CIMB Research Summary - 31 Oct 2014

Unisem - Outstanding quarter

Unisem’s 9M14 core net profit beat expectations, forming 105% of our and 91% of consensus full-year estimates. 3Q14 core net profit jumped to RM27.1m, the highest in 15 quarters, driven by stronger sales volume of higher-margin packages such as wafer-level CSP (WLCSP) and bumping. We raise our FY14-16 EPS by 7-54%, and maintain our Add rating with a higher target price of RM2.25, based on 16.7x CY16 P/E, 1 s.d. below its historical mean of 19x. There were no surprises from Unisem’s analyst briefing. However, we were encouraged to learn that the company plans to pare down its borrowings completely by FY15, and it expects to reward its shareholders with higher dividends as it progressively returns to profitability.


Pavilion REIT - A positive 3Q14 for Pavilion

Pavilion REIT's (Pavilion) 3Q14 core net profit of RM63m brought its 9M14 number to RM175.3m, which is above expectations at 79% of our full-year forecast, and 80% of the consensus figure. Net property income (NPI) grew by 16.3% yoy, underpinned by an 8.8% revenue growth and lower property expenses. We raise our FY14-16earnings forecast by 4-4.1% p.a. resulting in a higher DDM-based target price of RM1.50 vs. RM1.45 previously. Despite the positive results, we maintain our Hold call on the stock as: 1) we see few rerating catalysts in the near-term, and 2) current dividend yields of 5.4-5.5% imply further yield compression will be limited, that would not augur well for the share price. We prefer Axis REIT in this space.


SMRT Holdings Bhd - Oh my English!

We believe that SMRT is the cheapest education stock on Bursa. With 80% recurring revenue and a projected 35-50% 3-year EPS CAGR, in turn supported by its medical university and English language teacher training contracts, this under-researched gem is poised for a re-rating. SMRT is trading at only 9-11x FY16 P/E. Assuming SMRT’s FY16 net profit to be around RM21m to RM27.5m (without Pro ELT and with Pro ELT) and pegging the value of the stock at 16x FY16 P/E (in line with the education sector), it could trade up to RM1.04-1.38, giving investors 40-86% upside. Potential re-rating catalysts are its transfer from the ACE market to the Main Board and award of the Pro ELT contract.

MIB Research Summary - 31 Oct 2014

Rubber Gloves: Maintain Overweight Still a defensive sector

Mild 2.3% hike in gas price has limited impact to bottomlines. Players are raising efficiency to counter future energy hikes. Maintain Overweight with Kossan as our top pick. Kossan Rubber Industries: Maintain Buy A safe haven  Shariah-compliant Ebola-led orders limited to just a small fraction of business for now. A defensive, high-growth stock with DY of 2+%. BUY with an unchanged TP of MYR5.00 (17x FY15 PER). Pavilion REIT: Maintain Buy Earnings uptrend intact 9M14 core net profit of MYR175m (+10% YoY) was in line. We like PavREIT for its superior asset quality. Maintain earnings forecasts, DCF-based TP of MYR1.52. BUY. Technical: Poised For The Next Growth Phase The FBMKLCI rose 3.23 points to 1,842.78 yesterday and the FBMEMAS and FBM100 gained 39.00 points and 33.74 points respectively. In terms of market breadth, the gainer-to-loser ratio was 515-to-334 while 294 counters were unchanged. 1.88b shares were traded, valued at MYR2.15b. Today's trading idea is a Short-Term BUY CALL on KSL with target price of MYR4.62 and MYR5.52.

RHB Research Summary - 31 Oct 2014

Kuala Lumpur Kepong (KLK MK, NEUTRAL, TP: MYR21.30) (Upgraded)

Blue-Chip Plantation Proxy

Company Update

With the seasonal peak for FFB production almost over, CPO prices have a window of opportunity to strengthen between now and 1Q15. This would bode well for a company like KLK, where we estimate every MYR100/tonne change in CPO prices could affect its net earnings by 4-6% per annum. We raise our SOP-based TP to MYR21.30 (7.3% downside) from MYR19.80 and upgrade the stock to NEUTRAL. 

 

Press Metal (PRESS MK, BUY, TP: MYR9.45)

3Q Profit Steps Up

Result Review

Press Metal posted 3Q14 earnings of MYR82.7m from a loss in 3Q13 on higher aluminium prices. Maintain BUY, with a higher MYR9.45 DCF TP (38% upside). We continue to like the company, as it is a world-class low-cost aluminium smelter that can leverage on the bottoming out of aluminium prices. We lift our FY15F earnings by 11.3% after accounting for a lower effective tax rate and higher value-added sales. 

 

IOI Properties Group (IOIPG MK, BUY, TP: MYR3.38)

Potential Key Beneficiary of MRT Line 2

Company Update

IOIPG remains our Top Pick for the sector. Since the proposed stops for the MRT Line 2 are still not firmed up – given that the railway will end at Putrajaya – it emerges as the key beneficiary of the project. It has >500 acres of landbank there, and the IOI City Mall will likely be a valuable asset. With this MRT line, the GDV for its landbank in Putrajaya will likely rise further. Maintain BUY, with our TP at MYR3.38 (23% upside). 

 

Unisem (UNI MK, BUY, TP: MYR2.16)

Within Expectations

3QFY14 Results Review

Unisem’s 9M14 core profit of MYR37.8m came in within our expectations. 3Q14 core earnings of MYR27.1m marked a 150.2% QoQ jump on improvement in its overall utilisation rate to 70% from 65%. Management declared an interim DPS of 2.0 sen. Maintain BUY, with our TP still at MYR2.16 (P/NTA of 1.4x, 28.6% upside).

 

 

Pavilion REIT (PREIT MK, NEUTRAL, TP: MYR1.48)

Lower Cost Base Buoys Earnings Growth

Results Review

Pavilion REIT’s 9M14 results came in line with expectations at 76%/77% of our/consensus estimates. Net property income (NPI) margins saw an improvement to 70.4% in 9MFY14 (1HFY14: 68.4%) due to 3Q14’s lower cost base. Earnings will continue to be driven by its organic growth through more asset enhancement exercises. Maintain NEUTRAL, with an unchanged DDM-based TP of MYR1.48 (0% upside).

 

 

HLIB Research Summary - 31 Oct 2014

Pavilion REIT (BUY çè)

9MFY14 Results

• 9MFY14 net profit of RM175.29m (+10.13% yoy) came in within expectations, accounting for 75.4% and 77.0% of HLIB and consensus full year estimates, respectively.
• Dividend of 2.16 sen was declared during the quarter, bringing the accumulated dividend year to date to 6.00 sen, accounting for 78.0% and 77.9% HLIB and consensus full year DPU expectation, respectively.
• We maintain TP of RM1.44 and HOLD recommendation on the stock. Targeted yield remains at 5.7% based on historical average yield spread of Pavilion REIT and 7-year MGS.

Unisem (BUY çè)

9M14 Results Exceed Expectations

• 9M14 core net profit of RM38.3m surpassed HLIB and street’s full year forecasts by 31% and 29%, respectively if annualized.
• Tax exempt interim dividend of 4% or 2 sen per share (3Q13: none) with an ex-date on 13th Nov.
• Solid 3Q14 earnings chiefly due to strong demand of new smartphone launches as well as proliferation of 4G technology in China .
• Resilient demand in bumping, 8in and 12in wlCSP and flipchip has led to capacity expansions.
• Although demand momentum extended into Oct and Nov, Unisem expect sales to be flat to -5% qoq in 4Q14 to be cautious on Dec in view of year-end inventory adjustments.
• Overall utilization rate improved to 70% although wlCSP / flip-ship product lines were running at more than 80%.
• Reiterate BUY after raising our fair value by 22.4% from RM1.65 to RM2.02 reflecting the upward earnings revision.

Traders Brief

Marching higher towards 1850 amid bullish Dow

§       In the wake of bullish undertone from Wall St and Bursa Malaysia, KLCI could appreciate further to retest 200-d SMA near 1849 and 1857 (upper Bollinger band) in the near term before profit taking activities emerge amid overbought slow stochastics, slightly hawkish FOMC statement, and the start of Nov reporting season next week. Key supports rest with 1825 (30-d SMA), 1816 (20-d SMA), 1806 (38.2% FR) and 1800.

§       Today’s recommendation (FIG4). Momentum Buy on EFORCE (TP RM0.64-0.69; Cut loss RM0.55).

Momentum Idea

Poised for a technical rebound

• Poised to retest 200-d SMA near RM0.69. After ex-bonus issue on 14 Jul 2014, EFORCE’s share price fell to the low of RM0.51, correcting its long-term uptrend. We opine that this healthy correction would present good buying opportunity. Technically, “Inverted Hammer” and “Bullish Harami” patterns on daily and weekly chart respectively signal imminent technical rebound. Key resistances are situated at RM0.64-0.69 whilst supports fall on RM0.56-0.57. Cut loss below RM0.55.

CIMB Research Summary - 30 Oct 2014

Gamuda - More traction on MRT 2

Gamuda announced that it has received a letter from MRT Corp appointing the MMC-Gamuda JV as project development partner (PDP) for MRT 2. This news is a big positive and solidifies Gamuda’s position as the biggest beneficiary of the project, with a stronger chance of bagging the underground works. Imputing the DCF value of the PDP agreement may raise our RNAV by 3-4% but we retain our numbers pending formalisation of the PDP terms in the next 3-4 months. Our RNAV-based target price remains pegged to a 10% discount. We expect the share price to continue its steady rerating on the back of this news and positive expectations for a recovery in the water takeover talks. Maintain Add. Gamuda remains our top sector pick for the big caps.


Gas Malaysia Berhad - Gas prices raised by 2.3%

Despite the small quantum, Gas Malaysia's revision of the non-power gas tariff is positive as it implies that the government is sticking to its 6-month gas price revision plan. The new gas tariff will take effect by the beginning of November while we anticipate another revision by Apr/May 2015. We maintain our Add call on Gas Malaysia, with a revised target price of RM3.95, still based on 24x FY15 P/E, after trimming FY14-16 EPS by 0.2-0.4% p.a. given the new selling prices.


Taliworks Corporation - A value-accretive M&A play

Taliworks's main appeal is that after several years of operations since it acquired a highway and secured two water concessions, it is now back in M&A mode. Value-accretive acquisitions, local and domestic, are in the pipeline, backed by its rising post-restructuring cash hoard It is also a beneficiary in Selangor’s post-water restructuring landscape as its O&M contract is likely intact. We expect further re-rating of the stock to be event-driven (M&A, new jobs and asset divestment). Based on a 10-20% discount to our RNAV/share of RM3.29, the stock could offer 38-56% upside. The new 75% payout policy could imply 5-6% dividend yield.


Strategy Note - Implications of lower oil prices
 

Plantations - CPO price predictions at POTS
 

Rubber Gloves - Minimal impact from price hike
 

IGB REIT - Continues to deliver

RHB Research Summary - 30 Oct 2014

Gamuda (GAM MK, BUY, TP: MYR5.61)

MRT Line 2 Is Good To Go                            

Corporate News Flash

Gamuda has finally obtained the green light from the Government to embark on the MYR25bn Line 2 of the Klang Valley MRT project. With this, we believe it is on track to start work by mid-2016. Gamuda is the best proxy to the buoyant construction sector, given its dominant role in Malaysia’s largest public infrastructure project. We maintain our BUY call, forecasts and SOP-based TP of MYR5.61, implying a 12.4% upside.

 

 

CIMB (CIMB MK, NR)

CIMB Niaga 3Q14 Results: Credit Cost Dampener

Company Update

CIMB Niaga’s (Niaga) 3Q14 net profit fell 68% YoY and 60% QoQ to IDR343bn due to a combination of weaker non-interest income (-48% YoY/-28% QoQ) and a spike in credit cost (3Q14: +137bps QoQ/+128bps YoY to 229bps) as its coal-related portfolio deteriorated. However, NIM held up well. Looking ahead, Niaga thinks its impaired loan levels could be close to the peak but expects credit cost to remain elevated in 4Q.

 

 

IGB REIT (IGBREIT MK, NEUTRAL, TP: MYR1.35)

Positive Earnings Assessment

Results Review

IGB REIT’s 9M14 earnings were above expectations, at 81/80% of our/consensus estimates, and mainly attributed to the writebacks in assessment expenses. The Gardens Mall will likely continue to be the main growth driver going forward. We revise up our FY14/15 earnings by about 7%, given the higher numbers. Maintain NEUTRAL, as we lift our DDM-based TP to MYR1.35 (3.5% upside) from MYR1.27).

 

 

Caring Pharmacy (CARING MK, SELL, TP: MYR1.27) (Downgraded)

In Need Of Stronger Dosage

Results Review

Caring’s 1QFY15 core earnings missed estimates for the second consecutive quarter as margins fell to their lowest level since its listing. We downgrade to SELL (from Neutral) and trim TP to MYR1.27 (from MYR1.70), a 17.5% downside, pegged to 16x FY15F P/E as we cut our FY15F/FY16F earnings further by 13.5%/17.4% respectively. This is in view of the increasingly challenging operating environment.

 

 

WCT (WCTHG MK, NEUTRAL, TP: MYR2.31)

Bags MYR652m Ikano Cochrane Job                            

Corporate News Flash

WCT has bagged a MYR652m building job for a new Ikano mall in KL. Nonetheless, we still think WCT is not an ideal proxy to the buoyant construction sector as it is not involved in the Klang Valley MRT project. Also, its property business is facing headwinds on the back of the various sector cooling measures. We maintain our NEUTRAL call, forecasts and TP of MYR2.31 (16x FY15F EPS, 10% upside).

 

 

Karex (KAREX MK, BUY, TP: MYR3.43)

Poised For The Next Growth Phase

Company Update

We maintain our BUY recommendation on Karex, with a slightly-raised TP of MYR3.43 (20x CY15 P/E, 19.5% upside). The company’s expansion plans remain intact and it is operating in a favourable environment. Its capacity expansion could drive organic growth while its acquisition of Global Protection may elevate group earnings higher via the own brand manufacturing (OBM) segment. 

 

MIB Research Summary - 30 Oct 2014

Gamuda: Maintain Buy Wins PDP for KVMRT 2, TP raised  Shariah-compliant

Clinching the PDP role for KVMRT 2 significantly enhances its construction orderbook. Further major infrastructure job wins would further elevate its construction orderbook size. We raise our sustainable construction orderbook assumption and revise our RNAV-based TP to MYR6.00 (+13%). Gas Malaysia: Maintain Hold A milder than expected hike?  Shariah-compliant The 2.3% selling price hike appears to be insufficient for a full pass-through of a MYR1.50/mmBTU hike in the purchase price of subsidised gas. Our forecasts are unchanged pending further clarifications from the company. Maintain HOLD with an unchanged TP of MYR3.80. WCT Holdings: Maintain Hold Clinches MYR652m job  Shariah-compliant New MYR652m building construction works lifts outstanding external construction orderbook by 35%. Eyeing more jobs from TRX, RAPID, WCE and Qatar. Positive, but not re-rating our call yet; maintain HOLD with an unchanged TP of MYR2.30. Perdana Petroleum: Maintain Buy Sells Superior, gains MYR1m  Shariah-compliant A decent sale price, MYR1m gain. Proceeds to help part-finance fleet rejuvenation. Lowering 2015-16 earnings forecasts by 2-3%, taking into account this deal. Maintain BUY, but TP adjusted to MYR2.48 (unchanged 15x 2015 PER) from MYR2.55 post earnings revision. Axiata Group: Maintain Buy XL: Weak revenue trends  Shariah-compliant XL’s 9M14 EBITDA was in line at 72% of ours and 71% of consensus full year forecasts; net profit was below. The integration of Axis has been completed; Axis to be EBITDA-neutral by 1Q15. XL’s FY14 earnings are significantly distorted; our BUY rating and MYR7.60 TP for Axiata are unchanged. CIMB Group: Maintain Hold Provisions higher at CIMB Niaga CIMB Niaga’s results below expectations; FY14/15 net profit cut by 34%/20%. CIMB Group earnings trimmed by 8%/6%. TP trimmed to MYR7.40 from MYR7.60 for CIMB Group, to MYR10.20 from MYR10.45 for RHB – still 15% upside for both. BUY RHB for exposure to the merger, HOLD CIMB. IGB REIT: Maintain Hold Earnings on track 9M14 core net profit of MYR176.4m was in line. Maintain our earnings forecasts, MYR1.29 DCF-based TP. Lacks strong asset pipeline to re-rate over the short term; maintain HOLD. Technicals: Index may head to 1,840 and higher The FBMKLCI rose 13.87 points to 1,839.55 yesterday and the FBMEMAS and FBM100 gained 82.22 points and 78.41 points respectively. In terms of market breadth, the gainer-to-loser ratio was 587-to-231 while 280 counters were unchanged. 2.01b shares were traded, valued at MYR2.11b. Today's trading idea is a Short-Term BUY CALL on MMSV with target price of MYR0.59, MYR0.64 and MYR0.81.

HLIB Research Summary - 30 Oct 2014

Building Materials (NEUTRAL  çè)

Higher natural gas cost effective Nov 2014

• Higher natural gas tariff effective November 2014. Gas Malaysia will raise natural gas tariff for non-power sector in Peninsular Malaysia by 2.3% to RM19.65-RM20.11/mmbtu (depending on usage). 
• Minimal impact. While the natural gas tariff hike announcement will have an impact on the local steel producers’ production cost (and hence earnings, as we believe the higher energy cost will unlikely be passed through entirely). We believe the impact is minimal.
• Based on our estimates, the natural gas hike will reduce our FY15 net profit forecasts for the steel players (under HLIB’s coverage) by less than 1% of their bottom lines, assuming: (1) The natural gas tariff will be raised by 2.34% across the board (i.e. users consume >750k mmbtu per year); and (2) The higher energy cost is to be absorbed by the players.
• Maintain our NEUTRAL stance on the sector.

Rubber Gloves (NEUTRAL  çè)

Natural Gas Tariff Revision

• Effective 1 Nov 2014, Gas Malaysia will raise natural gas tariff from an average of RM19.32/MMBtu to RM19.77/MMBtu (+2.3%).
• Based on natural gas contribution of 6% to total cost, the increase in cost of production will be very minimal at less than 0.5%.
• Forecasts remain unchanged as we have already factored in this impact.
• Maintain NEUTRAL stance on the sector.

Gamuda (BUY çè)

Returns as PDP for Line 2

• MMC-Gamuda JV appointed as PDP for MRT Line 2
• Next milestones are signing of PDP agreement by year end/ early 2015 and tendering in 4Q15
• Positive for JV if PDP fees maintained at 6%
• JV a frontrunner for RM9bn Line 2 tunneling works
• Maintain BUY, RM5.74 TP based on SOP 

WCT Holdings (HOLD çè)

Secures Ikano mall contract

• Secures RM652m Ikano mall job
• YTD job wins of RM994m surpasses our RM700m target
• Orderbook at RM2.5bn, implying 2.3x cover
• Maintain HOLD, RM2.34 TP, cautious on intense tendering competition and weak property sales 

Perdana Petroleum (BUY çè)

Take a breath and ready for FY16.

• Entered into MOA to dispose one unit of accommodation work barge (Petra Superior) to Hauston for a total consideration of US$28.5m or RM93.5m.
• We expect no impact to FY14 as the existing contract will expired in Nov 14 and contributes about RM6m or ~5% on FY15’s PAT. However, the proceeds raise will be used to fund new acquisition of assets which will help to mitigate the impact.
• We are positive on the disposal as it will be part of the fleet renewal plan to upgrade existing vessel to higher specification coupled with favourable selling price with RM1m gain.
• We also understand that by selling Petra Superior, it will save about US$2m on drydocking expenses which was supposed to take place by end of year after existing contract expire in Nov.
• We maintained our BUY call with unchanged TP of RM1.87 pegged at an unchanged 12x FY15 EPS of 15.5 sen/share.

Axiata (HOLD çè)

XL 9M14 Results

• XL recorded a core net loss of ID250.0bn, not comparable to consensus’ full year estimate of IDR448.6bn profit.
• Sales expanded 11% yoy as all product segment registered healthy growths led by data with and followed by VAS, voice and SMS.
• EBITDA margin declined from 40% to 36% due to bleeding Axis. Axis is expected to be EBITDA neutral by 1Q15.
• XL has yet to decide on the faith of the remaining 6.5k towers. Nonetheless, XL did not discount the possibility of disposal to further pare down debts.
• XL plans to return the block of 2100MHz spectrum which was acquired from Axis to regulator by next month upon successful network migration. This will result in cost savings going forward.
• Maintain HOLD with unchanged SOP-derived TP of RM6.92.

CIMB (TRADING BUY çè)

Niaga 3QFY14 Results – Provision Again

• CIMB Niaga 3QFY14 results below street estimate mainly due to sharp rise in provision arising from higher NPLs and decision to impaired coal and coal-related loans.
• Guiding for likely higher provision in quarters ahead due to potential NPLs rise though impaired ratio close to peak.
• Weak results reflection of tough environment in Indonesia .  Only saving grace is NIM has improved sequentially for two consecutive quarters, after the sharp qoq decline in 1Q.
• Environment to remain challenging but it expects opportunities once new government set concrete policies.
• Target price maintained at RM7.22 (Gordon Growth with ROE of 12.1% and WACC of 9.8%). 
• After yesterday’s rebound, it is still trading at 1.44x FY14 book but now on par with RHB Cap as a proxy to the merged entity.  Maintain Trading BUY as values emerged despite merger and Indonesia uncertainties.   

IGBREITS (HOLD çè)

9MFY14 Results

• 9MFY14 core net profit came in within our expectation but aboveconsensus, accounting for 77.2%8% and 79.7% respectively.
• Declared distribution income per unit (DPU) of 2.01 sen per share (3QFY13: 1.83 sen). Included in the DPU are normalised profit of RM60.1m and non-cash item arising from Manager fee payable in unit of RM7.8m bringing the  YTD DPU to 5.9 sen.
• Maintain HOLD recommendation on the stock with TP of RM1.23. We maintain 5.7% targeted yield based on historical average yield spread between IGBREIT and 7-year MGS.

CARiNG (SELL ê)

1Q15 Results – Disappointing

• 1QFY15 core net profit of RM0.6m came in way below expectations, accounting for 2.4% of HLIB and consensus full year estimates.
• Deviations were due to lower profit margins dragged by selling and distribution expenses as well as slower-than-expected outlet expansion growth.
• Expansion slows down with only 2 new outlets this quarter (4Q14: 7 new outlets). To date, total 101 outlets.
• Updated model based on deviations mentioned. As a result, FY15, FY16 and FY17 EPS were reduced by around 30% to 35%.
• Due to the continuous disappointment in delivering earnings, we downgrade from HOLD to SELL with a lower fair value of RM1.20 (-38% from RM1.94).
• This is derived based on a lower multiple of 15.5x CY15 EPS, 2x discount to the average of other domestic market-oriented retail pharmacy chain operators in the region.

Sasbadi (BUY çè)

FY14 Results

• Sasbadi’s FY14 core PATAMI (excluding RM1.3m listing expenses) of RM13.6m accounted for 92% of HLIB and 91% of streets’ estimates. Hence, we consider it to be in line.
• FY14 revenue of RM79.5m is in line with ours and consensus estimates at 97% and 101%, with its educational print publishing arm, being the main contributor of about 87% of total revenue.
• In a separate announcement, Sasbadi announced that its wholly-owned subsidiary, Sasbadi Sdn Bhd will be acquiring Penerbitan Multimedia Sdn Bhd (PMSB) at RM1m to be funded through proceeds raised from IPO.
• We are positive on the acquisition for this will create a new revenue stream for Sasbadi as it venture into the teacher education segment which remains untapped for Sasbadi.
• Maintain BUY call with TP unchanged at RM2.15 based on P/E multiple valuation of 15x (implied PEG of 0.86x) CY15 EPS or circa 50% discount to average P/E of the education sector due to Sasbadi’s lower market capitalisation.  

Economics

Fed Completes QE Tapering

• The FOMC decided to conclude its remaining asset purchase of US$15bn/mth under QE3. Meanwhile, the FOMC reiterated that current low Fed Fund Rate will be maintained for a considerable time.
• Comparing the current FOMC statement with the one issued last month, we sense that the Fed has turned slightly hawkish and is unfazed by the recent volatility in the financial markets.
• The FOMC brushed off market concerns about (i) disinflation risk due to lower energy prices and (ii) negative spillovers from weakness in other major economies (i.e. Euro area & China ).
• We expect the US economy to grow near its 3% par level in 2015, with a pick-up in consumer spending on the back of further labour market improvement and higher purchasing power (lower energy price & strong US$).
• We expect the Fed to stick to its rate hike plan, with first rise in Jul-2015.
• We expect US$ to maintain its strength into 2015, which will continue to pressure other major and EM currencies as well as global commodity pricing. In this regard, we expect MYR to remain weak, ranging RM3.25-3.30/US$ in 4Q14 and RM3.25-3.35/US$ in 2015. More moderate growth outlook, smaller current account surplus and a pause in the OPR will also curb upside of MYR.

Traders Brief

Profit taking activities will cap further rally beyond stiff resistances at 1850-1860 zones     

• Technically, KLCI could still appreciate further towards 1850-1860 zones amid yesterday’s bullish white Marubozu candlestick formation and bullish indicators. However, further rallies may attract profit taking consolidation amid slightly hawkish FOMC statement, getting overbought slow stochastic and the start of Nov reporting season next week.
• Immediate supports rest with 1825 (30-d SMA), 1816 (20-d SMA) and 1806 (38.2% FR).

HLIB Research Summary - 29 Oct 2014

Plantation (NEUTRAL  çè)

Higher biodiesel mandate from Nov-14

§       The Government will implement higher biodiesel mandate (from B5 to B7) in Peninsular Malaysia and East Malaysia from Nov-14 and Dec-14 respectively.

§       The latest development is positive to the sector, as the higher biodiesel mandate bodes well for palm oil consumption, hence supporting palm oil prices.

§       Maintain average CPO price projections of RM2,400/mt and RM2,300/mt for 2014 and 2015 respectively, as well as our Neutral stance on the sector.

CIMB Group (TRADING BUY é)

Group Meeting

• We reiterate that key challenges to synergy extraction and long-term ROE enhancement are overlaps and integration.
• Although still early, we had better understanding of the deal and take comfort from its merger integration track record.
• Post-merger, the structure enables CIMB to transfer some duplication to the non-wholly-owned Islamic subsidiary.  Coupled with VSS and closing down some branches, low yielding cost synergy can be achieved.
• Enlarged entity will reflect CIMB as acquirer with goodwill at 0.4x RHB Cap book while CET1 of 9% has taken this into consideration.
• Target price remained at RM7.22 (Gordon Growth with ROE of 12.1% and WACC of 9.8%).
• Despite merger dilution and uncertainties in Indonesia , recent selldown to 1.4x FY14 book over exaggerated.  Moreover, it is now a cheaper proxy to the merged entity. 
• Upgrade to Trading BUY as values emerged amid uncertainties.    

Nestlé (HOLD çè)

9MFY14 Results In-Line

• Nestlé’s flattish 9MFY14 revenue of 1.4% growth was largely affected from the slowdown in exports, which contracted 13.1% yoy. Domestic sales grew 5.8% for 9MFY14.
• We gathered that the implementation of GST would result in slightly higher ASP (less than 6%) of its products despite having some of its raw materials categorized as zero-rated.
• As for operating profit margin, the more favourable commodity prices (vs. 1HFY14) and strengthening of MYR against USD have managed to narrow the margin gap, bringing 9MFY14’s margin to 16.25% vs. only 15.87% in 1HFY14. Hence, Nestlé‘s is turning slightly optimistic for its full year profit, which the group believe would likely to record slight yoy growth, in-line with our forecasts of 5-6% bottomline yoy growth.
• HOLD recommendation and TP of RM66.52 based on DDM remained unchanged.

Traders Brief

Inching On track towards our envisaged 1825-1834 relief rally targets     

• Technically, on the back of ongoing strong Dow’s rebound, expectations of dovish remarks by Fed on 30 Oct FOMC meeting, slightly improved Eurozone economic data and positive ECB’s banks stress test, KLCI is on track to retest our envisaged short term resistance near 1825-1834 levels this week. However, the path will not be smooth as other external headlines such as the Ebola outbreak, the sliding oil prices and geopolitical tensions will continue to remain wild cards affecting market gyrations. Supports are situated at 1816 (mid Bollinger band), 1800 and 1778 (50% FR).
• Closed positions (FIG5): We had closed our positions on GPACKET  after hitting our R1 upside target on 28 Oct.

MIB Research Summary - 29 Oct 2014

CIMB Group Holdings: Maintain Hold No change in merger views

Merger views unchanged – estimated 11% accretion to FY15 EPS, 19% enhancement to BVPS, 0.9ppt ROE dilution. Already have a BUY on RHB (TP: MYR10.45) for exposure to the merger. HOLD maintained on CIMB but it is currently a 2% cheaper entry to the merger based on the 1.38 share swap ratio. Nestle Malaysia: Maintain Hold Slow and steady  Shariah-compliant Nestle’s 9M14 domestic sales rose 5.8% YoY, while export sales declined 13.1% YoY. Slip in export sales is not a major concern as the domestic market is still the main earnings driver in the longer term. Maintain HOLD with an unchanged DCF-TP of MYR63.60. Carimin Petroleum: Not Rated Proxy to Peninsular HUC The 5-year MYR899m Peninsular Malaysia HUC project underpins Carimin’s forward earnings. Earnings are on the uptrend due to expanding margins on ownership of vessels and the absence of minority interest. Indicative fair value of MYR1.35 is pegged to CY15 PER of 12x, giving a 23% upside potential. Technicals: Index creeping up on its rebound The FBMKLCI rose 2.53 points to 1,825.68 yesterday, but the FBMEMAS and FBM100 closed lower by 22.06 points and 12.74 points. In terms of market breadth, the gainer-to-loser ratio was 285-to-528 while 274 counters were unchanged. 1.58b shares were traded valued at MYR1.79b. Today's trading idea is a Short-Term BUY CALL on SLP Resources with target price of MYR0.735, MYR1.01 and MYR1.15.

CIMB Research Summary - 29 Oct 2014

Plantations - Malaysia implements B7

We are positive on Malaysia's plans to start implementing the use of B7 biodiesel in stages starting Nov as this will boost the country's usage of palm oil. We estimate that the rollout could raise the country's palm oil demand by 263k-390k tonnes per annum, or 1-2% of the total palm oil production in 2013. As this equates to an additional monthly CPO demand of only 22k-33k tonnes, we keep our average CPO price forecast at RM2,390 and RM2,460 per tonne for 2014 and 2015, respectively. We also maintain our Neutral rating on the sector. Our key picks in the sector are First Resources, Astra Agro and SIMP.

GHL Systems Bhd - One-for-two bonus issue goes ex

GHL’s one-for-two bonus issue has gone ex today. Ex-bonus, our target price adjusts to RM1.06, still based on 23.8x CY16 P/E (at 40% premium over the global payment sector average of 17x, in view of its strong EPS CAGR of 75% in FY13-16 and attractive PEG of 0.6x). Stronger earnings from the TPA segment, M&A activities in new markets and the possibility that the company could be a takeover target are potential re-rating catalysts. Maintain Add.

Nestle (Malaysia) - Still the leader

Nestle highlighted during its analysts’ briefing today that although domestic sales grew by only 5.8% yoy, the company considers the achievement encouraging as the growth rate was above industry average. To boost profits, it will continue to focus on increasing its operating efficiency. We trim our FY14-16 net profit forecasts by 0.3-0.6% to factor in the higher capex as guided by management. This reduces our DCF-based target price. We maintain an Add rating on the stock given its strong branding, solid delivery track record and superior ROE. Key rerating catalysts include a positive impact from the cost pass-though and easing raw material prices.

RHB Research Summary - 29 Oct 2014

Globetronics (GTB MK, NEUTRAL, TP: MYR4.75)

Prospects Underpinned By Healthy Volumes

Results Review

Globetronics’ MYR49m 9M14 core earnings were within our/street estimates at 77%/76% of FY14 forecasts respectively. With the results largely in line, we maintain our FY14-15 forecasts, NEUTRAL call and MYR4.75 TP (a 12% upside), pegged to an unchanged 17x FY15 target P/E. Going forward, its prospect are underpinned by healthy volume loadings for most of its products.

 

 

Carimin Petroleum (CARIP MK, NR)

New Kid On The Block

IPO Note

Carimin Petroleum is predominantly involved in the provision of support services for the offshore oil and gas industry in Malaysia. The company is one of the HuC umbrella contract holders, given out by Petronas with a current orderbook of MYR900.8m. We value Carimin at MYR1.07, by ascribing a 10% discount to the industry average of 12.1x P/E, pegging Carimin to a 10.9x P/E.