CIMB Research Summary - 25 Nov 2014

Westports Holdings - Explosive catalysts on the horizon
Westports’ share price may be driven up in the months ahead by three potential catalysts: the start of the Ocean Three alliance, the renewal of the Investment Tax Allowance, and government approval to raise port tariffs. Westports is our top pick in the Malaysian transport space. We initiate Westports with an Add call and a probability-weighted DCF target price of RM4.57, incorporating different scenarios of the timing and quantum of the tariff hike. We expect the core EBIT 3-year CAGR of 10% to rise to 17% if port tariffs are raised 30% on 1 January 2016.

Petronas Dagangan - Fuel up!
Contrary to what the market thinks, the government’s decision to put RON95 petrol and diesel on a managed float system is positive for petroleum retailers, including PetDag. The managed float system will lead to the removal of subsidy receivables, thus potentially improving PetDag’s cash flow. Also, the automatic pricing mechanism (APM) remains in place, ensuring PetDag a fixed company margin of 5 sen/litre. In view of the sharp share price fall since the managed float system was announced on 21 Nov, we upgrade our call from Hold to a trading-oriented, non-consensus Add while maintaining our forecasts and target price. We continue to value the stock at 21.2x CY16 P/E, still at a 30% premium over our target market P/E of 16.3x.

Axiata Group - Celcom yet to regain footing
Axiata’s 3Q14 core net profit fell 15.2% qoq (-35.4% yoy). This missed our expectations, with 9M14 core net profit at 66%/69% of our/consensus full-year forecast. As expected, no dividends were declared for 3Q14. We cut our FY14-16 core net profit by 8-13% for weaker-than-expected Celcom and associate earnings, plus much higher depreciation. Our SOP-based target price is cut by 1.4% to RM7.10. With rebounds expected at Celcom and XL, we see stronger earnings for Axiata in FY15; though consensus numbers appear to have factored this in. Axiata is now guiding for steady to marginally higher capex in FY15, which is possibly a negative surprise for the market. Still, Axiata is our preferred Malaysian telco pick for its earnings recovery story.

Affin Holdings - Not taking full advantage of rate hike

Petronas Gas - Pengerang to drive excitement

Signature International - Gaining momentum

Uchi Technologies - A stronger brew

UMW Oil & Gas - Bigger fleet oils the way to record quarter and maiden dividend
WCT Holdings - Weighed down by property

Economic Update - Sep leading index holds steady

CIMB Research Summary - 24 Nov 2014

Economic Update - Float on RON95 and diesel
Today, the government announced that subsidies for RON95 and diesel will be eliminated and the pricing for these two fuels will transition to a managed float similar to the one currently in place for RON97. This is in line with the government’s subsidy rationalisation agenda and a positive signal indicating that fiscal reforms are progressing in the right direction. The decision to float is timely as the switch should have a benign impact on inflation given that the average market price is close to the current fixed retail price. Moving forward, falling global oil prices put the possibility of lower inflation on the table, given a more direct pass-through of falling global oil prices to domestic pump prices. Furthermore, the government will now have more fiscal space and more control over the fiscal deficit. We understand that the government has earmarked about RM12bn for fuel subsidy spending in 2015, and is likely to channel the savings through BR1M handouts or other means of targeted assistance.

Genting Bhd - No excitement
GENT’s 9M14 core net profit of RM1.4bn was below our expectations, at 62% of our previous full-year and consensus forecasts on poor performance across the board at GENM, GENP and GENS. No interim dividend was declared in 3Q, as expected. Upon transfer of coverage, our FY14-16 EPS forecasts are cut following our earnings cuts for GENP, GENM and GENS. We also introduce a new target price of RM9.90, still based on 20% holding company discount to our RNAV of RM12.40 (lowered from RNAV of RM14.34 after GENS’s target price was lowered from S$1.72 to S$1.22). With total return of only 6.2%, we downgrade our rating from add to Hold as continued operational headwinds faced by GENS and concerns about the competitive landscape at the Las Vegas strip will continue to weigh on investor sentiment. We advise investors to switch from GENT to GENM for exposure to the gaming sector.


SMRT Holdings Bhd - MEGB’s white knight

7-Eleven Malaysia Holdings Berhad - Growing but below expectations

Genting Malaysia - More bad luck in Genting

Lafarge Malaysia Bhd - Preventing cracks from volatility

Pharmaniaga Bhd - Dividend surprise in 3Q

SBC Corp - Jesselton Quay is the key…

Star Publications - Still cloudy skies

Thong Guan Industries - Feeling Japan’s blues

Economic Update - Oct inflation rises slightly

MIB Research Summary - 24 Nov 2014

Genting Malaysia: Maintain Buy Banishing the ghost of 2Q14

3Q14 core net profit was in-line and rebounded 28% QoQ; VIP and mass market volumes up YoY. Trim earnings estimates by 3-4%, imputing higher marketing and payroll costs. Maintain BUY on marginally lower TP of MYR5.05 (-2%). Genting Bhd: Maintain Hold Fair valuations 3Q14 results within expectations but wary of GENS’ outlook. Trim earnings estimates by 3-7%. Maintain HOLD with a trimmed TP of MYR10.00 (-19sen). Sarawak Oil Palms: Maintain Buy Long term prospects intact  Shariah-compliant 3Q14 core net profit was within expectation. We lower 2014 earnings by 7% to realign with our adjusted industry-wide CPO ASP forecast of MYR2,430/t (-3%). BUY with unchanged TP of MYR6.90 on 15x 2015 PER. Next catalyst is unlocking of estates for property development. 7-Eleven Malaysia Holdings: Maintain Hold Expect a decent finish 9M14 core net profit of MYR45m within expectations. Expect on-going margin improvement from better product mix and higher contribution from new/existing stores. Maintain HOLD with an unchanged TP of MYR1.78. Malaysia CPI, October 2014 Picks up but remains sub-3.0% Inflation rate quickened in Oct 2014 to +2.8% YoY on RON95 and diesel retail price hikes during the month. Tweaked our full-year 2014 inflation rate estimate to +3.2% (earlier +3.3%; YTD 2014: +3.2% YoY). Widen our inflation rate forecast range for 2015 to 4.0%-5.0% from 4.5%-5.0% as fuel prices will be "volatile" under "managed float" pricing mechanism effective 1 Dec 2014, besides GST introduction on 1 Apr 2015 Fuel Subsidy: Fuel Subsidy No More... Government announced RON 95 and diesel prices will be "managed floated" on 1 Dec 2014 Falling crude oil price has result in convergence between subsidised prices and market prices of fuels The move should allay concerns on 2015 budget deficit target of -3% of GDP as the Government will not be spending the MYR11b allocation. Lafarge Malaysia: Maintain Hold Seeking ASP stability  Shariah-compliant Expect earnings rebound in 4Q on seasonally strong volume. Future ASP volatility to be cushioned by savings in fuel cost. Cut FY14-16 EPS by 8%/18%/20%; TP lowered to MYR9.35 (22x 2016 PER). Maintain HOLD on decent DY of 3.2-3.8%. Kuala Lumpur Kepong: Maintain Hold Mulling Kalimantan downstream JV  Shariah-compliant KLK (63%), IJM Plant (32%) and an Indonesian partner (5%) plan a downstream JV to operate in East Kalimantan. Mutually beneficial to all parties, for the downstream facility will be assured of steady supply of CPO for the long term. Maintain HOLD with unchanged TP of MYR23.20 on 23x FY15E PER target. TECHNICAL: Dow rises, but FBMKLCI falls further The FBM KLCI fell 4.66 points WoW to close at 1,809.13, as persistent foreign activities caused the small decline. We advise clients to sell at the resistance areas of 1,809 to 1,896. The support levels of 1,766 and 1,805 will witness very weak nibbling activities. Trading idea is a Take Profit call on AAX with dwonside target areas at MYR0.61 & MYR0.56.   NEWS Barakah Offshore Petroleum: Felda group a substantial Barakah shareholder. Felda Investment Corp Sdn Bhd (FIC) is believed to have bought a substantial equity stake of more than 10% in Barakah Offshore Petroleum last Friday, according to sources familiar with the matter. FIC was the buyer of some 85.5m shares, or an 11.4% equity stake through offshore transactions to pave the way for the Felda group to invest in the oil and gas sector. (Source: The Edge Financial Daily) IOI Properties Group: Plans to expand IOI City Mall in Putrajaya. IOI Properties Group said plans are already in the pipeline to add a further 1 million sq ft retail space at IOI City Mall in Putrajaya as occupancy rate at the newly-opened complex reached 85%. To boost customer traffic, the mall operator is lobbying for a mass rapid transit station to be open within its vicinity. (Source: The Star) External reserves as of 14 November 2014 amounted to MYR414.5b or USD126.6b - equivalent to 8.7 months of retained imports and 1.1 times of the country's short-term external debt. The reserve was down compared with MYR419.7b or USD128.1b at 30 October 2014. Latest trade and portfolio investment data showed narrowing surplus in external balance and capital outflows. The recent 3Q 2014 balance of payment data which showed smaller current account surplus and net outflow of portfolio investment. Foreigners were net sellers of Malaysian debt securities. Total domestic debt securities held by foreigners declined to MYR249.3b in September 2014 from MYR256.9b in August 2014. The MYR7.6b net selling of Malaysian debt securities in September 2014 was the largest since QE Taper began. Consequently, MYR depreciated significantly against the US Dollar i.e. - 4.2% between end-August 2014 and end-October 2014. The Ringgit eased further so far this month by -2%. (Source: BNM, MKE) E.U: Said to plan EUR 21b risk-sharing fund for investment. The new entity is designed to have an impact of about 15 times its size, making it the anchor of the EU’s EUR 300b investment program, said the officials, who asked not to be named because the plans aren't final. European Commission President Jean-Claude Juncker is due to announce the three-year initiative this week. (Source: Bloomberg) China: PBOC seen fueling old China as banks hold key to policy success. China's central bank said its surprise move to cut interest rates for the first time since 2012 is designed to help small firms and protect depositors instead of all-out monetary easing. The one-year lending rate was reduced by 0.4 ppts to 5.6%, while the one-year deposit rate was lowered by 0.25ppts to 2.75%. The bulk of bank debt in China is still concentrated on big borrowers, with outstanding credit to small firms less than a third of total loans. The People's Bank of China's rate cuts came after months of targeted measures failed to lower financing costs for smaller companies. (Source: Bloomberg) OPEC: Iran may seek OPEC cut of 1mbpd in Saudi talks. Iran may propose that OPEC cut its output target by as much as 1 million barrels a day to halt the slide in crude prices when the country's oil minister consults with his Saudi counterpart before the group gathers this week. Bijan Namdar Zanganeh and Saudi Arabia's Oil Minister Ali Al-Naimi will talk on the sidelines of the meeting in Vienna of the Organization of Petroleum Exporting Countries, seeking to define a common view among its 12 members for supporting prices, Iran's state-run Mehr News agency reported, without saying where it got the information. (Source: Bloomberg)

Kenanga - 24 Nov 2014

IDEAS OF THE DAY

l  Results Note: COASTAL, GENM, GENTING, IOIPG, PHARMA

l  Company Update: STAR

l  On Our Portfolio: Higher Downside Risk 

l  Economic Viewpoint: Malaysia Consumer Price Index, Fuel Subsidy To be Removed

NEWS HIGHLIGHTS

l  End of RON95, diesel subsidies

l  Willowglen bags RM14.2m contract

l  Gunaria, KL Kepong unit in share deal

l  Bina Darulaman to acquire land worth RM202.0m

l  Protasco sues PT Goldchild

FOREIGN NEWS HIGHLIGHTS

l  Tesla says in talks with BMW over car batteries, parts

l  BHP targets further spending cuts as iron prices tumble

l  Visa sees Visa Europe option now costing more than USD10.0b

l  Australia's Medibank IPO prices at AUD2.15 a share, raising AUD5.7b

 

ECONOMIC NEWS HIGHLIGHTS (MACRO BITS) 

Malaysia

l  Malaysia Scraps Fuel Subsidies As Najib Ends Decades-Old Policy

l  Inflation Rate In October Rose To 2.8%

l  Malaysia Jumps To No. 5 In The Latest World Talent Ranking

Asia

l  Central Bank Seen Fueling Old China As Banks Hold Key To Policy Success

l  Chinese Premier Urges 'New Growth Engines' Amid Slowing Economy: Xinhua

l  Thailand Stepping Up Infrastructure Spending

Americas

l  Brazil Government Slashes 2014 Budget Surplus Goal

l  Mexico Cuts 2014 Growth Forecast After Surprisingly Weak Third-Quarter

Europe

l  Draghi Throws ECB Door Open To Money Printing As Global Prospects Dim

Currencies

l  Dollar Index Ends Week At Four-Year High

Commodities

l  Oil Up First Time In 8 Weeks On China Rate Cut, OPEC Expectations

l  Gold Rallies To 3-Week High After Surprise China Rate Cut

HLIB Research Summary - 24 Nov 2014

Lafarge (BUY é)

3Q14 Analyst Briefing

• Disappointing 3QFY14 performance. To recap, Lafarge’s 3QFY14 net profit declined due to higher input cost and pricing pressure from the market arising from Lafarge’s stance to regain and reposition itself as the market leader.
• Mitigating higher electricity and fuel costs via efficiency. Energy and fuel costs now consist of 50% of total cost and the only strategy to mitigate the rising price of electricity and fuel is by being more efficient.
• Coal prices for FY15. The company recently finalised the terms for the supply of coal for next year and has hinted that the prices for next year is marginally lower compared to FY14.
• Outlook for 2015. Price volatility is expected to continue and industry cement demand will continue to sustain into next year, with a projected mid-single digit demand growth of 3-5% in 2015, similar pace for 2014.
• We slashed FY14 by 6.1% to impute the weak 9MFY14 results. However, we have revised upwards our FY15-FY16 earnings by 7.4% and 11.6% due to (1) lower coal price; and (2) higher domestic net selling prices.
• Despite the disappointing 3QFY14, our TP is raised to RM10.72 based on 22.5x 2016 EPS of 47.7 sen. We have raised our P/E on the stock to 22.5x, one standard deviation above its 1-year forward average P/E of the last 3 years.  We upgrade our rating from Hold to BUY.

Star Publications (BUY é)

A sweet dividend for the ride

• We attended Star’s 9MFY14 briefing, chaired by its Managing Director/CEO, Datuk Seri Wong Chun Wai and the management team.
• A pretty good cost management… Star will continue to keep its costs well controlled. Will also benefit from low newsprint prices which have been on a downtrend (see Figure #1).
• Appealing dividends… It is likely to retain the dividend payment of 15 – 18 sen/share, translating to a dividend yield of 6.6% - 7.9%.
• FY14, FY15 and FY16 earnings trimmed by 1%-3%, as we assume weaker macro environment which contributes to a poorer consumer and business sentiment.
• Despite the soft adex environment, we see better prospect for Star based on their prudent cost management, strong balance sheet with net cash position and attractive dividend yield. Also, its share price has, since the beginning of November, declined by 12%. Thus, we upgrade Star to a BUY call, TP revised upwards by 7% to RM2.73 based on an unchanged dividend yield of 5.5% as we increase our dividend forecasts from 14.0 to 15.0 sen/share. 

ViTrox (BUY çè)

Deliver as Promised

• Again, achieved new highs in revenue and profit merely with 9 months results. FY14 top line is forecasted grow 55.7% yoy reaching ~RM165m.
• MVS-S: resilient 3Q14 order despite seasonality weakness. 4Q14 revenue is forecasted to be ranging RM9-10m. Demand is expected to pick up from 2Q15 onwards.
• MVS-T: YTD 9M14 sales more than doubled (+173.7%) yoy and 4Q14 sales expected to be between RM6-8m.
• ABI: 3Q14 fell dragged by disappointment in PCB. 4Q14 revenue forecast is estimated to be RM20m while carry forward backlog into 1Q15 will be higher than in 2H14.
• By summing the mid-points of those guidance, 4Q14 sales could potentially grow 30.4% yoy to RM36.5m.
• Confident to extend its pioneer status / tax exemptions which will end in 1Q15.
• Reiterate BUY with unchanged TP of RM3.17, pegged to 1SD above 5-year historical average P/E multiple of 16.2x.

Genting Bhd (BUY çè)

9MFY14: Below Expectations

• Reported 9MFY14 core PATAMI of RM1.3bn came in below expectations due to weaker-than-expected performance from Genting Singapore .
• We imputed the latest earnings revision from GenS and GenM and as such, FY14-16 EPS are cut by 12.7%, 2.6% and 4.9% respectively.
• Post-earnings revisions, TP is cut slightly to RM10.64 (from RM10.81) based on SOP valuations. Maintain BUY.

Genting Malaysia (HOLD çè)

9MFY14 Slightly Below Expectations

• GenM reported 9MFY14 core PATAMI of RM949.8m came in below expectations from higher-than-expected tax rate.
• Following the higher-than-expected effective tax rate in 3Q, we increase FY14’s tax rate assumptions. As such, FY14-16 earnings are reduced marginally by 0.4-3.9%.
• Given that the downgrade in forecasts is for FY14, our TP of RM4.16 is unchanged based on FY15’s SOP valuations. Maintain HOLD.

IOIPG (HOLD ê)

Disappointing 1QFY15

• Reported 1QFY15 PATAMI of RM101.0m came in below expectations, mainly due to higher-than-expected expenses and effective tax rate.
• YTD unbilled sales stood at RM1.43bn, representing 0.95x of IOIPG’s FY14 revenue.
• We trimmed our FY15-17 EPS by approximately 22-25% as we turn more conservative on the group’s prospects.
• TP is lowered to RM2.65 (from RM3.94) after taking into account earnings revision and higher discount to RNAV of 30% (vs. 20% previously). Our TP of RM2.65 valued IOIPG at 18.5x FY15 P/E, vs. 18.7x FY15 P/E which UEM Sunrise is currently trading at.
• We also downgraded our recommendation to HOLD in view of persistent earnings disappointment.

Scomi Energy (BUY çè)

2Q Analyst Briefing…

• Despite declining oil price, drilling campaign from Petronas has picked up with rig count increased from 4 rigs in Jun 14 to 6 rigs in Sep 14 and further increase to 12 rigs in Nov 14.
• Given this, it expects gross margin for oilfield services to gradually improve from 24% in 2QFY15 to 26% in subsequent quarters.
• Marine business swung from profit to losses mainly due to lower coal tonnage carried arising from new tax rules imposed by Indonesian government which resulted in production halt of a customer. After the election, it expects the operation to improve.
• We also understand that national oil companies (NOCs) comprise around 65% of SES’ revenue. NOCs have traditionally been able to better withstand the impact of declining oil price with long term capex plan.
• We maintained our BUY call with TP reduced from RM1.07 to RM0.93.

Pharmaniaga (BUY çè)

9M14 Results – In Line

• 9M14 core net profit of RM71.9m, came in within our expectations but slightly ahead of consensus’ estimates, accounting for 77% and 83% of HLIB and consensus full year estimates, respectively.
• Declared 3^rd single tier dividend of 8.0 sen per share (3Q13: 3.0 sen) with ex-date on 5^th Dec.
• 3Q14 revenue gained 13.9% yoy to RM502.1m contributed by the entire core business operations. However, qoq sales contracted 4.4% due to seasonally lower demand.
• Logistics and Distribution Division posted more than three-fold increase in PBT qoq, boosted by higher ASP coupled with higher sales volume. Manufacturing Division’s PBT slipped due to lower off-take for in-house products from government hospitals as well as higher R&D expenses.
• Moving forward, Pharmaniaga remains positive as the pharmaceutical sector in Malaysia is showing improved prospects.
• Reiterate BUY with unchanged fair value of RM5.30 based on FY15 P/E multiple of 14.5x, 10% discount to US peers.

CSC (HOLD çè)

3Q Losses Again

• Another disappointing quarter. 9MFY14 performance came in weaker than our expectation, with a reported net loss of RM12.3m vs. our full-year net profit forecast of RM5.1m. 
• YoY. 3QFY14 revenue decreased by 1.2% to RM254.4m and turned into a net loss of RM3.1m from a net profit of RM2.9m, a staggering declining of 206.4%. This is due to lower selling prices.
• QoQ. 3QFY14 net loss narrowed to RM3.1m (from RM8.8m in the previous quarter) mainly on the back of lower raw material costs.
• We belief that 4QFY14 looks bleak, thus, we have cut our FY14 forecast to a net loss of RM15.2m. For FY15, we have slashed our earnings by 2.2% and for FY16, we cut by 17.5%.
• SOP-derived TP lowered by 5.1% to RM1.06 to reflect the roll forward of our base year from FY14 to FY15 (for valuation purpose) and lower earnings forecasts. Maintain HOLD recommendation.

Economics

Managed Float for RON95 & Diesel Report

• Retail price of RON95 and diesel will be fixed according to a managed float system starting 1 Dec.
• We are positively surprised as the floating of fuel price will entirely eliminate the government ' s fuel subsidy bill in 2015. Fuel subsidies rose to as high as RM28.9bn in 2013 (13.7% of operating expenditure).
• The move is favourable to help the government achieving its target fiscal deficit of 3.0% GDP. We see slim chance of the proposed multi-tiered fuel subsidy scheme being implemented. We believe that the government may instead give special BR1M payouts should global crude oil price spikes up sharply in an unexpected manner.
• We estimate that RON95 and diesel would be retailed at RM2.30/litre and RM2.20/litre respectively in Dec 2014. We maintain our 2014 full-year inflation forecast at 3.2%.
• Based on our crude oil forecast of US$90/bbl for 2015, we expect RON95 retail price to average RM2.50/litre in 2015. Consequently, our CPI growth forecast for 2015 is raised to 4.3% (previously: 4.0% with multi-tiered fuel subsidy).
• The managed float fuel scheme is expected to bring greater uncertainty to consumer spending in 2015, which we had already factored in in our projection. We reiterate our projection that GDP growth will moderate to 5.0% in 2015 (2014f: +6.0%).
• We do not expect the switch to a managed float system for fuel price will alter the thinking of BNM. We maintain our view that BNM will leave its OPR unchanged at 3.25% throughout 2015.

Economics

October Inflation Report

• Malaysia ' s CPI growth climbed up to 2.8% yoy in October after recording a 12-month low of 2.6% in September, lower than our and market expectations (+3.0%).
• 20 sen fuel price hike was the sole reason behind the spike in October CPI growth. Price inflation of other components broadly held stable. Food & alcoholic beverages and tobacco witnessed slower price increases.
• Headline inflation is projected to creep up further in Nov-Dec 14 and 2015, driven by domestic cost factors. We maintain our full-year inflation estimate of 3.2% for 2014 but raise our 2015 forecast to 4.3% (previously: +4.0%) given the commencement of managed float system for fuel prices.
• We expect BNM to keep the OPR steady at 3.25% throughout 2015, backed by moderate domestic demand, softer global outlook, contained inflation risks and slower property speculative activities.

Traders Brief

Likely to consolidate sideway

• Last Friday’s black candlestick removed the reversal signal of “Bullish Engulfing” pattern on daily chart, turning KLCI into consolidation mode.
• The psychological level of 1800 would be a critical support zone after 50% Fibonacci level was penetrated last Friday. Next supports are at 1778 and 1760 if 1800 is broken.
• However, KLCI could stage a technical rebound during this week, which might be shortlived. Resistances are 1823 (38.2% FR), 1836 (23.6% FR) and 1850 (downtrend line and 200-d SMA).
• Took profit on ESCERAM last Friday as it hit beyond R1.

CIMB Research Summary - 20 Nov 2014

Telco - overall - 2015: A year to tread carefully
Competition is likely to be intense in two out of the four markets we cover. Capex should also stay high as telcos invest further in rolling out 3G/4G networks and improving the data experience. Strong mobile data revenue growth is a bright spot but this will be partly offset by SMS/voice revenue declines, especially in the more developed markets. ASEAN telcos’ share prices have also done fairly well, up 14.4% YTD and 52.2% since 2011 on average, reducing the odds of further sector-wide outperformance in 2015. We remain Overweight on Indonesia and Neutral on Singapore and Thailand while cutting Malaysia from neutral to Underweight. Our top picks are Telkom Indonesia, SingTel and Thaicom. We downgrade DiGi to Hold and upgrade Indosat to Add.


AirAsia Bhd - The inflection point is now
AirAsia’s 9M14 core earnings look 37% better than our previous numbers, as yields stabilised in the 3Q, instead of continuing the yoy weakening trend that was evident since 2Q13. We believe yields in Malaysia will strengthen yoy in 4Q14, leading to higher yoy core earnings for the first time in almost two years. This is the inflection point that will finally move the share price. Lower jet fuel prices literally add fuel to the fire, lowering costs dramatically and allowing us to raise our FY14 core EPS by 260% (from a low base), while our FY15-16 core EPS forecasts are raised 28-36%. We reiterate our Add call and raise our target price, still based on 1.7x P/BV (average since 2008).


AMMB Holdings - Not in the mood to lend
Excluding one-off divestment gains, AMMB’s annualised 1HFY3/15 net profit was 9.6% below our FY14 forecast, though it was in line with consensus (2.4% short). This was because we were over-optimistic on our forecasts for revenue and loan loss provisioning (LLP). The 12 sen net interim DPS was also below expectations. We are raising the projected LLP by 40-100% and trimming the assumed lending yield by 5bp. This brings down our EPS forecasts and DDM-based target price (COE of 10%; LT growth of 4%) despite the roll-over of valuation to end-15. Notwithstanding the below-sector valuations, AMMB remains a Hold in view of the concerns over (1) weak loan growth, (2) margin contractions, and (3) a rise in credit costs. We prefer Maybank.

Kuala Lumpur Kepong - 4Q losses from downstream

MSM Malaysia Holdings - Profit margins hit by new APs

Star Publications - Not so shiny

Economic Update - Malaysia to be a RMB hub

RHB Research Summary - 12 Nov 2014

GD Express Courier (GDX MK, BUY, TP: MYR2.42)

Poised For a New Quantum Leap

Initiating Coverage

We initiate coverage on GDEX with a BUY call and DCF-derived MYR2.42 TP (a 20.4% upside), valuing the stock at an implied 81x FY15F P/E. It has seen 10 years of strong earnings growth, which is expected to remain resilient in the coming years on the capacity expansion of its express delivery service and logistics arm as the drivers. Opportunity in the AEC is a key catalyst to drive GDEX’s earnings higher.

 

 

Tambun Indah (TILB MK, BUY, TP: MYR2.50)

Land Deal Terminated

Company Update

Tambun has terminated the deal to acquire 209.5 acres of land, as certain terms were not met. Although this could disappoint the market, we still like Tambun for its solid management team and >500-acre land at Seberang Perai. Moving forward, management can still embark on other landbanking opportunities. For now, without the new land, we lower our TP to MYR2.50 (14.7% upside). Maintain BUY. 

 

 

Tune Ins Holdings (TIH MK, BUY,  TP: MYR3.00)

Rejuvenating Its Multi-Channel Growth

Results Preview

We expect no major surprises from Tune Ins’ 3Q14 results, as passengers carried by its airline partners are on track to meet our full-year forecast, which had factored in lower travel demand. Reiterate BUY and MYR3.00 TP (24x FY15F P/E, 42% upside). We see a long-term transformation in this growth stock, buoyed by its new leadership, a swift global expansion and sharpening of its multichannel capabilities.

 

Economic Highlights - Industrial Production And Manufacturing Sales Moderated In September, Pointing To More Moderate Real GDP Growth In 3Q (Published on 11 Nov 2014)

Industrial production moderated to 5.4% YoY in September, from 6.5% in August. The reading was slightly lower than the median estimate of a 5.5% gain as a modest increase in export demand dampened manufacturing activities. Along with a slower growth in electricity production, industrial activities experienced a more moderate growth during the month. These were, however, mitigated by a faster increase in the production from the mining sector. Cumulatively, the increase in industrial activities weakened to 4.1% YoY in 3Q (2Q: +5.9%).

 

HLIB Research Summary - 11 Nov 2014

Plantations (NEUTRAL  çè)

Inventory rises for the 4^th month

• Inventory increased for the 4^th consecutive month, by 3.7% mom to 2.17m tonnes mainly on weaker exports, which more than offset a 0.2% mom decline in output.
• While production has already reached its peak (and will start trending down from Nov, in our view), we believe CPO stockpile will likely remain high in Nov, as lower CPO output will likely be offset by the absence of seasonal restocking activities, CPO’s narrow discount against the soy oil, and the economic viability of voluntary biodiesel demand amidst current low crude oil price.
• Maintain NEUTRAL stance on the sector.

KLK (HOLD çè)

 Teams up with Astra Agro Lestari

§       KLK entered into a JV agreement with PT Astra Agro Lestari Tbk (AALI), which AALI will acquire a 50% stake in PT Kreasijaya Adhikarya (which is involved in the business of refinery and trading of refined palm oil products) for RM81.2m.

§       Positive, as the latest move (by teaming up with AALI) will ensure the supply of quality feedstock for its refinery. This is particularly important for KLK as its own oil palm estates in Indonesia could only supply up to 60% of the CPO feedstock required for its refineries in Indonesia .

§       Maintain earnings forecasts, TP of RM20.41, as well as HOLD recommendation on the stock

MAHB (BUY çè)

Funding for the Remaining 40% ISGA

• MAHB announced rights issue exercise of 274.8m rights shares on the basis of 1 for 5 existing MAHB shares.
• Based on illustrative price of RM4.80, MAHB will raise RM1.3bn funds, which RM1.2bn will be used to fund the acquisition of the remaining 40% stake in ISGA from Limak.
• Net EPS dilution impact for FY15 and FY16 are -10.5% and -8.9% respectively.
• Remained positive on MAHB’s long-term earnings growth. Maintained BUY with unchanged TP of RM8.90 (RM8.10 post the completion of ISGA acquisition).

MAHB (BUY çè)

An Improvement in Oct 2014

• MAHB’s reported turnaround in pax growth at +0.1% yoy in Oct, after negative growth in the past 2 months.
• Growth mainly driven by international segment – Australia , New Zealand and India sectors.
• The seat capacity offered by airlines in Nov and Dec are +6.7% yoy, promising continued positive passenger growth for the remainder of the year.
• Remained positive on MAHB’s long-term earnings growth. Maintained BUY with unchanged TP of RM8.90 (RM8.10 post the completion of ISGA acquisition).

IOIPG (BUY çè)

Proposed Rights Issue

• IOIPG proposed renounceable rights issue of 539,835,787 new shares at RM1.90 on the basis of one right for every 6 IOIPG shares.
• Based on the issue price of RM1.90, IOIPG would raise RM1,025.7m. We understand that bulk of the raised fund will be used for for its townships in both Bangi and Sepang, as well as for the integrated development in Putrajaya.
• Basic dilution of the proposed exercise is about 14% and will reduce our TP from RM3.94 to RM3.38. However, we believe the dilution will be mitigated by incremental earnings from IOIPG’s future investment opportunities. Gross gearing will be slightly reduced from 0.18x to 0.17x post the rights issue exercise.
• We are positively surprised on the proposed exercise as it strengthens the balance sheet and provides shareholders to participate at a 30% discount to market price.
• To note, the proposed rights will be fully underwritten by its major shareholders. The proposed exercise is expected to be completed by 1QCY15.
• Maintain TP at RM3.94 (10% discount to RNAV, 17.3x CY15 P/E). Our TP will be adjusted to RM3.38 post the rights issue exercise. Maintain BUY.

DRB (BUY çè)

One More Step Towards Integrated Logistics

• DRB proposed to acquire 100% Gading Sari for RM72m or RM4.80/share.
• Gading Sari is a private air transportation company providing services to Poslaju. The acquisition is line with DRB to develop integrated logistic services via KLAS.
• Relatively negative on the expensive valuation at 10x P/NTA (2013) and 32.7x P/E (2013). DRB may need to pay premium for the company’s Air Operator Certificate (AOC).
• Maintained BUY with unchanged TP of RM3.00 (Based on SOP).

CBIP (HOLD çè)

Good fundamentals priced-in

• We continue to see bright earnings visibility at the oil mill engineering division offsetting the higher tax expense. This is underpinned by its all-time-high order book, the increasing harvesting areas of oil palm plantations as well as management’s ongoing efforts in expanding the division’s capacity.
• While management remains confident in securing sizeable contracts to replenish order book for the SPV division, we believe 2015 will be a relatively quiet year for this division. In our opinion, potential new contracts may not arrive in time to replenish its depleting order book given the lumpy and irregular nature of this division’s contract flow.
• Management highlighted that planting development works will continue (albeit at slower pace of ~3,000 ha p.a. vs. 6,000 ha p.a. previously), although there are still uncertainties on foreign shareholding cap in Indonesia .
• We reduced our FY12/15-16 net profit forecasts by 18.4-25.9%, largely to reflect: (i) higher tax expense; and (ii) lower earnings at the SPV, which more than offset slightly higher contract wins and EBIT assumptions at the palm oil mill engineering division.
• SOP-derived TP on the stock is lowered by 6.2% (from RM2.27) to RM2.13, post adjustments made in our valuation methodology for its plantation assets in Malaysia and net profit forecasts. Maintain HOLD recommendation.

Economics

Oct-14 PMI: Mixed Bag of Results

• Global PMI in October continued to show weak global growth momentum with greater growth differentials across regions. Manufacturing PMI was stable at low level of 52.2 (Sep: 52.2) while services PMI fell to a six-month low of 53.7 (Sep: 55.2).
• Fears of growing dimness in the Euro zone and China that would weigh on the US-led recovery continued to mount. Downside risks to global growth persisted during the month, with recent financial market volatility, falling energy prices and US braving a rate hike next year. Meanwhile, we expect the world economy to grow by 3.6% next year (2014f: +3.3%).
• Mixed bag of PMI results across Malaysia ’s top trading partners in October suggested an uneven and less-favourable growth outlook for exports and IPI in the months ahead. Together with softer domestic financial activities and lower commodity prices, we expect GDP growth to slow to 5.6% in 2H14 (1H: +6.3%) and 5.0% in 2015 (2014f: +6.0%).
• A more dovish tone in November’s MPS also lends support to our expectations of OPR pause throughout 2015.  

Traders Brief

Must break above 10-d SMA for resumption of uptrend

• For a resumption of an upward momentum towards 1850, KLCI must rebound quickly to surpass 10-d SMA (now at 1838) levels. Otherwise, a crack of the lower 1818 (20-d SMA) and 1824 zones will trigger more selldown towards 1800 zones.
• Closed positions: We had closed our SELL positions on BORNOIL and YGL after hitting our R1/R2 targets on 10 Nov.
• Today’s recommendation: Trading BUY on SKPETRO

Trading idea - SKPETRO

SKPETRO: Double Positive Divergence

• Share price is expected to go higher mainly because share price made lower low while all indicators (MACD & RSI) made higher low on hourly as well as daily chart, triggering double Positive Divergences which indicate weakness in the downtrend momentum and selling pressures are exhausted.
• Further upside targets are at RM3.28 and RM3.41, with a long-term objective of RM3.62. Critical supports are pegged at RM3.06 and RM3.00. Cut loss at RM2.94.