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Monday, October 21, 2019

Heineken Malaysia - Excise Duty Uncertainty Dissipates

Author: HLInvest | Publish date: Mon, 21 Oct 2019, 5:45 PM

Finance Minister Lim Guan Eng reaffirmed the government’s stance on cracking down on illicit alcohol trade in lieu of increasing Malaysia’s alcohol excise duty structure. We expect Heineken to focus on growing the premium brands in its portfolio which should lead to better margins. After accounting for returning legal volumes and better margins from the growth of premium brands, our FY20/21 earnings rise by 3.4%/3.8%. Given the anticipated growth in legal volumes from government clamp down on illicit, we tweak our WACC in DCF valuation methodology from 8.0% to 7.5% while TG is unchanged at 2.5%. After earnings adjustment, our TP rises from RM21.00 to RM26.50. Upgrade to BUY.

Recap. Recall that Heineken recorded sales growth of 14.0% (after removing SST impact) in 1H19 from robust performance in 1Q19 and growth in core brands in 2Q19.

War on illicit alcohol trade to continue. Finance Minister Lim Guan Eng reaffirmed the government’s stance on cracking down on illicit alcohol trade in lieu of increasing Malaysia’s alcohol excise duty structure. Furthermore, note that in the recent Budget 2020 announcement, the government allocated RM235m to purchase an additional 20 cargo scanners to clamp down on illegal import activity. Currently, counterfeit alcohol market share is believed to be as high as 25% in Peninsular Malaysia and 80% in East Malaysia.

Growth in premium brands to boost margins. We expect Heineken to focus on growing the premium brands (Strongbow, Apple Fox, Heineken 0.0) in its portfolio which should lead to better margins due to (1) higher shelf prices (despite similar production cost); and (2) lower alcohol content (Strongbow, Apple Fox cider: 4.5% ABV and Heineken 0.0: 0% ABV). Note that increased volumes of Heineken’s lower ABV product lines result in lower excise cost incurred to Heineken, which would result in better margins.

Heineken 0.0. We are particularly optimistic on Heineken’s launch of Heineken 0.0, a 0% ABV product offering. We expect Heineken 0.0 to tap into the global trend of moderate alcohol drinking and healthier consumption patterns. Note that Heineken 0.0 has half the calories of a regular Heineken beer at just 21 calories per 100ml. To date, Heineken 0.0 has been made available in over 50 countries, including neighbouring countries Singapore and Thailand.

E-commerce venture ‘Drinkies’. Heineken’s venture into online delivery with their e commerce platform ‘Drinkies’ is set up to deliver Heineken products to anywhere within the Klang Valley and Penang within 60 minutes for just a RM8 delivery fee. While we expect the venture to incur marketing investment, we expect it to add significant volumes to Heineken’s already leading market share position in the Malaysian market of an estimated 60-65%.

Forecast. After accounting for returning legal volumes and better margins from the growth of premium brands, our FY20/21 earnings rise slightly by 3.4%/3.8%.

Upgrade to BUY. Given the anticipated growth in legal volumes from government clamp down on illicit, we tweak our WACC in DCF valuation methodology from 8.0% to7.5% while TG is unchanged at2.5%). After earnings adjustment, our TP rises from RM21.00 to RM26.50.

Source: Hong Leong Investment Bank Research - 21 Oct 2019

Axis REIT - Another Acquisition on the Cards

Author: HLInvest | Publish date: Mon, 21 Oct 2019, 5:46 PM

Axis REIT has proposed to acquire an industrial property for a total sum of RM65m from Rancak Beta Sdn. Bhd. Upon completion by first half of FY20, the properties shall be leased to Schenker Logistics (Malaysia) Sdn. Bhd. We are positive on the news as the acquisition amount is fair and is yield accretive. We retain forecast pending acquisition completion. Maintain BUY with unchanged TP of RM2.01, based on targeted yield of 4.7%. We like Axis REIT due to its high occupancy diversified portfolio and being one of the few Shariah compliant REITs.
NEWSBREAK

Axis REIT has proposed to acquire a piece of industrial land of approximately 356k sqft from Rancak Beta Sdn. Bhd. The land is located within Pelabuhan Tanjung Pelepas (PTP) Free Trade Zone. The property includes a single-storey warehouse cum-office building together with ancillary buildings. The proposed acquisition will cost RM65m, to be funded by existing debt facility. The property has a 100% occupancy rate as at 14th October 2019 and the proposal is expected to be completed by first half of FY20. Upon completion, the property with a net lettable area of 223k sqft shall be leased to Schenker Logistics (Malaysia) Sdn. Bhd. for a fixed period of 10 years from the commencement date of 1st May 2018 to 30th April 2028 with an option to renew for another 5 years. The rental rate is at RM401k per month for the first 5 years with an 11% rental step-up in the next subsequent 5 years.
HLIB’s VIEW

Positive. We are positive on the acquisition as it is yield accretive, given the net yield of 7.4% (before Islamic financing cost) vs its current yield of 5.2%. With the new assets, our FY20-21 earnings will improve by 0.3% and 1% respectively. The property will have a fixed tenant under a fixed long term lease of 10 years, which further minimises the risk to Axis REIT. We feel the acquisition price works out to be fair for industrial space in Pelabuhan Tanjung Pelepas (PTP) Free Trade Zone and it is at par to current market value (RM65m), based on valuations by the independent valuer. Furthermore, the lessee, Schenker Logistics (Malaysia) Sdn. Bhd., is one of Axis REIT’s existing top 10 tenants in the portfolio. The lessee is a one-stop-logistics provider offering total integrated logistics services to local, regional and global customers.

Gearing. Axis REIT intends to utilise debt facility of RM65m from its existing credit facilities. Gearing ratio is expected to increase to 38.7% from 37.3% (FY18), which is below the gearing limit of 50% prescribed by the Securities Commission Malaysia.

Forecast. We maintain our forecast pending completion of the acquisition.

Maintain BUY, TP: RM2.01. We maintain BUY with unchanged target price RM2.01. To note, our valuation is based on 1SD below 2-year historical average yield spread between Axis REIT and 10-year MGS yield in view of increased popularity in industrial properties, high occupant tenancy in its diversified portfolio and also one of the few Shariah compliant REITs.

Source: Hong Leong Investment Bank Research - 21 Oct 2019

Malaysian beneficiaries of US-China trade war

ECONOMY
Monday, 21 Oct 2019

By DAVID TAN

Globetronics Technology Bhd chief executive officer Datuk Heng Huck Lee said the cost of fresh investments for a joint-venture (JV) project could be high, and the processing time to conclude any JV deal would take a while to complete.

GEORGE TOWN: Northern region-based plastic, tissue paper, fastener, radio frequency chip and semiconductor test-equipment manufacturers are among the beneficiaries of the United States-China trade conflict.

Not all Malaysian electronic manufacturers will automatically gain from the conflict.

The trade war has prompted multinational corporations (MNCs) in China to outsource production activities to South-East Asia.

However, the type of industry in which a local company is involved and its financial capability to invest determine its opportunities to gain from the trade war.

Globetronics Technology Bhd

image: https://cdn.thestar.com.my/Themes/img/chart.png chief executive officer Datuk Heng Huck Lee said the cost of fresh investments for a joint-venture (JV) project could be high, and the processing time to conclude any JV deal would take a while to complete.

“By that time, if there’s a change of leadership in the US next year, the tariff war may enter an uncertain phase.

“For us, we prefer leasing our clean-room facility to an MNC that is planning to relocate to Malaysia.

“We are now in advance stages of finalising a deal to lease our clean-room facility in Kuala Lumpur to a China company that manufactures for a major US customer, “ said Heng.

Trade war uncertainties have prompted Globetronics customers to take a wait-and-see attitude and hold back on placing long-term orders, Heng added.

“This has affected business performance, created uncertainty in new investment decisions, and delayed production loading for some of our product lines, ” he said.

Mini-Circuits Technologies (Malaysia), a subsidiary of the New York-based Scientific Componentz, said the group’s Penang facility is now manufacturing about 30% of the radio frequency chips (RF) for the worldwide market.

President and chief executive officer Datuk Seri Kelvin Kiew said the group has relocated its RF production activities from China to Penang.

“We have spent RM20mil over the past one year to expand to enable the Penang plant to take on the RF production from China.

“Our expansion here has also benefited the small and medium enterprises supporting us.

“We have, for example, spent about RM4mil this year to acquire locally made test equipment from a Penang-based company, ” he added.

Pentamaster Corp Bhd

image: https://cdn.thestar.com.my/Themes/img/chart.png is another beneficiary. Group chairman C B Chuah said since March 31, the electronic group has secured orders for around 100 semiconductor test equipment, of which about 40% is for Chinese MNCs producing for the US market.

“Because of the US-China trade war, it does not make sense for the companies to make the machines and ship from China.

“They will have to pay the high duties imposed on China-made products, ” he said.

The equipment, priced between US$150,000 and US$500,000, will be used for checking 3D sensors used for the facial recognition features of smartphones.

The US-China trade war impacts the plastic-making industry positively because the top resin producers in the US will have a new supply of 12 million tonnes for the period of 2020-2021.

SLP RESOURCES BHD

image: https://cdn.thestar.com.my/Themes/img/chart.png managing director Kelvin Khaw said from 2022 to 2024, an additional 4.5 million tonnes of resin supply would kick in.

“The MNCs in Texas started expanding their production capacity in 2015.

“The expansion is almost completed, and the new supply is expected to come in next year.

“Because of the trade war, China is now cut off from the US resin supply.

“So, the US resin producers will look to South-East Asia to sell, triggering resin prices to spiral downwards.

“We expect polyethylene (PE) price to shrink further by 5% to 10% in the short to medium term, ” he said.

The resin price is now US$850 versus US$1,050 per tonne in January 2019.

Khaw said the lower resin prices enable the group to produce more cost-effectively.

“Our production technology reduces further the production cost, allows us to price our flexible packaging materials even more competitively in the market, and cushion the group against the anticipated slowdown in Japan and the domestic market, ” Khaw added.

US resin importers are also looking for alternatives besides China.

THONG GUAN INDUSTRIES BHD

image: https://cdn.thestar.com.my/Themes/img/chart.png managing director Datuk Ang Poon Chuan said some of them are talking to Thong Guan to source plastic packaging materials.

“We have recently set up a manufacturing facility with a Hong Kong-based company to produce courier bags in Sungai Petani. We expect the business to contribute positively to our 2019 revenue.

“Chinese manufacturers are investing here because Chinese plastic products entering the US face a 25% import duty, ” he said.

Fastener manufacturers with the capability of making bolts and nuts according to US standards and specifications have the upper hand over rivals as US companies source from South-East Asia.

Chin Well Holdings Bhd

image: https://cdn.thestar.com.my/Themes/img/chart.png executive director Tsai Chia-ling said the US still used the imperial system that measures in feet and inches.‌

“Chinese companies are among the few in the world with the capacity to produce fasteners according to US standards and specifications.

“US importers of steel hardware products have reduced sourcing from China because of the 25% duty they have to pay for China-made goods.

“They are now turning to South-East Asia, ” she said.

Chin Well is able to tap into the opportunities because it is capable of making fasteners that conform to US standards and specifications.

So, there is a need for Chin Well to raise production.

“Smaller competitors in the region that are unable to invest in the moulds, which cost between RM2mil and RM3mil to produce fasteners suitable for the US market, would lose out, ”‌ she added.

Tsai said steel hardware product wholesalers and distributors in the US have reduced sourcing from China by 30% to 70%.

“However, they won’t place all their orders with us, as the preference is to source from a few manufacturers to ensure there is no disruption in the supply.

“This means they would still source from China and a few other Asian suppliers, ” she said, adding that the group is looking at exporting 20% of its targeted output to the US market in 2020.

“We also want the do-it-yourself (DIY) fasteners to contribute to 20% of group revenue in 2020, from about 10% currently.

“For example, we will be exporting at least 50 containers of DIY screws per month to the US in 2020, compared to 30 previously, ”‌ she added.

NTPM HOLDINGS BHD

image: https://cdn.thestar.com.my/Themes/img/chart.png also sees new opportunities.

It is expanding its overseas business which will help improve its top and bottom lines for the financial year ending April 30,2020.

Group chairman and managing director Lee See Jin said it would supply semi-finished paper and finished paper products to a Chinese maker of decorative papers and napkins who would be operational in the northern region early next year.

“We have locked in orders from the Chinese company relocating here because of the US-China trade conflict, ” Lee said.

Read more at https://www.thestar.com.my/business/business-news/2019/10/21/malaysian-beneficiaries-of-us-china-trade-war#58LBeiJWs1t6hAtb.99

Saturday, October 19, 2019

亏本退场停止失血售马糖厂 FGV可翻身

2019年10月18日

(吉隆坡18日讯)FGV控股(FGV,5222,主板种植股)仍有看头?分析员点出,只要能够脱售手持大马糖厂(MSM,5202,主板消费股)的51%股权,FGV控股可显现价值。

丰隆投行研究昨天发布报告透露,虽然脱售大马糖厂股权,会造成FGV控股蒙受脱售亏损,但分析员仍认为这是明智之举,因为能减少净负债和来自大马糖厂的亏损拖累。

报告解释,分析员相信该公司会以低于账面价值售价,脱售大马糖厂股权,从而蒙受脱售亏损。

回看本财年次季,FGV控股税前亏损按季走高至5680万令吉,归咎于种植与白糖业务蒙亏;首季则蒙受2340万令吉亏损。

同时,分析员认为次季疲弱表现,是造成股价自8月以来趋低的主因。

此外,尽管棕油价自8月开始复苏,仍不敌高居不下的原糖成本,所以,分析员认为FGV控股第三季表现继续走软。

但是,如果能够脱售大马糖厂的股权,届时,分析员认为将是上修FGV控股估值的好机会。

FGV控股证实,目前正与至少4家公司磋商脱售白糖业务部分股权事宜;但丰益国际(Wilmar International)随后否认。

另外,鉴于估计大马糖厂业务及联营亏损扩大,分析员大幅提高本财年净亏预测47%,至1亿3070万令吉。

不过,分析员仍维持明后核心净利预测,分别为710万和1800万令吉。

评级目标价上调

报告解释,这是基于明后财年棕油均价为每吨2200令吉,以及分别490万和540万公吨鲜果串产出的预测而得出。

此外,分析员借此机会调整估值,至种植领域每公顷企业价值(ev/ha)2万令吉、大马糖厂账面价值0.6倍、及物流业务下财年8倍本益比。

重新估值后,分析员把评级上调至“买入”,并上修目标价至1.22令吉。

今天闭市,FGV控股以1.08令吉挂收,跌1仙或0.92%,成交量1014万1700股。

Friday, October 18, 2019

【独家】诗董挑战顶级手套 林伟才:欢迎良性竞争

2019年10月18日

独家报道:梁仕祥

林伟才

(吉隆坡17日讯)泰国诗董橡胶公司(Sri Trang Agro Industry)酝酿将手套业务挂牌上市,有分析员预言,诗董手套将会在中期之内崛起成为顶级手套(TOPGLOV,7113,主板保健股)的劲敌。

摩根大通分析员指出,诗董橡胶是一个横跨上中下游的综合橡胶生产商。该集团的下游业务为手套生产,并且是泰国最大手套制造商,年产能可达212亿只,全球市占率为8%。

“对比一下,顶级手套则是世界最大的手套制造商,产能高达639亿只,全球市占率为24%。”

诗董集团放眼在2020年第三季,将橡胶手套制造业务挂牌上市。分析员认为,诗董手套会成为顶级手套的中期威胁。

“诗董的竞争优势包括有垂直整合的业务架构,受益于低原材料成本(没有附加税开销,节省约5至6%成本)和内部生产的胶乳,以及泰国政府的给予下游橡胶业者用以扩充业务最高3%的利息津贴。”



橡胶手套竞争加剧

分析员也点出,诗董手套有意在2020年前将产能提高至300亿只,在2025年再提高至500亿只。

“由于诗董将积极扩充产能,加上有中游业务和政府津贴优势,橡胶手套业在中期内的竞争压力将继续提加剧。”

分析员预计,顶级手套的赚幅在未来6至18个月将面临重度的下行压力。不过有好消息是,今年首半年价格飙涨30%的胶乳原材料已恢复正常,因此,这意味着顶级手套下季度的赚幅可能会有改善。

另外,虽然面对来自橡胶手套业务的赚幅压力,但顶级手套在生产组合提升丁腈手套的份量,有助缓和橡胶手套业务的冲击。

“顶级手套目前的丁腈手套业务赚幅,比橡胶手套高2至3%。另外,丁腈手套业务的销售量在2019财年按年劲增30%。我们认为这意味着公司在丁腈手套的市占率将有提升。”



汰弱留强涌现并购商机

顶级手套执行主席丹斯里林伟才接受《南洋商报》电访时指出,业界的竞争一直都存在,因为手套业有非常好的前景。

“我们欢迎良性的竞争,因为这可以让我们更勤快和聪明地工作,进而激励出最佳的自己。”

新兴市场需求劲增

另外,他也指出,竞争将让行业变得更有效率,汰弱留强,这也将为顶级手套带来并购商机。

“橡胶手套的需求增长依然强劲,尤其是来自新兴市场,虽然手套使用率低但在高速增长。我们相信还有扩充的空间,并且会继续稳定地扩展业务,以应对需求增长。”

闭市时,顶级手套以4.34令吉挂收,起5仙或1.17%,成交量有252万股。

Fitch Solutions: Medical devices industry to gain from trade war

Fitch Solutions: Medical devices industry to gain from trade war
CORPORATE NEWS
Friday, 18 Oct 2019

image: https://apicms.thestar.com.my/uploads/images/2019/10/18/335081.JPG


“In the short term, Malaysian rubber glove manufacturers will likely benefit from the recent US tariffs imposed on Chinese medical gloves. In the longer term, additional tariffs on a broad range of medical devices imposed by both China and the US could help drive direct foreign investment into Malaysia, boosting its international competitiveness, ” Fitch Solutions said

KUALA LUMPUR: Fitch Solutions Macro Research expects Malaysia’s medical devices industry, including gloves, to benefit from the increasingly acrimonious trade war between the US and China.

In a statement yesterday, it said Malaysia can be used as an alternative manufacturing base for both the US and Chinese markets.

“In the short term, Malaysian rubber glove manufacturers will likely benefit from the recent US tariffs imposed on Chinese medical gloves.

“In the longer term, additional tariffs on a broad range of medical devices imposed by both China and the US could help drive direct foreign investment into Malaysia, boosting its international competitiveness, ” it said.

Recent moves by the US government to further ramp up tariffs on Chinese-made products will increase pressure for Chinese companies targeting the US market to relocate manufacturing operations.

It pointed out Malaysia’s unhindered access to the US market and other major world markets increases its attractiveness as an alternative manufacturing base.

It said initially, Malaysian rubber glove manufacturers stand to benefit from the recent US tariffs imposed on Chinese medical gloves.

The US government had imposed a 15% tariff on medical gloves made in China from Sept 1. Hence, US importers had been seeking alternative sources of supply from other manufacturers in Asia.

“As the world’s largest producer of rubber gloves, Malaysia stands to benefit from this shift in supply chain, ” it said.

The US imported medical gloves valued at US$2bil in 2018, of which around three-quarters came from Malays ia and 11% from China. Thailand and Indonesia are the other main suppliers.

Higher US demand for Malaysian gloves will boost industry profit margins which have been hit by a hike in raw material costs and surplus capacity due to over-expansion by the country’s four top glove producers, Hartalega Holdings, Kossan Rubber Industries
image: https://cdn.thestar.com.my/Themes/img/chart.png, Supermax and Top Glove.

On the downside, the market environment for medical gloves in Europe is likely to become more competitive as Chinese producers shift their focus away from the US market.

“In the longer term, additional tariffs on a broad range of medical devices arising from the US-China trade war could help drive direct foreign investment (FDI) into Malaysia’s medical device industry, boosting its international competitiveness.

“We highlight that the Malaysian government is actively encouraging more investment from China particularly in hi-tech industries, ” it said.

During a meeting of the Malaysia-China Belt and Road Economic Cooperation Forum in August, Finance Minister Lim Guan Eng stated that Malaysia wass keen to learn from Chinese expertise in artificial intelligence, advanced materials, robotics and cloud computing.

This would allow Malaysia to build on current initiatives to boost hi-tech manufacturing such as the Indus try4WRD national policy on Indus try 4.0 launched in 2018 and the Industry Digitalisation Transformation Fund launched in 1Q, 2019.

“Investment in smart technology will stand Malaysia in good stead to expand manufacturing of hi-tech medical devices, ” it said.

Fitch Solutions note that to date US tariffs on Chinese-made medical devices have mainly targeted diagnostic imaging and electro-medical apparatus with most consumables remaining exempt.

Conversely, Chinese tariffs on US products have targeted a much broader range of devices and this could encourage more investment from the US which is already the top investor in Malaysia’s manufacturing sector.

US medical devices companies with manufacturing operations in Malaysia include Abbott, Becton Dickinson, Boston Scientific, Cardinal Health, Medtronic and Teleflex.

Read more at https://www.thestar.com.my/business/business-news/2019/10/18/fitch-solutions-medical-devices-industry-to-gain-from-trade-war#zXWcEjwivYpjxdMZ.99

Chipmaker TSMC raises capex by up to US$5bil

CORPORATE NEWS
Friday, 18 Oct 2019

image: https://apicms.thestar.com.my/uploads/images/2019/10/18/334655.jpg

File Picture: Lora Ho, chief financial officer of Taiwan Semiconductor Manufacturing Co. (TSMC), left, and C. C. Wei, chief executive officer, attend the company's annual general meeting in Hsinchu, Taiwan, on Wednesday, June 5, 2019.

TAIPEI: Apple Inc supplier TSMC raised its 2019 capital spending plan by up to US$5bil yesterday and forecast a nearly 10% rise in fourth-quarter revenue on strong demand for faster mobile chips and new high-end smartphones.

The bullish forecast by the world’s top contract chipmaker should ease investor fears of a global tech slowdown, as the world economic growth outlook has dimmed largely due to a 15-month trade war between the United States and China.

“5G smartphone growth momentum is stronger than we expected... We have good reasons to increase our capex this year and next year, ” TSMC CEO C.C. Wei (pic) told an earnings briefing after reporting the Taiwanese company’s strongest quarterly profit growth in more than two years.

Smartphone makers including Samsung Electronics Co Ltd and Huawei Technologies Co Ltd are racing to develop phones enabled with the 5G technology, which could be up to 100 times faster than current 4G networks.

TSMC, formally Taiwan Semiconductor Manufacturing Co Ltd, whose clients also include Qualcomm Inc and Huawei, raised its 2019 capex to US$14bil-US$15bil yesterday from an earlier forecast of US$10bil-US$11bil.

It expected fourth-quarter revenue of between US$10.2bil and US$10.3bil, up from US$9.4bil a year ago, and gross margin at 48%-50% versus 47.7% in the same period a year ago.

TSMC reported a 13.5% rise in third quarter net profit to NT$101.07bil (US$3.3bil), its strongest growth since the first quarter of 2017, thanks to strong sales to smartphone makers.

The profit figure compared with a NT$96.33bil average forecast drawn from 20 analysts, according to Refinitiv data.

Revenue rose 10.7% to US$9.4bil, compared with the company’s own estimate of US$9.1bil to US$9.2bil.

Sales earned from smartphone makers accounted for 49% of its total revenue, up from 45% from a year ago, while China sales amounted to 20%, up from 15%, making up for modest slowdown in every other major region including North America.

TSMC shares closed down 1% yesterday prior to the earnings announcement. They have risen 28% so far this year, giving it a market value of US$251.3bil, bigger than US rival Intel Corp’s US$232bil.

The Taiwan company’s strong results come after Huawei, the world’s No. 2 smartphone maker, said on Wednesday it has shipped 185 million smartphones in the first nine months of the year.

That implies a 29% surge in Huawei’s third-quarter shipments, as it benefitted from promotions and patriotic purchases in China that more than offset weak international sales on US trade sanctions.

New smartphone launches ahead of the year-end shopping season, as well as rising demand for new technologies such as 5G and artificial intelligence will continue to drive sales for TSMC’s high-performance chips, known as 7nm, analysts said. — Reuters

Read more at https://www.thestar.com.my/business/business-news/2019/10/18/chipmaker-tsmc-raises-capex-by-up-to-us5bil#LhQDk1vWDMyyixF8.99