Analyst calls for June 22
KUALA LUMPUR, June 22 — This is a selection of morning calls by local research houses for the day.
From RHB Research
HSL
HSL has secured infrastructure works for Demak Laut Industrial Park in Kuching, Sarawak, worth RM26 million. The latest job has boosted HSL’s YTD new jobs secured to RM181 million and helped to sustain its outstanding construction order book at about RM1 billion. Assuming an EBIT margin of 12 – 15 per cent, the contract will fetch RM3.1 - 3.9 million EBIT over the construction period ending Jan 2014. We are positive on the latest development.
Maintain Outperform. We are not overly enthusiastic on construction stocks as we believe their share price performance is likely to be capped over the next 6 - 9 months as the market continues to demand a high risk premium for construction stocks ahead of the nation’s general election that will have to be held by Apr 2013. However, HSL will be buoyed by: (1) Projects under Sarawak Corridor of Renewable Energy (SCORE); (2) Sustained high margins given limited competition from only a small pool of Relative Performance To FBM KLCI Sarawak-based Unit Pendaftaran Kontraktor Negeri Sarawak (UPK) registered contractors for most public jobs in Sarawak; (3) An outstanding FBM KLCI construction orderbook of RM1 billion; and (4) An added downside protection to its share price by virtue of a strong balance sheet with a net cash of RM195.1 million or 33.5sen/share as at 31 Mar 2012. Indicative fair value is RM1.90.
From OSK Research
SP Setia
SP Setia’s 1HFY12 results were within our and consensus expectations,
accounting for 48.4 per cent and 46.5 per cent of our and consensus’ FY12 net profit forecasts. Year-on-year revenue was 9.2 per cent higher while net profit rose by a smaller 7.9 per cent due to a slightly higher effective tax rate. We maintain our forecasts and Trading Buy call, with an unchanged FV of RM4.34, based on 2.3x FY12 P/NTA, which is equivalent to the stock’s 5-year historical average P/NTA.
From HwangDBSVickers
Renewed concerns over a slowing global economy caused Wall Street to plunge last night. Key US equity indices slumped between 2.0 per cent and 2.4 per cent at the closing bell as investors turned bearish.
Consequently, Asian equities are going to be hit today. Back home, the benchmark FBM KLCI is expected to pull back deeper towards its immediate support level of 1,580 ahead.
Likely to succumb to selling pressures today include index heavyweights that were on the rise recently such as Sime Darby, CIMB and Tenaga. Separately, MAS’ share price may feel the heat too after delaying its turnaround plan by another year to 2014 while George Kent shares could buck the weak market trend amid news report that a consortium led by the company has won the bid for a LRT extension line systems contract valued at RM960 million.
KNM
The renounceable two-call rights issue of up to 500.5 million shares will be issued at an indicative price of RM1 on the basis of 1 rights share for every 2 existing KNM shares with 1 free detachable warrant for every rights share subscribed. Every rights share will be payable in 2 calls: (i) 1st call of RM0.40 will be payable in cash, and (ii) 2nd call of RM0.60 will be capitalised from share premium account. Nevertheless, the
final rights issue price is pending board’s decision. The free warrants will have a 5-year duration, and each warrant is entitled to subscribe for 1 new share at a price to be
determined later. The exercise is expected to be completed by 4Q12.
Significant EPS dilution. Assuming RM1 indicative issue price with 1st call price of RM0.40/share, KNM will raise up to RM200m cash which will be utilised to pare down borrowings and for working capital purposes. As at Mar12, KNM has
RM1.1 billion borrowings with net gearing stands at 52 per cent. There will be a significant dilution of ~33 per cent to KNM’s EPS (excluding warrant conversion) given the large amount of shares to be issued. We believe that a portion of the proceeds raised will be used to finance its EnergyPark Peterborough project in UK
given its 80 per cent ownership (effective Jan12) which will require the group to fund the RM2.2bn engineering, procurement and construction contract for the project (initially awarded to KNM as a turnkey contractor in Dec10).
Maintain HOLD. We estimate its order book at over RM3 billion, excluding UK and Sri Lanka projects which have yet to secure financial close. There is unlikely to be any re-rating catalyst in the near term as we believe that its margin will not recover
strongly given the persistently weak external market conditions.
* 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.
