Media Prima - Higher-than-expected costs incurred (Results Note)
Price: RM1.60
Target Price: RM2.30
Recommendation: BUY
· Below expectations. 1H08 recurring net profit (excluding RM5.5m VSS cost, RM2.4m gain on disposal of building owned by UPD and RM1.8m gain on disposal of Malay Mail) of RM49.4m accounted 34.9% and 30.0% of consensus and our previous estimates, respectively, impacted mainly by higher-than-expected content costs, A&P spending and maintenance cost.
· YoY, 1H08 revenue grew by 27.9% to RM358.1m driven mainly by: 1) higher revenue recorded by TV (+20.4%) and Radio Networks (+52.3%); 2) strong advertising demand from Euro 2008 (which also underpinned 2Q08 18.8% YoY higher revenue to RM198.5m); and 3) a full 6 months consolidation of the Outdoor division's result against 3 months in 1H07. Sequentially, 1H08 net profit increased by 42.3% to RM47.8m which was also driven partially by the stronger 2Q08 performance from the NSTP.
· QoQ, 2Q08 net profit registered a significant 80% increase mainly on the back of strong growth in advertising revenue led by the NSTP (advertising revenue grew about 4-5% QoQ mainly from Harian Metro). The lower effective tax rate of 17.9% (1Q08: 24.1%) due to utilisation of tax relief from loss-making subsidiaries also attributed to the strong net growth.
· We adjust FY08 and FY09 net earnings lower by 19.0% to RM132.6m and RM148.5m, respectively. Higher-than-expected content costs incurred by the Euro 2008 and local and Chinese content for NTV 7, A&P expenditure and maintenance cost outstripped our earlier assumption of a stronger 2Q08 net earnings. Cue of a lower ADEX growth in 2H08 and aggressive new channels roll-out by Astro have further prompted us to revise lower our earnings.
· Maintain BUY with lower target price of RM2.30 based on unchanged PER of 15x to our revised FY08 EPS of 15.4 sen. Current share price looks compelling after the recent sharp fall of 40.7% YTD, trading at 10x and 9x of FY08 and FY09 PER, respectively. Moreover, its dividend yield of around 7-8% is attractive.
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Friday, 29 August 2008
HLG: Muhibbah - H108 results within expectation (29 August 2008)
Muhibbah Engineering BUY
Price target RM3.35
Share price at 28 Aug RM1.91
Investment summary
H108 net profit (+28% yoy) was in-line with HLG/consensus estimate. We maintain our BUY rating on Muhibbah: (1) significant mismatch between share price performance (-49% YTD) and order book expansion (+51% yoy) in infrastructure and oil & gas related activities; (2) 19% EPS CAGR over FY07-10E into 20% PE discount to big-cap peers like IJM/Gamuda. We are positive on the Malaysian construction sector and believe government job-flow may pick up: (1) pump-priming is an obvious and politically easy policy action in addressing the on-going external macro-economic slump; (2) recent building material market liberalization and fiscal-boosting fuel price hikes hint at this direction.
Lookout for new orders
H108 results show strong growth in all key divisions. Share price is trading at 7x FY09 PE, 20% discount to big-cap construction players. Newsflow on new overseas jobs could re-rate share price.
Price target RM3.35
Share price at 28 Aug RM1.91
Investment summary
H108 net profit (+28% yoy) was in-line with HLG/consensus estimate. We maintain our BUY rating on Muhibbah: (1) significant mismatch between share price performance (-49% YTD) and order book expansion (+51% yoy) in infrastructure and oil & gas related activities; (2) 19% EPS CAGR over FY07-10E into 20% PE discount to big-cap peers like IJM/Gamuda. We are positive on the Malaysian construction sector and believe government job-flow may pick up: (1) pump-priming is an obvious and politically easy policy action in addressing the on-going external macro-economic slump; (2) recent building material market liberalization and fiscal-boosting fuel price hikes hint at this direction.
Lookout for new orders
H108 results show strong growth in all key divisions. Share price is trading at 7x FY09 PE, 20% discount to big-cap construction players. Newsflow on new overseas jobs could re-rate share price.
HLG: AirAsia - Poor H108 results; Maintain SELL (29 August 2008)
AirAsia Berhad SELL
Price target RM0.86
Share price at 28 Aug RM1.10
Investment summary
H108 core net profit of RM54m was 40% below HLG forecast. The poor results re-affirm our SELL rating on AirAsia. We are negative on AirAsia: (1) in order to fill-up its new capacity, it will be difficult to pass-through higher jet fuel cost to end-customers; (2) major headwinds in Q308 from record-high jet fuel prices, a seasonally weak quarter and intense price competition from MAS. We are negative on the aviation sector: (1) record crude oil prices and our expectation of weak discretionary consumer spending could mitigate growth expectation (2) >850 new aircraft is expected to come into the Asia Pacific, India and Middle East market over the next two years despite the global economic uncertainties.
Consensus behind curve
Even after imputing non-operating gains (eg. deferred tax and forex), brokers’ EPS look likely to be downgraded by >40%. Share price has rebounded due to its perception as an anti-oil stock, but given deteriorating financials, we think MAS would be a safer bet.
Price target RM0.86
Share price at 28 Aug RM1.10
Investment summary
H108 core net profit of RM54m was 40% below HLG forecast. The poor results re-affirm our SELL rating on AirAsia. We are negative on AirAsia: (1) in order to fill-up its new capacity, it will be difficult to pass-through higher jet fuel cost to end-customers; (2) major headwinds in Q308 from record-high jet fuel prices, a seasonally weak quarter and intense price competition from MAS. We are negative on the aviation sector: (1) record crude oil prices and our expectation of weak discretionary consumer spending could mitigate growth expectation (2) >850 new aircraft is expected to come into the Asia Pacific, India and Middle East market over the next two years despite the global economic uncertainties.
Consensus behind curve
Even after imputing non-operating gains (eg. deferred tax and forex), brokers’ EPS look likely to be downgraded by >40%. Share price has rebounded due to its perception as an anti-oil stock, but given deteriorating financials, we think MAS would be a safer bet.
AirAsia - HOLD - 29 Aug 2008
AirAsia - Hurt by forex loss (Results Note)
Price: RM1.10
Target Price: RM0.95
Recommendation: HOLD
· 6MJune08 revenue of RM1.15b was in line but core net profit of RM52.7m was above our expectation. Included in the core net profit was an undisclosed write-back amount which was the credit given by MAHB (Not Rated) to AirAsia for the settlement of airport charges that ranges between RM60m to RM110m based on various news reports.
· QoQ, revenue and EBITDA improved 13.7% and 19.8% respectively on the back of higher passenger volume (+8.1%), higher average ticket price (+4.8%), increased ancillary income (+23.0%) and write-back of payment to MAHB. Cost/ASK was up by 8.5% to 11.5sen/ASK mainly on higher fuel cost. A forex loss of RM76.9m was also registered due to the weakening of RM, leading to a 2Q pre-tax loss of RM46.9m.
· YoY, 6MJune08 revenue rose 36.4%, underpinned by growth in passengers volume (+20.2%), yield (+6.4%) and ancillary income (+59.1%). Normalised pre-tax profit however was still lower at RM54m (-20.8%) on higher interest expense to finance plane acquisitions.
· 6MJune08 load factor was lower at 74.3% vs 78.7% for the preceding period. The lower load factor was a result of significant capacity expansion of 34.2% and normal gestation period for new routes. Group has launched 20 new routes from the beginning of 2008 and has recently established new footprint in Indonesia by connecting Sulawesi Island to Makassar and Manado to Kuala Lumpur respectively.
· Though AirAsia has some short term fuel hedges, group is largely unhedged as management considers oil price still high at current level. Current unhedged position is in line with management's belief that group will benefit from further oil price correction.
· AirAsia has discontinued the reporting of detail breakdown for operating expenses for competitive reason. We are disappointed on the practice as this would make analysis and forecasting of AirAsia's future performance extremely challenging.
Price: RM1.10
Target Price: RM0.95
Recommendation: HOLD
· 6MJune08 revenue of RM1.15b was in line but core net profit of RM52.7m was above our expectation. Included in the core net profit was an undisclosed write-back amount which was the credit given by MAHB (Not Rated) to AirAsia for the settlement of airport charges that ranges between RM60m to RM110m based on various news reports.
· QoQ, revenue and EBITDA improved 13.7% and 19.8% respectively on the back of higher passenger volume (+8.1%), higher average ticket price (+4.8%), increased ancillary income (+23.0%) and write-back of payment to MAHB. Cost/ASK was up by 8.5% to 11.5sen/ASK mainly on higher fuel cost. A forex loss of RM76.9m was also registered due to the weakening of RM, leading to a 2Q pre-tax loss of RM46.9m.
· YoY, 6MJune08 revenue rose 36.4%, underpinned by growth in passengers volume (+20.2%), yield (+6.4%) and ancillary income (+59.1%). Normalised pre-tax profit however was still lower at RM54m (-20.8%) on higher interest expense to finance plane acquisitions.
· 6MJune08 load factor was lower at 74.3% vs 78.7% for the preceding period. The lower load factor was a result of significant capacity expansion of 34.2% and normal gestation period for new routes. Group has launched 20 new routes from the beginning of 2008 and has recently established new footprint in Indonesia by connecting Sulawesi Island to Makassar and Manado to Kuala Lumpur respectively.
· Though AirAsia has some short term fuel hedges, group is largely unhedged as management considers oil price still high at current level. Current unhedged position is in line with management's belief that group will benefit from further oil price correction.
· AirAsia has discontinued the reporting of detail breakdown for operating expenses for competitive reason. We are disappointed on the practice as this would make analysis and forecasting of AirAsia's future performance extremely challenging.
HLG: TRC Synergy - Results in-line; Maintain HOLD (29 August 2008)
TRC Synergy Berhad HOLD
Price target RM1.60
Share price at 28 Aug RM1.35
Investment summary
H108 net profit rose +35% yoy and was in-line with forecasts/consensus. Despite share price falling -46% YTD, we remain neutral on TRC: (1) Job-flow will slowdown appreciably in H208, after the sharp pre-election run-up in H108. (2) Current political landscape does not favor Bumi contractors as opposed to its genuine apolitical peer WCT. We are positive on the Malaysian construction sector and believe government job-flow may pick up: (1) pump-priming is an obvious and politically easy policy action in addressing the on-going external macro-economic slump; (2) recent building material market liberalization and fiscal-boosting fuel price hikes hint at this direction. We prefer playing the pump-priming story via liquid big-cap contractors (eg. Gamuda, IJM).
Quiet newsflow
Positive earnings growth and decent pace of recent job-flow, but we expect things to quiet down in H208. Near-term job-flow hinges on its downstream oil venture in Brunei, and clarity on this project will only emerge in Q109.
Price target RM1.60
Share price at 28 Aug RM1.35
Investment summary
H108 net profit rose +35% yoy and was in-line with forecasts/consensus. Despite share price falling -46% YTD, we remain neutral on TRC: (1) Job-flow will slowdown appreciably in H208, after the sharp pre-election run-up in H108. (2) Current political landscape does not favor Bumi contractors as opposed to its genuine apolitical peer WCT. We are positive on the Malaysian construction sector and believe government job-flow may pick up: (1) pump-priming is an obvious and politically easy policy action in addressing the on-going external macro-economic slump; (2) recent building material market liberalization and fiscal-boosting fuel price hikes hint at this direction. We prefer playing the pump-priming story via liquid big-cap contractors (eg. Gamuda, IJM).
Quiet newsflow
Positive earnings growth and decent pace of recent job-flow, but we expect things to quiet down in H208. Near-term job-flow hinges on its downstream oil venture in Brunei, and clarity on this project will only emerge in Q109.
TRC Synergy - BUY - 28 Aug 2008
TRC Synergy - 1H08 net profit within expectations (Results Note)
Price: RM1.35
Target Price: RM3.70
Recommendation: BUY
· 1H08 net profit of RM22.6m was within our estimates at 47% of our full year estimates and consensus of RM47.8m and RM45.5m. Volatile building material prices and one time losses from property division of RM15.8m resulted in erosion of EBITDA margin of 7% to 11.5%. Nevertheless, TRC is able to progress as scheduled due to its management competence. Its net cash position of RM62m also enabled it to secure building materials on a timely basis and at more favourable pricing.
· Stripping out the RM15.8m property loss, 1H08 net profit would have been RM38.4m or 80% of full year estimates consensus. Corresponding net margin would have been 11.4% compared to 9.5% in 1H07 which is a very commendable effort given that building materials cost have risen more than 40% over the same period.
· 2Q08 net profit RM10.6m was 11.4% lower QoQ but 4.1% higher YoY, despite substantially higher revenue which rose 44.8% and 95.8% QoQ and YoY respectively due to the aforementioned property division losses.
· We are maintaining FY08 and FY09 forecast of RM47.8m and RM46.0m respectively. TRC has RM867m of unbilled order book to be completed up to early 2010 which are all on track and within budget. Its enviable balance sheet and strong track record will enable it to secure more lucrative jobs while some contractors are abandoning projects as the cost overrun will result in more losses upon completion of project.
· Maintain BUY with target price of RM3.70 based on FY08 Fully Diluted EPS of 30.4 sen using the average PER of 12x for smaller construction companies. The share is currently trading at attractive FY08E and FY09E PER of 5.8x and 6.1x respectively.
Price: RM1.35
Target Price: RM3.70
Recommendation: BUY
· 1H08 net profit of RM22.6m was within our estimates at 47% of our full year estimates and consensus of RM47.8m and RM45.5m. Volatile building material prices and one time losses from property division of RM15.8m resulted in erosion of EBITDA margin of 7% to 11.5%. Nevertheless, TRC is able to progress as scheduled due to its management competence. Its net cash position of RM62m also enabled it to secure building materials on a timely basis and at more favourable pricing.
· Stripping out the RM15.8m property loss, 1H08 net profit would have been RM38.4m or 80% of full year estimates consensus. Corresponding net margin would have been 11.4% compared to 9.5% in 1H07 which is a very commendable effort given that building materials cost have risen more than 40% over the same period.
· 2Q08 net profit RM10.6m was 11.4% lower QoQ but 4.1% higher YoY, despite substantially higher revenue which rose 44.8% and 95.8% QoQ and YoY respectively due to the aforementioned property division losses.
· We are maintaining FY08 and FY09 forecast of RM47.8m and RM46.0m respectively. TRC has RM867m of unbilled order book to be completed up to early 2010 which are all on track and within budget. Its enviable balance sheet and strong track record will enable it to secure more lucrative jobs while some contractors are abandoning projects as the cost overrun will result in more losses upon completion of project.
· Maintain BUY with target price of RM3.70 based on FY08 Fully Diluted EPS of 30.4 sen using the average PER of 12x for smaller construction companies. The share is currently trading at attractive FY08E and FY09E PER of 5.8x and 6.1x respectively.
Genting - BUY - 29 Aug 2008
Genting - 1H08 within expectation (Results Note)
Price: RM5.30
Target Price: RM9.00
Recommendation: BUY
· 1H08 revenue at RM4.3b was within expectation while core net profit of RM699.1m was 44.2% and 42.1% of our forecast and street's estimates respectively which we consider in line given group's weaker seasonality for 1H. Growth was across all divisions except for power due to scheduled maintenance in 2Q08. A 3.0sen gross dividend was also declared against the 2.7sen previously.
· QoQ, revenue flat while EBITDA slipped 5.5% mainly due to lower power contribution and other forex losses. Lower power contribution due to higher coal cost (+30% qoq) and lower dispatch on scheduled maintenance for both Kuala Langat and Meizhou Wan plants.
· YoY, 1H08 revenue and EBITDA climbed 7.8% and 6.8% respectively, underpinned by: a) better luck factor for VIP and higher casino patronage for the highlands; b) higher plantation contribution courtesy to buoyant CPO price; c) higher average oil price sales recorded by the O&G division; and d) absence of associate loss from Star Cruises. Pre-tax however fell 23.4% to RM1.6b as there was less recognition of gain on dilution (-96.4%) on shareholdings.
· Resorts updates. Though visitor arrivals for 1H08 was down by c.4% yoy, higher performance was driven by increased casino patronage in both VIP and grind market. 1H08 hotel occupancy also climbed to 90% vs 86% in 1H07 while average room rate increased by c.6%. Both theme park and F&B also registered positive 1H08 sales growth on increased patronage. Apart from sales growth, better margin was also experienced as a result of reduced marketing costs as group directs more marketing efforts to its' WorldCard members as part of its yield management strategy instead of attracting new visitors.
· Though we continue to be positive on Resorts (BUY; TP:RM4.38) for the rest of 2008, Genting's near term performance is likely to weaken on the back of: a) lower plantation performance given the recent sharp correction in CPO price; and b) margin squeeze on power division with higher coal cost for Meizhou Wan power plant and windfall tax payment (RM5.7m/month) for Genting Sanyen. Incorporating higher operational cost assumptions of Resorts (1%-4% staff and energy costs) and the reduced profit contribution from power and plantation, we lower our FY08 and FY09 net profit projections by 6.4% and 20.1% respectively to RM1478.6m and RM1345.0m. BUY maintained but lower target price to RM9.00 from RM9.90 based on sum-of-parts.
Price: RM5.30
Target Price: RM9.00
Recommendation: BUY
· 1H08 revenue at RM4.3b was within expectation while core net profit of RM699.1m was 44.2% and 42.1% of our forecast and street's estimates respectively which we consider in line given group's weaker seasonality for 1H. Growth was across all divisions except for power due to scheduled maintenance in 2Q08. A 3.0sen gross dividend was also declared against the 2.7sen previously.
· QoQ, revenue flat while EBITDA slipped 5.5% mainly due to lower power contribution and other forex losses. Lower power contribution due to higher coal cost (+30% qoq) and lower dispatch on scheduled maintenance for both Kuala Langat and Meizhou Wan plants.
· YoY, 1H08 revenue and EBITDA climbed 7.8% and 6.8% respectively, underpinned by: a) better luck factor for VIP and higher casino patronage for the highlands; b) higher plantation contribution courtesy to buoyant CPO price; c) higher average oil price sales recorded by the O&G division; and d) absence of associate loss from Star Cruises. Pre-tax however fell 23.4% to RM1.6b as there was less recognition of gain on dilution (-96.4%) on shareholdings.
· Resorts updates. Though visitor arrivals for 1H08 was down by c.4% yoy, higher performance was driven by increased casino patronage in both VIP and grind market. 1H08 hotel occupancy also climbed to 90% vs 86% in 1H07 while average room rate increased by c.6%. Both theme park and F&B also registered positive 1H08 sales growth on increased patronage. Apart from sales growth, better margin was also experienced as a result of reduced marketing costs as group directs more marketing efforts to its' WorldCard members as part of its yield management strategy instead of attracting new visitors.
· Though we continue to be positive on Resorts (BUY; TP:RM4.38) for the rest of 2008, Genting's near term performance is likely to weaken on the back of: a) lower plantation performance given the recent sharp correction in CPO price; and b) margin squeeze on power division with higher coal cost for Meizhou Wan power plant and windfall tax payment (RM5.7m/month) for Genting Sanyen. Incorporating higher operational cost assumptions of Resorts (1%-4% staff and energy costs) and the reduced profit contribution from power and plantation, we lower our FY08 and FY09 net profit projections by 6.4% and 20.1% respectively to RM1478.6m and RM1345.0m. BUY maintained but lower target price to RM9.00 from RM9.90 based on sum-of-parts.
My E.G. - BUY - 29 Aug 2008
My E.G. Services - FY08 net profit within expectations (Results Note)
Price: RM0.895
Target Price: RM1.50
Recommendation: BUY
· FY08 net profit of RM14.8m was within expectations being only 8% lower than our full year forecast of RM16.2. We had forecasted faster acceptance of the road tax renewal service which was delayed due to the March 2008 elections. Otherwise the performance of MYEG is as expected with spot-on execution with a sustainable and profitable concession.
· YoY, FY08 net profit was 109.3% higher with strong EBITDA margin of 35.3% compared to 33.4% in FY07. The ability to both grow revenue and margin is largely due to the ability to leverage on a single distribution channel to introduce new services like driver's license renewal (introduced in April 2007) and road tax renewal/car insurance (introduced in April 2008).
· QoQ, 4Q08 net profit was -1.4% lower despite 4.2% higher revenue resulting from higher marketing expenses for the new product launched in April 2008. This was compensated by higher learner license applications and driver's license theory test in 4Q08 where 3Q08 was seasonally slowest period.
· YoY, 4Q08 net profit was 109.3% higher on 93.4% higher revenue. Earnings growth in 4Q08 due to full consolidation of MYSPEED which was acquired in 1Q08. In addition, maturity of renewal of drivers' license service after one year of introduction in addition to road tax renewal/car insurance also resulted in higher revenue and better economies of scale.
· Maintaining FY09E and FY10E net profit forecast of RM25m and RM30m. The growth in earnings is driven by higher acceptance of existing services and introduction of new ones like electronic application of vehicle registration numbers and transferring of motor vehicle ownership in 2009 and tax monitoring services and e-service for department of statistic.
· Maintain BUY and target price of RM1.50 using FY09E PER of 15x (a 2x premium over consumer sector PER of 13x) and FYJune09E EPS of 9.9sen. The stock remains attractive, trading at 9.0x and 7.5x FY09E and FY10E PER respectively. Net cash per share was 2.2 sen per share.
Price: RM0.895
Target Price: RM1.50
Recommendation: BUY
· FY08 net profit of RM14.8m was within expectations being only 8% lower than our full year forecast of RM16.2. We had forecasted faster acceptance of the road tax renewal service which was delayed due to the March 2008 elections. Otherwise the performance of MYEG is as expected with spot-on execution with a sustainable and profitable concession.
· YoY, FY08 net profit was 109.3% higher with strong EBITDA margin of 35.3% compared to 33.4% in FY07. The ability to both grow revenue and margin is largely due to the ability to leverage on a single distribution channel to introduce new services like driver's license renewal (introduced in April 2007) and road tax renewal/car insurance (introduced in April 2008).
· QoQ, 4Q08 net profit was -1.4% lower despite 4.2% higher revenue resulting from higher marketing expenses for the new product launched in April 2008. This was compensated by higher learner license applications and driver's license theory test in 4Q08 where 3Q08 was seasonally slowest period.
· YoY, 4Q08 net profit was 109.3% higher on 93.4% higher revenue. Earnings growth in 4Q08 due to full consolidation of MYSPEED which was acquired in 1Q08. In addition, maturity of renewal of drivers' license service after one year of introduction in addition to road tax renewal/car insurance also resulted in higher revenue and better economies of scale.
· Maintaining FY09E and FY10E net profit forecast of RM25m and RM30m. The growth in earnings is driven by higher acceptance of existing services and introduction of new ones like electronic application of vehicle registration numbers and transferring of motor vehicle ownership in 2009 and tax monitoring services and e-service for department of statistic.
· Maintain BUY and target price of RM1.50 using FY09E PER of 15x (a 2x premium over consumer sector PER of 13x) and FYJune09E EPS of 9.9sen. The stock remains attractive, trading at 9.0x and 7.5x FY09E and FY10E PER respectively. Net cash per share was 2.2 sen per share.
Parkson Holdings - BUY - 28 Aug 2008
Parkson Holdings - FY08 results in-line with estimates (Results Note)
Price: RM4.42
Target Price: RM8.50
Recommendation: BUY
· Parkson Holdings (PH) FY08 core net profit of RM215.9m was within our expectations at 3% higher than our estimated RM223.2m but 6% below market consensus of RM229.7m. Strong earnings growth in all geographical segments, particularly China (that accounted for 68% of PH's revenue) had helped to underpin the good set of numbers.
· The injection of new stores and China's double-digit same-store sales growth propelled the 57% rise in FY08 core net profit YoY. Revenue in FY08 rose by 25% driven mainly by 29% revenue growth in China, although all countries registered sales improvement with same-stores sales growth coming close to our assumptions of 15%, 3% and 25% for China, Malaysia and Vietnam respectively. Stripping out the extraordinary gain of RM231.6m from the placement of 1.44% equity interest of Parkson Retail Group (PRG), FY08 pretax profit rose by an encouraging 35%, enhanced by improved operating efficiency and larger contribution from associates.
· YoY, 4QFY08 net profit was 5x higher although this is not an entirely fair comparison given that in 4QFY07 PH was still beleaguered by losses of Bright Steel Sdn Bhd that was disposed of in September 2007.
· QoQ, the absence of festive season catalysts resulted in a weaker 4QFY08. Revenue declined by 19% QoQ in-line with seasonality bearing in mind that 3QFY08 sales were boosted by the Chinese New Year demand. Pretax profit (excluding the exceptional gain from PRG share placement in 3QFY08) lessened by 21% in-line with lower sales revenue.
· Final tax-exempt dividend per share of 5.0 sen declared resulting in a total FY08 GDPS of 10.0 sen. This translates to a dividend payout of 42% and dividend yield of 2.3%.
· FY09 and FY10 net profit forecast unchanged for now pending guidance from analyst briefing today. Expect downward revision of FY09 forecast following briefing on expectations of softer sales with economic slowdown.
· Maintain BUY recommendation but target price of RM8.50 based on sum-of-parts valuation utilising FY09 PERs of 30x, 10x and 20x for Parkson China, Malaysia and Vietnam is under review. The stock is currently trading at 15.2x and 12.4x FY09 and FY10 PERs. More details post briefing.
Price: RM4.42
Target Price: RM8.50
Recommendation: BUY
· Parkson Holdings (PH) FY08 core net profit of RM215.9m was within our expectations at 3% higher than our estimated RM223.2m but 6% below market consensus of RM229.7m. Strong earnings growth in all geographical segments, particularly China (that accounted for 68% of PH's revenue) had helped to underpin the good set of numbers.
· The injection of new stores and China's double-digit same-store sales growth propelled the 57% rise in FY08 core net profit YoY. Revenue in FY08 rose by 25% driven mainly by 29% revenue growth in China, although all countries registered sales improvement with same-stores sales growth coming close to our assumptions of 15%, 3% and 25% for China, Malaysia and Vietnam respectively. Stripping out the extraordinary gain of RM231.6m from the placement of 1.44% equity interest of Parkson Retail Group (PRG), FY08 pretax profit rose by an encouraging 35%, enhanced by improved operating efficiency and larger contribution from associates.
· YoY, 4QFY08 net profit was 5x higher although this is not an entirely fair comparison given that in 4QFY07 PH was still beleaguered by losses of Bright Steel Sdn Bhd that was disposed of in September 2007.
· QoQ, the absence of festive season catalysts resulted in a weaker 4QFY08. Revenue declined by 19% QoQ in-line with seasonality bearing in mind that 3QFY08 sales were boosted by the Chinese New Year demand. Pretax profit (excluding the exceptional gain from PRG share placement in 3QFY08) lessened by 21% in-line with lower sales revenue.
· Final tax-exempt dividend per share of 5.0 sen declared resulting in a total FY08 GDPS of 10.0 sen. This translates to a dividend payout of 42% and dividend yield of 2.3%.
· FY09 and FY10 net profit forecast unchanged for now pending guidance from analyst briefing today. Expect downward revision of FY09 forecast following briefing on expectations of softer sales with economic slowdown.
· Maintain BUY recommendation but target price of RM8.50 based on sum-of-parts valuation utilising FY09 PERs of 30x, 10x and 20x for Parkson China, Malaysia and Vietnam is under review. The stock is currently trading at 15.2x and 12.4x FY09 and FY10 PERs. More details post briefing.
Tan Chong Motor - BUY - 28 Aug 2008
Tan Chong Motor - Another spectacular quarter (Results Note)
Price: RM1.53
Target Price: RM2.30
Recommendation: BUY
· Results above expectations. 1H08 net profit increased +254.5% to RM122.2m YoY, accounting for64.1% of our forecast and 64.1% market consensus respectively.
· 2Q08 net rose 222.8% YoY to RM68.1m, driven by strong unit sales (+89.5% YoY) especially the Nissan Livina in Dec 07 and Latio in Jun 07. Market share of Nissan vehicles increased to 5.5% from 3.7% YoY.
· QoQ, 2Q08 revenue up 3.2% but net improved 26.1% on the back of margin expansion to 11.0% (1Q08: 9.2%). Increased location of parts, higher average selling prices and rising economies of scale explains for the higher profitability. To note is that selling prices were increased by between 2-2.5% effective 1 Apr 08.
· Outlook remains positive with visibility backed by strong order back log of 16,000 units of Lavina and contribution from newly launched Sylphy which has been well received with bookings of 100 - 150 units / day . An extra shift added in June to double the capacity at Serendah plant to 2,400 units/month should help to alleviate wait list of 5-6 months depending on model.
· Forecast and BUY maintained but Target Price lowered to RM2.30 (previously RM2.74) based on lower industry PER of 8.0x. Trading at undemanding 5.3x and 4.6x PER for FY08 and FY09 respectively backed by strong NTA of RM1.99 per share makes it a steal at current levels.
Price: RM1.53
Target Price: RM2.30
Recommendation: BUY
· Results above expectations. 1H08 net profit increased +254.5% to RM122.2m YoY, accounting for64.1% of our forecast and 64.1% market consensus respectively.
· 2Q08 net rose 222.8% YoY to RM68.1m, driven by strong unit sales (+89.5% YoY) especially the Nissan Livina in Dec 07 and Latio in Jun 07. Market share of Nissan vehicles increased to 5.5% from 3.7% YoY.
· QoQ, 2Q08 revenue up 3.2% but net improved 26.1% on the back of margin expansion to 11.0% (1Q08: 9.2%). Increased location of parts, higher average selling prices and rising economies of scale explains for the higher profitability. To note is that selling prices were increased by between 2-2.5% effective 1 Apr 08.
· Outlook remains positive with visibility backed by strong order back log of 16,000 units of Lavina and contribution from newly launched Sylphy which has been well received with bookings of 100 - 150 units / day . An extra shift added in June to double the capacity at Serendah plant to 2,400 units/month should help to alleviate wait list of 5-6 months depending on model.
· Forecast and BUY maintained but Target Price lowered to RM2.30 (previously RM2.74) based on lower industry PER of 8.0x. Trading at undemanding 5.3x and 4.6x PER for FY08 and FY09 respectively backed by strong NTA of RM1.99 per share makes it a steal at current levels.
Proton Holdings - TRADING BUY - 28 Aug 2008
Proton Holdings - Earnings sustained in black (Results Note)
Price: RM2.98
Target Price: RM3.40
Recommendation: TRADING BUY
· Above market expectation. 1Q09 net profit of RM52.0m accounted for 40.4% of market consensus and 22.0% of our estimate.
· 1Q09 returned to the black vis-à-vis 1Q08 net loss of RM46.8m driven by strong domestic vehicle sales (+62% YoY). Market share has improved to 26.1% (1Q08: 20.5%) underpinned by strong sales of its newly launched Persona and Saga models. Continuous cost reduction initiatives had helped with overall operational improvement.
· QoQ, net profit decreased by 78.0% due to the receipt of RM194.0m R&D grant from the government in 4Q08. Net of the grant, recurring income was up 22.7% sequentially backed by higher domestic sales growth of 11.3%.
· Maintain FY09 and FY10 net earnings of RM236.2m and RM238.6m, respectively. The strong bookings of over 52,000 and 75,000 units of Persona and Saga received to-date, respectively, should underpin Proton's earnings in the near term. Recent increase in Saga's capacity to 7,000 from 6,500 units/month should help to alleviate the long wait-list of between 6-7 months. Newly launched Persona Special Edition (< RM60,000) is expected to increase monthly bookings by 500 units to its current 4,000 units/month.
· Prospect cloudy in the longer term. Limited new model pipeline handicapped by a lack of technological clout remain as our major concern on its long-term viability as a stand-alone entity. Without the necessary collaboration with the majors will only cloud its future. Short-term wise, fortune is supported by strong Persona and Saga sales while new models (MPV and Perdana replacement) and exports are unlikely to excite given small volume and heightened competition.
· Maintain Trading BUY with Target Price of RM3.40 based on P/NTA of 0.35x. Our valuation is also supported by PER valuation of RM3.44 using an industry's FY09 PER of 8.0x and FY09 EPS of 43 sen. Proton is currently generating stronger cash flow and sits comfortably at net cash per share of RM2.08 as at 30 Jun 08. Tougher operating environment with rising component costs are key risks.
Price: RM2.98
Target Price: RM3.40
Recommendation: TRADING BUY
· Above market expectation. 1Q09 net profit of RM52.0m accounted for 40.4% of market consensus and 22.0% of our estimate.
· 1Q09 returned to the black vis-à-vis 1Q08 net loss of RM46.8m driven by strong domestic vehicle sales (+62% YoY). Market share has improved to 26.1% (1Q08: 20.5%) underpinned by strong sales of its newly launched Persona and Saga models. Continuous cost reduction initiatives had helped with overall operational improvement.
· QoQ, net profit decreased by 78.0% due to the receipt of RM194.0m R&D grant from the government in 4Q08. Net of the grant, recurring income was up 22.7% sequentially backed by higher domestic sales growth of 11.3%.
· Maintain FY09 and FY10 net earnings of RM236.2m and RM238.6m, respectively. The strong bookings of over 52,000 and 75,000 units of Persona and Saga received to-date, respectively, should underpin Proton's earnings in the near term. Recent increase in Saga's capacity to 7,000 from 6,500 units/month should help to alleviate the long wait-list of between 6-7 months. Newly launched Persona Special Edition (< RM60,000) is expected to increase monthly bookings by 500 units to its current 4,000 units/month.
· Prospect cloudy in the longer term. Limited new model pipeline handicapped by a lack of technological clout remain as our major concern on its long-term viability as a stand-alone entity. Without the necessary collaboration with the majors will only cloud its future. Short-term wise, fortune is supported by strong Persona and Saga sales while new models (MPV and Perdana replacement) and exports are unlikely to excite given small volume and heightened competition.
· Maintain Trading BUY with Target Price of RM3.40 based on P/NTA of 0.35x. Our valuation is also supported by PER valuation of RM3.44 using an industry's FY09 PER of 8.0x and FY09 EPS of 43 sen. Proton is currently generating stronger cash flow and sits comfortably at net cash per share of RM2.08 as at 30 Jun 08. Tougher operating environment with rising component costs are key risks.
HLG: Proton Holdings - Above-consensus Q109; Raise to BUY (28 August 2008)
Proton Holdings Bhd BUY
Price target RM4.10
Share price at 27 Aug RM2.98
Investment summary
Q109 results were in-line with forecast, but >100% above consensus. Following its –19% YTD share price decline, we raise Proton from a HOLD to a BUY: (1) Domestic sales volumes/ ASPs have risen sharply thanks to the launch of new models, and this has trickled through to higher margins/ earnings. (2) Even if domestic sales slows due to the economic slowdown, we think Proton will remain cashflow-positive, in view of generous government industrial support. (3) Current RM2.98 share price is supported by RM4.23 in cash and inventory.
We are negative on Malaysia’s auto sector, as we believe that higher inflation could hit the consumption of big-ticket consumer durables.
Zero expectation price-tag
Share price has fallen –19% YTD, and Proton trades at liquidation levels. We think M&A-related newsflow could restart in H109, driven by the possibility of near-term political changeover, and this could cause a re-rating in the share price.
Price target RM4.10
Share price at 27 Aug RM2.98
Investment summary
Q109 results were in-line with forecast, but >100% above consensus. Following its –19% YTD share price decline, we raise Proton from a HOLD to a BUY: (1) Domestic sales volumes/ ASPs have risen sharply thanks to the launch of new models, and this has trickled through to higher margins/ earnings. (2) Even if domestic sales slows due to the economic slowdown, we think Proton will remain cashflow-positive, in view of generous government industrial support. (3) Current RM2.98 share price is supported by RM4.23 in cash and inventory.
We are negative on Malaysia’s auto sector, as we believe that higher inflation could hit the consumption of big-ticket consumer durables.
Zero expectation price-tag
Share price has fallen –19% YTD, and Proton trades at liquidation levels. We think M&A-related newsflow could restart in H109, driven by the possibility of near-term political changeover, and this could cause a re-rating in the share price.
HLG: Lion Industries - Results beat street; Maintain BUY (28 August 2008)
Lion Industries Corp Bhd BUY
Price target RM3.00
Share price at 27 Aug RM1.98
Investment summary
Full-year FY08 earnings were 80-90% ahead of forecast and consensus, re-affirming our BUY rating on the stock. We continue to like LionInd because of: (1) A sharp 34% discount to its SOTP, based on market prices of its LionDiv, Parkson and LionForest stakes. (2) Sub-market FY09 PE of 3x, even when factoring a sharp drop-off in steel prices from their Jun08 peaks. We are positive on Malaysia’s steel sector due to: (1) a rebound in domestic demand from the construction sector; (2) Chinese steel export curbs, which create a benign pricing environment for Malaysian producers.
An amazing <1x PE
Share price is down -36% YTD, trading at 3x FY09E PE. Current mkt value of Parkson/LionDiv/LionForest stakes is RM1.26/share, and investors get LionInd’s steel business at <1x FY09E PE.
Price target RM3.00
Share price at 27 Aug RM1.98
Investment summary
Full-year FY08 earnings were 80-90% ahead of forecast and consensus, re-affirming our BUY rating on the stock. We continue to like LionInd because of: (1) A sharp 34% discount to its SOTP, based on market prices of its LionDiv, Parkson and LionForest stakes. (2) Sub-market FY09 PE of 3x, even when factoring a sharp drop-off in steel prices from their Jun08 peaks. We are positive on Malaysia’s steel sector due to: (1) a rebound in domestic demand from the construction sector; (2) Chinese steel export curbs, which create a benign pricing environment for Malaysian producers.
An amazing <1x PE
Share price is down -36% YTD, trading at 3x FY09E PE. Current mkt value of Parkson/LionDiv/LionForest stakes is RM1.26/share, and investors get LionInd’s steel business at <1x FY09E PE.
RCE Capital - BUY - 28 Aug 2008
RCE Capital - 1QFY09 results within expectations (Results Note)
Price: RM0.47
Target Price: RM1.00
Recommendation: BUY
· RCE Capital's (RCE) 1QFY09 net profit of RM13.6m is in-line with our expectations comprising 21% and 20% of our forecast and consensus estimates respectively. Hefty revenue growth was dampened by higher operating expense from branch expansion and intensive marketing efforts.
· YoY, higher operating expenses in 1QFY09 dented sizeable increase in loan financing revenue. Revenue increased 68% driven by an 11% increase in net loan receivables as consumers sought alternative financing to cope with higher food costs and other inflationary pressures. EBIT only increased by 16% however due to a 28% increase in operating expenses, particularly in marketing and staff costs.
· QoQ, 1QFY09 core net profit declined by 16% in spite of a 31% increase in revenue mainly due to higher operating costs incurred to enlarge RCE's distribution network and incentivise co-operative agents that distribute its products.
· Maintain FY08 and FY09 earnings estimates. We anticipate stronger earnings growth moving forward as consumers seek alternative financing to cope with inflationary pressures and with seasonally higher demand in 2QFY09 just before the Hari Raya festive season.
· Re-iterate BUY recommendation with target price of RM1.00 derived from the application of 10x PER (1x below regional average) applied to FY09 FD EPS of 9.1 sen. The stock is trading at highly undemanding 5.1x and 4.4x FY09 and FY10 PERs respectively. Biggest downside risk is severe economic slowdown. Potential upside from rising demand due to consumers' shrinking disposable income with elevated food and fuel costs. RCE's NPL ratio remains below 3% and is unlikely to rise given RCE's civil servant customer base (low turnover) and collection of loan repayments via direct salary deduction.
Price: RM0.47
Target Price: RM1.00
Recommendation: BUY
· RCE Capital's (RCE) 1QFY09 net profit of RM13.6m is in-line with our expectations comprising 21% and 20% of our forecast and consensus estimates respectively. Hefty revenue growth was dampened by higher operating expense from branch expansion and intensive marketing efforts.
· YoY, higher operating expenses in 1QFY09 dented sizeable increase in loan financing revenue. Revenue increased 68% driven by an 11% increase in net loan receivables as consumers sought alternative financing to cope with higher food costs and other inflationary pressures. EBIT only increased by 16% however due to a 28% increase in operating expenses, particularly in marketing and staff costs.
· QoQ, 1QFY09 core net profit declined by 16% in spite of a 31% increase in revenue mainly due to higher operating costs incurred to enlarge RCE's distribution network and incentivise co-operative agents that distribute its products.
· Maintain FY08 and FY09 earnings estimates. We anticipate stronger earnings growth moving forward as consumers seek alternative financing to cope with inflationary pressures and with seasonally higher demand in 2QFY09 just before the Hari Raya festive season.
· Re-iterate BUY recommendation with target price of RM1.00 derived from the application of 10x PER (1x below regional average) applied to FY09 FD EPS of 9.1 sen. The stock is trading at highly undemanding 5.1x and 4.4x FY09 and FY10 PERs respectively. Biggest downside risk is severe economic slowdown. Potential upside from rising demand due to consumers' shrinking disposable income with elevated food and fuel costs. RCE's NPL ratio remains below 3% and is unlikely to rise given RCE's civil servant customer base (low turnover) and collection of loan repayments via direct salary deduction.
Eastern & Oriental - BUY - 28 Aug 2008
Eastern & Oriental - 1Q09 results meet house estimates (Results Note)
Price: RM1.00
Target Price: RM3.54
Recommendation: BUY
· 1Q09 net profit of RM11m came within our expectations but fell short of street's forecast. Eastern & Oriental's (EOB) 1Q08 net profit accounted for 23% and 17% of our and consensus' FY09E net profit forecast of RM47m and RM66m, respectively. The company's results were mainly buoyed by its Seri Tanjung Pinang P1 (STP1) project.
· YoY, 1Q09 net profit fell 29%. Dua Residency, Idamansara and Seventy Damansara were completed in the last two financial years. Hence, 1Q09 registered lower billings from the Klang Valley projects given their high take-up rates of 93% to 100%. Additionally, EOB's hospitality and investment holdings divisions incurred operating losses of RM3m in 1Q09 which exacerbated the decline in earnings.
· QoQ, 1Q09 pretax profit rose 10% on the back of higher billings from richer margin STP1 products; semi-detached homes (Acacia), bungalows (Villas by the Sea) and service apartments (Suites at Waterside). Lower 4Q08 pretax profit was burdened by heavier initial construction works which were not billable to house buyers for the above-mentioned projects. Given a slower start in terms of billing in 2H08, FY09 revenue is expected to be buoyed by STP1 projects.
· Up-coming launches. This Friday, EOB will be launching another 24 units of "Suites at Waterside" with price tags ranging from RM0.7m to RM1.6m each or RM673psf - RM704psf. Initially, EOB intended to keep these units as investment properties. However, EOB decided to release them for sale given the keen demand. This project will also set a pricing platform for its STP1 Seaside Condominium project, which is targeted for launch by end CY08.
· We are maintaining our FY09E net profit forecast of RM71m (post-merger forecast) given the c.RM18m gain on disposal of the Yap Kwan Seng land and strong unbilled sales of RM181m as at 31/8/08. FY09E and FY10E PER are trading at fair 8.4x and 7.6x, respectively. Reiterating BUY call with unchanged target price of RM3.54.
Price: RM1.00
Target Price: RM3.54
Recommendation: BUY
· 1Q09 net profit of RM11m came within our expectations but fell short of street's forecast. Eastern & Oriental's (EOB) 1Q08 net profit accounted for 23% and 17% of our and consensus' FY09E net profit forecast of RM47m and RM66m, respectively. The company's results were mainly buoyed by its Seri Tanjung Pinang P1 (STP1) project.
· YoY, 1Q09 net profit fell 29%. Dua Residency, Idamansara and Seventy Damansara were completed in the last two financial years. Hence, 1Q09 registered lower billings from the Klang Valley projects given their high take-up rates of 93% to 100%. Additionally, EOB's hospitality and investment holdings divisions incurred operating losses of RM3m in 1Q09 which exacerbated the decline in earnings.
· QoQ, 1Q09 pretax profit rose 10% on the back of higher billings from richer margin STP1 products; semi-detached homes (Acacia), bungalows (Villas by the Sea) and service apartments (Suites at Waterside). Lower 4Q08 pretax profit was burdened by heavier initial construction works which were not billable to house buyers for the above-mentioned projects. Given a slower start in terms of billing in 2H08, FY09 revenue is expected to be buoyed by STP1 projects.
· Up-coming launches. This Friday, EOB will be launching another 24 units of "Suites at Waterside" with price tags ranging from RM0.7m to RM1.6m each or RM673psf - RM704psf. Initially, EOB intended to keep these units as investment properties. However, EOB decided to release them for sale given the keen demand. This project will also set a pricing platform for its STP1 Seaside Condominium project, which is targeted for launch by end CY08.
· We are maintaining our FY09E net profit forecast of RM71m (post-merger forecast) given the c.RM18m gain on disposal of the Yap Kwan Seng land and strong unbilled sales of RM181m as at 31/8/08. FY09E and FY10E PER are trading at fair 8.4x and 7.6x, respectively. Reiterating BUY call with unchanged target price of RM3.54.
Resorts World - BUY - 28 Aug 2008
Resorts World - Solid 1H08 (Results Note)
Price: RM2.53
Target Price: RM4.38
Recommendation: BUY
· 1H08 revenue of RM2.3b was in line while core net profit of RM662.5m was 47.5% and 50.9% of our forecast and consensus respectively. We were pleasantly surprised by the strong 1H08 which was typically weaker on seasonality. The robust 1H08 was mainly driven by better luck factor and higher patronage.
· QoQ, revenue rose 13.6% while EBITDA growth was even higher at 31.0% with 2Q08 EBITDA margin expanding to 42.5% from 40.2% in 1Q08 on the back of higher luck factor in the VIP segment and higher visitorship.
· YoY, 1H08 revenue and EBITDA jumped 11.3% and 18.6% respectively, underpinned by lower payout for VIP and higher business volume. Pre-tax surged 25.2% to RM906.7m owning to better EBITDA margin (1H08:41.4% vs 1H07:38.9%), increased net interest income (+89.1%) and a RM19.1m gain on disposal of long term investments.
· Group announced an interim gross dividend of 3.0sen vs the previous 2.88sen. Payout is a tad lower as group conserves cash for future acquisition or expansion in the regional gaming market. Current cash hoard of RM4.2b which is still growing coupled with depressed share price should increase Resorts' appeal as a privatisation target by parent Genting group as highlighted in our previous reports.
· Resorts' share price had been unduly punished amidst concern of a potential gaming tax hike. While a 1% tax hike would have a c.2% impact to Resort's bottom line, it only increases government's coffers by merely RM40m which is very marginal. We therefore opine that the hike of gaming tax if any will be minimal taking into consideration that Resorts is a top tourist draw and their competitiveness should not be compromised especially with heightening competition across the region.
· BUY though target price lowered after trimming our FY08F and FY09F by 3.0% and 4.2% respectively taking into account higher costs all-round between 1%-4% including staff and energy costs. Resorts remains our top buy as current valuation is most attractive at FY08 PER of 10.9x versus regional average of 21x. Valuation is even more compelling at 7.8x after netting off cash per share of RM0.72. Reiterate BUY with target price revised to RM4.38 based on sum-of parts. Share price should re-rate strongly once the overhanging tax hike concern is removed. More details post tele-conference today.
Price: RM2.53
Target Price: RM4.38
Recommendation: BUY
· 1H08 revenue of RM2.3b was in line while core net profit of RM662.5m was 47.5% and 50.9% of our forecast and consensus respectively. We were pleasantly surprised by the strong 1H08 which was typically weaker on seasonality. The robust 1H08 was mainly driven by better luck factor and higher patronage.
· QoQ, revenue rose 13.6% while EBITDA growth was even higher at 31.0% with 2Q08 EBITDA margin expanding to 42.5% from 40.2% in 1Q08 on the back of higher luck factor in the VIP segment and higher visitorship.
· YoY, 1H08 revenue and EBITDA jumped 11.3% and 18.6% respectively, underpinned by lower payout for VIP and higher business volume. Pre-tax surged 25.2% to RM906.7m owning to better EBITDA margin (1H08:41.4% vs 1H07:38.9%), increased net interest income (+89.1%) and a RM19.1m gain on disposal of long term investments.
· Group announced an interim gross dividend of 3.0sen vs the previous 2.88sen. Payout is a tad lower as group conserves cash for future acquisition or expansion in the regional gaming market. Current cash hoard of RM4.2b which is still growing coupled with depressed share price should increase Resorts' appeal as a privatisation target by parent Genting group as highlighted in our previous reports.
· Resorts' share price had been unduly punished amidst concern of a potential gaming tax hike. While a 1% tax hike would have a c.2% impact to Resort's bottom line, it only increases government's coffers by merely RM40m which is very marginal. We therefore opine that the hike of gaming tax if any will be minimal taking into consideration that Resorts is a top tourist draw and their competitiveness should not be compromised especially with heightening competition across the region.
· BUY though target price lowered after trimming our FY08F and FY09F by 3.0% and 4.2% respectively taking into account higher costs all-round between 1%-4% including staff and energy costs. Resorts remains our top buy as current valuation is most attractive at FY08 PER of 10.9x versus regional average of 21x. Valuation is even more compelling at 7.8x after netting off cash per share of RM0.72. Reiterate BUY with target price revised to RM4.38 based on sum-of parts. Share price should re-rate strongly once the overhanging tax hike concern is removed. More details post tele-conference today.
QL Resources - BUY - 27 Aug 2008
QL Resources - 1QFY09 results in-line with expectations (Results Note)
Price: RM2.74
Target Price: RM3.60
Recommendation: BUY
· QL Resources' (QL) 1QFY09 net profit of RM21.5m is within our expectations, comprising 22% and 23% of our forecast and street estimates respectively. 1QFY09 earnings were buoyed by robust commodities prices and greater contribution from its 3,000 acre maturing oil palm plantation in Tawau, Sabah.
· YoY, all 3 divisions registered improved profitability in 1QFY09 mainly due to elevated commodities prices. The ILF division is still the largest contributor to revenue accounting for just over half 1QFY09 revenue. The lofty price of feed commodities (soybean meal and maize prices were 45% and 70% higher YoY in 1QFY09), higher surimi prices (the average price of surimi in 2008 was 38% higher YoY at RM11,000/mt) and larger contribution from deep-sea fishing; as well as the lofty price of CPO (up by 50% YoY in 1QFY09) and higher contribution of the maturing plantation resulted in a 16% increase in 1QFY09 revenue. The MPM and ILF divisions were the largest pretax profit contributors with improved margins although all divisions registered significant growth YoY.
· QoQ, 1QFY09 revenue increased by 11% propelled by high surimi prices and improved fish landing (4QFY08 was negatively impacted by the monsoon season) in the MPM segment; high CPO price (up by 26% QoQ) in the POA division and high raw material prices (soybean meal and maize were up by 3% and 22% respectively). 1QFY09 pretax profit improved by 10% in-line with higher revenue but net profit rose by only 2% due to higher taxation (from timing differences) and minority interest (improved profitability of subsidiaries).
· Maintain FY09 and FY10 net profit forecast. 1Q is seasonally the weakest quarter for QL.
· Re-iterate BUY with target price of RM3.60 derived from 12x PER applied to FY09 FD EPS of 29.8 sen (adjusted for bonus issue in June 2008). QL is currently trading at 9.2x and 7.6x FY09 and FY10 PERs respectively. We favour QL for its solid track record of earnings growth and planned expansion domestically and regionally. Prospective FY09 and FY10 dividend yields of 4.0% and 4.4% further recommend the stock.
Price: RM2.74
Target Price: RM3.60
Recommendation: BUY
· QL Resources' (QL) 1QFY09 net profit of RM21.5m is within our expectations, comprising 22% and 23% of our forecast and street estimates respectively. 1QFY09 earnings were buoyed by robust commodities prices and greater contribution from its 3,000 acre maturing oil palm plantation in Tawau, Sabah.
· YoY, all 3 divisions registered improved profitability in 1QFY09 mainly due to elevated commodities prices. The ILF division is still the largest contributor to revenue accounting for just over half 1QFY09 revenue. The lofty price of feed commodities (soybean meal and maize prices were 45% and 70% higher YoY in 1QFY09), higher surimi prices (the average price of surimi in 2008 was 38% higher YoY at RM11,000/mt) and larger contribution from deep-sea fishing; as well as the lofty price of CPO (up by 50% YoY in 1QFY09) and higher contribution of the maturing plantation resulted in a 16% increase in 1QFY09 revenue. The MPM and ILF divisions were the largest pretax profit contributors with improved margins although all divisions registered significant growth YoY.
· QoQ, 1QFY09 revenue increased by 11% propelled by high surimi prices and improved fish landing (4QFY08 was negatively impacted by the monsoon season) in the MPM segment; high CPO price (up by 26% QoQ) in the POA division and high raw material prices (soybean meal and maize were up by 3% and 22% respectively). 1QFY09 pretax profit improved by 10% in-line with higher revenue but net profit rose by only 2% due to higher taxation (from timing differences) and minority interest (improved profitability of subsidiaries).
· Maintain FY09 and FY10 net profit forecast. 1Q is seasonally the weakest quarter for QL.
· Re-iterate BUY with target price of RM3.60 derived from 12x PER applied to FY09 FD EPS of 29.8 sen (adjusted for bonus issue in June 2008). QL is currently trading at 9.2x and 7.6x FY09 and FY10 PERs respectively. We favour QL for its solid track record of earnings growth and planned expansion domestically and regionally. Prospective FY09 and FY10 dividend yields of 4.0% and 4.4% further recommend the stock.
HLG: Lafarge Malayan Cement - Expect better H208 on ASP hikes (27 August 2008)
Lafarge Malayan Cement BUY
Price target RM6.30
Share price at 26 Aug RM4.18
Investment summary
H108 net profit rose +10% yoy due to 15% volume growth, and re-affirms our BUY rating on LMC. We like LMC because: (1) The market thinks the Q107 capital repayment is one-off, but we think it could be repeated in FY08, given strong FCF and record earnings. (2) Positive domestic pricing following the liberalization of cement sector.
We are positive on the cement industry: (1) the sector is a safe proxy to the government’s 9th Malaysia Plan (9MP), unlike the highly competitive construction sector; (2) cement pricing fundamentals, given the liberalization of the cement sector, and the industry’s closed/oligopolistic market structure.
Taking the long view
LMC is still a great long-term play (dominant cement franchise, liquid stock, capital management possibilities), for investors who can overlook short-term issues (the time-lag between ASP hikes and escalating coal cost).
Price target RM6.30
Share price at 26 Aug RM4.18
Investment summary
H108 net profit rose +10% yoy due to 15% volume growth, and re-affirms our BUY rating on LMC. We like LMC because: (1) The market thinks the Q107 capital repayment is one-off, but we think it could be repeated in FY08, given strong FCF and record earnings. (2) Positive domestic pricing following the liberalization of cement sector.
We are positive on the cement industry: (1) the sector is a safe proxy to the government’s 9th Malaysia Plan (9MP), unlike the highly competitive construction sector; (2) cement pricing fundamentals, given the liberalization of the cement sector, and the industry’s closed/oligopolistic market structure.
Taking the long view
LMC is still a great long-term play (dominant cement franchise, liquid stock, capital management possibilities), for investors who can overlook short-term issues (the time-lag between ASP hikes and escalating coal cost).
LCL Corporation - BUY - 27 Aug 2008
LCL Corporation - 1H08 net profit below expectations (Results Note)
Price: RM2.01
Target Price: RM3.90
Recommendation: BUY
· 1H08 net profit of RM17.0m was below expectations being 30% of our forecast and consensus of RM56.0m and RM54.5m respectively. The poorer results are due to delays by main contractors in local projects in handing over job sites to LCL. This in turn resulted in higher overheads, warehousing cost and financing cost. The strong contribution from projects in Dubai which makes up 80% of revenue with higher profit margin compensated for the domestic losses.
· All is not lost. However, LCL is pursuing to claim some compensation from the main contractors and project owners for the delay in site possession. The delays by main contractors could sometimes be deliberate in order to force project owners to renegotiate for higher building materials cost.
· YoY, 1H08 net profit was 64.2% higher on the back of higher progressive recognition of its key projects, namely Atlantis Hotel and Dubai Mall Hotel secured in 2Q06 and 3Q06. Better operating margins is a result of higher combination of Dubai projects and also completion of Atlantis where provision for contingencies was reversed.
· QoQ 2Q08 net profit was 30% lower arising from losses in Malaysia operations resulting in a 2% lower operating margin, and high finance cost.
· We are lowering FY08E and FY09E net profit forecast by 19% and 8% to RM45.3m and RM56.1m from RM56.0m and RM60.5m respectively assuming slower contracts billings and losses in Malaysian contracts.
· Orderbook of RM980m with RM650m remaining unbilled. LCL's track record for executing large projects on time is proven with Atlantis Hotel handed over and Dubai Mall Hotel in the process of handing over. LCL is currently well positioned and is bidding for more than RM1b worth of contracts.
· Maintain BUY with a lowered target price RM3.90 using the regional IFO companies' FY09 PER of 10x and FY09E EPS of 39.2sen. LCL trades attractively at 6.3x and 5.1x FY08E and FY09E PER respectively.
Price: RM2.01
Target Price: RM3.90
Recommendation: BUY
· 1H08 net profit of RM17.0m was below expectations being 30% of our forecast and consensus of RM56.0m and RM54.5m respectively. The poorer results are due to delays by main contractors in local projects in handing over job sites to LCL. This in turn resulted in higher overheads, warehousing cost and financing cost. The strong contribution from projects in Dubai which makes up 80% of revenue with higher profit margin compensated for the domestic losses.
· All is not lost. However, LCL is pursuing to claim some compensation from the main contractors and project owners for the delay in site possession. The delays by main contractors could sometimes be deliberate in order to force project owners to renegotiate for higher building materials cost.
· YoY, 1H08 net profit was 64.2% higher on the back of higher progressive recognition of its key projects, namely Atlantis Hotel and Dubai Mall Hotel secured in 2Q06 and 3Q06. Better operating margins is a result of higher combination of Dubai projects and also completion of Atlantis where provision for contingencies was reversed.
· QoQ 2Q08 net profit was 30% lower arising from losses in Malaysia operations resulting in a 2% lower operating margin, and high finance cost.
· We are lowering FY08E and FY09E net profit forecast by 19% and 8% to RM45.3m and RM56.1m from RM56.0m and RM60.5m respectively assuming slower contracts billings and losses in Malaysian contracts.
· Orderbook of RM980m with RM650m remaining unbilled. LCL's track record for executing large projects on time is proven with Atlantis Hotel handed over and Dubai Mall Hotel in the process of handing over. LCL is currently well positioned and is bidding for more than RM1b worth of contracts.
· Maintain BUY with a lowered target price RM3.90 using the regional IFO companies' FY09 PER of 10x and FY09E EPS of 39.2sen. LCL trades attractively at 6.3x and 5.1x FY08E and FY09E PER respectively.
HLG: KNM Group - Record profit in Q208; BUY (27 August 2008)
KNM Group BUY
Price target RM2.40
Share price at 26 Aug RM1.61
Investment summary
H108 net profit (+100% yoy) was 33-35% of HLG/consensus full-year forecast. KNM is on-track to meet our full-year forecast as our forecast includes RM150m contribution from Borsig in H208. The strong results reaffirm our BUY rating on the stock. We are bullish on KNM: (1) we see strong incremental EPS growth in H208, mainly due to consolidation of Borsig results. Q308 earnings could be up by 60-70% qoq; (2) valuation at 9x FY09 PE is 25-30% discount to global peers.
We are positive on the O&G fabrication business: (1) oil majors are increasing their capex
spending on onshore and offshore facilities to boost output given the high crude oil prices (2) lack of yard space and credible process equipment fabricators has created a super-normal pricing power for equipment makers like KNM.
Record high profits
Q208 results grew 100% yoy, mainly due to higher orders, capacity expansion and partial consolidation of Borsig. Share price remains attractive at 9x FY09E PE, 25-30% discount to global peers. We are buyers of KNM at current level.
Price target RM2.40
Share price at 26 Aug RM1.61
Investment summary
H108 net profit (+100% yoy) was 33-35% of HLG/consensus full-year forecast. KNM is on-track to meet our full-year forecast as our forecast includes RM150m contribution from Borsig in H208. The strong results reaffirm our BUY rating on the stock. We are bullish on KNM: (1) we see strong incremental EPS growth in H208, mainly due to consolidation of Borsig results. Q308 earnings could be up by 60-70% qoq; (2) valuation at 9x FY09 PE is 25-30% discount to global peers.
We are positive on the O&G fabrication business: (1) oil majors are increasing their capex
spending on onshore and offshore facilities to boost output given the high crude oil prices (2) lack of yard space and credible process equipment fabricators has created a super-normal pricing power for equipment makers like KNM.
Record high profits
Q208 results grew 100% yoy, mainly due to higher orders, capacity expansion and partial consolidation of Borsig. Share price remains attractive at 9x FY09E PE, 25-30% discount to global peers. We are buyers of KNM at current level.
HLG: Sime Darby - Results in-line, but headwinds in FY09 (27 August 2008)
Sime Darby Berhad BUY
Price target RM7.50
Share price at 26 August RM6.45
Investment summary
Full-year FY08 earnings were within HLG/market expectation. Our BUY rating is premised largely on Sime’s valuation gap to comparable big-cap peers: 11x FY09E PE compares to 14-17x for sector leaders IOI/Wilmar; 6% net DY is sector-leading, and compares to 1% for IOI. However, we admit that the outlook for EPS growth is poor, given the cyclicality of non-plantation earnings and the lack of catalysts following the collapse of the Bakun deal.
From a broader investment standpoint, our current plantation strategy is to play short-term technical movements via IOI, which we see as a closer proxy to CPO prices than Sime. We are long-term bearish on CPO prices, given its close correlation to crude oil prices and the lack of immediate clarity as to how low crude oil prices can go in a global economic slowdown.
Grossly oversold
EPS outlook has deteriorated, given the collapse of the Bakun transmission deal, cyclical non-plantations earnings and sharp decline in CPO prices. However, we think that Sime has still been oversold relative to IOI/KLK, and this is largely due to how well-owned it was prior to its Nov07 restructuring.
Price target RM7.50
Share price at 26 August RM6.45
Investment summary
Full-year FY08 earnings were within HLG/market expectation. Our BUY rating is premised largely on Sime’s valuation gap to comparable big-cap peers: 11x FY09E PE compares to 14-17x for sector leaders IOI/Wilmar; 6% net DY is sector-leading, and compares to 1% for IOI. However, we admit that the outlook for EPS growth is poor, given the cyclicality of non-plantation earnings and the lack of catalysts following the collapse of the Bakun deal.
From a broader investment standpoint, our current plantation strategy is to play short-term technical movements via IOI, which we see as a closer proxy to CPO prices than Sime. We are long-term bearish on CPO prices, given its close correlation to crude oil prices and the lack of immediate clarity as to how low crude oil prices can go in a global economic slowdown.
Grossly oversold
EPS outlook has deteriorated, given the collapse of the Bakun transmission deal, cyclical non-plantations earnings and sharp decline in CPO prices. However, we think that Sime has still been oversold relative to IOI/KLK, and this is largely due to how well-owned it was prior to its Nov07 restructuring.
Hunza Properties - BUY - 26 Aug 2008
Hunza Properties - Softer earnings ahead (Company Update)
Price: RM1.40
Target Price: RM3.59
Recommendation: BUY
We attended Hunza Properties' (Hunza) post FY08 results briefing yesterday and took away the following key points;
· Reigning in construction cost with own capabilities. Hunza intends to revive its 100%-owned construction arm, Masuka Bina Sdn Bhd, to improve time and cost management in constructing its projects. The construction arm will be undertaking the entire Gurney Paragon project and is expected to yield 6%-10% savings.
· Gurney Paragon (GP) mall cost increases by 25% to RM500m from the initially guided RM400m, a year ago, due to rising raw material costs. However, Hunza believes that its initial gross development cost can be achieved if material prices continue to trend downwards and through further savings from utilizing its own construction arm. However, we are forecasting a more conservative mall's cost of RM450m over a period of 18 months, commencing in 2HFY09.
· Rights issue looking less likely. Hunza may forgo its proposal, although it has extended the right issuance date to Oct 08, given its depressed share price of RM1.40. Therefore, it will obtain further funding, particularly for the construction of GP mall, via borrowings. Based on its internal gearing limit of 50%, Hunza can afford to borrow another RM150m-RM160m.
· Stretched-out sales for GP and Infiniti reduces our FY09E and FY10E recurring net profit by 16% and 19% to RM52m (+10% YoY) and RM62m (+20% YoY), respectively. However, we are3 raising our FY11E recurring net profit by 73% to RM71m (+13% YoY) taking into account of spill over sales from GP and Infiniti, as well as, new launches namely, the RM250m Alila II and RM300m Segambut project in 2HFY10 to FY11.
· We maintain our BUY call with a target price of RM3.59, based on our sum of parts RNAV on a fully diluted basis. FY08E and FY09E PERs are compelling at 4x and 3x, respectively, while dividend is extremely attractive for a property stock with FY09E net dividend yield of 6.6% (gross yield of 8.8%).
Price: RM1.40
Target Price: RM3.59
Recommendation: BUY
We attended Hunza Properties' (Hunza) post FY08 results briefing yesterday and took away the following key points;
· Reigning in construction cost with own capabilities. Hunza intends to revive its 100%-owned construction arm, Masuka Bina Sdn Bhd, to improve time and cost management in constructing its projects. The construction arm will be undertaking the entire Gurney Paragon project and is expected to yield 6%-10% savings.
· Gurney Paragon (GP) mall cost increases by 25% to RM500m from the initially guided RM400m, a year ago, due to rising raw material costs. However, Hunza believes that its initial gross development cost can be achieved if material prices continue to trend downwards and through further savings from utilizing its own construction arm. However, we are forecasting a more conservative mall's cost of RM450m over a period of 18 months, commencing in 2HFY09.
· Rights issue looking less likely. Hunza may forgo its proposal, although it has extended the right issuance date to Oct 08, given its depressed share price of RM1.40. Therefore, it will obtain further funding, particularly for the construction of GP mall, via borrowings. Based on its internal gearing limit of 50%, Hunza can afford to borrow another RM150m-RM160m.
· Stretched-out sales for GP and Infiniti reduces our FY09E and FY10E recurring net profit by 16% and 19% to RM52m (+10% YoY) and RM62m (+20% YoY), respectively. However, we are3 raising our FY11E recurring net profit by 73% to RM71m (+13% YoY) taking into account of spill over sales from GP and Infiniti, as well as, new launches namely, the RM250m Alila II and RM300m Segambut project in 2HFY10 to FY11.
· We maintain our BUY call with a target price of RM3.59, based on our sum of parts RNAV on a fully diluted basis. FY08E and FY09E PERs are compelling at 4x and 3x, respectively, while dividend is extremely attractive for a property stock with FY09E net dividend yield of 6.6% (gross yield of 8.8%).
HLG: Coastal Contracts - H108 results in-line with forecast (26 August 2008)
Coastal Contracts Berhad BUY
Price target RM3.80
Share price at 25 Aug RM2.20
Investment summary
H108 results were in-line with HLG/consensus estimate, re-affirming our BUY rating on the stock. We maintain our PT at RM3.80/share and remain bullish on the stock: (1) current order book at RM1,3bn will drive 32% earnings growth pa over FY07-10E, in our view (2) PE valuation at 8x and 6x for FY08-09E respectively is 25-30% discount to regional shipbuilders (3) news flow on vessel sales in H208 could surprise market on the upside and provide re-rating catalyst.
We are positive on the offshore support vessel industry because: (1) tight demand-supply for offshore support vessels (OSV) has created superior pricing power for shipbuilders (2) lagging vessel new-builds vs. replacement market offers opportunity for Coastal to replenish order book.
Orders could surprise
H108 earnings grew +23% yoy due to more vessels delivered. Record-high order book will drive 32% earnings growth pa over FY07-10E. We see little downside risk at current level and share price is attractive at 6x FY09E EPS. New vessel sales could surprise on the upside in H208.
Price target RM3.80
Share price at 25 Aug RM2.20
Investment summary
H108 results were in-line with HLG/consensus estimate, re-affirming our BUY rating on the stock. We maintain our PT at RM3.80/share and remain bullish on the stock: (1) current order book at RM1,3bn will drive 32% earnings growth pa over FY07-10E, in our view (2) PE valuation at 8x and 6x for FY08-09E respectively is 25-30% discount to regional shipbuilders (3) news flow on vessel sales in H208 could surprise market on the upside and provide re-rating catalyst.
We are positive on the offshore support vessel industry because: (1) tight demand-supply for offshore support vessels (OSV) has created superior pricing power for shipbuilders (2) lagging vessel new-builds vs. replacement market offers opportunity for Coastal to replenish order book.
Orders could surprise
H108 earnings grew +23% yoy due to more vessels delivered. Record-high order book will drive 32% earnings growth pa over FY07-10E. We see little downside risk at current level and share price is attractive at 6x FY09E EPS. New vessel sales could surprise on the upside in H208.
Sino Hua-An International - BUY - 25 Aug 2008
Sino Hua-An International - 1H08 below expectations (Results Note)
Price: RM0.545
Target Price: RM0.88
Recommendation: BUY
· 1H08 net profit of RM72.5m came in below expectations, accounted 41.4% and 43.0% of market consensus and our forecast, respectively, due to margin squeeze underpinned mainly by better pricing of coal compared to coke (variance between the pricing of the two commodities: 39.7% in 1H07 vis-à-vis 42.1% in 1H08).
· YoY, 2Q08 net profit increased by 13.6% to RM36.9m. The favourable uptrend pricing of coke boosted 2Q08 revenue by 106.9% to RM434.4m. However, this was mitigated by lower operating margin to 10.0% from 18.4% due to: (1) higher increase of coal price (+115.4%) compared to the increase of coke price (+104.5%); and (2) higher transportation cost in view of escalating fuel costs.
· 2Q08 net profit increased marginally by 3.8% QoQ due to margin squeeze as mentioned above. Coal price posted higher increase QoQ (+38.9%) vis-à-vis coke price (+28.1%). As a result, operating margin dropped to 10.0% from 14.4%.
· Expect short-term margin compression. The coke and coal price variance is driven mainly by: (1) the temporary shutdown of steel mills during the Olympics 2008 and (2) increase in production of thermal coal resulting in lower supply of coking coal in China. We expect the operating margin could still be suppressed in 3Q08, however, should improve when the steel mills resume business by end-Sept 2008.
· Earnings downgraded. The additional 600,000 tonnes of coke production successfully commenced in June 2008 will enhance Huaan's sales in 2H08. However, the margin compression has inevitably prompted us to lower our FY08 and FY09 net profit estimates to RM153.1m (-9.3%) and RM206.3m (-1.3%), respectively. Huaan still possesses the ability to pass on additional cost to customers as long as the spike in coal price (weekly basis) is within 3-5%. Nonetheless, substantial spike in coal price remains as the major key risk.
· Maintain BUY with lower Target Price of RM0.88 based on 6.5x PER, which is 10% discount to the regional markets' PER of 7.5x but in line with the Malaysian listed steel companies' average 2008 PER of 7.0x
Price: RM0.545
Target Price: RM0.88
Recommendation: BUY
· 1H08 net profit of RM72.5m came in below expectations, accounted 41.4% and 43.0% of market consensus and our forecast, respectively, due to margin squeeze underpinned mainly by better pricing of coal compared to coke (variance between the pricing of the two commodities: 39.7% in 1H07 vis-à-vis 42.1% in 1H08).
· YoY, 2Q08 net profit increased by 13.6% to RM36.9m. The favourable uptrend pricing of coke boosted 2Q08 revenue by 106.9% to RM434.4m. However, this was mitigated by lower operating margin to 10.0% from 18.4% due to: (1) higher increase of coal price (+115.4%) compared to the increase of coke price (+104.5%); and (2) higher transportation cost in view of escalating fuel costs.
· 2Q08 net profit increased marginally by 3.8% QoQ due to margin squeeze as mentioned above. Coal price posted higher increase QoQ (+38.9%) vis-à-vis coke price (+28.1%). As a result, operating margin dropped to 10.0% from 14.4%.
· Expect short-term margin compression. The coke and coal price variance is driven mainly by: (1) the temporary shutdown of steel mills during the Olympics 2008 and (2) increase in production of thermal coal resulting in lower supply of coking coal in China. We expect the operating margin could still be suppressed in 3Q08, however, should improve when the steel mills resume business by end-Sept 2008.
· Earnings downgraded. The additional 600,000 tonnes of coke production successfully commenced in June 2008 will enhance Huaan's sales in 2H08. However, the margin compression has inevitably prompted us to lower our FY08 and FY09 net profit estimates to RM153.1m (-9.3%) and RM206.3m (-1.3%), respectively. Huaan still possesses the ability to pass on additional cost to customers as long as the spike in coal price (weekly basis) is within 3-5%. Nonetheless, substantial spike in coal price remains as the major key risk.
· Maintain BUY with lower Target Price of RM0.88 based on 6.5x PER, which is 10% discount to the regional markets' PER of 7.5x but in line with the Malaysian listed steel companies' average 2008 PER of 7.0x
HLG: Tanjung Offshore - Disappointing H108, Downgrade to HOLD (25 August 2008)
Tanjung Offshore Berhad HOLD
Price target RM2.00
Share price at 22 Aug RM1.86
Investment summary
Annualised H108 net profit was 23-35% below HLG/consensus forecast. We are keeping our forecast unchanged as we expect earnings in H208 to be higher with the delivery of four new vessels from now till end of FY08 and higher billings from engineering equipment division. However, we think near term share price weakness could prolong with the proposed rights and new warrants to fund its vessel expansion plan. In view of the near term dilution in EPS from the fund-raising exercise, we cut our PT to RM2.00/share and downgrade our rating on TOFF from BUY to HOLD. We are positive on the oil and gas support vessels segment: (1) recent award of multi-year charter contracts by Petronas re-affirm our view that charter rates will hold for the next 3-4 years; (2) vessel supply-demand remains tight given that shipbuilding yards are filled with orders up to 2011/12.
Downgrade to HOLD
H108 earnings are 23-35% below HLG and consensus. We expect full-year earnings to meet our forecast on new vessel delivery and higher equipment billings. TOFF is highly geared and has proposed a rights issue to fund its expansion. We think the rights will dilute near term EPS and downgrade the stock to a HOLD.
Price target RM2.00
Share price at 22 Aug RM1.86
Investment summary
Annualised H108 net profit was 23-35% below HLG/consensus forecast. We are keeping our forecast unchanged as we expect earnings in H208 to be higher with the delivery of four new vessels from now till end of FY08 and higher billings from engineering equipment division. However, we think near term share price weakness could prolong with the proposed rights and new warrants to fund its vessel expansion plan. In view of the near term dilution in EPS from the fund-raising exercise, we cut our PT to RM2.00/share and downgrade our rating on TOFF from BUY to HOLD. We are positive on the oil and gas support vessels segment: (1) recent award of multi-year charter contracts by Petronas re-affirm our view that charter rates will hold for the next 3-4 years; (2) vessel supply-demand remains tight given that shipbuilding yards are filled with orders up to 2011/12.
Downgrade to HOLD
H108 earnings are 23-35% below HLG and consensus. We expect full-year earnings to meet our forecast on new vessel delivery and higher equipment billings. TOFF is highly geared and has proposed a rights issue to fund its expansion. We think the rights will dilute near term EPS and downgrade the stock to a HOLD.
HLG: Sino Hua An - No surprise; BUY on higher H208 (25 August 2008)
Sino Hua An International BUY
Price target RM1.00
Share price at 22 Aug RM0.545
Investment summary
H108 net profit of RM73m (+44% yoy) is 44-46% of HLG and consensus full-year forecast. The net profit growth was mainly due to higher selling prices of coke and by-products. We expect higher earnings contribution in H208 following the commissioning of the new 50% capacity in Jun08. We remain bullish on SHA: (1) taking into account the new capacity, current valuation at 3x FY09 PE is >70% discount to Chinese listed peers more than compensates for any perceived corporate governance risks, in our view (2) strong positive macro fundamental for steel and coke manufacturing in China with >10% pa demand growth and sector consolidation/supply constraints.
Expect strong H208
Q208 results were within our expectation and share price now trades at 46% below its IPO last year. We see little downside from current levels and advocate investors to buy ahead of strong EPS growth in Q308 due to higher production level.
Price target RM1.00
Share price at 22 Aug RM0.545
Investment summary
H108 net profit of RM73m (+44% yoy) is 44-46% of HLG and consensus full-year forecast. The net profit growth was mainly due to higher selling prices of coke and by-products. We expect higher earnings contribution in H208 following the commissioning of the new 50% capacity in Jun08. We remain bullish on SHA: (1) taking into account the new capacity, current valuation at 3x FY09 PE is >70% discount to Chinese listed peers more than compensates for any perceived corporate governance risks, in our view (2) strong positive macro fundamental for steel and coke manufacturing in China with >10% pa demand growth and sector consolidation/supply constraints.
Expect strong H208
Q208 results were within our expectation and share price now trades at 46% below its IPO last year. We see little downside from current levels and advocate investors to buy ahead of strong EPS growth in Q308 due to higher production level.
HLG: Petra Perdana - H108 below forecast; Cut EPS by 10% (25 August 2008)
Petra Perdana BUY
Price target RM5.00
Share price at 22 Aug RM3.54
Investment summary
Annualised H108 net profit was 29-33% below HLG/consensus full-year forecast due to delay in new vessel delivery. We cut our FY08 EPS forecast by 10% and lower our price target to RM5.00/share based on sum-of-the-parts (SOTP). We maintain our BUY rating on Petra Perdana because: (1) valuation at 9x FY09 is 20-30% discount to its peers; (2) aggressive vessel deliveries over the next two years will support our 14% EPS CAGR over FY07-10E; (3) successful bid for the RM1.5-2bn job from Shell will re-rate the share price.
We are positive on the oil and gas support vessels segment: (1) recent award of multi-year charter contracts by Petronas re-affirm our view that charter rates will hold for the next 3-4 years; (2) vessel supply-demand remains tight given that shipbuilding yards are filled with orders up to 2011/12.
Delay in vessel delivery
We cut our FY08 EPS forecast by 10% due to later than expected delivery of new vessels. However, we think the next 6-12 months is an exciting period for the stock due to its steady stream of vessel delivery. Key surprise could come from a successful bid for the brown field contract from Shell.
Price target RM5.00
Share price at 22 Aug RM3.54
Investment summary
Annualised H108 net profit was 29-33% below HLG/consensus full-year forecast due to delay in new vessel delivery. We cut our FY08 EPS forecast by 10% and lower our price target to RM5.00/share based on sum-of-the-parts (SOTP). We maintain our BUY rating on Petra Perdana because: (1) valuation at 9x FY09 is 20-30% discount to its peers; (2) aggressive vessel deliveries over the next two years will support our 14% EPS CAGR over FY07-10E; (3) successful bid for the RM1.5-2bn job from Shell will re-rate the share price.
We are positive on the oil and gas support vessels segment: (1) recent award of multi-year charter contracts by Petronas re-affirm our view that charter rates will hold for the next 3-4 years; (2) vessel supply-demand remains tight given that shipbuilding yards are filled with orders up to 2011/12.
Delay in vessel delivery
We cut our FY08 EPS forecast by 10% due to later than expected delivery of new vessels. However, we think the next 6-12 months is an exciting period for the stock due to its steady stream of vessel delivery. Key surprise could come from a successful bid for the brown field contract from Shell.
AEON Credit Service - BUY - 22 Aug 2008 (Errata)
AEON Credit Service - Rising cost pressures for consumers presents opportunity (Company Update)
Price: RM3.22
Target Price: RM4.00
Recommendation: BUY
· AEON Credit Services (M) Berhad (ACSM) is likely to benefit from consumers seeking alternative sources of funding to sustain their lifestyles in response to higher food, fuel and energy costs. The firm has already seen a 33% spike in Motorcycle Easy Payments (MEP) in the month following the petrol price hike in June 2008. Demand for General Easy Payments (GEP) is also expected to pick up with the approach of the Hari Raya festive season.
· Leveraging on relationship with AEON Co. for outlet expansion and launch of the J Card store cum credit card. ACSM will be riding on AEON Co.'s expansion plan that targets 30 department stores by 2013 from 18 now to widen its distribution network and expand customer base. Further, the introduction of the J Card credit card expected by end-FY09 will help ACSM raise its current cardholder base of approximately 117,000 to its target 190,000. Other new products in the pipeline such as prepaid cards and new co-brand cards will contribute to the credit card division breaking even by FY2010.
· Civil servants salary deduction business expected to kick-off at end-FY09, at the earliest. ACSM is currently in talks with the co-operative body administering the scheme and several other co-operatives in its bid to provide consumer financing for civil servants under the direct salary deduction program. The co-operative credit business is appealing to ACSM for its growth potential (1HCY08 collection rose by 27% YoY), cross-selling opportunity and lower risk profile.
· ACSM's venture into India signals potential for further regional expansion. AEON Credit Japan's selection of ACSM to spearhead its foray into India based on its multi-cultural experience in Malaysia is a positive sign although the extent of the earnings contribution from the venture remains uncertain. Nonetheless, we expect ACSM to be at the forefront of any group expansion into ASEAN.
· Re-iterate BUY recommendation with target price of RM4.00. based on 11x PER applied to revised FY09 EPS of 36.0 sen. The biggest risk to our forecast is a general slowdown in consumer spending although we believe that ACSM will prove resilient given its strong operational capability, lower risk profile with loans for small ticket items, and new growth areas.
Price: RM3.22
Target Price: RM4.00
Recommendation: BUY
· AEON Credit Services (M) Berhad (ACSM) is likely to benefit from consumers seeking alternative sources of funding to sustain their lifestyles in response to higher food, fuel and energy costs. The firm has already seen a 33% spike in Motorcycle Easy Payments (MEP) in the month following the petrol price hike in June 2008. Demand for General Easy Payments (GEP) is also expected to pick up with the approach of the Hari Raya festive season.
· Leveraging on relationship with AEON Co. for outlet expansion and launch of the J Card store cum credit card. ACSM will be riding on AEON Co.'s expansion plan that targets 30 department stores by 2013 from 18 now to widen its distribution network and expand customer base. Further, the introduction of the J Card credit card expected by end-FY09 will help ACSM raise its current cardholder base of approximately 117,000 to its target 190,000. Other new products in the pipeline such as prepaid cards and new co-brand cards will contribute to the credit card division breaking even by FY2010.
· Civil servants salary deduction business expected to kick-off at end-FY09, at the earliest. ACSM is currently in talks with the co-operative body administering the scheme and several other co-operatives in its bid to provide consumer financing for civil servants under the direct salary deduction program. The co-operative credit business is appealing to ACSM for its growth potential (1HCY08 collection rose by 27% YoY), cross-selling opportunity and lower risk profile.
· ACSM's venture into India signals potential for further regional expansion. AEON Credit Japan's selection of ACSM to spearhead its foray into India based on its multi-cultural experience in Malaysia is a positive sign although the extent of the earnings contribution from the venture remains uncertain. Nonetheless, we expect ACSM to be at the forefront of any group expansion into ASEAN.
· Re-iterate BUY recommendation with target price of RM4.00. based on 11x PER applied to revised FY09 EPS of 36.0 sen. The biggest risk to our forecast is a general slowdown in consumer spending although we believe that ACSM will prove resilient given its strong operational capability, lower risk profile with loans for small ticket items, and new growth areas.
AEON - BUY - 22 Aug 2008
AEON Credit Service - Rising cost pressures for consumers presents opportunity (Company Update)
Price: RM3.22
Target Price: RM4.00
Recommendation: BUY
· AEON Credit Services (M) Berhad (ACSM) is likely to benefit from consumers seeking alternative sources of funding to sustain their lifestyles in response to higher food, fuel and energy costs. The firm has already seen a 33% spike in Motorcycle Easy Payments (MEP) in the month following the petrol price hike in June 2008. Demand for General Easy Payments (GEP) is also expected to pick up with the approach of the Hari Raya festive season.
· Leveraging on relationship with AEON Co. for outlet expansion and launch of the J Card store cum credit card. ACSM will be riding on AEON Co.'s expansion plan that targets 30 department stores by 2013 from 18 now to widen its distribution network and expand customer base. Further, the introduction of the J Card credit card expected by end-FY09 will help ACSM raise its current cardholder base of approximately 117,000 to its target 190,000. Other new products in the pipeline such as prepaid cards and new co-brand cards will contribute to the credit card division breaking even by FY2010.
· Civil servants salary deduction business expected to kick-off at end-FY09, at the earliest. ACSM is currently in talks with the co-operative body administering the scheme and several other co-operatives in its bid to provide consumer financing for civil servants under the direct salary deduction program. The co-operative credit business is appealing to ACSM for its growth potential (1HCY08 collection rose by 27% YoY), cross-selling opportunity and lower risk profile.
· ACSM's venture into India signals potential for further regional expansion. AEON Credit Japan's selection of ACSM to spearhead its foray into India based on its multi-cultural experience in Malaysia is a positive sign although the extent of the earnings contribution from the venture remains uncertain. Nonetheless, we expect ACSM to be at the forefront of any group expansion into ASEAN.
· Re-iterate BUY recommendation with target price of RM4.00. based on 11x PER applied to revised FY09 EPS of 36.0 sen. The biggest risk to our forecast is a general slowdown in consumer spending although we believe that ACSM will prove resilient given its strong operational capability, lower risk profile with loans for small ticket items, and new growth areas.
Price: RM3.22
Target Price: RM4.00
Recommendation: BUY
· AEON Credit Services (M) Berhad (ACSM) is likely to benefit from consumers seeking alternative sources of funding to sustain their lifestyles in response to higher food, fuel and energy costs. The firm has already seen a 33% spike in Motorcycle Easy Payments (MEP) in the month following the petrol price hike in June 2008. Demand for General Easy Payments (GEP) is also expected to pick up with the approach of the Hari Raya festive season.
· Leveraging on relationship with AEON Co. for outlet expansion and launch of the J Card store cum credit card. ACSM will be riding on AEON Co.'s expansion plan that targets 30 department stores by 2013 from 18 now to widen its distribution network and expand customer base. Further, the introduction of the J Card credit card expected by end-FY09 will help ACSM raise its current cardholder base of approximately 117,000 to its target 190,000. Other new products in the pipeline such as prepaid cards and new co-brand cards will contribute to the credit card division breaking even by FY2010.
· Civil servants salary deduction business expected to kick-off at end-FY09, at the earliest. ACSM is currently in talks with the co-operative body administering the scheme and several other co-operatives in its bid to provide consumer financing for civil servants under the direct salary deduction program. The co-operative credit business is appealing to ACSM for its growth potential (1HCY08 collection rose by 27% YoY), cross-selling opportunity and lower risk profile.
· ACSM's venture into India signals potential for further regional expansion. AEON Credit Japan's selection of ACSM to spearhead its foray into India based on its multi-cultural experience in Malaysia is a positive sign although the extent of the earnings contribution from the venture remains uncertain. Nonetheless, we expect ACSM to be at the forefront of any group expansion into ASEAN.
· Re-iterate BUY recommendation with target price of RM4.00. based on 11x PER applied to revised FY09 EPS of 36.0 sen. The biggest risk to our forecast is a general slowdown in consumer spending although we believe that ACSM will prove resilient given its strong operational capability, lower risk profile with loans for small ticket items, and new growth areas.
Pelikan - BUY - 21 Aug 2008
Pelikan International Corp - 1HFY08 results above expectations (Results Note)
Price: RM2.40
Target Price: RM4.00
Recommendation: BUY
· Pelikan International Corp's (PICB) 1HFY08 net profit of RM68.2m is above expectations, accounting for 63% and 61% of our forecast and consensus respectively. The strong performance in 2QFY08 was in keeping with the seasonal stationery rush prior to the start of the EU school term in September.
· Strong back-to-school sales and appreciation of the Euro resulted in 1HFY08 revenue increasing by 25%. The impact of a stronger Euro is significant as 83% of PICB's 1HFY08 revenue came from the EU. EBIT margin declined by 1% however, mainly due to the elevated cost of raw materials (comprising approximately 50% of total operating expenses), particularly plastics and resins (that makes up 10-20% of raw materials cost). Pretax margin also declined by 2% in-line with lower EBIT margin and further pressured by higher finance costs and lower share of associates (from the disposal of Konsortium Logistik stake).
· Higher input costs caused 2QFY08 pretax profit to grow by a more gradual 12% in spite of a 21% increase in revenue from higher seasonal stationery sales. In addition, higher effective tax rate (with prior year tax losses having been utilised) and minority interest (from improvement in earnings of subsidiaries in Latin America and Japan) resulted in 2QFY08 net profit increasing by a moderate 5%.
· No dividends declared in 1HFY08 compared with 5 sen per share in 1HFY07. PICB is conserving cash in anticipation of tougher 2HFY08. We believe that FY08's dividend payout may be lower than the 30-40% dividend payout policy previously paid by PICB.
· Revise FY08 and FY09 earnings estimates downwards by 8% for both years in anticipation of slowing demand (Lowering both FY08 and FY09 sales forecast by 1%), particularly in the EU and higher cost environment (Raising raw materials cost assumptions by 2% for both years) in 2HFY08.
· Maintain BUY with revised target price of RM4.00 based on previous 11.6x PER applied to new FY09 FD EPS of 33.9 sen. PICB is currently trading at undemanding FY08 and FY09 PERs of 8.1x and 7.1x respectively.
Price: RM2.40
Target Price: RM4.00
Recommendation: BUY
· Pelikan International Corp's (PICB) 1HFY08 net profit of RM68.2m is above expectations, accounting for 63% and 61% of our forecast and consensus respectively. The strong performance in 2QFY08 was in keeping with the seasonal stationery rush prior to the start of the EU school term in September.
· Strong back-to-school sales and appreciation of the Euro resulted in 1HFY08 revenue increasing by 25%. The impact of a stronger Euro is significant as 83% of PICB's 1HFY08 revenue came from the EU. EBIT margin declined by 1% however, mainly due to the elevated cost of raw materials (comprising approximately 50% of total operating expenses), particularly plastics and resins (that makes up 10-20% of raw materials cost). Pretax margin also declined by 2% in-line with lower EBIT margin and further pressured by higher finance costs and lower share of associates (from the disposal of Konsortium Logistik stake).
· Higher input costs caused 2QFY08 pretax profit to grow by a more gradual 12% in spite of a 21% increase in revenue from higher seasonal stationery sales. In addition, higher effective tax rate (with prior year tax losses having been utilised) and minority interest (from improvement in earnings of subsidiaries in Latin America and Japan) resulted in 2QFY08 net profit increasing by a moderate 5%.
· No dividends declared in 1HFY08 compared with 5 sen per share in 1HFY07. PICB is conserving cash in anticipation of tougher 2HFY08. We believe that FY08's dividend payout may be lower than the 30-40% dividend payout policy previously paid by PICB.
· Revise FY08 and FY09 earnings estimates downwards by 8% for both years in anticipation of slowing demand (Lowering both FY08 and FY09 sales forecast by 1%), particularly in the EU and higher cost environment (Raising raw materials cost assumptions by 2% for both years) in 2HFY08.
· Maintain BUY with revised target price of RM4.00 based on previous 11.6x PER applied to new FY09 FD EPS of 33.9 sen. PICB is currently trading at undemanding FY08 and FY09 PERs of 8.1x and 7.1x respectively.
SP Setia - BUY - 21 Aug 2008
SP Setia - Disposal of entire Loh & Loh stake (Company Update)
Price: RM3.20
Target Price: RM5.68
Recommendation: BUY
· SP Setia (SP) disposes its entire 25.07% Loh & Loh Corporation Bhd (LL) stake for RM82.7m. SP, via its wholly owned subsidiary, SP Setia Management Services Sdn Bhd, is accepting UBG Bhd's take-over offer to acquire 17.0m ordinary LL shares at RM4.85 each. The expected gain should amount to RM27.9m or RM1.64 per LL share, based on SP's average cost of RM3.21 per LL share.
· Rationale for disposal. In FY02, the property development scene was very depressed, and hence, SP considered venturing into the, then, more vibrant construction/infrastructure business via the strategic stake in LL. However, the construction/infrastructure business conditions look less than favourable now, given rising material costs and global economic uncertainties. Furthermore, it is apt that SP refocuses all available resources into their new frontiers, such as, expanding product range into commercial and high-end residential properties and geographically diversifying income into Penang, Sabah and Vietnam. However, SP have no intentions about disposing SP's construction arm because management views its construction arm as a support to its property development business, rather than a strong earnings driver.
· SP is getting a fair 12.6x PER for disposing LL based on the offer price of RM4.85 and Bloomberg's consensus of LL's FY09E EPS of 38.0sen. Although the offer prices was a mere 1.5% premium to LL's last trading price of RM4.78, we believe that at such prices, LL is already fairly valued via-a-vis the sector's FY09's PER of 12.7x.
· Upward revision in FY08E net profit by 9% to RM264m as we account for the gains on disposal of LL share. However, FY08E recurring net profit remains unchanged at RM243m. As a result of this one-off gain, we believe SP will reward its shareholders with a gross dividend per share (GPDS) of 20.3sen (6.3% dividend yield), which is a 9% increase from our previous forecasts.
· Reiterating BUY call with unchanged target price of RM5.68, as the above exercise only adds on a mere 2sen to our fully diluted sum of parts RNAV. Although there is no significant impact to valuations, we would like to draw upon the fact that resources are freed-up for more effective usage. FY09E and FY10E PERs are reasonable at 12.3x and 11.6x, respectively.
Price: RM3.20
Target Price: RM5.68
Recommendation: BUY
· SP Setia (SP) disposes its entire 25.07% Loh & Loh Corporation Bhd (LL) stake for RM82.7m. SP, via its wholly owned subsidiary, SP Setia Management Services Sdn Bhd, is accepting UBG Bhd's take-over offer to acquire 17.0m ordinary LL shares at RM4.85 each. The expected gain should amount to RM27.9m or RM1.64 per LL share, based on SP's average cost of RM3.21 per LL share.
· Rationale for disposal. In FY02, the property development scene was very depressed, and hence, SP considered venturing into the, then, more vibrant construction/infrastructure business via the strategic stake in LL. However, the construction/infrastructure business conditions look less than favourable now, given rising material costs and global economic uncertainties. Furthermore, it is apt that SP refocuses all available resources into their new frontiers, such as, expanding product range into commercial and high-end residential properties and geographically diversifying income into Penang, Sabah and Vietnam. However, SP have no intentions about disposing SP's construction arm because management views its construction arm as a support to its property development business, rather than a strong earnings driver.
· SP is getting a fair 12.6x PER for disposing LL based on the offer price of RM4.85 and Bloomberg's consensus of LL's FY09E EPS of 38.0sen. Although the offer prices was a mere 1.5% premium to LL's last trading price of RM4.78, we believe that at such prices, LL is already fairly valued via-a-vis the sector's FY09's PER of 12.7x.
· Upward revision in FY08E net profit by 9% to RM264m as we account for the gains on disposal of LL share. However, FY08E recurring net profit remains unchanged at RM243m. As a result of this one-off gain, we believe SP will reward its shareholders with a gross dividend per share (GPDS) of 20.3sen (6.3% dividend yield), which is a 9% increase from our previous forecasts.
· Reiterating BUY call with unchanged target price of RM5.68, as the above exercise only adds on a mere 2sen to our fully diluted sum of parts RNAV. Although there is no significant impact to valuations, we would like to draw upon the fact that resources are freed-up for more effective usage. FY09E and FY10E PERs are reasonable at 12.3x and 11.6x, respectively.
UMW - BUY - 21 Aug 2008
UMW Holdings - Results above expectations (Results Note)
Price: RM5.85
Target Price: RM8.00
Recommendation: BUY
· 1H08 net profit beats expectations. 1H08 net profit of RM293.5m accounted for 56.9% of market consensus and 54.8% of our forecasts, driven mainly by the strong sales in Automotive (+56.7% YoY) especially Toyota.
· YoY, 2Q08 net profit grew by 42.1% to RM151.7m driven by improvement across all segments in particularly the Automotive. Operating margin also improved substantially to 8.6% from 4.0% on better production efficiencies, higher economies of scale and favourable FOREX movement.
· QoQ, 2Q08 net profit was up 7.0%. Toyota posted substantially higher contribution on the back of higher unit sales (+20.2%) mitigating lower contribution from Perodua which we estimate to have dropped by 34% to circa RM26m (associate level) despite higher vehicle sales (+7.7%). To blame could be due to upgrading works at its plant in Apr/May which had disrupted production. Utilisation was reduced to 80% from the usual >90%. As a result, contribution from associates was 11.9% lower, partially compensated by stronger contribution from Wuxi (+75.8% QoQ).
· Interim gross DPS of 15 sen is declared. We are confident the Group is on track to achieving its 2008 KPIs of minimum 14% ROE of 14% with dividend payout of at least 50%. The progressive dividend policy adds attractiveness to the stock and help to cushion any downside risks.
· Maintain forecasts. We keep our earnings forecasts unchanged despite a more challenging macroeconomic outlook in 2H08 given its diversified base underpinned by: (1) the Group's balanced car models portfolio of small and medium passenger car categories and (2) high demand for the Group's O&G products and services on the back of brisk E&P activities.
· Maintain BUY with unchanged Target Price of RM8.00 based on 16 PER. We believe current share price offers investors good opportunity to buy into UMW's early cycle of its O&G overseas ventures
Price: RM5.85
Target Price: RM8.00
Recommendation: BUY
· 1H08 net profit beats expectations. 1H08 net profit of RM293.5m accounted for 56.9% of market consensus and 54.8% of our forecasts, driven mainly by the strong sales in Automotive (+56.7% YoY) especially Toyota.
· YoY, 2Q08 net profit grew by 42.1% to RM151.7m driven by improvement across all segments in particularly the Automotive. Operating margin also improved substantially to 8.6% from 4.0% on better production efficiencies, higher economies of scale and favourable FOREX movement.
· QoQ, 2Q08 net profit was up 7.0%. Toyota posted substantially higher contribution on the back of higher unit sales (+20.2%) mitigating lower contribution from Perodua which we estimate to have dropped by 34% to circa RM26m (associate level) despite higher vehicle sales (+7.7%). To blame could be due to upgrading works at its plant in Apr/May which had disrupted production. Utilisation was reduced to 80% from the usual >90%. As a result, contribution from associates was 11.9% lower, partially compensated by stronger contribution from Wuxi (+75.8% QoQ).
· Interim gross DPS of 15 sen is declared. We are confident the Group is on track to achieving its 2008 KPIs of minimum 14% ROE of 14% with dividend payout of at least 50%. The progressive dividend policy adds attractiveness to the stock and help to cushion any downside risks.
· Maintain forecasts. We keep our earnings forecasts unchanged despite a more challenging macroeconomic outlook in 2H08 given its diversified base underpinned by: (1) the Group's balanced car models portfolio of small and medium passenger car categories and (2) high demand for the Group's O&G products and services on the back of brisk E&P activities.
· Maintain BUY with unchanged Target Price of RM8.00 based on 16 PER. We believe current share price offers investors good opportunity to buy into UMW's early cycle of its O&G overseas ventures
Selangor Dredging - BUY - 21 Aug 2008
Selangor Dredging - 1Q09 below expectations (Results Note)
Price: RM0.665
Target Price: RM1.84
Recommendation: BUY
· 1Q09 net profit of RM7.0m was below expectations being only 12.5% of our net profit forecast of RM55.9m largely because of decrease in contribution from Park Seven which was completed in 4Q08 and full utilization of unabsorbed tax losses which resulted in 1Q09 tax rate being 32% including provision. Nevertheless, EBITDA margin was sustained high at 23.8%. We believe initial marketing cost for JIA in Singapore could have bumped up operating cost in 1Q09.
· QoQ, 1Q09 net profit rose by 5.8%, on the back of higher profit recognition and higher profit contributions fro hotel of RM247,000 as opposed to operating loss of RM264,000 in 4Q08.
· YoY, 1Q09 net profit was 18.9% lower on 4.3% lower revenue and 65% higher finance cost. In addition, tax rate was only 11% on revision deferred taxes and utilisation of tax credits.
· Net gearing at 0.6x on higher total borrowings of RM449.9m and cash balance of RM142m. Cashflow remains strong with free cashflow for 1Q08 of RM25m which provides comfort that the company remains well funded to complete its projects.
· Continuously building land bank. Recent end-block purchase of Balestier Complex with a total land area of 22,281 sf in July at SGD1,929 psf was attractive given its 3x plot ratio and prominent location. Given the recent decline in equity market and high inflation, many developers have put off increasing its land bank resulting in some softening of prices. Selangor Dredging sees this as an opportunity and they believe they can make a difference with unique projects as depicted by Jia at Wilkies Road which has attracted more than 40% take up rate at SGD1,650 psf.
· Maintain BUY with target price of RM1.84 based on sum of parts RNAV. Company continues to forge ahead with class leading projects that have proven to be well received by its target market at benchmark pricing. This has enabled Selangor Dredging to price in cost increases.
Price: RM0.665
Target Price: RM1.84
Recommendation: BUY
· 1Q09 net profit of RM7.0m was below expectations being only 12.5% of our net profit forecast of RM55.9m largely because of decrease in contribution from Park Seven which was completed in 4Q08 and full utilization of unabsorbed tax losses which resulted in 1Q09 tax rate being 32% including provision. Nevertheless, EBITDA margin was sustained high at 23.8%. We believe initial marketing cost for JIA in Singapore could have bumped up operating cost in 1Q09.
· QoQ, 1Q09 net profit rose by 5.8%, on the back of higher profit recognition and higher profit contributions fro hotel of RM247,000 as opposed to operating loss of RM264,000 in 4Q08.
· YoY, 1Q09 net profit was 18.9% lower on 4.3% lower revenue and 65% higher finance cost. In addition, tax rate was only 11% on revision deferred taxes and utilisation of tax credits.
· Net gearing at 0.6x on higher total borrowings of RM449.9m and cash balance of RM142m. Cashflow remains strong with free cashflow for 1Q08 of RM25m which provides comfort that the company remains well funded to complete its projects.
· Continuously building land bank. Recent end-block purchase of Balestier Complex with a total land area of 22,281 sf in July at SGD1,929 psf was attractive given its 3x plot ratio and prominent location. Given the recent decline in equity market and high inflation, many developers have put off increasing its land bank resulting in some softening of prices. Selangor Dredging sees this as an opportunity and they believe they can make a difference with unique projects as depicted by Jia at Wilkies Road which has attracted more than 40% take up rate at SGD1,650 psf.
· Maintain BUY with target price of RM1.84 based on sum of parts RNAV. Company continues to forge ahead with class leading projects that have proven to be well received by its target market at benchmark pricing. This has enabled Selangor Dredging to price in cost increases.
Hunza Properties - BUY - 21 Aug 2008
Hunza Properties - FY08 results within expectations (Results Note)
Price: RM1.40
Target Price: RM3.59
Recommendation: BUY
· FY08 net profit of RM48m came within our and street expectations, while exceeding both estimates by 2% each. Hunza Properties (Hunza) results were driven by higher billings from Alila and Mutiara Seputeh (MS) as the projects have been completed or are nearly completed. As at 30/6/08, Hunza has achieved 99% and 82% take-up rates for Alila high-rise and low-rise, while MS saw 97% and 15% take-up rates for its semi-detached and bungalows.
· YoY, FY08 net profit grew 23% as Gurney Paragon (GP) commenced earnings contribution this year with a 50% take-up rate. However, FY08 pretax margins were compressed by 410bps YoY to 27.9% because of higher recognition of rich margins Bandar Putra Bertam shop offices in FY07. Also, Hunza recognized RM3.5m (2% of Alila's GDV) cost overruns/under-accruals on completion of Alila. The minimal overruns demonstrates Hunza's ability to control cost amidst rapid rising material cost.
· QoQ, 4Q08 pretax profit increased 11% to RM15m on the back of 99% increase to share of profits from Infiniti to RM7m. Finance cost also fell 53% to RM0.4m due to a reduction in total borrowings by 9% to RM143m.
· Proposed final gross dividend per share (GDPS) of 7.3sen. This results in a full year FY08 GDPS of 12.3sen (dividend yield of 8.8%). We are forecasting the same GDPS of 12.3sen for FY09E as management intends to maintain similar dividend yield to FY08.
· Maintain FY09E and FY10E recurring net profit of RM62m and RM77m, respectively, on the back of RM267m unbilled sales as at 30/6/08. We are also introducing FY11E recurring net profit of RM45m which only includes 2 pipeline projects; Alila 2 and new launches from Bandar Putra Bertam (details are as below). FY11E could see potential earnings growth if the Segambut project is launch by 2HFY10. Note that our estimates are subjected to further review, pending the 25/8/08 company briefing.
· No change in target price of RM3.59. We will only factor in impact of DCF earnings from pipeline projects upon their respective launches. FY09E and FY10E PER is very attractive at 3.3x and 2.7x, respectively. Maintain BUY.
Price: RM1.40
Target Price: RM3.59
Recommendation: BUY
· FY08 net profit of RM48m came within our and street expectations, while exceeding both estimates by 2% each. Hunza Properties (Hunza) results were driven by higher billings from Alila and Mutiara Seputeh (MS) as the projects have been completed or are nearly completed. As at 30/6/08, Hunza has achieved 99% and 82% take-up rates for Alila high-rise and low-rise, while MS saw 97% and 15% take-up rates for its semi-detached and bungalows.
· YoY, FY08 net profit grew 23% as Gurney Paragon (GP) commenced earnings contribution this year with a 50% take-up rate. However, FY08 pretax margins were compressed by 410bps YoY to 27.9% because of higher recognition of rich margins Bandar Putra Bertam shop offices in FY07. Also, Hunza recognized RM3.5m (2% of Alila's GDV) cost overruns/under-accruals on completion of Alila. The minimal overruns demonstrates Hunza's ability to control cost amidst rapid rising material cost.
· QoQ, 4Q08 pretax profit increased 11% to RM15m on the back of 99% increase to share of profits from Infiniti to RM7m. Finance cost also fell 53% to RM0.4m due to a reduction in total borrowings by 9% to RM143m.
· Proposed final gross dividend per share (GDPS) of 7.3sen. This results in a full year FY08 GDPS of 12.3sen (dividend yield of 8.8%). We are forecasting the same GDPS of 12.3sen for FY09E as management intends to maintain similar dividend yield to FY08.
· Maintain FY09E and FY10E recurring net profit of RM62m and RM77m, respectively, on the back of RM267m unbilled sales as at 30/6/08. We are also introducing FY11E recurring net profit of RM45m which only includes 2 pipeline projects; Alila 2 and new launches from Bandar Putra Bertam (details are as below). FY11E could see potential earnings growth if the Segambut project is launch by 2HFY10. Note that our estimates are subjected to further review, pending the 25/8/08 company briefing.
· No change in target price of RM3.59. We will only factor in impact of DCF earnings from pipeline projects upon their respective launches. FY09E and FY10E PER is very attractive at 3.3x and 2.7x, respectively. Maintain BUY.
ASTRO - BUY - 19 Aug 2008
Astro All Asia Networks - Privatise to realize value? (Company Update)
Price: RM3.24
Target Price: RM4.30
Recommendation: BUY
· Potential privatisation? Rumours on the privatisation of Astro renewed recently amid reasons of undervalued share price and earnings volatility attributed to overseas business operations. Though privatisation may not be favourable under the current market conditions, the Group's healthy cash flow and its long suppressed share price performance undervaluing the Group's true potential value may render privatisation as a viable option to realise value.
· Potential upside. Astro's Malaysian operation which is expected to have robust growth is worth an estimated RM4.30/share based on the DCF valuation with 13% WACC. We estimate Astro's share price could worth up to an estimated RM4.51/share if overseas operations were factored in. The share which is trading below its IPO price (RM3.80) remains undervalued compared to its DCF valuation but is trading at 4.4x P/NTA.
· If the privatisation takes place. At the best-case scenario valuation of RM4.51 factors in both the domestic and overseas businesses. Even at the price of RM4.30/share which based solely on the Malaysian operation will give us: (1) a 32.7% potential upside from the current market price or (2) a 24.6% upside when adding in the investment incurred so far at its Indonesian and Indian ventures of RM0.21/share to the current share price.
· Loss making foreign ventures. While Sun Direct TV (India) has begun to show an encouraging subscriber base growth and management is expecting narrower investment loss moving forward, the Indonesian operation remains as Astro's major setback. Astro will continue to fund PT Direct Vision at the rate of RM20m/month until September 2008 when the agreement will expire. Although a huge amount of about RM530m has been invested in Indonesia, we maintain our view that exiting Indonesia will enhance Astro's earnings visibility and performance.
· Maintain BUY, Target Price at RM4.30 which is based on DCF valuation with 13% WACC for the Malaysian operation. The privatisation of Astro could potentially act as a re-rating catalyst. Nevertheless, we also expect share price to re-rate when concerns are reduced over time due to the strong local operation and more clarity from the Indonesia operations leading to better earnings visibility.
Price: RM3.24
Target Price: RM4.30
Recommendation: BUY
· Potential privatisation? Rumours on the privatisation of Astro renewed recently amid reasons of undervalued share price and earnings volatility attributed to overseas business operations. Though privatisation may not be favourable under the current market conditions, the Group's healthy cash flow and its long suppressed share price performance undervaluing the Group's true potential value may render privatisation as a viable option to realise value.
· Potential upside. Astro's Malaysian operation which is expected to have robust growth is worth an estimated RM4.30/share based on the DCF valuation with 13% WACC. We estimate Astro's share price could worth up to an estimated RM4.51/share if overseas operations were factored in. The share which is trading below its IPO price (RM3.80) remains undervalued compared to its DCF valuation but is trading at 4.4x P/NTA.
· If the privatisation takes place. At the best-case scenario valuation of RM4.51 factors in both the domestic and overseas businesses. Even at the price of RM4.30/share which based solely on the Malaysian operation will give us: (1) a 32.7% potential upside from the current market price or (2) a 24.6% upside when adding in the investment incurred so far at its Indonesian and Indian ventures of RM0.21/share to the current share price.
· Loss making foreign ventures. While Sun Direct TV (India) has begun to show an encouraging subscriber base growth and management is expecting narrower investment loss moving forward, the Indonesian operation remains as Astro's major setback. Astro will continue to fund PT Direct Vision at the rate of RM20m/month until September 2008 when the agreement will expire. Although a huge amount of about RM530m has been invested in Indonesia, we maintain our view that exiting Indonesia will enhance Astro's earnings visibility and performance.
· Maintain BUY, Target Price at RM4.30 which is based on DCF valuation with 13% WACC for the Malaysian operation. The privatisation of Astro could potentially act as a re-rating catalyst. Nevertheless, we also expect share price to re-rate when concerns are reduced over time due to the strong local operation and more clarity from the Indonesia operations leading to better earnings visibility.
MISC - BUY - 19 Aug 2008
MISC - 1QFY09 disappoints (Results Note)
Price: RM8.75
Target Price: RM10.10
Recommendation: BUY (under review)
· 1QFY09 results was disappointing with core net profit of RM522.9m at only 21% of our forecast and street's, mainly due to higher bunker costs and increased losses from the liner business. We had been expecting a stronger 1Q on the back of robust 1Q tanker rates.
· QoQ, 1Q09 revenue rose 3.1% on higher contribution from tanker division owning to stronger tanker rates. EBIT however fell 9.2% to RM564.1m on the back of higher operation costs and doubling of losses for the liner division.
· YoY, 1Q09 revenue jumped 24.9% with growth across all divisions but EBIT margin declined to 15.5% from the previous 18.6%, mainly due to widened liner losses and higher bunker cost which had escalated to above US$600/MT by June 08 (+70% YoY).
· Robust tanker rates for 2QCY08 with Baltic Dirty Index (BDI) registering high of 2245 in May 08 but has since softened to 1340 at the time of writing coinciding with easing oil price which could signal lower oil demand as global economy cools down. We expect tanker rates to trend downwards before spiking again in CY4Q on the back of seasonal demand.
· Heavy engineering and offshore divisions still the rising star, with 2 MOPU contracts worth US$160m awarded to MMHE recently. Upon completion, the MOPUs should provide stable recurring income to the offshore division from FY10 onwards. Expect the award of another 2 FSOs as per management's guidance during the previous result brief.
· Placing our forecasts, target price of RM10.10 and BUY recommendation under review pending further details from the briefing on Wednesday with a negative bias on weak liner division.
Price: RM8.75
Target Price: RM10.10
Recommendation: BUY (under review)
· 1QFY09 results was disappointing with core net profit of RM522.9m at only 21% of our forecast and street's, mainly due to higher bunker costs and increased losses from the liner business. We had been expecting a stronger 1Q on the back of robust 1Q tanker rates.
· QoQ, 1Q09 revenue rose 3.1% on higher contribution from tanker division owning to stronger tanker rates. EBIT however fell 9.2% to RM564.1m on the back of higher operation costs and doubling of losses for the liner division.
· YoY, 1Q09 revenue jumped 24.9% with growth across all divisions but EBIT margin declined to 15.5% from the previous 18.6%, mainly due to widened liner losses and higher bunker cost which had escalated to above US$600/MT by June 08 (+70% YoY).
· Robust tanker rates for 2QCY08 with Baltic Dirty Index (BDI) registering high of 2245 in May 08 but has since softened to 1340 at the time of writing coinciding with easing oil price which could signal lower oil demand as global economy cools down. We expect tanker rates to trend downwards before spiking again in CY4Q on the back of seasonal demand.
· Heavy engineering and offshore divisions still the rising star, with 2 MOPU contracts worth US$160m awarded to MMHE recently. Upon completion, the MOPUs should provide stable recurring income to the offshore division from FY10 onwards. Expect the award of another 2 FSOs as per management's guidance during the previous result brief.
· Placing our forecasts, target price of RM10.10 and BUY recommendation under review pending further details from the briefing on Wednesday with a negative bias on weak liner division.
Success - BUY - 19 Aug 2008
Success Transformer Group - Record quarter! (Results Note)
Price: RM0.905
Target Price: RM1.43
Recommendation: BUY
· Record setting quarter had helped to underpin a sterling first half. 6M08 topline of RM91.3m was 52% of our full year's while net of RM11.6m came in at a strong 59%. Continuing strong demand for transformers and industrial lighting equipment as well as a booming process equipment division had helped to sustain the strong set of numbers.
· QoQ, topline was up 14.1% driven by a 19.3% improvement in its traditional transformer and industrial lighting division while process equipment was up by 6%. Net profit meanwhile jumped 30.3% as a result of better margins fetched by the process equipment division at 15.2% (1Q08 : 9.8%) while transformer and industrial lighting was maintained at 16.1% (1Q08 : 15.9%).
· YoY, revenue was up 22.7% while net profit grew even stronger at 31.7%. All the relevant divisions had continued to perform well on the back of improved demand for the group's key products and services.
· Prospects remained bright for the group as demand for its key products and services have stayed buoyant despite the headwinds posed by a more challenging macroeconomic condition. Order book for the process equipment division is maintained at RM35m which should last at least 6 months while tender in excess of RM45m should yield an additional RM9m to RM13m based on historical strike rate of 20% - 30%.
· Seremban's 5th factory is on course for completion by end 2008, adding an additional 20% fabrication capacity while 6th is already on the drawing board. Meanwhile, the Chinese joint venture under 60% owned Ningbo Success Zhenye Luminaire Ltd (Ningbo) is slated to kick-start production beginning Sep 2008. Recall that the group had entered into this joint venture in May 2008 to design and manufacture light fixtures and fittings as part of its plan to enhance quality and improve efficiencies. The venture comes with a profit guarantee of RMB 7m over a 24-month period starting Sep 2008.
· Forecast and BUY recommendation is maintained. Our likes include management's strong execution track record and capability, rising prospects for its key divisions as well as the undemanding valuation of 5.4x based on our conservative FY08F. Target price of RM1.43 based on 8.5x FY08F is just, offering upside of 58% from the current levels.
Price: RM0.905
Target Price: RM1.43
Recommendation: BUY
· Record setting quarter had helped to underpin a sterling first half. 6M08 topline of RM91.3m was 52% of our full year's while net of RM11.6m came in at a strong 59%. Continuing strong demand for transformers and industrial lighting equipment as well as a booming process equipment division had helped to sustain the strong set of numbers.
· QoQ, topline was up 14.1% driven by a 19.3% improvement in its traditional transformer and industrial lighting division while process equipment was up by 6%. Net profit meanwhile jumped 30.3% as a result of better margins fetched by the process equipment division at 15.2% (1Q08 : 9.8%) while transformer and industrial lighting was maintained at 16.1% (1Q08 : 15.9%).
· YoY, revenue was up 22.7% while net profit grew even stronger at 31.7%. All the relevant divisions had continued to perform well on the back of improved demand for the group's key products and services.
· Prospects remained bright for the group as demand for its key products and services have stayed buoyant despite the headwinds posed by a more challenging macroeconomic condition. Order book for the process equipment division is maintained at RM35m which should last at least 6 months while tender in excess of RM45m should yield an additional RM9m to RM13m based on historical strike rate of 20% - 30%.
· Seremban's 5th factory is on course for completion by end 2008, adding an additional 20% fabrication capacity while 6th is already on the drawing board. Meanwhile, the Chinese joint venture under 60% owned Ningbo Success Zhenye Luminaire Ltd (Ningbo) is slated to kick-start production beginning Sep 2008. Recall that the group had entered into this joint venture in May 2008 to design and manufacture light fixtures and fittings as part of its plan to enhance quality and improve efficiencies. The venture comes with a profit guarantee of RMB 7m over a 24-month period starting Sep 2008.
· Forecast and BUY recommendation is maintained. Our likes include management's strong execution track record and capability, rising prospects for its key divisions as well as the undemanding valuation of 5.4x based on our conservative FY08F. Target price of RM1.43 based on 8.5x FY08F is just, offering upside of 58% from the current levels.
SP Setia - BUY - 18 Aug 2008
SP Setia - July 2008's sales commentary (Company Update)
Price: RM3.30
Target Price: RM5.68
Recommendation: BUY
· Take-up rates at Setia Alam (SA) and Setia Eco Park (EP) showed fast recovery in July 08, registering 47% and 29% MoM growth in units sold versus June 08's MoM decline of 26% and 22%, respectively. We are relieved to see buyers' confidence strengthening for both projects, being SP Setia's (SP) key income earners. The recovery can be attributed to SP's announcement of Setia City with a renowned retail partner, Land Lease Investment Management Pte Ltd.
· RM55m sales from Putrajaya project boost July 08 entire sales value by 45% MoM to RM133m. SP sold 119 residential units for RM55m to a single-buyer. Management attributes this success to the project's unique attributes of being a gated and guarded residential project in Putrajaya. The large sale to a single purchaser clearly reinforces SP's foresight in spotting niches where it can maximise return via product differentiation.
· Slow-down in launches for Setia Walk (SW), Setia Pearl Island (SPI) led to lower take up rates. In July 08, SW registered no sales while the number of units sold at SPI fell 44% to 14 units. This is could be a result of the medium term demand being soaked up as SP last launches of SW and SPI were in March 08 which current take-up rates are 92% and 82% respectively. This explanation is also applicable to the Johor Bahru townships which showed a 31% MoM fall in July 08 take-up rates. Existing launches at Bukit Indah, Setia Indah and Setia Tropika recorded high take-up rates of 97%, 98% and 83% as at 31/7/08, respectively.
· Setia Nexus recorded no sales for July 08. Current take-up rate since its launch of 132 units in June 08 is 15%. Setia Nexus was being sold on an en-block basis, at RM3.6m each. However, potential buyers are finding it tough to raise that amount of capital under current stricter borrowing conditions. Therefore, SP is "re-tooling" its marketing strategies to sell by strata title basis which results in a more affordable unit price of RM760,000.
· We continue to like SP as it is one of the rare few developers with strong holding power (healthy cash balances of RM596m with net gearing of 0.1x and strong unbilled sales of RM2b) to a) sustain earnings in the next 2 years b) deploy Build-then-Sell strategy to lock-in building cost and selling completed products at a premium in the medium to long term. FY08E and FY09E PERs are fair at 12.5x and 10.8x, respectively. Reiterating BUY call with a fair value of RM5.68.
Price: RM3.30
Target Price: RM5.68
Recommendation: BUY
· Take-up rates at Setia Alam (SA) and Setia Eco Park (EP) showed fast recovery in July 08, registering 47% and 29% MoM growth in units sold versus June 08's MoM decline of 26% and 22%, respectively. We are relieved to see buyers' confidence strengthening for both projects, being SP Setia's (SP) key income earners. The recovery can be attributed to SP's announcement of Setia City with a renowned retail partner, Land Lease Investment Management Pte Ltd.
· RM55m sales from Putrajaya project boost July 08 entire sales value by 45% MoM to RM133m. SP sold 119 residential units for RM55m to a single-buyer. Management attributes this success to the project's unique attributes of being a gated and guarded residential project in Putrajaya. The large sale to a single purchaser clearly reinforces SP's foresight in spotting niches where it can maximise return via product differentiation.
· Slow-down in launches for Setia Walk (SW), Setia Pearl Island (SPI) led to lower take up rates. In July 08, SW registered no sales while the number of units sold at SPI fell 44% to 14 units. This is could be a result of the medium term demand being soaked up as SP last launches of SW and SPI were in March 08 which current take-up rates are 92% and 82% respectively. This explanation is also applicable to the Johor Bahru townships which showed a 31% MoM fall in July 08 take-up rates. Existing launches at Bukit Indah, Setia Indah and Setia Tropika recorded high take-up rates of 97%, 98% and 83% as at 31/7/08, respectively.
· Setia Nexus recorded no sales for July 08. Current take-up rate since its launch of 132 units in June 08 is 15%. Setia Nexus was being sold on an en-block basis, at RM3.6m each. However, potential buyers are finding it tough to raise that amount of capital under current stricter borrowing conditions. Therefore, SP is "re-tooling" its marketing strategies to sell by strata title basis which results in a more affordable unit price of RM760,000.
· We continue to like SP as it is one of the rare few developers with strong holding power (healthy cash balances of RM596m with net gearing of 0.1x and strong unbilled sales of RM2b) to a) sustain earnings in the next 2 years b) deploy Build-then-Sell strategy to lock-in building cost and selling completed products at a premium in the medium to long term. FY08E and FY09E PERs are fair at 12.5x and 10.8x, respectively. Reiterating BUY call with a fair value of RM5.68.
INDEPENDENT POWER PRODUCERS PAY WINDFALL TAX - S B TIMES
Independent power producers pay windfall tax
Capital markets, big bond issuers could take a hit if tax is not modified
By S JAYASANKARAN
IN KUALA LUMPUR
MALAYSIA'S independent power producers (IPPs) have begun paying a windfall tax after the federal government refused to modify it. Genting Sanyen, for example, made out a RM5.74 million (S$2.4 million) cheque to the government yesterday, implying a total annual bill in excess of RM60 million.
'The government never got back to us,' said Philip Tan, Genting's executive consultant, referring to reported talks between the IPPs and Kuala Lumpur over the tax. 'So we paid up rather than face penalties.'
On July 1, the government slapped a 30 per cent 'windfall' tax on any IPP whose return on assets exceeded 9 per cent in a financial year. But the tax is calculated without taking into account interest and finance costs - and the IPPs are some of Malaysia's biggest borrowers. Their outstanding bonds total RM34 billion, or 16 per cent of Malaysia's entire corporate bond market.
Unless it is modified, the tax - which is recurring and not one-off - could seriously hurt at least two IPPs, undermine the country's capital markets and damage the balance sheets of big bond issuers and investors like investment bank CIMB and the Employees Provident Fund (EPF).
CIMB chief executive Nazir Razak has warned that there will be 'unintended consequences'.
The two IPPs that will be most affected are Malakoff, the biggest, and Teknologi Tenaga Perlis Consortium (TTPC), mostly because one has been privatised and the other is in the process of being privatised.
Malakoff has been privatised by MMC, a listed company owned by tycoon Syed Mokhtar Al-Bukhary. TTPC is being taken private by Pesaka Ventures, an unlisted company with close links to the ruling United Malays National Organisation.
'Having company debt is one thing,' a senior IPP executive told BT. 'But shareholder debt is quite another because shareholders will be banking on dividend payouts from the IPPs to service their loans. With the windfall tax, that may no longer be possible.'
It isn't clear how much tax TTPC will have to pay, but analysts have estimated Malakoff's bill at RM270 million.
MMC raised more than RM11 billion to finance Malakoff's privatisation through bonds that pay as much as 8 per cent a year. Many of those bonds were bought by EPF, which is also a major shareholder in MMC. Analysts fear Malakoff could go into default if the windfall tax becomes permanent.
Pesaka Ventures announced an RM830 million plan to take over TTPC early this year. It is not clear whether this has been finalised. But bankers would certainly not be enthusiastic about funding such a massive buyout.
The bonds of the big three IPPs have been sold down, and trading in the secondary market is virtually non-existent. Big bond holders like CIMB and EPF could face huge mark-to-market losses.
Since 2004, the federal government has been trying to get IPPs to renegotiate their power purchase agreements with national utility Tenaga Nasional, many of which were seen to be lopsided against the state utility. But the private companies baulked, citing the sanctity of contracts.
The government did not push the issue - until now. With rising fuel and gas costs, IPPs were seen to be making obscene profits at state expense. So on July 1, the government gazetted the tax, causing an immediate uproar and, according to some sources, drawing protests from CIMB, EPF and even the central bank.
Capital markets, big bond issuers could take a hit if tax is not modified
By S JAYASANKARAN
IN KUALA LUMPUR
MALAYSIA'S independent power producers (IPPs) have begun paying a windfall tax after the federal government refused to modify it. Genting Sanyen, for example, made out a RM5.74 million (S$2.4 million) cheque to the government yesterday, implying a total annual bill in excess of RM60 million.
'The government never got back to us,' said Philip Tan, Genting's executive consultant, referring to reported talks between the IPPs and Kuala Lumpur over the tax. 'So we paid up rather than face penalties.'
On July 1, the government slapped a 30 per cent 'windfall' tax on any IPP whose return on assets exceeded 9 per cent in a financial year. But the tax is calculated without taking into account interest and finance costs - and the IPPs are some of Malaysia's biggest borrowers. Their outstanding bonds total RM34 billion, or 16 per cent of Malaysia's entire corporate bond market.
Unless it is modified, the tax - which is recurring and not one-off - could seriously hurt at least two IPPs, undermine the country's capital markets and damage the balance sheets of big bond issuers and investors like investment bank CIMB and the Employees Provident Fund (EPF).
CIMB chief executive Nazir Razak has warned that there will be 'unintended consequences'.
The two IPPs that will be most affected are Malakoff, the biggest, and Teknologi Tenaga Perlis Consortium (TTPC), mostly because one has been privatised and the other is in the process of being privatised.
Malakoff has been privatised by MMC, a listed company owned by tycoon Syed Mokhtar Al-Bukhary. TTPC is being taken private by Pesaka Ventures, an unlisted company with close links to the ruling United Malays National Organisation.
'Having company debt is one thing,' a senior IPP executive told BT. 'But shareholder debt is quite another because shareholders will be banking on dividend payouts from the IPPs to service their loans. With the windfall tax, that may no longer be possible.'
It isn't clear how much tax TTPC will have to pay, but analysts have estimated Malakoff's bill at RM270 million.
MMC raised more than RM11 billion to finance Malakoff's privatisation through bonds that pay as much as 8 per cent a year. Many of those bonds were bought by EPF, which is also a major shareholder in MMC. Analysts fear Malakoff could go into default if the windfall tax becomes permanent.
Pesaka Ventures announced an RM830 million plan to take over TTPC early this year. It is not clear whether this has been finalised. But bankers would certainly not be enthusiastic about funding such a massive buyout.
The bonds of the big three IPPs have been sold down, and trading in the secondary market is virtually non-existent. Big bond holders like CIMB and EPF could face huge mark-to-market losses.
Since 2004, the federal government has been trying to get IPPs to renegotiate their power purchase agreements with national utility Tenaga Nasional, many of which were seen to be lopsided against the state utility. But the private companies baulked, citing the sanctity of contracts.
The government did not push the issue - until now. With rising fuel and gas costs, IPPs were seen to be making obscene profits at state expense. So on July 1, the government gazetted the tax, causing an immediate uproar and, according to some sources, drawing protests from CIMB, EPF and even the central bank.
KNM & IOI Corp
Last month I mention that KNM might be on the verge of breaking down. As it turns out, it bounced back higher but yet again, it is testing its critical line. The way I see it, it is still the same Technical Reading with IOI Corp, which was the same comparison last month. For now, it is easy to forecast KNM. If KNM close below RM1.70, a level it has not seen since April this year, it seems set to see a drastic fall. Whether it would be the same drastic drop like IOI Corp, I do not know. What I do know is that if KNM drops below RM1.70, I DO NOT WANT to hold the stock, and I DO NOT WANT to buy the stock.
At the time of writing, KNM is trading below RM1.70, but whether it can close below RM1.70 and remain below RM1.70, we shall see. Interestingly, we saw how Commerz reacted yesterday and today. I personally do not think the 2nd Quarter results as disastrous, but as always, it is how market reacts to the news. Thus, the trigger point for KNM could be anything. Below expectation results, Borsig deal delayed or not going through, etc. I do not know. I am not bothered about that. What I do know is that the price action says that there is a strong possibility that KNM might be seeing a drastic fall. Whether I am right or not, we shall know within 1 month time.
At the time of writing, KNM is trading below RM1.70, but whether it can close below RM1.70 and remain below RM1.70, we shall see. Interestingly, we saw how Commerz reacted yesterday and today. I personally do not think the 2nd Quarter results as disastrous, but as always, it is how market reacts to the news. Thus, the trigger point for KNM could be anything. Below expectation results, Borsig deal delayed or not going through, etc. I do not know. I am not bothered about that. What I do know is that the price action says that there is a strong possibility that KNM might be seeing a drastic fall. Whether I am right or not, we shall know within 1 month time.
HLG: WCT - H108 results in-line; Maintain BUY (15 August 2008)
WCT Berhad BUY
Price target RM3.80
Share price at 14 Aug RM3.10
Investment summary
H108 net profit grew +65% yoy on recognition of Middle East jobs. We remain positive on WCT due to the mismatch between its share price (-25% YTD) and increasing exposure to Middle East petrodollar-fuelled construction: (1) Construction win-rate has risen from RM800m in FY05 to RM3.9bn in FY07, vs. FY07 billings of RM2.4bn. (2) 24% EPS CAGR over FY07-10E translates into a 10-20% PE discount to Gamuda/IJM. (3) Market bearishness over local job prospects are overdone, especially for genuine apolitical contractors such as WCT. We are positive on the Malaysian construction sector and believe government job-flow may pick up: (1) pump-priming is an obvious and politically easy policy action in addressing the on-going external macro-economic slump; (2) recent building material market liberalization and fiscal-boosting fuel price hikes hint at this direction.
Lookout for new jobs
H108 results continue to show strong growth from the Middle East. We think share price should rebound on new Middle East construction wins in H208. Stock is still trading at 10-20% discount to Gamuda/IJM.
Price target RM3.80
Share price at 14 Aug RM3.10
Investment summary
H108 net profit grew +65% yoy on recognition of Middle East jobs. We remain positive on WCT due to the mismatch between its share price (-25% YTD) and increasing exposure to Middle East petrodollar-fuelled construction: (1) Construction win-rate has risen from RM800m in FY05 to RM3.9bn in FY07, vs. FY07 billings of RM2.4bn. (2) 24% EPS CAGR over FY07-10E translates into a 10-20% PE discount to Gamuda/IJM. (3) Market bearishness over local job prospects are overdone, especially for genuine apolitical contractors such as WCT. We are positive on the Malaysian construction sector and believe government job-flow may pick up: (1) pump-priming is an obvious and politically easy policy action in addressing the on-going external macro-economic slump; (2) recent building material market liberalization and fiscal-boosting fuel price hikes hint at this direction.
Lookout for new jobs
H108 results continue to show strong growth from the Middle East. We think share price should rebound on new Middle East construction wins in H208. Stock is still trading at 10-20% discount to Gamuda/IJM.
CBRS: E&O - BUY - 15 Aug 2008
CBRS: Eastern & Oriental - IDR related MoU lapses (Company Update)
Price: RM1.06
Target Price: RM3.70
Recommendation: BUY
· Not extending MoU term with Cultural Cluster Sdn Bhd (CCSB) as both Eastern & Oriental (EOB) and CCSB has mutually agreed not to pursue the proposed JV with regards to developments in Nusajaya, since the lapse of the MoU on the 13/8/08. The MoU was signed on the 14/2/08 for a proposed 50:50 JV development of 195ac 99-yr leasehold land (also known as the Heritage District) in Node 1 of Nusajaya, Iskandar Malaysia (previously known as Iskandar Development Region or IDR).
· Reasons for not extending the MoU. According to management, neither party could come to an agreement on plot ratios or valuations. It is possible that the recent change in CCSB's management may have played a role in the fallout of the MoU. Recall that CCSB is a 60% subsidiary of Al Nibras 2 Ltd (private fund company managed by Kuwait Finance House) with South Johor Investment Corp Bhd and Jumeirah Capital via Alpha (Four) Ltd owning the remaining 30% and 10%, respectively.
· EOB is still interested in doing property development in Iskandar Malaysia (IM) as it is a good means of geographically diversifying future income. However, we do not expect any concrete plans to materialize within the next 6 to 9 months, given the current lacklustre interest in IM due to global economic and local political uncertainties.
· No impact on earnings as we have not factored in any earnings from this proposed project. Therefore, we are maintaining our FY09E and FY10E net profit of RM71m and RM77m, respectively. FY09E GDPS is fairly attractive at 5.0sen or a yield of 4.7%.
· Maintain BUY with target price of RM3.70, based on conservative sum of parts RNAV on a fully diluted basis. FY09E and FY10E PERs are very compelling at 8.9x and 8.1x.
Price: RM1.06
Target Price: RM3.70
Recommendation: BUY
· Not extending MoU term with Cultural Cluster Sdn Bhd (CCSB) as both Eastern & Oriental (EOB) and CCSB has mutually agreed not to pursue the proposed JV with regards to developments in Nusajaya, since the lapse of the MoU on the 13/8/08. The MoU was signed on the 14/2/08 for a proposed 50:50 JV development of 195ac 99-yr leasehold land (also known as the Heritage District) in Node 1 of Nusajaya, Iskandar Malaysia (previously known as Iskandar Development Region or IDR).
· Reasons for not extending the MoU. According to management, neither party could come to an agreement on plot ratios or valuations. It is possible that the recent change in CCSB's management may have played a role in the fallout of the MoU. Recall that CCSB is a 60% subsidiary of Al Nibras 2 Ltd (private fund company managed by Kuwait Finance House) with South Johor Investment Corp Bhd and Jumeirah Capital via Alpha (Four) Ltd owning the remaining 30% and 10%, respectively.
· EOB is still interested in doing property development in Iskandar Malaysia (IM) as it is a good means of geographically diversifying future income. However, we do not expect any concrete plans to materialize within the next 6 to 9 months, given the current lacklustre interest in IM due to global economic and local political uncertainties.
· No impact on earnings as we have not factored in any earnings from this proposed project. Therefore, we are maintaining our FY09E and FY10E net profit of RM71m and RM77m, respectively. FY09E GDPS is fairly attractive at 5.0sen or a yield of 4.7%.
· Maintain BUY with target price of RM3.70, based on conservative sum of parts RNAV on a fully diluted basis. FY09E and FY10E PERs are very compelling at 8.9x and 8.1x.
CBRS: Kawan Food - HOLD - 15 Aug 2008
CBRS: Kawan Food - 1HFY08 results below expectations (Results Note)
Price: RM0.58
Target Price: RM0.65
Recommendation: HOLD
· Kawan Food Berhad's (KFB) annualised 1HFY08 net profit of RM7.3m is below our forecast and that of consensus by 12% and 10% respectively. Higher cost of raw materials, fuel and energy, as well as a stronger Ringgit has put a squeeze on profit margins. However, we anticipate a stronger 2HFY08 in-line with sales seasonality and stabilising of commodities prices and currency exchange rate.
· Challenging environment of high input costs and stronger Ringgit. YoY, 1HFY08 revenue increased by 19% driven by strong double-digit sales growth in Malaysia and Asia. However, EBIT only increased by 9% YoY (EBIT margin declined by 1%) under pressure from higher raw materials (flour in particular), fuel and energy costs, as well as the weaker USD. (Approximately 90% of KFB's foreign sales are USD-denominated.) Pretax profit in 1HFY08 increased by 11%, partially mitigated by lower finance costs.
· YoY, 2QFY08 net profit increased by 56%, driven by 30% rise in revenue from higher sales in Asia, Malaysia and North America. Pretax profit in 2QFY08 rose by 66% due to the moderation of commodities prices and lower finance costs.
· Higher sales QoQ in all markets except for Malaysia and Africa resulted in a 16% increase in 2QFY08 revenue. 2QFY08 pretax profit increased by a more-than-proportionate 71% due to exceptionally high raw materials prices in the previous year.
· Maintain earnings estimates for FY08 and FY09 in anticipation of better performance in 2HFY08 in-line with seasonality (higher sales are expected in 3QFY08 because of the Hari Raya festivities) and moderation of commodities prices.
· Maintain HOLD recommendation and target price of RM0.65. Our target price is derived from applying 9x PER (at 30% discount to local industry average FY08 PER of 13x) to FY08 EPS of 6.9 sen. Potential risks to our forecast are slowdown in consumer spending, and any sudden hikes in raw materials costs.
Price: RM0.58
Target Price: RM0.65
Recommendation: HOLD
· Kawan Food Berhad's (KFB) annualised 1HFY08 net profit of RM7.3m is below our forecast and that of consensus by 12% and 10% respectively. Higher cost of raw materials, fuel and energy, as well as a stronger Ringgit has put a squeeze on profit margins. However, we anticipate a stronger 2HFY08 in-line with sales seasonality and stabilising of commodities prices and currency exchange rate.
· Challenging environment of high input costs and stronger Ringgit. YoY, 1HFY08 revenue increased by 19% driven by strong double-digit sales growth in Malaysia and Asia. However, EBIT only increased by 9% YoY (EBIT margin declined by 1%) under pressure from higher raw materials (flour in particular), fuel and energy costs, as well as the weaker USD. (Approximately 90% of KFB's foreign sales are USD-denominated.) Pretax profit in 1HFY08 increased by 11%, partially mitigated by lower finance costs.
· YoY, 2QFY08 net profit increased by 56%, driven by 30% rise in revenue from higher sales in Asia, Malaysia and North America. Pretax profit in 2QFY08 rose by 66% due to the moderation of commodities prices and lower finance costs.
· Higher sales QoQ in all markets except for Malaysia and Africa resulted in a 16% increase in 2QFY08 revenue. 2QFY08 pretax profit increased by a more-than-proportionate 71% due to exceptionally high raw materials prices in the previous year.
· Maintain earnings estimates for FY08 and FY09 in anticipation of better performance in 2HFY08 in-line with seasonality (higher sales are expected in 3QFY08 because of the Hari Raya festivities) and moderation of commodities prices.
· Maintain HOLD recommendation and target price of RM0.65. Our target price is derived from applying 9x PER (at 30% discount to local industry average FY08 PER of 13x) to FY08 EPS of 6.9 sen. Potential risks to our forecast are slowdown in consumer spending, and any sudden hikes in raw materials costs.
Tenaga - BUY - 14 Aug 2008
Tenaga - First windfall tax payment (Company Update)
Price: RM8.45
Target Price: RM9.63
Recommendation: BUY
· Tenaga National (TNB) pays its first windfall tax for July 08 of RM3.7m and RM2.0m arising from TNB Jenamanjung Sdn Bhd (100% owned) and Kapar Energy Ventures Sdn Bhd (60% owned), respectively. To recap, the government has gazetted the windfall tax act on IPPs, which came into effect as of 1/7/08.
· Therefore, we are tweaking our FY08E and FY09E net profit lower by 0.3% and 2.1% to RM3.04b and RM2.80b, respectively. This will reduce our fair value by 5% to RM9.63, which still gives us a 14% upside to TNB's last trading price of RM8.45. In turn, FY08E and FY09E GDPS have been reduced by 0.5% and 2.2% to 21.1sen and 23.5sen or 2.5% and 2.8% dividend yield, respectively. FY08E and FY09E PERs remain attractive at 11x and 13x, respectively.
· On a separate note, it was reported by Business Times that TNB has contracted Konsortium Logistik to transport coal requirements from Australia, Indonesia and South Africa for RM550m over the next 3 years. Recall that all the coal supply for FY09 of 15mt has already been secured, but prices will only be decided on the day physical procurement due to the volatility of coal prices.
· We reiterate our BUY recommendation as we believe that coal prices will stabilize to more manageable levels, in light of declining crude oil prices. We also believe that TNB will be able to negotiate for further tariff hikes, with regards to the variation in coal cost, or request for a portion of the IPP windfall tax as compensation.
Price: RM8.45
Target Price: RM9.63
Recommendation: BUY
· Tenaga National (TNB) pays its first windfall tax for July 08 of RM3.7m and RM2.0m arising from TNB Jenamanjung Sdn Bhd (100% owned) and Kapar Energy Ventures Sdn Bhd (60% owned), respectively. To recap, the government has gazetted the windfall tax act on IPPs, which came into effect as of 1/7/08.
· Therefore, we are tweaking our FY08E and FY09E net profit lower by 0.3% and 2.1% to RM3.04b and RM2.80b, respectively. This will reduce our fair value by 5% to RM9.63, which still gives us a 14% upside to TNB's last trading price of RM8.45. In turn, FY08E and FY09E GDPS have been reduced by 0.5% and 2.2% to 21.1sen and 23.5sen or 2.5% and 2.8% dividend yield, respectively. FY08E and FY09E PERs remain attractive at 11x and 13x, respectively.
· On a separate note, it was reported by Business Times that TNB has contracted Konsortium Logistik to transport coal requirements from Australia, Indonesia and South Africa for RM550m over the next 3 years. Recall that all the coal supply for FY09 of 15mt has already been secured, but prices will only be decided on the day physical procurement due to the volatility of coal prices.
· We reiterate our BUY recommendation as we believe that coal prices will stabilize to more manageable levels, in light of declining crude oil prices. We also believe that TNB will be able to negotiate for further tariff hikes, with regards to the variation in coal cost, or request for a portion of the IPP windfall tax as compensation.
HLG: Breakfast Brief: Kian Joo Can, MISC, Asiatic (14 August 2008)
Good morning
We recently visited Kian Joo Can Factory (KJC) at its manufacturing plant in Batu Caves, Kuala Lumpur. Key takeaways: (1) Operating environment is challenging, and it may have to absorb some of the rise in utility and transportation cost. On top of a 5-8% ASP hike in Q208, management is introducing a further 18-20% hike to compensate for higher raw material costs. (2) Vietnam operations are profitable, but its new co-packing JV will only bear fruit in 2009. (3) Tussle for the See family’s 35% controlling stake may not be resolved in the short term. 22% underperformance to the KLCI is overdone, we value KJC at 13x FY08PE, in-line with the average KLCI PE.
We are negative on the manufacturing sector due to: (1) Slowing consumer demand affected by higher inflationary pressure. (2) Margin compressions due to abnormal escalation of raw material prices.
Newsbreak
MISC secures offshore production contract in Sarawak worth RM1bn
Asiatic enters into Indonesian JV to develop 15,800ha of land
GM still interested in cooperating with Proton
CIMB selling RM1.1bn of NPL to Standard Merchant
Scomi Group posts H108 profit of RM56m
Sarawak Oil Palms H108 profit surges 194% to RM88m yoy
Economics
US: Retail sales decreased by 0.1% in July for the first time in five months mainly due to sagging demand for motor vehicles; import prices soared 1.7% for a fifth-straight month in July. MBA mortgage application fell 1.2% for the week ended 9 Aug, indicating that the housing sector is still unable to shrug off recessionary trend.
UK: Jobless claims change rose by 20,100 in July, marking the sixth consecutive monthly increase, while ILO Jobless Rate in Jun upped by two percentage points to 5.4% compared to forecast of 5.2%, revealing signs of weakening labor market in UK.
EU: IPI in June was unchanged after falling the most in almost 16 years in May, prompting views that euro-area economy probably contracted in 2Q for the first time since the single currency was established almost a decade ago.
China: Retail sales rose 23.3% in July, close to June's 23% increase, as the economy surged forward in preparation of the Beijing Olympics.
Japan: GDP shrank an annualized 2.4% in 2Q, pushing the economy to the first recession in six years as domestic consumption and exports declined.
We recently visited Kian Joo Can Factory (KJC) at its manufacturing plant in Batu Caves, Kuala Lumpur. Key takeaways: (1) Operating environment is challenging, and it may have to absorb some of the rise in utility and transportation cost. On top of a 5-8% ASP hike in Q208, management is introducing a further 18-20% hike to compensate for higher raw material costs. (2) Vietnam operations are profitable, but its new co-packing JV will only bear fruit in 2009. (3) Tussle for the See family’s 35% controlling stake may not be resolved in the short term. 22% underperformance to the KLCI is overdone, we value KJC at 13x FY08PE, in-line with the average KLCI PE.
We are negative on the manufacturing sector due to: (1) Slowing consumer demand affected by higher inflationary pressure. (2) Margin compressions due to abnormal escalation of raw material prices.
Newsbreak
MISC secures offshore production contract in Sarawak worth RM1bn
Asiatic enters into Indonesian JV to develop 15,800ha of land
GM still interested in cooperating with Proton
CIMB selling RM1.1bn of NPL to Standard Merchant
Scomi Group posts H108 profit of RM56m
Sarawak Oil Palms H108 profit surges 194% to RM88m yoy
Economics
US: Retail sales decreased by 0.1% in July for the first time in five months mainly due to sagging demand for motor vehicles; import prices soared 1.7% for a fifth-straight month in July. MBA mortgage application fell 1.2% for the week ended 9 Aug, indicating that the housing sector is still unable to shrug off recessionary trend.
UK: Jobless claims change rose by 20,100 in July, marking the sixth consecutive monthly increase, while ILO Jobless Rate in Jun upped by two percentage points to 5.4% compared to forecast of 5.2%, revealing signs of weakening labor market in UK.
EU: IPI in June was unchanged after falling the most in almost 16 years in May, prompting views that euro-area economy probably contracted in 2Q for the first time since the single currency was established almost a decade ago.
China: Retail sales rose 23.3% in July, close to June's 23% increase, as the economy surged forward in preparation of the Beijing Olympics.
Japan: GDP shrank an annualized 2.4% in 2Q, pushing the economy to the first recession in six years as domestic consumption and exports declined.
Banks' Subprime Losses Top $500 Billion on Writedowns (Update1)
Banks' Subprime Losses Top $500 Billion on Writedowns
By Yalman Onaran
Aug. 13 (Bloomberg) -- Banks' losses from the U.S. subprime
crisis and the ensuing credit crunch crossed the $500 billion
mark as writedowns spread to more asset types.
The writedowns and credit losses at more than 100 of the
world's biggest banks and securities firms rose after UBS AG
reported second-quarter earnings today, which included $6
billion of charges on subprime-related assets.
The International Monetary Fund in an April report
estimated banks' losses at $510 billion, about half its forecast
of $1 trillion for all companies. Predictions have crept up
since then, with New York University economist Nouriel Roubini
predicting losses to reach $2 trillion.
``It just keeps spreading from one asset to another, so
it's hard to know when these writedowns will stop,'' said Makeem
Asif, an analyst at KBC Financial Products in London. ``The U.S.
economy needs to stabilize first. But even then, Europe could
lag and recover later. There's still a lot more downside.''
Auction-rate securities have begun adding to the losses as
regulators and prosecutors force banks to buy back bonds they'd
sold as safe investments. UBS set aside $900 million to cover
potential losses from repurchasing the securities, while
Citigroup Inc. and Wachovia Corp. estimated losses at $500
million each.
Subprime Collapse
The collapse of the U.S. subprime mortgage market last year
has saddled banks worldwide with $501 billion of losses from
declining values of securities tied to all types of home loans
and commercial mortgages as well as leveraged-loan commitments.
Banks and brokers have raised $353 billion of capital to
cope with the writedowns, according to data compiled by
Bloomberg. The gap between losses and capital infusions, which
now stands at $148 billion, has regularly narrowed to about $80
billion as capital raising follows writedown announcements.
The following table shows the asset writedowns and credit
losses as well as the capital raised in response. All numbers
are in billions of U.S. dollars, converted at today's exchange
rate if reported in another currency. For quarterly breakdowns
for each bank and region, click on WDCI.
*T
Firm Writedown & Loss Capital Raised
Citigroup 55.1 49.1
Merrill Lynch 51.8 29.9
UBS 44.2 28.3
HSBC 27.4 3.9
Wachovia 22.5 11
Bank of America 21.2 20.7
IKB Deutsche 15.3 12.6
Royal Bank of Scotland 14.9 24.3
Washington Mutual 14.8 12.1
Morgan Stanley 14.4 5.6
JPMorgan Chase 14.3 7.9
Deutsche Bank 10.8 3.2
Credit Suisse 10.5 2.7
Wells Fargo 10 4.1
Barclays 9.1 18.6
Lehman Brothers 8.2 13.9
Credit Agricole 8 8.8
Fortis 7.4 7.2
HBOS 7.1 7.6
Societe Generale 6.8 9.8
Bayerische Landesbank 6.4 -
Canadian Imperial (CIBC) 6.3 2.8
Mizuho Financial Group 5.9 -
ING Groep 5.8 4.8
National City 5.4 8.9
Lloyds TSB 5 4.9
IndyMac 4.9 -
WestLB 4.7 7.5
Dresdner 4.1 -
BNP Paribas 4 -
LB Baden-Wuerttemberg 3.8 -
Goldman Sachs 3.8 0.6
E*Trade 3.6 2.4
Nomura Holdings 3.3 1.1
Natixis 3.3 6.7
Bear Stearns 3.2 -
HSH Nordbank 2.8 1.9
Landesbank Sachsen 2.6 -
UniCredit 2.6 -
Commerzbank 2.4 -
ABN Amro 2.3 -
DZ Bank 2 -
Bank of China 2 -
Fifth Third 1.9 2.6
Rabobank 1.7 -
Bank Hapoalim 1.7 2.4
Mitsubishi UFJ 1.6 1.5
Royal Bank of Canada 1.5 -
Marshall & Ilsley 1.4 -
Alliance & Leicester 1.4 -
U.S. Bancorp 1.3 -
Dexia 1.2 -
Caisse d'Epargne 1.2 -
Keycorp 1.2 1.7
Sovereign Bancorp 1 1.9
Hypo Real Estate 1 -
Gulf International 1 1
Sumitomo Mitsui 0.9 4.9
Sumitomo Trust 0.7 1
DBS Group 0.2 1.1
Other European banks* 7.2 2.3
Other Asian banks* 4.6 7.8
Other U.S. banks* 2.9 1.9
Other Canadian banks* 1.8 -
____ ____
TOTAL** 501.1 352.9
By Yalman Onaran
Aug. 13 (Bloomberg) -- Banks' losses from the U.S. subprime
crisis and the ensuing credit crunch crossed the $500 billion
mark as writedowns spread to more asset types.
The writedowns and credit losses at more than 100 of the
world's biggest banks and securities firms rose after UBS AG
reported second-quarter earnings today, which included $6
billion of charges on subprime-related assets.
The International Monetary Fund in an April report
estimated banks' losses at $510 billion, about half its forecast
of $1 trillion for all companies. Predictions have crept up
since then, with New York University economist Nouriel Roubini
predicting losses to reach $2 trillion.
``It just keeps spreading from one asset to another, so
it's hard to know when these writedowns will stop,'' said Makeem
Asif, an analyst at KBC Financial Products in London. ``The U.S.
economy needs to stabilize first. But even then, Europe could
lag and recover later. There's still a lot more downside.''
Auction-rate securities have begun adding to the losses as
regulators and prosecutors force banks to buy back bonds they'd
sold as safe investments. UBS set aside $900 million to cover
potential losses from repurchasing the securities, while
Citigroup Inc. and Wachovia Corp. estimated losses at $500
million each.
Subprime Collapse
The collapse of the U.S. subprime mortgage market last year
has saddled banks worldwide with $501 billion of losses from
declining values of securities tied to all types of home loans
and commercial mortgages as well as leveraged-loan commitments.
Banks and brokers have raised $353 billion of capital to
cope with the writedowns, according to data compiled by
Bloomberg. The gap between losses and capital infusions, which
now stands at $148 billion, has regularly narrowed to about $80
billion as capital raising follows writedown announcements.
The following table shows the asset writedowns and credit
losses as well as the capital raised in response. All numbers
are in billions of U.S. dollars, converted at today's exchange
rate if reported in another currency. For quarterly breakdowns
for each bank and region, click on WDCI.
*T
Firm Writedown & Loss Capital Raised
Citigroup 55.1 49.1
Merrill Lynch 51.8 29.9
UBS 44.2 28.3
HSBC 27.4 3.9
Wachovia 22.5 11
Bank of America 21.2 20.7
IKB Deutsche 15.3 12.6
Royal Bank of Scotland 14.9 24.3
Washington Mutual 14.8 12.1
Morgan Stanley 14.4 5.6
JPMorgan Chase 14.3 7.9
Deutsche Bank 10.8 3.2
Credit Suisse 10.5 2.7
Wells Fargo 10 4.1
Barclays 9.1 18.6
Lehman Brothers 8.2 13.9
Credit Agricole 8 8.8
Fortis 7.4 7.2
HBOS 7.1 7.6
Societe Generale 6.8 9.8
Bayerische Landesbank 6.4 -
Canadian Imperial (CIBC) 6.3 2.8
Mizuho Financial Group 5.9 -
ING Groep 5.8 4.8
National City 5.4 8.9
Lloyds TSB 5 4.9
IndyMac 4.9 -
WestLB 4.7 7.5
Dresdner 4.1 -
BNP Paribas 4 -
LB Baden-Wuerttemberg 3.8 -
Goldman Sachs 3.8 0.6
E*Trade 3.6 2.4
Nomura Holdings 3.3 1.1
Natixis 3.3 6.7
Bear Stearns 3.2 -
HSH Nordbank 2.8 1.9
Landesbank Sachsen 2.6 -
UniCredit 2.6 -
Commerzbank 2.4 -
ABN Amro 2.3 -
DZ Bank 2 -
Bank of China 2 -
Fifth Third 1.9 2.6
Rabobank 1.7 -
Bank Hapoalim 1.7 2.4
Mitsubishi UFJ 1.6 1.5
Royal Bank of Canada 1.5 -
Marshall & Ilsley 1.4 -
Alliance & Leicester 1.4 -
U.S. Bancorp 1.3 -
Dexia 1.2 -
Caisse d'Epargne 1.2 -
Keycorp 1.2 1.7
Sovereign Bancorp 1 1.9
Hypo Real Estate 1 -
Gulf International 1 1
Sumitomo Mitsui 0.9 4.9
Sumitomo Trust 0.7 1
DBS Group 0.2 1.1
Other European banks* 7.2 2.3
Other Asian banks* 4.6 7.8
Other U.S. banks* 2.9 1.9
Other Canadian banks* 1.8 -
____ ____
TOTAL** 501.1 352.9
HLG: BHIC - Turnaround within expectation (13 August 2008)
Boustead Heavy Industries BUY
Price target RM6.50
Share price at 12 Aug RM4.30
Investment summary
H108 net profit of RM66m is 53% of HLG full-year forecast and 50% of consensus estimate. BHIC is showing signs of sustained profitability following its restructuring plan last year. Following a sector PE de-rating by 4-5x YTD, we lower our target price to RM6.50/share on 11x FY09E EPS (vs. 16x previously). We remain excited on BHIC and thinks share price is undervalued at 7x FY09E EPS.
We are positive on the oil and gas shipbuilding sector: (1) tight demand-supply for offshore support vessels (OSV) has created superior pricing power for shipbuilders (2) lagging vessel new-builds vs. replacement market offers opportunity to replenish its order book.
Lookout for new jobs
Strong Q208 results re-affirm our BUY rating on the stock. Share price is flat in the last two months due to absence of news flow on new jobs. We are excited on its order book build-up in the next six months. Share price is undervalued at 7x FY09 EPS, 25% discount to sector peers.
Price target RM6.50
Share price at 12 Aug RM4.30
Investment summary
H108 net profit of RM66m is 53% of HLG full-year forecast and 50% of consensus estimate. BHIC is showing signs of sustained profitability following its restructuring plan last year. Following a sector PE de-rating by 4-5x YTD, we lower our target price to RM6.50/share on 11x FY09E EPS (vs. 16x previously). We remain excited on BHIC and thinks share price is undervalued at 7x FY09E EPS.
We are positive on the oil and gas shipbuilding sector: (1) tight demand-supply for offshore support vessels (OSV) has created superior pricing power for shipbuilders (2) lagging vessel new-builds vs. replacement market offers opportunity to replenish its order book.
Lookout for new jobs
Strong Q208 results re-affirm our BUY rating on the stock. Share price is flat in the last two months due to absence of news flow on new jobs. We are excited on its order book build-up in the next six months. Share price is undervalued at 7x FY09 EPS, 25% discount to sector peers.
CBRS: Muda Holdings - BUY - 12 Aug 2008
CBRS: Muda Holdings - Visit to appreciate (Company Update)
Price: RM0.775
Target Price: RM1.20
Recommendation: BUY
· We visited Muda's 55-acres paper mill and corrugated plant in Kajang and were impressed by the extensive infrastructure supporting the paper mill operation. Below are some key takeaways:
· The largest domestic industrial paper manufacturer with a combined annual paper production of 324,000MT from its Kalang and Tasek mills. Muda's main product range include medium and liners used in carton production, grey chip board used for book and file covers, and core board used in consumers and industrial rolled products. Apart from paper milling, Muda also operates 6 corrugated plants producing c.100,000MT corrugated cartons per annum. Other business includes trading of stationary products.
· Extremely high entry barrier for paper milling business. Start up capital for a paper mill is estimated at between RM500 m - RM 1billion based on the latest sale of Genting Sanyen Industrial Paper to Paperbox transacted at RM745m in 2007. Current start up cost for a new paper mill is even higher given rising building material and machinery costs.
· Wastepaper collection, an essential part of the value chain as wastepaper forms the largest cost component at 45% of production cost. Conversion rate is at 1.2MT of wastepaper to 1MT of paper. Muda's wholly owned subsidiary - Central Malaya Paper (CMP) is the most established wastepaper collector in the country with extensive networks in Penang, Perak, Selangor, Melaka and Johor. CMP collects various types of wastepaper including old corrugated carton, old newspaper and old white paper. Annual collection of c.400,000MT is more than sufficient to fulfil Muda's wastepaper needs with an excess of 3,000-5,000MT wastepaper for sale monthly.
· A mini Syabas, IPP and IWK - all in MUDA! Given the large amount of water need to be mixed with wastepaper in paper production, Muda treats water drawn from the nearby Sg. Langat in its own water treatment plant. The treatment process is the same as adopted in Syabas except for chlorination as it is not meant for human consumption. We also visited the 9.6MW gas-powered combined heat and power plant (CHP) which supplies both power and heat to the paper mill. The CHP is an efficient plant as heat generated in the power generation process is channelled back to the paper mill for steaming and drying of paper, unlike other IPPs where heat generated is unutilised and substantial cooling is necessary to reduce heat and temperature. Muda also has an effluent treatment plant which is showcased by the Department of Environment (DOE) as an exemplary plant with high effluent control criteria.
Price: RM0.775
Target Price: RM1.20
Recommendation: BUY
· We visited Muda's 55-acres paper mill and corrugated plant in Kajang and were impressed by the extensive infrastructure supporting the paper mill operation. Below are some key takeaways:
· The largest domestic industrial paper manufacturer with a combined annual paper production of 324,000MT from its Kalang and Tasek mills. Muda's main product range include medium and liners used in carton production, grey chip board used for book and file covers, and core board used in consumers and industrial rolled products. Apart from paper milling, Muda also operates 6 corrugated plants producing c.100,000MT corrugated cartons per annum. Other business includes trading of stationary products.
· Extremely high entry barrier for paper milling business. Start up capital for a paper mill is estimated at between RM500 m - RM 1billion based on the latest sale of Genting Sanyen Industrial Paper to Paperbox transacted at RM745m in 2007. Current start up cost for a new paper mill is even higher given rising building material and machinery costs.
· Wastepaper collection, an essential part of the value chain as wastepaper forms the largest cost component at 45% of production cost. Conversion rate is at 1.2MT of wastepaper to 1MT of paper. Muda's wholly owned subsidiary - Central Malaya Paper (CMP) is the most established wastepaper collector in the country with extensive networks in Penang, Perak, Selangor, Melaka and Johor. CMP collects various types of wastepaper including old corrugated carton, old newspaper and old white paper. Annual collection of c.400,000MT is more than sufficient to fulfil Muda's wastepaper needs with an excess of 3,000-5,000MT wastepaper for sale monthly.
· A mini Syabas, IPP and IWK - all in MUDA! Given the large amount of water need to be mixed with wastepaper in paper production, Muda treats water drawn from the nearby Sg. Langat in its own water treatment plant. The treatment process is the same as adopted in Syabas except for chlorination as it is not meant for human consumption. We also visited the 9.6MW gas-powered combined heat and power plant (CHP) which supplies both power and heat to the paper mill. The CHP is an efficient plant as heat generated in the power generation process is channelled back to the paper mill for steaming and drying of paper, unlike other IPPs where heat generated is unutilised and substantial cooling is necessary to reduce heat and temperature. Muda also has an effluent treatment plant which is showcased by the Department of Environment (DOE) as an exemplary plant with high effluent control criteria.
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