4QCY17 Results Review FBMKLCI 1,860 · 2018-03-02 · 4QCY17 Results Review Market Strategy 02...

Market Strategy

02 March 2018

PP7004/02/2013(031762) of 27

4QCY17 Results Review FBMKLCI 1,860.86 Feeling Down? Not Really! Target 1,950.00↑ By Chan Ken Yew / [email protected]

The recently concluded 4QCY17 results reporting sea son remains uninspiring. Almost 1/3 of the stocks under our coverage delivered weaker-than-exp ected results. We notice; (i) Building Materials, (ii) Plastic Packaging, and (iii) Plantations sho wing noticeable signs of weakness while (iv) Consumer, (v) Semicon/Technology as well as (vi) Tr ansportation & Logistics also turned-up more disappointments. On the other hand, (i) Oil & Gas a s well as (ii) Banking & Non-Bank Financials sectors delivered more positive surprises. With the conclusion of 4QCY17 results reporting season, FY17A earnings growth is seen at 8.9% (vs. our earl ier estimate of 9.8%). Post results, we also raised our FY18E/FY19E earnings growth estimates for FBMKL CI to +7.4%/+6.0% (from -0.2%/+3.4% previously) due mainly to earnings upgrades in bank ing sector and some minor tweaks across various sectors. To better reflect the higher earni ngs growth as well as assigned target prices, we have also raised our end-2018 index target to 1,950 (from 1,860 previously), representing FY18E/FY19E PER of 16.5x/15.5x. As for timing of en try, while we continue to see decent upside of ~5% from here, the benchmark index is now fast appr oaching our “Sell On Strength” (S.O.S.) zone of 1,855-1,925. Hence, we reckon that investors should only turn more aggressive if and when the index corrects below the 1,800-level. As for our 1Q18 Top Picks, post results, we continue to maintain our OUTPERFORM calls on AMBANK (TP: RM4.90 ↔), AMWAY (TP: RM8.30↔), ANNJOO (TP: RM4.70↔), MITRA (TP: RM1.20 ↓), PIE (TP: RM2.10↓), SERBADK (TP: RM3.90 ↑), TAKAFUL (TP: RM4.30 ↑), WASEONG (TP: RM1.80↑) and WCT (TP: RM1.90 ↓). At the same time, we have also added AIRASIA (OP, TP: RM5.30) and MBMR (OP, TP: RM2.85) to repla ce F&N and TOPGLOV.

Could have been better. The just-concluded 4QCY17 results reporting season showed signs of weakness, again. Out of 149 stocks under our core coverage, 48 of them delivered weaker-than-expected results, implying a “disappointment ratio” of 32.2%, almost flat vis-à-vis 32.0% in 3QCY17. However, on a YoY basis, the ratio obviously deteriorated y deteriorated from 27.6% in 4Q16. For this reporting season, 18.1% of the stocks under coverage (or 27 stocks) outperformed our expectations vis-à-vis 16.3%/10.1%/13.4% recorded in 3Q/2Q/1Q17. The inherent strength is in line with the underlying stronger real GDP as well as corporate earnings growth.

Sector wise, we notice; (i) Building Materials, (ii) Plastic Packaging and (iii) Plantations show noticeable signs of weakness while (iv) Consumer, (v) Semicon/Technology as well as (vi) Transportation & Logistics also showed more disappointments. On another extreme, (i) Oil & Gas as well as (ii) Banking & Non-Bank Financials sectors delivered more positive surprises (see Figure 8).

• Building Material: The sector was dragged by ULICORP, WTHORSE and LAFMSIA. Reasons for weaker results; (i) margins were compressed by higher production costs and lower selling prices for ULICORP, (ii) wider-than-expected rebates from LAFMSIA, and (iii) WTHORSE’s tiles demand was poorer than expected.

• Consumer: Despite some retailers still recording lower margins impacted by the promotion and discounting activities, most of the retailers (except for PADINI & PARKSON) posted stronger sales in 4QCY17 in general, attributed to the Christmas festive season and long school holidays' period. F&B players continued to experience high cost pressures in 4Q17 (i.e. DLADY, OLDTOWN & PWROOT), as higher cost inventories cleared the shelves. Marketing spend is also typically higher during the 4Q period as manufacturers prepared for the CNY season. In the Sin Sub-sector, tobacco stock (i.e. BAT) persistently suffered from high levels of illicit trade, which undermined sales. While cheaper offerings are made available in the market, it is expected to pull margins given its lower profitability.

• Plastic Packaging: The weaker-than-expected results were due to various reasons, including: (i) higher start-up and raw material costs, (ii) higher-than-expected repairs and maintenance, and fewer favourable product mix.

• Plantations: Despite both quarterly CPO prices and FFB production improving 4% and 5% YoY, respectively, the pace of these improvements was not fast enough to offset rising cost and also high expectations. As a result, the sector recorded the weakest showing for the year, with only 2 counters (HSPLANT and PPB) above consensus expectations but seven counters missing expectations while four (GENP, IOICORP, KLK and SIMEPLT) came within.

• Semicon/Technology: Out of our coverage, SKPRES was the only company that reported results coming in within expectations. Meanwhile, MPI, UNISEM, PIE and NOTION missed due to a combination of either higher-than-expected raw material prices, operating expenses, unfavourable forex or adverse product mixes.

4QCY17 Results Review Market Strategy 02 March 2018

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• Transportation & Logistics: Logistics players, namely CENTURY, GDEX, POS and TNLOGIS, all saw poorer results due to increasing costs and margins pressure, with GDEX was also hit by higher taxes. Meanwhile, MMCCORP’s results were dragged by: (i) the absence of Senai Airport City land sale, and (ii) lower construction earnings from completion of KVMRT Line 1.

As for our quarterly Top Picks, AMBANK, PIE and WCT delivered weaker sets of results. However, TAKAFUL and WASEONG, on another extreme, were outstanding performers. AMWAY, ANNJOO, F&N, MITRA and SERBADK also met our earnings estimates. AMBANK’s 9M18 performance only made up 66% for both our and market full-year estimates due to higher opex and normalisation of credit costs. PIE, on the other hand, was dragged by weaker USD and high material prices despite registering record-high sales. The disappointment by WCT was caused by unexpected losses from its joint-venture. Despite the aforementioned negative variances, we continue to hold our OUTPERFORM calls on these stocks. The rationales for such commitment are as follows:-

• AMBANK: Upward momentum in loans growth maintained coupled with elevated NIM and superior dividend yield of 5%. Last but not least, valuations are undemanding.

• PIE: We remain hopeful on PIE’s mid-term prospect, premised on the existing and new orders from MNC clients. We also see better value proposition following the recent share price correction with its forward PER only trading at 12.2x vis-à-vis its EMS peers’ 14.0x PER.

• WCT: Despite the downgrade in earnings, we are still keeping our OUTPERFORM call, as we believe that the worst could be over after the impairment on its Middle East projects. We also laud the new management team for their continuous efforts in improving the company’s profitability, i.e. (i) securing more local construction jobs, (ii) re-pricing strategy to clear property inventories, and (iii) de-gearing plans through land sale, placement exercise and potential listing of investment assets. Our TP of RM1.90 implies FY18E PER of 18.3x, in line with the big boys’ range of 18.0-20.0x which we are comfortable with, especially for concession owners.

We also raise our Target Prices and maintain our OUTPERFORM calls on SERBADK, TAKAFUL and WASEONG. Nonetheless, as share prices of some of these stocks (i.e. F&N, TOPGLOV) have reached our Target Prices, we have downgraded them to MARKET PERFORM. As for the rest, their ratings and Target Prices are largely kept unchanged.

Earnings revisions . With the conclusion of 4QCY17 results reporting season, FY17A earnings growth is seen at 8.9% (vs. our earlier estimate of 9.8%). Post results, we also raised our FY18E/FY19E earnings growth estimates for F BMKLCI to +7.4%/+6.0% (from -0.2%/+3.4% previously) due mainly to earnings upgrades in the banking sector and some minor tweaks across various sectors. Post revisions, our estimates are now getting closer to the consensus estimates of 4.8%/6.7% (vs. 8.2%/7.6% previously).

Due to our earnings upgrade for FBMKLCI constituent s and higher target prices assigned, we have also raised our end-2018 index target to 1,950 (from 1,860 previously), representing FY18E/FY19E PER of 16.5x/15.5x. Our Index Target is derived via the average of the followings:-

• Top-Down: An unchanged target PER target of 16.5x to our FY18E earnings estimate, hence index targets of 1,955 (vs. 1,855 previously); and

• Bottom-Up: 1,945 (vs. ~1,860 previously), representing 16.5x/15.5x PER to our FY18E/FY19E earnings estimate.

Our index target upgrade is also inline with the re cent upgrade in consensus index target. Note that c onsensus has recently raised index target to 1,930 as of end-Feb 2018 from <1,850 as of end-Dec 2017.

1Q18 Market Outlook - An Interim Review. Thus far, the local equity benchmark index, FBMKLCI, has finally played catch up. As of end-Feb 2018, FBMKLCI has gone up 3.3%. Again, historical pattern study seems to be holding well for early of the quarter. However, the sell-off in the past 2 weeks has somewhat changed investment sentiment/buying interest.

Based on our Market Sentiment Study, mid-and-small-cap stocks have shown signs of cooling off as per our Valuation Gaps (between FBMKLCI vs. FBM70 & FBMSC) study. The Forward PER Gaps of FBMKLCI-FBM70 and FBMKLCI-FBMSC have converged (see Figure 10-11 for details). Recall that we have pointed out in the past few quarters, while strong valuations of mid-and-small-cap stocks indicate good investment sentiment, the valuations of mid-and-small-cap stocks have been traded at the higher end of their respective historical range. Hence, we did not rule out this is an early sign of toppishness back then.

Besides, we also notice that the Accumulated Volume-Price Indicators for FBMKLCI, FBM70 and FBMSC have crossed below their respective 30-day SMA. These technical pictures signal reversal in Buying Momentum (see Figure 12-14). In addition, Forward PER valuation of FBMKLCI is back to 10% premium against regional peers, which may not be as attractive as before (see Figure 15). Recall that the FBMKLCI historically traded at a premium of -2%-18% against its regional peers. As such, we begin to see a mild outflow of foreign capital from the local equity market (RM1.1b net outflow the equity quity market in Feb 2018).

More importantly, timing wise, the FBMKLCI was traded at a discount of 3.8% (as of end-Feb 2018) against the consensus index target of 1,930, which has surpassed its 3-year mean level of 4.4% discount and is fast approaching its +1SD-level of 2.3% discount (or implying 1,885-level) (see Figure 16). As such, we reckon that risk-reward consideration does not favour buyers at this juncture. In fact, we are more interested to advocate a “Sell On Strengt h” strategy (S.O.S.) as the range between +1SD (implying 1,855) and +2SD (implying 1,92 5) is deemed as a low-risk Selling/Profit Taking zone . On the flipside, levels <1,800 (the -1SD-level) should act as low risk buying levels.


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

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

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% 32.2%

Source: Kenanga Research

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

AUTOMOTIVE; 4%

BANKS & NON-BANK

FINANCIALS; 15%

CONSTRUCTION; 4%

CONSUMER; 11%

HEALTHCARE; 4%

MEDIA; 4%

OIL & GAS; 19%

PLANTATION; 4%

PROPERTY; 15%

REITS; 4%

RUBBER GLOVES; 4%

TECHNOLOGY; 4%

TRANSPORT &

LOGISTICS; 7%

UTILITIES; 4%

Above



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

AUTOMOTIVE

4%BANKS & NON-BANK

FINANCIALS

6%

BUILDING MATERIALS

6%

CONSTRUCTION

6%

CONSUMER

10%

GAMING

4%

HEALTHCARE

2%

MEDIA

2%OIL & GAS

4%

PACKAGING

MANUFACTURERS

6%

PLANTATION

15%

PROPERTY

8%

SIN

2%

TELECOMMUNICATION

4%

TECHNOLOGY

4%

TRANSPORT & LOGISTICS

13%

UTILITIES

2%

Below


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

AUTOMOTIVE

3% BANKS & NON-BANK

FINANCIALS

9%

BUILDING MATERIALS

3%

CONSTRUCTION

9%

CONSUMER

8%

GAMING

3%

HEALTHCARE

1%

MEDIA

3%OIL & GAS

12%PACKAGING MANUFACTURERS

3%

PLANTATION

7%

PROPERTY

7%

REITS

8%

RUBBER GLOVES

4%

SIN

3%

TELECOMMUNICATION

4%

TECHNOLOGY

5%

TRANSPORT & LOGISTICS

3%

UTILITIES

3%

Others

3%

Within



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Figure 5: Recent Reported Results vs. Our Expectatio ns 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 27,111.3 27,710.8 2.2% (501.6) 618.0 -223.2% Mix Mix -1.0% -1.6%

1 BERMAZ AUTO BHD 2Q18 966.8 862.9 -10.7% 71.7 42.4 -40.9% Below Below -19.3% -7.8% Below Below 2.30 ↓ OP ↔2 DRB-HICOM BHD 3Q18 8,576.7 9,727.7 13.4% (127.1) 508.7 500.2% Within Above 0.0% 0.0% Within Within 2.50 ↑ MP ↔3 MBM RESOURCES BERHAD 4Q17 1,670.2 1,732.5 3.7% 96.3 93.7 -2.7% Above Above 19.0% 0.0% Below Below 2.85 ↑ OP ↑4 TAN CHONG MOTOR HOLDINGS BHD 4Q17 5,460.8 4,341.2 -20.5% (45.4) (83.9) -84.8% Within Above -4.6% 0.0% Within Within 1.80 ↓ MP ↔5 UMW HOLDINGS BHD 4Q17 10,436.8 11,046.5 5.8% (497.1) 57.1 111.5% Below Below 0.0% 0.0% Within Within 6.25 ↔ MP ↔

BANKS & NON-BANK FINANCIALS 62,545.0 67,069.9 7.2% 21,252.7 24,192.8 13.8% Mix Mix 3.2% 1.2%

6 AEON CREDIT SERVICE BERHAD 3Q18 562.0 650.4 15.7% 174.5 207.4 18.9% Within Within 2.0% 3.0% Within Within 13.50 ↑ MP ↔

7 AFFIN HOLDINGS BERHAD 4Q17 1,324.4 1,560.5 17.8% 464.1 417.9 -10.0% Below Below -7.0% 0.0% Within Within 2.75 ↔ OP ↔

8 ALLIANCE BANK MALAYSIA BHD 3Q18 634.8 668.1 7.6% 394.7 380.3 -2.8% Within Below -1.6% 4.9% Within Within 4.25 ↑ MP ↔9 AMMB HOLDINGS BHD 3Q18 2,722.8 2,914.0 7.0% 988.8 878.7 -11.1% Below Below -7.5% 0.0% Within Within 4.90 ↔ OP ↑

10 BIMB HOLDINGS BHD 4Q17 2,434.7 2,531.7 4.0% 559.0 619.8 10.9% Within Within 18.2% 0.0% Within Within 5.20 ↑ OP ↔11 BURSA MALAYSIA BHD 4Q17 301.6 340.2 12.8% 193.6 223.0 15.2% Within Within 8.0% 0.0% Within Within 11.00 ↑ MP ↔12 CIMB GROUP HOLDINGS BHD 4Q17 15,916.0 17,588.2 10.5% 3,265.6 4,475.2 37.0% Within Within 13.1% 2.4% Within Within 7.40 ↑ MP ↔13 HONG LEONG BANK BERHAD 2Q18 1,399.0 1,489.2 6.4% 1,092.6 1,322.0 21.0% Above Above 3.5% 5.8% Within Within 18.40 ↑ MP ↑14 LPI CAPITAL BERHAD 4Q17 1,378.9 1,470.6 6.7% 286.9 310.8 8.3% Within Within 2.0% 0.0% Within Within 18.60 ↑ MP ↔15 MALAYAN BANKING BHD 4Q17 22,263.2 23,268.4 4.5% 6,743.0 7,520.5 11.5% Above Within 18.0% 0.0% Above Above 10.60 ↑ MP ↔

16 MALAYSIA BUILDING SOCIETY BHD 4Q17 197.6 320.0 62.0% 201.4 417.1 107.1% Above Above -17.0% 0.0% Above Above 1.35 ↑ OP ↔

17 PUBLIC BANK BERHAD 4Q17 9,956.5 10,746.8 7.9% 5,206.9 5,470.0 5.1% Within Within 3.9% 0.0% Within Within 22.35 ↑ MP ↔18 RHB BANK BHD 4Q17 3,453.5 3,521.8 2.0% 1,681.6 1,950.1 16.0% Below Within 5.9% 0.0% Above Above 5.70 ↑ MP ↔19 SYARIKAT TAKAFUL MALAYSIA BHD 4Q17 2,013.3 2,139.2 6.3% 176.3 206.7 17.2% Above Above 5.0% 0.0% Above Above 4.30 ↑ OP ↔

BUILDING MATERIALS 11,272.9 12,814.4 13.7% 699.6 612.7 12.4% Below Below -63.9% 0.0%

20 ANN JOO RESOURCES BHD 4Q17 1,870.1 2,195.2 17.4% 154.1 205.4 33.3% Within Within 0.0% 0.0% Within Within 4.70 ↔ OP ↔21 LAFARGE MALAYSIA BHD 4Q17 2,552.2 2,248.8 -11.9% 86.6 (224.2) -415.0% Below Below -204.0% 0.0% Within Within 3.90 ↓ UP ↔22 PRESS METAL BHD 4Q17 6,649.5 8,170.4 22.9% 427.8 611.3 42.9% Within Within -3.0% 0.0% Within Within 5.85 ↑ MP ↔23 UNITED U-LI CORPORATION BHD 4Q17 201.1 200.0 -0.5% 31.1 20.2 -35.0% Below Below -48.5% 0.0% Below Below 2.85 ↓ MP ↓24 WHITE HORSE BHD 4Q17 695.7 642.8 -7.6% 27.3 5.4 -80.2% Below N.A. -24.0% 0.0% Below Below 1.80 ↓ MP ↔

CONSTRUCTION 16,328.2 17,558.1 7.5% 1,097.6 1,376.9 25.4% Mix Mix -1.8% -1.1%

25 EVERSENDAI CORP BHD 4Q17 1,574.6 1,830.4 16.2% (140.3) 68.7 149.0% Within Above 0.0% 0.0% Within Within 0.74 ↔ UP ↔26 GAMUDA BHD 1Q18 1,097.9 1,673.5 52.4% 162.1 203.0 25.2% Within Within 0.0% 0.0% Within Within 5.45 ↔ OP ↔27 GEORGE KENT (MALAYSIA) BHD 3Q18 409.8 444.1 8.4% 56.7 75.1 32.5% Broadly Within Broadly Within 0.0% 0.0% Within Within 3.65 ↔ OP ↔28 HOCK SENG LEE BHD 4Q17 498.5 505.9 1.5% 46.4 46.6 0.4% Within Within 0.0% 0.0% Within Within 1.40 ↔ UP ↓29 IJM CORP BHD 3Q18 4,396.0 4,628.3 5.3% 403.1 347.2 -13.9% Below Below -12.0% -12.0% Within Within 3.35 ↓ OP ↔30 KERJAYA PROSPEK GROUP BHD 4Q17 805.4 956.0 18.7% 100.0 124.5 24.5% Within Within 0.0% 0.0% Within Within 1.55 ↔ UP ↔31 KIMLUN CORP BHD 4Q17 940.7 985.2 4.7% 82.2 70.0 -14.8% Above Above 4.0% 0.0% Within Within 2.30 ↑ MP ↔32 MITRAJAYA HOLDINGS BHD 4Q17 964.1 1,164.2 20.8% 97.3 70.6 -27.4% Within Within 0.0% 0.0% Within Within 1.20 ↔ OP ↔33 MUHIBBAH ENGINEERING (M) BHD 4Q17 1,918.8 1,388.3 -27.6% 87.7 122.8 40.0% Within Within 0.0% 0.0% Above Above 3.55 ↔ OP ↔34 SUNWAY CONSTRUCTION GROUP BHD 4Q17 1,788.8 2,076.3 16.1% 117.6 134.0 13.9% Below Below 1.7% 0.0% Above Above 2.30 ↑ MP ↔35 WCT HOLDINGS BHD 4Q17 1,933.6 1,905.9 -1.4% 84.8 114.4 34.9% Below Below -13.0% 0.0% Above Above 1.90 ↓ OP ↔

CONSUMER 18,236.0 18,959.4 4.0% 1,286.7 1,375.8 6.9% Mix-to-Negative Mix-to-Negative -3.0% -4.1%

36 7-ELEVEN MALAYSIA HOLDINGS BERHAD 4Q17 2,103.4 2,187.1 4.0% 52.2 50.1 -4.0% Above Above 0.0% 0.0% Within Within 1.70 ↔ OP ↔37 AEON CO (M) BHD 4Q17 4,018.7 4,088.2 1.7% 90.9 106.1 16.7% Above Above 38.0% 0.0% Within Within 2.00 ↑ OP ↑38 AMWAY (MALAYSIA) HLDGS BHD 4Q17 1,087.5 984.2 -9.5% 54.6 52.6 -3.7% Within Within 0.0% 0.0% Within Within 8.30 ↔ OP ↔39 DUTCH LADY MILK INDS BHD 4Q17 1,047.7 1,064.5 1.6% 149.2 120.8 -19.0% Below Below -13.4% 0.0% Within Within 61.15 ↑ UP ↓40 FRASER & NEAVE HOLDINGS BHD 1Q18 1,091.1 1,068.9 -2.0% 129.0 120.3 -6.7% Within Within 0.0% 0.0% Within Within 29.10 ↔ MP ↔41 HAI-O ENTERPRISE BHD 2Q18 178.4 248.1 39.1% 25.7 39.3 52.9% Within Within 0.0% 0.0% Within Within 5.60 ↑ MP ↔42 MYNEWS HOLDINGS BHD 4Q17 263.6 326.5 23.9% 18.1 24.0 32.6% Within Within 0.0% 0.0% Within Within 1.45 ↑ MP ↓43 NESTLE (M) BHD 4Q17 5,063.5 5,260.5 3.9% 637.1 645.8 1.4% Above Within 5.4% 0.0% Within Within 114.30 ↑ MP ↑44 OLDTOWN BHD 3Q18 318.2 338.2 6.3% 50.9 43.6 -14.3% Below Below -12.4% -6.3% Within Within 3.18 ↔ Accept Offer ↔45 PADINI HOLDINGS BHD 2Q18 736.7 775.6 5.3% 83.1 81.2 -2.3% Below Below -13.0% -3.0% Within Within 5.10 ↔ MP ↔46 PARKSON HOLDINGS BHD 2Q18 1,924.6 1,981.3 2.9% (129.9) (43.3) 66.7% Below Below -26.0% -18.0% Within Within 0.86 ↓ OP ↔47 POWER ROOT BERHAD 3Q18 307.7 344.0 11.8% 29.3 25.5 -13.0% Below N.A. -14.7% -22.2% Within N.A. 2.00 ↓ OP ↔48 QL RESOURCES BHD 3Q18 2,198.3 2,479.4 12.8% 148.7 159.9 7.5% Broadly Within Broadly Within 0.0% 0.0% Within Within 4.05 ↑ UP ↔49 SPRITZER BHD 4Q17 317.5 313.8 -1.2% 24.2 23.8 -1.7% Within Within 1.8% 0.0% Within Within 2.40 ↑ MP ↔

GAMING 32,847.1 34,853.0 6.1% 3,802.1 3,532.3 -7.1% Within-Below Mix -2.5% -1.6%

50 BERJAYA SPORTS TOTO BHD 2Q18 2,890.4 2,855.5 -1.2% 120.9 136.0 12.5% Below Within -9.7% -6.3% Within Within 2.70 ↓ OP ↔51 GENTING BHD 4Q17 18,365.8 20,019.6 9.0% 1,904.6 1,891.3 -0.7% Below Below 0.0% 0.0% Within Within 10.65 ↓ OP ↔52 GENTING MALAYSIA BHD 4Q17 8,931.6 9,328.7 4.4% 1,586.9 1,298.4 -18.2% Within Above -0.1% 0.0% Within Within 5.80 ↔ OP ↔53 MAGNUM BERHAD 4Q17 2,659.3 2,649.2 -0.4% 189.7 206.6 8.9% Within Within 0.0% 0.0% Within Within 2.20 ↔ OP ↔

No. Company

Period

under

review

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

quantum (%)

Dividends

against

estimates

Target Call/Rating

Price (RM) UP/MP/OP

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


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HEALTHCARE 15,180.5 16,646.6 9.7% 1,065.2 814.7 23.5% Mix Mix -0.7% -0.1%54 IHH HEALTHCARE BERHAD 4Q17 10,021.9 11,142.6 11.2% 866.0 595.3 -31.3% Below Below -12.0% -9.0% Within Within 4.90 ↓ UP ↔55 KPJ HEALTHCARE BERHAD 4Q17 2,969.6 3,180.0 7.1% 153.6 165.6 7.8% Above Above 9.8% 8.6% Within Within 1.05 ↑ OP ↑56 PHARMANIAGA BERHAD 4Q17 2,189.0 2,324.0 6.2% 45.6 53.8 18.0% Within Within 0.0% 0.0% Within Within 3.85 ↑ MP ↑

MEDIA 7,408.3 6,909.4 -6.7% 652.6 512.9 -21.4% Mix Mix 0.7% -4.1%57 ASTRO MALAYSIA HOLDINGS BHD 3Q18 4,215.0 4,143.0 -1.7% 482.0 566.0 17.4% Within Within -2.2% -15.5% Within Within 2.90 ↓ MP ↓58 MEDIA CHINESE INTERNATIONAL 3Q18 972.2 896.2 -7.8% 58.0 34.3 -40.9% Within Below 0.0% -1.0% Within Within 0.35 ↔ MP ↔59 MEDIA PRIMA BHD 4Q17 1,289.0 1,195.7 -7.2% 38.7 (153.2) -495.9% Below Below -5.0% 0.0% Within Within 0.53 ↓ UP ↔60 STAR MEDIA GROUP BHD 4Q17 932.1 674.5 -27.6% 73.9 65.8 -11.0% Above Above 10.0% 0.0% Within Within 1.60 ↔ OP ↔

OIL & GAS 58,460.2 69,877.1 19.5% 6,651.6 8,017.3 20.5% Within-Above Within-Above 1.4% -2.5%61 ALAM MARITIM RESOURCES BHD 4Q17 229.5 159.8 -30.4% (81.1) (101.8) -25.5% Below Below -80.6% -41.1% Within Within 0.06 ↓ UP ↔62 BUMI ARMADA BHD 4Q17 1,416.6 2,402.1 69.6% (101.3) 301.0 397.1% Within Within 8.7% 0.0% Within Within 1.10 ↑ OP ↔63 COASTAL CONTRACTS BHD 2Q18 134.6 92.4 -31.4% 5.1 18.2 256.9% Within N.A. 0.0% 0.0% WIthin N.A. 1.45 ↔ OP ↑64 DAYANG ENTERPRISE BHD 4Q17 694.6 695.5 0.1% (3.5) (4.7) -46.2% Above Above 11.5% 0.0% Within Within 0.96 ↑ OP ↔65 DIALOG GROUP BHD 2Q18 1,510.3 1,636.1 8.3% 150.4 205.1 36.4% Within Within 0.0% 0.0% Within Within 2.95 ↑ OP ↔66 GAS MALAYSIA BHD 4Q17 4,052.5 5,348.8 32.0% 168.5 199.1 18.2% Above Above 9.2% 0.0% Within Within 3.20 ↑ OP ↔67 MALAYSIA MARINE AND HEAVY ENGINEERING 4Q17 1,188.3 956.4 -19.5% (1.4) 53.9 -3950.0% Above Above 40.3% 0.0% Above Above 0.82 ↑ MP ↑68 PANTECH GROUP HOLDINGS BHD 3Q18 326.8 465.2 42.4% 19.6 35.8 82.7% Within Within 0.0% 0.0% Within Within 0.75 ↔ OP ↔69 PETRONAS CHEMICALS GROUP BHD 4Q17 13,860.0 17,407.0 25.6% 3,173.0 4,177.0 31.6% Within Above 3.7% 0.0% Above Above 8.40 ↑ MP ↓70 PETRONAS DAGANGAN BHD 4Q17 21,805.5 26,880.4 23.3% 999.9 1,104.9 10.5% Within Above 9.0% 0.0% Within Within 27.85 ↑ OP ↔71 PETRONAS GAS BHD 4Q17 4,561.3 4,809.6 5.4% 1,742.3 1,774.5 1.8% Within Within 0.0% 0.0% Above Above 22.00 ↔ OP ↔72 SAPURA ENERGY BHD 3Q18 5,838.5 4,705.8 -19.4% 343.4 (217.9) -163.5% Below Below 0.0% 0.0% Within Within 0.82 ↓ UP ↓73 SERBA DINAMIK HOLDINGS BHD 4Q18 731.8 797.4 9.0% 96.6 80.5 -16.7% Within Within 1.5% 0.0% Within Within 3.90 ↑ OP ↔74 UZMA BHD 4Q17 475.5 375.7 -21.0% 28.7 30.4 5.9% Within Within 0.0% 0.0% Within Within 1.65 ↔ OP ↔

75 WAH SEONG CORP BHD 4Q17 1,276.6 2,492.1 95.2% (37.8) 88.0 332.8% Above Above 6.8% 0.0% Below Below 1.80 ↑ OP ↔

76 YINSON HOLDINGS BHD 3Q18 357.8 652.8 82.4% 149.2 273.3 83.2% Above Above 12.4% 0.4% Within Within 4.30 ↑ OP ↔

PACKAGING MANUFACTURERS 1,661.2 1,875.3 12.9% 157.8 150.7 -4.5% Within-Below Within-Below -15.8% 0.0%77 SCGM BERHAD ^ 2Q18 79.9 105.8 32.4% 10.7 11.0 2.8% Below Below 0.0% 0.0% Below Below 2.65 ↓ MP ↔78 SCIENTEX BHD ^ 1Q18 534.7 658.7 23.2% 52.2 69.8 33.7% Within Within 0.0% 0.0% Within Within 9.00 ↑ MP ↔79 SLP RESOURCES BHD 4Q17 168.7 180.1 6.8% 29.3 18.3 -37.5% Within N.A. -10.0% 0.0% Above N.A. 1.55 ↓ MP ↔80 THONG GUAN INDUSTRIES BHD 4Q17 746.9 832.2 11.4% 58.1 44.0 -24.3% Below N.A. -20.0% 0.0% Below N.A. 4.05 ↓ OP ↔

81 TOMYPAK HOLDINGS BHD 4Q17 210.9 204.3 -3.1% 18.2 7.6 -58.2% Below Below -33.0% 0.0% Below Below 0.510 ↓ UP ↔

PLANTATION 44,295.2 45,303.9 2.3% 3,058.0 3,461.1 13.2% Within-Below Mix-to-Negative -5.2% -1.6%

82 CB INDUSTRIAL PRODUCT HOLDING 4Q17 577.9 669.8 15.9% 93.5 84.0 -10.2% Below Below -13.0% 0.0% Within Within 1.75 ↓ MP ↓

83 FELDA GLOBAL VENTURES 4Q17 17,241.0 16,975.0 -1.5% (183.0) 108.0 159.0% Below Below -21.0% 0.0% Within Within 2.00 ↔ MP ↓84 GENTING PLANTATIONS BHD 4Q17 1,480.0 1,804.0 21.9% 36.8 40.8 10.9% Within Within 9.0% 0.0% Within Within 10.75 ↑ OP ↑85 HAP SENG PLANTATIONS BHD 4Q17 503.0 555.0 10.3% 125.0 134.0 7.2% Above Above 0.0% 0.0% Within Within 2.30 ↔ UP ↔86 IJM PLANTATIONS BHD 3Q18 561.0 605.9 8.0% 95.2 49.4 -48.1% Below Below -16.0% -14.0% Within Within 2.00 ↓ UP ↓87 IOI CORPORATION BHD 2Q18 4,836.9 4,605.9 -4.8% 693.0 587.5 -15.2% Within Within 0.0% 0.0% Within Within 5.15 ↑ MP ↓88 KUALA LUMPUR KEPONG BHD 1Q18 5,496.0 5,193.0 -5.5% 370.0 356.0 -3.8% Broadly Within Within 0.0% 0.0% Within Within 25.75 ↑ MP ↔89 PPB GROUP BERHAD 4Q17 4,186.4 4,305.1 2.8% 1,031.2 1,217.1 18.0% Within Above 4.0% 0.0% Within Within 19.85 ↑ OP ↔90 SOUTHERN ACIDS (M) BERHAD 3Q17 520.0 566.5 8.9% 24.7 27.6 11.7% Below Below -13.0% -6.0% Within Within 4.40 ↓ MP ↓91 SIME DARBY PLANTATION BHD 2Q18 6,744.0 7,626.0 13.1% 537.0 609.0 13.4% Broadly Within Within 0.0% 0.0% Within Within 5.90 ↑ MP ↔92 TA ANN HOLDINGS BERHAD 4Q17 1,147.8 1,172.9 2.2% 127.5 125.2 -1.8% Below Within 3.0% 0.0% Within Within 3.70 ↑ MP ↔93 TSH RESOURCES BHD 4Q17 872.5 1,073.5 23.0% 78.4 101.1 29.0% Below Below -9.0% 0.0% Within Within 1.60 ↓ MP ↓94 UNITED MALACCA BHD 2Q18 128.7 151.3 17.6% 28.7 21.4 -25.4% Below Below -12.0% -1.0% Below Below 6.80 ↓ MP ↓

PROPERTY 22,691.5 25,200.1 11.1% 2,814.2 3,058.8 8.7% Mix Mix-to-Negative -4.3% -0.3%95 AMVERTON BHD 4Q17 115.3 160.7 39.4% 20.1 24.3 20.9% Above N.A. 0.0% 0.0% Within N.A. 2.00 ↔ OP ↔96 CRESENDO CORPORATION BHD ^ 3Q18 170.0 206.0 21.2% 21.5 32.6 51.6% Within N.A. 0.0% 0.0% Within N.A. 1.50 ↓ OP ↔97 ECO WORLD DEVELOPMENT GROUP ^ 4Q17 2,546.4 2,924.7 14.9% 129.3 113.1 -12.5% Within Below -24.0% 0.0% Within Within 1.50 ↓ MP ↔98 HUA YANG BERHAD 3Q18 304.7 144.0 -52.7% 51.3 1.3 -97.5% Below Below -44.0% 0.0% Within Within 0.60 ↓ MP ↔99 IOI PROPERTIES GROUP BHD 2Q18 1,577.4 2,094.2 32.8% 353.5 480.2 35.8% Below Below -8.0% -5.0% Within Within 2.00 ↔ MP ↓

100 MAGNA PRIMA BHD 4Q17 142.7 101.0 -29.2% 7.9 6.7 -15.2% Above Above 0.0% 0.0% Within Within 1.25 ↔ MP ↔101 MAH SING GROUP BHD 4Q17 2,957.6 2,915.8 -1.4% 346.8 296.8 -14.4% Below Below -11.0% 0.0% Within Within 1.50 ↓ OP ↔102 MALAYSIAN RESOURCES CORP BHD 4Q17 2,408.1 2,823.7 17.3% 22.0 101.2 360.0% Above Below 34.0% 0.0% Above Above 1.30 ↑ OP ↔103 SP SETIA BHD 4Q17 4,957.2 4,520.1 -8.8% 808.0 766.4 -5.1% Below Below -7.0% 0.0% Above Above 4.10 ↔ OP ↔104 SUNSURIA BHD 1Q18 63.8 110.8 73.7% 10.6 20.8 96.2% Broadly Within Broadly Within 0.0% 2.0% Within Within 1.40 ↔ MP ↔105 SUNWAY BHD 4Q17 4,725.9 5,374.8 13.7% 541.6 566.3 4.6% Above Within 5.0% 0.0% Within Within 1.75 ↔ MP ↔106 UEM SUNRISE BHD 4Q17 1,841.5 2,903.4 57.7% 147.8 272.2 84.2% Within Above -2.0% 0.0% Above Above 1.20 ↔ MP ↓107 UOA DEVELOPMENT BHD ^ 4Q17 996.2 1,081.6 8.6% 373.9 401.2 7.3% Within Within 5.0% 0.0% Within Within 2.60 ↑ MP ↔

No. Company

Period

under

review

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

quantum (%)

Dividends

against

estimates

Target Call/Rating

Price (RM) UP/MP/OP


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 27



REITS 3,241.5 3,386.7 4.5% 1,631.9 1,692.3 3.7% Within Within -0.4% 0.0%

108 AXIS REAL ESTATE INVESTMENT 4Q17 171.3 173.2 1.1% 90.2 90.8 0.7% Within Within -3.0% 0.0% Within Within 1.45 ↓ MP ↔109 CAPITAMALLS MALAYSIA TRUST 4Q17 372.6 368.9 -1.0% 163.7 157.9 -3.5% Within Within 0.0% 0.0% Within Within 1.63 ↔ OP ↔

110 IGB REIT 4Q17 507.3 524.9 3.5% 277.8 303.4 9.2% Above Within 0.0% 0.0% Above Above 1.87 ↔ OP ↔

111 KLCC STAPLED GROUP 4Q17 1,343.0 1,367.0 1.8% 675.0 671.0 -0.6% Within Below 0.0% 0.0% Within Within 7.73 ↔ MP ↔112 MRCB-QUILL REIT 4Q17 131.8 180.1 36.6% 59.2 88.0 48.6% Within Within 0.0% 0.0% Within Within 1.38 ↔ OP ↔113 PAVILION REIT 4Q17 459.7 490.0 6.6% 235.3 232.4 -1.2% Within Within 0.0% 0.0% Within Within 1.84 ↔ OP ↔114 SUNWAY REAL ESTATE INVESTMENT 2Q18 255.8 282.6 10.5% 130.7 148.8 13.8% Within Within 0.0% 0.0% Within Within 1.90 ↑ OP ↔

RUBBER GLOVES 4,254.4 5,332.2 25.3% 476.1 675.8 41.9% Within Mix 3.6% 4.6%

115 HARTALEGA HOLDINGS BHD 3Q18 1,295.1 1,788.8 38.1% 193.6 322.7 66.7% Within Within 0.0% 0.0% Within Within 10.00 ↔ UP ↓116 KOSSAN RUBBER INDUSTRIES 4Q17 1,668.0 1,957.4 17.4% 167.1 183.9 10.1% Within Below 0.0% 0.0% Within Within 7.35 ↔ UP ↔117 SUPERMAX CORP BHD 2Q18 505.7 647.9 28.1% 42.1 63.8 51.5% Above Above 14.4% 18.5% Within Within 1.95 ↑ UP ↔118 TOP GLOVE CORP BHD ^ 1Q18 785.6 938.1 19.4% 73.3 105.4 43.8% Within Within 0.0% 0.0% Within Within 9.40 ↑ OP ↔

SIN 7,316.6 6,700.5 -8.4% 1,153.4 1,013.7 -12.1% Within Below -4.7% 0.0%

119 BRITISH AMERICAN TOBACCO BHD 4Q17 3,756.4 3,002.3 -20.1% 675.1 522.4 -22.6% Below Below -16.4% 0.0% Below Below 33.85 ↓ MP ↓120 CARLSBERG BREWERY MALAYSIA BHD 4Q17 1,679.5 1,768.2 5.3% 205.0 221.2 7.9% Within Below -1.7% 0.0% Above Above 17.65 ↑ OP ↑121 HEINEKEN MALAYSIA BERHAD 4Q17 1,880.7 1,930.0 2.6% 273.3 270.1 -1.2% Within Within 4.1% 0.0% Broadl Broadly 23.30 ↑ OP ↑

TELECOMMUNICATION 37,186.6 39,935.5 7.4% 5,902.6 5,655.6 -4.2% Within-Below Within-Below -3.4% 0.0%

122 AXIATA GROUP BERHAD 4Q17 21,565.0 24,402.0 13.2% 1,418.0 1,205.0 -15.0% Below Below -11.0% 0.0% Within Within 5.35 ↔ MP ↔123 DIGI.COM BHD 4Q17 6,597.0 6,340.0 -3.9% 1,633.0 1,477.0 -9.6% Within Within -6.5% 0.0% Within Within 4.90 ↔ MP ↔124 MAXIS BHD 4Q17 8,611.0 8,696.0 1.0% 1,977.0 2,086.0 5.5% Within Within -1.5% 0.0% Within Within 6.10 ↔ MP ↔

125 OCK GROUP BHD ^ 4Q17 401.5 485.4 20.9% 26.6 24.6 -7.5% Below Below 0.0% 0.0% Within Within 0.95 ↓ OP ↔

126 TELEKOM MALAYSIA BHD 4Q17 12.1 12.1 0.2% 848.0 863.0 1.8% Within Within 2.0% 0.0% Within Within 6.85 ↔ OP ↔

TECHNOLOGY 4,166.7 4,714.6 13.1% 383.0 380.3 -0.7% Mix Within-Below -22.7% 0.0%

127 D&O GREEN TECHNOLOGIES BHD 4Q17 430.1 463.3 7.7% 15.5 19.5 25.8% Above Within 8.0% 0.0% Within Within 0.69 ↑ MP ↔128 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 ↓129 MALAYSIAN PACIFIC INDUSTRIES BHD ^ 2Q18 759.4 782.9 3.1% 95.8 80.4 -16.1% Within Below 0.0% 0.0% Within Within 9.70 ↓ MP ↔130 NOTION VTEC BHD 1Q18 68.1 58.3 -14.4% 5.3 (10.2) -292.5% Below Below -100.0% 0.0% Within Within 0.44 ↔ UP ↔131 P.I.E. INDUSTRIAL BHD 4Q17 579.3 679.3 17.3% 38.6 42.3 9.6% Within Within -18.0% 0.0% Within Within 2.10 ↓ OP ↔132 SKP RESOURCES BHD 3Q18 1,357.0 1,637.7 20.7% 71.4 98.5 38.0% Within Within 0.0% 0.0% Within Within 2.05 ↔ OP ↑133 UNISEM (M) BERHAD 4Q17 1,322.8 1,465.7 10.8% 161.9 157.9 -2.5% Below Below -18.0% 0.0% Within Within 2.45 ↓ UP ↔

TRANSPORT & LOGISTICS 31,669.2 33,702.2 6.4% 5,041.0 5,151.4 2.2% Mix-to-Negative Mix-to-Negative -9.6% -8.8%

134 AIRASIA BHD ^ 4Q17 8,601.0 9,710.0 12.9% 1,675.0 1,653.0 -1.3% Within Above 0.0% 0.0% Within Within 5.30 ↑ OP ↔135 BINTULU PORT HOLDINGS BHD 4Q17 583.6 679.8 16.5% 149.8 153.3 2.3% Above Above 6.6% 0.0% Within Within 6.10 ↑ MP ↔136 CENTURY LOGISTICS HOLDINGS 4Q17 300.3 294.6 -1.9% 22.5 15.2 -32.4% Below Below -17.7% -17.3% Within Within 1.05 ↓ OP ↔137 GD EXPRESS CARRIER BHD 2Q18 124.2 145.2 16.9% 17.3 14.5 -16.2% Below Below -6.3% -7.9% Within Within 0.45 ↔ UP ↔138 MALAYSIA AIRPORTS HLDGS BHD 4Q17 4,172.8 4,652.3 11.5% 15.6 179.6 1051.3% Below Below -21.0% 0.0% Above Above 8.45 ↓ MP ↑139 MISC BHD 4Q17 9,597.2 10,037.7 4.6% 1,907.1 2,104.4 10.3% Within Within 7.2% 4.5% Above Above 7.20 ↓ MP ↔140 MMC CORP BHD 4Q17 4,627.4 4,160.1 -10.1% 512.3 283.8 -44.6% Below Below -19.8% 0.0% Within Within 2.50 ↓ OP ↔141 POS MALAYSIA BERHAD 3Q18 1,446.7 1,819.5 25.8% 65.9 64.4 -2.3% Below Below -30.1% -21.4% Within Within 5.00 ↓ MP ↔142 TIONG NAM LOGISTICS BHD 3Q18 411.7 487.1 18.3% 45.6 31.5 -30.9% Below Below -14.5% -45.4% Within Within 1.00 ↓ UP ↓143 WESTPORTS HOLDINGS BHD 4Q17 1,804.3 1,715.9 -4.9% 629.9 651.7 3.5% Above Above 0.0% 0.0% Above Above 3.70 ↔ MP ↔

UTILITIES 22,368.2 24,419.4 9.2% 2,306.5 2,069.6 -10.3% Mix Mix-to-Negative -6.9% -6.4%

144 MALAKOFF CORPORATION BHD 4Q17 6,098.4 7,130.4 16.9% 333.1 290.0 -12.9% Within Below -3.0% 0.0% Within Within 1.25 ↔ OP ↔145 PESTECH INTERNATIONAL BERHAD 2Q18 222.8 462.8 107.7% 23.2 36.1 55.6% Above Above 0.0% 0.0% Within Within 2.15 ↑ OP ↔146 TENAGA NASIONAL BHD 1Q12/17 11,241.6 11,607.0 3.3% 1,640.2 1,469.0 -10.4% Within N.A. 0.0% 0.0% Within Within 17.17 ↔ OP ↔147 YTL POWER INTERNATIONAL BHD 2Q18 4,805.4 5,219.2 8.6% 310.0 274.5 -11.5% Below Below -24.5% -25.6% Within Within 1.25 ↓ MP ↔

OTHERS 8,371.3 10,020.1 19.7% 369.0 462.0 25.2% Within N.A. 0.0% 0.0%

148 BOUSTEAD HOLDINGS BHD 4Q17 8,371.3 10,020.1 19.7% 369.0 462.0 25.2% Within N.A. 0.0% 0.0% Within Within 2.20 ↔ UP ↔

149 SIME DABY BERHAD 2Q18 15,020.0 16,959.0 12.9% 342.0 350.0 2.3% Within Within 0.0% 0.0% Within Within 2.70 ↑ MP ↔

Total/Average 436,611.8 472,989.2 8.3% 59,300.0 64,824.7 9.3% Mix Mix-to-Negative -6.8% -1.3%

Earnings revision

quantum (%)

Dividends

against

estimates

Target Call/Rating

Price (RM) UP/MP/OP

No. Company

Period

under

review

Cumulative Revenue (RM'm) Cumulative NP (RM'm) Against estimates


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 27

Figure 8: 4QCY17 Results Review & Sector Outlook

Sector Brief Result Review Forward Expectations / Outlook Stock Calls

Automotive Mixed performance this quarter, as we have 1 stock out of the 6 stocks (MBMR) above expectation while 3 stocks (DRBHCOM, SIME and TCHONG) were within expectations and the remaining 2 stocks, (BAUTO , and UMW) were below expectations.

In this quarter we observed; (i) slower car sales for DRBHCOM and TCHONG due to lack of new model launches for the Proton and Nissan brands, respectively; (ii) BAUTO car sales was held back by the higher-than-expected demand for its premium version of all-new CX-5; (iii) MBMR and UMW scored higher car sales due to a better promotional activity, higher sales of premium vehicles and higher profit contribution from Perodua all-new Myvi; and (iv) this quarter marked the second improvement in margins with the stronger MYR against major currencies (especially for USD and JPY).

We expect overall car sales to slow down in 1Q with the termination of sales boosting year-end promotional activity.

We expect sales for BAUTO to gain traction with the higher delivery of its flagship model, the all-new Mazda CX-5. Subsequently, we expect MBMR and UMW to benefit from the strong reception of the all-new Perodua MyVi. On the other hand, DRBHCOM is waiting for the all-new Proton/Geely Boyue, expected to be launched in 2H18/1H19.

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

We maintain our NEUTRAL rating on the AUTOMOTIVE sector with our 2018 TIV forecast of 590,000 units.

OP:

• BAUTO (OP ↔; TP: RM2.30 ↓)

• MBMR (OP↑; TP: RM2.85 ↑)

MP:

• DRBHCOM (MP ↔; TP: RM2.50 ↑)

• SIME (MP ↔; TP: RM2.70↑)

• TCHONG (MP ↔; TP: RM1.80 ↓)

• UMW (MP ↔; TP: RM6.25 ↔)

Aviation Another mixed quarter. For 4QCY17, AIRPORT came in below from higher than expected depreciation while AIRASIA was within. Nonetheless, this quarter’s performance was not as good compared to last quarter where AIRASIA came in above while AIRPORT was within.

Earnings adjustment. Post disappointment in AIRPORT’s earnings, we tweak its FY18E earnings lower by 21% after adjusting for higher depreciation and amortization charges at Turkey. As for AIRASIA, we tweak FY18/19E earnings lower by 15%/14% after omitting the leasing income from disposal of AAC.

Upgrade AIRPORT to MP (from UP) and reiterate OP for AIRASIA. Despite AIRPORT’s results underperforming, we upgrade it to Market Perform with valuations switched to 1.72x PBV based on +0.5SD@2 year average (vs 1.74x PBV on +1.5SD@5 year avg) due to its retracement in share price. Meanwhile, we reiterate OUTPERFORM on AIRASIA with higher TP of RM5.30 after (i) upgrading our valuation methodology to 10x FY18 PER on +0.5SD@ 4yr avg (from previous 8x

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.

For AIRPORT, we are targeting passenger growth of 8% and 10% for their Malaysian and Turkey operations, respectively. We note that Turkey has shown strong recovery in January passenger numbers.

Maintaining our OVERWEIGHT call on the aviation sector.

OP:

• AIRASIA (OP ↔; TP: RM5.30 ↑)

MP:

• AIRPORT (MP ↔; TP: RM8.45 ↓)


PP7004/02/2013(031762) of 27


PER) and (ii) including a cash portion of special dividends worth RM0.78.

Banking 4Q17 results were mixed with 2 below (AMBANK and RHBBANK) and 2 above (HLBANK and MAYBANK) with the rest in line.

AMBANK underperformed due to higher-than-expected opex and normalization of credit costs, RHBBANK was dragged by higher-than-expected assets impairments.

HLBANK results were boosted by stellar contribution from its overseas associate while MAYBANK was boosted by unexpected lower impairments.

For this quarter we saw softer loans, with NIMs easing and lower impairment allowances

Due to lower-than-expected credit charge guidance (despite the implementation of MFRS9) we raised our TP for all the stocks except for AMBANK as it is expected to see normalization of credit costs ahead. However, we see moderate loans ahead.

AMBANK is raised to OP due the traction in loans ahead coupled with lower credit costs against peers. We maintain OP call for BIMB as we see traction in its financing growth. HLBANK’s upgrade to MP is due to undemanding valuations. We maintain MP for the rest.

We maintained a Neutral stance for the sector. While guidance is for minimal impact on credit costs under MFRS9, we remain cautious.

Furthermore, loans/financing are expected to be moderate despite the stable economy as banks will be selective in order to defend their credit charge.

OP:

• AFFIN (OP ↔; TP: RM2.75 ↔)

• AMBANK (OP ↑; TP: RM4.90 ↔

• BIMB (OP ↔; TP: RM5.20 ↔

MP:

• ABMB (MP ↔; TP: RM4.25 ↑)

• CIMB (MP ↔; TP: RM7.40 ↔)

• RHBBANK (MP ↔; TP: RM5.70 ↔)

• HLBANK (MP ↑; TP: RM18.40 ↔)

• MAYBANK (MP ↔; TP: RM10.60 ↑)

• PBBANK (MP ↔; TP: RM22.35 ↑)

Banking – Non-banking Financial Institutions

Mixed Bags. While AEONCR, BURSA and LPI came in within expectations, there were two outperformers this quarter, namely MBSB and TAKAFUL. Once again, MBSB reported better-than-expected results on the back of lower impairment allowances while TAKAFUL surprised with its higher-than-expected investment income and lower-than-expected claims incurred ratio.

Post model updates, while we made no changes to the ratings for all, we adjusted their respective forward earnings which resulted in higher TPs.

AEONCR, TAKAFUL and LPI’s forward earnings have been adjusted by 2-5% for house-keeping. While BURSA’s FY18E CNP have been adjusted by +8% to account for higher ADVs, we slashed MBSB’s FY18E earnings by 17% as we pencilled in slower loans (c.3% YoY), higher CIR (30%), and higher

In terms of AEONCR’s operation strategy, there are only few 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 34.6-35.0%, 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

OP:

• MBSB (OP ↔; TP: RM1.35 ↑)

• TAKAFUL (OP ↔; TP: RM4.30 ↑)

MP:

• AEONCR (MP ↔; TP: RM13.50 ↑)

• BURSA (MP ↔; TP: RM11.00 ↑)

• LPI (MP ↔; TP: RM18.60 ↑)


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credit charge of 1.3% with ROE at 6.6%.

For MBSB we slashed our FY18E earnings by 17% to RM481m as we pencilled in slower loans (~3% YoY), higher CIR (30%), and higher credit charge of 1.3% with ROE at 6.6%.

TP revised slightly upwards to RM1.35 (from RM1.30) based on a blended FY18E PB/PE of 1.1x/17.0x (from 0.93x/14.5x). The PE is based on its 5-year mean of 17x with the higher PB (0.5 SD below mean) to reflect a more visible earnings projection albeit a conservative one, post its impairment programme. Maintain OUTPERFORM.

as well as keeping NPL at healthy level (of low to mid 2%). Note that we are still keeping our conservative gross loan growth forecast of 8% annually as we anticipate softer growth ahead.

For BURSA , our strategist’s seasonal study that suggested a stronger 4QCY has been proven correct; alongside stronger SADV that improved 19% QoQ and 37% YoY to RM2.3b. For 2018, while the equity market may not be smooth sailing, we believe the spill-over effect of favourable seasonal factor coupled with the improved Buying Interest/Momentum should lend strength to the SADV in the short run, at least in 1Q18. In fact, this is already happening with better Securities ADV of RM3.1b as well as higher trading volume of 4.3b shares, from beginning of Jan till Feb 2018. Meanwhile, a list of measures, including liberalisations and incentives to supercharge the vibrancy of capital market, has been announced by our Prime Minister the next day after its results were released. While we maintained our FY18E/FY19E earnings pending further details, we are long-term positive on the initiatives which if implemented well would further boost equity capital market activities in the long run, which could also be earnings accretive to BURSA.

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 , despite the soon to be operational new Islamic Banking entity in March 2018, management highlighted sombre growth for 2018. Loans are expected to grow around the 3-4% range driven by corporates and mortgages. Personal financing will still be the


PP7004/02/2013(031762) of 27


core of its loans/financing but likely to be selective on asset risk concerns. Moderate loans, higher opex (due to the new merged entity and digitisation) and higher-than-expected credit costs, management guided for a moderate ROE of >6%. On hindsight, NIM will still be strong at ~3.4% with no material impact from the OPR hike as 99% of its deposits are FD-based.

Despite the soon to be operational new Islamic Banking entity in March 2018, management highlighted sombre growth for 2018. Loans are expected to grow around the 3-4% range driven by corporates and mortgages. Personal financing will still be the core of its loans/financing but likely to be selective on asset risk concerns. Moderate loans, higher opex (due to the new merged entity and digitization) and higher-than-expected credit costs, management guided for a moderate ROE of >6%. On hindsight, NIM will still be strong at ~3.4% with no material impact from the OPR hike as 99% of its deposits are FD-based.

Building Materials

2 inline, 3 below. ANNJOO and PMETAL came inline while 3 fell short of estimates. Reasons for coming below: (i) margins were compressed by higher production costs and lower selling prices for ULICORP, (ii) wider than expected rebates from LAFMSIA and (iii) WTHORSE’s tiles demand was poorer than expected. This quarters’ performance was similar to last quarter which saw 1 inline and 3 below. Earnings estimates. Post 4QCY17 results, we maintain earnings for ANNJOO and PMETAL but lowered FY18E earnings for ULICORP, LAFMSIA and WTHORSE in the range by 21%-200%.

We downgrade ULICORP to MARKET PERFORM on softer short term prospects. Adjustment to calls and TPs. While we maintain ANNJOO’s call and TP, we reduce TP, LAFMSIA and WTHORSE post revision in earnings/losses estimate. We also downgrade ULICORP to MARKET PERFORM on softer short term prospects with lower TP. As for PMETAL, we up our TP as we roll forward our valuation base year to

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 our Negative view on the cement sub-sector.

For PMETAL we expect aluminum prices to remain supported

OP:

• ANNJOO (OP ↔; TP: RM4.70 ↔)

MP:

• PMETAL (MP ↔; TP: RM5.85 �)

• ULICORP (MP ↓; TP: RM2.85/RM1.90 ↓)

• WTHORSE (MP↔ TP: RM1.80 ↓)

UP:

• LAFMSIA (UP ↔; TP: RM3.90 ↓)


PP7004/02/2013(031762) of 27


FY19 but maintain our MARKET PERFORM call in view of the spectacular share price performance throughout 2017.

throughout China’s Winter Policy, while operationally, margins should see consistent expansion on the back of plant upgrades coming onstream 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.

Construction Similar trend. We saw similar trend in performances for the recently concluded 4QCY17 reporting season as compared to 3QCY17. Out of 11 construction stocks under our coverage, 2 contractors disappointed, 8 came in within/broadly within while the remaining 1 came in above our expectations. The 2 contractors that disappointed are IJM and SUNCON. For IJM it was due to: (i) weaker-than-expected property development margins, (ii) IJMPLNT’s slow production recovery in Sabah leading to higher-than-expected unit costs, iii) lower-than expected industrial margins, and (iv) higher-than-expected tax rates, while SUNCON was due to weaker-than-expect billings from its pre-cast division.

Ytd-YoY, we have bulk of the contractors registered CNP growth ranging from 8%-149% except for 4 contractors that saw decline in their CNP by the range of 14%-27%. 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, plantation, industry and (iv) provisioning of bad debts. QoQ-wise, we have 3 contractors that registered decline of 5%-19% in their CNP due to similar reasons above. In terms of earnings

Going forward, we expect construction news flow to pick up pace again. For CY18, we are expecting news flow for mega infrastructure contracts i.e. ECRL, MRT3, and HSR to take center stage as the combined value for all these projects are >RM150.0b. That said, we also expect news flow from Pan Borneo Sabah as the design for the highway is already in progress undertaken by EDGENTA.

However, we reiterate our NEUTRAL call on the sector for now due to weak market sentiment coupled with uncertainties arising from the upcoming General Election. 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, and we continue to like names like MITRA and WCT for its earnings recovery story while MUHIBAH for its strong concession in Cambodia.

OP:

• IJM (OP ↔; TP: RM3.35 ↓)

• MUHIBAH (OP ↔; TP: RM3.55 ↔)

• WCT (OP↔; TP: RM1.90 ↓)

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

• GKENT (OP ↔; TP: RM3.65 ↔)

MP:

• GAMUDA (MP ↔; TP: RM5.45 ↔)

• KIMLUN (MP ↔; TP: RM2.30 ↑)

• HSL (MP ↔; TP: RM1.40 ↔)

• SUNCON (MP ↔; TP: RM2.30 ↑)

UP:

• SENDAI (UP ↔; TP: RM0.74↔)

• KERJAYA (UP ↔; TP: RM1.55 ↔)


PP7004/02/2013(031762) of 27


revision, we lowered our FY18E CNP for IJM and WCT by 12%-13%; as we factored in higher unit costs for plantation division, lower industry margins and lower development margins for WCT. Likewise, we raised KIMLUN and SUNCON’s FY18E CNP higher by 2%-4% as we factor in a higher billings progress.

During the quarter, we downgraded HSL to UP (previously, MP) as its share price have performed relatively well despite weak market sentiment. While we kept our calls unchanged for other stocks, we downgraded our TP for IJM, and WCT, while upgraded our TP for KIMLUN and SUNCON as result of changes in FY18E.

All-in, contractors’ performance within our core coverage for 4QCY17 was similar with 3QCY17.

Consumer More disappointments. Of the 17 stocks within our coverage, only 3 stocks were above expectations (AEON, NESTLE, SEM), 8 stocks were within (AMWAY, CARLSBG, F&N, HAIO, HEIM, MYNEWS, QL, SPRITZER) while 6 stocks were below (BAT, DLADY, OLDTOWN, PADINI, PARKSON, PWROOT).

All the Retailers posted stronger sales in 4QCY17 as expected attributed to the Christmas festive season and long school holidays period; however some of the retailers still draw lower margin impacted by the promotion and discounting activity. Moving forward, the retailers are expected to ramp up the on-going cost management strategies to improve the margin, while maintaining healthy sales growth.

F&B players continued to experience high cost pressures in 4Q17, as higher cost inventories clear the shelves. Marketing spend is typically higher in the 4Q period as manufacturers prepare for the coming CNY season. Export demand continued to paint a more favourable landscape compared to the domestic scene which is still depressed by weak consumer sentiment and spending habits.

In the Sin Sub-sector, the tobacco stock persistently suffered from high levels of illicit trade which undermined sales. While cheaper offerings are made available in the market, it is expected to pull margins given its lower profitability. Brewers

1Q is generally a weaker quarter compared to the 4Q with the end of sales boosting year-end promotion, however, this is expected to be cushioned by the CNY celebration. 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 while maintaining healthy sales growth underpinned by the expansion in outlets and distributors.

With the expectation of milk prices, we expect global commodity costs to finally ease on F&B and Sin players as the lapse of hedging practices will likely bring costs to more favourable levels. Lower forex averages than CY17 would also alleviate pressures as the average majority of raw materials consist of importers. While export gains may dampen from the lower rates, stronger volumes are expected to make up for the growth.

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.

Accept Offer:

• OLDTOWN (TP: RM3.18 ↔)

OP:

• AMWAY (OP ↔ ; TP: RM8.30↔)

• AEON (OP↑; TP: RM2.00 ↑)

• CARLSBG (OP↑; TP: RM17.65↑)

• HEIM (OP ↑; TP: RM23.30 ↑)

• PARKSON (OP ↔; TP: RM0.860 ↓)

• PWROOT (OP↔; TP: RM2.00↓)

• SEM (OP↔; TP: RM1.70↔)

MP:

• BAT (MP ↓ ; TP: RM33.85 ↓)

• F&N (MP ↔; TP: RM29.10 ↔)

• HAIO (MP ↔; TP: RM5.60↔)

• MYNEWS (MP↔; TP: RM1.45↔)

• NESTLE (MP↔; TP: RM114.30 ↑)

• PADINI (MP↔; TP: RM5.10 ↔)

• SPRITZER (MP↔; TP: RM2.40 ↑)

UP:

• DLADY (UP↓; TP:


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however, are holding well as premium products gain traction from consumers given their more inelastic demand

RM61.15 ↑)

• QL (UP ↔; TP: RM4.05 ↑)

Gaming A mixed bag of results. While GENM’s 4Q17 and MAGNUM’s 4Q17 came within expectations, GENTING’s 4Q17 and BJTOTO’s 2H18 fell short of expectations as the former was hit by poorer luck factor coupled with higher taxation while the latter was impacted solely by lower-than-expected interest income. Nonetheless, we are not alarmed with these two results as BJTOTO still saw higher YoY ticket sales with better luck factor than last year while GENTING’s disappointing results was non-operating in nature. In fact, both GENTING and GENM announced higher NDPS including special dividend which was a pleasant surprise.

Generally, GENM saw strong home turf numbers on luck factor and higher business volume. UK casino also reported improved earnings but the North America segment’s earnings declined on lower revenue at RWNYC. However, GENS saw the first earnings decline in three quarters largely due to luck factor. Lastly, MAGNUM saw its first annual earnings growth since 2012 with the abating ticket sales downtrend after several quarters of sustainable sales.

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 1Q18 should be a good quarter for all players on CNY effect. Given that the trough ticket sales downtrend should be over and with improved luck factor, NFOs are certainly yield income plays while casino stocks are for those seeking a growth story. Maintain OVERWEIGHT.

OP:

• BJTOTO (OP ↔; TP: RM2.70 ↓)

• GENM (OP ↔; TP: RM5.80 ↔)

• GENTING (OP ↔; TP: RM10.65↓)

• MAGNUM (OP ↔; TP: RM2.20 ↑)

Healthcare The just concluded 4QCY17 results season saw a mixed bag of results. Pharmaniaga came in within expectations IHH came in below expectations. KPJ was the star performer reporting earnings above expectations was due to better-than-expected improvement in newly opened hospitals. IHH’s results marked the fourth 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 incremental depreciation from newly built hospitals, amortisation and finance costs.

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.

OP:

• KPJ (OP ↑; TP:

RM1.05 ↑ )

MP:

• PHARMA (MP ↑; TP: RM3.85 ↑)

UP:

• IHH (UP ↔; TP: RM4.90 ↓)

Media Remains In The Dark. The sector incumbents’ report cards in 4QCY17 remained uninspiring, mainly due to the prolonged weak advertising revenue (as a result of subdued adex outlook on poor consumer spending) as well as various

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 in the digital transformation path as well as

OP:

• ASTRO (OP↔; TP: RM2.90 ↔)

• STAR (OP↔, TP: RM1.60↔)

MP:


PP7004/02/2013(031762) of 27


impairment charges. New initiatives ventures require gestation period suggesting more efforts may be required ahead.

STAR’s 4QFY17 results came in above expectation mainly due to our overly conservative forecast and lower taxation. 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 FY17 recording a LATAMI of RM153m owing to lower advertising revenue, higher OPEX and a combination of RM415m exceptional item on the impairment of its associate MNI; ERS payment; and impairment of various PPEs & intangible assets.

MEDIAC’s 3Q18 result, meanwhile, came in within our, but below the streets’, expectation, with 9M18 core PATAMI of RM34m continued to be weighed down by publishing and printing segment.

ASTRO, on the other hand, is set to release its FY18 results in late-March, of which we do not expect any major surprises.

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.

• MEDIAC (MP ↔; TP: RM0.35 ↓).

UP:

• MEDIA (UP↔ , TP: RM0.53↓)

MREITs Results within. MREIT’s 4Q17 results were all within expectations, save for IGBREIT which came in slightly above on low borrowing cost. This was better than 3Q17 when all MREITs results came in within our expectations

YoY, top-line was mostly positive (1-37%), save for CMMT (-1%) on stable occupancy and modest reversions, which also translated to positive bottom-line growth. QoQ, top-line was flattish to positive due to similar reasons mentioned above which resulted in positive bottom-line for most, save for SUNREIT and PAVREIT.

All in, we left MREITs earnings unchanged , save for AXREIT which we reduced marginally on lower occupancy for some assets. TP and call were also maintained, save for AXREIT TP which lowered on lower earnings

Stable fundamentals. 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 remaining conservative. As such, we believe fundamentals are mostly intact with minimal expiries and unexciting reversions.

Maintain OVERWEIGHT as recent share price sell-downs in Jan-Feb 18 caused MREITs’ yields to rise. This is on the back of a stable MGS outlook, as; (i) markets have already priced in three rate hikes for CY18 as guided by the US Fed, while (ii) potential OPR hikes are not expected to affect the 10-year MGS. Notably, the 10-year MGS is stable at 3.80-4.00% (vs. our conservative target of 4.00%).

In light of attractive MREITs yields of 4.9-8.5% currently (vs. 4.8-6.1% in Dec 2017), backed by stable fundamentals and MGS outlook, we believe MREITs warrant an

OP:

• SUNREIT (OP ↔; TP: RM1.90 ↔)

• 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: RM1.45 ↓)


PP7004/02/2013(031762) of 27


OVERWEIGHT.

CMMT our preferred pick on attractive yield of 8.5%. As most downsides have been priced in to CMMT’s earnings, we believe fundamentals are intact while yields are attractive at current levels at 8.5% (vs. other MREITs under our coverage of 4.9-7.5%).

Oil & Gas We saw improving set of results in this quarter with five counters, namely DAYANG, GASMSIA, MHB, YINSON and WASEONG, recording positive earnings surprises while the disappointment ratio was lower to 13% from 25% in 3Q17.

Upstream services players such as MHB and DAYANG surpassed expectations due to higher variation orders and lower operating cost, respectively. Meanwhile, GASMSIA also outperformed on record sales volume. On the other hand, the earnings disappointment largely came from SAPNRG and ALAM, dragged by lower-than-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 FY18E earnings by 2% on lower services/charter rates while FY19E numbers were introduced, implying an average growth of 11%. We upgraded MMHE and COASTAL to MP and OP respectively as potential laggards backed with undemanding valuations and healthy balance. On the flipside, we downgraded SAPNRG to UP call after the release of disappointing results last December but subsequently upgraded to OP call given share price retracing c.30% offering better risk reward ratio. Lastly, we also downgraded PCHEM to MP as we believe all positives have been priced in.

The recent oil price retracement from USD70/bbl to USD62/bbl was not surprising due to the strengthening of USD and rising U.S output. However, we still project a better outlook on; (i) stronger crude demand leading to larger inventory drawdown, and (ii) sustained disciplined production cut by OPEC and non-OPEC members throughout 2018 or beyond, potentially. Likely to revise our oil prices assumption to USD65/bbl in our upcoming sector report.

Several recovery signals were spotted, i.e; (i) better earnings performance by oil majors, (ii) 16% higher capex spending guidance in 2018 by oil majors, (iii) 16% higher contract flow in FY17 after falling >70% from its peak in 2013, and (iv) 19-40% upward revision for 2018-19 activities in the latest Petronas’ Activity Outlook.

All in, we still prefer counters with strong earnings delivery such as WASEONG, SERBADK, YINSON and DIALOG with opex-related names like UZMA and DAYANG potentially joining the list, riding on higher work orders. Keep NEUTRAL view with positive bias on the sector as we are turning more bullish on the upstream space with gradual improvement.

OP:

• ARMADA (OP ↔; TP: RM1.10 ↑)

• COASTAL (OP ↑; TP: RM1.45 ↔)

• DAYANG (OP ↔; TP: RM0.96↑)

• DIALOG (OP ↔; TP: RM2.95 ↑)

• GASMSIA (OP ↑; TP: RM3.20 ↑)

• PANTECH (OP ↔; TP: RM0.75 ↔)

• PETDAG (OP ↔; TP: RM27.85 ↑)

• PETGAS (OP ↔; TP: RM22.00 ↔)

• SAPNRG (OP ↑; TP: RM0.82 ↔)

• SERBADK OP ↔; TP: RM3.90 ↑)

• UZMA (OP ↔; TP: RM1.65 ↔)

• WASEONG (OP ↔; TP: RM1.80 ↑)

• YINSON (OP ↔; TP: RM4.30 ↑)

MP:

• MHB (MP ↑; TP: RM0.82 ↑)

• PCHEM (MP ↓; TP:

RM8.40 ↑)

UP:

• ALAM (UP ↔; TP: RM0.06 ↓)

Plantation The weakest quarter. 4QCY17plantation results recorded the weakest showing for the year, with only HSPLANT and PPB above consensus expectations but seven counters missing expectations and four (GENP, IOICORP, KLK and SIMEPLT) within. This was weaker than the already lacklustre 3QCY17 which saw 3 above, 3 within and 7 below expectations.

Although both quarterly CPO prices

CPO prices remain supportive in the short term with the customary production weakness in 1QCY18, but decent export demand on festival period and the Malaysian government export tax suspension. Based on our simple inverse stock-to-CPO price model, we infer that 1Q18 CPO prices are likely to be highest for the year, at c.RM2,500/MT.

With Feb 18 production likely the

OP:

• PPB (OP ↔; TP: RM19.85 ↑)

• GENP (OP ↑; TP: RM10.75 ↑)

MP:

• SIMEPLT (MP ↔; TP: RM5.90 ↑)

• IOICORP (MP ↓; TP: RM5.15 ↑)


PP7004/02/2013(031762) of 27


and FFB production improved YoY by 4% and 5%, respectively, earnings rose at a slower-than-expected pace, leading to higher earnings misses. Planters with high Sabah exposure (IJMPLNT, IOICORP, UMCCA) tended to see earnings decline as weak yields drove up unit costs, although in the case of TSH and GENP, their higher prime mature landbank in Indonesia saw strong production surge which helped offset Sabah weakness.

With the overall earnings weakness, we lowered our FY18-19E earnings by 5-4% on average, with sharpest cuts for FGV (-21%), IJMPLNT (-16% and -14%) and SAB (-13% and -6%) largely on higher cost assumptions. Accordingly, the quarter saw much more downgrades into MP call (CBIP, FGV, IOICORP, UMCCA and SAB) and our sole upgrade for GENP to OP on better-than-expected utilisation at the new refinery. We increased our TP’s for 6 stocks (GENP, IOICORP, KLK, PPB, SIMEPLT, and TAANN) as we rolled forward our base year to average FY18-19E, but cut TP’s on CBIP, IJMPLNT, TSH, UMCCA and SAB on lower earnings.

lowest for the year, we expect production to ramp up to c.May, followed by a 1-2 month breather, before another ramp up to peak at c.2.0m/month production in Aug-Oct 18. Accordingly, we think supplies would be most buoyant, and thus prices weakest, in 3QCY18, potentially averaging RM2,300/MT for the quarter. For the full year, we continue to expect prices to average RM2,400/MT.

Maintain NEUTRAL on the sector. Despite the soft quarter, we expect plantation earnings to remain stable as production improvement leads to favourable cost factor, which should offset a weaker full-year price outlook. Investors should remain selective however, and look towards undervalued or high growth counters such as PPB (OP; TP: RM19.85) or GENP (OP; TP: RM10.75).

• KLK (MP ↔; TP: RM25.75 ↑)

• FGV (MP ↓; TP: RM2.00 ↔)

• TSH (MP↔; TP: RM1.60↓)

• HSPLANT (MP ↔; TP: RM2.30 ↔)

• TAANN (MP ↔; TP: RM3.70 ↑)

• UMCCA (MP ↓; TP: RM6.80↓)

• CBIP (MP ↓; TP: RM1.75 ↓)

• SAB (MP ↓; TP: RM4.40↓ )

UP:

• IJMPLNT (UP ↔); TP: RM2.00 ↓)

Plastic & Packaging

Mixed bag of results. Plastic packagers’ 4Q17 results were a mixed bag with 3 coming in below, and 2 within our estimates, similar to 3Q17. The weaker-than-expected results were due to various reasons including higher start-up and 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 8-32% (save for TOMPAK at -3%). However, higher cost resulted in negative bottom-line for TGUAN, SLP and TOMYPAK. Upstream consumer plastic packagers had the strongest EBIT margins of 14-17% on sales of higher-margin products, followed by downstream consumer packagers such as TOMYPAK at 6% (vs. 10% in 9M17), and industrial plastic packagers between 6-7%.

QoQ, earnings was disappointing for TGUAN (-76%) and TOMYPAK which recorded its first ever net loss, on higher cost and expenses. We believe most of the costs are a one-off (i.e. start-up cost, maintenance and freight cost) and we do not expect this to persist in coming

Resin cost volatile in the near term, but expected to trend downwards in the longer run. CY17 saw higher resin cost due to demand and supply factors. However, we expect resin prices to trend downwards going forward on ample supply of resin due to excess capacity from China and India, 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. Notably, most packagers have recorded improved revenue YoY.

Maintain NEUTRAL for now as sector macro-economic fundamentals have stabilised with

OP:

• TGUAN (OP ↔; TP: RM4.05 ↓)

MP:

• SLP (MP ↔; TP: RM1.55 ↓)

• SCGM (MP ↔; TP: RM2.65 ↓)

• SCIENTX ( MP ↔; TP: RM9.00 ↑)

UP:

• TOMYPAK ( UP ↔; TP: RM0.510 ↓)


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quarters. Other packagers were fairly flattish QoQ at between -1% to 2%.

Lowered earnings for TGUAN, TOMYPAK, SCGM and SLP in FY18 on weaker margins, closer to current levels. We may look to increase our margin assumptions should earnings improve in coming quarters. We also downgraded our applied PERs in light of weaker margins.

As a result, we lowered our TPs for TGUAN, TOMYPAK, SCGM and SLP while all our calls were maintained. This was similar to 3Q17 when we lowered TPs for SLP, TOMYPAK and SCGM.

We also upgraded SCIENTX’s earnings and TP post results (in Feb-18) for the acquisition of Klang Hock Plastics.

resin cost range bound between USD1,100-1,200/kg currently (vs. CY17 high of USD1,400/kg), while our USD/MYR exchange rate is unchanged at RM4.10. Post trimming our earnings, we believe we have priced in most foreseeable earnings downsides for the sector. Going forward, we will be monitoring plastic packager’s margins more closely due to margin weakness in 4Q17, and may re-look our valuations with a downside bias. Strong catalyst hinges on margin improvements and new capacity growth.

Power Utility A mixed result, both MALAKOF’s 4Q17 and TENAGA’s 4MFY12/17 results came within expectations while YTLPOWR’s 2Q18 missed forecast due to higher-than-expected interest expense leading to the weakening of Wessex Water’ earnings coupled with losses at YES which widened. However, local IPP turned profitable after the resumption of Paka Plant last September. Elsewhere, PESTECH’s 2Q18 beat forecast on the inclusion of MRT2 project following the acquisition of Colas Rail last Oct while KVDT was also processing well. For the inline results, TENAGA still saw higher fuel costs but the ICPT framework will address this issue with pass-through to end-consumer eventually. NDPS pay-out of 50% for this 4-month shortened financial period was higher than our assumption of 40%. Lastly, although results were satisfactory, unplanned outage at TBE dragged MALAKOF’s earnings lower. In addition, the share of losses at associate KEV was higher which means the problem does not seem to be rectifying.

With rising fuel costs, question remains whether the government will 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 the economy picks up. Meanwhile, YTLPOWR’s earnings remain challenging in the immediate term before the two new green-field projects come on-stream after 2020. MALAKOF was still seeing TBE out of the system in Jan on maintenance. And, 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.

OP:

• MALAKOF (OP↔; TP: RM1.25 ↔)

• PESTECH (OP ↔; TP: RM2.15 ↑)

• TENAGA (OP ↔; TP: RM17.17 ↔)

MP:

• YTLPOWR (MP ↔; TP: RM1.25 ↓)

Property Developers

Similar to last quarter . Earnings wise, out of 13 developers under coverage; (i) 31% disappointed (MAHSING, IOIPG, SPSETIA, HUAYANG), (ii) 31% positively surprised (SUNWAY, MRCB, AMVERTON, MAGNA), and (iii) 38% met expectations. This was similar to last quarter . Interestingly, all developers either met or exceeded

Under our coverage, 38% of developers’ sales targets, particularly those setting their new FY18 targets, have kept relatively flattish trajectories which are in-line with our estimates. However, we reduced sales targets for 31% of our coverage (ECOWLD, IOIPG, UOADEV, MAGNA) and only raised target for SPSETIA due its acquisition of I&P. Our universe’s

OP:

• AMVERTON (OP ↔; TP: RM2.00 ↔)

• MAHSING (OP ↔; TP: RM1.50 ↓)

• MRCB (OP ↔; TP: RM1.30 ↑)

• SPSETIA (OP ↔; TP: RM4.10 ↔)


PP7004/02/2013(031762) of 27


dividend expectations.

Headline sales were mostly on target with; (i) 15% of our coverage exceeded targets (MRCB, AMVERTON), and (ii) 23% missed targets (IOIPG, HUAYANG, ECOWLD) - we qualify that ECOWLD did meet local sales target but its associate, EWINT, missed targets. This was worse-off compared to last quarter where only 14% were behind sales targets while the rest were in-line to ‘broadly within’ due to timing of launches.

More downward earnings adjustments, marking the third consecutive quarter of this negative trend. However, this quarter was the most severe as we reduced earnings for 46% of our coverage (MAHSING, UEMS, IOIPG, SPETIA, ECOWLD, HUAYANG) with a range of 2%-44%. The only major upwards earnings revision (2%-34%) seen was for 32% of our coverage (MRCB, UOADEV, SUNWAY, SUNSURIA) – but note that MRCB saw the sharpest upward revision of 34% while the rest were between 2%-5%). To recap, last quarter we lowered earnings for 27% of coverage and only raised estimates for 21%.

Less changes to CALLs/TPs due to earlier revisions in recommendations. Call-wise, we downgraded 15% of our coverage from OP to MP (UEMS, IOIPG) while the rest of our calls were maintained. This was less severe than last quarter where we downgraded 29% of our calls while upgrading 21%. We also reduced TPs for only 15% of our coverage (MAHSING, HUAYANG) and raised 15% of them (UOADEV, MRCB) while the rest were maintained. Again it was less severe than last quarter when 29% of our universe saw lower TPs while the rest was unchanged. However, note that this is largely because of the rebasing of our valuations during our Jan-18 strategy report, prior to this Feb-18 reporting season.

total sales/earnings expected growth are -4%/-3% YoY in FY18E/19E and +2%/+9% YoY in FY19E/20E. Our universe’s average unbilled sales remain at 1.0 year (similar to last quarter) but are at a multi-year low.

Positively, our universe’s CY18-19E net gearing is forecasted to remain healthy at 0.29x-0.23x. However, we believe that land banking news will remain patchy as developers are still cautious, running up to GE14. Nonetheless, the emphasis is still on urban affordable housing land banks in Klang Valley.

The sector’s RNAV/SOP discount has widened slightly to 58.1% (from last quarter’s 57.3%) and is now trading close to the -1.0SD levels (universe historical mean: 51.2%). We note that small-mid cap players’ discount rate has widened more than big-cap players. We continue to expect valuations to range-bound between mean to -1.0SD levels as fresh catalysts remains scarce with unexciting fundamentals and investors’ sentiment on the sector remain subdued. Reiterate NEUTRAL .

MP:

• CRESNDO (MP ↔; TP: RM1.50 ↔)

• IOIPG (MP ↓; TP: RM2.00 ↔)

• ECOWLD (MP ↔; TP: RM1.50 ↔)

• HUAYANG (MP ↔; TP: RM0.600 ↓)

• MAGNA (MP ↔; TP: RM1.25 ↔)

• SUNWAY (MP ↔; TP: RM1.75 ↔)

• SUNSURIA (MP ↔; TP: RM1.40 ↔)

• UEMS (MP ↓; TP: RM1.20 ↔)

• UOADEV (MP ↔; TP: RM2.60 ↑)

Rubber Gloves Results of the glove makers under our coverage from the recently concluded 4QCY17 results season were broadly mixed. Supermax Corporation came in above expectations due to higher-than-expected sales volume. Kossan Rubber was below due to the

Maintain Neutral . TOPLV, HARTA and KOSSAN has risen by a staggering average of 96% over the past 10 months in anticipation of better quarterly earnings ahead underpin by new capacity expansion. However, due to the run-up in share prices of rubber glove

MP:

• TOPGLOV (MP ↔ ; TP: RM9.40↔)

UP:

• HARTA (UP ↔; TP: RM10.00 ↔)


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slower-than-expected ramp-up in new capacity. However, Hartalega Holdings was inline but appears to be disappointing despite commercialisation of new capacity. All players register flat sequential net earnings growth except Supermax (+28% QoQ).

makers, players’ PER (the stocks under our coverage are trading at +1.0SD to +2.0SD above the 5-year historical forward mean valuations) appears stretched vis-à-vis earnings growth. Moreover, glove makers are expected to face near-term headwinds including appreciation of MYR against the USD, gas tariff hikes, and potential higher minimum wage which could derail earnings.

• KOSSAN (UP ↔; TP: RM7.35 ↔)

• SUPERMX (UP ↑; TP: RM1.95 ↑)

Shipping, Ports & Logistics

Results were mostly disappointing, with exceptions of: (i) BIPORT, coming above expectations thanks to the stronger performances from Bintulu Port, (ii) WPRTS, coming above expectations thanks to lower tax expenses, and (iii) MISC, within expectations.

Logistics players, namely CENTURY, GDEX, POS, and TNLOGIS, all saw poorer results due to increasing costs and margins pressure, with GDEX was also hit by higher taxes. Meanwhile, MMCCORP’s results were dragged by: (i) the absence of Senai Airport City land sale, and (ii) lower construction earnings from completion of KVMRT Line 1.

Post-results, we downgraded our call on TNLOGIS to UNDERPERFORM on the back of poor earnings visibility in both its core businesses; (i) warehousing and logistics, which are still in losses thus far of the financial year, and (ii) property development, as most of its unbilled sales are expected to be recognised during the financial year, with no firm launching of any new projects. Likewise, a potential share base dilution of 37% from its warrants (maturity in Dec 2018) may also play as an additional downside risk.

We maintain all our remaining calls, with OUTPERFORM calls on CENTURY and MMCCORP, MARKET PERFORM calls on BIPORT, MISC, POS, WPRTS, and UNDERPERFORM call on GDEX.

Despite being seen as beneficiaries from the growth of e-commerce, we believe logistics players are set to face growing margins pressures on the back of an increasingly competitive industry.

Elsewhere, for ports operators, WPRTS is expected to see low single-digit percentage throughput growth in FY18 and beyond, growing from the low base of FY17 due to the reshuffling of global shipping alliances. Meanwhile, outlook for BIPORT is underpinned by the prospects of Samalaju Port, which in turn is reliant on the growth of the Samalaju Industrial Park. As for MMCCORP, expect its stable ports operations and construction of KVMRT Line 2 to act as main earnings driver for the group.

As for MISC, the company is looking for market recovery within the petroleum shipping space by 2H18, backed by sustainable demand and moderation of fleet growth, while LNG charter rates are still under pressure due to overcapacity.

All-in, maintain NEUTRAL on the sector, given lack of any major catalyst.

OP:

• CENTURY (OP ↔; TP: RM1.05 ↓)

• MMCCORP (OP ↔; TP: RM2.50 ↓)

MP:

• BIPORT (MP ↔; TP: RM6.10 ↑)

• MISC (MP ↔; TP: RM7.20 ↓)

• POS (MP↔ , RM5.00 ↓)

• WPRTS (MP ↔, RM3.70 ↔)

UP:

• GDEX (UP ↔, RM0.45 ↔)

• TNLOGIS (UP ↓; TP:

RM1.00 ↓)

Technology Mostly Below. Out of our coverage, SKPRES was the only company that reported results coming in within expectations. Meanwhile, MPI, UNISEM, PIE and NOTION missed due to a combination of either higher-than-expected raw material prices, operating expenses, unfavourable forex or adverse

Though the overall semiconductor industry continued to show improvement with the global semiconductor sales in December 2017 increasing by 22.5%, marking the 17th consecutive YoY growth, we noticed the growth momentum is already moderating, mimicking the movement of the last up-cycle which

OP

• SKPRES (OP ↑, TP: RM2.05 ↔)

• PIE (OP ↔, TP: RM2.15↓)

MP

• D&O (MP ↔, TP:


PP7004/02/2013(031762) of 27


product mixes. On the other hand, D&O outperformed with good results driven by better contribution from higher-margin Automotive products and better operational efficiency in 4Q17. In the meantime, KESM will only release its results by next week.

In Semiconductor space , downwards revisions were made to both MPI and UNISEM to mainly account for higher material prices and weaker USD/MYR assumption. On the other hand, we increased D&O’s FY18E CNP to account for higher EBIT margin on higher contribution from Automotive products and better operational efficiency. In terms of rating, we downgraded MPI (from MP to UP) with a lower TP of RM9.70 (from RM11.30) while maintaining UNISEM’s UP rating with a lower TP of RM2.45 (from RM2.95) and D&O’s MP rating with a higher TP of RM0.69 (from RM0.65). For EMS players, we cut PIE’s FY18 earnings (-18%) to account for weaker USD/MYR assumption and higher material prices, thus leading to lower TP of RM2.10 (from RM2.65). We maintain our OP call on its better value proposition following the recent share price correction. We also upgraded SKPRES to OP with an unchanged TP of RM2.05 after its share price retracement (-16%), presenting a better risk-reward at this level. For NOTION , we forecast FY18E CNL of RM22.5m before a recovery in FY19E. This is after the group recorded 1Q18 core net losses of RM10.2m (<-100% QoQ and YoY), vs. our FY18E CNP of RM9.3m with the culprits being the operational deleveraging (high overhead cost on 40% lower production capacity) as well as higher-than expected aluminium costs (which saw its prices increasing further by 5% in 1Q18 after a 17% increase in 4Q17). Maintain UP with an unchanged TP of RM0.44.

lasted for 26 months back then from May 2013 to Jun 2015. We expect 1QCY18 USD top-line growth to record flat growth (of 0 to -5%) on weaker seasonality. Meanwhile, mounting material costs and unfavourable forex will continue to crimp margins and hence, profitability remains as the key determinant to reflect growth.

For EMS players under our coverage, medium-term prospects are still bright underpinned by 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 , the group has provided for a write-off totalling to c.RM49m, while putting forward a partial material loss claim of >RM150m (with fire policy based on replacement of equipment and CNC machines). However, the final receiving amount is still uncertain at this juncture. Meanwhile, the business interruption loss is still to be considered for claims. While we are confident with the management especially on the swift business continuity and contingency plans post fire-incidents, we believe the meaningful operational recovery could only come in by FY19.

Maintain NEUTRAL for the sector call.

RM0.69 ↑)

UP

• MPI (UP ↓; TP: RM9.70 ↓)

• UNISEM (UP ↔, TP: RM2.45 ↓)

• KESM (UP ↔, RM18.40↔)

• NOTION (UP ↔; TP: RM0.44 ↔)

Telecom-munications

Solid Performance. The sector incumbents reported reasonable 4QCY17 report cards that largely met expectations and continued to show some sequential operational improvements.

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

While we concur with the industry

OP:

• OCK (OP↔, TP: RM0.95 ↓)

• TM (OP↔, TP:

RM6.85↔)


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Maxis reported its highest PATAMI in 4-year but still within expectations. Digi and Axiata’s 4Q17 results, meanwhile, came in without surprises despite the latter’s results partially impacted by widening losses in Idea. TM, on the other hand, performed in-line with expectations despite competition and challenges as well as FY17 being a consolidation year for its service brands.

All the mobile incumbents have introduced their respective FY18 KPIs, where service revenues are expected to grow flat or negative (largely due to the continued SIM consolidation; new access pricing structure; and challenges in its OpCos (for Axiata)) with margins likely to come in similar to prior year. On the fixed mobile front, TM is targeting annual revenue growth of 3.5-4% (underpinned by its complete quad play services) with normalized EBIT maintained at FY17 level.

OCK’s FY17 result, however, came in below expectations due to lower-than-expected Telecommunication Network Services contribution and higher OPEX. Despite the short-term headwinds, we believe the group will be able to sail through the challenges via enhancing its operational efficiencies. We continue to like OCK for its attractive growth prospects and growing recurring revenue stream.

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.

More excitements are likely come from Axiata should any corporate exercises emerge (i.e. edotco listing and in-country consolidation). Besides, the upcoming of the 700Mhz spectrum award may change some celcos’ strategy and capex plan moving forward.

All in, while the operational and competition landscape remain challenging, the recent 4QCY17 results posted by all incumbents have continued shown sequential operational improvements, thus suggesting that players are moving into the right directions. Overall, maintain NEUTRAL call for the sector.

MP:

• AXIATA (MP↔, TP: RM5.35↔)

• DIGI (MP↔, TP: RM4.90 ↔)

• MAXIS (MP↔, TP: RM6.10↔)



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Figure 9: Net Earnings Growth Estimates of Kenanga Re search’s FBMKLCI Earnings Model Sector/Industry Ave.Wt.NPGrw_FY17A Ave.Wt.NPGrw_FY18F Ave.Wt.NPGrw_FY19F Average Upsie (%)

Automotive -25.4% -88.2% 9.7% -3.0%

Banking 19.3% 12.2% 5.9% 2.5%

Building Materials N.A. N.A. 26.6% 0.9%

Conglomerate N.A. N.A. N.A. 0.0%

Construction N.A. N.M. N.A. 23.2%

Consumer -33.5% 20.1% 16.9% 4.2%

Gaming -40.3% 49.1% 7.3% 15.2%

Gloves N.A. N.A. N.A. -22.3%

Healthcare 44.0% -24.7% 13.3% -17.1%

Media -4.5% 10.6% -7.4% 19.8%

MREITs 172.7% -21.1% 2.0% -0.6%

Oil & Gas 28.3% -5.3% 1.0% 11.7%

Plantations 15.1% 44.0% 7.9% 13.9%

Power Utilities 2.7% 4.0% 7.9% 22.6%

Property N.A. N.A. N.A. 10.3%

Telecommunications 3.5% 4.6% 1.7% 4.9%

Transport & Logistics -36.5% -4.6% 2.6% 5.6%

FBMKLCI Index 8.9% 7.4% 6.0% 4.9%

Source: Bloomberg, Kenanga Research Figure 10: FBMKLCI-FBM70 Fwd PER Valuations Gap Study: Showing sign of converging

13.00

14.00

15.00

16.00

17.00

18.00

19.00

20.00

21.00

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Fwd PER: FBMKLCI vs. FBM70

% Diff (FBMKLCI vs. FBM70) -2SD -1SD 36M-SMA +1SD +2SD FBMKLCI FBM70

Source: Bloomberg, Kenanga Research


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Figure 11: FBMKLCI-FBMSC Fwd PER Valuations Gap Study: Showing sign of converging

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

Fwd PER: FBMKLCI vs. FBMSC

% Diff (FBMKLCI vs. FBMSC) -2SD -1SD 36M-SMA +1SD +2SD FBMKLCI FBMSC

Source: Bloomberg, Kenanga Research Figure 12: FBMKLCI’s Accumulated Volume-Price Study: B uying momentum has turned weak

1,450.00

1,500.00

1,550.00

1,600.00

1,650.00

1,700.00

1,750.00

1,800.00

1,850.00

1,900.00

(40,000,000,000.00)

(30,000,000,000.00)

(20,000,000,000.00)

(10,000,000,000.00)

-

10,000,000,000.00

20,000,000,000.00

30,000,000,000.00

AVPSFBMKLCI

AVPS 30-Day SMA (AVPS) FBMKLCI Index



PP7004/02/2013(031762) of 27

Figure 13: FBM70’s Accumulated Volume-Price Study: Buy ing momentum has turned weak as well

12,000.00

13,000.00

14,000.00

15,000.00

16,000.00

17,000.00

18,000.00

(500,000,000,000.00)

-

500,000,000,000.00

1,000,000,000,000.00

1,500,000,000,000.00

2,000,000,000,000.00

AVPSFBM70

AVPS 30-Day SMA (AVPS) FBM70 Index

Source: Bloomberg, Kenanga Research Figure 14: FBMSC’s Accumulated Volume-Price Study: Showi ng clear sign of reversal in buying momentum

-

500,000,000,000.00

1,000,000,000,000.00

1,500,000,000,000.00

2,000,000,000,000.00

2,500,000,000,000.00

3,000,000,000,000.00

3,500,000,000,000.00

14,000.00

14,500.00

15,000.00

15,500.00

16,000.00

16,500.00

17,000.00

17,500.00

18,000.00

18,500.00

AVPSFBMSC

FBMSC Index AVPS 30-Day SMA (AVPS)



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Figure 15: Forward PER of FBMKLCI against Selected Reg ional Peers (as of end-Feb18) – Valuations catching up!

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

13.00

13.50

14.00

14.50

15.00

15.50

16.00

16.50

17.00

17.501

-Ja

n-1

5

1-F

eb

-15

1-M

ar-

15

1-A

pr-

15

1-M

ay

-15

1-J

un

-15

1-J

ul-

15

1-A

ug

-15

1-S

ep

-15

1-O

ct-1

5

1-N

ov-

15

1-D

ec-

15

1-J

an

-16

1-F

eb

-16

1-M

ar-

16

1-A

pr-

16

1-M

ay

-16

1-J

un

-16

1-J

ul-

16

1-A

ug

-16

1-S

ep

-16

1-O

ct-1

6

1-N

ov-

16

1-D

ec-

16

1-J

an

-17

1-F

eb

-17

1-M

ar-

17

1-A

pr-

17

1-M

ay

-17

1-J

un

-17

1-J

ul-

17

1-A

ug

-17

1-S

ep

-17

1-O

ct-1

7

1-N

ov-

17

1-D

ec-

17

1-J

an

-18

1-F

eb

-18

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

Source: Bloomberg, Kenanga Research Figure 16: Discount between FBMKLCI and Its Consens us Target (as of end-Feb18) – Fast approaching S.O.S. Selling Zone!

1,600

1,650

1,700

1,750

1,800

1,850

1,900

1,950

2,000

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

FBMKLCI vs. Consensus Target

% Diff (FBMKLCI vs. Consensus Target) -2SD -1SD 36M-SMA +1SD +2SD FBMKLCI Consensus Target



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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

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