Latest news with #Kenanga
The Star
a day ago
- Business
- The Star
Alliance Bank rights issue to bolster customer acquisition efforts
PETALING JAYA: Analysts have maintained their outperform call with a lower target price of RM4.85 for Alliance Bank Malaysia Bhd (ABMB), following its recently completed rights issue exercise. Kenanga told clients in a report it believes that the proceeds from the exercise would enable the group to ramp up its customer acquisition efforts. It has cut its financial year financial year ending March 31, 2026 (FY26) earnings by 8%, reflecting lower net interest margins (NIMs) from the recent 25 basis overnight policy rate cut and aligned its credit cost assumptions to 35 basis points from 31, being the upper range of guidance. Citing a recent meeting with the lender, Kenanga noted that the group presented a FY26 loans growth guidance of 8%-10% which is below the 12% achieved in FY25. The research firm said its model assumptions are conservatively kept at around 8% in line with the lower band of guidance. The group's recently completed rights issue generated cash proceeds of RM600mil in capital to fuel its growth strategies. "We gather that ABMB is likely deploying across all markets as opposed to accelerating its position in a specific market. "Amid macro-economic challenges, we opine the bank may benefit from a larger collateralised portfolio (mortgage) as delinquency risks may emerge from its commercial segment, namely from small medium enterprises (SME) which are 34% of its loan book." Kenanga noted that ABMB's FY25's reported NIMs of 2.45% could see further deterioration where asset yields could come off should the group's business loans be outpaced by its household loans. Meanwhile, the recent 25 basis points cut would reflect a 2 basis points impact to ABMB's NIMs, per its sensitivity analysis. However, thanks to some relief by the reduction in Statutory Reserve Requirement or SRR in addition to the abovementioned rights issue's capital injection, the group may likely ease on its deposits growth strategies, thereby lowering its funding cost, the research firm said. Aside from the adjustments in overnight policy rate, which led to a 2% trimming to earnings, Kenanga has raised credit cost expectations to 35 basis points out of prudency amid higher asset quality concerns from the group's heavier SME comprised loans book. It has also introduced its FY27 earnings which reflects a 13% earnings growth from credit cost normalisation and better cost management per the group's long-term strategies. At last look, shares of ABMB were at RM4.50 a piece.
Focus Malaysia
2 days ago
- Automotive
- Focus Malaysia
Affordable cars dominate market as consumers downtrade amid economic pressures
TOTAL industry volume (TIV) plunged 19% month-on-month (MoM) largely due to scheduled plant maintenance shutdowns during the Hari Raya Aidiladha holidays. Meanwhile, TIV declined 6% year-on-year (YoY) mainly due to the shifting of new models launches toward the second half (2H) for this year by Perodua and other Japanese marques. 'Looking ahead, we believe July 2025 TIV will be much higher than June 2025 TIV with full production month and attractive mid-year sales bonanza,' said Kenanga. National marques stood their ground, reaping market share from the non-nationals marques, especially Perodua, backed by strong sustained demand in the affordable segment, attractive new launches, and a downtrading trend by mid-market buyers. Within the non-nationals marques, Mazda suffered the most due to slower new launches and being affected by intense competition from Chinese marques. We have the passenger vehicle segment in June 2025 at 49,804 units. A two-speed automotive market locally will persist stretching to end-2025 and flowing into calendar year 2026 (CY26). It will be business as usual for the affordable segment as its target customers, that is, the B40 and lower tier M40 groups, will be spared the impact of the impending RON95 subsidy rationalization and could also potentially benefit from the introduction of the progressive wage model. Government is still finalizing the mechanism to use for the RON95 subsidy rationalisation and expects that 90% of the Malaysian will not be affected. The upper-tier M40 and T15 groups may hold back from buying new cars, down-trade to smaller cars or switch to hybrids and EVs to cut their fuel bills upon the introduction of fuel subsidy rationalisation. Concurrently, household bills will also be affected by the higher fuel bills, as well as expected 14% increase in base tariff for the higher-end usage which could also drive consumers to switch to solar-panels, in-turn boosting the demand for EV to funnel the excess grid electricity. Additionally, EV routine maintenance costs are considerably lower than ICE's due to fewer moving parts and wear & tear parts. Vehicle sales will also be supported by new BEVs that enjoy SST exemption and other EV facilities incentives up until CY25 for CBUs and CY27 for CKDs. The new registration for BEVs leapt from 274 units in CY21 to over 3,400 units in CY22, 13,301 units in CY23, and 21,789 units in CY24 (based on the Ministry of Transport's press release), or 3% of TIV. We expect more favourable incentives from the government which has set a national target for EVs and hybrid vehicles of 20% of TIV by CY30 and 38% by CY40. Meanwhile, the government will speed up the approval for charging stations. The number of proposed charging stations is currently at 4,477 (4,161 built to date) and this should more than double to 10,000 by end-CY25. —July 22, 2025 Main image: ptc
Focus Malaysia
15-07-2025
- Business
- Focus Malaysia
Kenanga maintains neutral call on plastics amid weak ASP, intensified competition
THE plastic manufacturing sector continues to face multiple headwinds including higher operating cost pressure, intensified competition but most of all, currency fluctuations and poorer calendar year 2025 (CY25) visibility due to global trade uncertainties from Trump's tariffs. 'On the global front, demand for premium, thin-gauge or nano packaging film remained encouraging but demand growth for the plastic packaging sector as a whole is more mixed with average selling prices (ASP) weakening on both competitive pricing and domestic currency appreciation,' said Kenanga. This trend is also reflective in the charts showing weaker PBT despite broadly stable revenues. Following our post-results analysis, and conversations with the industry players, we maintained our Neutral call, considering the following key factors: Global Trade Uncertainties: We see greater indirect impact than a direct one (as the proportion of exports mix to the US from players we cover are below 5%) from the ongoing U.S. tariffs and global trade uncertainties. A significant portion of plastic packaging films is used in B2B trades including inter-country trade to ease shipping and logistics; hence, a decline in global trade volumes is likely to have dampening effects by reducing overall consumption of plastic packaging materials produced by the companies under our coverage. In addition to that, business owners around the globe may also hold back on inventory stocking activities due to the loss in confidence in global trades. Competition: Since CY24, plastic players are faced with a challenging market not only due to slower global demand growth but intensified competition from overcapacity. Part of this overcapacity arises as many local manufacturers often maintain their old facilities even after upgrading into e.g. new thin-gauge products. This allows for very competitive marginal pricing for 'old' packaging products. Compounding this is some shifting in demand away from China by some American and European buyers which in turn compel Chinese players to offload stock at lower prices to other buyers such as those in SE Asia. MYR Appreciation: In 1QCY25, the average USD/MYR exchange rate stood at RM4.45, compared to RM4.72 in 1QCY24, leading to some unfavorable forex translation for Malaysian plastic packaging producers. That said, the MYR is on a strengthening trend, with Kenanga forecasting the average MYR rate to strengthen further to an average of RM4.25 in CY25 and RM4.08 in CY26, versus RM4.57 in CY24 (refer to Exhibit 2). As such, the stronger MYR is expected to continue exerting pressure on average selling prices (ASP) and profit margins through forex translation effects. Based on general estimation, every 1% change in forex could impact 2%-3% of the sector's profitability. Rising Non-Resin Costs: Plastic manufacturers are facing additional headwinds from increasing non-resin operating costs, including higher minimum wages commencing this year and the upcoming electricity tariff hikes, which collectively could reduce local producers' profitability by 5%-15%. Meanwhile, resin prices in 1HCY25 were marginally lower by 3% YoY (refer to Exhibit 3). The combination of persistently high crude oil and resin supply, along with OPEC's decision to further raise production, is expected to limit any significant near-term increase in resin costs. Also, competition from both Chinese and local players is expected to persist and likely to further intensify moving forward. On that note, we are adopting a more conservative sector-wide valuation approach, as we do not foresee a near-term re-rating for the sector. —July 15, 2025 Main image: Market Prospects
Focus Malaysia
14-07-2025
- Business
- Focus Malaysia
Tariff uncertainty clouds rate cut gains as Malaysia eyes global trade risks
BANK Negara's latest overnight policy rate (OPR) cut was a pre-emptive one, not based on existing weakness in data points. But Kenanga thinks cues from past patterns on how sectors would trade subsequently can still serve as a good reference point. Historically, post a domestic rate cut, the 12-month return typically shows that the FBM KLCI's 12-month index returns post a rate cut were in the positive 3 out of 4 occasions since 2009. 'Among these, the financial sector has historically fared better with the exception of the May 2019 OPR cut, if we exclude the technology sector which is exposed to global supply chain factors,' said Kenanga. This is expressed in relative terms to the FBM KLCI performance. On a 12-month basis, historically, the utilities sector performed less well after the onset of a rate cut. Kenanga Economists sees that there will be no more rate cut for the rest of the year, unless GDP growth drops below 3.5% or if external conditions worsen, then BNM may have room to ease further. Nevertheless, we have flagged a mild bull-steepening bias. This terminology describes a scenario where short-term bond yields fall faster than longer-term bond yields as investors typically favour shorter-term investments, which may be brought about by expectation of additional rate cuts. Utilities tend to outperform in such a phase, and quarter three calendar year 2025 (3QCY25) would likely offer such tactical playbook. This is amid the complexity of US tariff discussions ahead of the 1 August effective implementation date, where Malaysia via its Investment, Trade, and Industry Minister has said that Malaysia is taking a measured approach to tariff negotiations, being mindful of broader implications. On the other hand, Kenanga also saw very little evidence of a rate cut being correlating well with improved stock returns in the consumer sector. Specific for consumer, we watch for the fact that higher disposable income from the OPR cut may be offset by the inflation cost-pass-through from businesses to the consumer. We observe that the 25 bps rate cut is not expected to move the needle for the sectors under coverage in terms of interest savings, as these hover less than 2% to earnings. We foresee some savings accruing to Utilities and Telco names, but expect to see opposite effect ringing true for the Oil and Gas sector as the players are generally in net cash position; some of them have employed hedging strategies, true for the likes of MISC and YINSON. Banking sector already reflecting pandemic level of loan growth expectation in ROEs and is fundamentally at a bargain level. The key for us is a strong GIL ratios for banks of <1.5%, which when coupled with the effect of a rate cut, could alleviate the need to top up on provisions. We believe investors will look to find more comfort in the area of growth. In this regard, banking analyst Clement Chua in his 10 July Sector Update estimated that all else equal, share-prices implied ROEs would commensurate with a loan growth for the system of 3.4% – which was essentially levels seen during Covid-19 (2020). This thus gives us confidence that the banks are undervalued. In the very immediate term, should bull-steepening bias materialize, historically it would be an uphill task for banks to outperform during such a stretch. Risk to the REIT sector earnings growth would be from the implementation of service tax, although a rate cut without GDP growth cut would likely be positive for the sector. As analysed in our latest REIT sector report (dated 10 July), the implied yield at the current moment at c.3.5% (MGS). This compares to 3.44% at time of writing. Our Kenanga forecast is for the year-end MGS to hover around similar levels and thus while the sector has momentum, we believe that fundamentally, the upside is more limited. Where we may be wrong is if more OPR cuts are deemed necessary – our coverage companies display a yield of 5.3% currently, and in the past decade we have seen the REIT sector trade at a level commensurating with yield of 4.6% during the pandemic. —July 14, 2025 Main image: Propertyguru
BusinessToday
13-07-2025
- Business
- BusinessToday
Rising Cost Of Living Dampens Spending, Retail Sector Taking Hit
Malaysia's retail and consumer sector is facing a challenging outlook as rising living costs and impending policy shifts dampen consumer spending, prompting Kenanga Research to maintain a 'Neutral' stance on the sector. The optimism generated by a strong first quarter, driven by festive spending, has been tempered by revised forecasts and mounting cost pressures expected in the second half of the year. Retail Growth Moderates, Forecasts Revised Down Retail sales in 1QCY25 grew 5.4% year-on-year, slightly below market estimates but a notable improvement from 3.5% in 4QCY24. This growth was largely fueled by frontloaded spending during Chinese New Year and Hari Raya. However, Retail Group Malaysia (RGM) has revised its full-year 2025 retail sales growth forecast downwards to 3.1% from 4.3% previously. This adjustment follows a significant downward revision for 2QCY25 to -1.0% (from +4.8%), reflecting normalizing seasonal demand and rising retail prices. The report highlights that the downward revisions reinforce Kenanga's view of moderating growth. Consensus revenue growth for the KLCSU Index constituents has been trimmed to 3% YoY from 5%, while Kenanga's updated model suggests a more conservative 1% sales growth for CY25. Consumers Prioritize Essentials Amid Wage Lag A key factor influencing the slowdown is the decline in real wages. Bank Negara Malaysia (BNM) data indicates a 1.9% decline in real wages between 1QCY20 and 1QCY25. This has led lower and middle-income households to prioritize essential goods while cutting back on discretionary spending. Despite these headwinds, ongoing government fiscal support programs, such as Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA), are expected to provide a cushion for household budgets and support essential purchases. Cost Pressures Mount with Policy Shifts The second half of 2025 is expected to introduce several operational challenges for businesses due to policy shifts. The planned RON95 fuel subsidy rationalization, slated for phased implementation in 2H, could lead to higher logistics and transport costs. While the government's commitment to maintaining RON95 prices during potential global oil price spikes offers some cap on immediate fuel-related inflation, lower-margin players may face pressure to pass costs through. Additionally, an upcoming electricity tariff adjustment effective July, which sees the average base tariff rise to 45.40 sen/kWh, is expected to increase utility costs for commercial users consuming over 200 kWh/month. While most households are shielded, indirect cost pass-through from wholesalers and retailers remains a possibility. Other policy-driven cost drivers include the minimum wage hike (effective February), a new 2% EPF contribution for foreign workers (effective October), and the expanded SST (starting July) which now includes commercial leasing and rental services. Selective Pass-Through and Sector Picks Despite the mounting costs, the stronger Malaysian Ringgit offers some relief on import costs, particularly for players in apparel, retail, and food ingredients. Furthermore, some companies, such as MRDIY and AEON, have indicated they do not intend to raise retail prices in response to increased rental costs, demonstrating selective cost pass-through capacity. Kenanga Research maintains its 'Neutral' stance on the sector, noting that headwinds are partially offset by fiscal support, a stronger MYR, and resilience in segments like Food & Beverage (F&B). The firm identifies two top picks within the sector: F&N (Fraser & Neave): Recommended for its earnings defensiveness, stable demand for essential food items, strong presence in ready-to-drink products, and long-term growth prospects driven by investments in its dairy farm. MRDIY: Highlighted for its dominant position in the home improvement market, strong bargaining power with suppliers, ample room for store expansion, and continued operational efficiency improvements. Related
