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Wednesday, September 28, 2016

Companies in Focus: EcoWorld, IOI Corp, E&O, Sime Darby, Superlon, Ranhill, George Kent

EcoWorld, IOI Corp, E&O, Sime Darby, Superlon, Ranhill, George Kent

Some of these companies are likely to be in focus given the recent announcement, rumours and news surrounding them.

Eco World Development Group Bhd

The Group's third quarter net profit was almost 5x higher at RM44.58 million, compared with the RM9.39 million it recorded a year earlier.

The group attributed the higher earnings for the quarter ended July 31 (3QFY16) to higher sales from launched projects during the quarter. Revenue rose almost 60% to RM727.34 million from RM454.28 million.

For the first nine months of the FY16, net profit was about four times higher at RM99.93 million, compared with RM24.26 million it netted in the same period of FY15. Revenue rose 76% to RM1.81 billion from RM1.03 billion.

IOI Corp Bhd

Operations of IOI Corp Bhd at Rotterdam port have been blocked by greenpeace activists, accusing the group of forest destruction and child labour according to a report by Reuters. 

Ten activists are blocking IOI, one of the world's biggest producers and traders of palm oil, from accessing its refinery, and the Greenpeace ship Esperanza is preventing oil from being unloaded from incoming tankers, Greenpeace said.

In April, the Roundtable for Sustainable Palm Oil withdrew IOI's 'sustainability certification' after allegations the company had illegally chopped down rainforests in Indonesia and planted palm crops on peatland.

But the body announced in August that IOI had satisfied conditions for the suspension to be lifted, a move that has sparked sharp criticism from environmental groups.

Eastern & Oriental Bhd and Sime Darby Bhd

According to the filing with Bursa today, Eastern & Oriental Bhd (E&O) saw Sime Darby Bhd reducing their stake in the company by 5.5% to RM323.3 million from RM342.2 million.

On June 3, the conglomerate announced that it was disposing of the 10% stake in E&O — comprising 125.98 million shares at RM2.60 each and 48.8 million convertible warrants at 30 sen each — to Paramount Spring Sdn Bhd.

In a filing today, Sime Darby said it is lowering the disposal price of the shares to RM2.45 each, but the disposal price of the convertible warrants stays at 30 sen each.

Paramount Spring is a private investment vehicle of E&O group managing director Datuk Seri Terry Tham Ka Hon. It was reported then that the disposal would result in Tham upping his stake in E&O from 11% to 21%.

The new price better reflects the current outlook of the property sector according to Tan Sri Mohd Bakke Salleh, Sime Darby's president and group chief executive. 

Superlon Holdings Bhd

Superlon Holdings Bhd's first quarter net profit jumped 57% to RM6.05 million from RM3.86 million a year earlier, due to favourable exchange rate movements, growth in margin from growth in sales volume, and lower material costs.

Revenue for the quarter ended July 31 climbed 16% to RM25.63 million from RM22.11 million.

The group, which had just paid a 2.5 sen interim dividend on Aug 4, did not propose any further payout.

Ranhill Holdings Bhd

Ranhill Holdings Bhd has proposed to sell to Singapore-listed SIIC Environment Holdings Ltd a 60% stake in Ranhill Water (Hong Kong) Ltd (RWHK) for 273.9 million renminbi (RM169.11 million).

According to its bourse filing, Ranhill said it has, together with its wholly-owned subsidiary Ranhill Water Technologies (Cayman) Ltd (RWT Cayman), which is the holding company of RWHK, signed a sale and purchase agreement with SIIC and Asia Wisdom Investments Ltd, which is an indirect wholly-owned subsidiary of SIIC for the proposed divestment.

As part of the terms, RWHK will undertake an internal restructuring prior to the completion of the divestment, by transferring its 51% interest in Ranhill International Trade (Hong Kong) Investment Ltd and its 100% interest in Ranhill Venture (Hong Kong) Ltd to RWT Cayman.

Following the internal restructuring, RWHK, together with its remaining subsidiaries and joint venture, will be the assets involved in the proposed divestment.

George Kent (M) Bhd

George Kent (M) Bhd’s net profit soared 142% to RM20.51 million or 5.5 sen per share for the second quarter ended July 31, 2016 (2QFY17), from RM8.47 million or 2.3 sen per share a year earlier.

Revenue jumped 44% to RM164.77 million, from RM114.66 million, the group said in a statement today.

It declared an interim single-tier dividend of 3 sen per share for the year.

George Kent said the jump in earnings was mainly contributed by higher contributions from its engineering and metering divisions.

The engineering division recorded a 120% increase in profit, driven by steady progress of ongoing construction projects, while the metering division saw a 24% improvement in profit, due to higher sales.

For the first half of the financial year (1HFY17), net profit almost doubled to RM35.52 million, from RM18.34 million; while revenue rose 66% to RM287.73 million, from RM173.69 million.

George Kent chairman Tan Sri Tan Kay Hock said the group is on track for another record yearly performance for FY17.

Brokers Report: Telekom Malaysia Bhd - on track for better dividends in 2017

Retain outperform recommendation with unchanged target price (TP) of RM8.21

Telekom Malaysia's mobility brand, Webe going to wider audience on Sep 30

Telekom Malaysia’s (TM) mobility brand, Webe, initially released only to selected TM customers, is finally opening up to the wider audience on 30 Sept. Expansion of the broadband business and improved network quality supported better average revenue per user (ARPU). At the same time, TM’s capital expenditure which peaks in 2016 may pave the way for better dividend payouts in 2017. On the back of strong growth and yield prospects, MQ research retains its outperform recommendation on the telecommunication company.


MQ Research reiterates their outperform recommendation on Telekom Malaysia following a non-deal roadshow with senior management in the US recently. It was very clear from the meetings that TM was concentrated on executing on its broadband business both in the wireline and wireless space. Increased coverage provided room for subscriber increases while improved network quality and content supported average revenue per user (ARPU) increase. In the wireless space, TM’s webe is about to be opened up to a wider audience on 30 Sept, paving the way for the next element of growth. With capex peaking, and no significant draw on cash ahead, 

MQ Research maintains their view that TM’s dividends are also set to rise from FY17 as FCF yields rise above 4% in FY17. With superior growth and yield prospects relative to more richly valued mobile operators (7.0x EV/EBITDA vs 12-14x), TM remains MQ Research’s top telecoms pick in Malaysia.


Webe execution focused. While management refrained on issuing operating stats on webe, they were encouraged by the early experiences and it is now confirmed that webe will be made available to a wider audience from 30 Sept. The “controlled launch” has helped TM work through typical teething issues and also evaluate its network rollout ie giving it the opportunity to roam on Celcom’s 3G network in lower traffic areas. Webe is seen as a value added service to TM’s fixed broadband base as well as a means to expand its offerings to Enterprise customers rather than a standalone product. A prepaid offering will be made available in 2017.

Fixed broadband – expand and upsell. Demand for TM’s Unifi (fibre) service remains robust and the expansion under the Sub-Urban Broadband Project (SUBB) and High Speed Broadband Project Phase 2 (HSBB2) projects is helping drive take up. Meanwhile, take up of its IPTV service, HyppTV, which together with higher speed offerings has supported Unifi’s healthy ARPU trend. TM has rejigged its content offerings and recently decided to drop the English Premier League content which MQ Research believes would have cost c.RM80m pa, as it was not generating the expected returns.

Capex peaking, more returns ahead? Management confirmed that TM’s capex will peak in 2016 (MQ est RM3.5bn) and ease towards a long term capex to sales ratio in the mid to high teens – consistent with MQ Research’s estimates. While TM’s dividend policy remains unchanged ie RM700m or 90% of profits whichever is higher, management felt that there was no need to hoard cash.

Price catalyst

12-month price target: RM8.21 based on a DCF methodology.

Catalyst: Continued delivery of operational and financial results

Action and recommendation

Outperform reiterated.

Source: Macquarie Research - 27 Sep 2016

Market Daily Report: KLCI fell 4.78 pts as Budget Day draws closer

The FBM KLCI fell by 4.78 points or 0.3% as Budget day 2017 draws closer and speculators are looking at a possible early election in the country as well.

The KLCI closed at 1,664.72 points as at closing.

FBM KLCI fell by 4.78 pts as Budget day 2017 draws closer
The market has been heading south throughout the day in general with the benchmark falling to as low as 1,661.58 before recovering towards the closing.

There have been speculation that the upcoming budget 2017 in the country will be an election budget, creating anxieties and uncertainties on the initiatives that the government could implement.

Analysts and fund managers are expecting the market to be fluctuating in the short and mid-term according to the report by

Unlike Malaysia, Asian shares have shown slight recovery.

Bursa Malaysia saw a rather low volume today with 1.49 billion shares traded, worth about RM1.85 billion. British American Tobacco (M) Bhd lead the gainers today while UMW Holdings Bhd is at the other end of the table. Sanichi Technology Bhd was the most active counter today.

Tuesday, September 27, 2016

Market Daily Report: KLCI down despite steel counters rally

The FBM KLCI fell 1.49 points or 0.1% despite the steel counters rally. The decline was in line with Asian stock markets that sank on Monday. 

FBM KLCI down slightly
As at 5pm today, the KLCI closed at 1,669.5 points. The decline was even worse at 1,665.41 before a slight rebound towards closing. Across Bursa Malaysia, 1.64 billion shares valued at RM1.57 billion were traded. There were 324 gainers and 484 decliners.

Reuters reported that the decline was likely after last week's gain as investors shifted their attention from central banks to the much anticipated US presidential debate. 

Today, Japan's Nikkei 225 dipped 1.25% while Hong Kong's Hang Seng fell 1.56%.

For Bursa Malaysia, the top gainer was Hong Leong Bank Bhd while the top decliner was DKSH Holdings (M) Bhd. The most active counter was Hiap Teck Ventures Bhd.

MSN Money News

MSN Money News

MSN Money News

This will be something new for the blog categories. I'm a firm believer of ways to summarize input of information given the lack of time and resources. One of the ways to do that was through MSN Money, where I find some of the news of the day.

Here are some of those that I've got and will share it with the readers on a more consistent basis.


Stocks were lower Monday as Wall Street shifted its focus from interest rate policy to politics and traders braced for the first presidential debate between Hillary Clinton and Donald Trump.

The Dow was down 140 points, the Standard & Poor's 500 was off by 0.7%, and the Nasdaq was down by 0.8%.

"Tonight's debate starts the election's critical point for stock investors," 

Dan Clifton, a Washington policy analyst at Strategas Research Partners, told clients in a research note before the opening bell. "Few events can move the needle as much as the first presidential debate -- with the average polling change from the first debate about 3 points."

The polls are narrowing heading into the first debate, which at least one Wall Street pro says is tantamount to a heavyweight boxing match and which is expected to draw a TV audience of as many as 100 million, or Super Bowl proportions. A Sept. 22 Washington Post/ABC News poll of likely voters had the two candidates virtually in a dead heat, with Clinton leading Trump by a 46% to 44% margin, but well within the 4.5 percentage point margin of error.

[Source: USA Today]


For more than a year, Wall Street pros had been treating Donald Trump's candidacy as a sideshow not to be taken seriously and with little chance of victory. 

Now, with the first debate set between Trump and Hillary Clinton, and with polls showing the race a virtual dead heat, it's not a joke anymore. 

Instead, top investment minds on the Street are providing clients advice on how to position ahead of the election. Those scenarios now are taking into serious consideration what would happen should Trump prevail. 

And prevail he might: The Real Clear Politics polling average gives Clinton just a 1.5-point lead in a four-way race. Nate Silver's FiveThirtyEight site has Trump holding a 48.5 percent chance in the polls-only forecast (51.5 percent for Clinton), the highest the GOP candidate's been since July 31 and up dramatically from a low of 10.8 percent on Aug. 14. However, the site's "Now-cast" projection of who would win the race if it was held today assigns a 54.9 percent to a Trump victory. 

Previous surveys have indicated that at least 70 percent of Wall Street strategists expect a Clinton win.

The forecasts for Trump win, though, aren't as extreme as might be expected.

In fact, several strategists believe a Trump presidency might not bring about radical change, despite the New York businessman's pledge to revamp long-established trade deals, slash taxes for businesses and individuals and demolish the government-run healthcare program. 

That's primarily because even in the scenario where the Republican prevails, the greater likelihood is that he'll have to deal with a divided Congress where it's difficult to push through major initiatives. Morgan Stanley analysts call this scenario "policy incrementalism" and believe that it's the most likely outcome regardless of who wins the presidency. 

However, should Trump win and hold majorities in both halls of Congress, the potential for greater change increases. 

"While Clinton still appears to enjoy greater support for the presidency than Trump, the market impacts of a Trump presidency cannot be dismissed as a tail risk," fixed income strategists at Morgan Stanley said in a report for clients. 

The report broadly notes that investors need to prepare better for market volatility as the election nears, a sentiment common on the Street. 

[Source: CNBC]

Wells Fargo CEO could get more than $123 million if he walks

Wells Fargo CEO John Stumpf stands to walk from the bank with $123.6 million in severance and stock value if he retires from the bank, which is still reeling from a scandal where millions of accounts were inappropriately opened for customers. 

Stumpf's $123.6 million in potential retirement walking money, as calculated by pay consulting firm Equilar as of mid-September, is the sum of Stumpf's $25.2 million in retirement payments, plus a $20 million pension, deferred compensation of $4.3 million as well as the $74 million in stock he already owns. Neither Stumpf nor Wells Fargo has stated the CEO's continued employment is in doubt, but he is eligible for the bank's retirement plan. Wells Fargo declined to comment on this story.

Seeing such a large retirement package gets to the essence of the grilling Stumpf, 62, took on Congress this month. Stumpf confirmed no high-ranking officials have been fired or monetarily punished as a result of the alleged fraud. Wells Fargo, though, fired more than 5,000 low-level bank employees for secretly opening millions of accounts to meet aggressive sales targets set by management. U.S. Sen. Elizabeth Warren, D-Mass., tore into Stumpf for not taking responsibility for the fraud. Stumpf testified the bank has reformed its sales practices and the board is evaluating further steps. Stumpf is already the best-paid bank CEO, pulling down $19.3 million last year. 

Stumpf would surely prefer to retire, even if asked to do so by the board, as opposed to being terminated. Stumpf would forfeit his claim to the $25.2 million retirement benefit in the case of involuntary termination for cause, according to the company's plan documents, says Dan Marcec, director of content at Equilar. It's unclear if he would receive the pension and deferred compensation if terminated for cause, Marcec says. 

Potential payments for Wells Fargo CEO upon retirement 

Retirement eligibility, $25.2 million
Present value of pension accounts, $19.97 million
Deferred compensation, $4.4 million
Value of common shares, $73.98 million

[USA Today]

Global News: Oil up 4% as OPEC meets

Oil jumped by nearly 4% as OPEC meets; discuss ways to support prices

Oil jumped nearly 4 percent on Monday as the world's largest producers gathered in Algeria to discuss ways to support prices, with nervous trade driving volatility to its highest since a similar meeting to freeze output in April in Doha which failed.

The Organization of the Petroleum Exporting Countries and other exporters led by No. 1 producer Russia are meeting informally on the sidelines of the International Energy Forum in Algeria from Sept. 26-28 to discuss steps to tackle a price-eroding glut of crude.

Key OPEC member Iran, the fourth largest crude exporter which is still trying to recapture output before Western sanctions in 2012, downplayed the chances of a deal while some OPEC members remained hopeful.

Brent crude futures LCOc1 were up $1.75, or 3.8 percent, at $47.64 a barrel by 11:19 a.m. EDT (1519 GMT)

U.S. West Texas Intermediate (WTI) crude futures CLc1 rose $1.65, or 3.7 percent, to $46.13.

Implied volatility, a gauge of how much oil prices move, was at its highest since April 18, when the meeting in Doha among OPEC members to discuss an output freeze ended in an impasse, leaving crude at just above $40.

Scepticism about any deal being reached prompted money managers to cut their bullish bets on U.S. crude futures to a one-month low last week, when prices fell by nearly 5 percent. [CFTC/]

Some analysts believe implementation of a freeze will only be after OPEC's all-important policy meeting in Vienna in November. Until then, the group and non-members, including Russia and No. 1 oil consumer the United States, are likely to ramp up output.

"While we look for both Russia and the OPEC membership to continue to talk up the market via bullish hype whenever crude prices decline by a few dollars a barrel, we are maintaining a view that this type of artificial price support is simply delaying the inevitable by allowing non-OPEC production, especially from U.S. shale producers, to recover further," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.

OPEC pumped near a multi-year high of 33.24 million barrels per day in August, data showed. Russian production hit record highs of 11.75 million bpd last week. U.S. output has fallen this year but its oil rig count, which signals future production, has risen for 12 of the past 13 weeks.

Unplanned outages across OPEC still amount to around 2 million bpd, making it hard for members to agree to a freeze, SEB commodities strategist Bjarne Schieldrop said.

"They will come away with nothing, because it is too difficult. How can they decide a freeze when Libya is on the doorstep of returning production, or Nigeria for that matter?" Schieldrop said.

Source: Reuters

Companies in Focus: SunCon, UEM Edgenta, Cliq, KNM

Companies in Focus

Companies in Focus

SunCon, UEM Edgenta, CLIQ, KNM

Some of these companies are likely to be in focus given the recent announcement, rumours and news surrounding them.

UEM Edgenta Bhd
Total asset solutions provider UEM Edgenta Bhd is proposing to acquire Asia Integrated Facility Solutions Pte Ltd, which indirectly owns UEMS Pte Ltd, for S$185.9 million or RM563 million. 
In a statement filed to Bursa Malaysia, UEM Edgenta said that together with its wholly-owned subsidiary, Edgenta (S) Pte Ltd, the group has entered into a sale and purchase agreement with Asia IFM Solutions Ltd for the acquisition.
Sunway Construction Group Bhd
Sunway Construction Group Bhd  has bagged three projects with a combined total value of RM209 million and bringing its outstanding order book to date to RM5 billion.
The first contract involves its subsidiary Sunway Construction Sdn Bhd, which has been appointed by MMC Gamuda KVMRT (PDP SSP) Sdn Bhd to undertake a package under Mass Rapid Transit (MRT) Line 2 project. The job, involving the construction of a viaduct guideway from Sungai Buloh to Persiaran Dagang, Bandar Sri Damansara, carries a contract sum of RM52.52 million and will be completed by September 2017.
In a bourse filing, SunCon said it has also accepted a letter of intent issued by Sunway Iskandar Sdn Bhd, a subsidiary of SunCon's holding company Sunway Bhd, for two projects in the Medini Iskandar development in Johor.
The first project is for the construction of 88 units of office shop lots, a management office block, a mosque, a garbage storage block, two Tenaga Nasional Bhd substations and relevant facilities on the land in the Medini Zone for RM56.5 million over a 20-month construction period commencing on Oct 1.
The second project in Medini involves earthworks and main building works for a commercial development for RM100 million, over a period of 13 months commencing on Oct 1.
CLIQ Energy Bhd
The High Court of Malaya today allowed the petition filed by the independent directors to wind up special purpose acquisition company (SPAC) CLIQ Energy Bhd.
CLIQ said the court has ordered the appointment of Onn Kien Hoe and Mok Yuen Lok of Crowe Horwath Advisory Sdn Bhd as CLIQ's liquidators.
The court also ordered CLIQ's major shareholder Best Oracle Sdn Bhd to pay costs of RM5,000 to the former.
According to CLIQ's earlier announcement today, in what appeared to be an eleventh hour attempt to defer the inevitable, Best Oracle and two other individual shareholders have asked the company to call for a general meeting to get the directors to obtain a time extension to complete a qualification acquisition (QA) so that the SPAC is not dissolved.
KNM Group Bhd
KNM Group Bhd is proposing to issue bonds in Thailand of up to US$80 million equivalent in Thai baht guaranteed by Credit Guarantee and Investment Facility, a trust fund of the Asian Development Bank.
KNM Renewable Energy Sdn Bhd had on May 19 completed the acquisition of the entire equity interest in Asia Bio-Fuels Ltd and Asia Biofuels II Ltd (ABL Group).
Upon completion of the deal, ABL Group now owns a combined 72% equity interest in Impress Ethanol Co Ltd (IEL) and a 49% equity interest in Impress Farming Co Ltd.
In a bourse filing, KNM said the construction of IEL's Phase 1 bio-ethanol plant with a production capacity of 200,000 litres of ethanol per day is ongoing.
"The construction of Phase 2 of the bio-ethanol plant for an additional 200,000 litres (of) ethanol per day is expected to commence by the first half of 2017, due to the favourable ethanol market demand in Thailand.
"Accordingly, the group is proposing to undertake the proposed Thai bonds to raise the funds required by IEL," said the firm.
Source: Bursa Malaysia,

Brokers Report: Oil & Gas - Hangover in the rig market



Oil & Gas - hangover in the rig market?
Malaysian rig count at all time low. 

Rig count in Malaysia dropped to as low as 4 in 2016 compared to 6-10 rigs range seen in 2015, a dismal environment to be operated in for local rig players. The rig count seems to lag the oil price trend based on our observations possibly due to rig demobilization lag and decision making lag by the oil producers.

Oil price volatility can’t be ignored. 

Our study has shown that oil price volatility is in fact a better gauge for predicting rig count levels. The trend is evident in 2009-2011 periods whereby oil prices were rising but with volatility but rig counts were still stalling. Rig count only improved in 2011-2014 time period where oil prices stabilized above USD100/bbl levels.

When is the recovery then? 

Despite improvement in oil prices in 2H16 from low of USD30/bbl earlier this year, we do not anticipate strong recovery in rig counts despite expectation of improvement in oil prices in 2017. We opine that a few overhangs need to be cleared: (i) OPEC’s decision in production freeze (ii) rising oil production in Russia, and (iii) shorter than average investment cycle of US shale oil drilling.

Low DCR here to stay. 

DCR for high-spec jack up rigs had plunged to USD70,000-90,000/day from USD130,000-150,000/day amid severe industry downturn. We do not anticipate the rates to recover to their previous highs at least for 2017 underpinned by 2 major arguments: (i) oil prices are not expected to recover to US$70/bbl level and beyond soon, making oil producers to keep their costs low despite recovery in industry activity, and (ii) supply overhang of 177 rigs still under various construction stages in the yards which needs to be absorbed.

Financing gap for rig players. 

Other than industry fundamental issues, the local rig market also faces critical financing issue. Two major rig players, namely PERISAI and UMWOG, have a total short term financing gap of close to circa RM1bn based on our calculations. Debt refinancing is always the 1st choice but we opine that it is difficult to obtain in this environment due to low bank appetite to provide credit to O&G companies.

Equity fund raising, the last resort. 

The companies may resort to equity fund raising as the last resort to bridge their financing gap. This would be dilutive for their shareholders with PERISAI to face larger dilutive impact as 3.9bn new shares need to be issued based on last traded price compared to 461.2m shares for UMWOG. This could send a negative signal to the market but the possibility of this solution to be employed is still there in our opinion.


Weaker than expected oil production growth.


Further slump in oil prices.

Significant supply overhang in jack up rig market



Positive: Lower CAPEX from oil producers reining in oil production.
Negative: Persistent oversupply in the market.

Stock Pick

UMWOG: Maintain SELL with TP of RM0.69 (based on 0.5x PBV).

Perisai: Cease coverage due to high liquidity risk amid difficult operating environment.

Source: Hong Leong Investment Bank Research - 26 September 2016

Brokers Report: NTPM Holdings Bhd - Dragged by new Vietnam operations

Remain neutral with unchanged target price (TP) of RM0.88

NTPM Holdings Bhd
NTPM’s 1QFY17 revenue came in at RM151.4m (+5.6% YoY, +4.7% QoQ), while net profit slipped to RM9.4m (-27.4% YoY, -6.6% QoQ). The higher revenue was driven by increase in sales of tissue products, meeting 21% of our revenue forecast for FY17F. The lower net profit which only met 13% of our FY17F net profit forecast awas attributed to higher losses incurred in the post commencement of Vietnam's initial tissue operations and thus margin deterioration was recorded owing to higher energy and labour costs. While Vietnam’s operations have hampered the Group’s performance this quarter, we do expect its contributions to be more visible in the medium term and to breakeven by FY18. We continue to maintain our Neutral view with a TP of RM0.88 pegged to a 14x PE multiple on FY17F EPS of 6.3sen.

Paper products segment saw improvements in revenue by 8.9% YoY to RM105.4m (+4.6% QoQ). PBT however declined 20.6% to RM10.8m mainly from higher losses incurred in the post commencement of Vietnam’s tissue operations. This has also translated to margin deterioration from higher energy and labour costs. We understand this to be the initial gestation period at start-up stages, and expect to see breakeven by FY18.

Personal care products. 1QFY17 revenue fell marginally by 1.3% to RM46.0m, while PBT dipped 23.4% to RM3.2m attributed to the increase in labour costs, depreciation and advertisement and promotional activities from the competitive nature of some personal care products.

Outlook. NTPM continues to be challenged by a weaker broad market, hence affecting the spending ability of consumers. Aside from external factors, the Group is also faced with the following issues for FY17 i) Full impact of higher electricity and natural gas tariffs effective 1 January 2016 by about 4.6% and 17.2% respectively, ii) increasing cost from the rise in minimum wage for employees in Peninsular Malaysia by 10% to RM1000/mth, and in East Malaysia by 15% to RM920/mth commencing 1 July 2016, iii) foreign currency fluctuations, with high volatility posing a challenge to managing manufacturing costs, and iv) Malaysia’s consumer sentiment is expected to remain subdued from inflationary pressures affecting buying power.

Remain Neutral. We continue to recommend NTPM with a unchanged TP of RM0.88 pegged to a 14x PE on FY17F EPS of 6.3sen. The Group has strategic plans and control measures to mitigate the impact of the above adverse challenges and is expected to enhance its performance going forward.

Source: PublicInvest Research - 26 September 2016

Brokers Report: Aviation sector - New PSC Rates

Maintain overweight on aviation sector

Aviation industry
Last week, it was reported that the Transport Minister has confirmed the upward revision for PSCs, which will be implemented for all airports in Malaysia starting 1st January 2017. 

While rates are not firmed up yet, tentative new rates suggest all airports will have the same structure with International and Domestic PSCs at RM73 and RM11 in addition to a new segment known as ASEAN routes at RM35. We are positive on the tentative rates, as they indicate 10% higher PSC revenue for AIRPORT translating to a potential 25% upgrade to our FY17E earnings. While the magnitude of hike might appear huge for AIRASIA operating in KLIA2, we note that the effective impact would be minimal as most of AIRASIA’s international flights are flown towards ASEAN countries, which will fall under the new RM35 ASEAN segment – allowing them to keep their competitive pricings. We upgrade AIRPORT’s FY17E earnings by 25% on the back of a 10% increase in Malaysia PSC revenue post adjustment to new rates while keeping AIRASIA’s earnings unchanged. 

Post adjustment for AIRPORT, we upgrade its call to OUTPERFORM (from MP) with higher TP to RM7.33 (from RM6.43) based on higher FY17 PBV of 1.58x (+0.5SD 5 year historical) from 1.39x (-0.5SD). Meanwhile maintain OP call and TP of RM3.82 for AIRASIA. Hence, maintain OVERWEIGHT on the sector.

New PSC rates. 

Last week, it was reported that new rates for PSC will be implemented at all airports in Malaysia in a move to level the playing field starting 1st January 2017. While rates are not firmed up yet, tentative new rates reported by ‘The Sun’ suggested that the new PSC charges will be RM11 for domestic flights, up from RM9 for KLIA Main and RM6 for KLIA2; RM73 for international flights, up from RM65 out from KLIA Main and RM32 from KLIA2 and an addition of a new segment – inter-ASEAN flights which will be priced at RM35. (refer back for Table)

Positive on the suggested new rates. 

Currently, besides PSC revenue generated from departing passengers, AIRPORT enjoys additional revenue on top of existing PSC only if the current PSC is lower than the benchmark rates stipulated in the Operating Agreement 2009 (currently 2nd tariff cycle). This additional revenue - more commonly known as MARCS PSC is a subsidy by the government and the amount subsidized is the difference between the benchmark rates and PSC. We are positively surprised by the suggested new PSC rates as this would indicate c.10% higher PSC revenue for AIRPORT’s Malaysian operations on the followings: (i) most of the new rates are higher than existing benchmark rates, and (ii) despite new ASEAN routes indicating lower PSC of RM35 instead of previous RM65 in KLIA Main along with the other four international airports, AIRPORT will be subsidized by MARCS PSC for the difference in current benchmark rate of RM71.

Impact towards AIRASIA in KLIA2. 

While the magnitude of hike (international: +128%; domestic: +12%) for airlines operating in KLIA2 namely AIRASIA seems huge, we note that the impact will be minimal as (i) most of AIRASIA’s international flights are flown towards the ASEAN region which will fall under the new RM35 ASEAN segment – allowing AIRASIA to keep their competitive pricings. While it is possible that there could be a shift in passengers away from AIRASIA towards other airlines due to the more ‘level playing field’, we opine that AIRASIA has high chances of holding up their passenger numbers citing Malindo Airlines and Tiger Airways’ shift in operations from KLIA2 towards KLIA Main in 15th March 2016. Despite these two operating in the higher PSC KLIA Main, their shifts in operations are evident through improving KLIA Main traffic numbers from April to August showing increasing monthly YoY improvements (+2% to +26%) against negative YoY performance in January-March (- 9% to -13%).

Earnings upgrade for AIRPORT. 

We upgrade AIRPORT’s FY17 earnings estimates by 25% to RM111.3m on the back of a 10% increase in Malaysia’s PSC revenue based on the new PSC rates suggested. That said, we assumed an unchanged passenger growth assumption of 3% (Malaysian operations) for FY17 as we believe the rate hikes will not deter travellers from travelling as the impact towards air ticket prices are minimal. Meanwhile, we keep AIRASIA’s earnings estimates, call and TP (OP; TP: RM3.82) unchanged as well.

Maintain OVERWEIGHT on Aviation Sector. 

Post upgrade in AIRPORT earnings, we revise our valuations upwards for AIRPORT from FY17 PBV of 1.39x (-0.5SD) to +0.5SD 5-year historical Fwd. PBV of 1.58x. We believe AIRPORT warrants the upgrade premised on the much-improved PSC structure providing better earnings outlook post equalisation of PSC charges for KLIA Main and KLIA 2. Hence, we upgrade AIRPORT to OUTPERFORM (from MP) with higher TP of RM7.33 (from RM6.43) post adjustment. We believe further upside on AIRPORT lies with a faster-than-expected recovery for their ISG operations as the negative news fade away. Meanwhile, we reiterate AIRASIA’s OUTPERFORM call with an unchanged TP of RM3.82. Hence, we maintain OVERWEIGHT on the Aviation Sector.

Source: Kenanga Research - 26 September 2016

Brokers Report: Ann Joo Resources - Brighter outlook ahead

Upgrade to outperform call with an increased target price (TP) of RM2.24.

Last week, the Federal Government issued provisional safeguard measures for steel coils and reinforced bars at a duty rate of 13.9% and 13.4% imposed respectively towards exporting countries into Malaysian shores. Positive on the measure as it would boost ANNJOO’s steel re-bars ASPs. Upgrade FY17E earnings by 20% on the back of 8% higher ASP assumption. Post earnings adjustment, upgrade ANNJOO to OUTPERFORM (from MP) with higher TP to RM2.24 (from RM1.69) after switching valuation methodology from 0.76x FY17 PBV to 7.0x FY17 PER.

Ann Joo Resources Bhd

Approval of provisional safeguard measures.

Last week, the Federal Government issued provisional safeguard measures in relation to steel coils and reinforced bars after 4 months of investigations. The measure entails safeguard duties of 13.9% for steel coils and 13.4% for steel rebars which will be imposed towards a list of 40 exporting countries beginning the 26th September 2016.

Positive on the measure.

We are not surprised by the implementation of this safeguard measure as local steel manufacturers have been suffering losses/severe margin compressions, especially from China’s steel dumping activities since 2012. The additional safeguard rate on top of the existing 5% import duty would balance out the playing field between local manufacturers and Chinese players effectively shifting local prices higher upwards against Chinese steel prices in China (refer back). Hence, positive on the measure as the safeguard rate would boost ANNJOO’s manufacturing revenue on the back of higher ASPs since majority portion (>60%) of its manufacturing revenue deriving from steel re-bars.


Despite the pro-longed overcapacity issue in China, we turn positive on the steel sector as steel prices expected to remain stable premised on (i) China’s depleting steel inventory indicating rising domestic demand there, (ii) closure of loss-making steel mills in China, and (iii) China governments’ strong commitment in reducing steel production capacity through consolidation of steel groups coupled with financial support of RMB100b for worker retrenchment schemes. Hence, we expect our steel-rebar ASP assumptions to be sustainable due to reasons stated above.

Brighter outlook ahead for Ann Joo

Upgrade FY17E earnings by 20%.

We upgrade FY17E earnings by 20% on the back of higher ASP assumption (+8% to RM1890/t) in FY17 after factoring in the safeguard measure (refer back). Note that we make no changes to FY16 earnings as we understand (i) local steel importers had been anticipating the approval of the safeguard measure prompting them to stock up on inventories – creating sufficient supply and (ii) gradual steel price increase for the remaining short period of 3 months expected to have little impact towards our FY16 ASP.

OUTPERFORM with a higher target price of RM2.24.

Post-earnings adjustment, we increase our target price to RM2.24 (from RM1.69) and upgrade call to OP (from MP) after switching our valuation methodology from 0.76x FY17 PBV to 7.0x FY17 PER. We believe ANNJOO warrants the switch in valuations as safeguard measure would provide less volatility in local steel prices translating towards more sustainable and improved earnings outlook. We believe our valuations of 7.0x PER is justifiable as we had conservatively pegged it to the lower end of MASTEEL’s FY10-FY12 Fwd PER of 7-10x when earnings were relatively stable due to the stable steel prices.

Risks include lower-than-expected steel selling prices, softer-thanexpected steel demand, and higher-than-expected raw material costs.

Source: Kenanga Research, 26 September 2016

Tuesday, September 6, 2016

Quantitative easing no longer the solution

While central banks in Europe and Japan set to expand quantitative-easing (QE) policy, it appears that the "magic" that QE once has is no longer working. The idea that QE could be used to stimulate slowing economies could really just be a myth now.

We have all seen how the US Federal Reserve has managed to persevere through the period of QE and Abenomics come after that...but the likelihood for us to see the QE magic work with both the central banks in Europe and Japan is low...things have changed.

An article written by Mark Gilbert on Bloomberg: The Quantitative Easing Experiment is Failing talks about the few areas that QE may have failed.

Inflation hasn't been at the European Central Bank's (ECB) 2 percent target since the start of 2013; it's been half that or less for the past two years. 

And here is what Mark said, "So I sympathize when ECB President Mario Draghi says he'll expand the use of non-conventional measures to avert the threat of deflation; but I worry that with no evidence that the patient is responding to treatment, increasing the dosage is pointless."

The author was increasingly more skeptical of what the QE could achieve. Textbook answer says that it should channel money into the economy via the banking system and Draghi has been firm in his decision to safeguard the euro and meet the ECB's targets. With the results not showing any significant improvement, it is no wonder that many more are disillusion with what QE could really do. 


One of the big change at the current environment was that the equity has become so expensive. This sort of negate the positive impact from the cheap loan. Anyone who have taken CFA examination or investment studies would have learned that weighted average cost of capital (WACC) consist of both debt and equity. 

"Corporates aren't feeling the financing benefits offered by the global fall in real long-term interest rates thanks to a historically-high equity risk premium — which, in simple terms, is the excess return the stock market is expected to earn over a perceived risk-free rate," Hans Lorenzen, a Citi credit analyst said.

To simply the argument, we have compiled a list of positives and negatives of QE:


1) It provides additional cash in the system when there is a need for it.

2) There is no cost to the government and the taxpayers.

3) Confidence in the system will increase.

4) Things could have been worse than what it is today without the QE earlier.

5) This is the only options left if the fiscal policy is limited.


1) It is difficult to know exactly what happens to the money released into the system.

2) QE doesn't seem to boost confidence of late.

3) The risk is that the money keeps piling up in the banks balance sheet and never helps small businesses where it's needed.

4) A minority of economists, such as the former MPC committee member Andrew Sentance, believe it could feed inflation.