Wednesday, March 15, 2017

Petronas Chemicals: Petronas Chemicals JV search continues. Petronas Chemicals Group (PetChem) is in talks with petrochemical firms from Asia and Europe to invest in a USD27b (MYR120.15b) oil refining and petrochemical project, sustaining hope the country can find a partner after at least three previous deals fell through. Companies from Japan, South Korea, China, Taiwan and Italy have expressed interest in joining the Refinery and Petrochemical Integrated Development (Rapid) but declined to identif






Top Glove | Emerging tailwinds
Yen Ling Lee







Bermaz Auto Berhad | Below expectations
Ivan Yap









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Malaysia Oil & Gas | PETRONAS’ FY16 report card
Thong Jung Liaw







Malaysia Aviation | 2016 results round up
Mohshin Aziz









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Malaysia | Gold buffer zones
Tee Sze Chiah








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COMPANY RESEARCH





Rating Change





Top Glove (TOPG MK)
by Yen Ling Lee





Share Price:
MYR5.25
Target Price:
MYR6.20
Recommendation:
Buy




Emerging tailwinds

2QFY8/17 results is likely to come in stronger QoQ (but weaker YoY) and within our expectation. We are turning positive on the stock given the softening latex price, persistently strong USD/MYR and the respite in nitrile competition. We maintain our FY17 EPS forecast but raise that of FY18-19 by 7% p.a. on a slightly higher USD/MYR. Rolling our valuation to CY18, our TP is raised to MYR6.20 (+15%), based on an unchanged 20x PER (+1SD).



FYE Aug (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
2,510.5
2,888.5
3,360.6
3,657.9
EBITDA
454.3
523.3
507.8
573.7
Core net profit
279.8
361.1
325.9
375.7
Core EPS (sen)
22.6
29.1
26.3
30.3
Core EPS growth (%)
55.0
29.0
(9.7)
15.3
Net DPS (sen)
11.5
14.5
13.1
15.1
Core P/E (x)
23.3
18.0
20.0
17.3
P/BV (x)
4.0
3.6
3.3
3.0
Net dividend yield (%)
2.2
2.8
2.5
2.9
ROAE (%)
89.9
76.9
51.9
59.9
ROAA (%)
12.1
13.5
11.8
12.6
EV/EBITDA (x)
10.1
9.5
12.2
10.6
Net debt/equity (%)
net cash
net cash
net cash
net cash










Results Review





Bermaz Auto Berhad (BAUTO MK)
by Ivan Yap





Share Price:
MYR2.04
Target Price:
MYR1.95
Recommendation:
Hold




Below expectations

3QFY4/17 earnings fell short, largely on weaker-than-expected volume sales. Associates’ profit (mainly from 30%-owned MMSB) shrunk on higher imported component costs. We cut FY17-19 earnings forecasts by 14%-20% after (i) lowering our vehicle volume sales estimates by 10%-12% and (ii) adjusting our JPY100/MYR to 3.85 (from 3.80) for FY18/19. Our new TP is MYR1.95 (-5%) on rolled forward valuations to CY18, pegging at a revised PER of 12.5x (from 13x), -0.5SD of mean. Maintain HOLD.



FYE Apr (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
1,830.4
2,095.4
1,778.4
2,094.3
EBITDA
290.4
267.2
185.7
231.7
Core net profit
221.8
201.4
129.3
157.8
Core EPS (sen)
19.4
17.6
11.2
13.6
Core EPS growth (%)
57.2
(9.7)
(36.4)
22.1
Net DPS (sen)
12.1
16.9
11.5
10.9
Core P/E (x)
10.5
11.6
18.3
15.0
P/BV (x)
4.9
4.4
4.5
4.2
Net dividend yield (%)
6.0
8.3
5.6
5.3
ROAE (%)
52.0
39.3
24.4
29.1
ROAA (%)
32.8
23.9
13.5
15.7
EV/EBITDA (x)
10.5
8.2
11.0
8.9
Net debt/equity (%)
net cash
net cash
net cash
net cash







SECTOR RESEARCH






PETRONAS’ FY16 report card
by Thong Jung Liaw


Sector Note





PETRONAS’ cautiously optimistic outlook, expecting a modest recovery in oil price in 2017 amid an uncertain 2H17, is a similar tone in the industry. We take the view that the market has bottomed and is on a cyclical recovery. Our key select prefered BUYs are SAKP (TP: MYR2.30), Yinson (TP: MYR4.35) and Wah Seong (TP: MYR1.30).


Thong Jung Liaw










2016 results round up
by Mohshin Aziz


Sector Note





Supply deficit has paved the way for the best industry performance whereby all players delivered strong profits. Supply will slowly match demand by end of 2Q17 as airlines deploy more aircraft. Until then, we expect high load factors with stable yields to continue. On that premise, we still forecast for a sector profit decline in 2017 albeit at a lower quantum of 6% versus our original 22% on MAHB’s revised forecast. Valuations remain undemanding and underpin our BUY calls on MAHB and AirAsia.









MACRO RESEARCH






Gold buffer zones
by Tee Sze Chiah


Technical Research





FBMKLCI was little changed yesterday, ended just 0.55pts higher at 1,722.47. Sentiment was cautious ahead of US FOMC meeting. Market breadth was slightly positive with gainers outpaced losers by 441 to 367. A total of 3.92b shares worth MYR3.25b changed hands. Weakness in overnight US markets coupled with easing oil price could weigh on the broader market today. We expect the benchmark index to consolidate between 1,717 and 1,728 today. Major support levels are 1,705 and 1,690.







NEWS


Outside Malaysia:

U.S: Optimism among CEOs shows biggest increase since 2009 in the first quarter, as the outlook for sales, the labor market and investment brightened considerably. The Business Roundtable’s CEO Economic Outlook Index – a measure of expectations for revenue, capital spending and employment -- jumped 19.1 points to 93.3, according to the group’s survey released. The increase, the biggest since the final three months of 2009, left the gauge above its long- run average of 79.8 for the first time in seven quarters. (Source: Bloomberg)

U.S. Producer prices climbed more than forecast in February, signaling inflation is picking up. Producer-price index climbed 0.3% from January after 0.6% jump that was the biggest since September 2012. Over 80 percent of the advance due to 0.4% increase in services prices. PPI increased 2.2% YoY from February 2016 following a 1.6% YoY rise in the previous 12-month period. (Source: Bloomberg)

China: Economy holds momentum as output, investment accelerate. China’s economy started the year on a firm footing as its old growth engines gathered pace, with home sales remaining resilient and steel and aluminum rebounding as prices rallied. Industrial production climbed 6.3% YoY in January and February combined. Retail sales advanced 9.5% YoY in the first two months, as auto sales dropped after a tax increase on small-engine cars. Fixed-asset investment increased 8.9% YoY during the same period. (Source: Bloomberg)

China: Introduced a new indicator for the services sector to better track the vast range of activity from movies to restaurants that now account for more than half of the economy. The services output index rose 8.2% YoY in January and February on growth in technology, transportation, and deliveries, the National Bureau of the Statistics said. It plans to update the measure each month. The NBS said the index tracks the output of services, also known as the tertiary sector, without deducting the input costs, which means it’s different to a quarterly report released with the government’s data on gross domestic product. The increased focus on services underscores the sector’s increasing importance as China transitions away from old smokestack industry drivers and export-led growth. Services accounted for 51.6% of economic output last year. (Source: Bloomberg)

Crude Oil: USD 40/bbl no problem as U.S. drillers snub OPEC with hedges. OPEC’s worst enemy isn’t U.S. shale drillers. It’s the hedges propping them up. American oil explorers who survived the worst of the 2014-2016 market rout are shrugging off the 14% slide in prices this year from a high of USD 55.24/bbl to less than USD 48/bbl. The price would have to drop to the USD 30/bbl or lower to dent the bottom line of many drillers now working U.S. shale fields, said Katherine Richard, the CEO of Warwick Energy Investment Group, which own stakes in more than 5,000 oil and natural gas wells. Oil prices took another hit after Saudi Arabia raised its output last month to more than 10 million barrels a day, reversing about a third of the cuts it made the previous month. (Source: Bloomberg)





Other News:

Petronas Chemicals: Petronas Chemicals JV search continues. Petronas Chemicals Group (PetChem) is in talks with petrochemical firms from Asia and Europe to invest in a USD27b (MYR120.15b) oil refining and petrochemical project, sustaining hope the country can find a partner after at least three previous deals fell through. Companies from Japan, South Korea, China, Taiwan and Italy have expressed interest in joining the Refinery and Petrochemical Integrated Development (Rapid) but declined to identify them. As Rapid’s development accelerates, PetChem plans to increase capital spending by as much as one quarter this year and next from last year’s roughly MYR4b. (Source: The Edge Financial Daily)

UMW Oil & Gas: Secures another charter for drilling rig from Britain. UMW Oil & Gas Corp (UMW OG) has secured a contract from British oilfield services company Petrofac for one of its jack-up drilling rigs. It had procured a letter of award from Petrofac and its jack-up drilling rig, UMW Naga 5, would be start in the second quarter of 2017. The company did not mention the duration of the contract in the statement. (Source: The Star)

Transocean Holdings: To buy container transportation firm for MYR140m. Transocean Holdings is buying a container transportation firm Taipanco S/B for MYR140m. Taipanco is involved in the container haulage business and its core business activity is container transportation, primarily servicing two major ports in the central region namely Northport and Westport. The profit guarantee covers a cumulative pretax profit of not less than MYR33m from Taipanco for FY17, FY18 and FY19 and a pretax profit of not less than MYR10m for each financial year. (Source: The Sun Daily)


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