Analyst call April 16
UPDATED @ 10:24:40 AM 16-04-2012
KUALA LUMPUR, April 16 — This is a selection of morning calls by local research houses for the day.
From the Chartroom
Wriggling inside a trading range of 18 points during the week, the FBM KLCI ended at 1,603.12 last Friday for a tiny week-on-week gain of 4.2 points or 0.3 per cent.
Hovering quite close to its all-time high of 1,609.33 currently, its upside potential could be capped at the resistance thresholds of 1,610 (first) and 1,635 (second) respectively.
Conversely, when selling pressures resume, it is expected to force the benchmark index to slither towards the support zone of 1,555-1,580.
Renewed concerns about the fragile US economy caused major stock indices on Wall Street to tumble between 1.1 per cent and 1.4 per cent at the closing bell last Friday. Consequently, Asian equities are expected to give back much of their gains chalked up towards the end of last week.
Back home, the benchmark FBM KLCI — despite showing resilience last week — could be making its way towards its immediate support level of 1,580.
Against the jittery market backdrop, investors may want to seek shelter in defensive names such as: (a) Berjaya Sports Toto, after a business weekly reported that the gaming outfit is looking to acquire a stake in an existing number forecast operator in the Philippines; (b) P.I.E. Industrial, which has just declared a net DPS of 29.3 sen translating to a net yield of 5.9 per cent based on its last traded price of RM4.93; and (c) Tambun Indah, following its announcement to pay a net DPS of 3.8 sen implying a net yield of 6.0 per cent based on its current share price of RM0.635.
GENP is proposing to acquire a 63.2 per cent stake in a JV with Indonesia-based Sin Tek Huat Group for US$116m, which will give GENP access to 74k ha of plantation land in Central Kalimantan. This will effectively increase its land bank to 240k ha from 166k ha currently. The transaction is expected to conclude by Jun12.
We had highlighted previously that there could be potential acquisitions given GENP’s huge RM1bn cash pile as at end-Dec11. The proposed acquisition price tag translates to US$2,467/ha, which is far more expensive than the normal price range of US$400-600/ha for green field plantation land in Indonesia.
The premium is likely explained as 18k ha are planted areas (25 per cent of total area). We deduce that the planted area is still immature as it is not yet profitable. Nevertheless, we are positive on the longer term prospects for the massive land bank which is increasingly harder to source in Indonesia.
GENP currently has c.95k ha of planted areas. We estimate 35 per cent are young and immature trees planted in Indonesia which will be its earnings driver going forward. With the proposed acquisition, GENP will have c.60 per cent (145k ha) of its land bank as unplanted areas. However, we maintain our new planting forecast of 8k ha and 10k ha for FY12 and FY13F respectively, pending our inquiry on potential utilization of the area. We continue to like GENP for its aggressive expansion as well as potential upside from its Johor property land bank.
Next Generation Integrated Glove Manufacturing Complex (NGC) is an 8-year RM1.5bn project (excluding RM100m land cost) that will boost capacity by 24.5 billion pieces to 38 billion upon completion.
Located in Sepang, it will entrench Hartalega’s lead in nitrile gloves and is a long-term value proposition for investors. It is close to signing the S&P agreement for the land.
The project will be financed with internal funds and borrowings — the RM1.5bn capex (c.RM190m p.a.) should not strain its balance sheet. As of Dec-11, Hartalega was in RM136m net cash position, while net operating cash flow was RM159m.
Two lines at Factory 5 are running at 40,000 pieces per hour (vs industry average of 15,000-20,000 pieces), and this should be the benchmark for all its new lines.
Productivity will improve at its packaging and stripping sections with further automation, and staff required at each factory could be reduced by 15 per cent. The improving efficiency will reduce production costs and mitigate margin pressure.
We excluded the NGC from our forecast earnings because it is premature. However, we assume progressive contribution from Factory 6 over FY13-14F. The building is completed and new productions lines are being installed. Management expects two lines to start running by September.
We assume stronger earnings impact from FY14 onwards, led by higher volumes and better margins. Management will retain its 45 per cent dividend payout policy.
AMMB remains focused on growing loans in profitable and viable segments. We gather that the loan approval pipeline looks good thus far, thanks to the ETP. Nevertheless, management still expects the group to post sub-system loan growth, dragged by the retail segment.
AMMB has set a target to grow sustainable non-interest income to 40 per cent of total income over the next 3-5 years. We estimate 9MFY12 non-interest income/total income was 32.5 per cent, boosted by heavy trading and investment income in 1HFY12.
On a proforma basis, we estimate that the acquisition of KIMB would lift the ratio to 36 per cent, i.e. one of the highest among banks we cover.
As for CASA, AMMB’s CASA ratio had risen to 16 per cent as at end-Dec 2011 from 13.9 per cent at end-Mar 2011 thanks to the retail and corporate segments. We gather that this reflects initiatives put in place over the past few years such as increased cross-selling efforts as well as enhancing the distribution footprint (e.g. ATMs in 7-11 outlets) and cash management business.
Fair value of RM6.75 and Market Perform call maintained.
Tan Chong will likely report relatively weak 1Q earnings after MAA data for the first two months of 2012 showed combined Nissan and Renault sales down 16.7 per cent yoy, attributed to a combination of component supply constraints and the newly introduced responsible lending guidelines.
Nissan Vietnam (NVL) is likely to remain loss making in 2012 although Indo-China continues to hold long-term promise given their large populations and growing middle class.
TCM’s Danang assembly plant is now expected to commence production in Jan 2013 that will help to lower selling prices. Nissan’s B-segment competitor the Almera is scheduled for a Sep launch with initial CKD production already begun.
Further out, there are plans to reintroduce the Datsun brand into the local market with an A-segment model scheduled for 2014 that could be priced in the sub-RM60k bracket.
We reiterate our Market Perform call on Tan Chong and lift our fair value to RM4.60 (from RM4.20), derived from applying a 13x (from 10x) target PER to revised 2012 earnings.
Longer-term earnings growth would be driven by Hartalega’s NGC project, which would add an additional 24.5bn pieces to capacity upon completion in 2021.
Construction to commence in 2013 and total capex required for FY13-14 would amount to RM200-300m. Beyond that, Hartalega should have no problems funding the annual capex (excluding the land purchase) amounting to about RM170-200m p.a. internally.
FY12-14 net profit forecasts lowered by 6.1-18.4 per cent after adjusting for lower capacity utilisation rates, average installed capacity, ASPs and higher raw material cost and net interest expense.
CY12 target PER and fair value raised to 12x (from 10x) and RM7.37 (from RM7.12) respectively on expectations that the successful implementation of the NGC project would see the company shift towards a ‘high-volume’ nitrile glove manufacturer and thus provide it with larger economies of scale to compete with its larger peers.
Eversendai has been awarded by Saudi Binladin Group structural steel works worth RM158m for the railway station of the King Abdul-Aziz International Airport project in Jeddah, Saudi Arabia.
The latest contract has boosted Eversendai’s YTD new jobs secured to RM710m and its outstanding construction orderbook by 12 per cent from RM1.37bn to RM1.53bn.
Assuming an EBIT margin of 12-15 per cent, the contracts will fetch RM19.0-23.7m EBIT over the contract period ending 2013.
Forecasts are maintained as we have already assumed in our forecasts Eversendai to secure RM1.5bn worth of new jobs in FY12/12. Maintain Outperform. Fair value is RM2.15.
Genting Plantations’ subsidiary has entered into an S&P Agreement with Global Agrindo and Global Agripalm to establish a JV for the development of approximately 74,390 ha of oil palm plantation in Kalimantan Tengah, Indonesia for US$116m (RM356.3m).
Upon completion of acquisition and subscription, GP’s stake in the JV Co will be 63.2 per cent. 14,150ha of land has already been planted, while another 4,195ha has been planted under the plasma scheme.
If we take into account GP’s 63.2 per cent stake, the acquisition price is US$2,890/ha (or RM8,880/ha). We think this pricing is reasonable, given that 25 per cent of the landbank has already been planted.
Greenfield plantations in Indonesia have been transacted at US$500-1,000/ha, while brownfield plantations have been transacted at US$15,000-20,000/ha. This acquisition will increase GP’s total landbank by 45 per cent to 239,950 ha, while planted landbank will rise by an estimated 15 per cent.
No change to forecasts. We maintain our fair value of RM10.45, based on an unchanged 17x CY12 target PER. Maintain Outperform.
Berjaya Sports Toto
BToto is reportedly looking to expand its Philippines operations by potentially acquiring a stake in the Philippine Charity Sweepstakes Office (PCSO) in Luzon. Currently, BToto supplies and maintains a computerised online lottery system and provides software support to PCSO and in return, gets a cut from PCSO’s ticket sales.
Assuming this is true and pricing is reasonable, we would be positive on such a move. This is important, given that the Malaysian NFO market is mature, with growth reflecting GDP rate, or less.
In addition, the 4D jackpot game in Malaysia has resulted in a tougher competitive environment for BToto. However, we are wary of the risks of operating in a different country, as gaming is an industry sensitive to political changes, amongst other things.
Forecasts and DCF-based fair value of RM4.85 maintained. Given our more upbeat outlook on the economy, we believe BToto’s defensive qualities may not appeal to investors in the medium term.
We also believe earnings prospects from the 4D jackpot have already largely been reflected in its share price and consensus estimates. Maintain Market Perform.
The buying confirmation of a close above the psychological 1,600 level, required to confirm the formation of a bottom at 1,582 pts, still not forthcoming. The index’s higher close last Friday nonetheless shows that selling has not taken over.
This is in keeping with the uptrend since Sept 2011, as seen from the unbroken series of higher lows, with the latest at the March low of 1,561 pts. The index has also stayed well above the 50-day MAV line, while the 50-day and 200-day MAV lines are rising.
However, the negative bias from the “Shooting Star” and “Long Black” candles of 3 and 4 March are still weighing on the index, while the “Long Black” candle, formed last Friday, adds to the potency of the earlier candles. Thus, it is imperative that the index closes above 1,600 pts as soon as possible.
It will continue to inch up if this happens, with the next resistance lying at the all-time high of 1,606 pts, and thereafter, the round figure of 1,610 pts. Failure to close above 1,600 pts today is likely to see the downward movement continue.
Support lies at last Friday’s low of 1,594, which is also the afternoon low of 6 Apr. This is followed by the recent low of 1,582 pts, and the Fibonacci retracement levels of the March-April rally at 1,578 and 1,572 pts, while a close below the 12 March-low of 1,561 pts should confirm the downtrend.
The correction of the Feb-Apr rally may have started in earnest after the “Long Black” candle was formed last Friday, confirming the 4-day close of last Thursday. Similarly, a “Long Black” candle was also formed in the weekly chart, just short of a “Bearish Engulfing” candle.
As this formation has a negative bias, the price correction is expected to continue. However, there may be a letup in selling given the sharp fall in the past 2 days, especially so with the psychological RM3,500 support level lying just below.
Resistance is expected at the low of 6-10 Apr at RM3,562, and the commodity’s failure to close above the level today should keep the current downtrend intact. Again, support lies at RM3,500, with a close below it confirming the continuation of the downtrend.
Next support is at the low of the 2 April gap at RM3,450, followed by RM3,400, which is also the 38 per cent retracement of the Feb-Apr rally. A close above RM3,562 may turn the bias up, with the next resistance lying at the psychological RM3,600.
Scomi Marine Bhd
Whether Scomi Marine can violate the 50-week MAV line would determine if the stock extends the uptrend which started from the RM0.225 low. Last week, the stock made an obvious attempt to crack above the moving average line as it thrust at the resistance line on heavy volume. The 50-week MAV line is now situated at the RM0.39 level.
We advise traders to accumulate its shares at above this line and cut loss should the share price close back below the moving average line. We are eyeing the RM0.50 psychological mark as the upside target.
Scomi Marine has been on an uptrend after gaining support at the RM0.225 low for the third time in September last year. Nevertheless, this upside is being capped by the 50-week MAV line, which the stock would have to violate in order to extend its uptrend. It made a failed first breakout attempt in early March and a second attempt last week.
We will see if the 50-week MAV line can be violated in the latest attempt. The moving average line now lies at the RM0.39 level, and advise traders to buy Scomi Marine should this level be violated.
This is because a breakout from this line would simply mean that the stock would be extending its uptrend. The upside target is pegged at the RM0.50 psychological mark.
Traders want to cut loss should the share price close below the 50-week MAV line.
However, on a longer-term perspective, the stock is indeed still stuck within a wide mid-term sideways zone ranging from the RM0.225 to RM0.77 levels.
Hence, its mid-term technical outlook will remain firmly neutral until it cracks this wide consolidation phase.
Immediate resistance is seen at the RM0.39 level, followed by the RM0.445 and RM0.50 levels. Strong supports can be found at the RM0.325 and RM0.255 levels.
PCHEM may trade higher after the firm move last Friday. The stock has been consolidating for the past 2 months, possibly in a correction of the rally of Nov-Jan. The downtrend has eased considerably in the past three weeks as the stock traded sideways in a tight zone between RM6.67 and RM6.76.
The consolidation may have ended last Friday after the stock breached RM6.76 intraday. Thus, a new up-leg is anticipated and a purchase can be made on a close above RM6.76, with a stop loss on a close below RM6.67, while a more conservative trade may be at the March-low of RM6.55 as a stop loss instead.
A measured move based on the Nov-Jan rally could see the stock hit a new high of RM7.80, provided that the recent high of RM7.00 and the May/June 2011-high of RM7.50 are successfully violated. A strong rally may even see the stock climb to RM8.40, based on the rally of Sept-Jan.
A trade may not work out should the stock close below RM6.67, and weakness will be confirmed if it violaties RM6.55. If so, the correction may continue, with support expected at RM6.25, a 62 per cent retracement of the Nov-Jan rally.
AWC’s share price may rally further after closing at the highest in more than a year. The stock has been in consolidation mode for the past two years, possibly correcting the strong 2009 rally. It is likely that a significant support was constructed above RM0.20 in Sept 2011, where the weekly RSI was at the lowest since 2008.
This could be the base on which the stock regains its footing to resume its upward march. The new up-leg was likely to have been confirmed last Friday, when the stock closed at the highest in more than a year by rising above the psychological RM0.30. This was accompanied by the highest volume in more than 5 years, which suggests strong buying interest.
Thus, a purchase can be made above RM0.30, with a stop loss on a close below last week’s low of RM0.25. An aggressive trader may exit if the stock closes back below RM0.30. The first target is RM0.40 — the high of 2006 and 2007 — while a strong move will likely see the stock test the psychological RM0.50, also a measured move based on the 2009 rally.
A false breakout of RM0.30, followed by a close below RM0.25, should nullify the upward bias, which could result in the continuation of the sideways trend. Again, strong support lies at RM0.25, a violation of which will signal the end of the longer-term 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.