HLIB Research 31 October 2011 (TNB; AirAsia; Traders Brief)

TNB (SELL; TP: RM5.10)

Continued Impacted by Higher Fuel Cost

§  Below Estimates –Reported 4Q11 core losses RM520m, bringing down FY8/11 core earnings to RM203.6m (vs HLIB's RM548m and consensus's RM685m).

§  The deviations is mainly coming from higher than expected usage of alternative fuels which cost 5-6x more than natural gas.

§  Potential power plant breakdown (off- schedule breakdown) as a result of deferred maintenance and the usage of alternative fuels in gas power plant.

§  Tenaga had proposed to the government to recoup its extra power generation costs of RM2.6bn (Jan-Sept 2011) from Petronas during the gas curtailment period. However, there is no timeline given for decision yet.

§  Tenaga remained skeptical on gas supply and guided likelihood of ~1,100 mmscfd gas supply. As power demand increases in FY12, 1,100 mmscfd will not be sufficient.

§  Potential tariff adjustment for coal fuel given its benchmark price is US$85/tonne while current coal price is at US$115/tonne.

§  No dividend declared

§  Downgrade to SELL and TP of RM5.10 based on DCF.

 

AirAsia (BUY; TP: RM4.50)

Indonesia AirAsia on Track for IPO

§  AirAsia to sell 5 of its Airbus A320s to its 48.9% associate, Indonesia AirAsia (IAA) for RM550.8m based on market value. AirAsia is expected to gain RM49.7m.

§  The transaction is not expected to have material impact on AirAsia's balance sheet and net gearing ratio, only involve transfers from 'Fixed Assets' to 'Due from Associates'.

§  IAA shall assume a liability of ~RM560m, where IAA will repay AirAsia in installments over 7-8 years. We believe the installments are matched to AirAsia's lease payments to the financial institutions (cash flow matching).

§  The transaction is expected to reduce AirAsia's overall financial burden in servicing the aircraft lease payments.

§  The listing of IAA will allow IAA to finance its own aircraft purchases going forward while AirAsia will be able to focus its resources for potential new JVs and business units, as well as dividend payout.

§  Maintain BUY and TP of RM4.50 based on SOP.

 

Likely to retest 1500 pts this week

§  Base on the weekly chart, the KLCI is on course to break the 50-w SMA (now at 1512) after a brief consolidation, in anticipation of year-end window dressing activities.  Immediate resistance is 1488 (61.8% FR), followed by 100-d SMA (now at 1495) and 1500 levels whilst immediate supports are 10-d SMA (1454) and 50-d SMA (1436) pts.

 

E&O: Creeping upwards to RM1.62-1.74 targets 

§  Improving weekly and daily technical readings are likely to drive E&O to penetrate the important RM1.50 (weekly mid Bollinger band) resistance soon. Should this level be penetrated, it will entice more buying interest to the stock and spur prices higher to next resistance levels of RM1.62 (weekly upper Bollinger band), RM1.74 (50% FR) and a more formidable RM1.78. Major supports are RM1.40 (200-d SAM) and RM1.35 (lower Bollinger band). Cut loss below RM1.33.

JIT News - JCY/Dufu, MBF, KNM/Zecon, YTL Power, Airasia, Harvest

JCY/Dufu: Malaysian HDD component makers, which supply mainly to Seagate could well take pole position in the HDD industry after Western Digital was beaten out by the flooding in Thailand. And with a global HDD shortage looming, higher prices are likely to boost margins down the entire value chain, providing some relief for component suppliers hit by low prices and poor margins. JCY and Dufu could well become prime beneficiaries of having Seagate as client. Industry observers are seeing orders have been coming in as people are taking advantage of the higher prices they can fetch amid the potential shortage supply of HDDs in the next few months.

 

Prices of HDDs and components are expected to increase in view of the disrupted HDD supply chain that will in turn hit OEMs such as IBM, Dell and EMC in the coming months. For an industry where margins are thin, this could provide a boost to earnings, even if overall volume declines.

 

MBF Holdings: Rumors MBF will be taken private have begun to swirl again. Its largest shareholder and CEO Tan Sri Dr Ninian acquiring MBF shares and warrants on the open market. He had increased his shareholding in MBF to 84.55% as at Oct 21, 2011, just a few percentage of the 90% threshold to compulsory acquire the remaining shares and take the company private. He had also raised his warrants holdings in MBF to 73.13% stake on that date. On Oct 27, 2011, he sold 10 million warrants, paring his stake in warrants to 69.36%.

 

KNM and Zecon have yet to finalise the agreement and financing for the RM15 billion petroleum refinery and polypropylene unit projects in Teluk Ramunia, Johor, with Gulf Asian Petroleum Sdn Bhd.

 

YTL Power/YTL Comm: YTL Comms has submitted its business plan to Malaysian Communications and Multimedia Commission (MCMC) to secure spectrum licences to roll out its Yes 4G mobile internet-with-voice service in Sabah and Sarawak. The company was currently awaiting feedback from MCMC. MCMC will review the plan and give them the feedback.

 

Airasia: AirAsia Bhd's Thai unit remains on target to sell shares in the fourth quarter 2011 through an initial public offering as the plan hasn't been affected by the flooding.

 

Harvest has appointed two officials of Sagajuta group of companies, Datuk Raymond Chan Boon Siew and Mohd Nazifuddin Mohd.Najib to the board.

RHBInvest Research Highlights 31st October 2011

31st October 2011

 

Top Story: Media–Softer adex in Sep                                          Underweight

Sector Update

¨       As expected, Sep's gross adex for TV and print media combined showed a sequential monthly contraction of 18.1%, following the bumper Aug adex (due to Hari Raya and Merdeka festivities), according to Nielsen Media Research (NMR). On yoy basis, adex growth moderated to 5.1% in Sep (Aug: +9.7% yoy).

 

 

Corporate Highlights

 

Axiata: XL shows sequential improvement                                 Market Perform

Company Update                

-          67%-subsidiary, XL Axiata (XL), posted 9MFY11 core net profit of Rp2.14bn (+1.3% yoy), representing only 67% and 62% of our and consensus full-year estimates respectively.

-          The key variance was a one-off severance payment amounting to Rp213bn in 3Q for outsourcing of XL's managed network services. Excluding this one-off provision, XL would have recorded 9MFY11 net profit of Rp2.35bn (+11% yoy). This would have been in line with our but still lower than consensus expectations.

 

 

 

TNB: Still looking for a solution                                                       Market Perform (up from UP)

4QFY11 Results / Briefing Note

-          Excluding forex losses of RM194m, TNB's FY11 results were below our and consensus expectations with core net profit of RM643m (-74.7% yoy) accounting for only 91% of our and consensus FY11 net profit estimates. The key variance was higher IPP energy payments and fuel costs due to gas supply curtailment.

-          TNB's losses narrowed to RM158m in 4Q (3Q: -RM460m), as RM400m one-off revenue was recognised due to adoption of new accounting policies and changes in accounting policies.

 

 

 

Regional

 

Genting Singapore : More VIP market share lost to MBS?          Market Perform

Company Update ( Singapore )

-          LVS, the operator of Marina Bay Sands (MBS) recorded gross gaming revenue (GGR) of US$651.9m (or US$7.1m/day), adjusted property EBITDA of US$413.9m (or US$4.5m/day) and EBITDA margin of 52.2% in 3QFY11. Topline growth was driven by stronger volumes across the board, as rolling chip (VIP) volumes rose 36.8% qoq, while mass volumes rose 4.9% qoq and slot volumes rose 17.3% qoq. Bottomline growth was relatively weaker vis-à-vis topline growth, as VIP win rate fell slightly to 2.69% (from 2.99% in 2Q11), on the low end of theoretical levels of 2.7-3%.

 

 

Bank Rakyat Indonesia : A solid quarter                                     Market Perform

3QFY11 Results ( Indonesia )

-          Rakyat's 3Q11 results were above expectations. Net profit for the quarter of IDR3,646(+3.4% qoq and +55.9% yoy) lifted 9M11 earnings to IDR10,431bn (+56.7% yoy) reaching 79.5% of our 2011 forecast.

-          Cumulative net interest income for 9M11 rose 26.2% yoy to IDR26.trn, as a result of a 74bps yoy NIM expansion to 10.24% (9M10: 9.5x).

HLIB Research 28 Oct 2011 (Aviation; Traders Brief)

Aviation (Overweight)

MAHB Championing Tariff Hikes

§  MAHB has again announced new airport charges beginning 15 November 2011, which was deferred by the government back on 14 September 2011.

§  The new rates for international passenger departing from airports (ex-LCCTs) will be increased from RM51 to RM65 (RM14 previously subsidized by government) while those  from LCCTs will be raised from RM25 to RM32.

§  Aircraft landing charges will be increased by 9% p.a. and parking charges will be increased by 18% p.a. for the next 3 years starting January 2012.

§  Positives to MAHB, and slight negatives to AirAsia and MAS, as we expect airlines to pass-through the additional cost to consumers, while the additional cost are very marginal to travelling cost and unlikely to have significant impact on travelling demand.

§  Separately, MAHB also announced setting up a new JV (23:77) with Tenaga, to supply chilled water and electricity to new KLIA2. MAHB expects the JV to contribute RM5m p.a.

§  Raised MAHB FY12-13 earnings by 7.2% and 10.1% respectively.

§  Recommendation:

§  Maintained BUY on MAHB with higher target price of RM7.00 (Previously RM6.50) based on DCF to equity.

§  Maintain BUY on AirAsia with TP of RM4.50.

§  Maintain SELL on MAS with TP of RM1.19.

 

Enjoy the ride toward 1500-1513 pts

§  Riding on the overnight bullish Wall St and Europe markets, FBM KLCI is expected to continue its uptrend towards 1500 psychological barrier and probably to retest the 200-d SMA (now at 1513) after a mild profit taking consolidation. Immediate supports are 10-d SMA (1450) and 50-d SMA (1435) pts.

 

Coastal: Targeting RM2.10-2.25 amid bullish technicals

§  Based on the weekly and daily charts, promising trend and momentum readings as well as rising +DMI suggest COASTAL could stage a meaningful upside towards RM2.10 (38.2% FR and upper channel) and RM2.25 (200-d SMA & 50% FR) in the short term. Supports are RM1.80-1.85. Cut loss below RM1.80.

RHBInvest Research Highlights 28th October 2011

28th October 2011

 

Top Story: Hektar REIT – Assets Worth PARADE-ing                        Outperform (New Coverage)

Visit Note

¨       Hektar REIT was established on 5th Oct 2006 and listed on 4th Dec 2006. It was the first pure-play retail REIT listed on Bursa Malaysia . Its current market cap stands at around RM400m, which is smaller compared to CapitaMalls Malaysia Trust (CMMT) with market cap of about RM1.9bn. Hektar REIT owns three assets, which are: i) Subang Parade in Selangor; ii) Mahkota Parade in Melaka; and iii) Wetex Parade in Johor.

 

Corporate Highlights

 

MAHB: Green light to raise aeronautical charges                                                Outperform

News Update

¨       MAHB announced yesterday that post a further review, the Ministry of Transportation has approved the increase in aeronautical charges (passenger service charge, aircraft landing and parking charges).

¨       MAHB will increase international passenger service charge (airport tax) in full-service carrier terminals to RM65 (from RM51) and in LCCT to RM32 (from RM25), effective 15 Nov. In addition,

 

IOI Corp: Problems with termination of acquisition of Duta Plantations            Market Perform

News Update

¨       Following IOIC's announcement that it had issued a notice of termination to Pertama Land & Development (subsidiary of Dutaland) for the SPA to acquire Dutaland's 11,978ha of plantation land in Sabah, Dutaland announced that it does not accept IOIC's reasons for the termination and that it has notified the stakeholder,

 

TNB: Lukewarm on cooling the new LCCT           Underperform

News Update                                                                                                                                                                & nbsp;   

¨       TNB yesterday secured a 20-year concession with Malaysia Airports for the privatisation of the development of a 132kV sub-station and a district cooling plant for the supply of chilled water and electricity and associated works at the new low cost carrier terminal at KLIA.

¨       TNB and MAHB will set up a concessionaire via a JV to undertake the RM388m project, to be funded by 80% debt (RM310.4m) and 20% equity (RM77.6m).

 

Faber: Extension letter obtained                            Underperform (down from MP)

News Update

¨       Faber Medi-Serve announced that it had received an extension letter which would allow the company to operate for another 6 months from the 28 Oct expiry of its concession or upon signing of a new concession agreement with the Ministry of Health.

¨       We understand that the three concessionaires, including Faber Medi-Serve, Pantai Medivest and Radicare, would be conducting negotiations with the Government on new concession terms during this period.

 

MBM Resources: GO For Hirotako                      Underperform 

News Update 

¨       MBM has proposed to undertake a conditional voluntary takeover offer for all the outstanding shares and warrants of Hirotako Holdings (HHB) for RM0.97 per share and RM0.05 per warrant respectively. The purchase consideration will be settled in cash.

¨       The offer is conditional upon MBM receiving acceptances for at least 65% of the voting shares of HHB by the closing date. MBM has already secured an irrevocable undertaking for 23.8% of HHB shares.

JIT News - Proton,Faber,Khee San/L Biscuits,CIH,DBhd ....

Proton: No concrete proposal for a tie up between Proton and Perodua has been made yet, but the two would like to work together.

 

Faber: It would continue to offer support services to government hospitals under a six month interim six extension. This follows the expiry of the company's 15 year concession today. The six months extension is subject to prevailing terms and conditions commencing today or until the signing of a new concession agreement for the privatization of HSS with the health ministry, whichever is earlier. The six months interim extension is not to be considered as binding on the government of Malaysia. A further announcement will be made concerning the privatization of HSS on conclusion of negotiations.

 

London Biscuits/Khee San: The catalysts for Khee San appear to be two unrelated events that market observers speculate could herald some developments for the low profile firm, including the possibility of its controlling shareholder London Biscuits raising its stake in the Khee San. Earlier Oct 2011, London Biscuits sold a 33.65% stake in TPC to Huat Lai Resources and PNB ceased to be a substantial shareholder of Khee San. Now with PNB out of the picture, London B remains Khee San's singlae largest shareholder with its 32.87% stake.

 

Investors will be now watching London Biscuits' next move on Khee San. London Biscuits had earlier said that it had no intention to selling Khee San. Market observers said that London Biscuits could make an offer for the remaining 40.24 million shares or 67.08% stake it does not own in Khee San for a total of rm18.1 million. Minus an amount of rm12.82 million that London Biscuits owes to Khee San, the net outlay could be just rm5 million. Khee San's net assets per share stood at rm1.27 as at FY2011.

 

Khee San has borrowings of rm36.89 million and cash of rm2.22 million. Its net debt of rm34.67 million translates into a net gearing of 45.4%. There is a sum of rm12.82 million due from London Biscuits which after repayment would pare Khee San's net debt to rm21.85 million and net gearing of 28.6%.

 

CIH expects to conclude the disposal of its beverage subsidiary Permanis Sdn Bhd (Permanis) to Japan's Asahi Group Holdings Ltd (Asahi) within one or two weeks and expects to pay a minimum of RM4 per share in the form of special dividend to its shareholders. CIH was looking to acquire a company with potential but weak management. It distribute a minimum of RM4 to shareholders back so that will leave about RM200 million over. If it cannot find anything concrete in the future, we may distribute back to shareholders in the form of capital repayment or special dividend. On July 21, CIH signed an agreement with Asahi for the disposal of Permanis for an acquisition price of RM820 million in cash, representing 70 million shares.

 

DBhd's board hasn't considered a proposal for the "potential injection" of assets into the company by its parent.

HLIB Research 27 October 2011 (IOI; MAHB; Traders Brief)

IOI Corporation (Hold; TP: RM4.57)

Terminates RM830m land deal

§  IOI issued a notice to Pertama Land & Development Sdn Bhd (a unit of DutaLand Bhd) to terminate the sale and purchase agreement (SPA) to acquire 11,977.9ha of oil palm plantation land in Sabah for RM830m, due to "non-compliance of certain terms and conditions which had been communicated to Pertama Land".

§  According to IOI's announcement, OSK Trustees Bhd (the stakeholder of DutaLand Bhd) will have to refund IOI the RM83m deposit (10% of the purchase price) and interest accrued.

§  However, DutaLand, on the other hand, said it does not accept IOI's reasons for termination of the SPA, and it has notified OSK Trustees not to remit the deposit paid by IOI.

§  Worst case scenario, assuming IOI's 10% down payment is not refundable, it would reduce IOI's FY06/12 net profit by 3.5% to RM2,285.8m. However, it is still premature to determine if IOI will lose its deposit given the absence of further details in the announcement.

§  TP (based on SOP) maintained at RM4.57 for now, and our Hold recommendation for IOI maintained. 

 

MAHB (BUY; TP: RM6.50)

Expect Strong 4Q11

§  Slightly below our numbers –9M11 core earnings to RM289.9m (66.2% of HLIB's FY11 estimates and 74.0% of consensus).

§  We expect strong result in 4Q11 given seasonally stronger period and the absence of RM30m airlines incentive provision in 4Q11.

§  SGIA continued to make losses, while being offsets by MALE profits.

§  Received one-off dividend payout of RM22m from its investment in Gas Distilled Cooling.

§  MAHB highlighted possibility of lower dividend payout as it needed to reserve cash flow for KLIA2 construction.

§  Cut FY11 earning by 4.4%, but raised FY12-13 earnings by 10.7% and 8.4% after accounting for higher passenger growth.

§  Upgrade to BUY and TP of RM6.50 based on DCF.

 

More consolidation ahead

§  Despite disappointment in ironing out a detailed masterplan at yesterday's EU Summit, overnight gains on Dow and news that China will buy bonds issued by the EFSF should bode well for the broader markets.

§  Maintain SELL INTO RALLY or TAKE PROFITS near our envisaged resistance targets of upper Bollinger band (now at 1478 pts) and 100-d SMA (at 1497). Immediate pullback supports are 1436 (50-d SMA), 1410 (30-d SMA) and the 1400 psychological levels.

 

CPO price: Poised for a further breakout

§  To recap, CPO prices jumped 2.1% to RM2951/MT on 25 Oct and had rebounded 6.5% from 52-wk low of RM2771 on 7 Oct.

§  After surpassing its 30-d SMA and a breakout of the downtrend line (DTL) from 52-wk high, near term CPO outlook has turned better amid strengthening weekly and daily technical readings. Immediate upside resistance targets are RM3040-3217. Immediate supports are mid Bollinger band (now at RM2856) and lower Bollinger band of RM2763 levels.

JIT News - Genting Mal, IOI Corp/Dutaland, Hibiscus ...

Genting Malaysia is now ready to commit to a US$3 billion casino in Miami should it receive a casino concession there. NYA's success in boosting New York's coffers and creating badly needed jobs will boost its long-term chances of securing more gaming concessions in the US. Specifically, it could be a key beneficiary should New York City legalise casinos, and its first-mover advantage provides a decent chance to secure a casino operator licence should Miami legalise casinos outside the Seminole tribe reservations. Nevertheless, the route to legalisation is arduous and likely to be a long process, and competition for such licences is stiff.

 

 

IOI Corp/Dutaland: IOI Corp's move to terminate its proposed acquisition of 11,977.91 ha (29,597.42 acres) of oil palm plantation land from Dutaland for RM830 million has been rejected by the latter. IOI Corp said thet cancellation was "due to non-compliance of certain terms and conditions". However, Dutaland did not accept the reasons for termination of the sales and purchase agreement and directed the stakeholder, OSK Trustees Bhd not to remit the deposit of RM83 million, which was the 10% deposit paid.

 

 

Hibiscus: Hibiscus has executed two agreements to acquire a 35% equity stake in Lime Petroleum Ltd for a total of US$55 million. The deal comprises of a share subscription agreement and a share purchase agreement. Under the share subscription agreement, Hibiscus will subscribe for 76.9 million new shares or 27.2% equity stake in Lime Petroleum for a cash consideration of US$50 million. Hibiscus will also purchase a 7.8% equity stake in Lime Petroleum from the current major shareholder, Rex Oil and Gas Ltd, through a share purchase agreement, for a cash consideration of US$5 million.

RHBInvest Research Highlights 27th October 2011

27th October 2011

 

Top Story: Dialog – Marginal fields and tank terminals                         Outperform

Visit Note

¨       Management appears very confident that the Balai Cluster RSC will be a success. In any case, the RSC is structured such that capex is fully reimbursed from Petronas regardless of success rate, and Dialog only bears the financing risk. Once commercial production begins, payment from Petronas will be based on the rate of actual production, and include the agreed return over the project costs. Management has guided average project IRR rates of 15-16%.

 

Corporate Highlights

 

IOI Corp: Terminates acquisition of land in Sabah                                   Market Perform

News Update

¨       IOIC has issued a notice to Pertama Land & Development (subsidiary of Dutaland) to terminate the SPA to acquire Dutaland's 11,978ha of plantation land in Sabah due to non-compliance of certain terms and conditions which had been communicated to Pertama Land. Under the provision of the SPA the rights and obligations of the parties shall lapse and be of no further effect from the date of termination notice. IOIC expects, within a period of 7 days from the notice of termination, to receive a refund of the deposit of RM83m, or 10% of the purchase consideration of RM830m. Recall IOIC entered into the SPA end-Jul.

 

UEM Land: Ascott in Iskandar                                           Underperform

News Update

¨       UEM Land announced that its 50:50 JV company with UM Land – Nusajaya Consolidated S/B has entered into two agreements with The Ascott Limited (under Capitaland) for the latter to provide technical advisory services as well as manage and operate 204 units of service residences to be known as "Somerset Puteri Harbour" in Nusajaya upon its expected completion. We believe the strategic tie-up is via UM Land as Capitaland has a 21% stake in the company. This new Somerset will be Ascott first presence in Johor.

 

Axis REIT: New acquisition in Penang                              Market Perform

News Update

¨       Announced a proposed acquisition and leaseback of a 3-storey office block and a logistic warehouse complex in Bayan Lepas, Penang from DHL Properties (M) S/B. The property is located within the Bayan Lepas Industrial Park and has a gross floor area (GFA) of approximately 231,940 sqft. Total purchase consideration for the property is RM48.5m. With the inclusion of the property, total assets of Axis REIT will increase to around RM1.4bn. 

 

MAHB: 9MFY12/11 net profit grows 44% yoy                  Outperform

3QFY11 Results / Briefing Note

¨     9MFY11 net profit came within our expectations at 75.4% of our full-year forecast. Under normal circumstances, the results should have been considered above expectations due to the bumper quarter in 4Q on the back of the peak period for air travelling during the end of the year. However, for the coming 4QFY12/11, we expect bumper earnings from MAHB's core operation to be offset by widened share of losses from its overseas venture Sabiha-Gocken International Airport in Turkey due to weak passenger traffic on the back of the lingering EU debt crisis.

IOI Corporation Terminates RM830m Land Deal (HLIB Research)

News

• IOI issued a notice to Pertama Land & Development Sdn Bhd (a unit of DutaLand Bhd) to terminate the sale and purchase agreement (SPA) to acquire 11,977.9ha of oil palm plantation land in Sabah for RM830m, due to “noncompliance of certain terms and conditions which had been communicated to Pertama Land”.
• According to IOI’s announcement, OSK Trustees Bhd (the stakeholder of DutaLand Bhd) will have to refund IOI the RM83m deposit (10% of the purchase price) and interest accrued.
• However, DutaLand, on the other hand, said it does not accept IOI’s reasons for termination of the SPA, and it has notified OSK Trustees not to remit the deposit paid by IOI.
• Recall, IOI had on 28 Jul 11 proposed to acquire 11,977.9ha of oil palm plantation land (consisting of 5 estates that are planted with oil palm) in Labuk and Sugut, Sabah for RM830m.

Financial impact Worst case scenario, assuming IOI’s 10% down payment is not refundable, the interest income forgone arising from the loss of deposit would reduce IOI’s FY06/12 net profit by 0.1%. However, it is still premature to determine if IOI will lose its deposit given the absence of further details in the announcement.
Pros / Cons

• We are slightly negative on the latest development, as we had earlier expected the acquisition to improve IOI’s FFB yield and output growth over the longer term.
• Also, we note that this is the second time IOI walking away from such deal (first time being IOI aborted plan to acquire Menara Citibank in Nov 2008) and this may hurt its share price sentiment arising from the potential loss of deposit.

Risks Downside risks:

1. Global vegetable oil (including CPO) production comes in higher than expected, resulting in lower-than-expected CPO prices
2. Demand rationing by certain oil consuming countries (such as India) when vegetable oil prices skyrocket to certain level
3. Recent developments may give rise to reputation risk.

Forecasts Maintained for now, pending further update from management.
Rating HOLD Negatives – Perception to reputational risk (arising from the RSPO suspension) that would result in valuation multiple compression.
Positives – Strong balance sheet.
Valuation Target Price (based on SOP) maintained at RM4.57 for now, and our Hold recommendation for IOI maintained.

News extracted from Hong Leong Investment Bank Research

HLIB Research 25 October 2011 (DIGI; GenM; Traders Brief)

DiGi.Com (HOLD)

3Q11 Results

§  9M11 reported net profit of RM860.2m came in within expectation, accounting for 76.8% of our full-year forecast and 74.2% of consensus.

§  DiGi reported a revenue of RM1,520m (+12.5% yoy, +3.5% qoq), EBITDA of RM708m (+19.2% yoy, +5.4% qoq), PAT of RM292.4m (+1.1% yoy, 23.7% qoq).

§  Declared 3^rd interim tax exempt dividend of 37.0 sen, translating to a payout ratio of ~100%.

§  Strong net adds pushing total base towards 10m. DiGi recorded total net adds of 327k comprising of 40k postpaid and 287 prepaid subscribers.

§  Data: Accounted for ~30% of overall revenue mainly driven by increasing smartphone penetration, whereby 18% of DiGi subscribers are smartphone users. DiGi also shared that 40% of handset sales are smartphones.

§  DDM-derived TP is tuned down to RM31.70 from RM32.03 (based on WACC of 6% and TG of 0%).

 

§  Genting Malaysia (BUY çè)

§  GenM has entered into two sale and purchase agreements with (1) Sedby Ltd and Geremi Ltd to acquire 100% of E-Genting for a cash consideration of RM48m; and (2) Sedby for 100% Ascend International for a cash consideration of RM2m, financed by internally-generated funds.

§  The acquisition of E-Genting is valued at ~5x to E-Genting's earnings and ~2x to its net assets, which we believe is fair.

§  With the acquisition, GenM will be able to enjoy cost savings as opportunity cost of RM1.5m (RM50m at 3% FD rate) would be more than compensated albeit marginal (<0.5%) impact on earnings.

§  Forecasts remained unchanged. Maintain BUY with target price of RM4.07 based on SOP valuation.

 

Positive cues from external markets

§  Technically, more bullish tone from the external markets is likely to drive FBM KLCI higher towards our envisaged near term resistance targets of 1474 (upper Bollinger band). We expect more profit taking at this level before retesting the next resistance at 1495 (20-w SMA).

§  Immediate pullback support levels are 1436 (50-d SMA), 1410 (30-d SMA) and the 1400 psychological levels.

 

HSL: Poised for a further breakout

§  Based on daily chart, the rising trend and momentum indicators coupled with +DMI suggest HSL could stage a meaningful breakout above the downtrend channel to retest RM1.38 (50-d SMA), followed by RM1.44 (30-d SMA) and RM1.52 (100-d SMA). Significant resistance is RM1.65 (200-d SMA). The optimism is supported by a bottoming weekly chart as weekly RSI, slow stochastic and MACD technical readings are on the mend. Accumulate now but stop loss below RM1.18.