Possibly 1500
February 20, 2013
KUALA LUMPUR, Feb 20 — This is a selection of morning calls by local research houses for the day.
HwangDBS Vickers
Despite an overnight rebound on Wall Street – which saw its key bellwethers rising between 0.4 per cent and 0.7 per cent on account of improved investors’ confidence – we suspect Malaysian equities could face persisting pressures ahead.
From a technical perspective, the benchmark FBM KLCI may back off from its immediate support level of 1,615. Thereafter, the key market barometer is expected to make its way towards the psychological mark of 1,600.
In terms of news flows, the 4Q12 GDP report is scheduled for release this evening, with one media survey projecting an annual growth rate of 5.0 per cent. On the corporate front, of probable interest today are: (a) DRB-Hicom, which has agreed to pay RM298m in cash for a 97 per cent equity stake in CTRM (which is involved in the development and production of aircraft composites components); KNM, after securing a contract worth RM309m for the supply of sulphur recovery unit in Tatarstan; and (c) Tune Ins Holdings, as it makes a debut listing this morning.
Downside risk outweighs upside potential. In the near term, Malaysian equities (down 4.4 per cent so far this year) will be facing renewed downward pressures as election nerves cloud sentiment. Investors may be tempted to sell due to perceived heightened political risk ahead of the 13th General Election, which could be held in March or April this year.
Stock watch. Against this backdrop, high-beta stocks could be hit hard given their greater share price volatility relative to the market. Based on daily data in the past two years, stocks under our coverage that could fall deeper than the FBM KLCI are YTL Land (with beta of 1.86), Perisai Petroleum (beta of 1.83) and MRCB (beta of 1.71). Refer to Figure 1 for the top ten stocks.
Conversely, defensive names led by Quill Capita (beta of 0.49), Axis REIT (beta of 0.49) and Jobstreet (beta of 0.56) are expected to be the most resilient because of their low price correlations (Figure 2).
Meanwhile, investors may be cutting their stakes in fundamentally weak companies too, particularly in shares that have retraced little this year. Our Fully Valued stock calls – either due to lofty valuations or unexciting growth prospects – include Bursa Malaysia (-0.8 per cent year-to-date), KPJ Healthcare (-2.0 per cent) and Petronas Dagangan (-3.5 per cent). Within this list, the share prices of MAS (beta of 1.14), Bursa Malaysia (beta of 1.03) and Bumi Armada (beta of 1.01) are historically the most volatile (details in Figure 3).
We retain our overall view that the key FBM KLCI could show initial weaknesses (possibly slipping to 1,500) before posting a rebound. Our year-end target is 1,690, which is based on 1-year forward P/E of 14x.
RHB Equity Focus
Axiata
We believe Axiata’s upcoming 4Q12 results due on 21 Feb will be tepid, as we expect flattish yoy core net profit growth. While we expect low single digit earnings growth from Celcom, this will be offset by XL’s subdued 4Q (-11.5 per cent yoy).
In addition, we expect Axiata’s finance cost to be higher mainly due to XL’s IDR2.5trn (RM800m) debt drawdown in 3Q. Besides that, RM appreciation (+10 per cent yoy vs. IDR; +19 per cent yoy vs. SLR) will squeeze earnings a little.
We expect Axiata’s 4Q12 revenue to record mid-to-single digit growth largely driven by: (1) strong revenue growth at XL and Dialog (+6 per cent and +25 per cent yoy respectively); and (2) steady mid single-digit revenue growth at Celcom.
Having declared an interim single-tier DPS of 8 sen, we expect Axiata to declare a final DPS of 16 sen based on our FY12 DPS forecast of 24 sen assuming a 75 per cent payout ratio. Axiata’s capex intensity should be lower in 2013, which makes a higher payout than the 65 per cent guidance possible.
We maintain our Neutral call on Axiata with an unchanged SOP fair value of RM6.50. We remain concerned over XL’s aggressive capex ambitions, which have yet to produce the desired returns from data. Hence, we believe earnings growth for XL remains challenging and therefore, growth for Axiata will likely moderate in 2013.
Aviation
The setup of a HSR (High Speed Rail) connecting Kuala Lumpur and Singapore has been agreed between the respective Prime Ministers in an attempt to further strengthen bilateral and economic ties.
Although negative for the airline industry we foresee that impact on declining passenger volume for the already competitive LCC (Low Cost Carrier) segment would be fairly manageable as we think that HSR fares are not likely able to compete with the already low fares LCCs offer.
Nonetheless, a permanent reduction in yields and declining trend volume could likely be seen for the full service carriers serving the KL – Singapore sector due to passengers diverging to HSR given its better reliability, travel time cut and competitive pricing.
We continue to maintain our OVERWEIGHT call on the Malaysian aviation sector as we think completion of the HSR by 2020 is too far sighted to be priced in. We have Buys on both AirAsia (FV: RM3.39) and Malaysia Airports (FV: RM7.32) whilst MAS remains a SELL at RM0.52.
KNM
KNM announced yesterday that they have secured a letter of award (LOA) from TAIF-NK for the supply of Sulphur Recovery Unit (SRU) for the Heavy Residue Conversion Complex located in Russia.
Based on our estimate of a gross margin of 16-18 per cent, we expect the project to contribute approximately RM9-12m p.a. towards FY13-15 net profit, on the back of RM100-130m p.a. in revenues.
Although we are positive that KNM has secured its first substantial contract in 2013, we highlight that the annual revenue contribution from this new project accounts for only 3-4 per cent of our full-year FY13 forecasts.
We maintain our Neutral call on the stock with an unchanged fair value of RM0.55.
Dialog
Dialog’s 2QFY06/13 net profit of RM47.5m (+14.6 per cent yoy) brought its 1HFY13 net profit to RM94.3m (+9.7 per cent yoy), accounting for 46 per cent of our and 43 per cent of consensus full-year earnings forecasts respectively.
For the 1HFY06/13, Dialog achieved revenues of RM920m (+28.9 per cent yoy), driven mainly by its Malaysian operations, which grew by 45 per cent yoy.
Despite achieving a strong revenue growth, Dialog’s 1HFY06/13 net profit only grew 9.7 per cent yoy. This was due to a cost overrun experienced by a plant maintenance project in Singapore.
We believe Dialog deserves to continue trading at premium valuations, given its exciting earnings outlook, coupled with clear visibility. Current valuations of 16-17x FY06/13 earnings imply further upside, given that its peers in the O&G sector are trading at 18-20x forward earnings.
We reiterate our Buy call on the stock, with an unchanged SOP-based fair value of RM2.69.
AMMB
AMMB’s 3QFY13 results were within our and consensus expectations.
AMMB incurred acquisition and integration costs of RM46m during the quarter, but this was largely mitigated by contribution from recently acquired Kurnia and MBf Cards.
Gross loans grew by 10 per cent with customer deposits keeping pace while CASA growth stayed robust at 24 per cent (figures annualised).
Gross impaired loan ratio improved 18bps qoq to 2.04 per cent while LLC stood at 125 per cent. CET-1 was 9.2 per cent at end-Dec ’12.
FY13 KPIs were unchanged with management expecting a seasonally weaker 4Q. While another RM46m in integration cost has been guided for FY14, this would be cushioned by incoming synergies totaling around RM93m over the next 2-3 years.
We made some minor revisions to our earnings forecasts (up to +2.8 per cent upward revision) and upped our fair value to RM7.04 from RM7.00 (12x CY13 EPS). No change to our Neutral call.
AFG
AFG’s 3QFY03/13 net profit of RM133m (+5 per cent yoy; -7 per cent qoq) brought 9MFY13 net profit to RM399m (+5 per cent yoy), or 77 per cent of our and consensus full-year net profit estimates. AFG enjoyed a net loan impairment writeback of RM29m for the 9M (vs. our FY13 projection of RM53m impairment charge), which we do not think is sustainable. Pre-impairment operating profit, however, was 9 per cent below our estimates, when annualised.
3Q operating income was weak (-6 per cent qoq) due to NIM compression of 15bps qoq. However, overall profitability was cushioned by another net writeback in loan impairment allowance.
Annualised loan growth was 11.6 per cent while customer deposits were down 3 per cent. Thus, LDR rose to 85.3 per cent from 81.3 per cent at end-2QFY13.
Gross impaired loan ratio improved 14bps qoq to 2.11 per cent while CAR stood at a healthy 11.9 per cent.
No change to our earnings forecasts. Fair value of RM4.35 (10 per cent premium to 11x CY13 EPS) and Neutral call maintained.