GENTING BHD - Takes up 20% stake in pharmaceutical company

By AmResearch
21 November 2012


BUY

Price: RM9.20
Fair Value: RM10.85

AIRASIA - Competition coming sooner

By AmResearch
2 November 2012


HOLD

Price: RM3.05

Fair Value: RM2.80

• It was reported in a local daily this morning that Malindo is bringing forward its launch date to mid-March 2013 from earlier indication of May 2013. This follows the group’s (PT lIon Air) decision to delay the launch of Batik Air from March to end-2013 as the group intends to focus on positioning Malindo as a regional player.

PADINI HOLDINGS - A decelerating growth trajectory

By AmResearch
18 October 2012


HOLD

Price RM1.89 

Fair Value RM2.00

We re-affirm our HOLD recommendation on Padini Holdings, with a lower fair value of RM2.00/share vs. RM2.57/share previously, based on a 10% discount to our DCF value, following a downward revision on earnings. Our fair value implies a PE of 12x on FY13F earnings.  

AIRASIA - Back to square one

By AmResearch
15 October 2012

HOLD

Price: RM3.06
Fair Value: RM2.80


It was reported in local dailies this morning that the deal to acquire PT Batavia Air is off. It is said that AA will continue with organic growth in Indonesia and the reason for cancelling the deal was: (1) high cost of restructuring Batavia Air; (2) Management time and resources required to turnaround Batavia.

PLANTATION SECTOR - Impact of new export tax rate system

By AmResearch
15 October 2012


Positive for Sabah upstream players. We believe that the export tax structure to be implemented on 1 January 2013 would give upstream plantation players more avenues to sell their CPO products. They would not have to depend on the local refiners to buy their products.

Sunway - Cutting sales target and postponing launches

By Am Research

3 July 2012

-  We reaffirm our HOLD rating on Sunway Bhd (Sunway), but with our fair value cut to RM2.60/share (from RM2.70share), pegged to a 25% discount to its revised sum-of-parts value of RM3.50/share (RM3.60/share previously).

-  The lower fair value is on the back of a lower new sales assumption for FY12F following management’s revisions in planned launches and the sales target for this year. We are looking at new sales of RM850mil-RM900mil for FY12F, vs. RM1.5bil previously. 

MBM Resources - Preve bookings picking up - a boon for Hirotako BUY

By Am Research
11 June 2012


• According to a report in the Financial Daily this morning, sales numbers for the Proton
Preve has climbed strongly since May. As of June 6th, it is said that bookings for the Preve (launched April 16th) have exceeded 10,000 units, which is a sharp increase over a reported 4,000 bookings for the model at the beginning of May.
• Sales during the first three months following the launch of a new model are usually
strongest. However it is said that Preve “disappointed’ with sales of only 2,699 units in May
vs. management’s target of 4,000 units/month.
• To be fair, we understand there were production issues – technical problems related to lines
which caused production slowdown, though this has been rectified recently. We think this is
one of the key factors causing low booking rates – as sales or incentives were managed to
match actual production capability and avoid excessively long waiting periods which could
deter buyers from finalising purchases. Underpinning our opinion, the article also indicated
that Preve buyers need to wait for up to two months despite the low booking rates.
• The improving bookings for the Preve are a positive and are a strong earnings catalyst for
Hirotako, which is a key supplier of safety systems (seatbelts and airbags) for Proton.
Hirotako is estimated to contribute 44% to MBM’s core operating profit (FY12F).
• Our projections currently model in very conservative Preve sales of 23,600 units for 2012, or
an average monthly sales of 2,950 units (Preve was launched mid April). The strengthening
bookings for the Preve suggests upside to our forecasts. We also gather that Proton’s
overall sales improved to 14,057 units in May (+40% MoM, flat YoY).
• On top of this, the Preve generates higher revenue per car set for Hirotako –at an average
RM1000-1100/car set. Hirotako on average generates revenue per car set of just over
RM900 for supplies to Proton currently (ex-Preve), on our estimates.
• We re-affirm our BUY rating on MBM at unchanged SOP derived fair value of RM3.60/share.
Our valuation implies a conservative 9x FY12F earnings, at a 10% discount to sector
average PE of 10x. Key catalysts in the near-term: (1) Newsflows on expansion into vehicle
assembly within the next 6 months; (2) Stronger than expected performance from Hirotako
given improving Preve sales; (3) Undervalued stake in Perodua – implied valuation of 7x
FY12F earnings.

BUY

Price: RM3.08
Fair Value: RM3.60


[Source]

Sunway - Earnings to be stronger in the coming quarters Hold

By Am Research
30 May 2012

- We reaffirm our HOLD rating on Sunway Bhd (Sunway) with our fair value unchanged at RM2.70/share, assigning a 25% discount to our sum-of-parts value of RM3.60.share.

- Sunway’s 1QFY12 net income came in at RM64mil, which is short of our, and street’s expectations covering only 19% and 18% of full-year estimates, respectively. No dividend was declared for the quarter.

- Earnings slid by 35% QoQ on the back of a 15% drop in revenue. This can be explained by slower progress billings, for which there was a 34% drop in property development revenue. However, this was offset by stronger profit recognitions from its Singapore projects.

- Similarly, the construction division was weaker QoQ – margins down to 3% from 8% – as there was a strong contribution from its Abu Dhabi projects in the previous quarter, while there was a slight delay in the LRT extension works. 

- However, we are sticking to our estimates, with the group currently sitting on a record construction order book of close to RM4bil, taking into account YTD contract wins and healthy unbilled sales of RM2.2bil. Earnings should recover in the coming quarters as construction of its property and infrastructure projects pick up pace.

- To recap, the group has already met its RM1.5bil order book renewal target, with about 27% of the value consisting of in-house jobs, i.e. substructure works for Sunway Velocity. 

- Although Sunway is still in the mix for other MRT packages (viaduct and station), we believe WCT and IJM are favourites for the station works and having already won the V4 package, Sunway may find its chances limited for any one of the remaining viaduct packages.

- Sunway is currently trading at quite a steep discount (36%) to its SOP and one of the cheapest stocks in our conglomerate coverage – trading at a CY12F PE of 9x vis-a-vis its peers of 17x. While the stock looks attractive, there are no near term catalysts. 

HOLD

Price: RM2.29

Fair Value: RM2.70

[Source]

Oil & Gas Sector

By Am Research
21 May 2012


Mid-depth semi-sub rig rates regain lost ground (OVERWEIGHT)

- IHS Petrodata reported rig day rates for mid-water depth (2,001-5,000 feet) semi-submersible rigs rose significantly over the last month, reversing the decline over the past two months. Deepwater floating and US Gulf of Mexico jack-up rig rates recorded a marginal increase while the Northwest Europe Standard Jack-up index declined. But rig utilisation rates were stable in all categories (See Chart 1-4).

- The resilience of the overall rig market is still reflected the in the mid-to-deep semi-submersible rig rates, with global rig utilisation remaining at a comfortable 81% (See Chart 6) and underpinning our bullish conviction for the sector against a backdrop of accelerating global capital expenditure programmes. 

- The highest increase was in the mid-water depth semi-submersible day rate index which rose 191 points to 860, erasing the lost ground of the past two months. Fleet utilisation for this category of rigs is unchanged at 79% over the past five months.

- The deepwater floating rig day rate index registered a moderate increase of four points to 902, the first time since April 2009 that this index has been over 900 points. Utilisation for this category is almost full at 99% this month, the same level over the past three months.

- US Gulf of Mexico (250 to 300ft) jack-up day rate index rose at a slightly faster rate, by 8 points to 359 this month. This is 93 points greater than the rig index level recorded for this category in May last year. Fleet utilisation slipped by 1ppt to 58%. This is still a vastly improved scenario compared to the utilisation levels of 28% back in 2009, 39% in 2010 and 35% in 2011 – lagging the European markets due to the pro-green stance of the Obama administration and post-Deepwater Horizon oil spill crisis in 2010. We expect a further upside for this segment, as US drilling activities regain momentum.

- Northwest Europe standard jack-up day rate index was the only market that showed a decline, dropping 61 points to 529 in May with the utilisation level still at a high 90%, which has sustained for almost a year. This is still a robust charter rate – 200 points higher than in May last year. 

- The firm global rig rates underpin the medium- to long-term prospects for local rig operators such as UMW Oil & Gas, SapuraKencana Petroleum and Perisai Petroleum. We expect fresh news over the next few months from Petronas’ RM15bil fast-tracked programme to develop gas reserves from a cluster of fields in the North Malay basin, off Peninsular Malaysia as well as other enhanced oil recovery jobs in East Malaysia. News flow momentum is also gaining traction for Petronas Carigali’s and Murphy Oil’s floating liquefied natural gas vessels for the Kanowit and Rotan fields, respectively. We maintain MMHE as our top pick in the sector as it is the only domestic yard which has a proven track record in complex engineering platforms with deepwater capabilities.  We retain our OVERWEIGHT view on the sector with our other BUY calls being Bumi Armada, Dialog, SapuraKencana Petroleum and Petronas Gas.  

[Source]

AirAsia - 1Q12 set to outperform aviation peers BUY

By Am Research
15 May 2012


1Q12 set to outperform aviation peers

- We maintain BUY on AirAsia Bhd (AA) with an unchanged fair value of RM4.20/share, ahead of 1Q12 results announcement on 23 May. Our fair value continues to peg AA at 12x FY12F earnings. From an operating perspective, AA defied industry trends in 1Q12, registering a 12% YoY growth in raw passenger traffic to 4.8mil (Malaysian operations). Traffic in terms of RPK (revenue-passengerkilometre) grew by 9% given shorter average stage length. Loads were maintained at 80.3% (1Q12) versus 80.1% (1Q11). 

- Growth was driven by the introduction of new routes, e.g. KL-Danang, KL-Semarang, KL-Surat Thani and KLPalembang. AA’s 1Q12 operating statistics underpin  our view that demand for low cost flights remains resilient compared to FSCs. MAS as a comparison has shown a 10% RPK contraction and 5% load factor deterioration in 2M12. 

- We foresee yield improvement in FY12F driven primarily by the exit of Firefly’s jet operations from November 2011. As a yardstick, AA’s yields grew 8% YoY in 4Q11, reversing a 2%-21% YoY yield contraction in the past 2 years. Assuming a seasonal contraction of 8% in 1Q vs. 4Q (historical 3-year trend), we estimate 1Q12 yields at 15.5sen/RPK, implying an 11% YoY growth.

- Despite a 10% higher fuel price YoY, we estimate that 1Q12 core earnings may register flattish YoY growth at RM160milRM170mil. Buffers to the higher fuel prices are:- (1) An 11% YoY yield growth, partly inflated by the absence of fuel surcharge in 1Q11; (2) 9% YoY pax traffic expansion. At our estimated net profit, AA’s 1Q12 will account for 21%-22% of our FY12F earnings of RM767mil and 17%-18% of consensus FY12F estimates of RM920mil (consensus numbers may have included TAA and IAA contribution).

- Fuel price is a key risk to our projections. In 1Q12, jet fuel averaged US$132/barrel vs. our full-year forecast of US$125/barrel (ex-hedging). However, jet fuel price peaked in March and has now eased to US$125/barrel levels (See Chart 1). Any further easing of jet fuel price underpins AA’s earnings expansion in subsequent quarters. Every US$1/barrel drop in jet fuel improves earnings by 1.4%.

- Thai AirAsia (TAA) performed well in 1Q12 – RPK +14% YoY, pax traffic +17% and load factor +1.3pp YoY to 85.6%. Indonesia AirAsia (IAA), however, saw loads contract 2ppts to 77% given IAA’s initiative to strengthen its Surabaya hub by improving connectivity, resulting in a +19% YoY capacity.

- From a valuation standpoint, AA is cheap at an implied 10x FY12F earnings (ex-associate value of RM0.96/share). LCC peer, RyanAir in comparison trades at 13x forward PE.

Price RM3.58 

Fair Value RM4.20

[Source]

IGB Corporation - RM0.67/share accretion to IGB! BUY

By Am Research
14 May 2012

RM0.67/share accretion to IGB!

- We reaffirm BUY on IGB, with an unchanged fair value at RM3.50/share based on a 22% discount to our NAV estimate of RM4.50/share.

- It was announced on Bursa that IGB’s 75%-owned KrisAssets will sell MidValley Megamall and Gardens Mall for RM4.6bil to IGB REIT. The deal values the two malls at a whopping RM1,815psf – an about 25% discount to Pavilion Mall’s valuation of RM2,400psf – and would result in a revaluation gain of RM1.3bil to KrisAssets or RM992mil (or RM0.67/share accretion) to IGB.

- We understand the acquisition of the mall will be satisfied via the issuance of 3,400 million units in IGB REIT and the balance of RM1.2bil via cash. 

- Of the 3,400 million units, 2,730 million units will be distributed to its entitled shareholders and KrisAssets has proposed an offer for sale of the remaining 670 million units via an IPO of IGB REIT, of which 469 million units will be offered to institutional funds.

- The 2,730 million units form part of KrisAsset’s proposed distribution to its entitled shareholders amounting to RM3.9bil. The remaining RM1.27bil would comprise special dividend and capital repayment which translates into an attractive RM2.88/share. 

- Based on IGB’s 75%-stake, the company stands to get a handsome cash payoff of RM951mil or RM0.64/share.

- Nonetheless, IGB would need a delicate balance between a special dividend and deploying freed capital to fund development projects overseas. 

- As we have highlighted earlier, IGB is exploring development opportunities in London and Taipei, whereby we understand that IGB would require about RM1bil to fund the acquisition of a site in London.

- IGB rose by close to 20% after our upgrade in January, but has been hovering at RM2.75-RM2.80/share over the past two months given the weak sentiment in the market.

- We expect the stock to trade at a narrower discount – now at about 39% - given the good valuation given to its prime assets.

Price RM2.74 

Fair Value RM3.50 


[Source]

Sunway - Property sales target is a challenge HOLD

By Am Research

23 Apr 2012

- We reaffirm our HOLD recommendation on Sunway Bhd (Sunway) with our fair value cut to RM2.70/share (from RM2.85/share previously), assigning a 25% discount to our revised sum-of-parts of RM3.60/share as we assume slower property sales for FY12F and FY13F.

- The key highlight from our meeting is that Sunway has turned more cautious on the property sector. We understand YTD sales have been rather subdued – Sunway managed to record new sales of only RM100mil (up to February) versus about RM200mil achieved in the corresponding period last year. Sales have been largely driven by terraced units in Shah Alam, commercial units at Nexis and Singapore products. 

- It seems that the weak sales were largely due to the 70% LTV ruling introduced to the market in November last year. This is not a surprise as Sunway’s pricing for its products have always been on the high side and 70% of its planned launches are priced at least RM1mil per unit. Nonetheless, we acknowledge that its developments are mostly located at favourable locations. 

- As a result, the group has deferred its initial 2012 launches to 2Q2012. Among the key launches deferred are the commercial properties in Sunway South Quay – comprising 31 units of 3-storey shop offices priced at RM6mil & above, Sunway Montana in Desa Melawati and commercial properties in Penang. 

- We therefore believe it may be a challenge for Sunway to meet its RM1.9bil sales target this year. We have cut our new property sales assumption by 20%-25% to RM1bilRM1.5bil for FY12F-FY13F. Consequently, we have slashed our earnings by 4%-5% for FY12F-FY13F to RM344.2milRM417mil.

- Having said that, the group is currently sitting on a healthy construction order book and property unbilled sales of RM2.8bil and RM2.2bil, respectively.  

- Additionally, we are quite positive on Sunway’s chances of winning one of the remaining MRT packages, given that it has the cost advantage over its competitors due to its inhouse piling capabilities. We note that piling work accounts for 20%-30% of the elevated package or circa RM200mil-RM300mil. Thus, we do not believe it would be an issue for Sunway to meet its order book renewal target of RM1.5bil.

- Sunway is currently trading at quite a steep discount (30%) to its SOP and one of the cheapest stocks in our conglomerate coverage – trading at CY12F PE of 11x vis-avis its peers of 17x. While the stock looks attractive there are no near term catalysts.

Price- RM2.52 

Fair Value- RM2.70

[Source]

Tenaga Nasioanl - Gas supply to stabilise with Petronas’ deal with Keppel BUY

By Am Research
23 Apr 2012

- We reiterate our BUY call on Tenaga Nasional, with an unchanged DCF-derived fair value of RM7.35/share, which implies a CY12F PE of 13x and a P/BV of 1.1x.

- Petroliam Nasional (Petronas) has signed an agreement to increase its supply of natural gas to Keppel Corporation’s wholly-owned Keppel Energy by 43 million cubic feet of gas per day (mmscfd) to 115 mmscfd.

- Under the 18-year agreement, Petronas will supply the gas through a new 5-kilometre pipeline that will link its peninsular gas utilisation (PGU) pipeline from a metering station at Plentong in Johor to Singapore's main gas network. Petronas Gas and Keppel Gas will jointly build the pipeline, which is scheduled for completion by the middle of next year. The gas will be used to power Keppel Energy’s 500 megawatt cogeneration plant currently under construction on Jurong Island.

- Recall that Tenaga has been suffering from a natural gas shortfall since early last year due to Petronas’ unscheduled upstream maintenance works, which at one point forced Tenaga to temporarily purchase electricity from YTL Power’s Singapore-based Power Seraya plant. But this sale to Keppel underpins our confidence that Petronas’ gas supply issues should be fully alleviated with the 500mmscfd Lekas re-gassification plant in Malacca, which commences operation in August this year. Out of this capacity, 200mmscfd will be supplied to the power sector.

- We remain positive on Tenaga due to:- (1) Stabilising natural gas supply will provide clearer earnings visibility, (2) Falling global coal and US-based natural gas prices, which will positively transform the company’s cost structure. A US$10/tonne decrease in coal costs will raise FY13F net profit by 14%, (3) Likelihood that Petronas and the government will continue to bear the higher liquefied natural  gas costs from the Malacca regassification plant in the near term (due to political factors), which could mitigate further fuel cost pressures, (4) New plant-ups to replace the first generation independent power producers, with expiring power purchase agreements likely to reduce capacity payments. In an open tender environment with Tenaga as the bidder and sole off-taker, fixed power purchase costs are likely to decline.

- The stock currently trades at a P/BV of 1x, at the lower range of 1x-2.6x over the past 5 years. Earnings-wise, Tenaga offers an attractive CY12F PE of 11x compared with the stock’s three-year average band of 10x-16x.

Price: RM6.52

Fair Value: RM7.35

[Source]

UMW Holdings: Upgrade to Buy - Set To Accelerate

By Am Research
23 Apr 2012

Upgrade to Buy with a higher TP of MYR8.35, ahead of recoveries at
the automotive and O&G sectors, and on the back of a 10-11% rise in
2012-13 net profit forecasts. The disruption to the regional auto supply
chain has abated while its O&G segment is at the cusp of a revival.
With market already absorbing the anticipated weak 1Q12 earnings
and its 2011 kitchen-sinking exercise, UMW now offers a recovery play
angle with modest growth (3-year EPS CAGR of 20%) and
undemanding valuations, supported by a decent dividend yield (6%).

Auto to surge ahead. We have raised our forecasts for Toyota vehicle
sales by 2-9% in 2012-13 to reflect an improved sales order outlook,
fuelled by its interesting launches ahead. Judging from its 1Q12 vehicle
sales, Toyota was less affected by the supply chain disruption owing to
its enhanced parts network. It is also more immune to the tightening of
HP lending criteria due to the generally stronger purchaser credit
profile. With minimal price discounting, UMW should be able to sustain
its 16% pretax margin. Earnings from 38%-owned Perodua are also set
to improve, largely on higher vehicle sales (+2-5% YoY) in 2012-13.

Expect a  rejuvenated  O&G. This is in lieu of the: (i) absence of
impairment or write-offs, which severely afflicted its 2011 performance,
(ii) reduced losses from 23%-owned WSP on improved ASP, unit sales
and margins, and (iii) stronger contributions from its drilling rigs
operations following a higher charter contract rate (+27%) secured for
its Naga 3 rig recently. Meanwhile, UMW will make an announcement
by end-April on the WSP privatisation offer by HDS Investment.

Net earnings  lifted  by 10-11% in 2012-13, incorporating  the higher
profits from auto (+5-11%) and O&G (loss in 2011) divisions. We now
expect UMW to register a higher net profit of MYR723m in 2012 and
MYR812m in 2013. Consequently, we also raise our DPS forecasts to
41sen in 2012 and 46sen in 2013, on a 50% payout assumption. This
translates into a decent yield of >6%, which would provide support to
UMW’s share price. Our new target price is based on a higher 12x PER
for 2013 (11x previously), to reflect UMW’s historical mean PER. Based
on the last closing price, this offers a decent 11% upside to our TP.


Share price: MYR7.51
Target price: MYR8.35


[Source]

Gamuda: Buy

By Maybank IB Research
23 Apr 2012

Enhanced visibility. MMC-Gamuda JV's MYR8.28b win for the KVMRT Sg Buloh-Kajang (SBK) tunnelling works has enhanced its earnings visibility into 2017, and should provide for earnings growth, at
least, into FY13-14. We raise our earnings forecasts marginally which have earlier imputed MYR3b job win potential for FY12. Our MYR4.10 RNAV-based target price is unchanged. Trading at just 12.3x one-year
forward earnings (16x mean), the stock is undervalued. Maintain Buy.

MYR8.28b, the magical number. MMC-Gamuda JV had on 19 Apr accepted an award from Mass Rapid Transit Corporation  S/B for the KVMRT SBK underground works package for a contract sum of MYR8.28b. The final contract value is in line with recent press reports, i.e. of  MYR8.2b. The work comprises the design and construction of tunnels, 7 underground stations and other underground works totaling 9.5km in length, from Semantan North Portal to Maluri South Portal. Based on Gamuda‟s 50% share in the JV, this win has  tripled its outstanding order book to MYR5.84b from MYR1.7b as at Jan 2012.

Tweaking forecasts. Our earnings model has already imputed MYR3b job win  potential in FY12, with recognition to start  in FY13. With this confirmation of the KVMRT SBK tunnelling works, we raise our earnings forecasts by a marginal 1% p.a.. Our major assumptions are: 1) 5% works recognition in FY13 and 15% in FY14, based on our construction S-curve interpretation, 2) 12% pretax margin for the entire contract with just 5% margin in FY13 and 8% in FY14, with 3) the works and margin recognition to rise as construction phase progresses.

Other updates. We gather another MYR290m new property sales in Feb-Mar, bringing total sales for FY12 todate to MYR1.16b (domestic: MYR850m, Vietnam: MYR310m), meeting 58% of its MYR2b target for
FY12. Negotiations  with PLUS for LITRAK stake sale is still ongoing. Our estimates are for slightly above  MYR1b in cash (48sen/sh)  to Gamuda  if it sells its entire  45.9% stake in LITRAK at our  MYR4.20
DCF-based target price, in addition to its 30% direct stake in SPRINT. We expect some repayment to shareholders if the sale goes through.


Share price: MYR3.57
Target price: MYR4.10

[Source]

Pavilion Reit - Exceptional FY13F, with upcoming Fashion Avenue and tenancy renewal BUY

By Am Research

20 Apr 2012

- We upgrade our rating on Pavilion REIT (PavREIT) from a HOLD to a BUY and raise our fair value to RM1.33/unit (vs. RM1.15/unit previously) based on a 5% discount to our DCF value of RM1.40/unit.

- Following a meeting with the management, we raise our earnings estimates for FY12F and FY13F by 1% and 2%, respectively, translating into a marginally higher DPU of 6.2 sen and 7.3 sen, underpinned by organic growth and acquisition. We assume a 99% payout ratio. 

- The Fashion Avenue (NLA: 68,000sf) is targeted to be opened by early September 2012. So far, there is a circa 90%  of precommitted tenants. The full impact of the Fashion Avenue and an estimated average rental rate of RM16psf, compared with under-RM10psf previously, would be seen in FY13F.

- Additionally, at least 67% of tenants are due for renewal in FY13F. We expect a 12%-15% rental reversion because tenants are committed to a 3-year tenancy during the infant stage of the mall. In our model, we forecast a higher weighted average rental rate of RM19psf for FY13F, vs. RM17psf for FY12F. 

- In order for Pavilion Mall to sustain its attractiveness, circa 5% of the tenants are changed on a yearly basis to provide a fresher appeal and a newer look to the mall. Tenants are also required to refurbish their space every 6 years.

- Elsewhere, management expects Farenheit 88 to stabilise its tenancy within 3 years by FY13F. PavREIT would acquire the mall if the owner decides to sell. As such, this may be PavREIT’s first asset injection that could take place by FY14, given that the mall is deemed fit.

- Pavilion extension (NLA:250,000sf, GFA:4,000sf), which consists of up to 8 levels,  will be adjoining the existing mall at levels 1, 2 and 3. Additionally, the mall’s appeal would be enhanced by a proposed glass-covered structure running from La Bodega towards the fountain. The extension is currently in the soil testing stage. Construction is to begin in 3QFY12. Management intends to acquire the extension immediately upon completion in FY16. 

- As Pavilion mall took a year to stabilise the tenancy, the extension is expected to take 6 months, given the maturity of the mall. Management expects full tenancy for the extension, underpinned by a long waiting list of over 400 applicants. 

- Management targets a distribution growth of 5% organically. However, FY13F will be an exceptional year, and as such, we are shifting our valuation basis to FY13F. Given this, PavREIT is attractive and we expect more news flow to excite the market. At current level, PavREIT has a dividend yield of 5.4% and 6.4% (vs CMMT: 5.6% and 5.9%) for FY12F and FY13F, respectively, and DPU growth of 18% in FY13F; hence, our BUY rating.

Price- RM1.15 

Fair Value- RM1.33

[Source]

Capitamall M’sia Trust - Results largely in-line with positive rental reversion on newly acquired malls BUY

By Am Research
20 Apr 2012

- We re-affirm our BUY rating on CapitaMall Malaysia  Trust (CMMT) and raise our fair value to RM1.68/unit (vs.RM1.15/unit previously), based on a 10% discount to our DCF value of RM1.86/unit. We have raised our earnings assumption by 5% from FY15F onwards accounting for organic growth. Taken together with the DPU estimate of 7.9 sen for FY12F, our fair value implies a total return of 17% over the current price. 

- CMMT’s 1QFY12 net income came in at RM35mil, which is largely in line with our and street’s estimates, making up 22% and 24%, respectively.

- CMMT recorded an increase of RM19mil (+35.3%) of gross rental income over 1QFY11, which was mainly contributed by its recent acquisition of the East Coast Mall and Gurney Plaza Extension as well as the completion of the asset enhancement works at Gurney Plaza last year. Additionally, higher rental rates were achieved from new and renewed leases.

- During 1QFY12, the portfolio incurred higher property expenses attributed to higher utility and marketing expenses, and reimbursable staff cost. Hence, net property income grew by 11.4% QoQ and 32.4% YoY.

- Portfolio occupancy remains strong at nearly 100%. Occupancy at The Mines saw a marginal drop this quarter from 98.8% to 97.3% because of renovation works and reshuffling of trade mix. However, management is confident that the occupancy rate will revert to nearly 99% as they are in the midst of closing a deal.

- The proposed plan to convert the huge car park space (NLA: 100,000sf or +23%) into retail space at East Coast  Mall is currently pending planning approval. 

- Meanwhile, shopper’s traffic was rather stable with 12.9mil visitors registered during the quarter, accounting  for an increase of 17% YoY. 

- The portfolio also showed a positive rental reversion of 5.6%, mostly contributed by East Coast Mall with a rental reversion of +12.1%, followed by Gurney Plaza at +10.4%. Further to that, 1QFY12 DPU of 2.1 sen exceeds 1QFY11 DPU of 1.90 sen by 10%. 

- At projected dividend yields of 5.6% and 5.9% for FY12F and FY13F, respectively, valuation is not cheap. Nevertheless, we believe CMMT has a solid strategy to grow DPU. It has consistently outperformed market expectations, given its quality retail portfolio, strong parentage and more importantly, ready access to a large pool of established retailers. We believe CMMT offers a low risk exposure to the retail REIT sector. 

Price- RM1.43 

Fair Value- RM1.68

[Source]

PPB Group - Massimo bread rolling out nationwide steadily HOLD

By Am Research
20 Apr 2012

- Maintain HOLD on PPB Group Bhd, with an unchanged fair value of RM17.45/share, which is based on a PE of 19.5x on FY12F EPS. 

- In the past five years, PPB’s historical PE band ranged from a low of 19.0x to a high 22.1x. Average PE was 20.6x. PPB’s 18%-owned associate, Wilmar International, is currently trading at 15x FY12F fully diluted EPS and 13.5x FY13F fully diluted EPS.

- We visited PPB’s Massimo bread factory yesterday. We found the plant to be clean and modern. Most of the processes are automated and the only labour-intensive segment is the packing section. 

- The bread factory cost RM120mil to build. We reckon that the bulk of the cost was attributed to the heavy machinery and equipment, some of which were brought in from the US. 

- There are no plans yet to increase the selling price of Massimo’s wheat germ bread. We reckon that PPB’s strategy is to improve its market share first even though it may result in the erosion of operating margins. The selling price of Massimo wheat germ is RM2.50 for a 400gm loaf. This is just 10 sen more expensive than the white bread.

- PPB has started selling Massimo bread to other markets such as Ipoh, Penang, Malacca and Seremban. This would allow the group to expand its market penetration beyond the Klang Valley. 

- The group also plans to increase the number of its products. Currently, PPB sells the wheat germ loaf, white bread loaf and cream rolls. There are two types of single cream rolls and two types of double cream rolls. 

- We understand that consumers have responded well to PPB’s bread products. Word of mouth has been instrumental in the acceptance of the bread. PPB has also advertised in newspapers and television to promote the bread.  

- There is no expansion plan yet. Presently, the bread factory has the capacity to produce 10,000 loaves per hour and 24,000 cream rolls every hour. The bread factory encompasses an area of 22,000 sq metres, which is the size of two football fields.  

Price- RM16.72 

Fair Value- RM17.45

[Source]

Bursa Malaysia - Growing steadily and surely BUY

By Am Research
18 Apr 2012

- We are re-initiating coverage on Bursa Malaysia Bhd (Bursa)with a BUY recommendation and a fair value of RM8.50/share, based on itstrend-average PE of 30x on FY12F's EPS. 

- We expect average daily trading value (ADTV) to potentially expand sequentially each quarter from 1Q12's RM2.0bil given: - (1) our higherend-2012 FBM KLCI target of 1,690 and intact economic fundamentals; (2) IPOs topick up in 2H12 with several prolific listings including Felda Global Ventures Holdings and Integrated Healthcare; and (3) encouraging number of new structured warrants being listed (3-year CAGR of 65%).

- We forecast net profit at RM151mil (+3%) for FY12F and at RM172mil(+14%) for FY13F, based on a conservative ADTV of RM2.0bil and RM2.2bil(FY11:RM1.8bil), respectively. Velocity is expected to be a tad higher at 36%compared with FY11's 34%.

- We are positive on the derivatives market and are projecting FY12F average daily contracts traded (ADC) to grow by 18% to 40,679 contractsfrom 34,474 contracts in FY11. This is underpinned by:- (1) open interest beingat an all-time high; (2) launch of the new derivatives clearing system andderivative products; and (3) overhaul of participant-ship structure.

- The international exposure gained from the strategic partnershipwith CME Globex at end-2009 has seen increasing foreign interest in the derivatives market. Year-to-date (YTD) ended 29 Feb 2012, foreign institutions madeup 27% of the FCPO market trades and 43% of the trades on FKLI. Foreignretailers were also drawn to the market, making up 1% of the FCPO trades inFY11. Wereckon that Bursa's derivatives business has yet torealise the fullpotential of this partnership.

- We believe Bursa will continue with its generous dividend policy,supported by its strong balance sheet (cash-toequity ratio of 1.5x) andcash-in-hand of ~RM500mil. We have assumed a dividend payout ratio of 91%-94%for FY12F and FY13F, with gross DPS at 26.5 sen and 29.5 sen, respectively.This translates into dividend yields of 3.8% and 4.2%.

- We expect Bursa's cost structure to remain stable, with staffcosts being the main expense. We also expect Globex fees to stay elevated,following the 319% increase in FY11. However, we are not too concerned as ahigher service fee resulting from the high volumes of contracts traded can beeasily offset by the parallel increase in derivative trading revenues.

Price- RM7.00 

Fair Value- RM8.50

[Resource]

IGB Corporation - Going ahead with REIT of MidValley retail assets BUY

By AmResearch
17 Apr 2012

- It was announced yesterday that IGB's 75%-owned, KrisAssets has proposed to set up a retail REIT (IGB REIT), comprising its two valuableassets i.e. MidValley Megamall and MidValley Gardens. 

- We understand CIMB Investment Bank, Credit Suisse and HongLeong Investment Bank have been appointed as joint global coordinators andjoint book-runners for this proposed IPO. 

- Although not mentioned, we believe both assets would be ableto gain valuation of at least RM4bil or at a cap rate of 6%.

- As we have highlighted in our previous reports, the monetisationmove would unleash a significant revaluation surplus from assets re-pricing,and free up capital for redeployment. 

- The establishment of a REIT would optimise the ownership structureof its prime properties. This move, we believe, is triggered by the highimplied capital values evident in the recent listing of Pavilion REIT andCapitaMall Trust and a flat interest rate cycle. 

- IGB may rake in between RM465mil and RM1.4bil cash, depending on its equity stake in the REIT. We would expect a special dividend and IGB would deploy the freed capital to fund development projects overseas whereby it is looking at opportunities in London and Taiwan.

- There is a further RM1.05bil revaluation surplus in IGB's under-appreciated portfolio of well-occupied office buildings (2.2msf), which are carried in its book at low historical costs. The retail REIT may be the trail blazer for IGB tolaunch an office REIT further out.  

- A hospitality REIT for its hotel assets would complete there-pricing of its assets, transforming IGB to an asset-light fee-based entity with controlling stakes in three listed asset-specific REITs. 

- We maintain our BUY rating on IGB Corp with our fair value unchanged at RM3.50/share based on a 22% discount to our NAV estimate ofRM4.50/share.

Price- RM2.83 

Fair Value- RM3.50

[Source]