Analyst calls for August 3
KUALA LUMPUR, Aug 3 — This is a selection of morning calls by local research houses for the day.
RHB Equity Focus
- MMHE’s 1HFY12 net profit of RM133.6 million (-35.7% yoy) was below expectations as it accounted for only 38% our and consensus full-year estimates.
- MMHE’s offshore segment, generated revenues of RM893.2 million in 2QFY12. This brought 1HFY12 revenues to RM1.5 billion, accounting for only 42% of our FY12 estimates for the division.
- In the 1HFY12, the offshore division EBIT margin came in at 7.7% (-0.5%-pts yoy), lower than our full-year EBIT margin assumption of 9.5% for the division. We understand that the EBIT margin was dragged down by the Kebabangan project, which carries a lower margin of 5-7%.
- MMHE’s current order backlog stands at RM2.8 billion, the biggest of which are the Kebabangan, Tapis EOR and FPSO Cendor projects, while it is bidding for RM5 billion worth of contracts.
- Post-earnings revision, our new fair value is reduced to RM3.40 (from RM3.56) based on unchanged target PER of 15x FY13 EPS. We reiterate our Underperform call on the stock.
- We expect Ta Ann’s 2Q2012 results (to be released on 17 August) to be a disappointment, as it is likely to record larger losses at its plywood division.
- We project Ta Ann to record slightly better net profits in 2Q12 versus 1Q12’s RM11 million. However, going forward, if plywood prices do not improve, Ta Ann may continue to record losses in its plywood division for the rest of the year. The catalyst required for plywood prices to recover remains Japan’s general economic health as well as the commencement of significant reconstruction activities.
- While we maintain our view that a more significant pickup in volume from Japan could come through by end-2012, we are hesitant to price this potential into our forecasts at this juncture, as it is still an uncertainty at this point.
- All in, we slash our forecasts lower by 53.8% for FY12, 35.4% for FY13 and 22.6% for FY14.
- Post-earnings revision, our fair value for Ta Ann is reduced sharply to RM3.70 (from RM5.05), based on target PER of 9x CY13 for the timber division and 12x CY13 for the plantation division. We downgrade our recommendation to Underperform (from Market Perform).
- Pos Malaysia (POS), the national postal services provider, is currently delivering to more than 8m addresses and has over 1,000 outlets/access points. Its mail and courier segments provide recurring cash flow and are expected to post five-year sales CAGR (FY09-FY14F) of 6% and 15% respectively.
- Tapping onto new revenue streams. With DRB-HICOM’s entrance, POS has more room to reinvent and improve itself by offering new services while continuing to capitalise on its mass user base. Currently POS is in the second phase of its five-year transformation plan to turn itself into a one-stop solutions centre. One of the new innovations is the Ar-Rahnu (pawnbroking) services with Bank Muamalat, which could contribute at least RM65 million to FY14’s revenue given 75,000 customers throughout 500 branches across the country. Other synergies include offering more insurance products, shared banking services and vehicle rental system.
- Hidden gem. POS is estimated to directly own 30 parcels of land (ex FLC land) throughout Malaysia which spans over 20ha and is valued at RM85 million based on 2005’s NBV. This includes a prime location in Brickfields, Kuala Lumpur with c.2 acres of land and NBV of RM53m. The land development represents 7% of our SOP valuation, based on our DCF with GDV of RM941 million.
- Initiate coverage. We initiate coverage on POS with a BUY recommendation and RM4.60 TP based on SOP valuation (postal business valued at 12x earnings and land based on 2005 NBV excluding Brickfields). Valuation is attractive based on its forward FY14 PE of 9x (below industry average of 11x) and high net cash of RM1.34/share for FY14F (ex-cash PE of 5x). Downside is supported by FY14F net yield of 4% (50% net profit payout). DRB-HICOM’s cost of entry was at RM3.50/share.
Malaysia Marine & Heavy Eng
- Disappointing result. MMHE booked only RM55.3 million net profit for 2Q12 (-29% q-o-q, -30% y-o-y) despite delivering higher revenues of RM966 million (+45% q-o-q, +1% y-o-y) largely due to contribution from Kebabangan project (novated in April 12). The weaker-than-expected earnings (16% of initial FY12 forecast) were attributed to completion of several projects as well as timing of contract recognition. 2Q12 EBIT came in at RM53.6 million (-37% q-o-q, -19% y-o-y), while EBIT margin fell substantially to 5.6% (vs 12.9% in 1Q12, 6.9% in 2Q11). Its JV contributed RM7.7 million (vs RM1.7 million in 1Q12).
- Weak earnings visibility. Order book replenishment remained slow; its RM2.8bn order book (as at June 12) includes the c.RM800 million Kebabangan project. The management shared that tender book remained healthy at RM5bn, including the anticipated Malikai contract (advanced stage) which MMHE has a fair chance of securing via its JV with Technip.
- Capacity enhancement. MMHE has streamlined its yard optimisation programme to expand its yard capacity to 180,000 MT by 2017 from 130,000 MT currently, for which it has committed c.RM2 billion capex. Its balance sheet remained healthy with RM1.3 billion net cash.
- Maintain HOLD. We trimmed FY12-14F earnings by 12%/9%/2% after reducing contract win assumptions and project margins. We also revised our TP to RM4.90 (based on 22x FY13 EPS) after rolling over valuation base to FY13. Valuation remains lofty at 24x FY13 EPS given its weak earnings visibility and slow order book replenishment.
SapuraKencana announced that it has been awarded a hook-up commissioning (HUC) contract worth RM50m for the Montara Development project from PTTEP Australasia (Ashmore Cartier) Pty Ltd. The contract duration is 3 months, commencing in October12.
Its subsea support vessel, Normand Clough, will be used for the HUC services at the Montara field which is located 700km west of Darwin in the Timor Sea, off the coast of Northern Australia. To recap, SapuraKencana first secured the Montara’s US$160 million transport & installation contract (using Sapura3000) back in November 10. We believe that this HUC contract underlies its competitive advantage of integrated services across the value chain which will ultimately make SapuraKencana the preferred O&G offshore service provider.
We estimate its outstanding order book at RM14 billion, which has largely secured its earnings for the next two to three years. We remain positive on SapuraKencana as we believe that it is the largest beneficiary of Petronas record high capex of RM300 billion over the next few years. It is currently the cheapest large cap O&G stock in Malaysia, trading at 16x CY13 PE (vs peers’ 22x). Reiterate our Buy call with RM2.70 TP.
Sarawak Oil Palms (SOP) remains our top Malaysian sector pick, along with Kulim. We are maintaining our BUY call with FV at RM9.37. The company met 17 fund managers in KL recently. Following our upgrade to OVERWEIGHT on the plantation sector on expectations of an El Nino lifting prices in 2013, we raise our FY13 earnings estimates by 6%. As SOP’s production was lacklustre in 1H2012, we cut our FY12 FFB production growth forecast and FY12 earnings estimates by 8%. Y-o-y production growth has narrowed substantially since April, while this year’s tree output may be skewed towards 2H2012. We see FY12 FFB production growth clocking in at 10.3%, followed by a 10.2% increase in 2013.
*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.