M-REITs (NEUTRAL çè)
Defensive Play
- We believe that the REIT sector offers a good exposure of a more defensive play in the current volatile market. Our in-house economist expects there will be no more interest rate hike, which is no longer a drag for REIT sector.
- The previous fear of negative impact of rising cost is now proven to be unsubstantiated as REIT operators have been able to pass on the higher cost to tenants via rental reversion and / or service charge.
- We still prefer retail REITs given its potential of higher rental income from rental reversion, especially for prime retail mall (i.e. KLCC, Pavilion and The Gardens).
- We maintain our NEUTRAL outlook on the sector given lack of catalyst (i.e. acquisition exercise) in M-REITs.
MAHB (BUY çè)
Making ISGA-Turkey Wholly Own Subsidiary
- MAHB has proposed to acquire the remaining 40% stake in ISGA (existing stake 60%) from Limak Group for €285m.
- MAHB is still finalizing the funding structure for the purchases. We believe MAHB will raise equity in order to satisfy its debt covenant.
- Slightly negative on the acquisition, given the price is above our fair value €255m, potential EPS dilution impact and deterioration of MAHB’s balance sheet (conolidating ISGA). Nevertheless, MAHB is confident that ISGA will turnaround in 2015, and contribute positively to the group.
- We remain positive on MAHB’s long term growth. Maintained BUY with unchanged TP of RM8.90 (based on SOP).
Public Bank (HOLD çè)
Strong Quarter
- 3QFY14 results in line with HLIB and consensus.
- Loans growth and ROE within KPIs but deposits growth slightly behind.
- Overall strong 3Q as all line items (including NIM) moving in the right directions.
- Complied with BNM 1.2% CA and regulatory requirement ahead of Dec 15 deadline via transfer of RM1.25bn from retained earnings, resulting in 0.6% reduction in CET1.
- However, more than offset by the recently completed RM4.8bn rights issue, CET1 now more than 10%.
- Asset quality stable despite higher impaired loans absolute amount for the seventh consecutive quarter as net formation was stable at 5-year average.
- Maintain HOLD with unchanged target price at RM18.32 based on Gordon Growth with ROE of 16.6% and WACC of 8.2%.
Traders Brief
Sentiment turns mildly bullish after index reclaims above 1800
- In the wake of overnight strong Dow’s performance, KLCI’s technical rebound from recent low of 1766 towards our short term resistance at 1825-1834 levels is likely to accelerate after closing above the 1800 psychological barrier yesterday.
- Short term technical resistances are 1819 (mid Bollinger band), 1825 (runaway gap) and 1834 (breakaway gap) while supports are situated at 1800, 1778 (50% FR) and 1766 (17 Oct low).A breakdown below 1766 will reignite force selling and margin calls activities that could trigger another selldown towards 1738 i.e. factoring a similar 8.3% fall (during 25 Jul-28 Aug 2013) from all time high of 1896.
- Today’s recommendation: Trading BUY on SCOMIES
Trading idea - SCOMIES
SCOMIES: Bottoming up
- Poised to surpass the downtrend line near RM0.795. We view that resumption of uptrend is on the track as readings from all daily and weekly oscillators show strong buying momentum at accelerating velocity. A decisive breakout above RM0.795 will spur prices higher towards RM0.815 (30-d SMA) and RM0.87 (50-d SMA & daily 38.2% FR), with long term objective of RM0.925 (50% FR). Critical supports are located at RM0.75 and RM0.725 (10-d SMA). Cut loss below RM0.70.
- Undemanding valuations and currently trading at 28% below our Institutional target price of RM1.07. At current share price of RM0.77, SCOMIES is only trading at 9.1x FY16 P/E (vs historical 10-year average P/E of 11.3x and our reduced small-cap targeted P/E of 12-14x) despite robust earnings growth prospect (CAGR of 57% from FY14-FY16).
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