monthly strategy...contributed by oldtown and padini. their strong earnings were mainly driven by...

ed: CK / sa: WMT, PY

KLCI : 1,715.67

Analyst Bernard CHING +603 2604 3918 [email protected] Malaysian Research Team +603 2604 3333 [email protected]

Market Key Data

(%) EPS Gth Div Yield

2016 4.1 3.1

2017F 7.5 3.2

2018F 10.4 3.3

(x) PE PB

2016 17.4 1.7

2017F 16.2 1.7

2018F 14.7 1.7

Source: AllianceDBS STOCKS

Price Mkt Cap Target Price Performance (%)

RM US$m RM 3 mth 12 mth Rating

Public Bank 19.98 17,338 22.50 1.7 7.9 BUY Genting Berhad 9.28 7,766 10.60 15.3 12.9 BUY AMMB Holdings 4.94 3,346 5.20 15.7 10.5 BUY Gamuda 4.97 2,709 5.80 4.6 8.5 BUY AirAsia 2.68 2,013 3.25 (0.4) 70.7 BUY BIMB Holdings Berhad

4.48 1,649 5.00 5.7 22.4 BUY Inari Amertron Bhd 1.98 865 2.15 17.5 19.6 BUY Sunway Construction Group

1.71 497 2.13 4.9 23.0 BUY

VS Industry 1.59 422 1.70 12.8 24.2 BUY SKP Resources Bhd 1.37 365 1.60 1.5 4.6 BUY OldTown Berhad 2.46 250 2.65 30.2 60.8 BUY

Source: AllianceDBS, Bloomberg Finance L.P.

Closing price as of 2 Mar 2017

DBS Group Research . Equity

3 Mar 2017

Malaysia Market Focus

Monthly Strategy

Refer to important disclosures at the end of this report

On firmer growth path

4Q16 earnings season affirm expectations of

nascent earnings recovery

Raise end-2017 KLCI target to 1,750

Domestic challenges remain; Focus on selective

themes: (1) infrastructure, (2) export, (3) earnings

rebound proxies, (4) resilient performers

Top picks: PBK, GENT, AMM, GAM, AIRA, BIMB,

INRI, SCGB, VSI, SKP and OTB

Positive 4Q16 earnings report. After a long string of

earnings disappointments, we observed more positive earnings

surprises than negative surprises this time around. Credit cost

normalisation for the banks, higher commodity prices, and

recovery in export orders for E&E sector are some of the drivers

for stronger earnings delivery.

Raise KLCI target to 1,750. With a stronger set of 4Q16

results, CY17 earnings growth has moderated to 7.5%.

However, we are now more sanguine about our earnings

projection given improved growth traction observed. Our end-

2017 KLCI target is raised from 1,720 to 1,750, which implies

a CY17 PE of 16.5x vs the historical mean of 15.8x.

Investment themes. Despite signs of earnings recovery, we

remain cautious given continued weak consumer sentiment

which will impact domestic-driven sectors. We continue to like

selective growth-oriented investment themes such as

infrastructure and export themes. For the infrastructure theme

which focuses on transport-related projects, our stock picks

include Gamuda (GAM) and Sunway Construction (SCGB),

while Inari (INRI), VS Industry (VSI) and SKP Resources (SKP) are

our picks for the export theme. Given the earnings recovery,

we now include Genting Bhd (GENT), AMMB (AMM), and

Oldtown (OTB) as our new picks to ride on the nascent

earnings recovery theme. Lastly, we also continue to like

resilient earnings performers such as Public Bank (PBK), BIMB

and AirAsia (AIRA) which are able to grow faster than their

peers amid challenging industry dynamics.

We drop Genting Malaysia and Astro from our top picks as

their upside potential has narrowed following the recent

appreciation of their share prices.

Market Focus

4Q16 results review

Malaysia corporate earnings trend ended on a firmer note in

2016 as the proportion of companies within AllianceDBS

coverage universe which beat expectations exceeded those

which disappointed (28% vs 25%), an occurrence which has

not been observed for many quarters. When the corporate

results were compared against consensus estimate, the

proportion of positive earnings surprises equals that of

negative earnings surprises at 26%.

4Q16 summary of financial performance

Performance vs AllianceDBS (%) vs consensus (%)

Above 28% 26% In line 47% 48% Below 25% 26%

Source: AllianceDBS

Sectors that posted positive earnings surprises include

consumer (revenue growth amid more stable margin), non-

bank financial (higher loan growth), gaming (stronger VIP

volume, lower bad debts), plantation (higher CPO prices),

property (stronger progress billings), and technology (stronger

4Q orders and favourable forex).

On the other hand, automotive (lower volume and weaker

margins), building materials (intense price competition), glove

(lower production), media (weak adex), oil & gas (asset

impairment, margin compression and slower work progress)

and shipping (lower utilisation) sectors disappointed in the

4Q16 earnings season.

Among FBMKLCI component stocks, we also observed more

positive earnings surprises (seven stocks) than negative

surprises (three stocks). The positive surprises include AMMB

(higher recoveries), Petronas Chemical (higher ASP and USD),

Petronas Dagangan (inventory gains), Genting Bhd (stronger

earnings from Genting Singapore), KL Kepong (higher CPO

prices), PPB Group (rebound in Wilmar’s earnings and stronger

USD), and Telekom (stronger Internet revenue and lower tax

rate). While the negative surprise include RHB (higher credit

cost), MISC (lower utilisation), and Axiata (weak overseas

operations).

Sector performance

Sector 4Q16 (RM m)

4Q15 (RM m)

Y-o-y change %

vs expectation

Comments

Automotive (218.84) (305.65) 28.4% Below UMW’s auto business improved but was negated by losses from the oil & gas segment; MBM's earnings improved backed by better results from associates. Bermaz’s earnings declined from lower volumes and weaker margins.

Aviation 582.83 181.91 220.4% In-line Airlines continue to post strong y-o-y earnings in 4Q as margins were widened by cheaper jet fuel; while Malaysia passenger traffic was strong with c.10% growth

Banking 6,576.01 5,672.58 15.9% In-line Net profit was led by stronger revenue growth and disciplined cost control, but mitigated by higher provisions. NIM was lifted largely from lower cost of funds.

Building Materials 135.45 121.37 11.6% Below Weaker earnings caused by intense price competition.

Construction 387.19 423.78 (8.6%) In-line to above

Only WCT disappointed for 4Q. Kimlun and Muhibbah reported better-than-expected earnings while IJM’s profit was in-line.

Consumer 643.71 532.31 20.9% Above Quarterly earnings came in above expectations mainly contributed by Oldtown and Padini. Their strong earnings were mainly driven by (1) stronger-than-expected topline growth, and (2) resilient profit margin.

Financial non-bank 117.22 103.97 12.7% Above Earnings growth largely underpinned by Aeon Credit which enjoyed high financing growth while keeping provisions stable. Bursa's earnings were in-line, dragged by weak equity markets.

Market Focus

Sector performance (cont’d)

Sector 4Q16 (RM m)

4Q15 (RM m)

y-o-y change %

vs expectation

Comments

Gaming 1,069.61 958.09 11.6% Above Strong quarterly results delivered by Genting Bhd, driven by

earnings rebound in Genting Singapore (stronger VIP volume and lower bad debts).

Glove 216.95 299.16 (27.5%) Below Kossan and Supermax recorded lower earnings due to lower production as older plants went through revamp works. As for Hartalega and Top Glove, their earnings improvement was backed by better volumes and unit profitability.

Healthcare 0.25 440.41 (99.9%) In-line Core earnings (excluding exceptional items) from both KPJ and IHH met expectations. Our FY17-18 earnings forecasts for KPJ are under review with a downside bias, as expansion plans may slow while margins may be lower.

Media 213.46 296.56 (28.0%) Below Adex continued to trend much weaker than expected, and this decline seems to be a structural issue rather than a cyclical one.

Oil & Gas (837.90) 685.69 (222.2%) Below Asset impairment, margin compressions and slowdown in work orders continued to drag down overall performance.

Plantation 1,952.95 1,334.03 46.4% Above Significantly higher CPO prices lifted plantation profits for the planters, while FFB production generally improved q-o-q. However, groups with large USD borrowings were hit by forex translation losses.

Port 155.00 132.55 16.9% In-line Westport’s transhipment container volume continues to lead growth at 9% in the quarter.

Property 784.23 470.00 66.9% Above Better-than-expected progress billings from SP Setia and Sunway.

REIT 454.06 447.72 1.4% In-line Low positive reversions due to weak sentiment.

Shipping 509.66 716.72 (28.9%) Below MISC missed expectations as LNG shipping earnings shrank from fewer charter months.

Technology 175.73 150.52 16.7% Above Unisem and MPI posted better-than-guided results as sales picked up in 4Q16 compared to their flattish growth guidance. This was partly helped by favourable forex as well.

Telecommunication 1,369.38 1,563.50 (12.4%) In-line Fixed-line operators (i.e. TM and TIME) beat expectations on stronger growth for fibre broadband. For mobile, Axiata disappointed due to tough market environment for most of its operating subsidiaries.

Utilities 2,664.23 2,614.98 1.9% In-line The utilities sector was underpinned by the steady performance of Tenaga Nasional and Petronas Gas.

Source: AllianceDBS

Market Focus

Earnings upgrade

Following the 4Q16 results season, we nudge up our FBMKLCI

free float weighted earnings estimates for CY17/18F by

0.1%/1.2% from a month ago. The key contributors to the

earnings upgrade include Sime Darby, IOI Corp, KL Kepong,

AMMB, Maybank and PPB Group. However, these earnings

upgrades were partially negated by earnings cut for Axiata,

BAT, Public Bank, RHB and YTL Corp. Following our earnings

upgrade, earnings growth estimates for CY17/18F have been

adjusted 7.5%/10.4% from 8.2%/9.1% when our last strategy

report was published on 7 February 2017. Note that our

CY17F earnings growth estimate is now lower despite the

earnings upgrade due to stronger 4Q16 results.

FBMKLCI free float weighted earnings change (calendarised)

Feb-17

Jan-17

Change

% Change

CY17 CY18

CY17 CY18

CY17 CY18

CY17 CY18

RM m RM m

RM m RM m

RM m RM m

AMMB Holdings Bhd 898.0 1,013.1 839.6 931.9 58.5 81.2 7.0% 8.7% Astro Malaysia Holdings Bhd 298.3 350.2 298.3 350.2 0.0 0.0 0.0% 0.0% Axiata Group Bhd 771.1 856.0 894.7 983.5 -123.6 -127.5 -13.8% -13.0% British American Tobacco Malaysia Bhd 321.3 333.9 381.3 386.0 -60.0 -52.1 -15.7% -13.5% CIMB Group Holdings Bhd 2,434.7 2,750.8 2,421.4 2,651.4 13.3 99.4 0.5% 3.7% DiGi.Com Bhd 746.8 756.8 757.1 782.3 -10.3 -25.5 -1.4% -3.3% Westports Holdings 195.8 186.5 195.8 200.0 0.0 -13.5 0.0% -6.8% Genting Bhd 1,275.8 1,639.6 1,262.3 1,443.1 13.4 196.4 1.1% 13.6% Genting Malaysia Bhd 919.0 1,075.4 919.0 1,075.4 0.0 0.0 0.0% 0.0% Hong Leong Bank Bhd 703.5 778.5 703.5 778.5 0.0 0.0 0.0% 0.0% Hong Leong Financial Group Bhd 311.1 337.5 311.1 337.7 0.0 -0.2 0.0% -0.1% IJM Corporation 349.6 407.6 353.9 420.9 -4.3 -13.4 -1.2% -3.2% IHH Healthcare Bhd 413.0 439.9 413.6 440.5 -0.6 -0.6 -0.1% -0.1% IOI Corp Bhd 542.9 651.0 474.4 549.5 68.5 101.6 14.4% 18.5% KLCCP Stapled Group 189.7 193.4 189.7 193.4 0.0 0.0 0.0% 0.0% Kuala Lumpur Kepong Bhd 664.3 717.1 610.1 638.6 54.2 78.5 8.9% 12.3% Malayan Banking Bhd 3,473.0 3,797.4 3,423.5 3,783.1 49.4 14.3 1.4% 0.4% Maxis Bhd 681.5 698.8 683.1 696.5 -1.6 2.3 -0.2% 0.3% MISC Bhd 778.4 847.6 762.4 828.8 16.0 18.8 2.1% 2.3% Petronas Chemicals Group Bhd 914.6 1,238.9 914.6 1,171.5 0.0 67.5 0.0% 5.8% Petronas Dagangan BHD 267.8 282.0 264.0 276.3 3.9 5.7 1.5% 2.1% Petronas Gas Bhd 683.2 758.7 710.8 778.5 -27.6 -19.8 -3.9% -2.5% PPB Group Bhd 582.3 608.9 547.2 583.5 35.1 25.4 6.4% 4.3% Public Bank Bhd 4,386.8 4,724.8 4,480.9 4,875.3 -94.2 -150.6 -2.1% -3.1% RHB Capital Bhd 369.1 412.3 405.7 474.9 -36.7 -62.6 -9.0% -13.2% Sime Darby Bhd 1,346.5 1,491.5 1,139.7 1,259.2 206.7 232.3 18.1% 18.4% Telekom Malaysia Bhd 506.6 588.5 532.0 629.3 -25.4 -40.7 -4.8% -6.5% Tenaga Nasional Bhd 4,932.0 5,045.4 4,932.0 5,045.4 0.0 0.0 0.0% 0.0% Hap Seng Consolidated Bhd* 240.3 240.3 240.3 240.3 0.0 0.0 0.0% 0.0% YTL Corp Bhd* 491.1 642.6 582.3 642.6 -91.2 0.0 -15.7% 0.0% FBMKLCI (Free-float weighted) 30,687.8 33,864.8 30,644.3 33,448.1 43.5 416.7 0.1% 1.2%

* Earnings for stocks not under coverage are based on consensus estimates Source: AllianceDBS, Bloomberg Finance L.P

Market Focus

FBMKLCI earnings growth (calendarised)

Estimated % weight

in Index Market Cap

Free Float Weighted Mkt Cap

Under Coverage

Free Float Weighted NP

Company Name

2016 2017 2018

RM m RM m

RM m RM m RM m

AMMB Holdings Bhd 1.74 13,955.7 8,900.2 Yes

826.1 898.0 1,013.1

Astro Malaysia Holdings Bhd 1.11 14,847.1 5,746.4 Yes

257.6 298.3 350.2

Axiata Group Bhd 3.93 39,744.7 19,360.0 Yes

690.8 771.1 856.0

British American Tobacco Malaysia Bhd 1.34 13,848.2 6,899.7 Yes 342.5 321.3 333.9

CIMB Group Holdings Bhd 5.32 44,075.8 26,695.5 Yes

2,158.7 2,434.7 2,750.8

DiGi.Com Bhd 3.91 39,186.0 18,748.6 Yes

781.1 746.8 756.8

Westports Holdings 0.97 13,674.1 4,244.3 Yes

191.4 195.8 186.5

Genting Bhd 3.77 34,444.2 20,414.6 Yes

1,083.1 1,275.8 1,639.6

Genting Malaysia Bhd 2.98 29,759.3 15,501.3 Yes

820.9 919.0 1,075.4

Hong Leong Bank Bhd 1.71 27,868.4 8,229.5 Yes

641.2 703.5 778.5

Hong Leong Financial Group Bhd 0.66 17,247.4 3,150.5 Yes

289.5 311.1 337.5

IHH Healthcare Bhd 3.79 49,472.7 16,731.3 Yes

243.1 349.6 407.6

IJM Corporation 1.56 12,089.3 7,506.9 Yes

376.9 413.0 439.9

IOI Corp Bhd 3.43 29,427.7 17,345.9 Yes

421.7 542.9 651.0

KLCCP Stapled Group 0.74 14,081.6 3,520.4 Yes

179.8 189.7 193.4

Kuala Lumpur Kepong Bhd 2.69 25,708.3 12,819.4 Yes

575.7 664.3 717.1

Malayan Banking Bhd 8.44 87,661.5 43,925.2 Yes

3,378.8 3,473.0 3,797.4

Maxis Bhd 3.27 47,390.1 16,492.4 Yes

683.2 681.5 698.8

MISC Bhd 2.29 33,121.3 10,863.3 Yes

651.7 778.4 847.6

Petronas Chemicals Group Bhd 4.17 58,000.0 20,787.8 Yes

876.6 914.6 1,238.9

Petronas Dagangan BHD 1.45 24,339.6 7,262.8 Yes

272.0 267.8 282.0

Petronas Gas Bhd 3.48 39,614.2 15,780.6 Yes

695.9 683.2 758.7

PPB Group Bhd 2.00 19,608.2 9,744.3 Yes

519.3 582.3 608.9

Public Bank Bhd 12.90 77,075.4 61,804.4 Yes

4,175.2 4,386.8 4,724.8

RHB Capital Bhd 0.74 19,408.6 3,504.9 Yes

303.7 369.1 412.3

Sime Darby Bhd 5.53 60,935.5 28,814.2 Yes

1,175.2 1,346.5 1,491.5

Telekom Malaysia Bhd 2.88 23,148.9 13,606.8 Yes

456.7 506.6 588.5

Tenaga Nasional Bhd 10.41 76,532.6 47,524.0 Yes

4,836.2 4,932.0 5,045.4

Hap Seng Consolidated Bhd 1.10 22,506.7 5,951.9 No

240.3 240.3 240.3

YTL Corp Bhd 1.69 16,329.6 8,269.2 No

399.2 491.1 642.6

Total

1,025,102.8 490,146.3

28,543.6 30,687.8 33,864.8

% earnings growth

4.1 7.5 10.4

Current implied P/E

17.4 16.2 14.7

Source: AllianceDBS

Market Focus

Market Outlook

Looking back at February

The positive momentum from the start of the year was

sustained in February with the FBMKLCI posting a gain of

1.3%. Foreign net inflow increased sequentially from RM0.1bn

in January to RM1.0bn in February amid a stronger-than-

expected 4Q16 GDP growth of 4.5% (3Q16: 4.3%). With

Brent crude oil prices sustaining above the USD55 per barrel

mark amid early signs of compliance to agreed production cut

by major oil producing countries, investor sentiment has

improved markedly given that Malaysia is a net oil & gas

exporter. This was evidenced by the narrowing of the 10-year

Malaysian Government Securities yield from 4.12% at end-Jan

to 4.04% at end-Feb.

Equity fund flow

Source: Bursa Malaysia

Outlook

Following a much improved 4Q16 earnings season, we are

becoming more sanguine of the earnings recovery prospects in

CY17. We are estimating a modest 7.5% earnings growth for

the FBMKLCI in CY17. Key contributors by sector include

banks (37.5%), plantation (20.7%) and gaming (13.6%)

sectors. Credit cost normalisation for the banking sector,

higher CPO prices and production recovery for the plantation

sector, and recovering VIP volume and expansion for the

gaming sector are some of the key earnings growth drivers for

these sectors.

With a stronger earnings delivery in 4Q16, we raise our end-

2017 FBMKLCI target to 1,750 which is derived using a

bottom-up valuation approach. With the benchmark index

currently trading at 16.2x CY17 PE, just a notch higher than

the historical mean of 15.8x, Malaysian equities are fairly

valued. Our target implies 2.0% upside and 16.5x CY17 PE.

FBMKLCI earnings growth trend

Source: AllianceDBS, Bloomberg Finance L.P.

FBMKLCI CY17 earnings growth contributor by sector

Source: AllianceDBS

Despite signs of earnings recovery, we remain cautious in view

of continued weak consumer sentiment which will impact

domestic-driven sectors. As such, we continue to reiterate our

selective growth-oriented investment themes on infrastructure

spending as well as exports.

Gamuda and Sunway Construction remain our preferred picks

for the infrastructure theme given their track record of

executing large-scale transport-related projects such as MRT

and LRT.

For the export theme, we reiterate your preference for selective

manufacturers within the E&E sub-segment and these include

Inari, VS Industry and SKP Resources.

We now include Genting Bhd, AMMB, and Oldtown as our

new picks to ride on the nascent earnings recovery theme.

We also continue to like resilient earnings performers such as

Public Bank, BIMB and AirAsia which are able to grow faster

than their peers amid challenging industry dynamics.

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20.7%

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Banking Media Telco Consumer Gaming Plantation Utilities Others

KLCI CY17 Earnings Growth Contributors

Market Focus

We drop Genting Malaysia and Astro from our top picks as

their upside potential has narrowed following the recent

appreciation of their share prices.

FBMKLCI PE trend

Source: Bloomberg Finance L.P

Top stock picks

Public Bank (TP: RM22.50) is a safe bet in the beaten-down

banking sector given its resilient asset quality and track record

in consistently defying headwinds to grow at above industry

average rates.

Genting Bhd (TP: RM10.60) is expected to enjoy ongoing re-

rating in 2017, supported by progressive launches of key

developments in Genting Integrated Tourism Plan (GITP) and

expected earnings recovery in Genting Singapore (GENS),

which we believe will improve growth prospects for the group.

Valuation remains attractive when compared to GENS and

Genting Malaysia (GENM) after recent price appreciation of

these subsidiaries. Being the parent company of GENS and

GENM, we believe that GENT offers a cheaper exposure to

both these subsidiaries.

AMMB (TP: RM5.20) has successfully stayed on track with its

NIM and cost-savings targets. Sustained delivery of these will

justify our positive view on the banking group. AMMB appears

poised to deliver its FY(Mar)17 targets: ROE of 8.5%, net profit

growth p.a. of 5% and cost-to-income ratio of <57%. With

these set as its base for FY17, AMMB should be well

positioned to deliver better earnings traction in FY18, with

expectations of EPS growth of 12%. AMMB’s preliminary FY18

targets are 10% ROE, 10% net profit growth and c. 50% cost-

to-income ratio.

Gamuda (TP: RM5.80) is the best transportation infrastructure

proxy play. Its current outstanding orderbook stands at

RM8.9bn, coming from MRT Line 2 tunnelling works and the

Pan Borneo Sarawak project. This does not include the 6%

PDP fees it will earn for the above-ground works for MRT Line

2. The company is confident of clinching another RM3-4bn

worth of new orders in the next one year, coming from largely

three projects, namely LRT 3, Pan Borneo Highway, and

Southern Double Tracking. The medium-term pipeline also

looks solid with MRT Line 3, HSR, ECRL and PTMP. There are

strong expectations that the sale of Splash will be concluded in

2QCY17 where special dividends are likely to be paid out.

AirAsia (TP: RM3.25) is trading at an undemanding P/BV of

<1.1x, taking into account its leading market share and

expected decent ROAEs of 12-13%. It is prepared to expand

its Malaysian capacity to absorb any pick-up in demand, with

7-8 new aircraft deliveries from 77 currently. While key

competitor Malaysia Airlines (MAB) is also looking to grow

volume, its profit motive will limit extreme yield downside. As

higher jet fuel prices and weaker ringgit are in view, AIRA has

hedged c.74% of its jet fuel requirements at USD60/bbl, plus

currency or natural hedges for c.67% of USD-denominated

borrowings. Besides that, potential catalysts may come from its

plan to unlock value via divestments, or further improvements

of associate performance.

BIMB (TP: RM5.00) has an arsenal of tools to lean on to

weather the current soft operating environment. The bank has

a niche in Islamic banking (which supports financing growth

momentum), high CASA ratio and liquid balance sheet (to

stave off net financing margin compression) as well as high

financing loss coverage (to buffer against potential

deterioration in asset quality). We believe the market is

assigning too steep of a discount to a franchise that is

delivering ROEs of c.15% and better-than-industry metrics.

Inari Amertron (TP: RM2.15). Significant content gains in latest

smartphone models would comfortably help to drive our 30%

growth forecast for Inari's RF segment in FY17, despite

concerns over slowing smartphone sales. The medium-term

outlook appears to be relatively secured as well because of

Broadcom’s 3-year supply agreement with Apple (till 2018). As

such, with strong visibility for the RF segment and contribution

from the new testing division driving robust 3-year earnings

CAGR of 22%, we believe Inari's valuation could trade up to

18x PE, +1SD of its 3-year average forward PE.

15.8x

16.6x

14.9x

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P/E

Market Focus

Sunway Construction (TP: RM2.13) represents the best pure

construction proxy to the sector and also has a strong

execution track record. Its current outstanding orderbook

stands at RM4.8bn (including precast). The company is guiding

for RM2bn worth of new orders in FY17F which should come

from LRT 3, internal jobs and some other building jobs. It has

started 2017 strongly with a sizeable contract win from its

parent company. Its strong balance sheet will give it flexibility

to raise its dividend payout policy, take on PFI and bullet

payment projects or even explore overseas projects.

VS Industry (TP: RM1.70) growth is expected to be driven by its

largest client (with 30% of total revenue in FY16) – Client D.

We forecast strong growth from Client D due to contributions

from a sizeable box-build assembly contract for vacuum

cleaners worth RM400m p.a. which started operations in

October 2016. While this has been priced in, we believe the

imminent signing of another contract for an additional line of

box-build assembly of vacuum cleaners by March 2017 has not

been factored in yet. Taking these two contracts into account,

we forecast Client D’s revenue contribution to grow at a CAGR

of 42% in FY16-FY19F. Beyond these two contracts, we

believe there is high potential for further contract wins from

Client D as it launches more products.

SKP Resources (TP: RM1.60) has clinched a four-year contract

from Client D totalling RM2bn, or RM500m p.a. for the

manufacturing of hairdryers. However, SKPRES would be

foregoing the previous RM400m p.a. contract, for the

manufacturing of the V6 cordless vacuum cleaners. The move

is to optimise and shift the existing limited labour resources to

work on the higher-value product, following the government’s

decision to freeze the hiring of foreign labour in February

2016. Given its longstanding relationship with client D, we are

positive about SKPRES’ long-term prospects as it has been able

to continuously secure manufacturing contracts for client D’s

latest flagship products.

Oldtown (TP: RM2.65) could be a multi-year growth stock in

view of the potentially lucrative opportunities offered by its

regional expansion story, particularly in the China market. We

maintain our positive stance on Oldtown given that (1) the

strong 3QFY17 results has reaffirmed our investment thesis

that the group is firmly on a growth trajectory, (2) its valuation

remains attractive despite the recent run-up, (3) its expansion

to regional markets can bring about multi-year growth

potential, and (4) we maintain that there is now a higher

chance of paying out dividends amounting to 9 sen/share for

FY17, giving a decent yield of about 4%.

Please refer to pages 16-18 for detailed key investment merits

of these stock picks.

Market Focus

Earnings estimates for AllianceDBS's coverage sectors (CY17 and CY18)

Top stock picks

Source: AllianceDBS Price date: 2 Mar 2017

ADBS Universe vs KLCI (CY)

Sector Call RM m RM m % % CY2017 CY2018 CY2017 CY2018 CY2017 CY2018 CY2017 CY2018 CY2017 CY2018

Automotive Underweight 7,632.5 7,071.5 (7.4) 0.6 20.9x 17.8x (138%) 44% 1.6% 1.9% 1.0x 1.2x 5% 7%

Aviation Overweight 21,566.1 24,176.2 12.1 1.7 25.2x 19.3x 302% 31% 1.8% 2.0% 1.1x 1.2x 8% 9%

Banking Neutral 300,600.6 307,002.7 2.1 23.8 11.8x 11.5x 6% 9% 4.3% 4.4% 1.3x 1.3x 11% 11%

Building Materials Underweight 10,131.1 9,203.3 (9.2) 0.8 34.4x 31.1x 53% 7% 1.9% 2.0% 1.9x 1.8x 7% 7%

Chemicals Underweight 60,000.0 44,000.0 (26.7) 4.8 21.9x 0.0x 4% 0% 2.4% 0.0% 2.1x 0.0x 10% 0%

Conglomerate Neutral 7,582.2 10,657.7 40.6 0.6 13.7x 13.4x (6%) 9% 1.9% 1.8% 0.7x 0.7x 5% 6%

Construction Overweight 30,655.9 33,608.9 9.6 2.4 17.2x 16.8x 20% 7% 2.6% 2.5% 1.6x 1.6x 10% 10%

Consumer Neutral 54,930.9 53,237.9 (3.1) 4.4 22.0x 21.8x 4% 8% 3.4% 3.3% 10.7x 10.7x 47% 53%

Financial non-bank Neutral 7,140.9 7,781.9 9.0 0.6 29.1x 28.2x 17% 15% 7.6% 7.8% 5.9x 5.9x 41% 41%

Gaming Overweight 72,103.0 76,716.7 6.4 5.7 14.2x 13.6x 13% 21% 1.7% 1.8% 1.2x 1.3x 9% 10%

Glove Neutral 19,988.1 19,776.7 (1.1) 1.6 21.2x 19.0x 11% 11% 2.3% 2.6% 3.7x 3.3x 18% 18%

Healthcare Neutral 52,559.3 63,656.4 21.1 4.2 48.7x 38.0x 41% 22% 0.6% 0.9% 2.3x 2.1x 5% 6%

Media Neutral 18,938.8 19,046.5 0.6 1.5 17.5x 16.5x (1%) 15% 5.9% 6.3% 18.3x 20.9x 104% 124%

Oil & Gas Neutral 30,341.4 26,224.0 (13.6) 2.4 27.9x 13.2x (19%) 53% 0.9% 0.6% 1.5x 0.5x 6% 3%

Plantation Neutral 157,458.8 149,254.0 (5.2) 12.5 20.9x 20.1x 7% 13% 2.5% 2.6% 1.9x 2.0x 9% 10%

Port Neutral 13,640.0 14,833.5 8.7 1.1 9.5x 9.4x 2% 6% 3.7% 3.7% 0.5x 0.5x 6% 6%

Property Neutral 29,882.1 30,145.3 0.9 2.4 16.3x 17.6x 8% 8% 3.0% 2.7% 0.9x 0.9x 7% 7%

REIT Neutral 36,651.3 39,194.0 6.9 2.9 18.7x 7.5x 7% 1% 5.0% 5.4% 1.3x 1.3x 10% 11%

Shipping Neutral 33,299.9 35,933.5 7.9 2.6 9.8x 9.1x 14% 6% 3.4% 3.3% 0.6x 0.6x 4% 5%

Technology Overweight 9,121.4 9,390.3 2.9 0.7 12.4x 13.1x 35% 16% 4.2% 3.9% 2.6x 2.9x 21% 22%

Telecommunication Underweight 156,717.3 141,966.6 (9.4) 12.4 24.6x 23.8x 2% 7% 3.2% 3.7% 21.7x 22.4x 91% 92%

Utilities Overweight 131,435.0 152,616.8 16.1 10.4 15.1x 13.6x (0%) 6% 3.2% 3.5% 1.9x 1.8x 13% 13%

ADBS Universe 1,262,376.7 1,275,494.5 1.0 100.0 19.2x 16.4x 11% 11% 3.2% 3.2% 4.8x 4.8x 23% 24%

FBMKLCI 1,715.67 1,750.00 2.0 16.2x 14.7x 8% 10% 3.2% 3.3% 1.7x 1.7x

Dividend Yield Price/ BVPS ROAEMarket Cap Target Mkt Cap Upside Weightage P/E EPS Growth (YoY)

Recommen

dation

Target

Price

Current

Price

Market

CapCY2017 CY2018 CY2017 CY2018 CY2017 CY2018 CY2017 CY2018 CY2017 CY2018

Public Bank BUY 22.50 19.98 77,152.7 14.0x 13.2x 5% 8% 3.1% 3.3% 2.1x 1.9x 15% 15%

Genting BUY 10.60 9.28 34,555.9 13.8x 12.5x 18% 29% 0.4% 0.5% 0.8x 0.9x 6% 7%

AMMB BUY 5.20 4.94 14,890.1 9.2x 9.4x 9% 13% 4.3% 4.3% 0.8x 0.9x 9% 9%

Gamuda BUY 5.80 4.97 12,053.4 18.9x 18.4x 9% 7% 1.9% 1.8% 1.8x 1.7x 10% 10%

AirAsia BUY 3.25 2.68 8,956.2 8.1x 8.9x (44%) 7% 2.6% 2.5% 0.9x 0.9x 13% 12%

BIMB Holdings BUY 5.00 4.48 7,337.1 10.9x 10.9x 8% 7% 3.1% 3.1% 1.6x 1.6x 15% 15%

Inari Amertron BUY 2.15 1.98 3,850.8 14.3x 15.0x 26% 14% 3.5% 3.3% 3.8x 3.9x 28% 28%

Sunway Construction BUY 2.13 1.71 2,210.9 14.2x 12.4x 26% 15% 3.2% 3.6% 3.8x 3.3x 29% 28%

VS Industry BUY 1.70 1.59 1,877.1 10.2x 10.3x 13% 12% 3.9% 3.9% 1.7x 1.7x 17% 18%

SKP Resources BUY 1.60 1.37 1,622.1 12.1x 10.4x 28% 24% 4.1% 4.8% 3.6x 3.2x 32% 34%

Oldtown BUY 2.65 2.46 1,110.6 12.3x 14.9x 12% 6% 3.5% 2.8% 2.0x 2.4x 18% 17%

ROAEP/E EPS Growth (YoY) Dividend Yield Price/ BVPS

Market Focus

Sector Outlook

Sector Outlook Top Stock Picks

Automotive

Underweight

We expect minimal growth to be the norm for auto players in FY17, as there are no

major catalysts to help lift numbers. The continued weak consumer sentiment and

tighter hire purchase controls will weigh on growth.

While exciting launches and promotions may be able to support volume, margins will

remain pressured by higher costs. Promotions and road shows to spur excitement in

the market will incur costs and eat into margins.

Our top pick is Bermaz Auto. This is supported by superior ROE from its asset-light

business model and generous dividend yield of 7.5% for CY17, which limits the

downside risk.

Bermaz Auto

Aviation

Overweight

Malaysian air passenger traffic seems to be turning around, reaching c.10% growth

in 2H16 after around 24 months or two years of growth averaging <1%. This hints at

a recovery in travel demand following the aftereffects of the airline incidences in

2014, coupled with scaling down by Malaysia Airlines (MAB). Malaysia Airports'

(MAHB) passenger growth is expected to be decent in 2017 at 6.5% (6% in 2016).

Yields (fares/RPK) will see more pressure in 2017 from larger industry capacity, given

recovered growth ambitions by Malaysia Airlines (MAB), while AirAsia and Malindo

are ramping up capacity after a slower 2016. Airlines may leverage on routes on

which they have a larger market share, or seek out unique routes to maintain average

yields.

2017 jet fuel spot prices of above USD60/bbl are higher y-o-y than the 2016 average

of USD52.9/bbl, in line with crude oil prices. Airlines’ unit costs will be pushed slightly

upwards as fuel makes up 20-40% of operating costs, though this is partially

mitigated by hedges where most have covered more than half of requirements. The

persistence of a strong USD is also a cost risk as the majority of costs are USD-

denominated. Overall, we expect thinner margins for airlines next year.

Our top pick is AIRA given its tame P/BV valuation of <1.2x for its strong position to

defend and grow market share, while associate improvements or divestments may be

potential catalysts. AAX is more exposed to fuel and currency factors and faces the

risk of losses in the event of severe yield deterioration. Despite its better domestic

growth, MAHB will see headwinds from its Turkish operations.

AirAsia

Banks

Neutral

Earnings recovery in 2017 is largely driven by lower credit cost (decline from a high

base in 2016). Top-line growth is limited as loan growth is expected to remain

modest and capital markets remain subdued.

The asset quality of Malaysian banks have held up better than expected, except for

two banks, positively surprising the market. While banks have indicated that they

have prudently impaired loans and provided for them, vulnerable segments (such as

oil & gas, commodities, steel and commercial property) may still cause more

incidences of restructured and rescheduled (R&R) loans. Meanwhile, on the retail

front, asset quality has been largely held up by mortgages. That said, if the operating

environment improves, asset quality could also surprise on the upside from a

reclassification of R&R loans to non-impaired (allowed upon observance of

continuous repayment for at least six months).

We believe a sustainable re-rating for the sector continues to rest on the dissipation

of uncertainties over (1) asset quality, (2) loan growth, and (3) NIM. While we prefer

defensive bets, PBK and HLBK, for exposure to Malaysian banks, we also like BIMB

(for its superior growth and solid fundamentals) and AMMB (for a potential

turnaround).

Public Bank, Hong Leong

Bank , BIMB Holdings,

AMMB Holdings

Market Focus

Sector Outlook (cont’d)


Building materials

Underweight

We believe competition among cement players is unlikely to improve in 2017, given

the slow construction activities (MRT Line 1 mostly completed) amid further capacity

expansion by industry players.

Not helping either are the rising thermal coal prices (~30% of costs) and the weaker

ringgit.

CMS is on a better footing as the Sarawak-based company will not be impacted by

price competition, unlike its Peninsular peers. The company is also expected to benefit

from the increased infrastructure spending such as the Pan Borneo Highway.

None

Construction

Overweight

The higher development expenditure for the 11MP (RM260bn over the next five years)

gives some assurance that project flows will continue to be forthcoming.

Transportation-related projects which are government backed have very little risk of

being shelved.

We expect continuity of project awards to follow in 2017 but the quantum will likely

be lower compared to 2016. The focus will be on three key projects – LRT 3, Southern

Double Tracking and Pan Borneo Sabah. The medium-term pipeline also looks

promising with the East Coast Railway Link, High Speed Rail and MRT Circle Line.

Our top picks are Gamuda and Sunway Construction. We continue to like Gamuda for

its position as the best infrastructure transportation proxy where its strong reputation

for MRT Line 1 will enable it to capitalise on more projects such as the High Speed Rail

and East Coast Railway Link. We also like Sunway Construction as our mid-cap proxy

where we expect it deliver stronger earnings over the next few years given its strong

orderbook. Our small-cap pick is Kimlun which continues to surprise in the market with

its strong earnings delivery and execution track record.

Gamuda, Sunway

Construction, Kimlun

Consumer

Neutral

Since hitting a record low of 64 points in December 2015, the Consumer Sentiment

Index (CSI) had gradually recovered to 79 points in June before dropping to 70 points

(-4 points q-o-q) in December. The CSI remains well below the threshold level of

optimism of 100. Besides that, private consumption growth (as a component of GDP)

had also moderated in 4Q.

While we remain cautiously optimistic that consumer spending will continue its

recovery path going into 2017, supported by (1) government stimulus, (2) hike in

minimum wage in July, and (3) fading effect of GST, we remain concerned that the

slower-than-expected recovery (as indicated by CSI) could be the ongoing theme for

this year.

We maintain our cautious stance on the sector whose earnings prospects going

forward are expected to remain weak, dragged by (1) continued slow recovery in

consumer spending, (2) weakening ringgit inflating the cost of imported materials, (3)

higher minimum wage effective from July 2016 adding on to the cost pressure, and (4)

an increasingly competitive operating environment and weak consumer market may

restrict companies’ ability to pass on the rising costs.

Given the concerns outlined above, we favour stocks with (1) resilient business models,

(2) established brand names in their respective sectors to withstand the continued

challenging operating environment, (3) strong balance sheets to undertake earnings-

accretive M&A activities to drive growth and/or engage in capital management

exercises to reward shareholders, (4) regional exposure to mitigate (potential) domestic

earnings risks, and (5) attractive value propositions. Oldtown (BUY, TP: RM2.65)

remains our preferred pick in the sector.

Oldtown

Market Focus



Gaming

Overweight

We maintain our Overweight recommendation for the gaming sector as we foresee

ongoing re-rating for the Genting Group. While we have recently downgraded

Genting Malaysia (GENM) to HOLD in view of its recent strong share price

performance, we maintain our BUY recommendation on Genting Bhd (GENT) given

that it offers lower entry point for exposure to GENM and Genting Singapore (GENS).

With the progressive launch of its major GITP developments, we expect the number of

visitors to Resort World Genting to grow by about 8% per annum from an expected

21m in 2016 to 25m by 2018, on track to meet the group’s target of 30m by 2020.

The increased visitations, coupled with the potential availability of 300 new gaming

tables, are expected to drive its earnings.

While GENS’ share price has rallied >25% since we upgraded GENS to BUY in August

2016, we believe the re-rating will continue on the back of a sustained earnings

recovery in 2017. Improved profitability in 2017 (17% jump in adjusted EBITDA) will be

driven by (i) a recovery in VIP volumes (we have pencilled in a 3% uplift) as

management is now focusing on growing its top line, (ii) VIP win rate normalising to

the 2.85% theoretical rate from c.2.67% in 2016, and (iii) lower bad debts given

GENS’s more selective and conservative credit policy over the past year.

On the other hand, we are less optimistic on the prospects of number forecasting

operators (NFOs) as the weak domestic consumer sentiment could slow down

discretionary spending, which may in turn hamper ticket sales of NFOs.

Genting

Gloves

Neutral

We expect the supply-demand mismatch to narrow in FY17, backed by glove players

expanding capacity at a more gradual pace to better track demand growth. We

forecast glove output for glove players at 10%/11% for FY17/18F in contrast to their

FY16 volume growth of 14%, which is significantly above demand growth of c.10%.

With demand catching up to supply and pressures on ASPs expected to ease, we see

margins stabilising moving ahead as continuous efforts in increasing efficiency and

automation can contribute to steady operating margins due to improving economies

of scale. Margins would get a boost from the USD appreciation but this is unlikely to

be sustained as savings will be passed on to customers. Furthermore, the rising raw

material and other operating costs will also negate such savings.

Valuation is at fair level in the absence of catalysts to re-rate the sector. We have a

HOLD call on all glove companies under our coverage.

None

Market Focus



Healthcare

Neutral

We remain optimistic about the growth prospects for private hospital operators due to

increasing demand for quality healthcare amid rising disposable income. Capacity

constraints at government healthcare facilities are also expected to drive affluent

patients to private hospitals. The constraints are expected to worsen with the cut in

public hospital development expenditure from RM3.7bn in fiscal year 2010 to

RM536m in fiscal year 2017.

Generic pharmaceutical players are expected to enter a new growth phase as they

approach the patent cliff, providing an opportunity for them to launch new generic

products and improve sales.

Our top pick for the sector is IHH Healthcare for its robust revenue growth across most

of its business units, boosted by contributions from new hospitals including Gleneagles

Kota Kinabalu, Gleneagles Medini Hospital, Acibadem Taksim Hospital, and newly

acquired hospitals such as Global Hospitals and Tokuda Group and City Clinic Group.

IHH Healthcare

Media

Neutral

With the challenging market environment and rising cost of living, there is generally a

lack of feel-good factors to spur a recovery in consumer sentiment and for advertisers

to lift adex spending in 2017.

Low newsprint cost is a blessing for newspaper publishers, though this will be offset by

the weaker ringgit.

Nevertheless, we believe downside risks are limited given the low valuation and decent

dividend yields for the sector. Our top pick for the sector is Astro for its resilient

earnings which are predominantly driven by Pay-TV subscriptions rather than adex.

Astro

Oil & Gas

Neutral

OPEC reached a landmark consensus on 30 November to reduce output by about

1.2mmbpd, effective 1 January 2017. The duration of the agreement is six months. An

understanding has also been reached with various non-OPEC countries including

Russia that they would be contributing towards a reduction of 600,000bpd which

brings the total supply curtailment to 1.8mmbpd. This will likely bring forward

demand-supply equilibrium to 1Q17 and we adjust Brent crude oil price average to

US$50-60 per barrel accordingly from US$50-55bbl.

While upstream players will be boosted by the prospect of higher oil prices, service

providers will lag behind in this recovery until there is better clarity on capex spending

by oil majors.

None

Plantation

Neutral

The adverse El Nino impact reduced global palm oil output by 7% in 2016. This caused

an inventory drawdown of 2.6m MT (-20% y-o-y) – as Indonesia’s B20 mandate kicked

in.

Following 15% and 14% drops last year, we expect this year’s FFB yields to rebound

6% in Indonesia and 8% in Malaysia. Even as global supply rebounds 10% this year;

we expect palm oil stockpile to stay flat on continued y-o-y demand growth.

We expect Indonesia’s CPO Fund to collect US$865m of export levies this year; based

on a 9% rebound in export volumes. Hence, coupled with nonsubsidised volume, we

expect Indonesia’s biodiesel output to expand 0.5m MT y-o-y to 3.3m MT (5% of

global palm oil demand).

Our current CPO average price forecast is US$659 or RM3,040 per MT for 2017 –

higher than the US$640/RM2,652 average in 2016.

TSH is a BUY for its better-than-peer internal FFB growth pipeline due to favourable

tree age profiles, allowing it to capitalise on CPO price upside from currency

movements.

TSH Resources

Market Focus



Property

Neutral

We expect slower property sales volumes in 2017, although prices should hold up due

to cost-push factors. Sentiment should remain poor given the tightening measures and

inflationary pressures, but mass-market products at strategic locations will continue to

enjoy healthy sales as affordability remains an important factor among purchasers.

Developers' margins could be affected by rising development costs, as selling price

hikes would be capped by relatively more subdued demand. However, there is no

property bubble for now but we fear an oversupply of KL office space, hybrid high-rise

units and Iskandar Malaysia high-end condos.

We like Eco World, MKH and Matrix which are township developers with niche

expertise and established brand name within local communities. The trio has achieved

their respective commendable sales targets in FY16 despite a fair share of downward

revisions by their peers amid the challenging environment.

MKH, Eco World, Matrix

REIT

Neutral

Rental reversion growth is expected to be moderate-to-low for all subsectors. Retail

rents and occupancy should remain resilient at prime locations, but weak consumer

sentiment and spending will cap rental hikes. Office assets will focus on maintaining

occupancy as oversupply conditions persist, while softer business conditions (weaker

general economy, depreciated ringgit, minimum wage hikes) will pressure rents for

both office and industrial spaces.

Inorganic growth via acquisitions will be a running theme in the face of weak organic

growth. Among those with acquisition newsflows are PavREIT (da:men and Intermark

Mall), CMMT (Tropicana City Property), SunREIT (Sunway Putra) and MRCB-Quill REIT

(Platinum Sentral). However, the key point remains whether the REITs will manage to

inject assets at a price that will be DPU-accretive to unitholders.

Fundamentally, the REIT sector’s performance appears to be neutral in 2017 with an

average 5.8% earnings growth forecast across our coverage. In terms of valuation, we

are a little cautious on the negative implication for yield/fixed income instruments if

the US Fed rate hikes are faster or more severe than expected. Nonetheless, that is

somewhat counterbalanced by easing efforts from the rest of the world (notably in

China and the EU); plus from a localised perspective, the average yield spread of

larger-cap REITs against the 10-year Malaysian Government Securities (MGS) in the

1.5-1.7% range has partially priced in the eventuality of Fed rate hikes.

Sunway REIT remains our top pick, predicated on its strong DPU growth as income

contributions resume following the completion of Sunway Putra refurbishments, plus

its visible pipeline of potential asset injections from sponsor Sunway Bhd.

Sunway REIT

Shipping

Neutral

LNG spot rates are expected to remain low in 2017 continuing the weakness in 2016,

as newbuild deliveries are expected to be strong at 57 (up from 33 in 2016),

exacerbating the vessel oversupply.

Crude tanker rates had on average performed worse last year with the Baltic Dirty

Tanker Index (BDTI) averaging 11% lower in 2016. However, in line with seasonality,

rates had picked up strongly towards end of the year, with the BDTI rising c.47% in

4Q16. The strength may persist to support 1Q17 performance, but for full-year 2017,

the BDTI is expected to chart another y-o-y decline as newbuild deliveries are also likely

to outstrip demand.

Under our coverage, MISC is placed under a HOLD call. The group’s organic earnings

outlook is mild-to-weak in the near term due to the soft charter rates outlook.

However, the group intends to pursue inorganic growth especially within the offshore

space, which may have the potential to transform its outlook.

None

Market Focus



Technology

Overweight

The iPhone 7 is generally well received, and this is sufficient to serve as a re-rating

catalyst for the supply chain because prior expectations were very low. With a decent

iPhone 7 cycle till 2Q17, followed by a supercycle 2H17 where a major design overhaul

and new features are expected, we believe the outlook for Apple's supply chain looks

favourable over the next 12 months.

Inari (BUY; TP: RM2.15) is our top pick for the sector given the strong earnings visibility

of its RF segment which is underpinned by significant content gains and Broadcom's 3-

year supply agreement with Apple.

We also have a BUY call on Globetronics (TP: RM4.60) as we believe the risk-reward is

compelling, with clearer signs emerging to underpin growth recovery in FY17 from

new sensor products (i.e. light sensor, gesture sensor, and 3D imaging sensor).

Inari Amertron,

Globetronics

Telecommunication

Underweight

The intense price competition in the market is not showing any signs of abating soon,

as mobile players are still offering attractive promotions in a bid to gain market share

amid the weak consumer environment. We believe a persistent fall in data pricing is a

key threat to mobile operators’ data monetisation strategy to offset declines in voice

and SMS.

Spectrum pricing for 900MHz and 1800MHz has been announced, and the RM6.3bn

total fee is manageable and within market expectations. However, with the move

towards new spectrum regime as well as a stronger U Mobile (which has gained more

spectrum), we believe questions will eventually be raised on competition risk and

margin sustainability, as well as the premium valuations of Malaysian mobile operators.

We are optimistic about the eventual rollouts of HSBB2, SUBB, and wireless services

that would drive further growth for TM, as it expands the coverage of its high-speed

broadband network to more areas.

Telekom Malaysia

Utilities

Overweight

Energy demand is expected to grow in tandem with the relatively healthy economic

outlook in Malaysia, which will continue to underpin the growing recurring income for

utility players.

The government remains committed to the power sector reform with the

implementation of the incentive-based regulation (IBR) framework that will provide

strong earnings clarity for utility players as well.

Our top pick is Tenaga Nasional (TNB) for its more attractive valuation and improving

earnings visibility from the implementation of the IBR framework.

Tenaga Nasional

Market Focus

Top Stock Picks

Stocks Key Investment Merits

Public Bank Champion of growth and asset quality. We expect PBK to consistently defy headwinds and grow at above industry

average rates. Its asset-quality track record has remained resilient over many economic cycles.

Visible and resilient earnings growth. Little needs to be said about PBK’s solid attributes as its deliveries speak for

themselves. Its cost-to-income ratio, which ranks way below the industry average, is admirable. Despite challenging times

ahead, we believe PBK will continue to deliver sustainable earnings growth.

BUY, premium valuations justified. Our RM22.50 target price is derived from the Gordon Growth Model and assumes

9% cost of equity, 4% long-term growth and 16% ROE, implying 2.3x FY17F P/BV. PBK’s premium valuation over its

peers is justified, as it continues to show solid growth and quality trends, unlike its peers.

Genting Let’s enjoy the game! We maintain our BUY recommendation on Genting Bhd (GENT). We believe that progressive

launches of key developments in Genting Integrated Tourism Plan (GITP) and expected earnings recovery in Genting

Singapore (GENS) will improve growth prospects for the group.

Expect gaming tables to increase by >45% by 2018. GITP launches to boost outlook. We are positive on GITP launches

as we foresee improving earnings prospects for the group: (1) additional gaming capacity arising from GITP’s launch, and

(2) weak ringgit to attract more foreign tourist visitations and encourage more local visits from Malaysians, which could

benefit Genting Malaysia (GENM).

Ride on sustained GENS earnings recovery in 2017. While GENS’ share price has rallied over 25% since we upgraded

GENS to a BUY in August 2016, we believe the re-rating will continue on the back of sustained earnings recovery in

2017. Improved profitability in 2017 (17% jump in adjusted EBITDA) will be driven by (i) a recovery in VIP volumes (we

have pencilled in 3% uplift) as management is now focusing on growing its top line, (ii) VIP win rate normalising to the

2.85% theoretical rate from c.2.67% in 2016, and (iii) lower bad debts given GENS’s more selective and conservative

credit policy over the past year.

BUY, TP of RM10.60. We keep our BUY recommendation for GENT with a target price of RM10.60, based on SOP

valuation. We believe that GENT offers a lower entry point for exposure to both these subsidiaries.

AMMB Holdings Showing some positive signs. AMMB has successfully stayed on track with its NIM and cost-savings targets. Sustained

delivery of these will justify our positive view on the banking group. AMMB appears poised to deliver its FY17 targets:

ROE of 8.5%, net profit growth p.a. of 5% and cost-to-income ratio of <57% in FY17. With these set as its base for

FY17, AMMB should be well positioned to deliver better earnings traction in FY18.

We expect ROE to range around 9% in FY18. This is below management’s guidance of 10% by FY18, as we have yet to

impute the earnings accretion which management expects to arise from its strategic initiatives within the focus areas of

SME, cards, deposits and markets. In the event AMMB successfully delivers on its strategic initiatives, we could possibly

see a significant improvement in its financials. Among them include stronger loan growth, higher CASA growth, NIM

expansion (from higher-yielding SME loans and higher proportion of CASA) and stronger non-interest income growth.

BUY, TP of RM5.20. Our TP implies 0.9x CY17 BV and is derived using the Gordon Growth Model, assuming 10% ROE,

10% cost of equity, and 3% long-term growth. Any added boost to AMMB’s valuations may hinge on corporate events

that may unfold. Our conviction lies in AMMB’s ability to pick the low-hanging fruits of its strategic initiatives, which

should translate into better earnings traction.

Gamuda Best transportation proxy. Gamuda has solidified its position for MRT Line 2 with the award of the tunnelling package

worth RM15.47bn to MMC-Gamuda JV or RM7.7bn per contractor. We expect margins to be at least in the 12-15%

range (similar to MRT Line 2) given the Swiss Challenge was not used, coupled with the cost savings from the

depreciated tunnelling boring machines. Additionally, on a cost-per-km basis, it is 30% higher than MRT Line 1. It is also

confident of clinching another RM3-4bn of new orders coming from LRT 3, Southern Double Tracking and Pan Borneo

Sabah.

Earnings to resume growth in FY17F. We expect FY17F earnings to grow by 10% in FY17F, anchored by its RM8.9bn

orderbook which comprises MRT Line 2 tunnelling and Pan Borneo Sarawak. However, this has yet to take into account

the sale of Splash, which could take place in 2QCY17.

BUY, TP of RM5.80. Gamuda remains the best large-cap infrastructure proxy in Malaysia. We expect the company to be

present in most of the large-scale transportation-led infrastructure projects in Malaysia, given its strong execution track

record and reputation.

Market Focus

Top Stock Picks (cont’d)


AirAsia Well equipped to defend market share. AirAsia (AIRA) has taken advantage of the restructuring of key competitor

Malaysia Airlines (MAB) to expand its leading market share to c.32% from c.27% in 2014. Going into 2017, AIRA is

prepared to expand capacity to absorb any pick-up in demand, with 7-8 new aircraft deliveries from 77 currently. We

think that it is in a strong position to defend or grow its expanded market share given its active branding and

digitalisation efforts.

Measures in place to manage margin pressure. Costs are in the spotlight given higher jet fuel prices and a weaker ringgit

against the USD. However AIRA has hedged c.74% of its jet fuel requirements at USD60/bbl, plus currency or natural

hedges for c.67% of USD-denominated borrowings. Turning to the revenue perspective, yields (fares/RPK) are expected

to pare down in light of the steeper competition, which we have accounted for this by imputing 3% yield contraction in

FY17. That said, we are also reassured by the fact that MAB does have a profitability priority going forward, implying

that fare competition is not as likely to reach the mutually damaging levels seen in pre-2014.

BUY, undemanding valuation for market leader. Our RM3.25 TP is based on 1.3x (historical mean) FY17F book value

adjusted for cumulative unrecognised losses. Our valuation is underpinned by expectations of decent ROAEs of 12-13%.

Potential catalysts may come from its plan to unlock value via divestments, or further improvements of associate

performance

BIMB Solid fundamentals. BIMB has an arsenal of tools to lean on to weather the current soft operating environment. The

bank has a niche in Islamic banking (which supports financing growth momentum), high CASA ratio and liquid balance

sheet (to stave off net financing margin compression) as well as high financing loss coverage (to buffer against potential

deterioration in asset quality). We believe the market is not assigning sufficient premium to a franchise that is delivering

ROEs of c.15% and better-than-industry metrics.

Islamic banking champ. With its deep-rooted expertise and rich experience in Islamic banking, BIMB is the undisputed

proxy to ride on the superior growth of Islamic financing. BIMB is keeping defences up in 2017, with a financing growth

target of 8%. This remains higher than the banking system’s loan growth, which we expect to reach 5%, at best.

Deposit (including investment accounts) is also expected to grow at a similar pace, i.e. 7-8%. BIMB hopes to contain NIM

compression at less than 5bps and the increase in charge-off by a few bps in the coming year.

BUY, RM5.00 TP. Our TP is derived from the Gordon Growth Model (assuming 15% ROE, 4% long-term growth and

10% cost of equity) and implies 1.9x FY17F BV. We believe its current valuation presents a good opportunity to gain an

inexpensive entry into a solid Islamic banking franchise.

Inari Amertron RF segment – still strong growth. Significant content gains in latest smartphone models would comfortably help to drive

our 30% growth forecast for Inari’s RF segment in FY17F, despite concerns over slowing smartphone sales. The medium-

term outlook appears to be relatively secured as well because of Broadcom’s 3-year supply agreement with Apple (till

2018).

Next leg of growth from IIS. To drive incremental margins, Broadcom is planning to spend more capex on buying its own

testers and consigning them to its contract manufacturers (instead of leasing them). We believe that Inari has set up Inari

Integrated System S/B (IIS) to clinch some of these new business opportunities.

BUY, RM2.15 TP. With strong visibility for the RF segment and new contribution from IIS driving robust 3-year earnings

CAGR of 22%, we believe Inari's valuation could trade up to 18x PE, +1SD of its 3-year average forward PE.

Sunway

Construction

Malaysia’s leading pure construction player. Sunway Construction Group (SCG) is the largest listed pure play construction

player in Malaysia. Given its strong track record with MRT, LRT and BRT jobs previously, we are of the view that SCG is

on a strong footing to bag several key infrastructure packages such as LRT 3 and BRT as well as other major highway

projects. SCG has also established itself as the only construction specialist to be involved in all three Rapid Line infra

projects (MRT, LRT and BRT). This makes the group one of the strongest contenders to win the pipeline of 11MP projects.

Riding on Singapore’s public housing development. Its precast division is a strong proxy to the growing demand for HDB

residences in Singapore where the government is targeting to build an additional 88,000 units of public housing in FY16-

FY19. With premium EBIT margins recorded over the past few years, the business is ROE-enhancing and also synergistic

to its construction business. The completion of its 3rd precast plant in Iskandar should give it ample capacity to cater for

more orders while also compensating for the eventual return of the Tampines plant.

Guiding for RM2bn of new contracts in 2017. SCG has exceeded its RM2.5bn new order forecast for 2016 with wins of

RM2.7bn. For FY17, it has set a more conservative target of RM2bn and this is expected to come from some internal

jobs, LRT 3, building job and its usual precast projects in Singapore. It has already fulfilled 33% of its FY17 new order win

forecast with a recent LOI from its parent company.

Market Focus

Top Stock Picks (cont’d)


VS Industry High-growth company with potential for significant contract wins. We expect VSI’s growth to be driven by its largest

client (with 30% of total revenue in FY16) – Client D. We forecast strong growth from Client D due to contributions from

a sizeable box-build assembly contract for vacuum cleaners worth RM400m p.a. which started operations in October

2016. While this has been priced in, we believe the imminent signing of another contract for an additional line of box-

build assembly of vacuum cleaners by March 2017 has not been factored in yet. Taking these two contracts into account,

we forecast Client D’s revenue contribution to grow at a CAGR of 42% in FY16-FY19F. Beyond these two contracts, we

believe there is high potential for further contract wins from Client D as it launches more products.

Specialised portfolio catering to clients with large-scale expansion plans. VSI’s top 3 customers (Client D, Keurig and

Zodiac) account for 58% of its total revenue in FY16. All three of VSI’s main clients are expanding and we expect each to

contribute to VSI’s overall growth in FY17-FY19. VSI has both the capacity and capability to cater to its main clients’

growing needs. We believe VSI is protected against termination risk from its key clients in the mid-term due to: 1) the

long-standing working relationships, 2) VSI’s participation in the product development for Keurig and Zodiac, and 3)

Client D’s need for additional contract manufacturers to cater to its expansion plan.

More conservative view than consensus. Our fair value of RM1.70 is based on 12x fully diluted CY17F EPS, which is the

industry’s average. In the mid-term, we conservatively forecast VSI’s revenue/core EPS to grow at a 3-year CAGR of

19%/11% over FY16-FY19F. Consensus is more bullish on top-line growth and margin assumptions. A +/- 0.1% shift in

net margin will affect earnings by +/-2%, causing our fair value to increase/decrease by 3%.

SKP Resources Earnings visibility intact despite near-term headwinds. SKPRES has clinched a four-year contract from Client D totalling

RM2bn, or RM500m p.a., for the manufacturing of hairdryers. However, SKPRES would be foregoing the previous

RM400m p.a. contract, for the manufacturing of the V6 cordless vacuum cleaners. The move is to optimise and shift the

existing limited labour resources to work on the higher-value product, following the government’s decision to freeze the

hiring of foreign labour in February 2016. Taking these into account, we see improved visibility for the group’s earnings

onwards, arising from; 1) the accretion of the recent hairdryer contract from Client D, 2) improved operating margins

from the high-value contract, and 3) resolution of the labour issues in September 2016.

Single-customer concentration risk not a pressing issue. In FY16, c.55% of revenue is derived from Client D. Looking

forward, we forecast Client D to contribute an even higher portion, c.72% in FY17F. In the event that Client D reduces or

terminates contracts with SKPRES, the latter’s earnings could be materially and adversely affected. However, we are not

overtly alarmed by this risk, as the contract wins are on a mid-term basis. Given its longstanding relationship with Client D,

we are positive about SKPRES’ long-term prospects as it has been able to continuously secure manufacturing contracts for

Client D’s latest flagship products.

New celebrated product. The cordless vacuum cleaner is Client D’s most popular product which contributed more than

half of its revenue in 2015. Consequently, the recent launch of the Supersonic (V9) hairdryer has the potential to be the

next best-selling product with glowing reviews from the Japan and UK launches. The recent US launch in September has

also received encouraging response. As such, we are positive of the developments as SKPRES is currently the sole

manufacturer for this product.

BUY, TP of RM 1.60. Our TP is pegged to FY18 PE of 14x, which is +1SD of its 5-year average forward PE. We believe that

it deserves a premium valuation given its much stronger earnings growth than peers, especially post resolution of its

recent labour woes.

Oldtown Craving for a nice cup of coffee. We maintain our positive stance on OldTown Berhad (Oldtown) given that (1) the strong

3QFY17 results has reaffirmed our investment thesis that the group is firmly on a growth trajectory, (2) its valuation

remains attractive despite the recent run-up, (3) its expansion to regional markets can bring about multi-year growth

potential, and (4) we maintain that there is now higher chance of paying out dividends amounting to 9 sen/share for

FY17, giving a decent yield of about 4%.

3Q strong earnings, multi-year sustained growth path ahead. To recap, Oldtown has delivered a set of impressive

quarterly figures. The group reported strong core earnings of RM24.4m for 3QFY17 (+119% y-o-y, +92% q-o-q), mainly

boosted by 26% FMCG revenue y-oy growth. We understand that the strong FMCG sales were mainly driven by > 1-fold

revenue growth to the China market. Given that China sales still accounts for <15% of its total FMCG sales, we believe

that its regional expansion story, particularly to the China market, offers Oldtown multi-year growth potential.

BUY, TP of RM2.65. We maintain our BUY recommendation with a TP of RM2.65 pegged to an unchanged forward PE of

16x, which is substantially below its regional peers’ forward PE of >20x.

Market Focus

Revisions to recommendations

Company Revision to Rec. Revision Date Reason

Current Previous

Upgrade

Affin Holdings Berhad HOLD FULLY VALUED

1-Mar Improved ROE standing, after a year of earnings boost from lower credit cost. That said, sustainability of its low credit cost remains a key risk given that earnings buffer wears thin (lowest loan loss coverage in the industry at 55%).

MBM Resources HOLD FULLY VALUED

23-Feb We have revised our FY17F/18F earnings by 15%/19% to account for better margins of the motor trading business, from 7.0%/7.2% to 8.4%/8.8% which is conservative vis-à-vis FY16 motor trading margins of 9.4%. We believe the intense competition and cost pressure will continue to be a drag on margins.

Padini Holdings BUY HOLD 21-Feb While we remain cautious that Padini Holdings’ (Padini) profit margin could come under pressure in 2HFY17 due to the weak ringgit, we upgrade our recommendation for Padini to BUY, given that value has emerged following its share price retracement by about 10% since our recent downgrade.

Downgrade

Bumi Armada HOLD BUY 2-Mar We downgrade our recommendation on Bumi Armada (BAB) to HOLD, following its recent share price appreciation. FY17 will start on a clean slate following a massive kitchen-sinking exercise in 4Q16. Earnings will be driven by revenue boost from the deployment of Armada Olombendo and Kraken FPSO while lower amortisation is expected following asset impairment in FY16, particularly for the OSV segment.

RHB Bank HOLD BUY 27-Feb Although RHB successfully delivered on improvements in cost efficiency, we believe lingering asset-quality issues pose risk to earnings.

Genting Malaysia HOLD BUY 24-Feb Although we remain optimistic of the group’s growth prospects supported by the progressive launch of Genting Integrated Tourism Plan (GITP), we believe the stock offers limited upside at this juncture in view of its strong share price performance.

British American Tobacco

FULLY VALUED

HOLD 17-Feb We downgrade our recommendation for British American Tobacco (BAT) to FULLY VALUED in view of (1) its sluggish topline recovery due to challenging industry prospects, in particular the persistently high proportion (>50%) of illicit trades, (2) its profit margin being under pressure in 2017 as the group is starting to source tobacco products for the domestic market from other British American Tobacco Group’s factories in the region, and (3) its PE could de-rate as a pure trading company.

Market Focus

Significant reports

Date Report

Strategy report 07-Feb Monthly strategy: Improved sentiment on commodity rebound

Sector Report 08-Feb Technology: Positive takeaways from Apple results

20-Feb Islamic Banks - The unconventional banking aspect

Source: AllianceDBS

Best- and worst-performing stocks in AllianceDBS’s coverage in February

Big Caps (>USD2bn) Small & Mid-Caps (<USD2bn)

Source: AllianceDBS, Bloomberg Finance L.P

-10% -5% 0% 5% 10% 15%

AXIATA

IHH Healthcare Bhd

Petronas Gas

Westports Holdings

RHB Capital Bhd

KLCC Stapled

CIMB Group

SP Setia

Sime Darby

Public Bank

YTL Power

Maybank

BAT

Astro

MAHB

Genting Plantation

IOI Corporation

Dialog Group Bhd

SapuraKencana

Genting

-15% -10% -5% 0% 5% 10% 15% 20% 25% 30%

UMW Oil & GasPavilion REIT

MMHEMSM Malaysia

Dayang EnterprisesKossan

CapitaMall Malaysia TrustLafarge

SupermaxMRCB-Quill REIT

Gas MalaysiaMMC

Inari AmertronUNISEM

TIME dotComEastern & Oriental

PadiniMalaysian Pacific Industries

Bumi ArmadaOldtown

Market Focus

Appendix: 4Q16 earnings summary

Financial EPS vs AllianceDBS vs consensus

Company Sector quarters Change estimates estimates

UMW Holdings Automotive 4QFY16 ▲ Below Below

MBM Resources Automotive 4QFY16 ▲ Above Above

Bermaz Auto Automotive 2QFY17 ▼ Below Below

AirAsia Aviation 4QFY16 ▼ In-line In-line

AirAsia X Aviation 4QFY16 ▼ Above Above

MAHB Aviation 4QFY16 ◄► In-line In-line

Affin Holdings Banking 4QFY16 ▲ Above Above

AMMB Banking 3QFY17 ▲ Above Above

BIMB Holdings Banking 4QFY16 ▼ In-line In-line

CIMB Group Banking 4QFY16 ▲ In-line In-line

Hong Leong Bank Banking 2QFY17 ◄► In-line In-line

Hong Leong Financial Group Banking 2QFY17 ◄► In-line In-line

Maybank Banking 4QFY16 ▲ In-line In-line

Public Bank Banking 4QFY16 ▼ In-line Above

RHB Bank Bhd Banking 4QFY16 ▼ Below Below

Cahya Mata Sarawak Building Materials 4QFY16 ◄► Above Above

Lafarge Building Materials 4QFY16 ▼ Below Below

Petronas Chemical Chemicals 4QFY16 ◄► Above Above

MMC Conglomerate 4QFY16 ◄► Above Above

Gamuda Construction 1QFY17 ◄► In-line In-line

IJM Corp Construction 3QFY17 ◄► In-line In-line

Muhibbah Engineering Construction 4QFY16 ◄► Above Above

Kimlun Corporation Construction 4QFY16 ◄► Above Above

Sunway Construction Construction 4QFY16 ◄► In-line In-line

WCT Holdings Construction 4QFY16 ◄► Below Below

BAT Consumer 4QFY16 ▼ In-line In-line

MSM Malaysia Consumer 4QFY16 ◄► Below Below

Oldtown Consumer 3QFY17 ▲ Above Above

Padini Consumer 2QFY17 ◄► In-line In-line

Petronas Dagangan Consumer 4QFY16 ◄► Above Above

Sasbadi Holdings Consumer 1QFY17 ◄► In-line In-line

SKP Resources Consumer 3QFY17 ▼ Below Below

VS Industry Consumer 1QFY17 ◄► In-line In-line

QL Resources Consumer 3QFY17 ◄► In-line In-line

AEON Credit Finance non-bank 3QFY17 ▲ Above Above

Bursa Malaysia Finance non-bank 4QFY16 ▼ In-line In-line

Berjaya Sports Toto Gaming 2QFY17 ◄► Below Below

Genting Gaming 4QFY16 ◄► Above Above

Genting Malaysia Gaming 4QFY16 ◄► In-line In-line

Magnum Gaming 4QFY16 ◄► In-line In-line

Hartalega Glove 3QFY17 ◄► Above Below

Kossan Glove 4QFY16 ▼ Below Below

Supermax Glove 2QFY17 ▼ Below Below

Top Glove Glove 1QFY17 ◄► In-line Below

IHH Healthcare Healthcare 4QFY16 ◄► In-line In-line

KPJ Healthcare Healthcare 4QFY16 ◄► In-line In-line

Astro Media 3QFY17 ◄► In-line In-line

Media Chinese Media 3QFY17 ▼ Below Below

Media Prima Media 4QFY16 ◄► Below Below

Star Media 4QFY16 ▼ Below Below

Bumi Armada Oil & Gas 4QFY16 ▼ Below Below

Market Focus

Financial EPS vs AllianceDBS vs consensus

Company Sector quarters Change estimates estimates

Coastal Contracts Oil & Gas 2QFY17 ◄► Below Below

Dayang Enterprises Oil & Gas 4QFY16 ◄► Above Above

Deleum Oil & Gas 4QFY16 ◄► Below Below

Dialog Group Bhd Oil & Gas 2QFY17 ◄► In-line In-line

MMHE Oil & Gas 4QFY16 ◄► Below Below

Pantech Group Oil & Gas 3QFY17 ◄► Below Below

SapuraKencana Oil & Gas 3QFY17 ◄► Above Above

UMW Oil & Gas Oil & Gas 4QFY16 ◄► Below In-line

CB Industrial Product Plantation 4QFY16 ◄► In-line In-line

Genting Plantation Plantation 4QFY16 ▲ Above Above

IOI Corporation Plantation 2QFY17 ◄► In-line In-line

KL Kepong Plantation 1QFY17 ▲ Above In-line

Sime Darby Plantation 2QFY17 ◄► In-line In-line

Felda Global Ventures Plantation 4QFY16 ▲ Below Below

PPB Group Plantation 4QFY16 ▲ Above Above

TSH Resources Plantation 4QFY16 ▼ Below Below

Westports Holdings Port 4QFY16 ◄► In-line In-line

Eastern & Oriental Property 3QFY17 ▲ Above Above

MKH Property 1QFY17 ▲ In-line In-line

SP Setia Property 4QFY16 ▲ Above Above

UEM Sunrise Property 4QFY16 ◄► In-line In-line

Eco World Development Property 4QFY16 ▼ In-line In-line

Matrix Concepts Property 3QFY17 ◄► Below Below

Sunway Property 4QFY16 ▲ Above Above

Axis REIT REIT 4QFY16 ◄► In-line In-line

CapitaMall Malaysia Trust REIT 4QFY16 ▼ In-line In-line

KLCC Stapled REIT 4QFY16 ◄► In-line In-line

IGB REIT REIT 4QFY16 ◄► In-line In-line

Pavilion REIT REIT 4QFY16 ▼ In-line In-line

MRCB-Quill REIT REIT 4QFY16 ◄► In-line In-line

Sunway REIT REIT 2QFY17 ▼ Below In-line

MISC Shipping 4QFY16 ▲ Below Below

Malaysian Pacific Industries Technology 2QFY17 ▲ Above In-line

Globetronics Technology 4QFY16 ◄► In-line In-line

Inari Amertron Technology 2QFY17 ◄► In-line In-line

Unisem Technology 4QFY16 ▲ Above Above

Axiata Telecommunication 4QFY16 ▼ Below Below

Digi Telecommunication 4QFY16 ◄► In-line In-line

Maxis Telecommunication 4QFY16 ◄► In-line In-line

TIME dotCom Telecommunication 4QFY16 ▲ Above Above

TM Telecommunication 4QFY16 ▼ Above Above

Gas Malaysia Utilities 4QFY16 ▲ Above Above

Petronas Gas Utilities 4QFY16 ▼ In-line In-line

Tenaga Utilities 1QFY17 ◄► In-line In-line

YTL Power Utilities 2QFY17 ◄► In-line In-line

Source: AllianceDBS

Market Focus

Macro Data

Key Data Period m-o-m / y-o-y

chg Prev. / Consensus

(y-o-y)

GDP 4Q16 +3.4%* /

+4.5%

+4.3% / +4.3% For the whole of 2016, GDP expanded 4.2% (2015: +5.0%), within the government’s estimate of 4.0% - 4.5%. Private consumption (53% of total GDP) growth expanded 6.2% in 4Q16 (3Q16: +6.4%). On the other hand, government consumption and investment growth registered contraction of 4.2% and 0.3%, respectively, in 4Q16. Net exports growth remained steady at 5.8% (3Q16: +5.9%) while the current account balance widened to RM12.2bn (3Q16: RM6.0bn). Domestic demand will be the main driver of growth in 2017. We expect 2017 GDP to expand 4.4% (2016: 4.2%).

CPI Jan 17 +1.1% / +3.2% +1.8% / +2.7% CPI expansion was mainly supported by the rebound in Transport sector (+8.3% y-o-y) and Food and Non-alcoholic Beverages sector (+4.0%). CPI growth may be expected to rise further due to higher pump prices and cost-push pressures, depending on global crude oil price direction and the USD-MYR exchange rate. Our 2017 inflation forecast is 3.0% (2016: +2.1%).

OPR Mar 17 3.00%^ 3.00% / n.a. At the March Monetary Policy Committee meeting, BNM maintained the Overnight Policy Rate (OPR) at 3.00%. Currently, BNM sees cautious optimism in global macro recovery. BNM expects sustained growth momentum in the domestic economy from private consumption and potential boost from external trade contribution. However, inflation is expected to trend higher this year, swayed by global crude oil price direction. BNM remains highly vigilant on ringgit exchange rate volatility, which has stabilised since its foreign exchange rate measures were in place last December.

Exports Dec 16 +3.7% /

+10.7%

+7.8% / +9.6% Exports expansion was led by growth in E&E (+9.0%), crude palm oil (+14.1%) and crude petroleum (+15.9%), whilst LNG exports posted minimal contraction (-0.5%). Meanwhile, imports were supported by growth in all segments: intermediate goods (+9.8%), capital goods (+11.8%) and consumption goods (+2.6%) during the month. E&E exports remained the anchor to external trade performance for the year. Overall 2016 E&E shipment growth was 3.5% (2015: +8.5%). E&E shipment to US grew 10.5% in 2016 on strong growth in the electronics segments.

PMI Feb 17 49.4^ 48.6 / - In February, Malaysia’s manufacturing sector deteriorated at a weaker pace. Manufacturers raised production for the first time in 23 months, as levels of outstanding business accumulated at the quickest pace in the series history. However, there were reported increase in input costs and output charges due to unfavourable exchange rate movements.

IPI Dec 16 +4.2% / +4.7% +6.2% / +4.0% Expansions were recorded across all sectors: Manufacturing (+4.3%), Mining (+5.8%) and Electricity (+6.1%) during the month. Manufacturing sector output had been supported by E&E production, which expanded 8.5% in 2016 (2015: +2.4%). This trend mirrored the E&E exports growth performance (2016: +3.5% vs 2015: +8.5%) in value terms.

CPO Output Jan 17 -13.4% / +13.0%

+5.3% / n.a. Production dipped sequentially as expected due to weather impact, but improved y-o-y as Jan/Feb 16 were the worst hit by the earlier El Nino. FFB yields were better y-o-y for a second successive month.

CPO Inventory Jan 17 -7.5% / -33.3% -36.8% / n.a. Stock levels fell to 1.54m MT, as the sequential fall in production was met with steady Jan exports which were 1.2% higher m-o-m, 0.3% higher y-o-y.

Source: AllianceDBS, Bloomberg Finance L.P * q-o-q ^ latest reading

Market Focus

Macro Graphs

Malaysia GDP and Consumer Price Index growth Malaysia exports growth

Source: Department of Statistics Source: Department of Statistics

Malaysia industrial production and PMI index Malaysia palm oil output

Source: Department of Statistics, Markit Source: Department of Statistics

Malaysia palm oil inventory Malaysia banking system outstanding loans growth

Source: Malaysian Palm Oil Board Source: Bank Negara Malaysia

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

% y-o-y% y-o-yGDP growth (lhs) Headline inflation (rhs)

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

% y-o-y% y-o-y E&E exports growth Exports (ex E&E) growth

40.0

45.0

50.0

55.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar

-16

May

-16

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

% y-o-y

IPI growth (lhs)IPI - manufacturing sector growth (lhs)Manufacturing PMI (rhs)

-30%

-20%

-10%

0%

10%

20%

30%

40%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Malaysian production ( L ) Y-o-y production change % ( R )k MT

-20%

-10%

0%

10%

20%

30%

40%

0

500

1,000

1,500

2,000

2,500

3,000

Malaysian stock level ( L ) Y-o-y stock change % ( R )k MT

0

2

4

6

8

10

12

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Jan

-14

Mar-

14

May-

14

Jul-1

4

Sep

-14

Nov-

14

Jan

-15

Mar-

15

May-

15

Jul-1

5

Sep

-15

No

v-1

5

Jan

-16

Mar-

16

May-

16

Jul-1

6

Sep

-16

No

v-1

6

Jan

-17

%RM bn

Gross loans (LHS) y-o-y growth (RHS)

Market Focus

AllianceDBS recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 3 Mar 2017 07:40:41 (MYT) Dissemination Date: 3 Mar 2017 09:06:55 (MYT)

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by AllianceDBS Research Sdn Bhd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities

(Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied,

photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of AllianceDBS Research Sdn Bhd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to

change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard

to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of

addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal

or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of

profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This

document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or

persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have

positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and

other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can

be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.

The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it

may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no

obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned

schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research

department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction

in the past twelve months and does not engage in market-making.

Market Focus

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of

research reports. As of 3 Mar 2017, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold

interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s)

responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and

procedures are in place to ensure that confidential information held by either the research or investment banking function is handled

appropriately.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in

Genting Singapore recommended in this report as of 31 Jan 2017.

Compensation for investment banking services:

2. DBS Bank Ltd, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA, within the next 3 months, will receive or intend to seek

compensation for investment banking services from Maybank as of 1 Jan 2017.

3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a

manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further

information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document

should contact DBSVUSA exclusively.

Disclosure of previous investment recommendation produced:

4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other

investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by

DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by or on behalf of, and is attributable to DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong) Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules promulgated thereunder.)

For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.

Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Market Focus

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United Kingdom This report is produced by AllianceDBS Research Sdn Bhd which is regulated by the Securities Commission Malaysia. This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.

Dubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3

rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC),

Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United States This report was prepared by AllianceDBS Research Sdn Bhd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other jurisdictions In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

AllianceDBS Research Sdn Bhd

(128540 U) 19th Floor, Menara Multi-Purpose, Capital Square,

8 Jalan Munshi Abdullah 50100 Kuala Lumpur, Malaysia.

Tel.: +603 2604 3333 Fax: +603 2604 3921 email : [email protected]

monthly strategy...contributed by oldtown and padini. their strong earnings were mainly driven by...

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