Highlights

MIDF Sector Research

Author: sectoranalyst   |   Latest post: Fri, 29 May 2020, 9:19 AM

 

BIMB - Did Surprisingly Well

Author: sectoranalyst   |  Publish date: Fri, 29 May 2020, 9:19 AM


KEY INVESTMENT HIGHLIGHTS

  • Results was above expectations as we had overestimated the income attributable to depositors
  • Earnings was driven by lower taxation and Bank Islam’s performance
  • Better than expected gross financing growth
  • Bank Islam managed its cost of fund well
  • Revising FY20/FY21/FY22 earnings forecast upwards
  • Maintain BUY with revised TP of RM4.25 (from RM4.05)

Above expectations. The Group's 1QFY20 earnings was above ours but within consensus' expectations. Its net profit was 34.6% and 27.3% of our and consensus' full year estimates respectively. The variance was due to our overestimation of the income attributable to depositors.

Driven by lower taxation and to certain extent Bank Islam. The Group saw its net profit growing +3.3%yoy. This was due to lower taxation where it came in -8.4%yoy lower. Bank Islam also contributed marginal as its PBZT expanded marginally by +0.8%yoy to RM221.5m. Meanwhile, PBZT of Syarikat Takaful was almost flat, marginally declining -0.1%yoy to RM114.4m.

Bank Islam boosted by financing growth…Bank Islam PBZT was driven by net income grew +30.2%yoy to RM539.3m as a result of better than expected gross financing growth. It rose +9.5%yoy to RM50.4b; doubled the industry’s loans & financing growth of +4.0%yoy as at 1QFY20. This compensated the decline in average asset rate of - 40bp yoy to 4.99%. We had expected that financing growth to be weak this year given the prevailing cautious sentiment. Nevertheless, expansion in consumer financing segment continued to be strong as it expanded +5.9%yoy to RM37.7b. This was driven by house and personal financing as it grew +7.6%yoy to RM20.6b and +6.4%yoy to RM14.9b respectively. Vehicle financing fell -14.0%yoy to RM1.6b.

…and cheaper cost of funding. Comparing the total deposits and investments accounts (IA) as at 1QFY19 with 1QFY20, Bank Islam posted an increase of +3.1%yoy to RM55.5b. This was due to CASA and transactional IA growth of +13.2%yoy to RM19.9b while non CASA-like deposits fell -1.8%yoy to RM35.6b. As a result average liabilities fell - 19bp yoy to 2.61%. This had moderated the NIM compression to -21bp yoy to 2.38% despite three OPR cuts totaling 75bp over the period.

Asset quality improved. The gross impaired financing (GIF) ratio improved by -12bp yoy to 0.83% as at 1QFY20. This could be the result of the high growth in gross financing and steady profile of its borrowers such as government employees.

Is provisions enough? Meanwhile, total provisions increased +35.6%yoy, leading to credit cost rise of +4bp yoy to 0.24%. This was an outlier when compared against its peers. The question will be is this enough given the impact of Covid-19. We expect that credit cost might rise further but given its borrowers profile, might remain manageable.

Source: MIDF Research - 29 May 2020

Labels: BIMB
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FGV - Expecting a Spike in 2HFY20 FFB Production

Author: sectoranalyst   |  Publish date: Fri, 29 May 2020, 9:18 AM


KEY INVESTMENT HIGHLIGHTS

  • 1QFY20 losses widened to -RM135.7m which came in below our and consensus expectations
  • This was mainly attributable to the sharp decline in FFB ouput (-33.0%yoy) and higher cost of production (+58.0%yoy)
  • Expecting turnaround in 2HFY20, supported by strong recovery in FFB production as well as favourable CPO price
  • Sugar business is expected to perform better, post streamlining of production activities to Johor and Prai
  • Maintain NEUTRAL with a revised TP of RM1.02

Below expectation. FGV Holdings Berhad’s (FGV) reported 1QFY20 normalised losses of -RM135.7m as compared to -RM3.0m in 1QFY19, mainly due to higher losses from its plantation and sugar segment (refer to table 1). This came in below our and consensus’s expectation of the FY19 earnings forecasts respectively. The larger-than-expected losses from the plantation and sugar segments were largely stemming from the plunge in FFB production (-33.0%yoy) and higher cost associated with the MSM Johor plant respectively. Moving forward, we foresee a challenging 2QFY20 financial performance due to the movement control order (MCO) before rebounding in the second half of the year.

Precipitious drop in FFB output. The significant reduction in FFB production (-33.0%yoy) in 1QFY20 had caused the group to incur a larger loss before tax (LBT) of -RM153.0m as compared to -RM12.0 in 1QFY19 of its plantation segment (refer to table 2). This was predominantly attributable to the impact of dry weather conditions in CY19, especially in Sabah where a third of FGV’s estates are situated as well as lower application of fertiliser. As a result, the ex-mill cost of production jumped by +58.0%yoy to RM2,177/mt. However, the loss was partially compensated by higher average selling price (ASP) of CPO of RM2,669/mt (+34.4%yoy). The management’s guidance of the completion of 25% of its full year fertiliser application in 1QFY20 as compared to 3% in 1QFY19 would also help with improving the FFB yield going forward. Thus, we opine that an anticipated recovery in FFB yield with a healthy CPO price would contribute to a better financial performance ahead.

Losses from sugar segment widened. Albeit with higher 1QFY20 sales volume of 235.9k mt (+5.0%yoy) and ASP of refined sugar (+1.0%yoy), the lower gross margin has resulted the sugar segment to incur a larger LBT (refer to table 1). The lower margin was primarily caused by the higher refining cost due to increase in fuel cost, depreciation as well higher finance cost associated with MSM Johor. Nonetheless, we opine that with the closure of MSM’s Perlis that could lead to an increase in utilisation rate of MSM Johor coupled with the increase in ASP of its sugar products, FGV could potentially observe a gradual recovery from its sugar segment.

Source: MIDF Research - 29 May 2020

Labels: FGV
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Padini - Not in Vogue Now

Author: sectoranalyst   |  Publish date: Thu, 28 May 2020, 9:51 AM


KEY INVESTMENT HIGHLIGHTS

  • 9MFY20 earnings came in at RM55.8m (+4.9%yoy) which is below our and consensus’ expectations
  • Sales significantly affected by Covid-19
  • Earnings forecast cut by 29.3%/8.8% for FY20E/FY21F
  • Holding back on dividend announcement
  • Maintain NEUTRAL with an adjusted TP of RM2.61

Earnings missed expectations. Padini Holdings Bhd’s (Padini) 3QFY20 earnings came in at RM16.6.0m (-52.0%yoy), bringing its cumulative 9MFY20 earnings to RM92.0m (-13.0%yoy). The profit registered was below our expectations at 61.3% of full year FY20 forecast and largely within consensus’ 71% of full year FY20 earnings forecasts respectively.

Sales significantly affected by Covid-19. Revenue for 3QFY20 dropped by -26.8%yoy and -29.9%qoq to RM347.3m due to the movement control order (MCO), which forces Padini to halt its operations as its businesses are deemed non-essential. Earnings are also adversely affected by the MFRS 16 leases. As a result, net profit plunged -52.0%yoy to RM16.6m Sequentially, net profit fell -70.2%qoq due to the Covid-19 pandemic and bonus payment made during the quarter.

Earnings forecast cut by 29.3%/8.8% for FY20E/FY21F as we take into consideration of a more cautious consumer sentiment amid the Covid-19 pandemic. Besides consumer sentiment, Covid-19 will also have an effect on; (i) sales as consumers would have switch to online fashion platforms that are operating during the movement control order (MCO) especially before the Raya festive season, and (ii) cost as Covid- 19 has affected the supply chain of its products, which may lead to an increase in costing. However, the reopening of businesses in early May just before Raya, may help to recoup some loss sales previously. Moreover, there may be a pent up demand when consumer sentiment improves as Padini’s products are positioned at accessible price points.

Holding back on dividend announcement. Contrary to the 4.0sen dividend (2.5 sen interim and 1.5 sen special dividend) announced the past four financial years, the group did not announce any dividend for the quarter. We think that the company will focus on preserving cash in face of the uncertainties that impacts its business. That said, we believe that it may resume the dividend payout when there is more clarity for the business outlook. This will be supported by its net cash of RM449.8m and strong operating cash flow. We expect another dividend for this financial year albeit at a smaller quantum. As such, our DPS assumption is now 8.0 sen from 10.0 sen previously.

Source: MIDF Research - 28 May 2020

Labels: PADINI
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GDEX - Shift in Consumer Pattern to Partially Offset Competition

Author: sectoranalyst   |  Publish date: Thu, 28 May 2020, 9:50 AM


KEY INVESTMENT HIGHLIGHTS

  • 9MFY20 normalised PAT dipped by -52.5%yoy
  • Decline in PBT growth of express delivery segment affected by low parcel volume during initial part of MCO
  • Logistics services was in the red for 9MFY20 due to higher maintenance cost and supply chain disruption
  • Nevertheless, PT SAP Express contributed to the increase in the share of profit of associates
  • Earnings estimates unchanged as we believe the surge in parcels volumes in 4QFY20 will partially cushion the impact of intense competition
  • Maintain NEUTRAL with a revised TP of RM0.48 per share

9MFY20 results below estimates. GD Express Carrier Berhad’s (GDEX) 3QFY20 normalised net profit dipped by -95.0%yoy to RM0.3m. This brings GDEX’s cumulative 9MFY20 net profit to RM10.9m (-51.7%yoy) accounting for around 50% of full year forecasts. The main reason for the negative deviation was the impact of the MFRS16 accounting treatment on leases and higher capital investment incurred for its regional expansion and information technology (IT) enhancement. Nevertheless, we deem the results to be within expectations as we expect that GDEX will benefit from the surge in parcel volumes handled in 4QFY20.

Express delivery PBT growth impacted by MCO. In 9MFY20, the express delivery business saw -39.7%yoy decline in PBT. The drop in the segment’s performance was mainly due to the Covid-19 pandemic, in which most of the B2B non-essential customers’ business operation being affected by the MCO. Therefore this impacted the demand of express services especially in the first week of the Movement Control Order (MCO) which saw parcels volumes decreasing by approximately 50.0%. As such, PBT margins of the express delivery segment in 9MFY20 declined by -5.1ppts to 6.9% from a year ago.

Logistics services remains subdued. Likewise, the logistics business recorded a loss before tax of –RM0.5m 9MFY20, cancelling off for PBT of RM4.9m a year ago. We opine that the lacklustre performance was partly attributable from the higher maintenance costs incurred for its warehouse operations. Moreover, disruption of the supply chain at the ports and the airports as well as impact on MFRS16 leases assessment on its warehouses dragged the performance of the segment.

Performance of overseas ventures. Notwithstanding the situation seen for the express delivery and logistics business, GDEX’s share of profit of associate substantially rose to RM5.0m in 9MFY20 compared to a loss of -RM0.1m a year ago. Management guided that the growth of this line item was partly contributed by its associate in Indonesia, PT SAP Express amidst the securement of sizeable contracts for its express delivery services and increasing revenue contribution from e-commerce which stands at 38%. As such, we deduce that PT SAP Express’s profit-after-tax for 1QFY20 (December FYE) could be higher by approximately >+500%yoy. Meanwhile, the acquisition of a 50% stake in Noi Bai Express and Trading Joint Stock Company (Netco) which is 50% owned by GDEX has started to contribute revenue post -acquisition in late December 2019.

Source: MIDF Research - 28 May 2020

Labels: GDEX
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MSM - Leveraging on Its Johor Plant

Author: sectoranalyst   |  Publish date: Thu, 28 May 2020, 9:47 AM


KEY INVESTMENT HIGHLIGHTS

  • 1QFY20 results posted a narrower loss of –RM29.4m as compared to preceding quarter loss of –RM39.6m, which was still below our and consensus expectation
  • The losses was mainly attributable to higher depreciation, higher finance cost as well as increase in operation cost stemming from MSM Johor
  • Ongoing cost rationalisation plan, product diversification to penetrate export markets, and a higher ASP of refined sugar are expecting to help weather the storm in FY20
  • Maintain NEUTRAL with a revised TP of RM0.74

Narrower loss. MSM Malaysia Holdings Berhad’s (MSM) 1QFY20 normalised loss narrowed to –RM29.4m after excluding a one-off rationalisation cost of RM5.4m, from a loss of –RM39.6m in 4QFY19. Nonetheless, this still came in below ours and consensus expectations. Meanwhile on a year-over-year basis, the group’s 1QFY20 normalised losses widened by >100%yoy as compared to -RM5.0m in 1QFY19 which was mainly attributable to higher depreciation charge (RM8.6m), higher finance cost (RM7.5m), and increase in operational cost in MSM Johor (RM7.5m) due to lower plant utilisation rate in 1QFY20. However, this was partially offset by the lower average raw sugar cost (-8.5%yoy) and a reduction of total raw sugar purchased (-30.0%yoy).

Expecting healthy ASP and sales volume. The group’s 1QFY20 revenue increased by +5.4%yoy to RM509.0m, primarily as a result of higher average selling price (ASP) of refined sugars and sales volume (refer to Table 1). The ASP of refined sugars advanced by +3.9%yoy to RM2,105 per metric tonnes (mt), led by the wholesale (+7.6%yoy) and export segment (+3.9%yoy). The total sales volume also expanded by +5.4%yoy to 236k mt, stemming from the industries (+52.9%yoy) and export segments (+37.5%yoy) which helped to mitigate the lower volume from the wholesale segment. Note that the group intends to maintain its increased ASP for refined sugar which, in our view, could help in improving its margin going forward. While this could mean potential business loss from the wholesale segment, we believe that the increased business in industries and export market indicate the resiliency in the demand for MSM’s sugar products.

MSM Johor could potentially breakeven. We opine that the closure of MSM Perlis and relocation of factory operations to MSM Johor would lead to an improvement in refining cost and thus generate higher profit margins for the group. Coupled with increasing export queries for its sugar products, we are of the view that the Johor’s plant UR to improve to 40-50% in FY20. Note that the current UR of MSM Johor is 34% and it has a breakeven point at about 48%. Based on our channel checks, the group plans to utilise MSM Johor to cater for the potential sales up to about 300k mt for the export segment.

Source: MIDF Research - 28 May 2020

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Kuala Lumpur Kepong - Contraction in FFB Production to Limit Upside

Author: sectoranalyst   |  Publish date: Thu, 28 May 2020, 9:45 AM


KEY INVESTMENT HIGHLIGHTS

  • 2QFY20 normalised earnings gained by +56.0%yoy to RM207.9m, boosted mainly by upstream segment
  • This lead to +34.2%yoy improvement in 1HFY20 normalised earnings of RM386.7m, slightly below our expectation
  • Lower sales volume from the downstream segment is partially supported by healthier profit margin
  • Profit from the property segment remains resilient
  • 1HFY20 dividend remain stable at 15sen per share
  • Maintain NEUTRAL with a revised target price of RM20.19

Kuala Lumpur Kepong Bhd’s (KLK) 2QFY20 normalised earnings came in at RM207.9m, which represents an increase of +56.0%yoy. Despite 2QFY20 revenue contracted slightly by -3.5%yoy to RM3,804.0m, double digit growth in earnings was mainly boosted by the favourable selling price of CPO (RM2,572/mt; 30.6%yoy) and PK (RM1,537/mt; 18.1%yoy) as well as better profit margin from the manufacturing segment. The former also made up for the -9.8%yoy decline in FFB production to 890.9k mt. Cumulatively, 1HFY20 earnings estimates amounted to RM386.7m (+34.2%yoy). This was slightly below ours but within consensus estimates, accounting for 43.7% and 46.9% of full year FY20 earnings estimates respectively.

Plantations. 1HFY20 segment profit improved by +32.8%yoy to RM303.4m. This was mainly attributable to favourable CPO price (1HFY20: RM2,373/mt vs 1HFY19: RM1,906/mt). However the segment incurred higher cost of CPO production in view of the -10.7%yoy decline in FFB production to 1.9m mt.

Manufacturing. The manufacturing segment 1HFY20 profit contracted by -7.3%yoy to RM177.4m. This in tandem with the decline in revenue to RM3.9b (-13.1%yoy), owing to lower sales volume from its Europe operation. However, the decline in profit was partially buffered by the improvement of profit margins from its Malaysia and China operations.

Property development. The property segment’s profit reduced by - 3.9%yoy to RM 17.5m. This was premised on lower revenue of RM69.2m (-7.2%yoy).

Impact to earnings. We are updating our CY20/21/22 CPO price forecast to RM2,300/2,450/2,550/mt respectively. In addition, we also reduce our FFB production estimates to better reflect the group’s performance. As a result, FY20/21/22 earnings estimates have been revised to RM753.8/805.6/912.3m respectively.

Target Price. Post our earnings adjustments, we derived a new target price of RM20.19 (previously RM23.64). This is premised on pegging FY21EPS of 75.6sen against forward PER of 26.7x. Our target PER is the group’s one standard deviation above the two-year historical average.

Maintain NEUTRAL. The strong recovery in CPO price from October 2019 onwards has bided well for the group. However, we are concern on the contraction in FFB production. While there production is expected to improve seasonally, it could still come lower in comparison with the previous year. This would potentially limit future earnings upside. Meanwhile, we expect the performance of the oleochemical segment to remain resilient, supported by the Malaysian and China operations. The property segment is also expected record steady profit, although the impact to the group is minimal. On another note, consistent dividend payout, which provides a yield of approximately two percent, would further entice investor to remain vested in the stock. All factors considered, we are maintaining our NEUTRAL recommendation on the stock.

Source: MIDF Research - 28 May 2020

Labels: KLK
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