AMMB Holdings – Deep in value (Initiating Coverage)
Price: RM2.43
Target Price: RM2.90
Recommendation: BUY
Attractive valuation proposition, with catalysts – Initiate with Buy
Deep value – AMMB trades at 0.7x 2010E P/BV. We do not believe that the discount to book value is justified. We forecast that AMMB can deliver a sustainable return on equity of 11.5% in the immediate future and potential stronger earnings growth than its Malaysian peers.
Is it already priced in? – With P/B valuations for AMMB trading around 2 standard deviation below its 5-year mean, we use Gordon Growth model valuation approach to estimate the implied ROE which will have an impact on valuation going forward. The bank offers a dividend yield of 9%, which is the highest among others.
Catalysts – We see three positive catalysts: 1) the lucrative dividend payout on excess capital; 2) the achievable ROE targets; and 4) turnaround of the investment banking business.
Top pick in Malaysia – We initiate coverage of AMMB with a Buy recommendation and RM2.90 target price. In addition to 30% discount to book value, we prefer AMMB relative to its peers due to: 1) its strong shareholder, ANZ, to weather the storm and 2) a RM5.1bn excess capital as capacity for capital management initiative.
Custom Search
Wednesday, 31 December 2008
AirAsia Berhad: Profit renaissance as fuel prices slide - BUY
PO raised 11% to RM1.50 as AirAsia benefits from downturn
We increase our price objective and reiterate our non-consensus Buy rating. After positing two quarters of recurring net losses in 2Q and 3Q08, we expect a record profit in 4Q. AirAsia is benefiting from the current global downturn as fuel costs (its single largest cost) have fallen by 70%, while revenue is relatively resilient as the air travel market becomes more price sensitive and budget oriented.
Fuel falling faster than revenue; EPS forecasts raised 95%
We have raised our recurring EPS estimates for 2009 and 2010 by 95%. The weak macro environment, plus the removal of fuel surcharges mean we assume that AirAsia's unit revenue per seat falls by 13% in 2009. However, with jet fuel assumed at $70/bbl (down from $126 in 2009 and $62 currently), unit costs are expected to decline by 29%. We expect a record recurring EPS of RM0.10.
Budget airlines do much better than majors in a recession
The world's largest budget airline - Southwest Airlines - has consistently outperformed the major US carriers. During a downturn, its outperformance is typically even more pronounced as passengers switch to the lowest cost alternative. We expect AirAsia to benefit from a similar effect in 2009. AirAsia's growth rate in 2009 is expected to be its slowest since IPO (9 net aircraft), which should support margins.
Reiterate Buy rating: stock oversold after privatization halt
The stock has fallen by a quarter since management aborted plans to take the company private. We believe this remains a possibility when credit markets normalize. However, at just 8.6x on recurring PER for 2009E,, it has the lowest multiple among its global peers. Key risks are fuel, currency and management.
We increase our price objective and reiterate our non-consensus Buy rating. After positing two quarters of recurring net losses in 2Q and 3Q08, we expect a record profit in 4Q. AirAsia is benefiting from the current global downturn as fuel costs (its single largest cost) have fallen by 70%, while revenue is relatively resilient as the air travel market becomes more price sensitive and budget oriented.
Fuel falling faster than revenue; EPS forecasts raised 95%
We have raised our recurring EPS estimates for 2009 and 2010 by 95%. The weak macro environment, plus the removal of fuel surcharges mean we assume that AirAsia's unit revenue per seat falls by 13% in 2009. However, with jet fuel assumed at $70/bbl (down from $126 in 2009 and $62 currently), unit costs are expected to decline by 29%. We expect a record recurring EPS of RM0.10.
Budget airlines do much better than majors in a recession
The world's largest budget airline - Southwest Airlines - has consistently outperformed the major US carriers. During a downturn, its outperformance is typically even more pronounced as passengers switch to the lowest cost alternative. We expect AirAsia to benefit from a similar effect in 2009. AirAsia's growth rate in 2009 is expected to be its slowest since IPO (9 net aircraft), which should support margins.
Reiterate Buy rating: stock oversold after privatization halt
The stock has fallen by a quarter since management aborted plans to take the company private. We believe this remains a possibility when credit markets normalize. However, at just 8.6x on recurring PER for 2009E,, it has the lowest multiple among its global peers. Key risks are fuel, currency and management.
Malaysia Construction: Could it be back in favor already?
· Back in favor already? Recent (5-day) out-performance, especially in WCT (16%) and Gamuda (19%) could suggest that the construction sector could very well be back in favor amongst investors. Following our recent sector note, (26th November 2008, Malaysia Construction - 2009 recovery story expected), we reiterate that it remains reasonable to expect the sector to recover in 2009, as a domestic pump-priming looks inevitable for the government to stimulate the economy. Again, we highlight the back-loading of the M$230B budget from the 9MP as an indicator of firepower for spending, since less than 50% has been spent cytd. We continue to bank on PM in-waiting Najib Razak to execute (and ideally, to accelerate) disbursements. If the M$7B stimulus package announced in November 2008 is an indicator of things to come, then it remains fairly reasonable to even expect a raise in the spending budget to boost domestic confidence, with an intention to generate the high multiplier effects.
· Certainly one to keep on the radar: Excessive risk aversion, coupled with thinning liquidity could deprive the contractors from immediate and absolute share price performance. As shown in the past, the share price performance of contractors are highly correlated to domestic spending, granted that the sector in the past has outperformed the benchmark index (38-51%) during "expansionary periods" and underperformed (15-20%) during "contractionary periods". The sector is currently trading at 8x PER, which is a -1 SD event (6-26x range from 2000), and the cheapest that it has been since the Asian Crisis (5x PER).
So the worst could be over: We believe immediate survivorship is now a function of earnings visibility, and the ability for the contractors to service their debt and working capital obligations. Although earnings could continue to deteriorate over the foreseeable quarters, share price recovery is not unreasonable, as we think that the sector could potentially be sprinkled with catalysts for upside surprises. Although the weak macro outlook has led to a sharp pull-back in real estate and infrastructure demand globally, we are hypothesizing that the pipeline of government spending, (e.g. as seen in US and China recently) will take more prominence, and keep the construction orderbooks alive.
· Within our coverage, we remain Overweight on WCT (Dec-09 SOTP PT M$2.90) given their ability to still secure niche projects in Abu Dhabi (not Dubai), coupled with undemanding valuations. The dividend yield angle for Gamuda (Neutral, SOTP PT M$2.20) is also appealing, but IJM (Neutral, SOTP PT M$3.80) is likely to be range-bound in the near-term, as construction earnings could continue to disappoint due to legacy projects, despite trading at c.50% discount to NTA. Project execution is a risk for all 3 companies.
· Source: J.P. Morgan estimates. Prices as of Dec 16.
· Certainly one to keep on the radar: Excessive risk aversion, coupled with thinning liquidity could deprive the contractors from immediate and absolute share price performance. As shown in the past, the share price performance of contractors are highly correlated to domestic spending, granted that the sector in the past has outperformed the benchmark index (38-51%) during "expansionary periods" and underperformed (15-20%) during "contractionary periods". The sector is currently trading at 8x PER, which is a -1 SD event (6-26x range from 2000), and the cheapest that it has been since the Asian Crisis (5x PER).
So the worst could be over: We believe immediate survivorship is now a function of earnings visibility, and the ability for the contractors to service their debt and working capital obligations. Although earnings could continue to deteriorate over the foreseeable quarters, share price recovery is not unreasonable, as we think that the sector could potentially be sprinkled with catalysts for upside surprises. Although the weak macro outlook has led to a sharp pull-back in real estate and infrastructure demand globally, we are hypothesizing that the pipeline of government spending, (e.g. as seen in US and China recently) will take more prominence, and keep the construction orderbooks alive.
· Within our coverage, we remain Overweight on WCT (Dec-09 SOTP PT M$2.90) given their ability to still secure niche projects in Abu Dhabi (not Dubai), coupled with undemanding valuations. The dividend yield angle for Gamuda (Neutral, SOTP PT M$2.20) is also appealing, but IJM (Neutral, SOTP PT M$3.80) is likely to be range-bound in the near-term, as construction earnings could continue to disappoint due to legacy projects, despite trading at c.50% discount to NTA. Project execution is a risk for all 3 companies.
· Source: J.P. Morgan estimates. Prices as of Dec 16.
Gamuda (Outperform)
Stock:GAM MK
Name:Gamuda
Price: RM1.82
Market Cap (m): RM3,651
Market Cap (m): US$1,026
Current valuation (Sum of Parts): RM3.08
12mth price target: RM3.08
Recommendation: Outperform
Event
Gamuda reported 1Q FY09 net profit of RM58m, down 38% YoY and 22% QoQ, comprising just 12% of our full-year estimate.
Impact
Construction margins squeezed: Construction margins for the quarter came in at only 3.2% (vs 5% last quarter) and were attributable to high raw material costs and delays in the Double Tracking project. We understand that despite a significant fall in raw material prices (steel and oil), management has chosen to recognise profits on its projects on a conservative basis, given the volatility in prices and the long duration of its projects. Gamuda accounts for construction margins as a percentage completion of the estimated profit for the entire duration of the contract.
Delays in Double Tracking: Management highlighted that the Double Tracking project is estimated to have been delayed by at least a year due to delays in handing over the land in the state of Penang by the government. The Gamuda-MMC JV has been handed out about 61% of the total land required for the project, and it expects to receive the balance (mainly in Penang) by December 2009. As a result, revenue recognition from the project is likely to be at a slower rate compared to our expectations. On the positive side, however, the contract value has been maintained at RM12.5bn vs earlier indications of a reduction in value to ~RM10bn. As per the terms of the contract, the JV Co. is allowed to make claims for losses suffered as a result of delay in handing over the land, which is the responsibility of the government.
Property sales down significantly QoQ: Property sales were down nearly 40% QoQ as volumes in the domestic market dropped off, while margins were also affected due to higher raw material costs. Gamuda's unbilled property sales stood at RM500m as at end-1Q FY09.
Yen So Park works progressing, but land parcel sales likely to be delayed: The infrastructure works for the Vietnam project continue to progress with the construction of the sewage treatment plant commencing during the quarter. Management also highlighted that while it continues to negotiate with interested parties for land parcel sales, the credit crisis has impacted the borrowing ability of the clients, and consequently, there are likely to be further delays in concluding sales. We had factored in RM122m in EBIT from land parcel sales in Vietnam for FY09E.
Cautious guidance: Management guided for construction margins to remain at 1Q FY09 levels for the next two quarters (vs our full-year expectation of 8.7%) and for property sales to remain muted for the rest of the year. However, management also highlighted that it remained hopeful that the Malaysian government will hand out key infrastructure projects such as LRT lines some time in 2009 in order to pump prime the economy.
Dividend cut, cash conservation is the theme: Management cut its interim dividend to 4sen (vs 12.5sen last year) and guided for an 8sen full-year dividend in an effort to conserve cash. On the positive side, Gamuda's net gearing fell to 22% (from 32% last quarter). We also note that receivables fell QoQ, with management highlighting that Double Tracking payments were being received in a timely manner.
Action and recommendation
We maintain our Outperform recommendation on Gamuda. Although we see downside risk to our near-term earnings estimate, we believe that a large portion of this has already been factored into Gamuda's share price. We value Gamuda's stake in its concessions at RM1.61/sh (including a 25% discount to the fair value of SPLASH). At the current share price, the market is implying just 3x PER for the balance businesses (construction and property) based on the annualised 1Q FY09 numbers, which are likely to be near-trough earnings for the company over the next two years.
Name:Gamuda
Price: RM1.82
Market Cap (m): RM3,651
Market Cap (m): US$1,026
Current valuation (Sum of Parts): RM3.08
12mth price target: RM3.08
Recommendation: Outperform
Event
Gamuda reported 1Q FY09 net profit of RM58m, down 38% YoY and 22% QoQ, comprising just 12% of our full-year estimate.
Impact
Construction margins squeezed: Construction margins for the quarter came in at only 3.2% (vs 5% last quarter) and were attributable to high raw material costs and delays in the Double Tracking project. We understand that despite a significant fall in raw material prices (steel and oil), management has chosen to recognise profits on its projects on a conservative basis, given the volatility in prices and the long duration of its projects. Gamuda accounts for construction margins as a percentage completion of the estimated profit for the entire duration of the contract.
Delays in Double Tracking: Management highlighted that the Double Tracking project is estimated to have been delayed by at least a year due to delays in handing over the land in the state of Penang by the government. The Gamuda-MMC JV has been handed out about 61% of the total land required for the project, and it expects to receive the balance (mainly in Penang) by December 2009. As a result, revenue recognition from the project is likely to be at a slower rate compared to our expectations. On the positive side, however, the contract value has been maintained at RM12.5bn vs earlier indications of a reduction in value to ~RM10bn. As per the terms of the contract, the JV Co. is allowed to make claims for losses suffered as a result of delay in handing over the land, which is the responsibility of the government.
Property sales down significantly QoQ: Property sales were down nearly 40% QoQ as volumes in the domestic market dropped off, while margins were also affected due to higher raw material costs. Gamuda's unbilled property sales stood at RM500m as at end-1Q FY09.
Yen So Park works progressing, but land parcel sales likely to be delayed: The infrastructure works for the Vietnam project continue to progress with the construction of the sewage treatment plant commencing during the quarter. Management also highlighted that while it continues to negotiate with interested parties for land parcel sales, the credit crisis has impacted the borrowing ability of the clients, and consequently, there are likely to be further delays in concluding sales. We had factored in RM122m in EBIT from land parcel sales in Vietnam for FY09E.
Cautious guidance: Management guided for construction margins to remain at 1Q FY09 levels for the next two quarters (vs our full-year expectation of 8.7%) and for property sales to remain muted for the rest of the year. However, management also highlighted that it remained hopeful that the Malaysian government will hand out key infrastructure projects such as LRT lines some time in 2009 in order to pump prime the economy.
Dividend cut, cash conservation is the theme: Management cut its interim dividend to 4sen (vs 12.5sen last year) and guided for an 8sen full-year dividend in an effort to conserve cash. On the positive side, Gamuda's net gearing fell to 22% (from 32% last quarter). We also note that receivables fell QoQ, with management highlighting that Double Tracking payments were being received in a timely manner.
Action and recommendation
We maintain our Outperform recommendation on Gamuda. Although we see downside risk to our near-term earnings estimate, we believe that a large portion of this has already been factored into Gamuda's share price. We value Gamuda's stake in its concessions at RM1.61/sh (including a 25% discount to the fair value of SPLASH). At the current share price, the market is implying just 3x PER for the balance businesses (construction and property) based on the annualised 1Q FY09 numbers, which are likely to be near-trough earnings for the company over the next two years.
Gamuda (GAMU.KL): Transfer of Coverage
Transfer of Coverage: 1Q09 Results - Worse Than Expected
Transfer of coverage - We are transferring primary coverage responsibility of Gamuda to Ng Yong Yin from Choong Wai Kee due to a reallocation of research resources.
1Q09 results below expectations - 1Q09 net profit of RM55m was 22% lower than the preceding quarter and 38% lower than last year's corresponding quarter. On an annualized basis, the results were 42% below our expectations.
Due to project delays and slower property sales - Management attributed the lower-than-expected results to the construction and property divisions. Earnings from construction division declined 52% YoY to RM16m. Construction division is said to be affected by delay in the progress of its Electrified Double Tracking Project (EDTP). While management says it relates to land acquisition in Penang, the State Chief Minister says Gamuda was issued a stop-work order.
The good news - There is no scale-back in EDTP contract value, and Gamuda may be able to claim costs of delay.
Earnings outlook lowered - In light of the lower-than-expected results and negative outlook, we lower FY09E, FY10E and FY11E net profit by 19%, 9% and 14%, respectively. Earnings in the next few quarters may be better than 1Q09, but full-year FY09E net profit is still expected to be lower from FY08.
Target price cut, maintain Sell (3L) - We lower our target price to RM1.45 per share. The revision reflects lower earnings outlook and our more cautious sentiment on the construction, property and trading business segments.
Transfer of coverage - We are transferring primary coverage responsibility of Gamuda to Ng Yong Yin from Choong Wai Kee due to a reallocation of research resources.
1Q09 results below expectations - 1Q09 net profit of RM55m was 22% lower than the preceding quarter and 38% lower than last year's corresponding quarter. On an annualized basis, the results were 42% below our expectations.
Due to project delays and slower property sales - Management attributed the lower-than-expected results to the construction and property divisions. Earnings from construction division declined 52% YoY to RM16m. Construction division is said to be affected by delay in the progress of its Electrified Double Tracking Project (EDTP). While management says it relates to land acquisition in Penang, the State Chief Minister says Gamuda was issued a stop-work order.
The good news - There is no scale-back in EDTP contract value, and Gamuda may be able to claim costs of delay.
Earnings outlook lowered - In light of the lower-than-expected results and negative outlook, we lower FY09E, FY10E and FY11E net profit by 19%, 9% and 14%, respectively. Earnings in the next few quarters may be better than 1Q09, but full-year FY09E net profit is still expected to be lower from FY08.
Target price cut, maintain Sell (3L) - We lower our target price to RM1.45 per share. The revision reflects lower earnings outlook and our more cautious sentiment on the construction, property and trading business segments.
Bumiputra Commerce (BUCM.KL): Buy
Transfers Held-for-Trading Bonds to Held-to-Maturity Book
What's new - BCHB has transferred about RM8bn-worth of corporate bonds from its held-for-trading (HFT) portfolio to its held-to-maturity (HTM) book. This is not new news; the reclassification was mentioned in its 3Q08 earnings briefing. Management is guiding for a "slight loss" on the reclassification, mainly attributed to the US$ bonds portfolio.
BCHB did not suspend mark-to-market accounting on HFT book in 3Q08 - The bank did not take advantage of the new central bank guidelines to effect the transfer on 1 July in its 3Q08 results. Instead, BCHB recorded a net gain of RM36m for the HFT book in 3Q08 alone, mainly due to lower government yields. The mark-to-market rule will apply right up to the date of transfer of the RM8bn book this month.
Reason for the transfer - Management's rationale for the transfer is that the RM8bn long-dated bonds provide a natural hedge for its fixed-rate liabilities (RM1.5bn subordinated debt, RM1bn innovative Tier 1 cap, savings and current deposits).
We are neutral on the reclassification - The bulk of the corporate bonds will be transferred to HTM book leaving mainly government securities in the HFT category. The reclassification in no way changes the underlying quality of the bond assets. That said, there may be a short-term positive earnings impact given the recent government bonds rally due to expectations of a lower interest rate. Accounting deterioration in the HTM book, if any, occurs if there are changes to the financial health or earnings prospects of the issuer.
What's new - BCHB has transferred about RM8bn-worth of corporate bonds from its held-for-trading (HFT) portfolio to its held-to-maturity (HTM) book. This is not new news; the reclassification was mentioned in its 3Q08 earnings briefing. Management is guiding for a "slight loss" on the reclassification, mainly attributed to the US$ bonds portfolio.
BCHB did not suspend mark-to-market accounting on HFT book in 3Q08 - The bank did not take advantage of the new central bank guidelines to effect the transfer on 1 July in its 3Q08 results. Instead, BCHB recorded a net gain of RM36m for the HFT book in 3Q08 alone, mainly due to lower government yields. The mark-to-market rule will apply right up to the date of transfer of the RM8bn book this month.
Reason for the transfer - Management's rationale for the transfer is that the RM8bn long-dated bonds provide a natural hedge for its fixed-rate liabilities (RM1.5bn subordinated debt, RM1bn innovative Tier 1 cap, savings and current deposits).
We are neutral on the reclassification - The bulk of the corporate bonds will be transferred to HTM book leaving mainly government securities in the HFT category. The reclassification in no way changes the underlying quality of the bond assets. That said, there may be a short-term positive earnings impact given the recent government bonds rally due to expectations of a lower interest rate. Accounting deterioration in the HTM book, if any, occurs if there are changes to the financial health or earnings prospects of the issuer.
ASTRO : Buy
Strong Subscriber Growth at the Expense of ARPU
9M09 Revs RM2.2b - Revs +16% yoy despite a decline in ARPU thanks to continued strong subscriber growth. 9M EBITDA expanded at a slower pace (+11%) due to high content and operating costs on new channel additions. However, a RM264m provision in 3Q took the group to a 9M net loss of RM500.3m. A 2.5sen dividend was declared for the quarter.
Strong domestic operations - YTD net additions increased to 293k, driven by the rural/Malay segment. However, the strong growth from this lower-ARPU segment has translated into a dip in overall ARPU to RM81 (2Q: RM83). Churn remains manageable at 9.8%. Radio revenues grew 9.5% yoy.
Re-evaluating its Indo content business - Given ongoing litigation and economic concerns in Indonesia, Astro has made a full provision of RM264m on its content providing business. Pending evaluation, it may have to account for further restructuring charges estimated at RM75m.
Lowering earnings, target price - We lower our ARPU assumptions to RM82 in FY09 and RM81 in FY10. We also incorporate the additional provision charges into our estimates. This lowers our FY10-11E earnings by 11-19% and brings our target price down by 11% to RM3.05/share.
Maintain Buy (1L) - We prefer Astro to adex-reliant Star (STAR.KL; RM3.08; 3L) and Mprima (MPRM.KL; RM1.01; 3M) given its healthy subscriber growth and relatively more resilient earnings model. Exit from cash-draining Indonesia will allow it to re-focus its resources on the robust Malaysian operations
9M09 Revs RM2.2b - Revs +16% yoy despite a decline in ARPU thanks to continued strong subscriber growth. 9M EBITDA expanded at a slower pace (+11%) due to high content and operating costs on new channel additions. However, a RM264m provision in 3Q took the group to a 9M net loss of RM500.3m. A 2.5sen dividend was declared for the quarter.
Strong domestic operations - YTD net additions increased to 293k, driven by the rural/Malay segment. However, the strong growth from this lower-ARPU segment has translated into a dip in overall ARPU to RM81 (2Q: RM83). Churn remains manageable at 9.8%. Radio revenues grew 9.5% yoy.
Re-evaluating its Indo content business - Given ongoing litigation and economic concerns in Indonesia, Astro has made a full provision of RM264m on its content providing business. Pending evaluation, it may have to account for further restructuring charges estimated at RM75m.
Lowering earnings, target price - We lower our ARPU assumptions to RM82 in FY09 and RM81 in FY10. We also incorporate the additional provision charges into our estimates. This lowers our FY10-11E earnings by 11-19% and brings our target price down by 11% to RM3.05/share.
Maintain Buy (1L) - We prefer Astro to adex-reliant Star (STAR.KL; RM3.08; 3L) and Mprima (MPRM.KL; RM1.01; 3M) given its healthy subscriber growth and relatively more resilient earnings model. Exit from cash-draining Indonesia will allow it to re-focus its resources on the robust Malaysian operations
SapuraCrest - BUY
CBRS: SapuraCrest – Net profit almost doubled (Results Note)
Price: RM0.765
Target Price: RM1.15
Recommendation: BUY
Within expectations. 9M09 net profit of RM89.4m accounted 67.2% and 72.4% of our full year estimate and consensus, respectively. We expect 4Q09 earnings to sustain by the seasonally stronger 2H and continuing operations from the contracts secured.
YoY, 9M09 net profit almost doubled to RM89.4m driven mainly by increased activities in the IPF (103.4%); Drilling (25.8%) and Marine Services (21.8%) division whilst PBT margin rose to 7.9% from 6.4% YoY underpinned by improved operations on better day rates and contract terms.
3Q09 net profit increased by 15% QoQ and 58.3% YoY to RM36.9m. This is largely attributable to higher revenue contribution from IPF (33.2% QoQ and 112.5% YoY) and Drilling (3.2% QoQ and 19.8% YoY) divisions. Profit margin registered by Drilling division improved (34.6% from 29.6% QoQ and 21.7% YoY) due mainly to more favourable contract terms.
IPF and Drilling divisions to continue to drive earnings. The loss from JV of Sapura 3000 which was deployed for the RM3.0b IPF works awarded by Petronas narrowed to RM6m from RM26.1m in 1H09. These two divisions collectively contributed about 81.2% of revenue to-date while account more than 95% of total order book of around RM5.5b currently.
Maintain FY09 net profit of RM130.8m, however lower FY10 net profit to RM186.1 (-9%). SapCrest’s unbilled order book will underpin earnings for the next 2 years. Nevertheless, we are lowering our FY10 PBT margin to 11.5% from 12.9% mainly on expectation of tougher operating outlook on the back of uncertainties in the global economy; therefore easing the power of pricing.
Maintain BUY, Target Price lowered to RM1.15 (from RM1.54) based on PER of 8x which is in line with the O&G industry. Strong order book and ownership of capable vessels are expected to support earnings. SapCrest is forecasted to trade at undemanding 5.3% PER in FY10. However, continue decline in world oil price which could lower capex spending of oil majors and delays in contracts affect market sentiment of the O&G industry and may pose risks to our recommendation.
Price: RM0.765
Target Price: RM1.15
Recommendation: BUY
Within expectations. 9M09 net profit of RM89.4m accounted 67.2% and 72.4% of our full year estimate and consensus, respectively. We expect 4Q09 earnings to sustain by the seasonally stronger 2H and continuing operations from the contracts secured.
YoY, 9M09 net profit almost doubled to RM89.4m driven mainly by increased activities in the IPF (103.4%); Drilling (25.8%) and Marine Services (21.8%) division whilst PBT margin rose to 7.9% from 6.4% YoY underpinned by improved operations on better day rates and contract terms.
3Q09 net profit increased by 15% QoQ and 58.3% YoY to RM36.9m. This is largely attributable to higher revenue contribution from IPF (33.2% QoQ and 112.5% YoY) and Drilling (3.2% QoQ and 19.8% YoY) divisions. Profit margin registered by Drilling division improved (34.6% from 29.6% QoQ and 21.7% YoY) due mainly to more favourable contract terms.
IPF and Drilling divisions to continue to drive earnings. The loss from JV of Sapura 3000 which was deployed for the RM3.0b IPF works awarded by Petronas narrowed to RM6m from RM26.1m in 1H09. These two divisions collectively contributed about 81.2% of revenue to-date while account more than 95% of total order book of around RM5.5b currently.
Maintain FY09 net profit of RM130.8m, however lower FY10 net profit to RM186.1 (-9%). SapCrest’s unbilled order book will underpin earnings for the next 2 years. Nevertheless, we are lowering our FY10 PBT margin to 11.5% from 12.9% mainly on expectation of tougher operating outlook on the back of uncertainties in the global economy; therefore easing the power of pricing.
Maintain BUY, Target Price lowered to RM1.15 (from RM1.54) based on PER of 8x which is in line with the O&G industry. Strong order book and ownership of capable vessels are expected to support earnings. SapCrest is forecasted to trade at undemanding 5.3% PER in FY10. However, continue decline in world oil price which could lower capex spending of oil majors and delays in contracts affect market sentiment of the O&G industry and may pose risks to our recommendation.
Malaysian Plantations - Record inventory levels yet again
Event
Malaysian palm oil inventories rose to a record 2.27m tonnes as at end November 2008 (up 25% YoY and 9% MoM) as per data reported by the Malaysian Palm Oil Board today.
Impact
We believe that this is likely to put further pressure on CPO price in the near term. The market is clearly unable to absorb the increase in supply from strong production this year and, with global economic growth expected to slow down further in coming months, we believe that inventories are likely to remain high.
We also note that record CPO production was achieved in the month (slightly up MoM and YoY), despite market expectations of a slowdown due to potential biological stress to estates in Malaysia. We had highlighted earlier that production in November was likely to remain strong as our checks had indicated that fruits in East Malaysia attained late maturity this year (in October and November) compared to Peninsular Malaysia (September).
Although recent data for Indonesian inventory is not available, we note that the Executive Director of Indonesian Confederation of Vegetable Industries was quoted earlier this week saying that palm oil export volumes out of Indonesia are expected to drop by 31% YoY in 4Q08. Given that Indonesian palm oil inventories were reported to be about 2m tonnes at the end of September, a slowdown in exports in 4Q08 could mean that inventories there could also rise substantially.
Going forward, we do expect Malaysian palm oil inventories to come down over the next three months, as we enter a seasonally low production period (Nov-Feb). However, we believe that inventories would still remain elevated relative to historical levels.
Action and recommendation
We maintain our Underweight view on the Malaysian plantations sector. The valuations of the Malaysian plantation companies still remain rich at 15-20x 2009E earnings vs historical average of 10-14x.
Malaysian palm oil inventories rose to a record 2.27m tonnes as at end November 2008 (up 25% YoY and 9% MoM) as per data reported by the Malaysian Palm Oil Board today.
Impact
We believe that this is likely to put further pressure on CPO price in the near term. The market is clearly unable to absorb the increase in supply from strong production this year and, with global economic growth expected to slow down further in coming months, we believe that inventories are likely to remain high.
We also note that record CPO production was achieved in the month (slightly up MoM and YoY), despite market expectations of a slowdown due to potential biological stress to estates in Malaysia. We had highlighted earlier that production in November was likely to remain strong as our checks had indicated that fruits in East Malaysia attained late maturity this year (in October and November) compared to Peninsular Malaysia (September).
Although recent data for Indonesian inventory is not available, we note that the Executive Director of Indonesian Confederation of Vegetable Industries was quoted earlier this week saying that palm oil export volumes out of Indonesia are expected to drop by 31% YoY in 4Q08. Given that Indonesian palm oil inventories were reported to be about 2m tonnes at the end of September, a slowdown in exports in 4Q08 could mean that inventories there could also rise substantially.
Going forward, we do expect Malaysian palm oil inventories to come down over the next three months, as we enter a seasonally low production period (Nov-Feb). However, we believe that inventories would still remain elevated relative to historical levels.
Action and recommendation
We maintain our Underweight view on the Malaysian plantations sector. The valuations of the Malaysian plantation companies still remain rich at 15-20x 2009E earnings vs historical average of 10-14x.
JPM: Berjaya Sports Toto
1H FY09 net profit 47% of our FY09 estimate: BToto reported 2Q FY09 net profit of M$114MM, up 23% Q/Q and 27% Y/Y. 1H FY09 net profit came in at M$206MM, representing 47% of our full-year estimate of M$438MM and 49% of consensus estimates.
· Higher sales and lower prize payout in 2Q FY09: Revenue from the NFO segment recorded a significant increase in 2Q FY09 (up 14% Q/Q and 19% Y/Y). Even on a per draw basis, revenue increased by approximately 22% Y/Y and 8% Q/Q mainly attributable to strong sales of the Mega 6/52 game which recorded its highest-ever jackpot prize of M$20MM in October 2008 as well as improved sales contribution from the 4 Digit game. Pre-tax profit also increased 44% Y/Y and 24% Q/Q due to a lower prize payout. Thus, NFO operating margin improved to 18.2% in 2Q FY09 from 16.7% in 1Q FY09 and 11% in 4Q FY08. The results demonstrate that demand remains resilient and relatively inelastic.
Dividend below expectations: The company declared a 2Q FY09 net dividend of 5.25 sen (gross of 7 sen), which represents a payout ratio of approximately 58%. On a cumulative basis, the 1H FY09 net dividend amounted to 9.75 sen, bringing the payout ratio for 1H FY09 to 59%. However, we believe that dividends will likely increase in 2H FY09 as management reiterated its dividend policy of a 75% payout ratio for the year.
· We assume coverage and maintain OW: We are maintaining our earnings estimates for now until we meet with management following the recent transfer in coverage. Our Apr-09 PT of M$5.70 is based on DCF. The stock is currently trading at a FY09E P/E of 13.1x, a slight premium to the market P/E of 11x but we believe this is justifiable given its defensive nature and high dividend yield of 5.7% (assuming a 75% payout ratio). A key risk is unexpected regulatory changes.
· Higher sales and lower prize payout in 2Q FY09: Revenue from the NFO segment recorded a significant increase in 2Q FY09 (up 14% Q/Q and 19% Y/Y). Even on a per draw basis, revenue increased by approximately 22% Y/Y and 8% Q/Q mainly attributable to strong sales of the Mega 6/52 game which recorded its highest-ever jackpot prize of M$20MM in October 2008 as well as improved sales contribution from the 4 Digit game. Pre-tax profit also increased 44% Y/Y and 24% Q/Q due to a lower prize payout. Thus, NFO operating margin improved to 18.2% in 2Q FY09 from 16.7% in 1Q FY09 and 11% in 4Q FY08. The results demonstrate that demand remains resilient and relatively inelastic.
Dividend below expectations: The company declared a 2Q FY09 net dividend of 5.25 sen (gross of 7 sen), which represents a payout ratio of approximately 58%. On a cumulative basis, the 1H FY09 net dividend amounted to 9.75 sen, bringing the payout ratio for 1H FY09 to 59%. However, we believe that dividends will likely increase in 2H FY09 as management reiterated its dividend policy of a 75% payout ratio for the year.
· We assume coverage and maintain OW: We are maintaining our earnings estimates for now until we meet with management following the recent transfer in coverage. Our Apr-09 PT of M$5.70 is based on DCF. The stock is currently trading at a FY09E P/E of 13.1x, a slight premium to the market P/E of 11x but we believe this is justifiable given its defensive nature and high dividend yield of 5.7% (assuming a 75% payout ratio). A key risk is unexpected regulatory changes.
Tanjong Plc - Defensive EPS
Tanjong Plc BUY
Price target RM16.70
Share price at 12 Dec RM13.50
Investment summary
Last week, Tanjong reported a poor set of Q309 results, which were ~5% lower than expectations due to one-off kitchen-sinking expenses. However, we remain bullish on Tanjong: (1) +6% EPS CAGR over FY08-10E from the Globeleq IPP acquisition, which is superior to growth rates at other Bursa-listed power/ infrastructure stocks. (2) Tanjong’s earnings are highly defensive to the current global recession (50-60% is derived from Malaysian IPP/gaming), and could potentially benefit from USD appreciation and falling interest rates. (3) Valuation multiple expansion due to the potential long-term spin-off of Tanjong’s power division and the local investment vacuum created by the Malakoff de-listing.
Fundamental trade
In a sideways market, along with Resorts, we think Tanjong is a fundamental trading opportunity: (1) liquid/ wide 2-mth trading band of RM10-14/share; (2) defensive earnings profile, and USD beneficiary.
Price target RM16.70
Share price at 12 Dec RM13.50
Investment summary
Last week, Tanjong reported a poor set of Q309 results, which were ~5% lower than expectations due to one-off kitchen-sinking expenses. However, we remain bullish on Tanjong: (1) +6% EPS CAGR over FY08-10E from the Globeleq IPP acquisition, which is superior to growth rates at other Bursa-listed power/ infrastructure stocks. (2) Tanjong’s earnings are highly defensive to the current global recession (50-60% is derived from Malaysian IPP/gaming), and could potentially benefit from USD appreciation and falling interest rates. (3) Valuation multiple expansion due to the potential long-term spin-off of Tanjong’s power division and the local investment vacuum created by the Malakoff de-listing.
Fundamental trade
In a sideways market, along with Resorts, we think Tanjong is a fundamental trading opportunity: (1) liquid/ wide 2-mth trading band of RM10-14/share; (2) defensive earnings profile, and USD beneficiary.
Tanjong (TJPL.KL): Buy
Tanjong (TJPL.KL): Buy: Results In-Line, Expect Better 4Q09
9-month net profit up 7% YoY - Tanjong reported 9-month net profits of RM435m, up 7% YoY following 22% top-line growth, following the Globeleq acquisition in December 2007. Third quarter net profit fell 29% QoQ to RM97m after 1) an additional RM55m (for full RM62m levy) provision for windfall levy; 2) reversal of translation gain of RM29m (estimate); and 3) additional RM10m (estimate) in business & corporate charges. Please refer to Figure 1 for details.
Lower Leisure losses - Though not a major division, it is comforting to see lower losses at the Leisure division on improved contribution from Tropical Island.
Expect higher 4Q09 - The circa RM84m levy and reversal in translation gain are not expected to recur. We expect a stronger 4Q in the absence of these and higher gaming earnings in 4Q09 (i.e., bonus draws and festive sales).
Third interim 17.5 sen dividend - Management has declared a third interim gross dividend of 17.5 sen less 25% tax. The ex-date has been fixed on 31 December 2008 and will be paid on 16 January 2009.
Earnings trimmed slightly and dividend lowered - We have trimmed FY09E-FY10E net profit by 0%-1% to take into account higher business & corporate expenses. We have also lowered FY09E dividend to 90 sen from 100 sen. We expect management to be more prudent in capital management following the windfall levy payment and further deterioration in the economic outlook.
Maintain Buy (1L) - We are maintaining our Buy/Low Risk rating on Tanjong.
9-month net profit up 7% YoY - Tanjong reported 9-month net profits of RM435m, up 7% YoY following 22% top-line growth, following the Globeleq acquisition in December 2007. Third quarter net profit fell 29% QoQ to RM97m after 1) an additional RM55m (for full RM62m levy) provision for windfall levy; 2) reversal of translation gain of RM29m (estimate); and 3) additional RM10m (estimate) in business & corporate charges. Please refer to Figure 1 for details.
Lower Leisure losses - Though not a major division, it is comforting to see lower losses at the Leisure division on improved contribution from Tropical Island.
Expect higher 4Q09 - The circa RM84m levy and reversal in translation gain are not expected to recur. We expect a stronger 4Q in the absence of these and higher gaming earnings in 4Q09 (i.e., bonus draws and festive sales).
Third interim 17.5 sen dividend - Management has declared a third interim gross dividend of 17.5 sen less 25% tax. The ex-date has been fixed on 31 December 2008 and will be paid on 16 January 2009.
Earnings trimmed slightly and dividend lowered - We have trimmed FY09E-FY10E net profit by 0%-1% to take into account higher business & corporate expenses. We have also lowered FY09E dividend to 90 sen from 100 sen. We expect management to be more prudent in capital management following the windfall levy payment and further deterioration in the economic outlook.
Maintain Buy (1L) - We are maintaining our Buy/Low Risk rating on Tanjong.
JPM: Tanjong Plc: 3Q FY09 profits hit....
Tanjong Plc: 3Q FY09 profits hit by windfall tax levy and rise in NFO prize payouts; Tropical Island turns EBIT positive
9M FY09 net profit rose 7% Y/Y, or at 72% of our full-year forecast (73% of consensus). 9M FY09 operating profit also rose by 7% Y/Y driven largely by additional income from the Globeleq power plants acquired in Nov-07 despite the M$62MM windfall levy on the Malaysian power plants. Below the operating level or at the bottom line, profits were partly boosted by gains from disposal of the group's broadcasting assets in UK, which raised net investment income by 2x to M$48MM for 9M FY09. Tanjong declared a third interim GDPS of 17.5sen, translating to a total of 52.5sen for 9M FY09, up 25% Y/Y.
· 3Q FY09 profits were down 29% Q/Q and 45% Y/Y due largely to one-off items. These included: 1) the balance of the windfall levy of M$55MM for the full year totally provided for in 3Q (M$7MM in 2Q) with no further charge expected; and 2) business and corporate development costs of M$10MM – i.e., bidding and listing expenses for the overseas power division.
· 3Q FY09 divisional breakdown; Tropical Island turns EBIT positive: Stripping out the windfall levy, power division profits rose 11% Y/Y in 3Q FY09 although headline profits were down 15% Y/Y. 3Q FY09 gaming profits fell 39% Y/Y due to fewer draws and an increase in the NFO prize payout from 62% to 66%. This dragged down 9M FY09 gaming profits, which fell 2% Y/Y. Due to improved attendees overall, Tropical Island turned EBIT positive in 3Q FY09, with operating losses for the nine-month period, as a result, down 66% to M$13MM (see Table 2 for divisional breakdown details).
· We assume coverage and maintain OW: Overall, the results did not present significant surprises. Hence, we maintain our earnings estimates and also our full-year GDPS forecast of 96sen, or 72sen on a net basis for FY09E (FY08: GDPS of 90sen, or 67sen on a net basis). We will be meeting with management next week for more details or an update following the recent transfer in coverage of the stock. Our Jun-09 PT is M$24 based on sum-of-the-parts. A key risk to our PT is regulatory changes to the power sector in Malaysia.
9M FY09 net profit rose 7% Y/Y, or at 72% of our full-year forecast (73% of consensus). 9M FY09 operating profit also rose by 7% Y/Y driven largely by additional income from the Globeleq power plants acquired in Nov-07 despite the M$62MM windfall levy on the Malaysian power plants. Below the operating level or at the bottom line, profits were partly boosted by gains from disposal of the group's broadcasting assets in UK, which raised net investment income by 2x to M$48MM for 9M FY09. Tanjong declared a third interim GDPS of 17.5sen, translating to a total of 52.5sen for 9M FY09, up 25% Y/Y.
· 3Q FY09 profits were down 29% Q/Q and 45% Y/Y due largely to one-off items. These included: 1) the balance of the windfall levy of M$55MM for the full year totally provided for in 3Q (M$7MM in 2Q) with no further charge expected; and 2) business and corporate development costs of M$10MM – i.e., bidding and listing expenses for the overseas power division.
· 3Q FY09 divisional breakdown; Tropical Island turns EBIT positive: Stripping out the windfall levy, power division profits rose 11% Y/Y in 3Q FY09 although headline profits were down 15% Y/Y. 3Q FY09 gaming profits fell 39% Y/Y due to fewer draws and an increase in the NFO prize payout from 62% to 66%. This dragged down 9M FY09 gaming profits, which fell 2% Y/Y. Due to improved attendees overall, Tropical Island turned EBIT positive in 3Q FY09, with operating losses for the nine-month period, as a result, down 66% to M$13MM (see Table 2 for divisional breakdown details).
· We assume coverage and maintain OW: Overall, the results did not present significant surprises. Hence, we maintain our earnings estimates and also our full-year GDPS forecast of 96sen, or 72sen on a net basis for FY09E (FY08: GDPS of 90sen, or 67sen on a net basis). We will be meeting with management next week for more details or an update following the recent transfer in coverage of the stock. Our Jun-09 PT is M$24 based on sum-of-the-parts. A key risk to our PT is regulatory changes to the power sector in Malaysia.
Malaysia Equity Strategy
High Valuations Vulnerable to Negative Macro Surprises
Best performing Asian market YTD; valuations still holding up - Malaysia has been the best performing Asian market YTD, with P/B holding up at 1.45x. Its high valuation, however, is defying trends in other markets and is prompting investors to look elsewhere. Malaysia has fared well as a defensive.
New index target is 691 (1.2x 09E P/B) - With the macro risk rising, the market could fall below the 1.4x P/B it last hit during the 2000-01 recession. EPS growth expectations continue to fall in an uncertain market, and hence our previous bottom-up approach was losing relevance. Taking a more cautious approach, we are now using as our benchmark the average Asia P/B of 1.2x - implying a further 17% decline in the KLCI, to 691 points.
Bear market to bottom earliest in 1Q09E - In three of the last four recessions, the bear market ended in or immediately after the worst quarter of GDP growth. Our economist forecasts GDP to bottom at around 2.0% in 1Q09, down from 2.6% in 4Q08. If history repeats itself, 1Q09 is the earliest the market could bottom.
Macro risks - Relatively resilient private consumption, which accounts for half of Malaysia's GDP, has so far saved the economy. At risk is 1Q09 GDP, which could fall sharply before staging a mild rebound in 2H09. The market has yet to fully discount a potential disappointment in GDP numbers.
Further downward EPS revisions for 09 - We have cut our 09E EPS growth further post the 3Q results. We are now forecasting -11.1% growth, down from -3.9%. Utilities are forecast to record -23.7% EPS growth, banks -8.3%, telecoms -14.4%, plantation -20.6% and tobacco -10.5%.
Go for stocks with low P/B or high earnings visibility - Be they cyclical or defensive, stocks trading at trough P/Bs or have strong earnings visibility are on our top buys list - AMMB, BCHB, IGB Corp, KLCC Property, Tanjong plc and IOI Corp. Our top Sell ideas are Public and Maybank.
Best performing Asian market YTD; valuations still holding up - Malaysia has been the best performing Asian market YTD, with P/B holding up at 1.45x. Its high valuation, however, is defying trends in other markets and is prompting investors to look elsewhere. Malaysia has fared well as a defensive.
New index target is 691 (1.2x 09E P/B) - With the macro risk rising, the market could fall below the 1.4x P/B it last hit during the 2000-01 recession. EPS growth expectations continue to fall in an uncertain market, and hence our previous bottom-up approach was losing relevance. Taking a more cautious approach, we are now using as our benchmark the average Asia P/B of 1.2x - implying a further 17% decline in the KLCI, to 691 points.
Bear market to bottom earliest in 1Q09E - In three of the last four recessions, the bear market ended in or immediately after the worst quarter of GDP growth. Our economist forecasts GDP to bottom at around 2.0% in 1Q09, down from 2.6% in 4Q08. If history repeats itself, 1Q09 is the earliest the market could bottom.
Macro risks - Relatively resilient private consumption, which accounts for half of Malaysia's GDP, has so far saved the economy. At risk is 1Q09 GDP, which could fall sharply before staging a mild rebound in 2H09. The market has yet to fully discount a potential disappointment in GDP numbers.
Further downward EPS revisions for 09 - We have cut our 09E EPS growth further post the 3Q results. We are now forecasting -11.1% growth, down from -3.9%. Utilities are forecast to record -23.7% EPS growth, banks -8.3%, telecoms -14.4%, plantation -20.6% and tobacco -10.5%.
Go for stocks with low P/B or high earnings visibility - Be they cyclical or defensive, stocks trading at trough P/Bs or have strong earnings visibility are on our top buys list - AMMB, BCHB, IGB Corp, KLCC Property, Tanjong plc and IOI Corp. Our top Sell ideas are Public and Maybank.
Tanjong Plc (Outperform)
One-off is past us, is TI turning?
Event
Tanjong reported its 3Q FY1/09 results. Excluding an estimated RM54m provision for the IPP windfall tax, the results were within expectations.
Tropical Island (TI) reported RM2.6m in pretax profit for the quarter, only the second time ever since it started in 2005.
Impact
Excluding one-offs at the power division, 9M09 was within expectation. At the 9-month mark, net profit rose 7% to RM435m, which represents 71% of our full-year forecast and 72% of consensus. Excluding the IPP windfall tax provision, net profit would have represented 78% of our forecast, or 79% of consensus.
Is Tropical Island (TI) turning around? TI reported RM2.6m in pretax profit in 3Q. Average visitors per day rose sharply to 2,796, while ARPU held at €31.4. This could be because Germans are finding TI to be a value alternative to flying to tropical beaches in Asia. Visitor days have been holding up during November to December. At this point, we maintain our forecast of a RM30–40m loss pa in FY09–11. The recent JV to build 375 vacation homes by April 2010 could boost visitor days further by opening up the market to overnight guests.
Gaming divisions within expectations. Lottery pretax in 9M09 rose 4.4% as revenue per draw edged up by 2%.
Interim dividend is on track to meet our forecast. A third interim dividend of 17.5 sen less 25% tax was declared. This brings the total interim dividend to 52.5 sen (39.4 sen net) and assuming a fourth interim of 17.5 sen and a final dividend similar to the 34 sen in FY08, total dividend would hit 104 sen (78 sen net).
Earnings revision
Incorporating windfall tax and other one-offs raises our FY09 earnings forecast by 3%. No change otherwise.
Price catalyst
12-month price target: RM17.00 based on a Sum of Parts methodology.
Catalyst: Potential power acquisitions, potential listing of power or gaming division, potential turnaround of TI by April 2010.
Action and recommendation
We maintain our Outperform rating on Tanjung. Our DCF valuation of RM17 assumes a cost of equity of 11.5%. The implied target PER is 10x calendarised for 2009.
We believe Tanjong is attractive to investors seeking value and yield, providing solid and stable cashflows with the potential for upside from overseas power acquisitions, the potential listing of the gaming or power division and the turnaround of TI.
Event
Tanjong reported its 3Q FY1/09 results. Excluding an estimated RM54m provision for the IPP windfall tax, the results were within expectations.
Tropical Island (TI) reported RM2.6m in pretax profit for the quarter, only the second time ever since it started in 2005.
Impact
Excluding one-offs at the power division, 9M09 was within expectation. At the 9-month mark, net profit rose 7% to RM435m, which represents 71% of our full-year forecast and 72% of consensus. Excluding the IPP windfall tax provision, net profit would have represented 78% of our forecast, or 79% of consensus.
Is Tropical Island (TI) turning around? TI reported RM2.6m in pretax profit in 3Q. Average visitors per day rose sharply to 2,796, while ARPU held at €31.4. This could be because Germans are finding TI to be a value alternative to flying to tropical beaches in Asia. Visitor days have been holding up during November to December. At this point, we maintain our forecast of a RM30–40m loss pa in FY09–11. The recent JV to build 375 vacation homes by April 2010 could boost visitor days further by opening up the market to overnight guests.
Gaming divisions within expectations. Lottery pretax in 9M09 rose 4.4% as revenue per draw edged up by 2%.
Interim dividend is on track to meet our forecast. A third interim dividend of 17.5 sen less 25% tax was declared. This brings the total interim dividend to 52.5 sen (39.4 sen net) and assuming a fourth interim of 17.5 sen and a final dividend similar to the 34 sen in FY08, total dividend would hit 104 sen (78 sen net).
Earnings revision
Incorporating windfall tax and other one-offs raises our FY09 earnings forecast by 3%. No change otherwise.
Price catalyst
12-month price target: RM17.00 based on a Sum of Parts methodology.
Catalyst: Potential power acquisitions, potential listing of power or gaming division, potential turnaround of TI by April 2010.
Action and recommendation
We maintain our Outperform rating on Tanjung. Our DCF valuation of RM17 assumes a cost of equity of 11.5%. The implied target PER is 10x calendarised for 2009.
We believe Tanjong is attractive to investors seeking value and yield, providing solid and stable cashflows with the potential for upside from overseas power acquisitions, the potential listing of the gaming or power division and the turnaround of TI.
Berjaya Sports Toto Bhd
Everything in place but the dividends
Sports Toto's 2Q earnings were line with our estimates, with revenues 54% of our full year estimate, but net profits 48% of our full year estimate. Dividend per share rose 17% (or 1 sen) but its div payout still fell short of the promised 75% for the year. Mgmt reiterates its div payout target will still be achieved, and given last year's div behaviour, we believe the divs will be delivered. Buy maintained.
Strong revenues, low prize payout, both due to Jackpot
2Q net profit grew 27% YoY, 23% QoQ, as revenue growth was boosted by punters chasing the RM20mn prize offered by Toto's 6/52 jackpot game. We estimate the prize payout was ~2 ppts below prize payout in the comparative quarter, which is partly a function of a higher proportion of jackpot game sales, since such games have a lower theoretical prize payout (55% compared to the 65% for 4 digit games). Rev/draw grew 9% QoQ and 21% YoY, superior to Tanjong's 2.6% YoY growth and flat QoQ for the same 3 mth period, attesting to the importance of the Jackpot games to growth. We expect a similar strong 3Q as the Jackpot prize is still at RM20mn.
Dividends - still the dark cloud on the horizon
2Q div payout fell from 61% in the immediately preceding quarter to 58% this quarter or 59.4% for the 6 mths. Toto stated it remains committed to a 75% div payout policy, suggesting its div payout will catch up in the final quarter, as it did last year, when 4Q div payout exceeded 100% to close the year's div payout at 93%. This allows the co to pay rising dividends in the yr without being caught out by unusually high prize payouts in the later quarters.
Sports Toto's 2Q earnings were line with our estimates, with revenues 54% of our full year estimate, but net profits 48% of our full year estimate. Dividend per share rose 17% (or 1 sen) but its div payout still fell short of the promised 75% for the year. Mgmt reiterates its div payout target will still be achieved, and given last year's div behaviour, we believe the divs will be delivered. Buy maintained.
Strong revenues, low prize payout, both due to Jackpot
2Q net profit grew 27% YoY, 23% QoQ, as revenue growth was boosted by punters chasing the RM20mn prize offered by Toto's 6/52 jackpot game. We estimate the prize payout was ~2 ppts below prize payout in the comparative quarter, which is partly a function of a higher proportion of jackpot game sales, since such games have a lower theoretical prize payout (55% compared to the 65% for 4 digit games). Rev/draw grew 9% QoQ and 21% YoY, superior to Tanjong's 2.6% YoY growth and flat QoQ for the same 3 mth period, attesting to the importance of the Jackpot games to growth. We expect a similar strong 3Q as the Jackpot prize is still at RM20mn.
Dividends - still the dark cloud on the horizon
2Q div payout fell from 61% in the immediately preceding quarter to 58% this quarter or 59.4% for the 6 mths. Toto stated it remains committed to a 75% div payout policy, suggesting its div payout will catch up in the final quarter, as it did last year, when 4Q div payout exceeded 100% to close the year's div payout at 93%. This allows the co to pay rising dividends in the yr without being caught out by unusually high prize payouts in the later quarters.
Friday, 29 August 2008
Media Prima - BUY - 29 Aug 2008
Media Prima - Higher-than-expected costs incurred (Results Note)
Price: RM1.60
Target Price: RM2.30
Recommendation: BUY
· Below expectations. 1H08 recurring net profit (excluding RM5.5m VSS cost, RM2.4m gain on disposal of building owned by UPD and RM1.8m gain on disposal of Malay Mail) of RM49.4m accounted 34.9% and 30.0% of consensus and our previous estimates, respectively, impacted mainly by higher-than-expected content costs, A&P spending and maintenance cost.
· YoY, 1H08 revenue grew by 27.9% to RM358.1m driven mainly by: 1) higher revenue recorded by TV (+20.4%) and Radio Networks (+52.3%); 2) strong advertising demand from Euro 2008 (which also underpinned 2Q08 18.8% YoY higher revenue to RM198.5m); and 3) a full 6 months consolidation of the Outdoor division's result against 3 months in 1H07. Sequentially, 1H08 net profit increased by 42.3% to RM47.8m which was also driven partially by the stronger 2Q08 performance from the NSTP.
· QoQ, 2Q08 net profit registered a significant 80% increase mainly on the back of strong growth in advertising revenue led by the NSTP (advertising revenue grew about 4-5% QoQ mainly from Harian Metro). The lower effective tax rate of 17.9% (1Q08: 24.1%) due to utilisation of tax relief from loss-making subsidiaries also attributed to the strong net growth.
· We adjust FY08 and FY09 net earnings lower by 19.0% to RM132.6m and RM148.5m, respectively. Higher-than-expected content costs incurred by the Euro 2008 and local and Chinese content for NTV 7, A&P expenditure and maintenance cost outstripped our earlier assumption of a stronger 2Q08 net earnings. Cue of a lower ADEX growth in 2H08 and aggressive new channels roll-out by Astro have further prompted us to revise lower our earnings.
· Maintain BUY with lower target price of RM2.30 based on unchanged PER of 15x to our revised FY08 EPS of 15.4 sen. Current share price looks compelling after the recent sharp fall of 40.7% YTD, trading at 10x and 9x of FY08 and FY09 PER, respectively. Moreover, its dividend yield of around 7-8% is attractive.
Price: RM1.60
Target Price: RM2.30
Recommendation: BUY
· Below expectations. 1H08 recurring net profit (excluding RM5.5m VSS cost, RM2.4m gain on disposal of building owned by UPD and RM1.8m gain on disposal of Malay Mail) of RM49.4m accounted 34.9% and 30.0% of consensus and our previous estimates, respectively, impacted mainly by higher-than-expected content costs, A&P spending and maintenance cost.
· YoY, 1H08 revenue grew by 27.9% to RM358.1m driven mainly by: 1) higher revenue recorded by TV (+20.4%) and Radio Networks (+52.3%); 2) strong advertising demand from Euro 2008 (which also underpinned 2Q08 18.8% YoY higher revenue to RM198.5m); and 3) a full 6 months consolidation of the Outdoor division's result against 3 months in 1H07. Sequentially, 1H08 net profit increased by 42.3% to RM47.8m which was also driven partially by the stronger 2Q08 performance from the NSTP.
· QoQ, 2Q08 net profit registered a significant 80% increase mainly on the back of strong growth in advertising revenue led by the NSTP (advertising revenue grew about 4-5% QoQ mainly from Harian Metro). The lower effective tax rate of 17.9% (1Q08: 24.1%) due to utilisation of tax relief from loss-making subsidiaries also attributed to the strong net growth.
· We adjust FY08 and FY09 net earnings lower by 19.0% to RM132.6m and RM148.5m, respectively. Higher-than-expected content costs incurred by the Euro 2008 and local and Chinese content for NTV 7, A&P expenditure and maintenance cost outstripped our earlier assumption of a stronger 2Q08 net earnings. Cue of a lower ADEX growth in 2H08 and aggressive new channels roll-out by Astro have further prompted us to revise lower our earnings.
· Maintain BUY with lower target price of RM2.30 based on unchanged PER of 15x to our revised FY08 EPS of 15.4 sen. Current share price looks compelling after the recent sharp fall of 40.7% YTD, trading at 10x and 9x of FY08 and FY09 PER, respectively. Moreover, its dividend yield of around 7-8% is attractive.
HLG: Muhibbah - H108 results within expectation (29 August 2008)
Muhibbah Engineering BUY
Price target RM3.35
Share price at 28 Aug RM1.91
Investment summary
H108 net profit (+28% yoy) was in-line with HLG/consensus estimate. We maintain our BUY rating on Muhibbah: (1) significant mismatch between share price performance (-49% YTD) and order book expansion (+51% yoy) in infrastructure and oil & gas related activities; (2) 19% EPS CAGR over FY07-10E into 20% PE discount to big-cap peers like IJM/Gamuda. We are positive on the Malaysian construction sector and believe government job-flow may pick up: (1) pump-priming is an obvious and politically easy policy action in addressing the on-going external macro-economic slump; (2) recent building material market liberalization and fiscal-boosting fuel price hikes hint at this direction.
Lookout for new orders
H108 results show strong growth in all key divisions. Share price is trading at 7x FY09 PE, 20% discount to big-cap construction players. Newsflow on new overseas jobs could re-rate share price.
Price target RM3.35
Share price at 28 Aug RM1.91
Investment summary
H108 net profit (+28% yoy) was in-line with HLG/consensus estimate. We maintain our BUY rating on Muhibbah: (1) significant mismatch between share price performance (-49% YTD) and order book expansion (+51% yoy) in infrastructure and oil & gas related activities; (2) 19% EPS CAGR over FY07-10E into 20% PE discount to big-cap peers like IJM/Gamuda. We are positive on the Malaysian construction sector and believe government job-flow may pick up: (1) pump-priming is an obvious and politically easy policy action in addressing the on-going external macro-economic slump; (2) recent building material market liberalization and fiscal-boosting fuel price hikes hint at this direction.
Lookout for new orders
H108 results show strong growth in all key divisions. Share price is trading at 7x FY09 PE, 20% discount to big-cap construction players. Newsflow on new overseas jobs could re-rate share price.
HLG: AirAsia - Poor H108 results; Maintain SELL (29 August 2008)
AirAsia Berhad SELL
Price target RM0.86
Share price at 28 Aug RM1.10
Investment summary
H108 core net profit of RM54m was 40% below HLG forecast. The poor results re-affirm our SELL rating on AirAsia. We are negative on AirAsia: (1) in order to fill-up its new capacity, it will be difficult to pass-through higher jet fuel cost to end-customers; (2) major headwinds in Q308 from record-high jet fuel prices, a seasonally weak quarter and intense price competition from MAS. We are negative on the aviation sector: (1) record crude oil prices and our expectation of weak discretionary consumer spending could mitigate growth expectation (2) >850 new aircraft is expected to come into the Asia Pacific, India and Middle East market over the next two years despite the global economic uncertainties.
Consensus behind curve
Even after imputing non-operating gains (eg. deferred tax and forex), brokers’ EPS look likely to be downgraded by >40%. Share price has rebounded due to its perception as an anti-oil stock, but given deteriorating financials, we think MAS would be a safer bet.
Price target RM0.86
Share price at 28 Aug RM1.10
Investment summary
H108 core net profit of RM54m was 40% below HLG forecast. The poor results re-affirm our SELL rating on AirAsia. We are negative on AirAsia: (1) in order to fill-up its new capacity, it will be difficult to pass-through higher jet fuel cost to end-customers; (2) major headwinds in Q308 from record-high jet fuel prices, a seasonally weak quarter and intense price competition from MAS. We are negative on the aviation sector: (1) record crude oil prices and our expectation of weak discretionary consumer spending could mitigate growth expectation (2) >850 new aircraft is expected to come into the Asia Pacific, India and Middle East market over the next two years despite the global economic uncertainties.
Consensus behind curve
Even after imputing non-operating gains (eg. deferred tax and forex), brokers’ EPS look likely to be downgraded by >40%. Share price has rebounded due to its perception as an anti-oil stock, but given deteriorating financials, we think MAS would be a safer bet.
AirAsia - HOLD - 29 Aug 2008
AirAsia - Hurt by forex loss (Results Note)
Price: RM1.10
Target Price: RM0.95
Recommendation: HOLD
· 6MJune08 revenue of RM1.15b was in line but core net profit of RM52.7m was above our expectation. Included in the core net profit was an undisclosed write-back amount which was the credit given by MAHB (Not Rated) to AirAsia for the settlement of airport charges that ranges between RM60m to RM110m based on various news reports.
· QoQ, revenue and EBITDA improved 13.7% and 19.8% respectively on the back of higher passenger volume (+8.1%), higher average ticket price (+4.8%), increased ancillary income (+23.0%) and write-back of payment to MAHB. Cost/ASK was up by 8.5% to 11.5sen/ASK mainly on higher fuel cost. A forex loss of RM76.9m was also registered due to the weakening of RM, leading to a 2Q pre-tax loss of RM46.9m.
· YoY, 6MJune08 revenue rose 36.4%, underpinned by growth in passengers volume (+20.2%), yield (+6.4%) and ancillary income (+59.1%). Normalised pre-tax profit however was still lower at RM54m (-20.8%) on higher interest expense to finance plane acquisitions.
· 6MJune08 load factor was lower at 74.3% vs 78.7% for the preceding period. The lower load factor was a result of significant capacity expansion of 34.2% and normal gestation period for new routes. Group has launched 20 new routes from the beginning of 2008 and has recently established new footprint in Indonesia by connecting Sulawesi Island to Makassar and Manado to Kuala Lumpur respectively.
· Though AirAsia has some short term fuel hedges, group is largely unhedged as management considers oil price still high at current level. Current unhedged position is in line with management's belief that group will benefit from further oil price correction.
· AirAsia has discontinued the reporting of detail breakdown for operating expenses for competitive reason. We are disappointed on the practice as this would make analysis and forecasting of AirAsia's future performance extremely challenging.
Price: RM1.10
Target Price: RM0.95
Recommendation: HOLD
· 6MJune08 revenue of RM1.15b was in line but core net profit of RM52.7m was above our expectation. Included in the core net profit was an undisclosed write-back amount which was the credit given by MAHB (Not Rated) to AirAsia for the settlement of airport charges that ranges between RM60m to RM110m based on various news reports.
· QoQ, revenue and EBITDA improved 13.7% and 19.8% respectively on the back of higher passenger volume (+8.1%), higher average ticket price (+4.8%), increased ancillary income (+23.0%) and write-back of payment to MAHB. Cost/ASK was up by 8.5% to 11.5sen/ASK mainly on higher fuel cost. A forex loss of RM76.9m was also registered due to the weakening of RM, leading to a 2Q pre-tax loss of RM46.9m.
· YoY, 6MJune08 revenue rose 36.4%, underpinned by growth in passengers volume (+20.2%), yield (+6.4%) and ancillary income (+59.1%). Normalised pre-tax profit however was still lower at RM54m (-20.8%) on higher interest expense to finance plane acquisitions.
· 6MJune08 load factor was lower at 74.3% vs 78.7% for the preceding period. The lower load factor was a result of significant capacity expansion of 34.2% and normal gestation period for new routes. Group has launched 20 new routes from the beginning of 2008 and has recently established new footprint in Indonesia by connecting Sulawesi Island to Makassar and Manado to Kuala Lumpur respectively.
· Though AirAsia has some short term fuel hedges, group is largely unhedged as management considers oil price still high at current level. Current unhedged position is in line with management's belief that group will benefit from further oil price correction.
· AirAsia has discontinued the reporting of detail breakdown for operating expenses for competitive reason. We are disappointed on the practice as this would make analysis and forecasting of AirAsia's future performance extremely challenging.
HLG: TRC Synergy - Results in-line; Maintain HOLD (29 August 2008)
TRC Synergy Berhad HOLD
Price target RM1.60
Share price at 28 Aug RM1.35
Investment summary
H108 net profit rose +35% yoy and was in-line with forecasts/consensus. Despite share price falling -46% YTD, we remain neutral on TRC: (1) Job-flow will slowdown appreciably in H208, after the sharp pre-election run-up in H108. (2) Current political landscape does not favor Bumi contractors as opposed to its genuine apolitical peer WCT. We are positive on the Malaysian construction sector and believe government job-flow may pick up: (1) pump-priming is an obvious and politically easy policy action in addressing the on-going external macro-economic slump; (2) recent building material market liberalization and fiscal-boosting fuel price hikes hint at this direction. We prefer playing the pump-priming story via liquid big-cap contractors (eg. Gamuda, IJM).
Quiet newsflow
Positive earnings growth and decent pace of recent job-flow, but we expect things to quiet down in H208. Near-term job-flow hinges on its downstream oil venture in Brunei, and clarity on this project will only emerge in Q109.
Price target RM1.60
Share price at 28 Aug RM1.35
Investment summary
H108 net profit rose +35% yoy and was in-line with forecasts/consensus. Despite share price falling -46% YTD, we remain neutral on TRC: (1) Job-flow will slowdown appreciably in H208, after the sharp pre-election run-up in H108. (2) Current political landscape does not favor Bumi contractors as opposed to its genuine apolitical peer WCT. We are positive on the Malaysian construction sector and believe government job-flow may pick up: (1) pump-priming is an obvious and politically easy policy action in addressing the on-going external macro-economic slump; (2) recent building material market liberalization and fiscal-boosting fuel price hikes hint at this direction. We prefer playing the pump-priming story via liquid big-cap contractors (eg. Gamuda, IJM).
Quiet newsflow
Positive earnings growth and decent pace of recent job-flow, but we expect things to quiet down in H208. Near-term job-flow hinges on its downstream oil venture in Brunei, and clarity on this project will only emerge in Q109.
TRC Synergy - BUY - 28 Aug 2008
TRC Synergy - 1H08 net profit within expectations (Results Note)
Price: RM1.35
Target Price: RM3.70
Recommendation: BUY
· 1H08 net profit of RM22.6m was within our estimates at 47% of our full year estimates and consensus of RM47.8m and RM45.5m. Volatile building material prices and one time losses from property division of RM15.8m resulted in erosion of EBITDA margin of 7% to 11.5%. Nevertheless, TRC is able to progress as scheduled due to its management competence. Its net cash position of RM62m also enabled it to secure building materials on a timely basis and at more favourable pricing.
· Stripping out the RM15.8m property loss, 1H08 net profit would have been RM38.4m or 80% of full year estimates consensus. Corresponding net margin would have been 11.4% compared to 9.5% in 1H07 which is a very commendable effort given that building materials cost have risen more than 40% over the same period.
· 2Q08 net profit RM10.6m was 11.4% lower QoQ but 4.1% higher YoY, despite substantially higher revenue which rose 44.8% and 95.8% QoQ and YoY respectively due to the aforementioned property division losses.
· We are maintaining FY08 and FY09 forecast of RM47.8m and RM46.0m respectively. TRC has RM867m of unbilled order book to be completed up to early 2010 which are all on track and within budget. Its enviable balance sheet and strong track record will enable it to secure more lucrative jobs while some contractors are abandoning projects as the cost overrun will result in more losses upon completion of project.
· Maintain BUY with target price of RM3.70 based on FY08 Fully Diluted EPS of 30.4 sen using the average PER of 12x for smaller construction companies. The share is currently trading at attractive FY08E and FY09E PER of 5.8x and 6.1x respectively.
Price: RM1.35
Target Price: RM3.70
Recommendation: BUY
· 1H08 net profit of RM22.6m was within our estimates at 47% of our full year estimates and consensus of RM47.8m and RM45.5m. Volatile building material prices and one time losses from property division of RM15.8m resulted in erosion of EBITDA margin of 7% to 11.5%. Nevertheless, TRC is able to progress as scheduled due to its management competence. Its net cash position of RM62m also enabled it to secure building materials on a timely basis and at more favourable pricing.
· Stripping out the RM15.8m property loss, 1H08 net profit would have been RM38.4m or 80% of full year estimates consensus. Corresponding net margin would have been 11.4% compared to 9.5% in 1H07 which is a very commendable effort given that building materials cost have risen more than 40% over the same period.
· 2Q08 net profit RM10.6m was 11.4% lower QoQ but 4.1% higher YoY, despite substantially higher revenue which rose 44.8% and 95.8% QoQ and YoY respectively due to the aforementioned property division losses.
· We are maintaining FY08 and FY09 forecast of RM47.8m and RM46.0m respectively. TRC has RM867m of unbilled order book to be completed up to early 2010 which are all on track and within budget. Its enviable balance sheet and strong track record will enable it to secure more lucrative jobs while some contractors are abandoning projects as the cost overrun will result in more losses upon completion of project.
· Maintain BUY with target price of RM3.70 based on FY08 Fully Diluted EPS of 30.4 sen using the average PER of 12x for smaller construction companies. The share is currently trading at attractive FY08E and FY09E PER of 5.8x and 6.1x respectively.
Genting - BUY - 29 Aug 2008
Genting - 1H08 within expectation (Results Note)
Price: RM5.30
Target Price: RM9.00
Recommendation: BUY
· 1H08 revenue at RM4.3b was within expectation while core net profit of RM699.1m was 44.2% and 42.1% of our forecast and street's estimates respectively which we consider in line given group's weaker seasonality for 1H. Growth was across all divisions except for power due to scheduled maintenance in 2Q08. A 3.0sen gross dividend was also declared against the 2.7sen previously.
· QoQ, revenue flat while EBITDA slipped 5.5% mainly due to lower power contribution and other forex losses. Lower power contribution due to higher coal cost (+30% qoq) and lower dispatch on scheduled maintenance for both Kuala Langat and Meizhou Wan plants.
· YoY, 1H08 revenue and EBITDA climbed 7.8% and 6.8% respectively, underpinned by: a) better luck factor for VIP and higher casino patronage for the highlands; b) higher plantation contribution courtesy to buoyant CPO price; c) higher average oil price sales recorded by the O&G division; and d) absence of associate loss from Star Cruises. Pre-tax however fell 23.4% to RM1.6b as there was less recognition of gain on dilution (-96.4%) on shareholdings.
· Resorts updates. Though visitor arrivals for 1H08 was down by c.4% yoy, higher performance was driven by increased casino patronage in both VIP and grind market. 1H08 hotel occupancy also climbed to 90% vs 86% in 1H07 while average room rate increased by c.6%. Both theme park and F&B also registered positive 1H08 sales growth on increased patronage. Apart from sales growth, better margin was also experienced as a result of reduced marketing costs as group directs more marketing efforts to its' WorldCard members as part of its yield management strategy instead of attracting new visitors.
· Though we continue to be positive on Resorts (BUY; TP:RM4.38) for the rest of 2008, Genting's near term performance is likely to weaken on the back of: a) lower plantation performance given the recent sharp correction in CPO price; and b) margin squeeze on power division with higher coal cost for Meizhou Wan power plant and windfall tax payment (RM5.7m/month) for Genting Sanyen. Incorporating higher operational cost assumptions of Resorts (1%-4% staff and energy costs) and the reduced profit contribution from power and plantation, we lower our FY08 and FY09 net profit projections by 6.4% and 20.1% respectively to RM1478.6m and RM1345.0m. BUY maintained but lower target price to RM9.00 from RM9.90 based on sum-of-parts.
Price: RM5.30
Target Price: RM9.00
Recommendation: BUY
· 1H08 revenue at RM4.3b was within expectation while core net profit of RM699.1m was 44.2% and 42.1% of our forecast and street's estimates respectively which we consider in line given group's weaker seasonality for 1H. Growth was across all divisions except for power due to scheduled maintenance in 2Q08. A 3.0sen gross dividend was also declared against the 2.7sen previously.
· QoQ, revenue flat while EBITDA slipped 5.5% mainly due to lower power contribution and other forex losses. Lower power contribution due to higher coal cost (+30% qoq) and lower dispatch on scheduled maintenance for both Kuala Langat and Meizhou Wan plants.
· YoY, 1H08 revenue and EBITDA climbed 7.8% and 6.8% respectively, underpinned by: a) better luck factor for VIP and higher casino patronage for the highlands; b) higher plantation contribution courtesy to buoyant CPO price; c) higher average oil price sales recorded by the O&G division; and d) absence of associate loss from Star Cruises. Pre-tax however fell 23.4% to RM1.6b as there was less recognition of gain on dilution (-96.4%) on shareholdings.
· Resorts updates. Though visitor arrivals for 1H08 was down by c.4% yoy, higher performance was driven by increased casino patronage in both VIP and grind market. 1H08 hotel occupancy also climbed to 90% vs 86% in 1H07 while average room rate increased by c.6%. Both theme park and F&B also registered positive 1H08 sales growth on increased patronage. Apart from sales growth, better margin was also experienced as a result of reduced marketing costs as group directs more marketing efforts to its' WorldCard members as part of its yield management strategy instead of attracting new visitors.
· Though we continue to be positive on Resorts (BUY; TP:RM4.38) for the rest of 2008, Genting's near term performance is likely to weaken on the back of: a) lower plantation performance given the recent sharp correction in CPO price; and b) margin squeeze on power division with higher coal cost for Meizhou Wan power plant and windfall tax payment (RM5.7m/month) for Genting Sanyen. Incorporating higher operational cost assumptions of Resorts (1%-4% staff and energy costs) and the reduced profit contribution from power and plantation, we lower our FY08 and FY09 net profit projections by 6.4% and 20.1% respectively to RM1478.6m and RM1345.0m. BUY maintained but lower target price to RM9.00 from RM9.90 based on sum-of-parts.
My E.G. - BUY - 29 Aug 2008
My E.G. Services - FY08 net profit within expectations (Results Note)
Price: RM0.895
Target Price: RM1.50
Recommendation: BUY
· FY08 net profit of RM14.8m was within expectations being only 8% lower than our full year forecast of RM16.2. We had forecasted faster acceptance of the road tax renewal service which was delayed due to the March 2008 elections. Otherwise the performance of MYEG is as expected with spot-on execution with a sustainable and profitable concession.
· YoY, FY08 net profit was 109.3% higher with strong EBITDA margin of 35.3% compared to 33.4% in FY07. The ability to both grow revenue and margin is largely due to the ability to leverage on a single distribution channel to introduce new services like driver's license renewal (introduced in April 2007) and road tax renewal/car insurance (introduced in April 2008).
· QoQ, 4Q08 net profit was -1.4% lower despite 4.2% higher revenue resulting from higher marketing expenses for the new product launched in April 2008. This was compensated by higher learner license applications and driver's license theory test in 4Q08 where 3Q08 was seasonally slowest period.
· YoY, 4Q08 net profit was 109.3% higher on 93.4% higher revenue. Earnings growth in 4Q08 due to full consolidation of MYSPEED which was acquired in 1Q08. In addition, maturity of renewal of drivers' license service after one year of introduction in addition to road tax renewal/car insurance also resulted in higher revenue and better economies of scale.
· Maintaining FY09E and FY10E net profit forecast of RM25m and RM30m. The growth in earnings is driven by higher acceptance of existing services and introduction of new ones like electronic application of vehicle registration numbers and transferring of motor vehicle ownership in 2009 and tax monitoring services and e-service for department of statistic.
· Maintain BUY and target price of RM1.50 using FY09E PER of 15x (a 2x premium over consumer sector PER of 13x) and FYJune09E EPS of 9.9sen. The stock remains attractive, trading at 9.0x and 7.5x FY09E and FY10E PER respectively. Net cash per share was 2.2 sen per share.
Price: RM0.895
Target Price: RM1.50
Recommendation: BUY
· FY08 net profit of RM14.8m was within expectations being only 8% lower than our full year forecast of RM16.2. We had forecasted faster acceptance of the road tax renewal service which was delayed due to the March 2008 elections. Otherwise the performance of MYEG is as expected with spot-on execution with a sustainable and profitable concession.
· YoY, FY08 net profit was 109.3% higher with strong EBITDA margin of 35.3% compared to 33.4% in FY07. The ability to both grow revenue and margin is largely due to the ability to leverage on a single distribution channel to introduce new services like driver's license renewal (introduced in April 2007) and road tax renewal/car insurance (introduced in April 2008).
· QoQ, 4Q08 net profit was -1.4% lower despite 4.2% higher revenue resulting from higher marketing expenses for the new product launched in April 2008. This was compensated by higher learner license applications and driver's license theory test in 4Q08 where 3Q08 was seasonally slowest period.
· YoY, 4Q08 net profit was 109.3% higher on 93.4% higher revenue. Earnings growth in 4Q08 due to full consolidation of MYSPEED which was acquired in 1Q08. In addition, maturity of renewal of drivers' license service after one year of introduction in addition to road tax renewal/car insurance also resulted in higher revenue and better economies of scale.
· Maintaining FY09E and FY10E net profit forecast of RM25m and RM30m. The growth in earnings is driven by higher acceptance of existing services and introduction of new ones like electronic application of vehicle registration numbers and transferring of motor vehicle ownership in 2009 and tax monitoring services and e-service for department of statistic.
· Maintain BUY and target price of RM1.50 using FY09E PER of 15x (a 2x premium over consumer sector PER of 13x) and FYJune09E EPS of 9.9sen. The stock remains attractive, trading at 9.0x and 7.5x FY09E and FY10E PER respectively. Net cash per share was 2.2 sen per share.
Parkson Holdings - BUY - 28 Aug 2008
Parkson Holdings - FY08 results in-line with estimates (Results Note)
Price: RM4.42
Target Price: RM8.50
Recommendation: BUY
· Parkson Holdings (PH) FY08 core net profit of RM215.9m was within our expectations at 3% higher than our estimated RM223.2m but 6% below market consensus of RM229.7m. Strong earnings growth in all geographical segments, particularly China (that accounted for 68% of PH's revenue) had helped to underpin the good set of numbers.
· The injection of new stores and China's double-digit same-store sales growth propelled the 57% rise in FY08 core net profit YoY. Revenue in FY08 rose by 25% driven mainly by 29% revenue growth in China, although all countries registered sales improvement with same-stores sales growth coming close to our assumptions of 15%, 3% and 25% for China, Malaysia and Vietnam respectively. Stripping out the extraordinary gain of RM231.6m from the placement of 1.44% equity interest of Parkson Retail Group (PRG), FY08 pretax profit rose by an encouraging 35%, enhanced by improved operating efficiency and larger contribution from associates.
· YoY, 4QFY08 net profit was 5x higher although this is not an entirely fair comparison given that in 4QFY07 PH was still beleaguered by losses of Bright Steel Sdn Bhd that was disposed of in September 2007.
· QoQ, the absence of festive season catalysts resulted in a weaker 4QFY08. Revenue declined by 19% QoQ in-line with seasonality bearing in mind that 3QFY08 sales were boosted by the Chinese New Year demand. Pretax profit (excluding the exceptional gain from PRG share placement in 3QFY08) lessened by 21% in-line with lower sales revenue.
· Final tax-exempt dividend per share of 5.0 sen declared resulting in a total FY08 GDPS of 10.0 sen. This translates to a dividend payout of 42% and dividend yield of 2.3%.
· FY09 and FY10 net profit forecast unchanged for now pending guidance from analyst briefing today. Expect downward revision of FY09 forecast following briefing on expectations of softer sales with economic slowdown.
· Maintain BUY recommendation but target price of RM8.50 based on sum-of-parts valuation utilising FY09 PERs of 30x, 10x and 20x for Parkson China, Malaysia and Vietnam is under review. The stock is currently trading at 15.2x and 12.4x FY09 and FY10 PERs. More details post briefing.
Price: RM4.42
Target Price: RM8.50
Recommendation: BUY
· Parkson Holdings (PH) FY08 core net profit of RM215.9m was within our expectations at 3% higher than our estimated RM223.2m but 6% below market consensus of RM229.7m. Strong earnings growth in all geographical segments, particularly China (that accounted for 68% of PH's revenue) had helped to underpin the good set of numbers.
· The injection of new stores and China's double-digit same-store sales growth propelled the 57% rise in FY08 core net profit YoY. Revenue in FY08 rose by 25% driven mainly by 29% revenue growth in China, although all countries registered sales improvement with same-stores sales growth coming close to our assumptions of 15%, 3% and 25% for China, Malaysia and Vietnam respectively. Stripping out the extraordinary gain of RM231.6m from the placement of 1.44% equity interest of Parkson Retail Group (PRG), FY08 pretax profit rose by an encouraging 35%, enhanced by improved operating efficiency and larger contribution from associates.
· YoY, 4QFY08 net profit was 5x higher although this is not an entirely fair comparison given that in 4QFY07 PH was still beleaguered by losses of Bright Steel Sdn Bhd that was disposed of in September 2007.
· QoQ, the absence of festive season catalysts resulted in a weaker 4QFY08. Revenue declined by 19% QoQ in-line with seasonality bearing in mind that 3QFY08 sales were boosted by the Chinese New Year demand. Pretax profit (excluding the exceptional gain from PRG share placement in 3QFY08) lessened by 21% in-line with lower sales revenue.
· Final tax-exempt dividend per share of 5.0 sen declared resulting in a total FY08 GDPS of 10.0 sen. This translates to a dividend payout of 42% and dividend yield of 2.3%.
· FY09 and FY10 net profit forecast unchanged for now pending guidance from analyst briefing today. Expect downward revision of FY09 forecast following briefing on expectations of softer sales with economic slowdown.
· Maintain BUY recommendation but target price of RM8.50 based on sum-of-parts valuation utilising FY09 PERs of 30x, 10x and 20x for Parkson China, Malaysia and Vietnam is under review. The stock is currently trading at 15.2x and 12.4x FY09 and FY10 PERs. More details post briefing.
Tan Chong Motor - BUY - 28 Aug 2008
Tan Chong Motor - Another spectacular quarter (Results Note)
Price: RM1.53
Target Price: RM2.30
Recommendation: BUY
· Results above expectations. 1H08 net profit increased +254.5% to RM122.2m YoY, accounting for64.1% of our forecast and 64.1% market consensus respectively.
· 2Q08 net rose 222.8% YoY to RM68.1m, driven by strong unit sales (+89.5% YoY) especially the Nissan Livina in Dec 07 and Latio in Jun 07. Market share of Nissan vehicles increased to 5.5% from 3.7% YoY.
· QoQ, 2Q08 revenue up 3.2% but net improved 26.1% on the back of margin expansion to 11.0% (1Q08: 9.2%). Increased location of parts, higher average selling prices and rising economies of scale explains for the higher profitability. To note is that selling prices were increased by between 2-2.5% effective 1 Apr 08.
· Outlook remains positive with visibility backed by strong order back log of 16,000 units of Lavina and contribution from newly launched Sylphy which has been well received with bookings of 100 - 150 units / day . An extra shift added in June to double the capacity at Serendah plant to 2,400 units/month should help to alleviate wait list of 5-6 months depending on model.
· Forecast and BUY maintained but Target Price lowered to RM2.30 (previously RM2.74) based on lower industry PER of 8.0x. Trading at undemanding 5.3x and 4.6x PER for FY08 and FY09 respectively backed by strong NTA of RM1.99 per share makes it a steal at current levels.
Price: RM1.53
Target Price: RM2.30
Recommendation: BUY
· Results above expectations. 1H08 net profit increased +254.5% to RM122.2m YoY, accounting for64.1% of our forecast and 64.1% market consensus respectively.
· 2Q08 net rose 222.8% YoY to RM68.1m, driven by strong unit sales (+89.5% YoY) especially the Nissan Livina in Dec 07 and Latio in Jun 07. Market share of Nissan vehicles increased to 5.5% from 3.7% YoY.
· QoQ, 2Q08 revenue up 3.2% but net improved 26.1% on the back of margin expansion to 11.0% (1Q08: 9.2%). Increased location of parts, higher average selling prices and rising economies of scale explains for the higher profitability. To note is that selling prices were increased by between 2-2.5% effective 1 Apr 08.
· Outlook remains positive with visibility backed by strong order back log of 16,000 units of Lavina and contribution from newly launched Sylphy which has been well received with bookings of 100 - 150 units / day . An extra shift added in June to double the capacity at Serendah plant to 2,400 units/month should help to alleviate wait list of 5-6 months depending on model.
· Forecast and BUY maintained but Target Price lowered to RM2.30 (previously RM2.74) based on lower industry PER of 8.0x. Trading at undemanding 5.3x and 4.6x PER for FY08 and FY09 respectively backed by strong NTA of RM1.99 per share makes it a steal at current levels.
Proton Holdings - TRADING BUY - 28 Aug 2008
Proton Holdings - Earnings sustained in black (Results Note)
Price: RM2.98
Target Price: RM3.40
Recommendation: TRADING BUY
· Above market expectation. 1Q09 net profit of RM52.0m accounted for 40.4% of market consensus and 22.0% of our estimate.
· 1Q09 returned to the black vis-à-vis 1Q08 net loss of RM46.8m driven by strong domestic vehicle sales (+62% YoY). Market share has improved to 26.1% (1Q08: 20.5%) underpinned by strong sales of its newly launched Persona and Saga models. Continuous cost reduction initiatives had helped with overall operational improvement.
· QoQ, net profit decreased by 78.0% due to the receipt of RM194.0m R&D grant from the government in 4Q08. Net of the grant, recurring income was up 22.7% sequentially backed by higher domestic sales growth of 11.3%.
· Maintain FY09 and FY10 net earnings of RM236.2m and RM238.6m, respectively. The strong bookings of over 52,000 and 75,000 units of Persona and Saga received to-date, respectively, should underpin Proton's earnings in the near term. Recent increase in Saga's capacity to 7,000 from 6,500 units/month should help to alleviate the long wait-list of between 6-7 months. Newly launched Persona Special Edition (< RM60,000) is expected to increase monthly bookings by 500 units to its current 4,000 units/month.
· Prospect cloudy in the longer term. Limited new model pipeline handicapped by a lack of technological clout remain as our major concern on its long-term viability as a stand-alone entity. Without the necessary collaboration with the majors will only cloud its future. Short-term wise, fortune is supported by strong Persona and Saga sales while new models (MPV and Perdana replacement) and exports are unlikely to excite given small volume and heightened competition.
· Maintain Trading BUY with Target Price of RM3.40 based on P/NTA of 0.35x. Our valuation is also supported by PER valuation of RM3.44 using an industry's FY09 PER of 8.0x and FY09 EPS of 43 sen. Proton is currently generating stronger cash flow and sits comfortably at net cash per share of RM2.08 as at 30 Jun 08. Tougher operating environment with rising component costs are key risks.
Price: RM2.98
Target Price: RM3.40
Recommendation: TRADING BUY
· Above market expectation. 1Q09 net profit of RM52.0m accounted for 40.4% of market consensus and 22.0% of our estimate.
· 1Q09 returned to the black vis-à-vis 1Q08 net loss of RM46.8m driven by strong domestic vehicle sales (+62% YoY). Market share has improved to 26.1% (1Q08: 20.5%) underpinned by strong sales of its newly launched Persona and Saga models. Continuous cost reduction initiatives had helped with overall operational improvement.
· QoQ, net profit decreased by 78.0% due to the receipt of RM194.0m R&D grant from the government in 4Q08. Net of the grant, recurring income was up 22.7% sequentially backed by higher domestic sales growth of 11.3%.
· Maintain FY09 and FY10 net earnings of RM236.2m and RM238.6m, respectively. The strong bookings of over 52,000 and 75,000 units of Persona and Saga received to-date, respectively, should underpin Proton's earnings in the near term. Recent increase in Saga's capacity to 7,000 from 6,500 units/month should help to alleviate the long wait-list of between 6-7 months. Newly launched Persona Special Edition (< RM60,000) is expected to increase monthly bookings by 500 units to its current 4,000 units/month.
· Prospect cloudy in the longer term. Limited new model pipeline handicapped by a lack of technological clout remain as our major concern on its long-term viability as a stand-alone entity. Without the necessary collaboration with the majors will only cloud its future. Short-term wise, fortune is supported by strong Persona and Saga sales while new models (MPV and Perdana replacement) and exports are unlikely to excite given small volume and heightened competition.
· Maintain Trading BUY with Target Price of RM3.40 based on P/NTA of 0.35x. Our valuation is also supported by PER valuation of RM3.44 using an industry's FY09 PER of 8.0x and FY09 EPS of 43 sen. Proton is currently generating stronger cash flow and sits comfortably at net cash per share of RM2.08 as at 30 Jun 08. Tougher operating environment with rising component costs are key risks.
HLG: Proton Holdings - Above-consensus Q109; Raise to BUY (28 August 2008)
Proton Holdings Bhd BUY
Price target RM4.10
Share price at 27 Aug RM2.98
Investment summary
Q109 results were in-line with forecast, but >100% above consensus. Following its –19% YTD share price decline, we raise Proton from a HOLD to a BUY: (1) Domestic sales volumes/ ASPs have risen sharply thanks to the launch of new models, and this has trickled through to higher margins/ earnings. (2) Even if domestic sales slows due to the economic slowdown, we think Proton will remain cashflow-positive, in view of generous government industrial support. (3) Current RM2.98 share price is supported by RM4.23 in cash and inventory.
We are negative on Malaysia’s auto sector, as we believe that higher inflation could hit the consumption of big-ticket consumer durables.
Zero expectation price-tag
Share price has fallen –19% YTD, and Proton trades at liquidation levels. We think M&A-related newsflow could restart in H109, driven by the possibility of near-term political changeover, and this could cause a re-rating in the share price.
Price target RM4.10
Share price at 27 Aug RM2.98
Investment summary
Q109 results were in-line with forecast, but >100% above consensus. Following its –19% YTD share price decline, we raise Proton from a HOLD to a BUY: (1) Domestic sales volumes/ ASPs have risen sharply thanks to the launch of new models, and this has trickled through to higher margins/ earnings. (2) Even if domestic sales slows due to the economic slowdown, we think Proton will remain cashflow-positive, in view of generous government industrial support. (3) Current RM2.98 share price is supported by RM4.23 in cash and inventory.
We are negative on Malaysia’s auto sector, as we believe that higher inflation could hit the consumption of big-ticket consumer durables.
Zero expectation price-tag
Share price has fallen –19% YTD, and Proton trades at liquidation levels. We think M&A-related newsflow could restart in H109, driven by the possibility of near-term political changeover, and this could cause a re-rating in the share price.
HLG: Lion Industries - Results beat street; Maintain BUY (28 August 2008)
Lion Industries Corp Bhd BUY
Price target RM3.00
Share price at 27 Aug RM1.98
Investment summary
Full-year FY08 earnings were 80-90% ahead of forecast and consensus, re-affirming our BUY rating on the stock. We continue to like LionInd because of: (1) A sharp 34% discount to its SOTP, based on market prices of its LionDiv, Parkson and LionForest stakes. (2) Sub-market FY09 PE of 3x, even when factoring a sharp drop-off in steel prices from their Jun08 peaks. We are positive on Malaysia’s steel sector due to: (1) a rebound in domestic demand from the construction sector; (2) Chinese steel export curbs, which create a benign pricing environment for Malaysian producers.
An amazing <1x PE
Share price is down -36% YTD, trading at 3x FY09E PE. Current mkt value of Parkson/LionDiv/LionForest stakes is RM1.26/share, and investors get LionInd’s steel business at <1x FY09E PE.
Price target RM3.00
Share price at 27 Aug RM1.98
Investment summary
Full-year FY08 earnings were 80-90% ahead of forecast and consensus, re-affirming our BUY rating on the stock. We continue to like LionInd because of: (1) A sharp 34% discount to its SOTP, based on market prices of its LionDiv, Parkson and LionForest stakes. (2) Sub-market FY09 PE of 3x, even when factoring a sharp drop-off in steel prices from their Jun08 peaks. We are positive on Malaysia’s steel sector due to: (1) a rebound in domestic demand from the construction sector; (2) Chinese steel export curbs, which create a benign pricing environment for Malaysian producers.
An amazing <1x PE
Share price is down -36% YTD, trading at 3x FY09E PE. Current mkt value of Parkson/LionDiv/LionForest stakes is RM1.26/share, and investors get LionInd’s steel business at <1x FY09E PE.
RCE Capital - BUY - 28 Aug 2008
RCE Capital - 1QFY09 results within expectations (Results Note)
Price: RM0.47
Target Price: RM1.00
Recommendation: BUY
· RCE Capital's (RCE) 1QFY09 net profit of RM13.6m is in-line with our expectations comprising 21% and 20% of our forecast and consensus estimates respectively. Hefty revenue growth was dampened by higher operating expense from branch expansion and intensive marketing efforts.
· YoY, higher operating expenses in 1QFY09 dented sizeable increase in loan financing revenue. Revenue increased 68% driven by an 11% increase in net loan receivables as consumers sought alternative financing to cope with higher food costs and other inflationary pressures. EBIT only increased by 16% however due to a 28% increase in operating expenses, particularly in marketing and staff costs.
· QoQ, 1QFY09 core net profit declined by 16% in spite of a 31% increase in revenue mainly due to higher operating costs incurred to enlarge RCE's distribution network and incentivise co-operative agents that distribute its products.
· Maintain FY08 and FY09 earnings estimates. We anticipate stronger earnings growth moving forward as consumers seek alternative financing to cope with inflationary pressures and with seasonally higher demand in 2QFY09 just before the Hari Raya festive season.
· Re-iterate BUY recommendation with target price of RM1.00 derived from the application of 10x PER (1x below regional average) applied to FY09 FD EPS of 9.1 sen. The stock is trading at highly undemanding 5.1x and 4.4x FY09 and FY10 PERs respectively. Biggest downside risk is severe economic slowdown. Potential upside from rising demand due to consumers' shrinking disposable income with elevated food and fuel costs. RCE's NPL ratio remains below 3% and is unlikely to rise given RCE's civil servant customer base (low turnover) and collection of loan repayments via direct salary deduction.
Price: RM0.47
Target Price: RM1.00
Recommendation: BUY
· RCE Capital's (RCE) 1QFY09 net profit of RM13.6m is in-line with our expectations comprising 21% and 20% of our forecast and consensus estimates respectively. Hefty revenue growth was dampened by higher operating expense from branch expansion and intensive marketing efforts.
· YoY, higher operating expenses in 1QFY09 dented sizeable increase in loan financing revenue. Revenue increased 68% driven by an 11% increase in net loan receivables as consumers sought alternative financing to cope with higher food costs and other inflationary pressures. EBIT only increased by 16% however due to a 28% increase in operating expenses, particularly in marketing and staff costs.
· QoQ, 1QFY09 core net profit declined by 16% in spite of a 31% increase in revenue mainly due to higher operating costs incurred to enlarge RCE's distribution network and incentivise co-operative agents that distribute its products.
· Maintain FY08 and FY09 earnings estimates. We anticipate stronger earnings growth moving forward as consumers seek alternative financing to cope with inflationary pressures and with seasonally higher demand in 2QFY09 just before the Hari Raya festive season.
· Re-iterate BUY recommendation with target price of RM1.00 derived from the application of 10x PER (1x below regional average) applied to FY09 FD EPS of 9.1 sen. The stock is trading at highly undemanding 5.1x and 4.4x FY09 and FY10 PERs respectively. Biggest downside risk is severe economic slowdown. Potential upside from rising demand due to consumers' shrinking disposable income with elevated food and fuel costs. RCE's NPL ratio remains below 3% and is unlikely to rise given RCE's civil servant customer base (low turnover) and collection of loan repayments via direct salary deduction.
Eastern & Oriental - BUY - 28 Aug 2008
Eastern & Oriental - 1Q09 results meet house estimates (Results Note)
Price: RM1.00
Target Price: RM3.54
Recommendation: BUY
· 1Q09 net profit of RM11m came within our expectations but fell short of street's forecast. Eastern & Oriental's (EOB) 1Q08 net profit accounted for 23% and 17% of our and consensus' FY09E net profit forecast of RM47m and RM66m, respectively. The company's results were mainly buoyed by its Seri Tanjung Pinang P1 (STP1) project.
· YoY, 1Q09 net profit fell 29%. Dua Residency, Idamansara and Seventy Damansara were completed in the last two financial years. Hence, 1Q09 registered lower billings from the Klang Valley projects given their high take-up rates of 93% to 100%. Additionally, EOB's hospitality and investment holdings divisions incurred operating losses of RM3m in 1Q09 which exacerbated the decline in earnings.
· QoQ, 1Q09 pretax profit rose 10% on the back of higher billings from richer margin STP1 products; semi-detached homes (Acacia), bungalows (Villas by the Sea) and service apartments (Suites at Waterside). Lower 4Q08 pretax profit was burdened by heavier initial construction works which were not billable to house buyers for the above-mentioned projects. Given a slower start in terms of billing in 2H08, FY09 revenue is expected to be buoyed by STP1 projects.
· Up-coming launches. This Friday, EOB will be launching another 24 units of "Suites at Waterside" with price tags ranging from RM0.7m to RM1.6m each or RM673psf - RM704psf. Initially, EOB intended to keep these units as investment properties. However, EOB decided to release them for sale given the keen demand. This project will also set a pricing platform for its STP1 Seaside Condominium project, which is targeted for launch by end CY08.
· We are maintaining our FY09E net profit forecast of RM71m (post-merger forecast) given the c.RM18m gain on disposal of the Yap Kwan Seng land and strong unbilled sales of RM181m as at 31/8/08. FY09E and FY10E PER are trading at fair 8.4x and 7.6x, respectively. Reiterating BUY call with unchanged target price of RM3.54.
Price: RM1.00
Target Price: RM3.54
Recommendation: BUY
· 1Q09 net profit of RM11m came within our expectations but fell short of street's forecast. Eastern & Oriental's (EOB) 1Q08 net profit accounted for 23% and 17% of our and consensus' FY09E net profit forecast of RM47m and RM66m, respectively. The company's results were mainly buoyed by its Seri Tanjung Pinang P1 (STP1) project.
· YoY, 1Q09 net profit fell 29%. Dua Residency, Idamansara and Seventy Damansara were completed in the last two financial years. Hence, 1Q09 registered lower billings from the Klang Valley projects given their high take-up rates of 93% to 100%. Additionally, EOB's hospitality and investment holdings divisions incurred operating losses of RM3m in 1Q09 which exacerbated the decline in earnings.
· QoQ, 1Q09 pretax profit rose 10% on the back of higher billings from richer margin STP1 products; semi-detached homes (Acacia), bungalows (Villas by the Sea) and service apartments (Suites at Waterside). Lower 4Q08 pretax profit was burdened by heavier initial construction works which were not billable to house buyers for the above-mentioned projects. Given a slower start in terms of billing in 2H08, FY09 revenue is expected to be buoyed by STP1 projects.
· Up-coming launches. This Friday, EOB will be launching another 24 units of "Suites at Waterside" with price tags ranging from RM0.7m to RM1.6m each or RM673psf - RM704psf. Initially, EOB intended to keep these units as investment properties. However, EOB decided to release them for sale given the keen demand. This project will also set a pricing platform for its STP1 Seaside Condominium project, which is targeted for launch by end CY08.
· We are maintaining our FY09E net profit forecast of RM71m (post-merger forecast) given the c.RM18m gain on disposal of the Yap Kwan Seng land and strong unbilled sales of RM181m as at 31/8/08. FY09E and FY10E PER are trading at fair 8.4x and 7.6x, respectively. Reiterating BUY call with unchanged target price of RM3.54.
Resorts World - BUY - 28 Aug 2008
Resorts World - Solid 1H08 (Results Note)
Price: RM2.53
Target Price: RM4.38
Recommendation: BUY
· 1H08 revenue of RM2.3b was in line while core net profit of RM662.5m was 47.5% and 50.9% of our forecast and consensus respectively. We were pleasantly surprised by the strong 1H08 which was typically weaker on seasonality. The robust 1H08 was mainly driven by better luck factor and higher patronage.
· QoQ, revenue rose 13.6% while EBITDA growth was even higher at 31.0% with 2Q08 EBITDA margin expanding to 42.5% from 40.2% in 1Q08 on the back of higher luck factor in the VIP segment and higher visitorship.
· YoY, 1H08 revenue and EBITDA jumped 11.3% and 18.6% respectively, underpinned by lower payout for VIP and higher business volume. Pre-tax surged 25.2% to RM906.7m owning to better EBITDA margin (1H08:41.4% vs 1H07:38.9%), increased net interest income (+89.1%) and a RM19.1m gain on disposal of long term investments.
· Group announced an interim gross dividend of 3.0sen vs the previous 2.88sen. Payout is a tad lower as group conserves cash for future acquisition or expansion in the regional gaming market. Current cash hoard of RM4.2b which is still growing coupled with depressed share price should increase Resorts' appeal as a privatisation target by parent Genting group as highlighted in our previous reports.
· Resorts' share price had been unduly punished amidst concern of a potential gaming tax hike. While a 1% tax hike would have a c.2% impact to Resort's bottom line, it only increases government's coffers by merely RM40m which is very marginal. We therefore opine that the hike of gaming tax if any will be minimal taking into consideration that Resorts is a top tourist draw and their competitiveness should not be compromised especially with heightening competition across the region.
· BUY though target price lowered after trimming our FY08F and FY09F by 3.0% and 4.2% respectively taking into account higher costs all-round between 1%-4% including staff and energy costs. Resorts remains our top buy as current valuation is most attractive at FY08 PER of 10.9x versus regional average of 21x. Valuation is even more compelling at 7.8x after netting off cash per share of RM0.72. Reiterate BUY with target price revised to RM4.38 based on sum-of parts. Share price should re-rate strongly once the overhanging tax hike concern is removed. More details post tele-conference today.
Price: RM2.53
Target Price: RM4.38
Recommendation: BUY
· 1H08 revenue of RM2.3b was in line while core net profit of RM662.5m was 47.5% and 50.9% of our forecast and consensus respectively. We were pleasantly surprised by the strong 1H08 which was typically weaker on seasonality. The robust 1H08 was mainly driven by better luck factor and higher patronage.
· QoQ, revenue rose 13.6% while EBITDA growth was even higher at 31.0% with 2Q08 EBITDA margin expanding to 42.5% from 40.2% in 1Q08 on the back of higher luck factor in the VIP segment and higher visitorship.
· YoY, 1H08 revenue and EBITDA jumped 11.3% and 18.6% respectively, underpinned by lower payout for VIP and higher business volume. Pre-tax surged 25.2% to RM906.7m owning to better EBITDA margin (1H08:41.4% vs 1H07:38.9%), increased net interest income (+89.1%) and a RM19.1m gain on disposal of long term investments.
· Group announced an interim gross dividend of 3.0sen vs the previous 2.88sen. Payout is a tad lower as group conserves cash for future acquisition or expansion in the regional gaming market. Current cash hoard of RM4.2b which is still growing coupled with depressed share price should increase Resorts' appeal as a privatisation target by parent Genting group as highlighted in our previous reports.
· Resorts' share price had been unduly punished amidst concern of a potential gaming tax hike. While a 1% tax hike would have a c.2% impact to Resort's bottom line, it only increases government's coffers by merely RM40m which is very marginal. We therefore opine that the hike of gaming tax if any will be minimal taking into consideration that Resorts is a top tourist draw and their competitiveness should not be compromised especially with heightening competition across the region.
· BUY though target price lowered after trimming our FY08F and FY09F by 3.0% and 4.2% respectively taking into account higher costs all-round between 1%-4% including staff and energy costs. Resorts remains our top buy as current valuation is most attractive at FY08 PER of 10.9x versus regional average of 21x. Valuation is even more compelling at 7.8x after netting off cash per share of RM0.72. Reiterate BUY with target price revised to RM4.38 based on sum-of parts. Share price should re-rate strongly once the overhanging tax hike concern is removed. More details post tele-conference today.
QL Resources - BUY - 27 Aug 2008
QL Resources - 1QFY09 results in-line with expectations (Results Note)
Price: RM2.74
Target Price: RM3.60
Recommendation: BUY
· QL Resources' (QL) 1QFY09 net profit of RM21.5m is within our expectations, comprising 22% and 23% of our forecast and street estimates respectively. 1QFY09 earnings were buoyed by robust commodities prices and greater contribution from its 3,000 acre maturing oil palm plantation in Tawau, Sabah.
· YoY, all 3 divisions registered improved profitability in 1QFY09 mainly due to elevated commodities prices. The ILF division is still the largest contributor to revenue accounting for just over half 1QFY09 revenue. The lofty price of feed commodities (soybean meal and maize prices were 45% and 70% higher YoY in 1QFY09), higher surimi prices (the average price of surimi in 2008 was 38% higher YoY at RM11,000/mt) and larger contribution from deep-sea fishing; as well as the lofty price of CPO (up by 50% YoY in 1QFY09) and higher contribution of the maturing plantation resulted in a 16% increase in 1QFY09 revenue. The MPM and ILF divisions were the largest pretax profit contributors with improved margins although all divisions registered significant growth YoY.
· QoQ, 1QFY09 revenue increased by 11% propelled by high surimi prices and improved fish landing (4QFY08 was negatively impacted by the monsoon season) in the MPM segment; high CPO price (up by 26% QoQ) in the POA division and high raw material prices (soybean meal and maize were up by 3% and 22% respectively). 1QFY09 pretax profit improved by 10% in-line with higher revenue but net profit rose by only 2% due to higher taxation (from timing differences) and minority interest (improved profitability of subsidiaries).
· Maintain FY09 and FY10 net profit forecast. 1Q is seasonally the weakest quarter for QL.
· Re-iterate BUY with target price of RM3.60 derived from 12x PER applied to FY09 FD EPS of 29.8 sen (adjusted for bonus issue in June 2008). QL is currently trading at 9.2x and 7.6x FY09 and FY10 PERs respectively. We favour QL for its solid track record of earnings growth and planned expansion domestically and regionally. Prospective FY09 and FY10 dividend yields of 4.0% and 4.4% further recommend the stock.
Price: RM2.74
Target Price: RM3.60
Recommendation: BUY
· QL Resources' (QL) 1QFY09 net profit of RM21.5m is within our expectations, comprising 22% and 23% of our forecast and street estimates respectively. 1QFY09 earnings were buoyed by robust commodities prices and greater contribution from its 3,000 acre maturing oil palm plantation in Tawau, Sabah.
· YoY, all 3 divisions registered improved profitability in 1QFY09 mainly due to elevated commodities prices. The ILF division is still the largest contributor to revenue accounting for just over half 1QFY09 revenue. The lofty price of feed commodities (soybean meal and maize prices were 45% and 70% higher YoY in 1QFY09), higher surimi prices (the average price of surimi in 2008 was 38% higher YoY at RM11,000/mt) and larger contribution from deep-sea fishing; as well as the lofty price of CPO (up by 50% YoY in 1QFY09) and higher contribution of the maturing plantation resulted in a 16% increase in 1QFY09 revenue. The MPM and ILF divisions were the largest pretax profit contributors with improved margins although all divisions registered significant growth YoY.
· QoQ, 1QFY09 revenue increased by 11% propelled by high surimi prices and improved fish landing (4QFY08 was negatively impacted by the monsoon season) in the MPM segment; high CPO price (up by 26% QoQ) in the POA division and high raw material prices (soybean meal and maize were up by 3% and 22% respectively). 1QFY09 pretax profit improved by 10% in-line with higher revenue but net profit rose by only 2% due to higher taxation (from timing differences) and minority interest (improved profitability of subsidiaries).
· Maintain FY09 and FY10 net profit forecast. 1Q is seasonally the weakest quarter for QL.
· Re-iterate BUY with target price of RM3.60 derived from 12x PER applied to FY09 FD EPS of 29.8 sen (adjusted for bonus issue in June 2008). QL is currently trading at 9.2x and 7.6x FY09 and FY10 PERs respectively. We favour QL for its solid track record of earnings growth and planned expansion domestically and regionally. Prospective FY09 and FY10 dividend yields of 4.0% and 4.4% further recommend the stock.
HLG: Lafarge Malayan Cement - Expect better H208 on ASP hikes (27 August 2008)
Lafarge Malayan Cement BUY
Price target RM6.30
Share price at 26 Aug RM4.18
Investment summary
H108 net profit rose +10% yoy due to 15% volume growth, and re-affirms our BUY rating on LMC. We like LMC because: (1) The market thinks the Q107 capital repayment is one-off, but we think it could be repeated in FY08, given strong FCF and record earnings. (2) Positive domestic pricing following the liberalization of cement sector.
We are positive on the cement industry: (1) the sector is a safe proxy to the government’s 9th Malaysia Plan (9MP), unlike the highly competitive construction sector; (2) cement pricing fundamentals, given the liberalization of the cement sector, and the industry’s closed/oligopolistic market structure.
Taking the long view
LMC is still a great long-term play (dominant cement franchise, liquid stock, capital management possibilities), for investors who can overlook short-term issues (the time-lag between ASP hikes and escalating coal cost).
Price target RM6.30
Share price at 26 Aug RM4.18
Investment summary
H108 net profit rose +10% yoy due to 15% volume growth, and re-affirms our BUY rating on LMC. We like LMC because: (1) The market thinks the Q107 capital repayment is one-off, but we think it could be repeated in FY08, given strong FCF and record earnings. (2) Positive domestic pricing following the liberalization of cement sector.
We are positive on the cement industry: (1) the sector is a safe proxy to the government’s 9th Malaysia Plan (9MP), unlike the highly competitive construction sector; (2) cement pricing fundamentals, given the liberalization of the cement sector, and the industry’s closed/oligopolistic market structure.
Taking the long view
LMC is still a great long-term play (dominant cement franchise, liquid stock, capital management possibilities), for investors who can overlook short-term issues (the time-lag between ASP hikes and escalating coal cost).
LCL Corporation - BUY - 27 Aug 2008
LCL Corporation - 1H08 net profit below expectations (Results Note)
Price: RM2.01
Target Price: RM3.90
Recommendation: BUY
· 1H08 net profit of RM17.0m was below expectations being 30% of our forecast and consensus of RM56.0m and RM54.5m respectively. The poorer results are due to delays by main contractors in local projects in handing over job sites to LCL. This in turn resulted in higher overheads, warehousing cost and financing cost. The strong contribution from projects in Dubai which makes up 80% of revenue with higher profit margin compensated for the domestic losses.
· All is not lost. However, LCL is pursuing to claim some compensation from the main contractors and project owners for the delay in site possession. The delays by main contractors could sometimes be deliberate in order to force project owners to renegotiate for higher building materials cost.
· YoY, 1H08 net profit was 64.2% higher on the back of higher progressive recognition of its key projects, namely Atlantis Hotel and Dubai Mall Hotel secured in 2Q06 and 3Q06. Better operating margins is a result of higher combination of Dubai projects and also completion of Atlantis where provision for contingencies was reversed.
· QoQ 2Q08 net profit was 30% lower arising from losses in Malaysia operations resulting in a 2% lower operating margin, and high finance cost.
· We are lowering FY08E and FY09E net profit forecast by 19% and 8% to RM45.3m and RM56.1m from RM56.0m and RM60.5m respectively assuming slower contracts billings and losses in Malaysian contracts.
· Orderbook of RM980m with RM650m remaining unbilled. LCL's track record for executing large projects on time is proven with Atlantis Hotel handed over and Dubai Mall Hotel in the process of handing over. LCL is currently well positioned and is bidding for more than RM1b worth of contracts.
· Maintain BUY with a lowered target price RM3.90 using the regional IFO companies' FY09 PER of 10x and FY09E EPS of 39.2sen. LCL trades attractively at 6.3x and 5.1x FY08E and FY09E PER respectively.
Price: RM2.01
Target Price: RM3.90
Recommendation: BUY
· 1H08 net profit of RM17.0m was below expectations being 30% of our forecast and consensus of RM56.0m and RM54.5m respectively. The poorer results are due to delays by main contractors in local projects in handing over job sites to LCL. This in turn resulted in higher overheads, warehousing cost and financing cost. The strong contribution from projects in Dubai which makes up 80% of revenue with higher profit margin compensated for the domestic losses.
· All is not lost. However, LCL is pursuing to claim some compensation from the main contractors and project owners for the delay in site possession. The delays by main contractors could sometimes be deliberate in order to force project owners to renegotiate for higher building materials cost.
· YoY, 1H08 net profit was 64.2% higher on the back of higher progressive recognition of its key projects, namely Atlantis Hotel and Dubai Mall Hotel secured in 2Q06 and 3Q06. Better operating margins is a result of higher combination of Dubai projects and also completion of Atlantis where provision for contingencies was reversed.
· QoQ 2Q08 net profit was 30% lower arising from losses in Malaysia operations resulting in a 2% lower operating margin, and high finance cost.
· We are lowering FY08E and FY09E net profit forecast by 19% and 8% to RM45.3m and RM56.1m from RM56.0m and RM60.5m respectively assuming slower contracts billings and losses in Malaysian contracts.
· Orderbook of RM980m with RM650m remaining unbilled. LCL's track record for executing large projects on time is proven with Atlantis Hotel handed over and Dubai Mall Hotel in the process of handing over. LCL is currently well positioned and is bidding for more than RM1b worth of contracts.
· Maintain BUY with a lowered target price RM3.90 using the regional IFO companies' FY09 PER of 10x and FY09E EPS of 39.2sen. LCL trades attractively at 6.3x and 5.1x FY08E and FY09E PER respectively.
HLG: KNM Group - Record profit in Q208; BUY (27 August 2008)
KNM Group BUY
Price target RM2.40
Share price at 26 Aug RM1.61
Investment summary
H108 net profit (+100% yoy) was 33-35% of HLG/consensus full-year forecast. KNM is on-track to meet our full-year forecast as our forecast includes RM150m contribution from Borsig in H208. The strong results reaffirm our BUY rating on the stock. We are bullish on KNM: (1) we see strong incremental EPS growth in H208, mainly due to consolidation of Borsig results. Q308 earnings could be up by 60-70% qoq; (2) valuation at 9x FY09 PE is 25-30% discount to global peers.
We are positive on the O&G fabrication business: (1) oil majors are increasing their capex
spending on onshore and offshore facilities to boost output given the high crude oil prices (2) lack of yard space and credible process equipment fabricators has created a super-normal pricing power for equipment makers like KNM.
Record high profits
Q208 results grew 100% yoy, mainly due to higher orders, capacity expansion and partial consolidation of Borsig. Share price remains attractive at 9x FY09E PE, 25-30% discount to global peers. We are buyers of KNM at current level.
Price target RM2.40
Share price at 26 Aug RM1.61
Investment summary
H108 net profit (+100% yoy) was 33-35% of HLG/consensus full-year forecast. KNM is on-track to meet our full-year forecast as our forecast includes RM150m contribution from Borsig in H208. The strong results reaffirm our BUY rating on the stock. We are bullish on KNM: (1) we see strong incremental EPS growth in H208, mainly due to consolidation of Borsig results. Q308 earnings could be up by 60-70% qoq; (2) valuation at 9x FY09 PE is 25-30% discount to global peers.
We are positive on the O&G fabrication business: (1) oil majors are increasing their capex
spending on onshore and offshore facilities to boost output given the high crude oil prices (2) lack of yard space and credible process equipment fabricators has created a super-normal pricing power for equipment makers like KNM.
Record high profits
Q208 results grew 100% yoy, mainly due to higher orders, capacity expansion and partial consolidation of Borsig. Share price remains attractive at 9x FY09E PE, 25-30% discount to global peers. We are buyers of KNM at current level.
HLG: Sime Darby - Results in-line, but headwinds in FY09 (27 August 2008)
Sime Darby Berhad BUY
Price target RM7.50
Share price at 26 August RM6.45
Investment summary
Full-year FY08 earnings were within HLG/market expectation. Our BUY rating is premised largely on Sime’s valuation gap to comparable big-cap peers: 11x FY09E PE compares to 14-17x for sector leaders IOI/Wilmar; 6% net DY is sector-leading, and compares to 1% for IOI. However, we admit that the outlook for EPS growth is poor, given the cyclicality of non-plantation earnings and the lack of catalysts following the collapse of the Bakun deal.
From a broader investment standpoint, our current plantation strategy is to play short-term technical movements via IOI, which we see as a closer proxy to CPO prices than Sime. We are long-term bearish on CPO prices, given its close correlation to crude oil prices and the lack of immediate clarity as to how low crude oil prices can go in a global economic slowdown.
Grossly oversold
EPS outlook has deteriorated, given the collapse of the Bakun transmission deal, cyclical non-plantations earnings and sharp decline in CPO prices. However, we think that Sime has still been oversold relative to IOI/KLK, and this is largely due to how well-owned it was prior to its Nov07 restructuring.
Price target RM7.50
Share price at 26 August RM6.45
Investment summary
Full-year FY08 earnings were within HLG/market expectation. Our BUY rating is premised largely on Sime’s valuation gap to comparable big-cap peers: 11x FY09E PE compares to 14-17x for sector leaders IOI/Wilmar; 6% net DY is sector-leading, and compares to 1% for IOI. However, we admit that the outlook for EPS growth is poor, given the cyclicality of non-plantation earnings and the lack of catalysts following the collapse of the Bakun deal.
From a broader investment standpoint, our current plantation strategy is to play short-term technical movements via IOI, which we see as a closer proxy to CPO prices than Sime. We are long-term bearish on CPO prices, given its close correlation to crude oil prices and the lack of immediate clarity as to how low crude oil prices can go in a global economic slowdown.
Grossly oversold
EPS outlook has deteriorated, given the collapse of the Bakun transmission deal, cyclical non-plantations earnings and sharp decline in CPO prices. However, we think that Sime has still been oversold relative to IOI/KLK, and this is largely due to how well-owned it was prior to its Nov07 restructuring.
Hunza Properties - BUY - 26 Aug 2008
Hunza Properties - Softer earnings ahead (Company Update)
Price: RM1.40
Target Price: RM3.59
Recommendation: BUY
We attended Hunza Properties' (Hunza) post FY08 results briefing yesterday and took away the following key points;
· Reigning in construction cost with own capabilities. Hunza intends to revive its 100%-owned construction arm, Masuka Bina Sdn Bhd, to improve time and cost management in constructing its projects. The construction arm will be undertaking the entire Gurney Paragon project and is expected to yield 6%-10% savings.
· Gurney Paragon (GP) mall cost increases by 25% to RM500m from the initially guided RM400m, a year ago, due to rising raw material costs. However, Hunza believes that its initial gross development cost can be achieved if material prices continue to trend downwards and through further savings from utilizing its own construction arm. However, we are forecasting a more conservative mall's cost of RM450m over a period of 18 months, commencing in 2HFY09.
· Rights issue looking less likely. Hunza may forgo its proposal, although it has extended the right issuance date to Oct 08, given its depressed share price of RM1.40. Therefore, it will obtain further funding, particularly for the construction of GP mall, via borrowings. Based on its internal gearing limit of 50%, Hunza can afford to borrow another RM150m-RM160m.
· Stretched-out sales for GP and Infiniti reduces our FY09E and FY10E recurring net profit by 16% and 19% to RM52m (+10% YoY) and RM62m (+20% YoY), respectively. However, we are3 raising our FY11E recurring net profit by 73% to RM71m (+13% YoY) taking into account of spill over sales from GP and Infiniti, as well as, new launches namely, the RM250m Alila II and RM300m Segambut project in 2HFY10 to FY11.
· We maintain our BUY call with a target price of RM3.59, based on our sum of parts RNAV on a fully diluted basis. FY08E and FY09E PERs are compelling at 4x and 3x, respectively, while dividend is extremely attractive for a property stock with FY09E net dividend yield of 6.6% (gross yield of 8.8%).
Price: RM1.40
Target Price: RM3.59
Recommendation: BUY
We attended Hunza Properties' (Hunza) post FY08 results briefing yesterday and took away the following key points;
· Reigning in construction cost with own capabilities. Hunza intends to revive its 100%-owned construction arm, Masuka Bina Sdn Bhd, to improve time and cost management in constructing its projects. The construction arm will be undertaking the entire Gurney Paragon project and is expected to yield 6%-10% savings.
· Gurney Paragon (GP) mall cost increases by 25% to RM500m from the initially guided RM400m, a year ago, due to rising raw material costs. However, Hunza believes that its initial gross development cost can be achieved if material prices continue to trend downwards and through further savings from utilizing its own construction arm. However, we are forecasting a more conservative mall's cost of RM450m over a period of 18 months, commencing in 2HFY09.
· Rights issue looking less likely. Hunza may forgo its proposal, although it has extended the right issuance date to Oct 08, given its depressed share price of RM1.40. Therefore, it will obtain further funding, particularly for the construction of GP mall, via borrowings. Based on its internal gearing limit of 50%, Hunza can afford to borrow another RM150m-RM160m.
· Stretched-out sales for GP and Infiniti reduces our FY09E and FY10E recurring net profit by 16% and 19% to RM52m (+10% YoY) and RM62m (+20% YoY), respectively. However, we are3 raising our FY11E recurring net profit by 73% to RM71m (+13% YoY) taking into account of spill over sales from GP and Infiniti, as well as, new launches namely, the RM250m Alila II and RM300m Segambut project in 2HFY10 to FY11.
· We maintain our BUY call with a target price of RM3.59, based on our sum of parts RNAV on a fully diluted basis. FY08E and FY09E PERs are compelling at 4x and 3x, respectively, while dividend is extremely attractive for a property stock with FY09E net dividend yield of 6.6% (gross yield of 8.8%).
HLG: Coastal Contracts - H108 results in-line with forecast (26 August 2008)
Coastal Contracts Berhad BUY
Price target RM3.80
Share price at 25 Aug RM2.20
Investment summary
H108 results were in-line with HLG/consensus estimate, re-affirming our BUY rating on the stock. We maintain our PT at RM3.80/share and remain bullish on the stock: (1) current order book at RM1,3bn will drive 32% earnings growth pa over FY07-10E, in our view (2) PE valuation at 8x and 6x for FY08-09E respectively is 25-30% discount to regional shipbuilders (3) news flow on vessel sales in H208 could surprise market on the upside and provide re-rating catalyst.
We are positive on the offshore support vessel industry because: (1) tight demand-supply for offshore support vessels (OSV) has created superior pricing power for shipbuilders (2) lagging vessel new-builds vs. replacement market offers opportunity for Coastal to replenish order book.
Orders could surprise
H108 earnings grew +23% yoy due to more vessels delivered. Record-high order book will drive 32% earnings growth pa over FY07-10E. We see little downside risk at current level and share price is attractive at 6x FY09E EPS. New vessel sales could surprise on the upside in H208.
Price target RM3.80
Share price at 25 Aug RM2.20
Investment summary
H108 results were in-line with HLG/consensus estimate, re-affirming our BUY rating on the stock. We maintain our PT at RM3.80/share and remain bullish on the stock: (1) current order book at RM1,3bn will drive 32% earnings growth pa over FY07-10E, in our view (2) PE valuation at 8x and 6x for FY08-09E respectively is 25-30% discount to regional shipbuilders (3) news flow on vessel sales in H208 could surprise market on the upside and provide re-rating catalyst.
We are positive on the offshore support vessel industry because: (1) tight demand-supply for offshore support vessels (OSV) has created superior pricing power for shipbuilders (2) lagging vessel new-builds vs. replacement market offers opportunity for Coastal to replenish order book.
Orders could surprise
H108 earnings grew +23% yoy due to more vessels delivered. Record-high order book will drive 32% earnings growth pa over FY07-10E. We see little downside risk at current level and share price is attractive at 6x FY09E EPS. New vessel sales could surprise on the upside in H208.
Sino Hua-An International - BUY - 25 Aug 2008
Sino Hua-An International - 1H08 below expectations (Results Note)
Price: RM0.545
Target Price: RM0.88
Recommendation: BUY
· 1H08 net profit of RM72.5m came in below expectations, accounted 41.4% and 43.0% of market consensus and our forecast, respectively, due to margin squeeze underpinned mainly by better pricing of coal compared to coke (variance between the pricing of the two commodities: 39.7% in 1H07 vis-à-vis 42.1% in 1H08).
· YoY, 2Q08 net profit increased by 13.6% to RM36.9m. The favourable uptrend pricing of coke boosted 2Q08 revenue by 106.9% to RM434.4m. However, this was mitigated by lower operating margin to 10.0% from 18.4% due to: (1) higher increase of coal price (+115.4%) compared to the increase of coke price (+104.5%); and (2) higher transportation cost in view of escalating fuel costs.
· 2Q08 net profit increased marginally by 3.8% QoQ due to margin squeeze as mentioned above. Coal price posted higher increase QoQ (+38.9%) vis-à-vis coke price (+28.1%). As a result, operating margin dropped to 10.0% from 14.4%.
· Expect short-term margin compression. The coke and coal price variance is driven mainly by: (1) the temporary shutdown of steel mills during the Olympics 2008 and (2) increase in production of thermal coal resulting in lower supply of coking coal in China. We expect the operating margin could still be suppressed in 3Q08, however, should improve when the steel mills resume business by end-Sept 2008.
· Earnings downgraded. The additional 600,000 tonnes of coke production successfully commenced in June 2008 will enhance Huaan's sales in 2H08. However, the margin compression has inevitably prompted us to lower our FY08 and FY09 net profit estimates to RM153.1m (-9.3%) and RM206.3m (-1.3%), respectively. Huaan still possesses the ability to pass on additional cost to customers as long as the spike in coal price (weekly basis) is within 3-5%. Nonetheless, substantial spike in coal price remains as the major key risk.
· Maintain BUY with lower Target Price of RM0.88 based on 6.5x PER, which is 10% discount to the regional markets' PER of 7.5x but in line with the Malaysian listed steel companies' average 2008 PER of 7.0x
Price: RM0.545
Target Price: RM0.88
Recommendation: BUY
· 1H08 net profit of RM72.5m came in below expectations, accounted 41.4% and 43.0% of market consensus and our forecast, respectively, due to margin squeeze underpinned mainly by better pricing of coal compared to coke (variance between the pricing of the two commodities: 39.7% in 1H07 vis-à-vis 42.1% in 1H08).
· YoY, 2Q08 net profit increased by 13.6% to RM36.9m. The favourable uptrend pricing of coke boosted 2Q08 revenue by 106.9% to RM434.4m. However, this was mitigated by lower operating margin to 10.0% from 18.4% due to: (1) higher increase of coal price (+115.4%) compared to the increase of coke price (+104.5%); and (2) higher transportation cost in view of escalating fuel costs.
· 2Q08 net profit increased marginally by 3.8% QoQ due to margin squeeze as mentioned above. Coal price posted higher increase QoQ (+38.9%) vis-à-vis coke price (+28.1%). As a result, operating margin dropped to 10.0% from 14.4%.
· Expect short-term margin compression. The coke and coal price variance is driven mainly by: (1) the temporary shutdown of steel mills during the Olympics 2008 and (2) increase in production of thermal coal resulting in lower supply of coking coal in China. We expect the operating margin could still be suppressed in 3Q08, however, should improve when the steel mills resume business by end-Sept 2008.
· Earnings downgraded. The additional 600,000 tonnes of coke production successfully commenced in June 2008 will enhance Huaan's sales in 2H08. However, the margin compression has inevitably prompted us to lower our FY08 and FY09 net profit estimates to RM153.1m (-9.3%) and RM206.3m (-1.3%), respectively. Huaan still possesses the ability to pass on additional cost to customers as long as the spike in coal price (weekly basis) is within 3-5%. Nonetheless, substantial spike in coal price remains as the major key risk.
· Maintain BUY with lower Target Price of RM0.88 based on 6.5x PER, which is 10% discount to the regional markets' PER of 7.5x but in line with the Malaysian listed steel companies' average 2008 PER of 7.0x
HLG: Tanjung Offshore - Disappointing H108, Downgrade to HOLD (25 August 2008)
Tanjung Offshore Berhad HOLD
Price target RM2.00
Share price at 22 Aug RM1.86
Investment summary
Annualised H108 net profit was 23-35% below HLG/consensus forecast. We are keeping our forecast unchanged as we expect earnings in H208 to be higher with the delivery of four new vessels from now till end of FY08 and higher billings from engineering equipment division. However, we think near term share price weakness could prolong with the proposed rights and new warrants to fund its vessel expansion plan. In view of the near term dilution in EPS from the fund-raising exercise, we cut our PT to RM2.00/share and downgrade our rating on TOFF from BUY to HOLD. We are positive on the oil and gas support vessels segment: (1) recent award of multi-year charter contracts by Petronas re-affirm our view that charter rates will hold for the next 3-4 years; (2) vessel supply-demand remains tight given that shipbuilding yards are filled with orders up to 2011/12.
Downgrade to HOLD
H108 earnings are 23-35% below HLG and consensus. We expect full-year earnings to meet our forecast on new vessel delivery and higher equipment billings. TOFF is highly geared and has proposed a rights issue to fund its expansion. We think the rights will dilute near term EPS and downgrade the stock to a HOLD.
Price target RM2.00
Share price at 22 Aug RM1.86
Investment summary
Annualised H108 net profit was 23-35% below HLG/consensus forecast. We are keeping our forecast unchanged as we expect earnings in H208 to be higher with the delivery of four new vessels from now till end of FY08 and higher billings from engineering equipment division. However, we think near term share price weakness could prolong with the proposed rights and new warrants to fund its vessel expansion plan. In view of the near term dilution in EPS from the fund-raising exercise, we cut our PT to RM2.00/share and downgrade our rating on TOFF from BUY to HOLD. We are positive on the oil and gas support vessels segment: (1) recent award of multi-year charter contracts by Petronas re-affirm our view that charter rates will hold for the next 3-4 years; (2) vessel supply-demand remains tight given that shipbuilding yards are filled with orders up to 2011/12.
Downgrade to HOLD
H108 earnings are 23-35% below HLG and consensus. We expect full-year earnings to meet our forecast on new vessel delivery and higher equipment billings. TOFF is highly geared and has proposed a rights issue to fund its expansion. We think the rights will dilute near term EPS and downgrade the stock to a HOLD.
HLG: Sino Hua An - No surprise; BUY on higher H208 (25 August 2008)
Sino Hua An International BUY
Price target RM1.00
Share price at 22 Aug RM0.545
Investment summary
H108 net profit of RM73m (+44% yoy) is 44-46% of HLG and consensus full-year forecast. The net profit growth was mainly due to higher selling prices of coke and by-products. We expect higher earnings contribution in H208 following the commissioning of the new 50% capacity in Jun08. We remain bullish on SHA: (1) taking into account the new capacity, current valuation at 3x FY09 PE is >70% discount to Chinese listed peers more than compensates for any perceived corporate governance risks, in our view (2) strong positive macro fundamental for steel and coke manufacturing in China with >10% pa demand growth and sector consolidation/supply constraints.
Expect strong H208
Q208 results were within our expectation and share price now trades at 46% below its IPO last year. We see little downside from current levels and advocate investors to buy ahead of strong EPS growth in Q308 due to higher production level.
Price target RM1.00
Share price at 22 Aug RM0.545
Investment summary
H108 net profit of RM73m (+44% yoy) is 44-46% of HLG and consensus full-year forecast. The net profit growth was mainly due to higher selling prices of coke and by-products. We expect higher earnings contribution in H208 following the commissioning of the new 50% capacity in Jun08. We remain bullish on SHA: (1) taking into account the new capacity, current valuation at 3x FY09 PE is >70% discount to Chinese listed peers more than compensates for any perceived corporate governance risks, in our view (2) strong positive macro fundamental for steel and coke manufacturing in China with >10% pa demand growth and sector consolidation/supply constraints.
Expect strong H208
Q208 results were within our expectation and share price now trades at 46% below its IPO last year. We see little downside from current levels and advocate investors to buy ahead of strong EPS growth in Q308 due to higher production level.
HLG: Petra Perdana - H108 below forecast; Cut EPS by 10% (25 August 2008)
Petra Perdana BUY
Price target RM5.00
Share price at 22 Aug RM3.54
Investment summary
Annualised H108 net profit was 29-33% below HLG/consensus full-year forecast due to delay in new vessel delivery. We cut our FY08 EPS forecast by 10% and lower our price target to RM5.00/share based on sum-of-the-parts (SOTP). We maintain our BUY rating on Petra Perdana because: (1) valuation at 9x FY09 is 20-30% discount to its peers; (2) aggressive vessel deliveries over the next two years will support our 14% EPS CAGR over FY07-10E; (3) successful bid for the RM1.5-2bn job from Shell will re-rate the share price.
We are positive on the oil and gas support vessels segment: (1) recent award of multi-year charter contracts by Petronas re-affirm our view that charter rates will hold for the next 3-4 years; (2) vessel supply-demand remains tight given that shipbuilding yards are filled with orders up to 2011/12.
Delay in vessel delivery
We cut our FY08 EPS forecast by 10% due to later than expected delivery of new vessels. However, we think the next 6-12 months is an exciting period for the stock due to its steady stream of vessel delivery. Key surprise could come from a successful bid for the brown field contract from Shell.
Price target RM5.00
Share price at 22 Aug RM3.54
Investment summary
Annualised H108 net profit was 29-33% below HLG/consensus full-year forecast due to delay in new vessel delivery. We cut our FY08 EPS forecast by 10% and lower our price target to RM5.00/share based on sum-of-the-parts (SOTP). We maintain our BUY rating on Petra Perdana because: (1) valuation at 9x FY09 is 20-30% discount to its peers; (2) aggressive vessel deliveries over the next two years will support our 14% EPS CAGR over FY07-10E; (3) successful bid for the RM1.5-2bn job from Shell will re-rate the share price.
We are positive on the oil and gas support vessels segment: (1) recent award of multi-year charter contracts by Petronas re-affirm our view that charter rates will hold for the next 3-4 years; (2) vessel supply-demand remains tight given that shipbuilding yards are filled with orders up to 2011/12.
Delay in vessel delivery
We cut our FY08 EPS forecast by 10% due to later than expected delivery of new vessels. However, we think the next 6-12 months is an exciting period for the stock due to its steady stream of vessel delivery. Key surprise could come from a successful bid for the brown field contract from Shell.
AEON Credit Service - BUY - 22 Aug 2008 (Errata)
AEON Credit Service - Rising cost pressures for consumers presents opportunity (Company Update)
Price: RM3.22
Target Price: RM4.00
Recommendation: BUY
· AEON Credit Services (M) Berhad (ACSM) is likely to benefit from consumers seeking alternative sources of funding to sustain their lifestyles in response to higher food, fuel and energy costs. The firm has already seen a 33% spike in Motorcycle Easy Payments (MEP) in the month following the petrol price hike in June 2008. Demand for General Easy Payments (GEP) is also expected to pick up with the approach of the Hari Raya festive season.
· Leveraging on relationship with AEON Co. for outlet expansion and launch of the J Card store cum credit card. ACSM will be riding on AEON Co.'s expansion plan that targets 30 department stores by 2013 from 18 now to widen its distribution network and expand customer base. Further, the introduction of the J Card credit card expected by end-FY09 will help ACSM raise its current cardholder base of approximately 117,000 to its target 190,000. Other new products in the pipeline such as prepaid cards and new co-brand cards will contribute to the credit card division breaking even by FY2010.
· Civil servants salary deduction business expected to kick-off at end-FY09, at the earliest. ACSM is currently in talks with the co-operative body administering the scheme and several other co-operatives in its bid to provide consumer financing for civil servants under the direct salary deduction program. The co-operative credit business is appealing to ACSM for its growth potential (1HCY08 collection rose by 27% YoY), cross-selling opportunity and lower risk profile.
· ACSM's venture into India signals potential for further regional expansion. AEON Credit Japan's selection of ACSM to spearhead its foray into India based on its multi-cultural experience in Malaysia is a positive sign although the extent of the earnings contribution from the venture remains uncertain. Nonetheless, we expect ACSM to be at the forefront of any group expansion into ASEAN.
· Re-iterate BUY recommendation with target price of RM4.00. based on 11x PER applied to revised FY09 EPS of 36.0 sen. The biggest risk to our forecast is a general slowdown in consumer spending although we believe that ACSM will prove resilient given its strong operational capability, lower risk profile with loans for small ticket items, and new growth areas.
Price: RM3.22
Target Price: RM4.00
Recommendation: BUY
· AEON Credit Services (M) Berhad (ACSM) is likely to benefit from consumers seeking alternative sources of funding to sustain their lifestyles in response to higher food, fuel and energy costs. The firm has already seen a 33% spike in Motorcycle Easy Payments (MEP) in the month following the petrol price hike in June 2008. Demand for General Easy Payments (GEP) is also expected to pick up with the approach of the Hari Raya festive season.
· Leveraging on relationship with AEON Co. for outlet expansion and launch of the J Card store cum credit card. ACSM will be riding on AEON Co.'s expansion plan that targets 30 department stores by 2013 from 18 now to widen its distribution network and expand customer base. Further, the introduction of the J Card credit card expected by end-FY09 will help ACSM raise its current cardholder base of approximately 117,000 to its target 190,000. Other new products in the pipeline such as prepaid cards and new co-brand cards will contribute to the credit card division breaking even by FY2010.
· Civil servants salary deduction business expected to kick-off at end-FY09, at the earliest. ACSM is currently in talks with the co-operative body administering the scheme and several other co-operatives in its bid to provide consumer financing for civil servants under the direct salary deduction program. The co-operative credit business is appealing to ACSM for its growth potential (1HCY08 collection rose by 27% YoY), cross-selling opportunity and lower risk profile.
· ACSM's venture into India signals potential for further regional expansion. AEON Credit Japan's selection of ACSM to spearhead its foray into India based on its multi-cultural experience in Malaysia is a positive sign although the extent of the earnings contribution from the venture remains uncertain. Nonetheless, we expect ACSM to be at the forefront of any group expansion into ASEAN.
· Re-iterate BUY recommendation with target price of RM4.00. based on 11x PER applied to revised FY09 EPS of 36.0 sen. The biggest risk to our forecast is a general slowdown in consumer spending although we believe that ACSM will prove resilient given its strong operational capability, lower risk profile with loans for small ticket items, and new growth areas.
AEON - BUY - 22 Aug 2008
AEON Credit Service - Rising cost pressures for consumers presents opportunity (Company Update)
Price: RM3.22
Target Price: RM4.00
Recommendation: BUY
· AEON Credit Services (M) Berhad (ACSM) is likely to benefit from consumers seeking alternative sources of funding to sustain their lifestyles in response to higher food, fuel and energy costs. The firm has already seen a 33% spike in Motorcycle Easy Payments (MEP) in the month following the petrol price hike in June 2008. Demand for General Easy Payments (GEP) is also expected to pick up with the approach of the Hari Raya festive season.
· Leveraging on relationship with AEON Co. for outlet expansion and launch of the J Card store cum credit card. ACSM will be riding on AEON Co.'s expansion plan that targets 30 department stores by 2013 from 18 now to widen its distribution network and expand customer base. Further, the introduction of the J Card credit card expected by end-FY09 will help ACSM raise its current cardholder base of approximately 117,000 to its target 190,000. Other new products in the pipeline such as prepaid cards and new co-brand cards will contribute to the credit card division breaking even by FY2010.
· Civil servants salary deduction business expected to kick-off at end-FY09, at the earliest. ACSM is currently in talks with the co-operative body administering the scheme and several other co-operatives in its bid to provide consumer financing for civil servants under the direct salary deduction program. The co-operative credit business is appealing to ACSM for its growth potential (1HCY08 collection rose by 27% YoY), cross-selling opportunity and lower risk profile.
· ACSM's venture into India signals potential for further regional expansion. AEON Credit Japan's selection of ACSM to spearhead its foray into India based on its multi-cultural experience in Malaysia is a positive sign although the extent of the earnings contribution from the venture remains uncertain. Nonetheless, we expect ACSM to be at the forefront of any group expansion into ASEAN.
· Re-iterate BUY recommendation with target price of RM4.00. based on 11x PER applied to revised FY09 EPS of 36.0 sen. The biggest risk to our forecast is a general slowdown in consumer spending although we believe that ACSM will prove resilient given its strong operational capability, lower risk profile with loans for small ticket items, and new growth areas.
Price: RM3.22
Target Price: RM4.00
Recommendation: BUY
· AEON Credit Services (M) Berhad (ACSM) is likely to benefit from consumers seeking alternative sources of funding to sustain their lifestyles in response to higher food, fuel and energy costs. The firm has already seen a 33% spike in Motorcycle Easy Payments (MEP) in the month following the petrol price hike in June 2008. Demand for General Easy Payments (GEP) is also expected to pick up with the approach of the Hari Raya festive season.
· Leveraging on relationship with AEON Co. for outlet expansion and launch of the J Card store cum credit card. ACSM will be riding on AEON Co.'s expansion plan that targets 30 department stores by 2013 from 18 now to widen its distribution network and expand customer base. Further, the introduction of the J Card credit card expected by end-FY09 will help ACSM raise its current cardholder base of approximately 117,000 to its target 190,000. Other new products in the pipeline such as prepaid cards and new co-brand cards will contribute to the credit card division breaking even by FY2010.
· Civil servants salary deduction business expected to kick-off at end-FY09, at the earliest. ACSM is currently in talks with the co-operative body administering the scheme and several other co-operatives in its bid to provide consumer financing for civil servants under the direct salary deduction program. The co-operative credit business is appealing to ACSM for its growth potential (1HCY08 collection rose by 27% YoY), cross-selling opportunity and lower risk profile.
· ACSM's venture into India signals potential for further regional expansion. AEON Credit Japan's selection of ACSM to spearhead its foray into India based on its multi-cultural experience in Malaysia is a positive sign although the extent of the earnings contribution from the venture remains uncertain. Nonetheless, we expect ACSM to be at the forefront of any group expansion into ASEAN.
· Re-iterate BUY recommendation with target price of RM4.00. based on 11x PER applied to revised FY09 EPS of 36.0 sen. The biggest risk to our forecast is a general slowdown in consumer spending although we believe that ACSM will prove resilient given its strong operational capability, lower risk profile with loans for small ticket items, and new growth areas.
Pelikan - BUY - 21 Aug 2008
Pelikan International Corp - 1HFY08 results above expectations (Results Note)
Price: RM2.40
Target Price: RM4.00
Recommendation: BUY
· Pelikan International Corp's (PICB) 1HFY08 net profit of RM68.2m is above expectations, accounting for 63% and 61% of our forecast and consensus respectively. The strong performance in 2QFY08 was in keeping with the seasonal stationery rush prior to the start of the EU school term in September.
· Strong back-to-school sales and appreciation of the Euro resulted in 1HFY08 revenue increasing by 25%. The impact of a stronger Euro is significant as 83% of PICB's 1HFY08 revenue came from the EU. EBIT margin declined by 1% however, mainly due to the elevated cost of raw materials (comprising approximately 50% of total operating expenses), particularly plastics and resins (that makes up 10-20% of raw materials cost). Pretax margin also declined by 2% in-line with lower EBIT margin and further pressured by higher finance costs and lower share of associates (from the disposal of Konsortium Logistik stake).
· Higher input costs caused 2QFY08 pretax profit to grow by a more gradual 12% in spite of a 21% increase in revenue from higher seasonal stationery sales. In addition, higher effective tax rate (with prior year tax losses having been utilised) and minority interest (from improvement in earnings of subsidiaries in Latin America and Japan) resulted in 2QFY08 net profit increasing by a moderate 5%.
· No dividends declared in 1HFY08 compared with 5 sen per share in 1HFY07. PICB is conserving cash in anticipation of tougher 2HFY08. We believe that FY08's dividend payout may be lower than the 30-40% dividend payout policy previously paid by PICB.
· Revise FY08 and FY09 earnings estimates downwards by 8% for both years in anticipation of slowing demand (Lowering both FY08 and FY09 sales forecast by 1%), particularly in the EU and higher cost environment (Raising raw materials cost assumptions by 2% for both years) in 2HFY08.
· Maintain BUY with revised target price of RM4.00 based on previous 11.6x PER applied to new FY09 FD EPS of 33.9 sen. PICB is currently trading at undemanding FY08 and FY09 PERs of 8.1x and 7.1x respectively.
Price: RM2.40
Target Price: RM4.00
Recommendation: BUY
· Pelikan International Corp's (PICB) 1HFY08 net profit of RM68.2m is above expectations, accounting for 63% and 61% of our forecast and consensus respectively. The strong performance in 2QFY08 was in keeping with the seasonal stationery rush prior to the start of the EU school term in September.
· Strong back-to-school sales and appreciation of the Euro resulted in 1HFY08 revenue increasing by 25%. The impact of a stronger Euro is significant as 83% of PICB's 1HFY08 revenue came from the EU. EBIT margin declined by 1% however, mainly due to the elevated cost of raw materials (comprising approximately 50% of total operating expenses), particularly plastics and resins (that makes up 10-20% of raw materials cost). Pretax margin also declined by 2% in-line with lower EBIT margin and further pressured by higher finance costs and lower share of associates (from the disposal of Konsortium Logistik stake).
· Higher input costs caused 2QFY08 pretax profit to grow by a more gradual 12% in spite of a 21% increase in revenue from higher seasonal stationery sales. In addition, higher effective tax rate (with prior year tax losses having been utilised) and minority interest (from improvement in earnings of subsidiaries in Latin America and Japan) resulted in 2QFY08 net profit increasing by a moderate 5%.
· No dividends declared in 1HFY08 compared with 5 sen per share in 1HFY07. PICB is conserving cash in anticipation of tougher 2HFY08. We believe that FY08's dividend payout may be lower than the 30-40% dividend payout policy previously paid by PICB.
· Revise FY08 and FY09 earnings estimates downwards by 8% for both years in anticipation of slowing demand (Lowering both FY08 and FY09 sales forecast by 1%), particularly in the EU and higher cost environment (Raising raw materials cost assumptions by 2% for both years) in 2HFY08.
· Maintain BUY with revised target price of RM4.00 based on previous 11.6x PER applied to new FY09 FD EPS of 33.9 sen. PICB is currently trading at undemanding FY08 and FY09 PERs of 8.1x and 7.1x respectively.
SP Setia - BUY - 21 Aug 2008
SP Setia - Disposal of entire Loh & Loh stake (Company Update)
Price: RM3.20
Target Price: RM5.68
Recommendation: BUY
· SP Setia (SP) disposes its entire 25.07% Loh & Loh Corporation Bhd (LL) stake for RM82.7m. SP, via its wholly owned subsidiary, SP Setia Management Services Sdn Bhd, is accepting UBG Bhd's take-over offer to acquire 17.0m ordinary LL shares at RM4.85 each. The expected gain should amount to RM27.9m or RM1.64 per LL share, based on SP's average cost of RM3.21 per LL share.
· Rationale for disposal. In FY02, the property development scene was very depressed, and hence, SP considered venturing into the, then, more vibrant construction/infrastructure business via the strategic stake in LL. However, the construction/infrastructure business conditions look less than favourable now, given rising material costs and global economic uncertainties. Furthermore, it is apt that SP refocuses all available resources into their new frontiers, such as, expanding product range into commercial and high-end residential properties and geographically diversifying income into Penang, Sabah and Vietnam. However, SP have no intentions about disposing SP's construction arm because management views its construction arm as a support to its property development business, rather than a strong earnings driver.
· SP is getting a fair 12.6x PER for disposing LL based on the offer price of RM4.85 and Bloomberg's consensus of LL's FY09E EPS of 38.0sen. Although the offer prices was a mere 1.5% premium to LL's last trading price of RM4.78, we believe that at such prices, LL is already fairly valued via-a-vis the sector's FY09's PER of 12.7x.
· Upward revision in FY08E net profit by 9% to RM264m as we account for the gains on disposal of LL share. However, FY08E recurring net profit remains unchanged at RM243m. As a result of this one-off gain, we believe SP will reward its shareholders with a gross dividend per share (GPDS) of 20.3sen (6.3% dividend yield), which is a 9% increase from our previous forecasts.
· Reiterating BUY call with unchanged target price of RM5.68, as the above exercise only adds on a mere 2sen to our fully diluted sum of parts RNAV. Although there is no significant impact to valuations, we would like to draw upon the fact that resources are freed-up for more effective usage. FY09E and FY10E PERs are reasonable at 12.3x and 11.6x, respectively.
Price: RM3.20
Target Price: RM5.68
Recommendation: BUY
· SP Setia (SP) disposes its entire 25.07% Loh & Loh Corporation Bhd (LL) stake for RM82.7m. SP, via its wholly owned subsidiary, SP Setia Management Services Sdn Bhd, is accepting UBG Bhd's take-over offer to acquire 17.0m ordinary LL shares at RM4.85 each. The expected gain should amount to RM27.9m or RM1.64 per LL share, based on SP's average cost of RM3.21 per LL share.
· Rationale for disposal. In FY02, the property development scene was very depressed, and hence, SP considered venturing into the, then, more vibrant construction/infrastructure business via the strategic stake in LL. However, the construction/infrastructure business conditions look less than favourable now, given rising material costs and global economic uncertainties. Furthermore, it is apt that SP refocuses all available resources into their new frontiers, such as, expanding product range into commercial and high-end residential properties and geographically diversifying income into Penang, Sabah and Vietnam. However, SP have no intentions about disposing SP's construction arm because management views its construction arm as a support to its property development business, rather than a strong earnings driver.
· SP is getting a fair 12.6x PER for disposing LL based on the offer price of RM4.85 and Bloomberg's consensus of LL's FY09E EPS of 38.0sen. Although the offer prices was a mere 1.5% premium to LL's last trading price of RM4.78, we believe that at such prices, LL is already fairly valued via-a-vis the sector's FY09's PER of 12.7x.
· Upward revision in FY08E net profit by 9% to RM264m as we account for the gains on disposal of LL share. However, FY08E recurring net profit remains unchanged at RM243m. As a result of this one-off gain, we believe SP will reward its shareholders with a gross dividend per share (GPDS) of 20.3sen (6.3% dividend yield), which is a 9% increase from our previous forecasts.
· Reiterating BUY call with unchanged target price of RM5.68, as the above exercise only adds on a mere 2sen to our fully diluted sum of parts RNAV. Although there is no significant impact to valuations, we would like to draw upon the fact that resources are freed-up for more effective usage. FY09E and FY10E PERs are reasonable at 12.3x and 11.6x, respectively.
UMW - BUY - 21 Aug 2008
UMW Holdings - Results above expectations (Results Note)
Price: RM5.85
Target Price: RM8.00
Recommendation: BUY
· 1H08 net profit beats expectations. 1H08 net profit of RM293.5m accounted for 56.9% of market consensus and 54.8% of our forecasts, driven mainly by the strong sales in Automotive (+56.7% YoY) especially Toyota.
· YoY, 2Q08 net profit grew by 42.1% to RM151.7m driven by improvement across all segments in particularly the Automotive. Operating margin also improved substantially to 8.6% from 4.0% on better production efficiencies, higher economies of scale and favourable FOREX movement.
· QoQ, 2Q08 net profit was up 7.0%. Toyota posted substantially higher contribution on the back of higher unit sales (+20.2%) mitigating lower contribution from Perodua which we estimate to have dropped by 34% to circa RM26m (associate level) despite higher vehicle sales (+7.7%). To blame could be due to upgrading works at its plant in Apr/May which had disrupted production. Utilisation was reduced to 80% from the usual >90%. As a result, contribution from associates was 11.9% lower, partially compensated by stronger contribution from Wuxi (+75.8% QoQ).
· Interim gross DPS of 15 sen is declared. We are confident the Group is on track to achieving its 2008 KPIs of minimum 14% ROE of 14% with dividend payout of at least 50%. The progressive dividend policy adds attractiveness to the stock and help to cushion any downside risks.
· Maintain forecasts. We keep our earnings forecasts unchanged despite a more challenging macroeconomic outlook in 2H08 given its diversified base underpinned by: (1) the Group's balanced car models portfolio of small and medium passenger car categories and (2) high demand for the Group's O&G products and services on the back of brisk E&P activities.
· Maintain BUY with unchanged Target Price of RM8.00 based on 16 PER. We believe current share price offers investors good opportunity to buy into UMW's early cycle of its O&G overseas ventures
Price: RM5.85
Target Price: RM8.00
Recommendation: BUY
· 1H08 net profit beats expectations. 1H08 net profit of RM293.5m accounted for 56.9% of market consensus and 54.8% of our forecasts, driven mainly by the strong sales in Automotive (+56.7% YoY) especially Toyota.
· YoY, 2Q08 net profit grew by 42.1% to RM151.7m driven by improvement across all segments in particularly the Automotive. Operating margin also improved substantially to 8.6% from 4.0% on better production efficiencies, higher economies of scale and favourable FOREX movement.
· QoQ, 2Q08 net profit was up 7.0%. Toyota posted substantially higher contribution on the back of higher unit sales (+20.2%) mitigating lower contribution from Perodua which we estimate to have dropped by 34% to circa RM26m (associate level) despite higher vehicle sales (+7.7%). To blame could be due to upgrading works at its plant in Apr/May which had disrupted production. Utilisation was reduced to 80% from the usual >90%. As a result, contribution from associates was 11.9% lower, partially compensated by stronger contribution from Wuxi (+75.8% QoQ).
· Interim gross DPS of 15 sen is declared. We are confident the Group is on track to achieving its 2008 KPIs of minimum 14% ROE of 14% with dividend payout of at least 50%. The progressive dividend policy adds attractiveness to the stock and help to cushion any downside risks.
· Maintain forecasts. We keep our earnings forecasts unchanged despite a more challenging macroeconomic outlook in 2H08 given its diversified base underpinned by: (1) the Group's balanced car models portfolio of small and medium passenger car categories and (2) high demand for the Group's O&G products and services on the back of brisk E&P activities.
· Maintain BUY with unchanged Target Price of RM8.00 based on 16 PER. We believe current share price offers investors good opportunity to buy into UMW's early cycle of its O&G overseas ventures
Selangor Dredging - BUY - 21 Aug 2008
Selangor Dredging - 1Q09 below expectations (Results Note)
Price: RM0.665
Target Price: RM1.84
Recommendation: BUY
· 1Q09 net profit of RM7.0m was below expectations being only 12.5% of our net profit forecast of RM55.9m largely because of decrease in contribution from Park Seven which was completed in 4Q08 and full utilization of unabsorbed tax losses which resulted in 1Q09 tax rate being 32% including provision. Nevertheless, EBITDA margin was sustained high at 23.8%. We believe initial marketing cost for JIA in Singapore could have bumped up operating cost in 1Q09.
· QoQ, 1Q09 net profit rose by 5.8%, on the back of higher profit recognition and higher profit contributions fro hotel of RM247,000 as opposed to operating loss of RM264,000 in 4Q08.
· YoY, 1Q09 net profit was 18.9% lower on 4.3% lower revenue and 65% higher finance cost. In addition, tax rate was only 11% on revision deferred taxes and utilisation of tax credits.
· Net gearing at 0.6x on higher total borrowings of RM449.9m and cash balance of RM142m. Cashflow remains strong with free cashflow for 1Q08 of RM25m which provides comfort that the company remains well funded to complete its projects.
· Continuously building land bank. Recent end-block purchase of Balestier Complex with a total land area of 22,281 sf in July at SGD1,929 psf was attractive given its 3x plot ratio and prominent location. Given the recent decline in equity market and high inflation, many developers have put off increasing its land bank resulting in some softening of prices. Selangor Dredging sees this as an opportunity and they believe they can make a difference with unique projects as depicted by Jia at Wilkies Road which has attracted more than 40% take up rate at SGD1,650 psf.
· Maintain BUY with target price of RM1.84 based on sum of parts RNAV. Company continues to forge ahead with class leading projects that have proven to be well received by its target market at benchmark pricing. This has enabled Selangor Dredging to price in cost increases.
Price: RM0.665
Target Price: RM1.84
Recommendation: BUY
· 1Q09 net profit of RM7.0m was below expectations being only 12.5% of our net profit forecast of RM55.9m largely because of decrease in contribution from Park Seven which was completed in 4Q08 and full utilization of unabsorbed tax losses which resulted in 1Q09 tax rate being 32% including provision. Nevertheless, EBITDA margin was sustained high at 23.8%. We believe initial marketing cost for JIA in Singapore could have bumped up operating cost in 1Q09.
· QoQ, 1Q09 net profit rose by 5.8%, on the back of higher profit recognition and higher profit contributions fro hotel of RM247,000 as opposed to operating loss of RM264,000 in 4Q08.
· YoY, 1Q09 net profit was 18.9% lower on 4.3% lower revenue and 65% higher finance cost. In addition, tax rate was only 11% on revision deferred taxes and utilisation of tax credits.
· Net gearing at 0.6x on higher total borrowings of RM449.9m and cash balance of RM142m. Cashflow remains strong with free cashflow for 1Q08 of RM25m which provides comfort that the company remains well funded to complete its projects.
· Continuously building land bank. Recent end-block purchase of Balestier Complex with a total land area of 22,281 sf in July at SGD1,929 psf was attractive given its 3x plot ratio and prominent location. Given the recent decline in equity market and high inflation, many developers have put off increasing its land bank resulting in some softening of prices. Selangor Dredging sees this as an opportunity and they believe they can make a difference with unique projects as depicted by Jia at Wilkies Road which has attracted more than 40% take up rate at SGD1,650 psf.
· Maintain BUY with target price of RM1.84 based on sum of parts RNAV. Company continues to forge ahead with class leading projects that have proven to be well received by its target market at benchmark pricing. This has enabled Selangor Dredging to price in cost increases.
Hunza Properties - BUY - 21 Aug 2008
Hunza Properties - FY08 results within expectations (Results Note)
Price: RM1.40
Target Price: RM3.59
Recommendation: BUY
· FY08 net profit of RM48m came within our and street expectations, while exceeding both estimates by 2% each. Hunza Properties (Hunza) results were driven by higher billings from Alila and Mutiara Seputeh (MS) as the projects have been completed or are nearly completed. As at 30/6/08, Hunza has achieved 99% and 82% take-up rates for Alila high-rise and low-rise, while MS saw 97% and 15% take-up rates for its semi-detached and bungalows.
· YoY, FY08 net profit grew 23% as Gurney Paragon (GP) commenced earnings contribution this year with a 50% take-up rate. However, FY08 pretax margins were compressed by 410bps YoY to 27.9% because of higher recognition of rich margins Bandar Putra Bertam shop offices in FY07. Also, Hunza recognized RM3.5m (2% of Alila's GDV) cost overruns/under-accruals on completion of Alila. The minimal overruns demonstrates Hunza's ability to control cost amidst rapid rising material cost.
· QoQ, 4Q08 pretax profit increased 11% to RM15m on the back of 99% increase to share of profits from Infiniti to RM7m. Finance cost also fell 53% to RM0.4m due to a reduction in total borrowings by 9% to RM143m.
· Proposed final gross dividend per share (GDPS) of 7.3sen. This results in a full year FY08 GDPS of 12.3sen (dividend yield of 8.8%). We are forecasting the same GDPS of 12.3sen for FY09E as management intends to maintain similar dividend yield to FY08.
· Maintain FY09E and FY10E recurring net profit of RM62m and RM77m, respectively, on the back of RM267m unbilled sales as at 30/6/08. We are also introducing FY11E recurring net profit of RM45m which only includes 2 pipeline projects; Alila 2 and new launches from Bandar Putra Bertam (details are as below). FY11E could see potential earnings growth if the Segambut project is launch by 2HFY10. Note that our estimates are subjected to further review, pending the 25/8/08 company briefing.
· No change in target price of RM3.59. We will only factor in impact of DCF earnings from pipeline projects upon their respective launches. FY09E and FY10E PER is very attractive at 3.3x and 2.7x, respectively. Maintain BUY.
Price: RM1.40
Target Price: RM3.59
Recommendation: BUY
· FY08 net profit of RM48m came within our and street expectations, while exceeding both estimates by 2% each. Hunza Properties (Hunza) results were driven by higher billings from Alila and Mutiara Seputeh (MS) as the projects have been completed or are nearly completed. As at 30/6/08, Hunza has achieved 99% and 82% take-up rates for Alila high-rise and low-rise, while MS saw 97% and 15% take-up rates for its semi-detached and bungalows.
· YoY, FY08 net profit grew 23% as Gurney Paragon (GP) commenced earnings contribution this year with a 50% take-up rate. However, FY08 pretax margins were compressed by 410bps YoY to 27.9% because of higher recognition of rich margins Bandar Putra Bertam shop offices in FY07. Also, Hunza recognized RM3.5m (2% of Alila's GDV) cost overruns/under-accruals on completion of Alila. The minimal overruns demonstrates Hunza's ability to control cost amidst rapid rising material cost.
· QoQ, 4Q08 pretax profit increased 11% to RM15m on the back of 99% increase to share of profits from Infiniti to RM7m. Finance cost also fell 53% to RM0.4m due to a reduction in total borrowings by 9% to RM143m.
· Proposed final gross dividend per share (GDPS) of 7.3sen. This results in a full year FY08 GDPS of 12.3sen (dividend yield of 8.8%). We are forecasting the same GDPS of 12.3sen for FY09E as management intends to maintain similar dividend yield to FY08.
· Maintain FY09E and FY10E recurring net profit of RM62m and RM77m, respectively, on the back of RM267m unbilled sales as at 30/6/08. We are also introducing FY11E recurring net profit of RM45m which only includes 2 pipeline projects; Alila 2 and new launches from Bandar Putra Bertam (details are as below). FY11E could see potential earnings growth if the Segambut project is launch by 2HFY10. Note that our estimates are subjected to further review, pending the 25/8/08 company briefing.
· No change in target price of RM3.59. We will only factor in impact of DCF earnings from pipeline projects upon their respective launches. FY09E and FY10E PER is very attractive at 3.3x and 2.7x, respectively. Maintain BUY.
ASTRO - BUY - 19 Aug 2008
Astro All Asia Networks - Privatise to realize value? (Company Update)
Price: RM3.24
Target Price: RM4.30
Recommendation: BUY
· Potential privatisation? Rumours on the privatisation of Astro renewed recently amid reasons of undervalued share price and earnings volatility attributed to overseas business operations. Though privatisation may not be favourable under the current market conditions, the Group's healthy cash flow and its long suppressed share price performance undervaluing the Group's true potential value may render privatisation as a viable option to realise value.
· Potential upside. Astro's Malaysian operation which is expected to have robust growth is worth an estimated RM4.30/share based on the DCF valuation with 13% WACC. We estimate Astro's share price could worth up to an estimated RM4.51/share if overseas operations were factored in. The share which is trading below its IPO price (RM3.80) remains undervalued compared to its DCF valuation but is trading at 4.4x P/NTA.
· If the privatisation takes place. At the best-case scenario valuation of RM4.51 factors in both the domestic and overseas businesses. Even at the price of RM4.30/share which based solely on the Malaysian operation will give us: (1) a 32.7% potential upside from the current market price or (2) a 24.6% upside when adding in the investment incurred so far at its Indonesian and Indian ventures of RM0.21/share to the current share price.
· Loss making foreign ventures. While Sun Direct TV (India) has begun to show an encouraging subscriber base growth and management is expecting narrower investment loss moving forward, the Indonesian operation remains as Astro's major setback. Astro will continue to fund PT Direct Vision at the rate of RM20m/month until September 2008 when the agreement will expire. Although a huge amount of about RM530m has been invested in Indonesia, we maintain our view that exiting Indonesia will enhance Astro's earnings visibility and performance.
· Maintain BUY, Target Price at RM4.30 which is based on DCF valuation with 13% WACC for the Malaysian operation. The privatisation of Astro could potentially act as a re-rating catalyst. Nevertheless, we also expect share price to re-rate when concerns are reduced over time due to the strong local operation and more clarity from the Indonesia operations leading to better earnings visibility.
Price: RM3.24
Target Price: RM4.30
Recommendation: BUY
· Potential privatisation? Rumours on the privatisation of Astro renewed recently amid reasons of undervalued share price and earnings volatility attributed to overseas business operations. Though privatisation may not be favourable under the current market conditions, the Group's healthy cash flow and its long suppressed share price performance undervaluing the Group's true potential value may render privatisation as a viable option to realise value.
· Potential upside. Astro's Malaysian operation which is expected to have robust growth is worth an estimated RM4.30/share based on the DCF valuation with 13% WACC. We estimate Astro's share price could worth up to an estimated RM4.51/share if overseas operations were factored in. The share which is trading below its IPO price (RM3.80) remains undervalued compared to its DCF valuation but is trading at 4.4x P/NTA.
· If the privatisation takes place. At the best-case scenario valuation of RM4.51 factors in both the domestic and overseas businesses. Even at the price of RM4.30/share which based solely on the Malaysian operation will give us: (1) a 32.7% potential upside from the current market price or (2) a 24.6% upside when adding in the investment incurred so far at its Indonesian and Indian ventures of RM0.21/share to the current share price.
· Loss making foreign ventures. While Sun Direct TV (India) has begun to show an encouraging subscriber base growth and management is expecting narrower investment loss moving forward, the Indonesian operation remains as Astro's major setback. Astro will continue to fund PT Direct Vision at the rate of RM20m/month until September 2008 when the agreement will expire. Although a huge amount of about RM530m has been invested in Indonesia, we maintain our view that exiting Indonesia will enhance Astro's earnings visibility and performance.
· Maintain BUY, Target Price at RM4.30 which is based on DCF valuation with 13% WACC for the Malaysian operation. The privatisation of Astro could potentially act as a re-rating catalyst. Nevertheless, we also expect share price to re-rate when concerns are reduced over time due to the strong local operation and more clarity from the Indonesia operations leading to better earnings visibility.
Subscribe to:
Posts (Atom)
