RHBInvest Research Highlights 02nd February 2012

Stock Name: MPI
Company Name: MALAYSIAN PACIFIC INDUSTRIES

Research House: RHB

Price Call: HOLD

Target Price: 3.47

02nd February 2012

 

Top Story

Hiap Teck ' Waiting for earnings contribution from blast furnace            Market Perform (Upgraded) Visit Note -          We believe Hiap Teck's manufacturing division will continue to be weak due to lacklustre domestic demand in the absence of significant water-related projects. This is evidenced by its low capacity utilisation rate of 50%. -          Demand for steel slabs produced by Eastern Steel is not likely to be an issue as there is a ready buyer. We estimate that Phase 1 of the blast furnace project could contribute roughly RM35-46m to Hiap Teck's FY07/14 net profit.

Corporate Highlights

MPI ' Seeing some signs of bottoming?                                                                  Market Perform Briefing Note -          MPI expects 3QFY06/12 revenue to be flat or at best record modest growth on qoq basis. This is contrary to some of its peers that 1QCY12 revenue would decline 5-10% qoq. -          In addition, the company highlighted that key customers Texas Instruments, Freescale have indicated that the industry is on the verge of bottoming-out in 1QCY12. -          Thus, this supports our view that the sector may have passed (or is close to) its worst and poised for a recovery in the 2H2012. Fair value of RM3.47 and forecasts maintained.

Regional Equities

PT Adaro : Coal production volume increased by 13% yoy                                              Outperform News Update -          For full year 2011, Adaro managed to increase its coal production volume by 13% yoy to 47.7m tonnes (vs. 42.2m tonnes in 2010) mainly due to better weather conditions. This is within our forecast of 47.0m tonnes for Adaro's coal production in 2011. -          Overburden removal increased by 32% yoy to 299.3m bank cubic metre (vs. 225.9m bcm in 2010). Based on production volume of 47.7m, we estimate that the blended strip ratio of Adaro's mines has increased to 6.3x in 2011 (vs. 5.5x in 2010). Adaro guided for a blended strip ratio of 6.4x for 2012, higher than our estimate of 6.1x. We suspect this could be due to higher-than-expected strip ratio at Tutupan mine. -          Forecasts maintained, pending the release of its 4Q11 results. Indicative fair value remains unchanged at IDR2,350 based on target PER of 12x FY12 EPS. -          Related story: Indonesia Coal Sector Initiation ' Resilient In Times of Uncertainty (18 Nov 2011)

Macro

Money Supply - Broad Monetary Aggregate Picked Up And Loan Growth Strengthened In Dec Economic Highlights (published 2 Feb 2012) -          The broader money supply, M3, picked up to 14.4% yoy in December, after bouncing back to grow by +12.4% in November, while loans growth strengthened to a three-month high of 13.6% yoy in December, following a moderation to +12.8% in November and compared with +13.1% in October.  This suggests that the economy is still in expansion. -          Going forward, we expect the banking system's loans to expand at a slower pace of 8-9% in 2012, after strengthening to 13.6% in 2011, in line with a slowdown in economic growth and policy tightening implemented by the Central Bank.    Interest Rates ' Bank Negara Maintained The OPR At 3.0% Economic Highlights (published 2 Feb 2012) -          The Central Bank kept the Overnight Policy Rate (OPR) unchanged at 3.0% for the fourth consecutive meeting on 31 January, as the urgency to ease monetary policy has been reduced significantly of late given that global economic activities held up relatively well and monetary policy remains accommodative in the country. -          Still, there is room for BNM to cut OPR by 25-50 basis points in 1H 2012, if global economic conditions were to worsen.