We are maintaining our NEUTRAL recommendation for the
Transportation sector as we do not expect any earnings and news surprises in
4Q12. Despite the concern on higher fuel cost in 4Q12, the airlines are well
prepared to absorb the hikes this round as at least 15% of their fuel
consumptions have been hedged at more attractive prices. We expect that the
Aviation sector will benefit from the upcoming Budget 2013 through government’s
incentives and support in promoting the Malaysian tourism sector. Our top picks
for the sector are AirAsia (OP; TP RM: 3.66) and MAHB (OP; TP RM: 6.45) where
investors could capitalise on lower entry prices currently coupled with the
potential benefits from the upcoming Budget 2013. We are not bullish on the
Shipping sector as we believe that its potential strong earnings performance in
4Q12 could have factored into our expectations. That said, the sector will be
defensive in the near term as we see its risks to be well capped at this
juncture. The sector is also seen as having less “elections” risk as compared
to the other sectors.
1H12 results within
expectations. All of stocks under
our coverage reported “in-line” results for 1H12. We also noted that the
seasonally weak period was well supported by a 10% lower fuel cost. POS
Malaysia (POSM) reported a better than expected set of results due to the
strong rebound in its new business and other income, which we had
underestimated. With strong double-digit growth for the next five years as
guided by POSM’s management, we see the contributions from its new businesses
i.e. Islamic pawn, micro financing and courier online retails will increase
significantly for the group, making up a larger share over the down-trending contribution
from its conventional post business.
Strong season for
airlines in 4Q12. Both airlines under our coverage have hedged c. 15% of their
3Q12 and 4Q12 fuel consumptions at c. USD119/barrel for Jet Kerosene. This will
support the airlines earnings during the coming period and we expect their
earnings to come in within our expectations as we have assumed that the average
fuel cost will hover around USD120 to 130/ barrel for FY12. Budget 2013 should
benefit the aviation sector as it s closely related to the tourism sector and
we see AirAsia and MAHB to benefit from the efforts to promote the country’s tourism.
Nonetheless, we have trimmed our Target Price lower for AirAsia to RM3.66 based
on a lower implied FY13E PER from 13x to 11x. We think that this is justified
as the sentiment on the stock has been affected by the potential competition
from Malindo.
Uninspiring shipping
rate trends. We note that shipping
charter rates have been on a downtrend since July-12. Tanker rates have fallen
by an average of around 3%, the dry bulk segment rates have dropped by an
average of 11.8% and the LNG vessel spot and term-charter rates are down by
about an average of 13.7%. Moving ahead, we believe that the recovery in the tanker
and dry bulk vessel charter rates will still be volatile and sluggish for at
least the next 1½ years as there still remain 1) an oversupply in ship capacity
(estimated to stretch at least till 2014) and 2) a weak future global economic
outlook.
Samalaju Port in the making….We understand that Samalaju
Port’s construction is currently in progression, with full completion expected
by mid-2013. The concession entity is in the midst of finalising its financing
structure and we have been guided by management that Bintulu Port’s earnings
and dividend payout will be maintained even if there is a need of new capital
injection for Samalaju Port’s development. We thus believe that the asset could
be developed under a Special Purpose Vehicle (SPV) in collaboration with other
investors. Thus far, the construction of Press Metal and Tokuyama plants are at
their advance stages with the first production output tentatively by
mid-2013.
We are maintaining our NEUTRAL recommendation. We favour
AirAsia as our Top Pick in 4Q12. We see the selldown in AirAsia as a good
opportunity to collect the shares at a lower price as we believe that the
selldown has been an overreaction on the Malindo issue. Malindo will start its
operation in May 2013, but the competition could be minimal as both airlines
differentiate themselves with their products. For instance, Malindo offers
frills like WIFI and flight entertainment. For a conservative investment
portfolio, stance, we feel that MAHB will be a good pick for its stable
earnings and KLIA2 potential to break even (operationally) in a short period of
time (1 year upon opening in April 2013).
Airlines
Time to consider airlines. Despite the recent selldown in
AirAsia shares, we are of the view that interests in AirAsia will emerge again
in 4Q12, supported by a likely stronger 3Q12 earnings and the seasonally strong
season. Both the airlines, i.e. MAS and AirAsia have hedged 15% of their 3Q12
and 4Q12 fuel consumptions at the average of USD119/barrel (Jet Kerosene). We
believe that their earnings for the remaining 2H12 period will meet our
expectations given our assumption on fuel prices of around USD120 to USD130 per
barrel. For MAS, we do expect some recovery in the 2H12 supported by higher
loads and cost efficiency from its new fleet. However, we do not expect MAS to
turn in a profit at this juncture due to the gestation period needed for the new
fleet to make a meaningful impact, possibly only by end-FY13. In the shorter
term, its fuel surcharge is expected to continue to support its earnings
against a flat yield growth. Meanwhile, we have trimmed our Target Price lower
for AirAsia to RM3.66 (RM4.06 previously) based on a lower implied FY13E PER
from 13x to 11x. We think that this is justified as the sentiment on the stock
has been dented by the potential negative impact from Malindo’s entry into the
Malaysia LCC industry.
Malindo Airways a
threat? Malindo Airways (Malindo)
will offer relatively different product services to consumers with its wifi and
in-flight entertainment. We do not discount the possibility that a price war
will take place when Malindo starts its operation in May13. However, we reckon
that the price war will be minimal due to the limited room to cut ticket prices
and that this short-lived strategy will not be sustainable, especially for new
entrants. That said, as Malindo will be aggressively ramping up its capacity
and routes, a knee-jerk reaction is still expected. AirAsia will likely battle
this threat via its ancillary income. In short, we do not see a head-to-head
ticket price war but more of a competition on the pricing of the frills and
AirAsia’s ancillary income. However, we did factor in a lower ancillary income
contribution per passenger in our FY12-13E forecasts.
Shipping
Uninspiring shipping rate trends. We note that shipping
charter rates have been on a downtrend since July-12. Tanker rates have fallen
by an average of around 3%, the dry bulk segment rates have dropped by an
average of 11.8% and the LNG vessel spot and term-charter rates are down by
about an average of 13.7%. Moving ahead, we believe that the recovery in the
tanker and dry bulk vessel charter rates will still be volatile and sluggish
for at least the next 1½ years as there still remain 1) an oversupply in ship
capacity (estimated to stretch at least till 2014) and 2) a weak future global
economic outlook. Bunker cost meanwhile, although it has weakened (on the back
of softer crude oil prices), continues to be stronger vis-à-vis the shipping industry
charter rate trends. LNG vessel charter rates, which could see some hiccups
within the year due to the changes in LNG demand and the policies of Japan, but
they are likely to stabilise at around US$120-150k per day level as the global
LNG demand continues to be strong.
Keeping MISC at a
MARKET PERFORM. We note that the share price of MISC has been on a
downtrend since July-12. We believe the retracement was largely due to the 1)
weak sentiment in regards to the domestic stock market due to the General Election
(GE) uncertainties; and 2) negative news flows in regards to the global economy
and shipping trends. Having said that, we believe the retracement could be
reversed post the GE when market sentiment improves. As such, whilst there is a
12% upside from current share price (RM4.16) to our target price (RM4.66) we
refrain from upgrading our call as we expect the share price of the stock to
remain volatile in light of the market uncertainties. Thus, we maintain our
MARKET PERFORM call on MISC.
Unchanged view on
Bintulu Port at this juncture. Since
our last strategy report, there have been minimal changes in BIPORT, save for
the continual dredging of its new Samalaju port, the contract of which has been
awarded to TRC Synergy Bhd in June-12. As such, we are maintaining our outlook
and call (MP; TP: RM7.02) on the company until the concession agreement for the
Samalaju port is finalised. We expect the development will not distort BIPORT’s
key financial performance and that it will maintain its dividend payout (vs.
the previous year) as shareholders’ interest are held in high regard by the
company. The catalysts for BIPORT’s earnings are 1) a higher tariff for cargo
handling in Samalaju Industrial Port when it is completed by 2H13 and 2) higher
LNG vessel calls and port’s services when the ninth LNG train for MLNG is
completed by 2016.
Source: Kenanga
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