Friday, 28 September 2012

Budget 2013: Live updates

KUALA LUMPUR: The following are the key points of Budget 2013 presented by Prime Minister Datuk Seri Najib Tun Razak in Parliament on Friday.
*Najib said that the budget is a gesture of appreciation to Malaysians and was based on the background of the economy being poised to expand 4.5%-5% for 2012, spurred by private investment.
*The allocation for next year's budget is 251.6bil with the fiscal deficit at 4% compared with 2012's deficit of 4.5%.
*Govt will reintroduce foreign company acquisition incentives & tax incentives for local service providers
* RM500mil will be allocated for the River of Life project to rejuvenate Klang River
*Halal Industry Fund will provide RM200mil to fund working capital for SMEs that produce halal products
*Govt to set up group insurance coverage scheme for hawkers and small business owners
*Tax incentives for private entrepreneurs in the oil & gas industry including 100% income tax waiver for 10 years, exemption of withholding tax & stamp duty
*Tax incentive for the Global Incentive for Trading (GIFT) programme to make Malaysia an international commodity trading hub in line with global demand for liquefied natural gas (LNG). Approved commodity trading will include commodities such as in agriculture, refined raw materials, base minerals & chemicals. GIFT will see a 100% income tax waiver for the first 3 years of operation
*Tun Razak Exchange expected to attract 250 international companies and offer 40,000 jobs; 10-year tax exemption for companies with TRX status
*RM230mil in incentives for fishermen, RM2.4bil in subsidies and incentives for paddy sectors
*Security Commission will provide the framework for the issuance of AgroSukuk for companies involved in agriculture, For AgroSukuk, the government has allocated a double tax deduction for a 4-year period from 2012-2015
*RM350mil for all entreprenuers, including RM50mil for Indian entrepreneurs
*RM38.7bil to improve quality of education in the country with an additional RM500mil to training teachers in the core subjects of English, Bahasa Malaysia, Science and Maths.
*Tax-free incentives and grants for setting up of new nurseries and kindergartens. RM1.2bil allocation for pre-school development
*Total of 1bil to upgrade schools - RM400mil for national schools, and RM100mil each for Chinese, Tamil, mission, religious, boarding schools and MRSM
*RM1bil fund to be set up to help bumiputra SMEs to increase their equity share in the economy
*Minimum pension to be increased to RM820 for those who had served govt for at least 25 years. More than 50,000 pensioners afftected.
*Government will establish the Graduate Employability Taskforce with an allocation of RM200mil to strengthen employability of unemployed graduates under Graduate Employability Blueprint by end-2012
*The Government will allocate RM440 million to the Skills Development Fund Corporation (PTPK), to provide loans for trainees to undergo skills training
*SOCSO will allocate RM200mil to enable its 1.4 million members to undertake free health screening in Government hospitals or SOCSO's panel clinics to detect non-communicable diseases.
To further boost the production and utilisation of green technology-based products, the fund for GTFS will be increased by RM2 billion and the application period extended for another three years ending 31 December 2015.
Source: The Star

Daily Trading Stocks

AirAsia may rebound after holding above the recent support of RM2.80. A purchase can be made on a close above yesterday’s high of RM2.95, with a close below RM2.80 as a stop-loss. The price targets remains at RM3.45 and RM3.65. The stock will likely decline if the support level fails to hold, with further supports expected at RM2.70 and RM2.35.

IJM may reverse the recent plunge after recouping all of Wednesday’s losses. A purchase can be made on a close above RM4.75, or if possible, towards the stop-loss of RM4.50. The price targets are the gap of RM5.05 and the strong resistance of RM5.25. A close below RM4.50 should see the stock lower with support at RM4.20.
Maxis may rebound after holding above the 50-day MAV line. A position can be initiated on a close above RM6.86, with a close below last week’s low of RM6.70 as a stop-loss. The price target is RM7.50, should the recent high of RM7.10 be broken. A close below RM6.70 should see the stock lower and support is at RM6.30.
Boilermech may rally if the stock closes above the prior high of RM0.87. A position can be initiated if it happens, with a close below the four-week low of RM0.82 as a stop-loss. The price target is RM1.00, if the recent high of RM0.90 is broken. The stock may trade lower if it closes below RM0.82, while strong support should come at RM0.78.
IJM Land may rebound after holding above the psychological RM2.00 support level. A purchase can be made on a close above the three-day high of RM2.12. The price targets are RM2.35 and RM2.45. A break below RM2.00 should see the stock lower and support is seen at RM1.90.
My EG may resume its uptrend if it stays above the 50-day MAV line. A purchase can be made on a close above yesterday’s high RM0.765, with a close below the recent low of RM0.74 as a stop-loss. The price target is RM0.94, provided the recent high of RM0.87 is broken. A close below RM0.74 should see the stock lower with support at RM0.70.
Menang may climb higher after closing the highest in 1½ year. A position can be initiated above RM0.30, with a close below yesterday’s low of RM0.27 as a stop-loss. The price targets are prior highs of RM0.35 and RM0.40. The stock likely trade sideways if the stop-loss is triggered, with strong support expected at RM0.23.
Ingens may rebound after selling eased in the past three days. A purchase can be made on a close above yesterday’s high of RM0.105, with a close below RM0.09 as a stop-loss. Price targets are RM0.135 and RM0.16. A close below RM0.09 should see the stock lower and support is at RM0.075.
Source: OSK

Flash - PM announces budget of RM251.6b in total expenditure

PETALING JAYA (Sept 28): Prime Minister and Finance Minister Datuk Seri Najib Razak announced a Budget of RM251.6 billion in total expenditure in Parliament on Friday. Operating expenditure was pegged at RM201.9 billion, while development expenditure was pegged at RM49.7 billion.

Source: The Edge

Power Sector Results for Prai, 1 st generation PPAs out next month

The winning bidders for the Prai Combined Cycle Gas Turbine (CCGT) plant and the re-negotiation of the first generation power purchase agreements (PPAs) are expected to be announced within the next couple of weeks, according to the Energy Commission (EC).

EC chairman Tan Sri Tajuddin Ali said they have made their recommendations to the government on both Tract 1(Prai) and Tract 2 (first generation PPAs) and are currently awaiting government approval. The results will be announced next month. He added that the EC would soon call for bidding for Tract 3.

Eight power players had submitted their bids for Prai CCGT, while four independent power producers and Tenaga Nasional Bhd bid for the first generation PPA extension. According to the Energy, Green Technology and Water Minister Datuk Seri Peter Chin Fah Kui, the competitive bidding for Prai will result in new capacity to be installed using the latest gas turbines of significantly higher efficiency to optimize the use of gas. 

– The Edge

NFO Sector - Greek government to sell stake in betting company NEUTRAL

- According to Reuters, Greece would be selling 33% out of its 34% stake in OPAP. 

- The Greek government’s proposed sale of OPAP is part of its privatisation plans to raise funds. OPAP is a lottery company, which also takes bets in sports. 

- OPAP is listed in Athens and its closing share price was 4.17 Euros. 

- The Greek government’s 33% stake would cost about 439mil Euros or RM1.7bil. 

- It was reported that four consortia of Greek and foreign companies were interested to buy the stake in OPAP.

- Apart from the Greek government, Fidelity Investments also owns a 5% stake in OPAP.

- We wonder if the NFOs in Malaysia would be interested to acquire the stake in OPAP. Some of the overseas ventures undertaken by the Malaysian NFOs have not been successful.

- These include Magnum Corporation’s venture in Indonesia and Tanjong PLC’s associate investment in Moscow. The companies had to make provisions for their overseas investments subsequently.

- Berjaya Sports Toto bucks the trend with its 88%-stake in Berjaya Philippines. Berjaya Philippines’ revenue increased 4% to Peso2bil (RM146mil) YoY in FYE4/12 while its pre-tax profit rose 5% to Peso1.4bil (RM103mil).

- We reckon that it would not be easy managing OPAP’s operations due to the high tax rates. It has been reported that the Greek government receives a royalty of 30% on certain games, while revenue from video lottery terminals can be taxed as high as 35%.

- Currently, Multi-Purpose Holdings Bhd (MPHB), which owns Magnum and Berjaya Sports Toto (BST), are busy with their corporate exercises. 

- MPHB is due to list its non-gaming assets (excluding stockbroking) by 1H2013, while BST is supposed to list its lottery operations via a business trust on the Singapore Stock Exchange by year-end.    

- We have HOLD recommendations on both MPHB and BST. MPHB’s dividend yield is forecast at 4.8% for FY12F, while BST’s dividend yield is expected to be at 7.2% for FYE4/13F.

Source: AmSecurities

Gamuda - Record FY12 profits, now what’s next? HOLD

-  Maintain HOLD on Gamuda with an unchanged fair value of RM3.79/share. Gamuda’s FY12 results fell within both consensus and our expectations. Its record FY12 net profit rose 29% YoY mainly on stronger contributions from both its construction and property divisions.

-  We have also introduced FY15F net profit of RM728mil, implying an earnings growth of 9%. No final dividend was declared. 

-  Full-year earnings could have been higher if not for a one- off adjustment in amortisation expenses for 46%-owned Litrak following a review of its traffic forecast for the remaining concession period. 

-  Construction earnings rose 55% YoY on better recognition from the Ipoh-Padang Besar Double Tracking project (86% completed). Construction margins jumped from 7.8% in FY11 to 11.7%. 

-  The group’s outstanding order book stood at RM4.8bil with contributions from the Sg.Buloh-Kajang (SBK) MRT project picking up with an overall progress of 7%. 

-  For the tunnelling portion under the MMC-Gamuda JV, the first two pairs of tunnel boring machines (TBM) are due to be delivered at Pasar Rakyat and Semantan portal. The launch shaft works are well underway at both the north and south portals.

-  Gamuda expects a firm decision on the second MRT line to pan out between the next two and three quarters. To ensure sufficient construction capacity, any new lines will likely take up to two years to be fully ramped-up, i.e. by end-2014 assuming a decision can be made by yearend/early-1Q13.

-  As the Project Delivery Partner (PDP) for the SBK line, Gamuda is also gearing up for a similar role in any of these new lines – if this method is chosen.

-  Beyond MRT, Gamuda will likely put in a bid for the Langat 2 project (RM3.6bil) and is exploring opportunities in Indonesia and Myanmar. However, we do not envisage any significant newsflow in the near term.   

-  Gamuda achieved higher new property sales of RM1.5bil (+16% YoY) – albeit partly aided by land sale gains at Celadon City to Aeon. 

-  But, we have toned down our expectations moving into FY13F and assumed flattish new sales – lower than management’s own lowered forecast of RM1.7bil, as overall sales momentum have slowed since 2HFY12 while the Vietnamese market remains soft.

Source: AmeSecurities

Tenaga Nasional - Gas and electricity tariff decision by December BUY

-  We reiterate our BUY call on Tenaga Nasional (Tenaga), with an unchanged DCF-derived fair value of RM7.95/share, which implies an FY13F PE of 12x and a P/BV of 1.2x. 

-  Business Times reported that the Energy, Green Technology and Water Minister Datuk Seri Peter Chin has said that the government’s decision to raise electricity and gas tariffs will be made in December this year. His ministry has recommended to the Economic Council for the tariff increase to reflect market prices.

-  The last hike in gas and electricity prices was on June 1 last year, when natural gas price for the power sector was raised by 28% to RM13.70/mmbtu from RM10.70/mmbtu while the average electricity tariff rose 7% to 33.5 sen/kWh. Recall that the 530mmscfd Lekas regassification plant in Malacca is expected to begin operation in mid-October this year, a slight delay from this month. But the pricing for this new natural gas supply, which will be imported from the Middle East, has not been announced by the government.

-  Currently, Peninsular Malaysia’s natural gas supply constraints have led to Petronas supplying only 1,050-1,100mmscfd vs. its stipulated 1,350mmsfd to the power sector. Based on Japan’s imported gas price of US$18.8/mmbtu and assuming a premium of 20% to account for the regassification and transportation costs, we estimate that the power sector’s average gas price could rise by 49% to RM20.5/mmbtu. This can be offset by an electricity tariff hike of 8.5%. But pending the upcoming general election, we expect Petronas to absorb the increased imported gas costs, which will mitigate Tenaga’s fuel cost pressures. 

-  Until the general election results alleviate tariff rebalancing concerns, near-term catalysts for Tenaga’s re-rating stem from:- (1) Stronger QoQ 4QFY12 earnings, driven by a drop in Newcastle coal cost by 15% QoQ or US$16/tonne and 4% QoQ increase in natural gas supply to 1,000mmscfd; (2) Tenaga’s stronger earnings outlook will be underpinned by the likely continued cost-sharing formula between Tenaga, Petronas and the government for the additional distillate and oil costs arising from the shortfall in natural gas below the 1,250mmscfd threshold; and (3) Tenaga will benefit from lower fixed capacity charges due to the upcoming tenders for new power plants (such as the 1,000-1,400MW Prai combined gas-cycle plant) and the likely extension for over half of the first generation power purchase agreements which will be announced next month.

-  The stock currently trades at a P/BV of 1x, at the lower range of 1x-2.6x over the past 5 years. Earnings-wise, Tenaga offers an attractive FY13F PE of 10x, compared with the stock’s three-year average band of 10x-16x.

Source: AmeSecurities

Kenanga JIT News - LDHB, MyEG

Lion Diversified: It will be meeting its creditors in Oct 2012 to discuss the restructuring of its US$132 million exchangeable bonds due on Nov 16, 2012.

LDHB is meeting the bondholders to extend the maturity of the bonds, which are exchangeable for shares in Parkson Holdings Bhd, by two years to Nov 16, 2014. The redemption of the bonds will be a full value on the extended maturity date.

LDHB will also make additional partial redemption on and after Nov 16, 2012 and intends to reduce the yield o the bond from 9% per year to 6% per year. LDHB is also resetting the change price to between rm3.97 per share and rm5.30 per share in the extended tenure of two years.

As at 27 Sept 2012, the outstanding amount of the exchangeable bonds was US$68.29 million.

MYEG: It is poised to see an acceleration of earnings in the medium term, spurred by the introduction of new Road Transport Department, immigration and customs-related services.

Its portfolio of services continues to grow although growth rates will inevitably slow as they near market share saturation levels. It is seeing increasing market share and customer acceptance. The underlying market for its range of services is large, with recurring demand supported by the growing popularity of online services.

Its near term earnings will continue to be driven by its JPJ services, road tax renewal and insurance premiums, while the introduction of new services will spur future growth. These services are supported by a large number of vehicles and drivers and high transactional frequency.

The company is introducing new services that will spur growth, including a just launched online vehicle registration transfer service. Future plans include a registration number bidding system.

UMW Holdings - Not Buying Another Rig

THE BUZZ - UMW announced that it has decided not to exercise the option to purchase its fifth jack-up rig for USD212m.
Timing it right with Petronas. We believe that the reason UMW decided not to exercise the option is possibly due to the fact that Petronas no longer needs any more jack-up rigs in the immediate term for its oilfield exploration activities.
Earnings intact. Maintain Buy. We are not making any changes to our earnings estimate as we have not incorporated this jack-up rig in our earnings forecast. We maintain our BUY call, and our Fair Value of RM11.87.
Source: OSK

Regional Plantation - September Effect Fades

We maintain Overweight on the sector as we view the recent share price weakness as an opportunity to buy plantation stocks. September tends to be weak month for CPO price followed by a strong 4Q. We believe the substitution of soybean due to supply shortfall will accelerate as the US harvesting season progresses, especially given the substantial discount palm oil is trading at. We deem First Resources, Sarawak Oil Palms and Kulim the best stocks to own.
The September effect. Palm oil price is usually weak in September, possibly since production peaks during the month, during which there may potentially be high inventory. Based on the MPOB benchmark price, September has seen negative returns for palm oil price 16 times in the past 21 years since 1992. October is a far more positive month, showing positive returns 65% of the time. That said, 4Q is also typically the best quarter for palm oil price as well as the Plantation Index. This should mean that September may be the best time to buy plantation stocks.
Exports still robust. Despite the prevailing concerns over a demand slowdown, we have yet to detect any signs of this happening. India’s YTD edible oil purchases continue to hit record highs while China’s purchases have held steady. In the first 25 days of September, Malaysia’s palm oil shipments jumped 11.3% m-o-m, led by a 94.7% surge in exports to India and 47.0% increase to China.
Substitution effect. As thepoor US soybean crop fuels the need for alternative sources of edible oil, the search for substitutes will intensify as the Sept to Nov harvesting season in the US from progresses. We estimate that the lower US yield will give rise to demand for 1.8m tonnes of substitutes, which will be mainly palm oil.
Our long term bullish case. We believe palm oil price will strengthen as the commodity’s production in Indonesia decelerates starting next year and reaches a plateau in 2016 as its trees age. As Indonesia’s production was instrumental in driving palm oil supply growth in the past five years, slower production growth will lead to weaker global palm oil supply growth and consequently, higher palm oil prices.

Source: OSK

Malaysia Steel Works (KL) - No Immediate Spark

Malaysia Steel Works (KL) (Masteel) painted a bullish picture at its analysts/fund managers briefing on Wednesday. It expects sales tonnage to grow, especially since its meltshop is being upgraded and capacity will increase with its upcoming new rolling line. However, we see profits remaining volatile, especially in view of plunging steel prices. This aside, progress on its proposed rail project in Iskandar Malaysia is slow despite firm commitment from the management. We are keeping NEUTRAL on Masteel, with our RM0.83 FV based on a 0.33x FY12 BV, or -1.0 SD of the stock’s historical trading range.
Capacity on the rise. Over the years, Masteel’s management has been focusing on modifying its furnace and billet caster to progressively increase billet capacity. Group MD/CEO Dato’ Seri Tai Hean Leng told the briefing that the latest upgrade on the company’s meltshop will see its upstream capacity increase by another 50,000 tonnes to 600,000 tonnes per year (tpy) by end-2012. Meanwhile, the company is also taking steps to address the mismatch between higher upstream and lower downstream capacity by undertaking capacity expansion. For this purpose, it has allocated RM100m for 2013 to be directed at its new rolling mill adjacent to its meltshop in Butik Raja, Klang. This new line will raise its rolling mill capacity by 200,000 to 550,000 tpy from FY14 onward. We reckon that these investments will provide room for the company to expand sales as its existing plant is now running at almost optimum capacity. 
Bottomline still patchy. Despite the bullishness over the company’s growing tonnage, there has been no firm guidance from its management on upcoming profits. This is understandable given that steel prices are heading south again. We expect the rollout of mega projects under the Economic Transformation Programme (ETP) to be long-drawn, at least until the General Election is held. Although the initial commencement of some ETP projects may be sufficient to keep local prices relatively strong than the international spot price, and Masteel’s stringent inventory policy may help to reduce the time lag for it to enjoy lower material costs, we do not foresee any major surprises in the company’s profits in the medium term, particularly in 2HFY12. That said, we are keeping our original forecast of lower 3Q earnings, with a potential rebound in 4Q.
Rail project progressing, but at a slow pace. As we have had reservations on the company’s JV to supply to and operate a 106.5km rail transit network between Iskandar Malaysia and Woodlands in Singapore, we are not surprised with the lengthy time taken to obtain the necessary government approvals. The management is fully committed to this project, but negotiations on such concession-type projects, particularly since it is the first of its kind in the country, will obviously require many rounds of deliberation before it is firmed up. As infrastructure and public transportation are new areas of endeavour for Masteel, we see the company facing greater investment risk. As such, we prefer not to incorporate any potential earnings contribution from this project.
Source: OSK

Kenanga Research - Rating Summary - 28 Sep 2012

Read details

Kenanga Today - 28 September 2012

- Poh Kong’s 4Q net profit falls 22% despite higher revenue
- VS Industry posts net profit RM9.7m in 4Q
- Quality Concrete’s 2Q net profit drops 8.5% to RM1.65m
- Axis REIT's assets increase to RM1.5b
- E&O to roll out RM2.5b worth of properties

- RIM posts narrower loss than estimated amid overseas growth
- Goldman Sachs settles "pay-to-play" probes

Source: Kenanga

Highlights / Stock Picks of the Day - Mah Sing Group Berhad

Property developers bore the brunt in the recent sell-downs in the broader market in the past few weeks, with Mah Sing Group Berhad ("Mah Sing") among the ranks. Mah Sing's share price has now reached a
crucial support level at the upward sloping trend line. Should this support level prove effective, a rebound may be possible from here. The indicators remained firmly in the negative territory; hence investors should watch this stock closely for any confirmation of a rebound after the budget announcement today. Overhead resistance levels can be found at RM2.45 and RM2.55 while supports remain at RM2.00, and further down at RM1.85.

Source: Kenanga

Highlights / Stock Picks of the Day - QL Resources Berhad

QL Resources Berhad's ("QL Resources") share price has been stuck in range-bound mode for the past eight months to form a large "trading rectangle" which spanned 27 sen. This chart pattern marks a sign of indecision between the bulls and the bears after the strong run-up in the share price at the start of the year. Earlier this  week, QL Resources formed a bullish "Umbrella" reversal candlestick after testing the RM3.05 support on the daily chart. The candlestick pattern was confirmed with a rebound accompanied by the rising Stochastic indicator, which signaled the start of a short term upward cycle. The RSI has also inched up after briefly grazing the oversold territory. We believe  the share price may extend its gains towards the cluster of moving averages at RM3.20 before reaching the rectangle resistance at RM3.32 - our target objective.

Source: Kenanga 

Yinson Holdings - Above Expectations Again

Period   2Q13/1H13

Actual vs. Expectations
Yinson’s 2Q13 net profit of RM9.8m brought its 1H13 net profit to RM20.4m. The 6MFY13 net profit was again ahead of expectations, accounting for 66% of ours (RM31.0m) as well as 65% that of the consensus’ (RM31.4m) full year estimates. 

The variance to our estimate was again due to the better-than-expected performance from its transport and trading divisions.

Dividends  No dividends were declared in the quarter.

Key Results Highlights
YoY,  the  2Q13  net  profit  grew  by  80%  mainly  on the back of 1) revenue improvements for the transport and trading divisions and 2) margin expansion in the marine division (+21.6pts) due to a full-quarter impact of the new 10,880bhp AHTS in 2Q13. To recap, the new AHTS started its maiden operations in Apr 2012. We had already included this AHTS in our assumptions.

QoQ, the 2Q13 net profit was down 10.7% due mainly to the lower trading division’s earnings. This is  in  line  with  our  previous  guidance  that  the trading activity will normalise after 1Q13, which was then buoyed by post-CNY restocking exercises.

Outlook  Management guided that there could be a further slowdown in 3Q13 as the price of its trading division goods in continue to taper off.

In  the  long  run, we are positive on  the  company as its growth trajectory is  accelerating. The company is looking to kick-start its FSO operations in FY14 and FPSO operations in FY15.

Strong links to PTSC are a precursor to more Vietnamese opportunities and it is expected to post a 3-year net profit CAGR of 38.3%.

Change to Forecasts
Despite the strong performance in 1H13, we are maintaining our full year numbers as we expect a weaker 2H13 on the back of a slowdown in its trading division.

We had already factored in some earnings increases in the previous results season.

A stronger-than-expected trading division performance in 3Q13 could prompt us to review our forecasts later.


Valuation   Our target price is unchanged at RM2.68/share based on FY14 Sum-of-Parts (SOP) valuation. 

Risks  1) Significant reliance on Petrovietnam poses an earnings risk to Yinson; 2) high capex requirements and 3) contractual and project execution risks of new projects due to its inexperience.   

Source: Kenanga

Puncak Niaga - Free warrants and bond issue

News    Puncak announced that it had proposed a free warrants issue and a 5-year convertible Sukuk bond issue to finance its working capital and acquisition of new assets. The utilisation of the Sukuk is earmarked for an acquisition opportunity in the near term while the unutilised Sukuk proceeds will be used to re-finance the current debt in its oil and gas subsidiary KGL Ltd.     

Comments   The warrants will be issued on the basis of 1 warrant for every 10 existing shares. The conversion price is at Puncak’s par value i.e. RM1.00 per share. The expected money raised from the warrants (RM40m) is earmarked for its working capital purpose. This exercise is eventually to reward the shareholders instead of paying cash dividends to them.

 The RM165m convertible Sukuk bond will have a 5-year tenure with its conversion price yet to be finalised. However, based on the proposal, the conversion price should be at a premium to the 5-day VWAP of Puncak’s shares. Assuming a 10% premium to the current price of RM1.29 as the conversion price, this will enlarge the company’s share base by 26% (post-warrant conversion).

 We are neutral on this corporate exercise as the future acquisitions of assets in the oil and gas sector will somewhat mitigate Puncak’s dependency on its current controversial and uncertain water business.   

Outlook   We are encouraged with Puncak’s move to diversify into other businesses such as oil and gas as this will minimise the risk of the uncertainties in its Selangor water business.

 The oil and gas division is expected to record at least a RM500m revenue in FY12. As at 1H12, it has already achieved RM280m and RM35m in revenue and pre-tax profit respectively.

Forecast   No changes to our FY12-13E earnings.


 Its water asset is currently trading at a deep discount and its oil and gas potential is still underestimated by the market.

Valuation    We have increased slightly our  TP to RM3.05 (based on SOP valuation) from RM3.01 as we tweaked our assumption higher for its oil and gas contribution. We have also factored in the 10% dilution of the warrants exercise.   

Risks   Offer price from SSG being lower than our valuation for its water business.    

Source: Kenanga

Media - Adex sentiment remains cloudy

We are maintaining our NEUTRAL view on the media sector. The YTD August gross adex grew by +2.1% YoY in contrast to our full year targeted growth of 10.0% YoY (based on a 2.0x GDP multiplier). The weaker-than-expected YTD adex was mainly caused by the persisting Europe debts dilemma and the uncertainty of the General Election, which had led  advertisers to continue to adopt a ‘saving for the rainy days’ approach. We reckon advertisers will only turn aggressive when these concerns become lesser. While we believe that the adex sentiment will improve on a month-on-month basis going forward due to the seasonality factor, we are likely to review our full-year  adex forecast (with a downside bias) after having a clearer picture on the 3QCY12 adex. Based on our study, for every 100bps change in our CY13 adex growth rate of 10%, the earnings of STAR, MEDIAC and MEDIA will be impacted by  1.4%,  0.3% and 1.0% respectively. We maintain our OUTPERFORM rating on MEDIAC with an unchanged target price of RM1.80 based on a targeted FY13 PER of 15.7x (+2SD). Meanwhile, our STAR and MEDIA target prices continue to be kept at RM3.22 and RM2.40, based on unchanged targeted FY13 PERs of 13.0x and 13.4x respectively. Our MARKET PERFORM calls on both stocks are retained. 

The YTD August adex grew by 2.1% YoY but was lower by 3.7% on a month-on month basis  according to Nielsen. The moderate YTD growth was mainly driven by all mediums except for the lower growth in the FTA (-1.4%) and Newspaper (-1.1%) segments. We believe the drop in the YTD FTA adex was mainly caused by the increased adex spending in the Pay TV segment,  which was likely boosted by the upcoming listing of Astro as well as the higher household penetration rate. The total adex, however, fell by 3.7% MoM, due likely to the shorter working days because of the Hari Raya holidays. The drop in the August adex was mainly led by the Pay TV (-8%) and FTA TV (-5%) segments together with a minor slip of 0.8% in the newspaper segment. On market shares, newspaper continued to command the lion share but with a lower quantum of 40.1% (vs. 41.4% a year ago) followed by 27.4% (vs. 28.4%) for FTA and 23.9% (vs. 21.6%) for Pay TV. The adex spending trend in the nontraditional medium (i.e. Magazines, Outdoor, In-store, Internet and Cinema) has continued to increase and accounted for a 4.7% share (vs. 4.5%) of the YTD market adex. This implies that advertisers have continued to focus on more targeted groups and the interactive media.

Newspaper YTD gross adex was lower by 1.9% YoY to RM2.5b. The relatively weak performance was mainly caused by the contraction in both the English (-7.3% YoY) and Chinese (-1.2% YoY) segments but partially offset by a higher contribution from the Malay (+3.9% YoY) segment. The Malay newspaper segment has recorded the fourth consecutive positive MoM growth of 2.1% during the month of August. Meanwhile, the Chinese newspaper growth was relatively flattish at -0.2% MoM (July 12: +0.4%) while the English segment continued to contract by -3.0% (July 12: -3.0%). MEDIAC, STAR and MEDIA’s newspaper gross adex recorded a -1.3% YoY, -11.0% YoY and +6.0% YoY respectively in QTD August. The sharp drop in STAR was mainly due to the continued lack of confidence by advertisers, in our view, despite the company’s readership and circulation numbers having shown some signs of recovery. We do not discount that some advertisers may or have shifted some of their adex budgets from the English to the Malay segment due to the increase in the latter’s circulation numbers.  

The YTD Pay TV gross adex has continued to gain  12.6% YoY to RM3.6b at the expense of FTA TV, which contracted by 1.4% YoY. On a MoM basis, both Pay and FTA TV adex were lower by 8% and 5% respectively. The drop marked the end of the positive MoM growth in both the Pay and FTA TV segments since February 2012. We suspect the fall, to a certain extent, was related to the lower discount rate provided by TV operators thus dampening the advertisers’ appetite. MEDIA’s gross TV adex was relatively flat at -0.1% to RM487m in QTD August thanks to the strong performance of TV3 (+13.6% YoY) but partially offset by the lower growth in 8TV (-0.2%), NTV7 (-2.4%) and TV9 (-3.3%). FTA TV continued to command the lion share of the total YTD TV adex with a 53.4% share (YTD August 11: 56.7%).     

Source: Kenanga

Gamuda - Another sterling year

Period   4Q12/12M12

Actual vs.  Expectations
Slightly above our expectations  by  9%  but  within the consensus. The full-year core net profit of RM534m came in at 109% and 102% of ours and the consensus’ FY12 full year estimates.  

Dividends  As expected, no dividend was declared for the quarter under review. 

Key Result Highlights
YoY, the 4Q12 core net profit of RM160m increased by  27%  on  the  back  of  a  20%  rise  in  the  revenue. The main support came mainly from the property division with an expanded pre-tax margin from 17% to 28%.The property revenue increased by 20% supported by strong sales from its Horizon Hills development.   

QoQ, the core net profit has increased by 30% due to the higher revenue recognition from the ongoing construction projects like the double track railway and MRT tunnelling works (+71%). However, the pre-tax margin for construction dropped from 15% to 9% as the lucrative double track project was already at the tail end of the project (YTD stage of completion at 86%). The MRT tunnelling works could be contributing lower margins as the progress is still at the preliminary stage.  
YoY, the FY12 core net profit of RM534m is the second record-breaking year for Gamuda. It was 33%  higher  on  the  back  of  a  15%  increase  in revenue. The overall pre-tax margin has improved from  20%  to  24%  as  its  property  margin  had stabilised at 27%.  

Outlook  The current order book stands at RM4.8b until 2017. The big chunk of the contract value comes from MRT tunnelling works (RM3.9b). The tender book stands at RM10b, which comprises of MRT Line 2, Line 3 and Gemas-Johor EDTP. 

We reckon that new contract awards are likely to take place only after the elections.  

Change to Forecasts
We have tweaked our FY13E earnings higher by 6% as we have increased our revenue projection for its property division.  

Rating  Maintain OUTPERFORM

Our OUTPERFORM rating is maintained as our Target Price implies a 21% upside from the current share price.

Valuation   We are maintaining our TP at RM4.13 based on a lower multiple of 15x from 16x FY13 earnings as we expect the weakening sentiment on the construction sector to affect the share price performance.

Risks  Constructions delays and cost overruns. 

Source: Kenanga

Puncak Niaga Holdings - Proposed Free Warrant & Convertible Sukuk

THE BUZZ - Puncak Niaga has proposed to issue of up to 40.9m free warrants on the basis of one warrant for every 10 existing ordinary shares. It also proposed to issue a 5-year Redeemable Convertible Secured Sukuk of up to RM165m in nominal value. The proposed free warrants and Convertible Sukuk are inter-conditional upon the relevant approvals being obtained for each other.

Rewarding existing shareholders. The Warrants are issued at no cost to the entitled shareholders on a pro rata basis – ie a reward to existing shareholders. The exercise price of the warrants has been fixed at RM1.00 each, representing the par value of Puncak Niaga shares and at a discount of approximately 22.48% to the 5-day volume weighted average market price (VWAMP) of RM1.29. While the warrants are American Style and thus can be exercised at any time during the period commencing until the expiry date, we are not overly concern on the dilution implication, especially as they only represent 10% of its original ordinary share issue. Apart from that, we also do not expect any immediate dilution as the warrant is likely to immediately trade at a premium upon its listing.
Fund raising via Convertible Sukuk. The RM165m Convertible Sukuk will be privately placed without a prospectus and comes with a fixed profit rate, which will be determined prior to its issuance. We expect the rate to range from 5% to 6%. The Convertible Sukuk is convertible into new Puncak Niaga shares at a conversion price that will be at a premium to the 5-day VWAMP of the company shares on a date to be determined later by the board.
M&A in the pipeline? According to the company’s announcement, the proceeds of up to RM165m from the proposed Convertible Sukuk will be utilised in priority to fund future acquisitions of Shariah compliant companies to be identified later and mutually agreed upon between Puncak Niaga and the Convertible Sukuk holders within 12 months from the receipt of the proceeds. Among the targeted assets are mainly in the treated water, wastewater and environment sectors as well as in the oil and gas (O&G) industry. In the event that no acquisition or investment is made within 12 months from the date of issuance, the proceeds shall be advanced to its wholly-owned subsidiary, KGL Ltd, to refinance its USD36m syndicated term loan. Any surplus of funds will be utilised as the group’s working capital.
Expending footprint in the Oil & Gas industry. Meanwhile, we understand that the newly acquired Global Offshore (M) SB (GOM) has secured a lucrative O&G pipe maintenance project worth more than RM500m YTD, which is impressive considering that it is a newly acquired business. We also witnessed a substantial profit surge from its O&G unit in 2QFY12 and expect sustainable income from GOM moving into 3Q before the monsoon season comes again at year-end. Meanwhile, margins for its O&G projects are estimated to be in the mid-teens, which we deem attractive. We suspect that management may focus its acquisition target to players within this industry in a bid to further diversify its income flow from water to O&G.
Reiterate Trading BUY. The free warrant is indeed a sentiment booster. Furthermore, the proposed Convertible Sukuk issuance also suggests that the group may move to expand its footprint into the lucrative O&G field which we think is sufficient reason for investors to cheer. Therefore, we are keeping our Trading BUY recommendation, with our fair value maintain at RM2.08 based on a 3x forward FY12 EPS.
Source: OSK