IOI Corporation - Boost from higher FFB output
IOI Corp’s 1QFY6/15 core net profit, which excludes net forex translation losses, was broadly in line with our expectation (at 22% of full-year forecast) but fell short of consensus estimates (at only 19%). We expect better earnings in future quarters, driven by higher CPO prices and production. We keep our earnings forecasts and SOP-based target price intact. The stock remains a Reduce as we feel that the market has more than priced in the group's efficient plantation and downstream assets. There are also concerns that it may be removed from the Shariah list during the end-Nov review as it does not meet the conventional debt/total asset ratio of less than 33%.
Tune Ins Holdings Bhd - Flying at lower altitude amidst adverse weather conditions
Tune’s 9MFY14 net profit was below expectations at 64% of our full-year forecast and 65% of consensus. This was because we had under-projected the claims ratio; hence, we raise the ratio from 30% to 34% for FY14. This leads to a drop in our FY14 EPS forecasts and DDM-based target price (COE of 9.2%; LT growth of 5%). However, our FY15-16 numbers are unchanged. Despite the weaker-than-expected 9M results, we are unwavering on our Add recommendation on Tune, as the potential re-rating catalysts are intact, including 1) the swift expansion of its travel insurance business in the region, with the new market in the Middle East, 2) the growth prospects in the non-life insurance market in Thailand and 3) more tie-ups with other airlines.
Muhibbah Engineering - Don't touch the panic button
The award of the regas plant in Pengerang to Samsung should not be viewed as negative for Muhibbah given that it did not bid for it. Also, the risk of delays in oil & gas infra projects in Rapid has been overplayed, in our view. Lower oil prices are negative for upstream players but net positive for downstream contractors like Muhibbah as construction costs are lower. Our EPS forecasts are intact but we cut our target price (still based on a 20% RNAV discount) as we update for Favelle Favco's lower market cap. We view today’s 11% fall in Muhibbah’s share price as a buying opportunity. The stock now trades at an undemanding FY15-16 P/E of 9-10x. Muhibbah remains an Add and our preferred small/mid cap pick, with job wins as a catalyst.
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