Analyst calls for January 25

KUALA LUMPUR, Jan 25 — This is a selection of morning calls by local research houses for the day.

From HwangDBS Vickers

Sunway Berhad

Acquires 300 acres Eastern Pendas South freehold land for RM184m. Johor now accounts for 48 per cent and 59 per cent of Sunway’s landbankand GDV, respectively. Targets RM1.1 billion effective sales in FY13; expect RM1.5 billion construction orderbook replenishment. Maintain HOLD call with RM2.55 TP.

Sunway REIT

Stronger 2QFY13 earnings driven by interest savings; within expectations. Declared 2.19sen DPU, as expected. SMC and Sunway Pyramid are key near-term earnings drivers; still has access to a stable of pipeline assets. Maintain BUY with RM1.80 DCF-based TP. Tenaga Nasional

1QFY13 earnings growth was driven by stronger demand and lower coal prices; result was within our and market expectations. Finalisation of new gas price and electricity tariff will be key inflection points in 2013. Maintain HOLD rating on reasonable valuations and longer term upside from sector reform.

Zhulian Corp

FY12 net profit of RM117 million beat our expectations, driven by stronger associate contribution and lower effective tax rate. Declared 3 sen single-tier interim DPS and 3.5 sen single-tier special DPS. Raised FY13-14F earnings by 7 per cent to account for lower taxes and stronger contribution from Indonesia. Maintain HOLD with revised RM2.80 TP.

From RHB Research


“Icing” of Kimlun, i.e. its relatively smaller but high-growth building material division, is growing capacity backed by secured orders from the Klang Valley MRT project and recurring orders from Singapore.

For “the cake” of Kimlun, i.e. its bread-and-butter construction business, Kimlun guided new contract wins of about RM800m per annum.

For its new foray into property development (that we liken to “caramel dressing”), the underlying guiding principles are “opportunistic” and “fast turnaround”.

FY12/13-14 net profit forecasts are cut by 11-16 per cent, having reduced overall EBIT margin to 8.2-8.5 per cent from 9.4-9.8 per cent to reflect overall cost pressure and lumpy start-up cost at the new plant in Seremban.

Fair value is reduced to RM2.05 from RM2.64.  Maintain Buy.

Tenaga Nasional

Tenaga (TNB) reported 1QFY8/13 revenue of RM9,130.8m, down by 2.2 per cent quarter-on-quarter owing to seasonality, but up by over 5.0 per cent year-on-year driven mainly by higher electricity consumption in both the commercial and domestic sectors.

Its operating expenses declined by a significant 5.0 per cent year-on-year and 8.9 per cent quarter-on-quarter. We attribute this to favourable coal costs during the quarter, at an average of RM259/mt (-24.4 per cent year-on-year; -11.1 per cent quarter-on-quarter) as international coal prices continued its downtrend on oversupply fears, coupled with the weaker greenback against the RM during the period. These two factors alone contributed to costs savings of over RM500.2 million on a year-on-year basis and RM326.0 million against 4QFY12.

All in, 1QFY13 core earnings of RM1,015.7 million beat both our and consensus forecasts, representing 31.1 per cent and 31.5 per cent of respective full-year estimates.

Management continues to believe that coal prices would likely hover between the current level of around US$90/mt and US$100/mt for the rest of the year due to the abundant supply.

Following our internal coverage restructuring, we are revisiting some of our core assumptions. Consequently, we are upgrading our core earnings forecasts by 9.7 per cent for FY13, 5.7 per cent for FY14 and 0.1 per cent for FY15.

Nonetheless, we are lowering our FV to RM8.41 from RM8.90 as we tweak our FY13 target PER to 13x (from 15x previously) to be in line with its historical average as well as taking into account potential election risks. Maintain BUY.

Sunway Bhd

Sunway has announced another JV development (60:40) with Iskandar Asset on another 300-acre piece of freehold land, which as adjacent to the land acquired in December last year.

The land price of RM14.07 psf is comparable to the previous transaction price of RM12.16 psf. Including this parcel, Sunway will have a total 1,770 acres at Medini/Pendas, a substantial size for it to replicate Bandar Sunway in Iskandar. With the addition of RM6 billion GDV from this land, total GDV for the entire 1,770 acres in Medini/Pendas will be boosted to RM30 billion, which will be developed over the next 25-30 years.

We are upbeat on the RM1.8 billion sales achieved last year. Sales for Sunway GEO and Velocity have picked-up substantially. The management is also fairly prudent for the pipeline launches this year. We believe the projects to be rolled out this year, such as Bukit Lenang JB, South Quay, Velocity and Novena Singapore, will achieve strong take-ups.

We reiterate our Buy call. Fair value is revised to RM3.18, after incorporating the incremental value from the new land. The stock is our top pick for the sector.

Sector update — Automotive

A record breaking month for sales in Dec pushed 2012 total industry volume (TIV) to 627,753 units (+4.6 per cent yoy) that exceeded our forecast of 612,000 units and the Malaysian Automotive Association’s (MAA) own forecast of 615,000 units.

December sales reached a new high of 60,470 units that was 13.3 per cent up mom and 26.1 per cent higher year-on-year. January 2013 sales are expected to remain buoyant given the continued discounting by the auto distributors as they attempt to clear their stock of 2012 vehicles.

We are revising our 2013 TIV sales forecast to 637,000 units (from 625,000) with the MAA forecast at 640,000 units.

We expect 2013 to be another challenging year for Proton while Perodua should enjoy another decent year. Toyota will easily retain its leadership of the non-national segment. The strong new model pipeline in 2013 stems almost entirely from non-national marques that will help to ensure continued market share gains.

We reiterate our Buy call on DRB-HICOM on the strength of its intrinsic asset value. We remain Neutral on UMW, but would begin accumulating the stock closer to the RM11.00 mark in the event of further market volatility attributed to the impending general election.

From OSK Research


Axis REIT is currently negotiating to acquire up to 12 assets with total asset value of RM660 million. We believe that the REIT can comfortably acquire half of these assets as its gearing of 34.5 per cent is still below the 50 per cent cap, and as it has the option to raise up to 90.8 million units or approximately RM256 million (based on 10 per cent discount to latest closing price of RM3.14) for funding purposes.

Although most of the assets under negotiation are located in Selangor, Johor could potentially be Axis’ next concentration point, as the Johor property values start to crystallise in the recent years. Net yields (unleveraged) for these assets are between 7.5-8.5 per cent, compared to Axis’ portfolio net yield of 8.9 per cent. Given the scarcity of quality assets in the market, we believe that the yields are decent, and refurbishment works could help to bump up the yields in the future.

We maintain our Neutral call on Axis REIT, with an unchanged fair value of RM3.10. Going forward, the REIT’s DPU growth will largely hinge on the timing and the quantum of the injection of yield-accretive pipeline assets.

Sunway REIT

Sunway REIT’s (SunREIT) 2QFY06/13 realised net profit of RM56.1 million (+10.6 per cent year-on-year; +7.9 per cent quarter-on-quarter) was in line with our and consensus estimates. A 3.16 sen DPU was declared during the quarter, including the advanced distribution of 0.97 sen for the period of January 1 to February 5, 2013. Although contribution from the office and hospitality segments declined in 2QFY13, year-on-year net profit continued to grow, spurred by: 1) the flow through of positive rental reversions; and 2) lower finance costs due to active capital management, resulting in an interest saving of RM11m for 1HFY13. Renewals are on track, with rental reversions of about 18.6 per cent over a 3-year period recorded YTD.

We maintain our Neutral call on SunREIT, with an unchanged DDM-based fair value of RM1.63. We believe that SunREIT is still set for a sustainable medium- to long-term EPU and DPU growth, driven by: 1) the expected incremental revenue from the overhaul of SPM; 2) Sunway Pyramid’s upcoming major rental reversion in FY14; and 3) the availability of pipeline assets that give strong visibility of inorganic growth.

* 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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