Business

Analyst call Feb 21

KUALA LUMPUR, Feb 21 — This is a selection of morning calls by local research houses for the day.

From Hwang-DBS-Vickers

Market Preview

Major stock bellwethers on Wall Street fell between 0.8 per cent and 1.5 per cent last night as investors were spooked by minutes of the US Federal Reserve meeting that revealed some policymakers wanted an early end to the quantitative easing programme.

This could put added downward pressures on Malaysian equities today. The benchmark FBM KLCI — down 17.6 points or 1.1 per cent over the past four days — may slip further towards the psychological mark of 1,600.

In terms of corporate developments, Dialog is tipped to secure a RM1billion drilling contract for a marginal oilfield in Sarawak from Petronas (according to a local business daily) and AirAsia has applied for regulatory approval to invest 49 per cent into a proposed Indian joint-venture airline company.

Maybank is scheduled to announce its latest quarterly earnings report card during lunch hours today.

RHB Research reported that real GDP in Malaysia rebounded to record a stronger growth of 6.4 per cent yoy in the 4Q, after moderating to +5.3 per cent in the 3Q.

The headline inflation rate inched up to 1.3 per cent yoy in January, after moderating to 1.2 per cent in December and at the same rate of increase as in September-November.

The current account surplus in the balance of payments rebounded sharply to increase by 139.9 per cent to RM22.8bn in the 4Q, after recording a lower surplus of RM9.5bn in the 3Q and compared with RM9.6bn in the 2Q.

Gamuda

The Selangor state government (SSG) has made a fresh offer of RM9.65bn to take over all four water concession companies — Syabas, Puncak Niaga, Konsortium Abbas and Splash.

All liabilities of the companies will also be absorbed by state investment arm Kumpulan Darul Ehsan Berhad (KDEB), which will act as the equity owner. KDEB will also form a special purpose vehicle to manage the takeover.

AirAsia

AirAsia, via its investment arm AirAsia Investment, has submitted an application to the Indian Foreign Investment Promotion Board (FIPB) to seek approval to invest 49 per cent into a proposed Indian joint venture together with Tata Sons and Mr. Arun Bhatia of Telestra Tradeplace.

Subject to FIPB approval, the proposed joint-venture company will make an application to Indian aviation regulators for the Air Operators Permit.

The joint-venture company plans to operate from Chennai, Tamil Nadu, and focus on providing domestic Tier 2/Tier 3 city connectivity to Indian travellers.

Dialog Group

According to The Edge Financial Daily, Dialog is tipped to bag a RM1bn drilling contract for the Bayan marginal oilfield from Petronas Carigali. To recap, its 50:50 JV with Halliburton secured the US$1.2bn oilfield services contract for Bayan field redevelopment over 24 years in Nov 12.

UMW Holdings

According to StarBiz, UMW is finalising its RM2bn sukuk facility to acquire more assets for its O&G division. These assets would complement the listing of the division, which is also speculated to take place this year.

Malaysia Airports

MAHB registered RM78m profit in 4Q12, in line with our forecast but only 91 per cent of consensus estimate. Earnings were dragged by RM69m impairment charge for the termination of the Maldives concession. Maintain HOLD rating and RM6.05 TP.

Lafarge Malayan Cement

4Q12 earnings below our expectations but within consensus’; higher operating costs, greater tax and depressed net cement prices dragged earnings. 13sen DPS declared; 37sen FY12 DPS represents 90 per cent payout. Infrastructure-driven cement demand likely to be dampened by volatile rebates. Maintain HOLD with RM8.65 TP (17x FY13F EPS).

KL Kepong

1QFY13 result beat our estimate but is below consensus’. Strong result driven by oleochemicals and property. Maintain FULLY VALUED; lifted TP to RM18.85 after nudging up earnings.

RHB Research

Tan Chong Motors

We expect Tan Chong (TCM) to report a better 4Q12, boosted by the strong sales of the Nissan Almera. Our 2012 earnings estimates imply 4Q12 revenue and net profit of RM1.04bn (+19.3 per cent yoy and +11.2 per cent qoq) and RM43.2m (+39.3 per cent yoy and +32.2 per cent qoq), that sets the stage for a much improved 2013.

Booking of the Almera are continuing to build at about 3,000 units per month. We expect sales of the Almera to remain robust in 1H13 ahead of Toyota’s anticipated launch of the new Vios in 2H13.

Contract assembly will become an increasingly important element of the group’s strategy as it tries to leverage on the broader Tan Chong Group’s expertise in vehicle distribution (including non-Nissan brands like Subaru and Beiqi Foton) and automotive parts sourcing.

Our 2012 estimates have been slashed by 19.1 per cent while our 2013-14 forecasts are broadly unchanged.

We upgrade our call on the stock to Buy (from Neutral) and lift our fair value to RM5.70 (from RM5.45) after ascribing a 10.5x (from 10x) target PER to 2013 earnings.

AFG

AFG remained positive the SME segment is poised to record above-industry, double digit growth as credit demand is still healthy. AFG also likes the segment for its contribution to sustainable fee income and as a source of stable, low cost funding.

AFG highlighted its progress in growing sustainable fee income, which is up 8 per cent yoy for the 9M. We think growing non-interest income will gain more importance next FY given NIM pressure and normalising credit cost.

AFG expects NIMs to remain under pressure ahead and guided for NIM squeeze of 10bps for FY13.

While asset quality remains intact, credit cost is expected to normalise next FY as the strong recoveries in FY13 is unlikely to be repeated. Guidance is for 20bps credit cost.
No change to our earnings forecasts.

Fair value of RM4.35 (10 per cent premium to 11x CY13 EPS) and Neutral call maintained.
 
Tenaga Nasional

Bloomberg reported that 1Malaysia Development Bhd (1MDB) plans to buy the 1,400MW coal-fired Jimah power plant for RM1.7bn, quoting comments from unnamed sources.

It is currently 80 per cent-owned by the Negeri Sembilan royal family with the remaining 20 per cent held by Tenaga Nasional (TNB). We are not entirely surprised by the news as Jimah was rumoured to be up for sale.

Looking at Jimah Energy Ventures’, being the owner of the plant, the company reported net losses of RM105.1m in FY12/11 while its shareholder’s equity stood at negative RM394.5m.

Should the acquisition offer materialize, this could translate into gain on disposal of over RM300m for TNB.

1MDB together with its partner Mitsui & Co Ltd has also been shortlisted for the Project 3A to build a 1,000MW coal-fired power plant in existing Jimah site.

As 1MDB has made known its intention to go for public listing, we believe the potential acquisition of Jimah site would help to expand its generation capacity from 2,256MW to 3,656MW potentially. Maintain BUY with our FV unchanged at RM8.41.
 
Puncak Niaga

Selangor state government via the state investment arm Kumpulan Darul Ehsan Berhad (KDEB) made a fresh offer of RM9.65bn to take over all four water concession companies.

Puncak Niaga acknowledged received of two offer letters via fax but make no mentioned to the details of the offers.

Our back-of-envelope calculation suggests offer to Puncak Niaga SB and Syabas may total to RM5.58bn, but we are unable to access the actual valuation of this offers given the limited information.

We also rule out the possibility of any deal can be concluded over for the time being since the polls are just around the corner.  

Nonetheless, we keep our Trading BUY call on the stock given its undemanding valuation, rising contribution from its O&G division plus news on asset offer always a sentiment booster. Our FV stands at RM2.08.

Malaysia Airports

MAHB’s FY12 core earnings of RM474m (y-o-y: +9 per cent) came in line at 3.5 per cent above our forecast but 6 per cent above consensus on the back of a revenue of RM2.16bn (y-o-y: +12 per cent). The improved earnings were attributed to higher passenger spending and lower airline incentives.

Per pax spending continues to grow on optimized retail space which is very encouraging as this gives hope that KLIA2 could very well succeed in luring passengers to spend more.

Currently at 80 per cent to full completion the KLIA2 and its runaway is on track to commence operations by end June. Management expects to start operational readiness by end of April. There will be no cost overruns.

Following the entry of MAS into oneworld, Management is hopeful that British Airways and Qantas could use the KLIA as its hub, connecting passengers from Europe and Australia.

No change in earnings though we highlight the sharp drop in FY13 bottomline due to high user fee and depreciation costs. We introduce FY14 numbers of which we expect earnings could grow by 10 per cent y-o-y.  

Fair value is RM7.23.  Maintain BUY.

Media Prima

FY12 earnings of RM209.3m beat our estimates and MPR has finally recover its accumulated losses to record retained earnings of RM9.7m in FY12 this year.  

We think that the operating environment for media companies is still remained challenging and we expect to see pick-up of adex probably only in 2HFY13.

We adjust our earnings forecast for FY13/FY14 upward by 14.0 per cent/26.2 per cent respectively.

Fair value RM2.20. Maintain Neutral.

Amway (M)

FY12 results improved 10.8 per cent yoy to RM99.7m, in line with our and consensus expectations, accounting for 101 per cent and 102 per cent of our and consensus full-year estimates respectively.

It declared a special dividend of 22.5 sen and fourth interim dividend of 10 sen, making a total of 62.5 sen for FY12 or dividend yield of 5.7 per cent.

Maintain Neutral. Fair value RM11.77.

Freight Management

1HFY13 net profit of RM9.8m (+5.3 per cent y-o-y) shown an encouraging improvement compared to its sluggish 1QFY13 performance. The growth was mainly led by Land Freight, 3PL & Warehousing and Tug & Barge divisions.

The operating environment remained challenging for Sea Freight as we notice the volume and profit has been declining. We trimmed the earnings forecast for FY13/FY14 by 13.8 per cent/1.0 per cent.

Maintain BUY. Fair value RM1.13

Prestariang

Prestariang registered 4QFY12 core earnings of RM10.4m and a proposed a final DPS of 3.0 sen. FY12 net profit of RM37.3m was within expectations, making up 98.1 per cent of our forecast.

We maintain BUY with FV at RM2.15 with an unchanged 10x FY13 PE.

Lafarge Malayan Cement

Lafarge’s FY12 net profit of RM349m was spot on. Bottomline improved, thanks to the higher cement price and lower tax.

Meanwhile, we suspect that the additional supply from new players may limit the cement price hike in the short term.

Coupled with our decision to raise our coal price assumption leads to our FY13/14 projections being cut by 14.3 per cent/8.7 per cent.

Accordingly, our FV is revised down to RM9.44 and downgrade the stock to NEUTRAL.

KL Kepong

KLK’s 1QFY09/13 core net profit was below our and consensus expectations, comprising 21-23 per cent of our and consensus’ FY09/13 forecasts.

The main variance was the lower-than-expected CPO prices achieved in the plantation division of RM2,395/tonne (versus our RM2,700/tonne projection for FY09/13), offset by higher-than-expected FFB production growth of +20 per cent versus our 9 per cent growth assumption for FY09/13.

No change to forecasts, but we update our SOP-based fair value to RM21.80 (from RM21.65).

AmResearch

Lafarge Malayan Cement

Maintain BUY on Lafarge Malayan Cement with a lower fair value of RM10.01/share (previously: RM10.45/share) on an unchanged PE of 20x as we trim FY13F-14F earnings by 4 per cent-5 per cent in view of a potential widening in price discounts in the near term due to new supply coming onstream.

Lafarge reported a10 per cent QoQ growth in 4QFY12 net profit at RM106mil despite a marginal 3 per cent decline in revenue on pricing headwinds with the entry of Hume’s 1.5 mil tonne capacity. This was however offset by lower operating costs in the absence of any significant plant maintenance.

Full-year net profit of RM349mil was in-line at a -1 per cent to -3 per cent variance against both consensus and our estimate.

 Moving ahead, we project Lafarge’s FY13F net profit to expand 20 per cent YoY on a cement demand growth of 5 per cent.

Lafarge paid a fourth interim tax-exempt DPS of 13 sen, taking FY12 DPS to 37 sen (net yield: 4 per cent) – beating our forecast of 34 sen/share.

As the group has turned virtually debt free since September 2012, we see more scope for dividend surprises.

Our projected DPS of 42 sen to 48 sen for FY13F-15F is based on a payout of 85 per cent-87 per cent vs. 88 per cent for the past five FYs (FY12: 90 per cent).

Lafarge’s share price has corrected by some 5 per cent ytd in tandem with weaker market sentiments as the GE draws nearer.

Hence, we view Lafarge’s recent share price weakness as a good opportunity for investors to accumulate a liquid, large cap proxy (the largest in our building material universe at RM7.8bil) at reasonably attractive levels.

Valuations are undemanding. The stock is currently trading at tad below its trend average at FY13F-15F PEs of 16x-19x, with more room for dividend surprises.   

OSK Research

Genting

According to India’s Business Standard, Lanco Infratech is rumored to be keen to sell its three power plants to Genting. The power plants, located in India, are: i) the 600MW Amarkantak power plant in Chhattisgarh, ii) 1,320MW-Baband power plant in Orissa, and iii) the 1,200MW-Anpara power plant in Uttar Pradesh.

The paper said the move came after Lanco failed to sell off its power business to private equity players.

We are not entirely surprised by this piece of news although any potential transaction may only be preliminary.

Lanco Infratech, one of India’s largest independent power producers with a combined 3,330MW of coal and gas-fired power plants and power projects with 7,402MW under construction, has been trying to deleverage its balance sheet, which is laden with a net debt to equity of 545 per cent and net

debts totaling RM18bn.

Meanwhile, Genting has been seeking to expand its power business abroad following the sale of its Malaysian power business to 1MDB for RM2.3bn.

Power asset investments in India continue to be fraught with structural challenges as the country faces major headwinds such as: i) inadequate coal supply, ii) the slow pace of reforms, and iii) a poor tariff structure.

For example, we gather that one of the power plants that Lanco Infratech is looking to sell — the 600MW Amarkantak plant — had only recently resolved its long-standing tariff issue with its off-taker last December despite having signed the power purchase agreement back in 2005.

Of the three plants the group intends to sell, we believe that only Amarkantak has a transparent

long-term fuel cost pass-through mechanism in its PPA.

Anpara is currently operating on a load factor of only 37 per cent while the Baband power plant is under construction.

In the absence of a transparent fuel pass-through mechanism built into the PPAs of all three power plants Lanco Infratech hopes to sell, we believe that it is unlikely that Genting would be interested

in taking on such risk.

This is especially so after its experience in China, where it has been plagued by rising coal prices and a time lag in passing on the impact of higher fuel costs.

As India is currently facing domestic coal supply constraints, independent power producers are required to meet the commodity’s deficit through potentially more expensive coal imports.

The power plants in India in which Genting currently has an associate stake are all gas-fired combined cycle power plants.

All said, Genting is not a newcomer in India’s power sector as it currently has a successful working relationship with Lanco Infratech via its associate stake in the latter’s 734MW Lanco Kondapalli power plant in Andhra Pradesh.

* 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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