Analyst call May 28
UPDATED @ 11:56:21 AM 28-05-2012
KUALA LUMPUR, May 28 — This is a selection of morning calls by local research houses for the day.
HwangDBS Vickers
Market Preview
After staging a technical rebound of 18.7 points or 1.2 per cent last week, which was accompanied by thin market volume, the FBM KLCI’s recovery may be running out of breath soon. Technically speaking, the benchmark index could face resistance at the 1,555-level.
Meanwhile, Wall Street lost ground on Friday when its key equity indices saw lower closings of between 0.1 per cent and 0.6 per cent amid persisting concerns of the still unresolved sovereign debt crisis particularly in Greece.
Back home, against a backdrop of light news flows, stocks that may be in the limelight today include MPHB and UEM Land after announcing disappointing quarterly earnings report cards on Friday.
Separately, there will be added interest in RHB Capital and OSK Holdings as the two companies are expected to sign a proposed merger pact this afternoon.
Multi-Purpose Holdings
Weak quarter dragged by higher prize payout and insurance claims. Turning into a pure gaming play with attractive dividend yield and undemanding valuations. Cut 2012-14F earnings by 6-7 per cent; Maintain Buy, tweak SOP-based TP to RM3.80 (from RM3.85).
UEM Land Holdings
1Q12 result was below expectations. RM1.85bn unbilled sales and RM4.5bn launch pipeline will drive earnings in FY12-13 and beyond. Cut FY12F/13F earnings by 15 per cent/12 per cent on weaker sales and slower revenue recognition. Maintain Hold rating; TP nudged down to RM2.10.
AmResearch
Malaysia Marine & Heavy Engineering
We reiterate BUY on Malaysia Marine & Heavy Engineering Holdings (MMHE), but with an unchanged fair value of RM6.50/share, based on an unchanged FY12F PE of 22x — at parity to Kencana Petroleum’s peak in 2007.
Upstream reported that a joint bid from MMHE and Turkey-based Ilk Construction is understood to have emerged as the frontrunner during the commercial round for the engineering, procurement and construction contract of the 6,000-tonne Central Diyabekir wellhead platform in Turkmenistan. The value of the contract was not revealed.
We remain sanguine about MMHE’s re-rating prospects due to: (1) Re-accelerating order book momentum in the industry, (2)Strategic position in the country’s sole deepwater fabrication space with the capability of more complex engineering work, and (3) Higher margin benchmarks for more complex structures.
The stock still trades at an attractive FY12F PE of 17x, below 21-22x for SapuraCrest Petroleum and Kencana Petroleum.
Three-A Resources
Three-A Resources (3A) made a soft start into FY12F with a net profit of RM4mil for 1Q. Results accounted for only 18 per cent of our full year forecast, but we deem it to be broadly in line to expectation on back of rising earnings from enlarged capacity moving forward
On a sequential basis, 1Q turnover was up an encouraging 10 per cent mainly due to higher demand for core products of maltodextrin, hydrolyzed vegetable protein (HVP) as well as caramel colour.
Despite this, earnings fell 22 per cent QoQ to RM4mil. This was mainly attributable to:- 1) sequentially higher raw material prices resulting in a slight margin compression of 1.8ppts and; 2) a higher effective tax rate (QoQ: +2ppts to 20 per cent).
We maintain our BUY rating with an unchanged fair value of RM1.50/share based on a target PE of 20x FY13F earnings. Valuation remains attractive, with 3A’s forward PE of 15x currently at a deep 20 per cent discount to the stock’s 5-year mean of 19x. Our target PE is close to selected China consumer peers’ average of 18x.
Major catalyst for a re-rating includes potential future expansions into other geographical locations in China.
OSK Research
Faber Group
Faber’s 1QFY12 net profit made up 21.3 per cent and 25.6 per cent of our and consensus’ FY12 net profit forecasts, which we view as in line with our estimates on incorporating 1Q’s seasonal weakness as well as the anticipated stronger showing for the remaining quarters.
We maintain our forecast and Trading Buy recommendation on Faber, at an unchanged FV of RM2.34, based on a 10 per cent discount to our SOP valuation. Despite the prolonged delay in renewing its hospital support services (HSS) concession, we hold on to our view that a renewal is forthcoming given Faber’s vast experience and good track record.
Allianz
We attended Allianz’s analyst briefing last Friday to obtain a clearer understanding of the impact of Bank Negara Malaysia’s (BNM) revised guidelines on Financial Reporting Guidelines for Insurers on Allianz’s profitability.
Our valuation method — embedded value (EBV) — for its life insurance business has already incorporated the treatment of its non-participating fund as equity. Thereby, we are maintaining our BUY call on Allianz with a revised FV of RM7.09 to factor in a more profitable general insurance business as well as a higher EV for its life insurance business. Maintain BUY.
Oldtown
Oldtown’s annualized 1QFY12 earnings beat consensus and our estimates, largely attributed to lower advertising and promotion expenses, boosted by the holidays and festive season in 1Q12. However, we expect earnings to be weaker sequentially as the group ramps up advertising and promotional expenditure to boost sales in the next two quarters. We reiterate our BUY recommendation on Oldtown, premised on the group’s consistent earnings growth.
As we roll over our valuations to its 12-month forward earnings, we revise upwards our fair value (FV) from RM1.55 to RM1.66. Maintain BUY.
UEM Land
Although UEM Land’s (ULHB) 1QFY12 net profit only accounted for about ~15 per cent of our and consensus’ FY12 net profit forecasts, we deem the results in line with both estimates given that 1Q is typically the weakest quarter, and on our expectations that the company’s performance would be robust for the rest of the year. We maintain our forecast and Trading Buy recommendation on ULHB, at an unchanged FV of RM3.17, based on a 10 per cent discount to our RNAV valuation.
ULHB’s net profit of RM54.2m in 1QFY12 accounted for about 15.6 per cent and 15.2 per cent of our and consensus’ FY12 forecasts. We view the results as in line with our estimates since 1Q is typically the weakest quarter for the company, largely on account of seasonal factors, and our expectations of a stronger showing in the remaining quarters, driven by robust progress billings and some potential strategic land sales this year.
We maintain our forecasts and Trading Buy recommendation, at an unchanged FV of RM3.17, based on a 10 per cent discount to our RNAV valuation. As its profitability continues to improve, the group’s PER multiple will accordingly compress to more reasonable levels compared to its elevated historical PER multiples.
With its strong exposure in Nusajaya, ULHB remains the best proxy to Iskandar Malaysia, which is widely expected to reach its inflection point this year following the completion of several catalytic projects in the region.
* 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.
