February 2, 2011

AXIATA - XL adopts new 30% dividend payout policy

Stock Name: AXIATA
Research House: ECMLIBRA

Axiata Group Bhd
(Feb 2, RM4.86)
Maintain buy at RM4.80 with target price RM6.25
: XL Axiata's full-year FY10 core net profits of 3.04 trillion rupiah (RM1.02 billion) came in 7.3% higher than consensus estimates, driven by a strong revenue growth of 27% (three times higher than expected industry average of 8%) and earnings before interest, tax, depreciation and amortisation (Ebitda) margins of 52.7% (which expanded by 800 basis points year-on-year).

Voice revenue was flat quarter-on-quarter (q-o-q) as XL stimulated voice usage successfully (during off-peak hours) by bringing down voice tariffs in response to its competitors lowering down their prices. Data and value-added service revenue fell q-o-q after the peak Lebaran season in 3QFY10. SMS revenue however, continued to grow strongly by 17.1% q-o-q. Going forward, XL expects its FY11 revenue growth to be in line or faster than the industry average. XL however, cautioned that they should not grow too much faster than the market as they see this as a risk that could potentially backfire on themselves (by triggering competitive response by its rivals, that is lowering of tariffs, etc.).

Ebitda margins continued to expand by 60 basis points q-o-q, driven by a 27.3% q-o-q decline in infrastructure expense owing to a new calculation method for 2G frequency fee implemented since December 2010. This was however, offset by a 24.3% q-o-q increase in marketing cost as it intensified its promotional campaigns in 4QFY10. Going into FY11, management guided Ebitda margins to be more 50%, although worse-than expected competition could pose some downside risks to margins.

XL introduced a new dividend policy of a minimum 30% payout ratio of the preceding year's normalised net income. XL has the intention to progressively increase the payout ratio in the future, as its free cash flow improves further. With a 66.7% stake in XL, we estimate that Axiata would stand to pocket about RM205 million in dividends from XL this year.

We reiterate 'buy' on Axiata with a sum-of-parts derived target price of RM6.25. Valuations are not demanding, given that earnings are expected to grow strongly. The maiden dividends to be paid this year will act as a share price catalyst, going forward. Risks include potential loss of valuable 900Mhz spectrum for Celcom in the upcoming spectrum refarming exercise and worse-than-expected competition in Indonesia. ' ECM Libra Investment Research, Feb 2

This article appeared in The Edge Financial Daily, February 7, 2011.

AZRB - OSK Research maintains Buy on AZRB, TP RM1.55

Stock Name: AZRB
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Buy call on AHMAD ZAKI RESOURCES BHD [] (AZRB) at a target price of RM1.55 based on 12 times FY11 earnings.

AZRB announced on Monday, Jan 31 it had won a RM125 million contract for a public housing job in Terengganu.

OSK Research said on Wednesday, Feb 2 the management was positive on RM500 million to RM600 million in new wins this year. The potential jobs include packages of the East Coast Expressway (RM140 million) and private finance initiative campus job (RM400 million).

'The approved sale of EPIC at RM112 million would move AZRB into a net cash position. No changes to our earnings estimates as the job wins are still within our RM400 million replenishment target. Maintain BUY at a RM1.55 TP based on 12x FY11 earnings,' it said.

GPACKET - HDBSVR downgrades Green Packet to Hold, cuts TP to 80c from RM1.40

Stock Name: GPACKET
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research said the recovery for Green Packet has been delayed and it expects weak 4Q2010 results.

The research house said on Wednesday, Feb 2 it had slashed the earnings before interest, tax and amortisation (EBITDA) for Green Packet by 56% to 78%.

'Higher sales and marketing costs and declining average revenue per user could postpone EBITDA turnaround to later this year.'' Downgrade to Hold, TP cut to 80 sen (from RM1.40) based on sume of the parts,' said Hwang DBS Vickers Research.


GAMUDA - Gamuda's PDP role formalised

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: MAYBANK

Gamuda Bhd
(Feb 2, RM3.87)
Maintain buy at RM3.81 with target price RM4.45
: The formal appointment of MMC-Gamuda as the project delivery partner (PDP) for the Greater KL mass rapid transit (MRT) project puts to rest any lingering concerns on the joint-venture's (JV) role. The Cabinet had on Dec 17, 2010 given its blessing for the JV's participation. The award is positive and will potentially drive mid-term earnings. There is no change to our forecasts for now and we have already imputed a 50 sen impact from the MRT project in our RM4.45 RNAV-based target price.

MMC-Gamuda JV (50:50) had on Jan 28 received a letter of award from Syarikat Prasarana Negara Bhd (SPNB) appointing the JV as PDP for the Greater KL MRT project. The appointment will be subject to: (i) the terms of the finalised and executed project agreement between the government and SPNB, and (ii) the execution of a comprehensive and definitive agreement between the JV and SPNB.

We believe the terms of the PDP role, announced by the prime minister in December 2010, are unchanged: (i) Gamuda-MMC to be paid a fee to manage the project, taking on the delivery (timing and cost) risk, (ii) the JV is not a turnkey contractor, and the works will be awarded individually through open tender, (iii) the JV would not be allowed to tender for any works except the tunnel works, and (iv) the tunnel works will be awarded to the most competitive bid.

Unknown presently are the exact project value, MMC's and Gamuda's respective stake in the JV undertaking the PDP role, and status of the tunnel sub-contracting works. Our estimated 50 sen per share impact for Gamuda assumes: (i) a RM36 billion project value, (ii) a 50:50 JV structure, (iii) the tunnel sub-contracting works make up 30% of the RM36 billion project value, (iv) 3% gross margin for the PDP role, and 15% gross margin for the tunnelling works. This translates into 20 sen per share for the PDP role and 30 sen for the tunnel sub-contracting. ' Maybank IB Research, Feb 2

This article appeared in The Edge Financial Daily, February 7, 2011.

AXIATA - RHB Research ups Axiata fair value to RM5.75 from RM5.52

Stock Name: AXIATA
Research House: RHB

KUALA LUMPUR: RHB Research Institute said Axiata's 67%-subsidiary, XL Axiata (XL) full year FY10 core net profit of Rp 3,035 billion (+>100% on-year) came in within its but above consensus full-year estimates at 104% and 107% respectively.

It said on Wednesday, Feb 2 the 4Q revenue grew 4.7% on-quarter mainly driven by strong data & VAS revenue (+18% qoq) and SMS (+10% qoq) growth. EBITDA margin rose 40bp to 53.3% due to continuous lean cost management.

XL added 1.9m prepaid subscribers in 4Q (3Q: +3.3m).'' Revenue growth moderating for XL with FY11 revenue growth guidance of in line or above the industry (which management estimates at 8%), compared to the 27% increase achieved in FY10. XL will commit to a minimum payout of 30% of normalised net profit of the previous year, with the intention to increase progressively the payout ratio in the future.

'Axiata's FY11-12 net profit forecasts raised by around 2% after revising XL's EBITDA margin assumptions upward from 50% to 52%. We revise our SOP fair value to RM5.75 (previously RM5.52) after: 1) upgrading earnings forecasts for XL; and 2) updating our valuation parameters (e.g. latest market prices and exchange rates),' it added.

PBBANK - OSK keeps 'buy' call on Public Bank

Stock Name: PBBANK
Research House: OSK

OSK Investment Research has maintained a "buy" call for Public Bank Bhd as its Return on Equity (ROE) was raised marginally to 26.3 per cent from 26 per cent and the target price from RM14.20 to RM14.40.

In a research note today, OSK said the potential upside in the medium term ROE targets on the back of a more focused strategy in growing Public Bank's higher ROE fee income business line, could serve as a re-rating catalyst for the bank.

"The group''s financial year 2010 results were spot on with our full year estimates, but slightly ahead of consensus. It represents 99.6 per cent and 104.8 per cent of our and consensus full-year forecast respectively.

"The results are commendable as the group continued to register above industry growth rates.

"This translates into a one-presentation transcript improvement in ROE to a record 27.1 per cent, despite the competitive domestic banking landscape, which has put immense pressure on industry wide retail lending yields and upward pressure on deposit rates in general," it said.

The research firm has also raised its financial year 2011 and financial year 2012 earnings forecast by 2.9 per cent and 3.7 per cent respectively, taking into account the stronger fee based income growth from the bank's bancassuarce business.

MEDIAC - MCIL raises ad rates for Sin Chew, China Press

Stock Name: MEDIAC
Research House: RHB

Media Chinese International Ltd
(Feb 2, 87.5 sen)
Maintain outperform at 87 sen with fair value at RM1.20
: We recently paid management a visit and set out below the key takeaways from the visit.

According to management, the company has raised its ad rates by 3%-5% for some of its newspapers. Ad rates for both Sin Chew and China Press were revised up by 5% while for Nanyang and Guang Ming, ad rates were maintained. For its Hong Kong publications, management has revised the ad rates by 3%. Management added that 2011 adex is off to a good start thanks to the Chinese New Year celebrations, which spurred advertising demand from hypermarkets and beer companies.

We understand that Nanyang had been repositioned last November and is now more business-focused. The response thus far, according to management, has been encouraging. While still early days, we note that 4QCY10 adex for Nanyang grew 26.8% year-on-year (y-o-y) and 13.4% quarter-on-quarter (q-o-q), although this could also be explained by factors such as economic recovery (y-o-y growth) as well as seasonality (q-o-q growth). Nevertheless, if the repositioning exercise is successful, this could help arrest Nanyang's declining adex market share, which slipped to 5.8% in 2010 versus 6.1% in 2009 and 7% in 2008.

Newsprint prices have been on an uptrend since 2HFY10 and are currently hovering around US$720 (RM2,182) to US$780 per tonne. However, this is still significantly lower than newsprint prices of US$925-US$950/tonne in early-4Q08.

In mitigation, the weakening US dollar versus the ringgit would work to the advantage of the print media players given that newsprint is priced in US dollar. MCIL is currently carrying about six to eight months worth of stock at an average cost of US$650-US$680/tonne and in order to mitigate the rising newsprint price, the management is looking at reducing newsprint usage (as newsprint accounts for 30% to 40% of production cost) through pagination control and managing wastage more effectively.

The risks include: 1) weaker-than-expected adex; 2) higher-than-expected newsprint costs; and 3) a depreciating ringgit versus the US dollar.

As we have forecast FY12 and 13 ad revenue to grow by 4% and 3.5% respectively, we have left our FY11-13 earnings forecasts unchanged for now.

Our indicative fair value is maintained at RM1.20, which is based on unchanged CY11 PER of 13 times. We reiterate our 'outperform' call on the stock. ' RHB Research, Feb 2

This article appeared in The Edge Financial Daily, February 7, 2011.

January 31, 2011

MUDAJYA - OSK positive on Mudajaya Group

Stock Name: MUDAJYA
Research House: OSK

Mudajaya Group has a strong chance of participation in the civil works portion for another 1000MW power plant worth RM5 billion, following the government's Request for Proposal (RFP) to Tanjung Bin and Jimah, says OSK Research.

It said the civil works portion is potentially worth between RM750 million to RM1,000 million.

"We are positive on domestic jobs as Mudajaya has built over 10 power plants locally.

"In India, the company had submitted three highway porposals via Build, Operate and Transfer (BOT) totalling RM3 billion, which are brownfield projects involving upgrades on existing routes," it added, in a research note today.

OSK Research also said it was maintaining a "buy" call while switching its valuation method to one based on the Sum of Parts (SOP) and has raised the target price to RM7.44.

It expects Mudajaya's fourth quarter earnings to come in at about RM50 million, stronger than in the third quarter but lower than the second (RM54.2 million).

Mudajaya will release its fourth quarter results next month.

SPSETIA - SP Setia remains a 'sell', says ECM

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: ECMLIBRA

SP Setia Bhd remains in the 'sell' zone despite the positive acquisition of a 106.2 hectare (262.5 acres) land in Tebrau, Johor, last Friday, ECM Libra Investment Research said today.

It target price was at RM6.00 per share. "We are not imputing any earnings from this new project into our model yet, until there is more clarity on the development timeline," the research house said in a note.

The land, to be developed as a mixed township, is expected to
generate a gross development value (GDV) of at least RM700 million, ECM Libra added.

It also expects the project to be launched in FY12 with the contribution commencing from FY13 onward.

With the new acquisition, SP Setia will have six projects in Johor. -- Bernama

DIGI - OSK Research upgrades DiGi to Buy, TP RM27.90

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: OSK

KUALA LUMPUR: OSK Research has upgraded DIGI.COM BHD [] to a Buy with a target price of RM27.90 from RM24.40 based on a discounted cashflow and 5.5 times FY11 enterprise value/earnings before interest, tax, depreciation and amortisation (EV/EBITDA).

The research house said on Monday, Jan 31 there were no surprises in DiGi's 4Q/FY10 results. Although the speculated special dividend did not materialize, DiGi dropped the biggest hint yet that a windfall payout may come in FY11.

'We estimate additional cash of up to RM1.20/share would likely be returned from a more optimal capital structure achieved in 2011. We see greater upside to Digi's EBITDA from the sharing of infrastructure with Celcom starting FY12 and tweak our core earnings forecasts for FY11/12 higher by 10-23% after building in additional opex savings.

'Accordingly, our TP is raised to RM27.90 from RM24.40 based on DCF (WACC: 9.5%) and 5.5x FY11 EV/EBITDA. Upgrade to BUY given the >10% upside. Digi is our best pick for exposure to Malaysia telecoms after Axiata,' it said.

HIAPTEK - RHB Research maintains underperform on Hiap Teck

Stock Name: HIAPTEK
Research House: RHB

KUALA LUMPUR: RHB Research is maintaining its Underperform call on Hiap Teck Ventures Bhd while the indicative fair value is maintained at RM1.18 based on 7x CY11 EPS of 16.9 sen.

The research house said on Monday, Jan 31 that Hiap Teck has proposed a rights issue to raise gross proceeds of up to RM218.9 million (at an indicative basis of one-for-one and rights price of 68 sen).

In addition, Hiap Teck has also proposed to issue up to RM180 million nominal value of convertible bond, with coupon rate and conversion price to be determined later.

'Ceteris paribus, the RM391.6 million net proceeds (both equity and debt) will overall reduce Hiap Teck's net debt and net gearing of RM269.8 million and 0.4 times as at Oct 30, 2010 to RM58.2 million and 0.1 times,' it said.

RHB Research said the new shares from the rights issue will dilute Hiap Teck's FY07/12 EPS by 43% from 17.6 sen to 10 sen.

The net proceeds from its rights issue and convertible bond issue will mainly be used to fund the Phase 1 of its RM750 million blast furnace plant in Kemaman, Terengganu.

'Forecasts maintained, pending the completion of the rights issue and convertible bond issue. Indicative fair value is maintained at RM1.18 based on 7x CY11 EPS of 16.9 sen,' it said.

PLUS - OSK Research maintains Neutral on tolled road concessionaires

Stock Name: PLUS
Research House: OSK

KUALA LUMPUR: OSK Research remains NEUTRAL on the tolled road concessionaires sector but highlights the potential regulatory risks involved.

'We advise investors to sell PLUS (NEUTRAL, TP: RM4.60) rather than to wait for the offer proceeds (+4.8% upside). Being the only pure toll concessionaire post PLUS' privatisation, Litrak (BUY, TP: RM4.22) could benefit should investors switch stocks,' it said on Monday, Jan 31.

LITRAK - OSK Research maintains Neutral on tolled road concessionaires

Stock Name: LITRAK
Research House: OSK

KUALA LUMPUR: OSK Research remains NEUTRAL on the tolled road concessionaires sector but highlights the potential regulatory risks involved.

'We advise investors to sell PLUS (NEUTRAL, TP: RM4.60) rather than to wait for the offer proceeds (+4.8% upside). Being the only pure toll concessionaire post PLUS' privatisation, Litrak (BUY, TP: RM4.22) could benefit should investors switch stocks,' it said on Monday, Jan 31.

KENCANA - Kencana, SapuraCrest up on US$800m Petronas contract

Stock Name: KENCANA
Research House: OSK

KUALA LUMPUR: Shares of KENCANA PETROLEUM BHD [] and SAPURACREST PETROLEUM BHD [] rose in afternoon trade on Monday, Jan 31, amid a broader cautious market after announcing they had secured part of a Petroliam Nasional Bhd (Petronas) project.

At 4.41pm, Kencana rose two sen to RM2.57 with 12.94 million shares done. SapuraCrest added six sen to RM3.68 with 3.76 million units transacted.

OSK Research said it was keeping its FY11-12 earnings forecasts for Kencana unchanged for now.

'As for the revenue arising from the fabrication of O&G structures for the Berantai oilfield, we had earlier included some orderbook replenishment and hence are not tweaking our earnings for now. Hence, our target price on the stock remains unchanged at RM3.05, based on the existing PER of 23x FY12 EPS,' said the research house.

SapuraCrest, Kencana and Petrofac Ltd Group announced on Monday, they had secured a Petronas contract for an oil and gas project with an estimated development cost of US$800 million (RM1.96 billion).

The project involved the Berantai oil and gas field, about 150km off Terengganu.

Under the joint operating agreement (JOA) with Petronas, Sapura Energy and Kencana Energy will have 25% interest each while PED will hold a 50% stake.

SapuraCrest and Kencana said that based on the estimated development cost was US$800 million, their subsidiaries' respective contributions to the development was US$200 million each.