Wednesday, March 6th, 2019


Telco sector continues to see intense competition

PETALING JAYA: AmBank Research has maintained a “neutral” call on the telecommunications sector given the continued intense competition in both the mobile and fixed broadband markets.

“We have ‘hold’ calls on Axiata Group Bhd, Telekom Malaysia Bhd (TM) and Bhd while Maxis Bhd is underweight due to its premium valuations despite its FY19 guidance for an ebitda decline amid additional capex for fiberised solutions, digitalisation and productivity capabilities,” the research house said in report today.

It said the telco sector’s Q4 18 results were somewhat mixed as normalised earnings of Digi and Axiata came in within expectations while TM did not suffer a profit erosion as bad as it had expected from the Mandatory Standard Access Pricing regime and repriced Unifi options.

Time dotcom Bhd’s results were stronger than expectations with its H2 earnings coming in above management’s guidance due to continued fixed broadband growth in the wholesale, retail and enterprise markets. Maxis underperformed due to additional costs for productivity enhancement and marketing for its fiberised solutions targeting the enterprise segment.

AmBank Research said as Communications and Multimedia Minister Gobind Singh Deo recently indicated that high-speed broadband prices will not be cut this year, TM earnings prospects have stabilised for now with around 90% of TM’s Streamyx and Unifi existing customers having been upgraded to faster speed packages while experiencing minimal downtrading activities together with manageable revenue declines in FY18.

Cellular operators’ (celco) Q4 18 net profit fell 30% quarter-on-quarter (q-o-q) and year-on-year (y-o-y) to RM790 million largely even though revenue improved, up 1% q-o-q and 5% y-o-y, from higher average revenue per user (ARPU) and postpaid subscribers for Celcom and Digi. The lower bottom line stemmed from a 6 percentage-point q-o-q decline in net profit margin to 13% from Maxis’ additional marketing/operational costs and Celcom’s higher depreciation and tax charges.

Digi continued to command the largest subscriber market share at 37% versus Maxis’ 34% while Celcom remained a distant third at 29%.

Since the middle of 2018, no celco has launched a comparable package to counter U Mobile’s prepaid GX30 which offers unlimited data with speeds up to 3Mbps for just RM30/month. Recall that U Mobile also launched postpaid GX50 which provides unlimited voice and data with speeds up to 5Mbps for RM50/month.

“Even though there appeared to be a half-year cease-fire in the postpaid wars, near- to medium-term revenue growth outlook remains weak against the backdrop of persistent pressure to gain market share.

“As U Mobile and Unifi mobile wrestle for new customers on the unlimited mobile data arena, prospects for incremental service revenue accretions are unexciting at this stage, underscored by the sector’s tepid forward momentum over the past years,” said AmBank Research.

US-China trade war to sweeten PIE’s performance in second half: Kenanga

PETALING JAYA: P.I.E. Industrial Bhd (PIE) is expected to perform better in the second half of 2019 (H2 19) driven by several factors, including prospects arising from the US-Chna trade war.

“Due to a shift in a new customer’s supply chain motivated by the US-China trade war, the group has engaged the former and started its maiden telecommunication device with its first shipment completed, while its second shipment close behind.

“Management expects contribution of its maiden telecommunication device to become meaningful by end of Q3 19,” said Kenanga Research in its report.

During a meeting with PIE’s management recently, Kenanga Research learned that the end customer is a major retail name, from which the group has already obtained three certifications, which could usher in additional contracts.

The group is currently working with its direct customer to develop a new audio-related accessory to be integrated into the abovementioned telecommunication device to be sold as a premium product.

In addition, another new customer has engaged the group to manufacture printed circuit board assembly (PCBA) for its white goods on a consignment basis.

“We are upbeat about the group’s medium-term prospects given the slew of new customers in the pipeline,” it said.

For H1 19, the group is unlikely to face issues with component shortages as it has already stocked up for three months ahead compared with the usual practice of one to two months.

“However, management cautioned the possibility of the issue resurfacing in Q3, should the adoption of 5G gain momentum. We believe that management would be more prepared this time, with better raw material management,” said Kenanga Research.

While 1Q19 is likely to be a weaker quarter on seasonality and higher start-up costs for its new products, the group’s earnings are expected to pick up in 2H19 to make up for the shortfall.

The improved earnings are premised on seasonal ramp-up alongside higher allocation from its telecommunication customer; mass production of its new products (industrial printing and production, and medical segment) with full-year earnings contribution in FY19; contribution from its maiden telecommunication device from end-Q3 19 onwards; and steady growth from its existing key customers.

“The abovementioned should be able to comfortably support our estimated two-year revenue/core net profit compounded annual growth rate of 11% and 15%,” it said.

Kenanga Research maintained its “outperform” rating on the stock, with an unchanged target price of RM1.90 and made no changes to its FY19-20 earnings estimates.

“We think that there is good value proposition at current price level, with its forward PER (price-to-earnings ratio) at only 12 times, at a 15% discount to its closest EMS (electronic manufacturing services) peers which is trading at 14 times PER. Note that this is all against the backdrop of its relatively higher net profit margin, more advanced manufacturing capabilities as well as having strong parentage support from Foxconn Technology Group,” it added.

Petronas ventures into electric vehicle fluids market with ‘iona’

PETALING JAYA: Petronas Lubricants Inter-national (PLI) is venturing into the electric vehicle (EV) market with the launch of the Petronas iona range of e-fluids for passenger cars.

This is part of the company’s pledge to address the climate challenge and lower CO2 emissions with its fluids technology, it said in a statement today.

Launched at the Geneva International Motor Show 2019, Petronas iona is PLI’s response to the ever-changing trends in mobility.

PLI said an industry-wide study will be commissioned to identify the challenges and future opportunities surrounding fluid technology and innovation towards advancing electric vehicle performance. The findings will be shared with key partners at an EV Fluid Symposium hosted by PLI later in 2019.

“The world we live in today is placing more and more emphasis on environmental responsibility and at Petronas, so are we. In the automotive sector, OEMs now have to adhere to increasing regulations on carbon emissions reduction. At Petronas, we are prepared and constantly evolving our fluid technology solutions to meet the challenges of the future together with our partners. The global shift towards cleaner energy is an opportunity for us to work collaboratively to reduce CO2 emissions with fluid solutions that are accessible to all,” said PLI managing director and group CEO Giuseppe D’Arrigo.

Last year, PLI pledged 75% of its research and technology investment towards inno-vations that help reduce CO2 emissions.

McMillan Woods Mea, two partners banned

KUALA LUMPUR: The Securities Commission Malaysia’s (SC) Audit Oversight Board (AOB) has prohibited McMillan Woods Mea and two of its partners, Mea Fatt Leong and Wong Joo Hua, from accepting clients and auditing any public interest entities or schedule funds for 12 months, effective Feb 14.

Additionally, the firm and Mea were also fined RM123,000 and RM44,000 respectively.

The actions were taken as the firm and its partners failed to comply with the international standard on quality control and relevant international standards on auditing when auditing the financial statements of a public listed company for the financial year ended Dec 31, 2016.

The AOB took action against Mea in his capacity as the engagement partner and Wong in his capacity as the engagement quality control reviewer for the audit of the public listed company.

The AOB noted numerous instances of non-compliances with the auditing standards which included non-performance of fundamental audit procedures which affected certain key audit areas. The AOB also noted that training was not provided to audit staff on recent changes to auditing standards and that outdated audit work programs were used for audit engagements.

The firm and Mea appealed to the SC against the period of prohibition and quantum of monetary penalty imposed by the AOB. The SC dismissed the appeal.

Compliance with auditing standards when auditing the financial statements of a public interest entity is a condition of registration for AOB registrants. Failure to comply with the AOB’s conditions of registration will result in a breach of section 31Z of the Securities Commission Malaysia Act 1993.

Palm oil futures could hit RM2,450 a tonne in four to six months: Analyst

KUALA LUMPUR: Malaysian palm oil futures are set to rise to trade between RM2,350 and RM2,450 a tonne in four to six months, leading industry analyst Thomas Mielke said today.

Benchmark palm oil futures slipped almost 8% in February amid worries over declining demand, dropping to a two-month low last week. They stood around RM2,145 today afternoon.

“There has been a big success story for palm oil production growth … but that is history. Annual global palm oil production growth is expected to drop,“ said Mielke, editor of the Hamburg, Germany-based newsletter Oil World.

“There is very strong demand for palm oil as the world’s dependence on palm oil is rising,“ he said, speaking at a seminar in Kuala Lumpur.

Mielke forecast that global palm oil output would hit 75.26 million tonnes this year, up from 72.48 million tonnes in 2018. He added that Malaysian palm oil yields were in a declining trend due to a lack of replanting and a cutback in fertiliser use.

But, he added that high palm stockpiles were likely to weigh on prices.

“We should not be too bullish at this point in the current year,“ Mielke said.

He forecast earlier this week that palm oil prices would recover in the next six to 10 months, and pegged 2019 output in Indonesia and Malaysia at 43 million tonnes and 20.1 million tonnes respectively.

Pre-ECB caution pushes German bond yields to one-week low

LONDON, March 6 – Germany's long-dated bond yields fell today to their lowest in a week, as markets grew cautious a day before the European Central Bank meets. The past week has seen selling across major government bond markets as investors dial…

Tesla's Chinese rival NIO scraps factory plan after losses

SHANGHAI, March 6 — Chinese electric vehicle start-up NIO has abandoned plans to build a manufacturing plant in Shanghai after net losses doubled to US$1.4 billion (RM5.73 billion) last year. US-listed NIO has been working with state-owned…

UK will set out 'no deal' tariffs if we get to that scenario, says trade minister Fox

LONDON, March 6 — British trade minister Liam Fox said today the government would set out the tariffs it plans to levy if Britain leaves the European Union without a deal at the point that becomes the likely outcome. Britain currently has…

M’sian palm oil yields on alarming downtrend, says expert

KUALA LUMPUR, March 6 — Malaysian palm oil yields have been on an alarming declining trend for nine years, mainly due to mismanagement which led to lack of replanting, as well as rising labour and fertiliser costs, says an expert. ISTA…

Bursa Malaysia closes higher, tracking regional peers

KUALA LUMPUR: Bursa Malaysia closed higher today in line with its regional peers led by gains on the Shanghai Stock Exchange.

At 5pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) ended at 1,686.82, up 1.2 points, from Tuesday’s close of 1,685.62.

The benchmark index opened 0.64 of-a-point lower at 1,684.98 and moved between 1,684.08 and 1,688.33 throughout the day.

On the scoreboard, market breadth was positive with 532 losers to 328 gainers, while 397 counters remained unchanged, 612 untraded and 18 others were suspended.

Volume was higher at 3.16 billion units valued at RM2.5 billion from 2.58 billion units worth RM2.11 billion.

“Regionally, the equity markets were slightly higher as the National People’s Congress (NPC) commenced its 10-day meeting beginning March 5 in Beijing.

“Investors will be closely monitoring the meeting which is expected to discuss the country’s slowing growth and geopolitical tensions,” a dealer said.

Meanwhile, Phillip Capital Management senior vice-president (investment) Datuk Dr Nazri Khan Adam Khan said emerging markets have similarly shown a solid recuperation from December’s downward spiral, up by nearly 9%.

“However, we believe the recovery, thus far, has yet to attract the interest of global investors as both actively-managed and passive funds have had a gradual increase in outflow on top of piling withdrawals since the last six months, signaling a cautious approach to equities as economic momentum remains in the negative,” he told Bernama.

On the local front, Bank Negara Malaysia announced yesterday that it was keeping the overnight policy rate unaltered at 3.25%, which was consistent with economists’ expectation.

Nazri said the central bank lowered its inflation expectation in 2019 to “stable” from “reasonably higher”.

“Overall, the FBMKLCI should trade cautiously between the support level of 1,680 and the resistance level of 1,700,” he added.

Other heavyweights, Maybank rose one sen to RM9.54, Petronas Chemicals added 11 sen to RM9.30, Public Bank slipped eight sen to RM24.52 and CIMB was seven sen weaker at RM5.52.

Of actives, My EG jumped 18 sen to RM1.19, Sapura Energy gained half-a-sen to 32 sen, Velesto improved one sen to 27 sen while VS Industry was five sen lower at RM1.03.

The FBM Emas Index increased 41.55 points to 11,771.36, the FBMT 100 Index rose 35.91 points to 11,625.11 and the FBM Emas Shariah Index advanced 90.42 points to 11,763.27.

The FBM 70 jumped 157.82 points to 14,150.14 while the FBM Ace Index appreciated 31.98 points to 4,720.89.

Sector-wise, the Financial Services Index lost 73.45 points to 17,557.36, the Plantation Index added 44.02 points to 7,317.01 and the Industrial Products and Services Index perked 1.65 points to 169.61.

Main Market volume increased to 2.41 billion shares valued at RM2.38 billion from 1.76 billion shares worth RM1.93 billion.

Warrants turnover fell to 496.72 million units valued at RM98.78 million from 516.76 million units worth RM116.06 million.

Volume on the ACE Market decreased to 250.20 million shares worth RM51.75 million versus 302.50 million shares valued at RM67.80 million.

Consumer products and services accounted for 256.75 million shares traded on the Main Market, industrial products and services (394.99 million), construction (230.52 million), technology (456.99 million), SPAC (nil), financial services (66.61 million), property (145.69 million), plantation (41.08 million), REITs (4.29 million), closed/fund (2,100), energy (703.04 million), healthcare (38.88 million), telecommunications and media (21.56 million), transportation and logistics (33.75 million), and utilities (19.93 million). — Bernama