In three words I can sum up everything I've learned about life: it goes on.
SECTOR UPDATE
Automotive (OVERWEIGHT↔). 4QCY22 Report Card: Marred by High Cost. Reiterate OVERWEIGHT. The sector’s 4QCY22 results were mixed with most players under our coverage dragged by high input costs. Nevertheless, the worst of margin squeeze is over as: (i) the high-cost inventories will be depleted over the next 3-6 months as production ramps up, and (ii) prices of commodities and key components had since softened. Our projection implies that 2023 TIV will sustain at the record 2022 level of 720k units versus a more conservative forecast of 650k (-9.8%) by the Malaysian Automotive Association (MAA) underpinned by: (i) a pause in OPR hikes, (ii) stable new car prices, thanks to the deferment of new excise duty regulations (that could have resulted in prices of locally assembled vehicles increasing by 8%-20%), and (iii) a healthy industry booking backlog of 350k units as at end-Jan 2023 (which is nearly half of our 2023 TIV projection of 720k units). Our sector top picks are MBMR (OP; TP: RM4.60) and UMW (OP; TP: RM4.70).
Gaming (OVERWEIGHT↔). 4QCY22 Results Review: Recovery on Track. We maintain OVERWEIGHT on the gaming sector, a major beneficiary of the reopening of the economy and international borders. Casino operators disappointed in the recent 4QCY22 results season largely due to unfavourable forex movements, and for GENTING (OP; TP: RM5.86) which was affected by weak plantation profits, while their casino operations saw improved performance across geographical areas. Meanwhile, number forecast operators (NFOs) beat expectations with tickets sales returning to 69% to 82% of pre-pandemic levels. Our sector top picks are GENTING, being a proxy to the recovery in the tourism activities both in Malaysia and Singapore, backed by the return of Chinese tourists, and SPTOTO (OP; TP: RM1.95) by virtue of its attractive dividend yield of c.10%.
Seaports & Logistics (NEUTRAL↔). 4QCY22 Results Review: Led by Exports. We maintain our NEUTRAL call on the sector as its 4QCY22 results were mixed. Most players under our coverage benefitted from the strong gateway volume on the back of an export boom though the courier segment saw intensified competition. WPRTS (MP; TP: RM3.65) was also lifted by an investment tax allowance (that offset the one-off prosperity tax), while POS (UP; TP: RM0.46) remained in the red due to heightened competition in parcel delivery. The World Trade Organisation (WTO) projects global merchandise trade volume to only inch up by 1% in 2023 amid the global economic uncertainty. However, we see a bright spot in the logistics sector locally as it is primarily driven by: (i) domestic demand, and (ii) the booming e-commerce. Our sector top picks are BIPORT (OP; TP: RM6.00) and SWIFT (OP; TP: RM1.00).
Media (NEUTRAL↔). 4QCY22 Results Review: Cost the Deciding Factor. We maintain NEUTRAL on the sector. Against our forecasts, the 4QCY22 results of players under our coverage were evenly split between above and below expectations. Generally, revenues held up thanks to the seasonal uptick in adex. The key variable that made or broke their bottom lines was cost, of which MEDIA (OP; TP: RM0.57) fared better thanks to some rental relief, while ASTRO (MP; TP: RM0.75) and STAR (OP; TP: RM0.335) were weighed down by higher content and printing costs. Looking forward, we continue to expect adex growth in CY23 to be more muted amidst the global economic uncertainty and the absence of major global sporting events. Our sector top pick is MEDIA for its integrated approach to advertising via Omnia, and improved cost rationalisation.
REIT (NEUTRAL↔). 4QCY22 Results Review: Business As Usual. The 4QCY22 report cards for MREITs showed little earnings surprises. We maintain our NEUTRAL call on the sector. We still like MREITs with the following attributes: (i) niche in the right business segments particularly in industrial and retail, and/or (ii) own property assets in prime and strategic locations, which will continue to provide resilient rental income streams. From a valuation perspective, our sector pick is PAVREIT (OP; TP: RM1.43) while SENTRAL (UP; TP: RM0.79) remains an UNDERPERFORM.
- KENANGA
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