Friday, 30 March 2012

News Highlights - CIMB Group Holdings, Malayan Banking, Bursa Malaysia, Tenaga Nasional

CIMB Group Holdings Bhd (RM7.60/share)
Unit in JV deal with Rohatyn
CIMB Group Holdings Bhd’s wholly-owned subsidiary, CIMB Strategic Assets Sdn Bhd (CIMBSA), has established a joint venture with The Rohatyn Group (TRG) with a 40:60 shareholding in three companies. The companies are Capital Advisors Partners Asia Sdn Bhd (CapAsia), CapAsia Islamic Infrastructure Fund (General Partner) Ltd, and CapAsia Asean Infrastructure Fund III (General Partner) Ltd. In a statement, CIMB said the joint venture shall jointly sponsor, manage and administer the CapAsia Funds and undertake private equity investments in the infrastructure sector.  – Business Times

Malayan Banking Bhd (RM8.80/share)
Licence to expand Maybank sees local incorporation of ops in Cambodia
Malayan Banking Bhd (Maybank) is expected to receive a local incorporation licence for its operations from the National Bank of Cambodia early next month to facilitate its ongoing expansion plans in Cambodia. Maybank currently has 11 branches in Cambodia, with plans to open at least another one in the country within this year. It’s been reported that over the 12 months to October 2011, Maybank Cambodia had registered a 75.2% growth in loans and advances, with 4.0% growth in customer deposits. Meanwhile, Maybank president and CEO Datuk Seri Abdul Wahid Omar clarified that the group was currently not looking at acquiring anything actively in Thailand, but that it would remain open to opportunities for the group to expand its foothold there. - StarBiz

Bursa Malaysia Bhd (RM7.26/share)
Plans bond for retail investors
Bursa Malaysia Bhd plans to launch an exchange traded bond for retail investors in the second half of this year. Bursa Malaysia chief executive officer Datuk Tajuddin Atan said the retail bond would allow investors to switch from equity to a debt instrument that has exposure to interest rates, adding that investors could buy the retail bond from brokers just as they do with equities. Tajuddin also said Bursa Malaysia was looking for further improvement in two key areas, namely market accessibility and product offerings. Besides the retail bond offer, the exchange is also looking at introducing futures and option products. By June, the first roll-out of the Asean Exchanges will see the launch of Asean link between Singapore Exchange (SGX) and Bursa Malaysia, followed by the Stock Exchange of Thailand (SET) in August. Through this collaboration investors from around the world will have access to a combined market capitalisation of US$1.8 trillion (RM5.5 trillion) representing more than 3,000 companies. – Business Times

Tenaga Nasional Bhd (RM6.36/share)
To make first FiT payment next week
Tenaga Nasional Bhd (TNB), which is expected to pay RM300.0mil a year to Sustainable Energy Development Authority (Seda) for feed-in-tariff (FiT), will make its first payment next week, according to (Renewable Energy and Green Technology), customer service and metering, distribution division head Abdul Rahim Jamil. Abdul Rahim said TNB’s first payment to be made would be for the month of December but it would not be substantial as FiT had just started. There will be a lag of about four months in payments to Seda mainly because of the collection from  TNB’s customers. Seda is expecting 985MW or 6% of total country’s energy mix to come from RE in 2015 and currently 68.5MW are connected to the grid. As at Feb 29, Seda has approved 377 applications for RE with installed capacity of 311.56MW. Of the amount, 140.03MW installed capacity was from solar photovoltaic (PV). Meanwhile, TNB Janamanjung Sdn Bhd general manager Shamsul Ahmad said Tenaga Nasional Bhd’s (TNB) RM5.8bil coal-powered plant in Perak is a quarter way into completion. The new plant is located next to its existing three power plants that are currently generating 2,100 megawatts (MW). He said Manjung 4 (the new plant) will be Southeast Asia’s first 1,000MW supercritical coal-fired power plant. Shamsul said Manjung 4 is scheduled to be completed by March 2015. It will be fed three million tonnes of coal a year. – StarBiz, Business Times

Source: OSK188

Infrastructure - Smelter Asia still in the fray OVERWEIGHT

- The Star reported today that Smelter Asia Sdn Bhd is still in negotiations with Sarawak Energy Bhd (SEB) for the supply of power in excess of 600MW for the development of an aluminium smelter in Samalaju Industrial Park, Bintulu. We gather that negotiations are still ongoing although it is uncertain at this juncture how long the talks would continue.

- To recap, Smelter Asia is a JV between Gulf International Investment Group Holdings Sdn Bhd (GIIG) and Aluminium Corp of China (Chalco). Both parties inked a pact last April to jointly construct a US$1.6bil (RM5bil) aluminium smelting plant with an annual capacity of 370,000 tonnes.

- GIIG is controlled by tycoon Tan Sri Syed Mokhtar Al-Bukhary and UAE-based businessman Mohamed Ali Rashed Alabbar. State-backed Chalco is China’s largest aluminium producer.

- Smelter Asia is proposing to build a 370,000-tonne  smelter. This would be almost of a similar capacity as Press Metal’s facilities (combined Phases 1 & 2) when the latter’s own new 240,000-tonne smelter commences operations in stages by end-3Q12. But, the reported US$1.6bil valuation for the Smelter Asia facility is higher than our estimate of ~US$900mil for both of Press Metal’s facilities in Mukah and Samalaju combined. 

- This latest development also follows an announcement by Sarawak Aluminium Co (Salco) – a JV between Rio Tinto Aluminium (M) Sdn Bhd and Cahya Mata Sarawak – to call off its plans to build a RM7bil smelter after  it failed to strike a deal to purchase electricity from SEB. We understand that the negotiated power tariff was for the supply of 750MW for the project.

- We maintain our view that Press Metal has already stolen a march over its rivals – as Phase 2A of its Samalaju smelter is targeted for commissioning by September, followed by Phase 2B in mid-2013. 

- More importantly, Press Metal is among four pioneer investors that have already secured long-term power supply agreements (25-years) with SEB at attractive rates. Its Samalaju smelter is expected to take in 480MW of power, adding to the estimated 200MW it already receives in Mukah (combined: 680MW).

- Furthermore, we gather that it would probably take two to three years for any new startups, including Smelter Asia, to commence operations.

- We continue to like Press Metal for its strategic transformation into the largest integrated producer of Aluminium products within ASEAN. The stock is only trading at alluring FY12F-14F PEs of 6x-10x against robust EPS CAGR of  23%. From an end-user standpoint, it is also a direct play on the commissioning of Bakun Dam through its attractive long-term power supply agreement with SEB.      

Source: AmeSecurities

Jaya Tiasa Holdings - Entering into a new plantation era; bonus bonanza HOLD

- We downgrade Jaya Tiasa Holdings Bhd to HOLD, with  a slightly downward revised fair value of RM8.24/share (vs. RM8.37/share previously), based a PE of 13x its annualised FY12F core EPS of 63.4 sen (vs. basic EPS of 64.4 sen previously).

- The stock has reached our previous fair value since last week after it announced a 2-for-1 bonus issue (est. total of 645mil bonus shares) and a 15% placement of new shares (est. 42mil shares that may raise RM300mil, prior to bonus issue – which will partly lower borrowings and keep gearing in check).

- Its proposed dividend of one treasury share for every 20 shares held will go ex- on 6 April 2012. We believe Jaya Tiasa’s latest proposals are aggressive measures to spur trading liquidity of its shares and would go a long way towards enhancing the attractiveness of the stock.

- We welcome the proposals in the belief that management is signalling strong intent in fiscal prudence (though gearing remains manageable), while preparing the group for its next phase of mid-cycle growth in the oil palm sector, with potential landbank acquisition ahead.   

- Our downward adjustment to FY12F earnings follow the result for the three months to 31 January 2012, which came in slightly below expectations due to lower CPO prices (QoQ and YoY), and a decline in log prices given the significant slowdown of exports to India in view of the weakening Rupee during the period.

- Its net profit of RM143mil (+54% YoY) for the nine months to 31 January accounted for 83% of our previous annualised FY12F net profit of RM172mil. However, excluding an exceptional gain of RM27.6mil on the disposal of a subsidiary, the core net profit of RM115mil (+24.4% YoY) would bring that down to 67% (vs. 70% now given our revised annualised earnings to RM164mil).

- Log prices have improved in view of the strengthening Rupee in the recent months. Sarawak Timber Association this week said new orders from Japan's plywood importers had continued to flow in since late last year and that  Sarawak manufacturers would benefit from anticipated stronger demand from Japan at the start of spring next month.

- The oil palm division, which accounted for over 60% of its latest quarterly earnings, is expected to continue to perform significantly better than the timber division given the current strong CPO prices. 

- Our target PE of 13x is conservative vis-à-vis its forward PE mean of 20x, and well within 1+SD and -1SD of 9x and 31x, respectively.  

Source: AmeSecurities

Carlsberg Brewery - Regional manufacturing hub in the brew BUY

- We re-affirm our BUY rating on Carlsberg Brewery Malaysia Bhd (Carlsberg) with a higher DCF-based fair value  of RM11.50/share, vs. RM10.40/share previously (WACC: 9.2%). 

- Despite the stock’s relative outperformance YTD, we believe current share price has not fully reflected Carlsberg’s full potential. We see long-term transformational earnings growth underpinned by the group’s aspiration to become a regional manufacturing hub with a strong focus on imported labels. Our LTG rate is tweaked upwards to 2.7% (+1ppt).

- Carlsberg is on schedule to add two more imported labels for in-house production in the next 3 to 6 months,  in addition to locally brewed ‘Asahi Super Dry’. The identified beers being ‘Kronenbourg 1664’ and ‘Kronenbourg Blanc’ originate from France, unlike Asahi which has Asianorigins. 

- More importantly, local production of the labels yields higher profitability given reduced transportation and logistics costs due to absence of a RM5.00/litre import duty. Though cost savings is negligible at present, we expect rising earnings contributions in tandem with higher beer volumes moving forward. As it is, draught production of ‘Asahi Super Dry’ for the mass market is expected to commence soon over the next few weeks. Premium labels contribute circa 10% to group revenue.

- Given Carlsberg’s idle brewing capacity and the stronger pricing power imported labels command, we would not be surprised should the group secure rights for exports to other countries in the region, apart from Singapore. As an indication, ASP for Asahi is ~10% higher than mainstream Carlsberg Green Label, while Kronenbourg’s is ~10% higher than Asahi’s. 

- In the immediate term, the group may raise ASP by 3%-4% by end-1H to compensate for higher raw material costs which are up some 20% YoY. Fortunately, price of malting barley has been flattish and the group has secured 2/3 of its raw ingredient requirements for FY12F. We also expect Carlsberg to intensify A&P in the coming months to leverage on 2012 Euro Cup, of which the group is the official sponsor.

- Balance sheet is strong with net cash of RM50mil (FY11F) and free cash flow yields of 6%-7%. Our conservative dividend payout assumption of 70% p.a. implies an upside potential to our dividend yield of 5%-6%. Valuations are also attractive at current levels, with the stock trading at only 6x P/B – or at a 50% discount to peer Guinness Anchor Bhd (GUIN Mk Equity, Hold).   

Source: AmeSecurities 

HOT STOCK: Top Volume Stocks

In this report, we are  revisiting the stocks  that were highlighted in our previous Daily Trading Stock reports. As  these stocks  have  continued to garner market interest, we are  examining  their current technical picture and identifying the new levels to be mindful of, including their price targets as well as support and resistance levels. 

AirAsia:  Support broken. We previously highlighted  the possibility of a return of buying  interest at the 5-month support line of RM3.55.  However, this did not happen and  the  violation  of  the support level has  led to the  deterioration of  its technical picture. This is in line with the declining 50-day MAV line, which has been falling for 4 months. The most oversold daily RSI since the rebound of Sept 2011 gives a glimmer of hope for a possible short-term bottom. But a return of upside bias can only be expected if the stock closes above the broken RM3.55, right where the 200-day MAV line is located, with a break of the 9-month downtrend line as the confirmation. Such a move will also avert a “Death Cross”, where the 50-day MAV line crosses below the 200-day MAV line, which is a longer-term bearish sign. Otherwise, the downside bias will stay as long as the stock fails to get back above RM3.55, and support is expected at RM3.10 and  the Sept-low of RM2.70. A violation of RM2.70 will likely see the longer term trend move downwards.

Time dotCom: Support needs to hold. The 5-month rally that peaked in February appears to have hit a snag. This was first signaled by the failure of the second attempt to break the RM0.78 resistance level, the gap of June 2011. The easing of the upward momentum is clearly shown in the daily RSI, where a “Negative Divergence” has formed. Therefore, the 3-month support level of RM0.68 has to hold to keep the current rally intact. This will be in tandem with the most oversold RSI since Sept 2011, with a close above the early March-low of RM0.72 increasing the possibility that the RM0.78 resistance will be broken. However, a close below RM0.68 for two consecutive days would likely see an extended correction of the 5-month rally. Support is expected at the Fibonacci retracement levels of the rally at RM0.60 and RM0.55. A close below RM0.55 will significantly diminish the chances of an upward continuation

WTK Holding: At 7-month high. This is one of the few stocks that are breaking higher lately. Its upward march has been sluggish since the Sept 2011 low, but an upward bias is present throughout  the past few months as seen from the higher lows in Dec 2011 and March. The stock’s slow and steady upward move led to the violation of the 5-month resistance last Tuesday. It has not  surged in a dramatic fashion but a close back above RM1.50 should see it moving higher. A “Golden Cross”, where the 50-day MAV line crosses above the 200-day MAV line (which is usually a positive longer-term indicator), may also happen and help reinforce the upward bias. Thus, a purchase can be made on another close above RM1.50 with a close below  the February-low of RM1.33 as a  stop. An aggressive trade may even exit on a close back below RM1.50.  A measured move based on the Dec-Feb rally could see the stock close the August gap of RM1.75. However, the upward bias could be nullified if the stop is triggered, after which expect the stock to trade sideways instead.

Poh Kong:  Triangle correction.  The rebound in the broader market in Sept 2011  brought this stock back to life. The 5-month rally that peaked in February enabled the stock to print a 3-year high. It is also natural for a strong move to make way for a correction, which is now entering into its third month. Nevertheless, the upward move is still intact, judging from the rising 50-day MAV line but a slight negative bias is seen from the formation of  the  “Descending Triangle” pattern. Nonetheless, weakness is only confirmed if the support of RM0.54 is violated. Thus, an upward continuation is expected as long as the support holds, and a  purchase can be made above the  support  level with a stop loss on close below it. A measured move target based on the 5-mopnth rally could see the stock at RM0.76, provided that the recent high of RM0.60 is violated. Expect the price to trade lower should the stop loss  be triggered and strong support  lies at RM0.49, the 62% retracement of the Oct-Feb rally.

Source: OSK188

DAILY TRADING STOCKS: Berjaya Corp, KBB Resources

Berjaya Corp’s daily chart
Berjaya Corp’s share has to stay above the  support level to keep the  possibility of  a  rebound alive. There is no doubt the stock is trending lower. The broad market rebound since Sep 2011 has done nothing to  the stock’s  trend as  it continues to make a  series of lower highs. However, there is a possibility of a rebound if the stock can stay above the Dec low of RM0.915 but its failure to break the support level after multiple tests this week could be an early indication that buying is returning. The volume increase in the past few days also suggests buying support, but this is only confirmed if the stock closes above the 7-day high of RM0.94. A position can be initiated if this happens, with a stop loss on a close below RM0.915. The first target is RM1.00, with a successful violation confirming the change in trend. The next target  is the 7-month resistance  at RM1.07, but failure to hold the support level should see intensified selling, with a close below  the  Sep 2011 low of RM0.88 as confirmation. Support is expected at the late 2007 low of RM0.77.

KBB’s daily chart
KBB’s  share price  should trade higher after the  firmer close yesterday.  This stock, which has been  one of  the  market outperformers in the past six months,  is now  trading at  a  4-year high. The new  high printed yesterday ended the  stock’s  3-day correction, which saw it finding support at the psychological RM0.50, the high of 2011. The high volume breakout suggests that buying interest is intact. Thus, the upward trend is expected to continue and a purchase can  be made at the current price. A close below RM0.50 can be taken as stop loss,  while  a more aggressive trade may  be to  consider RM0.55 instead.  A Fibonacci extention based on the 2011 rally could see the stock hit RM0.66, the low of early 2008, while a stronger move may even see it test RM0.80, the high of late 2007.  A  trade may not work out should RM0.50  be violated, after which a correction to the 6-month rally is expected. Supports should come at the prior important level of RM0.425 and thereafter RM0.32, the high of Oct/Nov 2011.

Source: OSK188

HOT STOCK: DIGI.Com Bhd - Price May Start Retrace or Consolidate Sideways

Traders would need to analyze DiGi.Com’s monthly chart to get a better picture of its current technical position. A “Long Leg Doji” was created last month when its monthly RSI reached as high as 89.4 pts. Because this bearish reversal pattern was created after a 2-year rally and it is currently in overbought territory, we think the possibility that DiGi.Com’s share price will start retracing or consolidating sideways in the coming months is rather high. Should its share price retrace, we are eyeing the 10-month MAV line as the downside target. We advise traders to sell DiGi.Com’s shares now.

DiGi.Com’s monthly chart is clearly signalling a potential price weakness ahead as a “Long Leg Doji” was created last month, when its monthly RSI reached an overbought level that reached as high as 89.4 pts. It is the most obvious bearish reversal pattern created since the Global Financial Crisis in 2008.

Because of the bearish reversal pattern which  was confirmed by the monthly RSI reading of 89.4 pts, we think the possibility  that DiGi.Com’s share price will start  to  retrace or trade sideways from the current level is high.  We advise traders to sell DiGi.Com’s shares now. We are eyeing the 10-month MAV line, which now lies at the RM3.45 level, as the downside target. The reason this moving average line is used is  due to the fact  that the stock has been trending higher steadily at above this line after the Global Financial Crisis. Nevertheless, a crack above its historic high of RM4.32 would completely erase the  current  price weakness. Anyhow, we think the odds are very low  for the stock  to scale to  greater heights without taking a breather.

Immediate support is seen at the RM3.52-RM3.62 area but should its share price start retracing, we think  that it is likely that the 10-month MAV line will be tested. To the upside, the historic high  of RM4.32  would be its immediate tough resistance.

Source: OSK188

MEDIA (OVERWEIGHT) Sector News Flash: Is ASTRO coming back?

As reported by various media, Astro All Asia Network (ASTRO), Malaysia’s largest paytelevision broadcaster owned by Tan Sri Ananda Krishnan, has been approached by investment bankers about a possible share sale and Initial Public Offering. It is said that ASTRO could raise about USD1.5bn (RM4.6bn) in an IPO as soon as  the  end of this year.

Privatised in 2010. To recap, ASTRO was taken private by Astro Holdings (AH) on 14 June 2010, which  already  owned 72.91% prior to the  privatisation. Note that AH  was formed by billionaire Ananda Krishnan with 42.34%, Khazanah with 21.39%, EPF with 8.61% and Tun Mohammed Hanif Omar with 9.81%. At the privatization price of RM4.30 per share, the share was pegged at 30x 1 year forward PER and 9x EV/EBITDA.

Potential valuation of ASTRO. Looking back at what Ananda Krishnan has done on the  relisting of Maxis, we believe ASTRO will strip off  the 20% stake held in its Indian asset, SunDirect TV, the largest  Direct-to-Home pay  TV in India with household subscribers of 5 million, which reported core losses of RM100m p.a in 2010, prior to the IPO. Thus, stripping off this asset, we estimate ASTRO could make a PBT of RM530m. Assuming ASTRO’s Malaysia operation makes about RM450m p.a and assuming a PE of 25x, the potential market capitalization of ASTRO could be as big as RM11.25bn. Without its overseas operation, ASTRO is actually a cash cow, with EBITDA of about RM750m-800m. Also, with 4.1m subscribers back in 2010 and given Malaysia has only 6.5m households, we expect its subscriber’s growth to  stabilize  at the mid single digitlevel.

Boosting his cash pile here  for India? We believe should the IPO materialize, it will primarily involve  an  offer for sale of existing shares based on what we saw in Maxis’relisting back in 2010. This jives well with the rumors that Tan Sri Ananda Krishnan is beefing up his cash hoard following the sale of Pan Malaysia Pool and his Power Assets to 1 Malaysia Development Berhad. We believe the billionaire would likely plough back his cash into his existing telco business in India especially given the ongoing legal suit filed by India’s Central Bureau of Investigations

Sector re-rating. Should ASTRO make a comeback to the local bourse, we believe it will be a major re-rating for the Media sector given that it could emerge as the largest Media stock in Malaysia with an estimated market capitalization of more than RM10bn. We see Media Prima (BUY, FV RM3.01) as the likeliest candidate to have a potential upward rerating since it is the closest peer to ASTRO, and is the current single largest listed media company within the free-to-air television segment.  

Source: OSK188

HAIO (FV RM1.99 - NEUTRAL) 9MFY12 Results Review: On a Healthy Growth Path

Hai-O’s  9MFY12 results  were in line with  consensus but above  our forecasts. Revenue and net profit increased by 3% and 21.7% respectively on the back of better performance  in  the MLM division. EBIT margin  improved from 17.5% to 20.7%, thanks to better MLM sales and enhanced margins from the wholesale division. We raise our FY12 and FY13 estimates given the better results, which bump up our FV to RM1.99. Maintain NEUTRAL.

Stronger than expected. Hai-O’s revenue and net profit came in stronger at RM170m and RM24.7m, registering a decent y-o-y growth of 3% and 21.7% respectively. The better results were largely underpinned by stronger performance  at  its MLM division (revenue +4.9% y-o-y), coupled with lower R&D costs in the technology division. On q-oq basis, revenue  stood at  RM62.8m, 11.7% higher versus  RM56.2m in the preceding quarter, while earnings improved from RM7.9m to RM9.1m (+15.2%).

MLM still the pillar. The MLM division’s profit surged 18%, propelled by robust sales of its main products  as well as new products, coupled with effective incentive trip campaigns for its MLM members. We believe the growth momentum  in  the MLM division, which contributes 56.1% of total revenue, should be sustainable  moving forward in view of the  company’s enhanced  marketing strategies and aggressive recruitment drive for members. The wholesale division’s revenue trended lower by 8.5% but registered a PBT growth of 16% owing to its high margin products. The revenue and profit generated by the retail division were flattish as it rationalized its unprofitable outlets while at the same time opened more new outlets.

EBIT margin expands.  The  company’s  EBIT margin  widened  3.2% from 17.5% to 20.7%, mainly driven by higher sales from  the  MLM division, better margins from wholesale products, higher rental income and lower R&D costs in other divisions. Maintain NEUTRAL. We revise up our FY12 and FY13 forecasts by 6.2% and 7.1% respectively in light of the better reported results. Our FV is raised to RM1.99 as we roll over our valuation from FY12 to FY13 based on 12x PER. Maintain NEUTRAL given the limited upside in the share price.

Source: OSK188 

HIAPTEK (FV RM0.74 - TRADING BUY) 1HFY12 Results Review: Softer Showing as Expected

Hiap Teck Venture’s (HTVB) 2QFY12 results were below our and consensus estimates. Net profit was weaker q-o-q at RM1.6m (1QFY12: RM8.1m) but stronger y-o-y,  while  1H net profit  stood at  RM9.7m (1HFY11: RM3.3m). The weak results are no cause for alarm as we had expected  a soft performance in 2Q due to  the festive seasons. We think  the company may see a better  2HFY12 activities pick up. Although news on  the iron ore concession has been quiet for some time, we don’t think that will affect HTVB’s core operations as  this was supposed to be an unexpected bonus anyway. We maintain our Trading BUY  call,  with  a lower revised FV  of  RM0.74, as we lower the iron ore  concession  value-add factor to 10% from 20% in tandem with our house view.

Weaker as anticipated. HTVB reported a 2QFY12 net profit of RM1.6m (-80.3% q-o-q), which is below our and street estimate estimates when annualized.  Having said that, we are not surprised as we had earlier anticipated HTVB’s 2Q numbers to fall in the months which experienced festive seasons (Nov, Dec and Jan), during which business activities generally slow down. The lower production in the manufacturing division resulted in a higher cost of production, which further dampened the Group’s performance. Nevertheless, its overall 1H performance still looks promising as the reported earnings were three times that in the same period last year.

A  brighter 2HFY12 ahead. We believe  HTVB’s  future prospects  remain intact as the local steel industry may see activities gather pace when more projects under the Tenth Malaysia Plan and Economic Transformation Programme are rolled out. Elsewhere, the continuous improvement in the  company’s API steel pipes making  venture that fetches more robust  margins and  which  exports 5CT pipes may see a  pick-up, with  orders expected to flow in after the festive seasons. This further supports our view on a better 2H for HTVB.

Iron ore concession may materialize only  later.  It has been 3 months since Terengganu’s MB announced that an iron ore concession will be given to Eastern Steel during a ground breaking ceremony in December last year. However, so far we have yet to see the state government issue an official letter to this effect. Nonetheless, we are not too concerned about the delay in the concession awards because:  (i) the company’s BF plant is still under construction, and (ii) we believe that HTVB already has  plans to source for iron ore to feed into its BF plant and did not take into consideration the Bukit Besi concession when it ventured into the BF plant project. As we mentioned earlier, the local iron ore concession would be an unexpected bonus to Eastern Steel and/or HTVB.

Source: OSK188 

HELP (FV RM1.55 - NEUTRAL) 1QFY12 Results Review: Poor Score in 1Q

HELP’s  1QFY12 results were below  our expectations. Core earnings  came in at RM1.7m, at <10% of our full-year estimates due to higher personnel costs incurred on staff recruitment.  We  are  thus  revisiting  our model and tweaking our EPS forecasts lower by some 9.2% for FY12 and 4.1% for FY13. This brings our FV  to RM1.55, taking into account its  target net cash per share of RM0.46 by Oct 2012. Maintain NEUTRAL.

Not making the grade. HELP’s 1QFY12 revenue of RM26.9m was down by a marginal 5.6% q-o-q on seasonality but up by a decent 10.5% y-o-y on higher student enrolment. Gross profit, however, sank  more than  34%  both  y-o-y  and q-o-q  to RM2.3m due to higher personnel costs incurred in recruiting lecturers with doctorate degrees as part of the requirements for its upgrade to full university status. Correspondingly, both EBIT and PBT closed lower at RM3.5m and RM3.2m respectively.  All in, HELP’s 1QFY12 core earnings dwindled to RM1.7m (-53.0% q-o-q; -38.2% y-o-y), exacerbated by a marginal increase in effective tax rate.

Downgrading forecasts. Given the disappointing results, we revise upwards our opex assumptions for both FY12 and FY13, which translate into an earnings cut of some 9.2% for FY12 to RM17.3m, and 4.1% for FY13 to RM18.8m.  On the other hand, we  are lowering  our capex estimates from RM50m to RM20m  for  FY12 and from RM40m to RM30m for FY13 as we now expect a delay in completing its proposed flagship Subang 2 campus in Sungai Buloh. From our recent conversation with management, there were some changes in the proposed architecture, with piling works now expected to start next month.  The first  phase of the flagship campus, with an estimated capacity of 8k students, is expected to be completed by 2014. Subsequently, HELP’s net cash balance is expected to improve to more than RM60m over the next 2 years.

NEUTRAL. While we continue to like HELP’s clean books, experienced management and its solid reputation, we remain wary of the potential equity dilution due to funding for its proposed flagship Subang 2 campus, which we understand may involve an outlay of RM150m-RM200m. We are also cautious on  a  possible downside risk to earnings as management ramps up its headcount after obtaining university status. Hence, we maintain our NEUTRAL recommendation for now, with our FV now at RM1.55, based on an unchanged 9x FY12 PER, plus its target FY12 net cash per share of RM0.46.   

Source: OSK188

Syarikat Takaful Malaysia (STMB MK, BUY, FV: RM4.42)

An Undervalued Gem Unearthed
Being the only pure takaful operator listed  on Bursa Malaysia,  Takaful Malaysia is trading at a cheap FY13 PER of 7.1x. Thanks to the large regional Muslim population, low family takaful penetration rate and its niche expertise, we expect the company to grow its earnings consistently moving forward. We believe its Indonesian operations offer immense potential as the family takaful penetration rate stands at only 1% of the population in a country with more than 213m Muslims. We are initiating coverage on Takaful Malaysia with a FV of RM4.42 pegged to 10x FY13 PER.

Undervalued. Takaful Malaysia is currently trading at 0.9x FY13 P/BV and 7.1x FY13 PER. We think that it deserves to trade at more than 10x forward earnings due to its consistent double-digit ROE and dividend payout. Based on our calculations, we estimate the group’s FY13 net profit at 44.2 sen per share. Hence, we value Takaful Malaysia at RM4.42 pegged to 10x FY13 EPS. Among some of the assumptions behind our earnings estimates are: (i) 20% growth in gross written contribution for both general and family takaful, (ii) stable overall claims ratio of 65-68% for both general and family takaful, and (iii) +15% growth per year in investment income.

Only operator offering 15% no claim rebate.  Presently,  Takaful Malaysia is the only takaful operator which offers a 15% no claim rebate for all its general insurance products and selected family takaful products. Essentially, policyholders stand a chance to get back 15% of their premiums at the end of each year if the fund is profitable and if they make no claims. With the launch of its ‘We Should Talk’ campaign this year, we think that  Takaful Malaysia is poised to secure more new premiums in the medium term. Positive macro outlook in Malaysia.  The takaful industry has been experiencing strong growth in Malaysia during the last decade  on the back of various government initiatives to promote the country as a global Islamic financial centre. We see tremendous potential in the life takaful business as demand for healthcare strengthens due to demographic shifts, coupled with the fact that the family takaful penetration rate was merely 10% of the population in 2010.

Initiate with BUY.  In view of the industry’s positive macro outlook, the large Muslim population in Malaysia and Indonesia as well as the company’s cheap valuation, stable dividend payout and strong balance sheet, we are initiating coverage on Takaful Malaysia with a BUY  recommendation. Our FV of RM4.42 is based on 10x FY13 PER. Key rerating catalysts include: (i) sharp improvement in underwriting margins, (ii) higher-than-expected premium growth, and (iii) lower-than-expected management expenses.

Source: OSK188 

MMCCORP (FV RM3.70 - TRADING BUY) Corporate News Flash: The Pieces Come Together

Business Times reported that Penang Port SB (PPSB) has been shown a letter from the Ministry of Finance and directed by the Government to cooperate with Seaport Terminal (Johore) SB, a company linked to Tan Sri Syed Mokhtar Al-Bukhary. Nonetheless, PPSB has not been officially notified of a takeover.

Port users express concern. The paper also  quoted a news portal as  reporting that Syed Mokhtar’s officials are already running the port. When contacted by the paper, Penang Freight Forwarders Association (PFFA) president  Krishnan Chelliah said  the Government should reconsider the sale and engage with port users “before deciding on a move as drastic as this.’’ He also said the takeover by Syed Mokhtar would downgrade Penang port to a feeder port.

Details on the port. Penang Port basically handles port and ferry services for Penang.

These include managing:
- Swettenham Pier Cruise Terminal
- Tanjong City Marina
- Pangkalan Raja Tun Uda Ferry Terminal
- North Butterworth Container Terminal
- Butterworth Wharves
- Vegetable Oil Tanker Pier
- Prai Bulk Cargo Terminal
- Pangkalan Sultan Abdul Halim Ferry Terminal
- Bagan dalam Dockyard
- Prai Wharf

Based on its 2010 Annual Report, Penang Port handled 1.1m TEUs and 28.8m tonnes of throughput, which puts it in roughly the same league as Johor Port. However, its PBT was only RM11.1m in 2010 vs Johor Port’s PBT of RM155.1m in the same year while its revenue was RM312.1m vs Johor Port’s RM548m. We believe this was largely due to the loss making nature of ferry services.
Uncertain of exact plans for the port. If indeed this piece of news is true, it remains to be seen what Syed Mokhtar plans to do with Penang Port given  that he also  controls both the Port of Tanjung Pelepas (PTP) and Johor Port. We believe it is likely that a takeover of Penang Port by Syed Mokhtar will eventually see the port being injected into his flagship company, MMC, which is the current owner of Johor Port and PTP. The 3 ports may then be brought under a single entity which could then proceed to an IPO after Johor Port’s container operations are transferred to PTP. This will bode well  for MMC as it should be able to unlock some value at both Johor Port and PTP as well as allow easier fund raising for the still fast growing PTP.

A Logistics Masterplan. We also see the control of Penang Port as part of a logistics masterplan by MMC, which is currently evaluating the takeover of Keretapi Tanah Melayu Berhad (KTMB). With both the northern and southern ports in Peninsular Malaysia potentially becoming part of the group, MMC could perhaps derive some economies of scale from large scale logistics operations. In any case, if the takeover of Penang Port and KTMB materializes, MMC would  be the only private company in Malaysia with such a diverse and strategic asset base, which makes it a direct proxy to the health of the Malaysian economy. While it is too preliminary at this juncture to estimate the bottomline impact (if any) to MMC from a potential takeover of Penang Port, we note that the news flow on the company remains strong and MMC remains a Trading BUY call for us, with an unchanged SOP FV of RM3.70.  

Source: OSK188

Thursday, 29 March 2012

CIMB Group - 2Q12 Tactical Trading Idea - 29 Mar 12

We still believe that investors should buy CIMB on dips and to position for the next recovery cycle. Recent media reports have suggested that CIMB Group Berhad (CIMB) could acquire a 60% stake in Bank of Commerce in Philippines at an undemanding valuation and 100% in RBS’s Asia Assets at a discount.  CIMB has made no official comment but we believe that it has started to position itself for the next recovery cycle.  While we are maintaining our MARKET PERFORM rating and our Target Price of RM7.90 at this juncture, we still believe investors should buy the stock on any dips to position for the next recovery cycle.  We believe that CIMB could potentially offer a low-risk trading opportunity over the next 2-3 months on the back of its satisfactory FY11 result.

Rationale behind the acquisition:  CIMB has identified Philippines as one of its priority markets and we believe it is considering acquiring a stake in Bank of Commerce given (1) Philippines’s importance in completing its Asean aspiration; (2) for better growth opportunities here and (3) BOC’s full-fledged banking business model is in line with its targeted strategy. Meanwhile, we believe CIMB may be interested in acquiring RBS’s assets in Asia given (1) the leverage on a recovering local equity market; (2) giving its regional ambitions a shot in the arm and (3) the attractive discount price.

Risk of lower growth in CIMB Niaga.   Bank Indonesia has imposed new higher minimum LTVs on the industry here. Niaga’s exposure in mortgage & auto loans account for 17.5% of its total loans, which in turn account for approximately 5% of the entire total loans for CIMB Group. Hence, the impact could be minimal in terms of growth for the group for now. As for CIMB Niaga growth rate, we are currently forecasting high teens growth for its total loan growth in 2012 as per the guidance of management (vs. FY11’s 20%).  However, with the new rules imposed, we expect its growth will now be slower. Currently, we are estimating 13% growth for the entire group but should these rules  lower Niaga’s growth by 1%, the group’s loan growth will be lower by 29bps. 
Growth aside, we also believe that Niaga’s interest margins are expected to be under renewed pressure in FY12 through a combination of the Central Bank policy action and as well as a heightened deposit and loan competition.  We reckon that a 50bps-70bps decline in its NIMs (to 4.9%-5.1%) is not entirely impossible.  

Valuation and Rating. CIMB’s share price has dropped by 22% since its peak on concerns over its earnings slowing down. The stock is now trading at 12.3x FY12 EPS (with an estimated ROE of 16.4%) as compared to its 10-year historical mean of 16.5x and marginally below its low in 2009 of 12.6x. At its current valuation, we believe the market could have priced in the risk of its slowing earnings growth already.   

Source: Kenanga

Axis REIT - 120329 - 2Q12 Top Buy

Axis REIT (AXREIT) is our 2Q12 Top OUTPERFORM pick as we reiterate our OUTPERFORM with an unchanged TP of RM2.82, based on GGM (8.2% required rate of return, 2.5% terminal growth and FY12E NDPU of 16.1sen). Overall, we are  not worried about the office and industrial segment as occupancy levels of AXREIT are at 97.2% due to the management’s capability to secure and retain quality tenants even with the weaker office segment. We expect RM300m worth of properties acquisitions in FY12E, thus swelling the portfolio size to RM1.5b (23% increase) by year end assuming possible finance by placement of 90.8m new units (RM221m new funds) and gearing of slightly less than 0.35x. Assuming all acquisitions are yield accretive, we reckon FY12E GDPU (after dilution) can increase by 5% (+0.3ppt) to 18.8sen (7.0% yield). If so, our TP will increase to RM2.94 from current RM2.82. Going forward, AXREIT is also looking to realize its asset enhancement initiative via property trading,  without significantly affecting income whilst rewarding unitholders with special dividends. We maintain our FY12-13E realised net income of RM81.2m-RM85.8m, which implies corresponding GDPU of 17.9-19.0sen (6.6%-6.3%), which fits our 2Q12 strategy of ‘flight to safety’.

Not worried about the office/industrial segment, albeit weaker office segment dynamics with high incoming supply in the Klang Valley. AXREIT’s good reputation provides comparative advantage with the ability of securing and retaining quality tenants, like Konsortium Logistik Bhd and Tesco Stores (M) Bhd. Industrial portions of the portfolio are not a concern given the longer term leases and tenants in economic resilient businesses (e.g. logistics). We strongly believe the group will be able to maintain portfolio rates at current levels of 97.2%. Also, the weaker  office market provides plenty of bargain acquisition opportunities, particularly when AXREIT is trading at premium NAV of 1.3x. 

Expect portfolio size to grow by 23% to RM1.5b by year end. AXREIT has a ready acquisition pipeline of RM0.5b over the next two years, including the recently completed acquisitions of Logistic Warehouse @ Bayan Lepas (RM48.5m) and another one in Prai (RM59.0m). Including these two acquisitions, we believe the group can acquire up to a total of RM300m worth of properties in FY12, assuming placement of 90.8m new units (RM221m new funds) and gearing of slightly less than 0.35x. If all acquisitions are yield accretive, we reckon FY12E GDPU (after dilution) can increase by 5% (+0.3ppt) to 18.8sen (7.0% yield). If so, our  TP will increase to RM2.94 from current RM2.82. 

Increasing NAV will push valuations higher. BV/share will increase by 3% to RM2.14 post placement and assuming peak valuations of 1.35x Fwd PBV, this implies a fair valuation of RM2.89. The recent and potential listing of Pavilion REIT and IGB Corporation retail REIT, respectively, will lend strength to its overall M-REIT valuations, buoying AXREIT share price as it tends to command a more than 10%-20% premium to M-REIT valuations. 

Ripe for a property trading portfolio. Axis REIT will be looking to realize its asset enhancement initiatives via disposals as some assets are at optimal levels. The sheer number of properties enables the group to trade properties without having overly significant impact on its income. One can expect
special dividends on gains on disposal. We reckon the stock will continue rerating itself because of its unique value proposition, which other M-REITs may not be able to offer in the short to medium term. For now, we maintain our FY12-13E realised net income of RM81.2m-RM85.8m, which implies corresponding GDPU of 17.9-19.0sen (6.6%-6.3%).

Source: Kenanga

AMWAY (M) Holdings - 2Q12 Top Buy - 29 Mar 12

AMWAY (M) is our top pick for 2Q12 for the consumerretail sector with an OUTPERFORM recommendation at  a TP of RM10.94. AMWAY has been a consistently profitable company, with its sales having grown at a CAGR of 6.8% since the last ten years and its net profit at a CAGR of 5.6%. In effect, AMWAY’s bottom line has grown 11.5% per annum on average since 2009 and we expect it to continue to rise to 11.1% this year and a smaller 6.5% in FY13. The drivers would be the number of distributors growth rate (5.1% and 5.0% forecast in FY12 and FY13) and a continued rise in its revenue per distributor driven by the rise in private spending (our in-house economist is projecting a 6.8% rise in private spending for both FY12 and FY13). 

We believe AMWAY deserves a fair value of RM10.94, based on 18x PER on its FY12 EPS of RM0.608 (a slight premium with the average MLM and non-MLM retail related stocks and the current average FBMKLCI PER  of 16.0x). This premium we believe is warranted due to the company’s strong track record in growing its sales consistently and the resiliency of its business profitability. More importantly, this outperformance is set to continue, in our view. Our current fair value offers a total upside of 19.4% for the stock (capital upside of 12.7% and dividend yield of 6.7%), which is much higher than that of our projected FBMKLCI’s 1 year forward estimated total return of 6.3%. Our conviction is hence quite clear – Buy AMWAY up to RM10.94 at market.

Estimated 11% market share. The company is one of the largest MLMbased companies in Malaysia with an estimated market share of 11% locally and its sales products are predominantly sourced from US, ranging from segments such as nutrition & wellness, skin care & cosmetics, personal care, home care and home tech. Consistent performer. In addition, AMWAY has been a consistent performer in terms of its share price performance on Bursa Malaysia, where the stock recorded an average total return of 8% p.a. among the top four performers on the local exchange in the last 8 years.      

Clean balance sheet. AMWAY also has a clean balance sheet filled with cash (net cash of RM123m) and the company’s ROE and ROA of 44.6% and 28.7% are the highest among its peers. 

A potential good dividend paymaster.  Amway Malaysia has never incurred any borrowings since its listing. With low capex and advertising cost, the company is able to grow its cash pile, which in turn is used by the company to principally reward its shareholders handsomely via dividends.  

Immediate plans going forward.  Amway plans to introduce 9 new products going forward of which 6 are from its beauty line, which generally makes up around 50% of the company’s sales. The group also intends to source more products for the Malay market, which currently contributes only 20% of the group’s sales. Other than that, the group is also looking at converting more of its RDCs into ‘AMWAY shops,’ with two being converted last year while another 3-4 more conversions are expected this year. We are positive on these strategies, which should further improve the company’s earnings growth both  for the short and long term.

Source: Kenanga

News Highlights - Bandar Raya Developments, WCT, Aviation Sector, Property Sector

Bandar Raya Development Bhd (RM2.31/share)
Closer to open tender
Bandar Raya Development Bhd (BRDB) is one step closer to selling off its four prime assets via an open tender, after the company announced the appointment of its legal and financial advisers to assist in the deal. In a filing with Bursa Malaysia, the company said it was working with Lee Hishammuddin Allen & Gledhill and CIMB Investment Bank Bhd to assist in the proposed disposal. It said the board had decided to proceed with the proposed disposal, while noting that Ambang Sehati Sdn Bhd had to-date been unable to confirm its plans to increase its stake in BRDB. - StarBiz

WCT Bhd (RM2.39/share)
OCBC a substantial holder
Oversea-Chinese Banking Corp Ltd (OCBC) has emerged as a substantial shareholder in construction company WCT Bhd, after it acquired 5.01% stake in WCT.  WCT said the Singapore-based bank had acquired 40.9 million shares in the open market on Monday. The closing price for WCT shares on Monday was at RM2.51. Meanwhile, WCT also informed that Kumpulan Wang Persaraan (KWAP) had acquired a total of 2.1 million shares on Wednesday and Thursday last week. As a result, KWAP now holds a 6.04% stake in WCT. – StarBiz

Aviation Sector
MAS-AirAsia share swap probe still ongoing
The Malaysia Competition Commission (MYCC) said investigations into the share agreement between Malaysia Airlines (MAS) and AirAsia Bhd is still ongoing. MYCC commissioner Datuk Dr S. Sothi Rachagan said the investigation would take a longer time as it was a complex process involving an examination of agreements. Domestic  Trade, Cooperative and Consumerism Minister Datuk Seri Ismail Sabri Yaakob has said the MYCC investigation into the share-swap deal would focus on whether it involved an abuse of monopoly or formation of a cartel. - StarBiz

Property Sector
Prasarana in property joint venture
Syarikat Prasarana Negara Bhd will work with a local property developer to build a RM200.0mil high- rise mixed development project over its underground Dang Wangi light rapid transit (LRT) station. Managing director Datuk Shahril Mokhtar said they had made the decision last week in selecting the best developer to work with Prasarana and due announcement would be made soon. This property venture will be the first for Prasarana that is expected to enhance its revenue stream. It was previously reported that UDA Holdings Bhd was one of the developers that had sent a proposal to Prasarana to jointly develop the 11,008 sq m. Previous reports also described that the Dang Wangi development might be emulating the Kuala Lumpur City Centre with underground LRT. Going forward in this new venture, Prasarana would also be looking at other locations with potential to have property developments especially in high traffic areas such as Ara Damansara, Subang Jaya KTM station and Awan Besar along the Kesas Highway. - StarBiz

Source: AmeSecurities

nfrastructure - SCORE forging through OVERWEIGHT

- TheEdgeDaily  reported that the scrapping of the Rio-Tinto Aluminium (Malaysia) Sdn Bhd (RTA)-Cahya Mata Sarawak (CMS) JV to develop a new RM7bil aluminium smelter is unlikely to cause a significant dent on the implementation of SCORE. We had written yesterday that both parties had mutually decided to terminate the JV (Sarawak Aluminium Co Sdn Bhd or SALCO) after they failed to finalise commercial power supply terms with state-utility firm, Sarawak Energy Bhd (SEB). Last October, RTA was also reportedly set to divest 13 assets that could either be sold-off or consolidated into a larger entity – as part of the mining giant’s $8bil asset divestment programme.

- More importantly, we believe SCORE’s massive attractive proposition remains firmly intact. This is largely driven by its ability to offer attractive and long-term sustainable supply of power, underpinned by SEB’s RM22bil capex program until 2020. 

- The Sarawak government had indicated that at least  20 companies have already been shortlisted to invest at Samalaju Industrial Park – where four pioneer investors (Press Metal, OM Holdings, Asia Mineral Ltd and Tokuyama) have already taken off the ground.

- To be sure, SEB had indicated on Bernama that it is confident of filling up the required power requirements that was not taken up by the RTA-CMS JV.  As things stand, SEB is already targeting to sell more than 2,000MW of its power – implying that the entire firm output of the Bakun hydroelectric dam (~1,771MW out of total generation capacity of 2,400MW) has already been pre-committed.

- CMS itself has also recently taken up a 20% stake in the planned 600,0000-tonne manganese and ferro alloy smelter by Australian-listed OM Holdings Ltd. The smelter is scheduled to commence operations in 2013.

- With increasing power demand, we see expect the Sarawak government to step-up in the roll-out of basic infrastructure that is required to support these massive energy-intensive investments. Based on our recent ground checks, some RM1.1bil worth of federal funding has already been allocated for this year – including a RM500mil facilitation fund to kick-start a new port at Samalaju.

- We envisage at least four major infrastructure projects that are likely to be rolled-out over the next few months: (i) 600MW Balingian coal-fired power plant (RM2.5bil); (ii) 500kV backbone transmission system (Bunut-Kuching)  [RM3bil]; (iii) balance of works for the Kuching Sewerage project (RM~RM1.7bil); and (iv) New Samalaju port (RM1bil).
- For strategic positioning within Sarawak’s SCORE, we recommend investors to BUY Hock Seng Lee (HSL) and Sarawak Cable for their respective select strengths in marine/civil construction and transmission line-related work. From our an end-user standpoint, our pick is Press Metal which is three out of the four pioneer investors which have already secured long-term power supply agreements with SEB. Phase 2 of Press Metal’s plant – when completed in stages by June next year – would triple the group’s capacity to 360,000 tonnes and solidify its solid progression as the largest integrated aluminium producer within ASEAN.

Source: AmeSecurities

Gamuda - Lacking near-term contract surprises HOLD

- Maintain HOLD on Gamuda with our fair value tweaked slightly upwards by 2% to RM3.79/share on an unchanged 5% discount to its revised Sum-Of-Parts (SOP) value, following better-than-expected 1HFY12 earnings.

- For the 1HFY12 reporting period, Gamuda reported a net profit of RM269mil on total turnover of RM1.4bil. Its results constituted circa 57% of our previous full-year forecast, and 54% of consensus estimates.  

- The positive variance came from: (i) higher-than-expected construction margins which doubled to 12.4% in 1HFY12; (ii) higher-than-expected contributions from the water & expressways division and (iii) lower-than-expected effective tax rates (21% vs our previous forecast of 25%).

- Construction earnings jumped 89% YoY, as physical progress at the Ipoh-Padang Besar electrified double tracking project has reached 77%. Construction margins doubled to 12.4% against 6.2% in 1HFY11. 

- Gamuda’s outstanding orderbook stands at ~RM5.8bil with the inclusion of the RM8.2bil tunnelling contract for the Sg.Buloh-Kajang (SBK) MRT line (Gamuda’s 50% share:RM4.1bil). If the Project Delivery Partner (PDP) role awarded to the MMC-Gamuda JV is to be included, its orderbook would expand close to a record RM12bil.

- Property pre-sales also doubled to RM870mil from a year ago. The encouraging response at Gamuda City (Hanoi: pre-sales: >RM120mil) was mitigated by a sluggish debut for Celadon City (Ho Chi Minh City) despite the latter booking in gains from the sale of land to AEON during the quarter. Unbilled sales stood at ~RM1.3bil.

- The MMC-Gamuda JV is awaiting a formal award from MRT Co for the SBK tunnelling job – real physical works should kick-off by March 2013. 85% of the 90 works packages under this new line should be awarded by October 2012.    

- We have raised FY12F-14F net profit forecast by 5%-6%. But, our HOLD call on Gamuda remains as the SBK MRT line project wins have largely been crystallized, with only the actual award of the tunnelling job pending. We do not expect a tangible decision on another two new MRT lines to materialise anytime soon.
- The RM8bil Gemas-JB double tracking project appears to be the only other near-term catalyst – where the GamudaChina Railway Construction Co is reportedly among three consortiums being considered for the job.

- The water consolidation process in Selangor is still frustratingly slow – with no resolution in sight for now. SPLASH’ receivables are growing ~RM50mil every quarter

Source: AmeSecurities

IGB Corporation - MidValley City the sequel in Johor Bahru BUY

- IGB and Selia Pantai – developer of SouthKey – yesterday signed a conditional MoU to establish a 70:30 jointventure to co-develop 3 parcels of leasehold land measuring 36acres within the SouthKey development. This is not a surprise given that IGB has indicated it has been looking for pockets of land in Johor for development.

- Selia Pantai is a public-private partnership between Selia Group and the Johor State Government via its arm, Kumpulan Prasarana Rakyat Johor (KPRJ).

- The JV intends to co-develop a megamall and possibly other commercial/residential properties including hotel, serviced apartments and offices. We note that the megamall would have an NLA of circa 1.5mil sf – almost as big as MidValley MegaMall -with close to 7,000 parking bays. 

- To recap, SouthKey is a mixed commercial development spanning over 300 acres within Permas Jaya which enjoys frontage of Jalan Tebrau, Jalan Bakar Batu as well as the recently-completed Eastern Dispersal Link. It is located just five minutes away from Sultan Iskandar Customs, Immigration and Quarantine (CIQ) complex.

- We view this positively because:- (1) we believe the mall would be a success given the area’s sizeable catchment population of more than 120,000 and the lack of quality malls within it. 

- At present, the total NLA in Johor Bahru is estimated to be at 11.6 million sf with an average occupancy rate in excess of 80%.  In the pipeline includes a lifestyle mall (GFA: 1mil sf) by Iskandar Investment Bhd located at Medini North and the redevelopment of Komtar retail mall (GFA: 0.4mil sf) in Johor Bahru CBD.

- (2) IGB is rebuilding its retail mall portfolio which would provide a new stream of income and is very much in-line with its business model of developing and growing investment properties. 

- We estimate the mall would provide an additional NOI of RM50mil (or accounts for 14% of our NOI estimate for FY12F) p.a to IGB, assuming an NLA of 1.5mil sf, a conservative rental rate of RM5psf and occupancy rate of 70%. Plus assuming a 7% cap rate the mall would provide a decent 5% uplift to our NAV estimate.

- We continue to like IGB Corp because the group is looking at crystallising the deep value of its retail malls in Mid-Valley City – triggered by high implied capital values. The group would likely to follow up with an office  and hospitality REIT subsequently. Our fair value is maintained at RM3.50/share.

Source: AmeSecurities


On The Platter
GAMUDA (FV RM4.57 – BUY) 1HFY12 Results Review: Game On!
Gamuda’s 1HFY12 earnings of RM268.8m (+47.2% y-o-y) were in line with both our and consensus forecasts, making up 51.5% and 54.5% of the respective full-year estimates. Overall, we are encouraged by the progress in its execution of the KV MRT project after jointly clinching the tunnelling portion of the SBK line with MMC. We are now looking forward to more news on the Gemas-Johor Bahru EDT in 3Q12 worth an estimated RM8bn. Maintain BUY, with our SOP-based FV unchanged at RM4.57.

CENTURY (FV RM1.94  – NEUTRAL) Corporate News Flash: Scouting For More Warehouses

KASIKORNBANK (FV THB176.6 – BUY) Company Update: In Good Shape

Market Review
Stuck in a  range. The  FBM  KLCI  shed 4.35  pts to 1,583.7, weighed down by the downbeat  global sentiment, with blue chips like  CIMB, IOICorp, Tenaga and Petronas Gas losing ground. Corporate newflows includes: AirAsia targets the listing of its Thai and Indonesian operations by May and October this year respectively, Bandar Raya Development has appointed a legal and financial adviser for the open tender of its assets sale, and Gamuda reported a 45% jump in 2Q12 net profit. Meanwhile, IGB has formed a JV with Selai Pantai SB to build a RM6bn megamall in South Key Johor Bahru and Bintai Kinden  has secured a SGD166.2m construction contract for one of the Singapore MRT line extension. On the global front, the  Dow  lost 71.5  pts driven by  concerns  over the sustainability of the US economic recovery.

IGB Corp, Selia Pantai JV project to kick start next year
The estimated RM6bn Southkey Megamall development in Johor by IGB Corp through a JV with a Johor-based property developer is expected to start next year, according to IGB Corp group MD Robert Tan Chung Meng. Tan said a full planning and study of the project will be conducted first before signing a definitive agreement within the next one to two months which will be undertaken between IGB Corp and Selia Pantai SB.  (Malaysian Reserve) Please see yesterday’s report

May listing for Thai AirAsia
A listing in May is what Tan Sri Tony Fernandes is looking at for Thai AirAsia and sometime in October for Indo AirAsia. And he has not given up hopes of trying to list AirAsia X this year too. “There will be two listings this year. If we can add AirAsia X, and I am confident we can, we will have three listings this year,” the group CEO said. (StarBiz)

Bintai Kinden JV bags RM405m Singapore MRT jobs
Bintai Kinden Corp secured a SGD166.23m (RM405.2m) worth of contracts via a joint venture for Singapore’s MRT line extension, the Downtown Line Stage 3 project. The contract will be for the supply and installation of electrical services worth SGD78.23m as  well as the supply and installation of tunnel ventilation and environmental control systems worth SGD87.94m. (Financial Daily)

Key West acquires Manjung Niaga for USD52.5m
Key West Global Telecommunication, together with Maryland International Offshore Ltd, has acquired Manjung Niaga SB (MNSB) for USD52.5m (RM160.65m) as part of Key West’s plans to position itself as an oil and gas player. Key West has 78.9% equity interest and Maryland 21.1%. Key West executive director Stephen Ng said MNSB owns 95% of PT Formasi Sumatera Energi, which owns a 15-year Kerja Sama Operasi concession to reactive and optimize the production of petroleum resources in the Tanjung Time Timur field in South Sumatera, Indonesia. (Financial Daily)

Cypark units in green energy pact with TNB
Cypark Resources, via two wholly-owned subsidiaries, has signed renewable energy power purchase agreement with TNB for a feed-in-tariff concession period. The 21-year concession is for electricity generated from Cypark’s 8MW solar park in Pajam, Negri Sembilan. (BT)

Vietnam: Trade gap narrows in March, supporting currency
Vietnam’s trade deficit narrowed in March as exports rose, supporting the currency. The gap fell to USD150m from a  revised USD279m in February, based on preliminary figures released by the General Statistics. The shortfall totalled USD251m in the first three months of the year. (Bloomberg)

Myanmar: To float currency
Myanmar announced an overhaul of its antiquated currency system as part of burgeoning reforms to modernize an economy left in disarray by decades of military rule and isolation. The impoverished nation will adopt a managed floating exchange rate from 1 April, allowing market forces to determine the value of the kyat, while leaving room for the central bank to influence its value, state media said. It described the move as the first step towards unifying the nation's various exchange rates. (BT)

South Korea: Returns to current-account surplus in February
South Korea returned to a current- account surplus in February as exports rose amid signs of an improving US economy and as the euro zone debt crisis eased. The surplus was USD639m, compared with a revised USD969m deficit in January, the Bank of Korea said in Seoul. The current account is the broadest measure of trade, tracking goods, services and investment income. (Bloomberg)

EU: European loan growth slowed in February on faltering economy
Growth in loans to households and companies in the 17-nation euro area slowed in February as a cooling economy curbed demand for credit. Loans to the private sector grew 0.7% from a year earlier after gaining an annual 1.1% in January, the ECB said. The rate of growth in M3 money supply, which the Frankfurt-based ECB uses as a gauge of future inflation, increased to 2.8% from 2.5%. (Bloomberg)

UK: Economy shrinks more than first estimated
The UK economy shrank more than previously estimated in the 4th quarter as services companies from airlines to banks cut output amid concerns about the euro region debt crisis. GDP fell 0.3% from the  third quarter, compared with a previously estimated 0.2% drop, the Office of National Statistics said.(StarBiz)

US: Orders for durable goods in US show sustained demand
Orders placed with US factories for durable goods rose in February for a fourth month in the last five,  signalling manufacturing will remain a source of strength for the expansion. Bookings for goods meant to last at least three years advanced 2.2%, less than projected, after a revised 3.6% decline in January, data from the Commerce Department showed. Orders excluding transportation equipment increased 1.6%, in line with the median forecast in a Bloomberg News survey of economists. (Bloomberg)

Source: OSK188

DAILY TRADING STOCKS: ManagePay Systems, mTouche Technologies

MPay’s daily chart
MPay’s share price  has to stay above the broken resistance to keep its upward bias intact. The stock  has likely completed a bottoming pattern after the strong move yesterday. To recap, the stock has been trading sideways for the past  nine  months, after seeing a sharp plunge in April-May 2011. It reached the bottom in Oct 2011 and  thereafter, the technical picture turned increasingly positive, as shown by the higher lows. A change in trend should be in store after the stock broke above the 9-month resistance level yesterday. The “Long White” candle was accompanied by a surge in volume, which  suggests firm buying interest.  Another close above RM0.20 should confirm the breakout and a purchase can be made at the current price, or preferably on pullback towards the stop-loss level  of RM0.20. A more conservative trade may  involve using the one-month low of RM0.16 as a stop instead.  The price target is RM0.27, the low of April 2011, and a strong move could see a test of the psychological RM0.30. A close back below RM0.20 today may signal a possible false break, with a close below RM0.16 as  the confirmation.  If this happens, the stock  will likely  return to its sideways trend.

mTouche’s daily chart
mTouche’s share price has to stay above the support level to keep its  upward bias  intact.  This stock is one of  the  market outperformers in the past six months, with the stock  trading at its 4-year high recently. Subsequently, the sharp rally gave way to sideways consolidation,  which is  now extending into its  fourth week.  We consider such a development as quite natural. The support level of the sideways move is now  more  clearly defined after the firmer move yesterday. The higher close nullified the negative bias of the “Long Black” candle of 27 March, affirming the “Long Lower Shadow Doji” of 13 March. The highest volume in two weeks also points to a return of buying support above the round figure of RM0.40. Thus, positions can be initiated in anticipation of the stock  making a base above  RM0.40, with a close below the support level of RM0.40 as a possible stop loss. The price target is the recent high of RM0.50 and a successful violation could see  the stock go as high as RM0.70, a measured move based on the Jan-Feb rally.  A close below RM0.40 should see it trading lower and may even spell the end of the uptrend as this will lead to the completionof a “Double Top” formation. Strong support is expected at RM0.30, which is also the high of Oct 2011.

Source: OSK188

CENTURY (FV RM1.94 - NEUTRAL) Corporate News Flash: Looking for More Warehouses

Century Logistics (CLH) entered into a Sale & Purchase Agreement (S&P) with Nakamichi SB yesterday to  buy  a piece of leasehold land in Klang, consisting  of  a double-storey factory and office buildings for a total sum of RM19m.

Hungry for more warehouses. We are not surprised with this acquisition since  CLH has been  looking for warehouses  in  strategic locations  in its efforts  to expand its warehousing and contract logistics business. As the group’s present 7 warehouses with total capacity of 840k sq ft space is 96% full, we think the price of this newly-purchased piece of  26.93 sq ft  leasehold land (expiring in 30 June 2105)  – which  comes with a double-storey factory and office buildings  - is fair and reasonable as it will enable the group to take its contract logistics business a step further. With a strong clientele base comprising names like Celcom and F&N, we think the group’s contract logistics business should continue to see robust growth, which we  expect would chalk up a healthy y-o-y 8% growth in FY12.

No change in forecast;  CAPEX well within projections. As the acquisition is well within our CAPEX projection, we are maintaining our forecast at this juncture. While we believe that CLH’s contract logistics business will cruise through without a hitch, we are still  only  cautiously optimistic on the group’s core Oil & Gas logistics’  segment,  which experienced an interruption in bunker fuel services in 4QFY11. During that quarter, CLH was asked by the Ministry of Transport’s Marine Department to suspend the services of four out of eight of its floating and storage units (FSUs) in Pasir Gudang from Sept-Nov 2011 due to  works on  the RM5bn deepwater terminal by Dialog Group (BUY, FV RM3.07) in Pengerang, Johor. As a result, the group’s 4Q earnings slid 29% during the quarter.  Meanwhile, management  has  guided that two of its FSUs have resumed operation in new locations, and  that  it is also finalizing the strategic areas for  the remaining 2 FSUs. As such, we believe the group’s 1QFY12 results would still bear the impact of weaker  performance in this division.  That said, we maintain our NUETRAL stance for now, with an unchanged FV of RM1.94, based on 6x FY12 EPS.

Source: OSK188

Gamuda (GAM MK, BUY, FV: RM4.57, Last Price: RM3.59)

Gamuda’s 1HFY12 earnings of RM268.8m (+47.2% y-o-y) were in line with both our and consensus forecasts, making up 51.5% and 54.5% of the respective full-year estimates. Overall, we are encouraged by the progress in its execution of the KV MRT project after jointly clinching the tunnelling portion of the SBK line with MMC. We are now looking forward to more news on the Gemas-Johor Bahru EDT in 3Q12 worth an estimated RM8bn. Maintain BUY, with our SOP-based FV unchanged at RM4.57.

On a roll.  Gamuda’s 1HFY12 revenue  came in at a sturdy  RM1.41bn (+13.7% y-o-y) driven by its property division, which saw revenue soar  68.6% during the period to RM520.9m. The group’s core earnings surged by a stronger 47.2% to RM268.8m owing to margin expansion in its construction and property divisions, both of which witnessed a 620bps improvement in PBT margins. We  attribute these improvements to the recognition of better margins for its Electrified Double Tracking (EDT) project as it had been rather conservative  for FY09-FY10, as well as sales of  higher-end  property developments last year. On a quarterly basis, the 2QFY12 numbers improved markedly across the board on a y-o-y and q-o-q comparison.

What’s new on the MRT.  Management  said  that 27 works packages  for  the  Klang Valley My Rapid Transit (KV MRT) Sungai Buloh-Kajang (SBK) line have been awardedout, while tenders and awards for the remaining 63 packages are expected to be mostly completed by 4Q12. We understand that works on the tunnelling portion could start as soon as 3Q12, and the Government is currently negotiating with landowners on vacating the affected sites. The target date for completion is July 2017. Ten tunnel boring machines, each worth some RM150m, will be deployed at 4 launch shafts in core areas such as Semantan, Maluri and Cochrane. 

Recognizing works on elevated portion. More interestingly, management highlighted that all packages for the elevated portion of the SBK line will be recognized in its books in view of its joint appointment with MMC as the Project Delivery Partner (PDP) for this portion. To put it simply, Gamuda’s revenue going forward would include all works relating to the elevated portion, plus the 6% management fee it is entitled to, while its operating expenses would  comprise  payments  made to  the  respective contractors for the works involved. While this would no doubt distort its margins going forward, we are not overly concerned as long as  there is  proper execution to ensure the timely completion of the SBK line, which will in turn ensure that Gamuda pockets its 50% share of the RM720m management fee due. We are making no changes to our revenue and opex forecasts for now, pending more clarity on the accounting policies involved, as well as further assurance on the progress of implementation.

Source: OSK188

Wednesday, 28 March 2012

Banking - NEUTRAL - 28 March 2012

The banking sector has moved back towards its fair value over last three months and in our view, can no longer simply be argued as ‘being cheap’. Following the recent reporting season, our picks for the sector have changed for 2Q2012. We continue to like banks with M&As newsflows as well as those supported by reasonable valuations. Under this strategy, we like RHBCAP (OP, TP: RM9.60) and CIMB (MP, TP: RM7.90). MAYBANK (OP, TP: RM10.40) and PBBANK (OP, TP: RM15.50) also remain on our OUTPERFORM ratings as the two offer reasonable dividend yields. We have however lowered our rating for AMMB (MP, TP: RM6.70) to a Market Perform from an Outperform due to its limited upside from its current share price. Meanwhile, we are maintaining our MARKET PERFORM ratings on HLBBANK (MP, TP:RM10.90) and AFG (MP, TP:RM3.70) on valuations ground.

The 4Q11 result trend and outlook saw the banking sector posting a flat QoQ earnings (1.0%) with underlying profit growth momentum clearly having stalled. Going forward, there are limited opportunities to drive the sector earnings growth materially beyond our current expectation of a high single digit growth, given the on-going margin headwind and limited credit charged surprise.  The 4Q11 reporting period was also somewhat uninspiring for the market. Apart from the decline in capital market revenues, in our view, the flat quarterly profit growth through 2011 was actually due to the lack of policy rate rises. Non-interest incomes continue to experienced a material decline (-7.3% YoY). We also expect softer trading condition to persist in the short term due to the ongoing global economic uncertainties. 

Margins emerging signs of softness without any further interest rate hike (-11bps YoY, on average). We believe the margins will continue to face a modest headwind in 2012.  Credit demand was strong however (11-15% on average vis-à-vis nominal GDP growth of 5.0%) despite the weak external outlook. Going forward, we are forecasting just a low teens credit growth to be driven by the start of the ETPrelated projects.  Provisioning on new impaired assets has been reduced but the credit charge is already low. Capital in the sector remains strong (Industry T-1 Cap Ratio of 12.0% and RWCR of 15.9%) – which is well positioned for Basel 3. This include PBBANK (CCR: 10.7% RWCR: 15.9%) that was previously deemed as being under-capitalised.  Going forward, the capital ratio is expected to remain healthy in supporting lending growth.

Earnings growth is limited.  Given our view that responsible finance will promote a healthy household lending growth, momentum of the loan growth will hence be lower for a period. As such, our base case for the system loan growth is broadly in the low  teens only.  Together with the on-going margin headwinds and limited provisioning surprise, there are limited opportunities to drive the sector’s earnings growth materially beyond our current expectations of high single digit.  

Current valuations.  Current valuations of the sector have gone up and the upside from here seems tight after rising 18% as measured by the KL Financial Index from the October 2011’s low. With earnings growth in the range of high single-digit to low teens, together with the already tight valuation, we
believe valuation multiple expansions are thus unlikely. Hence, we are increasingly looking to other factors to drive our rating recommendations such as M&As opportunities instead of organic growth.

The major bank valuations are ‘at the middle of the ranger’ of their historical mean valuations, which has typically represented their ‘fair values’ and this will also somewhat cap their absolute performance apart from the current uncertain external economic outlook.  

To ride on 2Q2012 news flows. For stocks, although our Target Price for RHBCAP has been reduced (due to relative weak earnings), its discount valuation remains supported by better growth prospects for the year ahead from its potential merger with OSK. Following the reporting season and the strong rebound of a few anchor banks from their October 2011’s low i.e. MAYBANK (+5%), PBBANK (+8%), AMMB (+2%), our pecking order has now changed to 1) RHBCAP and 2) CIMB with potential M&A news flows to rerate these stocks’ valuations. Meanwhile, thus far, the foreign shareholding of CIMB is still at its 18-month low despite the increasing foreign net buying on Bursa Malaysia.

Source: Kenanga