Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Wed, 17 Oct 2018, 08:43 AM


Automotive - New SST Starting Line

Author: kiasutrader   |  Publish date: Wed, 17 Oct 2018, 08:43 AM

We maintain our NEUTRAL rating on the AUTOMOTIVE sector. According to the Malaysian Automotive Association (MAA), TIV for September 2018 registered sales of 31,241 units (-52% MoM, -24% YoY), which marks the beginning of new SST regime whereby vehicles are charged 10% in sales tax at the vehicles manufacturing level (effective 1st September 2018). Both MoM and YoY car sales growth plunged as bulk of the demands were fulfilled during the GST zero-rated tax holiday period as well as adjustment to post-tax holiday environment. Nevertheless, YTD 9M18 TIV of 454,971 units (+7%) is still within our expectation at 77% of our TIV forecast of 590,000 (+2%), as we expect sales to normalize in the coming months, supported by the usual year-end promotion and upcoming special event, KLIMS 2018. Our sector top pick is MBMR (OP; TP: RM3.60) for its undemanding 6.1x FY18E PER compared to the 5-year forward average of 11x.

September 2018 registered sales of 31,241 units (-52% MoM, -24% YoY). Both MoM and YoY car sales growth plunged as bulk of the demands were fulfilled during the GST zero-rated tax holiday period as well as adjustment to post-tax holiday environment. Taking a detailed look at the passenger vehicles segment (-52% MoM, -26% YoY), both MoM and YoY car sales growth plunged on limited demand as consumers’ demand had been fulfilled during the GST zero-rated tax holiday. Nevertheless, Mazda’s YoY growth surged 71% mainly from the back-logged booking of its flagship model, the all-new Mazda CX-5 as well as recording the lowest MoM drop at 38%, due to their decision in maintaining zero-rated prices for cars booked during the zero-rated period despite the implementation of new SST, which saw price hike of 3% to 9% (compared to zero-rated environment).

New SST gazetted with sales tax of 10% for vehicles, effective 1st September 2018. Sales volume for October 2018 is expected to be flat, as consumers are still adjusting to the new SST environment. Nevertheless, we expect the TIV will recover in November and December buoyed by the usual year-end promotion and upcoming special event, The Kuala Lumpur International Motor Show (KLIMS) 2018 which will be held after five-year of hiatus. With the new SST gazetted on 1st September 2018, vehicles are charged 10% in sales tax at the vehicles manufacturing level (only on fully-built vehicles, CKD parts are exempted). Nevertheless, from the recent announcement by certain car makers, the prices for the locallyassembled and Completely-Knocked-Down (CKD) units have dropped by 1% to 3% (compared to 6%-rated GST), whereas the prices for the Completely-Built-Up (CBU) units have increased by 1% to 3%. We believe the unexpected price decrease in locally-assembled and CKD units was attributed to the better compliance of Industrial Linkage Programme (ILP) regulation, which provides incentives and duty exemption to the original equipment manufacturers (OEMs) that use local components (under the National Automotive Policy 2014).

Perodua maintained leading position, despite losing some of its market share during the zero-rated GST. Perodua continued to lead the pack with a market share of 37% (9M17: 36%) and higher sales growth (+11% YoY) driven by higher deliveries of the all-new Perodua Myvi (bookings have hit 120k, with 68k units delivered). At the number two position, Honda registered lower market share of 17% (9M17: 18%) with a marginal sales growth (+1% YoY) mainly due to lower sales in August and September with the run-out of inventories during the first 2 months of zero-rated tax holiday despite better response for its best-selling models of Honda City, BR-V and Civic (new Honda HR-V facelift was launched in August 2018). Progressing further down the list, Toyota saw higher sales (+7% YoY) with an unchanged market share of 12% (9M17: 12%) with unprecedented sales during the tax-holiday period doubling its usual monthly TIV. On the other hand, Proton (-13% YoY) and Nissan (0% YoY) continued to slide further down the pecking order with a lower market share of 11% (9M17: 13%) and 5% (9M17: 5%), respectively, due to the lack of new volume-driven model launches. Meanwhile, Mazda sales surged 58%, with an unchanged market share at 2% (9M17: 2%) attributed to the higher delivery of its flagship model, the all-new Mazda CX-5.

MBMR (OP; TP: RM3.60) is our sector top pick, with or without an M&A angle, for: (i) its deep value stake in 22.58%- owned Perodua (based on our FY18E profit and attached 12x PER value, MBMR’s stake at c.RM1.4b), and (ii) expected strong turn-around in the alloy-wheel division segment underpinned by the all-new MyVi and expected launch of the allnew Perodua SUV (D38L). The stock is trading at an undemanding 6.1x FY18E PER compared to the 5-year forward average of 11x. MBMR’s TP is based on 11x FY19E EPS, at its 5-year forward historical mean PER.

Source: Kenanga Research - 17 Oct 2018

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Daily Technical Highlights – (NGGB, EDGENTA)

Author: kiasutrader   |  Publish date: Wed, 17 Oct 2018, 08:41 AM

NGGB (Not Rated)

  • NGGB gained 8.0 sen (+19.28%) yesterday to close at RM0.495 on the back of exceptional trading volume, as it secured a RM400m investment from Asia Capital Investment Fund to finance its Green Technology Park projects in Malaysia.
  • Chart-wise, NGGB rallied mid-Sept and was consolidating near its 20-day SMA before yesterday’s move. Yesterday’s move represented a break above its previous swing high of RM0.460 signalling a potential continuation of its September rally.
  • Key momentum indicators continue to show meaningful upticks. Coupled with the bullish crossover signal from the MACD indicator, this increases the possibility of a continuation rally.
  • From here, we expect continuous buying momentum to bring the share towards resistances at RM0.505 (R1) and RM0.545, should the first level be taken out.
  • Conversely, any downside bias should see supports at RM0.460 (S1) and RM0.425 (S2).

EDGENTA (Not Rated)

  • EDGENTA gained 10.0 sen (3.85%) to close at RM2.70 yesterday, accompanied by exceptional trading volume with 2.2m shares exchanging hand – almost 4-folds to its 20-day average.
  • Yesterday’s candlestick marked the share closing above key SMAs which currently are in a “Golden Cross” state.
  • Overall trend line is positive while momentum indicators are also displaying positive showings.
  • From here, we expect EDGENTA to make the next high towards RM2.82 (R1). Should follow-through buying momentum sustain, further possible advancement could then be expected at RM3.29 (R2).
  • Downside support can be found at the immediate support level at RM2.54 (S1) and RM2.43 (S2) further down.

Source: Kenanga Research - 17 Oct 2018

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Daily technical highlights – (GAMUDA, SANICHI)

Author: kiasutrader   |  Publish date: Tue, 16 Oct 2018, 08:50 AM

GAMUDA (Trading Buy, TP: RM3.00; SL: RM2.00)

• GAMUDA gained 7.0 sen (+2.98%) to close at RM2.42 on strong trading volume.

• Since the announcement by the government to terminate GAMUDA-MMCCORP JV for the MRT2 tunnelling works, the stock plunged to a low of RM2.07.

• However, the past three-days have seen the share rebound. We believe the share is still in the initial stage of rebounding. Both stochastic and RSI indicators have just left the oversold territory further suggesting more upside.

• From here, we expect continuous buying momentum that may see the share test its immediate resistance at RM2.50 (R1) while a break above R1 will see RM2.75 (R2) as the next resistance.

• Conversely, any downside bias will see support at RM2.00 (S1) where interested investors can collect while a break below RM1.90 (S2) is deemed highly negative.

SANICHI (Not Rated)

• SANICHI gained 1.5 sen (13.64%) to close at RM0.125 yesterday, backed by explosive trading volume with 9.0m shares exchanging hand – a 6-folds to its 20-day average.

• Notably, yesterday’s close marked a decisive breakout from its 5-month consolidation mode of RM0.090-RM0.110 after multiple retests in the days prior.

• Given MACD continuing bullish uptrend with other momentum indicators displaying positive readings, expect SANICHI to further trend towards RM0.140 (R1) with a decisive breakthrough will see the share on a clear path towards RM0.165 (R2).

• Conversely, should the buying momentum fail to sustain, expect an immediate support level at RM0.090 (S1) and RM0.080 (S2).

Source: Kenanga Research - 16 Oct 2018

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Top Glove Corporation - FY18 Barely Made the Grades

Author: kiasutrader   |  Publish date: Fri, 12 Oct 2018, 09:16 AM

FY18 results came in within expectations. FY18 PATAMI of RM433.6m (+31.9% YoY) came in within expectations at 96%/98% of our/consensus full-year forecasts. A final DPS of 10.0 sen was proposed, bringing full-year FY18 DPS to 17.0 sen (FY17: 14.5 sen) which is above our expectation. As such we raised both our FY19E and FY20E DPS from 14.5 sen to 17.0 sen each. The 1-for-1 bonus issue will go ex on 24 Oct 2018.

Key result highlights. QoQ, 4Q18 revenue rose 10.6% due to higher sales volume (+6%) and ASPs (+1%), underpinned by strong demand emanating particularly from Asia as well as Eastern Europe and Latin America. 4Q18 PBT rose 6% but PBT margin fell 0.5ppt to 11.7% from 12.2% in 3Q18 as improvement in production efficiency and new capacity coming on-stream was slightly offset by higher input nitrile latex prices (+13.9%) which caused some pricing pressure. This brings 4Q18 PATAMI to RM101.6m (-13.6%) due to a higher effective tax rate of 28.2% (due to provision for deferred tax) compared to 11.0% in 3Q18.

YoY, FY18 revenue rose 23.6% to a record high of RM4,214.0m due to higher sales volume (+26%) and ASPs (+6%). The improved results followed strong demand growth stemming from developed and emerging markets, particularly from Asia (including India, China and Vietnam), as well as Eastern Europe and Latin America. FY18 PBT margin expanded by 1.2ppt to 12.4% compared to 11.2% in FY17 due to better economies of scale, improved productivity and higher ASP although slightly chipped by a marked increase in natural gas price. As a result, FY18 PATAMI was higher by 31.9% to RM433.6m.

Shorter lead time indicating strong demand tapering off. We understand that the production of vinyl gloves in China has resumed and normalised in early 2018. Hence, over the past six months, delivery lead time (the time frame between order and delivery) has shortened from 60-70 days to 30-45 days, indicating that the strong demand is potentially tapering off.

Outlook. Looking ahead, Top Glove is in the process of constructing several manufacturing facilities namely, Factory 32 (Phases 1 & 2 to be completed early and end-2019 respectively; 4.4b pieces), Factory 33 (operational by March 2019; 1.2b pieces), Factory 5A (operational by Oct 2019; 2b pieces) and Factory 8A (operational by early 2020; 3.2b pieces) which will boost the Group’s total number of production capacity by 9.8b gloves per annum to 69.1b (+14%).

Maintain UNDERPERFORM. TP is RM8.85 based on 23x FY19E EPS (+1.0 SD above 5-year forward historical mean). We are feeling less optimistic about the short-to-medium prospects for Aspion as irregularities discovered could prove a setback, albeit temporary, and coupled with the impending legal case, the profit guarantees are at risk.

A key upside risk to our call is the higher-than-expected sales volume.

Source: Kenanga Research - 12 Oct 2018

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Daily technical highlights – (INARI, HHGROUP)

Author: kiasutrader   |  Publish date: Fri, 12 Oct 2018, 08:52 AM

INARI (Not Rated)

• INARI fell 10.0 sen (-4.35%) to close at RM2.20, on the back of above-average trading volume.

• From a technical perspective, the share failed to remain above key SMAs, breaking below its 20-day SMA. Notably, yesterday’s candlestick gapped down and closed to form a bearish pin bar. Moreover, MACD has also displayed a bearish crossover signal which could indicate more downsides.

• Immediate support levels can be identified at RM2.08 (S1) and RM2.00 (S2). Conversely, renewed buying interest should see resistances at RM2.25 (R1) and RM2.35 (R2) should the first level be taken out.

HHGROUP (Not Rated)

• HHGROUP gained 1.5sen (8.33%) to close at RM0.195 yesterday.

• Technically, yesterday’s bullish candlestick could suggest a downtrend reversal as the share appears to have bottomed out.

• Indicators are displaying improvement with MACD to cross over the signal line while other oscillators showing upticks.

• From here, expect HHGROUP to break through its 100-day SMA at RM0.200 (R1). Should this level be taken out, next resistance level to target is RM0.245 (R2).

• Immediate downside support can be found at RM0.170 (S1), where a break below is deemed highly negative.

Source: Kenanga Research - 12 Oct 2018

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Malaysia Industrial Production - Grew by 2.2% in August, but weak expansion

Author: kiasutrader   |  Publish date: Fri, 12 Oct 2018, 08:39 AM


● The Industrial Production Index (IPI) increased by 2.2% YoY in August (July: +2.6%), in line with Bloomberg consensus but slightly above house estimate of 1.9%. However, the month’s IPI declined by 0.8% MoM after it rose by 2.2% in July. In seasonally adjusted terms, the IPI declined by 0.4% MoM (July: +2.6%). Year-to-date (YTD), the index has slowed to 3.1% YoY (Jan-Aug 2017: +4.6%). Its three-month moving average growth moderated to 1.9%, the lowest since the index was rebased to 2015 indicating a downturn in industrial output.

● Apart from the slowdown of the global semiconductor super-cycle the manufacturing sector growth moderated amid escalating US-China trade spat. The manufacturing index grew by 4.3% YoY in August (July: +5.2%) despite the higher base last year (Aug 2017: +7.4%). The sector however declined by 0.1% MoM (July: +1.8%) and dropped sharply by 2.3% MoM on a seasonally adjusted basis. The electrical & electronic (E&E) sector grew by 4.5% YoY, albeit slower than July’s 8.0% growth. Consequently, its contribution to overall manufacturing sector declined to 1.3 percentage points (ppts) from 2.2 ppts in July. Meanwhile, manufacturing sector sales grew by 8.1% YoY in August (July: 9.6%) thanks to the 3-month tax holiday period despite the 0.3% YoY fall in exports on the back of slowing E&E demand.

● The mining sector continued its downtrend for the fourth straight month, falling by 4.6% YoY (July: -5.9%). The three key components in mining sector namely extraction of crude oil & natural gas, crude petroleum and natural gas contracted by 4.7%, 0.6% and 7.9% YoY respectively in August (July: -5.9%, -4.4% and -15.2% respectively).

● We expect the IPI to moderate in the following months as US-China trade war heightens and demand for E&E would slide further. However, its growth would partly be supported by private consumption. So far, the manufacturing output has slowed to 4.9% YTD compared to 6.5% recorded in the same period of last year. In contrast, Malaysia’s Purchasing Manager Index (PMI) expanded, rising to a 10-month high at 51.5 in September (August: 51.2). The expansion in the latest PMI signals a possible growth improvement despite trade war risk and the possible adverse impact of Sales & Service Tax (SST) which takes into effect in September. Hence, we are projecting the 2H18 export growth to moderate between 3.0% to 5.0% (2H17: 17.0%) from 7.0% in the 1H18 on the back of slower global demand and rising volatility in the global financial markets as the US Fed signalled a more hawkish stance. Subsequently, we expect this will contribute to a lower 2H18 GDP growth forecasts of 4.8% versus 4.9% in the 1H18 and a slower GDP growth projection of 4.8% for the whole of 2018 compared to 5.9% in 2017.

Source: Kenanga Research - 12 Oct 2018

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