MONEY MASTER

Maintain HOLD with lower target price (TP) of RM1.68 Results 3Q16 core net profit of RM18.9m (qoq: -18.5%; yoy: - 18.1%) took 9M16 core net profit to RM57.8m (-18.2%), accounting for 59.1% and 56.5% of our and consensus full- year forecasts. We deem the results below expectations, despite expecting stronger 4Q results (underpinned by stronger 4Q FFB output and sustained palm product prices). Deviations Higher-than-expected finance costs. Dividend None. Highlights QoQ…  Despite a flattish revenue growth, 3Q16 core net profit declined by 18.5% to RM18.9m, as higher plantation earnings (arising from FFB output recovery), reduced losses on wood product division, and higher associate and JV contribution were more than offset by higher finance costs and tax expense. FFB output increased by 30.1% to 151.3k tonnes, boosted mainly by output recovery at its Indonesian operations (while Sabah estate has yet to show improvement). YTD…  9M16 core ne...

Maintain BUY with higher target price (TP) of RM2.66 Results Kimlun reported 3QFY16 results with revenue coming in at RM224.2m (-9% QoQ, -7% YoY) and earnings of RM16.5m (-32% QoQ, -16% YoY). Cumulative 9M earnings totalled RM57.7m, increasing +17% YoY. Deviation 9M earnings made up 84% of our full year forecast (77% of consensus) which is above expectations. The stronger than expected results was attributed to the manufacturing division which enjoyed superior gross margins of 32% for the 9M period vs 24.8% last year. This was due to (i) stronger SGD against MYR and (ii) higher proportion of MRT deliveries last year which generally commands a lower margin. Dividends None declared. Highlights Orderbook remains healthy. Kimlun’s orderbook currently stands at RM2.1bn comprising RM1.8bn for construction and RM280m for manufacturing. Overall, this translates to a healthy cover ratio of 2x on FY15 revenue. Bags MRT2 TLS contract. Kimlun announced t...

SELL CALL with unchanged target price (TP) of RM1.55 Comments As anticipated, revenue of BFood’s Starbucks Malaysia operations is growing steadily. However, Starbucks’ EBIT margin has been depressed due to the weakening of the MYR against the USD. This is due to BFood purchasing certain raw materials from Starbucks Corp (USA) such as coffee beans, frappuccino mix and syrup which are denominated in USD. These materials account for between 40-50% of Starbucks Malaysia’s COGS. Therefore, given the recent renewed MYR weakness to ~RM4.20/US$, Starbucks Malaysia’s margins will remain depressed. This effect is illustrated over the previous six quarters (Figure 1). In FY17, BFood has closed one unprofitable KRR Indonesia restaurant and plans to continue to close loss-making outlets. Further closures of will reduce BFood’s effective tax rate as currently losses overseas cannot be offset back home in Malaysia, resulting in an inflated effective tax rate. Ready to Drink (RTD) S...

Maintain BUY call with target price (TP) of RM9.50 Highlights MISC announced that it has filed a Notice of Adjudication dated 23 Sep 2016 against Sabah Shell Petroleum Company Limited (“SSPC”) seeking resolution on contractual disputes covering claims for outstanding additional lease rates, payment for completed variation works and other associated costs amounting to approximately US$245m. The above litigation would not post any negative impact to its earnings as the current lease contract terms for Gemusut-Kakap Semi-Floating Production Ltd (GKL) is maintained. In contrast, potential upside could be reaped by the group in the event of successful claim from the legal suit. The group has also just taken delivery of Seri Camelia, LNG vessel built by Hyundai Heavy Industries, 1st of the 5 LNG vessels to be chartered to Petronas for the next 15 years. This is in line with our assumption of LNG vessel delivery in 3Q16 and 4Q16. In the coming years, the group’s core...

SELL CALL on UMWOG and and CEASE COVERAGE for Perisai Highlights 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, ...

Highlights The absence of pricing premium (as a result of demand weakness), coupled with rising transportation cost to the Middle East (as transportation costs are borne by Evergreen), management has started diverting its marketing efforts from the Middle East back to the Southeast Asian region. Despite the ASP pressure for MDF products, we continue to see strong earnings prospects in the company. Renewed weakness in MYR against the US$ arising from more hawkish Fed and lackluster domestic market outlook is a boon to Evergreen’s earnings. Costs of key inputs (i.e. rubber log wood and glue) continue to trend lower, and these will partly alleviate margin pressure from lower ASP. Evergreen is on track to reap more benefits from its cost rationalization exercise. The new RTA furniture line has commenced commercial operations since May-16. Having convinced about the potential of the RTA furniture business, Evergreen has placed deposits for an additional RTA furniture...

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...

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...

Highlights Loan growth is guided at 6-8% in FY16 (vs 6.8% achieved in FY15), underpinned by the consumer segment (in particularly, hire purchase and mortgage financing). NIM to remain under pressure. Following a 13bps decline in NIM in FY15, management expects NIM to remain under pressure in FY16 as competition for deposits remains intense for the first 2 months of FY16 (and it sees possibility of deposit competition intensifying further in the coming months). While management has plans to expand its CASA base (from 19.2% FY15) through various initiatives, we believe such plans may be challenging to yield favourable result amidst the current tight liquidity environment. Asset quality to improve from FY16. The AQ deterioration in FY15 (evidenced by higher GIL ratio and credit cost) came largely from the SME segment and contract financing. While operating environment will likely remain challenging, management expects its asset quality to improve (with cre...