LPI Capital 'market perform', RHB Bank 'buy", GD Express 'neutral'

  • Markets
  • Thursday, 17 Oct 2019

LPI Capital BhdBy Kenanga Research

Rating: Market perform (maintained)

Target price: RM16.00

LPI Capital’s nine-month financial year 2019 (9M19) profit after tax and minority interest of RM235.8mil came in below estimates due to higher claims incurred.

Claim ratios from the miscellaneous segment appeared to be lofty throughout the year at 64.9% as compared to 50.7% for the same period last year.

Year-on-year operating revenue and net earned premium grew 7% and 10% respectively but operating profit rose only 2% as a higher claims ratio of 45.2% resulted in a higher combined ration for the period at 72.5%.

Fire insurance continues to be the leading contributor of LPI Capital’s business, accounting for 40% of gross earned premiums and 65% of underwriting surplus before management expenses.

The miscellaneous business segment, which covers construction and engineering items might see potential disappointments in the near-term as it could be in a lull.

This might further dampen the group’s immediate prospects as competitive rates and frequent claims could undermine the group’s profitability.

Better performances in the motor and marine, aviation and transit businesses may be able to cushion this.

Kenanga believes that the sentiment for the stock could be steered by the solid backing from Public Bank, which may provide comfort on the sustainability of the group’s operations.

The counter’s return on equity of 15% may not be up to mark as compared to the likes of Syarikat Takaful Malaysia Keluarga Bhd of around 30% but generous dividend payments with potential yields of 4.7% and 4.8% for FY19 and FY20 could be a winning attribute to some investors.

RHB BANK BHDBy Hong Leong Investment Bank Research

Rating: Buy (maintained)

Target price: RM6.45

RHB is one of the very few domestic banks now with the ability to churn healthy profit growth rate at around 3% as compared to the sector which is flattish.

The research house likes the stock for its appealing risk-reward profile given its strong CET1 ratio of 16.3% compared to the sector’s 13.7%, which permits the ability to divvy even more.

It also noted that RHB’s current dividend payout ration of 40% is still below the sector average of 45%.

RHB kept is 2019 loans growth target of 5% despite only chalking in an annualised lending expansion of only 4.1%.

Growth is expected to pick up from retail mortgage, SME financing and its Singapore operations.

There is minimal net interest margin (NIM) downside as a recovery should take place in 4Q19, since 71% of its non-current accounts and savings accounts (non-CASA) deposits are due for maturity in six months (calculated as at March 2019) and will be repriced downwards.

It is also looking to redeem RM230mil hybrid capital securities in December to help buffer its 2020 NIM.

RHB’s strong non-interest income in the first half (1H19) is expected to persist into 2H19. The bank is optimistic that its gross impaired loans ratio will improve to below 2% by end-2019.


Rating: Neutral (maintained)

Target price: 30 sen

GD Express Carrier Bhd’s (GDex) expansion to Vietnam via the acquisition of Noi Bai Express and Trading Joint Stock (Netco) is deemed a strategic way for the group to utilise its cash pile.

Post-acquisition, GDex will still remain in a net cash position of above RM200mil after it acquires 50% of Netco’s enlarged share capital for a total of RM13.85mil.

Netco is currently profit making albeit at an immaterial level to GDex’s earnings and may go though a gestation period before delivering meaningful earnings.

MIDF believes GDex will implement the same modus operandi applied to its 44.5%-owned PT SAP Express in Indonesia, which is by providing business advisory and knowledge transfer to Netco.

Netco’s four hubs, 45 branches and 47 points of delivery will serve as a good starting point for GDex to assimilate with the market dynamics of Vietnam’s logistics industry.

GDex’s 32.7%-owned associate Web Bytes which has entered Vietnam, can also tap on Netco’s network to provide new retail solutions of mobile point-of-sale and self-service kiosks and vice versa.

MIDF retains its neutral rating on GDex for its healthy balance sheet that supported the group’s various expansion plans.

The target price is maintained at 30 sen per share, valued using a two-stage discounted cash flow method which assumes a WACC of 12% to reflect the risk from the ongoing intense competition driven by the growth in the South-East Asian ecommerce industry which is expected to be worth US$102bil (RM427.76bil) by 2025.

TECHNOLOGY SECTORBy AmInvestment Bank Research

Rating: Neutral (maintained)

CHALLENGES exist in the implementation of the fourth industrial revolution (IR 4.0) but the recently launched Shared Prosperity Vision (SPV) 2030 blueprint is in line in ensuring the requirements are met.

Among key challenges are the lack of skills and resources. The usage of autonomous robots and smart manufacturing is only at 7.4%.

There are also risk management and compliance concerns such as cyber security and data protection and also challenges in finding the right technology partners and enduring executive support and leadership.

These were among the main takeaways during the recent International Conference on Industrial Revolution 4.0 (IR 4.0).

The SPV 2030 is in line with efforts to ensure requirements of IR4.0 are met, such as the upskilling of labour with the creation of higher value-added jobs in manufacturing and services through technology and automation.

AmInvestment Bank believes that equipment makers such as PENTAMASTER CORPORATION BHD and Ace Market-listed Greatech Technology Bhd may see direct benefit from the move towards IR 4.0, given their expansion into providing factory automation solutions.

The move towards IR 4.0 would also benefit other sectors in the future.

The conference also saw the discussion on blockchain, which revolved largely around the application of Non-Fungible Token (NFT).

It is a type of token that represents a unique asset hence, each token is unique and carries a different value based on the asset it represents.

Conversely, a RM10 note is fungible which means its value and acceptance is the same at a specific point of time, regardless of the year it was printed or how it was acquired.

One of the use cases of NFT that has gained huge attention is supply chain traceability.

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