Analyst calls for Sept 21

September 21, 2012

KUALA LUMPUR, Sept 21 — This is a selection of morning calls by local research houses for the day.

From RHB Research

IGB REIT: Banking on its mega size

-    With its two assets – Mid Valley Megamall (worth RM3.44 billion) and The Gardens Mall (RM1.16bn), IGB REIT will be the largest pure retail REIT thus far, ahead of Pavilion REIT and Sunway REIT.

-    We believe that The Gardens Mall (TGM) will be the REIT’s future growth driver. TGM currently contributes about 30 per cent to IGB REIT’s topline. TGM is a high-end mall and in the early stages of its rental cycle as compared to the more matured Mid Valley Megamall (MVM).

-    Other factors that could potentially drive IGB REIT’s growth going forward include: 1) Strength of the management team; 2) Proactive asset enhancement initiatives; 3) Potential development of the surrounding areas; and 4) Resilient consumer spending.

-    We forecast an EPU growth of about 6-7 per cent p.a. for IGB REIT, on the back of our rental growth assumption of 5-6 per cent p.a. for MVM and 7-9 per cent p.a. for TGM.

-    We are initiating coverage on IGB REIT with an Outperform call and a DDM-based fair value of RM1.43, based on a cost of equity assumption of 7 per cent.

DRB-HICOM’s group managing director Datuk Mohd Khamil Jamil said that it had started initial discussions with a few foreign strategic partners to pair up with national carmaker Proton. The tie-up could be on areas such as platform-sharing and factory space utilisation. Proton is also looking to produce an Asean car by 2020. (Business Times)

Positive. This is the first official confirmation that DRB is in active discussions to find a foreign strategic partner for Proton. In return for access to platforms and drive-train technology, Proton could offer assembly capacity to its strategic partner at its under-utilised Tanjung Malim plant.

AEON denied yesterday (September 20) that it is in talks to buy the Malaysian business of French retailer Carrefour SA, following a Reuters report the previous day. “There is absolutely no truth to the report,” AEON said in a statement. (Reuters)

We are disappointed with the denial of the acquisition which would be synergistic to AEON operations. However, we will not write off that Carrefour’s Malaysian operations may still be on sale and AEON will be a potential buyer in the future. Carrefour had tried selling its Malaysian operations in 2010 but cancelled the disposal after a strategic review. Carrefour sold its Thailand operations in Nov 2010 and announced closing of its Singapore operations in Aug 2012.

Wah Seong announced that its 26.9 per cent-owned associate, Petra Energy is purchasing a 30% stake in Coastal Energy KBM (CEKSB). CEKSB was incorporated for the purpose of the development and production of the Kapal, Banang, and Meranti marginal field cluster, offshore Terengganu, Malaysia. (Bursa)

Positive, although direct earnings impact minimal, given that Wah Seong only owns 26.9 per cent of Petra Energy. We believe that involvement of Petra in the marginal field would provide Wah Seong with higher chance of winning pipe-coating contracts relating to the field. However, we highlight that despite the potential jobs from the KBM marginal field, Wah Seong would require bigger jobs (such as the North Malay Basin pipe-coating job) to sustain its earnings moving forward.

KNM announced that its rights issues was passed by shareholders yesterday. The exercise is expected to raise RM195.6 million to pare down borrowings and for working capital needs. (Bursa)

Positive. The capital raised from the rights issue would help ease the strain on KNM’s balance sheet and working capital. KNM’s debt currently stands at RM1.14bn. Given that the shareholders have approved of the rights issue, we expect it to be completed in end-Sep or mid-Oct.

DRB has expressed its intention to divest only 30 per cent of its 70 per cent stake in Bank Muamalat to Affin during preliminary talks. (Business Times)

This is consistent with earlier news reports that DRB has no intention of divesting its entire stake in Bank Muamalat and instead, will only pare its stake to a level that is acceptable by Bank Negara Malaysia (BNM), i.e. no more than 40per cent. While a deal is still possible, the focus would still be on pricing, especially if Affin does not have full control over Bank Muamalat.

From OSK Research

THE BUZZ

Yesterday, Coastal Contracts announced that its wholly-owned subsidiaries, Coastal Offshore (Labuan) Pte Ltd and Thaumas Marine Ltd, have collectively secured contracts for the sale of two units of Anchor Handling Tug Supply (AHTS) and one unit of Subsea Support Vessel (SSV) for an aggregate value of approximately RM111 million.

OUR TAKE

More about the vessels. We understand that the SSV is designed to transport liquid cargo, store materials and equipment, move men and material between platforms, and facilitate general subsea support, maintenance, transport and standby. The SSV is sold to a new customer in United Arab Emirates whereas the two AHTS are sold to one of Coastal’s loyal customers from Indonesia.

Positive news but no changes to our forecasts. This is because we had earlier factored in some orderbook replenishment for this company. We believe that the margins for the sale of the SSV may not be that lucrative as it is probably sold at a lower price in order to enter into a business relationship with a new customer.

New orders to boost orderbook to RM743 million. This amount is expected to keep the company busy until the end of 2013, fully utilizing the company’s yard. The new order is timely as it provides Coastal with a new business partner from the Middle East.

Maintain BUY. Our fair value for Coastal remains unchanged at RM2.44, based on the existing PE of 7x FY13 earnings. We will be visiting the management very soon to obtain a full update with regards to the company’s prospects post 2013.

We visited Padini recently and gather that its collaboration with FJ Benjamin is on track. The first Vincci outlet under the brand name ‘VNC’ will be launched at the end of this year in Pondok Indah Mall in Jakarta. Nonetheless, the pace of opening new local stores is likely to slow down as fewer new malls come up. The group will be introducing a new shoe brand to replace the Vincci+ merchandise serving the higher-end segment. Maintain NEUTRAL, with FV unchanged at RM2.22 based on 15x FY13 EPS.

We believe Padini will still deliver decent results even though the competition among retailers remains intense, especially after the opening of the Swedish fashion retailer, H&M maiden store last weekend. Shoppers might be drawn to the new opening in the short term but we think Padini will still be able to defend its position with its extensive network throughout Malaysia.

From HwangDBS Vickers

Buy; RM1.79

Price Target: RM2.35; COCO MK

Coastal Contracts announced yesterday evening that it secured RM111 million of vessel sales contracts. This was for the provision of two anchor handling tug supply vessels (to a repeat Indonesian customer) and one subsea support vessel (to a new UAE client) , leading to YTD order wins of RM698 million, more than 2011’s total order wins of RM690 million. Its current outstanding order book stands at RM743 million, sustaining earnings till 2013.

Hold; RM10.36

Price target: RM9.80 (Prev: RM7.65); ACSM MK

2Q13/1H13 results were slightly above our expectations. Declared 16 sen interim DPS, implying 38 per cent payout. Earnings and loan growth remained robust; raised FY13-15F earnings by 6-7 per cent. Maintain HOLD rating; raised TP to RM9.80 pegged to 9.5x CY13 EPS.