Stock Name: AXIATACompany Name: AXIATA GROUP BERHADResearch House: CREDIT SUISSE
KUALA LUMPUR: Malaysia is expected to surprise on the upside in 2011 but uncertainties still remain over the sustainability of growth beyond 2011, according to Credit Suisse Research.
In its Malaysia market strategy report issued on Tuesday, March 29 following a conference for Malaysian companies, it came out of the conference feeling more bullish about the prospects for Malaysia.
'We believe Malaysia will surprise on the upside in 2011, but uncertainties still remain over the sustainability of growth beyond 2011,' it said.
Credit Suisse Research said IJM Corp, Air Asia, Axiata and UEMLand were particularly interesting. IJM Corp. is a direct beneficiary of the Economic Transformation Programme (ETP). Air Asia and Axiata have gone beyond Malaysia shores and are riding on the region's strong growth. UEM Land is working on a different approach to take advantage of the strong Singapore-Malaysia ties.
However, Tenaga and YTL Power were the two companies with perhaps the most unknowns, as many factors are out of their hands (electricity tariffs, coal cost, power purchase agreements renegotiations) and the ball was now in the government's court.
AirAsia (RM2.68, Outperform, TP RM4.30). It has an Outperform on AirAsia at RM2.68 and a target price of RM4.30. It said AirAsia management was not keen to impose a fuel surcharge at the moment. Instead, AirAsia intends to focus on ancillary charges, as it is a natural hedge against fuel. An RM1 increase in ancillary fares will cover a US$1/bbl increase in jet fuel prices.
'AirAsia could be monetising 'other business' units,' it said, adding that management said it may sell its stake in AirAsia Academy (pilot and crew training centre) and the travel website AirAsiaGo. Management has indicated that AirAsia X is slated for an IPO in 2012.
As for Axiata, it has an Outperform at RM4.72'' and target price of RM6.10. Axiata management believes there is still room for cost re-engineering. Bangladesh 2G spectrum renewal fee issue is still a key risk factor. Share price is temporarily depressed by the conversion of Khazanah convertible bond.
As Genting Malaysia (RM3.60, Neutral, TP RM3.30), it said the opening of two new casinos in Singapore has had a smaller-than-expected impact on casino revenue in Malaysia.
'Management believes the 'novelty' factor has started to wear off. Revenue continues to be dominated by mass market, which accounted for 65% of 2010 revenue,' it said.
IJM Corp (RM6.11, Outperform, TP RM8.00). Management is very optimistic on CONSTRUCTION [] orderbook expansion prospects. The group is in the advanced stages of negotiations to clinch RM5 bn of new orders, which could double its existing RM4.1 billion order book. It will not be aggressive in bidding for overseas jobs in India and the Middle East, given the positive outlook for the Malaysia market.
'Management could make provisions in 4Q FY2011 for delayed claims and cost overruns in India and the Middle East. We expect construction PBT margins to normalise to 6% to 9% from FY2012,' it said.
KL Kepong (RM21.10, Neutral, TP RM21.70).'' KL Kepong is looking for FFB production to grow by 8'10% in FY11, though production has been poor for the first few months. This suggests that it expects FFB production to pick up strongly in 2H FY11. It said 17% of KLK's total planted oil palm acreage is immature.
'KLK says it is not keen to expand its rubber acreage because rubber (1) takes seven years to mature; (2) is more labour intensive,' said Credit Suisse Research.
Sunway REIT (RM1.03, Outperform, TP RM1.15).'' SunREIT has headroom of close to RM1 bn for acquisitions without going to unit holders for funds. Managements says that the REIT will look for large- and retail-focused assets in Johor Bahru, Penang and Klang Valley.
It is looking to refinance its floating interest rate borrowings to fixed-rate, in light of an impending rise in interest costs.
Tenaga (RM6.00, Neutral, TP RM7.20). Tenaga has received the Economic Council approval to increase electricity tariffs but timing of the tariff hike is uncertain.
"We believe that Tenaga's share price will not perform until after the general elections. Meanwhile, the rising coal cost should squeeze profit margins,' it said.
UEM Land (RM2.67, Outperform, TP RM3.80). The management indicated that it was seeing a lot of interest for Singaporean developers and were in talks with several, on-potential partnerships in Nusajaya.
The Khazanah-Temasek development in Singapore is on-track and management is hopeful that it will participate in the development. UEM Land is now the front-runner for some projects in prime locations in KL following the acquisition of Sunrise.
'Some investors are questioning when UEM Land will morph from being a 'concept' stock to one with a stronger earnings stream,' it said.
YTL Power (RM2.27, Underperform, TP RM1.82). The power purchase agreements (PPAs) for the first generation power plants, including YTL Power's plants, will start to expire beginning 2016. If talks to renew the first generation PPAs fail, the government would have to plant up 10, 000 MW of power in the next two to three years.
In partnership with Enefit, YTL Power estimates that it can produce power via oil shale 30% cheaper than electricity generated via imported oil and gas feedstock. YTL Power hopes the YES WiMax service will be profitable in the next five years.
