Business

Analyst calls for January 10

January 10, 2013

KUALA LUMPUR, Jan 10 — This is a selection of morning calls by local research houses for the day.

From RHB Research

Century Logistics

Supposedly the “next big thing” for Century, the growth plan for its ship-to-ship (STS) business will now have to be put on the backburner with its recent exit from Pasir Gudang waters.

However, there is still plenty of room for Century to grow its more conventional onshore logistics business comprising the provision of contract logistics, procurement & assembly and warehousing (particularly in Johor).

FY12/12-14 EPS forecasts are cut by 10-37 per cent, having: (1) Reduced our assumption on the number of floating storage units (FSUs) in operation in FY12/13-14 to three from four; (2) Moderated our margin assumption for the FSU operation; and (3) Reflected dilution from conversion of outstanding warrants (expiring 27 Jan 2013).

Fair value is cut to RM1.42 from RM1.78.  Maintain Underperform.

DRB-HICOM

According to the Business Times, Tan Sri Syed Mokhtar AlBukhary intends to privatise DRB-HICOM for between RM3.50 and RM4.00 per share. An earlier Bernama report said that the plan involved the listing of the auto distribution arm following the recent merger of EON and Proton Edar that was part of a plan to launch an “Asean + China” Car in a joint initiative with Volkswagen. The automotive manufacturing arm, meanwhile, will be relisted in another form, later on, under the DRB-VW joint-venture.   

The mooted privatisation offer price values DRB at between RM6.8 - 7.7 billion. At end-September 2012, DRB’s BVPS was RM3.27. From the major shareholder’s perspective, we think there is merit in streamlining the organisation of his various businesses, especially considering the significant long-term value of the assets held in DRB that is yet to be reflected in the market value of DRB shares. Note that Tan Sri Syed Mokhtar has already initiated steps to privatise Tradewinds and other related companies.

OP, FV = RM3.50

Sime Darby

The first phase of Sime’s 40 per cent-owned £8 billion (RM24 billion) Battersea Power Station development was launched yesterday with up to 800 units of apartments on offer. Named Circus West, the first phase has a GDV of £900 million (RM4.37 billion). The sales launch will be followed by sales exhibitions in Kuala Lumpur on January 12 before moving to Singapore, Hong Kong and back to London.

The project’s first phase comprises one-, two- and three-bedroom apartments, townhouses and penthouses as well as a mix of offices, shops, leisure and hospitality units. Construction of the 990,000 sq ft of residential space and 110,000 sq ft of commercial space will start in the second half of this year and is expected to be completed by 2016/2017. Prices start from £338,000 for a studio unit, going up to £6 million for the penthouse units. (Business Times)

We have not imputed in any contributions from this project into our forecasts as yet, given that under UK accounting rules, Sime is only allowed to recognise sales on the project upon completion of construction.

As completion of the first phase is only slated to be in 2016/2017, this is beyond our forecast period. We have however, already imputed in the funding requirements into our projections and fair value. The whole project is slated to be developed over eight phases and completed within the next 14 to 15 years.

OP, FV = RM10.30

From HwangDBS Vickers

Sector update — Automotive

Proton is undergoing a major transformation that will drive up profitability, starting with the restructuring of autoparts suppliers (APM poised to benefit), Proton Edar-EON merger, and collaboration with Honda. On the cards are new models (Preve Hatchback, Global Small Car) and a strategy to penetrate new overseas markets. 

DRB-HICOM already has 1/3 of the domestic TIV market, but is gearing up for regional expansion: (i) Honda - doubling Pegoh plant capacity to act as regional production hub for its hybrid vehicles. A strategic collaboration with Proton could improve the platform, facilitate sharing of technology, and increase utilisation of Tanjung Malim plant; and (ii) VW – ramping up capacity to 50k units p.a. to fulfil regional production hub plan and meet Asean export needs by 2017/2018. Domestic sales could also improve with the upcoming CKD units for the Polo, Jetta and new Passat.

Its new plant that would double capacity by 2015 could be an industry game-changer as Perodua is likely to focus on gaining domestic market share. This could benefit major shareholders, UMW and MBM Resources. Also, Perodua may seek listing on the local bourse to raise capital for expansion to grow earnings. We estimate Perodua generates about RM350m net profit p.a. and could have an indicative market cap of RM3.85 billion based on 11x sector average PE (FY13F). 

We forecast 2013 TIV will inch up 2.2 per cent to 629k units (from 615k in 2012), based on 5 per cent GDP growth forecast for 2013 for Malaysia. We still feel the industry is saturated with low annual TIV growth rate and relatively higher car prices. Our top pick for automakers is DRB-HICOM because of its regional expansion upside. We also like APM as a major autoparts maker. The upcoming revised NAP will be a non-event with limited near-term benefits.

* 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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