News Bites · Affin Investment Bank Bhd expects the proposed acquisition of Hwang-DBS Bhds investment banking, futures and asset management businesses to be concluded by the first quarter of 2014. · IJM Corporation Bhd said its wholly owned unit has accepted a letter of award from JKG Tower Sdn Bhd for the construction of two commercial blocks at Jalan Raja Laut, Kuala Lumpur. · Petronas Gas Bhds earnings rose 19.5% to RM379.8mn in the third quarter ended Sept 30, 2013. · Petronas Dagangan Bhds earnings fell 6.8% to RM226.2mn in the third quarter ended Sept 30, 2013 due to the increase in average cost of products and higher operating expenditure. · Malaysia Airports Holdings Bhds (MAHB) net profit for the nine months ended Sept 30, 2013 rose by 7.6% to RM340.6mn. · Tenaga Nasional Bhd has posted a higher net profit of RM4.6bn for its financial year ended Aug 31, 2013 from RM4.4bn a year earlier on the back of the strengthening ringgit, higher demand for electricity and lower coal price. · KKB Engineering Bhd posted a net profit of RM7.1mn for the third quarter ended Sept 30, 2013, significantly higher from RM1.8mn a year ago. · Japans salaries extended the longest slide since 2010, even as Prime Minister Shinzo Abe urges companies to raise workers wages as part of his bid to reflate the worlds third-largest economy. · Business activity expanded in October at the fastest pace since March 2011 as orders and production surged, indicating U.S. manufacturing is gaining traction and will help fuel the worlds biggest economy. · Fewer Americans filed applications for unemployment benefits last week as a backlog in Californias reporting cleared. Jobless claims decreased by 10,000 to 340,000 in the week ended Oct. 26 from 350,000 the prior period. · Euro-area inflation cooled to the slowest in almost four years in October, moving further away from the European Central Banks goal. · U.K. mortgage approvals rose to the highest in 5 1/2 years in September, adding to signs of a strengthening property market thats being stoked by government incentives. Results Update Malaysia Airports Holdings Berhad Target Price : RM8.90 (Hold) MAHB’s 9M13 core net profit came in below expectations. The variance was largely due to higher-than-expected amortization costs. Excluding the construction profit, 9M13 PBT declined 4.8% YoY to RM416.7mn despite a growth in revenue of 13.2% during the period. The drop in earnings was largely due to increase in user fee (+137.3% YoY to RM169.1mn) as most of the government’s share of airport revenue was now charged to the income statement. As we can now be more certain about the commencement of KLIA 2, we make a major revamp to our forecasts. All in, we trim our FY13 earnings lower by 16.5% after adjusting the amortization cost higher. For FY14-15, we raise our earnings higher by 29-55% after 1) incorporating investment tax allowance, and 2) extending MAHB’s operation to 2059, thus amortization cost will decline accordingly. Using discounted FCFE approach, we value MAHB at RM8.90/share (from RM7.40/share previously) based on a required rate of return of 8.8%. In the model, we value MAHB’s concession up to year 2059 as compared to our old valuation model, which values the concession up to year 2034. Tenaga Nasional Berhad Target Price : RM11.35 (Buy) FY13 core earnings came in at the lower end our expectations due mainly to year-end book keeping activity, lower than expected electricity demand growth as well as fuel cost compensation that came in below our estimate. Overall results are positive in our view, and supportive of our Buy recommendation on the stock. Core earnings, after adjusting for forex and bulky fuel cost compensation in FY12 rose 21.8% YoY to RM4.2bn. This was attributable to, 1) lower fuel cost, which declined 1.8% YoY, 2) lower effective tax rate arising from deferred tax write-back of RM194.3mn in FY13, and 3) decent electricity demand growth (+3.8% YoY). We have updated our earnings model based on FY13 figures. FY14/15 forecasts upgraded by 7.8% and 4.8% respectively. Our previous forecasts appear to impute aggressive fuel cost assumptions that is not reflected in the actual FY13 results. Target price revised upward to RM11.35 in line with the higher earnings forecasts. Tenaga remains one of our top stock pick for the year. We applied an unchanged target PER of 15x to derive at the target price, which is equivalent to the stock’s long term high cycle PER. Petronas Gas Berhad Target Price : RM21.00 (Sell) Petronas Gas’ 9MFY13 core net profit of RM1,742mn came better than ours and consensus expectations, making up 86.4% and 78.4% of forecasts respectively after adjusting for deferred tax of RM598.6mn and net forex loss of RM56.8mn.It was a strong YoY growth of 56.9%. Revenue for the 9MFY13 rose 7.4% YoY to RM2,864.1mn mainly due to new revenue stream of RM179.2mn from the regasification plant that contributed 5.9% or RM89.5mn to the group’s gross profit. Throughput Sales rose 2.2% YoY to RM2,021.3mn despite a 0.3% YoY contraction in Gas Processing revenue, as it benefitted from higher capacity booking from Petronas for Gas Transportation. This translated into a 6.9% YoY growth to RM1303.4mn in gross profits. We raise our FY13 by 6.6% after adjusting higher our margin assumption, while FY14 profits were raised by 5.1% after imputing higher sales from the regasification business. While there is ample long-term catalyst for the stock, we believe the current share price has fully factored the growth potential based on DCF target price of RM21.00. At last price of RM24.52, it is trading at an expensive FY14PER of 29x vs. 10-year average PER of 21x and FBM KLCI’s 15x. Petronas Dagangan Berhad Target Price : RM21.05 (Sell) Petronas Dagangan’s 9MFY13 net profit of RM660.4mn came below ours and consensus expectations as it made up only 67.6% and 65.8% of full year forecasts respectively. Sales grew by 9.8% YoY to RM23,955.9mn as a result of higher sales volume that rose by 10.5% to 12.3bn litres. Nonetheless, net profit was flat at RM915.7mn (+0.1% YoY) mainly due to i) weaker contribution from the retail segment and ii) higher operating costs. As a result, operating margin dipped slightly to 3.9% from 4.2% during the corresponding period last year. Due to lower than expected 3QFY13 earnings, we have lowered our earnings forecast by 3.6% - 9.5% for FY13-FY15, respectively. The adjustment was mainly due to lower margin assumptions. We revised downward our target price to RM21.05 (previously RM21.83) based on unchanged target PER of 20x. PetDag remains a sell due to its rich valuation. On top of that, it is currently trading at FY13 and FY14 PER of 33.9x and 29.1x, which is higher than its three-year average PER of 19.6x. The stock still lacks a meaningful catalyst at this point in time, in our view. Company Update IJM Corporation Berhad Target Price : RM6.08 (Sell) IJM has accepted the Letter of Award from JKG Tower Sdn Bhd for the proposed construction of 2 commercial blocks at Jalan Raja Laut, Kuala Lumpur, for a contract sum of RM238.35mn. It involves the building works of 1 block of 32-storey office tower and 1 block of 13-storey elevated car park. The construction period of the project is 26 months and physical work is expected to commence within 3 months. With this job win, the outstanding order book increases by RM239mn to about RM2.5bn. Assuming EBIT margin of 8%, the project is expected to enhance the earnings by about 1sen per IJM share. However, we keep our earnings forecasts unchanged as the job win is within our order book replenishment assumption for FY14. We maintain our SOP valuation at RM6.08/share. However given the limited upside after the recent appreciation in share price, we downgrade our call on IJM from HOLD to SELL. SapuraKencana Petroleum Bhd Target Price : RM5.24 (Buy) Below are key takeaways from a conference call hosted by the management of SapuraKencana Petroleum Bhd (SAKP) with regards to its acquisition of Newfield International Holdings Inc.’s (NFI) O&G assets in Malaysia: 1) SAKP is also interested to bid for NFI’s China assets, 2) SAKP intends to fund up to 20% of the purchase price via equity whilst the balance 80% will be debt–financed, 3) NFI’s Malaysian assets are self-funding with zero debt, and therefore are value accretive immediately, 4) There will be minimal capex expenditure for the oilfields which are currently producing, and 5) There is upside potential to NFI’s Malaysian reserves of 36mn boe of Proven and Probable (2P) resource. In FY12, NFI’s Malaysian assets reported revenue and net profit of USD1.0bn (RM3.15bn, RM3.15/USD) and USD239mn (RM752.9mn, RM3.15/USD) respectively. This is in-line with management’s annual EBITDA and PATAMI guidance of USD300mn-400mn. and USD150mn-200mn for these assets. Therefore, this implies significant uplift of 47%-62% to FY13 earnings (assuming 7 months contribution commencing from July 2013) and 46%-62% to FY14. We maintain our positive stance on this acquisition as it will catapult SAKP from an O&G contractor to a resource owner. In addition, SAKP will also be the first local O&G company to emerge as a PSC partner with Petronas. Reiterate Buy on SAKP with TP of RM5.24 based on 24x CY14 P/E. Earnings accretion upon completion of this deal will render SAKP’s P/E valuations even more attractive. In addition, SAKP’s elevated profile as an integrated upstream player enhances its chances of securing contracts and will also result in margin expansion. Sector Update Banking Sector (Neutral) In September 2013, loans growth advanced by 9.5% YoY – in line with our revised full year projection of 9.6% YoY. During the month, business loans recorded encouraging numbers, supported by working capital (+1.7% MoM) and purchase of non-residential property (+1.4% MoM). Total loan applications rose 6.6% MoM (+13.1% YoY) to RM71.3bn – driven by a 47.5% MoM increase in applications for working capital. Loan approval rates were slightly lower at 47.6% vs. 48.8% in the previous month. The net impaired loans ratio remained stable at 1.4%. Asset quality is backed by loan loss reserves of 97.6%. In September, the banking system’s common equty tier 1 (CET1) capital and total capital ratio improved slightly to 12.1% and 14.4%. Total deposits stood at RM1,493.9bn (+0.6% MoM; +7.7% YoY). Along with the increase in demand deposits, CASA ratio improved by 0.4% to 26.0%. With loans rising at a faster rate, the system’s current LD ratio increased slightly to 79.8%. This month’s data showed a slight pickup in loans and advances to the business segment. Nevertheless, on a yearly basis, loans activities from businesses remain disappointing despite the hype surrounding ETP. All in all, we maintain our NEUTRAL stance on the banking sector. Maintain BUY on Maybank, CIMB and Affin. HOLD AMMB. Meanwhile, we reiterate SELL on Hong Leong Bank, Alliance Financial Group, RHB Cap and Public Bank. TA RESEARCH
Posted on: Fri, 01 Nov 2013 07:46:50 +0000
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