BToto’s 1QFY01 revenue went flat yoy as revenue per draw unexpectedly declined 6.6% due to weak ticket sales. No dividend was declared for the current quarter. The annualised net earning is 9.2% below our expectation.
Berjaya Sports Toto (BToto) reported a net profit of RM100.5m in 1QFY10 (+8.7% yoy, -6.3% qoq). The yoy rise in net profit was attributed to a lower estimated prize payout ratio of 61.2% vs 62.5% in 1QFY09. 1QFY10 revenue was flat yoy and 5.1% lower qoq despite there being three draws more than the year-ago quarter. Annualised net earnings are 9.2% below our estimate but 1QFY10 was expected to be a seasonally weak quarter with fewer festive days. No dividend is declared for the current quarter, which is in line with our expectation.
Gross revenue per draw unexpectedly declined 6.6% yoy (from RM22.9m to RM21.4m), as the economic slowdown probably hurt tickets sales to the blue-collar segment. Consumption falloff offset the impact of three additional draws in 1QFY10 (compared with 1QFY09). Nevertheless, we expect revenue to improve in 2HFY10 with the new launch of Power Toto 6/55 game in Nov/Dec 09 and on the back of a stronger economic recovery. We forecast gross revenue per draw to improve 1-3% on the back of this new game after factoring in cannibalisation effect on existing games.
No dividends as expected. BToto has front-loaded its FY10 dividend payout (net: 19 sen) in 4QFY09, totalling about RM238.6m, which is equivalent to 237.6% of its 1QFY10 net profit. To finance the dividend, BToto has taken a five-year term loan (RM380m) with an interest rate of about 5%. As at 31 Jul 09, its net debt stood at RM359m and its interest cover is expected to remain healthy at 18x for FY10.
Maintain BUY but no near-term upside catalyst. Based on DCF valuation (cost of equity of 8.9% and terminal growth of 1%), we value BToto at RM4.90/share, which implies prospective FY10 and FY11 PEs of 15.0x and 14.4x respectively. We like the stock as a defensive play and its gross dividend yields should remain attractive at 7-8% beyond FY10.
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Wednesday, September 23, 2009
Friday, September 18, 2009
Astro - lower ARPU and higher churn
Astro's 1H FY10 net profits were 47% of our FY10E forecast and 31% of street. 1H FY10 Pay TV revenues for Malaysia were up by 6% YoY, driven by higher subscription revenues (growing subscriber base but lower ARPU). Net adds were tracking in line with full-year guidance. ARPU was lower YoY due to lower yielding new subs, although a price hike for the sports package is expected to arrest the slide. Churn edged up for the second consecutive quarter to 11.9%.
For India, the 1H10 loss of RM54 mn was in line with our assumption of RM100 mn share of Sun Direct TV losses this year. Litigation costs from Indonesia were in line with expectations.
We continue to rate Astro UNDERPERFORM, due to its rich valuations. Our DCF-based target price of RM2.65 spells 24% potential downside from the current levels. Additionally, Astro's FY10 EV/EBITDA of 13.5x is a steep premium to global peers of 3.6x-8.5x.
Risk factors include: potential surge in premier league football content cost and HDTV rollout.
For India, the 1H10 loss of RM54 mn was in line with our assumption of RM100 mn share of Sun Direct TV losses this year. Litigation costs from Indonesia were in line with expectations.
We continue to rate Astro UNDERPERFORM, due to its rich valuations. Our DCF-based target price of RM2.65 spells 24% potential downside from the current levels. Additionally, Astro's FY10 EV/EBITDA of 13.5x is a steep premium to global peers of 3.6x-8.5x.
Risk factors include: potential surge in premier league football content cost and HDTV rollout.
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Astro
Thursday, September 17, 2009
SP Setia - Expect higher earnings
Stronger upcoming quarterly results but recent sales trend has softened. SP Setia’s 3QFY09 net profit could have increased 10-13% qoq and yoy due to an across-the-board higher sales in Klang Valley, Johor and Penang (please refer to table overleaf). The strong sales were mainly attributable to deferred payment scheme such as the 5/95 programme and low mortgage rate of less than 3.5%, which helped to boost the affordability of home buyers. The Group has achieved new sales of RM1.3b as of 9MFY09, which is RM100m higher than the corresponding period of 9MFY08 and exceed its full-year target of RM1.1b, and it can easily match FY08’s sales of RM1.4b.
However, we understand that the new bookings have slowed down since the 5/95 scheme ended in mid-July.
Margin likely to be 2-3ppt lower. Nonetheless, these new sales were achieved at the expense of margins. We expect FY09’s EBIT margin to decline to 16% (vs FY08’s 19%) as a result of the margin compression of around 2-3ppt from the 5/95 scheme, which requires SP Setia to absorb documentation and interest costs during the 2-year construction period. We note that EBIT margin has dropped from 17% in 4QFY08 to 15% in 2QFY09 since the introduction of the scheme earlier this year.
No new launches. Going forward, we understand that the Group has no plan for any new launches in the next 3-6 months. However, should consumer sentiment improve significantly, the Group will bring forward its launches such as: a) second block of Sky Residences which is selling at RM730-750psf (10% higher than its first block of RM680psf with 50-60% bookings), b) serviced apartments in Setia Pearl Island, which has a target selling price of RM320psf, and c) serviced apartments in Setia Walk.
Commercial project in Abdullah Hukum still preliminary. The RM5b-6b GDV mixed development project (JV with a local partner) with estimated GFA of 5-6m sf, which consists of retail, office, hotel and serviced apartments is still awaiting necessary approvals and pending land privatisation. The project is located at a 24-acre of land next to the Abdullah Hukum LRT station and nearby the Mid Valley City. We understand that the Group targets to launch the project in 2H10. Should the project materialise, we believe that it will further enhance the Group’s earnings as we still have not factored in our earnings forecast.
However, we understand that the new bookings have slowed down since the 5/95 scheme ended in mid-July.
Margin likely to be 2-3ppt lower. Nonetheless, these new sales were achieved at the expense of margins. We expect FY09’s EBIT margin to decline to 16% (vs FY08’s 19%) as a result of the margin compression of around 2-3ppt from the 5/95 scheme, which requires SP Setia to absorb documentation and interest costs during the 2-year construction period. We note that EBIT margin has dropped from 17% in 4QFY08 to 15% in 2QFY09 since the introduction of the scheme earlier this year.
No new launches. Going forward, we understand that the Group has no plan for any new launches in the next 3-6 months. However, should consumer sentiment improve significantly, the Group will bring forward its launches such as: a) second block of Sky Residences which is selling at RM730-750psf (10% higher than its first block of RM680psf with 50-60% bookings), b) serviced apartments in Setia Pearl Island, which has a target selling price of RM320psf, and c) serviced apartments in Setia Walk.
Commercial project in Abdullah Hukum still preliminary. The RM5b-6b GDV mixed development project (JV with a local partner) with estimated GFA of 5-6m sf, which consists of retail, office, hotel and serviced apartments is still awaiting necessary approvals and pending land privatisation. The project is located at a 24-acre of land next to the Abdullah Hukum LRT station and nearby the Mid Valley City. We understand that the Group targets to launch the project in 2H10. Should the project materialise, we believe that it will further enhance the Group’s earnings as we still have not factored in our earnings forecast.
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SP Setia
Wednesday, September 16, 2009
Sime Darby - Major catalyst underway?
A potential sale of 10% stake could temporarily re-rate Sime Darby, perhaps to RM10 assuming the 26x PE peak valuation fetched during Synergy Drive initiative. However, actual synergy and share-based dilution are our concerns. Maintain SELL.
The Malaysian Insider reported that Sime Darby (Sime) was mulling a plan to offer up to 10% of its equity in new shares to an entity linked to the Chinese government. A new share placement would raise RM4.9b for Sime, based on the closing price of RM8.60/share (FY10 PE of 22x vs market FY10 PE of 17.7x). However, it was subsequently denied by Second Finance Minister Datuk Ahmad Husni Mohamad Hanadzlah although we noted that Najib had in the past weeks alluded to major investments by the Chinese government.
Potential short-term upside on newsflow. We assess that this deal is likely to materialise and could propel Sime to the mid-twenties PE multiples (i.e. peak valuation fetched during the 2007 mega merger Synergy Drive deal). Pegging a 26x FY10 PE multiple would value Sime at about RM10/share.
We view this as a potentially good re-rating catalyst for Sime as it:
Opens up greater opportunities to expand its downstream operation in China. During FY09 results briefing, management highlighted that the bulk of FY10’s RM7b capex would be used to expand its resource-based downstream activities. A tie-up with a Chinese party would nicely open up this opportunity and the RM4.9b proceeds could be utilised for the expansion.
A check on its productivity. As the Chinese party will have more emphasis on upstream operations, this could lead to greater efficiency from Sime’s large planting acreage of 550,000 hectares.
Small stake but a strong tie-up with world’s largest palm oil producer. A 10% stake seems too small for the Chinese government (which is known to be scouring the region for controlling stakes in plantation assets) but marks a good start to secure resources for China’s edible oil as well as biofuel requirements. Sime is currently the world’s largest palm oil producer, supplying about 5-6% (or 2.5m to 3.0m tonnes p.a.) of total global CPO. For China, forming a partnership with Sime could be a way of securing feedstocks for its rising domestic demand for edible oils, animal feeds and most importantly, biofuel. China is the largest palm oil importer, consuming 14-15% of total global palm oil supply annually.
Short-term pain, long-term gain. An assumed 10% new share issue would dilute Sime’s earnings by 9% and would translate into proceeds of RM4.9b. Meanwhile, a better profit from downstream expansion would only materialise in 3-4 years.
Deal cancellation and execution risks explored. Given the modest stake involved, the potential deal draws only the minor risk of the cabinet objecting on “selling a national interest”, which is also the largest market capitalised GLC. Our assessment also takes into account that the government would still be firmly in control after the share-based expansion, given the Permodalan Nasional Berhad (52% stake) and Employees’ Provident Fund (14%) present combined stake of >60%. A more pertinent downside risk is whether Sime could extract tangible synergy from this deal.
We would look towards upgrading our SELL call should Sime clinch the deal, which could temporarily lift its valuation back to the previous peak of 26-28x PE in 2007, implying a RM10 fair price. However, without a major exercise, the shares remain fundamentally overvalued. A lacklustre performance is expected in FY10 as the plantation division continues to suffer from flat CPO prices. Hence, until a deal materialises, we retain fair valuation of RM7.60 based on 20x FY10 PE.
The Malaysian Insider reported that Sime Darby (Sime) was mulling a plan to offer up to 10% of its equity in new shares to an entity linked to the Chinese government. A new share placement would raise RM4.9b for Sime, based on the closing price of RM8.60/share (FY10 PE of 22x vs market FY10 PE of 17.7x). However, it was subsequently denied by Second Finance Minister Datuk Ahmad Husni Mohamad Hanadzlah although we noted that Najib had in the past weeks alluded to major investments by the Chinese government.
Potential short-term upside on newsflow. We assess that this deal is likely to materialise and could propel Sime to the mid-twenties PE multiples (i.e. peak valuation fetched during the 2007 mega merger Synergy Drive deal). Pegging a 26x FY10 PE multiple would value Sime at about RM10/share.
We view this as a potentially good re-rating catalyst for Sime as it:
Opens up greater opportunities to expand its downstream operation in China. During FY09 results briefing, management highlighted that the bulk of FY10’s RM7b capex would be used to expand its resource-based downstream activities. A tie-up with a Chinese party would nicely open up this opportunity and the RM4.9b proceeds could be utilised for the expansion.
A check on its productivity. As the Chinese party will have more emphasis on upstream operations, this could lead to greater efficiency from Sime’s large planting acreage of 550,000 hectares.
Small stake but a strong tie-up with world’s largest palm oil producer. A 10% stake seems too small for the Chinese government (which is known to be scouring the region for controlling stakes in plantation assets) but marks a good start to secure resources for China’s edible oil as well as biofuel requirements. Sime is currently the world’s largest palm oil producer, supplying about 5-6% (or 2.5m to 3.0m tonnes p.a.) of total global CPO. For China, forming a partnership with Sime could be a way of securing feedstocks for its rising domestic demand for edible oils, animal feeds and most importantly, biofuel. China is the largest palm oil importer, consuming 14-15% of total global palm oil supply annually.
Short-term pain, long-term gain. An assumed 10% new share issue would dilute Sime’s earnings by 9% and would translate into proceeds of RM4.9b. Meanwhile, a better profit from downstream expansion would only materialise in 3-4 years.
Deal cancellation and execution risks explored. Given the modest stake involved, the potential deal draws only the minor risk of the cabinet objecting on “selling a national interest”, which is also the largest market capitalised GLC. Our assessment also takes into account that the government would still be firmly in control after the share-based expansion, given the Permodalan Nasional Berhad (52% stake) and Employees’ Provident Fund (14%) present combined stake of >60%. A more pertinent downside risk is whether Sime could extract tangible synergy from this deal.
We would look towards upgrading our SELL call should Sime clinch the deal, which could temporarily lift its valuation back to the previous peak of 26-28x PE in 2007, implying a RM10 fair price. However, without a major exercise, the shares remain fundamentally overvalued. A lacklustre performance is expected in FY10 as the plantation division continues to suffer from flat CPO prices. Hence, until a deal materialises, we retain fair valuation of RM7.60 based on 20x FY10 PE.
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Sime Darby
Tuesday, September 15, 2009
Berjaya Sports Toto - 1QFY10 results preview: Likely to be lifted by special draws
The seasonally weak first quarter results are likely to be lifted by the utilisation of three special draws during 1QFY10. We expect revenue and net earnings to rise 8-9% and 12-14% yoy respectively. Maintain BUY. Target price: RM4.90.
Berjaya Sports Toto (BToto) will report its 1QFY10 results in the second week of Sep 09. We expect net earnings to grow 8-9% yoy but to come in flattish qoq as the positive impact from three additional special draws utilised in 1QFY10 will kick in. No dividend is expected in 1Q10.
Positive impact of three additional special draws will kick in. BToto is expected to have 42 draws in 1QFY10 vs 39 draws in 1QFY09 and 40 draws in 4QFY09. Of the 42 draws, three will be special draws (one common draw and two standalone draws) vs none in 1QFY09. Gross revenue per draw is expected to have risen at low single digits yoy but should be flattish qoq backed by the resilient blue-collar segment. Hence, we expect its revenue and net earnings to rise 8-9% and 12-14% yoy respectively, during the seasonally weak first quarter. The luck factor will potentially drive net earnings higher.
No dividends expected in 1QFY10. We do not expect BToto to declare any dividends in 1Q10 as it has front-loaded its FY10 dividend payout (net: 19 sen) in 4QFY09. Parent company BLand’s projects in Vietnam and South Korea are expected to take off in 2010, and we believe these are probably the best indicators of the period around which BLand’s future cash needs will arise. Going forward, using historical records as a gauge, we do not discount the possibility that BToto may increase its payout beyond the current level of 75%, subject to its distributable reserves. Assuming a 100% payout, there will be an incremental 10.5sen DPS, on top of an outstanding 9.4sen/share (based on our FY10 gross DPS forecast of 33sen).
Positive outlook safeguarded by the upcoming Power Toto 6/55 game. BToto is on track to launch its Power Toto 6/55 game in Nov-Dec 09 to replace the existing Toto 6/42 game. The new game, which guarantees a larger upfront jackpot of RM3m and has no cap on jackpots, could potentially raise gross revenue per draw by 1-3%, even after imputing some cannibalisation of existing games.
Although its monopoly on jackpot games will end once Magnum launches its 4D game with a jackpot element (no launch date has been announced yet), we think the impact on BToto’s revenue will be marginal, given its extensive outlet network (681 outlets, the largest among the three number forecast operators (NFO)) and higher number of jackpot game variants offered (six). Instead, we believe the NFO market as a whole will grow, based on past observations.
Maintain BUY. Based on DCF valuation (cost of equity of 8.9% and terminal growth of 1%), we value BToto at RM4.90/share which implies prospective FY10 and FY11 PE of 15.0x and 14.4x respectively. We like the stock as a defensive play and dividend yields should remain attractive at 7-8% gross beyond FY10.
Berjaya Sports Toto (BToto) will report its 1QFY10 results in the second week of Sep 09. We expect net earnings to grow 8-9% yoy but to come in flattish qoq as the positive impact from three additional special draws utilised in 1QFY10 will kick in. No dividend is expected in 1Q10.
Positive impact of three additional special draws will kick in. BToto is expected to have 42 draws in 1QFY10 vs 39 draws in 1QFY09 and 40 draws in 4QFY09. Of the 42 draws, three will be special draws (one common draw and two standalone draws) vs none in 1QFY09. Gross revenue per draw is expected to have risen at low single digits yoy but should be flattish qoq backed by the resilient blue-collar segment. Hence, we expect its revenue and net earnings to rise 8-9% and 12-14% yoy respectively, during the seasonally weak first quarter. The luck factor will potentially drive net earnings higher.
No dividends expected in 1QFY10. We do not expect BToto to declare any dividends in 1Q10 as it has front-loaded its FY10 dividend payout (net: 19 sen) in 4QFY09. Parent company BLand’s projects in Vietnam and South Korea are expected to take off in 2010, and we believe these are probably the best indicators of the period around which BLand’s future cash needs will arise. Going forward, using historical records as a gauge, we do not discount the possibility that BToto may increase its payout beyond the current level of 75%, subject to its distributable reserves. Assuming a 100% payout, there will be an incremental 10.5sen DPS, on top of an outstanding 9.4sen/share (based on our FY10 gross DPS forecast of 33sen).
Positive outlook safeguarded by the upcoming Power Toto 6/55 game. BToto is on track to launch its Power Toto 6/55 game in Nov-Dec 09 to replace the existing Toto 6/42 game. The new game, which guarantees a larger upfront jackpot of RM3m and has no cap on jackpots, could potentially raise gross revenue per draw by 1-3%, even after imputing some cannibalisation of existing games.
Although its monopoly on jackpot games will end once Magnum launches its 4D game with a jackpot element (no launch date has been announced yet), we think the impact on BToto’s revenue will be marginal, given its extensive outlet network (681 outlets, the largest among the three number forecast operators (NFO)) and higher number of jackpot game variants offered (six). Instead, we believe the NFO market as a whole will grow, based on past observations.
Maintain BUY. Based on DCF valuation (cost of equity of 8.9% and terminal growth of 1%), we value BToto at RM4.90/share which implies prospective FY10 and FY11 PE of 15.0x and 14.4x respectively. We like the stock as a defensive play and dividend yields should remain attractive at 7-8% gross beyond FY10.
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Berjaya
Monday, September 14, 2009
WCT - Re-entering a sweet spot era
We lift our target price to RM3.00 after raising 2009-11 net profit forecasts by 24-33%. Yesterday’s results briefing revealed significant variation order claims and better- than-expected orderbook replenishment prospects.
Raise job win target to RM1.5b ... Contract wins should touch the RM1.5b mark in 2009 on new contract jobs at home and overseas, which include the potential conversion of two Letter of Intent (LOI) jobs in Sabah worth RM500m into Letter of Award (LOA) contracts by year-end. Should the latter materialise, WCT’s orderbook will increase to RM3.3b from RM2.8b currently.
... exceeding 2009’s RM1b orderbook target. To-date, WCT has bagged some RM1.3b of new jobs - RM766m Medini infrastructure works in Iskandar and two additional works in their existing projects in the Middle East - RM250m Abu Dhabi F1 project and RM370m New Doha International Airport (NDIA).
Orderbook replenishment looks promising in 2010. A potential third LOI (estimated RM1b-1.5b) for an infrastructure job in Sabah could boost earnings growth in 2010-11. Besides this, the Group is also scouring for other mega projects such as an extension of two LRT lines worth RM7b-10b, further jobs in Medini, Iskandar, after the recent surprise win of ajob as well as overseas jobs in Oman and Abu Dhabi.
Overseas prospects brightening. The company assessed that the construction cycle in the Middle East has troughed. For example, the Yas Island project in UAE still requires some infrastructure works to improve road accessibility, and WCT could secure more jobs there.
Raise margin expectations; significant variation orders secured. We raise our 2009-11 EBITDA margins from 6% to 10%, to factor in recently secured variation orders at the NDIA. We estimate 30% of the RM370m job extension reflects a settlement of variation order claims. Since the RM3.2b NDIA project (80% completed to-date) has yet to recognise much profit as costs associated to the extra variation orders were frontloaded, we expect this project’s estimated net profit of RM80m (based on 5% margin) to be reflected at the project’s mid- to tail-end, thus benefitting 2010-11 earnings.
We upgrade our net profit forecasts for 2009-2011 by 24-33%, factoring in higher orderbook replenishment of RM1.5b (previously RM1b), variation orders and higher margins at NDIA.
Raise job win target to RM1.5b ... Contract wins should touch the RM1.5b mark in 2009 on new contract jobs at home and overseas, which include the potential conversion of two Letter of Intent (LOI) jobs in Sabah worth RM500m into Letter of Award (LOA) contracts by year-end. Should the latter materialise, WCT’s orderbook will increase to RM3.3b from RM2.8b currently.
... exceeding 2009’s RM1b orderbook target. To-date, WCT has bagged some RM1.3b of new jobs - RM766m Medini infrastructure works in Iskandar and two additional works in their existing projects in the Middle East - RM250m Abu Dhabi F1 project and RM370m New Doha International Airport (NDIA).
Orderbook replenishment looks promising in 2010. A potential third LOI (estimated RM1b-1.5b) for an infrastructure job in Sabah could boost earnings growth in 2010-11. Besides this, the Group is also scouring for other mega projects such as an extension of two LRT lines worth RM7b-10b, further jobs in Medini, Iskandar, after the recent surprise win of ajob as well as overseas jobs in Oman and Abu Dhabi.
Overseas prospects brightening. The company assessed that the construction cycle in the Middle East has troughed. For example, the Yas Island project in UAE still requires some infrastructure works to improve road accessibility, and WCT could secure more jobs there.
Raise margin expectations; significant variation orders secured. We raise our 2009-11 EBITDA margins from 6% to 10%, to factor in recently secured variation orders at the NDIA. We estimate 30% of the RM370m job extension reflects a settlement of variation order claims. Since the RM3.2b NDIA project (80% completed to-date) has yet to recognise much profit as costs associated to the extra variation orders were frontloaded, we expect this project’s estimated net profit of RM80m (based on 5% margin) to be reflected at the project’s mid- to tail-end, thus benefitting 2010-11 earnings.
We upgrade our net profit forecasts for 2009-2011 by 24-33%, factoring in higher orderbook replenishment of RM1.5b (previously RM1b), variation orders and higher margins at NDIA.
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WCT
Friday, September 11, 2009
UEM Land - 2Q09 results preview: A lacklustre performance in 2009
We expect 2Q09 net profit to improve qoq, mainly contributed by improved residential property sales. We expect lower 2009 earnings mainly due to lower land sales. Accumulate on weakness as share price softens. HOLD.
Earnings mainly contributed by improved residential property sales. 2Q09 net profit could have increased as much as 25% qoq due to the following: a) a low base in 1Q09, b) higher sales from residential projects such as Horizon Hills, East Ledang and Nusa Idaman, and c) contribution from Southern Industrial & Logistics Clusters (SiLC) in respect of industrial land sales as the manufacturing industry begins to recover.
JV with Limitless on Puteri Harbour will start soon. The layout plan for a canal housing precinct in Puteri Harbour, with GDV of RM1.5b over 111 acres (JV between UEM Land and Limitless on 40:60 basis), has been submitted to the local authorities for approval. Physical work should start as early as end- 09 and be fully completed in about eight years.
Land sale to Malaysian Biotechnology Corporation. Following the announcement of a collaboration between the government-owned Malaysian Biotechnology Corporation (MBC) and the Group (40:60) to develop a biotechnology hub in Nusajaya, the sale of 61 acres of industrial land in SiLC to MBC will generate about RM41m sales for the Group. However, only 30 acres of land sales, equivalent to RM20m, will be booked in 2H09.
Uphill task to achieve 2009 target. The Group may have difficulty achieving its 2009 target ROE of 6%, equivalent to RM100m net profit. This is mainly due to lower land sale contributions following Damac’s cancellation of its RM396m land purchase in Puteri Harbour (44 acres) and weakening global economic outlook which has affected land acquisitions by foreign investors in 2009.
Land sales expected to pick up in 2010. Earnings outlook for 2010 will be improved as top line is supported by a pick-up in residential property and industrial land sales. We also understand that the Group is negotiating to sell the following: a) a piece of land in Puteri Harbour with about 40 acres to a government corporation with an indicative price of RM40psf, and b) a piece of land in Nusajaya with about 60 acres to the state government at an indicative price of RM11psf.
Maintain HOLD with fair price of RM1.60. Our revised fair price is based on a 20% discount to our RNAV of RM2.00/share, which assumes an average value of RM13psf for the Nusajaya land. As an indication, we provide a sensitivity analysis (refer to table on the right) of UEM Land’s RNAV to various land price assumptions.
Earnings mainly contributed by improved residential property sales. 2Q09 net profit could have increased as much as 25% qoq due to the following: a) a low base in 1Q09, b) higher sales from residential projects such as Horizon Hills, East Ledang and Nusa Idaman, and c) contribution from Southern Industrial & Logistics Clusters (SiLC) in respect of industrial land sales as the manufacturing industry begins to recover.
JV with Limitless on Puteri Harbour will start soon. The layout plan for a canal housing precinct in Puteri Harbour, with GDV of RM1.5b over 111 acres (JV between UEM Land and Limitless on 40:60 basis), has been submitted to the local authorities for approval. Physical work should start as early as end- 09 and be fully completed in about eight years.
Land sale to Malaysian Biotechnology Corporation. Following the announcement of a collaboration between the government-owned Malaysian Biotechnology Corporation (MBC) and the Group (40:60) to develop a biotechnology hub in Nusajaya, the sale of 61 acres of industrial land in SiLC to MBC will generate about RM41m sales for the Group. However, only 30 acres of land sales, equivalent to RM20m, will be booked in 2H09.
Uphill task to achieve 2009 target. The Group may have difficulty achieving its 2009 target ROE of 6%, equivalent to RM100m net profit. This is mainly due to lower land sale contributions following Damac’s cancellation of its RM396m land purchase in Puteri Harbour (44 acres) and weakening global economic outlook which has affected land acquisitions by foreign investors in 2009.
Land sales expected to pick up in 2010. Earnings outlook for 2010 will be improved as top line is supported by a pick-up in residential property and industrial land sales. We also understand that the Group is negotiating to sell the following: a) a piece of land in Puteri Harbour with about 40 acres to a government corporation with an indicative price of RM40psf, and b) a piece of land in Nusajaya with about 60 acres to the state government at an indicative price of RM11psf.
Maintain HOLD with fair price of RM1.60. Our revised fair price is based on a 20% discount to our RNAV of RM2.00/share, which assumes an average value of RM13psf for the Nusajaya land. As an indication, we provide a sensitivity analysis (refer to table on the right) of UEM Land’s RNAV to various land price assumptions.
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UEM Land
Thursday, September 10, 2009
Alliance Financial Group - 1QFY10: Unexciting performance
1QFY10 net profit of RM46m, down 63% yoy on lower net interest margin and additional provisions for CLO, as well as impairment for investment securities. Maintain SELL and fair price of RM2.00, based on 1.05x P/B.
Alliance Financial Group Bhd (AFG) reported 1QFY10 net profit of RM46.2m, down 63% yoy but much higher than RM0.8m in the previous quarter. The results were in line with our expectation. It declared an interim single tier dividend of 1.3sen/share.
FY10 will be another unexiciting year for AFG. Main focus for the management will be managing capital and liquidity, controlling nonperforming loans (NPL) and rationalising operations to improve efficiency as well as be more cost effective.
Another round of additional provisions could be the last time. 1QFY10 could be the final quarter for provisioning for its exposure to collaterised loan obligation (CLO). AFG has a total outstanding exposure of RM250m to CLO, including the high default risk Idaman Capital with a total exposure of RM240m.
Credit growth focusing on consumer. Despite the very stringent credit screening, AFG still managed to report a loan growth of 2% at end-FY09. This is on track to meet our expectation of 8% for FY10, focusing on crossselling higher yielding products to existing customers.
Net interest margin stabilising. NIM fell in 1QFY10 on the sharp 150p cut in OPR since Nov 08, but this is likely to stabilise from 2QFY10 onwards after the fixed deposits are fully repriced. Non-interest income is unexciting as the broking business and investment banking activitites are still slow.
Maintain SELL with a fair price of RM2.00, which implies a target P/B of 1.05x derived from the Gordon Growth Model. We are reviewing our fair price based on PE and P/B valuations given improved market liquidity. More details available after an analyst briefing.
Alliance Financial Group Bhd (AFG) reported 1QFY10 net profit of RM46.2m, down 63% yoy but much higher than RM0.8m in the previous quarter. The results were in line with our expectation. It declared an interim single tier dividend of 1.3sen/share.
FY10 will be another unexiciting year for AFG. Main focus for the management will be managing capital and liquidity, controlling nonperforming loans (NPL) and rationalising operations to improve efficiency as well as be more cost effective.
Another round of additional provisions could be the last time. 1QFY10 could be the final quarter for provisioning for its exposure to collaterised loan obligation (CLO). AFG has a total outstanding exposure of RM250m to CLO, including the high default risk Idaman Capital with a total exposure of RM240m.
Credit growth focusing on consumer. Despite the very stringent credit screening, AFG still managed to report a loan growth of 2% at end-FY09. This is on track to meet our expectation of 8% for FY10, focusing on crossselling higher yielding products to existing customers.
Net interest margin stabilising. NIM fell in 1QFY10 on the sharp 150p cut in OPR since Nov 08, but this is likely to stabilise from 2QFY10 onwards after the fixed deposits are fully repriced. Non-interest income is unexciting as the broking business and investment banking activitites are still slow.
Maintain SELL with a fair price of RM2.00, which implies a target P/B of 1.05x derived from the Gordon Growth Model. We are reviewing our fair price based on PE and P/B valuations given improved market liquidity. More details available after an analyst briefing.
Labels:
Alliance
Wednesday, September 9, 2009
Unisem - Feverish Chengdu
Timely expansion in China combined with global demand recovery ensure an impressive CAGR of 90% for 2009-11. Catalysts are above-consensus earnings, IPO-worthy Unisem Chengdu and cheap valuations. Initiate with BUY Initiating coverage with a BUY call and a target price of RM2.26, based on a three-year historical average PE of 9.0x (which encompasses a full business cycle from its peak in 2007 to the trough in 4Q08 and 1Q09). This implies a target P/BV of 1.4x, which is also the midpoint between the average P/BV of 1.8x during the 2003-04 recovery and the average P/BV of 1.0x in 2007’s mini-upcycle.
Explosive earnings recovery, led by global demand recovery and the doubling of capacity at Unisem Chengdu by 4Q09. Unisem’s net profit is set to jump 186% and 110% in 2010 and 2011 to RM119m and RM153m respectively. Meanwhile, 3Q09 earnings could present a pleasant surprise – jumping 16% qoq to RM28m - as utilisation rates could reach 85%, up from 75% in 2Q09 and 50% in 1Q09. Operating margins should widen with better utilisation and favourable product mix (higher sales of BGAs and QFN packages).
IPO-worthy Unisem Chengdu a key earnings driver. Unisem Chengdu’s EBIT contribution is set to rise to an equivalent of RM65m in 2010, driven by the potential tripling of capacity by end-10 from early-09, to account for about 50% of Unisem’s 2010 earnings. Currently, Unisem China’s EBIT margin is already matching that of Unisem’s much more mature Ipoh plant, and benefits directly from highly generous support and incentives at the Chengdu Hi-Tech Zone, which houses established MNCs like Intel, Motorola and Ericsson.
Less susceptible to global semiconductor cycles, ... We estimate over 50% of Unisem’s sales in Chengdu are destined for domestic customers and 75% of Unisem Chengdu’s end products are consumed in the region, which is less susceptible to weaker consumer spending in developed markets.
… although recovery is on the way. Meanwhile, global semiconductor chip sales recovered significantly in 2Q09, and should move up another notch in 3Q09, partially led by Asia Pacific. Interestingly, our study of Unisem’s top key customers in 2Q09 reveals that they have registered top-line growth of 8- 32% and their inventories to sales ratio has been declining and is slightly above historical means, suggesting that inventories will have to increase by the same magnitude in subsequent quarters.
Cheap for emerging Malaysian IC assembly and test bellwether. Unisem trades at 6.3x and 0.7x PE and P/B respectively, well below its regional peers (refer overleaf) and the average after Y2K and the Asian financial crisis (sixyear historical average of 16.9x forward PE and 1.1x forward P/B). Unisem has rallied before to 2.6x P/B in the 2003-04 upcycle and 1.3x P/B in 2007. A hypothetical IPO of Unisem Chengdu could lift valuations to RM2.65.
Explosive earnings recovery, led by global demand recovery and the doubling of capacity at Unisem Chengdu by 4Q09. Unisem’s net profit is set to jump 186% and 110% in 2010 and 2011 to RM119m and RM153m respectively. Meanwhile, 3Q09 earnings could present a pleasant surprise – jumping 16% qoq to RM28m - as utilisation rates could reach 85%, up from 75% in 2Q09 and 50% in 1Q09. Operating margins should widen with better utilisation and favourable product mix (higher sales of BGAs and QFN packages).
IPO-worthy Unisem Chengdu a key earnings driver. Unisem Chengdu’s EBIT contribution is set to rise to an equivalent of RM65m in 2010, driven by the potential tripling of capacity by end-10 from early-09, to account for about 50% of Unisem’s 2010 earnings. Currently, Unisem China’s EBIT margin is already matching that of Unisem’s much more mature Ipoh plant, and benefits directly from highly generous support and incentives at the Chengdu Hi-Tech Zone, which houses established MNCs like Intel, Motorola and Ericsson.
Less susceptible to global semiconductor cycles, ... We estimate over 50% of Unisem’s sales in Chengdu are destined for domestic customers and 75% of Unisem Chengdu’s end products are consumed in the region, which is less susceptible to weaker consumer spending in developed markets.
… although recovery is on the way. Meanwhile, global semiconductor chip sales recovered significantly in 2Q09, and should move up another notch in 3Q09, partially led by Asia Pacific. Interestingly, our study of Unisem’s top key customers in 2Q09 reveals that they have registered top-line growth of 8- 32% and their inventories to sales ratio has been declining and is slightly above historical means, suggesting that inventories will have to increase by the same magnitude in subsequent quarters.
Cheap for emerging Malaysian IC assembly and test bellwether. Unisem trades at 6.3x and 0.7x PE and P/B respectively, well below its regional peers (refer overleaf) and the average after Y2K and the Asian financial crisis (sixyear historical average of 16.9x forward PE and 1.1x forward P/B). Unisem has rallied before to 2.6x P/B in the 2003-04 upcycle and 1.3x P/B in 2007. A hypothetical IPO of Unisem Chengdu could lift valuations to RM2.65.
Labels:
Unisem
Tuesday, September 8, 2009
Malaysia Construction - Optimism piling up
We upgrade our call on the construction sector to OVERWEIGHT due to: a) more mega projects awarded, b) sustained margin recovery, and c) regional property prospects have improved. Top picks are Gamuda and WCT.
Contract awards to pick up. The government’s fiscal spending (for the Ninth Malaysia Plan (9MP) 2006-10 and the two fiscal stimulus packages) has lagged, having spent only RM140.3b of RM230b (61%) allocated under 9MP. As we approach the end of the 9MP period and planned fiscal stimulus timeline, we expect the government to expedite contract awards over the next two years as construction typically forms 3-4% of total GDP.
Several mega projects in the offing. Following the award of mega projects such as Pahang-Selangor interstate water transfer tunneling job and Medini infrastructure work, tenders for three key mega projects, namely, work on the a) remaining portion the RM6b Pahang-Selangor interstate water transfer, b) RM2b LCCT terminal in Sepang and c) RM7b-10b extension of two LRT lines would follow suit. With the bulk of the construction and infrastructure jobs to be awarded in 2009-10, the sector’s orderbook is projected to double to RM43b by end-10. We also foresee plenty of jobs in the pipeline in Sarawak and Iskandar Malaysia, South Johor.
Margin recovery amid lower building material costs and variation order claims. We expect operating margins to recover from as low as 3% in 3Q08 to 8% this year as steel prices have halved to RM2,000/tonne from a peak of over RM4,000/tonne in 3Q08, as well as recent successful variation order claims from overseas and local projects such as Gamuda and WCT JV project, New Doha International Airport (NDIA), and MRCB’s power transmission jobs. Furthermore, we believe the sector’s earnings are sustainable through 2010-11, supported by a sufficient domestic orderbook (our RM13.0b cumulative orderbook assumption for construction companies under our coverage accounts for one-third of the RM43.4b estimated domestic construction jobs).
Recovery of property demand, positive development in water sector and gradual recovery in Vietnam economy spell better times ahead for selected construction players with interests in these segments. Key beneficiaries include IJM (via its 66%-owned IJM Land) and Gamuda where 20% of its FY08 revenue was contributed by its property development division. The possible resolution of water concession will see Gamuda receiving RM632m cash offer and Gamuda and WCT are expected to benefit from Vietnam’s economic recovery with projects such as Yenso Park and Platinum Plaza.
We upgrade our rating on the construction sector to OVERWEIGHT. The above-mentioned catalysts suggest that the construction business will trade at a peak cycle PE valuation of 23x against current PE of 18x. Our top sector picks are Gamuda (BUY/Target: RM3.70) and WCT (BUY/Target: RM3.00). Positive newsflow will also support IJM (HOLD/Fair: RM6.35) and Sunway Holdings (HOLD/Fair: RM1.55).
Contract awards to pick up. The government’s fiscal spending (for the Ninth Malaysia Plan (9MP) 2006-10 and the two fiscal stimulus packages) has lagged, having spent only RM140.3b of RM230b (61%) allocated under 9MP. As we approach the end of the 9MP period and planned fiscal stimulus timeline, we expect the government to expedite contract awards over the next two years as construction typically forms 3-4% of total GDP.
Several mega projects in the offing. Following the award of mega projects such as Pahang-Selangor interstate water transfer tunneling job and Medini infrastructure work, tenders for three key mega projects, namely, work on the a) remaining portion the RM6b Pahang-Selangor interstate water transfer, b) RM2b LCCT terminal in Sepang and c) RM7b-10b extension of two LRT lines would follow suit. With the bulk of the construction and infrastructure jobs to be awarded in 2009-10, the sector’s orderbook is projected to double to RM43b by end-10. We also foresee plenty of jobs in the pipeline in Sarawak and Iskandar Malaysia, South Johor.
Margin recovery amid lower building material costs and variation order claims. We expect operating margins to recover from as low as 3% in 3Q08 to 8% this year as steel prices have halved to RM2,000/tonne from a peak of over RM4,000/tonne in 3Q08, as well as recent successful variation order claims from overseas and local projects such as Gamuda and WCT JV project, New Doha International Airport (NDIA), and MRCB’s power transmission jobs. Furthermore, we believe the sector’s earnings are sustainable through 2010-11, supported by a sufficient domestic orderbook (our RM13.0b cumulative orderbook assumption for construction companies under our coverage accounts for one-third of the RM43.4b estimated domestic construction jobs).
Recovery of property demand, positive development in water sector and gradual recovery in Vietnam economy spell better times ahead for selected construction players with interests in these segments. Key beneficiaries include IJM (via its 66%-owned IJM Land) and Gamuda where 20% of its FY08 revenue was contributed by its property development division. The possible resolution of water concession will see Gamuda receiving RM632m cash offer and Gamuda and WCT are expected to benefit from Vietnam’s economic recovery with projects such as Yenso Park and Platinum Plaza.
We upgrade our rating on the construction sector to OVERWEIGHT. The above-mentioned catalysts suggest that the construction business will trade at a peak cycle PE valuation of 23x against current PE of 18x. Our top sector picks are Gamuda (BUY/Target: RM3.70) and WCT (BUY/Target: RM3.00). Positive newsflow will also support IJM (HOLD/Fair: RM6.35) and Sunway Holdings (HOLD/Fair: RM1.55).
Labels:
Gamuda,
IJM Plantations,
Sunway,
WCT
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