This article first appeared in Capital, The Edge Malaysia Weekly on May 29, 2023 - June 4, 2023

KENANGA INVESTMENT BANK RESEARCH (MAY 22): April 2023 total industry volume (TIV) of 46,583 units (-41% m-o-m, -19% y-o-y) retraced significantly from last month’s record number, owing to fewer working days during the Hari Raya period when automakers took the opportunity to shut down their plants, at least for a week, for the annual routine maintenance.

Nonetheless, cumulative 4MCY23 TIV of 239,183 units (+10%) is still on track to meet our full-year forecast of 720,000 units. Note that, March 2023 TIV was inflated by heavy deliveries ahead of the March 31, 2023, registration deadline to enjoy the exemption from the Sales and Services Tax (SST). Looking ahead, May 2023 TIV should pick up strongly as production normalises.

We maintain our CY23F TIV, which will match the record level achieved in CY22, backed by strong consumer confidence supported by a stable economy and healthy job market; the affordability of motor vehicles underpinned by stable new car prices, thanks to the deferment of new excise duty regulations and potentially cheaper hire purchase cost with the introduction of the reducing balance method in the calculation of interest charges; and attractive new models.

The industry’s earnings visibility is strong, backed by a booking backlog of 275,000 units compared with bookings of 300,000 units three months ago despite heavy deliveries. This indicates strong buying interest, lured by attractive new model launches by players. We foresee a similar pattern the rest of the year.

Our sector top picks are MBM Resources (MBMR) and Bermaz Auto (BAuto), both with an attractive dividend yield of about 7%.

We like MBMR for its strong earnings visibility backed by an order backlog of Perodua vehicles of 190,000 units (almost half of its CY23 target sales of 314,000 units); it being a good proxy for the mass-market Perodua brand, given that it is the largest dealer of Perodua vehicles in Malaysia; as well as its 22.58% stake in Perusahaan Otomobil Kedua Sdn Bhd, the producer of Perodua vehicles.

We like BAuto for its strong earnings visibility backed by an order backlog of 8,000 units for the Mazda, Kia and Peugeot vehicles (half of its CY23 target sales of 19,000 units); and its premium mid-market Mazda brand that offers the best of both worlds (products that appeal to the middle-income group and yet command superior margins than its peers in the mid-market segment).

Target price: RM5.10 ADD

CGS-CIMB SECURITIES RESEARCH (MAY 23): We are lowering our net profit (NP) forecasts for Public Bank Bhd (PBB) by 6.8% for FY23F and 2.2% for FY24-25F as we cut our projected net interest income by a similar magnitude. This is mainly due to our revised assumptions for higher cost of funds arising from the upward repricing in fixed deposit rates following the hikes in overnight policy rate (OPR).

We have factored in all five OPR hikes totalling 125bps since May 2022. Consequently, our DDM-based target price drops from RM5.20 to RM5.10, also considering that longer-term dividend forecasts are largely unchanged. We are still projecting robust net profit growth of 13.4% for PBB in FY23F and 9.1% in FY24F. This is the potential rerating catalyst underpinning our “add” call on PBB.

Another potential catalyst is the write-backs in management overlay (pre-emptive provision in 2020-2021 arising from the Covid-19 outbreak), which stood at a staggering RM1.7 billion at end-December 2022. Any “unutilised” amount could be written back, in our view. Every 10% write-back in management overlay will increase PBB’s FY23F net profit by around 1.9%. Valuations remain attractive at FY24F PER of 10.1 times, while the dividend yield is decent at 4.5% for FY23F.

Target price: RM1.55 BUY

RHB RESEARCH (MAY 24): Kerjaya Prospek’s (KPG) 1Q23 core profit of RM29.3 million (+2.4% y-o-y) was 20% below our and street’s full-year projection, partly due to higher-than-expected administrative costs. Moving ahead, its venture into the industrial building segment via its partnership with Samsung C&T serves as a strategic buffer should jobs from the property market face a slowdown. So far, KPG has secured RM464 million new jobs in FY23 (35.7% of our FY23 RM1.3 billion job win target).

We cut FY23-25F earnings by 6%, 5% and 2% as we factor in a more conservative billing progress for its construction jobs and higher administrative assumptions. Nevertheless, FY23F earnings growth remains above 15%. Rolling over our valuation base to FY24, we arrive at our new SOP-derived target price of RM1.55 (from RM1.48), reflecting 40% upside with around 4% yield.

Apart from KPG’s industrial venture, the group is likely to see steady job flows from the development of Seri Tanjung Pinang Phase 2 (about RM2 billion jobs in the next five to seven years) and Bukit Bintang City Centre (about RM600 million jobs awarded so far). Given such prospects, we believe valuations are undemanding. Key downside risks include property market slowdown and prolonged cost pressures.

Target price: RM2.69 BUY

UOB KAY HIAN RESEARCH (MAY 22): Malaysia Smelting Corp (MSC) reported a core net profit of RM34.4 million (+38.7% q-o-q, -47.4% y-o-y) in 1Q23 on revenue of RM340.1 million (-13.1% q-o-q, -5.4% y-o-y). Core net profit accounts for about 31% of our full-year estimates. We deem the results to be within expectations as we foresee MSC recording lower earnings q-o-q in the subsequent quarter on lower average tin prices amid the current market volatility on recession fear. However, we still expect MSC to perform better y-o-y as a ramp-up in production volume can help to further support earnings this year.

The higher q-o-q earnings is mainly due to improvement in the performance of both the smelting and mining segments on the back of higher tin prices and stronger production in 1Q23. On the other hand, y-o-y weakness is mainly due to lower tin prices and higher production cost.

MSC is well-positioned for a more meaningful growth in 2023 backed by stronger production, elevated tin prices and better margins from the full utilisation of its new eco-friendly plant at Pulau Indah. Tin prices have rebounded thanks to the ongoing structural supply constraints, coupled with rising demand amid the gradual reopening of China. We maintain our “buy” call with a RM2.69 target price.

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