Wednesday, October 12, 2011

HLIB Research 12 October 2011 (Market View; Sunway; Economics; Traders Brief)

Strategy

Positioning For 2012 Post Risk Aversion

§  Slower growth but no double-dip and Euro debt fallout.

§  Post earnings revision 2011 and 2012 EPS growth now 6.8% and 10%, 2012 P/E of 12.8x (1.1SD below 5-yr mean), already largely reflecting earnings risk.

§  However, ST volatility to continue given Euro debt crisis, most indices <200-d SMAs, VIX >30 and looming election.

§  Cut CI end-11 to 1,440 (13x 2012 P/E – 1SD <5-yr mean).  

§  But still LT +ve & intro end-2012 of 1,555 (13x 2013 P/E) given resilient economy, local funds underweighted and ample liquidity will search for returns post risk aversion.

§  Not expecting 08 type of valuations (9.3x P/E = 2.9SD <5-yr mean and earnings yield of 10.8%).

§  Persistent volatility implies short-term defensive.

§  Worst case scenario analysis using Fibonacci Retracement, MYR-FBM KLCI regression and foreign shareholding.    

§  1,280-1,293 (11.6-11.7 P/E or 1.7-1.8SD <5-yr mean & 8.6-8.7% earnings yield) good levels to turn more aggressive post risk aversion and focus on bombed out fundamental stocks that have high liquidity and Beta.

§  Use 6-mth Beta to project potential prices of top 100 stocks if FBM KLCI hit 1,293, high predictability vs. recent lows. 

§  Chosen 10 based on Beta >1.5, decent fundamentals and high institution following and avg 3-mth vol >5m.

 

Sunway (BUY)

Double bagger

§  Sunway has been awarded an RM308.9m contract for the construction of Pinewood Iskandar Malaysia Studios and at the same time won a 99-year land lease tender from the Urban Redevelopment Authority of Singapore (URA) for the development of Jalan Loyang Besar/Pasir Ris Rise (known as Parcel 826) for S$140.96m (~RM345m).

§  The Iskandar Studio award brings the Group's outstanding order book to ~RM2.7bn, translating to 2.5x FY10's revenue. The latest order also implies a stronger presence in the Iskandar region, hence Sunway may potentially benefit from future developments in this corridor.

§  The latest Singapore land award has a GFA of 17,274.2 sq m, with a maximum GFA of 36,276 sq m (plot ratio of 2.1x). This translates to a land acquisition cost of S$3,886/sq m. The development is for ~355 condominium units and has a minimum potential GDV of S$375m.

§  We maintain our BUY call on Sunway with a TP of RM3.12 based on SOP valuation.

 

Malaysia: Revisiting Economic Outlook

§  We are trimming our 2011 GDP growth forecast to 4.6% from 4.8% reflecting supply and implementation timing issue (mining and construction) as well as gloomier global demand for E&E products (manufacturing). 

§  For 2012, we are still confident that growth will remain stable at 4.5% as the bunching of construction projects and resilient private consumption are expected to cushion softer manufacturing performance.

§  On trade, there has been structural change that ASEAN, China and India now collectively account for 41.8% of Malaysia's exports. The share of US, Europe and Japan has declined to 29% from a peak of 39% in 2006.

§  Inflation is expected to ease slowly to 3.2% in 2011 and 3% in 2012, but bi-annual subsidy removals and new salary scheme for civil servants & pensioners will cause it to stay at an elevated level.

§  We see BNM holding the OPR steady at 3.00% until end-2012 as the policymaker focuses on growth agenda given the recent external developments while inflation is on moderation trend.

§  We expect short-term volatility in MYR but long-term appreciation is still intact. Our forecasts are RM3.10/US$ by end-2011 and RM3.00/US$ by end-2012.

 

Performance of IPI (Aug 2011)

§  IPI expanded by 3.0% yoy in Aug (Jul: -0.5% yoy), better than street estimate of +0.4% on the back of stronger manufacturing (+4.8% yoy; Jul: +1.7% yoy) and slower decline in mining output (-1.4% yoy; Jul: -7.5% yoy). 

§  Subdued E&E output (-5.7% yoy) continued to drag down IPI growth. Motor vehicle output turned positive (+5.1% yoy) as Japan and new HP act disruption eased. Mining output declined at a slower pace as Petronas maintenance shutdown improved further.

§  Our estimate shows that 3Q GDP had expanded by 4.5% yoy (2Q: +4.0%). For 2H, we still expect higher GDP growth of 4.7% on the back of resilient consumer spending and improvement in mining output.

§  We see BNM holding the OPR steady at 3.00% until end-2012 as the policymaker focuses on growth agenda given the recent external developments while inflation is on moderation trend.

 

More sideways consolidation ahead

§  While momentum and trend indicators remain positive, higher trading volume (preferably one billion shares/day) is crucial to sustain further gains within the upward channel. Upside targets are 1420-1434 whilst supports are near 1385-1393.

 

MPHB: Upside target at RM2.66-2.71  

§  Based on daily chart, the rising RSI and MACD suggest further upside potential in the short term to retest RM2.54 (30-d SMA), RM2.66 (upper Bollinger band) and RM2.71 (76.4% FR) levels.

§  Supports are RM2.22-2.39.

§  Buy on weakness but cut loss below RM2.33.

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