RHB Research Summary - 18 Nov 2014

IOI Corporation (IOI MK, NEUTRAL, TP: MYR4.35)

Pulled Down Again By Manufacturing Division

Results Review

IOIC’s 1QFY15 (Jun) results disappointed, due to weaker manufacturing contributions and higher tax rates. We maintain our NEUTRAL recommendation as valuations remain fair at current levels, with no significant share price catalyst in sight, while the impending exclusion from the Shariah Index could result in some overhang. We reduce our SOP-based TP to MYR4.35 (from MYR4.50), implying a 7.5% downside.

 

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

Lumpy Claims a Temporary Setback

Results Review

9M14 profit of MYR50m, at 63% of our and street estimates, was below expectations due to lumpy claim items and lower earned travel policies from slow international travel growth. Maintain BUY and MYR3.00 TP(24x FY15F EPS, 44.9% upside). We lower our FY14 earnings forecast by 6%. However, we believe these are just temporary setbacks and should not hamper Tune Ins’ swift expansion into a global player.

 

Kenanga: 18 Nov 2014

IDEAS OF THE DAY

l  Results Note: ASIABRN, IOICORP, MATRIX

l  On Our Radar: GUH

l  On Our Technical Watch: KIANJOO, QL

NEWS HIGHLIGHTS

l  Felda partners ECERDC to develop Kuantan land

l  Sona to continue Salamander pursuit

l  Daya Materials to acquire DP2 offshore subsea construction vessels

l  IJM, SILK agree to pact extension

l  TH Heavy shares up on RM90.0m Petronas contract award to unit

FOREIGN NEWS HIGHLIGHTS

l  Halliburton to buy Baker Hughes for USD34.6b

l  Allergan agrees to USD66.0b Actavis offer; Valeant walks

 

ECONOMIC NEWS HIGHLIGHTS (MACRO BITS) 

Asia Pacific

l  Japan's Economy Makes Surprise Fall Into Recession

l  Japan Seeks To Strengthen 2015 Growth After Recession Hit

l  China To Cut 40b Yuan A Year In Fees To Spur Business Growth

l  Thai Economy Grows Less Than Estimated

l  Indonesia Raises Fuel Prices As Jokowi Enacts Key Pledge

l  Australia, China Deepen Ties With Landmark Free Trade Deal

USA

l  Industrial Output In U.S. Unexpectedly Fell In October

Europe

l  Draghi Says ECB Measures May Entail Buying Government Bonds

Currencies

l  Dollar Rises Against Rivals After Data

Commodities

l  Oil Ends Down On Japan, But Pares Loss On OPEC Speculation

l  Gold Eases Off Two-Week High As Dollar Gains On Japan Recession

MIB Research Summary - 18 Nov 2014

MY Strategy: Maintain Neutral Nov Shariah compliance review

Seven stocks could drop off, IOI Corp and SapuraKencana being the two largest. Five could be added, the more prominent ones being Amway and Padini. No change in stock calls for those identified. IOI Corporation: Maintain Sell Hurt by low downstream earnings  Shariah-compliant 1QFY6/15 core PATMI of MYR229m was below expectations. Potential stock overhang if heavyweight IOI drops off the Hijrah Shariah and EMAS Shariah indices end-November. Maintain SELL with a new TP of MYR3.73 (vs. MYR3.97) on unchanged 20x 2015 PER peg as we cut FY6/15 EPS by 12%. Singapore Exports, Oct'14 Volatile NODX and NORX NODX fell -1.5% YoY in Oct 2014, reversing gains in Aug-Sep 2014 NORX also fell, by-5.4% YoY, the fourth time in the last six months The volatility in NODX is spreading to NORX TECHNICAL: Definitely headed to 1,800 and below The FBMKLCI declined 7.31 points to 1,806.48 yesterday, while the FBMEMAS and FBM100 also closed lower by 58.93 points and 54.91 points, respectively. We recommend a “Sell on Rallies” stance for the index. Trading idea is a Take Profit call on MUHIBAH with downside target areas at MYR2.19 & MYR1.88.   NEWS Oil & Gas: Petronas to review MYR300b capex allocation. Petroliam Nasional will be reviewing its capital expenditure allocation of MYR300b, following the decline in global crude oil prices. Executive vice-president Datuk Wee Yiaw Hin mentioned that the review with help them be more effective in their cost management. However, he said there will not be a reduction in Petronas' exploration and production (E&P) programme, despite rising costs. (Source: The Edge Financial Daily) FGV: FGV plans to invest MYR1b in Cambodia. Felda Global Ventures (FGV) is planning a MYR1b investment in Cambodia's plantation sector. Sources said the company was eyeing sugar, palm oil and rubber plantation businesses in Cambodia and might venture into an integrated livestock project in the future. (Source: The News Straits Times) AirAsia X: AirAsia X flies into greater turbulence. AirAsia X, the long-haul, low-cost affiliate of AirAsia, is said to be facing payment problems relating to staff salaries and their fixed and variable allowances, said sources. In view of these financial problems, according to sources, AirAsia co-founder and group chief executive officer Tan Sri Tony Fernandes will take on a "more prominent role" in the management of the AirAsia X to revive the airline. (Source: The Edge Financial Daily) U.S: Industrial production unexpectedly fell in October, weighed down by declines at utilities, mines and automakers that signal manufacturing started the fourth quarter on soft footing. Output fell 0.1% MoM after a 0.8% MoM increase in September that was smaller than previously estimated, figures from the Federal Reserve in Washington. Factory production rose 0.2% MoM, matching the prior month's advance that was also revised down. (Source: Bloomberg) Japan: Unexpectedly sank into a recession last quarter as the world's third-largest economy struggled to shake off the impact of an April sales-tax boost, raising the odds of a delay in a second bump in the levy. GDP shrank an annualized 1.6% in the three months through September, a second straight drop - matching the textbook definition of a recession. Unadjusted for price changes, the economy contracted an annualized 3%, the Cabinet Office said. (Source: Bloomberg) Indonesia: Raises fuel price to free funds for economic stimulus. Indonesian President Joko Widodo raised fuel prices to reduce state energy subsidies, enacting a key election pledge less than a month after taking office to narrow the budget deficit and free funds for development plans. The price of subsidized gasoline increased to IDR 8,500 (USD 0.70) a liter from IDR 6,500, Widodo told reporters in Jakarta. Diesel has been raised to 7,500 rupiah a liter from IDR 5,500, he said. (Source: Bloomberg) Australia: Opens China's services market with free trade accord. Australia hailed a free-trade agreement with China that it says provides unparalleled access to the services market of the world's second-largest economy. The deal, once signed in 2015, will mean 85% of Australian goods exports to China will be tariff free, rising to 95% when fully implemented, Prime Minister Tony Abbott said. Tariffs will be removed from some resources and energy including aluminum oxide and coking coal, and phased out on thermal coal over two years. (Source: Bloomberg)

CIMB Research Summary - 18 Nov 2014

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.

HLIB Research Summary - 18 Nov 2014

Technology (OVERWEIGHT  çè)

Shot in the Arm

• US and China announced a deal to drop tariffs on a wide range of tech products based on the expanded ITA.
• According to WSJ, it is estimated that this pact could cover USD1tr in trade.
• If materialize, this will be a major catalyst to the whole tech sector, benefiting all stakeholders in the supply chain.
• In the absence of the tariff, imported IT goods will be cheaper and more affordable in China , the largest consumer of semiconductor.
• This will spur greater demand for more advance and high quality technology gadgets from first-time users as well as existing users who would shorten product replacement cycle.
• Maintain OVERWEIGHT with BUY calls on Inari Amertron (TP: RM3.41), ViTrox (TP: RM3.17) and Unisem’s (TP: RM2.02).

IOI (HOLD çè)

Below expectations

• 1QFY06/15 core net profit of RM228.8m came in below expectations, accounting for only 15.7-16.5% of our and consensus full-year forecasts.
• Key variance against our forecast – weaker-than-expected margins at the resource-based manufacturing division.
• FY06/15-17 net profit forecasts cut by 2.8-8.1%, largely to reflect lower EBIT margin assumptions at the resource-based manufacturing division.
• Post earnings forecast revision, SOP-derived TP is cut by 3.7% to RM4.23. Maintain HOLD recommendation.  

Matrix (BUY çè)

9MFY14 Results In Line

• Matrix’s 9MFY14 reported PATAMI of RM126.1m came in within expectations.
• 3.75 sen net DPS was declared in 3Q14, bringing YTD DPS to 12.5 sen
• We understand that the group’s 3QFY14’s ongoing billings are largely coming from BSS and TSI. New sales during the quarter were RM159m vs. RM138m in 2QFY14.
• Matrix also launched several developments during the quarter, which totaled to RM146m.
• As at 9MFY14, the group’s total unbilled sales stands at RM410.5m, representing 0.71x of FY13’s property development revenue.
• We maintain our TP at RM3.74 (20% discount to RNAV), which implies FY15E P/E of 7.2x. Maintain BUY.

Traders Brief

Grossly oversold with key supports at 1795-1800 zones

• Technically, the sharp selldown from monthly high of 1858 (3 Nov) to a low of 1806 yesterday has pushed the KLCI into a grossly oversold position, reflected by the daily slow stochastic indicator. However, on the back of external uncertainties (potential pullback in Dow, uneven recovery in the global economy, sliding oil prices, geopolitical risks etc) and given that domestic fresh catalysts are unlikely to emerge anytime soon, KLCI will continue to trap in a consolidation mode despite the oversold position. Short term resistances 1812-1836 whilst supports fall on 1778-1800
• Closed positions on 17 Nov: We had closed our positions on SILK, PERISAI, JTIASA and MITRA yesterday.

Research Summary: 21 August 2014

Research Summary: 21 August 2014

Research House	Type	Company/Sector	Report Title	Rating/Call	Target
RHB	Results review	Bumi Armada	Calmer seas ahead	Buy	RM4.52
RHB	Results review	Kossan	Better outlook for 2H	Buy	RM5.12
RHB	Results review	AirAsia	2Q dips into losses but look beyond this quarter	Buy	RM2.73
RHB	Results review	MSM	Not-so-sweet prospects	Neutral	RM5.23
RHB	Results review	IOI	Manufacturing division weakens	Neutral	RM5.42
RHB	Results review	KLK	FY14 may not be affected by lower CPO prices	Neutral	RM25.20
CIMB	Results note	Eksons	Cash rich after land sale	Hold	RM1.54
CIMB	Results note	AirAsia	The dawn of industry rationality?	Add	RM2.88
CIMB	Results note	IOI	Lower 4Q downstream earnings	Reduce	RM4.49
CIMB	Eco focus	Economic	Malaysia’s inflation outlook amid fuel subsidy review & GST
CIMB	Eco update	Economic	Inflation ebbs to 3.2% in July
CIMB	Flash note	Star	Growing the non-print segment	Hold	RM2.70
CIMB	Results note	MSM	New APs remove sugar coating	Hold	RM5.22
CIMB	Results note	Kossan	2Q impacted by water rationing	Add	RM4.71
CIMB	Results note	KLK	Production recovers but…	Reduce	RM22.50
CIMB	Result note	Gas Malaysia	Fired up by gas price revisions	Add	RM3.96
CIMB	Sector	Autos	July driven by Raya promotions	Neutral
Maybank	Sector	Banking	Deposit competition still intense	Neutral
Maybank	Results review	AirAsia	It was a mirage, 2014 will be tough	Hold	RM2.55
Maybank	Results review	Bumi Armada	Results on track	Buy	RM4.55
Maybank	Results review	KLK	A traditionally weak 3Q	Hold	RM23.20
Maybank	Results review	IOI	Pricey on forward earnings	Sell	RM3.97
Maybank	Results review	Boustead Plantations	Downside capped by its land value	Buy	RM2.16
Maybank	Results review	Gas Malaysia	Potential dividend bummer?	Hold	RM3.80
Maybank	Results review	Kossan	Stronger growth ahead	Buy	RM5.00
Maybank	Results review	MSM	2A14: Within expectations	Hold	RM5.00
Maybank	Company update	MBM Resources	Excitement from Perodua	Buy	RM3.42
Maybank	Company visit	Star	Already in the price	Hold	RM2.89
Maybank	Eco update	Economic	CPI July 2014 – eased but still above 3.0%
Maybank	Technical	PJDev		Short-term buy
Kenanga	Results note	AirAsia	Better prospects over the horizon	Market perform	RM2.47
Kenanga	Results note	Gas Malaysia	2Q14 in line; upgrade to MP	Market perform	RM3.54
Kenanga	Results note	IOI	FY14 below consensus	Market perform	RM5.30
Kenanga	Results note	Kossan	Expect a better 2H14	Outperform	RM4.86
Kenanga	On radar	KSL	Back in our “sights”	Trading buy	RM6.63
Kenanga	Company update	MBM Resources	Look further down the road	Market perform	RM3.06
Kenanga	Eco viewpoint	Economic	CPI: Tapered off slightly to 3.2% in July
Kenanga	Results note	KLK	9M14 in line	Market perform	RM25.00
Kenanga	Company update	Matrix	Banking on GDV replenishment	Outperform	RM3.20
Kenanga	Company update	Star	Challenging 2H14	Underperform	RM2.44
Kenanga	Initiate coverage	Thong Guan	Value unwrapping!	Outperform	RM3.70
HL	Results review	Kossan	2Q14 results – below expectations	Hold	RM3.70
HL	Results review	AirAsia	Further yield pressure in 2Q14	Hold	RM2.20
HL	Results review	Bumi Armada	Signing block 15.06 Angola…	Buy	RM4.27
HL	Results review	KLK	Below expectations	Sell	RM20.41
HL	Results review	IOI	Below expectation	Hold	RM4.39
HL	Results review	MBM Resources	Watch out for 2015 fruits bunches	Buy	RM4.00
HL	Company update	Matrix	Making the right moves	Buy	RM3.74
HL	Briefing	Star	1HFY14 analyst briefing	Hold	RM2.55
HL	Eco update	Economic	July inflation report