Stock Name: SUPPORT
Company Name: SUPPORTIVE INTERNATIONAL
Company Name: SUPPORTIVE INTERNATIONAL
| Research House: KENANGA | Price Call: HOLD | Target Price: 1.02 |
July 1, 2011
Eversendai up on Main Market debut
Stock Name: SENDAI
Company Name: EVERSENDAI CORPORATION BERHAD
KUALA LUMPUR: Main Market-debutant Eversendai Corporation Bhd was actively traded and rose on Friday, July 1, in line with the generally positive sentiment at the local bourse.
At 9.20am, Eversendai gained seven sen to RM1.77 with 30.98 million shares done.
Eversendai's final institutional price was fixed at RM1.70 and final retail price at RM1.62. OSK Research has accorded a fair value of RM2.21.
The company's subsidiary recently secured a RM139 million job from Qatar Petroleum.
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Company Name: EVERSENDAI CORPORATION BERHAD
| Research House: OSK | Price Call: BUY | Target Price: 2.21 |
KUALA LUMPUR: Main Market-debutant Eversendai Corporation Bhd was actively traded and rose on Friday, July 1, in line with the generally positive sentiment at the local bourse.
At 9.20am, Eversendai gained seven sen to RM1.77 with 30.98 million shares done.
Eversendai's final institutional price was fixed at RM1.70 and final retail price at RM1.62. OSK Research has accorded a fair value of RM2.21.
The company's subsidiary recently secured a RM139 million job from Qatar Petroleum.
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RHB Capital shares lose some shine
Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
RHB Capital Bhd's shares lost some gloss today following news reports that it planned to take over CIMB Group in a bid to create a financial institution with a market value of some RM86 billion.
A dealer said negative response to the proposed RHB-CIMB merger prompted investors to pull out of the stocks.
The shares remained in red throughout the day before ending the day one sen lower at RM9.15, after opening at RM9.14 this morning.
CIMB ended flat at RM8.93.
A news report today saying CIMB was not in talks with RHB Cap for a merger put further pressure on the stock's price.
OSK Research, in a note today, said with RHB Cap being significantly smaller than CIMB, acquiring the latter would result in greater value destruction for it post-merger.
"The Employees Provident Fund, one of RHB Cap's main shareholders, can well afford to back an all-cash deal, which is likely to be the preferred option, if Khazanah Nasional Bhd is indeed interested in all-out exit," it said.
It said the post-merged RHB-CIMB entity would face a potential earnings per share dilution of 12.5 per cent.
"More importantly, the return on equity (ROE) of RHB Cap will deteriorate from 15 per cent to eight per cent.
"CIMB will face even greater value destruction from such a merger as its current ROEs are hovering at 16 per cent to 17 per cent," it said.
OSK said assuming a fair acquisition of all-cash offer pricing of RM9.60/CIMB share, RHB Cap may need to raise close to RM58 billion in new equity via a rights issue at a 25 per cent discount to the current market share.
"This is to maintain the enlarged group's core equity ratio at a reasonable 8.2 per cent," it said.
OSK said it has retained its 'buy' call on RHB Cap and fair value at RM10.16.
It also maintained its 'buy' call on CIMB at fair value of RM9.15. -- Bernama
Company Name: RHB CAPITAL BHD
| Research House: OSK | Price Call: BUY | Target Price: 10.16 |
RHB Capital Bhd's shares lost some gloss today following news reports that it planned to take over CIMB Group in a bid to create a financial institution with a market value of some RM86 billion.
A dealer said negative response to the proposed RHB-CIMB merger prompted investors to pull out of the stocks.
The shares remained in red throughout the day before ending the day one sen lower at RM9.15, after opening at RM9.14 this morning.
CIMB ended flat at RM8.93.
A news report today saying CIMB was not in talks with RHB Cap for a merger put further pressure on the stock's price.
OSK Research, in a note today, said with RHB Cap being significantly smaller than CIMB, acquiring the latter would result in greater value destruction for it post-merger.
"The Employees Provident Fund, one of RHB Cap's main shareholders, can well afford to back an all-cash deal, which is likely to be the preferred option, if Khazanah Nasional Bhd is indeed interested in all-out exit," it said.
It said the post-merged RHB-CIMB entity would face a potential earnings per share dilution of 12.5 per cent.
"More importantly, the return on equity (ROE) of RHB Cap will deteriorate from 15 per cent to eight per cent.
"CIMB will face even greater value destruction from such a merger as its current ROEs are hovering at 16 per cent to 17 per cent," it said.
OSK said assuming a fair acquisition of all-cash offer pricing of RM9.60/CIMB share, RHB Cap may need to raise close to RM58 billion in new equity via a rights issue at a 25 per cent discount to the current market share.
"This is to maintain the enlarged group's core equity ratio at a reasonable 8.2 per cent," it said.
OSK said it has retained its 'buy' call on RHB Cap and fair value at RM10.16.
It also maintained its 'buy' call on CIMB at fair value of RM9.15. -- Bernama
Healthy start to FY12
Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Company Name: SAPURACREST PETROLEUM BHD
| Research House: ECMLIBRA | Price Call: HOLD | Target Price: 4.40 |
CIMB Research maintains Outperform on SapuraCrest
Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
KUALA LUMPUR: CIMB Equities Research remains upbeat on SAPURACREST PETROLEUM BHD [] after it posted its highest-ever 1Q net profit of RM72 million in 1QFY1/12.
It said on Friday, July 1, the earnings which were at 24% of its full-year forecast and 25% of consensus estimates, iwas broadly in line with expectations.
The installation of pipelines and facilities (IPF) and drilling divisions were the star performers. A slight surprise was the return to losses for the marine services division.
'We maintain our forecasts and target price of RM5.12 as we continue to value SapuraCrest at a 40% premium over our 14.5x target market P/E given its marginal field venture and superior growth.
'It remains an OUTPERFORM and our top oil & gas pick in view of the potential catalysts of 1) more marginal field work, and 2) fleet expansion,' it said.
Company Name: SAPURACREST PETROLEUM BHD
| Research House: CIMB | Price Call: BUY | Target Price: 5.12 |
KUALA LUMPUR: CIMB Equities Research remains upbeat on SAPURACREST PETROLEUM BHD [] after it posted its highest-ever 1Q net profit of RM72 million in 1QFY1/12.
It said on Friday, July 1, the earnings which were at 24% of its full-year forecast and 25% of consensus estimates, iwas broadly in line with expectations.
The installation of pipelines and facilities (IPF) and drilling divisions were the star performers. A slight surprise was the return to losses for the marine services division.
'We maintain our forecasts and target price of RM5.12 as we continue to value SapuraCrest at a 40% premium over our 14.5x target market P/E given its marginal field venture and superior growth.
'It remains an OUTPERFORM and our top oil & gas pick in view of the potential catalysts of 1) more marginal field work, and 2) fleet expansion,' it said.
SapuraCrest rises in early trade
Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
KUALA LUMPUR: SAPURACREST PETROLEUM BHD [] shares jumped in early trade on Friday, July 1 after its net profit for the first quarter ended April 30, 2011 rose 42.7% to RM72.34 million from RM50.69 million a year ago, due to higher contribution largely from drilling division.
At 9.12am, SapuraCrest jumped 22 sen to RM1.22 with 1.49 million shares done.
Its revenue for the quarter declined to RM550.82 million from RM670.36 million in 2010 due to lower activities in the operation and maintenance division.
Maybank Investment Bank Bhd maintained its Buy rating on SapuraCrest and said the company's1QFY12 results were ahead of its expectation, on higher IPF margins.
'As such, we have raised our FY12-14 earnings forecasts by 7-9%, incorporating for a 1-ppt rise in IPF margin.
'This lifted our target price to RM4.80 (based on unchanged 20x 2012 EPS), offering a 14% upside. Maintain Buy,' it said in a note July 1.
Company Name: SAPURACREST PETROLEUM BHD
| Research House: MAYBANK | Price Call: BUY | Target Price: 4.80 |
KUALA LUMPUR: SAPURACREST PETROLEUM BHD [] shares jumped in early trade on Friday, July 1 after its net profit for the first quarter ended April 30, 2011 rose 42.7% to RM72.34 million from RM50.69 million a year ago, due to higher contribution largely from drilling division.
At 9.12am, SapuraCrest jumped 22 sen to RM1.22 with 1.49 million shares done.
Its revenue for the quarter declined to RM550.82 million from RM670.36 million in 2010 due to lower activities in the operation and maintenance division.
Maybank Investment Bank Bhd maintained its Buy rating on SapuraCrest and said the company's1QFY12 results were ahead of its expectation, on higher IPF margins.
'As such, we have raised our FY12-14 earnings forecasts by 7-9%, incorporating for a 1-ppt rise in IPF margin.
'This lifted our target price to RM4.80 (based on unchanged 20x 2012 EPS), offering a 14% upside. Maintain Buy,' it said in a note July 1.
June 30, 2011
1QFYJan12 results review
Stock Name: TA
Company Name: TA ENTERPRISE BHD
Company Name: TA ENTERPRISE BHD
| Research House: NETRESEARCH | Price Call: BUY | Target Price: 0.80 |
Transport: Not a dull moment for airlines
Stock Name: AIRASIA
Company Name: AIRASIA BHD
Transport sector
Upgrade to neutral: The International Air Transport Association (IATA) projects that the global airline industry will register substantially lower profits of US$4 billion (RM12.08 billion) in 2011 against US$18 billion in 2010 on the back of travel disruptions arising from the natural disasters in Japan and unrest in the Middle East and North Africa and high oil prices.
Malaysian Airline System Bhd (MAS) and AirAsia Bhd are vulnerable to the high crude oil prices given their limited fuel hedging. MAS has only hedged forward 25% of its FY11 ending December fuel requirement at US$93 per barrel (bbl) West Texas Intermediate (WTI). Similarly, AirAsia has only hedged forward 17% of its group fuel requirement for 2HFY11 ending December at effective average prices of US$124 per bbl Jet and US$115 per bbl Brent.
We envisage ever more crowded skies over the next three to five years on the back of Firefly's plan to expand its fleet of B737-800 10-fold from three at present to 30 by 2015. Firefly's equally fuel efficient 189-seater Next Generation B737-800 aircraft will give AirAsia's 180-seater A320 aircraft a run for their money.
We are raising FY12/FY13 net profit forecasts of MAS by three times and 1.3 times, having moderated our jet fuel price assumption to US$115 to US$120 per bbl from US$120 to US$125 per bbl previously.
Risks to our view include: (i) A lower-than-expected rise in yields; (ii) Higher jet fuel cost; and (iii) Inability to contain outbreaks of pandemic diseases.
We are raising indicative fair value of MAS by 6% to RM1.68 from RM1.58 previously and AirAsia by 8% to RM3.44 from RM3.18. We are also raising our rating on the transport sector to 'neutral' from 'underweight' on the back of our recent upgrade of MAS and AirAsia to 'market perform' from 'underperform'. ' RHB Research, June 30
This article appeared in The Edge Financial Daily, July 1, 2011.
Company Name: AIRASIA BHD
| Research House: RHB | Price Call: HOLD | Target Price: 3.44 |
Transport sector
Upgrade to neutral: The International Air Transport Association (IATA) projects that the global airline industry will register substantially lower profits of US$4 billion (RM12.08 billion) in 2011 against US$18 billion in 2010 on the back of travel disruptions arising from the natural disasters in Japan and unrest in the Middle East and North Africa and high oil prices.
Malaysian Airline System Bhd (MAS) and AirAsia Bhd are vulnerable to the high crude oil prices given their limited fuel hedging. MAS has only hedged forward 25% of its FY11 ending December fuel requirement at US$93 per barrel (bbl) West Texas Intermediate (WTI). Similarly, AirAsia has only hedged forward 17% of its group fuel requirement for 2HFY11 ending December at effective average prices of US$124 per bbl Jet and US$115 per bbl Brent.
We envisage ever more crowded skies over the next three to five years on the back of Firefly's plan to expand its fleet of B737-800 10-fold from three at present to 30 by 2015. Firefly's equally fuel efficient 189-seater Next Generation B737-800 aircraft will give AirAsia's 180-seater A320 aircraft a run for their money.
We are raising FY12/FY13 net profit forecasts of MAS by three times and 1.3 times, having moderated our jet fuel price assumption to US$115 to US$120 per bbl from US$120 to US$125 per bbl previously.
Risks to our view include: (i) A lower-than-expected rise in yields; (ii) Higher jet fuel cost; and (iii) Inability to contain outbreaks of pandemic diseases.
We are raising indicative fair value of MAS by 6% to RM1.68 from RM1.58 previously and AirAsia by 8% to RM3.44 from RM3.18. We are also raising our rating on the transport sector to 'neutral' from 'underweight' on the back of our recent upgrade of MAS and AirAsia to 'market perform' from 'underperform'. ' RHB Research, June 30
This article appeared in The Edge Financial Daily, July 1, 2011.
Transport: Not a dull moment for airlines
Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
Transport sector
Upgrade to neutral: The International Air Transport Association (IATA) projects that the global airline industry will register substantially lower profits of US$4 billion (RM12.08 billion) in 2011 against US$18 billion in 2010 on the back of travel disruptions arising from the natural disasters in Japan and unrest in the Middle East and North Africa and high oil prices.
Malaysian Airline System Bhd (MAS) and AirAsia Bhd are vulnerable to the high crude oil prices given their limited fuel hedging. MAS has only hedged forward 25% of its FY11 ending December fuel requirement at US$93 per barrel (bbl) West Texas Intermediate (WTI). Similarly, AirAsia has only hedged forward 17% of its group fuel requirement for 2HFY11 ending December at effective average prices of US$124 per bbl Jet and US$115 per bbl Brent.
We envisage ever more crowded skies over the next three to five years on the back of Firefly's plan to expand its fleet of B737-800 10-fold from three at present to 30 by 2015. Firefly's equally fuel efficient 189-seater Next Generation B737-800 aircraft will give AirAsia's 180-seater A320 aircraft a run for their money.
We are raising FY12/FY13 net profit forecasts of MAS by three times and 1.3 times, having moderated our jet fuel price assumption to US$115 to US$120 per bbl from US$120 to US$125 per bbl previously.
Risks to our view include: (i) A lower-than-expected rise in yields; (ii) Higher jet fuel cost; and (iii) Inability to contain outbreaks of pandemic diseases.
We are raising indicative fair value of MAS by 6% to RM1.68 from RM1.58 previously and AirAsia by 8% to RM3.44 from RM3.18. We are also raising our rating on the transport sector to 'neutral' from 'underweight' on the back of our recent upgrade of MAS and AirAsia to 'market perform' from 'underperform'. ' RHB Research, June 30
This article appeared in The Edge Financial Daily, July 1, 2011.
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
| Research House: RHB | Price Call: HOLD | Target Price: 1.68 |
Transport sector
Upgrade to neutral: The International Air Transport Association (IATA) projects that the global airline industry will register substantially lower profits of US$4 billion (RM12.08 billion) in 2011 against US$18 billion in 2010 on the back of travel disruptions arising from the natural disasters in Japan and unrest in the Middle East and North Africa and high oil prices.
Malaysian Airline System Bhd (MAS) and AirAsia Bhd are vulnerable to the high crude oil prices given their limited fuel hedging. MAS has only hedged forward 25% of its FY11 ending December fuel requirement at US$93 per barrel (bbl) West Texas Intermediate (WTI). Similarly, AirAsia has only hedged forward 17% of its group fuel requirement for 2HFY11 ending December at effective average prices of US$124 per bbl Jet and US$115 per bbl Brent.
We envisage ever more crowded skies over the next three to five years on the back of Firefly's plan to expand its fleet of B737-800 10-fold from three at present to 30 by 2015. Firefly's equally fuel efficient 189-seater Next Generation B737-800 aircraft will give AirAsia's 180-seater A320 aircraft a run for their money.
We are raising FY12/FY13 net profit forecasts of MAS by three times and 1.3 times, having moderated our jet fuel price assumption to US$115 to US$120 per bbl from US$120 to US$125 per bbl previously.
Risks to our view include: (i) A lower-than-expected rise in yields; (ii) Higher jet fuel cost; and (iii) Inability to contain outbreaks of pandemic diseases.
We are raising indicative fair value of MAS by 6% to RM1.68 from RM1.58 previously and AirAsia by 8% to RM3.44 from RM3.18. We are also raising our rating on the transport sector to 'neutral' from 'underweight' on the back of our recent upgrade of MAS and AirAsia to 'market perform' from 'underperform'. ' RHB Research, June 30
This article appeared in The Edge Financial Daily, July 1, 2011.
Hiap Teck grossly below expectations, cutting forecast
Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD
Hiap Teck Venture Bhd
(June 30, 93.5 sen)
Downgrade to sell at 94.5 sen with revised target price of 70 sen (from RM1.05): Annualised, Hiap Teck's 9MFY11 core net profit of RM8.7 million (-77.1% year-on-year) came in way below our and street estimates.
The discrepancy was largely due to a weaker-than-expected earnings before interest and tax (Ebit) margin of 2.8% compared to our full-year (Hiap Teck's financial year ends in July) assumption of 5.8%.
Results were dragged down by the razor-thin operating margin due to weak demand and selling prices coupled with the rising cost of raw materials. As expected, no dividend was declared for the quarter.
In 3QFY11, Hiap Teck reported a net profit of RM5.4 million (-68% y-o-y; +21.6% quarter-on-quarter) on the back of RM236 million sales.
Sales fell by 3.4% q-o-q and 18.4% y-o-y on lower sales volume and selling prices due to weak demand from both the domestic and export
markets.
Ebit margin also contracted significantly to 4.5% (3QFY10: 8.7%; 2QFY11: 2.8%) due to higher raw material costs and low capacity utilisation.
In 3QFY11, hot rolled coils (HRC) prices averaged US$618 (RM1,866) per tonne against US$508 per tonne in 3QFY10 (+22% y-o-y).
In the near term, we believe demand will continue to be challenging following the Japan earthquake, the political unrest in the Middle East and North Africa and the re-emergence of the sovereign debt crisis in Europe.
In addition, domestic demand has yet to see a significant pick- up. Given the upcoming fasting month and the summer lull period, we expect domestic demand will remain soft.
Also, the rise in the cost of inputs has more than outpaced the increase in selling prices, thereby adding pressure to margins. In the pipeline, Hiap Teck through its 55% stake in Eastern Steel is setting up a mini blast furnace with an annual installed capacity of up to 700,000 tonnes, with capital expenditure of circa'' RM850 million.
The company has proposed a fund-raising exercise totalling RM393 million through a 1:1 rights issue at an indicative price of RM0.68 per share and bond issuance of up to RM180 million.
In view of the moderating demand and weak selling prices, we have cut our average selling price (ASP) assumptions for 2011 to 2013 by 5% to 7%.
This led to a 40% to 50% cut in our earnings forecast. Target price has been cut to 70 sen (from RM1.05), despite rolling over our valuation horizon to FY12 but still based on an unchanged seven times price-earnings ratio.
Share price performance has been consistent with our call, but we think the outlook in 2HCY11 will continue to be challenging, hence we downgrade Hiap Teck from 'reduce' to 'sell'.
De-rating catalysts include weak demand both from domestic and external markets coupled with earnings dilution from the proposed rights issue as we expect new earnings stream from the plant expansion will only come through from 2013 onwards. ' Affin IB Research, June 30
This article appeared in The Edge Financial Daily, July 1, 2011.
Company Name: HIAP TECK VENTURE BHD
| Research House: AFFIN | Price Call: SELL | Target Price: 0.70 |
Hiap Teck Venture Bhd
(June 30, 93.5 sen)
Downgrade to sell at 94.5 sen with revised target price of 70 sen (from RM1.05): Annualised, Hiap Teck's 9MFY11 core net profit of RM8.7 million (-77.1% year-on-year) came in way below our and street estimates.
The discrepancy was largely due to a weaker-than-expected earnings before interest and tax (Ebit) margin of 2.8% compared to our full-year (Hiap Teck's financial year ends in July) assumption of 5.8%.
Results were dragged down by the razor-thin operating margin due to weak demand and selling prices coupled with the rising cost of raw materials. As expected, no dividend was declared for the quarter.
In 3QFY11, Hiap Teck reported a net profit of RM5.4 million (-68% y-o-y; +21.6% quarter-on-quarter) on the back of RM236 million sales.
Sales fell by 3.4% q-o-q and 18.4% y-o-y on lower sales volume and selling prices due to weak demand from both the domestic and export
markets.
Ebit margin also contracted significantly to 4.5% (3QFY10: 8.7%; 2QFY11: 2.8%) due to higher raw material costs and low capacity utilisation.
In 3QFY11, hot rolled coils (HRC) prices averaged US$618 (RM1,866) per tonne against US$508 per tonne in 3QFY10 (+22% y-o-y).
In the near term, we believe demand will continue to be challenging following the Japan earthquake, the political unrest in the Middle East and North Africa and the re-emergence of the sovereign debt crisis in Europe.
In addition, domestic demand has yet to see a significant pick- up. Given the upcoming fasting month and the summer lull period, we expect domestic demand will remain soft.
Also, the rise in the cost of inputs has more than outpaced the increase in selling prices, thereby adding pressure to margins. In the pipeline, Hiap Teck through its 55% stake in Eastern Steel is setting up a mini blast furnace with an annual installed capacity of up to 700,000 tonnes, with capital expenditure of circa'' RM850 million.
The company has proposed a fund-raising exercise totalling RM393 million through a 1:1 rights issue at an indicative price of RM0.68 per share and bond issuance of up to RM180 million.
In view of the moderating demand and weak selling prices, we have cut our average selling price (ASP) assumptions for 2011 to 2013 by 5% to 7%.
This led to a 40% to 50% cut in our earnings forecast. Target price has been cut to 70 sen (from RM1.05), despite rolling over our valuation horizon to FY12 but still based on an unchanged seven times price-earnings ratio.
Share price performance has been consistent with our call, but we think the outlook in 2HCY11 will continue to be challenging, hence we downgrade Hiap Teck from 'reduce' to 'sell'.
De-rating catalysts include weak demand both from domestic and external markets coupled with earnings dilution from the proposed rights issue as we expect new earnings stream from the plant expansion will only come through from 2013 onwards. ' Affin IB Research, June 30
This article appeared in The Edge Financial Daily, July 1, 2011.
Berjaya Corporation 4QFY11 above - Gaming holds the aces
Stock Name: BJCORP
Company Name: BERJAYA CORPORATION BHD
Company Name: BERJAYA CORPORATION BHD
| Research House: CIMB | Price Call: HOLD | Target Price: 1.38 |
Hiap Teck slides to 23-month low
Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD
Hiap Teck Venture Bhd, a Malaysian steel products manufacturer, dropped to a 23-month low in Kuala Lumpur trading after fiscal third-quarter profit dropped 68 per cent from a year earlier to RM5.42 million.
The stock slid 1.6 per cent to 93 sen at 9:06 a.m. local time, set for its lowest close since July 17, 2009. -- Bloomberg
Company Name: HIAP TECK VENTURE BHD
| Research House: OSK | Price Call: HOLD | Target Price: 0.95 |
Hiap Teck Venture Bhd, a Malaysian steel products manufacturer, dropped to a 23-month low in Kuala Lumpur trading after fiscal third-quarter profit dropped 68 per cent from a year earlier to RM5.42 million.
The stock slid 1.6 per cent to 93 sen at 9:06 a.m. local time, set for its lowest close since July 17, 2009. -- Bloomberg
2H Looking Good
Stock Name: LEADER
Company Name: LEADER UNIVERSAL HOLDINGS BHD
Company Name: LEADER UNIVERSAL HOLDINGS BHD
| Research House: TA | Price Call: BUY | Target Price: 1.20 |
A Decent Year Despite Hiccup
Stock Name: UMCCA
Company Name: UNITED MALACCA BHD
Company Name: UNITED MALACCA BHD
| Research House: TA | Price Call: BUY | Target Price: 7.64 |
June 29, 2011
Crescendo 1QFY12 earnings boosted by margin expansion
Stock Name: CRESNDO
Company Name: CRESCENDO CORPORATION BHD
Crescendo Corp Bhd
(June 28, RM1.59)
Maintain buy at RM1.54 with revised target price of RM2.46 (from RM1.81): Crescendo's 1QFY12 net profit of RM10.4 million came in above our expectations at 29% of our full-year forecasts. The variance was largely due to the higher-than-expected profit before tax (PBT) margin as well as lower tax rate.
Year-on-year, Crescendo's 1QFY12 net profit grew by more than 100% driven by: (i) 17% increase in revenue; and (ii) 10-percentage point increase in the PBT margin. We attribute the increased margin to a better product mix and decline in finance costs.
Quarter-on-quarter, Crescendo's earnings dipped 27% due to some one-off compensations of RM6.5 million for compulsory land purchase. Excluding this, 1QFY12 earnings would have grown by 34% q-o-q.
Crescendo has secured new sales of RM152 million for FY11, surpassing FY10's new sales of RM78.9 million. Year-to-date FY12, the company has locked in RM54 million new sales largely from the sale of industrial units at Nusa Cemerlang Industrial Park. This has improved the group's earnings visibility with unbilled sales of RM116 million as at April 2011.
We raise our FY12/13 earnings by 24% and 18% to factor in higher earnings before interest and tax (Ebit) margin of 35% (from 27% previously) from the development of industrial properties at Nusa Cemerlang Industrial Park and Desa Cemerlang. We expect future earnings growth to be driven by: (i) current outstanding unbilled sales of RM116 million; (ii) projected sales of RM176 million to RM245 million for FY12/13; and (iii) sufficient landbank of more than 3,000 acres for future development. We maintain our higher dividend projections of 11 sen for FY12/13, which is equivalent to a yield of 7%. Our projections are premised on the low funding requirements for land acquisitions for FY12/13.
We roll forward our valuation base year to CY12. We continue to peg our valuation with a price-earnings ratio of eight times, which is at a discount to our sector PER of 12 times for mid-cap property stocks. This is to factor in the concentrated risks in relation to its sole exposure to the property development in Johor.
We arrive at a new target price of RM2.46 (from RM1.81 previously). We continue to like Crescendo as it is one of the key beneficiaries of the government's 'My First Home Scheme' as its residential properties in Johor are generally priced at RM200,000 per unit. Given the potential upside of 60%, we reiterate our 'buy' recommendation on Crescendo. ' TA Securities Research, June 28
This article appeared in The Edge Financial Daily, June 29, 2011.
Company Name: CRESCENDO CORPORATION BHD
| Research House: TA | Price Call: BUY | Target Price: 2.46 |
Crescendo Corp Bhd
(June 28, RM1.59)
Maintain buy at RM1.54 with revised target price of RM2.46 (from RM1.81): Crescendo's 1QFY12 net profit of RM10.4 million came in above our expectations at 29% of our full-year forecasts. The variance was largely due to the higher-than-expected profit before tax (PBT) margin as well as lower tax rate.
Year-on-year, Crescendo's 1QFY12 net profit grew by more than 100% driven by: (i) 17% increase in revenue; and (ii) 10-percentage point increase in the PBT margin. We attribute the increased margin to a better product mix and decline in finance costs.
Quarter-on-quarter, Crescendo's earnings dipped 27% due to some one-off compensations of RM6.5 million for compulsory land purchase. Excluding this, 1QFY12 earnings would have grown by 34% q-o-q.
Crescendo has secured new sales of RM152 million for FY11, surpassing FY10's new sales of RM78.9 million. Year-to-date FY12, the company has locked in RM54 million new sales largely from the sale of industrial units at Nusa Cemerlang Industrial Park. This has improved the group's earnings visibility with unbilled sales of RM116 million as at April 2011.
We raise our FY12/13 earnings by 24% and 18% to factor in higher earnings before interest and tax (Ebit) margin of 35% (from 27% previously) from the development of industrial properties at Nusa Cemerlang Industrial Park and Desa Cemerlang. We expect future earnings growth to be driven by: (i) current outstanding unbilled sales of RM116 million; (ii) projected sales of RM176 million to RM245 million for FY12/13; and (iii) sufficient landbank of more than 3,000 acres for future development. We maintain our higher dividend projections of 11 sen for FY12/13, which is equivalent to a yield of 7%. Our projections are premised on the low funding requirements for land acquisitions for FY12/13.
We roll forward our valuation base year to CY12. We continue to peg our valuation with a price-earnings ratio of eight times, which is at a discount to our sector PER of 12 times for mid-cap property stocks. This is to factor in the concentrated risks in relation to its sole exposure to the property development in Johor.
We arrive at a new target price of RM2.46 (from RM1.81 previously). We continue to like Crescendo as it is one of the key beneficiaries of the government's 'My First Home Scheme' as its residential properties in Johor are generally priced at RM200,000 per unit. Given the potential upside of 60%, we reiterate our 'buy' recommendation on Crescendo. ' TA Securities Research, June 28
This article appeared in The Edge Financial Daily, June 29, 2011.
APM Automotive potential beneficiary of 'Nissan 88'
Stock Name: APM
Company Name: APM AUTOMOTIVE HOLDINGS BHD
APM Automotive Holdings Bhd
(June 29, RM4.78)
Maintain buy at RM4.79 with fair value of RM6.60: We re-affirm our 'buy' rating on APM Automotive with an unchanged fair value of RM6.60, following Nissan's announcement of its mid-term business plan. Our valuation continues to peg APM at an ex-cash FY11F price-earnings ratio of seven times.
Nissan recently announced a mid-term business plan, called 'Nissan 88', for 2011 to 2016. The plan focuses on Nissan: (i) achieving an 8% global market share and an 8% operating margin by 2016; (ii) delivering on average an all-new vehicle every six weeks for six years.
Nissan's global portfolio will have 66 vehicles covering 92% of all markets and segments; and (iii) dedicated new cars and light commercial vehicles for the entry-level segments and emerging markets.
We gather that under Nissan 88, the Asean Five ' Indonesia, Thailand, Malaysia, Vietnam and the Philippines ' are expected to add half-a-million new vehicles by 2016, a near tripling of Nissan's sales in Asean last year.
We see APM as a potential beneficiary of Nissan's aggressive expansion plans (in terms of new models and market share expansion) by virtue of parts supply to Nissan and having established presence in Malaysia, Indonesia, Vietnam and possibly Thailand in the near term. In Indonesia, APM is a Tier-1 supplier to Nissan Motor Indonesia via its 30% stake in the PT Armada-Johnson'APM consortium. In Vietnam, APM should commence supplies to Nissan by 4Q12.
The target by Nissan to achieve an 8% operating margin in particular should involve deepening local contents of its cars. Ironically, Nissan's mid-term plan sets ambitious targets for almost every major global market, except Japan.
Nissan indicated that it would remain committed to a domestic production of'' one million vehicles a year, but increases in output and sales would come from elsewhere outside Japan and Europe.
APM remains our top pick in the auto sector. The company trades at a 30% discount to the sector while net cash accounts for a third of market cap, with a potential dividend step-up to 40 sen per share from 2011F/13F by virtue of: (i) expiring tax credit of RM90 million in 2013; (ii) idle cash hoard of RM347 million which drags on return on equity.
We like APM for the structural elevation in its earnings prospects stemming from: (i) regional expansion into Thailand where vehicle production is three times the size of Malaysia's and Ford as a potential major customer, which owns the second largest plant in Thailand with a capacity of 450,000 units per year by 2012 ' three-quarters the size of Malaysia's total industry volume; (ii) deepening localisation which means a step-up in revenue per car set from new model launches.
The new Myvi, for example, has resulted in 20% to 100% increases in revenue per car set for parts suppliers; (iii) influx of local assembly by foreign marques like Peugeot and VW which means customer base expansion for parts players. ' AmResearch, June 29
This article appeared in The Edge Financial Daily, June 30, 2011.
Company Name: APM AUTOMOTIVE HOLDINGS BHD
| Research House: AMMB | Price Call: BUY | Target Price: 6.60 |
APM Automotive Holdings Bhd
(June 29, RM4.78)
Maintain buy at RM4.79 with fair value of RM6.60: We re-affirm our 'buy' rating on APM Automotive with an unchanged fair value of RM6.60, following Nissan's announcement of its mid-term business plan. Our valuation continues to peg APM at an ex-cash FY11F price-earnings ratio of seven times.
Nissan recently announced a mid-term business plan, called 'Nissan 88', for 2011 to 2016. The plan focuses on Nissan: (i) achieving an 8% global market share and an 8% operating margin by 2016; (ii) delivering on average an all-new vehicle every six weeks for six years.
Nissan's global portfolio will have 66 vehicles covering 92% of all markets and segments; and (iii) dedicated new cars and light commercial vehicles for the entry-level segments and emerging markets.
We gather that under Nissan 88, the Asean Five ' Indonesia, Thailand, Malaysia, Vietnam and the Philippines ' are expected to add half-a-million new vehicles by 2016, a near tripling of Nissan's sales in Asean last year.
We see APM as a potential beneficiary of Nissan's aggressive expansion plans (in terms of new models and market share expansion) by virtue of parts supply to Nissan and having established presence in Malaysia, Indonesia, Vietnam and possibly Thailand in the near term. In Indonesia, APM is a Tier-1 supplier to Nissan Motor Indonesia via its 30% stake in the PT Armada-Johnson'APM consortium. In Vietnam, APM should commence supplies to Nissan by 4Q12.
The target by Nissan to achieve an 8% operating margin in particular should involve deepening local contents of its cars. Ironically, Nissan's mid-term plan sets ambitious targets for almost every major global market, except Japan.
Nissan indicated that it would remain committed to a domestic production of'' one million vehicles a year, but increases in output and sales would come from elsewhere outside Japan and Europe.
APM remains our top pick in the auto sector. The company trades at a 30% discount to the sector while net cash accounts for a third of market cap, with a potential dividend step-up to 40 sen per share from 2011F/13F by virtue of: (i) expiring tax credit of RM90 million in 2013; (ii) idle cash hoard of RM347 million which drags on return on equity.
We like APM for the structural elevation in its earnings prospects stemming from: (i) regional expansion into Thailand where vehicle production is three times the size of Malaysia's and Ford as a potential major customer, which owns the second largest plant in Thailand with a capacity of 450,000 units per year by 2012 ' three-quarters the size of Malaysia's total industry volume; (ii) deepening localisation which means a step-up in revenue per car set from new model launches.
The new Myvi, for example, has resulted in 20% to 100% increases in revenue per car set for parts suppliers; (iii) influx of local assembly by foreign marques like Peugeot and VW which means customer base expansion for parts players. ' AmResearch, June 29
This article appeared in The Edge Financial Daily, June 30, 2011.
June 28, 2011
Construction: More bang for the buck in small caps
Stock Name: TRC
Company Name: TRC SYNERGY BHD
Construction sector
Maintain neutral: Over the immediate term, we expect construction stocks in general to perform only in line with the broader market due to 'news-flow fatigue'. We believe the market wants to see more substantive progress on the MRT project, not merely 'symbolic' moves such as the July 8 groundbreaking ceremony.
However, we believe there is still money to be made from small-cap construction stocks as it has become increasingly clear that: (i) smaller contractors can beat larger players in the battle for key packages of large-scale projects; (ii) they stand much better chances in winning new contracts thanks to their lean setup; and (iii) their attractive valuations vis-''-vis those of the larger players.
The lean setup of smaller players allows them to profitably execute: (i) certain smaller public jobs (worth RM50 million to RM100 million) that large players normally shy away from due to the lack of economies of scale to them; and (ii) sub-contracts of key large-scale projects. Given the massive scale of some of the proposed public infrastructure projects, particularly, the LRT line extension and MRT, we expect the local construction market to be awash with small sub-contracts.
We are raising our indicative fair values for Fajarbaru Builder Group Bhd, Gamuda Bhd, Hock Sin Leong Group Bhd (HSLG), TRC Synergy Bhd (TRCS) and WCT Bhd by 2% to 17%, while trimming those of IJM Corp Bhd and Malaysian Resources Corp Bhd (MRCB) by 2% to 3%, having rolled forward the base year for valuation purposes from 2011 to 2012. We make no changes to our stock recommendations ' 'outperform' for Fajarbaru, HSLG and TRCS; 'trading buy' for MRCB; 'market perform' for Gamuda; and 'underperform' for IJM and WCT.
Risks include: (i) the government reverting to an austerity drive to rein in the budget deficit; (ii) potential hiccups in the rollout of public projects; and (iii) the less-than-robust overseas construction markets, particularly, the Gulf states.
We are neutral on the construction sector, but bullish on small caps. We see a bright spot in small-cap builders due to: (i) their ability to win key work packages of large-scale projects; (ii) their better chances of winning smaller contracts and subcontracts of large-scale projects; and (iii) their attractive valuations. Our top small-cap picks for the construction sector are Fajarbaru (fair value: RM1.80) and TRCS (FV: RM2.26). ' RHB Research, June 28
This article appeared in The Edge Financial Daily, June 29, 2011.
Company Name: TRC SYNERGY BHD
| Research House: RHB | Price Call: BUY | Target Price: 2.26 |
Construction sector
Maintain neutral: Over the immediate term, we expect construction stocks in general to perform only in line with the broader market due to 'news-flow fatigue'. We believe the market wants to see more substantive progress on the MRT project, not merely 'symbolic' moves such as the July 8 groundbreaking ceremony.
However, we believe there is still money to be made from small-cap construction stocks as it has become increasingly clear that: (i) smaller contractors can beat larger players in the battle for key packages of large-scale projects; (ii) they stand much better chances in winning new contracts thanks to their lean setup; and (iii) their attractive valuations vis-''-vis those of the larger players.
The lean setup of smaller players allows them to profitably execute: (i) certain smaller public jobs (worth RM50 million to RM100 million) that large players normally shy away from due to the lack of economies of scale to them; and (ii) sub-contracts of key large-scale projects. Given the massive scale of some of the proposed public infrastructure projects, particularly, the LRT line extension and MRT, we expect the local construction market to be awash with small sub-contracts.
We are raising our indicative fair values for Fajarbaru Builder Group Bhd, Gamuda Bhd, Hock Sin Leong Group Bhd (HSLG), TRC Synergy Bhd (TRCS) and WCT Bhd by 2% to 17%, while trimming those of IJM Corp Bhd and Malaysian Resources Corp Bhd (MRCB) by 2% to 3%, having rolled forward the base year for valuation purposes from 2011 to 2012. We make no changes to our stock recommendations ' 'outperform' for Fajarbaru, HSLG and TRCS; 'trading buy' for MRCB; 'market perform' for Gamuda; and 'underperform' for IJM and WCT.
Risks include: (i) the government reverting to an austerity drive to rein in the budget deficit; (ii) potential hiccups in the rollout of public projects; and (iii) the less-than-robust overseas construction markets, particularly, the Gulf states.
We are neutral on the construction sector, but bullish on small caps. We see a bright spot in small-cap builders due to: (i) their ability to win key work packages of large-scale projects; (ii) their better chances of winning smaller contracts and subcontracts of large-scale projects; and (iii) their attractive valuations. Our top small-cap picks for the construction sector are Fajarbaru (fair value: RM1.80) and TRCS (FV: RM2.26). ' RHB Research, June 28
This article appeared in The Edge Financial Daily, June 29, 2011.
Construction: More bang for the buck in small caps
Stock Name: FAJAR
Company Name: FAJARBARU BUILDER GRP BHD
Construction sector
Maintain neutral: Over the immediate term, we expect construction stocks in general to perform only in line with the broader market due to 'news-flow fatigue'. We believe the market wants to see more substantive progress on the MRT project, not merely 'symbolic' moves such as the July 8 groundbreaking ceremony.
However, we believe there is still money to be made from small-cap construction stocks as it has become increasingly clear that: (i) smaller contractors can beat larger players in the battle for key packages of large-scale projects; (ii) they stand much better chances in winning new contracts thanks to their lean setup; and (iii) their attractive valuations vis-''-vis those of the larger players.
The lean setup of smaller players allows them to profitably execute: (i) certain smaller public jobs (worth RM50 million to RM100 million) that large players normally shy away from due to the lack of economies of scale to them; and (ii) sub-contracts of key large-scale projects. Given the massive scale of some of the proposed public infrastructure projects, particularly, the LRT line extension and MRT, we expect the local construction market to be awash with small sub-contracts.
We are raising our indicative fair values for Fajarbaru Builder Group Bhd, Gamuda Bhd, Hock Sin Leong Group Bhd (HSLG), TRC Synergy Bhd (TRCS) and WCT Bhd by 2% to 17%, while trimming those of IJM Corp Bhd and Malaysian Resources Corp Bhd (MRCB) by 2% to 3%, having rolled forward the base year for valuation purposes from 2011 to 2012. We make no changes to our stock recommendations ' 'outperform' for Fajarbaru, HSLG and TRCS; 'trading buy' for MRCB; 'market perform' for Gamuda; and 'underperform' for IJM and WCT.
Risks include: (i) the government reverting to an austerity drive to rein in the budget deficit; (ii) potential hiccups in the rollout of public projects; and (iii) the less-than-robust overseas construction markets, particularly, the Gulf states.
We are neutral on the construction sector, but bullish on small caps. We see a bright spot in small-cap builders due to: (i) their ability to win key work packages of large-scale projects; (ii) their better chances of winning smaller contracts and subcontracts of large-scale projects; and (iii) their attractive valuations. Our top small-cap picks for the construction sector are Fajarbaru (fair value: RM1.80) and TRCS (FV: RM2.26). ' RHB Research, June 28
This article appeared in The Edge Financial Daily, June 29, 2011.
Company Name: FAJARBARU BUILDER GRP BHD
| Research House: RHB | Price Call: BUY | Target Price: 1.80 |
Construction sector
Maintain neutral: Over the immediate term, we expect construction stocks in general to perform only in line with the broader market due to 'news-flow fatigue'. We believe the market wants to see more substantive progress on the MRT project, not merely 'symbolic' moves such as the July 8 groundbreaking ceremony.
However, we believe there is still money to be made from small-cap construction stocks as it has become increasingly clear that: (i) smaller contractors can beat larger players in the battle for key packages of large-scale projects; (ii) they stand much better chances in winning new contracts thanks to their lean setup; and (iii) their attractive valuations vis-''-vis those of the larger players.
The lean setup of smaller players allows them to profitably execute: (i) certain smaller public jobs (worth RM50 million to RM100 million) that large players normally shy away from due to the lack of economies of scale to them; and (ii) sub-contracts of key large-scale projects. Given the massive scale of some of the proposed public infrastructure projects, particularly, the LRT line extension and MRT, we expect the local construction market to be awash with small sub-contracts.
We are raising our indicative fair values for Fajarbaru Builder Group Bhd, Gamuda Bhd, Hock Sin Leong Group Bhd (HSLG), TRC Synergy Bhd (TRCS) and WCT Bhd by 2% to 17%, while trimming those of IJM Corp Bhd and Malaysian Resources Corp Bhd (MRCB) by 2% to 3%, having rolled forward the base year for valuation purposes from 2011 to 2012. We make no changes to our stock recommendations ' 'outperform' for Fajarbaru, HSLG and TRCS; 'trading buy' for MRCB; 'market perform' for Gamuda; and 'underperform' for IJM and WCT.
Risks include: (i) the government reverting to an austerity drive to rein in the budget deficit; (ii) potential hiccups in the rollout of public projects; and (iii) the less-than-robust overseas construction markets, particularly, the Gulf states.
We are neutral on the construction sector, but bullish on small caps. We see a bright spot in small-cap builders due to: (i) their ability to win key work packages of large-scale projects; (ii) their better chances of winning smaller contracts and subcontracts of large-scale projects; and (iii) their attractive valuations. Our top small-cap picks for the construction sector are Fajarbaru (fair value: RM1.80) and TRCS (FV: RM2.26). ' RHB Research, June 28
This article appeared in The Edge Financial Daily, June 29, 2011.
Transformation underway at Kinsteel
Kinsteel Bhd
(June 28, 69 sen)
Maintain hold at 68.5 sen with revised target price of 65 sen (from 77 sen): Kinsteel's share price has been battered (-21% year-to-date) on its bleeding results (RM4 million 1QFY11 net loss). Though we think its venture into mining could be positive in the long term, near-term earnings are unlikely to turn around sharply. We cut our 2011 earnings per share (EPS) forecast by 83% and 2012/13 by 16% to 24%, on higher iron ore cost assumption from imports over the medium term. Subsequently, our target price is reduced by 16% to 65 sen (on unchanged eight times 2012 price-earnings ratio target).
Kinsteel has just kickstarted the construction of its 1.15-million tonne concentration plant and the 1.2-million tonne pelletising plant, with target completion dates set for 1Q12 and 4Q12 respectively. The new plants will enable Kinsteel to utilise local iron ore to produce iron ore pellet (instead of imported). The company is in the process of acquiring a mine in Bukit Besi, Terengganu, which has a potential iron ore reserve of 200 million tonnes (meeting more than 70 years of Kinsteel's internal requirements) and is also finalising a 1.4-million tonne iron ore supply from a mine in Bukit Ibam, Pahang.
We believe the new plants are transformative for the company as Kinsteel will be the lowest-cost long steel manufacturer in Malaysia. The total cost incurred from mining to processing into iron ore pellet is around US$100 (RM305) per tonne (against imported iron ore pellet: US$240 per tonne). Additionally, Kinsteel will no longer be susceptible to the price volatility in the tight iron ore market. Assuming Kinsteel continues to run its direct reduced iron (DRI) plant at the current 50% utilisation rate, we estimate that it will see massive cost savings of RM570 million annually (against our 2012 net profit estimate of RM84 million).
Even with the bi-annual gas tariff hike, the accumulated incremental cost (from now until 2015) of RM241 million (on 50% DRI utilisation level) can still be covered with the above-mentioned cost savings.
While we are positive on Kinsteel's venture into mining, we think it is too early to impute the cost savings into our model. We think the risk lies in execution, especially since the pelletising plant will be the first in Southeast Asia. We cut our 2011 EPS by 83% and 2012/13 by 16% to 24%, on higher iron ore cost assumption from imports which will continue over the medium term. ' Maybank IB Research, June 28
This article appeared in The Edge Financial Daily, June 29, 2011.
Better margins, cleanroom products to drive Kossan's earnings
Stock Name: KOSSAN
Company Name: KOSSAN RUBBER INDUSTRIES BHD
Kossan Rubber Industries Bhd
(June 28, RM3.14)
Maintain hold at RM3.14 with revised fair value RM3.71: We are maintaining our 'hold' rating on Kossan with a lower fair value of RM3.71, post a downward earnings adjustment and the rolling forward of our valuation base year from FY11F to FY12F. We continue to peg our valuation to a price-earnings ratio of 10 times FY12F earnings ' at a 30% discount to its 10-year mean.
Following a recent company visit, we have trimmed our FY11F/13F earnings per share by -7% to -9% after incorporating lower margin assumptions due to further normalisation in margins (1QFY11: -1 percentage point quarter-on-quarter [q-o-q]). We now forecast an earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 16% for FY11F, against 18% previously.
We understand the upcoming 2QFY11F earnings will likely be flattish on a q-o-q basis. We observe the earnings underperformance mimics the trend seen in the recent results of peers, underpinning our longstanding view that it is too premature to turn constructive on the sector at this juncture.
While management has attributed it largely to continued lacklustre demand for rubber gloves on minimal inventory holding by customers amid elevated latex prices, our channel checks reveal price undercutting has been rife within the basic natural rubber (NR) gloves segment. However, the impact on Kossan's earnings has been relatively subdued, owing mainly to its more balanced product portfolio mix of 60:40 in nitrile:latex gloves.
The group's earnings growth will continue to be primarily centred on better-margin glove variants as underpinned by its high utilisation rate of circa 90%.
We expect earnings contribution from 51%-owned Cleanera HK Ltd to rise from 10% to approximately 14% to 15% of group earnings on the back of increased capacity. Recall, Cleanera is principally involved in the manufacturing of cleanroom products such as masks, wipes and gloves.
The group has recently completed its US$3.06 million (RM9.3 million) acquisition of Cleanera and management remains confident of achieving a payback of 1.5 years. We expect a more aggressive marketing campaign to result in an increased market share for cleanroom products in China going forward.
Potential stock re-rating catalysts include: (i) a meaningful easing of the latex price; (ii) better-than-expected 2Q results. ' AmResearch, June 28
This article appeared in The Edge Financial Daily, June 29, 2011.
Company Name: KOSSAN RUBBER INDUSTRIES BHD
| Research House: AMMB | Price Call: HOLD | Target Price: 3.71 |
Kossan Rubber Industries Bhd
(June 28, RM3.14)
Maintain hold at RM3.14 with revised fair value RM3.71: We are maintaining our 'hold' rating on Kossan with a lower fair value of RM3.71, post a downward earnings adjustment and the rolling forward of our valuation base year from FY11F to FY12F. We continue to peg our valuation to a price-earnings ratio of 10 times FY12F earnings ' at a 30% discount to its 10-year mean.
Following a recent company visit, we have trimmed our FY11F/13F earnings per share by -7% to -9% after incorporating lower margin assumptions due to further normalisation in margins (1QFY11: -1 percentage point quarter-on-quarter [q-o-q]). We now forecast an earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 16% for FY11F, against 18% previously.
We understand the upcoming 2QFY11F earnings will likely be flattish on a q-o-q basis. We observe the earnings underperformance mimics the trend seen in the recent results of peers, underpinning our longstanding view that it is too premature to turn constructive on the sector at this juncture.
While management has attributed it largely to continued lacklustre demand for rubber gloves on minimal inventory holding by customers amid elevated latex prices, our channel checks reveal price undercutting has been rife within the basic natural rubber (NR) gloves segment. However, the impact on Kossan's earnings has been relatively subdued, owing mainly to its more balanced product portfolio mix of 60:40 in nitrile:latex gloves.
The group's earnings growth will continue to be primarily centred on better-margin glove variants as underpinned by its high utilisation rate of circa 90%.
We expect earnings contribution from 51%-owned Cleanera HK Ltd to rise from 10% to approximately 14% to 15% of group earnings on the back of increased capacity. Recall, Cleanera is principally involved in the manufacturing of cleanroom products such as masks, wipes and gloves.
The group has recently completed its US$3.06 million (RM9.3 million) acquisition of Cleanera and management remains confident of achieving a payback of 1.5 years. We expect a more aggressive marketing campaign to result in an increased market share for cleanroom products in China going forward.
Potential stock re-rating catalysts include: (i) a meaningful easing of the latex price; (ii) better-than-expected 2Q results. ' AmResearch, June 28
This article appeared in The Edge Financial Daily, June 29, 2011.
HL Bank flat at midday, upside priced in
Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
KUALA LUMPUR: Shares of HONG LEONG BANK BHD [] were unchanged at RM12.90 at midday on Tuesday, June 28 as analysts viewed the upside had already been priced in.
There were 40,700 shares transacted at prices ranging from RM12.90 to RM12.92.
UOB Kay Hian Malaysia research said it downgraded Hong Leong Bank to HOLD from BUY as the earnings synergies from the merger and the strong performance from its China associate were already in the share price.
'Current share price of RM12.90 is close to our target price of RM13.70 (based on 2.2 times FY13F price-to-book) with an upside of only 6.2%.
'Its share price has risen 40.2% year-to-date (YTD), making it the second-best performing banking stock after its holding company Hong Leong Financial Group (+46.6% year-to-date), and outperforming the market (FBM KLCI +2.9% YTD).
UPB Kay Hian said the strong share price performance was attributable to its low foreign shareholding (around 7.9% as at April 2011) and being under-owned by most of the local funds.
It said Hong Leong Bank was on track to deliver a three-year net profit compounded annual growth rate of 24.6% to RM1.9 billion by FY13 (FY10: RM988 million).
''
Company Name: HONG LEONG BANK BHD
| Research House: UOB | Price Call: HOLD | Target Price: 13.70 |
KUALA LUMPUR: Shares of HONG LEONG BANK BHD [] were unchanged at RM12.90 at midday on Tuesday, June 28 as analysts viewed the upside had already been priced in.
There were 40,700 shares transacted at prices ranging from RM12.90 to RM12.92.
UOB Kay Hian Malaysia research said it downgraded Hong Leong Bank to HOLD from BUY as the earnings synergies from the merger and the strong performance from its China associate were already in the share price.
'Current share price of RM12.90 is close to our target price of RM13.70 (based on 2.2 times FY13F price-to-book) with an upside of only 6.2%.
'Its share price has risen 40.2% year-to-date (YTD), making it the second-best performing banking stock after its holding company Hong Leong Financial Group (+46.6% year-to-date), and outperforming the market (FBM KLCI +2.9% YTD).
UPB Kay Hian said the strong share price performance was attributable to its low foreign shareholding (around 7.9% as at April 2011) and being under-owned by most of the local funds.
It said Hong Leong Bank was on track to deliver a three-year net profit compounded annual growth rate of 24.6% to RM1.9 billion by FY13 (FY10: RM988 million).
''
UEM Land active, up on overseeing Singapore projects
Stock Name: UEMLAND
Company Name: UEM LAND HOLDINGS BHD
KUALA LUMPUR: UEM Land Bhd shares were actively traded on Tuesday, June 28 after the company was appointed to jointly oversee the marketing and development of projects in Singapore and Malaysia.
At 9.40am, UEM Land rose six sen to RM2.88 with 2.88 million shares traded.
RHB Research has upgraded UEM Land to a trading buy and raised its target price for the stock to RM3.35 from RM2.80.
Khazanah Nasional Bhd and Singapore's Temasek Holdings Ltd last night announced the establishment of two JV companies to undertake development of land parcels in Malaysia and Singapore.
Khazanah and Temasek have incorporated a company called M+S Pte Ltd on a 60:40 basis to undertake development of the land in Singapore.
M+S will develop four land parcels in Singapore's financial district in Marina South and two in Ophir-Rochor. All the projects are envisaged as integrated developments.
UEM Land and a wholly-owned subsidiary of Mapletree Investments Pte Ltd, a unit of Temasek, have been appointed to oversee the marketing and development of the project in Marina South.
For the Ophir-Rochor site, UEM Land and a wholly-owned unit of CapitaLand Ltd, another Temasek portfolio company, have been appointed to oversee the project
Company Name: UEM LAND HOLDINGS BHD
| Research House: RHB | Price Call: TRADING BUY | Target Price: 3.35 |
KUALA LUMPUR: UEM Land Bhd shares were actively traded on Tuesday, June 28 after the company was appointed to jointly oversee the marketing and development of projects in Singapore and Malaysia.
At 9.40am, UEM Land rose six sen to RM2.88 with 2.88 million shares traded.
RHB Research has upgraded UEM Land to a trading buy and raised its target price for the stock to RM3.35 from RM2.80.
Khazanah Nasional Bhd and Singapore's Temasek Holdings Ltd last night announced the establishment of two JV companies to undertake development of land parcels in Malaysia and Singapore.
Khazanah and Temasek have incorporated a company called M+S Pte Ltd on a 60:40 basis to undertake development of the land in Singapore.
M+S will develop four land parcels in Singapore's financial district in Marina South and two in Ophir-Rochor. All the projects are envisaged as integrated developments.
UEM Land and a wholly-owned subsidiary of Mapletree Investments Pte Ltd, a unit of Temasek, have been appointed to oversee the marketing and development of the project in Marina South.
For the Ophir-Rochor site, UEM Land and a wholly-owned unit of CapitaLand Ltd, another Temasek portfolio company, have been appointed to oversee the project
TSH advances in early trade
KUALA LUMPUR: TSH RESOURCES BHD [] shares edged up in early trade on Tuesday, June 28 after Maybank IB Research initiated coverage on the stock with a Buy call and RM3.84 target price based on 15 times 2012 EPS.
At 9.30am, TSH added two sen to RM3.04 with 6,000 shares traded.
Maybank IB Research said on June 28 that the 15x PER target reflects TSH's young tree profile of just 6.6 years average, offering a strong 20% 3-year forward FFB output CAGR, which is the highest among Malaysian PLANTATION [] players under its coverage.
'Trading at 12.6x 2011 PER, PEG of 0.79, and EV/planted hectare of circa RM49,000, the market has under-appreciated this stock.
'Upside catalysts will emanate from higher-than-expected FFB output, and CPO price,' it said.
1QFY12 Earnings Boosted By Margin Expansion
Stock Name: CRESNDO
Company Name: CRESCENDO CORPORATION BHD
Company Name: CRESCENDO CORPORATION BHD
| Research House: TA | Price Call: BUY | Target Price: 2.46 |
IRIS Corporation Berhad: Plans Private Placement
Stock Name: IRIS
Company Name: IRIS CORPORATION BHD
Company Name: IRIS CORPORATION BHD
| Research House: TA | Price Call: BUY | Target Price: 0.23 |
Results - Berjaya Land 4QFY11 below - Realty check
Stock Name: BJLAND
Company Name: BERJAYA LAND BHD
Company Name: BERJAYA LAND BHD
| Research House: CIMB | Price Call: SELL | Target Price: 1.11 |
Maybank IB Research has Buy on TSH, TP RM3.48
Stock Name: TSH
Company Name: TSH RESOURCES BHD
KUALA LUMPUR: Maybank Investment Bank Research (Maybank IB Research) has initiated coverage on TSH Resources with a Buy call and RM3.84 target price based on 15 times FY12 earnings per share.
'The 15x PER target reflects TSH's young tree profile of just 6.6 years average, offering a strong 20% three-year forward fresh fruit bunches (FFB) output compounded annual growth rate (CAGR), which is the highest among Malaysian PLANTATION [] players under our coverage,' it said.
Maybank IB Research said the market has under-appreciated TSH. It is trading at 12.6 times 2011 price-to-earnings ratio and price earnings growth of 0.79 times, and enterprise value/planted hectare of RM49,000.
Upside catalysts will emanate from higher-than-expected FFB output, and CPO price, said the research house.
Company Name: TSH RESOURCES BHD
| Research House: MAYBANK | Price Call: BUY | Target Price: 3.84 |
KUALA LUMPUR: Maybank Investment Bank Research (Maybank IB Research) has initiated coverage on TSH Resources with a Buy call and RM3.84 target price based on 15 times FY12 earnings per share.
'The 15x PER target reflects TSH's young tree profile of just 6.6 years average, offering a strong 20% three-year forward fresh fruit bunches (FFB) output compounded annual growth rate (CAGR), which is the highest among Malaysian PLANTATION [] players under our coverage,' it said.
Maybank IB Research said the market has under-appreciated TSH. It is trading at 12.6 times 2011 price-to-earnings ratio and price earnings growth of 0.79 times, and enterprise value/planted hectare of RM49,000.
Upside catalysts will emanate from higher-than-expected FFB output, and CPO price, said the research house.
June 27, 2011
Tan Chong: The stars are aligned
Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Tan Chong Motor Holdings Bhd
(June 27, RM4.69)
Upgrade to outperform at RM4.68 with revised fair value RM6.15 (from RM4.90): Recent reports indicate that vehicle and component production in Japan has begun to normalise sooner than expected. Domestic assemblers of Japanese marques have already announced plans to resume normal production levels that should be achieved by August at the latest.
Tan Chong is scheduled to launch a B segment model in September 2012 that we believe will be a game changer for the company. Nissan does not currently have a competitive offering in the segment to compete with Toyota's Vios and Honda's City. The vehicle is believed to be similar to the all-new sedan model that was originally unveiled in December 2010 at the 8th China International Automobile Exhibition in Guanzhou and marketed as the Nissan Sunny in China.
The new Vanette is also scheduled for launch by end-2011 that could make a significant contribution to volumes. The previous model saw sales of 4,859 units in 2009 and 6,822 units at its recent peak in 2006. Tan Chong is also expected to achieve greater sales traction in Indochina markets where there could be upside from our conservative estimates.
The macro environment going into 2012 is looking favourable for consumer discretionary spending. RHB Research Institute's economics team is forecasting GDP growth to accelerate to 5.5% in 2012 from 5% in 2011, while consumption spending will also pick up pace to +6.5% next year from +5.8% in 2011 on the back of rising incomes and consumer confidence. Interest rates are also expected to remain relatively benign while financing remains easily available.
Key risks include: (i) lower car sales; (ii) unfavourable forex trends; (iii) higher interest rates; and (iv) prolonged supply chain disruption.
Our forecasts remain unchanged but we are upgrading our call on Tan Chong to 'outperform' (from 'market perform'). In our opinion, Tan Chong has a compelling growth story, with earnings at an inflection point. Valuations are undemanding with prospective FY12 price-earnings ratio (PER) at eight times relative to 2010/13 net profit compound annual growth rate of 29.2%. Our fair value for the stock is RM6.15 (from RM4.90) derived from applying a 10.5 times PER (unchanged) to FY12 earnings per share (rolled over from FY11). Overhanging negative sentiment on the sector should diminish as production and sales data normalise in the months ahead and helped by the market shifting its focus to prospects in 2012. ' RHB Research, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
Company Name: TAN CHONG MOTOR HOLDINGS BHD
| Research House: RHB | Price Call: BUY | Target Price: 6.15 |
Tan Chong Motor Holdings Bhd
(June 27, RM4.69)
Upgrade to outperform at RM4.68 with revised fair value RM6.15 (from RM4.90): Recent reports indicate that vehicle and component production in Japan has begun to normalise sooner than expected. Domestic assemblers of Japanese marques have already announced plans to resume normal production levels that should be achieved by August at the latest.
Tan Chong is scheduled to launch a B segment model in September 2012 that we believe will be a game changer for the company. Nissan does not currently have a competitive offering in the segment to compete with Toyota's Vios and Honda's City. The vehicle is believed to be similar to the all-new sedan model that was originally unveiled in December 2010 at the 8th China International Automobile Exhibition in Guanzhou and marketed as the Nissan Sunny in China.
The new Vanette is also scheduled for launch by end-2011 that could make a significant contribution to volumes. The previous model saw sales of 4,859 units in 2009 and 6,822 units at its recent peak in 2006. Tan Chong is also expected to achieve greater sales traction in Indochina markets where there could be upside from our conservative estimates.
The macro environment going into 2012 is looking favourable for consumer discretionary spending. RHB Research Institute's economics team is forecasting GDP growth to accelerate to 5.5% in 2012 from 5% in 2011, while consumption spending will also pick up pace to +6.5% next year from +5.8% in 2011 on the back of rising incomes and consumer confidence. Interest rates are also expected to remain relatively benign while financing remains easily available.
Key risks include: (i) lower car sales; (ii) unfavourable forex trends; (iii) higher interest rates; and (iv) prolonged supply chain disruption.
Our forecasts remain unchanged but we are upgrading our call on Tan Chong to 'outperform' (from 'market perform'). In our opinion, Tan Chong has a compelling growth story, with earnings at an inflection point. Valuations are undemanding with prospective FY12 price-earnings ratio (PER) at eight times relative to 2010/13 net profit compound annual growth rate of 29.2%. Our fair value for the stock is RM6.15 (from RM4.90) derived from applying a 10.5 times PER (unchanged) to FY12 earnings per share (rolled over from FY11). Overhanging negative sentiment on the sector should diminish as production and sales data normalise in the months ahead and helped by the market shifting its focus to prospects in 2012. ' RHB Research, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
NTPM: Pulp prices stubbornly high
Stock Name: NTPM
Company Name: NTPM HOLDINGS BHD
NTPM Holdings Bhd
(June 27, 53 sen)
Maintain neutral at 53.5 sen with revised target price 53 sen (from 52 sen): NTPM's FY11 results were within our full-year net profit forecast of RM50.5 million. Revenue grew 9.7% year-on-year to RM420.2 million while net profit dropped 12.2% y-o-y to RM52.1 million. The stronger results were mainly driven by higher selling prices and partially by higher sales of tissue products (+6.3% y-o-y). While its personal care products still account for only 18.5% of full-year sales, this segment recorded a strong 27.3% sales growth y-o-y, bolstered by higher sales as NTPM offers competitive pricing to capture market share. Geographically, local sales jumped by 9.7% while overseas revenue, mainly driven by Singapore sales, grew by 9.5% y-o-y.
FY11 earnings before interest and tax (Ebit) margin came in at 16.5% against 20% in FY10 against a backdrop of higher pulp prices ( about +35% y-o-y), and the use of 100% pure pulp instead of a mix of recycled and pure pulp for NTPM's pocket and facial tissue.
NTPM's tissue product manufacturing utilisation rate is about 80% currently. To further boost sales of its tissue products, the main driver of group revenue, we think that NTPM would need to ramp up the number of manufacturing lines, or even consider acquiring another tissue manufacturer, to defend its lion's share of the tissue market of more than 60% in Malaysia. Although its personal care products are gaining market share, we understand that competition in this segment is intense while its overseas sales are still small.
Although the results are in line, we cut our FY12 earnings forecast by 15.8% to RM49.6 million on sticky high pulp prices and higher utility costs as electricity rates for industrial use have increased by an average 8.35% since June 2011. Our fair value, however, is moved up to 53 sen, which pegs NTPM at a higher price-earnings ratio of 12 times (10 times previously). This is because we think that given its dominant 60% share of the local tissue market and decent dividend yield of more than 5%, NTPM deserves a higher valuation. Despite lower profit, the company declared a total single-tier dividend per share of 2.9 sen, more than a 60% payout ratio. ' OSK Research, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
Company Name: NTPM HOLDINGS BHD
| Research House: OSK | Price Call: HOLD | Target Price: 0.53 |
NTPM Holdings Bhd
(June 27, 53 sen)
Maintain neutral at 53.5 sen with revised target price 53 sen (from 52 sen): NTPM's FY11 results were within our full-year net profit forecast of RM50.5 million. Revenue grew 9.7% year-on-year to RM420.2 million while net profit dropped 12.2% y-o-y to RM52.1 million. The stronger results were mainly driven by higher selling prices and partially by higher sales of tissue products (+6.3% y-o-y). While its personal care products still account for only 18.5% of full-year sales, this segment recorded a strong 27.3% sales growth y-o-y, bolstered by higher sales as NTPM offers competitive pricing to capture market share. Geographically, local sales jumped by 9.7% while overseas revenue, mainly driven by Singapore sales, grew by 9.5% y-o-y.
FY11 earnings before interest and tax (Ebit) margin came in at 16.5% against 20% in FY10 against a backdrop of higher pulp prices ( about +35% y-o-y), and the use of 100% pure pulp instead of a mix of recycled and pure pulp for NTPM's pocket and facial tissue.
NTPM's tissue product manufacturing utilisation rate is about 80% currently. To further boost sales of its tissue products, the main driver of group revenue, we think that NTPM would need to ramp up the number of manufacturing lines, or even consider acquiring another tissue manufacturer, to defend its lion's share of the tissue market of more than 60% in Malaysia. Although its personal care products are gaining market share, we understand that competition in this segment is intense while its overseas sales are still small.
Although the results are in line, we cut our FY12 earnings forecast by 15.8% to RM49.6 million on sticky high pulp prices and higher utility costs as electricity rates for industrial use have increased by an average 8.35% since June 2011. Our fair value, however, is moved up to 53 sen, which pegs NTPM at a higher price-earnings ratio of 12 times (10 times previously). This is because we think that given its dominant 60% share of the local tissue market and decent dividend yield of more than 5%, NTPM deserves a higher valuation. Despite lower profit, the company declared a total single-tier dividend per share of 2.9 sen, more than a 60% payout ratio. ' OSK Research, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
NTPM: Pulp prices stubbornly high
NTPM Holdings Bhd
(June 27, 53 sen)
Maintain neutral at 53.5 sen with revised target price 53 sen (from 52 sen): NTPM's FY11 results were within our full-year net profit forecast of RM50.5 million. Revenue grew 9.7% year-on-year to RM420.2 million while net profit dropped 12.2% y-o-y to RM52.1 million. The stronger results were mainly driven by higher selling prices and partially by higher sales of tissue products (+6.3% y-o-y). While its personal care products still account for only 18.5% of full-year sales, this segment recorded a strong 27.3% sales growth y-o-y, bolstered by higher sales as NTPM offers competitive pricing to capture market share. Geographically, local sales jumped by 9.7% while overseas revenue, mainly driven by Singapore sales, grew by 9.5% y-o-y.
FY11 earnings before interest and tax (Ebit) margin came in at 16.5% against 20% in FY10 against a backdrop of higher pulp prices ( about +35% y-o-y), and the use of 100% pure pulp instead of a mix of recycled and pure pulp for NTPM's pocket and facial tissue.
NTPM's tissue product manufacturing utilisation rate is about 80% currently. To further boost sales of its tissue products, the main driver of group revenue, we think that NTPM would need to ramp up the number of manufacturing lines, or even consider acquiring another tissue manufacturer, to defend its lion's share of the tissue market of more than 60% in Malaysia. Although its personal care products are gaining market share, we understand that competition in this segment is intense while its overseas sales are still small.
Although the results are in line, we cut our FY12 earnings forecast by 15.8% to RM49.6 million on sticky high pulp prices and higher utility costs as electricity rates for industrial use have increased by an average 8.35% since June 2011. Our fair value, however, is moved up to 53 sen, which pegs NTPM at a higher price-earnings ratio of 12 times (10 times previously). This is because we think that given its dominant 60% share of the local tissue market and decent dividend yield of more than 5%, NTPM deserves a higher valuation. Despite lower profit, the company declared a total single-tier dividend per share of 2.9 sen, more than a 60% payout ratio. ' OSK Research, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
Lafarge feeling the heat
Stock Name: LMCEMNT
Company Name: LAFARGE MALAYAN CEMENT BHD
Lafarge Malayan Cement Bhd
(June 27, RM7.37)
Maintain fully valued at RM7.58 with revised target price of RM6.50 (from RM6): LMC's operating costs will continue to rise with persistent high coal prices (2011/12F: US$113 [RM344.65] to US$117 per tonne), utility rate hikes (+8%), rising raw material costs (+10%), and higher transport costs (+5%). But the impact should be mitigated by: (i) average selling price (ASP) hikes (strong pricing power due to oligopoly market); and (ii) stronger demand growth (2011/12F: 6% to 7% against 2010: flat) with increased construction activity (low-cost carrier terminal, second Penang Bridge, double tracking railway, LRT extension, MRT) and property starts (robust 2010 sales).
Rebates have surpassed RM40 per tonne against 2010's RM25 to RM30 per tonne, despite improving demand (1Q11: +6% year-on-year). Competition could worsen with: (i) enforcement of Competition Act 2010 from Jan 1, 2012, which bans cartels (LMC can leverage on parent's experience overseas); and (ii) new supply post-2013, that is 1.5 million tonnes each by Hong Leong Industries (acquired Hume Cement Sdn Bhd), Cement Industries of Malaysia Bhd, and possibly YTL Cement Bhd (LMC is unlikely to expand given its 30% spare capacity that is currently exported).
We slash FY11/12F earnings by 13% to 17% after factoring in: (i) higher rebates (2011/12F: RM30 to 40 per tonne); and (ii) tax rate (25% against 15% previously) with the exhaustion of LMC's reinvestment allowance (given minimal capital expenditure). Amid a changing sector landscape and higher demand from Economic Transformation Programme spending, LMC's historical trading band no longer applies. We now value LMC at 15 times FY12 price-earnings ratio, a 10% discount to the construction sector average of 17 times, to derive a RM6.50 target price (from RM6). Although valuation exceeds replacement cost (US$212 against US$155 per tonne), LMC's share price should be partly supported by 4.3% dividend yield (against FBM KLCI average of 3.2%). ' HwangDBS Vickers Research, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
Company Name: LAFARGE MALAYAN CEMENT BHD
| Research House: HWANGDBS | Price Call: SELL | Target Price: 6.50 |
Lafarge Malayan Cement Bhd
(June 27, RM7.37)
Maintain fully valued at RM7.58 with revised target price of RM6.50 (from RM6): LMC's operating costs will continue to rise with persistent high coal prices (2011/12F: US$113 [RM344.65] to US$117 per tonne), utility rate hikes (+8%), rising raw material costs (+10%), and higher transport costs (+5%). But the impact should be mitigated by: (i) average selling price (ASP) hikes (strong pricing power due to oligopoly market); and (ii) stronger demand growth (2011/12F: 6% to 7% against 2010: flat) with increased construction activity (low-cost carrier terminal, second Penang Bridge, double tracking railway, LRT extension, MRT) and property starts (robust 2010 sales).
Rebates have surpassed RM40 per tonne against 2010's RM25 to RM30 per tonne, despite improving demand (1Q11: +6% year-on-year). Competition could worsen with: (i) enforcement of Competition Act 2010 from Jan 1, 2012, which bans cartels (LMC can leverage on parent's experience overseas); and (ii) new supply post-2013, that is 1.5 million tonnes each by Hong Leong Industries (acquired Hume Cement Sdn Bhd), Cement Industries of Malaysia Bhd, and possibly YTL Cement Bhd (LMC is unlikely to expand given its 30% spare capacity that is currently exported).
We slash FY11/12F earnings by 13% to 17% after factoring in: (i) higher rebates (2011/12F: RM30 to 40 per tonne); and (ii) tax rate (25% against 15% previously) with the exhaustion of LMC's reinvestment allowance (given minimal capital expenditure). Amid a changing sector landscape and higher demand from Economic Transformation Programme spending, LMC's historical trading band no longer applies. We now value LMC at 15 times FY12 price-earnings ratio, a 10% discount to the construction sector average of 17 times, to derive a RM6.50 target price (from RM6). Although valuation exceeds replacement cost (US$212 against US$155 per tonne), LMC's share price should be partly supported by 4.3% dividend yield (against FBM KLCI average of 3.2%). ' HwangDBS Vickers Research, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
Rising margins, bright order prospects for Kencana
Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Kencana Petroleum Bhd
(June 27, RM2.82)
Maintain buy at RM2.79 with fair value of RM3.40: We maintain our 'buy' call on Kencana Petroleum Bhd with an unchanged fair value of RM3.40, pegged to an FY12F price-earnings ratio (PER) of 22 times. This follows another strong quarter of earnings delivery.
Kencana's 9MFY11 net profit of RM159 million (+69% year-on-year) was slightly above expectations, accounting for 76% of our earlier FY11F net profit of RM210 million and street estimate of RM211 million. This stems from higher contributions from the engineering, procurement, construction, installation & commissioning (EPCIC), marine engineering & project management division, which accounted for 68% of 9MFY11 group net profit.
Hence, we have raised our FY11F earnings by 4% due to a one percentage point increase in fabrication earnings before interest and tax (Ebit) margin to 18%. But FY12F/13F earnings are maintained on unchanged fabrication margins of 19%. Hence, Kencana's fair value, pegged to FY12F earnings, is likewise unchanged.
The group's 3QFY11 net profit rose 12% quarter-on-quarter to RM56 million largely due to the EPCIC segment, which registered a 9% increase in billings and 0.4 percentage point increase in net margin to 12%.
Since the beginning of the year, Kencana has secured RM787 million worth of fresh contracts, including an estimated RM200 million engineering, procurement and construction (EPC) works for the Berantai marginal field ' for which the group has a 25% stake in the risk-sharing contract.
These account for 40% of the group's targeted new orders worth up to RM2 billion for this calendar year. With the new orders secured thus far, we estimate that Kencana's outstanding order book has risen by 5% to RM2.3 billion ' representing 1.7 times FY11F revenue.
The group's order book prospects are still bright, given Petroliam Nasional Bhd's spending programme of RM300 billion over the next five years, which include enhanced oil recovery and marginal field jobs. We understand that Kencana may be involved in the bidding for two other marginal fields later this year.
There is also mergers and acquisitions excitement as we expect additional joint ventures for Kencana in offshore construction services following the group's proposed RM400 million acquisition of subsea service provider Allied Marine & Equipment Sdn Bhd.
The stock currently trades at an attractive FY12F PER of 18 times, below its 2007 peak of 25 times. ' AmResearch, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
Company Name: KENCANA PETROLEUM BHD
| Research House: AMMB | Price Call: BUY | Target Price: 3.40 |
Kencana Petroleum Bhd
(June 27, RM2.82)
Maintain buy at RM2.79 with fair value of RM3.40: We maintain our 'buy' call on Kencana Petroleum Bhd with an unchanged fair value of RM3.40, pegged to an FY12F price-earnings ratio (PER) of 22 times. This follows another strong quarter of earnings delivery.
Kencana's 9MFY11 net profit of RM159 million (+69% year-on-year) was slightly above expectations, accounting for 76% of our earlier FY11F net profit of RM210 million and street estimate of RM211 million. This stems from higher contributions from the engineering, procurement, construction, installation & commissioning (EPCIC), marine engineering & project management division, which accounted for 68% of 9MFY11 group net profit.
Hence, we have raised our FY11F earnings by 4% due to a one percentage point increase in fabrication earnings before interest and tax (Ebit) margin to 18%. But FY12F/13F earnings are maintained on unchanged fabrication margins of 19%. Hence, Kencana's fair value, pegged to FY12F earnings, is likewise unchanged.
The group's 3QFY11 net profit rose 12% quarter-on-quarter to RM56 million largely due to the EPCIC segment, which registered a 9% increase in billings and 0.4 percentage point increase in net margin to 12%.
Since the beginning of the year, Kencana has secured RM787 million worth of fresh contracts, including an estimated RM200 million engineering, procurement and construction (EPC) works for the Berantai marginal field ' for which the group has a 25% stake in the risk-sharing contract.
These account for 40% of the group's targeted new orders worth up to RM2 billion for this calendar year. With the new orders secured thus far, we estimate that Kencana's outstanding order book has risen by 5% to RM2.3 billion ' representing 1.7 times FY11F revenue.
The group's order book prospects are still bright, given Petroliam Nasional Bhd's spending programme of RM300 billion over the next five years, which include enhanced oil recovery and marginal field jobs. We understand that Kencana may be involved in the bidding for two other marginal fields later this year.
There is also mergers and acquisitions excitement as we expect additional joint ventures for Kencana in offshore construction services following the group's proposed RM400 million acquisition of subsea service provider Allied Marine & Equipment Sdn Bhd.
The stock currently trades at an attractive FY12F PER of 18 times, below its 2007 peak of 25 times. ' AmResearch, June 27
This article appeared in The Edge Financial Daily, June 28, 2011.
RHBCap downgraded to 'hold'
Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
RHB Capital Bhd, a Malaysian lender, was downgraded to "hold" from "buy" at Maybank Investment Bank Bhd, which reduced the stock's valuation after bank merger talks were scrapped.
The stock's share estimate was cut to RM9.40 from RM10.40, analyst Desmond Ch'ng wrote in a report today. -- Bloomberg
Company Name: RHB CAPITAL BHD
| Research House: MAYBANK | Price Call: HOLD | Target Price: 9.40 |
RHB Capital Bhd, a Malaysian lender, was downgraded to "hold" from "buy" at Maybank Investment Bank Bhd, which reduced the stock's valuation after bank merger talks were scrapped.
The stock's share estimate was cut to RM9.40 from RM10.40, analyst Desmond Ch'ng wrote in a report today. -- Bloomberg
AirAsia extends gains in early trade
Stock Name: AIRASIA
Company Name: AIRASIA BHD
KUALA LUMPUR: AIRASIA BHD [] extended its gains in early trade on Monday, June 27 and was up eight sen to RM3.37 at 9.20am
The stock has been on an uptrend trajectory since it ordered 200 Airbus A320-NEOs (with an option to purchase a further 100 aircraft) last week.
Delivery of the A320-NEOs, which offers 15% fuel cost savings, is expected to start from 2016.
Credit Suisse Research on June 24 had said the orders were for AirAsia's long-term growth, including the new ventures in the Philippines and Vietnam. It also expected the large scale order at such an early stage of the aircraft development, would enable'' AirAsia to enjoy significant discounts over the list price of the aircraft.
It pointed out the orders were also part of AirAsia's fleet renewal programme. By 2016, AirAsia would have 16 aircraft that are 10 years old and over, with a further 19 aircraft to hit the 10-year mark in 2017.
'We expect AirAsia to maintain a young fleet (lower maintenance cost), thus will dispose of older aircraft to crystalise the gains from the large discounts enjoyed from its A320-200 order,' it said.
The research house said it did not factor the impact of the A320-NEO order, as deliveries are only expected to start in 2016.
'We remain positive on AirAsia and reiterate our OUTPERFORM rating on the stock and RM4.80 target price,' it said.
Company Name: AIRASIA BHD
| Research House: CREDIT SUISSE | Price Call: BUY | Target Price: 4.80 |
KUALA LUMPUR: AIRASIA BHD [] extended its gains in early trade on Monday, June 27 and was up eight sen to RM3.37 at 9.20am
The stock has been on an uptrend trajectory since it ordered 200 Airbus A320-NEOs (with an option to purchase a further 100 aircraft) last week.
Delivery of the A320-NEOs, which offers 15% fuel cost savings, is expected to start from 2016.
Credit Suisse Research on June 24 had said the orders were for AirAsia's long-term growth, including the new ventures in the Philippines and Vietnam. It also expected the large scale order at such an early stage of the aircraft development, would enable'' AirAsia to enjoy significant discounts over the list price of the aircraft.
It pointed out the orders were also part of AirAsia's fleet renewal programme. By 2016, AirAsia would have 16 aircraft that are 10 years old and over, with a further 19 aircraft to hit the 10-year mark in 2017.
'We expect AirAsia to maintain a young fleet (lower maintenance cost), thus will dispose of older aircraft to crystalise the gains from the large discounts enjoyed from its A320-200 order,' it said.
The research house said it did not factor the impact of the A320-NEO order, as deliveries are only expected to start in 2016.
'We remain positive on AirAsia and reiterate our OUTPERFORM rating on the stock and RM4.80 target price,' it said.
Lacking catalysts
Stock Name: IOICORP
Company Name: IOI CORPORATION BHD
Company Name: IOI CORPORATION BHD
| Research House: MIDF | Price Call: HOLD | Target Price: 5.89 |
MIDF Equity Beat (Kencana Petroleum Berhad) 27 June 2011
Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Company Name: KENCANA PETROLEUM BHD
| Research House: MIDF | Price Call: BUY | Target Price: 3.16 |
CIMB Research maintains Outperform on Masterskill
Stock Name: MEGB
Company Name: MASTERSKILL EDUCATION GROUP
KUALA LUMPUR: CIMB Equities Research has lowered the target price for Masterskill Education Group Bhd from RM4.48 to RM3.48 but it is maintaining an OUTPERFORM rating while the main potential catalyst is the recovery of investor sentiment.
It said on Monday, June 27 The Edge's article highlighted Masterskill CEO and ED's comments on his health after a brain aneurysm, confirming speculation on it early this year.
'Positive surprises include (i) the operation of smart schools which are in good demand, (ii) diversification into business-related courses, and (iii) a 2012 target for the launch of its Indonesian campus.
'However, the delay in revealing the developments in the CEO's health could highlight the issue of transparency and corporate governance. In view of this, we raise our discount to our 14.5 times target market P/E from 10% to 30%, in line with our small-cap valuations,' it said.
CIMB Research said though its target price is cut from RM4.48 to RM3.48, it maintains an OUTPERFORM rating as its CY11-12 P/E of six to seven times and 9% dividend yields are attractive. The main potential catalyst is the recovery of investor sentiment.
Company Name: MASTERSKILL EDUCATION GROUP
| Research House: CIMB | Price Call: BUY | Target Price: 3.48 |
KUALA LUMPUR: CIMB Equities Research has lowered the target price for Masterskill Education Group Bhd from RM4.48 to RM3.48 but it is maintaining an OUTPERFORM rating while the main potential catalyst is the recovery of investor sentiment.
It said on Monday, June 27 The Edge's article highlighted Masterskill CEO and ED's comments on his health after a brain aneurysm, confirming speculation on it early this year.
'Positive surprises include (i) the operation of smart schools which are in good demand, (ii) diversification into business-related courses, and (iii) a 2012 target for the launch of its Indonesian campus.
'However, the delay in revealing the developments in the CEO's health could highlight the issue of transparency and corporate governance. In view of this, we raise our discount to our 14.5 times target market P/E from 10% to 30%, in line with our small-cap valuations,' it said.
CIMB Research said though its target price is cut from RM4.48 to RM3.48, it maintains an OUTPERFORM rating as its CY11-12 P/E of six to seven times and 9% dividend yields are attractive. The main potential catalyst is the recovery of investor sentiment.
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