RHBInvest Research Highlights 09th January 2012

Stock Name: PETGAS
Company Name: PETRONAS GAS BHD

Research House: RHB

Price Call: BUY

Target Price: 16.39

Stock Name: WCT
Company Name: WCT BHD

Research House: RHB

Price Call: HOLD

Target Price: 1.97

09th January 2012

 

Top Story

Petronas Gas ' Getting ready for incoming LNG regasification plants                              Outperform Company Update -          In late Dec-11, the company announced: 1) a new network code to accommodate third party access (TPA) to the PGU system; and 2) three new wholly-owned subsidiaries in relation to regas terminals in Sg. Udang, Pengerang and Lahad Datu. -          We learnt from management that the tariffs under the new network code for the TPA system are similar to that of the previous 4th GPTA regime; just that it is presented on a different basis. -          We have tweaked our WACC assumptions to 7.8% (from 8.63% previously) which incorporates a higher debt to equity ratio for the company given the numerous projects the company will be undertaking. -          We maintain our Outperform call on the stock with a higher fair value of RM16.39 (from RM14.50 previously) based on unchanged DCF method. -          Related story: Oil & Gas Sector Update ' Resilient Despite Macroeconomic Uncertainties (12 Dec 2011)

Corporate Highlights

WCT ' FY12/11 new contract wins fall short of RM2bn target                                    Market Perform Company Update -          WCT was unable to meet its new construction orderbook guidance of RM2bn for FY12/11.  It only managed to secure RM187m.  -          The key culprits were its unsuccessful bids for Yas Mall in Abu Dhabi , Four Seasons Hotel in Bahrain , Madinah Airport in Saudi Arabia , airport extension in Brunei and "Package B" of the LRT line extension project. -          We are cutting FY12/12-13 net profit forecasts by 7-12%, having reflected an actual new construction orderbook secured of only RM187m in FY12/11 (vis-''-vis our previous assumption of RM1.5bn), partially mitigated by an upward revision in property profits. -          Fair value is reduced by 5% from RM2.08 to RM1.97.  Maintain Market Perform. -          Related story: WCT News Update ' A Second Property Venture In Vietnam (28 Dec 2011)

Macro

Ringgit ' Is Malaysia vulnerable to Eurozone's credit crunch? Economic Highlights (published 9 Jan 2012) -          According to some reports, Malaysia is one of the countries that have high exposure to European bank claims but Bank Negara Malaysia said that the figure was incorrect. -          Although Malaysia 's exposure to external claims has certainly increased lately, we believe it is unlikely to result in a credit crunch in the country even if European banks were to withdraw their funds from Malaysia . -          However, the ringgit could suffer greater volatility if there is a sudden pullout of funds from the Malaysian market due to the sizeable inflow of foreign capital into the country in 2011, particularly foreign portfolio investment that is short-term in nature. -          As a whole, we believe the reversal of foreign capital this time around is likely to be gradual and we expect the ringgit to face some weakness in the near term and possibly weaken to around RM3.20-3.25/US$, if foreign portfolio investors continue to leave the country. Once the Eurozone is able to resolve its debt crisis and outflow of foreign portfolio investment normalises, we expect the ringgit to be supported fundamentally at around RM3.00/US$. The sharp fluctuation of the ringgit in a short period of time, however, will likely dampen economic and business activities.