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Rex International Holding (REXI SP)
Not The Oil Price Play That We Expected; Downgrade To SELL
REX managed to only eke out a small profit in 2022 despite average oil prices jumping 42% yoy due to poor oil production performance. Importantly, the company’s two interested party transactions into drone and medical technology, both of which are unrelated to the company’s core upstream oil and gas business, may be of concern to investors. Downgrade to SELL. Lower target price to S$0.10.
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Banking – Malaysia
Fairly Insulated Fundamentally But Sentiment Remains Suppressed
The problems plaguing regional banks in the US are not apparent in domestic banks. As such, we do not envisage a direct spillover effect to Malaysia’s banking system. However, as observed in recent recessions in the US, banking sector valuations de-rated to -2SD of historical mean P/B vs -1SD currently. This has prompted us to maintain MARKET WEIGHT on the sector. Our top sector pick is Public Bank as it could benefit from flight to quality.
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Gloves – Malaysia
4Q22: Upgrade To OVERWEIGHT As Bottom Has Been Sighted
The sector fell into unprecedented losses in 4Q22. Sector losses are expected to continue but bottom out in 1H23. Alongside improving ASP outlook and moderating costs, corporate losses should be narrow in 2H23. Meanwhile, valuations are trading close to +1SD to merely recovering 2024 earnings, suggesting deep value when 2025 earnings are taken into perspective. Given the favourable reward-to-risk payoff, we upgrade the sector to OVERWEIGHT.
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RHB Bank (RHBBANK MK)
Attractive valuations and yields
Maintain BUY
Our FY23/24E earnings forecasts (unchanged) for RHB are conservatively 6% lower than consensus respectively, largely on account of our more prudent assumptions re NIMs and credit costs. Even so, RHB’s FY23E dividend yield of 7.7% is one of the most attractive in the industry. Moreover, the stock trades at a FY23E PBV of just 0.8x for a potential ROE of 10.1%, which is undemanding. We maintain a BUY with an unchanged TP of MYR7.10 (FY23E PBV of 1x).
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Berli Jucker (BJC TB)
Eyeing robust growth in all businesses
Higher profit from recovery in consumption, tourism
Maintain BUY as we expect recovery in consumption and tourism and the elections will benefit BJC’s packaging, consumer products and Big C businesses. Gross margin should increase in line with higher sales and lower cost of energy and raw materials. We expect earnings this year to grow 15% YoY. BJC is trading at 25.9x FY23E PE or -1SD with 20% upside to our DCF-based TP of THB44.25 (7.2% WACC 3% growth).
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TIONG WOON CORP
We maintain our BUY recommendation on Tiong Woon Corp ($0.470, up 1.1%) based on an unchanged target price of $0.920 as we expect their 2H ending June’23 earnings to register a robust yoy growth of 150% increase to S$9 mln, bringing full year ending June’23 profit to S$16 mln and translating to an undemanding forward PE of 6.7x, below its historical average of 10x and peer group average of 16x.
The key drivers of their growth would be their robust order books from new projects in India, Singapore, Indonesia, Thailand and Vietnam. Of note, we expect margin improvements as utilization of their cranes improve from the 50% mark towards the 60-70% mark as equipment gets deployed while larger tonnage cranes are maximized in Singapore, India and Indonesia over the next 2 years. We believe the recessionary global conditions will catalyze more investments in government pump-priming measures such as HDB, MRT, Airports, Highways, Fertilizer and Oil and Gas, Petrochemical & Refinery projects. We also believe with their stronger financial positon and earnings potential, dividends could surprise on the upside going forward
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