Analyst call April 9
UPDATED @ 10:55:17 AM 09-04-2012
KUALA LUMPUR, April 9 — This is a selection of morning calls by local research houses for the day.
As US and European bourses were closed for holidays last Friday, Asian investors would be looking for direction from the futures markets today. And the US DJIA futures — with its June month contract trading at a 210-point (or 1.6 per cent) discount to the spot rate at 8am — are suggesting that regional equities could see red when trading resumes this morning.
The negative external vibes (mainly caused by poor US job data) will likely cloud our local bourse performance too. Its benchmark FBM KLCI — after failing to overcome the 1,600 psychological mark on Friday — may slide towards the immediate support line of 1,580 ahead.
Given the weak underlying sentiment, investors are expected to find interest in dividend-yielding stocks such as Time Engineering (which has just announced a net DPS of 3 sen translating to a yield of 9.0 per cent) and Far East Holdings (after proposing a single-tier DPS of 25 sen or a yield of 3.4 per cent). Meanwhile, EITA Resources is slated to make its debut listing today.
Hartalega is embarking on a massive project. It is planning to build the “Next Generation Integrated Glove Manufacturing Complex” (NGC) which will house 70 new high tech production lines, costing RM1.5bn. The project will be spread over two phases and is scheduled to begin in 2013 and complete in 2021.
The NGC was accorded the EPP (Entry Point Project) status under the Malaysian Government’s Economic Transformation Programme due to its high economic impact. The NGC will be built on a new site of about 100 acres. The first phase will be between 2013 and 2017, where 40 production lines with total annual capacity of 14 billion gloves will be installed.
The second phase, from 2017 to 2021, will see the commissioning of 30 production lines with total annual capacity of 10.5 billion gloves. On completion, the total installed production capacity including the current factories in Bestari Jaya will be 38 billion pieces per annum.
The proposed NGC signifies Hartalega’s long term value proposition to investors and entrenches its position as the leading producer of nitrile gloves. The total RM1.5bn capex will be spent over the project period of 8 years and implies annual capex of RM190m which approximates the cost of building one factory with 10 production lines.
Currently, we estimate annual operating cashflow of between RM234m-RM265m in FY12-14 (before NGC), which should be able to fund bulk of the capex. As of Dec-11, Hartalega was in net cash position (of RM136m). No change to our forecasts at this juncture. Maintain Hold and RM7.70 TP.
Job posting volumes surged over 28 per cent y-o-y in 1Q12. Raised FY12/13F earnings by 2 per cent/4 per cent. LinkedIn not a threat for now. Maintain Hold, TP nudged up to RM2.50; possible M&A with JobsDB.
Oldtown experienced a major breakout last Friday. Prior to this, the stock had been consolidating at prices between RM1.20 and RM1.35 since the beginning of the year. Hence, the breakout basically signals the end of the consolidation phase. Nevertheless, because of the strong 9 per cent gains recorded, there is a possibility that the stock may consolidate these gains first before climbing higher again. We advise traders to accumulate shares between RM1.35 and the current level.
Considering the significance of the breakout, we expect the stock to achieve another upside of 15 per cent or so and therefore, we peg RM1.60 as the immediate upside target. Consider cutting losses if the price violates the RM1.35 support floor.
Sycal may trade higher if it can hold above the psychological level. The stock has been in consolidation phase for the past four months, which came after the rally of Sept-Dec 2011. The sideways correction carries a slight downside bias to it, with the stock making a lower high in February. However, the support level of RM0.18 is still holding strong, judging from the rebound last Friday.
It formed a “White” candle on improved volume that suggests a return of buying just above the support level. Thus, a continuation of the rally could be on the cards and positions can be initiated above the psychological RM0.20, with a stop loss on close below the 4-month low of RM0.18. A good rally has to see the RM0.23 resistance level violated and the first target is the 52-week high of RM0.25.
A strong move could even see the test of RM0.30, a measured move based on the Sept-Dec rally. The upside bias is nullified should the stop loss be triggered and this may even signal the end of the uptrend. Expect strong support at RM0.13.
Sin Heng Chan
SHC’s share price may climb after breaking above the short-term resistance level. The stock has been climbing steadily since the broad market rebound in Sept 2011. However, it finally took a breather and spent the most of March consolidating sideways.
After finding support at RM1.00, where it withstood multiple tests in the past two weeks, the stock is ready to continue its upward march again. This was signalled by the successful break of the round figure of RM1.20 last Friday, which came on the back of a “Long White” candle of last Thursday. The breakout appears to look solid too as it was accompanied by high volume, indicating firm buying interest. Purchases can be made above RM1.20 with a stop loss on close below RM1.00. Although the breakout does indeed look good, the possibility of a false break cannot be ruled out altogether. Thus, an aggressive trader may opt to exit should the price close back below RM1.20.
The price target is the psychological RM1.50 and a strong move may even see the test of the 2007-high of RM1.75. The trade may not work should the stock close below RM1.00 and strong support is expected at RM0.80, the low of the gap of 13 March.
We gather from management that competition in the small screen segment has been rational in Indonesia. This should bode well for XL as it prepares itself for the fast growing data business by increasing capex this year.
We understand from management that for the next 2-3 years there is no hurry to dispose of its stakes in M1 and Idea. Ideally, management would like to have a more meaningful stake in its associates but pricing so far has been an obstacle.
Maintain Outperform with a fair value of RM5.90/share based on target EV/EBITDA of 6.5x.
Fajarbaru expects a much better FY06/13 ahead (after a washout in FY06/12) as newly secured construction contracts are expected to finally get off the ground.
At present, Fajarbaru’s tenderbook stands at in excess of RM2bn comprising among others, we believe, LRT/MRT work packages and a toll road.
Fajarbaru is poised to reap its maiden property profits with the imminent launches of its maiden property projects in the Bandar Kinrara/Jalan Puchong and Sentul/Jalan Ipoh areas.
FY06/12 net profit forecast is cut by 63 per cent to reflect a washout during the financial year. FY06/13-14 net profit forecasts are reduced by 33 per cent each largely to reflect a lower blended construction EBIT margin of 8.5 per cent from 10 per cent previously.
Fair value is reduced from RM1.13 to RM1.04. Maintain Market Perform.
Hartalega announced an Entry Point Project (EPP) involving the setting up of a “Next Generation Integrated Glove Manufacturing Complex” on a new site. The EPP is estimated to cost RM1.5bn and would house 70 new high tech production lines upon its completion in 2021.
Upon completion of the EPP and the existing construction of Plant 6, Hartalega’s installed capacity would increase by almost 4x to 38bn pieces p.a., from 10bn pieces currently.
With the EPP, Hartalega’s expansion plans would see the group grow its capacity by about 20 per cent p.a., faster than the typical expansion rate of 10-15 per cent p.a. by peers.
We think the enlarged capacity would be positive for scale economies, especially given that the new factories would be clustered together in the 100-acre land.
Al-’Aqar Healthcare Reit
We are initiating coverage on KPH Healthcare and its associated REIT, Al-’Aqar Healthcare REIT, with fair values of RM6.15/share and RM1.39/unit, respectively.
For KPJ Healthcare, we see further upside to the share price in a likely sector-wide re-rating from the impending listing of regional healthcare provider Integrated Healthcare Holdings (IHH) which have acquired assets at 16x-26x PERs.
Fully-diluted PERs of 17x and 20x are at a 10 per cent-13 per cent discount to closest peer, Thailand-based Bumrungrad Hospital, and a wider 23 per cent-33 per cent discount to regional peers’ average.
We like KPJ’s defensive earnings profile. Also, a step-up increase in bed capacity via a pipeline of 7 new hospitals would accelerate earnings momentum to achieve our conservative 3-year CAGR of 17 per cent.
Asset injections of hospitals into 49 per cent-owned Al-’Aqar Healthcare REIT (AQAR Mk Equity, BUY) has enabled for better deployment of free cash flows to fund future expansion, whilst lending support to its dividend policy. We have assumed a dividend payout of 50 per cent p.a., in line with management guidance (yields: 3 per cent-4 per cent).
Al-’Aqar has expanded its portfolio from 6 hospital buildings to 24 properties within 5 years. It has made its foray into the Australian aged care and retirement industry by acquiring Jeta Gardens for RM131mil. The acquisition yield is circa 6.5 per cent (after tax), which is accretive to the overall DPU.
Rental income for Al-’Aqar is very resilient and stable, underpinned by a market review every 3 years with a guaranteed escalation of 2 per cent annually. This sponsor structure offers stability to the revenue growth trajectory and hence, the REIT’s attractiveness.
We believe that the value of Al-’Aqar and its sponsor, KPJ, may be boosted by the imminent listing of Khazanah Nasional Bhd’s Integrated Healthcare holdings, which may drive a sector-wide re-rating. As it is, KPJ is already trading at a steep discount to its regional peers.
* 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.