Analyst calls April 17

KUALA LUMPUR, April 17 — This is a selection of morning calls by local research houses for the day.

HwangDBS Vickers

Market Preview

In the absence of fresh market leads, our Malaysian bourse will probably continue to be range-bound for the time being. On the chart, the benchmark FBM KLCI is expected to dance around the psychological mark of 1,600 today.

This follows a mixed overnight performance on Wall Street. Key US equity indices ended between -0.8 per cent and +0.6 per cent amid lingering concerns that the euro zone sovereign debt crisis would threaten the stability of the financial system.

Against an uncertain market backdrop, local stocks that may be of interest today include: (a) Bumi Armada, after winning a US$200m oil & gas pipelines contract in Russia; (b) KrisAssets (together with its parent IGB Corporation), which is planning to list a REIT comprising a portfolio of shopping malls; and (c) MKH, on the back of its 1-for-10 bonus issue proposal.

1Q12 net profit of RM21m (+27 per cent y-o-y, -34 per cent q-o-q) is within expectations at c.25 per cent of our and consensus’ FY12 estimates. Earnings fell q-o-q due to a smaller revaluation gain (RM0.3m vs RM16m in 4Q11) and 3 per cent higher operating expenses (manager’s fees).
Core net profit was RM20m. Realised rental income grew 18 per cent y-o-y to RM32m led by contributions from Seberang Perai Warehouse 3 and Bayan Lepas Distribution Centre (c.11 per cent and 8 per cent yields, respectively). Axis declared a 1st interim distribution of 4.3 sen per unit, as expected.

Bumi Armada
Bumi Armada has secured a US$200m contract from Russian oil major, Lukoil for engineering, procurement, installation & commissioning (EPIC) services for 90km of pipeline for the Filanovsky field development in the Russian sector of the Caspian Sea.

Bumi Armada remains a global champion in the making with its aggressive expansion plan and diversified earnings base in the booming O&G sector in Asia and Africa. We nudged up TP to RM5.20 after upgrading earnings, implying 17 per cent upside potential.

RHB Research

We understand that the first batch of Asahi draft, which Carlsberg started brewing in Dec 2011, sold out much faster than the company’s initial expectations. Asahi’s strong take-up in the market is positive for Carlsberg, although we note that it is still too early to gauge its long-term success.
Similar to Asahi, Carlsberg will start producing Kronenburg’s draft first followed by bottles later. However, unlike Asahi, we understand the locally-produced Kronenburg will still be priced at a fairly high price point, we believe due to Kronenburg’s premium branding.
Carlsberg intends to raise its selling prices by ~3-4 per cent on average, which will take effect in early May 2012. We are positive on this move as we believe it would help cover Carlsberg’s higher raw material costs to a certain extent.
We have raised our fair value estimate to RM11.60, based on WACC of 8.4 per cent (8.7 per cent previously). Although this implies 20x FY12 PER, we note that Carlsberg has previously traded as high as 24x forward PER. Maintain Outperform.

KNM Group
Since hitting a year high of RM3.28 in mid-Jan 2011, KNM’s share price saw a sharp correction to a low of RM1.74 by end-Jul 2011 before consolidating above the RM1.74 support over the next few days.
Despite staging a technical rebound to a high of RM2.07 in end-Jul 2011, the stock’s price failed to sustain above the SMAs and turned bearish over the next five months, falling to a year-low of 83 sen by end-Dec.
Grossly oversold, the stock’s price rebounded to a high of RM1.18 in early-Feb before trending back to a low of 83.5 sen by end-Mar.
Yesterday, the stock’s price climbed above the 10-day SMA to a day-high of 92.5 sen (from its open of 86.5 sen) before pulling back to close near the 40-day SMA at 91 sen. The stock recorded a high trading volume of 7.5m shares yesterday.

Technically, the stock has been oversold since mid-Mar (as indicated by the RSI and Stochastic indices). As such, yesterday’s volume-driven breakout above the 10-day SMA could indicate that the stock’s price would at least stage a technical rebound in the near term.

Coupled with expectations of strengthening buying momentum ahead and the recent change in the stock’s short-term outlook to positive (as indicated by the MACD), we think KNM’s share price could extend its rebound towards the immediate resistance of RM1.07 and RM1.18 in the short term.

OSK Research

Technical Analyser

The ability to stay close above last Friday’s low of 1,594 pts, which was identified as the support in yesterday’s report, shows that buying support is still intact. Nonetheless, a close above the psychological 1,600 level is still required to confirm the continuation of the rally from the low of 1,582 pts.
This will keep it in line with the uptrend since Sept 2011, as seen from the unbroken series of higher lows with the latest one at the March-low of 1,561 pts. It has also stayed well above the 50-day MAV line, and both the 50-day and 200-day MAV lines are also rising.

The anticipated support at the psychological RM3,500 failed to materialise, indicating the vigour of the downward movement since 12 April. The gap that was created yesterday also underlines the negative bias. Thus, the correction the Feb-April rally is expected to continue.
A strong downside movement should see the psychological RM3,500 acting as resistance today and thus, the commodity should close below RM3,500. A lower close should confirm the continuation of the down move and support is expected just below yesterday’s low at RM3,450, followed by RM3,400 — the 38 per cent retracement of the Feb-April rally.
However, the upside bias may return on a close above RM3,500, as this indicates a positive response to yesterday’s white candle. That signals the extension of the series of higher lows, with the latest low at RM3,334 and RM3,458. Resistance is expected at the low of 6-10 April at RM3,562 and then, the round figure of RM3,600.

COMEX Gold Futures
The commodity’s downward movement since the formation of a “Long Black” candle on 29 Feb is not over. This is illustrated by the lower highs of 29 Feb, 12 March, 27 March and the latest one on 12 April.
Similar to what happened on 27 March, the “Long White” candle of 12 April failed to garner follow-through buying from the prior two “Long White” candles. In fact, selling has returned right at the declining 100-day MAV line, similar to what happened in late March.

However, in the longer-term its upside bias is not altogether erased either as the medium-term support at USD1,535 is not violated. In fact, the commodity has yet to convincingly violate the USD1,629 support level, the 62 per cent correction to the Jan-Feb rally.

Kumpulan Hartanah Selangor

KHSB may trade higher after completing a bottom yesterday. The stock has been consolidating for the past 2 months, possibly correcting the rally of Sept-Jan. The downward momentum eased considerably in the past 2 weeks as it has traded sideways in a tight range of RM0.50-RM0.53.
The consolidation may have ended yesterday after the stock closed above the RM0.53 resistance level. The daily RSI is also in oversold territory as it has printed the lowest figure since the start of the rally in Sept 2011. Thus, a new up-leg may have started and purchases can be made above RM0.53 with a stop loss on close below the psychological RM0.50.
Expect resistance at the recent highs of RM0.66 and RM0.80, but look for a test of psychological RM1.00 if both levels are violated convincingly. The trade may not work out should it close below RM0.50 and weakness is confirmed on a violation of RM0.43, which may signal the end of the rally.

M1 Limited
M1’s 1QFY12 results were in line with estimates. The key highlights were (i) the normalisation in EBITDA margin as subscriber acquisition cost fell and (ii) extended prepaid revenue pressure. Despite the tepid showing, we look forward to stronger fixed services revenue from 2H2012 (+67 per cent y-o-y in 1QFY12) as fibre take-up gains momentum.
M1 stays as our preferred exposure to the sector given its (i) decent 2011-2013 EPS CAGR of 12.3 per cent and (ii) dividend yield of 7 per cent.  Further share price retracement is an excellent opportunity to accumulate.

Malaysia Smelting Corporation (MSC) is the world’s leading integrated producer of tin metal products. It is set to derive a steady income stream from its pole position in custom tin smelting and mining operations in Malaysia and Indonesia. Moreover, its long-term value will be enhanced by efforts to acquire new tin assets and divest its remaining non-tin assets.
Assuming the worst-case scenario for its foreign mining concessions, together with an aggressive WACC for its tin smelting and mining DCF as well as a moderate BV on other non-tin businesses, we arrive at a SOP-based FV of RM5.60. Hence, we initiate coverage on MSC with a BUY rating.

Singapore Airlines
SIA staged commendable numbers on the passenger side in line with what management has guided. Nonetheless, disappointments came from the cargo side which continues to struggle on overcapacity concerns amid shrinking volume in the asia freighter market though improved business confidence has seen some upward stability in demand from Europe and America.
With ours and consensus earnings estimates already bearish enough, we expect Q4 earnings due to be reported next month to come inline. With signs of recovery seen, we continue to maintain our BUY call on SIA with our fair value unchanged at SGD12.47 premised at 1.1x P/BV.

Genting Plantations
In terms of purchase price, Genting Plant’s 60 per cent stake for USD116.0m implies an enterprise value of USD193.3m. The 14,150ha of planted area alone is worth USD169.8m, assuming that these plantations have young trees and the pricing is USD12k per planted ha. Thus, we deem the purchase price inexpensive.
Maintain Buy on Genting Plant, with its FV at RM10.13.

Notion Vtec
Malaysian Reserve reported that during yesterday’s EGM, Notion has indicated its intentions to set up manufacturing operations in China to cater for the growing demand for its hard disk drive (HDD) components.
We understand that Notion will initially rent a factory in Dongguan by end-2012 and it is looking to fork out some RM5m-RM10m to kick start its operations in China. This venture is expected to contribute up to 3.5 per cent (RM8m-RM10m) of its total sales next year.


IGB Corporation
It was announced yesterday that IGB’s 75 per cent-owned KrisAssets has proposed to set up a retail REIT (IGB REIT), comprising its two valuable assets i.e. MidValley Megamall and MidValley Gardens. Although not mentioned, we believe both assets would be able to gain valuation of at least RM4bil or at a cap rate of 6 per cent.

As we have highlighted in our previous reports, the monetisation move would unleash a significant revaluation surplus from assets re-pricing, and free up capital for redeployment. This move, we believe, is triggered by the high implied capital values evident in the recent listing of Pavilion REIT and CapitaMall Trust and a flat interest rate cycle.

Plus, this would optimise the ownership structure of its prime properties. IGB may rake in between RM465mil and RM1.4bil cash, depending on its equity stake in the REIT. We would expect a special dividend and IGB would deploy the freed capital to fund development projects overseas whereby it is looking at opportunities in London and Taiwan.

There is a further RM1.05bil revaluation surplus in IGB’s under-appreciated portfolio of well-occupied office buildings (2.2msf), which are carried in its book at low historical costs. The retail REIT may be the trailblazer for IGB to launch an office REIT further out. We maintain our BUY rating on IGB Corp with our fair value unchanged at RM3.50/share based on a 22 per cent discount to our NAV estimate of RM4.50/share.

* 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.



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