Analyst call Oct 24
KUALA LUMPUR, Oct 24 — The following is a selection of analyst calls by local research houses for the day.
From OSK
Tanjung Offshore
Last Friday, Tanjung Offshore announced that its 100 per cent-owned subsidiary, Tanjung Offshore Services SB, has been awarded a contract by Petronas Carigali SB for the provision of three offshore support vessels (OSVs) for a total charter contract of up to two primary years, valued at approximately RM27.0 million. The contracts will be effective from this month. However, we expect its vessel earnings to be affected by negative contribution from its other divisions. Hence, we are downgrading FY11-12 earnings by 24 per cent-52 per cent and maintaining our SELL call.
Dayang Enterprise
Last Friday, Dayang announced that its 100 per cent-subsidiary, Dayang Enterprise SB, had received a notice of contract extension from Murphy for the provision of topside major maintenance services (TMM) to the latter’s production operations. The extension is effective from Nov 2011 to Nov 2012. The contract, estimated to be about RM50 million - RM100 million, is on a ‘call-up’ basis. It is made up of work orders and will only be awarded at the discretion of Murphy during the contract period.
Maintain Buy. Our fair value for the stock remains unchanged at RM2.70 based on the existing PER of 13x FY12 EPS. We continue to like this defensive O&G stock as the revenue from its principal business, which is the provision of brownfield services, is recurring and long term in nature. Hence, we believe its defensiveness should put it in investors’ favour amid the currently uncertain global economic environment.
Pos Malaysia
Last Friday, DRB-HICOM and Pos Malaysia launched the Bank Muamalat Malaysia Bhd (BMMB) Cheque Deposit Box service at Pos Malaysia’s (POSM) headquarters inDayabumi Complex.
Maintain Buy. While it is still too early to gauge the revenue contribution from this service to both POSM’s retail and courier segments, we maintain our earnings forecast at this juncture. We believe the group will be unveiling more collaboration efforts with DRB going forward. Though there is no news on the 16 plots of land leased from the Federal Land Commissioner, we continue to like POSM given the positive synergies between DRB and POSM, which are: i) the tie-up with Bank Muamalat and Uni-Asia Life Insurance will boost POSM’s retail service, ii) POSM to leverage on DRB’s KLAS (Kuala Lumpur Airport Services) to enhance its PosLaju (courier services), and iii) the potential for DRB to unlock the value of the five land plots owned by POSM through redevelopment. Maintain BUY with a FV RM4.12, based on SOP valuation.
From HwangDBS Vickers
Axis REIT
• Visible growth trajectory with potential acquisitions
• Funding to be bolstered by capital management exercises
• Maintain Buy and RM2.75 TP; stock provides 7 per cent net yield
Visible near term growth with Axis REIT’s recent proposed acquisition of a logistics warehouse in Seberang Prai, which will boost revenue by c. RM6.9 million in FY12F (assuming completion in FY11). The REIT also has another 5 acquisitions that are being assessed valued at RM225.5m (expected completion :2012) with estimated yields of 8 per cent (based on Axis’ yield hurdle), tenures of more than 5 years and triple net leases ensuring relatively low property expenses. Further enhancements to existing assets should bolster revenue growth via increased NLA (Menara Axis: 6.7k sq ft; Crystal Plaza: 15k sq ft) and higher revaluation gains (refurbishment of Infinite Centre, Wisma Bintang and Kayangan Depot).
We have raised our FY12F/13F earnings by 18.3 per cent/25.7 per cent on higher assumed asset acquisitions. We maintain our Buy call, but reduce TP by 15sen to RM2.75 from RM2.90 as we rollover our valuation base to FY12F and update our DCF assumptions (7.2 per cent WACC, 0.45 Beta, 2.5 per cent terminal growth).
Pantech
Pantech’s 1HFY12 numbers came in below our estimates, making up only 35 per cent of our full-year earnings projection. However, we are still positive on the company as we see improvements from its manufacturing division, whose stainless steel pipe mill is making good progress. Despite this, the negative market sentiment and weakening economic conditions prompt us to slash our valuation parameter to 5x FY12 EPS from 7x previously. That said, we are maintaining our Trading BUY recommendation as we believe that Pantech’s numbers will perk up in 2HFY12.
Ajiya
Ajiya’s revenue and net profit decreased q-o-q by 14.5 per cent and 62.1 per cent respectively due to slower sales and rising raw material costs. We noted that Ajiya continues to face the challenge of rising input costs and hence, we are lowering our net profit forecasts for FY11 by 12.1 per cent and FY12 by 11 per cent. Despite lowering our forecasts, we maintain our positive view on the company in FY12 and maintain our BUY recommendation with a lowered fair value (FV) of RM1.94, tagged at a lowered 6.6x FY12 EPS.
From RHB
Hock Seng Lee
First started work in late-2008, HSL’s single largest on-going project at present, i.e. the RM452 million Phase 1 of the Kuching City Centralised Sewerage System project, has hit the half-way mark. With good execution of Phase 1 of the project, HSL puts itself in a very favourable position to negotiate for Phase 2 worth about RM800 million. We understand that the intention is to kick-start Phase 2 before the completion of Phase 1 (within the next 1-2 years) to ensure continuity of the project.
HSL felt that water-related jobs are where the action and money are in Sarawak’s construction sector at present. We understand that there are at present a handful of water treatment plant projects up for grab in the market, with contract values ranging from RM50 million to RM150 million.
The other tell-tale sign of exciting times ahead for water-related jobs in Sarawak is the RM2.1 billion allocation under the just announced Budget 2012 “to expand water supply to 200,000 homes, particularly in Sabah and Sarawak”
Maintain Outperform. We have turned positive on the construction sector as there is now even more urgency for the Government to expedite the rollout of various public projects to pump prime the local economy to shield it against the increased risk of the global economy slipping into a double-dip recession. HSL will also be buoyed by projects under Sarawak Corridor of Renewable Energy (SCORE). Indicative fair value is reduced by 10 per cent from RM1.77 to RM1.59 based on 10x revised FY12/12 EPS, in line with our 1- year forward target PER for the construction sector of 10-14x.
Axiata
Axiata’s associate, Idea Cellular (Idea) reported 1HFY03/12 core net profit of INR3,173 million (-16.7 per cent yoy), which came in below consensus expectations, accounting for only 38 per cent of full-year estimates. In contrast, consensus’ expectation was 9.5 per cent net profit growth to INR4,171m. The key variance was higher interest expenses, of which INR313m was attributable to forex losses from rupee depreciation
Maintain Market Perform call with unchanged SOP fair value of RM5.35. We see limited upside to Axiata’s regional growth prospects, which are moderating, while simultaneously facing lingering regulatory risks in India and Bangladesh. However, the stock is backed by strong free cash flow as evidenced by management’s commitment to progressively increase the dividend payout ratio.
Maxis
Maxis and U Mobile last Friday entered into a multi-billion ringgit agreement to share Maxis’ 3G radio access network (RAN), for an initial period of 10 years and will cater for long-term evolution (LTE) when the spectrum becomes available.
With DiGi and Celcom already in a passive sharing arrangement, it is not surprising that Maxis has partnered U Mobile, since U Mobile is the only remaining mobile operator operating its own limited mobile network with about 1 million subscribers.
Details were vague, but we are positive on the move as a means to help maintain Maxis’ industry leading EBITDA margin of 50 per cent in the medium term through capex and opex savings. The active sharing arrangement could possibly help Maxis mitigate erosion in EBITDA margin arising from subscriber acquisition costs related to its new Home Services. Besides that, Maxis will also likely generate some roaming revenue on a net basis given its wider 3G network coverage.
DCF-derived fair value (WACC=8.4 per cent, TG=1.5 per cent) maintained at RM5.65. Core earnings growth in FY11 is modest, but generous dividends will provide support to the stock. As a defensive play with purely domestic mobile operations, we maintain our Outperform call on Maxis amid global external uncertainties.
Proton
MOU with Hawtai Motor. Proton has announced the signing of an MOU with Hawtai Motor Group (“Hawtai”) from the People’s Republic of China to evaluate the possible establishment of a joint venture in China, to invest in product development via joint designing and development cost sharing. The JV Co will be responsible for vendor sourcing and component development work with local Chinese vendors. The objective is to enable Proton to tap into the competitive vendor supply chain in China and explore the potential of cross-supplying components from local Malaysian vendors to China and vice-versa. Proton also hopes to establish China as one of its major manufacturing hubs especially for left-hand-drive vehicles.
We reiterate our Market Perform recommendation and fair value of RM2.90 that is derived from applying a 25 per cent discount to its five-year average P/B of 0.39x, applied to CY12 BVPS. While there are few visible operational re-rating catalysts, recent traded volumes have been low, suggesting a declining number of weak shareholders, with much of the bad news already reflected in the price.
MBM Resources
Mitsui to lift stake in Daihatsu Malaysia. MBM Resources (MBM) has entered into an MOU with Mitsui for the sale of an additional 20 per cent in Daihatsu (Malaysia) Sdn Bhd (DMSB) for RM75m cash. The acquisition is expected to be completed by end-2011. DMSB is the distributor of Daihatsu commercial vehicles and is also a dealer of Hino commercial vehicles and Perodua vehicles. DMSB is currently a 71.5 per cent subsidiary of MBM with Mitsui holding 10 per cent and will remain a subsidiary (51.5 per cent) following the stake disposal.
The sale price looks attractive given that it is equivalent to a 2010 historical P/NTA of 6.5x and PER of 73.5x. The disposal will boost MBM’s net cash position (Jun 2011: RM162.1m), with the higher minority interest charge being offset by higher interest income. We estimate the net impact to 2012 earnings to be neutral. Nonetheless, the sale of a significant stake in a major operating subsidiary further weakens MBM’s free cash flow generation capacity going forward given that a significant proportion of earnings are already derived from associate contributions.
We maintain our Underperform call and RM2.65 fair value that is derived from applying a target PER of 5x to 2012 earnings, that is lower than its five-year median PER of 6.0x. This reflects its weaker cash flow generation capability as a result of its high dependence on associate earnings from Perodua (83 per cent of 2011 earnings). MBM’s ability to pay dividends is also partly dependent on its dividend income.
Daibochi
Daibochi reported 9MFY11 net profit of RM14.2m (+0.9 per cent yoy), in line with our expectation but below consensus forecast, accounting for 73 per cent and 66 per cent of our and consensus full-year estimates respectively.
We are positive on Daibochi’s long-term growth strategy on the back of its emphasis in production innovation (including electronic packaging), as well as expansion into new markets (e.g. Australia).
Nevertheless, we remain cautious on its near-term earnings as the protracted slowdon in global economic growth could translate into weakerthan-expected sales. Moreover, we believe there could still be risks of margin erosion due to its fragmented raw material base i.e. susceptible to the price volatility of 5-6 raw material components (although raw material prices have somewhat stabilised). Thus, we maintain our Market Perform call on the stock with an unchanged fair value of RM2.62/share based on 9x FY12 EPS.
* 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.
