Analyst calls for Dec 13
UPDATED @ 03:49:32 PM 16-12-2011
KUALA LUMPUR, Dec 13 — This is a selection of morning calls by local research houses for the day.
After backing off from the immediate resistance level of 1,475 yesterday, the key FBM KLCI may take a slide today. The benchmark index will probably be on its way towards the first support line of 1,445 ahead.
This comes as Wall Street reversed direction overnight. Major US equity indices slumped between 1.3 per cent and 1.5 per cent at the closing bell amid concerns that international rating agencies could be looking to downgrade the sovereign credit ratings of some European countries despite the stopgap measures announced at a regional summit last weekend. To be watched next is the outcome of the Federal Open Market Committee meeting later tonight.
Against the weak market backdrop, investors may consider putting their money in defensive stocks that pay regular dividends such as Guinness Anchor (which has just declared a special interim dividend of 60 sen per share) and Berjaya Sports Toto (after announcing a second interim dividend of 8 sen per share).
Berjaya Sports Toto
2QFY12 net profit came in at RM106 million (+62 per cent yoy, +15 per cent qoq), bringing 1HFY12 earnings to RM198 million – constituting 50 per cent of our and consensus expectations. Revenue improved 2 per cent yoy, qoq with full quarter contribution from 4D Jackpot (launched in Jun11), despite one lesser draw (gross turnover/draw improved 4 per cent yoy, qoq). EBIT margin improved 5.5ppt yoy, 1.8ppt qoq to 17.7 per cent due to a more favourable prize payout (59 per cent vs 2QFY11: 64 per cent; 1QFY12: 61 per cent), 10 per cent lower Special Prize for 4D Big Game (effective Dec10), and increased contribution from lotto games.
BST’s 4D Jackpot market share in Aug-Oct11 is a commendable 38 per cent (MPHB’s 4D Jackpot sales nevertheless had only declined by 7 per cent qoq, indicating that the segment is still growing strongly).
Although Magnum has first mover advantage in 4D Jackpot, BST has more outlets (681 vs 490) including Sabah (~40 outlets) where Magnum is absent. BST’s other lotto games also grew 21 per cent qoq as average jackpot size doubled. BST continues to build its lead in lotto games market share to 55 per cent from 45 per cent in 1QFY12.
Despite rising economic uncertainties, NFO sales should remain resilient being a small ticket item with inelastic demand. BST’s earnings growth potential has improved with 4D Jackpot which should gain popularity with rising awareness and a younger target market. BST could declare handsome dividends (minimum 75 per cent policy) as net gearing has improved to 15 per cent (FY11: 43 per cent) while free cashflows remain healthy (BST has RM250m balance in its RM800 million MTN program, which may come in handy to help fund parent Berjaya Land’s high capex requirement). Maintain BUY and TP of RM4.70 (based on dividend discount model).Wave of marginal oil fields
• Lucrative risk service contracts from Petronas offer sweet spot to move up value chain
• Relatively low risk with long-term recurring income to boost earnings
• Bumi Armada is the strongest candidate for upcoming marginal field risk service contracts
Trail-blazing marginal field development. Following the new tax incentives in Nov10 to enhance the viability of marginal oil fields development, Petronas has awarded two unprecedented marginal fields risk service contracts (RSC) in 2011 – Berantai (US$800 million) and Balai fields (c.US$900 million) – in Jan11 and Aug11 respectively. The RSCs guarantees recoverable capex and is estimated to command IRR of 11-20 per cent. Potentially, a company with 30 per cent stake in a 9-year US$800 million RSC could rake in >RM150 million cash flow p.a. The incentive-driven RSC will drive development of new O&G resources to sustain increasingly challenging production from mature basins.
Game-changer for M’sia O&G players
With remaining 22 identified marginal oilfields to be developed, the next RSC will probably be awarded by mid-12 since potential bidders would have submitted their proposals by 1Q12. Petronas does not restrict the development plan on marginal oil fields but foreign players with qualified technical know-how and sound financials must rope in local listed partners with at least 30 per cent equity ownership. O&G players with proven track record are set to benefit given the expertise-sharing requirement and we believe that this is the game-changing plan for local players to move up the value chain.
Bumi Armada is the best bet. We rate Bumi Armada as a strong contender for upcoming RSCs given its healthy balance sheet, outstanding track record and synergistic oil field services that just fit in the criteria for RSC. Bumi Armada is probably the best candidate for foreign oil players to jointly bid for marginal oil fields given its impeccable FPSO expertise, strong fleet of 43 OSVs, and T&I services. Large-cap players like Dialog, Kencana and SapuraCrest could participate in 2nd RSC given their solid balance sheet and good track record, though timely delivery for their 1st RSC remains the priority for now.
Berjaya Sports Toto
BToto’s annualised 1HFY12 numbers were largely within our and consensus expectations. Its relatively stable and defensive earnings quality coupled with the strong likelihood for dividends to surprise on the upside makes it an ideal investment pick under the current volatile environment where earnings growth of the broader market could disappoint on the downside. Net dividend yield of 6.7 per cent, with the potential of rising to 7.3 per cent assuming a 100 per cent payout ratio, will provide strong support to its share price.
Maintain BUY. Given the potential for an expectation-beating dividend upside surprise and its defensive earnings, we are maintaining our BUY recommendation as well as fair value of RM4.72. The stock’s net dividend yield of 6.7 per cent on our relatively conservative dividend payout assumption coupled with its defensive earnings make BToto an ideal investment, especially amid the current volatility and uncertain market conditions.
Not really a surprise. We were not entirely surprised by this announcement as we had earlier highlighted the possibility of higher dividends, either via a higher payout ratio or special dividend (see our 29 Nov report entitled, “Optimising its Capital Structure”). This comes following the proposed issuance of up to RM500 million in debt late last month to achieve a more efficient capital structure. GAB currently holds net cash of RM164 million (RM0.54/share). Including this special dividend, our DPS for FY12 almost doubles from RM0.61 (based on a 90 per cent payout ratio) to RM1.21, providing a very attractive yield of 9.9 per cent.
Maintain BUY, RM14.20 FV. GAB should appeal in the current market volatility given that it is a defensive stock in a defensive sector. We maintain our BUY rating on GAB with an unchanged RM14.20 FV, based on FCFF. This is by applying a WACC of 8 per cent and 2 per cent terminal growth. The only change to our forecast is the increase in our DPS projection to include this special divided.
Felda arm listing still on
Despite the controversy surrounding the directive for Felda general manager Datuk Dzulkifli Abd Wahab to go on leave, the Government is not wavering on its plan to list Felda Global Ventures (FGV) next year, according to sources, adding that the listing is important to Felda settlers. The listing would turn Felda settlers into owners of the listed FGV via Felda Investment Co-operative (KPF). KPF’s EGM to be held on 5 Jan would likely see the majority vote in favour of the deal, paving the way for FGV’s listing in March or early April. (StarBiz)
Celcom, Broadcast Australia in JV
Celcom Axiata, which is partnering an Australia digital TV expert to bid for the much-awaited digital terrestrial television broadcasting (DTTB) project, is looking at potential investment of RM500 million over three to five years. Celcom and Broadcast Australia Pty Ltd formed a partnership that will bid for the design, construction and long-term operation of the digital TV infrastructure project. Other parties vying for Malaysia’s DTTB project are Maxis with Astro, KUB Malaysia with Germany’s Media Broadcast Systems, and YTL Communications SB with US-based Sezmi and Peter Douglas. (Malaysian Reserve)
AirAsia Indonesia postpones IPO
The Indonesian subsidiary of AirAsia will postpone its IPO until next year due to the global economic slowdown. The airline in March announced plans for a public listing in the final quarter of this year, hoping to raise up to USD200 million. They were unable to provide details of when the IPO would be launched next year as it would depend on the “progress of the global economy.” (StarBiz)
(Outperform) Strong earnings growth driven by plantation
We expect Jaya Tiasa to report lower earnings for its log division in 2QFY04/12, with lower average log prices of about US$220/m3.
Jaya Tiasa has shifted to producing more higher-grade plywood recently. We believe Jaya Tiasa is likely to continue to do so, as prices for higher-grade plywood have been holding up quite well.
Strong FFB production growth of 30-45 per cent p.a. will drive Jaya Tiasa’s earnings growth going forward, despite our relatively flat CPO price assumptions.
We raise our FY11-13 net profit forecasts by 4.0-9.6 per cent after adjusting for higher FFB production forecasts and a lower cost of production. Fair value for Jaya Tiasa is revised to RM7.28.
Berjaya Sports Toto
(Outperform) Stronger earnings due to 4D jackpot and improved luck factor
2QFY4/12 net profit was in line with expectations, growing by 62.4 per cent yoy. We believe most of the earnings growth was attributed to the 4D jackpot game as well as improved luck factor, which resulted in prize payout ratio falling to 62.8 per cent (from 64.6 per cent in the 1Q).
Maintain earnings forecasts and DCF-derived fair value of RM4.85. We believe BToto is defensive in an environment of economic uncertainty, with minimal risk to the very decent dividend yields of 6-7 per cent p.a.. Maintain Outperform.
Intel has reduced its 4Q revenue expectations due to HDD supply issues stemming from the Thai floods. Furthermore, it indicated that the shortages could potentially drag into 1QCY12. (Reuters)
While we had already expected weak earnings for local semicon players in 4QCY11, this news could potentially indicate further downside risks to our estimates. The persistent supply shortages could hamper any pick-up in demand for PCs in 2012. Note that the PC segment contributes around 20-25 per cent of revenue for local semicon players.
Proton / DRB-HICOM
The Edge Financial Daily reported today that DRB-HICOM could be paying RM5.90 per share for Khazanah’s 42.7 per cent stake in Proton. Another report in StarBiz also said that Shanghai Automotive Industry Corp (SAIC) could be keen on acquiring Proton’s stake in Lotus Group. (Financial Daily / StarBiz)
At RM5.90, Proton could cost DRB RM3.24 billion assuming a GO is triggered. If Khazanah’s priority is to exit Proton cleanly (for cash), DRB’s gearing would rise to 0.78x (from 0.14x). At the speculated acquisition price for Proton, the deal would be value neutral for DRB assuming Lotus is sold on, that could immediately remove debt of over RM800 million and annualised losses of RM260 million off Proton’s books. Nonetheless, we believe the potential acquisition of Proton will significantly increase DRB’s business risk profile given the high acquisition cost.
From Proton’s perspective, we do not believe DRB will be able to add significant value unless a global OEM auto manufacturer can be roped in to participate in a more meaningful way.
Proton: TB, FV = RM5.00
DRB: MP, FV = RM1.90
Celcom has signed a teaming agreement with Broadcast Australia, its technical partner in the bid to build infrastructure for the country’s digital terrestrial television broadcasting (DTTB) network. Celcom estimates the cost of building the infrastructure for the DTTB network would be RM500 million over 3-5 years, but the share of investment and stakeholding by Celcom and Broadcast Australia has yet to be determined. (Financial Daily)
We are positive if Celcom wins the tender, due to the potential for recurring income from renting out the infrastructure for the DTTB network to TV broadcasters. Capex demands on Celcom do not appear too significant. Assuming the cost of building the DTTB network infrastructure is split equally, Celcom only needs to spend an incremental capex of up to RM83m p.a. on top of its existing RM1 billion planned for 2012.
MP, FV = RM5.15
The IPO of AirAsia’s 49 per cent-owned Indonesia AirAsia has been postponed to 2012 from 4Q2011 due to “global economic slowdown”. (Star)
While this is negative, we believe it will have been discounted by the market. AirAsia had already guided, during its results briefing in Nov, that the IPO of its units in Indonesia and Thailand is now targeted for 1QFY12 vis-à-vis 4QFY11 previously. We continue to be more inclined to see the new guidance as a moving target given the still highly volatile global equity market at present.
UP, FV = RM2.99
* 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.
** An earlier version of this article erroneously listed reports from OSK Research on Felda, Celcom, AirAsia Indonesia and Guinness-Anchor Berhad, as originating from HwangDBS Vickers. We regret the error.