Latest news with #CGSIResearch
The Star
25-06-2025
- Business
- The Star
Price pressures expected to inch up
CGSI Research is maintaining its 2025 CPI forecast at 2% y-o-y. PETALING JAYA: Inflationary pressures are expected to gradually gain momentum in the second half of the year with headline inflation projected to hover between 2% and 2.1% for 2025. CGS International Research (CGSI Research) said inflationary pressures are poised to build up in the second half of the year as the government reforms take place. 'We think inflationary pressures will slowly build up towards the latter part of the year with the implementation of the sales and service tax (SST) expansion in July 2025, following which we expect a short-term spike in prices where the consumer price index (CPI) headline could rise 0.5% month-on-month (m-o-m) in July before peaking in September. 'We deduced that the SST expansion could add 10 to 20 basis points (bps) to the country's annual CPI growth in 2025,' it noted. For the month of May, CPI rose 0.1% m-o-m and 1.2% year-on-year (y-o-y) – the lowest recorded since February 2021 – below consensus expectations. Meanwhile, core CPI gained 0.2% m-o-m, lifting y-o-y growth to 1.8% (April 2025: 2%). The headline CPI was driven by softer costs in all components except transport, health and accommodation services. CGSI Research is maintaining its 2025 CPI forecast at 2% y-o-y. 'We believe changes to the current electricity tariffs will likely be limited, as market prices for coal and gas have remained steady.' The research house said subsidy retargeting for RON95, which is anticipated to take place in the second half of the year, could lead to some impact on consumers and businesses, subject to the mechanism of price adjustments. 'Based on our estimates, such adjustments could add 20 bps to Malaysia's annual CPI growth in 2025. 'We anticipate prices of commodities such as crude oil and palm oil to continue remaining weak in the next few months, which could provide a buffer against any potential price pressures ahead,' the brokerage noted. Meanwhile, Hong Leong Investment Bank Research (HLIB Research) said while there remains some upside risk from higher global oil prices due to geopolitical tensions, it is revising down its 2025 CPI forecast to 2% from 2.7% in 2025. 'This downgrade reflects limited direct impact of the SST expansion (0.1 to 0.2 percentage points), minimal effect from the electricity tariff restructuring, given that 23 million users are expected to see a reduction in their bills in July. 'Additionally, the targeted implementation of RON95 fuel subsidy rationalisation requires a smaller adjustment than previously anticipated due to lower global commodity prices and stronger ringgit,' it said. TA Research said at this juncture, it is maintaining its full-year inflation forecast at 2.1% for 2025, reflecting a gradual uptick in price pressures in the second half of the year. Looking ahead, it, however, sees upside risks to the inflation trajectory emerging in the second half of the year. Notably, the planned rationalisation of RON95 fuel subsidies may trigger a one-off increase in pump prices and transport-related costs, TA Research said. 'The expansion of the SST to cover a broader range of services beginning July 1, although estimated to have a modest direct impact on the CPI, could still raise input costs for businesses, with partial pass-through to consumers likely over time. 'Furthermore, the recent volatility in Brent crude oil prices, which spiked from US$66 to nearly US$79 per barrel in mid-June amid escalating geopolitical tensions in the Middle East, introduces renewed inflationary pressure through imported fuel and logistics channels, especially if the price remains elevated. 'While the current disinflation trend is intact, these developments warrant close monitoring, particularly as fiscal consolidation measures gain momentum. 'We maintain our view that headline inflation may reaccelerate modestly in the second half of the year,' the brokerage said.
The Star
24-06-2025
- Business
- The Star
New electricity tariff earnings-neutral for TNB
PETALING JAYA: The new electricity tariff schedule to be implemented from next month, which is a tariff regime change after 11 years, will be earnings-neutral for Tenaga Nasional Bhd (TNB), say analysts. The new monthly fuel cost pass-through will improve the utility giant's cash flows by reducing timing mismatches and receivables risk, they said. Last Friday, the Energy Commission (EC) announced a new electricity tariff structure, replacing the tariff regime schedule introduced in January 2014. The new framework introduces changes across three key areas, one being a lower base tariff of 45.40 sen per kilowatt-hour (kWh) under the regulatory period four (RP4), down from 45.62 sen/kWh approved in December 2024. The second change involves revised user categories which is split into domestic and non-domestic, based on voltage usage (low, medium and high). Previously, non-domestic users were classified by business segments such as commercial, industrial and timing. A new tariff category for ultra-high voltage users has also been introduced with rates of up to RM1 per kWh. The third change is the revamped fuel cost pass-through mechanism with the new Automatic Fuel Adjustment (AFA) replacing the current Imbalance Cost Pass-Through (ICPT). Notably, the AFA mechanism allows for monthly reviews instead of the previous half-yearly adjustments. CGS International (CGSI) Research said the reforms are driven by the need to ensure a more cost-reflective supply, promote greater transparency and energy efficiency and keep pace with evolving industry dynamics. The revised tariff takes effect from July 1 to Dec 31, 2027, during RP4 under the incentive-based regulation (IBR) framework. 'Overall, the revised tariff schedule is earnings-neutral for TNB, as the IBR framework largely insulates the company from demand and price risks. However, the shift to monthly fuel cost pass-through is a clear positive for group cash flows as it reduces timing mismatches and receivables risk. 'This should consequently help ease working capital requirements and improve cash flow visibility, giving management greater flexibility in managing capital expenditure (capex) and dividend payouts in our view,' CGSI Research said in a report. The research house reiterated its 'add' rating on TNB with a RM19.10 target price, as the announcement had provided clarity and restored confidence in regulatory visibility due to the six-month delay in implementation. This had raised fears of a potential downward revision in allowed returns for the company. Amid the current uncertain global macro backdrop, CGSI Research said TNB's regulated earnings base would provide investors a buffer against market volatility. Shares of TNB gained eight sen to RM14.30 at the time of writing amid a cautious market due to heightened geopolitical tension. TA Research and Kenanga Research had target prices of RM17.30 and RM17.20, respectively. TA Research said although network charges under the RP4 base tariff is lower, it believes this is spread over a higher volume projection. In addition, the base tariff only reflects RP4 base capex, while recovery of contingent capex will be structured under a different mechanism. Overall, it estimates TNB's regulated revenue to increase by an average 23% over the RP4 period. TA Research said the group's management is confident of achieving at least 60% to 70% of RP4 contingent capex to cater for the energy transition and demand growth from the mushrooming of data centres. The research house said the stock is currently cheaper than usual, trading at 5.8 times its expected 2025 earnings, compared to its historical average of 7.2 times. Meanwhile, Kenanga Research noted that electricity demand from data centre investment of over 5,000MW by 2035 is equivalent to 20% of total generating capacity in Malaysia. 'In the near term, a total of 700MW data centre is slated to come onstream by this year. This should continue to drive demand growth higher, thus improving operation efficiency and boosting TNB's non-regulated earnings,' it said.
The Star
20-06-2025
- Business
- The Star
Property portfolio, data centres to lift SimeProp
CGSI Research said there would be a number of income streams for SimeProp. PETALING JAYA: Sime Darby Property Bhd 's (SimeProp) accelerating growth on the back of recurring income from the significant expansion of its investment property portfolio has CGS International Research (CGSI Research) reiterating its 'add' call on the stock with an unchanged target price of RM1.90. CGSI Research said there would be a number of income streams for SimeProp, including the recent acquisition of two double-storey logistics warehouses in Bandar Bukit Raja in Selangor that cost RM232mil. The research house said it estimates that the acquisition could contribute between RM7mil to RM8mil in net profit annually, assuming there is a 7% net property income yield. 'Furthermore, we gathered from management during the first quarter (1Q25) results briefing that the group has retained some of their commercial and industrial units to lift rental income,' the research house said. Among them is the KLGCC Mall in Kuala Lumpur that is set to open to the public in the second half of this year (2H25), further boosting the group's portfolio of retail assets. The property developer's commencement of built-to-lease data centres at Elmina Business Park in Selangor is also set to boost recurring income from next year (FY26) onwards. 'Phase one and two of the data centre assets are on track for completion by end-FY26 and 1H27, respectively. We project the investment property portfolio to contribute about RM119mil in net profit by FY27, making up 11% of the group's net profit,' CGSI Research said. However, the research house expects SimeProp to be negatively affected by the 6% sales and service tax (SST) on construction services, as it directly leads to higher construction costs for its commercial and industrial products. On a more promising note, construction as well as rental and leasing services for residential buildings, which account for over 50% of SimeProp's sales are exempted under the expanded SST, thus limiting the overall impact. This could result in SimeProp's profit margins remaining intact in the short term. 'Nevertheless, we do not rule out the risk of softer sales in its commercial and industrial segments as elevated property prices may temper buyer sentiment, potentially leading to deferred purchases or weaker property demand,' CGSI Research said. The research house said following a weaker 1Q25 for SimeProp, it now continues to anticipate stronger quarterly earnings for the group for the rest of FY25 as progress billings pick up pace. 'The valuation has also reverted to a palatable FY26 price-earnings of 15 times, which we deem compelling given the encouraging FY25 to FY27 earnings growth trajectory,' it said. The research house added downside risks include wider losses from the Battersea Power Station development in Britain and slower property launches, while re-rating catalysts were stronger sales growth and further expansion of SimeProp's data centre business. SimeProp's shares closed at RM1.42 in yesterday's trading.
The Star
19-06-2025
- Automotive
- The Star
Softer Mazda sales weigh on Bermaz Auto
PETALING JAYA: The softening of Mazda sales amid stiff competition from the influx of Chinese marques is likely to weigh on the earnings of Bermaz Auto Bhd (BAuto) for its financial year 2026 ending April 30 (FY26). In a report, CGSI International Research (CGSI Research) said the aggressive expansion of Chinese automotive brands in Malaysia with their competitive pricing and technologically advanced models could erode Mazda's market share, further pressuring BAuto's margins 'Additionally, if macroeconomic conditions weaken, leading to reduced consumer purchasing power, spending on vehicles could decline. This would negatively affect BAuto's sales volume across all its brands and reduce earnings visibility,' the research house noted. For its fourth quarter ended April 30, 2025, the car distributor's core net profit fell 6% year-on-year (y-o-y) and 20% quarter-on-quarter to RM21.5mil due to weaker contributions from its associates. 'FY25 core net profit slumped 55% y-o-y to RM159mil, which is below 85% of our full-year estimate and 95% of Bloomberg consensus,' CGSI Research said. CGSI Research said it is downgrading BAuto's call from 'add' to 'hold' with a lower price-to-earnings-based target price of 84 sen. It also said it cut its forecast FY26 and FY27 earnings per share by 33% and 20%, respectively, to factor in the lower Mazda sales, lower earnings before interests and taxes due to the competitive environment as well as weaker earnings from the sales of spare parts. 'We revise our valuation methodology from the Gordon Growth Model to a price-to-earnings-based approach to better reflect evolving sector dynamics and investor preferences. 'Given structural shifts in the automotive industry, including margin pressure and changing consumer preference, we believe that a price-earnings framework offers a more relevant benchmark,' the research house said. However, on a brighter note, CGSI Research said it expects the lower forecasts for BAuto's earnings to be partially cushioned by its launch lineup, which includes the Mazda CX-60, CX-80, and three Deepal electric vehicles in the third quarter of this year, alongside its XPeng's G6 and X9 models that might provide a higher margin. 'We think there is potential for XPeng's contributions to grow considering that it only formed 13% of BAuto's Malaysia sales volume in over the last year,' it said. CGSI Research noted that BAuto's net cash position was RM244.7mil as of Apr 30. The research house added that there were both positives and negatives for the car distributor. It said upside included the easing of competition in the automotive sector and improving Mazda sales in Malaysia, while downside risks consisted of greater competition from Chinese brands in Malaysia, and a decline in consumer spending power. BAuto closed at 78 sen in yesterday's trading, giving it a market capitalisation of RM902.96mil.
The Star
12-06-2025
- Business
- The Star
Gamuda on track to achieve order book aim
Gamuda's current order book is estimated at RM37bil. PETALING JAYA: Gamuda Bhd 's failure to land the Suburban Rail Loop (SRL) project in Australia will not diminish its plan to have an order book of RM40bil to RM45bil by the end of its financial year ending July 31, 2025 (FY25), says CGS International (CGSI) Research. The construction and engineering giant has a tender book of RM24bil, including bids for five data centre buildings contracts, according to the research house. Gamuda's current order book is estimated at RM37bil. 'While it did not win the SRL Linewide project, of Gamuda's portion is estimated at RM10bil, we believe the company could win other projects that could replace it. 'At its March analyst briefing, Gamuda highlighted a pipeline of RM35bil jobs where SRL was one of them. 'So far it has won one project from this list, the RM1bil data centre enabling works for Pearl Computing,' the research house stated in a report following a meeting with its management. Some of the projects on bid is the Sabah water treatment plant (RM4bil worth of works), additional works for the Penang light rail transit or LRT project estmated at RM3bil, mass rail transit job in Taiwan (RM3bil), station works in Sydney/Melbourne (RM6bil) and early contractor involvement for renewable energy in Australia worth some RM2bil. Gamuda is due to file its third quarter (3Q25) results on June 26, and CGSI Research expects an improvement in net profit year-on-year (y-o-y) and sequentially, with a meaningful pick-up to come in FY26 when its local construction projects and Vietnam property project gradually move away from the shallow part of the S-curve recognition. CGSI Research said Gamuda is, however, unlikely to meet its RM6bil property pre-sales target for FY25 as approvals for its Hanoi project (Gamuda City) have been slow. 'As Gamuda has pencilled in RM840mil pre-sales for this project for FY25, we believe FY25 group pre-sales will likely come in flat year-on-year (y-o-y) at RM5bil. 'Another concern for investors regarding its exposure to the Vietnam property market, where it has eight projects with a gross development value (GDV) of RM18bil (29% of total GDV as of Jan 25), is US import tariffs, which could disrupt foreign investment and sentiment,' CGSI Research added. The research house viewed Gamuda's exposure to Vietnam as heavy on its residential quick turnaround projects located in prime locations. 'The litmus test is the launch of the third phase of Eaton Park, which we expect to take place in June. 'The maiden launch in May 2024 was fully sold in two hours, leading to a second launch in December 2024, which had since been fully sold as well,' CGSI Research noted. It has retained its 'add' call on Gamuda with a target price of RM6 a share despite trimming its earnings projections on the company. CGSI Research cut its FY25 to FY27 earnings per share forecast for Gamuda by 11%, 7% and 2% for FY25, FY26 and FY27 respectively, driven by expectations of slower progress for some construction projects, such as Silicon Island reclamation works (six months behind schedule) and the Penang LRT. There was also a delay in contract awards of projects including the Sabah Water Treatment plant as well as data centre projects. 'Nevertheless, we think FY27 earnings should still double from FY24, implying three-year compounded annual growth rate of 24%,' it said.
