KUALA LUMPUR, Jan 17 — This is a selection of morning calls by local research houses for the day.
From HwangDBS Vickers
FY12F-14F earnings nudged up 1-2 per cent. Sime announced its acquisition of Bucyrus distribution business on 14 December11, which based on the factsheet, should contribute additional 10-11 per cent of Sime’s current Industrial pretax. Having imputed these in our forecasts, we raised the group’s FY12F-14F earnings by 1-2 per cent. Likewise, our TP of the stock is raised to RM10.00 — offering c.14 per cent return, including 3.7 per cent net dividend yield.
More value from Plantations. Sime intends to expand its plantation land bank in both Africa (Cameroon) and Indonesia. It also plans to diversify its crop profile in Liberia to include rubber (20 per cent of planted area).
Motor: expanding coverage in China. Contributions from China and Non China operations within Sime’s Motor segment are currently balanced. While it sees a slowdown in China in FY12, this should be compensated by stronger growth outside of China.
More catalysts ahead. We believe further executions of its strategy — where they have not yet been priced in — should act as catalysts for earnings/share price upside. We reiterate our Buy call on the stock for an undemanding valuation.
We featured Sime Darby at DBS’ Pulse of Asia conference in Singapore recently, where it met with 51 investors. We reiterate our positive view on the company, which remains undervalued. Since revealing its strategy blueprint in August 11, Sime has sold Teluk Ramunia and Pasir Gudang yards, completed Northport refinery, planted 1k ha in Liberia, acquired 30 per cent of E&O, and bought the Bucyrus distribution business. We believe further executions of its strategy blueprint going forward should add more value which is not yet priced in.
Our investment thesis is premised on the following:
1.Since revealing its strategy blueprint in August 11, Sime has taken steps to rationalise and strengthen its businesses. Each of the group’s segments is now run to maximise value going forward.
2. Sime has yet to fully leverage on its various assets, which we believe are not inferior to their respective peer groups. Executions of its strategy should be catalysts for value accretion.
3. As the largest earnings contributor, we expect Sime’s Plantation segment to deliver better-than-consensus productivity, primarily coming from improvements in its Indonesian estates.
4. The counter is currently trading at 13.7x FY12 PE — significantly below its historical average of 23.9x. At this level, Sime offers 10 per cent upside to our revised RM10.00 TP plus 3.7 per cent net dividend yield.
Below are some of the key questions raised at the meetings.
Sime is targeting to expand its land bank in Cameroon (greenfield) and Indonesia (brownfields). It is also constructing a 825k MT p.a. refinery in Indonesia to increase refining capacity. When completed by the end of CY12, Sime would be able to process 60 per cent of its own CPO production.
How much is the increase in Sime’s Indonesian FFB yield age-related and how much is efficiency?
About 50:50. Sime will continue to improve its mill operations, reduce pilferage, and cut travel time between estates and mills. It acquired the Indonesian estates during the economic crisis, when the trees were neglected.
Consequently, it had been putting in rehabilitation efforts to improve yields.
Sime expects its Indonesian FFB yields to improve to 24MT/ha by FY16. They currently average 19.8MT/ha, still better than industry average of 18MT/ha. Currently the average age is 13.5 years overall; whereas in Malaysia Sime’s average oil palm tree age is 14.5 years.
What is your CPO price expectation for this year?
The budget calls for c.RM2,800/MT, although there may be scope for prices to reach RM3,000-3,200. Most of the sales are conducted at spot prices.
What is your cost of production for CPO?
Sime’s ex-mill cost is currently RM1,000/MT and the group intends to maintain this in FY12. However, the ideal target is RM900/MT, based on its most efficient competitors. Next year, the group is targeting RM950-980/MT.
Plantations
Where will growth come from?
Sime currently has c.228k ha of land rights in Liberia. So far only 1k ha is planted, and Sime is targeting 5k ha by end FY12 and 100k ha by end FY16 (excluded from our forecasts pending planting progress up end FY12). In Liberia, Sime also plans to diversify its crop profile to include 20 per cent rubber planted area and 80 per cent oil palm. Cost-to-maturity in Liberia is c.RM20k/ha over three years. Cost of production there is 10-20 per cent higher than in Malaysia, as the seeds, estate managers and equipment have to be brought in from Malaysia.
Property
What is the plan with E&O?
There are plans to jointly develop projects with E&O but details have not been announced.
The property management team has been replaced and the group intends to increase internal competition. This was why Sime acquired 30 per cent stake in E&O. The strategy is to help to develop the land bank, inject entrepreneurial spirit, and to improve competency. Sime’s GCE and Property Executive Director are now on the E&O board. The group has no immediate plan to increase its stake.
Accept GO at RM5.50
Next largest shareholders Petronas and EPF key to Proton’s privatisation
Maintain Hold; RM5.50 TP pegged to GO price
GO at RM5.50. DRB-HICOM is the successful bidder for Khazanah’s 42.7 per cent stake (234.7 million shares) in Proton with an offer of RM5.50/share. The offer price is based on 0.67x NTA of RM8.19/share and 0.56x BV of RM9.84/share (between mean and +1SD). Because the stake is larger than 33 per cent, DRB-HICOM would have to make a mandatory general offer (MGO) to acquire the remaining shares from minority shareholders.
Petronas and EPF key to privatisation. Petronas and EPF hold the largest stakes in Proton after Khazanah, at 7.9 per cent and 7.5 per cent, respectively. Hence, they could be key to Proton’s privatisation. The rest of the shareholding is fragmented with Skagen Funds holding 1.01 per cent and others below 1 per cent.
Accept offer, RM5.50 is attractive. Proton’s share price is currently at its highest (RM5.28-RM5.46) since 2008, after reaching a low of RM2.50-RM3.00 last year. If the GO lapses and Proton remains listed, its near-term prospects may be unfavourable as the synergies with DRB-HICOM will only be realised years down the road and Proton’s share price could fall below the GO price.
Boustead Holdings; Buy; RM5.28
Price Target: RM6.15; BOUS MK
Sells Indonesian plantations
Boustead has announced that it is disposing its Indonesian plantations to PT Agro Investma Gemilang for US$38 million (RM119.32 million). This represents 95 per cent of the shares in its Indonesian plantation business. There will also be a put and call option with PT Agro for 37,504 shares or 5 per cent at an exercise price of US$2 million. This will be upon completion of the SPA to facilitate the sale of the balance 5 per cent. The time frame for completion is July 2012 for the disposal and December 2013 for the option.
We are positive on this disposal as its existing 8,000 ha of planted area in Indonesia has been a dragged on its blended FFB yields of 16.5 MT/ha (last disclosed). Yields for its Malaysian plantations are competitive against the national average where the current strategy is to further improve yields via the development of compact oil plan planting material for high density planting. The total proceeds of US$40 million or RM0.12/Boustead share will also be handy to reduce gearing levels.
We reiterate our Buy rating and TP of RM6.15/share (ex-bonus) based on a 20 per cent discount to our SOP value.
Bumi Armada; Buy; RM4.11
Price Target: RM5.00; BAB MK
Awarded RM155 million charter contract from Petrobras
Bumi Armada announced that it has clinched a 4-year contract for its anchor handling towing support (AHTS) vessel, Armada Tuah 102, estimated to be worth RM155 million, by Petroleo Brasileiro (Petrobras). The contract comes with an extension option of 4 years and is expected to start contributing by 1Q12.
The marine charter contract marks Bumi Armada’s second vessel (first was Armada Tuah 104 with a 4-year charter) working offshore in Brazil, which underscores Bumi Armada’s competitive advantage in securing contracts abroad. The charter rate is estimated at US$2.82/bhp, translating into daily charter rate of US$33,800, which is far superior that the charter rates in South East Asia of c. US$15,000-US$20,000 currently. We maintain our earnings forecast at this juncture as we have earlier imputed 85 per cent vessel utilisation for FY12.
We continue to like Bumi Armada given its diversified earnings base with large exposure to the growing O&G sector in Asia and Africa. We reiterate our Buy call with RM5.00 TP, pegged to 25x FY12 EPS. We believe that Bumi Armada is a world champion in the making with synergistic O&G services leveraging on geographical expansion.
Dayang Enterprise; Buy; RM1.94
Price Target: RM2.70; DEHB MK
RM85 million contract extension from Shell
Dayang announced that it has been awarded a contract extension for the long-term charter of its workboat, Dayang Zamrud to Brunei Shell Petroleum Company Sdn Bhd for well reservoir management. The contract is effective 1 March 12 until 31 October 16. Recall that Dayang secured a 3-year RM70 million charter contract for the workboat from Shell back in January 10.
We estimate that the daily charter rate is c.RM50,600, assuming that the vessel is chartered throughout the year. With the extension, we estimate that Dayang’s outstanding order book continues to hover around RM1.5 billion which will underpin its earnings until FY16. No change to our earnings forecast for now. We maintain our Buy call for Dayang with RM2.70 TP, based on 15x FY12 EPS, implying 39 per cent upside potential.
DRB-HICOM; Buy; RM2.17
Price target: RM3.45; DRB MK
Next largest shareholders Petronas and EPF key to Proton’s privatisation. Maintain Hold; RM5.50 TP pegged to GO price.Sime Darby; Buy; RM9.08
Price target: RM10.00; SIME MK
More catalysts ahead
We raised FY12F-14F earnings by 1-2 per cent to account for contribution from Bucyrus. Plantations land bank to be expanded; downstream processing to be ramped up to capture more value. More automotive showrooms in China, property projects in Klang. Buy call reiterated for c.14 per cent return.
Axis REIT; Buy; RM2.70
Price target: RM2.75; AXRB MK
Yet another impressive year
FY11 core net profit in line; 17.2sen FY11 DPU declared. FY12F growth to be driven by stable, long-term acquisitions in logistics and retail industries. Maintain Buy, attractive 6.7 per cent dividend yield.
From OSK Research
Kumpulan Hartanah Selangor, Lion Corp
KHSB’s share price may enter into correction mode after the weak close yesterday. The stock has been trading lower since peaking in 2007, but the 2-day rally at the start of the year could see the trend changing. The stock is also now above the 200-day MAV line, after peaking just below RM0.55 and printing the highest close in almost two years. Typical of any price spike up, weak candles followed. The lower close yesterday constituted a series of consecutive closes
below the “Small Bodied” candles of 10 and 11 January. This indicates that selling pressure has taken over and the stock may at least correct the 2-day sharp upward move. Thus, liquidation can be undertaken on rebound towards the high closing of RM0.50. Given the possibility of the uptrend continuation, support is expected at the psychological RM0.40 and RM0.365, the 50 per cent and 62 per cent Fibonacci retracements of the November 2011–January 2012 rally. Coincidently, both levels also form the boundary of the gap of 9 January. However, a close back above RM0.50 could see the continuation of the rally with resistance expected at RM0.575 — the high of January 2010, and RM0.69 — the high of June 2009. Both are Fibonacci levels of the 2007-2011 decline.
Lion Corp’s daily chart
Lion Corp’ share price may trade higher after closing the highest in almost two months. The stock has been lower since peaking in January 2011, as seen from the lower highs created over the period. However, there is a possibility of the stock making a bottom, at least in the short term, at the December-low of RM0.17. The low was actually a test of the previous low made in September 2011, and the failure to break below could be positive for the stock. As such, purchase can be made on close above RM0.20, which will nullify the bearish bias of the “Gravestone Doji” last Friday, with a stop loss on close below RM0.17. A more aggressive trade may enter now or on pullback toward the stop-loss level. The first target is the October and November 2011 high of RM0.225, and a strong move could see the price go as high as RM0.28, after completing a “Double Bottom” formation. The level is also the low of March 2011. The trade will not work out if the stop is triggered and look for the stock to trade lower instead. Support is expected at RM0.15, a measured move based on the decline of November-December.
M1 Limited (M1 SP, BUY, FV: S$2.80, Last Price: S$2.56).
M1 reported core FY11 earnings that were in line with consensus although it fell slightly short of our expectations. The key takeaway was the spike in handset cost due to the very strong take-up of the iPhone4S that coincided with the high base of promotional activities in 4QFY11. Management has guided for a stable FY12 and capex of S$110-S$130 million. Despite the lackluster earnings, we remain positive on M1’s longer-term prospects with valuations supported by 2011-2013 EPS CAGR of 12.3 per cent We trim our FY12/13 forecasts by 5-6 per cent post the results. Maintain BUY with revised FV of S$2.80 (WACC: 10 per cent) after rolling over our DCF valuation.
Singapore Airlines (SIA SP, Maintain BUY, FV: S$12.37, Last close: S$10.56)
SIA’s overall Q3 operating stats from the passenger side came in weaker q-o-q but flattish y-o-y, no thanks to the Thailand floods impacting air travel in the Asian region. However, its cargo side fared better due to the rush in year-end Christmas delivery shipments. All in, with jet fuel price barely nudging down, we estimate Q3 earnings to be weaker q-o-q and y-o-y. However, we continue to believe that valuations have bottomed. Maintain BUY with an unchanged FV of S$12.37.
Kian Joo Can Factory Bhd — Testing RM2.28-RM2.31 Tough Resistance Area
Over the last two trading days, Kian Joo was charging towards the tough RM2.28-RM2.31 resistance area with strong and rising volume. If market interest in Can-One and Kian Joo remains high, there is a possibility that the stock will eventually push itself beyond the resistance area. As such a violation is expected to sustain the current upward momentum, traders could consider accumulating the shares between the RM2.16 level and the current level. If a breakout materialises, the momentum should be able to carry its share price closer to the RM2.56 resistance level. Our cut-loss point is pegged at below the RM2.16, as a dip below this level would signal that Kian Joo will start consolidating the strong gains recorded over the last two sessions.
From RHB Equity
Parkson
PHB’s first mall, Festival City Mall in Kuala Lumpur is targeted to be officially launched in February with Parkson as its anchor tenant. Festival City Mall is expected to contribute around RM20 million towards FY12 EBIT in its first year of operations which we now impute into FY12-14 forecasts.
For CY11, we understand that Parkson’s stores in China recorded an SSS growth of approximately 12 per cent, in line with its previous guidance. Given that 9MCY11 SSS growth was recorded at 12.9 per cent, we believe that 4QCY11 SSS growth was slightly weaker, at an estimated 10-11 per cent. Management mentioned that China’s non-conducive weather conditions during October-November affected its store traffic, thus translating to weaker sales. Moving forward, PHB is maintaining its guidance of 12 per cent SSS growth for CY12 which is higher than our forecasts of 10 per cent for the year.
Our FY12-14 earnings forecasts are raised by 3-3.3 per cent after imputing: 1) rental contribution from Festival City Mall; and 2) adjusting our new store assumptions for Indonesia. Nevertheless, our SOP fair value remains unchanged at RM6.30. Reiterate Outperform.
Maybank
According to the Jakarta Globe, Maybank has appointed UBS to handle the sell down of its stake in BII to at least 80 per cent from about 97 per cent currently. However, the chairman said that the BII shares would only be sold at no less than Rp510/share.
At this price, we estimate Maybank would rake in about Rp5 trillion (RM1.7 billion or 22 sen/Maybank share) if it were to pare its stake in BII to 80 per cent.
However, we think it would be challenging for Maybank to find buyers at such price levels. Rp510/BII share would be at a 21 per cent premium to BII’s last traded price of Rp420 and implies a P/BV of 3.8x for a bank with a ROE of 10 per cent (2011, annualised). This, in our view, appears pricey as compared to valuations of larger peers (Bank Rakyat, Bank Mandiri and BCA), which are currently trading at P/BV of around 2.5-4.7x but offer superior ROEs of 23.5-32.7 per cent.
Fair value of RM7.33 and Underperform recommendation maintained.
IOI Corp — Awarded tender for another property development land in Singapore?
According to the Singapore Housing Development Board, IOIC’s subsidiary, Multi Wealth (Singapore) Pte Ltd has been awarded a tender to develop a 24,417sqm (262,800 sq ft) land parcel in Singapore’s Jalan Lempeng into 685 condominium units for S$408 million (RM992 million). The land is near the Clementi MRT station. IOIC has not actually announced this tender award to Bursa yet. Based on the land size, this works out to be US$1552/sq ft.(RM4,873/sq.ft) which is cheaper that the S$4,350/sq ft paid for land in South Beach back in Apr 2011. However, we highlight that the two prices may not be comparable given that South Beach land is in the city centre, while Jalan Lempeng land is not.
In the near term, we are slightly wary of this acquisition, as it may take some years for IOIC to recoup its profits. In addition to the land cost, IOIC may have to fork out an additional S$700-S$800 million in development cost, bringing total capex required to US$1100-US1200 million (RM2.6-2.7 billion).
Forecast for FY06/12 is unchanged for now until IOIC has released more details. However, immediate impact is likely to be negative, given that it would take some time for this project to be developed. Maintain Market Perform with fair value of RM5.65. We highlight that if we nett off the cash required for the land acquisition, SOP-based fair value would drop by RM0.15 to RM5.50.
