Business

Analyst calls for March 5

March 05, 2012

KUALA LUMPUR, March 5 — This is a selection of morning calls by local research houses for the day.

OSK RESEARCH

Ingenuity Solutions Bhd

Ingenuity is consolidating the sharp gains recorded on February 8, 2012 which presents traders with an opportunity to accumulate its shares, while waiting for the stock to extend its uptrend that started from the RM0.035 low. The current consolidation phase ranges from the RM0.09 level to the RM0.105 level. We are eyeing the RM0.125 and RM0.165 levels as the upside targets. One should cut loss if the share price violates the RM0.09 support floor of the consolidation phase.

Genting Singapore

Genting Singapore will be issuing SGD1.8 billion in perpetual bonds at par with a coupon of 5.125 per cent. Perpetual bonds have no maturity date, but this issue will pay an additional one percentage point in interest if it is not redeemed within 10 years. The annual coupon payment of SGD92 million will lower our FY12 earnings forecast. The group is currently sitting on a gross cash balance of SGD3.4 billion and debt amounting to SGD3.2 billion. We believe that this additional debt burden of SGD1.8 billion is highly manageable. Debt-to-equity will also rise to 26 per cent. The funds raised from the bond issuance will most likely be channelled towards future casino acquisition/development opportunities as the development of RWS is nearing its completion by 2H2012. Maintain NEUTRAL recommendation for now and FV of SGD1.84 as upcoming 1Q12 results could disappoint.

WCT

We visited WCT recently in conjunction with its 4QFY11 results. It is looking at potentially securing a number of contracts including one worth RM400 million relating to Vale’s distribution centre in Teluk Rubiah, two buildings in Putrajaya worth RM1 billion, as well as a hospital in the Iskandar region. Elsewhere, the group will launch RM1 billion worth of properties this year, with its Paradigm Mall bringing in commercial rental income by 2Q12. Overall, we like the company’s three-pronged approach to expand its property development, investment and management activities by leveraging on its engineering and construction expertise. Maintain BUY, at a revised FV of RM3.17, based on 14x FY12 PER and an enlarged share base following its ESOS and warrants exercise.

RHB RESEARCH

Berjaya Sports Toto

- Key highlights: 1) Another 20 overlapping special draws allocated for 2011; 2) Management sales outlook still optimistic, but we are wary of cannibalisation; and 3) Chance of special bumper dividend in FY12 is unlikely, in our view.

- Management indicated that any dividends to be paid out would be restricted to its reserves and that it would be unlikely to gear up for any special dividend payments in the near term, unless for a specific reason. In addition, given Berjaya Land’s recent disposal of a 1.37 per cent stake in Berjaya Toto in the open market, which brought in RM79.6 million in cash, we believe Berjaya Land may not be in urgent need of funds at this point. We maintain our current net dividend payout assumption of 80-85 per cent p.a., which yields 5.5-6.5 per cent p.a.

- We have raised our FY04/12-14 forecasts by 0.8-5.4 per cent to take into account the higher number of draws after including special draws and lower sales per draw assumptions. Our DCF-based fair value remains relatively unchanged at RM4.85. We believe earnings prospects from the 4D jackpot has already largely been reflected in its share price and consensus estimates. As such, we downgrade our call on the stock to Market Perform (from outperform).

HWANGDBS VICKERS

DRB Hicom

It was reported in the media today that VW AG has identified its VW Polo as the model to be possibly remodelled as the national car for Proton. VW has apparently formed a special team with key personnel meeting in Hong Kong last month and agreeing on this. The track record of VW speaks for itself where it turned around loss-making Skoda In the early 1990s.

The VW Polo uses a 1.2 TSI engine with a 7-speed DSG gearbox and priced at c. RM114,000 for a CBU unit. It was 2010 World Car of the Year based on merit, value, safety, environmental impact, significance, and emotional appeal. The news report indicated that a CKD unit could cost below RM70,000 making it an attractive value proposition for a German engineered vehicle. Sales for the existing VW Polo locally has been robust hitting 1681 units for 2011 up 6.5-fold from 257 units in 2010. The locally assembled VW Passat done in Pekan is expected to be rolled out this month.

This piece of news reaffirms the fact that there is abundance of value to be extracted from Proton especially with DRB-HICOM on board now. We maintain our Buy rating and TP of RM3.45 which is based on a 20 per cent discount to SOP.

* 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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