Analyst call Aug 17
KUALA LUMPUR, Aug 17 — This is a selection of morning calls by local research houses for the day.
HwangDBS Vickers
Today's Market Preview
There is a chance for our Malaysian bourse to finish on a high note before we enter the extended Hari Raya weekend break. Its benchmark FBM KLCI may pull away from the immediate support mark of 1,650 today.
Essentially, investors could be in a buying mood following the overnight rise on Wall Street. Major US equity indices were up between 0.6 per cent and 1.0 per cent at the closing bell amid hopes that the world’s largest economy remains on the recovery track.
On the local corporate scene, a deluge of financial announcements came out yesterday. There were pleasant surprises from the likes of MISC and Maybank but Bumi Armada and MRCB posted disappointing earnings.
Separately, Affin Holdings shares may see action after getting approval to commence negotiations for the a possible acquisition of equity stakes in Bank Muamalat from DRB-Hicom.
Sarawak Plantation could be in the limelight too on the back of media speculations that Felda Global Ventures is eyeing to buy a meaningful stake in the company.
Multi-Purpose Holdings
We recommend subscribing for the 1-for-2 offer for sale of MPHB Capital at RM1. This will house MPHB’s non-gaming businesses under the demerger exercise to turn into a purer gaming play.
We value MPHB Capital at RM2.16, assuming 50 per cent discount to property market values (in line with mid-cap developers) and 2x P/BV for its insurance business (based on recent transaction).
Hence, the renounceable rights for MPHB Capital could be worth 58sen. MPHB Capital owns prime landbank along Jalan Imbi (6 acres near KLIFD), Pengerang (4641 acres adjacent to PETRONAS’ RM60b RAPID project) and Penang Island (289 acres).
Given resilient earnings and minimal capex for gaming, MPHB intends to raise dividend payout to >80 per cent from 57 per cent currently (vs BST’s 75 per cent policy). This works out to 19sen net DPS for 2013F or 5.7 per cent yield (vs BST’s 5.4 per cent).
The separate disposal of its stockbroking unit worth c.RM444m (assume 1.3x P/BV based on recent transaction) plus RM190m cash proceeds from the demerger exercise, potential disposal of investments worth RM700m, and strong gaming operating cashflows of RM400m p.a., could see MPHB turn net cash soon.
Ex-non gaming, MPHB’s NFO segment is trading at just 8.5x 2013F PE vs BST’s 13.7x. MPHB may even command a premium post-transfer of BST’s gaming operations into a Singapore business trust, because it would the only listed direct NFO play left in Malaysia.
We raised our SOP-based TP (cum basis) to RM4.80 from RM4.20, pegging MPHB’s gaming business to BST’s 13.7x 2013F P/E (previously based on DCF) and imputing MPHB Capital’s fair value.
In view of rising land prices, we lifted land price assumptions for Pengerang (RM5psf from RM2psf) and Penang Island (RM20-30psf from RM10-20psf). Our projections have not factored in impact from the demerger exercise (completing by 1H 2013).
From RHB Research
Maybank
Maybank’s 2Q12 results were ahead of our and consensus expectations underpinned by better-than-expected cost discipline (annualised overheads were 4.5 per cent below our projection) and lower-than-expected credit cost of 31bps (annualised), as compared to our original assumption of 40bps.
Positives were: 1) operating income rose 9.8 per cent yoy and 3.4 per cent qoq; 2) loan growth picked up pace; 3) sustained non-interest income level; 4) CIR declined to 47.3 per cent from 51.5 per cent in 2QCY11; 5) annualised credit cost of 31bps, i.e. lower than the guided 35-40bps; and 6) asset quality improved further.
Main negative was the slight NIM compression (-5bps yoy) although qoq, NIM was stable.
Annualised gross loan growth of 14.6 per cent was above our 12.5 per cent assumption with domestic loan growth outpacing industry thanks to corporate and consumer lending. Annualised deposit growth was 17 per cent and with that, group LDR declined by 30bps qoq to 86.9 per cent.
Gross impaired loan ratio improved to 2 per cent from 2.45 per cent as at end-Mar ’12 while LLC rose to 104.2 per cent (end-1Q12: 94.5 per cent). CET1 stood at 9.1 per cent (assumes DRP reinvestment rate of 88.5 per cent).
Maybank declared an interim gross DPS of 32 sen (2QCY11: 32 sen, gross). The electable portion that can be reinvested in new Maybank shares is 28 sen.
FY12-14 net profit forecasts raised by 3-4 per cent but the impact to EPS is more muted (0.4-2 per cent) after adjusting for new shares from the DRP. Fair value upped slightly to RM10.60 from RM10.55 (14x CY13 EPS). Maintain Outperform.
Sector Update
Auto — Neutral
Malaysian Automotive Association (MAA) reported total industry volumes (TIV) data for Jul that was incomplete as Proton did not submit their Jul sales figures.
Excluding Proton, Jul TIV amounted to 46,637 units. Assuming that Proton sales in Jul were similar to that achieved in Jun, then the proforma Jul TIV would have scaled a new monthly record of 60,132 units, up 6.2 per cent mom and 19.7 per cent yoy.
The positive start to 2H12 is within our expectations, helped by the normalisation of component supplies, attractive new model launches, the market’s adaptation to the revised lending guidelines and positive consumer sentiment.
Perodua also had a solid month, with Jul sales reaching 17,009 units (+3.5 per cent mom, +3.9 per cent yoy). We believe forecast Perodua sales of 188,000 units for 2012 is achievable.
Sales going forward will be lifted by the normalisation of component supplies and continued new model launches. The new Honda Civic introduced last month has reportedly received bookings of over 3,000 units. Although some seasonal weakness is expected in Aug, our 2012 TIV forecast of 612,000 units remains intact.
Maintain Neutral call. Our top picks are DRB-HICOM and UMW.
UMW Holdings
UMW reported 2Q12 net profit of RM224.2m that was up 1.9 per cent qoq and 117.8 per cent yoy. Cumulative net profit for 1H12 of RM444.3m reached 48.7 per cent of our previous 2012 profit estimate.
We consider the results to be slightly below our expectations but marginally ahead (50.9 per cent) of consensus.
The variance was attributed to lower contributions from the oil & gas division offset by lower effective tax rates for the period. UMW declared an interim single-tier dividend of 10 sen (1H11: 10 sen).
The automotive division leads the way. UMW’s automotive division was the star performer during the period, with quarterly revenue of RM3.04bn (+21.6 per cent qoq, +36.0 per cent yoy) and 1H12 revenue of RM5.5b (+18.6 per cent yoy) achieved on the back of Toyota/Lexus volume growth for 1H12 of 24.2 per cent to 52,331 units.
2Q12 sales volume was up 28.6 per cent and 41.5 per cent qoq and yoy, respectively as a result of the quick recovery in component supplies from Thailand, the market’s pent-up demand and steady pace of new model launches. Associate contributions mainly from 38 per cent-owned Perodua for the quarter of RM33.1m was down 9.0 per cent qoq due to lower invoiced sales and unfavourable yen exchange rates.
Automotive pre-tax margins in 1H12 improved to 15.6 per cent (1H11: 13.6 per cent) from the higher operating leverage and superior sales mix.
The equipment division performed well, with sales up 29.1 per cent yoy and pretax profit up 53.1 per cent yoy to RM110.8m, helped by some spillover of deliveries from end-2011 and continued strong demand from the construction, mining and plantation industries.
The manufacturing & engineering division recorded a 2.6 per cent yoy revenue growth from higher lubricant sales, higher capacity utilisation at plants in India and China.
However pretax profit halved yoy to RM4.2m due to exchange losses from the weaker INR and the higher cost of base oil.
The oil & gas division’s revenue for the quarter was down 13.7 per cent qoq due to the dry-docking of its NAGA-1 rig for deepdish installation, offset by contributions from HAKURYU-5 semi-submersible rig, higher NAGA-3 day rate and contribution from the Garraf Power Plant. Pretax profit fell 94.6 per cent qoq to just RM1.6m, also as a result of significant exchange losses from a jointly controlled entitiy in India from a weak INR.
Our forecasts are broadly unchanged after trimming our margin assumptions from O&G offset by lifting our Toyota sales volume assumptions.
We are now forecasting 2012 Toyota sales of 105,000 (from 102,000) units.
Risks. 1) Weaker economy and tighter financing conditions crimping car sales;
2) Unfavourable forex trends; and 3) Increased competition.
We reiterate our Outperform call on the stock and raise our fair value to RM10.90 (from RM10.50) derived from a sum-of-parts estimate for its auto, oil & gas and other divisions, after ascribing PERs of 12.5x, 13x and 11x (from 12x, 13, and 10x) respectively.
Our fair value implies a 2012 PER of 12.4x that is close to the five-year forward average PER of 12.1x. UMW remains our top large cap, Syariah-compliant stock in the sector.
Affin
Affin announced yesterday that it had received approval from BNM to commence negotiations with DRB-Hicom and Khazanah for the possible acquisition of Bank Muamalat Malaysia Bhd (BMMB).
The acquisition will not change Affin’s ranking by loan and total asset size. Judging from the loan book, BMMB appears to be a complementary fit for Affin given its focus on household lending. However, there does not appear to be much benefit from the funding aspect.
Ascribing an acquisition P/BV multiple of 1.2x suggests an acquisition cost of RM1.7bn. Assuming the cost is funded via debt (6 per cent interest rate); BMMB sustains an annual net profit of RM85m and excluding merger synergies, we estimate that Affin’s FY13-14 net profit could be enhanced by 1-2 per cent but the deal would be ROE neutral and Tier-1 ratio could fall to 7.8 per cent from 10.9 per cent currently.
Assuming a 50:50 debt:equity mix with new rights shares issued at a 25 per cent discount to the theoretical ex-rights price, we estimate the acquisition would be EPS and ROE dilutive by 12-13 per cent and 50-60bps respectively, while Tier-1 ratio would fall by 120bps to 9.7 per cent..
Earnings forecasts maintained. Fair value of RM3.40 (9x CY13 EPS) and Market Perform call are unchanged.
WCT
WCT has secured Package 2 of Batinah Expressway (45km dual 4-lane) in Oman worth Omani Riyals 123.2m (RM1bn).
This is the fifth key contract WCT has secured so far in FY12/12, boosting its YTD new contracts secured to RM2.1bn and outstanding construction orderbook by a whopping 30 per cent to RM4.3bn.
While WCT has been guiding at least an 8 per cent margin for overseas jobs, we, to be prudent, are more inclined to impute a lower margin of 5 per cent at the EBIT level from this job that means the contract will fetch RM50.2m EBIT over the 36-month construction period.
We are raising FY12/13-14 net profit forecasts by 8 per cent each, having now assumed WCT to secure RM2.5bn worth of new contracts in FY12/12, vis-à-vis RM1.5bn previously.
Fair value is raised to RM2.21 from RM2.08. Maintain Underperform.
MISC
1HFY12/12 results came in within expectations. MISC was back in the black with a core net profit of RM88.1m in 1HFY12/12 as it swung into a core net profit of RM436.8m in 2Q vis-à-vis a core net loss of RM348.7m in 1Q.
MISC is cautious over petroleum and chemical tanker freight rates. For the petroleum tanker segment, apart from the persistent overcapacity issue, MISC also needs to deal with the changing profile or pattern of the trade, i.e. the preference for larger vessels over the smaller ones.
Meanwhile, the chemical tanker freight rates are unlikely to recover in a major way over the short term on the back of the slowdown in manufacturing activities worldwide, particularly, China.
In 2HFY12/12, MISC expects additional earnings kickers to come from: (1) Two new floating storage units; (2) Two new shutter tankers; (3) Three new Suezmax tankers; and (4) Two madular capture vessels.
Fair value is RM6.47. Maintain Trading Buy.
KNM
1HFY12 pre-tax profit of RM37.7m was up significantly yoy and accounted for 77 per cent of our full-year forecast. The better-than-expected results came on the back of better-than-expected EBITDA margins of 9.4 per cent.
The key driver for the margin improvement was KNM’s Europe division, which reported gross and EBITDA margins of 19.5 per cent and 14.1 per cent, an improvement of 1 per cent-pt and 2.9 per cent-pts respectively.
During the briefing, management shed light on its Peterborough Waste to Energy (WtE) project. We understand that the Peterborough project would be split into two phases.
Phase 1 would have a contract value of GBP233m (RM1.17bn) for a 35MW plant while phase 2 would have a contract value of GBP251m (RM1.26bn) for a 55MW plant.
Regarding the rights issue, we understand that it is currently now pending an EGM to obtain shareholders approval. The corporate exercise is expected to be completed by 4QFY12. We estimate that the FY13 earnings would be diluted by approximately 24.7 per cent.
Post earnings revision, our fair value is increased to RM0.74 (from RM0.73). We reiterate our Market Perform call on the stock.
KPJ Healthcare
KPJ’s 2QFY12 core net profit of RM34.8m (+15.4 per cent yoy; +4.4 per cent qoq) came in within our and consensus expectations with 1HFY12 core net profit of RM68.1m (+18.1 per cent yoy) accounting for 43-44 per cent of our
and consensus estimates respectively.
Qoq, net profit grew by 4.4 per cent (+15.4 per cent yoy) on the back of a 0.7 per cent increase in revenue (+12.4 per cent yoy), which we believe was due to the increase in number of in-patients and out-patients throughout KPJ’s hospitals across Malaysia.
Despite the marginal topline growth, core EBIT margin expanded by 0.9 per cent-pt qoq thanks to lower administrative (-2.0 per cent qoq) and other operating expenses (-0.5 per cent qoq).
Coupled with a higher associate contribution (+16.2 per cent qoq), offset against higher interest expense (+55.5 per cent qoq) and effective tax rate, 2Q12 core net profit increased 4.4 per cent qoq. Going forward, we expect stronger earnings contribution from the opening of first phase of the 200-bed Bandar Baru Klang Specialist (comprising 94 beds) in May 2012.
KPJ declared a second Var to Cons (per cent) (2.3) interim single tier DPS of 2.5 sen (2Q11:2.4 sen), which translates to a net PE Band Chart yield of 0.4 per cent.
This brings total YTD net dividend to 5 sen, in line with our projected full-year net DPS of 13.5 sen, which implies a net payout ratio of 55 per cent (FY11: 55 per cent) and net yield of 2.2 per cent respectively.
PER = 25x
No change to our FY12-14 earnings forecasts.
The risks to KPJ’s earnings include lower-than-expected patient numbers, which could be due to slower-than-expected economic recovery and serious disease outbreaks (such as SARS or swine flu) in Malaysia as well as slower-than-expected turnaround in loss-making hospitals.
No change to our fair value of RM6.86, which is based on an unchanged CY13 PER of 23.5x. We continue to like KPJ for its proven track record of executing a sustainable aggressive expansion plan of two new hospitals p.a., which have thus far helped it maintain its dominance in Malaysia’s growing healthcare market.
We thus reiterate our Outperform call on the stock.
CB Industrial Product
CBIP’s 1HFY12 core net profit was in line with both our and consensus estimates, comprising 57-60 per cent of FY12 forecasts. We consider this to be in line, as the disposal of its plantation subsidiaries was completed in May and earnings from this division was still included in CBIP’s profits in 1Q12.
CBIP recorded an EI gain of RM139.6m in 2QFY12, coming from the sale of its plantation subsidiaries.
CBIP declared an interim tax-exempt dividend of 10 sen per share, in line with our projections of 15 sen for FY12.
Core net profit rose 5.6 per cent yoy, on the back of an increase in revenue of 47.4 per cent yoy in 1HFY12.
The yoy increase in revenue came from a 22 per cent increase in oil mill engineering division (due to higher project billing) and a >100 per cent increase in the vehicle retrofitting division (due to improvement in project completion during the period), offset by a 66 per cent yoy decline in the plantation division. The relatively smaller rise in core net profit came from lower margins in the plantation division of 40.6 per cent (from 44.6 per cent in 1HFY11), offset by higher margins recorded in oil mill engineering division of 24.4 per cent (from 13.7 per cent in 1H11).
Main risks include: (1) a significant decline in oil mill engineering contracts due to slower-than-expected economic recovery and plantation investment in Indonesia as well as Malaysia; (2) a stronger-than-expected rise in steel prices and weakening of the US$, resulting in weaker-than-expected margins for the oil mill engineering division; (3) a fall in CPO and other global vegetable oil prices caused by weather abnormalities; and (4) a reversal in crude oil prices and thus CPO prices.
No change to our forecasts. We expect the next few quarters to show weaker profits due to the completion of the sale of the plantation subsidiaries in May.
After updating for CBIP’s latest net cash balance, our fair value has been reduced to RM3.15 (from RM3.30), based on unchanged PE targets of 9x for the oil mill engineering division and 7x for the plantation division.
We maintain our Outperform recommendation on the stock.
Notion Vtec
Notion’s 3QFY09/12 core net profit of RM19.4m brought 9MFY09/12 core net profit to RM29.5m (+6.5 per cent yoy). This accounted for 61.7 per cent and 59.8 per cent of our and consensus full-year estimates.
Although we had anticipated Notion to report stronger revenue 4QFY09/12 to achieve our full-year forecast, we believe this is unlikely to happen now.
3Q12 revenue grew 13.4 per cent qoq (+57.4 per cent yoy) mainly driven by the camera (+29.3 per cent qoq) and automotive segment (+11.1 per cent qoq) but was offset by decline from the HDD business (-1.6 per cent qoq).
EBITDA margins increased by 5.2 per cent-pts qoq to 35.1 per cent on account of higher contribution from the high margin camera and automotive segments. Partially offset by higher effective tax rate of 17.4 per cent (2Q12: 5.9 per cent), net profit grew 31 per cent qoq.
Going forward, the company’s prospects in the HDD segment has dimmed with the loss of two Japanese customers i.e. Nidec and NHK Spring for the production of base plates and top covers.
We understand that shipments to these customers had merely been temporary due to the capacity shortage caused by the Thai floods. This suggests that Notion was too optimistic and was unsuccessful in securing these customers on a longer-term basis.
This is compounded by the cautious outlook by HDD vendors i.e. Seagate and Western Digital for the coming quarters due to weaker-than-expected shipments amidst the uneven global economic recovery.
On the other hand, Nikon (the largest customer for the camera segment) reiterates its strong camera shipments growth forecast mainly driven by demand for its new camera product i.e. mirrorless cameras.
Already, Jun 12 shipments of interchangeable lens cameras grew 27 per cent yoy, according to Camera and Imaging Products Association (CIPA).
Risks to our view. 1) Rise in prices of raw materials; and 2) Fluctuations in RM/US$ exchange rate; and 3) Sharper-than-expected decline in HDD ASPs.
We have lowered our FY12-14 net profit forecasts by 11.5 per cent, 8.8 per cent and 9.3 per cent respectively after imputing lower contribution from the HDD segment.
Post earnings adjustment above, our fair value is lowered to RM1.38/share (from RM1.51) based on unchanged 9x CY13 FD EPS. Although we lower our fair value and earnings, we remain positive on its prospects underpinned by stronger-than-expected demand for the SLR cameras and resilient automotive business.
Furthermore, we believe valuation remains compelling, trading at 7.4x CY13, which is below its 5-year forward mean of 9x. Thus, we reiterate our Outperform call on the stock.
Star Publications
Star’s 2QFY12 net profit of RM44.2m (+36.3 per cent qoq, -19.9 per cent yoy) was below our and consensus expectations, with 1HFY12 net profit of RM76.7m (-19.7 per cent yoy) accounting for only 40 per cent and 41 per cent of our and consensus full-year estimates respectively.
The key variance was lower-than-expected 2Q PBT margin in print despite a 2.0 per cent yoy increase in revenue.
Qoq, revenue rose by 30.2 per cent due to higher advertising revenue (+10.3 per cent) and better numbers from Cityneon (+17.9 per cent). This roughly mirrors the trend seen by Nielsen, which reported a 9.2 per cent qoq increase in Star’s 2Q gross adex.
However, profitability returned to Cityneon (RM8m) and radio (RM0.3m) after both segments posted losses in 1Q. But Li TV posted a larger loss of RM2.3m (1Q: -RM0.4m).
Overall PBT rose by 30.7 per cent to RM58.5m mainly due to improvement in Cityneon thanks to recognition of thematic and interior design projects.
Coupled with a lower effective tax rate of 22 per cent (1Q: 34.1 per cent), 1Q net profit jumped 36.3 per cent qoq.
As expected, Star declared an interim single-tier DPS of 6 sen and special tax exempt DPS of 3 sen both payable on 18 Oct. Together, the dividends translate to a net yield of 2.8 per cent. We maintain our FY12 net DPS forecast of 18 sen for now, which implies a payout ratio of 78 per cent.
The risks include: 1) stronger-than-expected adex; 2) lower-than-expected newsprint costs; and 3) an appreciating RM vs. the US$.
Due to the weaker-than-expected 2Q results, we cut our FY12 earnings forecast by 10 per cent, and trim FY13-14 estimates by 2-5 per cent.
With challenges in growing its topline and bottomline, we maintain our Market Perform call on the stock. However, the stock still holds some appeal for its stable dividends which offer a relatively attractive net yield of 5.7 per cent.
Fair value of RM3.25 is unchanged based on 5.5 per cent required net dividend yield on FY13 DPS of 18 sen.
From OSK Research
WCT
We attended WCT’s analysts briefing yesterday following its 2QFY12 results release. All in, we came away feeling largely positive as management highlighted the possibility of securing more jobs for its construction division going forward.
Its property segment, meanwhile, remains sturdy, having registered RM376m of sales as of 2QFY12, while the proposed integrated complex at KLIA2 will be completed by year-end, with commercial operations likely to start by 2QFY13. Hence, we maintain our BUY call at a revised FV of RM3.36, based on an unchanged 12x FY13 PE.
Maybank
The group reported a 21.2 per cent y-o-y and 6.7 per cent q-o-q growth in net profit, propelled by strong loans growth, NIMs expansion, trading gains and improved operation efficiency.
Upon revising upwards our FY12 and FY13 loans growth forecasts, we are nudging up our FY12 and FY13 earnings forecasts by 4.6 per cent and 5.2 per cent.
Accordingly, we are tweaking upward our ROE estimates marginally by 60bps and 80bps respectively to 15.8 per cent and 15.5 per cent. This lifts our FV from RM9.85 to RM10.30 (2.12x FY12 PBV, with an implied PE of 14.9x). Maintain BUY.
Pos Malaysia
Pos Malaysia’s (POSM) 1QFY13 revenue and core earnings of RM311m and RM37m were within both our and consensus estimates, representing 23 per cent and 25 per cent of both our full year numbers.
The robust y-o-y core earnings growth of 51 per cent was mainly driven by the courier division, which saw revenue and operating profit surge 35 per cent and 43 per cent y-o-y respectively, boosted by robust demand for parcel deliveries and better route optimization.
As the earnings were largely in line, we are keeping our earnings projections, BUY call and RM4.14 FV, based on our SOP valuation, which incorporates the value of five land plots POSM owns, and a 11x FY13 PE. POSM is currently trading at an undemanding 9x PE on our FY12-13 earnings forecasts versus its regional postal peers’ average PE of 14x-16x.
Maintain BUY, with a DPS forecast of 20 sen per share, based on a 50 per cent dividend payout ratio. This translates into a lucrative yield of 7 per cent.
Star Publications
Star Publications’ 1HFY12 core earnings of RM77m were slightly below both our and consensus estimates, representing 41 per cent of both sets of numbers.
As the group’s recent acquisition of home and lifestyle events organiser, CNM Events Marketing SB, comes with a profit guarantee of RM10m p.a. over the next three years, we are upgrading our earnings forecast by 4 per cent for both FY12-13.
While the 1HFY12 earnings fell 20 per cent y-o-y, Star is keeping to tradition by declaring a generous 6 sen single-tier interim dividend and a 3 sen special tax-exempt dividend.
This is expected, since the company held net cash per share of RM0.32 as at 30 June 2012.
Thus we maintain our DPS forecast of 20 sen based on a 75 per cent payout ratio, for a yield of 6.3 per cent. Maintain NEUTRAL due to the limited upside to our unchanged RM3.46 FV, pegged to a 13x FY12 PER.
Notion
Under review. Corporate news flash: Below expectations.
* 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.
