CRESCENDO Corporation Bhd
Target price: RM3.15 OUTPERFORM
KENANGA RESEARCH (March 31): FY14 core net earnings of RM84.6 million were within expectations, accounting for 100% of our own and street estimates. FY14 property sales of RM186 million were well within our RM180 million expectations for the year.
A single-tier dividend of 9 sen was declared for the quarter as expected. The total dividend declared for FY14 comes up to a total of 16 sen, which is well within our assumptions of 15.4 sen.
According to the company’s management, the approval for its Bandar Cemerlang township project is on its way, while the joint-venture project in Nusa Cemerlang Industrial Park (NCIP) to build apartments is already at building plan submission stage.
We lowered our FY15 estimated core earnings by 11% to RM84.8 million as we reduced our property sales assumption from RM250 million to RM210 million due to the timing of launches.
We introduce our FY16 earnings estimates of RM93.2 million as we expect the growth will be supported by new launches that are skewed towards the end of FY15. Maintain “outperform”.
Bumi Armada Bhd
Target price: RM4.50 BUY
MAYBANK RESEARCH (Sept 25): In 1QFY2013, we expect Glomac to record strong net profit growth of 18% y-o-y to RM20 million to RM22 million, 20% of our full-year estimates, driven by record unbilled sales of RM731 million at end-FY2012. However, q-o-q growth will likely be flat or marginally softer. Overall operating margins should stay above 20% on greater contributions from the high-margin Glomac Damansara. Glomac’s 1QFY2013 results are likely to meet our expectations.
We maintain our earnings forecasts and RM1.10 target price (40% discount to revised net asset value) for now. Our “buy” call is based on a 12-month investment horizon. As at April, township projects (including Glomac Puchong and the newly acquired Ijok and Dengkil land) account for 82% of Glomac’s RM5.8 billion in remaining gross development value, providing a strong base for future earnings. Glomac is trading at a steep 30% discount to its NTA (as at April) and 57% discount to our RM1.82 RNAV. It also offers an attractive REIT-like net yield of 5.6% (compared with large-cap REITs’ 5%).
AirAsia X Bhd
Target price: RM0.75 NEUTRAL
ALLIANCE RESEARCH (March 31): We remain cautious on AirAsia X’s (AAX) yield in FY14 as we believe it will continue to face intense competition in the Australian routes in the near term following substantial additional capacity by both AAX and Malaysian Airline System Bhd in 3QFY13. This is in line with the management’s guidance that pressure on its Australian yields is expected to persist over the next few quarters.
We are concerned about the potential spill-over effect from the recent MH370 tragedy as it may lead to aversion among Chinese tourists to visit Malaysia, which may drag AAX’s yields further. As such, we are tweaking our yields growth assumption downwards to 2% in FY14 from 5% which was too optimistic, considering the recent developments.
We still believe that AAX’s yields will rise slightly in FY14 due to the withdrawal of the poor-yielding Maldives route that had affected yields in 4QFY13 and improvement in its Jeddah yields as travel demand normalises. We expect AAX’s yields to increase by 5% in FY15 following its relocation to klia2.
Cypark Resources Bhd
Target price: RM3.09 ADD
CIMB Research (March 31): Revenue growth for 1QF14 was flattish as it only grew by 1% to RM51.5 million. This was due to lower revenue from its environmental engineering that declined by 3.6%, but was balanced out by landscaping and renewable energy (RE) for which revenues grew by 66% and 72% respectively.
We had previously highlighted that the Sustainable Energy Development Authority (SEDA) was expected to release its new RE quota under the feed-in-tariff programme (FiT) by the end of March. However, news reports suggest that the new quota is only expected by April. Cypark is aiming for at least another 10mw of new RE quota from SEDA.
1Malaysia Development Bhd’s move (1MDB) to be the first to build a solar power plant outside of the FiT quota is positive for Cypark, as this means that it too can propose a similar project, given its current status as the largest RE player in Malaysia. A mega solar farm such as 1MDB’s 50mw would almost double Cypark’s end-FY14 RE capacity target of 50mw.
Petronas Gas Bhd
Target price: RM21.98 NEUTRAL
RHB RESEARCH (April 1): Petronas Gas (PetGas) has entered into a new 20-year gas sale agreement with Petronas, effective today until Dec 31, 2033, for the following: a gas-processing agreement (GPA), a gas-transportation agreement (GTA) comprising GTA Peninsular Malaysia, GTA Sabah and GTA Sarawak and an agent services agreement. The new GPA includes GTA Sabah for the additional gas transport services provided to Petronas for its customers in Kimanis that started in January 2014.
The new agreements allow for a revision to the remuneration terms prior to the expiry of each five-year term: i) first term — April 1, 2014 to Dec 31, 2018; ii) second term — Jan 1, 2019 to Dec 31, 2023; iii) third term — Jan 1, 2024 to Dec 31, 2028; and iv) fourth term — Jan 1, 2029 to Dec 31, 2033.
We keep our FY14/FY15 earnings estimates as the changes in agreement terms are not significant to compel forecast revisions. We maintain “neutral” on this stock with an unchanged SOP-based future value of RM1.98.
JT International Bhd
Target price: RM7.80 BUY
AFFIN INVESTMENT BANK (April 1): In a March 31 Bursa announcement, JT International Holdings, the majority shareholder of JTI Malaysia, has made a buyout offer of RM808.5 million for the remaining 39.6% stake of JTI.
We are pleasantly surprised by the privatisation offer price, which is significantly higher than our previous dividend-discount-model- (DDM) derived target price of RM6. In addition to the offer price, this represents a 20% premium to JTI’s pre-suspension price and a 21% premium to JTI’s six-month volume weighted average price trading of shares.
At RM7.80 per share, JTI is being valued at a 15 times FY15 2015 estimation EPS and a CY14 estimation per-NTA of 5.7 times as at end-December 2013.
In view of the challenging prospects for the tobacco industry and the strong offer on hand, we think that there is no reason for minorities to reject the deal. While we upgrade the stock to “buy” and raise our DDM-based target to RM7.80, we expect the stock to trade near its offer price upon re-quotation.
Astro Malaysia Holdings Bhd
Target price: RM3.60 BUY
HWANGDBS VICKERS RESEARCH (April 1): Astro Malaysia Holdings’ FY14 earnings of RM448 million is within our and consensus expectations at 96% and 98% of respective earnings’ estimates.
Astro will continue to enjoy average revenue per user uplift from improving take-up of B.yond HD channels as well as full-year recognition of package price increases. This would also be bolstered by full-year recognition of revenue from Astro’s Barclays Premier League channel-supply partnership with Telekom Malaysia Bhd. Margins are expected to be resilient as its set-up box swap-out exercise eases and depreciation tapers off in the longer term. Its share of advertising expenditure in the overall market is also steadily rising, which will add to its strong subscription revenue.
The stock offers bright earnings growth prospects in a fairly defensive market, and could surprise on the back of utilisation of new transponder capacity through its satellite launch, which is expected in 2Q14.
Eastern & Oriental Bhd
Fair value: RM3 BUY
AMRESEARCH (April 3): We reaffirm our “buy” recommendation on Eastern & Oriental (E&O) with an unchanged fair value of RM3 per share — a 35% discount to our NAV of RM4.61 per share, including the significant accretion from Seri Tanjung Pinang 2 (STP2).
A local daily reported that E&O’s share price has risen to reflect the progress in STP2 and the timeline of events of its STP project. Our key investment thesis on E&O is centred on the crystallisation of STP2 given the tripling of NAV and the deep development potential of the 760-acre prime land.
E&O is awaiting the Department of Environment’s approval for the Detailed Environment Impact Assessment study on the commencement of reclamation works on STP2.
We recommend that investors accumulate E&O ahead of the sustained news flow momentum as STP2 moves closer to realisation. This may lead to a narrowing of the current NAV discount of 52% via an accelerated share price discovery of its fair value.
Padini Holdings Bhd
Target price: RM2.40 BUY
HWANG DBS VICKERS RESEARCH (April 3): Padini plans to open three brands outlet (BO) and two Padini Concept Stores (PCS) before end-June. This will add 40,000 sq ft to 50,000 sq ft of floor area to take total new area to 96,000 sq ft to 120,000 sq ft in FY14.
Going forward, Padini wants to open at least five outlets a year. We raised FY15 to FY16 forecast EPS by 3% to 8% after imputing larger earnings contribution from BO and PCS.
The near-term earnings growth driver will likely be BO. BO focuses on offering a wide variety of value-for-money products targeted at the low- to middle-income consumers. We believe BO margins are higher given fitting cost is 45% lower than PCS. BO has an impressive track record with five-year PBT CAGR of 118%. BO contributed 25% of FY13 revenue.
Current valuation is attractive at 11 times FY15 EPS given the resilient earnings, continuous expansion plans, 25% return on equity and a strong balance sheet. Dividends could surprise as expanding BO generally requires lower capital expenditure and costs. Our 70% payout ratio for FY14F implies 5% yield.
Sentoria Group Bhd
Target price: RM1.20 BUY
TA SECURITIES (April 2): Last year was eventful for Sentoria Group as it has proposed two massive integrated resort cities in Morib and Kuching. The group should see busy years ahead given that Bandar Samariang and Morib Bay will commence in 2014 and 2015 respectively. We like Sentoria’s synergistic business model, which allows it to enjoy earnings upside from property development and at the same time, benefit from its strong cash-generating leisure and hospitality business.
Sentoria is operating in two business divisions, namely property development and leisure and hospitality. The group has around 1,500 acres of undeveloped landbank with an estimated gross development value of RM6.6 billion. The group’s leisure and hospitality operation consists of two theme parks and two resorts within Bukit Gambang Resort City.
Our target price is at a 38% discount to the group’s fully-diluted RNAV of RM1.95 per share. There could be further upside to RNAV as we have conservatively assumed a 70% take-up rate for properties in Morib Bay RC and Borneo Samariang RC.
SapuraKencana Petroleum Bhd
Target price: RM5.36 BUY
MIDF RESEARCH (April 2): SapuraKencana Petroleum has bagged one fresh contract and three contract extensions. The newly secured jobs are worth a collective US$454 million.
Although we have factored in these potential job wins, we are taking this opportunity to adjust our FY15 earnings estimates slightly higher by 2.4%. We are assuming lower financing costs from the recently undertaken debt restructuring exercise and also a higher fleet utilisation rate of over 65%.
SapuraKencana’s order book remains strong at US$8.3 billion. Broken down geographically, 49% of the jobs are from Brazil, 31% from Malaysia, 14% from Southeast Asia, 5% from Australia and the rest from Africa. Tender book value is almost similar to the current order book at RM25 billion.
We are still bullish on SapuraKencana and we are reiterating our “buy” recommendation at a revised target price of RM5.36 per share. This is based on FY15 EPS of 23.3 sen, pegged to FY15 PER of 23 times. Our target PER is a slight premium to our large-cap sector PER of 20 times.
Uzma Bhd
Target price: RM7.30 OUTPERFORM
KENANGA RESEARCH (April 2): Uzma and its partner EQ Petroleum Developments Malaysia Sdn Bhd announced that they have signed a Small Field Risk Service Contract (SFRSC) with Petroliam Nasional Bhd to carry out the development and production of petroleum from the Tanjung Baram Fields for a period of nine years.
The development phase of the entire SFRSC is expected to cost US$100 million and first oil is anticipated in 2015. EQ Petroleum Developments has a 70% stake whilst Uzma has a 30% stake in the venture.
Assuming a 80:20 equity-to-debt ratio; 6% cost of debt and 15 % internal rate of return, we believe Uzma’s 30% stake will yield accretive earnings of RM5.2 million in FY15.
Our new target price is RM7.30 is based on an unchanged targeted FY15 PER of 16 times. Our PER is justifiable given that the stock has successfully moved up the value chain instead of just being a service provider. As its share base is pretty illiquid, the share price gains can be significant.
This story first appeared in The Edge weekly edition of April 07-13, 2014.