dividend yield

 
 

Alam Flora seen lifting Malakoff’s FY19 earnings by 4%

PETALING JAYA: Malakoff Corp Bhd’s acquisition of Alam Flora is expected to improve its earnings by 4% in financial year ending Dec 31 (FY19) based on an earnings contribution of five months, according to AmInvestment Bank.

On a full-year basis, Alam Flora would increase Malakoff’s FY20 net profit by 10% and boost Malakoff’s fair value from 85 sen per share to about 94 sen a share, AmInvestment analyst Gan Huey Ling said in a note last Friday.

According to Gan, the research house will upgrade Malakoff’s FY19 earnings forecast if the RM944.6 million acquisition of 97.4% of Alam Flora from DRB-Hicom Bhd is completed by the third quarter of 2019 (Q3FY19).

Recently, Malakoff announced that the cut-off date for the fulfilment of the conditions for the acquisition has been extended to July 31.

“We have assumed Malakoff’s gross dividend per share to be 3.5 sen for FY18 and 4 sen for FY19. These translate into decent dividend yields of 4.2% for FY18 and 4.8% for FY19. Implied net dividend payouts are 93% for FY18 and 100% for FY19,” she added.

The research house maintained its “hold” recommendation on Malakoff with an unchanged discounted cash flow-based fair value of 85 sen per share. Its fair value of 85 sen per share implies an FY19 price earnings (PE) of 21.2 times and FY20 PE of 20.7 times.

Going forward, Malakoff has scheduled 100 days of maintenance shutdowns for the Tanjung Bin Energy (TBE) power plant in FY19.

As these are scheduled outages, Gan said the group will still receive capacity payments from Tenaga Nasional Bhd in FY19.

“We gather that there has not been any unplanned outage at the power plants in 4QFY18,” she said.

However, she said TBE power plant’s earnings may still be slightly affected as the rectification works for the voltage regulator, which started in early September, was only completed at the end of October 2018.

Recall that there were unplanned outages at the TBE power plant, GB3 power plant and KEV (Kapar Energy Ventures) power plant in Q3FY18.

Gan also noted that Malakoff is negotiating with General Electric, which is the main contractor, on the compensation for the unplanned outages at the TBE power plant.

She said the compensation would not be able to make up for the loss in capacity payments. However, Malakoff is hoping to extend the warranty period for the equipment and parts and/or receive compensation to cover the cost of repair or rectification works.

Previously, Malakoff’s target was to achieve the stipulated power purchase agreement threshold unplanned outage level of 6% by February 2019.

However, due to the numerous unplanned outages in Q3FY18, the timeline has been shifted to September 2019.


Alam Flora to boost Malakoff’s offerings for FY19

KUCHING: Malakoff Corporation Bhd’s (Malakoff) acquisition of Alam Flora Sdn Bhd (Alam Flora) is said to improve the former’s net profits in financial year 2019 forecasts (FY19F) by four per cent, based on an earnings contribution of five months. The team behind AmInvestment Bank Bhd (AmInvestment Bank) said that on a full year basis, the […]


Banks to maintain earnings potential this year: Analysts

PETALING JAYA: Analysts believe that the banking sector will be able to maintain its earnings potential this year, as margin pressure is expected to ease and continued loans growth with stable asset quality.

MIDF Research said while the industry’s loans growth moderated to 5.6% year-on-year (y-o-y) as at December 2018 due to moderation in business loans and loans for the purchase of residential properties, the growth was still slightly above its expectations.

“As for CY19, we expect a moderation in loans growth to 4.7% y-o-y due to the high base effect. We also believe that deposits growth will moderate to 5.3% y-o-y due to lower growth in fixed deposits growth this year,” the research house said in a note.

“This also means that there will be accretion in value for banks’ book value. Hence, we maintain our ‘positive’ view on the sector,” it added.

Overall, MIDF Research said it is cautiously optimistic of the banking sector continuing its solid performance in 2019.

Given the current market conditions, the research house said its top picks for the sector are Maybank, CIMB and Public Bank.

In a separate note, AmBank Research said it expects that the foreign fund inflows into emerging markets would benefit the share prices of the liquid banking stocks as the US Fed rate hike is tapering off.

Therefore, the research house said it maintained its “overweight” stance for the sector with “buy” calls on RHB Bank, Public Bank, Alliance Bank, BIMB Holdings, Maybank as well as MBSB. Its tops picks include Maybank, Public and RHB Bank.

AmBank Research noted that Maybank’s earnings are well diversified and the bank is still recording positive JAWs (a technical term that denotes income growth exceeding that of expenses) with growth in total income outpacing expenses.

It added that Maybank’s net interest margins could also improve further ahead with the lowering of its funding cost as the group releases the excess liquidity built-up in the first half of financial year 2018 (1HFY18).

“Meanwhile, dividend yield for the stock continues to be attractive relative to peers with its high payout ratio while potentially offering investors higher returns with the reinvestment of their dividends into additional shares under the DRS (dividend reinvestment scheme),” it added.


STMB exceeds expectations despite market conditions

KUCHING: Syarikat Takaful Malaysia Keluarga Bhd (STMB) performed above expectations for the financial year 2018 (FY18) despite the challenging market conditions seen last year, analysts observed. MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) in a recent report, pointed out that STMB reported strong growth of 43 per cent year-on-year (y-o-y) for its first […]


RHB maintains 'buy' call for Petronas Chemicals

KUALA LUMPUR, Jan 15 — RHB Research has maintained the “buy” call on its top pick oil and gas counter, Petronas Chemicals Group Bhd (PCG), with a new target price of RM11.23. It said PCG’s recent share weaknesses, had been largely priced in…


Nomura downgrades Malaysian equities

PETALING JAYA: Nomura Global Markets Research has downgraded Malaysian equities to “underweight” from “neutral” due to poor fundamentals and lack of major expansionary reforms.

Nomura, which downgraded Malaysia to “neutral” after the elections last year, has held a “neutral” on Malaysian equities since May 2018 based on the thesis that reforms prospects could keep the multiples elevated despite micros and macros not being very supportive.

“However, with the new government more than six months in power already, while there have been efforts to fix fiscal leakages, there has not been a significant reform push which can potentially lead to expansionary economic activity,” it said in its Asean Strategy report today.

Nomura said it was hoping for more progress in areas to improve government efficiency, reduce corruption and crony capitalism and potentially roll back or ease the government’s presence in some areas but has only seen some “easier” initiatives such as closing of several government agencies while some agencies have been put under direct parliamentary supervision.

While Budget 2019 included some long-term reform measures, labour or tax reforms or much needed reforms to ease property market bottlenecks are lacking.

Amidst a background where macro and micros continue to deteriorate, Nomura said the other major issue for Malaysia is that oil prices are no longer high (above US$70 per barrel) and have declined significantly recently, which could lead to further issues for Malaysia to plug the fiscal gap.

“Our economists believe there is a high risk of fiscal slippage and the possibility of a sovereign ratings downgrade that could trigger more capital outflows,” it said.

Nomura expects Malaysia’s 2019 gross domestic product (GDP) growth to be 4%, marking a sharper decline from 4.7% in 2018, and is below consensus forecasts of 4.6% largely due to a weak export sector. It also expects Malaysia to post a fiscal deficit of 3.9% in 2018 and 3.7% in 2019.

Nomura said Malaysia will continue to be a stock-pickers’ market and prefers select defensive banks, value plays like Gamuda Bhd, and thematic plays like Malaysia Airports Holdings Bhd and Vitrox Corp Bhd.

“We believe sustainable dividend yielding plays could be attractive, as well in an environment where local rates are expected to be cut; and the government’s fiscal constraints may lead to higher dividends from government-linked companies,” it added.


Limited share price upside seen for property sector

PETALING JAYA: Rising interest rates, Malaysia’s slowing gross domestic product growth and unfavourable government policies will limit share price upside for Malaysian property development companies, said CGS-CIMB.

Although it expects the property companies in its coverage universe to post positive earnings growth this year, CGS-CIMB said share price upside will be limited and the sector is unlikely to re-rate to peak levels last seen in 2014.

“The property sector has garnered more interest lately due to its attractive valuations, but we believe the sector is cheap for a reason and this could be a false dawn. We believe developers could miss their new property sales targets for 2018, and are likely to set lower new sales targets for 2019. We think it’s a signal that the 2019 property market is likely to see lower new property sales and weaker buying sentiment,” it said in its report today.

According to its analysis, the medium 40% and bottom 40% (B40) households face difficulty in buying properties as the average house price is above both groups’ affordability range and despite government incentives and policies to address this issue, the oversupply in the property market has continued to rise since 2012.

“Likewise, property stocks have fallen from their peak valuations in 2014, some to the trough levels in 2008, making them attractively priced at the moment, in our opinion,” it added.

CGS-CIMB does not see much room for housing loan growth given the existing low interest rate environment, limited buyer’s affordability and possible interest rate hike.

In addition, restrictive government policies are still in place and it does not see any incentive for consumers to purchase property given the weak rental market and subdued property market.

Given the limited domestic affordability, higher real property gains tax and restrictive policies on foreigners, the property oversupply issue is expected to persist. Note that in 1H2018, properties priced below RM1 million accounted for 93% of total unsold residential property inventory.

“We expect the housing market to remain challenging in the near term, unless there is a meaningful surge in household income, decline in house prices or more positive measures are introduced,” it said.

Although lower property prices are possible, developers would be at the losing end if they were to lower prices at the expense of profit margins to spur new property sales demand or remove rebates/freebies to protect margins, which could result in weaker new sales.

“Even if new house prices are cut by 20%, we think the prices would still be unaffordable for the B40 households. Instead of focusing on increasing affordable housing supply and ownership, we believe a better way to approach the housing glut is to increase Malaysians’ household income in a meaningful way,” it said.

CGS-CIMB maintained its “neutral” call on the sector with an estimated dividend yield of 3% on average in 2019.

Sime Darby Property Bhd remains its top pick as the company has shown continuous improvement in its property development division and new property sales since its demerger in November 2017.

“We believe the group’s healthy balance sheet and massive land bank are advantages in addressing the change in future product demand,” it said.


Yen’s surge is a red flag for world markets

LONDON, Jan 3 — A gradual rise by the Japanese yen in recent weeks culminated in a dramatic overnight surge—firing a warning shot for world markets and the global economy in 2019. Historically, outsized yen gains in short periods, such as the…


Defensive stocks top 2019 playbooks

NEW YORK: Perceived safe havens like utilities and consumer staples, often an afterthought in Wall Street’s cascade of year-ahead investment recommendations each December, are emerging as top picks as stocks limp into 2019. Growth-oriented sectors like tech or communications services have typically dominated year-end roundups of investment ideas. But an uncertain economic outlook and concerns […]


Toll hike freeze seen as ‘mildly positive’ for concessionaires

PETALING JAYA: TA Securities views the toll hike freeze on 21 highways across the country next year as mildly positive for toll concessionaires, as the operators can avoid traffic reduction arising from higher toll rates imposed on road users.

In the past, toll highway operators typically experienced a slight decline in traffic volume immediate after a toll rate increase, followed by a gradual recovery in traffic volume as demand for toll roads is largely inelastic, it said in a note last Friday.

Additionally, it said, the toll operators will receive compensation from the government to cover the difference between entitled toll rates under the concession agreements and the actual toll rates charged on end-users.

However, on a broader outlook, TA Securities said, the toll concessionaires are still surrounded with uncertainties following the change of government, noting the Pakatan Harapan government is studying the best method to fulfil its 14th general election manifesto promise.

Last Thursday, the government announced its decision to freeze all toll hikes on 21 highways for all vehicles which are eligible for an increase in 2019, as well as a toll increase freeze for buses on eight highways, and the abolishment of motorcycle tolls.

Earlier this month, the Works Ministry said it would appoint an independent auditor in January to assist the government in preparing data analysis and recommendations, including reduction of toll rates in the short, medium and long term, and eventually abolishing toll collection on all expressways.

The analysis of the results is expected to be ready by May.

“With a reduced upside after a rebound in share price, we downgrade Lingkaran Trans Kota Bhd (Litrak) from ‘buy’ to ‘hold’, with an unchanged target price of RM4.54,” TA Securities said.

Separately, MIDF Research said it maintained its “buy” call for Litrak with an unchanged target price of RM4.92 per share, saying the toll operator is still a defensive player with decent dividend yield of 7.3% for financial year 2020 (FY20).

Litrak, which operates the Damansara-Puchong Highway (LDP) and the Sprint Highway, closed unchanged at RM4.11 on 33,800 shares done last Friday.

MIDF Research said that following the freeze on toll rate increases, compensation by the government to Sprint will rise as the Penchala toll plaza is due for a rate hike in next year.

MIDF Research estimated that the overall compensation to Litrak is set to increase to above RM170 million in FY19 and FY20 while earnings contribution from the concessionaires will be unchanged.

However, it said there will be no changes in compensation for the LDP as the toll rates remain unchanged.

“As our current traffic volume and earnings forecasts have taken into account the freeze of toll hikes on intra-city tolls in the country for 2019 as per the Budget 2019 announcement, we are maintaining our earnings estimates at this juncture,” MIDF Research added.