March 2, 2012

4QFY11 - Results Update

Stock Name: MUDA
Research House: NETRESEARCHPrice Call: BUYTarget Price: 1.10

4QFY11 results within expectations

Stock Name: KIMLUN
Research House: ZJPrice Call: BUYTarget Price: 1.87

Genting Plantation to see revenue boost

Stock Name: GENP
Research House: JF APEXPrice Call: SELLTarget Price: 8.14

KUALA LUMPUR: Genting Plantation Bhd is expected to see a strong growth in revenue for the financial years ending 2013 and 2014,
with contribution from planted areas in Indonesia, says JF Apex Securities.

The research house said Genting Plantation is having some 29,413 ha of planted area in that country, which is an increase of 66 per cent compared to 2009.

It also believed that Genting Plantation could sustain its high profit before tax (PBT) margin in the coming years mainly attributable to effective cost management.

In another development, Johor Premium Outlet (JPO), the joint venture between Genting Plantation and Premium Outlets, was launched in December 2011.

"We expect earnings contribution from JPO to be between one per cent and two per cent per annum in 2012 financial year's net profit and we understand that the second JPO is in the pipeline to be established in the near future.

"We expect total earnings contribution from JPO at between five per cent and eight per cent per annum by then," it said.

The research house has a "Sell" recommendation for the stock with a target price of RM8.14. - Bernama

JF Apex rates IJM Plantation a 'buy'

Stock Name: IJMPLNT
Research House: JF APEXPrice Call: BUYTarget Price: 3.75

IJM Plantation Bhd's financial year 2014 (FY14) revenue is expected to increase by 16 per cent upon maturity of the 13,000 hectares of oil palm it planted in Indonesia during FY12 and FY11.

In a research note today, JF Apex Securities Bhd said IJM's revenue was expected to be further enhanced from FY16 onwards with the prime production period with fresh fruit bunches yield increase from the current 23.7 tonnes/ha to 25 tonnes.

JF Apex has around 45,000ha of planted area in Sabah and Indonesia and aimed to grow its planted landbank to 70,000ha in FY13.

It said IJM's efforts to increase the landbank would be focused in Indonesia where it currently has around 20,000ha.

"IJM aims to achieve 30,000-40,000ha in Indonesia by planting 5,000-8,000ha annually over the next two to three years," it said.

It said as at March 2011, IJM's oil palm tree age profile consisted of 64 per cent of matured trees and 36 per cent of immature trees.

"The large portion of immature trees is expected to sustain revenue growth," it said.

JF Apex has recommended a 'buy' call on IJM with the target price of RM3.75.

"We are bullish on the long-term prospect once the Indonesian estate starts to contibute," it said. -- Bernama

Buy IOI Corp shares: JF Apex

Stock Name: IOICORP
Research House: JF APEXPrice Call: BUYTarget Price: 5.95

IOI Corporation's manufacturing segment is expected to contribute more than 80 per cent of the group's bottomline in financial year 2012, says JF Apex Securities.

In a research note today, it said IOI's revenue contribution from resource-based manufacturing segment has increased to 80 per cent in 2011 against 77.6 per cent in 2010.

JF Apex recommended a "buy" call with a target price of RM5.95 based on 17 times financial year 2013 price earning ratio (PER).

"Being a large cap planter, we think the current share price is undervalued as it is trading at 15 times financial year 2013 PER," it added. -- Bernama

Supermax Corp - Warming up to nitrile

Stock Name: SUPERMX
Research House: CIMBPrice Call: BUYTarget Price: 2.43

Target RM2.43

Nitrile was in focus at Supermax's 4Q11 briefing and we sensed that management views this product with more favour now. Much time was spent discussing nitrile's merits, affirming our view that it is the way forward for the industry due to its light weight and price stability.

Source: CIMB Day Break 02 March 2012, Full PDF Report

MMCCORP - On steady ground

Stock Name: MMCCORP
Research House: HWANGDBSPrice Call: BUYTarget Price: 3.70

Market Focus - Selective opportunities

Upgraded earnings by 3% (2012) and 2% (2013); positive surprises outweighed disappointments. Liquidity may provide near-term support for markets but we foresee limited upside for index with our year-end KLCI target of 1,590. We like stocks with specific catalysts, bottom-up picks, and selected defensive names. Key picks: Maybank, Gamuda, Alliance Financial Group, WCT.

MMC Corp; Buy; RM2.74
Price Target: RM3.70; MMC MK
On steady ground

Iskandar proxy ' realising land values. Malakoff listing post Gas Malaysia? Buy, TP of RM3.70 based on 20% discount to SOP.

Source: HwangDBS Research 2 March 2012

DRBHCOM - 3 Suitors for Proton's Tanjung Malim plant

Stock Name: DRBHCOM
Company Name: DRB-HICOM BHD
Research House: HWANGDBSPrice Call: BUYTarget Price: 3.45

DRB Hicom; Buy; RM2.61
Price Target: RM3.45; DRB MK

According to the media, DRB-HICOM is evaluating three rival plans for Proton made by 3 auto majors - VW, Mitsubishi and General Motors. This is to gain access to half of Proton's production lines at its factory in Tanjung Malim, Prai. The plant has a capacity of 250,000 cars a year but can be expanded to 1m. According to a source, the deal is valued at RM800m with General Motors being the least preferred and VW the most preferred.

This is a key positive catalyst and in line with DRB's vision of making Malaysia a competitive motor hub in Asean outside of Thailand and Indonesia. We concur and feel VW could be the most synergistic fit for Proton given DRB's already established relationship. VW cars are already gaining a lot of acceptance locally with total TIV growth of 2.4 fold for 2011 to 6,584 vehicles. Also, in the longer term, we think VW plans to use Malaysia as its hub for passenger vehicles (Passat, Jetta and Polo) in ASEAN where it hopes to ramp up production to 50,000 units a year by 2015-16. There is ample room for market penetration as we understand DRB's market share in Asean is small at less than 1%. This will also be synergistic with its manufacturing and engineering business to meet the required local content. We see minimal execution risk as DRB-Hicom's capability has been tested after it became the first assembler of the Mercedes S-Class outside of Germany.

We maintain our Buy rating and TP of RM3.45 which is based on a 20% discount to SOP.

Source: HwangDBS Research 2 March 2012

Supermax (SUCB MK, BUY, FV:2.50, CL:RM1.99)

Stock Name: SUPERMX
Research House: OSKPrice Call: BUYTarget Price: 2.50

Supermax held an analyst briefing  yesterday to update investors on its strategygoing forward.  Management  is targeting  to increase  its mix of  nitrile gloves  to 50% by 2013 from the present 35% to cashin on the changing demand for natural rubber and nitrile gloves. It alsoexpects to unveil new glove products by 2QFY12 that  will contribute  earnings by 3QFY12. We  are positive on  the company's strategygoing forward. Maintain Buy.

Ramping up nitrileglove (NBR) mix to 50%, or 10bn pieces a year, by 2013. This is a significantshift in product mix and an increase from the current NBR portion of 35%. To implementthis, the company will replace the older natural rubber (NR) lines in itsexisting factory (Lot 6070) to make way for capacity to produce 1.4bn pieces ofnitrile gloves while its new factory in Glove City (Lot 6058) will provideannual capacity for 3.8bn pieces. The earnings contribution from both Lot 6070and 6058 should come in by 3QFY12 and 2013 respectively.

Unveiling newproducts in 2QFY12; earnings to flow by 3QFY12. Supermax expects to launchnew glove products  globally  starting from 2QFY12. Although the companydid not reveal the type of glove to be produced, we  surmise that it may be a mix of NR and NBRgloves, and that it would be lighter and thinner. Our guess is that it wouldalso be an examination glove since  morethan  90% of  the company's products  target the medical segment.

NR latex price tocome down in 2H12. Although management acknowledged that NR latex pricewould continue to be volatile due to over-speculation and intervention by the Thaigovernment, it expects prices to begin to trend down again from 2H12. Thiswould be on the back of: i) new NR latex supply from Cambodia and SouthVietnam; ii)  declining demand for NRlatex as existing NR glove producers gradually shift to NBR gloves, and iii)the market preference for thinner gloves, which would mean that less NR latexwill be used eventually. As such, management expects NR latex price to drop toRM6.00/kg. We think that the price could fall to this level if there is nofloor price for hard rubber (proposed at RM11.84/kg) and the tension in Irandoes not stoke a further rise in crude oil price.

Maintain Buy. Ourfair value for Supermax remains unchanged at RM2.50, based on the existing PERof 13x FY12  EPS. We are positive on itsmove to go big  on  NBR as the examination glove market is  a dynamic  one where  preferences for glove  types may change rapidly, especially when aprice difference arises.

Source: OSK188

CIMB: Signs MoU with RBS

Stock Name: CIMB
Research House: ECMLIBRAPrice Call: HOLDTarget Price: 7.00

CIMB Holdings Bhd (CIMB MK, Hold, TP: RM7.00) signed a MoU for the proposed acquisition of certain businesses The Royal Bank of Scotland (RBS) in Asia Pacific. The banking group said the MoU is for the acquisition of certain cash equities, equity capital markets and corporate finance businesses of RBS in Asia Pacific. The MoU will provide both banks to negotiate exclusively with each other and finalise the scope and terms of a sale and purchase agreement. (Financial Daily)

CIMB TRADER AM 02 March 2012

Stock Name: FABER
Research House: CIMBPrice Call: BUYTarget Price: 1.78

Stock Name: PREMIER
Research House: CIMBPrice Call: SELLTarget Price: 0.405

Stock Name: QL
Research House: CIMBPrice Call: BUYTarget Price: 3.28

What's Relevant
  • US markets: US stocks had been higher for most of the session, buoyed by a strong weekly jobless claims report (4-year low) and as investors seemed to overlook weaker-than-expected manufacturing news (slowed down to 52.4), but still finished off their best levels.
  • Asian markets: Asian shares closed mostly down on Thursday as a retreat in expectations for further monetary easing in Europe and the U.S. sent stock markets lower, while China's PMI remained weak at 51.0. Singapore shares closed weaker on Thursday following comments by Fed chairman Ben Bernanke that flat incomes and still-high unemployment would likely limit growth this year to 2.25%. Commodities are still under pressure. We maintain a bearish view on the index
  • Malaysia: The FBMKLCI bucked the regional downtrend to end the day 0.2% higher. At the close, the benchmark rose 3.8pts to 1,573.45. Rotational buying in selected blue chips like Sime Darby, Petronas Chemicals and BAT helped cushion losses in the broader market. Lower liners were sold down on worries that the global retreat would hurt local sentiment. Volume was modest with 1.6bn shares worth RM2.0bn changed hands. Market breadth was negative with losers outnumbering advancers by 506 to 309 while another 302 counters remained unchanged.
Trades for the Day
  • Faber Group (FAB MK; RM1.78, Buy) ' Likely one more push higher.
  • Premier Nalfin (PRNB MK; RM0.405, Sell) ' Violated its triangle support.
  • QL Resources (QLG MK; RM3.28, Buy) ' Ripe for a stronger rebound.
  • Strategy ' Light at the end of the tunnel? Disappointments during the Feb results season were milder than expected, with underachievers outnumbering overachievers by only a factor of 1.6x vs. at least 3x in the past two quarters. This is good news and raises the hope that big earnings cuts are coming to an end. We maintain our Neutral call but raise our end-2012 KLCI target from 1,520pts to 1,610pts after lifting our target basis from 12.6x P/E to 13x P/E as we lower the discount to the 3-year moving average P/E from 10% to 5% in light of the less negative earnings outlook.
Click here for the full PDF report.

March 1, 2012

Kulim (M) - Purer plantation play after sale of fast food assets BUY

Stock Name: KULIM
Company Name: KULIM (M) BHD
Research House: AMMBPrice Call: BUYTarget Price: 5.00

Maintain BUY on Kulim with a higher RNAV-based fair value ofRM5.00/share (vs. RM4.25/share previously). Our new fair value is mainly basedon a PE of 11x on FY12F plantation earnings. Our previous assumption was10x. 

Kulim's PE (based on historical EPS) ranged from a low of 3xto a high of 19x in the past seven years. Its average PE was 10x.

Kulim's core net profit was within our expectation but aboveconsensus estimates. The group has not declared any final gross DPS for FY11.Interim gross DPS was 5 sen in FY11.

After the disposal of QSR Brands and KFC Holdings, Kulim Bhdwould be a purer plantation company. There is also potential for Kulim todeclare higher dividends from the cash it receives from the disposal of QSR andKFC. 
However in terms of earnings, the disposal of QSR and KFCwould have a negative impact. We have reduced Kulim's FY12F earnings forecastby 6% to account for loss of earnings from the fast food division. We haveassumed that the disposal of the fast food division would be completed bymid-FY12F. 

Kulim's EBIT rose 44.3% YoY to RM1.1bil in FY11 driven by thefull-year impact from the acquisition of Kula Palm Oil Ltd in Papua New Guinea(PNG).

As a result, operating profit of the PNG plantation divisionclimbed 95.8% YoY to RM893.2mil in FY11. FFB production of the PNG divisionsurged 32.3% to 1.7mil tonnes in FY11. 

Average CPO price realised by the PNG division was US$1,108/tonne(RM3,389/tonne). This was higher than the average CPO price of RM3,278/tonnereported by MPOB (Malaysian Palm Oil Board) in FY11.

As for Malaysia, EBIT of the plantation division rose 11.3% toRM236.6mil in FY11 underpinned by an improvement in CPO prices and output.After  recording a flat output in FY10,Kulim's FFB production in Malaysia improved by 15.5% in FY11. 

This is a trend which is consistent with the other plantationcompanies in Malaysia. Average CPO price realised by the plantation division inMalaysia was RM3,193/tonne in FY11, 22.6% higher than the average price ofRM2,604/tonne recorded in FY10.

Source: AmeSecurities 

Sunway - Earnings in line; sitting on a healthy order book and unbilled sales HOLD

Stock Name: SUNWAY
Research House: AMMBPrice Call: HOLDTarget Price: 2.85

We reaffirm our HOLD rating on Sunway Bhd with our  fair value raised to RM2.85/share based on a25% discount to our revised SOP of RM3.80/share, as we roll forward ourvaluation to FY12F and include its Iskandar project.

Sunway's 4QFY11 earnings came in at RM124mil, thus bringingFY11 net profit to RM370mil. However, stripping exceptional items (fair valuegain from investment properties & associate) amounting to RM44mil, coreearnings came in at RM326mil. This was in line with our estimate but came in slightlyabove street's estimates (+2%).

There is no YoY comparison given that Sunway was listed in August2011. Core earnings grew by a decent 6% QoQ to RM99.3mil on the back of a 4% jump in revenue. 

Property development was the star performer in 4QFY11, havingseen its operating profit growing by 7x to RM64mil. This was driven by strongprogress billings at key developments such as Sunway Nexis, La Costa, Vivaldiand Velocity. The group plans to launch RM2bil worth of properties this year,with target sales of RM1.9bil.

However, its construction unit reported losses of RM5mil duringthe quarter due to a one-off provision of RM23mil made for impairment lossesfor its 46%-associate in China. Sunway is looking to exit the business althoughwe are not sure of the timeline at this juncture. Operating margins nonethelessdoubled to 8% arising from its pre-cast jobs in Singapore.

Sunway's annual order book target of RM1.5bil may be achievablegiven that a third of it is secured by jobs from its property unit. Having saidthat the group is in the mix for several key infra jobs, including MRT elevatedpackages and earthworks for KLIFD development. 

The group is currently sitting on a healthy constructionorder book and property unbilled sales of RM2.8bil and RM2.2bil, respectively.This should provide earnings growth of 10%-22% to RM358mil to RM438mil forFY12F and FY13F, respectively. We introduce FY14F earnings at RM412mil.  That aside, the advantage of Sunway'sintegrated business model is obvious whereby it is able to recycle its capitalvia the monetisation of the investment properties. The associate stake inSunway REIT provides a ready platform for this purpose. This is the primary catalyst for any re-rating. 

In any case, given the gestation period between the completionand the maturity of its assets, e.g. Sunway Giza, VeloCity mall and SunwayPyramid 3, the unlocking of the assets may not materialise so soon. As such, webelieve there is limited upside to the stock.  

Malaysian Airline - Walking a tight rope HOLD

Stock Name: MAS
Research House: AMMBPrice Call: HOLDTarget Price: 1.25

We maintain our HOLD rating on Malaysia Airlines (MAS) withan unchanged fair value of RM1.25/share, following the release of its 4Q11results. Our valuation continues to peg MAS at 0.9x FY12F book value ofRM1.38/share.
 MAS reported a netloss of RM1.3bil for 4Q11, which brought the full-year net loss to RM2.5bil.The results were dragged by some RM1.09bil provisions comprising: (1) RM602milfor redelivery of aircraft; (2) RM314mil of impairment of freighters (2 B747Fand 4 A330F); (3)RM179mil provision for stock obsolescence. 

Excluding these provisions, MAS would have reported a corenet loss of RM1.3bil, which was in line with our estimate of a RM1.28bil netloss for FY11, but slightly deeper than consensus' projected net loss ofRM1.2bil. 

Management explained that the huge provisions for aircraftre-delivery was due to an accelerated return of 58 aircraft to lessors betweenFY12-14, of which 34 are expected to be returned in 2012. 

Core operating results were poor in 4Q11. The core net lossof RM232mil compares poorly against a RM60mil core net profit in 4Q10. Whileyields rose 9% YoY, the main drag came from a sharp drop in load factor to72.5% (4Q10: 77.4%), reflecting MAS's weak pricing power. Pax traffic droppedsome 6% YoY, while ASK was more or less flattish. 

Operating outlook looks tough in our opinion, as jet fuel priceremains high (currently hovering circa US$135/barrel). Our current projectionsalready assume jet fuel to average at circa US$130/barrel. An every US$1 increasewill reduce earnings by 9%. 

On top of this, we see the risk of a cash call looming. MAS isexpected to take delivery of five A380s this year (we estimate capex of circaRM3.1bil), with the maiden  two deliveriesin 1H12. A tough operating outlook (1Q and 2Q are typically weakest for MAS),coupled with dwindling cash balance of RM1bil, suggests that the group may be requiredto recapitalise to honour aircraft deliveries. Management is looking at severaloptions, including sale of non-core assets and debt-raising, but does not ruleout coming to the market, though equity would be the most expensiveoption. 

From a valuation standpoint, MAS is not cheap, trading at 1xFY12F book value of RM1.38/share, which is at par to more established airlines;Singapore Airlines and Cathay Pacific. We suggest investors switch out of MASinto AirAsia (BUY, FV: RM4.20/share) for exposure to the Malaysian aviationsector.

Source: AmeSecurities 

Bintulu Port - 4QFY11 earnings boosted by tax incentives BUY

Stock Name: BIPORT
Research House: AMMBPrice Call: BUYTarget Price: 8.40

We maintain our BUY rating on Bintulu Port with our fair valueraised to RM8.40/share based on our DCF valuation.

BiPort's FY11 earnings came in at RM171mil or 18% above ourexpectation, despite generating lower revenue (-5% YoY). This was due to astrong 4QFY11, whereby earnings jumped by about half to RM60mil. The groupdeclared a final dividend of 7.5 sen/share and a special dividend of 7.5 sen/share,taking total DPS for the year to 30 sen. 

The outperformance can be explained mostly by the tax incentivein the form of investment allowance amounting to RM16mil. We understand thatinvestment allowance rate was 60% in respect of the capex incurred from2008  to 2012 and there will be a refundof RM33.5mil. The group would continue to utilise the tax incentive until nextyear.

We believe this is a form of compensation, given that the federalgovernment and BiPort have yet to finalise the extension on the port lease tenure. Any capex recently committedwould be depreciated against a short port tenure which would result in highdepreciation charges.

We are estimating a net profit of RM190mil (+11% YoY) and RM195mil(+2% YoY) for FY12F and FY13F, respectively. FY12F earnings would be boosted bythe tax incentive although this should taper off in the following year.LNGrelated port charges will continue to be the key driver to its earnings,accounting for about 60% to 70%.

That aside, we believe the interest in the company would bepremised on its expected 'monopoly' on SCORE's logistics requirements, viaSamalaju Port. Recently, the federal government has approved RM500mil to fundthe maiden phase of the new port.

As we have highlighted in our previous report, while BintuluPort is in a healthy balance sheet position, we believe the group wouldcertainly welcome funding from the government. Note that recent feasibilitystudy mentioned a higher cost of development for the new port ' circaRM2bil-RM3bil versus earlier estimates of RM1bil. 

At the outset, i.e. in 2013, there could be at least 5million tonnes of raw materials to be required by 10 out of 17 confirmedinvestors at the Samalaju Industrial Park. This is more than double ourconservative base case assumption of 2mil tonnes throughput.   

Naim Holdings - Oil & gas boost in a weak FY11 BUY

Stock Name: NAIM
Research House: AMMBPrice Call: BUYTarget Price: 2.88

We maintain our BUY recommendation on Naim Holdings with alower fair value of RM2.88/share (previously: RM3.39/share) ' based on anunchanged 20% discount to its revised sum-of-parts (SOP) value.

The lower fair value encapsulates our earnings downgrade arisingfrom:- (i) more conservative new order book assumptions; (ii) higher interestexpense from its new Islamic bond facilities; and (iii) higher contributions/changesin the market value of its oil & gas associate, Dayang Holdings.

Naim reported FY11 figures which were largely in line with expectations.Stripping off an exceptional gain of ~RM10mil on the partial disposal of sharesin Dayang, core earnings dipped 62% YoY due to lower contributions from bothits property and construction divisions.

Property earnings fell by a sharp 80% YoY to RM14mil on theback of:- (i) fewer property launches in 2010; (ii) some delays in receivingapprovals; and (iii) changes in the designs at some of its planned launches. Asa result, property EBIT margin shrunk to 12% from 41% a year earlier. 

The construction division barely broke even in FY11 againsta RM42mil profit in FY10. This was mainly due to the substantial completion ofhigher-margin projects secured in 2010, coupled with a lack of new order book winsin 2011, when it only secured a solitary road contract in Fiji worth aroundRM12mil.

Dayang was the bright spot in 2011, where contributions jumped19% YoY to RM29mil. Dayang's outstanding order book of oil & gas contractsstands at RM1.4bil, providing job visibility at least until 2016. It accountedfor a significant 78% of Naim's core earnings for FY11 against 25% in FY10.

We are projecting FY12F net profit at RM55mil (+51% YoY), mainlyon the back of a rebound in Naim's property presales, which improved to overRM180mil from RM140mil a year ago. For FY12F, we have assumed a higher amountof RM240mil ' including some maiden sales from the redevelopment of the oilBintulu airport site.

Naim is also tendering for construction projects worth overRM2bil, including both public and private sector jobs in Sarawak. The group hasalso been short-listed under the Bumi category for the Sg.Buloh-Kajang MRTproject.  

Naim is trading at FY12F-14F PEs of 7x-9x, within themidrange of its historical trend average of 8x.    

Sime Darby - Solid numbers all around BUY

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: AMMBPrice Call: BUYTarget Price: 10.60

We maintain our BUY rating on Sime Darby, but with our fairvalue of RM10.60/share placed under review with an upside bias pending a managementmeeting.

Sime reported a 2QFY12 net profit of RM1.1bil, which bringsits 1HFY12 earnings to RM2.2bil or an impressive +42% growth YoY. This came inwithin our, and street, expectations, covering 53% and 55% of full-yearestimates, respectively. It declared an interim dividend of 10sen/share (versus8 sen/share for 1HFY11).

Key highlights from the 1HFY12 earnings announcement:-

Plantation division saw its EBIT growing by a massive 38% YoY,driven by a stronger average CPO price of RM2,872/tonne versus RM2,692/tonne in2QFY11. Solid FFB production growth of 4.6% was driven by healthy growth (+9.5%YoY) in Malaysia although production in Indonesia slid by 4%. OER was slightlyhigher at 21.9% against 21.4% due to new mills in operation and some upgrades.

However, its downstream division reported losses of RM37milwhich were mostly due to the weak performance at its Holland operations 'affected by a competitive market, and high operating costs due to inefficientmills.

Industrial showed solid growth in EBIT (+38% YoY) to RM628mil,underpinned by strong mining & logging activities in the Australia region.We expect this division to continue to perform given the expected continuedrobust mining activities. That aside, a one-off acquisition cost relating tothe purchase of Bucyrus was recognised during the quarter which amounts toRM62mil.

Motor division EBIT growth of 11% was capped by a weakercontribution from China/HK as result of forex losses of RM37mil. Discountingthe losses, growth would have been a healthy 31% YoY. On the flipside, the new BMW3-series and Hyundai Elantra & Veloster will be launched by 1HCY12 inMalaysia and these models would be one of the key drivers for the motor unit.We have assumed a 10% revenue growth for FY12F or a volume of circa 79,000cars.  

The tighter credit on hire purchase would have a negligible impacton Sime's motor division, given its portfolio mix are dominated by higher-endmakes.

We continue to like Sime as the company is the most liquid proxyto the plantation sector, which accounts for 61% of its FY11's EBIT. Valuationsare also attractive, currently trading at CY12F PE of 15x which is below its3-year average of 17x.  

PPB Group - Normalised dividends HOLD

Stock Name: PPB
Company Name: PPB GROUP BHD
Research House: AMMBPrice Call: HOLDTarget Price: 17.45

Maintain HOLD on PPB Group Bhd, whose 4QFY11 results werewithin expectations and consensus estimates. We have slashed PPB's FY12Fearnings forecast due to a weak operating margin in the grains, trading andflour division, and reduced profit contribution from 18%-owned associate,Wilmar International. 

PPB's pre-tax profit declined 6.6% YoY to RM1.06bil in FY11.Share of profits in Wilmar only improved by 5.5% YoY to RM814.6mil in FY11.

Recall that Wilmar was affected by low palm oil refining marginin Malaysia and soybean crushing margin in China in 4QFY11. The group'soilseeds and crushing division recorded a pre-tax profit of only US$1.7mil in4QFY11.

PPB's share of Wilmar's profits was also affected by a strongUS$/RM exchange rate in FY11. The Ringgit strengthened by 5% from an average ofUS$1.00:RM3.2191 in FY10 to US$1.00:RM3.0585 in FY11. 

PPB has declared a final gross DPS of 13 sen single-tier, whichbrings total gross DPS to 23 sen single-tier in FY11 (FY10: 88 sen). The totalgross DPS of 23 sen translates into a yield of 1.3% in FY11. Dividend paymentswere high in FY10 due to surplus cash received from the disposal of the sugarbusiness. Only consumer products and environmental engineering divisionsrecorded profit growth in FY11. Although revenue of the flour division climbed29.8% YoY to RM1.6bil in FY11, EBIT fell 12.9% to RM135mil. 

EBIT margin of the flour division weakened from 12% in FY10to 8% in FY11 due to an increase in wheat costs. We also reckon that the breadbusiness is not profitable yet. According to Bloomberg, wheat prices rose morethan 12% from an average of US$7.02 1/4/bushel in FY10 to US$7.89 13/16/bushelin FY11.  

Going forward, PPB is expected to benefit from the fall in wheatprices. Wheat price is currently hovering at US$6.67/bushel.

Turnover of the cinema division expanded 12.2% YoY to RM283.3milin FY11. However, EBIT of the division fell 14.9% from RM44mil in FY10 toRM37.4mil in FY11 due to the costs of opening new cinemas and an increase instaff costs. In FY12F, PPB would be opening five to six cinemas.

Source: AmeSecurities 

SapuraCrest Petroleum - US$263mil shipbuilding award to Brazil yard BUY

Stock Name: SAPCRES
Research House: AMMBPrice Call: BUYTarget Price: 5.44

We reiterate our BUY call on SapuraCrest Petroleum(SapCrest), with an unchanged fair value of RM5.44/share, based on an unchangedCY12F PE of 22x for the group's merged earnings with Kencana Petroleum.

SapCrest has entered into a contract with Brazil-based OSXConstru''o Naval S.A. (OSX) to build a 300 tonne-pipelay support vessel (PLSV).This involves the provision of detailed design, engineering, procurement of allequipment, construction, assembly, installation, completion, testing, survey,commissioning, sea trials and successful delivery of the vessel within 36months from 15 December 2011 to 15 December 2014. 

This award to a Brazilian yard is expected, given Petrobras'local content requirement in the award of the three PLSV charter contractsworth US$1.4bil (RM4.2bil) in November last year. Rio de Janeiro-based OSX,formerly known as OSX Estaleiros S.A and a subsidiary of OSX Brasil S.A,engages in shipbuilding and repairing services. OSX, which has a shipbuildingdivision in partnership with Hyundai Heavy Industries, also supplies ships andother equipment to the oil and gas industry. While SapCrest did not reveal thefixed lump sum cost of the vessel, OSX Brasil SA announced its value atUS$263mil (RM789mil).

Recall that SapCrest had earlier awarded the construction oftwo 550-tonne pipelay support vessels to Netherlands-based IHC Offshore &Marine at an undisclosed price in January this year. The two vessels are to becompleted and delivered within 30 and 33 months in May 2014 and August 2014,respectively. But given that the construction costs of Brazil yards are moreexpensive, we believe that the basic construction costs of all three vessels arebelow US$789mil. Translating into 56% of the PLSV charter contract, SapCrestappears to have a comfortable margin. 

The three PLSVs will be owned, managed and operated by a50:50 joint venture with Norway-based Seadrill Ltd. Seadrill is still aiming tolist Seabras in Brazil in April this year and plans to inject its stake in thethree PLSVs together with three ultra-deepwater semisubmersibles and threedrill ships. 

The group's order book remains at an estimated RM13bil,which will last until 2019, and is the largest by far in the sector. As thisoutsourced construction contract does not increase the group's order book, wemaintain FY12F-FY14F earnings. The stock currently trades at an attractiveFY13F PE of only 19x, vis-''-vis its 2007 peak of 29x.  

PERDANA (FV RM0.90 - BUY) FY11 Results Review: Stung by Vessel Impairment

Stock Name: PERDANA
Research House: OSKPrice Call: BUYTarget Price: 0.90

Perdana's FY11 results were scuttled by  a massiveimpairment  charge  of RM39.3m for its old vessels and lowervessel utilization. We believe the objective of this huge impairment is toclean up its books  and convinceinvestors like Dayang to take up a higher equity stake. We continue to view Perdana  as an attractive andripe takeover target. Maintain Buy.

Behind expectations.Perdana's FY11 results were below consensus and our expectations, mainly due tothe huge impairment charge of RM39.3m for its old vessels in 4QFY11. Its 4QFY11revenue of RM56.2m was marginally lower by 5.1% q-o-q, largely attributed tothe  lower vessel utilization on the backof  the monsoon season  and cancellationof some vessel leases. Both the impairment charge  and lower  vessel utilization were the key factorsbehind Perdana's massive 4QFY11 net loss of RM48.6m.

Cleaner books to  attract higher equity participation byDayang. To date, we understand that Dayang already owns over 11% ofPerdana. However, until Perdana cleans up its books completely, we  will not be  surprised if Dayang  refrains from further increasing its equitystake in Perdana. This is because once the ownership crosses the 20% threshold,Dayang would need to incorporate its share of Perdana's  profit/loss into its books. Hence, we believeit would be crucial for Perdana to clean up its books thoroughly before it canconvince Dayang to  make further  investments. In our view, Perdana have donemost of the spring cleaning in 4QFY11 since it needs Dayang to fend off anytakeover attempt by unfriendly parties.

Maintain Buy.  Our fair value for Perdana remains unchangedat RM0.90 based on an existing PER of 12x FY12 EPS. We believe the worst isover for Perdana and FY11 was a 'wash out' year for the company. Going forwardto 2012, we are seeing higher take-up rates for its brownfield vessels, especiallywhen it bids for new jobs  in concertwith Dayang which is already an established player in the industry. Finally, asfor its AHTS, we believe demand would start to recover in 2H12,  thanksto the  commencement of  more marginal oilfields and the start ofGemusut Kakap deepwater field from 2013 onwards.

Source: OSK188 

MMCCORP (FV RM3.70 - TRADING BUY) FY11 Results Review: Full Comparison Unavailable

Stock Name: MMCCORP
Research House: OSKPrice Call: TRADING BUYTarget Price: 3.70

We believe MMC's profits were within expectations although arestatement of historical records due to the adoption of Int IC4 makes a propercomparison difficult. Nonetheless, the  reported numbers show thatthere  were no major provisions fromassociates during the quarter, thus boosting profits from all 3 major business segments. We maintain ourforecasts pending greater clarity from the company's  analyst briefing today.  The stock's catalysts are the upcoming listing of Gas Malaysia, rumours that MMC maybuy Tan Sri Ananda Krishnan's power plants and the award of the MRT tunnelingproject. Still a good Trade.

Within expectations,probably. Proper comparison MMC's full year results versus our expectationsand consensus has been made difficult as the company has had to restate itsprevious earnings due to the adoption of Issues Committee Interpretations 4 (ICInt.4) to  determine  whether an arrangement contains a lease. Assuch, we estimate that MMC's PBT is within our forecast although its net profitwas above our forecast by 11% and in line with consensus. We do not have therestated 9MFY11 or 9MFY10 numbers for a proper comparison. The higher than expectednet profit was due to a lower than expected tax rate as the  adoption of IC Int.4 probably led to a  positive tax charge for FY11,just as it did in the company's restated FY10.

EBIT at all 3segments  higher.  Energy and Utilities earnings rose as therewas no provision for Kapar while Tanjung Bin saw more dispatch given theshortage of gas in the country. Transport and Logistics  were better as PTP's volumes rose 16% while Engineering earnings jumped as there wasno major provision for Zelan. Only the higher than expected finance chargesmoderated these improvements. Excitement should be in Energy, Engineering. Forthe Energy side, MMC will book in some RM307m worth of proceeds from thelisting of Gas Malaysia (not factored into our forecasts) as well as beginconstruction of its RM6.7bn 1000MW Tanjung Bin power plant extension. Also the1st Generation Power Purchase Agreements (PPA) are being renegotiatedand this will involve Segari. Finally, MMC could be in the running to acquire Tanjong's  extensive power plants  in Asia and Africa as Tan Sri Ananda Krishnan is rumoured to be sellingout. On the Engineering side, 2012 should see the booking of the Klang ValleyMRT project development partner profits. 

Maintain Forecasts,Still Trading BUY.  Given  the uncertainty  over  the adjusted figures, we largely maintain ourforecasts for now. The excitement for MMC is not so much in its profits (PER of23x for 2012) but rather the strong news flow surrounding the company. As such,we maintain our Trading Buy call pending today's analyst briefing.  Our SOP FV is unchanged at RM3.70.

Source: OSK188 

KINSTEEL (FV RM0.49 - NEUTRAL) FY11 Results Review: Pain All Around

Stock Name: KINSTEL
Company Name: KINSTEEL BHD
Research House: OSKPrice Call: HOLDTarget Price: 0.49

Kinsteel posted a net loss of RM121.6m in FY11, largelyattributed to the loss in its upstream operation (37%-owned Perwaja),  as well as poor  showing at its downstreamoperation following the sharp drop in material and steel prices. Apart fromexpecting stable but thin rolling margins moving forward, we are pinning somehopes on  its upstream makeover  via the  building  of  itsown pelletization plant and potentially securing  an iron ore mining concession.  Thatsaid, we suspect Kinsteel's cash flow may come under strain as we see a lowtake-up for its  on-going fund raisingexercise, and thus downgrade the stock  to NEUTRAL. Our lower fairvalue of RM0.49 is derived from 0.72x FY12 BV, or  -0.5 standard deviation of its historicaltrading range.

2011 a painful year.Kinsteel posted a net loss of RM121.6m for FY11 on a drastic loss in 4Q.Although its downstream operation normally enjoys stable albeit low margins, wesuspect the sharp  fall  in steel prices during the period may haveeroded  the already meager margins,together with some loss in inventory value. However, it also suffered a majorsetback at 37%-owned Perwaja, which recorded a huge loss on the back of poor steelmarket conditions, which  gave rise to anegative mismatch  between lower selling pricesand the still-high raw material costs, a writedown on inventory to realisablevalue amounting to RM94.2m, while a RM60m from reversal of deferred tax assetrecognised in the prior year exacerbated loss.

Pinning hopes on  upstream makeover. There  are  nomajor  concerns over Kinsteel upstreamoperation as we expect the kitchen sinking in 4Q to have cleaned up the high costinventory  plus stable rolling marginand  a potential uptick in long steel demand in Malaysia. As for Perwaja,  the second  verbal confirmation  from Terengganu's Menteri Besar  onawarding the mining concession to the company in December 2011  provided some assurance that the officialaward is around the corner. Perwaja is also building a pelletizing plant thatit hopes will boost the profitability of its direct reduction plant. This plantwill enable it to meet its own iron ore pellet needs and help it to achievesavings of up to USD50 a tonne from the procurement of local iron ore,logistics benefits, in-house value-adding and utilization of tax credits onaccumulated losses.

Downgrade to NEUTRAL.Perwaja's huge loss will certainly  dousethe interest of minority shareholders in  subscribing for  Kinsteel's ongoing  Restricted Offer forSale, unless the concession is given before the subscription closing date. Thismay potentially mean that Kinsteel is likely to end up with majority ofPerwaja's RCULS costing up to RM280m, and hence drain the group's cash flow.With that, we downgrade Kinsteel to NEUTRAL, with our FV cut to RM0.49. Weare  removing our earlier 10% iron oreDCF which we included in our base valuation of 0.72x FY12 BV (-0.5 standarddeviation). 

Source: OSK188

SUNWAY (FV RM3.31 - BUY) FY11 Results Review: As Expected

Stock Name: SUNWAY
Research House: OSKPrice Call: BUYTarget Price: 3.31

Sunway's FY11 results were  within ours but slightlyabove consensus expectations, with its FY11 core net profit making up about 103% and 107% of both forecastsrespectively. As the merger was only completed in August 2011, there is nomeaningful y-o-y comparison of its financial performance. We  are raising our FY12 net profit forecast by 4.0% and  introducing our FY13forecast. We maintain our Buy call on Sunway, at an unchanged FV of RM3.31,based on a 20% discount to our SOP RNAV valuation. Sunway is our  top pick  among  mid-  tobig-cap  property  companies, backed by  its attractive valuation and relatively defensive earnings  from its property investment segment.

Within our estimates  but above consensus. Sunway's core netprofit of RM325.6m for FY11  made up  103% and 107% of our and consensus FY11 netprofit forecasts. Collectively, its property development & investmentdivision was the biggest contributor to topline, accounting for about 38.4% oftotal revenue, followed by construction division, which contributed about 33.7%to revenue. However, due to  the  higher margin commanded by its propertydevelopment division  as well as  dividend income from Sunway REIT in theproperty investment division, these divisions collectively contributed some  82.3% of the core net profit while  the construction division  accountedfor  about 13.9% of group bottomline. Asthe merger was only completed in August 2011, there is no meaningful y-o-ycomparison for the group's financial performance.

Malaysia the biggestcontributor.  Geographically,Malaysia remained  the biggest contributorto group  topline and bottomline,  making up about  78.4% 70.8% of group revenue and net profitfor FY11 respectively. While revenue from Singapore only accounted for about5.3% of the total revenue, its contribution to the bottomline was much higherat 28.2% of FY11 net profit.  In  FY11, Sunway recorded total effective property sales of RM1.8bn, with unbilledsales  of RM1.8bn. For FY12, Sunway is expected to see  RM1.5bn of effectivelaunches, with targeted effective sales of RM1.4bn. Its construction orderbookcurrently totals RM2.84bn, which can last the group at least 2 years.

Maintain Buy. Wemaintain our Buy recommendation on Sunway at an unchanged FV of RM3.31, based on a 20% discount to our SOP RNAVvaluation. Sunway is our  top  pick among  mid-  to big-cap  property  companies, backed by  its  attractive valuation as well as relativelydefensive property investment  earnings.Adding  to  the stock's  appeal  is its  construction  division's strong  orderbook replenishment.

Source: OSK188

Bursa Malaysia Stock Watch

Stock Name: UMLAND
Research House: HLGPrice Call: BUYTarget Price: 2.06

UMLand (BUY)
Time for Puteri Harbour to contribute
  • FY11: net profit rose11% yoy to RM57.2m, which was 10% ahead of HLIB and consensus estimates. 
  • This was due to srongmargins from Suasana Bukit Ceylon.
  • However, 4Q:net profit declined 28.7% yoy, indicative of a soft patch of earnings ahead dueto lower contribution from the high-rise segment.
  • UMLand needs tolaunch Sommerset @ Puteri Harbour, to sustain earnings growth. We believe itwill finally happen in 2012.
  • FY12-14 earningsraised by 16-17% to reflect Puteri Harbour. We raise our TPfrom RM1.61 to RM2.06 (reduce discount to RNAV from 65% to 55%). BUY

 Source: HLIB Research 1 March 2012

BIPORT (FV RM7.10 - NEUTRAL) FY11 Results Review: Margins Down

Stock Name: BIPORT
Research House: OSKPrice Call: HOLDTarget Price: 7.10

Bintulu's FY11 earnings may have come in within our andconsensus forecasts, but we wish to point out that the company has made severalrestatements of its accounts to comply with several new accounting rules. Whilerevenue was higher as expected given the higher LNG cargo volume generated,margins shrank some 40bps as the non cargo business incurred higher operationcosts as its volume has yet to reach the level at which it can achieveeconomies of scale. We maintain our earnings and NEUTRAL call, with a higher FVof RM7.10. 

Incorporating  new accounting standards.  Due to the adoption of new accounting standards,there is no q-o-q earnings comparison given that the company had to restate itsconcession-related assets although we reckon that its earnings are deemed inline. Bintulu Port's 4QFY11 revenue grew 6.17% y-o-y on higher non LNG cargorevenue as we expected, as the company added container capacity. For the fullyear, operating revenue grew 6%, in line with our expectations.

Margins take the cut.Due to the growing revenue from non LNG cargo for which the margins are not aslucrative as those for LNG, Bintulu Port saw margins contract by an estimated40bps, as higher staff and operational maintenance costs also took a bite. We seethis as the trend moving forward until it achieves economies of scale uponhitting a higher volume handled.

Waiting for Samalaju.  Management has yet to finalize the long-drawnongoing discussions to operate Samalaju Port and its ownership structure,Currently, it has yet to determine the funding for this venture, butindications point to possible fund raising through the debt market. As of now,negotiations for lower lease rental as well as lower berthing tariff hike forits LNG tankers are still pending.

Dividends.  Bintulu Port announced a final dividend of 15sen (marginally above our estimates), bringing the full year dividends to 37.5sen (unchanged from 2010), representing a total net yield of 5.3%.

Maintain NEUTRAL.  We maintain our earnings forecast for now,pending full understanding of the new accounting standards. Nonetheless, ourDCF based valuation remains unchanged as it captures cash flow. As we roll overour DCF, our FV is adjusted upwards to RM7.10. Maintain NEUTRAL,  although we like the stock for its stableyield.

Source: OSK188

MSPORTS (FV RM0.89 - BUY) FY11 Results Review: Walking With Confidence

Stock Name: MSPORTS
Research House: OSKPrice Call: BUYTarget Price: 0.89

Multi Sports'  FY11earnings came in  above our  estimates. The  stronger performance was underpinned bybetter demand for MD2 products whose revenue surged by 77.4% y-o-y. Marginscontinue to contract on the back of higher input costs and depreciationincurred for production expansion, netting off the effect of higher  selling prices.  A tax-exempt final dividend of 3.11 sen per share was proposed. MaintainBUY with a new FV of RM0.89 as we revise our FY12 earnings upward toincorporate the stronger results.

Surpassingexpectations. The group's full-year revenue and net profit came in stronglyat RM430.3m and RM80.6m, representing a stellar y-o-y growth of 40.5% and 16% respectively.The better turnover was buoyed by the sales of EVA MD2 products, which surged77.4% y-o-y, offsetting  the weakerperformance of the MDI segment which registered a negative 12.1% growth. Therevenue for TPR and RB rose by 4.1% and 6.4% respectively. The sales volume forMD2 shoe soles soared 62.9% y-o-y, but this was offset by declining salesvolumes for TPR (-3.9%), RB (-12.8%) and MD1 (-17.8%) products, bringing thetotal sales volume growth to 26.2% y-o-y.

Slimmer margins.  Although the average selling price increasedfrom RMB19 to RMB21.16 per pair, the gross profit margin declined by 2.2% to30.2%, no thanks to higher production costs pertaining to labour, raw materialand depreciation arising from its production expansion. Similarly, the EBITmargin narrowed to 25.8% from 27.6%. The group's net margin trended lower aswell by 4%, mainly due to: (i) lower gross margin, (ii) the absence of regulartax reductions and exemption, (iii) higher depreciation expenses due to  capacity expansion, and  (iv) recognition of TDR listing expenses and additionalprovisions for withholding tax.

Maintain BUY.  We revise up our FY12 earnings by 4.7% to factor in the stronger demand forMD2 products as well as take this opportunity to introduce our FY13 forecast ofRM107.9m. The FV is bumped up to RM0.89 pegged to 5x FY12 EPS. Maintain BUY asthe group continues to deliver satisfactory results and  its share price  is currently trading at a cheap PER of 2x. A re-ratingfor China-based companies, including Multi Sports, is on the cards as the IPOof China Stationery Limited (CSL) was well-received, with its share trading ata much higher PER of 6.9x.

Source: OSK188

EPMB (FV RM1.38 - BUY) FY11 Results Review: Driving Into a Better Year

Stock Name: EPMB
Research House: OSKPrice Call: BUYTarget Price: 1.38

EPMB's 4Q numbers were hit by higher raw material prices andinterest expenses although these were offset by a tax deferred credit. The higher costs  led to a sharp drop in margins, which shrank 3ppts to 3.34%. We remain positiveon EPMB as  we expect the company's  earnings to be  propelled by  higher revenue from Proton and Perodua. Assuch, we maintain our earnings projections, with our BUY call retained. Our FVof RM1.38 is premised on a cheap 5x FY12 PE.

Hit by higherfinancing costs. EPMB recorded a poor set of results operationally in 4Q asits financing costs soared 42% q-o-q and 107% y-o-y amid higher raw materialprices, despite  chalking up  stronger sales during the quarter.   Nonetheless, its  weaker bottomline was offset by a substantialdeferred tax credit, which cushioned the overall impact.  Stripping off  unrealized forex losses whichwe consider as exceptional items, EPMB reported a FY11 core net profit ofRM39.4m (y-o-y: +53%, 4Q: q-o-q: -4%) on the back of RM577m revenue (y-o-y:-2%, q-o-q: +19%), which was in line with our estimate but slightly aboveconsensus.

4Q margins pinched.4Q margins  shrank as raw materialprices  shot up, causing the company'sEBIT margins to halve to 3.34% from 7.3% in the previous quarter. We also suspectthat this could also be due to higher depreciation costs.

Prospects remainbright on more contracts.  We remainpositive on EPMB as  the company's  earnings are to be boosted by  higher revenue,spurred by  the upcoming launch ofProton's new Persona  replacement  sometime in the next 2 months. We understand  that EPMB  is  supplying the  auto components  for this model.  Meanwhile, Perodua is also expandingaggressively into the export market, which bodes well for EPMB. The carmaker isalso said to be looking to expand to the Middle East market.

Maintain BUY. Wemaintain our earnings projection, with our BUY call retained. Our FV of RM1.38is premised on a cheap 5x FY12 PE.

Source: OSK188

TRC (FV RM0.79 - TRADING BUY) FY11 Results Review: 4Q Numbers a Letdown

Stock Name: TRC
Research House: OSKPrice Call: BUYTarget Price: 0.79

TRC's  FY11  topline and core  earnings came in at RM391.3m and  RM13.5m respectively.At a glance, the numbers seem to be in line with our estimate at 96.8% of thefull year forecast, but its 4QFY11 numbers were distorted by positive taxation.At the pretax level, its FY11 earnings would have fallen short of both streetand our forecasts at 68.3% and 81.6% of the full-year estimates respectively.That said, we are keeping our bullish view on the company as TRC is a strongcontender for the elevated works for the KV MRT SBK line. Hence, maintainTRADING BUY, at a slightly lower FV of RM0.79.

Disappointing 4QFY11.  TRC's FY11 revenue amounted to RM391.3m(+3.9% y-o-y) while earnings stood at RM13.5m (-16.4% y-o-y). At a glance, thenumbers seem to be in line with our estimate, at 96.8% of  our full year forecast. Nonetheless, its 4QFY11 numbers  were distorted by  a positive taxation amounting to RM2.8m.Excluding this, its FY11 pretax earnings would have fallen short of both streetand our forecasts at 68.3% and 81.6% of the full year estimatesrespectively.  We attribute this to theslower-thanexpected progress at its LRT extension project, which we understandran into a snag due to delays in obtaining approvals from certainmunicipalities, as well as additional costs incurred during the defectliability period for some of its previous projects. By the same token, the4QFY11 numbers were generally weaker q-o-q and y-o-y, with an EBIT loss of RM3.3m.However, its 4QFY11 net earnings stood at RM2.6m, helped by positive taxation ofRM2.8m recognized during the quarter.

MRT play. Despitethe disappointing results, we continue to believe that TRC is a strong contenderfor the elevated works of the KV MRT SBK line as it is the only contractor thathas been prequalified for all categories in both the open and  bumiputra portions. We estimate that thecompany's outstanding orderbook was worth RM1.5bn as of Dec 2011, with areplenishment target of RM500m p.a. for both FY12 and FY13.

TRADING  BUY. No major changes to our core assumptions for now. Nonetheless, our FY12and FY13 core earnings forecasts are revised marginally downwards by 2.2% and 6.0% to RM25.2m and RM33.4mrespectively for book-keeping purposes following  the company's full-year results. Maintain TRADING  BUY, with our FV nowrevised  lower to RM0.79, based on ourSOP valuation  based on  an unchanged 12x FY12 PER to its constructionearnings.

Source: OSK188

JOHOTIN (FV RM1.51 - BUY) FY11 Results Review: Sweet Ending

Stock Name: JOHOTIN
Company Name: JOHORE TIN BHD
Research House: OSKPrice Call: BUYTarget Price: 1.51

Johore Tin Bhd's (JTB) revenue and core net profit exceededour expectations by 11.8% and 62.1% respectively bolstered by stronger-than-expectedsales from its dairy products manufacturing division and stronger profitmargins as prices of milk powder had softened in 2H11. We remain bullish on theprospects of its dairy products manufacturing business as we expect its sales tobe strong this year. Based on our SOP valuation of JTB's tin can manufacturingbusiness at 6.5x FY12 EPS and dairy products manufacturing at 8x FY12 EPS, ourBUY call is maintained with our FV at RM1.51.

Better than expected.  JTB's revenue of RM134.2m and core net profitof RM10.7m exceeded our expectations by 11.8% and 62.1% respectively due tostronger-thanexpected sales from its dairy products manufacturing division andbetter margins for its products as prices of food commodities such as milkpowder softened in 2H11. EBITDA grew 171.4% q-o-q and 52.2% y-o-y while EBITDAmargins strengthened 39.8% q-o-q and 8.4% y-o-y.

Reaping benefits fromits acquisition immediately.  Despitebeing able to recognize two months of profits from its newly acquired company (Able Dairies), we gather that coreearnings from its dairy products manufacturing division accounted for RM3m ofthe RM6.3m reported in 4Q11. The stronger-than-expected sales was due tostronger demand from third world countries as condensed milk is seen as acheaper alternative to milk in those countries. Also, margins from the businesswere strong as milk powder prices had softened slightly in 2H11.

Earnings forecastmaintained. While introducing our number for FY13, we  maintain our earnings forecast for FY12 as weexpect a slower 1H12 for its tin can manufacturing business due to seasonalityreasons while  buyers for its condensedmilk may demand  lower prices movingforward due to the competitive nature of the business.

Maintain BUY. Intandem with our positive view on the prospects of the group's newly acquiredbusiness, we continue to like the group as its new business will drive earningsfor both its tin can business and dairy products manufacturing business. OurBUY recommendation is maintained based on our SOP valuation, which gives riseto a FV of RM1.51, premised on i) 6.5x FY12 EPS for its tin can manufacturingbusiness and ii) 8.0x FY12 EPS for its dairy products manufacturing business.The stock which is merely trading at 4.1x FY12 PER offers an 84.1% upside basedon its last closing price.

Source: OSK188