1.9m (-5.4% YoY) in 1QFY20 – is currently trading at an attractive discount of 45% to its end-March 2020 BV per share of RM0.75, which is backed by net cash & short-term investments of RM116.1m (or 20 sen per share).

Latitude Tree Holdings Bhd (Trading Buy)

  • LATITUD is another laggard play on the thematic buying of furniture-related stocks, which are seen as potential beneficiaries of any prolonged US-China trade war.
  • Technically speaking, the stock has been trending downwards within a negative sloping price channel since February 2016. Still, an intermediate support could be seen around current price levels as the shares (which rose 7.5% to finish at RM2.15 yesterday) were consolidating inside a tight range recently.
  • This could pave the way for the stock to stage a technical rebound to reach our resistance target of RM2.60 (R1) (+21% potential upside) as it climbs towards the upper end of the price channel. A further breakout may then lift the shares to the next resistance line of RM2.95 (R2) (+37% potential upside).
  • Our stop loss level is set at RM1.75 (or 19% downside risk).
  • Fundamentally, LATITUD – which recently reported a net profit of RM2.6m in 3QFY20 (from a net loss of RM2.1m in the previous year’s quarter) – is presently trading at a steep discount of 65% to its end-March 2020 BV per share of RM6.10, which is backed by net cash & short-term investments of RM81.0m (or 85 sen per share).

Source: Kenanga Research - 2 Jul 2020

  Be the first to like this.

1QCY20 Results Review- Wrapped Up

Author: kiasutrader   |  Publish date: Thu, 2 Jul 2020, 9:48 AM

The extended 1QCY20 reporting season concluded yesterday on a downbeat note as the number of earnings disappointments increased over the previous quarter. 136 out of 137 stocks that we cover released results and guidance that led to earnings downgrades overwhelming upgrades by a ratio of about 4 to 1 for FY20 and 3 to 1 for FY21. 59 (44%) came in within, 14 (10%) above and 63 (46%) below our expectations. Sectors that disappointed the most - with over half in number coming in below our and consensus expectation - were Media, Plantations, Property, Sin (a.k.a Brewery & Tobacco) and Technology. No sector surprised pleasantly, while the sin sector, traditionally counted on to deliver dividends consistently, all disappointed with the reduced or absence of interim dividends. Of the 28 FBMKLCI component stocks we cover, 13 were within, 12 below and only 3 were above. We trim FY20/21 EPS of the FBMKLCI (post earnings review and housekeeping adjustments for inclusion of TM and KLCC) from 78.5/88.4 sen (updated on 1st June) to 77.2/87.8 sen versus the currently available Bloomberg consensus of 75.9/90.7 sen. With the FBMKLCI at 1,514 currently, we see 6% downside risk as we place our year-end FBMKLCI target at 1,422 – arrived at by applying 16.2x on FY21 EPS of 87.8 sen. Overweight - Construction, Gaming, Property, Rubber Gloves, Technology and Utility sectors. Underweight - Automotive, Building Materials, Healthcare, Media and Sin (Tobacco & Brewery). Our Top Picks for 3QCY20: BJTOTO (OP; TP: RM2.55), D&O (OP; TP: RM0.860), F&N (OP; TP: RM36.20), GAMUDA (OP; TP: RM4.10), MALAKOF (OP; TP: RM1.02), MPI (OP; TP: RM13.30), RHBBANK (OP; TP: RM6.00), TOPGLOV (OP; TP: RM25.00), SUNCON (OP; TP: RM2.45) and TENAGA (OP; TP: RM13.95)

Tweaked up FBMKLCI year-end target to 1,422: Despite further reducing FY20/21 EPS estimates since 1st June of 78.5/88.4 sen to 77.2/87.8 sen, post this just concluded results season, we bump up our year-end target from 1,406 to 1,422 as we apply a higher PE multiple of 16.2x on FY21 EPS of 87.8 sen (versus 15.9x on 88.4 sen previously). We justify the application of a higher PE multiple on the grounds that 10- year MGS yield – a proxy for the risk free rate - is now lower (which we believe will remain low for an extended period) which we pegged at 2.90%. Coupled with an equity market risk premium of 3.28% (which is +1SD above 10-year mean to reflect mounting concerns over recovery uncertainties, increased political and governance risks), the applicable expected earnings yield is 6.18%, the reciprocal of which is our forward PE multiple of 16.2x.

Those that disappointed outnumbered those that exceeded expectations by a ratio of 3 to 1: Of the 137 stocks that we research, only AIRASIA has yet to announce results. And of this 136, earnings from 59 (44%) came in within, 63 (46%) below and just 14 (10%) exceeded lowered expectations. Among the FBMKLCI heavyweights, notable FY20 earnings downgrades were CIMB (-28%), AXIATA (-25%), SIMEPLT (-34%), PETDAG (-48%), GENTING (-40%), and GENM (-39%) which outweighed upgrades in MISC (+32%), HARTA (+56%) and TOPGLOV (+103%).

Within our research universe, FY20 earnings downgrades overwhelmed upgrades 4 to 1: All in, the team has cut forecasts for 73 stocks with just 13 upgrades (where rubber gloves stood out as the only one sector where all stocks’ earnings were raised). Sectors for which results disappointed in a big way with earnings expectations cut were plantation, gaming, media, property and sin where CARLSBG, HEIM and BAT came in short on earnings as well as dividends. Lowered dividends were a common trend across the board even for sectors traditionally counted on for yields as most corporates guided for cash preservation as a priority to ride out this challenging period

Source: Kenanga Research - 2 Jul 2020

  Be the first to like this.

Gamuda Bhd- Officially Signs PTMP Agreement

Author: kiasutrader   |  Publish date: Thu, 2 Jul 2020, 9:46 AM

GAMUDA’s 60%-owned SRS Consortium is officially the PDP for PTMP after finally inking the master agreement with Penang State. Key disclosures include: (i) SRS’s bridging loan provision of RM1.3b to Penang state and (ii) PDP fee of 5.0–5.75%. Overall, we are positive as PTMP works can now be progressively rolled out. Maintain OUTPERFORM with an unchanged SoP-derived TP of RM4.10.

Officially the Project Delivery Partner (PDP). Yesterday, Gamuda’s 60%-owned subsidiary SRS Consortium finally signed the Penang Master Transport Plan (PTMP) master agreement with Penang state – within management’s guidance of having it signed by 3QCY20.

SRS will be in charge of implementing 6 key areas namely: (i) reclamation of Island A measuring 2,300 acres, (ii) 23.5km LRT Bayan Lepas, (iii) 19.5km Pan Island Link Highway 1, (iv) 5km Pan Island link Highway 2A, (v) infrastructure on reclaimed Island A, and (vi) marketing and sales of the reclaimed Island A.

SRS will provide the state with RM1.3b bridging loan to reclaim the first 800 acres of Island A. This will cost Gamuda RM780m (for 60% stake) and bring its net gearing up to 0.44x (from current 0.35x) which we still find manageable. Nonetheless, total funding required to fully reclaim 800 acres of Island A is RM2.5b – whereby SRS and Penang State will have to explore other options for the RM1.2b shortfall. We only expect repayment when the lands are up and monetized in 4-5 years’ time.

PDP fee of 5.00–5.75% is a pleasant surprise as we were previously anticipating a lower range of 3 to 5%. That said, we note that the fee will likely only be applied for works where SRS will be overseeing – and not works that they are executing.

Cashflow from tolls likely to be channelled towards PTMP. With the large funding obligations to co-develop PTMP with Penang state, we opine that Gamuda’s future free cash flows from their toll concessions worth c.RM350m/annum could be channelled for this purpose. This could possibly jeopardise Gamuda’s traditional bi annual 6.0 sen dividend (worth c.RM300m annually) moving forward.

No change to earnings forecast. Maintain OUTPERFORM on unchanged TP of RM4.10. We continue to like GAMUDA for their dominant position in the construction space in Malaysia which is bound to benefit from any pump priming initiatives.

Risks to our call include: (i) no MRT3 project, (ii) wide resurgence of Covid-19, and (iii) a snap election

Source: Kenanga Research - 2 Jul 2020

Labels: GAMUDA
  Be the first to like this.

Malaysia Manufacturing PMI- Recovery gained traction in June, first expansion in 21 months

Author: kiasutrader   |  Publish date: Thu, 2 Jul 2020, 9:45 AM

● Manufacturing PMI rebounded sharplyin June, charting its first expansion in 21 months (51.0; May: 45.6)

- Attributable to further reopening of economic activities as the nation entered the Recovery Movement Control Order (RMCO) phase on 10 June.

● Output index rose, matching the record high

- Reflecting resumption of factory operations, with some factories registering a faster production rate in order to clear backlogs.

- New orders picked up to a six-month high, underpinned mainly by improved domestic demand. While new export orders recorded smaller contraction, underlying weakness in foreign demand prevailed with major countries remained subjected to a certain degree of business restrictions.

● Degree of optimism strengthened to a four-month high

- Lifted by expectation of a rise in production volume next year, in line with the gradual recovery in economic activity.

- However, with current outstanding work remained broadly flat, employment level was kept unchanged.

● Prices moved into inflation territory on input sourcing challenges

- Suppliers raised input prices due to unfavourable exchange rate movements, stock shortages and higher transport fees resulting from COVID-19 travel restrictions.

- Higher input cost was passed down to consumers, with output prices increasing for the first time in 2020.

● Improved manufacturing performance across regions

- US (49.6; May: 39.8): accelerated to a 4-month high on smaller decline in output, new orders and employment. These underpinned hopes of a swift economic recovery, lifting confidence among manufacturers.

- China (51.2; May: 50.7): registered an uptrend for two straight months, with continued expansion in production amid marked improvement in demand, specifically from the domestic market.

Continued relaxation of COVID-19 restrictions to support further improvement in the manufacturing sector

- Manufacturing sector is expected to portray an improved business condition in the next few months, steered largely by the domestic-oriented activities. Meanwhile, export-oriented operations may be capped by broad weakness in foreign demand, a resurgence in COVID-19 infections and the brewing geopolitical tension.

- Against this backdrop, we retain the value-added manufacturing growth forecast at -6.3% in 2020 (2019: +3.8%) in line with the expected decline in GDP growth (-2.9%; 2019: 4.3%)

Source: Kenanga Research - 2 Jul 2020

  Be the first to like this.

I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
View Trading Signals and run Live Backtest
MQ Affiliate
Earn rewards with MQ Affiliate Program

546  370  524  474 

Top 10 Active Counters
 ANZO 0.18+0.015 
 VIVOCOM 0.0350.00 
 SANICHI 0.09+0.005 
 EDUSPEC 0.02+0.005 
 PDZ 0.070.00 
 VIVOCOM-WE 0.02+0.01 
 IRIS 0.205+0.01 
 KNM 0.2150.00 
 AT 0.095-0.01 
 ASIAPLY 0.26+0.015 


1. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!
2. MQ Affiliate – A smarter way to earn more rewards MQ Trader Affiliate Program
3. MQ Affiliate – How to become an effective affiliate MQ Trader Affiliate Program
4. MQ Affiliate – Upgrading to Affiliate Partner MQ Trader Affiliate Program
Partners & Brokers