Analyst call Aug 13
UPDATED @ 12:18:20 PM 13-08-2012
KUALA LUMPUR, Aug 13 — This is a selection of morning calls by local research houses for the day.
From HwangDBS Vickers
Today’s Market Preview
The US Bourse gained +0.1 per cent to +0.3 per cent at the closing bell on Friday, which will likely buoy sentiment on our local bourse following a marginal 3-point gain at the close last week.
The index should inch towards its immediate resistance level of 1,650 today ahead of positive expectations of Malaysia’s 2Q12 GDP report, which is scheduled for release on Wednesday.
Stocks of note that could see action today include: (a) Eastern & Oriental and Sime Darby, after the Securities Commission stated Sime Darby is not required to make a general offer for Eastern & Oriental’s remaining shares; (b) Dijaya Corp, following shareholder approval for an amalgamation exercise that will see Dijaya acquiring 73 properties for RM943m; and (c) Ta Ann Holdings, after a local news report noted it is expecting dampened FY12 financial results on lower crude palm oil prices, lower FFB production and losses on its plywood division.
From RHB Research
MBM Resources
Industry sales data for 1H12 reaffirmed MBM as a growing force in vehicle retail. Vehicle sales related to MBM rose 17.1 per cent yoy in 1H12. Volkswagen sales that more than doubled. Sales of Perodua vehicles recorded a 7.7 per cent qoq improvement in 2Q12 and remains on track to meet its 2012 sales target of 188,000 units. Accordingly, MBM’s motor vehicle sales revenue grew 28.7 per cent yoy in 1H12
MBM’s component manufacturing revenue for 1H12 fell 4.3 per cent yoy due mainly to an 18.6 per cent yoy decline in production volume at Proton, a key domestic OEM customer. In addition, aggressive cost down initiatives also affected the performance of Hirotako, where 1H12 revenue contracted 2.7 per cent yoy to RM137.8m.
MBM’s alloy wheel manufacturing plant in Rawang is progressing on schedule with construction at the 45 per cent mark. Its steel wheel business also suffered a down turn with volumes off about 14.8 per cent yoy due to shifting trends toward alloy wheels.
Despite the expected pick up in 2H12 earnings, the improvement will be somewhat mitigated by the strong Yen that could crimp margins. In addition, continued pre-operating costs at the new alloy wheel plant ahead of the completion of phase 1 will be a drag on earnings. Our 2012-14 forecasts are lowered by 4.5 per cent, 3.1 per cent and 3.1 per cent respectively.
After a stellar 91.2 per cent YTD share price gain, we believe the stock is due a period of consolidation. Based on our revised forecasts, MBM already trades at a fully diluted forward PER of 9.6x that is close to the sector average. We downgrade our call on the stock to Market Perform (from Outperform) and trim our fair value estimate to RM4.10 (from RM4.20) that is derived from ascribing a 10x target PER (unchanged) to 2013 earnings.
Genting
Due to the weak earnings posted by Genting Singapore (GS), where its 1H12 net profit made up just 33-37 per cent of our and consensus earnings, we have cut our earnings forecasts for GS by 25-27 per cent for FY12-14, after taking into account lower gaming volume growth and higher operating costs for the Western Zone.
Post-earnings revision for GS, we have also cut our forecasts for Genting by -13.9-15.1 per cent for FY12-14. Earnings contribution from GS now makes up 55-57 per cent of Genting’s operating profits (from 60-63 per cent).
Post-earnings revision and updating for our new fair value for GS of S$1.20 (from S$1.30), our SOP-based fair value for Genting has been reduced to RM9.60 (from RM10.75). Our Outperform recommendation is under review, while we wait to see how the rest of the Genting group subsidiaries fare when they release their 2Q12 results at the end of the month.
Unisem
Unisem guided for a flat revenue qoq growth for 3Q12. This is mainly due to the poor order visibility for broad-based packages. The company indicated that customers have turned cautious and have lost its “ability to forecast” given the global economic uncertainty.
However, the company is confident that 3Q12 will return to the black. This is underpinned by higher contribution from higher-margins products. However, despite its optimism of profitability, management highlighted that it is unlikely to fully offset the losses posted in 1HFY12.
Although management appears to be optimistic for a turnaround in the 3QFY12, we are skeptical on the strength of the earnings recovery given the poor order visibility. Thus, we now expect a bigger loss of RM12m for FY12 and reduced our FY13 net profit by 18.9 per cent again after imputing lower revenue assumptions.
Accordingly, our fair value is lowered to RM1.25/share based on 0.8x (unchanged) forward P/BV. Maintain Market Perform.
Hektar REIT
Hektar REIT’s 2Q12 realised net profit of RM9.3m (-1.3 per cent yoy; -4.6 per cent qoq) brought 1H12 net profit to RM19.0m (-1.8 per cent yoy), reaching 46 per cent of our and consensus estimates, slightly below expectations. A DPU of 2.6 sen (+4.0 per cent yoy) was declared during the quarter, bringing 1H12 DPU to 5.2 sen, on course to meet our FY12 forecast.
Gross revenue grew 4.5 per cent yoy due to: 1) the improvement in rental contribution from its assets; and 2) contributions from new tenants in Mahkota Parade. However, net interest expense had increased by 16.2 per cent yoy and 5.4 per cent qoq due to the higher borrowing cost of 4.6 per cent in 2Q12 (vs. 1Q12: 4.2 per cent and 2Q11: 4.11 per cent). This led to the decline in net profit.
The proposed acquisition of the Kedah malls and rights issue, due to be completed in 3Q12, has now been slightly delayed. Nonetheless, management remains optimistic that the proposed acquisitions will be completed by year-end. Despite the weaker 2Q performance, we believe the 10.5 sen DPU is still achievable.
Our earnings forecasts have been tweaked marginally for FY12-14. Our DDM-based fair value is raised to RM1.55 (from RM1.50) after updating our beta assumption. Maintain Market Perform.
Genting Singapore
As expected, Genting Singapore’s (GS) came in below expectations, as 1HFY12 core net profit of S$360.3m made up just 33-37 per cent of our and consensus’ FY12 forecasts. The main variances were the lower-than-expected gaming volumes, especially from VIPs (down 10-15 per cent yoy versus our +1 per cent yoy projection) and lower-than-expected EBITDA margin of 44.3 per cent achieved in 2Q12 bringing 1H margin to 46.2 per cent (versus our projected 49 per cent for FY12), caused by higher costs related to the pre-operating expenses of the Western Zone.
Conference call highlights: (1) Subdued outlook of global economy affecting gaming volumes; (2) Provision for doubtful debts are up yoy, but still within targeted range; and (3) EBITDA margins expected to remain weak until Western Zone fully opens.
We have revised our forecasts down to reflect lower gaming volume growth and higher operating costs for the Western Zone, resulting in a revision of -25.1-27.3 per cent for FY12-14. Post-earnings revision and after updating for GS’ latest net cash balance, our fair value has been reduced to S$1.20 (from S$1.30), based on unchanged average of 8x FY13 EV/EBITDA and DCF. Due to the lacklustre operating environment and the potential of a more significant positive impact from the Western Zone only coming in from 2Q2012 onwards, we downgrade our recommendation on GS to Underperform (from Market Perform).
From OSK Research
Genting Singapore
The group’s annualised 1H12 earnings was 19 per cent below consensus and our full-year forecasts respectively despite the above-average win rates and a seasonally stronger 1Q owing to the CNY festive season.
Following our downward earnings revision and lower EBITDA valuation 10x multiple vs our previous 12x, our Fair Value is cut from SGD1.71 to SGD1.20.
Since the group’s pullback from extending credit to VIP customers more than offsets the very marginal incremental gaming volume arising from the two maiden IMAs, we believe that earnings may continue to disappoint and in turn cap any potential share price re-rating. We are downgrading our call from Trading BUY to NEUTRAL, FV: SGD1.20 (10x FY12/13 EV/EBITDA).
MBM Resources
MBM’s earnings shortfall was largely due to Hirotako’s and OMI’s lower contributions, hit by the drop in airbag production volume from Proton. Daihatsu earnings were clipped, a result of its Delta trucks’ phase-out.
We trim our earnings estimates for FY12/FY13/FY14 by some 17 per cent, 12 per cent and 6 per cent respectively, though FY12 top line remains unchanged as the earnings drop was largely due to lower margins.
Nonetheless, the automotive group’s prospects remain encouraging. With valuations rolled over to the lowered FY13 numbers and pegging Perodua at a higher PE of 11x given its market dominance, our FV is raised to RM4.76 from the previous RM4.58, based on the sum of parts. Maintain BUY.
MBM’s 1H2012 earnings announced last week fell short of estimates, accounting for only 36 per cent of our full year forecast of RM196m vs consensus’ RM162m.
The earnings shortfall was attributed to the lower than expected earnings contributions from Hirotako and OMI, hit by the drop in airbag production volume from Proton. Daihatsu earnings also fell short as a result of the phase-out of the Delta trucks.
JT International
Japan Tobacco is looking to rebrand Mild Seven as “Mevius” from February 2013 as it attempts to make a mark outside Asia. The rebranding will involve higher advertising and repackaging costs, but the company hopes this will boost sales volume and brand awareness.
Meanwhile, JTI disclosed at its analyst briefing last Friday that its share of the Malaysian VFM market has declined as an illegal brand by the name of “John” is gaining a foothold among cost-conscious smokers.
Maintain BUY, FV RM7.54. A near-term catalyst lies in the increasing likelihood of excise duty staying put in the upcoming 2013 Budget.
Japan Tobacco (JT) has launched a global rebranding initiative to rebrand its leading Premium cigarette brand, Mild Seven. Japan’s best-selling cigarette and a rising star in Malaysia, the 35-year old brand will be renamed “Mevius” from early February 2013 as the company seeks to strengthen the brand’s popularity outside Japan. Mild Seven’s blue colour scheme and logo will, however, remain.
The name change is anticipated to propel the Asian-centric brand into the European market as European regulators frown upon the term “mild”, which they deem as implying lower health risks.
The “M” and “S” within “Mevius” is taken from the first letters of “Mild Seven”, while “EV” and “IU” represent “evolution” and “you and I (JT’s relationship with its customers)”.
The group will incur additional costs from the rebranding in the form of advertising and packaging changes although the greater brand awareness over the longer term should help boost sales volume.
Mild Seven’s consumption in Malaysia grew 12.5 per cent y-o-y in 2QFY12 for a 5.3 per cent market share while Winston sales dipped 2.8 per cent, for a 0.5 ppt market share decline to 11.2 per cent.
The deterioration in Value-for-Money (VFM) brand’s volume can be attributed to the growing presence of an illegal local brand, “John”. This local brand has been cannibalising volume from the Value-for-Money segment, hitting BAT’s Pall Mall even harder.
Unlike most illicit cigarettes, “John” appears to comply with Malaysian tobacco regulations. Its packaging also complies with the Government’s pictorial health warning requirement and has a security mark as well as an address (albeit an inaccurate one).
This makes it harder for the authorities to crack down on its distribution and consumption. The brand is believed to be selling at RM3.50 per 20-stick pack.
We value JTI at RM7.54, based on our FCFF model (cost of equity: 7.5 per cent, terminal growth: 1.0 per cent).
The near-term catalyst remains the increasing likelihood of tobacco excise duty remaining unchanged for a second consecutive year when the 2013 Budget is announced next month.
As the industry’s long-term prospects remain bleak, another excise duty hike is likely to send industry volume growth back into negative territory.
* 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.
