Analyst calls for June 21
KUALA LUMPUR, June 21 — This is a selection of morning calls by local research houses for the day.
From RHB Research
Sime Darby
We were invited by Sime Darby to visit their port operations in Weifang, which is located in the Shandong province in China. Currently in China, Sime Darby operates one port in Weifang (180 million tonnes p.a.), three ports in Jining (13m tonnes p.a.) and a water treatment plant in Weifang (140,000 cum per day).
These operations in China are parked under Sime’s Energy & Utilities division and contributed 36.3 per cent to Sime’s E&U division’s EBIT in FY06/11, albeit just 1.4 per cent to overall group’s EBIT. The Weifang Port is the largest profit contributor of this sub-segment, contributing 61 per cent of Sime’s China E&U division profit and will continue to be the main growth driver for this division in the next few years.
We maintain our SOP fair value of RM10.50 and Outperform call. Sime Darby is one of our top picks for the sector due to its inexpensive valuations vs. peers. We believe Sime would benefit from the upcoming listing of FGV, as it would have some positive knock-on effect on valuations.
Jaya Tiasa
FY04/12 core net profit was below expectations. Key variances were: higher-than-expected interest expense and lower-than-expected selling prices for logs (-33 per cent year-on-year) resulting in lower margins of 13 per cent (vs. our expectations of 24 per cent).
Note that Jaya Tiasa is changing its FYE to Jun (from Apr previously), and will be reporting two month profits in its next set of results. We have already adjusted our forecasts to take this into account.
We cut our FY06/12-14 forecasts by 19 per cent, 10.7 per cent and -3 per cent, after adjusting for lower log prices. We also raised our interest rate assumptions to account for the higher interest charges for FY06/12, but left our assumptions for FY06/13-14 intact.
Although we are maintaining our target PER of 14x for Jaya Tiasa’s plantation division and 9x for the timber division, we have rolled forward our valuation base year to CY13 (from CY12). Therefore, despite our earnings downgrade, our SOP-based fair value has been raised to RM9.05 (from RM8.55). We maintain our Market Perform call on the stock.
Maxis
Maxis will this year focus on key markets such as the immigrant, student and tourist segments and the Sabah and Sarawak region where growth is still attractive, according to CEO Sandip Das. He said Maxis started by rationalising its international direct dialing (IDD) rates last year to match competition, and strengthened its network in Sabah and Sarawak this year. (Starbiz)
We believe the move will help mitigate loss of market share to its competitors, a trend seen in the last several quarters. We note that Maxis lowered its IDD rates in Mar through the introduction of the Hotlink Bagus plan.
However, the revision to IDD rates was to bring its pricing lower to match competition, and not to start an all-out price war. This helps to keep Maxis competitive, but minimise downside pressure on margins, we believe.
From AmResearch
MBM Resources
It is reported in local dailies this morning that MBM will accelerate its planned capex. The group had earlier announced a RM250 million capex to be spent between 2011-2015. Circa RM50-60 million had been spent in 2011, while the remaining will now be spent in 2012-2013.
Seventy per cent of the RM250 million allocation will go towards MBM’s new 1 million wheels/annum alloy wheel manufacturing plant in Rawang (via 78 per cent-owned Oriental Metal Industries – JV with Toyota-owned parts making companies).
The plant will be ready by year-end and the initial customer is expected to be Perodua (which is currently importing 60 per cent of its alloy wheel requirements).
We estimate that expansion into vehicle assembly may require a further RM600-RM700 million capex – assuming an assembly capacity of 60,000-70,000 per annum.
MBM currently trades at just 7.7x FY12F earnings, while auto manufacturing peers such as DRB-Hicom, Tan Chong and UMW trade at 11-14x FY12F PE.
We re-affirm our high conviction BUY call on MBM, with an unchanged SOP-derived fair value of RM3.60/share, which implies a conservative 9x FY12F earnings versus sector PE of 10x.
Bumi Armada
Bumi Armada has issued a letter of intent to Nam Cheong Dockyard Sdn Bhd to build four Multi-Purpose Platform Support Vessels (MPSV) at a cost of US$130mil (RM411 million) (excluding owner furnished equipment) with an option for another four units.
The four vessels, which are expected to be delivered in 2QFY14, is part of the group’s ‘Steel on Water 2’ newbuild programme, the second phase of the earlier Steel on Water 1 which fully delivered 20 new vessels back in 2010.
Including the MPSV being built by the end of this year for Shell’s Gemusut-Kakap project, there will be five such vessels of this range which will be added to the group’s current fleet of 47 offshore support vessels.
We understand that charter rates are attractive (which translate into project IRRs of 18 per cent-20 per cent) for these MPSVs, which offer multiple services such as dynamic positioning (DP2), fire-fighting, cranes, specialised equipment, moon pools, accommodation and helipads.
We maintain our BUY call on Bumi Armada, with an unchanged sum-of-parts-based fair value of RM4.65/share, which implies an FY13F PE of 23x vs. the oil & gas sector’s 17x.
From OSK Research
HELP
Following a subpar 1QFY12 during which HELP’s earnings dived some 50 per cent quarter-on-quarter and 40 per cent year-on-year, we caught up with management for insight on the company’s existing operations and did some on-the-ground checks to determine its near term outlook.
All in, we are maintaining our cautious stance given a potential cash call, which we understand would be finalized this month or so.
Maintain NEUTRAL, with our FV now revised to RM1.93, based on 10x FY13 earnings, plus our forecast FY13 net cash per share of RM0.45.
LITRAK
Kumpulan Perangsang Selangor’s (KPS) chairman Raja Idris Raja Kamarudin told the Financial Daily that the company is looking to divest its 20 per cent stake in Sistem Penyuraian Trafik KL Barat Holdings (SPRINT) as part of its plan to reorganize its investment portfolio. Channel checks also reveal that the managements of SPRINT’s 2 other major shareholders are also in talks to sell their respective shares.
We do not discount the possibility of SPRINT, or Litrak as a whole, being the target of a takeover offer. Rumors of such moves will provide near-term support to the share price.
Hence, we maintain BUY, with our FV unchanged at RM4.46, based on our SOP valuation.
SEGI
SEG International (SEGi) announced that the privatization offer tabled by its major shareholder Navis Capital at RM1.714/share and RM1.214/warrant officially closed yesterday.
In our previous reports, we had stated that the offer of RM1.714/share, which translates into a 14.0x FY12 PER and 12.2x FY13 PER based on an enlarged share base, is rather unappealing. We had also advised minorities to reject the offer as we find the price unattractive vis-à-vis our FV of RM2.19, which values the company at a 18x FY12 PER (which also implies a 15.6x FY13 PER).
According to SEGi’s latest shareholding structure, Navis Capital and Datuk Seri Clement Hii hold a combined 64.5 per cent stake in the company’s outstanding shares and 39.2 per cent of its existing warrants.
As of yesterday, both parties had only received acceptances equivalent to 1.9 per cent for SEGi’s outstanding shares and 29.9 per cent for its existing warrants. Assuming full conversion of the latter, both parties would hold a combined 66.8 per cent stake in SEGi’s enlarged share base.
Given the low level of acceptance despite the extension of the closing date from 6 to 20 June, the privatization offer is likely to be called off. We believe this is likely to immediately spur interest in the company as its share price has been somewhat capped by the offer price since Navis Capital first announced its intention to privatize the company on April 26.
We continue to like SEGi and believe that the emergence of Navis Capital as the single largest shareholder currently will stir up trading interest in the company. As the takeover offer has lapsed without garnering the level of acceptance needed to privatize the group, we believe this could lift trading sentiment on the stock.
Hence, we maintain our BUY call, at an unchanged FV of RM2.19, based on a 18x FY12 PER and a fully enlarged share base of 748.4m shares.
* 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.
