Thursday, 28 February 2013

APM Automotive - Dividends disappoint, OEM cost-down pressure HOLD

- We downgrade APM to HOLD from BUY and lower our fair value to RM5.40/share (from RM6.50/share) following the release of weak 4Q12 results and expectations of weak earnings momentum in the near term, on top of disappointing dividends.

- The group reported core earnings of RM29mil for 4Q12, which brought FY12 earnings to RM121mil. This was below our expectations, but ahead of consensus, accounting for 85% and 107%, of FY12 estimates, respectively.

- 4Q12’s reported earnings (-26% QoQ) were dragged down by several exceptionals:- (1) Inventory devaluation and marked-to-market forex loss (RM4.3mil); (2) VSS cost (RM2.3mil); (3) Relocation of extrusion plant (RM1mil). The inventory impairment was a one-off event as 4Q12 saw rapid deterioration in JPY:MYR rates.

- Price adjustments to OEMs seem to have been reflected in earnings earlier than expected, probably due to OEMs building up parts inventory 2-3 months ahead of actual production. The impact from the price adjustments in 4Q12 was c. RM3mil.

- This factor will likely continue to be a key drag on FY13 earnings. We gather from industry sources that major OEMs have been pushing for up to a 15% reduction in parts prices from vendors.

- We have trimmed FY13F-14F earnings by 25%-30% to reflect selling price pressure and delayed contributions from the APM-IAC venture; though going forward, this could be partly compensated by cheaper imports from cheaper JPY and USD. While there are usually price adjustments with key customers for changes in FX, the sharp price reduction already taken ahead of this suggests a weak case to do so.

- Dividends disappointed – flat YoY at 32 sen/share, though this still translates into attractive yields of 6%. We suspect the group’s decision to conserve cash is due to potentially increased capex requirements for major development projects with a national car marque in the near future – which means dividends are unlikely to increase anytime soon.

- We suggest investors switch into OEMs that will benefit from the part price reductions from 1Q13, i.e. Perodua, via MBM (BUY, FV: RM4.60/share – Perodua accounts for 60% of bottom line) and UMW (BUY, FV: RM13.20/share – Perodua accounts for 15% of bottom line).

Source: AmeSecurities

Sime Darby - Expecting a strong rebound in CPO price BUY

- Sime Darby (Sime) reported a weak 2QFY13F net profit of RM708.5mil, which brings its 1HFY13F earnings to RM1,698.8mil. This came short of our, and consensus, expectations, covering only 38% and 45% of estimates, respectively.

- The shortfall was due to a weaker average CPO price realised at RM2,432/tonnes versus RM2,872/tonne a year earlier. As a consequence, operating profit dropped by about 42% YoY for the plantation division.

- Earnings weakened by 29% QoQ mostly due to weak plantation numbers amid unfavourable CPO prices of RM2,200/tonnes despite a higher CPO sales volume. All other divisions showed lower growth, except for the motors and E&U units.

- Nonetheless, the management is expecting a strong rebound in CPO price for 2HCY13 – looking at an average price of RM2,700/mt-RM2,800/mt. This is based on expectations that inventory will be managed via government policies to be introduced in the near term.

- Apart from that, the other key take-away is that the motors division was the only business unit that showed growth in operating profit (+7% YoY). This was due to strong sales in all makes, especially in Malaysia and Australia & New Zealand.

- We gather in total, Sime had sold 45,587 units for 2QFY13. However, the operating environment in China remains tough – some dealers gave up to RMB100k in discounts for the BMW 7-series model, although there is some slight improvement in demand.

- Further to that, Sime indicated that the industrial division has probably seen its worst, especially in the Australasia region, given the recovery in coal prices. In fact, the unit is in the midst of securing two major contracts. Order book now is at RM3.7bil as at 2QFY13, on par with that in the same period last year.

- We maintain our BUY rating on Sime Darby, but we are putting our estimates and fair value UNDER REVIEW, pending a meeting with the management.

Source: AmeSecurities

Jaya Tiasa - 2QFY13 a blip, longer term prospects are intact HOLD

- We are maintaining a HOLD on Jaya Tiasa Holdings Bhd, with a lower fair value of RM1.68/share (vs. RM1.90/share previously) as we roll forward our valuation to FY14F based on a 13x PE against a downward revised EPS of 13 sen (vs. 18.8 sen earlier).

- We have lowered FY13F-FY15F earnings by 27%-34%, following the release of Jaya Tiasa’s disappointing 2QFY13 results yesterday. We deem the results to be a blip, as its prospects remain intact on the back of the potential FFB growth and CPO price recovery.

- Jaya Tiasa’s 2QFY13 results fell sharply, slipping into a core net loss of RM6.3mil (1QFY13: RM15.5mil core profit; 3MDec11: RM22.1mil core profit). Its 2QFY13 net profit of RM2.9mil brings 1HFY13 earnings to RM17.4mil (-81% YoY) – representing only 12% of our earlier forecast and 16% of consensus. The core net profit for 1HFY13 totalled RM9.2mil (-84% YoY). The exceptional items comprise mainly derivative gains/losses and gains on disposals of assets.

- A confluence of factors had led to the precipitous decline in 2FY13:- 1) Higher sales volume of logs (+88% YoY) and plywood (+35%), and lower FFB production (-32% YoY, 24% QoQ) amid lower prices; 2) average CPO price at only ~RM2,200/tonne (-27% vs. 3MDec11’s ~RM3,000/tonne, -23% QoQ), log ASP at ~US$160/cu m (-21% YoY), and plywood at >US$500/cu m (-11% YoY); 3) the sale and use of low quality logs which had six months earlier been stranded upstream due to low river levels, and 4) continuing lacklustre demand for logs from India. These factors led to net operating costs surging by 38% YoY to RM262.7mil (+13.5% QoQ) despite revenue rising by only 13.5% YoY to RM286.2mil (+4.3% QoQ).

- We understand that the low quality log stocks had substantially been cleared in the local market. Another positive is that log export prices are currently still above the US$200/cu m level, and plywood at above US$500/cu m. Management has guided that the following quarters should show improvements, and the company would produce more of the higher-margin veneer for export. The company also says sentiment for the timber division is expected to turn positive with the improvement of US housing starts and the tight log supply conditions.

- Longer-term, while we are doubtful about any significant recovery in the timber market, we remain optimistic about Jaya Tiasa’s oil palm plantation operations. Against that backdrop, we maintain HOLD for the stock with a rolledforward valuation, not only due to the lack of catalysts in the near term, but also the heightened risks in both the timber and oil palm sectors. Any further share price weakness may present an opportunity to accumulate the stock for the longer term.

Source: AmeSecurities

Telekom Malaysia - Margin pressure ahead Hold

- We maintain our HOLD call on TM, with a lower fair value of RM5.40/share (vs. RM5.60/share previously) following the release of its 4Q12 results yesterday.

- Core net earnings were better than expected (but below consensus estimates). Revenue and EBITDA were largely inline, accounting for 103% and 99%, respectively, versus our FY12 estimates.

- Unifi subscribers stood at 482,513 as at end-2012 and 515K to date. Net adds improved to 55K in 4Q12 (3Q12: 43K). Extrapolating net adds up to end-February 2013, it looks like 1Q13 net adds are a tad slower at 48K-49K. The launch of Maxis’ Astro IPTV bundling at end-1Q13 could pose a threat, particularly with ballooning Unifi contract expiry. On the bright side, Unifi ARPU seems to have picked up traction with a higher take-up of HyppTV channels. Unifi ARPU stood at RM182 at end-2012 vs. RM180-RM181 in 1H12 and 9M12.

- TM is looking at various ways to further monetise its network. While LTE is a threat to a certain extent, the high frequency it operates on means poor signals in buildings, creating opportunities for offloading services via TM’s fixed network. Nonetheless, any proliferation of LTE services is likely to be gradual based on indications by the celcos.

- Management seems to be expecting margin pressure this year – EBIT growth rate of just 3% vs. revenue growth of 5% in its FY13 KPI. We suspect this could be due to an increased focus on ICT-BPO business lines which fetch lower margins, as it involves TM incurring CPE and router cost for customers. Other than that, 2 other key areas of cost pressures are in:- (1) man-power, given the new retirement age of 60; (2) maintenance cost, given the progressive expiry of maintenance contracts/warranties related to network equipment.

- Capex intensity is expected to be reduced going forward, i.e. from 26% (FY12) to 24% in FY13F, and this is expected to be gradually lowered to 20% and below from FY15F onwards.

- We have adjusted our earnings lower by 2%-4% over FY12F-14F to reflect lower margin expectations, closer to management’s guidance. We also raise our capex assumptions over FY13-15F as this is expected to remain elevated in the near term despite the transition to a demanddriven HSBB rollout (notwithstanding falling capex intensity ratios) given access capex requirements and absence of government grants post-PPP arrangement which ended in 2012.

- TM announced a final dividend of 12.2 sen/share, which brought full-year dividends to 22 sen/share (+12% YoY), representing a payout of 62% against reported FY12 earnings (FY11: 59%).

Source: AmeSecurities

Sime Darby - Expecting a strong rebound in CPO price BUY

- Sime Darby (Sime) reported a weak 2QFY13F net profit of RM708.5mil, which brings its 1HFY13F earnings to RM1,698.8mil. This came short of our, and consensus, expectations, covering only 38% and 45% of estimates, respectively.

- The shortfall was due to a weaker average CPO price realised at RM2,432/tonnes versus RM2,872/tonne a year earlier. As a consequence, operating profit dropped by about 42% YoY for the plantation division.

- Earnings weakened by 29% QoQ mostly due to weak plantation numbers amid unfavourable CPO prices of RM2,200/tonnes despite a higher CPO sales volume. All other divisions showed lower growth, except for the motors and E&U units.

- Nonetheless, the management is expecting a strong rebound in CPO price for 2HCY13 – looking at an average price of RM2,700/mt-RM2,800/mt. This is based on expectations that inventory will be managed via government policies to be introduced in the near term.

- Apart from that, the other key take-away is that the motors division was the only business unit that showed growth in operating profit (+7% YoY). This was due to strong sales in all makes, especially in Malaysia and Australia & New Zealand.

- We gather in total, Sime had sold 45,587 units for 2QFY13. However, the operating environment in China remains tough – some dealers gave up to RMB100k in discounts for the BMW 7-series model, although there is some slight improvement in demand.

- Further to that, Sime indicated that the industrial division has probably seen its worst, especially in the Australasia region, given the recovery in coal prices. In fact, the unit is in the midst of securing two major contracts. Order book now is at RM3.7bil as at 2QFY13, on par with that in the same period last year.

- We maintain our BUY rating on Sime Darby, but we are putting our estimates and fair value UNDER REVIEW, pending a meeting with the management.

Source: AmeSecurities

Mah Sing Group - Strong set of numbers again BUY

- Mah Sing reported a net profit of RM55.4mil for the final quarter, bringing its FY12 earnings at a strong RM231mil (+37% YoY) which outperformed our and street’s estimates by 5%. This is on the back of a 13% jump in turnover.

- The group declared dividends of 7.5 sen/share (DPS:11 sen for FY11) which translates into payout ratio of 44%.

- Earnings for the year were largely driven by progress billings from:- (1) Kinrara Residence, (2) Garden Residence, (3) MResidence, (4) Southgate Commercial Centre, (5) StarParc Point, among others.

- On the other hand, earnings were flat QoQ at RM55mil given a slight margin compression to 16% from 18% in the preceding quarter. This was due to higher sales and marketing expenses in light of new launches recently.

- For the year, the group managed to achieve its sales target of RM2.5bil which was largely driven by:- (1) Kinrara Residence – RM451mil, (2) MCity, Ampang – RM416mil (3) Clover@Garden Residence – RM313mil, and (4) MResidence, Rawang – RM174mil.

- Going forward, Mah Sing aims to launch RM3.7bil worth of properties with a sales target of RM3bil. We believe this is achievable given the exciting projects in the pipeline. These include Southville City in Bangi which has received an overwhelming response – with over 8,000 registrants for the affordable suites.

- Meanwhile, there has been a slight change in plans for the maiden landed units. The group will now launch super-link homes at a starting price of RM760k with a build up of 3000sf. We also believe Meridin@ Medini would see strong take-up rates given its strategic location within Iskandar Malaysia.

- Mah Sing’s earnings are very much secured with strong unbilled sales of RM3.2bil, which is double that of FY12’s property turnover.

- Mah Sing is currently trading at a steep 54% discount to its FD NAV estimate of RM4.80/share. While we are optimistic Mah Sing would be able to achieve the ambitious FY13F sales target of RM3bil on the back this solid set of numbers, we nonetheless expect its share price to trade sideways due to weak sentiment for property counters amid election risks.

Source: AmeSecurities

Hock Seng Lee - Keeping up the momentum BUY

- We maintain BUY on Hock Seng Lee Bhd (HSL), with a downward revised sum-of-parts fair value of RM2.48/share (vs. RM2.59/share previously), which includes a PE of 8x against its 3-year average forward earnings for its construction division. The valuation is supported by net cash of 44 sen/share (FY13F) and RNAV for its 890 acre-landbank at 65 sen/share.

- HSL posted a net profit of RM25.9mil (+14% QoQ, -0.9% YoY) for 4QFY12 – bringing its full-year earnings to RM90.7mil (+3.9% YoY). This was within expectations, vis-à-vis our estimate of RM90.9mil and consensus’ RM90.6mil.

- It declared final and and special gross dividends of 2 sen/share and 0.6 sen/share, respectively. It had earlier declared the first interim gross dividend of 1.4 sen/share. The total payout of 4 sen/share (+11% YoY) fell short of our estimate of 4.4 sen/share.

- We have adjusted downwards our FY13F-FY14F GDPS forecast to 4.6 sen and 5.2 sen, from the earlier 5 sen and 5.6 sen, respectively. We have also tweaked our FY13F-FY14F earnings downwards by 15% and10% on the back of a 17% and 14% cut in revenue, respectively, stemming from the latest composition of its order book. We estimate HSL currently has some RM1.8bil worth of external jobs in hand, with about ~RM1.04bil still outstanding.

- We introduce an FY15F net profit at a conservative RM122mil, or a growth of 5%, pending confirmation of more jobs being secured. We maintain our assumption of RM600mil new jobs annually for the next three years. For FY12, it had secured some RM525mil worth of new projects (vs. RM313mil in 2011), completing some RM414mil worth of jobs.

- For FY12, construction operating margins remained stable at 19%-20%, compared to FY11’s levels. We are maintaining those margins for the subsequent years.

- Its largest on-hand project is still the Kuching City Centralised Wastewater Management project (Package 1), with work on the last mile lasting until 2014. Looking ahead, it will be bidding for the remaining phases of the project.

- We continue to like HSL for its:- 1) strong earnings visibility over FY12F-FY14F, 2) strong balance sheet, including the RM200mil cash in hand as at 31 December 2012, and 3) as a proxy to the strong growth in the state’s construction sector given other potential jobs in the pipeline within and without SCORE.

- The stock continues to trade at an undemanding FY13FFY15F PEs of 7x-8x.

Source: AmeSecurities

Cocoaland Holdings - Solid FY12, one franchise agreement inked! BUY

- We re-affirm our BUY recommendation on Cocoaland Holdings, with a lower fair value of RM3.00/share, vs. RM3.05/share previously, following fine-tuning of earnings. Our fair value is pegged to an 18x PE on FY13F earnings.

- Cocoaland reported a 4Q net profit of RM4mil (-2.7% QoQ, -49% YoY), bringing FY12 core earnings to RM21mil (+11% YoY). This missed our estimate by 11% and consensus by 10%. The variance was due to commissioning cost of a new Fruit Gummy production line and higher A&P expenses.

- Declared a final dividend of 1.25 sen/share, bringing the total for FY12 to 6.3 sen/share. Dividend yield stands at 3%. Our projected dividend is <40% of earnings, in-line with the 5-year historical trend.

- Underlying core strength in a solid FY12 was largely attributed to higher selling prices, and volumes of Fruit Gummy and beverage products, for which revenue grew 18% and 145%, respectively. 4Q PBT fell 2.7% QoQ and 49% YoY, despite recording a revenue growth.

- The new Fruit Gummy line is expected to commence in 1QFY13, lifting capacity by 160%. This enables the group to alleviate the current supply constraint.

- The group has inked a merchandise licence agreement (franchise business). Cocoaland, as the licensee, is granted the use of the “Angry Bird” trademark. The agreement is valid for two years. The group is currently in the midst of securing another franchise agreement.

- Sales of Angry Bird products will commence in March – for an estimated revenue of RM2mil, with a 6% royalty fee to the licensor. We believe the product should be well-liked, particularly for those between the ages of 0-12 years. This is underpinned by the craze and well-established popularity of the products.

- All in, we have trimmed our numbers on account of slower-than expected contributions and finalisation of the franchise business (sales were previously estimated to flow in by January FY13). We continue to project an upward earnings trajectory, by 12%-15% for FY13F-FY15F, underpinned by increasing demand.

- Incorporation of a trading company in Jakarta is in progress for the Fruit Gummy and CocoPie distribution. It is targeted to be completed by 2QFY13.

- Charoen is the new controlling shareholder of F&N Singapore (which owns 56% of F&N Malaysia). This serves as a positive for Cocoaland. Charoen’s well-established position in Thailand and potential synergies such as cross-selling of products between F&N Malaysia and Thai Beverage is likely to benefit Cocoaland’s business.

- The stock is trading at a trough valuation of 14x PE for FY13F; hence, our BUY call.

Source: AmeSecurities

Kulim - Boost from low effective tax rate BUY

- Maintain BUY on Kulim with a lower fair value of RM4.10/share versus RM4.35/share previously.

- Kulim’s FY12 core net profit was in line with our expectations and consensus estimates after adjusting for the exceptional item and a low effective tax rate.

- The group’s effective tax rate was 4.4% in FY12 against 33.8% in FY11 due to the exclusion of a net unrealised fair value gain on the deemed disposal of New Britain Palm Oil Ltd (NBPOL).

- Kulim recognised a gain on the deemed disposal of NBPOL of RM1.9bil in 2QFY12. Subsequently, the group impaired its investment in NBPOL by RM1.3bil in 4QFY12 due to the fall in NBPOL’s share price.

- EBIT of Kulim’s plantation division in Malaysia declined 33.7% YoY to RM156.9mil in FY12 dragged by lower selling prices and higher production costs.

- Average CPO price realised in Malaysia was at RM2,923/tonne in FY12, 8.5% weaker than the price of RM3,193/tonne in FY11.

- In spite of higher FFB produced, EBIT margin eased from 28.8% in FY11 to 22% in FY12 due to increases in fertiliser and labour costs. Kulim’s FFB production rose 12.2% YoY to 712,526 tonnes in FY12.

- NBPOL realised an average CPO price of US$1,062/tonne or RM3,280/tonne in FY12 compared with US$1,108/tonne or RM3,389/tonne in the previous year.

- In early-February 2013, NBPOL said that it had faced heavy rains in January in West New Britain. FFB production was 5% YoY lower in January 2013.

- NBPOL also said that once the heavy rains subsided, it was well-prepared with additional labour to maximise the harvest. Longer harvesting intervals and crop losses are not expected to materialise yet.

- NBPOL sold forward 94,000 tonnes of CPO at an average price of US$893/tonne or RM2,768/tonne as at end-FY12. As at 20 February 2013, forward sales of NBPOL amounted to 123,500 tonnes of CPO at an average price of US$890/tonne (RM2,759/tonne).

Source: AmeSecurities

Tan Chong Motor - A teaser of what’s in store for 2013! BUY

- We re-affirm our high conviction BUY on Tan Chong (TCM) with an unchanged fair value of RM6.40/share following the release of its 4Q12 results last night.

- FY12 earnings came in-line with expectations. Core earnings were registered at RM50mil for 4Q12, which brought FY12 earnings to RM158mil, accounting for 98% of our estimate and 100% of consensus.

- TCM’s 4Q12 results marked the inflection point in earnings trend and a bottoming in consensus earnings revision cycle following several quarters of earnings disappointment and 3Q12’s severe decline (-19% QoQ).

- Maiden contributions from the Almera lifted Nissan TIV by 38% QoQ to 11,441 units, driving massive sequential earnings growth (+54% QoQ) on the back of a 26% QOQ revenue growth. Margin expansion was driven by much- improved economies of scale. We believe the margin expansion could have been much better if not for the weaker USD and JPY reflected in the quarter (See Table 2) and initial marketing campaigns for the Almera.

- Profitability is on the verge of a massive improvement. FY13F growth will be driven by:- (1) A stronger MYR which has strengthened 18% against the JPY and 4% against the USD – TCM is the best proxy among auto stocks under our coverage. An every 1% drop in JPY and USD impacts bottom line by 6%; (2) Record breaking volumes in FY13, underpinned by strong January record Nissan TIV of 5.6K (comprising 3.6k units of Almera), also translates into better economies of scale amid improved Serendah plant utilisation; (3) Game-changing new launches in the pipeline beyond the Almera within the next 9 months.

- Nissan January TIV (5.6K) already accounts for almost half of its 4Q12 TIV. This will be accompanied by the maiden impact from the weaker JPY and USD – suggesting another huge round of quarterly earnings gap-up in 1Q13.

- We maintain our projections. Earnings are expected to grow 116% in FY13F driven by the abovementioned factors. Our Nissan TIV projection of 55K is still conservatively lower than management’s target of 60K. Nonetheless, our projections are 10%-13% higher than consensus over FY13-14F. A consensus earnings revision seems imminent.

- After a lull period of 2 years prior to our upgrade in November 2012, TCM looks ready for a strong re-rating. Valuation at 10x FY13F earnings is cheap relative to UMW (13x) and vs. mid-cycle valuation of 12x. Record TIV and earnings, structural market share expansion (FY12: 5.8%; FY13F: 9.5%), new model launches and new contract assembly wins are key re-rating catalysts (See our update report dated 26 Feb 2013 for more details).

Source: AmeSecurities

TH Plantations - Acq of Ladang Sabah & Sarawak flowing through BUY

- We maintain our BUY recommendation on TH Plantations (THP), as the issue of share overhang and EPS dilution have been discounted by the market. Our fair value of RM2.20/share implies an FY13F PE of 15.6x.

- THP’s FY12 core net profit of an estimated RM67mil to RM72mil was within our expectations and consensus estimates.

- THP showed an operational improvement in 4QFY12 after a disappointing 9MFY12. The group’s gross profit margin was sustained at 30.5% QoQ in 4QFY12.

- THP benefited from the acquisition of TH Ladang (Sabah and Sarawak), which was completed in 4QFY12.

- As a result, the 44.2% expansion in FFB production helped compensate for a 27.9% QoQ decline in the average CPO price realised in 4QFY12.

- On the whole, THP’s FFB production inched up 2.2% to 524,665 tonnes in FY12 compared to FY11.

- The group realised an average CPO price of RM2,661/tonne in FY12, 14.1% lower than the average price of RM3,096/tonne recorded in FY11.

- Like its plantation peers, THP suffered erosions in operating margins in FY12 due to higher fertiliser and labour costs.

- We also believe that THP’s margins were squeezed by the portion of its FFB being sold to third party mills instead of being milled internally. This is because the group does not have any palm oil mill in Sarawak yet.

- THP’s gross profit margin slid from 45.6% in FY11 to 29.8% in FY12.

- The effective tax rate fell from 18.2% in FY11 to 9.9% in FY12 due to a reversal of over-provisioning of taxes in previous years.

- THP has declared a final gross DPS of 1 sen for 4QFY12. This brings the total gross DPS to 4.6 sen for FY12, which translates into a yield of 2.3%.

Source: AmeSecurities

Genting Plantations - Losses in Indonesia narrowing BUY

- Maintain BUY on Genting Plantations Bhd (GenP), with an unchanged fair value of RM9.55/share. Our fair value for GenP implies an FY13F PE of 16x.

- GenP’s FY12 results were in-line with our forecast and consensus expectations.

- From GenP’s conference call yesterday, we understand that the group has been exporting its CPO to take advantage of the zero tax rates in January and February 2013 and avoid the RM100/tonne discount to spot prices imposed by the refiners in Sabah.

- About 20% of GenP’s CPO production was exported in the first two months of FY13F. Hence, unlike other plantation companies, GenP did not face any substantial increase in CPO inventory as at end-FY12.

- For FY13F, GenP’s FFB production in Malaysia is expected to be flat. In fact, FFB output growth could weaken in 2HFY13 due to the high-base effect in 2HFY12 and strong YoY production growth in 1HFY13.

- GenP’s FFB production in Indonesia is expected to triple from 81,000 tonnes in FY12 to 240,000 tonnes in FY13F. Indonesia is envisaged to account for 16% of group FFB production in FY13F compared with 6% in FY12.

- GenP’s plantation division in Indonesia recorded a loss of RM19.6mil in FY12 versus RM15.9mil in FY11. The division’s loss narrowed from RM6.4mil in 3QFY12 to RM2mil in 4QFY12 as its palm oil mill in West Kalimantan swung into profitability.

- Losses of the plantation division in Indonesia are expected to decline further as GenP’s palm oil mill in Central Kalimantan had already been completed in January 2013.

- Plantation production costs were RM1,314/tonne in FY12 versus RM1,064/tonne in FY11. GenP hopes to maintain its production cost per tonne at this level for FY13F.

- Higher labour costs arising from the implementation of the minimum wage are anticipated to be offset by lower fertiliser costs.

- Due to the implementation of the minimum wage in Malaysia, we understand that labour costs would increase by RM5mil to RM6mil in FY13F.

Source: Kenanga

PPB Group - Flour division affected by grains trading position Hold

- Maintain HOLD on PPB Group Bhd, with an unchanged fair value of RM13.15/share. Our fair value of RM13.15/share is based on a PE of 16x on FY13F EPS.

- In the past seven years, PPB Group’s PE ranged from a low of 8.7x to a high of 26.1x. Average PE was at 16.4x.

- PPB’s 18%-owned associate, Wilmar International, is currently trading at an FY13F PE of 13.6x versus PPB’s 14.9x.

- PPB’s FY12 results were above our forecast and consensus estimates due to Wilmar’s strong net profit in 4QFY12.

- On a YoY basis, PPB’s net profit fell by 14.1% to RM842.2mil in FY12 as share of profits in associate declined 12.5% to RM712.5mil.

- Excluding Wilmar, PPB’s EBIT was let down by lower contributions from the grains trading and flour, and cinema divisions.

- The grains trading and flour division was affected by unfavourable grains trading position, which suffered a loss of RM13.6mil in FY12. After a fair value loss in 3QFY12, the loss swung into a gain of RM27.6mil in 4QFY12.

- Using low protein soft red wheat as a gauge, wheat price shrank roughly 4.6% from an average of US$8.34 15/16/bushel in FY11 to US$7.96 3/8/bushel in FY12.

- On a quarterly basis, wheat price eased 2.4% QoQ to US$8.64 15/16/bushel in 4QFY12.

- Losses at the chemicals, livestock, investments and other operations division declined from RM5mil in 3QFY12 to RM2.4mil in 4QFY12. We believe that this was partly due to a 2-sen increase in the selling price of chicken eggs. The hike in selling price took place at end-October 2012.

- The division was also boosted by positive performance from the bread sub-division.

- Massimo bread sub-division has broken-even after a mere 1½ years of operations. This is in spite of the bread products still being sold at their promotional prices.

- However on a yearly basis, the chemicals, livestock, investments and other operations recorded a loss of RM15.8mil in FY12 versus a profit of RM12.3mil in FY11.

Source: AmeSecurities

PPB Group - Sustained pace of earnings recovery

Period  4Q12/ 9M12

Actual vs. Expectations  PPB’s FY12 core net income of RM842m beat both the consensus and our estimates. It made up 118% of the consensus forecast of RM713m and 113% of our forecast of RM748m.

 We believe FY12 earnings was ahead of the consensus due to the better than expected earnings from Wilmar (which we had accounted for previously during Wilmar’s earnings release).

 On the other hand, the results were ahead of ours due to the better than expected margin at PPB’s Grains Trading, Flour and Feed Milling (GFF) division in 4Q12.

 The GFF division’s PBT margin surged to 12.1% in 4Q12 and was remarkably better than the 9M12 PBT margin of 5.7%. This could be caused by a lower input cost from a cheaper wheat price in 4Q12.

Dividends  A final single tier dividend of 13.0 sen was announced. This was above both the consensus and our expectations, mainly due to the better than expected earnings.

Key Results Highlights  YoY, the FY12 net profit declined 14% YoY to RM842m in line with the lower contribution from Wilmar in 1H12 due to losses at Wilmar’s Oilseeds and Grains (OAG) division. That said, Wilmar’s OAG division had recovered strongly to register a 2H12 PBT of USD106m against a 1H12 Loss Before Tax of USD92m.

 QoQ, the 4Q12 net profit jumped 23% to RM306m due to margin improvement in PPB’s GFF division and the sustained profitability at Wilmar’s OAG division. The GFF division’s PBT margin surged to 12.1% in 4Q12 (from 1.7% in 3Q12).

Outlook  The worst should be over for PPB due to the sustained earnings recovery at Wilmar and the improved margin in PPB’s GFF division.

Change to Forecasts  Increase FY13E earnings by 4% after assuming better PBT margin in PPB GFF division.

Rating   Maintain OUTPERFORM

Valuation  Upgraded our Target Price to RM15.00 based on unchanged Fwd. PER of 20.9x to the higher FY13E EPS of 71.8 sen (previously 68.8 sen).

Risks    Lower than expected earnings contribution from
Wilmar and poorer margin at PPB’s GFF division.

Source: Kenanga

Oldtown Berhad - Results below ours but within consensus

Period    3Q13/9MFY13

Actual vs. Expectations   Due to changes of the FYE from 31 Dec to 31 Mar, our comparisons differ from the company’s announcement presentation as we adjusted the results to a four quarter basis ending Mar. Our quarter hence reflects the 9MFY13 results performance (from 31 Mar 2012 to 31 Mar 2013) as compared to the company’s accumulated period of fifteen months for FY13 (from 31 Dec 2011 to 31 Mar 2013).

The 9MFY13 net profit (NP) of RM33.2m was below our expectations, making up only 62.9% of our earnings forecast of RM52.8m. The weaker-than-expected results were partially due to a goodwill write-off of RM1.96m. Besides, we also underestimated the company’s higher operating expenses.

However, the CY12 NP of RM44.7m was in line with the street’s estimate of RM55.3m, representing 80% of the total earnings for the fifteen months.

Dividends     No dividend was declared.

Key Result Highlights    QoQ, the 3Q13 NP declined 14.2% despite a 5.9% growth in the revenue. This was mainly due to a RM1.96m goodwill write-off. Excluding the one-off item, the NP should have grown by 4.9% QoQ.

YoY, the 3Q13 revenue improved 9.3% on the back of better sales from the café outlets (+3.1%) and instant beverage sales (+21.6%). Nevertheless, the NP declined by 17.5% YoY due to the absence of the higher one-off gains recorded previously in 3Q12 (RM3.2m) and also the goodwill write-off. Again, the normalised NP should have increased substantially by 35.5% YoY in 3Q13 from 3Q12.

For the YTD, the 9M13 revenue improved at a doubledigit rate at 16.5% YoY buoyed by the strong sales increase from both the café outlets (11.4%) and beverage sales (+25.4%). However, the PBT only grew at 4.9% YoY due to the similar reasons as mentioned above, especially the absence of higher one-off gains in 9M12 (RM9.2m). Besides, we also saw a GP margin compression YoY by 1.7ppt to 31.6% given a higher cost of sales and direct expenses.

Outlook     Oldtown’s prospects remain positive given its two key drivers, i.e. 1) the strong growth of its FMCG segment, which is expected to be boosted by its growing regional market share, including that of untapped markets in China, South Korea and Vietnam and 2) the likely opening of more outlets in Malaysia, Singapore, Indonesia and China.

Change to Forecasts   Our earnings estimates are maintained for now despite the company’s actual higher operating expenses pending further clarifications with management.

Rating   Maintain OUTPERFORM

Valuation  Based on an unchanged targeted PER of 14.5x on the FY14 EPS of 16.5 sen, our fair value is maintained at RM2.40.

Risks   The global economic uncertainty may impact consumer spending, which will consequently affect the company’s earnings prospects.

Source: Kenanga

Naim Holdings - FY12 below expectations

Period  4QFY12/12MFY12

Actual vs. Expectations  Naim’s FY12 core earnings of RM84.9m came in slightly below ours and the street’s estimates, making up 89% of ours and the consensus FY12E core net profit of RM95.9m each respectively due to a lower than expected joint-venture contribution and a higher minority interest share.

Dividends  A second interim single-tier tax exempt dividend of 5.0 sen has been declared as expected.

Key Results Highlights  QoQ, Naim’s 4Q12 core earnings were down 61% to RM11.3m as the net margin was compressed by 14ppt to 8.0% despite a revenue growth of 8.0%. The decline in the net margin was mainly due to the weak performance by its construction unit and a higher effective tax rate. The construction profit was down by 67% to RM2.2m while its effective tax rate increased 35ppt from 2% to 37%.

 YoY, the 4Q12 core earnings grew tremendously by 115% to RM11.3m underpinned by strong property earnings. The property segment registered an operating profit of RM17.4m (RM0.2m, 4Q11) on the back of the improved sales of 122%.

 For the full year, the FY12 core earnings improved 84% to RM84.9m, which were attributable to the better property sales and an improvement in the margins. Property sales increased 99% from RM114m to 228.5m while there was also a 7.1ppt improvement in the property operating margin from 12.3% to 19.4%.

Outlook  To date, Naim’s outstanding order book stands at c.RM1.0b, which would provide earnings visibility for the next four years as SPNB affordable housing and KVMRT station packages makes up about 60% of its outstanding order book.

Change to Forecasts  No changes to our FY13 forecast as we believe that its earnings would be underpinned by its strong property sales in Sarawak.

 Maintaining our OUTPERFORM recommendation as there is an attractive upside of 36% to our TP of RM2.62.

Valuation  We are maintaining our Target Price of RM2.62, which is based on a SOP valuation.

Risks  Delays in existing construction projects.
 Escalating building material prices.

Source: Kenanga

Cocoaland Holdings - More catalysts ahead

- Broadly in line with ours. The latest net profit (NP) reported of RM4.4m brought its FY12 NP to RM21.2m. This was broadly within our expectation (-6%) but below that of the consensus estimates (-9%). The FY12 NP rose 10.6% from RM19.1m to RM21.2m on the back of a 28.3% rise in the revenue. This was mainly attributable to a selling price hike and a higher trading volume in fruit gummy and beverage products, which saw revenue growth of 18.0% and 145.0% respectively. A 1.25 sen was declared in 4Q12, bringing FY12 NDPS to 6.25 sen, or 3% yield, which was in line with our 6.5 sen projection.

- Producing more candies. The new production line for hard candy has started its commercial operation in 2Q12 while the fruit gummy production line is targeted to commence in 1Q13. To recap, its hard candy production capacity has been boosted from 1.0m kg to 4.6m kg while the fruit gummy capacity will increase from 4.5m kg to 11.7m kg. This will free up the bottlenecks that the company is now facing. The higher production capacity will help the strategy to widen its existing client base and penetrate more local and overseas markets.

- Synergy from takeover of F&N by ThaiBev? Thai Beverage Plc (ThaiBev), which is controlled by Thai billionaire Charoen Sirivadhanabhakdi, said it owned 90.3% of F&N share at the conclusion of its offer on the 19 Feb-13. We understand that the motive of Charoen in taking over is to fulfill his strategic plan to expand into the F&B market of Southeast Asia. Note that F&N has a substantial stake of 27.2% in Cocoaland. Cocoaland is also the nonexculsive contract packer for F&N to prepare, package, pack and deliver F&N’s products in Malaysia. We would think that ThaiBev will still need F&N’s existing manufacturing partners as well as their distribution channels to achieve this goal. Hence, we foresee the development in F&N by ThaiBev is likely to bring in more positive synergies to Cocoaland.

- Reiterate our Trading Buy call with a lower TP. Based on the past dividend payout of c.50%, we are projecting FY13-14 NDPS at 8sen-10sen, yielding 4%-5%. Given its bright prospects in FY13-14 and a decent dividend payout, we are reiterating our Trading Buy call with lower fair value of RM2.76 based on 16.5x FY13 PER (17.7x previously), which is its 5-year average.

- Strength: i) Established OEM partnership with MNCs and ii) Rising revenue contribution from the export market.

- Weaknesses: Less renowned proprietary brands.

- Opportunities: i) Higher production capacity for hard candy&fruit gummy; ii) Venture into franchise business; iii) New plant construction; iv) New business opportunities in Vietnam, Indonesia & China.

- Threats: i) Increasing raw material costs and ii) Intense competition in the domestic and export markets.

- Resistance: RM2.25 (R1), RM2.60 (R2)
- Support: RM2.00 (S1), RM1.75 (S2)
- Comments: Since our last “OR” report, COCOALAND’s technical picture has worsened slightly. The Upwards sloping trendline has been violated, and the share price has retested the next crucial support level of RM2.00. Nevertheless, we expect this level to hold up and would not rule out a near term rebound towards RM2.25.

Cocoaland Holdings Berhad was incorporated on 6 June 2000 and was subsequently listed on 18 January 2005. Cocoaland’s listing status was transferred to the Main Board on 18 July 2006. Cocoaland Holdings Berhad operates in the business of manufacturing and trading of processed and preserved foods and other related foodstuffs. The company's products include candy, canister, cookies, drinks, gummy, hamper, juice, pudding and jelly, snack and wafer.

- Cocoaland manufactures for the OEM market. Its manufacturing arm is housed in 5 factories in Rawang, Kepong and Kampar for its house brand and the OEM market. The OEM products are distributed to reputable manufacturers such as GSK, Ribena, Nestle and Wrigley.

- Cocoaland is F&N’s non-exclusive contract partner for preparing, packaging and delivering F&N products in Malaysia. F&N owns a 27.2% interest in Cocoaland.

- It mainly focuses on 3 industrial food categories (snack food, chocolate & sugar confectionery and soft drinks) under its proprietary brands like Lot100, Koko Jelly, CocoPie, Rotong, Mite and Fruit10.

Source: Kenanga

Kelington Group - FY12 results within expectations

Period  FY12/4Q12

Actual vs. Expectations  The group’s FY12 earnings of RM6.0m came in within expectations, accounting for 96.7% and 95.2% of our and the consensus full-year estimates respectively.

Dividend  No dividend was announced during the quarter, which was below expectations.

Key Result Highlights  YoY, the group’s FY12 revenue decreased by 16.6% due to the decent growth in its Malaysia operation (+30.2%) thanks to the revenue contribution from its newly acquired subsidiary, Puritec Technologies (M) Sdn Bhd) although this was offset partially by the timing differences between completed projects and the delays in the commencement of its new projects, particularly in its Taiwan, China and Singaporean operations. Meanwhile, the net profit declined by 30.8% dragged down by the higher administrative expenses incurred (personnel costs and integration costs of its newly acquired subsidiary, Puritec Technologies (S) Pte Ltd in 1H12). This has also resulted in a fall in the PBT margin, which registered a 1.1ppts compression to 5.9%.

 QoQ, the 4QFY12 revenue soared by 48.3% thanks to the progressive recognition of the group’s ongoing projects based on the stage of completion milestones in the quarter. However, at the EBIT level, the EBIT only grew by 18.1% despite the decent growth at the top line. This was due to a lower EBIT margin on the back of a higher cost of sales.

Outlook  While we are sanguine on the group’s outstanding order book of RM51.6m (as of to date), which is deemed to be relatively decent, we maintain our cautious stance as we believe that the current economic uncertainties could weigh on the earnings momentum of the group.

Change to Forecasts  We have trimmed our FY13 net profit forecast by 1% to RM10.3m after fine-tuning our numbers. We have also introduced our FY14 earnings estimates.

Rating   Maintain MARKET PERFORM

Valuation  We are maintaining our TP of RM0.53, which implies a 9.0x FY13 PER (close to a-0.5SD level below its historical 3-year mean).

Risks  Fluctuation in foreign currencies.
 Cyclical sector.
 Delays in new projects.

Source: Kenanga

SEG International - Below expectations again!

Period  4Q12/ FY12

Actual vs. Expectations  The FY12 net profit of RM61.3m was below expectations and only accounted for 75.7% and 74.8% of ours and the street’s full-year estimates respectively. The main culprits were due to 1) higher number of graduating students, 2) lower GP margin of 72.1% (vs FY11: 75%) as a result of a higher academic staff costs, and 3) higher SG&A cost of RM154.6m (+8%) that led by higher start-up cost of some new introduced programmes.

Dividends  No dividend was declared during the quarter. The FY12 total net dividend of 4.8 sen/share was below our 6.7 sen/share net dividend assumption.

Key Result Highlights  YoY, the FY12 revenue of RM285m increased by 2% due to the rising students base, which up 6% YoY to 27k. Nonetheless, the group’s net profit plunged by 17% to RM60.3m (FY11: RM72.3m) mainly due to 1) lower GP margin that led by higher academic staff costs and 2) higher SG&A cost of RM154.6m (+8.0%) as a result of the start-up cost that launched a number of high ticker programmes (e.g. dentistry & optometry course) which required higher manpower as well as investment costs, and 3) lower other income as a result of lower hostel rent that led by higher number of graduating students.

 QoQ, the revenue was down by 29% to RM52.7m in 4Q12 due mainly to the higher number of graduating students in the quarter. Although the group enjoyed a tax benefit of RM5.3m as a result of higher number of foreign student enrolments during the quarter, most of its costs (i.e. academic staff costs and administrative costs) are fixed in nature, thus dragged down its net profit by 84% to a scant RM2.5m (3Q12:RM15.8m). The NP margin was dragged lower as well to 4.8% from 21.3% in 3Q12.

Outlook  Remains intact underpinned by more new programmes (i.e. 10-20) to be introduced within this year, particularly from an increasing number of its home-grown and high-ticket programmes. Management is confident SEG will be able to recover from the higher student graduations shortfall in FY13 by offering a wider spectrum of programmes.

Forecasts  Post-result, we have reduced our FY13 revenue forecasts by 2.6% to RM346.4m after lowering our student growth assumptions to 8.0% (from the previous 20%), in line with the historical Malaysia’s Private HEI student enrolments trend that recorded a 9-year CAGR of 8.0% (2001-2010).

 We also have trimmed our FY13 net profit forecasts by 26.7% to RM74.7m (vs. RM101.8m previously) after imputing in a lower GP margin of 75% (from the previous 78.9%) in view of its growing fixed nature costs, e.g. academic and administrative staff costs. We also introduced our FY14 forecast numbers.

Rating   Maintain MARKET PERFORM

Valuation  To align with our earnings downgrade, we have lowered our TP to RM1.75 (from RM2.02 previously) based on average 2-year Fwd PER of 16.3x.

Risks  Slow down in student enrolments.

Source: Kenanga

Highlights / Stock Picks of the Day - Winsun Technologies ("WINSUN") – Not Rated

WINSUN's share price has been on a sustained downtrend for a year now. However, we are seeing early signs of a trend reversal on the daily chart. Yesterday, the share price surged 2 sen to settle at 11 sen. Trading volume was high, and WINSUN formed a bullish “White Marubozu” candlestick as a result of the upwards move. In fact, the share price has broken above both the trendline, as well as the 21-day Bollinger band. This potentially marks the end of the downtrend (much like the “light at the end of the tunnel” analogy). The key indicators are also supportive of a move higher, with the MACD completing a signal-line crossover and the share price firmly above the short, medium and long term SMAs. We reckon that follow through buying should continue in the near term, and expect the 12 sen and 14 sen levels to be attainable.

Source: Kenanga

Highlights / Stock Picks of the Day - Pos Malaysia ("POS") – BUY

News of POS's 67% YoY increase in 3Q13 pre-tax profit was well received by the market last week. As a result, the share price had broken out of its consolidation phase, underpinned by five straight days of gains. In fact, the share price has now confirmed a "Bullish Pennant" chart pattern following yesterday's 18 sen advance to RM3.75. Taken in combination with the bullish technical indicators (MACD, Stochastic and SMAs) and increased trading volume, the "Bullish Pennant" suggests a continuation of the overall uptrend. Undoubtedly, the odds favour the bulls and we reckon that the share price could potentially climb towards the "Flagpole" target price of RM4.26 (target RM4.23 or 2 bids below this level). We suggest that traders looking to buy in could do so now, while a stop-loss of RM3.38 should also be placed.

Source: Kenanga

UMW Holdings - Looking forward to another solid year

UMW Holdings held its analyst briefing yesterday following the release of its 4QFY12 results. Management reviewed the group’s stellar performance in 2012 and highlighted the business prospects of each of the group’s divisions for 2013. For 2013, UMW has set a combined target sales of 299,000 units for Toyota and Perodua, which will be backed by launches of newly upgraded models. We also expect a better performance from the Oil & Gas division in FY13, with contributions from all its NAGA rigs and inclusive of its newly acquired NAGA 4.

Record sales in 2012. Based on data released by the Malaysian Automotive Association (MAA), in 2012, UMW Toyota sold a total of 106,641 units of vehicles (including Lexus), an increase of 20% YoY, which exceeded its internal target of 104,000 units. Similarly, Perodua’s 2012 sales, which grew 5% YoY to 189,137, surpassed its full-year target of 188,000 units of cars. For 2013, management has set a sales target of about 105,000 units for Toyota vehicles, which will be backed by new launches such as the next generation of Corolla Altis, new Vios and RAV4. UMW Toyota’s new target is a slight increase of 1% from 2012, which we think is reasonable considering its current more competitive and uncertain operating environment, and the already saturated passenger car market.

Higher sales target for Perodua. Following its strong performance in 2012, Perodua has increased its sales forecast by 3% to 194,000 units for 2013. Recently, it announced plans to set up a new plant which will be able to produce 100,000 vehicles p.a. on a one-shift cycle, bringing its total production (together with its current plant) to 300,000 units p.a. The new plant is expected to be up and running by mid-2014.

Better performance from Oil & Gas in 2013. This financial year will see contribution from all of group’s rigs, NAGA 1, 2 and 3. The group has recently taken delivery of NAGA 4, its third jack-up drilling rig. UMW signed an agreement to purchase the rig in June 2012 at a cost of USD214m. The rig was constructed by Keppel FELS Limited. We understand that UMW is in the midst of finalising the contract for NAGA 4, which is planned to be finalised and announced as early as March 2013.

Listing of the O&G unit. Recall that the group has restructured its O&G division, dividing its operations into core and non-core businesses. The group has announced its intention to list the core businesses, which include drilling operations (onshore, offshore and workover services) and oilfield services (generator packages, pipe coating, inspection, repair and threading). The listing of the O&G unit’s core businesses will provide UMW with working capital to increase its fleet of drilling rigs. This is in line with the group’s long-term plans to expand into regional markets and to become a global O&G player.

De-listing WSP. According to management, the terms and conditions such as the shareholding structure will be confirmed after the de-listing process is completed. Management had earlier expressed the possibility of disposing off the non-core businesses consisting of the manufacturing of oil country tubular goods (OCTG) and line pipes, fabrication and oilfield products. UMW’s decision on whether to keep or dispose of its stake in WSP will be made known in June 2013.

Maintain Market Perform. We are maintaining our earnings estimates and our MARKET PERFORM rating on UMW with a target price of RM12.37 based on a PER of 14x on its FY13 EPS.

Source: Kenanga

Perdana Petroleum - Old Vessel Sales

News  Perdana Petroleum (“PERDANA”) announced yesterday that it had entered into an agreement to dispose seven of its old vessels enbloc (with an average age of approximately 30 years) to PT Ninda Pratama Vriesindo for a total consideration of USD3.45m (c.RM10.7m).

 20% of the Sale Consideration is payable within three days from the date of signing of the Disposal Agreement and the balance 80% is payable seven days prior to the commencement of the collection of the vessels. The expected time of delivery of the vessels will be on 15 March 2013.

Comments  We are not surprised by the news as we expected as much, when Perdana made an impairment loss on its non-current asset classified as held for sale of RM27.7m in its 4QFY12 results.

 Recall that we had highlighted that a key risk for Perdana was its inability to sell its older vessels as it would mean that there were unnecessary costs incurred for the non-operating vessels. This sale thus was necessary for Perdana to rationalise its cost structure and we believe that the company now has a clean slate going forward.

Outlook  A balanced offshore vessel mix will ensure that it has sufficient reach to the different segments of the O&G value chain.

 Its relatively young asset fleet will mitigate the risk of its contract replenishments post the completion of its long-term contracts.

 Meanwhile, its linkage to Dayang will provide Perdana with some access to turnkey projects.

Forecast  We believe that our forecasted margin expansion in FY13-14 already covers some of the cost savings that will be realised from the vessel sales.

 As such, we are maintaining our FY13-14 net profit estimates.

Rating    Maintain OUTPERFORM

Valuation  Our target price of RM1.62 is based on a targeted PER of 14.0x (in line with its 2-year historical average forward PER of 14.0x seen in 2007-2008) on its CY13 EPS of 11.4 sen.

Risks  1) A downturn in the oil and gas sector could hamper future vessel utilisations, 2) a lower than expected capacity utilisation charter rates and 3) the inability of Dayang to secure a sizeable portion of the Pan Malaysia contract.

Source: Kenanga

Mah Sing Group - Within expectations

Period  4Q/FY12

Actual vs. Expectations  FY12 net profit of RM230.6m was within expectations, making up 103.9% and 106.3% of street and our FY12E earnings.

Dividends  Proposed first and final net dividend of 7.5sen (gross of 0.4sen and 7.2sen on single-tier), which implies 3.7% yield, was higher than our initial estimates of 6.2sen.

Key Results Highlights  QoQ, 4Q12 pretax profit declined 5% to RM72.3m despite a 5% growth in revenue. This quarter saw higher sales and marketing expenses arising from higher-level of selling and promotional activities for new property projects such as Ferringhi Residence, i-Parc Iskandar.

 YoY, FY12 earnings increased 37% given strong sales and billings (Kinrara Residence, Garden Residence, Clover @ Garden Residence, Garden Plaza, M-Suites, M-City, townships, i-Parc projects, etc.). Property operating margins improved by 2ppts YoY due to higher margin products such as Kinrara Residence and Garden Residence, which the total of both contributed more than half of the group’s gross profit. As a result, group’s pretax margins expanded further by 2.6ppt to 17.8%.

 FY12 sales of RM2.5b (+11% YoY) came in on the dot of its and our FY12E sales targets. Major new launches in 4Q12 were Ferringhi Residence and iParc Iskandar, Rawang; these projects have achieved about 60%-82% take-up rates.

Outlook  We understand that management is at the final stages of negotiating land deals, although there is no clarity on acquisition size. Nevertheless, MAHSING has been aggressively replenishing sizable land in the past 5 years and thus we expect the same trend to continue.

 As mentioned earlier (report dated 11 Dec 2012), the group can bag approximately RM1.1b worth of land, based on a 70:30 debt-equity ratio, which implies potential new GDV of RM7.4b.

Change to Forecasts  We have fine-tuned FY13E earnings higher by 3.5% to RM275m post house-keeping, based on unchanged FY13E sales target of RM3.1b (+23% YoY). Unbilled sales of RM3.16b provide 1½ -2 years visibility.

Rating   Maintain MARKET PERFORM

Valuation  Post rights and free warrants issuance, we adjust our FD RNAV to RM2.98 (ex-bonus of RM2.59) from RM3.50. With an unchanged discount rate of 30%, we adjust our TP to RM2.08 (ex-bonus is RM1.81) from RM2.45. This implies a total return of 6% and hence, we maintain our MARKET PERFORM call, which is in line with our NEUTRAL sector call.

Risks  Unable to meet sales targets or replenish landbank.
Sector risks, including negative policies.

Source: Kenanga

Genting Plantations Bhd - FY12 within expectations

Period  4Q12 / FY12

Actual vs. Expectations  GENP FY12 core net profit* of RM329m is within expectations. It made up 100% of the consensus estimate of RM330m and 105% of ours of RM313m.

 Although the CPO price declined substantially in 4Q12, the exceptionally high FFB volume in 4Q12 has supported its earnings. Note that Sabah estates FFB yield has recovered slightly later in 4Q12 (against 3Q12 for other states).

Dividends  As expected, a final dividend of 5.50 sen was recommended together with a special dividend of 2.75 sen. Combined with previous interim dividend of 4.25 sen, the total gross dividend for FY12 came up to 12.50 sen (net: 9.38 sen).

Key Results Highlights  YoY, the FY12 core net profit declined 25% to RM329m as CPO prices fell 14% to an average RM2784/mt. Better earnings from its property division (EBIT rose 73% to RM40m) mitigated the group earnings decline, but its contribution was still small.

 QoQ, the 4Q12 core net profit declined 6% to RM89m as the average CPO price tumbled 22% to RM2219/mt. Better earnings from property division (EBIT rose 184% to RM18m) again mitigated the group earnings decline here.

Outlook  The current low CPO prices should keep the share price upside limited.

Change to Forecasts  Maintaining our FY13E-FY14E earnings of RM319m-RM378m. Our key assumptions are FY13E-FY14E CPO average prices of RM2500-RM2700 per mt.

Rating   Maintain UNDERPERFORM

 We believe the worst is not yet over for GENP as its FY13E should still stay low (-3% YoY to RM319m).

Valuation  Maintaining our TP of RM7.60 based on an unchanged Fwd. PER of 17.6x to its CY13E EPS of 43.1 sen.

Risks  Better than expected CPO prices.

Source: Kenanga

Bintulu Port Holdings - Private Placement Details Finalised T

News  Bintulu Port (“BIPORT”) announced that it had: 1) entered into a conditional subscription agreement for a 15% private placement (60m shares) to the State Financial Secretary Sarawak (SFSS) or a nominated company of the SFSS at an issue price of RM6.65/share; and 2) proposed an exemption for SFSS from the obligation to undertake a mandatory offer for all the remaining BPHB Shares not already owned by SFSS.

 The issue price for the placement shares was at a discount of 5% to the VWAP of RM7.00.

 The exercise is expected to be completed by 2QCY13.

Comments  We are not surprised by the news as BIPORT already mentioned in end-2012 that it is looking at up to a 15% private placement and a Sukuk bond issuance.

 This exercise will raise gross proceeds of RM399m, which will be utilised for the equity portion (RM600m) of the Samalaju Port development, which has been guided to cost approximately RM2.2b.

 Post the placement, BIPORT’s share base will expand by 15% and result in an EPS dilution of 13% per annum while our SOP-based target price would fall to RM6.11 (from the current target price of RM7.03). SFSS’s stake in BIPORT will increase to 39.7%. Assuming its nominated company takes the placement, its direct stake will be diluted to 26.7% and its indirect stake at 13.0%.

 We believe the finalisation of the placement is a clear sign that the Samalaju port development is steadily progressing. Going forward, we believe BIPORT will announce the finer details of: 1) the Samalaju concession agreement and; 2) the Sukuk bond (estimated to be RM1-1.1b) where CIMB is the lead arranger, later.

Outlook  The catalysts for BIPORT’s earnings are: 1) a higher tariff for cargo handling when the Samalaju Industrial Port starts operation (the initial phase is expected by 2H13) and 2) higher LNG vessel calls and port services when the ninth LNG train for MLNG is completed by 2016.

Forecast  We are maintaining our share base estimate pending the completion of the private placement exercise.

 However, management has guided that they are unlikely to pay the special dividend of 7.5 sen like in 2012; as such, we have reduced our FY13-14 NDPS forecasts to 30 sen (37.5sen). This reduced the stock’s net dividend yield to 4.3% (from 5.7%).

 We suspect that management has reduced the dividend payout to conserve cash for further funding of the Samalaju port. The reduced dividend implies cash savings of RM30m per annum.

Rating   Maintain MARKET PERFORM

Valuation  Our target price is maintained at RM7.03 based on a DCF valuation (WACC: 9.6%).

Risks  (i) Lower than expected port and bulking division activities and (ii) a higher than expected CAPEX for the Samalaju port, which could interrupt BIPORT’s steady cashflows.

Source: Kenanga

BIMB Holdings Bhd - FY12 broadly in line

Period  4Q12/FY12

Actual vs. Expectations  The FY12 PAT of RM250.8m (+18.3% YoY) was broadly in line with the consensus forecast (94%) and that of ours (92%). However, the 4Q12 PAT of RM67.1m was weaker due to a softer top line revenue number as well as a higher than expected tax rate.

Dividends  No dividend was declared during the quarter. However, full year net DPS of 10.68/sen represents a payout of 45% and within expectation.

Key Result Highlights  YoY, the FY12 fund-based incomes of RM1,059.1m grew 15.0% thanks to a strong financing growth of 37% to reach a total financing portfolio of RM20b thanks to ETPrelated financing. The growth rate was above our forecast of 30%. BIMB’s balance sheet has continued to expand at a fast pace. Its financing-to-deposit ratio rose to 60.2%, up from 58.7% in 3Q12.

 QoQ, the 4Q12 fund-based incomes of RM268.6m shrunk by 8.8% to RM268.6m mainly due to the narrowing financing margin by 40bps to 2.67% despite a strong 7.6% financing growth (QoQ).

 We note that its non-fund based incomes were weaker in 4Q12 as they dipped to RM224.8m (-13.5% QoQ and +17.5% YoY) and made up 46% of the total income in the 4Q. Recall that the group had enjoyed a strong feebased incomes growth in 3Q12 that was boosted from the sale of its shareholding in Syarikat Takaful Malaysia with an estimated one-off gain of RM28.8m.

 We continue to see improving asset qualities with the gross impaired financing amount falling to RM308.7m and the gross impaired ratio improving to 1.55% (from 1.74% in 3Q12). The financing loss coverage meanwhile hit a new high of 142.6% (vs. 3Q12: 130.5%).

 Due to a weaker revenue, the cost-to-income ratio was higher at 55.4% in 4Q12 vs. 53.4% in 3Q12. The FY12 ratio of 57% was above our estimate of 54%.

 In summary, the FY12 ROE of 13.7% was broadly in line with our estimate of 14.2%.

Outlook  We are still expecting Bank Islam to achieve a higher financing growth target of 15% YoY by end-FY13 with a Financing-to-Deposit ratio of 57%. Its likely higher growth rate than the industry’s 10.4% financing growth rate will mainly come from the financing of ETP-related projects.

 We still expect Bank Islam to deliver a faster balance sheet growth from corporate lending and achieve a better asset quality similar to its peers in 2-3 years time.

 In addition, we expect the possibility of potential corporate actions by management ahead to unlock the value of the group.

Change to Forecasts  There are no changes in our earnings estimates.

Rating    Maintain OUTPERFORM

 We believe that any corporate actions could act as a rerating catalyst for the group. On the operating side, we believe that its 14% ROE target is highly achievable, or could be even better, despite the current gloomy environment.

Valuation  We are keeping our target price of RM3.60 unchanged based on 1.7x its FY13 BV of RM2.14.

Risks  Tighter lending rules and a margin squeeze.

Source: Kenanga

Telekom Malaysia - Closed the year on a strong note

Period  4Q12/FY12

Actual vs. Expectations  TM’s FY12 core NP of RM881m came in above expectations and accounted for 109% and 106% of ours and the street’s full-year estimates respectively. The better than expected results were mainly due to a higher turnover led by its other telco related services segment (i.e. one-off projects, which are not sustainable) and lower tax expenses.

Dividends  The company declared a 12.2 sen final dividend, which targeted to be made in June, bringing the full-year DPS to 22.0 sen (FY11: 19.6 sen). The FY12 DPS was 8%-11% higher than ours (20.4 sen) as well as the consensus estimate (19.8 sen). No special dividend or capital management plan was announced.

Key Result Highlights  YoY, TM’s FY12 revenue improved by 9% to RM10.0b, driven by the higher contribution from all its segments, i.e. Data (+10%), Internet (+19%) and other telco related services (+22%) but these were partially offset by the relatively flat Voice (-1%) division. The reported EBITDA grew by 5% to RM3.2b although its margin dipped by 1.5pp to 31.8% due mainly to a higher direct and maintenance cost. Core NP meanwhile rose by 39% to RM881m due to a higher turnover and a lower effective tax rate led by the recognition of deferred tax income on unutilised tax incentives.

 QoQ, the turnover improved by 18% due to the higher revenue from all services. The EBITDA margin dipped to 31.2% (vs. 31.4%) to RM900m as a result of a higher manpower and maintenance cost. The core NP, however, soared by 55% due to a higher operating revenue and lower deferred tax income.

 Unifi’s subscribers grew by 13% QoQ to 483k at the end of FY12 with a higher blended ARPU of RM187 (3Q12: RM180). To date, Unifi’s subscribers have reached more than 514k, which implied a take-up rate of 35%. Streamyx’s subscribership, on the other hand, saw its net adds reduced by 18k to 1.58m with a higher ARPU of RM80 (+RM1 QoQ).

Outlook  TM has introduced its FY13 KPIs, which targets its revenue and EBIT to record 6.0% and 3.0% in annual growth rates respectively.

Change to Forecasts  Lowered our FY13 (-6.1%) and FY14 (-3.7%) core NPs after taking the FY13 KPIs into consideration and imputing in higher direct and manpower costs as well as a higher effective tax rate of 28% (vs. 22% previously) as per management guidance.

Rating Maintain OUTPERFORM

Valuation  We have lowered our TM TP to RM6.68 (from RM6.80 previously) based on an unchanged targeted EV/forward EBITDA of 8.2x (+2.0x SD).

Risks  Regulation risk and persisting margin pressure.

Source: Kenanga

Sime Darby - To miss its FY13E KPI of RM3.2b?

Period  2Q13/1H13

Actual vs. Expectations    SIME’s 1H13 core net profit* of RM1.68b was below the consensus expectation as it made up only 44% of the consensus FY13E estimate of RM3.77b. However, it was within our expectation as it made up 55% of our estimate of RM3.05b and we expect 2H12 earnings to be weaker due to low CPO prices.

 We believe that the consensus may have overestimated the CPO price performance in 1H13, which had weakened from Oct onwards due to an inventory surge.

Dividends  An interim single tier dividend of 7.0 sen was declared. This was within our expectation, but we believe it fell short of the consensus estimate of 10.0 sen, which is the amount of dividends announced in 1H12 last year.

Key Results Highlights  YoY, the 1H13 core net profit declined by 16% to RM1.68b as CPO prices dropped 15% to RM2432/mt and caused the plantation division’s EBIT to tumble 36% to RM1.19b. A better EBIT from the industrial (+7% to RM659m) and motor (+5% to RM320m) divisions, however, mitigated the group’s earnings decline.

 QoQ, the 2Q13 core net profit tumbled 26% to RM710m as CPO prices fell 18% to RM2207/mt and caused the plantation division’s EBIT to plunge 24% to RM512m. The industrial division’s EBIT also declined 26% to RM279m as equipment sales to the Australasia mining industry slowed down due to drop in coal prices.

Outlook  Recall that SIME’s FY13 KPI of RM3.2b in net profit** is based on an average CPO price assumption of RM2700/mt. As the prices in Jan-13 and Feb-13 have been weak at an average RM2310/mt, we believe that SIME should miss its FY13 net profit KPI of RM3.2b. Note that we only expect FY13E net profit of RM3.05b in line with our assumption of average CPO price of RM2500/mt for CY13E.

Change to Forecasts  Maintaining our FY13E-FY14E core net profits of RM3.05b-RM3.55b.

Rating   Maintain UNDERPERFORM
 Possible FY13E consensus earnings downgrade should cause pressure on the share price.

Valuation  Maintaining our Target Price of RM8.82 based on a Sum-Of-Parts valuation (refer Page 3). Risks  Better than expected CPO prices.

Source: Kenanga

WTK Holdings - Where Is The Demand?

WTK’s FY12 earnings of RM45.6m (-33.2 y-o-y) missed our estimates but were in line with  consensus  estimates.  Profits  suffered  amid  poor  weather  conditions  in Sarawak and persistently weak timber demand. We lower our plywood ASP slightly as we  still  do  not  see  concrete  evidence  of  strengthening  demand  from  Japan.  We cut our FY13 earnings by 7.9% and lower our FV to RM0.97. Maintain NEUTRAL.

Short on  OSK estimate,  but  in  line with  consensus. WTK registered 4QFY12 revenue of RM195.6m (-7.1% y-o-y, -1.9% q-o-q) and earnings of RM10.5m (-47.7% y-o-y, -39.0% q-o-q).  Unfavourable  weather  conditions  in  Sarawak  slowed  sales  volume  while  weak timber selling prices dragged down profits. Meanwhile, its full-year FY12 revenue and net profit  came  in  at  RM768.7m  (+12.0%  y-o-y)  and  RM45.6m  (-33.2%  y-o-y)  respectively amid slowing log demand and soft plywood prices. The year’s earnings fell  short  of  our estimates, accounting for 91.5% and 98.9% of our and consensus forecasts respectively.

Timber prices still under pressure. In FY12, WTK’s round log sales volume dipped 3.4% y-o-y amid poor weather and slow uptake from its major customers. India continued to be the company’s largest round log export destination, representing 79% of  the group’s overall  log  sales.  Demand  from  China,  meanwhile,  accounted  for  11%  of  its  total  log volume. In contrast, WTK’s plywood division volume surged 25.7% y-o-y in FY12. Selling prices  remained  unattractive,  falling  by  7.6%  y-o-y.  Buyers  from  Japan  and  Taiwan combined accounted for nearly all of the company’s plywood sales, with Japan accounting for  88%  of  its  plywood  volumes.  While  hopes  are  high  on  Japan’s  accelerating  fiscal spending and infrastructure expenditures giving timber demand a boost, recent prices and housing starts data have yet to provide concrete evidence of a recovery in demand.

Maintain  NEUTRAL.  We  are  moderating  our  FY13  plywood  selling  price  assumption slightly and lowering our FY13 earnings forecast by 7.9%, but keeping our FY14 estimates unchanged. We value WTK at a FV of RM0.97, based on a 9.0x FY13 PER.
Source; OSK