HLBANK–Fundamental Analysis (29 Aug 2015)

At the time of writing, I did not own shares of HLBANK.
Changes:
  1. 29 Aug 2015 – First write up of HLBANK using new style, and covers FY15 Q4 results.

Business Profile

Hong Leong Bank Berhad provides comprehensive personal financial services, business and corporate banking, trade finance, treasury, branch and transaction banking, wealth management, investment banking, private banking as well as Islamic financial services. The Bank is the main distribution franchise for the Hong Leong Financial Group. Its merger with EON Bank Group in 2011 has further embedded its position as a core banking franchise with an expanded distribution network of more than 300 branches across the country.

The Bank serves its customers through a network of 291 branches and sales centres throughout Malaysia, 1 branch each in Singapore and Hong Kong, 4 branches/outlets in Vietnam (Hanoi, Ho Chi Minh City and Binh Duong), 1 branch in Cambodia, a representative office in Nanjing, along with more than 1400 self-service terminals and a full-service call centre. For wealth management services, the Bank offers 13 priority banking centres and offshore private banking centres. The Bank also offers online banking, mobile banking and phone banking services as well as various electronic payment capabilities including cross-border ATM services.

Hong Leong Bank has extended its footprint in the Asian region. HL Bank Singapore is a recognised boutique investment bank offering principally investment banking, private banking and treasury services. The Hong Kong Branch operates a Treasury and Wealth Management business model. It is the first bank in Hong Kong to launch an Islamic banking window. Hong Leong Bank Vietnam Limited commenced greenfield operations in October 2009. The Bank is the first Malaysian and Southeast Asian bank to be granted a license to incorporate and operate a 100% wholly-owned commercial bank in Vietnam. Hong Leong Bank (Cambodia) PLC commenced operations in July 2013 as a subsidiary to carry out full commercial banking operations. The Bank is offering a full range of personal financial services and business banking products. In China, the Bank has a 20% shareholding in Bank of Chengdu Co. Ltd. In November 2013, Hong Leong Bank set up a representative office in Nanjing.

The various business segments are described below:

  1. Personal Financial Services focuses mainly on servicing individual customers and small businesses. Products and services that are extended to customers include mortgages, credit cards, hire purchase and others.
  2. Business & Corporate Banking focuses mainly on corporate customers. Products offered include trade financing, working capital facilities, other term financing and corporate advisory services.
  3. Global Markets refers to the Group’s domestic treasury and capital market operations and includes foreign exchange, money market operations as well as capital market securities trading and investments.
  4. Overseas/International Operations refers to Hong Leong Bank Berhad Overseas Branches, Subsidiaries, Associate, Joint Venture and Representative Office. The overseas operations are mainly in commercial banking and treasury business.

The following chart shows revenue by operating segment as of FY15.

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Ownership

Foreign shareholdings at 8.75% as of end June 2015 remained lowest among peers capping the risk for further sell down by foreign investors in a volatile market with weaker sentiment.

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Profitability

From FY11 to FY15, pre-provision operating income of PBBANK constantly increased from 1,344,363 (FY11) to 2,403,871 (FY15), and the CAGR is 12.7%. Nevertheless, its ROE decreased from 14.9% (FY11) to 13.3% (FY14) due to big increment in investment portfolio (25.1% YoY) and other assets (30.8% YoY) over the years.

 

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According to Moody’s Investor Service, Net income/tangible assets had predictive qualities during the recent crisis. HLBANK was able to maintain this ratio in uptrend. The recent Net income/tangible assets of HLBANK is 1.228%, and can be rated M+.

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Efficiency

To measure a bank’s efficiency and its ability to generate incremental profits with added revenue, I will use “Cost to Income” which is available in every bank’s financial report. The lower it is, the more profitable the bank will be.

HLBANK managed to improve its efficiency from 47.5% (FY11) to 44.6% (FY15). Efficiency of HLBANK can be graded as A.

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Asset Risk

A bank’s asset risk is fundamental to its creditworthiness because its high leverage implies that a small deterioration in the value of its assets has a large effect on solvency. These risks are captured, to a considerable degree, by a single financial ratio, problem loans/gross loans (which we term the problem loan ratio). As loan quality deteriorates, the problem loan ratio rises, signaling potential problems, credit losses and consequent pressure on solvency that disadvantages bondholders by reducing the earnings and equity capital buffers that protect them.

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As above, by Moody’s standard, HLBANK’s asset risk can be rated as VS- (Very Strong-). This also indicates that HLBANK is very strict in loan approval.

Capital Adequacy

I use to two ratios to measure bank capitalization: “Tier 1 Ratio” and “Tangible Common Equity % RWA”. HLBANK’s Tier 1 ratio is way above Bank Negara’s requirement. To assess whether HLBANK increased the regulatory ratio with tangible assets, we can use “Tangible Common Equity % RWA” – 6.3% (FY11) to 12.7% (FY14). By Moody’s standard, this is rated as M+ (Medium+).

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Funding Structure & Liquid Resources

A bank’s funding structure has a strong bearing on its potential need for assistance because some sources of funds are less reliable than others. This implies that a bank making significant use of an unreliable funding source – perhaps short-term in nature, from particularly risk-sensitive counterparties – is more likely to suffer periodic difficulties in refinancing its debt. All other variables being equal, this puts it at greater risk of needing support. The primary ratio is “market funds/tangible banking assets”. This ratio expresses the proportion of the balance sheet that credit-sensitive investors and counterparties fund; as such, it measures liability-side volatility and the resultant liquidity risk.

As of FY15, “market funds/tangible banking assets” of HLBANK is 9.0%, which is rated as S (Strong).

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An assessment of the liability-side structure of a bank has to be seen in the context of its asset side. A bank can reasonably borrow from credit-sensitive investors if it has corresponding assets in the form of high-quality liquid instruments that it can sell or repo for cash in response to its funding counterparts’ changing behaviour. The primary ratio is “liquid assets / tangible banking assets”. This provides an offset to the “market funding / tangible banking assets” ratio above. Moody’s study shows that banks with relatively low levels of liquid assets had a higher tendency to require support.

HLBANK has been working on improving liquid banking assets – 14.8% (FY11) to 28.4% (FY15). We can rate this as M+ (Medium+).

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To measure whether a bank still has buffer to increase loans, the primary ratio is Loan-to-deposit ratio. This ratio is particularly useful to assess potential growth of a bank by measuring conversion rate of deposits to loans. If the ratio is too high, it means that banks might not have enough liquidity to cover any unforeseen fund requirements. If the ratio is too low, banks may not be earning as much as they could be. 75% to 90% can be considered as healthy range. Besides, we should also compare ratio of a bank with its peer.

HLBANK’s loan-to-deposit is the lowest in the industry. HLBANK still got big room to increase its loan. We will look into this in “Peer Comparison”.

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Market Risk Appetite

Market Risk Appetite aims at capturing the sensitivity of both the trading and non-trading books to major changes in key financial variables (including interest rates, FX, equity prices, credit spreads). In assessing a bank’s market risk appetite, our starting premise is that the fundamental relationship between risk and expected return indicates that the greater the risk, the higher the expected return. As expected return increases, the volatility of returns, and so the size of potential unexpected losses, increases. Conversely, as expected return decreases, the volatility of returns and so the size of potential unexpected losses decreases.

Market Risk Appetite of HLBANK is 21.5% (FY15) where this can be rated as C. However, HLBANK reduced its market risk exposure throughout the years.

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FY15 Q4 Results

HLBANK’s stellar earnings performance (+6.2%) can be attributed to:

  1. Higher loans growth of 8.9% YoY
  2. Net credit recovery ratio of 5bps

Reported NOII (non-operating interest income) in 4QFY15 grew +20.3%qoq largely due to a one-off gain of circa RM45m from the sale of its property in Menara Raja Laut. HLBANK’s NOII was impacted by weaker Treasury income with lower gains in securities/derivatives as well as FX losses in 1QFY15 due to unfavourable market conditions which impacted its position in FX Swap. For full FY15, the Group reported a NOII of RM927m, drop of -4.4%yoy which was contributed largely by lower forex income by -90.2%yoy.

OPEX grew +1.2%yoy largely due its branch expansion to expand from 4 to 5 branches in Cambodia, set up of its PFS business in Singapore as well as Retail Community Banking within its existing branches. Also, the rise in OPEX was contributed by expenses incurred on its new business initiatives. Excluding the expenses for branch expansion and new business initiatives, BAU’s OPEX declined by – 2.0%yoy. On the other hand, HLBANK controlled its costs very well where its cost-to-income only inched 0.2% YoY even if it increased OPEX 1.2% YoY.

Loans grew at a faster pace (+8.9%) vs. deposits (+7.7%), lifting its loan-to-deposit ratio (LDR) to 81% from 80% previously. Liquidity continues to remain healthy relative to peers. HLBANK can go more aggressive in increasing its loans if compare its peers. However, HLBANK encountered pressure on net interest margin (NIM): 2.01%.

In 4QFY15, share of profit from Bank of Chengdu was RM111.5m (+5.2%qoq; +20.8%yoy) contributing 16.6% of the Group’s PBT’s vs. 15.1% in 4QFY14. Cumulatively for FY15, contribution from BOC continues to be strong at RM401.3m (+8.9%yoy) accounting for 14.6% of Group PBT.

The group’s 20% stake in Bank of Chengdu (BOC) was revalued during the year, resulting in a revaluation gain of MYR690m, thus providing an uplift against an initial carrying cost of MYR947m. This effectively provided a boost to the group’s shareholders’ funds and thus book value. BOC continued to see positive earnings momentum during the year, with a 9% YoY increase in contributions to the group.

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Source: AmResearch 27 Aug 2015

Lower ROE guidance for FY16 taking into account impact of rights issue exercise. Management has guided a lower ROE of >12% for FY16 (FY15 guidance: >14%) taking into account the impact of the rights issue exercise which is expected to completed by end of December 2015 to raise up to RM3b. The FY16 ROE guidance is on the back: (Kenanga, 27 Aug 2015)

  1. Loan growth target of 8-9% (in line with industry)
  2. LD ratio of 80-82%
  3. NIM contraction of 5-10bp
  4. NOII ratio of close to 23%
  5. CI ratio of 42-44%
  6. Gross credit charge-off of 25-35bp.

HL Bank’s fully loaded CET1 ratio at the commercial bank (entity) level was about 8% end-June 2015. Its proposed rights issue of up to MYR3b would lift its CET1 ratio to about 11%. Assuming a 20% discount to its current share price, this would be a 1-for-6 rights issue. The financial impact is expected to be a 5% enhancement in its FY16 BV but a dilution in FY16 ROE to 11.7% from 13.2%. (Maybank 27 Aug 2015)

Peer Comparison

Profitability

The following charts compare profitability of PBBANK with other local banks.

  1. In term of “Net Income % Tangible Assets”, from FY10 and FY13, PBBANK was the champion, but in FY14, AMMB took over the crown. AMMB managed to achieve this because they boosted the loan-to-deposit to 97%. This strategy is not sustainable in long term. HLBANK ranked No. 3 in term of profitability, but I think HLBANK should be No. 2.
  2. For “Return on Equity”, from FY10 and FY13, PBBANK was the champion, but in FY14, BIMB took over the crown. in FY14, BIMB reduced substantial amount pay out to “Non-controlling Interests” – from 283,827 (FY13) to 54,575 (FY14). HLBANK is in the middle of the table.
  3. As for “Net Interest/Income Margin”, PBBANK is at the middle of the table. BIMB, CIMB and AMMB are the top 3, but later we will look into the quality of loans.

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Efficiency

As you can clearly see, cost-to-income of PBBANK obviously is the lowest in this industry. It means that PBBANK is the most efficient bank, and HLBANK is the second.

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Asset Risk

Quality of loans of PBBANK is obviously the best in the industry. Quality of loans of AFG and HLBANK are very impressive too. Despite NIM of CIMB, AMMB and RHBCAP are higher than PBBANK, you can see quality of loans of the three banks are not good.

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Capital Adequacy

Regulatory capital of all banks already met Bank Negara’s requirements.

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Funding Structure & Liquid Resources
  1. Loan-to-Deposit – Compare to commercial bank (excluding BIMB), HLBANK is the last in the table. Compare others, HLBANK still has a huge room to increase loans (if they want to).
  2. Market funds % Tangible Banking Assets – Liability-side volatility and liquidity risks of AFG, HLBANK and PBBANK are quite low.
  3. Liquid Banking Assets % Tangible Banking Assets – HLBANK is the winner.

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Market Risk Appetite

HLBANK is less aggressive in taking market risks.

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Growth Drivers

  1. 30 Apr 2015 – HLBB is probably one step ahead of many of its banking peers in the IT and mobile banking space. Boasting the first to deploy a transactional mobile banking app on three smartphone platforms in 2011, customers can today engage with representatives via a live chat function on HLB website and video conferencing at the HLISB concept branch in Cyberjaya. Another new and exciting product recently introduced is the PEx, whereby customers can withdraw cash or send cash from mobile devices using only the recipient’s mobile phone number. Signing up several retailers, patrons who are HLBB’s customers can do away with ATM cards and also use the Hong Leong Connect PEx+ to pay merchants using their phones. Although similar features are available in neighbouring countries, HLBB is the first to introduce this cashless and cardless concept in Malaysia.
  2. 30 Apr 2015 – Around 70% of the group’s approved capex of up to RM120mn in 1HFY15 was dedicated to building IT and mobile related infrastructures, network expansion and to develop new products and services. The results have been quite encouraging as we note that the number of active users, transactional users, mobile banking users and financial transaction volumes among HLBB’s customers have increased by some 27% YoY, 45% YoY, 329% YoY and 62% YoY respectively. With many more innovative digital banking products in the pipeline, we believe management’s strategy targeting the growing middle class and younger generation with technology could help HLBB penetrate new market demographics and address several issues, most of which underpinned by challenges within the industry.
  3. 30 Apr 2015 – Industry players have been intensifying efforts in the SME space due to opportunities to shore up CASA, cross sell products and services and tap on the healthy trade and remittance market. We estimate that HLBB has some 8.4% of the sector’s market share, up from 7.8% in 2012. Management believes the bank has plenty more opportunities to grow more of this segment, having recently found some 90k underserved SME customers through data mining. Community branches equipped with dedicated SME managers are being set up nationwide. HLBB currently has 20-25 specialised SME centres. Efforts to beef up online and mobile banking capabilities will be an added advantage to capture this segment of the market.

Issues/Risks/Challenges

  1. The group’s NIM has been falling and is one of the lowest among the other anchor banks. Management noted that this is due to the bank’s focus on high quality borrowers as well as minimal exposure to the higher yielding unsecured loan segment.
  2. Management hopes to grow its loans book by 9% as in FY16. However, MAYBANK forecasted that Malaysian loan growth of 6% to 7% in 2015. I am a bit skeptical of HLBANK’s target.
  3. Asset quality may be hampered by the following factors. HLBANK maintained its guidance on credit charge ratio at 25-35bpts.
  1. Rising inflation from the weaker Ringgi
  2. Slower economic activities.
  • Weaker contribution from its Chinese associate.
  • Further margin squeeze from tighter lending rules and stronger-than-expected competition domestically.
  • Valuation

    Historical P/B

    • Trailing:
    • FY15 (BPS: 9.503) – 14.73 (Uncertainty Risk: MEDIUM)
    • Current (BPS: 9.503) – 14.73 (Uncertainty Risk: MEDIUM)
  • Forward:
    • FY16 (BPS: 9.815 ± 5%) – From 14.45 to 15.97 (Uncertainty Risk: MEDIUM to HIGH)
    • FY17 (BPS: 10.49 ± 5%) – From 15.45 to 17.07 (Uncertainty Risk: MEDIUM)
  • BPS applied to reach the current stock price (13.08): 8.439
  • Industrial Avg. P/B

    • Trailing:
    • FY15 (BPS: 9.503) – 14.24 (Uncertainty Risk: HIGH)
    • Current (BPS: 9.503) – 14.24 (Uncertainty Risk: HIGH)
  • Forward:
    • FY16 (BPS: 9.815 ± 5%) – From 13.97 to 15.44 (Uncertainty Risk: MEDIUM to HIGH)
    • FY17 (BPS: 10.49 ± 5%) – From 14.93 to 16.50 (Uncertainty Risk: MEDIUM)

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    I think fair value of HLBANK is from 14.8 to 16.2. Uncertainty risk is medium.

    HLBANK maintained dividend payout in the range of 30% – 40%. I don’t think HLBANK will increase dividend payout in the near future as they want to increase regulatory capital. Historically, dividend yield of HLBANK ranged from 2% to 4%.

    Shareholder Return

    The table below is a simulation of shareholder return. Assumptions:

    1. Commission paid is ignored in this simulation.
    2. The current price is as of the time of writing.
    3. Unit purchased is 1,000.
    4. Stock price as of 25 Aug 2015 was 13.08.
    Time Frame Date Bought at Original Value Dividend Received Unrealized  Gain/Loss Current Return CAGR %
    3-Y 28/08/2012 13.5 13,500.00 1,280.00 -420.00 14,360.00 2.1%
    5-Y 27/08/2010 8.9 8,900.00 1,780.00 4,180.00 13,258.00 8.3%
    7-Y 26/08/2005 6.025 6,025.00 2,985.00 7,055.00 16,065.00 10.3%

    Going Forward

    Lower ROE guidance for FY16 taking into account impact of rights issue exercise. Management has guided a lower ROE of >12% for FY16 (FY15 guidance: >14%) taking into account the impact of the rights issue exercise which is expected to completed by end of December 2015 to raise up to RM3b. The FY16 ROE guidance is on the back: (Kenanga, 27 Aug 2015)

    1. Loan growth target of 8-9% (in line with industry)
    2. LD ratio of 80-82%
    3. NIM contraction of 5-10bp
    4. NOII ratio of close to 23%
    5. CI ratio of 42-44%
    6. Gross credit charge-off of 25-35bp.

    HL Bank’s fully loaded CET1 ratio at the commercial bank (entity) level was about 8% end-June 2015. Its proposed rights issue of up to MYR3b would lift its CET1 ratio to about 11%. Assuming a 20% discount to its current share price, this would be a 1-for-6 rights issue. The financial impact is expected to be a 5% enhancement in its FY16 BV but a dilution in FY16 ROE to 11.7% from 13.2%. (Maybank 27 Aug 2015)

    HLBANK has always been conservative in growing its loans and advances. With its stringent credit policies, the bank’s appetite for mostly high quality borrowers and secured-type lending has caused the bank to lag its peers in terms of loans growth. Perhaps, HLBANK can be more aggressive because its loan-to-deposit ratio is only close to 80%, which is below industry average.

    I think HLBANK has potential to be the next PBBANK. I am keen to buy HLBANK in near future. The current valuation is not bad, but if HLBANK prices can go down further, it will be more attractive.

    Resources

    Excel – http://1drv.ms/1Q0L3q1

    Notes – http://1drv.ms/1LBaP2I

    Latest Financial – Q4 2015 Financial Report (26 Aug 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4845165

    FLBHD–Fundamental Analysis (28 Aug 2015)

    FLBHD Analysis:-

    Excel – http://1drv.ms/1VidFye

    Notes – http://tinyurl.com/pndtde9

    My View:-

    • Valuation:
    • 5-Y DCF:
      • Good Scenario (8.0% – 10.0%): From 2.26 to 2.38 (Uncertainty Risk: LOW)
      • Base Scenario (5.0% – 7.0%): From 2.09 to 2.20 (Uncertainty Risk: LOW)
      • Bad Scenario (2.0% – 4.0%): From 1.94 to 2.04 (Uncertainty Risk: LOW)
      • Ugly Scenario (-2.0% – 0.0%): From 1.75 to 1.84 (Uncertainty Risk: MEDIUM)
      • At current price (1.52), based on RDCF, assumption of FCFF growth rate in the next 5 years is -8%.
    • Absolute EY%:
      • Trailing:
        • FY14 (EPS: 0.154) – 1.140 (Uncertainty Risk: EXTREME)
        • R4Q (EPS: 0.191) – 1.413 (Uncertainty Risk: VERY HIGH)
      • Forward:
        • FY15 (EPS: 0.19 ± 5%) – From 1.333 to 1.473 (Uncertainty Risk: HIGH to VERY HIGH)
        • FY16 (EPS: 0.209 ± 5%) – From 1.466 to 1.620 (Uncertainty Risk: MEDIUM to HIGH)
      • EPS applied to reach the current stock price (1.52): 0.206
    • Simple Yield Valuation:
      • FY14–EY%: 10.2%
      • FY14–DY%: 5.3%
      • R4Q–EY%: 12.6%
      • R4Q–DY%: 5.3%
    • In short term (1 – 2 years), the current price already factored in the growth drivers. Nevertheless, if we value this company in terms of cash flow (5 years), this company is undervalued.
  • This company continuously maintained high dividend yield.
  • FLBHD is one of the beneficial of strong USD.
  • Its dividend yield is attractive, and valuation is also not bad. I think FLBHD is a lagger in this industry.
  • Latest Financial – Q2 2015 Financial Report (21 Aug 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4836957

    At the time of writing, I did not own shares of FLBHD.

    COASTAL–Fundamental Analysis (28 Aug 2015)

    COASTAL Analysis:-

    Excel – http://1drv.ms/1Eos5IN

    Notes – http://tinyurl.com/krg8r75

    My View:-

    • Valuation:
      • Absolute EY% Valuation:
        • Trailing:
          • FY14 (EPS: 0.367) – 3.358 (Uncertainty Risk: LOW)
          • R4Q (EPS: 0.361) – 3.307 (Uncertainty Risk: LOW)
        • Forward:
          • FY15 (EPS: 0.394 ± 5%) – From 3.431 to 3.792 (Uncertainty Risk: LOW)
          • FY16 (EPS: 0.338 ± 5%) – From 2.939 to 3.248 (Uncertainty Risk: LOW)
        • EPS applied to reach the current stock price (2): 0.218
    • 2Q15 net profit declined by 27.8% YoY to RM34.8m from RM48.2m in 2Q14 due to lower number of vessel deliveries of 3 units in the quarter vs. 6 units last year amid a weaker general OSV market. However, profitability of the group remained largely intact with its shipbuilding PBT margin at 20.2% in the quarter (20.5% in 2Q14). (Kenanga, 26 Aug 2015)
      • Sequentially, 2Q15 net profit weakened 47.2% QoQ due to lower shipbuilding revenue contribution caused by lower OSV vessel deliveries (3 units in the current quarter vs. 5 units in the previous quarter). This is despite improvement in Shipbuilding segment’s PBT margin to 20.2% from 18.8%, possibly driven by more favourable USD/MYR trend.
      • For 1H16, however, core net profit improved slightly by 3.4% YoY to RM100.7m from RM97.4m previously due to higher value of vessels sold in the period under review, driving 10.3% YoY growth in its top line. However, a slight drop in PBT margin to 19.6% from 21.2% partially due to weaker shipbuilding margins in 1Q15 offset the growth in revenue.
    • COASTAL is awaiting its 2nd high-specification jack-up rigs due for delivery in 2H15. If no contract is secured, the management will elect to dispose the rig pre-actual delivery to reduce their risk exposure.
    • 26 Aug 2015 – Excluding its 1st Jack Up rig sale earlier and RM1.3b Gas rig contract, the group’s orderbook stands at RM1.1b providing earnings visibility until 2017 amid current challenging market.
    • COASTAL is currently undervalued, but my main concern is its orderbook is not increase.

    Latest Financial – Q2 2015 Financial Report (25 Aug 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4844637

    At the time of writing, I did not own shares of COASTAL.

    QL – Fundamental Analysis (28 Aug 2015)

    QL Analysis:-

    Excel – http://1drv.ms/1Lzueky

    Notes – http://tinyurl.com/nzskxef

    My View:-

    • Valuation:
      • Absolute EY%:
        • Trailing:
          • FY15 (EPS: 0.147) – 3.234 (Uncertainty Risk: VERY HIGH)
          • R4Q (EPS: 0.147) – 3.234 (Uncertainty Risk: VERY HIGH)
        • Forward:
          • FY16 (EPS: 0.177 ± 5%) – From 3.712 to 4.103 (Uncertainty Risk: HIGH)
          • FY17 (EPS: 0.191 ± 5%) – From 4.004 to 4.425 (Uncertainty Risk: MEDIUM to HIGH)
        • EPS applied to reach the current stock price (3.9): 0.177
    • QL’s 1QFY16 revenue was flat YoY at RM655.3m (+0.3% YoY, -1.0% QoQ) with earnings in a similar trend at RM40.9m (+1.4% YoY, -12.4% QOQ). The flattish performance was largely dragged by palm oil activities (POA) and integrated livestock farming (ILF) divisions.
    • QL establishing its marine segment with new capacities and diversification into new aqua business such as prawn farming, in view of better surimi prices.
    • The MPM division to continue to support the earnings growth, supported by the robust demand on the surimi-based products while the MPM is also poised to benefit from the low feedstock prices on the back of easing commodities prices, namely maize and soybean, as well as the favourable egg prices.
    • On the downside, risk relating to CPO price remains a threat and growing palm oil acreage in Indonesia could help lessen this, going forward.
    • Outlook on ILF segment may not positive due to the high raw material feed cost.
    • Valuation of QL is not attractive.

    Latest Financial – Q1 2016 Financial Report (26 Aug 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4845457

    At the time of writing, I did not own shares of QL.

    CARLSBG–Fundamental Analysis (27 Aug 2015)

    CARLSBG Analysis:-

    Excel – http://1drv.ms/1PVADIk

    Notes – http://tinyurl.com/kdtolbw

    I will write a longer write-up about CARLSBG in the future. To compare with GAB, you can check out “Peer Comparison” in my recent GAB Analysis.

    My View:-

    • Valuation:
      • Historical Absolute EY%:
        • Trailing:
          • FY14 (EPS: 0.692) – 13.640 (Uncertainty Risk: MEDIUM)
          • R4Q (EPS: 0.648) – 12.774 (Uncertainty Risk: MEDIUM)
        • Forward:
          • FY15 (EPS: 0.661 ± 5%) – From 12.384 to 13.687 (Uncertainty Risk: MEDIUM)
          • FY16 (EPS: 0.708 ± 5%) – From 13.267 to 14.663 (Uncertainty Risk: LOW to MEDIUM)
        • EPS applied to reach the current stock price (11.16): 0.566
      • Industry Avg. Absolute EY%:
        • Trailing:
          • FY14 (EPS: 0.692) – 11.82 (Uncertainty Risk: MEDIUM)
          • R4Q (EPS: 0.648) – 11.07 (Uncertainty Risk: HIGH)
        • Forward:
          • FY15 (EPS: 0.661 ± 5%) – From 10.73 to 11.86 (Uncertainty Risk: MEDIUM to HIGH)
          • FY16 (EPS: 0.708 ± 5%) – From 11.50 to 12.71 (Uncertainty Risk: MEDIUM to HIGH)
      • 5-Y DCF:
        • Good Scenario (8.0% – 10.0%): From 11.48 to 12.29 (Uncertainty Risk: MEDIUM to HIGH)
        • Base Scenario (5.0% – 7.0%): From 10.35 to 11.09 (Uncertainty Risk: HIGH to VERY HIGH)
        • Bad Scenario (2.0% – 4.0%): From 9.31 to 9.99 (Uncertainty Risk: VERY HIGH)
        • Ugly Scenario (-2.0% – 0.0%): From 8.07 to 8.67 (Uncertainty Risk: EXTREME)
        • At current price (11.16), based on RDCF, assumption of FCFF growth rate in the next 5 years is 7.2%.
    • FY15 Q2 (Kenanga, 26 Aug 2015):
      • YoY, 1H15 revenue grew marginally by 3.7% toRM831.8m driven by strong performance in Singapore (+35.0%) on the back of higher sales volume and better product mix. Core operating profit shrank 3.0% to RM115.6m as operating margin narrowed by 1ppt to 13.9% due to higher raw material cost led by depreciating MYR. Core net profit declined marginally by 0.7% to RM91.8 m thanks to lower effective tax rate of 22.3% (1H14: 22.9%).
      • QoQ, 2Q15 revenue fell 6.3% due to the lower sales in Malaysia (-15.4%) as 1Q15 was boosted by the Chinese New Year celebrations. Core operating profit declined by 7.1% due to lower sales in Malaysia but mitigated by strong growth in Singapore due to the reasons mentioned above. As a result, core net profit of RM44.6m was 5.6% lower comparatively.
    • The exposure in Singapore has grown to 29% from 22.3% a year ago which we think is positive as it provides an outlet for the Group to diversify the risk away from the local market, which is dogged by persistent weak consumer sentiment and contraband’s beers.
    • CARLSBG is determined to move away from a single star beer product company to become a star beer portfolio company. Over the past 10 years, CARLSBG has been trying to launch a couple of new products into the market. To date, however, its Carlsberg Green Label is still viewed as the group’s only crown jewel. As such, a reshuffle has been undertaken in its top management team over the last 2 to 3 years with the aim of bringing good changes to the group. Besides, it has also appointed a few brand managers to oversee the brand building efforts across a few main products, whereby premium brands are expected to form a larger proportion of its new product portfolio. While efforts are being made to build market share for its premium products, the Carlsberg Green Label will remain as the bread and butter of the group. Whether or not CARLSBG will be able to return to its former glory, it is still too early to tell, but the good efforts warrant CARLSBG a buy/hold call for the long term. There are downside risks if things do not turn out as expected.
    • Going forward, I remain conservative and skeptical above volume growth in the brewery sector as some reports show that the industry is saturated. However, earnings should be sustainable at current levels.
    • Valuation wise, CARLSBG is fully or over valued, but its Dividend Yield is 6.4%. You basically pay premium to buy an outstanding dividend counter.

    Latest Financial – Q2 2015 Financial Report (25 Aug 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4843713

    At the time of writing, I owned shares of CARLSBG.

    DLADY – Fundamental Analysis (26 Aug 2015)

    DLADY Analysis:-

    Excel – http://1drv.ms/1MMXuFY

    Notes – http://tinyurl.com/lby6myo

    My View:-

    • Valuation:
    • Absolute EY%:
    • Trailing:
      • FY14 (EPS: 1.716) – 41.940 (Uncertainty Risk: VERY HIGH)
      • R4Q (EPS: 2.005) – 48.990 (Uncertainty Risk: MEDIUM)
    • Forward:
      • FY15 (EPS: 1.908 ± 5%) – From 44.294 to 48.956 (Uncertainty Risk: MEDIUM to HIGH)
      • FY16 (EPS: 2.089 ± 5%) – From 48.507 to 53.613 (Uncertainty Risk: MEDIUM to HIGH)
    • EPS applied to reach the current stock price (46): 1.882
  • 10-Y DCF:
    • Good Scenario (22.0% – 24.0%): From 52.19 to 57.73 (Uncertainty Risk: MEDIUM)
    • Base Scenario (19.0% – 21.0%): From 44.84 to 49.62 (Uncertainty Risk: MEDIUM to HIGH)
    • Bad Scenario (16.0% – 18.0%): From 38.51 to 42.62 (Uncertainty Risk: VERY HIGH)
    • Ugly Scenario (12.0% – 14.0%): From 31.43 to 34.79 (Uncertainty Risk: EXTREME)
    • At current price (46), based on RDCF, assumption of FCFF growth rate in the next 10 years is 19.5%.
  • Current Dividend Yield: 4.8%
  • In my opinion, DLADY’s fair value range from 48 to 53.
  • I am positive with DLADY’s future:
    • Its solid fundamentals and strong branding position
    • Aggressive marketing and promotional activities
    • Robust demand of diary product in the long-term as Malaysia’s population is projected to reach 38 million people by 2040 from 30 million currently.
    • 25 Aug 2015 – To date, Dutch Lady had launched a new range of liquid milk products under the name of Dutch Lady PureFarm in an effort to refresh the brand.in addition, Dutch Lady have also strengthened our ready-to-drink products.
  • Concern:
    • 25 Aug 2015 – Milk powder prices succumbed to multiple year-low in early-August due to the concerns of slowing demand from China and oversupply situation. However, the volatility persists as latest figures in mid-August show strong rebound of 7.2%-16.7% in a short period which we believe was driven by the 33% output cut by Fonterra, the world’s biggest milk supplier.
  • DLADY valuation is less attractive, but it is a very defensive stock. I am willing to pay some premium for this. I will continue to hold and accumulate this stock for my kids.
  • Latest Financial – Q2 2015 Financial Report (24 Aug 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4840557

    At the time of writing, my family member owned shares of DLADY.

    BOILERM – Fundamental Analysis (26 Aug 2015)

    BOILERM Analysis:-

    Excel – http://1drv.ms/1LzF9gZ

    Notes – http://tinyurl.com/mf7ng3w

    My View:-

    • Valuation:
      • Absolute EY%:
        • Trailing:
          • FY15 (EPS: 0.076) – 1.500 (Uncertainty Risk: LOW)
          • R4Q (EPS: 0.095) – 1.881 (Uncertainty Risk: LOW)
        • Forward:
          • FY16 (EPS: 0.082 ± 5%) – From 1.539 to 1.701 (Uncertainty Risk: LOW)
          • FY17 (EPS: 0.087 ± 5%) – From 1.632 to 1.804 (Uncertainty Risk: LOW)
        • EPS applied to reach the current stock price (1): 0.051
    • I am still new to this counter. It is quite hard to find growth drivers for this company. I will continue to study in details.
    • This counter will continue in my Watch List.

    Latest Financial – Q1 2016 Financial Report (26 Aug 2015) http://www.bursamalaysia.com/market/listed-companies/company-announcements/4833933

    At the time of writing, I did not own shares of BOILERM.