KUALA LUMPUR, March 20 ― This is a selection of morning calls by local research houses for the day.
Today’s market preview
For the time being, the selling pressures on Malaysian equities seem to have eased off. Still, beyond the short-term relief, downside risk persists on our local bourse with the benchmark FBM KLCI likely to face immediate resistance at 1,635 before resuming its negative trend towards the first support line of 1,615.
Meanwhile, news flows on tap today will be from the central banks. At home, Bank Negara Malaysia is scheduled to release its Annual Report 2012 this evening. Abroad, the US Federal Reserve is due to provide an update on the economic condition and interest rate outlook later tonight.
Against a fairly slow market backdrop on the home front, stocks that may be in the limelight today include: (a) MISC, after PETRONAS has extended the closing date for its takeover offer to April 5 but kept the offer price at RM5.30 per share; (b) Sunway, which has won a contract valued at RM304 million to construct a car park underneath the KLCC Park; and (c) Coastal Contracts, a laggard oil & gas play that could benefit from Petronas’ flow of contract awards.
Petronas-related contracts a positive sign. Recent award of Petronas base fleet contracts to Perdana Petroleum and Alam Maritim from Petronas Carigali could signal a turning point for Coastal in terms of contracts from service providers, as more contracts are expected to be doled out (10 OSVs contracted; 24 more up for grabs for Hook-up & Commissioning contracts, which are mostly PSVs and SSVs fetching higher margins). We think there is a possibility that Coastal could receive a chunk of these contracts, as certain service providers are using their ship templates for bidding purposes, but timing remains fluid.
Replacement demand could underpin order replenishment. Coastal’s outstanding order book stands at RM490 million as at 4Q12, sustainable till 3Q13, but would need to be replenished to support revenue growth. It has not secured contracts since September 2012, though orders could begin to flow on the back of replacement demand (2.3k small OSVs are >20 years old and could be up for replacement), given the general requirement by oil majors for vessel ages to be not more than 20 years. Coastal’s mainly international clientele would make it a prime beneficiary of global oil activity (e.g. Petrobras OSV requirements).
Priced in stronger order wins. Although we have factored in stronger order wins of RM850 million this year compared to the last two years, this positive appears to be priced in with the stock trading above its 3-year mean PE. Expansion into FPSO/FSO/LNG ventures and successful take-up of its subsea vessels may be catalysts for the stock. However, we understand these projects may need more time to materialise. Maintain Hold.
Strong YTD construction wins
Sunway announced that it accepted a letter of award worth RM304 million from Cititower Sdn Bhd [a joint venture company between KLCC (Holdings) Sdn Bhd and QD Asia Pasific Ltd] for package 1: construction and completion of North East Car Park (NEC) underneath KLCC Park and associated works for the proposed mixed development at Persiaran KLCC. The scope of works include, amongst others, excavation works, construction and installation of diaphragm wall, foundation and piling works, construction of 6 levels basement car park and its associated works. The total duration of the project is for 178 weeks from the site possession date.
This represents Sunway’s fifth construction win for 2013 bringing YTD wins to an impressive RM1.25 billion and its total outstanding orderbook to RM4.2 billion. With this win, Sunway’s needs just another RM250 million of new wins to meet our initial RM1.5 billion new order win forecast for FY13F. Pretax margin guidance is in the region of 5-7 per cent where our forecast is at the high end of this.
We understand total tenderbook is now in excess of RM3 billion which comprises mainly building jobs as the capacity for civil works has been filled up. As the bulk of the tenderbook is at the early stages of tender or negotiation, we do not expect any near term new wins till 2H13.
The stock has enjoyed a good run likely due to its growing Iskandar presence and is now trading at just a 3 per cent discount to out SOP. In our view, this is still early days as its maiden launch for Medini Iskandar will only happen in late 2013 or early 2014. Our TP of RM2.55 imputes a 10 per cent discount.
Cahya Mata Sarawak
- We initiate coverage on Cahya Mata Sarawak (CMS) with a BUY, and SOP-based MYR4.21 FV, implying 0.9x FY13 BV.
- SCORE’s development is set to propel the state’s economy and benefit this Sarawak-based group.
- The core activities of CMS Group are in cement, construction materials, road maintenance and property.
- CMS’ participation in SCORE via the development of worker camps and a township will bring in decent returns.
- Furthermore, its 20 per cent stake in the Samalaju smelter project provides delectable returns, helped by 20 years of cheap power.
- According to data from the Malaysian Automotive Association’s (MAA), total industry volume (TIV) for Feb declined 18.3 per cent mom but gained 2.2 per cent yoy to 44,976 units. On a cumulative basis, YTD sales rose 17.8 per cent yoy to 100,042 units and is in line with our expectations.
- Sales of Nissan and Honda vehicles registered the biggest cumulative yoy gains, up 90.6 per cent and 75.3 per cent yoy respectively. We are not unduly concerned with the 5.9 per cent yoy dip in Toyota sales as this comes off a strong base in 2012.
- On a combined basis, Proton and Perodua maintained their share of the market during the first two months of the year at 52.8 per cent (2012: 52.6 per cent).
- The MAA is forecasting higher sales in March on the back of a normal working month and strong consumer sentiment. We are concerned that GE13 campaigning could trigger a wait-and-see stance amongst buyers that would disrupt the recent positive sales trends.
- Maintain Neutral call and TIV forecast of 637,000 units.
- Top picks are DRB-HICOM and Tan Chong.
Boilermech’s 9MFY13 results were within our forecasts, with its net profit of RM17.0 million accounting for about 76.9 per cent of our full-year estimates. Its 9MFY13 net profit had surged by 51.6 per cent on the back of a 23.2 per cent jump in revenue to RM131.3 million. The better performance is attributed to higher manufacturing activities, deliveries and installation of boilers. 3QFY13 earnings were higher y-o-y on improved margins. We like Boilermech for its potential growth from its upcoming expansion and strong balance sheet. Despite softer CPO prices, it was still able to replenish its orderbook to over RM270 million. We are rolling over our valuation to FY14 forecasts, with our FV at RM1.17, pegged to a 5-year average PE of 11.5x on its projected FY14 earnings. Upgrade to Buy.
Leading corporate lender BBL will benefit from a sustainable rise in Thai private investment. This highly defensive and quality franchise’s valuation is compelling at just 1.4x PBV. Given KBANK and SCB’s share price rally in 2012, we now advise investors to switch to the 2012 laggards, and BBL is one such candidate. We raise our FV from THB242.0 to THB290.0 (1.79x FY13PBV, 13.0 per cent ROE and 9.5 per cent COE) following a 2 per cent/3 per cent uptick in our revised FY13/14 earnings estimates, as well as lower COE given its rising provision coverage ratios.
* 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.