IOI Corporation Berhad Target Price: RM5.28 (Buy) Since IOIC shares went-ex (IOIPG demerger) on Dec 19, the share price has declined by 13%. We think IOIC is primed as a re-rating candidate. It is still one of the most efficient and well respected plantation companies in Malaysia. It delivers one of the highest FFB yields in the industry, underpinning the group’s ability to deliver superior ROE vs. industry peers. More importantly, the demerger will be free up significant amount of cash flow, which could be utilise to pursue more aggressive M&A activity in the plantation space. It also helps that a clear succession plan has been established. IOIC will now be headed by Dato’ Lee Yeow Chor, a well known personality in the plantation industry. The stock also appears more attractive, valuation wise, after the recent price correction. It is currently trading close to the 10-year average PER of 15.6x. All in, we think there is window of opportunity for investors to accumulate IOIC shares at a relatively cheap price and ride on a potential re-rating ahead. We value IOIC using Sum-of-Parts valuation method and derive at a target price of RM5.21. The group has also stepped up shares buy back recently. Since the listing of IOIPG on Jan 15, 2014, a total of 18.3mn shares have been bought back. Shares buy back has been more aggressive in the Jan 22 – 24 period, accounting for 40% - 50% of daily volume. We think the aggressive buy back indicate management’s view that IOIC shares are undervalued. Pantech Group Berhad Target Price: RM1.22 (Buy) We hosted a group luncheon with management of Pantech Group and emerged with the following key takeaways: 1) Nautic’s total capacity has increased to 800 mt p.a. (previous: 500 mt p.a.) following expansion on the plot of land (1.3 acres) nearby Nautic’s existing factory. The group targets to further increase Nautic’s total capacity to 1,000 mt p.a. by CY15, 2) due to the slow rollout of local O&G fabrication projects in 9MFY14, Pantech’s domestic sales have reduced to 49% of total sales (FY13: 60%). To offset the slowdown in orders, Pantech had recently ventured into production of structural items, 3) FY15 group capex of RM27.6mn comprises of: i) RM2.0mn for land, ii) RM11bn for building, and iii) RM14.6mn for machinery and equipment, and 5) Pantech expects to be re-instated as a Syariah compliant stock by the Securities Commission (SC) by 4QCY14. We believe that orders momentum will recover for the group on the back of: 1) ramp-up in production of higher-value stainless steel fittings to replace stainless steel pipe exports to the US (ceased since Oct 2013), 2) upcoming demand from new local O&G projects, including offshore fabrication projects and RAPID, and 3) 25% capacity expansion at UK in FY15 coupled with recent NORSOK certification. Maintain Buy on Pantech with unchanged target price of RM1.22 based on 12x fully diluted CY14 P/E. Economic Update Malaysian Economy Of Peso and Lira The foreign exchange and equity markets in emerging markets took a beating recently. Malaysia, specifically, saw the Ringgit plummet to its low of RM3.34 as of 27th January, while the KLCI slid 1.31%DoD to 1778.88 on the same day. The selloff in emerging economies was triggered by currency as well as political crisis in Argentina and Turkey. While the Turkish lira as well as key affected currencies rebounded subsequently, this has sparked fears that a selloff in emerging markets could spread and potentially derailing an already choppy global economic recovery. Going forward, consensus is expecting any financial contagion from Argentina to be limited but we are not discounting any economic fallout for countries with strong trade ties to Buenos Aires, and this includes economies like Brazil. Domestically, economic ties to these economies, be it in terms of investment or trade, are minimal. Our estimate suggests that Brazil, Venezuela, Turkey and Argentina, as a group, accounts for approximately 1% of total exports. As such, while we do not discount possibility of a domino effect on the domestic economy, we see low risk of Malaysia’s economic growth to be derailed because of this. We maintain our view that a spillover from the shadow banking issues in China as well as tapering of asset purchases in the U.S. posed a bigger risks to the real economy. Nonetheless, we expect Ringgit to average approximately RM3.20-3.25 against the Dollar for this year, with the worst case scenario at RM3.32. In terms of policy, we suspect that the central bank would continue to intervene in the forex market to ensure an orderly movement and in line with regional currencies. Our calculation suggests that the amount of excess liquidity mopped up by the central bank stood at RM286.6bn. We however, do not expect central bank to impose capital control at this juncture, nor hike the OPR now in order to stem the capital flow. News Bites · Indias aviation regulator invoked a provision under its Aircraft Rules 1937, for the first time, asking for public feedback on an application by an airline to start services in the country, which will affect AirAsia Bhd. · Malaysia Airports Holdings Bhd is expected to save some RM2.1mn annually from its energy bill following the recent installation of solar power system at the in Kuala Lumpur International Airport. · Malaysian Resources Corp Bhd, which is expected to announce the injection of Platinum Sentral into Quill Capita Trust today, will also announce the disposal of its 30% stake in the Duta-Ulu Kelang Expressway to Ekovest Bhd for RM228mn cash. · Malaysia Building Society Bhd’s FY13 pre-tax profit grew 42% to RM932.3mn due to higher income from Islamic banking operations via personal financing and other income. · Sumatec Resources Bhd has proposed a private placement of up to 308.6mn new shares at an indicative price of 27.5 sen to independent third-party investors to finance its planned acquisitions of O&G fields. · Northern Corridor Economic Region targets RM10bn investments in 2014 and bulk of it would be in the manufacturing sector. · The International Trade and Industry Ministry has received a petition from a domestic producer for an administrative review of anti-dumping duties on imports of newsprint rolls. · India’s central bank unexpectedly raised its benchmark interest rate to 8% from 7.75% to fight inflation. · Confidence among Japans small and medium-sized enterprises improved for the fourth successive month in January as its business confidence index moved up to 51.3 in January from 51.1 in December. · In the US, S&P/Case-Shiller home prices in the 20-city index were up 0.88%MoM in November and 13.71%YoY. TA Research
Posted on: Wed, 29 Jan 2014 10:29:51 +0000
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