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Share
Price:
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MYR5.25
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Target
Price:
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MYR6.20
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Recommendation:
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Buy
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Emerging
tailwinds
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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).
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FYE Aug (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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2,510.5
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2,888.5
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3,360.6
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3,657.9
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EBITDA
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454.3
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523.3
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507.8
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573.7
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Core net profit
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279.8
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361.1
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325.9
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375.7
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Core EPS (sen)
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22.6
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29.1
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26.3
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30.3
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Core EPS growth (%)
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55.0
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29.0
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(9.7)
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15.3
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Net DPS (sen)
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11.5
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14.5
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13.1
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15.1
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Core P/E (x)
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23.3
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18.0
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20.0
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17.3
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P/BV (x)
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4.0
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3.6
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3.3
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3.0
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Net dividend yield (%)
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2.2
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2.8
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2.5
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2.9
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ROAE (%)
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89.9
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76.9
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51.9
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59.9
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ROAA (%)
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12.1
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13.5
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11.8
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12.6
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EV/EBITDA (x)
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10.1
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9.5
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12.2
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10.6
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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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MYR2.04
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Target
Price:
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MYR1.95
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Recommendation:
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Hold
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Below
expectations
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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.
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FYE Apr (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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1,830.4
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2,095.4
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1,778.4
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2,094.3
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EBITDA
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290.4
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267.2
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185.7
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231.7
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Core net profit
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221.8
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201.4
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129.3
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157.8
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Core EPS (sen)
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19.4
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17.6
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11.2
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13.6
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Core EPS growth (%)
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57.2
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(9.7)
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(36.4)
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22.1
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Net DPS (sen)
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12.1
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16.9
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11.5
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10.9
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Core P/E (x)
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10.5
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11.6
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18.3
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15.0
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P/BV (x)
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4.9
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4.4
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4.5
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4.2
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Net dividend yield (%)
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6.0
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8.3
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5.6
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5.3
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ROAE (%)
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52.0
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39.3
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24.4
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29.1
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ROAA (%)
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32.8
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23.9
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13.5
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15.7
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EV/EBITDA (x)
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10.5
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8.2
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11.0
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8.9
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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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SECTOR RESEARCH
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PETRONAS’ FY16 report card
by Thong
Jung Liaw
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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).
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2016 results round up
by
Mohshin Aziz
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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.
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MACRO RESEARCH
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Gold buffer zones
by Tee
Sze Chiah
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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.
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NEWS
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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)
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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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