This article first appeared in Capital, The Edge Malaysia Weekly on October 2, 2023 - October 8, 2023

Target price: RM1.40 BUY

MAYBANK INVESTMENT BANK RESEARCH (SEPT 25): With expectations of stable interest rates, we expect MNRB to see positive gains on its investments this financial year, as well as positive contributions from its 20%-owned associate Labuan Reinsurance (L) Ltd. We upgrade FY24-26E earnings by 6%-11% to factor in higher investment income.

The momentum of MNRB’s top-line growth has generally been positive, with gross premiums/contributions (GPC) rising 12.6% y-o-y in 1QFY24. We expect GPC momentum to be sustained for its general takaful division, driven by buoyant car sales (+26% in 1QFY24; Maybank IB: +10% FY24E), as well as its reinsurance/retakaful business (+15% in 1QFY24; Maybank IB: +11% FY24E). We expect its family takaful division’s GPC to contract this year by about 10% (-5% in 1QFY24), with lower contributions from bancatakaful and agency.

Barring any exceptionally large claims, we expect the group’s earnings to generally fare better this year. Since the floods at end-2021, MNRB’s subsidiary Malaysian Reinsurance Bhd has taken various proactive measures to mitigate future losses and these include: a) increasing pricing and deductibles for flood cover; b) pushing for replacing overriding commissions with profit commissions; and c) reducing the number of lines to be ceded and imposing quota share. Moreover, the shift away from more unprofitable reinsurance businesses to more stable (for example, managing general agent) ones should help the group better manage its claims experience.

Our target price, derived from the Gordon Growth Model (GGM), is raised to RM1.40 from RM1.09 previously, the key parameters being: risk-free rate of 4.5%, cost of equity of 9.3%, CY23E ROE of 6.0% (CY23E ROE of 5% previously) and long-term growth of 3.5%. This yields a PBV of 0.41 times, which translates into a target price of RM1.40. At RM1.40, the stock would trade at a prospective CY23 PER of 6.7 times, which would be marginally higher than its long-term one-year forward rolling PER mean of 6.1 times.

Target price: 75 sen ADD

CGS-CIMB RESEARCH (SEPT 26): 1QFY24 Ebitda margin rose 1.4 percentage points q-o-q to 9.7% (-0.7ppt y-o-y) as growth in revenue was higher than the increase in operating costs, making it the second quarter in a row where NTPM’s operating margins have improved. Although the 1Q24 Ebitda margin was still lower than our full-year estimate of 10.7%, we believe NTPM will continue to see growth in the demand for its products in the local and export markets, which will drive higher utilisation of its capacity and better margins moving forward as raw material costs of both its segments stabilise from their highs at end-CY22.

The tissue paper products’ segment revenue grew 2.5% y-o-y and 2.1% q-o-q, which NTPM attributed to higher local sales, especially to restaurants, malls, hotels and other commercial buildings. The personal care products’ segment revenue rose 4.3% y-o-y and 9.1% q-o-q due to an increase in average selling prices. However, this segment saw higher raw material prices, mainly for fluff pulp, the price of which doubled to US$1,400/tonne in 4QCY22.

We make no changes to our EPS estimates, “add” call and GGM-based target price of 75 sen (FY26F ROE: 11.0%, COE: 9.0%, long-term growth: 4%).

Target price: RM6.20 OUTPERFORM

PUBLICINVEST RESEARCH (SEPT 25): According to the communications and digital minister, the Malaysian Communications and Multimedia Commission is expected to conclude its talks with wholesale broadband service providers, resulting in broadband internet prices significantly reducing after September 2023. The revision in wholesale prices is part of the new Mandatory Standard on Access Pricing (MSAP) that should have taken place early this year. Earlier, we had highlighted the downside risk to TM’s FY23-25F earnings once the new MSAP is adopted.

In our current forecasts, we have factored in lower internet prices but we expect the impact on the group’s earnings to be mitigated by the recognition of tax credit in FY23-24F as well as higher contribution from TM Global. We are forecasting FY23F earnings to fall by about 4% while FY24F will remain flat. Nevertheless, we do not rule further downside risks should the decline in wholesale rates be larger than expected. At this juncture, we make no changes to our earnings forecasts. Our “outperform” call is predicated on TM’s leading position as the country’s network infrastructure provider, benefiting from the deployment of 5G network and growing demand for hyperscale data centres.

Target price: 88 sen HOLD

UOB KAY HIAN (SEPT 21): The return to full capacity is on the horizon as the group anticipates the full reactivation of all grounded aircraft by end-2023. We had earlier factored full capacity by 4Q23 into our projections. The group had only reactivated a total of 166 aircraft as at end-2Q23, bringing seat capacity to 78% of 2019 levels.

We believe that Capital A is poised to deliver its first post-pandemic quarterly earnings in 4Q23, underpinned by the fully reinstated capacity, coupled with an elevated airfare environment despite potentially higher fuel costs (up by about 32% since end-June 2023) amid the rise in crude oil prices lately. The increase will be passed on to customers via fuel surcharges and higher airfares (averaged RM205 in 2Q23 versus RM178 in 2Q19), therefore mitigating margin compressions.

The finalisation of the PN17 regularisation plan is still underway, scheduled to be submitted in 3Q23 and executed in 4Q23. As it needs to record two profitable quarterly earnings consecutively, we estimate that the group will exit PN17 status earliest by 3Q24. Maintain “hold” with a higher target price of 88 sen from 85 sen previously.

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