Business

Analyst calls for February 7

February 07, 2013

KUALA LUMPUR, Feb 7 ― This is a selection of morning calls by local research houses for the day.

From HwangDBS Vickers

DiGi

4Q12 net profit was 7 per cent below our expectations (95 per cent of our forecast at pre-tax level) due to higher-than-expected tax expense and accelerated depreciation. Prepaid voice revenues dipped sequentially from lower tariffs effected in Dec 2012 as well as data substitution despite 176k net adds. Coupled with heated competition in the IDD space and greater mix of lower margin handset revenues, EBITDA margin shrunk by 70 bps to 44.5 per cent (260bps decline year-on-year). DiGi also declared 2.5sen DPS, amounting to 26.3sen FY12 DPS – 170 per cent payout.

We adjusted ARPU assumptions to reflect lower voice and SMS revenues, and increased depreciation estimates to account for greater FY13F accelerated depreciation (RM150 million vs our earlier projected RM95 million). Competition in voice and data will remain heated in 2013, which would further pressure ARPU and margins. We do not expect LTE products to be priced at a premium to 3G plans.

DiGi.Com is still a prime beneficiary of 3G coverage expansion (80 per cent by 2013; 2012: 67 per cent) and should reap market share from the incumbent with its value-based offerings. However, we believe FY13-14F earnings growth has been priced in, with limited near-term catalysts in sight. We cut our DCF-based price target on the back of lower earnings forecasts, but the stock could re-rate should a business trust be established.

Public Bank

4Q/FY12 net profit came in at RM992 million /RM3.87 billion. Loans grew 11 per cent year-on-year (better than industry’s 10.4 per cent) while deposits grew 12 per cent, taking loan-to-deposit ratio to a healthy 87 per cent. NIM was pressured again after two stable quarters and dipped to 2.4 per cent in 4Q12 (from 2.5 per cent in 3Q12).

Expenses were stable and cost-to-income ratio remained the lowest among Malaysian and regional peers. Gross NPL ratio improved to 0.69 per cent from 0.72 per cent in 3Q12.  The bank declared 30sen second interim DPS (single tier), in line, taking FY12 DPS to 50 sen (or 45 per cent payout). Ex-date is February 21.

NIM will remain under pressure due to i) prevailing competition for loans and deposits, and ii) rebalancing of portfolio (higher yielding loans being replaced with lower yielding ones). Management has guided for 10-12bps drop in NIM. Loans and deposits are expected to grow 11-12 per cent but asset quality will be intact (gross NPL ratio <1 per cent) while credit costs will be below 20 bps. The bancassurance tie-up with ING (now acquired by AIA) is also intact with some terms renegotiated in favour of PBK. Management is comfortable with its core equity Tier-1 capital (8.5 per cent as at Dec 12 vs Basel III requirement of 7 per cent). It might consider raising capital when  BILLIONM finalises the counter-cyclical buffer (0-2.5 per cent) which will take effect after 2015. DPS should remain at 50sen for future years.

Strong fundamentals priced in; maintain HOLD with a lower TP. Our revised RM16 TP (previously RM16.60) is based on the Gordon Growth Model and assumes 9.7 per cent cost of equity, 3 per cent long term growth, and 22 per cent ROE (24.5 per cent previously) after adjusting for a 6 per cent increase (RM859m) in shareholders’ funds (wrote back excess collective assessment allowance after adopting MFRS 139, and earnings revision).

From OSK Research

Golden Agri

Golden Agri (GGR), as a sector proxy, will see its stock price surge if the current upswing in palm oil prices can be sustained. The stock is also proxy to Indonesia’s strong palm oil consumption growth and improvement in living standard. The company is boosting its refining capacity and beefing up its downstream team, which will see GGR be a more dominant player in global edible oil business over time. We are maintaining our Buy call with our FV unchanged at S$0.82

From RHB Research

AZRB

Ahmad Zaki is beginning to see the fruit of its labour of having grown some defensive non-construction businesses, i.e. bunkering operation at Kemaman Supply Base, oil palm plantation in West Kalimantan, and the design, build, lease, maintain & transfer (DBLMT) of a teaching hospital for the International Islamic University Malaysia (IIUM) in Kuantan under the Private Finance Initiative (PFI).

For its bread-and-butter construction business, Ahmad Zaki guided new contract wins of about RM500-600 million in FY12/13.

Also, for the construction business, Ahmad Zaki in recent years managed to break into a new segment, i.e. high-rise buildings, putting it in a good position to bid for a slew of high-rise building jobs that are coming into the market.

Fair value is raised by 56 per cent from RM0.93 to RM1.45, having rationalised our valuation method to “sum of parts”.  Maintain Buy.

Public Bank

Public Bank’s 4Q12 results were in line with our and consensus expectations.

The second interim net DPS of 30 sen, however, was slightly below our expected 32.5 sen (full-year net DPS of 50 sen vs. FY11: 48 sen). This was due to a more conservative stance taken with respect to capital, resulting in a net payout ratio of 45 per cent for FY12 vs. our 47.5 per cent assumption.

Management provided some key performance targets for 2013, which includes loan growth of 11-12 per cent for 2013. Generally, the targets are rather broad-based but achievable, in our view.

Based on the CET-1 of 8.5 per cent as at end-2012, management estimates the additional capital required to meet a 9-10 per cent CET-1 requirement should be <10 per cent of its market capitalisation. In addition, at a CET-1 level of 9-10 per cent and assuming the current profitability is sustained, management estimates a ROE of slightly above 20 per cent.

We updated our forecasts for the full-year results, but the impact is not too significant. We also trimmed our FY13-14 net DPS projections by 6-6.5 per cent after lowering our net payout assumption to 45 per cent from 47.5 per cent.

Fair value tweaked down to RM16.80 from RM17.00 (14x CY13 EPS). Maintain Buy call.

DiGi

DiGi’s FY12 net profit came in below expectations. The key variances were higher-than-expected tax and accelerated depreciation.

Quarter-on-quarter, revenue growth recovered to 3 per cent (3Q: +0.2 per cent), driven by stronger data and higher handset sales. However, voice was flat. 4Q EBITDA margin was lower at 44.5 per cent (3Q12: 45.2 per cent). Coupled with a higher effective tax rate of 31.7 per cent and depreciation (+17.6 per cent quarter-on-quarter), net profit fell 22.1 per cent quarter-on-quarter.

Management left its 2013 guidance unchanged, and expects revenue to grow by 5-7 per cent, while EBITDA margins are expected to remain stable. Competition remains intense, in particular, in data and IDD, but management hopes to differentiate itself when it launches LTE services. Besides that, management estimates RM40m worth of broadband tax incentives in 2013.

DiGi declared a 4th interim net DPS of 2.5 sen (translating to 4Q EPS payout ratio of 79 per cent).

We recommend a Neutral on DiGi after revising our fair value to RM5.10 (WACC = 7.1 per cent) from RM5.40 after reducing our FY13-14 earnings forecasts by 10-13 per cent.

SP Setia

SP Setia has entered into a JV with a 99.98 per cent owned subsidiary of Kumpulan Perangsang Selangor to develop a mixed residential and commercial project on 194.65-acre piece of leasehold golf club land in Templer’s Park. CCB is the landowner.

The amount that SP Setia will need to pay translates into a land cost of RM17-24 psf, depending on the housing content. Assuming the rezoning is successful, the price looks reasonable. This land is just 20km away from the city centre. The project is estimated to have a GDV of RM1.24 billion.

We maintain our earnings forecasts, as the project may not start over the next two years due to the expected period to fulfill the conditions precedent.

As such, we are keeping our fair value unchanged at RM3.66. Near-term catalysts are lacking, given that the general election is near, long-term leadership planning of SP Setia is unclear, and the stock may suffer an overhang following the completion of the placement exercise. Maintain Neutral.

* 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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