RHBInvest Research Highlights 15th December 2011

Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD

Research House: RHB

Price Call: BUY

Target Price: 2.94

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD

Research House: RHB

Price Call: TRADING BUY

Target Price: 4.00

15th December 2011

 

Top Story

Market Review ' The agony and the ecstasy Market Update -          In 2011, the financial markets were temperamental, with contrasting performance in the FBM EMAS between 1H (+4.5%) and 2H (-7.4%), and between the 3Q (-13.3%) and 4Q (+6.8%). -          In the last 37 years, there have been more good years (25 with positive annual returns) than bad (12 giving negative returns). While this does not guarantee another positive year for 2012, liquidity remains the key change agent in the current financial markets.

Corporate Highlights

Axiata ' Upbeat on revenue growth but margins a concern                                        Market Perform Briefing Note -          For 2012, management believes Axiata may be able to sustain around the same level of revenue growth seen in 2011 (7% KPI target after adjusting for stronger RM). However, management acknowledges there may be pressure on EBITDA margins, mainly attributable to XL.   VS Industry ' New revenue boost but risks remain                              Underperform (downgraded) Visit Note -          We attended the opening ceremony of a new factory for the production of Keurig Coffee Brewers. -          Keurig is a pioneer and leading manufacturer of gourmet single-cup brewing systems that mainly caters to the US and Canada markets. -          VSI is optimistic on the prospects of this new venture as it could potentially drive earnings in the longer-term.   KFC Holdings ' JCorp offers to buy the assets and liabilities of KFCH and QSR             Trading Buy News Update -          Both KFCH and QSR received an offer by Massive Equity (MESB) for the acquisition of their assets and liabilities for an effective RM4/share and RM6.80/share respectively. MESB is a SPV owned by JCorp (51%) and CVC Capital (49%). The offer would remain open for acceptance until 21 Dec, after which the offer would be withdrawn. -          Takeover valuations for both companies seem fair. Given that the buyers include JCorp (KFCH and QSR's ultimate owners), we believe the deal will most likely go through. We thus revise our call on KFCH to Trading Buy (from outperform) with a new fair value of RM4/share, which represents the offer price of KFCH's assets and liabilities. -          Related stories: KFCH Company Update ' Offer Price of RM5.60 For QSR's Business (23 Nov 2010); KFCH Company Update ' Another Offer To Buy QSR; KFCH Could Be Privatised (26 Nov 2010)   Kencana ' Kicking off favourably                                                                                  Outperform Results Note -          1QFY7/12 net profit came in within our expectations (27.6%) but above consensus (31%). Numbers were mainly bumped by start-up of AME earnings and better margins from one of its divisions. We understand that the company will seek shareholders' approval for the merger with Sapuracrest at its EGM today. -          Outperform call and fair value of RM2.94/share maintained. Investors should look to the stock for access to IKB's potential CY13 earnings growth which is estimated to be around 20.1%.