Analyst calls for May 17
KUALA LUMPUR, May 17 — This is a selection of morning calls by local research houses for the day.
From HwangDBS Vickers
Hong Leong Bank
3QFY12/9MFY12 net profit came in at RM465 million/RM1.253 bullion. 9M profit is 79 per cent of our FY12 estimate. NIM fell due to lower asset yields (excess funds deployed to lower yielding assets, older mortgage loans replaced by new lower yield loans) and higher cost of funds.
Provisions were lower than expected. Cost to income ratio (ex-RM2.6 million integration cost) fell to 44 per cent (2Q12: 45 per cent, ex-RM115 million VSS cost). Associate profit from Bank of Chengdu rebounded to RM62m (10 per cent of PBT) after additional costs incurred for its core banking system the quarter before.
Loans inched up 0.8 per cent quarter-on-quarter (YTD +3.9 per cent) as the bank purged low quality loans under portfolio rebalancing. Deposits grew 2.6 per cent quarter-on-quarter (YTD +6.5 per cent) largely driven by fixed deposits (+2.4 per cent quarter-on-quarter), lifting cost of funds.
Higher risk-weighted assets under revised BILLIONM regulation. Risk-weighting for undrawn commitments with over 1-year maturity (mainly mortgages) was raised from 20 per cent to 50 per cent effective 1 Jan 2012. Accordingly, capital ratios fell by 50bps. No dividend was declared in the quarter.
HP portfolio is rebalanced to reduce exposure in national cars, as it grows the non-national car segment to reap higher yields with lower NPL risks. SME banking is expected to gain traction with the 51 SME-focused branches coming up to speed.
Potential upside from full implementation of FRS139 in FY13. HLB may benefit from lower collective allowances under FRS139 given its robust asset quality. Allowance over gross loans (CA) ratio is 2.3 per cent currently; we estimate a 10bps drop in the ratio would raise profit by 0.6 per cent.
Maintain BUY, RM16.00 TP based on the Gordon Growth Model with 16 per cent ROE, 5 per cent long-term growth, and 9.4 per cent cost of equity. Our TP implies 2.5x CY12 P/BV.
Fitters Diversified
1Q12 earnings fell 38 per cent quarter-on-quarter and 23 per cent year-on-year to RM4.4 million due to lower oil extraction rate at its palm oil mill in Kedah. Meanwhile, revenue came in at RM88.8 million (-18 per cent quarter-on-quarter, -14 per cent year-on-year) due to slower activities at its three core divisions. Meanwhile, operating profit fell 17 per cent quarter-on-quarter to RM6.4 million (-24 per cent year-on-year) but operating margin was stable at 7.2 per cent.
Construction, engineering & property shine with RM3.6 million pretax profit (+13 per cent quarter-on-quarter, -10 per cent year-on-year), contributing 62 per cent of group pretax profit. Pretax margin also improved to 12.9 per cent (vs 9.4 per cent in 4Q11) due to recognition of profit from KLCC Lot C variation order.
No change to forecasts. We had expected 1Q12 result to be slightly weaker because of long holidays in the quarter. However, Fitters’ earnings will pick up substantially in 2H12, as we understand it is close to concluding several green mill projects that are expected to more than make up for slow 1Q12 operations.
The Zetapark property project is expected to boost earnings further, given strong take-up for its SOHO units (424 units with RM130 million GDV, 100 per cent sold).
Shanghai Disneyland is the wildcard. Shanghai Disneyland specialist theme park works worth >RM100 million is a potential catalyst given Fitters’ approved vendor status.
Maintain BUY. Fitters’ current valuation at 5x FY13F PE is attractive, given 3-year earnings CAGR of 38 per cent and strong 19 per cent FY13F ROAE.
MISC
Inflection point for container shipping segment; earnings poised to recover. New growth opportunities for steady LNG and offshore divisions. Stock at eight year low and trading below book; Upgrade to Buy with RM4.80 TP.
From RHB Research
YNH
We recently visited YNH. Management largely maintained its usual “not so aggressive” style in property development. The number of projects is still the same – Frasers Residence KL, Kiara 163 and Manjung townships.
To recall, YNH’s earnings disappointed the market whole of last year, as Frasers Residence was on the sub-structure stage. FY12 earnings will be underpinned by RM1.1 billionn unbilled sales, out of which RM320 million from Kiara 163 will only kick in from late FY13, as land clearing, piling and sub-structure typically take about 9-12 months.
We think YNH’s valuations are richer as compared to its peers, with no re-rating catalyst in the near term. The number of launches has been meager even during the upcycle in 2010/2011, and the Menara YNH land is likely to take longer time to liquidate or develop. The dividend angle is also lacking. At the current price, the stock is trading at 14x FY12 PE, which is at a premium for a small-mid cap developer. Note that, 14x is equivalent to the current valuations of IJM Land.
We reiterate our Underperform call with a fair value of RM1.70.
SapuraKencana Petroleum
SapuraKencana Petroleum (SKP) will be listed on May 17 on the Main Market of Bursa Malaysia. On listing, it will be the second largest non-Petronas service provider, and 26th largest stock by full market cap.
SKP covers 90 per cent of the oilfield services value chain. Coupled with a significant market cap and broad range of assets, SKP thus has the capability to compete for bigger and more complex jobs at the main contractor level, i.e. with more direct control over all aspects of an EPCIC job. Total orderbook as at January 31 was RM13.5 billion although the company has won new contracts since then.
While the “Malaysia factor”, FY13-16 EPS CAGR of 20 per cent and SKP’s clear ability to win contracts remain strong reasons to ascribe a premium to the stock, our target CY12 PER of 18x reflects a balance between Malaysia and global peers average PERs.
We have also stripped out the one-off merger costs in FY13 to reflect recurrent earnings and as a result, we derive a fair value for SKP of RM2.54/share. We thus initiate coverage on SKP with an Outperform call.
HSL
HSL has secured three new contracts worth a total of RM73.2 million comprising:
1) Additional flood mitigation works in Sibu (RM45.7 million);
2) Government office in Bintulu (RM16.9 million); and
3) Orphanage complex in Bintulu (RM10.6m).
The latest batch of jobs has boosted HSL’s YTD new jobs secured to RM155 million and helped to sustain its outstanding construction orderbook at about RM1 billion.
Assuming an EBIT margin of 12-15 per cent, the contracts will fetch RM8.8-11.0 million EBIT over the construction periods.
Forecasts are maintained as we have already assumed HSL to secure RM600m worth of new jobs in FY12/12. Fair value is RM1.90. Maintain Outperform.
Parkson
PRG’s 1QCY12 (-4.9 per cent yoy) result was below expectations, accounting for 19-20 per cent of our full-year forecasts. The main variance was the slower-than-expected SSS growth of 2 per cent (vs. our assumption of 10 per cent).
We expect Parkson’s SSS to recover to gradually recover to 5-10 per cent in the subsequent quarters, in line with our expectation of a gradual recovery for China’s economy in 2HCY12.
Parkson’s other subsidiary, Parkson Retail Asia’s (PRA) 9MFY06/12 results were in line with expectations, accounting for ~77 per cent of our full-year earnings forecast.
Our fair value for Parkson is reduced to RM5.15 (from RM6.40 previously). We downgrade our call on the stock to Market Perform (from outperform previously)
MISC
1QFY12/12 results missed expectations due to larger-than-expected operating losses of RM308.4 million from the container shipping division during the quarter (vis-à-vis our full-year forecast of RM200 million losses).
Overall, MISC guided “the worst is over” in terms of its quarterly (or sequential) “earnings momentum” largely because:
1) Petroleum and chemical freight rates already hit the bottom in 3Q2011;
2) Operating losses from container shipping already peaked in 1QFY12/12;
3) The two floating storage units (FSU) for Petronas’s regasification project in Melaka will start contributing from Sep 2012; and
4) Earnings of the petroleum tanker division will also be boosted by new deliveries.
FY12/12 net profit forecast is cut by 28 per cent, having reflected higher operating losses of RM500m from container shipping (vis-à-vis RM200m we previously assumed).
Maintain Trading Buy. Fair value is RM6.15.
Media Prima
Although 1Q is typically the slowest quarter, we consider 1QFY12 core net profit of RM20.8 million (-40.5 per cent year-on-year, -71.4 per cent quarter-on-quarter) to be below our and consensus expectations. 1Q earnings were primarily dragged down by weaker contributions from the TV segment.
However, earnings should pick up strongly in the coming quarters in particular on the back of Euro 2012 and Olympics in the June-August period.
After rolling over to FY13 and factoring in 5-7 per cent cut to FY12-14 earnings, fair value tweaked lower to RM2.70 (from RM2.75) based on 14x FY13 EPS of 19.3 sen. Maintain Market Perform.
* 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.
