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

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.

Research Summary: 22 August 2014

Research Summary: 22 August 2014

Research House	Type	Company/Sector	Report Title	Rating/Call	Target
RHB	Company update	CBIP	Watch out for expiry of Pioneer Tax Status	Take profit	RM4.16
RHB	Results review	QL Resources	Remain optimistic	Neutral	RM3.60
RHB	Results review	POS	A normalized quarter	Buy	RM5.70
RHB	Results review	Dialog	Hold on for long-term upsides	Neutral	RM1.90
RHB	Results review	Alam Maritim	Still sailing through the storm	Neutral	RM1.35
RHB	Results review	Coastal Contracts	Stable results, awaiting updates on rig	Buy	RM5.90
RHB	Results review	GAB	No surprises in FY14	Neutral	RM12.80
RHB	Results review	Magnum	Decent yield play	Neutral	RM3.22
RHB	Results review	Puncak Niaga	Within expectations	Trading buy	RM4.01
RHB	Results review	Petra Energy	Temporary earnings setback	Neutral	RM3.02
RHB	Results review	WCT	1H14 core net profit only grows 3% y-o-y	Neutral	RM2.31
RHB	Results review	NAIM	1H14 core net profit jumps 60% y-o-y	Buy	RM5.06
RHB	Briefing	MSM	More positive outlook	Neutral	RM5.23
CIMB	Results note	Eco World	Looking beyond FY14	Add	RM7.60
CIMB	Results note	Dialog	Brick-and-mortar record year	Add	RM2.08
CIMB	Results note	Puncak Niaga	Still looking to close the deal	Add	RM4.28
CIMB	Results note	Pharmaniaga	Solid manufacturing earnings	Add	RM6.70
CIMB	Results note	WCT	Yet to really buck the trend	Hold	RM2.32
CIMB	Results note	Oriental	Better performance all-around	Hold	RM7.60
CIMB	Results note	QL	Looking forward to a better 2Q	Add	RM3.86
CIMB	Results note	GAB	Smoke yet to clear	Reduce	RM12.00
CIMB	Results note	Magnum	Deleveraging picking up pace	Add	RM3.65
CIMB	Flash note	MSM	Building its value chain	Hold	RM5.22
Maybank	Results review	Axiata	A full quarter of Axis	Buy	RM7.60
Maybank	Results review	Dialog	No surprises	Buy	RM1.95
Maybank	Results review	WCT	Lackluster 2Q14	Buy	RM2.55
Maybank	Results review	Magnum	Uneventful 2Q14	Hold	RM3.05
Maybank	Results review	Alam Maritim	1H14: Below expectations	Buy	RM1.60
Maybank	Results review	GAB	FY14: Matched expectations	Hold	RM13.20
Maybank	Results review	QL Resources	Decent start to the year	Hold	RM3.20
Maybank	Technical	OSKProp		Short-term buy
Kenanga	Results note	Axiata	Hit by Axis’ integration costs	Market perform	RM6.96
Kenanga	Results note	Alam Maritim	A muted 214; forecasts cut for now	Outperform	RM1.64
Kenanga	Results note	Coastal contracts	Coast is clear for 2Q14	Outperform	RM5.94
Kenanga	Results note	Dialog	Awaiting Pengerang Phase 2	Market perform	RM1.83
Kenanga	Results note	NAIM	Stable earnings driven by Dayang	Outperform	RM4.18
Kenanga	Results note	POS	1Q15 hit by higher operating expenses	Underperform	RM4.61
Kenanga	Results note	Puncak Niaga	Patience pays	Outperform	RM3.99
Kenanga	Results note	QL Resources	POA, the double-edged sword	Outperform	RM3.71
Kenanga	Results note	GAB	Bracing for tougher hurdles ahead	Underperform	RM12.93
Kenanga	Results note	Magnum	2Q14 in line despite poorer luck	Outperform	RM3.59
Kenanga	Results note	WCT	Lower construction revenue	Market perform	RM2.32
HL	Results review	GAB	FY14: Above expectations	Buy	RM15.77
HL	Results review	Axiata	XL 1H14 Results	Hold	RM6.92
HL	Results review	Pharmaniaga	1H14 Results – in line	Buy	RM5.30
HL	Results review	POS	Weak 1Q15 due to high operation costs	Hold	RM5.00
HL	Results review	Scomi Energy	Lower activities in Malaysia	Buy	RM1.24
HL	Results review	WCT	2Q results: slower property earnings	Hold	RM2.26
HL	Results review	Vitrox	2Q14 results – another outstanding recored	Buy	RM2.78