News Bites · Axiata Group Berhads 9M13 normalised PATAMI of RM2.15bn (+1% YoY) was above our estimates and consensus, accounting for 86% and 80% of full-year forecasts respectively. · Felda Global Ventures Berhads 9MFY13 core earnings of RM468.7mn came in significantly below (-20.1% YoY) our expectations as the plantation earnings fell short of our estimate. · Malaysian Bulk Carriers Berhads 9MFY13 core net profit of RM24.7mn (+5.2% YoY) came in below our expectations at 40% our full-year forecasts and 53% consensus estimates. · Standard & Poors cut its credit outlook to negative from stable for CIMB Group Holdings Bhd., AmBank (M) Bhd., RHB Bank Bhd. and sister company RHB Investment Bank Bhd. · Lafarge Malaysia Bhd president and chief executive officer Bradley Mulroney says the company will continue to invest in Malaysia due to the positive outlook on the construction sector. · Telekom Malaysia Berhad announced the acquisition of GTC Global Sdn. Bhd, a provider of integrated security surveillance systems, for RM45mn cash from Malaysian Resources Corporation Bhd. · The Bank of Thailand unexpectedly cut its one-day bond repurchase rate by 25bps to 2.25%, with monetary policy committee members voting six to one in favor of the decision. · Chinese companies borrowing costs are climbing at a record pace relative to the Government, increasing the risk of defaults and prompting state newspapers to warn of a limited debt crisis. · The Thomson Reuters/University of Michigan final index of consumer sentiment in November unexpectedly rose to 75.1 from 73.2 a month earlier. Results Update Malaysian Bulk Carriers Berhad Target Price : RM1.54 (Sell) Maybulk’s 9M13 core net profit came in below our expectations due to lower-than-expected time charter equivalent (TCE) rates and higher docking expenses. 9M13 core profit increased 5.2% yoy underpinned by higher contribution from POSH by 96%. Excluding that, Maybulk’s own operations continued struggling to turnaround at EBIT level for the past 6 consecutive quarters. For 9M13, operating losses expanded by more than 4.7x yoy to RM22mn. The dismal performance can be attributed to slow recovery in TCE and higher docking expenses. We cut our FY13-15 earnings by 27-53% after adjusting our TCE rates lower. We now project the company to turnaround only in 2015 for its own dry bulk operation. Given the earnings downgrade, we cut our target price to RM1.54/share (from RM1.72/share) based on unchanged FY14 price-to-book multiple of 0.9x. Felda Global Ventures Bhd Target Price: RM5.29 (Buy) FGV reported 3Q13 net profit of RM22.9mn (QoQ: -92.9%, YoY: -89.0%). Excluding exceptional items, core net profit similarly declined by 94.0% QoQ and 90.6% YoY to a mere RM19.3mn. QoQ contraction was mostly caused by LLA liability charge (3Q13: -RM41.3mn vs. +RM289.6mn in 2Q13). On YoY basis, earnings were impacted by lower CPO price and decreased contribution from FHB, although the impact was partially offset by lower effective tax rate and higher interest income. The group declared interim dividend of 6.0 sen/share. 9MFY13 core earnings came in significantly below our expectations as the plantation earnings fell short of our estimate. The segment’s pretax profit declined by 66.0% YoY, due to, 1) lower realised FFB price of RM437/tonne (-26.9% YoY), 2) some undisclosed CPO trading losses in 3Q13, and 3) sharp increase in operating cost on aggressive manuring and replanting activity. No change in earnings forecasts pending Results’ Briefing scheduled for today. Maintain Buy with target price of RM5.29 based on Sum-of-Parts valuation methodology. While plantation earnings have been uninspiring to-date, we expect a turnaround in FY14, boosted by higher CPO price (RM100/tonne change will impact EPS by 8%) and the lag impact of lower fertiliser prices. The consolidation of FHB stake is a positive catalyst for earnings and stock price re-rating in the medium term. Company Update Telekom Malaysia Berhad Target Price: RM6.03 (Hold) TM announced the acquisition of GTC Global Sdn. Bhd (GTC), a provider of integrated security surveillance systems for RM45mn cash from Malaysian Resources Corporation bhd (MRCB). GTC’s purchase price translates to a reasonable valuation of 1.0x P/B and 12.9x P/E . The acquisition will be financed from TM’s internal coffers and is targeted for completion by 1Q14. We are positive on this smallish Information and Communications Technology (ICT) acquisition which complements TM’s core business. GTC will enable TM to enhance its integrated services for the Enterprise and Government segments. However, there would be negligible earnings contribution from GTC which reported net profit of RM3.5mn in FY12. In-line with expectations of a rising interest rate environment, we raise our risk-free rate assumption to 4.0% (previous: 3.8%). As a result, our WACC assumption rises from 5.85% to 5.88% and correspondingly, our DDM-derived target price is lowered slightly to RM6.03 (previous: RM6.07). We maintain our Hold recommendation on TM on the back of tapering earnings growth due to limited expansion of Unifi which is now based on demand (as opposed to broad-based expansion in the past). Sector Update Banking Sector (Neutral) According to media sources, Standard & Poor’s (S&P) has downgraded the outlook for CIMB Group Holdings Bhd, AmBank (M) Bhd, RHB Bank Bhd and RHB Investment Bank Bhd. The outlook has been revised to “negative” from “stable.” The ratings agency cited prolonged run-up in housing prices and household debt level posing potential exposure to economic imbalances as reasons for the downgrade. We believe the downgrade reaffirms our neutral outlook on the sector. Our recent downgrade of loans growth is premised on BNM’s tightening policies and weak general sentiments. In the meantime, we are also cautious on the outlook for the system’s asset quality. This is especially so given expectations of inflationary pressures arising from higher food and energy prices along with further subsidy cuts and the implementation of GST in 2015. We believe this S&P downgrade will not bode well for banking stocks especially CIMB and AMMB given their high foreign shareholding levels. We note that cost to raise funds in the debt market would also increase. Going forward, we do not envisage any major catalysts to drive growth in the banking sector. Earnings growth visibility is further dampened by the weak global macro backdrop. Hence, we reiterate our NEUTRAL stance on the banking sector. In terms of stock picks, we have BUY calls on Maybank and Affin. HOLD AMMB. Here, we take the opportunity to downgrade CIMB from buy to HOLD premised on concerns over a potential selldown by its foreign shareholders. Furthermore, we note that the potential upside from the stock’s last close has reduced to less than our 15% buy threshold. SELL maintained on RHB Cap, HLBB, Alliance Financial Group and PBB. TA RESEARCH
Posted on: Thu, 28 Nov 2013 03:39:37 +0000
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