Top Story : Semiconductor – 3Q09 chip sales up 19.7% qoq, but expect a weaker 4Q09 Neutral
Sector Update
- While Sep 09 global chip sales were down 10.1% yoy, the yoy contraction appears to have narrowed from its low of -30.2% in Feb 08 and -16% in Aug 2009. Sep growth (+8.2% mom) was the seventh consecutive gain on a mom basis after five months of decline beginning Oct 08, but industry players are expecting weaker sales ahead after the resurgence in 2Q-3Q.
- Although 3Q revenues for major foundries were up 36-40% respectively (vs. 43-110% qoq in 2QCY09), players now expect a flattish 4Q09 revenue. While key drivers for 3Q growth were mainly the stimulus package in China and restocking activity for certain chips (especially consumer IC, telecommunication and graphic chips), players are expecting weaker sales ahead.
- After declining on an annual basis for the first three quarters of 2009, independent research outfits are expecting global chip sales to register yoy improvement in the 4Q, albeit in comparison to the low levels established in 4Q08.
- We note that our anticipation of near-term price weakness (2-3 months) is unlikely to be prolonged given that the semiconductor sector’s longer-term prospects remain intact. Hence, reiterate Neutral for now.
Corporate Highlights
Sunrise : Launching of two new projects in near term Outperform
1QFY10 Results/Briefing Update
- 1QFY06/10 results were within expectations. As at 27 Oct 09, the company had unbilled sales of RM863.7m (excluding another RM84m booking pending signing of S&P agreements), represents 1.0x of our FY10 revenue forecast.
- Key highlights from briefing: a) unbilled sales of RM863.7m would sustain the company’s earnings growth up to 2011; b) the company intends to launch MK28 and Solaris Towers by Dec 09 and 1Q10 respectively to replenish its unbilled sales; and c) the company will focus on reducing its gearing and potential land acquisition opportunities, instead of paying higher dividend.
- We are upgrading our FY10-11 EPS forecasts by 2.3-9.6% to factor in: a) MK28 and Solaris Towers; b) better-than-expected take-up rates in MK11 and the Residence; and c) larger share capital due to the exercise of ESOS. Despite the upgrade, our fair value is maintained at RM2.39, based on 1.1x P/NTA.
Axiata : Highlights from XL’s 3QFY09 teleconference Underperform
Company Update
- XL held its 3QFY09 results teleconference yesterday. We set out below the key highlights from the briefing.
- XL has launched its broadband services in Jakarta and selected major cities in Sumatera. Although GPRS data revenue only made up 4% of mobile revenue, contribution is expected to increase to around double-digit within the next 3 years.
- In terms of capex plans, focus remains on capacity and quality, rather than expanding coverage. Also, management prefers to lease rather than build its own towers. Going forward, management guided that the estimated split between 2G:3G capex would be around 75%:25% and remained mindful of the need to ensure that revenue growth matches the increase in capacity and growing data traffic volume.
- XL’s US$300m rights issue should be completed by next month with the bulk of proceeds earmarked for repayment of borrowings. With the recapitalisation issue addressed, management plans to address XL’s low free float next year. This, in our view, may involve Axiata paring down its stake in XL if the price is right.
- No change to our SOP-derived fair value of RM2.75 and Underperform call on the stock.
Unisem : No surprises Outperform
3QFY09 Results
- While 9MFY09 core net profit of RM26.7m only accounted for 57% and 52% of our full-year forecast and market consensus, we consider the results to be largely in line with our and market expectations. We expect Unisem to record commendable 4QFY12/09 earnings on strong guidance from its major customers.
- We understand that 4Q09 order volumes for major customers (i.e. Cypress Semiconductor, RFMD, IDT and Maxim) remain resilient with order visibility extended to 4Q09 driven mainly by strong demand for communication, computing and networking chips in China.
- No change to our forecasts for now. Maintain Outperform and fair value of RM1.90/share.
Hong Leong Bank : JV In China Trading Buy
News Update
- JV in China with its associate (Bank of Chengdu – BOCD) for consumer finance. Its share of the investment is RM78.4m.
- Positive move as it will entrench HLB’s exposure to the huge market in China and contribute to earnings in the longer term.
- However, unlike BOCD, this Greenfield project would have a longer gestation period.
- Moreover, the investment only takes up circa 3.7% of its excess capital of RM2bn.
- This implies that issues about the excess capital still linger.
- Special dividend and corporate exercise still possible.
- Fair value is pegged at RM9.07 or potential privatisation value of 2.5x historical book.
Puncak Niaga : Enters into jv agreement with Lanco Underperform
News Update
- Puncak has entered into a JV agreement with Lanco Infratech Ltd (60:40), India, to participate in an international competitive tender for Hogenakkal Water Supply and Fluorosis Mitigation Project - Package I (inclusive of intake works, raw water pumping station, pumping mains, madam master balancing reservoirs and allied works) called by the Tamil Nadu Water Supply and Drainage Board, India.
- We are not surprised on the latest development, as Puncak sees huge potential in the water sector in India given its current low water consumption per capita that is only one-third Malaysia’s 300 litres per capita.
- We view this positively, as this will broaden Puncak's earnings base should the project be awarded.
- Indicative fair value is RM2.95, at 30% discount to its DCF-derived NPV of RM4.21 to reflect Puncak's high earnings and regulatory risks.
Technical Highlights
Daily Trading Strategy : Further pullback risk remains high …
- The FBM KLCI crawled back with a second “hammer” candle in three trading days yesterday, to spell yet another possible attempt to regain the critical level of 1,250 in the immediate term.
- Supported by constant stream of bargain-hunting activities, as shown in the robust trading volume recently, the benchmark could inch even higher from here, if sentiment improves further today.
- But as highlighted, stiff resistances beyond 1,250 near the 10-day SMA of 1,255, the UTL near 1,270 and the recent high of 1,270.44 should remain as a cap to the index’s near-term upside.
- As such, further pullback risk is still high, in our view.
- Furthermore, the cautious sentiment is likely to stay, pending the US FOMC meeting on Tuesday and Wednesday, as investors might wait for more clues before making their investment decision, especially after recent volatility.
Daily Technical Watch: Time Eng – Outlook will remain positive so long as it sustains above RM0.445 …
- 10-day SMA: RM0.3725
- 40-day SMA: RM0.322
- Support: IS = RM0.445 S1 = RM0.40 S2 = RM0.355
- Resistance: IR = RM0.55 R1 = RM0.64 R2 = RM0.77
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