KUALA LUMPUR, Feb 13 — This is a selection of morning calls by local research houses for the day.
From HwangDBS
The benchmark FBM KLCI could consolidate today following an increase of 40.8-point or 2.7 per cent in the last fortnight. Still, our local bourse would likely show resilience as investors who have missed out on the earlier market run-up may be waiting to buy on weakness. On the chart, the bellwether may find immediate support at the 1,555 level.
Over on Wall Street, after the recent market rally, major US equity indices dropped between 0.7 per cent and 0.8 per cent last Friday pending the emergence of fresh market developments.
Back home, stocks that may be of added interest today include: (a) Time Engineering, amid a weekly business report saying that three interested bidders are eyeing to acquire Khazanah Nasional’s 45 per cent stake in the company; (b) BIMB, after a local media reported that its subsidiary Bank Islam is in talks to buy a stake in an Indonesian Islamic lender; and (c) IOI Corporation, following a news article stating that it is considering to re-list its property arm.
Newsflow for MRT gains traction
There has been more positive newsflow on the MRT project. The PDP agreement has been officially signed with announcements made by Gamuda and MMC. As expected the fee is 6 per cent less value of the tunnelling works for the Sungai Buloh to Kajang (SBK) line MRT. Apart from this the PDP will receive in total 13.9 per cent reimbursable costs to cover overheads, engineering (design and supervision) and site investigation where the breakdown is – i) 5.3 per cent to cover overheads where 456 workers have been hired ; ii) 2.9 per cent for engineering and consultants conducting site investigations, topographical surveys and iii) 5.7 per cent for engineering consultants, architects, quantity surveyors and system integrators. The other important point is the entire quantum of allowed cost overruns or contingency funds is capped at 15 per cent where anything over this limit will be borne by the PDP.
Tanjung Offshore; Fully Valued; RM0.925
Price Target: RM0.70; TOFF MK
Cessation of Citech’s operation
Tanjung Offshore announced that its wholly-owned subsidiary, Citech Energy Recovery Systems UK Limited (Citech) has commenced the cessation of business operations with effect from 10 Feb 12.
Highlights
Plantation Companies
Weaker-than-expected exports
Jan12 palm oil output was in line, but exports were below. This pushed inventory back to above 2.0 million MT – higher than expected. CPO prices have moved up since Dec11, but olein prices have fallen; expect a correction after recent rally. Top picks: Sime Darby, First Resources.
From OSK
Short-term outlook on daily chart: The index’s ascent continues after it broke through the tough resistance at the 5 Aug gap of 1,532.5 pts two weeks ago, and is now even above the psychological 1,550 level. Thus we expect the index to climb higher from here. There is still some room in the daily RSI before it gets overbought but resistance lies not too far ahead at the Jun 2011 high of 1,570, which was a minor peak in late Jun and Jul 2011. Strong support remains at the latest low at the psychological 1,500 pt-level, where the 200-day and 50-day MAV lines lie. The strong upward momentum in the past 2 weeks should stay intact as long as the index stays above the 3-day low of 1,540 pts.
Plantations (NEUTRAL) Plantation stocks continued to inch up in the past month and started hitting our fair values. With inventory remaining above 2 million tonnes and CPO price being rangebound, the rally has been driven by liquidity rather than fundamentals. We tweak our target PE multiples up a notch to allow for a little more upside, unless the stock still has some upside to our existing FVs. We continue to believe that palm oil price will see a period of lull due to abundant supply this year, before starting a structural uptrend late 2012. Maintain Neutral on the sector.
Gamuda (GAM MK, BUY, FV RM4.57) Gamuda announced on Bursa last Friday that its jointly controlled entity, MMC Gamuda KVMRT (PDP) SB has signed an agreement with MRT Corp to formalise its status as the Project Delivery Partner (PDP) for the Klang Valley My Rapid Transit (KV MRT) project. Under the agreement, the PDP will receive a fee of 6 per cent of the total aggregate work package contract value. Taking a more conservative stance to account for potential delays in construction works as well as possible variation orders in excess of the 15 per cent buffer allocated due to unforeseen fluctuations in prices of building materials, we are only incorporating half of the agreed 6 per cent management fee (which translates into RM180m for Gamuda’s share of profit) spread evenly from mid-2012 to end-2016. With that said, our FY13 and FY14 earnings are bumped up by 5.5 per cent and 4.7 per cent respectively while our FY12 estimates are left unchanged as we assumed contribution to only come in by mid-2012. Maintain BUY at revised FV of RM4.57 (from RM4.46 previously) based on our SOP valuation as we foresee more positive news flow in the run-up to the official awards of more work packages on the KV MRT SBK line.
MMC Corporation (MMC MK, Trading BUY, FV: RM3.70, Last Close RM3.00) MMC’s confirmation that it has been appointed the PDP to the SBK line of the MRT jointly with Gamuda leads us to tweak up our FV to RM3.70 given the positive sentiment. While MMC’s share price has appreciated by some 20 per cent over the past 2 months on the anticipation of MRT contracts, we believe that the award of the tunnelling portion of the MRT and the IPO of Gas Malaysia will further spur positive sentiment even though we have priced these into our new SOP FV of RM3.70. Longer term catalysts will be Malakoff’s re-listing and the acquisition of KTMB. MMC remains a Trading Buy for us.
TGOFFS (FV RM0.53– SELL) Corporate News Flash: Terminating Its UK Business
From RHB
Banks – Easing Headwinds + YTD Underperformance = Sector Upgrade Neutral (Upgraded)
Sector Update
Public Bank – Fair value at RM15.00 (from RM14.10) Outperform
Maybank – Fair value at RM9.47 (from RM7.33) Outperform (upgraded)
CIMB – Fair value at RM7.41 (from RM6.20) Market Perform (upgraded)
AMMB – Fair value at RM6.23 (from RM4.99) Market Perform (upgraded)
HL Bank – Fair value at RM11.01 (from RM9.90) Underperform
Affin – Fair value at RM3.10 (from RM2.37) Underperform
AFG – Fair value at RM3.56 (from RM3.25) Underperform
MBSB – Fair value at RM2.32 (from RM1.95) Market Perform
RCE – Fair value at RM0.57 (from RM0.50) Market Perform
- We have turned more positive on the banks and consequently, upgraded our call to Neutral from Underweight. The key factors that underpin the change in our sector view are: 1) easing macro headwinds; and 2) the sector has underperformed the broader market and regional peers YTD.
- While we think the Eurozone is unlikely to avoid a recession in 2012, we think the worst has likely past. Meanwhile, the recovery in the US economy appears to be gaining momentum following a string of positive economic data in early-2012. These suggest that the risk of a double-dip global recession is receding and outlook is becoming less gloomy, in our view. This has improved the odds for an upgrade to our real GDP growth forecast of 3.6 per cent for 2012.
- YTD, banks have underperformed the broader market and regional peers. We think the sector’s FY12 PER of 12.4x is attractive vs. FBM KLCI of 14.8x. Moreover, we think the slower sector earnings growth ahead has largely been priced in (our forecasts are generally in line with consensus). Thus, we do not expect the sector to underperform the market too significantly ahead and see share price weakness as buying opportunities for the economic upcycle ahead.
- We revert to an earnings-based valuation methodology to derive our fair value estimates for the banks (previously combination of PER and P/BV multiples). Overall, we have raised our fair value estimates for the banks by 6.5 per cent and 30.5 per cent. Maybank and Public Bank are our top sector picks.
Sector Update
Plantation – Only Time Can Resolve The Indonesian Tax Structure Problem Overweight
Sector Update
- The seasonal decline in production continued in Jan as CPO production fell 13.8 per cent mom. Exports fell by a slightly smaller 13.2 per cent mom also due to seasonal factors, post-festive season. Despite the lower CPO stock levels, annualised stock/usage ratio rose to 11.1 per cent (up from 10.5 per cent in Dec), mainly due to the smaller export volume in Jan.
- Malaysian refiners continue to suffer the “pain” of Indonesia’s revised export tax structure, with the latest blow being the new Preferential Trade Agreement signed between Indonesia and Pakistan. Nevertheless, we believe this “pain” will only last for a couple of years, at most, as the margin gap should narrow and eventually disappear once more downstream facilities are set up in Indonesia within the next couple of years, and the downstream capacity in Indonesia matches its upstream output.
- Maintain Overweight on the sector for now, as we expect 1H CY12 to record stronger CPO prices amidst a bullish fundamental outlook. In 2H CY12, we expect to see weaker prices, on the back of seasonal factors for CPO and a potential improvement in soybean crop outlook for 2012/13. Our top picks remain upstream players like Genting Plantations and TH Plantations.
Corporate Highlights
SEG International – No Signs of Slowing Down Outperform
Visit Note
- The management expects total student population of 35k (vs. our previous assumptions of 37k) by end-2012, implying yoy growth of almost 30 per cent from the current 27k.
- After its successful collaboration with the Vietnam government, management is looking at the possibility of collaborating with other governments, especially within the ASEAN region.
- Our FY11-13 fully-diluted EPS forecasts have been cut by 0.3-9.0 per cent p.a. as we tweak our student growth assumptions to be in line with management’s guidance. Fair value is revised to RM2.00 (from RM2.15), based on an unchanged target 16x FY12 PER. Maintain Outperform.
- Related story : SEGI Results Note – No Surprises (10 Nov 2011); Education Sector Update - Lacking Excitement (29 Dec 2011)
Gamuda – PDP Terms For Klang Valley MRT Announced Market Perform
Company Update
- The agreement between MRT Co and project delivery partner (PDP) for the Klang Valley MRT project MMC-Gamuda JV has been signed with key terms being: 1) The PDP will be paid a fee equivalent to 6 per cent of total contract value; 2) If the actual project cost exceeds the target cost by up to 15 per cent, the PDP fee will be reduced in accordance with an agreed formula; 3) The PDP will have to shoulder the balance if the actual project cost exceeds the target cost by 15 per cent; and 4) The PDP is liable to a liquidated and ascertained damage (LAD) for late delivery of RM500,000/day.
- We are raising FY07/13 and FY07/14 net profit forecasts by 11 per cent and 34 per cent, having reflected the PDP fee from FY07/13 and contribution from the RM8bn tunnelling contract of the Sg Buloh – Kajang Line (SBK) Line of the Klang Valley MRT project from FY07/14.
- Fair value is raised from RM3.25 to RM3.56, having raised our valuations for potential earnings from the Klang Valley MRT project by 57 per cent from RM718m to RM1,128m based on a more generous PDP fee vis-à-vis our previous expectations. Maintain Market Perform.
MPHB – Sells down stake in Associate, Philippine Racing Club Outperform
News Update
- MPHB has sold a 13.1 per cent stake in Philippine Racing Club Inc. (PRCI) at an average price of Peso 9.50/share, for Peso 722.4m (RM51.64m). Post-disposal, MPHB will own 19.9 per cent of PRCI, and will no longer equity account it as an associate. MPHB will record a dispoal gain of RM17.34m.
- We are positive on this move, as it shows that MPHB is continuing with its restructuring plans to dispose of its non-core assets and focus on gaming. Based on our estimates, this disposal would have a less than 1 per cent negative impact on MPHB’s earnings, after taking into account the loss of associate profit and the lower interest expense post-debt repayment.
- Given the minimal impact, we maintain our forecasts for now. However, we have revised our SOP valuation for MPHB to RM3.15 (from RM3.10), after taking into account the reduced stake in PRCI, the lower net debt post-disposal and PRCI’s current market value. Maintain Outperform.
CSC Steel – 4QFY12/11 in the red on inventory writedown Trading Buy
Results Note
- FY11 net profit exceeded our full-year forecast by 42 per cent, but missed the full-year market consensus by 22 per cent. The variance against our forecast largely came from a lower-than-expected writedown of inventories. CSC Steel also declared a 7sen single tier dividend (net yield of 4.9 per cent).
- Qoq, 4QFY12/11 was in the red mainly due to a RM6.4m inventory writedown as a result of comparatively lower selling prices of CSC Steel’s products since early 2012.
- Forecasts maintained. Indicative fair value is RM1.66 based on 0.8x book value.
Regional Equities
Indonesia Banks : Opportunity To Accumulate Overweight
Sector Update
Bank Rakyat – Fair value IDR8,200 Outperform
Bank Mandiri – Fair value IDR7,900 Outperform
BCA – Fair value IDR7,500 Market Perform
Bank Danamon Fair value IDR5,500 Outperform
- The banking sector was a major loser last week that was sparked by concerns of higher inflation going forward combined with the possibility of a reversal in funds flows and risks of NIM compression.
- There are growing calls for a rethink on the implementation of higher fuel prices that we think could postpone the hikes and ease inflation concerns in the immediate term.
- We believe that the IDR could be supported by new BI regulations requiring exporters to repatriate foreign currency proceeds. In addition, the recent sovereign upgrades by Fitch and Moody’s and the passage of the Land Acquisition Bill through parliament could quicken the pace of infrastructure projects that could help to sustain new investment flows.
- Despite NIM pressures, we think banks still have room to maneuver to cushion the impact on NIMs. These measures include taking LDR higher and refocusing on higher yielding loan segments. The larger banks also retain some room to trim deposit rates.
- We retain our Overweight stance on Indonesian banks given our view that fears of a global economic meltdown look like receding. Continued weakness in banking stocks should present an opportunity to accumulate positions for longer term outperformance.
Macro
GDP – Resilient GDP Growth In 4Q 2011, Odds Of An Upgrade Improving
Economic Update (published 10 Feb 2012)
- The country’s real GDP growth is estimated to have softened to 5.4 per cent yoy in the 4Q, after bouncing back to +5.8 per cent in the 3Q. The moderation in real GDP growth is expected to persist into 2012, due to global economic slowdown amidst a lingering sovereign debt crisis in the Eurozone.
- However, with the Eurozone pulling back from a brink of a meltdown coupled with the US economic recovery building momentum, risk of a double dip global recession is receding. This increases the odds for an upgrade to our GDP growth forecast for Malaysia in 2012. We currently expect real GDP growth to slow down to 3.6 per cent in 2012, from +5.2 per cent estimated for 2011.
