Business

Analyst call Feb 22

KUALA LUMPUR, Feb 22 — This is a selection of morning calls by local research houses for the day.

Hwang DBS-Vickers

Market preview

Wall Street continued to come under pressures last night. Key US stock bellwethers extended their losses when they were down between 0.3 per cent and 1.0 per cent at the closing bell, as sentiment was clouded by talks that the Federal Reserve might scale back its quantitative easing programme.

Malaysian equities will likely remain under siege too from persisting selling activity. The benchmark FBM KLCI — which tested the psychological mark of 1,600 yesterday before staging a technical rebound — could struggle to overcome the immediate resistance level of 1,615.

On the corporate front, there were more earnings disappointments than positive surprises in the slew of result announcements that came out last evening.

In particular, Petronas Dagangan, Notion VTech, YTL Land all came in below par while KLCC Property beat expectations.

Separately, water-related stocks in Selangor — Puncak Niaga and Gamuda — may attract added interest after the companies revealed the breakdown of individual payments arising from the state government’s offer to take over the water assets.

Maybank

Pre-provision profit was in line, net profit beat estimates due to lower-than-expected provisions.

Declared high 28.5sen net DPS to take FY12 DPS to 52.5sen (5.9 per cent yield), 75 per cent payout; eligible for DRP.

Stepping up regional initiatives; 15 per cent ROE target driven by cost management and higher fee income.

Maintain BUY, TP is intact at RM10.60.

Pre-provision profit grew 5 per cent y-o-y, but net profit jumped 16 per cent led by lower provisions. NIM fell by 15bps y-o-y while loans grew 12 per cent and deposits 11 per cent.

Pre-provision profit was driven by improved revenues (mainly fee income) ahead of expenses. Provisions remained low in 4Q12 with full year provision charge-off rate at only 23bps.

MAY declared 28.5sen final net DPS; with this, it has fully utilised its s.108 tax credit. Future dividends will be single tier.

Dividend payout ratio should remain high so long as MAY keeps the DRP as its strategic capital management tool, and we believe it will. We revised future dividend payouts to 70 per cent.

Our view: FY13 earnings drivers are cost management and higher fee income.

MAY is targeting 15 per cent ROE in FY13 (below FY12 due to larger equity base from the DRP) driven by improved cost efficiencies and higher fee income (IB business).

It is targeting 12 per cent loan growth (group); Indonesia will remain the key growth driver at 22 per cent, followed by Malaysia at 12 per cent and Singapore at 11 per cent.

Loan-to-deposit ratio should be below 90 per cent, supported by an equivalent 12 per cent deposit growth. NIM may continue to drop, possibly by 10bps.

Credit cost is expected to normalise ahead with provision charge-off rate inching closer to 30bps. After adjusting for all these, we nudged up FY13-14F earnings by 2 per cent each.

Building up regional operations; regional M&A not discounted.

MAY plans to accelerate regionalisation especially in Indonesia, further strengthen its position in Singapore (negotiating with MAS for local incorporation) and transform its Philippines operations (after injecting capital).

PBT contribution from international operations is targeted to increase from 30 per cent now to at 40 per cent by 2015, inclusive of inorganic growth (33 per cent if organic only). This implies MAY remains open to regional M&As.

Recommendation: Maintain BUY, RM10.60 TP.

Our TP is based on the Gordon Growth Model (15 per cent ROE, 7 per cent growth, 11 per cent cost of equity). Our ROE estimates are lowered taking into account the enlarged equity base.

We have assumed an 85 per cent take-up rate in our DRP assumption.

Dividend yield remains attractive (c.6 per cent) and longer term positive traction at BII could be a re-rating catalyst.

RHB Research

UEM Land

4Q12 earnings came in 12 per cent and 24 per cent higher than our and market estimates. The stronger sequential growth was mainly driven by higher contribution from developed land sales and property development. A maiden single-tier dividend of 3 sen was declared.

FY13 KPIs include: 30 per cent revenue growth, 20 per cent PATAMI growth and 10 per cent ROE. We think the PATAMI growth is realistic, as the unbilled sales of RM2.28bn will be able to underpin the progress billings. The amount of land sales to be recognised will also be more substantial, such as the RM400m sale of Puteri Harbour land to the four tycoons announced in Jan this year.

RM2.46bn property sales were achieved, falling short of UEMLD’s target of RM3bn for FY12. Target for 2013 is RM3bn, on the back of RM4bn worth of launches. Among the projects that will be rolled out, CS1 Puteri Harbour (GDV RM1.4bn) is expected to gain significant interest.

We revise our FY13-14 earnings by 22-25 per cent, in view of the strong unbilled sales and developed land sale. Fair value is kept at RM2.53. Maintain Trading Buy.

Maybank

Maybank’s FY12 results were at the upper end of our and consensus expectations as credit cost stayed low at 21bps vs. our assumption of 31bps. Pre-impairment operating profit was in line.

Loan growth picked up pace thanks to the Singapore and domestic operations but overall group loan growth of 12.2 per cent was within expectations. Total deposits rose 10.3 per cent yoy while LDR and CASA ratio stood at 89.8 per cent and 35.2 per cent respectively.

The gross impaired loan ratio improved to 1.8 per cent from 1.9 per cent as at end-Sep ’12 while LLC rose 90bps qoq to 105.6 per cent. CET1 was 11 per cent (assumes 85 per cent reinvestment rate).

Maybank surprised with a higher-than-expected final net DPS of 28.5 sen (4QCY11: 24 sen, net) with the net payout ratio of 74.5 per cent above our 70 per cent payout assumption.

Maybank’s 2013 targets are: 1) ROE of 15 per cent; 2) group loan growth of 12 per cent; and 3) group deposit growth of 12 per cent. Management also guided for 10bps NIM compression and credit cost of 30bps.

FY13-14 net profit forecasts raised by 4.5-5.2 per cent due to the good results. Fair value tweaked up to RM10.40 from RM10.15 (14x CY13 EPS). Maintain Buy call.

Genting Plantations

We met with management recently and came away with mixed feelings. GP continues to be a well-managed company with a consistent well-thought out operational strategy, resulting in strong and steady FFB growth prospects. However, being a pure upstream plantation company results in it being a price taker, to a certain extent, with earnings heavily exposed to CPO price fluctuations.

Five key highlights. (1) Strong production prospects for 2013; (2) New planting of 6,100ha in 2012, with targets to double up in 2013; (3) Neutral CPO price view, but taking advantage of price gap between spot and forward months; (4) Production cost expectations lowered for 2013; and (5) Property division doing better than expected.

Our forecasts have been tweaked up by 0.9-2.2 per cent p.a. for FY12-14, after taking into account the abovementioned changes. Post-earnings revision, our SOP-based fair value has been raised slightly to RM8.60 (from RM8.55), As such, we maintain our Neutral recommendation on the stock.

Gamuda

Selangor state investment arm Kumpulan Darul Ehsan Bhd (KDEB) has offered to take over Gamuda’s 40 per cent-owned water producer Splash.

The offer values Splash in its entirety at RM1.8bn, comprising “equity contribution plus 12 per cent ROE” of RM251m and asset value of RM1.6bn.  The offer will lapse on 6 Mar 2013.

We believe Gamuda is unlikely to accept the offer.  An ROE of 12 per cent translates to only a project internal rate of return (IRR) of 6.2 per cent based on our calculation.  This is only half of the existing project IRR of the concession that we believe in the low teens, at least.

Also, in terms of net offer price (after deducting debt, assuming a debt-equity structure of 70:30), the offer values Splash in its entirety at only about RM730m. Gamuda’s 40 per cent will thus only be worth about RM300m.

This is much lower than previous talk of RM800m to RM1bn valuations for Gamuda’s water assets (including its 80 per cent stake in O&M company Gamuda Water) that Gamuda will consider parting with them.

Fair value is RM4.49.  Maintain Buy.

Axiata

Axiata’s 4QFY12 core net profit of RM651m (-10.8 per cent qoq, +11.4 per cent yoy) was within our and consensus expectations. Axiata recorded FY12 core net profit of RM2,784m (+9.7 per cent yoy).

QoQ, group revenue fell 2.2 per cent as XL’s weak 4Q offset growth in all other opcos. Together with a higher effective tax rate of 24.6 per cent (3Q12: 16.8 per cent), Axiata’s core net profit dropped 10.8 per cent qoq.

Management unveiled its FY13 headline KPI targets: (1) revenue growth of 7.6 per cent; (2) EBITDA growth of 0.2 per cent; and (3) ROIC target of 10.3 per cent. Pressure at XL’s EBITDA margin is a key factor for the low EBITDA growth target, we believe.

Axiata declared a final DPS of 15 sen. Together with the interim DPS of 8 sen, this implies a 70 per cent FY12 payout. Axiata also declared a special DPS of 12 sen.
Going forward, we are assuming a 75 per cent payout for FY13, which translates into DPS of 25 sen (or 4 per cent net yield).

Maintain Neutral on Axiata with a revised SOP fair value of RM6.60 (previously RM6.50) after tweaking FY13-14 earnings forecasts higher by 3-5 per cent and updating our valuation model.

MMHE

MMHE’s 4QFY12 net profit of RM100.4m (+116.5 per cent yoy) brought FY12 net profit to RM242m (-27.6 per cent yoy). This was above expectations as it accounted for 117 per cent and 106 per cent of our and consensus full-year estimates respectively.

The main variance to our forecast was MMHE’s investment tax allowance, which provided RM41m of tax credits in 4QFY12.

Including the Malikai TLP project, MMHE’s orderbook is now approximately RM3bn, which we note is at similar levels to end-2011 of RM2.9bn. Currently, the Kebabangan, Tapis EOR and Malikai TLP accounts for approximately 75 per cent of its total orderbook, with the rest being smaller projects.

Our fair value is increased to RM3.24 (from RM3.11) based on unchanged target PER of 15x FY13 EPS.

We reiterate our Sell call on the stock. Note that MMHE is currently trading at 18-19x FY13 EPS, which is similar to peers such as Bumi Armada and SapuraKencana, although we believe it deserves to trade at a discount given its cloudy earnings outlook.

Amway (M) Holdings

FY12 results were driven by successful marketing programs and prudent cost management. Amway (M) continued to focus its attention on growing its Bumiputera and Gen-Y distributor base.

During 2012, its core distributor force grew to 244k from 232k in 2011. Distributor productivity in 2012 improved by 3 per cent yoy to RM3,270/distributor (2011: productivity declined 3 per cent yoy to RM3,170/distributor).

Amway (M) plans to convert all its remaining 6 regional distribution centres to shops by end-FY13 and will continue to focus its two key brands, Nutrilite and Artistry.

Amway (M) declared a total 62.5 sen of dividends for FY12 or a payout of 103 per cent of its FY12 earnings. Going forward, management guided that dividends will be paid out of current year earnings, as there are limited retained earnings after paying dividends more than 100 per cent of earnings in the past three years.

We maintain our Neutral call on Amway with an unchanged DCF-based fair value of RM11.77. Amway’s key attraction lies with its relatively stable dividend yield.

Petronas Gas

FY12 net profit came in above ours but slightly below consensus accounting for 105.6 per cent of ours and 98.5 per cent of consensus estimates respectively.

Net profit for the year grew marginally by 4.3 per cent y-o-y, lifted by a gain of RM100m arising from the partial disposal of its investment in Gas Malaysia through an IPO exercise.

We revamped our financial model, tweaked our SOP valuation and upgrade the stock from a SELL previously to a NEUTRAL.

IOIC

IOIC’s core 1HFY06/13 earnings were in line with ours, but below consensus, coming in at 52 per cent of our FY06/13 forecast, but at 48 per cent of consensus. IOIC recorded a net EI gain of RM250.9m in 1HFY13.

Forecasts are unchanged. After updating for IOIC’s latest net debt balance, our SOP-based fair value is raised to RM4.70/share (from RM4.65).

POS Malaysia

Pos Malaysia reported strong earnings for its 9MFY13 with a cumulative core net profit of RM112.9m. In line with ours but trumped consensus again. Its commendable growth was mainly led by the courier segment and the lower than expected natural drop in mail revenue. Margins also picked up on lower costs from the retail side.

KLCCP

The improvement from 3Q12 was mainly due to the year-end seasonality factor. Yoy growth was attributed to stronger rental from the office and retail space.

Guinness Anchor

GAB’s 1HFY13 earnings of RM123.0m (+1.6 per cent y-o-y) were within estimates, with the later timing of the CNY pushing sales to 3QFY13.

An improving product mix, where more drinkers consume relatively pricier beers, lifted profitability, although beer sales have seen tepid growth as of late amid rainy weather conditions and increased spending awareness.

We keep our forecasts unchanged, based on a WACC of 7.1 per cent and terminal growth of 2.2 per cent.

Daibochi

FY12 net profit of RM24.6m (+22.7 per cent yoy) which was within our and market expectations, accounting for 100 per cent and 97 per cent of our and consensus full-year estimates respectively.

The higher profit was due to EBIT margin expansion (+3.0 per cent-pts yoy to 12.4 per cent).

We fine-tune our FY13-14 forecasts upwards by 0.6 per cent-1.6 per cent and introduce our FY15 net profit forecast of RM32.5m.

Nestle (M)

FY12 net profit of RM505.4m (+18.3 per cent yoy) which was in line with our and market expectations, accounting for 100 per cent and 101 per cent of our and consensus full-year estimates respectively.

FY12 revenue grew 7.3 per cent yoy to RM4.6bn, driven by strong domestic demand.

Nestle (M)’s FY12 gross margin improved 1.5 per cent-pts yoy to 34.1 per cent on the back of stabilised/softer raw material costs in the second half of 2012 and internal cost savings initiatives.

YTL Power

1HFY13 net profit declined 9 per cent yoy to RM508.9m at 44 per cent of our previous FY13 forecast.

The subpar performance was due to lower contribution from its power segment, which experienced erosion of margins. Factoring that in, we lowered our FY13-15 estimates by 5 per cent-10 per cent.

Maintain Neutral; FV downgraded to RM1.52 from RM1.60.

Tasco

FY12 earnings came in softer than expected. Its cumulative FY12 earnings of RM28.9m made up only 81.4 per cent of our expectation.

Such lacklustre performance were mainly due to the sluggish global economy which has affected the export volume. FY13 may still be a challenging year for Tasco due to uncertain global economic outlook as well as the political uncertainty locally.

JCY

JCY’s 1QFY13 core loss of MYR33m was below our and consensus estimates. No dividends were declared this quarter.

We are slashing our FY13/FY14 core earnings forecasts of MYR158m/152m to a core loss of MYR83m/71m respectively.

We also changed our valuation methodology from 4.5x FY13 PE to 0.7x CY13 P/NTA.

Maintaining our SELL with FV unchanged at MYR0.35.

Notion Vtec

Notion’s 1QFY13 core loss of MYR2m was below our and consensus estimates. No dividends were declared this quarter.

We are cutting our FY13/FY14 core earnings forecasts by 29 per cent/27 per cent.

Ascribing to the same CY13 PE of 6.4x, we derive a FV of MYR0.63. We are downgrading the stock to a SELL.

OSK Research

Genting Singapore

Genting Singapore’s FY12 earnings, which slightly beat estimates, were fuelled by stronger-than-expected sequential recovery in VIP gaming volume.
Amid a less risk-averse 2013 outlook, the group is eager to crank up growth of its VIP gaming business.

We factor in a stronger overall full-year VIP rolling chips volume growth of 11 per cent vs our original forecast of 6 per cent, and lift our FY13 earnings forecast by 9.8 per cent.

We also raise our EBITDA valuation multiple from 10x to 12x, at a 10 per cent discount to Macau gaming stocks’ current average, and raise our FV from SGD1.20 to SGD1.57.

AmResearch

Axiata Group

We maintain our BUY call on Axiata though we tweak lower our fair value to RM6.90/share (from RM7.00/share) given slight revisions to our forecast.

Axiata reported core earnings of RM651mil in 4Q12, bringing FY12 core earnings to RM2.8bil. This is within our estimates and slightly above consensus accounting for 96 per cent and 111 per cent of FY12F respectively.

A key surprise was a significant increase in dividends i.e. 35sen (FY12, 117 per cent payout) inclusive of a 12sen/share oneoff special dividend (vs. 19sen/share; 60 per cent payout in FY11) translating into a 5.5 per cent yield.

Despite XL’s poor performance (-11 per cent YTD) which was dragged by high infra cost and SMS interconnect, Celcom (accounts for 68 per cent of group earnings) managed an earnings growth of 9 per cent thanks to resilient margins and effective voice resuscitation efforts in FY12.

On FY basis, Celcom’s revenue growth was splendid (+7 per cent) relative to Digi (+6.7 per cent), considering Celcom’s more mature 3G network rollout.

Capex is expected to moderate slightly from RM4.6bil (FY12) to RM4.5bil in FY13F.

Key driver of FY13F capex is still XL with a slight moderation to RM2.6bil from RM2.9bil. XL is currently working on potential collaborations to reduce capex.

Celcom’s capex expected to be more or less flattish at RM1bil.

Management seems to be cautious on FY13F outlook, guiding for flattish EBITDA growth (despite 7.6 per cent topline growth) — margin pressure at XL expected to continue from aggressive capacity rollout and resultant low utilisation rates (as take-up will lag capacity rollout in an expansion mode).

The trend should turn once XL’s network expansion moderates, though no timeline is given for this.

Dividend is guided to rise progressively — which is a positive change vs. past conservative dividend policy (ceiling of 65 per cent-70 per cent payout ratio previously guided).

Core FY12 div (ex-specials) payout of 70 per cent is an improvement vs. 30 per cent-60 per cent (FY10-FY11).

In terms of M&A prospects/industry consolidation potential, there seems to be a hint of possibility in overcrowded markets such as Indonesia and India. Axiata has a USD1.5bil credit line to tap should the opportunity arise.

* 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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