February 23, 2012

HLIB Research 23 Feb 2012 (WCT; SP Setia; AirAsia; MISC; IJM; TSH; Lafarge; KLK; IJM Plant.; Economics; Traders Brief)

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD
Research House: HLGPrice Call: SELLTarget Price: 2.80

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD
Research House: HLGPrice Call: SELLTarget Price: 21.03

Stock Name: LMCEMNT
Company Name: LAFARGE MALAYAN CEMENT BHD
Research House: HLGPrice Call: HOLDTarget Price: 7.11

Stock Name: TSH
Company Name: TSH RESOURCES BHD
Research House: HLGPrice Call: HOLDTarget Price: 2.13

Stock Name: IJM
Company Name: IJM CORPORATION BHD
Research House: HLGPrice Call: HOLDTarget Price: 5.77

Stock Name: MISC
Company Name: MISC BHD
Research House: HLGPrice Call: HOLDTarget Price: 5.57

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: HLGPrice Call: BUYTarget Price: 4.50

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: HLGPrice Call: HOLDTarget Price: 3.95

Stock Name: WCT
Company Name: WCT BHD
Research House: HLGPrice Call: BUYTarget Price: 2.98



WCT (BUY)

Nursing back the order book

'' WCT has secured a RM331m contract from Riverson Corporation S/B for the construction of a mixed commercial development which is expected to be completed by Aug-14.

'' YTD, WCT has secured RM632m worth of projects and outstanding order book has been lifted to ~RM3.0bn, translating to ~1.9x FY10's construction revenue and ~1.4x order book-to-market cap ratio.

'' With 2 successive contract wins in a month, returning interest into the stock may act as an upside catalyst. We maintain our BUY call on WCT with at TP of RM2.98.

''

SP Setia (HOLD)

Revised Takeover Offer Document Released

'' SP Setia has officially released the revised joint-offer document, with a firm timeline for the acceptances, with March 14th being the deadline.

'' Key salient points remain unchanged ' (1) Tan Sri Liew will still be given a free hand to govern SP Setia, (2) The company's listed status will be maintained, with a minimum 25% public spread, and (3) Tan Sri Liew still retains his 3-year Put Option on his 8% stake at RM3.95 per share.

'' Maintain HOLD and target price of RM3.95, which is the revised offer price.

''

AirAsia (BUY)

Spreading Wings in 2012

'''' Reported 4Q11 core net profit of RM279.7m, leading to FY11 core profit of RM725.2m, in line with our forecast of RM718.2m and consensus's RM744.7m.

'''' FY11's average ticket prices dropped 5.1% yoy on the back of strong competition from Firefly. We expect yield to improve in FY12, given Firefly has stopped operation since Nov 2011 while MAS is in the midst of cutting its capacity.

'''' Management indicated forward bookings remain strong for Malaysia and Indonesia units, while Thailand is catching up.

'''' Management is bullish with Japan and Philippines JV. Japan AirAsia is targeted to make profit within its 1st year operation, while Philippines AirAsia within 2nd year operation.

'''' Net gearing continued to improve to 1.4x in FY11 vs 1.7x in FY10.

'''' Hedged 27% of 1H12 fuel requirement at US$120/bbl (jet kerosene).

'''' Maintain BUY with unchanged Target Price of RM4.50.

''

MISC (HOLD)

Thirsty for Turnarounds

'''' Reported 3Q FY12/11 core earnings of RM14.7m, taking 9M FY12/11 core earning to RM272.5m, in line with HLIB's RM283.1m, but higher than consensus estimates of losses.

'''' Petroleum, Chemical and Liner divisions continued to report losses due to low volumes, low charter rates and high bunker costs. Bunker price had increased to US$750/mt level.

'''' Management continued to guide gloomy outlook for Petroleum and Chemical businesses. Moreover, there is likelihood of charter rate being push down further due to Iran's sanction.

'''' MISC will be exiting Liner segment by 1H12. MISC has specifically provided RM1.45bn (larger than previous guidance of RM1.2bn) for the potential losses of exiting Liner business.

'''' Upgrade to HOLD with unchanged Target Price of RM5.57, after its price had come down.

''

IJM Corp (HOLD)

Encouraging 3Q results

'''' IJM posted encouraging performance during 3Q as all division contributed positively. 9MFY12 core earnings (after adjusting for unrealised forex loss of RM34m) grew by 53% to RM359m (26.3 sen/share) from RM235m (17.5 sen/share) previously. Core earnings made up 75% of our estimates and 78% of streets' estimates.

'''' Despite the encouraging results, we maintain our HOLD call on IJM with a TP of RM5.77 (previously RM5.72) as fundamentals have already been fully reflected in its share price.

''

TSH Resources (Hold; TP: RM2.13)

Boosted by strong FFB growth

'''' FY11 net profit of RM120.5m (+41.7%) came in within expectations, accounting for 100.9% of our forecast and 97.5% of consensus estimates.''

'''' Maintain net profit forecasts and SOP-derived TP of RM2.13. However, we are downgrading our recommendation on TSH from BUY to HOLD as upside is now capped by the recent strong run-up in share price.''

''

Lafarge (M) Cement (Hold; TP: RM7.11)

Above expectations

'''' FY12 net profit of RM317.8m (+7.6%) came in above expectations, accounting for 115.2% of our forecast and 112.8% of consensus estimates.''

'''' Despite the better-than-expected set of results, we are keeping our 2012-13 net profit forecasts unchanged, as we believe our forecasts have adequately reflected the expected pick-up in cement consumption.''

'''' TP maintained at RM7.11 based on 16.5x 2012 EPS of 43.1 sen. Maintain Hold.

''

Kuala Lumpur Kepong (Sell; TP: RM21.03)

In line

'''' 3MFY09/11 core net profit of RM356.3m (yoy: -10.8%; qoq: +37%) came in within expectations, at 24.4-24.6% of our and consensus full-year forecasts.

'''' Maintain net profit forecasts and TP of RM20.13 (based on 15x CY2012 EPS).

''

IJM Plantations (Sell; TP: RM2.80)

Above expectations

'''' 9MFY03/12 net profit of RM150.2m (+31.6%) came in above expectations, at 80.7% of our full-year forecast and 84.6% of consensus full-year estimates.''

'''' FY03/12-13 net profit forecasts raised by 5.5% and 4.6% to RM196.5m and RM190.0m respectively, largely to reflect: (1) Higher FFB yield assumption for IJMP's Malaysian oil palm estates; and (2) Slightly lower production cost assumptions.''

'''' TP raised by 4.9% to RM2.80 based on 13x CY 2012 FD EPS of 21.5 sen. However, we are downgrading our recommendation on the stock from Hold to Sell as valuation has run ahead of fundamentals.''

''

January Inflation Report

'''' Inflation eased further to 2.7% yoy in Jan 2012 (Dec: +3.0% yoy), in line with the consensus estimate.

'''' Price increase of the transport category moderated further to 1.6% yoy (Dec: +1.9% yoy) from a high of 6.0% yoy in May 2011 due to the lapse of fuel price hike effected a year ago. Food & beverages segment recorded slower price increase (+4.8% yoy) while price growth of housing & utilities sector inched up to 1.8% yoy.

'''' The pick-up of CPI MoM growth (+0.3%; Dec: +0.1%) may be driven by one-off festivity (Chinese New Year). However, it does suggest that underlying inflation remained apparent which will still be a concern for BNM.

'''' We maintain our inflation forecast for 2012 at 2.7%, factoring in Pemandu's future subsidy removal in Jul & Dec 2012 respectively).

'''' The civil servant salary revision, Budget goodies for the lower-income group, implementation of minimum wage, and tight employment situation will cause inflation to remain sticky at an elevated level.

'''' While room for OPR cut is now available, we still expect BNM to hold the OPR steady at 3.00% until end-2012 on resilient growth outlook and sticky inflation.

''

KLCI: Market turns cautious''

'''' Overall, the rebound from 16 Feb's low of 1549 pts continues to be weak as broader market turns more cautious and trading volume shrank, suggesting that the rally is running out of steam. The KLCI is still below our envisaged resistance channels of 1570-1580 pts. Supports fall on 14-d SMA (1554), 1550 and mid Bollinger band (1543).

Crude oil: Still upside bias

'''' High crude oil prices are likely to be sustainable in the short term amid escalating tensions between Iran and Western nations coupled with liquidity injection since Dec 11 which spurred big infusion of speculative capital into riskier assets. Iran said earlier this week that it stopped selling crude to France and Britain in a move designed to pre-empt European sanctions. The European Union on 23 Jan agreed to ban crude imports from Iran starting 1 July to pressure the country over its nuclear program.

'''' Looking at the chart, if prices can maintain above the long term downtrend line since all time high in June 2008 (US$145/barrel), it may continue to climb towards US$115/barrel after a brief sideways profit taking consolidation. Further resistance is US125/barrel (23.6% FR). Immediate supports are US$94-100.

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