Market Briefing

Malaysia Led by 27 gains in KLCI components, KLCI soared 12 pts to 1597.9 as market sentiment was boosted by surging oil prices and FCPO, coupled with the government’s pledge to further ramp up in daily vaccination rates next month. Market breadth was bullish as 710 gainers beat 362 losers with a total of 7.4bn shares transacted valued at RM4.1bn. 

Foreign institutions returned as net buyers (+RM139m; 5D: +RM372m) whilst retailers (-RM18m; 5D: +RM298m) joined local institutions (-RM121m; 5D: -RM670m) as the major net sellers.

Outlook After plunging to 1552 (YTD low), KLCI has staged a commendable rebound to end at 1597.6 yesterday as the tussle between slowing economy and elevated Covid-19 infections against further acceleration in vaccination rollouts, abundant liquidity and prevailing low interest rates (BNM may cut OPR by another 25bps on 8 July should the lockdown prolong beyond a month) continue to play out in the market. Key resistances are pegged at 1600-1606-1623 levels whilst supports are situated near 1582-1577-1552 territory. 

Global Asian stocks ended moderately higher as sentiment was boosted by a strong April US ISM manufacturing data and an upbeat Australia GDP report, ahead of the widely focused US jobs data this Friday that could engender further talk of Fed’s policy normalization. 

The Dow jumped as much as 130 pts to 34706 in early trades, led by energy shares as oil rallied to more than two-year high on OPEC+ supply discipline and promising demand prospects. However, the index ended only +25 pts at 34600 as investors assessed the Fed's Beige Book, which highlighted the ongoing labour supply shortage and faster pace of inflation are set to continue in the months ahead.  

Serba Dinamik

 Key takeaways from Serba Dinamik conference call:

♦️ Serba received the official review request in early May this year and this is the main reason for  the change of financial year end to June. The prolonged COVID-19 pandemic has somewhat limit the ordinary audit process despite >90% of the subsidiaries/material subsidiaries are audited by KPMG.

♦️ No fraudulent related reports have been raised thus far. The review are not particularly on certain transactions or subsidiaries but more on overall operations which include domestic and overseas operations. Some of these issues have been addressed by management and the independent reviews will “give comfort” to the auditors.

♦️ No RPT is related and the additional reviews are not backdated to prior year numbers. The additional review also not extended to Dato’ Karim’s related companies i.e. KPower and SCIB.

♦️ Serba Dinamik has identified a new independent firm to address this issue and the review is guided to be completed by August concurrently with the conclusion of 18MFY21 financial statements (until October 2021 for submission).

♦️ Management reiterates that no disruption to its business operations at this juncture. They have also engaged with financiers and have not received any pullback of banking facilities and credit lines.

♦️ Our view - the explanations given by management may not be able to provide sufficient clarity and comfort to address investors doubt. Expect share price to react negatively and it will remain a major overhang until the company is able to prove the veracity and accuracy of these matters.

Rubber Products Update

 1. COVID-19 daily new cases in Malaysia breached 2,000. New cases hit 2148 today which is 14% higher than yesterday's 1889. More importantly, it breaks the psychological level of 2000 cases. Sarawak reported the highest infections at 512.

2. This may explain the strong price performance today for gloves companies This may have increased the interest in gloves sector today. As of time of writing, six gloves stocks under our coverage have gained between 6% to 13%.

3. Our BUY calls are fundamentally driven with Kossan (TP: MYR5.45) as preferred pick Sentiment aside, our TP are already assuming long term gloves ASP of USD40 as compared to current ASP of between USD80-100. Our preferred pick is Kossan. In the near term, it should benefit from the nitrile glove shortage. 80% of its sales volume is derived from nitrile gloves, and the rest from latex gloves. Its expansion plan is intact, with Plant 19 fully commissioned in Aug 2020 – bringing total capacity to 32bn ppa. Looking ahead into FY21, the company plans to increase capacity by 1.5bn ppa by constructing Plant 20. This is slated for full commissioning by 1H21.

4. Other BUY calls are Top Glove (TP: MYR6.80), Supermax (TP: MYR8.75), Comfort Gloves (TP: MYR:2.60) and Rubberex (TP: MYR1.60).

RHB Research

Pump and Dump

 

Construction

Mah Sing

 ♦️ The development of the glove production lines are on track. Management said the first performance testing was already done on 17/3, and production should start by mid-April.   

♦️ Mah Sing has already locked in shipment up to June @ $115/1k pieces. First batch of shipment is to the US, Canada and Middle East, followed by Europe, Japan, China and South America. 

♦️ Management has already hired 60 non-factory staff (for the glove office), and is in the process of interviewing/hiring another 40 staff. The company will need 350 workers for the total 12 production lines, and thus far, it has locked in 100 workers through 4 agencies. Glove packing will be outsourced to packing professional firm in order to reduce the amount of fixed costs. 

♦️ Mah Sing has also locked in the supply of raw mat NBR @ US$2.7-3k per tonne, sufficient for the current order up to June. It has also locked in the supply until year end, but has not locked in the prices, as NBR prices are expected to come down based on feedback from NBR suppliers. Management indicated that the cost per box (1k pieces) is estimated at US$40.

♦️ Management is still confident to achieve its RM1.6bn sales target. To recall, Jan-Feb sales were already at RM250m. About RM2.4bn worth of projects will be launched this year.

♦️ Maintain Buy, TP: RM0.97

Top Glove

Top Glove (RM5.18, noon closing) by HG Tan

2Q core PAThAMI of RM2.865.1bn (+20.7% QoQ, +25x YoY ) brought 1HFY21 core PATAMI to RM5.220.9bn (22x YoY). 

Analysts will say it is is in line as their full yr forecasts are around RM10 to 10.5bn (see Edge Daily today, pg 9). 

Personally, believe results are aboved given the lead time taken to deliver earnings. Estimate full yr net profit to be closer to RM12bn in FY21

Declared DPS of 25.2 sen (1Q21: 16.5sen), ex on 23 March. 1HFY21: 41.7 sen., 1HFY20: None. 

GHW maintains Buy call with TP of RM8.06

There will be a Zoom meeting in afternoon. Analyst will issue report later

For Top Glove, given the dented sentiments with volatile share prices and investors attention on economuc recovery stocks, believe analysts' esply the brokers analysts (including our analyst) will hesitate in revising up earnings and TPs.

Personally believe analysts will remain behind the curve on earnings forecasts of Top Glove 🤣

Top Glove Result

1. Earnings matched expectations. 1HFY21 earnings of MYR5.23bn makes up 51% of consensus and 49% of our full year estimates. 1HFY21 earnings surged 23x YoY due to better ASPs and higher volume of gloves sold.

2. 2QFY21 earnings improved 21% QoQ. Higher ASP supported the increase in better earnings.

3. Announced 25.2 sen dividend. Top Glove paid 70% of its profit in 2QFY21 as promised. Recall that the Company has pledged to increase its payout ratio to 70% from 50% for FY21 beginning 2QFY21 onwards.

4. Prospects. Top Glove stated that "Global glove demand is estimated to grow from a pre-pandemic level of about 10% per annum to about 15% per annum post-pandemic, following increase in usage coupled with heightened hygiene awareness. To ensure it remains well-positioned to meet the continued strong glove demand, the Group will continue to pursue organic expansion, inorganic expansion and strategic investments.

RHB Research

Comments on Top Glove results by HG Tan :

As per my watsapp yestetday, personally construed TG's, 1HFY21 results to be aboved expectations as management guided that 2H is better than 1H.

With locked in sales and normalisation in production (2Q disrupted by closure of factories), expect earnings to trend higher in 3Q.

Personally estimate full yr FY21 earnings to come closer to RM12bn versus consensus/GHW's projection of RM10 to 10.5bn.

Expect FY22 earnings to ease but probably not as sharp as 50% reduction as anticipated by GHW/consensus given the lead time in delivering earnings

Believe our analyst Gan Huan Wen is reluctant to revise up FY21 earnings as it may translate into higher TP.. As it is, he has previously revised down TP following the sharp fall in mkt price of TG...

Judging from the reply of Tan Sri Lim when asked whether the group will continue to pay 70% of net profit as dividend in FY22, the reply alluding to positive rather than negative.. As such, can expect another high dividend year in FY22.

Believe the commendable dividends will cushion share prices. 

Meanwhile, funds raise via dual primary listing of TG in HK will further strengthen its war chest enriched by the strong cashflows. This will enhance its competitive edge in pursuing M&A when opportunities arise.

Corporate News

 •* AMMB Holdings Bhd’s* net profit for the third quarter ended Dec 31, 2020 (3QFY21) fell 30.96% to RM263.83 million from RM382.15 million a year ago, due to higher allowance for impairment on loans, advances and financing. The banking group’s quarterly revenue also slipped 11.81% to RM2.09 billion, from RM2.37 billion a year ago, its filing to Bursa Malaysia showed. AMMB did not declare any dividend for the latest quarter.

•* HeiTech Padu Bhd* has won a RM33.92 million contract to provide maintenance services for the Malaysian Immigration System (myIMMs). The technology services provider said it signed the three-year contract with the Immigration Department on March 1. The contract period started on Feb 18.

•* Pharmaniaga Bhd* has appointed Datuk Seri Mohamed Shazalli Ramly as the non-independent non-executive chairman of Pharmaniaga Bhd effective March 1, 2021. Meanwhile, Boustead's executive director of group business development Izaddeen Daud has also joined the board of Pharmaniaga as a non-independent and non-executive director.

•* Top Glove Corp Bhd’s* executive chairman Tan Sri Dr Lim Wee Chai has purchased more shares of the group, as the counter fell to an eight-month low. Lim has raised his direct shareholding in the group to 26.419% or 2.11 billion shares, after he acquired 4.04 million shares at RM4.9287 each, Top Glove’s filing with Bursa Malaysia today showed.  Lim also has an indirect stake of 8.651% or 692.19 million shares in Top Glove, the group said.

•* Advancecon Holdings Bhd* said its 30%-owned Advancecon Sarawak Sdn Bhd had bagged its single-largest contract worth RM153.5 million to undertake earthworks in the Samalaju Industrial Park, Bintulu, Sarawak. The contract was awarded by Wenan Steel (Malaysia) Sdn Bhd to Advancecon Sarawak. Wenan is building an iron and steel production complex there. Advancecon said the contract is in addition to the group’s ongoing works in Sarawak, namely two packages for Pan Borneo Highway Sarawak and two roadwork contracts from the Upper Rajang Development Agency (URDA).

•* Sime Darby Plantation Bhd* has established an Expert Stakeholder Human Rights Assessment Commission, and appointed Impactt Ltd as a third-party assessor to conduct a comprehensive evaluation of the group’s labour practices across its Malaysian operations. For the stakeholder panel, the group said its members include Shift (the leading centre of expertise on the UN Guiding Principles on Business and Human Rights), migrant worker rights activist and human rights researcher Andy Hall, and a representative of the National Union of Plantation Workers (NUPW).

•* Uzma Bhd* is acquiring stakes in two renewable energy (RE) companies for RM5.39 million, in a bid to enter the RE sector with a primary focus on solar energy. Uzma said it has entered into a conditional share sale agreement with Mohd Syahrul Nizar Abdul Ghani to acquire a 49% stake in Suria Infiniti Sdn Bhd and a 100% stake in Mahendran Surya Innovations Sdn Bhd. The oil and gas services group has mulled entering the RE space since late 2019, eyeing projects under Large Scale Solar 4 (LSS4) that were opened for bidding late last year, as well as opportunities amid the high portion of NEM quota that was not utilised.

Company Update

Top Glove Corporation Berhad (7113)

Target Price: RM7.80 (Buy)

Top Glove announced that the dual primary listing exercise on the Main Board of The Stock Exchange of Hong Kong Limited involved the issuance of up to 1.495bn new shares, representing up to 18.65% of the group’s issued shares. As such, this exercise could raise up to RM7.7bn, at an issue price to be determined at a later date. The proposals are expected to be completed by 2Q21. We estimate EPS dilution of circa-15% in FY21 post completion of dual-listing exercise. Maintain earnings forecast pending completion of this exercise. Maintain Buy.          

Via CLSA

* Malaysia - Top Glove - Trifecta listing 

Top Glove proposed to issue up to 1,495m new shares (18.7% of share base) for its upcoming listing on the Hong Kong Exchange (HKEX), which could raise up to HK$14.95bn, or RM7.77bn, for the group. The proposal targets completion by 2Q21. The issuance is surprisingly large to us, which we see as unnecessarily dilutive as most of the proposed initiatives could have been funded internally. We incorporate the impact of the dilution into our forecast, resulting in a cut in our target price from RM7.20 to RM5.50 and a downgrade of our rating from BUY to Underperform. 

* Malaysia - Malaysia Banks - Bank 4Q20 wrap 

Malaysia’s four banks, CIMB, RHB, HLBK and Alliance, reported results last Friday. HLBK was the best, while CIMB’s earnings missed on non-loan impairments. All four banks upped their provision guidance (versus last quarter), despite indicating underlying portfolios had not seen significant growth in loans requiring help. On balance, banks envisage scope for NIM expansion this year given funding mix improvement. Our top pick is Maybank (previously RHB) on higher dividend conviction. AMMB, which just agreed to a fine by the Ministry of Finance AMMB - O-PF (Making final AMM-ends) reports its quarterly results Monday. 

* Malaysia - Malaysia Utilities - Looking attractive 

Demand for electricity and gas continued to recover in 4Q20 after disruptions caused by Covid-19 in 1H20. On top of this, the government continued to honour the Regulated Asset Base (RAB) regime for Tenaga and Gas Malaysia, which naturally protects earnings from volatility and hence ensures more sustainable dividends. We continue to have BUY ratings on both given undemanding valuations & attractive dividend yields. We rate Petronas Gas O-PF, also supported by its dividend yield. 

* Malaysia - IHH - Coming out stronger from Covid-19 

IHH’s 4Q20 Ebitda of RM1,042m (+25% QoQ/+16% YoY) rebound strongly as more cost containment efforts trickled through during the quarter. This led to FY20 core PATAMI of RM715m (-22% YoY), exceeding our/consensus forecasts at 157%/248%. IHH’s share price has declined 8% YTD and it remains a more unassuming play for border reopening, in our view. Should the group sustain its 4Q20 momentum coupled with continued cost efficiency, the stock is trading at an undemanding 13x 22CL EV/Ebitda, below -1 std. of its mean. Thus, we upgrade our recommendation from Outperform to BUY on a higher target price of RM6.60 (previously RM6.30). 

* Malaysia - Maxis - Uncertainty prevails 

Maxis’ 2020 earnings (-8% YoY) were within expectations. Although guidance continued to be withheld, we take our cue from Digi, in that it sees 2021 mobile service revenue declining in the low-to-mid-single digits. On a lower post-paid Apru, we lower our earnings estimates 6%-7%. As its 4Q20 dividend of 5 sen includes a 1 sen special dividend, we believe its quarterly dividend is likely to remain at 4 sen for the near future, for an implied dividend yield of 3.4%. We retain our SELL rating at a lower target price of RM4.55 (previously RM4.70). 

* Malaysia - Malaysia Airports - Clearer recovery runway 

Malaysia Airports’ (MAHB) core loss (excluding impairment and accelerated depreciation) of RM589m was below our RM500m loss estimate. Even so, front-loading costs & depreciation in FY20 should allow a clearer P&L recovery runway, and cashflow concern has been further allayed with rescheduling obligations/debt. Cost savings exceeded its target and on the assumption that these could sustain somewhat after a recovery, and benefiting such a stronger margin, underpins the lift in our target price from RM5.60 to RM6.90 and rating from Underperform to Outperform. 

* Malaysia - AMMB - Making final AMM-ends 

AMMB (AMM MK) revealed a negative surprise Friday with it agreeing to a fine of RM2.83bn to the Ministry of Finance following a review by relevant authorities of past dealings by 1Malaysia Development Berhad (1MDB) and related entities. While more explanation may be forthcoming (likely in conjunction with its 3QFY21 results to be announced Monday), the finalised penalty necessitates us to adjust our book value estimate. This results in a 13% lower target price of RM3.50 (previously RM4.00). Our valuation multiple of 0.6x and O-PF rating remain unchanged. The silver lining from this is that there could be a greater focus on the business and fewer distractions should it consider M&As in the future. 

* Malaysia - Pentamaster - Back to the old ways 

An uptick in the book-to-bill ratio to 1.2x reinforces expectations of a return to 21CL earnings growth (+27% YoY). We expect next generation sensors to drive demand for electro-optical equipment. Adoption of silicon carbide (SiC) power semiconductors continues to rise and now forms 20% of automotive revenues. Its expansion into manufacturing of medical devices is on track and will play a meaningful role in 2022. Retain O-PF at an unchanged target price of RM7.40. 

* Malaysia - Sime Darby Property - Stronger targets ahead 

Sime Darby Property’s 2021 sales target of RM2.4bn (+20% YoY) will be supported by planned launches of RM2.5bn (+67% YoY) and unsold GDV of RM2.2bn (completed inventory comprises RM738m). Nonetheless, we take this opportunity to tweak our earnings to reflect the delay in completion of Battersea Power Station (BPS) phase 3A (£879m gross development value) that has been pushed back to 4Q21/1Q22 (initially expected for 3Q21) alongside lower margin assumptions. We reiterate BUY and an unchanged target price of RM0.69.

Top Glove - Embracing for longer term growth

(by HGTan) 

On first glance of proposal, the issue surfaced is EPS and in turn divided per share will be diluted given issuance of new shares for the HK IPO. 

Believe this perception may lead to investors further trimming down holding given the jittery mood on glove sector outlook as a whole. 

My take is this move is timely given supernormal profits years in FY21 and FY22

The 15 to 18% of new shares due to new IPO will chip off existing EPS and dividends per share but investors may not hv inclination yet on how high are the earnings to be reported in FY21/22.

With such super normal profits kicking in and in turn super high dividend per share over next two FYs, one can only celebrate for the dividends (akan datang !!) 

With this move of dual listing and new inflows of funds, the group is well equip to scale new highs. 

Share below on the rationale for the Proposed Dual Primary Listing

(summarised by TG management) :

1.  HKEX platform allows Top Glove to broaden investor reach/base and allows direct participation from new private and institutional investors in Hong Kong and North Asia. This serves to strengthen liquidity of Top Glove's share trading and to enhance stakeholders' long term value.

 2.   To provide additional financing flexibility and a new platform for future fund raising to finance potential M & A exercises for accretive earnings. This will enhance the visibility of Top Glove's profile among international funds/investors, banks, customers, suppliers, research analysts and media, resulting in stronger brand awareness for Top Glove.

3. The stronger profits moving forward will improve EPS. The proceeds to be raised from the HK IPO will be used for expansion activities to further increase the production capacity and strategic business expansion for better sustainable profits. As the company is going through an exceptional high profit period, the EPS dilution effect is mitigated.

4.  The exceptional high profit with the special dividend of 70% from Q2 to Q4 FY2021 will provide shareholders with higher dividend compare with previous years, and mitigate the EPS dilution effect.

5. The funds raised and the current cash holding will be a strong reserve to fund Top Glove's ongoing growth and strategic expansion after the period of abnormal profits. With this, the group is hopeful that the existing shareholders can continue to enjoy a sustainable good dividend moving forward where the existing shareholders currently enjoys.

6. HKEX as a regulator in addition to Bursa and SGX would upgrade Top Glove's corporate governance standards in Top Glove's journey towards Fortune Global 500.

Separately, TG will release 2QFY21 results on 9 March afternoon. Believe it will be a commendable set of numbers.

Both our anakyst Gan Huan Wen and mkt consensus estimate net profit around RM10.5bn in FY21 with a 50% drop off in FY22. 

Believe TG wld be able to exceed these expectations and deliver earnings surprises again!!

In the way, the new HK IPO addresses concerns of earnings sustainability beyond FY22 as the group builds up its war chest and ready to cherry pick earnings accretive ventures. This will at least mitigate earnings down cycle risks beyond FY23.

As per my previous watsapp, believe value emerging at current level of RM5