PP16795/03/2013(031743) Mar-16

Transcription

1 Thursday, 2 March, 2017 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Research Team research@bimbsec.com.my PP16795/03/2013(031743) Reports Published Strategy: 4Q earnings largely in line Economics - Malaysia & Global Economy: Manufacturing PMI shows factories entering 2017 in good shape Corporate News Economic News Axiata Digital, Huawei sign MoU to bring IoT capabilities across Asia Matrix Concept plans specialist centre in Negeri Sembilan LKL to distribute selected Nihon Kohden medical devices in Malaysia Four Sime Darby dormant subsidiaries to be wound-up HeiTech Padu signs RM42m network connectivity contract with PNB Azman Yahya steps down from Scomi Group board Bank Negara: Malaysia's reserves remain usable Property market to consolidate further China's 'glass king' to complete US expansion despite Trump tensions Japan factory output unexpectedly falls as exports of cars to US slow Australia's economy to extend growth run as exports boom Saudi Arabia wants oil prices to rise to around USD60 in 2017 Bursa Malaysia Close Change +/- Change % FBMKLCI 1, FBMEMAS 11, FBM100 11, FBMEMAS Shariah 12, FBM Hijrah Shariah 13, Volume (m) 3, Value (MYR m) 2, FBMKLCI YTD performance 3.41 KLCI Performance KLCI Year-End Target: 1,755 points Regional Indices Commodities (Last Close) Close Change +/- Change % YTD Change (%) Close Change +/- Change % DJIA 21, Brent Crude (USD/bbl) NASDAQ 5, WTI Crude (USD/bbl) S&P 500 2, CPO (RM/MT) 2, FTSE 100 7, Gold (USD/ounce) 1, Nikkei , Latex (sen/kg) HSI 23, Soybean Oil SHCOMP 3, KOSPI closed Forex TWSE 9, (per USD) BIMB (YE Forecast) Close Change +/- Change % STI 3, MYR JCI 5, JPY SET 1, EUR PSEi 7, SGD

2 Major Rates Daily Participation % Participation Bought Sold Net KLIBOR 3-mth 3.41 (%) (MYR m) (MYR m) (MYR m) KLIBOR 6-mth 3.53 Local Inst , KLIBOR 12-mth 3.62 Local Retail yr MGS 3.75 Foreign yr MGS 4.10 Total , , Performance of BIMB Stock Coverage Top Gainers Source: Bank Negara Malaysia Top Losers Source: The Sun, BIMB Securities Research Close Change +/- Change % Close Change +/- Change % Padini % Wah Seong % Eversendai % IOI Properties % GHL Systems % Caring Pharmacy % Scomi Energy Services % Sunway Construction % Benalec % Hovid % 2

3 Neutral FBM 1 Mar ,699 Current PER 17.0x Target ,755 Implied PER 17.5x Strategy 4Q earnings largely in line Corporate earnings for 4Q16 largely within our expectations, as well as from consensus perspective FBM KLCI aggregate net earnings for FY17 marginally revised downward by 3pp to 6.9% Overall, we expect turnaround in key sectors banking, plantation, telcos this year We believe earnings growth expectations is more realistic having seen several downgrades in 2016 We retain our KLCI target for Earnings for 4Q16 supportive for equity performance As highlighted in previous strategy reports, corporate earnings move quite closely with Malaysia s quarterly GDP performance. With Malaysia s 4Q16 GDP recorded at 4.5%, earnings for Malaysian listed companies performed largely better than in previous quarters. During the latest corporate earnings announcement period (February 2017), approximately 67% of FBM KLCI (KLCI) components reported earnings that were within consensus expectations, with the remainder split between above and below expectations category. This is in stark contrast to previous quarters which saw earnings coming in mainly below consensus estimates. Our BIMB stock universe fared almost similar to the KLCI, with a total 65% reporting earnings that were within our estimates. Key sectors that performed well in 4Q include plantation, which saw nearly half of the companies in our coverage universe reporting above-estimate earnings. Only one company FGV fared poorly mainly due to impairments. Banking sector (non-shariah compliant) did well on balance despite CIMB reporting profit below expectations. Notable companies with earnings disappointments were Sime Darby, Axiata, Malakoff and UMWH. All in, we calculate a slight reduction of 3pp from a net profit growth of 7.2% for the KLCI which we expected in December 2016 to 6.9% growth expected currently (non-shariah compliant companies derived from consensus). Key risk to earnings this year is the market may be underestimating rising cost which has hit several sectors in recent quarters. Increase in overheads, plus raw materials, have resulted in margin pressure on several sectors, namely consumers (Nestle, Dutch Lady), gloves and healthcare, and telecommunications. The lag impact of the ringgit weakness against USD since November may also come into play this year. We retain our year-end target of 1,755. Our base-case equity view for 2017 takes into account an earnings growth of 5% in 2017, which is supportive for a fair value multiple of 17.5x. This multiple is slightly above the KLCI s long-term trend average of 16.7x since

4 Nov'12 Jan'13 Mar May Jul Sep Nov Jan'14 Mar May Jul Sep Nov Jan'15 Mar May Jul Sep Nov Jan'16 Mar May Jul Sep Nov Jan'17 Malaysia & Global Economy Economics Manufacturing PMI shows factories entering 2017 in good shape Malaysia manufacturing PMI climbs to 49.4 in February Global manufacturing PMI at 69-month high US manufacturing surges to 3-year high Eurozone manufacturing PMI rises to 70-month high ASEAN manufacturing sector expands slightly in February Manufacturing sector in Malaysia deteriorate at weaker pace in February The latest PMI survey data showed that the Malaysian manufacturing sector continued to contract in February, albeit at a slower pace. The Nikkei Malaysia manufacturing PMI rose from January s 48.6 to record 49.4 in February. The latest figure was the highest recorded since May 2015 and pointed to a weaker downturn in Malaysia s goods producing sector. Manufacturers raised production for the first time in 23 months, as levels of outstanding business accumulated at the quickest pace in the series history. However, sluggish market conditions had resulted in another decline in new business levels, lengthening the current sequence of decline to two years. Despite new orders contracting, goods producers raised their output levels for the first time since March 2015 but the rate of expansion was only moderate. The first increase in Malaysian manufacturing output could not prevent decline in hiring. Job shedding was evident in Malaysia s manufacturing sector for the first time since August 2016, albeit at a relatively moderate pace. Meanwhile, exchange rate pressures contributed to a further increase in average cost burdens faced the producers. Still, manufacturers remained confident towards their 12- month outlook on output growth with the level of positive sentiment rose to a 31-month high, despite being only moderate overall. Chart 1: Malaysia Manufacturing PMI Source: Markit, BIMB Securities 4

5 CORPORATE NEWS Axiata Digital, Huawei sign MoU to bring IoT capabilities across Asia Axiata Group s wholly-owned subsidiary Axiata Digital and Huawei on Wednesday signed a memorandum of understanding (MoU) to jointly promote Internet of Things (IoT) services across Asia. The IoT collaboration between Axiata and Huawei is expected to benefit Axiata subscribers across 10 countries in the region, leveraged through its mobile businesses, as well as portfolio of online services. Under the agreement, Huawei would provide its cutting edge IoT connectivity technologies and application verticals such as connected car, smart home and smart meters. Axiata Digital, in turn, would provide the cloud-based IoT application enablement platform that allows for services to be deployed rapidly and cost effectively. (Source: StarBiz) Matrix Concept plans specialist centre in Negeri Sembilan Matrix Concepts plans to set up a medical and specialist healthcare services centre in the Bandar Sri Sendayan township in Negeri Sembilan. It had signed an MoU with Taiwan's Changhua Christian Hospital to build the Matrix Global Specialist Center. Changhua Christian Hospital has been providing healthcare services in Taiwan since Its medical network has about 6,800 members and 3,600 beds providing full range of specialty departments. The MoU would enable both parties to collaborate in the setting up of the hospital in the Bandar Sri Sendayan township which has an international school and the Royal Malaysian Air Force's new training centre. (Source: StarBiz) LKL to distribute selected Nihon Kohden medical devices in Malaysia LKL is tying up with Sri Lanka s TMI Solutions (Pvt) Ltd (TMI) to distribute selected Nihon Kohden branded medical devices within Malaysia. A joint venture agreement has been signed with Colombo, Sri Lanka-based TMI to set up TMI Medik Group SB. Under the collaboration, both LKL and TMI expect to be awarded an exclusive distributorship right in Malaysia by Nihon Kohden Singapore Pte Ltd to distribute Nihon Kohden medical devices for a minimum 3 years. The proposed JV complements LKL International s existing business in the healthcare sector. (Source: StarBiz) Four Sime Darby dormant subsidiaries to be wound-up Four of Sime Darby s indirect wholly-owned units that have ceased business operations and are dormant have resolved to being woundup following their extraordinary general meetings. The companies comprise Nature Ambience SB (NASB), Sime Darby Bioganic SB (SDB), Sime Darby Julau Plantation (SDJP) and Vertical Drive SB (VDSB). The winding-up would not have a material effect on the earnings or net assets of the group for the FY17. Apart from VDSB which is an investment holding company, NASB and SDJP were involved in the cultivation of oil palm and processing of palm oil and palm kernel, while SDB manufactured palm tocotrienol vitamin E. (Source: The Edge) HeiTech Padu signs RM42m network connectivity contract with PNB HeiTech Padu has signed a RM41.9m contract with PNB to provide managed wide area network (WAN) infrastructure for PNB and ASNB. The supply, installation, commissioning, operation and maintenance contract is for a period of 5 years until Aug 31, The deal is expected to have a positive effect on its earnings per share but will have no material effect on its dividend policy, gearing, share capital and the substantial shareholders' shareholding. The execution of the contract is in the ordinary course of business and is in the best interest of the company. (Source: The Edge) Azman Yahya steps down from Scomi Group board Tan Sri Azman Yahya, who rose to prominence as managing director of national asset management corporation Pengurusan Danaharta Nasional Bhd, has resigned as Scomi Group Bhd s non-executive director effective March 1. The Symphony Life Bhd executive chairman, 53, wanted to devote sufficient time to his other business commitments and responsibilities. Azman, who is also chairman of Ranhill Holdings, was a long-time director of Scomi Group. He joined its board on March 17, 2003, 2 months prior to Scomi Group s listing on the local exchange on May 13. (Source: StarBiz) 5

6 ECONOMIC NEWS Bank Negara: Malaysia's reserves remain usable The detailed breakdown of Malaysia's international reserves under the International Monetary Fund's Special Data Dissemination Standard indicates that as at end-january 2017, the country's reserves remain usable. The official reserve assets amounted to US$94.98bn, while other foreign currency assets were at US$348.6m as at end-january For the next 12 months, the predetermined short-term outflows of foreign currency loans arising from scheduled repayment of external borrowings by the government would amount to US$247.5m. Meanwhile, the short forward positions amounted to US$9.62bn as at end-january 2017, reflecting efforts to manage the ringgit liquidity in the financial system. (Source: Reuters) Property market to consolidate further The Malaysian property market is expected to continue consolidating this year, in light of the challenging economic environment. There is still some overhang in certain segments and oversupply in the commercial sector space. The local property sector will continue its flattish trend since Commenting on the Malaysian economy, the growth outlooked showed a cautiously positive trend of 4.3% for this year. The ongoing implementation of public transportation-related infrastructure projects and continued investments in the manufacturing and service sector will help promote private investments. (Source: StarBiz) China's 'glass king' to complete US expansion despite Trump tensions China's largest auto glass manufacturer, Fuyao Glass Industry Group, will press ahead with investments worth about US$1bn in the US this year despite criticism at home amid growing China-US tensions. The company also expects to invest a further US$130m in Germany and Russia this year as it looks to tap into more high-end overseas markets. The company planned to create about 4,500 jobs by settingup plants in Ohio, Illinois and Michigan this year. The move has sparked outrage on Chinese social media, with netizens urging the government to stop Cao from "running away" at a time when US regulators are stepping up scrutiny of Chinese buyers and new US President Donald Trump has strongly criticised Chinese trade practices. (Source: Reuters) Japan factory output unexpectedly falls as exports of cars to US slow Japan's industrial output unexpectedly fell in January for the first time in 6 months, pressured by a slowdown in shipments of cars to the US in a sign of an economy grappling for a more sure-footed recovery. While Asian exports, including Japanese sales, have started to recover from late last year, the jury is still out on whether the uptick is sustainable in the wake of rising protectionism in the US. Industrial output fell 0.8% in January, versus a median market forecast for a 0.3% increase and a revised 0.7% gain the previous month. It was the sharpest mom decline since May 2016, and the outlook allowed for little cheer as manufacturers surveyed by the ministry tipped output to rise 3.5% in February and then decrease by a bigger 5.0% rate in March. (Source: Reuters) Australia's economy to extend growth run as exports boom Australia's economy is expected to have returned to growth last quarter as exports boomed and consumers and the government spent more, extending the resource rich nation's remarkable 25 year run of uninterrupted expansion. Figures on GDP due on Wednesday are forecast to show growth of 0.7% in the 4Q, bouncing from a shock 0.5% contraction in the third. That would mark 102 quarters without recession, a single quarter short of the world record held by the Netherlands. Australia looks to have steered clear of a technical recession and, more importantly, it is clear that activity levels have continued to improve in the past couple of months. (Source: Reuters) Saudi Arabia wants oil prices to rise to around USD60 in 2017 Saudi Arabia wants crude oil prices to rise to around USD60/barrel this year. This is the level the Opec heavyweight and its Gulf allies - the UAE, Kuwait and Qatar believe would encourage investment in new fields but not lead to a jump in US shale output. The Organisation of the Petroleum Exporting Countries, Russia and other producers pledged last year to cut production by about 1.8m bpd from Jan 1. The first cut in 8 years is intended to boost prices and get rid of a supply glut. Crude prices have risen by more than 14% since the November pact but are still only trading around USD56/barrel despite record compliance by Opec and non-opec members. Opec officials have repeatedly said the group does not target a specific oil price and their focus is on drawing global oil inventories and helping the market to re-balance. (Source: Reuters) 6

7 ECONOMIC CALENDAR Date Time Country Event Period Survey Actual Prior Revised 03/02/ :00 GE Import Price Index MoM Jan 0.50% % -- 03/02/ :00 GE Import Price Index YoY Jan 5.50% % -- 03/02/ :30 SW Current Account Balance 4Q b -- 03/02/ :30 UK Markit/CIPS UK Construction PMI Feb /02/ :00 PO Industrial Production MoM Jan % -- 03/02/ :00 PO Industrial Production YoY Jan % -- 03/02/ :00 DE Foreign Reserves Feb /02/ :00 DE Change in Currency Reserves Feb b -- 03/03/ :30 JN Nikkei Japan PMI Services Feb /03/ :30 JN Nikkei Japan PMI Composite Feb /03/ :45 CH Caixin China PMI Composite Feb /03/ :45 CH Caixin China PMI Services Feb /03/ :00 HU Trade Balance Dec F m -- 03/03/ :30 SW Industrial Production MoM Jan 2.00% % -- 03/03/ :30 SW Industrial Production NSA YoY Jan 1.00% % -- 03/03/ :30 SW Industrial Orders MoM Jan % -- 03/03/ :30 SW Industrial Orders NSA YoY Jan % -- 03/03/ :30 UK Markit/CIPS UK Services PMI Feb /03/ :30 UK Markit/CIPS UK Composite PMI Feb /03/ :30 UK Official Reserves Changes Feb $810m -- 03/03/ :45 US Markit US Services PMI Feb F /03/ :45 US Markit US Composite PMI Feb F /03/ :00 US ISM Non-Manf. Composite Feb /06/ /08 IR Industrial Production MoM Jan % -- 03/06/ /08 IR Industrial Production YoY Jan % -- 03/07/ :50 JN Official Reserve Assets Feb $1231.6b -- 03/07/ :00 GE Factory Orders MoM Jan % -- 03/07/ :00 GE Factory Orders WDA YoY Jan % -- 03/07/ :00 DE Industrial Production MoM Jan % -- 03/07/ :00 LN International Reserves Feb m -- 03/07/ :00 PD Official Reserves Feb /07/ :30 US Trade Balance Jan -$45.7b -- -$44.3b -- 03/07/2017 CH Foreign Reserves Feb $2960.5b -- $2998.2b -- 03/08/ :50 JN BoP Current Account Balance Jan b -- 03/08/ :50 JN BoP Current Account Adjusted Jan b -- 03/08/ :50 JN Trade Balance BoP Basis Jan b -- 03/08/ :50 JN GDP SA QoQ 4Q F 0.40% % -- 03/08/ :50 JN GDP Annualized SA QoQ 4Q F 1.70% % -- 03/08/ :50 JN GDP Nominal SA QoQ 4Q F 0.50% % -- 03/08/ :50 JN GDP Deflator YoY 4Q F -0.10% % -- 03/08/ :50 JN GDP Private Consumption QoQ 4Q F 0.00% % -- 03/08/ :50 JN GDP Business Spending QoQ 4Q F 1.70% % -- 03/08/ :00 GE Industrial Production SA MoM Jan % -- 03/08/ :00 GE Industrial Production WDA YoY Jan % -- 03/08/ :45 FR Trade Balance Jan m -- 03/08/ :45 FR Current Account Balance Jan b -- 03/08/ :00 SP Industrial Output NSA YoY Jan % -- 03/08/ :00 SP Industrial Output SA YoY Jan % -- 03/08/ :00 SP Industrial Production MoM Jan %

8 DEFINITION OF RATINGS BIMB Securities uses the following rating system: STOCK RECOMMENDATION BUY Total return (price appreciation plus dividend yield) is expected to exceed 10 in the next 12 months. TRADING BUY Share price may exceed 15 over the next 3 months, however longer-term outlook remains uncertain. HOLD Share price may fall within the range of +/- 10 over the next 12 months TAKE PROFIT Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels. TRADING SELL Share price may fall by more than 15 in the next 3 months. SELL Share price may fall by more than 10 over the next 12 months. NOT RATED Stock is not within regular research coverage. SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analyst s coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analyst s coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analyst s coverage universe, is expected to underperform the relevant primary market index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB Securities Sdn may from time to time have a position in or either the securities mentioned herein. Members of the BIMB and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgements as of this date and are subject to change without notice. BIMB Securities Sdn accepts no liability for any direct, indirect or consequential loss arising from use of this report. Published by BIMB SECURITIES SB ( X) A Participating Organisation of Bursa Malaysia Securities Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, Kuala Lumpur Tel: Fax: Azharuddin Nordin Head of Research 8