Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Company Name: TENAGA NASIONAL BHD
| Research House: ECMLIBRA | Price Call: BUY | Target Price: 7.61 |
July 22, 2011
Hiap Teck slips, OSK has sell call, FV 95c
Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD
KUALA LUMPUR: HIAP TECK VENTURE BHD []'s share price slipped on Friday, July 22 as analysts were cautious about the venture into the upstream steel mill project.
At 4.05pm, it was down four sen to RM1.10 with 2.31 million shares transacted.
OSK Research has a Sell call on Hiap Teck Venture and reduced its fair value to 95 sen as it was cautious about the latest venture.
Hiap Teck's 55% owned Eastern Steel Sdn Bhd had entered into an engineering and procurement contract and a CONSTRUCTION [] contract with China Shougang International Trade and Engineering Corporation for the 1st phase design, procurement and construction of its integrated steel mill in Terengganu.
'We continue to remain cautious on this upstream venture, given the capex intensive nature and new learning curve in operating a blast furnace, the dilution in their share price from its proposed rights issue, and struggling earnings with poor visibility beyond 6 months for the sector.
'We downgrade the Company to SELL from NEUTRAL, while holding our FV of 95 sen at 8.0 times FY12 EPS given its recent share price run-up of 20% ahead of our FV,' it said.
Company Name: HIAP TECK VENTURE BHD
| Research House: OSK | Price Call: SELL | Target Price: 0.95 |
KUALA LUMPUR: HIAP TECK VENTURE BHD []'s share price slipped on Friday, July 22 as analysts were cautious about the venture into the upstream steel mill project.
At 4.05pm, it was down four sen to RM1.10 with 2.31 million shares transacted.
OSK Research has a Sell call on Hiap Teck Venture and reduced its fair value to 95 sen as it was cautious about the latest venture.
Hiap Teck's 55% owned Eastern Steel Sdn Bhd had entered into an engineering and procurement contract and a CONSTRUCTION [] contract with China Shougang International Trade and Engineering Corporation for the 1st phase design, procurement and construction of its integrated steel mill in Terengganu.
'We continue to remain cautious on this upstream venture, given the capex intensive nature and new learning curve in operating a blast furnace, the dilution in their share price from its proposed rights issue, and struggling earnings with poor visibility beyond 6 months for the sector.
'We downgrade the Company to SELL from NEUTRAL, while holding our FV of 95 sen at 8.0 times FY12 EPS given its recent share price run-up of 20% ahead of our FV,' it said.
Bumi Armada still making waves, extends gains
Stock Name: ARMADA
Company Name: BUMI ARMADA BERHAD
KUALA LUMPUR: Oil and gas services provider Bumi Armada continued to be actively traded on Friday, July 22 after it made an impressive debut on the Main Market of Bursa Malaysia on Thursday.
At 10.50am, Bumi Armada was up five sen to RM4.19 with 31.26 million shares done.
ECM Libra Research on July 21 had initiated coverage on Bumi Armada with a BUY call and a TP of RM3.91, based on a 25x PE pegging 2H11-1H12 EPS of 15.6sen.
'We view that Bumi Armada can easily achieve a 2010-2013 CAGR of 22% given their strong RM5.8 billion orderbook and also active tendering activity in the FPSO market.
'Major contracts are all for the long term (5-8 years) hence providing the group with good earnings visibility,' it said.
Company Name: BUMI ARMADA BERHAD
| Research House: ECMLIBRA | Price Call: BUY | Target Price: 3.91 |
KUALA LUMPUR: Oil and gas services provider Bumi Armada continued to be actively traded on Friday, July 22 after it made an impressive debut on the Main Market of Bursa Malaysia on Thursday.
At 10.50am, Bumi Armada was up five sen to RM4.19 with 31.26 million shares done.
ECM Libra Research on July 21 had initiated coverage on Bumi Armada with a BUY call and a TP of RM3.91, based on a 25x PE pegging 2H11-1H12 EPS of 15.6sen.
'We view that Bumi Armada can easily achieve a 2010-2013 CAGR of 22% given their strong RM5.8 billion orderbook and also active tendering activity in the FPSO market.
'Major contracts are all for the long term (5-8 years) hence providing the group with good earnings visibility,' it said.
CIMB Research lowers Muhibbah TP to RM1.83
Stock Name: MUHIBAH
Company Name: MUHIBBAH ENGINEERING (M) BHD
KUALA LUMPUR: CIMB Equities Research said Muhibbah Engineering Bhd's prospects straddle both the CONSTRUCTION [] and oil & gas sectors, backed by execution of the ETP.
It said on Friday, July 22 the group is a strong contender for large-scale jobs such as MRT and highways while its expertise in marine/port infrastructure gives it an added advantage in the oil & gas space.
'But uncertainty over the APH receivership issue continues to overhang the stock. Although it may be resolved satisfactorily, it is likely to dent sentiment in the medium term.
'We, therefore, raise our RNAV discount from 10% to 40%, which is broadly in line with the discount applied to our small- to mid-cap stocks. This cuts our target price from RM2.75 to RM1.83,' it said.
CIMB Research maintained its EPS forecasts and TRADING BUY call. Potential re-rating catalysts include (i) project wins, and (ii) resolution to APH.
Company Name: MUHIBBAH ENGINEERING (M) BHD
| Research House: CIMB | Price Call: TRADING BUY | Target Price: 1.83 |
KUALA LUMPUR: CIMB Equities Research said Muhibbah Engineering Bhd's prospects straddle both the CONSTRUCTION [] and oil & gas sectors, backed by execution of the ETP.
It said on Friday, July 22 the group is a strong contender for large-scale jobs such as MRT and highways while its expertise in marine/port infrastructure gives it an added advantage in the oil & gas space.
'But uncertainty over the APH receivership issue continues to overhang the stock. Although it may be resolved satisfactorily, it is likely to dent sentiment in the medium term.
'We, therefore, raise our RNAV discount from 10% to 40%, which is broadly in line with the discount applied to our small- to mid-cap stocks. This cuts our target price from RM2.75 to RM1.83,' it said.
CIMB Research maintained its EPS forecasts and TRADING BUY call. Potential re-rating catalysts include (i) project wins, and (ii) resolution to APH.
CIMB Research has Underperform on BAT, TP RM42
Stock Name: BAT
Company Name: BRITISH AMERICAN TOBACCO (M)
KUALA LUMPUR: CIMB Equities Research has an Underperform recommendation on BRITISH AMERICAN TOBACCO (M) [] Bhd as its 1H2011 core net profits were broadly within expectations.
It said on Friday, July 22, the profits accounted for 53% of its full-year forecast and 51% of consensus estimates.
The surprise was a special dividend of 30 sen, on top of the second interim dividend of 60 sen. This brings YTD dividends to RM1.50, which works out to 118% payout (vs our assumption of 93%).
'We are raising our FY11 DPS by 10% to account for the special dividend. But we maintain our earnings numbers in view of the rising regulatory risks in 2H, i.e. the possibility of an excise duty hike in 3Q which could hurt volumes.
'Our DDM-based end-11 target price remains unchanged at RM42 (COE 7.4%, LTG 0%). We maintain our UNDERPERFORM rating given the potential downside catalysts of 1) market share loss, 2) more regulatory negatives, and 3) investors' appetite for higher-beta stocks,' it said.
Company Name: BRITISH AMERICAN TOBACCO (M)
| Research House: CIMB | Price Call: SELL | Target Price: 42.00 |
KUALA LUMPUR: CIMB Equities Research has an Underperform recommendation on BRITISH AMERICAN TOBACCO (M) [] Bhd as its 1H2011 core net profits were broadly within expectations.
It said on Friday, July 22, the profits accounted for 53% of its full-year forecast and 51% of consensus estimates.
The surprise was a special dividend of 30 sen, on top of the second interim dividend of 60 sen. This brings YTD dividends to RM1.50, which works out to 118% payout (vs our assumption of 93%).
'We are raising our FY11 DPS by 10% to account for the special dividend. But we maintain our earnings numbers in view of the rising regulatory risks in 2H, i.e. the possibility of an excise duty hike in 3Q which could hurt volumes.
'Our DDM-based end-11 target price remains unchanged at RM42 (COE 7.4%, LTG 0%). We maintain our UNDERPERFORM rating given the potential downside catalysts of 1) market share loss, 2) more regulatory negatives, and 3) investors' appetite for higher-beta stocks,' it said.
ECM Libra Research keeps AirAsia TP unch RM3.56
Stock Name: AIRASIA
Company Name: AIRASIA BHD
KUALA LUMPUR: ECM Libra Research is maintaining AIRASIA BHD []'s target price at RM3.56 based on mid-CY12 valuation of 10.0 times price-to-earnings.
It said on Friday, July 22 that as AirAsia has already achieved its target price, it downgraded it from buy to HOLD.
'While we expect the impending listing of its associates and affiliate to be positive newsflow in the near term, persistent high fuel cost remains a concern although there is sign of moderation,' it said.
On Thursday, AirAsia'' formalised a 49:51 joint venture with All Nippon Airways to establish a low cost airline in Japan which is expected to commence operations in August 2012.
'While we are positive on this news, it is premature to impute any earnings upgrade at this juncture,' it said.
ECM Libra Research said it was positive of this news as it will further strengthen AirAsia's foothold as Asia largest low cost carrier. Through its AirAsia X affiliate, AirAsia currently operates long haul flights to Haneda Airport, Tokyo.
'We view Japan as a lucrative market for AirAsia given its large population of 127 million while the greater region of North East Asia has a population of 500 million. In 2010, there were 14.7 million Japanese travelling abroad with 5.1 million visitors from the Northeast Asia,' it said.
ECM Libra Research said although Japan is a matured aviation market, the proliferation of low cost carriers is still at infancy stage.
It added the presence of ANA, Japan's largest airline, as a JV partner will allows AirAsia Japan to capitalise on the former's clout in Japan aviation industry. ANA will play contributing role as a partner in setting the foundation of schedule flights such as transfer of slots and pursue new traffic rights.
'While management guided that AirAsia Japan is expected to be profitable from its first year of operation, we maintain our estimate at this juncture until there is better clarity on aircraft procurement, AOC approval, and flight commencement,' it said.
Company Name: AIRASIA BHD
| Research House: ECMLIBRA | Price Call: HOLD | Target Price: 3.56 |
KUALA LUMPUR: ECM Libra Research is maintaining AIRASIA BHD []'s target price at RM3.56 based on mid-CY12 valuation of 10.0 times price-to-earnings.
It said on Friday, July 22 that as AirAsia has already achieved its target price, it downgraded it from buy to HOLD.
'While we expect the impending listing of its associates and affiliate to be positive newsflow in the near term, persistent high fuel cost remains a concern although there is sign of moderation,' it said.
On Thursday, AirAsia'' formalised a 49:51 joint venture with All Nippon Airways to establish a low cost airline in Japan which is expected to commence operations in August 2012.
'While we are positive on this news, it is premature to impute any earnings upgrade at this juncture,' it said.
ECM Libra Research said it was positive of this news as it will further strengthen AirAsia's foothold as Asia largest low cost carrier. Through its AirAsia X affiliate, AirAsia currently operates long haul flights to Haneda Airport, Tokyo.
'We view Japan as a lucrative market for AirAsia given its large population of 127 million while the greater region of North East Asia has a population of 500 million. In 2010, there were 14.7 million Japanese travelling abroad with 5.1 million visitors from the Northeast Asia,' it said.
ECM Libra Research said although Japan is a matured aviation market, the proliferation of low cost carriers is still at infancy stage.
It added the presence of ANA, Japan's largest airline, as a JV partner will allows AirAsia Japan to capitalise on the former's clout in Japan aviation industry. ANA will play contributing role as a partner in setting the foundation of schedule flights such as transfer of slots and pursue new traffic rights.
'While management guided that AirAsia Japan is expected to be profitable from its first year of operation, we maintain our estimate at this juncture until there is better clarity on aircraft procurement, AOC approval, and flight commencement,' it said.
July 21, 2011
DiGi's core earnings, pre-tax profit up
Stock Name: DIGI
Company Name: DIGI.COM BHD
DiGi.Com Bhd
(July 21, RM30)
Maintain hold at RM29.84 with revised target price of RM30.80 (from RM30.40): Earnings (before exceptional items) for 2Q11 fell 29% quarter-on-quarter to RM236 million after DiGi booked accelerated depreciation and one-off interest expense totalling RM162 million. Excluding this, core earnings grew 20% and pre-tax profit 9%. Mobile internet/broadband remained the revenue driver with 15% growth to RM151 million in 2Q11 and helped keep average revenue per user (ARPU) stable at RM50 (blended), thanks to an increase in smartphone users and DiGi's various campaigns.
Smartphone users now account for 17% (+2pps) of DiGi's total subscriber base (of 9.3 million). Prepaid voice revenue also grew 3% to RM768 million, supported by higher usage (+2% to 241 minutes) and higher net adds (404,000) with improved sales of DiGi Easy Prepaid. Earnings before interest, tax, depreciation and amortisation (Ebitda) margin was stable q-o-q at 46%. Net profit for 1H11 was 56% of our initial full-year forecast.
Earnings for FY11F to FY13F are nudged up by 4% to 6% after imputing one-off interest expense in 2Q11, offset by lower depreciation assumptions and RM1 increase in ARPU (based on 1H11 performance). Our forecasts have not reflected the impact of the 6% service tax ' expected to be passed on to prepaid users starting Sept 1 (delayed from July 1) ' as we understand operators are still discussing this with the regulator and the decision is still not final yet.
If it goes through, we expect DiGi to see only a slight positive impact. It might adjust its prepaid tariffs to curb a drop in usage as prepaid subscribers are generally price-sensitive and this user segment is very important to DiGi given that it accounts for 84% of its subscriber base.
We maintain 'hold' with our target price raised to RM30.80 (weighted average cost of capital: 7.3%, terminal growth: 1%) after lifting FY11F to FY13F Ebitda by 1% on higher ARPU assumptions. The share price is supported by 6% forecast net dividend yield (RM1.63 dividend per share). ' HwangDBS Vickers Research, July 21
This article appeared in The Edge Financial Daily, July 22, 2011.
Company Name: DIGI.COM BHD
| Research House: HWANGDBS | Price Call: HOLD | Target Price: 30.80 |
DiGi.Com Bhd
(July 21, RM30)
Maintain hold at RM29.84 with revised target price of RM30.80 (from RM30.40): Earnings (before exceptional items) for 2Q11 fell 29% quarter-on-quarter to RM236 million after DiGi booked accelerated depreciation and one-off interest expense totalling RM162 million. Excluding this, core earnings grew 20% and pre-tax profit 9%. Mobile internet/broadband remained the revenue driver with 15% growth to RM151 million in 2Q11 and helped keep average revenue per user (ARPU) stable at RM50 (blended), thanks to an increase in smartphone users and DiGi's various campaigns.
Smartphone users now account for 17% (+2pps) of DiGi's total subscriber base (of 9.3 million). Prepaid voice revenue also grew 3% to RM768 million, supported by higher usage (+2% to 241 minutes) and higher net adds (404,000) with improved sales of DiGi Easy Prepaid. Earnings before interest, tax, depreciation and amortisation (Ebitda) margin was stable q-o-q at 46%. Net profit for 1H11 was 56% of our initial full-year forecast.
Earnings for FY11F to FY13F are nudged up by 4% to 6% after imputing one-off interest expense in 2Q11, offset by lower depreciation assumptions and RM1 increase in ARPU (based on 1H11 performance). Our forecasts have not reflected the impact of the 6% service tax ' expected to be passed on to prepaid users starting Sept 1 (delayed from July 1) ' as we understand operators are still discussing this with the regulator and the decision is still not final yet.
If it goes through, we expect DiGi to see only a slight positive impact. It might adjust its prepaid tariffs to curb a drop in usage as prepaid subscribers are generally price-sensitive and this user segment is very important to DiGi given that it accounts for 84% of its subscriber base.
We maintain 'hold' with our target price raised to RM30.80 (weighted average cost of capital: 7.3%, terminal growth: 1%) after lifting FY11F to FY13F Ebitda by 1% on higher ARPU assumptions. The share price is supported by 6% forecast net dividend yield (RM1.63 dividend per share). ' HwangDBS Vickers Research, July 21
This article appeared in The Edge Financial Daily, July 22, 2011.
Giant of Malaysian Seas
Stock Name: ARMADA
Company Name: BUMI ARMADA BERHAD
Company Name: BUMI ARMADA BERHAD
| Research House: KENANGA | Price Call: HOLD | Target Price: 3.88 |
Network restructuring on track
Stock Name: DIGI
Company Name: DIGI.COM BHD
Company Name: DIGI.COM BHD
| Research House: MAYBANK | Price Call: HOLD | Target Price: 30.00 |
May pass on 6% service tax to prepaid subscribers in 4Q
Stock Name: DIGI
Company Name: DIGI.COM BHD
Company Name: DIGI.COM BHD
| Research House: ECMLIBRA | Price Call: HOLD | Target Price: 30.58 |
CIMB Research maintains Outperform on Mah Sing
Stock Name: MAHSING
Company Name: MAH SING GROUP BHD
KUALA LUMPUR: CIMB Equities Research is positive on Mah Sing Group and it is maintaining its OUTPERFORM rating, earnings forecasts and target price of RM3.30, based on 14.5'' times P/E.
It said on Thursday, July 21 that it had organised a conference call with Mah Sing for over 20 local and foreign investors to give investors the opportunity to assess whether there are valid reasons to be more cautious on property stocks and to gauge the outlook for the sector.
'The key positive takeaway from the conference call was Mah Sing's impression from its correspondence with the authorities that the latter appears to be very careful in implementing any policy that could hurt the property sector.
'This is because of the knock-on effects it would have on 140 sub-sectors, the impact it could have on Iskandar Malaysia and the fact that there are no conclusive signs of a property bubble in Malaysia,' it said.
CIMB Research said it continued to view last week's selldown as excessive and advise investors to accumulate positions. Mah Sing remains an OUTPERFORM and its top pick in the property sector, it said.
'We make no changes to our earnings forecasts and target price of RM3.30, which is based on an unchanged target market P/E of 14.5x. Potential re-rating catalysts include 1) yesterday's reassuring conference call, 2) the very good response to the recent weekend maiden public launch of Icon City, 3) continued strong sales by the group and 4) landbanking newsflow which should pick up pace in 2H,' it said.
Company Name: MAH SING GROUP BHD
| Research House: CIMB | Price Call: BUY | Target Price: 3.30 |
KUALA LUMPUR: CIMB Equities Research is positive on Mah Sing Group and it is maintaining its OUTPERFORM rating, earnings forecasts and target price of RM3.30, based on 14.5'' times P/E.
It said on Thursday, July 21 that it had organised a conference call with Mah Sing for over 20 local and foreign investors to give investors the opportunity to assess whether there are valid reasons to be more cautious on property stocks and to gauge the outlook for the sector.
'The key positive takeaway from the conference call was Mah Sing's impression from its correspondence with the authorities that the latter appears to be very careful in implementing any policy that could hurt the property sector.
'This is because of the knock-on effects it would have on 140 sub-sectors, the impact it could have on Iskandar Malaysia and the fact that there are no conclusive signs of a property bubble in Malaysia,' it said.
CIMB Research said it continued to view last week's selldown as excessive and advise investors to accumulate positions. Mah Sing remains an OUTPERFORM and its top pick in the property sector, it said.
'We make no changes to our earnings forecasts and target price of RM3.30, which is based on an unchanged target market P/E of 14.5x. Potential re-rating catalysts include 1) yesterday's reassuring conference call, 2) the very good response to the recent weekend maiden public launch of Icon City, 3) continued strong sales by the group and 4) landbanking newsflow which should pick up pace in 2H,' it said.
CIMB Research keeps DiGi as Outperform, target price RM34
Stock Name: DIGI
Company Name: DIGI.COM BHD
KUALA LUMPUR: CIMB Equities Research said DIGI.COM BHD []'s 2Q11 reported core net profit was 3% above its forecast and 2% above consensus.
It said on Thursday, July 21 accelerated depreciation is likely to be a drag on 2H net profit.
'Revenues and EBITDA margins were robust and we believe DiGi outpaced its rivals. Although 2Q DPS was 30% lower on-quarter at 30 sen (100% net profit payout), DiGi reiterated that FY11 DPS will be maintained at the FY10 level,' it said.
CIMB Research also kept its growth guidance. It maintained its'' forecasts, DCF-based target price of RM34 and OUTPERFORM call. The likely re-rating catalysts are the pass through of the sales tax to prepaid users and continued strong growth.
Company Name: DIGI.COM BHD
| Research House: CIMB | Price Call: BUY | Target Price: 34.00 |
KUALA LUMPUR: CIMB Equities Research said DIGI.COM BHD []'s 2Q11 reported core net profit was 3% above its forecast and 2% above consensus.
It said on Thursday, July 21 accelerated depreciation is likely to be a drag on 2H net profit.
'Revenues and EBITDA margins were robust and we believe DiGi outpaced its rivals. Although 2Q DPS was 30% lower on-quarter at 30 sen (100% net profit payout), DiGi reiterated that FY11 DPS will be maintained at the FY10 level,' it said.
CIMB Research also kept its growth guidance. It maintained its'' forecasts, DCF-based target price of RM34 and OUTPERFORM call. The likely re-rating catalysts are the pass through of the sales tax to prepaid users and continued strong growth.
CIMB Research has technical buy on KPS
Stock Name: KPS
Company Name: KUMPULAN PERANGSANG SELANGOR
KUALA LUMPUR: CIMB Equities Research has a technical Buy on KUMPULAN PERANGSANG SELANGOR [] (KPS) at RM1.06 at which it is trading at a price-to-book value of 0.5 times.
CIMB Research said on Thursday, July 21 the downtrend from the RM1.54 high could be coming to an end soon.
'Prices have been forming a bulish wedge pattern, which suggests that the next big move is likely to up,' it said.
The research house said the MACD was still negative while its RSI is also trending lower. Nevertheless, both indicators have a good chance of forming a triple bullish divergence signal.
'Coupled with the bullish wedge pattern, we think that the stock is a good buy on weakness. Wait for a fall into the RM1.00-1.05 levels to buy and place a risk management stop loss point below RM0.97. If prices can hold above the RM1.00 mark, then it is likely to rebound towards RM1.16 and RM1.27 next,' it said.
Company Name: KUMPULAN PERANGSANG SELANGOR
| Research House: CIMB | Price Call: BUY | Target Price: 1.06 |
KUALA LUMPUR: CIMB Equities Research has a technical Buy on KUMPULAN PERANGSANG SELANGOR [] (KPS) at RM1.06 at which it is trading at a price-to-book value of 0.5 times.
CIMB Research said on Thursday, July 21 the downtrend from the RM1.54 high could be coming to an end soon.
'Prices have been forming a bulish wedge pattern, which suggests that the next big move is likely to up,' it said.
The research house said the MACD was still negative while its RSI is also trending lower. Nevertheless, both indicators have a good chance of forming a triple bullish divergence signal.
'Coupled with the bullish wedge pattern, we think that the stock is a good buy on weakness. Wait for a fall into the RM1.00-1.05 levels to buy and place a risk management stop loss point below RM0.97. If prices can hold above the RM1.00 mark, then it is likely to rebound towards RM1.16 and RM1.27 next,' it said.
CIMB Research has technical buy on Press Metal
Stock Name: PMETAL
Company Name: PRESS METAL BHD
KUALA LUMPUR: CIMB Equities Research has a technical Buy on Press Metal at RM2.28, at which it is trading at a price-to-book value of 1.2 times.
It said on Thursday, July 21 Press Metal could be consolidating within a triangle pattern with the current downleg as the terminal move to conclude this consolidation pattern.
'If this is the case, the prices could soon embark on a strong rally. Indicators are showing signs of weakness, which is in line with the final leg lower.
'We think that the stock is likely well supported above its 200-day SMA at RM2.25,' it said.
CIMB Research said traders could opt to buy on weakness with a stop placed below RM2.16. A breakout above RM2.43 would mean that the rally is indeed taking place, targeting RM2.65 and RM2.80 next.
Company Name: PRESS METAL BHD
| Research House: CIMB | Price Call: BUY | Target Price: 2.28 |
KUALA LUMPUR: CIMB Equities Research has a technical Buy on Press Metal at RM2.28, at which it is trading at a price-to-book value of 1.2 times.
It said on Thursday, July 21 Press Metal could be consolidating within a triangle pattern with the current downleg as the terminal move to conclude this consolidation pattern.
'If this is the case, the prices could soon embark on a strong rally. Indicators are showing signs of weakness, which is in line with the final leg lower.
'We think that the stock is likely well supported above its 200-day SMA at RM2.25,' it said.
CIMB Research said traders could opt to buy on weakness with a stop placed below RM2.16. A breakout above RM2.43 would mean that the rally is indeed taking place, targeting RM2.65 and RM2.80 next.
July 20, 2011
Review of 2-month results to 31 May 2011
Stock Name: TMCLIFE
Company Name: TMC LIFE SCIENCES BHD
Company Name: TMC LIFE SCIENCES BHD
| Research House: NETRESEARCH | Price Call: HOLD | Target Price: 0.50 |
Capital management potential returns
Stock Name: BURSA
Company Name: BURSA MALAYSIA BHD
Company Name: BURSA MALAYSIA BHD
| Research House: MAYBANK | Price Call: HOLD | Target Price: 8.30 |
CIMB Thai's 2Q affected by accounting changes
Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Company Name: CIMB GROUP HOLDINGS BERHAD
| Research House: AMMB | Price Call: BUY | Target Price: 9.70 |
Price Target News
Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Company Name: CIMB GROUP HOLDINGS BERHAD
| Research House: AMMB | Price Call: BUY | Target Price: 9.70 |
MRCB poised for re-rating: HwangDBS
Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP
Malaysian Resources Corp Bhd (MRCB) is poised for a re-rating with more sustainable earnings delivery and visible share price catalysts.
HwangDBS Vickers Research, in a note today, said with the coming general election, it was also an ideal proxy, as a government-linked company contractor and developer.
"Our RM700 million to RM800 million per annum new order assumptions for financial years 2011 to 2012 seem conservative, given MRCB's healthy pipeline of jobs.
"We expect MRCB to capitalise on its role as project delivery partner for the River of Life project, with phase one, worth RM3.3 billion with some visibility on contract awards by year-end," it said.
HwangDBS has nudged up MRCB's target price to RM3,25, after imputing higher earnings and rolling over valuation base to 2012. -- Bernama
Company Name: MALAYSIAN RESOURCES CORP
| Research House: HWANGDBS | Price Call: BUY | Target Price: 3.25 |
Malaysian Resources Corp Bhd (MRCB) is poised for a re-rating with more sustainable earnings delivery and visible share price catalysts.
HwangDBS Vickers Research, in a note today, said with the coming general election, it was also an ideal proxy, as a government-linked company contractor and developer.
"Our RM700 million to RM800 million per annum new order assumptions for financial years 2011 to 2012 seem conservative, given MRCB's healthy pipeline of jobs.
"We expect MRCB to capitalise on its role as project delivery partner for the River of Life project, with phase one, worth RM3.3 billion with some visibility on contract awards by year-end," it said.
HwangDBS has nudged up MRCB's target price to RM3,25, after imputing higher earnings and rolling over valuation base to 2012. -- Bernama
Inari active, extends gains
Stock Name: INARI
Company Name: INARI BERHAD
KUALA LUMPUR: Newly-listed Inari Bhd was actively traded on Wednesday, July 20 and extended its gains at mid-morning in line with the upbeat market sentiment.
The stocks, which made its debut on the ACE Market of Bursa Malaysia on Tuesday, July 19, was up one sen to 45.5 sen at 11.25am with 10.76 million shares traded.
Inari through its subsidiary is an electronic manufacturing services (EMS) company mainly involved in back-end semiconductor packaging and complete Box-Build products.
RHB Research in a note July 18 said it forecast FY10-12 EPS CAGR of 10.3% for Inari mainly driven by: 1) higher sales volume of packaging services on the back of rising mobile phone and tablet demand; 2) contribution from back-end wafer services; and 3) stronger contribution from RF final testing in tandem with its packaging services and higher demand for stringent testing.
Given its niche in the communication segment, we believe this mitigates concerns of weaker-than-expected chip demand in other segments i.e. consumer electronics and PCs in the near term, it said.
'We believe it is fair to compare Inari to global peers (vs. local packaging peers) in RF solutions and wireless given that it is mainly focused on the communication segment.
'We have derived a target PER of 7x, which implies a 44% discount to the peers' weighted average to reflect its smaller market capitalisation. Thus, we estimate a fair value of 41 sen based on 7x CY12 EPS,' it said
Company Name: INARI BERHAD
| Research House: RHB | Price Call: HOLD | Target Price: 0.41 |
KUALA LUMPUR: Newly-listed Inari Bhd was actively traded on Wednesday, July 20 and extended its gains at mid-morning in line with the upbeat market sentiment.
The stocks, which made its debut on the ACE Market of Bursa Malaysia on Tuesday, July 19, was up one sen to 45.5 sen at 11.25am with 10.76 million shares traded.
Inari through its subsidiary is an electronic manufacturing services (EMS) company mainly involved in back-end semiconductor packaging and complete Box-Build products.
RHB Research in a note July 18 said it forecast FY10-12 EPS CAGR of 10.3% for Inari mainly driven by: 1) higher sales volume of packaging services on the back of rising mobile phone and tablet demand; 2) contribution from back-end wafer services; and 3) stronger contribution from RF final testing in tandem with its packaging services and higher demand for stringent testing.
Given its niche in the communication segment, we believe this mitigates concerns of weaker-than-expected chip demand in other segments i.e. consumer electronics and PCs in the near term, it said.
'We believe it is fair to compare Inari to global peers (vs. local packaging peers) in RF solutions and wireless given that it is mainly focused on the communication segment.
'We have derived a target PER of 7x, which implies a 44% discount to the peers' weighted average to reflect its smaller market capitalisation. Thus, we estimate a fair value of 41 sen based on 7x CY12 EPS,' it said
Eversendai slips below IPO price
Stock Name: SENDAI
Company Name: EVERSENDAI CORPORATION BERHAD
KUALA LUMPUR: Shares of Eversendai Corp slipped below its offer price of RM1.70 in late morning trade on Wednesday, July 20, despite the mild bargain hunting in the broader market for oversold stocks.
At 11.11am, it was down four sen to RM1.65 with 188,600 shares done.
The FBM KLCI was up 7.10 points to 1,562.64. Turnover was 302.44 million shares done valued at RM342.47 million. There were 367 gainers, 154 losers and 227 stocks unchanged.
RHB Research Institute had on Tuesday initiated coverage on Eversendai with a fair value of RM2.27 based on 14 times FY12/12 EPS.
'Initiate coverage with an Outperform call,' it said of the company which is a structural steel specialist with operations predominantly in Middle East, Malaysia and India.
' It is a rare 'outside-looking-in' home-grown CONSTRUCTION [] company that has excelled in the international market, practically almost indifferent to the local construction cycle,' said the research house.
RHB Research said Eversendai was recognised by key international contractors as a highly reliable structural steel contractor, with a strong market position in UAE and Qatar by virtue of its 26.5% market share in terms of fabrication capacity.
'Earnings visibility is good underpinned by RM1.5 billion outstanding orderbook and there is strong likelihood of securing another RM900 million worth of new jobs by the end of the year,' it said.
Company Name: EVERSENDAI CORPORATION BERHAD
| Research House: RHB | Price Call: BUY | Target Price: 2.27 |
KUALA LUMPUR: Shares of Eversendai Corp slipped below its offer price of RM1.70 in late morning trade on Wednesday, July 20, despite the mild bargain hunting in the broader market for oversold stocks.
At 11.11am, it was down four sen to RM1.65 with 188,600 shares done.
The FBM KLCI was up 7.10 points to 1,562.64. Turnover was 302.44 million shares done valued at RM342.47 million. There were 367 gainers, 154 losers and 227 stocks unchanged.
RHB Research Institute had on Tuesday initiated coverage on Eversendai with a fair value of RM2.27 based on 14 times FY12/12 EPS.
'Initiate coverage with an Outperform call,' it said of the company which is a structural steel specialist with operations predominantly in Middle East, Malaysia and India.
' It is a rare 'outside-looking-in' home-grown CONSTRUCTION [] company that has excelled in the international market, practically almost indifferent to the local construction cycle,' said the research house.
RHB Research said Eversendai was recognised by key international contractors as a highly reliable structural steel contractor, with a strong market position in UAE and Qatar by virtue of its 26.5% market share in terms of fabrication capacity.
'Earnings visibility is good underpinned by RM1.5 billion outstanding orderbook and there is strong likelihood of securing another RM900 million worth of new jobs by the end of the year,' it said.
O&G: Cashing in on the ETP lock, stock and barrel
Stock Name: PERDANA
Company Name: PERDANA PETROLEUM BERHAD
Oil and gas sector
Maintain overweight: Investments are barrelling through for the oil & gas (O&G) sector, which has grabbed 52% of the total committed investments for the Economic Transformation Programme (ETP). The 12 ETP O&G projects are expected to contribute a staggering RM64 billion worth of gross national income in 2020. Marginal fields and risk-sharing contracts (RSC) give local service providers a shot at becoming developers and producers, but are the big test for the sector. The development of a regional storage and trading hub provides opportunities for downstream players. The ETP development plans keep the prospects bright and will lead to sustainable earnings for the players, supporting our projection of a high-octane three-year earnings per share compounded annual growth rate of 57.6%. We remain 'overweight' on the sector and upgrade Perdana Petroleum Bhd from 'underperform' to 'trading buy'. Our new favourites are Petronas Dagangan Bhd (PDB; target price raised from RM18.50 to RM21.60) and Perisai Petroleum Teknologi Bhd.
It is full speed ahead at Berantai as the contractors are racing to produce first gas by year-end. All eyes are on Berantai and the three-way consortium because the field is expected to set the benchmark for future RSCs, a new upstream licensing system introduced by Petroliam Nasional Bhd (Petronas). In our view, the RSC framework actually offers much greater incentive than the standard terms of a production-sharing contract (PSC).
Construction of the seven-year, RM5 billion Pengerang terminal in Johor has started. South Johor could have a total terminal capacity of 10 million cu m within the next seven years and could develop into a large petroleum, petrochemical and liquefied natural gas trading hub. Though not part of the ETP, the US$20 billion (RM60 billion) refinery and petrochemical integrated development (Rapid) project adds to the excitement in south Johor.
Over the past year, the O&G sector's market capitalisation has surged from RM30 billion to RM60 billion, fuelled primarily by the emergence of bigger caps and active news flow on the ETP, mergers and acquisitions and new contracts. With the exception of marine support providers Perdana and Alam Maritim Resources Bhd, all companies in our O&G portfolio are expected to post record net profit every year in FY11 to FY13. Reflecting improved prospects, our O&G portfolio has outperformed the FBM KLCI by 20% year-to-date, lifted primarily by PDB.
Its share price has enjoyed a re-rating, thanks to a record FY11 ended March performance, the management's improved investor relations and the anticipation of more bumper dividends ahead of the end-2013 deadline for utilisation of tax credits. Nonetheless, we still project substantial share price upside to this big cap.
Small-cap Perisai stands out for its attractive valuations and tremendous share price upside. Its FY12/FY13 price-earnings ratios are undemanding at below eight times, making Perisai the cheapest stock in our O&G portfolio. Our target price of RM1.60 implies share price upside of 106%, which is the highest in the sector.
The sharp fall in Perdana's share price presents a trading opportunity. Since we downgraded the stock from 'trading buy' to 'underperform' on Jan 19, 2011, the share price has plunged 28%, underperforming the FBM KLCI by 27%. After seven straight quarters of losses, signs are pointing to a potential turnaround in 2H11. ' CIMB Research, July 20
This article appeared in The Edge Financial Daily, July 21, 2011.
Company Name: PERDANA PETROLEUM BERHAD
| Research House: CIMB | Price Call: TRADING BUY | Target Price: 0.92 |
Oil and gas sector
Maintain overweight: Investments are barrelling through for the oil & gas (O&G) sector, which has grabbed 52% of the total committed investments for the Economic Transformation Programme (ETP). The 12 ETP O&G projects are expected to contribute a staggering RM64 billion worth of gross national income in 2020. Marginal fields and risk-sharing contracts (RSC) give local service providers a shot at becoming developers and producers, but are the big test for the sector. The development of a regional storage and trading hub provides opportunities for downstream players. The ETP development plans keep the prospects bright and will lead to sustainable earnings for the players, supporting our projection of a high-octane three-year earnings per share compounded annual growth rate of 57.6%. We remain 'overweight' on the sector and upgrade Perdana Petroleum Bhd from 'underperform' to 'trading buy'. Our new favourites are Petronas Dagangan Bhd (PDB; target price raised from RM18.50 to RM21.60) and Perisai Petroleum Teknologi Bhd.
It is full speed ahead at Berantai as the contractors are racing to produce first gas by year-end. All eyes are on Berantai and the three-way consortium because the field is expected to set the benchmark for future RSCs, a new upstream licensing system introduced by Petroliam Nasional Bhd (Petronas). In our view, the RSC framework actually offers much greater incentive than the standard terms of a production-sharing contract (PSC).
Construction of the seven-year, RM5 billion Pengerang terminal in Johor has started. South Johor could have a total terminal capacity of 10 million cu m within the next seven years and could develop into a large petroleum, petrochemical and liquefied natural gas trading hub. Though not part of the ETP, the US$20 billion (RM60 billion) refinery and petrochemical integrated development (Rapid) project adds to the excitement in south Johor.
Over the past year, the O&G sector's market capitalisation has surged from RM30 billion to RM60 billion, fuelled primarily by the emergence of bigger caps and active news flow on the ETP, mergers and acquisitions and new contracts. With the exception of marine support providers Perdana and Alam Maritim Resources Bhd, all companies in our O&G portfolio are expected to post record net profit every year in FY11 to FY13. Reflecting improved prospects, our O&G portfolio has outperformed the FBM KLCI by 20% year-to-date, lifted primarily by PDB.
Its share price has enjoyed a re-rating, thanks to a record FY11 ended March performance, the management's improved investor relations and the anticipation of more bumper dividends ahead of the end-2013 deadline for utilisation of tax credits. Nonetheless, we still project substantial share price upside to this big cap.
Small-cap Perisai stands out for its attractive valuations and tremendous share price upside. Its FY12/FY13 price-earnings ratios are undemanding at below eight times, making Perisai the cheapest stock in our O&G portfolio. Our target price of RM1.60 implies share price upside of 106%, which is the highest in the sector.
The sharp fall in Perdana's share price presents a trading opportunity. Since we downgraded the stock from 'trading buy' to 'underperform' on Jan 19, 2011, the share price has plunged 28%, underperforming the FBM KLCI by 27%. After seven straight quarters of losses, signs are pointing to a potential turnaround in 2H11. ' CIMB Research, July 20
This article appeared in The Edge Financial Daily, July 21, 2011.
O&G: Cashing in on the ETP lock, stock and barrel
Stock Name: PETDAG
Company Name: PETRONAS DAGANGAN BHD
Oil and gas sector
Maintain overweight: Investments are barrelling through for the oil & gas (O&G) sector, which has grabbed 52% of the total committed investments for the Economic Transformation Programme (ETP). The 12 ETP O&G projects are expected to contribute a staggering RM64 billion worth of gross national income in 2020. Marginal fields and risk-sharing contracts (RSC) give local service providers a shot at becoming developers and producers, but are the big test for the sector. The development of a regional storage and trading hub provides opportunities for downstream players. The ETP development plans keep the prospects bright and will lead to sustainable earnings for the players, supporting our projection of a high-octane three-year earnings per share compounded annual growth rate of 57.6%. We remain 'overweight' on the sector and upgrade Perdana Petroleum Bhd from 'underperform' to 'trading buy'. Our new favourites are Petronas Dagangan Bhd (PDB; target price raised from RM18.50 to RM21.60) and Perisai Petroleum Teknologi Bhd.
It is full speed ahead at Berantai as the contractors are racing to produce first gas by year-end. All eyes are on Berantai and the three-way consortium because the field is expected to set the benchmark for future RSCs, a new upstream licensing system introduced by Petroliam Nasional Bhd (Petronas). In our view, the RSC framework actually offers much greater incentive than the standard terms of a production-sharing contract (PSC).
Construction of the seven-year, RM5 billion Pengerang terminal in Johor has started. South Johor could have a total terminal capacity of 10 million cu m within the next seven years and could develop into a large petroleum, petrochemical and liquefied natural gas trading hub. Though not part of the ETP, the US$20 billion (RM60 billion) refinery and petrochemical integrated development (Rapid) project adds to the excitement in south Johor.
Over the past year, the O&G sector's market capitalisation has surged from RM30 billion to RM60 billion, fuelled primarily by the emergence of bigger caps and active news flow on the ETP, mergers and acquisitions and new contracts. With the exception of marine support providers Perdana and Alam Maritim Resources Bhd, all companies in our O&G portfolio are expected to post record net profit every year in FY11 to FY13. Reflecting improved prospects, our O&G portfolio has outperformed the FBM KLCI by 20% year-to-date, lifted primarily by PDB.
Its share price has enjoyed a re-rating, thanks to a record FY11 ended March performance, the management's improved investor relations and the anticipation of more bumper dividends ahead of the end-2013 deadline for utilisation of tax credits. Nonetheless, we still project substantial share price upside to this big cap.
Small-cap Perisai stands out for its attractive valuations and tremendous share price upside. Its FY12/FY13 price-earnings ratios are undemanding at below eight times, making Perisai the cheapest stock in our O&G portfolio. Our target price of RM1.60 implies share price upside of 106%, which is the highest in the sector.
The sharp fall in Perdana's share price presents a trading opportunity. Since we downgraded the stock from 'trading buy' to 'underperform' on Jan 19, 2011, the share price has plunged 28%, underperforming the FBM KLCI by 27%. After seven straight quarters of losses, signs are pointing to a potential turnaround in 2H11. ' CIMB Research, July 20
This article appeared in The Edge Financial Daily, July 21, 2011.
Company Name: PETRONAS DAGANGAN BHD
| Research House: CIMB | Price Call: BUY | Target Price: 21.60 |
Oil and gas sector
Maintain overweight: Investments are barrelling through for the oil & gas (O&G) sector, which has grabbed 52% of the total committed investments for the Economic Transformation Programme (ETP). The 12 ETP O&G projects are expected to contribute a staggering RM64 billion worth of gross national income in 2020. Marginal fields and risk-sharing contracts (RSC) give local service providers a shot at becoming developers and producers, but are the big test for the sector. The development of a regional storage and trading hub provides opportunities for downstream players. The ETP development plans keep the prospects bright and will lead to sustainable earnings for the players, supporting our projection of a high-octane three-year earnings per share compounded annual growth rate of 57.6%. We remain 'overweight' on the sector and upgrade Perdana Petroleum Bhd from 'underperform' to 'trading buy'. Our new favourites are Petronas Dagangan Bhd (PDB; target price raised from RM18.50 to RM21.60) and Perisai Petroleum Teknologi Bhd.
It is full speed ahead at Berantai as the contractors are racing to produce first gas by year-end. All eyes are on Berantai and the three-way consortium because the field is expected to set the benchmark for future RSCs, a new upstream licensing system introduced by Petroliam Nasional Bhd (Petronas). In our view, the RSC framework actually offers much greater incentive than the standard terms of a production-sharing contract (PSC).
Construction of the seven-year, RM5 billion Pengerang terminal in Johor has started. South Johor could have a total terminal capacity of 10 million cu m within the next seven years and could develop into a large petroleum, petrochemical and liquefied natural gas trading hub. Though not part of the ETP, the US$20 billion (RM60 billion) refinery and petrochemical integrated development (Rapid) project adds to the excitement in south Johor.
Over the past year, the O&G sector's market capitalisation has surged from RM30 billion to RM60 billion, fuelled primarily by the emergence of bigger caps and active news flow on the ETP, mergers and acquisitions and new contracts. With the exception of marine support providers Perdana and Alam Maritim Resources Bhd, all companies in our O&G portfolio are expected to post record net profit every year in FY11 to FY13. Reflecting improved prospects, our O&G portfolio has outperformed the FBM KLCI by 20% year-to-date, lifted primarily by PDB.
Its share price has enjoyed a re-rating, thanks to a record FY11 ended March performance, the management's improved investor relations and the anticipation of more bumper dividends ahead of the end-2013 deadline for utilisation of tax credits. Nonetheless, we still project substantial share price upside to this big cap.
Small-cap Perisai stands out for its attractive valuations and tremendous share price upside. Its FY12/FY13 price-earnings ratios are undemanding at below eight times, making Perisai the cheapest stock in our O&G portfolio. Our target price of RM1.60 implies share price upside of 106%, which is the highest in the sector.
The sharp fall in Perdana's share price presents a trading opportunity. Since we downgraded the stock from 'trading buy' to 'underperform' on Jan 19, 2011, the share price has plunged 28%, underperforming the FBM KLCI by 27%. After seven straight quarters of losses, signs are pointing to a potential turnaround in 2H11. ' CIMB Research, July 20
This article appeared in The Edge Financial Daily, July 21, 2011.
Star seeking inspiration in Life Inspired
Stock Name: STAR
Company Name: STAR PUBLICATIONS (M) BHD
Star Publications (M) Bhd
(July 20, RM3.43)
Maintain hold at RM3.41 with target price of RM3.69: Star will invest RM35 million for 51% of Li TV Holdings Ltd. Li TV owns and operates Li, Life Inspired, a pan-Asian lifestyle TV channel. It is loss-making but is not expected to materially impact Star's earnings. While we are encouraged that Star is continuing to diversify its media assets, it remains to be seen if Li TV can contribute meaningfully going forward. We maintain our 'hold' call.
Star is subscribing for 50% of Li TV for RM30 million (in new shares) and acquiring the other 1% for RM5 million from Juita Viden.
The remaining 49% is held by Juita Viden. Juita Viden is a content aggregator and has brought the Fear Factor and Deal or No Deal franchises to Malaysia.
As it plans to expand into China, Thailand, South Korea, Vietnam and Macau, its net loss may expand to some RM10 million this year before breaking even in 2013. Less 49% minority interest, the impact to Star's earnings on an annualised basis will be at most RM5.1 million net loss or less than 3%. Therefore, we leave our earnings estimates unchanged.
While we are positive that Star is continuing to diversify its media assets, we are aware that vernacular content is more popular in the countries that Li TV is in or plans to expand to, save for Singapore. Case in point, eight out of the 10 most watched channels in Malaysia are vernacular-based. It remains to be seen if Li TV can contribute meaningfully to Star going forward.
While we are cautiously positive, we will only re-rate Star should Li TV, its previous acquisitions (80% of Capital FM and 5% of Catcha Media) and oncoming acquisitions add value by contributing meaningfully. We understand that Star will next be focusing on acquiring outdoor companies. Until then, Star remains a 'hold'. ' Maybank IB Research, July 20
This article appeared in The Edge Financial Daily, July 21, 2011.
Company Name: STAR PUBLICATIONS (M) BHD
| Research House: MAYBANK | Price Call: HOLD | Target Price: 3.69 |
Star Publications (M) Bhd
(July 20, RM3.43)
Maintain hold at RM3.41 with target price of RM3.69: Star will invest RM35 million for 51% of Li TV Holdings Ltd. Li TV owns and operates Li, Life Inspired, a pan-Asian lifestyle TV channel. It is loss-making but is not expected to materially impact Star's earnings. While we are encouraged that Star is continuing to diversify its media assets, it remains to be seen if Li TV can contribute meaningfully going forward. We maintain our 'hold' call.
Star is subscribing for 50% of Li TV for RM30 million (in new shares) and acquiring the other 1% for RM5 million from Juita Viden.
The remaining 49% is held by Juita Viden. Juita Viden is a content aggregator and has brought the Fear Factor and Deal or No Deal franchises to Malaysia.
As it plans to expand into China, Thailand, South Korea, Vietnam and Macau, its net loss may expand to some RM10 million this year before breaking even in 2013. Less 49% minority interest, the impact to Star's earnings on an annualised basis will be at most RM5.1 million net loss or less than 3%. Therefore, we leave our earnings estimates unchanged.
While we are positive that Star is continuing to diversify its media assets, we are aware that vernacular content is more popular in the countries that Li TV is in or plans to expand to, save for Singapore. Case in point, eight out of the 10 most watched channels in Malaysia are vernacular-based. It remains to be seen if Li TV can contribute meaningfully to Star going forward.
While we are cautiously positive, we will only re-rate Star should Li TV, its previous acquisitions (80% of Capital FM and 5% of Catcha Media) and oncoming acquisitions add value by contributing meaningfully. We understand that Star will next be focusing on acquiring outdoor companies. Until then, Star remains a 'hold'. ' Maybank IB Research, July 20
This article appeared in The Edge Financial Daily, July 21, 2011.
Making a case for property equities
Stock Name: IVORY
Company Name: IVORY PROPERTIES GROUP BERHAD
Property sector
Maintain overweight: We reaffirm our 'overweight' stance and 'buy' ratings on S P Setia Bhd, IJM Land Bhd and Ivory Properties Group Bhd. From a fundamental standpoint, we are unmoved by the recent sentiment-driven selldown in property equities, triggered by market talk of potential policy tightening on residential demand. Among the concerns are the reintroduction of a graduated scale of real property gains tax (RPGT), mortgage loan approval criteria based on net salary and loan-to-value cap at 70% for the purchase of a second home. The selloffs have also been due to a weak market.
Thus far, there have not been any policy pronouncements on these fronts. And, our channel checks reveal mixed signals on the potential policy curbs. While we do not completely discount the rumoured policy tightening, our view is that any policy curbs, if they were to materialise, would not likely be severe enough to derail incremental residential demand formation given the significant multiplier effect of housing on economic growth. The authorities need to strike a delicate balance between ensuring the systemic stability of the banking system, consumer confidence and the development of the Iskandar Region in Johor where a vibrant housing market is a critical success factor.
In any case, we believe that property equities have surely priced in the policy risks by now. Consider this: sector stalwart S P Setia's share price has already tumbled by some 15% off its high of RM4.40 in April 2011, compared with the 1.5% rise in the KLCI index over the same period. This is much more severe than the 3% correction in S P Setia's share price when the government imposed the LTV cap of 70% for third homes.
The valuation retracement ' as reflected in the widening of discount to net asset values (S P Setia is trading at a 30% discount to our NAV and IJM Land 39%) ' implies that the balance of risks is on the upside. This is because we are seeing a sustained strength of the primary market where pre-sales are holding up very well. Just last week, we witnessed the overwhelming market response to the launch of Mah Sing's Icon City and Sunway City's Velocity. And, mature townships continue to register robust pre-sales of landed homes.
Admittedly, the secondary market is seeing a slowdown in transactions. Rising physical completion may also put a cap on asking prices. Nonetheless, our sense is that landlords have the holding power to sit on the completed homes. The secondary market may see a widening in bid and ask prices leading to slower transactions. But as long as pre-sales prices are still inching up, secondary prices appear unlikely to soften significantly.
We remain committed to our investment thesis of an extended residential pricing upcycle, although price gains are likely to be more modest because of a higher base. The current pricing strength in the primary market also reflects rising replacement cost of land. More importantly for property equities, we believe that the NAV growth story is intact even in an environment of slower residential price gains.
We put forth three reasons: NAV-accretive land deals. This is the primary valuation driver given that well-executed land deals would accelerate NAV growth. S P Setia, IJM Land and Ivory Properties are the frontrunners for several land deals, we believe. With urban renewal gaining traction, developers would be able to capitalise on the ongoing privatisation of government land and staff quarters. This structural change in the land supply side is a significant positive.
There may also be potential liberalisation of residential plot ratios in established urban areas where there is an acute shortage of land available for development, coupled with strong effective demand, we believe. As it is, we are already seeing generous plot ratios at select sites to defray the high
land cost. Such a move, if it materialises, would accentuate NAV expansion stemming from higher gross development value.
Valuation kicker from the redevelopment of Sungai Buloh. The Sungai Buloh land has high immediate development potential. Kwasa Land ' the development arm of the Employees Provident Fund ' is expected to announce the tender for the first parcel by 1H12. Work on the MRT lines and stations in the locality has commenced.
Earnings delivery is intact as developers ' S P Setia and IJM Land ' are sitting on record unbilled sales of RM3.5 billion and RM1 billion to RM1.5 billion. Taken together with the scope for NAV growth, we believe that properties equities are cheap from both the earnings and assets perspectives. One negative though, is the market risk in the near term: we expect the KLCI to move sideways with consensus earnings expectations bottoming out in 3Q11. This should pave the way for the next leg up in early 4Q11 when we expect the KLCI to end the year at around 1,650 ' with property equities leading the upturn as we approach the tender for the Sungai Buloh land in 1H12. ' AmResearch, July 20
This article appeared in The Edge Financial Daily, July 21, 2011
Company Name: IVORY PROPERTIES GROUP BERHAD
| Research House: AMMB | Price Call: BUY | Target Price: 1.70 |
Property sector
Maintain overweight: We reaffirm our 'overweight' stance and 'buy' ratings on S P Setia Bhd, IJM Land Bhd and Ivory Properties Group Bhd. From a fundamental standpoint, we are unmoved by the recent sentiment-driven selldown in property equities, triggered by market talk of potential policy tightening on residential demand. Among the concerns are the reintroduction of a graduated scale of real property gains tax (RPGT), mortgage loan approval criteria based on net salary and loan-to-value cap at 70% for the purchase of a second home. The selloffs have also been due to a weak market.
Thus far, there have not been any policy pronouncements on these fronts. And, our channel checks reveal mixed signals on the potential policy curbs. While we do not completely discount the rumoured policy tightening, our view is that any policy curbs, if they were to materialise, would not likely be severe enough to derail incremental residential demand formation given the significant multiplier effect of housing on economic growth. The authorities need to strike a delicate balance between ensuring the systemic stability of the banking system, consumer confidence and the development of the Iskandar Region in Johor where a vibrant housing market is a critical success factor.
In any case, we believe that property equities have surely priced in the policy risks by now. Consider this: sector stalwart S P Setia's share price has already tumbled by some 15% off its high of RM4.40 in April 2011, compared with the 1.5% rise in the KLCI index over the same period. This is much more severe than the 3% correction in S P Setia's share price when the government imposed the LTV cap of 70% for third homes.
The valuation retracement ' as reflected in the widening of discount to net asset values (S P Setia is trading at a 30% discount to our NAV and IJM Land 39%) ' implies that the balance of risks is on the upside. This is because we are seeing a sustained strength of the primary market where pre-sales are holding up very well. Just last week, we witnessed the overwhelming market response to the launch of Mah Sing's Icon City and Sunway City's Velocity. And, mature townships continue to register robust pre-sales of landed homes.
Admittedly, the secondary market is seeing a slowdown in transactions. Rising physical completion may also put a cap on asking prices. Nonetheless, our sense is that landlords have the holding power to sit on the completed homes. The secondary market may see a widening in bid and ask prices leading to slower transactions. But as long as pre-sales prices are still inching up, secondary prices appear unlikely to soften significantly.
We remain committed to our investment thesis of an extended residential pricing upcycle, although price gains are likely to be more modest because of a higher base. The current pricing strength in the primary market also reflects rising replacement cost of land. More importantly for property equities, we believe that the NAV growth story is intact even in an environment of slower residential price gains.
We put forth three reasons: NAV-accretive land deals. This is the primary valuation driver given that well-executed land deals would accelerate NAV growth. S P Setia, IJM Land and Ivory Properties are the frontrunners for several land deals, we believe. With urban renewal gaining traction, developers would be able to capitalise on the ongoing privatisation of government land and staff quarters. This structural change in the land supply side is a significant positive.
There may also be potential liberalisation of residential plot ratios in established urban areas where there is an acute shortage of land available for development, coupled with strong effective demand, we believe. As it is, we are already seeing generous plot ratios at select sites to defray the high
land cost. Such a move, if it materialises, would accentuate NAV expansion stemming from higher gross development value.
Valuation kicker from the redevelopment of Sungai Buloh. The Sungai Buloh land has high immediate development potential. Kwasa Land ' the development arm of the Employees Provident Fund ' is expected to announce the tender for the first parcel by 1H12. Work on the MRT lines and stations in the locality has commenced.
Earnings delivery is intact as developers ' S P Setia and IJM Land ' are sitting on record unbilled sales of RM3.5 billion and RM1 billion to RM1.5 billion. Taken together with the scope for NAV growth, we believe that properties equities are cheap from both the earnings and assets perspectives. One negative though, is the market risk in the near term: we expect the KLCI to move sideways with consensus earnings expectations bottoming out in 3Q11. This should pave the way for the next leg up in early 4Q11 when we expect the KLCI to end the year at around 1,650 ' with property equities leading the upturn as we approach the tender for the Sungai Buloh land in 1H12. ' AmResearch, July 20
This article appeared in The Edge Financial Daily, July 21, 2011
Making a case for property equities
Stock Name: SPSETIA
Company Name: SP SETIA BHD
Property sector
Maintain overweight: We reaffirm our 'overweight' stance and 'buy' ratings on S P Setia Bhd, IJM Land Bhd and Ivory Properties Group Bhd. From a fundamental standpoint, we are unmoved by the recent sentiment-driven selldown in property equities, triggered by market talk of potential policy tightening on residential demand. Among the concerns are the reintroduction of a graduated scale of real property gains tax (RPGT), mortgage loan approval criteria based on net salary and loan-to-value cap at 70% for the purchase of a second home. The selloffs have also been due to a weak market.
Thus far, there have not been any policy pronouncements on these fronts. And, our channel checks reveal mixed signals on the potential policy curbs. While we do not completely discount the rumoured policy tightening, our view is that any policy curbs, if they were to materialise, would not likely be severe enough to derail incremental residential demand formation given the significant multiplier effect of housing on economic growth. The authorities need to strike a delicate balance between ensuring the systemic stability of the banking system, consumer confidence and the development of the Iskandar Region in Johor where a vibrant housing market is a critical success factor.
In any case, we believe that property equities have surely priced in the policy risks by now. Consider this: sector stalwart S P Setia's share price has already tumbled by some 15% off its high of RM4.40 in April 2011, compared with the 1.5% rise in the KLCI index over the same period. This is much more severe than the 3% correction in S P Setia's share price when the government imposed the LTV cap of 70% for third homes.
The valuation retracement ' as reflected in the widening of discount to net asset values (S P Setia is trading at a 30% discount to our NAV and IJM Land 39%) ' implies that the balance of risks is on the upside. This is because we are seeing a sustained strength of the primary market where pre-sales are holding up very well. Just last week, we witnessed the overwhelming market response to the launch of Mah Sing's Icon City and Sunway City's Velocity. And, mature townships continue to register robust pre-sales of landed homes.
Admittedly, the secondary market is seeing a slowdown in transactions. Rising physical completion may also put a cap on asking prices. Nonetheless, our sense is that landlords have the holding power to sit on the completed homes. The secondary market may see a widening in bid and ask prices leading to slower transactions. But as long as pre-sales prices are still inching up, secondary prices appear unlikely to soften significantly.
We remain committed to our investment thesis of an extended residential pricing upcycle, although price gains are likely to be more modest because of a higher base. The current pricing strength in the primary market also reflects rising replacement cost of land. More importantly for property equities, we believe that the NAV growth story is intact even in an environment of slower residential price gains.
We put forth three reasons: NAV-accretive land deals. This is the primary valuation driver given that well-executed land deals would accelerate NAV growth. S P Setia, IJM Land and Ivory Properties are the frontrunners for several land deals, we believe. With urban renewal gaining traction, developers would be able to capitalise on the ongoing privatisation of government land and staff quarters. This structural change in the land supply side is a significant positive.
There may also be potential liberalisation of residential plot ratios in established urban areas where there is an acute shortage of land available for development, coupled with strong effective demand, we believe. As it is, we are already seeing generous plot ratios at select sites to defray the high
land cost. Such a move, if it materialises, would accentuate NAV expansion stemming from higher gross development value.
Valuation kicker from the redevelopment of Sungai Buloh. The Sungai Buloh land has high immediate development potential. Kwasa Land ' the development arm of the Employees Provident Fund ' is expected to announce the tender for the first parcel by 1H12. Work on the MRT lines and stations in the locality has commenced.
Earnings delivery is intact as developers ' S P Setia and IJM Land ' are sitting on record unbilled sales of RM3.5 billion and RM1 billion to RM1.5 billion. Taken together with the scope for NAV growth, we believe that properties equities are cheap from both the earnings and assets perspectives. One negative though, is the market risk in the near term: we expect the KLCI to move sideways with consensus earnings expectations bottoming out in 3Q11. This should pave the way for the next leg up in early 4Q11 when we expect the KLCI to end the year at around 1,650 ' with property equities leading the upturn as we approach the tender for the Sungai Buloh land in 1H12. ' AmResearch, July 20
This article appeared in The Edge Financial Daily, July 21, 2011
Company Name: SP SETIA BHD
| Research House: AMMB | Price Call: BUY | Target Price: 5.41 |
Property sector
Maintain overweight: We reaffirm our 'overweight' stance and 'buy' ratings on S P Setia Bhd, IJM Land Bhd and Ivory Properties Group Bhd. From a fundamental standpoint, we are unmoved by the recent sentiment-driven selldown in property equities, triggered by market talk of potential policy tightening on residential demand. Among the concerns are the reintroduction of a graduated scale of real property gains tax (RPGT), mortgage loan approval criteria based on net salary and loan-to-value cap at 70% for the purchase of a second home. The selloffs have also been due to a weak market.
Thus far, there have not been any policy pronouncements on these fronts. And, our channel checks reveal mixed signals on the potential policy curbs. While we do not completely discount the rumoured policy tightening, our view is that any policy curbs, if they were to materialise, would not likely be severe enough to derail incremental residential demand formation given the significant multiplier effect of housing on economic growth. The authorities need to strike a delicate balance between ensuring the systemic stability of the banking system, consumer confidence and the development of the Iskandar Region in Johor where a vibrant housing market is a critical success factor.
In any case, we believe that property equities have surely priced in the policy risks by now. Consider this: sector stalwart S P Setia's share price has already tumbled by some 15% off its high of RM4.40 in April 2011, compared with the 1.5% rise in the KLCI index over the same period. This is much more severe than the 3% correction in S P Setia's share price when the government imposed the LTV cap of 70% for third homes.
The valuation retracement ' as reflected in the widening of discount to net asset values (S P Setia is trading at a 30% discount to our NAV and IJM Land 39%) ' implies that the balance of risks is on the upside. This is because we are seeing a sustained strength of the primary market where pre-sales are holding up very well. Just last week, we witnessed the overwhelming market response to the launch of Mah Sing's Icon City and Sunway City's Velocity. And, mature townships continue to register robust pre-sales of landed homes.
Admittedly, the secondary market is seeing a slowdown in transactions. Rising physical completion may also put a cap on asking prices. Nonetheless, our sense is that landlords have the holding power to sit on the completed homes. The secondary market may see a widening in bid and ask prices leading to slower transactions. But as long as pre-sales prices are still inching up, secondary prices appear unlikely to soften significantly.
We remain committed to our investment thesis of an extended residential pricing upcycle, although price gains are likely to be more modest because of a higher base. The current pricing strength in the primary market also reflects rising replacement cost of land. More importantly for property equities, we believe that the NAV growth story is intact even in an environment of slower residential price gains.
We put forth three reasons: NAV-accretive land deals. This is the primary valuation driver given that well-executed land deals would accelerate NAV growth. S P Setia, IJM Land and Ivory Properties are the frontrunners for several land deals, we believe. With urban renewal gaining traction, developers would be able to capitalise on the ongoing privatisation of government land and staff quarters. This structural change in the land supply side is a significant positive.
There may also be potential liberalisation of residential plot ratios in established urban areas where there is an acute shortage of land available for development, coupled with strong effective demand, we believe. As it is, we are already seeing generous plot ratios at select sites to defray the high
land cost. Such a move, if it materialises, would accentuate NAV expansion stemming from higher gross development value.
Valuation kicker from the redevelopment of Sungai Buloh. The Sungai Buloh land has high immediate development potential. Kwasa Land ' the development arm of the Employees Provident Fund ' is expected to announce the tender for the first parcel by 1H12. Work on the MRT lines and stations in the locality has commenced.
Earnings delivery is intact as developers ' S P Setia and IJM Land ' are sitting on record unbilled sales of RM3.5 billion and RM1 billion to RM1.5 billion. Taken together with the scope for NAV growth, we believe that properties equities are cheap from both the earnings and assets perspectives. One negative though, is the market risk in the near term: we expect the KLCI to move sideways with consensus earnings expectations bottoming out in 3Q11. This should pave the way for the next leg up in early 4Q11 when we expect the KLCI to end the year at around 1,650 ' with property equities leading the upturn as we approach the tender for the Sungai Buloh land in 1H12. ' AmResearch, July 20
This article appeared in The Edge Financial Daily, July 21, 2011
Star advances on TV investment
Stock Name: STAR
Company Name: STAR PUBLICATIONS (M) BHD
Star Publications Bhd, a Malaysian newspaper publisher, rose to its highest level in more than three months after agreeing to invest RM35 million in Hong Kong's Li TV.
The stock advanced 1.2 per cent to RM3.45 at 9:06 a.m. local time in Kuala Lumpur trading, set for its highest close since April 6.
-- Bloomberg
Company Name: STAR PUBLICATIONS (M) BHD
| Research House: OSK | Price Call: HOLD | Target Price: 3.57 |
Star Publications Bhd, a Malaysian newspaper publisher, rose to its highest level in more than three months after agreeing to invest RM35 million in Hong Kong's Li TV.
The stock advanced 1.2 per cent to RM3.45 at 9:06 a.m. local time in Kuala Lumpur trading, set for its highest close since April 6.
-- Bloomberg
Ajiya gains on Q2 net income jump
Stock Name: AJIYA
Company Name: AJIYA BHD
Ajiya Bhd, a Malaysian building materials supplier, rose to its highest level in almost a month after second-quarter net income rose 13 per cent to RM7.2 million.
The stock gained 1.1 per cent to RM1.78 at 9:01 a.m. local time in Kuala Lumpur trading, set for its highest close since June 24. -- Bloomberg
Company Name: AJIYA BHD
| Research House: OSK | Price Call: BUY | Target Price: 2.17 |
Ajiya Bhd, a Malaysian building materials supplier, rose to its highest level in almost a month after second-quarter net income rose 13 per cent to RM7.2 million.
The stock gained 1.1 per cent to RM1.78 at 9:01 a.m. local time in Kuala Lumpur trading, set for its highest close since June 24. -- Bloomberg
July 19, 2011
Inari to be listed today
Stock Name: INARI
Company Name: INARI BERHAD
Inari Bhd
IPO today with issue price 38 sen
Fair value of 41 sen: Inari Bhd is an electronic manufacturing services (EMS) company, through its subsidiary, mainly involved in back-end semiconductor packaging and complete box-build products.
The company has a three-proned strategy for its future which comprises:
(1) Expanding the customer base. Inari is looking to increase its customer base as well as new products and services. Already, it has secured new customers such as NewICT (M) Sdn Bhd, Wi2Wi Inc and SiLQ (M) Sdn Bhd to produce medical sensors, WiMAX modems and so on.
(2) Capacity expansion. The company is constructing a new manufacturing plant to cater for new businesses as well as to expand its R&D facility. Coupled with machinery upgrades and new machinery, the company plans to increase capacity by 35% to 40% by 2012.
(3) Setting up a technical advisory panel in order to keep up with the latest technology developments. This will allow the company to strengthen its R&D, which would allow enhancement of production capability in addition to providing additional services.
We forecast FY10/FY12 earnings per share (EPS) compound annual growth rate of 10.3%, mainly driven by: (i) higher sales volume of packaging services on the back of rising mobile phone and tablet demand; (ii) contribution from back-end wafer services; and (iii) stronger contribution from RF final testing in tandem with its packaging services and higher demand for stringent testing. Given its niche in the communications segment, we believe this mitigates concerns of weaker-than-expected chip demand in other segments such as consumer electronics and PCs in the near term.
We believe it is fair to compare Inari with global peers (against local packaging peers) in RF solutions and wireless given that it is mainly focused on the communications segment. We have derived a target price-earnings ratio of seven times, which implies a 44% discount to the peers' weighted average to reflect its smaller market capitalisation. Thus, we estimate a fair value of 41 sen per share based on seven times CY12 EPS. ' RHB Research, July 18
This article appeared in The Edge Financial Daily, July 19, 2011.
Company Name: INARI BERHAD
| Research House: RHB | Price Call: HOLD | Target Price: 0.41 |
Inari Bhd
IPO today with issue price 38 sen
Fair value of 41 sen: Inari Bhd is an electronic manufacturing services (EMS) company, through its subsidiary, mainly involved in back-end semiconductor packaging and complete box-build products.
The company has a three-proned strategy for its future which comprises:
(1) Expanding the customer base. Inari is looking to increase its customer base as well as new products and services. Already, it has secured new customers such as NewICT (M) Sdn Bhd, Wi2Wi Inc and SiLQ (M) Sdn Bhd to produce medical sensors, WiMAX modems and so on.
(2) Capacity expansion. The company is constructing a new manufacturing plant to cater for new businesses as well as to expand its R&D facility. Coupled with machinery upgrades and new machinery, the company plans to increase capacity by 35% to 40% by 2012.
(3) Setting up a technical advisory panel in order to keep up with the latest technology developments. This will allow the company to strengthen its R&D, which would allow enhancement of production capability in addition to providing additional services.
We forecast FY10/FY12 earnings per share (EPS) compound annual growth rate of 10.3%, mainly driven by: (i) higher sales volume of packaging services on the back of rising mobile phone and tablet demand; (ii) contribution from back-end wafer services; and (iii) stronger contribution from RF final testing in tandem with its packaging services and higher demand for stringent testing. Given its niche in the communications segment, we believe this mitigates concerns of weaker-than-expected chip demand in other segments such as consumer electronics and PCs in the near term.
We believe it is fair to compare Inari with global peers (against local packaging peers) in RF solutions and wireless given that it is mainly focused on the communications segment. We have derived a target price-earnings ratio of seven times, which implies a 44% discount to the peers' weighted average to reflect its smaller market capitalisation. Thus, we estimate a fair value of 41 sen per share based on seven times CY12 EPS. ' RHB Research, July 18
This article appeared in The Edge Financial Daily, July 19, 2011.
Perwaja's earnings set to surge: OSK
Stock Name: PERWAJA
Company Name: PERWAJA HOLDINGS BERHAD
Manufacturer of primary steel producer, Perwaja Holdings Bhd, is likely to bid for and secure several parcels of mining land concession to be awarded by the Pahang and Terengganu states soon.
This is highly possible given the fact that Perwaja had recently made known its intention to venture into iron ore mining, a raw material which could be used in the new iron ore pelletization plant in Kemaman, Terengganu, expected to be operational in the first half of next year.
"It (the concession) may result in a surge in Perwaja''s earnings," said OSK Research.
In the first quarter ended March 31, 2011, Perwaja registered a pre-tax loss of RM24.282 million compared with a pre-tax profit of RM22.66 million chalked up previously, while revenue dropped to RM426 million, from RM373.7 million, registered earlier.
The mining concession follows Prime Minister Datuk Seri Najib Tun Razak''s pledge to encouraging states with iron ore and coal reserves to allocate more land for steel manufacturers to undertake commercial mining to enhance their operations.
"We understand from our market intelligence that there are a few parcels of mining land in Pahang and Terengganu which are set to be awarded by the respective state governments anytime soon," said OSK, adding that there was a strong possibility Perwaja would grab at least one of the new mining plots, especially in Terengganu.
Perwaja''s plant, strategically located in Kemaman and its new pelletization plant in Kemaman, is set to enhance the value of bare iron ore fine, which could be used as feed material for its direct reduced iron plant.
The fact that Perwaja was originally a national project also raised the possibility of the company securing any upcoming iron ore mining concession in Terengganu or Pahang, said OSK.
OSK recapped that Terengganu Menteri Besar Datuk Ahmad Said had recently said the state''s Minerals and Geoscience Department was conducting a six-month study on the viability of reopening the iron mine in Bukit Besi.
"If there is any mining to be done there, the state government itself will do it by forming a joint venture with private companies," he said.
Bukit Besi''s mines are generally served by good network of public roads.
OSK also said in the event Perwaja secured an iron ore mining licence or concession, its immediate savings would be a hefty US$100 (RM300) a tonne as the cost of mining was less than US$50 (RM150) per tonne.
Besides, the potential margin from palletizing should benefit the company as transportation costs would be below US$10 (RM30) per tone compared with the current capesize bulker freight of more than US$10 and US$20 per tonne from Australia and Brazil, respectively.
OSK said in the event Perwaja secured an iron ore concession and, based on the assumption that the iron ore mine would start operations in January 2012, a production cost of US$50 per tonne and tax free mining should result in Perwaja utilising its RM1.6 billion tax credit on unabsorbed tax losses.
"Our back-of-envelope discounted cash flow computation shows that the iron ore mining concession is worth a mouth-watering RM4.15 per share," it said.
This analysis is based on the assumption Perwaja manages to secure a 400 hectare iron ore mine in Bukit Besi with an initial capital outlay of US$10 million, produces 500,000 tonnes of iron ore in 2012, one million tonnes in 2013 and up to two million from 2014 onwards to 2031, production cost remained at US$50 per tonne throughout the concession tenure and with iron ore selling prices averaging about US$120 per tonne in 2012.
Meanwhile, Perwaja shares perked three sen to close at 91 sen on Bursa Malaysia today. -- Bernama
Company Name: PERWAJA HOLDINGS BERHAD
| Research House: OSK | Price Call: TRADING BUY | Target Price: 1.05 |
Manufacturer of primary steel producer, Perwaja Holdings Bhd, is likely to bid for and secure several parcels of mining land concession to be awarded by the Pahang and Terengganu states soon.
This is highly possible given the fact that Perwaja had recently made known its intention to venture into iron ore mining, a raw material which could be used in the new iron ore pelletization plant in Kemaman, Terengganu, expected to be operational in the first half of next year.
"It (the concession) may result in a surge in Perwaja''s earnings," said OSK Research.
In the first quarter ended March 31, 2011, Perwaja registered a pre-tax loss of RM24.282 million compared with a pre-tax profit of RM22.66 million chalked up previously, while revenue dropped to RM426 million, from RM373.7 million, registered earlier.
The mining concession follows Prime Minister Datuk Seri Najib Tun Razak''s pledge to encouraging states with iron ore and coal reserves to allocate more land for steel manufacturers to undertake commercial mining to enhance their operations.
"We understand from our market intelligence that there are a few parcels of mining land in Pahang and Terengganu which are set to be awarded by the respective state governments anytime soon," said OSK, adding that there was a strong possibility Perwaja would grab at least one of the new mining plots, especially in Terengganu.
Perwaja''s plant, strategically located in Kemaman and its new pelletization plant in Kemaman, is set to enhance the value of bare iron ore fine, which could be used as feed material for its direct reduced iron plant.
The fact that Perwaja was originally a national project also raised the possibility of the company securing any upcoming iron ore mining concession in Terengganu or Pahang, said OSK.
OSK recapped that Terengganu Menteri Besar Datuk Ahmad Said had recently said the state''s Minerals and Geoscience Department was conducting a six-month study on the viability of reopening the iron mine in Bukit Besi.
"If there is any mining to be done there, the state government itself will do it by forming a joint venture with private companies," he said.
Bukit Besi''s mines are generally served by good network of public roads.
OSK also said in the event Perwaja secured an iron ore mining licence or concession, its immediate savings would be a hefty US$100 (RM300) a tonne as the cost of mining was less than US$50 (RM150) per tonne.
Besides, the potential margin from palletizing should benefit the company as transportation costs would be below US$10 (RM30) per tone compared with the current capesize bulker freight of more than US$10 and US$20 per tonne from Australia and Brazil, respectively.
OSK said in the event Perwaja secured an iron ore concession and, based on the assumption that the iron ore mine would start operations in January 2012, a production cost of US$50 per tonne and tax free mining should result in Perwaja utilising its RM1.6 billion tax credit on unabsorbed tax losses.
"Our back-of-envelope discounted cash flow computation shows that the iron ore mining concession is worth a mouth-watering RM4.15 per share," it said.
This analysis is based on the assumption Perwaja manages to secure a 400 hectare iron ore mine in Bukit Besi with an initial capital outlay of US$10 million, produces 500,000 tonnes of iron ore in 2012, one million tonnes in 2013 and up to two million from 2014 onwards to 2031, production cost remained at US$50 per tonne throughout the concession tenure and with iron ore selling prices averaging about US$120 per tonne in 2012.
Meanwhile, Perwaja shares perked three sen to close at 91 sen on Bursa Malaysia today. -- Bernama
CIMB Research initiates coverage on UOA Devt, TP RM3.25
Stock Name: UOADEV
Company Name: UOA DEVELOPMENT BERHAD
KUALA LUMPUR: CIMB Equities Research has initiated coverage on UOA Development Bhd with a target price of RM3.25 based on 13.1 times FY12 P/E or a 10% discount to its target market P/E of 14.5 times.
'UOA Development's poor share price performance since its listing gives investors a chance to accumulate the stock on the cheap. Investors' realisation of the strong core earnings growth in FY11-13 could spark a re-rating, along with robust sales or more land banking,' it said on Tuesday, July 19.
CIMB Research said what sets UOA Development apart from its rivals is its wide gross margin of around 50%, which puts it well ahead of many sizeable established developers and will help this highly profitable developer to nearly triple its core net profit in FY12.
'In view of its relatively small landbank but consistent track record for landbanking and earnings expansion, we are valuing it on P/E basis, similar to other quick turnaround companies,' it said.
The research house said UOA Development has around 100 acres of undeveloped landbank with GDV of RM11bn. Its flagship project is the 60-acre Bangsar South project in Kuala Lumpur which has a GDV of over RM8bn.
'Besides various undeveloped residential and commercial components of Bangsar South worth RM6.1bn, UOA Development has another 10 projects with GDV worth nearly RM3bn which will be launched over the next 2-3 years. The group enjoys wide margins ranging from 35% to 60% as it prices its PROPERTIES [] at a premium and captures CONSTRUCTION [] margins internally,' it said.
Company Name: UOA DEVELOPMENT BERHAD
| Research House: CIMB | Price Call: BUY | Target Price: 3.25 |
KUALA LUMPUR: CIMB Equities Research has initiated coverage on UOA Development Bhd with a target price of RM3.25 based on 13.1 times FY12 P/E or a 10% discount to its target market P/E of 14.5 times.
'UOA Development's poor share price performance since its listing gives investors a chance to accumulate the stock on the cheap. Investors' realisation of the strong core earnings growth in FY11-13 could spark a re-rating, along with robust sales or more land banking,' it said on Tuesday, July 19.
CIMB Research said what sets UOA Development apart from its rivals is its wide gross margin of around 50%, which puts it well ahead of many sizeable established developers and will help this highly profitable developer to nearly triple its core net profit in FY12.
'In view of its relatively small landbank but consistent track record for landbanking and earnings expansion, we are valuing it on P/E basis, similar to other quick turnaround companies,' it said.
The research house said UOA Development has around 100 acres of undeveloped landbank with GDV of RM11bn. Its flagship project is the 60-acre Bangsar South project in Kuala Lumpur which has a GDV of over RM8bn.
'Besides various undeveloped residential and commercial components of Bangsar South worth RM6.1bn, UOA Development has another 10 projects with GDV worth nearly RM3bn which will be launched over the next 2-3 years. The group enjoys wide margins ranging from 35% to 60% as it prices its PROPERTIES [] at a premium and captures CONSTRUCTION [] margins internally,' it said.
OSK upgrades AirAsia to RM4.34
Stock Name: AIRASIA
Company Name: AIRASIA BHD
OSK Research Sdn Bhd has upgraded its fair value on AirAsia Bhd to RM4.34 from RM3.89 while maintaining its 'buy' call.
In a research note today, OSK said AirAsia's revenue passenger kilometres (RPK) and passenger carriage for first half of financial year 2011 (1HFY11) remained consistently strong, growing by 16 per cent and 23.2 per cent year-to-date.
"Considering that 1H is typically the weaker half of the year, AirAsia's numbers nevertheless remained consistently strong despite the fuel surcharge having taking full effect in May," it said.
It said AirAsia's second quarter earnings were expected to rise further quarter-on-quarter on the back of improving yields due to the fuel surcharge, loan factor and RPK. -- Bernama
Company Name: AIRASIA BHD
| Research House: OSK | Price Call: BUY | Target Price: 4.34 |
OSK Research Sdn Bhd has upgraded its fair value on AirAsia Bhd to RM4.34 from RM3.89 while maintaining its 'buy' call.
In a research note today, OSK said AirAsia's revenue passenger kilometres (RPK) and passenger carriage for first half of financial year 2011 (1HFY11) remained consistently strong, growing by 16 per cent and 23.2 per cent year-to-date.
"Considering that 1H is typically the weaker half of the year, AirAsia's numbers nevertheless remained consistently strong despite the fuel surcharge having taking full effect in May," it said.
It said AirAsia's second quarter earnings were expected to rise further quarter-on-quarter on the back of improving yields due to the fuel surcharge, loan factor and RPK. -- Bernama
Slower QoQ earnings in line with expectations
Stock Name: BURSA
Company Name: BURSA MALAYSIA BHD
Company Name: BURSA MALAYSIA BHD
| Research House: AMMB | Price Call: BUY | Target Price: 9.60 |
UMW hanging tough in challenging times
Stock Name: UMW
Company Name: UMW HOLDINGS BHD
UMW Holdings Bhd
(July 19, RM7.50)
Maintain hold at RM7.47 with target price of RM7.20: We remain less upbeat on UMW's midterm prospects, with concerns still over some issues in the automotive and oil and gas (O&G) divisions. We expect softer year-on-year vehicle sales in 2011, dogged by global supply chain disruption and amendments to the Hire Purchase Act. O&G will likely underperform in 2011. We are also not ruling out the disposal of its non-core O&G operations as it revamps the division. With the ongoing operational issues, the listing of its O&G division is unlikely to take off soon. We maintain our 2011/12 earnings forecasts. Our RM7.20 target price, based on 12 times 2012 earnings per share, is unchanged.
We are keeping our vehicle sales forecasts for 2011 unchanged, expecting a lower 90,000 units (-3% y-o-y) for Toyota and 172,000 units (-9% y-o-y) for Perodua. We are on track with internal forecasts for Toyota but are 12% below UMW's target for Perodua (195,000 units). We reiterate that the global supply chain disruption from Japan's earthquake and tsunami and recent amendment to the Hire Purchase Act will affect orders and delivery. April/May car sales concur with our apprehension with Toyota and Perodua sales contracting 9% to 23% and 13% to 26% y-o-y respectively.
We have a contrarian view, for the internal expectation is more optimistic. We expect 22.3%-associate WSP Holdings Ltd operations to remain challenging in 2011, hit by the anti-dumping and countervailing issues in the US and intense competition in China. While Naga 1 is giving decent returns, we think that Naga 2 & 3 will fall below expectations and deliver razor-thin margins, owing to high operating costs.
Stern Stewart & Co, a management consultant, has been engaged to conduct an economic value added (EVA) programme on some of UMW's major investments. The management is tight-lipped on this but we suspect the review is largely on the O&G division. We opine that UMW will continue to focus on its rig charter and pipe manufacturing businesses but could dispose non-core assets (fabrication). ' Maybank IB Research, July 19
This article appeared in The Edge Financial Daily, July 20, 2011.
Company Name: UMW HOLDINGS BHD
| Research House: MAYBANK | Price Call: HOLD | Target Price: 7.20 |
UMW Holdings Bhd
(July 19, RM7.50)
Maintain hold at RM7.47 with target price of RM7.20: We remain less upbeat on UMW's midterm prospects, with concerns still over some issues in the automotive and oil and gas (O&G) divisions. We expect softer year-on-year vehicle sales in 2011, dogged by global supply chain disruption and amendments to the Hire Purchase Act. O&G will likely underperform in 2011. We are also not ruling out the disposal of its non-core O&G operations as it revamps the division. With the ongoing operational issues, the listing of its O&G division is unlikely to take off soon. We maintain our 2011/12 earnings forecasts. Our RM7.20 target price, based on 12 times 2012 earnings per share, is unchanged.
We are keeping our vehicle sales forecasts for 2011 unchanged, expecting a lower 90,000 units (-3% y-o-y) for Toyota and 172,000 units (-9% y-o-y) for Perodua. We are on track with internal forecasts for Toyota but are 12% below UMW's target for Perodua (195,000 units). We reiterate that the global supply chain disruption from Japan's earthquake and tsunami and recent amendment to the Hire Purchase Act will affect orders and delivery. April/May car sales concur with our apprehension with Toyota and Perodua sales contracting 9% to 23% and 13% to 26% y-o-y respectively.
We have a contrarian view, for the internal expectation is more optimistic. We expect 22.3%-associate WSP Holdings Ltd operations to remain challenging in 2011, hit by the anti-dumping and countervailing issues in the US and intense competition in China. While Naga 1 is giving decent returns, we think that Naga 2 & 3 will fall below expectations and deliver razor-thin margins, owing to high operating costs.
Stern Stewart & Co, a management consultant, has been engaged to conduct an economic value added (EVA) programme on some of UMW's major investments. The management is tight-lipped on this but we suspect the review is largely on the O&G division. We opine that UMW will continue to focus on its rig charter and pipe manufacturing businesses but could dispose non-core assets (fabrication). ' Maybank IB Research, July 19
This article appeared in The Edge Financial Daily, July 20, 2011.
AirAsia: Punchy numbers in all three markets
Stock Name: AIRASIA
Company Name: AIRASIA BHD
AirAsia Bhd
(July 19, RM3.55)
Maintain buy with target price of RM4: AirAsia group passenger volumes jumped 21% year-on-year (the highest in the region) to 2.45 million in June with all three markets showing strong growth. Measured by return per passenger kilometre, Indonesia and Thailand grew passenger volumes by 35% to 40% while the core Malaysian business also grew 16.8% y-o-y. On a month-on-month comparison Indonesia and Malaysia were both strong while Thailand saw some seasonal weakness.
Passenger load factors also improved 1.3 percentage points (pps) m-o-m (2.4pps y-o-y) to 80% for the group. While the Malaysian and Indonesian operations witnessed an increase in load factors Thailand load factors declined from 79% to 73% which appears to be a combination of seasonality and the impact of the political situation ahead of elections.
Thailand and Indonesia associates now account for almost 40% of all passengers flying AirAsia, and with plans for the Philippines and Singapore expected to take off by end-2011 AirAsia appears fully geared to the Asean growth story. Both the Thailand and Indonesian associates turned profitable in 2010 and have since grown passenger volumes by 26% y-o-y while improving load factors.
Strong operating statistics reinforce our 'buy' call on AirAsia with a target price of RM4. At eight times FY12 earnings the stock still looks reasonably valued for 43% FY12 earnings growth and 23% return on equity. Load heavy strategy (higher discounts) and higher fuel prices may however result in some pressure on margins in the short term, however higher ancillary income and fuel surcharges should help in mitigating the impact going forward. ' CLSA Asia-Pacific, July 19
This article appeared in The Edge Financial Daily, July 20, 2011.
Company Name: AIRASIA BHD
| Research House: CLSA | Price Call: BUY | Target Price: 4.00 |
AirAsia Bhd
(July 19, RM3.55)
Maintain buy with target price of RM4: AirAsia group passenger volumes jumped 21% year-on-year (the highest in the region) to 2.45 million in June with all three markets showing strong growth. Measured by return per passenger kilometre, Indonesia and Thailand grew passenger volumes by 35% to 40% while the core Malaysian business also grew 16.8% y-o-y. On a month-on-month comparison Indonesia and Malaysia were both strong while Thailand saw some seasonal weakness.
Passenger load factors also improved 1.3 percentage points (pps) m-o-m (2.4pps y-o-y) to 80% for the group. While the Malaysian and Indonesian operations witnessed an increase in load factors Thailand load factors declined from 79% to 73% which appears to be a combination of seasonality and the impact of the political situation ahead of elections.
Thailand and Indonesia associates now account for almost 40% of all passengers flying AirAsia, and with plans for the Philippines and Singapore expected to take off by end-2011 AirAsia appears fully geared to the Asean growth story. Both the Thailand and Indonesian associates turned profitable in 2010 and have since grown passenger volumes by 26% y-o-y while improving load factors.
Strong operating statistics reinforce our 'buy' call on AirAsia with a target price of RM4. At eight times FY12 earnings the stock still looks reasonably valued for 43% FY12 earnings growth and 23% return on equity. Load heavy strategy (higher discounts) and higher fuel prices may however result in some pressure on margins in the short term, however higher ancillary income and fuel surcharges should help in mitigating the impact going forward. ' CLSA Asia-Pacific, July 19
This article appeared in The Edge Financial Daily, July 20, 2011.
OSK upgrades EngTek to 'trading buy'
OSK Research Sdn Bhd has upgraded Eng Teknologi Holding Bhd (EngTek), a hard disk drive (HDD) component maker, to 'trading buy' at a revised fair value of RM2.30 from RM1.73 previously.
In a research note today, OSK said EngTek had announced it has been notified by certain existing major shareholders that they were currently in discussions on a corporate scheme which may lead to the company''s privatization.
"The details are scant at this juncture but we expect to see increasing news flow on the potential privatization offer, which may lift trading sentiment on the stock," it said.
OSK said the deal would most likely involve a privatization offer tabled by the founding members, namely Datuk Teh Yong Khoon (EngTek chief executive officer) and his family.
"The Teh family is the single largest shareholder with a collective stake of 35 per cent, followed by Permodalan Nasional Bhd at 15 per cent and Lembaga Tabung Haji at eight per cent," it said. -- Bernama
HwangDBS keeps 'buy' call on UMW
Stock Name: UMW
Company Name: UMW HOLDINGS BHD
HwangDBS Vickers Research has maintained its 'buy' call on UMW Holdings Bhd at a higher target price of RM8.55 from RM7.95.
In a note today, HwangDBS said UMW president/group chief executive officer, Datuk Syed Hisham Syed Wazir, appeared to be dedicated leader.
"His key focus areas were to turn around oil and gas division as well as sustain 2011 motor sales," it said.
It expected car sales to recover in the second half of the year helped by Toyota's facelift models and Perodua's new Myvi.
Meanwhile, AmResearch Sdn Bhd has maintained its 'hold' call on UMW at an unchanged fair value of RM6.50 despite being positive about the potential potential turnaround of its oil and gas division.
"We are concerned that the turnaround might not be strong as expected," it said in a note today.
AmResearch said it was sceptical about a strong recovery of the car sales in the second half of this year due to uncertainties in second-hand car values; longer purchase process; and, a potential price war in the last quarter when supply fully recovered.
"All these could result in further earnings cuts by analysts in the near term," it said.
The stock fell two sen to RM7.45 at mid-afternoon today. -- Bernama
Company Name: UMW HOLDINGS BHD
| Research House: HWANGDBS | Price Call: BUY | Target Price: 8.55 |
HwangDBS Vickers Research has maintained its 'buy' call on UMW Holdings Bhd at a higher target price of RM8.55 from RM7.95.
In a note today, HwangDBS said UMW president/group chief executive officer, Datuk Syed Hisham Syed Wazir, appeared to be dedicated leader.
"His key focus areas were to turn around oil and gas division as well as sustain 2011 motor sales," it said.
It expected car sales to recover in the second half of the year helped by Toyota's facelift models and Perodua's new Myvi.
Meanwhile, AmResearch Sdn Bhd has maintained its 'hold' call on UMW at an unchanged fair value of RM6.50 despite being positive about the potential potential turnaround of its oil and gas division.
"We are concerned that the turnaround might not be strong as expected," it said in a note today.
AmResearch said it was sceptical about a strong recovery of the car sales in the second half of this year due to uncertainties in second-hand car values; longer purchase process; and, a potential price war in the last quarter when supply fully recovered.
"All these could result in further earnings cuts by analysts in the near term," it said.
The stock fell two sen to RM7.45 at mid-afternoon today. -- Bernama
Automotive: A big ripple effect from Japan's earthquake
Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Automotive sector
Maintain neutral: Total industry volume (TIV) fell 23% year-on-year and 9% month-on-month to 41,790 units in June, continuing May's double-digit pullback of 10% y-o-y and m-o-m. The y-o-y slippage is the worst since May 2006's 24% decline, underscoring the knock-on effects of Japan's earthquake and tsunami in March. Honda was by far the worst performer in June as its sales slumped 54% y-o-y to 1,959 units. The other two major Japanese makes fared better, with Toyota falling 20% y-o-y but holding steady m-o-m and Nissan sliding 17% y-o-y and 7% m-o-m. In 1H11 TIV dipped 1% y-o-y to 297,203 units as the 10% y-o-y fall in sales during the post-quake 2Q period was partially cushioned by a 7% sales increase in 1Q11.
Proton beat Perodua to the top spot in the local automotive industry with a market share of 29% in 1H11 compared with 27% for Perodua which had to grapple with supply problems and slow sales of the Myvi in the run-up to the release of the new model in 2Q. Proton, in contrast, felt less of the knock-on effects of the Japan disaster due to its high localisation rate.
Myvi's sales in 1H were sideswiped by buyers' wait-and-see attitude and supply shortages as production was halted to make way for the rollout of the new Myvi 1.3l on June 16. Sales were especially weak in the two months leading up to the Myvi launch. But Proton has only a two percentage point (ppt) lead over Perodua, which is well-armed to claw back market share following the launch of the new Myvi. Response has been strong as the Myvi has garnered 19,000 bookings. Perodua expects to deliver about 10,000 units of the new model this month and about 8,000 to 8,500 thereafter. We are conservatively projecting monthly sales of 7,500 units for the new Myvi.
Among the three Japanese auto players, Honda felt the aftershocks of the quake most. Its sales volume fell 13% in 1H, much worse than Toyota's 6% and Nissan's 1% declines. Nissan's inventory buffer cushioned it somewhat from the supply snags in 2Q. In 1H11, market share was largely unchanged at 14% for Toyota and 6% for Nissan. But Honda's market share slid by almost 1 ppt to 6.5%. Sales of other non-Japanese makes held up well, Hyundai (+30% y-o-y), Mercedes Benz (+46% y-o-y) and BMW (+34% y-o-y).
Vehicle sales statistics are negative news for the auto sector as they highlight the severity of the supply situation in Malaysia. Annualised year-to-date sales stand at 594,406 units, 2% lower than 2010's 605,156 units and the Malaysian Automotive Association's recently revised projection of 608,000 (618,000 previously), and 4% below our projection of 618,126 units which works out to 2.1% growth. But we are keeping our 2011 sales projection of 618,126 units as we expect sales in the subsequent months to pick up. The supply situation in Malaysia is improving as auto players are gradually ramping up their production.
However, we flag that there could be downside risk to our vehicle sales projection from the recent amendments to the Hire Purchase (HP) Act which took effect on 15 June. Among the changes to the Act is the fixing of a minimum down payment for the purchase of a car, which makes the down payment non-negotiable. This means that auto companies and dealers will no longer be able to offer zero-down payment packages. There are also more restrictive measures on repossession, which could lead to stricter HP loan approvals.
We are retaining our earnings projections and target prices for all the three stocks under our coverage. Tan Chong Motor Holdings Bhd remains an 'outperform' and our top pick with a sum-of-parts-based target price of RM6.55. We remain 'neutral' on UMW Holdings Bhd (RM8.00 target price) and Proton Holdings Bhd (RM4.10). While demand remains relatively strong, we think that this year's sales growth will be a very sedate 2% to 3%. We maintain our 'neutral' stance on the sector. ' CIMB Research, July 19
This article appeared in The Edge Financial Daily, July 20, 2011.
Company Name: PROTON HOLDINGS BHD
| Research House: CIMB | Price Call: HOLD | Target Price: 4.10 |
Automotive sector
Maintain neutral: Total industry volume (TIV) fell 23% year-on-year and 9% month-on-month to 41,790 units in June, continuing May's double-digit pullback of 10% y-o-y and m-o-m. The y-o-y slippage is the worst since May 2006's 24% decline, underscoring the knock-on effects of Japan's earthquake and tsunami in March. Honda was by far the worst performer in June as its sales slumped 54% y-o-y to 1,959 units. The other two major Japanese makes fared better, with Toyota falling 20% y-o-y but holding steady m-o-m and Nissan sliding 17% y-o-y and 7% m-o-m. In 1H11 TIV dipped 1% y-o-y to 297,203 units as the 10% y-o-y fall in sales during the post-quake 2Q period was partially cushioned by a 7% sales increase in 1Q11.
Proton beat Perodua to the top spot in the local automotive industry with a market share of 29% in 1H11 compared with 27% for Perodua which had to grapple with supply problems and slow sales of the Myvi in the run-up to the release of the new model in 2Q. Proton, in contrast, felt less of the knock-on effects of the Japan disaster due to its high localisation rate.
Myvi's sales in 1H were sideswiped by buyers' wait-and-see attitude and supply shortages as production was halted to make way for the rollout of the new Myvi 1.3l on June 16. Sales were especially weak in the two months leading up to the Myvi launch. But Proton has only a two percentage point (ppt) lead over Perodua, which is well-armed to claw back market share following the launch of the new Myvi. Response has been strong as the Myvi has garnered 19,000 bookings. Perodua expects to deliver about 10,000 units of the new model this month and about 8,000 to 8,500 thereafter. We are conservatively projecting monthly sales of 7,500 units for the new Myvi.
Among the three Japanese auto players, Honda felt the aftershocks of the quake most. Its sales volume fell 13% in 1H, much worse than Toyota's 6% and Nissan's 1% declines. Nissan's inventory buffer cushioned it somewhat from the supply snags in 2Q. In 1H11, market share was largely unchanged at 14% for Toyota and 6% for Nissan. But Honda's market share slid by almost 1 ppt to 6.5%. Sales of other non-Japanese makes held up well, Hyundai (+30% y-o-y), Mercedes Benz (+46% y-o-y) and BMW (+34% y-o-y).
Vehicle sales statistics are negative news for the auto sector as they highlight the severity of the supply situation in Malaysia. Annualised year-to-date sales stand at 594,406 units, 2% lower than 2010's 605,156 units and the Malaysian Automotive Association's recently revised projection of 608,000 (618,000 previously), and 4% below our projection of 618,126 units which works out to 2.1% growth. But we are keeping our 2011 sales projection of 618,126 units as we expect sales in the subsequent months to pick up. The supply situation in Malaysia is improving as auto players are gradually ramping up their production.
However, we flag that there could be downside risk to our vehicle sales projection from the recent amendments to the Hire Purchase (HP) Act which took effect on 15 June. Among the changes to the Act is the fixing of a minimum down payment for the purchase of a car, which makes the down payment non-negotiable. This means that auto companies and dealers will no longer be able to offer zero-down payment packages. There are also more restrictive measures on repossession, which could lead to stricter HP loan approvals.
We are retaining our earnings projections and target prices for all the three stocks under our coverage. Tan Chong Motor Holdings Bhd remains an 'outperform' and our top pick with a sum-of-parts-based target price of RM6.55. We remain 'neutral' on UMW Holdings Bhd (RM8.00 target price) and Proton Holdings Bhd (RM4.10). While demand remains relatively strong, we think that this year's sales growth will be a very sedate 2% to 3%. We maintain our 'neutral' stance on the sector. ' CIMB Research, July 19
This article appeared in The Edge Financial Daily, July 20, 2011.
Automotive: A big ripple effect from Japan's earthquake
Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Automotive sector
Maintain neutral: Total industry volume (TIV) fell 23% year-on-year and 9% month-on-month to 41,790 units in June, continuing May's double-digit pullback of 10% y-o-y and m-o-m. The y-o-y slippage is the worst since May 2006's 24% decline, underscoring the knock-on effects of Japan's earthquake and tsunami in March. Honda was by far the worst performer in June as its sales slumped 54% y-o-y to 1,959 units. The other two major Japanese makes fared better, with Toyota falling 20% y-o-y but holding steady m-o-m and Nissan sliding 17% y-o-y and 7% m-o-m. In 1H11 TIV dipped 1% y-o-y to 297,203 units as the 10% y-o-y fall in sales during the post-quake 2Q period was partially cushioned by a 7% sales increase in 1Q11.
Proton beat Perodua to the top spot in the local automotive industry with a market share of 29% in 1H11 compared with 27% for Perodua which had to grapple with supply problems and slow sales of the Myvi in the run-up to the release of the new model in 2Q. Proton, in contrast, felt less of the knock-on effects of the Japan disaster due to its high localisation rate.
Myvi's sales in 1H were sideswiped by buyers' wait-and-see attitude and supply shortages as production was halted to make way for the rollout of the new Myvi 1.3l on June 16. Sales were especially weak in the two months leading up to the Myvi launch. But Proton has only a two percentage point (ppt) lead over Perodua, which is well-armed to claw back market share following the launch of the new Myvi. Response has been strong as the Myvi has garnered 19,000 bookings. Perodua expects to deliver about 10,000 units of the new model this month and about 8,000 to 8,500 thereafter. We are conservatively projecting monthly sales of 7,500 units for the new Myvi.
Among the three Japanese auto players, Honda felt the aftershocks of the quake most. Its sales volume fell 13% in 1H, much worse than Toyota's 6% and Nissan's 1% declines. Nissan's inventory buffer cushioned it somewhat from the supply snags in 2Q. In 1H11, market share was largely unchanged at 14% for Toyota and 6% for Nissan. But Honda's market share slid by almost 1 ppt to 6.5%. Sales of other non-Japanese makes held up well, Hyundai (+30% y-o-y), Mercedes Benz (+46% y-o-y) and BMW (+34% y-o-y).
Vehicle sales statistics are negative news for the auto sector as they highlight the severity of the supply situation in Malaysia. Annualised year-to-date sales stand at 594,406 units, 2% lower than 2010's 605,156 units and the Malaysian Automotive Association's recently revised projection of 608,000 (618,000 previously), and 4% below our projection of 618,126 units which works out to 2.1% growth. But we are keeping our 2011 sales projection of 618,126 units as we expect sales in the subsequent months to pick up. The supply situation in Malaysia is improving as auto players are gradually ramping up their production.
However, we flag that there could be downside risk to our vehicle sales projection from the recent amendments to the Hire Purchase (HP) Act which took effect on 15 June. Among the changes to the Act is the fixing of a minimum down payment for the purchase of a car, which makes the down payment non-negotiable. This means that auto companies and dealers will no longer be able to offer zero-down payment packages. There are also more restrictive measures on repossession, which could lead to stricter HP loan approvals.
We are retaining our earnings projections and target prices for all the three stocks under our coverage. Tan Chong Motor Holdings Bhd remains an 'outperform' and our top pick with a sum-of-parts-based target price of RM6.55. We remain 'neutral' on UMW Holdings Bhd (RM8.00 target price) and Proton Holdings Bhd (RM4.10). While demand remains relatively strong, we think that this year's sales growth will be a very sedate 2% to 3%. We maintain our 'neutral' stance on the sector. ' CIMB Research, July 19
This article appeared in The Edge Financial Daily, July 20, 2011.
Company Name: TAN CHONG MOTOR HOLDINGS BHD
| Research House: CIMB | Price Call: BUY | Target Price: 6.55 |
Automotive sector
Maintain neutral: Total industry volume (TIV) fell 23% year-on-year and 9% month-on-month to 41,790 units in June, continuing May's double-digit pullback of 10% y-o-y and m-o-m. The y-o-y slippage is the worst since May 2006's 24% decline, underscoring the knock-on effects of Japan's earthquake and tsunami in March. Honda was by far the worst performer in June as its sales slumped 54% y-o-y to 1,959 units. The other two major Japanese makes fared better, with Toyota falling 20% y-o-y but holding steady m-o-m and Nissan sliding 17% y-o-y and 7% m-o-m. In 1H11 TIV dipped 1% y-o-y to 297,203 units as the 10% y-o-y fall in sales during the post-quake 2Q period was partially cushioned by a 7% sales increase in 1Q11.
Proton beat Perodua to the top spot in the local automotive industry with a market share of 29% in 1H11 compared with 27% for Perodua which had to grapple with supply problems and slow sales of the Myvi in the run-up to the release of the new model in 2Q. Proton, in contrast, felt less of the knock-on effects of the Japan disaster due to its high localisation rate.
Myvi's sales in 1H were sideswiped by buyers' wait-and-see attitude and supply shortages as production was halted to make way for the rollout of the new Myvi 1.3l on June 16. Sales were especially weak in the two months leading up to the Myvi launch. But Proton has only a two percentage point (ppt) lead over Perodua, which is well-armed to claw back market share following the launch of the new Myvi. Response has been strong as the Myvi has garnered 19,000 bookings. Perodua expects to deliver about 10,000 units of the new model this month and about 8,000 to 8,500 thereafter. We are conservatively projecting monthly sales of 7,500 units for the new Myvi.
Among the three Japanese auto players, Honda felt the aftershocks of the quake most. Its sales volume fell 13% in 1H, much worse than Toyota's 6% and Nissan's 1% declines. Nissan's inventory buffer cushioned it somewhat from the supply snags in 2Q. In 1H11, market share was largely unchanged at 14% for Toyota and 6% for Nissan. But Honda's market share slid by almost 1 ppt to 6.5%. Sales of other non-Japanese makes held up well, Hyundai (+30% y-o-y), Mercedes Benz (+46% y-o-y) and BMW (+34% y-o-y).
Vehicle sales statistics are negative news for the auto sector as they highlight the severity of the supply situation in Malaysia. Annualised year-to-date sales stand at 594,406 units, 2% lower than 2010's 605,156 units and the Malaysian Automotive Association's recently revised projection of 608,000 (618,000 previously), and 4% below our projection of 618,126 units which works out to 2.1% growth. But we are keeping our 2011 sales projection of 618,126 units as we expect sales in the subsequent months to pick up. The supply situation in Malaysia is improving as auto players are gradually ramping up their production.
However, we flag that there could be downside risk to our vehicle sales projection from the recent amendments to the Hire Purchase (HP) Act which took effect on 15 June. Among the changes to the Act is the fixing of a minimum down payment for the purchase of a car, which makes the down payment non-negotiable. This means that auto companies and dealers will no longer be able to offer zero-down payment packages. There are also more restrictive measures on repossession, which could lead to stricter HP loan approvals.
We are retaining our earnings projections and target prices for all the three stocks under our coverage. Tan Chong Motor Holdings Bhd remains an 'outperform' and our top pick with a sum-of-parts-based target price of RM6.55. We remain 'neutral' on UMW Holdings Bhd (RM8.00 target price) and Proton Holdings Bhd (RM4.10). While demand remains relatively strong, we think that this year's sales growth will be a very sedate 2% to 3%. We maintain our 'neutral' stance on the sector. ' CIMB Research, July 19
This article appeared in The Edge Financial Daily, July 20, 2011.
Automotive: A big ripple effect from Japan's earthquake
Stock Name: UMW
Company Name: UMW HOLDINGS BHD
Automotive sector
Maintain neutral: Total industry volume (TIV) fell 23% year-on-year and 9% month-on-month to 41,790 units in June, continuing May's double-digit pullback of 10% y-o-y and m-o-m. The y-o-y slippage is the worst since May 2006's 24% decline, underscoring the knock-on effects of Japan's earthquake and tsunami in March. Honda was by far the worst performer in June as its sales slumped 54% y-o-y to 1,959 units. The other two major Japanese makes fared better, with Toyota falling 20% y-o-y but holding steady m-o-m and Nissan sliding 17% y-o-y and 7% m-o-m. In 1H11 TIV dipped 1% y-o-y to 297,203 units as the 10% y-o-y fall in sales during the post-quake 2Q period was partially cushioned by a 7% sales increase in 1Q11.
Proton beat Perodua to the top spot in the local automotive industry with a market share of 29% in 1H11 compared with 27% for Perodua which had to grapple with supply problems and slow sales of the Myvi in the run-up to the release of the new model in 2Q. Proton, in contrast, felt less of the knock-on effects of the Japan disaster due to its high localisation rate.
Myvi's sales in 1H were sideswiped by buyers' wait-and-see attitude and supply shortages as production was halted to make way for the rollout of the new Myvi 1.3l on June 16. Sales were especially weak in the two months leading up to the Myvi launch. But Proton has only a two percentage point (ppt) lead over Perodua, which is well-armed to claw back market share following the launch of the new Myvi. Response has been strong as the Myvi has garnered 19,000 bookings. Perodua expects to deliver about 10,000 units of the new model this month and about 8,000 to 8,500 thereafter. We are conservatively projecting monthly sales of 7,500 units for the new Myvi.
Among the three Japanese auto players, Honda felt the aftershocks of the quake most. Its sales volume fell 13% in 1H, much worse than Toyota's 6% and Nissan's 1% declines. Nissan's inventory buffer cushioned it somewhat from the supply snags in 2Q. In 1H11, market share was largely unchanged at 14% for Toyota and 6% for Nissan. But Honda's market share slid by almost 1 ppt to 6.5%. Sales of other non-Japanese makes held up well, Hyundai (+30% y-o-y), Mercedes Benz (+46% y-o-y) and BMW (+34% y-o-y).
Vehicle sales statistics are negative news for the auto sector as they highlight the severity of the supply situation in Malaysia. Annualised year-to-date sales stand at 594,406 units, 2% lower than 2010's 605,156 units and the Malaysian Automotive Association's recently revised projection of 608,000 (618,000 previously), and 4% below our projection of 618,126 units which works out to 2.1% growth. But we are keeping our 2011 sales projection of 618,126 units as we expect sales in the subsequent months to pick up. The supply situation in Malaysia is improving as auto players are gradually ramping up their production.
However, we flag that there could be downside risk to our vehicle sales projection from the recent amendments to the Hire Purchase (HP) Act which took effect on 15 June. Among the changes to the Act is the fixing of a minimum down payment for the purchase of a car, which makes the down payment non-negotiable. This means that auto companies and dealers will no longer be able to offer zero-down payment packages. There are also more restrictive measures on repossession, which could lead to stricter HP loan approvals.
We are retaining our earnings projections and target prices for all the three stocks under our coverage. Tan Chong Motor Holdings Bhd remains an 'outperform' and our top pick with a sum-of-parts-based target price of RM6.55. We remain 'neutral' on UMW Holdings Bhd (RM8.00 target price) and Proton Holdings Bhd (RM4.10). While demand remains relatively strong, we think that this year's sales growth will be a very sedate 2% to 3%. We maintain our 'neutral' stance on the sector. ' CIMB Research, July 19
This article appeared in The Edge Financial Daily, July 20, 2011.
Company Name: UMW HOLDINGS BHD
| Research House: CIMB | Price Call: HOLD | Target Price: 8.00 |
Automotive sector
Maintain neutral: Total industry volume (TIV) fell 23% year-on-year and 9% month-on-month to 41,790 units in June, continuing May's double-digit pullback of 10% y-o-y and m-o-m. The y-o-y slippage is the worst since May 2006's 24% decline, underscoring the knock-on effects of Japan's earthquake and tsunami in March. Honda was by far the worst performer in June as its sales slumped 54% y-o-y to 1,959 units. The other two major Japanese makes fared better, with Toyota falling 20% y-o-y but holding steady m-o-m and Nissan sliding 17% y-o-y and 7% m-o-m. In 1H11 TIV dipped 1% y-o-y to 297,203 units as the 10% y-o-y fall in sales during the post-quake 2Q period was partially cushioned by a 7% sales increase in 1Q11.
Proton beat Perodua to the top spot in the local automotive industry with a market share of 29% in 1H11 compared with 27% for Perodua which had to grapple with supply problems and slow sales of the Myvi in the run-up to the release of the new model in 2Q. Proton, in contrast, felt less of the knock-on effects of the Japan disaster due to its high localisation rate.
Myvi's sales in 1H were sideswiped by buyers' wait-and-see attitude and supply shortages as production was halted to make way for the rollout of the new Myvi 1.3l on June 16. Sales were especially weak in the two months leading up to the Myvi launch. But Proton has only a two percentage point (ppt) lead over Perodua, which is well-armed to claw back market share following the launch of the new Myvi. Response has been strong as the Myvi has garnered 19,000 bookings. Perodua expects to deliver about 10,000 units of the new model this month and about 8,000 to 8,500 thereafter. We are conservatively projecting monthly sales of 7,500 units for the new Myvi.
Among the three Japanese auto players, Honda felt the aftershocks of the quake most. Its sales volume fell 13% in 1H, much worse than Toyota's 6% and Nissan's 1% declines. Nissan's inventory buffer cushioned it somewhat from the supply snags in 2Q. In 1H11, market share was largely unchanged at 14% for Toyota and 6% for Nissan. But Honda's market share slid by almost 1 ppt to 6.5%. Sales of other non-Japanese makes held up well, Hyundai (+30% y-o-y), Mercedes Benz (+46% y-o-y) and BMW (+34% y-o-y).
Vehicle sales statistics are negative news for the auto sector as they highlight the severity of the supply situation in Malaysia. Annualised year-to-date sales stand at 594,406 units, 2% lower than 2010's 605,156 units and the Malaysian Automotive Association's recently revised projection of 608,000 (618,000 previously), and 4% below our projection of 618,126 units which works out to 2.1% growth. But we are keeping our 2011 sales projection of 618,126 units as we expect sales in the subsequent months to pick up. The supply situation in Malaysia is improving as auto players are gradually ramping up their production.
However, we flag that there could be downside risk to our vehicle sales projection from the recent amendments to the Hire Purchase (HP) Act which took effect on 15 June. Among the changes to the Act is the fixing of a minimum down payment for the purchase of a car, which makes the down payment non-negotiable. This means that auto companies and dealers will no longer be able to offer zero-down payment packages. There are also more restrictive measures on repossession, which could lead to stricter HP loan approvals.
We are retaining our earnings projections and target prices for all the three stocks under our coverage. Tan Chong Motor Holdings Bhd remains an 'outperform' and our top pick with a sum-of-parts-based target price of RM6.55. We remain 'neutral' on UMW Holdings Bhd (RM8.00 target price) and Proton Holdings Bhd (RM4.10). While demand remains relatively strong, we think that this year's sales growth will be a very sedate 2% to 3%. We maintain our 'neutral' stance on the sector. ' CIMB Research, July 19
This article appeared in The Edge Financial Daily, July 20, 2011.
Automotive: A big ripple effect from Japan's earthquake
Automotive sector
Maintain neutral: Total industry volume (TIV) fell 23% year-on-year and 9% month-on-month to 41,790 units in June, continuing May's double-digit pullback of 10% y-o-y and m-o-m. The y-o-y slippage is the worst since May 2006's 24% decline, underscoring the knock-on effects of Japan's earthquake and tsunami in March. Honda was by far the worst performer in June as its sales slumped 54% y-o-y to 1,959 units. The other two major Japanese makes fared better, with Toyota falling 20% y-o-y but holding steady m-o-m and Nissan sliding 17% y-o-y and 7% m-o-m. In 1H11 TIV dipped 1% y-o-y to 297,203 units as the 10% y-o-y fall in sales during the post-quake 2Q period was partially cushioned by a 7% sales increase in 1Q11.
Proton beat Perodua to the top spot in the local automotive industry with a market share of 29% in 1H11 compared with 27% for Perodua which had to grapple with supply problems and slow sales of the Myvi in the run-up to the release of the new model in 2Q. Proton, in contrast, felt less of the knock-on effects of the Japan disaster due to its high localisation rate.
Myvi's sales in 1H were sideswiped by buyers' wait-and-see attitude and supply shortages as production was halted to make way for the rollout of the new Myvi 1.3l on June 16. Sales were especially weak in the two months leading up to the Myvi launch. But Proton has only a two percentage point (ppt) lead over Perodua, which is well-armed to claw back market share following the launch of the new Myvi. Response has been strong as the Myvi has garnered 19,000 bookings. Perodua expects to deliver about 10,000 units of the new model this month and about 8,000 to 8,500 thereafter. We are conservatively projecting monthly sales of 7,500 units for the new Myvi.
Among the three Japanese auto players, Honda felt the aftershocks of the quake most. Its sales volume fell 13% in 1H, much worse than Toyota's 6% and Nissan's 1% declines. Nissan's inventory buffer cushioned it somewhat from the supply snags in 2Q. In 1H11, market share was largely unchanged at 14% for Toyota and 6% for Nissan. But Honda's market share slid by almost 1 ppt to 6.5%. Sales of other non-Japanese makes held up well, Hyundai (+30% y-o-y), Mercedes Benz (+46% y-o-y) and BMW (+34% y-o-y).
Vehicle sales statistics are negative news for the auto sector as they highlight the severity of the supply situation in Malaysia. Annualised year-to-date sales stand at 594,406 units, 2% lower than 2010's 605,156 units and the Malaysian Automotive Association's recently revised projection of 608,000 (618,000 previously), and 4% below our projection of 618,126 units which works out to 2.1% growth. But we are keeping our 2011 sales projection of 618,126 units as we expect sales in the subsequent months to pick up. The supply situation in Malaysia is improving as auto players are gradually ramping up their production.
However, we flag that there could be downside risk to our vehicle sales projection from the recent amendments to the Hire Purchase (HP) Act which took effect on 15 June. Among the changes to the Act is the fixing of a minimum down payment for the purchase of a car, which makes the down payment non-negotiable. This means that auto companies and dealers will no longer be able to offer zero-down payment packages. There are also more restrictive measures on repossession, which could lead to stricter HP loan approvals.
We are retaining our earnings projections and target prices for all the three stocks under our coverage. Tan Chong Motor Holdings Bhd remains an 'outperform' and our top pick with a sum-of-parts-based target price of RM6.55. We remain 'neutral' on UMW Holdings Bhd (RM8.00 target price) and Proton Holdings Bhd (RM4.10). While demand remains relatively strong, we think that this year's sales growth will be a very sedate 2% to 3%. We maintain our 'neutral' stance on the sector. ' CIMB Research, July 19
This article appeared in The Edge Financial Daily, July 20, 2011.
Hong Leong Bank rated a 'buy' at HSBC
Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Hong Leong Bank Bhd, a Malaysian lender, rose the most in two weeks in Kuala Lumpur trading after HSBC Holdings Plc rated the stock a new "buy" with a RM15.80 share estimate.
Its shares climbed 1.2 per cent to RM13.60 at 9:12 a.m. local time, set for their largest increase since July 5. -- Bloomberg
Company Name: HONG LEONG BANK BHD
| Research House: HSBC | Price Call: BUY | Target Price: 15.80 |
Hong Leong Bank Bhd, a Malaysian lender, rose the most in two weeks in Kuala Lumpur trading after HSBC Holdings Plc rated the stock a new "buy" with a RM15.80 share estimate.
Its shares climbed 1.2 per cent to RM13.60 at 9:12 a.m. local time, set for their largest increase since July 5. -- Bloomberg
Hold in Anticipation of Earnings Booster
Stock Name: MELEWAR
Company Name: MELEWAR INDUSTRIAL GROUP BHD
Company Name: MELEWAR INDUSTRIAL GROUP BHD
| Research House: TA | Price Call: HOLD | Target Price: 0.83 |
July 18, 2011
Uchi Tech: A story of two halves
Stock Name: UCHITEC
Company Name: UCHI TECHNOLOGIES BHD
Uchi Technologies Bhd
(July 18, RM1.31)
Maintain add at RM1.33 with target price of RM1.55: We recently met up with the management for an update on company operations and financial performance for FY11. We gather that the company will report a fairly robust 1HFY11 performance in line with our expectations of firmer demand for its automated coffee machine modules. However, similar to other major exporters, Uchi is unlikely to be left unscathed by the weaker US dollar. Impact from the strong ringgit should however be mitigated by the hedging of its sales proceeds. The management guided that 80% of its sales proceeds are locked in at rates above current spot rates and also above those used for its costing computation. This would allow Uchi to keep its margins healthy. We project a slightly firmer earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 49% for FY11 compared with 48.5% for FY10.
Unfortunately, management is bracing for a weaker 2HFY11 impacted by weaker consumer sentiment in Europe, which is also a key market for its end products. Also clouding prospects is a delay in the launch of two new products as a result of a disruption in the supply of microprocessors from its supplier, Renesas, which saw its Fukuoka plant hit by the tsunami in March. The management believes that supply of its raw materials will only normalise beyond October, although this means that it would miss the critical Christmas holiday sales season.
Looking ahead, the management continues to seek to diversify its earnings base away from coffee modules (currently 80% of revenue) and is making headway into iron control modules (for a Spanish customer), frequency converter (Eppendorf) and also several component products. This is still at the preliminary stage of development, hence initial sales contribution is unlikely to be significant. Longer term, the management is investing in a R&D centre, involving an extension of its existing plant in Prai. At an estimated cost of RM30 million-35 million, the facility would be funded internally (net cash of RM140 million) and will not impact its dividends. To better cater for its customers and for product development, the new centre will include prototype laboratories, reliability test rooms and clean rooms for high-end products. We think this would continue to ensure that Uchi maintains its lead in the high-end niche market segment it operates in.
Despite some minor hiccups, we remain positive on the longer-term prospects of the company given its solid positioning as a key supplier of high-end automated coffee modules. With strong free cash flow and limited capital expenditure, Uchi has managed to reward investors with superior dividend yield of over 8%. Maintain our 'add' rating on Uchi with an unchanged target price of RM1.55. ' Affin IB Research, July 18
This article appeared in The Edge Financial Daily, July 19, 2011.
Company Name: UCHI TECHNOLOGIES BHD
| Research House: AFFIN | Price Call: BUY | Target Price: 1.55 |
Uchi Technologies Bhd
(July 18, RM1.31)
Maintain add at RM1.33 with target price of RM1.55: We recently met up with the management for an update on company operations and financial performance for FY11. We gather that the company will report a fairly robust 1HFY11 performance in line with our expectations of firmer demand for its automated coffee machine modules. However, similar to other major exporters, Uchi is unlikely to be left unscathed by the weaker US dollar. Impact from the strong ringgit should however be mitigated by the hedging of its sales proceeds. The management guided that 80% of its sales proceeds are locked in at rates above current spot rates and also above those used for its costing computation. This would allow Uchi to keep its margins healthy. We project a slightly firmer earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 49% for FY11 compared with 48.5% for FY10.
Unfortunately, management is bracing for a weaker 2HFY11 impacted by weaker consumer sentiment in Europe, which is also a key market for its end products. Also clouding prospects is a delay in the launch of two new products as a result of a disruption in the supply of microprocessors from its supplier, Renesas, which saw its Fukuoka plant hit by the tsunami in March. The management believes that supply of its raw materials will only normalise beyond October, although this means that it would miss the critical Christmas holiday sales season.
Looking ahead, the management continues to seek to diversify its earnings base away from coffee modules (currently 80% of revenue) and is making headway into iron control modules (for a Spanish customer), frequency converter (Eppendorf) and also several component products. This is still at the preliminary stage of development, hence initial sales contribution is unlikely to be significant. Longer term, the management is investing in a R&D centre, involving an extension of its existing plant in Prai. At an estimated cost of RM30 million-35 million, the facility would be funded internally (net cash of RM140 million) and will not impact its dividends. To better cater for its customers and for product development, the new centre will include prototype laboratories, reliability test rooms and clean rooms for high-end products. We think this would continue to ensure that Uchi maintains its lead in the high-end niche market segment it operates in.
Despite some minor hiccups, we remain positive on the longer-term prospects of the company given its solid positioning as a key supplier of high-end automated coffee modules. With strong free cash flow and limited capital expenditure, Uchi has managed to reward investors with superior dividend yield of over 8%. Maintain our 'add' rating on Uchi with an unchanged target price of RM1.55. ' Affin IB Research, July 18
This article appeared in The Edge Financial Daily, July 19, 2011.
A weak 3QFY11 for TNB
Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Tenaga Nasional Bhd
(July 18, RM6.52)
Maintain hold at RM6.74 with target price of RM7.05: We believe that the upcoming 3QFY11 results (due this Thursday) will be very weak, owing to major maintenance shutdowns of natural gas facilities, high coal price and money-losing proposition of generating power from oil and distillates. Nonetheless, this should have been priced in, with the business outlook having improved significantly with the new tariff effective June and another possible upward revision in December. Maintain 'hold', with a target price of RM7.05 on 13 times FY12 price-earnings ratio.
We think TNB will barely break even in 3QFY11, a far cry from RM480 million core net profit achieved for 2QFY11 (1HFY11: RM1,299 million). The reasons are higher average coal price of US$122.60 (RM370.25) per tonne (+25% year-on-year, -1% quarter-on-quarter), gas curtailment due to a major maintenance shutdown and higher cost associated with burning oil and distillates for power generation. We consider 3QFY11 the trigger that will ultimately push the government to react; it is a necessary evil.
This is the question we eagerly wait to ask the management. The recent maintenance was aimed to remedy some of the problems and insert a bypass line at the troubled Bekok gas field. This is supposed to provide an additional 100 mmscfd to the line. The impact is significant, as 100 mmscfd equates to RM430 million-450 million of cost savings per year compared to burning coal as a replacement energy source.
Coal prices remain high, buoyed by higher global demand for coal due to the decommissioning of older generation nuclear power plants in Germany, France and the ill-fated Fukushima power plant incident in Japan. The FY11 (September to May) price of Newcastle benchmark coal is US$115.50 (+32% y-o-y) and the spot price is US$121 per tonne.
We maintain our forecast for now, pending the results. The third quarter is exceptional as we have no basis to predict the impact of the maintenance shutdown. Nonetheless, we look forward to better earnings prospects in FY12 and the possible upward tariff revision in December may serve as a basis for re-rating. ' Maybank IB Research, July 18
This article appeared in The Edge Financial Daily, July 19, 2011.
Company Name: TENAGA NASIONAL BHD
| Research House: MAYBANK | Price Call: HOLD | Target Price: 7.05 |
Tenaga Nasional Bhd
(July 18, RM6.52)
Maintain hold at RM6.74 with target price of RM7.05: We believe that the upcoming 3QFY11 results (due this Thursday) will be very weak, owing to major maintenance shutdowns of natural gas facilities, high coal price and money-losing proposition of generating power from oil and distillates. Nonetheless, this should have been priced in, with the business outlook having improved significantly with the new tariff effective June and another possible upward revision in December. Maintain 'hold', with a target price of RM7.05 on 13 times FY12 price-earnings ratio.
We think TNB will barely break even in 3QFY11, a far cry from RM480 million core net profit achieved for 2QFY11 (1HFY11: RM1,299 million). The reasons are higher average coal price of US$122.60 (RM370.25) per tonne (+25% year-on-year, -1% quarter-on-quarter), gas curtailment due to a major maintenance shutdown and higher cost associated with burning oil and distillates for power generation. We consider 3QFY11 the trigger that will ultimately push the government to react; it is a necessary evil.
This is the question we eagerly wait to ask the management. The recent maintenance was aimed to remedy some of the problems and insert a bypass line at the troubled Bekok gas field. This is supposed to provide an additional 100 mmscfd to the line. The impact is significant, as 100 mmscfd equates to RM430 million-450 million of cost savings per year compared to burning coal as a replacement energy source.
Coal prices remain high, buoyed by higher global demand for coal due to the decommissioning of older generation nuclear power plants in Germany, France and the ill-fated Fukushima power plant incident in Japan. The FY11 (September to May) price of Newcastle benchmark coal is US$115.50 (+32% y-o-y) and the spot price is US$121 per tonne.
We maintain our forecast for now, pending the results. The third quarter is exceptional as we have no basis to predict the impact of the maintenance shutdown. Nonetheless, we look forward to better earnings prospects in FY12 and the possible upward tariff revision in December may serve as a basis for re-rating. ' Maybank IB Research, July 18
This article appeared in The Edge Financial Daily, July 19, 2011.
Dialog buys 51% stake in Anewa
Stock Name: DIALOG
Company Name: DIALOG GROUP BHD
Dialog Group Bhd
(July 15, RM2.59)
Upgrade to buy at RM2.61 with target price of RM2.94: Dialog announced on July 14'' that'' its wholly-owned subsidiary,'' Dialog Systems (Asia) Pte Ltd, has proposed to acquire a 51% stake in Anewa Engineering Pte Ltd, India, for 117.2 million rupees (RM7.9 million).'' The sellers, the founders of Anewa, will retain the remaining 49% stake. The acquisition will be financed by internally generated funds and/or borrowings and is expected to be completed by end-August.
Incorporated in 2006, Anewa is an engineering, design and consultancy company, servicing the oil and gas, petrochemicals, refinery, chemicals and power plant sectors. Its customers are mainly multinationals in India, the Middle'' East and Southeast Asia. According to the company's website, some notable names like UK-listed Petrofac, Italy's Saipem, Technip India and US-based J Ray McDermott are on its list of clients. Anewa employs about 120 people.
India is one of Dialog's traditional markets in the sale of specialist products and services. Cooperation with local partners'' might enhance Dialog's position there and provide opportunity to access Anewa's customer network. Management also indicated that the deal will strengthen Dialog's engineering capabilities through access to Anewa's skilled and experienced manpower. We understand that Dialog is eyeing India as its potential market for catalyst handling services. Revenue generated from the division was about US$14 million (RM42 million) and management has an ambitious target of achieving US$100 million in five years.
Details of Anewa's financial performance were not disclosed. However, judging from the fact that Anewa's net asset value was 39.2 million rupees as at March 2011 and the original cost of investment was about 4 million rupees, we believe the'' company is growing. However, compared with Dialog's net profit of RM118 million in FY10, we reckon the earnings contribution if any is negligible.
Dialog's share price has retreated by 9.4% from its recent high of RM2.88. Given the potential upside is now +14.5% (rounding up will be matching our 'buy' definition of more than 15% total return), we are raising our call for Dialog to 'buy'. Target price remains unchanged at RM2.94, based on 30 times 2012 price-earnings ratio, which is a 10% premium'' to its upper band of its three-year historical PER band. Future earnings catalysts include the Tanjung Pengerang (TP) development and potential marginal oilfield contracts. To recap, Dialog was awarded RM1.9 billion engineering, procurement, construction and commissioning jobs for TP in early June. FY12F earnings growth is estimated at +32.8%. ' MIDF Research, July 15
This article appeared in The Edge Financial Daily, July 18, 2011.
Company Name: DIALOG GROUP BHD
| Research House: MIDF | Price Call: BUY | Target Price: 2.94 |
Dialog Group Bhd
(July 15, RM2.59)
Upgrade to buy at RM2.61 with target price of RM2.94: Dialog announced on July 14'' that'' its wholly-owned subsidiary,'' Dialog Systems (Asia) Pte Ltd, has proposed to acquire a 51% stake in Anewa Engineering Pte Ltd, India, for 117.2 million rupees (RM7.9 million).'' The sellers, the founders of Anewa, will retain the remaining 49% stake. The acquisition will be financed by internally generated funds and/or borrowings and is expected to be completed by end-August.
Incorporated in 2006, Anewa is an engineering, design and consultancy company, servicing the oil and gas, petrochemicals, refinery, chemicals and power plant sectors. Its customers are mainly multinationals in India, the Middle'' East and Southeast Asia. According to the company's website, some notable names like UK-listed Petrofac, Italy's Saipem, Technip India and US-based J Ray McDermott are on its list of clients. Anewa employs about 120 people.
India is one of Dialog's traditional markets in the sale of specialist products and services. Cooperation with local partners'' might enhance Dialog's position there and provide opportunity to access Anewa's customer network. Management also indicated that the deal will strengthen Dialog's engineering capabilities through access to Anewa's skilled and experienced manpower. We understand that Dialog is eyeing India as its potential market for catalyst handling services. Revenue generated from the division was about US$14 million (RM42 million) and management has an ambitious target of achieving US$100 million in five years.
Details of Anewa's financial performance were not disclosed. However, judging from the fact that Anewa's net asset value was 39.2 million rupees as at March 2011 and the original cost of investment was about 4 million rupees, we believe the'' company is growing. However, compared with Dialog's net profit of RM118 million in FY10, we reckon the earnings contribution if any is negligible.
Dialog's share price has retreated by 9.4% from its recent high of RM2.88. Given the potential upside is now +14.5% (rounding up will be matching our 'buy' definition of more than 15% total return), we are raising our call for Dialog to 'buy'. Target price remains unchanged at RM2.94, based on 30 times 2012 price-earnings ratio, which is a 10% premium'' to its upper band of its three-year historical PER band. Future earnings catalysts include the Tanjung Pengerang (TP) development and potential marginal oilfield contracts. To recap, Dialog was awarded RM1.9 billion engineering, procurement, construction and commissioning jobs for TP in early June. FY12F earnings growth is estimated at +32.8%. ' MIDF Research, July 15
This article appeared in The Edge Financial Daily, July 18, 2011.
2QFY11 results within expectations. Maintain Buy.
Stock Name: ZHULIAN
Company Name: ZHULIAN CORPORATION BHD
Company Name: ZHULIAN CORPORATION BHD
| Research House: ZJ | Price Call: BUY | Target Price: 2.18 |
Tenaga's price estimate cut to RM7.93
Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Tenaga Nasional Bhd, Malaysia's largest power producer, fell the most in three weeks after Kenanga Investment Bank Bhd said the utility may report a quarterly loss this week.
The stock dropped 0.7 per cent to RM6.69 at 9:56 a.m. local time in Kuala Lumpur trading, set for its biggest decline since June 27.
The share price estimate was cut to RM7.93 from RM8.06, Kenanga said in a report today. -- Bloomberg
Company Name: TENAGA NASIONAL BHD
| Research House: KENANGA | Price Call: BUY | Target Price: 7.93 |
Tenaga Nasional Bhd, Malaysia's largest power producer, fell the most in three weeks after Kenanga Investment Bank Bhd said the utility may report a quarterly loss this week.
The stock dropped 0.7 per cent to RM6.69 at 9:56 a.m. local time in Kuala Lumpur trading, set for its biggest decline since June 27.
The share price estimate was cut to RM7.93 from RM8.06, Kenanga said in a report today. -- Bloomberg
CIMB Research keeps IOI Corp as Underperform
Stock Name: IOICORP
Company Name: IOI CORPORATION BHD
KUALA LUMPUR:'' CIMB Equities Research is maintaining its Underperform rating on IOI Corp Bhd and it is not making any changes to its earnings forecast or target price of RM5.48, which is based on 16 times forward price-to-earninings.
It said on Monday, July 18 the PLANTATION []s-property group's valuations were not attractive and near-term earnings growth prospects were unexciting.
'The main de-rating catalysts are lower crude palm oil (CPO) prices and weaker manufacturing margin. Sime Darby is our preferred pick among the Malaysian planters,' it said.
CIMB Research said it was neutral on IOI Corp's plans to raise its property exposure. While it will help to drive earnings growth for the group amid the constraints on growth of its estate business, it will reduce the group's plantation exposure and its appeal as a CPO play.
'Also, the market may accord lower P/E ratings to IOI Corp over time since property plays typically fetch lower P/E valuations than plantation stocks. The group's mixed track record, where overseas property projects are concerned, adds to our reservations,' it said.
The research house pointed out that in November 2008, the group forfeited a deposit of RM73 million when it scrapped its plans to acquire Menara Citibank.
'We expect IOI Corp to announce more property M&As in the near future. Its plantation expansion may take a backseat unless a good opportunity comes around.
'On the plantation front, the group will be concentrating on planting up its 66%-owned Indonesian subsidiaries' landbank of 50,000ha and expanding the planted areas of its 33%-owned plantation associate PT Bumitama Gunajaya Agro,' it said.
Company Name: IOI CORPORATION BHD
| Research House: CIMB | Price Call: SELL | Target Price: 5.48 |
KUALA LUMPUR:'' CIMB Equities Research is maintaining its Underperform rating on IOI Corp Bhd and it is not making any changes to its earnings forecast or target price of RM5.48, which is based on 16 times forward price-to-earninings.
It said on Monday, July 18 the PLANTATION []s-property group's valuations were not attractive and near-term earnings growth prospects were unexciting.
'The main de-rating catalysts are lower crude palm oil (CPO) prices and weaker manufacturing margin. Sime Darby is our preferred pick among the Malaysian planters,' it said.
CIMB Research said it was neutral on IOI Corp's plans to raise its property exposure. While it will help to drive earnings growth for the group amid the constraints on growth of its estate business, it will reduce the group's plantation exposure and its appeal as a CPO play.
'Also, the market may accord lower P/E ratings to IOI Corp over time since property plays typically fetch lower P/E valuations than plantation stocks. The group's mixed track record, where overseas property projects are concerned, adds to our reservations,' it said.
The research house pointed out that in November 2008, the group forfeited a deposit of RM73 million when it scrapped its plans to acquire Menara Citibank.
'We expect IOI Corp to announce more property M&As in the near future. Its plantation expansion may take a backseat unless a good opportunity comes around.
'On the plantation front, the group will be concentrating on planting up its 66%-owned Indonesian subsidiaries' landbank of 50,000ha and expanding the planted areas of its 33%-owned plantation associate PT Bumitama Gunajaya Agro,' it said.
CIMB Research has Outperform on Jobstreet
Stock Name: JOBST
Company Name: JOBSTREET CORPORATION BHD
KUALA LUMPUR: CIMB Equities Research has an Outperform on Jobstreet and leaves its earnings forecasts for FY11-13 unchanged.
It said on Monday, July 18 it is retaining its target price of RM3.77, which it continues to peg to 22.6 times FY12 price-to-earnings, on par with its peers.
'The stock remains an OUTPERFORM as the strong volumes and earnings momentum could spark a re-rating,' it said.
Company Name: JOBSTREET CORPORATION BHD
| Research House: CIMB | Price Call: BUY | Target Price: 3.77 |
KUALA LUMPUR: CIMB Equities Research has an Outperform on Jobstreet and leaves its earnings forecasts for FY11-13 unchanged.
It said on Monday, July 18 it is retaining its target price of RM3.77, which it continues to peg to 22.6 times FY12 price-to-earnings, on par with its peers.
'The stock remains an OUTPERFORM as the strong volumes and earnings momentum could spark a re-rating,' it said.
CIMB Research retains Outperform on Mah Sing
Stock Name: MAHSING
Company Name: MAH SING GROUP BHD
KUALA LUMPUR: CIMB Equities Research is retaining its Outperform recommendation on Mah Sing and its top pick in the property sector.
It said on Monday, July 18 that it is not making any changes to its earnings forecasts or target price of RM3.30, which is based on an unchanged target market price-to-earnings of 14.5 times.
'Potential re-rating catalysts include 1) this maiden launch, 2) continued strong sales and 3) aggressive landbanking newsflow in 2H,' it said.
Company Name: MAH SING GROUP BHD
| Research House: CIMB | Price Call: BUY | Target Price: 3.30 |
KUALA LUMPUR: CIMB Equities Research is retaining its Outperform recommendation on Mah Sing and its top pick in the property sector.
It said on Monday, July 18 that it is not making any changes to its earnings forecasts or target price of RM3.30, which is based on an unchanged target market price-to-earnings of 14.5 times.
'Potential re-rating catalysts include 1) this maiden launch, 2) continued strong sales and 3) aggressive landbanking newsflow in 2H,' it said.
Hua Yang Bhd RR Jul 2011
Stock Name: HUAYANG
Company Name: HUA YANG BHD
Company Name: HUA YANG BHD
| Research House: WILSON & YORK | Price Call: BUY | Target Price: 2.28 |
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