Not All Paradigm Shifts Are Exciting
Sector Update
We are turning more cautious on the implementation and execution risks of the stocks under our coverage, going forward. We believe the sector’s current premium valuation is unsustainable, as many local O&G players venture overseas and move up the value chain. We see this resulting in a narrowing of the gap between local and global valuations. We downgrade this sector to NEUTRAL from Overweight.
VS Industry (VSI MK, BUY, FV: MYR2.92) (Upgraded)
A Grand Finale
Results Review
VS Industry’s (VSI) FY14 earnings of MYR53.6m were above our and consensus expectations. 4QFY14 was a record quarter with earnings of MYR36.5m (+0.8% y-o-y, +855.4% q-o-q), helped by sales of the new coffee machine model from end-May and tax incentives for its exports. We raise our earnings forecasts and lift our FV to MYR2.92 (from MYR2.00), based on a 9.5x CY15F P/E (from MYR2.00) and implying a 12.7% upside. Upgrade to BUY.
Petra Energy (PENB MK, NEUTRAL, FV: MYR3.02)
Early Green Light For The TMM Portion
Corporate News Flash
Petra Energy announced that the topside major maintenance works for Petronas Carigali’s Sabah operation has been awarded an early activation. As the TMM portion is part of the MYR2.5bn umbrella contract running from 2013-2018, we make no changes to our estimates at this juncture. We keep our NEUTRAL recommendation for the stock with our SOP-based FV unchanged at MYR3.02.
Banking Sector (NEUTRAL)
Expectations Of a Better 2H14 Already Priced In
Sector Update
1H14 was a challenge for the banks in terms of income growth but 2H14 should see things turn around, aided by July’s 25bps OPR hike. That said, we believe expectations of stronger earnings growth in 2H14 have largely been priced in. Meanwhile, August banking statistics saw stable loans growth but business loan leading indicators improved. We remain NEUTRAL on the sector, with Maybank, AMMB and BIMB as BUYs.
Economic Outlook
Slowing But Resilient Economic Growth In The 2H
After recording a strong growth of 6.3% y-o-y in the 1H, there are early signs to suggest that the spectacular growth will likely cool off in the 2H. This is on account of a slower increase in exports, on weaker external demand, made worse by a higher base effect in the 2H of 2013. Domestic demand will likely moderate as well in the 2H, dampened by rising cost of doing business and elevated inflation. The Government’s fiscal consolidation drive and curbs on the property market do not help either. As a result, we expect real GDP to grow at a slower pace of 5.3% y-o-y in 2H 2014, compared with +6.3% in the 1H.
Economic Highlights
Broad Monetary Aggregate Picked Up While Loan Growth Remained Stable In August
The broader money supply, M3, picked up to 5.5% y-o-y in August (July: +4.9%). Loan growth, on the other hand, remained stable at 8.6% y-o-y in August (July: +8.6%). A stronger growth in corporate loans mitigated the weaker growth in household loans during the month. We expect the banking system’s loans to sustain its expansion at 9-10% in 2014 (2013: +10.6%). We expect the OPR to be kept at 3.25% for the rest of the year, as the BNM appears to be cautious and focusing its stance on growth.
