Business

Analyst calls for December 13

December 13, 2012

KUALA LUMPUR, Dec 13 — This is a selection of morning calls by local research houses for the day.

From HwangDBS Vickers

SP Setia

4QFY12 net profit came in at RM127 million (+54 per cent year-on-year, +27 per cent quarter-on-quarter), bringing FY12 earnings to RM394 million (+34 per cent) or 103-109 per cent of our and consensus estimates respectively. Growth was driven by stronger sales, higher contribution from newer projects and improved margins from rising ASPs.

SPSB surpassed its RM4 billion FY12 sales target with a record RM4.2 billion (+29 per cent year-on-year) – highest among Malaysian developers and its fifth consecutive year of increase. 4QFY12 physical sales came in at RM1.1 billion (-4 per cent year-on-year, +6 per cent quarter-on-quarter) with maiden contribution from Setia Sky 88 (new benchmark of RM900-1400psf for Johor), 11 Brook Residences@Penang and Aeropod@Kota Kinabalu.

SPSB is targeting an ambitious 30 per cent growth in sales to RM5.5 billion in FY13. This may be achievable with new launches eg Battersea Phase 1 condos (800 units@£1,000psf ASP, launching in January), RM4 billion Setia Eco Hills@Semenyih township (bungalow lots@RM100psf), RM3 billion Setia Eco Glades@Cyberjaya landed (3 out of 8 islands already fully booked), RM800 million Parque@Melbourne condos, and RM1.1 billion Eco Sanctuary@Singapore condos.

Strategy to sustain growth by strengthening core base in Malaysia, increasing presence in global cities, expanding portfolio of investment grade products and investing in populous nations for future growth. We see the RM40 billion-GDV Battersea as a game-changer which can potentially double earnings by FY16/17 (profit recognition upon completion, Phase 2 to be launched in 1 year pending restoration of the power station & change of plans to include more residential).

Maintain Buy & TP of RM4.10 based on 25 per cent discount to RNAV of RM5.41. Overhang may persist in the short-term as the 15 per cent placement (to address stock liquidity and raise working capital) has been postponed to 1QCY13. SPSB’s recent removal from MSCI Index and uncertainty over management continuity has seen its share price plunging by 18 per cent over the past month, bringing discount to RNAV to an attractive 42 per cent (lower-end of historical valuation range). Earnings visibility will be underpinned by record RM4.4 billion unbilled sales (2x FY12 property development revenue) and strong launch pipeline.

From RHB Research

Mah Sing

We follow up with Mah Sing’s recent proposal for rights issue with free warrants to raise gross proceeds of RM400m. The 1-for-5 bonus issue would as act as a sweetener for the equity call.

We are neutral to negative bias on the rights issue. The cash call represents about 20 per cent of the current market cap of Mah Sing. The 1-for-3 basis for rights issue is more likely to happen. This would result in FY13 EPS and FD RNAV dilution of about 25 per cent (taking into account the expanded share base subsequent to only the rights issue) and 15-20 per cent (depending on the warrants exercise price).

The management indicated that about RM350 million will be used for landbanking purposes, including land in RRI and Iskandar. However, we believe more funds could be channelled to working capital utilisation as Mah Sing currently has 40 projects in hand. The previous issuance of RM325m convertible bond has been fully drawn down, and net gearing stands at 30 per cent as at 3Q12. Hence this very much explains the need for fund raising.

We revise our FY13-14 earnings forecasts downward by 2-11 per cent to be in line with management guidance (before impact of rights issue).

We lower our fair value to RM2.43 based on a larger 20 per cent discount to RNAV. Maintain Market Perform.

SP Setia

4Q results beat our and market consensus. Operating margin expanded to 23 per cent from 18 per cent due to the increase in product pricing. Net gearing surged to 57.8 per cent from net cash last year.

 total record sales of RM4.23 billion was achieved for FY12. Property sales for Setia Alam and Eco Park fell. As such, sales from the Klang Valley region were largely made up by the boost from EcoCity. Sales from the Penang region dropped by RM73 million to RM245 million, due to lack of new launches. Townships in Johor, however, experienced a single-digit growth.

A new sales target is set at RM5.5 billion. This is achievable as the additional RM1.3 billion sales from FY12 sales will mainly come from the overseas projects. Ph. 1 Battersea project will be launched in Jan 2013. We expect a decent take-up of around 500-600 units or 70-75 per cent. Key buyers will largely be the Malaysians. Attractive discount of up to 6.5 per cent is given to draw first batch buyers.

We fine tune our FY13-14 earnings up by 7-8 per cent. Our new FY15 earnings will see the contribution from the Melbourne projects.

No change to our Market Perform rating. Fair value is, however, adjusted to RM3.66 (from RM3.64) to account for the value contribution from the recently acquired British High Comm. land.

UOA Development

UOAD announced another en-bloc disposal of an office building at Horizon Ph. 2 Bangsar South to the UEM Group at a consideration of RM173.25 million.

This values the office block at RM750 psf, which is within our expectation. The deal will bring UOAD’s total property sales to RM1.41 billion from RM1.24 billion as at Sept. UOAD will also realise a gain of RM32.1 million subsequent to the disposal.

We tweak our FY12-14 earnings forecasts as we now treat en-bloc sale for both properties held as inventory and investment property as core net earnings.

We keep our fair value at RM2.21. Maintain Outperform.

From OSK Research

Sector Update — Thai telecoms

The National Broadcasting and Telecommunications Commission (NBTC) is finally dishing out 2.1GHz licences to the successful bidders of the 3G auction held in October. The trio – ADVANC, DTAC and TRUE – have been granted the rights to operate actual 3G commercial services on the 2.1GHz spectrum for 15 years, commencing from December 7, 2012 to December 6, 2027.

 We applaud NBTC’s swift action in awarding the licenses amid sharp criticism and scrutiny over the terms and procedures in relation to the 3G auction. Although there have been several attempts initially to derail the granting of the 2.1GHz spectrum, we reckon that telcos can now put this episode behind them and move full steam ahead.

This latest development will pave the way for the industry to shift from the conventional Build-Transfer-Operate (BTO) model to a single licensing framework. Under this new arrangement, telcos will incur a flat 6 per cent fee, which means that they are likely to see a leg-up in earnings given the significant 19 per cent to 24 per cent in cost savings. More importantly, ownership of the spectrum is clearly vested with the mobile operators.

Although NBTC is imposing a cap on data pricing, we do not expect this to hinder revenue growth given that the revenue per minute (RPM) in Thailand is already one of the lowest in the world.

In addition, the country’s telcos may adopt more innovative pricing in their bundling plans to offset and mitigate the anticipated shortfall. Furthermore, we expect the currently low smartphone penetration of 16 per cent to rise rapidly to 30 per cent by CY14/CY15 as the prices of 3G handsets have been declining over the past few years.

In addition, NBTC requires telcos to expand their network coverage to 50 per cent in two years and 80 per cent within four years. This reinforces our belief that data usage will increase accordingly and boost non-voice growth as the 3G eco-system matures in the next few years.

We are reiterating our OVERWEIGHT call on the sector as both ADVANC (FV: THB254) and DTAC (FV: THB115) are BUYs. Note that we have included the telcos providing 2.1GHz-3G services into our financial models.

We think the valuations of Thai telecoms are attractive and undemanding compared to their regional peers. Although there may be a negative impact on profit margins in the short term, we believe that telcos stand to benefit significantly over the longer term in view of the regulatory cost savings under the single licensing framework.

ADVANC remains our top pick for telco exposure given its superior execution and strong balance sheet.

* 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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