Volatility Unabated

• The FBM KLCI (+0.7%) rebounded as investors pinned their hopes on the announcement on economic stimulus towards the eleventh hour of the trading bell. The general market sentiment, however, remain downbeat with the FBM Small Cap (-1.8%), the FBM Fledgling (- 0.9%) and FBM ACE (-1.7%), all extended their losses, while the financial (+0.8%) and REIT (+0.01%) sector outperformed the broader market.

• Market breadth stayed negative as decliners overpowered the advancers on a ratio of 621-to-264 stocks. Traded volumes fell 9.1% to 3.52 bln shares amid the negative market sentiment.

• Anchoring the gainers list on the local bourse were banking heavyweights like Hong Leong Bank (+28.0 sen), Maybank (+19.0 sen) and Public Bank (+10.0 sen), while PPB Group and Hap Seng Consolidated added 44.0 sen and 34.0 sen respectively. Notable gainers on the broader market include Panasonic (+42.0 sen), Genring Plantations (+38.0 sen), Ayer Holdings (+20.0 sen), Sungei Bagan Rubber (+18.0 sen) and C.I. Holdings (+17.0 sen).

• In contrast, Carlsberg (-RM2.18), Heineken (-86.0 sen), Dufu Technology (-86.0 sen), Batu Kawan (-36.0 sen) and BAT (-34.0 sen), underperformed on the broader market. Key decliners on the FBM KLCI were CIMB (-5.0 sen), Petronas Chemicals (-5.0 sen), Petronas Dagangan (-4.0 sen), IOI Corporation (- 3.0 sen) and Genting (-2.0 sen).

• Asia benchmark indices closed on an indifferent tune as the Nikkei (-2.1%) slumped below the 22,000 psychological level following the stronger Japanese Yen. The Hang Seng Index climbed 0.3% after Budget 2020 announced HK$10,000 cash handout to each citizen to boost the ailing economy, while the Shanghai Composite added 0.1%. ASEAN stockmarket, meanwhile, closed mixed yesterday.

• U.S. stockmarkets entered into the correction territory as the Dow (-4.4%) another dive overnight to mark the worst single session of decline in history, following concern over the Covid-19 situation that yields no positive developments. Likewise, the S&P 500 (- 4.4%) tumbled below the 3,000 psychological level, while the Nasdaq sank 4.6%.

• Earlier, European benchmark indices – the FTSE (-3.5%), CAC (-3.3%) and DAX (- 3.2%), all tumbled, mirroring the weakness on Wall Street. The weakness came in light of the rising number of cases of Covid-19 in the region that offset the upbeat Eurozone’s economic sentiment that rose to 103.5 in January 2020.

THE DAY AHEAD

• Recovery on the FBM KLCI was mainly fuelled by anticipation over the government’s economic stimulus package announcement yesterday. At the same time, the stabilising market sentiment across the region also provided some mild relief following the recent selldown. However, with Wall Street dipping into the correction territory, we reckon that volatility will remain as a feature over the near term.

• With the indifference in place, we see Malaysian equities maintaining their mostly downward bias trend for longer as the buying interest is still on the modest side. For now, we see the key index attempting to build a base around the 1,500 psychological level, but gains will be capped towards the 1,515 and 1,530 levels respectively. Downside risk will remain pegged at the 1,480 level.

• Market undertone on the lower liners and broader market, however, remain downbeat amid the mixed bag of corporate earnings. With fewer leads, we think that the bouts of profit taking activities could escalate as more retail players trim their positions, particularly after the FBM Small Cap has risen some 10% over the past couple of weeks.

MACRO BRIEF

• The Malaysian Government has unveiled the RM20bil stimulus package to offset the fallout from the Covid-19 coronavirus. Highlights from the stimulus package include;

(i) Bank Simpanan Nasional (BSN) provides RM200 mln micro credit at 4% interest rate.

(ii) Malaysia Airport Holdings Bhd to cut rental for tenants, landing charges and parking fees at airports

(iii) Postponement of income tax monthly installments for income tax allowed for tourism-related companies

(iv) Bank Negara Malaysia provides RM2.00 bln guaranteed financial aid for SMEs at 3.75% interest rate

(v) All banks are required to reduce monetary burden in the form of postponement of payments or rescheduling of loans

(vi) Temporary six months discount of as much as 15% for electricity bills for hotels, tourism agencies, airlines, and shopping centres. 

(vii) Hotels to get service tax breaks from March 2020 to August 2020

(viii) In spirit of shared responsibility to overcome current challenges, government calls on industry players to play their part for hotels to offer discounts and shopping malls to reduce rental rates

(ix) Malaysia expects economic growth for 2020 to be between 3.2% and 4.2%

(x) Minimum EPF contribution by employees to be reduced by 4% from 11% to 7%, with effect from 1st April 2020 to 31st December 2020. This will potentially unlock up to RM10 bln worth of private consumption. Malaysian workers have the option to opt out from the scheme and maintain their contribution rate.

(xi) A payment of RM200 to all Bantuan Sara Hidup (BSH) recipients scheduled for May 2020 will be brought forward to March 2020. An additional RM100 will be paid into the bank accounts of all BSH recipients in May 2020. Subsequently, an additional RM50 will be channelled in the form of e-tunai.

(xii) As a result of the stimulus package, fiscal deficit estimated to increase to 3.4% of GDP from targeted 3.2%

(xiii) Grants of RM1,000 to RM10,000 for local entrepreneurs to promote the sale of their products on e-commerce platforms

(xiv) Securities Commission Malaysia and Bursa Malaysia will waive listing fees for one year, for companies seeking listing on Leading Entrepreneur Accelerator Platform (LEAP) or Access, Certainty, Efficiency (ACE) markets, as well as companies with market capitalisation of less than RM500 mln seeking listing on the Main Market

(xv) Import duty and sales tax exemption on importation or local purchase of machinery and equipment used in port operations for three years commencing 1 April 2020.

Comments

• We lauded the government’s move on the stimulus package – similar with what other countries have done over the past in view to cushion the impact of Covid-19 to the Malaysia’s economic performance.

• Key winners from the abovementioned move would be tourism-related sector, benefitting from several incentives, ranging from tax breaks to utilities discount.

• At the same time, the consumer products sector would likely to benefit from the higher disposable income stemmed from the higher cash pay-out to the BSH recipients, coupled with the reduction of minimum EPF contribution – boosting the domestic private consumption.

• On the flipside, airport operators may face margins compression in view of the cut in rental for tenants, landing charges and parking fees at airports.

• Additionally, the financial sector could potentially see short-term negative impact following the postponement of payments or rescheduling of loans.

COMPANY UPDATE

• Kimlun Corporation Bhd’s 4Q2019 net profit fell 27.1% Y.o.Y to RM16.7 mln, dragged down by the lower margins from both the construction and manufacturing & trading segments that offset the stronger property development segment. Revenue for the quarter, however, rose 3.9% Y.o.Y to RM323.0 mln.

• For 2019, cumulative net profit declined 4.5% Y.o.Y to RM58.4 mln. Revenue for the year, however, added 28.7% Y.o.Y to RM1.30 bln.

Comments

• The reported earnings came slightly above our expectations, accounting to 107.0% of our full year estimated net profit of RM54.6 mln. Meanwhile, the reported revenue came above our expectation, accounting to 114.4% of our full year revenue forecast of RM1.14 bln. The stronger-thanexpected performance is mainly due to higher-than-expected contribution from both the construction and manufacturing segment.

• Although the reported earnings came above our forecast, we trimmed our earnings estimates by 9.4% and 3.7% to RM59.4 mln and RM55.3 mln for 2020 and 2021 respectively to reflect the margins compression from the construction and manufacturing & trading segments.

• Despite the downward revision of our earnings estimates, we maintain our BUY recommendation on Kimlun, with lowered our fair value at RM1.52 (from RM1.58). We reckon that prospective PER valuations of 6.2x and 6.7x for 2020 and 2021 respectively are attractive, being at the lower-end of the construction industry average of 9.0x.

• Protasco Bhd’s 4Q2019 net profit stood at RM1.0 mln vs. a net loss of RM44.2 mln recorded in the previous corresponding quarter, lifted by the lower operational costs following the completion of its right sizing exercise at the end of 2018. Revenue for the quarter, however, decreased 10.4% Y.o.Y to RM242.2 mln, dragged down by lower contribution from the construction segment.

• For 2019, cumulative net profit stood at RM6.0 mln vs. a net loss of RM48.1 mln recorded in 2018. Revenue for the year, however, fell 9.0% Y.o.Y to RM823.6 mln. The reported earnings fell below our expectations, making up to 65.5% of our full year net profit forecast of RM9.1 mln for 2019, due to higher depreciation charges and finance costs. Meanwhile, the reported revenue exceeded our expectations, amounted to 110.8% of our full year estimate of RM743.2 mln.

Comments

• Despite the reported earnings came below our expectations, we raised our earnings estimates by 53.9% and 46.8% to RM16.0 mln and RM23.3 mln for 2020 and 2021 respectively, on the higher contribution from the maintenance and property segment, coupled with the lower effective tax rate.

• We upgrade our recommendation on Protasco to HOLD (from Sell) with a higher target price of RM0.36 (from RM0.30).

• We arrive our target price on a sum-ofparts basis by ascribing an unchanged target PER of 8.0x to its 2020 fully diluted construction earnings as well as a target PER of 8.0x (unchanged) to its fully diluted 2020 concession and engineering services’ earnings. Its education and trading units’ valuations remain pegged at target PERs of 6.0x respectively due to its smaller scale businesses, while its property development division’s valuation is derived from ascribing an unchanged 0.6x to its BV.

COMPANY BRIEF

• Malayan Banking Bhd’s 4Q2019 net profit increased 5.3% Y.o.Y to RM2.45 bln, boosted by robust performances of its community financial services, Islamic banking and insurance & takaful segments. Revenue for the quarter gained 6.1% Y.o.Y to RM12.98 bln.

• For 2019, cumulative net profit rose 1.1% Y.o.Y to RM8.20 bln. Revenue for the year climbed 11.6% Y.o.Y to RM52.84 bln. A final single-tier cash dividend of 39 sen per share, together with the interim dividend of 25 sen per share was declared. (The Star)

• RHB Bank Bhd’s 4Q2019 net profit rose 9.8% Y.o.Y to RM621.0 mln, mainly due to higher net fund based and non-fund based income and absence of one-off impairment on other non-financial assets. Revenue for the quarter increased 3.4% Y.o.Y to RM3.42 bln.

• For 2019, cumulative net profit expanded 7.7% Y.o.Y to RM2.48 bln. Revenue for the year increased 6.5% Y.o.Y to RM13.53 bln. A fourth quarter dividend of 18.5 sen per share was declared. (The Star)

• AmBank Bhd’s 3QFY20 net profit rose 9.2% Y.o.Y to RM382.2 mln, underpinned by stronger net interest income (NII) and non-interest income. Revenue for the quarter rose by 2.9% Y.o.Y to RM2.37 bln.

• For 9MFY20, cumulative net profit added 4.5% Y.o.Y to RM1.09 bln. Revenue for the period climbed 4.8% Y.o.Y to RM7.11 bln. (The Star)

• AirAsia X Bhd’s 4Q2019 net loss widened to RM95.8 mln, from a net loss of RM88.1 mln registered in 4Q2018, on higher depreciation and finance costs with the adoption of MFRS 16 Lease. Revenue for the quarter, however, rose 3.6% Y.o.Y to RM1.20 bln.

• For 2019, cumulative net loss widened to RM489.5 mln, from a net loss of RM301.5 mln recorded in 2018. Revenue for the year fell 3.9% Y.o.Y to RM4.39 bln. (The Edge)

• Genting Bhd’s 4Q2019 net profit fell 19.3% Y.o.Y to RM528.8 mln, dragged by higher taxation and lower gross profit, and as its joint ventures and associates swung to losses. Revenue for the quarter fell 1.8% Y.o.Y to RM5.30 bln.

• For 2019, cumulative net profit rose 45.2% Y.o.Y to RM2.00 bln. Revenue for the year grew 3.7% Y.o.Y to RM21.62 bln. (The Edge)

• Genting Malaysia Bhd’s 4Q2019 net profit sank 58.4% Y.o.Y to RM299.7 mln, dragged down by a huge tax credit of nearly RM304.0 mln, coupled with higher finance costs and share of losses in an associate. Revenue for the quarter fell 2.6% Y.o.Y to RM2.44 bln

• For 2019, cumulative net profit stood at RM1.40 bln, from a net loss of RM19.6 mln recorded in 2018. Revenue for the year grew 4.8% Y.o.Y to RM10.41 bln. A special dividend of nine sen per share was declared.(The Edge)

• PPB Group Bhd’s 4Q2019 net profit rose 58.1% Y.o.Y to RM350.0 mln on higher contribution from its associate Wilmar International Ltd. Revenue for the quarter grew 1.4% Y.o.Y to RM1.18 bln.

• For 2019, cumulative net profit grew 7.2% Y.o.Y to RM1.15 bln. Revenue for the year rose 3.4% Y.o.Y to RM4.68 bln. A final dividend of 23 sen per share for 2019, payable on 2nd June 2020 was declared. (The Edge)

• UMW Holdings Bhd's 4Q2019 net profit soared 11.2x Y.o.Y to RM200.5 mln, mainly due to a one-off gain for land disposals of RM188.1 mln. Revenue for the quarter grew 16.0% Y.o.Y to RM3.12 bln.

• For 2019, cumulative net profit increased 31.9% Y.o.Y to RM454.4 mln. Revenue for the quarter gained 3.9% Y.o.Y to RM11.74 bln. A final dividend of two sen per share, payable on 31st March 2020 was declared. (The Edge)

Source: Mplus Research - 28 Feb 2020