Analyst calls for Sept 7
KUALA LUMPUR, Sept 7 — This is a selection of morning calls by local research houses for the day.
HwangDB Vickers
Scomi Marine
Expecting weaker 2H12. The management said 2H12 results may be dragged by lower shipping rates for one of its Indonesian clients and lower coal volumes given the softening coal market. 2Q12 earnings fell 45% q-o-q to RM8.9 million (+69% y-o-y), largely due to RM5.4 million extraordinary charge (right-sizing and ESOS termination).
SOL next growth driver. Its growth prospects hinge on the proposed acquisition of Scomi Oilfield Limited (SOL; RM51 million pretax profit in 1H12), which continue to see robust demand for its drilling fluid and drilling management services. SOL has US$1.5 billionn worth of outstanding tenders, indicating a strong contract pipeline for its current ~RM1 billion order book. SOL has also bid for three marginal fields which may be awarded by end-2012. According to Upstream, several other Malaysian O&G companies, including Alam Maritim, Daya Materials and Dialog, are also in the fray.
Fair value at RM0.43. This is pegged to 7x FY13 EPS, implying 41% upside potential. Scomi Marine is currently trading at only 5x FY13 EPS, which is the cheapest stock in our Malaysia O&G coverage. SOL could more than double Scomi Marine’s FY13F earnings to RM120 million (+167% y-o-y); we are projecting RM45 million net profit for FY12.
RHB Equity Focus
WCT
- WCT has proposed bonus issues of up to 180.3 million new shares on a 3-for-20 basis and 240.3 million free new warrants (WCT-WD) on a 1-for-5 basis (before bonus shares).
- An investor who originally owns 1,000 WCT shares will end up with 1,150 WCT shares and 200 WCT-WD after the exercise.
- At an indicative strike price of RM2.25, the new warrants will dilute WCT’s existing fully-diluted FY12/13 EPS by another 6.2%.
- We are neutral on the exercise as we hold the view that, assuming the market is efficient, the issuance of bonus shares and warrants should not create additional financial value to the company, or in other words, it should be a zero-sum game.
- Fair value is RM2.17. Maintain Underperform.
KNM
- KNM announced that they have appointed UOB Bank as the manager, underwriter and placement agent for the proposed listing of its 100%-owned subsidiary, Borsig, on the Main Board of the Singapore Exchange (SGX-ST).
- We understand that management is looking to list Borsig to raise capital to further expand Borsig’s operations, i.e. new shares. On top of the new shares, we expect KNM to sell some of its shares in Borsig to raise capital for itself, given its large debt of RM1.14 billion currently.
- We are maintaining our Market Perform call on the stock, as we believe the market shares our cautious sentiment on the company’s earnings. Nevertheless, we expect the shares to have some short-term upside as the market reacts to this latest development. Fair value of RM0.74 is based on 0.4x FY13 P/BV.
S&P keeps Malaysia’s credit rating At “A-” with stable outlook
Standard & Poor’s Ratings Services (S&P) affirmed Malaysia’s long-term foreign currency sovereign credit rating of “A-” with a stable outlook. It indicated that it may raise the country’s sovereign credit ratings, if stronger growth and the government’s effort to reduce spending result in lower-than-expected deficits, as indicated in the 10th Malaysia Plan. In contrast, it warned that it may lower the ratings, if the government can’t deliver the reform measures to reduce its fiscal deficits and increase the country’s growth prospects
Bank Negara keeps the OPR stable at 3.0%
- Bank Negara Malaysia’s Monetary Policy Committee opted to maintain the Overnight Policy Rate (OPR) stable at 3.0%, marking the eight successive meeting the Central Bank has kept its OPR unchanged.
- The Central Bank preferred to keep the OPR unchanged given that the Malaysian economy is still growing and it bounced back to record a stronger growth of +5.4% yoy in the 2Q.
- The country’s monetary policy remains accommodative and not prohibitive given that the broader money supply and loan growth were still expanding at a strong double-digit rate of late.
- We believe the Central Bank will likely keep its OPR unchanged at 3.0% for the rest of the year and we expect inflation to average 1.6% in 2012, compared with +3.2% in 2011.
AmResearch
Benalec Holdings
Maintain BUY on Benalec Holdings, with an unchanged fair value of RM2.48/share. Benalec has announced that its 70%-owned units — Spektrum Budi and Spektrum Kukuh — have each signed development agreements with the Johor government and State Secretary Inc (SSI). Benalec will have exclusive rights to reclaim and develop two large tracts of prime seafront land in Johor — at Tg.Piai (3,485 acres) and Pengerang (1,760 acres) — that is earmarked as an integrated petroleum & petrochemical logistic hub and maritime industrial park. The land rights are for 99 years for each parcel. In return, the Johor government would be entitled to 3% of gross proceeds from the said land. The next step is for Benalec to finalise the: (i) hydraulic studies/final survey of project land; and (ii) obtain EIA approval before any construction works can start. Benalec is an early-stage play on the repositioning of south Johor as an emerging oil & gas hub. Valuations are attractive at FD FY12F-14F PEs of only 7x-10x when stacked against its deeply-embedded value.
OSK Research
Plantations: Looking beyond palm oil
We recently met Mr Kevin Loman, former MD of Bedford Biofuel, which is one of the two largest jatropha projects in the world. Much advancement has been made with jatropha in the past five years. We were pleasantly surprised to hear that airlines have been testing jatropha-derived jet fuel amidst tougher carbon emission standards and fuel efficiency. Of the companies under our coverage, only Genting Plant (BUY, FV RM11.22) has exposure to jatropha, having completed the genome sequencing of the crop. We believe jatropha may be one of the ways Genting Plant can monetize its investments in genome research.
* 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.
