Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Wed, 25 May 2022, 9:51 AM


D&O Green Technologies - Solid Quarter Despite Challenges

Author: kiasutrader   |  Publish date: Wed, 25 May 2022, 9:51 AM

1QFY22 CNP came in within expectation at RM30.5m (-21.1% QoQ; +15.1% YoY), representing 21%/20% of our/consensus estimate. Revenue slid 6.2% QoQ on inefficiencies resulting from an unexpected surge in Omicron cases among employees. Thankfully, the infection rate has declined, and D&O is optimistic for the coming quarters as design-in activities are on a rise. To cater for more orders, new equipment is being installed in Plant 2 as the group aims to commence operations in 3QFY22. Maintain OUTPERFORM with an adjusted TP of RM5.40.

Within expectations. 1QFY22 CNP came in within expectation at RM30.5m (-21.1% QoQ; +15.1% YoY), representing 21% of our, and 20% of consensus, full-year estimate.

Results highlight. QoQ, 1QFY22 revenue slid 6.2% to RM241.6m which is in line with the group’s business trend given the shorter operating period due to the Chinese New Year holidays. 1QFY22 CNP declined at a quicker pace of 21.1% as production was intermittently disrupted by the rapid spike in Covid-19 Omicron variant cases amongst the employees. The group had to carry out quarantine procedures which resulted in a decline in overall production efficiency. YoY, revenue for 1QFY22 jumped 17.5% while CNP grew 15.1% which reflects the growing demand for the group’s automotive LEDs for both fuel and electric powered vehicles.

Setting a solid base for another good year ahead. While the surge of the Omicron variant caught the group off guard, we learnt that the cases had also declined rapidly and are now at a well-controlled level. Production on the floor is back to its optimal level as the group will pick up on backlogs spilled over into 2QFY22. More interestingly, we learnt that the group has managed to maintain a healthy engagement with customers in China despite the lockdowns. As a result, the group saw a strong increase for its LEDs design-in from the region.

Expansion still on track. In anticipation of more orders, the group is working on its automation initiative such as the smart dispensing solution for the encapsulation process in Plant 1 which will be followed by converting those lines into quad-lines via its proprietary double-deck design. Meanwhile, the group is in the process of bringing in equipment for Plant 2 and targets to commence operation by 3QFY22. Plant 2 will be utilised progressively until 2024 where the group will eventually move into its planned Plant 3 in 2025. Construction of Plant 3 is expected to break ground by end-2022.

We maintain our FY22E CNP and FY23E CNP of RM148.1m and RM171.0m, representing 34% and 16% growth, respectively.

Maintain OUTPERFORM with an adjusted Target Price of RM5.40 (previously RM5.60) on bookkeeping purposes to reflect the latest share base. The group has also proposed a renewal of its ESOS program of up to 2% of issued shares for another 10 years. Our valuation is based on 45x FY22E PER at +1SD to its 5-year mean.

Risks to our call include: (i) disruption of components supply, (ii) replacement/obsolescence of LED technology, (iii) adverse currency fluctuations.

Source: Kenanga Research - 25 May 2022

Labels: D&O
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Kelington Group - All-time High First Quarter Earnings

Author: kiasutrader   |  Publish date: Wed, 25 May 2022, 9:49 AM

1QFY22 CNP of RM8.3m (+49.7% YoY; -24.3% QoQ) is the group’s best first quarter results ever which came in within expectations, representing 19% each of both our and consensus estimates. Revenue rose to RM173m (+65% YoY; -3.8% QoQ) while the UHP segment managed to even grow 3.5% QoQ despite a seasonally low quarter, clearly dismissing rumours of work halting in China due to lockdowns. KGB outpaced its job replenishment rate by 17% YoY, growing its order-book to RM1.2b, while tender-book stands at RM1.4b. Reiterate our OUTPERFORM call and TP of RM1.90.

Within expectation. Kelington Group Bhd’s (KGB)’s 1QFY22 CNP of RM8.3m (+49.7% YoY; -24.3% QoQ) is the group’s best first quarter results ever which came in within expectations, representing 19% each of both our and consensus estimates.

Results’ highlight. QoQ, despite noises of China lockdowns, insufficient labor and material shortage, 1QFY22 revenue held up very well at RM173.3m (-3.8% QoQ) on the back of aggressive expansions in the semiconductor space. Interestingly, revenue from the UHP segment even recorded a 3.5% QoQ growth which clearly dismissed the rumour that work in China has been halted due to the on-going lockdown. 1QFY22 CNP of RM8.3m (-24.3% QoQ) was understandably lower as (i) the group came off its seasonally stronger quarter, and (ii) commencement of the turnkey project in Sarawak which has modest margins.

YoY, 1QFY22 revenue leapt 65.4% while CNP rose 49.7% as the semiconductor industry continued to invest in new facilities to address the chip crunch. Revenue contribution from Malaysia (+77%), Singapore (+61%) and China (+42%) recorded significant YoY growth in spite of an already high base in FY21.

Overwhelming orders. KGB managed to secure RM347m new order during the reporting quarter, which outpaced FY21 average quarterly replenishment rate (which was already a high base) by a solid 17%. This further reinforces our investment thesis on KGB being a unique proxy in Malaysia to the global front-end semiconductor space which is still seeing a healthy expansion pipeline. After recognising an all-time high 1QFY22 revenue, the group’s order-book further grew to RM1.2b (vs. RM1.1b in 4QFY21) while tenderbook remains elevated at RM1.4b.

Job delivery remains on track. While headlines continue to report on sporadic lockdowns in China, we take comfort that management has instituted necessary precautions to ensure works on the ground progress according to schedule across all provinces, as well as the turnkey project in Malaysia and other UHP jobs in Singapore.

Maintain FY22E CNP and FY23E CNP of RM44.2m and RM45.0m respectively.

Maintain OUTPERFORM and Target Price of RM1.90 based on 27x FY22E PER (+1SD to 5-year peers’ mean)

Risks to our call include: (i) slower revenue recognition due to Covid-19, (ii) downturn in semiconductor sales, and (iii) delay in LCO2 ramp-up.

Source: Kenanga Research - 25 May 2022

Labels: KGB
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United U-Li Corporation - 1QFY22 Well Within Expectations

Author: kiasutrader   |  Publish date: Wed, 25 May 2022, 9:49 AM

1QFY22 CNP and dividend payment of 1.0 sen came in well within expectations. Thus, we keep FY22E/FY23E earnings unchanged. For the subsequent quarters, we expect strong product demand to continue buoying the group’s GP margins (of >40%) and earnings. Nonetheless, we reduce our TP to RM1.85 (from RM2.30) on lower PER of 8x (vs 10x) to reflect the less conducive market interest for steel-related companies given the dull steel market. Keep OP.

Within expectation. 1QFY22 CNP of RM12.1m came within our expectations at 24%. A 1.0 sen dividend declared is also within target.

QoQ, 1QFY22 CNP of RM12.1m came off 29% on: (i) lower revenue (- 9%) which led to lower GP (-13%), (ii) lower GP margins (-2ppt), and (iii) higher admin expenses (+83%). The lower revenue was due to lower tonnage volumes affected by seasonal festivities (Chinese New Year) while the weaker GP margin was attributed to higher average inventory costs on flat ASPs. Meanwhile, the higher admin expenses were due to bonus payments made to employees during the first quarter of the year.

YoY, 1QFY22 CNP increased 24% from higher revenue (+34%) which led to stronger GP (+22%). Nonetheless, we note that GP margin came off by 4ppt to 44% as 1QFY21 (previous year corresponding quarter) had supernormal margins arising from the inventory lag impact on rising steel prices.

Outlook. For quarters starting 2QFY22, admin costs are expected to rise by RM0.4m due to the minimum wage increase from RM1,200 to RM1,500 (as Ulicorp currently has c.400 foreign workers). We foresee 2Q earnings to remain flat QoQ due to seasonal festivals (Hari Raya) before recording a stronger 2H. Average material costs (CRC) for the group is expected to normalise as CRC prices have plateaued. Meanwhile, ASPs are expected to remain flat as demand for CSS products have remained strong coupled with the lack of competitors within ULICORP’s operating sphere. While the group face shortage of labour, their current workforce is sufficient to meet existing orders.

Maintain FY22E/FY23E earnings post results.

The market perception. Ulicorp is perceived by the broad market as a steel player whereby earnings are expected to rise and fall alongside steel prices – which we believe explains the single-digit PE. While this is partially true (where steel prices do impact earnings to a certain degree), the degree of impact from steel price gyration is much lesser compared to other listed steel players. This is because Ulicorp’s products are more niche and they have pricing power which explains their much stronger GP margins (unlike generic steel players which mostly follow market pricing).

Nonetheless, in the current dull steel market which is unlike FY21 when steel prices were skyrocketing, we feel it would be hard for investors to shrug off this market perception in the short term to re-rate valuations unless Ulicorp (i) delivers a much higher dividend payout of >60% (vs. FY21’s 25% payout) to boost yields OR (ii) record strong and sustainable earnings growth for consecutive quarters especially when steel prices comes off to showcase that ASPs for Ulicorp's product are less cyclical compared to other steel players.

As we feel that Ulicorp is unlikely to meet such re-rating criteria in the short term, we choose to conservatively reduce our PER valuation for the group to 8x (from 10x) to reflect the less conducive market interest for steel-related companies. Consequently, we reduce our TP to RM1.85 (from RM2.30) but reiterate our OP call.

Source: Kenanga Research - 25 May 2022

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UMW Holdings Bhd - 1QFY22 Above Expectations

Author: kiasutrader   |  Publish date: Wed, 25 May 2022, 9:47 AM

1QFY22 core PATAMI of RM99.4m (+59%) came in above our/consensus expectation at 34%/32% of full-year estimates on stronger-than-expected performance, especially from associate Perodua. As such, we increase FY22E/FY23E CNP by 24%/22% on stronger back-logged booking despite SST-exemption period drawing closer to an end. Upgrade to OP from MP with a higher TP of RM4.40 (from RM3.20).

1QFY22 above expectations. 1QFY22 core PATAMI of RM99.4m (+59%) came in above our/consensus expectation at 34%/32% of fullyear estimate on stronger-than-expected performance, especially from its associate Perodua.

YoY, 1QFY22 core PATAMI surged 59%, concurrent with stronger sales (+24%) with (i) overall stronger performance in all three business segments with the transition to endemic phase and full re-opening of the economy, and (ii) lower effective tax rate of 19.6% (1QFY21: 24.2%) from various tax incentives and benefits enjoyed by the group. Automotive segment showed higher sales (+28%), and segmental profit (+41%) in concurrence with steady Perodua and Toyota & Lexus unit sales of 61,624 units (+6%) and 22,447 units (+31%), respectively. On the other hand, Equipment segment recorded stronger overall sales (+12%) with a better segmental profit (+45%) as demand in both local and overseas markets continued to improve post lockdown with projected increase in activities following higher commodity prices. M&E segment sales was weaker (-1%), but with stronger segmental profit (+27%) due to the lower contribution from disposal of Auto Components sub-segment subsidiary with improvement in operating cost post- disposal, but Lubricant sub-segment still showed weak demand due to lockdown in certain overseas markets while Aerospace is still in a loss from the slowdown during the pandemic phase earlier.

QoQ, 1QFY22 core PATAMI plunged 60% in line with weak sales (flat) as 4QFY21 is a strongest quarter of the FY seasonally and there was also a recognition of deferred tax assets (DTA) of RM140m in relation to investment tax allowance which was approved in 4QFY21.

Outlook. UMW derives its earnings mostly from: (i) the stream of new models such as Vios and face-lifted Yaris, Toyota RAV4 CBU, Lexus UX200, Toyota Hilux Rogue, Innova and Fortuner, Toyota Corolla Cross Hybrid, Harrier, and (ii) its 38%-owned Perodua with the all-new launches of Perodua Ativa, refreshed ARUZ, and the recent face-lifted Myvi. For Equipment division, the group will continue to leverage on its partners (KOMATSU & TICO)’s strengths and new collaborative robots (“Cobots”) venture with Universal Robot A/S, while UMW Aerospace is expected to recover with the endemic phase of COVID-19 and the easing of travel arrangements.

FY22E/FY23E CNP increased by 24%/22%, on stronger back-logged booking despite SST-exemption period drawing closer to an end.

Upgrade to OP from MP with a higher TP of RM4.40 (from RM3.20) based on unchanged PER of 13x (at -1.0SD to 5-year historical mean PER) on roll-over valuation year of FY23E (from FY22E).

Risks to our call include: (i) lower-than-expected car sales volume, and (ii) higher-than-expected operating expenses.

Source: Kenanga Research - 25 May 2022

Labels: UMW
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Carlsberg Brewery Malaysia - 1QFY22 Above Expectations

Author: kiasutrader   |  Publish date: Wed, 25 May 2022, 9:46 AM

1QFY22 came above our/consensus expectation thanks to the Chinese New Year campaigns in both Malaysia and Singapore which saw 27% and 4% hikes in earnings, respectively. Moving forward, we raise FY22E/FY23E earnings as we anticipate the on-trade channels to recover thanks to economic activities returning to normalcy along with the return of tourism activities. With that, we raise our call to OUTPERFORM with a higher TP of RM28.05.

1QFY22 above expectations. The group registered a PATAMI of RM94.5m which came above our/consensus full-year PATAMI expectation at 37%/36%, respectively. The group declared a dividend of 22.0 sen which came within expectations as we expect the group to continue its quarterly dividend payments.

YoY, revenue grew by 23% to RM653.9m thanks to higher sales volume due to the successful execution of the Chinese New Year (CNY) campaign and the relaxation of Covid-19 restrictions driving sales in both Malaysia (+27%) and Singapore (+14%) operations. With an increase in marketing investments and consumer promotions, the group’s core brands, Carlsberg Danish Pilsner and Carlsberg Smooth Draught, returned to growth. Meanwhile, the group’s associate Lion Brewery recorded a 70% increase in associate contribution to RM6.8m. However, due to the devaluation of Sri Lankan Rupee (Rs.) in 1QFY22, Rs. foreign exchange conversion with Ringgit plunged by 40% resulting in an unrealised foreign exchange loss of RM28.7m. Thus, after adjusting for the unusual unrealised foreign exchange loss, the group’s core net profit rose by 55% to RM94.5m from RM61.1m in 1QFY21.

QoQ, due to the abovementioned reasons, the group’s revenue rose by 21% (Malaysia: +15%, Singapore: +35%) which boosted core PATAMI by 41%.

Better quarters ahead. With Singapore scraping its Covid-19 curbs in 2QFY22 and Malaysia transitioning into the endemic phase whereby businesses such as the hospitality and food and beverages industries are allowed to resume normal operating hours, the easing of Covid-19 restrictions will be key drivers in speeding up the group’s earnings. Moreover, with entertainment outlets in Malaysia operating effective 15 May 2022, this should further help the group recover revenue from their on-trade channels which previously contributed an estimated two-third to the group sales. Moreover, major sporting events this year such as FIFA World Cup, Asian Games and more should further spur the growth in on-trade channels. Lastly, the current economic crisis in Sri Lanka may result in lower associate contribution moving forward. However, their contribution to group profit before tax (PBT) is immaterial at c.5%.

Post results, we raise our FY22E/FY23E earnings by 12%/15% to account for higher sales from its on-trade channels.

Upgrade to OUTPERFORM from MARKET PERFORM with a higher TP of RM28.05 (from RM23.10) based on FY23E PER of 26.0x (slightly below 0.25SD of its 5-year mean). While escalating commodity prices may raise costs pressure which may be passed on to consumers, we believe due to the inelastic nature of beer demand, this may not be exceedingly disruptive to earnings. With unchanged excise duties on beers and reopening of the economy and tourism sector, we are optimistic of the group’s outlook.

Risks to our call include: (i) weaker-than-expected sales volume, and (ii) higher-than-expected operating expenses.

Source: Kenanga Research - 25 May 2022

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Dutch Lady Milk Industries - Prudent Management

Author: kiasutrader   |  Publish date: Wed, 25 May 2022, 9:46 AM

DLADY remained robust with 1QFY22 PATAMI meeting our/market expectations on account of stable margin. While we expect top-line to remain robust with the economy reopening, we are cautious on earnings on account of volatile input prices which is likely to prolong well into CY23. However, after moving forward our valuation base to FY23E, TP is raised to RM35.60 and we reiterate our MARKET PERFORM call.

In line. 1QFY22 PATAMI of RM21m accounted for 25% each of both our and market estimates. A DPS of 25.0 sen was declared, in line with our expectation of full FY22 DPS of 50.0 sen.

YoY, top-line surged 16% to RM300m as sales remained robust, surpassing its pre-pandemic days – underpinned by renewed economic activities with the easing of restrictions, regional expansion and price increases to offset inflationary headwinds. GP margin remained solid at 34% which we believed is attributed to higher demand for its products and better operational efficiency coupled with a slight uptick in EBIT margin by 40bps to 9%, attributed to better costs control. Surging top- line and stable margins resulted in PATAMI ending 22% higher to RM21m.

QoQ, top-line remained flattish but we take it positively given that historically 4Q had always been a strong quarter for DLADY. PATAMI ended 89% down as 4QFY21 saw an exceptional gain of RM155m - stripping of these gains, 1QFY22 PATAMI fell by a smaller quantum of 28%. GP margin saw 260bps erosion coming from elevated raw materials prices with EBIT margin eroding 5ppt coming from higher opex.

An essential nutritional item. Moving forward, the group should be able to preserve its sales base on the back of fresh product innovations and strategic pricing strategies in tandem with the reopening of the economy. DLADY has good leverage from the strength of its brands, the increasing need and recognition of the goodness and nutritional value of milk, as well as its complementing dairy products amongst Malaysians. Products demand should be sustained given their trusted dairy nutrition and essential component status in dietary nutrition. However, margins still remain challenging in the immediate term as global dairy prices are expected to be on uptrend into CY23. With its focus to provide nourishment to Malaysians at affordable prices, we believe Dutch Lady would be prudent with any price hikes, of which could be insufficient to offset the elevated commodity costs. Moving forward, we expect GP margins to be constant around this current level given its strategic move to front-load its inventories to combat inflationary and unfavourable currency headwinds.

Post results. As results are in line, we make no changes to our FY22E earning but revised slightly down FY23E earning by 3% to RM85m.

Maintained at MARKET PERFORM. As we moved forward our valuation base to FY23E, TP is raised to RM35.60 (from RM34.75) pegged to its FY23E PER of 26.7x (implying a 0.5SD below its 5-year mean). Supply is expected to match demand by end of CY23 which will see challenging inputs prices well into next year coupled with on-going geo-political risks which is exacerbating the supply risks. With uninspiring dividend yields, we maintained it at MARKET PERFORM.

Risks to our call include: (i) weaker-than-expected sales, (ii) worse- than-expected cost environment.

Source: Kenanga Research - 25 May 2022

Labels: DLADY
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