MIB Research Summary - 3 Oct 2014

PROPERTY Sector: Going South

New foreign entrants raise fears of a housing glut in Iskandar Malaysia (IM). Ability to absorb ample incoming supply of high-rise condominiums and retail space by end-2015/2016 remains our key concern. Maintain NEUTRAL; we prefer Klang Valley over IM. Top pick is Eco World (BUY; MYR6.59 TP). TECHNICALS: Headed towards 1,829 and below The FBMKLCI declined 7.64 points to 1,837.68 yesterday, while the FBMEMAS and FBM100 also closed lower by 70.70 points and 60.69 points, respectively. We expect weaker buying interest at the supports of 1,810 to 1,829, whilst heavy liquidation would be at the resistances of 1,837 and 1,854. Trading idea is a Take Profit call on ALAM with downside taret areas at MYR1.18 & MYR0.90.

RHB Research Summary - 3 Oct 2014

Cahya Mata Sarawak (CMS MK, BUY, FV: MYR5.00)

More To SCORE

Company Update

We hosted a group visit to CMS’ operation in Samalaju. Its OMS is now at progressive commissioning stage and its phosphate project under MPA is making good progress – both are set to enjoy attractive power tariffs at SCORE. We expect its property development in Samalaju to reach a larger scale and be completed earlier than expected. Maintain BUY with a higher SOP-based TP of MYR5.00, implying a 16.6% upside.

 

 

SKP Resources (SKP MK, BUY, FV: MYR0.85)

A Synergistic Acquisition

Company Update

SKP, which was suspended on Monday, has proposed to acquire three of Tecnic’s operating companies for MYR200m. Maintain BUY. Following the earnings upgrade from the proposed acquisition, we raise our TP to MYR0.85 (from MYR0.75), pegged to a FY16 P/E of 11x, a 21% upside. We are positive on the acquisition as it enables SKP to consolidate its position as a leading plastic component manufacturer.  

 

 

Economic Highlights - Fuel Prices Hike Causing Upward But Manageable Pressure On Inflation (Published 2 Oct 2014)

The Government raised the retail prices of RON95 petrol and diesel by 20 sen each to MYR2.30 and MYR2.20, respectively, effective 2 Oct 2014. We expect inflation pressure to hold up in 4Q, but the impact will likely be more muted due to the higher base effect in 4Q of 2013. We now expect inflation to come in at the higher end of our forecast of 3.0-3.4% in 2014, compared with +2.1% in 2013. Our forecast, made earlier in the year, has already factored in expectations of another round of fuel price hike. We continue to expect the OPR to be kept at 3.25% for the rest of the year.

HLIB Research Summary 2 Oct 2014

AEON – Sustainable prospects

• Formerly known as ‘Jaya Jusco’, Aeon Co. (M) Bhd has successfully built a strong brand name and delivering a high quality shopping experience to its customers.
• Competitive strengths: (1) Solid brand name backed by strong customer loyalty; (2) Managed by experienced leadership team; (3) Its anchor tenant position.
• The bases of our investment highlights for Aeon includes:

(1) Defensive and growing earnings base;

(2) Decent dividend payout albeit no dividend policy;

(3) Aggressive expansion capacity and store refurbishment

(4) Diversifying its earnings by entering a new venture with Thailand ’s Index Living Mall Co. Ltd for furniture retailing;

(5) Strong balance sheet and cash position; and

(6) Growing per capita income and urbanisation rate.

• We like Aeon for its diversified and unique business model. However, we believe its strong have already been largely reflected in the share price, thus, we are initiating coverage with a HOLD rating. Our TP of RM3.88 is pegged to 21.9x P/E FY15 EPS of 17.7 sen, based on +1 SD above 3-year historical average P/E.

 

 

Scomi Energy: Ophir is Not the Last One…

• SES is actively expanding its team on integrated project management (IPM). We understand that securing Ophir RSC is just a beginning of the game, we are confident that SES will secure more RSCs and venture into brownfield or EOR businesses in the near future.
• Drilling activities in Malaysia has picking up with rig counts increased from 4 rigs in June 14 to 6 rigs in Sept 14 and expect to hits 12 rigs by end of FY15.
• We deem the recent’s proposed RCB favourable and attractive to existing shareholder as it will earn semi-annual coupon rate and able to convert to mother share at a conversation price discount after 2^nd anniversary of issue date. We are positive on the RCB as RM45m will be used to pay for equity stake in Ophir RSC while the remaining ~RM100m is sufficient for 1-2 additional potential RSC contracts.
• Overall, we see potential upside risks to our earnings forecast at 3 year CAGR of 50% with P/E to fell to only 7x in CY16.
• Given the recent share price weakness, we believe this is a good buying opportunity. We maintained our BUY call with unchanged TP of RM1.23.

 

Axiata: XL’s Tower Disposal

§ XL has announced the sale of 3.5k telco towers to PT Solusi Tunas Pratama Tbk. through an open tender for a total all cash consideration of IDR5.6tr. XL will lease back these towers under preferential anchor tenant terms.

§ Sale proceeds will be used to pare down debts which mainly arose from Axis acquisition.

§ Improvement in gearing (net debt/ EBITDA) from 3.2x to 2.5x (pro forma).

§ Reduction in interest cost, depreciation and CAPEX partly offset by the additional monthly rental expense.

§ A positive development allowing XL to minimize duplication and right size its tower portfolio.

§ Partial outsourcing model with full O&M cost savings for these towers – an optimum business model for telco.

§ Better average pricing per tower – sold at USD132k per tower (+5.6%) compared to purchase consideration of USD125k per tower in Axis deal.

§ Maintain HOLD with unchanged SOP-derived TP of RM6.92.

 

Fuel Price up by 20 Sen

• The government decided to hike RON95 and diesel pump prices by 20 sen per litre to RM2.30/litre and RM2.20/litre respectively effective 2 October.
• The fuel price hike came in as a surprise as we had earlier expected the government to announce the multi-tiered subsidy scheme in the Budget a week later. We believe that complexity of multi-tiered subsidy scheme has prompted the government to introduce a plain 20 sen hike in the interim period.   
• We expect the CPI growth to average 2.9% yoy in 4Q14, resuming its downward trend since its peak in 1Q14 at 3.5% yoy. The fuel price hike will not result in a jump in the CPI growth as the index was already higher a year ago due to a similar 20 sen hike which took effect on 3 Sep 2013. We maintain our full-year 2014 CPI growth forecast at 3.2%.
• We expect part of the savings from the fuel subsidy cut (~RM3.3bn) to be spent in the form of higher BR1M payment of ~RM150 for 2015 (additional cost of ~RM1.2bn).
• On economic growth, the 20 sen fuel price hike is expected to be slightly negative on consumer spending and business activity. We maintain our view that GDP growth would moderate to 5.6% in 2H14 from 6.3% in 1H14 (full year forecast at 6.0%).  
• We expect the OPR to be held steady at 3.25% in the upcoming MPC meeting on 6 Nov 2014.

 

Bearish undertone returns again amid petrol hike and external headwinds

• On the wake of overnight Dow’s plunge and external headwinds coupled with the 20sen petrol hike effective today, Bursa Malaysia is likely to trade lower today.
• Given the failure to stage a breakout above the immediate resistance of 200-d SMA in the last few sessions, the odds would favour weaker trend ahead, targeting 1800-1820 zones if the 6-month low of 1829 support cannot hold. On the upside, the 200-day SMA at 1,851 may continue to act as resistance in the immediate term. Key resistances are situated at 1852-1859.
• Today’s recommendation: Momentum Sell on TMCLIFE

 

TMCLIFE – Sell into rally

• TMCLFE’s share price surged 41% to the peak of RM0.67 on 26 Sep 14 from RM0.475 in just eight trading days. We opine that the surge in share price is currently at toppish zone as indicated by “Bearish Engulfing” candlestick in the overbought zone on daily chart. Hence, profit-taking activities are likely to occur. Immediate supports are located at RM0.60, RM0.585 and RM0.56. Critical resistances are situated at RM0.65, RM0.68 and RM0.70.

MIB Research Summary 2 Oct 2014

Regional O&G Services: Key takeaways from Corporate Day

Positive investors’ traction on 13 ASEAN O&G corporates at our one-day event last week. Perdana and Ezion are our picks for OSV play while Yinson is for FPSO. KNM is an emerging renewable energy play. The AusGroup angle, on the supply base operations in Australia, is an interesting prospect, if executed well. AXIATA GROUP: XL finalising its tower sale  Shariah-compliant Positive on XL’s sale of 3,500 towers for IDR5,600b, or USD132k per tower. Proceeds to pare down USD500m shareholder loan extended by Axiata for Axis acquisition. Bumper dividend unlikely at Axiata, but a YoY increase in DPS is highly probable. Reiterate BUY. ECONOMICS/Fuel Subsidy Rationalisation: Another 20 sen per litre hike RON95 petrol and diesel prices raised by 20 sen to MYR2.30 per litre and MYR2.20 per litre respectively effective today. Maintain our 2014 inflation rate forecast of 3.5%, but adjust 2015 inflation rate projection to 4.5%-5.0% from 4.0%-4.5%. The move sends a clear message of the Government's commitment to fiscal reform. TECHNICAL: A very unstable index tone today The FBMKLCI inched down by 0.99 points to 1,845.32 yesterday, while the FBMEMAS and FBM100 also closed lower by 19.75 points and 17.79 points, respectively. We expect weaker buying interest at the supports of 1,830 to 1,843, whilst heavy liquidation would be at the resistances of 1,845 and 1,870. Trading idea is a Take Profit call on OLDTOWN with downside target areas at MYR1.65 & MYR1.51.

RHB 1 Oct 2014

Oil & Gas Sector (NEUTRAL) (Downgraded)

Not All Paradigm Shifts Are Exciting

Sector Update

We are turning more cautious on the implementation and execution risks of the stocks under our coverage, going forward. We believe the sector’s current premium valuation is unsustainable, as many local O&G players venture overseas and move up the value chain. We see this resulting in a narrowing of the gap between local and global valuations. We downgrade this sector to NEUTRAL from Overweight.

 

 

VS Industry (VSI MK, BUY, FV: MYR2.92) (Upgraded)

A Grand Finale

Results Review

VS Industry’s (VSI) FY14 earnings of MYR53.6m were above our and consensus expectations. 4QFY14 was a record quarter with earnings of MYR36.5m (+0.8% y-o-y, +855.4% q-o-q), helped by sales of the new coffee machine model from end-May and tax incentives for its exports. We raise our earnings forecasts and lift our FV to MYR2.92 (from MYR2.00), based on a 9.5x CY15F P/E (from MYR2.00) and implying a 12.7% upside. Upgrade to BUY.

 

 

Petra Energy (PENB MK, NEUTRAL, FV: MYR3.02)

Early Green Light For The TMM Portion

Corporate News Flash

Petra Energy announced that the topside major maintenance works for Petronas Carigali’s Sabah operation has been awarded an early activation. As the TMM portion is part of the MYR2.5bn umbrella contract running from 2013-2018, we make no changes to our estimates at this juncture. We keep our NEUTRAL recommendation for the stock with our SOP-based FV unchanged at MYR3.02. 

 

 

Banking Sector (NEUTRAL)

Expectations Of a Better 2H14 Already Priced In

Sector Update

1H14 was a challenge for the banks in terms of income growth but 2H14 should see things turn around, aided by July’s 25bps OPR hike. That said, we believe expectations of stronger earnings growth in 2H14 have largely been priced in. Meanwhile, August banking statistics saw stable loans growth but business loan leading indicators improved. We remain NEUTRAL on the sector, with Maybank, AMMB and BIMB as BUYs.

 

 

Economic Outlook

Slowing But Resilient Economic Growth In The 2H

After recording a strong growth of 6.3% y-o-y in the 1H, there are early signs to suggest that the spectacular growth will likely cool off in the 2H. This is on account of a slower increase in exports, on weaker external demand, made worse by a higher base effect in the 2H of 2013. Domestic demand will likely moderate as well in the 2H, dampened by rising cost of doing business and elevated inflation. The Government’s fiscal consolidation drive and curbs on the property market do not help either. As a result, we expect real GDP to grow at a slower pace of 5.3% y-o-y in 2H 2014, compared with +6.3% in the 1H.

 

 

Economic Highlights

Broad Monetary Aggregate Picked Up While Loan Growth Remained Stable In August

The broader money supply, M3, picked up to 5.5% y-o-y in August (July: +4.9%). Loan growth, on the other hand, remained stable at 8.6% y-o-y in August (July: +8.6%). A stronger growth in corporate loans mitigated the weaker growth in household loans during the month. We expect the banking system’s loans to sustain its expansion at 9-10% in 2014 (2013: +10.6%). We expect the OPR to be kept at 3.25% for the rest of the year, as the BNM appears to be cautious and focusing its stance on growth.

 

MIB 1 0ct 2014

PLANTATIONS: New ownership rule not retroactive

Foreign companies with existing Indonesian plantation operations will not be affected by Indonesia’s new rule. If foreign limit is set too low, we expect new planting to slow in Indonesia and help boost CPO price in the long term. Neutral impact for now. Maintain our 12M NEUTRAL view on the sector. BANKING: Loan growth stable in August Industry loan growth was stable at 8.6% YoY in August; our 2014 loan growth forecast of 8.7% maintained. Of concern is that deposit growth continued to slip further to 5.6% YoY – this will intensify deposit competition. NEUTRAL on sector; BUYs are AFG, HL Bank and HLFG. UTILITIES: A relook at reserve margins Peninsular Malaysia’s reserve margin would drop below 20% in 2014-2020 (from 30% in 2013). Reserve margin could fall further to 10% if some of the new plants are indeed delayed; extending expiring SLAs/PPAs appears the most convenient fix. New capacity will be required beyond 2020; IPPs would benefit if PPA terms become less onerous. TECHNICAL: Range trading for the index The FBMKLCI inched down by 0.03 points to 1,846.31 yesterday, while the FBMEMAS and FBM100 also closed lower by 3.15 points and 2.82 points, respectively. We recommend a “Range Trading” stance for the index. Trading idea is a Short-Term buy on ELSOFT with upside target areas at MYR1.78 & MYR2.04. Stop loss is at MYR1.38.

HLIB Research Summary - 1 Oct 2014

Banking (NEUTRAL)

Aug Stats – Strong Business Leading Indicators

• Loans growth slowed by 2bps 8.61% yoy on marginal slowdown in both business and household segments.
• Applications and approvals higher mom and reversed to yoy growth but approval rate slightly lower. Business applications strong (4^th consecutive mom growth and (3^th consecutive double-digit growth) while approvals increased. 
• This reaffirms our view of revival in business loans growth and helps mitigate slowdown in household.  Thus, keep our 2014 loans growth projection at 9%.
• Deposits contracted mom, higher LD ratio and lower excess liquidity of RM284bn (but still ample).
• ALR higher 3^rd consecutive month thanks to OPR hike in Jul 14.  Reiterate that it will help sustain rather than boost NIM.  Moreover, contraction in deposits will intensify competition.  
• Asset quality and capital ratios improved.
• Maintain Neutral and top picks as Maybank, RHB Cap and AFG. 

Economics: Highlights of BNM Statistics (Aug 2014)

• M3 growth decreased to 4.8% in Aug (Jul: +5.7%), the slowest since Mar-02. Narrow money M1 also slowed to 7.7% yoy (Jul: +9.1% yoy).
• The second consecutive month of weakness in money supply growth pointed to a more moderate economic activity in 3Q14, which reinforces our view that GDP growth would moderate to 5.6% in 2H14 from 6.3% in 1H14 (full year forecast at 6.0%).
• Household loan-deposit growth gap remained wide, with household loan and deposit growth remaining largely stable at 11.0% yoy and 6.3% yoy respectively (Jul: +11.1% yoy & +6.4% yoy respectively).
• Backed by slower domestic financial activities, weaker economic performance in developed countries and waning enthusiasm on property speculation, we expect the OPR to be held steady at 3.25% in Nov MPC meeting.
• Excess liquidity in the banking system, which amounted to RM239.3bn as at end-Aug (Jul: RM237.9bn), remained ample to support growth accommodation in the near term.

Traders Brief: Sideways post 3Q14 window dressing

• Despite fizzling off after testing briefly our envisaged immediate resistance at 200-d SMA (now 1852) yesterday, KLCI’s recent rebound from 1829 on 26 Sep (6-month low) still looks sustainable, supported by the formations of three Hammers on 18/23/26 Sep and bottoming out oscillators.
• Key resistance is 1852 or 200-d SMA. A strong breakout above 1852 will spur KLCI higher to retest 1860 (30-d SMA) and 1867 (23.6% FR) levels. Conversely, KLCI continue to trade range bound within 1830-1840 zones. A close below 1830 will open up to retest 1818 (61.8% FR) lower support.
• Today’s recommendation: Momentum Sell on  TEOSENG 

Momentum Idea: TEOSENG – Sell into rally

• Yesterday’s black candlestick pointed to an imminent correction in near term. Hence, we view that the bullish trend is likely to halt and subsequently correct itself as both hourly and daily oscillators (RSI, MACD and Slow Stochastics) indicate overbought signal. Noticeably, share price is in Upper-Bollinger band, profit-taking activities are likely to occur. Immediate supports are located at RM2.26, RM2.22 and RM2.15. Critical resistances are situated at RM2.48, RM2.52 and RM2.56.