PETALING JAYA: Perak Corp Bhd’s indirect 51%-owned subsidiary Animation Theme Park Sdn Bhd (ATP) has defaulted on payment to Affin Hwang Investment Bank Bhd amounting to RM25.7 million.
This is part of the repayment of principal in respect of its syndicated term loan facility of up to RM280 million granted by Affin Hwang, Affin Bank Bhd, Bank Pembangunan Malaysia Bhd and Malaysia Debt Ventures Bhd.
ATP is the developer, owner and operator of Movie Animation Park Studios (MAPS) located in Ipoh, Perak.
According to Perak Corp’s Bursa disclosure, its wholly owned subsidiary PCB Development Sdn Bhd is actively seeking to dispose of its 51% stake in ATP and its immediate holding corporation Perbadanan Kemajuan Negeri Perak (PKNP) has shown interest to takeover.
Perak Corp revealed that PKNP had written a letter to the group on February 21, 2019 to confirm its intent to take of MAPS.
Perak Corp said ATP had on Sept 24, 2019 requested indulgence of time of up to three months for PKNP to arrange funding for the instalment repayment of principal as part of its purchase price to takeover the theme park.
Subsequently, Affin Hwang had on Oct 3 rejected the request and declared a default on Oct 16 with a 14-day notice from the date of letter to effect the payment of RM25.7 million, failing which all the secured obligation due from ATP will become immediately due and payable.
Perak Corp said it is continuously in discussions with Affin Hwang to regularise the outstanding payment of the syndicated term loan.
PETALING JAYA: There appear to be no major catalysts for the transport and logistics sector from the Budget 2020 announcement, with the feasibility studies on infrastructure projects at Port Klang and the Visit Malaysia 2020 campaign already anticipated.
In a report, Affin Hwang Research said it was maintaining its neutral stance on the sector, with a mixed earnings outlook on the players in the space.
“Positively, we expect Westports and Malaysia Airports to report firmer 2020 earnings on volume growth, improving operational efficiencies, and higher passenger service charges Meanwhile, the airline operators should continue to see a subpar (but improving) margin trend due to stiff competition.
“Lastly, the logistics companies’ earnings should remain weak due to stiff competition and high operational costs,” it said.
Affin Hwang is raising AirAsia’s 2020-21 earnings forecasts by 2-3% and forecasting AirAsia X to report a smaller loss of RM41 million in 2020, from a RM68 million net loss.
“In tandem with our earnings revisions, we are raising AirAsia’s target price to RM1.91, from RM1.87, while maintaining our ‘hold’ rating. We are also revising AirAsia X’s target price to 16 sen from 14 sen with a rating upgrade to hold from sell,” the report said.
The research house is also lowering its Brent crude and ringgit projections in view of a more modest oil-demand outlook, normalisation of supply from Saudi Arabia and not-so-aggressive easing by the US Federal Reserve.
“On the whole, the oil market in 2H19 is still projected to see a 200,000 bpd (barrels per day) oversupply, and projected to widen to an average of 620,000 bpd in 1H20 based on the EIA’s Short Term Energy Outlook report in October 2019.
“With full recovery guided now to be by November and weak global demand expected to prevail, we believe any upside to oil prices could be relatively contained,” it said.
Affin Hwang’s 2020 Brent crude oil price assumption has been lowered to US$60-65/bbl from US$65-70/bb, while its ringgit projection now stands at RM4.20/US dollar by end 2020 from its previous projection of RM4.10/US dollar.
“Although Malaysia was retained in the FTSE Russell’s World Government Bond Index, its position remains in the Watch List, which reflects some lingering uncertainty about Malaysia’s position in the upcoming interim review in March 2020.”
Overall for the sector, Affin Hwang’s top pick is Westports with a target price of RM4.22 and a hold call.
“For exposure, we like Westports for its strategically located assets, strong management team and good earnings growth trajectory. These positives are, however, largely priced-in. Avoid logistics companies due to stiff competition and rising costs,” it said.
PETALING JAYA: AME Elite Consortium Bhd shares made a strong debut on the Main Market of Bursa Malaysia with a premium of 25 sen or 19.2% over its offer price of RM1.30.
Despite falling to a low of RM1.27 in the early trade, the counter was quick to rebound as much as 29 sen or 22.3% to a high of RM1.59 before ending the day at RM1.55 on 49.75 million shares changing hands, giving it a market capitalisation of RM662.03 million.
Managing director Kelvin Lee is upbeat on the Johor-based integrated industrial property solutions provider’s future prospects, targeting double-digit growth in profit for 2020.
Executive director Simon Lee elaborated that the optimistic view is based on the government’s announcement that approved foreign direct investments (FDIs) saw a 97% jump to RM49.5 billion in the first half of the year.
“As we are a proxy to FDIs and rolling investments in manufacturing, we hope to enjoy the benefits from this.”
This view is also supported by Affin Hwang Capital, which has initiated coverage on the counter with a “buy” rating and a target price of RM1.83.
The research house said in a report that the group is a beneficiary of the general rise in demand for industrial properties in Malaysia due to trade diversion amidst the ongoing US-China trade war.
Kelvin also noted that the “special channel” to attract investments from China established under InvestKL announced last week is expected to further boost the group’s future prospects.
“We have received a lot of enquiries as a result of the trade war and the government had announced in the Budget with a special channel to welcome trade war customers. We foresee we can benefit from all the good news.”
AME’s net profit jumped 96% to RM13.1 million for the first quarter ended June 30, 2019 against RM6.7 million a year ago.
With regards to the group’s planned expansion into Selangor and Penang, Kelvin said that it is still mulling the options.
“We are still looking for an ideal location with good connectivity and good price, hopefully we’ll have something by the end of the year.”
PETALING JAYA: The detention of disposable rubber gloves by the US Customs and Border Protection (CBP) because of the use of forced labour is not expected to have an adverse impact on the entire sector, as the CPB’s “withhold release” order is for a specific company, WRP Asia Pacific Sdn Bhd, only.
Affin Hwang Capital said weak sector sentiment may, however, offer an opportunity to accumulate its top “buy” picks for the sector – Kossan Rubber Industries Bhd and Super-max Corp Bhd.
It believes the direct impact from the seizure of WRP’s gloves would be relatively limited, as the producers would still be able to sell their products in other countries.
According to Affin Hwang’s checks, WRP has an estimated production capacity of 11 billion pieces a year (around 5% of Malaysia’s overall capacity), with focus on the nitrile and surgical gloves segment.
“As the overall impact to the sector is relatively limited, we are maintaining our neutral call on the sector. Kossan and Supermax are our top buys for the sector, due to their undemanding valuations and higher-than industry growth rates. We have ‘sell’ calls on Top Glove Corp Bhd, Hartalega Holdings Bhd and Karex Bhd due to their rich valuations.”
The research house said the allegation of forced labour in the Malaysian rubber products sector is not new, as it was first reported by the UK press in end-2018 and early-2019, whereby they had identified three companies which had engaged in such. WRP was one of the three companies that was identified by the press.
“Although Top Glove and Karex were also mentioned back then, we believe that the recent changes implemented by the latter two have managed to address most, if not all, of the concerns. The resulting higher labour costs arising from the changes were already reflected in their P&Ls (profit & loss statements) since 1Q19.”
Affin Hwang said the biggest challenge for Malaysian companies to avert these allegations results from the continuously changing standards, as the definition of forced labour varies across countries.
“Our recent checks with the companies under our coverage indicated that they are in compliance with Malaysian regulations, and are subjected to social-compliance audits by their customers from time to time.”
It added that most of them have engaged social activists to conduct independent audits in order to be in compliance with international stan-dards. Ultimately, the companies have limited the maximum allowable overtime to 104 hours a month (average four hours a day) for all their workers.
“We believe the increased scrutiny on the sector’s labour practices is likely to speed up the whole automation process. Although the government does provide grants to help with the changes, it is relatively insignificant to the overall investment that the manufacturers need.
“We believe that the larger manufacturers might be able to increase their market share at the expense of the smaller manufacturers as some of them are unable to invest in automation,” Affin Hwang said.
KUALA LUMPUR, Sept 23 — Affin Hwang Asset Management Bhd (Affin Hwang AM) has raised more than RM100 million in the first three days since the launch of its latest wholesale close-ended fixed income fund. The 14th fund in…
PETALING JAYA: Despite being backed by resilient and strong fundamentals, the Malaysian banking sector is expected to see downside risks from the impact of higher external risks (moderating economic growth) and a more cautious business/consumer sentiment.
Affin Hwang Capital said these two key factors may pose downside risks to its 2019-2020 earnings forecasts.
The research house highlighted some downside risks factors to its earnings forecasts, including the risk of another 25bps interest rate cut – resulting in an aggregate 1.7% reduction in sector earnings; a 1% decline in loan growth – resulting in a 1.1% decline in sector net profit; as well as a 10bps increase in net credit cost could result in a 6.3-6.4% decrease in net profit.
The research house said potentially, the commercial/residential property sector could pose some risks to the system, though impaired loans remain minimal to total loans.
However, it noted the resilient and strong fundamentals of the banking sector, such as adequate capital ratios, ample liquidity, a relatively low gross impaired loan ratio and healthy loan loss cover.
“We maintain our sector neutral call, noting that business and consumer outlook in 2H19-1H20 will likely stay cautious due to external uncertainties and a lack of domestic catalysts,“ it said.
For 2019, after some earlier revisions to its universe’s loan growth forecasts, Affin Hwang now set a 3.8% target for 2019’s system loan growth.
It is currently projecting a core net earnings per share growth rate of -0.9% for 2019 and a 1.2% and 1.6% expansion for 2020 and 2021, respectively.
“Our slightly negative growth rate in 2019 is underpinned by the negative impact of the OPR cut, which moderated banks’ fund-based income; a 2.2% increase in operating expenses; and a 15% increase in impairment allowances.”
On stock picks, Affin Hwang remains selective and prefers RHB Bank Bhd for banking exposure.
“For non-banking stocks, we like Aeon Credit Service (M) Bhd and ELK-Desa Resources Bhd due to their higher receivables growth and attractive return on equities.”
Meanwhile, Kenanga Research said while it sees moderate loans growth ahead, the resilient asset quality translates into stable credit cost, sustaining profitability.
“Valuations are attractive and undemanding with most of the banking stocks under our coverage rated as ‘outperform’ with top picks being CIMB Group Holdings Bhd and Alliance Bank Malaysia Bhd.”
PETALING JAYA: IHH Healthcare Bhd’s RM1.02 billion acquisition of Prince Court Medical Centre Sdn Bhd (PCMC) is seen as a positive move by analysts, citing possible synergies between the group’s existing network of hospitals.
Affin Hwang Capital pointed out that PCMC’s earnings before interest, taxes, depreciation and amortisation (ebitda) margin of 17% is significantly lower than IHH Malaysian operations’ 29% as it is reaching structural limitation as a standalone single hospital, unlike the economies of scale IHH is able to derive having own a wide network of hospitals.
“Hence, by integrating PCMC’s existing business functions, systems and personnel with IHH’s established shared services and business functions structure that services its existing hospital network in Malaysia, there is plenty of potential headroom to grow via medical supply procurement and cost synergies,” said the research house in a note yesterday.
Affin Hwang is keeping a “buy” call on IHH with a target price of RM6.40.
It highlighted that PCMC has a similar revenue intensity, occupancy and payer mix to IHH’s flagship hospitals in Klang Valley, but the contribution from the acquisition is expected to be minimal in the near-term after taking into account the financing cost for the acquisition.
At the moment, IHH is working on the scenario of funding 64% of the purchase consideration via bank borrowings.
The research house estimated that based on an indicative interest rate of 4.13% on the borrowing of RM650 million, the interest expense for the acquisition is estimated to be RM26.8 million, which is slightly above PCMC’s FY18 core net profit of RM26 million.
Post-acquisition, IHH’s gearing is expected to increase from 0.48 times to 0.51 times. Note that a one-off estimated expense of RM11 million relating to the proposed acquisition will be incurred upon completion of the transaction.
PCMC is a debt-free profitable operating hospital, with a reported RM260 million revenue, RM44 million ebitda and RM51 million net profit in FY18. Stripping off the writeback of deferred tax of RM25 million, FY18 core net profit came in at RM26 million.
Its FY18 revenue and ebitda represent 13% and 8% of IHH’s FY18 Malaysian operations’ revenue and ebitda respectively. However, in term of the entire IHH group, PCMC’s revenue, ebitda and core net profit contribution to the group are only around 2%.
With regard to the valuation, Affin Hwang sees the RM1.02 billion purchase price as fair as it represents the midpoint of the fair value of between RM960 million and RM1.08 billion.
In addition, it was also lower than the seller’s original cost of investment of RM1.09 billion in August 2018.
Public Bank Investment Research echoed such views, but noted that the earnings uplift is not material as it only makes up of about 6% of IHH’s bottom line.
“Judging on IHH’s capability to turn Fortis around ahead of its targeted 100 days, we believe IHH can also bring PCMC to greater heights going forward.”
It is maintaining an “outperform” call on IHH with an unchanged target price of RM7.
On Bursa’s close today, the stock gained 6 sen or 1.05% to RM5.75 on 1.88 million shares done.