Monday, May 23, 2016

Malaysia | Malaysia Banking Base Rates rise for some banks


FEATURE
CALLS

Malaysia | Malaysia Banking
Base Rates rise for some banks
Desmond Ch'ng







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KNM Group | Secures MYR175m EPC job
Thong Jung Liaw







TIME dotCom | Precursor to special DPS?
Chi Wei Tan







RHB Capital | Capital repayment of RHB Bank shares
Desmond Ch'ng







PECCA Group Bhd | Weak car sales to affect earnings
Ivan Yap







Al-Salam REIT | Minor shortfall from KOMTAR JBCC
Kevin Wong










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Malaysia | Base effect at work
Suhaimi Ilias







Malaysia | Edged higher
Suhaimi Ilias







Malaysia | Respite before turbulence continues
Lee Cheng Hooi








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COMPANY RESEARCH





Company Update





KNM Group (KNMG MK)
by Thong Jung Liaw





Share Price:
MYR0.47
Target Price:
MYR0.80
Recommendation:
Buy




Secures MYR175m EPC job

The EPC job win worth MYR175m from Norman Process Oils is a positive development to its orderbook replenishment for existing operations (process equipment). Nonetheless, the key re-rating catalyst to KNM is the successful remodelling of its business model, from a cyclical to a more secured, recurring based income via its potential exposure to the build, own, operate (BOO) waste-to-energy (WTE) operations in Thailand and UK. This would be realised from as early as 3Q16. BUY.



FYE Dec (MYR m)
FY14A
FY15A
FY16E
FY17E
Revenue
1,865.1
1,641.3
1,830.7
2,170.4
EBITDA
207.9
208.4
210.1
254.5
Core net profit
36.8
45.7
105.5
140.1
Core EPS (sen)
2.4
2.4
5.6
7.5
Core EPS growth (%)
61.2
3.4
131.0
32.8
Net DPS (sen)
0.0
0.0
0.0
0.0
Core P/E (x)
19.7
19.0
8.2
6.2
P/BV (x)
0.3
0.3
0.3
0.3
Net dividend yield (%)
0.0
0.0
0.0
0.0
ROAE (%)
1.7
1.9
3.8
4.9
ROAA (%)
0.9
1.1
2.4
3.1
EV/EBITDA (x)
6.3
7.0
6.0
4.5
Net debt/equity (%)
27.1
19.1
14.7
9.7


Thong Jung Liaw








Company Update





TIME dotCom (TDC MK)
by Chi Wei Tan





Share Price:
MYR7.35
Target Price:
MYR7.20
Recommendation:
Hold




Precursor to special DPS?

Following the disposal of its remaining Digi shares, it is possible that TDC could pay out the proceeds to shareholders via a special dividend. This would likely help to sustain share price at current lofty valuations, in our view. HOLD rating maintained, with a marginally lower MYR7.20 TP.



FYE Dec (MYR m)
FY14A
FY15A
FY16E
FY17E
Revenue
596.3
682.4
757.1
859.8
EBITDA
217.8
263.9
272.6
309.5
Core net profit
127.3
171.2
160.5
189.7
Core EPS (sen)
22.2
29.8
27.9
33.0
Core EPS growth (%)
(51.1)
34.1
(6.4)
18.2
Net DPS (sen)
5.6
80.2
7.1
8.2
Core P/E (x)
33.1
24.7
26.4
22.3
P/BV (x)
1.8
2.0
2.0
1.9
Net dividend yield (%)
0.8
10.9
1.0
1.1
ROAE (%)
5.8
7.7
7.7
8.8
ROAA (%)
5.0
6.4
6.1
7.0
EV/EBITDA (x)
12.0
16.2
14.0
11.8
Net debt/equity (%)
net cash
net cash
net cash
net cash










Company Update





RHB Capital (RHBC MK)
by Desmond Ch'ng





Share Price:
MYR5.87
Target Price:
MYR6.30
Recommendation:
Hold




Capital repayment of RHB Bank shares

The proposed capital distribution of 1.3 RHB Bank shares for every 1 RHB Capital (RHB) shares, is as expected. The entire restructuring exercise should be completed by Jul 2016. Our MYR6.30 TP is unchanged, pegging RHB Bank’s proforma 2016 BV to a multiple of 0.9x (estd. ROE 9%) while accounting for the share swap ratio as well. HOLD maintained.



FYE Dec (MYR m)
FY14A
FY15A
FY16E
FY17E
Operating income
6,234.9
6,191.2
6,303.2
6,572.7
Pre-provision profit
2,823.7
2,398.0
2,863.4
2,991.6
Core net profit
1,925.6
1,689.2
1,775.7
1,831.1
Core EPS (MYR)
0.71
0.65
0.57
0.59
Core EPS growth (%)
3.2
(9.2)
(11.5)
2.6
Net DPS (MYR)
0.06
0.12
0.14
0.15
Core P/E (x)
8.2
9.0
10.2
10.0
P/BV (x)
0.8
0.8
1.1
1.0
Net dividend yield (%)
1.0
2.0
2.4
2.6
Book value (MYR)
7.31
7.51
5.40
5.89
ROAE (%)
10.8
8.1
8.9
10.5
ROAA (%)
0.9
0.8
0.8
0.8










Company Update





PECCA Group Bhd (PECCA MK)
by Ivan Yap





Share Price:
MYR1.62
Target Price:
MYR1.90
Recommendation:
Buy




Weak car sales to affect earnings

Weak car sales/production raise concerns on Pecca’s revenue especially in 4MCY16. The top six car marques, contributing 80% of Pecca’s revenue in FY15, saw YoY contraction in sales volume in 4MCY16, affected by weak consumer sentiment and price hikes. Pending 3QFY16 results due out on 24 May, we keep our forecasts unchanged but with downside potential. Maintain BUY; MYR1.90 TP (13x CY17 PER).



FYE Jun (MYR m)
FY14A
FY15A
FY16E
FY17E
Revenue
99.5
129.5
141.6
154.0
EBITDA
22.6
27.8
30.9
36.0
Core net profit
14.5
17.9
20.1
25.1
Core EPS (sen)
7.7
9.5
10.7
13.4
Core EPS growth (%)
37.4
23.9
11.9
25.2
Net DPS (sen)
5.1
4.4
5.3
6.7
Core P/E (x)
21.0
17.0
15.2
12.1
P/BV (x)
5.1
4.4
2.1
2.0
Net dividend yield (%)
3.2
2.7
3.3
4.1
ROAE (%)
25.1
27.6
18.9
16.9
ROAA (%)
16.3
17.5
14.6
14.6
EV/EBITDA (x)
na
na
7.4
6.3
Net debt/equity (%)
net cash
net cash
net cash
net cash










Results Review





Al-Salam REIT (SALAM MK)
by Kevin Wong





Share Price:
MYR0.97
Target Price:
MYR1.07
Recommendation:
Buy




Minor shortfall from KOMTAR JBCC

1Q16 earnings were below our expectations mainly due to lower-than-expected occupancy rates and percentage rent income at KOMTAR JBCC mall. We lower FY16 earnings by -6% after adjusting KOMTAR JBCC’s key assumptions. Our DCF-based TP of MYR1.07 is unchanged (WACC: 7.2%, terminal yield: 7%).



FYE na (MYR m)
FYna
FY15A
FY16E
FY17E
Revenue
na
20.7
74.4
80.9
Net property income
na
15.7
52.9
58.7
Distributable income
na
7.1
31.8
37.6
DPU (sen)
na
1.1
4.9
5.5
DPU growth (%)
na
na
356.4
12.3
Price/DPU(x)
na
90.3
19.8
17.6
P/BV (x)
na
1.0
1.0
1.0
DPU yield (%)
na
1.1
5.1
5.7
ROAE (%)
na
na
5.4
6.3
ROAA (%)
na
na
3.3
3.9
Debt/Assets (x)
na
0.4
0.4
0.4







SECTOR RESEARCH






Sector Note
by Desmond Ch'ng


Base Rates rise for some banks





The move by Public Bank and HL Bank to raise their Base Rates (BR) by 10bps is marginally positive in alleviating some of the pressure on their NIMs. The scope for the other domestic banks (with the exception of Maybank) to follow suit appears limited at this stage, amid declining interbank rates. We maintain our NEUTRAL call on the sector, with BUYs on AFG, HL Bank and HLFG. Public Bank is a HOLD.









MACRO RESEARCH






Economics Research
by Suhaimi Ilias


Base effect at work





Headline and core inflation rate moderated to +2.1% YoY (Mar 2016: +2.6% YoY) and +2.3% YoY (Mar 2016: +3.6% YoY) respectively. YTD 2016 headline inflation is +3.2% YoY while core inflation is at +3.3% YoY. We adjusted our 2016 headline inflation rate forecast range to 2.7%-3.2% from 3.0%-3.5% previously.












Economics Research
by Suhaimi Ilias


Edged higher





External reserves as at 13 May 2016 rose to USD97.2b (MYR382.3b) from USD97.0b (MYR381.4b) on 30 Apr 2016. This is equivalent to 7.9 months of retained imports and 1.2 times of short-term external debt. Latest figure remains up trend amid mix trends in capital flows. Year-to-date, external reserves increased by +2.0% from USD95.3b at end-2015.












Technical Research
by Lee Cheng Hooi


Respite before turbulence continues





The FBM KLCI edged up 0.53 points WoW to close at 1,628.79. The market traded in a narrow range and average daily volume fell from 1.88b to 1.39b shares last week.







NEWS


Outside Malaysia:

Brazil: New economic team downgrades expectations for budget. Brazil’s new economic team projects the largest budget deficit before interest payments on record this year, underscoring the challenge Acting President Michel Temer will face in turning around Latin America’s biggest economy. Temer’s administration will submit a bill that would allow it to report a primary budget gap of BRL 170.5b (USD 48.4b) in 2016, Finance Minister Henrique Meirelles said. The estimate is realistic and transparent, and doesn’t include possible spending cuts and revenue increases that require congressional approval, he said. It’s for the central government only, meaning it doesn’t take into consideration state or city budgets. (Source: Bloomberg)

Japan: Exports post seventh monthly decline in April on stronger Yen, underscoring the mounting challenges to Prime Minister Shinzo Abe’s efforts to revive economic growth. Overseas shipments declined 10.1% YoY in April, the Ministry of Finance said. Imports fell 23.3% YoY, leaving a trade surplus of JPY 823.5b (USD 7.5b). (Source: Bloomberg)

Crude Oil: Iran won’t freeze oil output as it gears up for OPEC meeting. Iran, which is due to meet with OPEC partners on June 2, has no plan to join any freeze in crude output as the country won’t be done ramping up oil exports to pre-sanctions levels before the second half of the year, the head of the state oil company said. The Persian Gulf state’s oil exports will likely surpass 2.2 million barrels a day by the middle of the summer, Rokneddin Javadi, managing director of National Iranian Oil Co., told Mehr news agency. Iran last exported at this level before sanctions were imposed on the country for its nuclear program more than four years ago. Sanctions were eased in January, and Iranian officials said they won’t discuss any output freeze or cut before reaching pre-sanctions levels. (Source: Bloomberg)





Other news:

Utilities: Edra to build MYR400m solar plant in Kedah. Edra, recently acquired by China General Nuclear Power Corp for MYR9.83b is set to build a MYR400m solar power plant in Kedah. The plant in Kuala Ketil will turn the once agricultural land into an industrial site and support the long-established industrial park in Kulim. This could footprint the first 50MW AC solar panel farm that will be the largest in Malaysia. (Source: The Edge Financial Daily)

Malaysian Bulk Carriers: On selling spree as dry bulk market picks up. Malaysian Bulk Carriers (Maybulk), the country’s largest dry bulk shipowner is said to be putting two more vessels up for sale. According to industry sources, Maybulk is now in talks to sell Alam Padu, a bulk carrier built in April 2005, and has a deadweight of 87,000 tonnes, and Alam Murni, which is a 2003-built, 53,000 deadweight tonnage Supramax bulk barrier. Based on recent price tags, the two vessels could fetch more than USD10m. (Source: The Edge Financial Daily)

Tanjung Offshore: On diversification mode. Oil and gas service provider Tanjung Offshore is putting in place a diversification strategy that will eventually see less reliance on its core oil and gas business, whereby its revenue contribution to the group is expected to reduce to 70% in the next five years. The balance 30% will come from the proposed new venture into property construction, aerospace, transport and education business. The company is in talks for partnerships in the aerospace and education segments, including with UMW Holdings but nothing has been firmed up yet. (Source: The Sun Daily)


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