Regional Daily, 20 November 2014 5 Regional Daily Ideas Troika Top Stories Thailand Market Strategy Strategy St Pg3 9M14 net profits of stocks under our coverage fell 3.6% to THB504.50bn, ie 77.1% of our FY14 earnings forecast. 2014 net profit growth is at risk of further downgrades on oil prices, with YoY earnings possibly coming in between -2% and +2% if oil trades between USD85 and USD95. Analyst: Veena Naidu ([email protected]) Sawit Sumbermas Sarana (SSMS IJ) Agriculture - Plantation BUY IDR1,250 TP: IDR1,430 Mkt Cap : USD981m Pg4 SSMS’s results disappointed on weaker production. We cut our FY14/FY15 forecast by 26%/12% and reduce TP to IDR1,430 from IDR1,615. Its asset injection at USD8k/planted ha is cheap and will improve future growth visibility but unlikely to contribute to FY15 earnings. Analyst: Alvin Tai ([email protected]) Press Metal (PRESS MK) Basic Materials - Metals BUY MYR3.42TP: MYR5.75 Mkt Cap : USD1,155m Pg5 We applaud Press Metal’s plan to double its Samalaju plant’s capacity which is timely to ride on aluminium supply deficit and replicate its successful lowcost model, raised our TP of MYR5.75. Analyst: Ng Sem Guan ([email protected]) Other Key Stories Malaysia Suria Capital Holdings (SURIA MK) Transport - Logistics BUY MYR2.58 TP: MYR3.50 Pg6 Analyst: Jerry Lee ([email protected]) Lafarge Malaysia (LMC MK) Basic Materials - Building Materials Neutral MYR10.14 TP: MYR10.00 Pg7 Tune Ins (TIH MK) Financial Services - Insurance Buy MYR2.07 TP: MYR3.00 Pg8 OCK Group (OCK MK) Telecommunications Infrastructure Buy MYR1.41 TP:MYR1.59 Pg9 Dialog (DLG MK) Energy & Petrochemicals - Oil & Gas Services Buy MYR2.00 TP: MYR1.50 Pg10 TH Plantations (THP MK) Agriculture - Plantation Sell: MYR1.22 TP: MYR1.63 Pg11 AMMB (AMM MK) Financial Services - Banks Buy MYR6.52 TP: MYR7.45 Pg12 See important disclosures at the end of this report Results Largely In Line Stiff Competition May Dampen Short-Term Outlook Analyst: Ng Sem Guan ([email protected]) Rejuvenating Its Take-up Rate Analyst: Kong Ho Meng ([email protected]) Rising Up The Ranks Analyst: Malaysia Research ([email protected]) Maiden Contributions From PSC Boost Revenue Analyst: Kong Ho Meng ([email protected]) Hit By Delayed Impact Of Dry Weather In Sarawak Analyst: Hoe Lee Leng ([email protected]) ([email protected]) Underlying Trends Generally Positive Analyst: David Chong ([email protected]) Powered by EFATM Platform 1 Regional Daily, 20 November 2014 Kuala Lumpur Kepong (KLK MK) Agriculture - Plantation Neutral MYR23.00 TP: MYR20.70 Pg13 MSM Malaysia (MSM MK) Consumer Non-cyclical Buy MYR4.90 TP: MYR5.74 Pg14 AirAsia X (AAX MK) Transport - Aviation Sell MYR0.65 TP: MYR0.57 Pg15 Wing Tai Malaysia (WING MK) Malaysia - Small & Mid Caps Sell MYR2.02 TP: MYR1.76 Pg16 Singapore Oxley Holdings (OHL SP) Property - Real Estate BUY SGD0.51 TP: SGD0.91 Analyst: Hoe Lee Leng ([email protected]) To Benefit From Low Raw Sugar Prices Analyst: Hoe Lee Leng ([email protected]) ([email protected]) Still In Turbulence Analyst: Jerry Lee ([email protected]) Double Whammy Analyst: Chaw Sook Ting ([email protected]) Pg17 Overseas Diversification Bearing Fruits Analyst: Goh Han Peng ([email protected]) Hi-P International (HIP SP) Industrial - Misc. Manufacturer BUY SGD0.66TP: SGD0.87 Pg18 Midas (MIDAS SP) Basic Materials - Metals Neutral SGD0.30 TP: SGD0.33 Pg19 Thailand Industrial Estate Neutral Weaker Manufacturing Contributions YotaPhone 2 Meets Xi Jinping Analyst: Jarick Seet ([email protected]) More Reasons To Be Cautious Than Optimistic Analyst: Shekhar Jaiswal ([email protected]) Pg20 3Q14 Earnings Have Yet To Recover Analyst: Wanida Geisler ([email protected]) See important disclosures at the end of this report Powered by EFATM Platform 2 Strategy, 18 November 2014 Strategy - Thailand Overweight Macro Risks Early Signs Of Recovery In Non-Oil Sectors Growth Value 2 1 2 2 9M14 net profits of stocks under our coverage fell 3.6% to THB504.50bn, ie 77.1% of our FY14 earnings forecast. 2014 net profit growth is at risk of further downgrades on oil prices, with YoY earnings possibly coming in between -2% and +2% if oil trades between USD85 and USD95. Maintain OVERWEIGHT on Thailand and expect lower oil prices to boost 2015 corporate earnings – we forecast 14% earnings growth. At current SET Index levels, Thailand trades at 13x 2015 earnings. Veena Naidu License No. 24418, 66 2862 9752 Sectors that outperformed. Agro & food (+85.6% YoY), residential property (+19.3% YoY), large banks (+5.2% YoY) and healthcare (+10.2% YoY). Sectors that got hit the hardest. Transportation (-102.6% YoY), media & publishing (-42.9% YoY), automobile (-26.2% YoY), tourism (-20.3% YoY), petrochemicals (-19% YoY), small banks (-16.1% YoY), construction and construction materials (-13.2% YoY) and energy (-6.1% YoY). Revenue grew 6.15% YoY. Despite the weak bottomline, the topline growth of the stocks under our coverage in 9M14 grew 6.2% YoY. This was despite the anaemic economy. Sectors that saw weak topline growth. These were automobile (15.7% YoY), small banks (-9.6% YoY) and transportation (-5% YoY). The 24.4% drop in the infrastructure sector was due to the setting up of the BTS Rail Mass Transit Growth Infrastructure fund (BTS Infra fund) that resulted in BTS’ (BTS TB, UNDER REVIEW) revenue being transferred to the fund while it received profit contributions via equity accounting. This led to a lower topline. On a QoQ basis several sectors saw improvements in net earnings. Agro & food (+12.5%), automobile (+18.3%), tourism (+9.2%), banks (+3.4%), healthcare (+25.7%), property (+13.7%) and information & communication (+1.1%). There are signs of recovery. Automobile sales have bottomed out, international tourists are returning, and the healthcare sector is benefiting from higher capacity from both domestic and overseas markets. The ICT sector continues to see high data growth while voice revenue is stabilising. Demand for residential property along mass transit routes remains strong while landed property has seen 7-8% growth in demand YTD. Banking sector loans grew 4.8% in 9M14 while demand for construction materials is seeing a pick-up due to higher construction activities. The only areas that continue to be under pressure are the energy and petrochemical sectors. This is on lower oil prices. P/E (x) [email protected] Com pany Nam e Ananda Development Price THB3.72 Target THB3.70 THB238.00 THB264.20 12.3 THB23.00 THB26.00 9.8 THB4.10 THB5.50 Total Access Communications THB99.75 Unique Engineering & Construction THB10.20 Kasikornbank Krung Thai Bank Quality Houses P/B (x) Dec-14F Dec-14F 12.0 1.8 Yield (%) Dec-14F 1.6 Rating BUY 2.2 1.7 BUY 1.4 4.1 BUY 12.3 2.0 4.1 BUY THB137.97 21.3 7.9 4.5 BUY THB14.00 18.2 2.3 1.1 BUY Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 3 Results Review, 20 November 2014 Sawit Sumbermas Sarana (SSMS IJ) Buy (Maintained) Agriculture - Plantation Market Cap: USD981m Target Price: Price: IDR1,430 IDR1,250 Macro Risks Drought Weighs On 3Q Earnings Growth Value Sawit Sumbermas (SSMS IJ) Price Close Relative to Jakarta Composite Index (RHS) 1,490 210 1,390 197 1,290 183 1,190 170 1,090 157 990 143 890 130 790 117 690 103 590 300 90 0 0 . 2 0 0 Sawit Sumbermas’ results were disappointing on weaker production . 0 and shipment mistiming. Maintain BUY but reduce our TP to IDR1,430 0 (from IDR1,615, a 14.4% upside) as we cut our FY14/FY15 forecasts by 0 26%/12%. The company’s asset injection of USD8,000/planted ha is cheap and will improve visibility for future growth. However, it is unlikely to contribute to FY15 earnings. 250 200 150 Oct-14 Aug-14 Jun-14 Apr-14 Feb-14 50 Dec-13 Vol m 100 Source: Bloomberg Avg Turnover (IDR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (IDR) Free float (%) Share outstanding (m) Shareholders (%) Citra Borneo Utama PT Prima Sawit Borneo PT Putra Borneo Agro Lestari PT 68,930m/5.75m 7.2 14.4 670 - 1,430 15 9,525 26.5 13.7 13.7 Share Performance (%) 2 . 2 0 . 2 Weak production and earnings number. Sawit Sumbermas Sarana’s (Sawit Sumbermas) 9M core earnings were sharply below our expectations, making up only 56% of our full-year forecast. Production was down 18% QoQ as dry weather hit Central Kalimantan, delaying fruit ripening. There was also some significant increase in cost of sales as well as general and administration costs. Forecast cut. Though production growth at 23% YTD is still above our full-year forecast of 16%, we are cutting our growth rate to 4.5% for the year. This brings our FFB production number down to 800,000 tonnes as the drought impact may continue to weigh on 4Q numbers. Along with this, we have also increased cost assumptions, factoring in a wage inflation rate of 11% for Central Kalimantan as well as higher general and administration costs. All these led to our earnings forecast being cut by 26%/12% for FY14/FY15 respectively. We also introduce our FY16 forecast of IDR860bn. Asset injection. Sawit Sumbermas will buy a 100% equity stake in two sister companies, ie PT Tanjung Sawit Abadi (TSA) and PT Sawit Multi Utama (SMU), for IDR1.5trn. Taking into account their net debt, the company is paying USD8,000/planted ha. The acquisition will increase its planted hectarage by 25,000ha to 58,000ha from the current 33,000ha. We are positive on the asset injection, as it is done at an undemanding valuation and will significantly boost Sawit Sumbermas’ future growth visibility, given that TSA’s and SMU’s plantations have an average age of just 4.2 years. It will also bring the company’s EV/planted ha to a more palatable USD20,000 compared with USD30,000 currently. Nevertheless, given the young age, we believe they will only contribute to Sawit Sumbermas’ bottomline in 2016, albeit marginally. YTD 1m 3m 6m Absolute 52.4 13.1 (1.6) (0.4) 12m Forecasts and Valuations Relative 33.0 11.6 (0.4) (2.1) Total turnover (IDRbn) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F 1,880 1,962 1,963 2,182 2,200 Reported net profit (IDRbn) 474 577 611 850 860 Recurring net profit (IDRbn) 474 577 611 850 860 Recurring net profit growth (%) 41.5 21.7 5.9 39.2 1.1 Alvin Tai, CFA +603 9207 7628 Recurring EPS (IDR) 49.8 60.6 64.1 89.3 90.3 [email protected] Recurring P/E (x) 25.1 20.6 19.5 14.0 13.8 P/B (x) 27.4 5.2 4.1 3.4 2.9 P/CF (x) 20.5 17.5 14.2 10.9 10.4 Shariah compliant EV/EBITDA (x) 14.4 11.7 11.5 8.7 8.6 Return on average equity (%) 104.4 42.6 23.7 26.4 22.3 Net debt to equity (%) 192.3 Our vs consensus EPS (adjusted) (%) net cash net cash net cash net cash (15.0) (5.2) (2.3) Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 4 Company Update, 20 November 2014 Press Metal (PRESS MK) Buy (Maintained) Basic Materials - Metals Market Cap: USD1,155m Target Price: Price: MYR5.75 MYR3.42 Macro Risks Capacity To Surge With New Power Deal Growth Value Press Metal (PRESS MK) Relative to FTSE Bursa Malaysia KLCI Index (RHS) 4.30 318 3.80 282 3.30 247 2.80 211 2.30 175 1.80 139 1.30 104 0.80 20 18 16 14 12 10 8 6 4 2 68 Sep-14 Jul-14 May-14 Mar-14 Jan-14 Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) 10.7m/3.29m 137.1 68.1 1.12 - 3.69 43 1,135 Dato' Paul Koon & brothers 51.0 Share Performance (%) Phase III expansion. Press Metal’s 80%-owned subsidiary, Press Metal Bintulu SB (PMB), has inked a term sheet with Syarikat Sesco for the supply of an additional 500 megawatts (MW) of power to PMB to undertake its proposed Phase III expansion, which would double the present aluminium smelting capacity at its plant in Samalaju, Sarawak to 640,000 tonnes per annum (tpa). Together with its smelting plant in Mukah, the expansion could see the group expanding its smelting capacity to 760,000 tpa, which is about 1.5% of global primary aluminium consumption. Replicating proven low-cost model. Press Metal already runs successful aluminium smelters in Sarawak, which are in the first quartile of the global production cost curve. Although the tariff for the additional power supply is confidential, we understand from management that the profitability of Phases II and III of the smelter is similar, after imputing a lower capex and potentially greater efficiency, for the new plant. Meanwhile, the first drawdown of 330MW will start in end-2015, while the remaining 170MW will be drawn down from early-2018 onwards. To be prudent, we imputed the new capacity into our financial model, which assumes contributions only from 2016 onwards together with some higher costs. Thus, our FY16 estimates rise by 27.7% to MYR555m. BUY, with a higher TP of MYR5.75. We are excited over the news of the capacity expansion, as it is timely for Press Metal to ride on the bottoming out of aluminium prices and expand its presence in the aluminium industry. Its projected record earnings indicate that the company can fund this project using internally-generated funds together with bank borrowings, while maintaining its generous dividend payout policy of 30%-50%. Thus, we reiterate BUY with a higher TP of MYR5.75 (from MYR4.72), which we derive from a 10% discount to our latest DCF valuation, on a fully diluted basis. Key investment risks are on page 9. YTD 1m 3m 6m 12m Absolute 194.8 30.3 12.9 94.3 183.8 Forecasts and Valuations Relative 197.4 28.6 15.8 98.0 183.2 Total turnover (MYRm) Shariah compliant Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F 2,384 3,120 4,146 4,613 5,933 Reported net profit (MYRm) 184 15 263 417 555 Recurring net profit (MYRm) 64 114 263 417 555 (41.6) 78.8 129.8 58.9 33.0 Recurring net profit growth (%) Ng Sem Guan, CFA +603 9207 7678 Recurring EPS (MYR) 0.13 0.22 0.33 0.38 0.50 [email protected] DPS (MYR) 0.03 0.02 0.11 0.11 0.15 Recurring P/E (x) 25.3 15.2 10.5 9.0 6.8 P/B (x) 1.39 1.38 2.04 1.76 1.49 P/CF (x) 3.05 5.63 5.02 4.13 0.9 0.6 3.2 3.3 4.4 EV/EBITDA (x) 12.5 10.5 6.6 7.9 5.7 Return on average equity (%) 16.8 1.2 16.9 21.0 23.8 166.0 170.1 Dividend Yield (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 2 . 2 0 . 3 0 0 . 3 0 0 We applaud Press Metal’s plan to double its Samalaju plant’s capacity, . 0 which would lift total smelting capacity to 760,000 tpa (~1.5% of global 0 primary aluminium consumption). Maintain BUY, with a higher TP of 0 MYR5.75 (68.1% upside) – at a 10% discount from our fully-diluted DCF valuation. We also lift FY16F earnings by 27.7% as the new plant will most probably replicate its low-cost model, which is in the first quartile of the global cost curve. Nov-13 Vol m Price Close Source: Company data, RHB na 77.7 90.0 57.7 (28.7) (40.1) (22.6) Powered by EFATM Platform 5 Results Review, 19 November 2014 Suria Capital Holdings (SURIA MK) Buy (Maintained) Transport - Logistics Market Cap: USD218m Target Price: Price: MYR3.50 MYR2.58 Macro Risks Results Largely In Line Growth Value Suria Capital (SURIA MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 116 3.00 113 2.90 110 2.80 107 2.70 104 2.60 101 2.50 98 2.40 95 2.30 92 2.20 89 2.10 2 2 2 1 1 1 1 1 86 Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) Warisan Harta Lembaga Tabung Haji 0.23m/0.07m 35.7 35.7 2.25 - 2.97 30 283 Results in line. Suria Capital’s 9M14 net profit dropped 1.5% YoY to MYR45.5m. This was largely within our estimates, meeting 71% of our full-year forecast. The 9M14 numbers were mainly lifted by higher contribution from its port operations core business, and logistics and bunkering services segments. The rise in operating expenses has affected its overall profit margin. Segmental overview. Within the ports operations division, there was a 9% YoY increase in the total 20-foot equivalent units (TEUs) in 9M14. However, 9M operating expenses increased 12% YoY on higher depreciation, maintenance costs, port land leasing fees and labour costs, which correlated with the higher volume. Logistics and bunkering improved YoY, reporting a profit instead of losses. This was mainly on a fuel volume sales increase for the supply of bunkering fuel for cruise ships at Kota Kinabalu Port. This wing also resumed its heavy lifting and shuttling business with the commencement of the Sabah Ammonia Urea (SAMUR) project which is currently at the completion stage. Ferry terminal operations’ topline improved, mainly contributed by the increase in passenger fee income from the new international cruise terminal and increased tourist arrivals in Sabah. Contract and engineering still did not do well on a lack of major external projects. Jesselton Quay update. Suria Capital is still awaiting the approval for its development plan from the authorities to advance to a new phase. Nonetheless, we understand that the project is progressing as planned. 46.2 9.2 Forecasts and Valuations Maintain BUY and earnings forecast. We keep our DCF-based MYR3.50 TP unchanged, which implies 14x FY15F P/E. We deem this fair, given Suria Capital’s property joint-venture. The port segment’s average P/E is 14x. Share Performance (%) Absolute Relative YTD 1m 3m 6m 12m (2.7) 6.6 (2.7) 2.8 4.9 Total turnover (MYRm) 4.1 Reported net profit (MYRm) 0.5 5.6 0.3 6.9 Shariah compliant Jerry Lee 603 9207 7622 [email protected] Dec-11 Dec-12 Dec-13 Dec-14F 276 263 263 264 Dec-15F 274 53.6 65.1 61.8 65.1 69.4 69.4 Recurring net profit (MYRm) 53.6 53.2 61.5 65.1 Recurring net profit growth (%) (4.4) (0.7) 15.5 5.8 6.7 Recurring EPS (MYR) 0.19 0.19 0.22 0.23 0.25 DPS (MYR) 0.06 0.06 0.06 0.08 0.09 Recurring P/E (x) 13.6 13.7 11.9 11.2 10.5 P/B (x) 0.95 0.91 0.87 0.83 0.79 P/CF (x) 6.95 5.35 4.91 6.16 5.89 2.3 2.4 2.4 3.1 3.3 5.94 5.03 4.66 5.14 4.89 7.2 8.3 18.2 7.0 Dividend Yield (%) EV/EBITDA (x) Return on average equity (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) 7.5 net cash 7.5 7.7 13.1 14.2 0.0 0.0 Source: Company data, RHB See important disclosures at the end of this report 3 . 2 0 . 2 0 0 . 3 0 0 Suria Capital’s 9M14 numbers came in largely within expectations and . 0 we believe 4Q14 may be better. We keep our BUY recommendation with 0 an unchanged DCF-based MYR3.50 TP, a 35.7% upside. Heightened 0 operating expenses have offset the growth in revenue and the Jesselton Quay project may need more time to realised. However, we understand that it is still in progress. Vol m 3.10 Powered by EFATM Platform 6 Results Review, 19 November 2014 Lafarge Malaysia (LMC MK) Neutral (from Buy) Basic Materials - Building Materials Market Cap: USD2,567m Target Price: Price: MYR10.00 MYR10.14 Macro Risks Stiff Competition May Dampen Short-Term Outlook Growth Value 3 . 2 0 . 2 11.1 113 10.6 108 10.1 103 0 0 . 2 0 0 As Lafarge’s 9M14 profit of MYR206.1m represented only 47.9/52.5% of . 0 our/street’s full-year estimates, we downgrade the stock to NEUTRAL 0 and pare our TP to MYR10.00 (1.4% downside) from MYR11.27. We cut 0 our FY14F/FY15F earnings by 29.1%/11.1% respectively, but keep our target P/E at +2SD from its historical trading range or at 21.6x FY15 EPS as it is still the best proxy to government infrastructure spending. 9.6 98 9.1 93 8.6 88 8.1 83 7.6 12 78 Lafarge Malayan Cement (LMC MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 10 8 6 4 Sep-14 Jul-14 May-14 Mar-14 Jan-14 2 Nov-13 Vol m Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) Ass. International Cement Ltd Employees Provident Fund 5.73m/1.76m -4.2 -1.4 7.90 - 10.6 31 850 51.0 7.3 Poor results. Lafarge Malaysia’s (Lafarge) 9M14 profit of MYR206.1m was well short of expectations, at 47.9%/52.5% of our/consensus fullyear estimates. Meanwhile, its 3Q14 revenue dropped 7.3%/8.7% QoQ/YoY on poor cement sales. Apart from that, we believe its peer, YTL Cement, may have initiated a price cutting exercise in 3Q to expand its market share ahead of its new plant commissioning in 4Q – which induced cement players in Peninsular Malaysia including Lafarge to raise their bulk rebates. Also, the untimely electricity tariff and diesel price hikes early this year also partly contributed to the lower EBITDA margin, which fell to 16.5% in 3Q14 vs 19.5% in 2Q14 and 26.9% in 3Q13. Hoping for a better 4Q. We believe the stiff competition could remain for at least another quarter or two, considering that the additional volume from YTL Cement is gradually entering the market. That said, we have not given up hope of a potentially stronger 4Q as construction activities normally gain momentum at the final quarter of the year. Apart from that, Lafarge raised its cement list price by 9% from May – which may give the company better leeway to cut its bulk rebates as it sees fit. Downgrade to NEUTRAL. For the time being, its disappointing results have prompted us to cut our ex-gate cement price assumptions by MYR18/MYR9 per tonne for next two years, which lowers our FY14/FY15 earnings estimates by 29.1%/11.1% respectively. However, we decided to keep valuing Lafarge at its peak P/E, ie at +2SD (or 21.6x FY15) from its 5-year historical trading range as the company remains the best proxy to the Government’s implementation of infrastructure and affordable housing projects that is expected to stay for the next couple of years. That said, we pare our TP to MYR10.00 (from MYR11.27) due to the earnings cut. As such, we also downgrade our rating to NEUTRAL (from Buy). Share Performance (%) YTD 1m 3m 6m 12m Absolute 18.3 0.0 (3.3) 9.9 6.2 Relative 21.5 (1.0) (0.3) 14.0 5.4 Shariah compliant Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F 2,740 2,852 2,812 2,995 3,056 Reported net profit (MYRm) 349 390 305 393 409 Recurring net profit (MYRm) 349 390 305 393 409 Recurring net profit growth (%) 9.8 11.7 (21.8) 29.0 3.9 Recurring EPS (MYR) 0.41 0.46 0.36 0.46 0.48 Total turnover (MYRm) DPS (MYR) 0.37 0.41 0.32 0.42 0.43 Ng Sem Guan, CFA +603 9207 7678 Recurring P/E (x) 24.7 22.1 28.2 21.9 21.1 [email protected] P/B (x) 2.72 2.66 2.64 2.61 2.58 P/CF (x) 18.9 18.8 18.6 17.2 16.2 3.6 4.0 3.2 4.1 4.3 13.4 12.4 14.9 12.0 11.4 11.1 12.2 9.4 12.0 12.3 Dividend Yield (%) EV/EBITDA (x) Return on average equity (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) net cash net cash net cash net cash net cash (22.1) (6.3) (8.8) Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 7 Company Update, 19 November 2014 Tune Ins (TIH MK) Buy (Maintained) Financial Services - Insurance Market Cap: USD465m Target Price: Price: MYR3.00 MYR2.07 Macro Risks Rejuvenating Its Take-up Rate Growth Value Tune Insurance Holdings (TIH MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 2.60 133 2.50 128 2.40 123 2.30 118 2.20 113 2.10 108 2.00 103 1.90 98 1.80 93 1.70 14 88 12 8 6 Sep-14 Jul-14 May-14 Mar-14 Jan-14 2 Nov-13 Vol m 4 Source: Bloomberg 2.01m/0.62m 33.8 45.0 1.80 - 2.53 59 752 17.2 13.7 9.4 Share Performance (%) YTD 1m 3m 6m 12m Absolute 6.2 5.6 (16.5) (7.2) 10.1 Relative 9.1 4.2 (13.8) (3.5) 8.8 Shariah compliant Key takeaways from the group’s 3Q14 briefing are: i) The Middle East North Africa (MENA) JV platform is in place to support rapid expansion; ii) The Thai associate to experience a strong growth from 2015 with the expansion of the Osotspa business, AirAsia (AIRA MK, BUY, TP: MYR2.73) and new ventures; iii) Its Indonesia acquisition is still in the plans, iv) it plans to realign focus to develop capabilities in business-toconsumer (B2C) and business-to-business (B2B). Travel insurance and associates update. For the travel insurance segment, we understand that the QoQ decline in travel policies earned were due to a combination of poorer international tourist flows in Thailand/ Indonesia and issues with AirAsia’s booking process. This had effected in a 1-2% dip in take-up rate (or 200,000 policies in our view), and had caused a slight mis-correlation to the 15% YTD passenger growth. AirAsia has committed itself to improve the booking process and we believe this to have a positive impact on its take-up rate from FY15. For the MENA region, we believe the cancellation of a memorandum of understanding with Al Hai LLC is not a setback as management is still on a lookout for partnerships in both MENA and Indonesia. We expect the Thai associate to perform better in terms of earnings vs 3Q14’s MYR2m due to increments from travel insurance and new business locally. Low 3Q14 underwriting (UW) margin at 18% not likely to recur. The group’s UW margins, at a quarterly low vs the average of 20%, were due to lumpy claims on Tune Insurance Malaysia Berhad (TIMB)’s level. TIMB had exposure to two lumpy fire claims of MYR8m-10m each (TIMB’s portion of claims provisioning is MYR1m each). The medical claims unit, which is a new business segment in 2014, is still a new business strain where the net claims ratio is high, albeit trending down. The group is looking to diversify the medical risk via quota-sharing agreements. We retain our earnings forecasts for now. Maintain BUY, TP of MYR3.00 at an unchanged 24x FY15F P/E – a premium to sector valuations of 14-20x, implying a 16% 3-year forward earnings CAGR vs the sector’s 13%. Tune Ins is a growth stock with valuations supported by swift global expansion, coupled with partnerships with airlines, travel providers and e-commerce players. Diversification away from AirAsia is pivotal to support our call. Forecasts and Valuations Kong Ho Meng +603 9207 7620 [email protected] Net premium revenue (MYRm) Reported net profit (MYRm) Net profit growth (%) Recurring net profit (MYRm) Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F 217 241 268 309 354 41 68 76 96 110 (15.9) 64.4 11.6 26.3 14.8 50 70 76 96 110 Recurring EPS (MYR) 0.07 0.09 0.10 0.13 0.15 DPS (MYR) 0.00 0.04 0.04 0.05 0.06 Recurring P/E (x) 31.3 22.3 20.5 16.2 14.1 P/B (x) 12.8 4.3 3.8 3.3 2.9 0.0 1.9 1.9 2.5 2.8 (3.9) (1.9) (2.4) Dividend Yield (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 3 . 2 0 . 3 0 0 . 1 0 0 The share price correction yesterday was likely due to temporary . 0 setbacks in 3Q results and a cancellation of agreement with Al Hai LLC, 0 which management said to be non-material as it is still on the lookout 0 for MENA and Indonesia partnerships. Maintain BUY and its MYR3.00 TP (24x FY15F P/E, 45% upside). We envision long-term value from its associates, potential partnerships and a recovery in travel demand. 10 Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) Tune Group SB AirAsia Group CIMB SI II SB Source: Company data, RHB Powered by EFATM Platform 8 Company Update, 19 November 2014 OCK Group (OCK MK) Buy (Maintained) Communications - Telecommunications Infrastructure Market Cap: USD148m Target Price: Price: MYR1.59 MYR1.41 Macro Risks Rising Up The Ranks Growth Value OCK Group (OCK MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 1.20 142 1.00 122 0.80 102 0.60 18 16 14 12 10 8 6 4 2 82 May-14 Sep-14 162 Jul-14 1.40 Mar-14 182 Jan-14 1.60 Nov-13 Vol m 1.80 We believe OCK’s transfer to the Main Market (20 Nov) and the 1-for-2 bonus issue (ex-date: 24 Nov) would catalyse a re-rating of the stock. Maintain BUY with a revised TP of MYR1.59 (ex-bonus TP of MYR1.06) (12.8% upside). We lower our FY14 earnings forecast by 28% due to the delay in the USP contract award and recognition of PMT in 4Q14. The stock’s FY14-16 EPS CAGR remains a compelling 32%. Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) Aliran Armada Sdn Bhd Lembaga Tabung Angkatan Tentera Low Hock Keong 1.33m/0.41m 12.8 12.6 0.75 - 1.58 42 352 41.0 14.5 2.1 Share Performance (%) A bonus and a transfer. OCK Group’s (OCK) listing status will be transferred to the Main Market (from the ACE Market) effective 20 Nov. Its 1-for-2 bonus issue of 176m shares will go ex on 24 Nov. We expect the corporate exercises to catalyse a share price re-rating with the stock attracting a wider base of investors on the back of its improved liquidity and profile. Awaiting the USP award. Despite the close of the tender exercise in 2Q14, the Malaysian Communications and Multimedia Commission (MCMC) has yet to award the first phase of the Timeline 3 (T3) Universal Service Provisioning (USP) contract, which forms part of the MYR1.5bn Budget 2014 allocation for the construction of 1,000 telco sites in rural areas. We expect OCK to clinch a portion of the USP contract, being a front-runner for the project and given its good execution track record. Forecast lowered. We lower our FY14 core earnings forecast by 28.4% to factor in: i) the delay in the USP project, and ii) the consolidation of PT Mulia Telecommunication’s (PMT) earnings in 4Q14 (from 3Q13 assumed previously). OCK’s acquisition of an 85% stake in PMT is EPSaccretive to the tune of 2-12% for FY14-16. We also trim our FY15 core earnings estimate by 3.8% following some house-keeping adjustments and introduce FY16 projections. While the bonus issue will inflate OCK’s issued share capital by 50%, this should be more than offset by the likely doubling of core earnings YoY in FY15, supported by its healthy project pipeline, tower construction and recurring site maintenance projects. Key downside risks to earnings are: i) continued delays in the award of the USP project, and ii) weaker-than-expected margins. Maintain BUY. We like OCK for its strong earnings growth prospects, its focus on growing its recurring revenue base, and its exposure to less mature but high-growth emerging markets. Our TP is lowered slightly to MYR1.59 (pegged to an unchanged 18.5x FY15 EPS) from MYR1.65 (ex-bonus TP: MYR1.06), which still offers a more than 12% upside. YTD 1m 3m 6m 12m Absolute 76.3 10.2 (1.4) (2.8) 77.4 Forecasts and Valuations Relative 79.5 9.2 1.6 1.3 76.6 Total turnover (MYRm) Shariah compliant Malaysia Research +603 9207 7688 [email protected] Jeffrey Tan +603 9207 7633 [email protected] Dec-12 Dec-13 Dec-14F Dec-15F 139 152 180 312 338 Reported net profit (MYRm) 13.1 13.6 15.0 30.2 34.4 Recurring net profit (MYRm) 13.1 13.6 15.0 30.2 34.4 Recurring net profit growth (%) 54.3 3.3 10.2 101.9 14.0 Recurring EPS (MYR) 0.02 0.03 0.03 0.06 0.07 Recurring P/E (x) 56.6 54.8 49.8 24.6 21.6 P/B (x) 13.3 9.3 4.2 3.6 51.4 94.0 P/CF (x) na na EV/EBITDA (x) 37.9 34.1 25.9 15.6 Return on average equity (%) 35.3 20.0 11.7 15.9 Net debt to equity (%) 54.9 52.3 Our vs consensus EPS (adjusted) (%) net cash 0.0 net cash 0.0 Dec-16F 3.1 27.5 13.5 15.5 net cash 0.0 Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 9 2 . 1 0 . 3 0 0 . 3 0 0 . 0 0 0 Results Review, 19 November 2014 Dialog (DLG MK) Buy (Maintained) Energy & Petrochemicals - Oil & Gas Services Market Cap: USD2,298m Target Price: Price: MYR2.00 MYR1.50 Macro Risks Maiden Contributions From PSC Boost Revenue Growth Value Dialog (DLG MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 2.00 132 1.90 127 1.80 122 1.70 117 1.60 112 1.50 107 1.40 102 1.30 300 97 0 0 . 2 0 0 Dialog’s 1QFY15 (Jun) core profit of MYR49m was within our . 0 but below consensus estimates, as the boost from Malaysian 0 0 upstream and downstream activities offset a temporary slowdown in some of its international activities. Maintain BUY and our SOP TP at MYR2.00 (33% upside), as we like the continued growth in its offshore and onshore businesses. Further of its PIDT project are our on but below Core 1QFY15 profit phases of MYR49m (+12% YoY) in line with schedule. consensus numbers (at 20%/17% of our/consensus full-year estimates respectively). Its Malaysian operations were the top-line performers (+8% revenue growth) due to: i) upstream contributions from its farmedin D35/D21/J4 production-sharing contract (PSC) that was signed in Sep 2014, ii) engineering activities for Phase 1C at its Pengerang Independent Deepwater Terminal (PIDT), and iii) various local fabrication projects. International operations (-17% revenue growth), however, were hampered by low activities in engineering, construction and plant maintenance works in Singapore and fabrication in New Zealand. These offset the good revenue traction in its Jubail Supply Base logistics services and specialist products and services. Overall, net margins improved to 9% (from 8% YoY) due to higher-margin upstream activities. 250 200 150 Sep-14 Jul-14 May-14 Mar-14 Jan-14 50 Nov-13 Vol m 100 Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) EPF Azam Utama Wide Synergy 14.9m/4.59m 15.4 33.3 1.45 - 1.93 59 4,931 10.6 9.3 9.1 Share Performance (%) Business updates. Phase 1B is now being commissioned for start-up while Phase 1C is on schedule for mechanical completion by Dec 2014. Phase 2, which involves a regasification terminal and storage tanks, will be developed at a total project cost of MYR2.7bn – with its operational date in line with our end-2017 estimate. All its key upstream assets are up and running following the inclusion of the PSC. Maintaining our forecast. We believe that the aforementioned low international activities are likely due to slow work schedules during the quarter, and expect these to pick up in subsequent quarters. We also expect incremental contributions from the commencement of the further phases of its PIDT projects. Typically, the group charts better 2H profits. Maintain BUY, SOP TP at MYR2.00. Our SOP is based on our current oil price forecast of USD90-100/bbl. While the stock will be increasingly driven by offshore developments, we believe current levels do not reflect the defensive nature in its locational advantage and concession-nature of its tank terminal/ logistics business. The risk to our valuation would be worse-than-expected costs, as Dialog is in the midst of an expansion. YTD 1m 3m 6m 12m Absolute (12.2) (0.6) (12.4) (16.4) 7.0 Forecasts and Valuations Relative (9.5) (1.7) (9.9) (13.0) 5.2 Total turnover (MYRm) Shariah compliant Kong Ho Meng +603 9207 7620 [email protected] Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F 2,238 2,552 3,004 4,097 5,364 Reported net profit (MYRm) 194 216 246 322 437 Recurring net profit (MYRm) 193 194 246 322 437 Recurring net profit growth (%) 9.4 0.8 26.6 30.8 35.7 Recurring EPS (MYR) 0.04 0.04 0.05 0.06 0.08 DPS (MYR) 0.01 0.01 0.02 0.02 0.03 Recurring P/E (x) 43.2 42.8 33.8 25.9 19.1 P/B (x) 6.15 5.34 4.88 4.38 3.85 P/CF (x) 26.6 94.1 18.9 23.4 18.8 1.0 0.9 1.2 1.5 2.1 EV/EBITDA (x) 19.7 18.3 15.5 12.6 10.3 Return on average equity (%) 15.2 14.8 15.1 17.8 21.5 3.6 23.8 49.7 48.4 46.0 (10.1) (5.1) 7.5 Dividend Yield (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 2 . 1 0 . 2 Source: Company data, RHB Powered by EFATM Platform 10 Results Review, 20 November 2014 TH Plantations (THP MK) Sell (Maintained) Agriculture - Plantation Market Cap: USD429m Target Price: Price: MYR1.22 MYR1.63 Macro Risks Hit By Delayed Impact Of Dry Weather In Sarawak Growth Value TH Plantations (THP MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 2.30 117 2.20 113 2.10 108 2.00 104 1.90 100 1.80 95 1.70 91 1.60 86 1.50 4 82 3 0 0 . 1 0 0 THP’s 9M14 results were below expectations, due to weaker-than- . 0 expected FFB production resulting in lower cost efficiency. We maintain 0 our SELL recommendation with a lower TP of MYR1.22 (from MYR1.40) 0 a 25% downside. Despite THP’s decent annual FFB expected production growth of 10-15% over the next few years, we believe this may not be enough to offset the impact of lower CPO prices. 3 2 2 Sep-14 Jul-14 May-14 Mar-14 Jan-14 1 Nov-13 Vol m 1 Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) 0.43m/0.13m 19.0 -25.1 1.61 - 2.17 22 884 Lembaga Tabung Haji EPF 71.8 5.8 Share Performance (%) YTD 1m 3m 6m 12m Absolute (13.3) (0.6) (15.1) (24.9) (12.4) Relative (10.7) (2.3) (12.2) (21.2) (13.0) Shariah compliant 2 . 2 0 . 1 Dry weather impact. TH Plantations’ (THP) 9M14 core net profit came in below our and consensus expectations, at 54-56% of the respective FY14 forecasts. The main discrepancy was the lower-than-expected fresh fruit bunches (FFB) production growth of only 5.2% YoY in YTD FY14 (vs management’s guidance of 10% growth and our projected 8% for FY14), due to the delayed impact of the dry weather in Sarawak experienced in February-May. This has resulted in lower cost efficiency (YTD production cost climbed 21% YoY). Core net profit up 40 YoY. THP’s 9M14 core net profit rose 40% YoY while revenue grew 24%. The rise in topline was due to the 5.2% YoY rise in FFB production, the 17% increase in mature hectarage and a 10% YoY hike in crude palm oil (CPO) prices. FFB yields declined by 1.7 tonnes/ha YoY due to young areas coming into maturity, which bear lower yields. At present, approximately 20% of THP’s matured area is in its first year of maturity. FFB production targets revised down. Management is in the midst of revising down its FFB production targets, in view of the delayed impact of the dry weather which it expects to start coming through more strongly in 4Q14 and 1Q15. Initially, management targeted a FFB production growth of 10% in FY14 and 26% in FY15. For FY14, management has now lowered its FFB growth target to 5%, while FY15’s new target is yet unknown. We are revising down our production growth targets to 5% for FY14 (from 8%) and 14% for FY15 (from 16%) and lower our FY14-15 earnings forecasts by 13-19%. We also introduce our FY16 forecast. Maintain SELL. We lower our TP to MYR1.22 (from MYR1.40), based on an unchanged 16x CY15 target P/E. Despite THP’s decent expected annual FFB production growth of 10-15% over the next few years, we believe this may not be enough to offset the impact of lower CPO prices given THP’s significant sensitivity to CPO prices, as every MYR100/tonne decrease in CPO price could negatively affect the company’s earnings by 8-10% annually. Forecasts and Valuations Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F Total turnover (MYRm) 376 470 517 574 655 Reported net profit (MYRm) 160 63 54 67 79 Recurring net profit (MYRm) 68.1 63.1 53.7 67.2 79.5 (45.4) (7.4) (14.9) 25.2 18.2 Hoe Lee Leng +603 9207 7605 Recurring net profit growth (%) Recurring EPS (MYR) 0.09 0.07 0.06 0.08 0.09 [email protected] DPS (MYR) 0.05 0.03 0.03 0.04 0.05 Recurring P/E (x) 17.4 22.7 26.7 21.4 18.1 P/B (x) 1.06 1.21 1.18 1.15 1.11 10.2 10.0 7.7 6.9 2.8 1.7 1.8 2.4 2.8 EV/EBITDA (x) 14.9 16.7 14.6 12.9 11.9 Return on average equity (%) 18.3 5.5 4.5 5.5 6.3 Net debt to equity (%) 24.1 54.4 61.2 65.3 64.9 (12.9) (15.2) 0.0 P/CF (x) Dividend Yield (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report Source: Company data, RHB na Powered by EFATM Platform 11 Results Review, 20 November 2014 AMMB (AMM MK) Buy (Maintained) Financial Services - Banks Market Cap: USD5,855m Target Price: Price: MYR7.45 MYR6.52 Macro Risks Underlying Trends Generally Positive Growth Value AMMB (AMM MK) Relative to FTSE Bursa Malaysia KLCI Index (RHS) 7.40 102 7.20 99 7.00 96 6.80 94 6.60 91 6.40 88 6.20 18 16 14 12 10 8 6 4 2 85 Jul-14 Mar-14 Jan-14 0 0 . 2 0 0 AMMB’s 2QFY15 (Mar) results met our and consensus expectations. A . 0 much improved set of results together with low valuations means we 0 retain our BUY call, albeit with a revised TP of MYR7.45 (14% upside). 0 Underlying trends were generally positive this quarter, with 2QFY15 net profit up 35% QoQ (underlying basis), driven by a combination of NIM expansion, tight cost control and lower credit cost. Sep-14 105 May-14 7.60 Nov-13 Vol m Price Close Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) 23.8m/7.35m 15.0 14.3 6.36 - 7.50 49 3,014 ANZ Bank Amcorp Group EPF 23.8 13.3 14.2 Share Performance (%) YTD 1m 3m 6m 12m Absolute (10.0) (1.7) (8.8) (10.3) (10.3) Relative (7.4) (3.4) (5.9) (6.6) (10.9) Results in line. AMMB’s 2QFY15 (Mar) net profit of MYR446m (+1% YoY, +35% QoQ, ex-lumpy items in 1QFY15) was within expectations, with 1HFY15 net profit of MYR983m (-4% YoY, underlying basis) accounting for 51% of our and consensus full-year net profit estimates. An interim DPS of 12 sen (2QFY14: 7.2 sen, net) was declared. 2QFY15 highlights. Positives were: i) estimated 13bps QoQ (-6bps YoY) expansion in net interest margin (NIM), aided by July’s 25bps overnight policy rate (OPR) hike. Hence, net interest income rose 3% QoQ despite the weak loan growth, ii) a 7% QoQ rise in underlying noninterest income, driven by higher forex and other income, iii) tight cost control (-7% QoQ, -12% YoY), and iv) an improvement in asset quality, leading to annualised credit cost of just 3bps in 2QFY15 (vs 1QFY15: 53bps; 2QFY14: 7bps). The main negative was the weak loan growth, although partly deliberate. Deposit base also contracted, resulting in a higher loan-to-deposit ratio (LDR). Loans and deposits. Gross loans fell 1% QoQ (+1% YoY), partly due to deliberate tightening of credit policies in the auto and non-residential segments amid asset quality concerns as highlighted in the previous briefing. Apart from that, corporate loans were down 2% QoQ due to the rollout of a new, streamlined wholesale banking model. Wholesale lending momentum has since improved post quarter-end. Deposits fell 2% QoQ and 3% YoY while current account and savings account (CASA) deposits declined 9% QoQ (possibly due to lumpy corporate balances) but were up 4% YoY. Overall, group LDR rose 80bps QoQ to 99.3% while CASA ratio fell 150bps QoQ to 20.1%. Asset quality. Absolute gross impaired loans declined 6% QoQ and 7% YoY, aided by higher write-offs while impaired loan formation (annualised) was stable QoQ at around 204bps. Thus, the gross impaired loan ratio improved by 8bps QoQ and 16bps YoY to 1.8%. Forecasts and investment case. We trim our FY15-16 net profit projections by 3-4% amid lower loan growth assumptions. We lower our TP to MYR7.45 (from MYR8.00) but maintain our BUY call. Forecasts and Valuations Shariah compliant David Chong, CFA +603 9207 7618 [email protected] Mar-13 Mar-14 Mar-15F Mar-16F Mar-17F Net interest income (MYRm) 3,093 3,201 3,109 3,168 3,300 Reported net profit (MYRm) 1,621 1,782 1,867 1,977 2,113 9.2 10.0 4.7 5.9 6.9 1,621 1,782 1,867 1,977 2,113 Recurring EPS (MYR) 0.54 0.59 0.62 0.66 0.70 DPS (MYR) 0.22 0.24 0.25 0.27 0.28 Recurring P/E (x) 12.1 11.0 10.5 9.9 9.3 P/B (x) 1.63 1.50 1.39 1.28 1.18 Net profit growth (%) Recurring net profit (MYRm) Dividend Yield (%) 3.4 3.7 3.8 4.1 4.3 Return on average equity (%) 14.0 14.1 13.7 13.4 13.2 Return on average assets (%) 1.3 1.4 Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 2 . 2 0 . 2 Source: Company data, RHB 1.4 1.4 1.4 (2.2) (3.2) (0.4) Powered by EFATM Platform 12 Results Review, 20 November 2014 Kuala Lumpur Kepong (KLK MK) Neutral (Maintained) Agriculture - Plantation Market Cap: USD7,290m Target Price: Price: MYR20.70 MYR23.00 Macro Risks Weaker Manufacturing Contributions Growth Value Kuala Lumpur Kepong (KLK MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 26.0 106 25.0 102 24.0 99 23.0 95 22.0 92 21.0 88 20.0 85 19.0 3 81 0 0 . 2 0 0 KLK’s FY14 (Sep) results were within our expectations but below . 0 consensus. Stronger profits from the plantation division offset weaker 0 contributions from the manufacturing and property divisions. While we 0 like the company’s strong management and steady growth strategy, we keep our NEUTRAL call with a revised SOP-based TP of MYR20.70 from MYR21.30 (10% downside), as valuations remain fair at current levels. 2 2 Sep-14 Jul-14 May-14 Mar-14 Jan-14 1 Nov-13 Vol m 1 Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) 11.5m/3.57m -0.9 -10.0 20.0 - 25.0 40 1,065 Batu Kawan Bhd Employees Provident Fund 46.6 13.6 In line. Kuala Lumpur Kepong’s (KLK) FY14 profit was in line with our expectations, but below consensus expectations, coming in at 82% of FY14 forecasts. KLK declared a final net DPS of 40 sen, bringing FY14 net DPS to 55 sen (FY13: 50 sen), translating into a net payout of 59% and a net yield of 2.4%. Plantation unit the saviour. KLK’s FY14 core net profit grew 10.1% YoY on the back of a 21.7% YoY rise in revenue. This was mainly due to improved profitability at the plantation unit, which saw EBIT surging 28.3% YoY, buoyed by higher CPO (+5.3%) and palm kernel (PK) (+43%) prices and higher FFB production (+3.5%), offset by weaker contributions from its manufacturing division, due to negative margins at the refineries and kernel crushing plants. Forecasts. After updating our forecasts for FY14 results, we lower our FY15-16 earnings forecasts by a slight 1.5-3% and introduce our FY17 forecasts. Maintain NEUTRAL. With the seasonal peak season almost over, we believe CPO prices have a window of opportunity to strengthen between now and 1Q15, which would bode well for companies like KLK, as we estimate every MYR100/tonne change in CPO price could affect its earnings by 4-6% per annum. After updating for KLK’s latest net debt, we lower our TP to MYR20.70 (from MYR21.30) and maintain our NEUTRAL call. Forecasts and Valuations Share Performance (%) 2 . 2 0 . 2 Total turnover (MYRm) Sep-13 Sep-14 Sep-15F Sep-16F Sep-17F 9,147 11,130 13,244 13,821 13,898 YTD 1m 3m 6m 12m Reported net profit (MYRm) 918 986 1,183 1,398 1,478 Absolute (7.6) 13.7 (0.5) (7.7) (7.0) Recurring net profit (MYRm) 918 990 1,183 1,398 1,478 Relative (5.0) 12.0 2.4 (4.0) (7.6) Recurring net profit growth (%) (16.7) 7.9 19.5 18.1 5.8 Recurring EPS (MYR) 0.86 0.93 1.11 1.31 1.38 DPS (MYR) 0.50 0.55 0.65 0.70 0.65 Recurring P/E (x) 26.7 24.8 20.7 17.6 16.6 P/B (x) 3.26 3.17 2.98 2.76 2.54 P/CF (x) 19.0 32.2 20.6 15.4 12.7 2.2 2.4 2.8 3.0 2.8 EV/EBITDA (x) 14.9 13.9 12.1 10.4 9.9 Return on average equity (%) 12.5 12.9 14.8 16.3 15.9 7.3 19.7 22.2 20.1 14.3 (8.4) (0.0) 0.0 Shariah compliant Hoe Lee Leng +603 9207 7605 [email protected] Dividend Yield (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 13 Results Review, 20 November 2014 MSM Malaysia (MSM MK) Buy (from Neutral) Consumer Non-cyclical - Food & Beverage Products Market Cap: USD1,025m Target Price: Price: MYR5.74 MYR4.90 Macro Risks To Benefit From Low Raw Sugar Prices Growth Value MSM Malaysia (MSM MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 5.30 105 5.20 103 5.10 100 5.00 98 4.90 96 4.80 94 4.70 91 4.60 2 1 1 1 1 1 89 0 0 . 2 0 0 We consider MSM’s 9M14 earnings to be in line, as 4Q14 could see a . 0 recovery in EBIT margins. While MSM still faces potentially declining 0 domestic volumes, we believe the absence of an LTC come 2015 and 0 the current low raw sugar prices would bode well for margins. We raise our TP to MYR5.74 from MYR5.23 (17% upside) and upgrade to BUY. We highlight MSM’s decent dividend yield of 4-5.5% per annum. Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Vol m Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) 0.41m/0.13m 11.0 17.2 4.68 - 5.20 23 703 Felda Global Ventures Koperasi Permodalan Felda Employees Provident Fund 51.0 20.1 6.0 Share Performance (%) YTD 1m 3m 6m 12m Absolute (2.0) (0.2) 3.2 (2.2) (2.6) Relative 0.6 (1.9) 6.1 1.5 (3.2) In line. We consider MSM’s 9M14 net profit to be in line with our and consensus expectations, making up 67-69% of FY14 forecasts. In 3Q14, MSM utilised a larger amount of highly-priced long-term-contract (LTC) raw sugar (50% of requirements, due to timing of shipments) vs the normal average of 25-30%, which resulted in EBIT margins falling to 10.9% (from 17.1% in 2Q14 and 19.1% in 3Q13). LTC sugar is priced at USD0.26/lb (vs current market price of USD0.16/lb). In 4Q14, the amount of LTC raw sugar utilised should reduce by 67%, which could push EBIT margins back to similar levels seen in 2Q14. Key briefing highlights: i) total sales volume rose 2.2% in 9M14, coming mainly from stronger industrial sales offset by lower domestic and export sales, ii) the sugar import permit issue has worsened, with 32 permits issued in 3Q (vs 16 in 2Q14), meaning increasing cheap Thai imports, and iii) raw sugar prices remain low at USD0.15-16/lb, which management believes will remain low until 2H15. As such, MSM has acquired more than 50% of its FY15 raw sugar requirements at these low prices, which should bode well for its earnings in FY15, particularly if there is a need to adjust selling prices downwards. Forecasts. We maintain our FY14 earnings forecast but raise our FY15 forecast by 9.8% to take into account the current lower raw sugar prices, which should bode well for MSM. We also introduce our FY16 forecast. Risks. i) a worse-than-expected slowdown in domestic sugar demand, ii) a spike in raw sugar prices, iii) a weak MYR vs USD, and iv) no LTC for raw sugar. Upgrade to BUY. Although MSM still faces the issue of potentially declining domestic volumes due to the sugar import permit issue, we believe the absence of an LTC come 2015 and the current low raw sugar prices bode well for margins. We raise our TP to MYR5.74 (from MYR5.23), based on a 15x CY15 P/E, which is in line with the stock’s 2-year historical average P/E. We highlight that MSM’s dividend yield is also relatively decent at >4% per year. Forecasts and Valuations Shariah compliant 2 . 2 0 . 2 Dec-12 Dec-13 2,301 2,202 1,926 1,716 1,803 Reported net profit (MYRm) 202 255 250 269 302 Recurring net profit (MYRm) 202 251 250 269 302 (23.8) 24.3 (0.1) 7.5 12.4 Total turnover (MYRm) Dec-14F Dec-15F Dec-16F Hoe Lee Leng +603 9207 7605 Recurring net profit growth (%) [email protected] Recurring EPS (MYR) 0.29 0.36 0.36 0.38 0.43 DPS (MYR) 0.19 0.22 0.20 0.22 0.25 Recurring P/E (x) 17.1 13.7 13.8 12.8 11.4 P/B (x) 1.97 1.86 1.75 1.66 1.56 P/CF (x) 58.5 10.1 8.8 8.8 9.9 3.9 4.4 4.1 4.5 5.0 EV/EBITDA (x) 10.2 8.3 8.0 7.0 6.1 Return on average equity (%) 11.8 14.1 13.1 13.3 14.1 Dividend Yield (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report Source: Company data, RHB net cash net cash net cash 4.7 net cash 0.7 Powered by EFATM Platform net cash 13.2 14 Results Review, 20 November 2014 AirAsia X (AAX MK) Sell (Maintained) Transport - Aviation Market Cap: USD455m Target Price: Price: MYR0.57 MYR0.65 Macro Risks Still In Turbulence Growth Value AirAsia X (AAX MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 1.10 106 1.00 96 0.90 86 0.80 76 0.70 66 0.60 70 56 50 40 30 Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Vol m 10 Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) Tune Group AirAsia Datuk Kamarudin Meranun 7.56m/2.31m 4.3 -11.6 0.65 - 1.07 37 2,370 17.8 13.8 7.1 Share Performance (%) YTD 1m 3m 6m 12m Absolute (35.2) (11.0) (21.4) (14.6) (38.0) Relative (32.6) (12.7) (18.5) (10.9) (38.6) 3Q14 numbers below expectations. AirAsia X’s 9M14 net loss of MYR340m (->100% YoY) came in below our and street estimates, mainly due to declining yields as a result of airlines incidents. In 3Q14, the overall yield as measured by revenue/revenue passengers per kilometres (RPK) dropped by 15% YoY. This was coupled with a drop in ancillary revenue per passenger of 6% YoY due to the change in the composition of passengers. Its cost per average seat kilometre (ASK) for the quarter, ie cost per available seat kilometre (CASK), rose by 13% YoY, mainly due to an increase in staff headcount, aircraft fuel expenses, maintenance as well as higher operating lease expenses on the back of an increase in capacity of 24% YoY. 4Q yield may improve. Management guided that yields have been improving post the MH17 incident and believes that yields in 4Q should grow stronger. This, coupled with lower jet fuel costs, could lead to a positive set of results for AirAsia X in 4Q14 and 2015, it added. AirAsia X will continue the tactical redeployment of its aircraft, ie by wet-leasing some to third parties, to improve overall income and maximise the utilisation of its planes. It plans to consolidate its backroom operations with AirAsia Group to improve productivity and margins. Management also highlighted that it will defer its aircraft deliveries to manage capacity growth in order to improve overall yields. It is confident about the outlook for its current cash level and may not need to raise cash from the market at this juncture – it has options to raise cash through debt (possibly via convertible bonds) and plans to do a sale and leaseback of two of its aircraft in FY15 to improve its cash position. Earnings revision. We believe the airline industry may continue to face challenges as competition in the market remains intense. Hence, we cut our earnings forecasts to -MYR185m/-MYR165m (from -MYR138m/MYR12m) for FY14/FY15 respectively as we lower our capacity and yield growth assumptions. Maintain SELL. We maintain our SELL recommendation and cut our TP to MYR0.57 (from MYR0.68), based on a 1.5x FY15F P/BV – in line with global airlines’ average P/BV. Forecasts and Valuations Shariah compliant Jerry Lee 603 9207 7622 [email protected] Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F 1,862 1,967 2,308 2,947 3,210 Reported net profit (MYRm) (97) 34 (88) (185) (165) Recurring net profit (MYRm) (106) (6) (6) (185) (165) (185.6) (94.2) (7.4) 3164.7 (10.6) (0.07) (0.00) (0.00) (0.08) (0.07) Total turnover (MYRm) Recurring net profit growth (%) Recurring EPS (MYR) Recurring P/E (x) P/B (x) P/CF (x) EV/EBITDA (x) na 1.76 na 59.8 na 1.66 1.24 na 13.7 na na 1.45 na 1.72 8 11 115 19.9 25.1 33.7 (17.0) Return on average equity (%) (16.2) 6.0 (9.7) (16.1) Net debt to equity (%) 212.9 209.8 140.2 189.5 245.8 6.8 (1260.8) Our vs consensus EPS (adjusted) (%) See important disclosures at the end of this report 3 . 3 0 . 2 0 0 . 1 0 0 As AirAsia X’s 9M14 earnings were below expectations, we maintain . 0 SELL with a lower TP of MYR0.57 (from MYR0.68, 1.5x FY15F P/BV, 0 11.6% downside). Earnings continued to come under pressure due to 0 weakening passenger yields and escalation of costs. Airline incidents compounded the already intense operating environment but management is confident that the situation will improve. 60 20 Source: Company data, RHB Powered by EFATM Platform 15 Results Review, 19 November 2014 Wing Tai Malaysia (WING MK) Sell (from Neutral) Malaysia - Small & Mid Caps Market Cap: USD189m Target Price: Price: MYR1.76 MYR2.02 Risks Double Whammy Growth Value Wing Tai Malaysia (WING MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 2.70 104 2.50 97 2.30 90 2.10 83 1.90 76 1.70 3 69 0 0 . 1 0 0 1QFY15 results were below our expectations. Downgrade to SELL (from . 0 Neutral) with a lower SOP-based MYR1.76 TP (from MYR2.10, a 12.9% 0 downside). Its MYR11m core net profit – accounting for around 15% of 0 our full-year target – fell 29% YoY on lower contribution from property development and apparel retailing. We are lowering our FY15 revenue and net profit forecasts by 12% and 19% respectively. 2 2 Sep-14 Jul-14 May-14 Mar-14 Jan-14 Nov-13 Vol m 1 1 Source: Bloomberg Avg Turnover (MYR/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (MYR) Free float (%) Share outstanding (m) Shareholders (%) Wing Tai Holdings Ltd 0.31m/0.10m -12.9 -12.9 1.85 - 2.57 17 315 60.8 Below expectation. Wing Tai Malaysia’s (Wing Tai) 1QFY15 (Jun) bottomline missed our target. Its MYR11m core net profit – accounting for about 15% of our FY15 target of MYR11m – fell 29% YoY. The lower performance was mainly due to less contribution from both the company’s property development and apparel retailing businesses. On a YoY basis, Wing Tai’s revenue was flat at MYR83m while its PBT rose 72% to MYR36m. There was an exceptional gain of MYR20m arising from the company’s disposal of its 25% stake in Indonesian joint-venture (JV) company PT Windas Development. After stripping off the one-off gain, PBT was 25% lower at MYR16m. Double whammy. Profit contributions from Wing Tai’s two core businesses, namely property development and apparel retailing, were lower at MYR9m and MYR5m respectively. For its property segment, this was mainly due to lower sales contribution from its Nobleton Crest, BM Utama and Jesselton Hills projects. Meanwhile, we believe that Wing Tai’s apparel retailing business will continue to face eroding margins due to intense competition and promotion as well as higher operating costs. Downgrade to SELL (from Neutral) with a MYR1.76 TP (from MYR2.10). In view of the lower-than-expected results, we reduce our FY15 revenue and net profit forecasts by 12% and 19% respectively. Hence, we are lowering our SOP-based TP on the stock to MYR1.76. This was calculated by applying 11x FY15F P/E to its property development unit and 9x FY15F P/E to its retail segment. Forecasts and Valuations Share Performance (%) YTD 1m 3m 6m 12m Absolute (9.4) 7.4 (3.8) (7.3) (19.9) Relative (6.2) 6.4 (0.7) (3.2) (20.8) Shariah compliant 2 . 2 0 . 1 Macro Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Total turnover (MYRm) 603 435 394 411 459 Reported net profit (MYRm) 131 71 60 65 75 Recurring net profit (MYRm) 131 71 60 65 75 Recurring net profit growth (%) 54.8 (46.2) (15.5) 9.1 15.7 Recurring EPS (MYR) 0.42 0.22 0.19 0.21 0.24 DPS (MYR) 0.10 0.10 0.10 0.10 0.10 4.8 9.0 10.7 9.8 8.4 0.63 0.61 0.59 0.57 0.55 Recurring P/E (x) Chaw Sook Ting +603 9207 7604 P/B (x) [email protected] P/CF (x) 14 8 106 8 6 5.0 5.0 5.0 5.0 5.0 EV/EBITDA (x) 4.03 6.98 8.22 7.19 5.82 Return on average equity (%) 13.7 6.9 5.6 5.9 6.6 Net debt to equity (%) 21.0 18.0 21.1 17.0 11.4 0.0 0.0 0.0 Dividend Yield (%) Our vs consensus EPS (adjusted) (%) Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 16 Company Update, 19 November 2014 Oxley Holdings (OHL SP) Buy (Maintained) Property - Real Estate Market Cap: USD1,159m Target Price: Price: SGD0.91 SGD0.51 Macro Risks Overseas Diversification Bearing Fruits Growth Value Oxley Holdings (OHL SP) Relative to Straits Times Index (RHS) 0.80 168 0.75 158 0.70 148 0.65 138 0.60 128 0.55 118 0.50 108 0.45 98 0.40 16 14 12 10 8 6 4 2 88 0 0 . 2 0 0 We hosted Oxley to a luncheon following its 1QFY15 results. Maintain . 0 BUY and SGD0.91 TP (78.4% upside). Management said its healthy 0 earnings stream was from >SGD3bn in Singapore presales while 0 overseas launches were progressing well too with steady take-ups in London and Cambodia booking SGD1.6bn in sales. Its high gearing was a talking point, but we expect this to steadily decline with ongoing progressive collections. Sep-14 Jul-14 Mar-14 May-14 178 Jan-14 0.85 Nov-13 Vol m Price Close Source: Bloomberg Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Share outstanding (m) Shareholders (%) Bullish Investment Pte Ltd 0.56m/0.44m 78.4 78.4 0.46 - 0.82 17 2,948 47.1 Share Performance (%) YTD 1m 3m 6m 12m Absolute (10.5) (4.7) (19.1) (35.0) 6.3 Relative (14.3) (8.5) (18.4) (35.8) 3.6 A slow start, but solid earnings visibility ahead. Oxley Holdings (Oxley) reported 1QFY15 (Jun) net profit of SGD19.6m (-92% YoY) due to a high base previously, which was boosted by the completion of the Oxley Bizhub. During the quarter, the group booked contributions from its Singapore projects, most of which were substantially sold. We expect these projects to deliver more than SGD700m of profits in the course of the next two years. Robinson Square is slated for completion next quarter while ongoing construction progress for Oxley’s high-yielding mixed development projects like KAP, Midtown and NEWest will underpin our SGD112m FY15 forecast. Overseas projects gaining momentum. Following the recent launch of Royal Wharf Phase 2 in London, UK, Oxley has sold more than 1,400 units in the 3,300-unit development and generating presales of GBP700m. In Cambodia, the group has sold more than half of the residential/small office home office (SOHO) units in its The Bridge flagship project, generating sales of USD170m. The next major launch is Oxley’s KLCC project after legal completion of the land purchase in Jan 2015. With the acquisition of land development rights in Myanmar, the group has now extended its reach to five overseas countries. A growing income stream. Oxley’s first hospitality project, the PINES, will provide the group with a stream of recurring income when completed in 2016. Recently, it completed the purchase of another commercial development, Chiba Port Square, in Japan’s Chiba Prefecture. This will further boost its recurring income. Maintain BUY. We continue to like Oxley for its dynamic management and solid earnings visibility. Good execution of overseas projects will drive the next round of NAV and share price re-rating, in our view. Forecasts and Valuations Jun-12 Jun-13 Jun-14 Jun-15F Jun-16F 159 458 1,074 1,453 1,083 Reported net profit (SGDm) 17 69 287 116 198 Recurring net profit (SGDm) 11 62 262 112 194 1.5 450.0 321.2 (57.3) 73.4 0.00 0.02 0.09 0.04 0.07 133 24 6 13 8 P/B (x) 10.7 6.3 3.7 2.6 2.0 Return on average equity (%) 12.4 36.5 88.3 23.4 29.7 Return on average assets (%) 1.4 3.2 9.4 3.2 4.6 506.2 392.9 415.0 168.3 171.5 0.0 0.0 Total turnover (SGDm) Shariah compliant Goh Han Peng +65 6232 3893 [email protected] 2 . 2 0 . 2 Recurring net profit growth (%) Recurring EPS (SGD) Recurring P/E (x) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) Source: Company data, RHB See important disclosures at the end of this report Powered by EFATM Platform 17 Company Update, 20 November 2014 Hi-P International (HIP SP) Buy (Maintained) Industrial - Misc. Manufacturer Market Cap: USD413m Target Price: Price: SGD0.87 SGD0.66 Macro Risks YotaPhone 2 Meets Xi Jinping Growth Value Hi-P International (HIP SP) Price Close Relative to Straits Times Index (RHS) 0.80 125 0.75 118 0.70 110 0.65 103 0.60 95 0.55 88 0.50 3 80 2 Sep-14 Jul-14 May-14 Mar-14 Jan-14 1 Nov-13 Vol m 1 Source: Bloomberg Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Share outstanding (m) Shareholders (%) 0.24m/0.19m 28.8 32.0 0.53 - 0.78 10 818 Yao Hsiao Tung Molex Incorporate Hi-P International 60.2 21.8 8.4 Co-operation with China. YotaPhone 2, the first smartphone with dualscreen, will be available in most parts of the world by 1Q15. It consists of a LCD screen on the front and a Kindle-like screen on the back, with improved sensitivity for a more pleasant reading experience. We believe YotaPhone will be a key player in the Chinese market in the next few years, especially judging from how resolute President Putin was in confirming that his country will cooperate with China on YotaPhone. Seizing market share from Kindle. Before the arrival of YotaPhone 2, consumers did not have a choice of a mobile phone model with an E-ink display, or better known as the Kindle screen. The older version is only available in Russia, but with the upcoming worldwide launch of YotaPhone 2, we believe it will be able to tap into the current target market of Kindle, which should also benefit Hi-P indirectly. Bright outlook ahead. Given its robust pipeline of projects, supported by the ramping up of Xiaomi – the world’s third-largest mobile phone maker – and the upcoming worldwide launch of YotaPhone 2, we believe Hi-P is poised for a turnaround and reinstate our bullish view of a record 4Q14. With a new factory in place to accommodate a shift in its product mix from plastic to metal components, we believe the gloomy days impacted by Motorola and Blackberry are over, with a brighter outlook ahead. As a result, we expect a robust FY15 with an over 200% NPAT growth up to approximately SGD40m, which may bring down its recurring P/E to 13.5x. We think the share price is very attractive at current levels, especially given the company’s potential turnaround. Maintain BUY with our TP unchanged at SGD0.87, based on 1.2x peer average FY14 P/BV, implying a 32% upside from current levels. Share Performance (%) YTD 1m 3m 6m 12m Absolute 12.0 4.0 (13.8) 20.2 5.6 Total turnover (SGDm) Relative 8.2 0.2 (13.0) 19.4 2.6 Shariah compliant Jarick Seet +65 6232 3891 [email protected] Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F 1,204 1,167 1,262 1,099 1,387 Reported net profit (SGDm) 45.0 17.9 6.4 12.3 40.1 Recurring net profit (SGDm) 45.0 17.9 6.4 12.3 40.1 (33.1) (60.1) (64.4) 91.9 226.8 Recurring EPS (SGD) 0.05 0.02 0.01 0.01 0.05 DPS (SGD) 0.02 0.01 0.02 0.02 0.04 Recurring P/E (x) 12.0 30.1 84.6 44.1 13.5 P/B (x) 0.91 0.93 0.90 0.91 0.90 P/CF (x) 5.33 6.54 3.47 4.06 Recurring net profit growth (%) Terence Wong CFA +65 6232 3896 Dividend Yield (%) [email protected] EV/EBITDA (x) Return on average equity (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) na 3.7 1.8 3.1 3.1 6.1 2.77 5.68 5.08 4.28 3.10 7.7 3.1 1.1 2.1 6.7 net cash net cash net cash net cash net cash (7.1) 21.4 Source: Company data, RHB See important disclosures at the end of this report 2 . 2 0 . 3 0 0 . 2 0 0 At the APEC meeting in Beijing, Russian President Vladimir Putin gave . 0 his Chinese counterpart Xi Jinping a dual-screen YotaPhone 2, hinting a 0 potential future cooperation on this device, which will be officially 0 launched in Russia and Europe in December, then in China and the SEA in 1Q15. As its original design manufacturer (ODM) partner, Hi-P should stand to benefit from the ramping up of this potentially revolutionary phone. Maintain BUY and SGD0.87 TP (32% upside). 2 Powered by EFATM Platform 18 Company Update, 19 November 2014 Midas (MIDAS SP) Neutral (from Buy) Basic Materials - Metals Market Cap: USD281m Target Price: Price: SGD0.33 SGD0.30 Macro Risks More Reasons To Be Cautious Than Optimistic Growth Value Midas (MIDAS SP) Price Close Relative to Straits Times Index (RHS) 0.57 111 0.52 101 0.47 91 0.42 81 0.37 71 0.32 61 0.27 30 51 25 15 Sep-14 Jul-14 May-14 Mar-14 Jan-14 5 Nov-13 Vol m 10 Source: Bloomberg 1.50m/1.19m 50.0 10.0 0.30 - 0.52 79 1,218 Sr. management Dimensional Fund Ecclesiastical Insurance 20.8 2.5 1.0 Share Performance (%) China railway order flows to resume. China’s National Development and Reform Commission has approved new railway construction projects worth ~CNY1,000bn in Oct-Nov 2014. While these projects should keep Midas’ orderbook filled for 2-3 years, the timing of orders and its delivery schedule (and hence, revenue recognition) would be tough to predict. Tough lessons learnt from high dependence on railways. Almost all of its current CNY1.1bn orderbook is for the supply of parts to the railway sector, which made up for 55-75% of its revenue over 2010-2013. While a weak inflow of railway orders over the last 2-3 years has forced Midas to diversify away from the sector, this also resulted in high capex, increased leverage and rising interest costs amidst weak growth. Diversification has risks. Midas will start producing aluminium plates and sheets at its 100,000 tonnes per annum (tpa) plant in 2015. However, the segment is highly competitive and we believe Midas will have to keep margins lower initially to build a market presence, and expect this segment to contribute 13% of gross profit in 2015. Better plays on China railway sector. Winston Cao, our Hong Kongbased analyst views China Railway Group (390 HK, BUY, TP: HKD6.55) and China CNR (6199 HK, BUY, TP: HKD8.47) as better plays on rising domestic railway fixed asset investments. Both stocks offer higher ROE and are trading at lower P/Es compared with Midas (see Error! Reference source not found.). Valuations are rich. At 0.6x 2015 P/BV, Midas is trading at the bottom of its historical P/BV valuation. However, this valuation seems justified by its dismal 1.6% 2015 ROE. Our SGD0.33 TP is based on a 0.65x 2015 P/BV, which implies a 42.0x 2015 P/E and 1.0x 2015 PEG. Dec-12 Dec-13 Dec-14F Dec-15F Dec-16F 870 1,148 1,286 1,739 2,367 Reported net profit (CNYm) 27.8 47.7 32.5 46.3 81.2 Recurring net profit (CNYm) 27.8 47.7 32.5 46.3 81.2 (85.1) 71.3 (31.9) 42.5 75.4 Recurring EPS (CNY) 0.02 0.04 0.03 0.04 0.07 DPS (CNY) 0.04 0.02 0.02 0.02 0.04 Shekhar Jaiswal +65 6232 3894 Recurring P/E (x) 61.9 36.1 53.0 37.2 21.2 [email protected] P/B (x) 0.58 0.58 0.58 0.58 0.57 YTD 1m 3m 6m 12m Absolute (41.2) 1.7 (25.9) (33.3) (40.0) Relative (45.0) (2.1) (25.2) (34.1) (42.7) Forecasts and Valuations Total turnover (CNYm) Recurring net profit growth (%) P/CF (x) Dividend Yield (%) EV/EBITDA (x) Return on average equity (%) Net debt to equity (%) Our vs consensus EPS (adjusted) (%) na 6.25 na na na 2.7 1.7 1.2 1.7 3.0 11.6 13.6 14.7 13.8 12.6 0.9 1.6 1.1 1.6 2.7 28.5 47.8 83.6 98.9 112.5 (11.1) (42.4) (58.3) Source: Company data, RHB See important disclosures at the end of this report 3 . 3 0 . 2 0 0 . 2 0 0 Midas reported improved operations, but its 9M14 profit fell 19% YoY to . 0 CNY21m amidst rising interest costs. Recovering railway order inflows 0 and the start of its new plates & sheets business could translate into 0 43% YoY growth in 2015. However, downside risks from delays in the start of the new business, which is also highly competitive and may likely yield lower margins, as well as expensive valuations, have led us to resume coverage with NEUTRAL and a SGD0.33 TP (10% upside). 20 Avg Turnover (SGD/USD) Cons. Upside (%) Upside (%) 52-wk Price low/high (SGD) Free float (%) Share outstanding (m) Shareholders (%) Powered by EFATM Platform 19 Sector Update, 19 November 2014 Industrial Estate Neutral (Maintained) Macro Risks 3Q14 Earnings Have Yet To Recover Growth Value 3 3 1 2 3Q14 and 9M14 revenue THBm 3Q14 YoY QoQ 9M14 YoY AMATA 891 -62% 39% 3,558 -35% HEMRAJ 864 -56% -41% 5,150 -19% ROJNA 4,027 91% 61% 8,607 51% TICON 340 -21% 18% 1,350 32% WHA 145 4% 20% 382 -84% Total 6,267 -10% 25% 19,047 -9% 3Q14 earnings continued to weaken QoQ, leading to a 12% YoY fall in 9M14 earnings. Rojana saw a sharp turnaround so far while Amata’s and Hemaraj’s quarterly earnings were volatile. Ticon and WHA’s earnings are set to peak in 4Q14 from asset sale gains to REITs. We expect an unexciting earnings outlook for 2014-2015, but each stock has its own particular catalyst. Amata is our Top Pick, as it is trading at a deep -1SD discount to its long-term mean P/BV. Source: Company data 3Q14 and 9M14 EBITDA THBm 3Q14 YoY QoQ 9M14 YoY AMATA 361 -64% 75% 1,349 -41% HEMRAJ 367 -58% -43% 2,197 -19% ROJNA 849 462% 76% 1,647 n.a. TICON 213 -26% 5% 865 -10% WHA 140 24% 27% 363 -12% Total 1930 Source: Company data -21% 17% 6,421 0% 3Q14 and 9M14 net profit THBm 3Q14 YoY QoQ 9M14 YoY AMATA 137 -78% n.a. 558 -61% HEMRAJ 478 -24% -53% 2,537 22% ROJNA 370 n.a. 612% 343 n.a. TICON 17 -80% 240% 166 -67% WHA 5 -83% -82% 65 -63% Total 1,007 Source: Company data -19% -8% 3,669 -12% 9M14 net profit as a % of full-year forecast THBm AMATA 9M14 2014F 9M14 % of 2014F 558 1,147 49% 2,537 3,323 76% ROJNA 343 770 45% TICON 166 1,287 13% 65 1,303 5% Total 3,669 7,830 Source: Company data, RHB/consensus 47% HEMRAJ WHA Wanida Geisler +66 2862 9748 [email protected] 3Q14 sectoral revenue and EBITDA improved 25% and 17% QoQ, respectively. All developers except Hemaraj Land and Development (Hemaraj) (HEMRAJ TB, NEUTRAL, TP: THB4.50) saw meaningful improvements in their revenues and EBITDA. Rojana Industrial Park (Rojana) (ROJNA TB, UNDER REVIEW) was the best performer in 3Q14 with revenue growth of 61% QoQ and EBITDA growth of 76% QoQ. This was on more power income contribution from small power producer (SPP) plant Phase II while sales of land in Prachinburi were realised for the first time. Amata (AMATA TB, BUY, TP: THB21.00) also realised more sales in 3Q14 (see Figure 1). Sectoral earnings remain weak. 3Q14 sectoral earnings slipped 8% QoQ. Rojana, Amata and Ticon Industrial Connection (Ticon) (TICON TB, NEUTRAL, TP: THB19.50) were the top three best performers. Hemaraj’s earnings plunged from their peak in 1Q14 with fewer land sales. WHA (WHA TB, TRADING BUY, TP: THB38.00) also performed poorly over the past nine months. 9M14 earnings slipped 12% YoY. Rojana saw a sharp turnaround in 3Q14, driving its 9M14 net profit to THB343m (9M13: THB41m net loss). Hemaraj’s impressive 1H14 earnings helped to boost its 9M14 net profit 22% YoY to THB2.54bn. Amata, Ticon and WHA had weak performance thus far. Quarterly earnings generally peak in 4Q. Gains from sale of assets into newly-established REITs should help drive a strong 4Q earnings recovery for Ticon and WHA. We note that Ticon’s and WHA’s 9M14 net profits accounted for only 13% and 5% of our full-year forecasts respectively. Given that 9M14 sectoral earnings accounted for 47% of our full-year estimate, we may make another round of earning adjustments. Unexciting earnings outlook for 2014-2015 but each stock has its own catalyst. Currently, we forecast sectoral earnings to drop 16% YoY in 2014 and stage a modest recovery of 10-12% YoY next year. Industrial land sales have yet to recover despite a pickup in investment value applied for Board of Investment privileges – an indicator of direct investment flow – after seeing a new government installed. Nevertheless, we believe that each stock has its own catalyst. Rojana’s core earnings are set to normalise this year after it was hit hard by floods in end-2011. WHA’s deal to take over Hemaraj is expected to be finalised by end-1Q15. Amata is looking forward to monetise its rental assets into REITs and list its subsidiary, Amata VN, next year. P/E (x) Target Amata Corporation THB15.90 THB21.00 12.9 1.7 2.7 BUY THB4.44 THB4.50 12.4 2.6 4.4 NEUTRAL Ticon Industrial Connection PCL THB19.80 THB19.50 15.2 1.8 5.1 NEUTRAL WHA Corp PCL THB39.25 THB38.00 23.7 6.5 1.7 TRADING BUY Source: Company data, RHB Dec-15F Dec-15F Yield (%) Price Hemaraj Land & Dev See important disclosures at the end of this report P/B (x) Com pany Nam e Dec-15F Rating Powered by EFATM Platform 20 RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. 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DMG & Partners Research Guide to Investment Ratings Kuala Lumpur Hong Kong Singapore Malaysia Tel : +(60) 3 9280 2185 Fax : +(60) 3 9284 8693 19 Des Voeux Road Central, Hong Kong Tel : +(852) 2525 1118 Fax : +(852) 2810 0908 Tel : +(65) 6533 1818 Fax : +(65) 6532 6211 Buy: Share price may exceed 10% over the next 12 months Trading Buy:Malaysia Share price may exceed 15% over theRHB nextOSK 3 months, however longer-term outlook remains uncertain Research Office Securities Hong Kong Ltd. (formerly known DMG & Partners Neutral: Share mayInstitute fall within months as 12 OSK Securities Securities Pte. Ltd. RHB price Research Sdn the Bhdrange of +/- 10% over the next Take Profit: Target price has been attained. Look to accumulate at lower levels Hong Kong Ltd.) Level 11, Tower One, RHB Centre 10 Collyer Quay Sell: Share price may more than 10% over the next 12 months Jalanfall TunbyRazak 12th Floor #09-08 Ocean Financial Centre Lumpur World-Wide House Singapore 049315 Not Rated: Stock isKuala not within regular research coverage DISCLAIMERS Phnom Penh This research is issuedJakarta by DMG & Partners Research Pte Ltd and it is forShanghai general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular PT RHB OSK and Securities Indonesia (formerlyfinancial known asadviser RHB OSK (China) Advisory Ltd. into any RHBtransaction OSK Indochina Securities Limited (formerly investments consult an independent before makingInvestment any investments or Co. entering in relation to any securities or PT OSKmentioned Nusadana in this report. (formerly known as OSK (China) Investment known as OSK Indochina Securities Limited) investment instruments Securities Indonesia) Plaza CIMB Niaga Advisory Co. Ltd.) Suite 4005, CITIC Square No. 1-3, Street 271 Sangkat Toeuk Thla, Khan Sen Sok Tel : +(6221) 2598 6888 Tel : +(8621) 6288 9611 Fax: +(855) 23 969 171 The information contained herein has been obtained from sources 1168 we believed to be reliable but we do not make any representation or warranty nor 14th Floor Nanjing West Road Phnom Penh accept any responsibility or liability as to its accuracy, completeness orShanghai correctness. are subject to change Jl. Jend. Sudirman Kav.25 20041Opinions and views expressed in this report Cambodia without notice. Jakarta Selatan 12920, Indonesia China Tel: +(855) 23 969 161 Fax : +(6221) 2598or6777 Faxof: +(8621) 6288 9633or sell any securities. 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