3qcy17 results review fbmklci 1,713.13 mixed view target 1,765€¦ · market strategy 05 december...

Market Strategy

05 December 2017

PP7004/02/2013(031762) of 24

3QCY17 Results Review FBMKLCI 1,713.13

Mixed View Target 1,765.00 ↓ By Chan Ken Yew / [email protected]

The recently concluded 3QCY17 results season showed signs of weakness. The “disappointment

ratio” surged to 32.0% (from 28.8% and 22.6% in the last 2 quarters). We noticed that Building

Materials and Healthcare delivered outright disappointment while Auto, Consumer, Plastics

Packaging, Plantations and Technology also showed earnings weakness. Post results, despite cuts in

current year and next year earnings estimates by 3.7% and 3.5%, respectively, across the board on

average, earnings estimates for FBMKLCI surprisingly saw upward adjustment due to earnings

upgrades from: (i) banking as well as (ii) oil & gas sectors. As such, we have revised FY17E net

earnings growth for FBMKLCI to 2.6% (from 0.4% previously) but fine-tuned FY18E earnings growth to

3.6% (from 4.6% previously). To better reflect the underlying market condition, we have lowered our

end-2017 index target to 1,765 (from 1,830 previously), representing FY17E/FY18E PERs of

16.7x/16.1x. We also continue to advocate a “Buy On Weakness” strategy as the 1,705/45 range is

deemed as a low-risk buying zone. We are also fairly comfortable with some of our 4Q17 Top Picks: -

ANNJOO (OP, TP: RM4.70), DIALOG (OP, TP: RM2.55), OLDTOWN (OP, TP: RM3.15), PARKSON (OP,

TP: RM0.88), PPB (OP, TP: RM19.00), SEM (OP, TP: RM1.70), TAKAFUL (OP, TP: RM4.27), TENAGA

(OP, TP: RM17.17) and TGUAN (OP, TP: RM5.67). At the same time, we also added TOPGLOV (OP, TP:

RM7.60) as a replacement to HARTA.

Slowing, as expected. The just-concluded 3QCY17 results reporting season showed signs of weakness, as expected. Out of 147 stocks under our core coverage, 47 of them delivered weaker-than-expected results, implying a “disappointment ratio” of 32.0%, which deteriorated from 28.8% in 2Q17 and 22.6% in 1Q17. However, on a YoY basis, the ratio is still better in contrast to 34.4% in 3Q16, in line with the strengthening trend in domestic economic growth. For the reporting season, 24 stocks (or 16.3%) outperformed our expectations vis-à-vis 10.1% (or 14 stocks) and 13.4% (or 19 stocks) recorded in 2Q17 and 1Q17, respectively.

Sector wise, we notice (i) Building Materials and (ii) Healthcare delivered outright disappointment while (iii) Auto, (iv) Consumer, (v) Plastics Packaging, (vi) Plantations and (vii) Technology also showed weakness in their results (see Figure 8 for details).

• Building Material: Apart from ANNJOO which results came broadly in line, LAFMSIA, ULICORP, PMETAL fell short of estimates. LAFMSIA’s profitability was dragged by lower demand for cement. PMETAL’s earnings were hit by higher carbon anode costs while ULICORP saw slower sales.

• Healthcare: Both PHARMA and IHH came in below expectations. IHH’s results marked the third consecutive quarterly earnings disappointment, hit by ramp-up of hiring and pre-operating costs to prepare Gleneagles Hong Kong Hospital and Acibadem Altunizade Hospital. Besides, there was unrealised foreign exchange loss from non-Turkish Lira borrowings. PHARMA was hit by higher-than-expected operating cost.

As for our quarterly Top Picks, most of them (ANNJOO, DIALOG, KESM, MPI, OLDTOWN, PARKSON, PPB, SEM, TAKAFUL, TENAGA, TGUAN) met our earnings estimates. The only outstanding performer was HARTA which announced yet another record quarterly earnings due to higher-than-expected sales volume. Nonetheless, as share prices of some of these stocks have reached our Target Prices, we have downgraded them of late such as HARTA, KESM and MPI.

On a separate note, 1Q18 PATAMI of BAUTO appeared to be below both our/consensus expectations at 11%, but we consider the results to be within expectation as we expect a much stronger upcoming quarter with the launch of the new Mazda CX-5. AFFIN was hit by VSS costs. PIE was depressed by impairment losses on receivables due to technical glitches on new system adoption by one of the clients. PWROOT also saw higher production costs (likely stemming from prolonged, unfavourable hedging policies) and marketing expenses. As for ULICORP, negative deviations were from slowing project deliveries as well as lower margins from higher production and operating costs.

Earnings revisions. Post results, despite we notice that analysts have cut their current year and next year earnings estimates by 3.7% and 3.5%, respectively, across the board on average. However, for FBMKLCI per se, earnings estimates saw an upward adjustment due to earnings upgrades from (i) banking as well as (ii) oil & gas sectors. We have revised FY17E net earnings growth for FBMKLCI to 2.6% (from 0.4% previously) but fine-tuned FY18E earnings growth to 3.6% (from 4.6% previously). Post revisions, our estimates are still more conservative in contrast to consensus estimates of 5.1%/5.5% (from 6.2%/5.7% previously).

3QCY17 Results Review Market Strategy 05 December 2017

PP7004/02/2013(031762) of 24

Post results after updating and looking at the weaker market sentiment, we decided to lower our end-2017 index target to 1,765, representing FY17E/FY18E PERs of 16.7x/16.1x despite slightly higher earnings estimate. The downgrade in Index target is mainly due to the lower assigned target PER. Our Index Target is derived via the average of the followings;

• Top-Down: A lower PER target of 15.5x to our FY18E earnings estimate, hence index targets of 1,765 (vs. 1,800

previously); and

• Bottom-Up: 1,850 (vs. ~1,860 previously), representing 17.5x/116.9x PERs to our FY17E/FY18E earnings estimates.

4Q17 Market Outlook - An Interim Review. Thus far, the historical pattern study does not seem to be holding well. Against our initial expectation that domestic market should see a stronger showing in 4Q as per our seasonal study, the market remains lacklustre. In fact, for the first two months of the quarter, the FBMKLCI dipped 2.15% as opposed to DJIA’s strong performance of 8.33% (for the same period of time).

However, even with the weaker performance, we strongly believe that a meaningful rebound, if not a turnaround, should unfold anytime soon given that the domestic equity market valuation seems undemanding (trading at a discount now) vis-a-vis the regional peers. As of end-Nov 2017, the Fwd. PER of FBMKLCI only registered a ~3.5% discount over its selected regional peers. Recall that the FBMKLCI historically traded at a premium of ~4%-18% against its regional peers. Hence, we could see milder foreign capital outflow, if not foreign inflow. In fact, the domestic equity market is seeing QTD and YTD foreign net flows of –RM241.7m and +RM9.4b, respectively. Most importantly, timing wise, the FBMKLCI is still trading at a discount of 8.1% against the consensus index target of 1,870, which is fast approaching its -2SD-level of 8.7% discount (or implying 1,705-level). As such, we continue to advocate a “Buy On Weakness” strategy (B.O.W.) as -1SD (implying 1,745) to -2SD (implying 1,705) is deemed as a low-risk buying zone.

This section is intentionally left blank


PP7004/02/2013(031762) of 24

Appendix

Figure 1: Disappointment Ratio of Quarterly Results from 4QCY13 to 3QCY17

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

4QCY13 1QCY14 2QCY14 3QCY14 4QCY14 1QCY15 2QCY15 3QCY15 4QCY15 1QCY16 2QCY16 3QCY16 4QCY16 1QCY17 2QCY17 3QCY17

34.4%

32.0%

37.4%

40.0%

38.0%

24.6%

39.1%38.5%

32.5%

37.8%

33.9%34.4%

27.6%

22.6%

28.8%

32.0%

Source: Kenanga Research

Figure 2: Stocks that delivered better-than-expected results (based on sectors)

AUTOMOTIVE; 5%

BANKS & NON-BANK

FINANCIALS; 14%

CONSTRUCTION; 9%

CONSUMER; 5%

OIL & GAS; 23%PLANTATION; 9%

PROPERTY; 18%

RUBBER GLOVES; 5%

TELECOMMUNICATION;

5%

TRANSPORT &

LOGISTICS; 9%

Above



PP7004/02/2013(031762) of 24

Figure 3: Stocks that delivered weaker-than-expected results (based on sectors)

AUTOMOTIVE

6%

BANKS & NON-BANK

FINANCIALS

6%

BUILDING MATERIALS

6%

CONSTRUCTION

4%

CONSUMER

9%

GAMING

2%

HEALTHCARE

6%

MEDIA

4%OIL & GAS

9%

PACKAGING

MANUFACTURERS

6%

PLANTATION

13%

PROPERTY

9%

RUBBER GLOVES

2%

SIN

4%

TELECOMMUNICATION

2%

TECHNOLOGY

6%

TRANSPORT & LOGISTICS

2%UTILITIES

2%

Below


Figure 4: Stocks that were recorded within expectations results (based on sectors)

AUTOMOTIVE

1% BANKS & NON-BANK

FINANCIALS

10%

BUILDING MATERIALS

1%

CONSTRUCTION

8%

CONSUMER

12%

GAMING

4%

MEDIA

3%OIL & GAS

9%

PACKAGING MANUFACTURERS

3%

PLANTATION

6%

PROPERTY

8%

REITS

9%

RUBBER GLOVES

3%

SIN

1%

TELECOMMUNICATION

4%

TECHNOLOGY

5%

TRANSPORT & LOGISTICS

9%

UTILITIES

4%

Others

1%

Within



PP7004/02/2013(031762) of 24

Figure 5: Recent Reported Results vs. Our Expectations and Market Consensus – Part 1 of 3

FY16/17 FY17/18 YoY % Chg FY16/17 FY17/18 YoY % Chg KNK Mrkt FY17/18 FY18/19 KNK Mkt

AUTOMOTIVE 18,565.1 19,811.5 6.7% (344.5) 616.7 -279.0% Below Below -20.2% -26.3%1 BERMAZ AUTO BHD 1Q18 493.6 391.2 -20.7% 41.1 20.2 -50.9% Below Below 0.0% 7.0% Within Within 2.40 ↑ OP ↔2 DRB-HICOM BHD 2Q18 5,144.8 6,680.2 29.8% (478.9) 566.9 NM Above Above 0.0% 0.0% Within Within 1.80 ↑ MP ↔3 MBM RESOURCES BERHAD 3Q17 1,233.0 1,288.8 4.5% 58.5 53.7 -8.2% Within Within 0.0% 0.0% Within Within 2.20 ↔ MP ↔4 TAN CHONG MOTOR HOLDINGS BHD 3Q17 4,058.3 3,265.3 -19.5% (49.8) (69.2) -39.0% Below Below -26.4% -109.1% Within Within 1.40 ↓ UP ↔5 UMW HOLDINGS BHD 3Q17 7,635.4 8,186.0 7.2% 84.6 45.1 -46.7% Below Below -74.8% -29.5% Within Within 5.30 ↓ MP ↔

BANKS & NON-BANK FINANCIALS 37,023.9 40,050.6 8.2% 14,998.2 17,478.6 16.5% Mix Within -0.4% -2.4%

6 AEON CREDIT SERVICE BERHAD 2Q18 368.4 429.0 16.4% 111.1 140.4 26.4% Within Within 0.0% 0.0% Within Within 13.13 ↔ MP ↔

7 AFFIN HOLDINGS BERHAD 3Q17 723.6 735.6 1.7% 392.6 341.8 -12.9% Below Below -7.0% 0.0% Within Within 2.75 ↓ OP ↔

8 ALLIANCE BANK MALAYSIA BHD 2Q18 416.3 447.8 7.6% 265.1 257.8 -2.8% Within Within 0.0% 0.0% Within Within 4.15 ↔ OP ↔9 AMMB HOLDINGS BHD 2Q18 1,889.8 1,962.7 3.9% 675.6 659.7 -2.4% Below Within -7.1% -19.8% Within Within 4.75 ↓ OP ↔

10 BIMB HOLDINGS BHD 3Q17 1,340.2 1,340.9 0.1% 419.6 470.2 12.1% Within Within 0.0% 0.0% Within Within 4.54 ↔ MP ↔11 BURSA MALAYSIA BHD 3Q17 230.8 255.5 10.7% 143.5 167.8 16.9% Within Within -1.0% -1.0% Within Within 10.35 ↔ MP ↔12 CIMB GROUP HOLDINGS BHD 3Q17 11,602.4 13,108.3 13.0% 2,560.0 3,414.9 33.4% Above Within 6.2% 2.4% Within Within 6.75 ↓ OP ↔13 HONG LEONG BANK BERHAD 1Q18 690.4 740.5 7.3% 542.6 639.0 17.8% Within Within 0.0% 0.0% Within Within 15.25 ↔ MP ↔14 LPI CAPITAL BERHAD 3Q17 1,023.3 1,107.1 8.2% 205.4 230.8 12.4% Within Within 0.0% 0.0% Within Within 18.10 ↔ MP ↔15 MALAYAN BANKING BHD 3Q17 8,609.4 9,124.9 6.0% 4,382.4 5,388.4 23.0% Above Within 2.7% -5.4% Within Within 9.25 ↓ MP ↔

16 MALAYSIA BUILDING SOCIETY BHD 3Q17 140.7 208.5 48.2% 155.8 293.1 88.1% Above Above -3.1% -5.8% Within Within 1.30 ↓ OP ↔

17 PUBLIC BANK BERHAD 3Q17 7,395.7 7,960.2 7.6% 3,724.1 3,984.6 7.0% Within Within 2.5% 2.8% Within Within 21.45 ↑ MP ↔18 RHB BANK BHD 3Q17 2,592.9 2,629.6 1.4% 1,420.4 1,490.1 4.9% Within Within 1.3% -4.7% Within Within 5.45 ↓ OP ↔19 SYARIKAT TAKAFUL MALAYSIA BHD 3Q17 1,522.4 1,621.4 6.5% 137.0 150.4 9.8% Within Within 0.0% 0.0% Within Within 4.27 ↔ OP ↔

BUILDING MATERIALS 8,090.7 9,425.0 16.5% 459.2 467.1 -1.7% Below Below -9.2% -11.1%

20 ANN JOO RESOURCES BHD 3Q17 1,397.9 1,585.1 13.4% 97.5 149.9 53.7% Broadly Within Within 0.0% 0.0% Within Within 4.70 ↔ OP ↔21 LAFARGE MALAYSIA BHD 3Q17 1,915.8 1,672.5 -12.7% 45.8 (144.0) -415.0% Below Below n.m. -45.0% Within Within 4.10 ↓ UP ↔22 PRESS METAL BHD 3Q17 4,625.7 6,019.5 30.1% 289.9 442.2 52.5% Below Below -5.0% 10.0% Below Below 5.00 ↑ MP ↓23 UNITED U-LI CORPORATION BHD 3Q17 151.3 147.9 -2.2% 26.0 19.0 -26.9% Below N.A. -22.5% -9.4% Below N.A. 4.45 ↓ MP ↓

CONSTRUCTION 14,546.1 16,361.5 12.5% 1,416.2 1,518.3 7.2% Mix Mix 1.8% 3.1%

24 EVERSENDAI CORP BHD 3Q17 1,233.6 1,311.2 6.3% 42.9 49.4 15.2% Above Above 12.0% 12.0% Within Within 0.80 ↑ UP ↔25 GAMUDA BHD 4Q17 4,170.9 5,702.5 36.7% 626.1 700.6 11.9% Within Within 0.0% 0.0% Within Within 5.45 ↔ MP ↔26 HOCK SENG LEE BHD 3Q17 385.3 337.9 -12.3% 44.7 31.9 -28.6% Broadly Within Broadly Within 0.0% 0.0% Within Within 1.40 ↔ MP ↔27 IJM CORP BHD 2Q18 2,799.5 3,062.1 9.4% 268.6 241.3 -10.2% Below Below -11.0% -12.0% Within Within 3.45 ↓ OP ↔28 KERJAYA PROSPEK GROUP BHD 3Q17 569.9 703.4 23.4% 73.8 96.2 30.4% Within Within 0.5% 3.2% Within Within 3.40 ↑ UP ↔29 KIMLUN CORP BHD 3Q17 705.3 613.1 -13.1% 58.0 44.7 -22.9% Below Below -10.0% 0.0% Within Within 2.27 ↔ MP ↔30 MITRAJAYA HOLDINGS BHD 3Q17 692.5 894.9 29.2% 72.1 53.3 -26.1% Within Within 0.0% 0.0% Within Within 1.09 ↔ OP ↔31 MUHIBBAH ENGINEERING (M) BHD 3Q17 1,273.0 1,081.8 -15.0% 62.1 83.8 34.9% Above Within 26.0% 28.0% Within Within 3.55 ↑ OP ↑32 SUNWAY CONSTRUCTION GROUP BHD 3Q17 1,235.7 1,328.1 7.5% 94.0 102.0 8.5% Within Below 0.0% 0.0% Within Within 2.29 ↔ MP ↔33 WCT HOLDINGS BHD 3Q17 1,480.4 1,326.5 -10.4% 73.9 115.1 55.8% Within Within 0.0% 0.0% Within Within 1.83 ↔ OP ↑

CONSUMER 15,873.6 16,284.8 2.6% 1,283.1 1,276.2 -0.5% Within-Below Within-Below -3.9% -2.4%

34 7-ELEVEN MALAYSIA HOLDINGS BERHAD 3Q17 1,579.8 1,640.9 3.9% 42.7 34.2 -19.9% Within Within 0.0% 0.0% Within Within 1.70 ↔ OP ↔35 AEON CO (M) BHD 3Q17 3,015.8 3,042.7 0.9% 53.2 57.3 7.7% Below Below -13.0% -13.0% Within Within 2.00 ↓ MP ↔36 AMWAY (MALAYSIA) HLDGS BHD 3Q17 836.5 732.9 -12.4% 43.1 39.2 -9.0% Within Within 0.0% 0.0% Within Within 7.50 ↔ MP ↔37 BISON CONSOLIDATED ^ 3Q17 191.1 237.2 24.1% 13.8 18.7 35.5% Within Within 0.0% 0.0% Within Within 2.75 ↑ OP ↔38 DUTCH LADY MILK INDS BHD 3Q17 776.1 795.5 2.5% 111.3 96.7 -13.1% Below Below -9.1% -6.2% Above Above 57.00 ↓ MP ↔39 FRASER & NEAVE HOLDINGS BHD ^ 4Q17 4,167.6 4,101.4 -1.6% 379.0 398.6 5.2% Above Within 0.0% 0.0% Within Within 27.60 ↑ OP ↑40 HAI-O ENTERPRISE BHD 1Q18 78.7 124.5 58.2% 9.7 17.6 81.4% Within N.A. 10.6% 3.3% Within N.A. 4.40 ↔ MP ↔41 NESTLE (M) BHD ^ 3Q17 3,813.6 3,978.8 4.3% 570.2 512.3 -10.2% Below Below -11.4% -3.3% Within Within 86.90 ↑ MP ↔42 OLDTOWN BHD 2Q18 202.4 223.5 10.4% 26.5 32.0 20.8% Within Within 0.0% 0.0% Within Within 3.15 ↔ OP ↔43 PADINI HOLDINGS BHD 1Q18 310.0 315.2 1.7% 28.6 31.2 9.1% Within Within 0.0% 0.0% Within Within 4.80 ↔ MP ↓44 PARKSON HOLDINGS BHD 1Q18 878.2 916.8 4.4% (62.6) (43.5) 30.5% Within Within 0.0% 0.0% Within Within 0.88 ↔ OP ↔45 POWER ROOT BERHAD 2Q18 204.4 228.9 12.0% 17.7 14.1 -20.3% Below N.A. -23.9% -9.2% Within N.A. 2.45 ↓ OP ↔46 QL RESOURCES BHD 2Q18 1,399.2 1,587.4 13.5% 92.6 102.0 10.2% Within Within 0.0% 0.0% Within Within 3.78 ↔ MP ↔47 SPRITZER BHD 3Q17 238.1 234.4 -1.6% 20.1 18.2 -9.5% Within Within 0.0% 0.0% Within Within 2.20 ↔ MP ↔

GAMING 23,722.6 24,991.6 5.3% 2,784.6 2,487.5 -10.7% Within Mix -4.0% -0.2%

48 BERJAYA SPORTS TOTO BHD 1Q18 1,435.6 1,471.8 2.5% 58.7 74.3 26.6% Within Within 0.0% 0.0% Within Within 2.95 ↔ OP ↔49 GENTING BHD 3Q17 13,612.8 14,761.0 8.4% 1,350.4 1,408.8 4.3% Within Below 3.8% 4.3% Within Within 11.40 ↑ OP ↔50 GENTING MALAYSIA BHD 3Q17 6,648.7 6,784.7 2.0% 1,229.8 850.6 -30.8% Below Below -19.7% -4.9% Within Within 5.80 ↓ OP ↑51 MAGNUM BERHAD 3Q17 2,025.5 1,974.1 -2.5% 145.7 153.8 5.6% Within Above 0.0% 0.0% Within Within 2.17 ↔ OP ↔

Call/Rating

Price (RM) UP/MP/OP

No. Company

Period

under

review

Cumulative Revenue (RM'm) Cumulative NP (RM'm) Against estimatesEarnings revision

quantum (%)

Dividends

against

estimates

Target

Source: Bursa Malaysia, Bloomberg, Kenanga Research

Notes: Yellow Highlight- Odd financial year end counters * indicates a change in FYE ^ Revised target price / call based on the stock's latest reports subsequent to its quarterly Results Note


PP7004/02/2013(031762) of 24



HEALTHCARE 11,272.7 12,358.4 9.6% 786.9 546.4 30.6% Below Below -12.6% -9.2%

52 IHH HEALTHCARE BERHAD 3Q17 7,390.4 8,257.5 11.7% 643.5 413.4 -35.8% Below Below -15.0% -6.0% Within Within 5.00 ↓ UP ↔53 KPJ HEALTHCARE BERHAD 3Q17 2,276.1 2,390.1 5.0% 97.0 101.0 4.1% Below Below -9.8% -8.6% Within Within 1.00 ↓ MP ↔54 PHARMANIAGA BERHAD 3Q17 1,606.2 1,710.8 6.5% 46.4 32.0 -31.0% Below Below -13.0% -13.0% Within Within 3.30 ↓ UP ↔

MEDIA 5,143.6 4,832.4 -6.1% 455.7 415.0 -8.9% Mix Mix 3.7% -13.7%

55 ASTRO MALAYSIA HOLDINGS BHD 2Q18 2,791.0 2,746.0 -1.6% 320.0 430.0 34.4% Above Above 1.1% 0.3% Within Within 3.00 ↔ OP ↔56 MEDIA CHINESE INTERNATIONAL 2Q18 710.4 648.7 -8.7% 42.9 24.2 -43.6% Below Below -15.0% -15.1% Within Within 0.40 ↓ MP ↔57 MEDIA PRIMA BHD 3Q17 970.4 889.5 -8.3% 40.4 (77.8) -292.6% Below Below ->100% -40.0% Within Within 0.60 ↓ UP ↔58 STAR MEDIA GROUP BHD 3Q17 671.8 548.2 -18.4% 52.4 38.6 -26.3% Above Above 25.0% 0.0% Within Within 1.65 ↓ OP ↑

OIL & GAS 41,013.5 51,667.5 26.0% 4,742.2 6,286.9 32.6% Mix Within -7.7% -4.7%

59 ALAM MARITIM RESOURCES BHD 3Q17 201.7 116.7 -42.1% (2.2) (25.2) -1045.5% Below Below -23.0% -55.0% Within Within 0.07 ↓ UP ↔60 BUMI ARMADA BHD 3Q17 1,211.1 1,740.0 43.7% 62.1 256.1 312.4% Within Within 0.0% -4.0% Within Within 0.90 ↔ OP ↔61 COASTAL CONTRACTS BHD 1Q18 76.2 48.1 -36.9% 3.1 3.3 6.5% Within N.A. 0.0% 0.0% WIthin N.A. 1.45 ↑ MP ↔62 DAYANG ENTERPRISE BHD 3Q17 509.0 521.7 2.5% (12.9) (7.3) -46.2% Below Below -66.5% -9.1% Within Within 0.73 ↓ OP ↔63 DIALOG GROUP BHD 1Q18 653.6 778.7 19.1% 63.6 89.9 41.4% Within Within 0.0% 0.0% Within Within 2.55 ↔ OP ↔64 GAS MALAYSIA BHD 3Q17 3,002.5 3,877.7 29.1% 119.3 122.0 2.3% Within Within 0.0% 0.0% Within Within 3.18 ↔ OP ↑65 MALAYSIA MARINE AND HEAVY 3Q17 887.7 708.5 -20.2% 38.9 7.6 -80.5% Above Within n.m. 0.0% Within Within 0.65 ↔ UP ↔66 PANTECH GROUP HOLDINGS BHD 2Q18 227.8 308.6 35.5% 13.2 25.7 94.7% Within Within 0.0% 0.0% Within Within 0.75 ↔ OP ↔67 PETRONAS CHEMICALS GROUP BHD 3Q17 9,913.0 12,667.0 27.8% 2,186.0 3,172.0 45.1% Above Within 7.0% 3.1% Within Within 8.10 ↑ OP ↔68 PETRONAS DAGANGAN BHD 3Q17 15,798.3 19,885.5 25.9% 738.4 825.6 11.8% Above Within 3.8% 3.8% Within Within 25.20 ↓ OP ↔69 PETRONAS GAS BHD 3Q17 3,407.3 3,505.9 2.9% 1,268.2 1,290.8 1.8% Within Within 0.0% 0.0% Within Within 22.00 ↔ OP ↔70 SAPURA ENERGY BHD 2Q18 3,616.8 3,425.8 -5.3% 185.3 42.4 -77.1% Below Within -39.0% -17.4% Within Within 1.55 ↓ MP ↔71 SERBA DINAMIK HOLDINGS BHD ^ 3Q18 n.a. 1,915.5 n.m. n.a. 229.5 n.m. Above Above 6.0% 6.3% Above Above 3.65 ↑ OP ↔72 UZMA BHD 3Q17 332.3 265.3 -20.2% 19.3 18.9 -2.1% Below Below -17.0% -23.0% Within Within 1.65 ↔ MP ↓73 WAH SEONG CORP BHD 3Q17 946.4 1,512.9 59.9% (38.5) 48.9 227.0% Above Above 13.0% 20.7% Within Within 1.40 ↑ OP ↔74 YINSON HOLDINGS BHD 2Q18 229.8 389.6 69.5% 98.4 186.7 89.7% Within Within 0.0% 0.0% Above Above 4.05 ↔ OP ↔

PACKAGING MANUFACTURERS 3,039.6 3,318.7 9.2% 314.6 331.1 5.2% Within-Below Within-Below -13.0% -5.0%

75 SCGM BERHAD ^ 1Q18 37.9 53.7 41.7% 5.3 5.5 3.8% Below Within 0.0% 0.0% Below Below 3.00 ↓ MP ↔76 SCIENTEX BHD ^ 4Q17 2,201.0 2,403.0 9.2% 240.9 255.9 6.2% Within Below 0.0% 0.0% Within Within 8.43 ↓ MP ↔77 SLP RESOURCES BHD 3Q17 127.8 135.1 5.7% 20.3 13.5 -33.4% Below N.A. -30.0% -13.0% Within N.A. 1.83 ↓ MP ↓78 THONG GUAN INDUSTRIES BHD 3Q17 551.1 621.7 12.8% 41.6 44.2 6.3% Within N.A. 0.0% 0.0% Within N.A. 5.67 ↔ OP ↔

79 TOMYPAK HOLDINGS BHD 3Q17 159.7 158.9 -0.5% 11.8 12.0 1.7% Below Below -22.0% -7.0% Below Below 0.815 ↓ UP ↓

PLANTATION 45,903.5 51,832.2 12.9% 2,578.3 3,771.2 46.3% Mix-to-Negative Mix-to-Negative 9.3% 2.6%

80 CB INDUSTRIAL PRODUCT HOLDING 3Q17 391.7 444.2 13.4% 55.8 66.5 19.2% Within Below 0.0% 0.0% Within Within 2.10 ↓ OP ↔

81 FELDA GLOBAL VENTURES 3Q17 12,087.0 12,696.0 5.0% (90.0) 112.0 224.4% Above Above 172.0% 86.0% Above Above 2.00 ↑ OP ↑82 GENTING PLANTATIONS BHD 3Q17 967.0 1,276.0 32.0% 170.0 233.0 37.1% Broadly Within Broadly Within 0.0% 0.0% Within Within 10.30 ↔ MP ↔83 HAP SENG PLANTATIONS BHD 3Q17 375.0 391.0 4.3% 80.0 88.0 10.0% Below Below -10.0% -4.0% Within Within 2.70 ↓ MP ↔84 IJM PLANTATIONS BHD 2Q18 340.8 381.0 11.8% 54.7 35.6 -34.9% Below Below -24.0% -22.0% Within Within 2.50 ↓ UP ↓85 IOI CORPORATION BHD 1Q18 3,291.3 2,206.1 -33.0% 327.6 258.6 -21.1% Within Within 0.0% 0.0% Within Within 5.00 ↔ OP ↔86 KUALA LUMPUR KEPONG BHD 4Q17 16,506.0 21,004.0 27.3% 1,018.0 1,069.0 5.0% Below Below -8.0% 0.0% Below Below 25.00 ↓ MP ↔87 PPB GROUP BERHAD 3Q17 3,162.9 3,168.2 0.2% 540.7 831.9 53.9% Within Above 0.0% 0.0% Within Within 19.00 ↔ OP ↔88 SOUTHERN ACIDS (M) BERHAD 2Q17 328.1 367.7 12.1% 13.2 15.8 19.7% Below Below -11.0% -10.0% Within Within 4.95 ↓ OP ↔89 SIME DARBY BERHAD 1Q18 6,934.0 8,144.0 17.5% 246.0 875.0 255.7% Above Above 15.0% 7.0% Within Within 9.65 ↑ MP ↔90 TA ANN HOLDINGS BERHAD 3Q17 837.5 880.1 5.1% 94.1 97.9 4.0% Broadly Within Broadly Within 0.0% 0.0% Within Within 3.60 ↑ MP ↔91 TSH RESOURCES BHD 3Q17 628.0 803.6 28.0% 60.0 81.2 35.3% Below Below -8.0% -18.0% Within Within 1.75 ↓ MP ↓92 UNITED MALACCA BHD ^ 1Q18 54.2 70.3 29.7% 8.2 6.7 -18.3% Below Below -5.0% -5.0% Within Within 7.15 ↓ OP ↔

PROPERTY 15,224.6 18,433.8 21.1% 1,938.2 2,233.3 15.2% Mix Within-Below -5.8% -2.2%

93 AMVERTON BHD 3Q17 82.7 106.8 29.1% 15.6 13.9 -10.9% Below N.A. -17.0% -25.0% Within N.A. 2.00 ↓ OP ↔94 CRESENDO CORPORATION BHD ^ 2Q18 97.5 134.8 38.3% 13.5 22.3 65.2% Above N.A. 39.0% 41.0% Above N.A. 1.60 ↓ OP ↔95 ECO WORLD DEVELOPMENT GROUP 3Q17 1,805.4 2,025.7 12.2% 99.9 81.2 -18.7% Within Below 0.0% 0.0% Within Within 1.72 ↔ MP ↔96 HUA YANG BERHAD 2Q18 230.7 93.2 -59.6% 40.9 2.3 -94.4% Below Below -88.0% -77.0% Within Within 0.65 ↓ UP ↓97 IOI PROPERTIES GROUP BHD 1Q18 899.5 870.0 -3.3% 189.6 242.9 28.1% Within Within 0.0% 0.0% Within Within 2.20 ↔ OP ↔98 MAGNA PRIMA BHD 3Q17 89.5 90.5 1.1% 6.8 0.2 -97.1% Below Below -89.0% -9.0% Within Within 1.30 ↓ MP ↓99 MAH SING GROUP BHD 3Q17 2,215.4 2,154.9 -2.7% 265.9 236.5 -11.1% Within Below 0.0% 0.0% Within Within 1.63 ↔ OP ↑

100 MALAYSIAN RESOURCES CORP BHD 3Q17 1,376.4 2,415.5 75.5% 48.3 56.4 16.8% Above Below 44.0% 13.0% Within Within 1.14 ↔ OP ↔101 MATRIX CONCEPTS BERHAD 2Q18 421.1 375.8 -10.8% 98.4 97.4 -1.0% Below Broadly Within 0.0% 0.0% Within Within102 SP SETIA BHD 3Q17 2,577.4 3,185.4 23.6% 383.2 459.0 19.8% Broadly Within Broadly Within 0.0% 0.0% Within Within 4.08 ↔ OP ↔103 SUNSURIA BHD 4Q17 207.1 398.5 92.4% 39.9 90.7 127.3% Above Above 0.0% 0.0% Below Below 1.50 ↓ MP ↓104 SUNWAY BHD 3Q17 3,362.2 3,651.9 8.6% 376.3 398.9 6.0% Within Broadly Within 0.0% 0.0% Within Within 1.82 ↔ OP ↑105 UEM SUNRISE BHD 3Q17 1,216.8 2,155.3 77.1% 94.5 246.1 160.4% Above Above 19.0% 3.0% Within Within 1.30 ↔ OP ↔106 UOA DEVELOPMENT BHD 3Q17 725.6 882.3 21.6% 281.0 299.4 6.5% Broadly Within Broadly Within 0.0% 0.0% Within Within 2.47 ↔ MP ↓

Call/Rating

Price (RM) UP/MP/OP

Cease Coverage

No. Company

Period

under

review


quantum (%)

Dividends

against

estimates

Target


Notes:

Yellow Highlight- Odd financial year end counters * Due to changes in Financial Year End ^ Revised target price / call based on the stock's latest reports subsequent to its quarterly Results Note


PP7004/02/2013(031762) of 24



REITS 2,359.0 2,449.2 3.8% 1,197.4 1,222.8 2.1% Within Within 0.0% 0.0%

107 AXIS REAL ESTATE INVESTMENT 3Q17 127.7 129.4 1.3% 67.1 68.4 1.9% Broadly Within Broadly Within 0.0% 0.0% Within Within 1.48 ↔ MP ↔108 CAPITAMALLS MALAYSIA TRUST 3Q17 279.2 276.9 -0.8% 122.8 120.2 -2.1% Within Within 0.0% 0.0% Within Within 1.63 ↔ OP ↔

109 IGB REIT 3Q17 381.7 390.6 2.3% 207.5 226.2 9.0% Within Within 0.0% 0.0% Within Within 1.87 ↔ OP ↔

110 KLCC STAPLED GROUP 3Q17 998.0 1,015.0 1.7% 507.0 496.0 -2.2% Within Below 0.0% 0.0% Within Within 7.73 ↔ MP ↔111 MRCB-QUILL REIT 3Q17 97.7 135.5 38.7% 45.9 66.6 45.1% Within Within 0.0% 0.0% Within Within 1.38 ↔ OP ↔112 PAVILION REIT 3Q17 342.2 360.6 5.4% 180.4 166.7 -7.6% Within Below 0.0% 0.0% Within Within 1.84 ↔ OP ↔113 SUNWAY REAL ESTATE INVESTMENT 1Q18 132.5 141.2 6.6% 66.7 78.7 18.0% Within Within 0.0% 0.0% Within Within 1.87 ↔ OP ↔

RUBBER GLOVES 5,226.4 6,386.6 22.2% 633.9 708.0 11.7% Mix Mix 1.9% 1.4%

114 HARTALEGA HOLDINGS BHD 2Q18 838.8 1,185.7 41.4% 127.4 209.7 64.6% Above Above 10.0% 7.0% Within Within 8.30 ↑ MP ↓115 KOSSAN RUBBER INDUSTRIES 3Q17 1,230.1 1,479.7 20.3% 126.3 137.7 9.0% Below Below -9.6% -6.5% Within Within 6.70 ↓ UP ↓

116 SUPERMAX CORP BHD 1Q18 269.0 312.0 16.0% 19.5 27.9 43.1% Within Within 0.0% 0.0% Within Within 1.70 ↔ UP ↓

117 TOP GLOVE CORP BHD ^ 4Q17 2,888.5 3,409.2 18.0% 360.7 332.7 -7.8% Within Within 7.0% 5.0% Within Within 7.60 ↑ OP ↔

SIN 5,463.9 4,957.7 -9.3% 844.2 767.1 -9.1% Below Below -5.0% -2.7%

118 BRITISH AMERICAN TOBACCO BHD 3Q17 2,915.8 2,302.1 -21.0% 517.7 419.5 -19.0% Below Below -9.3% -4.3% Within Within 45.00 ↓ OP ↔119 CARLSBERG BREWERY MALAYSIA BHD 3Q17 1,244.9 1,338.3 7.5% 157.9 171.2 8.4% Below Below -5.7% -3.7% Within Within 15.05 ↓ MP ↔120 HEINEKEN MALAYSIA BERHAD 3Q17 1,303.2 1,317.3 1.1% 168.6 176.4 4.6% Broadly Within Broadly Within 0.0% 0.0% Within Within 19.30 ↔ OP ↑

TELECOMMUNICATION 36,218.4 38,620.0 6.6% 4,614.6 4,331.6 -6.1% Within Within 0.3% 1.2%

121 AXIATA GROUP BERHAD 3Q17 15,776.0 18,141.0 15.0% 1,341.0 996.0 -25.7% Within Within 0.1% 0.6% Within Within 4.95 ↔ MP ↑122 DIGI.COM BHD 3Q17 4,927.0 4,696.0 -4.7% 1,258.0 1,117.0 -11.2% Within Within -0.6% -0.9% Within Within 4.85 ↔ MP ↔124 MAXIS BHD 3Q17 6,397.0 6,546.0 2.3% 1,423.0 1,560.0 9.6% Within Above 2.4% 1.7% Within Within 6.05 ↑ MP ↔

123 OCK GROUP BHD 3Q17 294.4 351.0 19.2% 14.6 17.6 20.5% Below Below -6.4% -1.3% Within Within 1.00 ↓ OP ↔

125 TELEKOM MALAYSIA BHD 3Q17 8,824.0 8,886.0 0.7% 578.0 641.0 10.9% Above Within 5.8% 5.9% Within Within 6.75 ↑ OP ↑

TECHNOLOGY 2,792.2 3,473.8 24.4% 198.0 286.2 44.5% Within-Below Within-Below -6.2% 2.3%

126 D&O GREEN TECHNOLOGIES BHD 3Q17 301.5 330.8 9.7% 10.7 11.5 7.5% Below Below -20.0% -10.0% Within Within 0.65 ↓ MP ↔

127 KESM INDUSTRIES BHD 1Q18 80.1 90.7 13.2% 10.0 11.4 14.0% Within Within 0.0% 0.0% Within Within 18.40 ↔ UP ↓128 MALAYSIAN PACIFIC INDUSTRIES BHD ^ 1Q18 358.0 387.6 8.3% 39.7 37.1 -6.5% Below Below 0.0% 0.0% Within Within 14.70 ↓ MP ↓129 NOTION VTEC BHD 4Q17 230.7 272.2 18.0% (16.3) 11.8 -172.4% Below Below -40.0% 0.0% Below Below 0.44 ↓ UP ↓130 P.I.E. INDUSTRIAL BHD 3Q17 385.8 496.0 28.6% 13.9 33.6 141.7% Within Within 0.0% 0.0% Within Within 2.87 ↔ OP ↔131 SKP RESOURCES BHD 2Q18 777.0 1,119.0 44.0% 41.0 68.4 66.8% Within Within 3.0% 14.0% Within Within 2.05 ↑ MP ↓132 UNISEM (M) BERHAD 3Q17 960.6 1,108.3 15.4% 109.7 123.9 12.9% Within Within 0.0% 0.0% Within Within 3.90 ↑ MP ↔

TRANSPORT & LOGISTICS 22,715.2 24,669.1 8.6% 3,466.1 3,802.8 9.7% Within Within 1.4% 2.2%

133 AIRASIA BHD 3Q17 6,194.0 7,053.0 13.9% 1,107.0 1,218.0 10.0% Above Above 23.0% 30.0% Within Within 4.75 ↑ OP ↔134 BINTULU PORT HOLDINGS BHD 3Q17 871.1 603.8 -30.7% 106.7 109.1 2.2% Within Within 0.0% 0.0% Within Within 6.05 ↔ MP ↔135 CENTURY LOGISTICS HOLDINGS 3Q17 225.7 215.5 -4.5% 13.9 11.7 -15.8% Broadly Within Below 0.0% 0.0% Within Within 1.25 ↔ OP ↔136 GD EXPRESS CARRIER BHD 1Q18 58.0 68.8 18.6% 8.1 7.9 -2.5% Broadly Within Broadly Within -2.1% -3.4% Within Within 0.45 ↔ UP ↔137 MALAYSIA AIRPORTS HLDGS BHD 3Q17 3,092.7 3,405.5 10.1% (7.1) 166.2 2440.8% Broadly Within Broadly Within 0.0% 0.0% Within Within 8.38 ↔ MP ↔138 MISC BHD 3Q17 7,079.7 7,603.2 7.4% 1,489.0 1,517.2 1.9% Above Within 7.2% 4.5% Above Above 7.25 ↔ MP ↔139 MMC CORP BHD 3Q17 2,775.3 2,925.4 5.4% 218.0 254.8 16.9% Within Within -3.3% -1.6% Within Within 2.85 ↔ OP ↔140 POS MALAYSIA BERHAD 2Q18 811.0 1,198.8 47.8% 36.2 55.6 53.6% Within Below -4.1% 4.8% Within Within 5.10 ↑ MP ↑141 TIONG NAM LOGISTICS BHD 2Q18 272.4 314.4 15.4% 28.4 20.8 -26.8% Below Below -6.8% -9.6% Within Within 1.40 ↓ MP ↔142 WESPORTS HOLDINGS BHD 3Q17 1,335.3 1,280.7 -4.1% 465.9 441.5 -5.2% Within Within 0.0% -2.3% Within Within 3.70 ↔ MP ↔

UTILITIES 51,359.8 55,517.3 8.1% 7,052.0 6,457.2 -8.4% Within Within -3.1% -2.9%

143 MALAKOFF CORPORATION BHD 3Q17 4,384.9 5,337.1 21.7% 211.2 246.2 16.6% Below Within -12.4% -11.4% Within Within 1.25 ↓ OP ↔144 PESTECH INTERNATIONAL BERHAD 1Q18 102.8 184.9 79.9% 8.1 11.9 46.9% Within Within 0.0% 0.0% Within Within 2.00 ↔ OP ↔145 TENAGA NASIONAL BHD 4Q17 44,531.5 47,416.9 6.5% 6,686.2 6,066.7 -9.3% Within Below 0.0% 0.0% Above Above 17.17 ↔ OP ↔146 YTL POWER INTERNATIONAL BHD 1Q18 2,340.6 2,578.4 10.2% 146.5 132.4 -9.6% Broadly Within Broadly Within 0.0% 0.0% Within Within 1.30 ↓ MP ↔

OTHERS 5,949.1 7,233.3 21.6% 248.3 375.9 51.4% Within N.A. 0.0% 0.0%

147 BOUSTEAD HOLDINGS BHD 3Q17 5,949.1 7,233.3 21.6% 248.3 375.9 51.4% Within N.A. 0.0% 0.0% Within Within 2.20 ↔ UP ↔

Total/Average 371,503.5 412,674.9 11.1% 49,667.2 55,379.9 11.5% Within Within -3.6% -3.5%

Call/Rating

Price (RM) UP/MP/OP

No. Company

Period

under

review


quantum (%)

Dividends

against

estimates

Target


Notes:

Yellow Highlight- Odd financial year end counters * Due to changes in Financial Year End ^ Revised target price / call based on the stock's latest reports subsequent to its quarterly Results Note


PP7004/02/2013(031762) of 24

Figure 8: 3QCY17 Results Review & Sector Outlook

Sector Brief Result Review Forward Expectations / Outlook Stock Calls

Automotive Mixed performance this quarter, as 2 out of the 5 stocks (UMW and TCHONG) were below expectation and the remaining 3 stocks, (BAUTO, DRBHCOM and MBMR) were deemed within expectation as we expect stronger quarters ahead underpinned by sales boosting year-end promotional activities.

In this quarter we observed; (i) slower auto sales for BAUTO,DRBHCOM, TCHONG, and UMW due to lack of new model launches and absent of major promotional activity to attract consumer demand, (ii) MBMR scored higher auto sales due to a better promotional activity and higher sales of premium vehicles, (iii) this quarter marked the first improvement in margins with the stronger MYR against major currencies (especially for USD and JPY), and (iv) new model launches closer to the end of 3QCY17, which is expected to be translated into registration in 4QCY17.

No changes in call for the quarter. We maintain our TP for MBMR, and increased our TP on BAUTO and DRBHCOM, whereas we lowered our TP for UMW and TCHONG.

We expect a boost in auto sales volume for all brands in 4QCY17 from the sales boosting year-end promotional activities. Subsequently, the launch of the new third-generation Perodua MyVi in November 2017 is expected to benefit MBMR and UMW, whereas the launch of Mazda CX-5 in October 2017 is expected to boost car sales volume for BAUTO.

However, we expect TCHONG to continue its weak performance given the lack of new model launches until 2018.

We maintain our NEUTRAL rating on the AUTOMOTIVE sector given the outweighing of MARKET PERFORM ratings in the total market capitalization of our stocks coverage coupled with the YTD 10M17 TIV of 472,723 units (at 80%), matching our 2017 TIV forecast of 590,000 units.

OP:

• BAUTO (OP ↔; TP: RM2.40 ↑)

MP:

• DRBHCOM (MP ↔; TP: RM1.80 ↑)

• MBMR (MP ↔; TP: RM2.20 ↔)

• UMW (MP ↔; TP: RM5.30 ↓)

UP:

• TCHONG (UP ↔; TP: RM1.40 ↓)

Aviation For 3QCY17, AIRASIA came in above expectations from higher-than-expected load factors and average fares while AIRPORT was broadly inline as we are expecting 4Q17 to come in stronger on seasonality. This quarter’s performance slightly better off compared to the last quarter where both AIRPORT and AIRASIA were broadly inline.

Uptick in AIRASIA’s earnings. We upgrade AIRASIA’s FY17-18E earnings by 23-20% as we tweak for higher load factors and fare prices. No change in AIRPORT’s earnings estimates.

Maintaining our OP and MP ratings for AIRASIA and AIRPORT, respectively. However, we upgrade AIRASIA’s TP further from the revised earnings on unchanged 9.0x Fwd PER. AIRPORT’s TP remained unchanged based on 1.74x PBV (+1.5SD)

We remain positive on AIRASIA on the back of capacity expansion in FY17 and targeted increase in aircraft utilization rate to 14.0 hours. AIRASIA to maintain healthy load factors of >85% on the back of: (i) strong travel demand, (ii) extensive route options with optimal frequencies, and (iii) less competition from other airlines i.e. Malindo and MAS as we believe these airlines will steer clear from a price war. Coupled with their planned divestment of their leasing arm AAC which will lighten AIRASIA’s balance sheet in addition to a special dividend, we believe that AIRASIA will continue to chart sturdy performance supported by decent jet fuel cost which is 75% hedged at USD61/barrel for 4QCY17.

For AIRPORT, we are targeting passenger growth of 10% and 7% for the remainder of FY17E for their Malaysian and Turkey operations, respectively, given the improvement in Turkey passenger estimates coupled with the optimistic travel demand from Malaysia.

Maintaining our OVERWEIGHT call on the aviation sector.

OP:

• AIRASIA (OP ↔; TP: RM4.75 ↑)

MP:

• AIRPORT (MP ↔; TP: RM8.38 ↔)


PP7004/02/2013(031762) of 24


Banking 3QFY17 results were mixed with 5 in line, 2 below (AFFIN and AMBANK) and 2 above (CIMB & MAYBANK) our expectations.

AFFIN were below expectations due to higher than expected opex & VSS, AMBANK lower due to lower credit recovery and higher opex.

CIMB results were above expectations due to higher than unexpected Islamic banking income whilst MAYBANK above expectations due to lower than expected impairment allowances.

In this quarter we observed; (i) stronger growth in Islamic Banking income (due to better financing growth and stronger profit rate), (ii) NIMs continued to improved due to better access to cheaper source of funds, (iii) loans slowing QoQ, and (iv) mixed results from fee-based income.

We toned down our TP for AFFIN, AMBANK, CIMB, RHBBANK and MAYBANK on account of: (i) soft loans, (ii) elevated credit costs, and (iii) higher opex

We maintain our OP call on AFFIN, ABMB AMBANK, CIMB and RHBBANK as the steep retracement on these stocks are giving attractive proposition. We maintain MP with the rest.

We maintained a Neutral stance for the sector. Our concerns on MFRS9 still prevail as elevated credit costs will impact the industry. The prospect of rising cost will put a dampener on consumer sentiment thus consumer loans. Furthermore loans/financing will likely moderate with the moderate economy and corporates going into the debt market for financing to mitigate the impact of higher interest rates.

OP

• AFFIN (OP ↔; TP: RM2.75 ↓)

• ABMB (OP ↔; TP: RM4.15 ↔)

• AMBANK (OP ↑; TP:

RM4.75 ↔

• CIMB (OP ↑; TP: RM6.75 ↓)

• RHBBANK (OP ↑; TP:

RM5.45 ↓)

MP:

• BIMB (MP ↔; TP: RM4.54 ↔)

• HLBANK (MP ↔; TP: RM15.25 ↔)

• MAYBANK (MP ↔; TP: RM9.35 ↓)

• PBBANK (MP ↔; TP: RM21.45 ↑)

Banking – Non-banking Financial Institutions

Within expectations. Out of our NBFI coverage, four companies namely AEONCR, BURSA, LPI and TAKAFUL reported results that came in within our expectations.

MBSB, on the other hand, continued to report better-than-expected results on the back of lower impairment allowances and better cost-to-income ratio.

Post model updates, we made no changes to AEONCR, BURSA and TAKAFUL in terms of earnings estimates, TP and rating, with marginally revision for BURSA for house-keeping purpose.

Meanwhile for MBSB, our FY17E/FY18E earnings are revised downwards by 3%/6% on lower financing growth of <4%/<5% (previously at >5% for both FYs). Subsequently, our TP is revised downwards to RM1.30 (from RM1.45) based on a blended FY18E PB/PE of 0.93x/14.5x (from 1.0x/16x). Maintain OUTPERFORM

For MBSB we revised down out TP

In terms of AEONCR’s operation strategy, there are not many changes; with management’s main focus staying on growing receivables and maintaining margins. On the group receivables, we believe it will continue to stay robust with its niche small-ticket items market for amounts averaging at c.RM10k. Meanwhile, on the margins side, management noted that the digitalisation of branch operations is gaining traction. We expect cost-to-income ratio to maintain at 34.6-35.1%, which is at the group’s historical 3-year range of 34-35% despite lower (NIM), which will be offset by the better operational efficiency from digitalisation as well as stringent cost control. Collection ratio improvement by leveraging on the group’s stringent customer qualification processes with advanced system adoption should minimise the impact of impairment as well as keeping NPL at healthy

OP

• MBSB (OP ↔; TP: RM1.30 ↓)

• TAKAFUL (OP ↔; TP: RM4.27)

MP

• AEONCR (MP ↔; TP: RM13.13 ↔)

• BURSA (MP ↔; TP: RM10.35 ↔)

• LPI (MP ↔; TP: RM18.10 ↔)


PP7004/02/2013(031762) of 24


to RM1.30 (from RM1.45) based on a blended FY18E PB/PE of 0.93x/14.5x (from 1.0x/16x). The PE is based on its 5-year mean (with a 0.5SD below mean) with the lower PB (1SD below its 5-year mean) to reflect our concerns on downside risk on earnings due to: (i) constrictive loans growth as it will compete with bigger established banks in chasing quality corporate loans, and (ii) a new cycle in deterioration of asset quality due to the higher ratio of corporate loans. Nevertheless, due to sharp depreciation of its share price, we maintain our OUTPERFORM call as potential return is still above 10%.

level (of low to mid 2%).

For BURSA, thus far, our strategist’s seasonal study which suggested a weaker 3QCY had been proven correct; alongside SADV plunging 26% QoQ and the FBMKLCI performing weaker than the 5-year trailing average performance in July 2017 and Sept 2017. Should our latest view (on seasonal recovery in 4QCY) which is supported by in-house empirical research continue to materialise, the overall market could improve, as 4Q and 1Q are normally relatively stronger. In fact, this is already happening with better Securities ADVs of RM2.1b as well as higher trading volume of 2.7b shares, from beginning of Sep 2017 till of our date of writing, For the 4Q, we are expecting SADVs to close at RM2.5b with average volume to stay at 2.9b.

For insurance, while our concerns are on the undercutting of premium pricing that could induce greater competition post implementation of phase 2 liberalisation of Motor and Fire Tariffs, we understand that there are, in fact, not many premium revisions seen thus far among the new motor insurance products, thanks to the risk-based capital framework in place as well as the thinner margins that motor insurance is carrying. We continue to believe that the growth momentum of Takaful industry premium should outpace the conventional insurance given its low penetration as well as resilient demand for Takaful products.

Meanwhile for MBSB, while it is on track with its impairment programme for FY17, management had revised downwards its loans/financing guidance to <4% (vs. 5% earlier with the focus on better quality assets (from personal financing). Moving forward, loans will still be driven by corporate financing (as it strives for a corporate/retail financing ratio of 30:70) supported by: (i) affordable home financing of which we understand that MBSB has a current market share of 55%/40% in PR1MA/PPA1M, and (ii) undisbursed corporate financing of RM7.8b of which RM1.2b is expected to be disbursed in 4QFY17.


PP7004/02/2013(031762) of 24


Building Materials

One broadly in line while others below. This quarter, 1 came in broadly in line (ANNJOO) while the other 3 fell short of estimates (LAFMSIA, ULICORP, PMETAL). We deem ANNJOO as broadly in line as we expect the stronger average steel prices coupled with lower costs to lift 4Q17 earnings. Meanwhile the rest were below due to: (i) lower demand for cement for LAFMSIA, (ii) higher carbon anode costs for PMETAL, and (iii) slower sales for ULICORP. Last quarter was better off given that there were no disappointments.

Earnings estimates. Post 3QCY17 results, we maintain earnings for ANNJOO but lowered earnings for ULICORP and LAFMSIA. As for PMETAL, we lowered FY17E earnings to update for the higher carbon anode prices but increase FY18E earnings after adjusting for higher aluminum selling price (+5%).

Adjustment to calls and TPs. While we maintain ANNJOO’s call and TP, we reduce TP for ULICORP and LAFMSIA post revision in earnings/losses estimate. As for PMETAL, we up our TP as we increase our FY18E aluminum assumptions. We maintain our OP call for ANNJOO and UP call for LAFMSIA but revised PMETAL to MP given the strong surge in share price YTD (+ 227%). Meanwhile, we downgrade ULICORP to MP due to its weak near-term prospects as a result of thinning margins and poorer sales.

We remain positive on the steel sector on the back of: (i) reduced China imports due to the Chinese Government’s initiative to cut output coupled with safeguard measures into Malaysian shores which will provide sustainable steel prices for local steel manufacturers and (ii) higher demand of steel products when major infrastructure projects imminently pick up.

While we anticipate cement demand to gradually picks up pace coupled with healthier rebates to follow, we believe the overall cement market in Malaysia is saturated with persistent overcapacity from the commencement of new cement manufacturing capacity in FY16 (+15%). Hence, despite the improving demand, we believe the market will not be able to absorb the entire additional capacity added in 2016 and earnings level for cement players in the next 2 years will not be able to return to levels in FY12-15 i.e. LAFMSIA’s earnings level exceeding RM200m. Maintain Negative view on the cement sub-sector.

For PMETAL we remain optimistic on aluminum prices as China continues to cut down on “illegal” capacity while PMETAL’s plant upgrades (billet line, port conveyor belt) are due for completion in 2H17, contributing to margin expansion in 2018. All in, we remain POSITIVE on the aluminum sub-sector.

For ULICORP, we believe its short-term outlook may be clouded by the recent margin compression amidst higher steel prices. Nonetheless, the medium-term prospects of the group should be backed by better cost savings from improved in-house capabilities alongside steady project flows from major government infrastructure initiatives to support demand.

Reiterate NEUTRAL on Building Materials despite being positive on the steel sub-sector as the negative cement sub-sector is heavily market weighted.

OP:

• ANNJOO (OP ↔; TP: RM4.70 ↔)

MP:

• PMETAL (MP ↓; TP: RM5.00 �)

• ULICORP (MP ↓; TP: on RM4.45 ↓)

UP:

• LAFMSIA (UP ↔; TP: RM4.10 ↓)


PP7004/02/2013(031762) of 24


Construction Improved performance. We saw better performances in the recently concluded 3QCY17 reporting season. Out of 10 construction stocks under our coverage, 2 contractors disappointed, 6 came in within/broadly within while the remaining 2 were above our expectations. The 2 contractors that disappointed are IJM and KIMLUN. For IJM it was due to: (i) higher unit costs incurred by IJMPLNT and (ii) weak property margins, while KIMLUN was affected by provisioning of bad debt. The number of stocks that disappointed in 3QCY17 is the same as 2QCY17.

YoY, bulk of the contractors registered CNP growth ranging from 8-56% except for 4 contractors that saw decline in their CNP by the range of 10-29%. The decline in the performance for these 4 contractors i.e. HSL, KIMLUN, MITRA, and IJM were due to: (i) slow progress billings for on-going projects, (ii) cost overruns due to delays, (iii) being dragged down by other non-construction related divisions i.e. property and plantation, and (iv) provisioning of bad debts. QoQ-wise, we have 3 contractors that registered decline of 13-15% in their CNP due to similar reasons above. In terms of earnings revision, we lowered our FY17E earnings estimates for IJM and KIMLUN; as we factored in higher unit costs for plantation division and lower property development margin for IJM, and the provisioning of bad debt for KIMLUN.

During the quarter, we upgraded 3 stocks (GAMUDA, WCT and MUHIBAH) from MP to OP due to the retracement in share prices dragged down by weak market sentiment and there are no downgrades in recommendation for other contractors. As for Target Price, we only downgraded IJM (-1%) but upgraded 3 stocks (KERJAYA, MUHIBAH and SENDAI) by 3-21% due to upward revision in earnings. For 3QCY17, we only have 1 downgrade and 3 upgrades in TP as compared to 3 downgrades in 2QCY17.

All-in, contractors’ performance within our core coverage was better in 3QCY17 vis-à-vis 3QCY17 with more upgrades changes to our FY17-18E core earnings forecast, recommendation and Target Price.

Going forward, we expect construction news flow to slow down for CY17, and to resume in CY18, except for LRT3 from which we can expect a few more packages to be dished out in Dec 2017.

As for other high profile mega projects i.e. Pan Borneo Sabah and ECRL, we would be expecting Pan Borneo Sabah contract awards to commence in 1HCY18 as highlighted in our previous reports. We reiterate our NEUTRAL call on the sector as we believe that the market have priced in most of the mega projects, except for ECRL. Due to the recent weak market sentiment, we see that the share price for some contractors have retraced and we believe that it is a good opportunity to buy on weakness especially when earnings delivery are much more steady compared to a few quarters ago. We believe that investors should re-look names like GAMUDA, MITRA, WCT and MUHIBAH.

OP:

• IJM (OP ↔; TP: RM3.45 ↓)

• MUHIBAH (OP �; TP: RM3.55 �)

• WCT (OP�; TP: RM1.83 ↔)

• MITRA (OP ↔; cum/ex TP: RM1.09/RM0.94 ↔)

• GKENT (OP ↔; TP: RM3.65 ↔)

MP:

• GAMUDA (MP ↔; TP: RM5.45 ↔)

• KIMLUN (MP ↔; TP: RM2.27 ↔)

• HSL (MP ↔; TP: RM1.40 ↔)

• SUNCON (MP ↔; TP: RM2.29 ↔)

UP:

• SENDAI (UP ↔; TP: RM0.80�)

• KERJAYA (UP ↔; TP: RM3.40 �)


PP7004/02/2013(031762) of 24


Consumer Slightly disappointing. Of the 17 stocks within our coverage, only 1 stock performed above expectation (F&N), 11 stocks were within (AMWAY, BAT, BISON, HAIO, HEIM, OLDTOWN, PADINI, PARKSON, QL, SEM, SPRITZER) while another 5 stocks fell below (AEON, CARLSBG, DLADY, NESTLE, PWROOT). Although most retailers came in within expectations, 3QCY17 is generally a weaker quarter due to stronger sales-boosting festivities in the previous quarter (Hari Raya) and consumers holding back purchases in favour of year-end promotions. However, the weaker sales was cushioned by the: (i) cost savings with the cost rationalization strategy in place, (ii) improved margins for importing retailers (i.e. AMWAY and PADINI) attributed to the stronger MYR against major currencies.

F&B players’ earnings fell, coming under pressure from higher-than-average commodity prices against a lower base from 3QCY16. While the 2017 SEA Games had encouraged F&B consumption during this period, larger investments into advertising and promotional activities had to be incurred concurrently. Exporters continued to enjoy a more vibrant demand overseas from a significantly wider consumer base, as coffee players continued to see double-digit sales growth.

In the Sin sub-sector, brewers are expected to see better sales by increasing ‘premiumisation’ of their product portfolios but may see margin compression from marketing spend. Tobacco stocks in contrast are attempting to grow market share by introducing more affordable products into the market, which may cannibalise premium product share with better margins.

4Q is generally a stronger quarter for retailers with the anticipated sales-boosting year-end promotional activities. Moving forwards, with the expected improvement in forex rate and the initiation of cost rationalization strategy, retailers are expected to see an improvement in their bottom-line. Furthermore, retailers will keep expanding their distributors and stores base to sustain their top-line and spread out operating expenses over a bigger base. As global commodity cost trends appear to have softened, F&B and Sin companies may enjoy some easing in their production costs in the coming quarters. Although consumer sentiment has yet to improve significantly, spending is likely to continue to be incentivised by premium offerings of better value proposition to consumers. However, as our local currency strengthens, import cost pressures are likely to ease while exporters without organic volume sales growth may see a decline in earnings.

Maintain NEUTRAL on the sector. While we believe it can continue to stay relatively more resilient as compared to other sectors despite the unfavorable economy conditions, more headwinds are expected to pose challenges including further increase in commodity prices trend and the persistently subdued consumer sentiment.

OP:

• BAT (OP ↔ ; TP: RM45.00 ↓)

• F&N (OP ↑; TP: RM27.60 ↑)

• HEIM (OP ↑; TP:

RM19.30 ↔)

• OLDTOWN (OP ↔; TP: RM3.15 ↔)

• PARKSON (OP ↔; TP: RM0.88 ↔)

• PWROOT (OP↔; TP: RM2.40↓)

• SEM (OP↔; TP: RM1.70↔)

• BISON (OP↔; TP: RM2.70↔)

MP:

• AEON (MP ↔; TP: RM2.00 ↓)

• AMWAY (MP ↔ ; TP: RM7.50↔)

• CARLSBG (MP↔; TP: RM15.05↓)

• DLADY (MP↔; TP: RM57.00 ↓)

• HAIO (MP ↔; TP: RM4.40 ↑)

• NESTLE (MP↔; TP: RM86.90 ↑)

• QL (MP ↔; TP: RM3.78↔)

• PADINI (MP↓; TP: RM4.80 ↔)

• SPRITZER (MP↔; TP: RM4.80 ↔)

Gaming Fairly inline results except for GENM reporting the weakest quarter in two years which was a big let-down largely due to bad luck factor at RWG although UK casinos showed strong numbers on good luck factor and higher business volume. Nonetheless, we upgraded GENM to OP from MP as the stock price had retraced 20% from its peak in end-May. The upgraded call is also on premised on the GITP expansion story. Meanwhile, GENTING’s 3Q17 results were within expectations as

The focus still remains on casino operators over NFO players given the new market in Japan as well as the GITP growth story in the highlands resort. Upcoming 4Q17-1Q18 should be good for casino players on year-end holiday and CNY festive season while 1Q18 is always a strong quarter for ticket sales for NFO on CNY-effect. Given that the trough ticket sales trend should be over and with improved luck factor, NFOs are certainly yield income plays while casino stocks

OP:

• BJTOTO (OP ↔; TP: RM2.95 ↔)

• GENM (OP ↑; TP: RM5.80 ↓)

• GENTING (OP ↔; TP: RM11.40↑)

• MAGNUM (OP ↔; TP: RM2.17 ↔)


PP7004/02/2013(031762) of 24


the short-fall in GENM was filled up by strong earnings from GENS on the recovery of gaming volume with improved luck factor. On the NFO, both BJTOTO’s 1Q18 and MAGNUM’s 3Q17 results were within expectations with stabilising ticket sales and luck factors. After two years of declining NFO sales, we believe a bottom could have been reached.

are for those seeking a growth story. We are looking to review our NEUTRAL Sector Call in the coming strategy for 1Q18.

Healthcare The recently concluded 3QCY17 results season saw both Pharmaniaga and IHH coming in below expectations. KPJ came within expectations. IHH’s results marked the third consecutive quarterly earnings disappointment, hit by ramp-up of hiring and pre-operating costs to prepare Gleneagles Hong Kong Hospital and Acibadem Altunizade Hospital and unrealised foreign exchange loss of non-Turkish Lira borrowings. Pharmaniaga was hit by higher-than-expected operating cost.

Maintain UNDERWEIGHT. Overall, we believe that the healthcare industry in Malaysia will continue to enjoy stable growth supported by growing healthcare expenditure, rising medical insurance and ageing population demographics. All in, healthcare stocks under our coverage are trading at rich PER valuations compared to their expected low-teens earnings growth. We believe their stock growth potentials are already reflected in the share prices.

MP:

• KPJ (MP ↔; TP: RM1.00 ↓ )

UP:

• IHH (UP ↔; TP: RM5.00 ↓)

• PHARMA (UP ↔; TP: RM3.30 ↓)

Media Still In The Dark. The sector

incumbents’ report cards in 3QCY17 remained disappointing, mainly due to the prolonged weak advertising revenue (as a result of subdued adex outlook on poor consumer spending) as well as losses on new initiatives.

STAR’s 3Q17 results came in above expectation mainly due to our overly conservative forecast post disposal of Cityneon. Despite having no near-term catalysts in place, the deeper-than-expected recent share price correction could provide some bargain hunting opportunities. With a potential >8% dividend yield, it could attract yield-hungry investors.

MEDIA, on the other hand, was slammed in 9M17 recording a LATAMI of RM78m owing to lower advertising revenue, higher OPEX and a combination of RM195m exceptional item on the impairment of its associate MNI and ERS payment.

MEDIAC’s 2Q18 result, meanwhile, missed expectation with 1H18 core PATAMI of RM24m weighed down by publishing and printing segment.

ASTRO, on the other hand, is set to release its 3Q18 results in early-Dec, of which we do not expect any major surprises.

The country’s adex outlook continues to remain challenging in view of the rising cost of living, and weak consumer spending sentiment. All the print players are continuing their venture on the digital transformation path as well as revenue source diversification. In spite of having the outlined transformation plans shared by some sector incumbents, we downplay the chances of short-term earnings contributions in view of the required gestation periods.

Newsprint price has started showing signs of an upward trend with expectation that it would move higher, thus potentially putting greater pressure on print players. Henceforth, we do not discount that further optimization may take place to better manage newsprint usage and margin.

Overall, maintain NEUTRAL call for the sector.

OP:

• ASTRO (OP ↔; TP: RM3.00 ↔)

• STAR (OP↑, TP: RM1.65↓)

MP:

• MEDIAC (MP ↔; TP: RM0.400 ↓).

UP:

• MEDIA (UP↔ , TP: RM0.60↓)


PP7004/02/2013(031762) of 24


MREITs Results within. All MREITs performed within our expectations. This quarter is better than 2Q17 when only 4 results came in within and 3 below (i.e. AXREIT, KLCC and PAVREIT).

YoY, all MREITs saw mostly flattish to positive top-line growth, while most also delivered bottom-line growth, except CMMT (-1%), KLCC (-1%) and PAVREIT (-8%) due to higher operating and financing cost. QoQ, top-lines were also mostly flattish to positive (1% to 7%), which translated to positive bottom-lines (1% to 23%), save for AXREIT and MQREIT.

All in, we left earnings forecasts unchanged, which was better than 2Q17 when we downgraded AXREIT, KLCC and PAVREIT on weaker quarterly results. All our Calls and TPs were maintained in 3Q17.

Fundamentals stable with minimal earnings risk going forward. FY18 will see minimal lease expiries (14-30% of NLA) for MREITs under our coverage. This is on mid-to-high single-digit reversions for retail MREITs’ assets, and low-to-mid single-digit reversions for office and industrial assets to remain conservative. As such, we believe fundamentals are mostly intact with minimal expiries and unexciting reversions.

Maintain OVERWEIGHT. The 10-year MGS has remained stable, range bound between 3.85% and 4.10% and is currently stable at 3.90%. Going forward, we do not expect significant fluctuations in the MGS as most upsides have been priced in (i.e. upcoming US interest rate hikes). We maintain our 10-year MGS target of 4.00%, with most MREITs under our coverage warranting OUTPERFORM calls on decent target yields of 4.8-6.1%. We believe a potential OPR hike in CY18 will have minimal impact to MREITs, as earnings are mostly on fixed rates, while the hike will likely affect shorter term MGS rates (instead of the 10-year). Notably, there has not been a strong correlation between the 10-year MGS yields and OPR hikes in the past. Additionally, the freeze by DBKL on commercial spaces is positive for share price sentiment, especially for landmark malls (i.e. IGBREIT, PAVREIT and KLCC) that have been ignored by investors due to perceived high incoming supply.

MQREIT is our TOP PICK on stable asset and dividend which are commanding the highest yield among MREITs under our coverage, (6.7% yield) vs. its peers at 5.8%.

OP:

• SUNREIT (OP ↔; TP: RM1.87 ↔)

• CMMT (OP ↔; TP: RM1.63 ↔)

• IGBREIT (OP ↔; TP: RM1.87 ↔)

• MQREIT (OP ↔; TP: RM1.38 ↔)

• PAVREIT (OP ↔; TP: RM1.84 ↔)

MP:

• KLCC (MP ↔; TP: RM7.73 ↔)

• AXREIT (MP ↔; TP: RM1.48 ↔)

Oil & Gas We saw improving set of results in this quarter with five counters (MHB, PCHEM, PETDAG, SERBADK and WASEONG) recording positive earnings surprises while the disappointment ratio was lower to 25% from 27% in 2Q17.

Petronas-linked names such as PCHEM and PETDAG managed to beat expectations on better plant utilisation and stronger sales volume. Within the upstream space, earnings disappointment largely came from offshore services players such as DAYANG, UZMA and ALAM, dragged by lower-than-

We are positive on the OPEC

meeting’s outcome given that OPEC

and non-OPEC members have

decided to extend production cut of

1.8m bbl/day for another nine

months. This will boost the near-

term sentiment and improve the

supply demand dynamic which

eventually will entice oil majors to

spend more in terms of both capex

and opex.

Within the local scene, Petronas’ 9M17 core earnings improved by 20% YoY on the back of better performance from both upstream

OP:

• ARMADA (OP ↔; TP: RM0.90 ↔)

• DAYANG (OP ↔; TP: RM0.73↓)

• DIALOG (OP ↔; TP: RM2.55 ↔)

• GASMSIA (OP ↑; TP:

RM3.18 ↔)

• PANTECH (OP ↔; TP: RM0.75 ↔)

• PCHEM (OP ↔; TP: RM8.10 ↑)

• PETDAG (OP ↔; TP:


PP7004/02/2013(031762) of 24


expected work orders and delay of contract award by oil majors. Meanwhile, FPSO players continued to deliver positive set of results driven by incoming and existing long-term FPSO charters.

All in, we trim our two-year forward earnings by 2%/8% on lower services/charter rates. We upgraded GASMSIA to OP on recent price weakness backed by decent yield of >3%. On the flipside, in view of limited re-rating catalyst and unexciting outlook, we downgraded UZMA to MP call after its disappointing results.

and downstream segments. Interestingly, we observed a 41% QoQ increase in capex spending on exploration and development coupled with two greenfield projects being brought on-stream in 3Q17. This could probably be an early sign of recovery in upstream space.

All in, we maintain our conservative average FY18 forecast of USD55/bbl capped by continuous growth in US production. While keeping our preference to earnings resilient counters such as SERBADK and WASEONG, watch out for bombed out counters such as UMWOG (Not-Rated) and ICON (Not-Rated) for a valuation catch-up play should exploration activities pick up. Keep NEUTRAL view with positive bias on the sector as we are turning more bullish on the upstream space with gradual improvement.

RM25.20 ↓)

• PETGAS (OP ↔; TP: RM22.00 ↔)

• SERBADK OP ↔; TP: RM2.95 ↑)

• WASEONG (OP ↔; TP: RM1.40 ↑)

• YINSON (OP ↔; TP: RM4.05 ↔)

MP:

• COASTAL (MP ↔; TP: RM1.45 ↑)

• SAPNRG (MP ↔; TP: RM1.55 ↓)

• UZMA (MP ↓; TP: RM1.65 ↔)

UP:

• ALAM (UP ↔; TP: RM0.07 ↓)

• MHB (UP ↔; TP: RM0.65 ↔)

Plantation 3Q17 worsens. 3QCY17 plantation results came in weaker against 2Q17. While three stocks (FGV, PPB and SIME) outperformed and four came in within expectations, seven stocks underperformed consensus estimates namely CBIP, HSPLANT, IJMPLNT, KLK, TSH, UMCCA and SAB. This is much weaker than 2QCY17 with 2 above, 7 within and only 3 below expectations.

YoY, CPO prices remained higher at an average of 11% while production averaged +12%. However, planters with high Sabah exposure saw weak or even negative production growth in the area, such as HSPLANT (-4%) and IOICORP (flat), leading to earnings disappointment due to the higher unit cost.

While average FY17-18E earnings adjustment was up by 9-3%, it was largely due to the sharp revision for FGV (+172-86%) as it significantly beat consensus and our expectations. Excluding FGV, average earnings adjustment is -4% for both FY17-18E, in line with the high proportion of earnings disappointments. Accordingly, we downgraded our TP for six stocks (CBIP, HSPLANT, IJMPLNT, KLK, TSH and SAB) and lowered our rating for IJMPLNT (to UP, from MP), and TSH (to MP, from OP). Reflecting the strong earnings performance, we upgraded FGV to OP (from MP) with higher TP of RM2.00.

With the usual production down-season looming, we would look into the strength of the possible La Nina as a possible supportive price factor, although indications of further production and therefore stocks increase this Nov 2017 could prove a dampener to prices. As such we maintain our FY17E CPO price forecast at RM2,700/MT.

In the longer-run, we continue to maintain our FY18E CPO forecast at RM2,400/MT although our forecast could see some upside should crude oil prices hold at the current USD60-65/barrel mark which lifts the base price scenario. Otherwise, we continue to see a softer price outlook due to ongoing production recovery, which should ramp up especially in Sabah for 2H18.

No change to our NEUTRAL call on the sector. We hold our OUTPERFORM call on growth/recovery names such as FGV (TP: RM2.00) and UMCCA (TP: RM7.15), as well as counters such as IOICORP (TP: RM5.00), PPB (TP: RM19.00), CBIP (TP: RM2.10) and SAB (TP: RM4.95) for undemanding valuations.

OP:

• CBIP (OP ↔; TP: RM2.10 ↓)

• FGV (OP ↑; TP: RM2.00 ↑)

• IOICORP (OP ↔; TP: RM5.00 ↔)

• PPB (OP ↔; TP: RM19.00 ↔)

• SAB (OP ↔; TP: RM4.95↓ )

• UMCCA (OP ↔; TP: RM7.15↔)

MP:

• GENP (MP ↔; TP: RM10.30 ↔)

• HSPLANT (MP ↔; TP: RM2.70 ↓)

• KLK (MP ↔; TP: RM25.00 ↓)

• SIME (MP ↔; TP: RM9.65 ↑)

• TAANN (MP ↔; TP: RM3.60 ↑)

• TSH (MP↓; TP: RM1.75↓)

UP:

• IJMPLNT (UP ↓); TP: RM2.50 ↓)


PP7004/02/2013(031762) of 24


Plastic & Packaging

Mixed bag of results. Plastic packagers’ 3Q17 results were a mixed bag with 3 coming in below, and 2 within our estimates. This was slightly better than 2Q17 when all came in below expectations, except TGUAN. The weaker-than-expected results were due to various reasons including higher raw material cost, higher-than-expected repairs and maintenance, and less than favorable product mix.

YoY-Ytd, better sales volumes led to improved YoY top-line growth of 6-42% (save for TOMPAK at -1%), which translated to positive bottom-line growth for most, at 2-6%, save for SLP on higher labour cost, and less favorable product mix. Upstream consumer plastic packagers had the strongest EBIT margins of 13% on sales of higher-margin products, followed by downstream consumer packagers such as TOMYPAK at 10% EBIT margin, and industrial plastic packagers between 6-9%.

Lowered earnings for SLP (30-13% for FY17-18E), TOMYPAK (22-7% for FY17-18E) and SCGM (10-18% for FY18-19E) in light of weaker earnings due to reasons mentioned above. SCIENTX and TGUAN were left unchanged.

As a result, we lowered our TP for SLP, TOMYPAK and SCGM, and subsequently downgraded SLP and TOMYPAK’s calls. This was slightly better than 2Q17 when we lowered all TPs (save for TGUAN), while most of our calls back then were left unchanged.

Resin cost volatile in the near term, but expected to trend downwards in the longer run. 9MCY17 saw higher resin cost due to demand and supply factors. However, going forward, we expect resin prices to trend downwards on ample supply of resin due to excess capacity from China and India (by end-CY17), and US shale-based resin in CY18. Resin prices are currently range bound between USD1,100-1,200/kg, but we believe it may trend downwards slightly in CY18 on increased supply.

Capacity expansion on track. With continuous demand for niche plastic products, and increased use of stretch film driven by Industry 4.0, we expect expansion across the sector to drive top-line growth in the long-run. TOMYPAK is increasing capacity by 89% by FY20-21, SLP by 58% in FY19, SCIENTX by 12% in FY19, and SCGM by 73% by FY20. In the near term, earnings growth, if any, will come from margin expansions on better cost efficiency, and product innovations as plastic manufacturers move towards selling more niche and higher margin products.

Maintain NEUTRAL as sector macro-economic fundamentals have stabilised with resin cost range bound between USD1,100-1,200/kg currently (vs. YTD highs of USD1,400/kg), while our USD/MYR exchange rate is unchanged at RM4.25. Going forward, we may look to revise our CY18 USD/MYR assumptions downwards, but the impact is not overly significant as our sensitivity analysis suggests that a 2% increase in the Ringgit results in c.1-4% decline to earnings. Post trimming our earnings, we believe we have priced in most foreseeable downsides for the sector, while strong catalyst hinges on margin improvements and new capacity growth.

OP:

• TGUAN (OP ↔; TP: RM5.67 ↔)

MP:

• SLP (MP ↓; TP: RM1.83 ↓)

• SCGM (MP ↔; TP: RM3.05 ↓)

• SCIENTX ( MP ↔; TP: RM8.50 ↔)

• TOMYPAK ( MP ↓; TP: RM0.82 ↓)

Power Utility Generally a satisfactory results season for the sector except MALAKOF which was hit by taxation due to under-provision of prior years’ tax. In fact, operationally, the IPP posted PBT which improved 39% on undisclosed compensation on dispute earlier for power plant’s faulty. Meanwhile, the first quarterly’s capacity payment cut for SEV was about RM106m in 3Q17.

With rising fuel costs, question remains will the government allow TENAGA to raise tariff rates under the new regulatory period starting next month. That aside, TENAGA should be able to see top-line growth as economy picks up. Meanwhile, YTLPOWR’s earnings should pick up in the upcoming 2Q18 quarter which will see the full quarter contributions from the PPA

OP:

• PESTECH (OP ↔; TP: RM2.00 ↔)

• MALAKOF (OP↔; TP: RM1.25 ↓)

• TENAGA (OP ↔; TP: RM17.17 ↔)

MP:

• YTLPOWR (MP ↔;


PP7004/02/2013(031762) of 24


While 4Q17 results were largely in-line, TENAGA declared 44.0 sen final NDPS which was a surprise as it revised dividend pay-out to 30-60% from 30-50% previously. Elsewhere, 1Q18 was a soft start for YTLPOWR in FY18, but operationally it was not a bad quarter with broad-base improvement from all segments except Paka Power Plant which saw deteriorating earnings as it has only one-month new PPA Extension contract which recommenced in Sep. Lastly, PESTECH also had a slow start to FY18 which was well expected given the seasonality. It reported strong growth in top-line of 61% largely due to the matching of revenue against the recognition of material purchase for the two Alex Corp projects which typically at this stage of billings provide low margin. In all, we didn’t change our recommendations and target prices for these four stocks except we cut both YTLPOWR and MALAKOF’s target prices to RM1.30 and RM1.25.

Extension Contract at Paka Power Plant. MALAKOF is likely to see the normalization of taxation in the upcoming 4Q17 after the adjustment in 3Q17. However, the going remains tough as to fill up the earnings gap to propel price higher. Likewise, PESTECH is also expected to see better earnings in the coming quarters with maiden recurring earnings from the concession business in 3Q18. In all, we remain OVERWEIGHT on the sector.

TP: RM1.30 ↓)

Property Developers

Improvement from last quarter. Out of 14 developers under coverage; (i) 29% exceeded expectations (UEMS, CRESNDO, MRCB, SUNSURIA), (ii) 29% came below (MATRIX, HUAYANG, AMVERTON, MAGNA) while, (iii) the rest were within to broadly within expectations. This is an improvement from the last quarter when 40% missed expectations while only 13% surprised positively.

Headline sales were mostly broadly within. Only 14% of our coverage are behind their sales targets (HUAYANG, AMVERTON) while the others are considered on track as many have timed new launches towards 2H17 - thus far, indicative response to recently launched projects have been promising. This is quite like last quarter when 13% missed targets while the rest were ‘broadly within’.

More downward earnings adjustments. We reduced earnings estimates for 21% of our coverage (HUAYANG, AMVERTON, MAGNA) and raised estimates for another 21% of developers (UEMS, CRESNDO, MRCB) - a slight improvement from last quarter where we reduced estimates for 27% of developers under our coverage while

Most developers’ sales targets are intact, save for HUAYANG and AMVERTON for which we have toned down sales targets. Our universe’s total sales/earnings are expected to grow by +5%/-2% YoY in FY17E/18E and +3%/+6% YoY in FY18E/19E. We believe most developers will meet this year’s sales target and are likely to announce flattish sales targets next year during the upcoming Feb 2018 reporting season. Our universe’s average unbilled sales visibility is now at 1.0 year.

Land banking news will gradually pick up over the next 12-18 months as land prices have stabilized whilst developers hunt for suitable affordable housing landbanks.

Expect valuations to oscillate around the mean, as highlighted in our previous sector update (5/1017), considering the flattish sector trajectory. The overall sector average RNAV/SOP discount is now at 52.7% or just below the historical mean of 49.8%. It appears small-mid caps’ average of 58.1% is steeper compared to its historical mean of 52.9% while big-caps are at 48.7% (historical mean: 47.5%). For Fwd/ PBV, our universe of developers is trading below historical means to

OP: • AMVERTON (OP ↔; TP: RM2.00 ↓) • CRESNDO (OP ↑; TP: RM1.60 ↔) • IOIPG (OP ↔; TP: RM2.20 ↔) • MAHSING (OP ↑; TP: RM1.63 ↔) • MRCB (OP ↔; TP: RM1.14 ↔) • SPSETIA (OP ↔; TP: RM4.08 ↔) • SUNWAY (OP ↑; TP:

RM1.82 ↔) • UEMS (OP ↔; TP: RM1.30 ↔) MP: • ECOWLD (MP ↔; TP: RM1.72 ↔) • MAGNA (MP ↓; TP:

RM1.30 ↓) • SUNSURIA (MP ↓; TP: RM1.50 ↓) • UOADEV (MP ↓; TP:

RM2.47 ↔) UP: • HUAYANG (UP ↓; TP:

RM0.65↓) Cease Coverage: • MATRIX (previously MP; TP: RM2.12)


PP7004/02/2013(031762) of 24


only raising estimates for 13% of them.

Small-mid caps see higher sales and earnings risks. Based on the past few quarters, we note that small-mid cap developers are facing higher earnings volatility compared to the big-cap ones. We had reduced TP for 29% of our coverage (HUAYANG, SUNSURIA, AMVERTON, MAGNA); while SUNSURIA’s results were positive, the absence of maiden dividend was disappointing, resulting in a lower TP. The rest of our coverage saw no changes in TP. This was slightly worse-off than last quarter when 20% of our universe saw TP reductions with only 7% seeing an upward TP revision.

Call-wise, we downgraded 29% of our coverage (UOADEV, HUAYANG, SUNSURIA, MAGNA) while upgrading calls for 21% of developers (MAHSING, UEMS, CRESNDO). This was more volatile compared to last quarter (13% downgraded, 13% upgraded).

Note that we have ceased coverage on MATRIX this quarter.

trough levels.

A lot of property stocks have taken a beating lately following; (i) the freeze on new approvals for luxury property developments, and (ii) BNM’s hawkish overtone which may result in 25-50bps hike in OPR rates next year. While the news have affected investors’ sentiment, we believe the physical impact will not be as severe as; (i) most developers have obtained necessary masterplan approvals and are now mostly concentrating on affordable housings, (ii) potential OPR hikes will only raise monthly mortgages by 5-6% - we also take the view that genuine buyers will still pursue buying activities as it is a ‘need’.

Coupled with broad market weakness, we reckon that recent sector sell-down has been overdone considering that our universe of developers has over-come multiple sector challenges.

We believe that investors should position for a re-bound play in 1QCY18 as valuations are quite compelling at these levels, especially the big-caps which are likely to move in tandem with an overall market rebound which is expected in 1QCY18. Downside risk is minimal at this juncture as valuations have somewhat bottomed. Currently, we have a NEUTRAL call on the sector and will look to review our sector call with an upside bias in our upcoming sector strategy report.

Rubber Gloves Results of the glove makers under our coverage from the recently concluded 3QCY17 results season were broadly mixed. Supermax Corporation was within but with weak visibility ahead. Kossan Rubber was below due to the slower-than-expected ramp-up in new capacity. However, Hartalega Holdings was above due to higher-than-expected volume sales. Hartalega announced unprecedented record quarterly earnings compared to the mediocre performance of other glove players under our coverage Hartalega’s stellar performance was due to availability of capacity from NGC’s plant 2 and 3 resulting in strong volume sales (+34%) compared to other players’ slower-than-expected ramp-up of new capacity.

Maintain Overweight. We expect earnings for the remainder of the year and early next year to remain resilient. Amplifying the earnings growth potential is the strong demand being matched by new capacity expansion. Our TOP PICK is TOPGLOV with an OUTPERFORM rating. Target Price is RM7.60 based on 21.5x FY18E EPS. The PER valuation of Top Glove (19.2x FY18E PER) is trading at unjustifiably steep discount to Hartalega (33.0x CY18E PER). The valuation gap should narrow considering that Top Glove has a similar level of net profit and growth rate compared to Hartalega.

OP:

• TOPGLOV (OP ↔ ; TP: RM7.60↔)

MP:

• HARTA (MP ↓; TP: RM8.30 ↑)

UP:

• KOSSAN (UP ↓; TP:

RM6.70 ↓)

• SUPERMX (UP ↓;

TP: RM1.70 ↔)


PP7004/02/2013(031762) of 24


Shipping, Ports & Logistics

Overall results were satisfactory, mostly coming in within expectations except (i) MISC which beat estimates on stronger LNG contribution, and (ii) TNLOGIS which missed expectations as its warehousing and logistics segments plunged into losses.

Among in-line results, notable mentions include (i) CENTURY, which core profits bounced back 28% QoQ from a disastrous 2Q17, (ii) GDEX, with results declining YoY for two consecutive quarters, reflecting deteriorating margins from rising competitive pressures, (iii) POS, which saw 2Q17 core profit jumping more than double YoY, thanks to stronger courier earnings coupled with the new inclusion of logistics segment, and (iv) WPRTS’ 9M17 CNP declining 9%, in-line with our expectations of poorer container throughput for the year.

Post-results, we upgraded our call on POS to MP with higher TP of RM5.10. Elsewhere, we lowered our TP for TNLOGIS to RM1.40, following a 7-10% cut on FY18-19E earnings forecasts due to the disappointing results. We also raised MISC’s FY17-18E earnings forecasts by 7-5% to account for lower depreciation expenses following the better-than-expected set of results. However, our call and TP was kept unchanged at MP and RM7.25.

Within the logistics space, we highlight CENTURY and POS as potential stocks in the growing e-commerce theme. CENTURY is expected to benefit from e-commerce through its venture into last mile delivery. Meanwhile, POS is expected to see continued parcel volume growth through its market dominance. POS also stands as one of the more direct beneficiaries from DFTZ, serving as the operator of the e-fulfilment hub. Conversely, while GDEX can be seen as a direct earnings beneficiary from e-commerce given its pure-play parcel delivery business nature, we opt to stay side-lined due to its rich valuations.

Elsewhere, for port operators, WPRTS is expected to suffer poorer throughput due to the reshuffling of alliances. That said, it may see a recovery from FY18 earnings-wise, driven by higher gateway throughput mix. Likewise, MMCCORP could also see a slight boost in ports earnings in FY18 upon successful completion of takeover of Penang Ports.

Meanwhile, persistent weakness in petroleum charter rates and LNG tanker rates are showing no signs of a sustainable turnaround. With recovery expected to be prolonged we expect limited catalyst for our sole shipping coverage MISC.

Maintain NEUTRAL, with MMCCORP and CENTURY being the two preferred picks within our sector.

OP:

• CENTURY (OP ↔; TP: RM1.25 ↔)

• MMCCORP (OP ↔; TP: RM2.85 ↔)

MP:

• BIPORT (MP ↔; TP: RM6.05 ↔)

• MISC (MP ↔; TP: RM7.25 ↔)

• POS (MP ↑, RM5.10 ↑)

• TNLOGIS (MP ↔; TP: RM1.40 ↓)

• WPRTS (MP ↔, RM3.70 ↔)

UP:

• GDEX (UP ↔, RM0.45 ↔)

Technology Mixed bag. Out of our coverage, four companies namely UNISEM, SKPRES, PIE and KESM reported results which came in within our expectations. Meanwhile, MPI, NOTION and D&O missed due to higher-than-expected raw material prices and operating expenses, unfavourable forex and adverse product mixes.

In Semiconductor space, downwards revision was made to MPI to mainly account for higher material prices as well as the limited top-line growth in FY18/FY19 (post guidance) which will be capped by the wafer constraints as well as the ongoing portfolio rationalisation exercises. We also cut D&O FY17E/FY18E earnings to account for higher expenses and weaker

The overall semiconductor industry continued to show improvement as the global semiconductor sales in September 2017 increased by 22.2%, marking the fourteenth consecutive YoY growth. We expect decent 4QCY17 top-line growth across the board to be supported by the new products roadmap (for MPI and D&O), not to mention the commencement of production for new products that have already passed the stringent qualification stage as well as the potential volume ramp up for wlCSP amidst the launching of new flagship smartphones in 4Q17 (for UNISEM). However, mounting material costs and unfavourable forex are crimping margins and hence, profitability remains as the key determinant to

OP

• PIE (OP ↔, TP: RM2.87↔)

MP

• D&O (MP ↔, TP: RM0.65 ↓)

• MPI (MP ↓; TP:

RM14.70 ↓)

• SKPRES (MP ↓, TP: RM2.05 ↑)

• UNISEM (MP ↔, TP: RM3.90 ↑)

UP

• KESM (UP ↓, RM18.40↔)

• NOTION (UP ↓; TP:

RM0.44 ↔)


PP7004/02/2013(031762) of 24


USD/MYR assumption. In terms of rating, we downgraded both MPI (from OP to MP, with a lower TP of RM14.70 from RM15.70) as well as KESM from OP to UP (TP remained at RM18.40) after their decent run-up since beginning of the year. Meanwhile, we maintain our MP rating on UNISEM (higher TP of RM3.90 from RM3.86) and D&O (lower TP of RM0.65 from RM0.73). For EMS players, while we fine-tune our earnings in PIE (-13% for FY17E CNP), we maintain our OP call and TP of RM2.87. Meanwhile, we downgrade SKPRES to MP but with a higher TP of RM2.05 (from RM1.60) after its decent run-up.

For NOTION, we cut our FY18E NP to account for higher material costs, operational deleveraging on lower utilisation as well as USD assumption of RM4.20/USD (from RM4.30/USD previously). With a lower PBV of 0.4x (which is being its trough valuation throughout the past five years period; from 0.65x), we derive our TP of RM0.440. Downgrade to MP.

reflect growth.

Meanwhile for EMS players under our coverage, medium-term prospects are still bright underpinned the contracts that have been/are being awarded by major customers. Meanwhile, execution with better operational efficiency remains as the key determinant to reflect growth.

Meanwhile for NOTION, management is still in the process of ascertaining losses and the computation of claims, and should finalise the claimed amount in few months’ time. Meanwhile, the group has put in an initial claim to the insurer to ease the recovery process. As of to-date, the group has ordered 290 CNCs and is buying a 60k sq ft factory (for RM10m) to cater for its business which were housed in Factory 1 previously. From our previous understanding, we believe the impact could be at least c.RM125m with breakdown being; net book value of RM23.6m for its Lot 6123 premise as well as RM100m for CNC machines (assuming RM200k for each of the 500 damaged CNCs). We believe that the gestation period could be longer than the previous incident (which was 6 months) considering the more severe impact this round. In our base case, we only assume full recovery in 1QFY19.

Maintain OVERWEIGHT for now with downside bias.

Telecom-munications

No surprises. The sector incumbents reported reasonable 3QCY17 report cards that largely met expectations but shown some sequential operational improvements.

Maxis’ 9M17 result came in above expectations, thanks to higher service revenue coupled with better margins. Digi and Axiata’s 3Q17 results, meanwhile, came in without surprises. Players largely maintained their respective FY17 KPIs except for Axiata who trimmed its capex guidance to RM6.6b from RM7.1b previously as a result of effective cost optimization initiative.

TM, on the other hand, performed in-line with street’s estimate but above ours. 9M17 PATAMI climbed by 11% YoY to RM643m due mainly to lower-than-expected net finance

Moving forward, all the industry incumbents are set to expedite digital transformation as well as enhancing their operational efficiencies.

While we concur with the industry players’ initiatives, we believe the sector will continue to remain stagnant while waiting for the next growth opportunity to arise. Besides, with increasing operational costs, spectrum scarcity and increased data demand, operators will need to work around the connectivity challenges with industry peers to sustain financial performance. Thus, we do not discount operators finding ways to strive for more efficiency gains via network collaboration and/or lower customer acquisition costs.

On top of that, more documentation

OP:

• OCK (OP↔, TP: RM1.00 ↓)

• TM (OP↑, TP:

RM6.75↑)

MP:

• AXIATA (MP ↑, TP: RM4.95↔)

• DIGI (MP↔, TP: RM4.85 ↔)

• MAXIS (MP↔, TP: RM6.05↑)


PP7004/02/2013(031762) of 24


costs. The group maintained its FY17 KPIs. However we believe it’s a tall order for TM to achieve its top-line target of 3.5-4% growth (currently +0.7% YoY).

OCK’s 9M17 result came in below the expectations due to lower-than-expected Telecommunication Network Services contribution and higher administrative expenses. Despite the moderate 9M17 performance, the seasonally strong 4Q should drive the group to meet our full-year estimate. We continue to like OCK for its attractive growth prospects and growing recurring revenue stream.

would be needed for new prepaid SIM registration and top-up with effective 1 January 2018. While we welcome the government’s initiatives, the new rulings could potentially lead to tougher operating environment over the short-term.

All in, while the operational and competition landscape continues to appear challenging, the recent 3QCY17 results posted by all incumbents have shown some sequential operational improvements thus suggested that players are moving into the right directions. Overall, maintain NEUTRAL call for the sector.


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Figure 9: Forward PER of FBMKLCI against Selected Regional Peers (as of end-Nov17) – Trying to Find A Bottom?

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FBMKLCI Index Average Fwd PER (x) Premium of FBMKLCI over Average

Source: Bloomberg, Kenanga Research Figure 10: Discount between FBMKLCI and Its Consensus Target (as of end-Nov17) – In A B.O.W. Buying Zone!

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FBMKLCI: Premium/(Discount) from Consensus

Premium/(Discount) from Consensus -2SD -1SD 36M Average +1SD +2SD

Source: Bloomberg, Kenanga Research


PP7004/02/2013(031762) of 24

Stock Ratings are defined as follows: Stock Recommendations OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10% MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of -5% to 10% UNDERPERFORM : A particular stock’s Expected Total Return is LESS than -5% Sector Recommendations*** OVERWEIGHT : A particular sector’s Expected Total Return is MORE than 10% NEUTRAL : A particular sector’s Expected Total Return is WITHIN the range of -5% to 10% UNDERWEIGHT : A particular sector’s Expected Total Return is LESS than -5% ***Sector recommendations are defined based on market capitalisation weighted average expected total return for stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.

Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) Level 12, Kenanga Tower, 237, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia Chan Ken Yew Telephone: (603) 2172 0880 Website: www.kenanga.com.my E-mail: [email protected] Head of Research

3qcy17 results review fbmklci 1,713.13 mixed view target 1,765€¦ · market strategy 05 december...

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