AXIS REAL ESTATE INVESTMENT TRUST (REIT)
By CIMB Research
Hold (no change)
Target Price: RM1.72
AXIS REIT’s second quarter of 2017’s (2Q17) core net earnings rose 2.4% year-on-year (y-o-y) to RM23.3mil, bringing the first half of 2017’s (1H17) core net earnings to RM46.3mil, a 2.2% y-o-y rise.
In addition, Axis REIT declared a distribution per unit (DPU) of 2.17 sen for 2Q17 (+5.9% y-o-y), bringing 1H17 DPU to 4.3 sen (+5.4% y-o-y), in turn allowing 1H17 to fall under CIMB Research as well as market’s expectations.
Losses from Delfi Warehouse were offset by a combination of positive portfolio rental reversions resulting in 1H17 revenue rising by 1.6% y-o-y to RM84.3mil, along with additional contributions acquired in November 2016 from Scomi Facility in Rawang. 1H17 core net earnings growth was brought back to a steady pace due to lower property and non-property expenses, which collectively declined 2.2% yoy to RM37.6mil.
Axis REIT also proposed the acquisition of two plots of leasehold land totalling 126.6 acres in Gebeng, Pahang for a total cash consideration of RM155mil.
The property will be leased back to Wasco Coatings Malaysia SB on a 15-year lease, with 10% step-up in rental rates every three years, while being fully funded by debt.
CIMB Research estimated gearing to rise from 2Q17’s 0.34 times to 0.39 times post acquisition, well below the regulator’s prescribed gearing limit of 0.5 times but still above its internal gearing limit of 0.35 times. Axis REIT expected a net yield of 7% for the Gebeng asset, which CIMB Research deemed as fair.
CIMB Research made no change to its earnings for now.
It maintained its “hold” rating and dividend-discount-model based target price of RM1.72, as the stock was fairly valued at the current level.
“Though we like the REIT’s healthy appetite for continuous asset injections, we think this has been priced in,” CIMB Research said.
By Kenanga Research
THE SLUMP in car sales in June on month-on-month (m-o-m) and year-on-year (y-o-y) basis was attributed to a shorter working month due to the Hari Raya festive holidays, said Kenanga Research.
For June 2017, the total industry volume (TIV) sales declined 1% m-o-m and 12% y-o-y to 50,275 units.
On the passenger vehicles segment, which fell 11% y-o-y, only Proton registered a positive growth of 4% in June on the back of its aggressive promotion.
Most of the car makers recorded mild growth in m-o-m sales due to the higher unit sales base in the previous month from the aggressive pre-Raya promotion with Nissan registering the highest growth of 7%, with its attractive 60th anniversary deals.
The under-performers in m-o-m sales for passenger vehicles were Toyota and Mazda with sales falling by 12% and 9% respectively.
The research house said the consumers were holding back purchases for the new models, which were expected to be unveiled in the second half of the year.
Kenanga said the sales volume for July 2017 was expected to be maintained at June 2017 level with anticipation of delays in the process of vehicle registrations due to uncertainties arising from the liberalisation of motor insurance from July 2017.
On a year to date basis, TIV came in stronger at 284,461 (up 3%), led by Perodua and Honda with market share of 35% and 18%, respectively.
The research house attributed the stronger growth to the aggressive discounts and promotion for the purpose of inventory clearing of older models before the roll-out of the newer models anticipated in the second half of the year.
In addition, Kenanga said the stronger numbers were also contributed by the wide variety of new model launches.
The research house added that the first six months of 2017 sales comprised 48% of its 590,000 TIV forecast for 2017, which was within expectation.
As such, Kenanga has maintained its year-end forecast target of 590,000 TIV on the back of robust sales with the forthcoming model launches such as the new Perodua Myvi, face-lifted Perodua Bezza, Honda City Hybrid, Honda Jazz Hybrid, Honda CR-V, the new Toyota CH-R, Toyota Hilux 2.4G, Toyota Vios 2017, face-lifted Toyota Camry, Mazda CX-5 2017 and Mazda CX-9.
The research house said its view on the sector remained conservative as consumer purchases of automobiles have been clamped by stringent lending guidelines as well as consumer sentiment lingering at a level below the optimistic threshold on higher living expenses.
Additionally, the recent strengthening of the ringgit against the US dollar and yen is still insufficient to cushion the negative effects on the automakers.
Kenanga said Bermaz Auto Bhd was its preferred pick for the sector as the company’s targeted customer base in the middle-income to high-income bracket was less sensitive to the rising cost of living.
It added that there was high potential value to be unlocked with the proposed listing of Bermaz’s Philippines subsidiary where robust growth in its automotive market was anticipated, potential dividend pay-out of about 90%, which translated into fair dividend yield of about 7.5%, and higher locally-assembled (CKD) model of Mazda CX-5 slated for September 2017.
By HongLeong Investment Bank (HLIB) Research
Target Price: RM5.04
SUNWAY has obtained the necessary approvals from Bursa Malaysia with regards to its earlier proposals – listing of up to 2,804,471,128 bonus issue of shares, admission to the Official List, a listing and quotation of the proposed up to 631,006,003 bonus issue of warrants and a listing of up to 631,006,003 new Sunway shares to be issued pursuant to the exercise of the warrants.
The approvals came in ahead of HLIB Research’s expectations, especially involving the first-of-its-kind step-down mechanism on warrant exercise price.
For context, Sunway proposed to issue four bonus issue of shares for every three existing shares and three free warrants for every 10 existing shares on June 14.
As a result of the approvals, HLIB Research predicted Sunway holding an extraordinary general meeting (EGM) in August to secure shareholders’ approval before finalising the ex-dates and exercise price of the free warrants.
Judging from the fast turnaround, HLIB Research expected the exercises to be completed before end of September.
HLIB Research recommended Sunway trades closer to its peers such as IJM and Gamuda, especially given its diversified income stream and declassification from property sector.
HLIB Research reckoned the price to earnings ratio (PE) of 13.6 times relative to peers represented a deep value stock with potential assets unlocking and growing healthcare business which are under-appreciated.
HLIB Research reiterated its “buy” call as the above approvals would serve as strong share price support reinforced by long term re-rating value play given its diversified income stream and recent reclassification under trading/services sector.
Potential assets unlocking worth up to RM1.4bil and the potential spin-off of growing healthcare business which could eventually fetch more than RM3bil are motivations as well.
OIL AND GAS SECTOR
By MIDF Research
GLOBALLY, crude oil prices have been hovering below the US$50 per barrel level for nearly three months due to increased production levels from Organisation of the Petroleum Exporting Countries (Opec) countries, volatile US inventory movements and the continuous supply threat from continental US shale oil producers.
Almost the entire Bursa-listed heavy offshore asset owners are currently trading at a discount below its book value compared to a premium before the crude oil price slump mid-2014.
This is largely due to receding profit margins, declining profitability, low offshore activity levels, low charter rates and overall slump in exploration and production activities.
Locally, offshore activity levels have been less-than-exciting as production sharing partners are still on a continuous effort to drive costs down due to depressed global crude oil prices.
This further stresses Malaysia’s pledge to reduce crude oil production by 20,000 barrels a day.
Downstream and utilities related oil and gas stocks have been trading at multiple times its book value, further supported by its stable and robust earnings base.
Large offshore asset utilisation rates and charter rates are still expected to remain depressed throughout 2017, if not lower. Currently, the global utilisation rate (UR) for global rigs is at 68% compared with 73% a year earlier.
The situation is slightly bleaker in South-East Asia, where the average UR for large offshore assets is at only 65.7%.
MIDF Research predicted that UR and charters rates would not be staging meaningful improvements throughout 2017.
MIDF Research believed that the rock bottom valuation for offshore service providers could prolong.
Additionally, it suggested that these very providers could continue to trade at a steep discount compared with its downstream counterparts.
Therefore, MIDF Research concluded with a negative stance towards the upstream sub-segment.
By contrast, it adopted a positive stance on the downstream sub-segment as continuous growth due to Petronas’ committed capital expenditure plan focusing on downstream oil and gas segment.
The research house recommended safe exposures into Gas Malaysia Bhd and Petronas Dagangan Bhd.