Bursa Malaysia Daily Market Report - 12 March

Transcription

1. Monday , 12 March, 2018 TA RESEARCH’S ‘DAILY COMPILED REPORTS’ For Internal Circulation Only News 1. 2. 3. Daily Market Commentary Weekly Strategy Weekly Technical Outlook Fundamental Reports 1. 2. MBM Resources Bhd: An Easy Exit for Shareholders UMW Holdings Bhd: Acquires Perodua Technical Reports 1. 2. 3. 4. 5. 6. Weekly Technical Stock Picks Daily Money Flow FBMKLCI Weekly Ace Market Stock Watch Weekly Small Cap Stock Watch Weekly Stock Screen Weekly Foreign Stock Watch (AUS, HK, FSSTI & US) Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. Kaladher Govindan – Head of Research TA SECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 2032 5048 www.ta.com.my
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Daily Market Commentary Monday , 12 March 2018 TA Research, e-mail : taresearch@ta.com.my For Internal Circulation Only KLSE Market Statistics (09.03.2018) (mil) Main Market 1,331.7 Warrants 347.5 ACE Market 567.6 Bond 3.6 ETF 0.1 LEAP 0.1 Total 2,250.6 Off Market 158.1 Volume +/-chg (RMmn) 135.9 1,878.6 -41.0 48.7 -73.1 87.3 1.6 0.6 0.0 0.2 0.09 0.0 2,015.4 121.7 90.3 Major Indices Index +/- chg Malaysia FBMKLCI FBMEMAS FBMSCAP March Futures Other Markets DOW JONES NASDAQ (US) FTSE (UK) NIKKEI (JAPAN) KOSPI (KOREA) HANG SENG (HK) FSSTI (S'PORE) SET (BANGKOK) JCI (JAKARTA) SHANGHAI SHENZHEN AUSTRALIA (mn) 100.0 40.6 7.0 5.9 2.9 % chg % YTD chg 4.30 35.15 12.47 7.00 0.23 0.27 0.08 0.38 2.62 0.20 -7.06 3.11 25,335.74 7,560.81 7,224.51 21,469.20 2,459.45 30,996.21 3,485.57 1,775.37 6,433.32 3,307.17 1,885.38 5,963.23 440.53 132.87 21.27 101.13 26.37 341.69 5.13 -3.53 -9.70 18.76 28.91 20.37 1.77 1.79 0.30 0.47 1.08 1.11 0.15 -0.20 -0.15 0.57 1.56 0.34 2.49 9.52 -6.03 -5.69 -0.33 3.60 2.43 1.24 1.22 0.00 -0.73 -1.68 (RM) @ @ @ @ @ Up Down 315 302 124 102 44 53 2 1 4 1 2 0 491 459 1,843.92 12,968.94 15,846.57 1,840.50 Off Market TRIVE SEM QES IOICORP SCOMI Review & Outlook Value Value/ +/-chg Volume -12.8 1.41 -8.6 0.14 -20.4 0.15 0.1 0.15 0.0 1.63 0.0 0.24 0.90 -147.8 0.57 0.04 1.23 0.23 4.83 0.16 Exchange Rate USD/MYR 3.9119 -0.002 USD/JPY 106.76 0.560 EUR/USD 1.229 -0.0017 Picturing momentum indicators on blue chips, the local market is likely to extend consolidation due to weak buying momentum and market breadth, and substantial selling and profit-taking resistance. On the other hand, the surprising strong US jobs addition and tame wage growth in February which sparked a strong rally on Wall Street last Friday should spillover to lift markets in the region and locally early this week. Immediate support for the index remains at the 50-day moving average now at 1,833, followed by the lower Bollinger band at 1,822, while stronger support is at 1,800. Crucial resistance-turn-support is at 1,796, the June 2017 peak matching the 6 Feb pivot low. Immediate resistance will be the overhead 10-day ma at 1,851, followed by recent high of 1,872, with tough hurdle expected from the 2 Feb peak of 1,880. Stock-wise, GLCs such as Sime Darby and Westports should see profittaking and selling pressure dampening share price performance, while the same can be said of key banking counters like Affin, ABMB, CIMB, Maybank, MBSB and RHBBank. News Bites ï ï ï ï ï Top 10 KLCI Movers Based on Mkt Cap. ï Counter ï CIMB PCHEM IHH MAXIS DIGI GENTING NESTLE IOICORP MISC GENM Mkt Cap. Chg (RM’mn) (RM) 65,963 63,840 49,767 46,239 36,931 34,444 34,003 30,414 30,309 29,256 0.02 0.02 0.01 0.03 0.03 0.14 5.00 0.01 0.04 0.02 Vol. (mn) 10.84 4.50 5.77 0.69 2.64 6.33 0.41 6.73 0.61 9.71 Commodities Futures Palm Oil (RM/mt) 2,375.00 -39.00 Crude Oil ($/Barrel) 62.12 1.79 Gold ($/tr.oz.) 1,324.00 1.50 ï ï ï ï ï ï Important Dates ï HSSEB - 1:10 Rights Issue - RI of up to 31.9m shares together with BI of up to 15.9m shares and up to 47.9m free detachable warrants. 1 rights share for every 10 existing shares held, at an issue price of RM1.30 per rights share, together with 1 bonus share and 3 warrants for every 2 rights shares subscribed. Application Closed: 08/03/2018. LISTING ON: 21/03/2018. ï ï UMW Holdings Bhd plans to boost its strategic stake in Perodua from 38% to 70.6% through two separate acquisitions worth RM918.5mn, including a conditional offer to buy a 50.1% stake in MBM Resources Bhd. Keck Seng (Malaysia) Bhd is buying a stake in hotel investment platform AccorInvest Group SA for RM121mn to gain exposure to a diversified portfolio of hotels in Europe. Tenaga Nasional Bhd has extended Datuk Seri Ir Azman Mohd's service contract as President/Chief Executive Officer for another 2 years effective from July 1, 2018 until June 30, 2020. Gamuda Bhd's 80%-owned subsidiary Gamuda Water Sdn Bhd has received 4 writs of summons together with the corresponding statements of claim filed by Tenaga Nasional Bhd against Gamuda Water for outstanding electricity bill of RM39.5mn. Muhibbah Engineering Bhd, via its 49% JV, has bagged a contract worth RM57.6mn from Prasarana Malaysia Bhd for the design, supply, delivery, installation, testing and commissioning of noise barrier for package NBE (E) for LRT3. Iris Corporation Bhd is mulling to bid for the mandate to undertake a government road tax and insurance initiative for the launch of a connected cars project. Green Packet Bhd is the other interested party. DBE Gurney Resources Bhd is partnering Thailand's Farmmesh Foods Co Ltd to operate Harumi fried chicken quick service restaurants in Thailand. Ranhill Holdings Bhd has terminated the share sale agreement for the AU$3.2mn proposed acquisition of Australia's Northern Power Group Pty Ltd. Weida (M) Bhd has decided to present the proposed selective capital reduction and repayment exercise to its shareholders for their consideration. Cahya Mata Sarawak Bhd's education unit CMS Education Sdn Bhd is forming a 30:70 JV with Ibraco Help Education Sdn Bhd to set up a private school in Kuching, Sarawak. Parking Holdings Bhd is looking to open in several new locations with a presence in newer and more exciting malls while exiting those that do not fit in with the company's market dynamics. HeiTech Padu Bhd has won a contract worth RM27.1mn from Permodalan Nasional Bhd for outsourcing of IT services. Sasbadi Holdings Bhd has secured 3 textbook publishing and printing contracts for Year 3 of the Chinese primary schools from the Ministry of Education for a total of RM6.5mn. Jacobs Douwe Egberts Holdings Asia NL BV, which intends to take OldTown Bhd private, has extended the closing date of its takeover offer to March 20.s Consumer inflation in China unexpectedly accelerated to the fastest pace in more than four years at 2.9% YoY in February, hitting a recently set official target. US nonfarm payrolls rose a seasonally adjusted 313,000 in February, the largest monthly gain since July 2016, while unemployment rate remained at 4.1%. Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. Kaladher Govindan, Head of Research MENARA TA ONE, 22 JALAN for TA SECURITIES HOLDINGS BERHAD (14948-M) A PARTICIPATING ORGANISATION OF BURSA MALAYSIA SECURITIES BHD P RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL : 603 - 2072 1277. FAX : 603 - 2032 5048 www.ta.com.my
3. Monday , March 12, 2018 FBMKLCI: 1,843.92 THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Weekly Strategy Market View, News in Brief: Corporate, Economy, and Share Buybacks Kaladher Govindan Tel: +603-2167 9609 kaladher@ta.com.my www.taonline.com.my M a r k e t V i e w Correction Likely to Continue Steel-related stocks led falls last week on the US President’s proposed heavy tariffs of 25% on steel and 10% on aluminum imports, which raised concerns that it will spark reprisals and fuel a global trade conflict. The resignation of the US President’s top economic adviser Gary Cohn, long regarded as a top free trade advocate, reignited worries more protectionist measures will be damaging to global trade. However, fears receded into the weekend after details emerged that the US import tariffs will exclude major trading partners. For the week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) slipped 12.15 points, or 0.65 percent to 1,843.92, as losses on Petronas Dagangan (-RM1.02), Hong Leong Bank (-RM1.00), HLFG (-52sen) and Press Metal (-50sen) offset gains on Nestle (+RM19.10), Maxis (+11sen) and Axiata (+10sen). Average daily traded volume and value moderated to 2.59 billion shares and RM2.51 billion last week, compared to the 2.87 billion shares and RM2.84 billion average respectively the previous week. In the immediate term, local and regional markets could react positively to last Friday’s US nonfarm payroll report that showed average hourly earnings growth narrowed to 2.6% yearon-year (YoY) in February despite jobs increased by 313,000 versus forecast 200,000. December and January numbers also saw some upward adjustments. Unemployment rate sustained at 4.1% despite the strong job figures as labour participation rate improved by 0.3 percentage points to 63% from a month ago. This could temporarily negate worries about rising inflation and tighter monetary policy. However, these worries will not fade away in 2018 as the US labour participation rate is already hovering around long-term average and President Trump’s fiscal measures should sustain continued tightening in the labour market and higher inflation as wages rise. Thus, equity market volatility is here to stay and should continue to exert downside pressure on the local market due to net outflow of foreign funds (foreign ownership in our listed companies is not low at an estimated 23%). Foreigners turned net sellers in February (RM1.2bn) after a net inflow of RM3.3bn in January. Month-to-date data for March showed they remained net sellers and the exit could intensify as the month progresses due to expectations for the Malaysian parliament to be dissolved soon as the first sitting of the 2018 session of parliament ends on 5th April. Page 1 of 8
4. 12-Mar-18 The release of US CPI data and retail sales for February this week along with forward indicators like housing starts and building permits should shed more light on the private consumption and investment trend . If these data continue to surpass expectations, investor sentiment, especially in the emerging markets, may remain jittery. Locally, no major economic data is due this week, except for industrial production index (IPI) and manufacturing sales for January. An outperformance against expectations should not be any surprise given the month’s strong trade data. Exports during the month surpassed expectations with a strong growth of 17.9% YoY versus consensus estimate of 12.9% YoY. In fact, the manufactured products grew at a hefty rate 20.4% YoY and this should be reflective in the IPI and manufacturing sales. Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. As of Monday, March 12, 2018, the HOD, Kaladher Govindan, who prepared this report, has interest in the following securities covered in this report: (a) nil Kaladher Govindan – Head of Research TA SECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 2032 5048 www.ta.com.my Page 2 of 8
5. 12-Mar-18 N e w s i n B r i e f Corporate UMW Holdings Bhd plans to boost its strategic stake in Perodua from 38 % to 70.6%. It had made a conditional offer to buy a 50.1% MBM Resources Bhd from Med-Bumikar Mara Sdn Bhd and its unit Central Shore Sdn Bhd for RM501.0mn (RM2.56/share). It also made a conditional offer to PNB Equity Resource Corporation Sdn Bhd for 10% equity interest in Perodua for RM417.5mn. (Bursa Malaysia/ Bernama) Keck Seng (Malaysia) Bhd is buying a stake in hotel investment platform AccorInvest Group SA for RM121mn to gain exposure to a diversified portfolio of hotels in Europe with resilient income stream and opportunities for value creation. AccorInvest, which is owned by European hotel giant Accor SA, is the world leader in hotel real estate, with a current portfolio of 891 hotels. (Bursa Malaysia/ The Sun) Tenaga Nasional Bhd has extended Datuk Seri Ir Azman Mohd's service contract as President/Chief Executive Officer (CEO) for another 2 years. The contract would be effective from July 1, 2018 until June 30, 2020. Azman has been the power utility's President and CEO since July 1, 2012. (Bursa Malaysia/ Bernama) Gamuda Bhd's 80%-owned subsidiary Gamuda Water Sdn Bhd has received 4 writs of summons together with the corresponding statements of claim filed by Tenaga Nasional Bhd (TNB) against Gamuda Water for outstanding electricity bill of RM39.5mn. The suits are premised on the failure by Gamuda Water in paying the electricity bills to TNB. (Bursa Malaysia/ The Sun) Comments: The development is not entirely surprising as we understand that water operators in the Klang Valley which include Gamuda Water and Sungai Harmoni Sdn Bhd have seen building up of their receivables post 12th general election as they have been receiving partial payments for their billing amounts. As water is essential to humans, we do not think TNB would suspend electricity supply to the water operators. We do not expect it to have a major impact on Gamuda’s operation and financials as the outstanding electricity bills have been fully provided as and when they are incurred. Maintain BUY call on GAMUDA with a target price of RM6.00/share. Muhibbah Engineering Bhd, via its 49% JV, has bagged a contract worth RM57.6mn from Prasarana Malaysia Bhd for the design, supply, delivery, installation, testing and commissioning of noise barrier for package NBE (E) for LRT3. The construction works would commence immediately and were expected to be completed by the third quarter of 2020. (Bursa Malaysia/ Bernama) Page 3 of 8
6. 12-Mar-18 N e w s I n B r i e f Economy Asia IMF Praises Malaysia Economic Growth The Interna ­tional Monetary Fund (IMF) has commended Malaysia for its strong and resilient economic performance, underpinned by accommodative monetary policy and gradual fiscal consolidation. “In recent years, the economy has shown resilience and continued to perform well despite external shocks, while fiscal consolidation proceeded. Progress was made towards achieving high-income status and improving inclusion,” it said. After surprising on the upside in 2017, real Gross Domestic Product (GDP) growth is projected to remain above potential at 5.3% in 2018. Last year, the economy expanded 5.9%. “Growth will likely remain above potential in 2018, inflationary pressures appear to be contained and risks to the outlook are balanced,” it said in a statement released in Washington on Wednesday. “The executive directors agreed with the planned pace of fiscal consolidation in 2018, noting that it will help build buffers while maintaining financial market confidence,” it said. Last year’s federal budget deficit edged lower to 3.0% of GDP against 3.1% in 2016, in line with budget plans, and it is expected to further fall to 2.8% this year. (The Star) China New Loans Fall More than Expected after Record January Chinese banks extended 839.3 billion yuan ($132.4 billion) in net new yuan loans in February, the central bank said on Friday, below analysts’ expectations and down sharply from a monthly record in January. Analysts polled by Reuters had predicted new yuan loans of 900 billion yuan. Banks doled out a record 2.9 trillion yuan in new yuan loans in January, and came under pressure from regulators to rein in lending growth in February, financial magazine Caixin reported last month, citing banking sources. Chinese lenders tend to front-load loans early in the year to get higher-quality customers and a full year of interest payments, and to win market share. China is in its second year of a regulatory push to clamp down on riskier financial activity that has been fueled by a rapid build-up in debt. Banks extended a record 13.53 trillion yuan in new loans last year. In February, outstanding yuan loans grew 12.8 percent from a year earlier, marginally slower than an expected 12.9 percent rise and compared with a gain of 13.2 percent in January. Broad M2 money supply grew 8.8 percent from a year earlier, marginally beating forecasts for an expansion of 8.7 percent and the 8.6 percent pace in January. China’s total social financing (TSF), a broad measure of credit and liquidity in the economy, fell to 1.17 trillion yuan in February from 3.06 trillion yuan in January. Some analysts had expected a reading around 1 trillion yuan. (Reuters) China Consumer Inflation Jumps to 2.9% in February Consumer inflation in China unexpectedly accelerated to the fastest pace in more than four years in February, hitting a recently set official target as producer price growth weakened to the slowest pace in more than a year thanks to lower input prices. China’s official consumer price index rose 2.9 per cent year on year last month, according to the National Bureau of Statistics. That was up from just 1.5 per cent in January and reflected a rapid alignment with the official target of “around 3 per cent” set by Premier Li Keqiang in his annual work report last week. The statistics bureau attributed the jump in part to a base effect from the timing of the lunar new year holiday, which this year fell in February but occurred in January of 2017. While the bureau attributed 1.1 percentage points of the move to a base effect from last year, the latest reading still came in well above a median forecast of 2.5 per cent from economists surveyed by Reuters. Much of the rise came courtesy food prices, which rose 3.6 per cent year on year after a climb of just 0.2 per cent in January. That was despite a fall of 7.3 per cent in pork prices - which are heavily weighted in the CPI basket - as fresh vegetable prices climbed 17.7 per cent, adding almost half a percentage point to the headline growth figure. Meanwhile the official producer price index slowed half a percentage point to notch a year-on-year rise of 3.7 per cent, the slowest pace since November 2016 as growth in the price of raw materials slowed 0.9 Page 4 of 8
7. 12-Mar-18 percentage points to 4 .8 per cent year on year. (Financial Times) BoJ Holds Rates at March Meeting The Bank of Japan kept interest rates on hold on Friday as expected. The central bank kept overnight interest rates at minus 0.1 per cent and 10-year bond yields capped at about zero per cent. In-line with previous outlooks the bank also said consumer inflation, exfresh food, would continue to rise, reaching its target 2 per cent level by 2019. Marcel Thielant, senior Japan economist with Capital Economics said, however, the BoJ will continue to struggle to reach its 2 per cent inflation target. “Most analysts, ourselves included, expect inflation to remain well below the Bank’s 2% target both this year and next as the Bank hasn’t been able to lift inflation expectations among households and firms,” he said. “If the Bank decides to tighten policy it will because of concerns about financial stability rather than because of stronger price pressures.” (Financial Times) Japan Real Wages Slump, Overshadow Rebound in Household Spending Japan’s household spending rebounded in January but workers’ wages fell at the fastest pace in six months, in a worrying sign that consumption will lose momentum this year and weigh on an economy now enjoying its longest run of growth in 28 years. A spate of data issued on Friday cast doubt on the Bank of Japan’s optimistic projection that a strengthening recovery will prompt firms to hike wages and boost consumption, helping accelerate inflation to its elusive 2 percent target. The weakness in wage growth could also reinforce market expectations the BOJ will lag far behind major peers in dialing back its massive stimulus programme, analysts say. “The slowdown in base pay in January suggests that the Bank of Japan won’t be able to tighten monetary policy anytime soon,” said Marcel Thieliant, senior Japan economist at Capital Economics. “Wages would have to rise at a much faster pace to create major cost pressures for firms.” Household spending rose 1.9 percent in January from a year earlier, government data showed on Friday, rebounding from a 0.1 percent drop in December. But the gain was driven mostly by higher costs for necessities, as unusually cold weather forced households to spend more on fuel and medical treatment, the data showed. Separate data showed workers’ wages after adjustments for inflation fell 0.9 percent in January from a year ago, marking the biggest decline since a 1.1 percent drop in July 2017. The decline suggests the government will struggle to convince large companies to raise wages by 3 percent or more this year at annual negotiations with labour unions, which are expected to conclude next week. Consumption has been a soft spot in an otherwise robust recovery, hampering the BOJ’s efforts to achieve its inflation target as firms remain wary of raising prices for fear of scaring away cost-sensitive households. (Reuters) Japan-led Pacific Rim Countries Desperate to Embrace Trump The grandiose sounding Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will be signed in Santiago de Chile on 8 March. Instead of doing something to advance the condition of women on International Women’s Day, trade representatives from 11 Pacific rim countries will sign the CPTPP, which some critics argue will further set back the progress of humanity, including women who hold up ‘half the sky’. The Trans-Pacific Partnership (TPP) originally involved twelve countries, including the USA, namely Japan, Brunei, Australia, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, now often referred to as the TPP11. Although originally a minor initiative not involving the US, the Obama administration led the negotiations which claimed to have created a model ‘free trade agreement for the 21st century’. In fact, the resulting 6500 page agreement has, so far, only been used by Obama’s United States Trade Representative (USTR) to derail the already protracted Doha ‘Development’ Round negotiations under the auspices of the World Trade Organization (WTO), e.g., by ‘lameduck’ USTR Michael Froman at the WTO ministerial in Nairobi in December 2016. In January last year, newly elected US President Donald Trump withdrew from TPP, effectively killing the agreement. Since then, Japan has worked hard to keep it alive, with Page 5 of 8
8. 12-Mar-18 discreet help from Australia and others . Apparently, they hope to draw the US back in order to check China’s growing influence in the region while delaying other regional trade negotiations such as the Regional Comprehensive Economic Partnership (RCEP). (The Star) United States U.S. Employers Added 313,000 Jobs in February Companies ramped up hiring last month and people flooded back into the workforce, a potent mix suggesting the U.S. economy can run strong without overheating and forcing the Federal Reserve to slam its brakes on the expansion with aggressive interest-rate increases. Investors, applauding the combination of robust economic growth and a restrained central bank, sent the Dow Jones Industrial Average up 440.53 points, or 1.77%, to 25335.74. Nonfarm payrolls rose a seasonally adjusted 313,000 in February, the largest monthly gain since July 2016 and well above the average monthly gain in the expansion, the Labor Department said Friday. More than 800,000 Americans joined the labor force for the month, according to the report, many bypassing unemployment and jumping straight into jobs. It was the largest one-month labor-pool increase since 1983, outside months that included temporary Census hiring. The jobless rate held at 4.1% in February, its lowest level since December 2000, for the fifth straight month. Low unemployment, in theory, creates wage and inflation pressure as firms compete for scarcer labor. But with people rejoining the labor force and expanding the pool of workers and job seekers, that bidding process was restrained and wage growth muted last month. Average hourly earnings for all private sector workers rose 2.6% from a year earlier in February, a smaller increase than the prior month. The average workweek rose—meaning firms were looking for ways to get more output from the workers they had—and weekly paychecks rose. (The Wall Street Journal) U.S. Wholesale Inventories Climb 0.8%, but Wholesales Sales Slump 1.1% Wholesale inventories in the U.S. increased by slightly more than expected in the month of January, a report from the Commerce Department revealed on Friday. The Commerce Department said wholesale inventories climbed by 0.8 percent in January after rising by an upwardly revised 0.7 percent in December. Economists had expected inventories to rise by 0.7 percent compared to the 0.4 percent increase originally reported for the previous month. The bigger than expected increase in wholesale inventories was partly due to a continued jump in inventories of non-durable goods, which soared by 1.8 percent in January after surging up by 1.1 percent in December. Sharp increases in inventories of drugs, petroleum and farm products more than offset notable decreases in inventories of chemicals and paper. The report said inventories of durable goods edged up by 0.2 percent in January after rising by 0.4 percent in the previous month. (RTT) EU, Japan Press for Waivers on Trump’s Tariffs as U.S. Weighs Criteria The European Union and Japan pressed the U.S. to exempt them from President Donald Trump’s steel and aluminum tariffs on Saturday, as officials seek to avoid a trade war with the world’s biggest economy. U.S. Trade Representative Robert Lighthizer met with EU Trade Commissioner Cecilia Malmstrom and their Japanese counterpart, Hiroshige Seko, in Brussels as part of a trilateral effort to combat unfair trade practices. In the wake of Mr. Trump’s tariffs declaration Thursday, however, focus shifted to U.S. moves rattling two of its biggest economic partners—accounting for about a quarter of America’s annual trade in goods—from countering China’s state-sponsored capitalism. Both Brussels and Tokyo stressed their serious concern over the U.S. measures, the EU said. Japan and the EU have been calling publicly and privately on U.S. officials that they must be excluded from the measures as close security and trade allies. “I had a frank discussion with the U.S. side about the serious pending issue of steel and aluminum tariffs,” Ms. Malmstrom said after a bilateral meeting with Mr. Lighthizer. There was “no immediate clarity on the exact U.S. procedure for exemption however, so discussions will continue next week,” she added. While EU officials stressed the positive tone of Ms. Malmstrom’s meeting with Mr. Lighthizer and hailed concrete steps in the trilateral push to curb Chinese practices, Mr. Page 6 of 8
9. 12-Mar-18 Trump highlighted persistent tensions in the U .S. relationship with Europe just hours after the trade summit. (The Wall Street Journal) Europe and Uni ted Kingdom UK Construction Posts Dire Performance in January UK construction output fell at the fastest annual pace in January since March 2013, data from the Office for National Statistics showed on Friday. Output was far below analysts’ expectations, falling 3.4 per cent between December and January and 3.9 per cent year-on year compared to expectations for a 0.3 per cent monthly contraction and a 0.5 per cent annual figure, according to data compiled by Thomson Reuters. “Construction continues to be a weak spot in the UK economy with a big drop in commercial developments, along with a slowdown in house building after its very strong end to last year,” ONS senior statistician Ole Black added. While on a three-monthly basis, construction output has now been falling for nine straight periods, output grew month-on-month in the final two months of 2017. The fall in the three-month series was mainly due to a continued slump in private commercial work, the ONS said. (Financial Times) U.K. Consumers Put Inflation Rate at Highest Since 2014 U.K. consumers are feeling the impact of faster inflation. In the Bank of England’s quarterly inflation survey, the median answer for the current rate of inflation among respondents was 3.1 percent -- the highest in the poll since August 2014 and up from 2.9 percent in November. More than a quarter of those surveyed put the rate above 4 percent, while the median expectation for inflation over the next year was 2.9 percent. The results show how the higher prices caused by the pound’s decline since the Brexit vote are filtering through to consumers’ thinking. The U.K.’s official inflation rate was at 3 percent in January, after reaching a more-than five-year high of 3.1 percent in November, while, in a speech this week, the BOE’s chief economist Andy Haldane said that the personal inflation rate of some U.K. citizens is running closer to 10 percent. With wage growth still relatively low, that’s creating a squeeze on consumers, and crimping their spending. It also has implications for BOE policy makers, who are trying to bring price growth back to their target of 2 percent. Officials, who hiked interest rates for the first time in a decade last year, have said more increases will be necessary, with investors betting the next move could come as soon as May. In the BOE’s survey, carried out between Feb. 7 and Feb. 18, 58 percent of the 4,254 respondents expected rates to rise over the next 12 months, down from 63 percent in November. (Bloomberg) UK Manufacturing Forges Record Run of Growth The UK’s manufacturing sector registered its ninth consecutive month of growth during January, the longest period of expansion since records began in 1968, boosted by surging global economic growth and a drop in the pound. However the pace of growth slowed in January. The rate of expansion over the whole of the previous three months slowed to the weakest since July 2017, suggesting the sector may be running out of steam. Manufacturing grew by 0.1 per cent in January compared to December, the ONS said. Overall industrial production, which includes the output from the UK’s north sea oil and gas fields as well as utilities such as water and gas, grew by 1.3 per cent. Analysts expected growth of 1.5 per cent, according to a poll from Thomson Reuters conducted before the release of the data. The monthly growth figure was flattered as the Forties Pipeline in the north sea was switched back on during January after a shutdown due to a hairline crack in December. This led to a 23.5 per cent increase in the output of the “mining and quarrying” sector in January after a 19.1 per cent fall in December. (Bloomberg) UK Economy to Grow at Slower Pace: NIESR The UK economy is likely to grow at a slower pace in three months to February, the National Institute of Economic and Social Research said Friday. The monthly estimates suggested the output grew at a pace of 0.3 percent in three months to February compared to 0.4 percent in three months to January. "Activity has eased slightly and is likely to slow further in March when the full impact of the recent extreme weather conditions will be Page 7 of 8
10. 12-Mar-18 realised ," Amit Kara, Head of UK Macroeconomic Forecasting at NIESR, said. Separately, the UK visible trade deficit increased as the pace of growth in imports exceeded exports growth in January, the Office for National Statistics showed Friday. The visible trade gap widened to GBP 12.32 billion in January from GBP 11.77 billion in the previous month. The shortfall was seen at GBP 11.9 billion. Exports rose 3.1 percent month-on-month and imports climbed 3.5 percent in January. The trade in goods and services showed a shortfall of GBP 3.07 billion compared to a deficit of GBP 2.49 billion in December. (RTT) Share Buy-Back: 09 March 2018 Company AMPROP BAUTO E&O FIAMMA GLOMAC HAIO IJM KFIMA KOMARK KPJ KSL MALAKOF PANTECH PRESTAR SUNWAY TEXCYCL TITIJYA UNIMECH Bought Back Price (RM) Hi/Lo (RM) 28,500 180,000 40,000 130,000 90,000 28,100 300,000 20,000 26,700 50,000 102,700 3,000,000 122,300 28,000 1,200,000 27,000 50,000 1,000 0.72 2.00/1.99 1.43 0.50/0.49 0.515/0.51 5.02/4.99 2.58/2.56 1.50 0.185/0.18 0.93 1.01 0.875/0.865 0.565/0.555 0.94 1.60/1.57 0.755/0.75 0.60/0.575 1.03/1.00 0.735/0.72 2.00/1.99 1.43/1.41 0.50/0.49 0.515/0.50 5.05/4.99 2.60/2.55 1.51/1.50 0.185/0.175 0.945/0.925 1.02/1.01 0.88/0.855 0.575/0.555 0.96/0.94 1.61/1.56 0.755/0.75 0.60/0.575 1.03/1.00 Total Treasury Shares 16,290,600 2,205,000 26,120,747 23,730,000 6,036,700 8,852,088 797,700 80,100 5,875,400 67,633,900 14,548,800 30,918,500 1,885,124 7,167,100 31,739,262 1,533,550 205,000 7,177,410 Source: Bursa Malaysia TA RESEARCH – Remisiers’ Briefing Topic: Weekly Market Outlook Speaker: Mr.Kaladher/ Mr.Stephen Soo Venue: Auditorium, 10th Floor Menara TA One Date: 12 March 2018 (Today) Time: 12.40pm Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. Kaladher Govindan – Head of Research TA SECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 2032 5048 www.ta.com.my Page 8 of 8
11. Technical View Monday , March 12, 2018 HIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* Weekly Technical Outlook FBM KLCI: 1,843.92 (-12.15, -0.65%) Chartist : Stephen Soo Tel: +603-2167 9607 stsoo@ta.com.my www.taonline.com.my Strong US Jobs Growth to Lift Sentiment Steel-related stocks led falls last week on the US President’s proposed heavy tariffs of 25% on steel and 10% on aluminum imports, which raised concerns that it will spark reprisals and fuel a global trade conflict. The resignation of the US President’s top economic adviser Gary Cohn, long regarded as a top free trade advocate, reignited worries more protectionist measures will be damaging to global trade. However, fears receded into the weekend after details emerged that the US import tariffs will exclude major trading partners. For the week, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) slipped 12.15 points, or 0.65 percent to 1,843.92, as losses on Petronas Dagangan (-RM1.02), Hong Leong Bank (-RM1.00), HLFG (-52sen) and Press Metal (-50sen) offset gains on Nestle (+RM19.10), Maxis (+11sen) and Axiata (+10sen). Average daily traded volume and value moderated to 2.59 billion shares and RM2.51 billion last week, compared to the 2.87 billion shares and RM2.84 billion average respectively the previous week. Bursa Malaysia shares slumped on Monday, trailing regional losses with steel-related counters leading falls on fears the US President’s tariff threat on steel and aluminum imports will trigger a global trade war. The KLCI fell 13.45 points to close at 1,842.62, off an opening high of 1,853.76 and low of 1,840.04, as losers swamped gainers 963 to 172 on total turnover of 2.62bn shares worth RM2.4bn. The market rebounded in line with regional markets the next day, as worries over a potential trade war eased after the US President backtracked on his steel tariff proposal following opposition from some quarters. The KLCI gained 5.75 points to close at 1,848.37, after ranging between high of 1,850.18 and low of 1,845.76, as gainers edged losers 529 to 438 on total turnover of 2.76bn shares worth RM2.78bn. Stocks slumped again in sympathy with the region Wednesday on negative sentiment following the resignation of the US President’s top economic adviser Gary Cohn, which reignited worries over more protectionist measures damaging global trade. The KLCI slid 10.47 points to close at 1,837.90, off the opening high of 1,848.85 and low of 1,834.66, as losers trashed gainers 991 to 163 on higher turnover of 3.11bn shares worth RM3.17bn. Blue chips recovered mildly the subsequent day, in line with the region’s recovery as concerns over global trade restrictions eased on hints the US import tariffs on steel and aluminum may exclude major trading partners. The KLCI gained 1.72 points to settle at 1,839.62, off an opening low of 1,838.3 and high of 1,846.67, as gainers edged losers 475 to 431 on reduced turnover of 2.22bn shares worth RM2.05bn. The local market stayed range bound Friday, ignoring firmer regional markets after the US President accepted invitation to meet the North Korean leader for talks, as concerns over rising global trade barriers continued to dampen sentiment. The index added 4.3 points to end the week at 1,843.92, after ranging between early high of 1,844.98 and low of 1,840.18, as gainers edged losers 491 to 459 on moderate trade totaling 2.25bn shares worth RM2.01bn. Trading range for the blue-chip benchmark index was 19.09 points, compared to the 20.84Page 1 of 3
12. 12-Mar-18 point range the previous week . For the week, the FBM-EMAS Index lost 205.01 points or 1.56 percent to 12,968.94, while the FBM-Small Cap Index slumped 587.29 points, or 3.57 percent to 15,846.57, with profit-taking and selling pressure depressing shares of the small cap sector. Given the selling pressure in the past two weeks, the daily slow stochastic momentum indicator for the FBM KLCI is beginning to dip into the oversold zone (Chart 1), while a sell signal on the weekly indicator has been triggered in overbought territory. The 14-day Relative Strength Index (RSI) declined to a weaker reading of 50.18 as of last Friday, while the 14-week RSI fell to a reading of 61.49. Chart 1 The daily Moving Average Convergence Divergence (MACD) trend indicator’s signal line also turned weaker, while the weekly MACD indicator’s uptrend signal is easing visibly (Chart 2). The +DI and –DI lines on the 14-day Directional Movement Index (DMI) have crossed for sell on a falling ADX line, suggesting deterioration of trend. Chart 2 Page 2 of 3
13. 12-Mar-18 Conclusion Picturing momentum indicators on blue chips , the local market is likely to extend consolidation due to weak buying momentum and market breadth, and substantial selling and profit-taking resistance. On the other hand, the surprising strong US jobs addition and tame wage growth in February which sparked a strong rally on Wall Street last Friday should spillover to lift markets in the region and locally early this week. Immediate support for the index remains at the 50-day moving average now at 1,833, followed by the lower Bollinger band at 1,822, while stronger support is at 1,800. Crucial resistance-turn-support is at 1,796, the June 2017 peak matching the 6 Feb pivot low. Immediate resistance will be the overhead 10-day ma at 1,851, followed by recent high of 1,872, with tough hurdle expected from the 2 Feb peak of 1,880. Stock-wise, GLCs such as Sime Darby and Westports should see profit-taking and selling pressure dampening share price performance, while the same can be said of key banking counters like Affin, ABMB, CIMB, Maybank, MBSB and RHBBank. Chart 3 Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. As of Monday, March 12, 2018, the chartist, Stephen Soo, who prepared this report, has interest in the following securities covered in this report: (a) nil Kaladher Govindan – Head of Research TA SECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 2032 5048 www.ta.com.my Page 3 of 3
14. COMPANY UPDATE Monday , March 12, 2018 FBMKLCI: 1,843.92 Sector: Automotive THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* TP: RM2.68 (+18.1%) MBM Resources Bhd Last Traded: RM2.20 An Easy Exit for Shareholders Abel Goon Tel: +603-2072 1277 ext. 1641 Buy abelgoon@ta.com.my The News MBM Resources Bhd’s (MBM) substantial shareholders Med-Bumikar Mara and Central Shore received a letter of offer from UMW Holdings Bhd (UMW) for their combined stake in MBM (50.07%) at RM2.56/share or RM501mn. Subsequently, UMW plans to carry out a mandatory general offer (MGO) to the remaining shareholders at an undetermined price with the intention to delist MBM. Our View MBM’s crown jewel is its 22.6% stake in Perodua and is likely the main reason for the proposed acquisition. Note that the Perodua stake contributes >100% of MBM’s core net profit. We understand that Perodua’s FY17 net profit was circa RM450mn. Besides that, MBM has decent assets which include its 50% stake in Autoliv Hiratako, 100% stake in Oriental Metal Industries, i.e. alloy wheel plant and various car dealerships. Therefore, we deem the offer price of RM2.56/share to be rather low at 0.7x P/NTA. Furthermore, the Group had already carried out a major kitchen sinking exercise in 4QFY17. Besides that, valuing just MBM’s stake in Perodua at RM1bn implies 11x FY17 PER, which is lower than automotive peers’ average of 13x PER. This assumes that the remaining assets in MBM are thrown in for free. Additionally, the OMI alloy wheel plant, which was the main drag to MBM’s earnings, is expected to breakeven by end FY19 which would lead to decent earnings growth. Nevertheless, we note MBMs share price only surpassed the offer price in the period of September 2016-October 2016. Since then it has consistently been trading below the offer price. Therefore, although the offer price is unattractive, we believe it is an easy exit for the majority shareholders, and subsequently the remaining shareholders. This is assuming the MGO price is less than or equal to RM2.56/share. All in, we are rather neutral on the take-over offer and believe the majority shareholders of MBM are unlikely to agree to this offer. The same is true for the minority shareholders, if an MGO is extended at the offer price. www.taonline.com.my Share Information Bloomberg Code MBM MK Stock Code 5983 Listing Main Market Share Cap (mn) 390.9 Market Cap (RMmn) 859.9 52-wk Hi/Lo (RM) 2.60/2.01 12-mth Avg Daily Vol ('000 shrs) 141 Estimated Free Float (%) 28.9 Beta 0.5 Major Shareholders (%) Med-Bumikar - 49.5 EPF - 15.8 Forecast Revision Forecast Revision (%) Net profit (RMm) Consensus TA's / Consensus (%) Previous Rating FY18 FY19 0.0 0.0 96.6 105.0 100.1 111.6 96 94 Hold (Upgrade) Financial Indicators Net Debt / Equity (x) CFPS (sen) Price / CFPS (x) ROA (%) NTA/Share (RM) Price/NTA (x) FY18 0.0 63.8 3.4 4.5 3.9 0.6 Share Performance (%) Price Change MBM 1 mth (3.5) 3 mth 0.5 6 mth 2.3 12 mth (12.0) FY19 Net cash 77.1 2.9 4.7 4.1 0.5 FBM KLCI 0.8 6.6 3.0 7.4 (12-Mth) Share Price relative to the FBMKLCI Impact Maintain earnings forecast pending confirmation of sale and mandatory offer. Source: Bloomberg Page 1 of 3
15. 12-Mar-18 Valuation We arrive at a higher TP of RM2 .68 (previous: RM2.47) based on unchanged 10x CY19 PER as we roll forward our valuation base year. Upgrade MBM to BUY from HOLD. Although MBM’s main business is expected to remain loss-making in the near-term, its valuable associate stake in Perodua should cushion any downside risk. Earnings Summary Income Statement FYE Dec 31 (RMmn) Revenue EBITDA Dep. & amortisation Net finance cost Associate + JV Forex & EI PBT Taxation MI Net profit Core net profit Reported EPS (diluted) Core EPS (diluted) DPS Ratios FYE Dec 31 (RMmn) Valuations Reported PER Core PER Div. Yield P/BV (sen) (sen) (sen) (x) (x) (%) (x) Profitability ratios (%) Core ROE Core ROA EBITDA margin PBT margin Core net margin 2016 1,670.2 2.4 (25.7) (12.0) 142.9 (24.9) 82.7 (6.9) (9.8) 66.1 90.9 16.9 23.3 6.0 2017 1,732.6 15.9 (22.8) (11.3) 120.4 (250.7) (148.5) (7.5) 7.2 (148.8) 101.8 (38.1) 26.0 3.0 2018E 1,785.7 12.7 (20.3) (7.9) 136.5 0.0 121.0 (10.0) (14.4) 96.6 96.6 24.7 24.7 6.0 2019F 1,858.1 13.3 (19.3) (6.2) 143.8 0.0 131.5 (10.9) (15.6) 105.0 105.0 26.8 26.8 7.0 2020F 1,948.8 13.9 (19.4) (4.5) 149.4 0.0 139.4 (11.6) (16.5) 111.3 111.3 28.4 28.4 7.0 2016 2017 2018F 2019F 2020F 13.0 9.5 2.7 0.5 (5.8) 8.5 1.4 0.6 8.9 8.9 2.7 0.6 8.2 8.2 3.2 0.5 7.7 7.7 3.2 0.5 5.7 3.8 0.1 5.0 5.4 7.1 4.9 0.9 (8.6) 5.9 6.4 4.5 0.7 6.8 5.4 6.6 4.7 0.7 7.1 5.7 6.6 4.7 0.7 7.2 5.7 2.1 1.6 2.3 1.8 Liquidity ratios Current ratio Quick ratio (x) (x) 1.9 1.2 1.7 1.2 1.9 1.4 Leverage ratios Equity/total liabilities Net debt / equity (x) (x) 3.7 0.1 3.9 0.1 4.2 0.0 3.7 >-100 12.0 (12.9) 3.1 >100 (5.2) 3.9 Growth ratios (%) Sales Pretax Core earnings Total assets 4.5 Net cash 4.1 8.7 8.7 4.1 4.8 Net cash 4.9 6.0 6.0 4.4 Balance Sheet FYE Dec 31 (RMmn) Fixed assets Associates + JV Prepaid land lease Others LT assets Inventories Trade receivables Cash Others Current assets 2016 353.6 1,205.4 37.4 231.6 1,827.9 191.9 148.3 173.0 40.4 553.5 2017 270.7 1,188.4 36.8 72.0 1,567.9 148.2 150.5 193.3 14.5 506.6 2018E 257.0 1,218.5 36.3 72.0 1,583.8 152.7 155.2 249.7 14.5 572.1 2019F 244.4 1,255.9 35.7 72.0 1,608.0 158.9 161.5 301.8 14.5 636.7 2020F 232.6 1,299.0 34.2 72.0 1,637.8 166.7 169.3 354.7 14.5 705.2 Total Assets 2,381.4 2,074.5 2,156.0 2,244.7 2,343.0 Trade payables ST borrowings Others Current liabilities LT borrowings Others LT liabilities 126.1 166.3 2.3 294.7 203.4 11.0 214.4 131.6 168.5 2.5 302.6 108.2 8.4 116.6 135.7 162.4 2.5 300.6 104.3 8.4 112.7 141.2 156.3 2.5 300.0 100.4 8.4 108.7 148.1 150.8 2.5 301.4 96.9 8.4 105.2 Shareholders equity MI Total Equity 1,605.8 266.6 1,872.4 1,439.6 215.7 1,655.3 1,512.7 230.1 1,742.8 1,590.3 245.7 1,836.0 1,674.2 262.2 1,936.4 Total Equity & Liabilities 2,381.4 2,074.5 2,156.0 2,244.7 2,343.0 Cash Flow Statement FYE Dec 31 (RMmn) PBT Dep. & amortisation Net Finance Cost Associates & JV Changes in WC Finance costs Taxation Others Operational cash flow 2016 82.7 25.7 12.0 (142.9) (43.3) (18.6) (12.3) 59.6 (37.0) 2017 (148.5) 22.8 11.3 (120.4) 73.5 (15.5) (12.3) 264.9 75.8 2018E 121.0 20.3 7.9 (136.5) (5.1) (13.1) (10.0) 0.0 (15.5) 2019F 131.5 19.3 6.2 (143.8) (7.0) (12.6) (10.9) 0.0 (17.2) 2020F 139.4 19.4 4.5 (149.4) (8.7) (12.1) (11.6) 0.0 (18.5) Capex Dividend Interest Inc Others Investing cash flow (25.5) 76.9 6.5 1.4 52.8 (6.1) 110.6 4.2 10.9 115.3 (6.1) 111.5 5.1 0.0 105.4 (6.1) 112.7 6.4 0.0 106.6 (6.1) 113.9 7.6 0.0 107.8 Dividend paid Net change in debts Others Financial cash flow (32.2) (4.9) (17.5) (54.6) (61.3) (102.1) (7.5) (170.8) (23.5) (10.0) 0.0 (33.5) (27.4) (10.0) 0.0 (37.4) (27.4) (9.0) 0.0 (36.4) Net cash flow Opening cash flow Forex & others Closing cash flow (38.8) 211.8 0.0 173.0 20.4 173.0 0.0 193.3 56.4 193.3 0.0 249.7 52.0 249.7 0.0 301.8 52.9 301.8 0.0 354.7 Page 2 of 3
16. 12-Mar-18 (TH I S P A GE IS IN TE N TI ON AL L Y L E F T B L AN K ) Stock Recommendation Guideline BUY : HOLD : SELL : Not Rated: Total return within the next 12 months exceeds required rate of return by 5%-point. Total return within the next 12 months exceeds required rate of return by between 0-5%-point. Total return is lower than the required rate of return. The company is not under coverage. The report is for information only. Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Gross dividend is excluded from total return if dividend discount model valuation is used to avoid double counting. Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium. Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. As of Monday, March 12, 2018, the analyst, Abel Goon, who prepared this report, has interest in the following securities covered in this report: (a) nil Kaladher Govindan – Head of Research TA SECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 2032 5048 www.ta.com.my Page 3 of 3
17. COMPANY UPDATE Monday , March 12, 2018 FBMKLCI: 1,843.92 Sector: Automotive THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* TP: RM5.52 (-7.2%) UMW Holdings Bhd Last Traded: RM5.95 Acquires Perodua Abel Goon Sell Tel: +603-2072 1277 ext. 1641 abelgoon@ta.com.my The News UMW Holdings Bhd (UMW) proposed 2 different acquisitions to increase its stake in Perodua (Table 1). Firstly, UMW will purchase 50.07% stake in MBM Resources Bhd (MBM) from majority shareholder Med-Bumikar Mara (49.5%) and Central Shore (0.57%) for a total consideration of RM501mn. This implies acquisition share price of RM2.56, which translates to a premium of 16.4% over MBM’s current share price. Subsequently, UMW will carry out a mandatory take-over offer for the remaining shares in MBM with the intention to delist MBM if successful. We note that MBM holds a direct 20% stake in Perodua and 2.6% indirectly via Daihatsu Malaysia. Separately, UMW will purchase a 10% stake in Perodua from PNB Equity Resource Corp for a total consideration of RM417.5mn. This payment will be settled via 49.2mn (4.2% of share capital) new UMW shares at issue price of RM6.09 and cash consideration of RM117.5mn. Collectively, the acquisitions will net UMW a 32.6% stake in Perodua. Thus, including UMW’s initial stake in Perodua of 38%, UMW will own 70.6% of Perodua. Table 1. Proposed Acquisitions Acquisition Target MBM Resources Bhd Consideration RM2.56/share Vendor Shareholders Perodua Stake Held 22.6% RM117.5mn cash and PNB Equity Resource's issue of 42.9mn shares stake in Perodua @ RM6.09 (Total: PNB 10.0% RM417.5mn) www.taonline.com.my Share Information Bloomberg Code Stock Code Listing Share Cap (mn) Market Cap (RMmn) 52-wk Hi/Lo (RM) 12-mth Avg Daily Vol ('000 shrs) Estimated Free Float (%) Beta Major Shareholders (%) UMWH MK 4588 Main Market 1,168.3 6,951.3 6.98/4.70 792 26.1 1.6 PNB - 48.0 EPF - 9.2 KWAP - 7.1 Forecast Revision Forecast Revision (%) Net profit (RMm) Consensus TA's / Consensus (%) Previous Rating FY18 FY19 0.0 0.0 334.4 469.6 332.6 429.6 101 109 Sell (Maintain) Financial Indicators Net Debt / Equity (x) FCPS (sen) Price / CFPS (x) Core ROA (%) NTA/Share (RM) Price/NTA (x) Share Performance (%) Price Change 1 mth 3 mth 6 mth 12 mth FY18 0.6 53.2 11.2 3.1 3.7 1.6 FY19 0.5 69.6 8.5 4.0 4.0 1.5 UMW (10.0) 19.0 8.4 11.6 FBM KLCI 0.8 6.6 3.0 7.4 Sources: Bursa Malaysia (12-Mth) Share Price relative to the FBMKLCI Our View We note that UMW’s purchase consideration for PNB’s 10% stake in Perodua values the company at circa RM4.2bn. Assuming 1) 2.5% growth in net profit (in-line with volume growth) and 2) circa RM450mn net profit in FY17, the valuation implies CY18 PER of 9x. We are largely positive on this acquisition as the valuation ascribed seems rather cheap. Note that the average PER for automotive companies under our coverage is 13x. Assuming equal valuation of Perodua in the MBM acquisition, translates to UMW valuing MBM’s other businesses at circa RM57mn. Despite MBM exPerodua registering losses every year, we believe the consideration is still cheap as it implies P/NTA of 0.2x ex-associates stake in Perodua. Thus, we are largely positive on MBM’s acquisition as valuations are attractive. Furthermore, we understand that the OMI Alloy wheel plant, which was the main earnings drag for MBM may finally breakeven in FY19. Nevertheless, we believe UMW will be hard-pressed to convince MBM’s Source: Bloomberg Page 1 of 3
18. 12-Mar-18 minority shareholders to accept the offer given the rather cheap valuations . Thus, we opine that the acquisition of MBM may not materialize. That said, we do not discount the possibility of UMW increasing the purchase price to further entice shareholders. In our opinion, UMW’s balance sheet may easily stomach the MBM acquisition, given its 1) large cashpile of RM2.5bn, 2) low net gearing of 0.5x after disposal of UMW-OG and 3) robust operating cash flow of circa RM500mn per annum. Furthermore, MBM’s net gearing is merely 0.05x implying a decent cash position. All in, the two acquisitions, and privatization of MBM, are expected to increase UMW’s FY18 expected core net profit by circa RM113mn, which is about one-third of UMW’s current expected earnings. Our estimates assume 1) reduction of interest income on RM1.1bn (cash consideration) based on 3% interest, 2) Perodua FY18 expected net profit of RM460mn and 3) MBM FY18 expected net profit of RM100mn. Assuming 13x CY18 PER (automotive peers’ average), we estimate an increase in our TP to RM6.38, if both acquisitions materialise (Table 2). Table 2. Earnings and TP Impact Both Only MBM Only 10% Perodua stake Earnings Change 33.8% 20.9% 12.9% TP (RM) 6.38 6.22 5.71 Assuming MGO price of RM2.56/share Impact Maintain earnings forecast pending completion of the acquisitions. Valuation We maintain our TP of RM5.52 based on SOP valuations. We opine that UMW is fully valued for now at 15.1x CY19 PER compared to peers’ average of 13x CY19 PER. Thus, our Sell recommendation remains. Nevertheless, we believe if the acquisitions are successful, upside for the Group is immense as it will hold 70.6% stake in Perodua (Malaysia’s largest automotive marque by sales volume). SOP Valuation Segments Equity Value PER (x) (RM mn) Reasoning Automotive 15 6,313 2x premium to peer's average Equipment 12 1,492 Regional peers' average M&E Serendah Land 10 125 523 Regional peers' average 50% discount to RNAV Total Equity Value 8,452 Net debts (holding co.) (1,286) Shares outstanding (mn) Holding co. discount 1,168 10% SOP TP (RM) 5.52 Page 2 of 3
19. 12-Mar-18 Summary Income Statement (RM mn) FYE Dec 2016 2017* 2018E 2019F 2020F Revenue 10,436.8 11,046.5 11,666.8 12,781.4 14,105.1 EBITDA 1,191.0 671.5 736.1 977.5 1,045.0 Dep. & amortisation (569.5) (336.3) (358.4) (369.1) (380.2) Net finance cost (105.1) (39.2) (10.1) (15.1) (16.5) Associate & JV 183.6 171.7 188.2 206.3 226.2 EI (942.5) (214.8) 0.0 0.0 0.0 PBT (242.5) 252.9 555.7 799.6 874.5 Taxation (133.5) (122.3) (111.6) (166.9) (190.0) MI (120.9) (106.1) (109.7) (163.1) (177.3) Continued Net profit (496.9) 24.5 334.4 469.6 507.2 Discontinued Net profit (1,161.2) (675.7) 0.0 0.0 0.0 Core net profit 445.6 239.3 334.4 469.6 507.2 Reported EPS (sen) (141.9) (55.7) 28.6 40.2 43.4 Core EPS (sen) 38.1 20.5 28.6 40.2 43.4 Core PER (x) 15.6 29.1 20.8 14.8 13.7 DPS (sen) 0.0 0.0 14.0 20.0 22.0 Div Yield (%) 0.0 0.0 2.4 3.4 3.7 NTA/share (RM) 5.9 3.6 3.7 4.0 4.3 Balance Sheet (RM mn) FYE Dec Fixed assets Associates & JV Others Non-current assets Cash Flow (RM mn) FYE Dec PBT Continued PBT Discontinued Depreciation Associates & JV Net finance costs Changes in WC Interest paid Tax paid Others Investment cash flow 2016 2017* (242.5) 252.9 0.0 (802.8) 569.5 336.3 (183.6) (171.7) 105.1 39.2 200.7 528.8 (185.5) (119.0) (133.5) (122.3) 160.5 504.2 (772.5) (1,980.5) 2018E 555.7 0.0 358.4 (188.2) 10.1 18.3 (78.5) (111.6) 0.0 (531.6) 2019F 799.6 0.0 369.1 (206.3) 15.1 32.9 (91.6) (166.9) 0.0 (523.5) 2020F 874.5 0.0 380.2 (226.2) 16.5 39.0 (104.7) (190.0) 0.0 (511.9) Net debt raised/(repaid) Equity raised(repaid) Dividend Others Financial cash flow 853.6 0.0 (212.7) (558.3) 82.7 500.0 0.0 (239.2) 0.0 260.8 500.0 0.0 (309.2) 0.0 190.8 Net cash flow (399.1) (1,428.3) 293.4 Forex and others (141.2) 420.5 176.0 0.0 (75.9) 6.5 106.6 2016 7,678.5 2,008.1 791.3 10,478.0 2017* 2,660.6 1,708.3 451.4 4,820.3 2018E 2,902.2 1,896.5 451.4 5,250.1 2019F 3,133.1 2,102.8 451.4 5,687.2 2020F 3,352.9 2,329.0 451.4 6,133.2 1,931.2 988.5 1,857.4 1,008.0 5,785.1 0.0 1,342.7 993.6 1,163.4 1,298.2 4,798.0 323.7 1,418.1 1,049.4 1,456.8 1,298.2 5,222.6 323.7 1,553.6 1,149.7 1,876.0 1,298.2 5,877.5 323.7 1,714.5 1,268.8 2,321.0 1,298.2 6,602.4 323.7 16,263.0 9,942.0 10,796.3 11,888.4 13,059.4 ST borrowings Payables Others Current Liabilities 2,639.3 1,878.6 234.0 4,752.0 685.3 2,662.1 153.4 3,500.8 809.7 2,811.6 153.4 3,774.7 934.1 3,080.2 153.4 4,167.7 1,058.4 3,399.3 153.4 4,611.0 LT borrowings Others Non-current liabilities Liabilities Held for Sale 3,715.8 931.0 4,646.7 0.0 2,069.7 143.2 2,213.0 52.4 2,445.3 143.2 2,588.6 52.4 2,821.0 143.2 2,964.2 52.4 3,196.6 143.2 3,339.8 52.4 4,718.6 2,145.7 6,864.3 16,263.0 3,082.4 1,093.4 4,175.8 9,942.0 3,253.5 1,127.2 4,380.7 10,796.3 3,489.8 1,214.4 4,704.2 11,888.4 3,740.4 1,315.7 5,056.1 13,059.4 Inventories Receivables Cash Others Current assets Assets Held for Sale Total assets Shareholder funds MI Total Equity E&L Ratios PBT margin Core net margin (%) (%) (2.3) 4.3 2.3 2.2 4.8 2.9 6.3 3.7 6.2 3.6 500.0 0.0 (332.5) 0.0 167.5 Liquidity ratios Current ratio Quick ratio (x) (x) 1.2 0.8 1.4 1.0 1.4 1.0 1.4 1.0 1.4 1.1 419.2 444.9 Total lia./equity (x) 2.0 1.9 2.0 2.0 2.1 0.0 0.0 0.0 Net debt/equity (x) 1.0 0.5 0.6 0.5 0.5 Leverage ratios Cash beginning 2,734.1 2,171.2 1,163.4 1,456.8 1,876.0 Cash ending 2,193.9 1,163.4 1,456.8 1,876.0 2,321.0 0.0 0.0 0.0 0.0 Revenue (%) 5.8 5.6 9.6 10.4 1,163.4 1,456.8 1,876.0 2,321.0 EBITDA (%) (43.6) 9.6 32.8 6.9 Pretax (%) n.m. >100 43.9 9.4 Core net earnings (%) (46.3) 39.8 40.4 8.0 Deposits set aside (336.5) Cash after Deposits 1,857.4 Key Assumptions Sales Volume (units) 70,000.0 73,500.0 Growth ratios 77,175.0 *demerger of UMWOG in FY17 Discontinued operations excluded from historical figures Stock Recommendation Guideline BUY : HOLD : SELL : Not Rated: Total return within the next 12 months exceeds required rate of return by 5%-point. Total return within the next 12 months exceeds required rate of return by between 0-5%-point. Total return is lower than the required rate of return. The company is not under coverage. The report is for information only. Total Return is defined as expected share price appreciation plus gross dividend over the next 12 months. Gross dividend is excluded from total return if dividend discount model valuation is used to avoid double counting. Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium. Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. As of Monday, March 12, 2018, the analyst, Abel Goon, who prepared this report, has interest in the following securities covered in this report: (a) nil Kaladher Govindan – Head of Research TA SECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 2032 5048 www.ta.com.my Page 3 of 3
20. Monday , 12 March, 2018 TA RESEARCH’S ‘DAILY COMPILED REPORTS’ For Internal Circulation Only L oc al Te ch n ic al R ep o r ts 1. Weekly Technical Stock Picks 2. Daily Money Flow 3. Technical Stock Picks a. FBMKLCI 4. Weekly Ace Market Stock Watch 5. Weekly Small Cap Stock Watch 6. Weekly Stock Screen Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. Kaladher Govindan – Head of Research TA SECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 2072 1277 Fax: 603 – 2032 5048 www.ta.com.my