Malaysia Airports Holdings HOLD, TP RM6.76, RM6.30 close
Malaysia’s international pax has so far lagged the domestic pick-up, slowing down earnings recovery as depreciation is calculated based on total pax. Malaysia may need to raise more borrowings to repay debts due this year; ISG’s liquidity is sufficient for now, but is vulnerable to unexpected surprises.
Telekom Malaysia ADD, TP RM6.75, RM5.51 close
We expect core EPS to ease 4.1% in FY22F (due to Makmur tax), before rebounding 37.6%/6.8% in FY23F/24F post-Makmur tax. Ex-Makmur tax, core EPS may rise 9.4%/20.7% in FY22F/23F on the back of Internet, ICT and data services revenue growth, with cost-saving initiatives helping to buffer any pressure from its fibre rollout acceleration.
Yinson Holdings Bhd ADD, TP RM3.23, RM1.99 close
Yinson is bidding for Eni’s Agogo project offshore Angola, which may be awarded in 2HCY22F. Yinson is also bidding for BP’s Block 31 SE-PAJ development, offshore Angola, which may be awarded in CY23F. For Block 31, Yinson has offered the FPSO Nganhurra (where Yinson has a purchase option) as a redeployment candidate.
Key nuggets from our Corporate Day
- We hosted 320 investors at our 2nd Malaysia Virtual Corporate Day.
- Malaysia’s GDP growth to moderate to 4.1% in 2023F, from 5.2% in 2022F
- On GE15, the current most likely potential scenario is Barisan Nasional gains majority seats in West Malaysia and forms the government.
320 investors attended our 2nd Malaysia Virtual Corporate Day
We hosted 320 institutional investors at our Malaysia Virtual Corporate Day on 19 July We also invited three expert speakers in the fields of economics, consumer and Malaysian politics and five corporates (Yinson, Telekom, Petronas Chemicals, IOI Corp and Malaysia Airports) who shared their insights into pressing current issues and outlook for 2H22F. In this report, we summarise the key takeaways from all the sessions.
Malaysia’s GDP to grow 5.2% in 2022F and 4.1% in 2023F
Lee Heng Guie, Executive Director of SERC, sees growing risks of a global recession and US recession in 2023F. If there is a US recession, he expects GDP contraction to be mild and shallow for 6-8 months. He predicts US Fed to remain hawkish for longer, raising the Fed Funds Rate to a peak of 4% in 1H23F. Malaysia’s GDP growth is projected to moderate to 4.1% yoy in 2023F, from 5.2% this year. Malaysia’s external trade will feel the impact ofthe global slowdown as the country’s growth correlation with the global economy has gotten stronger over the past 10 years. The tight labour market is also likely to continue given the limited inflow of foreign workers relative to what the country needs. Mr. Lee projects interest rate of 2.50% at end-2022F and 3.00% at end-2023F.
Malaysia retail sales projected to grow by 13% yoy in 2022F
Mr. Tan Hai Hsin from Retail Group Malaysia expects the Malaysian retail industry to post 13.1% retail sales growth in 2022F. This is mainly driven by the easing of lockdown measures and higher consumer footfall (driven by various factors including a return to office and lifting of interstate travel bans). In 2H22F, RGM expects Malaysia’s quarterly retail sales growth rates to remain positive, albeit on a smaller scale. This is mainly due to a higher base effect in 2H21 as inter-state travel was allowed starting 11 Oct 2021.
Potential election date and scenario analysis on GE15
Mr. Ibrahim Suffian (Co-Founder and Director of Programs, Merdeka Centre of Opinion Research) revealed that should UMNO party’s election take place after the GE15, then the first window to potentially hold the general election would be between Nov 2022 and Dec 2022, the second window would be from end-Feb 2023 until before Ramadhan (which starts 22 Apr 2023), while the third window would be between Jun and Jul 2023. On election outcome, his first and most likely scenario is that status quo would be maintained, and the three coalition parties and other independents — Barisan Nasional (BN), Pakatan Harapan (PH) and Perikatan Nasional (PN) — will contest against each other in the 15th General Election (GE15). Under this scenario, he expects BN to gain majority seats in West Malaysia and potentially form the government with Sarawak Parties Alliance (GPS).
Key takeaways from corporate sessions
On 5G, TM said its negotiations with Digital Nasional Berhad (DNB) are progressing well, with the wholesale agreement likely to be on a pay-as-you-go basis (rather than a high fixed coverage fee, based on a minimum volume commitment and DNB’s site rollout). As such, the net impact on TM’s P&L should be positive as wholesale fibre leasing revenue to be received from DNB will more than cover the 5G wholesale fees, it said. The bid for the time charter contract for Eni’s FPSO Agogo project, offshore Angola, is nearing conclusion, as Yinson expects Eni to award the contract in 3Q or 4QCY22F. IOI Corp thinks the recent correction in CPO price to below RM4,000/tonne is overdone and expects it to trade at RM4,200-4,500/tonne over the next four months. Petronas Chemical said the demand for petrochemicals is weakening amid global inflationary pressures, which have hurt consumer and industrial demand for goods. We have Add calls on Yinson and Telekom Malaysia.