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.