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Friday March 23, 2012

IJM Land acquisition ‘reasonable’

IJM LAND BHD

By Affin Investment Bank

Add (maintain)

Target price: RM2.45

IJM Land has entered into a conditional share sale and purchase agreement with Aspirasi Ratna Sdn Bhd to acquire a 50% stake in Nasa Land Sdn Bhd for RM51mil cash.

Nasa Land, which was incorporated in 1998, is the land owner-cum-developer of a mixed development project known as Desa Palma in Mukim Tebrau, Johor with an aggregate undeveloped net land area of 95.8 acres.

The shareholders of Aspirasi Ratna are Tan Sri Tan Hua Choon, Puan Sri Poo Choo, Tan Han Chuan and Tan Ching Ching. We are neutral on the proposed acquisition. In our view, the effective acquisition price of RM24.40 per square foot (psf) is reasonable.

While the proposed acquisition price tag of RM24.40 psf is higher than the RM11 to RM15 psf paid by SP Setia for its Tebrau land acquired in late-2010/early 2011, this is below the RM48 psf paid by Sunway for a 64.6-acre piece of land in Plentong.

Anyway, the discrepancy in prices could also be attributed to the existing infrastructure work done. Besides, we believe the property market sentiment in Johor had improved noticeably in 2011, translating into higher market price for good landbank.

Details on the development plans and potential gross development value are, however, not available at this juncture. We maintain our earnings forecast and “add” rating on IJM Land with an unchanged target price of RM2.45 based on a 25% discount to realisable net asset value.

Relative to other listed peers, we believe IJM Land's property sales will be more resilient given their primary focus on township projects/mass market housing developments and better geographical diversification.

Key projects that may re-rate the share price include the launching of the 1,878-acre Canal City project (target launch in third quarter 2012) and the launch of commercial properties In the Light at end-2012/early-2013.

BERJAYA SPORTS TOTO BHD

By Kenanga Research

Market perform (downgrade)

Target Price: RM4.52

Berjaya Sports Toto Bhd (BToto) reported yet another strong set of results where 2012 fiscal year third quarter (Q3'12) net profit rose 7% quarter-on-quarter (q-o-q) to RM112.7mil, thanks to the luck factor, coupled with solid ticket sales.

This brought its year-to-date nine-month net profit to RM310.5mil, which accounted for 80% and 78% of ours and the street's FY12 full year estimates. The main discrepancy between the actual result and our estimate is due to the 58.85% estimated prize payout ratio (EPPR) reported in the nine-month results versus our assumption of 59.5%.

However, we view the strong Q3'12 ticket sales as in line due to the Chinese New Year effect and the higher draw days.

Although Q3'12 EPPR has increased to 58.8% from 57.9% in the preceding quarter, it is still below the theoretical EPPR of 60%. This is the company's fifth straight quarter of being blessed with the good luck factor since Q3'11 as the EPPR is still below or near to the theoretical level.

As the Q3'12 EPPR was higher q-o-q (versus 57.9%) and year-on-year (versus 56.4%), the Q3'12 operating margin dipped slightly to 18% versus 18.5% in Q2'12 and 20.3% in Q3'11.

The Chinese New Year effect had led to higher average ticket sales per draw in the quarter. The higher draw days of 46 in Q3'12 versus 43 draws each in both Q2'12 and Q3'11 had also boosted Q3'12 total NFO ticket sales by 13% q-o-q and 15% y-o-y respectively.

The Q3'12 average ticket sales per draw of RM22.9mil was 6% q-o-q and 7% y-o-y higher, which we believe was due partly to the 4D jackpot which was launched in June last year.

BToto declared a six sen net dividend per share (8% gross) in Q3'12, down from eight sen net in the preceding quarter. This represents a 70.7% earnings payout, far below the 101% payout in Q2'12.

Year-to-date, it has declared a total of 22 sen net dividend (29.3 sen gross), implying a total dividend payout of 94.5%. As such, our assumption of a 30 sen gross in FY12 is highly likely to be conservative.

In view of the lower-than-expected EPPR reported in the nine-month period, we are upgrading our FY12E estimate by 3%. While we have lowered FY12 EPPR to 59% from 59.5%, we do expect lower ticket sales in Q4'12 as sales normalise from the Chinese New Year effect and a lower draw day of 43 versus 46 in Q3'12.

We have also upgraded our FY12 gross dividend per share to 34 sen from 30 sen previously. Nonetheless, we are maintaining our FY13-FY14 estimates for now.

Despite having strong Q3'12 numbers and having upgraded our earnings estimates, we are downgrading our call on BToto back to a market perform from an outperform as it is now fairly priced following the good run in the share price in the past three months.

We continue to like BToto for its sustainable and attractive 7% to 8% gross dividend yield.

AUTO SECTOR

By CIMB Research

Neutral (maintain)

Total vehicle sales in February rose 9% year-on-year (y-o-y) and 7% month-on-month (m-o-m) to 44,013 units, partly aided by a low base as Chinese New Year occurred in February last year and January this year.

However, year-to-date vehicle sales still fell by a disappointing 11%, no thanks to supply shortages from the Thai flood and tighter credit.

The commercial vehicle segment recorded the biggest sales volume growth (+31% y-o-y, +26% m-o-m) in February, which we think was helped by a 36% y-o-y rebound in production (versus +5% y-o-y growth in passenger vehicle production).

Honda was again the worst performer in February with an 85% y-o-y and 29% m-o-m volume plunge. Its market share fell to only 0.8% from 5.6% in February 2011.

Unlike Toyota and Nissan which restarted their Thai plants in November and December last year, Honda's plant in Ayutthaya will only be back in action by the end of this month.

As a result of the persistent production shortfall, Nissan retained its second spot in the non-national car segment with a market share of 5.7% in February, second only to Toyota's 17.2%.

Even Hyundai overtook Honda with a market share of 1.4%. But we expect Honda's sales to ounce back in the second half as production normalises and meets the demand backlog left by last year's disasters.

Perodua and Toyota recorded encouraging double-digit sales volume growth while Nissan disappointed with below-industry sales growth of 3.6% mom (-2.3% y-o-y) in the absence of exciting new model launches in the passenger vehicle segment.

Toyota's market share rose 3.3% to 17.2% in February 2012 from 13.9% in February 2011. More impressive was the 4.7% m-o-m market share gain from just 12.5% in January 2012.

Stronger sales volume was seen across its product line-up with the exception of Innova which registered a 14% m-o-m sales decline. Sales volume for the all-new Avanza, which was rolled out in mid-January, more than tripled to 497 units from 150 units.

Perodua's sales grew by a strong 10% m-o-m and 22% y-o-y despite the absence of new models.

Sales volume for the new Myvi (launched last year) continued to be strong (+30% y-o-y, +4% m-o-m) while sales of Viva (-0.1% y-o-y, +24% m-o-m) and Alza (+45% y-o-y, +12% m-o-m) fared well too.

Annualised year-to-date sales volume stands at 509,766 units, which is 19% below our full-year projection of 628,022 units. But we are retaining our forecast, which implies 4.7% growth as we expect sales to rebound from Q2'12 as supply normalises.

Investors should stay on the sidelines. Though supply shocks are over and inventory levels are expected to normalise by Q2'12, we fail to see meaningful near-term catalysts for the sector.

It is not all smooth sailing for the industry as auto players will still have to grapple with the risk of tighter credit.

There are no changes to our “outperform” call for DRB-Hicom (RM4.60 target price) and “neutral” call for Proton (RM5.50), Tan Chong (RM4.60) and UMW (RM7.20).

We prefer DRB-Hicom for exposure to the auto sector. At eight times forward price-to-earnings, this is a good entry point for exposure to DRB's strategic transformation.

BANKING SECTOR

By Alliance Research

Overweight (maintain)

The central bank of Indonesia, Bank of Indonesia (BOI), recently imposed new lending guidelines requiring banks to set a higher minimum down payment threshold on the mortgage and auto loans.

The central bank published on its website that effective June 15, the minimum down payment threshold for the selective loan segments are mortgages (30%), motorcycles loans (25%), private car loans (30%) and commercial car loans (20%).

Prior to that, the rule of thumb was 20% minimum down payment for mortgages and 10% to 15% for automobile financing. The lower loan-to-value ratio (LTV) is imposed to sustain a healthy credit growth in the targeted loan segments.

This announcement came as a surprise to us. The imposition of higher minimum down payment threshold, which serves as a contrarian credit policy, could send a confusing signal to the market on BOI's policy stance, in our opinion.

This is because the new credit tightening policy is contrary to BOI's earlier expansionary monetary policy, which includes reduction in lending rates.

We believe that the lending activities of Indonesia could potentially spike from now to June 14, given that potential borrowers will take advantage of the time lag involved in the implementation of new lending guidelines to obtain loans, while Indonesian banks may accelerate the loan processing rate.

Thereafter, we anticipate the loan growth momentum in Indonesia to slow in the second half once the new lending guidelines take effect. Even though we believe that the imposition of the new lending guidelines could temper the overall loan growth momentum of Indonesian banks going forward, we do not foresee a significant downside risk to CIMB Group and Maybank's earnings prospects that would warrant an earnings downgrade.

Although CIMB Niaga contributed about 29% of CIMB Group's profit last year, we observe that CIMB Niaga's loan growth in the past few quarters have come below the average industry loan growth.

This is because CIMB Niaga's present focus is on expanding high-margin loan products to defend its net interest margin (NIM), rather than aggressively expanding its loan book. As such, the bank is more resilient towards a slowdown in loan growth momentum.

Furthermore, we gather that customer segments of CIMB Niaga mainly consist of the mid to high-end mass affluent, which are less susceptible to the new lending guidelines.

Although we believe that Bank Internasional Indonesia (BII) is more vulnerable to the new lending guidelines given that the bank's current strategy remains on actively expanding its loan book, we view that BII's contribution to Maybank remains small to warrant any earnings downgrade on Maybank.

To recap, BII contributed about 5% to Maybank's overall profit last year.

We maintain our earnings estimates and recommendation for CIMB Group (trading buy, target price: RM7.80) and Maybank (buy, target price: RM9.15).

We are reviewing our target price of CIMB Group for a potential upgrade, pending its decision on the proposed acquisition of Bank of Commerce expected to be announced by the end of this month. We maintain our “overweight” recommendation on the sector with Hong Leong Bank our top pick for the sector.

Key downside risks to our recommendation on the sector include (1) unexpected drying up of deal flows due to the volatility of the capital market, and (2) lower than expected loans growth, (3) NIM compression.

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