KUALA LUMPUR, Feb 3 — This is a selection of morning calls by local research houses for the day.
HwangDBS Vickers
Market Preview
Whilst the underlying market tone remains bullish — following yesterday’s 15.8-point surge in the FBM KLCI — we might see a slower climb in the bellwether today. On the chart, the benchmark index’s immediate resistance level stands at 1,555.
Over on Wall Street, key US equity indices posted mixed changes of 0.1-0.4 per cent at the closing bell. Essentially, investors are waiting for fresh market catalysts after riding on a multi-week rally.
Meanwhile, the rotational plays on our local bourse — especially among the small-mid caps — could persist amid the positive momentum. Counters that may be of interest today include: (a) Cypark Resources, which has secured government approval for a concession to develop a sanitary landfill project in Negri Sembilan; and (b) Knusford, after being appointed turnkey contractor and master developer for the transformation of Johor Baru central district.
Coastal Contracts
Coastal has a healthy current order book of RM610m, sustainable till 2012. We expect operating margins to fall to pre-2009 levels of c.20 per cent, though vessel orders should remain strong on the back of increasing investments by Petronas and replacement demand in the face of diverging utilisation rates between old and new fleets.
The recent joint venture announced on 22 Dec 2011 between Coastal and various parties to bid for offshore O&G contracts could jump-start the company’s fabrication segment on top of greater sales in the Malaysian region.
Coastal’s venture into higher value OSVs is evident as it is constructing two subsea vessels (worth US$105m) involved in pipe and platform servicing, to be completed in end 2013.
Indonesia will be a key driver for Coastal, as we understand the company is venturing into FPSO and LNG segments to tap into upstream markets. Coastal is tendering for a 20-year FPSO contract in Indonesia with a contract value that could potentially quadruple its existing order book.
On the LNG front, Coastal is looking into a similar long contract but both will be mutually exclusive due to capital constraints. The company will likely seek debt (net cash position) and capital markets for financing.
Coastal’s FY12F PE of 6x is unjustified vs the regional average of 16x. It remains a prime candidate for privatisation, considering its strong track record in performance delivery. The stock is supported by persistently high crude oil prices (hovering near US$96 per barrel) and offers a cheap proxy for the strong correlation.
Buy. Price Target: 12-Month RM3.25
Axiata Group
The India Supreme Court ruled that 122 cellphone licences that were issued in 2008 be revoked, including Idea Cellular’s nine licences and four from Spice Communications Ltd, which Idea has a 41 per cent stake in. Axiata owns c.20 per cent in Idea Cellular.
However, the company would be allowed to continue operations for the next four months until a new auction for licences. We understand this ruling is due to corrupt practices in the sale of the licences at lower than market prices, costing the Indian Treasury as much as US$36bn (RM109.4bn) in revenue.
We expect minimal earnings impact from this as it is not a major contributor to Axiata’s bottom line (Idea contributes associate income to Axiata; it made RM598m in 2010, which translated to a share of RM119m — or 3.7 per cent — to Axiata’s FY10 pretax profit). We maintain our Hold call with RM4.80 TP pending further updates on the matter.
OSK Research
Technical analyser
WTI Crude Futures
The commodity’s price has been weakening since early in the year but it has to break a number of support levels to confirm this weakness. Otherwise, the near-oversold daily RSI may bring about the return of buying.
The commodity’s price continues to weaken as the short-term downtrend line that started from the “Tweezer Top” high of 4-5 Jan is extending. After appearing to hit bottom at USD97.40, the commodity rebounded and managed to trade above the USD100.40 resistance level, as we highlighted in the previous week. But its failure to close above this resistance, which was previously broken on two occasions, shows that sellers are still in control.
A negative candle of “Shooting Star” was formed on both days of the failed breakout, and a continuation of this weakness was confirmed by the new low on a close below USD97.40.
The declining 50-day MAV line seems to concur with this weakness. This MAV line has proved to be a good gauge of the commodity’s trend for more than a year now.
However, the strong rally of Oct-Nov 2011 created many support levels, the nearest support being at USD95, where the 200-day MAV line currently lies, and also the low of Nov 2011. The 100-day MAV line lies just below too.
Note that the easing in the upward momentum in the past 3 months pushed the daily RSI to its most oversold level since Oct 2011. The formation of a positive candle from now on could be a catalyst to a bottoming process.
Support is also expected at the December-low of USD92.50, also a 38 per cent retracement from the Oct-Nov rally, followed by the psychological USD90 level.
Therefore, these support levels have to be violated to keep the commodity’s short-term downward bias intact. In fact, a close below USD92.50 may suggest that the downtrend will continue since the peak in May 2011.
Similarly, weakness was also seen in the Brent, which is now holding above the USD110 level, and the crude oil producers’ index — the NYSE Arca Oil Index — which made higher lows in January.
Failure to do so could see the return of buyers, which is only confirmed by the break of both the price and the daily RSI short-term downtrend lines.
IJM Corporation Bhd — Hot Stock
IJM’s about 4 per cent gain yesterday basically confirms that the consolidation of the Sept-Nov 2011 rebound has come to an end and the stock is expected to start extending the uptrend. Traders may consider accumulating the shares between the RM5.60 and the current level.
Having said this, the stock may start to take a breather after yesterday’s gain before resuming on its upward charge. We are eyeing the RM6.60 and RM6.80 levels as the upside targets. Our cut-loss level is pegged at below the RM5.76 level, or Tuesday’s closing price.
Axiata
Axiata’s share price may trade higher if it can hold above its support level. After failing to break out above RM5.14 in early Jan, the stock tumbled rapidly. The selloff was severe as it broke below both the short-term uptrend and the 200-day MAV line. However, its longer-term uptrend is still intact, with its price action this week suggesting that at least a short-term bottom may be near.
The “Long Black” formed last Tuesday on heavy volume did not induce further selling. Instead, a positive “Hammer” followed. Tuesday’s low of RM4.65 is in fact a support level, which it tested multiple times last year.
The daily RSI is the lowest since August as selling could have been overdone. But a bottom can only be confirmed on a close above the “Long Black” candle of RM4.76, at which a position can be initiated, with a stop loss on a close below RM4.65.
Should this happen, it may indicate that the high volume of the past few days was actually accumulation volume, just like the low of Aug. The price target is RM5.70 based on the width of consolidation in the past 6 months, while a strong move could see the stock testing RM6.50, a measured move based on the 2010-11 rally, provided that RM5.14 is violated. Support lies at RM4.50, the violation of which could see the end of the 3-year rally.
Nicorp
Nicorp’s share price may climb after closing at the highest in almost 4 years. The stock has been consolidating sideways between RM0.04 and RM0.08 since early 2008. It got a new lease of life after closing above the resistance level yesterday.
The break looks good as it was accompanied by significant volume increase, signalling buying strength. Yesterday’s move indicates that the false break on huge volume in Nov last year was in fact an accumulation process.
As such, the stock is expected to trade and a purchase can be made on another close above RM0.08, with a stop loss on close below the Jan low of RM0.05. A more conservative trade may be to wait until the psychological RM0.10, yesterday’s intraday high, is broken before initiating a position.
A price target is RM0.12, a measured move based on the sideways move, while a strong move could even see the stock reaching RM0.15, the high of late 2007.
Singapore Airlines
SIA reported a core net profit of SGD147m in 3QFY12, with full-year earnings of SGD325.5m fallings short of our forecast and that of and consensus, only accounting 56-60 per cent of full-year expectations.
The shortfall in earnings was attributed to losses from the cargo side as well as lower contribution from JVs and associates coupled by the higher depreciation charges. As anticipated, yields although seasonally stronger q-o-q, came in relatively flat y-o-y and YTD.
We maintain our earnings and BUY call pending its upcoming analyst briefing later today, from which we hope management could share some light on the near-term outlook of the industry and the carrier. Our FV of SGD12.37 is premised on a P/BV of 1.1x.
Malaysia Building Society
MBSB’s FY11 results were in line with consensus and our expectations at 104.0 per cent and 104.6 per cent of full-year earnings forecast respectively.
While we make no adjustments to our FY12 forecasts, and introduce our FY13 estimates, we note that the group’s asset quality continues to improve as it successfully recorded a single-digit net impaired loans ratio (for the first time in history — 8.5 per cent). Our FV is maintained at RM2.70 based on 2.6x FY12 PBV. Maintain BUY.
StarHub
StarHub reported in line FY11 results, with revenue up 3 per cent and EBITDA a stronger 12.3 per cent y-o-y on good cost management and improved postpaid revenue momentum.
The steady core EBITDA margin posted in 4QFY11, despite a jump in handset cost, was a pleasant surprise after the acute margin pressure witnessed at M1 earlier.
We tweak our forecast downwards by <1 per cent for FY12/13 following the results and retain our DCF FV of SGD2.80 (WACC: 8.5 per cent, TG: 1.5 per cent).
Starhub remains a NEUTRAL as its longer-term prospects are clouded by the content carriage ruling, which dilutes its pay-TV franchise and competitive headwinds from NGN services.
Time dotcom
With Time dotCom (TDC) expected to announce its 4QFY11 results on 16 Feb, we are anticipating higher income from wholesale and corporate segments to bring its 4QFY11 revenue to RM93.3m.
We are also revising our dividend income forecast from its holding in DiGi to RM47.3m, nudging up core profit (ex-tax) to RM96.8m.
Following the upgrade of DiGi’s FV to RM4.00, TDC’s SOP valuation increases to RM0.79.
Stripping out the market value of its DiGi stake, the street is only valuing the stock at less than 10x FY12 PER (domestic telcos trade at an average of 18x FY12 PER).
Our FV of RM0.79 implies a potential upside of 14.5 per cent from the current price.
RHB Research
KPJ Healthcare — Top Story
The anticipated listing of Integrated Healthcare Holdings (IHH) in mid-2012 is expected to stir up investor interest and drive a rerating of the healthcare sector.
We expect KPJ’s valuations to move closer to the new benchmark set by IHH over the longer term.
Furthermore, KPJ’s aggressive local expansion plans should help the company maintain its dominance in Malaysia over the longer term.
Our FY11-13 earnings forecasts are tweaked by -1.1 per cent, -10.0 per cent and +1.0 per cent respectively after adjusting for the rescheduled opening of the Bandar Baru Klang Specialist and Muar hospitals and updating for ESOS shares.
Fair value raised to RM5.09 (from RM4.71) after ascribing a higher CY12 target PER of 20.5x. Maintain Outperform.
Sector Update
Rubber Gloves — Neutral
Following our Top Glove upgrade last month, latex prices have rebounded to around RM7.50/kg due to price supporting measures by rubber-producing countries.
Nevertheless, latex prices should continue to weaken further towards the RM7.00/kg mark over the next few months as worldwide demand for rubber remains weak.
FY11-13 earnings forecasts for the glove companies (excluding Top Glove) raised by 3.4-20.8 per cent after adjusting our assumptions to be in line with Top Glove.
Given the stronger earnings outlook, we raised our target PER for Kossan and Hartalega by 1x while keeping our target PER of 8x unchanged for Adventa due to higher earnings risk. No change to our Market Perform call for these stocks and our Neutral stance on the sector.
Education
According to a government study, around 54 per cent of private nursing diploma graduates were unemployed three to four months after graduation in 2010, as compared with 21.7 per cent in 2008.
Dr Michael Jeyakumar from the Parti Sosialis Malaysia stated that the oversupply of nursing graduates was expected to continue, as around 12k students will be graduating p.a, while the private sector only needs about 1.5k new nurses p.a. (The Star)
Neutral, as the Government has already taken steps to curb the oversupply of nursing students. These steps included: 1) Announcing a moratorium on new nursing schools; and 2) Raising the entry requirement for nursing programmes. The higher entry requirement has already impacted Masterskill’s enrolment in 2011, with total student population declining by about 18 per cent in 3Q11 from its 3Q10 numbers.
CIMB
According to the Financial Daily, Muhibbah Engineering and CIMB could end up as shareholders in Asia Petroleum Hub (APH) through a debt-to-equity swap and take charge of the Johor hub. The daily reported that APH owes CIMB RM840m, which was part of a RM1.4bn bridging loan facility provided back in 2006.
From our conversation with management, we understand that CIMB does not intend to end up as a shareholder of APH but rather, CIMB has been seeking suitable investors to take over APH and complete the project.
In addition, we gather that provisions have already been made with respect to the loan, but not full provision as management still believes the project is viable. No further provision required at this juncture.
Finally, although the loan has only be partially drawn down, we were made to understand that there were no plans for further disbursements at this juncture. However, we would not discount the possibility that APH may be able to draw down on the loan if new investors are found to complete the project.
Fair value of RM6.20 and Underperform recommendation maintained.
MBSB
MBSB’s 4Q11 results were in line with our and consensus expectations. Pre-tax profit was down 22 per cent qoq due to weaker net interest income (-5.5 per cent qoq) and non-interest income (-25 per cent qoq) and higher loan impairment allowances (+26 per cent qoq).
4Q11 net profit (-12 per cent qoq), however, was cushioned by a lower effective tax rate of 17 per cent (3Q11: 27 per cent).
Gross loan growth was flat qoq and hence, 2011 loan growth was 22.8 per cent, i.e. short of our 30 per cent expectations. Gross impaired loan ratio improved to 15.9 per cent (end-3Q11: 21.9 per cent) while LLC was 83.5 per cent. Deposits were flattish qoq while LDR was 112.4 per cent.
A higher-than-expected final gross DPS of 7 sen (4QFY10: 9 sen) was declared, bringing full-year gross DPS to 12 sen (FY10: 9 sen).
We will reassess our forecast assumptions and fair value post the analyst briefing. Fair value of RM1.85 and Market Perform recommendation maintained for now.
Proton
Former CEO Tengku Tan Sri Mahaleel will return to Proton and assume the position of chairman, replacing incumbent Datuk Seri Mohd Nadzmi. (Business Times)
Tengku Mahaleel left Proton in Sep 2005 after nine years, after the Proton board did not renew his contract.
Neutral. Fair value RM5.50
* 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.
