TH has reduced its equity shareholdings by more than half to 64 listed companies this year
By ALIFAH ZAINUDDIN / Pic By MUHD AMIN NAHARUL
Usually a dull period in the local bourse, Lembaga Tabung Haji (TH) kept Bursa Malaysia busy during the last two weeks of 2018, by transferring billions worth of securities to a special-purpose vehicle (SPV) — Urusharta Jamaah Sdn Bhd.
As part of business restructuring and reducing its exposure to the volatile equity market, the pilgrimage fund has reduced its equity shareholdings by more than half from 121 listed companies last year to 64 listed companies this year.
The latest check on Bloomberg showed that TH now owns equity assets totalling US$2.8 billion (RM11.4 billion) via shareholdings in 64 counters.
By industry, TH’s largest exposure remains in the financial sector (41.2%) and utilities (17.1%), while a majority of the fund’s investments were in the small-cap (51.9%) and large-cap (21.7%) stocks.
Firms in which TH holds majority stakes are TH Plantations Bhd (73.84%), Theta Edge Bhd (68.7%), BIMB Holdings Bhd (53.82%), Brahim’s Holdings Bhd (19.28%), Al-‘Aqar Healthcare Real Estate Investment Trust (14.04%) and Southern Acids (M) Bhd (13.05%).
With local equities being one of the main drivers of income for the pilgrim fund, The Malaysian Reserve looks at the outlook of TH’s top 10 companies by market capitalisation for the year.
TH is the controlling shareholder in BIMB. Following the SPV transfer, the fund increased its stake in the country’s oldest and largest stand-alone Islamic bank to 53.82% or 949.6 million shares.
BIMB is currently traded as a “top pick” counter given its steady outlook. All nine analysts tracking the company have a “Buy” call on the counter, with an average target price (TP) of RM4.93.
Hong Leong Investment Bank Bhd analyst Chan Jit Hoong said the outlook for BIMB is bright as asset quality is seen to be steady with no net financing margin pressure in the offing.
“Besides, its takaful unit is showing robust growth, thanks to a new bancatakaful tie-up. These prompted us to raise our 2018 to 2020 earnings by 4% to 9%,” Chan said in a report.
Speculation is also rife that BIMB is looking to put out a private placement offer in the second half of this year (2H19). It is said that BIMB is considering to raise over RM600 million to repay a shareholder debt of about RM800 million.
Its major shareholders — which include TH, the Employees Provident Fund, Permodalan Nasional Bhd and Retirement Fund Inc — have reportedly expressed interest to acquire the new shares.
BIMB shares closed unchanged at RM4.22 yesterday, bringing to a market capitalisation of RM7.45 billion.
Tenaga Nasional Bhd (TNB) owns and operates electricity transmission and distribution network in Malaysia. It also provides 54% of the total electricity generation capacity in Peninsular Malaysia.
TH owns a 2.29% stake or 130.45 million shares in the utility giant. At a share price of RM13.38 at closing yesterday, the fund’s shareholding was valued at over RM1.75 billion.
Fitch Ratings Inc recently upgraded TNB’s stand-alone credit profile to ‘BBB+’ from ‘BBB’, and affirmed its long-term foreign and local currency issuer default ratings and senior unsecured rating at ‘A’ with a stable outlook.
Fitch said TNB has benefitted from the consistent application of the imbalance cost pass-through mechanism in the last 12 months when TNB generation cost were higher than the benchmark.
“The company’s financial profile is even stronger than that reflected in our stand-alone credit profile assessment, but the assessment is constrained as the final electricity tariffs remain to be subjected to government’s approval,” Fitch said in a statement.
TNB shares were up 0.45% or six sen to RM13.38 at close yesterday, with 8.97 million shares exchanged hands. Its market capitalisation was at RM76.09 billion.
The pilgrim fund owns some 1.79% stake or 139.88 million shares in Maxis Bhd.
TA Securities Holdings Bhd analyst Wilson Loo anticipates a lower financial year 2019 (FY19) earnings for the wireless carrier given its lower than expected FY18 income.
“Our bearish stance on the stock is premised on its subdued earnings outlook and unexciting forward dividend yields of 3.6% across FY19-FY21.
“Upside risks include strong traction with the group’s new five-year strategy. On the other hand, downside risks include heightened price competition and regulatory changes,” Loo said in a report.
Expectations of a decline in FY19 service revenue and earnings before interest, tax, depreciation and amortisation (Ebitda) are mainly on the absence of contributions from the 3G radio access network sharing alliance agreement with U Mobile Sdn Bhd — which accounted for 3% of Maxis’ revenue in FY15 and FY16, or RM258 million — and partially to the cost of acquiring fibre customers. Its core business will also be challenged by subdued mobile service.
To offset the challenges, Maxis announced a new five-year strategy (2018-2023) in place which aims to transform the group from a “consumer and mobile-centric telco” to “Malaysia’s leading converged communications and digital services company”.
Internal targets are for service revenue to exceed RM10 billion by 2023. TA Securities has maintained its “Sell” call on the stock and has lowered its TP for Maxis to RM4.50.
Maxis shares were up 2.55% or 14 sen at RM5.64 yesterday, with 2.31 million shares traded. Its market capitalisation stood at RM44.09 billion.
TH’s shareholding in DiGi.Com Bhd stands at 1.44% or 112.32 million shares.
AllianceDBS Research Sdn Bhd analyst Toh Woo Kim expects DiGi’s FY19 service revenue to be similar to the 2018 level at RM5.79 billion.
“Despite the flat revenue, DiGi has guided for lower single-digit growth for Ebitda as it continues to focus on cost efficiency initiatives to drive margin improvements. Its FY19 capital expenditure spending level should also remain in the range of 11%-12% of revenue,” Toh said.
TA Securities’ Loo also shared a similar view on the stock. The analyst expects a slight change to DiGi’s service revenue in FY19 on an increased competition within the low price point space, which would aggravate the prepaid segment’s woes.
“We understand that uncertainty on spectrum assignment is among the management’s main concerns in 2019, particularly in regard to spectrum in the 700MHz and 2,600MHz band, which will expire at the end of the year,” he said in a report. Both analysts have fixed a TP of RM4.20 on the stock respectively.
DiGi shares ended 0.64% or three sen higher at RM4.72 yesterday, with 6.4 million shares exchanged hands, giving it a market capitalisation of RM36.7 billion.
Despite the slowing down oil and gas (O&G) sector, TH continues to be a substantial shareholder in MISC Bhd with a 1.46% stake or 64.95 million shares, valued at over RM449.4 million.
Last year, Moody’s Investors Service Inc affirmed the BAA2 issuer rating of MISC and had anticipated better operating performance from the liquefied natural gas (LNG) carrier in 2019.
The rating agency said the recent vessel additions in MISC’s LNG, offshore and tanker segments, coupled with gradually improving market conditions, will support the outlook.
Moody’s VP and senior credit officer Brian Grieser said MISC’s earnings and cashflows are expected to be more resilient than industry peers in 2018 and 2019, given its exposure to long-term charter contracts, particularly in its LNG and offshore businesses.
The agency said MISC’s operational alignment with its parent company, Petroliam Nasional Bhd, will also provide extraordinary support to the company in a distress scenario, given their close integration and track record of support.
MISC recently topped the FY17 rankings of the MPRC100, a list of top 100 O&G services and equipment companies in Malaysia that are ranked based on their annual revenues. MISC beat Sapura Energy Bhd for the top spot, while Dialog Group Bhd retained its position in third place.
MISC shares closed flat at RM6.92 yesterday, with 3.52 million shares traded. It had a market capitalisation of RM30.89 billion.
The pilgrim fund is a major shareholder in TH Plantations Bhd with a 73.84% stake, equivalent to 652.59 million shares, valued at RM391.5 million.
The company is expected to announce further losses in its upcoming fourth quarter FY18 (4Q18) results. Low crude palm oil (CPO) prices last year saw TH Plantations slip into the red in 3Q18 — its first quarterly net loss in 10 quarters.
Maybank Investment Bank Bhd (Maybank IB Research) anticipates the result to include asset impairments to clean up its balance sheet. It has lowered the stock’s TP by 20% to 59 sen from 74 sen.
“Given the changes in TH Plantations’ board composition throughout 2018 and the recent appointment of new CEO Muzmi Mohamed, effective Feb 11, we do not discount the possibility of a clean-up exercise in 4Q, more so since the company has reported two quarters of core losses,” it said.
“Despite a 41% fall in share price over the past year, we are keeping TH Plantations as a ‘Hold’ on ba- lanced risk-reward,” it added.
Some 266,400 TH Plantations shares were traded yesterday with the stock closed 5.22% or three sen higher at 60 sen yesterday, with a market capitalisation of RM534.73 million.
Cahya Mata Sarawak
TH currently owns a 9.66% stake or 103.83 million shares in the construction firm.
Given the construction of the Pan Borneo project has intensified after delays in FY18, the increase in demand for building materials in Sarawak will likely benefit Cahya Mata Sarawak Bhd (CMS).
Potential projects that will be rolled out under the Sarawak state government’s RM9 billion development budget are expected to further boost the company’s prospect. CMS is the state’s sole supplier of cement as well as a major building materials supplier.
It is a top pick construction stock for Maybank IB Research with a TP of RM4.10. AllianceDBS Research Sdn Bhd is also positive on the stock, with a TP of RM4.
The company’s shares were up 1.01% or three sen at RM3.01 yesterday, with 2.84 million shares traded, giving it a market capitalisation of RM3.23 billion.
Sime Darby Plantation
TH’s shareholding in Sime Darby Plantation Bhd (SDP) is at 0.86%, representing 59.36 million shares.
The planter is expected to gain from the rise in CPO price this year. The price of CPO is now at RM2,144.50 per tonne, a 23% increase from the three-year low of RM1,718 per tonne recorded in November 2018. Analysts forecast CPO prices to range around RM2,500 per tonne in 2019, with a more bullish price expected in 2020 due to tighter supply of soybean.
Kenanga Research expects SDP’s fresh fruit bunches (FFB) segment to post a growth of 5% in FY19.
“FFB growth outlook is guided at 5% in FY19. Besides FFB and CPO price growth, earnings improvements should stem from the recovery in the downstream operations and cost reduction,” it said, adding that operational efficiency could drive cost reduction efforts.
Kenanga Research also noted that SDP aims to achieve cost reduction by optimising the fertiliser application that will lower its usage, rationalising the head office expenses in Papua New Guinea and improving labour efficiency.
The research team is estimating a 5% FY19 FFB growth for SDP, in line with the sector’s average.
SDP shares closed 2.33% or 12 sen higher at RM5.28 yesterday, with 8.7 million shares traded, closing at a market capitalisation of RM36.35 billion.
TH holds a 7.79% stake or some 100 million shares in Gas Malaysia Bhd.
The natural gas distribution company is expected to record slightly higher earnings this year, given the increase in average natural gas base tariff for the non-power sector in Peninsular Malaysia to RM32.69 per million British thermal units (MMBtu) in the 1H19, up from RM31.92 per MMBtu.
The revision, along with a 23 sen per MMBtu gas cost pass-through surcharge, translates to an average effective tariff of RM32.92 per MMBtu. Despite the higher gas tariff, however, the company’s gas procurement cost has continued to rise above the growth rate of its revenue.
AllianceDBS Research analyst Quah He Wei said in a recent report that while valuations are not compelling, the company has steady recurrent earnings, good cashflow generation, attractive yields and relatively less risk from being affected by government reforms in the utilities sector.
Quah has maintained a “Hold” call on the counter with a TP of RM2.85.
Gas Malaysia shares ended flat at RM2.84 yesterday, representing a market capitalisation of RM3.65 billion.
Lotte Chemical Titan Holding Bhd’s performance has been mixed since its lacklustre debut on the local stock exchange in July 2017. TH has a 2.33% stake, equivalent to 52.91 million shares, in the Pasir Gudang-based plastic manufacturer.
Its 97% 4Q18 net profit slump resulted in a 26% decline in its 2018 full-year net profit to RM786.23 million from RM1.06 billion the year before. The company’s margins have been squeezed by higher feedstock costs, coupled with falling product prices.
Lotte Chemical shares ended 1.13% or five sen lower at RM4.48 yesterday, with 398,500 shares exchanged hands. Market capitalisation stood at RM10.34 billion.