MIDF Sector Research

Author: sectoranalyst   |   Latest post: Mon, 23 Dec 2019, 11:02 AM


Petronas Gas Berhad - New RP1 Tariffs Better Than Expected

Author: sectoranalyst   |  Publish date: Mon, 23 Dec 2019, 11:02 AM


  • Regulatory Period 1 tariffs came in better than anticipated
  • Tariff for PGU was raised to RM1.129/GJ from RM1.072/GJ currently
  • RGTSU tariff reduced slightly however; tariff for RGTP raised to RM3.485/GJ
  • New tariffs expected to lift earnings for PGB during RP1
  • FY20-21F earnings revised upwards by +8.4% and +9.3%
  • Maintain NEUTRAL with revised TP of RM17.62 per share


New tariff announced for Regulatory Period 1. Petronas Gas Berhad’s (PGB) announced that it has received a letter via the Energy Commission (EC) dated 19th December 2019 from the Government. The letter stated the approval of a new set of tariffs for the Regulatory Period 1 (RP1) for PGB facilities which includes tariffs for: (i) Peninsular Gas Utilisation (PGU); (ii) Regasification Terminal Sungai Udang (RGTSU) and; (iii) Regasification Terminal Pengerang, Johor (RGTP). The new tariffs for RP1 will commence from 1st January 2020 and will last until 31st December 2022. The details of the new tariffs are as follows:

Source: MIDF Research - 23 Dec 2019

Labels: PETGAS
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AEON Credit - Higher Provisions But Asset Quality Improved

Author: sectoranalyst   |  Publish date: Fri, 20 Dec 2019, 9:44 AM


  • Earnings below expectations
  • Higher operating expenses due to higher provisions from strong growth in financing receivables
  • Revenue continued to be strong
  • Asset quality solid
  • FY20 and FY21 earnings forecast revised downwards by - 9.6% and -8.9% respectively
  • Maintain NEUTRAL with revised TP of RM15.50 (from RM15.60) due earnings revision

Below expectations. Aeon Credit Service (M) Bhd (ACSM) recorded a 9MFY20 net profit decline of -22.8%yoy, below expectations. The net profit was at 67.4% and 66.8% of our and consensus' full year estimates respectively. The variance was due to our underestimation of the rise in operating expenses.

Higher provisions from higher financing receivables. Operating expenses for 9MFY20 grew +36.6%yoy due to higher impairment loss. This was the result of early recognition of impaired receivables as required under MFRS 9. Provisions came in +69.6%yoy higher to RM362.5m. However, the higher provisions were due to the strong expansion in financing receivables.

Continued strong revenue. The higher financing receivables also resulted in strong growth in revenue. It grew +17.8%yoy to RM1.19b and was led by credit cards, motorcycle, auto and personal financing segments.

Strong growth in gross financing receivables. Gross financing receivables expanded +4.5%qoq and +20.7%yoy to RM10.0b as at end 3QFY20. The main drivers were the strong growth in credit cards, motorcycle, car and personal financing. These grew +25.9%yoy to RM0.88b, +27.4%yoy to RM3.08b, +17.0%yoy to RM2.85b and +20.8%yoy to RM2.81b respectively.

Asset quality improved and better collection as well. Nonperforming loans ratio improved by -7bp qoq and -14bp yoy to 1.93%. We noted that asset quality have been very healthy for the past couple of years. Meanwhile, current collection ratio remains high at 98.0%.

Earnings forecast revised downwards. We are revising our FY20 and FY21 forecast downwards by -9.6% and -8.9% to account for the higher operating expenses.

Valuation and recommendation. While we noted that ACSM managed to maintain its strong revenue growth momentum, its high operating expenses continue weigh to its earnings. The strong growth in financing receivables suggests that there is still demand for its financial products with strong asset quality. However, there will be should there be a slowdown in economic growth. Hence, we maintain our NEUTRAL call. We revised our TP to RM15.50 (from RM15.60) due to our revision in earnings. We peg ACSM's FY21 BVPS of RM7.60 to PBV of 2.1x (one standard deviation below of its 5 year average PB ratio).

Source: MIDF Research - 20 Dec 2019

Labels: AEONCR
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Eco World - Expanding Landbank in Johor

Author: sectoranalyst   |  Publish date: Tue, 17 Dec 2019, 9:24 AM


  • Expanding landbank in Johor
  • Affordable homes project on the land
  • Minimal impact on balance sheet
  • Earnings estimate maintained
  • Maintain BUY with an unchanged TP of RM1.02


Expanding landbank in Johor. Eco World Development Group (ECOWLD) announced that its subsidiary Melia Spring Sdn Bhd has entered into agreement with Permodalan Darul Taz’zim Sdn Bhd (PDT) for the acquisition and development of 200 acres land in Johor for a base land price of RM304.9m. The proposed land acquisition is expected to be completed by end of 2020.

Affordable homes project on the land. We view the land acquisition positively as it is in line with ECOWLD’s recently announced plans to offer homes with good amenities and affordable price range. The 200 acres land is right next to ECOWLD existing project Eco Botanic in Johor. ECOWLD plans to develop the land into a mixed residential and commercial township with estimated GDV of RM1.67b where large component of the development will comprise affordable products for first time home buyers and the M40 target group. The proposed development is expected to increase population base and vibrancy of Eco Botanic. Land cost to total GDV of 18% is also decent.

Minimal impact on balance sheet. Impact on balance sheet from the land acquisition is expected to be minimal due to the staggered payment terms. RM6m (1% deposit and 1% base price) is to be paid within 3 months while the remaining purchase consideration of RM299m to be paid over a 7-year period which would allow ECOWLD to better manage its cash flow. Meanwhile, near-term earnings impact is expected to be minimal as the project is expected to launch in 2021. Note that 20% profit from the project will be shared with PDT.

Maintain BUY with an unchanged TP of RM1.02. We make no changes to our earnings forecast for FY20/21F. We also maintain our TP of RM1.02, pending further information on the project development timeline on the land. Our TP of RM1.02 premised on our RNAV discount of 55%. We maintain our BUY recommendation on ECOWLD due to its attractive valuation and stable earnings outlook.

Source: MIDF Research - 17 Dec 2019

Labels: ECOWLD
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Gamuda Berhad - Earnings were flattish

Author: sectoranalyst   |  Publish date: Mon, 16 Dec 2019, 6:17 PM


  • Gamuda reported RM1.1b worth of revenue in 1QFY20
  • 63.5% revenue derived from construction division.
  • Property earnings grew +36.4%yoy in 1QFY20, backed by +18.6%yoy increase in revenue.
  • PTMP secures Federal financial assistance.
  • Toll highway disposal in final stages and cabinet approval has been obtained.
  • Maintain NEUTRAL with TP of RM3.70/share.


Gamuda’s revenue upped +21.2%yoy, to register RM1.1b in 1QFY20. PATAMI was recorded at RM173.6m, higher by +0.9%yoy from the same period last year. However, the net profit margin deteriorated by -3.2ppts(yoy) in 3MFY20. Consequently, earnings accounted 27% and 24.6% of our and consensus full year estimates respectively. During the period, interim dividend was declared at 6sen/share.

In the quarter, construction segment made up 63.5% of total revenue. This division reported RM1.1b (+10.8%yoy) of revenue but only registered RM67.24 of net profit that was -6.8%yoy lower. Moving forward, things to look out for are further developments on PTMP with LOA validity set to expire by end-February 2020. Our understanding is that further finalization is already at its tail-end, leading us to believe the signing of PDP agreement could possibly materialize soon. Positively, we noted that federal has agreed to guarantee State bonds for LRT and considering several options for reclamation funding. In Gamuda’s words, the works on both projects are expected to commence in 2HY20. In the near term, earnings continue to be supported by the group’s unbilled orderbook of RM8.6b, giving visibility for the next three years.

Property earnings grew +36.4%yoy in 1QFY20, backed by +18.6%yoy increase in revenue to RM530.09m. The stronger performance was due to the margin expansion from the overseas project. The biggest contributor of overseas sales were (1) Celadon City in Ho Chi Minh City and (2)Gamuda City in Hanoi. As of this period, Gamuda has sold RM509 million worth of properties. Domestically, local presales were underpinned by Horizon Hills, Gamuda Cove, Gamuda Gardens and twentyfive.7. It is also worth mentioning that Gamuda Cove has gained traction in recent months following the opening of its dedicated access road, the ELITE highway’s interchange connecting directly to Gamuda Cove in September 2019.

Maintain NEUTRAL. We maintain our earnings forecast as earnings came in within our expectation. Our TP of RM3.70 was arrived based on SOP-driven valuation. This was based on 20% discount to RNAV/share, implying 14x PE to Gamuda`s FY21 EPS

Source: MIDF Research - 16 Dec 2019

Labels: GAMUDA
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Bermaz Auto Berhad - Ready to Roll

Author: sectoranalyst   |  Publish date: Mon, 16 Dec 2019, 6:15 PM


  • Price approval delays resolved, recovery from 3QFY20
  • Deliveries of CX8 commenced late Nov19, 700-800 bookings since launch vs. 250-300 units/month sales target
  • Exploring a third CKD model, one option could be a hybrid
  • BAuto’s balance sheet is underutilized - coupled with Inokom capacity expansion, is well positioned to explore mass market brands
  • Maintain BUY, TP trimmed slightly to RM2.70 given earnings revision to reflect weaker RM and weak 2QFY20


Price approval delays resolved. The delay in pricing approval was mainly given the stricter approval process now (compounded by the fact that BAuto submitted approvals for two models at the same time) as well as extended negotiations on the accompanying tax incentives for the two models. However, the issue with the pricing approvals has been fully resolved. We understand that incentives received were slightly better for the facelift CX5 (relative to the outgoing model), while the CX8 received a larger incentive package compared to the CX5.

Expect recovery from next quarter. Following resolution of the pricing approvals, deliveries for the facelift CX5 commenced in the final week of Oct19 (only a very small portion was captured in 2QFY20), while the CX8 saw maiden deliveries late Nov19. We expect this to reflect in a recovery in 3QFY20 earnings onwards. The CX8 entails total bookings of 700-800 units (since launch in Oct19) with around >300 units delivered to customers so far. This compares well against targeted monthly volumes of 250-300 units/month Meanwhile, the facelift CX5 entails outstanding bookings of 700 units.

Volume rebound should be accompanied by margin recovery. The margin contraction in BAuto’s recent 2QFY20 was due to a much larger sales mix of the pre-facelift CX5. Due to the price approval delay for the facelift variants (which forced BAuto to hold back sales of the facelift CX5), management decided to push out the pre-facelift models to the market instead to maintain sales volumes. We understand there is only 200 units of the pre-facelift CX5 left in stock (vs. a typical 700- 800units/month volumes for the CX5 model). We would expect to see the volume recovery from 3QFY20 onwards to be accompanied by a margin recovery. This should be further underpinned by an upward revision to CX5 pricing by RM2100-RM2700/unit from Jan20 onwards.

Increased higher margin domestic supply for MMSB. Associates too (which was also affected by the price approval delays) should see a rebound next quarter given resumption of supply for the domestic market which fetches much higher margins than exports; recall that MMSB’s 2QFY20 margins dropped drastically given lower domestic volumes. BAuto is targeting CX8 exports of 300-400 units/month with Thailand as the main market, other than the Philippines.

CX30 introduction. The CX30 is expected to be launched in CBU form in 3QFY20. Three variants are offered to the Malaysian market, priced between RM143K-RM173K. An initial batch of 169 units has been imported with half of this coming with ready bookings from customers. It is still uncertain at this stage if the CX30 will be locally assembled for the Malaysian market, but we note that Thailand has already received the principal’s approval to produce the CX30 at the AAT (Auto Alliance Thailand) plant.

New CKD, hybrid potential? The MX30 (available in hybrid variants, previewed at the latest Tokyo Motor Show) and CX30 are potential models that BAuto could locally assemble. From a strategic standpoint, BAuto is looking to fill up the gap in its model mix for price points between RM120K-RM140K. The gradual increase in CX5 pricing over the years has left a vacuum within these price points.

Capacity expansion. BAuto is looking to invest in incremental capacity at 30%-owned Inokom, which will see Inokom’s total capacity double to 80K/annum by Apr21 from 40Kunits/annum currently. Total capex is expected at RM200m but the bulk is expected to be funded by Inokom’s internal funds and borrowings. BAuto will occupy 50% of the enlarged Inokom capacity i.e. around 40K/annum, vs. 28K-30K/annum currently. The incremental capacity is expected to be filled up, partly, by BAuto’s 3rd CKD model.

Shouldn’t a strong balance sheet be put to work? Despite attractive dividend payouts, BAuto’s balance sheet remains underutilized. Although we forecast a dividend payout of >100% for FY20F, balance sheet remains in a solid net cash position. The capacity expansion at Inokom, coupled with BAuto’s huge war chest positions it well to undertake brand expansion, particularly to fill up the gap in BAuto’s model mix for the lower priced mass market segment, in our opinion. The cheapest Mazda model, the Mazda 2 for example, is priced at ~RM90K and is imported as CBU, which does not really position BAuto to compete effectively in the mass market segment. Furthermore, Mazda models in general, are positioned as premium Japanese models.

Forecast revision. Given the impact from the delays in price approval for the CX5 and CX8 in 2QFY20, as well as after conservatively imputing weaker Ringgit assumptions, we trim our FY20F/21F by 31%/9%. Our projections now assume the JPY(x100):MYR at RM3.90 (from RM3.70 previously). However, we re-iterate that the weakness arising from delays in price approval for the CX5 and CX8 is pretty much an exceptional event and earnings should see a recovery from 3QFY20 onwards.

Recommendation. Following the earnings revision and after rolling over our valuation base to FY21F (YE April), we trim our TP slightly to RM2.70/share (from RM2.85/share previously) though our BUY call on BAuto remains intact. From a valuation standpoint, BAuto is cheap at just 10x FY21F earnings while dividend yield of 8% is attractive. Net cash accounts for 12% of market cap (FY21F). Key catalysts: (1) Launch of the CX8, facelift CX5 and CX30 in 2QFY20-3QFY20 (2) Dividend outperformance (3) Over 50% increase in FY20F export volumes driven by the CX8 (4) Potential NAP incentives to drive CBU exports (5) Potential introduction of an all-new Mazda model in FY21F (6) Potential brand expansion riding on Inokom’s enlarged capacity and BAuto’s solid balance sheet.

Source: MIDF Research - 16 Dec 2019

Labels: BAUTO
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MAHB - MOT Confirms CAAM Merger With MAVCOM

Author: sectoranalyst   |  Publish date: Fri, 13 Dec 2019, 4:54 PM


  • MOT confirms merger between MAVCOM and CAAM; MAVCOM’s function to be transferred to CAAM
  • Objective of rationalization is to increase operational efficiency and optimize human resources
  • RAB framework may be put on the back burner but we still believe such framework to be essential in Malaysia
  • Profitability wise, MAHB’s earnings still expected to grow by +9.3%yoy in FY20 with the absence of a RAB framework
  • Earnings estimates unchanged as it did not impute the RAB framework scenario
  • Maintain BUY with a revised TP of RM9.10 per share


MAVCOM’s role to be absorbed under CAAM. The Ministry of Transport (MOT) has confirmed that the Malaysian Aviation Commission (MAVCOM) will be merged with the Civil Aviation Authority of Malaysia (CAAM). The plan will see the dissolution of MAVCOM with its role to be undertaken by CAAM. According to MOT, the initiative to rationalise civil aviation regulatory bodies under one entity is not only to optimise human resources and available funds, but also to increase operational efficiency and service provision. Such plans would bring the local aviation industry to the first thrust of the National Transportation Policy 2019-2030 of strengthening the governance to create a conducive environment for the transportation sector.

Implications towards MAHB. With this latest move by MOT, the implementation of the RAB framework will likely be delayed much further than expected. Notwithstanding this, we are of the opinion that a transparent framework like the RAB framework would still need to be incorporated. This is because it inculcates a discipline capex planning while enabling the recoupment of capital expenditure via aeronautical charges. With the fact that the RAB framework shifts the developmental capex obligation from the Government of Malaysia (GoM) to MAHB, we opine that this is a factor to be strongly considered to proceed with the implementation. As stated in our previous results note for MAHB dated November 2019, we reiterate that the authorities would devise sufficient mechanisms for MAHB to recoup whatever charges and returns that will be set should the RAB framework be delayed from 1 January 2020. Under the RAB framework, coming into place with the same WACC of 10.88% as per MAVCOM’s latest consultation paper, we estimate the earnings growth for FY20 to be above 12.0%yoy. Even if the RAB framework does not come into place at all, earnings are still expected to grow at a tune 9.3%yoy in FY20.

Expansion plans also likely to be put on hold. MAHB has received planning permission and early work commencement from local authorities for the Penang International Airport (PIA) expansion. The expansion is estimated to cost around RM800m-RM900m. As the proposed funding for the expansion was fully made under the RAB framework, we expect a postponement on such plans if the RAB framework implementation is delayed.

Earnings estimates. No changes made to our earnings estimates as our model has not imputed the scenario under the RAB framework.

Source: MIDF Research - 13 Dec 2019

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