Highlights

MIDF Sector Research

Author: sectoranalyst   |   Latest post: Mon, 1 Jun 2020, 10:33 AM

 

Affin Bank - Building Up Loan Loss Reserve

Author: sectoranalyst   |  Publish date: Mon, 1 Jun 2020, 10:33 AM


KEY INVESTMENT HIGHLIGHTS

  • Results were within expectations
  • Strong PPOP growth but moderated by higher provisions
  • As a result, net profit declined -10.0%yoy
  • NIM improved but NII declined as gross loans contracted
  • Deposits continue to be led by fixed deposits but rate could have been lower
  • GIL ratio improved but remains elevated
  • No change to earnings forecast
  • Maintain NEUTRAL with revised TP of RM1.65 (from RM1.55)

Within expectations. The Group posted an earnings of RM123.6m in 1QFY20, which was within expectations. It came at 26.7% and 23.2% of ours and consensus’ estimates respectively.

Strong income performance…The Group saw a very strong income growth of +33.4%yoy resulting PPOP to expand +77.4%yoy. Main driver was NOII which grew +80.6%yoy. The sharp increase in NOII was due to gains in financial instruments which came in at RM207.6m vs. RM71.5m in 1QFY19. We believe that this could be the result of treasury activities which took advantage of the fall in MGS and GII yields in the quarter.

…moderated by provisions. However, despite the strong PPOP growth, net profit declined -10.0%yoy. Income growth was moderated by a rise in provisions which came in at RM118.1m. Comparatively, there was a net write back of RM9.9m in 1QFY19. We understand that this was to build up the Group’s LLC. Also, we opine that this was a deliberate decision to be more prudent to take into account the expected economic fallout from the Covid-19 pandemic and movement control order (MCO) imposed.

NIM improved but NII declined. NII (including Islamic banking income) fell -2.5%yoy to RM293.1m. This was despite NIM improving +25bp as the Group managed to lower its funding cost. We believe that the contraction in NII was due to lower gross loans growth.

Gross loans contracted due to HP. Gross loans fell -4.0%yoy to RM24.2b. This was due to a contraction in hire purchase loans of - 14.9%yoy to RM10.3b on higher repayments. However, the rise in mortgages of +7.3%yoy to RM11.8b was able to moderate this decline.

Better fixed deposits rate? Total deposits grew +6.2%yoy to RM20.7b led by fixed deposits (FD) which expanded +6.2%yoy to RM20.7b. However, the fact that NIM improved led us to postulate that the Group managed to take advantage of the OPR cuts in the quarter to book in FDs with lower rates. CASA growth was higher at +8.8%yoy and remains the primary focus for the Group. However, with a balance of RM3.7b, we believe it has yet to be impactful.

GIL ratio improved but remains elevated. GIL ratio saw an improvement of -20bp yoy. However, we believe that it remains elevated at 3.11%.

Source: MIDF Research - 1 Jun 2020

Labels: AFFIN
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PPB - Film business expected to remain loss-making

Author: sectoranalyst   |  Publish date: Mon, 1 Jun 2020, 10:32 AM


KEY INVESTMENT HIGHLIGHTS

  • 1QFY20 normalised earnings decline -28.2%yoy to RM205.7m, lower than ours and consensus expectation
  • Core businesses suffered setback, with the film exhibition and distribution business impacted the most
  • Contribution from Wilmar also came in lower by -14.5%yoy to RM165m from RM193m as at 1QFY19
  • The core businesses expected to recover gradually with the exception of the film exhibition and distribution business
  • Maintain NEUTRAL with a revised TP of RM17.95

Double digit decline in earnings. PPB Group Bhd (PPB) 1QFY20 normalised earnings came in at RM205.7m, a decrease of -15.5%yoy. Lower contribution was recorded across all its core businesses as well as from its associates, Wilmar. All in, the group’s 1QFY20 financial performance came in below ours and consensus expectations, accounting for 16.3% and 18.2% of full year estimates respectively.

Core business comes under siege. All of PPB’s core businesses have been adversely impacted by the advent of the Covid19 pandemic. Nonetheless, the film exhibition and distribution business has been impacted the most. In the foreseeable term, we expect the outlook for the film exhibition and distribution business to remain very challenging which will place it in a loss-making position. Note that historically this segment is the group’s second largest contributor after the grain and agribusiness segment.

Impact to earnings. We are revising downwards the contribution across all the business segments while we expect the film exhibition and distribution business is expected to remain loss-making. In addition, we also factor in lower contribution from Wilmar. As a result, FY20/21/22 earnings estimates have been revised lower to RM874.1m/RM1,000.8m/RM1,047.2m respectively.

Target Price. Post our earnings adjustment, we are lowering our target price to RM17.95 (previously RM18.60). This is premised on PBV of 1.1x which is the share’s two year historical average.

Maintain NEUTRAL. The group’s suffered a setback across all of its core businesses which is brought about by the Covid19 pandemic. In particular, the film exhibition and distribution business is impacted the most. While we expect the majority of the core businesses would gradually return to normalcy, we opine that the film exhibition and distribution to remain loss-making in the foreseeable term. Nonetheless, we expect the contribution from its associate, Wilmar, will provide support to the group’s weakened earnings capability. All factors considered, we are maintaining our NEUTRAL recommendation at this juncture.

Source: MIDF Research - 1 Jun 2020

Labels: PPB
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RHB Bank BHD - Performed Well Given the Circumstances

Author: sectoranalyst   |  Publish date: Mon, 1 Jun 2020, 10:29 AM


KEY INVESTMENT HIGHLIGHTS

  • Results were in line with expectations
  • Earnings weighed down by additional provisioning set aside for Covid-19 effects. A prudent move in our opinion
  • Net fund based income grew despite OPR cuts
  • NIM compression was moderated by CASA deposits growth
  • Asset quality remains stable
  • No change to FY20/FY21/FY22 earnings forecast
  • Maintain BUY with revised TP of RM5.25 (from RM5.10) as we rollover valuation to FY21

Results were in-line. The Group posted 1QFY20 earnings of RM570.9m, which was -9.4%yoy lower. Nevertheless, its performance was within expectations. It came in at 26.5% and 24.9% of ours and consensus’ full year estimates respectively.

Earnings affected by higher provisions. Main drag for the earnings was higher provisions in the quarter where it went up +58%yoy. As such, credit cost rose +12bp yoy. Nevertheless, this was mainly due to the Group setting aside an additional RM50m in provisions for Covid-19 effects. In our opinion, this was prudent given the uncertain impact of the pandemic and the movement control order (MCO). If we were to omit this, provisions would have only increased +5.8%yoy and that was due to write backs in 1QFY19.

Good net fund based performance considering OPR cuts. Net fund based income grew +4.4%yoy to RM1.26b. This was commendable given the OPR cuts seen in 1QFY20. In fact, NIM compressed -5bp yoy only. The net fund based income growth was due to stable gross loans growth. We also believe that it came from Islamic banking as Islamic banking income expanded +17.4%yoy.

NOII weighed down by treasury income. NOII fell -9.3%yoy to RM484.8m. It was weighed down by decline in treasury income which contracted -38.1%yoy to RM126.8m. It was led by -28.8%yoy decline in gains and mark-to-market in securities, to RM73.3m.

OPEX well contained. OPEX was relatively flat, marginally decreasing by -0.6%yoy. All OPEX components fell except for personnel expenses which grew +1.9%yoy to RM517.5m.

Decent gross loans growth given current climate. Gross loans grew +3.6%yoy to RM176.2b. It was driven by mortgages, SME and Singapore operations. These grew +8.3%yoy to RM90.0b, +4.6%yoy to RM20.1b and +20.2%yoy to RM14.7b respectively.

Deposits growth matching loans growth. Total deposits expanded +3.8%yoy to RM194.0b. More importantly, it was led by CASA which grew +16.4%yoy to RM53.2b, while fixed deposits declined marginally. We believe that this had moderated the effect of the OPR cuts which resulted in minor NIM compression and the net fund based income performance.

Source: MIDF Research - 1 Jun 2020

Labels: RHBBANK
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Hong Leong Financial Group - Impacted by Challenging Environment

Author: sectoranalyst   |  Publish date: Mon, 1 Jun 2020, 10:28 AM


KEY INVESTMENT HIGHLIGHTS

  • Results met with expectations
  • HLB’s earnings dragged by lower income and higher provisions
  • Slowdown in insurance division
  • Small growth in investment banking
  • No change to earnings forecast
  • Maintain NEUTRAL with revised TP of RM14.10 (from RM17.00)

Met expectations. HLFG 9MFY20 net profit of RM1.33b met our expectations but below consensus’. It came at 73.1% of our revised full year estimates while at 69.4% of consensus' full year estimates. The earnings was weighed down by Hong Leong Bank (HLB) and insurance segment’s performance.

HLB earnings affected by lower income and higher provisions. HLB’s PPOP in 3QFY20 PPOP fell -7.2%yoy, moderting its 9MFY20 PPOP to grow +4.9%yoy. NII in 3QFY20 came in lower by -2.1%yoy due to NIM compression of -16bp yoy following from the OPR cuts in the quarter. In terms of provisions, it increased in 3QFY20 with credit cost going up +34bp yoy. This was due to ECL buffers of RM65m set aside to take into account the effect of Covid-19 pandemic and the movement control order (MCO).

However, gross loans expanded strongly, by +6.6%yoy to RM142.4b as at 3QFY20. Major drivers were residential properties, domestic business enterprise and surprisingly in Singapore. These grew +8.9%yoy to RM71.8b, +4.6%yoy to RM40.5b and +14.2%yoy to RM5.6b respectively. In terms of business enterprise segment, the key contributors were SME and community SME banking as it expanded +1.7%yoy to RM21.2b and +33.5%yoy to RM7.1b respectively.

HLB’s GIL ratio saw another uptick on a sequential quarter basis. GIL ratio went up +14bp qoq to 0.98%. However, we consider this to be still very manageable and the management expect it to normalize in 4QFY20. Deposits grew +3.0%yoy to RM167.9b. CASA saw good growth with +11.8%yoy to RM44.3b outpacing FD growth of +3.9%yoy to RM95.6b. This could be due to depositors ensuring sufficient cashflows.

Slowdown in insurance division. Insurance division (HLAH) segmental profits fell -86.1%yoy. This was due to lower interest rates and a few one-offs impact. HLA’s management expense ratio was 6.3% in 9MFY20, remaining among the lowest in the industry.

Growth in Investment Banking results. Investment Banking recorded improved performance as its PBT grew +3.8%yoy. This was mainly due to higher contribution from the asset management, investment banking and stockbroking divisions.

Source: MIDF Research - 1 Jun 2020

Labels: HLFG
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Hong Leong Bank - Earnings Pullback Within Expectations

Author: sectoranalyst   |  Publish date: Mon, 1 Jun 2020, 10:24 AM


KEY INVESTMENT HIGHLIGHTS

  • Decline in 3QFY20 net profit but results were within expectations
  • Lower income dragged 3QFY20 earnings
  • Higher provisions due to ECL buffers
  • Strong loans growth despite challenging environment
  • Uptick in GIL ratio, quarter-on-quarter basis
  • No change to FY20/FY21/FY22 earnings forecast
  • Maintain NEUTRAL with unchanged TP of RM13.60

Within expectations. Hong Leong Bank (HLB) reported lower earnings in 3QFY20. This resulted in marginal decline of -0.7%yoy in its 9MFY20 net profit. However, this was within ours and consensus expectation coming in at 74.5% and 75.8% of respective full year estimates.

Lower performance in 3QFY20 dragged net profit. PPOP in 9MFY20 grew +4.9%yoy due to performance in 1HFY20 as 3QFY20 PPOP fell -7.2%yoy. NII in 3QFY20 came in lower by -2.1%yoy due to NIM compression of -16bp yoy following from the OPR cuts in the quarter. However, strong loans growth moderated this impact.

NOII growth from trading income. NOII in 9MFY20 grew +6.2%yoy. This was driven by trading & investment income expansion of +29.0%yoy to RM334m.

Higher provisions due to ECL buffers. Provisions increased in 3QFY20 with credit cost going up +34bp yoy. This was due to ECL buffers of RM65m set aside to take into account the effect of Covid-19 pandemic and the movement control order (MCO). We expect to see the full impact in 4QFY20. Management expects credit cost to rise within the next 6 month between 10-13bp and on a stress scenario, 25bp.

Strong loans growth despite the challenging environment. Gross loans expanded +6.6%yoy to RM142.4b as at 3QFY20. Major drivers were residential properties, domestic business enterprise and surprisingly in Singapore. These grew +8.9%yoy to RM71.8b, +4.6%yoy to RM40.5b and +14.2%yoy to RM5.6b respectively. In terms of business enterprise segment, the key contributors were SME and community SME banking as it expanded +1.7%yoy to RM21.2b and +33.5%yoy to RM7.1b respectively.

Uptick in GIL ratio. HLB’s GIL ratio saw another uptick on a sequential quarter basis. GIL ratio went up +14bp qoq to 0.98%. However, we consider this to be still very manageable and the management expect it to normalize in 4QFY20.

Good pickup in CASA. Deposits grew +3.0%yoy to RM167.9b. CASA saw good growth with +11.8%yoy to RM44.3b outpacing FD growth of +3.9%yoy to RM95.6b. This could be due to depositors ensuring sufficient cashflows.

No revision in earnings forecast. As the results were within our expectations, we are maintaining our FY20/FY21/FY22 earnings forecast.

Source: MIDF Research - 1 Jun 2020

Labels: HLBANK
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Scicom (MSC) Berhad - EMGS Segment May be Affected in 4Q

Author: sectoranalyst   |  Publish date: Mon, 1 Jun 2020, 10:23 AM


KEY INVESTMENT HIGHLIGHTS

  • 9MFY20 earnings within expectation
  • 3QFY20 CNI improved by 2.8%yoy to RM5.1m
  • Sequentially, CNI dropped 17.9%qoq while revenue dipped by 1.8%qoq
  • FY20E/FY21F earnings estimates cut by 9.6%/4.8%
  • Maintain NEUTRAL with a revised TP of RM1.05

9MFY20 earnings within expectation. Scicom’s 9MFY20 core net income (CNI) of RM17.7m met expectations at 77.7% and 74.6% of ours and consensus’ full year estimates respectively. The company has announced an interim dividend of 1.0sen, bringing YTD dividend to 4.0sen, which is slightly below our full year estimates of 6.0sen.

3QFY20 CNI improved by +2.8%yoy to RM5.1m, backed by revenue that increased by +10.9%yoy to RM45.0m. The higher income during the quarter can be attributed to higher contribution from some of its business process outsourcing (BPO) clients. We believe that the movement control order (MCO) has resulted in a spike in activities for its customers that has exposure to the e-commerce segment. During the MCO, the management was able to place more than 90% of its staff to work from home. On top of that, it was able to recruit additional headcount to support the higher volume of jobs requested by its customers to manage the increase in contact volume during the period. On the other hand, we believe that the Education Malaysia Global Services (EMGS) segment had been adversely affected as foreign students could not apply to study in Malaysia due to the Covid-19 pandemic.

Sequentially, CNI dropped -17.9%qoq while revenue dipped by -1.8%qoq. We believe that the EMGS segment registered weaker numbers compared to 2QFY20 due to lockdowns that happened in different cities in light of the Covid-19 pandemic. This was cushioned by the higher number of jobs from the BPO segment.

FY20E earnings estimates cut by 9.6% as we anticipate that the EMGS segment may be hit harder by the MCO and lockdowns in the region. Looking ahead, we expect 4QFY20 CNI to be further dampened by the lower number of student applications processed under the EMGS segment. In view of the current uncertainties, we also take a more conservative view on the dividend payout and cut our FY20E DPS to 5.0sen from 6.0sen. However, income from its collaboration with Qualitas for the Covid-19 integrated testing platform may cushion the impact of the slowdown in EMGS. We also trimmed our FY21F earnings by -4.8% as we expect a gradual recovery in the EMGS segment while we anticipate a conservative take up rate of the Covid-19 integrated testing platform due to the lack of enforcement for compulsory screening for now.

Source: MIDF Research - 1 Jun 2020

Labels: SCICOM
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