This article first appeared in Capital, The Edge Malaysia Weekly on December 4, 2023 - December 10, 2023

Target price: RM7.15 OUTPERFORM

KENANGA INVESTMENT BANK RESEARCH (NOV 28): RHB Bank’s 9MFY23 net profit of RM2.22 billion was above our full-year forecast, making up 81% of that. The deviation was the result of lower-than-expected net interest margin (NIM) performance following concerns of continued funding cost strain on the group. That said, it was within consensus full-year estimates (at 78%). Post-results, we revised our NIM assumptions following a more upbeat tone to their trajectory, close to its NIM range of 1.8% to 1.9% for FY23 and some improvements in FY24. This led to a +4%/+5% change to our earnings forecasts.

Owing to some challenges, the group opted to revise downwards most of its headline targets, with the exception of loan growth, which it believes could do better than expected. Loan growth expectations have inched up slightly to 5%-5.5% (from 4%-5%). Apart from mortgages (for RM500,000 to RM700,000 homes), the group is seeing strong acquisitions on its Singapore books fuelled by corporate accounts in the real estate segment, which may continue to support it until year end.

NIM pressures have elevated despite previous warnings of continued compression, as the group managed to contain further increases in funding costs. That said, it will likely remain softer when compared with FY22, paired with the lack of an aggressive interest rate up cycle. Maintaining it at 1.8% to 1.9% is expected by the group.

Although it has loan loss coverage of 75% without utilising regulatory reserves, the group does not appear to be in a hurry to shore up further provisions. Asset quality concerns are not as significant, with risks leaning towards unsecured SME accounts, which may only account for 20% of the segment portfolio.

In lieu of the above mentioned, deterioration has already been seen, with gross impaired loan guidance now higher at 1.7% to 1.8% (from less than 1.5%). On the flipside, business-as-usual credit costs are expected to land at 20-25 basis points, which may not reflect a heavy 4QFY23 provisioning. Meanwhile, the group maintained its management overlay of RM538 million.

Our target price is based on an unchanged FY24F PBV of 0.93 times. It is positioned as a leading dividend candidate with yields averaging above 7% at current price levels. This could be further lifted should the group decide to release its hefty CET-1 portfolio to reward shareholders. The stock will still likely be monitored closely due to its tie-in with Axiata-Boost in relation to the upcoming launch of a new digital bank in the near future.

Target Price: RM30 BUY

RHB RESEARCH (NOV 28): Heineken’s 9M23 results missed forecasts due to softer-than-expected sales and higher-than-expected marketing expenses. Year on year (y-o-y), 9M23 revenue dropped by 8% to RM1.9 billion (+16% vs pre-pandemic 9M19 sales), dragged by cautious consumer spending on the back of inflationary pressures and normalisation from the strong 9M22 base that was spurred by the economy reopening. Meanwhile, 9M23 PBT tumbled 14% to RM379 million, in line with the volume decline and rising marketing expenses to stimulate consumer spending.

That said, we believe its current valuation is inexpensive, considering the dissipating regulatory risks stemming from political stability. In a challenging business environment, the brewery sector will provide earnings visibility on relatively sticky demand, further supported by the effective clampdown on contraband. Generous dividend payouts offer yield-seekers a defensive shelter.

Post-results, we trim FY23-35F earnings by 5% to 6%. Correspondingly, our DDM-derived target price drops to RM30 (inclusive of a 6% ESG premium), which implies an FY24F PER of 21 times, or at a slight premium to its peer Carlsberg Brewery Malaysia Bhd to account for Heineken Malaysia’s market leadership in the country.

Target Price: RM5.40 BUY

HONG LEONG INVESTMENT BANK RESEARCH (NOV 28): MBMR reported a strong core Patami of RM211.1 million for 9MFY23, (+15.8% y-o-y) on overall strong group production and sales volume, along with improved margins (especially for Perodua). During 3QFY23, MBMR completed the disposal of a held-for-sale land in Bandar Sri Sendayan for RM47.9 million for a net disposal gain of RM25.6 million.

Management guided Perodua to have contributed 95% of associate profits in 9MFY23, estimated at RM173.4 million, driven by strong sales (234,100 units invoiced; a growth of +19.4% y-o-y) and production volume (238,300 units; +17.7% y-o-y). Currently, Perodua still has an order backlog of over 140,000 units, with the waiting period averaging four to five months. Perodua has revised up its sales target to 325,000 units from 314,000 units and production target to 339,000 units from 330,000 units.

Perodua sales should sustain going into 2024, given the high order backlog and the launch of two facelifted models and a new SUV model in 2024. With the recently approved acquisition of UMW Holdings Bhd by Sime Darby Bhd, the latter may explore opportunities to consolidate Perodua into the group’s accounts.

Target Price RM2.08 OUTPERFORM

PUBLICINVEST RESEARCH (NOV 28): Spritzer’s 3QFY23 core net profit jumped 49.3% y-o-y to RM17.1 million, mainly attributable to higher sales volume and lower operating costs, bringing the year-to-date core net profit to RM36.3 million. Cumulative 9MFY23 earnings were above our and consensus estimates, accounting for 103% and 96% respectively. We expect Spritzer to post higher earnings going forward, underpinned by stronger bottled water demand and an increase in production volume as the group is operating near its optimal capacity (from 1 billion to 1.2 billion litres per year). The stronger demand for bottled water is mainly premised on a recovery in economic activities and the return of international tourists, especially given the recent announcement on visa-free travel for visitors from China and India.

Meanwhile, we understand that Spritzer is looking to grow its presence in Singapore, which we believe will be fulfilled by the new production line and warehouse in Yong Peng. In addition, the group continues to focus on cost optimisation activities by installing solar roofs and energy-efficient lines to mitigate the impact of increased electricity costs. As PET (polyethylene terephthalate) resin prices have eased from their peak in 1QCY23 by 12%, we believe it should help to offset the impact of a stronger US dollar.

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