Capital markets executive summary | Mon 22 May 2023

Capital markets executive summary | Mon 22 May 2023

KPJ Healthcare allocates RM500m capex

The money will be used for its new hospital in Kuala Selangor scheduled to open in early 2024, improvements to its 29 existing hospitals, purchase of new equipment and managing the data infrastructure. In Sep 2022, the company opened KPJ Damansara Specialist Hospital 2 (DSH2) which has a full capacity of 300 beds. It currently operates 60 beds with 60% occupancy rate, and the figure will jump to 120 beds by end-2023. The return of medical tourists – in particular from Indonesia and Singapore – brighten the outlook for the company. 30% of the customers served by DSH2 are foreigners especially from Indonesia, which the company aims to raise to 50% this year. The counter closed at RM1.11.

Maxis 1Q net profit up 7%

Net profit rose from RM298m in 1Q ended 31 Mar 2022 to RM320m in 1Q ended 31 Mar 2023. Earnings per share increased from 3.8 sen to 4.1 sen. Revenue grew 5% from RM2.41b to RM2.53b. The company declared an interim dividend of 4 sen. There was growth in core mobile and fixed-line connectivity services across the consumer and enterprise businesses and improved profit margins from lower operational costs. Postpaid revenue climbed 10.1% to RM864m while the Hotlink prepaid rose marginally by 0.6% to RM661m due to the highly competitive landscape. Home Connectivity revenue added 11% to RM222m attributed to competitive converged services offering. During 1Q, Maxis invested RM130m in capex to maintain network quality, serve customers better and meet the growing bandwidth demand. The company plans to build a 5G network. The counter closed at RM4.35.

Malaysia Smelting Corporation 1Q net profit plunged 45%

Net profit fell from RM64.3m in 1Q ended 31 Mar 2022 to RM35.4m in 1Q ended 31 Mar 2023. Earnings per share was down from 15.3 sen to 8.4 sen. Revenue declined by 6% from RM359.5m to RM340.1m. The company blamed lower average tin price of RM116k per metric ton in 1Q2023 compared with RM180k in the 1Q2022 for the fall in revenue despite higher sales volume of refined tin. The tin mining segment delivered the biggest drop in profit before tax from RM62.8m in 1Q2022 to RM23.7m in 1Q2023 due to lower average tin prices. On a quarter-on-quarter basis, net profit gained 37% from 4Q2022 net profit of RM25.83m as average tin prices improved 18% from RM98,100 per metric tonne. With external factors such as volatile tin price and global economic trends posing the greatest risks, the company plans to optimize its cost structure. Among others, smelting is done at the Pulau Indah facility using the more efficient top submerged lance furnace. The company has also installed 1.26MWp solar photovoltaic panels on the rooftop. The less efficient Butterworth plant will be fully de-commissioned by mid-2024. The company is exploring new technologies to enhance mining productivity at the Rahman Hydraulic tin mine in Klian Intan and expects higher mining output from the adjacent mining landbank which was acquired. The counter closed at RM2.02.

Aeon 1Q net profit surged 36%

Net profit was up from RM28.1m in 1Q ended 31 Mar 2023 to RM38.2m in 1Q ended 31 Mar 2023. This is despite revenue only rising slightly by 4.2% from RM903.7m to RM941.4m due to the Hari Raya festive spending. Analysts said that the earnings met expectations, although they caution that softer consumer spending, competition, inflationary pressures and higher electricity tariffs in 2H2023 could squeeze margins. The company plans to improve product variety, fresh food and private labels to drive sales. In the meantime, increased tourist arrivals will reduce pressure on margins. Aeon has also allocated RM250m for capex this year, focusing on rejuvenating old malls and the installation of solar panels. Aeon runs 28 Aeon Malls, 35 Aeon stores, 8 Aeon MaxValue outlets, 62 Aeon Wellness outlets, 41 Daiso stores and 3 Komai-so stores. The counter closed at RM1.30.

Foreign investors are bullish on Japan

The market value of Japanese stocks has soared by USD518b since the low on 5 Jan. Investors expect Japanese interest rates to remain very low relative to other regions, so monetary policy should be supportive to risk assets. Years of loose monetary policy finally translates into higher inflation. Consumer prices excluding fresh food increased by 3.4% year-on-year in April, which suggests that the country beat deflation without excessive inflation that requires aggressive rate hikes similar to the US. Conversely, China is exposed to deflationary risks. Japanese companies are conducting share buybacks with their piles of cash to improve shareholder returns and corporate governance. In Jan, the Tokyo Stock Exchange (TSE) encouraged investors to raise the valuations of companies trading at book value ratios of less than 1. Nearly half of TSE Prime Market Index members trade below book value, in contrast with 5% of the S&P 500 Index, which makes Japan’s valuations cheap.