Yinson 'buy', Hai-O 'underperform', Top Glove 'hold', Consumer 'overweight'


  • Analyst Reports
  • Friday, 20 Dec 2019

Growth factor: Earnings growth for the consumer sector companies like Padini Holdings is expected to be driven by overseas expansion which offers diversification in earnings base.

Yinson Holdings BhdBy RHB Research

Rating: Buy (maintained)

Target price: RM8.22

YINSON’S nine-month financial year 2020 (9M20) results are deemed to be within expectations, in view of a stronger 4Q20, led by maiden contributions from floating production, storage and offloading (FPSO) vessel Helang.

The vessel achieved its first gas and final acceptance on Dec 6 and is expected to generate stable earnings under an eight-year firm charter until December 2027.

The delivery date for FPSO Abigail-Joseph remains unchanged at end 1Q21. Both vessels are expected to cumulatively contribute earnings of RM200mil per annum.

The group’s 3Q20 core earnings dropped 5% quarter-on-quarter (q-o-q) on higher depreciation and weaker joint-venture and associates’ contributions due to higher one-off repair costs for FPSO vessel Lamson and lower charter rates for FPSO vessel Bien Dong.

This was cushioned by higher contributions from three recently acquired very large crude carriers (VLCCs), which are on spot charters.

Its 9M20 earnings dropped 26% year-on-year (y-o-y). largely dragged by weaker contributions from the FPSO business.

This was due to the contract termination of FPSO vessel Allan and a lower share of profits in FPSO vessel John Agyekum Kufuor post monetisation of its 26% stake in June 2018.

Yinson is also believed to be in a good position to secure another big FPSO project next year – the Parque Das Baleias (PDB) project in Brazil – which will lead to significant cost synergies.

Petrobras had recently rescheduled first oil for PDB from 2022 to 2023 under its new five-year business plan.

RHB Researchnsaid this was not surprising as Yinson had requested to have a six-month gap from the Marlim 2 contract award in order to have better resources deployment.

Meanwhile, the Pecan project in Ghana has been delayed, as the proposed plan of development and operations submitted by Aker Energy has been rejected by the authorities

Hai-O Enterprise BhdBy Kenanga Research

Rating: Underperform (maintained)

Target price: RM1.50

FURTHER pressure from stagnant distributors’ growth is expected, averaging at 140,000, a plunge from the highest level in FY18 at 160,000.

Another factor is the weakening ringgit against the yuan.

The group’s multi-level marketing (MLM) division, which saw a 30% decrease in revenue in 1H20 ended October, will develop more “small ticket” items with affordable prices to cater for market needs in view of the lower spending power of its members and to reinforce its ongoing digitalisation initiatives.

The wholesale division will focus on its core products, which include Chinese medicated tonic and other health and wellness products and will continue to widen its product portfolio.

The retail division will continue to develop more affordable house brand products to widen its product portfolio and will improve its sales incentive scheme.

Hai-O’s 1H20 net profit plunged 39% to RM15.1mil and was below expectations, believed to be due to higher-than-expected rebates on promotional items to attract distributors.

The first interim dividend per share of 3 sen was also below expectations.

Earnings before interest and tax contracted by 4.3 percentage points to 14.4% from 18.7% on the back of unfavourable merchandise mix skewed towards small ticket items as well as higher rebates on promotional items to attract distributors.

The MLM division’s dismal performance continued to persist in view of weak market sentiments with distributors continuing to cut back spending and slowed down marketing activities, which also affected members’ recruitment and renewal.

The aggressive promotion campaign by the retail division was uninspiring as buying momentum remained subdued, especially for premium health supplement products.

Higher bird nest exports by the wholesale division was also offset by weaker Chinese medicated tonic and patented medicine sales.

Top Glove Corp BhdBy JF Apex Securities Research

Rating: Hold (maintained)

Target price: RM4.73

EARNINGS forecasts for financial year 2020 (FY20) has been revised upwards by 17.5% to RM465.4mil as a result of higher operating margin and FY21 net earnings has been introduced at RM534.1mil.

This represent growths of 26.6% and 14.8% respectively.

Raw material prices are stabilising with average latex concentrate prices continuing its downward trend with a 11% dip from RM4.64 per kg in 4Q19 to RM4.13 per kg during 1Q20.

JF Apex believes this will persist in the subsequent months as Thailand has been pushing more natural rubber exports in this calendar quarter.

Average nitrile latex price was also down 14.5% y-o-y to US$1.06 per kg and is likely to continue, albeit at a slower pace, as the supply shortage problem has diminished.

Softening gas price are also expected, with a reduction of 2.96% by 1H20.

Meanwhile, Top Glove’s expansion plans of its existing facilities and construction of new facilities are on track, which will boost the total production by 178 lines and production capacity by 30.3% or 21.3 billion by the end of 2021.

The group is projected to have 861 production lines along with a total production capacity of 91.4 billion per annum. Notably, six out of eight new plants will be setting for nitrile glove with approximately extra 130 lines of production cum 16.2 billion capacity.

CONSUMER SECTORBy AmInvestment Bank Research

Rating: Overweight (maintained)

PRIVATE consumption is projected to grow at 6.9% and healthy consumer spending is expected to be sustained, on the back of a steady labour market and stable inflation.

This is despite the low consumer sentiment as measured by the Malaysian Institute of Economic Research which is at 84 points in 3Q19.

Prices of commodities are expected to inch up moving forward, leading to a slight downward pressure on the profitability of Power Root Bhd, Berjaya Food Bhd, NESTLE (M) BHD and Leong Hup International Bhd in 2020.

Growth for customer staples will be stable with sustained consumer spending and growing private consumption, which will benefit counters like Power Root, Leong Hup, Mynews Holdings Bhd and Nestle.

Meanwhile, consumer discretionary will be more susceptible to the weak consumer sentiment and challenged by the increased competition with substitutes becoming more readily available in the market.

Earnings growth for Power Root, GUAN CHONG BHD, Leong Hup and PADINI HOLDINGS BHD is expected to be driven by overseas expansion which offers diversification in their earnings base.

The research house may downgrade the sector to neutral if factors such as the sharp weakening of the ringgit, the sluggish improvement to economic fundamentals and the sharp decline in global economic conditions crystallise.

AmInvestment Bank Research’s top picks for the sector include Power Root with a fair value of RM2.82 and Guan Chong with a fair value of RM3.49.

Other buy calls include Mynews with a fair value of RM1.66, Berjaya Food with a fair value of RM1.57 and Leong Hup International with a fair value of RM1.04.

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