Maybank 'hold', Hartalega 'buy', Genting Plantations 'hold'

Malayan Banking Bhd

By CIMB Research

Rating: Hold (downgraded)

Target price: RM9.20

CIMB Research said it has downgraded Malayan Banking Bhd (Maybank) to a “hold” from an “add” due to its strong share price performance in the year-to-date (YTD) that has outperformed the benchmark FTSE Bursa Malaysia KL Composite Index (FBM KLCI).

“As such, we believe the expected recovery in the financial year 2017 forecast (FY17F) net profit growth is priced in, as its FY18F price-to-earnings ratio (PER) is almost two standard deviations above the five-year average,” it said.

CIMB Research still retained its FY17-FY19 earnings per share (EPS) forecasts and the dividend discounted model-based target price of RM9.20. “We prefer RHB Bank for exposure to Malaysian banks,” it said.

CIMB Research noted that upside risks to its call included stronger-than-expected loan and fee income growth while downside risks included a further increase in impaired loan and higher credit costs upon the adoption of the Malaysian Financial Reporting Standards 9 in 2018.

It explained that Maybank’s share price was up 14.6% in the YTD period, more than double the 7% rise in the FBM KLCI over the same period. It also noted that Maybank’s share price is now ahead of CIMB Research’s target price of RM9.20.

“Our views on the earnings prospects of Maybank in 2017 are unchanged. We continue to project a recovery in the group’s net profit growth from a decline of 1.4% in FY16 to an expansion of 8% in FY17F.

“The key driver for FY17 earnings is likely to be the expected normalisation of loan loss provisioning,” it said.

It also noted that if Maybank’s listing of its insurance unit Etiqa materialised, that would be positive for Maybank as it would enable the group to unlock the value of its investment.

“We estimate that Maybank’s potential gains from the deal would be in the region of RM1.7bil-RM3.5bil (17 sen-35 sen per share), assuming that Etiqa lists at 1.5-2.0 times book.

“This would raise our target price to between RM9.37 and RM9.55, not far off from the current market price of RM9.40,” CIMB Research said.

Hartalega Holdings Bhd

By TA Research

Rating: Buy (upgraded)

Target price: RM6.05

TA RESEARCH said after its meeting with Hartalega’s management, it emerged more sanguine on the company’s prospects.

“We were reaffirmed of the group’s growth trajectory on the back of sustained progress with capacity expansion at the Next-Generation Integrated Glove Manufacturing Complex (NGC) in Sepang,” it said.

Additionally, TA Research took further comfort that Hartalega has lately been responding better to volatilities in external factors and that its sustained emphasis on cost management would remain instrumental in buoying margins.

“Following our added optimism, we fine-tune our average selling price and margin assumptions and correspondingly upgrade our FY17, FY18 and FY19 earnings estimate by 10%, 14% and 13%, which implies earnings growth of 28%, 21% and 18%, respectively,” it said.

TA Research rolled forward its base year valuation to the calendar year 2018 (CY18) with an unchanged price-earnings ratio multiple of 22 times and arrived at a higher target price of RM6.05 per share from RM4.50 previously.

“Now with a decent upside potential of 21.5%, we upgrade our recommendation on the stock from a ‘sell’ to a ‘buy’,” it said.

On the fourth-quarter FY17 results that are due soon, TA Research said it expected core net profit to come within the range of its preceding quarter, as it foresaw the quarter-on-quarter climb in raw material prices to offset expected sales volume growth and upward revision to average selling prices.

It also noted that Hartalega’s management had said that the commissioning of new production lines at the NGC in Sepang had thus far been on track.

Genting Plantations Bhd

By HLIB Research

Rating: Hold

Target price: RM12.21

HLIB Research said Genting Plantations (GenP) registered fresh fruit bunches (FFB) output growth of 28.5% year-on-year in the first quarter of this year that was boosted by yield recovery and with more areas moving into mature and higher yielding bracket.

The research house said GenP’s management remained confident that the strong FFB output growth achieved in the first quarter would sustain into the next few quarters (with an output ratio of 45:55 in the first and second half).

It said this would be underpinned by the young age profile for its plantation operations in Indonesia (with an average age of only circa five years as at end-FY16), which will in turn help cushion lower palm product prices.

It also expects the opening of Genting Highland Premium Outlet to perform as well as Johor Premium Outlets (JPO), if not better since it will be serving a more diverse group of shoppers vis-a-vis JPO.

HLIB Research raised its FY17-FY19 core net profit forecasts by 4.5%, 9.1% and 8.1% respectively. This is largely accounted for by the higher JV earnings assumptions and lower depreciation charge assumption at the biotechnology division.

It maintained its “hold” recommendation on the stock, with a higher sum-of-parts derived target price of RM12.21 (from RM12.02 previously) to reflect the upward adjustment in its core net profit forecasts.

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