TENAGA - Tenaga's tariff hike deferred again

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: MIDF

Tenaga Nasional Bhd
(Dec 13, RM8.66)
Maintain buy at RM8.60 with target price of RM9.98: The latest deferment in tariff hike is the third over the past year. Also, it fails to comply with the earlier government's commitment for a biannual review. Despite the inconclusiveness as to when the adjustment will take place now, we believe the recent announcement on potential possible adjustment as positive. The last tariff adjustment was in March 2009 when the electricity tariff structure in Peninsular Malaysia was reduced by 3.7% to 31.3 sen/kWh following a 25% cut in gas prices to RM10.70 respectively.

In tandem with a moderate economic outlook in CY11, with real GDP to expand by 5.3% from 7.2% in CY10, Tenaga expects electricity demand will grow by 5% in FY11 which is slightly higher than our forecast of 4.5%. Upside potential for electricity demand to grow remains. Much will depend on projects rolling out under Budget 2011 and the Economic Transformation Programme (ETP). We found for every 1% change in power demand growth, it affects Tenaga's core net profit by 2%-3%.

Tenaga's average coal cost in FY10 was US$88.20 (RM276.07) per metric ton (MT), slightly lower than FY09 by 2.2% to US$90.20/MT. For FY11, we expect coal cost to average at US$100/MT, which is in line with Tenaga's projection of US$100 to US$102 per MT. Room for average coal prices to be above the current level is brewing as the average coal price of Newcastle is at US$97.20/MT for the first eleven months of CY10. Should average coal cost be above both our and Tenaga's estimation, we found Tenaga's core net profit will drop by 15% for every US$10/MT increase in coal cost, assuming no changes to other factors (ceteris paribus).

We have maintained our forecasts for FY11 and FY12 on the assumption that: (1) there is no tariff hike; (2) average coal cost is at US$100/MT; and (3) gas price stays at RM10.70/mmBTU which translates into an average electricity tariff of 31.3 sen/kWh. On that premise, our fair value is at RM9.98. But should we assume Tenaga were to adjust its tariff upwards by 4% and holding all other factors constant, it will raise its core net profit by 35.2% to RM3.4 billion. This would translate to a fair value of RM11.50 which is a 15% premium to our current fair value of RM9.98 based on discounted cash flow with WACC of 10.9% and Terminal Growth of 3%. Our sensitivity analysis showed for every 1% change in tariff, it will affect Tenaga's core net profit by 7.8%. ' MIDF Research, Dec 13


This article appeared in The Edge Financial Daily, December 14, 2010.

SAPCRES - SapuraCrest eyes strategic assets, target price lifted

Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Research House: MAYBANK

SapuraCrest Petroleum Bhd (SapCrest)
(Dec 13, RM2.89)
Maintain buy at RM2.85 with revised target price of RM3.30 (from RM3.05): 3Q results yielded no surprises but we are turning even more positive on SapCrest. It has a strengthened balance sheet to expand its core businesses (ie IPF, marine services, drilling operations) through M&As. Maintain buy with a higher RM3.30 target price (+8%) as we lift target PER multiple from 16 times to 17 times FY13 on new asset injection prospects.

3QFY net profit of RM55 million (+3% quarter-on-quarter, +3% year-on-year) took 9M earnings to RM159 million (+21% y-o-y), on track to meet our and consensus full-year forecasts of RM216 million to RM218 million. No dividend was declared in the quarter. SapCrest remained cash rich for the fourth consecutive quarter with net cash level of RM76 million as at October.

The IPF division was the key performer in 3Q. Pretax profit jumped 123% quarter-on-quarter (q-o-q) to RM83 million, driven primarily by higher contribution from transportation and installation (T&I) projects. Other divisions disappointed. Drilling division's pretax profit fell 21% q-o-q to RM79 million on higher dry-dock costs and lower utilisation. Marine services pretax losses swelled nine times q-o-q; 2 times y-o-y to RM39 million whilst operations and maintenance (O&M) turned into a pretax loss of RM1 million (2Q: +RM1 million).

No change to our forecasts. Its balance sheet allows SapCrest the opportunity to gear up and build its asset base. Marine services division is an area which SapCrest can strengthen ' through M&A or newbuild (or secondary) routes. We also do not rule out SapCrest growing its rigs and pipe-lay vessels through JV with its existing partners (ie Seadrill, Acergy).

Petra Perdana and Alam Maritim are touted as potential acquiree targets. Hypothetically, taking over 100% of any of these companies would cost SapCrest between RM389 million and RM687 million (based on Friday's closing price) and could add RM53 million to RM61 million (+22-25%) to its FY13 net profit (full-year impact); after netting off 7% interest cost.

Pricing will be a key issue for the existing owners to exit. Acquiring Petra could be a less expensive option at Petra's current market value of RM389 million. An asset-liability option may be easier as major owners/shareholders hold just a collective 14%. ' Maybank IB Research, Dec 13


This article appeared in The Edge Financial Daily, December 14, 2010.

MAS - MAS' turnaround risky due to expansion plans

Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
Research House: HWANGDBS

Malaysian Airline System Bhd (MAS)
(Dec 13, RM2.02)
Maintain hold at RM2.01 with revised target price of RM1.85 (from RM1.90): We cut FY11-12F earnings by 3%-6% after imputing lower passenger yields and higher interest expense, which more than offset the impact of the weaker US dollar and lower level of fuel requirement hedged. We expect MAS to turn around next year driven by year-on-year (y-o-y) yield improvement as market conditions improve, while the US dollar is expected to continue to weaken against the ringgit. But MAS' expansion in the low-cost segment could start a price war between low-cost carriers and pressure yields.

We understand MAS is looking to own the first five B738-800s and all six A380-800s that it had ordered. These are scheduled to be delivered between 4QFY10F and FY12F, and likely to be funded by borrowings. Hence, we project net gearing to rise to 1.5 times in FY11F and peak in FY12F at 2.3 times. We understand that it has secured funding for all aircraft to be delivered in FY11.

Maintain hold with a revised target price of RM1.85 pegged to 15 times CY11F EPS. Though we expect MAS to turn around next year, we note that its expansion into the domestic and regional low-cost segment might create downside risk to yields. Furthermore, MAS' net gearing level is expected to rise over the next two years as some of the new aircraft would be owned by the group. This makes it crucial for MAS to deliver consistent earnings to meet its future capital and debt commitments. ' HwangDBS Vickers Research, Dec 13


This article appeared in The Edge Financial Daily, December 14, 2010.

BJTOTO - BSports Toto cut to 'neutral' at Credit Suisse

Stock Name: BJTOTO
Company Name: BERJAYA SPORTS TOTO BHD
Research House: CREDIT SUISSE



Berjaya Sports Toto Bhd, a Malaysian lottery-operator, was cut to "neutral" from "outperform" at Credit Suisse Group AG after reporting weaker fiscal-first half earnings.

The share price estimate was reduced to RM4.30 from RM4.60, Loke Foong Wai, an analyst at Credit Suisse, said in a report today. -- Bloomberg

MAS - HwangDBS rates MAS a 'hold'

Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
Research House: HWANGDBS



HwangDBS rates Malaysian Airlines Bhd a "hold" with a price target of RM2.01.

"We cut FY11-12F earnings by 3-6 per cent after imputing lower passenger yields and higher interest expense, which more than offset impact of weaker USD and lower level of fuel requirement hedged.

"We expect MAS to turnaround next year driven by y-o-y yield improvement as market conditions improve, while the USD is expected to continue to weaken against the MYR," says Hwang DBS.

"But MAS' expansion in the low-cost segment could start a price war between low-cost carriers and pressure yields. Though we expect MAS to turnaround next year, we note that its expansion into the domestic and regional low-cost segment might create downside risk to yields.

"Furthermore, MAS' net gearing level is expected to rise over the next two years as some of the new aircraft would be owned by the Group," says the research outfit.

"This makes it crucial for MAS to deliver consistent earnings to meet its future capital and debt commitments."

NOTION - Notion Vtec a 'buy' at HwangDBS

Stock Name: NOTION
Company Name: NOTION VTEC BHD
Research House: HWANGDBS



HwangDBS has rated Notion Vtec a "buy" with a lower target price of RM1.64.

The SLR camera division is expected to grow strongly on expectations of orders for new models of cam barrels and lens rings from major customer, Nikon, and other camera makers, noted HwangDBS.

"YTD-Oct 10 industry shipment volume was strong, growing 17 per cent year-on-year to 100.2 million units and likely to beat CIPA's full year projection of 109.9 million units (+3.8 per cent).

"We expect FY11F SLR camera division revenue to grow 35 per cent year-on-year to RM132 million, and account for 53 per cent of group revenue (vs 44 per cent in FY10)," said the research firm.

Notion has also started to buy back shares (3.7 million shares or 2.4 per cent of paid-up capital YTD-2010).

Near term share price catalysts are more orders for SLR camera components, recovering demand for mainstream PCs, and successful new business ventures.

SAPCRES - AmResearch maintains SapuraCrest FV at RM3.12

Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Research House: AMMB

KUJALA LUMPUR: AmResearch is maintaining its Buy call on SAPURACREST PETROLEUM BHD [] with an unchanged fair value of RM3.12 a share based on a CY11F PE of 16.0 times.

The research house said on Monday, Dec 13 SapuraCrest's 9MFY11 net profit of RM159 million was within expectation, accounting for 76% of its FY11F earnings of RM210 million and 74% street estimate of RM216 million.

'But pending our upcoming meeting with management, we are likely to upgrade SapCrest's fair value given its improved earnings record, massive gross order book of RM10 billion and strong new order development against the backdrop of Petronas' prolific capital expenditure programme in enhance oil recovery, deep water and marginal field clusters,' it said.

CENTURY - OSK Research maintains Buy on Century Logistics, unch TP RM2.24

Stock Name: CENTURY
Company Name: CENTURY LOGISTICS HOLDINGS BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its earnings estimates and BUY call on Century Logistics, with an unchanged target price of RM2.24 based on a price-to-earnings (PE) multiple of 6.0 times.

It said The Edge weekly had reported that Century Logistics secured a contract with F&N Dairies Sdn Bhd to provide all transport logistics for the latter's inbound movement of finished dairy products. The three-year contract will kick start sometime in June-July next year.

OSK Research said this marks Century Logistics' second largest MNC client after Nestle, from which it secured a contract three-to-four years ago.

'With this big client coming on board, we are hopeful of Century Logistics'securing more sizeable long term contracts. This contract's contribution to revenue is estimated at RM20m-RM30m a year, especially for Century Logistics' warehousing and land transportation segment, and fetch a net margin of 5%,' it added.

OSK Research said being a regional based customer, management does not rule out the possibility of this contract becoming a regional one since Century Logistics also has a warehouse in Ayutthaya, Thailand.

'Management is targeting for the group's revenue to grow by more than 20% on-year, which is slightly above our forecast of 15%. However, as we prefer to be conservative, we maintain our earnings estimates and BUY call, with an unchanged TP of RM2.24 based on a PE multiple of 6.0 times. Maintain BUY,' it said.

BJTOTO - OSK Research reduces BToto TP to RM4.65, keeps Buy call

Stock Name: BJTOTO
Company Name: BERJAYA SPORTS TOTO BHD
Research House: OSK

KUALA LUMPUR: OSK Research said BERJAYA SPORTS TOTO BHD [] 1HFY11 numbers fell below expectations, largely due to higher prize payouts, pool betting duties and corporate taxes.

In a research note issued on Monday, Dec 13, it said BToto remains committed to maintaining its high payout policy, as evident from 1HFY11's 124% net dividend payout ratio.

'Nonetheless, we are tweaking downwards our dividend payout assumption in tandem with the reduction in our earnings estimates for FY11, for which we are projecting a payout ratio of 95%.

'Consequently, we are reducing our DDM derived target price from RM4.86 to RM4.65 but maintain our BUY recommendation as the stock's current net dividend yield of 5.8% is still one of the highest among the stocks under our coverage,' it said.

GAMUDA - OSK Research: Trading Buy on Gamuda, TP RM4.64

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: OSK

KUALA LUMPUR: OSK Research has a Trading Buy call on Gamuda'' Bhd with a Target Price of RM4.64, up from its previous RM4.31.

It said on Tuesday, Dec 14, it said the adjustments increased its sum-of-parts based TP from RM4.31 to RM4.64, which implied CY11 PER of 24 times. This is still close to its historical long term 1-year forward PER of 22 times.

'We maintain our TRADING BUY rating on Gamuda as we expect more positive news flow on the MRT to spur the share price higher. The Cabinet approval of the RM36bn KL MRT and appointment of Gamuda-MMC as the Project Delivery Partner should be the key news to watch,' it said.

Gamuda is set to report its 1QFY11 results this Friday, Nov 17 and OSK Research expects earnings to make up 20%-23% of its full year estimates.