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Friday, April 28, 2017

Market Daily Report: KLCI up 0.14pts, market turns in mixed performance ahead of extended weekend

KUALA LUMPUR (April 28): The FBM KLCI gained marginally today amid mixed sentiments, ahead of the Workers Day weekend and the release of U.S. gross domestic product (GDP) data.
The benchmark index closed 0.14 points higher at 1768.06.

Inter Pacific Securities research head Pong Teng Siew said the mixed performance was due to some profit-taking ahead of the extended weekend, but mitigated by weak U.S. gross development product forecasts, prior to the release of actual data by the Department of Commerce tonight.

The upswing from earlier political development in France and first look of U.S. tax cut plan has also weakened, said Pong, slowing down gains in the U.S. and subsequently the regional markets.

“You get a sense that the momentum from the U.S. market upswing is somewhat weakening, with a mixed picture all over. The upswing reaction, based on very little information other than political data, is not lasting.

“Market is starting to adjust, and is bracing for some disappointment,” he added.
Reuters reported that Asian stocks slipped as investors took profits from the recent rally, ahead of the Labour Day weekend, and the Golden Week Holiday in Japan.

Japan’s Nikkei 225 lost 0.29%, South Korea’s Kospi declined 0.18%, while the Hong Kong Hang Seng Index lost 0.34%.

On the local front, gainers were led by Dutch Lady Milk Industries Bhd, while decliners were led by Scientex Bhd.

There were 544 gainers against 403 losers, with 358 counters closing unchanged. A total of 3.1 billion shares, worth RM2.9 billion, were traded.

Source: The Edge

Thursday, April 27, 2017

Brokers Report: HSL - Rising Earnings Beckons

Retain BUY with target price (TP) of RM2.19


  • Strong reassurance from visit to HSL in Sarawak
  • Affordable housing and wastewater works will support earnings growth
  • Reaffirm earnings estimates
  • Maintain BUY with an adjusted TP of RM2.19

Strong reassurance from visit to HSL in Sarawak. We emerged from HSL’s Kuching Wastewater Treatment and La Promenade visit in Sarawak with reassurance on our revenue, target orderbook and earnings forecasts for FYE17/FYE18/FYE19

Key takeaways from visit:
Compelling underlying sewerage needs. HSL’s key competency in sewerage and wastewater engineering i.e. micro tunnelling and piping will anchor its future earnings prospect due to the strong need of efficient wastewater and sewerage connection in Kuching, Miri and Sibu from growing population. In a revised master plan in 2007, Sarawak Sewerage Department (SSD) has estimated that 3 Wastewater plants are needed to support the population in Kuching. In March 2016, HSL was awarded package 2 of the Kuching Wastewater Treatment Plant amounting to RM750m through its 75% joint venture with Nishimatsu Construction and recently in March, 2017 it clinched another award for Miri Wastewater Treatment Phase 1. Note that SSD has earmarked total of 4 phases of wastewater treatment plant in Miri amounting to RM3.3bn. Thus, we reckon that due to its key expertise in micro tunnelling and sewer piping HSL will stand to benefit.

Affordable housing will be a levelling factor. Secondly, we observe that affordable housing would be a levelling factor to even out earnings blips from progress billings and project recognition. We notice that HSL’s land banks are strategically located to be developed under the public housings such as Projek Perumahan Rakyat (PPR) and Projek Perumahan Penjawat Awam (PPA1M) such as in Muara Tebas and Muara Tuang. We estimate the comfortable level of GDV for affordable housing projects that HSL could undertake (based on its working capital) is c.RM170m. Last year, the state government has approved a total of 18,787 units of PR1MA houses to be constructed within the next 4 years. We are expecting HSL to take the opportunities in upcoming quarters.

Recommendation. We maintain our BUY recommendation with target price RM2.19 based on DCF method (WACC: 6.7%). We take cognizant that the previous results, HSL did not make the mark. We are convinced that earnings will make a comeback during the 2QFYE17-3QFYE17 as HSL would be able to recognize billings from Pan Borneo project. So far, anaemic earnings have subdued its share price advancement but due to its franchise in microtunneling, sewer piping and waste water engineering in Sarawak, HSL should be revisited.

Source: MIDF Research - 27 April 2017

Brokers Report: AMMB Holdings - Loan growth gaining traction

Retain HOLD with a higher target price (TP) of RM5.00


  • Outlook improving. We are turning more positive on AMMB as previous concern on various issues is now easing while management recently guided on a more upbeat outlook with a higher loan growth projection for FY18.
  • Higher loan growth in FY18. For several years, AMMB’s loan growth was impacted by its rebalancing effort, especially to diversify away from hire purchase segment. We believe AMMB is now comfortable with current composition of hire purchase loan given the corrected yield in the segment reinforced by improving 2017 TIV outlook. Given this, we believe AMMB will achieve a loan growth of 6% in FY18, which majority will be driven by corporate and SME segments.
  • Various tie-ups in SME space. We notice that AMMB had recently made various tie-ups with SME related organizations to offer financing to this segment. Overall, we are positive on these tie-ups on future contribution to the SME segment. That said, we expect the SME arrangements to contribute a marginal 1% to FY18 and FY19 loan growth.
  • NOII getting strong. AMMB’s acquisition spree in the past years is now showing more positive results especially in the merchant business. Merchant business penetration rose by 29% to 54k devices. Should AMMB keep this momentum, we can expect potential upside to its NOII through interchange and acquirer fee strategy.
  • No strain in asset quality. Asset quality continued to recover for five consecutive quarters to 1.51% as at 3QFY17, slightly better than industry GIL. Meanwhile, loan loss-coverage increased slightly to 83.5%. Exposure to O&G segment reduced by RM600m in the last 9 months, and current exposure to this sector is now manageable at only 3% of total loans. Given the improving outlook of global oil price, the risk of further strain in this sector is minimal moving forward.
  • Improving NIM. NIM picked up strongly in 3QFY17 as a result of lower funding cost and liability management. NIM is expected to improve due to promising CASA growth as well as higher financing to the SME segment which carries higher yield.


  • Slower impact from de-risking of auto loan book and lower recoveries to impact bottom line.
  • Forecasts FY18 and FY19 earnings forecasts are revised higher by 0.6% and 0.7% as we impute higher loan growth of 6%.


HOLD (  )
  • Increasing presence in the SME segment is a right move despite stiff competition from other banks in the space. With appropriate execution strategy, outlook of AMMB is turning better with loan growth gaining traction.


  • We raise our TP to RM5.00 (previously RM4.48) based on higher ROE of 8.9% and WACC of 9.6%. We maintain
HOLD rating on AMMB.

Source: Hong Leong Investment Bank Research - 27 April 2017

Brokers Report: Nestlé - KitKat to ignite growth

Retain HOLD call with a higher target price (TP) of RM85.73


  • We attended Nestle’s 1Q17 briefing and came away feeling neutral on the company’s prospects going forward.
  • Nestle anticipates half of revenue growth in FY17 will be driven by new product launches, in particular, the launch of new varieties of KitKat chocolates.
  • We share management’s optimism on its new KitKat products, given: (1) its lion share in Malaysia’s chocolate product market which market share has grown from 14.4% in 2013 to 16.8% in 2016 (and overtook Cadbury as Malaysia’s most popular chocolate); (2) Majority of Malaysian consumers (two-third, according to a Nielsen report) prefer new and innovative products from brands that are familiar to them.
  • Additionally, we believe that the launch of the Kit Kat confectionary store in Mid Valley in late-2016 (where consumers can customize KitKat chocolate bars with up to 10,000 combinations) will serve as its marketing base (apart from allowing Nestle to sell premium KitKat products at higher margins). The buzz generated by the store and custom made KitKats via social media posts are expected to have an influential effect with 40% of Malaysian consumers citing social media posts as a source of new products. (Nielsen)
  • Product launches in 1QFY17: MET KOOL Panda, Nescafe GOLD Creamy Latte and Dark Latte, MAGGI Hot Mealz, MAGGI Roasted Sesame Chicken Noodles and KIT KAT Mini.
  • Prospects: We believe the group will carry out its Fuel, Innovate, Transform (FIT) strategy by continuing to innovate its product brands, and enhance efficiencies in its factories and supply chain processes. In doing so, Nestle aims to mitigate higher input costs going forward, particularly from milk powder and sugar.


  • Prolonged depression in consumer sentiments; strong competition especially in the instant coffee segment; potential failure in quality control.


  • Maintained, as our forecasts have already reflected the contribution of new products.


  • We believe Nestle warrants a HOLD call as it is fully valued at the current price despite organic growth prospects going forward. Investors should have Nestle in their portfolio on the back of its defensive nature and as a proxy to Malaysia’s recovery in consumption growth.


  • Maintain our HOLD call with a higher TP of RM85.73 (from RM81.20) based on DDM (WACC: 7.8%; TG: 3%) after rolling over our DDM valuation forward.

Source: Hong Leong Investment Bank Research - 27 April 2017

Brokers Report: Syarikat Takaful - Operating Efficiency To Drive Growth

Reaffirm BUY with an unchanged target price (TP) of RM4.84


  • Syarikat Takaful Malaysia Bhd (STMB)’s 1QFY17 PAZTAMI of RM56.8m (+23%yoy) was within ours and consensus expectations
  • Family Takaful continued to support the growth in 1QFY17 earnings
  • As the result is within our estimates, we make no changes to our existing forecast numbers
  • Hence we reiterate our BUY recommendation with an unchanged TP of RM4.84 per share

1QFY17 PAZTAMI met expectations. Despite challenging macroeconomic condition, STMB has continued to deliver solid PAZTAMI performance in 1QFY17, where it grew +23.0%yoy to RM56.8m. The increase was as a result of higher Wakalah fee income of RM186.3m (+13.0%yoy) to the Group and its portfolio rebalancing strategy to reduce exposure in risky assets. Overall, the reported earnings came in line with ours (at 29.1%) and consensus’ (at 29.5%) expectations.

Strong 1QFY17 earnings growth in tandem with higher sales. The growth in PAZTAMI was due to higher earned contributions from medical, personal financing and mortgage insurance product in the family segment.

Riding on the growth of Islamic banking and finance sector. Syarikat Takaful continued to benefit from the development of Islamic banking and finance sectors which offer a wide and trusted distribution base. The company continued to extend its footing in a various market segments by adopting “bancatakaful” as an alternative to insurance agents.

Enhanced distribution channels to spur further growth. According to management, the company is undertaking significant effort to increase its operating capacity in order to fulfil the needs of growing demand for takaful products via its digitization plan. The management is very optimistic with this strategy as they believe that technology will become the transformation agent and competitive advantage in providing enhanced customer experience and innovative product offerings. We positive on this development as we believe that this is the viable method to expand its presence in the market.

Introduction of online product distribution channel in 2017. In light of the company’s digitisation initiatives, ebusiness platform will be introduced to the market this year as a new catalyst to drive business growth. The ”Click to Cover” platform will ease accessibility of Syarikat Takaful’s product offerings. We opine that the implementation of this strategy will open up more opportunities for business growth by tapping new market which comprises of more digitally savvy consumers.
As such, we are comforted by the strategy undertaken by the management to strengthen its presence in the market as number one Takaful provider. Against the backdrop of expected motor de-tarriffication implementation in July 2017, we view the digitization plan the company has embarked as timely.

Impact on earnings. We maintain our earnings estimate for this year as the results fell within our expectation, with forecasted 11.0% growth in earnings. Against the backdrop of improved macro-economic performance, we opine that Syarikat Takaful is poised to benefit from the strong growth trajectory of Islamic finance industry. Pursuant to that, we are fairly comforted by the management’s strategy to embark on digitisation initiatives which will strengthen and enhance its distribution channel. We see this as a significant strategical move by the company to further strengthen its positioning in the takaful industry that will translate to stronger sale numbers.

Recommendation. Accordingly, we reiterate our BUY recommendation with an unchanged TP of RM4.84 per share. Our valuation is derived based on sum-of-parts, which is in line with its 3-year historical FY17 PER of 20x and this implies PBV of 5.4x.

Source: MIDF Research - 27 April 2017

Brokers Report: MEGA FIRST CORPORATION - Major Progress In Don Sahong Project

Reaffirm OUTPERFORM call with a higher target price (TP) of RM4.48

We remain bullish on Mega First (MFCB) as more construction profits are recognized from its 80%-owned 260MW Don Sahong Hydropower project in Laos this year. Progress is expected to nearly triple (up from 16.5% to 45%- 50%) while double-digit growth is also expected from the resources segment. We reaffirm our Outperform call with a higher TP of RM4.48 (up from RM3.16) after rolling over our valuations to FY18 while also lowering our discount attached to the Don Sahong Hydropower project in light of the lower exposure risks as the plant moves closer to completion.
  • Targeting a bigger milestone this year. The USD500m (RM2.5bn) Don Sahong hydropower project is very much on track. As the time of writing, the completion rate has reached 23% and is expected to reach about 45%- 50% by year-end. About RM362m had already been invested for excavation and foundation works last year. The next stage will be the installation of a powerhouse and turbines, before commissioning and testing begins in 2019. Assuming everything goes well, it is expected to start production testing by 2H 2019. The hydropower business is expected to bump up from the current group earnings by more than 2-fold in 2020.
  • Resources segment expected to see double-digit growth. After seeing an aggressive expansion over the last 2 years, we expect to see the resources segment starting to reap the benefits. It now has a total of 7 lime kilns with a combined capacity of 1,560mt/day (up from 1,160mt/day) following the completion of its phase 2 expansion last month. Based on our estimates, we are looking at a 20%-30% earnings growth for the next 2 years.
  • Both concessions coming to the tail-end soon. We understand that the current power concessions in China and Tawau are going to expire by end- 2017. We think that it is not commercially viable for the management to seek extension for the China's concession due to tightening environmental controls which require new investments for further upgrades. In addition, heightening coal prices and inability to seek tariff hikes is likely to hinder the decision to seek extensions. Meanwhile, a proposal for an extension of the Tawau's power purchase agreement has been submitted for negotiations. Nevertheless, we think the financial impact for both concessions will be minimal as the loss of power-related earnings contributions will be mitigated by the construction profit recognized in Don Sahong Hydropower project.
  • Lifting our TP in tandem with more significant progress. We raise our target price from RM3.16 to RM4.48 after rolling our valuations to FY18 while also reducing our discount (from 30% to 20%) attached to the Don Sahong project given the significant progress expected this year. In line with this, we expect to see strong earnings jumps this year on the back of stronger construction profit while resources should also deliver better results following the completion of its capacity expansion plans.

Source: PublicInvest Research - 27 April 2017

Wednesday, April 26, 2017

Market Daily Report: FBM KLCI tracks Asian, US market gains; ringgit strengthens

KUALA LUMPUR (April 26): The FBM KLCI rose 3.12 points or 0.2% as Asian shares tracked overnight US equity gains. US shares rose on positive corporate results there.
In Malaysia, the KLCI closed at 1,768.92 points at 5pm. Across Asia, Japan's Nikkei 225 rose 1.1% while Hong Kong’s Hang Seng gained 0.5%.

In the US, Reuters reported that the Dow Jones Industrial Average rose 232.23 points, or 1.12 percent, to 20,996.12, the S&P 500 gained 14.46 points, or 0.61 percent, to 2,388.61 and the Nasdaq Composite added 41.67 points, or 0.7 percent, to 6,025.49.

It was reported that the Nasdaq Composite hit a record high on Tuesday, while the Dow and S&P 500 brushed against recent peaks as strong earnings underscored the health of corporate America.
In Malaysia, Mercury Securities Sdn Bhd research head Edmund Tham told that today’s equity gains factored in the strengthening ringgit and spill-over effects from the Nasdaq.

The ringgit strengthened to 4.3485 against the US dollar at 5.48pm. The exchange rate so far today was between 4.3472 and 4.3685.
The ringgit appreciated as the US dollar weakened on Emmanuel Macron's win against anti-euro nationalist Marine Le Pen during the first round of France's presidential elections. Macron's win has reduced economic and market uncertainty, hence, less haven demand for the US dollar.

Tham said : “Other factors to look out for this week include the progress on Trump’s tax reform, as well as central bank meetings in Japan and Europe."

Across Bursa Malaysia, there were 506 gainers against 410  decliners. A total of 3.55 billion shares worth RM3.13 billion were traded.

Hong Leong Financial Group Bhd was the top gainer after rising 32 sen to close at RM16.52.

Source: The Edge

Tuesday, April 25, 2017

Market Daily Report: KLCI ends higher in tandem with regional markets

KUALA LUMPUR (April 25): Malaysian stocks closed on a positive note today, in tandem with regional stock markets which finished up as relief took hold on the results of Sunday's election in France.

The FBM KLCI ended the day up 9.75 points or 0.56% at 1,765.80. The market traded between an intra-day high of 1,765.94 and a low of 1,758.47 today.

A total of 3.66 billion shares valued at RM3.113 billion changed hands. Market breadth was positive with 559 gainers, 388 losers and 377 counters traded unchanged on Bursa Malaysia.

"We are catching up with the US and European markets, which have [risen] overnight," Etiqa Insurance and Takaful head of research Chris Eng told

"The KLCI will continue to outperform the global and regional markets given the delayed effect, but it still depends on the global markets.

"However, we are getting closer to May when profit-taking will become more apparent. I am less positive towards the local market now than I was when it was 100 points lower," he added.

Concentrated buying will continue to weigh on banks, said Eng, with gainers such as Hong Leong Financial Group Bhd and Aeon Credit Service (M) Bhd continuing to be the market movers.

The top gainer was Nestle (Malaysia) Bhd, while British American Tobacco (Malaysia) Bhd led the decliners' list.

Elsewhere, regional markets have responded positively to the victory of market favourite Emmanuel Macron in the first round of the French presidential election, Reuters reported. Japan's Nikkei 225 rose 1.08%, South Korea's Kospi was up 1.06%, while Hong Kong's HSI gained 1.31%.
The ringgit edged higher against the greenback. At 5pm, the local currency gained 0.7% at 4.3685 to the US dollar.

Source: The Edge

Brokers Report: Tenaga - Again Taking Over Another IPP - Track 4A

Retain BUY with an unchanged target price (TP) of RM17.00


  • According to Edge Weekly, TNB has proposed to acquire 70% stake in the 1,440MW combined cycle gas turbine (CCGT) power plant project (Track 4A) that was previously awarded to SIPP Energy (SIPP).
  • The acquisition is meant to provide a strong balance sheet for SIPP Energy to finance the project as well as expertise in managing the project, as existing SIPP Energy lacks strong balance sheet (currently negative equity position).
  • Track 4A was initially targeted to start operation by mid- 2018, when Energy Commission (EC) proceeded with direct award to a consortium of SIPP, YTL Power International (YTLP) and TNB back in mid-2014, on fast track basis (as opposed to open tender). Subsequently YTLP and TNB pulled out respectively and now left only SIPP.
  • The news also disclosed the levelised tariff of 37sen/kWh for Track 4A (based on reference rate of RM3.80/US$) and indicated potential effective tariff of 42sen/kWh (based on current exchange rate of RM4.40/US$), which is comparable to 40-43sen/kWh for some 50MW solar farms in recent tender awards.


  • Information on the takeover exercise remains sketchy. We are unsure if the exercise involves payments from TNB and any debt transfer (debt obligation within SIPP).
  • Based on the indicative levelised tariff of 37sen/kWh, it is 5.6% lower than 39.19sen/kW that was initially proposed by SIPP and TNB in 2015. However, it is still 6.6% higher than 34.7sen/kWh rate for 1,071MW CCGT Prai Power (under TNB) back in 2012.
  • Similar to previous take over of Track 3B (from 1MDB) in 2015, we expect the IRR for Track 4A to be relatively low (even below TNB threshold). Nevertheless, we believe TNB becoming the controlling shareholder of Track 4A will serve as the best available choice, in order to ensure power security over the longer term.


  • Disruption in energy fuel supply.
  • IBR-ICPT suspension.
  • Unscheduled power plant shutdown.
  • Lower allowable return on assets for Transmission and Distribution segment for the next IBR review in 2018.


  • Unchanged.


  • TNB’s earnings and cash flow are expected to be stable due to the implementation of the IBR/FCPT mechanisms. The expected IBR revision to lower return on regulated assets by 2018 will be offset by new contributions from associates and power plants. Shareholders also stand to benefit from higher dividend payout.


  • Maintain BUY with unchanged TP of RM17.00 based on DCFE. We remain positive on TNB’s long term growth and strong cash flow

Source: Hong Leong Investment Bank Research - 25 April 2017

Brokers Report: Genting Plant - Output growth and GHPO to cushion lower palm prices

Retain HOLD with a higher target price (TP) of RM12.21


  • FFB output growth to mitigate lower palm prices… GENP registered FFB output growth of 28.5% yoy in 1Q17 , boosted by yield recovery (as lagged impact of El Nino subsided since end-FY16) and more areas moving into mature and higher yielding bracket (for its plantation estates in Indonesia). Management remains confident that the strong FFB output growth achieved in 1Q17 will sustain into the next few quarters (with output ratio of 45:55 in 1H and 2H), underpinned by young age profile for its plantation operations in Indonesia (with average age of only ~ 5 years as at end- FY16), which will in turn cushion lower palm product prices.
  • The opening of GHPO to boost JV’s earnings from 2H… We expect the opening of Genting Highland Premium Outlet (GHPO, likely by end-2Q) to perform as well as Johor Premium Outlets (JPO), if not better, as it will be serving a more diverse group of shoppers vis-à-vis JPO, due to its close proximity to GITP and Klang Valley.
  • Unexciting times remain for property division… We believe earnings at the property division will remain unexciting in FY17, due to the weak property sentiment and the absence of sizeable property land disposal (following AEON’s recent announcement to abort its property land acquisition deal with GENP).


  • Higher-than-expected FFB output growth;
  • Better-than-expected JV earnings (in particularly, the premium outlets); and
  • Earlier-than-expected commission of metathesis plant.


  • We raise our FY17-19 core net profit forecasts by 4.5%, 9.1% and 8.1% respectively, largely to account for: (1) Higher JV earnings assumptions (underpinned by the opening of GHPO); and (2) Lower depreciation charge assumption at biotechnology division (post RM80.2m write-off in 4Q16). Risks – downside
  • Weaker-than-expected FFB output;
  • Escalating labour cost, which will in turn result in higher production cost; and
  • Weaker-than-expected recovery in edible oil demand and prices.


  • While we continue to like GENP for its young age profile (average age of ~10 years for its plantation assets) and healthy balance sheet (net gearing of 0.23x as at end-FY16), near-term upside is capped by recent downtrend in palm product prices and persistently weak property sentiment in Johor.


  • Maintain HOLD recommendation, with higher SOP-derived TP of RM12.21 (vs. RM12.02 previously) to reflect the upward adjustment in our core net profit forecasts.

Source: Hong Leong Investment Bank Research - 25 April 2017

Brokers Report: Scientex - Expansion Plans Progressing Well

Downgrade to MARKET PERFORM from OUTPERFORM with a higher target price (TP) of RM9.38

We met up with SCIENTX?s management last week and came away feeling comforted as their expansion plans are well on track. As expected, the Group is focused on the expansion of its BOPP and PE plants, and longer term growth of stretch film plant in Arizona, US. All in, we maintain FY17-18E earnings. Downgrade to MARKET PERFORM (from OP) but increase TP to RM9.38 on a higher PE of 6.8x for our property segment.

PE plant expansion at Ipoh to be completed by end CY17. As part of expanding its consumer segment, SCIENTX is in the midst of completing capacity expansion at its PE plant in SGW Ipoh to 24,000MT p.a. by end CY17 (1HFY18), increasing total capacity for the PE segment to 84,000MT p.a. which is on track.

BOPP plant focused on ramping up capacity. The BOPP plants in Rawang and Pulau Indah currently have a total capacity of 60,000MT p.a. (as at Dec 2016) and will continue to see a ramp-up in capacity utilised going forward. The Pulau Indah plant which commenced operations in Sept 2016, is currently utilizing 35% of its capacity, while we believe up to 50% of capacity could be utilized by end CY17, with full utilisation within two years.

Growth from US expansion to accrete mostly in FY19. SCIENTX's venture into the United States was to penetrate a new stretch film market outside its existing major exposure (i.e. Japanese market), with cost savings from anticipated ample supply of shale gas-based resin, as well as lower distribution costs to the American market. We believe the plant will start operations in 2H18, targeting 30,000MT p.a. capacity, with accretion to earnings mostly by FY19. Based on our back of the envelope calculations, once the US plant is at full capacity by FY19-20, we believe it could contribute c.RM12-13m to the bottom- line.

Property segment focusing on affordable residential. As for the property segment, the Group has launched five new projects worth RM190m in 2Q17, which includes maiden launches in Ipoh, consisting mainly affordable properties. Unbilled sales of RM600m are expected to be recognized over the next 2-3 years, while a pipeline GDV of RM6b is expected to sustain for another 8-10 years.

No change to earnings as expansion plans well on track. The Group expects its consumer packaging plant expansion to be completed by end-CY17, and will focus on ramping up capacity going forward, while the industrial packaging segment is focused on expansion in the US, contributions accreting mostly in FY19. All in, we expect total capacity to increase to 304-340k MT p.a. in FY17-18, while we expect sales tonnage to ramp up by c.18-29% YoY as plant utilisation increases throughout FY17-18. We believe the Group will allocate c. RM260-140m for capex in FY17-18, which we have accounted for in our estimates. As such, we maintain FY17-18E earnings of RM292-347m.

Downgrade to MARKET PERFORM (from OP) on a higher TP of RM9.38 (from RM8.36) based on our Sum-of-Parts FY18E valuations. For the Property segment, we apply a higher PER of 6.8x (from 4.0x), which is at a 10% discount to small-mid-cap property players due to as SCIENTX?s exposure in Johor, and maintain an applied PER of 17.6x for the manufacturing segment. We downgrade our call to MARKET PERFORM (from OP) as most upsides have been priced in, while its share price has done well (+30% YTD).

Source: Kenanga Research - 25 April 2017

Friday, April 21, 2017

Market Daily Report: KLCI up 14.44 points on Maybank, US share gains

KUALA LUMPUR (April 21): The FBM KLCI rose 14.44 points or 0.8% as investors bought index-linked Malayan Banking Bhd (Maybank) shares to be entitled for the group's dividend reinvestment plan

Malaysian shares had also tracked overnight US equity gains. Today,
the KLCI ended at 1,756.05 points at 5pm while Maybank shares added 32 sen to RM9.40 to become Bursa Malaysia's fourth-largest gainer.

“Today, Maybank's share price closed up 32 sen at RM9.40 after an announcement on its dividend reinvestment plan. This helped to push the Maybank counter up and kept interest in Maybank going very strong,” Inter-Pacific Securities Sdn Bhd research head Pong Teng Siew told

Companies' dividend reinvestment plans allow shareholders to convert their cash dividends into new shares. Yesterday, Maybank said it had fixed the issue price for new Maybank shares under its dividend reinvestment plan at RM8.25 each.

At RM8.25, shareholders will receive new Maybank shares at a discount to the stock's volume weighted average price of RM9.01, according to Maybank. The volume weighted average price took into account Maybank's share price for the five days ended last Wednesday (April 19), Maybank said.
Across Bursa Malaysia today, 3.12 billion shares worth RM2.65 billion changed hands. There were 588 gainers versus 320 decliners.

US shares rose overnight. Reuters reported that the Dow Jones Industrial Average rose 174.22 points, or 0.85 percent, to 20,578.71, the S&P 500 gained 17.67 points, or 0.76 percent, to 2,355.84 and the Nasdaq Composite added 53.74 points, or 0.92 percent, to 5,916.78.

It was reported that US stocks rallied on Thursday, with the Nasdaq closing at a record, as a round of solid earnings led by American Express pushed equities higher.

Source: The Edge

Thursday, April 20, 2017

Market Daily Report: KLCI up as banking stocks gain traction

KUALA LUMPUR (April 20): The FBM KLCI rose 2.66 points or 0.2% as index-linked banking stocks like CIMB Group Holdings Bhd and Malayan Banking Bhd (Maybank) gained traction on analysts' favourable  reviews.

At 5pm, the KLCI settled at 1,741.61 points after falling to its intraday low at 1,736.40 points. CIMB shares rose two sen to RM5.50, Maybank climbed three sen to RM9.08 while RHB Bank Bhd added 16 sen to RM5.28 to become Bursa Malaysia's seventh-largest gainer.

Across Bursa Malaysia, 2.64 billion shares worth RM2.24 billion were traded. There were 498 gainers and 368 decliners.

Etiqa Insurance and Takaful research head Chris Eng told “The (KLCI's) rebound was led by finance stocks after some brokers upgraded their calls on CIMB and Maybank. As long as the US market does not fall, there will be room for the Malaysian market to grow.

“So far, no clear signal that it (US market) is going to fall, but looks like it is going to happen, partly due to profit taking and their corporate earnings have been patchy,” Eng said.

Malaysian shares tracked Asian equity gains. Hong Kong's Hang Seng gained 0.97% while South Korea's Kospi advanced 0.5%.

Reuters reported that Asian stocks erased early losses and edged higher on Thursday as steadying commodity prices, especially crude oil, prompted some bargain hunting by investors.

But markets cautiously stuck to well-worn trading ranges ahead of global risk events such as the first-round of French presidential elections at the weekend and continued tensions over North Korea.

Source: The Edge

Upgrade to OUTPERFORM with a higher target price (TP) to RM1.31 from RM1.23


Yesterday, HUAYANG announced that it will be acquiring another 20.1% stake in Magna Prima Bhd for a cash consideration of RM123.8m, effectively raising their stake to 30.9%, as part of their land banking strategy, of which we are mildly positive due to MAGNA’s strategic land banks in Klang Valley. No changes in FY17-18E earnings. Upgrade to OUTPERFORM with a higher Target Price of RM1.31 (from RM1.23) on a higher RNAV of RM3.05 with an unchanged discount factor of 57%.

Yesterday, HUAYANG announced that they will be acquiring another 20.1% stake in Magna Prima Bhd (MAGNA) for a cash consideration of RM123.8m - indicating RM1.85/share (same price as previous acquisition) effectively raising its stake to 30.9%. The acquisition will be funded through HUAYANG’s internally generated funds, and the exercise is expected to be completed by 2Q17 should there are no objections from its EGM.

Not a surprise. We are not surprised with HUAYANG’s move in raising its effective stake MAGNA to 30.9% as we have previously mentioned this in our previous report dated 26th January 2017. Following the acquisition on the additional 20.1% stake, we expect its 9M17 net gearing of 0.32x to increase to 0.66x which still falls within management’s comfort level. However, there will not be any mandatory general offer on MAGNA from HUAYANG as it is still below 33.0%.

Strategy forward… This allows HUAYANG to extend its reach in Klang Valley by tapping into the potential of MAGNA’s strategic land bank, which measures c.35 acre with a potential GDV of RM1.6b which is located in Shah Alam. That said, they are also able to come up with a collaborative agreement to engage similar resources, while future identified land bank would be jointly developed on 50:50 basis.

Outlook. HUAYANG’s move on MAGNA has further reinforced our view that there would not be any land banking activities in the near term and dividends to be kept at a minimal level as highlighted. However, we are mildly positive on the deal as it will give them the opportunity to replenish their land bank in Klang Valley by undertaking the development of MAGNA’s land bank that is located right at KLCC (2.6ac), Seksyen 15, Shah Alam (20ac), and we do not rule out any potential M&A play in the future.

Earnings unchanged. No changes to our FY17-18E earnings at this juncture as we are still in the process of ascertaining MAGNA’s future earnings. For illustrative purpose, assuming that MAGNA is able to replicate its net profit of RM44.8m in FY16, it could potentially contribute an additional 20% income to HUAYANG’s FY17E earnings. Its unbilled sales of RM215.6m only provide visibility for the next two quarters.

Upgrade to OUTPERFORM. Following the announcement, we are upgrading the stock to OP from our previous MP call with a higher Target Price of RM1.31 based on unchanged 57% discount (near trough valuation) to a higher RNAV of RM3.05 (from RM2.83) after factoring the additional 20.1% stake of MAGNA into our RNAV. Our new TP implies FY17-18E PERs of 6.7x-7.6x, which is still lower compared to its smallmid cap peers average of 8.5x-7.5x.

Risks to our call includes: (i) Weaker-than-expected sales, (ii) Higherthan-expected administrative costs, (iii) Negative real estate policies, (iv) Tighter lending environments, and (v) Lower-than-expected dividend pay-out.

Source: Kenanga Research - 20 April 2017

Brokers Report: PMB earnings expected to improve with increased production, lower costs

Retain HOLD with a target price (TP) of RM2.62

Press Metal Bhd
(April 19, RM2.79)

Maintain hold with a fair value of RM2.62: The global demand for aluminium is expected to grow modestly at 5% annually from financial year 2017 (FY17) to forecasted FY19 (FY19F), largely attributed to the transportation and construction segments which account for half of the global primary demand, while supply is expected to remain flat at 60 million tonnes. Currently, demand for aluminium stands at 59 million tonnes with supply at 59 million tonnes. The slow supply growth is mainly due to the curb on aluminium production in China where the government has issued a policy draft to cut down production during the winter season.

The curb is to tackle pollution which worsens in winter. Experts reckoned that if the China policy kicks in, they forecast a reduction of 1.3 million tonnes of aluminium production (4% of total production in China).
The positive outlook for aluminium is a boost to Press Metal Bhd’s (PMB) earnings outlook. Earnings is expected to improve by 47%/28%/27% respectively from FY17 to FY19F mainly driven by: (i) Ramped up annual production to full capacity in the fourth quarter of  2016 to 760 million tonnes annually from 705 million tonnes previously, and 120 million tonnes annually downstream at 75% utilisation rate.
We forecast higher average aluminium prices per tonne realised at US$1,785 (RM7,854), US$1,910 and US$2,100, up by 5%/7%/10% for FY17 to FY19F respectively, due to strong demand from the construction and transportation segments globally and the aluminium production cut in China.
(ii) The low production cost, helped by the competitive electricity tariff from hydroelectric power. Cost savings in logistics from the belt conveyer system in the Samalaju Port, which will be ready by the second half of 2017, will give PMB’s savings of US$50 to US$70 per tonne. Together with the low effective corporate tax rate mainly due to tax exemptions from its pioneer status and investment tax incentives, these make PMB the lowest cost aluminium producer in the region. — AmInvestment Bank Research, April 19

Source: AmInvestment Bank Research/ The Edge Financial Daily - 20 April 2017

Brokers Report: Sime Darby - Sukuk Repurchase, Land Sale

Reiterate MARKET PERFORM with an unchanged target price (TP) of RM9.50

SIME recently announced a tender invitation for the repurchase of its 2018 and 2023 sukuk totalling USD800.0m. Meanwhile, SPSETIA announced the acquisition of 342.5 acres land in Bangi from SIME’s 40%- owned associate Seriemas for RM447.6m. We are neutral on both developments, though we upgrade FY18E NP by 6% to reflect one-off gains. Maintain MARKET PERFORM with unchanged TP of RM9.50 based on SoP.

Sukuk repurchase and associate’s land sale. Sime Darby Berhad (SIME) recently invited eligible holders of its outstanding 2018 and 2023 sukuk to tender the respective sukuk (totaling USD800.0m) for repurchase. The company also announced a consent solicitation seeking the substitution of Sime Darby Plantation Sdn. Bhd. (Plantation) as the new obligor for the said sukuk, among other adjustments to the terms and conditions. Separately, SP Setia Berhad (SPSETIA) recently announced the acquisition of 342.5 acres of land in Bangi, Selangor from Seriemas Development Sdn. Bhd. (Seriemas) for RM447.6m. Seriemas is a 40%-owned associate of SIME, with the other 60% held by Permodalan Nasional Berhad (PNB).

Limited earnings impact on sukuk repurchase. We are neutral on the tender invitation as our estimates imply only marginal positive net interest impact of <1 2.0="" 2018="" 2023="" 3.1-3.3="" 3.3="" 3.7="" 80-20="" a="" an="" and="" assuming="" be="" both="" c.rm15.0m="" closer="" cnp.="" cnp="" compared="" conventional="" core="" could="" coupon="" deadline="" debt-equity="" despite="" due="" early="" earnings="" effective="" estimate="" favorable="" figures="" financing="" for="" from="" full="" fully="" fy16.="" fy18="" fy18e="" if="" in="" interest="" is="" issuance="" its="" less="" low="" maintain="" maximum="" move="" note="" now.="" of="" on="" or="" our="" outlay="" p="" post-2013="" potential="" rate="" rates="" ratio="" relatively="" repurchase="" respectively="" result="" ringgit="" rm3.58b.="" savings="" small="" subscribed.="" subscribed="" sukuk="" tender="" that="" the="" this="" thus="" to="" we="" weakening="" with="" within="">

Associate sale of Bangi land. We are also neutral on the recently announced land sale by SIME associate Seriemas to SPSETIA (please refer to our SPSETIA report published 17-Apr for details), as we exclude one-off disposal gains from our CNP estimate. However, we calculate a gain on disposal of RM411.5m for Seriemas which translates to an associate gain of RM164.6m for SIME. The deal is expected to be completed by 4QCY17. Accordingly, we up our FY18E NP estimate by 6% to RM2.42b, while CNP is unchanged.

Increase FY17-18E CNP by 0-6%; CNP maintained. As outlined above, we increase our FY18E CNP by 6% to RM2.42b to account for one-off gains from the Seriemas land sale.

Reiterate MARKET PERFORM with unchanged TP of RM9.50 based on Sum-of-Parts. Our Plantation PER valuation is unchanged at 26.0x, implying a 5% premium to average big-cap PER of 25.0x. We believe that the market has already fully priced in the proposed listing structure of the Plantation and Property divisions based on our SoP valuations. Hence, we maintain our MARKET PERFORM call on the stock.

Source: Kenanga Research - 20 April 2017