Berjaya Sports Toto Bhd (June 18, RM5.20)
BUY: Apart from the usual 4QFY4/2009 dividend of 11 sen (which brings the year’s payout ratio to 77%, above the stated payout ratio of 75%), BST brought forward its 1QFY2010 dividend payment of 19 sen per share as well as a declared 1-for-14 stock dividend (implied yield of 7.1%). We believe this was done to help its parent company address potential debt repayment. Gaming revenue rose 13% for the year while operating profit rose 16% due to favourable payout ratios.

To finance the dividend, the group has obtained a RM380 million credit line. We are not concerned about the impending gearing, which will rise from 21% to 85%. With strong free cash flow of RM426 million, the debt can be repaid quickly. In fact, with the more efficient balance sheet, our discounted cash flow-based target price has been raised to RM6.05 per share from RM5.30 to account for a lower weighted average cost of capital.

BST remains a proxy to the resilient domestic consumers market. The company is gaining market share through product innovation and, with a stated payout ratio of 75% (which translates to a dividend yield of 7%), it remains one of Malaysia’s highest dividend-yielding stocks. We reiterate our “buy” recommendation. — Merrill Lynch (June 16)

YTL Power International Bhd (June 18, RM2.18)
NEUTRAL: We maintain our “neutral” recommendation on YTL Power but raise our target price to RM2.11 from RM1.91. By our estimates, Power Seraya adds RM2.2 billion, or 27 sen per share, to the equity value of YTL Power. It also adds RM90 million, or 8%, to our FY6/2010 earnings estimate for the group. We believe there is room for improved earnings from Seraya, with the company’s oil trading and tank-leasing business providing added growth avenues. We estimate that the contribution of 100%-owned Wessex Water to YTL Power’s Ebit will decline by 10% in FY2010 from weakened and possibly lower water tariffs.

YTL Power should be one of the beneficiaries of changes in the Malaysian equity indices as the move from the market-cap based KLCI to the free-float weighted FBM30 and FBM100 means that the company could be included in the major indices in the country. We have reduced our FY2009 forecast by 6% to reflect lower interest income and other costs related to the acquisition of Power Seraya. Although we believe the recent acquisition of Power Seraya is value accretive, we think that — at a FY2010 fully diluted PER of 16 times — it offers little upside from current levels. A net dividend yield of 4% may provide downside support. — Macquarie Research (June 17)  

IOI Corp Bhd (June 18, RM4.52)
SELL: IOI Corp is likely to deliver a better 4QFY6/2009 net profit compared with 3QFY2009 of just RM37.4 million due to the absence of derivatives losses and provision for default contracts and benefits from the writeback of foreign exchange gains with the ringgit’s appreciation. For 4QFY2009, performance will be boosted by stronger production in 2Q2009 and higher contributions from the privatised IOI Properties. Tight soyabean oil supply is an advantage for crude palm oil prices. They are expected to trade higher by 4Q2009 from the current level of RM2,400 to RM2,500 per tonne. Production growth is expected at 3% to 5% due to IOI Corp’s mature acreage.

We have trimmed our net profit forecast for FY2009 by 6.7% on a higher effective tax rate of 28% (previously 22%) as some of the losses are not tax-deductible. We project a net profit of RM1 billion, or 16.2 sen per share (year-to-date net profit: RM496.4 million), for FY2009 and a 63.5% growth to RM1.7 billion (EPS: 26.5 sen) for FY2010. Excluding one-off losses in FY2009 (net profit would be RM1. 5 billion), FY2010 net profit growth would just be 10% y-o-y. We maintain our “sell” on IOI Corp but raise our fair value price to RM3.90, based on FY2010 PE target of 15 times, in line with the PER multiples of its big-cap peers. — UOB Kay Hian (June 17)

Malaysian Airline System Bhd (June 18, RM3.16)
UNDERPERFORM: MAS announced a quarterly net loss of RM695 million for 1QFY12/2009 after adopting FRS139 mark-to-market (MTM) accounting. The loss would have been RM793 million had the FRS139 not been adopted. As the accounting is complex, our best estimate for core net loss is RM345 million, almost equal our full-year core net loss estimate.

Combined passenger revenue dropped 23%, with a 27% drop in demand exceeding its 11% capacity reduction, causing the load factor to fall 13% to 56%. Demand dropped drastically not only because of the economic downturn but also because MAS kept yield higher than optimum (+7% y-o-y), which led to a devastating 13% fall in revenue per unit of capacity. Cargo revenue slumped 44% as demand fell 28% and yield dropped 23%. Cargo capacity was cut 27%, helping load factor to remain stable.

We maintain our “underperform” call, and slash earnings and target price to RM1.95 (from RM2.20), still based on a one-time non-FRS139 price over net tangible. We have widened our FY2009 net loss from RM359 million to RM803 million, slashed FY2010 net profit from RM376 million to a net loss of RM73 million, and cut FY2011 net profit from RM1.1 billion to RM670 million. — CIMB (June 15)

AEON Credit Service (M) Bhd (June 18, RM4.28)
BUY: 1QFY2/2010 net profit of RM12.2 million (+20.4% y-o-y; -10.3% q-o-q) accounts for 21.6% of our full-year forecast of RM56.4 million. This is within our expectations as subsequent quarterly earnings should pick up because of the festive seasons. In the quarter, total trade receivables (an indicator of credit demand) inched up 0.6% q-o-q to RM877.9 million. Revenue (interest income) came in at RM51.5 million (+21.8% y-o-y; +1.3% q-o-q). We expect consumption to rise in 2HFY2010, driven by festive spending. Demand for credit financing, especially the general easy payment scheme and credit card transactions, should increase.

Both business segments are projected to lift our trade receivables assumption to RM1 billion by end-FY2010F (+18.4% y-o-y). We believe AEON Credit’s earnings growth momentum, albeit slower due to a growing base effect, will remain intact despite the dim economic conditions, given its focus on small ticket items. We are keeping our earnings forecast and RM3.90 target price, based on 0.35 times FY2009-FY2011F price-earnings to growth ratio. We like the stock for its 19.2% two-year net profit CAGR, 24% ROE and prospective 5.4% net dividend yield for FY2010F. — HwangDBS (June 17)

Mah Sing Group Bhd (June 18, RM1.77)
TRADING BUY: Mah Sing is acquiring 5.73 acres of freehold land that adjoins Sri Pulai Perdana 2 (SPP2) in Skudai, Johor Baru, for a consideration of RM2 million. It is paying RM8 psf, a bargain given the market value of RM20 psf for residential land. This will increase SPP2 to 72.26 acres. Mah Sing has earmarked the land for commercial development. Based on SPP2’s enlarged GDV of RM225 million and SPP1’s launch patterns, the township can be completed in the next four to five years.

There are no changes to our FY12/2009-2010E net profit of RM96.1 million to RM95.7 million. Driving our forecasts are RM574.1 million in unbilled sales (RM491.6 million excluding booking sales) as at March 2009 and RM245 million in new launches for the rest of FY2009. Fair value of RM1.96 per share remains unchanged, based on our fully diluted sum-of-parts revised net asset value. We are recommending a “trading buy” although there is only a 9% upside to its last traded price. Our call, target price and estimates have an upside bias pending affirmation of stronger sales performances and acquisition of substantial landbank. Current price-to-book value of 1.1 times is above peer averages of one times and historical forward averages of 0.8 times. — Kenanga Research (June 16)

This article appeared in Capital page of The Edge Malaysia, Issue 760, June 22-28, 2009