This article first appeared in Capital, The Edge Malaysia Weekly on November 29, 2021 - December 5, 2021

Target price: RM4.80 BUY

UOB KAY HIAN (NOV 24): Syarikat Takaful Malaysia Keluarga (STMK) reported 3QFY21 net profit of RM72.6 million (-12% y-o-y, -11% q-o-q), bringing 9MFY21 earnings to RM255.2 million (-1.5% y-o-y), with 9MFY21 earnings representing 70% of our full-year estimates versus 73% historically.

Overall group net earned premiums declined 10.9% y-o-y in 3Q21, dragged down by a 16.9% y-o-y contraction in family takaful net earned premiums. The decline was due to lower LPPSA (Public Sector Home Financing Board) premium growth due to the Full Movement Control Order.

On a more positive note, robust growth in general takaful net premium growth (+15% y-o-y) helped to cushion the weakness in its family takaful segment. The general takaful growth was largely underpinned by stronger motor premiums.

As the economy reopens in 4QFY21, family takaful premium growth has started to recover from October, which should lead to a q-o-q improvement in 4Q21 earnings. However, given the uneven economic recovery, we are only expecting a net premium growth of 5% for FY22.

The stock is still trading at close to 2SD (standard deviation) below its historical five-year mean PER despite earnings remaining largely intact throughout the pandemic. We note that the group has been able to deliver a commendable 9MFY21 net premium growth of 6.7% y-o-y. As such, we think current valuations remain attractive and may not have priced in the upside potential in FY22 as the economic reopening gathers momentum. Potential growth catalysts could emanate from stronger-than-expected MRTA (mortgage reducing term assurance) premium growth riding on the strong mortgage approval growth.

In an attempt to smoothen out the one-off impact of Cukai Makmur on our target price, we peg our valuations to the average earnings of 2022 and 2023.

Our target price is also based on a blended SOP of P/B and PER, and implies a 12 times 2022/2023F EPS, which is largely in line with its 10-year historical mean PER. More importantly, we note that the share price’s recent steep decline was largely attributed to non-fundamental factors while longer-term growth prospects remain promising. As such, current PER valuation at -2SD to its historical mean does present an excellent opportunity to accumulate the stock on weakness, on expectations of a recovery.

Target price: RM26.50 OUTPERFORM

KENANGA RESEARCH (NOV 24): Kuala Lumpur Kepong (KLK) registered 4QFY21 core net profit (CNP) of RM720 million (+83% q-o-q; +265% y-o-y), which brought FY21 CNP to RM1.679 billion (+124% y-o-y), which is above both our/consensus’ estimates at 122%/114% due to higher crude palm oil (CPO) prices and subsidiary IJM Plantations Bhd’s contribution. FY21 FFB (fresh fruit bunch) output of 3.85 million tonnes (-2% y-o-y) accounted for 98% of our full-year estimate. We expect KLK to declare a final dividend of 35 sen per share in December to bring FY21 DPS to 55 sen.

FY21 CNP rose 124%, stemming from: (i) higher plantation segmental profit (+111%) on higher CPO/PK (palm kernel) prices (+37%/+55%); and (ii) manufacturing segment’s profit (+62%) due to better performance in China and Europe.

While we anticipate a slip in FFB output, KLK’s upstream should continue to perform well in 1QFY22 on the back of firm quarter to date 1QFY22 CPO price (+17% q-o-q), as well as stronger contribution from its subsidiary IJM Plantations. Meanwhile, downstream could improve as consumption picks up ahead of year-end festivities.

We raise our FY22E earnings by 14% on IJM Plantations’ estimated contribution and introduce FY23E earnings of RM1.322 billion.

Target price: RM2.70 ADD

CGS-CIMB RESEARCH (NOV 24): In view of the current weak local consumer sentiment, Kawan Food said it is keeping its local market selling prices unchanged. However, it plans to raise selling prices by 10% to 15% from February 2022 onwards as it aims to pass on some of the raw material price increases to customers. In addition, the company is looking to launch more new products, which are of higher value with better profit margins, in the local market in the near term.

On the export front, Kawan has been gradually raising selling prices since the start of 4QFY21. It also recently secured new customers (one new customer each in the US, South America and Europe), which are expected to yield sales contribution from 1Q22F onwards. While logistics remain an ongoing issue that led to a decline in overseas sales (9MFY21: -19.4% y-o-y), Kawan is confident of securing more container and shipping space to ensure its products reach its customers on time.

Going forward, Kawan is confident of posting stronger results from 4Q21F. This is backed by: (i) a strong momentum for both export and local sales; (ii) ongoing price hikes to pass on higher raw material costs; and (iii) an expected increase in production volume with ongoing efforts to hire more workers.

Target price: 63 sen BUY

RHB RESEARCH (NOV 24): Results exceeded expectations as y-o-y growth from a low base was underpinned by the pickup in construction progress, as well as encouraging take-up rates for property developments. LBS Bina is well on track to meet its full-year target of RM1.2 billion in property sales. Its Melaka reclamation and development agreement is still in the midst of gathering interest from key investors. We remain upbeat on its contribution to the group in the long term.

In September 2021, unbilled sales were softer, dropping to RM2.12 billion (from RM2.21 billion in June 2021 and RM2.29 billion in September 2020). Property sales between January and September stood at RM816 million, on track to meet the group’s sales target of RM1.2 billion for FY2021, especially since sales in mid-November stood at RM1.1 billion. We are upbeat on the target, given the encouraging 88% take-up rate for ongoing projects and pipeline bookings worth RM956 million.

A combined value of RM1.42 billion worth of new projects has been launched so far this year, while planned launches for the rest of the year include LBS Alam Perdana in Selangor and Bandar Putera Indah in Johor, which have a total GDV of about RM1.6 billion for FY21.

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