2008 is a year of consolidation
Crest Builder Holdings (CBH)'s revenue is expected to rise by over 20%
in 2008, thanks to higher construction revenue which offset lower
property development revenue. However, core pretax profit is projected
to fall by 33% in 2008 due to the lower property & construction profits
and the absence of fair value gains. Adjusted for a fair value gain of
RM38.5m arising from the revaluation of Three Two Square, CBH reported a
core pretax profit of RM46.8m in 2007.
Bad news in the price
Valuations are undemanding, with FY08 basic PER of 6x and dividend yield
of over 6%. The risk is further price hike(s) for building materials.
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Saturday, 3 May 2008
KENANGA :TM - HOLD - 21 Apr 2008
TM – Demerger valuations (Company Update)
Price: RM11.10
Target Price: RM12.00
Recommendation: HOLD
As a recap, Telekom Malaysia (TM) will be demerged into two separate entities by the end of the month, clearly delineating the fixed line business from the mobile. Merits for the demerger as cited by management is to create further shareholder value through accelerated operational improvement and growth with each entity having the freedom to pursue clearly distinctive aspirations and strategies.
TM International (Fair Value RM7.17)
· So far, market excitement seems to skew towards the mobile segment with clear expectations for higher growth driven by possible geographical expansion couple with still low mobile penetration in key growth markets including India and Indonesia. During the numerous teleconferences with management, it has always been guided that key focus for the unit will be centred on South and South East Asia. Benefit of grouping Celcom under the new unit not only offers size and economies of scale in terms of operation but to provide the necessary leverage and clout to any possible M&A possibility.
· Even though management is unable to provide guidance on any possible synergistic savings, suffice to note that management is most optimistic that the new cellular entity will expect cost improvements and higher productivity on account of being relatively more focused (market share and margin management) to be augmented by enhanced capex management (i.e. hormonisation of technology choices). On this front, we continue to be cautious especially given an increasingly competitive landscape going forward which could very well cap any upside risk to margins.
· Despite the latent growth potential, risk we believe is equally high especially in the emerging markets of South Asia and South East Asia. Execution let-downs have been experienced in markets such as Sri Lanka and Bangladesh while inability to secure the necessary licenses in India had blunted their progress, leaving them way behind. While new CEO designate Dato Jamaludin Ibrahim had a sterling record during his tenure at Maxis, challenges we believe should remain high for the new unit.
· After tweaking our numbers post FY07, we have derived a fair value of RM7.17 for TMI based on its Sum-of-Parts.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Price: RM11.10
Target Price: RM12.00
Recommendation: HOLD
As a recap, Telekom Malaysia (TM) will be demerged into two separate entities by the end of the month, clearly delineating the fixed line business from the mobile. Merits for the demerger as cited by management is to create further shareholder value through accelerated operational improvement and growth with each entity having the freedom to pursue clearly distinctive aspirations and strategies.
TM International (Fair Value RM7.17)
· So far, market excitement seems to skew towards the mobile segment with clear expectations for higher growth driven by possible geographical expansion couple with still low mobile penetration in key growth markets including India and Indonesia. During the numerous teleconferences with management, it has always been guided that key focus for the unit will be centred on South and South East Asia. Benefit of grouping Celcom under the new unit not only offers size and economies of scale in terms of operation but to provide the necessary leverage and clout to any possible M&A possibility.
· Even though management is unable to provide guidance on any possible synergistic savings, suffice to note that management is most optimistic that the new cellular entity will expect cost improvements and higher productivity on account of being relatively more focused (market share and margin management) to be augmented by enhanced capex management (i.e. hormonisation of technology choices). On this front, we continue to be cautious especially given an increasingly competitive landscape going forward which could very well cap any upside risk to margins.
· Despite the latent growth potential, risk we believe is equally high especially in the emerging markets of South Asia and South East Asia. Execution let-downs have been experienced in markets such as Sri Lanka and Bangladesh while inability to secure the necessary licenses in India had blunted their progress, leaving them way behind. While new CEO designate Dato Jamaludin Ibrahim had a sterling record during his tenure at Maxis, challenges we believe should remain high for the new unit.
· After tweaking our numbers post FY07, we have derived a fair value of RM7.17 for TMI based on its Sum-of-Parts.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Sime Darby - RM1b EPCIC job from Petronas? (Maintain Hold, TP: RM9.65)
Sime Darby - RM1b EPCIC job from Petronas? (Maintain Hold, TP: RM9.65)
Over the weekend, it was reported that Sime Darby Engineering is believed to have secured the EPCIC (engineering, procurement, construction, installation, and commissioning) job for the central processing platform topside and jacket for Kumang, F9, Laho and Melor development projects worth RM1bn in total from Petronas Carigali. (Source: The Edge weekly)
Comments:
Limited yard space. With limited yard space, our O&G analyst thinks it is highly unlikely that Sime Darby Engineering will be awarded this RM1bn contract by Petronas Carigali Sdn Bhd.
Small impact, if any. Under a best case scenario whereby Sime was awarded the contract, assuming an 8% net profit margin to be recognized over a 2 year period, the net incremental yearly contribution to Sime is about RM40m p.a.. This is relatively small at slightly above 1% increment to Sime's FY08 and FY09 net profits of around RM3.5bn each year. Maintain Hold on Sime and unchanged target price of RM9.65 based on 17x CY09 EPS.
Over the weekend, it was reported that Sime Darby Engineering is believed to have secured the EPCIC (engineering, procurement, construction, installation, and commissioning) job for the central processing platform topside and jacket for Kumang, F9, Laho and Melor development projects worth RM1bn in total from Petronas Carigali. (Source: The Edge weekly)
Comments:
Limited yard space. With limited yard space, our O&G analyst thinks it is highly unlikely that Sime Darby Engineering will be awarded this RM1bn contract by Petronas Carigali Sdn Bhd.
Small impact, if any. Under a best case scenario whereby Sime was awarded the contract, assuming an 8% net profit margin to be recognized over a 2 year period, the net incremental yearly contribution to Sime is about RM40m p.a.. This is relatively small at slightly above 1% increment to Sime's FY08 and FY09 net profits of around RM3.5bn each year. Maintain Hold on Sime and unchanged target price of RM9.65 based on 17x CY09 EPS.
KENANGA : Hunza Properties - BUY - 21 Apr 2008
Hunza Properties – Painful in the short term (Company Update)
Price: RM1.88
Target Price: RM3.59
Recommendation: BUY
· Slow-down in overall property sales. Besides vague global economic outlook, foreigners have been more deterred from buying Malaysian properties given the uncertainties churned by recent political outcomes. Therefore, Hunza Properties (Hunza) 2H08 earnings starts to feel the pinch as its on-going high-end projects have high-compositions of foreign buyers with an average of some 50% (Fig1).
· Slow-down most noticeable in Penang. Typically, the long Chinese New Year celebrations attributes to a QoQ decline in 3Q bottomlines (Fig2). Adding the effects of the “election fever” period could easily shave-off 3 to 4 weeks of Hunza’s 3Q08 property sales (especially in Penang, given its new state government). If uncertainties are not ironed out, such dampeners could continue in 4Q08 earnings onwards. Alila, Infiniti and Mutiara Seputeh have already recorded 3%, 50% and 68% QoQ decline, respectively for 3Q08 (Fig3).
· Short-term pain apparent… Penang’s new state government is going through a “teething” process and may need a minimum of 6 months to familiarize and make necessary changes in state operations. Until then, we expect bottle-necks in terms of new and unapproved property projects in Penang, such as Hunza’s Alila 2.
· …but positive outlook in the medium to long term as the new Penang state government is pushing for more transparency and competitiveness, which is in line with the state’s goal to attract more FDI’s in Penang. If successful, developers’ like Hunza, will enjoy spill-over effects from more FDI and more efficient processes.
· Downgrading FY08E and FY09E net profit by 24% and 21% to RM48m and RM62m, respectively. Based on mentioned reasons, we have slowed-down take-up rates for each project, and hence, profit recognition. Furthermore, we expect a narrowing of Hunza’s target market breadth as it increased prices of Infiniti and GPC by 15% to RM480psf and 45% to RM580psf, respectively. Nevertheless, this implies higher value extraction and more buffers against high raw material prices. FY08E dividend yield remains attractive at 5.7%.
· Downward revision in target price of RM3.59 from our previous RM4.37, based on our sum of parts RNAV on a fully diluted basis. We have significantly slowed down take-up rates and applied a higher WACC of 11.4% (7.3% previously) when valuing on-going projects. Maintain BUY.
KENANGA INVESTMENT BANK BERHAD (15678-H)
Price: RM1.88
Target Price: RM3.59
Recommendation: BUY
· Slow-down in overall property sales. Besides vague global economic outlook, foreigners have been more deterred from buying Malaysian properties given the uncertainties churned by recent political outcomes. Therefore, Hunza Properties (Hunza) 2H08 earnings starts to feel the pinch as its on-going high-end projects have high-compositions of foreign buyers with an average of some 50% (Fig1).
· Slow-down most noticeable in Penang. Typically, the long Chinese New Year celebrations attributes to a QoQ decline in 3Q bottomlines (Fig2). Adding the effects of the “election fever” period could easily shave-off 3 to 4 weeks of Hunza’s 3Q08 property sales (especially in Penang, given its new state government). If uncertainties are not ironed out, such dampeners could continue in 4Q08 earnings onwards. Alila, Infiniti and Mutiara Seputeh have already recorded 3%, 50% and 68% QoQ decline, respectively for 3Q08 (Fig3).
· Short-term pain apparent… Penang’s new state government is going through a “teething” process and may need a minimum of 6 months to familiarize and make necessary changes in state operations. Until then, we expect bottle-necks in terms of new and unapproved property projects in Penang, such as Hunza’s Alila 2.
· …but positive outlook in the medium to long term as the new Penang state government is pushing for more transparency and competitiveness, which is in line with the state’s goal to attract more FDI’s in Penang. If successful, developers’ like Hunza, will enjoy spill-over effects from more FDI and more efficient processes.
· Downgrading FY08E and FY09E net profit by 24% and 21% to RM48m and RM62m, respectively. Based on mentioned reasons, we have slowed-down take-up rates for each project, and hence, profit recognition. Furthermore, we expect a narrowing of Hunza’s target market breadth as it increased prices of Infiniti and GPC by 15% to RM480psf and 45% to RM580psf, respectively. Nevertheless, this implies higher value extraction and more buffers against high raw material prices. FY08E dividend yield remains attractive at 5.7%.
· Downward revision in target price of RM3.59 from our previous RM4.37, based on our sum of parts RNAV on a fully diluted basis. We have significantly slowed down take-up rates and applied a higher WACC of 11.4% (7.3% previously) when valuing on-going projects. Maintain BUY.
KENANGA INVESTMENT BANK BERHAD (15678-H)
QL Resources: X'mas comes early
QL Resources (QLG MK; Buy: TP: RM5.05)
Dear all,
* QL's proposed 1-for-2 bonus issue should be completed in 2Q08 while a share buy-back program could be EPS-accretive as management has given a commitment to cancel all shares bought back immediately.
* The company is on track for a highly fruitful FY09 for investors as profits continue to grow and improve capital management activities.
* Maintain Buy. Our unchanged RM5.05 TP (10x FY10 PER) offers upside bias as its share buy-back could raise EPS growth further.
Dear all,
* QL's proposed 1-for-2 bonus issue should be completed in 2Q08 while a share buy-back program could be EPS-accretive as management has given a commitment to cancel all shares bought back immediately.
* The company is on track for a highly fruitful FY09 for investors as profits continue to grow and improve capital management activities.
* Maintain Buy. Our unchanged RM5.05 TP (10x FY10 PER) offers upside bias as its share buy-back could raise EPS growth further.
CIMB: Bursa 1QFY08 in line - Hit by poor market sentiment
• Poor 1Q results within expectations. Bursa’s 1QFY08 net profit declined by a hefty 40% yoy and 14.9% qoq to RM42.1m, dragged by subdued trading activities in the equity market. Although 1Q net profit only accounted for 20.6% of our fullyear forecast and 17.7% of consensus, we regard the results as within expectations as we envisage stronger earnings in the 2H, banking on the potential recovery in the equity market. As expected, no dividend was declared in the 1Q.
• Dismal equity performance. 1Q revenue plunged by 26.6% yoy to RM93.8m, affected by poor performance of the equity market. The market velocity dropped to 46%, from a high of 68% in the 1QFY07, leading to a decline in daily trading value from RM2.8bn to RM2bn. Meanwhile, the group’s effective clearing fee rate also dropped to 2.3% from 2.7%, due to the negative impact from the new fee structure and lower retail participation in the market.
• Lower derivative income. The daily average contracts for the derivative market rose by 16.2% to 30,283. However, derivative revenue was down by 5.4% yoy to RM12.2m, due to the revised derivative fee structure.
• Retain earnings forecasts. Despite the poor 1Q, we are keeping our earnings forecasts unchanged as we anticipate stronger earnings for Bursa in the 2H,banking on potential recovery in the equity market. In fact, we had slashed our earnings forecasts by 30-32% in the previous report dated 18 Mar 08 to reflect the likely weaker market sentiment in the coming months.
• Maintaining target price. We are keeping our target price of RM8.35, still pegged to FY09 P/E of 20x, which is above the 15x average for the major bourses globally. The premium is premised on potential recovery in the 2H and M&A newsflow as NYSE Euronext and Chicago Mercantile Exchange are reported to be eyeing a stake in Bursa.
• Reiterate TRADING SELL. We maintain our TRADING SELL recommendation on the stock predicated on the de-rating catalysts of (1) weak market sentiment leading to dimmed earnings prospects in the next 1-2 quarters, and (2) continued negative impact from the new fee structure.
• Dismal equity performance. 1Q revenue plunged by 26.6% yoy to RM93.8m, affected by poor performance of the equity market. The market velocity dropped to 46%, from a high of 68% in the 1QFY07, leading to a decline in daily trading value from RM2.8bn to RM2bn. Meanwhile, the group’s effective clearing fee rate also dropped to 2.3% from 2.7%, due to the negative impact from the new fee structure and lower retail participation in the market.
• Lower derivative income. The daily average contracts for the derivative market rose by 16.2% to 30,283. However, derivative revenue was down by 5.4% yoy to RM12.2m, due to the revised derivative fee structure.
• Retain earnings forecasts. Despite the poor 1Q, we are keeping our earnings forecasts unchanged as we anticipate stronger earnings for Bursa in the 2H,banking on potential recovery in the equity market. In fact, we had slashed our earnings forecasts by 30-32% in the previous report dated 18 Mar 08 to reflect the likely weaker market sentiment in the coming months.
• Maintaining target price. We are keeping our target price of RM8.35, still pegged to FY09 P/E of 20x, which is above the 15x average for the major bourses globally. The premium is premised on potential recovery in the 2H and M&A newsflow as NYSE Euronext and Chicago Mercantile Exchange are reported to be eyeing a stake in Bursa.
• Reiterate TRADING SELL. We maintain our TRADING SELL recommendation on the stock predicated on the de-rating catalysts of (1) weak market sentiment leading to dimmed earnings prospects in the next 1-2 quarters, and (2) continued negative impact from the new fee structure.
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