KUALA LUMPUR, Feb 23 — This is a selection of morning calls by local research houses for the day.
OSK Research
Economic overview
Headline inflation remained on a downward trajectory. It rose by 2.7 per cent year-on-year (yoy), slower than the 3.0 per cent seen in Dec. This was in line with market and our expectations. Food, which contributed slightly over 55 per cent to the rise in overall CPI, rose 4.8 per cent yoy in Jan as compared with Dec’s +5.0 per cent.
As in the previous month, most of the other components of the basket saw either similar changes or slower increases, which helped contain headline inflation. The exception were housing (accounting for slightly over a fifth of the CPI basket) and education (carries a weight of 1.4 only), which rose slightly by 1.8 per cent and 3.1 per cent yoy respectively in Jan from 1.7 per cent and 2.8 per cent in Dec.
Looking ahead, there is no change in our inflation expectations. We continue to expect slower global growth and base effects to moderate headline inflation in 2012. However, higher oil prices (currently Brent is at US$120/barrel vs. about US$100 last year) because of tensions in the Middle East could put a dampener on our forecast especially if the situation continues to persist.
Besides rising oil prices, accelerated government spending on infrastructure and ETP-related projects ahead of elections could also lead to a build-up of inflationary pressures. For the moment, we still expect headline inflation to average 2.7 per cent in 2012.
Given the gains by the ringgit so far (up 4.66 per cent since the start of the year), there is now room for the central bank to cut policy rates to support the economy if necessary without worrying about its impact on the domestic currency. But cutting rate is likely only if the external environment deteriorates sharply and threatens domestic growth.
We think the preferred route for the central bank is to pause to wait for greater clarity in both the global and domestic fronts since the current policy rate remains supportive of growth. We therefore expect the central bank to hold the OPR steady at 3.0 per cent for at least the first half of 2012.
Genting Singapore
The group’s FY11 adjusted EBITDA of SGD1,647.7m represented 94.5 per cent of our full-year forecast, relatively in line with consensus and our forecast. On a q-o-q basis, +19.9 per cent earnings growth were largely driven by a stronger 3.90 per cent win rate in its VIP segment vs 3.17 per cent in 3Q11 and lower effective corporate tax rate of 13 per cent vs normalised 19 per cent levels. Normalising for theoretical win rates of 2.85 per cent would have generated normalised EBITDA of SGD300m for the quarter vs SGD398.7m in 4Q11, implying a 26 per cent q-o-q decline in VIP rolling chip volumes in 4Q11. The group declared its maiden dividend of 1sen/share, representing a payout ratio of 12 per cent.
Following our downward revision in earnings and factoring in a lower EV/EBITDA valuation multiple of 12x vs 13x given a strategic slow down its VIP growth in 1H2012, we are revising downwards our fair value from SGD2.14 to SGD1.84. Consequently, we are downgrading the stock to NEUTRAL given the subdued immediate-term growth outlook. Key risk to our view lies in a faster than expected surprise in junket legalisation in Singapore.
AirAsia
AirAsia saw commendable earnings despite soaring fuel prices in 2011. We deem results to be impressive when compared with other airlines. Its core net income (incl. Thai AirAsia and Indonesia AirAsia share) of RM843m (y-o-y: -11 per cent) was well within our and consensus expectations while revenue grew by 13.3 per cent y-o-y.
Catalysts for 2012 are crystallising valuations from the upcoming IPO of its Indonesian and Thailand associate and the promising JV it has in Japan and the Philippines.
We maintain our BUY call on AirAsia with our earnings unchanged. FV retained at RM4.57. AirAsia is cheap at 30-40 per cent discount to its regional peers FY12 PE.
Wilmar International
We downgrade Wilmar from Buy to Neutral with reduced FV of SGD5.15 on tough operating environment, resulting in reduced margin for two of the segments. While its 4Q results were disappointing, we believe what crashed the stock yesterday was the sharp decline in oilseed & grains profitability, triggering fears that Wilmar’s trading losses in 4QFY10 and 1QFY11 will repeat itself.
Market expectations of huge gains in the palm & laurics segment also did not materialise. Most damage on stock price is already done but there is no catalyst in sight for recovery.
Petronas Gas
PTG’s FY11A results came in slightly above our expectations on unrealised gains in the final quarter from its Japanese Yen loans as well as slightly lower than expected year-end cost provisions. We see rising propane and butane prices possibly leading PTG to exceed our profit forecasts for FY12 but prefer to remain prudent at the moment. The run-up in share price has been quite strong and has largely priced in the short-term catalysts.
We maintain our forecasts, our fair value and our Neutral call on this solidly defensive company. Dividends did come in above our expectations at 40 sen against the 35 sen expected. Maintain our forecasts, our RM17.00 fair value and our Neutral call.
Petra Energy
The FY11 results were within our expectations. This was mainly due to the increase in brownfield services, especially in refurbishing the older platforms. Going forward to 2012, we noted that the industry is seeing ample job opportunities worth RM6.0-RM7.0bn and we believe Petra Energy will stand a high chance of winning some of these lucrative awards from Petronas and its PSC contractors.
Maintain Buy. Our fair value for Petra Energy remains unchanged at RM1.50 based on the existing PER of 13x FY12 EPS.
TSH Resources
TSH posted FY11 earnings of RM122.7m (+40.2 per cent y-o-y), in line with our estimates.
FFB production rose 43.2 per cent on the back of stellar production growth in Indonesia, propelling its mainstay plantation division to record a sterling EBIT growth of 56.1 per cent. With a young tree age profile (73 per cent of trees below peak production), we forecast FFB production to grow by 18.2-18.5 per cent in FY12-13.
Maintain BUY. We revise our FY12 forecast upwards by 2.3 per cent to RM128.7m on marginally higher production expectations as well as introduce our FY13 earnings forecast of RM148.4m (+15.3 per cent y-o-y) based on an average CPO price of RM3,100 per tonne. Our FV is raised to RM2.65, premised on 15.0x FY12 PER and RM0.32 value per share for its non-producing planted rubber estates.
CIMB Group Holdings
The group’s 97.9 per cent-owned subsidiary CIMB Niaga reported full-year earnings that were in line with estimates. Full-year earnings rose 24.6 per cent y-o-y but 4Q earnings declined 4.3 per cent q-o-q due to lumpy investment income gains in 3Q.
The key takeaways include a positive stabilisation in NIM but a negative deposit growth lag that could slightly dampen the loan growth outlook. That said, the focus on profitability rather than volume growth and a stable NPL outlook bode well for potential earnings upside surprises given the relatively low expectations of markets.
Maintain BUY and FV of RM8.05 (2.16 FY12 P/BV, ROE: 16.3 per cent).
CIMB Niaga
CIMB Niaga reported strong full-year FY11 numbers yesterday, with earnings surging 24.6 per cent y-o-y. However, given CIMB Niaga’s relatively high loan-to-deposit ratio (LDR) of 94.4 per cent, growth was more controlled and focused on more profitable loan segments of auto financing, personal loans, credit cards and micro financing rather than competing aggressively in the mortgage space, which saw the larger banks turning up the heat.
Despite the group registering a below-industry loan growth of 20 per cent (industry: 25 per cent), improved yield management helped boost Niaga’s net interest margins (NIM) by 9bpts q-o-q vs the industry’s 4bpts q-o-q NIM contraction and thus, resulting in a commendable 11 per cent q-o-q increase in net interest income.
The trend of stabilising q-o-q NIM is attributable to the stronger growth for current account savings account (CASA) deposits and repricing of deposits ahead of loans, following the interest rate cuts by Bank Indonesia.
Moving forward, although NIM will remain under pressure, management’s focus on the higher-yielding loan segment and more holistic strategy on growing its CASA franchise will provide a buffer against any downside pressure (which we expect to be less severe relative to 2011). Management has guided for NIM to stay within the range of 5.50 per cent to 5.60 per cent vs the full-year average NIM of 5.63 per cent in 2011.
Wah Seong Corp
Wah Seong’s FY11 results disappointed, no thanks to a loss of RM16.5m arising from the impairment of plants and machineries in 4QFY11. Other than this, there were improvements across all its divisions for the quarter. Also, its orderbook still remains strong at RM1.2bn. However, we downgrade our FY12 earnings by 15 per cent to factor in the consistently lower net profit of between RM20 and RM25m over the last three quarters.
Maintain Buy. We downgrade our Fair Value (FV) for the company to RM2.40 (previously RM2.84) based on the existing PER of 13x FY12 EPS following our FY12 earnings downgrade.
Nevertheless, despite our FV downgrade, we continue to like the company for its strong market share in the pipe coating and corrosion protection services in Asia. Also, Wah Seong has been successfully securing orders quarter after quarter and hence, this leads to a steady orderbook value from a q-o-q perspective. Our concern remains on its ability to translate its existing orderbook into higher profits.
Hunza Properties
Hunza’s 1HFY12 results came in below our expectations, with its 1HFY12 net profit only accounting for about 42 per cent of our FY12 full-year forecast. Revenue was down by 44.2 per cent y-o-y, primarily attributable to lower contribution from its property development division due to the lack of new launches in the past few years.
Core PBT was down by 32.3 per cent in spite of the improved margin arising from higher selling prices for its Gurney Paragon project. As we expect a similar performance for 2HFY12, we trim our FY12 net profit forecast by 7.1 per cent.
Maintain Neutral. As we expect a similar performance for 2HFY12, we trim our FY12 net profit forecast by 7.1 per cent. We maintain our Neutral call with an unchanged FV of RM1.67 based on 0.65x FY12 P/NTA.
Hartalega Holdings
Hartalega’s 9MFY12 results were within expectations. Overall, there was a slight improvement in revenue and net profit, bolstered by a higher sales volume and better selling prices of gloves, besides more efficient production and better cost control.
Separately, the group announced a 1-for-1 bonus issue and 1-for-5 free warrants to enhance liquidity in its stock and attract new investors.
Maintain Buy. We have also raised our fair value for Hartalega to RM9.39 (previously RM7.40) as we roll forward our valuation to FY13 as well as raise our PE valuation to 15x (previously 13x) given the impending improvement in its share liquidity.
Hartalega is the world’s leading producer of nitrile gloves. Upon completion of the bonus issue, our fair value would be adjusted to RM4.27, after factoring in the potential earnings dilution from the free warrants.
Freight Management Holdings
Freight Management’s (FMH) 1HFY12 revenue and core earnings were within our and consensus estimates at RM161m and RM10.4m respectively, representing 48 per cent of our FY12 earnings forecast. Revenue and PBT rose 9.5 per cent and 10 per cent y-o-y YTD but net income fell 17 per cent y-o-y and 14 per cent q-o-q due to an additional tax provision of RM0.2m. Excluding the tax provision, FMH’s 1HFY11 core net profit would have risen 8.2 per cent y-o-y, backed by contributions from its contract logistics and air freight business.
As the 1HFY12 core earnings of RM10.4m are in line with our estimates, we make no changes to our forecast and hence maintain our Buy call for FMH, with an unchanged FV of RM1.07, based on 6x FY12 EPS.
Kencana Petroleum
Yesterday, Kencana announced that its wholly owned subsidiary, Kencana HL SB, has received a notice of award from Murphy Sarawak Oil Co Ltd to undertake the engineering, procurement and construction (EPC) of offshore substructures.
The job scope covers the provision of engineering, procurement and construction of substructures, template and related services for Patricia and Serendah offshore platforms, which form part of the SK309 field located offshore Bintulu, Sarawak. The contract, valued at about RM101m, is expected to be delivered between 1QCY12 to 3QCY12.
We understand that Murphy Oil started production from this natural gas field in Block SK 309 in 2H09. In fact, the natural gas produced from this field is being supplied to the Petronas LNG Complex in Bintulu, Sarawak. In terms of project ownership, we understand that Murphy Sarawak Oil Co Ltd will operate the development and maintain an 85 per cent working interest while Petronas Carigali SB will hold the remaining 15 per cent.
We also gather that this field is expected to produce up to 250m cubic feet of natural gas/day (mmcfpd) for the first 5 years, plus another 350 mmcfpd for an additional 10-year period.
Positive news but no change to our FY12-13 earnings. This is because we had earlier factored in some orderbook replenishment for the company.
Maintain Buy. Our fair value for the stock remains unchanged at RM3.60, based on the existing PER of 23x FY12 EPS. Kencana is still our top pick for the O&G sector apart from Dialog.
IGB Corp
At first glance, IGB’s FY11 results appear to have beaten our and consensus expectations but after stripping out the one-off gain of RM87.965m from the disposal of an associate company, its FY11 core net profit was actually worse than expected. It was let down by the poor performance of its property development division which posted an operating loss of RM17.7m.
We maintain our FY12 forecast and introduce our FY13 numbers. We also raise our FV from RM2.50 to RM2.82 after rolling over our NTA from FY11 to FY12, based on 1.2x P/NTA, which is equivalent to 1.5 standard deviations above its 6-year historical mean. In view of the limited upside, we downgrade our call to Neutral from Buy.
HwangDBS Vickers
Lafarge Malayan Cement
4Q11 net profit was RM117m (+46 per cent y-o-y, +65 per cent q-o-q), due to: lower coal prices (Newcastle coal fell 6 per cent QoQ) and higher plant efficiency through lower maintenance costs, resulting in a 27 per cent EBITDA margin vs 1Q11-3Q11’s 18-21 per cent, and a lower corporate tax rate (18 per cent vs 1Q11-3Q11’s 26 per cent) after reversal of deferred tax.
Topline grew 6 per cent y-o-y on higher cement prices (+9 per cent in May11) and improved demand from higher construction activity, but mitigated by volatile rebates by smaller players. FY11 net profit beat our and consensus’ estimate by 13 per cent. A 10sen interim DPS was declared, taking FY11 dividends to 34sen and implying 91 per cent full year payout.
FY12 should be challenging for Lafarge, given: (i) enforcement of the Competition Act 2010 that is effective since Jan11; (ii) greater indirect pricing pressure as smaller players offer larger rebates; and (iii) potentially late kick-start of major infrastructure projects (awards for MRT tunnelling works are expected in Apr12, with civil works likely to start a year later).
For the longer term, new cement supply post-2013 – 1.5m MT each by Hume Cement, CIMA and perhaps YTL Cement – could intensify competition within the industry. However, possible near term catalysts include robust property starts (strong 18 per cent sales growth in 1H11), the LRT extensions, and KL International Financial District.
Maintain Fully Valued with RM6.00 TP pegged to 15x 2012F PE (10 per cent discount to our construction sector average). Dividends are supported by stable operating cash flow, substantial net cash position (RM244m) and minimal capex requirements.
KL Kepong
1QFY12 core profit of RM356m (+11 per cent q-o-q, -5 per cent y-o-y) was within expectation. Revenue came in at RM2923m (-3 per cent q-o-q, +21 per cent y-o-y) while core EBIT was stable at RM495m (+4 per cent q-o-q, -5 per cent y-o-y). Core EBIT margin inched up to 16.9 per cent (from 15.9 per cent in 4QFY11) led by its retail business.
FFB production was flat q-o-q at 856 MT (+11 per cent y-o-y) while CPO ASP edged down to RM2,753/MT (-8 per cent q-o-q, +3 per cent y-o-y), driving plantation EBIT to RM389m (-17 per cent q-o-q, +10 per cent y-o-y). Plantation EBIT margins fell to 29.9 per cent vs 35.2 per cent in 4QFY11 due to softer commodity prices and higher production costs.
Manufacturing business turned around in 1QFY12 with RM18m core EBIT (from RM7m operating loss in 4QFY11). However, Indonesia’s export tax structure had severely affected KLK’s oleochemical margins, as its competitors now enjoy c.15 per cent lower raw material costs and we are looking to revise down our refining margin.
Oleochemical demand also remained subdued due to a sluggish European economy. However, the retail business registered a historical high EBIT of RM58m (+6 per cent y-o-y) due to seasonal effect.
KLK has relatively weaker growth prospects given its limited plantable reserves (c.22k ha) and longer lead time to expand its oleochemical capacities amid the weakening global economic outlook. Maintain Hold and DCF-derived TP of RM24.00 (WACC 9.8 per cent, Rf 3.65 per cent, B 1.0x, TG 3 per cent).
CB Industrial Product
4Q11 net profit surged 68 per cent to RM30.6m on the back of higher revenue of RM125.2m (+4.4 per cent y-o-y). This was led by better margins and sales from its plantation and palm oil equipment segments. Full year net profit was RM103.9m (+52 per cent y-o-y) with EBIT margin improving to 23.1 per cent (vs FY10: 20.1 per cent).
The better margin was mainly due to improvements at its plantations (higher associates contribution, FFB yields and prices of palm products) and palm oil equipment (higher project billings and better margins) segments.
Q-o-q, 4Q11 net profit grew 11.8 per cent although revenue fell 7.9 per cent. Despite lower plantations revenue (due to drop in FFB and palm product prices), group margins remained commendable, supported by higher project billings and improvement in project implementation.
Subsequently, CBIP has announced a 1-for-1 bonus issue (ex-date on 3 March 2012).
Despite the disposal of Sachiew and Empresa plantations, we still expect its engineering division to have higher contract billings (estimated FY12 unbilled sales at RM250m-RM280m), and CPO prices to remain strong (higher contribution from associates with 30 per cent-50 per cent stakes).
Our Buy call and RM4.85 SOP-based TP is under review following its 10.9 per cent gain in share price last month.
CIMB Group Hldgs
CIMB Niaga result in line. 4Q11 net profit fell 4 per cent q-o-q to Rp795bn on weaker non-interest income amid a slower market. NIM improved to 5.6 per cent (+9bps) as deposits were repriced down post-BI rate cuts, ahead of lending rates. Expenses rose 8 per cent on continued investments in infrastructure and network expansion.
Cost-to-income ratio was 49.7 per cent, up a notch y-o-y. Provisions were flat q-o-q, while gross NPL ratio was stable at 2.6 per cent. Loans grew 3 per cent q-o-q and 20 per cent y-o-y driven by auto, micro lending and credit cards. Mortgage loans grew 2 per cent q-o-q and 15 per cent y-o-y but its market share slipped below 10 per cent due to stiff competition, although it retained its third rank among peers.
Deposits grew 4 per cent q-o-q and 12 per cent y-o-y led by CASA; CASA to total deposits was stable at 44 per cent. Capital ratios remained healthy with Tier-1 CAR at 10.2 per cent and Total CAR at 13.2 per cent, although weaker q-o-q as risk weighted assets grew in line with loans.
Maintain Hold and RM7.60 TP.
IJM Corp
3QFY12 net profit of RM135m (+6 per cent y-o-y and +81 per cent q-o-q) was within our and consensus estimates. All divisions showed sequentially better earnings, but the key drivers remained plantations and property, which contributed a total 62 per cent of group pretax profit. Property earnings grew 58 per cent q-o-q to RM81m with strong 28 per cent margin vs 17 per cent in 2QFY12, backed by RM1bn unbilled sales.
However, earnings were lower y-o-y because 3QFY11 included a one-off gain from AEON. 9MFY12 sales of RM900m (annualized RM1.2bn) is short of its RM1.46bn peak sales in FY11, but its key launch in the Klang Valley — Canal City with RM500m sales — will ensure continued sales momentum.
Contribution from construction remained small at 5 per cent on the back of still low 3 per cent margins, although it disclosed some of the key local jobs such as Grand Hyatt, Batu Kawan Expressway and Besraya extension were gaining momentum. We expect contribution to gather pace in subsequent quarters. IJM’s RM4.2bn orderbook is the highest among contractors.
Besides the WCE, we understand IJM will be bidding for other MRT related works, KLIFD building works, Penang Transport Alleviation, Klang Valley building works and Iskandar jobs. The strong job pipeline will also spillover to its manufacturing division, where ICP is a strong contender. We understand it is bidding for jobs for the Vale iron ore plant in Lumut, as well as projects in Pengerang.
Petronas Gas
Petgas’ 3Q11 revenue grew 3 per cent y-o-y led by gas processing revenue (+4 per cent) and utilities (+11 per cent), but pretax profit fell 13 per cent due to higher capex for the new regas plant, unrealised forex loss, and higher staff and repair & maintenance expenses. The weaker margins were expected because of higher capex for the Melaka regas plant. However, Pgas’ earnings will remain stable because of advance reservations from customers for its capacity.
Petgas declared a final dividend of 25 sen per share, with 9M11 DPS at 40sen. The annualised DPS of 53 sen for FY11 is slightly above our and market expectations of 50 sen.
Petgas’ balance sheet remains strong with RM1.9bn net cash at end FY11. We expect capex to rise from RM1bn to RM2.5bn p.a. over FY12-13F with new investments in regas and power plants. FCF will remain strong at >RM600m due to improved profitability under the 4th GPTA.
Perisai Petroleum
Perisai’s 4Q11 net profit came in at RM11.2m (+16 per cent q-o-q, +11 per cent y-o-y), taking FY11 core profit to RM28m (+26 per cent). The stronger 4Q11 profit was due to full quarter contribution from Intan Offshore (acquisition completed in Aug11) and lower operating expenses. 4Q11 revenue grew 36 per cent q-o-q and 38 per cent y-o-y to RM27.9m.
4Q11 operating profit was reported at RM15.9m (+30 per cent q-o-q, +125 per cent y-o-y), implying strong 57 per cent operating margin (vs 59.9 per cent in 3Q11 and 34.9 per cent in 4Q10).
We note that lower vessel expenses had helped to keep operating margins strong in the past few quarters. Meanwhile, net debt stood at RM224m (69 per cent net gearing), but that does not yet include RM120m debt assumed in the MOPU acquisition.
After the completion of the MOPU acquisition in Jan12, Perisai will see explosive EPS growth of 122 per cent due to the 2-year profit guarantee of RM50m (59 per cent of FY12 profit). We understand the company is targeting to acquire another marine asset worth over US$100m, given that its fleet is fully utilised currently.
Nevertheless, we are reviewing our Buy call and RM0.85 target price following the 25 per cent surge in the share price YTD.
Hartalega Holdings
3QFY12 net profit came in at RM50.7m (+10 per cent q-o-q; +3 per cent y-o-y), taking 9M12 earnings to RM151.6m or 75 per cent of our full year forecast. Revenue grew 5 per cent q-o-q led by improved capacity utilisation (85 per cent vs 82 per cent in 2Q12), while ASPs remained relatively stable.
Number of gloves sold rose 4 per cent q-o-q, with good traction seen in the Asia region — its sales contribution improved from 8 per cent to c.16 per cent in 3QFY12. Gross margins fell to 26 per cent from 29 per cent a quarter ago, mainly due to higher raw material costs. Hartalega was in 37sen per share net cash position at end Dec11 vs 31sen at end Sep11. It declared a second interim 6 sen DPS (single tier), taking YTD DPS to 12 sen or 29 per cent payout of 9M12 earnings. Ex-date is 8 March 2012.
Hartalega has proposed the following: (i) a bonus issue of up to 371.6m new ordinary shares of RM0.50 each on the basis of one bonus share for every one existing share held, (ii) warrants issue of up to 74.3m free warrants on the basis of one free warrant for every five existing shares held, and (iii) to increase authorised share capital from RM250m comprising 500m shares to RM750m comprising 1,500m shares. Each free warrant shall entitle the holder to subscribe for one new share at an exercise price to be determined at a later date. The proposals are subject to approvals from Bursa and shareholders at EGM, and are expected to be completed by 2Q 2012.
We like Hartalega for its lead in the nitrile gloves segment. Share price has gained c.40 per cent YTD. The next re-rating catalyst is the new Factory 6, which will lift capacity by c.4bn to 13bn pieces p.a. (+44 per cent). Maintain Hold and RM7.70 TP pegged to 13x CY12 EPS.
AirAsia
AirAsia’s core net profit grew 100 per cent q-o-q to RM223m largely due to higher load factors and stronger revenue per kilometer (RPK) in 3Q11. This took FY11 earnings to RM586m, above our expectation but below consensus’. Average fare rose 9 per cent to RM196 led by higher RPK of RM5,620 (+11 per cent) and load factors of 82 per cent (vs 77 per cent in 3Q11).
Ancillary income remained relatively flat at RM40/pax (vs RM39/pax in 3Q11) during this peak period as AirAsia had taken measures to boost travel demand in response to the airport tax hike by Malaysia Airports effective 15 November 2011.
Cost/ASK fell 9 per cent q-o-q to 11.54 sen (vs 12.71 sen in 3Q11) although average jet fuel price rose to US$135/bbl (vs US$131/bbl in 3Q11), mainly due to lower staff costs and depreciation expenses. Going forward, AirAsia expects its Philippines venture to start operations on 26 Mar 2012, while its Japan venture is on track to start in August as AirAsia has no plans to bring it forward to compete with JetStar Japan (due to start in July 2012).
Maintain Fully Valued and RM3.10 TP pegged to 16x FY12F PE. In the near term, we remain concerned over high jet fuel prices affecting travel demand and dampening earnings.
IJM Plantations
IJMP reported 3QFY12 earnings of RM53.9m (+15 per cent q-o-q, +37 per cent y-o-y), bringing 9M12 earnings to RM150.2m or 85 per cent of our initial FY12F earnings. The higher-than-expected earnings were largely attributed to deferment of upkeep activities due to adverse weather conditions, favorable commodity prices as well as higher inventory level for palm products.
3QFY12 revenue came in at RM146.4m (-19 per cent q-o-q, -9 per cent y-o-y) given the slightly lower CPO ASP of RM2,965/MT (-3 per cent q-o-q, +2 per cent y-o-y) and seasonally lower own FFB output of 170.4k MT (-10 per cent q-o-q, +13 per cent y-o-y) in 3Q. However, operating profit rose 14 per cent q-o-q and 28 per cent y-o-y due to higher inventory for palm products and lower upkeep activities disrupted by heavy rains. As such, operating margin surged to 48.9 per cent in 3QFY12 (vs 34.8 per cent in 2QFY12).
Balance sheet remained healthy with net cash of RM327m as at end Dec. Total capex for nine months to Dec was RM192m mainly for its Indonesian plantation segment.
We raised our FY12 earnings by 7 per cent to account for the better than expected results. Sequentially, our DCF-derived TP is revised slightly to RM3.15 (WACC 10.2 per cent, Rf 3.6 per cent, TG 3 per cent). Current valuation is relatively expensive at 18x FY13. IJM lacks near-term catalyst, as its immature trees in Indonesia will only contribute meaningfully from FY14 onwards.
RHB Research
Macro
Inflation eased further to 2.7 per cent yoy in January. The headline inflation rate was the lowest in a year, following a slowdown to +3.0 per cent in Dec, and compared with the 26-month high of +3.5 per cent in June.
Going forward, we believe inflation will likely moderate but remain sticky downward in the immediate term. As a result, we expect inflation to moderate to an average of 2.8 per cent in 2012, from +3.2 per cent in 2011.
The OPR is likely to remain stable at 3.0 per cent for the rest of the year, although there is room for a 25-50 basis points reduction should global economic conditions take a turn for the worse.
Strong consumption spending fuelled by credit and fiscal spending, but risks remain.
Economic Highlights (published 22 Feb 2012)
Despite a slowdown in Malaysia’s economic growth in 2011, total consumption expenditure of both the private and public sectors bucked the trend and expanded at a faster pace in three years in 2012, fuelled by a strong expansion in credit and higher fiscal spending.
The former will unlikely be sustained in 2012, as BNM has tightened consumers’ purse strings through selective credit control. The latter, however, could still provide some cushion to consumer spending in 2012. As a whole, we expect private consumption to soften but remain resilient at 5.3 per cent in 2012, after picking up to +6.9 per cent in 2011.
Sector Update
Media — Underweight
While Jan’s gross advertising expenditure (adex) for TV and print media has gotten off to a relatively muted start (-11.5 per cent yoy), a steady domestic economy and easing macro uncertainties may suggest fewer headwinds for the sector.
While the sector has not gotten off on a strong footing, we believe the outlook may not have been as dim as previously feared and may warrant a neutral stance instead. Pending the upcoming 4Q results and management feedback, we maintain our Underweight stance at this juncture.
Unisem
Unisem guided for 1QFY12 revenue to decline on lower demand for chip packaging as well as due to the seasonally weaker quarter. Nevertheless, Unisem highlighted that recent indications of customers’ bookings suggest that the industry would reach its worst point in the 1Q. Thereafter, management expects some recovery in 2QFY11, followed by a stronger pick-up in 2HFY12.
We continue to look forward to the 2HFY12 recovery on the back of inventory replenishment by chip vendors and the gradual recovery in US consumer demand.
After the recent pull back in the share price, we thus upgrade our call on Unisem to Outperform. Fair value estimate is RM1.53 based on 1x FY12 P/BV.
Kencana
Kencana announced that it had won a new EPC contract from Murphy Sarawak Co worth RM101m. We view this positively, but our forecast assumptions already factor in new contract wins.
Maintain Market Perform, with a fair value estimate of RM2.95.
WCT
WCT has secured a RM331m construction contract of a new medical centre in Kota Kinabalu. This is the second key contract WCT has secured so far in FY12/12, boosting its YTD new contracts secured to RM632m and outstanding construction orderbook by 10 per cent to RM3.6bn. Assuming EBIT margin of 5-7 per cent, the contract will fetch RM17-23m EBIT over the period.
Forecasts are maintained as we have already assumed WCT to secure RM1.5bn worth of new
CIMB
Niaga reported 4Q11 net profit of IDR796bn (+5.6 per cent yoy; -4.4 per cent qoq), bringing FY11 net profit to IDR3.2trn (+24.6 per cent yoy). The qoq drop in net profit was due to lower non-interest income as contribution from treasury fell 68 per cent qoq due to weaker capital market activities.
Gross loans grew 19.8 per cent yoy (+3.3 per cent qoq) while deposits were up 11.9 per cent yoy (+4.4 per cent qoq). Consequently, group LDR improved to 94.4 per cent from 95.3 per cent as at end-3Q11.
Gross impaired loan ratio rose 17bps qoq to 3.61 per cent due to a corporate loan classified as impaired. Impaired LLC thus declined qoq to 75.3 per cent from 82.9 per cent end-3Q11. CAR stood at 13.2 per cent.
No change to forecasts. Fair value of RM7.41 and Market Perform call maintained.
IJMP
9MFY3/12 core net profit was above expectations, comprising 85-87 per cent of our and consensus’ FY12 estimates, due to higher-than-expected continued recovery in FFB production during the quarter (up 13 per cent yoy), bringing 9MFY12 production growth to 12 per cent vs. our 9.7 per cent projected growth.
Key highlights from our recent meeting: 1) YTD production growth of 13.9 per cent expected to moderate by end-FY12; 2) New planting of 7,000ha to be achieved in FY12, similar targets for FY13; 3) Not many forward buyers in the market; 4) Production costs to rise by 10-15 per cent in FY12; and 5) No plans for refinery in Indonesia.
Forecasts revised up by 0.3-6.2 per cent for FY12-14. Post-earnings revision, our fair value is raised to RM3.55 (from RM3.40), based on unchanged target PER of 15x CY12 earnings. We continue to highlight IJMP’s sensitivity to CPO price movements, where every RM100/tonne change in CPO price would affect IJMP’s earnings by 5-7 per cent p.a.. Maintain Market Perform.
MISC
FY12/11 core net profit missed expectations due to the generally weaker-than-expected freight rates as well as the poor performance from 66.5 per cent-owned MMHE.
MISC maintained its guidance that it will cease its container liner business latest by 30 Jun. MISC described the current petroleum tanker market as “very very difficult” with rates that could barely cover daily operating cost, let alone capital cost. Not helping either are rising bunker cost.
FY12/12-13 forecasts trimmed by 3-4 per cent largely to reflect weaker earnings from MMHE. Fair value is cut by 7 per cent from RM6.15 to RM5.70. Maintain Market Perform.
AirAsia
FY12/11 core PBT exceeded our forecast by 20 per cent but missed the market consensus by 7 per cent. Mindful of the sustained high crude oil prices, AirAsia will continue with its four-pronged strategy to absorb the high fuel cost via: (1) Boosting sales; (2) Boosting anciliary income; (3) Raising fuel surcharge if need arises; and (4) Continued cost reduction initiatives.
By putting more new aircraft in high-growth markets outside Malaysia but with long gestation periods, AirAsia may not be able to immediately squeeze or maximise earnings from new aircraft.
As far as the Japan venture is concerned, AirAsia believes that it is about “doing it right and well, rather than first (i.e. ahead of a competitor)”. AirAsia targets the maiden launch earliest in Aug.
Fair value raised by 24 per cent from RM2.99 to RM3.72. Upgrade to Market Perform.
Genting Singapore
For the first time, GS declared a tax-exempt dividend of 1 sen, translating to net payout of 11.9 per cent, or net yield of 0.6 per cent for FY11. We did not expect GS to declare any dividends until FY12.
Conference call highlights: 1) Better luck factor, VIP market share improved, but mass market share declined; 2) Impact of opening of new hotel rooms and ramp up of slots and ETG’s have potential to drive market share in FY12; and 3) Provisioning for bad debts has paid off, looking to ease stringent guidelines in 2H12.
FY12-13 forecasts unchanged. We introduce our FY14 forecast. After updating for GS’ latest net cash balance, our fair value is relatively unchanged at S$1.80, based on average of 11x FY12 EV/EBITDA and DCF. We maintain our view that the next rerating for the stock may only come once the second phase is ready, depending on whether it is well-received, and this may bring RWS’ earnings to the next stage of growth. As such, for now, Market Perform call is maintained.
Petronas Gas
Largely in line. Annualised 9MFY12/11 net profit of RM1441.5m was largely within expectations accounting for 104.6 per cent of our full-year expectation (RM1.38bn) but in line with consensus estimate (RM1.46bn).
The company also declared a DPS of 25sen during the quarter. Annualised full-year DPS of 53.3sen was slightly higher than the 50sen paid in FY3/11.
Qoq earnings held up by sustained margins and better associate earnings. Sequential EBIT earnings were slightly higher (+0.6 per cent) due to the low base effect of 2QFY12/11’s earnings that were impacted by unrealised losses (RM32.1m) caused by the revaluation of the company’s Samurai Bonds. In the current quarter, the company had booked an unrealised gain of RM12.6m instead. Besides that, better associate earnings on account of higher gas volumes distributed in the last quarter of the year by Gas Malaysia boosted bottom-line earnings further.
Downgrade to Market Perform. Our forecast revisions and adjustments to the net cash per share to RM924m (from RM1.5bn) results in a slightly higher SOP-based fair value of RM16.74/share (from RM16.37/share previously).
However, given the stock’s outperformance we estimate a minimal upside of 4.7 per cent (on a total return basis). We downgrade our call on the stock to Market Perform.
Kuala Lumpur Kepong
KLK’s 1QFY09/12 core net profit was within our expectations, comprising 24-25 per cent of our and consensus’ FY12 forecasts. In 1QFY09/12, KLK recorded total EI loss of RM15.3m coming mainly from fair value losses on its derivatives upon implementation of FRS 139 recorded under the plantation and manufacturing divisions.
Core net profit fell 7 per cent yoy on the back of a 21 per cent rise in turnover in 1QFY12, due mainly to lower margins in the manufacturing division and higher effective tax rates. Average CPO price achieved rose 2.8 per cent yoy in 1QFY09/12 to RM2,753/tonne, while FFB production rose by 10.8 per cent yoy in 1QFY09/12.
Manufacturing division’s margins compressed. Notably, the manufacturing division’s margins compressed to 1.4 per cent (from 6.7 per cent in 1QFY09/11), due to the adverse impact of the debt crisis in Europe which affected demand as well as the tougher competition coming from Indonesia, post export tax structure change.
Going forward, KLK stated that this division is expected to recover for the remainder of the FY, due to the accelerated drive for efficiency and productivity improvements. As we have already projected EBIT contribution from the manufacturing division to fall by 30 per cent in FY09/12, we believe we have already imputed this risk into our forecasts.
After adjusting for KLK’s latest net debt position and updating for the market price of KLK’s investment in Yule Catto Plc, we raise our SOP-based fair value slightly for KLK to RM25.65 (from RM25.10). Given the recent share price correction, we are upgrading our recommendation on KLK to Market Perform (from Underperform).
IJM Land
Within expectations. IJMLD’s 3QFY12 core net profit of RM55.2m (+77.8 per cent yoy; +31.4 per cent qoq) came in within our expectation but missed market consensus by about 7 per cent on an annualised basis. Sequential turnover was largely flat, underpinned by progress billings from The Light development and Shah Alam 2.
Meanwhile, higher revenue from the hotel operations was offset by the lower rental income from AEON Melaka following the completion of disposal of the asset in Dec 2010. Hence, the stronger bottom line growth was largely led by higher margin product mix as well as better interest income during the quarter.
Note that headline 3QFY11 net profit was skewed by a one-off disposal gain arising from the sale of AEON Melaka amounted to RM62.95m.
More cash from assets sales. The recent disposal of three assets: (i) Menara IJM Land in Penang for RM50m; (ii) hotel in Mentakab for RM4.5m; and (iii) Property at Penang for RM24m to Inti College are expected to be completed in 1HFY13. We estimate that a gain of about RM24m will be recognised in FY13.
Management is likely to utilise the total proceeds of RM78.5m to pay off the recent acquisitions of land parcels (about 147 acres in Sandakan and 55 acres in Seremban). The company currently has a net cash of RM363.5m.
No change in our fair value of RM2.33, based on 15 per cent discount to RNAV. We maintain our Market Perform rating on the stock.
IJM Corporation
9MFY03/12 core net profit of RM365.2m (excluding RM40.2m forex losses) came in at 80-82 per cent of our full-year forecast and the full-year market consensus. However, we consider the results within expectations as we expect a weaker 4Q (Jan-Mar) on weaker construction and property billings on the back of the long Chinese New Year break in
Jan/Feb 2012.
Forecasts. Relatively unchanged.
Maintain Underperform. We are less enthusiastic on construction stocks as we believe their share price performance is likely to be muted over the FYE Mar EPS Revision ( per cent) next 6-12 months as: (1) The market begins to price in a higher risk Var to C.EPS ( per cent) premium for construction stocks ahead of the nation’s general election that will have be held by Mar 2013; (2) Even if the Klang Valley MRT project is to PE Band Chart start work as scheduled, initial progress is likely to be painfully slow due to bureaucratic hurdles, which means realistically, earnings impact from the PER = 24x. Klang Valley MRT may be a few quarters, or even a year or two away; and (3) There is generally a lack of credible new large-scale projects in the pipeline.
Indicative fair value is raised by 4 per cent from RM4.53 to RM4.72 based on “sum of parts”, having updated our indicative fair value for IJM Plantations and IJM’s cash balance.
IJM Plantations
IJMP’s 9MFY03/12 core net profit was above our and consensus forecasts, comprising 85-87 per cent of our and consensus’ FY03/12 estimates. The variance was the higher-than-expected continued recovery in FFB production during the quarter (up 13 per cent yoy), bringing 9MFY03/12 production growth to 12 per cent versus our 9.7 per cent growth projected for FY03/12.
Maintain Market Perform.
Wah Seong Corp
FY11 net profit of RM110.4m came in below expectations, achieving 92.3 per cent of our (RM119.5m) and 88.8 per cent of consensus (RM124.3m) full-year earnings.
Despite an improvement in revenue (+6.6 per cent); net profit was down (-8.3 per cent) mainly due to: 1) marginal losses from the engineering division; and 2) Weakness in the pipe manufacturing division; that had eroded profits received from the Gorgon and domestic pipe-coating projects. There was also a drop in associate earnings (-RM5.5m) in the engineering division.
Reiterate Market Perform. We await news of major new contract wins this year in the domestic market, especially related to the North Malay Basin project. We believe order flow will strengthen as offshore projects continue to progress along the industry’s value chain into production and transport. However, we believe this would only strengthen the FY13 earnings outlook.
Our earnings estimate revisions based on unchanged target PER of 13x FY12 basic EPS (as the 136m outstanding warrants are significantly out-of-the-money) implies a new fair value estimate of RM2.02/share (from RM2.19/share). We thus reiterate our Market Perform call on the stock.
CB Industrial Product
Beating consensus and our expectations. CBIP’s FY11 net profit was above both our and consensus estimates, comprising 108-110 per cent of FY11 forecasts. The variance was due to higher-than-expected progress billings in the oil mill engineering division in 4Q11, as PBT contribution from this division rose 84 per cent qoq from 3Q11. No dividend was declared in this quarter.
Note that CBIP had already declared an interim 10 sen net DPS in Jan, which was in respect of FY11. At this juncture, this would translate to net payout of just 13 per cent for FY11, lower than its usual 20 per cent payout. We believe CBIP could potentially pay out a final bumper dividend once the sale of its plantation subsidiaries are completed by end-Mar 2012.
We have raised our FY12 forecasts by 8.7 per cent to take the delay in the completion of the sale of the plantation subsidiaries to March 2012 (from Dec 2011) into account. FY13 forecasts are unchanged, while we introduce our FY14 forecasts.
Post-earnings revision, our fair value is raised to RM5.95 (from RM5.70) and we maintain our Outperform recommendation on the stock.
Lafarge (M) Cement
FY12/11 net profit came in above expectations, exceeding our forecast and the market consensus by 14-15 per cent. We believe the variance against our forecast came largely from the higher-than-expected selling prices (due to lower rebates given) and higher sales volume in 4QFY12/11. Lafarge declared a fourth interim single-tier DPS of 10.0 sen, bringing total DPS declared YTD to 34 sen (91 per cent payout ratio and a net yield of 4.6 per cent), which is in line with our forecast.
YoY. FY12/11 net profit grew by 7.6 per cent mainly due to: (1) Increase in sales volume due to higher domestic demand; and (2) Better performance of its ready-mix concrete business. This was offset by higher production costs primarily driven by increase in fuel cost and electricity tariff, as well as a higher taxation rate.
QoQ. 4QFY12/11 net profit jumped by 65 per cent largely due to strong demand driven by active domestic construction activities coupled with better selling prices. This was also helped by a lower effective tax rate (18.2 per cent vs. 26.1 per cent in 3QFY12/11).
FY12-13 forecasts are maintained, pending a meeting with management next week.
We expect Lafarge to benefit from the anticipated pick- up in domestic cement consumption in 2012 on the back of the implementation of large-scale public construction projects. In addition, we also expect Lafarge’s margins to expand slightly due to a higher domestic vs. export sales ratio.
Over the longer term, we believe domestic cement consumption is likely to be sustained on the back of continued infrastructure spending in Malaysia. Nevertheless, the better performance at Lafarge will be partly offset by higher energy costs (particularly thermal coal) and also higher effective tax rate going forward.
More importantly, we believe Lafarge’s valuations are rich. Indicative fair value is RM5.94 based on 14x FY12/12 EPS of 42.4 sen, in line with our 1-year forward target PER for the cement sub-sector.
Maintain Underperform. The saving grace is a decent net dividend yield of 4.6 per cent based on our DPS forecast of 34 sen in FY12/12.
Hartalega
3Q12 core net profit up by 28.6 per cent yoy. Hartalega’s 3QFY12 core net profit came in below our but in line with consensus expectations with 9M core net profit of RM159.1m (+7.7 per cent yoy) accounting for 71 per cent and 77 per cent of our and consensus estimates respectively. Key variance was lower-than-expected 9M EBIT margin of 29.5 per cent vs. our full-year EBIT margin assumption of 30.6 per cent.
3Q core net profit declined by 7.2 per cent qoq. Qoq, revenue grew 5.4 per cent thanks to a 4.1 per cent increase in sales volume (higher utilisation rate of 85 per cent in 3Q12 vs. 82.3 per cent in 2Q12) and stronger average US$ of RM3.15- 3.18/US$ in 3Q12 (vs. RM3.00-3.05/US$ in 2Q12).
This, however, was partly offset by a downward revision in ASP resulting from the stiff competition (as more customers shifted purchases from nitrile gloves to latex gloves). The situation was further aggravated by the increase in nitrile raw material costs that resulted in 3Q EBIT margin contracting by 3.2 per cent-pts qoq and EBIT declining by 6.6 per cent qoq.
Hartalega declared a second interim single-tier DPS of 6 sen (3Q11: 5 sen), which brought YTD net DPS to 12 sen (9MFY11: 9 sen, net DPS). We expect a final net DPS of 9 sen.
Hartalega announced a 1-for-1 bonus issue and 1-for-5 free warrants issue yesterday. We lowered our FY12-14 earnings forecasts by 0.2-3.4 per cent after reducing our FY12 EBIT margin assumption by 1.0 per cent-pt and updating for ESOS shares.
Following our earnings revision, our fair value has been lowered to RM7.12 (from RM7.19) based on unchanged target CY12 PER of 10x. Near term, we believe the share price would react favourably to the latest proposals, however, beyond that when focus returns to fundamentals, we think valuations are stretch and our calculation suggests that the proposals would be EPS dilutive. Thus, we are downgrading our call on the stock to Underperform from Market Perform.
Freight Management
1HFY06/12 net profit came in at only 43 per cent of our full-year forecasts and the full-year market consensus. We consider the results in line with expectations as we expect stronger contribution from the third-party logistics (3PL) segment and land freight in 2H in tandem with the pick-up in trade activity between Malaysia and Thailand.
Freight Management (FM) reiterated its target of around 10 per cent net profit growth in FY06/12. Going forward, FM will focus on key segments to drive its earnings, mainly the 3PL and warehousing and sea freight in both less-than-container (LCL) and full-container-load (FCL). In addition, FM highlighted that the drop in 3PL revenue by 2.9 per cent qoq was mainly due lower contribution from Shell.
We understand this was mainly due to some technical hiccups by Shell which lead to lower-than-expected outsourcing requirements to FM. Nonetheless, FM indicated that this has since been resolved and expects stronger contribution in the 3PL in the coming quarters.
We are cautious on transportation and logistics companies as the earnings risks have risen on the back of the global economic slowdown that translates to lower global trade activities.
However, we believe this will be mitigated by FM’s focus on the niche LCL with an estimate market share of 30-35 per cent in LCL sea freight segment in Malaysia as well as freight services that are focused in Asia where demand is expected to remain resilient.
Maintain Market Perform with an indicative fair value of RM0.92 based on unchanged 7x CY12 FD EPS of 13.1 sen.
Genting Singapore
Genting Singapore’s (GS) FY11 core net profit of S$1036.1m (ex-EI loss of S$12m) made up 100-102 per cent of our and consensus’ FY11 forecasts. For the first time, GS declared a tax-exempt dividend of 1 sen, translating to net payout of 11.9 per cent, or net yield of 0.6 per cent for FY11. This was a surprise, as we did not expect GS to declare any dividends until FY12.
In FY11, revenue from RWS rose 18.4 per cent yoy, while EBITDA rose by 23.7 per cent, on the back of the ramping up of facilities and stronger visitor volumes. On a qoq basis, casino revenue fell 2.3 per cent from 3Q11 on the back of a drop in VIP gaming volumes of 26 per cent and mass volumes of 2 per cent. EBITDA, however, rose by 8.2 per cent qoq, on better luck factor in the VIP segment of 3.9 per cent (from 3.17 per cent in 3Q11) and lower provisions on impairment of trade receivables of S$20.7m (versus S$56.9m in 3Q).
VIP revenue comprised 52 per cent of total GGR (down from 53 per cent in 3Q), but VIP market share rose to 47 per cent (from 44 per cent in 3Q11), while mass market share fell to 47 per cent in 4Q11 (from 48 per cent in 3Q11). Gross gaming revenue (GGR) per day works out to be about S$7m in 4Q11 (down 2.3 per cent from 3Q11’s S$7.2m) and for the third sequential quarter, fell behind MBS’ S$9.1m (or US$7.1m) per day by 23 per cent.
Based on FY11 numbers, RWS and MBS’ GGR per day imply a close to 47 per cent market share for RWS (down from c. 50 per cent in 9M11), while total annualised gaming revenue works out to be about S$5.7bn in 2011, 16.3 per cent higher than our projection of S$4.9bn.
AMResearch
Economic Update
Malaysia’s inflation rate, as tracked by the Consumer Price Index (CPI), fell to a 1-year low of 2.7 per centYoY in January 2012 (December: 3.0 per cent YoY), largely on a high-base effect and the receding impact of subsidy cuts in fuel and energy that were implemented last year.
The inflation rate was in line with both our house estimate and the market’s expectations (Bloomberg Poll).
While prices of Food & Non-Alcoholic Beverages grew at a slower rate on a YoY basis (4.8 per centYoY vs 5.1 per centYoY in December), an elevated growth rate of 0.8 per cent MoM was recorded, due to rising demand seen during the festive season as well as the impact of the recent floods in Malaysia and other ASEAN countries on food prices like vegetables and fish.
Slower rates were also seen across most of the other major groups.
The index for Non-Food rose at a slower rate of 1.7 per centYoY (December: +2.1 per cent), with the transport category easing slightly to 1.6 per centYoY (December: +1.9 per cent).
On the other hand, price increases in the Housing, Water, Electricity, Gas & Other Fuels sub-sector quickened slightly to +1.8 per centYoY (December: +1.7 per cent), reflecting the rise in demand for these items during the holiday period.
On the back of the current global economic moderation, which will pull domestic growth below trend in the first half-year, we continue to expect further moderation in inflation in the coming months. However, improvement in global economic performance would drive inflation in the latter part of this year via higher demand for crude oil and other commodities.
For Malaysia, we forecast inflation to average at around 2.5 per cent in 2012, with a sharp moderation experienced in the early months of this year.
Therefore, we HOLD our OPR forecast at 3 per cent. We believe that the central bank will continue to maintain its pro-growth policy, as inflationary pressure eases.
In the case of growth, we do not rule out the economy slipping below the average trend-wise growth of 5 per cent in 1H12, in line with the continued uncertainties in major industrial economies and slowing trend in the region.
Nonetheless, growth will rebound to 5 per cent-6 per cent by the second half of the year, given more clarity in the Eurozone and a much-stronger US economy and an accelerated roll-out of ETP
projects at home. This should support the domestic economy for a 5 per cent growth in 2012.
Lafarge Malayan Cement
Maintain BUY on Lafarge Malayan Cement with a higher fair value of RM8.43/share, based on an unchanged target PE of 18x on FY13F EPS, following our earnings upgrade. Lafarge reported FY11 results that came in 13 per cent-16 per cent ahead of both consensus and our forecasts. FY11 net profit jumped 8 per cent YoY, buoyed by stronger demand and the positive impact from an 8 per cent hike in domestic cement prices last March. Turnover rose 10 per cent YoY, backed by the price hike and an 8 per cent increase in domestic cement demand, although this was somewhat tempered by higher coal costs.
As the largest cement producer in the country with a market share of over 40 per cent, Lafarge is a prime beneficiary of an expected uptick in domestic infrastructure spending, particularly on select big-ticket jobs such as the Sg.Buloh-Kajang MRT project.
Additionally, cost pressures have eased with international coal prices sliding 6 per cent QoQ in 4Q11 (US$113/tonne). We therefore expect Lafarge’s manufacturing EBIT margin to improve further to 22 per cent in FY12F against an estimated 20 per cent in FY11.
Taking cue from the strong finish in 4Q, we raise FY12F-13F net profits by 5 per cent each. This is backed by our domestic cement demand growth assumptions of 4 per cent and 5 per cent, respectively. Lafarge declared a final dividend/share (DPS) of 10 sen, bringing total DPS for FY11 to 34 sen and topping our earlier forecast of 32 sen. Moving into FY12F, we believe that Lafarge’s generous dividend policy would continue in the absence of any major capex agenda. We have conservatively forecast FY12F-14F DPS at 34 sen to 42 sen on a payout ratio of 79 per cent-80 per cent (FY10-11: 91 per cent-98 per cent), translating into decent 5 per cent-6 per cent yields.
AirAsia
We maintain our BUY call on AirAsia (AA), but with a lower fair value of RM4.20/share (vs. RM4.40/share previously) following weaker-than-expected 4Q11 results. Our sum-of-
parts-derived valuation continues to peg AA at 12x FY12F earnings.
AA registered a core net profit of RM304mil for its 4Q11, which brought full-year core earnings to RM689mil. This is weaker than expected, accounting for 89 per cent of our forecast and 91 per cent of street estimates.
Given the weaker-than-expected results, we have trimmed our forecast by 6 per cent-7 per cent over FY11-13F to reflect mainly lower ancillary income assumptions — from RM50/pax to RM48/pax. We have also tweaked FY12F yields lower by 2 per cent to reflect a lower base in FY11F.
Exit of Firefly’s jet operations in December 2011 should result in improved pricing power for AA given that it now operates a monopoly in the local budget airline space. The anticipated yield recovery that was delayed in FY11 and pushed into FY12F should drive earnings growth in FY12F.
An every 0.5 sen improvement in yields should improve FY12F earnings by 15 per cent.
Beyond earnings fundamentals, our Buy recommendation is premised on value unlocking from the listing of Thai AirAsia and Indonesia AirAsia (both currently 49 per cent-owned,
but which we assume will be diluted to 45 per cent post listing for our calculations).
Current market price of RM3.70/share only captures 35 per cent of the value of AA’s holdings in these associates (See Table 2). An announcement on the listing of TAA is expected within the next 2 weeks.
Key 2012 valuation/earnings catalysts include: (1) Listing of associates; (2) Recognition of associate earnings in 2H12; (3) Commencement of AirAsia Japan; (4) Yield upside from AA’s monopoly in Malaysia’s budget airline space.
IGB Corp
We reaffirm our BUY recommendation on IGB Corporation with an unchanged fair value of RM3.50/share, based on a 22 per cent discount to our NAV estimate of RM4.50/share.
IGB reported a net profit of RM92mil for 4QFY11, taking its earnings for FY11 to RM238mil. However, stripping-off a gain on disposal of an associate company amounting to RM88mil, core net profit came in at a flat RM173mil. This was in line with our expectations, but came slightly short of consensus estimates, covering 94 per cent.
The group will be paying handsome dividend this year at 7.5sen/share — versus 2.5 sen in FY10 — after declaring a final dividend per share of 2.5 sen in 4QFY11.
The flat income can be attributable to operating losses at the property development division (PD) – circa RM18mil vis-a-vis an operating profit of RM40mil in FY10 – despite strong performance (+78 per cent YoY) from hotel unit and a decent growth of 8 per cent from the investment properties.
Buy. Fair Value RM3.50.
IJM Corp
We maintain our BUY rating on IJM Corp with an unchanged sum-of-parts-derived fair value of RM7.23/share.
IJM reported a 3QFY12 net profit of RM135mil, taking 9MFY12 earnings to RM370mil. While its 9M results accounted for 83 per cent of our full-year forecast (consensus: 70 per cent), we deem it to be in line on account of slower construction/property work progress expected during the Chinese New Year period.
Stripping off one-off charges in relation to unrealised forex losses on its US$-denominated borrowings in India totalling RM34mil (9MFY11: +RM26mil), core net profit would have risen by 24 per cent YoY on better contributions from its construction, industries and plantation divisions.
We also like IJM for its diversified earnings base. IJM Plantations (28 per cent of FY12F group earnings) is poised to double its Indonesian plantation landbank to 40,000ha in three years’ time. Average CPO price in 9MFY11 was RM3,027/tonne vs. RM2,671/tonne a year earlier (+13 per cent YoY).
IJM Land
We reaffirm our BUY recommendation on IJM Land, but with a lower fair value of RM3.70/share (vs. RM4.00/share previously), based on a 10 per cent discount to our downward revised FD NAV estimate of RM4.10/share (vs. RM4.46/share previously). Our rating is maintained to reflect the deep discount of 46 per cent to its NAV estimate.
Kencana Petroleum
We maintain our BUY call on Kencana Petroleum (Kencana) with an unchanged fair value of RM3.54/share, pegged to a CY12 PE of 22x against the merged Kencana-SapuraCrest’s earnings.
Kencana has secured its first official contract, amounting to RM101mil, for this year from Murphy Sarawak Oil Co, Ltd to engineer, procure and construct offshore substructures, template and related services for the Patricia and Serendah offshore platforms which are part of SK309 field development located offshore Bintulu, Sarawak. The structures are expected to be constructed from 1QCY12 to 3QCY12.
This is just the start of the group’s order book accretion, given Petronas’ spending programme of RM300bil over the next five years, which includes enhanced oil recovery and marginal field jobs. We understand that the group is expected to secure two well-head platforms for the Bunga Dahlia and Teratai fields, connected to nine fields in Blocks PM301 and PM302 and in the Bergading contract area. Hence, we maintain FY12F-FY14F earnings based on annual new orders of RM1.8bil-RM2bil.
We remain positive on Kencana’s synergistic merger with SapuraCrest Petroleum, which may be completed in March-April this year. While Kencana has been expanding its yard and commenced the construction of two new tender rigs, its merger partner has been penetrating new markets recently, notably Brazil. Petronas Gas
We maintain our BUY recommendation on Petronas Gas (PGas) with an unchanged sum-of-parts- (SOP) based fair value of RM17.62/share, implying an FY12F PE of 23x.
We maintain PGas’ FY12F-FY14F earnings as its 9MFY11 net profit of RM1,081mil was largely within our expectations — just 2 per cent below our 9MFY December 2011 forecast of RM1,183mil due to higher plant maintenance costs. Street estimates are unavailable for comparison due to PGas’ change in financial year-end from March to December 2011.
A final single-tier dividend of 25 sen/share was declared, bringing 9MFY11 dividends to 40 sen/share. This translates into a payout ratio of 73 per cent, slightly above our FY12F-FY14F
assumption of 70 per cent-72 per cent.
We maintain our dividend estimates given the group’s upcoming capital outlays for the Lekas regassification plant, Kimanis power plant and potential Pengerang regassification/power development.
Wah Seong Corp
We maintain our BUY call on Wah Seong Corporation, but with an unchanged sum-of-parts-based fair value of RM2.45/share, which implies an FY12F PE of 13x — a 20 per cent discount to the oil & gas sector’s 16x.
We maintain Wah Seong’s FY12F-FY13F earnings as the group’s FY11 net profit of RM110mil came in almost on the dot of our forecast, but 9 per cent below street estimate’s
RM121mil.
But the group declared a final dividend of 3 sen/share to bring FY11 dividend to 6 sen/share — translating into a 40 per cent payout ratio. This was 20 per cent below our forecast and 10 per cent below consensus. Hence, we have cut our FY12F-FY14F dividends by 10 per cent-15 per cent.
WCT
Maintain BUY on WCT with a higher fair value of RM3.00/share – pegging the stock to:- (i) a lower discount rate of 15 per cent (previously: 25 per cent) to its revised sum-of-parts value; and (ii) a one-notch increase in target construction PE to 15x to reflect an upturn in its new contract prospects.
We have trimmed our FY11F-12F forecasts by 4 per cent-16 per cent to adjust for the actual value of jobs totalling RM187mil that was secured in 2011 compared with our earlier estimate of ~RM2bil.
But, we believe WCT’s second contract for the year — a RM300mil building job in Sabah announced yesterday — signifies its improving order book prospects. This brings total jobs secured to-date to RM600mil, and already surpasses the RM187mil secured for the whole of 2011.
* 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.
