Analyst calls for September 20
KUALA LUMPUR, Sept 20 — This is a selection of morning calls by local research houses for the day.
From RHB Research
Tan Chong Motor
We expect Tan Chong (TCM) to report sequentially improved earnings in 2H12 helped by sales of the new Almera in 4Q12. However, it is unlikely to make up for the weak earnings in 1H12 and we forecast TCM to record lower earnings for 2012, down 6 per cent year-on-year.
An all new C-segment Sylphy and the window-version of the NV200 are expected in 2H13. Nissan intends to revive its once popular Datsun brand in emerging markets. TCM intends to launch the Datsun range of entry-level models in Malaysia by 2015.
TCM’s plant in Danang, Vietnam was recently completed and is also believed to be looking at plans to build a new assembly plant in Sabah for 2014 in addition to a manufacturing facility in Myanmar (2014).
Under Nissan’s mid-term plan, TCM is expected to deliver 100,000 units p.a. by 2016.
We maintain our earnings forecasts and reiterate our Market Perform call on TCM. Our fair value is raised to RM4.75 (from RM4.50) derived from ascribing a 10x (from 9.5x) target PER to 2013 earnings. We note that insiders have been aggressively building positions in the past month.
Genting Singapore
Genting Singapore has agreed to sell its entire 4.8 per cent stake in Echo Entertainment in a block trade on the ASX at a price of A$3.99/share, to be fully underwritten by Citigroup. This comes after a review to rationalise its investments portfolio, it said. (SGX)
Positive. With the sale of the shares, GenS will no longer be likely to stage a bidding war for Echo, which could have turned out to be an expensive exercise. At a selling price of A$3.99/share, GenS is also likely to recognise a gain on sale of its investment of about A$0.50-0.70/share, based on our estimates, or S$20-30 million.
AEON
AEON is said to be in talks to buy Carrefour’s Malaysian business, according to a source familiar with the matter. The Malaysian deal would be worth about US$300 million. Carrefour and AEON declined to comment. (Reuters)
We believe Carrefour’s Malaysian acquisition will be synergistic for AEON (M) and help to jumpstart its expansion plans. However, whether the deal will be favourable or not boils down to acquisition pricing. Previously, Carrefour had tried to sell its Malaysian operations but failed to do so. As the talks are still preliminary, we leave our forecasts and call unchanged.
From OSK Research
Genting Singapore
Genting Singapore announced that it has disposed of its entire 4.8 per cent stake in Echo Entertainment Group Ltd via an agreement with Citigroup Global Markets Australia, which will fully underwrite the disposal. The group stated that the disposal is a part of the rationalisation of its investment portfolio
As the disposal price of A$3.99/share is relatively close to the group’s average cost of acquisition of A$4.15/share, the sale will likely give rise to a marginal loss on disposal amounting to about S$9m (a 1.2 per cent impact on our FY12 earnings forecast). As such, our sum-of-parts (SOP) FV of S$1.20 remains largely unchanged, as the difference in the ultimate disposal price of A$3.99 and our marked to market value of A$4.28/share represents a marginal downward adjustment of S$14 million, or S$0.01sen/share.
Contrary to earlier expectations of Genting Singapore’s entry into Echo Entertainment being a strategic move leading to an eventual buyout to get a foothold in Australia’s casino space, the group later clarified that the stake acquisition was largely an opportunistic portfolio investment. Melbourne-based casino group Crown Limited is unlikely to make a 100 per cent takeover bid, as its intention is just to raise its stake in Echo Entertainment to 25 per cent for greater board influence.
We believe that this could have influenced Genting Singapore to dispose of its shareholding in Echo Entertainment as the group is now unlikely to benefit from a 100 per cent takeover bid from Crown Limited.
Maintain NEUTRAL, but FV lowered to S$1.19. Incorporating the lower disposal value for Echo Entertainment into our SOP calculation, we are marginally nudging down our FV from S$1.20 to S$1.19. Given that the group’s pullback from extending credit to VIP customers more than offsets the marginal incremental gaming volume arising from the two maiden international market agents, as well as the uncertain economic environment, we believe that the group’s earnings may continue to disappoint. This will in turn cap any potential re-rating of its share price.
From HwangDBS Vickers
RHB Capital
We added 245 million new shares in our forecasts and diluted FY12-14F ROE by 0.7/1.5/1.5ppt to 13.3/13.0/13.5 per cent. We also nudged up earnings by 3 per cent each year after reducing credit charge to reflect RHBC’s improving asset quality, and included OSKIB’s contribution in FY13-14F.
The enlarged investment banking franchise is in a stronger position to bid for more capital market deals. OSKIB has 750 remisiers and dealers, and combined trading value and volume market shares are estimated at 12 per cent and 17 per cent, respectively. The scale would also enable wider distribution of its debt and equity products.
We conservatively assumed RM56 million profit before tax contribution from OSKIB in FY13, adding c.3 per cent to the group’s net profit. RHBC’s ability to extract more value from this enlarged IB franchise could re-rate the stock. Still on the cards is the proposed acquisition of Bank Mestika which RHBC targets to complete by 1Q13. The effects of the proposed acquisition are tabled in this report.
We revised TP to RM8.70 after imputing lower ROE (13.5 per cent vs 14.5 per cent previously) in our Gordon Growth Model. This is to price in the dilution impact of the 245m new shares to be issued. Our TP implies 1.4x FY13 P/BV and 11x EPS.
We reiterate our BUY call for RHBC as it is the cheapest stock in our coverage currently at 1.1x FY13 P/BV and 9x EPS. The stock might have underperformed due to concerns over new shares issue and delay in completion of the OSKIB deal, but that has been largely priced-in.
Sime Darby
While Caterpillar is also involved in gas pipeline and LNG terminal projects, coal mining remains a dominant business for Sime’s Industrial division. We understand Xinjiang is a key potential development over the next 10 years.
We recently attended a briefing by the EVP of Sime Darby’s Industrial division. Takeaways are that the front end of the orderbook remains firm, while there could be possible deferrals at the far end until coal prices recover. The segment still aims to double profit between FY10 and FY15 through market share gains and an expanded product line.
Australian coal miners’ margins have come under pressure from declining prices, rising labour cost, implementation of the Mineral Resource & Rent Tax, Carbon Tax and higher Queensland royalties, and these have led to capex deferrals. Sime’s Industrial division has taken steps to increase efficiency and improve productivity to stem margin pressure.
We expect overall contributions from the Industrial segment to grow by 4-5 per cent p.a. in the next 3 years to meet its target, partly offset by 11 per cent decline in plantations profit over the same period. Key catalysts are CPO price rebound and M&A activities.
* 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.
