This article first appeared in Capital, The Edge Malaysia Weekly on January 31, 2022 - February 6, 2022

UNDERWEIGHT

CGS-CIMB RESEARCH (JAN 24): If the government proceeds with its plan to accelerate the rollout of the 5G single wholesale network (SWN) via Digital Nasional Bhd (DNB), we estimate each mobile network operator (MNO) may be charged substantial minimum wholesale fees of RM303 million, RM403 million, RM432 million and RM432 million in FY23F, FY24F, FY25F and FY26F respectively, based on DNB’s commercial offer and timeline for site rollout.

We believe MNOs may not be able to generate much extra mobile revenue from 5G in the near/mid-term due to: a) lack of unique “killer” use cases, and b) still limited coverage in the first few years, while c) 5G device penetration will take time to rise. We do see potential for new 5G enterprise revenue streams, but widescale commercialisation may be three to five years away. While DNB pays for 5G capex, we think MNOs’ capex will not drop much in FY22F to FY24F due to: a) Jalinan Digital Negara’s (Jendela) 4G coverage/speed targets, and b) still growing 4G traffic. MNOs’ capex may fall from FY25F as they offload more 4G traffic onto DNB’s 5G network when coverage is wider and 5G device penetration is higher, in our view.

If the above SWN scenario materialises, our FY22F core EPS for Maxis Bhd could be lower by 3.6% and by a bigger 15.0% to 33.4% for FY23F to FY31F. The resulting FY22F to FY23F core EPS would be 10% to 19% below current Bloomberg consensus estimates. We think this indicates that the market has yet to factor in substantial 5G wholesale fees to DNB due to the lack of information on the rate and fee structure thus far.

When DNB’s 5G coverage exceeds 90% in 2027F, we believe smaller MNOs (Webe, Yes) may be able to compete more effectively versus the Big 4 MNOs. Our back-of-the-envelope calculation suggests that Webe may be able to offer a 150GB 5G plan for RM60 a month and still earn an Ebitda margin of above 30%. In this scenario, incumbent MNOs may have to raise their plan quotas to stay competitive, resulting in an inability to monetise 5G traffic growth, or worse, experience an average revenue per user (ARPU) decline/market share loss.

Target price: RM2.06 BUY

RHB RESEARCH (JAN 24): We believe the market should view Sunway’s 2022 business plans positively due to its well-thought-out business strategy. Having partially recovered from the pandemic, besides emphasising the importance of growth, it is also taking the opportunity to strengthen its company culture and quality by instilling the environmental, social and governance (ESG) element across its developments and various businesses.

Sunway is now master planning eight integrated wellness hubs in Malaysia (Bandar Sunway, Velocity, Damansara, Seberang Jaya, Paya Terubong, Ipoh, Iskandar Puteri and Kota Bharu). We think this is a good concept as property buyers are generally putting greater emphasis on health and wellness, especially since the Covid-19 pandemic. Sunway has budgeted RM2 billion capex for the next four to five years to build all the medical centres.

Meanwhile, Sunway achieved RM2.55 billion worth of property sales in 2021 (versus RM1.3 billion in 2020), exceeding its revised sales target of RM2.2 billion. Sunway has set a lower sales target for 2022 and we believe it is mainly due to the cautious sentiment in Singapore following the recent implementation of stringent cooling measures by the government that was announced in mid-December 2021.

Fair value: RM4.15 BUY

AMRESEARCH (JAN 24): We reiterate our “buy” call with a slight tweak to our fair value to RM4.15 (from RM4.17) after changing our valuation method to DCF. MR DIY is our top pick for the consumer sector for its strong operating cash flow from its existing stores, the proactive leadership of the management and the prospect of the new store format, MR DIY Express. We have revised the company’s 2021 to 2023F earnings by +1%, -1% and -3.2% respectively due to housekeeping reasons.

The eroding consumers’ purchasing power due to the inflationary environment will benefit MR DIY as consumers become more price sensitive and gravitate towards cheaper options, in our view. While headline inflation could ease, the underlying inflation may persist as prices of consumer goods hardly come down after increasing and this may turn consumers’ bargain-hunting into a more lasting trend.

We also believe the impact of rising operating costs will be partially offset by MR DIY’s continuous effort to improvise its product offerings and maximise its white label sales’ contribution. Leveraging its data analytics capability, the company is actively revising its product offerings based on customers’ demand while continuously assessing its product pricing strategy.

Target price: RM7.70 OUTPERFORM

PUBLICINVEST RESEARCH (JAN 25): Greatech announced on Jan 24 that it has secured new orders for production line systems worth RM160 million from a customer in the solar industry. These new orders are expected to sustain the company until 2QFY23. After securing this latest contract, the group’s total order book has increased to RM586 million. Order book from the solar industry has increased from 85.5% to 89.4%. Based on our channel checks, the gross margin for the solar production line contract could be as high as 40%.

We make no changes to our numbers as we have factored in an order book replenishment in our earnings forecasts. Meanwhile, the company’s share price took a beating recently, down 29% year to date, on concerns over global rate hikes. It is currently trading at an undemanding forward valuation of 28 times compared to 42 times a month ago. We reckon that its current valuation is unwarranted, trading at -1 standard deviation, considering the exciting earnings growth, led by both the solar and electric vehicle industries.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.