Jan 16, 2018

HUAYANG - Technical Analysis

HUAYANG – Stock Code 5062

• HUAYANG jumped an impressive 6.5 sen (10.4% to RM0.69) yesterday, accompanied by exceptional trading volumes.
• Share is now potentially showing signs of bottoming-out after hitting a “double-bottom” in December last year.
• Over the past 1-2 months, MACD has been creeping upwards despite sideways movement of the share price – thus signalling an underlying build-up in momentum.
• Expect follow-through buying from here, with resistances at RM0.74 (R1) and RM0.83 (R2). Conversely, firm downside support can be identified at low of RM0.595 (S1).

huang yang analysis

source: Kenanga Research – 16/01/2018

Jan 10, 2018

Alpha Stock Picks 2018: A Smashing Start

Although our alpha picks’ return of +1.86% trailed the FBMKLCI’s +4.9% in Dec 17 amid hefty year-end window dressing, these picks have started the year with smashing month-to-date returns of 0.7-11.8%. Some have technically broken out. Good domestic liquidity and positive newsflow for these stocks should ensure continuing positive momentum. We maintain our alpha picks for January, namely Ann Joo, Bumi Armada, Gabungan AQRS, Globetronics, Serba Dinamik, VS Industry, and Yong Tai.

WHAT’S NEW
 Review of Dec 17’s picks. Only one alpha pick outperformed the market’s incomparable +4.9% return in Dec 17. Some index stocks were pushed up amid the year-end window dressing. Coming in at +5.2%, Ann Joo’s respectable performance rose in tandem with the mom (+8.1%) rise in the average steel bar price (Dec 17: RM2,633/MT).
 Key event catalysts during 1Q18 are: a) strong reporting season and hopefully good capital management for the steel (benefitting Ann Joo) and E&E (VS Industry, Globetronics) sectors, b) indicative of strong demand for Yong Tai’s Impression performance, c) mega construction contract awards (Gabungan AQRS), and d) Bumi Armada hoping to receive full charter rate for FPSO Kraken.

ACTION
 Our January picks continue to be Ann Joo, Bumi Armada, Gabungan AQRS,
Globetronics, Serba Dinamik, VS Industry, and Yong Tai.

ANALYSTS’ TOP ALPHA* PICKSalpha stock picks 2018

Ann Joo Resources (Abdul Hadi Manaf)
A blowout 4Q17 reporting season is expected, benefitting from steel bar prices that are at ulti-year high. In Dec 17, local steel bar price increased further to RM2,633/MT (+8.1% qoq) mainly due to sharper-than-expected production cut in China during heating season.

Share Price Catalyst
 4Q17 earnings could potentially a blowout quarter.
 Significant improvement in local steel demand.
 Rise of local steel ASP to a multi-year high.

Bumi Armada (Kong Ho Meng)
2017 is set to be a turnaround year for the group, with earnings set to pick up by 1Q18 when Bumi Armada potentially receives almost the full charter rate recognition from both Olombendo and Kraken. The offloadings of Kraken onto three tankers (at implied 15k bpd) is positive as it shows Kraken production is ongoing. It needs a higher frequency of offloads to imply a real recovery in production. We also see the possibility of TGT1 extension.

Share Price Catalyst

 Conclusion of final acceptance of Kraken and Olombendo by early-18.
 Recovery of OMS utilisation and rates.

Gabungan AQRS (Ridhwan Effendy)
The group is armed with an outstanding orderbook of RM2.8b. In 1H18, we are expecting positive newsflow from potential contract wins that the group is gunning for. This includes high-profile construction jobs in the likes of East Coast Rail Line (ECRL) and the Sabah portion of the Pan Borneo Highway (PBH). Also, the group’s precast manufacturing division is poised to benefit from the Sabah PBH, as it owns one of the largest precast manufacturing facilities in Sabah together with the Sabah Economic Development Corporation.

Share Price Catalyst
 Positive contract newsflow by 1H18.
 Concrete premix production associate securing a substantial contract

Globetronics (Yeoh Bit Kun)
We remain upbeat on Globetronics’ prospects and expect 4Q17 to be the strongest quarter for the year, driven by higher production volume for sensor products as well as margin improvement due to better economies of scale. There could be earnings upside to our 2018/19 forecasts due to: a) commercialisation of developing products (particularly 3D imaging sensors), and b) strong demand for gesture sensors (due to end-client’s bundling strategy).

Share Price Catalyst
 Commercialising one or two new sensors in 2018-19, which are currently under co- development with the client, could significantly lift our earnings forecasts.

Serba Dinamik (Kong Ho Meng)
Earnings growth to trump expectations due to a combination of yearly new contract wins (RM2b) and the high renewal rate (>80%) of its existing orderbook. We expect Serba to announce more contracts as it embarks on its asset ownership strategies. Our earnings forecasts are above consensus.

Share Price Catalyst
 Higher-than-expected new orderbook wins.
 Lower-than-expected costs, especially on tax (Serba is expected to pay IRB tax claims from 3Q17 to early-19).

VS Industry (Fong Kah Yan)
In addition to several assembly lines for box-build products that have commenced production since Nov 16, VS Industry began building three additional assembly lines in 4Q17. Key catalyst in the medium term will be the gradual capacity fill-up at its new plant (which can accommodate up to 12 assembly lines) upon completion in mid-18 on the back of potential contracts from new customers.

Share Price Catalyst
 Securing new contracts from existing or new customers.
 Securing new contracts for its China ops via 43.5%-owned VS International Group (VSIG).

Yong Tai (Ridhwan Effendy)
Tourism-related developer Yong Tai will soon open the critically-acclaimed Impression Series theatre in Melaka, the first outside China, which could generate net profit of >RM60m p.a. in a full year of operations. To further tap on the success of the Impression Melaka show, Yong Tai will develop the land around the theatre. It will also undertake niche developments to diversify earnings growth drivers. We are also optimistic on the viewership of the performance, given the success that it has had in China.

Share Price Catalyst
 Positive construction progress of the Impression Melaka theatre.

souce: UOBKayHian – 08/01/2018

Jan 4, 2018

Malaysia 1H18 Outlook - Regaining Some Lustre In 1Q18

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Malaysian equities should trend higher in 1Q18, fulfilling the historically good correlation between ringgit deposit growth and market performance. However, we continue to expect a duller performance post GE14, which is widely expected in Mar-Apr 18. We advocate a trading-oriented, mid- to large-cap-biased investment strategy for 1Q18, with a focus on mega infrastructure, E&E, tourism-related and selective GE14 plays.

WHAT’S NEW
Sparkles to broaden in 1Q18. We continue to expect the broader Malaysian equities to market to trend up in 1Q18 (although there could be a temporary trend reversal in the FBMKLCI following the last few trading days’ hefty 3.0% window-dressing gains), amid the anticipation of GE14, firm domestic economic indicators, and ample global/domestic trading liquidity. Improved domestic liquidity is well proxied by the growth in ringgit- deposit growth since Sep 17 (+4.5% vs +0.5% for 2016).
End-18 FBMKLCI at 1,860. While we continue to peg the market at an above-historical mean PE multiple, we assume the premium will ease in 2018 (+0.6SD vs 2017’s expected +0.7SD). Our bottom-up FBMKLCI target is 1,860.
Strategy and investment themes. We advocate focusing on beta stocks in 1Q18 before turning defensive thereafter. Market conditions still generally favour mid-caps, which continue to sustain superior earnings growth. Multi-year investment themes include: a) mega infrastructure (benefitting the construction and building material sectors; large-cap construction companies clawing back 2017’s losses), and b) electronics and electrical (E&E), followed by the situational GE14 and tourism-related picks.

ACTION
OVERWEIGHT building materials, construction, E&E, gaming, technology and utilities The construction and building material sectors will be supported by more contract awards and implementation of mega projects, with construction activities perhaps only reaching the peak in 2019. The defensive and high-yielding utilities should outperform post GE14. However, UNDERWEIGHT cyclical sectors like automobile and plantation.
Our top picks include large-caps Bumi Armada , CIMB Group , Gamuda , Genting Malaysia , and Tenaga Nasional , and small/mid-caps Ann Joo Resources , Choo Bee Metal Industries , Gabungan AQRS , Globetronics Technology , Hume Industries , Serba Dinamik, Tune Protect , VS Industry and Yong Tai . Other notable picks include Magnum and YTL Power , while potentially interesting election trading plays include FGV and MRCB. However, SELL the pricey Hartalega Holdings (unsustainably stretched valuations) and UMW Holdings.

malaysia 2018 top stock picks

ESSENTIALS
Improving domestic liquidity to help lift equities. The growth recovery of the ringgit deposit growth (+5.8% in Nov 17 from 2016’s +0.5%), an important indicator of domestic liquidity, should eventually lift equities – historically the FBMKLCI is positively correlated to ringgit deposits (0.85 correlation in the past 10 years). Foreign equity fund flows have reversed in December (RM860.3m) from September’s year low of RM737.3m net outflow.
Near-term positives ahead of GE14: a) the FBMKLCI has generally yielded positive returns in the three-month periods up to the past election polling dates, b) robust headline economic indicators (refer to RHS table) which support the ringgit and investment sentiment, and c) minimal risk in a portfolio sell-down of Malaysian bonds in 2018, given the more moderate maturity schedule vs that in 2017.
However, investment sentiment may turn cautious after GE14, reflecting continuing political uncertainties (which could lead to policy vagaries that affect corporate profits), and lack of domestic consumption growth sparks despite firm headline economic growth indicators. Corporate earnings could be revisiting the downgrade phase, albeit at milder magnitudes compared to the 2013-16 period (where growth was almost non-existent). Finally, Malaysia’s regional appeal remains mediocre, based on the expected PE-to- corporate earnings growth valuation matrix (see RHS), and taking note of the World Bank’s projection for Malaysia’s GDP growth to ease by 0.2ppt to 4.8% in 2019, slightly weaker than that of Thailand (-0.1ppt) and in contrast to the sustained GDP growth of neighbouring Indonesia, the Philippines and Vietnam.

malaysia particpated event

MAJOR KEY INVESTMENT THEMES & FEATURED BENEFICIARIES
Company& Catalyst
(A) MEGA INFRASTRUCTURE
Ann Joo Resources
Substantially stronger 4Q17 earnings, coupled with the rise in the latest published domestic steel price. Significant rollout of mega projects by mid-18.

Gabungan AQRS
Potential contract wins in 1Q18 from ECRL and Sabah Pan Borneo Highway worth >RM1b.

Gamuda
Clinching a mega project subcontract award (ECRL, MRT3) will positively surprise amid market skepticism.

Hume Industries
Cement prices should firm up significantly in 2018 as mega projects reach high construction activity levels.

(B) E&E TREND RIDERS
Globetronics
Earnings doubling in 2018; further upside on potential commercialization of sensors under development.

Inari Amertron Good visibility in doubling revenues in 3 years, driven by RF packaging segment and Broadcom’s clientele.

VS Industry High growth visibility and potential contract wins to fill up capacities at its new plant (commencing mid-18).

(C) GE-14
FGV
Improved earnings via cost rationalisation could be another positive.

MRCB
Potential sale of EDL will significantly strengthen balance sheet and lift earnings outlook. Has historically traded up to +2SD during GE periods.

(D) TOURISM-RELATED
Genting Malaysia
Normalisation of luck factor post 3Q17, opening of 20th Century Fox theme park by end-18.

Tune Protect
Strong turnaround story with relatively attractive valuations.

Yong Tai
Opening of Impression theatre in Mar 18.

(E) SELECTED CORPORATE DEALS
Magnum
Monetisation via potential listing of 6.3%-owned U-Mobile allows restoration of generous dividend payout.

Tropicana
Potential monetisation of various properties which collectively account for >30% of market cap.

source UOBKayHian – 02/01/2018

Jan 2, 2018

Malaysia 2018: Challenges and Opportunities

■ We expect 2018 to be a more volatile and challenging year for the Malaysian market  compared to 2017.
■ The key challenges include slower GDP growth in 2018, potential cost pressures for businesses, impact from disruptive technologies, and potential earnings risks.
■ We expect these concerns to be priced-in in 1H18, and the market should improve in 2H18 due to stronger fund flows, better corporate earnings, and IPO activities.
■ We have identified five themes for 2018: 1) beneficiaries of ringgit strength; (2) GE14 plays; (3) BRI and rail theme; (4) PNB transformation; and (5) small-mid cap sectors.
■ We lower our KLCI index target for end-2018 to 1,880 from 1,920, based on 15.9x  forward P/E (in line with its 3-year mean) after adjusting for the new KLCI constituents.
■ We prefer construction, utilities, oil and gas, gloves and small-mid cap sectors for 2018.
■ Top three picks for 2018 are Axiata, Dialog and Tenaga.

More challenging and volatile 2018?
We expect 2018 to be a more volatile and challenging year for the Malaysian market  compared to 2017. We expect the market to be choppy in 1H18, before rising in 2H18. The key challenges include slower GDP growth in 2018, potential cost pressures for Malaysian businesses, impact from disruptive technologies and potential earnings risks for banks and utilities due to changes in accounting standards (MFRS9 for banks) and
regulations (utilities).

RMUSD exchange rate

Opportunities beckon in 2H18
We expect the market to price in most of the above concerns in 1H18, and local and foreign direct investments should improve in 2H18, post-GE14. Factors that could boost market prospects in 2H18 are: (1) potential relief rally and increased foreign funds inflow into Malaysia post GE14; (2) better corporate earnings; (3) slew of construction job awards and potential Chinese investments; and (4) IPO activities picking up pace post
GE14 in 2018.

Five key themes for 2018

We have identified five themes for 2018: 1) beneficiaries of ringgit strength – auto, airlines and consumer sectors; (2) GE14 plays – government-linked companies; (3) China’s Belt Road Initiative (BRI) and rail theme – construction; (4) PNB transformation – plantation and property; (5) small-mid cap sectors – small-mid cap stocks.

Our top sector picks
Our top sector picks are construction, utilities, rubber gloves, oil and gas, and small caps. We like utilities for their defensive earnings, construction for potential job rollouts and award of projects, rubber gloves for strong demand growth, oil and gas for the earnings
recovery story, and small caps for Bursa’s on-going research scheme to discover
undervalued gems.

Preferred stocks

Our top big cap picks are Tenaga Nasional for utilities exposure, Dialog for its robust earnings growth, and Axiata on our expectation of an earnings rebound in 2018 and 2019. Our top 3 smaller caps are CCK on its plan to improve its margin by moving into a more profitable product mix as well as a beneficiary of the stronger ringgit, Berjaya Food on its plans to dispose its loss-making overseas entities as well as benefitting from a stronger ringgit, and Bonia on earnings recovery from closure of loss-making boutiques.

Maintain 2017 KLCI target but lower 2018 target to 1,880 points

We reiterate our end-2017 KLCI target of 1,790 pts based on 16x P/E, which is in line with its three-year moving average. However, we lower our 2018 target from 1,920 to 1,880 to reflect recent changes in KLCI constituents. We project that market earnings will rebound by 6% in 2017 and 2018 before accelerating to 9% in 2019.

source: CIMB – 20/12/2017

Dec 29, 2017

SALUTE – Technical

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SALUTICA BERHAD Stock Code: 0183

salute analysis

Above: Salute daily chart (click to enlarge view)

salutica technical analysis
SALUTE has experienced a flag- - formation breakout above the RM1.35 level with improved volumes. The MACD Histogram has extended another green bar, while the RSI remains above 50. Price may rally, targeting the RM1.42- - RM1.50 levels. Support will be set around the RM1.30 level.

source: Malacca Securities Research – 29/12/2017

Dec 18, 2017

Outlook for Malaysian oil and gas names improves

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■ Petronas recently released its activity outlook report, and the guidance for the volume of work in 2018-19F appears to have increased from the previous March guidance.
■ This will be positive for Malaysian O&G companies, which have likely passed the  nadir of their earnings in either 2016 or 2017F.
■ We recently added Dialog and Yinson to our coverage, our two top sector picks, both with Add calls, and also recently upgraded UMW-OG to a Hold, and SAPE to an Add.
■ Hence, we upgrade our sector rating to an Overweight, from Neutral previously.

IEA does not expect oil prices to hold at current levels…
Although the spot price of Brent crude breached the US$60/bbl barrier on the upside in late-October, fundamental demand-supply projections by the International Energy Agency suggest that prices should weaken sequentially in 1H18F, before rising again in 2H18F.
This is because supply growth from non-OPEC sources in 2018F is more than sufficient to meet global demand growth projections, resulting in a ‘call on OPEC crude’ that is actually below OPEC’s current production levels.

…but Petronas’s capex budget may be based on a higher oil price
In the “Petronas Activity Outlook 2018-2020” report that was recently issued in December 2017, Petronas said that it expected oil prices to hover around US$50-60/bbl. This view is unchanged from Petronas’s view in March 2017, when it issued the inaugural version of the same report. In any case, Petronas appears to have turned more positive on its projected capex for 2018F and beyond, suggesting that it may have based its budgeted capex on an oil price assumption that is higher than its US$45/bbl assumption for 2017F.

Outlook for jack-up (JU) drilling rigs has improved…
Between March and December 2017, Petronas raised its expected demand for JU rigs. This is positive for UMW-OG and Perisai, as we expect domestic demand to cover most, if not all, of their available JU rigs. However, we expect Petronas to continue to demand attractive rates, and perhaps pressure these local players to reduce their price offers.

…but does not translate into demand for tender drilling rigs (TDR)
In contrast, demand for TDRs has not moved much, and Petronas is forecasting that it will only need 2-3 TDRs for 2018-19F. SAPE has 15 TDRs in total. Petronas’s modest demand for TDRs means that SAPE will need to focus on securing foreign jobs to achieve our forward utilisation assumption of 50%. We expect the SAPE group to register core net losses for the next three forecast years, as drilling losses more than offset expected profits from the engineering and construction (E&C) and energy arms.

Outlook for E&C work has improved
The prospects for local fabricators appear to have improved, with Petronas now guiding for more wellhead platform fabrication jobs, even though central processing platform fabrication volumes are likely to remain low. More heavylift installation and offshore pipelay installation work is also expected. The outlook for hookup and commissioning and maintenance work has also improved, with more man-hours expected. The better prospects in E&C should benefit SAPE and other Malaysian players.

malaysia oil gas outlook  
Number of Offshore Support Vessels (OSV) required has increased
In December, Petronas indicated that it will require more AHTS and fast crew boats in  2018-19F than previously guided in March. This is positive for local OSV players like Bumi Armada and ICON Offshore.

Top sector picks: Dialog (TP: RM3.13) and Yinson (TP: RM4.88)
Our top sector picks are Dialog and Yinson, as they both have a good track record in
execution and their business models have relatively low risk profiles. We also have an
Add on SAPE as the sharp sell-off has exposed longer-term value, and an Add on BAB
as its Kraken and Olombendo FPSOs are heading towards final acceptance.

source: CIMB Research – 15/12//2017

Dec 5, 2017

Winners And Losers Of A Stronger Ringgit Malaysia

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● CS' FX strategy team has raised USDMYR forecast to 4.0 in three months and 3.80 in 12 months (from 4.10 and 4.0 previously). RM has appreciated 8% vs the USD YTD and is currently at the strongest level so far this year.
● In our view, companies most materially affected would be (1)  those with mismatch in USD-denominated revenue and cost, (2)  companies with majority of profits derived from offshore operations, (3) companies with sizeable foreign currency denominated debt.
● Key beneficiaries of a stronger RM in our view are TNB, Air Asia  and Astro. Meanwhile, our screen seems to suggest that there is a longer list of potential losers which include: telecommunication companies (Axiata, TM, TimeDotCom), rubber, petrochemical  companies, Inari, IHH and plantation companies.
● The adverse impact of a stronger RM on corporate earnings could be among the key factors suppressing street's corporate earnings estimates (Malaysia is the only market in Asia with no 2017E EPS growth) despite the improving economic growth outlook.

RMUSD exchange rate

We take a look at the possible winners and losers of a stronger RM vs USD.

Winners
● TNB - Tenaga’s USD-denominated debt as at 31 August 2017 amounted to RM6 bn (16% of total borrowings). Our rough estimates show that a 10% strengthening in MYR against USD should have an approximate 12% impact on earnings, all else constant. Nevertheless, we understand that TNB has hedged at least 50% of its foreign currency exposure up to 12 months, hence possibly reducing the quantum of the earnings impact.
● Air Asia - AirAsia has a significant portion of borrowings which is USD-denominated (RM8.4 bn or 86%) as at 30 June 2017. Bulk of its operating cost (fuel and maintenance) is also dominated in USD; although AirAsia has hedged 50% of its USD opex up to December 2017, the unhedged portion coupled with the expiry of these hedges beyond 2017 would have a positive impact on earnings. Assuming foreign-denominated cost is not hedged, a 5% appreciation in RM would lead to a 5% boost in net profit.
● Astro - The stronger RM is positive for Astro as its content cost is denominated in USD. We estimate that Astro’s bottom line in FY19E and FY20E will improve by 3.1% and 6.5%, respectively should the ringgit improve to RM3.80 (less impact in FY19E as Astro has hedged 80% of its annual USD exposure today).

Losers
● MY telcos - mobile: The stronger RM is unlikely to impact MY  telco’s IDD business anymore, given that they are now pricing their services using the ‘cost plus’ method to avoid the pitfalls in 2016 (it became a loss-making business). That said, the scenario will likely be negative for Axiata, given that ~70% of its FY18E EBITDA is denominated in foreign currency. We estimate that if  RM trades at RM3.80 vs USD, it would have an approximate
5%/15% impact on Axiata’s FY18E EBITDA/net profit, all else equal; earnings exposure to foreign business will be partially offset by some modest interest savings due to Axiata's sizeable USD debt. However, management could take pre-emptive steps (such as re-negotiate interconnect fees, reduce traffic in impacted areas) to mitigate the impact.
● MY telcos – fixed line: Within the fixed line space, both TM and Time Dotcom’s submarine cable business will be impacted if RM strengthens, given that the contracts are generally priced in USD. However, the impact is modest, based on our estimates given that if RM trades at RM3.80 vs USD, only 7-10% of TM and Time’s revenue will be impacted (~3% of EBITDA).
● Rubber companies such as Top Glove and Karex whose revenue is USD-denominated would be negatively impacted by a stronger MYR. We estimate a 10% strengthening in MYR will have a 25% earnings impact on Karex, ceteris paribus. Meanwhile, the same sensitivity on Top Glove will impact earnings by approximately 7%. Nevertheless, we highlight that the exporters typically adjust selling prices to reflect any adverse forex movements, albeit with a slight 1-2 months’ time lag.
● Petrochemical companies tend to lose out in a strong RM environment as revenue is denominated in USD (product prices linked to international prices). Though majority of its costs are in USD (feedstock, energy costs, etc), some portions of its costs are in RM. We estimate 8% and 12% negative earnings impact for every 5% appreciation in RM for PCHEM and LCT, respectively.
● Plantation – Plantation companies tend to be adversely affected as stronger RM would lead to lower revenues (palm oil traded in USD) while the bulk of cost is denominated in RM.
● Inari: A stronger RM is negative for Inari as it bills its client in USD.  We estimate that there could be 8-10% downside to our net profit estimates in FY19-20E assuming USD-RM at RM3.80.
● IHH - IHH Healthcare’s growth would be negatively impacted in the scenario of stronger RM as it generates >80% of total core revenues outside of Malaysia. If the currency appreciated to RM3.80 relative to USD in FY18, revenue and EBITDA could be affected by ~4%-5%, everything else equal.

source: Credit Suisse – 26/11/2017