This article first appeared in Capital, The Edge Malaysia Weekly on September 9, 2024 - September 15, 2024

Overweight

BIMB SECURITIES RESEARCH (SEPT 3): We are optimistic on the potential increase in consumer spending, which is expected to benefit food and beverage (F&B) companies under our coverage. This is due to higher purchasing power stemming from the Employees Provident Fund (EPF) Account 3 withdrawals, which are estimated to be RM25 billion in 2024; a civil servant wage hike that will boost RM10 billion for consumer spending; and Sumbangan Tunai Rahmah, which cost the government a total of RM10 billion.

Additionally, the stable job market is expected to bolster consumer confidence in their spending ability, leading them to opt for healthier and premium products in the F&B segment. Moreover, the government anticipates 27.3 million international tourists in 2024, which should boost the sales volume of companies such as Spritzer Bhd (KL:SPRITZER). The F&B players under our coverage that are likely to benefit the most from this are Farm Fresh Bhd (KL:FFB) and Spritzer.

On the cost front, we believe that companies under our coverage that heavily import their raw materials will benefit from the favourable US dollar/ringgit exchange rate coupled with some moderation in key commodity prices, with the exception of cocoa and coffee beans.

In the discretionary segment, we believe that retail operators offering value-for-money items and services will benefit the most. Among the companies under our coverage, those with smaller basket sizes, such as Mr DIY Group (M) Bhd (KL:MRDIY), AEON Co (M) Bhd (KL:AEON) and Padini Holdings Bhd (KL:PADINI) — with average basket sizes of approximately RM26, RM64.20 and RM100 respectively — are likely to benefit from higher disposable income.

We upgrade our rating on the consumer sector to “overweight”, supported by anticipated higher domestic demand driven by: (i) a stable employment rate; (ii) increased disposable income (boosted by generous cash handouts, EPF Account 3 withdrawals and civil servant wage hikes); and (iii) expected higher tourist arrivals. Additionally, we anticipate better profit margins due to the moderation in key commodity prices and a strengthening ringgit.

However, the downside risk to our rating lies in the uncertainties surrounding the implementation and impact of sustainable and responsible investment (SRI), particularly regarding RON95, which could significantly tighten consumer spending. Our top pick for the consumer sector is Mr DIY (buy, TP: RM2.49). In the staples segment, we also favour Farm Fresh (buy, TP: RM2.02) and Spritzer (buy, TP: RM2.90).

Target price: RM1.90 BUY

PHILIP CAPITAL (SEPT 3): Binastra (KL:BNASTRA) secured a RM235 million construction contract from EXSIM for a proposed high-rise development in Central Park Damansara.

Binastra has secured cumulative year-to-date contracts totalling RM1.6 billion, representing 78% of our RM2 billion full-year FY2025 order book replenishment assumption. This latest contract win brings Binastra’s outstanding order book to about RM2.7 billion (6.3 times FY2024 revenue), providing strong revenue visibility until FY2028. Assuming a 10% profit after tax margin, we estimate this contract to contribute about RM24 million across FY2024-28.

Binastra has been awarded a slew of contracts from EXSIM (about 70% of total FY2025 announced wins), reinforcing our view of the group being the preferred contractor to ride on EXSIM’s expansion plan. Looking ahead, we expect contract flows from EXSIM to remain robust, driven by its RM40 billion gross development value worth of project pipeline and cross-state expansion plan.

We reiterate our “buy” rating with an unchanged target price at RM1.90, pegged to target 18 times multiple on FY2026 EPS.

Target price:  67 sen UNDERPERFORM

PUBLICINVEST RESEARCH (SEPT 2): Chin Well (KL:CHINWEL) reported another sequentially stronger 4QFY2024 net profit of RM3.7 million (+47.5% quarter on quarter) due to better performance of the fasteners division, though weaker year on year (y-o-y) (-16.2%) due to widened losses in the wire division. Cumulative 12MFY2024 net profit of RM9.1 million (-76.5% y-o-y) was still below both our and consensus expectations, accounting for 58% and 87% of full-year estimates, respectively. The discrepancy was largely due to slower-than-expected demand recovery.

We trim our FY2025-26 earnings by an average of 30% to factor in lower sales from the fasteners division and weaker margins from the wire division. Consequently, our PE-based TP is revised to 67 sen (previously RM1.04). We maintain an “underperform” call on Chin Well.

Ongoing geopolitical conflicts and the escalating tension between US-China relations are still impacting global growth and reducing demand for the fastener products. To address these challenges, the group is focused on expanding its distribution network and introducing new products in the downstream market to help offset margin pressure and declining demand.

Target price: RM1.91 OUTPERFORM

KENANGA RESEARCH (SEPT 2): Solarvest’s (KL:SLVEST) 1QFY2025 results met expectations, driven by higher margin projects in the commercial and industrial sectors and full electricity sales contribution from its fourth cycle of the large-scale solar (LSS4) plants. Its prospects remain promising, underpinned by the government’s commitment towards renewable energy.

We expect its order book to be replenished in the upcoming months through the Corporate Green Power Programme (CGPP) and Net Energy Metering (NEM) initiatives. Its results have outperformed peers and given the unchanged industry outlook, its recent share price weakness may present accumulation opportunities.

We expect a strong influx of job opportunities in the immediate term, driven by the 800MW CGPP with an end-2025 completion deadline and an additional 500mw quota under the NEM initiative. Based on our estimates, we expect Solarvest to stand a strong chance to secure at least 30%, translating to RM720 million of the total photovoltaic system EPCC (engineering, procurement, construction and commissioning) jobs under CGPP, which we estimate at RM2.4 billion. Its current order book stands at RM469 million.

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