MONEY MASTER

Highlights 2016 OTC Asia event. Yesterday, we attended the forum led by MIDA discussing the Malaysian O&G industry. The event, hosted by Y. Bhg. Datuk N. Rejendran (MIDA Deputy CEO, was joined by several speakers namely: Mr. Adif Zulkifli (SVP of Petronas Corporate Strategy), Mr. Maen Razouqi (Schlumberger VP & GM), Mr. Douglas Bruce Moody II (FMC GM) and Mr. Craig McMahon (Wood Mckenzie Asia Pacific Head of Research). Readjustment to the new norm. In essence, most of the major players in the industry have accepted the new norm of low oil prices whereby exuberance is no longer tolerable and are taking multiple initiatives to optimize their cost structures. Petronas has launched Coral 2.0 initiative to save costs and improve efficiencies. Schlumberger, on the other hand, has looked at further optimization in its business involving reduction of Non Performing Time (NPT) through widening scope of work on per staff basis. This is in line with staff cuts, margin shrinkage an...

Economy US: Consumer comfort declines to match low for this year.  Consumer confidence in the US fell last week to match the lowest level this year as Americans grew more pessimistic about the economy and the buying climate. The Bloomberg Consumer Comfort Index slipped to 43.6 in the period ended March 20 from 44.3 the prior week. The measures tracking current views of the economy and the buying climate both dropped to the lowest level since mid-Dec, while perceptions of personal finances rose to a five-month high. (Bloomberg) US: Atlanta Fed downgrades 1Q GDP view to 1.4%.  The US economy is on track to grow 1.4% in the 1Q following disappointing data on durables goods orders and home resales, the Atlanta Federal Reserve's GDPNow forecast model showed. That pace was weaker than the regional Fed's prior estimate of 1.9% on March 19, the Atlanta Fed said. (Reuters) US: Jobless claims climbed less than forecast last week . Filings for US unemployment benefits last w...

Reiterate BUY and MYR4.35 SOP-based TP 4QFY1/16 results, due next week, are unlikely to spring any surprises. Operationally, the conversion of its FPSO Genesis is on schedule (which market has yet to fully appreciate the impact) and the planned sale of its non O&G operations will be concluded by 2HCY16. The expected 15sen special DPS (5% yield) is a short-term catalyst and Yinson stays in position to capitalise on the demand for new FPSO projects worldwide. Results to meet our expectation Yinson’s 4QFY1/16 results are expected to be out next week. We expect Yinson to post a core net profit of MYR40m-49m (-12%-28% QoQ; +7%+32% YoY) in 4QFY1/16. This would bring FY16 core earning to MYR172m-181m, within our forecasts but below consensus’ MYR193m. The FSO/FPSO operations continue to be the Group’s key earnings driver. We expect weaker earnings from OSV and its non O&G operations (trading & transport). We do not rule out a DPS for 4Q16, based on historical trend. C...

Last week, we met with Berjaya Auto (BAuto)’s Director, Dato’ Francis Lee and also visited Inokom Corporation (Inokom) in Kulim, Kedah . Inokom is the contract manufacturer of various marques including Mazda vehicles. Currently, BAuto owned 29%-stake in Inokom. At Inokom, we were taken on a tour around the assembly facilities of Mazda vehicles. Key takeaways from the meeting are (i) opportunity to improve export market, and (ii) more room for growth in the Philippines market in the medium term. However, we cut our FY16-17 earnings forecast by 3%-6% due to the revision in our assumption for JPY currency rates. Nevertheless, we are still positive on BAuto as we believe it should perform better than its peers in terms of earnings growth due to a more superior margin, stable dividend payout and net cash position. Our Outperform call on BAuto is maintained at a revised target price of RM2.58 (previously RM2.65) pegged to 13x FY17F. Opportunity to improve export market. Since June 201...

Results in line 2QFY7/16 net profit of MYR160m (-12% YoY, -0.7% QoQ) brought 1HFY7/16 net profit to MYR321m (-13% YoY), accounting for 48%/51% of our/consensus full-year forecasts. KVMRT 2 major works are expected to be awarded soon and the underground works value could exceed earlier forecast. Further upside could come from other infrastructure projects win. Reiterate as TOP BUY at unchanged RNAV-TP of MYR5.65. KVMRT 1 works at tail end In 2QFY7/16, construction pretax profit (before FRS 11) was 8% QoQ lower (-37% YoY) as construction works recognition declined 32% QoQ (- 28% YoY) but partly offset by higher 2QFY7/16 construction pretax profit margin of 8.2% (+1.1ppt QoQ, -1.2ppt YoY). These higher margins were due to the higher portion of higher-margin underground works recognised. Offset by stronger concession earnings Property development pretax profit (before FRS 11) also fell 12% QoQ (- 9% YoY) due to slower property progress billings (-6% QoQ, -10% YoY) and proper...

Strengthens net gearing marginally nonetheless The MYR2.2b Perpetual Sukuk will lower Sime’s proforma net gearing to 49% (from 51%, as at 31 Dec 2015) which fits well with its ongoing deleveraging initiatives. Given the higher cost of Sukuk at 5.65% pa vs existing weighted cost of debt of 3.4% pa, we expect marginal EPS dilutions. With no immediate catalyst in sight (except an El Nino induced CPO price rally), we keep Sime as a HOLD with an unchanged TP of MYR7.98 based on 18x FY17 PER peg. Raised MYR2.2b Perpetual Sukuk at 5.65% yield Sime has completed the first fund raising exercise under its Perpetual Subordinated Sukuk programme on 24 Mar 2016. The MYR2.2b Perpetual Non-call 10-year Subordinated Sukuk which offered a yield of 5.65% pa was over 1.8x oversubscribed. Said to be the largest perpetual Sukuk issuance globally by a non-bank, the MYR3b Sukuk programme has been assigned a rating of AA by MARC. Marginal EPS dilution Sime plans to use the cash proceeds lar...

Results track expectations ECW’s 1QFY10/16 net profit (+>100% YoY) was within our expectation but slightly below consensus. 4MFY16 actual sales are on track to meet its own sales target of MYR3b (excluding the overseas projects pending the listing of its associate company) for FY16. Potential enbloc sales at Bukit Bintang City Centre (BBCC) will lower the overall project risk. We maintain earnings forecasts, MYR1.67 RNAV-TP and BUY rating. Earnings driven by better margin and lower taxes ECW’s 1QFY10/16 net profit was MYR20.7m (>+100% YoY, +5% QoQ) accounting for 21%/18% of our and consensus full-year estimates. The strong YoY earnings growth was mainly driven by better operating margin and lower tax charges. EBIT margin improved by 2ppt YoY and QoQ to 7.8% on lower administrative and marketing expenses. As at end-Jan 2016, ECW’s net gearing stood at 0.46x, from 0.37x at end-Oct 2015. On track to meet its ambitious sales target ECW has locked in MYR607.8m in prop...

What a day for Bursa...another U-turn at the last minute. FBM KLCI rose at the 11th hour today to close at 1,724.75 at 5pm. T he KLCI erased losses after volatile trades earlier. Looking at Bursa, most of the export counters are being hit badly as the Ringgit seems to have find its footing. FBM KLCI closed higher after reversing losses at the 11th hour The ringgit strengthened to 4.0098 against the US dollar on crude oil gains. The exchange rate had earlier reached its strongest intraday level at 3.9805. In Asia, Japan’s Nikkei 225 was up 1.94%, while South Korea’s Kospi rose 0.35%. Hong Kong’s Hang Seng fell 0.08%. Bursa Malaysia saw 2.42 billion shares, valued at RM2.88 billion, traded. There were 396 gainers against 473 decliners. Hubline was in the top active list today while Scientex and Tenaga both lead the top gainer list. Panasonic Manufacturing (M) Bhd was the top loser for the day.  Reuters reported Asian stocks seesawed on Tuesday...

FBM KLCI closed 2.02 points higher If you have been following the Bursa Malaysia, you would probably be disappointed almost the entire day until the closing. The FBM KLCI was basically heading south the entire day before it turns green during the closing period. FBM KLCI rose 2.02 points or 0.1% after China's state margin lender resumed short-term loans and reduced borrowing cost for brokerages. Investors take margin loans to invest in shares or funds. At 5pm, the KLCI closed at 1,718.36 points. The index erased losses at the 11th hour, after falling to an intraday low at 1,707.11. In China, the Shanghai Composite rose 2.15%, while Hong Kong's Hang Seng added 0.06%. Japanese share markets were closed for a public holiday. Reuters  reported that China financial stocks such as brokerages led indexes higher, with the CSI300 financial sub-index gaining 3.3%. On Bursa Malaysia, 2.01 billion shares, worth RM2.05 billion, exchanged hands. Gainers outnumbered d...

The Malaysian Insider (TMI) went offline The Malaysian Insider It's not like that we didn't see it coming. But one of the most popular independent news portal, The Malaysian Insider (TMI) went offline on March 15 despite its popularity but let's face it. Without the commercial support, it's impossible to see how TMI can go on its operation, especially when the Malaysian Communication and Multimedia Commission block its website.  The Edge Media Group (TEMG) issued a statement, saying that TMI has run up to RM10 million of losses in the 20 months (since June 2014).  A deal could not be reached with three external suitors, "all of whom have existing media businesses", as well as on an offer for a management buyout. This was made tougher after the MCMC's block order on TMI, although talks had started earlier.  The closure of TMI saw 59 staff members, including its editor Jahabar Sadiq let go.  In a statement, TEMG publisher and CEO Ho Ka...

Standard & Poor's 500 Index turns positive for 2016 in the wake of a  dovish Federal Reserve that helped the gauge post its longest weekly winning streak since November. One of the greatest comeback in the history The S&P 500 followed the Dow Jones Industrial Average to advance for the year, after a poor start to the year, with  The Dow jumping by 12% in 24 days through Thursday, boosted by seven separate daily advances exceeding 1%. It's amazing given that 2016 has started with one of the worst performance so far but a stunning comeback with stocks pushing over the top as US Fed signaled a slower pace of interest-rate increase this week. The S&P 500 added 0.4% to 2,049 and is now up 0.3% this year after falling as much as 11%. According to a report from Bloomberg, Friday’s gains were braced by health-care companies, with the group on the way to ending the longest losing streak in two months. Banks were on pace to halt a three-day slide after also lagging...

FBM KLCI jumped 13.15 points to close at 1,716.34 The FBM KLCI saw a strong trading day today as the market jumped 13.15 points to close at its intraday high of 1,716.34.  The uptrend was in line with the regional market after the US Fed decided to keep rate on hold. The decision, reached at a two-day Federal Open Market Committee (FOMC) meeting that begun on Tuesday, resulted in renewed investor confidence in emerging markets. Across the regional market, Hong Kong's Hang Seng index was up 167.82 points or 0.82%, South Korea's KOSPI rose 4.13 points or 0.21%, and Singapore's Straits Times Index gained 15.07 points or 0.52%. Japan's Nikkei 225, however, was down 211.57 points or 1.25% while the Stock Exchange of Thailand slipped 0.43 points or 0.03%. According to Reuters, Asian shares edged higher on Friday as oil touched a 2016 high. Today, FBM KLCI saw 2.03 billion shares, valued at RM2.98 billion, traded. There were 538 gainers against...

Maintain Buy with higher target price (TP) of RM13.05 Scientex Bhd We are excited about Scientex’s multi-year expansion in its consumerpackaging division which would more than quadruple its initial capacityby the end of 2016 and drive a 3-year earnings CAGR of 35% in FY15-18F.Maintain BUY with a SOP-derived MYR13.05 TP (from MYR10.68, 13%upside) as we revise up our sales volume assumptions for its packagingdivision to account for a higher average utilisation rate of 80% for FY16 .  Fast and furious. Already the largest stretch film manufacturer in Asia andamongst the top three globally, Scientex is now embarking on a capacityexpansion spree to grow its consumer packaging capacity through a series ofacquisitions and organic expansions. We continue to highlight Scientex’simpressive feat in building up its consumer packaging to 146,400 tonnes byend-2016, from just 30,000 tonnes in 2014 (CAGR of +121%). Exciting market opportunities . Scientex’s strategy to ramp up...

Maintain buy, with a higher target price (TP) of RM2.40 Hock Seng Lee Maintain BUY, with a raised TP of MYR2.40 HSL’s Kuching Centralised Sewerage Package 2 job win worth MYR750m is a positive surprise as the project value is higher than expected. We expect more construction jobs to be dished out in Sarawak as the state election looms closer. We raise our 2016 job win and EPS forecasts given the strong job wins todate. Reiterate BUY with a higher TP of MYR2.40 (+7%) on unchanged 12.5x 2017 PER. Higher-than-expected project value HSL-led Kumpulan Nishimatsu-HSL Consortium (75% owned) has won the Kuching Centralised Sewerage: Package 2 (P2) from Sewerage Services Department of Sarawak worth MYR750m. This is 42% higher than P1’s MYR530m as P2 has a wider coverage. P2’s project value is also higher than expected, of MYR500m. The job scope covers construction and commissioning of a wastewater treatment plant and other related works. The works are expected to complete in 72 ...

Maintain Hold with unchanged target price (TP) of RM55 Strategic decision The cessation of BAT’s domestic manufacturing activity is a strategic decision to achieve a more sustainable business model. We estimate that the disposal of its factory land and M&E could fetch about MYR1.45/shr, partially offsetting one-off staff costs, which raises the prospect of a special dividend. Retain HOLD for now with an unchanged MYR55 DCF-TP. To cease manufacturing activity BAT has announced that it will cease its factory operations in Malaysia in stages and that the wind down will be completed by 2H17. Management cites higher production costs on lower legal volumes due to the high excise environment and rise in illicits. What is also the case, in our view, is that it is probably cheaper now, under AFTA, to source from other ASEAN countries, which is why BAT plans to source its tobacco products from other BAT factories regionally. Disposal of manufacturing facility The factory l...

Maintain Neutral with unchanged target price (TP) of RM0.39 TRC Synergy Bhd TRC Synergy (TRC) revealed that it might potentially nail more jobs this year, potentially from the MRT2 and LRT3 rail links, Pan Borneo and other highways such as SUKE and DASH. Granted, the competition will be stiff with most contractors bidding for the same jobs. However, we believe the Group’s experience in working on the earlier phases of LRT/MRT could give it an added advantage. FY15 was quiet in terms of job replenishments with only RM176m worth secured. Separately, it announced that it has secured a contract worth RM88m yesterday for a sub-contract to develop the new Kuala Lumpur Air Traffic Control Centre at KLIA and other locations, which would increase its outstanding orderbook to RM1.2bn. As for property, its Ara Damansara mixed development project is confirmed to be deferred to end-2016, with the development order expected by 3QCY16. Elsewhere, its property development project worth RM293m s...

Maintained Sell with unchanged Target Price (TP) of RM5.50 Highlights/ Comments UMW faces deteriorating market conditions for its automotive and O&G (including valued business) divisions. 51% owned Toyota has set a lower target of 87k sales (including 2k sales from Lexus) for FY16 as compared to FY15’s 95.9k sales (including 2.1k sales from Lexus). New launches for 2016 are Hilux (2Q16), Innova (3Q16), Fortuner (3Q16) and upgraded Vios (launch date unconfirmed). With the expected lower sales volume and continued competitive market, margins are likely to stay weak (despite increased prices) in FY16 for high marketing and distribution costs as well as full year impact from weaker RM against US$ (FY16 to be RM4.10/US$ vs. FY15’s effective RM3.90/US$). 38% owned Perodua is likely to perform weaker in FY16 (vs. circa RM410m in FY15) despite higher target of 216k sales (vs. FY15’s 213.3k sales), given lower revenue mix and full year impact from RM depreciation in FY16. Perod...