Wuhan virus outbreak to delay, but not derail, market rerating: AmResearch

PETALING JAYA: The outbreak of the Wuhan coronavirus is believed to delay, but not derail, a potential market rerating this year, according to AmResearch.

The market rerating will be driven by catalysts such as increased appetite for risk assets, particularly emerging market equities including Malaysian equities, if the US Fed does not tighten its monetary policy coupled with the sustained high equity valuations in developed markets.

Other catalysts are the easing of the US-China trade tensions and the moderation of the global recession risk.

Besides that, AmResearch pointed out that there has been a change in Malaysia’s perceived country risk premium following significant political events.

“There is also a play on the ringgit, driven by events such as: (i) FTSE Russell is to retain Malaysia in the World Government Bond Index; (ii) a steep rise in crude oil prices (Malaysia is a net exporter of oil & gas) on geopolitical tensions; and (iii) an end to the easing cycle with no further cut in the overnight policy rate by Bank Negara Malaysia (BNM) in 2020.”

Despite fears over the virus, the research house is maintaining its end-2020 FBM KLCI target at 1,670 points.

“While we are positive on the outlook for the market over the next 12 months, we believe investors should exercise caution over the next three to six months as it appears that the current 2019-nCoV outbreak will not go away or taper off anytime soon, and it will probably get worse before it gets better.”

“More so, key stock markets in most parts of the world have been scaling record highs since the beginning of the year, leaving investors with plenty of room to take profits. We believe the downside risk to the local market is more limited given FBM KLCI’s major underperformance in 2019.”

Moving forward, AmResearch is “overweight” on banks, consumer, electronic manufacturing services, oil & gas and glove sectors with Maybank, Tenaga Nasional, RHB Bank, Westports, Kossan, Serba Dinamik, DRB-Hicom, MMC Corp, MBM Resources and Guan Chong as its top picks.

The FBM KLCI slipped 1.17 points or 0.08% to 1,550.47 points yesterday after a sharp fall of 21.17 points on Tuesday.

source https://www.thesundaily.my/business/wuhan-virus-outbreak-to-delay-but-not-derail-market-rerating-amresearch-EJ1946204

Pos Malaysia upgraded on postal rate hike boost

PETALING JAYA: Pos Malaysia Bhd’s postage rate increase from Feb 1 is expected to translate into a smaller net loss for FY20 and a net profit FY21, according to AmResearch.

“We now project Pos Malaysia to register a smaller net loss of RM9.6 million in FY20F and a net profit of RM9.8 million in FY21F versus net losses of RM69.1 million and RM45.5 million previously, following an earnings boost from the latest development,” it said in a note yesterday.

With better earnings forecasts, the research house has upgraded the postal services group to “hold” from “sell” call, with a higher target price of RM1.34.

The stock gained 4 sen or 2.78% to close at RM1.48, after touching a high of RM1.60, on 13.42 million shares done yesterday.

Pos Malaysia has received the green light from the government to raise its postage rates for commercial mail by 160% to RM1.30 (from RM0.50), registered mail by 41% to RM3.10 (from RM2.20) and small parcels below 2kg by 30%.

Commercial mail makes up 95% of its total domestic mail, which includes 71% coming from the main users such as financial institutions.

It will also raise international postage rates up to 30% to help offset the rising last-mile delivery cost for small parcels of below 2kg, by 30%-210%.

AmResearch noted, however, that the earnings boost from the higher postage rates will be partially eroded by the hastened digitalisation of physical mail, resulting in accelerated mail volume contraction and more aggressive operating expenditure to improve the quality of postal services.

With regard to mail contraction, it expects mail volume to decline by 18% and 5% in FY20 and FY21 respectively compared with 10% and 5% previously.

The research house said the main challenge for Pos Malaysia is its cost inefficiency as a result of a unionised workforce and its inability to significantly rationalise its extensive network of post offices.

“Meanwhile, the courier segment continues to face intense competition, resulting in margin squeeze,” it added.

source https://www.thesundaily.my/business/pos-malaysia-upgraded-on-postal-rate-hike-boost-HG1945458

Glove stocks on Bursa retreat, but valuations seen expanding

PETALING JAYA: Glove stocks on Bursa Malaysia came under profit-taking today after days of rally on fears over the Wuhan coronavirus outbreak.

Despite the retreat, PublicInvest Research believes that their valuations will continue to expand as the absence of a vaccine might lead to the coronavirus being spread to more countries.

“We raise our price-to-earnings valua-tion for Top Glove, Hartalega and Kossan to 43 times, 48 times and 29 times respectively. We also raise our earnings forecast for glove makers under our coverage universe in FY20-FY21 by 3-5% to account for the possible extra orders from China that, in our view, will materialise. We also see slight margin expansion resulting from better bargaining power in the hands of the glove manufacturers,” it said in a research note today.

It has also upgraded the rubber glove sector from “neutral” to “overweight”.

On Bursa Malaysia today, Hartalega Holdings Bhd fell 21 sen or 3.36% to RM6.04, Top Glove Corp Bhd sank 16 sen or 2.67% to RM5.84, Kossan Rubber Industries Bhd slipped 11 sen or 2.2% to RM4.90, while Supermax Corp Bhd was down 8 sen or 4.3% to RM1.78.

PublicInvest Research said glove counters have experienced valuation expansion, historically during other epidemic outbreaks, trading up to +2.0 standard deviation (SD) of their respective five-year historical mean due to market sentiment, coupled with an increase in demand for gloves.

It explained that the trend can be observed during the large outbreak of H1N1 flu from April 2009 to August 2010, where the valuations for both Top Glove and Kossan peaked at +2.0 SD during the tail end of the outbreak.

However, the trend was less apparent during the SARS outbreak from November 2002 to August 2003, as glove makers had much less following back then.

“With the coronavirus outbreak, we are of the view that history might repeat itself and the glove players might trade up to its respective +2.0 SD like the prior H1N1 outbreak.

“While we note that a team of Hong Kong researchers have reportedly developed a vaccine for the coronavirus, it is also noteworthy that the preclinical and clinical studies are likely to take more than a year before it will be fit to use on humans. Therefore, we reckon it will not be so soon that the coronavirus outbreak can be conclusively addressed.”

With the increase in glove demand, the research house believes that there is room for glove makers to ramp up utilisation rate further to 95%, to meet the urgent shipment requests from China.

“We view that Top Glove is likely to be the largest beneficiary from this unexpected demand surge, as it has the strongest capacity growth (+16.8% yoy), while Hartalega and Kossan’s capacity will grow by 9% yoy and 10% yoy respectively in 2020. We are of view that the sudden spike in demand might drive glove average selling price higher, hence resulting in slight margin expansion,” PublicInvest Research said.

source https://www.thesundaily.my/business/glovks-FJ1946263

The Body Shop products retailer/distributor InNature aims to raise RM120.6m from IPO

PETALING JAYA: Main Market-bound InNature Bhd is looking to raise a total of RM120.6 million from its initial public offering (IPO), split between gross proceeds of RM50.4 million from the public issue and RM70.2 million from the offer for sale.

The IPO will entail a public issue of 74.07 million new shares and an offer for sale of RM103.2 million existing shares at an offer price of 68 sen each.

The counter is expected to be listed on Feb 20.

InNature is the retailer and distributor for The Body Shop products in Peninsular Malaysia, Sabah, Labuan, Vietnam and Cambodia, via subsidiaries Rampai Niaga, TBS Vietnam and Green Cosmetics respectively.

According to its prospectus filed with Bursa Malaysia, the group currently has an 11% market share in the cosmetics personal care segment in Malaysia, based on total market sales of RM1.48 billion in 2018.

It currently has 89 stores in Peninsular Malaysia, Sabah and Labuan, 34 stores in Vietnam and one store in Cambodia. It also has an online presence, distributing The Body Shop products via its own websites as well as through third party online marketplaces such as Hermo, Tiki and Lazada.

After its IPO, the group intends to continue to grow its revenue and strengthen its leadership in the mono-brands beauty industry and the naturals beauty market.

For Malaysia, InNature plans to drive same-store sales growth through an omnichannel strategy. It aims to expand its brand portfolio by developing a new business with the Natura brand.

“We will be focusing on an omnichannel strategy heavily focused on Natura’s business model of social commerce and e-commerce, which will be supported by a digital platform as well as physical stores for showrooming and raising awareness through customer experience,” it said.

The Natura brand comes under Natura Cosmeticos SA, a global brand that owns The Body Shop and Aesop brands of personal care products worldwide.

For Vietnam and Cambodia, the group will focus on expanding The Body Shop retail network and brand awareness. Between 2020 and 2022, InNature plans to open six stores every year in Ho Chi Minh City and Hanoi.

“By end 2021, we plan to open up five more points of sale in Cambodia, subject to the availability of locations that will suit The Body Shop positioning,” it said.

For the financial period ended Sept 30, 2019 InNature posted a profit after tax of RM22.24 million on revenue of RM138.2 million.

InNature’s shareholders with substantial direct equity are Etheco (56.98%), BluPlanet (36.32%), Pelagos (3.35%) and Primarium (3.35%).

source https://www.thesundaily.my/business/the-body-shop-products-retailer-distributor-innature-aims-to-raise-rm1206m-from-ipo-DJ1946225

Ringgit ends higher against US dollar

KUALA LUMPUR: The ringgit ended higher today on a weaker greenback as investors await the US Federal Reserve’s interest rate decision and US GDP report.

As of 6pm, the ringgit was quoted at 4.0790/0820 against the US dollar compared with 4.0840/0870 at yesterday’s close.

An analyst said that at its meeting this evening, the Federal Open Market Committee is expected to keep the federal funds target range unchanged at 1.50% to 1.75% without making any major changes despite concerns on the novel coronavirus situation.

On the oil front, she said prices rebounded after a sharp fall yesterday, supported by lower production in the United States.

“This ended the five-day price slide stemming from fears of declining oil demand due to growing concerns over the coronavirus spread,“ she said.

At the time of writing, benchmark Brent crude was recorded at US$59.27 per barrel compared with US$58.05 per barrel yesterday.

Against other major currencies, the ringgit was traded higher.

It rose to 2.9979/9012 from 3.0052/0076 against the Singapore dollar, and appreciated vis-a-vis the Japanese yen to 3.7408/7446 from 3.7526/7557 on Tuesday.

The local currency also strengthened against the euro to 4.4869/4918 from 4.4985/5035 and increased against the British pound to 5.3076/3131 from 5.3210/3258 yesterday. - Bernama

source https://www.thesundaily.my/business/ringgit-ends-higher-against-us-dollar-JG1945649

Bursa Malaysia ends mixed amid continuing uncertainties

KUALA LUMPUR: Bursa Malaysia ended mixed today amid profit-taking in heavyweights and bargain hunting in small-cap stocks as global markets continued to face uncertainties.

At 5pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) fell 1.17 points to 1,550.47 from yesterday’s close of 1,551.64.

After opening 0.01 of-a-point weaker at 1,551.63 this morning, the benchmark index moved between 1,547.94 and 1,554.42 throughout the day.

On the broader market, gainers outpaced losers 513 to 392, while 358 counters were unchanged, 730 untraded and 21 others suspended.

Turnover decreased to 2.69 billion shares worth RM2.55 billion from 3.36 billion shares worth RM2.88 billion recorded yesterday.

In a note, AmInvestment Bank Bhd said stock markets around the world had reacted negatively to the escalation in the 2019 Novel Coronavirus outbreak, and Bursa Malaysia is no exception, with the latest reports saying it has thus far infected more than 5,000 people globally and claimed 132 lives in China as of the end of Tuesday.

However, AmInvestment Bank said it would maintain its end-2020 FBM KLCI target at 1,670 points for now.

While it is positive on the outlook for the market over the next 12 months, it said investors should exercise caution over the next three to six months as it appeared that the current outbreak would not go away or taper off anytime soon.

“More so as the key stock markets in most parts of the world have been scaling record highs since the beginning of the year, leaving investors with plenty of room to take profits.

“We believe the downside risk to the local market is more limited given the FBM KLCI’s major underperformance in 2019,” it added.

Among the heavyweights on Bursa Malaysia, Maybank lost one sen to RM8.45, Public Bank added four sen to RM19.00, Tenaga was 18 sen lower at RM12.56 and Petronas Chemicals decreased six sen to RM6.58.

Of the actives, Avillion was half-a-sen higher at 16 sen, Careplus eased 3.5 sen to 36 sen and DGB Asia was 1.5 sen lower at 11 sen.

On the scoreboard, the FBM Emas Index was 9.98 points higher at 11,079.62, the FBM Emas Shariah Index lost 11.66 points to 11,784.28 and the FBMT 100 Index rose 4.34 points to 10,870.62.

The FBM 70 gained 56.92 points to 13,993.29 and the FBM ACE increased 68.01 points to 5,635.79.

Sector-wise, the Industrial Products and Services Index inched up 0.29 of-a-point to 148.53, the Financial Services Index added 28.34 points to 14,914.15 and the Plantation Index was 24.88 points higher at 7,214.20.

Main Market volume declined to 1.65 billion shares worth RM2.28 billion from 2.27 billion shares worth RM2.60 billion yesterday.

Warrants turnover increased to 410.79 million units worth RM70.40 million from 353.10 million units worth RM46.81 million.

Volume on the ACE Market reduced to 621.91 million shares worth RM192.94 million from 739.39 million shares worth RM240.59 million yesterday.

Consumer products and services accounted for 353.27 million shares traded on the Main Market, industrial products and services (232.81 million), construction (92.57 million), technology (126.91 million), SPAC (nil), financial services (51.04 million), property (71.83 million), plantations (111.91 million), REITs (23.08 million), closed/fund (14,000), energy (279.79 million), healthcare (147.79 million), telecommunications and media (24.93 million), transportation and logistics (88.35 million) and utilities (55.59 million). - Bernama

source https://www.thesundaily.my/business/bursa-malaysia-ends-mixed-amid-continuing-uncertainties-GG1945549

Telenor beats quarterly profit forecast, sees 2020 earnings growth

OSLO: Norway’s Telenor posted higher-than-expected fourth-quarter operating profits on Wednesday and said it expects its underlying earnings to rise in 2020 after last year’s decline.

The company’s October-December profit before interest, tax, depreciation and amortisation (adjusted EBITDA) rose 17% year-on-year to 11.88 billion Norwegian crowns ($1.33 billion), while analysts on average had expected profits of 11.68 billion.

“Entering 2020, we will continue to focus on growth, efficiency and simplification,“ Telenor said in a statement.

Organic revenue, which excludes effects of mergers and acquisitions, is expected to grow by up to 2% in 2020 from a 0.4% increase in 2019, while organic EBITDA will swing to a growth of 2%-4% from a decline of 2.2% last year.

Norway’s second-largest company, which has 186 million customers in nine countries across Europe and Asia, raised its full-year dividend to 8.7 crowns per share from 8.4 crowns, slightly below analysts’ average forecast for 8.8 crowns.

After years of testing, the company late last year said it would introduce commercial 5G telecoms services in Norway in 2020, which analysts say will lead to higher capital expenditure (capex).

Telenor said capex in 2020 would be around 15% of sales. That would amount to around 18.5 billion crowns, according to a Reuters calculation based on analysts’ revenue forecasts, up from 16.6 billion in 2019.

The company’s fastest-growing unit in the fourth quarter was its Myanmar operation, which posted organic growth of 14.9% year-on-year.

Telenor’s ambitions in Asia hit a bump in September, however, when a deal with Malaysia’s Axiata Group to create a joint telecoms venture collapsed, with the two citing “complexities” in the project. -Reuters

source https://www.thesundaily.my/business/telenor-beats-quarterly-profit-forecast-sees-2020-earnings-growth-JG1945478