Analyst reports


  • Markets
  • Thursday, 03 Oct 2019

TELEKOM MALAYSIA BHD By CGS-CIMB Equity Research

Rating: Reduce

Target price: RM3.70

CGS-CIMB Equities Research is maintaining a “reduce” call on Telekom Malaysia (TM) with a target price of RM3.70 as it waits for the third quarter ended Sept 30 (3Q19) results in the midst of intense competition.

The research house reckons that TM’s promotions are “aggressive” amid the intense competition, suggesting that the company is reviving its unifi subscribers growth and locking in existing subscribers.

“Our checks with TM’s customer service revealed that existing subscribers can downtrade to other unifi plans and still enjoy this promotion. Hence, we believe this offer was not intended to prevent downtrading, ” it said.

Beginning of this week, TM launched its ‘Pay Nothing’ promotion, whereby new and existing unifi broadband subscribers that sign up would enjoy monthly fee waivers until end-2019.

The promotion is also offering up to 10 times speed upgrades for unifi business plans, while trimming the price of the base plan by 22% to RM139 per month.

CGS-CIMB Equities Research said TM’s new unifi business broadband plan revisions bring it in line with Maxis in terms of 100Mbps and 800Mbps plans.

However, it added Maxis 300Mbps and 500Mbps plans are still 25% and 11% more expensive respectively.

The research house said that small and medium enterprises are less likely to downtrade compared to retail customers.

However, it noted that TM’s speed upgrade of 100Mbps price cut as well as new three-month fee waiver promotion could still exert downward pressure on unifi business average revenue per user (arpu) in the coming quarters.

The research house assumes overall unifi arpu to decline by 21% to RM150 in financial year ending Dec 31,2023 (FY23) forecast from RM191 in FY18.

“Assuming arpu drops by 15% to 25% over the same period, our FY19 to FY21 forecast core earnings per share would be raised or reduced by 1% to 7% and discounted cash flow (DCF) based fair value would be 15% higher or 12% lower at RM4.25 or RM3.25, ” said. CGS-CIMB Equities Research.

Currently, TM trades at an FY20 enterprise value/operating free cashflow of 8.6 times, which is at a 40% discount to the Asean telco average, and offers FY19-FY21 dividend yields of between 4.2% and 4.5%.



Kelington Group BhdBy Affin Hwang Capital Research

Rating: Buy

Target price: RM1.68

AFFIN Hwang Capital Research is maintaining a “buy” call on Kelington Group Bhd (KGB) with a target price of RM1.68 on the back of its strong net cash balance sheet of RM70mil and its upcoming industrial gas business model.

The research house said the buy call is based on a 16 times price to earnings ratio for calender year 2020 estimate.

“We believe KGB is a good proxy to ride on the recovery in the semiconductor capital expenditure cycle. The company’s upcoming industrial gas business model would likely propel the company towards the next phase of growth while enhancing earnings visibility and predictability, ” it added.

Affin Hwang Capital Research expects the slowdown in China’s semiconductor fabrication spending to turn around from the second half of this year (2H19).

It anticipates KGB’s financial year ending Dec 31,2019 (FY19) to be on track due to expectations of order book replenishment to match 2018’s level and its first half ended June 30,2019 (1H19) results.

In the last few quarters, the research house said KGB sustained its earnings with more robust work activities in Singapore, which also yielded higher margins compared to other regions.

Moreover, Affin Hwang expects KBG’s Taiwan operation to turn around as well in FY19 after securing its first solar project, with a 15% to 16% net profit margin.

On the other hand, the research house said the liquid carbon dioxide plant would commence production by end of October this year, given the slight delay relating to installation of the water pipes and power supply.

“The commencement of the plant should further enhance earnings visibility for the group and could drive dividend per share and valuation re-rating, ” it added.





Astro Malaysia Holdings BHDBy KAF Research

Rating: Buy

Target price: RM1.70

KAF Research is maintaining a “buy” call on Astro Malaysia with a target price of RM1.70 based on valuation of 11.1 times for financial year ended July 31,2020 (FY20) forecast.

The research house said the price-to-earnings ratio (PE) is cheap compared to historical average of 21.4 times due to structural challenges from the onset of OTT alternatives.

“The stock has fallen by 37% over the last 24 months and is trading at 11.1 times FY20 PE, below its five-year historical average of 21.4 times, ” it added.

KAF Research expects Astro’s earnings trajectory to remain unexciting as the group would enter another major sporting event in FY21 forecast, which is the UEFA 2020 football tournament and the Olympics. This would result in rising content costs.

“We project FY19 and FY22 forecast revenue, compound annual growth rate of -4.3% to reflect the challenging TV subscription outlook, but to be partially cushioned by higher adex and GoShop revenue.

“We expect earnings rebound of 23% in FY20F before a 13% decline in FY21F, mostly due to content cost fluctuations. The weakening ringgit against the US dollar may also impact its bottom-line through the international content and satellite lease payments, ” it added.

Having said that, KAF Research said Astro’s after-tax free cashflow of around RM900mil should be enough to sustain a minimum payout of 75%, translating to dividend per share of 10-11 sen or yields of 6% to 7%.

Given the preference for yield play, Astro’s attractive dividend payout policy should underpin the share price performance in the weak broader market, ” it added.

BANKING SECTORBy Kenanga Research

Rating: OverweightKENANGA Research is keeping a “overweight” call on the banking sector due to easing monetary conditions which have been supportive of continued growth, pushing loan growth and improving prospects of recovering.

The research house said the overweight call is also because the banking sector has been undervalued as the larger banks have underperformed year to date.

“Valuations are attractive and undemanding with all banks under our coverage rated as Outperform, except for Hong Leong Bank.

“Banks with healthy asset quality will still be in favour for their defensive quality, ” it added.

Meanwhile, Kenanga Research believes that the upcoming Budget 2020 would provide more clarity and support for the domestic economy, supporting loans growth.

“The May 2019 overnight policy rate cut will support the banks’ bottom line as credit charge will likely be lower on account that probability of default will be lower with faster recovery rate as interest is reduced, ” it said.

However, the research house does not expect any significant impact on the top line.

“In fact, we believe that the cut will support banks’ bottom line as credit charge will likely be lower as defaults will be lower with a faster recovery rate as interest is reduced, ” it said.

Kenanga Research’s top picks are Alliance Bank Malaysia Bhd and CIMB Bank with target prices of RM3.45 and RM6.45 respectively, saying that the banks are prime beneficiaries from mergers and acquisitions as well as tie-ups.


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