By: KAMEL BIN MOHD YUSOH
INSTITUTIONAL DEALER
KENANGA INVESTMENT BANK BHD
Tel : 03-21634549 / 03-21634550
H/P :013-6306544
WEBSITE : kamelresearch.blogspot.com
EMAIL : kamelyusoh@yahoo.com
YEAR 2010 AND 1ST QTR 2010 M’SIAN STOCK MARKET OUTLOOK.
Table of Contents: -
The March Toward Vision 2020.
1. Malaysia and Global Political, Economic and Stock Market Outlook - P2-14.
- A. Fundamental Analysis for 2010 – Page 5.
- B. Technical Analysis for 2010 – Page 5.
- C. Stock Market Strategy for 2010 – Page 5.
- D. Sectoral Recommendation for 2010 – Page 6.
- E. Malaysian Economic Indicators ( a. to q.) – Page 7 to Page 14.
2. Prospect for the Global Economy for 1Q 2010 and FYE 2010– P 15 to P 17.
- A. Global Economic Forecast – Page 15.
- a. GDP Forecast – P16.
- b. Interest Rates - Page 16.
- c. Inflation – Page 17.
- d. Unemployment – Page 17.
3. Top 33 Stocks Recommendation – Page 18 to Page 120.
4. The KLCI Earnings Estimates, Net Assets, Prospective Dividend Yield, prospective PER , Average PER, Dividend Yield and Book Value for the FYE 2010. Conclusion and Final Analysis – Page 121 to Page 122.
WHAT’S IN STORE FOR THE 1st QUARTER AND THE FYE 2010.
AS OF DECEMBER 31, 2009.
KLCI CLOSED AT 1272.78. DJIA CLOSED AT 10,428.05.
CRUDE OIL US$ 79.36. NATURAL GAS US$5.57. GOLD US$1,096.20.
MARCH FCPO RM2,663. RUBBER SMR 20 RM9.49.
RINGGIT 3.4265. BNM OPR 2.00%. FED FUND RATE 0.25%.
“THE MARCH TOWARD VISION 2020 – THE NEXT DECADE OF A NEW PHASE OF SUSTAINABLE GROWTH CYCLE ”
1.MALAYSIAN POLITICAL, ECONOMY AND STOCK MARKET OUTLOOK .
The faster than anticipated global economic recovery is gaining further momentum, as evidenced by the latest economic numbers such as Malaysia exports numbers for October 2009 and the U.S unemployment and housing numbers for November 2009, etc etc.
The much earlier than anticipated global economy recovery can now be expected by the fourth quarter of 2009 onward. Meanwhile, the global economy growth had been revised upward to between 3% to 4% in 2010 and Malaysia GDP looks certain to grow at 3% to 5% in 2010 but a higher GDP forecast of between 6% to 8% from 2010 up to 2020 is highly probable. U.S is expected to grow around 2% to 3% in 2010 and European Union and Japan are expected to grow around 1% to 2%. Meanwhile, China and India are expected to grow around 8% in 2010.
Forecast for GDP and FBMKLCI based on Business Cycle Theory.
Malaysia’s History on the Economy and Business Cycle for the past four decade :-
1. Early 1970’s – Oil Shock’s during the Arab-Israel War.
2. Mid 1980’s – Commodity price led recession.
3. 1997-1998 – Asian Financial Crisis.
4. 2007-2008 – U.S led Sub-Prime Crisis, the worse economic crisis since the 1930’s Great Recession.
The last three recession in Malaysia had been followed by a major economy or business expansion that normally last for about 10 years, mainly due to the highly accommodative fiscal, monetary and exchange rate policy, not only in Malaysia but globally too; and new technological innovation. So, the stage is set for the next Malaysian economy or business expansion cycle from Year 2010 to 2020, with the New Economic Model and 10th Malaysia Plan to drive growth.
I, therefore forecast from 2010 to 2020, a GDP growth of between 6% to 8%, followed by an earnings and dividend growth of between 15% to 30%. As a results, FBMKLCI true upside potential is 1525 in 2010, 1661 the latest by mid 2011, 3000 level by Year 2015 and 5000 level by Year 2020.
The FBMKLCI upside potential were based on yearly upside potential of 300 points or a yearly average of about 20% up to Year 2015 and 10% from then on up to Year 2020, in tandem with the DJIA and global stock markets.
Earnings growth for the FBMKLCI component stocks will come from loans expansion and low NPL for the banking sector (non-shariah), higher commodities prices (all time high for CPO at RM4,400 and rubber prices at above RM10) for the plantation sector due to weak dollar and high oil prices, telco’s, autos and utilities sector due to higher consumer demand as the economy recover. Tobacco and gaming sector (non-shariah) growth will come from higher disposable income on faster economy recovery. Meanwhile, oil and gas sector earnings growth will come from high energy prices going forward ( all time high of US$147).
Furthermore, the banking sector can be counted to be the backbone of further economic expansion as the country has an ample of liquidity in the banking system and a very low interest rates. The Achilles Heel of the country, exports, had turn positive in October 2009, as the global demand starting to gaining traction.
Continue current account surplus, high forex reserves, trade surplus, high savings rate, surprisingly low non performing loans in the banking system, low unemployment, low inflation level and recovery of the oil and commodities prices should augurs well for the country economy going forward.
Moreover, the Leading Indicators Index clearly pointing to an early Malaysian economy recovery. The effect of the RM67b fiscal stimulus has helped the recovery with construction sector which had a big multiplier effects as the main beneficiary.
Strong political will to implement the correct Fiscal, Monetary and Currency Policy as evidenced by the concerted effort by governments and central bankers worldwide to tackle the Great Recession and an Election in less than 4 years in Malaysia and in the U.S. will ensure an economy growth and upward movement for the stock markets is the order of the day until the election day in 2012 or 2013.
Therefore, further global economic recovery and major global economic expansion cycle well into 2020 is well underway and stand firm on my earlier call of :-
1.No easing off of the ultra low monetary policy. Interest rates must remain at the current level until normal economic growth are being restore again.
2.Continuance of the fiscal stimulus not an early withdrawal.
3.No early withdrawal of quantitative easing by the US Fed.
5.Strengthening of major currencies against US Dollar that can spurs commodities prices and helping the US to exports their way out of trouble but inflation still under control.
6.Further recapitalization of the damage banking system in the affected countries.
7.Continue cooperation between the governments and the central bankers in implementing policies for the world economies to grow again.
8. Crude Oil prices below US$100. Mechanism must be in place to deal with future oil shock such as new fuel pump prices pricing mechanism to be implemented in the middle of 2010 (no details yet). A cheaper source of energy from nuclear power plant is a must.
9. Strong political will power.
10. No hastily implementation of GST and removal of subsidies.
CONCLUSION.
I REITERATED my call of the Correct, Right or even Perfect (√) shape stock market and economy recovery, with the FBMKLCI index to break their previous all time high of 1525 level and hit a new high of 1661, I forecast the latest by the year 2011, 3000 level by 2015 and 5000 level by 2020, rather than V shape, W shape or L shape type of recovery. This is despite the latest Dubai debt crisis and Vietnamese currency devaluation provided the present Federal Government can remain in power after the next General Election due the latest by 2013.
A.FBKLCI 30 STOCKS INDEX - FUNDAMENTAL ANALYSIS FOR 4Q 2009.
FTSE Bursa Malaysia KLCI 30 Stocks Index as of 17.12.2009 were trading at a Prospective Price Earnings Ratio for 2010 of 14.6X and a Prospective Gross Dividend Yield for 2010 of 4.2 % based on a revised forecast FY2010 GDP growth of between 6% to 8% (1Q09 GDP at -6.2%, 2Q09 GDP at -3.9% and 3Q09 GDP at -1.2%).
Stocks Valuations for 2010 and 2011 should be very attractive based on my latest GDP growth forecast of between 6% to 8% from 2010 to 2020 on the back of stronger world economy recovery than anticipated despite a legitimate worry of a double dip recession on earlier withdrawal of fiscal and monetary stimulus.
The upcoming fourth quarter 2009 and next year onward reporting season together with a new economic numbers coming out will provide further clues to the stock market strength as the second and third quarter 2009 results were better than expected.
B. FBKLCI 30 STOCKS INDEX – TECHNICAL OUTLOOK FOR 1Q 2010 and FYE 2010.
Support Level – 1250, 1200.
Resistance Level – 1300, 1331, 1350, 1400, 1450, 1500.
Year End 2010 Target Level 1525.
Next Target Level at 1661, 3000 by 2015 and 5000 by 2020.
C. STOCK MARKET STRATEGY FOR THE FIRST QUARTER OF 2010.
Since we forecast the FBMKLCI to trade between 1300 to 1350 level for the 1Q 2010 and a Year End 2010 target of 1525, we continue to recommend investors to BUY and ACCUMULATE or Ringgit Cost Averaging on FBMKLCI linked and on good quality stocks with solid management track records and strong balance sheets together with a good dividend yields especially on extreme market weakness or major sell off around 1250 level for medium or long term investment at least until the country next general election. STRONG BUY recommendation for stocks that had posted better than expected 3Q 2009 earnings and stocks with good corporate news flow.
D. SECTORAL RECOMMENDATION.
Plantation Sector – Reiterated BUY, OUTPERFORM rating due to higher CPO prices going forward . Forecast CPO prices of between RM2,800 and RM2,900 in FYE2010 and RM3000 to RM3200 in FYE2011. The biggest listed plantation companies in the world and low valuations going forward are an added incentives for local and foreign funds to invest in the sector.
Oil and Gas Sector – Reiterated BUY rating due high capital expenditure spending by Petronas and oil majors on improving demand for O&G as the world economy recover. BUY Sapura Crest Bhd, Kencana Petroleum Bhd, Dialog Group Bhd, Petra Group, KNM Group Bhd.
Construction Sector – Reiterated BUY rating due to fiscal stimulus spending. BUY IJM Bhd, Gamuda Bhd and Muda Jaya Construction Bhd.
Banking Sector (Non-Shariah) – Reiterated OUTPERFORM rating on economy recovery, strong loans growth, low non performing loans and attractive valuations.
Property Sector – Reiterated BUY, ACCUMULATE rating on economy recovery. BUY UEM Land Bhd, KLCC Property Bhd, IJM Land Bhd, SP Setia Bhd, Tebrau Bhd.
Auto Sector – Reiterated BUY,ACCUMULATE rating on economy recovery and low valuations going forward.
Telecommunication Sector – Reiterated BUY, ACCUMULATE rating on economy recovery and low valuations going forward.
Energy and Power Sector – Reiterated BUY, ACCUMULATE rating on economy recovery and low valuations going forward. BUY Tanjong PLC (non-shariah).
Rubber Gloves Manufacturer – BUY, OUTPERFORM rating on strong global demand, No.1 world producer and very low valuations. BUY Top Glove Bhd, Adventa Bhd, Supermax Bhd, Latexx Bhd, IRCB Bhd, Rubberex Bhd, Kossan Bhd and Hartalega Bhd.
Healthcare Sector – BUY KPJ Healthcare Bhd due to lo valuations, better margin and better growth prospect either organically or through M&A. Cum 1 Free Warrant for 4, after Share Split of 2 for 1, and Bonus Issue of 1 for 4. Ex Date Jan 6, 2010.
Gaming and Leisure Sector (Non-Shariah) – MARKET PERFORM rating on higher consumer spending for Genting Bhd, Genting M’sia Bhd and Tanjong PLC(Higher demand for power and high consumer spending).
E. MALAYSIA ECONOMIC INDICATORS.
Sources :- Department of Statistics, Malaysia and Bank Negara Malaysia.
a.LEADING. COINCIDENT AND LAGGING INDICES OCTOBER 2009.
The Coincident Index (CI), that measures the current economic activity, rose by 2.10% in October. All the six components of CI contributed positively to the index, mainly real Salaries and Wages in Manufacturing Sector (0.5%) and Real Sales in Manufacturing Sector (0.5%). The six-smoothed growth rate of the CI showed an improvement from -0.1% in Sept 2009 to 4.2% in Oct 2009.
The Leading Index (LI) which monitor economic performance in advance also increased in October 2009. The index grew by 2.3% to 170.3 points from 166.5 points in the previous month. Main components that have contributed to the increase of index were Number of New Companies Registered (0.7%), Ratio of Price to Unit Labour Cost in Manufacturing Sector (0.6%.). And Number of Housing Permits Approved (0.6%) The six months smoothed growth rate of the LI increased sharply to 10.4% in October compared to 6.6% in the previous month.
The six month smoothed growth rate of the Leading Index in October continued to strengthen with positive growth since March 2009. This suggests that the economy will continue to expand in the coming months ahead.
ANALYSIS – The indexes had given a clear signs that Malaysian economy is on the mend and positive numbers to indicate the economy recovery can be expected in the coming months ahead.
b.GDP FOR THE FIRST QUARTER OF 2009.
GDP Current Prices – RM155.458 billion.
GDP Constant 2000 Prices – RM121.162 billion.
GDP Growth Rate Constant 2000 Prices % – Negative 6.2%.
c.GDP FOR THE SECOND QUARTER 2009.
GDP Current Prices – RM161,219 billion.
GDP Constant 2000 Prices – RM126.883 billion.
GDP Growth Rate Constant 2000 Prices % - Negative 3.9%.
GNI Current Prices – RM159.682 billion.
Per Capita GNI : Current Prices – RM22,564.
d.GDP FOR THE THIRD QUARTER OF 2009.
GDP Current Prices – RM173.273 billion.
GDP Constant 2000 Prices – RM134.159 billion.
GDP Growth Rate Constant 2000 Prices – Negative 1.2%.
National Accounts (GDP) at Current Prices - RM173.273 billion for 3Q 2009 or - 12.3%.
• Agriculture, Forestry and Fishing at RM17.092b or – 18.5%..
• Mining and Quarrying at RM21.618b or - 41.4%..
• Manufacturing at RM44.939b or – 12.8%.
• Construction at RM5.470b or + 6.0%.
• Services at RM87.888 billion or + 1.9% .
• Electricity, Gas and Water.
• Wholesale and Retail Trade, Hotel and Restaurants at RMb.
• Transport, Storage and Communication at RMb.
• Finance, Insurance, Real Estate and Business Services at RMb.
• Other Services at RMb.
• Government Services at RMb.
• Less: FISIM undistributed at RM5.457b or + 6.1%.
• Plus : Import Duties at RM1.723b or – 12.4%.
. Government Final Consumption Expenditure at RM24.471b or + 11.3%..
. Private Final Consumption Expenditure at RM88.050b or – 0.4%.
. Changes in Inventories at - RM8.618b.
. Gross Fixed Capital Formation at RM35.826b or – 8.2%.
. Export of Goods and Services at RM168.696b or -19.9%.
. Import of Goods and Services at RM135.152b or – 16.7%.
National Accounts (GDP) at 2000 Prices - RM134.159 billion for 3Q 2009 or – 1.2%.
• Agriculture, Forestry and Fishing at RM10.709b or – 0.5%..
• Mining and Quarrying at RM10.076b or - 3.5%.
• Manufacturing at RM36.700b or – 8.6%.
• Construction RM4.285b or + 7.9%.
• Services at RM76.352b or + 3.4%.
• Electricity, Gas and Water at RMb.
• Wholesale and Retail Trade, Hotel and Restaurants at RMb.
• Transport, Storage and Communication at RMb.
• Finance, Insurance, Real Estate and Business Services at RMb.
• Other Services at RMb.
• Government Services at RMb.
• Less: FISIM undistributed at RM5.573b or + 9.5%.
• Plus: Import Duties at RM1.610b or – 10.8%.
. Government Final Consumption Expenditure at RM19.102b or + 10.9%.
. Private Final Consumption Expenditure at RM72.162b or 1.5%.
. Changes in inventories at – RM1.468b.
. Gross Fixed Capital Formation – RM29.069b or -7.9%.
. Exports of Goods and Services at RM146.303b or – 13.4%.
. Imports of Goods and Services at RM131.009b or 12.9%.
e.FORECAST OF GROSS DOMESTIC PRODUCTS.
Revised GDP forecast for 2009 to -2% to -3% from -3% to -4% for 2009..
Revised Forecast GDP growth of between 6% to 8% from 2010 to 2020.
-4.4% in 2009, 2.2% in 2010 and 5% in 2011 according to the World Bank June 2009 forecast.
f.ANALYSIS OF GDP COMPONENTS.
1.SERVICES SECTOR - In 3Q 2009, continued to be the main impetus to GDP growth by expanding 3.4%, mainly due to the improvement in most of the Services sub-sectors. All the sub-sectors registered positive growth with the exception of Transport and Storage.
The sector expected to improve further in the coming quarters.
2.MANUFACTURING SECTOR – This sector fell 8.6% in 3Q09 as compared to 14.5% in 2Q09, as Petroleum, Chemical, Rubber and Plastic Products sub-sector registered a positive growth of 2%.
This sector expected to perform better in the coming quarters as external and domestic demand will start to pick up on further global economy recovery.
3.AGRICULTURE SECTOR - This sector registered a negative growth of 0.5% in 3Q09 as compared to growth of 0.3% in 2Q09 due to the decline in Oil Palm (-4.3%), in Fishing (-0.8%) and Rubber (-24.6%) subsectors.
The sector expected to perform better in the coming quarters as the prices of palm oil and rubber are set to recover.
4.CONSTRUCTION – This sector expanded further in 3Q09 by registering a growth of 7.9% as compared to a growth of 4.5% in 2Q09. The implementation of the first and second stimulus package has augmented the growth of Construction sector notably on Special Trade (+17.5%), Civil Engineering (+5.6%) and Non-Residential (+9.6%) sub-sectors.
Expected to expand further in the coming quarters on spending of the remaining balance of RM67b fiscal stimulus and new spending from 2010 budget allocations.
5.MINING AND QUARRYING SECTOR – This sector continued to post its sixth consecutive negative growth as its contracted by 3.5% in 3Q09 due to the decline in the production of Crude Oil (-5.2%), Condensate (-3.1%) and Natural Gas (-2.6%). The price of crude oil for this quarter fell by 39.8%.
The mining and quarrying sector expected to perform better in the coming quarters as the economy and demand recovers.
6.FINAL CONSUMPTION EXPENDITURE – Expanded further by 3.3% in 3Q09 after registering a marginal growth of 0.6% in 2Q09. Private Final Consumption Expenditure up by 1.5% from 0.5% in previous quarter. The growth was supported by the increase in household consumption on food and beverages, transport and communication. Government Final Consumption Expenditure grew at a stronger pace of 10.9%.
Expected to remain high on continuing of fiscal stimulus.
7.GROSS FIXED CAPITAL FORMATION – Improved to negative 7.95 in 3Q09 as compared to a declined of 9.% in 2Q09 due to the structure related component of GFCF.
8.EXPORTS AND IMPORTS – The external sector continued its negative momentum with both Exports and Imports declining by 13.4% and 12.9%. Deceleration in exports was due to lower demand for Electrical & Electronics Products and Petroleum Products in the external market. The contraction in Imports was due to the reduction in the imports of intermediate goods and capital goods.
Both exports and imports are expected to perform better in 2010 as the economy and demand recovers.
g.INDUSTRIAL PRODUCTION INDEX – (2005 = 100).
As at October 2009 at 106.5, up 0.7% as compared with October 2008. The increase was due to increases in Manufacturing +1.0% and Electricity Index up +13.4% but Mining Index was down by 2.7%.
Month on month, the IPI increased by 5.7%.
The cumulative index were down by 9.7% as compared to the same period in 2008.
ANALYSIS – Expected to improve further in 2010.
h.BALANCE OF PAYMENTS – 2009.
Balance on Current Account at RM31.421 billion (1Q09), RM28.759b (2Q09), RM25.3b (3Q09). 9M09 at RM85.4b down RM14.5b or 14.5% from 9M 2008.
Capital Account at –RM29.0m in 3Q09 compared to outflow of RM36.0m in 2Q09.
Financial Account net outflow improved by RM13.1b (54.1%) to post RM11.1b (2Q09 : -RM24.2b), mainly due to a switch in portfolio investment to a net inflow of RM18.6b from a net outflow of RM9,9b in 2Q09 and net outflow of RM55.3b outflow last year. Other investment recorded higher outflow to RM19.9b from RM6.2b. Direct Investment recorded a higher net outflow of RM9.7b from RM8.1b previously (DIA - RM13.3b, FDI + RM3.6b).
Overall Balance at RM3.265b (1Q09), RM2.134b (2Q09), RM11.5b (3Q09).
ANALYSIS – Malaysia’s Balance of Payment expected to improve further in tandem with the economy recovery.
i.EXTERNAL TRADE – January to October 2009.
Total Exports at RM448,581 billion down from RM565.639b or 20.7 % Yr on Yr.
Total Imports at RM351.203 billion down from RM446.801b or 21.4% Yr on Yr.
Balance of Trade at surplus of RM97.377 billion from RM118.838b in 2008.
ANALYSIS – Total Exports expected to recover in the months ahead and for Malaysia to continue registering healthy trade surpluses as the global trade recover. 3Q09 exports figures were better than 2Q 2009 figures.
j.INFLATION RATE (CPI).
At 112.8 in November 2009 based on CPI (2005 = 100).
January to November 2009 up by 0.5%.
Year on Year August 2009 CPI were down 0.1% .
Month on Month CPI up by 0.3 % in November 2009 compared with October 2009.
ANALYSIS - Forecast the inflation rate to remain subdued for the remainder of 2009 and 2010 unless the world crude oil price breach the US$100 level again which is possible in 2011 as demand for oil pick up in tandem with the anticipated strong global economic growth.
k.PRODUCER PRICE INDEX (PPI 2000 = 100).
As of October 2009 at 133.4.
Domestic Economy at 130.7 (Jan to Oct 2009).
Local Production at 132.0 (Jan to Oct 2009).
Imports at 128.3 (Jan to Oct 2009).
ANALYSIS – Forecast PPI to remain stable for the Year 2010.
l.UNEMPLOYMENT.
Total Labor Force – 11.450 million in 2Q 2009.
Unemployed – 415,700 in 2Q 2009
Unemployment rate – 3.6% in 2Q 2009.
Average salaries and wages per employee in manufacturing sector at RM2,080 per month as of July 2009.
ANALYSIS - Forecast unemployment to remain low in 2010.
Expected unemployment shouldn’t be a big problem for the country going forward. As the country trying to break form the middle income economy into the high income economy, strong political will is needed to make sure the locals are given preference with a better pay package over the low wages foreigners.
The new economic model for Malaysia is expected to put a greater emphasis on human capital and high productivity.
m.INTEREST RATE - BNM Overnight Policy Rate at 2.00%.
ANALYSIS – The interest rate is expected to remain at this level for the Year 2010 until signs of inflation threat emerge possibly when world crude oil price breach the US$100 level again.
n.FOREIGN EXCHANGE RESERVE – As at 15 December 2009.
The international reserves of BNM amounted to RM335.1 billion or equivalent to US$96.2 billion. The reserves position is sufficient to finance 9.8 months of retained imports and is 4.1 times the short-term external debt.
ANALYSIS – The country foreign exchange reserve will continue to rise further as a results on inflow of funds and repatriation of profits as the economy recover.
o.RINGGIT EXCHANGE RATE VS US$ – 3.4000 ??? as of Thursday 31.12.2009.
ANALYSIS – The Malaysian currency, the RINGGIT, is expected to strengthened further against the U.S. Dollar and major trading partners currencies as the global economy recovery will results in more inflow of fund into the country from the sales of commodities, oils and the exports of E&E products.
p.DECEMBER FCPO as of 31 December 2009 – RM2,700. ???
ANALYSIS – Forecast FCPO to trade between between RM2,800 to RM3,000 in 2010 and between RM3,000 to RM3,300 in 2011.
q.CRUDE OIL DEMAND – The International Energy Agency, an adviser to oil-consuming nations, cut five year forecasts for global crude demand because of the economic slump, predicting consumption wont’s regain 2008 levels until 2012. The IEA cut its oil demand for every year through 2013 by about 3 million barrels a day. Consumption will average 86.76 million barrels a day in 2012.
ANALYSIS – Expected oil demand to increase in tandem with faster global economic recovery.
2. PROSPECTS FOR THE GLOBAL ECONOMY – Multi Speed Recovery.
Source – International Monetary Fund.
The global economy remains very much in a holding pattern – stable, and getting better but still highly vulnerable according to IMF chief on 23 November 2009.
Major advanced country remain fragile, and still dependent on policy support. Financial conditions have improved, but remain far from normal.
Signs show confidence returning, but banking system in many advanced economies remain undercapitalized, weighed down by leaden legacy assets and, increasingly non-performing loans. On the household side, weak financial positions and high unemployment will damp down on consumption for some time. And large public deficits add to vulnerabilities.
It is still too early for a general exit from accommodative fiscal, monetary and financial sector policies. Such exit should instead await a sustained recovery in private demand, as well as entrenched financial stability.
As the pace of recovery differ among countries, so must exit strategies differ. Plans for fiscal consolidation should be the top priority.
A related challenge to exit strategies is managing capital flows to emerging markets. In many countries, appreciation should be the key policy response. Other tools include lower interest rate, reserves accumulation, tighter fiscal policy and financial sector prudence measures. Capital controls can be part of the measures.
Old Growth Model Is Dead.
Turning to the sources of future growth, IMF said the old model under which the households in the US and elsewhere propelled the global economy with their voracious appetite for consumption, is dead – at least on its last legs.
To have a sustained global growth, somebody else needs to step into the breach. The leading candidates are the surplus countries such as China and other emerging Asian economies as they’re shifting from exports toward domestic demand, aided by expansionary fiscal policy.
This shift would be helped by stronger social security systems and higher spending on health and education, as well as reform to boost access to credit. An appreciation of China’s exchange rate along with some other Asian currencies, will also need to be part of the package.
Noting that the financial sector in the advanced economies brought down the whole global economy, IMF called for progress on reforms to make the financial sector safer, more stable place without discouraging innovation.
Better Application Of Rules.
In addition of better rules, better application of rules are needed and that means beefing up supervision and supervisory capacity. The new regulatory system must do a better job of avoiding capture and complacency.
On addressing risk management in the financial sector, it was essential to break the link between risky behavior and compensation.
A.GLOBAL ECONOMICS FORECAST.
a.GROSS DOMESTIC PRODUCTS – IMF GDP forecast for 1st Quarter of 2010.
Malaysia – (-3%) in 2009, 6% to 8% from 2010 to 2020.
OECD Countries – 1Q 2010 at 1.0156%, 1.2% in 2010 and 2.3% in 2011.
USA – 1Q 2010 at 0.89%, 1.8% in 2010 and 2.5% in 2011.
Euro Area – 1Q 2010 at negative 0.11 %, 0.5% in 2010 and 1.9% in 2011.
Japan – 1Q 2010 at 2.24 %, 1.0% in 2010 and 2.0% in 2011.
Non-OECD countries – 2.2% in 2010 and 4.6% in 2011.
China – 1Q 2010 at 9.956, 8.0% in 2010 and 8.55 in 2011.
India – 1Q 2010 at 5.186%, 8% in 2010 and 8.5% in 2011.
Indonesia – at least 5.0% in 2010 and 6.0% in 2011.
Emerging – 1Q 2010 at 5.7623%.
N.I.E – 1Q 2010 at 6.11%.
ASEAN – 1Q 2010 at 5.32%.
b. INTEREST RATES – To remain accommodative to economy growth.
MALAYSIA – 2%
USA – 0.25%.
UK – 0.5%.
$, 6 month (percent) for 2009 (1.5), 2010 (1.7) and 2011(2.0).
€, 6 month (percent) for 2009 (2.0), 2010 (2.2) and 2011 (2.3).
c. INFLATION (CPI) – Expected to remain subdued until 2010 even with upward pressure on commodities prices.
MALAYSIA – revised to around 2%.
USA – 0.3% in 2009, 1,2% in 2010 and 2.0% in 2011.
UK – 2.2% in 2009.
G-7 countries – 0.5% in 2009, 0.8% in 2010 and 1.3% in 2011.
d. UNEMPLOYMENT - Risks of jobless recovery in 2010.
MALAYSIA – revised downward to between 3% to 4% from 4% to 5%.
USA – 9.4%.
U.K. – 7.3%.
3. TOP 33 STOCKS RECOMMENDATION.
Based on the closing prices as of Friday, 11 December 2009.
1. BURSA MALAYSIA BHD RM8.00.
Year End Dec. 31 FY2009(F) 3Q FY2009 9M FY2009 FY 2010(F)
000 000 000 000
Revenue 347,889 86,289 245,020 435,000
Net Profit 120,566 30,751 81,273 158,000
EPS (sen) 23.00 5.80 15.40 30.0
Forecast PER 34.8X 26.67X
Dividend (sen) 20.0 0.00 10.10 25.0
Net dividend yield 2.54% 3.125%
Cash RM291,833,000.
Debt RM 219,000.
Net Assets RM1.4000.
Number of shares 526,694,000 shares.
Market Capitalization RM4.21 billion.
Major Shareholders Capital Market Development Fund 19.52%.
Minister of Finance Incorporated 19.52%
RESULTS ANALYSIS.
Yr on Yr, 3Q09 net profit up 52% mainly due to improved investors sentiment as results of improving global economic statistics which boosted trading revenue.
MANAGEMENT OUTLOOK.
The securities market is influenced by developments and sentiment on the global and domestic front. The liberalization steps taken by the government to make Malaysia attractive to global investors and the alignment of goals to transform Malaysia into ahigh income economy have great potential for the securities market.
LATEST CORPORATE DEVELOPMENT.
Due to the proposed strategic alliance with Chicago Merchantile Exchange Group Inc, on Nov 30 2009, Bursa Malaysia Derivatives Clearing Bhd is a wholly-owned subsidiary of Bursa Malaysia Derivatives Bhd, in which Bursa owns 75% shareholding..
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALSIS.
STRENGTHS ANALYSIS
BUSINESS MODEL – Revenue and profit depending on the securities and derivatives markets performance and trading volumes.
EARNINGS CATALYST – Higher Bursa and Derivatives Exchange’s volume as the global economy strengthened further.
MANAGEMENT – Headed by Tun Dzaiddin as the Chairman and Dato Yusli Mohd Yusof as the CEO.
BUSINESS OUTLOOK – Positive outlook with faster global economy recovery next year. The implementation of the government stimulus and economic liberalization measures would have a positive impact on the domestic economy.
CORPORATE GOVERNANCE – Need to be more transparent.
FINANCIAL – Strong with RM291.8 million in cash and almost debt free ( only RM219,000 of debt).
WEAKNESS ANALYSIS – Still trying to diversify the earnings base by offering more products and instruments.
OPPORTUNITIES ANALYSIS – CME 25% stake in Bursa Derivatives will open a window of opportunity.
THREATS ANALYSIS - External threats such as a double dip global recession and continued weaknesses in the world economy and bourses worldwide.
QUANTITATIVES ANALYSIS - VALUATIONS.
Forecast PER for FYE 2009 – 34.8X and FYE 2010 – 31X.
Forecast Dividend FY 2010 – 20 sen.
Forecast Dividend Yield FY 2010 – 2.5%.
Net Assets – RM1.40.
Price to Book Value – 5.71X.
Debt to Equity Ratio – 1.408X.
Net Profit Margin – 35.6% in 3Q09, 33.1% ((9M09).
Pre-Tax Profit Margin – 50.7% (3Q09), 46.5% (9M09).
Forecast Return on Equity for FY2009 – 16.25 %.
TECHNICAL ANALYSIS - TRADING RANGE.
52 Weeks - High at RM8.59. Low at RM4.42.
3 Months – High at RM8.55 and Low at RM7.98.
STOCK RECOMMENDATION – MAINTAINED HOLD FOR BURSA M’SIA BHD AT RM8.00 due to positive outlook of the stock market on anticipated global recovery. Reiterated our forecast on Bursa M’sia revenue, net profit and EPS and the fair value to RM10.00 based on forecast FYE 2010 PER of 33X (average historical PER for BURSA around this level), on forecast profit of RM158m, EPS of 30 sen (30% earnings growth from 23 sen forecast in FY2009), and forecast dividend of 25 sen, for a yield of 2.5.%.
2. BOUSTEAD HOLDINGS BHD RM3.48.
FYE DEC 31 FY 2009(F) 3Q FY2009 9M FY2009 FY 2010(F)
000 000 000 000
Revenue 4,878,000 1,419,107 3,910,940 5,500,000
Net Profit 400,000 86,163 193,922 450,000
EPS (sen) 43.88 12.41 29.14 49.4
Forecast PER 7.9X 7X
Dividend (sen) 20.00 7.50 17.50 25.00
Dividend Yield 5.6%
Net Assets (RM) RM4.08.
Cash RM 457,074,000.
Debt RM2,353,031,000. Short term debt RM1,769,349,000.
Number of Shares 911,445,000.shares
Market Capitalization RM3.17 billion.
Major Shareholder Lembaga Tabung Angkatan Tentera 64.03%.
RESULTS ANALYSIS.
The Group 3Q09 net profit up 72% from the preceding quarters profit.
Q-on-Q, FFB crop up 15%, helped cushion the decline in CPO price which averaged RM2,296 (Q2 RM2,428) per MT. The Heavy industries division profit up 49% due to improvements in billings and margins. The Property Division’s profit down 15% due to lower contribution from hotel operation.s. The Finance and Investment Division profit of RM19.8m was higher due to contributions from Affin and BH Insurance. Manufacturing division posted consistent results while the Trading Division profit improved as it benefit from the stockholding gains from BHPetrol and LCCT Baggage Handling system project.
MANAGEMENT OUTLOOK.
Cautiously optimistic on CPO prices, the Heavy Industries Division will continue with its effort in developing its defence and commercial business and the Property Division earnings will be driven by Mutiara Damansara and Mutiara Rini projects.
LATEST CORPORATE DEVELOPMENT.
Heads of Agreement between BHIC Defence Technologies Sdn Bhd and MTU Services (M) Sdn Bhd for the purpose of forming a joint venture company in Malaysia.
On 2 Dec 2009, BHB subsidiary, Boustead Naval Shipyard Sdn Bhd, signed a contract with the Government of Mlaysia for the Service Life Extension Programme of Kasturi Class Corvette (KD Kasturi and KD Lekir), for a total contract sum of RM703,823,220.67 for a period of 53 months.
QUALITATIVES ANALYSIS.
STRENGTHS , WEAKNESS, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS
BUSINESS MODEL – A well diversified conglomerate.
The Group revenue came from 1.Plantation 2.Heavy Industries – Listed BHIC Bhd 3.Property Development 4.Property Investment 5.Finance&Investment – Listed Affin Hldg Bhd 6.Trading and 7.Manufacturing and Services – Listed UAC Bhd.
EARNINGS CATALYST – Higher CPO price, new government contracts, low NPL and higher loans growth on faster global economic recovery.
MANAGEMENT - Strong. Headed by Gen(R) Tan Sri Ghazali Che Mat as the Chairman of the Board of Directors and Tan Sri Lodin Wok Kamarudin as the CEO.
BUSINESS OUTLOOK – Plantation’s earnings for the Year 2010 are expected to be better, in view of the improvement in palm oil prices. The Heavy Industries Division will continue to derive satisfactory earnings from vessel construction and other shipbuilding activities. The Property Division will be driven by the ongoing developments Mutiaria Damansara and Rini townships, while the investment properties and hotels which are in strategic locations are expected to turn in good profit.
CORPORATE GOVERNANCE - Plenty of room for further improvement. Need to be more transparent.
FINANCIAL STRENGTHS – Cash RM457 million and Debt RM2.352billion (Short term debt RM1.7b).
WEAKNESS ANALYSIS – Highly leverage business model.
OPPORTUNITIES ANALYSIS – Had seized the opportunity to raise cheap fund through rights issue as the company seems to be undercapitalized and over leverage to undertake bigger business currently.
THREATS ANALYSIS - The prolonged weaknesses in the country and the global economy seem to be diminishing.
QUANTITATIVES ANALYSIS - VALUATIONS.
Forecast FYE 2009 Price Earnings Ratio – 9.7X, FY 2010 PER – 9X.
Net Assets per Share – RM4.08.
Price to Book Value – 0.85X.
Forecast Return on Equity for FY2009 – 10.7%.
Debt to Equity Ratio – 1.26X.
Pre Tax Profit Margin – 8.8% (3Q09), 9M09 at 7.5%.
Net Profit Margin – 6% (3Q09), 9M09 at 4.96%.
Forecast Dividend Yield for FY2010 – 7.1 % or 25 sen.
TECHNICAL ANALYSIS - TRADING RANGE.
52 Weeks - High at RM4.09 and Low at RM2.89.
3 Months – High at RM3.63 and Low at RM3.35.
STOCK RECOMMENDATION – MAINTAINED BUY FOR BOUSTEAD HOLDINGS BHD AT RM3.48 on cheap valuations, high dividend yield and strong global economy recovery in 2010, as the recent rights issue has put the company in a much stronger financial footing. Fair value of RM6.15 at FYE 2010 PER of 10X based on an EPS of 49.4 sen, on a net profit of RM450 million plus a forecast dividend yield of 7.1%.
3.MISC BERHAD RM8.74.
FYE March 31 FY 2010(F) 2Q FY 2010 1H FY2010
000 000 000
Revenue. 15,996,004 3,527,103 7,420,537
Net Profit 1,761,033 82,062 315,511
Net EPS (sen) 47.34 2.21 8.48
Forecast PER 18.5X
Dividend (sen) 30.00 15.00 15.00
Dividend yield 3.37 %
Net Assets Per Share RM5.3800.
Cash RM 2,068,338,000.
Debt RM10,858,590,000. Short term RM1.422b.
Number of shares 3,719,827,000 shares.
Market Capitalization RM32.5 billion.
Major shareholder Petronas (62.4 %)
RESULTS ANALYSIS.
Yr-on-Yr, pretax profit of RM180.4m (excluding loss on disposal of ships) was 63.8% lower due to lower profit in Petroleum business and higher losses in Liner (container shipping) and chemical businesses.
Qtr-on-Qtr, the pretax profit of RM180.4m was 34.0% lower due to reduced profit in Petroleum business and higher losses in Chemical business. Meanwhile, Liner business recorded lower losses.
MANAGEMENT OUTLOOK.
The contraction in global trade resulted in falling rates in petroleum, chemical and container shipping. The Liner business segment is expected to show further results improvement with the exit from the Grand Alliance in 4Q09. The earnings from long term charters in the LNG and Offshore businesses will help to cushion MISC from the downward pressure on rates.
LATEST CORPORATE DEVELOPMENT.
MISC proposed :-
(i)renounceable rights issue of 743,965,517 new ord. shares of RM1.00 each, on the basis of one (1) Rights Share for every five (5) at RM7.00 per Rights Share.
(ii) merger of MISC’s local and foreign tranche shares.
(iii) increased in authorized share capital from RM5b and 1 share comprising 5b ord. shares and 1 preference share of RM1.00 each, to RM10b and 1 share comprising 10b ord. shares and 1 preference share of RM1.00 each.
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS.
STRENGTHS ANALYSIS.
BUSINESS MODEL
Revenue came from 1.Energy related Shipping 2.Other Energy Businesses 3.Intergrated Liner Logistics and Non Shipping.
Energy related shipping represent 51.85% of revenue and 28.44% of operating profit margin; other energy businesses represent 16.84% of revenue and 28.45% of operating profit margin; integrated liner logistics represent 31.3% of revenue but the loss represent 24.4% of operating profit and non shipping represent 1.47% of operating profit.
MISC owned 29 LNG ships, 47 Petroleum ships and 27 chartered ships, 11 Chemical ships and 10 chartered ships, 4 FPSO and 5 FSO, 19 Liner and 18 chartered Liner, 3 LPG and 1 Dry Bulk ship.
MISC also owned 152 units prime movers and 16 units road tankers.
EARNINGS CATALYSTS – Recovery in the shipping rates as demand improve in tandem with global growth and earnings contribution from new ships.
MANAGEMENT – Headed by Tan Sri Mohd Hassan Marican as the Chairman and Amir Hamzah bin Azizan as the new CEO.
BUSINESS OUTLOOK – The Group’s earnings arising from existing and new long term charters in the LNG and Offshore businesses will provide the Group with stable earnings. The global petroleum and container shipping rates are softening in line with weakening demand and oversupply of vessels.
CORPORATE GOVERNANCE – Need to be more transparent.
FINANCIAL STRENGTH – RM2.068 billion in cash and RM10.8 billion in debt. Short term debt RM1.42b). Rights Issue to raise RM5.2 billion.
WEAKNESS ANALYSIS – Losses in the Liner business compensate by long term Petronas LNG contract. Current lower shipping rates.
OPPORTUNITIES ANALYSIS – Opportunity to expand the energy shipping business as the world demand grow.
THREATS ANALYSIS.
Continue losses in the Liner business.
Pirates in the Straits of Eden remain as a threat for a shipping company worldwide.
High operating costs such as bunkering cost affecting the net profit margin.
New ship coming on stream will reduce demand and lower the shipping rates.
QUANTITATIVES ANALYSIS - VALUATIONS.
Forecast PER FYE March 2010 – 18.5X.
Net Assets Per Share – RM5.38.
Price to Book Value – 1.6X.
Dividend Yield – 3.43 percent or 30 sen.
Debt to Equity Ratio – 0.77X.
Return on Equity – 3.36% (annualized).
Operating Profit Margin – 7.3% (2Q10), 8.2% (1H10).
Net Profit Margin – 2QFY10 at 2.32%, 1HFY10 at 4.25%.
TECHNICAL ANALYSIS
TRADING RANGE.
52 Weeks - High at RM9.49 and Low at RM8.05.
3 Months – High at RM9.12 and Low at RM8.74.
STOCK RECOMMENDATION – DOWNGRADE TO HOLD FROM BUY FOR MISC BHD AT RM8.74 due to lower than forecast net profit for 2QFY10 and 1HFY10 on losses in the Liner Division but a possible surprise on the upside in MISC earnings on an increase in the shipment of LNG as shown in the trade figures on new contracts and global economy recovery next year onward.
HOLD based on forecast FY2011 EPS of 50.36 sen and at a PER of 18X, MISC Bhd fair value is RM9.10 plus a dividend of 30 sen.
4. PETRONAS GAS BERHAD. RM9.70.
FYE March 31 FY 2010(F) 2Q FY2010 6M FY2010
000 000 000
Revenue 3,743,484 823,188 1,608,747
Net Profit 1,047,259 204,090 473,031
Net EPS 52.92 10.31 23.91
Forecast PER 18.3X
Dividend (sen) 40.0 15.00 15.00
Dividend Yield 4.1%
Net Assets RM3.9646.
Cash RM1,770,048,000.
Debt RM 453,089,000.
Number of shares 1,978,732,000
Market Capitalization RM19.19 billion.
Majority Shareholders PETRONAS ( 60.6 % )
RESULTS ANALYSIS.
Yr-on-Yr, 2Q09 revenue and net profit were lower due to lower throughput and lower revenue respectively.
Q-on-Q, 2Q09 revenue was higher due to higher utilities but net profit was lower due to higher cost of revenue.
MANAGEMENT OUTLOOK.
While revenue prospects for gas processing and transmission business would be dependent on gas as well as upstream gas production levels, the margin for gas processing and transmission business would not be impacted.
Prospects for utilities business will depend on the pace of economic recovery. Any variation in gas price will be reflected in the pricing to customers.
LATEST CORPORATE DEVELOPMENT – No new development.
QUALITATIVE ANALYSIS - STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL – STRONG.
The Company’s principal business segments are services rendered for separating natural gas into its component and the storage, transportation and distribution of such components and sale of industrial utilities and operates only in Malaysia.
EARNINGS CATALYST – Growth will come from increase in throughput.
MANAGEMENT - Headed by Datuk Wan Zulkiflee Wan Arifin as the Chairman of the Board of Directors, Samsudin bin Miskon as the CEO and the management team.
BUSINESS OUTLOOK – While revenue prospects for gas processing and transmission business would be dependent on demand for gas as well as upstream gas production levels, the margin for the gas processing and transmission business would not be impacted as any variation in the cost of gas would be passed through.
Decrease in customer’s demand and increase in operating cost arising from revised fuel gas price would impact utilities business. To mitigate higher fuel gas price, revised pricing agreements have been negotiated and executed with utilities customers.
CORPORATE GOVERNANCE – Must be more transparent.
FINANCIAL STRENGTH – Cash RM1.77billion and Debt RM453 million.
WEAKNESS ANALYSIS – The operation is only in Malaysia, so the growth can only come from higher domestic consumption.
OPPORTUNITIES ANALYSIS – Still an opportunity for the company to make money even with the gas prices for power industry has been reduced from RM14.31 per mtbu to 10.70 per mtbu.
THREATS ANALYSIS - Gas as a depleting resources need to be replaced with a new finding. No domestic competitor.
QUANTITATIVES ANALYSIS - VALUATIONS.
Forecast Price Earnings Ratio for FYE March 2010 – 18.3X.
Net Assets Per Share – RM3.9646.
Price to Book Value – 2.452X.
Forecast Dividend Yield for FY2010 – 4.1 percent on 40 sen dividend.
Debt to Equity Ratio – 0.22X.
Annualized Return on Equity Ratio – 11.2 percent.
Operating Profit Margin – 31.7%.
Net Profit Margin – 2Q10 at 24.8%, 1HFY10 at 29.4%.
TECHNICAL ANALYSIS.
TRADING RANGE.
52 Weeks - High at RM10.40 and Low – RM9.35.
3 Months – High at RM10.00 and Low at RM9.68.
MAINTAINED BUY RECOMMENDATION FOR PETRONAS GAS BHD AT RM9.70.
The earnings growth will come from an increase in throughput and utilities business as the Malaysian economy recover, Gas Malaysia Sdn Bhd and later the building of 400 km gas pipeline from Sabah to Bintulu Port in Sarawak.
Based on FYE March 2011 forecast EPS of 65.94 sen and a PER of 16.1X, the fair value for Petronas Gas Bhd is RM10.60 plus a dividend yield of 4.7 % on 50 sen dividend at RM10.60.
5. TM BERHAD. RM3.02.
FYE DEC. 31 FY 2010(F) 3Q FY2009 9M FY2009 FY2009(E)
000 000 000 000
Revenue 8,248,088 2,101,087 6,335,447 8,492,250
Net Profit 1,057,166 179,071 472,776 693,705
Net EPS (sen) 23.00 5.10 13.50 19.4
Forecast PE Ratio 13.13X 15.6X
Dividend (sen) 17.5 0.00 10.00 12.50
Dividend yield 5.8% 4.14%.
Net Assets RM1.9266.
Cash RM2,761,300,000.
Debt RM7,022,700,000. S.T Debt RM34.5m.
Number of shares 3,577,402,000
Market Capitalization RM10.8 billion
Major shareholder Khazanah Nasional (40.9 % )
RESULTS ANALYSIS.
Q-on-Q, 3Q09 revenue up 1.9% due to higher revenue from data services, Internet and multimedia, other telecommunication related business and non-telecommunication related services net of declining voice revenue.
Q-on-Q, 3Q09 operating profit before finance cost up by 186.1% due to increased revenue, lower depreciation charge and loss on disposal of equity in 3Q09.
Q-on-Q, TM 3Q09 PATAMI up by 208% due to unrealized forex gain on foreign borrowings of RM45.5m vs loss of RM195.7m in 3Q08.
Yr-on-Yr, 3Q09 revenue up 2.6% due to higher revenue from data services, Internet and multimedia, other telecommunication related services and non-telco related services, which mitigated the decline in voice revenue.
Yr-on-Yr, 3Q09 operating profit up 83.5%, due to higher revenue and lower operating costs.
Yr-on-Yr, 3Q09 PATAMI up by 646.9% due to higher revenue, lower operating costs, lower unrealized forex loss on foreign borrowing, absence of loss on disposal of equity investment net of higher taxation charge. 3Q08 results included reversal of higher excess prior year tax provision of RM82m vs RM9.4m in 3Q09.
MANAGEMENT OUTLOOK.
TM forecasts the decline in voice revenue to continue but at a slower pace. In line with the recovering economy, broadband growth is expected to remain strong with estimated CAGR of 16.7% between 2009 – 2013.
LATEST CORPORATE DEVELOPMENT.
TM has accepted the purchase of US$39,725,000 nominal value of the US$300,000,000 8% Guaranteed Notes due 2010 and US$34,945,000 nominal value of the US$500,000,000 5.25% Guaranteed Notes due 2014 issued by TM Global Inc.
TM’s total debt has been reduced by 3.68% to RM6,764.34 million and its foreign currency exposure in term of US$ denominated debt has come down from 54% to 52% as at 30 Sept 2009.
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESS, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL – Fixed line telephone and broadband internet.
Revenue came from 1.Retail Business 2.Domestic Wholesale 3.TM Global and 4.Shared / Support Services.
Retail business represent 51.24% of to revenue from continuing operations, wholesale business represent 7.43% of revenue from c.o., global business represent 8.56% of revenue from c.o. and shared services & others represent 32.66% of revenue from the continuing operations.
EARNINGS CATALYSTS – High Speed Broadband Project.
OUTLOOK – Operationally, TM expects the decline in voice revenue to continue but at a slower pace with the Performance Improvement Programme (PIP 2.0) initiatives in place. Growth in broadband is expected to remain strong as the penetration rate had only surpassed 21.1% in 4Q08 (MCMC – 4Q08 report). The introduction of new wireless broadband technologies such as HSDPA and WiMax is expected to increase the demand for broadband. In anticipation of this, TM has embarked on various initiatives to improve its broadband customer service and service offerings such the introduction of Streamyx Combo Goes Mobile and Streamyx value added packages.
On High Speed Broadband Project (HSBB), TM is executing the project as planned. In April 2009, the wholesale service of HSBB (Transmission) was made available to access seekers via a published terms and conditions in the Company’s website. HSBB Retail service is expected to be launched in the 4Q 2009.
MANAGEMENT – Headed by Chairman and the Board of Directors, Dato Zamzairani Mohd Isa as the CEO and the management team.
FINANCIAL POSITION - Cash RM2.7 billion. Debt RM7.02 billion. (Short term debt at RM34.5 million).
CORPORATE GOVERNANCE – Can still improve further.
WEAKNESS ANALYSIS – High capital expenditures for the high speed broadband business.
OPPORTUNITIES ANALYSIS – Had signed RM11 billion agreement with the government to provide high speed broadband services to the whole country.
THREATS ANALYSIS -The threat will come from the other broad band service provider. The emergence of mobile broadband technologies, most notably WIMAX and HSDPA will challenge TM’s dominance of the Malaysian internet access service market.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast FYE 2009 PER Ratio – 15.6X, FYE 2010 – 13.13X.
Net Assets Value – RM1.9266.
Price to Book Value – 1.57X.
Forecast Dividend Yield FY2009 – 4.14% or 12.5 sen.
Operating Profit Before Finance Cost Margin – 10.1% (3Q09). 9M09 at 12.65%.
Pre-tax Profit Margin – 10.36% (3Q09). 9M09 at 10.5%.
Net Profit Margin – 8.5% (3Q09). 9M09 at 7.46%.
Debt to Equity Ratio – 1.83X.
Annualized Return on Equity – 9.55%.
TECHNICAL ANALYSIS.
52 Weeks - High at RM3.31 and Low at RM2.16.
3 Months – High at RM3.12 and Low at RM2.99.
STOCK RECOMMENDATION – MAINTAINED BUY FOR TM BHD at RM3.02 on attractive valuations . Fair value of RM4.00 at FYE 2010 PER of 17.4X based on an EPS of 23.00 sen and dividend of 17.5 sen for 4.4% yield at RM4.00.
6. AXIATA GROUP BHD. RM3.02.
FYE Dec 2008 FY 2009(E) 3Q FY2009 9M FY2009 FY 2010(F) 000 000 000 000
Revenue 13,112,096 3,380,922 9,411,273 13,523,688
Net Profit 1,598,066 503,667 1,094,399 2,014,668
Net EPS 21.0 6.00 15.0 24.00
Forecast P.E. Ratio 14.4X 12.6X
Dividend (sen) 0.00 0.0 0.0 5.0
Dividend Yield 0.0% 1.65%
Net Assets RM2.08.
Cash RM 2.92 billion.
Debt RM14 billion.
Number of Shares 8,445,154,000 shares.
Market Capitalization RM25.5 billion.
Major Shareholders. Khazanah Nasional
RESULTS ANALYSIS.
Yr-on-Yr, 3Q09 revenue up 5% to RM9.4b due to revenue growth of 12% and 7% at Celcom and PT Excelcomindo.
Subscribers net addition of 25.3m. EBITDA up 0.2% to RM3.6b.
YTD PATAMI was RM1.1b up 8% Y-o-Y.
Q-on-Q, 3Q09 revenue up 7% driven by continued operational improvement by all key OpCos. EBITDA up by 5% due to positive contributions Celcom, XL and Dialog.
On normalized basis, stripping out one off costs and forex, PATAMI improved by 35% Q-on-Q to RM430m.
Regional subscribers exceed 100 million mark and the Group’s balance sheet further deleveraged.
MANAGEMENT OUTLOOK.
Despite steady rebound in regional economies, key risks continued to be faced include increasing competition and regulatory challenges
.
LATEST CORPORATE DEVELOPMENT.
The High Court of Gujarat on 26 Nov 2009, approved the Proposed Merger between Spice Communications Ltd and Idea Cellular Ltd, made by Idea. The Proposed Merger is also a subject of High Court of New Delhi approval.
Change name for wholly owned subsidiary Celcom Bhd to Celcom Axiata Bhd.
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
BUSINESS MODEL – International and domestic cellular phone company.
Operating revenue came from operations in 1. Malaysia 2.Indonesia 3.Bangladesh 4. Sri Lanka and 5.Others such as Singapore,Thailand and India.
Malaysian operation represent 48.54% of operating revenue, Indonesia operation represent 32.58% of revenue, Bangladesh represent 6.68% of revenue, Sri Lanka represent 10.26% of revenue and others countries represent 1.93% of revenue.
CELCOM subscribers base – 9.7 million.
CELCOM average revenue per users – RM57.00.
EARNINGS CATALYSTS – Growth in Celcom and overseas operations subscribers base.
MANAGEMENT – Headed by Board of Directors, Tan Sri Azman Mokhtar as the Chairman and Dato Sri Jamaludin Ibrahim as the CEO.
BUSINESS OUTLOOK – The group adopt a prudent approach focusing on cost management whilst continue to lay the foundation towards achieving long term aspiration of becoming a regional champion.
Barring any unforeseen circumstances, the BOD’s expects the Group performance for the financial year ending Dec. 31 2009 would be in line with the announced KPI’s.
CORPORATE GOVERNANCE - Still plenty of room for improvement.
FINANCIAL – RM2.92 billion in cash and RM149 billion in debt.
WEAKNESS ANALYSIS – Highly leverage balance sheet.
OPPORTUNITIES ANALYSIS – Further overseas expansion.
THREATS ANALYSIS - No more steady profit contribution from the fixed line business after demerger and exposed to foreign currency fluctuation.
QUANTITATIVES ANALYSIS.
STOCK VALUATIONS.
Forecast Price Earnings Ratio for FYE 2009 – 14.4X, PER for FYE 2010 – 12.6X.
Net Assets Per Share – RM2,08.
Price to Book Value – 1.45X.
Forecast Dividend Yield for FYE 2010 – 1.65% or 5.0 sen.
Debt to Equity Ratio – 1.14X.
Annualized Return on Equity Ratio – 9.1%.
Operating Profit Margin Before Finance Cost– 22.7% (3Q09). 9M09 at 23.3%.
Pre-tax Profit Margin – 22.7% (3Q09). 9M09 at 19.5%.
Net Profit Margin – 14.9% (3Q09). 9M09 at 11.6%.
TECHNICAL ANALYSIS.
52 WEEKS TRADING RANGE.
52 Weeks - High at RM3.27 and Low at RM1.57.
3 Months –High at RM3.15 and Low at RM2.91.
STOCK RECOMMENDATION - MAINTAINED BUY FOR AXIATA BHD at RM3.02 on better than expected net profit for 3Q09 and 9M09 due to faster global economy recovery. Fair value at RM4.00 based on PER FYE 2010 of 16.67X, on revised EPS of 24.0 sen (RM2.014 billion net profit) and dividend of 5.0 sen and also based on excellent CELCOM and regional growth prospect and global economy recovery. The recently completed Rights Issue has strengthened the weak balance sheet.
7. TENAGA NASIONAL BERHAD. RM8.37.
FYE 31 AUGUST 4Q 2009(U) FY 2009(U) FY 2009(E) FY 2010(F)
000 000 000 000
Revenue 7,462,600 28,785,600 28,356,000 29,000,000
Net Profit (Loss) 133,400 853,000 1,754,300 1,750,000
Net EPS (Loss) sen 3.79 21.18 40.46 40.00
Forecast PE Ratio 39.5X . 20.9X
Dividend (sen) 13.07 17.77 20.0 20.0
Dividend Yield 0.0% 2.43%. 2.38%
Net Assets RM5.996.
Cash RM 6,156,900,000.
Debt RM22,616,000,000. S.T. RM1.1579b. Yen 5.48b. US$5.5b.
Number of shares 4,334,770,000 shares.
Market Capitalization RM36.28 billion.
Major shareholder Khazanah Nasional ( 39 % )
RESULTS ANALYSIS
Yr-on-Yr, 12 months 2009 revenue up 16.3% or RM4.03b due to the increase in tariff effective from July 2008. In terms of unit growth TNB recorded reduction of 3.2%. with industrial sector down 10.1%.
Yr-on-Yr, FY09 net profit was down by RM1.676b or 64.6% due to slower demand growth, higher fuels costs and payments to IPP’s, and the impact of exchange rate.
Yr-on-Yr, better results for the current quarter due to tariff adjustment. Unit growth was only 0.7% and industrial sector recorded negative growth of 8.6%. and forex loss of RM244.3m.
Compared to 3Q09, 4Q09 revenue up 6.6% mainly to sales of electricity. Operating expenses up 10% due to higher energy costs. TNB also posted forex loss of RM244.3m compared to RM603.2m in 3Q09.
MANAGEMENT OUTLOOK.
Indications of higher electricity demand but the industry outlook may remain challenging due to rising costs.
LATEST CORPORATE DEVELOPMENT.
TNB has agreed to purchase the electricity under REPPA from Achi Jaya Plantations Sdn Bhd in Segamat, Johor for a period of 21 years, at an estimated value of RM2.3m per year.
Malaysia’s Energy Situation (2007/2008) Estimates.
Production Consumption Reserves
Electricity 102.9 billion kWh 95.58 billion kWh -
Oil 753,700 bbl/day 501,100 bbl/day 4 billion bbl
Natural Gas 64.5 billion cu m 32.9 billion cu m 2.36 trillion cu m
World Energy Reserves.
Oil – 42 years.
Natural Gas – 60 years.
Coal – 133 years.
Uranium – 241 years.
# Uranium is distributed evenly around the world.
# 1 kg of uranium is equal to 9,000 barrels of oil or 3,000 tonnes of coal in terms of energy content.
The world currently produced 2,793 TWh of nuclear energy.
QUALITATIVES ANALYSIS.
STRENGTHS,WEAKNESS, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS
BUSINESS MODEL.
The principal activities of the group are the generation, transmission, distribution and sale of electricity in Malaysia.
No segmental information.
EARNINGS CATALYSTS – Higher electricity demand due to economic recovery.
MANAGEMENT – Tan Sri Leo Moggie as the Chairman and Dato Seri Khalib Mohd Noh as the CEO.
CORPORATE GOVERNANCE – Not transparent enough.
FINANCIAL – Cash RM6.15 billion, Debt RM22.6 billion (Short Term debt at RM1.158 billion).
BUSINESS OUTLOOK – Favorable, in line with the economy growth.
WEAKNESS ANALYSIS – Highly leverage balance sheet and unfavorable payment terms to independent power producer.
OPPORTUNITY ANALYSIS – Now is the opportunity for TNB to go for a NUCLEAR POWER PLANT as a cheaper, cleaner and safer alternative, with the latest technology available as a new source of power. Fuel and coal are unfriendly to the environment. Meanwhile, for the Bakun hydroelectric power plant, TNB have to deal with the execution risk and an astronomical cost to lay undersea cables to transmit power from Sarawak to Peninsular Malaysia.
THREATS ANALYSIS - High energy costs (coals, oil and gas), high capital expenditure and high debt level too. Urgent need to diversify the source of power into cheaper alternatives such as hydro electric and definitely nuclear power plants.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast Price Earnings Ratio for FYE August 2010 – 20.9X.
Net Assets Per Share – RM5.9660.
Price to Book Value – 1.395X.
Forecast Dividend Yield for FYE 2010– 2.38% or 20 sen.
Debt to Equity Ratio – 1.74X.
FYE 2009 Actual Return on Equity Ratio – 3.53% .
Operating Profit Margin – 9.86%. (4Q09). 12M09 at 15.55%.
Pre-Tax Margin – 4Q09 at 3.48%. 12M09 at 5.36%.
Net Profit Margin – 2.2% (4Q09). 12M09 at 3.19%.
TECHNICAL ANALYSIS - TRADING RANGE.
52 Weeks - High at RM8.60 and Low at RM5.60.
3 Months – High at RM8.52 and Low at RM8.20.
DOWNGRADE TNB BHD TO HOLD FROM BUY RECOMMENDATION at RM8.37 on forecast earnings for FYE 2010 due to expected global economy recovery next year onward. A fair value of RM8.50 for 2011 at PER of 17.5X on net profit of RM2.1b or EPS of 48.5 sen (20% earnings growth) plus a dividend of 20 sen for a yield of 2.35 percent or at 1.4X P/BV of RM5.966.
8. KUMPULAN SIME DARBY BERHAD. RM8.95.
FYE JUNE 30 1Q 2010(U) FY 2010(F)
000 000
Revenue 7,736,401 34,000,000
Pre Tax Profit 982,236 5,200,000
Net Profit 684,681 3,500,000
Net EPS 11.39 59.6
Forecast PE Ratio 15X.
Dividend (sen) 0.00 45.00
Dividend Yield % 5%
Net Assets (RM) 3.7100.
Cash RM3.8242 billion.
Debt RM5.665 billion. Short term debt RMRM3.5433 billion.
Number of shares 6,009,464,000 shares.
Market Capitalization RM53.78 billion.
Major shareholders ASB (50.01%)
• Forecast average CPO selling price for FYE 2010 at RM2,885.
RESULT ANALYSIS.
Yr-on-Yr, 1Q2010, the Group pre-tax profit down 22% due to lower contribution from Plantation, Property and Industrial which was partially mitigated by improved results from other divisions and the lower corporate income and expenses.
Contribution from Plantation down by 35% despite higher sales volume by 14% on lower average CPO realized of RM2,245 per tone vs RM2,962 in 1Q09.
Q-on-Q, 1Q2010 net profit down 11% compared to 4Q09 due to lower contribution from both Property and Industrial sector.
Q-on-Q, 1Q10 profit from Plantation up by 17% despite lower CPO price realized of RM2,245 per tone vs RM2,315 per tone in 4Q09 due to 4% increase in CPO sales volume and positive turnaround by the downstream operations.
Contribution from Property down 75%, profit from Industrial down 17%, Motor’s profit up 49%, Energy&Utilities posted profit and Healthcare & Others profit up 195%>
MANAGEMENT OUTLOOK.
Production of fresh fruit bunches is expected to be higher than of previous year. The Group has recorded significant lock-in sales from “Parade of Homes” campaign in the last quarter. The overall improvement in market sentiment also augurs well for other businesses of the Group other divisions.
LATEST CORPORATE DEVELOPMENT.
KPI’s for FY2010, Net Profit RM2.5b, ROE 11%.
75% owned Sime Darby Water Resources (Perak) Sdn Bhd on 3 Dec 2009, signed a Groundwater Resouce Development Agreement with the Perak State Government. (No effects to earnings and net assets for FY2010).
Sime Darby Plantation Bhd on 4 Dec 2009, bought Nature Ambience Sdn Bhd for RM16.8m cash. Nature Ambience was granted approval to be investor/developer for 26,211 ha of Native Customary Rights lands located in Kapit and Julau, Sarawak.
Sime Darby to raise RM6 billion through borrowing.
QUALITATIVES ANALYSIS.
STRENGTHS,WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL - The largest integrated plantation company in the world with 600,000 hectares of plantation land (oil palm and rubber) and 2.5 million annual CPO productions.
Revenues came from 1.Plantation 2.Property 3.Industrial 4.Motors 5.Energy and Utilities and 6.General Trading, Services and Others.
EARNINGS CATALYSTS – Higher CPO price, higher property and cars sales due to higher demand on faster global economy recovery.
MANAGEMENT - Headed by Tun Musa Hitam as the Chairman and Dato Zubir Murshid as the CEO and an experienced management team in their respective fields.
CORPORATE GOVERNANCE – Should strive to be a leader in transparency.
FINANCIAL STRENGTH – Cash at RM3.82billion and Debt at RM5.66 billion (Short Term debt at RM3.5b).
BUSINESS OUTLOOK – The current global economic slowdown which has resulted in lower world demand for all commodities has adversely affected all business segments of the Group.
The lower CPO and palm kernel prices, as compared to record high prices for the previous year, coupled with the expected lower FFB production on account of lower yield, will affect the Plantation performance whilst the uncertain market condition has undoubtedly affected the other businesses. The group has embarked on various cost reduction measures and is driving initiatives for cost efficiency and productivity enhancement.
WEAKNESS ANALYSIS – Still low yielding plantation assets.
OPPORTUNITIES ANALYSIS - To capitalize on lower assets prices for acquisitions or expansions plan.
THREATS ANALYSIS - Production costs still high after the merger at RM1,100. Should be able to bring the production costs down to around RM800 with lower fertilizer costs to improve net profit margin. Prolonged world recession, over supply of palm oil,weak demand and lower crude oil prices will add pressure to CPO prices.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast PER for FYE June 2010 at 15X.
Forecast Dividend Yield FYE June 2010 at 5% or 45 sen.
Net Assets Per Share – RM3.71.
Price to Book Value – 2.41X.
Debt To Equity Ratio – 0.59X.
Annualized Return On Equity FYE June 2010 – 12.28%.
Operating Profit Margin – 12.8% (1Q2010).
Pre-Tax Profit Margin – 1Q2010 at 12.7%.
Net Profit Margin – 8.8% (1Q2010).
TECHNICAL ANALYSIS – Trading Range.
52 Weeks - High at RM9.24 and Low at RM5.05.
3 Months – High at RM9.17 and Low at RM8.53.
MAINTAINED BUY RECOMMENDATION FOR SIME DARBY BHD at RM8.95 on global economy recovery next year as CPO prices expected to stabilize around RM3,000 in 2010. OPEC decided not to cut oil production anymore as the oil price expected to stabilize and the recent upward revision in oil demand, higher premium on soybeans prices and the El Nino effect should augurs well for CPO prices.
Based on forecast average selling price for the CPO of RM2,885 for FYE June 2010 and an EPS of 59.6 sen on a net profit of RM3.5 billion, the fair value for Sime Darby Bhd is RM10.0 plus a dividend of 45 sen for a yield of 4.5 percent at a PER of 16.8X.
9. SHELL REFINING COMPANY (FOM) BERHAD. RM10.50.
FYE 31 Dec. FY 2009(E) 3Q FY2009 9M FY2009 FY 2010(F)
000 000 000 000
Revenue 8,856,000 2,350,160 6,487,187 9,000,000
Net Profit 438,267 (35,351) 298,286 450,000
Net EPS 1.46 (11.78) 99.43 150.0
Forecast PE Ratio 7.2X 7X.
Dividend (sen) 50.0 20.0 20.0 60.0
Dividend Yield 4.66%
Net Assets RM7.1712.
Cash RM219,892,000
Debt RM486,150,000 or US$140 million unsecured short term.
Number of shares 300,000,000 shares.
Market capitalization RM3.15 billion.
Major shareholder Shell Overseas Holdings Limited ( 70 % ).
RESULTS ANALYSIS.
The company posted a net loss of RM35m for 3Q09 vs net loss of RM287m in 3Q08 due to the steep drop in refining margins attributed by weak product prices and low demand globally.
In 3Q09, the refinery processed 8.0m barrels of crude oils and sold 8.8m barrels of products.
MANAGEMENT OUTLOOK.
Refining margins will continue to be under pressure in Q4 2009 due to low global demand coupled with increased refining capacity from the emergence of large refineries in the region. Any change in oil prices will have an impact on the Company’s financial results, given the stock accounting practice adopted by the Company.
Weak product demand and strengthening crude prices will impact refining margins in Q3 2009. Any changes in oil price will have an effect on the Company’s financial performance.
LATEST CORPORATE DEVELOPMENT - No corporate proposal to report.
QUALITATIVES ANALYSIS.
STRENGTHS,WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL.
The principal activities of the Company consist of refining and manufacturing of petroleum products. The Company operates with state-of-the-art technology and is the key petroleum products supplier to Shell’s downstream businesses in Malaysia.
The oil refinery at Port Dickson has a licensed production capacity of 156,000 barrels per day and produces a comprehensive range of petroleum products, over 90% of which are consumed within Malaysia.
EARNINGS CATALYSTS – Higher crude oil and products prices.
MANAGEMENT - Headed by the Shell Overseas Holdings Limited representative. Dato Saw Choo Boon as the Chairman and Raja Ahmad Murad Bahrin as the MD/ED.
OUTLOOK – Refining margins are expected to improve 2010 due to improving product demand. Any changes in oil prices will have an impact on the Company’s financial results, given the stock accounting practice adopted by the company.
CORPORATE GOVERNANCE – Not transparent enough.
FINANCIAL STRENGTHS – Cash at RM219.9m and Debt at RM486.1m.
WEAKNESS ANALYSIS – Refining margin subject to fluctuation of oil price.
OPPORTUNITIES ANALYSIS – Plenty of opportunity for the expansion of their refinery business at a lower costs to cater for future demand when the world economy recover from the recession.
THREATS ANALYSIS – Prolonged weakness in oil prices as a result of weak demand cause by the global recession.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast PER for FYE 2009 – 7.3X, FYE 2010 PER - .
Net Assets Per Share – RM7.1712.
Price to Book Value – 1.464X.
Forecast Dividend Yield for FYE 2010– 5.7 percent or 60 sen.
Debt to Equity Ratio – 0.645X.
Forecast Return on Equity Ratio for FYE 2009 – 20.4%.
Operating Profit Margin – 3Q09 at 0%. 9M09 at 6.979%.
Pre-Tax Profit Margin – 3Q09 at 0%. 9M09 at 6.55%.
Net Profit Margin – 3Q09 at 0%. 9M09 at 4.6%.
TECHNICAL ANALYSIS – TRADING RANGE.
52 Weeks - High at RM11.30 and Low at RM7.95.
3 Months – High at RM10.80 and Low at RM10.48.
MAINTAINED BUY RECOMMENDATION FOR SHELL (FOM) BHD at M10.50 on low valuations. Shell is a company that thrive on an excellent refining margin that translate into high level of profitability and in turn a cheap valuation. FIFO accounting method benefit them in high crude oil prices environment.
Maintained the FYE 2010 forecast net profit at RM450m or EPS of RM1.50. At PER of 8X, the fair value is RM12.00 plus forecast dividend of 60 sen for a yield of 5.0%.
10. PPB GROUP BERHAD. RM15.96.
FYE 31 DEC. FY 2009(E) 3Q FY2009 9M FY2009 FY 2010(F) 000 000 000 000
Revenue 3,274,361 929,015 2,535,472 2,005,150
Net Profit 1,464,431 595,072 1,264,439 1,138,248
Net EPS (sen) 123.52 50.20 106.66 96.00
Forecast PE Ratio 12.92X 16.6X
Dividend (sen) 25.0 0.00 5.00 30.0
Dividend Yield 1.57%
Net Assets RM11.75.
Cash RM542,884,000.
Debt RM297,086,000. S.T. Debt RM184.939m.
Number of shares 1,185,500,000
Market capitalization RM18.9 billion.
Major shareholder Kuok ( B ) Sdn Bhd ( 42.38 % )
RESULTS ANALYSIS.
Group revenue of RM2.54b for 9 months ended 30 Sept 2009 was 3% lower than last year due to lower revenue of the flour and feed milling, chemicals trading and manufacturing, and property development divisions.
Yr-on-Yr, Group profit before tax was RM1.36b, up 32% due to higher contribution of RM943m from an associate Wilmar International Ltd and improved results from the sugar refining operation.
Q-on-Q, 3Q09 pretax profit of RM644m was 49% higher vs 2Q09 due to higher profits contributed by Wilmar. The grains trading, flour and feed milling divisions also registered improved results.
MANAGEMENT OUTLOOK.
Fluctuating raw material prices and ocean freight rates are factors which would affect PPB profitability.
LATEST CORPORATE DEVELOPMENT.
PPB and Felda Global Ventures Holdings Sdn Bhd entered into :-
(1)a conditional S&P agreement for disposal of Malayan Sugar Manufacturing Company Bhd for RM1,221.16m cash.
(2) proposed disposal of 50% stake in Kilang Gula Felda Perlis Sdn Bhd for RM26.31m cash.
(3) proposed disposa;l of 5,797 hectares certain parcels of land in Chuping, Perlis for RM45.00m cash.
PPB 49% associated company, Grenfell Holdings Sdn Bhd, also proposed to sell to FGVH 59,2o94,097 shares or 20% of Tradewinds (M) Bhd for RM207.53m cash or RM3.50 per share.
All this transactions will resulted in extraordinary gain at Group level of RM757.89m.
QUALITATIVES ANALYSIS.
STRENGTHS,WEAKNESSES, OPPORTUNITIES AND THREATS.
STRENGTHS ANALYSIS.
BUSINESS MODEL.
PPB Group the listed flagship of Kuok Group is a major conglomerate engaged in a wide spectrum of business. Owned 18.2% stake in an integrated oil palm producer Wilmar International listed in Singapore.
PPB’s core businesses are 1.Sugar refining and cane plantation; 2.Grains trading, flour and feed milling; edible oils refining and trading; oil palm plantations; and 3. Environmental engineering, utilities and waste management services, 4.Livestock farming; bulk and consumer packaging; 5.Film exhibition and distribution; 6.Pproperty ownership and development; consumer product distribution; 7.Chemicals manufacturing and commodity trading and other operations.
EARNINGS CATALYSTS – Higher CPO prices on global economy recovery and the listing of Wilmar marketing subsidiary in HKSE.
MANAGEMENT – Headed by a Board of Directors, Dato Oh Siew Nam as the Chairman and Tan Gee Sooi as the Managing Director.
OUTLOOK – The global financial and economic crisis has affected the Group’s performance for the Year 2009 in respect of lower demand and margins for the goods and services offered by the Group but is expected to improve in 2010. In addition, changes in prices of raw materials and ocean freight will be the key factors affecting the group’s profitability. However, Group performance for the year will remain satisfactory.
CORPORATE GOVERNANCE – Not transparent enough.
FINANCIAL STRENGTH – Cash RM391.2m and debt RM252.6m (Short term debt RM150.6m).
OPPORTUNITIES ANALYSIS – Opportunity to redeploy sizeable amount of cash from the sales of subsidiary to Felda to strategic business such as Wilmar International.
WEAKNESSES ANALYSIS. - Weak CPO prices on ample of supply currently. Profit mainly came from 18.2% stake in Singapore listed Wilmar International.
THREATS ANALYSIS – Prolonged weakness in CPO prices and a potential double dip recession for the global economy.
QUANTITATIVES ANALYSIS.
STOCK VALUATIONS.
Forecast PER for 2009 – 12.92X, PER for 2010 – 16.6X.
Net Assets Per Share – RM11.75.
Price to Book Value – 1.36X.
Forecast Dividend Yield – 2.2% or 35 sen.
Debt to Equity Ratio – 0.05X.
Annualized Return on Equity Ratio for FYE 2009 – 13.4% .
Operating Profit Margin – 3Q09 at 20.9%. and 9M09 at 15.6%.
Pre-Tax Margin – 3Q09 at 69.4%, 9M09 at 53.6%.
Net Profit Margin – 64% (3Q09), 49.9% (9M09).
TECHNICAL ANALYSIS – TRADING RANGE.
52 Weeks - High at RM16.18 and Low and RM8.30.
3 Months – High at RM16.08 and Low at RM15.14.
MAINTAINED BUY RECOMMENDATION FOR PPB GROUP BHD at RM15.96 based on better than expected 3Q09 and 9M09 results, good prospect of global recovery in 2010 onward and Wilmar subsidiary listing in HKSE next year. CPO prices expected to hover around RM3,000 in 2010 and above RM3,000 in 2011.
Our FYE2010 forecast earnings at RM1.138 billion or an EPS of RM0.96 before the extra ordinary earnings. Based on the forecast PER for 2010 of 18.8X , the fair value for PPB Group Bhd is RM18.00 plus a dividend of 30 sen for a yield of 1.67%. at RM18.00
PPB Group 1,162,247,755 Wilmar Int. S’pore shares at SG$6.50 and at an exchange rate of RM2.40 to SG$1 are now worth RM18.131 billion or RM15.30 per share.
11. PLUS EXPRESSWAYS BERHAD. RM3.25.
FYE 31 DEC. FY 2009(E) 3Q FY2009 9M FY2009 FY 2010(F)
000 000 000 000
Revenue 2,868,612 815,177 2,325,187 3,260,708
Net Profit 967,024 311,506 871,376 1,246,024
Net EPS (sen) 19.36 6.23 17.43 24.9
Forecast PER 16.8X 13X
Net Assets RM1.15.
Dividend (sen) 10.0 0.00 6.50 12.5
Dividend Yield 3..07% 3.8%
Cash RM 2,665,337,000.
Debt RM10,890,314,000. S.T. Debt RM576,657,000.
Number of shares 5,000,000,000 shares.
Market capitalization RM16.25 billion.
Major shareholder UEM Group Bhd.
RESULTS ANALYSIS.
Q-on-Q, 3Q09 toll collection was higher by 4.9% due to 14.2% growth in traffic volume, due to timing difference of Hari Raya festive in Sept this year as compared to in Oct. last year.
Q-on-Q, 3Q09 total revenue was 5.6% higher due to higher toll collection and higher toll compensation in line with the traffic growth.
Q-on-Q, 3Q09 pretax profit was up 7% due to higher revenue and higher operating income mitigated by higher operating expenses due to higher amortization and depreciation charges as well an an increase in routine maintenance expenses.
Yr-on-Yr, 3Q09 toll collection was higher by 11.4% vs 3Q08 due to higher contribution fro PLUS of RM55m on traffic growth of 14.2%. 9 months toll collection was RM90.8m higher or 5.5% due to higher toll collection by RM79m driven by traffic growth of 7.8%.
Yr-on-Yr, 3Q09 total revenue was 13.7% higher due to higher toll collection and higher toll compensation of RM36.4m. 9 months revenue was 6.9% higher on improvement in traffic volume.
Yr-on-Yr, 3Q09 pretax profit was RM80.8m or 23.7% higher due to higher toll revenue mitigated by higher finance costs and lower finance income. 9 months pretax profit was RM81.5m or 7.4% higher due to higher revenue.
OUTLOOK.
The Group to expand its operation locally and internationally and to reduce its operating costs and undertake effective capital management.
The Board expects the results for the financial year 2009 to be satisfactory.
LATEST CORPORATE DEVELOPMENT.
On 6 Oct 2009, PLUS has become the holding company of PLUS Helicopter Services Sdn Bhd, a dedicated aviation company to provide helicopter charter services.
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL.
Plus Expressways Berhad wholly owns Project Lebuhraya Utara-Selatan Berhad (“PLUS”), a toll concessionaire in Malaysia.
PLUS’s core business consists of the operation and maintenance of the following expressways and certain ancillary facilities along the expressways :
1.the North-South Expressway, a 772-km expressway from the border of Thailand in the north to the border of Singapore in the south.
2 .the New Klang Vally Expressway, a 35-km expressway running between Kuala Lumpur and the North Klang industrial and urban area.
3. the 16-km section of Federal Highway Route 2 connecting the industrial and urbanareas of Subang and Klang, and
4. the Seremban-Port Dickson Highway, an expressway of approximately 23-km connecting Seremban and Port Dickson.
PLUS Expressways also provides expressway operation services to the following three expressways :
1.North-South Expressway Central Link (ELITE), a 63-km expressway linking South and North of Kuala Lumpur to the KL International Airport.
2. LINKEDUA, the second bridge crossing between Tuas in Singapore and Tanjung Kupang in Johor, Malaysia and the toll road linking the second crossing to the North-South Expressway with total length of 44 km, and
3. Penang Bridge, linking Penang Island to Peninsular Malaysia with total length of 13.5 km (including an 8.5 km bridge).
EARNINGS CATALYST – Higher traffic volume and overseas expansion, i.e in India and Indonesia.
MANAGEMENT – Headed by the Board of Directors, Tan Seri Mohd Sheriff Mohd Kasim as the Chairman and Noorizah Abd Hamid as the CEO.
OUTLOOK – Improving outlook locally and overseas with the faster economy recovery.
CORPORATE GOVERNANCE – Not transparent enough.
FINANCIAL STRENGTH – Cash RM2.66b and debt RM10.89b (Short term debt RM576.6m).
WEAKNESS ANALYSIS – Highly leverage balance sheet.
OPPORTUNITIES ANALYSIS – Overseas expansion .
THREATS ANALYSIS -A toll concessionaire company with a concession period that will expire according to the respective agreement with the Government.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast FYE 2009 PER – 16.8X, PER 2010 at 13X..
Net Assets Per Share – RM1.15.
Price to Book Value – 2.83X.
Forecast Dividend Yield FY2009 – 3.0% or 10 sen, FY2010 at 3.8% or 12.5 sen.
Debt to Equity Ratio – 2.1X.
Annualized Return on Equity Ratio – 20.5%.
Operating Profit Margin – 3Q09 at 71.9%., 9M09 at 71.7%.
Pre-Tax Profit Margin – 3Q09 at 51.8%.
Net Profit Margin – 3Q09 at 38.2%, 9Q09 at 37.5%.
TECHNICAL ANALYSIS - TRADING RANGE.
52 Weeks - High at RM3.39 and Low at RM2.72.
3 Months – High at RM3.36 and Low at RM3.22.
MAINTAINED BUY RECOMMENDATION FOR THE PLUS EXPRESSWAYS BHD at RM3.25 on possible Federal government takeover of the toll operation at a premium and higher traffic growth due to economy recovery.
Based on FYE 2010 forecast earnings of RM1.246 billion and an EPS of 24.9 sen, the fair value for PLUS is RM3.80 at PER of 15.3X plus a dividend of 12.5 sen for yield of 3.3 percent at RM3.80.
12. MAYBANK BERHAD. RM6.76. (Non Shariah Compliance).
FYE 30 JUNE 1Q 2010(U) FY 2010(E)
000 000
Revenue 2,009,172 19,435,476
Net Profit 881,803 2,700,000
Net EPS (sen) 12.46 38
Forecast PE Ratio 17.8
Dividend (sen) 20.0
Dividend Yield 2.96%.
Net Assets RM3.6676.
Cash RM 24,231,967,000
Customer deposit RM218,764,605,000
Net Loans RM190,907,411,000
Net NPL RM2,849,576,000 or 1.46%.
Core Capital Ratio 10.43%.
Risk Weighted Capital 14.28%.
Total Assets RM317,040,594,000.
Shareholders fund RM 26,835,848,000.
Number of shares 7,077,663,000 shares.
Market capitalization RM47.8 billion
Major shareholder PNB, ASB
RESULTS ANALYSIS.
Yr-on-Yr, 1QFY10 net interest income up by RM362.6m or 28.7% due to contribution from PT Bank Internasional Indonesia Tbk, a 97.5% subsidiary, whilst there was no consolidation of income from BII in Q1FY09.
Without Q1FY09 one of items of impairment charge of RM242.0m for investment in MCB Bank and write back of allowance for non-refundable deposit of RM483.8m, the Group’s pretax profit in Q1FY10 up 31.1% or RM274.4m to RM1,156.2m.
Q-on-Q, 1QFY10 net interest income up by RM63.0m or 4.1% vs 1QFY09, due to lower cost of funds obtained from the rights issue completed on 30 April, and from better interest margin from overseas operations.
MANAGEMENT OUTLOOK.
Against the backdrop of improving economy, Maybank’s core commercial banking operations is expected to perform better with positive but modest loan growth although the recovery in SME segment, will be uncertain. Improving capital market activity should, however, provide a better performance for the investment banking and insurance divisions.
The Group’s international operation is expected to record a better performance due to global economic recovery as well as through business expansion. BII is expected to show much better growth in line with vibrant banking sector in Indonesia.
LATEST CORPORATE DEVELOPMENT.
Appointment of Tan Sri Megat Zaharuddin as New Chairman.
QUALITATIVES ANALYSIS.
STRENGTHS,WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL
The Bank is principally engaged in the business of banking and finance in all its aspects which also include Islamic Banking Scheme operations with overseas operations in Singapore, Indonesia, Pakistan, Vietnam.
The subsidiaries are principally engaged in the business of investment banking, general and life insurance, general and family takaful, stock broking, discount house, leasing and factoring, trustee and nominees services, unit trust management, asset management and venture capital.
EARNINGS CATALYSTS – Higher loans growth, higher contribution from the recent overseas acquisitions.
MANAGEMENT – Headed by the CEO Dato Wahid Omar and a new Chairman of the Board of Directors.
OUTLOOK – Excellent outlook because of their sheer size and network locally and regionally as the global economy recover.
CORPORATE GOVERNANCE – Still not transparent enough just like the rest of corporate’s Malaysia.
FINANCIAL STRENGTH – Cash RM24.2 billion. CCR 10.43% and RWCR 14.28%. NPL RM2.45b or 1.46%.
WEAKNESS ANALYSIS – The bank highly leverage business model make them vulnerable during an economic downturn.
OPPORTUNITIES ANALYSIS – Opportunity to consolidate and grow organically after the recent overseas foray, during a period of economy recovery now.
THREATS ANALYSIS - Still weak in the investment banking area. Recently very aggressive in pursuing overseas or regional expansion or acquisition but at a very high price and through heavy borrowing which eventually will affect their bottom line.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast FYE June 2010 PER – 17.6X.
Net Assets Per Share – RM3.6676.
Price to Book Value – 1.84X.
Forecast Dividend – 20 sen.
Forecast Dividend Yield – 2.96%.
Debt to Equity Ratio – 11.2X.
Annualized ROE FY June 2010 – 13.6 %.
Net Interest Income Margin – 59.7 %. (1Q10)
Operating Profit Margin – 41.4%. (1Q10).
Pre-Tax Profit Margin – 1Q 2010 at 42.4%.
Net Profit Margin – 1Q 2010 at 32.3%.
TECHNICAL ANALYSIS - TRADING RANGE.
52 Weeks - High at RM7.08 and Low at RM3.54.
3 Months – High at RM6.85 and Low at RM5.60.
MAINTAINED BUY RECOMMENDATION FOR MAYBANK BHD on economy recovery next year onward as Malaysia is expected to register a GDP growth of between 6% to 8% from 2010 onward.
The upside potential for Maybank is RM8.50 based on the upward revision of net profit forecast to RM3.527 billion, earnings per share of 49.8, a dividend of 20 sen for yield of 2.35%, at forecast PER for FYE 2010 of 17.1X and Price to Book Value of 2.32X.
13. CIMB GROUP BERHAD. RM12.84. (Non Shariah).
FYE 31 DEC. FY 2009(E) 3Q FY09 9M FY09 FY 2010(F) 000 000 000 000
Revenue 10,281,238 2,786,977 7.889,775 11,500,000
Net Profit 2,603,393 726,830 2,003,923 3,000,000
Net EPS (sen) 73.78 20.58 56.78 83.7
Forecast PE Ratio 17.4X 15.3X
Dividend 30.0 0.00 0.00 40.0
Dividend Yield 2.34% 0.00% 0.00% 3.1%
Net Assets RM5.49.
Cash RM 20,473,204,000.
Customers Deposits RM166,155,429,000
Borrowings RM10,204,384,000.
Net Loans and Advances RM136,467,443,000.
Net NPL RM3,314,914,000 or 2.39%.
Core Capital Ratio 13.48%.
Risk Weighted Capital 13.96%.
Cost to income ratio 52.2%
Total assets RM228,891,774,000.
Shareholders fund RM 21,100,757,000.
Return on equity 14.1 %.(annualized).
Number of shares 3,582,395,000 shares.
Market capitalization RM45.98 billion.
Major shareholder Khazanah Nasional, EPF
RESULTS ANALYSIS.
9 months net profit of RM2.004b represents 22.7% year on year growth or net EPS of 56.8 sen and annualized ROE of 14.7%.
Total non Malaysian contribution to the Group jumped to 26% in 9M09 from 18% previously.
For 3Q09, total Group revenue expanded by 7.6% to RM2.787b versus RM2.589b generated in 2Q09. Net profit of RM727m represented 9.7% growth vs 2Q09.
The Group’s Malaysia consumer Banking division PBT saw a marginal improvement (+0.7% Q-on-Q). Excluding recoveries at the bad bank, the consumers bank earnings was 2.4% lower. Corporate and Investment banking slipped 19.3% due to a jump in loan provisions in its international portfolio, but Treasury and Investment pick up the pace with 9.6% Q-on-Q growth. CIMB Niaga’s PBT contribution jumped by 33.9% while GAM and Insurance PBT contributions remained flat. CIMB Thai turned in RM50m PBT contribution in 3Q09 vs negative RM11m in 2Q09.
MANAGEMENT OUTLOOK.
There has been a surge in the activity in Malaysian equity and debt markets and the economic and operating environment has been improving across the region. CIMB is confident of achieving a revised ROE of 14%-15% in 2009.
LATEST CORPORATE DEVELOPMENT.
Sold RM302 million worth of Group properties to EPF.
On 11 Nov 2009, MOF approved CIMB disposal of NPL to a special purpose company, Southeast Asia Special Asset Management Bhd. CIMB Bank will dispose legacy NPL of 45,000 accounts with loan gross amount of RM8.4b and net book value of RM928m.
The disposal is not expected to have any material effect to Group earnings but CIMB Bank’s gross NPL ratio will drop from 2.8% while its net NPL will drop to 1.3%. Loan loss coverage will improve from 91.8% to 116.1% as at 30 Sept. 2009.
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL - The Group banking business is organized into six major operating divisions. 1.Consumer Banking 2.Corporate and Investment Banking 3.Treasury and Investment 4.Asset Management & Insurance 5.Foreign Banking Operation 6.Support and Others 7.
MANAGEMENT – Government nominees. Dato Nazir Razak as the Group CEO.
OUTLOOK – Excellent positioning locally and regionally as the economy recover.
The Group balance sheet is now well positioned and its consumer bank momentum in Malaysia and Indonesia is strong. However, the group remain cautious as economic indicators are still quite mixed and the group is not ready to revise its target for the year.
CORPORATE GOVERNANCE – Still not transparent enough and not doing enough on CSR.
FINANCIAL STRENGTH – Cash RM21.2b. Borrowings RM4.86b. CCR 12.72%, RWCR 13.82%. NPL RM3.233 or 2.45%.
WEAKNESS ANALYSIS – The banks highly leverage business model and assets quality are making them quite vulnerable in a recessionary environment.
OPPORTUNITIES ANALYSIS – Nicely position locally and regionally to grow organically or through M&A during the next decade of economic expansion, unscathed after the recent global financial crisis.
THREATS ANALYSIS – Need further improvement in the commercial banking area to be the next earnings driver and to be as good as CIMB investment banking side. Assets quality, weak bond market and a slowing economy worldwide will affect the bank profitability.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast FYE 2009 PER – 17.4X, PER for FYE 2010 – 17.9X
Net Assets Per Share – RM5.49.
Price to Book Value – 2.34X.
Forecast Dividend – 30 sen.
Dividend Yield – 2.34%.
Debt to Equity Ratio – 10.72X.
Annualized Return on Equity Ratio – 14.1%.
Net Interest Income Margin – 3Q09 at 60,25%. 9M09 at 56.3%.
Operating Profit Before Allowance Margin – 3Q09 at 50.9%, 9M09 at 46.4%..
Pre-Tax Profit Margin – 3Q09 at 35.9%, 9M09 at 34.5%.
Net Profit Margin – 3Q09 at 26.1%, 9M09 at 25.4% .
TECHNICAL ANALYSIS – TRADING RANGE.
52 Weeks - High at RM13.48 and Low at RM5.60.
3 Months – High at RM13.28 and Low at RM11.12.
MAINTAINED BUY RECOMMENDATION FOR CIMB GROUP BHD AT RM12.84 on better than expected 3Q 2009 and 9M09 results. An economy recovery next year onward will result in better assets quality, low NPL, strong contribution from the investment banking and Indonesian operation.
Based on FY 2010 forecast earnings of RM 3billion at an EPS of 83.7 sen, at PER of 17.9X , a gross dividend of 40 sen for a yield of 2.67% and at 2.7X Price to Book Value, the upside potential for BCHB is RM15.00.
14. PUBLIC BANK BERHAD. RM10.96. (Non Shariah Compliance).
FYE 31 DEC. FY 2009(E) 3Q FY2009 9M FY2009 FY 2010(F) 000 000 000 000
Revenue 11,164,636 2,438,035 7,220,116 10,623,966
Net Profit 2,421,508 639,045 1,839,071 2,602,021
Net EPS 70.54 18.52 53.66 73.7
Forecast PE Ratio 15.5X 14.9X
Dividend (sen) 50.0 00.0 30.0 55.0
Dividend yield 4.56% 5.01%
Net Assets RM2.9836.
Total assets RM209,043,482,000.
Cash RM 41,532,007,000.
Debt RM 6,747,648,000.
Customers Deposits RM182,666,158,000.
Net Loans RM131,401,135,000.
Net NPL RM1,088,425,000 or 0.82%.
Core Capital Ratio 8.6% before dividend.
Risk-Weighted Capital 12.7% before dividend.
Ann. Return on Equity 24.06 %.
Total shareholders fund RM11,006,064,000.
Number of shares 3,531,926,000 shares.
Market capitalization RM38.7 billion.
Major shareholder Teh Hong Piow
RESULTS ANALYSIS.
PBB 9 months pretax profit and net profit down 5.7% and 4.6%, due to one off goodwill income of RM200m received from ING in respect of regional strategic alliance which is non-recurring item. Excluding one-off goodwill the operating pretax profit and net profit up by RM55m (2.3%) and RMRM57.1m (3.2%) due to higher net income and financing income by RM273.1m (8.6%) and higher other operating income by RM92.7m (9.9%) partially offset by higher other operating expenses by RM225.2m and higher loan loss and impairment loss allowances by RM87.8m.
Q-on-Q, 3Q09, PBB pretax profit of RM856.5m up RM36.7m or 4.5% vs 2Q09 and net profit up by RM28.3m or 4.6% due to higher net interest and financing income by RM48.1m, partially offset by higher other operating expenses by RM19.2m.
MANAGEMENT OUTLOOK.
The banking industry in Malaysia is expected to grow positively and remain resilient due to its strong capitalization, healthy asset quality and improved risk management practices.
PBB will continue to focus on its core business and to accelerate growth in its overseas operations.
LATEST CORPORATE DEVELOPMENT.
On 13 Nov 2009, PBB issued second tranche of Stapled Securities worth RM888m with a maturity date of 50 years due on 13 Nov 2059, and interest rates of 7.5% payable semi-annually.
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL.
Strong in commercial banking in Malaysia. Regional banking expansion in Hong Kong, Cambodia and China contribute quite substantially to PBB botomline. A complete banking group in Malaysia with an operation in investment banking and Islamic Banking too.
Revenues came from 1.Retail operations 2. Corporate lending 3.Treasury and Capital market operations 4.Investment Banking 5.Fund Management 6.Others.
EARNINGS CATALYST – Loans growth.
MANAGEMENT – Old hand in the banking industry, Tan Sri Teh Hong Piow as the Group Chairman.
OUTLOOK – Excellent outlook in tandem with global economy recovery.
Despite the slowing economy, the banking industry in Malaysia is expected to grow positively and remain resilient due to its strong capitalization, healthy assets quality and improved risk management practices. Amidst excess liquidity, the entry of new Islamic banks and liberal operating environment for incumbent foreign controlled banks, the banking industry will remain competitive, particularly in retail sector, and the pressure on net interest margins will remain. Banks are expected to introduce innovative and competitive products and services at a faster pace, pursue competitive pricing strategies and strengthen their customer relationship management and delivery standards to gain market share. The banking industry’s loan growth is expected to moderate as households and businesses turn more cautious. Factors that will continue to support loan growth include low financing costs, promotion of BNM funds to support SMEs and continue government ‘s fiscal stimulus to boost economic activity.
CORPORATE GOVERNANCE – Still not transparent enough and not doing enough on the CSR.
FINANCIAL STRENGTH – RM41.5 billion in cash and RM6.74 billion in debt. CCR at 8.6%, RWCR at 12.7%. NPL RM1.088 billion or 0.8%.
WEAKNESS ANALYSIS – The bank highly leverage business model are vulnerable to global recession.
OPPORTUNITIES ANALYSIS – Well position locally and regionally to grow organically or through M&A for the next decade.
THREATS ANALYSIS - Still weak in the investment banking area. Slowing world economy will affect the bank loan expansion but good assets quality and a very low NPL will see the bank through the turbulence time ahead.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast FYE2009 PER – 15.5X, PER for FYE 2010 at 14.9X.
Net Assets Per Share – RM2.9836.
Price to Book Value – 3.673X.
Forecast Dividend for 2009– 50 sen, 2010 – 55 sen.
Forecast Dividend Yield for 2009 – 4.56%., FY2010 at 5.01%.
Debt to Equity Ratio – 19.2X.
Annualized Return on Equity Ratio FYE2009 – 24.06 percent.
Net Interest Income Margin – 41.8% in 3Q09, 41 % in 9M09.
Operating Profit Margin – 42.3% in 3Q09, 40.6 % in 9M09.
Net Profit Margin – 26.2% for 3Q09, 9M09 at 25.5%.
TECHNICAL ANALYSIS - TRADING RANGE.
52 Weeks - High at RM11.02 and Low at RM7.10.
3 Months – High at RM10.98 and Low at RM10.18.
MAINTAINED BUY RECOMMENDATION FOR PUBLIC BANK BHD at RM10.96 on low valuations due to better than expected 9M 2009 results and the expected global economy recovery next year.
We forecast the earnings for a FYE 2010 at RM2.6 billion at an EPS of 73.7 sen due to a global economy recovery, steady loans growth and low NPL
The upside potential for Public Bank Berhad is RM12.60 based on forecast PER for FY2010 of 17.1X, Price to Book Value of 4.2X and forecast dividend of 55 sen for a yield of 4.4%
15. KULIM ( M ) BERHAD. RM7.45.
FYE DEC. 31 FY 2009(E) 3Q FY2009 9M FY2009 FY 2010(F)
000 000 000 000
Revenue 5,686,000 1,441,239 4,245,513 6,000,000
Net Profit 200,000 43,712 99,051 370,000
Net EPS (sen) 64.85 14.15 32.06 116.00
Forecast PE Ratio 11.6X 6.4X.
Dividend (sen) 20.0 0.0 0.0 30.00
Dividend Yield 2.7%. 4%
Net Assets Per Share RM10.53.
Cash RM 394,215,000.
Debt RM1,768,549,000. Short Term RM381.976m.
Number of shares 318,670,000 shares.
Market capitalization RM2.374 billion.
Major shareholder Johor Corp ( 52.18 % ).
RESULTS ANALYSIS.
Yr-on-Yr, 9 months 2009 revenue at RM4.25b vs RM3.0b for 9M08, up 38%, due to contribution from QSR Brands Bhd arising from revenue at KFC Holdings Bhd consolidated in its first year into the Group’s consolidated revenue. The plantation division revenue decreased by RM120m or 9.2%.
The Group’s Malaysian CPO price average for 9M09 at RM2,130 / mt vs RM2,367 / mt for 9M08. NBPOL’s average CPO price at US$655 vs US$950 for 9M08.
The foods and restaurants Group posted a pretax profit of RM160m for 9M09 or 121.61% vs RM72.2m for 9M08 and open 16 new Pizza Hut and 21 new KFC restaurants.
Yr-on-Yr, in 3Q09 the oil palm sector posted lower revenue and profits vs 3Q08 due to palm products price decline. QSR is reporting in consolidated form for the first year.
MANAGEMENT BUSINESS OUTLOOK.
With costs having stabilized and palms are performing well within expectations and recent acquisition at NPBOL bringing in more crops the Plantation division for the coming year is anticipated to surpass the performance recorded over the current year.
The Foods and restaurant Group has laid down plans to increase revenue and profitability by increasing the restaurants network etc etc.
LATEST CORPORATE DEVELOPMENT.
Proposed investment in Intrapreneur Development Sdn Bhd.
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESS, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL – The Group’s business segments are managed on a worldwide basis, they operate in four geographical areas:
1.Malaysia – mainly plantation (more than 40,000 hectares and in the middle of taking over Sindora Bhd with 6000 hectares of plantation land)), manufacturing, fast foods, bio diesel and investment activities.
2.Papua New Guinea – mainly plantation activities (more than 70,000 hectares and plan to double the total hectarage in the future is underway).
3.Solomon Island – rehabilitation of palm oil plantation land.
4.United Kingdom – mainly plantation activities.
Revenues came from :-
1.Plantation operations .
2.Manufacturing (Oleochemical and Rubber Products).
3. Foods and Restaurants.
4.Management Services and Other Businesses.
5.Shipping Services.
6.Investment Property.
7. Other Investment income.
EARNINGS CATALYSTS – Higher CPO price and new Pizza Hut and KFC restaurants.
MANAGEMENT – Manage by the State of Johor investment arm, Johor Corporation. Tan Sri Hashim Ali as the Chairman and Dato Ahmad Mohamad as the MD.
OUTLOOK – Strong earnings growth based on higher CPO outlook and restaurant expansion for the fast food division going forward.
CORPORATE GOVERNANCE – Transparency is still lacking.
FINANCIAL STRENGTH – Cash RM394.2 million and Debt RM1.768 billion (Short term debt RM381.9m).
WEAKNESS ANALYSIS – Highly leverage balance sheet.
OPPORTUNITIES ANALYSIS – Time to nurture the business for organic growth.
THREATS ANALYSIS – Prolonged global recession that affecting the CPO prices has diminish and the company bottom line and costs of doing business are expected to improve further in 2010.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast 2009 PER – 11.6X and PER for 2010 at 6.4X.
Net Assets Per Share – RM10.53.
Price to Book Value – 0.71X.
Forecast Dividend Yield FYE 2009 – 2.7% or 20 sen, FY2010 at 4%..
Debt to Equity Ratio – 0.845X.
Annualized Return on Equity Ratio for FY2009 – 4.25%.
Operating Profit Margin – 3Q09 at 10.9%. 9M09 at 9.74%.
Pre-Tax Profit Margin – 3Q09 at 9.94%. 9M09 at 8.77%.
Net Profit Margin – 3Q09 at 3.03%. 9M09 at 2.33%.
TECHNICAL ANALYSIS – TRADING RANGE.
52 Weeks - High at RM7.90 and Low at RM4.32.
3 Months – High at RM7.50 and Low at RM7.30.
MAINTAINED BUY RECOMMENDATION FOR KULIM (M) BHD at RM7.45 - A fair value of RM10.50 plus a dividend yield of 3 percent or 30 sen at PER of 9.0X on forecast 2010 EPS of RM1.16 and 0.95X Price to Book Value.
We based our forecast on CPO prices at between RM2,800 to RM3,000 in FY2010 and between RM3,300 to RM3,500 in FY2011. Expected a higher contribution from the food division, increase plantation hectarages and a steady contribution from all the other divisions.
16. GAMUDA BERHAD RM2.70.
FYE JULY 31 FY 2010(F) 1Q FY 2010(U)
000 000
Revenue 3,404,916 623,960
Net Profit 280,812 63,017
Net EPS 13.92 3.13
Forecast PE Ratio 19.4X
Cash RM1,335,873,000
Debts RM1,614,034,000. (Short term debt RM403.5m).
Dividend (sen) 10.00 6.00
Dividend Yield 3.7% 2.22%
Net Assets RM1.60.
No. of shares 2,016,762,000 shares.
Market capitalization RM5.44 billion.
Major shareholder Generasi Setia Sdn Bhd 7.05%.
RESULTS ANALYSIS.
For 1Q 2010, Gamuda posted revenue and pre-tax profit of RM624m and RM83.5m vs RM614m and RM72.0m in the corresponding preceding quarter due to higher contribution from all divisions.
The Group pre-tax profit of RM83.5m is higher than the immediate preceding quarter pre-tax profit of RM80.4m due to higher contribution from the property division arising from the strong property sales.
MANAGEMENT OUTLOOK.
With the existing construction projects progressing on schedule and the recovery of property market, the group’s performance is expected to improve for the rest of the current financial year.
a.Construction Division.
i.Electrified Double Track Project - Completion date has been revised from Jan 2013 to Dec 2013. The work progress is expected to pick up for the rest of current financial year.
ii. New Doha International Airport Project (Qatar) – The project is progressing on schedule and not affected by the Dubai crisis.
iii.Yenso Park and Sewage Treatment Plant in Vietnam – Projects are progressing well and not affected by the recent devaluation of Vietnamese Dong.
b.Property Division.
Established developments like Kota Kemuning, Bandar Botanic and Valencia Development gained the most from the market turnaround. With locked-in sales of RM700 million, the property division is expected to improve further.
c.Water related Concession Division.
Selangor State Government was unable to take over SPLASH and the offer to SPLASH was deemed lapsed.
LATEST CORPORATE DEVELOPMENT.
Proposed Rights Issue of up to 267,696,915 warrants in Gamuda, at an issue price of RM0.10 per warrant on the basis of 1 warrant for 8 existing ordinary shares.
On 30 Nov 2009, Selangor State government (SGS)informed SPLASH that it was unable to proceed with the offer to purchase the water related assets and operations of SPLASH for RM2.975b due to SYABAS and Puncak Niaga (M) Sdn Bhd disagreement with SGS.
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL – Construction, property development and toll concessionaires in Malaysia and overseas.
Revenues came from 1.Engineering and Construction 2.Property Development 3.Water related and Expressway Concessions.
EARNINGS CATALYSTS – New takeover offer for SPLASH from the Federal Government, further economy recovery and the award of new projects.
MANAGEMENT – Headed by Tan Sri Talha Mohd Hashim as the Chairman of the Board of Directors and Dato Lin Yun Ling as the Managing Director.
BUSINESS OUTLOOK – Relatively stable due to RM 16 billion order book.
CORPORATE GOVERNANCE – Still not transparent enough.
FINANCIAL STRENGTH – Cash RM1,335,873,000 and Debt RM1,614,034,000 (Short Term Debt RM403.5 million).
WEAKNESS ANALYSIS – No single largest controlling shareholder making it a possible takeover play.
OPPORTUNITIES ANALYSIS – Will capitalize on their strengths when the opportunity arise. Possible to clinch new projects from the government fiscal stimulus spending and budget for 2010.
THREAT ANALYSIS – Prolonged world economic slowdown that will reduce infrastructure spending. Currently still high construction and building materials costs despite the slowdown.
QUANTITATIVE ANALYSIS - STOCK VALUATIONS.
Forecast FYE July 2010 PER – 19.4X.
Net Assets Per Share – RM1.60.
Price to Book Value – 1.6875X.
Forecast Dividend Yield – 3.7% or 10 sen.
Debt to Equity Ratio – 0.818X.
Annualized Return on Equity Ratio FYE 2010 – 7.8%
Operating Profit Margin – 8.89 % (1Q 2010).
Pre-tax Profit Margin – 13.4 % (1Q 2010).
Net Profit Margin – 10.1 % (1Q 2010).
TECHNICAL ANLYSIS - TRADING RANGE.
52 Weeks - High at RM3.44 and Low at RM1.60.
3 Months – High at RM3.34 and Low at RM2.65.
UPGRADE TO BUY FROM HOLD RECOMMENDATION FOR GAMUDA BHD AT RM2.70 on possible new offer for SPLASH from the Federal Government, faster economy recovery, on the possibility of securing new project from government fiscal stimulus spending and as a results upside surprise on the earnings. A fair value of RM3.00 based on forecast FY 2010 PER of 21.6X (lower with E.I from sale of SPLASH), on an EPS of 13.92 sen and a gross dividend yield of 3.33%. A possible higher dividend payout from the one off earnings from the sale of SPLASH.
17. MMC CORP BHD. RM2.40.
FYE 31 DEC. FY 2009(E) 3Q FY2009 9M FY2009 FY 2010(F)
000 000 000 000
Revenue 8,245,000 2,167,473 6,245,969 8,669,892
Net Profit 250,000 90,534 128,936 609,000
Net EPS (sen) 8.20 3.00 4.20 20.0
Forecast PE Ratio 29.3X 12.0X
Dividend (sen) 5.0 7.50
Dividend yield 2.08% 3.125%
Net Assets RM2.03.
Cash RM 3,926,021,000
Debt RM20,432,000,000. S.T. Debt RM1.691b.
No. of shares issue 3,045,059,000 shares.
Market Capitalization RM7.3 billion.
Major Shareholder Seaport Terminal 51.76%.
RESULTS ANALYSIS.
The Group’s 9M09 performance was affected by :-
(I)Lower contribution from the transportation and logistics division due to economic downturn.
(II)Share of losses from Zelan Bhd due to provision for foreseeable losses on Middle East Project.
(III)Exceptional gain of RM37.5m on disposal of subsidiary for 9M08.
(IV)Adjustment to profit recognized in the prior year of RM82.0m for Double Track Project.
The improvement in Group 3Q09 vs 3Q08 due to :-
(I)Improve results from Zelan Bhd.
(II)Better share of profit from Double Track Project with no adjustment made.
(III)The above was offset by lower contribution from the energy and utilities division due to lower capacity factor in Malakoff power plants.
(IV)Write back of provision in Aliran Ihsan Resources Bhd of RM32.7m.
MANAGEMENT OUTLOOK.
FY2009 results to be lower than FY2008 results.
LATEST CORPORATE DEVELOPMENT.
MMC first overseas port and logistics venture has taken off with the opening of its first berth, the Red Sea Gateway Terminal, at Jeddah Islamic Port. MMC hold an associate stake in the two billion Saudi Arabian riyal (RM1.84b) terminal in Saudi Arabia. The three berth RSGT has the capacity to handle 1.8m TEUs annually. The JIP handles about 73% of Saudi Arabia total container trade and the annual capacity is expected to increase by another 45%.
Termination of sublease agreement between Johor Port Bhd and PadiBeras Nasional Bhd.
Proposed divestment by Johor Port Bhd of 12,000,000 ordinary shares of RM1.00 each representing 75% equity interest in Bernas Logistics Sdn Bhd to PadiBeras Nasional Bhd.
Terminated the RM16b MOU with Dubai World.
QUALITATIVE ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTH ANALYSIS.
BUSINESS MODEL.
Transport and Logistics – 70% of Pelabuhan Tanjung Pelepas the container port and logistics hub, 100% of Johor Port the multipurpose port and logistics operations and 100% of Konsortium Lebuhraya Butterworth-Kulim the toll road operations.
Energy and Utilities – 51% of Malakoff Bhd, 41.8% of Gas Malaysia the natural gas distribution company and 51% of Recycle Energy the waste management & recycling and renewable energy company.
Oil & Gas – Through 99.9% stake in MMC Oil & Gas the design engineering services company, 69.9% of Tepat Teknik the steel fabrication works company, 51% of MMC-Transfield Services the asset management and maintenance services company and 51% of MMC-VME the natural gas separations works company.
Engineering & Construction – Through 39.2% of Zelan Bhd (RM2.11) the investment holding company which owned 100% of Zelan the power plant construction company and below 20% of IJM Bhd (RM5.15 Buy) the major infrastructure works company, and through 99.9% of MMC Engineering & Construction the engineering services company.
Others businesses – Through 30% stake in Malaysia Smelting Corporation (RM8.20) the tin mining and smelting company, 20.1% Integrated Rubber Corporation ( RM0.43) the manufacturing and trading of rubber gloves, 52.9% of Kramat Tin Dredging (RM5.90) which refocusing their business, 75.6% of Seginiaga Rubber Industries the weather strip manufacturer and MMC Metal Industries the foundry operations and precision engineering company.
Overseas business division – 50% stake in US$ 30 billion Jizan City project in Saudi Arabia.
Transport and logistics represent 14% of revenue and 17.7% of segmental profit. Energy and utilities represent 84.8% of revenue and 84% of segmental profit. Others operation represent 0.7% of revenue.
EARNINGS CATALYSTS – Recovery in demand for the Malakoff power plants, transportation and logistics division, and other divisions due to faster economy recovery.
MANAGEMENT – Headed by Board of Directors and CEO linked to Syed Mokhtar. Dato Syed Abdul Jabbar Syed Hassan as the Chairman and Hasni Hasun as the CEO of Malaysian operation.
OUTLOOK – The FY2010 results should be better than FY2009 due to improving economics condition.
CORPORATE GOVERNANCE - They should be more transparent in the related parties transaction, financial reporting and should be more active in being a good corporate citizen too.
FINANCIAL STRENGTH.
Strong recurrence earnings from the IPP allowed them to take on huge amount of borrowing for project financing. Cash in hand stood at RM3.9 billion and debt level stood at RM20.4 billion (Short term debt at RM1.69b).
WEAKNESS ANALYSIS – Highly leverage balance sheet.
OPPORTUNITIES ANALYSIS – Good dealmaker in Syed Mokhtar Albukhary.
THREATS ANALYSIS -Large amount of borrowing is still a big worry even though most of them is project financing or tie up to future cash flow of the project. Still high construction costs such as cement and steel will affect the group profit margin.
Morever, the recent revision in gas prices to IPP from RM14.31 per mmBTU to around RM10 per mmBTU will also help the group power division profitability going forward.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast FYE 2009 PER - 29.3X, FYE 2010 at 12.0X.
Net Assets Per Share – RM2.03.
Price to Book Value – 1.18X.
Forecast Dividend Yield FYE 2009 – 2.08% or 5 sen, FYE 2010 at 3.125%.
Debt to Equity Ratio – 6.16X
Annualized Return on Equity Ratio FYE 2009 – 3.54 %.
Operating Profit Margin – 3Q09 35.3%, 9M09 at 36%
Pre-tax Profit Margin - 3Q09 at %. 9M09 at %.
Net Profit Margin – 3Q09 at 4.18%. 9M09 5.2%.
TECHNICAL ANALYSIS - TRADING RANGE.
52 Weeks - High at RM2.77 and Low at RM0.95.
3 Months – High at RM2.62 and Low at RM2.37.
MAINTAINED BUY RECOMMENDATION FOR MMC CORP BHD at RM2.40 on expected earnings recovery next year due to the global economy recovery. Based on the forecast earnings for FYE Dec 2010 of 20 sen per share on net profit of RM609 million, the upside potential is RM3.00 at FYE 2010 PER of 15X and a dividend of 5 sen for a yield of 2.35%.
18. PETRONAS DAGANGAN BHD. RM8.60.
FYE MARCH 31 FY 2010(F) 2Q FY2010 1H FY2010
000 000 000
Revenue 20,235,776 5,151,970 9,931,836
Net Profit 803,014 199,217 404,580
Net EPS 80.8 20.10 40.70
Forecast PE Ratio 10.6X
Net Assets RM4.3500.
Dividend (sen) 50.0 15.00 15.00
Dividend Yield 5.8%
Cash RM863,427,000.
Debt (RM) Zero.
No. of Shares Outstanding 993,454,000 shares.
Market Capitalization RM8.54 billion.
Major Shareholder PETRONAS 69.86%.
RESULTS ANALYSIS.
Yr-on-Yr, 2Q2010 revenue down by RM2,538.2m and RM4,499.4m to RM5,152.0m and RM9,931.8m vs 2Q2009 due to lower average product selling prices.
Yr-on-Yr, 2Q2010 Group pretax profit up by RM93.0m and RM52.0m to RM275.9m and RM558.0m due to higher product gross profit vs 2Q09.
Q-on-Q, 2Q10 revenue up by RM372.1m due to higher average product selling prices vs 2Q09.
Q-on-Q, 2Q10 pretax profit down by RM6.2m vs 2Q09 due to higher operating expenditure.
MANAGEMENT OUTLOOK.
Profits will be impacted by fluctuations in petroleum product costs given the uncertainties in the international oil prices and global economy.
LATEST CORPORATE DEVELOPMENT.
No new development.
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL - The Company is the principal domestic marketing arm of petroleum products for Petroliam Nasional Berhad (PETRONAS), the national oil company, which holds 69.86% of its equity and the operation of service stations. The company markets a wide range of high quality petroleum products including motor gasoline, aviation fuel, kerosene, diesel, fuel oil, bunker fuel, lubricants, liquefied petroleum gas (LPG) and asphalt in Malaysia.
The Company markets its product throughout the country, directly to customers as well as through network of service stations, LPG dealers and industrial dealers. Its marketing activities are well supported by a comprehensive logistics and distribution system consisting of bulk depots, bunkering facilities and LPG bottling plants, all strategically located to ensure a reliable supply of products at all time.
The Company is the largest petroleum products marketer in the country with an estimated 41% market share. In the retail business sector, the Company market share is 30%. The total number of stations in operation are around 855.
EARNINGS CATALYSTS – New petrol stations and higher products prices.
THE AUTOMATIC PRICING MECHANISM (APM).
COMPUTATION OF TAX EXEMPTION AND SUBSIDY WHEN RETAIL PRICE OF PETROL AND DIESEL IS FIXED.
Component Price as at Dec. 31, 2008
Ron97 (sen / litre) Diesel (sen / litre)
Average cost (MOPS) US$ / barrel. A 45.469 57.762
Exchange rate. B 3.5812 3.5812
Cost of product** (RM) 102.42 130.11
Alpha (RM) 5.00 4.00
Total cost of product (RM) 107.42 134.11
Operational cost (RM) 9.54 9.54
Oil company margin (RM) 5.00 2.25
Dealer margin (RM) 12.19 7.00
Actual price without tax (RM) 134.15 152.90
Sales tax (RM) 58.62 19.64
Actual price at pump with tax (RM). 192.77 172.54
Tax Exemption (RM). C 12.77 2.54
Subsidy (RM) D - -
Final retail price (RM) 180.00 170.00
** Cost of product is converted to RM sen / litre with the formula below.
(Average Cost MOPS X Exchange Rate) X 100 / 158.987.
The two main variable components are the cost of the product (A) which is subject to MOPS and the currency exchange rates (B), which directly impact the final retail price at the pump. To stabilize drastic retail price changes government sales tax exemption (C) and subsidies (D) are used.
This illustration for setting of retail price of petrol is used to explain how adjustments are made. The average cost US$45.469 / barrel for RON97 is converted to RM of 102.42 sen / litre. The Alpha of 5 sen / litre is added on to account for the markets fluctuations of MOPS buying price of petrol and diesel.
After adding operational costs and margins of oil companies and dealers the price without tax is RM134.15. In this case to maintain a pump price of RM1.80 / litre, the government exempts tax of 12.77 sen / litre without any subsidy.
Source :- Domestic Trade and Consumer Affairs Ministry.
MANAGEMENT - The company are manage by an experience team of capable people from PETRONAS. Datuk Anuar bi Ahmad as the Chairman and Mohamad Sabarudin Mohd Amin as the Managing Director.
OUTLOOK – Demand conditions are expected to be challenging but market leadership is projected to be maintained with continuous strategic marketing efforts and initiatives, However, profits for the Year 2010 will be impacted by fluctuations in petroleum product costs following uncertainties in the international oil prices and the world economy..
CORPORATE GOVERNANCE - Need to be more transparent and doing more on corporate social responsibility.
FINANCIAL STRENGTH - Strong backing from parent company PETRONAS. Cash in hand stood at RM863.4 million and zero borrowing.
OPPORTUNITIES ANALYSIS – Will capitalize on PETRONAS strengths when the opportunities present itself.
WEAKNESS ANALYSIS -Not aggressive enough in their overseas expansion program.
THREATS ANALYSIS – External threats or the Malaysian economy are affected by an external weaknesses.
QUANTITATIVE ANALYSIS - STOCK VALUATIONS.
Forecast FYE March 2010 PER – 10.6X.
Net Assets Per Share – RM4.35.
Price to Book Value – 1.98X.
Dividend Yield – 5.8% or 50 sen.
Debt to Equity Ratio – 0.72X.
Annualized Return on Equity Ratio for FY2010 – 18.7%.
Operating Profit Margin – 2Q09 at 5.37%., 1H2010 at 5.56%.
Pre-Tax Profit Margin – 2Q10 at 5.355%, 1H2010 at 5.62%.
Net Profit Margin – 2Q2010 at 3.89%, 1H2010 at 4.1%.
TECHNICAL ANALYSIS.
TRADING RANGE.
52 Weeks - High at RM9.24 and Low at RM6.75.
3 Months – High at RM9.15 and Low at RM8.58.
MAINTAINED BUY RECOMMENDATION FOR PDB at RM8.60 on growth prospect as more new petrol stations are being opened and plans coupled with better profits margin on lower costs. Based on upward revision to forecast FYE March 2010 net profit to RM803 million, EPS of 80.8 sen, the upside potential for Petronas Dagangan Bhd is RM10.60 at PER of 13.1X and a dividend yield of 4.7%.
19. UEM LAND HOLDINGS BHD.RM1.48.
FYE DEC. 31 FY 2009(E) 3Q FY2009 9M FY2009 FY 2010(F) 000 000 000 000
Revenue 313,460 72,792 197,989 300,000
Net Profit 25,000 7,540 10,678 30,000
Net EPS (sen) 1.03 0.31 0.66 1.24
Forecast PE Ratio 144X 119X
Dividend (sen) 1.00 0.0 1.00
Dividend yield 0.68 % 0.68%
Cash RM 29,436,000.
Debt RM644,773,000.
Net Assets Per Share RM0.59.
No. of shares 2,428,177,000 shares. Par value 50 sen.
Market capitalization RM3.59 billion.
Main shareholder UEM(M) Bhd 51%.
RESULTS ANALYSIS.
The group posted higher revenue in 3Q09 vs 3Q08 due to overall higher revenue from various property development projects.
The Group posted higher pretax profit in 3Q09 vs 3Q08 in line with the higher contribution from the share of results of associates and joint ventures.
The Group recorded lower revenue in 3Q09 vs 3Q08 due to lower strategic land sales but mitigated by higher property development sales.
Lower revenue and pretax profit were posted in 3Q09 vs 3Q08, which included revenue recognized from Puteri Harbour pursuant to the Development Agreement with Haute Property Sdn Bhd.
OUTLOOK.
The Group is unlikely to achieve the KPI targets of revenue growth of 20% and ROE of 6% for FY09.
LATEST CORPORATE DEVELOPMENT.
On 19 Nov 2009, UEM Land proposed to disposed 2.204 acres in Puteri Harbour for RM16,3318,810 to Nusajaya Consolidated Sdn Bhd.
Accepted RM177.0m bridging / term loan facility and RM30m bank guarantee facility from Maybank.
QUALITATIVE ANALYSIS.
STRENGTHS,WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL – UEM Land is a pure property play as the master developer of Bandar Nusajaya in Iskandar Malaysia.
EARNINGS CATALYSTS – Recovery in demand for property and higher prices for land and property sales.
MANAGEMENT - Led by Tan Sri Ahmad Tajudin Ali as the Chairman of the Board of Directors and Wan Abdullah Wan Ibrahim as the CEO.
OUTLOOK – Improving outlook as all the signature projects in Nusajaya, Iskandar Malaysia are expected to gather steam this year onward.
CORPORATE GOVERNANCE – UEM Land should be more transparent and be a more responsible corporate citizen.
FINANCIAL STRENGTH – Cash at RM29.4 million and debt at RM644.7 million.
WEAKNESS ANALYSIS – Potential lack of commitment from the Company and the Federal Government to develop Nusajaya and Iskandar Malaysia.
OPPORTUNITIES ANALYSIS - To capitalized on the development of Iskandar Malaysia.
THREATS ANALYSIS – Continue world economic slowdown or recession and a lack of commitment from the Federal Government together with the execution risks.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast FYE 2009 PER – 144X and PER for 2010 - 119X.
Net Assets Per Share – RM0.59.
Price to Book Value – 2.5X.
Dividend Yield – 0.68% or 1 sen.
Debt to Equity Ratio – 0.92X.
Annualized Return on Equity Ratio FYE 2009 – 1.28 percent.
Operating Profit Margin – 3Q09 at 34.1%. 9M09 at 27.6%
Pre-tax Profit Margin – 1Q09 at 13.45% and 9M09 at 11.78%.
Net Profit Margin – 1Q09 at 10.36% and 9M09 at 5.4%.
TECHNICAL ANALYSIS – TRADING RANGE.
52 Weeks - High at RM2.01 and Low at RM0.51.5.
3 Months – High at RM1.77 and Low at RM1.41.
MAINTAINED BUY RECOMMENDATION FOR UEM LAND HLDGS BHD at RM1.48 based on assets play and due to global and Malaysia economy recovery.
UEM Land Bhd is a good long term investment prospect as a master developer of Nusajaya in Iskandar Malaysia. Fair value for UEM Land based on the revised value of their land bank in Nusajaya which can easily worth around RM2.50 to RM3.00 if not higher at around RM30 per square foot.
20. TH PLANTATIONS BHD. RM1.53. (Non Composite Index Linked Stock).
FYE DEC. 31 FY 2009(E) 3Q FY2009 9M FY2009 FY 2010(F)
000 000 000 000
Revenue 289,140 72,129 217,011 330,000
Net Profit 44,110 12,845 31,265 80,000
Net EPS 9.05 2.63 6.41 16.4
Forecast PE Ratio 16.9X. 9.3X
Cash RM53,854,000.
Debt RM67,730,000.
Dividend 5 sen 0.0 0.0 10.0
Dividend yield 3.27% 6.5%
Net Assets RM0.86.
No. of shares 487,644,000 shares.
Market capitalization RM746.1 million
Major Shareholder LTH 70%
RESULTS ANALYSIS.
3Q09 revenue up 6% vs 3Q08 due to higher sales volume for CPO and PK despite lower commodity prices supported by contribution from two subsidiaries acquired in 4Q08.
Lower 3Q09 pretax profit vs 3Q08 due to lower commodity prices and higher other operating expenses and due to the effe ct of adopting FRS 139 of RM1.1m.
9M09 revenue up 8% vs 9M08 due to higher sales volumes for CPO and PK despite lower commodity prices.
9M09 pretax profit was down to RM37.8m from RM97,5m due to lower commodity prices, higher operating cost on adopting FRS2 and adoption of FRS 139.
MANAGEMENT OUTLOOK.
The group target to achieve 7.5% ROE (YTD annualized ROE at 10%), 22.5 mt/ha FFB per mature hectare and 50% of net profit as dividend.
Should do reasonably well, based on current commodity prices.
LATEST CORPORATE DEVELOPMENT – No new development.
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESSES, OPPOPRTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS
BUSINESS MODEL - Principal activities for the Group are palm oil plantations with a total hectarage of 26,136 hectares with 15,746 hectares planted area.
EARNINGS CATALYSTS - Higher CPO price and contribution from recent acquisitions of two new subsidiaries.
MANAGEMENT - Headed by Tan Sri Yusof Basiron as the Chairman of the Board of Director and Dato Che Abdullah @ Rashidi Che Omar as the CEO with his management team appointed by the Lembaga Tabung Haji.
OUTLOOK - Notwithstanding the volatility of commodity prices, based on higher CPO prices outlook, the Group will continue to perform reasonably well in 2010.
CORPORATE GOVERNANCE – Still not transparent enough.
FINANCIAL STRENGTH - Strong backing from parent company, GLIC Lembaga Tabung Haji. Latest cash in hand at RM53.85 million and a debt of RM67.73 million.
OPPORTUNITIES ANALYSIS. - Should use the cash in hand to increase total plantation acreage.
WEAKNESS ANALYSIS - Small free float as Lembaga Tabung Haji owned 70 percent of the shares and also small size plantation company with a total hectarage of only 26,136 hectares.
THREATS ANALYSIS - Profitability going forward still dependent on sustainability of the crude palm oil prices but the average CPO prices for 2010 look set to be between RM2,800 to RM2,900 level due to higher crude oil prices and improving demand from importing countries.
QUANTITATIVES ANLYSIS - STOCK VALUATIONS.
Forecast FYE 2009 PER – 16.9X, PER 2010 – 9.3X.
Net Assets Per Share – RM0.88.
Price to Book Value – 1.74X.
Dividend Yield FYE 2009 – 3.28% or 5 sen, FYE 2010 at 6.5% or 10 sen.
Debt to Equity Ratio – 0.94X.
Annualized Return on Equity Ratio for 2009 – 10.23 percent.
Operating Profit Margin – 3Q09 at 21.8%. And 9M09 at 20.2%.
Pre-Tax Profit Margin – 3Q09 at 18.74% and 9M09 at 17.4%.
Net Profit Margin – 3Q09 at 17.8% and 3Q09 at 14.4%.
TECHNICAL ANALYSIS - TRADING RANGE .
52 Weeks - High at RM1.78 and Low at RM1.02.
3 Months – High at RM1.59 and Low at RM1.49.
MAINTAINED BUY RECOMMENDATION FOR TH PLANT BHD at RM1.53 based on the recovery of CPO prices, currently trading around RM2,600 level to between RM2,800 to RM3,000 in 2010 and RM3,300 in 2011.
A fair value of RM2.20 based on the prospective FYE 2010 price earnings ratio of 13.4X on a forecast net profit of RM80m and a net EPS of 16.4 sen and a dividend yield of 6.5%.
21. MALAYSIAN AIRLINES SYSTEM. RM3.11.
FYE DEC. 31 FY 2009(E) 3Q FY2009 9M FY2009 FY 2010(F)
000 000 000 000
Revenue 16,909,056 2,960,972 8,265,666 12,500,000
Net Profit/ (Loss) 0 ( 299,623) ( 119,507) 50,000
Net EPS / (Loss) 0.0 (17.93) (7.15) 2.99
Forecast PE Ratio 0X 104X
Dividend (sen) 0.0 0.0
Dividend Yield 0.0% 0.0%
Net Assets 0.07 sen.
Cash RM1,490,101,000
Debt RM1,772,933,000. Short Term Debt RM544.5b.
Number of Shares 1,671,078,000 shares.
Market Capitalization RM5.197 billion
Major Shareholder Khazanah Nasional & PMB ( 69.3% ).
RESULTS ANALYSIS.
The Group recorded an operating loss of RM73.3 million for 3Q09 vs net profit of RM44.3m in 3Q08 due to lower operating revenue in line with the decline in global travel and cargo operations.
The Group recorded a loss after tax of RM298.9m vs RM38.4n net profit in Q3 2008 after including derivative loss of RM202.1m.
The Group recorded lower operating loss for Q3 2009 of RM73.3m vs loss of RM420.8m in Q2 2009 due to higher operating revenue as demand improved. The Group posted after tax loss for Q3 2009 of RM298.9m vs net profit of RM876.2m in Q2 2009 after including derivative loss of RM202.1m.
MANAGEMENT OUTLOOK.
The outlook continues to be challenging. There is an early sign of improvement in passenger and cargo traffic, partly stimulated by intensive marketing campaigns but yield remain under pressure.
Passenger traffic outlook in 4Q09 is expected to decline by 4% and cargo operations by 14% for 2009 in IATA’s June forecast. Yields are expected to fall 12% for passenger and 15% for cargo.
LATEST CORPORATE DEVELOPMENT.
Proposed renounceable Rights Issue on the basis of one ordinary share of RM1.00 in MAS for every one existing ordinary share of RM1.00 each in MAS at RM1.60.
MAS also proposed :-
A.Proposed acquisition of six undelivered Airbus A380 by way of:
i.Novation agreement between MAS, Airbus S.A.S and PMB ;and
ii.Letter agreement between MAS and PMB.
B.Proposed bundling of four Boeing aircraft by way of:
i.Supplemental lease agreement between MAS and PMB for the revision of the existing operating lease rentals payable to PMB; and
ii.Conditional sale and purchase agreement between MAS and PMB for the Boeing aircraft for a total consideration of about RM3.19 billion.
Extension of RM500 million loan facility by CIMB Bank Bhd for an additional 5 years from 31 January 2010.
Subscription of additional 1 million ordinary shares of RM1 each in MASkargo Logistics Sdn Bhd, a wholly owned subsidiary of MAS by way of loan capitalization.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL - The Company is principally engaged in the business of air transportation – airlines operations and cargo services and the provision of related services.
Airline operations – operation of aircraft for passenger
Cargo services – operation of aircraft for cargo and mail services.
Other business segments include hotel operations, catering, engineering, computerized reservation services, coach transportation, trucking and warehousing services, retailing of goods, terminal charges and tour and related activities.
The Group has in operation 111 aircraft and 36 engines under operating leases.
Airline operation represent 90% of revenue and 96.77% of operating profit. Cargo services represent 17.23% of revenue and 7.33% of operating profit. Catering services represent 0.07% of revenue and 0.65% of operating profit. Others operation represent 0.63% of revenue and 2.18% of operating profit.
EARNINGS CATALYST – Recovery in demand for air travelers using MAS.
MANAGEMENT - Headed by the Chairman of the Board of Director and Dato Idris Jala as the CEO and his team of turnaround managers.
OUTLOOK – Remain challenging in 2010. The International Air Transport Association has revised its forecast that the airline industry will lose more than USD9.0 billion from a loss of USD4.7 billion. Demand is projected to fall sharply with expected to contract by 8% and cargo demand expected to contract 17%. This is further compounded by the threat of outbreak of influenza A(H1N1) virus. The continued delivery of new aircraft also has caused heavy fare discounting.
For 2009, the Group’s targets are : RM499m loss to RM50m net income (on target) , RM51m to RM500m exceeding.
CORPORATE GOVERNANCE – Still not transparent enough.
FINANCIAL STRENGTH - Strong backing from the Government to the management to turn around the company. Currently cash in hand at RM1.49 billion and debt level of RM1.77 billion (Sort term debt RM544.5m).
WEAKNESS ANALYSIS – Bottom line easily affected by the movement of jet fuel prices. Operating revenue cannot the cover operating expenses make it a PN17 now without a waiver from Bursa besides the jet fuel hedging losing position. Weak risk management in derivatives has resulted in substantial losses in what look like a speculation in oil market rather than for hedging purposes.
OPPORTUNITIES ANALYSIS – To capitalize on its strength especially the solid backing from the Government.
THREATS ANALYSIS – The recent global recession has affected MAS long haul passengers, business travelers and cargoes business but there are signs of recovery lately.
.
QUANTITATIVES ANALYSIS .
STOCK VALUATIONS.
Forecast FYE 2009 PER – 0X, PER 2010 – 104X.
Net Assets Per Share – 0.07 sen.
Price to Book Value – 44.4X.
Dividend Yield – 0.0 percent.
Debt to Equity Ratio – 60.05X.
Forecast Return on Equity Ratio FYE 2009 – 0 percent.
Operating Profit Margin – Operating Loss of RM420.8m (3Q09). RM558.7m(9M09).
Net Profit Margin – Net loss of RM (3Q09).
TECHNICAL ANALYSIS - TRADING RANGE.
52 Weeks - High at RM3.42 and Low at RM2.37.
3 Months – High at RM3.20 and Low at RM2.94.
MAINTAINED SELL RECOMMENDATION FOR MAS BHD at RM3.11 due to continue operating losses on tough operating environment. MAS are still in danger of falling into PN17 company despite positive from negative shareholders fund unless the business turn around very fast together with the global economy and improve demand for air traveller. Anyway, the Government is there to give them a helping hand.
22. SCOMI GROUP BERHAD. RM0.49. (Non FBMKLCI Linked Stock).
FYE 31 DEC. FY 2009(F) 3Q 2009(U) 9M 2009(U) FY 2010(F) 000 000 000 000
Revenue 2,017,216 424,128 1,487,902 2,000,000
Net Profit 77,328 22,975 53,338 100,000
Net EPS (sen) 7.68 2.28 5.29 9.75
Forecast PE Ratio 6.4X 5.0X
Dividend 1.00 0.00 1.00
Dividend Yield 2.0% 2.0%
Net Assets Per Share RM0.91.
Cash RM (70,111,000)
Debt RM1,308,321,000. S.T. RM318,586,000.
Number of shares 1,025,003,000 shares.
Market capitalization RM501.5 million.
Major shareholder Kaspadu ( 23.8% ), Onstream M ( 20.9%).
RESULTS ANALYSIS.
Yr-on-Yr, revenue was mostly generated by the Oilfield Services Division and the Energy & Logistics Engineering Division.
Yr-on-Yr, Oilfield Services Division revenue of RM310,9m was lower by RM82m (21%) due to the decline in number of rig counts especially in the Western Hemisphere.
Yr-on-Yr, revenue from the Energy & Logistics Engineering was RM122.3m, higher by RM30.4m (33%) due to higher sail from its rail unit with the ongoing Mumbai monorail project.
Yr-on Yr, net profit was RM23m or RM3.7m (19%) higher due to the contribution from the Energy & Logistics Engineering Division.
Q-on-Q, net profit up by RM2.2m (11%) to RM23m due to higher share of profit contribution from an associate company involved in the marine and logistics business.
MANAGEMENT OUTLOOK.
The group performance in 2009 continue to be affected by the current negative world economic conditions.
LATEST CORPORATE DEVELOPMENT – Completion of RM164,863,,605 Rights Issue (ICSLS).
QUALITATIVE ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL – Strong in drilling fluid business.
Investment holding company with subsidiaries involved in the wide range of activities in the oil&gas service industry throughout the world in 55 locations and 30 countries :-
Drilling Fluids & drilling waste management solutions – KMC Oiltools.
Marine vessel transportation- Main Board listed Scomi Marine Bhd (RM0.97)
Manufacturing businesses – 2nd Board listed Scomi Engineering Bhd (RM2.38) and currently bidding for RM6 billion worth of contracts.
Oilfield & Production Enhancement Chemicals
Distribution – KMC Oiltools.
Oilfield services represent 72.85% of revenue and 53.2% of segmental profit. Energy and logistic engineering represent 20.3% of revenue and 14.48% of segmental profit. Production enhancement represent 0.04% of revenue and 6.85% of segmental profit. Energy logistics represent 2.42% of revenue and 6.85% of segmental profit. Investment holding represent 1.68% of revenue and 36.2% of segmental profit.
MANAGEMENT – Headed by Shah Hakim as the CEO.
OUTLOOK – Positive outlook for 2010 due to possible upside surprise in the world economic growth and oil and gas industry in particular.
CORPORATE GOVERNANCE – Still not transparent enough.
FINANCIAL STRENGTH – Cash in hand at negative RM70.1m. RM1.3 billion in debt (Short term debt RM318.5).
WEAKNESS ANALYSIS – Highly leverage balance sheet.
OPPORTUNITIES ANALYSIS – Had seized the opportunity to strengthen the weak balance sheet through Rights Issue (Issuance of Loan Stocks had been completed).
THREATS ANALYSIS – Oil majors cutting back expenditures on oil exploration due to a recession seems overblown as Petronas continue to invest RM35 billion this year besides the rest of oil majors. Strengthening ringgit will hurt the company profit.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Prospective FYE 2009 PER – 6.4X, FYE2010 – 5X..
Net Assets Per Share – RM0.91.
Price to Book Value – 0.54X.
Dividend Yield FYE 2009 – 2.0% or 1 sen, FYE 2010 – 1 sen or 2%.
Debt to Equity Ratio – 2.0X.
Annualized Return on Equity Ratio FYE 2009 – 7.99%.
Operating Profit Margin – 3Q09 25.76%. 9M09 26.58%.
Pre-tax Profit Margin – 3Q09 7.13%. 9M09 6.7%.
Net Profit Margin – 3Q09 at 5.4% . 9M09 3.58%.
TECHNICAL ANALYSIS - TRADING RANGE.
52 Weeks - High at RM0.825 and Low at RM0.255.
3 Months – High at RM0.615 and Low at RM0.465.
MAINTAINED BUY RECOMMENDATION FOR SCOMI GROUP BHD at RM0.49 on low valuations and the industry recovery play. The recently completed rights issue of RM164.863,605 through issuance of loan stocks will partly rectify the problem of weak balance sheet and the cheapest way to raise funds.
A fair value for Scomi Group Bhd at RM1.00 on the prospective FYE 2010 PER of 5X on an EPS of 9.75 sen plus a dividend yield of 2 %,
23. AFFIN HOLDINGS BERHAD. RM2.50. (Non Shariah Compliance).
FYE 31 DEC. FY 2009(F) 3Q FY2009 9M FY2009 FY 2010(F)
000 000 000 000
Revenue 2,066,520 508,867 1,498,449 2,200,000
Net Profit 361,039 106,268 287,673 400,000
Net EPS 24.16 7.11 sen 19.25 sen 26.77
Forecast PE Ratio 10.35X 9.3X
Dividend 10.0 8.50 8.50 15.0
Dividend yield 4.00% 6.0%
Customers Deposit RM28,620,186,000
Total Net Loans RM21,535,970,000
Net Non Performing Loans RM679,227,000 or 3.11%.
Total Assets RM38,745,123,000.
Net Assets Per Share RM3.16.
Price to Book Value 0.626X.
Cost to Income Ratio 66.88 %.
Return on Equity 6.3%.
Shareholders Fund RM4,729,338,000
Cash RM6,780,002,000
Debt RM 300,000,000
Number of Shares 1,494,371,000 shares.
Warrants Outstanding 153,776,000
Core Capital Ratio 12.68% after dividend.
Risk Weighted Capital Ratio 15.04% after dividend.
Market capitalization RM3.735 billion
Major shareholder Lembaga Tabung Angkatan Tentera.
RESULTS ANALYSIS.
Yr-on-Yr, pre-tax profit up by RM140m, and 9M09 pre-tax profit up by 32.8% or RM94.6m to RM383.2m due to the increase in both net interest income and Islamic banking income totaling RM75.1m and the reduction in loan loss provision of Rm21.1m, net of higher operating expenses of RM5.4m and lower other operating income of RM4.6m.
Q-on-Q, the Group recorded higher pre-tax profit of RM140m from RMRM122.9m, due to increase in other operating income, net interest income and Islamic banking income of RM7.7m, RM7.1m and RM2.3m as well as the write back of profit equalization reserve of RM2.8m vs RM3.6m in Q2 09, partially offset by the increase in both impairment loss on securities and loan loss provision of RM2.6m and RM2.4m.
MANAGEMENT OUTLOOK - The Group is expected to perform well for the FYE 31 Dec. 2009.
LATEST CORPORATE DEVELOPMENT – No new development.
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
BUSINESS MODEL - AFFIN Holdings Group is a financial services conglomerates. The Group’s primary activities focus on the provision of commercial and investment banking services, money broking, fund and unit trust management, underwriting of general and life insurance business and stock broking operations.
The Group’s revenue and earnings mainly come from 1.Commercial banking and Hire Purchase 2.Investment Banking 3.Stockbroking 4.Insurance 5.Others.
In the future, a strong earnings driver will come from the Islamic banking, Commercial banking and the Investment banking.
EARNINGS CATALYST – Higher loans growth on quicker economy recovery.
MANAGEMENT – Headed by the Chairman of the Board of Director and Zulkifli Abbas as the CEO.
OUTLOOK – Excellent prospect due to global economy recovery, the expected double digit loans growth and low NPL.
CORPORATE GOVERNANCE – Still not transparent enough.
FINANCIAL STRENGTH - Strong backing from the ultimate parent company, Lembaga Tabung Angkatan Tentera. Cash in hand at RM6.78 billion and debt of RM300 million. NPL of RM679.2 million or 3.11%. CCR at 12.68%. RWCR at 15.04%.
WEAKNESS ANALYSIS – The bank highly leverage business model and assets quality are a major concern during a global recession now.
OPPORTUNITIES ANALYSIS - To leverage on their tie up with Bank of East Asia, Hong Kong to venture oversea especially in the fast growing economy of China.
THREATS ANALYSIS – Double dip recession in the United States, weak global growth, high inflation, as slowdown in the Malaysia economy will increase the NPL.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast FYE 2009 PER – 10.4X, FYE 2010 – 9.3X.
Net Assets Per Share – RM3.16.
Price to Book Value – 0.79X.
Forecast Dividend Yield for 2009 – 4.0% or 10.0 sen, FY2010 – 15 sen or 6.0%.
Debt to Equity Ratio – 7.19X.
Annualized Return on Equity Ratio FYE 2009 – 8.3%.
Net Interest Income Margin – 41.05% (3Q09). 39.7% (9M09).
Operating Profit Margin – 27.6% (3Q09), 9M09 at 25.5%.
Pre-Tax Profit Margin – 3Q09 27.5%. 9M09 at 25.57%
Net Profit Margin – 3Q09 at 20.88%, 9MQ09 at 19.19%.
TECHNICAL ANALYSIS.
TRADING RANGE.
52 Weeks - High at RM2.66 and Low at RM1.23.
3 Months – High at RM2.64 and Low at RM1.92.
MAINTAINED BUY RECOMMENDATION FOR AFFIN HOLDINGS BHD at RM2.50 based on a very low valuations and the prospect of higher loans growth.
The upside potential is RM3.38 based on a prospective FYE 2010 PER of 9.3X on a net profit of RM400m and an EPS of 26.77 sen, Price to Book Value of 1.27X and a dividend of 15 sen for a yield of 3.75% at RM4.00.
24. YTL CORPORATION BHD. RM7.28.
FYE 30 JUNE FYE 2010(F) 1Q FY2010
000 000
Revenue (RM) 13,687,677 3,930,080
Net Profit (RM) 1,000,000 207,514
Net EPS(sen) 52.64 11.71
Forecast P.E. Ratio 13.83X
Dividend (sen) 30.0 0.0
Dividend Yield 4.1%
Net Assets Per Share RM5.31.
Cash RM 9,207,733,000
Debt RM28,303,450,000. Short Term Debt RM4.75b
Shares Outstanding 1,899,491,000 shares.
Market Capitalization RM12.64 billion.
Major Shareholders. Yeoh Tiong Lay & Son Hldgs 53.29%.
RESULTS ANALYSIS.
Year on Year, 1Q revenue up 126% to RM3,930.8m due to the consolidation of the newly acquired PowerSeraya Limited Group in S’pore by YTL Power. Pre-tax profit up 59.5% to RM503.2m (after adjusting to fair value gain on investment properties amounting to RM254.5m recognized).
Q-on-Q, current quarter revenue up by 9.2% while pre-tax profit down 28.3% due to better performance of the utility division while the decline in pre-tax profit was principally due to adjustments made in the preceding quarter relating to fuel oil provision written back by YTL Power.
MANAGEMENT OUTLOOK.
The Group is expected to perform satisfactorily for FYE 30 June 2010.
LATEST CORPORATE DEVELOPMENT.
YTL Power exchange of YTL Power Finance (Cayman) Limited’s 5 Year coupon guaranteed exchangeable bond 2005/2010 into 3,917,524 new ordinary shares.
QUALITATIVES ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS
MANAGEMENT – Run by the Yeoh Tiong Lay family.
BUSINESS MODEL – Strong in construction, water, IPP, power generation, cement, property development in Malaysia and overseas.
1.Construction.
2.Information Technology & E-Commerce related business (Listed YTL-E Solution Bhd) – 74.34% stake.
3.Cement Manufacturing & Trading (Listed YTL Cement Bhd) – 49.86% stake.
4.Property Investment & Development (Listed YTL Land Bhd) – 61.17% stake.
5.Management Services & Others.
6.Hotels (Listed Star REIT Bhd) – 65.34%..
7.Utilities & Water.(Listed YTL Power Bhd) – 55.55% stake.
EARNINGS CATALYSTS – Recovery in demand for all their business divisions due to global economic growth.
FORECAST OUTLOOK – Based on the improving global business conditions, after considering the current level of operations and the current market condition, the Group’s is expected to achieve satisfactorily performance for FYE 2010 compared to FYE 2009.
CORPORATE GOVERNANCE - Need to be more transparent.
FINANCIAL STRENGTH - Cash RM9.2 billion. Debt RM28.3 billion (Short term debt RM4.75 billion).
WEAKNESS ANALYSIS– Highly leverage business model.
OPPORTUNITIES ANALYSIS – Recent acquisitions in Singapore will show a full results in FYE 2010 especially the Seraya Power Station.
THREATS ANALYSIS - Family run business and RM28.3 billion debt level, rising cost of raw materials and uncertainties in the business outlook for the construction industries in Malaysia with the government emphasis on more people centric projects instead of mega projects as one of the measure to cut the budget deficit.
QUANTITATIVES ANALYSIS - STOCK VALUATIONS.
Forecast FYE 2010 PER – 13.83X
Net Assets Per Share – RM5.31.
Price to Book Value – 1.37X.
Forecast Dividend for 2010 – 30 sen.
Dividend Yield for 2010 – 4.8%.
Debt to Equity Ratio – 3.63X.
Annualized Return on Equity Ratio FYE 2010 – 8.7%.
Operating Profit Margin – 18.1% (1Q2010).
Pre-tax Margin – 1Q2010 at 12.8%
Net Profit Margin – 1Q2010 at 5.28%.
TECHNICAL ANALYSIS - TRADING RANGE.
52 Weeks - High at RM7.60 and Low at RM6.32.
3 Months – High at RM7.53 and Low at RM7.05.
MAINTAINED BUY RECOMMENDATION FOR YTL CORP BHD at RM7.28 based on better than expected economics outlook and fiscal stimulus effort by the government that will benefit the Group and a possible earnings surprise on the upside and full year earnings contribution from Seraya Power S’pore of 55.5% owned YTL Power .
Downgrade YTL Corp Bhd fair value to RM8.50 due to lower than forecast 1Q2010 net profit despite higher revenue, based on prospective PER for FY2010 of 16.1X on net profit of RM1 billion, EPS of 52.64 and dividend of 30 sen for a yield of 3.53%, and an upside potential of 15.2%.
25. ASTRO ASIA BHD RM3.21.
FYE 31 January FY2009(E) 3Q FY2009 9M FY2009 FY 2010(F)
000 000 000 000
Revenue 3,043,131 863,487 2,379,133 3,453,948
Net Profit 313,308 133,082 195,404 532,328
Net EPS 16.2 6.88 10.10 27.52
Forecast PER 19.8X. 11.66X
Dividend 10.0 2.50 7.50 15.0
Dividend Yield 3.11%. 4.67%
Cash RM 691,100,000.
Debt RM1,651,200,000.
Net Assets RM0.45.
Shares Outstanding 1,934,152,000 shares.
Market Capitalization RM6.2 billion.
Major Shareholder Khazanah Nasional 21.4%, All Asia Media Equities Ltd 20.12%, East Asia Broadcast Network System N.V 8.38%,
EPF 6.4%, Usaha Tegas Ent. System Sdn Bhd 4.68%.
RESULTS ANALYSIS.
Group revenue for 3Q09 up to RM863.5m from RM763.7m, whilst EBITDA up to RM258.5m from RM174.8m in 2Q09. Astro posted a higher net profit of RM133.1m compared to RM27.8m in 2Q09 dur to hugher revenue by RM99.8m.
3Q10 vs 2Q10, revenue up by RM99.8m or 13.1% to RM863.5m due to higher subscription revenue and airtime sales. Astro posted higher net profit of RM133.1m vs RM27.8m in 2Q10 due to higher revenue by RM99.8m.
3Q09 total subscriptions – 3.112 million, net addition of 100k.
Residential customers at 2.875m, net addition of 94k.
.
ARPU – residential customer – 3Q up to RM86 from 2Q09 RM78 and 9M09 at RM81.
CAC per set top box sold – 3Q09 at RM717 vs 2Q09 RM683 and. 9M09 RM695.
Content cost (RM per customer per month) – 3Q09 at RM30 vs 2Q09 RM31 and 9M09 at RM 29.
MANAGEMENT OUTLOOK.
Astro has decided to accelerate RM200m investment in new technologies (RM100 in capital items) especially broadcast of High Definition television to retain market leadership.
The Group’s Direct to Home TV joint venture in India, Sun Direct TV, currently with 3.5m customers base. The Group will account for its anticipated share of Sun Direct TV’s losses of up to INR7.110m (RM510m) over 5 years
LATEST CORPORATE DEVELOPMENT - To broadcast HDTV.
Maxis became the first communications company in Malaysia to deploy High-Speed Packet Access (HSPA) technology for its wireless broadband service.
.
QUALITATIVE ANALYSIS.
STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL – Strong recurrence income from the pay TV.
The Group is organized in the following business segments:-
Malaysian multi channel television – Provide multi channel direct to home subscription
television and other interactive television services in Malaysia (78% of 1H09 revenue).
Radio- Provides radio broadcasting services.
Library licensing and distribution – The ownership of a library of Chinese film entertainment and the aggregation and distribution of the library and related content.
Television programming – Creation, aggregation and distribution of television programming.
Others – A magazine publishing business, interactive content business for the mobile telephony platform, Malaysian film production business, talent management, creation of animation content , ownership of building , Group’s regional investments in media businesses and investment holding companies.
EARNINGS CATALYSTS – Higher subscribers base and ARPU.
MANAGEMENT – Strong team headed by Dato Badri Masri as the Chairman and
Ralph Marshall as the CEO .
CORPORATE GOVERNANCE - OK. Can be better.
FINANCIAL – Strong operating cash flow with RM691.1m in cash and RM1.651b in
debt.
WEAKNESSES ANALYSIS – Stop their operation in Indonesia and still losing
money in their Indian operation.
OPPORTUNITIES ANALYSIS – Well position to capitalize on their strengths.
THREATS ANALYSIS – New Pay TVstart up from TM.
QUANTATIVE ANALYSIS – VALUATIONS.
Forecast PER for FYE 2009 – 19.8X, FYE 2010 – 11.66X.
Forecast Dividend 2009 – 10 sen, 2010 – 15 sen.
Forecast Dividend Yield for FYE 2009 – 3.11%, FYE 2010 – 4.67%.
Net Assets Per Share – RM0.45.
Price to Book Value – 7.13X.
Debt to Equity Ratio – 2.35X.
Operating Profit Margin – 3Q09 at 24.58%. 9M09 at 18.85%.
Net Profit Margin – 3Q09 at 15.4%. 9M09 at 8.2%.
Annualized Return on Equity for 2009 – 37.97%.
TECHNICAL ANALYSIS – TRADING RANGE.
52 Weeks - High RM3.76. Low RM1.84.
3 Months - High RM3.65. Low RM3.18.
UPGRADE TO BUY RECOMMENDATION FOR ASTRO AT RM3.21.
Better than expected 3Q09 and 9M09 net profit due to increase in subscription rates.
Astro fair value is RM5.00, based on forecast FYE Dec 31 2010 net profit of RM532.3 million, EPS of 27.5 sen and dividend of 15 sen or yield of 3.0% , at forecast PER for 2010 of 18.1X.
26. DIGI.COM BBHD RM21.34.
FYE Dec 31 FY 2009 (E) 3Q FY2009 9M FY2009 FY 2010(F)
000 000 000 000
Revenue 4,832,851 1,238,766 3,661,953 5,000,000
Net Profit 978,840 244,085 753,991 1,090,000
Net EPS 126.0 31.40 97.00 140.0
Forecast PER 16.9X 15.2X
Dividend 124.0 75.00 124.00 125.0
Dividend Yield 5.8%. 5.86%.
Cash RM617,694,000.
Debt RM871,779,000. S.T. Debt RM100m.
Net Assets RM2.39.
Shares Outstanding 777,500,000 shares.
Market Capitalization RM16.59 billion.
Major Shareholder Telenor Asia Pte Ltd 49%.
RESULTS ANALYSIS.
For FY ended 30 Sept 2009 vs FY ended 30 Sept 2008, group revenue grew by 2% to RM3.7b due to steady demand for mobile services from an enlarged 7.4m subscribers base (2008 : 6.8m). ARPU decreased from RM59 to RM55 due to competition.
EBITDA held steady at RM1.6b, EBITDA margin reduced to 43.5% (2008: 45.6%) due to higher traffic and increased network operating costs in tandem with the 3G/mobile broadband expansion as well as increased in doubtful debts allowances caused by strong post-paid growth.
Pre-tax profit down from RM1.2b to RM1.0b due to the increase in amortization and depreciation expenses following the amortization of the 3G spectrum with its commercial launch in 1Q 2009, and higher finance costs.
For 3Q09 vs 3Q08, the revenue up by 1% to RM1.2b due to well received segment offerings, and increase in subscriber base. ARPU was lower at RM55 (2008 at RM59).
EBITDA was slightly higher, a direct effect of higher revenue. EBITDA margin was maintained at the same level of 42.7% as a results of increased network operating costs and doubtful debts allowances.
The Group’s PBT and PAT were lower at RM333.2m and RM244.1m, mainly impacted by the increased in depreciation and amortization expenses, as well as finance costs.
Higher PBT for 3Q09 vs 2Q09 was due to 3% in revenue growth, and lower accelerated depreciation charges on certain end of life equipments during the current quarter.
MANAGEMENT OUTLOOK.
The Group’s mobile broadband offerings, based on the state of the art 14.4Mbps 3G/HSPA wireless network, has been well received by the market since its launch in early 2009. The group’s has just announced the launch of its Turbo 3G service for handsets in Penang Island and Kota Kinabalu.
In the medium to longer term, the Board is cautiously optimistic.
LATEST CORPORATE DEVELOPMENT.
Domestic roaming agreement between Digi Telco Sdn Bhd and U Mobile Sdn Bhd.
Revised the dividend policy to a minimum of 80% of net profit.
QUALITATIVE ANALYSIS – STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL – Strong pre-paid subscribers based.
The Group’s business model is in the provision of mobile communication services and its related products in Malaysia with 7.2 million subscribers mainly prepaid.
EARNINGS CATALYSTS – Higher subscribers base and higher ARPU.
MANAGEMENT – Telenor, Norway appointed management team with Johan Dennelind as the CEO and Sigve Brekke as the Chairman of Digi.Com.
CORPORATE GOVERNANCE - OK. Can be better.
FINANCIAL – Strong cash flow to pay high dividend with RM617.7m in cash and RM871.7m in debt (Short term debt RM100m).
WEAKNESSES ANALYSIS - Saturated cellular phone market in Malaysia.
OPPORTUNITIES ANALYSIS – Well position to capitalized any opportunity.
THREATS ANALYSIS – Competition from the other local telco’s provider such as Celcom and Maxis.
QUANTITATIVE ANALYSIS – VALUATIONS.
Forecast PER for FYE 2009 – 16.9X, PER 2010 – 15.2X.
Forecast Dividend FY2009 – RM1.24, FY 2010 – RM1.25.
Forecast Dividend Yield FYE 2009 – 5.8%, FYE 2010 – 5.86%.
Net Assets Per Share – RM2.39.
Price to Book Value – 8.93X.
Debt to Equity Ratio – 1.62X.
Average Revenue Per User – RM (2008 RM59).
Pre-Tax Margin – 3Q09 26.9%. 9M09 at 28.1%.
Net Profit Margin – 19.7 % (3Q09). 9M09 at 23.4%.
Return on Equity 2009 – 53.7 % annualized.
TECHNICAL ANALYSIS – TRADING RANGE,
52 Weeks – High RM23.80. Low RM20.40.
3 Months – High RM22.40. Low RM21.20.
BUY RECOMMENDATION FOR DIGI.COM at RM21.34 potential future growth 3G wireless broadband network, decent valuations and high dividend yield.
Fair value of RM25 based on forecast FYE 2010 net profit of RM1.09 billion, EPS of RM1.40, PER for 2010 of 17.8X, and dividend of RM1.25 for a yield of 5.0%.
27.IOI CORP BHD RM5.40.
FYE 30 June FY2010(F) 1Q FY2010(U)
000 000
Revenue 14,665,369 3,275,460
Net Profit 2,000,000 478,382
Net EPS 32 sen 8.01
Forecast PER 16.6X
Dividend 16 sen 0.00
Dividend Yield 3.0%.
Cash RM2,753,647,000.
Debt RM5,502,531,000.
Net Assets RM1.5100.
Shares Outstanding 6,692,048,000 shares.
Market Capitalization RM36.1 billion.
Major Shareholder Progressive Holdings Sdn Bhd 39.89%.
Forecast based on average CPO selling price of RM2,800 per MT and 4m MT of FFB.
RESULTS ANALYSIS.
The Group posted pre-tax profit of RM625.1m in 1Q 2010 vs RM462.5m in 1Q09 which is 35% higher due to higher profit contribution from the property and manufacturing segments and unrealized translation gain on USD borrowings.
The plantation segment reported a 56% decrease in operating profit to RM249.8m for Q1 2010 vs RM567.1m in Q1 2009 due to lower CPO prices realized and lower FFB production. Average CPO realized for Q1 2010 is RM2,294 /MT vs RM3,391 in Q1 2009.
The resource based manufacturing reported higher profits despite lower sales in Q1 2010.
The property development and investment segment reported 2.4X higher operating profit to RM162.0m in Q12010 vs Q1 2009 due to increased sales of higher end residential properties and commercial properties in the Klang Valley.
Q1 FY2010 vs Q4 FY2009, group pre-tax profit of RM625.1m is higher due to impairment loss of RM242.8m in a jointly controlled entity for Q4 2009.
Excluding the fair value gain of RM110.8m in Q4 2009, the Q1 FY 2010 property segment profit is 4% higher.
The resource based manufacturing segment posted a profit of RM158.9m in Q1 2010, 15% lower than Q4 2009 due to lower margins from the refineries.
MANAGEMENT OUTLOOK.
Optimistic due to global economy recovery.
LATEST CORPORATE DEVELOPMENT.
Completed the Proposed Rights Issue and Proposed Exemption.
QUALITATIVE ANALYSIS – STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS.
STRENGTHS ANALYSIS.
BUSINESS MODEL – Strong and well established name in the plantation sector.
The Group’s involved in:-
1. Plantation – FFB production 3.957m MT in 2008 and Total Oil Palm Area of 149,445,000 h in 2008 and contributed 59% to operating profit in 2008 (RM13,347 per mature hectare).
The Group total plantation area at 169,369 hectares (99% palm oil) and 66,000 ha in Indonesia. Total planted area at 149,445ha (139,097ha mature), 12 palm oil mills with annual milling capacity of 4m FFB. FFB yield at 28.54MT and oil extraction rate of 21.38%. Average CPO yield at 6.10 MT per mature ha.
2. Property Development.
3. Property Investment.
4. Resource-based Manufacturing.
5. Other Operations.
MANAGEMENT – Strong management team headed by Tan Sri Lee Shin Cheng as the Executive Chairman.
EARNINGS CATALYSTS – Higher CPO prices around RM2,800 to RM3,000 in 2010 and around RM3,300 in 2011. Higher demand for property and other operations.
FORECAST OUTLOOK – Strong on commodities prices recovery outlook.
CORPORATE GOVERNANCE - OK.
FINANCIAL – Recently completed Rights Issue has address the tight cash flow problem. Cash in hand of RM2.75b and debt at RM5.5b.
WEAKNESSES ANALYSIS – Will be address with the rights issue.
OPPORTUNITIES ANALYSIS – Well position to capitalized on any opportunity in the plantation sectors.
THREATS ANALYSIS - The main market risks impacting the company profitability are commodity price risks and foreign currency risks.
Change of RM100 per MT in CPO price will have an impact + or - RM70m to the Group.
QUANTITATIVE ANALYSIS – VALUATIONS.
Forecast PER FYE June 30 2010 – 16.6X.
Forecast Dividend for FYE June 30 2010 – 16 sen.
Forecast Dividend Yield FYE 30 June 20010 – 3.0%.
Net Assets – RM1.51.
Price to Book Value – 3.58X.
Debt to Equity Ratio – 0.82X.
Operating Profit Margin – 1Q 2010 at 20.06%.
Pre-Tax Profit Margin – 1Q2010 at 19.08%.
Net Profit Margin – 1Q 2010 at 14.6%.
Annualized Return on Equity FYE 2010 – 21.2 %.
TECHNICAL ANALYSIS – TRADING RANGE.
52 Weeks – Low RM5.60. High RM3.09.
3 Months – Low RM5.35. High RM4.54.
BUY RECOMMENDATION FOR IOI CORP at RM5.40 on forecast of a better average selling price for CPO in 2010 at between RM2,800 to RM3,000 level.
Fair Value of RM5.76 based on forecast FYE June 30, 2010 net earnings of RN2.0b and an EPS of 32 sen at PER of 18X and dividend of 16 sen for a yield of 2.77%.
28. KLK BHD RM15.56.
FYE 30 September FY2009(E) 4Q FY2009 12M FY2009 FY 2010(F)
000 000 000 000
Revenue 6,396,026 1,789,574 6,658,308 7,158,296
Net Profit 490,014 243,730 612,500 974,920
Net EPS 45.9 sen 22.89 57.51 91.56
Forecast PER 27X 17X
Dividend 30 sen 30.00 40.00 50.0
Dividend Yield 2.57% 3.2%
Cash RM1,274,677,000.
Debt RM1,750,153,000. Short term RM627.4 million.
Net Assets RM5.2900.
Shares Outstanding 1,067,505,000 shares.
Market Capitalization RM16.61 billion.
Major Shareholder Batu Kawan Bhd 45.65%.
RESULTS ANALYSIS.
4Q FY2009 vs 4Q FY2008.
The group pre-tax profit for 4Q09 slipped 6.9% to RM342.8m. The decline in average selling price (ex-mill) of CPO to RM2,410/MT (2008: 3,200/MT) brought down plantations profit by 25.4% to RM294.4m. retailing sector incurred a higher loss of RMRM41.4m (2008: RM20.4m) due to restructuring of its US operations under Chapter 11. Mitigated by RM58.2m profit from oleochemical division and RM38.2m write back in Yule Catto.
To date 4Q 2009 vs Todate 4Q 2008, pre-tax profit fell 38.6% to RM887.4m caused by :-
i.plantations profit down 28.6% at RM968.3m on lower average CPO prices at RM2,309/MT (2008: RM2,913/MT).
ii.write down of inventories in China plant.
iii.Operational loss and provision at Davos Life Science Ptd Ltd.
iv. higher retailing sector loss at RM80.9m (2008: RM9.0)
4Q 2009 vs 3Q 2009, pre-tax profit improved 43.2% to RM342.8m. Plantations profit increased 59.7% to RM294.4m through higher FFB production and slightky better selling price of CPO. Manufacturing sector had performed better. However, retailing loss was higher and there was a reduction in write-back on Yule Catto investment.
OUTLOOK.
The Group’s performance would be favorable in view of anticipate positive outlook of its sectors :-
i.expected higher FFB production for the plantation division.
ii.improved demand for the oleochemical division on global recovery.
iii. retailing sector ti improve after the completion of the restructuring exercise of its US operations.
LATEST CORPORATE DEVELOPMENT.
No new development.
QUALITATIVE ANALYSIS – STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS.
STRENGTHS ANALYSIS.
BUSINESS MODEL – Strong and well established name in the plantation industry.
Business operations in :-
1.Plantations – FFB (2,803,792 tonnes in 2008, 28% from Indonesian operations). Rubber production at 21,958,000 kg in 2008. Plantations contributed 94% to KLK pretax profit in 2008. Plantations hectarage of 161,572ha with 43,215ha still immature (76% in Indonesia). In 2008, FFB yield per ha at 24.66 tonnes, oil extraction rate at 20.5%, and produced 5.06 tonnes of CPO per ha. Rubber yield per ha at 1,394 kg. The group had 18 palm oil mills and 7 rubber factories.
Cost of production for FFB at RM139 per ha ex-estate and cost of rubber at RM2.97 per kg. In 2008, the average profit per mature ha at RM10,684 and for rubber at RM7,059.
In 2008, average selling prices for refined palm products at RM3,296 per tons ex-refinery, CPO at RM2,913 per ton ex-mill, Pal oil kernel at RM3,597 per ton ex-mill, palm kernel cake at RM445 per ton ex-mill, Palm kernel at RM1,714 per ton ex-mill and FFB at RM670 per ton..
2.Manufacturing of oleochemicala, soap noodles, amides, acids, fatty alcohol, glycerine, latex gloves.
3.Retailing- Crabtree & Evelyn – Retailing and distributing of toiletries
.
4.Properties –Development of residential and commercial properties.
5.Investment Holdings – Deposits, fixed income trust fund, investment in quoted and unquoted companies and freehold investment properties.
6.Others- Cereal and sheep farming, management services, money lending and raise financing by issuance of bonds.
EARNINGS CATALYSTS – Higher CPO and rubber prices and better performance from other divisions due to economic recovery.
MANAGEMENT - Strong. R.M. Alias as the Chairman and Dato Seri Lee Oi Lian as the CEO.
FORECAST BUSINESS OUTLOOK – Strong on the back of recovery in CPO and rubber prices.
CORPORATE GOVERNANCE – OK but can improve further.
FINANCIAL – Cash in hand RM1.274b and Debt at RM1.75b (Short term debt RM627m).
WEAKNESSES ANALYSIS – Retailing division continue to post losses and under Chapter 11 bankruptcy proceeding to restructure the company in the U.S.
OPPORTUNITIES ANALYSIS – Well positioned to capitalized on any opportunity in the plantation industry either on the upstream or downstream activities.
THREATS ANALYSIS.
The main areas of financial risks faced by the group are :-
1. Interest rate risk.
2. Foreign exchange risk.
3. Liquidity risk.
4. Credit risk.
5. Price fluctuation risk.
6. Market risk.
QUANTITATIVE ANALYSIS – VALUATIONS AND FINANCIAL RATIOS.
Forecast PER FYE 2009 – 27X, PER 2010 – 17X.
Forecast Dividend Yield FYE 2009 – 2.57% or 40 sen, 50 sen or 3.2%.
Net Assets Per Share – RM5.29.
Price to Book Value – 2.94X.
Debt to Equity Ratio – 0.47X.
Operating Profit Margin – 4Q09 at 19.4%. 12M09 at 13.84%.
Pre-tax Profit Margin – 19.05% (4Q09), 12M09 13.3%.
Net Profit Margin – 14.3% (4Q09), 12M09 9.19%.
Actual Return On Equity FY09 – 10.87%.
TECHNICAL ANALYSIS – TRADING RANGE.
52 Weeks – Low RM8.20. High RM17.00.
3 Months – Low RM17.00. High RM13.70.
UPGRADE TO BUY FROM HOLD RECOMMENDATION FOR KLK BHD AT RM15.56 based on higher average CPO selling price around RM2,800 in FYE Dec 31, 2010 and higher rubber price going forward.
Based on upward revision to forecast FY2010 net profit to RM974.9m and EPS of 91.56 sen, at forecast PER for 2010 of 18.6X, the fair value for KLK is RM17.00, plus a dividend of 50 sen for a yield of 2.94%.
29. PARKSON HOLDINGS BHD RM5.25.
FYE 30 June FYE 2010(F) 1Q FY2010(U)
000 000
Revenue 2,971,213 641,864
Net Profit 304,866 64,706
Net EPS 29.4 6.38
Forecast PER 17.86X.
Dividend 10.0
Dividend Yield 1.9%.
Cash RM2,308,191,000.
Debt RM2,082,104,000. Short term RM223,119,000.
Net Assets RM1.75.
Shares Outstanding 1,036,410,000 shares.
Market Capitalization RM5.44 billion.
Major Shareholder Tan Sri William Cheng 21.76%.
Forecast based on 15% core earnings (minus E.I) growth in 2010.
RESULTS ANALYSIS.
For 1Q FYE 2010, the Group reported a higher revenue of RM641.9m compared to RM621.1m in the 1Q FYE 2009 due to the new stores opening and same store sales growth.The pre-tax profit was 8% higher at RM153.8m.
For 1Q FYE 2010 vs 4Q FYE 2009, the Group reported favorable results in its retail operations due to higher spending during the Muslim festive season in Malaysia coupled with new stores opening have spurred the Group revenue.
Included in the last quarter profit was RM245.0m exceptional gain from the placement of 55 million shares in Parkson Retail.
OUTLOOK.
Parkson stores are expected to record better results in the next quarter in view of the upcoming festive and holiday seasons.
LATEST CORPORATE DEVELOPMENT.
No new development.
QUALITATIVE ANALYSIS – STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS.
STRENGTHS ANALYSIS.
BUSINESS MODEL.
Over 90% of the Group’s revenue and operating profit is from the operation and management of department stores in Malaysia, China and Vietnam.
Parkson owned 40 stores in China, 32 in Malaysia and 4 in Vietnam.
EARNINGS CATALYSTS – Higher sales on strong growth in China and M’sia, and opening of new store.
MANAGEMENT – Headed by Tan Sri William Cheng as the Chairman and Managing Director.
FORECAST BUSINESS OUTLOOK – Strong same store sales growth as well as new stores opening and earnings accretive acquisitions.
To open a new retail store in Setapak, KL for a total cost of RM214 million.
CORPORATE GOVERNANCE - OK. Can be better.
FINANCIAL – Strong with RM2.3b in cash and RM2.08b in debt (Short term debt at RM223.1m).
WEAKNESSES ANALYSIS – Not a very well known brand name department store yet.
OPPORTUNITIES ANALYSIS – Well positioned to benefits from high consumer spending in high growth economies like China, Vietnam and Malaysia.
THREATS ANALYSIS – Competition from the other well established department store’s.
QUANTITATIVE ANALYSIS – VALUATIONS AND FINANCIAL RATIOS.
Forecast PER FYE 2010 – 17.86X.
Forecast Dividend Yield FYE 2010 – 1.9% or 10 sen.
Net Assets Per Share – RM1.75.
Price to Book Value – 3X.
Debt to Equity Ratio – 2.295X.
Operating Profit Margin – 26.4% (1Q2010).
Pre-Tax Profit Margin – 1Q2010 at 23.95%
Net Profit Margin – 10% (1Q2010).
Annualized Return on Equity FY2010 - 14.5%.
TECHNICAL ANALYSIS – TRADING RANGE.
52 Weeks – Low RM2.99. High RM5.75.
3 Months – Low RM4.96. High RM5.46.
MAINTAINED HOLD RECOMMENDATION FOR PARKSON HOLDINGS BHD at RM5.25 on exposure to the China high growth retail consumer sector and on the opening.of new department store.
Based on forecast net profit for FYE June 2010 of RM304m (core earnings), EPS of 29.4 sen and at PER of 18.5X, the fair value for Parkson Hldgs Bhd is RM5.25 plus a dividend of 10 sen for a yield of 1.83%..
30. UMW BHD6.32.
FYE 31 Dec. FY2009(F) 3Q FY2009 9M FY2009 FY 2010(F)
000 000 000 000
Revenue 10,930,872 2,797,651 7,728,523 12,000,000
Net Profit 397,265 125,938 271,327 480,000
Net EPS 35.52 sen 11.45 sen 24.67 sen 42.9
Forecast PER 17.8X 14.7X
Dividend 12.00 sen 5.00 11.00 20.00
Dividend Yield 1.9%. 3.16%
Cash RM1,899,524,000.
Debt RM1,912,964,000. S.T. Debt RM315.6m.
Net Assets RM3.3254.
Shares Outstanding 1,118,391,000 shares.
Market Capitalization RM7.065 billion.
Major Shareholder Skim Amanah Saham Bumiputera 40.43%.
RESULTS ANALYSIS.
3Q 2009 vs 3Q 2008, revenue 15.8% lower due to lower Toyota vehicles sales. Lower pretax profit by 18.5% and net profit by 17.6% to RM125.9m due to unfavorable forex rates coupled with lower revenue and profit contribution from associated companies.
YTD 9M09, revenue down 21.8%, pretax profit down by 40.4%, and net profit down 39.25 to RM271.3m due to lower demand and profit margin affected by forex rate.
Oil and gas segment posted positive revenue and profit for 9M09 due to optimal utilization of semi-submersible rig, Naga 1, and maiden profit from local and foreign investments.
Total Toyota and Perodua vehicles sales of 180,490 units or 45.4% of total industry volume of 397,619 units for 9M 2009.
3Q 2009 vs 2Q 2009, Q3 revenue up by RM216.6m or 8.4% to RM2,797.7m and pretax profit up by RM102.7m or 55.4% to RM288.2m due to higher demand for Toyota vehicle due to improved consumer demand.
MANAGEMENT OUTLOOK.
With improved consumer sentiment on fiscal stimulus and gradual economic recovery is expected to support vehicle sales and demand for industrial and heavy vehicles is expected to improved further.
Oil and Gas division is expected to benefit from increase Capital Expenditure by oil majors.
LATEST CORPORATE DEVELOPMENT.
Incorporation of new subsidiary named UMW Deepnautic Sdn Bhd involved in installation and construction services to the offshore Oil and Gas sector.
UMW Toyota, a 51% subsidiary, has entered into a new Vehicle Assembly Agreement with Perodua Manufacturing Sdn Bhd for the extension of PMSB as assembler/producer of vehicles described in the new VAA.
QUALITATIVE ANALYSIS – STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS.
STRENGTHS ANALYSIS.
BUSINESS MODEL.
Business segment of the company are :-
1. Automotive – Selling car such as Toyota and Perodua. Contributed 75% of turnover and 70.8% of profit for UMW in the first half of 2009. Sales of 101,839 units of Toyota for 18.6% market share and 167,393 units of Perodua or 30.5% market share in 2008.
2. Heavy and Industrial Equipment.
3. Oil & Gas.
4. Manufacturing and Engineering.
5. Others.
EARNINGS CATALYSTS – Higher car sales and higher demand for other business divisions such as oil & gas.
MANAGEMENT – Strong with Tan Sri Asmat Kamaludin as the Chairman and Dato Halim Harun as the Group MD & CEO.
FORECAST BUSINESS OUTLOOK – Strong on global economy recovery outlook.
CORPORATE GOVERNANCE - OK.
FINANCIAL – Strong with RM1.899b in cash and RM1.91m in debt (Short term debt RM315.6m).
WEAKNESSESS ANALYSIS – Heavy reliance on Malaysian car market.
OPPORTUNITIES ANALYSIS – Future growth from the oil and gas division through associate company WSP Holdings Ltd, which is NSYE listed, UMW Petrodrill 3 workover rigs , UP 1,2,3 and Naga 1, a submersible rig .
THREATS ANALYSIS – From competitors such as the other car makers.
QUANTITATIVE ANALYSIS .
VALUATION AND FINANCIAL RATIO.
Forecast PER FYE 2009 – 17.8X, FY 2010 – 14.7X.
Forecast Dividend FYE 2009 – 12 sen, FYE 2010 – 20 sen.
Forecast Dividend Yield FYE 2009 – 1.9%, FYE 2010 – 3.16%.
Net Assets Per Share – RM3.3254.
Price to Book Value – 1.9 X.
Debt to Equity Ratio – 1.04X.
Operating Profit Margin – 3Q9 at 8.58%. 9M09 at 6.6%.
Pre-Tax Profit Margin – 3Q09 at 10.3%. 9M09 at 7.7 %.
Net Profit Margin – 3Q09 at 4.5% , 9M09 at 3.5%.
Return on Equity FYE2009 – 10.74% (Annualized).
TECHNICAL ANALYSIS – TRADING RANGE.
52 Weeks – Low RM4.82. High RM6.50.
3 Months – Low RM6.30. High RM6.40.
UPGRADE TO BUY FROM HOLD RECOMMENDATION FOR UMW HLDGS BHD AT RM6.32 on the expected recovery in demand for cars and heavy equipment together with possible listing exercise of the oil & gas division next year.
Based on forecast FYE Dec 31. 2010 net profit of RM480 million, EPS of 42.9 sen and at 2010 PER of 17.0X, the fair value for UMW Hldg Bhd is RM7.30 plus 20 sen dividend for a yield of 1.9%.
31. YTL POWER BHD RM2.21.
FYE 30 July FYE 2010(F) 1Q FY2010(U)
000 000
Revenue 12,800,000 3,203,722
Net Profit 1,000,000 231,097
Net EPS 16.84 sen 3.93
Forecast PER 13.1X.
Dividend 10 sen 3.75
Dividend Yield 4.52%.
Cash RM6,186,950,000.
Debt RM22,445,929,000. S.T. Debt RM2.814 billion.
Net Assets RM1.07.
Shares Outstanding 5,938,092,000 shares.
Market Capitalization RM13.12 billion.
Major Shareholder YTL Corp Bhd 50.82%.
RESULTS ANALYSIS.
1Q 2010 vs 1Q2009, Q1 2010 revenue up by RM2,154.4m or 205.3% and pretax profit up by RM73.1m or 29.7% to RM318.9m due to consolidation of financial results of Seraya Power Station upon completion of the acquisition in 6 March 2009.
1Q 2020 vs 4Q2009, Q1 2010 revenue up 12.9% to RM3,203.7m. However, the decline in pretax profit and increase in net profit vs Q4 2009, were due to adjustments made relating to fuel oil provision written back, being credit adjustment of RM170.3m recorded by PowerSeraya and the one-off deferred taxation charge, being debit adjustment of sum RM442.5m applied on Wessex Water.
MANAGEMENT OUTLOOK.
The Group is expected to perform satisfactorily.
LATEST CORPORATE DEVELOPMENT.
YTL Power Warrants will expire at 5.00 pm on Friday, 8 January 2010.
QUALITATIVE ANALYSIS – STRENGTH, WEAKNESS, OPPORTUNITY AND THREAT.
STRENGTH ANALYSIS.
BUSINESS MODEL – Strong income stream from the concessions.
The Group is organized on a world wide basis into three main business segments namely investment holding (revenue 7.66%, net profit 7.86%), power generation (revenue RM52.59%, net profit 30.78%) and water & sewerage revenue 39.74%, net profit 61.35%).
YTl Power business model is centred on the ownership and management of regulated utilities operating under long-term concessions. These encompass power generation in Malaysia Paka and Pasir Gudang Power Station), Indonesia (35% of P.T Jawa Power) and recently in Singapore (Seraya Power), power transmission in Australia (indirect 33.5% of ElectraNet Pty Ltd), provision of water and sewerage services in the UK (Wessex Water Ltd) and plant operations and maintenance in Indonesia.
EARNINGS CATALYSTS- Stronger demand for the electricity and water.
MANAGEMENT – Strong.
Headed by Tan Sri Yeoh Tiong Lay as the Executive Chairman.and Tan Sri Francis Yeoh as the Managing Director.
FORECAST BUSINESS OUTLOOK – Steady as the earnings from the concessions are very stable for the long term.
CORPORATE GOVERNANCE – OK but can still improve further.
FINANCIAL – Cash RM6.18b, Debt RM22.44b (Short term debt at RM2.814 billion), as of 1Q 2010.
WEAKNESS ANALYSIS – Heavy reliance on concessions and high borrowings cost.
OPPORTUNITY ANALYSIS - Acquisition driven growth strategy with opportunities for investments in Asia, Middle East and Europe as well as Public Finance Initiative in Malaysia..
THREAT ANALYSIS – Renewable of concessions at an unfavorable terms or rates.
QUANTITATIVE ANALYSIS – VALUATION AND FINANCIAL RATIO.
Forecast PER FYE 2010 – 13.1X.
Forecast Dividend – 10 sen.
Forecast Dividend Yield FYE 2010 – 4.52%.
Net Assets Per Share – RM1.07.
Price to Book Value – 2.07X.
Debt to Equity Ratio – 4.38X.
Operating Profit Margin – 1Q2010 at 15.83%.
Pre-Tax Profit Margin – 1Q2010 at 9.95%.
Net Profit Margin – 1Q2010 at 7.21%.
Annualized Return On Equity 2010 – 14.58%.
TECHNICAL ANALYSIS – TRADING RANGE.
52 Weeks – Low RM1.79. High RM2.28.
3 Months – Low RM2.15 . High RM2.27.
MAINTAINED BUY RECOMMENDATION FOR YTL POWER BHD AT RM2.21 based on a very low valuations and high dividend yield of 4.52% or 10 sen.
We revised downward out forecast on net profit for FYE 30 June 2010 to RM1.0b from RM1.77b due to disappointing 1Q10 results, EPS to 16.84 sen from 29 sen and dividend to 10 sen from 16 sen for yield of 4.52%. The revised the fair value for YTL Power Bhd to RM2.70 from RM3.00 based on forecast PER of 16.0X, for an upside potential of 22.2%.
32. MAXIS BHD RM5.37. Initiating coverage.
FYE 31 Dec. 2009 FY 2010 (F) 3Q FY2009 9M FY2009 FY2009(E)
000 000 000 000
Revenue 8,624,000 2,156,000 6,400,000 8,556,000
Net Profit 2,460,000 615,000 1,756,000 2,371,000
Net EPS 32.8 8.20 23.40 31.6
Forecast PER 16.4X 17X
Dividend 26.0 6.00 6.00 25.0
Dividend Yield 4.84% 4.65%
Cash RM1,186,000,000.
Debt RM1,293,000,000.
Net Assets RM0.15
Shares Outstanding 7,500,000,000 shares.
Market Capitalization RM40.275 billion.
Major Shareholder Tan Sri Ananda Krishnan, Saudi Telecom.
RESULTS ANALYSIS.
3Q09 vs 2Q09, Maxis posted 3% increase in subscribers base to 11,735,000. Revenue grew by RM40m or 2%. Monthly ARPU remain stable for post-paid at RM103 and for prepaid at RM41 while wireless broadband down by RM7 or 7% to RM100 due to higher take up rate of volume based packages.
3Q09 vs 2Q09, EBITDA up by RM13m or 1% to RM1,086 and EBITDA margin drop by 0.3% to 50.4% due to higher revenue and lower sales and marketing costs partly offset by higher interconnect costs.
3Q09 vs 2Q09, PBT of RM807m was RM20m or 3% higher and net profit was higher at RM615 vs RM594m due to higher EBITDA and lower depreciation.
YTD 2009 vs YTD 2008, revenue grew by RM213m or 3% as subscribers base grew by 694,000 or 6% mainly made up of postpaid growth of 400k or 17% and prepaid growth of 227,000 or 3%. Monthly ARPU for postpaid and prepaid dropped by RM11 and RM5 due to higher take up of cheaper commitment plans whilst wireless broadband up by RM8 or 9%.
YTD, EBITDA decreased by RM27m or 1% and EBITDA margin down 2.2% to 50.5% due to higher interconnect costs and allowance for doubtful debts.
YTD, PBT down by RM73m or 3% driven by lower EBITDA and higher depreciation charge. Net profit up by RM16m or 1% driven by higher tax charge for 2008.
MANAGEMENT OUTLOOK.
Maxis results are expected to be influenced by :-
1.Ability to maintain market share and grow its customer base.
2. The impact of debt arising from Pre-Listing Restructuring.
3. Global and Malaysian economy.
4. Performance of the Malaysian telecommunications services industry.
5. Continued adoption of non-voice services and maturing of voice services.
6. Management of operating costs.
LATEST CORPORATE DEVELOPMENT.
No latest development.
QUALITATIVE ANALYSIS.
STRENGTHS, WEAKNESS, OPPORTUNITIES AND THREATS ANALYSIS.
BUSINESS MODEL.
The subsidiaries operate in three key segments in Malaysia, comprising the provision of mobile services which is a major contributor to the subsidiaries operation, fixed services and international gateway services.
EARNINGS CATALYSTS – Higher Average Revenue Per User for cellular and fixed lines due to high consumer spending on economy recovery next year onward.
MANAGEMENT - Strong.
CORPORATE GOVERNANCE - Good.
FINANCIAL – Strong and healthy, with RM1.186 billion in cash and debt of RM1.293
billion.
WEAKNESS ANALYSIS – Operate only in Malaysia which is a mature market for cellular phone.
OPPORTUNITY ANALYSIS – Cellular High Speed Broadband is a new growth area for the industry.
THREAT ANALYSIS – Other telco’s operators will take the market share.
QUANTITATIVE ANALYSIS.
VALUATIONS.
Forecast PER FYE2009 – 17X, PER FYE 2010 – 16.4X.
Forecast Dividend FYE 2009 – 25 sen or 4.65%, FYE 2010 – 26 sen or 4.84%.
Net Assets Per Share – RM0.15.
Price to Book Value – 32.8X.
Debt to Equity Ratio – 6.28X
Annualized Return to Equity FYE 2009 – 2.1X.
Operating Profit Margin – 3Q09 at 37.5%, 9M09 at 36.6%.
Pre-tax Profit Margin - 3Q09 at 37.4%, 9M09 at 36.5%.
Net Profit Margin – 3Q09 at 28.5%, 9M09 at 27.4%.
TECHNICAL ANALYSIS - TRADING RANGE.
52 Weeks.
High RM5.50 and Low RM5.20.
3 Months.
High RM5.45. Low RM5.20.
STOCK RECOMMENDATION.
BUY MAXIS BHD AT RM5.37 for a high dividend yield play and a possible overseas telco’s assets injection in the future and also for the synergy between the Ananda Krishnan group of companies.
Maxis Bhd fair value for FYE 2010 at RM6.00 based on forecast net profit for FYE 2010 of RM2.46 billion, EPS of 32.8 sen, dividend of 26 sen, dividend yield of 4.84%, at PER of 18.3X, and an upside potential of 11.7%.
33. NESTLE (M) BERHAD RM32.70. Initiating coverage.
FYE 31 DEC. FY 2010 (F) 3Q FY2009 9M FY2009 FY 2009(E)
000 000 000 000
Revenue 4,000,000 886,812 2,793,601 3,680,413
Net Profit 400,000 79,760 265,569 370,000
Net EPS 1.71 34.01 113.25 1.58
Forecast PER 19.1X 20.7X
Dividend 100.00 50.00 85.00
Dividend Yield 3.06% 2.6%.
Cash RM 40,936,000.
Debt RM384,762,000.
Net Assets RM2.55
Shares Outstanding 234,500,000 shares.
Market Capitalization RM7.668 billion.
Major Shareholder Nestle SA 72.6%.
RESULTS ANALYSIS.
Q3 2009 vs Q3 2008, turnover at RM886.8m, 7% lower due to lower consumer spending.
Q3 2009, exports wise saw the reduction is selling prices due to lower commodity costs as well as a shift in demand with higher export sales of Non Dairy Creamer offsetting lower sales of milk powders to the Middle East.
Q3 2009, domestic market recovery was below expectation.
Q3 2009, pretax profit down by 5.9% and net profit of RM78.9m, 8.9% lower as efficiency and cost savings and lower commodity prices helped cushion the lower turnover.
YTD 9M 2009 vs 9M 2008, turnover at RM2.8b, 3.8% lower, domestically due to slow economic recovery and price reductions of MILO and milk products between 7% to 12% and export wise due to lower selling prices of milk based products and a shift in demand between Non Dairy Creamer and Milk Powders.
YTD 9M 2009, pretax profit of RM341.1m, 1.3% higher and net profit of RM265.6m, 0.7% higher due to lower input costs.
Q3 2009 vs Q2 2009, 3Q turnover of RM886.8m was 3.9% lower due to slower economic environment and shift in volumes of export product. Profit margins are influenced by the by the timing of marketing and promotional activities.
MANAGEMENT OUTLOOK.
Despite an upward trend in some commodity prices, the Group’s objective is to deliver positive top line and bottom line growth. As the Halal Hub for Nestle worldwide, the Group will continue to focus on its longer term objectives and strategies by expanding and investing in the manufacturing of its products.
LATEST CORPORATE DEVELOPMENT.
No new development.
QUALITATIVE ANALYSIS.
STRENGTHS, WEAKNESS, OPPORTUNITIES AND THREATS ANALYSIS.
BUSINESS MODEL.
A subsidiary of the world largest foods manufacturer,established in Malaysia in 1912, leading halal food manufacturer, employs 5000 people, over 300 halal products, RM3.9b turnover in 2008, PCL in Malaysia since 1989, Head office in PJ, Selangor, 7 factories and 6 sales offices and 1 national distribution centre.
Categories of products in Malaysia:-
Coffee and Beverages, Culinary Aids / Prepared Foods, Milks, Liquid Drinks, Junior Foods, Breakfast Cereals, Chilled Dairy, Ice Cream, Chocolate and Confectionery, Health Care Nutrition, Performance Nutrition, Nestle Professional.
EARNINGS CATALYSTS – More product range, possible higher selling prices, and the local and world halal food market.
MANAGEMENT.
Gen(R) Tan Sri Ghazali Seth as the Chairman and Sullivan O’Carrol as the MD.
CORPORATE GOVERNANCE – Good but can be better.
FINANCIAL – Cash at RM40.9million. Debt at RM384.7 million.
WEAKNESS ANALYSIS - Still a very highly illiquid shares.
OPPORTUNITY ANALYSIS – To tap on a very lucrative world halal food market.
THREATS ANALYSIS – Higher raw materials prices will affect the profit margin.
QUANTITATIVE ANALYSIS.
VALUATIONS.
Forecast PER FYE 2009 – 20.7X. PER FYE 2010 – 19.1X.
Forecast Dividend FYE 2009 – 85 sen or 2.6%. FYE 2010 – RM1.00 or 3.06%.
Net Assets Per Share – RM2.55.
Price to Book Value – 12.8X
Debt to Equity Ratio – 1.71X.
Annualized Return on Equity Ratio FYE 2009 – 59.1%.
Operating Profit Margin – 3Q09 at % 12.5%. 9M09 at 12.8%
Pretax Profit Margin – 3Q09 at 12%, 9M09 at 12.21%.
Net Profit Margin – 3Q09 at 8.99%. 9M09 at 9.5%.
TECHNICAL ANALYSIS.
TRADING RANGE.
52 Weeks High RM35.68, Low RM26.25
3 Months High RM34.50, Low RM32.40.
STOCK RECOMMENDATION.
HOLD RECOMMENDATION FOR NESTLE (M) BHD AT RM32.70 based on the possible upside surprise on the earnings and dividend as the local and world economy recover strongly.
Nestle (M) Bhd is currently trading at the fair value based on our forecast earnings for FYE 2010.
5. FTSE BURSA MALAYSIA BERHAD
KUALA LUMPUR COMPOSITE INDEX (30 STOCKS)
As of Thursday, December 17, 2009 and the Composite Index at 1266.97.
Name PRICE
RM EPS 10(F)
SEN PER 10(F)
X NET ASSETS
RM DIV YIELD
%
AMMB 4.90 34.4 14.2 rm3.01,1.6X 15sen,3.1%
ASTRO 3.04 27.52 11.0 rm0.45,6.8X 15sen,4.9%
AXIATA 3.02 24.0 12.6 rm2.08, 1.5X 5 sen, 1.6%
BAT (M) 42.14 260.0 16.2 rm1.54,27.4X rm2,4.7%
BJ TOTO 4.20 32.0 13.1 rm0.15, 28X 55sen, 13.1%
COMMERZ 13.02 83.7 15.5 rm5.18, 2.5X 40sen,3.1%
DIGI.COM 21.42 140.0 15.3 rm2.39, 9X 125sen,5.8%
GENTING 7.23 40.0 18.1 rm3.71,1.9X 15sen,2.1%
HL BANK 8.30 66.6 12.5 rm4.15,2X 30sen, 3.6%
IOI CORP 5.54 32.0 17.3 rm1.51, 3.7X 16sen,2.9%
KLK KEPONG 16.08 91.56 17.6 rm5.29, 3X 50sen,3.1%
MAXIS 5.35 32.8 16.3 rm0. 15, 36X 26sen,4.9%
MAYBANK 6.78 38.0 17.8 rm3.67, 1.8X 20sen,2.9%
MISC 8.63 47.3 18.2 rm5.38,1.6X 30sen,3.5%
MMC 2.37 20.0 11.9 rm2.03,1.2X 7.5sen,3.2%
NESTLE 32.60 171.0 19.1 rm2.55,12.8X 100sen,3%
PB BANK 10.96 73.7 14.9 rm2.98, 3.7X 55sen,5%
PETDAG 8.73 80.8 10.8 rm4.35, 2X 50sen,5.7%
PETGAS 9.87 52.92 18.7 rm3.96, 2.5X 40sen,4.1%
PLUS 3.23 24.9 13.0 rm1.15, 2.8X 12.5sen,3.9%
PPB 16.00 96.0 16.7 rm11.75,1.4X 30sen,1.9%
GENTING ( M) 2.79 22.15 12.6 rm1.72, 1.6X 10sen,3.6%
RHB CAPITAL 5.32 62.0 8.6 rm3.90, 1.4X 30sen, 5.6%
SIME DARBY 8.99 59.6 15.1 rm3.71, 2.4X 45sen,5%
TANJONG 16.40 180.0 9.1 rm10.3,1.6X rm1,6.1%
TENAGA 8.40 40.0 21.0 rm6.00, 1.4X 20sen,2.4%
TM 3.00 23.0 7.7 rm1.93, 1.6X 17.5sen,5.8%
UMW 6.33 42.9 14.8 rm3.33, 1.9X 20sen,3.2%
YTL 7.51 52.64 14.3 rm5.31, 1.4X 30sen,4%
YTL POWER 2.20 16.84 13.1 rm1.07,2.1X 10sen,4.5%
CONCLUSION / FINAL ANALYSI S - FORECASTS FOR THE 1ST Q & FY 2010.
1. FORECAST AVERAGE P.E.RATIO FOR FYE 2010 - 14.57 X.
2.FORECAST AVERAGE GROSS DIVIDEND YIELD FOR FYE 2010 – 4.21%.
3. FORECAST AVERAGE PRICE TO BOOK VALUE FOR FYE 2010 – 5.62X.
4. Forecast an average earnings growth of between 15% to 30% in 2010 and 2011 on GDP growth of between 6% to 8% respectively.
5. Forecast for the Worst Case Scenario of the FBMKLCI at 1400 level by the end of FYE 2010 if the global economy recovery is slower than anticipated but it is still opportunity to BUY on the cheap sale to positions for the next rally betting on further economy recovery by 2011.
6. Forecast the CI for the 1Q 2010 is to be between a Trading Range of 1250 to 1350 level.
7. We revised upward the CI Best Case Scenario for FYE 2010 to between 1525 to 1661 level from 1331 to 1400 level, due to the anticipated better than expected economic fundamentals and corporate earnings in the coming quarters.
8. The CI Most Likely Scenario by the end of FYE 2010 is around 1525 due to better than expected M’sia and global economic fundamentals and quadruple inflows of funds in anticipation of Malaysia and global economy recovery next year. Forecast CI of between 1400 to 1525 in 2010 and a new high of 1661 the latest by 2011 on strong economy recovery. (The correct shape stock market & economy recovery).
9. I revised the forecast GDP growth for FYE 2010 to FYE 2020 to between 6% to 8% from a forecast GDP growth of between 3% to 3.5% in 2010 and of between 5.5% to 6% for 2011 due to the anticipated economic expansion and sustainable new decade of growth; or possibly even higher GDP growth rate with the introduction of the “New Economic Model for M’sia Based on Innovation”.
Meanwhile, the latest World Bank growth forecast for Malaysia in 2010 is at 4.4% and in 2011 a growth of above 5%. OECD has also revised upward the member countries growth prospects.
10. Finally, for the conclusion, the real challenge to Vision 2020 and the New Economic Model which begin now, ideally, is the fair distribution of income, beside having a Nuclear Power Plant as the cheapest source of energy, Toll Free Road and corruption free society, among other things . So the high standard of living is attainable not at the expense of the ‘Rakyat’ or the ‘Environment’.
A VERY HAPPY AND PROSPEROUS INVESTING FOR THE YEAR 2010.
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