Analyst call May 22
UPDATED @ 01:43:30 PM 22-05-2012
KUALA LUMPUR, May 22 — This is a selection of morning calls by local research houses for the day.
Wall Street staged a technical rebound last night. Its key equity indices jumped between 1.1 per cent and 2.5 per cent at the closing bell amid news that China would stimulate its economy if necessary, while European leaders have expressed their intention to keep Greece within the euro zone.
This will probably lift our Malaysian bourse a bit more after its FBM KLCI posted a mild 6.5-point increase yesterday. Nonetheless, the underlying sentiment is expected to remain cautious (as reflected by yesterday’s thin trading volume of 780m shares only) with the benchmark index likely to struggle in overcoming the immediate resistance barrier of 1,555 ahead.
Hoping to get a ride today are the following stocks: (a) UAC, which will see its minority shareholders receiving a cash payment of RM4.30 per share (in the form of selective capital repayment and dividend) under a proposed privatization exercise; (b) MTD ACPI, following the award of MRT package with a contract value of RM500m; and (c) Heitech Padu, after securing a government job for the replacement and maintenance services for computer software worth RM34m.
TSH reported weak 1Q12 earnings of RM15.1m (-42 per cent q-o-q, -37 per cent y-o-y) due to lower FFB yield at Sabah estates. In addition, it booked RM1.7m unrealised forex loss (on US dollar borrowings for expansion in Indonesia) and RM2.9m net derivatives losses (CPO forward sales). Sequentially, operating profit fell 23 per cent (-22 per cent y-o-y) to RM24.4m, yielding 10.7 per cent operating margin (vs 10.9 per cent in 4Q11).
Low 1Q12 FFB production. The group’s 1Q12 FFB output fell 10 per cent q-o-q to 90k MT (+15 per cent y-o-y), dragged down by a 22 per cent drop in FFB production at Sabah estates (-1 per cent y-o-y). But the impact was offset by 4 per cent higher average CPO price of RM2,957/MT (-14 per cent y-o-y). And, its JV with Wilmar in Sabah performed better-than-expected with RM6m contribution (+11 per cent q-o-q) despite an unfavorable refining environment due to the Indonesian tax structure.
Although 1Q12 FFB volume is only 20 per cent of our FY12 forecast, we expect TSH’s FFB yields in Sabah to recover in 2H12. Contribution from the group’s Indonesian estates should also improve in 2H12 with new maturities. We also expect new plantings to double to 3k ha in this year compared to FY11.
Expect better earnings this quarter. The group’s unrealised losses on derivatives may be reversed in 2Q12 given the recent drop in CPO prices. TSH’s balance sheet as at end Mar12 remained healthy with 85 per cent net gearing (3.3x interest coverage ratio).
Maintain BUY and RM2.75 TP. We believe any near-term weakness in TSH’s share price is a good opportunity to collect. The forecast 19 per cent CAGR of its FFB output (3-year) is attractive and premised on rising FFB output at maturing Indonesian estates.
Petronas Dagangan’s (PDB) 1Q12 net profit of RM246m (+8 per cent y-o-y; +11 per cent q-o-q) is 26 per cent and 24 per cent of our and consensus’ estimates, respectively. This was driven by 5 per cent higher average selling prices and 1.5 per cent increase in sales volume.
Looking at revenue breakdown by business, (a) retail grew 12 per cent y-o-y on higher sales volume for diesel and mogas; and (b) commercial only grew 2.7 per cent as higher selling prices of aviation fuel was offset by weaker diesel and fuel oil demand.
We are keeping our RM942m net profit forecast for FY12 (+8 per cent y-o-y) and RM1.0bn for FY13 (+6 per cent) amid challenging business conditions. Essentially, demand for PDB’s products — which is driven by economic activity — could soften if the global economy weakens ahead. Our FY12F net DPS also remains at 75 sen (inclusive of 26.3 sen special dividend), implying 105 per cent payout, as PDB is expected to utilise the balance of its tax credit (undisclosed amount) by next year.
We lifted TP to RM16.15 (from RM15.20 previously) after rolling over PE valuation base to 16x FY13F earnings. This implies 4.6 per cent net dividend yield this year. PDB’s shares are expensive currently, trading at 1-year forward PE of 21x, more than 2SD above its historical mean (see Fig 2). Hence, we downgrade PDB to FULLY VALUED from Hold.
Timber — Neutral
We are pushing back our anticipated recovery of the timber sector to 2H12, expecting a more significant pickup in sales volumes and timber product prices to only start coming through in the later part of 2H2012, provided there are no other unforeseen external negative factors.
Our channel checks reveal that plantation division production costs have escalated quite significantly in 1Q12 by 20-25 per cent yoy. While this is partly seasonal (as less fertiliser was applied in 1Q11 due to extreme wet weather conditions), we understand labour and transportation costs have also risen.
We raise our cost projections to reflect a 15-20 per cent increase in unit production costs (from a 5-10 per cent yoy increase previously). This will affect companies like Ta Ann and Jaya Tiasa more, given that WTK’s plantation division is still contributing minimally to overall profits.
We have lowered our forecasts for all three timber stocks. In line with the downgrade in our target PER for plantations, we have reduced our target PER (from 14-15x to 13-14x) for Jaya Tiasa and Ta Ann plantation earnings.
We downgrade our calls on Ta Ann and Jaya Tiasa to Market Perform (from Outperform) and WTK to Underperform (from market perform). Maintain Neutral.
Motor — Neutral
Total industry volumes (TIV) for Apr declined 6.3 per cent and 10.9 per cent yoy and mom respectively to 47,736 units. Cumulative TIV for YTD Apr reached 186,280 units, down 11.0 per cent yoy.
While the overall Apr TIV data was somewhat disappointing, a closer look reveals that much of the weakness can be attributed to tepid Proton (-21.4 per cent mom and -24.3 per cent yoy) and Perodua (-10.9 per cent mom and +3.3 per cent yoy) sales, likely due to Bank Negara’s responsible lending guidelines introduced in Jan that continue to have an adverse effect on the lower end of the market.
The market share for national vehicles fell to 51 per cent in Apr (2011: 56 per cent). We expect a pick up in Proton sales from May from new deliveries of the Preve that was launched in mid-Apr.
Toyota enjoyed solid sales during the month and consolidated its market share that expanded to 17.3 per cent (Mar 2012: 16.5 per cent, 2011: 14.8 per cent). UMW is our top pick in the sector.
Although YTD Apr TIV only reached 30.4 per cent of our 2012 TIV forecast of 612,000 units, we believe there will be a gradual recovery in sales ahead as the market adapts to the new lending rules.
Despite the uncertain global economic outlook, CSC’s prospects appear to be relatively stable. The utilisation rate at for flat product segment has averaged at 60-70 per cent YTD (albeit slightly lower than our assumption of 80 per cent) and is likely to end the year at about the same level, underpinned by the relatively stable outlook.
FY12/12-14 forecasts reduced by 10-17 per cent largely to reflect lower sales and higher input costs.
The near-term outlook for flat product players in Malaysia is stable at best due to muted growth prospects for the local auto, manufacturing and export sectors. Fair value maintained at RM1.66 based on 0.8x book value of RM2.08, at a premium to its historical average of 0.7x to better reflect its cash reserve of 59 sen/share and possible privatisation by its parent company.
We expect MNRB’s earnings to be weaker yoy, mainly due to losses from the floods in Thailand, of which it had provided RM55m for expected claims in 1HFY03/12. MNRB has no plans to write-back the provisions as yet, given that more claims could be realised later in the calendar year.
Nonetheless, its ICAR remains healthy, without any further need for capital injections. This implies that dividends could be on the cards, while MNRB mentioned that they do have an intention to pay dividends for FY03/12.
Maintain Underperform and fair value of RM2.35 given the uncertain earnings outlook.
We confirmed with Gamuda that yesterday’s Business Times report that MMC-Gamuda JV had sought another extension of time from the Government for the completion of the Ipoh-Padang Besar double tracking project from end-2014 to 2015/2016 is inaccurate.
Also, Gamuda confirmed that a decision has yet to be made if MMC-Gamuda JV will submit a variation order (VO) to the Government with regards to additional costs incurred due to a 2-year delay in the project (predominantly due the Government’s inability to resolve certain land issues).
Fair value is RM3.78. Maintain Market Perform.
Mah Sing announced that it is acquiring 412 acres land from Boon Siew Development for RM330.8m (RM18.55 psf). Considering SP Setia and UEM Land’s transaction price at RM13 psf at Semenyih, and current land price of RM25-28 psf at Kajang, we think the slight premium could partly be due to the land’s long 2km frontage along the North-South highway.
Despite the incremental value to our RNAV estimate, our fair value for Mah Sing is lowered to RM2.10 (from RM2.20), as we widen the discount to RNAV to 20 per cent (from 15 per cent) and also update the beta in our discount rate assumption.
Although Mah Sing’s share price has corrected by 10 per cent YTD, we remain cautious on the property sector as a whole, as both uncertain outcome of the Eurozone debt crisis as well as the upcoming general election in Malaysia will overshadow the equity market as well as the high beta property stocks. Maintain Market Perform.
1Q12 net profit (+2.0 per cent qoq, -57.2 per cent yoy) reached just 13.8 per cent of our full-year estimate and 11.9 per cent of consensus. While we expect a pickup in earnings in subsequent quarters, we consider the result to be below expectations.
Reasons include higher sales and marketing costs, unfavourable forex, continued start-up losses from its nascent Indo-China business and a weaker sales mix.
Tan Chong suffered from a 15 per cent yoy decline in new vehicle sales to 8,074 units. As a result of weaker operating leverage, Tan Chong’s EBIT margin contracted sharply to 5.3 per cent for the quarter from 9.6 per cent in 1Q11 and 5.9 per cent in 4Q11.
We reiterate our Market Perform call on Tan Chong and see few catalysts for the stock to be re-rated higher in the near-term. Our fair value estimate of RM4.60 remains after rolling over our base year to 2013 and ascribing a 9x target PER (previously 13x on 2012 earnings).
The index’s correction is surely not over but there are signs that it may have found a bottom. The index gave back more than 2,000 pts in the space of 3 weeks, smashing its support levels along the way, and also stayed below the 200-day MAV line for more than a week.
It has closed below the 19,000 pts support level for two consecutive days — the 62 per cent retracement of the Nov-Feb rally. This extends the downtrend that started since the false breakout of the 21,500-pt level back in February. The 4-month series of lower highs are clearly illustrated by the downtrend line.
However, note that the daily RSI is just whisker above the low recorded in Aug 2011, and the oversold condition led to the formation of the positive “Hammer” last Friday.
The index responded positively to the absence of last Friday’s downward continuation after closing higher yesterday. It even closed above the 1,535 pt-resistance level, which was the resistance level of the past 4 days.
Although positive, this has yet to conclusively signal a bottom at last week’s low of 1,517 pts as the negative bias “Long Black Day” of 16 May was not erased. The 1½ -month downtrend is also intact, with the lower highs at 1,606 and 1,585 pts. The index has also stayed under the 50-day MAV line.
Thus, the index has to build on yesterday’s buying support by closing above 4-day high of 1,547 pts. This should erase the negative bias of 16 May and confirm a bottom, arising from the lowest daily RSI recorded since Sep 2011.
This will keep the index in line with the longer term uptrend. The index is still above the 200-day MAV line, also boosted by the longer-term positive indication of a “Golden Cross” that occurred in February.
The next resistance lies at the broken support at 1,560 pts. However, failure to confirm the upward bias, followed by a close back below 1,535, will indicate a return in selling.
Again, the index has to close below the 16 May-close of 1,524 pts to keep the momentum of sharp declines going. Support is still expected at between 1,506 and 1,510 pts, the 50 per cent retracement of the Nov 2011-April 2012 rally, and the 200-day
Further support is found at the confluence of the Fibonacci levels at 1,485 pts.
The negative bias since the black candle of 12 April continued to weigh on the commodity as the upward bias of last Friday’s “Hammer” was left unconfirmed. Selling returned just below the RM3,140 resistance level, and the negative bias will remain so as long as the RM3,140 resistance level holds. The commodity is also below the 200-day MAV line.
At the same time, it has yet to close below the support level at RM3,085, the gap of 8 Feb and the 62 per cent retracement of the Oct 2011-April 2012 rally. The daily RSI is also extremely oversold, while the series of higher lows — the latest at the February-low of RM3,036 since Oct 2011 — is not over.
Thus, a close below the resistance level of RM3,085 should keep the downward movement intact. Immediate support lies at RM3,055, followed by RM3,020 — the gap of 20 Dec — and just below the low recorded in early February. Strong support is seen at the RM2,973-RM3,000 zone.
A close below this support area will end the series of higher lows since Oct 2011, thus opening up the possibility of an end to the uptrend since the 2008 low. Immediate resistance remains at RM3,140 — the high of 17 May and also the low of 14 May. A successful violation likely may spark a rebound, arising from an extremely oversold daily RSI reading last week. Further resistance is seen at the 15 May morning session-high of RM3,194, and the March-low of RM3,224.
Kulim (M) Bhd
Kulim may resume its uptrend after the firmer close yesterday. A purchase can be made as long as the stock closes above RM4.60. A close below yesterday’s low of RM4.47 can be employed as stop-loss. The price target is RM5.60 provided that the psychological RM5.00 is violated.
The trade may not work out should the stop-loss be triggered. Expect strong support at RM4.20.
OldTown may have formed a higher bottom after the firm close yesterday. A purchase can be made above the prior 4-day high of RM1.40, with a stop-loss on a close below the broken resistance at RM1.34.
The price target is RM1.70, provided that the recent high of RM1.60 is broken. The correction is expected to continue if the stop-loss is triggered but strong support lies at RM1.15.
Pos Malaysia Bhd
Pos Malaysia may trade higher after overcoming the negative bias of the “Long Black Day” of 15 May. A position can be initiated above RM2.75, with a stop-loss on a close below yesterday’s low of RM2.66.
The price target is RM3.22, provided that the psychological RM3.00 is violated. The upward bias is nullified should the stop loss is triggered and weakness is confirmed on a close below RM2.60. Expect support at the prior lows of RM2.45 and RM2.20.
Notion VTec Bhd
Notion appears to be making a bottom after forming a “Long White Day” last Thursday. A purchase can be made on a close above the candle high of RM1.16, with a close below recent low of RM1.10 as stop-loss.
The price target is RM1.60, provided that the recent high of RM1.30 is broken. Look for correction to continue if it closes below RM1.10 and supports are expected at the Fibonacci retracement of the Sep-Apr rally at RM1.00 and RM0.95.
A rebound may be in store for TDM after it formed a “Hammer” yesterday. A position can be initiated above the 2-day high of RM4.14, with a stop-loss on a close below the recent low of RM4.00.
The price target is the gap of 16 May at RM4.50 and the recent high of psychological RM5.00. The upward bias will be erased should the stop-loss be triggered and expect the correction to continue. Strong support is at 25 Nov gap of RM3.50.
MHC Plantations Bhd
MHC may resume its uptrend as it may have support at 22 Mar gap of RM1.67. A purchase can be undertaken on a close above the 3-day high of RM1.74, with a close below RM1.67 as stop-loss.
The price target is RM2.50, if the recent high of RM2.00 is successfully broken. However, look for the correction to continue should the stop-loss be triggered. Supports lie at the psychological RM1.50 and prior resistance at RM1.38.
Crest Builder Holdings Bhd
Crest Builder may resume its upward move after closing above the psychological RM1.00 yesterday. Position can be initiated above the level with a close below recent low of RM0.95 as stop loss.
Price target is RM1.30, should the recent high of RM1.10 be broken. The trigger of stop loss may lead to a correction. Supports are at RM0.90 and RM0.83.
Perisai Petroleum Teknologi Bhd
Perisai may trade higher after closing firmer yesterday. Positions can be initiated above yesterday’s high of RM0.88 with a close below recent low of RM0.835 as the stop loss.
The price target is RM1.30, provided that the psychological RM1.00 is violated. Selling likely takes over if the stop loss is triggered and strong support is expected at RM0.80.
Yeo Hiap Seng (M) Bhd
We initiate coverage on Yeo Hiap Seng Bhd (YHS) with a fair value of RM3.90/share based on a PE of 17.5x FY13F EPS. Our valuation is at ~1SD above its mean of 15x, given that the group is embarking on a new era of higher growth from market share gains and geographical expansion into Indonesia. Our DCF-value stands at RM4.20/share (WACC: 8.9 per cent).
YHS is a dominant F&B company, with ~80 per cent of revenue coming from beverages marketed predominantly under its iconic Yeo’s brand, and the balance 20 per cent from food products. It commands a market leadership of 38 per cent in Malaysia and Singapore, and growing market share in Indonesia.
Its key strengths lie in its higher concentration in mid-sized point of sales for better pricing power, where terms of sales are less demanding. Distribution coverage is a strong 90 per cent of target market.
We forecast earnings to grow by 28 per cent from RM21mil in FY11 to RM27mil, and rising by a robust 24 per cent to RM34mil in FY13F, before reaching RM40mil in FY14F (3-year EPS CAGR: 24 per cent).
Having re-aligned its operations to leverage on its popular Asian still drinks (ASD), YHS has put in place a solid strategy to accelerate growth and market share. Expansion is already under way in Malaysia where it plans to ramp up annual capacity — we estimate a 20 per cent-30 per cent boost to ~200 million litres.
YHS’s new PET production lines are expected to spearhead market share growth from first-mover advantages in pushing out a broader range of ASD. Currently, ASD in PET is limited to a few tea-based variants. Upon completion in mid-FY13F, YHS will be able to tap into the underserved PET sub-segment.
YHS is setting up a new ASD production plant in Indonesia, possibly by end-FY13F. This would shorten supply chain time and cut logistic costs, while also demonstrating its commitment to this potentially huge consumer market. It has only launched five grass jelly-based SKUs thus far, but the response has been overwhelming, with volume growth of 20 per cent in FY11. It has a portfolio of >10 SKUs.
Balance sheet is solid with zero borrowing and cash of RM25mil (16sen/share) as at 1QFY12. Assuming FY12F-14F capex of RM200mil is partly financed by debt, net gearing is still manageable at 5 per cent-6 per cent. Our DPS forecast with a 3 per cent-4 per cent yield p.a. is premised on a dividend payout ratio of 50 per cent — close to its historical payout of 55 per cent.
Valuation is attractive, at a 16 per cent discount to peers’ average of 20x and a wider 35 per cent to closest competitor Fraser & Neave Bhd (FNH Mk Equity, Hold). As it is, YHS is trading at a discount to Cocoaland Holdings (COLA Mk Equity, Buy), despite the former’s larger market capitalisation and higher EPS growth.
Catalysts for re-rating and upside potential include:- 1) synergistic M&A within core F&B industry and; 2) unlocking of value through divestment/development of unutilised landbank.
YHS is very under-owned by the institutional funds (<5 per cent). Given its defensive attributes, a strong F&B franchise and a well articulated expansion strategy, valuation re-rating looks imminent.
* 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.