This article first appeared in Capital, The Edge Malaysia Weekly on November 25, 2024 - December 1, 2024

OVERWEIGHT

KENANGA RESEARCH (NOV 19): Total industry volume (TIV) soared 20% m-o-m to 69,859 units in October in the absence of major plant closure as seen in the previous month (that saw the closure of Perusahaan Otomobil Kedua Sdn Bhd [Perodua] plants for 10 days in September for routine maintenance), as well as driven by the attractive year-end promotional campaigns. With 10M24 TIV making up 83% of our full-year projection of 800,000 units (flat year on year), we consider the number meeting our expectation. Our 2024 TIV projection looks set to surpass the forecast of 765,000 (-4%) by Malaysian Automotive Association (MAA), backed by strong sustained demand in the affordable segment, attractive new launches, softer-than-expected impact from e-invoicing and a down-trading trend by mid-market buyers.

Looking ahead, we believe November TIV will be around the same level as October TIV, driven by year-end promotional campaigns as automakers rush to clear this year’s inventories.

Vehicle sales will also be supported by new battery electric vehicles (BEVs) that enjoy sales and service tax (SST) exemption and other EV facility incentives up until 2025 for CBU (completely built-up) and 2027 for CKD (completely knocked-down) units. The new registration for BEVs leapt from 274 units in 2021 to over 3,400 units in 2022, 10,159 units in 2023 and almost 16,000 units for 9M24 (based on the Ministry of Transport’s press release), or 3% of TIV. We expect more favourable incentives from the government, which has set a national target for EVs and hybrid vehicles of 15% of TIV by 2030 and 38% by 2040.

Our sector top pick is MBM Resources Bhd (KL:MBMR) for: (i) its strong earnings visibility backed by an order backlog of Perodua vehicles of more than 100,000 units (almost a third of its CY24 target sales of 350,000 units), (ii) being a good proxy for the mass-market given that it is the largest dealer of Perodua vehicles in Malaysia, as well as its 23% stake in Perodua, and (iii) its attractive dividend yield of about 7%. We also expect MBMR to benefit from the slew of new launches planned for Perodua (usually new models fetch higher margins), expansion of its dealership offerings through Jaecoo brands and the down-trading trend by mid-market buyers that could drive a better demand for its affordable Perodua brand and value-for-money Jaecoo brand.

CelcomDigi Bhd

Target price: RM4.50 BUY

MAYBANK INVESTMENT BANK RESEARCH (NOV 19): CelcomDigi’s (KL:CDB) 3Q24 net profit of RM437 million (-4% y-o-y, +8% q-o-q) brings 9M24 net profit to RM1.219 billion (+9% y-o-y), which represents 77%/68% of our/consensus full-year forecasts respectively. Net profit for 3Q24 was up sequentially as both cost of goods sold and operating expenses tapered, partly offset by sequentially higher taxes. We expect 4Q24 net profit to taper sequentially as higher taxes offset Ebitda growth (9M24 tax rate was just 21%, against 28% in FY23). A 3.6 sen DPS was declared for the quarter (+3% q-o-q), again representing a 100% payout.

Network integration and modernisation was 70% complete at 3Q24 (10,500 sites modernised), with management expecting to achieve 75% completion by end-FY24 (ahead of schedule). Our earnings forecasts and RM4.50 target price (DCF-based, assuming 8.1% weighted average cost of capital and 2% long-term growth) are unchanged. Net synergies achieved thus far have been more capital expenditure-oriented, with integration cost likely peaking in FY24. 

Target price: 90 sen BUY

PHILLIP RESEARCH (NOV 19): HEG’s (KL:HEGROUP) 3Q24 core earnings grew 13% q-o-q to RM4.8 million on the back of higher revenue of RM59 million (+21% q-o-q), primarily driven by higher revenue from the electrical equipment hook-up and retrofitting segment. The Ebitda margin declined slightly to 10.9% (-0.4 ppt), primarily due to timing differences in cost recognition for certain electrical equipment hook-up and retrofitting works. Elsewhere, we expect new order replenishment prospects to remain supported by its RM475 million tender book, largely driven by semiconductor and data centre projects representing 60% and 40% respectively.

We maintain our “buy” rating and target price at 90 sen, pegged to the targeted 20 times multiple on 2025E EPS. HEG is actively bidding for its maiden data centre project. If it materialises, it will be a positive development as it solidifies its position in this new expansion area. We like HEG’s strategic exposure in structural growth sectors, including the semiconductor and data centre segments. Key risks include slower-than-expected order book replenishment, unforeseen delays and project margin cost pressure.

Target price: RM1.03 BUY

TA SECURITIES (NOV 19): Ptrans (KL:PTRANS) reported a core profit of RM53.1 million for 9M24, which was in line with our and consensus estimates at 77% and 72% of the full-year forecast respectively. The company declared a fourth interim dividend of 0.5 sen per share, bringing the total FY24 dividend to 2.25 sen per share, which was a tad higher than the 2.0 sen per share dividend (adjusted for bonus issue) paid last year.

Specifically, the revenue from terminal operations (IPTT) soared 10.4% y-o-y to RM95.8 million due to higher contributions from project facilitation fees, rental income and revenue sharing from tenants.

Recently, the company obtained a letter of award from Pejabat Setiausaha Kerajaan Negeri Kelantan with regard to the proposal for the implementation of the Terminal Kota Bharu Sentral development project. Ptrans will appoint China Communications Construction Co as the main contractor for the project. We have not factored in this new development as information remains sketchy at this moment.

No change to our FY24-26 earnings projections, pending management guidance at an analyst briefing on Nov 19. 

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