This article first appeared in Capital, The Edge Malaysia Weekly on November 4, 2024 - November 10, 2024

Overweight

RHB RESEARCH (OCT 28): We recently visited the city of Elmina, including Elmina Business Park (EBP), courtesy of Sime Darby Property Bhd (KL:SIMEPROP). With more than RM10 billion worth of remaining gross domestic value (GDV) at Elmina, we envisage ample potential opportunities for contractors to participate in residential, commercial or industrial jobs. Contractors with exposure in Elmina include Kumpulan Kitacon Bhd (KL:KITACON), TSR Capital Bhd (KL:TSRCAP), TCS Group Holdings Bhd (KL:TCS) and Gamuda Bhd (KL:GAMUDA). Kitacon is a contractor that has a solid track record in Elmina, with at least RM300 million worth of jobs awarded to the group under this township. Other contractors such as TCS have had jobs at Elmina, albeit on a smaller scale. The remaining land bank of more than 1,000 acres at Elmina West and Kota Elmina should continue providing bright job prospects for contractors focused on township development.

Eastern & Oriental Bhd’s (KL:E&O) land at Elmina West (66 acres) could likely see the first launch of 360 stratified landed terrace houses in FY25, followed by more than 110 shophouses in FY26. Recall, Kerjaya Prospek Group Bhd (KL:KERJAYA) secured a RM25 million job in 3Q23 to undertake earthworks for said development at Elmina West. We envisage Kerjaya clinching further jobs there.

Elmina’s EBP 1 (536 acres) was launched in 2019 with lots for industrial buildings and ready-built factories already fully sold. EBP 2 (906 acres) under the Signature Collection (26.2 acres) twin factory offering has seen a 100% take-up rate upon its launch in September. This reflects growing demand for well-planned industrial spaces in the Klang Valley.

We think future launches at EBP 2 may attract contractors with industrial building capabilities.

Pearl Computing Malaysia Sdn Bhd’s data centre (DC) at EBP (estimated capacity of 80MW) — being constructed by Gamuda for RM1.7 billion — has reached a 2%-4% completion rate and is set for completion in 3Q26. While we do not view other upcoming DCs in EBP that soon, the ongoing construction of said DC may likely continue benefiting mechanical, electrical and plumbing (MEP) contractors. The MEP fit-out works portion of the DC is valued at RM929 million. Of late, AWC Bhd (KL:AWC) and LFE Corporation Bhd (KL:LFECORP) have been awarded subcontracts related to MEP works for the DC being built by Gamuda.

Target Price: RM4.21 OUTPERFORM

PUBLIC INVESTMENT BANK (OCT 29): During a recent conference call, Inari’s (KL:INARI) management remains optimistic on the radio frequency (RF) outlook, underpinned by higher content growth and market share gain by its key customers and also its own Osat (outsourced semiconductor assembly and test) competitors. Its 1QFY25 results are scheduled to be released on Nov 27 and we expect to see better financial performance, led by seasonally higher capacity utilisation. After taking into account dilution effects from a higher share base due to Esos (employee share option scheme) and a cut in our sales forecast by 4%-7% due to slower-than-expected global iPhone sales, we lower our FY25-27F earnings forecasts by 4%-5%. Maintain “outperform” call with a lower target price of RM4.21 based on 37 times FY25 earnings per share.

Inari’s plant utilisation in October was above 85% compared with 80% in September. Overall, the RF loading volume is expected to see 15% growth in FY25, led by improving applications (+8%) and gain of market share over competitors by its key customer and its own Osat peers (+7%).

Based on the sensitivity analysis, for every 1% drop in US$/RM, the impact on the Inari’s bottomline is about RM2 million to RM3 million. The group’s receivable is 100% denominated in US dollar while operating costs are equally in US dollar and ringgit currencies. The negative impact is likely to reflect in the upcoming 1QFY25 results. Nevertheless, the group can submit a quotation for new products with an adjustment of the new currency level every six months.

Target Price: RM111.65 OUTPERFORM

KENANGA RESEARCH (OCT 28): Nestle (KL:NESTLE) in its post-results briefing reaffirmed it anticipates a gradual improvement in domestic demand by 1HCY25, despite recent declines driven by sustained inflation that has reduced consumer purchasing power. We expect this recovery to be aided by government initiatives aimed at rising disposable income, including a civil servant salary hike (effective December 2024) and an increase in the minimum wage (effective February 2025). We also draw comfort from the briefing that the boycott impact is dissipating. While cost challenges remain, we believe these should be mitigated by topline recovery as demand improves steadily, albeit gradually. We maintain our forecasts, target price of RM111.65 and “outperform” call.

Nestle has indicated that it sees no significant impact from the recent announcement on the minimum wage hike as it is already paying well above the minimum wage rate.

As expected, Nestle said the increase in excise duty on sugar-sweetened beverages to 90 sen per litre (up from 50 sen), starting January 2025, has minimal impact. This is mainly due to: (i) all its powder products falling below the 33.3g/100g sugar threshold and (ii) 97% of ready-to-drink products are under the 5g or 7g sugar limit.

We expect consumer spending to remain soft until year’s end but share a similar view with management that FY25 should show sequential improvement. However, we opine that profit margins are likely to remain under pressure due to high commodity costs, particularly for cocoa and coffee, driven by supply concerns.

Target Price: RM1.87 HOLD

HONG LEONG INVESTMENT BANK RESEARCH (OCT 29): IGB REIT (KL:IGBREIT) recorded 3Q24 core net profit of RM92.7 million (5.1% quarter on quarter, 4.2% year on year), lifting 9MFY24’s sum to RM283.2 million (6.4% y-o-y). This came in within ours and consensus expectations at 75% of full-year forecasts. Declared distribution per unit (DPU) of 2.68 sen in 3Q24. This brings 9MFY24’s total to 8.2 sen/unit (9MFY23: 7.77 sen/unit).

Tourism recovery post-pandemic is expected to drive higher foot traffic at IGB REIT’s properties, boosting tenant sales and turnover rent. As for the 8.91% of net lettable area (NLA) due for renewal in FY24, we believe IGB REIT is able to renew or replace tenants given its prime location with high occupancy rates (100% as of 3QFY24) and strong demand from retail brands seeking established spaces with steady foot traffic. Nonetheless, with the recent rise in share price, we think that its risk-to-reward profile seems fair at the current juncture. Hence, we maintain “hold” with a target price of RM1.83 based on FY25 DPU on a target yield of 5.9% which is derived from the post-pandemic average yield spread between IGB REIT and 10-year MGS yield.

Mid Valley Megamall and The Gardens Mall remain fully occupied. Gearing decreased slightly to 22% (2Q24: 24%). Furthermore, with Malaysia assuming the chairmanship of Asean in 2025 along with tourism activities ramping up ahead of Visit Malaysia Year 2026, we expect a further boost in visitor numbers next year.

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