Analyst calls for Feb 22
KUALA LUMPUR, Feb 22 — This is a selection of morning calls by local research houses for the day.
Today’s Market Preview
Greece has sealed a new bailout deal after securing approvals from eurozone finance ministers yesterday. Yet, the news could have already been discounted by investors as key US equity indices ended little changed (between -0.1 per cent and +0.1 per cent) last night.
This suggests that our Malaysian bourse may continue its sideways trading pattern, possibly swinging between the immediate support and resistance levels of 1,555 and 1,580 ahead.
Amid the flattish market expectations, two construction-related stocks could stand out today. Mudajaya and Eversendai are said to be part of a consortium that would be appointed as the main engineering, procurement and construction contractor for the new Tanjung Bin power plant project. According to the media report, Mudajaya is expected to be awarded the civil work portion (worth RM950 million) while Eversendai would secure the boiler erection contract (worth RM140m). Also, in a separate announcement to the stock exchange, Eversendai said it has clinched contracts in the Middle East and Malaysia valued at RM185 million.
Alliance Financial Group: Boost from non-interest income
• 3Q12/9M12 results beat our and consensus expectations, led by robust non-interest income and loan recoveries
• Raised FY12-14F EPS by 6-10 per cent on stronger loan and deposit growth, and non-interest income
• Maintain Buy; raised TP to RM4.50
Net profit grew 9 per cent y-o-y. 3Q12 net profit of RM121m took 9M12 earnings to RM372m. Non-interest income grew 9 per cent q-o-q and 37 per cent y-o-y, led by strong treasury business and recurring transactional banking activities. Non-interest income now comprises 26 per cent of total revenue vs 20 per cent a year ago. NIM (excluding Islamic banking income) fell 13bps to 1.83 per cent mainly on lower loan yields arising from sharper growth of mortgages. Loans grew 3 per cent q-o-q and 8 per cent for 9M12 led by mortgages and non-residential property. Gross NPL ratio continued to improve (2.5 per cent vs 2.6 per cent a quarter ago). Deposit growth (+1 per cent q-o-q; 8 per cent for 9M12) was led by CASA growth (+3 per cent q-o-q). CASA to total deposits remained one of the highest in the industry at 35 per cent. No dividend was declared.
Raised FY12-14F earnings by 6-10 per cent, after lifting loan and deposit growth assumptions to 9-10 per cent (from 8-9 per cent), and imputed stronger non-interest income and Islamic banking income.
Maintain Buy; TP raised to RM4.50. Following our earnings upgrade, our TP is raised to RM4.50 (from RM4.30) based on the Gordon Growth Model and assuming 15 per cent ROE, 5 per cent growth and 10.5 per cent cost of equity. We continue to like AFG for its attractive valuation and strong earnings visibility. Foreign shareholding (excluding strategic stake) stood at 29.5 per cent.
Malaysia Marine & Heavy Engineering; Fully Valued; RM5.51
Price Target: RM4.75 (Prev: RM5.00); MMHE MK
Persistent poor earnings
4Q11 earnings were below expectations. Cut FY12/13F earnings by 6 per cent/12 per cent. Maintain Fully Valued with revised RM4.75 TP.
Notion VTec: A rosy outlook
• 2012-13 likely to see upside; FY12-14F earnings raised by 14-31 per cent
• HDD may benefit from gloomy SSD news
• Maintain Buy; TP lifted to RM2.80 (8x CY12 EPS)
Returns to form. 1QCY12 sales picked up, hitting RM26-30 million a month in Jan-Feb to surpass pre-flood c.RM20m levels. This uptrend should continue up to FY13F, led by: (i) pent-up HDD demand post-Thai floods, and inventory normalisation by mid-2013; (ii) recovery of key clients WD (September) and Nikon (March); (iii) 3 new customers - NHK Spring, Nidec and Minebea; and (iv) gradual pick up in HDD component ASPs. Notion expects double digit revenue growth for FY12 and c.RM400 million in FY13, while EBITDA margins are expected to hover at 35-40 per cent. The company has also locked-in a higher exchange rate of RM3.14-3.20 per US$. The camera segment is expected to remain strong, though we expect smaller contribution in FY12. After adjustments, we raised FY12-14F earnings by 14-31 per cent.
In with HDDs, out with SSDs. HDD demand is expected to rise with the growing popularity of Ultrabooks, which incorporates HDD and SDD components, as well as hybrid storage solutions. iSuppli predicts that HDDs in Ultrabooks will reach 100 million units by 2015 from about 23m in 2012, while Computerworld wrote SSD performance may worsen as storage capacity increases. This seems positive for Notion, given its exposure in the HDD sector.
Maintain Buy. NVB is attracting private equity interest again with its resilient high-margin camera segment. NVB is also exploring further institutionalising its shareholding structure with the possible entry of key clients, so that it can also benefit from technology transfer.
JobStreet Corp: Decent sales but tight margins
At a Glance
• 4Q11 net profit of RM7.5m was below expectations; declared DPS of 2.25 sen
• Steady recruitment activities but tighter margins from higher operating costs
• Maintain Hold with DCF-based TP of RM2.40
Comment on Results
4Q11’s net profit fell by 35 per cent y-o-y to RM7.5 million, dragged lower by higher operating expenses such as staff costs, marketing costs and office rental. However, revenue rose 16 per cent to RM34.0m, boosted by higher recruitment activities and better sales from JobStreet Essential and Jobstreet Impact & Learning. For FY11, revenue rose 20 per cent to RM138.9m while net profit increased 7 per cent to RM43.7 million. FY11 EBIT margin narrowed to 39.0 per cent (vs. FY10: 43.2 per cent), due to higher operating costs and marketing expenses.
Sequentially, net profit was down 35 per cent q-o-q, affected by lower sales from JobStreet Essentials and higher operating expenses. We highlight that reported sales from Malaysia and Singapore in 4Q11 were significantly higher due to adjustments to fees on shared services provided to subsidiaries.
JobStreet declared net DPS of 2.25 sen (1.75 sen 4th interim + 0.5 sen final), resulting in full year net DPS of 7.0 sen. This translates to a 51.3 per cent payout ratio with 3.2 per cent yield.
Malaysia Airports; Hold; RM5.78
Price Target: RM6.70; MAHB MK
Result in line
4Q11 core earnings grew 6 per cent q-o-q to RM123 million, within expectations; driven by 11 per cent passenger growth. EBITDA margin fell 3.2 ppts to 28.4 per cent. Maintain Hold and SOP-based RM6.70 TP.
Sarawak Oil Palms (SOP MK, BUY, FV: RM7.03, Last Price: RM6.35) We flew into Miri, Sarawak recently to meet up with Sarawak Oil Palms (SOP) and have them bring us around their plantations. We liked what we saw during the trip and reasserted our view that SOP is a well run company with management competence rare for a plantation company its size. Along with one of the best tree age profiles within our coverage, we view the company as one of our favourite plantation picks. Its new downstream venture will commence operations in April, removing its dependence on third party refiners and providing SOP closer access to the end consumer. Maintain BUY with FV of RM7.03.
QL Resources (QLG MK, BUY, FV: RM3.64, Last Price: RM3.32) QL’s 9MFY12 results were below consensus but largely in line with our estimates. Revenue and net profit went up by 13.7 per cent and 7.9 per cent respectively due to better performance across all the divisions. The ILF division generated stronger topline largely driven by higher sales from farm products and higher unit price of raw materials. MPM and POA segments were aided by the higher sales volume of surimi products and better CPO price. PBT margin contracted due to lower margins from MPM and ILF divisions. Our FV is raised to RM3.64 after revisiting our FY12 and FY13 forecasts. Maintain BUY.
MHB (FV RM5.40– NEUTRAL) 9MFY11A Results Review: Start-up Costs Bite Hard
MUDAJYA (FV RM4.08– BUY) Corporate News Flash: Likely to Snag Tanjung Bin Job
GLOMAC (FV RM1.04– BUY) Corporate News Flash: Making Its Way to Ijok
Ta Ann – 4QFY11 will be weaker qoq on lower volume and prices Outperform
- Log production volume was flat qoq at 108k m3, while ASPs for logs have eased slightly, down roughly by 6 per cent qoq to US$235/m3 (3Q11: US$250/m3) due to slower demand from India/China.
- We expect Ta Ann’s plywood division to break even as ASPs were relatively flat qoq. However, we believe Ta Ann might write down inventory as well as its investment in the Tasmania plant.
- FFB production volume was down slightly by 8 per cent qoq due to seasonal factors (from 142k MT to 130k MT). CPO average selling price was also lower by 3 per cent qoq.
- We thus expect 4Q11 net profit to come in weaker qoq (at about RM34-37m), excluding any possible write-down. This would be in line with our full-year forecast of RM165.5m.
- Maintain forecasts and fair value of RM6.97, at a 10 per cent discount to its SOP-based FV (target CY12 PER of 8x for timber and 13x for plantation.
Motor – Seasonal Sales Slump Neutral
MBM Resources – Fair value RM3.90 Outperform
Tan Chong – Fair value RM4.40 Market Perform
UMW – Fair value RM6.20 Underperform
APM – Fair value RM4.30 Market Perform
Proton – Fair value RM5.50 Market Perform
DRB-HICOM – Fair value RM3.45 Outperform
- Jan vehicle sales were softer due to seasonal factors, with the Lunar New Year occurring earlier than usual. Sales were also adversely affected by BNM’s more stringent financing guidelines and continued disruption of components arising from the floods in Thailand.
- The Malaysian Automotive Association (MAA) reported total industry volume (TIV) for Jan falling 14.7 per cent and 25.2 per cent mom and yoy respectively to 40,894 units.
- We believe the market (banks and borrowers) will need time to adapt to new lending guidelines and it is premature to revise our 612,000 units (+2 per cent yoy) 2012 TIV forecasts at this juncture.
- Perodua sales fell 24.9 per cent mom to 13,684 units that were blamed on the new financing guidelines. However, Proton sales gained 6 per cent mom reflecting the strong market response to the face-lift
- The second revision to the National Automotive Policy (NAP) is expected to be announced in Apr that could be a major milestone for the industry. The revision is expected to emphasise continued liberalisation of the industry in the attempt to claw back the lead held by Thailand and Indonesia as regional automotive manufacturing hubs and build on Malaysia’s niche for hybrid vehicles.
Notion Vtec – Better earnings visibility Market Perform (Upgraded)
- Going forward, Notion expects revenue growth to mainly be driven by the HDD segment. Owing to the Thai floods which had caused HDD component manufacturers to be affected, this had resulted in Notion clinching new customers.
- Furthermore, Notion expects ASP of HDDs to remain stable on the back of lower competition, lower competition; and (3) HDD price collusion. Thus, HDD prices are likely to remain stable or at least at a slower rate going forward.
- We have raised our FY12-14 net profit forecasts by 11.6-24.4 per cent respectively. Thus, our fair value estimate is raised to RM2.06/share (from RM1.69)
- Related story: Notion Vtec Results Note – Within expectations; proposes bonus issue and free warrants (21 Feb 2012)
Eversendai – Lands RM185 million New Jobs In The Middle East And Malaysia Outperform
- Eversendai has bagged 5 structural steel work packages worth RM185 million comprising: 1) National Museum of Qatar (Package 1) worth RM81m; 2) Qatar Foundation Headquarters & Strategic studies Centre worth RM30 million; 3) Adnoc Headquarters in Dubai worth RM9m; 4) Yas Mall in Abu Dhabi worth RM33 million; and 5) Manjung coal-fired power plant in Malaysia worth RM32m.
- These jobs boost its outstanding construction orderbook by 11 per cent from RM1.6 billion to RM1.8 billion.
- At EBIT margin of 12-15 per cent, the contracts will fetch RM22.2-27.8 million EBIT over the contract periods.
- Separately, it was reported that Eversendai is poised to announce a contract worth RM140 million from the Tanjung Bin power plant extension project within this week.
- Forecasts maintained as we have already assumed RM1.5 billion worth of new jobs in FY12. Maintain Outperform and fair value of RM1.95.
Glomac – A new landbank at Ijok Market Perform
- Glomac announced a proposed acquisition of 2 parcels of leasehold land, measuring 80.81 ha, through public auction. It will be largely funded via internal funds given a net cash position of RM52.5m. The purchase consideration of RM44 million translates into a land cost of RM5.06 psf. This looks reasonable, but we would need further information on the land.
- Glomac plans to develop this piece of land into a mixed development project. We believe management will provide further details on the product mix, GDV and GDC during its 3QFY12 results briefing next month.
- We are not imputing any value into our RNAV estimate at this juncture, pending guidance from management. However, due to the receding risk of a double-dip global recession, we lower our discount to RNAV to 35 per cent (from 40 per cent). Fair value is revised to RM0.89 (from RM0.81).
MAHB – FY12/11 Net Profit Grows 26.4 per cent YoY Outperform
Results / Briefing Note
- Core FY12/11 net profit (excluding “construction profits” amounting to RM28.7 million) of RM374.3 million came in within our forecasts and market consensus.
- MAHB indicated that the construction of KLIA2 is 45 per cent completed and is on track to be completed by Jan 2013 and fully operational by Apr 2013. Furthermore, MAHB indicated that the construction is progressing well and “may finish ahead of schedule”. On costs matters, MAHB does not expect any further costs overruns going forward. Fair value is relateively unchanged at RM7.41/share based on “sum-of-parts.
AFG – Aided by CLO impairment writebacks Underperform
Results / Briefing note
- 3QFY03/12 results were slightly ahead of expectations, aided by credit cost staying low and a RM10 million impairment writeback in relation to a CLO, which management said would recur again in 4Q. Pre-impairment profit, however, was in line.
- Medium-term targets were unchanged and management appeared comfortable with the group’s progress thus far. Management believes industry approval rates have dropped since the introduction of BNM’s responsible lending guidelines but thinks it is also still early days as banks come to terms with the new guidelines and given Jan was a slower period due to CNY festivities.
- FY12-14 EPS projections raised by 2.9-4.8 per cent largely after incorporating lower credit cost assumptions and impairment writeback (FY12 only). Fair value raised to RM3.69 (from RM3.56) based on 11.5x CY12 EPS.
MMHE – Weaker than expected Underperform
Results / Briefing Note
- Annualised 9MFY12/11 net profit of RM274.1m was significantly below expectations, accounting for 85.1 per cent of our (RM319.7m) and 68.2 per cent of consensus (RM402.2 million) full-year estimates.
- FY12-13 net profit estimates reduced by 3.7 per cent and 5.0 per cent respectively. We introduce our FY14 forecasts. Fair value reduced to RM3.56/share based on unchanged 16x target FY12 PER.
Not unexpected. Unisem’s FY11 net profit of RM19.7m (-89.2 per cent yoy) was compared against our full-year forecast of R21.6 million. The key variance was mainly due to lower-than-expected revenue and EBITDA margin of 16.7 per cent (vs. our assumptions of 17.3 per cent) as a result of slumping chips demand.
4Q11 falls into the red. 4Q11 revenue fell by 5.2 per cent qoq (in line with management’s guidance of a 5-10 per cent qoq revenue decline). Due to lower operating leverage and lower contribution from higher-margin packages, EBITDA margin fell to 15.3 per cent (vs. 16.3 per cent in 3Q11). However, this was offset by lower interest expense of RM4.2 million (vs. 3Q11 in RM4.7 million) and a tax write back of RM2.6m. Consequently, Unisem posted a net loss of RM2.7 million.
Expecting more headwinds in the near term... We expect industry data (i.e. global chip sales, consumer spending) in the near term to remain weak although we highlight these are lagging data. We would also not be surprised if Unisem guides for some revenue decline for the 1Q12 in its analyst briefing later today. However, we highlight that MPI appeared more optimistic during its analyst briefing, and had guided for revenue to remain flat or at best, show a modest growth.
…to bottom in the 1Q12. According to Silicon Precision Industries (SPIL) (Taiwan-based packaging player), the semicon industry is expected to hit the bottom in the 1Q12. SPIL indicated that their customers have began replenish inventory and expects volume orders to rebound strongly from 2Q12 onwards.
Risks. Weaker-than-expected global chip sales in the 2H2012. Forecasts. We have tweaked our FY12-13 forecasts slightly following the full-year results. In addition, we have introduced our FY14 numbers.
Investment case. The recent guidance by other major tech players suggests a more upbeat prospect for the industry. Thus, we believe the sector is near (or close to) the worst point and reiterate our view that demand for chips is poised for a stronger recovery in the 2H2012 on the back of: (1) inventory replenishment by chip vendors; and (2) gradual recovery in the economy, in particular the US. Thus, we reiterate our Market Perform call on the stock with a fair value of RM1.53/share based on 1x forward P/BV. As the recovery gathers pace, we see significant upside to our forecasts and fair value given the high operating leverage.
The main variance was the weak MPM division revenue and margins which were affected by the lower fish catch in the 1HFY03/12. FY03/12 EPS forecast reduced by 5.6 per cent after we adjusted our MPM division volume and margins. Maintain Outperform.
OP, FV = RM3.70
*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.