HLIB Research Summary - 29 Oct 2014

Plantation (NEUTRAL  çè)

Higher biodiesel mandate from Nov-14

§       The Government will implement higher biodiesel mandate (from B5 to B7) in Peninsular Malaysia and East Malaysia from Nov-14 and Dec-14 respectively.

§       The latest development is positive to the sector, as the higher biodiesel mandate bodes well for palm oil consumption, hence supporting palm oil prices.

§       Maintain average CPO price projections of RM2,400/mt and RM2,300/mt for 2014 and 2015 respectively, as well as our Neutral stance on the sector.

CIMB Group (TRADING BUY é)

Group Meeting

• We reiterate that key challenges to synergy extraction and long-term ROE enhancement are overlaps and integration.
• Although still early, we had better understanding of the deal and take comfort from its merger integration track record.
• Post-merger, the structure enables CIMB to transfer some duplication to the non-wholly-owned Islamic subsidiary.  Coupled with VSS and closing down some branches, low yielding cost synergy can be achieved.
• Enlarged entity will reflect CIMB as acquirer with goodwill at 0.4x RHB Cap book while CET1 of 9% has taken this into consideration.
• Target price remained at RM7.22 (Gordon Growth with ROE of 12.1% and WACC of 9.8%).
• Despite merger dilution and uncertainties in Indonesia , recent selldown to 1.4x FY14 book over exaggerated.  Moreover, it is now a cheaper proxy to the merged entity. 
• Upgrade to Trading BUY as values emerged amid uncertainties.    

Nestlé (HOLD çè)

9MFY14 Results In-Line

• Nestlé’s flattish 9MFY14 revenue of 1.4% growth was largely affected from the slowdown in exports, which contracted 13.1% yoy. Domestic sales grew 5.8% for 9MFY14.
• We gathered that the implementation of GST would result in slightly higher ASP (less than 6%) of its products despite having some of its raw materials categorized as zero-rated.
• As for operating profit margin, the more favourable commodity prices (vs. 1HFY14) and strengthening of MYR against USD have managed to narrow the margin gap, bringing 9MFY14’s margin to 16.25% vs. only 15.87% in 1HFY14. Hence, Nestlé‘s is turning slightly optimistic for its full year profit, which the group believe would likely to record slight yoy growth, in-line with our forecasts of 5-6% bottomline yoy growth.
• HOLD recommendation and TP of RM66.52 based on DDM remained unchanged.

Traders Brief

Inching On track towards our envisaged 1825-1834 relief rally targets     

• Technically, on the back of ongoing strong Dow’s rebound, expectations of dovish remarks by Fed on 30 Oct FOMC meeting, slightly improved Eurozone economic data and positive ECB’s banks stress test, KLCI is on track to retest our envisaged short term resistance near 1825-1834 levels this week. However, the path will not be smooth as other external headlines such as the Ebola outbreak, the sliding oil prices and geopolitical tensions will continue to remain wild cards affecting market gyrations. Supports are situated at 1816 (mid Bollinger band), 1800 and 1778 (50% FR).
• Closed positions (FIG5): We had closed our positions on GPACKET  after hitting our R1 upside target on 28 Oct.

MIB Research Summary - 29 Oct 2014

CIMB Group Holdings: Maintain Hold No change in merger views

Merger views unchanged – estimated 11% accretion to FY15 EPS, 19% enhancement to BVPS, 0.9ppt ROE dilution. Already have a BUY on RHB (TP: MYR10.45) for exposure to the merger. HOLD maintained on CIMB but it is currently a 2% cheaper entry to the merger based on the 1.38 share swap ratio. Nestle Malaysia: Maintain Hold Slow and steady  Shariah-compliant Nestle’s 9M14 domestic sales rose 5.8% YoY, while export sales declined 13.1% YoY. Slip in export sales is not a major concern as the domestic market is still the main earnings driver in the longer term. Maintain HOLD with an unchanged DCF-TP of MYR63.60. Carimin Petroleum: Not Rated Proxy to Peninsular HUC The 5-year MYR899m Peninsular Malaysia HUC project underpins Carimin’s forward earnings. Earnings are on the uptrend due to expanding margins on ownership of vessels and the absence of minority interest. Indicative fair value of MYR1.35 is pegged to CY15 PER of 12x, giving a 23% upside potential. Technicals: Index creeping up on its rebound The FBMKLCI rose 2.53 points to 1,825.68 yesterday, but the FBMEMAS and FBM100 closed lower by 22.06 points and 12.74 points. In terms of market breadth, the gainer-to-loser ratio was 285-to-528 while 274 counters were unchanged. 1.58b shares were traded valued at MYR1.79b. Today's trading idea is a Short-Term BUY CALL on SLP Resources with target price of MYR0.735, MYR1.01 and MYR1.15.

CIMB Research Summary - 29 Oct 2014

Plantations - Malaysia implements B7

We are positive on Malaysia's plans to start implementing the use of B7 biodiesel in stages starting Nov as this will boost the country's usage of palm oil. We estimate that the rollout could raise the country's palm oil demand by 263k-390k tonnes per annum, or 1-2% of the total palm oil production in 2013. As this equates to an additional monthly CPO demand of only 22k-33k tonnes, we keep our average CPO price forecast at RM2,390 and RM2,460 per tonne for 2014 and 2015, respectively. We also maintain our Neutral rating on the sector. Our key picks in the sector are First Resources, Astra Agro and SIMP.

GHL Systems Bhd - One-for-two bonus issue goes ex

GHL’s one-for-two bonus issue has gone ex today. Ex-bonus, our target price adjusts to RM1.06, still based on 23.8x CY16 P/E (at 40% premium over the global payment sector average of 17x, in view of its strong EPS CAGR of 75% in FY13-16 and attractive PEG of 0.6x). Stronger earnings from the TPA segment, M&A activities in new markets and the possibility that the company could be a takeover target are potential re-rating catalysts. Maintain Add.

Nestle (Malaysia) - Still the leader

Nestle highlighted during its analysts’ briefing today that although domestic sales grew by only 5.8% yoy, the company considers the achievement encouraging as the growth rate was above industry average. To boost profits, it will continue to focus on increasing its operating efficiency. We trim our FY14-16 net profit forecasts by 0.3-0.6% to factor in the higher capex as guided by management. This reduces our DCF-based target price. We maintain an Add rating on the stock given its strong branding, solid delivery track record and superior ROE. Key rerating catalysts include a positive impact from the cost pass-though and easing raw material prices.

CIMB Research Summary - 28 Oct 2014

Plantations - Hit by several speed bumps
We are cutting our average CPO price forecasts by 5-11% for 2014-16 to reflect larger-than-expected global edible oil supplies as well as weaker demand for biodiesel usage in Indonesia. The CPO price declines in 3Q14 were sharper than what we had previously expected, no thanks to stronger soybean supplies and weaker Chinese demand. These factors, coupled with the recent sharp drop in crude oil prices, are likely to put a lid on near-term CPO prices. We cut our EPS forecasts for regional planters by up to 41% to reflect our CPO price downgrade. This lowers our target prices by up to 23% across the board. But we have upgraded six stocks as their valuations have improved. Our sector rating remains Neutral, with First Resources as our key pick.

Nestle (Malaysia) - Better 3Q results
Nestle’s 9M14 earnings met consensus as well as our expectations at 76% of our full-year forecast. Although Nestle’s 9M net profit usually accounts for c.80% of its full-year, we deem the 9M14 performance in line as we expect easing raw material prices and lower A&P spend in 4Q14 to make up for the shortfall. 9M14’s topline was driven by domestic sales, but the bottom line was dragged down somewhat by 1H’s higher raw material costs and A&P expenses. We maintain our FY14-16 earnings forecasts, Add recommendation and DCF-based target price. As usual, no dividend was declared for the quarter. Key rerating catalysts include positive impact from cost pass-through and lower raw material prices.

MIB Research Summary - 28 Oct 2014

Nestle Malaysia: Maintain Hold 3Q results broadly in line  Shariah-compliant

9M14 results were largely in line. 3Q14 topline down 4% YoY on lower export sales but bottomline up 9% YoY on (i) more favourable raw material costs, and (ii) stronger MYR against USD. Maintain HOLD with a lower TP of MYR63.60 (MYR64 previously. NCB Holdings: Maintain Sell Long road to recovery  Shariah-compliant 3Q14 results substantially below our and street's estimates. Near-term anaemic earnings growth and unattractive DY. Maintain SELL with a lower DCF-derived TP of MYR2.25. Technicals: The short-term rebound may persist The FBMKLCI rose 4.29 points to 1,823.15 yesterday, while the FBMEMAS and FBM100 also closed higher by 51.07 points and 43.62 points, respectively. In terms of market breadth, the gainer-to-loser ratio was 637-to-226 while 255 counters were unchanged. A total of 2.29b shares were traded valued at MYR1.86b. Today's trading idea is a Short-Term BUY CALL on MAXIS with target price of RM7.01 and RM7.20.

RHB Research Summary - 28 Oct 2014

7-Eleven Malaysia Holdings (SEM MK, BUY, TP: MYR2.00)

In Seventh Heaven

Initiating Coverage

We initiate coverage on 7-Eleven Malaysia with BUY and a TP of MYR2.00, representing a 19% potential upside return. Our TP is based on a 28x FY15F P/E multiple which is a 17% premium over its regionally-listed peers’ average P/E of 24x. We are positive on its well-planned growth strategy and promising outlook for the convenience store industry in Malaysia and estimate a 3-year earnings CAGR of 29.1% over 2013-2016F.

 

 

 

Nestle (NESZ MK, NEUTRAL, TP: MYR67.00)

Moving Steadily Along

Results Review

Nestle’s 9M14 results were broadly in line, as its earnings comprised 76.2% and 75.9% of our and consensus estimates respectively. Maintain NEUTRAL and our DCF-based MYR67.00 TP, a 1.5% downside. Revenue ticked up by 1.4% YoY only, as weaker consumer sentiment affected domestic demand. At the same time, net profit slid down 2.0% YoY on higher marketing expenses.

 

HLIB Research Summary - 28 Oct 2014

Media (NEUTRAL  çè)

Times are changing the future of TV

• Internet has transformed the way we consume content. Online streaming has been gaining traction amongst consumers. Hence, we believe smart TV will be the main channel for content owners to forward integrate into the market.
• According to research done by Technavio, Global Smart TV market is forecasted to reach US$219.4bn by 2015, growing at CAGR of 20.6% from year 2011 to 2015 (See Figure #2).
• Ultimately, it all boils down to content. Therefore, content producers and providers need to deliver an exceptional entertainment content and experience to feed the vernacular demands of Malaysians.
• Media Prima could be the potential winner. Despite the change in the media landscape, we believe Astro’s position as a content aggregator would be least impacted due to its position as a market leader on top of their efforts in localising and developing their own content & keeping abreast of the technology trends.
• Maintain our NEUTRAL outlook on the sector given the lack of rerating catalyst(s) and cautious adex spending by consumers and businesses with Astro being our top pick for sector exposure.

Nestlé (HOLD çè)

9MFY14 Results In-Line

• 9MFY14 PAT of RM452.1m came in within expectations.
• Nestlé ‘s YTD topline grew marginally by 1.4% yoy from the group’s effective marketing and promotional activities despite the dampened consumer sentiment
• Exports remained on the declining trend on the back of increasingly challenging global economic environment.
• Despite the slightly higher revenue, bottomline contracted by 2% attributable to the higher costs of investments under marketing and promotional activities.
• HOLD recommendation and TP of RM66.52 based on DDM remained unchanged.

Traders Brief

Inching up towards our 1825-1834 relief rally targets      

• Technically, on the back of ongoing Dow’s rebound, expectations of dovish remarks by Fed on 29-30 Oct FOMC meeting and slightly improved Eurozone economic data and positive ECB’s banks stress test), KLCI is likely to retest our short term resistance near 1825-1834 levels this week. However, the path will not be smooth as other external headlines such as the Ebola outbreak, the sliding oil prices and geopolitical tensions will continue to remain wild cards affecting market gyrations. Short term technical resistances are 1825-1834 while supports fall on 1778-1800.
• Closed positions (FIG4): We had closed our positions on GENM  after hitting our R2 upside targets on 27 Oct.

Research Summary: 14 August 2014

Research Summary: 14 August 2014

Research House	Type	Company/Sector	Report Title	Rating/Call	Target
RHB	Company update	TDM	Healthcare expansion picks up pace	Neutral	RM1.07
RHB	Company update	KLCC-SS	Safe and sound	Neutral	RM6.96
RHB	Ceasing coverage	SEGI	Lacks re-rating catalysts	Not rated
CIMB	Results note	Perisai Petroleum	Drilling into recovery in 2H	Add	RM2.37
CIMB	Results note	Tomypak	From bad to worse	Reduce	RM0.70
CIMB	Flash note	KLCC-SS	Both positives and negatives	Hold	RM6.40
CIMB	Sector update	Construction	Not too late for late bloomers	Overweight
Maybank	Results preview	AirAsia	2Q14F: Earnings growth begins	Buy	RM2.65
Maybank	Results preview	AirAsia X	2Q14F: Test of faith	Sell	RM0.72
Maybank	Technical	IBhd		Short-term buy
Maybank	Results review	Perisai Petroleum	Remodeling in motion	Buy	RM1.76
Maybank	Company update	Nestle	2H14 earnings to catch up	Hold	RM64.00
HL	Cease coverage	BHIC	2QFY14 Results	N/A	RM2.36
HL	Results review	Perisai Petroleum	Back to black	Buy	RM1.72
HL	Briefing	KLCC-SS	Corporate day highlights	Hold	RM6.28
HL	Briefing	Nestle	Domestic stays strong; more capex needed	Hold	RM66.52
Kenanga	Results note	SEGI	2Q14 below expectations	Underperform	RM1.21
Kenanga	Results note	AMWAY	Anticipating a stronger 2H14	Market perform	RM12.50
Kenanga	Company update	Nestle	2Q14 analysts’ briefing	Outperform	RM76.10
Kenanga	Company update	KLCC-SS	Limited downside, uncapped upside	Outperform	RM6.90
Kenanga	Results note	Perisai Petroleum	Weak 2Q; E3 and Rubicone still idle	Outperform	RM2.01