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Analyst calls for Feb 14
14 Feb 2012
The Malaysian Insider

This is a selection of morning calls by local research houses for the day.

From HwangDBS Vickers

Plantation Companies

Switch to Indonesian refiners

Wilmar and First Resources will enjoy supernormal refining margins in the next 2 years before it gets competed away. FY12F-14F CPO prices lifted 2-9 per cent on weaker Ringgit. Longer-term, upstream planters may still get a boost from rising biodiesel mandates. Downside risks: surge in palm oil/soybean output, weaker-than-expected EU, Chinese economies.

Genting Plantations; Buy; RM9.51

Price Target: RM11.00; GENP MK

Solid cash cow

FY12F-13F profit raised by 11 per cent — 16 per cent on revised CPO prices, FX rates, Success of Iskandar Malaysia should boost value of its 5,500 acre land bank in Kulai. Reiterate Buy, SOP-derived TP raised to RM11.00 (16 per cent upside potential)

IJM Plantations; Hold; RM3.33

Price Target: RM3.10; IJMP MK

Demanding valuation

3QFY12 earnings to be supported by strong CPO prices. FY12F-14F earnings raised by 2-18 per cent on CPO price and FX rate revisions. Lacking near-term catalyst. Hold rating maintained; TP revised to RM3.10 on lower ERP assumption

IOI Corporation; Hold; RM5.47

Price Target: RM5.50; IOI MK

No near term catalysts

FY12F-14F earnings revised by -5 per cent to +4 per cent to account for revised CPO prices and FX rates. We expect 2QFY12 NPAT to come in at RM450-RM460 million; up 74-78 per cent QoQ on smaller FX losses. Indonesia expansion slowed in FY11; expect more aggressive 10k ha planting in FY12F. Lacklustre Singapore property sales and weak refining margins; Hold for dividends

KL Kepong; Hold; RM25.48

Price Target: RM24.00; KLK MK

Limited land for new plantings

1QFY12 core earnings to increase 19 per cent QoQ. FY12-14F earnings raised by 3-7 per cent after changes to CPO price, FX rate and segmental profit. Maintain Hold, TP revised to RM24.00, imputing lower ERP in DCF valuation

Sime Darby; Buy; RM9.67

Price Target: RM11.25; SIME MK

Still undervalued

FY12F-14F earnings raised by 4-6 per cent after accounting for revised CPO prices and FX rates. 2QFY12 NPAT expected at RM1.0 billion, down 6 per cent QoQ on weaker plantation and motor contributions. Efforts to boost plantation productivity may yield more upside than expected. Reiterate Buy call for 19 per cent return; some catalysts have not been priced in

TSH Resources; Buy; RM2.23

Price Target: RM2.55; TSH MK

Highest growth profile

Aggressive expansion in Indonesia to resume; maturing estates to drive FFB output growth. Raised FY12/13F earnings by 10/11 per cent after revising CPO price and FX rate. Maintain Buy with higher TP of RM2.55

From OSK Research

SingTel (ST SP, NEUTRAL, FV: S$3.04, Last Price: S$3.11). We maintain our NEUTRAL call on Singtel. At the 3QFY12 (December quarter) results conference call, Singtel said its strategy to focus on the longer-term non- carriage business will come at the expense of margins in the medium-term which does not surprise us. The competitive headwinds Down Under are likely to put further pressure on Optus’ ARPU and margin, a lingering concern. Notwithstanding the reaffirmed guidance, our FY12/13 EPS is trimmed by <5 per cent, after building in the recurring cost for Netlink Trust and moderating our EBITDA assumption on Optus. Singtel’s dividend yield of 5.1 per cent should lend share price support.

Media Chinese International (MCIL MK, BUY, FV: RM1.47, Last Price: RM1.18). We visited Media Chinese International (MCIL) recently and confirmed that its prospects remain solid. We expect the company to post its best quarterly results ever when announcing its 3QFY12 numbers on 28 February 2012, thanks to resilient consumer spending and improving Hong Kong operations, coupled with stringent cost control measures. Given its huge cash pile of RM390.7 million as at September 2011, we continue to expect a DPS of 6.5 sen or a payout ratio of 60 per cent for FY12, which is at the high end of the group’s dividend policy of 30 per cent-60 per cent. Reiterate BUY for MCIL with its FV unchanged at RM1.47, based on 13x CY12 PER.

HSL: RM82 million Sarawakian Road Jobs Secured

The Buzz

Hock Seng Lee (HSL) announced that it has signed a subcontract agreement with PN Construction SB for the construction of the road from Balingian to Jalan Persekutan,

Sibu/Bintulu, Sarawak. The subcontract sum for the project is RM82 million. The scope of works includes earthworks, drainage and culverts, road and bridges. The works of the project will be due to be completed in the 1st quarter of 2014.

Our take

Within expectations. This recent win marks HSL’s maiden contract winning in FY12 and we deem the RM83 million road jobs secured as in line with our expectations with our FY12 orderbook replenishment standing at RM400 million.

Revival of SCORE likely. This latest award ties in with our view that the slow-moving construction projects in East Malaysia, with SCORE in particular, could finally gain some traction as we have previously highlighted in our Construction Sector Update titled “Projects Aplenty”. Although the flow of contracts have slowed down substantially in recent months due to insufficient funding from the Federal Government, we opine that there may be a turn in fortunes in the run-up to general election as we see the current ruling Barisan Nasional coalition likely to use the contracts to anchor votes from Sabah and Sarawak, which gave it a combined 54 parliamentary seats out of the 140 seats the coalition secured nationwide.

BUY. With that said, we are maintaining our BUY call on HSL. Pegging its long term average 1-year forward PER of 12x (from 10x previously) to our FY12 unchanged EPS of 16.9sen, our FV now stands at RM2.03. Key catalysts over the near term are more contract awards from SCORE, which we believe is rather likely over the next few months on higher allocation from the Federal Government.

SEG (RM2.16 – BUY) Corporate News Flash: Acquires RM22 million Land

SEG International (SEGi) announced on Bursa Malaysia that its wholly owned subsidiary, Andaman Daya SB, has proposed to acquire a piece of leasehold land located at Selangor Science Park 2, Sepang, Selangor from Perbadanan Kemajuan Negeri Selangor (PKNS) for a total consideration of RM22 million.

Our take

Salient terms. The land measures approximately 14.4 acres with a lease tenure of 99 years, where the lease period will commence upon the issuance of title by the relevant authorities. It is currently vacant and intended for the construction of buildings only.

Expand landbank for the future. In the announcement, SEGi highlighted that the acquisition is part of its capacity expansion strategy, whereby the land is targeted for the future expansion of the institution's facilities, including a new campus building and student residences. With the proposed acquisition to be completed only in 1Q14, details of the development plan are not available at this juncture.

Surprise on the upside. While we have always expected SEGi to further ramp up its student capacity given its current estimated utilisation rate of over 80 per cent as of end-FY11, the announcement took us by a surprise as we had earlier projected the group to focus solely on the widely anticipated RM500m Perak campus under the initiatives of the state government. The media reported that the campus was designed with an initial capacity of 8k students, which can be boosted to 41k students upon its full completion by 2014.

Considering the acquisition timeline, we believe the land purchase would likely form the foundation of its next growth phase (after completing the Perak campus) and we deem the move positive as it reflects the management’s confidence in further expanding its student base, which we estimate to stand at 28k currently.

Sales-and-leaseback likely. Given its modus operandi of being an asset-light tertiary education provider, we believe the capacity expansion would likely involve sales-and-leaseback or pure leasing arrangements. At this juncture, it is still premature to quantify the capex likely to be incurred but we do not expect a significant strain on its cash flow given its net cash position. On the land itself, the acquisition will be funded internally and via borrowings.

BUY. All-in-all, we reiterate our upbeat view on SEGi, which is not only the largest listed tertiary education provider in Malaysia but also has a steadily growing student base as well as a strong balance sheet that offers potential dividend surprises. We expect its upcoming 4QFY11 results release to be in line with our expectations and hence, our BUY call is reaffirmed. Our FV stands at RM2.16 based on an unchanged 18x FY12 PER.

Prestariang Bhd (RM1.38 – BUY) Company Update: On Course to a Record Year

On course to a record year

We met Prestariang’s management recently for our regular update. Overall, we expect the company’s 4QFY11 results to be in line with our estimates and are turning increasingly upbeat on its future prospects owing to growing adoption of its self-developed solutions. Given the stock’s improved liquidity, which is likely to draw more interest, we are now pegging a higher FY12 PER of 8x versus 6x previously. This brings our FV to RM1.38, based on a revised FY12 EPS of 18.7 sen. Maintain BUY with >50 per cent upside on top of an appealing yield of >10 per cent p.a. 4QFY11 net profit of RM10 million likely. We expect no major surprises in Prestariang’s 4QFY11 results to be released tomorrow, during which it is likely to report quarterly core earnings of RM10 million-RM11 million. These numbers are likely to be driven by its ICT training and certification division, which usually experiences a peak in 2H of the year. Given its strong generation of operating cash flow estimated at RM35 million-RM40 million p.a, we expect the company to declare another bumper DPS of 4.0 sen, bringing its FY11 DPS to 8.0 sen. This translates into a decent yield of over 9 per cent for the year.

Record high year in the making. Moving into 2012, management is guiding for an internal FY12 net profit target of RM40 million. We believe the target, which implies 19 per cent growth y-o-y, is achievable leveraging on the broader implementation of its in-house developed solutions, which typically yield better margins. The group had earlier signed agreements with 2 government ministries in relation to the implementation of the “1Citizen certification” programme developed by Prestariang, which aims to promote appropriate use of today’s technology.

Mitigating the seasonal impact. Management is working towards smoothening out its future earnings by focusing more on non-time sensitive contracts during the off-peak quarters to mitigate the seasonality impact. In 2QFY11, the group reported a dismal RM1.7 million in bottomline due to seasonal weakness at its ICT training and certification division, triggering a sharp 20 per cent selldown in its shares. That said, we expect a more normalised and predictable earnings cycle going forward, which would be music to the ears of risk-averse investors.

BUY. We came off the meeting feeling increasingly upbeat on Prestaring’s prospects riding on the growing adoption of its in-house developed solutions, which may enhance its already superior margins. Hence, we are revisiting our model and tweaking our FY12 core assumptions on higher contribution from its ICT training and certification division as well as revise slightly upwards its gross margin. We are also introducing our FY13 core earnings forecast of RM41.1 million. Pegged at a revised FY12 PER of 8x (from 6x previously), our FV is now higher at RM1.38. Maintain BUY. With its generous dividend payout of >50 per cent at >10 per cent yield, the stock is also good dividend play.

Media Chinese International

Another record year in the making

We visited Media Chinese International (MCIL) recently and confirmed that its prospects remain solid. We expect the company to post its best quarterly results ever when announcing its 3QFY12 numbers on 28 February 2012, thanks to resilient consumer spending and improving Hong Kong operations, coupled with stringent cost control measures. Given its huge cash pile of RM390.7 million as at September 2011, we continue to expect a DPS of 6.5 sen or a payout ratio of 60 per cent for FY12, which is at the high end of the group’s dividend policy of 30 per cent -60 per cent. Reiterate BUY for MCIL with its FV unchanged at RM1.47, based on 13x CY12 PER.

Record quarter likely. According to AC Nielsen’s latest published figures, newspaper adex registered a commendable y-o-y growth of 12.1 per cent in 2011. Other than Malay dailies which continued to make adex market share gains (+33.4 per cent y-o-y), Chinese dailies too chalked up a commendable y-o-y growth of 6.8 per cent. For 9MFY12, MCIL’s share of adex improved y-o-y by 8.8 per cent, driven by its flagship Sin Chew Jit Poh publication whose adex share went up by 7.14 per cent y-o-y for 3QFY12 alone. On the other hand, management guided that its Hong Kong operations is likely to see improvements by leveraging on higher ad-dollars from the property segment. As such, we believe the group is likely to record its best quarter ever in 3QFY12 where net profit is expected to come in at RM60 million, which represents a y-o-y growth of 10 per cent.

Positive trend to persist. Stepping into 4QFY12, we foresee that the group will continue to report healthy growth, on the back of aggressive advertising and promotion (A&P) activities among hypermarkets and fast-moving consumer good (FMCG) companies during the Chinese New Year period in January 2012. We expect the positive trend to persist going into FY13 as it pursues continuous efforts to better manage overhead and operating expenses. In addition, newsprint prices – which are currently hovering at US$650-US$660/tone — are likely to remain stable and upcoming major events, such as the nation’s impending General Election, the 2012 Olympics and Euro 2012 football tournament will provide a potential boost. We also see strength in its creatively bundled offerings, whereby MCIL organises crowd-pulling events for customers that advertise on its publications to increase the brand visibility of their products.

BUY. We feel positive that its 9MFY12 results will be at least in-line with our forecasts in light of its resilient adex share in Malaysia and improvements in its Hong Kong operations, which made up 15 per cent of the group’s EBIT. We also believe the group will continue to reward its shareholders given its mounting cash pile, which stood at RM390.7 million as at September 2011.

Thus, we continue to impute a payout ratio of 60 per cent for FY12, which translates into an appealing yield of 5.5 per cent. Hence we maintain our BUY call at an unchanged FV of RM1.47, based on 13x CY12 PER. We make no changes to our forecasts at this juncture, though an upside bias could likely be confirmed by its upcoming 3QFY12 results.


From RHB Equity

Maybank – Expecting A Weaker Quarter, But All In The Price Outperform

Maybank will be announcing its 2QFP12/11 results (for the 6 months financial period to December 2011 as the FYE was changed from June to December) results sometime during the week beginning 20 February. Our net profit forecast of RM2.56 billion (+19.1 per cent yoy) for the 6-month period implies that 2Q net profit would be down marginally qoq (-0.7 per cent qoq) but up by around 13.5 per cent yoy.

We expect lower net profit qoq mainly due to higher loan impairment allowances (+200 per cent qoq) on expectations of lower recoveries and additional provisioning to beef up coverage levels. That said, we do note that our annualised credit cost assumption for the 6-month period stands at 30bps, slightly more conservative than the 20-25bps mentioned by management previously.

We expect Maybank to declare a final gross DPS of 27.5 sen (2QFY06/11: 32 sen, gross), based on a net payout ratio of about 60 per cent. However, Maybank’s recent payout track record with script dividends has been in excess of 70 per cent. If repeated again, this would translate to a final gross DPS of at least 32 sen.

Fair value of RM9.47 and Outperform call maintained. Note that we upgraded our call on the stock in yesterday’s Banking Sector Update.

HSL — Lands RM82.2 million Road Project In Sarawak Target

HSL has secured a RM82.2 million subcontract for the construction of a new road linking Balingian to Jalan Persekutuan in Sibu/Bintulu, Sarawak.

This is the first contract HSL has secured so far in FY12, helping to sustain its outstanding construction orderbook at about RM1.1 billion. Assuming an EBIT margin of 12-15 per cent, the contract will fetch RM9.9-12.3 million EBIT over the construction period ending 1Q 2014.

Forecasts maintained as we have already assumed HSL to secure RM600 million worth of new jobs in FY12. We are putting fair value of RM1.59 under review with an upward bias. Maintain Outperform.

Hektar REIT — Achieves A Record DPU of 10.5 sen for FY11 Outperform

Hektar’s 4QFY11 realised net profit (-3.6 per cent yoy; +3.5 per cent qoq) came within our and consensus estimates. Gross revenue grew 0.9 per cent yoy and qoq due to the marginal improvement in rental contribution from its assets as well as an increase in car park income.

A final DPU of 3.0 sen was declared during the period, bringing total FY11 DPU to a record 10.5 sen (FY10: 10.3 sen), representing a net yield of 7 per cent.

Rental growth continues to be positive, with an average portfolio rental growth of about 20 per cent for FY11. Overall occupancy rates remains at a healthy 97.5 per cent, although this is a slight drop from the 97.8 per cent occupancy rate recorded in 3Q11.

No changes to our earnings forecasts. Maintain Outperform with fair value of RM1.61.

* These recommendations are solely the opinion of the respective research firms and not endorsed by The Malaysian Insider. The Malaysian Insider shall not be liable for any loss arising from any investment based on any recommendation, forecast or other information contained here.

 


 

 





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