RHBInvest Research Highlights 10th January 2012

Stock Name: HEKTAR
Company Name: HEKTAR REITS

Research House: RHB

Price Call: BUY

Target Price: 1.61

Stock Name: LPI
Company Name: LPI CAPITAL BHD

Research House: RHB

Price Call: SELL

Target Price: 11.60

10th January 2012

 

Top Story

Hektar REIT ' Strong commitment to maintain 10.3 sen DPU                                         Outperform Company Update -          Hektar REIT's management has guided us on the asset enhancement initiatives in the pipeline for the two Kedah malls that it is proposing to acquire. Plans include: 1) physical asset enhancements; and 2) tenant remixing exercise. -          The REIT is committed to maintain at least 10.3 sen DPU, even after the proposed rights issue exercise to fund the acquisition. -          Overall, our FY12-13 EPU estimates decreased by 5.7-8.6%, after factoring in the earnings contribution from the two Kedah malls and the higher unit base from the proposed rights issue. -          We revise fair value to RM1.61 (from RM1.64), based on a target yield of 6.5% after we reduce our FY12 DPU estimate slightly to 10.5 sen (from 10.7 sen). Maintain Outperform. -          Related story: Hektar REIT News  Update ' Acquiring Assets in Kedah (9 Dec 2011); Hektar REIT Briefing Note - Attractive Yield That Has Yet To Be Discovered 10 Nov 2011)

Corporate Highlights

LPI ' FY11 earnings in line, claims ratio inched up                                                     Underperform Results Note -          FY11 net profit of RM154.5m (+12% yoy) was in line with our and consensus expectations. -          FY11 earnings growth was driven by the 20.1% yoy growth in gross premiums, slightly higher than our assumption of an 18% growth. FY11 claims ratio of 48.9% was higher vs. FY10 of 47.7%, although slightly lower than our projections of 49.5%. -          Our FY12-13 earnings forecasts trimmed slightly by 0.1-1.7% after: 1) imputing FY11 gross premium numbers, thus resulting in lower FY12 gross premiums; and 2) slight adjustments in our key expenses assumptions. We also introduce our FY14 earnings forecast. -          Reiterate Underperform with an unchanged fair value of RM11.60.

Regional Equities

Indonesia Banks ' Still cautious on valuations                                                                    Neutral Sector Update -          Bank Indonesia (BI) data for Oct indicates that the banking system remains on an even keel. Oct loan growth stayed on an upward trajectory, rising 25.75% yoy from 25.23% and 23.89% in Sep and Aug respectively. We are looking for system loan growth to moderate to 20% in 2012. -          Asset quality remained stable with few stress signals. -          We see some upside for NIMs for the banks under our coverage in the next few quarters following the recent 75bp reduction in the benchmark interest rate as a result of lower funding costs and slower re-pricing of loan assets and gradually rising LDR. -          Our contrarian Neutral (maintained) sector call stems from high absolute valuations. Premium valuations (superior ROEs notwithstanding) leave Indonesian banking stocks susceptible to a de-rating of sector multiples and portfolio flow reversals. Nonetheless, we are positive on the long-term intrinsic prospects for the Indonesian banking sector. -          We reiterate our Market Perform calls on Rakyat, Mandiri and Danamon while BCA is an Underperform on valuation grounds. -          Related story: Indonesia Banks Sector Update ' Double Happiness (21 Dec 2011)

Macro

Foreign Reserves ' Retreated To US$133.6bn As At 31 December Economic Highlights (published 10 Jan 2012) -          Forex reserves retreated by US$1.4bn or RM6.4bn in 2H Dec 2011 to US$133.6bn (RM423.4bn) as at 31 Dec, after bouncing back to grow by US$0.2bn or RM0.7bn in the 1H of Dec. -          This was due to quarterly adjustment of forex revaluation loss, payment of import bills and some outflow of foreign portfolio funds, which were mitigated by the repatriation of export proceeds. -          In view of the outflow of foreign portfolio funds, we believe the ringgit will likely remain weak in the near term. We expect the ringgit to be supported fundamentally at around RM3.00/US$ once the outflow of foreign portfolio investment normalises. -          Meanwhile, the amount of excess liquidity (including repos) mopped up by the Central Bank accelerated to an estimate of RM287.4bn as at end-Dec, from RM278.4bn in mid-Dec and compared with RM242.3bn at end-2010.