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).