1. business and industrial
2. company
3. earnings

Regional Daily, 12 January 2015
5
Regional Daily
Ideas Troika
Top Stories
China State Construction (3311 HK)
Construction & Engineering
BUY HKD11.00 TP: HKD14.63
Mkt Cap : USD5,743m
Pg2
CSCI announced FY14 new contract wins of HKD60.24bn, in line with our
forecasts. We maintain FY15 new contract forecast of HKD70bn versus
CSCI’s guidance of HKD68bn. Potential asset injection is a positive, in our
view. Reiterate BUY.
Analyst: Winston Cao ([email protected])
Top Glove (TOPG MK)
Consumer Non-cyclical - Rubber Products
SELL MYR4.58 TP: MYR4.04
Mkt Cap : USD793m
Pg3
We came away from an analysts’ briefing at Top Glove unimpressed by the
lack of growth catalysts for FY15-16, with production capacity skewed toward
low-growth latex gloves. Downgrade to SELL (from Buy) with TP based on
13.5x FY15F P/E. Investors looking to reposition their portfolios should
switch to Hartalega instead.
Analyst: Alexander Chia ([email protected])
Evergreen Fibreboard (EVF MK)
Agriculture - Timber
BUY MYR0.73 TP: MYR1.11
Mkt Cap : USD104m
Pg4
We initiate coverage on EFB with a BUY recommendation and a TP of
MYR1.11 (52% upside). We are valuing the stock based on P/BV by applying
0.7x P/BV to its BV of MYR1.59. We expect EFB to turn around in FY15,
propelled by operational efficiency, better selling prices, favourable forex and
lower raw material prices.
Analyst: Chaw Sook Ting ([email protected])
Other Key Stories
Hong Kong
Biostime (1112 HK)
Pg5
Consumer Non-cyclical - Food & Beverage
Products
NEUTRAL HKD16.20 TP: HKD15.97
Shimao Property Holdings (813 HK)
Property - Real Estate
BUY HKD18.40 TP: HKD22.80
Malaysia
Integrax (INTEG MK)
Transport – Logistics
BUY MYR2.31 TP: MYR2.75
Tenaga Nasional (TNB MK)
Utilities - Power
BUY MYR14.16 TP: MYR15.50
Singapore
Vard Holdings (VARD SP)
Energy & Petrochemicals - Oil & Gas Services
SELL SGD0.63 TP: SGD 0.51
See important disclosures at the end of this report
Pg6
Negatives Priced In With Limited Upside
Analyst: Robin Yuen ([email protected])
Large Exposure In Major Cities a Boon
Analyst: Toni Ho ([email protected])
Pg7
Receives Privatisation Offer From Tenaga
Analyst: Ahmad Maghfur Usman ([email protected])
Pg8
Making a Takeover Offer For Integrax
Analyst: Joshua Ng ([email protected])
Pg9
Still Not In Value Territory
Analyst: Lee Yue Jer, CFA ([email protected])
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1
Company Update, 12 January 2015
China State Construction (3311 HK)
Buy (Maintained)
Construction & Engineering - Engineering & Construction
Market Cap: USD5,743m
Target Price:
Price:
HKD14.63
HKD11.00
Macro
Risks
Positive FY15 Guidance With Potential Asset Injection
Growth
Value
China State Construction (3311 HK)
Price Close
Relative to Hang Seng Index (RHS)
15.0
120
14.5
116
14.0
111
13.5
107
13.0
102
12.5
98
12.0
93
11.5
89
11.0
84
10.5
80
10.0
25
75


15
Nov-14
Sep-14
Jul-14
May-14
Mar-14
5
Jan-14
Vol m
10
Announcing FY15 new contract target of no less than HKD68.0bn.
CSCI also guided for FY15 new contract of no less than HKD68bn at the
conference call, representing a 12.9% YoY growth compared with FY14
new contract value of HKD60.24bn.
Potential asset injection. During the conference call, management
announced a near-term asset injection of a construction company from
the parent company. The to-be-injected construction company will likely
cover the overseas construction market. According to management, this
asset injection could be considered as CSCI’s parent company’s strategy
amid potential business opportunities from the “One Belt One Road”
plan. Management did not disclose the timetable and details of the asset
injection.
Our view
Avg Turnover (HKD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (HKD)
Free float (%)
Share outstanding (m)
Shareholders (%)
66.9m/8.62m
39.6
33.0
10.6 - 14.7
43
4,012
China Overseas Holdings
57.1


Maintain our FY15 new contract forecast of HKD70bn. Given the
company’s “under-promise, over-delivery” practice in previous years, we
believe there is a chance CSCI could revise up its full-year new contract
guidance at its interim results. We maintain our HKD70bn new contract
forecast for FY15, 3% higher than CSCI’s current guidance.
Asset injection for “One Belt One Road” a positive; reiterate BUY.
We reiterate BUY and TP of HKD14.63 (33% upside), derived from a
FY15F P/E of 11x. We like the stock given its: i) potential asset injection
and its synergy from the “One Belt One Road” plan is a strong new
catalyst, ii) fast 3-year EPS CAGR of 35%, and iii) scarcity value for its
exposure to China’s affordable housing construction industry.
Share Performance (%)
Forecasts and Valuations
Dec-12
Dec-13
Total turnover (HKDm)
21,911
27,192
34,234
47,600
57,962
Reported net profit (HKDm)
2,131
2,772
3,642
5,188
6,784
Recurring net profit (HKDm)
2,131
2,772
3,642
5,188
6,784
Recurring net profit growth (%)
41.4
30.1
31.4
42.5
30.8
Recurring EPS (HKD)
0.58
0.71
0.94
1.33
1.75
DPS (HKD)
0.16
0.21
0.27
0.39
0.51
Winston Cao +852 2103 9414
Recurring P/E (x)
19.0
15.6
11.8
8.3
6.4
[email protected]
P/B (x)
3.19
2.67
2.30
1.93
1.59
YTD
1m
3m
6m
12m
Absolute
1.8
(2.8)
(4.2)
(18.6)
(16.3)
Relative
1.5
(1.3)
(6.0)
(19.2)
(19.3)
Shariah compliant
P/CF (x)
23.9
16.4
14.3
1.9
2.4
3.5
4.6
EV/EBITDA (x)
19.4
15.4
11.4
8.0
6.1
Return on average equity (%)
18.5
18.7
20.9
25.3
27.4
Net debt to equity (%)
22.9
27.5
23.2
17.3
13.0
4.2
17.5
25.5
Our vs consensus EPS (adjusted) (%)
na
na
Dec-14F Dec-15F Dec-16F
1.5
Dividend Yield (%)
Source: Company data, RHB
See important disclosures at the end of this report


3

.
1
0
.
3
0
0
.
3
0
0
What’s new?
.
0
0
 FY14 full-year new contract value in line. China State Construction 0
International (CSCI) announced its FY14 full-year operating data and
hosted a conference call after market close on Friday. Its FY14 full-year
new contract value grew 32% YoY to HKD60.24bn, up from HKD45.5bn
in FY13. It reached the company’s HKD60bn target and was in line with
our HKD60.5bn forecast.
20
Source: Bloomberg




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2
Company Update, 9 January 2015
Top Glove (TOPG MK)
Sell (from Buy)
Consumer Non-cyclical - Rubber Products
Market Cap: USD793m
Target Price:
Price:
MYR4.04
MYR4.58
Macro
Risks
Muted Growth Drivers
Growth
Value
Top Glove (TOPG MK)
Price Close
Relative to FTSE Bursa Malaysia KLCI Index (RHS)
6.00
109
5.80
106
5.60
102
5.40
99
5.20
95
5.00
92
4.80
88
4.60
85
4.40
81
4.20
78
4.00
25
74
0
0
.
2
0
0
We came away from an analysts’ briefing at Top Glove yesterday .
0
feeling distinctly unimpressed by the lack of growth catalysts for FY15- 0
16, with production capacity skewed toward low-growth latex gloves. 0
Downgrade to SELL (from Buy) with a MYR4.04 TP (11.8% downside),
which is based on 13.5x FY15F P/E. Investors looking to reposition their
portfolios should switch to Hartalega instead.

20
15

Nov-14
Sep-14
Jul-14
May-14
Mar-14
5
Jan-14
Vol m
10

Source: Bloomberg
Avg Turnover (MYR/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (MYR)
Free float (%)
Share outstanding (m)
Shareholders (%)
Tan Sri Dato Sri Lim Wee Chai
Kumpulan Wang Persaraan
(Diperbadankan)
Employees Provident Fund
3.27m/0.97m
4.4
-11.8
4.26 - 5.88
47
617
28.9
7.0
5.5


2

.
2
0
.
2





Capacity expansion plans. Top Glove offered further guidance on its
nitrile capacity expansion plans, with 14 new lines expected to come
online in January. This will increase total glove capacity by 2bn pieces
(+4.7%). An additional 1.4bn pieces (+3.1%) will be added by Jul 2016
and 4.4bn pieces (+9.6%) in Sep 2016. However, this capacity
expansion over the next two FYs (average 3.9%) trails those of industry
leaders like Hartalega (HART MK, BUY, TP: MYR8.04) and Kossan
Rubber Industries (Kossan) (KRI MK, BUY, TP: MYR5.12), who are
enjoying double-digit capacity growth (around 20%-plus each).
Silver lining. We do not expect significant cost headwinds as raw
material prices are expected to stay subdued while a strengthening USD
remains favourable for Top Glove.
Risks. Heightened competition among the glove players could put
pressure on ASPs as well as margins. This would be detrimental for Top
Glove, given that the company is a margins laggard relative to its peers.
Downgrade to SELL and MYR4.04 TP. In the current market
environment, we believe investors should be focusing on identifying
stocks with clearly-defined growth angles. While the rubber glove
industry benefits from the export and rising USD themes, Top Glove’s
lack of compelling earnings growth over its next two FYs is a negative.
Accordingly, we believe the stock now deserves to trade at a lower target
FY15F P/E of 13.5x (from 17x), ie 1.5SD below its 3-year historical mean
trading band. We believe this fairly reflects the modest 3-year FY15F17F EPS CAGR of just 6.5%. We downgrade our recommendation to
SELL (from Buy) with a MYR4.04 TP (from MYR5.06), implying an
11.8% downside. We prefer Hartalega for exposure to the sector.
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
1.3
(2.6)
(5.2)
(0.2)
(18.9)
Total turnover (MYRm)
Relative
4.3
(0.8)
1.1
9.5
(12.2)
Aug-13
Aug-14
Aug-15F
Aug-16F
Aug-17F
2,313
2,276
2,481
2,600
2,894
Reported net profit (MYRm)
197
200
186
198
211
Recurring net profit (MYRm)
186
183
186
198
211
Recurring net profit growth (%)
(8.0)
(1.6)
1.7
6.7
6.4
Recurring EPS (MYR)
0.30
0.29
0.30
0.32
0.34
Alexander Chia +603 9207 7621
DPS (MYR)
0.16
0.16
0.15
0.16
0.17
[email protected]
Recurring P/E (x)
15.3
15.5
15.3
14.3
13.5
P/B (x)
2.13
2.04
1.91
1.79
1.68
P/CF (x)
11.7
9.4
10.6
9.4
9.1
3.5
3.5
3.3
3.5
3.7
9.31
8.99
8.27
7.52
6.86
Shariah compliant
Malaysia Research +603 9207 7688
[email protected]
Forecasts and Valuations
Dividend Yield (%)
EV/EBITDA (x)
Return on average equity (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report
Source: Company data, RHB
15.2
net cash
14.7
12.9
net cash
12.9
net cash
net cash
(7.6)
(11.3)
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12.9
net cash
0.0
3
Initiating Coverage, 12 January 2015
Evergreen Fibreboard (EVF MK)
Buy
Agriculture - Timber
Market Cap: USD104m
Target Price:
Price:
MYR1.11
MYR0.73
Macro
Risks
Set To Resume Its Glory Days
Growth
Value
Evergreen Fibreboard (EVF MK)
Price Close
Relative to FTSE Bursa Malaysia KLCI Index (RHS)
0.75
163
0.70
153
0.65
143
0.60
133
0.55
123
0.50
113
0.45
103
0.40
12
93
0
0
.
2
0
0
We initiate coverage on EFB with a BUY recommendation and a TP of .
0
MYR1.11 (52% upside). We are valuing the stock based on P/BV by 0
applying 0.7x P/BV to its BV of MYR1.59. We expect EFB to turn around 0
in FY15, propelled by operational efficiency, better selling prices,
favourable forex and lower raw material prices. Currently, the company
is still trading below its BV/share of MYR1.56 as at end-Sep 2014.


10
8

6
Nov-14
Sep-14
Jul-14
May-14
Mar-14
2
Jan-14
Vol m
4
Source: Bloomberg
Avg Turnover (MYR/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (MYR)
Free float (%)
Share outstanding (m)
Shareholders (%)
0.46m/0.13m
52.1
52.1
0.46 - 0.73
41
513
Kuo Jen Chang
UBS AG Hong Kong
Lembaga Tabung Haji
18.5
14.2
7.6



A leading MDF player. Evergreen Fibreboard Bhd (EFB) is a prominent
manufacturer of medium density fibreboard (MDF), particleboard,
furniture, value-added wood-based products and resin. It has 10 plants
located in Malaysia, Thailand and Indonesia with a combined annual
3
production exceeding 1.3m m .
A painful lesson. EFB reported its first loss in FY13 with a net loss of
MYR42.8m, attributed to weak demand from its major market, new
supply from other regional producers, an increase in logistic cost and a
drop in ASP.
Internal restructuring. Currently, the company is embarking on a series
of restructuring exercises in FY14-FY16 periods: i) shifting one of the
Malaysian production lines to its Indonesian plant to achieve economies
of scale and greater cost savings; ii) upgrade its machine and equipment
in Segamat plant, with more automation processes to improve efficiency;
and iii) streamlining its Batu Pahat plants’ operations for better cost
savings and smoother production flows.
Favourable external factors. With >70% of export sales, EFB is
benefiting from a stronger USD. In addition, the company is also
enjoying lower raw material costs, thanks to lower rubber wood logs and
crude oil prices (both constituting 60% of its total cost).
Initiate BUY with a MYR1.11 TP. We believe that the company would
turnaround in FY15, premised on improved efficiency internally,
favourable forex and relatively stable raw material costs. Our TP is
derived by applying 0.7x P/BV to its FY15F BV of MYR1.59. EFB
currently trades at FY15F P/B of 0.46 and FY15F P/E of 10.4
Key Risks. i) fluctuation in the prices of raw materials; ii) unfavourable
forex movements; iii) execution risk – restructuring is underway.
Forecasts and Valuations
Share Performance (%)


2

.
2
0
.
2




Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
1,032
939
940
982
1,031
12m
Total turnover (MYRm)
59.3
Reported net profit (MYRm)
32.2
(42.8)
(4.7)
35.6
45.1
Recurring net profit (MYRm)
33.0
(42.8)
(4.7)
35.6
45.1
(47.5)
(229.7)
(89.1)
Recurring EPS (MYR)
0.06
(0.08)
(0.01)
0.07
0.09
DPS (MYR)
0.02
0.00
0.00
0.00
0.02
Recurring P/E (x)
11.3
Chaw Sook Ting +603 9207 7604
P/B (x)
0.45
[email protected]
P/CF (x)
YTD
Absolute
Relative
19.8
21.7
1m
35.5
36.1
3m
40.8
46.4
6m
40.8
49.4
64.8
Shariah compliant
Recurring net profit growth (%)
na
26.6
10.4
8.2
0.47
0.48
0.46
0.44
8.07
5.52
4.34
3.63
Dividend Yield (%)
2.1
0.0
0.0
0.0
2.8
EV/EBITDA (x)
6.1
19.4
8.2
4.6
4.3
Return on average equity (%)
3.9
(5.3)
(0.6)
4.5
5.4
33.7
34.8
30.6
22.8
25.1
0.0
0.0
0.0
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
na
na
na
Source: Company data, RHB
See important disclosures at the end of this report
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4
Company Update, 12 January 2015
Biostime (1112 HK)
Neutral (Maintained)
Consumer Non-cyclical - Food & Beverage Products
Market Cap: USD1,268m
Target Price:
Price:
HKD15.97
HKD16.20
Macro
Risks
Negatives Priced In With Limited Upside
Growth
Value
Biostime (1112 HK)
Price Close
Relative to Hang Seng Index (RHS)
69.2
111
59.2
94
49.2
77
39.2
60
29.2
43
19.2
26
9.2
18
16
14
12
10
8
6
4
2
0
0
.
2
0
0
Management guides for flat FY14 sales (from +6% YoY previously) – .
0
implying negative growth for 2H14 – and 2H14 NP margin to be similar 0
to 1H14’s 14.3%. Maintain NEUTRAL with a lower HKD15.97 TP (1.4% 0
downside). Given challenges ahead including fierce competition, an
industry slowdown and Biostime’s sales team restructuring, we see
limited catalysts to support a share price rebound. This marks the
transfer of coverage to Robin Yuen.

8
Nov-14
Sep-14
Jul-14
May-14
Mar-14

Jan-14
Vol m
79.2

Source: Bloomberg
Avg Turnover (HKD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (HKD)
Free float (%)
Share outstanding (m)
Shareholders (%)
43.8m/5.64m
35.8
-1.4
15.0 - 72.4
26
607
Directors
Artisan Partners
Janus Capital Management
74.2
0.9
0.8
Share Performance (%)

Difficult industry conditions. We recently spoke with management for
an update. Management stated fierce competition in the infant milk
formula (IMF) market, with an explosion of IMF brands and rapid
expansion of retail stores. IMF sales volume has stagnated, with sales
value going up primarily due to consumers upgrading to supreme-tier
products.
Weak 3Q14 guidance. Management sees ASPs to decline going
forward as Biostime grabs share in mid- to low-end market via its
secondary brand Adimil in e-commerce platforms, and via a locallyproduced IMF product for penetration into tier-4 and tier-5 cities. Thus,
management further revises down its guidance for FY14 sales growth
and net profit (NP) margins to be flat.
Cut numbers to reflect a new environment. We reduce our numbers
to incorporate management’s guidance and comments from Biostime’s
industry peers. For FY14-16, we: i) cut sales by 6%/10%/12%, ii) lower
gross profit (GP) margins by 2ppts/4ppts/4ppts to 61%/60%/59% to
reflect product mix dilution and increased promotions, and iii) revise
selling,
general
and
administrative
(SG&A)
expenses
up
1.5ppts/2.0ppts/2.5ppts to reflect increased headcount on specialised
sales team and continued investment in the e-commerce business,
leading to a NP reduction of 22%/33%/40% for FY14-16 respectively.
Reduce TP, maintain NEUTRAL. Our new TP of HKD15.97 (from
HKD34.10) is based on a reduced FY15 P/E of 12x (from 17x P/E),
which is about -1SD of its 3-year historical forward P/E. We feel a
reduced multiple is justified as Biostime faces margin compression and
curtailed revenue growth in the forecasted years. With limited catalysts in
sight, we find a re-rating is unlikely in the near future.
YTD
1m
3m
6m
12m
Absolute
1.6
2.5
(34.4)
(60.4)
(77.2)
Forecasts and Valuations
Relative
1.3
4.0
(36.2)
(61.0)
(80.2)
Total turnover (CNYm)
Shariah compliant
Robin Yuen, CFA +852 2103 9202
[email protected]
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
3,382
4,561
4,557
4,775
5,179
Reported net profit (CNYm)
743
821
653
647
661
Recurring net profit (CNYm)
698
917
645
639
653
Recurring net profit growth (%)
51.9
31.4
(29.7)
(1.0)
2.2
Recurring EPS (CNY)
1.17
1.53
1.08
1.06
1.09
DPS (CNY)
0.88
1.06
0.44
0.43
0.44
Recurring P/E (x)
11.1
8.5
12.1
12.2
11.9
P/B (x)
3.35
3.09
2.92
2.48
2.15
P/CF (x)
8.2
11.8
8.6
11.3
10.7
Dividend Yield (%)
6.8
8.1
3.4
3.3
3.4
3.16
3.31
6.63
6.19
5.52
EV/EBITDA (x)
Return on average equity (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report


2

.
2
0
.
1




Source: Company data, RHB
34.6
net cash
33.9
25.2
net cash
22.3
19.5
net cash
net cash
net cash
(1.4)
(7.3)
(14.1)
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5
Company Update, 9 January 2015
Shimao Property Holdings (813 HK)
Buy (Maintained)
Property - Real Estate
Market Cap: USD8,248m
Target Price:
Price:
HKD22.80
HKD18.40
Macro
Risks
Large Exposure In Major Cities a Boon
Growth
Value
Shimao Property (813 HK)
Price Close
Relative to Hang Seng Index (RHS)
20.0
105
19.0
101
18.0
96
17.0
92
16.0
88
15.0
83
14.0
79
13.0
74
12.0
60
70

40
30

Nov-14
Sep-14
Jul-14
May-14
Mar-14
10
Jan-14
Vol m
20
Source: Bloomberg
164m/21.1m
11.4
23.9
13.3 - 19.0
36
3,473
64.5
Share Performance (%)
YTD
1m
3m
6m
12m
Absolute
6.2
(0.2)
9.5
13.3
4.2
Relative
5.9
1.3
7.7
12.7
1.2
Shariah compliant
Toni Ho +852 2103 5888
[email protected]

Appropriate strategy of focusing on more prosperous regions. We
note that China’s major Tier-1 and -2 cities have been leading the
property market’s turnaround since 4Q14 in terms of transaction volume
and the rebound in selling prices. We also believe the interest rate cut,
loosening of mortgage restrictions and relaxation of policies could boost
the purchasing power of first-time buyers and upgraders. Therefore, we
expect large-scale developers with significant exposure in such cities
and the mid-range to high-end residential property segments to continue
to outperform. In this aspect, we like Shimao Property (Shimao), given its
strong presence in robust Tier-1 and -2 cities, especially in Fujian
province and the Yangtze River Delta (YRD) region, which make up onethird of its total saleable resources.
A relatively safe play amid concerns over the anti-corruption drive.
The campaign against corruption has sparked fears over the legal
accountability of high-level management and major shareholders of
developers. We suggest that investors avoid developers which hold
large-sized projects with abnormally low land costs or have a significant
reliance on particular cities, as such factors would heighten the risk of
such companies being investigated. Other than state-owned enterprises
(SOEs), we prefer large-scale, nationwide developers with a more even
geographical distribution and reasonable land costs for their landbank.
We believe Shimao will suffer less from such private enterprise
concerns, given its transparent approach to acquiring land and its
operational track record.
TP rises to HKD22.80 (from HKD20.30), maintain BUY. We lift our
ENAV slightly to HKD30.40 (from HKD29.00) to reflect slightly higher
market values of its properties. We also use a narrower target end-FY15
ENAV discount of 25% (+1SD from its past 5-year forward mean) vs
30% previously to reflect its better fundamentals. As such, we raise our
TP to HKD22.80.
Forecasts and Valuations
Dec-11
Dec-12
Dec-13
Dec-14F
Dec-15F
Total turnover (CNYm)
26,031
28,652
41,503
57,332
67,848
Reported net profit (CNYm)
5,723
5,765
7,390
9,449
9,572
Recurring net profit (CNYm)
4,078
4,387
7,319
8,626
9,572
Recurring net profit growth (%)
38.6
7.6
66.8
17.9
11.0
Recurring EPS (CNY)
1.16
1.27
2.11
2.49
2.76
DPS (CNY)
0.32
0.45
0.63
0.82
0.83
Recurring P/E (x)
12.8
11.7
7.0
5.9
5.3
P/B (x)
1.71
1.43
1.23
1.06
0.92
Dividend Yield (%)
Return on average equity (%)
Return on average assets (%)
Net debt to equity (%)
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report


3

.
2
0
.
2
0
0
.
3
0
0
We like Shimao's robust positioning in Tier-1 and -2 cities and believe it .
0
runs a low risk of being embroiled in China's anti-corruption drive. 0
Maintain BUY, while our TP rises to HKD22.80 (from HK20.30, 23.9% 0
upside) on a slightly higher HKD30.40 end-FY15 ENAV and lower 25%
target NAV discount (vs 30%). We expect its strong share performance
to continue. This report marks the transfer of coverage to Toni Ho.
50
Avg Turnover (HKD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (HKD)
Free float (%)
Share outstanding (m)
Shareholders (%)
Hui Wing Mau




Source: Company data, RHB
2.2
3.0
4.3
5.6
5.6
20.0
17.3
19.0
21.0
18.5
5.4
4.6
4.8
5.0
4.6
81.6
55.9
57.4
49.8
45.9
(2.3)
(5.4)
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6
Company Update, 12 January 2015
Integrax (INTEG MK)
Buy (from Neutral)
Transport – Logistics
Market Cap: USD195m
Target Price:
Price:
MYR2.75
MYR2.31
Macro
Risks
Receives Privatisation Offer From Tenaga
Growth
Value
2.50
108
2.40
104
2.30
101
0
0
.
1
0
0
Tenaga has made an offer to buy the remaining stock it does not own in .
0
Integrax at MYR2.75/share (20.6%/19% above our fair value/last closing 0
price), implying a 14.5x FY15 P/E and a price-to-book of 1.32x for 9M14. 0
We deem the offer as fair, as Integrax has yet to achieve any
breakthrough in securing new customers. We recommend investors to
accept the offer and revise our DCF-based TP to MYR2.75 (19% upside).
2.20
97

2.10
94
2.00
90
1.90
87
1.80
3
83
Integrax (INTEG MK)
Price Close
Relative to FTSE Bursa Malaysia KLCI Index (RHS)
3
2
2
1

Nov-14
Sep-14
Jul-14
May-14
Mar-14
1
Jan-14
Vol m


2

.
2
0
.
2




Source: Bloomberg
Avg Turnover (MYR/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (MYR)
Free float (%)
Share outstanding (m)
Shareholders (%)
0.45m/0.13m
0.4
19.0
1.90 - 2.39
38
301
Tenaga Nasional Berhad
Perbadanan Kemajuan Negeri
Perakmin Bin Halim Rasip
22.1
21.4
Perak Corporation Berhad
15.7
Share Performance (%)
YTD
1m
Absolute
1.3
0.0
Relative
3.2
0.6
3m
6m
12m
7.9
4.5
(3.4)
13.5
13.1
2.1
Shariah compliant
Ahmad Maghfur Usman 603 9207 7654
[email protected]

Sole customer offers to buy remaining shares. Integrax has received
an offer from major shareholder Tenaga Nasional (Tenaga) (TNB MK,
BUY, TP: MYR15.50) to buy the remaining shares the latter does not
own at MYR2.75/share. Tenaga owns 22.12% of Integrax and does not
intend to maintain its listing status. Integrax owns two terminals, ie Lekir
Bulk Terminal (LBT) (80% stake) and Lumut Maritime Terminal (50%
less one share). Tenaga is Integrax’s only customer at the LBT (90-95%
utilisation rate), which facilitates the import of coal. In FY11-13, LBT
contributed 58.5% of its total earnings. The offer comes ahead of
Tenaga’s upcoming talks with Integrax on the jetty terminal usage
agreement (JTUA) 3, expected to commence in late 2017. The JTUA 3 is
for the new 1000MW brownfield unit (M5) awarded to TNB in Jul 2013.
A natural deepwater draft area. LBT, located at Teluk Rubiah, has a
natural deepwater draft of at least 20m. This is suitable for very large
bulk carriers like 400,000-deadweight tonnage (dwt) Valemax vessels. In
29 Dec 2009, Integrax entered into a service agreement to provide
transshipment services for Vale’s (VALE US, NR) iron ore distribution
hub in Teluk Rubiah. As the agreement was only for 10 years, this led to
a tussle between the two founders, where one favoured the deal while
the other opposed it due to the substantial capex involved. When the
agreement lapsed in Oct 2010, Vale decided to invest in its own terminal.
The terminal booked its first exports in Aug 2014. Integrax is still in talks
with Vale to determine the latter’s level of participation in transshipment.
Buy (Accept offer.) Integrax has been trying to secure new customers
these past few years, albeit unsuccessfully. Our earnings projections
reflecting its DCF has only factored in Tenaga as its only client. Its
valuation would receive a boost if it secures new customers – but with
Vale out of the picture, it remains uncertain how far Integrax can grow its
business. The offer is: i) 20.6% higher than our previous MYR2.28 TP, ii)
19% higher than last Friday’s closing price, iii) 14.5x of our FY15 EPS,
and iv) 1.32x its book value of MYR2.09 as at 30 Sep 2014. We advise
minorities to accept the offer and upgrade our TP to the offer price of
MYR2.75.
 Forecasts
leo, non
orci.
anddapibus
Valuations
Phasellus
sollicitudin
mauris, Dec-16F
eget
Dec-12
Dec-13consectetur
Dec-14F Dec-15F
nec. Mauris ac
et 96
dictum 138
felis. Cras
91 odio urna,
93
144
vulputate,
massa
at consectetur pharetra,
ligula
placerat 56.8
ante, vitae
Reported
net profit
(MYRm)
41.7
41.2 est 39.0
59.9
Recurring
profit
(MYRm)
41.7
41.2 Nunc
39.0
56.8 semper
59.9
ornarenet
eros
nisi
id dui. Fusce sed tincidunt
urna.
adipiscing
Recurring
net profit
growth
(4.9) at sollicitudin
(1.1)
(5.4)
45.7
5.4
egestas.
Morbi
orci (%)
nisl, condimentum
eget, condimentum
Recurring
EPS (MYR)
0.13 molestie.
0.19 In hac
0.20
quis dolor.
Nunc malesuada enim 0.14
placerat 0.14
mi euismod
DPS
(MYR)
0.03 leo purus,
0.05
0.06
habitasse
platea dictumst. Mauris vitae
nec0.04
feugiat 0.06
dui.
aliquam
blandit
Total
turnover urna
(MYRm)
Recurring P/E (x)
16.7
16.9
17.8
12.2
11.6
P/B (x)
1.18
1.12
1.07
1.01
0.96
P/CF (x)
13.9
17.7
17.2
11.5
11.3
1.3
1.9
1.8
2.6
2.8
10.0
10.0
8.6
5.1
4.5
7.2
6.8
6.2
8.5
Dividend Yield (%)
EV/EBITDA (x)
Return on average equity (%)
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
(16.3)
net cash
(16.0)
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8.5
net cash
(11.5)
7
Company Update, 12 January 2015
Tenaga Nasional
Buy (Maintained)
(TNB MK)
Utilities - Power
Market Cap: USD22,438m
Target Price:
Price:
MYR15.50
MYR14.16
Macro
Risks
Making a Takeover Offer For Integrax
Growth
Value
Tenaga Nasional (TNB MK)
Relative to FTSE Bursa Malaysia KLCI Index (RHS)
15.0
132
14.5
128
14.0
124
13.5
120
13.0
116
12.5
112
12.0
108
11.5
104
11.0
100
10.5
96
10.0
45
40
35
30
25
20
15
10
5
92


Nov-14
Sep-14
Jul-14
May-14
Mar-14
Source: Bloomberg
Avg Turnover (MYR/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (MYR)
Free float (%)
Share outstanding (m)
Shareholders (%)
Khazanah Nasional
EPF
Skim Amanah Saham
Bumiputera
113m/33.4m
9.9
9.5
11.0 - 14.5
47
5,644
32.4
12.8
7.4
Absolute
Relative



Takeover offer for Integrax at MYR2.75/share. Tenaga Nasional Bhd
(Tenaga) which already owns 66.5m shares or a 22.1% stake in Integrax
Bhd (Integrax) (INTEG MK, NEUTRAL, TP: MYR2.28), has made a
takeover offer for the remaining 234.3m shares or 77.9% stake in
Integrax it does not already own for MYR644.2m or MYR2.75/share
cash.
Slight premium valuation, but not excessive. At MYR2.75/share, the
offer values Integrax at: i) a 21% premium to our MYR2.28 DCF-derived
TP for Integrax based on a discount rate of 10.5%, ii) 14.5x our FY15
net profit forecast for Integrax, and iii) 1.32x its book value of MYR2.09
as at 30 Sep 2014.
A tactical move. We believe the deal is too small to have any impact on
Tenaga’s P&L and balance sheet. Tenaga’s latest move is more tactical
in nature as it will give it full control over the port’s operations and future
direction. In addition, the takeover makes perfect sense administratively,
particularly when it comes to negotiation of jetty usage rates which has in
the past been a sticky point and a long-drawn process.
Forecasts. We maintain our forecasts.
Risks. These include: i) volatility in gas and coal prices, ii) volatility in
MYR’s strength against the USD, and iii) regulatory risks.
Maintain BUY. Tenaga has emerged a clear winner from the current oil
price rout. As the proposed half-yearly adjustment in electricity tariff is
still far from being a certainty, Tenaga effectively will still have to
stomach substantial fuel cost risks. Nonetheless, the current low energy
price environment is surely a respite. We keep our TP at MYR15.50
based on 15.4x FY15F EPS, at a 10% premium over Tenaga’s 5-year
historical average of 14x, to reflect an improved regulatory risk
environment.
Forecasts and Valuations
Share Performance (%)
Aug-13
Aug-14
Aug-15F
Aug-16F
Aug-17F
37,131
42,792
45,286
46,460
47,666
Reported net profit (MYRm)
5,356
6,467
5,682
5,774
5,855
Recurring net profit (MYRm)
4,084
4,728
5,682
5,774
5,855
Recurring net profit growth (%)
(8.2)
15.8
20.2
1.6
1.4
Recurring EPS (MYR)
0.72
0.84
1.01
1.02
1.04
DPS (MYR)
0.25
0.29
0.33
0.34
0.34
Recurring P/E (x)
19.6
16.9
14.1
13.8
13.6
P/B (x)
2.12
1.85
1.72
1.58
1.47
P/CF (x)
9.55
8.43
7.14
6.87
6.73
1.8
2.0
2.3
2.4
2.4
EV/EBITDA (x)
9.45
8.61
7.06
6.85
6.58
11.2
YTD
1m
3m
6m
12m
Total turnover (MYRm)
2.6
2.3
12.9
13.6
20.8
26.3
4.5
2.9
18.5
22.2
Shariah compliant
Dividend Yield (%)
Return on average equity (%)
14.5
16.0
12.7
11.9
Joshua Ng +603 9207 7606
Net debt to equity (%)
35.1
31.5
26.7
23.0
17.7
[email protected]
Our vs consensus EPS (adjusted) (%)
(6.8)
(9.5)
(13.5)
Source: Company data, RHB
See important disclosures at the end of this report


3

.
1
0
.
2
0
0
.
2
0
0
Tenaga has made a takeover offer for a 77.9% stake in Integrax it does .
0
not already own, for MYR2.75/share cash. We maintain our BUY call, 0
earnings forecasts and TP of MYR15.50 (9.5% upside). We deem this 0
deal too small to leave any impact on Tenaga’s P&L and balance sheet.
Tenaga, a heavy fuel user, has emerged a clear winner from the current
oil price rout. We also like its “renaissance” in power generation.

Jan-14
Vol m
Price Close




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8
Company Update, 9 January 2015
Vard Holdings (VARD SP)
Sell (Maintained)
Energy & Petrochemicals - Oil & Gas Services
Market Cap: USD556m
Target Price:
Price:
SGD0.51
SGD0.63
Macro
Risks
Still Not In Value Territory
Growth
Value
VARD Holdings (VARD SP)
Relative to Straits Times Index (RHS)
1.20
136
1.10
125
1.00
113
0.90
102
0.80
90
0.70
79
0.60
67
0.50
90
80
70
60
50
40
30
20
10
56

Nov-14
Sep-14
Jul-14
May-14
Mar-14
Source: Bloomberg
Avg Turnover (SGD/USD)
Cons. Upside (%)
Upside (%)
52-wk Price low/high (SGD)
Free float (%)
Share outstanding (m)
Shareholders (%)
Fincantieri
3.74m/2.91m
-1.6
-19.0
0.59 - 1.16
44
1,180
55.6
Share Performance (%)


Slowing order momentum. Vard won an order for a construction vessel
of unspecified value last month, and a NOK100m equipment package
last week. Going forward, we expect orders/vessel sales to trail revenue
recognition. Management has guided for “below average new order
intake expected in the near to medium term” as the deepwater segment
faces falling asset utilisation and charter rates.
Deepwater activity a severe casualty of oil price collapse. With all-in
costs in the USD40-80/barrel (bbl) range, much of deepwater production
now looks uneconomic with oil at c.USD50/bbl. Though we see this
situation as temporary over 1H15, the slower upstream investments and
order flows over this year may have a longer-term effect on Vard’s
financials, delaying margin and earnings recoveries. Already, we are
seeing deepwater rig prices and charter rates fall, together with those of
their support vessels. Large anchor-handler (14,000 brake horsepower
and above) prices have fallen >10% from mid-2014, according to the
latest industry data. Even in the best of times, Vard’s operating margins
were c.11-14% - such a fall could eat into the bulk of future earnings.
Street has cut estimates by c.45%. Three months ago, we warned that
forecasts for a strong earnings recovery were overly bullish, and we
were 41-45% below consensus. After street downgrades of c.45%,
valuations remain elevated and may undermine share price performance
even in an oil price recovery scenario. We continue to see the risks on
forecast revisions being more heavily weighted on the downside.
Maintain SELL with a lower SGD0.51 TP. Vard’s saving grace is the
NOK20bn orderbook, equivalent to 1.5-year revenue, which should tide it
over the turbulence of FY15. We lower our TP to SGD0.51 (from
SGD0.57) to reflect weak market sentiment, now pegged to 9x (-0.5SD,
from 10x) FY15F earnings.
YTD
1m
3m
6m
12m
Absolute
5.0
1.6
(28.4)
(42.5)
(27.2)
Forecasts and Valuations
Dec-12
Dec-13
Dec-14F
Dec-15F
Dec-16F
Relative
7.5
2.9
(29.6)
(42.2)
(32.4)
Total turnover (NOKm)
11,129
11,155
11,323
13,148
12,666
Reported net profit (NOKm)
804
357
290
387
417
Recurring net profit (NOKm)
804
357
290
387
417
(49.6)
(55.6)
(18.7)
33.2
7.7
Recurring EPS (NOK)
0.68
0.30
0.25
0.33
0.35
DPS (NOK)
0.59
Shariah compliant
Recurring net profit growth (%)
Lee Yue Jer, CFA +65 6232 3898
0.07
0.10
0.11
5.4
12.1
14.9
11.2
10.3
P/B (x)
1.37
1.17
1.08
1.01
0.94
Jesalyn Wong +65 6232 3872
P/CF (x)
4.34
[email protected]
Dividend Yield (%)
16.2
0.0
2.0
2.7
2.9
3.5
10.8
14.0
9.4
8.4
Return on average equity (%)
24.1
10.4
7.6
9.4
9.4
Net debt to equity (%)
46.4
106.3
87.9
92.3
74.3
(4.4)
(8.7)
(6.3)
[email protected]
Recurring P/E (x)
EV/EBITDA (x)
Our vs consensus EPS (adjusted) (%)
See important disclosures at the end of this report


3

.
3
0
.
1
0
0
.
1
0
0
Though it has fallen 42% in six months, we think that Vard’s valuations .
0
today are still high, trading at 11x FY15F P/E vs its closest peer Nam 0
Cheong at merely 4.3x. We lower our TP to SGD0.51 (19% downside, 0
from SGD0.57) based on a reduced 9x (from 10x) FY15F P/E to reflect
the weak market conditions. While book value now provides a thin
support, slowing order flow and oil prices, being no longer conducive
for deepwater activity, pose visible headwinds over the year.

Jan-14
Vol m
Price Close




Source: Company data, RHB
na
5.00
na
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5.26
9
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
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