Analyst call April 10

KUALA LUMPUR, April 10 — This is a selection of morning calls by local research houses for the day.

HwangDBS Vickers

Market Preview

More selling could be in store after key US equity indices slumped between 1.0 per cent and 1.1 per cent last night. Even with Wall Street’s overnight tumble, the DJIA Jun futures month contract was still trading at a 63-point (or 0.5 per cent) discount to the spot rate early this morning amid renewed concerns on the fragile US economic recovery.

Talking about the economy, we will get an update on the latest developments in Malaysia when the index of industrial production and external trade data reports for Feb are released later today. Separately, the plantation statistics for Mar are also due to be out this afternoon.

Back to our local bourse, the benchmark FBM KLCI may slide further towards the immediate support level of 1,580. In terms of share price actions, of interest could be Boustead Heavy Industries Corporation, which has been awarded navy vessels-related contracts (valued at a ceiling sum of RM1.5b) by its parent Boustead Holdings.

Boustead Heavy Industries Corp

BHIC’s 51 per cent-owned Contraves Advanced Devices Sdn Bhd (CAD) has secured 3 letters of award (LOAs) worth RM1.5bn from its 21 per cent-owned Boustead Naval Shipyard Sdn Bhd (BNS) for the RM9bn 2nd generation offshore patrol vessels (OPV) contract.

CAD will undertake engineering and integration works in connection with the DCNS SETIS Combat Management System (CMS), as well as the procurement of the CMS and the Rheinmetall Fire Control System. The 3 LOAs carry a total ceiling contract sum of RM1.532bn for up to 10 years from the commencement date of the contracts. Recall that BHIC acquired a 51 per cent stake in CAD from Rheinmetall in Jun10 at RM26m, implying 7.5x FY09 earnings. CAD has a niche in commercial as well as radar and defence electronics manufacturing.

BHIC also clarified that this contract is a recurrent party transaction, for which a shareholder mandate has been received during the company’s AGM on 5th Apr 2012. The LOAs do not come as a surprise as we have highlighted previously that BHIC is bound to benefit substantially from the RM9bn OPV contract given its leading role in weaponry, combat system, vessel design, naval electronics etc, though BNS is the contract holder.

We have assumed BHIC to undertake 30 per cent of the RM9bn OPV contract from BNS, therefore we maintain our earnings forecast. We continue to like BHIC for its enviable monopolistic position in naval vessel construction and maintenance works for the Royal Malaysian Navy. Reiterate our Buy call with RM4.00 TP, based on 12x FY12 EPS.

UEM Land

UEM Land announced that it has entered into a conditional sale and purchase agreement for 122.28 acres of land with Tanjung Bidara Ventures Sdn Bhd (wholly-owned subsidiary of Khazanah Nasional) for RM93.2m, translating into RM17.50psf.

The land is a vacant parcel of freehold land under agricultural classification at the moment. It is adjacent to Kota Iskandar (Johor government administrative center) and is ~40km to the south-west of Johor Bahru City Centre.

UEM Land plans to develop the land into a premier residential enclave featuring a mix of canal-front homes with individual berthing and high-end condominiums. The project is expected to span over 7 years and commence in 2013.

We believe that the relatively low transaction price of RM17.50 is due to the agricultural land status. Comparing to recent land transactions around Johor Bahru, the acquisition price is at the lower end of the range.

The strategic location of the land will complement UEM Land’s master development plan for Nusajaya as well. It is envisaged to form part of Puteri Harbour which will offer luxurious waterfront living lifestyle.  The latest transacted price of Puteri Harbour has reached RM220psf, suggesting vast potential for the proposed land acquisition.

We maintain our Hold rating and RM2.30 TP based on a 40 per cent discount to RNAV of RM3.82. Potential re-rating catalysts include warming bilateral ties and robust private investments from Singapore.

Guan Chong

Guan Chong (GC) has proposed a secondary listing on the Main Board of Singapore Stock Exchange via a public issue of up to 31m new shares and an offer for sale of up to 31m existing shares.
These shares — which translate to 17.7 per cent of an enlarged share base of 350m shares — will be fully fungible with the shares currently traded in Malaysia when the listing exercise is completed in Jul/Aug. Together with a 1-for-2 bonus issue (post secondary listing), the proposal will improve trading liquidity, widen shareholders’ base and boost valuation.

Assuming an indicative issue price at RM2.80, the issue will raise RM86.8m proceeds (to be used mainly for working capital needs). Based on an enlarged share base of 350m, our basic EPS could see dilutions of 2.9 per cent for FY12 (4-month impact) and 8.6 per cent for FY13 (full-year impact). Meanwhile, the exercise (assuming a maximum scenario of 62m shares to be offered) will dilute major shareholder, Tay family’s combined stake from 61.7 per cent to 52.9 per cent.

The secondary listing may enable GC to narrow its valuation gap with Singapore-listed peer Petra Food (current CY12 PE of 14x vs. GC’s 7x; see Fig 1 for historical comparison). Thus, we have tagged a higher target PE of 10x (from 8x) on GC’s adjusted FY12F FD EPS, translating to TP of RM3.20 (from RM2.80). Maintain Buy with a potential upside of 19 per cent (including dividend returns).
RHB Research


Given that the gas supply situation has improved significantly to 1,100-1,150 mmscfd in 2Q (1Q: 1,050 mmscfd), we expect earnings to jump qoq. We estimate 2Q core net profit of RM500-600m (1QFY12: RM196m, 2QFY11: RM442m).

We gather that TNB will write back the RM2.05bn compensation in 2Q. This opens the possibility for TNB to resume paying dividends. For 1HFY12, we estimate electricity unit sales growth of 4.6 per cent. This is within management’s guidance and our forecast of 4-5 per cent and 4 per cent respectively.

We are turning more positive on TNB given better visibility of its earnings outlook with the improved gas supply. Fair value raised from RM6.50 to RM7.60 based on unchanged target FY13 PER of 15x and EPS of 50.8 sen after rolling over the valuation base year to 2013.


AEON expects to open another outlet in Dec 2012 in Sri Manjung. The mall would be leased from the developer and have total net lettable area of 400k sq ft. Further ahead, we understand that AEON has plans to open one mall in 2013, although no details on location were given. In 2014, AEON expects to open three new malls, i.e. Kulai, Sg. Petani and Bukit Mertajam.
For its retail operations, which include department store and supermarket sales, AEON expects its Same Store Sales (SSS) growth to be approximately 4 per cent for FY12, higher than our estimates of 2-3 per cent for FY12-14.

Moving forward, management expects PBT for its property management service to be sustained at FY11 levels of RM120-130m, which we note is slightly higher than our current estimates of RM110-120m for FY12-14.

We raise our fair value to RM10.40 (from RM8.90) based on a new target PER of 16x FY12 EPS (from 14x FY12 EPS previously). We upgrade our call on the stock to Market Perform.


1QFY12/12 net profit (-18.5 per cent yoy) was below expectations, accounting for only 17-18 per cent of our and consensus full-year forecasts due mainly to higher-than-expected claims ratio of 60.1 per cent.

LPI’s fire class recorded claims ratio of 30.5 per cent, up 12 per cent-pts yoy due to exceptionally high frequency of fire claims and high frequency of catastrophic losses from floods. We expect claims ratios for the following quarters in FY12 to revert back to normal levels of 48-50 per cent.

Post earnings revision, our fair value is lowered to RM12.15 (from RM13.60) based on unchanged target PER of 16x FY12 EPS. Downgrade to Underperform (from market perform).

OSK Research

Tanjung Offshore Bhd

We detected signs of strength in Tanjung’s share price yesterday as the stock violated the 50-week MAV line, which it failed to crack last month. Although it was not a major breakout, this does signal a potential price appreciation in the near term.

We advise traders to accumulate the shares at above the RM0.955 level. If this is a genuine breakout, the stock may potentially test the 200-week MAV line which now lies at the RM1.22 level, and cut loss should the share price close below the RM0.95 level.

Time Engineering

Time may trade higher if it can hold above the gap created yesterday. The stock has been in consolidation for the past 2 months, which came after the rally of Dec-Feb. The correction has not dented the stock’s uptrend since Sep 2011 as the recent low of RM0.325 is a correction of just about 62 per cent of the prior rally, deemed positive based on Fibonacci analysis.

Yesterday’s firm close may signal the continuation of its uptrend, as shown by the “Long

White” candle. Sentiment is upbeat as the stock gapped above the 50-day MAV line. Thus a purchase can be made at the current price, with a stop loss on a close below yesterday’s low of RM0.35.
A more conservative trade may be to set RM0.325 as a stop instead, while a measured move based on the Dec-Feb rally could see the stock testing the psychological RM0.50, provided that RM0.425 resistance level is violated convincingly.

The upside bias will be nullified should the gap be covered and is confirmed by a close below RM0.325, which may even signal the end of the uptrend. Expect strong support at RM0.28, the gap of early Jan.

DVM Technology

DVM share price may climb after breaking above the short-term resistance level. This stock has been climbing gradually since the broad market rebound in Sept 2011. This was despite the price collapse in Aug-Sep 2011. A clear resistance is seen at RM0.11, which the multiple tests in the past 5 months failed to break.

This changed yesterday after the strong close above the level in a breakout which looks good as the high volume accompanying the “Long White” candle suggests firm buying interest. Thus, a purchase can be made at the current price, or if possible, on a pullback towards the stop loss of RM0.11, which was also yesterday’s low.

The first target is the resistance level of RM0.17, which halted price several times in Aug 2011. A strong move could even see the test of RM0.22, the high of late-Aug. However, the upward bias is likely to be nullified on a close back below RM0.11, which is a signal of a false breakout.

A close below the Mar low of RM0.09 should confirm the weakness and may even spell the end of the stock’s 5-month rally.

* These recommendations are solely the opinion of the respective research firms and not endorsed by The Malaysian Insider. The Malaysian Insider shall not be liable for any loss arising from any investment based on any recommendation, forecast or other information contained here.


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