Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Tue, 28 Jan 2020, 3:35 PM


Weekly Technical Review - Wall Street plunged as coronavirus fears escalate

Author: kiasutrader   |  Publish date: Tue, 28 Jan 2020, 3:35 PM

Wall Street closed lower on Monday, after the fifth U.S. case of coronavirus was confirmed during the weekend.

• The Dow dropped 453.93 points (-1.57%) to close at 28,535.80.

• Chart-wise, the index gapped down below its 20-Day SMA and found support at its 50-Day SMA. Given the decline in RSI while key technical indicator appears to be losing momentum, we thus turned from a bullish to neutral stance.

• With that, its key resistance levels are at 29,400 (R1) and 29,900 (R2), while support levels can be seen at 27,800 (S1) and 27,300 (S2).

Source: Kenanga Research - 28 Jan 2020

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Weekly Technical Review - Asian markets mixed as the number of coronavirus cases increase

Author: kiasutrader   |  Publish date: Tue, 28 Jan 2020, 3:34 PM

• Asian stocks ended mixed last Friday as investors were concerned on the rising number of coronavirus cases in China.

• Back home, the FBMKLCI dropped 1.63 points (-0.10%) to close at 1,572.81.

Chart-wise, the index remained below the crucial 1,600-pts level and 20-days SMA. Coupled with the bearish crossover signal from MACD, we expect the index to experience a near-term consolidation. A resumption of the uptrend could be underway only when the index breaks out from the existing consolidation pattern by breaching the 1,600-psychological mark convincingly.

• From here on, its overhead resistance can be seen at 1,630 (R1) and 1,650 (R2).

Conversely, key support levels can be found at 1,570 (S1) and 1,550 (S2). Beyond these short-term support levels, with the index still caught inside a medium-term downward sloping trend channel, there is also a possibility that the FBMKLCI could subsequently drift lower towards the psychological threshold of 1,500 (which was last tested in Aug 2015).

Source: Kenanga Research - 28 Jan 2020

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Daily Technical Highlights – (KAB, BAHVEST)

Author: kiasutrader   |  Publish date: Fri, 24 Jan 2020, 4:01 PM

KAB (Not Rated)

  • Yesterday, KAB gained 13.0 sen (+7.78%) to close at RM1.80.
  • Chart-wise, we note that the stock has begun trending upwards since last year December.
  • Following the formation of a “Marubozu” candlestick yesterday which suggests robust buying interest, we believe that the stock may be poised for more upside.
  • Expect the stock to trend higher to test resistances at RM2.00 (R1) and RM2.20 (R2).
  • Conversely, downside supports can be identified at RM1.60 (S1) and RM1.40 (S2).

BAHVEST (Not Rated)

  • BAHVEST rose 2.0 sen (+3.64%) to close at RM0.570 yesterday.
  • After a gradual sell down, the stock has been undergoing a period of consolidation since October last year.
  • Nonetheless, recent buying interests have managed to push the stock to trend above all of its key SMAs. Alongside with the formation of a “Golden Cross” a few days ago, we believe that the stock may continue to trend higher.
  • Should buying momentum persist, overhead resistance can be found at RM0.650 (R1) and RM0.730 (R2).
  • Conversely, support levels can be identified at RM0.470 (S1) and RM0.420 (S2).

Source: Kenanga Research - 24 Jan 2020

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Bank Indonesia Rate Decision - Holds key rates steady, leaves door open for further easing

Author: kiasutrader   |  Publish date: Fri, 24 Jan 2020, 3:57 PM

Bank Indonesia (BI) yesterday kept its 7-day repo rate unchanged for the third straight month (consensus: no change; KIBB: no change)

- Both the Deposit Facility rate and Lending Facility rate remained at 4.25% and 5.75%, respectively.

BI statement: Ensuring adequate liquidity and accommodative measures to preserve economic stability and boost domestic economic growth

- Monetary operations strategy remains oriented towards maintaining sufficient liquidity and supporting the transmission of an accommodative policy mix.

- The macro-prudential policy remains accommodative while strengthening the payment system policy and financial market deepening.

- BI will continue to strengthen its coordination efforts with the Government and other relevant authorities to maintain economic stability, boosting domestic demand, increase exports and tourism, as well as attracting foreign capital inflows, including Foreign Direct Investment (FDI).

Upbeat on the domestic and global economic outlook, but maintain an accommodative policy stance

- BI foresee improved external resilience primarily contributed by an influx of foreign capital inflows (4Q19: USD6.4b; 3Q19: USD4.9b), manageable current account deficit on the back of a sharp decrease in the trade deficit as well as increased reserve assets.

- Rupiah gained 1.74% as of 22 January, and BI expects rupiah stability to remain in line with the currency’s fundamental value and maintained market mechanisms.

BI has ample room to resume the easing cycle to bolster growth in 2020

- Lower commodity prices as well as partly due to structural improvement and policy synergy between the government agencies have reinforced price stability. Meanwhile, the Rupiah is expected to gain from easing trade tension and sustain capital inflows which may support the case of more easing.

- We maintain our house forecast that the central bank may slash 25 basis points (bps) in 1Q20 amid slowing loan growth and a cautiously weak GDP growth outlook. Overall, we foresee BI to cut interest rates by up to 50bps in 2020.

Source: Kenanga Research - 24 Jan 2020

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Telecommunications - 5G M’sia International Conference 2020

Author: kiasutrader   |  Publish date: Fri, 24 Jan 2020, 3:56 PM

On 20th January 2020, we attended the 5G Malaysia International Conference 2020 in Langkawi, hosted by the MCMC. Tag lined “Progressing Humanity”, the conference hosted several speakers from international telcos and prestigious organisations to present on the potential impact of deploying 5G towards the nation’s socioeconomic ambitions and its implications to the country. Subsequently, we were invited to partake in a tour to witness several live 5G demonstrations for various applications such as agriculture, civil services, tourism as well as traffic control. Post-conference, we maintain our NEUTRAL call on the sector. While we are convinced of the need for 5G to bring the nation towards developed status, much more details need to be addressed if investors are to be sold on 5G as a profitable endeavour for the incumbent telcos, these being: (i) the 5G consortium framework, (ii) capex commitments, (iii) commercial reception, and (iv) pricing. Additionally, we believe that 5G demand will likely be driven by enterprise instead of consumer in the near-term. Our preferred picks are AXIATA (OP, TP: RM4.80) and TM (OP, TP: RM4.30) for their projected earnings recovery.

(The points in this report are not reflective of their sequence at the conference)

5G for all. During the conference, the Minister of Communications and Multimedia, Gobind Singh pressed for the commercialisation of 5G to start by 3QCY20. With the ultra-high speed (defined to be up to 10GBits or 1.25GB data per second) and low latency offered by 5G, various new technologies and capabilities could materialise which present 4G technology could not keep up with. As part of the event, we visited several live demonstrations site to witness such possibilities, with applications in: (i) agriculture, (ii) healthcare, (iii) security, (iv) tourism, and (v) traffic control. The Malaysian Institute of Economic Research studied that this could open up an estimated 39k new jobs in the economy.

Too soon for something so good? According to Julian Gorman, Head of APAC, Global System for Mobile Communication Association (GSMA), Malaysia would be among the first 24 Asian Pacific countries to adopt 5G technologies. Other invited speakers shared views on the impact of 5G technologies, mostly leading towards a significant boost in enterprise and industrial needs. High data capacities could make split-second decisions by artificial intelligence through machine learning a reality, delivering the most optimum outcome or processes. This could also supplement high-resolution video feeds for more accurate surveillance and monitoring functions. Though this would also accelerate the introduction of internet-of-things (IoT) appliances to the country, we believe that consumer demand for 5G networks may be quite limited in the near future mainly as price points may be beyond the consumers’ affordable levels. This resonates with the President of the Global Mobile Suppliers Association (GSA), Joe Barrett’s findings that currently, only 30% of 5G devices announced are smartphones.

Holding hands for the shared vision. In a fireside chat with the chiefs of the nation’s leading telcos, we gathered a common commitment that they would see the commercial rollout by 3QCY20. As of now, it appears that MCMC’s consortium proposal is well accepted, especially since it greatly reduces the capex strain from any one entity while also minimising duplication and wastage of infrastructure. Though certain members may bolster certain strengths, the eventual consortium would need to find even ground as to prevent a dominant party of holding a commanding position, as what MCMC wishes to avoid. At least for now, the players are studying possibilities before considering renouncing the consortium path all together. In hindsight, other issues participants could face are: (i) allocating capex in addition to their non-5G commitments, (ii) initial demand in early days, (iii) wholesale pricing to nonparticipants and consumers, as well as (iv) differentiating offerings between participants when operating under a shared network.

Maintain Neutral on Telecommunications. Overall, we are positive and excited for the 5G deployment and benefits it could bring to the country. However, we are cautious about its implications to the incumbent telcos especially in the near-term. Though no details are available about its structure, we reckon the consortium would need to ramp up on infrastructure very soon to achieve the 3QCY20 timeline and this could stress the financial positions of its participants. Additionally, there could be no immediate payoff to justify such investments if reception is lukewarm. Hence, our preferred picks for the sector is AXIATA (OP, TP: RM4.80) and TM (OP, TP: RM4.30). AXIATA has been stirred recently by talks of Telenor looking to buy over Khazanah’s stake in the company, which could (partially) reignite the failed merger plans last year. That said, our call is premised on the stock riding on earnings recovery from its regional operations (i.e. XL Axiata), expected to post a 20% YoY growth in FY20. For TM, we see its position as an interesting one, as it could be the most relied-upon telco in rolling out 5G thanks to its vast fibre network. Even if it does not participate, it could continue to ride on the fruits of its cost saving endeavours seen through FY19.

Source: Kenanga Research - 24 Jan 2020

Labels: AXIATA, TM
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Pavilion REIT - FY19 Below Expectations

Author: kiasutrader   |  Publish date: Fri, 24 Jan 2020, 3:53 PM

FY19 realised net income (RNI) of RM247.6m came in slightly below our and consensus expectations at 93% and 94%, respectively, on higher-than-expected borrowing cost. FY19 GDPS of 8.50 sen is also below (94%). Lower FY20E RNI by 6% to RM257m on lower rental from Damen mall and higher borrowing cost, and introduce FY21E RNI of RM266m. Maintain MARKET PERFORM but lower TP to RM1.80 (from RM1.90) with implied yield of 4.9%.

FY19 realised net income (RNI) of RM247.6m came in slightly below our and consensus expectations, at 93% and 94%, respectively. Top line was within at 95% but the reason for the deviation was mainly due to higher-than-expected financing cost (108%) as our estimates may have been too conservative. 4QFY19 dividend of 4.10 sen (which includes a non-taxable portion of 0.17 sen) brought FY19 dividend to 8.50 sen which is also below our expectation of 9.10 sen (at 94%), implying 4.9% gross yield.

Results’ highlights. YoY, top-line was up by 5% driven by: (i) higher rental income from Pavilion Kuala Lumpur (PKL) on positive reversions post the repositioning exercise, and (ii) the inclusion of Elite Pavilion Mall (EPM) in April 2018 (2QFY18). Top-line growth was mildly dampened by Damen mall which registered lower rental and occupancy. However, RNI was down by 3% on higher operating expenditure (+17%) due to higher electricity and repairs for air conditioners and lifts and maintenance, and higher financing cost (+10%) due to Elite Pavilion and working capital. QoQ, top-line was flattish (+1%), while higher operating cost eroded top-line improvement, resulting in flat RNI.

Outlook. FY20-21 will see 22-19% of portfolio NLA expiring, on single digit reversions. We are confident that PAVREIT’s two main drivers Pavilion KL (PKL) and Pavilion Elite which cumulatively contribute c.95% to NPI would be able to secure positive reversions on the minimal leases up for renewal, but the outlook for Damen mall is expected to remain challenging in the near term pending the addition of the cinema in October 2020. Fahrenheit88 acquisition is still on the table, pending the sponsor’s intention to sell, while we believe PAVREIT is eyeing cap rates closer to 6.5%.

We lower FY20E RNI by 6% to RM257m and introduce FY21E RNI of RM266m. We lowered FY20E earnings assumptions post increasing our loan drawdown assumptions closer to current levels for higher than expected working capital. Additionally, we also lowered Damen malls rental assumptions to account for weaker occupancy of 70% (vs. 80% previously) and lower rental reversions. FY20-21 will continue to be driven by single-digit rental reversions, stemming mainly from PKL and Pavilion Elite renewals. Our FY20-21E GDPU of 8.8-9.1 sen (NDPU of 7.9-8.2 sen) implies gross yield of 5.1-5.2% (net yield of 4.6-4.7%).

Maintain MARKET PERFORM but on a lower TP of RM1.80 (RM1.90) on a lower FY20E GDPS/NDPS of 8.8 sen/7.9 sen (from 9.3 sen/8.4 sen) and an unchanged gross yield spread of +1.5ppt to our 10-year MGS target of 3.40%. We like PAVREIT for its prime asset profile and resilient earnings and as such have applied thin spreads which are at the lower-end among retail MREITs under our coverage (between +1.3ppt to +2.6ppt). We are comfortable with our call (with potential return of 9%) as most upsides have been priced in (i.e. positive reversions and stable portfolio occupancy), while downside risks appear minimal.

Source: Kenanga Research - 24 Jan 2020

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