HLIB Research Summary 2 Oct 2014

AEON – Sustainable prospects

• Formerly known as ‘Jaya Jusco’, Aeon Co. (M) Bhd has successfully built a strong brand name and delivering a high quality shopping experience to its customers.
• Competitive strengths: (1) Solid brand name backed by strong customer loyalty; (2) Managed by experienced leadership team; (3) Its anchor tenant position.
• The bases of our investment highlights for Aeon includes:

(1) Defensive and growing earnings base;

(2) Decent dividend payout albeit no dividend policy;

(3) Aggressive expansion capacity and store refurbishment

(4) Diversifying its earnings by entering a new venture with Thailand ’s Index Living Mall Co. Ltd for furniture retailing;

(5) Strong balance sheet and cash position; and

(6) Growing per capita income and urbanisation rate.

• We like Aeon for its diversified and unique business model. However, we believe its strong have already been largely reflected in the share price, thus, we are initiating coverage with a HOLD rating. Our TP of RM3.88 is pegged to 21.9x P/E FY15 EPS of 17.7 sen, based on +1 SD above 3-year historical average P/E.

 

 

Scomi Energy: Ophir is Not the Last One…

• SES is actively expanding its team on integrated project management (IPM). We understand that securing Ophir RSC is just a beginning of the game, we are confident that SES will secure more RSCs and venture into brownfield or EOR businesses in the near future.
• Drilling activities in Malaysia has picking up with rig counts increased from 4 rigs in June 14 to 6 rigs in Sept 14 and expect to hits 12 rigs by end of FY15.
• We deem the recent’s proposed RCB favourable and attractive to existing shareholder as it will earn semi-annual coupon rate and able to convert to mother share at a conversation price discount after 2^nd anniversary of issue date. We are positive on the RCB as RM45m will be used to pay for equity stake in Ophir RSC while the remaining ~RM100m is sufficient for 1-2 additional potential RSC contracts.
• Overall, we see potential upside risks to our earnings forecast at 3 year CAGR of 50% with P/E to fell to only 7x in CY16.
• Given the recent share price weakness, we believe this is a good buying opportunity. We maintained our BUY call with unchanged TP of RM1.23.

 

Axiata: XL’s Tower Disposal

§ XL has announced the sale of 3.5k telco towers to PT Solusi Tunas Pratama Tbk. through an open tender for a total all cash consideration of IDR5.6tr. XL will lease back these towers under preferential anchor tenant terms.

§ Sale proceeds will be used to pare down debts which mainly arose from Axis acquisition.

§ Improvement in gearing (net debt/ EBITDA) from 3.2x to 2.5x (pro forma).

§ Reduction in interest cost, depreciation and CAPEX partly offset by the additional monthly rental expense.

§ A positive development allowing XL to minimize duplication and right size its tower portfolio.

§ Partial outsourcing model with full O&M cost savings for these towers – an optimum business model for telco.

§ Better average pricing per tower – sold at USD132k per tower (+5.6%) compared to purchase consideration of USD125k per tower in Axis deal.

§ Maintain HOLD with unchanged SOP-derived TP of RM6.92.

 

Fuel Price up by 20 Sen

• The government decided to hike RON95 and diesel pump prices by 20 sen per litre to RM2.30/litre and RM2.20/litre respectively effective 2 October.
• The fuel price hike came in as a surprise as we had earlier expected the government to announce the multi-tiered subsidy scheme in the Budget a week later. We believe that complexity of multi-tiered subsidy scheme has prompted the government to introduce a plain 20 sen hike in the interim period.   
• We expect the CPI growth to average 2.9% yoy in 4Q14, resuming its downward trend since its peak in 1Q14 at 3.5% yoy. The fuel price hike will not result in a jump in the CPI growth as the index was already higher a year ago due to a similar 20 sen hike which took effect on 3 Sep 2013. We maintain our full-year 2014 CPI growth forecast at 3.2%.
• We expect part of the savings from the fuel subsidy cut (~RM3.3bn) to be spent in the form of higher BR1M payment of ~RM150 for 2015 (additional cost of ~RM1.2bn).
• On economic growth, the 20 sen fuel price hike is expected to be slightly negative on consumer spending and business activity. We maintain our view that GDP growth would moderate to 5.6% in 2H14 from 6.3% in 1H14 (full year forecast at 6.0%).  
• We expect the OPR to be held steady at 3.25% in the upcoming MPC meeting on 6 Nov 2014.

 

Bearish undertone returns again amid petrol hike and external headwinds

• On the wake of overnight Dow’s plunge and external headwinds coupled with the 20sen petrol hike effective today, Bursa Malaysia is likely to trade lower today.
• Given the failure to stage a breakout above the immediate resistance of 200-d SMA in the last few sessions, the odds would favour weaker trend ahead, targeting 1800-1820 zones if the 6-month low of 1829 support cannot hold. On the upside, the 200-day SMA at 1,851 may continue to act as resistance in the immediate term. Key resistances are situated at 1852-1859.
• Today’s recommendation: Momentum Sell on TMCLIFE

 

TMCLIFE – Sell into rally

• TMCLFE’s share price surged 41% to the peak of RM0.67 on 26 Sep 14 from RM0.475 in just eight trading days. We opine that the surge in share price is currently at toppish zone as indicated by “Bearish Engulfing” candlestick in the overbought zone on daily chart. Hence, profit-taking activities are likely to occur. Immediate supports are located at RM0.60, RM0.585 and RM0.56. Critical resistances are situated at RM0.65, RM0.68 and RM0.70.