CIMB Research Summary - 17 Nov 2014

Economic Update - 3Q14 GDP – Slower but still looking good
Real GDP growth moderated from 6.5% yoy in 2Q14 to 5.6% yoy in 3Q14, higher than our 5.2% estimate but in line with market consensus. The moderation was expected given last year's high base as well as slower exports and industrial output in the last quarter. Noteworthy are the resilient growth of household consumption (6.7%) and the sharp slowdown of investment growth to 1.1%. Still, the building blocks are in place to support average real GDP growth of 6.0% in 2014 and 5.0% in 2015.


Petronas Gas - Pengerang regas terminal is on
PetGas announced that it will undertake the Pengerang regasification terminal project with Dialog and the Johor state government. The total project would cost RM2.7bn, of which PetGas’s portion would be approximately RM2bn. The new regasification terminal will be completed in 4QFY17 and we expect stable earnings contribution from the terminal to start in FY18. While we make no changes to FY14-16 earnings forecast, we raise our SOP-based target price to RM27.11 (from RM26.44 previously) as we imputed the contribution of the regasification terminal towards the earnings and cashflow for FY18 onwards. We maintain our Add call on the stock.


Dialog Group - All gassed up and ready to go
With Phase 1 of the Pengerang tank terminal complex nearing completion, Dialog is stepping on the gas with Phase 2 where it will develop LNG regasification facilities with Petronas Gas and the Johor state government in a project that will cost an estimated RM2.7bn, the company said in an announcement today. We understand that Dialog will also be involved in the construction of selected structures. Pending further details, we maintain our forecasts and continue to value the stock at 21.2x CY16 P/E, a 30% premium over our target market P/E of 16.3x. Pengerang’s attractive outlook is the potential re-rating catalyst that supports our Add call.


Tomypak Holdings - Slow road to recovery?
Tomypak’s 3Q14 results were in line with our expectation, with the annualised 9MFY14 net profit coming in at 101% of our full-year forecast. We maintain our EPS forecasts but until Tomypak’s quarterly earnings show continued signs of recovery, we are switching our valuation basis from earnings (previously 7.8x P/E, 30% discount to Daibochi P/E target ) to asset-based. As a result, our target price rises to RM1.37, now pegged at 1.3x 12-months average P/BV. We upgrade the stock from Reduce to Hold as share price downside looks limited with floor support at RM1.30, which is the acquisition cost price of the new major shareholder. For exposure in the packaging sector, we prefer Thong Guan Industries.


Guinness Anchor - Low base effect boosts top line

Economic Update - 3Q14 BOP: current account surplus narrows further

RHB Research Summary - 17 Nov 2014

Dialog Group (DLG MK, BUY,  TP: MYR2.00)

Green Light For Pengerang LNG

Corporate News Flash

We are positive on the green light received by Dialog to develop a key phase of its mega Pengerang Terminal project - dedicated for LNG storage, trading and supply to the requirements of the Pengerang Integrated Complex. We don’t expect any impact to our 3-year earnings forecast, given its long development period. Maintain BUY, with a revised MYR2.00 TP (28.2% upside) to account for our new oil price forecast.

 

 

Petronas Gas (PTG MK, NEUTRAL, TP: MYR21.98)

Embarking On Pengerang Regasification Project

Corporate News Flash

Petronas Gas is embarking on the MYR2.7bn Pengerang regasification terminal project. While we are positive on the news, we maintain our NEUTRAL call, earnings forecasts and TP of MYR21.98 (1.5% upside), as the project will only start contributing from FY18. We believe the market has priced in near-term earnings catalysts, ie contributions from a new power plant in Sabah and a regasification terminal in Melaka.

 

 

KKB Engineering (KKB MK, SELL, TP: MYR1.38)

Waning Hope On O&G Contract Wins

Results Review

KKB’s 9M14 results were way below our and street expectations. We downgrade our rating to SELL (from Trading Buy) as we trim our target P/E to 12x FY15 and cut our TP to MYR1.38 (-29.5% downside). Due to the waning hope on its associate unit winning more O&G contracts in the near future (on weakening oil prices) and poor contract wins for other divisions to-date, we are slashing our FY14/15 earnings numbers.

 

 

Guinness Anchor (GUIN MK, NEUTRAL, TP: MYR13.10)

Earnings Up QoQ on Lower Opex

Results Review

Guinness’s 1QFY15 earnings of MYR54.6m (+10% YoY, +16.3% QoQ) were broadly in line with our expectations. Although revenue declined 4.8% QoQ due to seasonal factors, earnings rose 16.3% on the back of strategic cost management as well as lower commercial spending. No dividend declared for the quarter under review. Maintain NEUTRAL and a DCF-based TP of MYR13.10 (0.8% downside). 

 

 

Economic Highlights - Real GDP Growth Weakened In The 3Q, Dragged By Slower Export Growth (Published 14 Nov 2014)

Real GDP growth moderated to 5.6% YoY in 3Q14 (2Q: +6.4%). The reading was higher than our expectation of 5.2%, due to stronger-than-expected growth in consumption demand. This was attributed to much weaker export growth on account of a higher base effect and weak regional trade. External demand was also dragged down by slower growth in global semiconductor sales and falling commodity prices amid a moderate and uneven global economic recovery. Domestic demand also weakened in 3Q, but it helped to cushion sluggish external demand during the quarter. Full-year economic growth is 5.8% in 2014 (2013: +4.7%).

  

 

Economic Highlights - Current Account Surplus Narrowed Further In 3Q (Published 17 Nov 2014)

The current account surplus in the balance of payments dropped by 52.6% to MYR7.6bn in 3Q (2Q: +MYR16.0bn). This was due to a smaller surplus in the goods account and a bigger deficit in the services, income and transfer accounts during the quarter. The financial account, on the other hand, recorded a smaller outflow of MYR2.8bn in 3Q (2Q: -MYR11.8bn). We expect the current account surplus of the balance of payments to widen to MYR58.0bn or 5.8% of GNI in 2014 (2013: RM39.9bn or 4.2% of GNI).

MIB Research Summary - 17 Nov 2014

3Q 2014 Real GDP Growth Taper...

Growth slowed to +5.6% YoY (2Q 2014: +6.4% YoY), +2.9% QoQ (2Q 2014: +3.6%) and +0.9% seasonally-adjusted QoQ (2Q 2014: 1.9%). Both domestic demand and net external demand eased to +4.8% YoY (2Q 2014: +5.8% YoY) and +11.4% YoY (2Q 2014: +91.0% YoY). Adjusted our 2014 and 2015 real GDP growth forecasts to +5.9% (+6.0% previously; 2014 YTD: +6.1%) and +5.2% (+5.0% previously). Balance of Payments 3Q 2014 Smaller current account surplus Current account surplus in 3Q 2014 was smaller as trade surplus narrowed while services and income account deficits widened. Financial account deficit remain amid portfolio investment net outflows, but narrowed thanks to the net inflows of direct and other investments. Revised our full-year 2014-2015 current account balance forecasts to smaller surpluses. Dialog Group: Maintain Buy Clinches Johor regas project  Shariah-compliant New Johor regas (25% stake) to add MYR45m in profits from FY18, 4sen to TP. Though not unexpected, we are positive and do not discount more RAPID gas-related projects. Reiterate BUY; our SOP-based MYR1.90 TP has yet to incorporate this new project pending further clarity. Petronas Gas: Maintain Hold Pengerang announced  Shariah-compliant PTG’s 65% stake in the MYR2.7b Pengerang regasification plant is positive. Pengerang could contribute an incremental c.MYR300m of EBIT in 2018 through reservation charges alone. Maintain HOLD, TP unchanged at MYR23.50 for now pending further clarity from management. Guinness Anchor: Maintain Hold 1QFY15: In line 1QFY15 results are in line with expectations at 27% of our and consensus full year forecasts. We expect 2Q and 3Q earnings to come in steady, backed by festivities and pre-stocking activities, prior to GST. Maintain HOLD with unchanged DCF-based TP of MYR13.20. Dividend yield of ~5% provides support. TECHNICAL: Dow inches up, but FBMKLCI falls The FBM KLCI fell 10.40 points WoW to close at 1,813.79, as persistent foreign activities caused the drop. A poor Malaysia 3Q14 GDP growth of 5.6% led the index down. Volume fell from 2.66b to 1.65b shares. Trading idea is a Take profit call on ALAM with downside target areas at MYR0.765 & MYR0.65.   NEWS Construction: SCORE attracts over MYR7b FDI in first seven months. The Sarawak Corridor Renewable Energy (SCORE) has secured approved foreign direct investment (FDI) of more than MYR7b in the first seven months of this year. Malaysian Investment Development Authority (Mida) deputy chief executive officer II Datuk N. Rajendran said "there is (additional) potential investment of MYR6.7b in Sarawak that can be approved this year". (Source: The Star) Globetronics Technology: Globetronics set to release 3D sensors. Globetronics Technology plans to release three-dimensional sensors in mid-2015 to tap into the market that is projected to be worth about MYR11.4b in 2020. The sensors will be used for 3D motion control in smart devices and electronic systems said group chief executive officer Heng Huck Lee. (Source: The Star) U.S: Consumer sentiment increases more than forecast in November, reaching a seven-year high and indicating Americans will be in the mood to step up holiday spending. The Thomson Reuters/University of Michigan preliminary sentiment index increased to 89.4, exceeding the highest estimate in a Bloomberg survey and the strongest since July 2007, from a final reading of 86.9 in October. (Source: Bloomberg) China: Bad loans jump most since ’05 in threat to economic growth. Nonperforming loans rose CNY 72.5b (USD 11.8b) from the previous quarter to CNY 766.9b, the China Banking Regulatory Commission said in a statement on Nov. 15. Soured credit accounted for 1.16% of lending, up from 1.08% three months earlier. (Source: Bloomberg) China: Slowdown deepens as targeted stimulus fails to spur loans. Aggregate financing in October was CNY 662.7b (USD 108b), the People's Bank of China's said down from CNY 1.05tr in September. Earlier this week, reports showed deceleration in industrial output and fixed-asset investment. (Source: Bloomberg) Japan: Economy unexpectedly contracts as Abe weighs tax delay. Gross domestic product shrank an annualized 1.6% in the three months through September, the Cabinet Office said. Unadjusted for price changes, the economy contracted an annualized 3%. Abe's administration is seeking to shore up public support after April's levy increase triggered the deepest contraction in more than five years. Etsuro Honda, an adviser to the prime minister, said last week a tax increase is out of the question if growth is less than 3.8%. (Source: Bloomberg) Indonesia: Fuel-price rise to be less than IDR 3,000 a liter. Indonesia will raise fuel prices by less than IDR 3,000 (USD 0.25) a liter in the coming weeks, a move that will save the government more than USD 8b in the 2015 budget, its finance minister said. The government is "watching closely" what happens with international oil prices, "because most of our fuel is imported," he said. (Source: Bloomberg)

Kenanga: 17 Nov 2014

IDEAS OF THE DAY

l  Results Note: GAB

l  Quick Bites: DIALOG, PETGAS

l  On Our Portfolio: Extended Consolidation

l  Economic Viewpoint: Malaysia 3Q14 BOP, Malaysia 3Q14 GDP

NEWS HIGHLIGHTS

l  Globetronics set to release 3D sensors

l  Brahim’s helps Japan tap Muslim mart

l  Censof plans private placement

l  Melati Ehsan in road project talks with govt

l  DRB-Hicom in shares sales and purchase agreement with Isuzu Hicom Malaysia

FOREIGN NEWS HIGHLIGHTS

l  Actavis said near USD62.5b deal for Allergan

l  Australian tycoon to build giant dairy farm for exports to China

 

ECONOMIC NEWS HIGHLIGHTS (MACRO BITS) 

Malaysia

l  GDP expanded by 5.6%

l  Zeti Upbeat On 5.5-6pc Growth

l  Current Account Surplus Narrowed in 3Q14

Global

l  G-20 Plans $2 Trillion Growth Boost to Uneven Global Economy

Asia Pacific

l  China Lending Drops Sharply, Fuels Calls For Bolder Stimulus Moves

l  China Bad Loans Jump Most Since 2005 As Economy Cools

l  China's Fiscal Spending Falls In October From Year Earlier

l  Indonesia Gives First Indication On Size Of Fuel Increase

l  Australia-China Trade Deal To Drive Exports Beyond Mining

USA

l  U.S. Consumer Sentiment At More Than Seven-Year High

l  Strong Dollar, Weak Oil Helping Americans Get Cheaper Imports

l  U.S. Mortgage Delinquencies Fall To Lowest Since 2007: MBA

Europe

l  Improvement In Eurozone As Germany, France Skirt Recession

l  Greece's Economy Emerged From Recession In First Quarter

Currencies

l  U.S. Dollar Sinks Vs. Euro On Falling Inflation Expectations

Commodities

l  IEA: Oil ‘Price Rout’ Not Over

l  Oil Surges A Day After Brent Crash; Supply Fears Linger

l  Gold Soars On Short-Covering, New Fund Buying