Business

Analyst calls for February 26

February 26, 2013

KUALA LUMPUR, Feb 26 — This is a selection of morning calls by local research houses for the day.

HwangDBS Vickers

After posting a rebound of 14-point or 0.9 per cent over the past three days, the key FBM KLCI could surrender parts of its recent gains today. On the chart, the benchmark index is expected to test the immediate support line at 1,615.

Essentially, the bears will likely make a comeback in Asia today following Wall Street’s overnight slump. Major U.S. equity indices plunged between 1.4 per cent and 1.8 per cent at the closing bell as sentiment was hit by concerns over a possible hung Parliament in Italy and deteriorating Eurozone’s debt woes.

Against a jittery market backdrop, stocks that may generate added interest on our local bourse today include: (a) Boustead, as our research team expects its earnings outlook to be capped by weak CPO prices; (b) DRB-Hicom, after its management said the Group is in discussion to start the local assembly of Audi cars in Malaysia; and (c) Hong Leong Capital, in response to its announcement that the takeover offer by parent HLFG has received an acceptance rate of 2.2 per cent only.

Oldtown’s share price – after reaching an all-time high of RM2.39 in mid-Jan this year – has since pulled back by 9.6 per cent. The stock – which closed at RM2.16 with 884,500 shares traded yesterday – could be resuming its 17-month rally soon.

From a technical perspective, if the share price crosses over a negative sloping trend line, it will probably ride on the upward momentum and climb towards our first two resistance targets of RM2.26 and RM2.35.

AmResearch

WCT

Maintain BUY on WCT with our fair value revised downwards to RM2.85/share (previously: RM3.05/share) – as we roll-forward our valuation base to FY13F and account for new issuance of warrants.

We have introduced FY15F net profit of RM288mil (+22 per cent YoY).

Stripping off an exceptional gain from the revaluation of investment properties totalling RM218mil (mainly on Paradigm Mall), WCT reported FY12 results which came 14 per cent below ours, and 17 per cent of consensus.

We believe the key weaknesses in 4QFY12 mainly came from:- (i) start-up costs for Paradigm Mall; and (ii) slow progress on the Doha administrative building contract.

But, we are unperturbed. We expect FY13F core net profit to rebound by a strong 33 per cent on account of strong property sales; (ii) step-up in progress from higher-margin local projects that were secured in 2H11/2012; and (iii) maiden contributions from Gateway@KLIA2.

Kossan Rubber

We are maintaining our BUY recommendation on Kossan Rubber Industries (Kossan), with an unchanged fair value of RM4.60/share based on a PE of 12.5x FY13F earnings.

Kossan reported earnings of RM30 milion in 4QFY12 (+2 per cent QoQ and +24 per cent YoY), bringing FY12’s net profit to RM104mil (+17 per cent YoY).

The results accounted for 89 per cent of consensus and 94 per cent of our estimate. We deem the results to be in-line as the variance can be attributed to a 4ppts higher-than-expected effective tax rate of 24 per cent (FY11: 20 per cent).

The group’s solid performance in FY12 was driven by:- (1) increased production efficiency, (2) higher glove sales volume (+9 per cent YoY); (3) a more optimum product mix as it moves to nitrile:latex of 50:50 from 43:57; and (4) favourable input prices (latex and nitrile input prices are off their 2011 highs by ~40 per cent).

Petronas Chemical

We maintain our HOLD call on Petronas Chemicals Group (PChem), with a higher fair value of RM7.00/share (vs. an earlier RM6.70/share), pegged to an unchanged FY13F EV/EBITDA of 7.5x – which is at parity to Thailand’s PTT Global Chemicals.

We have raised PChem’s FY13F-FY15F earnings by 3 per cent-5 per cent largely due to a 6 per cent reduction in the group’s operating overheads. We also introduce FY15F net profit with a 16 per cent growth, which incorporates contributions from the commencement of the 1.2 million-tonne Sabah Ammonia and Urea project costing RM4.7bil (US$1.5bil) in Sipitang.

PChem’s FY12 net profit of RM3,518mil was within street’s estimates (-4 per cent) but above our expectations (+6 per cent) largely due to a positive 4QFY12 tax charge of RM169mil arising from deferred tax claw-backs in the fertiliser and methanol division. The group declared a final dividend of 14 sen/share to bring FY12 DPS to 22 sen, above our forecast of 18 sen.


RHB Equity Focus

CIMB

CIMB’s FY12 net profit of RM4.3bn (+8 per cent yoy) met our and consensus expectations.

Gross loan growth picked up pace qoq (+3.8 per cent) thanks to commercial and corporate banking but 2012 growth of 8.9 per cent was below the 16 per cent target and our 12.5 per cent assumption partly due to adverse FX translation impact (~200bps). Meanwhile, group customer deposits expanded by 9.9 per cent yoy.

Gross impaired loan ratio improved to 3.8 per cent from 4.2 per cent as at end-3Q12 while LLC was 82.8 per cent (end-3Q12: 84 per cent). Group CET-1 was 7.8 per cent.

CIMB met its dividend payout target with a higher interim net DPS of 18.4 sen (4Q11: 10 sen, net). Full-year net DPS stood at 23.4 sen (2011: 22 sen, net), which translates to a payout ratio of 40 per cent.

2013 targets include: 1) ROE of 16 per cent; 2) total credit growth of 15 per cent; and 3) credit cost of <40bps. CIMB also guided for 5-10bps NIM compression and provided medium-term targets of CIR of 50 per cent and CET-1>9.5 per cent by 2015.

FY13-14 tweaked after updating for the full year results but fair value of RM8.70 is unchanged (13x CY13 EPS). Trading Buy call maintained.

DiGi

We set out below the key highlights from yesterday’s informal group briefing hosted by DiGi with CEO, Henrik Clausen, and CFO, Terje Borge.

While smartphones and of late tablets have been DiGi’s main focus to grow data revenue, management believes there is a viable market in the large screen market.

Management offered a little more granularity on its 5-7 per cent revenue growth guidance for 2013. Broken down by contribution, data will contribute roughly about 60 per cent, 20 per cent will come from voice, and the remaining 20 per cent derived from handset sales and other income. This suggests that while data remains the growth driver, voice may yet still see growth in 2013, which is positive.

Management could not offer specifics on the cost savings derived so far from the collaboration with Celcom. Nonetheless, opex savings may not be material yet due to initial costs incurred in removing duplicate towers.

Maintain Neutral on DiGi with unchanged DCF fair value of RM5.10. We believe DiGi’s revenue growth momentum is still intact, although margins may potentially come under pressure from handset subsidies. Valuations still look a bit stretched at this juncture, in our view.

MISC

MISC reported a core net profit of USD266.7m, beating our and consensus estimates reversing from a core net loss of USD286m in the previous year.

On an apple to apple comparison, stripping its discontinued liner business, core earnings came in at US$468 million, lower by 1 per cent y-o-y due to the drag in its petroleum tanker segment although this was cushioned by the higher profits from its offshore and tank terminal division.

Management maintains a conservative stance on its LNG prospects citing cautiousness on potential LNG project delays which could put downward pressure on spot rates. Its strategy remains; buy assets only when a long term charter has been secured.

While it appears that petroleum and chemical tanker rates have hit rock bottom, Management continues to reiterate that the former will continue to see rates remaining depressed throughout 2013 as the supply glut of vessels persists, notably on the Aframax vessels which MISC have heavy exposure on.

We upgrade our FY13 by 7.6 per cent, but tone down our estimate for FY14 by some 8 per cent.

We maintain our BUY call and reject the cash offer of RM5.30 made by Petronas. We have shifted our valuation methodology to sum of parts now as this would give more clarity on the breakdown of each division.  Our sum of parts value on MISC is RM6.03 (versus RM6.58 previously based on price to book value).

POS Malaysia

Direct mails segment performed unexpectedly well and lifted the overall mailing segment’s volume up by 0.2 per cent y-o-y.

That surprises us as mailing segment by right should be on a declining trend, for both volume and revenue.

POS Laju is aiming to achieve RM300m revenue in FY13 and management is confident to maintain its double digit growth moving forward.

Expansion of e-commerce and emergence of new major shareholder – DRB-HICOM has helped to improve the performance of courier segment significantly.

POS Malaysia retained strong cash pile of RM493.1m and management guided 50 per cent dividend payout ratio remained intact.

Ar-Rhanu is expected to perform well and subsequently offset the impact from declining contribution of the mail segment.

We are positive on the development of POS Malaysia and FV of RM4.14 was derived from our sum-of-parts valuation which has incorporates the value of the group’s land bank. Maintain BUY.

Allianz Malaysia

We attended Allianz’s briefing yesterday and identified the bancassurance business with HSBC as well as change in strategy of its agents sales as the key topics for FY13.

The bancassurance commenced in FY2013 and will likely contribute to ALIM’s profitability on product segments that focuses on protection and savings needs.

ALIM also plans to match the agents profile to capture younger customers (~30 years old) in terms of the unit-linked product segments.

We make no changes to our forecasts. Maintain NEUTRAL with FV retained at RM8.02, pegged to FY13 PE of 15x for its GI business and a P/EV of 1x on LI’s embedded value (EV) of RM700m

Lafarge Malayan Cement

We attended Lafarge’s analyst briefing yesterday, management was satisfied with its net profit rose by 9.8 per cent in FY12, incurred from higher sales volumes, better local sales and lower maintenance costs..

Lafarge expects various construction projects under the ETP and 10MP, plus on-going property developments, to keep cement demand on an uptrend while it gradually absorbs the additional capacity of new players.

The company will focus on product differentiation to retain its competitive edge and margin, which justifies our conservative price escalation assumption.

That said, we keep our NEUTRAL call and FV at RM9.44 as our valuation parameter at 20x FY13 EPS is a premium to its regional peers’ 18.5x.


OSK Reaerch

Lafarge Malayan Cement

Lafarge was satisfied with its FY12 net profit of RM349 million, incurred from higher sales volumes, better local sales and lower maintenance costs.

Its management expects various construction projects under the ETP and 10MP, plus on-going property developments, to keep cement demand on an uptrend while it gradually absorbs the additional capacity of new players.

It will focus on product differentiation to retain its competitive edge and margin, which justifies our conservative price escalation assumption.

That said, we keep our NEUTRAL call and FV at RM9.44 as our valuation parameter at 20x FY13 EPS is a premium to its regional peers’ 18.5x.

* 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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