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FEATURE
CALLS
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Malaysia | Hong Leong Bank
Decent domestic
performance in 2QFY17
Desmond Ch'ng
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Share
Price:
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MYR13.50
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Target
Price:
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MYR15.20
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Recommendation:
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Buy
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Decent domestic
performance in 2QFY17
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HL Bank’s 2QFY6/17 results would have been marginally
above expectations if not for increased provisioning at Bank of Chengdu
(BOC). The domestic operations performed commendably especially with
ongoing NIM expansion, decent NOII growth and positive JAWS. We
maintain our BUY call with an unchanged TP of MYR15.20, pegged to a
CY17 PBV of 1.4x (10% ROE).
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FYE Jun (MYR m)
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FY15A
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FY16A
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FY17E
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FY18E
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Operating income
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4,066.9
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4,177.9
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4,515.3
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4,706.7
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Pre-provision profit
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2,253.1
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2,263.1
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2,536.5
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2,671.3
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Core net profit
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2,233.2
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2,075.4
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2,141.8
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2,240.5
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Core EPS (MYR)
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1.31
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1.09
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1.03
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1.07
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Core EPS growth (%)
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5.9
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(16.7)
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(5.7)
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4.6
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Net DPS (MYR)
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0.41
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0.41
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0.42
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0.44
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Core P/E (x)
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10.3
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12.4
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13.2
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12.6
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P/BV (x)
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1.5
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1.4
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1.3
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1.3
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Net dividend yield (%)
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3.0
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3.0
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3.1
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3.3
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Book value (MYR)
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8.93
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9.74
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10.09
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10.47
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ROAE (%)
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14.3
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11.0
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10.0
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10.1
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ROAA (%)
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1.3
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1.1
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1.1
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1.1
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Share
Price:
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MYR15.20
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Target
Price:
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MYR17.10
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Recommendation:
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Hold
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Benefiting from
higher bond yields in 2QFY17
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HL Bank continues to fare well domestically, with
impeccable fundamentals, while HL Assurance saw a jump in 2QFY17
earnings as a result of the spike in bond yields. We are nevertheless
maintaining our forecasts for HLFG with an unchanged RNAV-derived TP of
MYR17.10. With little catalyst to HLFG’s share price at this stage, we
prefer direct exposure to HL Bank (BUY; TP: MYR15.20).
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FYE Jun (MYR m)
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FY15A
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FY16A
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FY17E
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FY18E
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Operating income
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4,490.9
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4,543.3
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4,895.3
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5,100.3
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Pre-provision profit
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2,490.7
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2,258.9
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2,679.5
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2,819.9
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Core net profit
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1,543.6
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1,489.5
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1,537.6
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1,613.1
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Core FDEPS (MYR)
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1.48
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1.43
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1.47
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1.54
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Core FDEPS growth(%)
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(9.6)
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(3.5)
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3.2
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4.9
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Net DPS (MYR)
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0.38
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0.38
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0.39
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0.41
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Core FD P/E (x)
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10.3
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10.7
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10.3
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9.8
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P/BV (x)
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1.2
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1.1
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1.1
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1.0
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Net dividend yield (%)
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2.5
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2.5
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2.6
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2.7
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Book value (MYR)
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12.45
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13.37
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14.31
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15.30
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ROAE (%)
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12.6
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10.5
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9.7
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9.5
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ROAA (%)
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0.8
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0.7
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0.7
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0.7
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Share
Price:
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MYR2.53
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Target
Price:
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MYR3.20
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Recommendation:
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Buy
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Commodity
inflation play
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Strong 4Q16 earnings surpassed expectations significantly
on high sales volume and ASPs. We raise FY17-18 EPS forecasts by
22%/25%, introduce FY19 forecast. Consequently, our TP is raised to
MYR3.20 (+21%) on an unchanged 10x diluted 2017 EPS (mean). Also, our
expected DY of 5.5% in FY17 (40% net profit payout) is attractive and
the stock could be included in the SC’s Shariah-compliant list in the
May 2017 review. BUY.
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FYE Dec (MYR m)
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FY15A
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FY16A
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FY17E
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FY18E
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Revenue
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1,760.9
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1,870.1
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2,157.6
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2,251.0
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EBITDA
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12.4
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296.1
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308.5
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320.2
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Core net profit
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(74.9)
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176.7
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180.6
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192.8
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Core EPS (sen)
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(14.3)
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33.8
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32.2
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34.4
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Core EPS growth (%)
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nm
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nm
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(4.6)
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6.8
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Net DPS (sen)
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0.0
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15.0
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13.8
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14.8
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Core P/E (x)
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nm
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7.5
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7.8
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7.4
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P/BV (x)
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1.4
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1.2
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1.1
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1.0
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Net dividend yield (%)
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0.0
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5.9
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5.5
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5.8
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ROAE (%)
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(13.6)
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16.7
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15.8
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15.1
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ROAA (%)
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(2.9)
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7.4
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7.5
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7.7
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EV/EBITDA (x)
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128.1
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6.9
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6.8
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6.2
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Net debt/equity (%)
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133.6
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84.6
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62.2
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50.0
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Share
Price:
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MYR4.07
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Target
Price:
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MYR4.25
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Recommendation:
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Hold
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Below
expectations
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FY16 core earnings were below expectations at 94%/90% of
our/consensus full year forecasts. Smaller losses at Jeta Gardens in
Australia and improved contribution from the Indonesian hospitals were
more than offset by higher administrative expenses incurred on the
Malaysian front. We lower our FY17/FY18 earnings forecasts by 8% after
tweaking our cost assumptions and adjusting the associate contribution
from Al-Aqar. Consequently, our SOP-TP is lowered to MYR4.25 (-3%)
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FYE Dec (MYR m)
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FY15A
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FY16A
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FY17E
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FY18E
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Revenue
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2,818.5
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3,021.1
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3,246.1
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3,495.6
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EBITDA
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350.9
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351.6
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383.4
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409.0
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Core net profit
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144.6
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125.4
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129.4
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136.9
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Core EPS (sen)
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13.9
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11.5
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12.2
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12.9
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Core EPS growth (%)
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13.3
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(17.4)
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5.7
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5.8
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Net DPS (sen)
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7.0
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4.8
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6.1
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6.4
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Core P/E (x)
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29.2
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35.4
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33.5
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31.6
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P/BV (x)
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2.9
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2.8
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2.6
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2.5
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Net dividend yield (%)
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1.7
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1.2
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1.5
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1.6
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ROAE (%)
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9.8
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9.8
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8.0
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8.1
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ROAA (%)
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4.0
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3.2
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3.2
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3.2
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EV/EBITDA (x)
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16.0
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16.7
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14.9
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14.2
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Net debt/equity (%)
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72.5
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72.2
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72.9
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74.6
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Share
Price:
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MYR14.74
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Target
Price:
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MYR15.60
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Recommendation:
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Hold
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4Q16: Below
expectations
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4QFY16 results fell short on a higher tax rate and share
of loss from its associate company, Lion Brewery, which was affected by
a major flood. Positively, we understand that production has been
restored since early-2017. We forecast +0.5%/+2.4% volumes sales growth
in FY17/18 in the domestic market, with CAB having a stable 39% share
of the malt liquor market. Our earnings forecasts are marginally
lowered but we raise TP to MYR15.60 (+7%) on rolling forward
valuations.
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FYE Dec (MYR m)
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FY15A
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FY16A
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FY17E
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FY18E
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Revenue
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1,659.9
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1,679.5
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1,720.3
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1,793.1
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EBITDA
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306.0
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327.8
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337.2
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355.2
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Core net profit
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228.3
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205.0
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229.6
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245.0
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Core EPS (sen)
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74.7
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67.0
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75.1
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80.1
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Core EPS growth (%)
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7.9
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(10.2)
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12.0
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6.7
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Net DPS (sen)
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72.0
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72.0
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75.0
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80.0
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Core P/E (x)
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19.7
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22.0
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19.6
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18.4
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P/BV (x)
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13.4
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14.0
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13.6
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13.0
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Net dividend yield (%)
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4.9
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4.9
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5.1
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5.4
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ROAE (%)
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66.7
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62.4
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70.3
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72.3
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ROAA (%)
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34.5
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30.7
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33.4
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34.2
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EV/EBITDA (x)
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11.7
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13.0
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13.4
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12.7
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Net debt/equity (%)
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net cash
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net cash
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net cash
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net cash
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Share
Price:
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MYR0.86
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Target
Price:
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MYR0.90
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Recommendation:
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Hold
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Near-term
softness; D/G HOLD
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2QFY6/17 earnings came in below our expectation on weak
logistics earnings. We expect near-term earnings to remain weak and to
pick-up only in FY18 as the construction of 3 new plants at Samalaju
commences. We reduce our FY17-19 EPS forecasts by 23%/9%/13% as we
lower our logistics earnings. Consequently, our SOP-based TP is reduced
to MYR0.90 (-12%), indicating CY17 PER of 9x (mean: 7x).
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FYE Jun (MYR m)
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FY15A
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FY16A
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FY17E
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FY18E
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Revenue
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507.0
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592.7
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533.8
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587.6
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EBITDA
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97.4
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133.3
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85.4
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100.1
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Core net profit
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48.2
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59.0
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34.5
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46.2
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Core EPS (sen)
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12.0
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14.7
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8.6
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11.5
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Core EPS growth (%)
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44.2
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22.5
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(41.5)
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33.9
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Net DPS (sen)
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2.5
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2.0
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1.7
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2.3
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Core P/E (x)
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7.2
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5.9
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10.0
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7.5
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P/BV (x)
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1.2
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1.1
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1.0
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0.9
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Net dividend yield (%)
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2.9
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2.3
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2.0
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2.7
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ROAE (%)
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na
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na
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na
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na
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ROAA (%)
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9.0
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10.0
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5.7
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7.3
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EV/EBITDA (x)
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5.1
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3.1
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4.2
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3.3
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Net debt/equity (%)
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net cash
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0.4
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net cash
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net cash
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SECTOR RESEARCH
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Winter is still here
by Ivan
Yap
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In the last 3 years, January car sales has seen a
double-digit MoM decline mainly due to aggressive sales campaign by
dealers in the month before and Jan 2017 was no exception, with TIV
down 31% MoM to 44.7k units (+0% YoY). The weak sales volume should persist
into February before rebounding in March. Most auto companies have
yet to report their Dec 2016 quarter results; expect margins
contraction from higher A&Ps and imported component costs.
Maintain NEUTRAL with BUYs on MBM and Pecca.
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MACRO RESEARCH
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What goes up must come down
by Tee
Sze Chiah
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FBMKLCI declined 6.03pts to close at 1,706.55
yesterday as profit taking intensified. Sentiment was bearish with
losers outpacing gainers by 552 to 364. Trading volume of 2.89b worth
MYR2.32b was recorded yesterday. FBMKLCI hit a high of 1,719.76
yesterday but has succumbed to bouts of selling pressure. Given
positive sentiment in overnight US market, there is a small
possibility for rebound. However it could be capped within 1,712. We
expect the benchmark to drift south,...
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NEWS
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Outside Malaysia:
U.S: America’s business leaders brimming with optimism
after election. It’s been at least seven years since America’s mid-sized
companies have been this ecstatic about the economy’s prospects. A
whopping 80 percent of middle-market businesses said they were
optimistic, the most since JPMorgan Chase & Co. began its Business
Leaders Outlook survey. That’s up from 39 percent last year and reflects
a sea change in sentiment that’s swept through the ranks of corporate
America since the November election. More than three-quarters of
executives say they expect the policies of President Donald Trump and a
Republican-led Congress to have a positive impact on their business. The
reason: an agenda that’s pro-business and includes tax reform and less
regulation. (Source: Bloomberg)
E.U: Economic activity unexpectedly rose to the highest
level in almost six years in February as the region’s recovery became
more broad-based and inflationary pressures continued to intensify. A
composite Purchasing Managers’ Index climbed to 56.0 from 54.4 in
January, putting the region on track for quarterly growth of 0.6%, IHS
Markit said. Inflows of new orders and surging optimism among firms point
to a potentially stronger expansion in the coming months, the
London-based company said. (Source: Bloomberg)
U.K: Posts record surplus in pre-budget boost for Hammond.
Chancellor of the Exchequer Philip Hammond received a pre-budget boost as
new figures showed Britain posted the biggest surplus for any January
since at least 2001. The GBP 9.4b (USD 11.7b) surplus compared with GBP
9.1b pounds a year earlier, the Office for National Statistics said.
Revenue rose 5.3% and spending increased 5.4%. The figures are restated
going back to April 2000 to include changes to the way corporation-tax
receipts are accounted for. Under the previous system, the budget surplus
in January would be GBP 15.2b, the biggest since records began in 1997.
(Source: Bloomberg)
Australia: RBA’s Lowe signals steady labor market allows
pause on cash rate. Reserve Bank of Australia Governor Philip Lowe
signaled the solid performance of his nation’s labor market is allowing
policy makers to extend an interest-rate pause. “All else constant, if
the unemployment rate is high and rising, the stronger would be the case
for policy to pursue a quicker return of inflation to the midpoint of the
target,” Lowe said. “To date, we have been satisfied that the labor
market is heading in the right direction, if not as quickly as we’d
like.” Australia’s unemployment rate has hovered between 5.6% and 6% the
past year as the strength of the nation’s east coast property market and
infrastructure spending outweighed an unwinding of mining investment in
the west and north. The RBA cut rates twice last year; since taking the
helm in September, Lowe has signaled willingness to tolerate weaker CPI
to avoid households taking on more debt than current record levels.
(Source: Bloomberg)
Crude Oil: Trades above USD 54/bbl as OPEC targets full
output cuts. The Organization of Petroleum Exporting Countries is
confident members will continue to cut production and reduce global
stockpiles, Secretary-General Mohammad Barkindo said. U.S. stockpiles
probably rose by 3.5 million barrels last week, according to analysts
surveyed by Bloomberg before a government report Thursday. (Source:
Bloomberg)
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Other News:
Consumer: Relisting of QSR Brands are still speculation
for now. Reports about the plan to re-list the country’s largest
fast-food operator, QSR Brands Bhd, this year are still just speculation.
Chandrasagran Munusamy, general manager, KFC operations at QSR Brands
unit, QSR Stores Sdn Bhd, said after the launch of the KFC Twister new
flavours yesterday that any decision will be announced in the near
future. On expansion plans, Chandrasagran said, the company intends to
open another 30 outlets nationwide this year and each store would cost
between MYR1m and MYR4m. Currently, KFC has 664 outlets nationwide. If
the relisting plan materialises, it would be one of the biggest this year
as reports indicated it could raise MYR1.6b or more. QSR Brands operates
and manages the KFC and Pizza Hut restaurant franchises in Malaysia and
sole franchisee in Singapore, Brunei and Cambodia. (Source: Bernama)
Mercury Industries: To develop MYR238 project in Gombak.
70%-owned construction unit Paramount Bounty Sdn Bhd has won a mixed
development project worth MYR238m in Gombak, Selangor. The project
comprises 1,632 units of small-office home-office (SOHO) and 32 shop
lots, said Mercury Industries in a filing. The contract was awarded via a
letter of appointment by Veritas Architects Sdn Bhd, the architect
appointed by Pujian Development Sdn Bhd, which in turn is the turnkey
contractor for EcoFirst Hartz Sdn Bhd. Both Pujian Development and
EcoFirst Hartz are wholly-owned subsidiaries of EcoFirst Consolidated
Bhd. Mercury Industries said the contract is deemed as a related party
transaction as the company shares a common shareholder with EcoFirst,
namely Datuk Tiong Kwing Hee. Tiong is Mercury Industries’ executive
director and EcoFirst’s chief executive officer. He is a major shareholder
of both companies. (Source: The Edge Financial Daily)
Melati Ehsan Holdings: To increase contribution from
property business. The company is looking into reducing reliance on the
construction division by ramping up activities in property development,
said its managing director Tan Sri Yap Suan Chee. "Our revenue is
mainly from construction. In the future we hope to move more towards
property. When our Selayang project is approved, property will contribute
more to revenue," managing director Tan Sri Yap Suan Chee told
reporters at its AGM today. Last year, the construction division
contributed about 70-80% of its revenue. The group hopes to reduce this
to about 50-60% by 2018. Yap said Melati Ehsan will focus on affordable
housing, especially PPR and PPA1M projects. The group's Selayang land,
which is about 10 acres, will be launched in the third quarter this year
subject to approvals. (Source: The Sun daily)
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