This article first appeared in The Edge Financial Daily, on March 16, 2016.

TA Enterprise Bhd
March 15 (53.5 sen)
Downgrade to hold with a lower target price (TP) of 55 sen: We downgrade TA Enterprise Bhd from a “buy” to a “hold”, as we expect weak market sentiment to hamper earnings stability. To recap, losses at TA Enterprise’s investment holding segment were the main drag on the group’s earnings in the past three quarters. These were attributable to investment securities held, which were affected by the slowdown in the market in general. Volatility in this segment poses earnings risk to TA Enterprise.

The completion of Trump International Hotel (slated for June 2016) will boost development profit in financial year 2016 (FY16), but this will dissipate in the following quarters, as prospects for the remaining projects’ launches remain subdued. TA Enterprise is looking at launching the next phase of Damansara Avenue (Activo suites) and the Dutamas project, but we have conservatively assumed contributions from these to only start to kick in from FY17.

As of end-December 2015, TA Enterprise’s market share in trading volume and value stood at 6.3% and 3.6% respectively. Although TA Enterprise’s broking business remains an attractive merger and acquisition target, timing is a risk given the softer market outlook.

We cut FY16/FY17F (forecast) earnings by 43%/65% to factor in deferred property development launches, lower contributions from investment holdings and lower value traded assumptions for the stockbroking business. This is in line with the challenging operating environment ahead. We have a “hold” rating with a sum-of-parts-based TP of 55 sen. Our TP ascribes a 70% discount to revised net asset value for TA Global Bhd (previously 65%) and 0.5 times book value (previously 0.7 times) for its broking business. — AllianceDBS Research, March 15