August 17, 2011

HLIB Research 17 Aug 2011 (Construction; Aviation; Sunway; KLK; AFG; WCT; Traders Brief) 2/2

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD
Research House: HLGPrice Call: HOLDTarget Price: 6.70

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: HLGPrice Call: BUYTarget Price: 4.50

Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
Research House: HLGPrice Call: SELLTarget Price: 1.65

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD
Research House: HLGPrice Call: BUYTarget Price: 24.91

Stock Name: AFG
Company Name: ALLIANCE FINANCIAL GROUP BHD
Research House: HLGPrice Call: BUYTarget Price: 3.70

Stock Name: WCT
Company Name: WCT BHD
Research House: HLGPrice Call: BUYTarget Price: 3.85



Construction (OVERWEIGHT '')

LRT extension package B

'''' Prasarana has finally awarded the LRT Extension Package B to MRCB and Sunway for RM1.4bn and RM569m respectively. The construction duration for this project is'' ~29-30 months upon site possession.

'''' The award of LRT project is a welcomed newsflow for the sector and we believe that more projects will be awarded emanating from the implementation of the ETP. Hence, we continue to maintain our OVERWEIGHT stance for the sector favouring the mid/smaller cap construction players.

''

Aviation (Overweight '')

Higher Airport Charges

'''' The new rates for international passenger departing from airports (ex-LCCTs) will be increased from RM51 to RM65 (RM14 previously subsidized by government) and LCCTs will be increased from RM25 to RM32.

'''' Aircraft landing charges will be increased by 9% p.a. and parking charges will be increased by 18% p.a. for the next 3 years starting January 2012.

'''' Positive for MAHB due to overall increase in revenue, with no extra cost.

'''' Additional cost to airlines and passenger. However, the incremental cost is marginal and unlikely to have major impact to the overall air travel demand.

'''' Recommendation:

'''' Maintained Hold on MAHB with higher target price of RM6.70 (Previously RM6.08) based on DCF to equity.

'''' Maintain BUY on AirAsia with TP of RM4.50.

'''' Maintain SELL on MAS with TP of RM1.65.

''

Sunway Bhd (Not Rated)

Consolidated 1Q11 results & LRT contract

'' The new Sunway Bhd, arising from the merger of Sunway Holdings and SunCity released their consolidated quarterly results for 1Q11 for the FYE Dec.

'' The consolidated 1Q11 PATMI for Sunway Bhd was RM68.3m, making up ~21% of FY10's core PATMI of RM325m. FY11 earnings will be flat due to higher financing and restructuring costs. Thereafter, we expect the company to resume earnings growth of 10-15%.

'' On a separate note, Sunway Bhd has been awarded the LRT Package B contract for the Kelana Jaya line worth RM569m. This new order will boost their current order book to RM2.38bn (as of Jun'11), translating to ~2.2x FY10's construction revenue.

'' We believe that the merged entity (Sunway Bhd) has the potential of realising higher valuations and closer to our conservative estimated worth of RM3.22 (25% discount to FD RNAV), translating to an implied historical FY10 P/E of 12.8x. Hence, this implies an upside of 15% upon listing.

''

Kuala Lumpur Kepong (Buy)

9MFY11 core rises 67%

'' 9MFY11 core net profit of RM1,111.3m came in within our expectation at 76.3% of our full-year forecast. Against the market consensus, the results accounted for 78.3% of the full-year market estimates.

'' Maintain net profit forecasts, TP of RM24.91 (based on 18.5x CY2012 EPS of 134.7 sen) and BUY recommendation on the stock.

''

AFG (BUY '')

Write Back & Trading Gains

'' 1QFY12 net profit was 28% of HLIB and consensus forecasts mainly due to write back in provision (CA) and higher gains from sale of securities (mainly HTM ' RM12m).

'' Loans growth still well behind industry average.'' However, given record approvals (during Apr-Jul), pick up in momentum is slated towards 3/4QFY12.

'' Double-digit yoy deposits growth well ahead of industry.

'' NIM recovered qoq arising from OPR hike.''''

'' Fee income jump 25% qoq and yoy ' reflecting its strategy of focusing on transactional banking.

'' Asset quality continued to improved and capital ratios remained robust and able to meet Basel III.

'' Maintain Buy and target price of RM3.70 based on Gordon Growth (ROE of 12.8% and WACC of 10.1%).

''

WCT (BUY '')

Flat 2Q results

'' 2Q11 revenue came in at RM375.9m with PATMI of RM37.8m translating to EPS of 4.71 sen/share and diluted EPS of 4.40 sen/share. Although PATMI made up only 40% of our FY11 estimates, we consider results to be inline as we expect quarterly earnings to grow in the 2H11 due to timing of recognition.

'' Overall 2Q results were flat, however, management reiterated that their core operations are still intact and we belief that the coming quarter may see growth in their results as construction activities pick-up considering that the bulk of the construction orders were secured end of 2010.

'' Outstanding order book remains healthy at RM2.6bn (see Figure #3), translating to ~1.1x order book/market cap and ~1.7x FY10's construction revenue. As for the property division, current unbilled sales is at RM330m translating to 1.4x FY10's property revenue.

'' Maintain BUY with TP of RM3.85, as we expect more orders to materialise under the ETP and the company is the cheaper large cap construction stock compared to IJM and Gamuda.

''

FBM KLCI - Major hurdles remain at 1510-1530 levels

'' Following last week's massive selldown, Dow and most of the key regional bourses are trapped in bearish territory after falling below the long term support of 200-d SMA (within -2% to -15%), except Indonesia and Thailand (please refer to Table A).

'' We believe most of the key bourses are likely to stay below the 200-d SMA for a while given current sluggish economic outlook.'' For KLCI, the 200-d SMA remains a tough resistance during this Aug reporting season, as well as ahead of a long holiday week in end Aug and first week of September (due to Hari Raya and Merdeka day).

''

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