Wednesday, 29 February 2012

RHB Capital - Resilience surprise on the upside HOLD

We maintain RHB Capital Bhd (RHB Cap) at HOLD, with a higher fair value of RM8.20/share (vs. RM6.90 previously). This is pegged to a fair P/BV of 1.5x (1.3x previously), based on a higher ROE of 13.2% (12.2% previously) for FY12F. 

RHB Cap’s 4QYF11 net earnings fell 7.4% QoQ (largely due to higher loan loss provision). With this, FY11 net earnings came in at 4.1% below our estimate and 3.0% below consensus forecast of RM1,548mil.

Gross loans growth was at 16.2% in FY11, ahead of its earlier target of 15%. NIM was 2.57% in FY11 compared with 2.74% in FY10, with the compression largely caused by a higher cost of funding due to its heavier reliance on the more expensive fixed deposit segment. Nevertheless, net interest income managed to grow 4.3% overall in FY11. Non-interest income posted a commendable growth of 3.7% YoY, considering that there was an unrealised loss relating to its interest rate swap contracts, which came up to RM76mil in total in FY11, a lot less than originally anticipated. 

More importantly, the company has largely provided for its exposure to one particular CLO, which is positive and should remove one of the lingering concerns over RHB Cap. In addition, credit costs rose to 40bps in 4QFY11 (3QFY11: 13bps), which was due partly to weaknesses in selected SME segments. 

Gross impaired loans were reduced by 3.2% QoQ, the fifth consecutive quarter of QoQ improvement, aided partly by good recoveries. Gross impaired loans ratio was thus reduced to 3.4% in 4QFY11 from 3.7% in 3QFY11. Loan loss cover was relatively steady at 73.8% in 4QFY11 from 75.1% in 3QFY11. 

We consider its asset quality to have surprised on  the upside, and more importantly, we are further reassured that the company has not experienced any major deterioration in asset quality over the past three months. Based on this, we have revised upwards our earnings by 13% for FY12F. This is based on a lower credit costs assumption of 61bps (vs. 80bps previously). The company indicated that credit costs will likely be better than FY11’s 36bps. 

The company also indicated that its planned acquisition of Bank Mestika is now scheduled for completion by mid-2012. We have not yet reflected this in our forecasts. The company’s new ROE guidance for FY12F is 14%, including Bank Mestika. We maintain RHB Cap at HOLD.     

Source: AmeSecurities

Puncak Niaga - Turning to new ventures HOLD

Maintain HOLD on Puncak Niaga Holdings with an unchanged fair value of RM1.60/share – pegged to a  65% discount to its estimated break-up value. Puncak reported a 4QFY11 net profit of RM9mil, bringing FY11 net loss to a lower amount of RM9mil vs. a RM72mil loss a year earlier. 

Puncak’s results came in ahead of both ours, and the street expectations of full-year losses to the tune of RM20mil and RM31mil, respectively. The positive variance, in our view, largely stemmed from a sizeable reversal in its minority interest position, particularly in 4QFY11 (~RM31mil).  

FY11 results were impacted by the adoption of the IC Interpretation 12, through retrospective changes to its P&L statement. However, against last year’s RM72mil loss, this was a significant improvement due to contributions from its new oil& gas businesses.

We have cut the group’s FY12F-13F net profit forecasts by 35% and 19%, respectively, to input higher operating costs for its water division and notional interest cost on concession liabilities as a result of IC12. This truncates a scheduled tariff hike for SYABAS in 2012 that we continue to assume and billings from ongoing works for its oil & gas division.

Puncak created some buzz when in 4Q10, it bought out the remaining 40% interest in Global Offshore Malaysia and KGL Ltd for a combined US$59mil (~RM177mil). 

The new acquisitions are supposed to spearhead Puncak’s foray into the oil & gas sector. Apart from pipe-laying contracts, the group is eyeing a role in the development of marginal oil fields and brownfields. 

The group has in recent months also made overtures  to expand its scope into other ventures beyond its water business in Selangor. These include: (i) The privatisation of Indah Water Konsortium (IWK) under a 1MDB-led consortium; and (ii) Scouting for solid waste management contracts in Cambodia. 

But, our call on Puncak remains a HOLD. Prospects for Puncak’s non-water ventures remain fluid at this juncture against an evolving political backdrop. 

 Its share price has since retraced by 28% after scaling a high of RM1.89/share earlier this month, after market anticipation on a state-led takeover of water assets in Selangor eventually fizzled out. 

We would only turn more constructive on the stock when greater clarity surfaced on the restructuring of Selangor’s fragmented water industry. We do not envisage this  to happen before the 13th General Election.  

Source: AmeSeurities

Litrak - Turning heads HOLD

We maintain our BUY recommendation on Lingkaran Trans Kota Holdings (Litrak), with a higher fair value of RM3.90 (previously: RM3.77/share) – pegged to an unchanged 15% discount of its revised DCF value (WACC: LDP -8.1%, SPRINT – 8.6%).

The higher fair value encapsulates an 11% upgrade in FY12F net profit forecast (FY13F: +9%, FY14F: +5%) following a stronger-than-expected margin trajectory for 9MFY11.

Litrak’s 9MFY11 results came in ahead of expectations, accounting for 80%-85% of both consensus and our full-year estimates. The main positive variance, in our view, stemmed from better-than-expected EBIT margins (9MFY12: 77% vs 75% a year earlier).

During the period, the group’s bottomline surged 23% YoY arising from the full-year impact of a scheduled toll rate revision from 1 January 2011.

Sequentially, its earnings fell 2% QoQ to RM32mil. This was largely due to a marginal increase in operating expenses incurred during the quarter.

Litrak declared a second interim dividend/share (DPS) of 7 sen in 3QFY12, taking 9MFY12 DPS to 17 sen – matching the payout last year. We have assumed a total DPS of 18 sen for FY12, translating into a decent yield of 4%.

Litrak has been in the news recently, where the toll concessionaire is reportedly a take-over target of  PLUS Expressways along with SILK Holdings. 

But, we are unsure if Gamuda – Litrak’s major shareholder with a 45% stake – would be willing to part ways with the urban toll operator. This being the case, Litrak has been a steady generator of Gamuda’s cash flows over the years.

Moreover, the continued uncertainties over toll rate hikes and associated risk of back-ended cash flows (i.e. extension of concession period rather than outright cash payment as compensation for delays in toll hikes) is another drag.

Our HOLD rating is premised on its status as a core holding for investors seeking exposure to the toll concessions with the de-listing of PLUS and MTD Capital. This is backed by a decent yield offering of 4%-5%.

Source: AmeSecurities

KNM Group - Residual 4QFY11 provisions as expected SELL

We maintain SELL on KNM Group with an unchanged fair value of RM0.75/share pegged to an FY12F PE of 10x – a 30% discount to the oil & gas sector’s 15x. 

We maintain FY12F-FY13F net profits for now with the expectations that KNM would start afresh on a clean slate next year on the back of new order accretions. Note that we are projecting an FY13F earnings decline of 9% due to the end of the recognition of the Borsig tax incentive. Hence, our FY12F-FY13F earnings are currently 22%-53% below consensus.

We introduce FY14F earnings with a growth of 30% largely due to a 5% increase in new order assumption and a 1ppt- improvement in fabrication margin.

KNM’s FY11 net profit loss of RM83mil was not a surprise, coming in within our and street expectations. The residual provisions for the group’s projects were largely expected following the group’s shocking 3QFY11 net loss of RM116mil.

OoQ, KNM’s 4QFY11 pre-tax loss plunged to RM11mil from RM145mil in 3QFY11, which had provisions that included RM80mil for cost overruns on various projects in Asia and Oceania and RM50mil for doubtful debt write-offs. We understand that KNM was still in the red due to additional provisions of RM30mil in 4QFY11.

KNM has recently entered into an option agreement to acquire a 55-acre vacant land for the RM2.2bil Peterborough Renewable Energy Ltd (PREL) project. With the land ownership, we understand that KNM could possibly end up with an 80% stake (with the balance held by UK-based sponsors) in this waste-to-energy concession if the group could secure external borrowings. This may be a negative development as this huge project will likely elevate the group’s current net gearing level of 0.5x to 0.9x, unless other investors dilute KNM’s equity stake to an associate level. 

KNM’s current order book stands at RM5.8bil, with new orders secured up to RM1.8bil for this year and tendering up to RM18bil potential orders. But as the order book includes (1) the RM2.2bil Peterborough Renewable Energy Ltd (PREL) project, (2) RM908mil Lukoil contracts in Uzbekistan, and (3) the recently awarded US$200mil (RM638mil) waste-to-energy Sri Lankan EPCC job from Octagon Consolidated, we note that over half of the group’s order book does not have clear visibility in commencement.

Normalising tax rates, KNM currently trades at a pricey FY12F PE of 30x, way above the oil & gas sector’s. This is unjustified given KNM’s persistently poor quarterly earnings delivery.

Source: AmeSecurities

Hock Seng Lee - Results in line; cash and share dividend surprise on the upside BUY

We maintain BUY on Hock Seng Lee (HSL), with an upward revised sum-of-parts-derived fair value of RM2.65/share (vs. RM2.44/share previously), which includes a PE of 9x against its 3-year average forward earnings for its construction division.

We have rolled forward our valuation years to FY12-FY14. HSL’s net profit of RM87mil for Y11 (+19% YoY) came in within expectations – at a mere 1ppt above our forecast and 1ppt below consensus. We introduce FY14F net profit at RM137mil (+10% YoY).

No major surprises could be gleaned from the full-year results, except for a higher-than-expected dividend as well  as an earlier-than-expected distribution of treasury shares. 

It proposed a final dividend of 1.8 sen/share and a special dividend of 0.6 sen/share, bringing the total for the full year to 3.6 sen/share, vs. 3 sen/share (excluding treasury distribution) for FY10. We had expected dividend to be maintained at 3 sen/share.

With the latest dividend, the net payout ratio is maintained at 17% as it was the previous year. We now assume a 17% net payout ratio for FY12F-FY14F, translating into an annual GDPS of between 4.4 sen and 5.6 sen, or yields of 2.7%-3.4% at the current price.

For the share dividend, it will distribute one treasury share for every 50 shares held (totalling nearly 11mil treasury shares) – equivalent to 3.2 sen/share at RM1.60/share. This would be the second time in as many years that HSL is distributing its treasury shares, with the first in FY10 of the same ratio. After the latest distribution, over 24mil shares would remain in treasury. The share dividend’s ex- and entitlement dates have been fixed for 26 and 28 March 2012, respectively.

HSL maintained its growth momentum in 4QFY11, with a net profit of RM26mil (+21% YoY; +16% QoQ). Crucially, operating margin of the construction division was maintained at above 20% for 4QFY11 and the full year, while better margins also aided the property division in view of fewer launches and sales. 

HSL currently has RM1.7-RM1.8bilbil worth of jobs in hand, of which RM1.1bil is outstanding – with plenty more projects within Sarawak’s SCORE up for grabs. 

 It is actively seeking opportunities in the power sector and it may soon secure a RM250mil education facility in Mukah. The remaining phases (worth RM1.7bil) of the Kuching central sewerage project are also up for grabs this year, with the RM452mil phase one currently being carried out by HSL. HSL remains as one of the primary proxies to the rapid  pace of development taking shape in Sarawak. 

Source: AmeSecurities 

KFC Holdings - Non-core divisions a drag on earnings Buy

KFC Holdings (KFC) posted a higher net profit of RM38mil for 4Q, bringing full-year earnings to RM144mil. The results were 13% below our forecast and 9% short of consensus. The performance was largely marred by losses from the ancillary and education divisions which crimped margins. 

Despite an 11% top line growth for FY11, net profit fell 8% YoY. Higher sales volume was attributed mainly to:- 1) Healthy  same-store-sales (SSS) growth at an estimated mid- to high-single digit; 2) Network expansion of KFC outlets and; 3) Introduction of new product offerings. KFC added a total of 36 new outlets for FY11 (Malaysia: +24, Brunei: +3, Singapore: +3, India: +6). 

Non-core divisions of integrated poultry and education & ancillary operations fared below expectations. Higher commodity costs, namely feedstock for broiler farming activities, dragged down integrated poultry’s EBIT (YoY: -61%), while the education & ancillary division fell into the red with a RM7mil loss (FY10: 5mil) as a result of increased costs from new campus opening (Bandar Dato Onn, Johor) and higher A&P. The ancillary division, which is predominantly sauce manufacturing, was affected by reduced volumes for contract packing and higher packaging material costs.

The lacklustre performance was not surprising, given higher raw ingredients and packaging costs which escalated in 1HFY11. We are not too concerned about margin pressures moving forward, given the easing in soft commodity prices and the small contribution to group earnings at 4%-5%. As an indication, prices of corn and potato are 18%-22% off their respective peaks.

On a sequential basis, 4Q net profit was up 13% on the of a 10% rise in revenue. This was mainly attributable to seasonally robust sales at KFC restaurants from year-end school holidays and festive celebrations. 

We have trimmed our FY12F-13F earnings forecasts by7%-10% post KFC’s full-year results and our latest margin assumptions. We are keeping our projection of new KFC store openings at 36 per annum. Maintain BUY with an unchanged fair value of RM4.15/share, based on a fair PE of 18x FY13F earnings as we still like the group’s highgenerative food business model. We expect the proposed takeover of KFC by 51% Johor Corporation-owned Massive Equity Sdn Bhd (MESB) to be concluded by end-1Q2012. CVC Capital Partners Asia III Limited owns the balance of 49% of MESB.

Source: AmeSeurities

Alam Maritim - Dampened by JV write-off, offshore construction delay BUY

We reiterate our BUY rating on Alam Maritim Resources, with an unchanged fair value of RM1.00/share, pegged to an FY12F PE of 12x – at a 25% discount to the oil & gas sector’s 16x. 

Alam’s FY11 result was 54% below our earlier FY11F net profit of RM28mil and 64% of street’s RM36mil. Thisstemmed largely from:
1) a RM15mil expense for capitalised interest on two 12,000 brake horse power vessels, currently being built in China, which will be injected into the 50:50 joint venture (JV) with Tabung Haji (TH). The sale and leaseback agreement was signed in 4QFY11, while the vessels will be completed by the end of 2012.
2)  a RM5mil additional interest charge for the 50:50 JV for the Alam-Swiber derrick lay barge as the commencement of the RM230mil offshore installation construction (OIC) contracts in East Malaysia has been delayed from September last year to March-April this year.

Alam registered a 4QFY11 net loss of RM1mil vs. a net profit of RM13mil in 3QFY11, largely due to the Alam-TH JV one-off capitalised interest expense, delay in OIC construction work and 27% QoQ seasonal drop in marine charter revenue. Although FY11 net profit came in way short of expectations, we expect a significant recovery in 1QFY12 as the group’s vessel utilisation has remained firm at over 80%. Hence, we maintain FY12F-FY13F net profits, based on vessel utilisation rates of 80%-90% and EBIT margins of 55%. We introduce FY14F net profit with  a growth of 7% based on a 5ppt- improvement in vessel utilisation rate.

We expect the turnaround in the OIC division to be  a strong re-rating catalyst as this division had been a significant drag to earnings since 4QFY10. This recovery should be sustainable as Alam is also aggressively bidding for more OIC jobs and could be awarded another sizeable contract early next year. Recall that Alam secured its maiden major OIC contract with Samsung worth US$18mil for Sabah Oil & Gas Terminal (SOGT).

We also expect Alam to be awarded fresh charters for its idling and spot-chartered vessels as utilisation in the sector has tightened. We note that day rates have been slowly rising on tightening global vessel utilisation. 

As such, we maintain our view that the company’s earnings recovery is intact with undemanding valuations of FY12F PE of 9x – at the lower end of its historical PE band. This is underpinned by improving vessel utilisation rates with its recent charters, coupled with a likely turnaround in its offshore construction division.

Source: AmeSecurities

Ann Joo Resources - Good finish to a difficult quarter BUY

We maintain our BUY recommendation on Ann Joo Resources, and tweak slightly upwards our fair value for the stock to RM2.74/share (unchanged target PE of 12x) to adjust for actual FY11 figures. 

Ann Joo reported a net profit of RM62mil for FY11. The headline profits doubled our forecast, but came in short of consensus (~62%). The positive surprise against our forecast largely came from a relatively good finish to the final quarter. 

Ann Joo managed to deliver a net profit of RM11mil  in 4QFY11 (our expectations: a loss of ~RM20mil) despite a challenging operating environment and start-up costs incurred during the launch of its blast furnace in October. This reflects management’s tight control over its cost structure, particularly in the procurement of raw materials – we believe.  

On a sequential basis, the group returned to the black against a RM25mil loss in 3QFY11 that was mainly inflicted by inventory write-down/unrealised forex losses to  the tune of RM60mil.  

Ann Joo declared a final dividend/share (DPS) of 3.5 sen, bringing FY11 DPS to 7.5 sen or a gross yield of ~1%. This was lower than our forecast of 10 sen.

Barring a sudden deterioration in the global macro picture, we project a 127% YoY growth in FY12F net profit at RM140mil. 

We expect domestic steel demand to gather momentum moving into 2H12 on a step-up in Malaysian infrastructure activities, particularly with the imminent roll-out of the Sg.Buloh-Kajang MRT line.

On the other hand, prices of key inputs appear to have normalised. For instance, the average international scrap price had retracted to the US$460/tonne level last month from US$503/tonne in September 2011.

We expect Ann Joo’s net gearing level to have peak at 1.4x for FY11, improving to 1.1x and 0.9x, respectively, by FY12F-13F, following the successful commissioning of its RM650mil hot metal plant last October. 

Ann Joo remains our top pick for traction to the steel sector. The stock trades at attractive forward FY12F-14F PEs of 7x-9x - below its six-year average historical PE of 11x – against a robust EPS CAGR of 35%. 

Source: AmeSecurities  

Benalec Holdings - To the fore in Johor BUY

Maintain BUY on Benalec Holdings with an unchanged fair value of RM2.85/share – based on the sum-of-parts methodology. Benalec unveiled 1HFY12 results which were largely in line with expectations – accounting for 52%-53% of both consensus and our full-year estimates. 

Net profit jumped 18% YoY on:- (i) a RM33mil gain on land sales in Malacca that was booked in 2QFY12; and (ii) a significant 10.5ppt QoQ jump in EBIT margin for its marine division (ex-land sales).    

Benalec’s outstanding order book stands at approximately RM541mil (~2.7x FY11 construction revenue), providing earnings visibility for the next four years.

We continue to like Benalec for its exciting prospects as one of the fast-emerging integrated marine engineering specialists in Malaysia and the region. 

A key re-rating catalyst comes in the form of the group’s exciting foray in Johor, where it had in November secured agreement-in-principle development rights to 5,245 acres of prime seafront land in South Johor.

The group is working hard to obtain the necessary approvals, where its immediate focus will be on Tg.Piai – located on the south west of Johor and just 17km away from Singapore’s vibrant petrochemical hub in Jurong. 

To be sure, Benalec has also signed an MoU with Singapore-based Rotary engineering to co-develop an integrated petroleum storage facility on 250 acres  of reclaimed land at Tg.Piai. 

Poignantly, Benalec is set to gain from multiple new earnings streams via marine-related works and associated recurring income from the ownership of this proposed oil terminal. We have assumed land sales of ~300 acres each for FY13F-14F. 

Valuations remain compelling at FY12F-14F PEs of 5x-9x against a robust EPS CAGR of 22% and supported by decent yields of 4%-9% on a targeted payout ratio of ~30%.

Near-term prospects would be driven by: (i) cyrstallisation of a further agreement with the Johor government; (ii) conversion of a formal SPA with Rotary; and (iii) Securing off-takers to its prime Johor landbank. 

In addition, the group is also actively bidding for more reclamation jobs beyond Malacca – notably in Penang, Selangor and Singapore.  

Source: AmeSecurities 

Media Chinese Intn'l - Strong adex spending BUY

We reiterate our BUY recommendation on Media Chinese International Ltd (MCIL), with a higher DCF-based fair value of RM1.37/share versus RM1.30/share previously.

MCIL’s 9MFY12 earnings of RM155mil outperformed our full-year forecast by 4%. Annualised earnings were at 24% above consensus. 

We revise upwards our earnings estimates for FY12FFY13F by 25%, owing to stronger-than-expected adex volume moving forward.

MCIL’s 3Q net profit rose 32% QoQ to RM63.1mil, despite a slight drop in turnover by 4.4%. The improved performance was largely attributed to robust sales contributed  by accelerated adex spending and cost containment efforts.

So far, 3Q has been the strongest quarter with a 34.9% QoQ jump in pre-tax profit. Publishing and printing performed well, increasing by 8.7%. Advertising growth was boosted by improvements in volume and rate, despite the economic uncertainty and advertising volatility in the local market. 

On a YoY basis, MCIL recorded a 6% rise in net profit for 9MFY12 due to a higher turnover at 9%. This strong growth was mainly attributable to advertising revenue from national advertising, property sector and luxury products and tour revenue especially in the long-haul tours. 

We understand that publishing and printing in Hong Kong set a record for MCIL. Print advert is fully booked for CY12 for a magazine called “MING Watch” in Hong Kong and China. “MING Watch” is a watch magazine featuring the latest news on high-end watch trend.

Nevertheless, adex outlook in Malaysia remains healthy, with the potential election in CY12 to bode well for the sector. Other regional events such as elections in the US, China, Taiwan, HK and the Olympics would also support adex spending.

Management expects escalating costs due to inflation, especially for newsprint price and staff costs. Newsprint price is expected to rise due to an increasing demand in 1HFY13F as many elections are taking place globally.

We like MCIL due to the group’s monopolistic position within the Chinese language print segment in Malaysia (87% of market share) and superior pricing power for adrates – the second highest industry wide.

Source: AmeSecurities

Genting Bhd - Overseas casino contribution overtake Malaysia’s BUY

Affirm BUY on Genting Bhd with an unchanged RNAVbased fair value of RM11.85/share. Genting’s core net profit was within our expectations. If consensus estimates had included exceptional items, then Genting Bhd’s results would have also been in line with market expectations.

Genting Bhd’s revenue expanded by 29% YoY to RM19.6bil in FY11 underpinned by strong contributions from the UK and Singapore. 

The group’s EBITDA climbed 14% YoY to RM8bil in FY11 as earnings from Genting Singapore PLC rose 19% and profits from the UK improved by 74%.

These two casino divisions more than compensated for a loss of RM66.9mil in the oil and gas division in FY11. 

Although there is no revenue from the oil and gas division, the division incurred a loss due to general and administrative expenses.

We understand that Genting Bhd would be implementing a development plan for the Kasuri Block. Capex for the oil and gas division is expected to be RM247mil in FY12F. 

Recall that the Kasuri PSC (production sharing contract) is the only oil and gas asset left in Genting Bhd after the group sold two PSCs in Indonesia to AWE Ltd for RM121mil early this year. 

EBITDA of the power division rose 16% YoY to RM632mil, underpinned by higher volume of production and tariff hike in China. 

We understand that Genting Bhd is still negotiating with Tenaga Nasional Bhd for a power purchase agreement for its Genting Sanyen power plant, which is due to expire in FY15F.

Genting Bhd has only declared a final gross DPS of 4.5 sen less 25% tax. This brings total gross DPS to 8 sen less 25% tax for FY11. The gross DPS of 8 sen for FY11 (FY10: 7.8 sen) translates into a yield of only 0.8%.

We gather that FY11 dividend payments were meagre as the group is conserving cash for its expansive capex plan. Genting Group’s capex is estimated at RM4.5bil for FY12F.

Source: AmeSecurities

Genting Malaysia - Maiden contribution from RWNY BUY

Maintain BUY on Genting Malaysia Bhd (GenM), with an unchanged RNAV-based fair value of RM4.30/share. GenM’s results were within consensus estimates and our expectations. 

We have tweaked GenM’s FY12F to FY13F earnings forecasts for housekeeping reasons and to account for lower daily wins per machine at “Resorts World New York”(RWNY). 

Our new assumption is a daily win of US$330/machine for FY12F versus US$400/machine previously. Year-to-date, average daily win was US$347/machine.

GenM recorded a maiden contribution from RWNY in FY11. Excluding cost overruns, which contributed to a loss of RM17.3mil in 4QFY11, operationally RWNY recorded revenue of RM95.3mil and EBITDA of RM23.6mil from two months of operations in FY11. This implies an EBITDA margin of 24.8%.

We understand that RWNY has stepped up its marketing efforts in New York and has implemented a bus programme running to, and from, Queens and Manhattan.

We also gather that there are seasonality trends to the average daily wins/machine. The average daily wins/machine tends to decline during winter and pick up during summer. 

As for the legalisation of a full-fledged casino licence in New York, we understand that the legislative process would take 2½ to three years. In Miami, the next seating for the approval of the casino bill would be in FY13F.

Revenue of GenM’s casino operations in Malaysia rose 7% YoY to RM5.4bil in FY11, underpinned by improvements in win percentage. If luck factor were to normalise, then revenue would have risen by only 4% YoY in FY11.  

Non-VIP players drove the increase in the volume of business. Volume of business from the non-VIP segment rose by a low double-digit percentage YoY in FY11. This helped compensate for a single-digit percentage decline in the volume of business from the VIP players.

In the UK, volume of business at the London casinos climbed 22% YoY in FY11. Volume of business at the provincial casinos was flat YoY in FY11.   

Source: AmeSecurities

Ta Ann Holdings - FY11 within expectations; RM9.7mil plywood impairment not a surprise BUY

We maintain BUY on Ta Ann Holdings Bhd, with an unchanged fair value of RM7.60/share, based on a PE of 13x pegged to FY12F EPS of 58.5 sen.

Ta Ann’s FY11 net profit of RM153mil (+104%) was within expectations, but for an impairment of RM9.7mil relating to its Tasmania veneer manufacturing operations.

Excluding the impairment, core net profit amounted  to RM163mil vs. our estimate of RM162mil and consensus’ RM159mil.

It declared a second interim (single-tier) dividend of 10 sen/share, bringing the total for the full year to 20 sen/share.  (vs. 8 sen in FY10) – representing a net payout ratio of 40% and beating our forecast of a 15 sen/share estimate. 

We have accordingly adjusted upwards our forecast annual gross dividend to 20 sen/share from 15/share previously – representing a net payout of between 20% and 27%.

We understand that the RM9.7mil impairment was made with regard to its property, plant and equipment in Tasmania, given the continuing losses of the operations there.

Including the impairment, the plywood division incurred a loss after tax of RM14mil (halved vs. loss of RM28.8mil in FY10). We deem the impairment as prudent given the continuing losses – short of closing down the loss-making unit. We do not rule out more impairment to come.

Notwithstanding that, we are maintaining our forecasts as we had already assumed an FY11 pre-tax loss of RM5mil (excluding impairment) for the plywood division, and further annual losses of between RM10mil and RM13mil for FY12FFY14F.

FY11 bottomline was driven by a significant growth in its oil palm division, which posted an 87% rise in profit after tax to RM124mil (vs. FY10’s RM66mil), as well as the logging division, which posted a 26% YoY rise in PAT to RM44mil.

Notably, fresh fruit production (FFB) sales volume rose nearly 50% 457,975 tonnes from 310,870 tonnes in FY10, while average CPO price rose 23% to RM3,306/tonne from RM2,691/tonne in FY10.

We continue to like Ta Ann for its rapidly growing oil palm division. Additionally, log and plywood prices are currently holding above US$210/cu m and above US$600/cu m, respectively.

Source: AmeSecurities

Kencana Petroleum - Secured RM74mil Tapis substructure job BUY

We maintain our BUY call on Kencana Petroleum (Kencana), with an unchanged fair value of RM3.54/share – pegged to a CY12 PE of 22x against the merged Kencana-SapuraCrest’s earnings. 

Kencana has secured its second contract this year, with a RM74mil job from ExxonMobil Exploration and Production Malaysia Inc to fabricate a Tapis R sub-structure for the Tapis ReDevelopment roject. This one-off contract, expected to be delivered in 2QCY13, involves the procurement, fabrication, testing, load-out and tie-down of sub-structures which include jacket, piles and related component which forms part of Tapis R central processing platform, off the coast of Terengganu. 

Recall that Malaysia Marine & Heavy Engineering has already secured the main bulk of the Tapis enhanced oil recovery (EOR) project with a RM1.6bil contract to procure, fabricate, test, loadout, install and commission an integrated offshore platform deck called Tapis R and two interplatform deck in November last year. Hence, we do not expect further contracts from the Tapis EOR for Kencana, which clinched a RM101mil contract from Murphy to fabricate substructures, template & other services for the Patricia & Serendah platforms, SK309 field, off Bintulu just last week.

But we expect this small job to be just the start of the group’s order book accretion, given Petronas’ spending programme of RM300bil over the next five years, which includes enhanced oil recovery and marginal field jobs. We understand that the group is expected to secure two well-head platforms for the Bunga Dahlia and Teratai fields, connected to nine fields in Blocks PM301 and PM302 and in the Bergading contract area. Hence, while Kencana’s total new orders secured to date since the start of FY12F amounts to RM1.2bil, we maintain FY12F-FY14F earnings based on annual new orders of RM1.8bil-RM2bil.

We remain positive about Kencana’s synergistic merger with SapuraCrest Petroleum, which may be completed in March-April this year. While Kencana has been expanding its yard and commenced the construction of two new tender rigs, its merger partner has been penetrating new markets recently, notably Brazil. Recall that besides SapuraCrest’s recent 50:50 JV with Seadrill to own, manage and operate three flexible pipe-lay support vessels, there could be a further injection of three semi-submersibles into the group’s fleet. 

The stock currently trades at an attractive FY13F PE of 19x, below its 2007 peak of 22x.

Source: AmeSecurities

KFC (FV RM4.00 - NEUTRAL) FY11 Results Review: Not so "Finger Lickin' Good"

KFC’s  full year earnings were below consensus but within our estimates. The stronger revenue (+11%) was attributed to better performance across all segments but its core net profit fell 4.1% y-o-y due to higher operating expenses. EBIT margin continue to shrink, dipping by 0.8% on costlier input and higher expansion expenditure. Maintain NEUTRAL, with our FV unchanged at RM4.00.

In line.  KFC’s  FY11 revenue jumped 11% y-o-y from RM2.5bn to RM2.8bn, largely contributed by higher revenue from its Malaysia and overseas operations. The opening of 24 new restaurants, introduction of new products and effective marketing programs boosted revenue at its Malaysian operations (+10.6%) while revenue from its overseas operations improved 14.9% y-o-y to RM449.4m from RM391m previously. Revenue in the integrated poultry and ancillary segments grew by 10% and 2.9% respectively while revenue at the education division soared 327% y-o-y. The FY11 PBT was lower than that in the previous year, during which  KFC recorded a net surplus of RM6.7m from revaluation of properties. Excluding the exceptional gain, the group’s PBT was still flat at RM121.5m vs RM121.1m y-o-y given expenses from new openings and higher raw material costs. Despite the flat PBT, core net profit was lower by 4.1% y-o-y due to  a higher tax rate. Q-o-q, the group’s top- and bottom-lines expanded by 9.9% and 13.4% respectively, spurred by the holiday and festive seasons.

Leaner margin.  EBIT margin slipped 0.8% from 8.7% to 7.9%, with the integrated poultry and education segments being the major drags. The thinner margins from integrated poultry were mainly due to: i) the higher commodity prices in producing feed for broiler farming, ii) higher energy and storage costs, and iii) higher cost to buy broilers from the open market to meet the increasing demand from its Malaysian operation. The higher operating expenses incurred in setting up its new campuses in Johor and Selangor and higher marketing cost to boost student intake  also  played a part  in chipping off margins in the education division.

Maintain  NEUTRAL.  We remain cautious on KFC’s prospects in light of a recent incident caught on  Youtube purportedly  depicting unruly behaviour among KFC employees. This  may dampen customer sentiment for  the time being. Maintain NEUTRAL, with our FV at RM4.00, based on the takeover offer price.

Source: OSK188

UEM Land (ULHB MK, TRADING BUY, FV: RM3.17, Close: RM2.22)

UEM Land’s (ULHB) FY11 net profit came in well above our and consensus expectations, making up 134% and 125% of the respective FY11 forecasts. The outperformance was largely driven by higher-than-expected revenue and strong 4QFY11 net profit which accounted for about 46.6% of the full-year profit. We are raising our FY12 net profit forecast by 30% and introducing our FY13 forecast. We maintain our Trading Buy call on ULHB at an unchanged FV of RM3.17 based on a 10% discount to our RNAV valuation.

Beating our and street estimates. ULHB recorded a net profit of RM301.7m for FY11 which came in 34% and 25% above our and consensus full-year estimates respectively. The better-than-expected results were largely due to robust revenue from property development and strategic land sales in 4QFY11. It had an exceptional 4QFY11, where quarterly net profit alone accounted for a whopping 46.6% of the full-year earnings. For 4QFY11, property development recorded a 45% q-o-q growth in revenue, while raking in RM87m from strategic land sales to the Johor State Government vis-à-vis RM13.5m for 3Q. Notably, due to the consolidation of revenue from its acquisition of Sunrise, ULHB recorded a 261% y-o-y growth in revenue, though net profit was up by only 55% y-o-y as property development, which now has a significantly bigger contribution, commands a lower margin relative to that of strategic land sales.

Unbilled sales at RM1.85bn. For FY11, ULHB recorded total property sales of RM2.2bn with unbilled sales standing at RM1.85bn as at end-FY11. Despite the weaker sentiment in the property market, it has maintained its sales target of RM3bn for FY12 with several new projects to be launched in the Klang Valley, Cyberjaya and Nusajaya this year.

Maintain Trading Buy. In light of the sterling FY11 results, we are raising our FY12 net profit forecast by 30% after revising up our revenue forecast  on the back of the strong unbilled sales and future launches. We also take this opportunity to introduce our FY13 forecast. We maintain our Trading Buy recommendation at an unchanged FV of RM3.17 based on  a  10% discount  to our RNAV valuation. As  its profitability continues to improve, ULHB’s PER multiple will also continue to compress to a more reasonable level compared to its elevated historical PER multiples.

Source: OSK188 

RHB Capital (RHBC MK, BUY, FV: RM9.90, Close: RM7.80)

The group’s FY11 results were largely in line with consensus and our full-year estimates. However, its 4Q11 sequential earnings were hit by lumpy exceptional provisions for its CLOs, thus raising q-o-q impairment losses on securities by 212%. Sequential pre-provision operating profit growth was commendable at 15.6% q-o-q, driven by stronger trading income and Islamic banking income. The stabilization in NIMs and absence of one-off lumpy CLO provisions in FY12 provide a more promising profit growth outlook for FY12. Maintain FV of RM9.90 based on 1.76x FY12 P/BV, 14.1% ROE. Maintain BUY. 

In line. The group’s FY11 earnings were largely in line with our full-year forecast, with FY11 earnings representing 95.1% of consensus and 96.1% of our full-year forecast. The slight shortfall (-4% deviation from our earnings) was due to a lumpy spike in q-o-q impairment of its CLOs with an existing carrying value of RM87m secured against certain collaterals. FY11 earnings rose at a rather subdued 5.7% y-o-y, while preprovision operating profit posted a marginal contraction of 0.2% y-o-y.

Funding and staff cost  were key drags on FY11 performance. Key earnings dampeners included: (i) funding cost pressure from very aggressive and expensive fixed deposit growth (+28% y-o-y) which pressured net interest margins (NIMs), and this resulted in a rather lacklustre 4.2% net interest income growth despite the robust 16.8% loan growth,  (ii) 23.5% increase in staff cost due to  the undertaking of  various staff retention and optimization measures, and  (iii) RM65.8m marked-to-market losses on interest rate derivative instruments to hedge its fixed rate loans. Among the key earnings drivers were:  (i) promising growth traction on Islamic banking operations (+31.5% y-o-y and +20.1% y-o-y), and (ii) 21.1% decline in loan loss provision which brought the fullyear credit cost down to 34bps vs 50bps in FY10.

Positive  flip sides.  The aggressive deposit gathering strategy in FY11 resulted in  a 17bps compression of NIMs. On the flip side, this has helped lower the group’s loan-todeposit ratio  (LDR)  from 88.6% to a relatively comfortable 84.0% and thus, easing pressures on funding cost in FY12. With the group’s optimal LDR set at just under 90%, the current 84% LDR provides a fair degree of headroom to slowdown its deposit growth relative to loans growth and thus, enabling it to sustain its  current  NIMs in FY12 compared to the steep NIM compression in FY11.    

Source: OSK188

KNM (FV RM0.80 - SELL) FY11 Results Review: In The Red, as Expected

KNM’s FY11 results were within our expectations as we had earlier  anticipated a net loss of about RM70.0m. The loss was mainly attributed to intense competition, especially in the mid to lower end process equipment range, provisions made for foreseeable losses and credit impairment. Although the company has  a  RM5bnstrong orderbook  and a tenderbook  worth over RM17.0bn, we have yet to see these figures translate into positive bottomline contribution. As such, we continue to hold a negative outlook on KNM. Maintain Sell.

Within estimates. KNM’s FY11 results were below consensus but within our expectations, as we had earlier projected the company will  make a net loss of  some RM70.0m. Although its 4QFY11 revenue of RM579.8m was 30.2%  higher  q-o-q  due to higher revenue recognition from its existing and new projects, it only managed to report a small net profit of RM3.0m. This was due to the intense competition  in the mid to lower end process equipment segment as well as provisions made for foreseeable losses.  Further aggravating the already weak FY11 numbers is the presence of  some credit impairment, which led to a net loss of RM83.4m compared with net profit of RM118.2m in FY10.

Business environment continues to be challenging. Despite the recovery in crude oil price to above USD100/barrel,  we believe the business environment for process equipment manufacturers remains challenging due to the intense competition, which may spark off a  price war in which the winners would be the customers.  Also, we think the recovery in the global O&G industry is still slow and has yet to catch up with the pace in mid-2008  when oil price  soared to a record  USD147/barrel. As such, the oversupply of process equipment will continue to  prevent process equipment manufacturers from reaping healthy product margins.

Maintain Sell. Our fair value for KNM remains  unchanged at RM0.80 based on  the existing PER of 13x FY12 EPS. Although the company has a strong orderbook exceeding RM5.0bn and tenderbook  worth more than  RM17.0bn, we have yet to these numbers  translate into positive bottomline contribution. That said, we continue to  hold a  negative view on KNM’s outlook going forward.

Source: OSK188 

ANNJOO (FV RM2.16 - NEUTRAL) FY11 Results Review: Sheltered by Provisions, Tax Incentive

Ann Joo’s FY11 net profit of RM61.7m was spot on with our estimates but below consensus. The recognition of tax incentives plus provisions made for diminution in inventories in 3Q helped to compensate for the meager steel making margins in 4Q. We  see a  slow start for 2012 as actual work  on  various mega projects may take  time  to kick start and the recovery in steel prices may be delayed. The long gestation for its newly commissioned blast furnace (BF) and recent share price rally  may have partly priced in the potential surge in steel prices. Thus, we downgrade Ann Joo to  a  NEUTRAL, with  our  FV  kept  at RM2.16, derived from 0.98x FY12 BV, or -0.5 standard deviation of the stock’s historical trading range.

Almost  on  the dot. Thanks to the recognition of tax incentives  which  resulted  in a positive tax income of RM6.2m, Ann Joo’s FY11 net profit came in at RM61.7m, almost spot on  with  our projection but below street estimates.  The  tax benefit aside, management’s decision to make provisions for diminution in inventory value amounting to RM37.9m in 3Q also  helped to  compensate for the sharp erosion  in  steel making margins in 4Q. This occured when the sharp plunge in the prices of iron ore, steel scrap and steel  gave  rise to a negative mismatch  of lower selling prices and still-high raw material costs, as there is an inherent time lag before the latter starts to decline.

Near-term outlook challenging. Although the award of mega projects is gaining pace, it may take a while for actual works to begin and eventually stoke demand for steel. That said, steel prices have  been  lackluster and  disappoint  our earlier expectations of a possible recovery in February. Thus we expect a slow start for 2012. Also, we suspect Ann Joo may start to expense any interest costs incurred for  its  newly commissioned blast furnace (BF). We also expect  the company to only enjoy limited conversion cost savings as it relies on expensive imported metallurgical coke. Meanwhile, management expects its new plant  to  take another three months to  achieve  efficiency as some ancillary equipment is on the final stage of installation. On full installation, Ann Joo may be able to fully utilise the electricity and gas generated from the BF, plus inject cheaper PCI coal to meet part of its requirement for expensive coke.

Downgrade to NEUTRAL. As the stock has put on some 14.4% since our last upgrade, we suspect that the market may have priced in a potential surge in steel prices. We now anticipate  steel prices to rebound in March, with China expected to  crank up its construction activities as it enters the spring season. As Ann Joo’s share price offers limited upside to our  FV, we  are  compelled to downgrade  it to NEUTRAL, with only a marginal tweak in our projection. We value the stock using a book-based valuation, at -0.5 standard deviation of its historical trading range, which is one notch lower than the industry’s, as we remain vigilant on the potentially long gestation period for its BF. 

Source: OSK188 

PUNCAK (FV RM1.82 - TRADING BUY) FY11 Results Review: Breezing Through Choppy Waters

Thanks to timely profit recognition at its construction division, Puncak’s core net profit of RM3.7m  for FY11 beat our and street projections for a loss. Meanwhile, we reckon the scheduled 25% water tariff hike from 2012 may somewhat  help improve earnings, regardless of whether official approval is granted. We are also upbeat on higher  revenue from its newly acquired Oil & Gas (O&G) unit and earnings from outstanding pipe laying projects. As the share price offers a decent upside to our FV of RM1.82,  we are  prompted to upgrade Puncak back to  a Trading BUY.

Marginally ahead of expectation.  Excluding the non-operating income amounting to RM5.6m, Puncak reported a core net profit of RM3.7m for FY11, which was ahead of our and consensus’ projection of a loss. The revenue was 21.7% higher than our numbers, thanks mainly to higher construction revenue from  its  water pipe project and maiden contribution from  its  newly acquired O&G subsidiary. However,  the group  is allocating more capex and various annual charges directly to its income statement (P&L) to comply with accounting standard IC 12,  which  continues to undermine Syarikat Bekalan Air Selangor SB  (Syabas)’s bottomline. That said,  the  timely profit recognition  in its construction division will help to cushion the negative impact.

25% tariff hike and O&G contribution? As provided under the concession agreement, 70%-owned Syabas is scheduled to receive a 25% water tariff hike from 1 Jan 2012. We do not expect any hike to be implemented as the previously scheduled 30% hike for 2009 is still under legal dispute with the Selangor State Government. However, we believe the group will again account for the estimated compensation for the new water tariffs, which will artificially boost its bottomline. Meanwhile, we also understand that its newly acquired Global Offshore (M) SB (GOM) has secured a lucrative O&G pipe maintenance project worth some RM420m, which will keep the unit busy this year. This aside, Puncak is also bidding for various water projects, with margins for its water and O&G projects estimated to be in the mid-teens.

Trading BUY. We expect Puncak’s FY12 profit to hit RM172.4m, incorporating the tariff hike compensation mentioned earlier, as well as contributions from its O&G and water pipe-laying projects. Since our last downgrade on the stock, its share price accordingly fallen back. Against our original fair value of RM1.82, the stock now provides a decent potential upside of 31%. In light of these factors, we upgrade Puncak back to a Trading BUY. Our fair value is derived from 0.7x FY11 B/V, which was the benchmark used before adjustments for IC Interpretation 12.

Source: OSK188

GENTING (FV RM12.30 - BUY) FY11 Results Review: Mild Headwinds

The group’s FY11  earnings  were in line with both consensus and our  full-year estimates, representing 98.9% and 99.9% of consensus and our full-year forecasts. Incorporating our recent fair value downgrade on Genting Singapore, we are revising downwards our earnings and SOP fair value for Genting Bhd from RM13.36 to RM12.30. Despite the recent earnings letdown from subsidiary Genting Singapore, we think that this has largely been priced into the group’s relatively attractive 13.1x FY12 PER  vs  its large-scale global casino peers’ more than 20x PER. Maintain BUY, at a SOP fair value of RM12.30.

In line. Genting Bhd’s FY11 core earnings were in line, representing 98.9% and 99.9% of consensus and our full-year forecasts respectively. Core earnings, EBITDA and revenue accelerated by 12.4%, 13.5% and 28.9% y-o-y respectively in FY11, with Genting Singapore being the single largest contributor at 69.7% of absolute y-o-y EBITDA growth. The group’s q-o-q performance was more subdued, with EBITDA up  3.9% as the lower plantation earnings (-13% q-o-q) and construction cost overruns from Resorts World at New York partially offset its gaming division’s 4% sequential earnings growth, which was largely driven by stronger luck factor at Genting Singapore.

Broad based y-o-y growth in most segments. The key drivers of FY11’s y-o-y earnings growth were: i) Genting Singapore: (+19% y-o-y and 4% q-o-q) on the back of a full FY11 contribution vs 10.5 months’ contribution in the previous corresponding period and a sequential recovery in win rates; ii) Genting Plantation: (+37% y-o-y but  -20% q-o-q) in tandem with strong FFB production growth and higher average y-o-y CPO prices but lower q-o-q, iii) Malaysian gaming op (+7% y-o-y), boosted by improved win rates and double digit growth in both mass and VIP gaming volume; and iv)  power division: (+16% y-o-y and +3% q-o-q),  as  more power  was  dispatched from its China power plant, and tariff adjustments. The oil and gas division continued to report a loss of RM66.9m.

Leisure, gaming contribute 85% of group EBITDA. Leisure and gaming remained the largest contributor  of  group earnings, with expectations of more growth following the completion of Genting Singapore’s Resorts World at Sentosa’s Western Zone by mid-2012 and a full-year maiden contribution from Genting Malaysia’s Resorts World New York racino in 2012. Given the group’s gross cash pile of RM13.2bn (with net cash of RM930m), expanding global footprint and hence branding, it is well placed to capitalize on casino acquisitions or liberalization opportunities globally.

Source: OSK188

GENM (FV RM4.32 - BUY) FY11 Results Review: Mild Headwinds

The group’s full-year FY11 results were in line with our estimates but marginally beat consensus numbers by 8%. Despite the recent setback in Miami and depletion of the group’s net cash balance to just RM343m as at Dec 2011, its free cash flow remains robust at RM1.2bn p.a, underpinning its capacity for future acquisitions. The maiden full-year contribution from RWNY to earnings in FY12 is expected to drive group earnings by 19.6%. Maintain BUY, and  at  a fair value of RM4.32, backed by its alluring 8.1x EV/EBITDA.

In line. Adjusting for various exceptional items, the group’s FY11 core earnings were in line with our estimates, with its full-year core FY11 earnings representing 102.1% of our full-year forecast but a larger 108% of consensus. EBITDA and net profit expanded 15.1% and 11.2% respectively on better hold rates at its domestic VIP gaming business and  maiden contribution from its UK business. On a q-o-q comparison, EBITDA contracted 1.9% q-o-q, largely owing to a RM40.9m construction loss from cost overruns from the development of Resort World at New York (RWNY) which it incurred in 4Q11. Excluding the construction loss,  the group’s  core operations reported a 5.7% q-o-q increase in EBITDA, driven by the higher business volume from Malaysia and a maiden RM23.6m contribution from RWNY, which commenced operation on 28 Oct 2011. Meanwhile, casino  visitation  in UK stood at +5% in London and +9% at provincial casinos.

Malaysian casino op resilient. Its Malaysian casino operation, which  comprises  the bulk of group earnings (at 90%), reported 7% y-o-y and +6% y-o-y growth in revenue and earnings respectively,  although  4Q11 revenue contracted 1% q-o-q on the back of  a lower win percentage. Foreign visitor growth was driven by Singapore and Indonesia, from which visitation was higher by 6% and 8% respectively for the FY11 period despite fierce competition from the operation ramp-up by Singapore’s integrated resorts. More importantly, hotel arrivals from Singapore were higher than the pre-Singapore IR levels as Genting Highlands’ lower price points and cool mountain air continue to be a key draw for mass market visitation.  

Source: OSK188

LITRAK (FV RM4.72 - BUY) 9MFY12 Results Review: Solid Numbers on Improved SPRINT

Litrak posted 9MFY12 earnings of RM102.1m (+24.6% y-o-y) which was above our expectations by meeting 80.7% of our full-year estimates, thanks mainly to lowerthan-expected losses at SPRINT. It declared a second interim DPS of 7.0 sen with its  9MFY12 DPS now standing at 17.0 sen. Going forward, we expect Litrak’s earnings to be fairly resilient with the next toll hike for its Damansara link scheduled only in 2015. In view of the media speculation on a potential takeover offer by PLUS Expressways, we are removing our 10% discount attached to our previous valuation and our SOP-derived FV now stands at RM4.72.
Above expectations.  Litrak’s 9MFY12 revenue came in at RM269.9m (+14.8% y-o-y). YTD operating profit  increased 15.0% y-o-y  to RM214.5m, with a marginal 20bps improvement in its EBIT margin to 79.6%. All in all, the core earnings of RM102.1m (+24.6% y-o-y) came in slightly above our expectations at 80.7% of our full-year estimates owing to lower losses incurred by its 50%-owned SPRINT. From a quarterly perspective, 3QFY12 results generally marked some decent y-o-y improvement on the recognition of higher toll rates but the numbers were weaker sequentially owing to seasonal factors.

Decent yield. The company took the opportunity to declare a second interim DPS of 7.0 sen with its 9MFY12 DPS now standing at 17.0 sen. This implies a healthy payout ratio of 84.1% (vis-a-vis our previous assumption of 70%) based on its 9MFY12 earnings, which translates into a decent dividend yield of 4.2% YTD. We now expect its payout ratio to hover around 75%-80% (from 65%-70% previously)  as a result of its better cash flow management, and this implies an annualized DPS of 20-24 sen over the next three years. 

No hike expected. With the widely anticipated General Election likely to take place this year, we  do not foresee any toll hikes in the near term with the  Government  likely  to continue subsidizing motorists at RM0.50 on LDP toll rates. This is positive for Litrak as it still receives  the agreed rate of RM2.10, without suffering  a decline in traffic volumes associated with a toll hike.  The next scheduled toll hike takes place in 2015 for its Damansara link, which has almost reached its saturation point with an average daily traffic of approximately 60k.

BUY.  We  revisited our model and lowered our losses assumption on Litrak’s 50%-owned SPRINT operations given the encouraging progress made YTD. With that, our EPS forecasts for the next 3 years are revised upward by 6%-7%. In view of the current media speculation on a potential takeover offer by PLUS Expressways, we are now removing our 10% discount attached to our previous valuation, in anticipation of more news flow in the coming months which could give a boost to the share price. Hence, our SOP-derived FV now stands at RM4.72. Maintain BUY.

Source: OSK188 

ALAM (FV RM0.85 - NEUTRAL) FY11 Results Review: A Quarter to Forget

Alam’s FY11 results came in below expectations, largely  due to  the lower contribution from its offshore support vessels as a result of the monsoon season, higher other operating expenses  and inferior contribution from its underwater services/offshore installation and construction. Nevertheless, we are expecting Alam’s business prospects to improve in FY12 on the back of higher demand for vessel services from marginal oilfield and brownfield services.  Maintain Neutral with an unchanged FV of RM0.85 based on existing PER of 12x FY12 EPS.

Underperformance. The FY11 results were below consensus and our expectations making up 30% and 50% of  the respective FY11 forecasts. Overall, the disappointment arose from lower ontribution from its offshore support vessels which were affected by the monsoon season, higher other operating expenses and lower contribution from its underwater services/offshore installation and construction. All these factors  caused its 4QFY11 bottomline to sink into a net loss of RM0.7m, a significant drop from a net profit of RM13.4m in 3QFY11. Nevertheless, on a  y-o-y  comparison, the  full-year  FY11 performance  turned out to be better, lifted by a stronger 2Q and 3Q, while its FY10 performance was affected by the one-off Vastalux provision in 4QFY10.

Better prospects expected in FY12 onwards. Given that marginal oilfield and brownfield services should start  to see heightened activities in FY12 onwards  considering the planned capex to be rolled out by Petronas and its PSC contractors, we are expecting the demand for offshore support vessels to improve moving forward and this would definitely benefit Alam’s vessels from the standpoint of more attractive charter rates and longerterm contracts.  We are expecting its utilization rate to progressively improve and be consistent at 70%-80% compared to the situation in FY11, during which its utilization rate swung from 50% to 80% within weeks due to the spot charter for some of its vessels.

Maintain Neutral.  Our fair value for Alam remains unchanged at RM0.85 based on existing PER of 12x FY12 EPS. Although we  are positive  of the company’s  future prospects, we are keeping our call and PE valuation unchanged for now until we see the positive  industry  developments filter down to Alam’s earnings. Hence,  we  maintain  our Neutral call for now.

Source: OSK188 

MEDIAC (FV RM1.54 - BUY) 9MFY12 Results Review: Commendable Set of Results

Media Chinese (MCIL) recorded a record high 9MFY12 earnings of RM150m which were above both our and consensus estimates at 81% and 91% of  the full year forecasts respectively. We continue to like  its prospects going forward and foresee 2012 to be another record breaking year for  the group. While there were no dividends declared for this quarter, we believe that it will declare its dividend in 4Q considering its huge cash pile of RM384m as at Dec 2011.   Reiterate BUY with our FV upgraded to RM1.54 from RM1.47 previously, based on an unchanged 13x CY12 PER.

The Best So Far. In line with our previous guidance in our report titled “Another Record Year in The Making” published 14 Feb 2012, MCIL posted its strongest YTD results ever with its 9MFY12 top and bottom line standing at RM1.15bn (+8% y-o-y) and RM150m (+11% y-o-y). It marked its best quarter ever in 3QFY12 with earnings coming in at RM61m thanks to better showing from its Hong Kong operations which improved 20% y-oy and 37% q-o-q to RM79m as well as sturdy contribution from its Malaysia core business with growth  being driven by its core print business, with advertising revenue chalked up10% y-o-y and 13% q-o-q growth. MCIL’s travel segment also grew 18% y-o-y and 19% YTD with a strong surge in demand for its long-haul tours to destinations such as Europe and Australia owing to the year-end festive season and Christmas holidays. Margins for the group were sequentially higher q-o-q, with  an expansion of 600bps at  both PBT and EBIT level owing to management’s excellent cost control efforts. 

Positive trend to persist. Moving into 4QFY12, we foresee that the group will continue to report healthy growth, on the back of aggressive advertising and promotion activities among hypermarkets and fast-moving consumer good companies during the Chinese New Year period in Jan 2012. We  expect the positive trend to persist going into FY13 as management ramps up its efforts to better manage overhead and operating expenses. In addition, newsprint prices  – which are currently hovering at USD650-USD680/mt – are likely to remain stable and upcoming major events, such as the nation’s impending General Election, the 2012 Olympics and Euro 2012  sports tournaments will provide a boost to the sector’s adex growth.

BUY. We continue to like MCIL  which remains as the top buy within our media sector coverage. With earnings beating our and consensus estimates, we are upgrading our top and bottom line by 1%-5% for both FY12 and FY13. Hence, our FV is now upgraded to RM1.54 (from RM1.47 previously) based on an unchanged 13x CY12 PER. Though there were no declaration of dividends this quarter, we believe the group will continue to reward its shareholders given its mounting cash pile, which stood at RM384m as at Dec 2011. Thus, we continue to impute a payout ratio of 60% for FY12 and FY13, which translates into an appealing yield of 5.7% and 6.1%. Maintain BUY

Source: OSK188 

MAYBULK (FV RM1.60 - SELL) FY11 Results Review: Struggling With Sinking Rates

Maybulk’s FY11 core earnings of RM103.4m were 18% below our estimates but within consensus, with revenue in line.  The lower profit was in tandem with the lower  time charter earnings (TCE) at its  dry bulk division on the back of high bunkering costs. In view of the lower rates for Panamaxes, we expect revenue to drop 14.7% in FY12. We maintain our revenue forecast but cut our FY12 and FY13 earnings  numbers  by 13% and 7% on  persistent  pressure  on  bunker fuel.  We maintain our SELL call, but at  higher fair value of RM1.60,  premised  on  a 0.85x FY12 P/B,  due to the  lower  estimated  dividend (down from 8 sen to 3 sen for FY12).

Below. Save for the net exceptional loss of RM12m for FY11, Maybulk’s core earnings of RM103.4m (y-o-y:  -52%) were below our estimates by 18% but within consensus on the back of revenue of RM265.3m (y-o-y: -37% y-o-y), which were in line. In view of the lower earnings, the dividend declared was lower at 3 sen vs 10 sen in FY10.

Lower rates drag down earnings. The lower profitability was in tandem with the lower TCE (FY: USD16.5k/day, y-o-y:  -36%) recorded by its dry bulk division owing to higher bunkering costs. Although its tankers’ TCE was marginally higher by 2% at USD12.3k/day, the docking of its 3 product tankers caused its revenue to dive 24% y-o-y while revenue from the bulk side sank 39%. Despite the lower profits, MBC still recorded better rates across its fleet compared to its average peers due to its ability to lock in higher TCEs earlier. Its asset utilization remained healthy at 97.5% (vs 98.4% in FY10).

Outlook still bleak,  cutting  earnings. We expect slightly lower rates in 2012 on the Panamax side, while the Handymax and the Handysize segments will see TCE stabilize. However, as 48% of MBC’s total dwt comprises Panamaxes, we still expect revenue to decline by 14.7% y-o-y (revenue is maintained for FY12 and FY13). Meanwhile, its average capacity in dwt is expected to grow 9% in 2012 (with 3 vessels to be delivered this FY – one in Jan and the remaining 2 in April and Oct) with hiring days growing by the same quantum. Due to oversupply concerns and potential risk of further downside in asset value, the incoming capacity for the next 2 years will be on a charter basis, but with purchase options. Earnings-wise, management expects to be profitable in FY12. In view of the continued pressure from high bunker fuel, we trim our earnings forecasts for FY12 and FY13 by 13% and 7% respectively. The offshore vessel sector is seeing better vessel utilization although rates are still lagging. We expect better numbers from POSH.

Maintain SELL. We maintain our SELL call, with a higher FV of RM1.60 (premised on a 0.85x FY12 P/B), due to the lower dividends (reduced from 8 sen to 3 sen for FY12). 

Source: OSK188 

MAHSING (FV RM2.69 - BUY) FY11 Results Review: Still Going Strong

Mah Sing’s FY11 results were within our and consensus expectations, accounting for about 98.7% and 101% of both FY11 net profit forecasts respectively. FY11 revenue surged 41.5% y-o-y on higher progress billings from on-going projects while net profit leapt 42.8% y-o-y. For the whole year, Mah Sing’s property sales hit RM2.26bn, some 10% higher than the targeted RM2bn. We maintain our FY12 forecast and introduce our FY13 numbers. We keep our Buy call on Mah Sing, at an unchanged FV of RM2.69, based on a 20% discount to its RNAV.

Within estimates. Mah Sing’s net profit of RM168.6m for FY11 represented around 98.7% and 101% of our and consensus FY11 net profit forecasts respectively. Revenue rose 41.5% y-o-y, bolstered by higher progress billings from on-going projects in Kuala Lumpur, Klang Valley, Penang Island and Johor. Its property development division recorded a 47.5% y-o-y surge in revenue while its plastics division recorded a 10.4% yo-y increase in revenue. EBIT margin, however, contracted from 15.9% a year ago to 14.7% in FY11 due to higher marketing and administrative expenses. Despite the thinner EBIT margin, net profit still jumped 42.8% y-o-y, attributable to lower finance costs as well as lower MI charges.

Unbilled sales at a sturdy  RM2.21bn. For FY11,  Mah Sing achieved  property sales totaling RM2.26bn, beating its sales target of RM2bn. That said, the company’s unbilled sales remained strong at RM2.21bn as at the end of FY11. The company has set a sales target of at least RM2.5bn for FY12 and up to mid-Feb this year, it  had  already chalked up total sales of RM338m. Mah Sing intends to launch at least RM3bn worth of new launches for FY12,  with 70% of the launches to be priced below RM1m per unit instead of high end products, in line with the current market demand for more affordable houses. The main focus will still be the Klang Valley, where 68% of the target launches would be,  while the remaining 20% and 12% of its projects will launch in Penang and Johor respectively.

Maintain Buy. We maintain our FY12 forecast as well as introduce our FY13 estimate. Maintain BUY recommendation, at an unchanged FV of RM2.69, based on  a 20% discount to our RNAV valuation. The stock’s relatively inexpensive valuation makes it an attractive value proposition, especially for investors  seeking cheaper exposure among mid-sized property counters. Mah Sing declared a gross first and final dividend of 11sen, which translates into gross dividend yield of above 5%.

Source: OSK188

SUPERMX (FV RM2.50 - BUY) FY11 Results Review: A Stable Quarter

Supermax’s FY11 results were within expectations. Its revenue was quite flattish q-o-q as the higher sales volume was offset by the lower selling price of gloves. However, its net profit was lower q-o-q due to the continuous stiff competition as well as lower contribution from its associates. We are downgrading our FY12 earnings by 9% since latex price continues to be high and we expect some negative impact on its demand growth as well as a potential price war. Maintain Buy but with a lower fair value of RM2.50.

Within expectations. Supermax’s FY11 results were within consensus and our expectations, making up 95% and 100% of FY11 forecasts. Its 4QFY11 revenue of RM276.2m was quite flattish q-o-q as the higher sales volume was offset by the lower selling price of glove since latex price was lower in 4QFY11 versus 3QFY11 at RM7.25/kg versus RM8.67/kg. However, the 4QFY11 net profit of RM28.2m was 8.9% lower q-o-q due to the 70% cost pass following the continuous stiff competition as well as lower contribution from its associates. Finally, on a YTD comparison, its FY11 revenue of RM1,026.9m was higher by 5.1% due to the higher selling price as a result of higher latex price in FY11 versus FY10 at RM8.95 versus RM7.47 and higher sales volume of gloves sold as a result of bigger capacity. Nevertheless, its FY11 net profit of RM106.0m was again lower by 33.2% due to  margin erosion from strong competition, lower associates contribution and investment bond written off.

Downgrading FY12 earnings by 9%.  Earlier, we had expected the latex price to stay within the RM7.00/kg range but unfortunately, the price has shot past this level due to the news of  hard rubber  floor price support by the Thai Government at RM11.84/kg (latex expected to be about RM7.10/kg with the assumption of having 60% hard rubber content and the balance 40% water). Latex price also rose driven somewhat by the rise in oil price due to tensions in Iran, causing its direct substitute, nitrile latex, to also  be  on  a rising trend since it is a by-product of oil. Hence, we think this would negatively impact demand growth going forward and may eventually lead to some price war to move out rubber glove inventories.

Maintain Buy. Our fair value for Supermax has been downgraded to RM2.50 (previously RM2.75) based on existing PER of 13x FY12 EPS. We continue to like the company for its attractive valuation as well as operating in a recession proof industry. Also, Supermax has declared an interim dividend of 1.8sen.

Source: OSK188

SEG (FV RM2.17 - BUY) FY11 Results Review: Hits The Sweet Spot

SEG International’s (SEGi) FY11 core earnings of RM72.3m were in line with both our and consensus forecasts, making up  95.3% and  98.4% of the  respective projections.  Being one of the largest private education players in Malaysia with 30k students on board, we continue to like SEGi for its diversified course offering and established balance sheet  that is premised on an asset-light model. Hence, maintain BUY at a revised FV of RM2.17 based on an unchanged 18x FY12 PER.

Within expectations. SEGi’s FY11 revenue came in 27.9% higher y-o-y at RM278.3m due to higher student enrolment, which we estimate to have risen from 21k to 30k as of Dec 2011. Correspondingly, the EBITDA margin widened 300bps to 31.9% on improved economies of scale as enrolment growth outpaced the marginal increase in opex. Lower financing costs and a more favourable effective tax rate helped lift FY11 core earnings to RM72.3m, which surged over 67.9% y-o-y. On a quarterly basis, 4QFY11  results were generally up y-o-y on higher student enrolment but recorded a slight dip sequentially due to expenses incurred in upgrading its campuses during the quarter. 

Cash pile of RM87.2m.  Although the company did not declare any dividends for the quarter, we continue to see potential for a bumper dividend given its sturdy cash pile of RM87.2m as of Dec 2011 (which translates into a net cash per share of 14.0 sen based on  the  current share capital) as well as its strong operating cash flow estimated at >RM100m p.a. for both FY12 and FY13. Should its remaining 189.7m outstanding warrants which are currently trading at a slight discount of 1.5% be exercised, this will translate into an extra cash coffer of RM94.8m at the exercise price of RM0.50/share. In our model, we assume a staggered conversion with an average 63.2m warrants converted per year from FY12 to FY14.

BUY. We make no major changes to our core assumptions for now, with our FY12 core earnings forecast revised upward marginally by 0.5% to RM90.2m for book-keeping purposes following its full-year results release. We also take the opportunity to introduce our FY13 forecasts, with the net profit estimate coming in at RM99.6m. Maintain BUY with our FV now revised to RM2.17 based on an unchanged 18x FY12 PER and a fully enlarged share base of 748.4m shares upon the conversion of all outstanding warrants.

Source: OSK188

OLDTOWN (FV RM1.55 - BUY) FY11 Results Review: Just Like Old Times

Oldtown’s FY11 revenue was in line with our estimate,  making up 97.2% of our projection, while core net profit  was within our projection  due to gains on disposals and better profit margins in 4Q11. We continue to like Oldtown’s  attractive valuation and bright prospects moving forward. We are maintaining our BUY recommendation on the stock, with an unchanged fair value of RM1.55, pegged to 13.0x FY12 EPS.

In line. Oldtown’s revenue of RM285.5m was in line with our estimates, accounting for 97.2% of our numbers while the  reported net profit of RM40.2m beat our forecast by 13.9% due to gains on various disposals amounting to RM9.2m. Stripping out the gains, core net profit of RM30.1m was within our estimate, accounting for 102.6% of our numbers. The group’s EBITDA came in at RM68.1m versus our estimate of RM63.3m while core net profit fell 6.0% y-o-y due to higher administrative and general expenses associated with the group’s expansion plans and the 6-month recognition of profit from the subsidiaries it acquired after its listing, instead of 12 months (had the acquisition been completed on 1 Jan 2011, core net profit would have been RM34.2m). Revenue growth of its FMCG division outpaced its F&B division as FMCG revenue accounted for some 38% of total revenue compared to 35% in the previous year.

Maintaining forward earnings.  We are maintaining our profit growth forecasts for FY12 and FY13 given that the group would be able to recognize full year profits from the subsidiaries it acquired after its listing. We believe its FMCG margins may further improve  as prices of  food commodities such as milk powder and Arabica coffee were stable in 1Q12 but we think that margins at its F&B business will continue to come under pressure as the company is  unable to pass on  its higher  costs to customers - or risk losing market share to its  competitors  - and is facing  escalating rental costs. Also, we gather that there may be a one-off impairment charge of some RM2-3m in FY12 relating to its acquisitions after the group went public.

Upside  potential to  our view.  i) Stronger-than-expected volume growth  in  its FMCG business in the overseas markets, ii) prices of food commodities are sustained at current levels, iii) faster-than-expected  rollout of its  outlets  locally and overseas, and  iv) obtaining ‘halal’ certification from JAKIM sooner than expected.

Maintain BUY. We continue to like Oldtown’s exposure to the defensive F&B subsector and its attractive valuation at 10.5x FY12 EPS, plus decent top- and bottom-line growth moving forward. This will be further enhanced by its  regional expansion plans. The company has declared a second interim dividend of 4 sen, bringing the total dividend to 6.5 sen for FY11. We maintain our BUY call, with an unchanged FV of RM1.55.

Source: OSK188