Tuesday, 9 May 2017

(The Star) UOB Kay Hian: Market to be on cautious mode

PETALING JAYA: The market is expected to briefly retrace from its earlier upward trend after the recent announcement by TRX City Sdn Bhd on Bandar Malaysia’s lapsed deal, according to UOB Kay Hian Research.

While the cautious sentiment is perhaps temporary, UOB Kay Hian said upcoming events such as Malaysia’s upcoming participation in China’s ‘One Belt One Road’ summit should partially reignite some of the lost momentum in China’s foreign direct investment theme.

That being said, UOB Kay Hian’s alpha picks for May include Ekovest Bhd, Globetronics Technology Bhd, Kerjaya Prospek Group Bhd, VS Industry Bhd, YTL Power International Bhd and RHB Bank Bhd.

“For May, we replace stellar performer Ann Joo Resources Bhd with Globetronics and retain Ekovest, Kerjaya Prospek, VS Industry and YTL Power, while RHB Bank is our sole ‘sell’ call,” UOB Kay Hian said in its report.

The research house reiterated a ‘buy’ call on Ekovest on weakness, given that it is widely expected to fall in tandem with its sister company Iskandar Waterfront City Bhd’s (IWC) dip.

“We expect Globetronics to maintain its uptrend through to third quarter of 2017, in anticipation of strong demand response to smart phone launches, which include the expected launch of iPhone8 in September this year,” UOB Kay Hian noted.

Globetronic’s earnings growth in the second quarter of 2017 is expected to be good, with stronger performance in the second half, driven by the maiden contribution from new light sensor (expected in May) and production ramp-up of its gesture sensor.

“With the contribution of these two sensors, net profit is estimated to grow 142% year-on-year in 2017 and reach an all-time high in 2018.

“Effective execution in terms of both delivery and product quality of these two sensors could be near-term catalyst,” UOBKayHian reckoned.

The house is optimistic that Kerjaya Prospek will clinch at least about RM800mil worth of new construction jobs in 2017, given its historical orderbook win track record.

As for RHB Bank, the research house said the group had the lowest loans-loss coverage ratio inclusive of regulatory reserve in the industry at 75%.

“This, with relatively low loans-loss coverage ratio of 30% for its oil and gas (O&G) gross impaired loans portfolio and RM2.6bil in O&G loans under the watch lost category, placed a huge upside risk to RHB’s rather benign net credit cost guidance of 25 to 30 basis points for financial year 2017 (FY17),” UOB Kay Hian said.

“We see significant downside risk to management’s targeted return on equity of 9% to 10% and in turn consensus earnings,” the house noted.

Meanwhile, for VS Industry, UOB Kay Hian said that in addition to the three assembly lines for the vacuum cleaner box-built contract, slated to commence in FY17, the company is expected to secure more contracts from key customers in FY18 on higher demand for existing products as well as product launches.

The research house said YTL Power’s 6.5% sustainable dividend yield was anchored by defensive cash flow from Wessex Water Services Ltd.

Key-rating catalysts include new power plant projects between 2020 and 2021, namely 554MW Jordanian power plant and 80% equity stake in 1,320MW coal-fired Indonesian power plant.