The Official Kenanga Warrants Blog

Author: NagaWarrants   |   Latest post: Wed, 19 Jun 2019, 9:41 AM


TOPGLOV: Kenanga Research downgrade TP from RM5.10 to RM4.70 and downgrade OUTPERFORM to MARKET PERFORM (Source: Kenanga Research)

Author: NagaWarrants   |  Publish date: Wed, 19 Jun 2019, 9:41 AM

As of 19 Jun 2019, If you wish to gain exposure on TOPGLOV, we have

- TOPGLOV-C49 Effective Gearing of 4.38x & 5 Ticks Sensitivity 

For more information about these warrants, visit our website www.nagawarrants.com

Do join us for FREE Trading Ideas on Telegram too https://t.me/KenangaWarrants


9M19 PATAMI of RM290.5m (-12.5% YoY) came in below expectations at 62%/63% of our/consensus full-year net profit forecasts. The negative variance from our forecast is due to lower-than-expected ASPs and margins. As such we cut our FY19E/20E net profit by 12%/8%. Correspondingly, we downgrade our TP from RM5.10 to RM4.70. Hence, downgrade from OUTPERFORM to MARKET PERFORM. 

9M19 PATAMI of RM290.5m (-12.5% YoY) came in below expectations at 62%/63% of our/consensus full-year net profit forecasts. The negative variance from our forecast is due to lower than-expected ASPs and margins. An interim dividend of 3.5 sen per share was proposed in this quarter as expected.
Key result highlights. QoQ, 3Q19 revenue rose 3% due to higher sales volume (+2%) and ASP (+0.8%). However, 3Q19 PBT fell 35%  due to a mismatch between higher latex price (+22%) and ASPs, competitive pressure and time lag in passing cost through as PBT margin fell 3.9ppt to 6.9% compared to 10.8% in 2Q19. This brings 3Q19 PATAMI to RM74.7m (-29.4%) due to a lower effective tax rate of 8.6% compared to 15.0% in 2Q19. 
YoY, 9M19 revenue rose 21% due to higher sales volume (+15%) and ASPs (+2.7%). However, PBT eased by 8% mainly attributed to a sharp upward movement in the 3Q19 natural rubber latex price (+22%). This led to a mismatch between input material cost and ASP, which coupled with intense competition, adversely impacted bottom line. As a result, 9M19 PATAMI was lower 12.5% to RM290.5m due to the higher effective tax rate of 16.0% compared to 11.9% in 9M18. 
ASP hike to mitigate the effect of higher costs. Post the 3Q19 results briefing conference call, we understand that subsequent quarters’ earnings to gradually improve, driven by cost pass-through via hikes in ASPs, favourable USDMYR forex, normalised margins, sustained demand growth for rubber gloves and efficiencies  derived from internal production processes.
As an indication, this quarter’s higher ASPs could well indicate that price competition has abated, which should augur well for Top Glove’s earnings in subsequent quarters. Due to the lag effect in passing cost through, as a result of higher natural gas and raw material (latex), Top Glove had since conservatively raised ASPs by  between 5-8%, which should contain high operating costs and put brakes on further margin compression in subsequent quarters. Recall, while pricing adjustments were made accordingly, there was a time lag of two  months before the cost increase could be shared out with customers.
Downgrade our FY19E/FY20E net profit by 12%/8% due to the lowerthan- expected results.
Downgrade from OP to MP. Correspondingly, our TP is downgraded from RM5.10 to RM4.70 based on an unchanged 25.5x FY20E revised EPS (+1.0SD above 5-year historical forward mean). We believe the stock is trading at rich valuations of 30x and 27x FY19E and FY20E EPS, respectively, compared to net profit growth  averaging 5% per annum over the next two years. As such we downgrade our call from Outperform to Market Perform. Note that the share price has risen by 10% since our last upgrade in April 2019.
A key upside risk to our call is the better-than-expected margin.


BJTOTO: Kenanga Research remains OUTPERFORM at revised TP of RM3.00. (Source: Kenanga Research)

Author: NagaWarrants   |  Publish date: Wed, 19 Jun 2019, 9:37 AM

As of 19 Jun 2019, If you wish to gain exposure on BJTOTO, we have

- BJTOTO-CY Effective Gearing of 5.21x & 3 Ticks Sensitivity 

For more information about these warrants, visit our website www.nagawarrants.com

Do join us for FREE Trading Ideas on Telegram too https://t.me/KenangaWarrants

The strong 4Q19 earnings were not unexpected given the CNY effect while luck factor remained stable. Ticket sales continued to grow healthily, which is a positive sign, thanks to enforcement clampdown on illegal operators. Despite strong share performance, BJTOTO remains an OUTPERFORM at revised TP of RM3.00/DCF share for its attractive valuation as well as above average yield of >6%. 

4Q19 results matched expectations. 4Q19 earnings came within expectations with net profit of RM70.2m totalling FY19 net  income to RM276.4m which came in 2%/3% above house/street’s estimates. It declared final NDPS of 4.5 sen (ex-date: 18 Jul; payment date: 16 Aug)  in 4Q19, bringing YTD FY19 NDPS to 16.0 sen, which is the same as FY18, similar to our estimates of 16.1 sen.
Earnings driven by luck factor while ticket sales remained strong. 4Q19 net profit jumped 19% sequentially to RM70.2m, while revenue leapt 11%, on the back of a better luck factor while ticket sales remained strong which partly attributable to the CNY effect. The estimated prize payout ratio (EPPR) fell to 61.9% from 62.3% in 3Q19 was the main contributor to earnings growth in 4Q19. Total ticket sales grew slightly by 1% on the back drop of 41 draws in 4Q19 against 44 draws previously, as ticket sales per draw basis rose strongly by 9% to RM21.7m from RM19.9m given partly to CNY factor. Meanwhile, HR Owen (HRO) posted 25% jump in revenue given higher car sales, but operating profit fell 18% due to higher opex.
Broad-base improvement for yearly results. 4Q19 net profit doubled from RM35.2m in 4Q18 as the previous quarter was hit by an extreme poor luck factor which saw its EPPR deteriorating sharply to 65.1%. Nonetheless, total ticket sales were flattish as the 7% hike in sales per draw from RM20.3m was mitigated by lower draws of 41 vs. 44. HRO also posted a slight drop in earnings by RM1.4m or 10%. YTD, FY19 net profit leapt 20% to RM276.4m, largely due to lower investment expense by RM30.1m, while revenue inched up 1%. Overall, earnings improvement was across NFO and HRO with NFO’s earnings rising 3% on better luck of 62.5% vs. 63.0% and ticket sales per draw improved by 1% to RM20.1m from RM19.9m, while HRO posted 27% higher profit owing to lower opex following the closure and disposal of certain loss-making sectors.
Expecting overall ticket sales to decline on special draw cut. We expect the number of draws in FY20 to reduce further to 166 from 174 in FY19 after a cut in special draw to 10 draws which started in 2019 from 22 draws previously. In the past, BJTOTO conducted around 178- 179 draws per year in FY14 to FY18. Nonetheless, the special draw cut has minimal earnings impact given these special draws come with 10% additional tax which crimps profitability. In all, we fine-tune FY20 estimates upward by 0.6% after adjusting for FY19 reported numbers. At the same time, we introduced FY21 earnings forecast which earnings to grow at 2.6% on the back of 2% hike in ticket sales.
OUTPERFORM retained. Despite share price rising strongly by 23% YTD, we still believe there is still room for higher earnings given the continuous enforcement against the illegal operators. It still trades at attractive PER of 12x-13x with above average yield of >6%. As such, we continue to rate the stock an OUTPERFORM with a revised target price of RM3.00/DCF share from RM2.95/DCF share as we rolled over valuation base-year to FY20 from FY19. The new target price implies an undemanding FY20 PER of 14.4x. Downside risks to our call include: (i) decline in ticket sales, and (ii) higher-than-expected EPPR.


PMETAL: Kenanga Research maintain MARKET PERFORM with TP of RM4.50 (Source: Kenanga Research)

Author: NagaWarrants   |  Publish date: Mon, 3 Jun 2019, 11:34 AM

As of 3 Jun 2019, If you wish to gain exposure on PMETAL, we have

- PMETAL-C24 Effective Gearing of 5.87x & 8 Ticks Sensitivity 

- PMETAL-C28 Effective Gearing of 3.91x & 5 Ticks Sensitivity 

For more information about these warrants, visit our website www.nagawarrants.com

Do join us for FREE Trading Ideas on Telegram too https://t.me/KenangaWarrants

PMETAL has inked an MoU for the intention to subscribe for a 25% stake in PT BAI. The subscription would entitle METAL to 250-500k MT of alumina supply, satisfying 16-33% of PMETAL’s annual alumina requirements. No changes in FY19-20E CNPs of RM685-810m. Maintain MP with TP of RM4.50.
More alumina availability. Press Metal Aluminium Holdings (PMETAL) has inked a memorandum of understanding (MoU) with PT Bintan Alumina Indonesia (PT BAI), which entails a proposed share subscription by PMETAL for a 25% stake in PT BAI. We gather that PT BAI does not generate any earnings at the moment, but is in the midst of constructing a 1m MT (annual capacity) alumina refinery plant in Galang Batang, with plans for a second phase – perhaps another 1m MT capacity as implied by news sources, subject to regulatory approval. The subscription, if materialises, would entitle PMETAL to 250k MT (or 500k MT on potential full 2m MT capacity) of alumina supply, satisfying c.16% (or 33% on 2m MT capacity) of PMETAL’s annual alumina requirements. Recall that the recent stake acquisition of Japan Alumina Associates (Australia) Pty. Ltd. (JAA) already entitles PMETAL to 230k MT of alumina supply – implying that one-third to half of its annual requirements inputs are sealed should the PT BAI subscription materialise.
Gearing to remain manageable. We expect the subscription consideration to fall in the range of RM1.26-1.47b (assuming construction of 2m MT plant eventually) based on valuation of USD600- 700 per MT of alumina capacity and USD/MYR of 4.20. This represents a 13-25% discount to the recent stake purchase in JAA at c.USD800 per MT as JAA also owns a Bauxite facility. Based on our purchase price estimation as well as assuming the subscription is to be fully funded by debt, gearing should increase from 0.8x as at 31 Mar 2019 to 1.1x postexercise (if any). We deem this manageable given PMETAL’s excellent cash flow generation capabilities – as demonstrated by how rapidly the group pared down its gearing from 1.9x in FY13 to 0.7x in FY18. 
Earnings contribution only in FY21. Management expects the plant construction to be completed by end of next year, implying that earnings contribution would only kick in from FY21 onwards. Hence, we are not overly excited by the development for the near term, although we acknowledge its long-term potential as the subscription could generate share of associates’ profit of c.RM63m (or 126m on 2m-MT capacity) based on industry alumina margin of USD60/MT, representing 10-20% of PMETAL’s current profit levels.
No change to FY19-20E CNP of RM685-810m as the development is only at MoU stage and, even if it materialises, there would likely be no earnings contribution before FY21.
Maintain MARKET PERFORM with an unchanged Target Price of RM4.50, based on FY20E PER of 21.8x, implying -0.5SD valuation basis. Despite its long-term positive operating outlook and earnings growth potential, volatility in the aluminium and alumina markets could continue to disrupt earnings’ visibility in the near-term. 
Risks to our call include sharp rises/falls in aluminum prices and raw material prices as well as major plant disruptions/closure.


Labels: PMETAL

SIMEPLT: Kenanga Research maintain UNDERPERFORM with TP of RM4.00(Source: Kenanga Research)

Author: NagaWarrants   |  Publish date: Mon, 3 Jun 2019, 11:31 AM

As of 3 Jun 2019, If you wish to gain exposure on SIMEPLT, we have

- SIMEPLT-CK Effective Gearing of 4.59x & 9 Ticks Sensitivity 

For more information about these warrants, visit our website www.nagawarrants.com

Do join us for FREE Trading Ideas on Telegram too https://t.me/KenangaWarrants

1Q19 CNP* of RM52m (-74% YoY; -40% QoQ) came below expectations at 5% of consensus full-year estimate and 10% of ours, mainly due to higher-than-expected production cost. However, 1Q19 FFB  output of 2.52m MT (+8% YoY) aligned with our expectation at 23%. No dividend was declared during the quarter, as expected. Slash FY19E CNP by 17% to RM417m but maintain FY20E CNP of RM1.1b. Maintain UP with TP of RM4.00.
Below expectations. Sime Darby Plantation Berhad (SIMEPLT)’s 1Q19 Core Net Profit (CNP*) of RM52m (-74% YoY; -40% QoQ) came below expectations at 5% of consensus full-year estimate and 10% of ours, mainly due to higher-than-expected production cost (c.RM1,500/MT vs. our RM1,450/MT assumption). Nevertheless, 1Q19 FFB output of 2.52m MT (+8% YoY) was inline with our expectation at 23%. No dividend was declared during the quarter, as expected.
Downstream not much of a help. YoY, 1Q19 CNP plummeted 74% to RM52m on weaker Upstream performance (core PBIT -71% to RM83m), as an 8% FFB growth failed to offset lower CPO price (-18% to RM2,012/MT). Meanwhile, Downstream’s core PBIT jumped 31% to RM85m on cheaper feedstock and higher sales volume (+11%), which was underpinned by favourable import duties in India and zero export levies in Indonesia. QoQ, despite higher CPO prices (+8%), Upstream PBIT tumbled 55% on seasonal FFB decline (-10%). In addition, Downstream’s core PBIT also declined 13% owing to lower sales volume (-14%). Overall, these resulted in a 40% drop in the group's CNP.
Weakness to linger. In its briefing, management noticeably toned down its CPO price guidance – now foreseeing it to be traded in the range of RM2,000-2,250/MT in 2H19 vs. RM2,250-2,450/MT previously – citing uncertainty from the US-China trade war. We are slightly more pessimistic, with CPO price forecast range of RM1,800-2,100/MT for 2H19, as we expect rising stockpiles in both Indonesia and Malaysia (possibly revisiting the 3.0m-MT mark) to place tremendous pressure on CPO prices. On the production front, management targets 3-5% YoY FFB growth in 2Q19, translating into -0.4% to +1.5% sequential production change. Coupled with uninspiring Downstream margins amid intense competition from Indonesia, we expect earnings to remain weak in 2Q19. On a brighter note, the group remains committed to its RM1b asset monetisation plan (disposing of non-core/non-performing assets), with 80% expected to be completed this year. Management guided that about nine-tenths of the sales value would be registered as gain on disposals, translating into c.15.00 sen (or 8%) increase in BVPS upon full execution of the plan.
Slash FY19E CNP by 17% to RM417m after raising our unit production cost assumption from RM1,450/MT to RM1,500/MT; but maintain FY20E CNP of RM1.1b and unit production cost of RM1,500/MT as we expect unit cost to be contained by FFB growth and improved efficiency from mechanisation efforts.
Maintain UNDERPERFORM with an unchanged Target Price of RM4.00 based on sum-of-parts (SoP) valuation with the plantation segment valued at 25.7x CY20E PER, implying -2.0SD from its historical mean. We believe the group’s near-term plantation earnings will be impeded by the depressed CPO price environment, while its downstream margins are also under pressure amid stiff competition. At current price, valuation appears expensive at CY20E PER of 29.9x (mean).



YTLPOWR: Kenanga Research maintain MARKET PERFORM and revised TP to RM0.880 (Source: Kenanga Research)

Author: NagaWarrants   |  Publish date: Mon, 3 Jun 2019, 11:30 AM

As of 3 Jun 2019, If you wish to gain exposure on YTLPOWR, we have

- YTLPOWR-C9 Effective Gearing of 4.69x & 6 Ticks Sensitivity 

For more information about these warrants, visit our website www.nagawarrants.com

Do join us for FREE Trading Ideas on Telegram too https://t.me/KenangaWarrants

While 3Q19 core profit of RM134.8m met expectations, losses at PowerSeraya worsened if we strip off the RM70.5m impairment posted in the preceding quarter. With the continued PowerSeraya’s losses and new earnings stream to kick in only in 3-4 years’ time when its two greenfield projects come into the system, the outlook for YLTPOWR remains challenging. The stock is fairly valued currently. Maintain MP at revised TP of RM0.880. 

3Q19 matched expectations. 3Q19 core profit of RM134.8m came within expectations, with 9M19 core profit of RM439.7m which accounted for 72%/75% of house/street’s FY19 full-year estimates. No dividend was declared in 3Q19 as expected. It had been paying only final dividend in 4Q for the past five years. 
PowerSeraya’s losses still not abating… 1Q19 Core Profit fell 19% sequentially to RM134.8m from RM165.9m in 4Q19 while  revenue dipped 1% over the quarter. The fall in earnings was largely attributable to 11% earnings decline in Wessex Water, which was due to higher depreciation charges. Meanwhile, losses at PowerSeraya narrowed to RM86.5m from RM117.2m in the preceding quarter as there was RM70.5m impairment of receivable in 2Q19 for an outstanding litigation for its electricity retail contract customers. Stripping this impairment, PowerSeraya’s losses could have doubled over the quarter. On the other hand, local IPPs’ earnings were fairly flattish at RM14.8m from RM12.9m previously while losses at YES were flat at RM9.9m from RM10.1m in 2Q19.
…and continued to weigh on groups’ earnings. On YoY comparison, 3Q19 core profit contracted 15% from RM158.4m, despite revenue rising 12%, bringing 9M19 core profit to RM439.7m, 7% lower than last year although top-line hiked up 11%. This poorer set of results was largely attributed to the losses mentioned above from PowerSeraya. The Singapore unit posted RM219.6m loss before tax in 9M19, largely due to the impairment mentioned above as well as lower vesting, retail and tank leasing margin, higher operating and finance costs. This compared to RM68.2m PBT registered in 9M18. Meanwhile, Wessex Water also saw lower PBT by 27% in 3Q19 and 13% in 9M19 due to the strengthening of MYR against GBP, higher finance costs and depreciation charges. On the positive side, losses at YES narrowed to RM9.9m in 3Q19 from RM27.3m in 3Q18 and RM28.3m in 9M19 from RM65.5m in 9M18 due to higher revenues over the year.
The going remains tough in the near term. Earnings prospects remain challenging in the immediate term before the two new greenfield projects, namely PT Tanjung Jati coal-fired power plant in Indonesia and Attarat Power’s oil shale-fired power plant in Jordan, come on-stream in 3-4 years’ time. For existing businesses, outlook for PowerSeraya remains challenging as the electricity market in Singapore remains competitive with generation capacity oversupply in the wholesale electricity market. Meanwhile, for Wessex Water, earnings are expected to be fairly flattish in GBP terms while YES will continue to be loss-making in the near term.
In the price, MARKET PERFORM reaffirmed, given the lack of near term earnings catalyst while losses from PowerSeraya and YES continue to dampen earnings. We reduce our target price to RM0.880 from RM0.900, which is based on unchanged 20% holding company discount to its RNAV, after rolling over valuation base-year to FY20 from FY19. Our MARKET PERFORM call is supported by an above average yield of c.6%. Risks to our call include: (i) a sudden recovery by PowerSeraya, and (ii) an unexpected turnaround at YES.



SKPRES: Kenanga Research maintain OUTPERFORM with a lower TP of RM1.40 (Source: Kenanga Research)

Author: NagaWarrants   |  Publish date: Mon, 3 Jun 2019, 11:21 AM

As of 3 Jun 2019, If you wish to gain exposure on SKPRES, we have

- SKPRES-CS Effective Gearing of 3.86x & 3 Ticks Sensitivity 

For more information about these warrants, visit our website www.nagawarrants.com

Do join us for FREE Trading Ideas on Telegram too https://t.me/KenangaWarrants

FY19 NP came within our/consensus estimates, accounting for 96%/95% of full-year forecasts. The absence of dividends was expected. Trim FY20E NP by 4% to RM126.5m after reducing sales assumptions by 5%, while introducing FY21E NP of RM143.2m. Maintain OUTPERFORM with a lower Target Price of RM1.40 based on FY20E PER of 14.0x.

FY19 within expectations. FY19 Net Profit (NP) of RM97.0m (-14% QoQ, -24% YoY), is within our/consensus estimates. Absence of dividend was as expected. Note that the group usually pays its final dividend by end of July/early August, with dividend pay-out of no less than 50% as per its dividend policy. We are expecting a DPS of 4.0 sen for FY19 based on a pay-out ratio of 51%.
Slower uptake. YoY, FY19 NP fell (-24%) to RM97.0m as revenue declined (-21%) from slower uptake in conventional electrical appliances following the shift in its main customer to the evolutionary model, exacerbated by a higher effective tax rate (ETR) of 22.6% (+3.7ppt) as certain tax incentives expired. QoQ, 4Q19 revenue fell (- 11%) which we believe was mainly due to slower ramp-up in lifestyle products and other customers. Despite lower operational efficiency, which caused EBIT margin compression (-1.3ppt) to 6.0%, NP margin only compressed (by 0.2ppt) to 5.6%, as ETR decreased (-9.1ppt) to 16.6% (due to overprovision).
PCBA has commenced. The group’s first PCBA line has commenced in April, while additional lines for newer products are slated to begin in July and Sept 2019. This also paves the way for more contracts given the key customer’s emphasis for its contract manufacturers to be vertically integrated. Meanwhile, the group has identified a 2.2-acre land and placed orders for new plastic injection machines in anticipation of new products, while its Johor plant still has c.50% of floor space to cater for new contracts. With its PCBA up and running, SKPRES should no longer trade as a laggard to its peers with similar capabilities.
Trim FY20E NP by 4% to RM126.5m to be on the conservative side as we trimmed our bullish sales assumptions slightly by 5%. We also introduce FY21E NP of RM143.2m.
Maintain OUTPERFORM with a lower Target Price of RM1.40 (from RM1.45) based on an unchanged FY20E PER of 14.0x. At current price, SKPRES is trading at a forward PER of 12.9x vs. its 1-year mean of 14.0x which we believe is unjustified given its robust expected earnings growth (alongside decent dividend yield of 4.0%). 
Risks to our call include: (i) lower-than-expected orders from its customers, (ii) higher input costs, and (iii) single customer concentration risk.


DRBHCOM: Kenanga Research downgrade to UNDERPERFORM with a lower TP of RM1.80 (Source: Kenanga Research)

Author: NagaWarrants   |  Publish date: Fri, 31 May 2019, 10:19 AM

As of 31 May 2019, If you wish to gain exposure on DRBHCOM, we have

- DRBHCOMC72 Effective Gearing of 3.51x & 2 Ticks Sensitivity 

- DRBHCOMC76 Effective Gearing of 3.58x & 3 Ticks Sensitivity 

For more information about these warrants, visit our website www.nagawarrants.com

Do join us for FREE Trading Ideas on Telegram too https://t.me/KenangaWarrants

FY19 CNP came in at RM183m (+10% YoY) compared to our forecast of RM350.7m. However, this appears to be above consensus CNP of RM100m. The negative variance was due to lower-than-expected Automotive, services sector and associates’ contributions. We cut our FY20E CNP by 43% to RM209m and introduce FY21E CNP of RM251m.  Downgrade to UP from MP with a lower SoP TP of RM1.80 (from RM1.90).

FY19 below our expectation. FY19 CNP came in at RM183m (+10% YoY) compared to our RM350.7m estimate. However, this appears to be above consensus CNP of RM100m. The negative variance was due to lower-than-expected Automotive, services sector and associates’ contributions. No dividend was declared for the quarter. However, we expect the group to declare a final dividend of 3.0 sen, after publishing its annual report (FY18: 3.0 sen). 
YoY, FY19 CNP rose 10% mainly from improved contribution by its banking segment, aviation (CTRM), concession (Puspakom),  property segment, and stronger vehicles sales by PROTON at 70,182 units (+9%) in 4Q, which more than offset lower overall contribution from Automotive, Pos Malaysia, and lower share of profits from associates’ (-26%), namely Honda, which recorded lower sales at 100,290 units (-6%), as consumers held back purchases in anticipation of newer models. Note that, Honda has only recently launched the face-lifted Honda HR-V, and Mugen variants of Honda Jazz and BR-V, Proton was buoyed by buoyed by the  all-new Proton X70 (CBU), supported by face-lifted Proton Iriz and Persona, Property segments (Completion of Lease 1 of Media City Development, and Phase 1 of the Integrated Customs, Quarantine and Security Complex) and Pos Malaysia (FY19 plunged into core net loss of RM126.1m compared to a net profit of RM93.3m in FY18). 
QoQ, 4Q19 recorded significant turnaround with CNP of RM188m (+157%), mainly from a turnaround in the Automotive segment’s profit contributions of RM259m compared to segment profit of RM1m in 3Q19, which we believe was contributed by PROTON, especially with the sales of higher margin all-new Proton X70 (30k units booking, 14k units delivered). This turnaround more than offset the flat sales of PROTON units sales at 15,511 units (0%) and Honda units sales at 22,367 units (-1%). 
Outlook. Proton X70 was rolled out on 12th December 2018. Proton is in the midst of finalising a 10-year business road map  targeting 30% share of the domestic market and 10% of regional market via introduction of new models. Specifically, the group is targeting to expand its products portfolio in the A, B, SUV and MPV segments for their export market. PROTON has recently launched the face-lifted Proton IRIZ and PERSONA based on the Proton X70 design. A new manufacturing plant in Tanjung Malim  will be fully ready in five years’ time, but the first Proton car made with Geely’s technology will be rolled out by 2H19.
We cut our FY20E CNP by 43% to RM209m based on lower-than expected contributions from Automotive and services sectors as well as associates. We also introduce our FY21E CNP estimate of RM251m.
Downgrade to UP from MP with a lower Sum-of-Parts (SoP) Target Price of RM1.80 (from RM1.90), implying PER of 17x on FY20E EPS. Despite recording a turnaround in its core Automotive sector in 4Q19, significantly lower associate Honda’s contribution as well as expanded losses from Pos Malaysia may limit its net earnings growth in the upcoming quarters.
Key risks to our call are: (i) faster-than-expected roll-out of new models under the new Geely-Proton management, and (ii) higher-than-expected associates’ contribution.


MRCB: Kenanga Research maintain UNDERPERFORM with an unchanged TP of RM0.750 (Source: Kenanga Research)

Author: NagaWarrants   |  Publish date: Fri, 31 May 2019, 10:18 AM

As of 31 May 2019, If you wish to gain exposure on MRCB, we have

- MRCB-C39 Effective Gearing of 2.81x & 2 Ticks Sensitivity 

- MRCB-C42 Effective Gearing of 3.77x & 4 Ticks Sensitivity 

For more information about these warrants, visit our website www.nagawarrants.com

Do join us for FREE Trading Ideas on Telegram too https://t.me/KenangaWarrants

1Q19 CNP of RM4.1m came in below expectations, accounting for only 4% of both our/consensus full-year estimates. This is the fourth disappointment in a row. Property sales of RM75.0m is also short of our/management’s sales target of RM524.8m/RM800.0m. No dividend was declared, as expected. Cut FY19E CNP by 18%. Maintain UP with an unchanged TP of RM0.750.
Below expectations. 1Q19 CNP of RM4.1m came in below expectations, accounting for only 4% of both our/consensus full-year estimates. This is the fourth disappointment in a row. The negative variances are mainly due to: (i) slower-than-expected  construction billings, and (ii) lower-than-expected billings progress from unbilled sales of RM1.6b. Property sales of RM75.0m is also short of our/management’s sales target of RM524.8m/RM800.0m. No dividends declared, as expected.
Results highlight. 1Q19 CNL fell sharply by 81%, underpinned by the decline in revenue (-45%). This is due to softer billings from both its construction and property divisions where revenue declined by 31% and 61%, respectively. The low billings from its construction division is due to the fact that most of its contracts are still at start-up phase or going through cost rationalisation, while the lower property revenue is because most of its projects are still at sub-structure level or are from overseas, which can only be recognised upon completion. QoQ, 1Q19 CNP grew 540% (low base effect), amid lower revenue (-38%), thanks to the improvements in construction operating margin from 5.8% to 12.6%, and lower effective tax rate of 82% vis-à-vis 94% in 4Q18.
Outlook. Management maintains their sales target of RM800.0m underpinned by planned launches of RM900.0m of which  RM400.0m are in Australia and inventories clearing from Vivo, 9 Seputeh with an estimated GDV of RM250.0m. However, we are only targeting sales of RM524.8-550.0m for FY19-20. Its unbilled sales stand at c.RM1.6b which will provide the group 3-4 years of earnings visibility. On its construction front, management does not rule out potential participation in ECRL given their strong interest in rail-related projects.
Earnings review. Post results, we cut our FY19E earnings by 18% as we re-timed some of the billings progress for both its  construction and property divisions. Our FY19E sales is kept unchanged at RM524.8m, as we believe they have a better chance in meeting our target, which is lower than management’s target of RM800.0m.
Maintain UNDERPERFORM with an unchanged SoP-driven Target Price of RM0.750. Our TP implies price to book ratio of 0.68x, which is close to trough levels.We opine that the long-term outlook for the company is relatively stable compared to other contractors or developers due to their massive outstanding order-book and transitoriented developments. However, we note that management would need to step up to enhance efficiency by further lowering their operating  costs to remain competitive and improve overall profitability as margin erosions have been evident. While we are aware that the potential newsflow on ECRL could result in positive share price sentiment; we prefer to be prudent as the margins might not be as compelling.
Risks include: (i) stronger-than-expected property sales, (ii) lowerthan- expected administrative cost, (iii) positive real estate  policies, and (iv) changes in lending environment.


TM: Kenanga Research raised stock rating to OUTPERFORM with a higher TP of RM3.95 (Source: Kenanga Research)

Author: NagaWarrants   |  Publish date: Fri, 31 May 2019, 10:17 AM

As of 31 May 2019, If you wish to gain exposure on TM, we have

- TM-C42 Effective Gearing of 3.59x & 4 Ticks Sensitivity 

For more information about these warrants, visit our website www.nagawarrants.com

Do join us for FREE Trading Ideas on Telegram too https://t.me/KenangaWarrants

TM reported a pleasant positive earnings surprise in 1Q19, thanks to the effective cost rationalisation plan. Moving forward, the group is set to accelerate convergence and empower digital in line with its transformation that reinforces customer centricity. Post-review, we have raised our FY19- 20E NP by 39%-45%. Raise the stock rating to OUTPERFORM with a higher DCF-driven TP of RM3.95. 

Exceptional strong quarter. 1Q19 core PATAMI of RM296m (182% YoY) came in way above expectations and accounted for 49% each of our and the street’s full-year estimate. The key positive variance on our end was mainly due to much lower-than-expected OPEX and the adoption of the MFRS 16. No dividend was announced, as expected. 
YoY, 1Q19 revenue declined by 2% to RM2.8b, due to lower voice (-11% to RM674m, fewer traffic minutes and cumulative  customers) and internet (-3% to RM1.0b, higher Streamyx churn partially offset by higher Unifi take-up) segments’ contribution, partially mitigated by an increase in Data revenue (+7% to RM666m, thanks to higher contribution from International Leased Data at TM Global) as well as higher customer projects at TM One. EBIT, meanwhile, surged 158% to RM505m, thanks to reduction in all OPEXs followed the active cost rationalization as well as the adoption of the MFRS 16. Stripping off the non-operational items (i.e.  unrealized forex loss on international trade settlement), group’s normalized EBIT also more than double to RM513m vs. RM207m a year ago. QoQ, turnover softened by 10% while EBITDA enhanced by 16% as the cost rationalization under PIP yielding positive results, where OPEX/Revenue ratio has improved by 10.2pp to 82.7% in 1Q19. 
Positive impact from the adoption of MFRS 16, where TM’s EBITDA has been increased by 10% (or RM97m) to RM1.06b in 1Q19 but with higher D&A (+RM39m to RM560m) and finance cost (+RM26m to RM74m). All in, the new accounting standard has led the group to record higher PATAMI of RM308m vs. RM284m under the pre-MFRS 16 standard.
Continued to transform into a “New TM” that reinforces customer centricity. While the market is expected to remain  competitive, the Performance Improvement Programme 2019-2021 (PIP2019-2021) yield improved profitability for the group in 1Q19. Moving forward, TM is set to continue accelerate Convergence and empower Digital in line with its transformation that reinforces Customer Centricity. Over the next 3 year, TM will continue to focus on 3 strategic pillars – converged services 
(solidifying convergence position and vertical focus to serve industries going digital), simplification & digitalization (product  rationalization as well as simplify process & digitalization), and lean & lower cost (focus on core business & cost optimization), with its integrated network infrastructure to bring a convergence digital lifestyle to all Malaysians. 
Maintain FY19 KPIs, for now. Despite recorded a sturdy performance in 1Q19, TM is keeping its FY19 KPIs unchanged for now,  where the group is aiming to achieve a low to mid-single digit revenue decline (due to softer voice, data and managed services) with normalized EBIT target similar to FY18 level (at c.RM1b). We, however, believe the KPI targets are too conservative in view of the sustainable cost reduction arise from the PIP. Having said that, the degree of the cost saving moving forward may not be extensive as 1Q19 given a typical higher cost reduction tend to be recorded during the initial stage of each cost rationalization program.
Raise FY19-20E PATAMI by 39%/45%, respectively, post reducing our OPEX assumptions to align with the latest trend. Key  earnings assumptions for FY19/20E include: (i) Unifi/Streamyx ARPU of RM167/RM85 & RM151/RM80, (ii) Unifi subscribers’ net add of 85k/80k, and (iii) 18-20% capex/revenue ratio.
Upgraded to OP (vs. MP previously) with higher DCF-driven TP of RM3.95 (vs. RM3.10; WACC: 8.4%, TG: 1%), implied a 5.2x EV/fwd EBITDA (c.-1 S.D. below its 3-year mean). Downside risks to our call include: (i) unfavourable change in regulation, (ii) stiffer fixed broadband competition, and (iii) higher-than-expected OPEX.


MAYBANK: Kenanga Research raised TP to RM10.35 and reiterate OUTPERFORM call (Source: Kenanga Research)

Author: NagaWarrants   |  Publish date: Fri, 31 May 2019, 10:14 AM

As of 31 May 2019, If you wish to gain exposure on MAYBANK, we have

- MAYBANKC55 Effective Gearing of 5.48x & 6 Ticks Sensitivity 

For more information about these warrants, visit our website www.nagawarrants.com

Do join us for FREE Trading Ideas on Telegram too https://t.me/KenangaWarrants

MAYBANK’s 3M19 are within expectations despite lower earnings due to unexpected higher impairments. Asset quality stayed stable and comfortable with impairments expected to remain within guidance. TP raised to RM10.35 as we roll over to FY20 and reiterate our OUTPERFROM call on account of undemanding valuations and attractive dividend yield.

In line despite lower earnings. 3M19 CNP of RM1.81b came within our/market expectations, accounting for 22% of both our and market estimates. No dividend declared as expected.
Higher provisioning dragged earnings. YoY, CNP of RM1,809m fell 3% as top-line was soft (grew <1% to RM5,860m) with higher impairments (+18% to RM604m). While NII fell 2%, Islamic banking continued to grow (+11%) as Islamic financing outpaced  conventional loans by 380bps to +7%. NOII (-3%) was dragged by higher insurance claims & commission fee mitigated by rebound in its investment & trading income to RM477m. Group loans growth was wihin expexpectations 4.8% mitigated by a soft domestic (+3.8% vs system’s +4.9%) with Indonesia gaining traction by 4ppts to +11.3% while Singapore moderated by 110bps to +3.4%. NIM (-8bps was below guidance (3 of 3-5s compression) due to higher traction in FDs (at +8% vs CASA 1%). CIR of 48% was in line with estimates/guidance of 47% vs industry of 48% on higher opex mainly due to surge in personnel costs (+6%). GIL saw an 11bps uptick mainly from 26bps uptick in R&R and Performing loans impaired due to Judgement while NPL saw improvement (-15bps) to 1.72%. Credit cost was above guidance (40(of 40bps) 47bps due to extra provisioning of existing impairments.
QoQ, CNP fell (-22%) dragged by top-line (-7%) and impairment allowances (>100%). Weak top-line was exacerbated by weak NOII (+17%) compounded by weak abysmal contribution from investment & trading income of RM9m (vs 4Q18: RM265m). Loans were flat with NIM falling 8bps. Slight uptick in GIL (+7bps) was seen due to uptick in R&R and Performing loans impaired due to Judgement. Due to higher impairments, credit loss jumped by 41bps to 0.47%. 
Conservative assumptions maintained. Going forward, we expect NIM to prevail as guided. We do not expect a repeat of the intensive FD taking (especially from Indonesia given that the Presidential election is over). We understand from management that issue from a particular overseas account is likely to be settled by 2019; hence, no change in credit costs guidance. We maintain our conservative assumptions; (i) ROE at ~10.5%, (ii) CIR at 47%, (iii) NIM compression of 5bps (from - 3bps), (iv) credit costs at 40bps, (v) loans growth <5%, and (vi) flat NOII.
Earnings forecasts. Our FY19E earnings are lowered slightly on account of higher NIM compression.
TP raised and Call maintained. Our TP is now raised to RM10.35 (from RM10.20) based on a target PBV of 1.28x (implying a 0.8SD below mean) as we roll over to FY20E numbers. The lower mean is to reflect the on-going uncertainties prevailing domestically and externally, coupled with on-going issue from an overseas account. We expect overall asset quality to remain stable ahead especially domestically; hence, a higher BV/share (+9%) is anticipated ahead. As valuations are undemanding coupled with dividend yield that is the most attractive in our banking universe at >6.0%; we reiterate OUTPERFORM.






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