HLIB Research Summary - 21 Oct 2014

Plantations (NEUTRAL  é)

Valuations more commendable post retracement

• We believe it is time to review our ratings on the sector as well as stocks under coverage, given the recent fall in share prices of most stocks under our coverage.
• We believe the worst could possibly be over for the sector, as: (1) the extension of zero export duty on CPO until Dec-14 will encourage near-term demand for CPO; (2) seasonally high production season is coming to an end; and (3) we are still retaining our positive view on crude oil prices.
• Given the more commendable valuations and the absence of significant negative sector news flows, we are upgrading our rating on the sector from Underweight to NEUTRAL. With the exception of KLK (which recommendation is upgraded from Sell to Hold, with unchanged TP of RM20.41 following the recent share price correction), recommendation for all other stocks under our coverage remains unchanged.

AirAsia (TRADING BUY é)

Benefitting From Slump in Jet Fuel Price

• Recent development:

1. Jet fuel price plunged to US$100/bbl (-20% since end 2013). We expect jet fuel price to stay at current level in 4Q14 and FY15-16. Beneficial to AirAsia for jet fuel cost contributed 60-67% of operational cost. However, we believe AirAsia to cut prices in order induce air travels.
2. US$ strengthened against regional currencies including RM (RM3.26/US$) in recent months. Negative to AirAsia as large part of operational cost denominated in US$. Nevertheless, the current RM/US$ is similar to the level as at end-2013.

• We expect air-travel to remain weak amid the recent air incidents, kidnapping incidents as well as regional issues. Hence, yields are expected to remain depressed in the near term.
• Upgrade to Trading Buy with higher TP of RM2.57 (from RM2.20), after imputed higher earnings and lower holding company discounts at 10% (from 20%), given lower concern on major system overcapacity (MAS restructuring).

WCT Holdings (HOLD çè)

Landbanking in Serendah

• Buys 221 acre lands in Serendah for RM115m adjacent to its existing land (462 acres).
• Township development on the cards but still at early stages, launches only targeted in 2016.
• Proforma net gearing to rise from 58% to 63%.
• Maintain HOLD, TP RM2.29 based on SOP.

DiGi.Com (BUY é)

9M14 Results In Line

§  9M14 core net profit of RM1.47bn was within expectations, accounting for 75.1% and 75.6% of HLIB and consensus’ full year estimates, respectively.

§  3^rd interim tax exempt (single-tier) dividend of 6.2 sen per share. YTD dividend amounted to 18.8 sen per share, within our expectations.

§  Subscriber acquisitions regained momentum with prepaid and postpaid rose by 440k and 2k, respectively thanks to effective prepaid smartphone bundles and network trial campaigns.

§  Although rivalry intensified resulting in prepaid and data pricing pressures, DiGi maintained its guidance for 2014.

§  Expect positive GST impact but no guidance was shared and opined that this to will be determined by market dynamics. No update on business trust structure.

§  Upgrade to BUY from TRADING BUY after raising DCF-derived TP to RM6.30 as valuation is rolled forward to FY16 as well as reflecting the upward earnings revision.

Traders Brief

Bottoming up with short term relief rally target at 1825-1834 levels     

• On the back of steady recovery by Dow after recent rout as well as expectations of dwindling force selling and margin calls activities (following KLCI’s 2% from last week’s low of 1767), we remain optimistic that Bursa Malaysia will see a further relief rebound this week. Key upside targets are the Runaway gap of 1825 and Breakaway gap of 1834 levels.
• Immediate support are 1778 (50% FR), 1767 (17 Oct low) and 1738 i.e. factoring a similar 8.3% fall (25 Jul - 28 Aug 2013) from all time high of 1896.
• Today’s recommendation: Trading BUY on KNM.

Trading idea - KNM

KNM: Buy on weakness

• At current share price of RM0.745, KNM is only trading at 8.8x FY15 P/E despite strong earnings growth prospect (CAGR of 55% from FY14-FY16) and is 45% below our Institutional target price of RM1.35. In our opinion, without any change on the fundamentals, we believe the sell down is overdone and this provides bargain hunting opportunity for investors.
• Technically, this present good buying opportunity as the “Morning-star” candlestick pattern near significant support of 61.8% FR level on daily chart indicated impending technical rebound. Coupled with “Bullish Harami Cross” candlestick pattern on weekly chart, reversal to upsides are targeted at RM0.78 and RM0.82, with long term objective of RM RM0.845. Critical supports are located at RM0.73 and RM0.715. Cut loss below RM0.69.