Business

Analyst calls for February 4

KUALA LUMPUR, Feb 4 — This is a selection of morning calls by local research houses for the day.

HwangDBS Vickers

It remains to be seen whether our Malaysian bourse will play catch-up with its regional peers today. Overseas equities were mostly up when our local stock exchange was closed last Friday, led by Thailand (+1.7 per cent), Philippine (+1.2 per cent) and China (+0.7 per cent). Over on Wall Street, its bellwethers jumped between 1.0 per cent and 1.2 per cent on the back of a better labor report and corporate earnings outlook.

Our technical take is that the key FBM KLCI will probably lag its peers’ performance. On the chart, the benchmark index could swing with a negative bias, possibly retreating towards the psychological mark of 1,600 ahead.

Hoping to buck any weak market trend today are counters like: (a) MISC, which has received a conditional takeover offer from parent Petronas to acquire all the remaining shares at a cash offer price of RM5.30 per share; (b) MBSB, after announcing a final dividend and special dividend totaling 20.25 sen per share translating to an attractive yield of 9.0 per cent based on its last traded price of RM2.26; and (c) SapuraKencana, in response to a local business weekly report speculating that it is in a good position to secure a Petronas project to build a central processing platform off Sabah’s coast.

The FBM KLCI came under renewed selling pressures last week, falling to a low of 1,613.17 before finishing at 1,627.55 on Thursday, a weekly decrease of 9.6-point or 0.6 per cent. From a technical perspective, the key market barometer is facing increased downside risk at the moment, looking to test and possibly drop below the tentative support line of 1,615 soon.

Banking

10.4 per cent loan growth for 2012

2012 loan growth came in at 10.4 per cent (our 2012 estimates was 11 per cent) led by retail (11.7 per cent) and business (9.0 per cent) loans. The growth in mortgages and non-residential property loans remained resilient at 13 per cent and 19 per cent (2011: 13 per cent and 20 per cent), while credit cards and personal loans fell sharply to 2 per cent and 9 per cent (2011: 8 per cent and 20 per cent) respectively. Business loans were mixed with stronger growth in construction loans but weaker growth in working capital loans.

RHB Capital; Buy;  RM7.74

Price target: RM9.30; RHBC MK

RHB Cap signs a revised agreement for the acquisition of Bank Mestika; acquiring 40 per cent stake

RHBC signed a revised Conditional Sales & Purchase Agreement (CSPA) with the vendors to revise the proposed acquisition of Bank Mestika from 89 per cent to 40 per cent for a total cash consideration of Rp2,066bn (approximately RM651m). Based on Bank Mestika’s 31 Dec 2011 net assets of Rp1,525bn (approximately RM480m), the revised acquisition multiple is estimated at 3.4x. Bank Mestika’s CAR stood at 26.3 per cent as at 31 Dec 2011. The acquisition will be subject to regulatory approvals of Bank Indonesia (for the proposed acquisition), BAPEPAM-LK (for the proposed IPO of Bank Mestika), and any other relevant authorities if required. The long stop date has been amended to 30 Jun 2013, and the acquisition is expected to be completed by 2Q 2013.

Axiata; Fully Valued;  RM6.30

Price target: RM5.80; AXIATA MK

XL Axiata results disappoint, aggression likely to continue in 2013

XL reported its 4Q12 earnings last Friday, which was below expectations, due to lower revenues on a sequential basis. This was primarily from XL reducing its prices for voice, SMS and data on daily packages in Nov 2012. GHov 2012,marily from in FY12Fin 2013ay, which was below expectations.  However, the lower tariffs gained XL 3.5m subscribers in 4Q12 as opposed to a loss of 4.1m subscribers in 9M12, though this was not enough to overcome lower revenue contributions from existing subscribers. As XL intends to grow inline or better than the industry growth rate, it needs to gain market share as ARPU growth is not possible given lower prices since Nov 2012.

Highlights

CIMB Group; Hold;  RM7.21

Price target: RM7.80 (prev RM8.20); CIMB MK

A lot in the works

Proposing dividend reinvestment scheme which will stop when CET1 reaches 10 per cent. Rejuvenating consumer banking. FY12F earnings raised marginally; FY13-14F earnings trimmed by 3 per cent each. Maintain Hold, TP lowered to RM7.80.

MISC; Buy; RM4.45

Offer price: RM5.30; MISC MK

Cold comfort

Petronas’ offer to take MISC private at RM5.30/share caps upside. The offer is cheap at 1.1x book; stock is at an 8-year low. MISC poised for strong earnings growth; value of Gumusut-Kakap not realised yet.

Results Snapshot

Bursa Malaysia; Fully Valued;  RM6.62

Price target: RM5.60; BURSA MK

Lackluster securities revenue

FY12 net profit of RM151m was in line; declared 13.5sen final DPS (single tier). 4Q12/FY12 earnings were lifted by derivatives and stable revenue, securities revenue was weak. Expect unexciting earnings growth in FY13. Maintain Fully Valued and RM5.60 TP.

Quil Capita Trust; Buy;  RM1.20

Price target: RM1.45 (prev RM1.55); QUIL MK

Hit by higher vacancies

FY12 within expectations; realised income growth was flat from lower rental revenue  due to higher vacancies. 4.28sen DPU declared – FY12 DPU of 8.38sen implies 7 per cent distribution yield. Continuing headwinds in the office market to pressure rental reversions. Cut FY13F earnings by 4 per cent after imputing vacancy at QB10; Maintain Buy with lower RM1.45 TP.

Wing Tai Malaysia; Buy;  RM1.90

Price target: RM2.30 (prev RM2.10); WING MK

On a roll

Results in line. Slow KL high-end sales, but cushioned by Penang mass residential & robust retail sales. Maintain Buy, lift TP to RM2.30 (45 per cent discount to RNAV).

Wired Daily

Today’s Market Preview: It remains to be seen whether our Malaysian bourse will play catch-up with its regional peers today. Overseas equities were mostly up when our local stock exchange was closed last Friday, led by Thailand (+1.7 per cent), Philippine (+1.2 per cent) and China (+0.7 per cent). Over on Wall Street, its bellwethers jumped between 1.0 per cent and 1.2 per cent on the back of a better labor report and corporate earnings outlook.

Traders Spectrum – From the Chartroom

The FBM KLCI came under renewed selling pressures last week, falling to a low of 1,613.17 before finishing at 1,627.55 on Thursday, a weekly decrease of 9.6-point or 0.6 per cent. From a technical perspective, the key market barometer is facing increased downside risk at the moment, looking to test and possibly drop below the tentative support line of 1,615 soon.

CIMB Group Hldgs

Proposed DRS; will stop when CET1 hits 10 per cent over three years; ROE (estimated) diluted to 16 per cent.  CIMB has proposed a dividend reinvestment scheme (DRS). Although management has never been in favour of this, it has chosen this capital management tool to meet Basel III requirements. CIMB’s bank-only and group Core Equity Tier-1 (CET1) as at 3Q12 is estimated at 7.0 per cent and 7.9 per cent respectively. At the holding company level, we estimate its CET1 at 6.7 per cent. CIMB plans to bring its CET1 to 10 per cent over next three years via the DRS. CIMB does not intend to initiate a rights issue. Based on current share price and assuming a maximum 10 per cent discount, CIMB may need to raise up to RM3.2bn or 525m shares via the DRS. This would dilute ROE close to 16 per cent. Dividend payout policy remains at 40-60 per cent of earnings.

Rejuvenating consumer banking.  CIMB’s consumer banking business went through an internal restructuring since end 2011 when Mr Renzo Viegas became Head of Consumer Banking. Although difficult to quantify synergies at this stage, the revamp of its Malaysian consumer banking business would ensure the bank regains market share.

FY12E earnings raised marginally (lower provisions); FY13-14F earnings trimmed (higher costs).  We expect CIMB to deliver a decent set of 4Q12 results with net profit estimated at RM1,074m (-5 per cent y-o-y). We raised expenses but lowered provision charge-off rate to 21bps (from 28bps) which lifted FY12E net profit by 1 per cent. We trimmed FY13-14F earnings by 3 per cent each on higher integration and infrastructure costs incurred from its acquisition of RBS.

Maintain HOLD, TP lowered to RM7.80. Our lower TP of RM7.80 (from RM8.20) is arrived based on the Gordon Growth Model (16 per cent ROE (from 16.5 per cent), 6.5 per cent growth and 11.4 per cent cost of equity) and after our earnings revision.

Bursa Malaysia

4Q12 - Securities revenue fell, as expected, on softer average daily turnover volume (-14 per cent q-o-q) and value (-10 per cent q-o-q), while average velocity fell to 25 per cent from 27 per cent in 3Q12. Derivatives revenue grew 7 per cent as average daily contracts rose to 44k in 4Q12. Stable revenue was flat q-o-q supported by five IPOs in 4Q12 against six in 3Q12.

Declared 13.5sen final DPS (subject to shareholders approval), which takes FY12 DPS to 25sen (95 per cent payout).

FY12 net profit was driven by stronger derivatives and stable revenues, which offset weaker securities revenue. Average daily contracts for derivatives rose to 39k in FY12 (+14 per cent y-o-y) as the migration to CME Globex platform started to yield results. Stable revenue was largely lifted by higher listing fees from more structured warrants, higher depository revenues from the listing of three large cap IPOs, and a hike in information services rates.

Our View

No change to FY13/14F volume and value assumptions. Average daily trading volumes and values remain at 1.3bn/1.4bn shares and RM1.6bn/RM1.7bn, respectively. We tweaked FY13F earnings by 3 per cent after imputing stronger derivatives revenue; securities and stable revenue growth will remain flat. We do not expect the lower operating costs in FY12 (due to lower staff costs and depreciation charge) to be sustainable as Bursa continues to invest in technology (new trading system) and human resources.

Recommendation

Maintain Fully Valued. Our RM5.60 TP is based on the Dividend Discount Model and assumes 90 per cent dividend payout, 7 per cent long term growth, and 11.4 per cent cost of equity.

RHB Research Institute

The broad monetary aggregate and loan growth moderated in December but the underlying economic activities are likely to have remained resilient. The broader money supply, M3, inched lower to 8.8 per cent yoy in December, after moderating to +10.7 per cent in November and compared with +13.0 per cent in October.

This was on account of a drop in government operations and a slower increase in external operations, while demand for funds by the private sector eased during the month.

Similarly, loan growth moderated to 10.4 per cent yoy in December, from +11.2 per cent in the previous month and compared with the high of +13.6 per cent recorded in the same period in 2011. This was mainly attributed to a weaker growth in corporate loans, while household loans remained stable during the month.

Despite the moderation, demand for corporate loans remained resilient, while the tighter credit standards and macroprudential measures imposed by the central bank are helping to stabilise the latter’s growth. On balance, we expect the banking system’s loans to sustain its expansion at 10-11 per cent in 2013, compared with +10.4 per cent in 2012, as a pick-up in corporate loans is likely to be offset by a slowdown in household loans.

Despite anticipation of higher inflation in 2013, it will likely remain manageable and unlikely pose a threat to the economy. As a whole, the Central Bank, in our view, will likely keep its Overnight Policy Rate (OPR) unchanged at 3.0 per cent in 2013, after raising it to the current level in May 2011.


OSK Research

The noticeable downshift in 4q12 (first print) real GDP growth to -0.1 per cent from 3.1 per cent was eye-catching.  While the deceleration in growth was directionally unsurprising, the extent of the slowing raises some intriguing questions about the near-term state of the US economy.  As a result, we seek to provide some clarity by answering three questions about the current economic backdrop: 
   

1)    What were the key drags to 4q12 growth and are there any implications on subsequent quarters?  

Answer: The key dampeners for 4q12 real GDP were defense spending, inventory change and exports, which collectively subtracted more than 3 per cent-points from growth.  While the combined impact on immediate quarter real GDP growth from the foregoing categories is statistically significant, with a positive coefficient (i.e., lowers current growth), the negative imprint on GDP growth in the following three quarters is not statistically significant.  Our analysis, interestingly, also finds that the same coefficient becomes statistically significant, but negative (i.e., adds to future growth) when regressed on real GDP growth four quarters out.  This simply means that the drag on growth in the immediate quarter from the aforementioned categories tends to be partially reversed about a year later.  To wit, there is some tendency for future growth to be slightly more positive, all else equal, when these categories partially reverse some of the negative contribution in the current quarter.  

2)    Is the marginal contraction in 4q12 GDP consistent with higher recession risks?

Answer: Our proprietary recession risk indicator, the Recession Alert Compositive (RAC), did deteriorate in Nov and Dec 2012, rising to around 55 per cent from less than 50 per cent in the prior three months.  But the higher RAC readings toward the end of 2012 remained below the recession alert threshold of 70 per cent (optically, a RAC reading of 70 per cent or higher has been historically consistent with the last 11 recession episodes).  Moreover, the preliminary RAC reading for Jan 2013 actually improved slightly to less than 50 per cent, mainly as a result of generally positive financial conditions thus far.

3)    What are the most current indicators implying for 1q13 real GDP growth?

Answer: Given limited 2013 data availability at this time, we rely on our proprietary High-Frequency Activity Tracker (HAT) for rough guidance.  Essentially, the HAT, which takes into account timely data releases recently (mostly on a weekly-basis), suggests that 1q13 real GDP growth might be tracking sub 2 per cent, perhaps in the vicinity of 1.5 per cent.  But the elevated noise level among the high frequency data lately implies the possibility of larger forecast errors.  In addition, our GDP diffusion indicator, which slid to 58 per cent in 4q12 from more than 80 per cent in the prior quarter, suggests that the weakness toward the end of 2012 was not particularly widespread (i.e., more categories adding to growth than subtracting from growth on balance).  Still, the ongoing uncertainties over the shape and timing of the fiscal drag in early 2013, primarily as a result of the expiration of the payroll tax holiday at this time and the growing risks associated with the Mar 1 sequestration, continue to obscure any near-term assessment of the economy.  For now, we maintain our baseline forecast for 1q13 real GDP growth to come-in at 1.6 per cent.  

Wing Tai Malaysia

(FV RM2.25 - BUY) 1HFY13 Results Review: Improved Property & Retail Development Shores Up 1H Earnings

Wing Tai’s 1HFY13 results were slightly below our and street estimates. The 1H revenue of RM257.2m came within our expectations, accounting for 48.4 per cent/47.2 per cent of our and consensus forecasts. However, its RM40.8m net profit slightly missed our estimates, making up 44.9 per cent of our full-year target, mainly due to higher depreciation and marketing expenses from the opening of 12 new stores in 1HFY13. We are leaving our forecasts unchanged but revising our target price to RM2.25, pegged to its property development segment with a higher PE of 9x. We see potential higher sales contribution from its resilient Penang residential property division after the full completion of the Second Bridge of Penang by 1Q 2013. Jabatan Kedua Sdn Bhd revealed that the 16.9km bridge was 80 per cent completed in June last year, and full completion is slated by end-January this year.

* 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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