This article first appeared in Capital, The Edge Malaysia Weekly on December 23, 2024 - December 29, 2024

Overweight

RHB RESEARCH (Dec 16): We keep our “overweight” call on the building materials sector, with our top pick being Malayan Cement Bhd (KL:MCEMENT). We remain optimistic about the aluminium and cement sectors. We like MCement as it stands to directly benefit from the resurgence of construction and property activities here, given its dominance in Peninsular Malaysia. A potential expansion into East Malaysia, which would further increase its national market share, is another rerating catalyst.

Of the two companies that reported results, Press Metal Aluminium Holdings Bhd (KL:PMETAL) exceeded expectations while MCement was in line. Post-results, we lift PMetal’s FY24-FY26 earnings by 14.4%, 12.2% and 7.5% respectively after revising our associate contributions and cost assumptions, as well as USD/MYR assumptions. Forecasts for MCement are unchanged.

The aluminium outlook remains upbeat, driven by the recovery in aluminium average selling prices and growing awareness of green industries. Our economics team expects the US federal funds rate to be cut by 75 basis points in 2025, supporting a potential uptrend for aluminium prices. We believe PMetal should benefit from a hike in global aluminium prices, a removal of the 13% tax rebate on aluminium exports by China and increased demand for aluminium from non-Chinese manufacturers.

Alumina prices remained elevated at US$695.40/tonne (RM3,095/tonne) quarter to date (+37% q-o-q), driven by a tight supply, while carbon anode prices remained stable below RMB4,000/tonne (RM2,444/tonne). Although alumina prices pose a downside risk to PMetal, we expect normalisation in 2025 with new projects in Indonesia and India scheduled to commence commercial operations from 1H25.

Bulk cement prices have stabilised and continue to sustain at RM380/tonne since July 2023. We foresee it remaining stable given the expected demand from key projects such as the Penang Light Rail Transit (LRT), West Ipoh Span Expressway and reinstatement of five LRT Line 3 stations, along with robust demand for industrial projects and property development, particularly high-rise projects in the Klang Valley.

With a range of infrastructure projects planned nationwide, we think building materials companies — especially cement producers — are expected to reap significant benefits from the country’s infrastructure initiatives. Key downside risks are higher-than-expected raw material costs and a sharp deterioration in global economic conditions, which will see construction activities taper off and undermine the demand for aluminium and cement.

Target price: RM3.10 BUY

CIMB SECURITIES (DEC 16): Yinson’s (KL:YINSON) core net profit for the third quarter of the financial year ending Jan 31, 2025 (3QFY25) dropped by 74.4% q-o-q (-84.5% y-o-y) owing to losses in the engineering, procurement, construction, installation and commissioning (EPCIC) segment. This brings 9MFY25 core net profit to RM426 million, missing expectations at 59% and 65% of our and consensus full-year FY25 core net profit forecasts respectively.

Yinson guided for EPCIC profit to improve in 4QFY25 as FPSO (floating, production, storage and offloading) Atlanta is set to achieve first oil by January 2025. Additionally, 4QFY25 will be supported by the full quarter contribution from FPSO Maria Quiteria, with its revenue and net profit contributions projected at RM240 million to RM250 million and RM70 million to RM75 million respectively.

Overall, we cut our FY25, FY26 and FY27 core net profit forecasts by 19.4%, 13.7% and 1.8% respectively to factor in weaker EPCIC earnings. We forecast core net profit to decline by 40.6% y-o-y in FY25 as EPCIC earnings from FPSOs Maria Quiteria and Atlanta taper off. Post-earnings adjustment, our target price is lowered from RM3.16.

Target price: RM6.60 BUY

HONG LEONG INVESTMENT BANK RESEARCH (DEC 16): In 9MFY24, DKSH’s (KL:DKSH) consumer goods and healthcare segment was supported by the growth from existing and new clients secured. During the quarter, the group signed four new partnerships: Hwa Tai and Simplot in consumer goods and Alpro Pharmacy and Kyowa Kirin in healthcare. Management reiterates its confidence that the healthcare segment will perform well for the remainder of the year. Additionally, the group’s Buttercup brand has shown strong growth momentum and management is considering capacity expansion if the positive trend persists.

As at end-3QFY24, Famous Amos had a total of 97 outlets in Malaysia, along with two outlets in Brunei. The segment’s performance has been encouraging, registering a 9MFY24 sales increase of 21% y-o-y. Management attributes this growth to the constant refresh of its store portfolio to secure the most strategic locations.

Our forecasts remain unchanged and the target price is maintained, derived using a PER of 6.7 times (at +1.5 standard deviation of DKSH’s five-year average) based on its FY25 EPS. We maintain a “buy” rating as we continue to favour DKSH’s diverse product portfolio, which includes both premium and affordable products.

Target price: RM5.64 BUY

MIDF RESEARCH (DEC 16): We visited YTL Power’s (KL:YTLPOWR) green data centre park, where the first phase of 8MW under Johor Data Centre 1 (JDC1) commenced operations in May. JDC1 will have an IT load of 48MW (facility load 72MW) where SEA Ltd will be the anchor tenant with a 32MW capacity offtake. The first block of 8MW was commissioned in May and as at the time of the visit, the IT load stood at 4.5MW (facility load 6MW). The second block of 8MW, now under testing phase, is expected to come online before end-2024. The two other phases for SEA of 8MW each are expected to be commissioned by 2026 and 2027.

The second phase of YTL Power’s data centre development will be JDC2 and JDC3, both AI data centres with IT loads of 20MW and 80MW respectively. JDC2 is expected to be delivered to YTL AI by end-January 2025 for the installation of the Nvidia GB200 chips. JDC3 is still under construction and is expected to be completed by mid-2025.

We make no changes to our earnings estimates and our target price, which implies an FY26 PER of 11.6 times — below YTL Power’s 10-year mean valuation of 12.4 times. We continue to like YTL Power for its strategic expansion into data centres, which is progressing well.