Top Story : Parkson – Bored with Malaysian Shopping? Go to China and Vietnam! Outperform
Visit Note
- Three key takeways from our recent company visit: 1) According to management, same store sales (SSS) is expected to grow at 15-18% in China, 6% in Malaysia and 25-30% in Vietnam in 2008; 2) Average 10-13 new stores per year to be opened in FY08-10. Over the next three years, Parkson plans to open an average: 5-7 new stores per year in China, 2-3 in Malaysia and 4 in Vietnam; 3) Margins are also projected to be on a rising trend, given Parkson's high operating leverage.
- All in, after we have imputed: 1) a reduction of SSS growth for FY08-10 for China; 2) an increase in SSS growth projections for FY08-10 for Vietnam; and 3) an increase in our new store assumptions for China and Malaysia, our FY08 earnings projection has been reduced by 2%, while our FY09-10 earnings projections have been raised by 3-4% p.a..
- Although we remain bullish on the Chinese and Vietnamese economies, we believe the US sub-prime mortgage crisis could lead to a significant reduction in export income of these countries, thus hampering consumer spending power.
- Given this risk, we now attach a lower 2–year PEG of 1.2x (from 1.5x previously) to value PRG's (China) revised FY08 earnings. We also reduce our target PE multiples for the Malaysian and Vietnamese operations to 12x (from 14x) and 18x (from 20x) CY08 earnings, respectively. Indicative fair value is therefore reduced to RM9.30 from RM11.70 after applying an unchanged 20% holding company discount to the company's revised RNAV of RM11.65. Maintain Outperform.
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Monday, 17 March 2008
KENANGA MAS - HOLD - 17 Mar 2008
Malaysian Airline System - High oil price threatens (Company Update)
Price: RM3.50
Target Price: RM3.90
Recommendation: HOLD
· Downgrade FY08 and FY09 net profit forecasts by 19% and 14% respectively as we revise our 2008 and 2009 oil price assumption upwards from US$85/barrel to US$95/barrel and US$90/barrel respectively, following the recent oil price spiked above US$110/barrel and similiar revision by the US Energy Information Administration (EIA).
· Oil price shot past the roof. WTI soared above US$100/barrel on 19 Feb and ended the week at US$110/barrel. Jet fuel surged even further to an unprecedented level of US$129/barrel at the time of writing.
· MAS has increased its FY08 fuel hedge to 43% requirement at US$89/barrel from 38% at US$84/barrel to mitigate the high oil price impact. Fuel expense makes up c.30% of MAS operating cost and remains the single largest operating cost component for airlines.
· Impact of high oil price to MAS bottomline however will be mitigated by: a) various cost reduction initiatives; b) increase in fuel surcharge; and c) strengthening RM. Our earlier analysis indicated that a 1% increase in fuel price assumption will cut FY08 net profit by 4%, all else equal. An 11% increase in oil price assumption to US$95/barrel should therefore slash our net profit by almost half! We are however cutting our FY08 net profit by only 19% as we opine that MAS will accelerates its' RM1b cost reduction initiatives and hike fuel surcharge to counter the rising oil pressure. The faster than expected appreciation of RM should help to provide some relief too.
· Challenging outlook for the sector as potential global economic deceleration and high oil price could act as a double whammy to airlines. MAS near term earnings however should be relatively resilient given its recent turnaround and ongoing restructuring efforts to reap various cost reductions benefits. Maintain HOLD but target price revised to RM3.90 based on FY08 PER of 11.5x following our earnings downgrade.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Price: RM3.50
Target Price: RM3.90
Recommendation: HOLD
· Downgrade FY08 and FY09 net profit forecasts by 19% and 14% respectively as we revise our 2008 and 2009 oil price assumption upwards from US$85/barrel to US$95/barrel and US$90/barrel respectively, following the recent oil price spiked above US$110/barrel and similiar revision by the US Energy Information Administration (EIA).
· Oil price shot past the roof. WTI soared above US$100/barrel on 19 Feb and ended the week at US$110/barrel. Jet fuel surged even further to an unprecedented level of US$129/barrel at the time of writing.
· MAS has increased its FY08 fuel hedge to 43% requirement at US$89/barrel from 38% at US$84/barrel to mitigate the high oil price impact. Fuel expense makes up c.30% of MAS operating cost and remains the single largest operating cost component for airlines.
· Impact of high oil price to MAS bottomline however will be mitigated by: a) various cost reduction initiatives; b) increase in fuel surcharge; and c) strengthening RM. Our earlier analysis indicated that a 1% increase in fuel price assumption will cut FY08 net profit by 4%, all else equal. An 11% increase in oil price assumption to US$95/barrel should therefore slash our net profit by almost half! We are however cutting our FY08 net profit by only 19% as we opine that MAS will accelerates its' RM1b cost reduction initiatives and hike fuel surcharge to counter the rising oil pressure. The faster than expected appreciation of RM should help to provide some relief too.
· Challenging outlook for the sector as potential global economic deceleration and high oil price could act as a double whammy to airlines. MAS near term earnings however should be relatively resilient given its recent turnaround and ongoing restructuring efforts to reap various cost reductions benefits. Maintain HOLD but target price revised to RM3.90 based on FY08 PER of 11.5x following our earnings downgrade.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
KENANGA AirAsia - HOLD - 17 Mar 2008
AirAsia - Tough time with high oil price (Company Update)
Price: RM1.41
Target Price: RM1.40
Recommendation: HOLD
· Downgrade FY08 and FY09 net profit projection by 17% and 15% respectively as we revise our 2008 and 2009 oil price assumption upwards from US$85/barrel to US$95/barrel and US$90/barrel respectively, following the recent oil price spiked above US$110/barrel and similiar revision by the US Energy Information Administration (EIA).
· Oil price shot past the roof. WTI soared above US$100/barrel on 19 Feb and ended the week at US$110/barrel. Jet fuel meanwhile surged further to reached an unprecedented level of US$129/barrel at the time of writing.
· Detrimental impact of high oil price as AirAsia has only 30% of 1H08 fuel requirements hedged at US$79.5/barrel and remain uncovered for the rest of 2H08.The effective lower hedge was mainly due to the short options written by AirAsia. Recall that AirAsia shorted WTI at US$82.60 with knock-in at US$90 effective for 30 months beginning from Jan 2008 for 150,000 barrels per month. Fuel cost comprised of 50% of AirAsia's operating cost and is the single largest swing factor for AirAsia's earnings.
· The short option remains a de-rating factor for AirAsia as investors continue to be spooked by the high oil price. Additional hedge for FY08 is unlikely in near term given the current high oil price. A potential re-rating catalyst for AirAsia is to bite the bullet and to completely offset the short options. Though AirAsia could incur a one-off loss from this offset, we believe investor would welcome the move as it removes much uncertainty.
· Challenging outlook for the sector as potential global economic deceleration and high oil price could act as a double whammy to airlines. Oil price remains our key concern as negative earnings impact could be larger than expected should the current high oil price persist for a prolonged period. Maintain HOLD with target price downgraded to RM1.40 based on FY08 PER of 15x after our earnings revision.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Price: RM1.41
Target Price: RM1.40
Recommendation: HOLD
· Downgrade FY08 and FY09 net profit projection by 17% and 15% respectively as we revise our 2008 and 2009 oil price assumption upwards from US$85/barrel to US$95/barrel and US$90/barrel respectively, following the recent oil price spiked above US$110/barrel and similiar revision by the US Energy Information Administration (EIA).
· Oil price shot past the roof. WTI soared above US$100/barrel on 19 Feb and ended the week at US$110/barrel. Jet fuel meanwhile surged further to reached an unprecedented level of US$129/barrel at the time of writing.
· Detrimental impact of high oil price as AirAsia has only 30% of 1H08 fuel requirements hedged at US$79.5/barrel and remain uncovered for the rest of 2H08.The effective lower hedge was mainly due to the short options written by AirAsia. Recall that AirAsia shorted WTI at US$82.60 with knock-in at US$90 effective for 30 months beginning from Jan 2008 for 150,000 barrels per month. Fuel cost comprised of 50% of AirAsia's operating cost and is the single largest swing factor for AirAsia's earnings.
· The short option remains a de-rating factor for AirAsia as investors continue to be spooked by the high oil price. Additional hedge for FY08 is unlikely in near term given the current high oil price. A potential re-rating catalyst for AirAsia is to bite the bullet and to completely offset the short options. Though AirAsia could incur a one-off loss from this offset, we believe investor would welcome the move as it removes much uncertainty.
· Challenging outlook for the sector as potential global economic deceleration and high oil price could act as a double whammy to airlines. Oil price remains our key concern as negative earnings impact could be larger than expected should the current high oil price persist for a prolonged period. Maintain HOLD with target price downgraded to RM1.40 based on FY08 PER of 15x after our earnings revision.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
KENANGA UMW - BUY - 17 Mar 2008
UMW Holdings - Launch of the new Altis (Company Update)
Price: RM5.90
Target Price: RM7.90
Recommendation: BUY
· New Altis launched. UMW introduced the new Corolla Altis on last Friday, 14 March 2008. Available in 5 variants (1.8G (Auto), 1.8G Sporty, 1.8E (Auto), 1.8E Sporty and 1.6E (Auto)) and features in 5 colours, it is a CBU unit imported from Thailand just like Camry.
· Specification and pricing. Boast a newly-designed body which will improve the aerodynamic for better fuel efficiency, higher speed stability and reduce wind noise while fitted with similar engines as the outgoing model with some technical changes. The new Altis is selling in the range of RM102,000-RM120,000 which caters mainly to customers from the higher income bracket.
· Sales performance to-date. Bookings have reached 898 units since 7 March. Management is targeting sales of at least 800 units/month which is above our expectation of 400 units/month. The new Altis competes against cars like Mitsubishi Lancer and Honda Civic.
· Expectations on the motor operation. We have assumed 86,000 units of Toyota car sales for FY08 which is at 4.4% lower than the management's target of 90,000 units. We are maintaining our numbers for now, premising on the expectation for a challenging year ahead for Toyota driven by rising competition mainly from Nissan and Honda while Perodua is expected to face strong competition from Proton Saga which has ventured into the compact car segment. Nevertheless, we remain convinced of Perodua to continue to be the auto industry's top volume seller (expect 158,900 units) for FY08 and Toyota to lead the non-national front with its strong brand name and vehicles well-represented in all segments.
· Reiterating BUY on UMW with lower Target Price of RM7.90 from RM9.00 previously based on FY08 PER of 16.0x to EPS of 49.6sen. We remain optimistic on UMW's earnings delivery underpinned by sound business management and its solidly growing O&G operations which we expect will compensate any tepid growth registered by its automotive division.
Price: RM5.90
Target Price: RM7.90
Recommendation: BUY
· New Altis launched. UMW introduced the new Corolla Altis on last Friday, 14 March 2008. Available in 5 variants (1.8G (Auto), 1.8G Sporty, 1.8E (Auto), 1.8E Sporty and 1.6E (Auto)) and features in 5 colours, it is a CBU unit imported from Thailand just like Camry.
· Specification and pricing. Boast a newly-designed body which will improve the aerodynamic for better fuel efficiency, higher speed stability and reduce wind noise while fitted with similar engines as the outgoing model with some technical changes. The new Altis is selling in the range of RM102,000-RM120,000 which caters mainly to customers from the higher income bracket.
· Sales performance to-date. Bookings have reached 898 units since 7 March. Management is targeting sales of at least 800 units/month which is above our expectation of 400 units/month. The new Altis competes against cars like Mitsubishi Lancer and Honda Civic.
· Expectations on the motor operation. We have assumed 86,000 units of Toyota car sales for FY08 which is at 4.4% lower than the management's target of 90,000 units. We are maintaining our numbers for now, premising on the expectation for a challenging year ahead for Toyota driven by rising competition mainly from Nissan and Honda while Perodua is expected to face strong competition from Proton Saga which has ventured into the compact car segment. Nevertheless, we remain convinced of Perodua to continue to be the auto industry's top volume seller (expect 158,900 units) for FY08 and Toyota to lead the non-national front with its strong brand name and vehicles well-represented in all segments.
· Reiterating BUY on UMW with lower Target Price of RM7.90 from RM9.00 previously based on FY08 PER of 16.0x to EPS of 49.6sen. We remain optimistic on UMW's earnings delivery underpinned by sound business management and its solidly growing O&G operations which we expect will compensate any tepid growth registered by its automotive division.
Thursday, 13 March 2008
Affin: BCHB 13 March 2008
CIMB keen in Chinese commercial bank
CIMB may buy up to 10% in Bank of Yingkou
BCHB yesterday confirmed that the CIMB Group is following Hong Leong Bank’s
move to expand into China. According to the announcement on Bursa, CIMB is
currently in discussions to acquire a strategic stake (of up to 10%) in the Bank of
Yingkou. Briefly, Bank of Yingkou is a small to medium-sized commercial bank
operating in the Liaoning province (located in the southern part of China's
Northeast) with total assets and shareholders' funds size of RMB13,915.1m
(RM6,217.6m) and RMB783.4m (RM350.0m) respectively.
Expansion into China will augur well for BCHB’s overseas operations
Details of this potential acquisition remain sketchy at this juncture. CIMB’s
intention to expand into the fast-moving China market will augur well for the
Group’s overseas operations – by allowing CIMB to tap onto Bank of Yingkou’s
network. Nevertheless, we believe this acquisition – if it materialises – will not
significantly impact the Group’s earnings due to Bank of Yingkou’s smallish asset
size vis-à-vis BCHB’s total assets of RM183.5bn as at Dec 2007. BCHB’s
overseas operations charted a 15% growth last year with contributions
accounting for 13% and 11% of FY07 operating revenue and PBT.
Hot on an M&A trail
News of this potential acquisition does not come as a surprise. Management had
earlier indicated that they are keen to expand into China and India. In addition to
the Bank of Yingkou, BCHB is also in the midst of conducting feasibility studies
to merge Bank Niaga with Khazanah’s Bank Lippo to create Indonesia’s 6th
largest bank. Taking together BCHB’s active management policies – to buy back
and cancel up to RM1bn worth of BCHB shares and potential dividends
amounting to RM826m - we believe the Group remains well capitalised to finance
the Bank of Yingkou’s purchase.
Buy maintained; target price RM13.35
More details on the potential acquisition of Bank of Yingkou are expected next
week. Meanwhile, we are maintaining our FY08 estimates. Core net profit is
estimated to grow by 26% in FY08, anchored by (i) stronger consumer banking
operations, (ii) loans growth of 7.3% (below management’s guidance of 12%), (ii)
higher contribution from NII, (iii) cost savings from CIMB-SBB and CIMB-PT
Bank Niaga synergy programmes, (iv) lower LLP and (v) decline in loan charge.
Maintain BUY on BCHB with a target price of RM13.35.
CIMB may buy up to 10% in Bank of Yingkou
BCHB yesterday confirmed that the CIMB Group is following Hong Leong Bank’s
move to expand into China. According to the announcement on Bursa, CIMB is
currently in discussions to acquire a strategic stake (of up to 10%) in the Bank of
Yingkou. Briefly, Bank of Yingkou is a small to medium-sized commercial bank
operating in the Liaoning province (located in the southern part of China's
Northeast) with total assets and shareholders' funds size of RMB13,915.1m
(RM6,217.6m) and RMB783.4m (RM350.0m) respectively.
Expansion into China will augur well for BCHB’s overseas operations
Details of this potential acquisition remain sketchy at this juncture. CIMB’s
intention to expand into the fast-moving China market will augur well for the
Group’s overseas operations – by allowing CIMB to tap onto Bank of Yingkou’s
network. Nevertheless, we believe this acquisition – if it materialises – will not
significantly impact the Group’s earnings due to Bank of Yingkou’s smallish asset
size vis-à-vis BCHB’s total assets of RM183.5bn as at Dec 2007. BCHB’s
overseas operations charted a 15% growth last year with contributions
accounting for 13% and 11% of FY07 operating revenue and PBT.
Hot on an M&A trail
News of this potential acquisition does not come as a surprise. Management had
earlier indicated that they are keen to expand into China and India. In addition to
the Bank of Yingkou, BCHB is also in the midst of conducting feasibility studies
to merge Bank Niaga with Khazanah’s Bank Lippo to create Indonesia’s 6th
largest bank. Taking together BCHB’s active management policies – to buy back
and cancel up to RM1bn worth of BCHB shares and potential dividends
amounting to RM826m - we believe the Group remains well capitalised to finance
the Bank of Yingkou’s purchase.
Buy maintained; target price RM13.35
More details on the potential acquisition of Bank of Yingkou are expected next
week. Meanwhile, we are maintaining our FY08 estimates. Core net profit is
estimated to grow by 26% in FY08, anchored by (i) stronger consumer banking
operations, (ii) loans growth of 7.3% (below management’s guidance of 12%), (ii)
higher contribution from NII, (iii) cost savings from CIMB-SBB and CIMB-PT
Bank Niaga synergy programmes, (iv) lower LLP and (v) decline in loan charge.
Maintain BUY on BCHB with a target price of RM13.35.
Affin: MBM 13 March 2008
A sustainable yield play
Expected to roll out by mid 2008
We understand that the Kembara replacement model would be launched in mid
2008. According to industry sources, the new Kembara will likely be based on the
new Daihatsu Bego/Toyota Rush model, which is powered by a 1.5 liter DVVT
engine. The existing Kembara model is using a 1.3 liter engine. There is no
indication yet on the potential pricing range but we think it will likely be above
RM60k compared to the current Kembara at RM53-58k since it comes with a
more powerful engine.
Will complement Perodua’s product line
Perodua’s bread and butter still lies in the production of small cars where 2 of its
current models, the Viva and MyVi account for 80% of its total sales volume. We
believe the Kembara (under the SUV segment) will only broaden its product line
but not a significant growth driver. We understand that the targeted monthly
sales volume is expected to be around 300 units per month only, compared to
Viva and MyVi, which are expected to exceed 5,000 units per month.
Nevertheless, given that Perodua has just launched its Viva last May to replace
its Kancil and Kelisa models, the debut of the Kembara replacement model is
inline with the company’s strategy of coming out with a new model every year.
Strategy – Maintaining market share above 30%
We forecast the TIV sales to grow by 6% to 515k units in 2008 from 487k units in
2007. However, we believe the increase will mainly be contributed by Proton –
sales growth projected at 17% to 136k units due to its low base (sluggish vehicle
sales in 2007) and additional new models in 2008. As for Perodua, we forecast a
marginal increase in sales volume by 3% from 161k units to 166k units, mainly
contributed by the full year contribution of the Viva and continuous strong
demand for its MyVi. Also, we forecast Perodua’s market share to maintain at
32% in 2008 versus 33% in 2007, thereby sustaining its market leadership
position.
Maintain BUY; Target price of RM4.84
We maintain Buy on MBM with a target price of RM4.84 based on a PER of 10x
FY08 earnings. We continue to like MBM for its exposure to Perodua, which is
the market leader in the passenger car segment with a market share to-date of
33%. We believe Perodua has strategically priced its models well in the highly
price sensitive national car segment. Moreover, its dividend yields are also
atractive at about 6.5%, which we believe is sustainable.
Expected to roll out by mid 2008
We understand that the Kembara replacement model would be launched in mid
2008. According to industry sources, the new Kembara will likely be based on the
new Daihatsu Bego/Toyota Rush model, which is powered by a 1.5 liter DVVT
engine. The existing Kembara model is using a 1.3 liter engine. There is no
indication yet on the potential pricing range but we think it will likely be above
RM60k compared to the current Kembara at RM53-58k since it comes with a
more powerful engine.
Will complement Perodua’s product line
Perodua’s bread and butter still lies in the production of small cars where 2 of its
current models, the Viva and MyVi account for 80% of its total sales volume. We
believe the Kembara (under the SUV segment) will only broaden its product line
but not a significant growth driver. We understand that the targeted monthly
sales volume is expected to be around 300 units per month only, compared to
Viva and MyVi, which are expected to exceed 5,000 units per month.
Nevertheless, given that Perodua has just launched its Viva last May to replace
its Kancil and Kelisa models, the debut of the Kembara replacement model is
inline with the company’s strategy of coming out with a new model every year.
Strategy – Maintaining market share above 30%
We forecast the TIV sales to grow by 6% to 515k units in 2008 from 487k units in
2007. However, we believe the increase will mainly be contributed by Proton –
sales growth projected at 17% to 136k units due to its low base (sluggish vehicle
sales in 2007) and additional new models in 2008. As for Perodua, we forecast a
marginal increase in sales volume by 3% from 161k units to 166k units, mainly
contributed by the full year contribution of the Viva and continuous strong
demand for its MyVi. Also, we forecast Perodua’s market share to maintain at
32% in 2008 versus 33% in 2007, thereby sustaining its market leadership
position.
Maintain BUY; Target price of RM4.84
We maintain Buy on MBM with a target price of RM4.84 based on a PER of 10x
FY08 earnings. We continue to like MBM for its exposure to Perodua, which is
the market leader in the passenger car segment with a market share to-date of
33%. We believe Perodua has strategically priced its models well in the highly
price sensitive national car segment. Moreover, its dividend yields are also
atractive at about 6.5%, which we believe is sustainable.
Friday, 7 March 2008
Kimeng: 7 mar Malaysia Sales Briefing
DiGi - gets approval for transfer of TDC's 3G spectrum
TM International - on track for listing in 2Q 2008
Idaman Unggul – gets offer for timber unit from Datestone Group
DiGi - gets approval for transfer of TDC's 3G spectrum
DiGi.Com Bhd (DiGi) has received Malaysian Communications and Multimedia
Commission (MCMC) approval for the proposed transfer of Time dotCom Bhd's
(TDC) 3G spectrum to DiGi. The approval was subject to payment by TDC's
wholly owned subsidiary, TT dotCom Sdn Bhd, for the penalty imposed due to
non-compliance of its detailed business plan. It was also subject to MCMC's
acceptance of DiGi's RM50m irrevocable bank guarantee for the balance
duration of the spectrum assignment period. Meanwhile, DiGi said it had
received an extension of time to June 30 from the Energy, Water
and Communications Ministry to comply with the equity conditions of
its licences. The extension also applied to the deadline for Telenor Asia
Pte Ltd to reduce its equity interest in DiGi to 49%.
TM International - on track for listing in 2Q 2008
Telekom Malaysia's (TM) international mobile operations spin-off, TM
International (TMI), is on track for a listing via a simple "introduction
circular". TMI is slated to be listed in 2Q 2008 following the completion
of TM's de-merger exercise by mid-April. Post de-merger, TMI would meet
Bursa Malaysia listing requirements such as a 25% public shareholding
spread, and so could be listed without the issuance of new shares. TM group
CEO Datuk Seri Abdul Wahid Omar, however, did not rule out the possibility
of an initial public offering (IPO) being made in conjunction with the
introduction exercise. He said having obtained shareholder approval for TMI
to issue up to 10% of its share capital yesterday, an IPO would involve
this proportion of shares. The shares could be issued to the public or
a strategic partner.
Idaman Unggul – gets offer for timber unit from Datestone Group
Idaman Unggul Bhd has received an indicative offer of US$108m (RM342m)
from The Datestone Group, LLC for its timber unit, Lambang Pertama Sdn
Bhd. Lambang Pertama is the immediate holding company of Idris Hydraulic
(M) Bhd, which is involved in forest management under a sustainable
forest management licence agreement. The indicative offer was subject to
further negotiation upon agreement on the terms and conditions of the
proposed disposal, due diligence and the approval of the boards of directors of
both parties. The Datestone Group is a syariah-compliant financial
advisory company based in Florida, USA.
TM International - on track for listing in 2Q 2008
Idaman Unggul – gets offer for timber unit from Datestone Group
DiGi - gets approval for transfer of TDC's 3G spectrum
DiGi.Com Bhd (DiGi) has received Malaysian Communications and Multimedia
Commission (MCMC) approval for the proposed transfer of Time dotCom Bhd's
(TDC) 3G spectrum to DiGi. The approval was subject to payment by TDC's
wholly owned subsidiary, TT dotCom Sdn Bhd, for the penalty imposed due to
non-compliance of its detailed business plan. It was also subject to MCMC's
acceptance of DiGi's RM50m irrevocable bank guarantee for the balance
duration of the spectrum assignment period. Meanwhile, DiGi said it had
received an extension of time to June 30 from the Energy, Water
and Communications Ministry to comply with the equity conditions of
its licences. The extension also applied to the deadline for Telenor Asia
Pte Ltd to reduce its equity interest in DiGi to 49%.
TM International - on track for listing in 2Q 2008
Telekom Malaysia's (TM) international mobile operations spin-off, TM
International (TMI), is on track for a listing via a simple "introduction
circular". TMI is slated to be listed in 2Q 2008 following the completion
of TM's de-merger exercise by mid-April. Post de-merger, TMI would meet
Bursa Malaysia listing requirements such as a 25% public shareholding
spread, and so could be listed without the issuance of new shares. TM group
CEO Datuk Seri Abdul Wahid Omar, however, did not rule out the possibility
of an initial public offering (IPO) being made in conjunction with the
introduction exercise. He said having obtained shareholder approval for TMI
to issue up to 10% of its share capital yesterday, an IPO would involve
this proportion of shares. The shares could be issued to the public or
a strategic partner.
Idaman Unggul – gets offer for timber unit from Datestone Group
Idaman Unggul Bhd has received an indicative offer of US$108m (RM342m)
from The Datestone Group, LLC for its timber unit, Lambang Pertama Sdn
Bhd. Lambang Pertama is the immediate holding company of Idris Hydraulic
(M) Bhd, which is involved in forest management under a sustainable
forest management licence agreement. The indicative offer was subject to
further negotiation upon agreement on the terms and conditions of the
proposed disposal, due diligence and the approval of the boards of directors of
both parties. The Datestone Group is a syariah-compliant financial
advisory company based in Florida, USA.
CIMB:MAS (OUTPERFORM, TP: RM9.85) - Corporate day highlights - Making progress
Malaysian Airlines' ED/CFO Tengku Dato' Azmil presented at our Corporate Day conference yesterday. Here are the key highlights.
1. Head honchos may want to remain after contract expiry. Both Tengku and Managing Director Dato' Sri Idris Jala's three-year service contracts expire at the end of this year, but are probably interested to renew their contracts, subject to negotiations.
2. Cost management.
MAS adopts a competitive fuel hedging policy, benchmarked against its competitors' average hedged price and proportion locked in. For FY08, it has secured 38% of its fuel requirements at WTI US$84/barrel.
Efforts to reduce fuel consumption will continue by mining data on a micro level, and benefits should accrue in 2008.
Other costdown initiatives include the renegotiation of the pricing in contracts that have expired.
3. Squeezing productivity growth by reducing turnaround times.
Despite the lack of new aircraft, MAS is squeezing productivity from its existing fleet as a means to generate capacity growth. This is achieved from reducing turnaround times.
A decision on narrow-body fleet renewal is imminent, after nearing completion its detailed cost analysis.
4. Talks with American, Indian, and Turkish carriers continuing to expand its hub-and-spoke strategy.
5. Maintain OUTPERFORM and target price of RM9.85, based on an unchanged P/E target of 10x.
We emerge from the Corporate Day presentation confident about MAS's restructuring story, although rising oil prices may dampen earnings growth in the near term.
MAS said that the effects of the US economic slowdown are imperceptible at this point.
The key catalyst is earnings growth as restructuring takes root. Fuel costs remain high in 2008 but MAS will benefit from a reduction in sales commissions and continued yield enhancement for the passenger business.
1. Head honchos may want to remain after contract expiry. Both Tengku and Managing Director Dato' Sri Idris Jala's three-year service contracts expire at the end of this year, but are probably interested to renew their contracts, subject to negotiations.
2. Cost management.
MAS adopts a competitive fuel hedging policy, benchmarked against its competitors' average hedged price and proportion locked in. For FY08, it has secured 38% of its fuel requirements at WTI US$84/barrel.
Efforts to reduce fuel consumption will continue by mining data on a micro level, and benefits should accrue in 2008.
Other costdown initiatives include the renegotiation of the pricing in contracts that have expired.
3. Squeezing productivity growth by reducing turnaround times.
Despite the lack of new aircraft, MAS is squeezing productivity from its existing fleet as a means to generate capacity growth. This is achieved from reducing turnaround times.
A decision on narrow-body fleet renewal is imminent, after nearing completion its detailed cost analysis.
4. Talks with American, Indian, and Turkish carriers continuing to expand its hub-and-spoke strategy.
5. Maintain OUTPERFORM and target price of RM9.85, based on an unchanged P/E target of 10x.
We emerge from the Corporate Day presentation confident about MAS's restructuring story, although rising oil prices may dampen earnings growth in the near term.
MAS said that the effects of the US economic slowdown are imperceptible at this point.
The key catalyst is earnings growth as restructuring takes root. Fuel costs remain high in 2008 but MAS will benefit from a reduction in sales commissions and continued yield enhancement for the passenger business.
jpmorgan: 5mar Bjtoto (overweight)
• 9M08 results slightly below expectations: Berjaya Sports Toto
reported flat net profits of M$288MM in 9M08 vs. M$284MM in
9M07 while 3Q08 earnings fell 19% to M$98MM, mainly due to
higher prize payout and lower interest income. The results made up
71% of our full-year estimate and consensus and hence, slightly
below expectations. However, we expect the group to make up the
shortfall in 4Q FY08 given the positive Lunar New Year effect. The
group also declared a third interim net DPS of 5.9 sen (1.2% yield)
bringing total net DPS as of 9M07 to 19.2 sen (84% payout).
• Strong revenue growth offset by lower interest income and
higher taxes in 3Q FY08: Despite a 12% increase in NFO revenues,
earnings in 3Q FY08 fell 16% Y/Y to M$98MM mainly due to lower
interest income and an increase in effective taxes from 22% in 3Q
FY07 to 32% in 3Q FY08. Meanwhile, NFO revenues/draw recorded
a strong increase, up 13.6% Y/Y, 9.5% Q/Q, thanks to its latest Mega
6/52 jackpot game introduced in 1QCY08. Operating margins,
however, fell 80bp to 19.2% in 3Q FY08 as a result of higher prize
payouts.
• Capital management remains a key potential catalyst: Under the
current market environment, we think BToto stands out as a
defensive play with strong capital management potential. In addition
to a potential yield of 6% (based on our payout assumption of 100%),
we believe that management’s ongoing share buyback totaling
22.5MM (1.8% of shares) as of 9M08 should also be viewed
positively. Assuming management cancels its cumulative treasury
shares totaling 93.0MM, this could bring about an immediate EPS
enhancement of 7.4% in FY09E.
• Maintain OW: Our April-08 PT of M$5.70 is based on DCF and
implies an 18x P/E vs. the market’s 15x. We believe a premium is
warranted given its attractive yield of 5.7% vs. the market’s 3.6%. A
key risk to our PT is disappointing dividends.
reported flat net profits of M$288MM in 9M08 vs. M$284MM in
9M07 while 3Q08 earnings fell 19% to M$98MM, mainly due to
higher prize payout and lower interest income. The results made up
71% of our full-year estimate and consensus and hence, slightly
below expectations. However, we expect the group to make up the
shortfall in 4Q FY08 given the positive Lunar New Year effect. The
group also declared a third interim net DPS of 5.9 sen (1.2% yield)
bringing total net DPS as of 9M07 to 19.2 sen (84% payout).
• Strong revenue growth offset by lower interest income and
higher taxes in 3Q FY08: Despite a 12% increase in NFO revenues,
earnings in 3Q FY08 fell 16% Y/Y to M$98MM mainly due to lower
interest income and an increase in effective taxes from 22% in 3Q
FY07 to 32% in 3Q FY08. Meanwhile, NFO revenues/draw recorded
a strong increase, up 13.6% Y/Y, 9.5% Q/Q, thanks to its latest Mega
6/52 jackpot game introduced in 1QCY08. Operating margins,
however, fell 80bp to 19.2% in 3Q FY08 as a result of higher prize
payouts.
• Capital management remains a key potential catalyst: Under the
current market environment, we think BToto stands out as a
defensive play with strong capital management potential. In addition
to a potential yield of 6% (based on our payout assumption of 100%),
we believe that management’s ongoing share buyback totaling
22.5MM (1.8% of shares) as of 9M08 should also be viewed
positively. Assuming management cancels its cumulative treasury
shares totaling 93.0MM, this could bring about an immediate EPS
enhancement of 7.4% in FY09E.
• Maintain OW: Our April-08 PT of M$5.70 is based on DCF and
implies an 18x P/E vs. the market’s 15x. We believe a premium is
warranted given its attractive yield of 5.7% vs. the market’s 3.6%. A
key risk to our PT is disappointing dividends.
JPMorgan: 3 mar Sime (overweight)
Sime Darby now has the highest upside potential based on our price
target: In absolute terms, the stock has not done much since its first day
of re-listing in late November. Relative to the KLCI, Sime has outperformed
by 6% while KLK and IOI have outperformed by over 20%.
CPO prices have continued to head north, up 30% since late Nov. and
a further 13% in the past two weeks to just under M$4,000/t (3-to-6-
month futures: M$4,300/t). While a short-term correction may be due,
we expect prices to stay above M$3,000/t until 2010 due to the tight
supply of substitute soybeans, the continued fight for acreage with corn,
and the strong demand for food purposes from China and India. Our
CPO price assumptions of M$3,150/t for 2008 and M$3,000/t for 2009,
upon which our valuation and price target are based, provide ample
buffer for any short-term easing in CPO prices, in our view.
Encouraging trends from plantations in 1H FY08 results: In 1H
FY08, plantations showed strong FFB growth (+10% Y/Y) and yields
which management attributes partly to early signs of improved practices
from its integration (largely due to recovery from yield stress the year
before). Sime's CPO yields of 4.14% in FY07 provide ample room for
improvement in the long term versus IOI's and KLK's 5.0-5.7%.
Upgrade to OW: We maintain our Dec-08 PT of M$13.40 based on a
derived 7% discount to our SOTP value of M$14.40. Stripping out the
non-plantation business, the market at current levels is assuming a longterm
CPO assumption of US$788/t for Sime versus the long-term historic
CPI/inflation adjusted average of US$977/t. Key risks to our PT are cost
overruns and less favorable terms for the multi-billion Bakun project.
target: In absolute terms, the stock has not done much since its first day
of re-listing in late November. Relative to the KLCI, Sime has outperformed
by 6% while KLK and IOI have outperformed by over 20%.
CPO prices have continued to head north, up 30% since late Nov. and
a further 13% in the past two weeks to just under M$4,000/t (3-to-6-
month futures: M$4,300/t). While a short-term correction may be due,
we expect prices to stay above M$3,000/t until 2010 due to the tight
supply of substitute soybeans, the continued fight for acreage with corn,
and the strong demand for food purposes from China and India. Our
CPO price assumptions of M$3,150/t for 2008 and M$3,000/t for 2009,
upon which our valuation and price target are based, provide ample
buffer for any short-term easing in CPO prices, in our view.
Encouraging trends from plantations in 1H FY08 results: In 1H
FY08, plantations showed strong FFB growth (+10% Y/Y) and yields
which management attributes partly to early signs of improved practices
from its integration (largely due to recovery from yield stress the year
before). Sime's CPO yields of 4.14% in FY07 provide ample room for
improvement in the long term versus IOI's and KLK's 5.0-5.7%.
Upgrade to OW: We maintain our Dec-08 PT of M$13.40 based on a
derived 7% discount to our SOTP value of M$14.40. Stripping out the
non-plantation business, the market at current levels is assuming a longterm
CPO assumption of US$788/t for Sime versus the long-term historic
CPI/inflation adjusted average of US$977/t. Key risks to our PT are cost
overruns and less favorable terms for the multi-billion Bakun project.
Berjaya Sports Toto - BUY - 6 Mar 2008
9MFY08 revenue of RM2.4b was in line with our’s and market’s
estimates. Net profit of RM287.9m however was lower at 70% of our’s
and street’s consensus, mainly due to lower luck factor and higher
marketing expense.
l QoQ, revenue was up by 8.7% driven by increased sales of 4D games
despite similar draw days of 42 each quarter. Stronger pre-tax growth at
24.2% was boosted by a lower payout (69% vs 72%) coupled with the
higher sales volume.
l YoY, 9MFY08 revenue jumped 9.3% on the back of higher 4D sales
and contributions from sales of Mega 6/52 since 2Q07, despite having
one less draw day. Pretax profit however increased by only 3.0% to
RM408.7m, owning to lower luck factor and lower interest income as intercompany
loan was completely settled in July 07.
l Proposed dividend of 8 sen brought 9MFY08 DPS to 26 sen against
9MFY07 of 37.5 sen, implying payout ratio of 83%. Our forecasted DPS of
36 sen for FY08 based on net payout ratio of 82% should be met based on
the current trend.
l Continual share buyback with total 93m treasury shares as of 31 Jan 2008,
representing 6.9% of its paid up share capital. Assuming the treasury
shares are dividend out in specie, yield should therefore spike up to a
high of 14.7% (7.3% normal + 7.4% special).
l Attractive yield and defensive growth. Sales growth is expected to
average 6.4% for the next 2 years, spurred by resilient economy with FY08
GDP growth forecasted at 6.1%. Yield is attractive at 7.3% and 7.8% for
FY08 and FY09 respectively. Maintain forecasts and BUY call with an
unchanged target price of RM5.60, based on DCF valuation with a
WACC of 10% and terminal growth of 4.5%.
KENANGA INVESTMENT BANK BERHAD (15678-H)
estimates. Net profit of RM287.9m however was lower at 70% of our’s
and street’s consensus, mainly due to lower luck factor and higher
marketing expense.
l QoQ, revenue was up by 8.7% driven by increased sales of 4D games
despite similar draw days of 42 each quarter. Stronger pre-tax growth at
24.2% was boosted by a lower payout (69% vs 72%) coupled with the
higher sales volume.
l YoY, 9MFY08 revenue jumped 9.3% on the back of higher 4D sales
and contributions from sales of Mega 6/52 since 2Q07, despite having
one less draw day. Pretax profit however increased by only 3.0% to
RM408.7m, owning to lower luck factor and lower interest income as intercompany
loan was completely settled in July 07.
l Proposed dividend of 8 sen brought 9MFY08 DPS to 26 sen against
9MFY07 of 37.5 sen, implying payout ratio of 83%. Our forecasted DPS of
36 sen for FY08 based on net payout ratio of 82% should be met based on
the current trend.
l Continual share buyback with total 93m treasury shares as of 31 Jan 2008,
representing 6.9% of its paid up share capital. Assuming the treasury
shares are dividend out in specie, yield should therefore spike up to a
high of 14.7% (7.3% normal + 7.4% special).
l Attractive yield and defensive growth. Sales growth is expected to
average 6.4% for the next 2 years, spurred by resilient economy with FY08
GDP growth forecasted at 6.1%. Yield is attractive at 7.3% and 7.8% for
FY08 and FY09 respectively. Maintain forecasts and BUY call with an
unchanged target price of RM5.60, based on DCF valuation with a
WACC of 10% and terminal growth of 4.5%.
KENANGA INVESTMENT BANK BERHAD (15678-H)
jpmorgan: 4 mar Tranmil ( underperform)
• Transmile held a rare post FY07 results analyst briefing following a full year performance that featured significant losses from kitchen sinking. Clearing out the one-off items, EBITDA came in at M$5MM vs our expectations of M$17MM and compared to M$73MM last year. The squeeze in operating profits was almost entirely due to fuel cost pressures despite progress in cutting some unprofitable routes.
• Management has begun to articulate the rehabilitation plans for Transmile which ironically involved going back to its roots as an Asian-centric regional feeder airline. This will involve eventually stopping most or all intercontinental routes, namely the China-US MD11 service which is facing severe competition from
the China open-skies policy and cut-throat competition from excessive belly space from passenger airlines.
• We see no option but for Transmile to sell its MD11 fleet particularly since it is generating negative EBITDA on the intercontinental routes. The company will also be pressed to raise cash given that current operations cannot service existing or future
debt and there is an impending put option on the outstanding 2010
M$228MM CBs in May 2008.
• We are cutting our Dec08 PT from M$2.94 to M$1.59. The break-up value of the company has been lowered because it was revealed that the market value of the MD11s is M$43MMM$ 47MM, rather than the M$75MM we estimated previously. Upside risk to our PT is an M&A or privatization event.
• Management has begun to articulate the rehabilitation plans for Transmile which ironically involved going back to its roots as an Asian-centric regional feeder airline. This will involve eventually stopping most or all intercontinental routes, namely the China-US MD11 service which is facing severe competition from
the China open-skies policy and cut-throat competition from excessive belly space from passenger airlines.
• We see no option but for Transmile to sell its MD11 fleet particularly since it is generating negative EBITDA on the intercontinental routes. The company will also be pressed to raise cash given that current operations cannot service existing or future
debt and there is an impending put option on the outstanding 2010
M$228MM CBs in May 2008.
• We are cutting our Dec08 PT from M$2.94 to M$1.59. The break-up value of the company has been lowered because it was revealed that the market value of the MD11s is M$43MMM$ 47MM, rather than the M$75MM we estimated previously. Upside risk to our PT is an M&A or privatization event.
CSFB: 4 mar Tranmil (Underperform)
● Management said that the new focus would be on the narrow
segment, with an eye on the possible early liberalisation of cargo
between ASEAN member states.
● Management talked of the need to renew its aging fleet with more
fuel-efficient aircraft, and was keen to expand into North Asia.
● Management said that its MD-11 contracts to fly into the US are
unlikely to be renewed in 3Q08. Thus it is looking to redeploy or
sell these aircraft. A decision is expected in 2Q08.
● Independent aircraft valuers priced Transmile’s four MD-11
freighters at an average price of between US$43 mn and US$47
mn – significantly lower than our previous estimate of US$75mn,
apparently due to the aircraft’s condition.
● Based on the lower average price of US$45mn per MD-11
freighter, we have lowered our target price to RM1.65 (10%
implied downside). Maintain UNDERPERFORM.
segment, with an eye on the possible early liberalisation of cargo
between ASEAN member states.
● Management talked of the need to renew its aging fleet with more
fuel-efficient aircraft, and was keen to expand into North Asia.
● Management said that its MD-11 contracts to fly into the US are
unlikely to be renewed in 3Q08. Thus it is looking to redeploy or
sell these aircraft. A decision is expected in 2Q08.
● Independent aircraft valuers priced Transmile’s four MD-11
freighters at an average price of between US$43 mn and US$47
mn – significantly lower than our previous estimate of US$75mn,
apparently due to the aircraft’s condition.
● Based on the lower average price of US$45mn per MD-11
freighter, we have lowered our target price to RM1.65 (10%
implied downside). Maintain UNDERPERFORM.
Tuesday, 4 March 2008
CSFB: 3 mar Palm Oil (Overweight)
> Palm oil May futures touched a record RM4,000 on 29 Feb 2008 but retreated
> to close at RM3,850 per tonne. We continue to be positive on palm oil.
> Nevertheless, there is growing risk of a short-term technical correction
> as speculators have pushed up the palm oil futures to record prices of
> close to RM3,900 from RM2,900 over a period of 12 weeks. Should there be a
> correction, any sharp weakening would be an opportunity to accumulate palm
> oil stocks.
> The recent global palm oil conference in Kuala Lumpur concluded with mixed
> messages. Speakers highlighted the risk of record prices crimping demand
> from food and fuel sectors. Biodiesel capacities are loss-making without
> subsidies, and most are operating at less than 20% capacity utilization.
> While Dorab remains a bull, saying that inventories cannot be replenished
> as demand will match supply in 2008, James believed that the latest cycle
> is no different from previous cycles and therefore, palm oil prices will
> pull back sharply very soon.
> to close at RM3,850 per tonne. We continue to be positive on palm oil.
> Nevertheless, there is growing risk of a short-term technical correction
> as speculators have pushed up the palm oil futures to record prices of
> close to RM3,900 from RM2,900 over a period of 12 weeks. Should there be a
> correction, any sharp weakening would be an opportunity to accumulate palm
> oil stocks.
> The recent global palm oil conference in Kuala Lumpur concluded with mixed
> messages. Speakers highlighted the risk of record prices crimping demand
> from food and fuel sectors. Biodiesel capacities are loss-making without
> subsidies, and most are operating at less than 20% capacity utilization.
> While Dorab remains a bull, saying that inventories cannot be replenished
> as demand will match supply in 2008, James believed that the latest cycle
> is no different from previous cycles and therefore, palm oil prices will
> pull back sharply very soon.
kimeng: 3 mar NSTP ( hold)
> Penning strong numbers; write-backs of impairment continued
> NSTP posted EPS of 15.6sen (+38% Y/Y) in FY07, meeting our expectation.
> Excluding net exceptional gains of RM21.7m and RM18.4m from FY07 and
> FY06 and the respective deferred tax impact, core operation actually
> posted EPS of 13sen (+62% Y/Y) in FY07, thanks to a 7.5% rise in
> turnover which benefited from a 10-11% increase in advertising revenues.
> And, thanks to a 25% decline in interest expense due to a lower debt
> level, pretax profit (before exceptional gains) grew a stronger 83% Y/Y,
> even though contribution from associate Malaysian Newsprint Industries
> (MNI) softened 14% to RM5m. NSTP has declared a first and final gross
> dividend of 8 sen per share, slightly lower than last year's dividend
> comprising normal gross dividend of 5sen and special gross dividend of
> 5sen.
>
> At steep discount to book NTA, otherwise an unexciting story
> We have kept NSTP as a HOLD, notwithstanding the stock's price/book
> valuation of only 0.4x and FY08 PER of 14x. The lack of exciting stories
> in a highly volatile market in which investors seek high-beta returns,
> will probably result in the stock being range-bound. In addition, the
> dividend yield is unexciting.
> NSTP posted EPS of 15.6sen (+38% Y/Y) in FY07, meeting our expectation.
> Excluding net exceptional gains of RM21.7m and RM18.4m from FY07 and
> FY06 and the respective deferred tax impact, core operation actually
> posted EPS of 13sen (+62% Y/Y) in FY07, thanks to a 7.5% rise in
> turnover which benefited from a 10-11% increase in advertising revenues.
> And, thanks to a 25% decline in interest expense due to a lower debt
> level, pretax profit (before exceptional gains) grew a stronger 83% Y/Y,
> even though contribution from associate Malaysian Newsprint Industries
> (MNI) softened 14% to RM5m. NSTP has declared a first and final gross
> dividend of 8 sen per share, slightly lower than last year's dividend
> comprising normal gross dividend of 5sen and special gross dividend of
> 5sen.
>
> At steep discount to book NTA, otherwise an unexciting story
> We have kept NSTP as a HOLD, notwithstanding the stock's price/book
> valuation of only 0.4x and FY08 PER of 14x. The lack of exciting stories
> in a highly volatile market in which investors seek high-beta returns,
> will probably result in the stock being range-bound. In addition, the
> dividend yield is unexciting.
Kimeng: 28 feb Sime (hold)
> A stellar first half, driven by plantation, industrial & motor
> This is Sime Darby's first set of results post its merger with Kumpulan
> Guthrie and Golden Hope. The company (SDB, formerly known as Synergy
> Drive) reported H108 EPS of 24.5 sen (+2%) on a 22% rise in revenue.
> Excluding exceptional items, core EPS was 24 sen (+61%), buoyed by
> stronger profits at the plantation, industrial (formerly heavy
> equipment) and motor divisions. The exceptional income of RM485m in H107
> was derived mainly from the sale of Jaya Holdings shares and properties.
> Plantation was the star performer, with a 103% jump in EBIT, thanks to
> higher CPO prices (+67%). The industrial division posted an 18% rise in
> EBIT, helped by higher sales to the mining sector. Motor staged a sharp
> turnaround, thanks to a recovery in Malaysia. However, property saw
> lower profits due to delays in launches as a result of its rebranding
> exercise and the absence of land sales. An interim gross dividend of 5.0
> sen was declared.
>
> Above fair value; HOLD
> We recommend a HOLD on SDB as its SOTP valuation is around RM11.00,
> below its current share price.
> This is Sime Darby's first set of results post its merger with Kumpulan
> Guthrie and Golden Hope. The company (SDB, formerly known as Synergy
> Drive) reported H108 EPS of 24.5 sen (+2%) on a 22% rise in revenue.
> Excluding exceptional items, core EPS was 24 sen (+61%), buoyed by
> stronger profits at the plantation, industrial (formerly heavy
> equipment) and motor divisions. The exceptional income of RM485m in H107
> was derived mainly from the sale of Jaya Holdings shares and properties.
> Plantation was the star performer, with a 103% jump in EBIT, thanks to
> higher CPO prices (+67%). The industrial division posted an 18% rise in
> EBIT, helped by higher sales to the mining sector. Motor staged a sharp
> turnaround, thanks to a recovery in Malaysia. However, property saw
> lower profits due to delays in launches as a result of its rebranding
> exercise and the absence of land sales. An interim gross dividend of 5.0
> sen was declared.
>
> Above fair value; HOLD
> We recommend a HOLD on SDB as its SOTP valuation is around RM11.00,
> below its current share price.
kimeng: 28 feb IJM (buy)
> Plantations and exceptional gains ruled the quarter
> IJM posted a loss per share (LPS) of 61.5sen for the 9-month period to
> Dec 2007. Distorting IJM's performance was a net exceptional loss of
> RM782m (92.3sen per share), comprising goodwill write-off of
> 109sen/share and gains from the sale of shares/subsidiary of
> 17sen/share. Excluding this, IJM's core operations posted a 93% jump in
> net profits, slight higher than expected, thanks to the strong showing
> by the plantations (pretax growth of 175%), construction division (+63%)
> and industries (+52%). Even the property division posted a 57% increase
> in profits, thanks to a lumpy RM36m profit from the sale of land and
> buildings. But the construction's performance was a little
> disappointing, with slower turnover and weaker margin than expected,
> reflecting the cost pressure. At the EPS level, IJM's growth slowed to
> only (+13% Y/Y) due to shares issued for the acquisition of Road Builder
> (M) Holdings Bhd and the conversion of warrants. No dividend was
> declared.
>
> BUY: Expecting greater news flow in H2 2008
> We have retained our BUY rating but lowered our target price to RM8.60
> (based on 18x FY09 PER). We expect greater news flow in H208 as the 9th
> Malaysia Plan kicks off in earnest. IJM's track record, especially in
> Penang, bodes well for its positioning for Malaysia's mega projects.
> IJM posted a loss per share (LPS) of 61.5sen for the 9-month period to
> Dec 2007. Distorting IJM's performance was a net exceptional loss of
> RM782m (92.3sen per share), comprising goodwill write-off of
> 109sen/share and gains from the sale of shares/subsidiary of
> 17sen/share. Excluding this, IJM's core operations posted a 93% jump in
> net profits, slight higher than expected, thanks to the strong showing
> by the plantations (pretax growth of 175%), construction division (+63%)
> and industries (+52%). Even the property division posted a 57% increase
> in profits, thanks to a lumpy RM36m profit from the sale of land and
> buildings. But the construction's performance was a little
> disappointing, with slower turnover and weaker margin than expected,
> reflecting the cost pressure. At the EPS level, IJM's growth slowed to
> only (+13% Y/Y) due to shares issued for the acquisition of Road Builder
> (M) Holdings Bhd and the conversion of warrants. No dividend was
> declared.
>
> BUY: Expecting greater news flow in H2 2008
> We have retained our BUY rating but lowered our target price to RM8.60
> (based on 18x FY09 PER). We expect greater news flow in H208 as the 9th
> Malaysia Plan kicks off in earnest. IJM's track record, especially in
> Penang, bodes well for its positioning for Malaysia's mega projects.
KLCC Property - Outperforming expectations again
KLCC Property - Outperforming expectations again (Results Note)
Price: RM3.26
Target Price: RM4.37
Recommendation: BUY
· 9M08 net profit of RM177m was above expectations and accounted for 86% and 82% of our and street FY08E net profit forecast. KLCC Property (KLCCP) sterling results are attributed to increased rental of office rental building, especially for Petronas Twin Towers (PTT) which had its triple-net rental revision of 27% this financial year.
· YoY, 9M08 pretax profit grew 22%, on the back of increased revenue from Suria KLCC (Suria) due to higher rental rates while maintaining high occupancies. Another contributing factor is lower interest expense by 8% due to total borrowings decreasing by 7% to RM2.1b.
· 3Q08 net profit fell 28% YoY to RM52m. This was largely due to lower average room rates and occupancy for Mandarin Oriental for 3Q08. Also contributing to the decline is lower pretax profit from its management services which dropped 12% to RM4.6m.
· Upward revision of 220% in FY08E net profit forecast to RM660m to account for c.RM427m revaluation gains from KLCCP investment properties (FRS 140). Our revision also includes a 13% increase in FY08E recurring net profit to RM233m relating to Suria KLCC higher rental rates.
· Unchanged target price of RM4.37, based on our conservative sum of parts RNAV (assuming 50% dilution of RCULS), which is a 34% upside to its trading price. FY08E and FY09E PER is fair at 5x and 13x, respectively. Maintain BUY recommendation.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Price: RM3.26
Target Price: RM4.37
Recommendation: BUY
· 9M08 net profit of RM177m was above expectations and accounted for 86% and 82% of our and street FY08E net profit forecast. KLCC Property (KLCCP) sterling results are attributed to increased rental of office rental building, especially for Petronas Twin Towers (PTT) which had its triple-net rental revision of 27% this financial year.
· YoY, 9M08 pretax profit grew 22%, on the back of increased revenue from Suria KLCC (Suria) due to higher rental rates while maintaining high occupancies. Another contributing factor is lower interest expense by 8% due to total borrowings decreasing by 7% to RM2.1b.
· 3Q08 net profit fell 28% YoY to RM52m. This was largely due to lower average room rates and occupancy for Mandarin Oriental for 3Q08. Also contributing to the decline is lower pretax profit from its management services which dropped 12% to RM4.6m.
· Upward revision of 220% in FY08E net profit forecast to RM660m to account for c.RM427m revaluation gains from KLCCP investment properties (FRS 140). Our revision also includes a 13% increase in FY08E recurring net profit to RM233m relating to Suria KLCC higher rental rates.
· Unchanged target price of RM4.37, based on our conservative sum of parts RNAV (assuming 50% dilution of RCULS), which is a 34% upside to its trading price. FY08E and FY09E PER is fair at 5x and 13x, respectively. Maintain BUY recommendation.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Resorts World - Mainly in line
Resorts World - Mainly in line (Results Note)
Price: RM3.80
Target Price: RM4.84
Recommendation: BUY
· FY07 revenue of RM4.4b was in line with our expectation and street's. Core net profit at RM1203.4m was however marginally lower at 5.5% and 8.9% below our expectation and street's consensus respectively, due to marginally higher effective taxes and finance cost.
· QoQ revenue was up 2.3% on higher visitor arrivals while EBITDA margin dipped 1 percentage point to 41.3% suggesting perhaps higher promotional expenses and/or lower luck factor. Pre-tax was lower by 42.9% as exceptional including StarCruises' disposal and dilution (RM354.8m) was recognised in the preceding quarter. Normalised, pretax was 6.7% higher sequentially.
· YoY, FY07 revenue and EBITDA recorded healthy double digit growth of 14.3% and 12.1% respectively. Stronger headline numbers were driven by higher visitorships, growth in both grind and VIP markets and higher interest income (+173.1%) on rising cash balance to RM3b.
· Final dividend of 3.6 sen bringing full year dividend to 6.48 sen (2006 : 5.4sen). Payout of 24% is a tad disappointing given expected cash hoard of RM3.5b post sale of Genting International to be completed in the near future. Rising cash hoard should spur speculation of further acquisitions or the latest being the privatisation of Resorts World which we do not discount.
· Prospect remain robust for FY08 underpinned by robust private consumption growth augmented by 9MP spending, growing patronage with the extension of VMY, active room yield management and aggressive marketing efforts to attract the right customers. We are confident on the growth of Resorts' visitor patronage and maintain our net profit forecast of RM1.4b and RM1.5b for FY08 and FY09 respectively.
· BUY maintained with an unchanged sum of parts valuation at RM4.84. Resorts is trading at one year forward PER of only 15.9x, a huge 39% discount to the regional peer's forward PER of 26x. Expansion into the regional gaming market could be a strong rerating catalyst for share price.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Price: RM3.80
Target Price: RM4.84
Recommendation: BUY
· FY07 revenue of RM4.4b was in line with our expectation and street's. Core net profit at RM1203.4m was however marginally lower at 5.5% and 8.9% below our expectation and street's consensus respectively, due to marginally higher effective taxes and finance cost.
· QoQ revenue was up 2.3% on higher visitor arrivals while EBITDA margin dipped 1 percentage point to 41.3% suggesting perhaps higher promotional expenses and/or lower luck factor. Pre-tax was lower by 42.9% as exceptional including StarCruises' disposal and dilution (RM354.8m) was recognised in the preceding quarter. Normalised, pretax was 6.7% higher sequentially.
· YoY, FY07 revenue and EBITDA recorded healthy double digit growth of 14.3% and 12.1% respectively. Stronger headline numbers were driven by higher visitorships, growth in both grind and VIP markets and higher interest income (+173.1%) on rising cash balance to RM3b.
· Final dividend of 3.6 sen bringing full year dividend to 6.48 sen (2006 : 5.4sen). Payout of 24% is a tad disappointing given expected cash hoard of RM3.5b post sale of Genting International to be completed in the near future. Rising cash hoard should spur speculation of further acquisitions or the latest being the privatisation of Resorts World which we do not discount.
· Prospect remain robust for FY08 underpinned by robust private consumption growth augmented by 9MP spending, growing patronage with the extension of VMY, active room yield management and aggressive marketing efforts to attract the right customers. We are confident on the growth of Resorts' visitor patronage and maintain our net profit forecast of RM1.4b and RM1.5b for FY08 and FY09 respectively.
· BUY maintained with an unchanged sum of parts valuation at RM4.84. Resorts is trading at one year forward PER of only 15.9x, a huge 39% discount to the regional peer's forward PER of 26x. Expansion into the regional gaming market could be a strong rerating catalyst for share price.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Mamee-Double Decker - FY07 results above estimates
Mamee-Double Decker - FY07 results above estimates (Results Note)
Price: RM2.05
Target Price: RM2.20
Recommendation: HOLD
· Mamee-Double Decker's (Mamee) 12MFY07 net profit of RM14.0m was above expectations, coming in 15% above our forecast. The negative impact of rising commodities prices, while large enough to cause a 33% YoY decline in 12MFY07 EBIT, was less severe than we had anticipated.
· Competition eating into local sales. YoY, FY07 net profit declined by 40% despite a 3% increase in revenue from higher export sales. Domestic sales however decreased due to heightened competition from both local players and cheap imports such as Indonesia's 'Sedap'. FY07 pretax profit decreased by 33% in line with the reduction in EBIT because of escalating raw materials costs (palm oil, flour).
· Escalating raw materials costs mitigated by lower marketing expenditure. YoY, 4QFY07 net profit improved marginally by 2% corresponding to a 2% increase in 4QFY07 revenue, driven by the higher retail price of instant noodles. Pretax profit increased by 29% due to lower advertising and promotions expenditure offsetting higher input costs.
· Decline in beverage and exports QOQ. 4QFY07 net profit was 3% lower QoQ, as the 10% decrease in 4QFY07 revenue, caused by decrease in beverage and export sales, was partially mitigated by lower taxation, with 4QFY07 effective tax rate 4% lower QoQ due to the timing of tax claims.
· Maintaining FY08 and FY09 earnings estimates. Expect prevailing market conditions to remain tough for the foreseeable future with the rising trend of commodities prices to continue and with new foreign entrants continuing to steal market share.
· Maintain HOLD recommendation and target price of RM2.20 based on lower PER of 12x (at 1x discount to industry average FY08 PER of 13x) applied to FY08 FD EPS of 22.3 sen. We are lowering target PER to bring it in line with the lower average FY08 PERs of Mamee's local peers. Prospective FY08 dividend yield of 8% adds some interest.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Price: RM2.05
Target Price: RM2.20
Recommendation: HOLD
· Mamee-Double Decker's (Mamee) 12MFY07 net profit of RM14.0m was above expectations, coming in 15% above our forecast. The negative impact of rising commodities prices, while large enough to cause a 33% YoY decline in 12MFY07 EBIT, was less severe than we had anticipated.
· Competition eating into local sales. YoY, FY07 net profit declined by 40% despite a 3% increase in revenue from higher export sales. Domestic sales however decreased due to heightened competition from both local players and cheap imports such as Indonesia's 'Sedap'. FY07 pretax profit decreased by 33% in line with the reduction in EBIT because of escalating raw materials costs (palm oil, flour).
· Escalating raw materials costs mitigated by lower marketing expenditure. YoY, 4QFY07 net profit improved marginally by 2% corresponding to a 2% increase in 4QFY07 revenue, driven by the higher retail price of instant noodles. Pretax profit increased by 29% due to lower advertising and promotions expenditure offsetting higher input costs.
· Decline in beverage and exports QOQ. 4QFY07 net profit was 3% lower QoQ, as the 10% decrease in 4QFY07 revenue, caused by decrease in beverage and export sales, was partially mitigated by lower taxation, with 4QFY07 effective tax rate 4% lower QoQ due to the timing of tax claims.
· Maintaining FY08 and FY09 earnings estimates. Expect prevailing market conditions to remain tough for the foreseeable future with the rising trend of commodities prices to continue and with new foreign entrants continuing to steal market share.
· Maintain HOLD recommendation and target price of RM2.20 based on lower PER of 12x (at 1x discount to industry average FY08 PER of 13x) applied to FY08 FD EPS of 22.3 sen. We are lowering target PER to bring it in line with the lower average FY08 PERs of Mamee's local peers. Prospective FY08 dividend yield of 8% adds some interest.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Genting - BUY - 29 Feb 2008
Genting - In line (Results Note)
Price: RM6.85
Target Price: RM9.90
Recommendation: BUY
· FY07 revenue at RM8.5b was within both our expectation and market's. Core net profit of RM1,597.7m was however 4.2% and 6.6% above our forecast and street's estimates respectively. Better performance was driven by leisure & hospitality, plantation and power divisions which posted strong double-digit topline growth.
· QoQ, revenue rose 1.2% but EBITDA slid 0.9% due to lower EBIT contribution from other minor divisions mitigated by higher contribution from plantation and O&G division. Plantation and O&G division recorded strongest EBIT growth of 17.0% and 22.2% respectively on the back of rising CPO and oil price. EBIT for leisure and hospitality division however contracted marginally by 1%, reflecting the challenging operating environment in UK.
· YoY, FY07 revenue and EBITDA rose 32.2% and 11.6% respectively, underpinned by stronger highlands performance, buoyant CPO price and full year impact from Meizhou Wan power plant which contributed only 7 months in FY06. Profit contribution from O&G was lower due to higher cost incurred. Similiarly, property and other divisions also registered lower profit as activities in these divisions slowed down. Normalised pre-tax profit still grew a remarkable 17.9% underpinned by higher interest income (+30.9) and lower associate losses after disposal of StarCruises.
· Final dividend of 4.3 sen proposed bringing total DPS of 37sen including a special 30 sen in memory of the late Tan Sri Lim Goh Tong. This translates into a yield of 5.5%.
· Maintain FY08 forecast but lower FY09 net profit projection by 7.1% to account for higher interest cost associated with the construction of Sentosa Integrated Resorts in Singapore. BUY recommendation maintain with an unchanged target price of RM9.90. Current weakness presents good buying opportunity as it trades at an undemanding 16.1x FY08 PER versus regional average of 26x, a 38% discount.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Price: RM6.85
Target Price: RM9.90
Recommendation: BUY
· FY07 revenue at RM8.5b was within both our expectation and market's. Core net profit of RM1,597.7m was however 4.2% and 6.6% above our forecast and street's estimates respectively. Better performance was driven by leisure & hospitality, plantation and power divisions which posted strong double-digit topline growth.
· QoQ, revenue rose 1.2% but EBITDA slid 0.9% due to lower EBIT contribution from other minor divisions mitigated by higher contribution from plantation and O&G division. Plantation and O&G division recorded strongest EBIT growth of 17.0% and 22.2% respectively on the back of rising CPO and oil price. EBIT for leisure and hospitality division however contracted marginally by 1%, reflecting the challenging operating environment in UK.
· YoY, FY07 revenue and EBITDA rose 32.2% and 11.6% respectively, underpinned by stronger highlands performance, buoyant CPO price and full year impact from Meizhou Wan power plant which contributed only 7 months in FY06. Profit contribution from O&G was lower due to higher cost incurred. Similiarly, property and other divisions also registered lower profit as activities in these divisions slowed down. Normalised pre-tax profit still grew a remarkable 17.9% underpinned by higher interest income (+30.9) and lower associate losses after disposal of StarCruises.
· Final dividend of 4.3 sen proposed bringing total DPS of 37sen including a special 30 sen in memory of the late Tan Sri Lim Goh Tong. This translates into a yield of 5.5%.
· Maintain FY08 forecast but lower FY09 net profit projection by 7.1% to account for higher interest cost associated with the construction of Sentosa Integrated Resorts in Singapore. BUY recommendation maintain with an unchanged target price of RM9.90. Current weakness presents good buying opportunity as it trades at an undemanding 16.1x FY08 PER versus regional average of 26x, a 38% discount.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Pelikan International Corp - New product & markets to power Pelikan
Pelikan International Corp - New product & markets to power Pelikan (Company Update)
Price: RM3.78
Target Price: RM5.10
Recommendation: BUY
· PowerPad and Hardcopy products formally launched in Asia this month. The innovative PowerPad product that is now available in Europe and Malaysia is expected to generate a potential RM30.2m and RM62.6m in FY08 and FY09 revenue respectively.
· Emerging markets of Latin America and Asia to be next avenues for growth. The firm expects FY08 sales to grow by 20% and 60% in Latin America and Asia respectively. The firm has re-acquired all its brand rights in Latin America except for Columbia and expects to increase profitability in the region by managing its own manufacturing and distribution. As for Asia, Pelikan has tied-up with several large distributors in India (Reliance Retail), China (Parkson Retail Group) and Malaysia (Parkson Holdings, Tech Asia, Giant, Carrefour) and is marketing its Hardcopy products in this region for the first time.
· ICULS fully-exercised, with all RM98.9m worth of ICULS converted as at 11 February 2008. Approximately RM63.9m RCULS remain outstanding.
· Re-iterate BUY recommendation with target price of RM5.10, based on unchanged 13.5x PER applied to FY08 FD EPS of 37.8 sen. The stock is currently trading at undemanding 10x and 8x FY08 and FY09 PERs. The stock should trade at higher valuations given Pelikan's rapid global expansion and growth prospects.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Price: RM3.78
Target Price: RM5.10
Recommendation: BUY
· PowerPad and Hardcopy products formally launched in Asia this month. The innovative PowerPad product that is now available in Europe and Malaysia is expected to generate a potential RM30.2m and RM62.6m in FY08 and FY09 revenue respectively.
· Emerging markets of Latin America and Asia to be next avenues for growth. The firm expects FY08 sales to grow by 20% and 60% in Latin America and Asia respectively. The firm has re-acquired all its brand rights in Latin America except for Columbia and expects to increase profitability in the region by managing its own manufacturing and distribution. As for Asia, Pelikan has tied-up with several large distributors in India (Reliance Retail), China (Parkson Retail Group) and Malaysia (Parkson Holdings, Tech Asia, Giant, Carrefour) and is marketing its Hardcopy products in this region for the first time.
· ICULS fully-exercised, with all RM98.9m worth of ICULS converted as at 11 February 2008. Approximately RM63.9m RCULS remain outstanding.
· Re-iterate BUY recommendation with target price of RM5.10, based on unchanged 13.5x PER applied to FY08 FD EPS of 37.8 sen. The stock is currently trading at undemanding 10x and 8x FY08 and FY09 PERs. The stock should trade at higher valuations given Pelikan's rapid global expansion and growth prospects.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
HLG: 29 Feb Petra Perdana - Results in-line with expectation
Petra Perdana BUY
Price target RM6.80
Share price at 28 Feb RM4.12
Investment summary
Normalized FY07 earnings were in-line with HLG/ market estimates. Strong +65% yoy earnings growth re-affirm our BUY rating on the stock. We like Petra Perdana because: (1) fleet of high brake horsepower vessels offers greater leverage to deepwater asset play (2) delivery of 17 new vessels from now till 2010 will bring down average age of vessels and increase utilization (3) expanding vessel operations into new markets within Southeast Asia and Australia. We remain positive on O&G vessel owner/operators sector: (1) charter rates continue to remain strong with new-builds lagging behind replacement market (2) the number of Malaysian flagged vessels is way below Petronas domestic demand
Bargain-hunting
FY07 earnings rose +65%, vs. –25% share price decline since Nov07. The share price/fundamental divergence is an opportunity to accumulate: (1) positive job-flow/charter rates prospects (2) higher EPS leverage to changes in charter rates due to current skew towards short-term contracts.
Price target RM6.80
Share price at 28 Feb RM4.12
Investment summary
Normalized FY07 earnings were in-line with HLG/ market estimates. Strong +65% yoy earnings growth re-affirm our BUY rating on the stock. We like Petra Perdana because: (1) fleet of high brake horsepower vessels offers greater leverage to deepwater asset play (2) delivery of 17 new vessels from now till 2010 will bring down average age of vessels and increase utilization (3) expanding vessel operations into new markets within Southeast Asia and Australia. We remain positive on O&G vessel owner/operators sector: (1) charter rates continue to remain strong with new-builds lagging behind replacement market (2) the number of Malaysian flagged vessels is way below Petronas domestic demand
Bargain-hunting
FY07 earnings rose +65%, vs. –25% share price decline since Nov07. The share price/fundamental divergence is an opportunity to accumulate: (1) positive job-flow/charter rates prospects (2) higher EPS leverage to changes in charter rates due to current skew towards short-term contracts.
HLG: 29 Feb Alam Maritim - Results above-expectation
Alam Maritim Resources BUY
Price target RM2.70
Share price at 28 Feb RM2.12
Investment summary
FY07 earnings were 12-16% ahead of HLG/consensus estimate, due to higher-than-expected vessel utilization rates during the year. We raise Alam from a HOLD to a BUY: (1) recent -14% share price decline is unwarranted given resilient vessel charter rates; (2) valuations are attractive, at 14x FY08 PE and above-market 27% EPS CAGR over FY07-09E, purely on the basis of scheduled vessel deliveries and current spot charter rates. We remain positive on O&G vessel owner/operators sector: (1) charter rates continue to remain strong with new-builds lagging behind replacement market (2) the number of Malaysian flagged vessels is way below Petronas domestic demand.
Upgrade to BUY
Share price has fallen 25% from its Nov07 peak, despite near-term positives: (1) 50% fleet expansion in 2008; (2) charter rates have been consolidating since Q307, and could resume its upward trend by mid-yr.
Price target RM2.70
Share price at 28 Feb RM2.12
Investment summary
FY07 earnings were 12-16% ahead of HLG/consensus estimate, due to higher-than-expected vessel utilization rates during the year. We raise Alam from a HOLD to a BUY: (1) recent -14% share price decline is unwarranted given resilient vessel charter rates; (2) valuations are attractive, at 14x FY08 PE and above-market 27% EPS CAGR over FY07-09E, purely on the basis of scheduled vessel deliveries and current spot charter rates. We remain positive on O&G vessel owner/operators sector: (1) charter rates continue to remain strong with new-builds lagging behind replacement market (2) the number of Malaysian flagged vessels is way below Petronas domestic demand.
Upgrade to BUY
Share price has fallen 25% from its Nov07 peak, despite near-term positives: (1) 50% fleet expansion in 2008; (2) charter rates have been consolidating since Q307, and could resume its upward trend by mid-yr.
HLG: 29 Feb TSR Capital - Poor results, but expect closure on Medical City to drive share price
TSR Capital Berhad BUY
Price target RM3.10
Share price at 28 Feb RM1.40
Investment summary
Normalized FY07 results were 10-30% ahead of forecast/consensus, but headline earnings were hit by kitchen sinking. We think FY08 EPS prospects remain positive, and that TSR is close to securing the lumpy RM1.7bn Medical City project. Maintain BUY. We like TSR due to: (1) the recent doubling of its order book to RM1bn, which translates into 45% EPS CAGR over FY06-09E, and a 50% FY08 PE discount to big-cap peers; (2) our expectation that the narrowing political window will drive accelerated government job-flow to small Bumiputra contractors; (3) potential upside from the future government approval of the Medical City PFI project, which we value at an additional RM1.00/share. We are negative on the Malaysian construction sector: (1) we believe sector valuations are at their cyclical peaks, and impute significant hope value; (2) investor expectation on government spending has switched from seeking surprises towards execution risk.
Bargain hunting
Share price has fallen 32% YTD and we think the current share price is a low-risk entry level. Catalysts are: (1) TRC trading at FY08E fully-diluted PE of 6x, a 50% discount to big-cap construction names; (2) near-term election cycle favoring small Bumiputra contractors; (3) possible announcement of RM1.7bn Medical City, which is worth RM1.00/share on DCF.
Price target RM3.10
Share price at 28 Feb RM1.40
Investment summary
Normalized FY07 results were 10-30% ahead of forecast/consensus, but headline earnings were hit by kitchen sinking. We think FY08 EPS prospects remain positive, and that TSR is close to securing the lumpy RM1.7bn Medical City project. Maintain BUY. We like TSR due to: (1) the recent doubling of its order book to RM1bn, which translates into 45% EPS CAGR over FY06-09E, and a 50% FY08 PE discount to big-cap peers; (2) our expectation that the narrowing political window will drive accelerated government job-flow to small Bumiputra contractors; (3) potential upside from the future government approval of the Medical City PFI project, which we value at an additional RM1.00/share. We are negative on the Malaysian construction sector: (1) we believe sector valuations are at their cyclical peaks, and impute significant hope value; (2) investor expectation on government spending has switched from seeking surprises towards execution risk.
Bargain hunting
Share price has fallen 32% YTD and we think the current share price is a low-risk entry level. Catalysts are: (1) TRC trading at FY08E fully-diluted PE of 6x, a 50% discount to big-cap construction names; (2) near-term election cycle favoring small Bumiputra contractors; (3) possible announcement of RM1.7bn Medical City, which is worth RM1.00/share on DCF.
TRC Synergy - FY07 net profit within expectations
TRC Synergy - FY07 net profit within expectations (Results Note)
Price: RM2.03
Target Price: RM4.42
Recommendation: BUY
· FY07 net profit of RM29.4m was within our estimates of RM30.6m bring 3.9%. FY07 net profit was largely driven by new contracts secured in early 2007 which are being executed and progress billings. Net profit for 4Q07 typically the strongest quarter compensated for the weaker 3Q07 net profit. It is typical that construction contracts have volatile quarterly results given the different construction lifecycle of each project at any one point in time.
· FY07 net profit was 180% higher YOY as a result resurgence in contracts secured in late 2006 early 2007 which are currently under construction namely, Sepanggar Naval Submarine base, Kuala Trengganu (KT) airport expansion and Dang Wangi police station.
· YOY 4Q07 net profit of RM11.5m was 13x higher given that in 4Q06 netrp ofit of RM0.5m as most of the key projects have not started. In 4Q06. QoQ despite lower turnover of 4%, net profit was sharply higher at 7.4m from 5.4m. This largely due to improved economies of scale, prudent raw material management which compensated for the sharp increases in basic building materials.
· We are maintaining FY08 and FY09 forecast of RM45.9m and RM43.5m respectively. TRC is close to securing the letter of award for KT airport expansion phase 2 and University KL. Together, the projects would add an estimate RM400m to its already sizeable unbilled order book of RM727m making it a total of RM1.1b.
· Maintain BUY with revised target price of RM4.42 (RM4.37) based on FY08 Fully Diluted EPS of 29.5 sen using the average PER of 12x for smaller construction companies. The share is currently trading at attractive FY08E and FY09E PER of 7x respectively.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Price: RM2.03
Target Price: RM4.42
Recommendation: BUY
· FY07 net profit of RM29.4m was within our estimates of RM30.6m bring 3.9%. FY07 net profit was largely driven by new contracts secured in early 2007 which are being executed and progress billings. Net profit for 4Q07 typically the strongest quarter compensated for the weaker 3Q07 net profit. It is typical that construction contracts have volatile quarterly results given the different construction lifecycle of each project at any one point in time.
· FY07 net profit was 180% higher YOY as a result resurgence in contracts secured in late 2006 early 2007 which are currently under construction namely, Sepanggar Naval Submarine base, Kuala Trengganu (KT) airport expansion and Dang Wangi police station.
· YOY 4Q07 net profit of RM11.5m was 13x higher given that in 4Q06 netrp ofit of RM0.5m as most of the key projects have not started. In 4Q06. QoQ despite lower turnover of 4%, net profit was sharply higher at 7.4m from 5.4m. This largely due to improved economies of scale, prudent raw material management which compensated for the sharp increases in basic building materials.
· We are maintaining FY08 and FY09 forecast of RM45.9m and RM43.5m respectively. TRC is close to securing the letter of award for KT airport expansion phase 2 and University KL. Together, the projects would add an estimate RM400m to its already sizeable unbilled order book of RM727m making it a total of RM1.1b.
· Maintain BUY with revised target price of RM4.42 (RM4.37) based on FY08 Fully Diluted EPS of 29.5 sen using the average PER of 12x for smaller construction companies. The share is currently trading at attractive FY08E and FY09E PER of 7x respectively.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
RCE Capital - 9MFY08 results on track
RCE Capital - 9MFY08 results on track (Results Note)
Price: RM0.58
Target Price: RM1.15
Recommendation: BUY
· RCE Capital's (RCE) 9MFY08 net profit of RM38.0m was within our expectations and slightly below consensus, comprising 73% of our RM51.9m FY08 net profit forecast and 70% of the RM53.6m estimated by consensus. 9MFY08 core earnings is up by 24% YoY spurred on by the July 2007 civil servants' pay rise.
· 9MFY08 core net profit bumped up by higher loan disbursements driven by the hike in government employees' salaries. YoY, 9MFY08 core net profit rose by 24% (compared to 9MFY07 core net profit of RM30.5m excluding 9MFY07 extraordinary items of RM20.4m from the disposal of AmFIRST REIT and the associated RM3.5m impairment) due to an approximate 20% increase in loans disbursed. 9MFY08 EBIT margin declined by a slight 4% due to higher interest expense associated with the fully-issued MTNs and higher commissions for co-operative agents.
· YoY, 3QFY08 core net profit increased by 16% on the back of 33% increase in 3QFY08 revenue spurred by the public service salary increase and aggressive marketing by RCE. Excluding exceptionals, the 3QFY08 EBIT declined by 10% partly due to higher interest applicable to revenue which grew proportionately to the larger amount of loans disbursed.
· QoQ, 3QFY08 net profit improved by 16% despite a 4% dip in 3QFY08 revenue due to the timing of loan demand. 2QFY08 revenue enjoyed the bulk of the increase in loan appetite coupled with aggressive marketing by RCE, surging by 24% QoQ.
· Maintain FY08 and FY09 net profit estimates of RM51.9m and RM63.1m respectively. Expect healthy demand for loans in FY08 by the low to middle income civil servants that are RCE's target market, as they look to raise cash to cope with rising inflation.
· Re-iterate our BUY recommendation with target price of RM1.15, obtained by utilising a 12x PER to previous FY09 EPS of 9.6 sen. At our target price, the stock would only be trading at 13x PER to FY09 EPS (excl EI) of 8.9 sen. We believe the company's growth prospects are intact, with the possibility of upside as it expands geographically.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Price: RM0.58
Target Price: RM1.15
Recommendation: BUY
· RCE Capital's (RCE) 9MFY08 net profit of RM38.0m was within our expectations and slightly below consensus, comprising 73% of our RM51.9m FY08 net profit forecast and 70% of the RM53.6m estimated by consensus. 9MFY08 core earnings is up by 24% YoY spurred on by the July 2007 civil servants' pay rise.
· 9MFY08 core net profit bumped up by higher loan disbursements driven by the hike in government employees' salaries. YoY, 9MFY08 core net profit rose by 24% (compared to 9MFY07 core net profit of RM30.5m excluding 9MFY07 extraordinary items of RM20.4m from the disposal of AmFIRST REIT and the associated RM3.5m impairment) due to an approximate 20% increase in loans disbursed. 9MFY08 EBIT margin declined by a slight 4% due to higher interest expense associated with the fully-issued MTNs and higher commissions for co-operative agents.
· YoY, 3QFY08 core net profit increased by 16% on the back of 33% increase in 3QFY08 revenue spurred by the public service salary increase and aggressive marketing by RCE. Excluding exceptionals, the 3QFY08 EBIT declined by 10% partly due to higher interest applicable to revenue which grew proportionately to the larger amount of loans disbursed.
· QoQ, 3QFY08 net profit improved by 16% despite a 4% dip in 3QFY08 revenue due to the timing of loan demand. 2QFY08 revenue enjoyed the bulk of the increase in loan appetite coupled with aggressive marketing by RCE, surging by 24% QoQ.
· Maintain FY08 and FY09 net profit estimates of RM51.9m and RM63.1m respectively. Expect healthy demand for loans in FY08 by the low to middle income civil servants that are RCE's target market, as they look to raise cash to cope with rising inflation.
· Re-iterate our BUY recommendation with target price of RM1.15, obtained by utilising a 12x PER to previous FY09 EPS of 9.6 sen. At our target price, the stock would only be trading at 13x PER to FY09 EPS (excl EI) of 8.9 sen. We believe the company's growth prospects are intact, with the possibility of upside as it expands geographically.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
AirAsia - HOLD - 28 Feb 2008
AirAsia - Within expectations (Results Note)
Price: RM1.54
Target Price: RM1.67
Recommendation: HOLD
· 6MDec07 revenue of RM1.1b was in line with our expectations and market's. Core net profit of RM140.8m excluding forex gain however was 2.2% and 5.9% ahead of our forecast and street's consensus. Stronger performance was driven by a 23.2% growth in passenger volume and improved yields on higher average fare.
· QoQ, revenue and EBITDA shot up 37.1% and 52.6% respectively, lifted by higher average ticket price (2Q: RM214 vs 1Q:RM174) and stronger sales coincide with festive season. Cost/ASK however increased 10.8% sequentially to 11.5 sen as oil prices soared.
· YoY, 6MDec07 revenue soared 39% on the back of: a) 23.2% growth in passenger volumes to 5.2m passengers; b) 5.4% growth in yield (2H07: 16.4 sen against 2H06: 15.5 sen) supported by higher average fare (+14% yoy); and c) strong growth of ancillary income by 51.2% to RM78.3m. Though pre-tax profit of RM276.7m was boosted by a RM134.4m forex gain, normalised growth was still commendable at 57.2%. Notwithstanding the positive operation growth, load factor slipped 2.9 percentage points yoy to 78.4% owning to underperformance of new international long distance routes and aggressive capacity expansion (+37.2%).
· New routes including KL-Singapore and flights to China have been well received, registering average load factor of 85%. Upcoming routes include KL-Hong Kong and KL-Ho Chi Minh to be launched within 2 months should complete AirAsia's link to the whole of Asean.
· Maintain HOLD and target price of RM1.67 based on FY08 PER of 15x as continuing high oil prices couple with the global economic uncertainty should pressure near term performance.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
Price: RM1.54
Target Price: RM1.67
Recommendation: HOLD
· 6MDec07 revenue of RM1.1b was in line with our expectations and market's. Core net profit of RM140.8m excluding forex gain however was 2.2% and 5.9% ahead of our forecast and street's consensus. Stronger performance was driven by a 23.2% growth in passenger volume and improved yields on higher average fare.
· QoQ, revenue and EBITDA shot up 37.1% and 52.6% respectively, lifted by higher average ticket price (2Q: RM214 vs 1Q:RM174) and stronger sales coincide with festive season. Cost/ASK however increased 10.8% sequentially to 11.5 sen as oil prices soared.
· YoY, 6MDec07 revenue soared 39% on the back of: a) 23.2% growth in passenger volumes to 5.2m passengers; b) 5.4% growth in yield (2H07: 16.4 sen against 2H06: 15.5 sen) supported by higher average fare (+14% yoy); and c) strong growth of ancillary income by 51.2% to RM78.3m. Though pre-tax profit of RM276.7m was boosted by a RM134.4m forex gain, normalised growth was still commendable at 57.2%. Notwithstanding the positive operation growth, load factor slipped 2.9 percentage points yoy to 78.4% owning to underperformance of new international long distance routes and aggressive capacity expansion (+37.2%).
· New routes including KL-Singapore and flights to China have been well received, registering average load factor of 85%. Upcoming routes include KL-Hong Kong and KL-Ho Chi Minh to be launched within 2 months should complete AirAsia's link to the whole of Asean.
· Maintain HOLD and target price of RM1.67 based on FY08 PER of 15x as continuing high oil prices couple with the global economic uncertainty should pressure near term performance.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Research Department
kimeng: 27 feb TM (hold)
> Results within expectations
> Results were within expectations; reported FY07 EPS came in at 74.4 sen
> versus our estimate of 73.1 sen. Telekom Malaysia (TM) saw a lower EPS
> of 17.2 sen in Q4 (Q307: 19.2 sen) due to higher asset impairment.
> Despite the weaker Q4, TM still posted a 22% rise in EPS in FY07, helped
> by decent revenue growth, exceptional gains and reversal of excess tax
> provision. Adjusted for one-off items, FY07 normalised EPS was 63.4 sen
> versus 50.4 sen in FY06. Normalised EBITDA margin was 42.5% in FY07,
> down from 43.3% in FY06. All-in, TM achieved its key performance targets
> for revenue and ROE, but did not meet its target FY07 EBITDA margin of
> 44.5%. TM proposed a final gross dividend of 22 sen, bringing the total
> gross dividend to 113 sen (including the special gross dividend of 65
> sen paid on 31 Jan 2008), translating to a net payout of 113%.
>
> TM to be a yield play; TMI to be a growth play
> The 2 separate entities will have different capital management
> initiatives tailored to their different needs. Post de-merger, FixedCo
> intends to distribute dividends of RM700m or up to 90% of its nomalised
> net profit, whichever is higher. Meanwhile, TMI's payout will be less
> than TM's (pre de-merger) payout of 40-60%, given its needs for funds to
> finance its expansion.
> Results were within expectations; reported FY07 EPS came in at 74.4 sen
> versus our estimate of 73.1 sen. Telekom Malaysia (TM) saw a lower EPS
> of 17.2 sen in Q4 (Q307: 19.2 sen) due to higher asset impairment.
> Despite the weaker Q4, TM still posted a 22% rise in EPS in FY07, helped
> by decent revenue growth, exceptional gains and reversal of excess tax
> provision. Adjusted for one-off items, FY07 normalised EPS was 63.4 sen
> versus 50.4 sen in FY06. Normalised EBITDA margin was 42.5% in FY07,
> down from 43.3% in FY06. All-in, TM achieved its key performance targets
> for revenue and ROE, but did not meet its target FY07 EBITDA margin of
> 44.5%. TM proposed a final gross dividend of 22 sen, bringing the total
> gross dividend to 113 sen (including the special gross dividend of 65
> sen paid on 31 Jan 2008), translating to a net payout of 113%.
>
> TM to be a yield play; TMI to be a growth play
> The 2 separate entities will have different capital management
> initiatives tailored to their different needs. Post de-merger, FixedCo
> intends to distribute dividends of RM700m or up to 90% of its nomalised
> net profit, whichever is higher. Meanwhile, TMI's payout will be less
> than TM's (pre de-merger) payout of 40-60%, given its needs for funds to
> finance its expansion.
kimeng: 27 feb MPI (hold)
> H108 results within expectations despite stronger Ringgit
> H108 EPS of RM0.387 was within expectations, coming in at 54% of our
> FY08 forecast and 56% of consensus estimates. Pretax profit fell 6% Y/Y
> despite a 4% increase in revenue, mainly due to the strengthening of the
> Ringgit. Net profit fell a wider 10% Y/Y due to a higher tax charge of
> 9% versus 8.3% in H107 whilst EBITDA margin fell to 28.7% from 30.9%
> previously. Sequentially, Q208 net profit rose 88% Q/Q on a 10% increase
> in revenue due to higher sales, better margins and a lower effective tax
> rate. Management is cautious about H208 prospects, guiding for a 12-15%
> sequential decline in Q3 revenue.
>
> Attractive dividend yields; HOLD
> We are maintaining our HOLD recommendation, with a price target of
> RM9.70 based on 13x CY08 EPS of RM0.746. The share price is also
> supported by a projected gross dividend yield of 6.2% in FY08.
>
> H108 EPS of RM0.387 was within expectations, coming in at 54% of our
> FY08 forecast and 56% of consensus estimates. Pretax profit fell 6% Y/Y
> despite a 4% increase in revenue, mainly due to the strengthening of the
> Ringgit. Net profit fell a wider 10% Y/Y due to a higher tax charge of
> 9% versus 8.3% in H107 whilst EBITDA margin fell to 28.7% from 30.9%
> previously. Sequentially, Q208 net profit rose 88% Q/Q on a 10% increase
> in revenue due to higher sales, better margins and a lower effective tax
> rate. Management is cautious about H208 prospects, guiding for a 12-15%
> sequential decline in Q3 revenue.
>
> Attractive dividend yields; HOLD
> We are maintaining our HOLD recommendation, with a price target of
> RM9.70 based on 13x CY08 EPS of RM0.746. The share price is also
> supported by a projected gross dividend yield of 6.2% in FY08.
>
Kimeng: 27 feb PLUS (hold)
> Overtaking expectations
> FY07 EPS of 25 sen exceeded our estimate of 17.8 sen, thanks to
> better-than-expected traffic, an exceptional gain of RM70m and a lower
> tax charge. Traffic grew 7.7% (FY06: 1.3%), slightly ahead of our
> estimate of 7.0%. With that, Plus Expressway's (PEB) toll revenue rose
> 7.7% in 2007. Pretax profit rose a higher 18% thanks to a negative
> goodwill of RM70m arising from the acquisition of Linkedua. The tax
> charge was only 5% versus our estimate of 27% (which assumed provision
> of deferred tax), as PEB made no provision for income tax on its
> expressway profits due to the availability of tax allowances and tax
> losses, notwithstanding the expiration of its tax-exempt status on 31
> Dec 2006. Excluding the one-off gain of RM70m, core FY07 EPS would have
> been 23.5 sen (+6% Y/Y). PEB declared a final dividend of 8 sen
> (tax-exempt), bringing the total tax-exempt dividend in 2007 to 14 sen.
>
>
> Possibly more acquisitions to achieve performance targets
> In order to meet its targets, PEB is buying completed expressways,
> embarking on green field projects and expanding its existing
> expressways. Its key performance indicators (KPIs) are: a) 30% growth in
> the length of expressways by end-2009, with 20% to be achieved by
> end-2008; b) minimum revenue growth of 25% for FY08 and 5% for FY09 &
> FY10, of which a minimum 15% of the revenue in FY08 will be derived from
> the expansion of the business; and c) minimum dividend growth of 12% in
> FY08. PEB completed the purchases of Elite and Linkedua for RM866m in
> Dec 2007 (adding 573 lane-km or 15.7% of existing 3640 lane-km), and is
> on track to complete the purchase of Kulim-Butterworth Expressway by end
> Q1 2008 for RM134m. In Indonesia, it secured the concession for the
> 25.4-km Cimaggis-Cibitung Toll Road, in addition to the 116-km
> Cikampek-Palimanan Highway, which should start construction by end-2008.
> In India, its 21.6-km highway should start levying tolls by end-Q1 2008.
> As for the widening of the existing NSE, the southern stretches have
> been completed while the modifications of through traffic between Ipoh
> Selatan and Jelapang should be completed in Q3 2008. Despite these
> initiatives, PEB is still short of its 2009 target. As such, we believe
> PEB may make more acquisitions in the future.
> FY07 EPS of 25 sen exceeded our estimate of 17.8 sen, thanks to
> better-than-expected traffic, an exceptional gain of RM70m and a lower
> tax charge. Traffic grew 7.7% (FY06: 1.3%), slightly ahead of our
> estimate of 7.0%. With that, Plus Expressway's (PEB) toll revenue rose
> 7.7% in 2007. Pretax profit rose a higher 18% thanks to a negative
> goodwill of RM70m arising from the acquisition of Linkedua. The tax
> charge was only 5% versus our estimate of 27% (which assumed provision
> of deferred tax), as PEB made no provision for income tax on its
> expressway profits due to the availability of tax allowances and tax
> losses, notwithstanding the expiration of its tax-exempt status on 31
> Dec 2006. Excluding the one-off gain of RM70m, core FY07 EPS would have
> been 23.5 sen (+6% Y/Y). PEB declared a final dividend of 8 sen
> (tax-exempt), bringing the total tax-exempt dividend in 2007 to 14 sen.
>
>
> Possibly more acquisitions to achieve performance targets
> In order to meet its targets, PEB is buying completed expressways,
> embarking on green field projects and expanding its existing
> expressways. Its key performance indicators (KPIs) are: a) 30% growth in
> the length of expressways by end-2009, with 20% to be achieved by
> end-2008; b) minimum revenue growth of 25% for FY08 and 5% for FY09 &
> FY10, of which a minimum 15% of the revenue in FY08 will be derived from
> the expansion of the business; and c) minimum dividend growth of 12% in
> FY08. PEB completed the purchases of Elite and Linkedua for RM866m in
> Dec 2007 (adding 573 lane-km or 15.7% of existing 3640 lane-km), and is
> on track to complete the purchase of Kulim-Butterworth Expressway by end
> Q1 2008 for RM134m. In Indonesia, it secured the concession for the
> 25.4-km Cimaggis-Cibitung Toll Road, in addition to the 116-km
> Cikampek-Palimanan Highway, which should start construction by end-2008.
> In India, its 21.6-km highway should start levying tolls by end-Q1 2008.
> As for the widening of the existing NSE, the southern stretches have
> been completed while the modifications of through traffic between Ipoh
> Selatan and Jelapang should be completed in Q3 2008. Despite these
> initiatives, PEB is still short of its 2009 target. As such, we believe
> PEB may make more acquisitions in the future.
KENANGA RESEARCH: Hunza Properties - BUY - 28 Feb 2008
Second piece of land in the Klang Valley (KV).
Hunza Properties (Hunza) is acquiring 6.3ac land in Segambut for RM21.3m. The land is 5 minutes away from Mont Kiara, the most sought after location for premium lifestyle living inthe KV. The site is earmarked for 400 to 450 units of mid to high endcondominiums.
A Mont Kiara lifestyle for “half” the price, as Hunza intends to price itscondominiums at RM300psf to RM350psf, which is very attractive compared to Mont Kiara’s capital values range of RM550psf to RM850psf. Each unit’s build-up will be in the region of 1,000sf – 1,500sf, which works out as an affordableRM300,000 to RM525,000 per unit, especially for young working adultswanting a contemporary lifestyle. Based on these figures, we estimate GDV to be RM120m to RM184m. Timing of launch has not been revealed yet.
We think the land price is a bargain at RM78psf given its proximity to MontKiara/Sri Hartamas and new roads which makes Segambut more accessible.Also, by securing the land now, Hunza not only geographically increases itslandbank, but also purchased it for less than future market prices. We strongly believe that the increasing scarcity of land in Mont Kiara could propelSegambut’s land values higher.
Continuous presence in the KV is critical as KV home buyers areincreasingly brand conscientious and discerning. Hunza’s needs to havecontinuity in the KV to secure more earning diversification avenues, especially its comparatively smaller population size. The project further enhances itsbrand as a developer who can deliver quality wherever it goes.
Less ‘teething problems’ associated with starting a new team, as theexisting KV team is already in place. As this is their second KV project, Hunza KV team is familiar with the inner workings of KV which essentially expeditesexecution and save initial cost associated with setting up a new team. Target price based on sum of part RNAV remains unchanged at RM4.37, on a fully diluted basis, as we have conservatively valued the property usingthe purchase price. FY08E and FY09E PER valuations are very attractive at 5x and 4x versus the sector average of 15x and 10x, respectively. Maintain BUY.
Hunza Properties (Hunza) is acquiring 6.3ac land in Segambut for RM21.3m. The land is 5 minutes away from Mont Kiara, the most sought after location for premium lifestyle living inthe KV. The site is earmarked for 400 to 450 units of mid to high endcondominiums.
A Mont Kiara lifestyle for “half” the price, as Hunza intends to price itscondominiums at RM300psf to RM350psf, which is very attractive compared to Mont Kiara’s capital values range of RM550psf to RM850psf. Each unit’s build-up will be in the region of 1,000sf – 1,500sf, which works out as an affordableRM300,000 to RM525,000 per unit, especially for young working adultswanting a contemporary lifestyle. Based on these figures, we estimate GDV to be RM120m to RM184m. Timing of launch has not been revealed yet.
We think the land price is a bargain at RM78psf given its proximity to MontKiara/Sri Hartamas and new roads which makes Segambut more accessible.Also, by securing the land now, Hunza not only geographically increases itslandbank, but also purchased it for less than future market prices. We strongly believe that the increasing scarcity of land in Mont Kiara could propelSegambut’s land values higher.
Continuous presence in the KV is critical as KV home buyers areincreasingly brand conscientious and discerning. Hunza’s needs to havecontinuity in the KV to secure more earning diversification avenues, especially its comparatively smaller population size. The project further enhances itsbrand as a developer who can deliver quality wherever it goes.
Less ‘teething problems’ associated with starting a new team, as theexisting KV team is already in place. As this is their second KV project, Hunza KV team is familiar with the inner workings of KV which essentially expeditesexecution and save initial cost associated with setting up a new team. Target price based on sum of part RNAV remains unchanged at RM4.37, on a fully diluted basis, as we have conservatively valued the property usingthe purchase price. FY08E and FY09E PER valuations are very attractive at 5x and 4x versus the sector average of 15x and 10x, respectively. Maintain BUY.
HLG: 28 Feb Lafarge Malayan Cement - Could do better on dividends
Lafarge Malayan Cement BUY
Price target RM6.30
Share price at 27 Feb RM5.60
Investment summary
FY07 earnings rose +64% yoy due to tax writebacks and single-digit volume/ASP growth. Results were 10% above forecast and consensus, and re-affirm 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) Quarterly earnings continue to beat the market, and margins are secure from export price hikes and the Jan08 domestic automated pricing mechanism. 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 recent introduction of the automated pricing mechanism (APM), and the industry’s closed/oligopolistic market structure; (3) strong export volumes/ pricing, especially from Singapore’s construction boom.
Buy on dips
No surprise on EPS, but we anticipate another capital repayment within the next 12-months. We like LMC as: (1) the APM is a hedge against cost inflation; (2) it is a safe proxy to the 9MP. LMC’s share price has not recovered from the 15% drop after the capital repayment in Nov07.
Price target RM6.30
Share price at 27 Feb RM5.60
Investment summary
FY07 earnings rose +64% yoy due to tax writebacks and single-digit volume/ASP growth. Results were 10% above forecast and consensus, and re-affirm 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) Quarterly earnings continue to beat the market, and margins are secure from export price hikes and the Jan08 domestic automated pricing mechanism. 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 recent introduction of the automated pricing mechanism (APM), and the industry’s closed/oligopolistic market structure; (3) strong export volumes/ pricing, especially from Singapore’s construction boom.
Buy on dips
No surprise on EPS, but we anticipate another capital repayment within the next 12-months. We like LMC as: (1) the APM is a hedge against cost inflation; (2) it is a safe proxy to the 9MP. LMC’s share price has not recovered from the 15% drop after the capital repayment in Nov07.
HLG: 28 Feb Lion Industries Corp - H108 results reflect steel up-cycle
Lion Industries Corp Bhd BUY
Price target RM3.30
Share price at 27 Feb RM2.00
Investment summary
H108 earnings doubled yoy, and is 20-30% ahead of HLG/market estimates. Earnings continue to be driven by margin expansion on higher steel ASPs, and re-affirm our BUY rating on the stock. We like Lion Ind because of: (1) cyclical regional demand growth and ASP inflation; (2) a sharp 40% discount to its SOTP, based on market prices of its LionDiv, Parkson and LionForest stakes; (3) sub-market FY08 PE of 5x. 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; (3) the introduction of the APM in H108, which could reduce margin volatility.
Cheap RNAV to Parkson
H108 earnings (+170% yoy) beat the street on Q208 ASP hikes. Iron ore price hikes could bite in FY09, but the huge RNAV discount more than prices this in. Current mkt value of Parkson/LionDiv/LionForest stakes is RM2.50/share, and investors effectively get LionInd’s steel business for free.
Price target RM3.30
Share price at 27 Feb RM2.00
Investment summary
H108 earnings doubled yoy, and is 20-30% ahead of HLG/market estimates. Earnings continue to be driven by margin expansion on higher steel ASPs, and re-affirm our BUY rating on the stock. We like Lion Ind because of: (1) cyclical regional demand growth and ASP inflation; (2) a sharp 40% discount to its SOTP, based on market prices of its LionDiv, Parkson and LionForest stakes; (3) sub-market FY08 PE of 5x. 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; (3) the introduction of the APM in H108, which could reduce margin volatility.
Cheap RNAV to Parkson
H108 earnings (+170% yoy) beat the street on Q208 ASP hikes. Iron ore price hikes could bite in FY09, but the huge RNAV discount more than prices this in. Current mkt value of Parkson/LionDiv/LionForest stakes is RM2.50/share, and investors effectively get LionInd’s steel business for free.
HLG: 28 Feb Boustead Heavy Industries - Back to black, declares dividend
Boustead Heavy Industries BUY
Price target RM9.00
Share price at 27 Feb RM6.05
Investment summary
BHIC returned to profitability in FY07, and exceeded our forecast by 60%, albeit from a low base. Revenue and margin expansion indicate that BHIC is back in business, and re-affirm our BUY rating on the stock. We remain bullish on BHIC because: (1) BHIC is negotiating for the next batch of 4-6 Offshore Patrol Vessels (OPV), valued at RM1.2bn-RM1.4bn/vessel (2) management expect to secure the Petronas’s offshore structure fabrication license which enables BHIC to bid for new platform projects valued at >RM8bn in the next five years. BHIC was awarded a RM90m steel structure job from CPOC in Feb08, their first O&G job since 2002.
Set for the next level
FY07 results were positive, but order book expansion remains BHIC’s key share price driver: BHIC has won RM500m jobs in the last 12 months, and we think they are likely to win RM1bn in FY08.
Price target RM9.00
Share price at 27 Feb RM6.05
Investment summary
BHIC returned to profitability in FY07, and exceeded our forecast by 60%, albeit from a low base. Revenue and margin expansion indicate that BHIC is back in business, and re-affirm our BUY rating on the stock. We remain bullish on BHIC because: (1) BHIC is negotiating for the next batch of 4-6 Offshore Patrol Vessels (OPV), valued at RM1.2bn-RM1.4bn/vessel (2) management expect to secure the Petronas’s offshore structure fabrication license which enables BHIC to bid for new platform projects valued at >RM8bn in the next five years. BHIC was awarded a RM90m steel structure job from CPOC in Feb08, their first O&G job since 2002.
Set for the next level
FY07 results were positive, but order book expansion remains BHIC’s key share price driver: BHIC has won RM500m jobs in the last 12 months, and we think they are likely to win RM1bn in FY08.
HLG: 28 Feb Sime Darby - Big laggard to IOI, KLK
Sime Darby Berhad BUY
Price target RM13.80
Share price at 27 Feb RM12.00
Investment summary
H108 earnings were slightly below consensus, but we believe results are immaterial to big-cap plantation share prices: instead, we think share prices are immediate leveraged proxies to CPO prices. Despite imperfect exposure to CPO prices (plantations account for just 70% of Sime’s earnings), Sime has grossly under-performed KLK/IOI during the recent RM3000/mt to RM3,600/mt run-up in CPO prices. We spot an arbitrage opportunity, and raise our rating on Sime from a HOLD to a BUY. We are neutral on the plantation sector, and advocate switching fro IOI/KLK to small/mid cap planters such as Kulim, which offer better value/yield. Given the tight global supply of edible oil and grain, we expect CPO price to stay firm in the next 6 months.
Laggard; upgrade to BUY
Share price has been flat-line vs. 7-30% YTD gains at regional big cap peers. Though Sime is an imperfect plantation play due to its diversified structure, the scale of under-performance is undeserved, especially as positive newsflow on Bakun makes its way to the market.
Price target RM13.80
Share price at 27 Feb RM12.00
Investment summary
H108 earnings were slightly below consensus, but we believe results are immaterial to big-cap plantation share prices: instead, we think share prices are immediate leveraged proxies to CPO prices. Despite imperfect exposure to CPO prices (plantations account for just 70% of Sime’s earnings), Sime has grossly under-performed KLK/IOI during the recent RM3000/mt to RM3,600/mt run-up in CPO prices. We spot an arbitrage opportunity, and raise our rating on Sime from a HOLD to a BUY. We are neutral on the plantation sector, and advocate switching fro IOI/KLK to small/mid cap planters such as Kulim, which offer better value/yield. Given the tight global supply of edible oil and grain, we expect CPO price to stay firm in the next 6 months.
Laggard; upgrade to BUY
Share price has been flat-line vs. 7-30% YTD gains at regional big cap peers. Though Sime is an imperfect plantation play due to its diversified structure, the scale of under-performance is undeserved, especially as positive newsflow on Bakun makes its way to the market.
HLG: 28 Feb Padini - Strong domestic sales
Padini Holdings Bhd BUY
Price target RM4.40
Share price at 27 Feb RM3.48
Investment summary
H108 results were 30% ahead of HLG/market estimates, partly due to seasonality, but also due to surprisingly strong same-store sales growth from its Padini brand. Positive results re-affirm our BUY call on the stock, and we raise our price target by 22% to RM4.40.
We like Padini because:
(1) ST domestic growth driven by same-store sales growth and store expansion;
(2) its retail franchise expansion overseas will provide the next leg for growth;
(3) cheap valuations vs. regional peers, at FY08 PE of 11x with 3 year EPS CAGR of 25%. We are neutral on Malaysia’s consumer sector, given the looming inflationary pressure offsetting GDP growth, public sector pay hikes and strong tourist arrivals for Visit Malaysia Year 2007.
Record sales and profit
Share price has risen +41% since our initiation in Aug07, but we still believe there is sufficient upside to retain a BUY:
(1) quarterly EPS continues to beat the mkt;
(2) valuations are still just half of its HK peers, despite regional brand scalability.
Price target RM4.40
Share price at 27 Feb RM3.48
Investment summary
H108 results were 30% ahead of HLG/market estimates, partly due to seasonality, but also due to surprisingly strong same-store sales growth from its Padini brand. Positive results re-affirm our BUY call on the stock, and we raise our price target by 22% to RM4.40.
We like Padini because:
(1) ST domestic growth driven by same-store sales growth and store expansion;
(2) its retail franchise expansion overseas will provide the next leg for growth;
(3) cheap valuations vs. regional peers, at FY08 PE of 11x with 3 year EPS CAGR of 25%. We are neutral on Malaysia’s consumer sector, given the looming inflationary pressure offsetting GDP growth, public sector pay hikes and strong tourist arrivals for Visit Malaysia Year 2007.
Record sales and profit
Share price has risen +41% since our initiation in Aug07, but we still believe there is sufficient upside to retain a BUY:
(1) quarterly EPS continues to beat the mkt;
(2) valuations are still just half of its HK peers, despite regional brand scalability.
FCPO Daily COM 28 Feb 2008
CRUDE PALM OIL FUTURES (FCPO)
MARKET REVIEW : CPO recovered most of Tuesday losses yesterday on short covering
activities in a fairly directionless day. However,overall sentiment was positive inspired by soyoil overnight strength. The active May08 did not quite
make it to 3900 level for a lack of fresh buying interest yet. It, however, managed to float and finished near record closing level of 3866.
With mixed performance in the past two days, market remains cautious and interest is likely to remain low until strong signals emerge. Renewed buying interest can be expected if May08 trades above 3900. To the downside only a breach of 3840 could bring back active sellers, targeting the recent lows near 3800.
MARKET REVIEW : CPO recovered most of Tuesday losses yesterday on short covering
activities in a fairly directionless day. However,overall sentiment was positive inspired by soyoil overnight strength. The active May08 did not quite
make it to 3900 level for a lack of fresh buying interest yet. It, however, managed to float and finished near record closing level of 3866.
With mixed performance in the past two days, market remains cautious and interest is likely to remain low until strong signals emerge. Renewed buying interest can be expected if May08 trades above 3900. To the downside only a breach of 3840 could bring back active sellers, targeting the recent lows near 3800.
Monday, 3 March 2008
Plus Q408
Robust 7.7% 07 traffic growth — This bumped FY07 net profit to RM1,247m (+13%). Excluding RM70m negative goodwill on the Linkedua acquisition. The final 8 sen tax-exempt dividend takes the full yeartotal to 14 sen (4% net yield; 56% net payout ratio). The company maintainsguidance for minimum 12% DPS growth in 08.
Besides,Newly acquired Linkedua and ELITE also performed well — 07 traffic growth accelerated to 11.9% and 6.6% respectively (06: 4.4% and 2.7%). Their contribution to PLUS’s 07 EPS was minimal as the acquisitions were completed on Dec 18.
Clarity on implications of single-tier tax system would be appreciated — The government compensates PLUS via tax rebates on dividends that would have been taxable under the current imputation tax system. The single-tier system negates this benefit. Management is still unable to articulate its proposal for alternative compensation under this new regime.
Besides,Newly acquired Linkedua and ELITE also performed well — 07 traffic growth accelerated to 11.9% and 6.6% respectively (06: 4.4% and 2.7%). Their contribution to PLUS’s 07 EPS was minimal as the acquisitions were completed on Dec 18.
Clarity on implications of single-tier tax system would be appreciated — The government compensates PLUS via tax rebates on dividends that would have been taxable under the current imputation tax system. The single-tier system negates this benefit. Management is still unable to articulate its proposal for alternative compensation under this new regime.
Saturday, 1 March 2008
TM 4Q07
Comment on Results
Net recurring profits in 4Q07 was RM560m (-15%QoQ, +51%YoY) bringing FY07 to RM2.17bn (+27%YoY). Celcom and overseaswireless (particularly XL) were the bright spots in 4Q07 showing strong sequential growth. Fixed line business disappointed somewhat on higher costs.
Celcom buoyed by improving margins – Wireless subsidiary Celcom posted 4Q07 net profits of RM300m (+14%QoQ, 42%YoY), with FY07 slightly ahead of Citi's est. Subscriber net adds picked up pace in 4Q07 at 473k (+46%QoQ) bringing FY07 to 1.1m . EBITDA margin was 45.3% in 4Q07 (+49 bps QoQ,+278 bps YoY) on lower bad debt and network expenses.
Overseas business lifted by XL – Indon. wireless subs. Excelcomindo (XL) the key bright spot in the TM's overseas stable, with strong subscriber growth,healthy demand elasticity lifting revenues. Sri Lankan subs. Dialog saw surgingcosts due to the pay TV and broadband rollout. TMIB continues to struggle. Fixed line hurt by higher costs – Stable 4Q07 fixed line rev. offset by a surge in costs with normalized EBITDA margins falling to 39% (vs. 44% in 3Q07 and41% in 4Q06). 4Q07 net profits fell to RM243m (-35%QoQ,-23%YoY).
Net recurring profits in 4Q07 was RM560m (-15%QoQ, +51%YoY) bringing FY07 to RM2.17bn (+27%YoY). Celcom and overseaswireless (particularly XL) were the bright spots in 4Q07 showing strong sequential growth. Fixed line business disappointed somewhat on higher costs.
Celcom buoyed by improving margins – Wireless subsidiary Celcom posted 4Q07 net profits of RM300m (+14%QoQ, 42%YoY), with FY07 slightly ahead of Citi's est. Subscriber net adds picked up pace in 4Q07 at 473k (+46%QoQ) bringing FY07 to 1.1m . EBITDA margin was 45.3% in 4Q07 (+49 bps QoQ,+278 bps YoY) on lower bad debt and network expenses.
Overseas business lifted by XL – Indon. wireless subs. Excelcomindo (XL) the key bright spot in the TM's overseas stable, with strong subscriber growth,healthy demand elasticity lifting revenues. Sri Lankan subs. Dialog saw surgingcosts due to the pay TV and broadband rollout. TMIB continues to struggle. Fixed line hurt by higher costs – Stable 4Q07 fixed line rev. offset by a surge in costs with normalized EBITDA margins falling to 39% (vs. 44% in 3Q07 and41% in 4Q06). 4Q07 net profits fell to RM243m (-35%QoQ,-23%YoY).
Kinsteel Q407
FY07 fuelled by stronger steel prices
Comment on Results
Kinsteel's 4Q07 net profit grew 82% y-o-y to RM37.8m driven by stronger steel prices. This brought YTD net profit (ex EI) to RM135.3m, an improvement of >100% y-o-y. 4Q07 revenue grew 58% y-o-y on higher sales volume.
Q-o-q, 4Q07 net profit fell 7% due to higher tax of RM2.0m in the quarter
(3Q07: RM0.4m). Effective tax rate for FY07, however, was lower than the
statutory rate due to utilization of capital allowances.
Comment on Results
Kinsteel's 4Q07 net profit grew 82% y-o-y to RM37.8m driven by stronger steel prices. This brought YTD net profit (ex EI) to RM135.3m, an improvement of >100% y-o-y. 4Q07 revenue grew 58% y-o-y on higher sales volume.
Q-o-q, 4Q07 net profit fell 7% due to higher tax of RM2.0m in the quarter
(3Q07: RM0.4m). Effective tax rate for FY07, however, was lower than the
statutory rate due to utilization of capital allowances.
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