MIDF Sector Research

Author: sectoranalyst   |   Latest post: Fri, 24 May 2019, 10:57 AM


MBM Resources - Shifting Into Gear

Author: sectoranalyst   |  Publish date: Fri, 24 May 2019, 10:57 AM


  • 1Q19 matched expectations
  • Strong earnings driven by Perodua, spillover benefits for dealership and auto parts
  • On track to close loss-making alloy wheel operations
  • Re-affirm BUY at unchanged TP of RM4.20

1Q19 matched expectations. MBM’s 1Q19 came in within our estimates and consensus. The group reported core net profit of RM41m (+25%yoy) for its 1Q19, accounting for 22% of our FY19F and 26% of consensus.

Strong demand for Perodua. Associate earnings comprising mainly of 22.6%-owned Perodua, increased 16%yoy driven by the Aruz and existing MyVi and Axia models. JCE earnings (via 51%-owned AutolivHirotako which produces automotive safety components such as airbags and seatbelts) also saw earnings increase by a similar quantum.

Spillover beneficiary of strong Perodua sales. The auto dealership division saw core pretax earnings growth of 6%yoy (excluding RM11.9m gain on disposal of properties) as the group’s Perodua dealerships benefited from strong demand for the Aruz, MyVi and Axia. Via 51.5%- owned DMMS, the group is the largest Perodua dealership in the country with ~10% share of sales. Its Volvo dealership also saw improved demand following launch of the XC40.

Auto parts division almost breaking even. The auto parts division saw a 3%yoy increase in revenue and is now almost breaking even. This was driven by sustained strong demand as industry players rush to fulfil back orders and replenish depleted stocks following a strong 2H18. The lower losses were also driven by further improvements at the alloy wheel plant.

On track to eliminate OMIA drag. More importantly, MBM is on track to close operations of the alloy wheel plant (under OMIA) by mid-2019. This will remove an important drag to the auto parts division. OMIA registered net losses of RM38m/RM29m in FY16/17. OMIA as a standalone company is estimated to entail negative shareholders fund of RM179m as at end-FY17 (inclusive of the RM62m impairment taken) against total liabilities of RM224m and total asset of RM45m.

Reaffirm BUY on MBM at unchanged TP of RM4.20. At just 6x FY19F earnings, MBM remains a cheap proxy to Perodua’s volume expansion and the spillover on its parts manufacturing and Perodua dealership units. Key catalysts: (1) Strong 6%yoy Perodua TIV expansion (FY19F) on the back of the Aruz to fill up a vacum in Perodua’s model mix (2) A recovery in industry production driven by the new national car launches. Risk to our call is weaker than expected demand for the Aruz and a weak Ringgit.

Source: MIDF Research - 24 May 2019

Labels: MBMR
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BIMB Holdings Bhd - Continuing Strong Momentum

Author: sectoranalyst   |  Publish date: Fri, 24 May 2019, 10:56 AM


  • Upper bound of our expectation
  • Strong PBTZ growth for Bank Islam and Syarikat Takaful
  • Slight NIM compression but gross financing growth robust
  • Deposits grew at slower pace
  • Revising FY19 and FY20 forecast by +4.1%
  • We maintain our BUY with revised TP of RM5.05 due to rollover of valuation

Upper bound of expectation. The Group posted a 1QFY19 earnings at the upper bound of our expectation. The PAZTAMI of RM202.5m was 29.5% and 26.6% of our and consensus' full year estimates respectively. The earnings growth of +17.6%yoy was due to strong growth of +18.1%yoy in total income, which overcame the +19.1%yoy to RM459.1m growth in expenses and finance cost.

Continued earnings momentum from Bank Islam and Syarikat Takaful. Bank Islam and Syarikat Takaful's 1QFY19 PBZT grew +6.1%yoy to RM219.9m and +33.5%yoy to RM84.9m respectively. The earnings growth from Bank Islam was supported by higher total net income underpinned by +12.5%yoy expansion to RM88.8m in gross fund based income. Meanwhile, Syarikat Takaful earnings growth was attributable to the higher net Wakalah fee income arising from business growth in the Family Takaful segment.

Expenses rose higher. The rise in total expenses was due to higher personnel cost which grew +14.0%yoy due to yearly salary increment. The quarter also saw higher promotional activities as the corresponding expenses grew +33.2%yoy to RM112.2m. Meanwhile, the increase in finance cost was mainly due to the new issuance of Subordinated Sukuk Murabahah amounted to RM300m.

NIM compressed slightly but holding steady. For Bank Islam Group, the net income margin (NIM) compressed slightly by -2bp qoq and -4bp yoy to 2.59% in 1QFY19. This was due to higher cost of fund as liabilities rate went up by +8bp qoq vs. asset yield increase of +6bp qoq. However, we are not concerned by this as we opine that overall NIM are holding steady.

Healthy gross financing growth. Gross financing grew +8.7%yoy to RM46.1b supported by robust growth of +8.5%yoy to RM35.6b, +8.7%yoy to RM6.6b and +10.1%yoy to RM4.5b in the consumer, commercial and corporate segments. In regards to consumer segment, house financing continue to be the main driver, as it expanded +10.6%yoy to RM19.1b.

Source: MIDF Research - 24 May 2019

Labels: BIMB
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Hock Seng Lee - Earnings Enhanced by Mega Projects

Author: sectoranalyst   |  Publish date: Fri, 24 May 2019, 10:55 AM


  • Hock Seng Lee reported 1QFY19 revenue at RM146.7m
  • Civil Engineering and Construction performance was better compared to last year
  • The property segment staged a jump in the quarter, with revenue climbing +20.6%yoy to RM21.0m
  • Upgrade our call to BUY with an unchanged TP of RM1.54

Hock Seng Lee (HSL) reported 1QFY19 revenue at RM146.7m, higher by +11.4%yoy in comparison to the same period last year. Likewise, its earnings followed suit albeit at a slower pace with PATAMI rising +2.3%yoy to RM14.1m. On yearly basis, HSL’s PATAMI corresponded with 23.2% and 21.2% of our and consensus full year estimates respectively.

Civil Engineering and Construction performance was better compared to last year, as its income climbed by +9.9%yoy to RM125.7m in 1QFY19. The positive growth was attributable to the progress of major projects, which made up a large percentage of HSL’s outstanding jobs. Based on our forecast, the contribution from Pan Borneo Highway package is expected to remain firm until its due completion in 4QFY20. In CY19, we noted that new projects clinched are the infrastructure works for the Balingian coal-fired power plant worth RM54.3m and the construction of Batang Paloh Bridge project in Mukah worth RM299m. As of 1QFY19, HSL unbilled jobs stood at RM2.5b which will keep the group busy in the next four years.

The property segment staged a jump in the quarter, with revenue climbing +20.6%yoy to RM21.0m. The improvement was attributable to the timing of sales recognition, on the back of stable profit before tax margin which averaged at 31.4%. Going ahead, we expect HSL’s property income will continue to gain support from the variety of roll-outs in commercial, residential and industrial segments stemmed from La Promenade’s development plan.

No change to our forecasts, as earnings came in within our estimate.

Recommendation. HSL, being one of Sarawak construction players, is likely to ride on positive trend as the state government seems anchored to commit for large infra projects in the near term. In recognition of this, our optimism stays given the tangible flows of infra jobs (in the form of tender awards) shown since the beginning of this year. While our TP is maintained at RM1.54, we think the current share price of HSL is enticing due to recent weakness. Hence, we upgrade our call on the stock to BUY.

Source: MIDF Research - 24 May 2019

Labels: HSL
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MSM Malaysia Holdings Berhad - Johor Factory Still Observing Gestation Period

Author: sectoranalyst   |  Publish date: Fri, 24 May 2019, 10:54 AM


  • 1QFY19 normalised earnings remained in negative territory of –RM7.4m as compared to profit of RM20.7m in 1QFY18
  • This was mainly attributable to lower average selling price (ASP) of refined sugar and higher refining cost
  • Earnings revised downward for FY19 and FY20 in view of heightened competition from various fronts
  • Downgrading to SELL with a revised TP of RM1.19

Earnings still in red. MSM Malaysia Holdings Berhad’s (MSM) 1QFY19 core earnings took a deep dive to –RM7.4m, as compared to RM20.7m in prior year. The negative earnings results was predominantly attributable to the continued weaker refined sugar average selling price (-12.0%yoy), higher refining cost (+11.7%yoy) and higher depreciation cost (+96.0%yoy) from its Johor sugar refinery factory which commenced operation in April 2019.

Intensified pricing pressure. On a year-on-year basis, 1QFY19’s ASP of refined sugar of the domestic, industries and export markets continued to be on downtrend, decreasing by -12.0%yoy, -14.7%yoy and -5.4%yoy to RM2,314/mt, RM2,023/mt and RM1,750/mt respectively. Consequently, the marginal increase in volume by +0.9%yoy to 224.0k metric tonnes weren’t enough to cover the shortfall in revenue which fell at a faster pace of -11.0%yoy to RM484.0m. We view that the domestic price war and lower exports and industries demand was due to: (i) cheaper refined Thai and India white sugar as substitutes, (ii) temporary approved permits (AP) to import refined sugar were awarded and, (iii) oversupply of sugar globally had weigh on price. MSM has been pressured to lower its refined sugar price to be on par with competing new refined sugar brands in order to maintain and gain market share, even if it means operating at a loss position.

Profit margin deteriorated. MSM’s 1QFY19 gross profit margin have contracted by -11.0%yoy 5.0%, premised on the drop in revenue of - 11.6%yoy, outpacing the contraction in cost of sales of -6.8%yoy. This was mainly due to the continued falling prices of refined sugar (- 12.0%yoy) amid oversupply conditions and intense competitions, coupled with weaker ringgit against USD making the cost of production considerably higher. In addition, due the recent commencement of Johor refinery operation, the refining cost has increased to RM362/mt (+11.7%yoy).

Source: MIDF Research - 24 May 2019

Labels: MSM
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Jh Chin No govt handout no profit. Basic SOP for Malaysian Company.
24/05/2019 11:13 AM

Dayang Enterprise Holdings Bhd - 1Q19 Reported Loss Narrowed by +80.6%

Author: sectoranalyst   |  Publish date: Fri, 24 May 2019, 10:52 AM


  • Dayang Enterprise’s 1QFY19 reported loss improved by +80.6%yoy to –RM4.2m
  • Revenue grew by 5.1%yoy to RM156.4m premised on higher work orders
  • Perdana Petroleum registered narrowed loss of –RM32.9m
  • Orderbook of RM3.0b to last until 2023
  • Maintain BUY with unchanged TP of RM1.30 per share

Reported loss narrowed by +80.6%yoy. Dayang’s 1QFY19 reported loss narrowed by +80.6%yoy to –RM4.12m from RM21.4m in 1QFY18 in its seasonally weaker quarter. That said, the company’s revenue grew by +5.1%yoy to RM156.4m driven mainly by higher work orders received and performed under the topside maintenance contracts during the quarter when compared against last year.

Perdana Petroleum continues to show improvements. Perdana Petroleum continues to show improvements with a reported net loss of –RM32.9m vs -RM66.7m in 1QFY18 attributable to higher vessel utilisation rates of 36% compared with only 27% in 1QFY18. Revenue was also higher by +35.0%yoy despite the seasonally weaker quarter due to the adverse weather condition.

Higher work orders drove earnings. The company delivered its highest quarterly earnings in 1QFY19 despite the quarter being seasonally weak quarter for the company due to the monsoon season. However, during the quarter, offshore activities were ramped up and works continued to be issued under time write (unit rates) and lump sum works. This is also premised on robust work orders issued for the Maintenance, Construction and Modifications Contract (MCM) and Topside Maintenance Services works under the Pan Hook-up and Commissioning Contract (Pan HUC) which were rolled out in the fourth quarter. Furthermore, vessel utilisation was also stronger at 36% vs 27% in 1QFY18.

Orderbook of RM3.0b to last to 2023. The company also disclosed after securing a larger portion of the Pan MCM contracts estimated at RM1.5-2.0b for the next five years, this brings its total orderbook to RM3.0b lasting the company through to 2023. The company is currently participating in bids worth about RM600m – both locally and overseas. The company remains fairly confident of winning a portion given its track record and successful campaigns in similar projects.

Source: MIDF Research - 24 May 2019

Labels: DAYANG
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Genting Plantations Berhad - Profit Margin Hit Hard by Lower CPO and CPKO Price

Author: sectoranalyst   |  Publish date: Fri, 24 May 2019, 10:52 AM


  • 1QFY19 core earnings of RM47.2m came in below ours and consensus expectations
  • This was mainly due to the lower-than-expected average selling price (ASP) of both CPO and CPKO
  • Earnings revised downwards for FY19 and FY20 in view of profit margin compression
  • Maintain SELL with a revised TP of RM8.90

Earnings halved. Genting Plantations Berhad’s (GENP) 1QFY19 normalised earnings plunged by -53.3%yoy to RM47.2m. This came in below expectation as it accounted for merely 18.8% and 17.2% of both our and consensus full year FY19 earnings forecasts due to the weakerthan-expected ASP of CPO and CPKO in view of elevated stockpiles and lower pricing of its major substitute soybean oil. Meanwhile, the reported profit before tax of its plantation segment has also fell by -45.6%yoy to RM107.0m, which accounted for 84.0% of total PBT.

EBIT margin compression. 1QFY19 EBIT margin dropped by - 14.6ppts yoy to 11.2% as a result of weaker CPO and CPKO’s ASP of RM1,974/mt and RM1,283/mt in the first quarter compared against RM2,375/mt and RM2,083/mt of the same period in prior year, representing a decrease of -17.0%yoy and -38.0%yoy respectively. Meanwhile, improvement in FFB production of +14.0%yoy to 554kMT led to +17.5%yoy increased in revenue to RM621.7m. Note that most of the FFB growth came from the group’s operation in Indonesia which command lower ASP (5-8% discount) to that of Malaysians’, causing the margin to be impacted negatively as well.

Earnings forecast. In view of the earnings underperformance and sustained weak CPO pricing, we have further revised downward our FY19 and FY20 core earnings forecast by -17.2% and -12.1% to RM207.6m and RM264.2m respectively. In addition, we have also introduced our new set of FY21 earnings forecasts.

Target Price. Rolling-over our valuation base year to FY20, we have derived a revised Target Price (TP) of RM8.90 (previously RM8.10). This is premised on pegging FY20 eps of 31.8sen to target PER of 22.7x, which is the group’s two years historical average PER.

Source: MIDF Research - 24 May 2019

Labels: GENP
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