Dec 1, 2016

Banking Sector - 5 Preferred Banks

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Banks cutting loan growth projection
malaysia top banks■ Gross impaired loan ratio remained stable at 1.65% in Sep-Oct 16.
■ Loan growth recovered from 4.2% yoy in Sep 16 to 4.5% yoy in Oct 16.
■ We lower our projected loan growth for 2016 from 6-7% to 5.6% and introduce our
loan growth forecast of 5-6% for 2017.
■ Loan application rebounded strongly with a mom growth of 14.4% in Oct 16.
■ Stay Overweight on banks given the attractive valuations and better prospects in

Preference for the sector.
Stock-wise, we prefer the following banks for exposure to the sector:

BIMB Holdings – BIMB Holdings is our top pick among Malaysian banks as it will be the only beneficiary of EPF’s Simpanan Shariah, to be implemented in 2017 and would increase the inflow of Islamic funds. BIMB is the only listed pure Islamic bank in Malaysia.

The qualities of the stock are reflected by: (1) its unrivalled loan growth, (2) one of the best ROEs in the sector, (3) strong asset quality – one of the lowest gross impaired loan ratios among local banks, and (4) swift expansion of non-fund based income, primarily theTakaful income.

RHB Bank – RHB Bank is an Add in our books given the potential re-rating catalysts of: (1) benefits from the implementation of its IGNITE 17 transformation programme, (2) attractive valuation, (3) cost savings from its career transition scheme materialising from FY16 onwards, (4) gains in market share by its investment banking unit, and (5) the drive for regional expansion in the longer term.

Maybank – We like Maybank for its size and well-diversified business portfolio. In Malaysia, it is ranked among the top three in almost all the key market segments, including trade finance, credit cards, investment banking and Islamic banking. Its geographical diversification, with exposure to underpenetrated markets, such as Indonesia and the Philippines, also helps to support its earnings growth in the longer term. The potential re-rating catalysts for the stock are: (1) benefits from the regionalisation of its businesses in various countries, (2) the recovery in earnings contribution from its Indonesia operations, and (3) potential regional expansion of its Islamic banking and insurance businesses in the longer term.

■  AMMB Holdings – We reiterate our Add recommendation on AMMB Holdings as we expect EPS growth to turn around from a 25.8% decline in FY3/16 to an increase of 3.3% in FY3/17. Other potential re-rating catalysts for the stock include: (1) attractive valuations (CY17F P/E of 9x and P/BV of 0.8x), and (2) enticing dividend yields of 4-5% in CY17F.

Affin Holdings – We still rate Affin an Add given its attractive valuations with CY17F P/E of 7.7x and P/BV of 0.5x. In addition, we are positive on the implementation of its Affinity transformation programme, which would yield positive results in the areas of fee income generation, operating efficiency as well as margins.
Management also has aggressive targets of increasing the bank’s ROE by 2-3% pts by 2020 and doubling the bank’s 2015 operating revenue by 2020. This reflects management’s commitments to significantly improve the financial performance of Affin Bank and also its positive views on the impact from the transformation programme.

source: CIMB Research – 01/12/16

Nov 30, 2016

Top Stocks Picks (By Sector) Based On Consensus Target Price

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Userguide: To complement the top down approach, Mercury Securities will be compiling the top three underpriced equities of the respective sectors based on the consensus target price premium over the current price on a weekly basis.consensus target priceFINANCE
Hong Leong Financial Group Bhd 14.96 (Closing Price)  17.50 (Target Price)  17.0% (Premium)

CIMB Group Holdings Bhd
4.66 (Closing Price)  5.07 (Target Price)  8.8% (Premium)

AMMB Holdings Bhd
4.19 (Closing Price)  4.45 (Target Price)  6.2% (Premium)

Eco World Development Group Bhd

1.36 (Closing Price)  1.64 (Target Price)  21.0% (Premium)

LBS Bina Group Bhd
1.71 (Closing Price)  2.08 (Target Price)  21.6% (Premium)

Mah Sing Group Bhd
1.52 (Closing Price)  1.74 (Target Price)  14.1% (Premium)

Hap Seng Plantations Holdings
2.46 (Closing Price)  2.61 (Target Price)  6.0% (Premium)

TSH Resources Bhd
1.93 (Closing Price)  2.02 (Target Price)  4.4% (Premium)

Kuala Lumpur Kepong Bhd 24.10 (Closing Price)  24.10(Target Price)   0.0% (Premium)
Kawan Food Bhd 3.79 (Closing Price)  5.56 (Target Price)  46.7% (Premium)

Heineken Malaysia Bhd
15.70 (Closing Price)  18.49 (Target Price)  17.8% (Premium)

British American Tobacco Malay
44.58 (Closing Price)  48.50 (Target Price)  8.8% (Premium)

VS Industry Bhd 1.41 (Closing Price)  1.70 (Target Price)  20.6% (Premium)

Ta Ann Holdings Bhd
3.77 (Closing Price)  4.42 (Target Price)  17.2% (Premium)

Wah Seong Corp Bhd
0.84 (Closing Price)  1.00 (Target Price)  19.8% (Premium)

Muhibbah Engineering M Bhd

2.19 (Closing Price)  2.99 (Target Price)  36.5% (Premium)

Malaysian Resources Corp Bhd
1.28 (Closing Price)  1.52 (Target Price)  18.7% (Premium)

Hock Seng LEE BHD 1.68 (Closing Price)  2.00 (Target Price) 19.0% (Premium)

Bumi Armada Bhd 0.55 (Closing Price)  0.83 (Target Price)  50.9% (Premium)

Yinson Holdings BHD 2.92 (Closing Price)  3.88 (Target Price)  32.9% (Premium)

Tiong NAM Logistics Holdings 1.61 (Closing Price)  2.07 (Target Price)  28.6% (Premium)

Source: Mercury Securities Research – 29/11/16

Nov 29, 2016

SAMCHEM – Upward Bias

SAMCHEM (Stock Code: 5147).

samchem analysis

Despite the broader weakness in the market, SAMCHEM’s share price surged 8.0 sen (6.2%) to finish at RM1.37. Chart-wise, the trend is positive with the share price above all 3 key SMAs. It began its uptrend in August, and had risen from RM0.80 (August) to as high as RM1.51 (October) before encountering a healthy pullback. Nevertheless, renewed buying interest emerged yesterday, resulting in a consolidation breakout on increased volume. The RSI and Stocahstic indicators have also hooked upwards to signal a shift to bullish momentum.

We expect the share price to be upside biased from here, with a retest of its October high of RM1.51 (R1) fairly soon. Should this level be taken out next, further gains would then be expected towards RM1.73 (R2) next. Downside support levels are RM1.30 (S1) and RM1.20 (S2) further down.

source: Kenanga Research – 29/11/16

The Company’s core business is the distribution of chemicals which include PU intermediate and specialty chemicals.

Nov 28, 2016

FBM KLCI Constituents Review: SapuraKencana OUT, IJM IN?


SAKP to be replaced by IJM?

Maybank fbm klci stock coveragePotential changes
SAKP may be replaced by IJM Corp in the upcoming FBM KLCI constituents review for December. This would result in slight declines in the individual weights of the other existing FBM KLCI constituent stocks. Then again, this is quite a similar situation as per the last FBM KLCI constituents review in June but SAKP stayed as a constituent stock then. There is no change to our stock calls - SAKP remains a BUY, IJM a HOLD.

Based on 21 Nov’s close
The FTSE Bursa Malaysia KLCI (FBM KLCI) constituents are due for a review, using share prices as at market close last Monday (21 Nov), as per our interpretation from the FTSE Bursa Malaysia Index Series, Ground Rules (updated Aug 2016). The constituent changes will be implemented after the market closes on the third Friday in December, namely 16 Dec,
and would be effective Monday, 19 Dec.

Based on our estimates
Using share prices as at 21 Nov’s market close, SAKP, which ranked 38th in market capitalisation, could exit as a constituent stock. IJM Corp, which ranked 31st by market capitalisation, could feature. Nestle, which ranked 23rd may not qualify as it may not meet the liquidity test. This is quite a similar situation as per the last FBM KLCI constituents review in June (see our note on 11 May 2016). Back then, SAKP has remained a FBM KLCI constituent stock post the June review.

FBM KLCI constituent weights, based on 24 Nov 2016’s closing share prices (ranked by existing weightage):

FBM KLCI constituent

Impact on weightings
As IJM Corp’s market value post adjusting for its investability weight is higher than SAKP, the other existing 29 constituent stocks will see small declines in their individual weights on the FBM KLCI. We estimate IJM Corp’s weight on the FBM KLCI to be 2.13% versus SAKP’s 1.32% presently.

source: Maybank Investment Bank Research – 25/11/16

Nov 25, 2016

Securies Commission Shariah Screening: Nov 2016 Review

Overall 34 In; 30 Out; 1 Delisted = 672
IN: Eversendai OUT: GKent & Oldtown

shariah-compliant stocks listNews
  • SC has published the latest list of Shariah compliant securities under the new screening methodology for the Nov review, which will take effect from 25 Nov 2016.
  • In short, 34 stocks were added to the list, 30 stocks were excluded from the previous list, while 1 stock previously in the list was delisted. All-in-all, the SC Shariah list expanded to 672 stocks (previously: 669 stocks).
  • No change in SC’s Shariah rules and guidance.
  • Stocks under HLIB universe that were reclassified as Shariah non-compliant are GKent (BUY; TP: RM3.77) and Oldtown (HOLD; TP: RM2.09) . We had earlier reported the potential exclusion of GKent due to higher-than-threshold holding of conventional cash. The exclusion of Oldtown came in as a surprise, which could be possibly triggered by the same reason (Oldtown’s net cash of 38 sen/share). Please refer to Figure #1 for the full list.
  • Other notable names are Latitude (not rated), Tomypak (not rated) and Yinson (not rated).
  • As for those who were newly classified / reclassified as Shariah compliant, only one is under HLIB universe, i.e. Eversendai (BUY; TP RM0.66) . The inclusion of Eversendai was within expectations as guided. See Figure #2 for the full list.
  • Other notable names that were classified as Shariah compliant are Analabs (not rated) and Petron (not rated). Some recently listed stocks were also admitted to the Shariah list, i.e. BCM Alliance (not rated) and Perak Transit (not rated).
  • Despite the exclusion from the Shariah list, we reiterate our BUY rating on GKent (TP: RM3.77) given its record high orderbook of RM5.7bn, translating to a superb cover ratio of 13.9x on FY16 construction revenue. It also boasts solid financials with 3-year earnings CAGR of 28%, above industry ROE of 18.4% and net cash of RM0.64/share.
  • We maintain our HOLD call on Oldtown (TP: RM2.09) as we opine that Oldtown may experience some margin pressure (labour & raw materials) despite stronger contributions from the FMCG business. However, its share price may experience selling pressure as the exclusion from Shariah list came in as a surprise.
  • We also keep our BUY rating on Eversendai (TP: RM0.66) , which may see share price catalyst from reclassification as Shariah compliant. Despite lingering concerns on its liftboat contract, from a core earnings standpoint, its recovery appears to be panning out well coupled with robust job wins. The stock also trades at an attractive P/E of 6x and 5.3x on FY16-17 earnings with current P/B at 0.39x.
source: Hong Leong Investment Bank Research – 25/11/16
List of Shariah-Compliant Securities by the Shariah Advisory Council of the Securities Commission Malaysia: Shariah List (pdf) (direct download),

Nov 24, 2016

3 Stock Picks Based On GARP Investing

GARP Investing - Growth and Value criteria combined

2016 Year-end Target: 1,750 points (under review) FBM KLCI: 1,629.32 points
GARP Investing is… Growth at Reasonable Price (GARP) investing combines both Growth and Value criteria for stock selection. It seeks to acquire stocks that have solid growth prospects, but are available at reasonable/ discounted prices; a crossover of sorts. Proponents of the GARP philosophy believe in finding stocks that have a high expected growth but yet have comparatively lower valuation multiples, and are thus ‘cheaper’.
…dissimilar to blend strategy. Unlike a blend strategy, a portfolio which is constructed using GARP investing is generally made up of stocks that offer the best of both value and growth investing rather than investing in both value and growth stocks. In essence, the main objective of GARP strategy is to circumvent the extremities of either growth or value investing by selecting stocks that have both low relative valuations and high growth rates.
• In our GARP strategy studies, we applied 8 fundamental parameters on each of FBM100 component stocks and they are (i) Price to Sales Ratio, (ii) Sales CAGR, (iii) Forward PEG Ratio, (iv) EPS Growth, (v) Return on Invested Capital, (vi) EV to EBITDA Ratio, (vii) Earnings Yield, and (viii) Operating Income Growth. Each of these parameters is scored and ranked. The ranking position of each parameter is then added together to arrive at a total. This total is then ranked and sorted from best to worst. Only stocks in the top quartile are selected.
• Based on our empirical findings (a 5.83-year back testing from 1 January 2012 to 31 October 2016), most of the top quartile stocks selected using GARP strategy exhibited positive price return performance in the short term.
This led us to conclude that GARP strategy can be used on individual stocks in Bursa even for short periods of not more than 3 months. On this score, when the price return objective is achieved, profit taking is recommended in order to safeguard portfolio value. Refer to APPENDIX for more details.
• The latest data ranking with a start date of 7 November 2016 (refer to Table below) returned UOA Development, AirAsia and Press Metal as the top 3 stock picks. It must however be noted that in the GARP study, the momentum factor was not considered thus timing was not a part of the analysis. However, our stock recommendations would take into account the recent price behaviour as well as inputs from our analysts and economists into consideration.
Table 1: Data Ranking GARP stocks ranking
• Top 3 picks. Based on (i) the ranked quantitative findings (refer to Table above), (ii) price behaviour of respective stocks during the past weeks, (iii) our analysts’ views (i.e. positive expected share price return and BUY recommendation), and (iv) our economists’ USD/MYR year-end target of 4.35, we list below our top 3 stock picks to take advantage of the GARP investing:
AirAsia (BUY; TP: RM3.34)
airasia chart
Tenaga Nasional (BUY; TP: RM16.80)
tnb chart
Kuala Lumpur Kepong (BUY; TP: RM29.05)
klkepong chart
• FBM KLCI year-end targets. In view of the recent market volatilities, we put under review (downward bias) our FBM KLCI 2016 year-end target of 1,750 points which equates to PER16 of 17.5x. However, we reaffi rm our 2017 year-end target of 1,830 points which equates to PER17 of 17.0x.
source: MIDF Research – 23/11/16

Nov 23, 2016

DKSH – Rebounded With Potential To Test October’s High

dksh stock analysisabove: DKSH daily chart (click to enlarge)

Yesterday, DKSH’s (Stock Code: 5908) share price rose 20.0 sen (3.4%) to RM6.15 on increased volume. DKSH is traditionally a thinly traded counter. However, liquidity has improved notably since the share price broke out of its sideways range in July (RM4.00). From then, the share price had also commenced a healthy uptrend to as high as RM6.67 just last month. More recently, the share price had pulled back to the uptrend support – providing investors with yet another opportunity to enter. With yesterday’s bullish move, the technical picture suggests that DKSH is poised for the next leg higher. We reckon that the share price is likely to stage a retest of the October's high of RM6.67 (R1) fairly soon. Should this level be taken out decisively, DKSH would then have a clear path towards RM7.35 (R2) further up. Downside support is RM5.83 (S1), below which investors may consider placing stops.

source: Kenanga Securities – 23/11/16

The Company is principally an investment holding company. The principal activities of the Group consist of general trading warehousing and distribution of consumer pharmaceutical bio-medical chemical and industrial products and also sale of Famous Amos chocolate chip cookies.