Brokers Digest: Local Equities - Digital banks, MGB Bhd, Dayang Enterprise Holdings Bhd, Kimlun Corp Bhd

TheEdge Mon, Oct 04, 2021 02:30pm - 2 years View Original


Digital banks

KENANGA RESEARCH (SEPT 21): With Bank Negara Malaysia due to award up to five digital banking licences in 1Q22, we recently hosted a knowledge-sharing session on the nature of digital banks (DBs) and what it means to the industry going forward. The session was helmed by Kenanga Investment Bank Bhd director of digital strategy Dr Sekar Jaganathan, head of digital strategy and business development Sarah Lim Fern Chieh and resident financial technology (fintech) specialist Ian Lloyd.

Our speakers highlighted two distinctions of DBs, namely: (i) neobanks and (ii) challenger banks. Neobanks are bank-backed fintech companies that utilise their banking licence and could serve as an extension of their existing bank but with a different branding proposition. Meanwhile, challenger banks are pure fintech or tech-driven companies that are not bank-backed.

The debate over whether traditional banks should bid for a digital banking licence has been long standing, to which most banking representatives point out that most consumer banking transactions are already performed digitally and technological investments are a periodic norm to enhance operating efficiency. However, it still stands that conventional products and risk management approaches, while tried and tested, could be outdated if digital banking methods prove to be more favoured by the public. In our opinion, heightened competition from DBs could lead to possible consolidation among traditional players.

In the near term, the target markets of DBs of micro-loans are beyond the scope of most banks. However, it is possible that, as their presence matures in the long term, they could target larger conventional products such as personal loans and even hire purchase.

There has always been talk that there are “too many” banks in Malaysia and the entry of DBs could possibly be the catalyst as the demand for greater efficiencies and competitive edge will weed out redundancies. Hence, we anticipate traditional banks having to further evolve into a pseudo-digital business model where conventional platforms (that is, bank branches, automated teller machines, client servicing) could serve as a more complementary role.

Whether the five DBs will prosper over the next few years remains to be seen. However, their injection into the financial markets cannot be ignored as market forces will always be competitive and consumers will always align themselves with providers that cater best to their needs. Investors and corporations will observe the developments with great interest.

MGB Bhd

Target price: RM1.15 BUY

JF APEX SECURITIES (SEPT 21): MGB has secured a turnkey project to develop a 1,006.7-acre industrial park in Kerteh, Terengganu, which was awarded by Retro Court Sdn Bhd, a private firm owned by Datuk Hendri Dahlan and Cheah Tuck Hing.

We are positively surprised by this external job win. While the group did not reveal the actual contract value, judging from the land size of the industrial estate, we opine that the development value could be sizeable over many launching phases. We believe this is one of the job wins out of its current tender book of RM1 billion.

We favour the stock for: (1) Benefitting from the affordable residential market segment, which is relatively unfazed by the prevailing supply-demand imbalance; (2) Serving a niche market with a high entry barrier as the group commands cost advantage in constructing affordable housing, mainly by leveraging its expertise and scale in the industrialised building system; (3) Having a sizeable outstanding construction order book of RM1.9 billion and RM1.1 billion worth of property launches for Rumah Selangorku Idaman targeted in 2H21 onwards; (4) Earnings are back on a growth trajectory as the group is expected to attain 2021F and 2022F bottom line growth of 147.6% and 90.9% y-o-y respectively, on the back of its top line growth of 44.6% and 53.0% y-o-y; and (5) Being backed by an established major shareholder, LBS Bina Group Bhd.

Dayang Enterprise Holdings Bhd

Target Price: RM1.35 OUTPERFORM

PUBLICINVEST RESEARCH (SEPT 21): Dayang reported a core net profit of RM6 million in 2QFY21, from a core net loss of RM24.4 million in 1QFY21, on the back of RM159.7 million (+90% q-o-q) in revenue. This is attributed to higher vessel utilisation at 51% compared with 20% in 1QFY21, which was affected by the monsoon.

Sector activities are improving, reflected by the top line growing 90% q-o-q. Nevertheless, the bottom line will still be affected by the tight standard operating procedures (SOPs) set by the government. It is understood that the group still needs to comply with the 14-day quarantine for workers’ movement, not just to and from offshore, but also between one platform to another (which requires the crew to disembark onshore for quarantine before moving to another platform), affecting its operational efficiencies and profit margin.

That said, we are of the view that the overall performance for FY21 could just be a one-off as it could also be impacted by other unexpected events such as a total lockdown in Labuan for almost two months and operations of five vessels being halted for two to four weeks due to Covid-19 infections. FY22 earnings onwards will improve on the back of a healthy order book and improved efficiencies, given the gradual relaxation of SOPs post-vaccination.

Kimlun Corp Bhd

Target Price: 89 sen BUY

RHB RESEARCH (SEPT 21): Kimlun recorded a 2Q21 core net profit of RM1.6 million (-79% q-o-q; 2Q20 core loss: RM9.4 million), bringing 1H21 core net profit to RM9.3 million, at 34% and 29% of our and street’s estimates. In deriving our core net profit, we removed gains related to the disposal of quoted or unquoted investments or properties, as well as foreign exchange gains.

Group revenue for 2Q21 grew 2% q-o-q, despite the Full Movement Control Order-related disruptions in June. This was supported by higher contribution from the property segment of RM44 million (+>100% q-o-q/y-o-y) on sales achieved by its Bukit Bayu project. On the other hand, 2Q21 construction and manufacturing revenue declined 14%/27% q-o-q, but fared better y-o-y on the longer operating period compared with 2Q20 (+102%/+34% y-o-y).

Its outstanding order book of RM1.1 billion consists of RM800 million and RM300 million in construction and manufacturing orders, providing more than two years of earnings visibility. We cut FY21F earnings by 11% to factor in the lower project margin assumption due to idle costs during the lockdown. We keep our replenishment assumption of RM500 million per year and a target FY22F PER of eight times.

 

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