Kenanga Research neutral on auto and plastics, upgrades building materials

KUALA LUMPUR: Kenanga Investment Bank Research is maintaining its neutral outlook on the automotive, plastics and packaging, ports and logistics sectors while it upgraded the building materials sector and kept its underweight rating on healthcare.

In its strategy report issued on Wednesday, it maintained neutral on the automotive sector with 2020 total industry vehicle (TIV) target sales of 475,000 units (-21% YoY).

“We believe the upcoming new volume-driven launches in 4QCY20 could help offset the cautious consumer sentiment from the ending of loan moratorium by Sept 30.

“We upgrade to market perform with higher TP for the following stocks; (i) DRB-Hicom (TP to RM2.10 from RM1.80), (ii) MBM Resources (TP to RM3.15 from RM2.80), (iii) Tan Chong (TP to RM1.00 from 70 sen), and (iv) UMW (TP to RM2.70 from RM2.40). Maintain market perform call for Berjaya Auto (TP higher at RM1.40 from RM1.30),” it said.

Kenanga Research was still neutral for plastics & packaging. The 2QCY20 results were better than expected, with four packagers coming above expectations on better-than-expected.

Raw material prices are currently on the uptrend at US$900 to US$1,000/MT while its stimates are slightly more conservative at US$950 to US$1,100 given the recent rise.

“All in, 3QCY20 may see better topline as packagers are focused on the right segments namely F&B and PPE products, but margins may be marginally lower QoQ (c.2-3%) due to rising raw material costs and competition. Our preferred sector picks are SCGM (OP; RM3.85) and TGUAN (OP; RM5.65),” it said.

It retained its neutral call on ports & logistics premised on muted earnings from ports players, due to risks emanating from the persistent Covid-19 pandemic.

Separately, for Pos Malaysia the postal tariff hike on postage rates for registered and commercial mails had failed to turn its earnings around to profitability in 2QFY20.

“Overall, sector earnings could be further dragged down amid the pandemic. With muted catalyst going forward, there could be potential de-rating on the back of a bleaker economic outlook, both globally and for Malaysia,” it said.

However, it upgraded the building materials sector to neutral on the back of better steel demand and recovery in aluminium prices moving into CY21.

“Upgrade Uli Corp to Neutral with a higher TP of RM0.375. Long steel player Ann Joo might not feel the positive effects given the emergence of Alliance Steel in 2018 with its massive capacity – which would cap upside for long steel prices. Our underperform rating and TP of 50 sen for Ann Joo is unchanged.

“Aluminium prices have already bottomed out and a V-shape recovery is possible once COVID-19 subsides as such Press Metal should enjoy better earnings prospects next year on aluminium price recovery. Press Metal is an outperform with TP of RM5.95,” it said.

Kenanga Research was still Neutral on aviation as airlines carriers including AirAsia to continue facing tougher operating conditions amidst the Covid-19 pandemic.

It prefers Malaysia Airport Holdings Bhd (MAHB) being a monopolistic airport operator in the country. It believes the recent sell-down presents an opportunity to buy into MAHB with renewed optimism in the yet to be signed Operating Agreement (OA).

“No change to our underweight rating on healthcare which is expected to be dull in terms of earnings growth and further capped by expensive valuations. However, we believe that the healthcare industry will continue to enjoy pedestrian but stable growth, supported by growing healthcare expenditure, rising medical insurance and an ageing population demographic.

“For stock pick, we like KPJ as (i) start-up costs from new openings will be absorbed by incremental ramp-ups from earlier openings and steady contributions from matured hospitals, and (ii) the stock is currently trading at 20% and 40% discounts compared to historical average of 25.5 times and regional peers of 35 times, respectively,” it said.
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MAHB , AirAsia , KPJ , healthcare , Press Metal


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