Analyst calls for March 9

KUALA LUMPUR, March 9 — This is a selection of morning calls by local research houses for the day.

From HwangDBS Vickers

Guan Chong

At its post-results analyst briefing held yesterday, Guan Chong provided more information on the FY11 financial performance as well as an insight into its business outlook.

For the whole of last year, total production tonnage was 126.6 MT (+57.5 per cent year-on-year) while sales tonnage stood at 108.9 MT (+37.5 per cent year-on-year), led by higher output from its new plant in Batam. This lifted FY11 revenue to RM1.383 billion (+19.2 per cent) with net profit coming in at RM123.0 million (+21.6 per cent), which was within our expectations.

We maintain our net profit forecasts at RM131.8 million (7.2 per cent year-on-year) in FY12 and RM149.6 million (13.5 per cent year-on-year) in FY13.

Reiterate our Buy rating with RM2.80 TP (pegged to 8x FY12F FD EPS of 35 sen). Together with an expected dividend yield of 5.5 per cent – based on our FY12F DPS of 12.4 sen and a final tax-exempt DPS of 2.0 sen declared in 4Q11 – this translates to a total potential return of 13.2 per cent.

Malaysia Airports

Malaysia Airports (MAHB) is set to raise RM616 million after it announced that it has fixed its private placement shares at the price of RM5.60 per share, representing a 2.4 per cent discount to its past 5-day VWAMP of RM5.74.

This is slightly higher than our previous assumption of RM550 million proceeds from the private placement, which will be used to partly fund the higher development costs of the new KLIA2 (estimated to range between RM3.6 billion to RM3.9 billion). No further financing options will be needed after this exercise as the full costs of the new klia2 would be fully covered by its current RM3.1 billion sukuk funding and the private placement proceeds.

After the private placement exercise, MAHB’s share base will be enlarged to 1.21 billion shares from 1.1 billion shares previously. This could dilute our earnings for FY12F and FY13F by 9.1 per cent. We maintain our Hold call and SOP-based RM6.70 TP for the time being. Longer term, we are positive on the prospects of MAHB due to future land development projects around the KLIA and the opening of the new KLIA2 in April 2013.

SP Setia

Improved visibility on management continuity, targeting strong sales and landbank growth. PNB backing could enhance bids for government land and large overseas projects. Maintain Hold and RM4.50 TP (10 per cent discount to RNAV).

From OSK Research

Sector update — Oil and gas

Political tension in Iran may lift oil price above US$100/barrel. This uptrend may continue as tensions thicken in Iran, especially with the US due to slap sanctions on foreign banks facilitating Iran’s oil trade from 28 June 2012. Should this move stoke crude oil price to spiral to its all-time high of US$147/barrel, we believe Petronas and its PSC contractors would benefit from higher oil revenue during this period.

However, we also think that these oil producers would hold the view that the high price of oil would not be sustainable and hence would be unlikely to commit additional capex spending during that period in anticipation of a crash later. This then may in turn lead to a pullback in capex spending.

Meanwhile, the local O&G supporting service providers should benefit from the more robust O&G activities as oil price climbs but when it peaks, they may have to bear the brunt of higher production cost and potential delays in the award of new O&G contracts, which may give rise to a mismatch in their capacity.

Finally, if oil price crashes, these companies may also suffer in terms of poor capacity utilisation as new contracts are put on hold, which may potentially spark off a price war to fight for a share of a shrinking pool of contracts.

Maintain Overweight. Our top picks are Kencana and Dialog, which like for their impeccable performance track records and their exposure in marginal oilfield developments. In the worst-case scenario where oil price breaches US$147/barrel and crashes just as quickly, causing the flow of new O&G contracts into the market to potentially trickle, we think both companies can still survive on their existing orders. Also, their financial muscle enables them to capitalise on opportunities to buy O&G services providers at better value.

Sector update — Regional plantations

The 4Q results season turned out to be a mixed quarter for both Malaysian and Indonesian plantation companies but it was the best year ever due to record average CPO price and yield recovery in both Malaysia and Indonesia.

While all the companies chalked up higher production for the whole of CY11, 4Q was weaker, particularly for those with Kalimantan plantations. For the whole year, JA Wattie turned in the strongest production growth of

45.1 per cent, followed by TSH Resources, which was a close second at 43.2 per cent, while Kulim was at a distant third with 23.9 per cent growth.

Maintain Neutral sector. We continue to maintain Neutral stance on the sector. Although soybean and palm oil prices have strengthened of late, it is due to the threat of lower yields in the upcoming 1 or 2 months. For prices to sustain their run-up, demand has to stabilize and pick up, which we have yet to see.

Within the sector, we continue to like First Resources and Sarawak Oil Palms despite their strong stock price performance. These are well run plantations with more organic production growth going forward. We also continue to favour 2011’s underperformers such as Kencana Agri and JA Wattie.

From RHB Research

Bank Mandiri

Mandiri’s 2011 results were in line with expectations. 4Q11 net profit of IDR3,073 billion (+7.8 per cent quarter-on-quarter and +8.6 per cent year-on-year) helped to lift 2011 earnings by 32.8 per cent year-on-year to IDR12,246 billion. Higher net interest incomes, better traction at its insurance business, loan recoveries and well contained costs were the main contributors to earnings growth.

Mandiri’s NIMs were remarkably resilient, rising 24bps in 4Q11 to 5.44 per cent. CIR was relatively well contained at 43.3 per cent. Loan loss provisioning was flat year-on-year with credit costs falling to 103bps (2010: 127bps). And Mandiri’s loan book kept up a strong pace in 4Q11, expanded 27.7 per cent year-on-year in 2011 to IDR314.4 trillion, outstripping system loan growth of 24.7 per cent.

We lift our fair value to IDR8,000 (from IDR7,900). Maintain Outperform call on Mandiri.

Alliance Financial Group

AFG hopes to sustain 15-17 per cent growth in its SME segment for FYE03/13 with the growth driven by transaction banking such as trade and payment collections, introduction of new products and the upgrading of its Internet and mobile banking. The SME segment makes up about 25 per cent of the bank’s total business. (BT)

We believe the growth mentioned likely relates to operating income growth. SME is a key segment of focus for AFG and we take heart that the growth momentum is expected to be sustained. However, AFG had booked in lumpy gains from sale of securities thus far in FY12, which we do not think is sustainable. Hence, we expect group operating income growth to slow down to 4 per cent in FY13 from 14 per cent in FY12.

* 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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