Author:kltrader | Publish date: Tue, 10 Dec 2019, 10:08 AM
Yesterday, Petronas raised RM6bn after cutting its stakes in MISC, Petronas Dagangan (PetDag) and Petronas Gas (PetGas), with the blocks marketed to Malaysian institutional funds as part of its portfolio management strategy. Macquarie Equities Research (MQ Research) believes this strategy not only provides better financial footing for capex and fiscal stimulus measures for Petronas, but also improves liquidity for illiquid stocks such as MISC. MQ Research has an Outperform rating on Petronas Chem (PCHEM).
Thesis Working Out
MQ Research’s Petronas Monetisation thesis has panned out with the National Oil Company yesterday disposing of RM6bn worth of shares: 5%/6%/10% stakes in its listed subsidiaries MISC, PetDag, and PetGas respectively. At RM7.94/RM22.43/RM15.03 per share respectively, the blocks were sold at discounts of 4%-6% vs the 1-month volume weighted average price (VWAP).
Implications
Macro: As MQ Research has noted in the past, Petronas’ free cash flow looked tight considering the publicly disclosed FY19E capex and dividend requirements (RM49bn and RM54bn respectively). Moody’s downgrading of Petronas’ rating from A1 to A2 (stable) due to the perceived increased interdependence with the Gulf of Mexico (GoM) did not help matters either. With the disposals, Petronas’ gross gearing will be reduced from 16.4% to 14.9%, and free up some breathing room for its proposed ramp-up in capex over the next two years. By extension, the asset monetisation is incrementally positive to MQ Research’s earlier report, which hinges on effective fiscal stimulus: +7% year on year (y/y) in FY20 (FY19: -2.5%).
Petronas subsidiaries: MQ Research believes improved liquidity will be the immediate boost for these stocks, particularly for the relatively illiquid MISC. Coupled with the higher free float, there is also potential for higher weightages in benchmark indices. The positives should outweigh short term overhang concerns. For the aforementioned reasons, MQ Research anticipates further disposals are in the cards. Prior, scepticism was high; “Petronas will never let it happen,” is a common pushback that MQ Research has gotten on this thesis. Petronas still holds 64% in PChem (which has underperformed the KLCI by -17% year to date (ytd)) as well as 75% in KLCC real estate investment trust (REIT) and 67% in Malaysia Marine and Heavy Engineering Holdings (MMHE).
Outlook
Potential for further Petronas Monetisation; stake sales and/or higher dividends, albeit further out. MQ Research has Outperforms on MISC and PCHEM, while it has Neutrals on Petronas Gas and Petronas Dagangan. Trimming holdings in listed subsidiaries could still raise another ~RM18bn.
Author:kltrader | Publish date: Wed, 4 Dec 2019, 9:23 AM
Macquarie Equities Research (MQ Research) released a report this morning (4 Dec) on the banking sector, expecting 2020 to be the year of recovery for global growth. MQ Research remains constructive on Malaysian banks for the next year and maintains CIMB as its top picks with an increase in target FY20 net profit by 2.7%.
Event
With global growth expected to recover, the end of monetary easing will provide net interest margin (NIM) reprieve for banks. Coupled with fiscal spending uptick on the domestic front, MQ Research remains constructive on Malaysian banks in FY20. MQ Research continues to prefer corporate banks over consumer banks, and CIMB remains its top pick among big cap banks; switch from Public to Maybank.
2020: The rebound year, but with downside risks
Macquarie’s Chief Economist and Head of Macro Strategy, Ric Deverell, anticipates that 2020 will be a rebound year. That said, the recovery will not be as sharp as 2016/2017. Of course, this is contingent on the “known-unknown” that is the US-China trade war – a de-escalation is expected ahead of the US elections, but the possibility of the alternative continues to skew risks to the downside.
Rates: The end of easing, with upside potential
Maintain MQ Research’s base case: BNM to hold overnight policy rate at 3.00% – positive for NIMs. In line with Ric’s expectation that the monetary easing seen in 2019 is likely to end; most central banks on hold in 2020. Of course, this is contingent on the aforementioned growth outlook. Most importantly, Ric expects the Fed will hold rates through 2020, and possibly into 2021 as well (BNM takes rate-setting cues from the Fed). That said, most banks expect an FY20 rate cut following no-cut in November. Additionally, MQ Research does not see the surprise statutory reserve requirement (SRR) cut as a precursor to FY20 rate cuts. While MQ Research expects soft 4Q19 data, some positive indications have emerged – e.g. purchasing managers index (PMI) recovering to one-year high of 49.5 points in November. MQ Research raises FY20 net profit (NP) by +2.7%/-1%/+1.9% for CIMB/Maybank/Public.
3Q19 had bright spots but 4Q19 won’t be much better
Stripping out one-off’s, CIMB’s earnings beat was a nice surprise in a challenging environment – mainly with credit costs coming in below expectations. Public as usual, didn’t disappoint, but loans growth was the weakest among the Big 3.
Maybank’s asset quality issues in Indonesia/Singapore wiped out non interest income gains made over 9M19, driving MQ Research’s -4.3% FY19 NP cut. However, asset quality on the domestic front continues to prove resilient as per MQ Research’s sector note; Oct sector-wide non performing loans (NPL) ratio moved sideways at 162bps. That said, outlook for 4Q remains challenging with loans growth decelerating to +3.7% year on year (y/y) (Sept: +3.8% y/y) while margins continued to inch downwards on stiff competition for loans, offsetting lower deposit competition. In search of growth, it appears that Maybank Indonesia and CIMB Niaga are offering the lowest rates for Indonesian mortgages. Maintain CIMB as MQ Research’s top pick; recommend switching from Public to Maybank.
Author:kltrader | Publish date: Mon, 2 Dec 2019, 10:20 PM
Uncertainty Lingers; Maintain HOLD
IHH HEALTHCARE's 3Q19 results were below our and market’s expectations. Operational earnings growth in 4Q could be slower given the start-up loss at Gleneagles Chengdu.
We reduce our FY19-21E EPS by 5-8%. Consequently, our SOTP-based Target Price is trimmed to MYR5.80 (-8%). Maintain HOLD as IHH Healthcare Share Price has already fallen 8% in 3 months, potentially pricing in the weak 3Q19 results.
Key downside risk may come from an unfavourable outcome of India’s court hearing in Feb 2020, which may see IHH Healthcare reversing its acquisition of 31% stake in Fortis. Prefer KPJ (KPJ MK) for the better risk-reward.
Below Expectations
Excluding net positive EIs (exceptional items, totalling MYR34m), 3Q19 core PATMI of MYR202m (-16% q-o-q, -35% y-o-y) brought 9M19 core PATMI to MYR631m (- 8% y-o-y), making up 66%/61% of our and street’s full-year forecasts. The shortfall was due to the recognition of MYR65m fair value loss on forward contracts (to hedge against exchange rate exposures on its net debt).
3Q19: Acquisition-led EBITDA Growth
On a y-o-y basis, 3Q19 revenue and EBITDA jumped 36% and 22%, based on a constant currency and excluding the MFRS 16 impact. The stronger y-o-y growth was mainly acquisition-led and partially due to organic growth at its existing hospitals.
Note that Fortis (acquired in Nov 2018) accounted for 14% of Group’s EBITDA in 3Q19. However, core PATMI fell 35% y-o-y due to the higher net interest expense and higher tax expense.
On a q-o-q basis, 3Q19 EBITDA grew 7% on better earnings from Singapore, Malaysia and India (including Fortis), which more than offset for weaker earnings from North Asia (including GHK). Turkey’s 3Q19 EBITDA was stable q-o-q.
Lower FY19-21E EPS by 5-8%
We lowered our FY19E EPS by 5% to reflect the fair value loss on forward contracts in 3Q19. Our FY20-21E EPS is also lowered by 8% p.a. as we reduce our EBITDA margin assumption by 1-ppt at Singapore, Malaysia and Turkey, to factor in the wage inflation as a result of increased competition for trained healthcare personnel at home markets.
Author:kltrader | Publish date: Mon, 2 Dec 2019, 5:17 PM
IHH Healthcare's 9M19 core profits fell on higher interest expenses and forex /fair value losses; mitigated by better operational performance and contributions from new hospitals including Fortis
9M19 revenue and EBITDA (ex-MFRS16) grew on constant currency basis
Key highlights include strong operational performance in Singapore and Malaysia, EBITDA margin growth, opening of Gleneagles Chengdu, Gleneagles HK’s additional beds and reduction of non-TRY debt to below US$200m by year-end
Maintain BUY; Target Price of RM6.40.
9M19 Core Results Impacted by Higher Interest Expense
IHH HEALTHCARE recorded 9M19 headline net profit of RM511m (vs RM118m in 9M18), in line with our FY19 estimates. The higher net profit was largely due to:
lower foreign exchange (forex) translation losses from the Turkish Lira (TRY) which stabilised from a sharp depreciation in 3Q18 and
forex translation gains following the successful restructuring of non-TRY debt to only US$250m, offset by higher interest expenses (estimated to have more than doubled) from higher borrowings to acquire Fortis Healthcare Ltd.
Excluding exceptional items, core profits fell -8% y-o-y to RM631m mainly due to higher net interest expenses and forex and fair value exchange losses on forward exchange contracts compared to gains recognised in 3Q18. However, this was partially mitigated by:
better core operations performance from all key markets,
contributions from newly acquired hospitals including Amanjaya Specialist Centre Sdn Bhd and Fortis Healthcare (total earnings before interest, tax, depreciation and amortisation (EBITDA) of RM292mn) and
one-off items including reversal of RM21.8m accrued interest on prior years’ tax payable and RM28.5m of trustee management fee income from disposal of Singapore-listed Religare Health Trust’s (RHT) assets.
IHH Healthcare's 9M19 revenue jumped +33% y-o-y to RM11.1b mainly from contributions from Fortis. Excluding Fortis, revenue increased +8% y-o-y from all key markets; Singapore (+11% y-o-y), Malaysia (+17% y-o-y), North Asia (+27% y-o-y largely from Gleneagles Hong Kong (HK) Hospital) and Turkey (+1% y-o-y). On constant currency basis, 9M19 revenue improved +38% y-o-y.
9M19 EBITDA grew +38% y-o-y to RM2.4bn, in line with both ours and consensus’ estimates. This was mainly from good underlying operational performance, contributions from Fortis and impact from Malaysian Financial Reporting Standards 16 (MFRS16) adjustments. The EBITDA growth was largely from Singapore (+28% y-o-y), Malaysia (+23% y-o-y), Turkey (+39% y-o-y) and lower losses from Gleneagles HK (-23% y-o-y), partially offset by start-up losses from Gleneagles Chengdu estimated at RM25m. On constant currency basis and ex-MFRS16 impact, EBITDA grew +27% y-o-y.
IHH Healthcare 3Q19 recorded headline net profit of RM236m (vs RM104m net loss in 3Q18) mainly from lower forex translation losses offset by higher interest expense. Core profits fell 35% y-o-y on higher financing costs, as well as forex and fair value forex losses. 3Q19 revenue and EBITDA rose +33% y-o-y and 34% y-o-y respectively and on constant currency (ex-MFRS 16) revenue and EBITDA grew +36% y-o-y and 22% y-o-y respectively.
EBITDA margins (ex-PARKWAYLIFE REIT (SGX:C2PU)) improved by 2.1p.p q-o-q to 21.6% from 19.5% in 2Q19. Similarly, EBITDA margins (ex-new hospitals; ex- PARKWAYLIFE REIT) improved q-o-q to 25.1% from 23% in 2Q19. The improved EBITDA margins were mainly led by Singapore and Malaysia partially due to higher foreign patients.
Key Operational Highlights
Gleneagles HK occupancy dipped marginally to 58% from above 60% previously but average revenue per inpatient admissions (ARPIA) grew +10% with 30 new beds in 4Q19.
Strong underlying performance from all key markets partially led by growth in foreign patients.
Management is targeting to lower non-TRY debt further to below US$200 from current US$250 by year-end.
Fortis’ EBITDA grew +42% q-o-q; India (ex-Fortis) turned EBITDA profitable after 3 consecutive quarters of losses.
Gleneagles Chengdu Hospital opened in October 2019 with 100 operational beds, 24 doctors and ~200 employees.
Gleneagles HK’s EBITDA losses increased marginally q-o-q; occupancy fell to 58% but ARPIA grew+10% with 30 additional beds post 3Q19.
Gleneagles HK’s EBITDA losses increased marginally q-o-q to RM39.4m (vs RM34.5m in 2Q19; RM49.4m in 3Q18) partly impacted by deferrals of non-urgent and non-essential procedures and services following the HK protests and demonstrations. Occupancy fell marginally to 58% on 150 operational beds (vs above 60% previously, 62% in 2Q19 and 68% in 1Q19), However, there were encouraging signs with slightly higher ARPIA of HKD33k vs HKD30k previously. As guided previously, IHH Healthcare increased 30 additional beds post 3Q19 to 180 operating beds.
Singapore – strong performance driven by foreign patients’ growth.
In 3Q19 and 9M19, revenue from IHH Healthcare’s Singapore operations grew 11% y-o-y. Both 3Q19 ARPIA and inpatient volumes continued to grow moderately at 3.5% y-o-y and 4.4% y-o-y respectively. On a constant currency basis, revenue and EBITDA grew 10% y-o-y and 18% y-o-y respectively while EBITDA margins improved by 2.3p.p. y-o-y from better operating leverage and growth in foreign patients.
IHH Healthcare’s management continues to see growth in foreign patients, with revenue comprising 25% of 3Q19 Singapore revenue (vs 26% in 2Q19 and 23% in FY18). The increase in foreign patients was mainly from Indonesia, Vietnam and China.
Malaysia – continued growth in Indonesian and Chinese patients.
3Q19 and 9M19 revenue from its Malaysia operations grew 20% and 17% y-o-y, led by:
higher inpatient volumes (+14.9% y-o-y) and ARPIA (+4.3% y-o-y),
growth in foreign patients largely from Indonesia (especially in Penang) and China.
Revenue contributions from foreign patients doubled to 6% from 3%-4% previously. EBITDA margins remained stable at 29.3% in 3Q19 (vs 29.8% in 3Q18).
Acibadem – strong performance led by price adjustments and foreign patients; targeting to reduce non-TRY debt to below US$200m by year-end.
On a constant currency basis, Turkey based Acibadem Holdings’ 3Q19 and 9M19 revenue grew 11% y-o-y and 19% y-o-y respectively while EBITDA grew 51% y-o-y and 65% respectively. The strong growth was partially led by strong growth in ARPIA of 12.3% y-o-y in 3Q19 despite inpatient volumes falling 6% (mainly due to lower local patients under the social scheme). The good results were led by price adjustments done earlier in the year (price increase imposed on private insurance and out-of-pocket patients to compensate for inflation), more complex cases and growth in foreign patients (comprises 15% of Acibadem’s revenue).
Post restructuring / refinancing, IHH Healthcare’s management has successfully reduced its non-TRY debt to US$250m as at June 2019, ahead of its FY2020 target. It is targeting to reduce this further to below US$200m by year-end. This will substantially reduce exposure to forex translation volatility as seen in the positive results in 3Q19.
India – Fortis’ EBITDA up +42% q-o-q; existing India hospitals turned EBITDA positive after 3 consecutive quarters of losses.
3Q19 and 9M19 revenue recorded RM876m and RM2.5b (vs RM162m and RM494m in 3Q18 and 9M18 respectively) on maiden contributions from Fortis. Fortis’ operations continued to improve as it achieved its cost savings targets. Fortis’ EBITDA grew 42% q-o-q following the improvement in its India operations. India (ex-Fortis) has turned EBITDA positive after 3 quarters of consecutive losses as it converts to a more multi-disciplinary focused hospital to reduce concentration risks on a single doctor.
In Fortis Healthcare’s results briefing, management has achieved INR32 Crores in 1HFYE March 2020 vs 80 to 100 Crores (~RM60mn; 19% of Fortis’ annualized 1H19 EBITDA) cost savings in FYE March 20, mainly from rationalising manpower cost, other expenses and lower bad debt provisions. EBITDA margins have improved from 12.5% to 15.7%. If successful, contribution from Fortis Healthcare could grow at a faster pace in the medium-term.
The Supreme Court has issued a suo moto notice of contempt to Fortis Healthcare. The next court hearing is on 3 February 2020. Please refer to our previous report for further details - IHH Healthcare: Back in Limbo.
China – Gleneagles Chengdu opened in October 2019 with 100 operational beds.
Gleneagles Chengdu opened in October 2019 with 100 operational beds, 200 employees of which 24 doctors were hired. Its management has signed on with a few insurance companies (eg ING, SOS) and expects to ramp-up with signups with more insurance companies and key specialisation (pediatrics, cardiology and gastro).
Maintain BUY, Raised Target Price to RM6.40
We maintain our BUY rating and target price of RM6.40.
IHH Healthcare currently trades at 15x FY20F enterprise value/EBITDA (EV/EBITDA), below 1SD (standard deviation) of its historical average.
We remain positive on IHH Healthcare’s long-term growth plans, with a pipeline of new hospitals in China and a potential escalation of expansion into India. We believe the ramp-up in Gleneagles HK and better economic prospects in home countries such as Malaysia and Singapore could offset some of the start-up losses in China and lead IHH Healthcare onto its next phase of growth.
IHH Healthcare’s medium-term outlook is bright while it rides out its near-term headwinds and gestation period for the new hospitals. In addition, with a potentially strong platform in India and another in China, IHH Healthcare now has exposure to the two largest economies in Asia with the highest growth potential in the healthcare sector. We believe this further elevates IHH Healthcare’s long-term potential.
The key catalysts are:
Gleneagles HK to turn EBITDA positive and shorter-than-expected gestation period from other new hospitals,
better-than-expected organic performance,
turnaround in the situation in Turkey,
positive developments in new markets such as India.
Author:kltrader | Publish date: Mon, 2 Dec 2019, 3:22 PM
1Q20 Revenue improve marginally but earnings wiped out by higher expenses and lower investment revenue
Plenitude 1Q20 reported revenue of RM45.8m (yoy:+7.3%, qoq:-49.1%) and PATMI of RM1.1m (yoy:-85.9%. qoq:-93.8%). While revenue largely in line with our estimate, earnings disappoint due to lower operating profit margin and investment revenue.
Property weak sentiment continue
Property division revenue of RM25.5m is within our expectation however operating profit fell drastically to RM6.5m (yoy-11.6%, qoq:-80.9%), operating margin fell substantially to 25.6% (1Q19:30.7%, 4Q19:45.4%). In view of the weak sentiment in property industry, the Group will continue to adopt cautious approach in new property launches and continue to intensify its marketing and sales initiatives to promote its existing properties.
Hotel operations division remain challenging
Hotel operations registered better revenue of RM20.3m (yoy:+8.6%, qoq:+39.0%) as newly-acquired hotel in Seoul contributed RM4.2 million of revenue for the current quarter while revenue from hotel operations in Malaysia registered a drop of RM2.6 million. The lower revenue in Malaysia were partly due to haze spell from Aug’19 to Oct’19 and on-going renovation at Novotel KL. Malaysia hotel yield remain depress in an increasingly competitive market.
Maintain BUY with unchanged TP of RM2.77
Despite the challenging outlook, We continue favor Plenitude for its strong balance sheet, consistent dividend, strategic landbank in mature township and recurring income from its hotel operations. We maintained BUY recommendation with unchanged target price of RM2.77 based on P/B ratio of 0.66x of our estimate FY20F NTA.
Author:kltrader | Publish date: Mon, 2 Dec 2019, 10:19 AM
Destini reported another set of poor results in 3QFY19
Destini reported a net profit of just RM0.7m in 3QFY19, not significantly better than the RM0.6m earned in each of 1QFY19 and 2QFY19. Core net profit in 9MFY19 is just RM2.4m, better than in 9MFY18 as 3QFY18 revenue plunged to RM11.7m.
3QFY19 core net profit improved yoy but declined qoq
Destini’s 3QFY19 revenue and core net profit (after adjusting for fair value adjustment on investment in securities) increased by 676.8% and 105.7% yoy as the plunge in revenue in 3QFY18 resulted in a core net loss of RM12.3m. Qoq, revenue improved by 101.8% due to higher contribution from manufacturing services and MRO (maintenance, repairs and overhaul) services but core net profit declined.
9MFY19 revenue declined but core net profit improved
For the first nine months of FY19, revenue declined by 26.1% mainly due to strong sales in the first two quarters of FY18. However, 9MFY19 core net profit is higher at RM2.4m as the sharp core net loss in 3QFY18 dragged down 9MFY18 core net profit to RM0.2m.
Cutting FY19F core net profit forecast by 54.0% but holding FY20F forecasts
As profitability remains lacklustre in 3QFY19, we cut our FY19F core net profit forecast by 54.0% to RM5.2m after trimming revenue from RM360.0m to RM330.0m. FY20F forecasts are maintained as we expect government spending on MRO, naval and aviation services for the security agencies, and rail related projects to improve. Destini has also announced a proposed private placement (PPP) of 231.05m new shares to raise RM49.7m (based on the illustrative placement price of RM0.215) to repay bank borrowings as well as finance working capital requirements for existing and new projects
Taking into account the PPP and pegged at 17.1x, TP unchanged at RM0.28
Our FY20F EPS forecast takes into account the net interest savings and dilutive effects of the PPP. Pegged to an unchanged PE of 17,1x, target price for Destini is maintained at RM0.25. FY20F dividend forecast remains unchanged at 1.0 sen.
Maintain BUY rating
Destini’s management continue to expect the operating environment to remain challenging and competitive. But we believe the share price is well backed by a net asset per share of RM0.40 and NTA of RM0.25. Destini is one of the few local companies with proven capability and a reputation for timely delivery of services at competitive pricing in aviation manufacturing, MRO services, building of OPVs and NGPCs, and O&G decommissioning services and fabrication. We maintain our BUY rating for the stock.
Author:kltrader | Publish date: Mon, 2 Dec 2019, 9:58 AM
Lift TP by 22% to MYR0.22; U/G to HOLD from SELL
1QFY20 only outperformed on lower depreciation and interest expense, while underlying fundamentals remain weak. That said, liquidity concerns appear to have been allayed as evidenced by accelerated progress billings at property. We raise FY20E core net profit by MYR7m but trim FY21/FY22E by MYR1m p.a. Ascribing a narrower 40% discount (from 50%) to end-FY20E NTA/shr, we raise TP to MYR0.22 from MYR0.18.
Generated a net profit but underlying still weak
1QFY20 core net profit of MYR0.2m was above our expectations as we were expecting a loss. YTB has not generated a core net profit since 4QFY18, before Encore Melaka opened. The outperformance was due to lower depreciation and interest expense as Courtyard By Marriott (CBM) has not opened (i.e. capex not being depreciated and interest expense still being capitalised). At the operating level, 1QFY20 EBITDA of MYR5.4m fell short at just 15% of our FY estimate.
New shares issuance allayed liquidity concerns
Positively, property progress billings accelerated after YTB raised MYR36.4m via 155m new shares at an average MYR0.23/shr. Recall that 4QFY19 progress billings decelerated due to liquidity concerns. Progress billings ought to continue accelerating as YTB has raised another MYR18.5m by issuing another 94m new shares at an average MYR0.20/shr. YTB can issue another 151m new shares (total: 400m new shares). We have already assumed 400m new shares.
Encore Melaka utilisation still has room to improve
Assuming average ticket price of MYR60, we estimate that Encore Melaka (EM) admitted ~50k in 1QFY20 which translates into ~13% utilisation rate (FY19: 10%). This is below our FY20 EM utilisation rate forecast of 25%. Imputing lower depreciation, interest expense and EM utilisation rate, we now forecast a small MYR1m core net profit in FY20 (vs. MYR6m loss earlier) but larger FY21/FY22E core net loss by MYR1m as depreciation and interest expense will rise when CBM opens in FY21 (Fig. 2). [Prior:SELL]
Author:kltrader | Publish date: Fri, 29 Nov 2019, 10:34 AM
3QFY19 core net profit increased by 7.2% yoy but declined by 23.5% qoq Yoy, PMHB’s 3QFY19 revenue and core net profit increased by 2.9% and 7.2% respectively mainly due to construction progress recognized from ongoing projects. Qoq, revenue and core net profit however declined by 17.8% and 23.5% due to higher contribution from the I-City mall project in 2QFY19.
9MFY19 core net profit at RM14.7m, up 33.0% yoy Despite a 3.0% decline in revenue, 9MFY19 PBT and core net profit increased by 41.1% and 33.0% respectively mainly due to improved profit margin from ongoing projects and additional cost saving from completed projects recognized during the period. Construction pretax margin improved to 4.2% from 2.7% in 9MFY18 while concession pretax margin improved from 33.6% to 41.1%.
Still in line with expectation, FY19F-FY20F forecasts maintained 9MFY19 core net profit of RM14.7 is still in line with our expectation of RM19.2m for the whole of FY19F. We maintain our FY19F-FY20F core net profit and dividend forecasts.
70%-owned subsidiary to issue Islamic MTN of up to RM150m PMHB has also announced that its 70%-owned SEP Resources (M) Sdn Bhd has submitted the required information and relevant documents for the issuance of up to RM150m of Sukuk Wakalah with a tenure of 11 years. Proceeds from the issuance will be utilized to subscribe for Murabahah stocks to be issued by Budaya Positif Sdn Bhd, a wholly-owned subsidiary of SEP Resources and the special purpose vehicle incorporated to own the 22.5-year student hostel concession asset and maintenance business.
Author:kltrader | Publish date: Fri, 29 Nov 2019, 9:52 AM
Telecommunications company Axiata Group released its financial results for the third quarter of financial year 2019 (3Q19) yesterday. MQ Research released a report yesterday, stating that EBITDA was 80% of its estimates, largely due to higher-than-expected depreciation and taxation.
Nonetheless, MQ Research maintains Outperform on Axiata. Bullish investors may consider call warrants AXIATA-C46 and AXIATA-C50 to gain a leveraged exposure…
Event
MQ Research maintains its Outperform recommendation on Axiata following the release of 3Q19 results. 3Q19 core profit of RM120m brought YTD core profits to RM672m, representing 59% of MQ Research’s and consensus estimates. The miss was largely on the back of higher-than-expected depreciation (FRS16 adjustments) and taxation, with earnings before interest, tax, depreciation and amortisation (EBITDA) at 80% of MQ Research’s estimates.
Operationally, all subsidiaries delivered revenue and profits (local currency) inline to better than MQ Research’s estimates. MQ Research believes the operational improvements should pave the way for a re-rating of Axiata’s shares which trade at 6.3x 20E enterprise value (EV) to EBITDA.
Impact
Operationally healthy trends. All key subsidiaries were tracking at 75% or more of MQ Research’s FY19 core profit estimates in local currency terms. While Celcom posted a quarter on quarter (QoQ) decline in service revenues showing typical seasonality, MQ Research notes that vs 1Q19, financials continue to improve, suggesting that it is indeed rebasing. In addition to XL’s continued profitability in 3Q, Robi returned to profitability despite increased taxes in Bangladesh.
Contesting taxes in Nepal. Axiata has commenced arbitration proceedings to challenge the (reduced) tax claim of RM780m by the Nepali tax authorities.
5G collaboration in Malaysia. Management explained that the proposed 5G collaboration between Celcom and Maxis was for urban areas in Malaysia, with coverage in other areas likely to see other options announced at a later date. Interestingly, DiGi, which has partnered Celcom in other arrangements was left out of the collaboration. Celcom is looking to its arrangement with Telekom Malaysia for fibre to fulfil the increased demand for fibre in a 5G era.
Ahead on 2019 KPI for EBITDA and return on invested capital (ROIC); below on revenue. Management believes that it is on track to beat its EBITDA growth (5-8%, MQ 15%) and ROIC (5.2-5.6%) key performance indicators (KPI) but miss the revenue growth (3-4%, MQ 3.8%) and capex (
MQ Research places its forecasts under review following these results.
Action and Recommendation
Outperform maintained.
12-month Target Price Methodology
AXIATA MK: RM5.47 based on a Sum of Parts methodology
Author:kltrader | Publish date: Fri, 29 Nov 2019, 8:55 AM
2Q20 - revenue up 11.3%, core net profit up 12.1%
SAMEE 2Q20 posted higher revenue of RM210.5m (yoy:+11.3%, qoq:+7.8%) with higher PAT of RM20.6m (yoy:+12.1%, qoq:+12.9%). 2Q20 result within expectation, six monthly cumulative result accounted for 47.1% and 45.9% of our FY20 full year revenue and earnings estimates respectively.
Aerospace Segment - revenue up 3.4% and PBT up 13.5% yoy
Aerospace revenue increase by RM4.0m or 3.4% yoy, due to increase sales of casing products for A320neo, B737max and business jets, as well as increase in sales of aerostructures products for A320neo and favorable foreign exchange translation. With the higher revenue, PBT increase by RM1.6m or 13.5% to RM13.5m.
Equipment Segment revenue up 23.8%, PBT up 2.0% yoy
Equipment segment revenue increase by RM17.3m (yoy:+10.2, qoq:+18.4%), however PBT only increase by RM0.2m (yoy:+2.0%,qoq:+13.0%), earnings offsetted by unfavorable sales mix and unfavorable foreign exchange movement.
Maintain BUY with unchanged TP of RM11.30
Management expect revenue for aerospace segment to remain relatively stable while revenue from the equipment segment to increase next quarter backed by orders from both semiconductor and data storage customers. We maintained our BUY recommendation with unchanged TP of RM11.30 based on 18x on our estimated EPS for FY20F.
