• Overall, 1QCY21 results for companies under our coverage were in line, with some companies achieving highest ever quarterly performance. Semiconductor companies (MPI & Inari) and E&E-related services company (KPS) benefited from strong global demand for electronics products across all end-products.

• We expect the government’s decision to impose lockdown, allowing manufacturers operate at 60% capacity, would have less impact on companies under our coverage. Given high level of expertise in specific areas, adoption of high-technology, continuous investment in R&D as well as ability to deliver orders, a lower operational capacity would not turn away customers.

• We foresee higher online transaction volume from MYEG’s concession and commercial services following the lockdown forces people to perform higher online transactions. However, we expect GHL’s offline TPV will be impacted as only essential services are allowed to operate. Still, we believe the growing cashless payment adoption among consumers coupled with eBelia Programme of RM150 e-wallet to eventually offset the loss of contribution from non essential services.

• Maintain OVERWEIGHT for the overall Technology sector. Our buy recommendations are Inari (BUY, RM4.10 TP), MPI (BUY, RM45.00 TP), KPS (BUY, RM1.60 TP) and MYEG (BUY, RM3.00 TP).

Results were largely inline

The recent 1QFY21 results for companies under our coverage came in in line with expectations (Table 1) with some companies’ posting their highest ever quarterly performance (MPI and MYEG). This was underpinned by strong demand globally for electronics products across all end-products (smartphone, PCs, automotive, data center, and etc.) which benefited semiconductor and electrical and electronics (E&E) related services. MYEG’s earnings were supported by contribution of 1) new concession (online renewal motorcycle insurance and road tax (MIRT) and Competent Driving License (CDL)), 2) new commercial business (Covid-19-related services i.e. MySafeTravel and MySafeQuarantine, and NakBeli), and 3) increase in online transaction volume on existing services as more users opt for online channels to reduce direct contact with people during the pandemic.

Nevertheless, GHL results were below our expectation despite revenue being broadly inline with estimate. The strong revenue registered was primarily due to resilient transaction payment acquisition (TPA) business following higher transaction processing value (TPV) recorded from both card payment (RM5.0bn, +58% yoy) and e-pay (RM1.1bn, +5% yoy) as cashless transaction has become preferable option to make payment during this period. However, this was offset by lower gross profit margin per transaction due to payment type mix and merchants (smaller merchant (Tier-3 & Tier-4) used to give higher margin). Still, GHL’s core profit grew at 13% yoy to RM5.8m.

Lockdown – lesser impact on E&E-related companies

The government’s decision to impose lockdown starting 1 June to 14 June 2021 resulted in manufacturing companies (Inari, MPI and KPS) operating at 60% capacity. We expect this would not have significant impact on companies’ earnings under our coverage (Inari and MPI). To recap, during the first lockdown in March 2020, these companies did not receive any cancellation orders from their customers. In fact, they received more orders given their preparedness in handling the situation where all plants were able to operate efficiently. Besides, we believe with that highly experienced management, high level of expertise in specific areas, adoption of high-technology, continuous investment in R&D as well as ability to deliver orders, would enable these companies to retain their customers despite running at lower capacity.

MYEG – the beneficiary from the lockdown

We foresee higher online transaction volume from MYEG’s concession and commercial services following the lockdown as people are forced to stay at home as government counters are closed or require prior appointments, which would result in higher online transactions. Besides, the surge in Covid-19 cases might see an increase in contribution from MYEG’s Covid-19-related services for 2QCY2021. Meanwhile, for GHL, we expect its offline TPV to be impacted during the lockdown as only essential services are allowed to operate. Still, we believe the growing cashless payment adoption among consumers, coupled with eBelia Programme of RM150 e-wallet, to eventually offset the loss of contribution from non-essential services.

OVERWEIGHT on the sector

We maintain our OVERWEIGHT stance on the Technology sector. We believe semiconductor companies and E&E-related company under our coverage would benefit from sustained demand for electronic products across all sectors i.e. communications & consumer electronics, automotive, industrials (data center, cloud services), and etc. as the global economy starts to reopen. Besides, we foresee the speed up in digital adoption during the pandemic to continue as more people opt for online services or digital payment to reduce direct contacts while performing their daily routine. Our buy recommendations are Inari (BUY, RM4.10 TP), MPI (BUY, RM45.00 TP), KPS (BUY, RM1.60 TP) and MYEG (BUY, RM3.00 TP). We also like GHL (BUY, RM2.00 TP) as we believe the company’s continuous partnerships and collaborations with new and existing partners would translate into stronger TPV growth in the near-term.

Source: BIMB Securities Research - 1 Jun 2021