Analyst call May 21
UPDATED @ 11:30:22 AM 21-05-2012
KUALA LUMPUR, May 21 — This is a selection of morning calls by local research houses for the day.
The selling may not be over yet for Asian equities following Wall Street’s extended losses on Friday. Major US equity indices lost between 0.6 per cent and 1.2 per cent at the closing bell dragged down by continued political uncertainty in Greece.
Back home, the FBM KLCI could face renewed downward pressures today. On the chart, the benchmark index may test the immediate support level of 1,530 ahead.
Hoping to buck the weak market trend are stocks with positive news flows such as: (a) Favelle Favco, which has secured orders to supply cranes amounting to RM60m; and (b) TAS Offshore, after clinching contracts for the sale of oil & gas support vessels valued at RM98m.
From the Chartroom
Last week, the FBM KLCI came under pressures to sink 51.9-point or 3.3 per cent below the preceding Friday’s level. But the selling may not be over yet even though our Malaysian bourse is in an oversold territory. Beyond a likely intermittent technical rebound, the bearish market trend is expected to resume. On the chart, we reaffirm our stance that the FBM KLCI is stuck in a downtrend, probably sliding towards the psychological mark of 1,500 next.
There is strong interest in Gas Malaysia’s June IPO, not surprising amid the uncertain environment. It will be a cash cow with a dividend policy of 75 per cent of PAT (100 per cent in the first year with 5.5 per cent yield for 6-months). The listing market cap of RM2.8bn is in line with our SOP but there could be upside in its share price as yield compresses in a more risk adverse environment.
It will have a neutral impact on our earnings and SOP assuming c.RM60m p.a. in interest savings as the RM300m proceeds is used to pare down holding company debt and its stake is diluted to 31 per cent. There will also be a one-off gain in 2Q because of low book value at MMC.
Malakoff is targeting for listing in 2013, which is timely with the expansion of Tanjung Bin and more recently, a 40 per cent stake in Hidd Power, a power generation and water desalination plant in Bahrain. Assuming MMC’s 51 per cent stake in Malakoff is reduced to 38 per cent (associate), debt would be reduced by RM12bn on its balance sheet, and gross gearing to 0.7x from 2x.
Its power business strategy is to negotiate the renewal of its PPA (particularly for Segari, which expires in 2017) and participate in greenfield projects. The Prai power tender is more competitive because it is the first project to include international bidders, and project IRR could drop to 8-10 per cent from mid-teens.
PTP on expansion drive. PTP is confident of growing TEU by 11 per cent to 8.3m this year. It may spend up to RM1bn to expand berths 13 and 14, which would take capacity to 12m TEU from 9m now. As a trans-shipment port, PTP is also less affected by slowing global trade. We do not discount a listing of its port business (including Johor Port) once it rationalises its container business to Tanjong Bin.
BUY, TP RM3.70. Besides on-going efforts to unlock value, we like MMC as a strong Iskandar proxy (67 per cent of SOP) and alternative proxy to the MRT project.
Weekly Trading Strategy
Last week, the FBM KLCI saw a selldown, shedding 51.86 pts (-3.27 per cent) to close at 1,532.46, from its previous week’s close of 1,584.32. The index started the week on a negative note as it dipped below the 10-day SMA and close near its day-low at 1,575.08 (from its open of 1,582.06) on Monday. This prompted the RSI to decline below the crucial 50-pt level.
Over the next two days, the index declined 34.71 pts (-2.21 per cent) to close slightly above the support of 1,530 at 1,536.04 (from Tuesday’s open of 1,570.75) on Wednesday as buying momentum deteriorated rapidly. Both RSI and Stochatic indices were oversold at this juncture.
While the oversold signals prompted the index to rebound to a high of 1,552.25 (from its open of 1,536.24) on Thursday, it quickly resumed its downtrend the following day to end the week at 1,532.46, the lowest in three months.
The index recorded its week-high of 1,584.63 on Monday and week-low of 1,526.60 on Friday. Noticeably, the increasing spread between the MACD and signal lines indicates an increasingly negative outlook in the short term.
In addition, the crossing of both MACD and signal lines into the negative region indicates that the medium-term trend has now turned negative (from neutral earlier). This is further affirmed by the increasing divergence between the 10 (1,568.161) and 40-day (1,584.582) SMAs, suggesting an increasingly bearish outlook over the medium term.
Nevertheless, the sharp decline in the index last week pushed both RSI (29.07 pts) and Stochastic indices into the oversold region.
TM’s share price rallied from a five-year low of RM1.70 to a high of RM3.68 on 4 Mar 2011 before it went into a triangle consolidation. It subsequently broke out from the triangle formation and rose to a high of RM4.50 in early Sep 2011 before consolidating within the region of RM3.93-4.31 over the next two months.
In end Nov 2011, the stock’s price broke out above the 10-day SMA and started a three-month bullish streak, rallying to an all-time high of RM5.53 on 7 May. Grossly overbought, the stock’s price consolidated towards the 10-day SMA over the week.
On 16 May, the stock’s price gapped down to close 8 sen lower at RM5.36 (from its previous close of RM5.44) with a relatively high trading volume of 11.1m shares.).
Last Friday, the stock’s price resumed its downtrend to a day-low of RM5.30 (from its open of RM5.36) before closing below the SMAs at RM5.34, effectively ending its uptrend. The stock registered a total trading volume of 8.2m shares last Friday.
Noticeably, buying momentum has weakened drastically as indicated by both RSI (41.916 pts) and Stochastic indices declining substantially below the crucial 50 pt level.
Furthermore, the increasing spread between the MACD and signal lines indicates an increasingly negative outlook in the short term. While the medium-term outlook remains positive at this juncture, the thinning spread between the 10 (RM5.422) and 40-day (RM5.38) SMAs indicates that it could turn negative in the event of any further decline in the stock’s price. This is substantiated by both MACD and signal lines heading towards the negative region.
Overall, the weak readings of the RSI and Stochastic indices indicate strong likelihood of the stock’s price declining in the immediate term. This is substantiated by the stock’s price falling below the 40-day SMA yesterday.
Coupled with the increasingly bearish short-term outlook, we expect TM’s share price to decline towards the immediate psychological support of RM5.00 in the short term.
While we acknowledge that the medium-term trend is still positive at this juncture, breaching of the RM5.00 support would turn the medium-term outlook negative and thus, trigger a “death cross” formation which could lead to the stock extending its downtrend towards the next support region of RM4.60-4.70 over the medium term.
As such, investors who had previously entered should cut loss on any intraday rebounds towards the 40-day SMA of RM5.38. In the absence of any technical rebound, investors should cut loss at below last Friday’s low of RM5.30.
Given the prevailing bearish market sentiment, any further breaching of the RM4.60 support would lead to a retest of the lower-linear regression band of RM4.20, which should offer longer-term investors the opportunity to accumulate at a bargain.
FTSE Bursa Malaysia KLCI — Lower highs confirmed
As expected, the index moved lower after violating 1,580 pts last week. The weakness was confirmed after the 1,566-pt support level was broken, and this marks the start of the series of lower highs, at 1,610, 1,601 and the recent high of 1,591 pts.
This development is illustrated by the 1½-month downtrend line. Furthermore, the index is also below the 50-day MAV line, which is now declining. With the series of higher lows (since the Sept 2011-bottom) now broken, the longer-term uptrend will only be signaled by the ability of the index to go above the rising 200-day MAV line.
Selling pressure continued to dominate as the index closed lower last Friday, which was expected and which arose from the “Long Upper Shadow” of the white candle which emerged last Thursday. Again, the index failed to close above the resistance at 1,535 pts, a violation of which may indicate a return of buying.
This keeps the month-and-a-half downtrend intact, with the lower highs at 1,606 and 1,585 pts. The index has also stayed under the 50-day MAV line. Nonetheless, the KLCI is still above the 200-day MAV line, which indicates that the longer-term trend is still up. This is also boosted by the longer-term positive indication of a “Golden Cross” that occurred back in February.
Again, strong selling pressure should keep the index from closing above the resistance level of 1,535 pts. But more importantly, the index has to close below the 16 May-close of 1,524 pts to keep the momentum of sharp declines going, especially in light of the covering of the Friday morning gap-down.
Support is still expected at between 1,506 and 1,510 pts, the 50 per cent retracement of the Nov 2011-April 2012 rally, and the 200-day MAV line respectively. Further support is found at the confluence of the Fibonacci levels at 1,485 pts.
Given that the expected selling from the “Long Black Day” of 16 May has not emerged and the fact that the daily RSI is not too far from the oversold level recorded in Sept 2011, a return of buying cannot be ruled out. The possibility of a rebound will increase if the index closes above 1,535 pts, with a close above the 3-day high of 1,547 pts confirming the return of buying support. The next resistance lies at the broken support at 1,560 pts.
The negative bias since the black candle of 12 April continued to weigh on the commodity. This will remain so as long as the commodity stays below the RM3,140 resistance level, which has kept the commodity below the 200-day MAV line for 3 days in a row now.
However, note that the commodity has yet to close below the support level at RM3,085, the gap of 8 Feb and the 62 per cent retracement of the Oct 2011-April 2012 rally, despite having traded below this level intraday for the past 3 days. In fact, a “Hammer” — which usually appears at market bottoms — was formed last Friday.
The daily RSI is also extremely oversold, while the series of higher lows, the latest at the February-low of RM3,036 since Oct 2011, is not over.
Thus, the commodity has to close below the resistance level of RM3,085 today to keep the downward movement intact.
Immediate support is at RM3,055, followed by RM3,020 - the gap of 20 Dec - and just below the low recorded in early February. Strong support is seen at the RM2,973-RM3,000 zone.
A close below this support area will end the series of higher lows since Oct 2011, thus opening up the possibility of an end to the uptrend since the 2008 low.
Immediate resistance is at “Hammer” high of RM3,110, followed by RM3,140 — the high of 17 May and also the low of 14 May. A successful violation of both levels may spark a rebound, arising from the most oversold daily RSI reading. Further resistance is seen at the 15 May morning session-high of RM3,194, and the March-low of RM3,224.
Time dotCom (TDC) reported its 1QFY12 financial results, where its core operating profit which stripped away dividend contribution from DiGi, came in line with our expectation but was below that of consensus, making up 26 per cent and 16 per cent of the respective full-year forecasts. However, if we were to include the dividend income, core earnings before tax would beat our estimates by representing 34 per cent of our full-year forecast but in line with consensus.
We are waiting for the analyst conference call later today to obtain a clearer picture on the outlook of the acquirees before we make any changes to our forecasts. Thus, we put our fair value (FV) under review.
Do note that with the recent beat down in its share price, even without incorporating the acquired companies into our valuation, the company is trading very cheaply.
We revised upwards our FY12/FY13 core earnings forecasts by 16.8 per cent/34.9 per cent as we see further earnings uplift from its HDD and camera business segments, thanks to the pent-up demand by both Minebea and Nikon. We also derive a new FV of RM1.50, based on 6.4x CY13 PER.
Maintain our TRADING BUY recommendation on Notion while we continue to like the company for its diversified product base.
On 18 May 2012, KFC announced on Bursa Malaysia that it had entered into a Business Sale Agreement (BSA) and Property Sale Agreements with Triple Platform SB (TPSB), a wholly-owned subsidiary of Massive Equity SB (MESB) in relation to the Proposed KFC Disposal.
The disposal consideration was determined based on the offer price of RM4/share and RM1/warrant. Upon completion, KFC will undertake to return the cash proceeds arising from the disposal to shareholders and warrant holders via a capital repayment exercise and warrant scheme respectively.
IGB’s annualised 1QFY12 results were 30 per cent and 11 per cent above our and consensus estimates due to the stronger than expected performance of its property investment, property development and hotel divisions. The better-than-expected results prompt us to upgrade our FY12 and FY13 net profit forecasts by 23 per cent and 25 per cent respectively, after raising our topline forecast as well incorporating a higher margin assumptions.
We maintain our Neutral call on IGB, at a slightly higher FV of RM2.87 versus RM2.82 previously, based on 1.2x P/NTA, which is equivalent to 1.5 standard deviation above its 6-year historical mean.
IGB recorded a net profit of RM57.4m, which accounted for about 32.5 per cent and 12.3 per cent of our and consensus’ FY12 net profit forecasts. The better-than-anticipated results were largely attributed to the reported revenue, which came in 10.5 per cent above our forecast, driven by the robust numbers from the company’s property investment, property development and hotel divisions. Other than the stronger than expected topline, IGB also recorded higher than estimated margins, as EBIT margin widened from 43.6 per cent in 1QFY11 to 51.7 per cent during the quarter under review. Subsequently, revenue jumped 23.8 per cent while net profit climbed 48 per cent y-o-y.
The investment property division remained the biggest contributor to the company’s topline and EBIT, making up about 53.4 per cent and 70 per cent of both numbers respectively. The division recorded 26 per cent y-o-y increase in EBIT attributed to 2 per cent and 16 per cent y-o-y growth in revenue from Mid Valley and The Gardens respectively, as well as a 11 per cent increase in rental income from its office buildings.
The hotels division saw 14 per cent and 58 per cent y-o-y increases in revenue and EBIT, buoyed by higher occupancy and room rates. Driven by the higher progress billing from its on-going developments, IGB’s property development division recorded whopping 226 per cent and 460 per cent y-o-y increases in revenue and EBIT respectively after a sluggish performance last year due to the absence of new projects.
With the better-than-expected results, we are upgrading our FY12 and FY13 net profit forecasts by 23 per cent and 25 per cent respectively after raising our topline forecast as well as incorporating higher margin assumptions.
We maintain our Neutral recommendation but at a slightly higher FV of M2.87 from RM2.82 previously, based on 1.2x P/NTA, which is equivalent to 1.5 standard deviation above its 6-year historical mean.
Genting Plantations Bhd
Look for a correction to set in should the RM9.00 support level be violated. Liquidation can be undertaken below this level and support is expected at the Fibonacci retracements of the 5-month rally at RM8.20 and RM7.90.
However, the uptrend will stay intact if the support level at RM9.00 holds and if this happens, the stock could even go as high as RM12.00.
TH Plantations Bhd
A rebound could be in store for TH Plantation after its firm move last Friday. A purchase can be made on a close above the “Hammer” high of RM2.34, with a close below the recent low of RM2.20 as a stop-loss. The price targets are RM2.60 and RM2.80.
But look for the correction to continue should the stop-loss be triggered. Strong support lies at the area of RM1.90-RM2.00.
Cypark Resources Bhd
Cypark’s share price will stay weak as long as it remains below RM1.80. Thus, liquidation can be made on a rebound towards RM1.80, or on close below last week’s low of RM1.65. The price target is RM1.50, with strong support expected at RM1.35.
A close back above RM1.80 will indicate a false breakdown and an upward move cannot be ruled out. Resistances lie at RM2.00 and RM2.20.
Naim Indah Corp Bhd
The stock may trade lower after closing below the psychological RM0.40 last Friday. Thus, positions can be exited below this level and support may come at RM0.26 and RM0.18, the high and low of the gap of 8 Feb. However, a close back above RM0.44 may signal a false breakdown and a rebound may follow. Resistance is at RM0.52 and RM0.60.
TIME Engineering Bhd
TIME’s sideways move in the past 3 months may make way for lower prices after it closed below RM0.325. Liquidation can be done below this level and support is expected at RM0.28 and RM0.25.
A close back above RM0.325 may indicate a false breakdown, though only a close above RM0.35 will confirm a return of buying. Resistance is located at RM0.375 and RM0.42.
Masterskill Education Group Bhd
Look for Masterskill’s downtrend to continue after closing below the psychological RM1.00 yesterday. Positions can be exited below this level and support is expected at RM0.90 and RM0.80.
A close above the 3-day high of RM1.03 may indicate a false breakdown and resistance may come at the recent highs of RM1.11 and RM1.20.
Salcon’s share price may head lower if it closes below RM0.50 today. Liquidation can be undertaken below this level and support is expected at RM0.45, with strong support at the Sept-low of RM0.40.
A close back above the 3-day high of RM0.525 may indicate a false breakdown and look for the stock to trade higher. Resistance is at RM0.55 and RM0.60.
Sentoria Group Bhd
Sentoria may trade lower if it closes below RM0.68 today. Liquidation can be undertaken below this level and support is expected at RM0.575. A close back above RM0.70 may signal a false breakdown and this may even lead to a rebound.
Resistance is located at the recent highs of RM0.77 and RM0.85.
* 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.