This article first appeared in Capital, The Edge Malaysia Weekly on December 18, 2023 - December 24, 2023

Target price: RM3.39 BUY 

MIDF RESEARCH (Dec 13): The group reported a net profit of RM90 million for its 2QFY24, which brought its 1HFY24 core earnings to RM190 million, accounting for 59% and 62% of our and consensus estimates respectively. The outperformance against our forecast was mainly due to stronger-than-expected Mazda sales volume and associate contributions.

2QFY24 core earnings were up 36% y-o-y, driven by a 31% increase in group-wide sales volume to 6184 units, led by Mazda MY and Kia. This was partly offset by a 59% y-o-y contraction in Peugeot sales to 260 units. The stronger Mazda sales in 2QFY24 was largely driven by the CKD CX30 introduced in March this year. Associate earnings grew 56% y-o-y, driven by higher production of Mazda and Kia coupled with a strong contribution from Chery, which has been making good progress since its re-entry into the domestic market in July this year, accounting for 1.5% of industry TIV in October.

Group outstanding bookings now stand at 2,900, which is lower compared to 4,500 group-wide outstanding bookings in September due to accelerated deliveries. Nevertheless, we gather that booking momentum is still sustaining at around 1,500 to 1,600 monthly. The CX5 facelift is expected to be introduced in January 2024 at higher pricing, which could provide a boost to 2HFY24 earnings. Other new models in the pipeline include the Mazda CX3 facelift and the CX60. For Kia, the CKD Sportage and Carens are slated for introduction in CY24, which we believe could be important volume drivers going forward. Overall, the group is targeting Mazda/Kia/Peugeot sales of 18,000/2,500/1,000 for FY24, translating into group-wide sales volume growth of 9% y-o-y to 21,500 units.

Separately, the group expects minimal impact from the loss of Peugeot distributorship as the unit is still loss-making with a very small volume contribution. BAuto will likely remain a dealer for Peugeot through its 20 Bermaz Anshin outlets and one 3S centre in Glenmarie, where the group expects to account for 25% to 30% of Peugeot sales going forward.

Target price: RM2.95 BUY

RHB RESEARCH (DEC 11): On Dec 8, YTLP announced its collaboration with US tech giant Nvidia to develop AI infrastructure in Malaysia. Reuters said that the investment deal could be worth US$4.3 billion. YTLP’s 60%-owned YTL Communications (YTL Com) will own and manage the AI infrastructure, which will be hosted in YTLP’s Green Data Centre Park in Kulai, Johor. Phase 1 of this AI project is expected to be operational by mid-2024.

We are positive on such a development, which may accelerate YTLP’s potential expansion and the take-up rate of its data centres (DC) in Kulai. The DC would then subsequently be leased to YTL Com to establish the AI infrastructure hub, which would leverage Nvidia’s expertise and chips. Eventually, the hub would generate additional revenue by being an AI-cloud service provider. We estimate the size of Phase 1 of the potential DC development at 100MW.

We are unable to ascertain the earnings impact of this YTLP-Nvidia deal at present but believe that such developments can be rather capex-intensive. For its current 48MW DC (estimated capex: RM1.5 billion), the contract tenure is more than 10 years and we estimate it to potentially generate a PBT of RM100 million pa. As such, if we were to extrapolate such numbers to its full capacity, a total 500MW data centre could deliver RM1 billion in PBT.

Target price: RM1.07 HOLD

HONG LEONG INVESTMENT BANK RESEARCH (DEC 12): 10M23 fresh fruit bunch (FFB) production fell 2.2% to 760,000MT and TSH’s management guided that FY23 FFB production will likely track FY22’s sum, as it expects FFB production to remain decent in 4Q23.

Higher FFB output and lower fertiliser prices brought crude palm oil (CPO) production cost lower to RM1,900/MT in 9M23 and management shared that the CPO production cost will likely remain for 4Q23. While TSH has yet to lock in its fertiliser requirement for 2024, its management believes that fertiliser costs should come in lower compared to 2023, and this should at least mitigate higher labour costs in 2024.

Following the disposal of its plantation land bank, TSH will be left with about 30,000ha of unplanted land bank. Management shared that it will resume new planting activities.

TSH is expanding its renewable energy efforts into Indonesia by investing in four to five biogas plants over the next few years. We understand that construction of its first biogas plant in Indonesia will take place by 1Q24 and be ready for commission one year later.

TSH has turned into a net cash position since 3Q23, thanks to strong CPO prices in 2022 and the land bank disposal in FY22. Moving forward, we believe TSH’s balance sheet will remain solid, given the expected proceeds from the disposal of the remaining 5,000ha of land bank and low capex requirement.

Target price: RM2.20 ADD

CGS-CIMB RESEARCH (Dec 13): Post its 2QFY3/24 results briefing, we stay constructive on Power Root Bhd’s (PWRT) growth prospects as we expect its sales and net profit growth to reaccelerate from 4QFY24F. This is premised on a few key drivers: export sales to the Middle East to regain momentum from restocking activities and higher sales contributions from Saudi Arabia as its new distributor ramps up sales initiatives; progressive price hikes across its Middle East markets until 2025F; margin expansion on lower input costs as it has locked in its raw material requirements at favourable prices until September 2024F; and higher economies of scale on higher utilisation rate. We also expect to see a recovery in PWRT’s domestic sales, supported by the government’s expansionary policy with direct cash handouts and potential civil servants’ upward salary revisions in 2024F.

Management said that its premium Frenche Roast product domestic sales grew 26% y-o-y in 1HFY3/24, accounting for 9% of sales, along with its Ah Huat product sales, which also grew y-o-y, driven by its ongoing promotional and marketing campaigns. Management also shared that it observed solid demand for its new Jom Teh brand and is on track to achieve its target of RM3 million to RM5 million in sales in FY24F. In addition, management also said it would be enhancing its product packaging designs for its energy drink and Oligo brands in 2HFY24F/FY25F, making its products more competitive.

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