Analyst call for Sept 29
KUALA LUMPUR, Sept 29 — This is a selection of analyst calls by local research houses for the day.
We are initiating coverage on Prestariang with a BUY rating at FV of RM0.92, pegged at an undemanding 6x FY12 PER. Prestariang is involved in the provision of Information and Communication Technology (ICT) services focusing on professional training and certification, as well as the distribution and management of software licences. We like the company’s sturdy orderbook of close to RM280m, established relationship with its key partner Microsoft, innovative in-house developed products and its appealing valuation backed by dividend yield of >10 per cent in the next 2 years.
The 9MFY11 results were within our expectations. Overall, both the revenue and PBT in 3QFY11 were quite flattish q-o-q as there was minimal improvement from the external environment which had continued to be challenging. Nevertheless, although the 9MFY11 results only made up 70 per cent of our FY11 forecast, we are keeping our FY11 forecast unchanged because we are expecting a stronger 4QFY11 results, contributed from the additional production lines and higher surgical glove mix which yields a higher margin. Maintain Buy.
Berjaya Sports Toto
BToto’s annualised 1QFY12 numbers were largely within our and consensus expectations. Its relatively stable and defensive earnings quality coupled with the strong likelihood for dividends to surprise on the upside makes it an ideal investment pick under the current volatile environment where earnings growth of the broader market could disappoint on the downside. Net dividend yield of 6.4 per cent, with the potential of rising to 7.1 per cent assuming a 100 per cent payout ratio, will provide strong support to its share price which prompts us to upgrade our recommendation from NEUTRAL to BUY with an unchanged fair value of RM4.72.
Hai-O’s 1QFY12 revenue dropped 6.9 per cent y-o-y to RM51m while net profit was down slightly by 0.9 per cent y-o-y to RM7.7m, coming in below our expectations. The drop in revenue was mainly due to lower contribution from the MLM side which recorded 18.3 per cent y-o-y sales decline on slower membership growth and lower average sales per distributor. Despite the weaker sales, EBIT margin improved to 21.7 per cent from 19.7 per cent in 1QFY11 due to increased contribution from higher margin products, lower costs of imported goods on stronger RM against USD and general improvement in operational efficiency and productivity. Net profit however declined due to a higher effective tax rate. Given the below than expected results, we cut our FY12/13 earnings forecast by 11.8 per cent - 18.3 per cent respectively. Our fair value is hence reduced to RM1.70. Nonetheless, after the sharp slide in share price, our FV still offers 2.7 per cent upside and hence we upgrade Hai-O from Sell to Neutral.
From HwangDBS Vickers
• PNB’s MGO at RM3.90 taking advantage of weak market sentiments, >50 per cent acceptance likely achievable with KWAP & EPF’s collective 18 per cent stake
• Tan Sri Liew will go all out to look for competing bids but challenge is capital outlay
• Maintain Buy, TP cut to RM3.90 (from RM4.30) to reflect MGO price which provides downside support
PNB’s offer values SPSB at 24 per cent discount to RNAV of RM5.11, taking advantage of current weak market sentiments. The 11 per cent premium over last traded price offer is lower than 14-31 per cent range seen for previous privatisation/M&A exercises in the Malaysian property sector. SPSB’s BOD views the offer as unattractive and is seeking for competing bids/higher offer by PNB, but challenge is capital outlay (the entire SPSB is valued at RM7.1b). SPSB’s foreign shareholding currently stands at 21 per cent.
Bigger plans in store? PNB may use SPSB as a vehicle to consolidate all its property development businesses (Pelangi, I&P, Petaling Garden, Sime Property) – potentially making SPSB the biggest developer by market cap, landbank and sales. Of a bigger concern however is whether founder Tan Sri Liew will still be around to run the show and how significant his stake will be (currently 11.3 per cent), which could put SPSB’s premium valuation at risk. PNB has a less than impressive track record in property development as I&P and Sime Property used to trade at large discounts to RNAV (prior to privatization) and are regarded as sleeping giants. Share price will likely react to RM3.90 today.
M&As wave is not widespread. Looking at the recent development (Sime/E&O, SP Setia, and Bandaraya selling assets) in the property sector, although it could provide some trading interest in certain property stocks on speculation of a privatisation exercise, we believe the slew of events is one-off. M&A wave will be short-lived and not widespread. Taking the past events as a clue, mega M&A interests died down for 9 months since the lapse of MRCB-IJMLD offer in the very beginning of this year. Hence, the M&A angle is not a strong re-rating catalyst for the sector. Valuations of property stocks should continue to price in fundamentals at least six months ahead.
Companies with strong shareholders are targeted. We continue to think that the property stocks are not cheap enough for investors to re-enter. After yesterday’s announcement on SP Setia’s takeover offer, we saw some trading interest in IJM land. The stock has been speculated given its parent company — IJM Corp’s shareholding of 66 per cent in the company. While we do not rule out the possibility, if anything, the event will be company specific.
Sector fundamentals still negative. Our negative view on the sector fundamentals has not changed. The deteriorating global economic conditions and hence slower economic growth (RHBRI has cut 2012 GDP growth forecast to 3.6 per cent) will affect property demand as buyers will turn more cautious on big-ticket item purchases. Property prices and transaction have started seeing a decline in Hong Kong, Singapore, and more gradually in Malaysia.
Risks. 1) No regulatory tightening; and 2) More sustainable and stronger-than- expected property demand.
Maintain Underweight. No change in our Underweight call on the property sector.
While the sector could be the first to hit bottom, any re-rating will depend on the global economic conditions, as well as changes in sector fundamentals – government policies, interest rate, liquidity, which have a stronger impact on the demand and supply fundamentals.
In our view, economic conditions are rapidly deteriorating and we now see ‘better-than-even’ odds of a recession ahead. We think this has yet to be reflected in valuations and the 2008- 09 experience suggests that downside risk from current levels is significant. Furthermore, banks are often viewed as proxies to the economy and share prices tend to underperform the market during a downturn. Finally, we think the economic slowdown/recession this time round is likely to be protracted, keeping valuations depressed. Thus, we are downgrading our call on the sector to Underweight from Neutral.
Downgrading recommendations for AFG, CIMB and Maybank ... In order to reflect the rising risks of a “double-dip” recession, we have lowered our benchmark valuations for the individual banks by a notch to 1 standard deviation below mean levels from “through-the-cycle” valuations. The exception is HL Bank, where we have attached a 10 per cent premium to reflect its enlarged status. Together with the earnings revisions above, we cut our fair values of the banking stocks by between 11 per cent and 28 per cent. Consequently, our recommendations for AFG, CIMB and Maybank have been downgraded to Underperform from Market Perform. Valuations aside, we think earnings for these banking groups carry higher risks heading into a downturn from two key areas: 1) weaker capital market activities and thus, lower non-interest income levels (Maybank, CIMB, AMMB); and 2) higher credit cost (Maybank, Affin). We upgrade Public Bank to Outperform from Market Perform following the recent correction in share price. We note from past downturns (1997-98, 2000-01, 2008-09) that this stock has consistently outperformed peers and justifiably so, given its well-regarded management, sound asset quality, cost efficiency and dividend track record, in our view. This means that the group heads into a downturn with fewer weak spots. A potential area of concern that investors may have is with respect to Basel III requirements.
With global economic conditions softening, we do not think BNM would introduce capital requirements that are unduly onerous and/or, alternatively, banks would be provided with a reasonable transition period to comply with such requirements.
Weaker demand ahead. With higher risk of the global economy slipping into a double-dip recession, RHBRI estimates 2012 GDP growth forecast to be lower at 3.6 per cent (previously 4.5 per cent). Accordingly, we lower our electricity demand growth assumptions for TNB to 1.8 per cent p.a. for FY12-13 (previously 3.2 per cent), based on lower GDP multiplier effect assumption of 0.5x (previously 0.7x) as we expect demand from industrial users to weaken further.
We believe TNB’s prospects remain clouded by further delays for the Bekok C bypass, despite the full-year benefit of the 2 per cent base tariff hike. Earnings visibility already weakened by slowing electricity demand growth, will be somewhat uncertain possibly until Petronas’ re-gasification plant in Malacca is ready in Jul 2012. Following our earnings cut, we downgrade TNB from Market Perform to Underperform with a revised fair value of RM4.74 (previously RM6.10), based on unchanged target CY12 PER of 12x. De-rating catalysts such as further downward revision in 2012 GDP forecasts, more gas supply disruption and potential political interference preventing tariff adjustments if gas prices are adjusted higher, may see the stock testing its 8-year trough forward PE of 10.4x.
* These recommendations are solely the opinion of the respective research firms and not endorsed by The Malaysian Insider. The Malaysian Insider shall not be liable for any loss arising from any investment based on any recommendation, forecast or other information contained here.