Malaysia Daily: In-Depth Analysis of Key Companies

Broker: UOB Kay Hian

Date: Wednesday, 6 November 2024

Sector Update: Property – Malaysia

3Q24 Results Preview

The property sector in Malaysia is gearing up for a robust 3Q24, with developers under coverage expected to post stronger year-on-year earnings. Particularly, SP Setia and UEM Sunrise (UEMS) are poised for significant growth due to substantial contributions from land sales. Additionally, the quarter saw strong sales driven by multiple new launches.

Key Highlights:

• SP Setia and UEMS: Expected to deliver over 100% growth in net profit year-on-year, thanks to higher land sales.
• Sunway Bhd: Anticipated to report around 60% growth, largely due to the lumpy recognition from the Singapore project Parc Central.
• Mah Sing and Lagenda Properties: Anticipated to post 20-30% growth year-on-year, propelled by higher sales and progressive billings.
• Eco World Development: Expected to show a single-digit decline for 4QFY24 but a 14% increase for the full year FY24.
• IOI Properties Group (IOIPG): Predicted to experience results weakness for 1QFY25 due to interest expense recognition but anticipated to see profit growth of 15% year-on-year for FY25.

Sales and Launches:

Developers are on track to meet their 2024 sales targets, having achieved about 50% of their goals in the first half of the year. Notable launches during 3Q24 include:

• Mah Sing: Launched five new M-series projects in August 2024.
• Sunway: Sold out its first Iskandar Puteri freehold landed properties within two hours in September 2024.
• UEMS: Fully taken up new Iskandar Malaysia launches with a Gross Development Value (GDV) of RM500 million.
• SP Setia: Atlas Melbourne project saw 30% of units sold within the first week of launch.

Outlook and Investment Recommendations:

The sector is trading at 0.8x P/B, around its 10-year mean, with previous highs reaching +3SD at 1.5x P/B in 2014. The sector is expected to enter a long-term uptrend driven by record-high investments in Malaysia over the past 2-3 years. Property transaction values are at all-time highs, and the overhang is decreasing, signaling growth in real estate investment.

Top Picks:

• IOIPG: Increased launches and a large Johor landbank.
• Lagenda: High margins and ROE of over 16%.
• Mah Sing and Eco World: Developers with data center exposure.

Company Results: Fraser & Neave Holdings (FNH MK)

4QFY24: Storm Before The Rainbow

Fraser & Neave Holdings (F&N) reported disappointing 4QFY24 earnings, falling well below expectations. Sales were lackluster, with tepid export sales and an unexpected contraction in Thailand margins. Additionally, F&N’s dairy project faced external complications. Despite these setbacks, the company remains optimistic about its future prospects due to its attractive valuations and upcoming dairy project.

Key Financials:

4QFY24 core net profit came in at RM89.2 million, a decrease of 28.8% quarter-on-quarter and 33.7% year-on-year. This brought the FY24 core profit to RM542 million, a 14.7% increase year-on-year. However, the results were below both internal and consensus expectations, accounting for only 90% of full-year earnings forecasts.

Segment Analysis:

• Malaysia: Sales declined by 1.7% year-on-year due to weaker export sales arising from the Red Sea shipping crisis and rising ocean freight charges. However, domestic sales remained robust, and core operating profit grew by 13.7% due to improved margins from lower input costs and a favorable product mix.
• Thailand: Sales increased by 4.9% year-on-year, driven by higher domestic sales and sales to Cambodia. However, higher brand-building and promotional spending, alongside increased input costs for palm oil and sugar, led to a margin squeeze.

Stock Impact:

F&N’s highly anticipated dairy project, initially scheduled for early-2025, is facing delays due to an Avian flu outbreak in the US, impacting the import of the first batch of cows. This setback is expected to impede the project’s progress in the near term.

Earnings Revision/Risk:

FY25-26 earnings have been revised down by 9.0% and 10.8%, respectively, to account for softer sales and margin assumptions. Key downside risks include rising commodity prices and unfavorable US\$/RM forex rates.

Valuation/Recommendation:

F&N is maintained at a BUY rating, but with a reduced target price of RM36.30 (down from RM39.00). The delay in the dairy project is seen as a temporary setback. F&N’s valuation at 20.3x FY25F PE is considered a bargain compared to the average of 35.9x for consumer staple peers like Nestle and QL. The target price is based on a DCF with assumptions of a WACC of 7.4% and a terminal growth rate of 3.0%, implying a 23.8x FY25F PE, below its five-year mean of 24.7x.

ESG Initiatives:

• Environmental: Reduced solid waste intensity ratio by 62% since 2017.
• Social: Workforce comprises 69% male and 31% female employees. Over 97% of senior managers are hired from the local community. The company has reduced sugar content per ml in all its beverages by 59% since 2004.
• Governance: Six board members are independent directors, representing 55% of the board.

Traders’ Corner

Kossan Rubber Industries (KRI MK)

Technical BUY with +26.8% Potential Return

Last price: RM2.20

Target price: RM2.53, RM2.79

Support: RM1.98

Stop-loss: RM1.97

BUY with a target price of RM2.79 and stop-loss at RM1.97. The successful close above the BBI line suggests improving sentiment, with KRI set to resume its bullish movement. This is supported by an uptick in the RSI, and both the MACD and DMI are showing positive signals, which will support upward momentum. Expected timeframe: Two weeks to two months.

PMB Technology (PMBT MK)

Technical BUY with +33.7% Potential Return

Last price: RM1.90

Target price: RM2.39, RM2.54

Support: RM1.67

Stop-loss: RM1.66

BUY with a target price of RM2.54 and stop-loss at RM1.66. PMBT’s share price has been recovering gradually and moved above the 7- and 21-day EMAs following a spike to close higher at RM1.90. This is supported by an uptick in the RSI and a bullish crossover in the MACD, indicating that positive momentum would strengthen in the near term. Expected timeframe: Two weeks to two months.