Bursa’s 4QFY19 remained weak from lingering shortcomings but we opine there are fair recovery signs to refresh the trading landscape. Commodities prices are on the rise while macros and geopolitical events could be less disruptive. We anticipate greater investor activity justified from the above to translate to better sentiment for the stock, post-2019’s gloom. BUY with a TP of RM6.50 based on 27.0x FY20E PER. We see downside to be cushioned by decent dividend yield of c.4% from an average payout of c.95%, with chances for special dividend bonuses (based on past 2-year trends).

Average daily value (ADV) stands at RM1.93bn for 2019 much like 2018 as market forces were tepid. To recap, 2019 poor trading sentiment could be attributed to: (i) paring down of contract values of various mega projects, (ii) disruptive USChina trade wars, and (iii) local currency weakness. In the first few trading days for 2020 (YTD-13 Jan), the market was spurred by rising CPO prices from RM2,000/mt to c.RM2,600/mt, painting a more robust ADV of RM1.88bn (from RM1.84b in the same 2019 period). The boon to plantation counters could reinvigorate the sector from its previous lull. Meanwhile, though US-China trade war tensions are still ongoing, its damage to market sentiment seems to be easing and may stir less discomfort amongst the foreign investors.

Anticipating FY19 to close with CNP of RM183.3m which is a 18% decline from FY18, mainly due to soft securities trading (c.50% of total revenue) landscape from the abovementioned reasons dampening total operating revenue (-9% YoY). The disparity and margin erosion came from an overrun of operating expenses, despite efforts already in place to trim certain fixed cost items (i.e. staff, technology expenses).

We also anticipate dividends of c.11.6 sen to be declared, amounting to a full-year payment of 22.0 sen from a payout of c.95%. With hopes for a better FY20, we estimate ADV to clock in at c.RM2.10bn and earnings to recover by c.5% from a healthier trading environment.

Source: Rakuten Research - 15 Jan 2020