Highlights

MIDF Sector Research

Author: sectoranalyst   |   Latest post: Thu, 5 Mar 2020, 9:19 AM

 

Tan Chong - Reaching An Inflection Point

Author: sectoranalyst   |  Publish date: Thu, 5 Mar 2020, 9:19 AM


KEY INVESTMENT HIGHLIGHTS

  • New Almera scheduled for launch in 2H20; could mark an inflection point in Nissan TIV after multi-year erosion
  • Margins slated to improve as new models are negotiated at latest forex rates
  • We forecast FY20F earnings growth of >50% off a weak base in FY19 coupled with boost from new launch cycle
  • Share price has retraced significantly in past 12 months; upgrade to BUY (TP: RM1.30) as Tan Chong approaches its earnings inflection point

New Almera launch in 2H20. At its briefing yesterday, Tan Chong revealed its plans to launch the new Nissan Almera in 2HFY20. The model is long overdue for replacement having been in the market for 8 years (initial launch in Oct-12). Details on spec and pricing is not forthcoming yet, but the current generation Almera is priced at RM69,888 to RM79,888. At its launch back in 2012, management was targeting monthly volumes of 1K-2K units/month, though actual volumes registered in the initial months of launch were much better at >2K.

Slated to improve margins. It should be noted that the current generation Almera was launched in 2012 – we presume negotiations and kit pricing would have taken place during the 2011-2012 period, when the Ringgit was at around USD:RM3.20 levels. Given significant depreciation of the Ringgit now (which is at ~USD:RM4.18 levels), the current generation Almera would have turned into a barely profitable model. However, costing for the new Almera is likely to have been negotiated closer to current forex levels, which should improve the yields generated from the model, though we would not rule out some increase in end-pricing.

Forecasting double-digit EPS growth. Our forecast factors in a +56%yoy growth in FY20F to be driven by launch of the new Almera, which should be accompanied by improved margins. We forecast an 8%yoy Nissan TIV growth off the weak base of 21,239 units in FY19. Other possible new models include the Nissan Kicks (B-segment SUV) and the new Sylphy (C-segment sedan), but these have yet to be factored into our projections. The former in particular, fills an important gap in Tan Chong’s model mix.

Recommendation. Share price have retraced significantly yet again, after the group’s weak 4Q19 results. In the past 12 months, Tan Chong’s share price has corrected by 30%. We think that the selling is overdone, notwithstanding possibly another weak quarter in 1Q20 (shorter quarter given festivities and short month in Feb). We upgrade Tan Chong to BUY (from HOLD) as we see value emerging. Our TP is unchanged at RM1.30. Tan Chong is now trading at depressed FY20F PBV of 0.3x

Source: MIDF Research - 5 Mar 2020

Labels: TCHONG
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Affin Bank - Previously Constraint by Capital Needs

Author: sectoranalyst   |  Publish date: Tue, 3 Mar 2020, 11:44 AM


KEY INVESTMENT HIGHLIGHTS

  • Earnings decline in FY20 was due to NII weakness
  • NII weakness was due to NIM compression and lower loans book. Loans book constrained by need to conserve and grow capital
  • Situation should improve in FY20
  • Good traction from consumer and SME book
  • Vigilant over asset quality
  • No change to forecase
  • Maintain NEUTRAL with revised TP of RM1.87 (from RM2.10)

Key take away – expecting improvement in income. We met with the management yesterday. Below are the key take away:

  • NII weakness from NIM compression and decline in loans book
  • The management expects loans book to expand and provide support to NII this year
  • The management expects better traction for consumer and SME segment with several enhancement to customer experience
  • The Group will remain vigilant on the impact of Covid-19 to its asset quality but it does expect more R&R

Earnings decline due to weakness in NII. Recall, the Group saw its FY19 net profit declined -3.0%yoy. However, it was within our expectations at 97.6% of our full year estimates. The main reason for the earnings decline was weaken NII, which -12.1%yoy to RM743.1m.

NII weakness came from external and internal constraint. The main contributors to the lowered NII were NIM compression and contraction in its loans book. NIM compression was due to the OPR cut in May-19 and higher funding cost. The Group had accumulated deposits in order to meet NSFR requirements. The fastest way to increase its deposits base was through fixed deposits, which caused funding cost to increase. Meanwhile, the Group also had constraint in regards to growing its asset base. Gross loans fell -6.1%yoy to RM46.0b. This was due to the fact that it needed to conserve and expand its capital.

Should be better for FY20. As for FY20, the management expects that loans book to grow as its capital position has been strengthened. Its CET1 capital and total capital ratios stood at 14.4% and 23.2% respectively. The management has guided a loans growth of 4% to 5%. This is expected to be funded via a deposits growth of the same magnitude, 4% to 5%. We opine that the Group’s loans growth target is reasonable. We also expect that it may moderate any NIM compression that will come from the OPR cut in Jan-19 and potentially another cut.

Good traction from consumer and SME. The management indicated that its strategy to focus on the consumer and SME segments have gained some traction. For example, the composition of gross loans as at end 2016 of these two sectors were 47% and 8.4% respectively. However, these have grown to 54.6% and 9.1% respectively. We believe that this will further increase in FY20 especially as the Group expects to launch several enhancements to customer experience which may attract more consumers. Also, we expect this will help moderate NIM compression with potentially more CASA

An eye on asset quality. The Group had done well to improve its asset quality with the resolution of several impaired accounts. GIL ratio as at end FY19 went down to 3.00% from 3.25% the previous year. The management expects that there will be more resolution of impaired accounts this year and GIL ratio should improve further. However, we are concern on the potential impact of Covid-19 to asset quality especially from its corporate and SME book. We do not discount the possibility of GIL ratio increasing in FY20. Nevertheless, the management indicated that it will remain vigilant and it does expect more R&R of accounts.

Maintaining forecast. We are maintaining our forecast for now as we expect only a modest growth this year.

Valuation and recommendation. We believe that the Group will continue to face with NIM compression and NII pressure this year due to the OPR cuts. However, we do expect it to be at a lower level than in FY19, and overall income should continue to grow. Also, better expansion in CASA deposits may also moderate the impact of the OPR cuts. One area that we will be keeping a close eye on will be the Group’s asset quality. For now, its GIL ratio remains stable albeit on the high side. All-in, we maintain our NEUTRAL call for the stock as we do not see any immediate catalyst. We revised our TP to RM1.87 (from RM2.10) as we peg its FY20 BVPS to 0.4x PBV.

Source: MIDF Research - 3 Mar 2020

Labels: AFFIN
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Gabungan AQRS Berhad - Brighter Prospect in FY20

Author: sectoranalyst   |  Publish date: Tue, 3 Mar 2020, 11:43 AM


KEY INVESTMENT HIGHLIGHTS

  • To recap, AQRS posted lower revenue in FY19 at RM413.0 (- 29.4%yoy)
  • The Group has fully mobilized their resources for LRT3 package since February and as a result works progress smoothly
  • Moving forward, AQRS plans to introduce new hospitality division in FY25
  • Reaffirm BUY on Gabungan AQRS at TP of RM1.42

To recap, AQRS posted lower revenue in FY19 at RM413.0 (- 29.4%yoy), dragged by the (1) recognition of liquidated ascertained damages (LAD) for The Peak in Johor Bahru amounting to RM6.7m, as well as (2) lower work progress achieved in the current quarter for construction segment. AQRS construction division reported a massive - 40.3%yoy contraction in revenue to RM84.0m in 4QFY19 due to (1) extension of completion date resulting from changes in interior design plan by the client for Pusat Pentadbiran Sultan Ahmad Shah project, and (2) new work program for LRT3 package.

Further details on the group’s 4QFY19 performance were shared during a results briefing yesterday at Gabungan AQRS.

Below are some of the key takeaways:

The Group has fully mobilized their resources for LRT3 package since February and as a result works progress smoothly. Substructure works for 2 stations, namely (1) Glenmarie Station and (2) Stadium Station, have commenced in February 2020 and will be followed by structure works. Moreover, bored piling works is at 60% progress. LRT3 work progress is anticipated to peak in 2HFY21 with estimated revenue of RM20-30m per month. It is worth noting that the scheduled completion date for LRT3 package is in FY24. However, AQRS is targeting to complete it by FY23, which can lead to (1) saving in overhead costs, and (2) improve margin.

Moving forward, AQRS plans to introduce new hospitality division in FY25 which will initially consist of its planned 4-Star Hotel under One Jesselton Waterfront Kota Kinabalu. We opine this new division will contribute positively to AQRS’s earnings as well as help the Group to achieve better overall margin

Earnings forecasts unchanged. Post 4QFY19 results briefing, we make no adjustments to our FY20/FY21 forecasts as the briefing yielded no material +/- surprises.

Reaffirm BUY on Gabungan AQRS at unchanged TP of RM1.42 from RM1.65. Our TP is derived based on a PE multiple of 10x to FY21EPS.

Source: MIDF Research - 3 Mar 2020

Labels: GBGAQRS
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Gamuda - Awarded as PDP in PTMP

Author: sectoranalyst   |  Publish date: Tue, 3 Mar 2020, 11:41 AM


KEY INVESTMENT HIGHLIGHTS

  • Gamuda was appointed as Project Delivery Partner (PDP) of PTMP
  • The Group may begin construction works (for LRT, PIL and PSR) either sequentially or simultaneously depending on the financing model
  • No changes to our earnings forecasts
  • Upgrade to BUY due to recent price weakness with unchanged TP of RM3.70

Based on the Bursa announcement dated 2nd March 2020, Gamuda was appointed as Project Delivery Partner (PDP) for the implementations of roads and public transport projects in Penang (Penang Transport Master Plan Strategy 2013-2030) (PTMP). The validity of the Letter of Award (LOA) has been extended by the State Government to 31 August 2020 vide its letter dated 28 February 2020 which was duly received and accepted by SRS Consortium on 2 March 2020.

To recap, PTMP involves the construction of an undersea tunnel connecting the island to the mainland, highways, light rail transit (LRT), monorail as well as comprehensive bus network between the island and Seberang Perai. SRS Consortium is a 60:20:20 joint venture among Gamuda, Loh Phoy Yen Holdings Sdn Bhd, and Ideal Property Development Sdn Bhd. We note that there are three projects under SRS Consortium, namely (1) the light rail transit (LRT) system, (2) the Pan Island Link (PIL) highway, and (3) the massive Penang South Reclamation (PSR). The Group may begin construction works (for LRT, PIL and PSR) either sequentially or simultaneously depending on the financing model. After this agreement, the design works will start and the LRT, the PIL as well as the reclamation work for the south island shall take place.

Impact on earnings. We make no changes to our estimates as this juncture as we lack details of the project.

Upgrade to BUY with unchanged TP of RM3.70. Due to recent price weakness, we upgrade our recommendation to BUY with an unchanged TP of RM3.70, pegging its FY21EPS to PE of 14.0x

Source: MIDF Research - 3 Mar 2020

Labels: GAMUDA
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Tan Chong Motor Holdings Berhad - Betting on a Slew of New Launches

Author: sectoranalyst   |  Publish date: Mon, 2 Mar 2020, 11:42 AM


KEY INVESTMENT HIGHLIGHTS

  • FY19 missed expectations
  • Core earnings halved on weaker volumes and margin contraction
  • FY20F/21F earnings revised down by 6.3%/6.7%
  • Notwithstanding the revision, we still forecast a doubledigit growth in FY20F from expected launch of the N18 Almera
  • Maintain NEUTRAL at lower TP of RM1.30

FY19F earnings disappointed. Tan Chong reported core net profit of just RM10m for its 4Q19, bringing FY19 core earnings to RM47m. This is weaker than expected, accounting for 93% and 76% of our and consensus estimates respectively. A key deviation was lower than expected sales volume for Malaysia and higher than expected tax rate. Group core earnings fell by 85%yoy driven by a 17%yoy contraction in revenue and much lower margins (operating margins were down 4.3pp year-on-year). The drag came mainly from the group’s auto division and forex losses incurred from financing overseas units (vs. a gain in 4Q18).

Double whammy. Tan Chong’s 4Q19 auto division revenue fell 17%yoy on the back of a 29% decline in Nissan TIV. On top of this, margins were impacted by a weaker Ringgit in 4Q19 (estimated USD:RM4.15 vs, USD:RM4.09 in 4Q18). EBITDA for the auto division fell by 26%yoy. Nissan (Malaysia) saw market share deteriorate to 3.5% in FY19 from 4.8% in FY18.

New launches. Despite the drag surrounding Tan Chong’s FY19, the group is looking at several new launches from FY20F onwards, which should provide a boost to earnings going forward. The new N18 Almera (B-segment sedan), launched in Thailand in Nov19, is likely to see a launch here in the near future. Other than Almera, other possible new models include the Kicks (B-segment SUV) and the new Sylphy.

Earnings revision. Given the weaker than expected results, we trim our FY20F/21F by 6.3%/6.7%. Despite the cut, we still expect Tan Chong to register strong double-digit earnings growth in FY20F driven by new model launches, which more importantly, is based on costing which is pegged to the latest foreign exchange rates. Risk to our forecasts however, is weaker than expected volumes from deteriorating consumer sentiment and stiff competition given model replacement cycle of a major competitor.

Recommendation. Maintain NEUTRAL on Tan Chong at a lower TP of RM1.30 (from RM1.40 previously) following the downward earnings revision in this report. FY20F PE of 11x and dividend yield of 3.2% is not exactly attractive, but Tan Chong is trading at depressed FY20F PBV of 0.3x.

Source: MIDF Research - 2 Mar 2020

Labels: TCHONG
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CIMB Group Holdings Berhad - Income Growth Despite NIM Compression

Author: sectoranalyst   |  Publish date: Mon, 2 Mar 2020, 11:41 AM


KEY INVESTMENT HIGHLIGHTS

  • Normalised earnings within expectations
  • Normalised net profit growth from robust income growth
  • NII resilient despite NIM compression, supported by loans growth
  • OPEX increase from investments but likely to normalise
  • Robust growth in deposits
  • Final dividend of 12sen; full year dividends 26sen
  • No change to FY20 and FY21 earnings forecast
  • Maintain BUY with revised TP of RM5.70 (from RM6.30)

Normalised earnings within expectations. The Group reported FY19 normalised earnings of RM5.01b which was within ours and consensus' expectations. It came in at 100.5% and 100.9% of respective full year estimates. The normalised earnings for FY19 and FY18 excludes transformational cost, write off of intangible assets and and gains from divestments.

Normalised net profit growth due to income growth. Normalised net profit grew +7.7%yoy supported by total income growth of +8.2%yoy. Both NII and NOII had robust growth, with +6.3%yoy and +12.9%yoy respectively. NII expansion was driven by loans growth while trading and fx income.

NIM compression moderated by loans growth. There was marginal NIM compression of -4bp yoy due to Malaysia and Thailand, while Indoesia NIM improved. The NIM compression was moderated by gross loans growth where it grew +6.7%yoy to RM369.5b. Main contributor was consumer banking and wholesale banking which rose +9.0%yoy to RM184.9b and +7.2%yoy to RM119.1b respectively. Based on geography and excluding fx fluctuations, Malaysia saw loans growth of +6.0%yoy and Thailand was +6.1%yoy. Meanwhile in Indonesia and Singapore grew +3.0%yoy and +3.7%yoy respectively.

Rise in normalised OPEX due to investments. Reported OPEX grew +14.4%yoy to RM1.64b due to one-off transformational cost which includes the MSS cost in Indonesia. Normalising these costs, OPEX grew +9.8%yoy driven by investments and Forward23 related expenses. Admin & General cost saw cost increasing +17.1%yoy to RM1.68b, and personnel cost rose +9.6%yoy to RM5.4b. We noted that the underlying OPEX rose at a more manageable 4.2%yoy.

Slight uptick in GIL ratio but manageable. GIL ratio as at 4QFY19 went up by +3bp yoy to 3.1%. Loan provisions rose +14.5%yoy mainly contributed by Indonesian corporate. However, credit cost of 0.44% was within guidance.

Robust growth in deposits. Group deposits rose +5.8%yoy to RM401.7b. Again, consumer banking and wholesale banking were the main contributors to the growth. It grew +8.9%yoy to RM179.0b and +4.5%yoy to RM157.0b respectively. CASA had solid growth as highlighted by the increase of CASA ratio to 34.4% from 32.7% as at 4QFY19.

Source: MIDF Research - 2 Mar 2020

Labels: CIMB
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