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Thursday January 17, 2013
UMW HOLDINGS BHD
By Maybank IB Research
Hold (from buy)
Target price: RM12.70
PERUSAHAAN Otomobil Kedua Sdn Bhd (Perodua) reported record sales of 189,000 units, an additional 5% year-on-year in 2012, beating our forecast of 184,000 units.
This is positive news for its 38% and 23.6% stakeholders MBM Resources Bhd (MBMR) and UMW Holdings Bhd (UMW), respectively.
The numbers mean that Perodua retains its top position in the Malaysian motor market for the seventh consecutive year, capturing an estimated 30% share of 2012 total industry volume (TIV).
UMW is, however, now a “hold” following its impressive share price performance.
We continue to peg the stock to 13 times financial year 2014 (FY14) price-earnings ratio (PER) for a target price of RM12. We maintain “buy” on MBM and target price of RM4.05 (nine times of FY13 PER).
Expansion is in place with Perodua's announcement of its RM2.3bil capital expenditure (capex) plan over the next four years, which includes a second manufacturing plant with a capacity of 100,000 units per annum costing RM790mil.
While total exports are still small at 10,000 units in 2012, Perodua aims to double it by 2015.
As for this year, Perodua has set a conservative vehicle sales target of 194,000, increasing by 3% year-on-year, supported by gross domestic product growth of 4.8% (our in-house projection) which is achievable, in our view.
Also, Perodua will utilise the rest of its capex to boost the efficiency of its core manufacturing, distribution and after-sales service businesses, which would enable it to compete in a fully liberalised market post 2016.
While the expansion is a long-term positive for Perodua and its stakeholders, we maintain our current forecasts for UMW and MBMR pending further clarification from their managements.
We think that Perodua's aggressive capex plan, which is to be funded internally, may compromise dividend payments to its stakeholders.
Following its impressive share price performance backed by strong earnings, UMW is trading slightly above its five-year historical average PER of 13 times. At current valuations, UMW's risk to reward ratio is no longer compelling.
There are possible selldowns due to uncertainties related to its high foreign shareholding of 25% (as at September 2012) as the general election draws near, as well as slower sales of the Vios (which contributes to 30% of UMW Toyota's sales) due to intensified competition following the launch of the Nissan Almera last year.
ASTRO MALAYSIA HOLDINGS BHD
By Alliance Research
WE initiate coverage on Astro Malaysia Holdings Bhd with a discounted cash flow-derived target price weighted average cost of capital (WACC) 8.8%, TG 1% of RM3.05.
This implies a fiscal year (financial year 2014) (FY14) enterprise value/earnings before interest, tax, depreciation and amortisation (EV/EBITDA) valuation of 11.1 times, which we believe is not excessive given its dominant market share in the pay TV industry and still decent growth prospects, notwithstanding that earnings are setback temporarily in the near term due to swapping of set-up-boxes.
Given limited upside to our target price, we initiate coverage with a “neutral” recommendation.
There is still headroom for subscriber growth as many Malay households are experiencing strong income growth.
This is favourable as these households remain fairly under-penetrated for Astro compared with households of other ethnicities. We also expect households to continue to grow healthily, which should lead to potential new demand for Astro services.
Through its free satellite TV service NJOI, we believe that Astro hopes to tap into the remaining 30% of low-income households that cannot afford pay TV services.
Our discounted cash flow-derived target price for Astro is RM3.05 based on WACC of 8.8% and terminal growth of 1%.
This implies a FY14 EV/EBITDA valuation of 11.1 times, which we believe is not excessive given its dominant market share in the pay-TV industry and still decent growth prospects despite earnings facing a temporary setback in the near term.
However, given the limited upside to our target price, we initiate coverage on Astro with a “neutral” recommendation.
EVERSENDAI CORP BHD
By Kenanga Research
Target price: RM1.44
EVERSENDAI Corp Bhd announced that it had secured a sub-contract worth RM365mil to carry out structural steel works for the piers and gatehouses (Packages 2 + 4) of the Abu Dhabi International Airport Midfield Terminal Building.
We are positive on this announcement as the contract is considered significant to our order book replenishment expectation for the financial year ending Dec 31, 2013 (FY13) at circa RM1.7bil.
The new contract gives another strong evidence of Eversendai's firm presence in the Middle East construction sector. While management is also actively looking at India and Gulf Cooperation Countries (GCC) market, we believe that the company will continue to secure projects from the Middle East this year.
Eversendai secured circa RM900mil worth of contracts in 2012, which was above our expectations. With this new contract secured, its order book now stands at RM1.8bil, which could last it another two to three years.
Moving forward, we expect the group investment in Singapore-listed Technics Oil and Gas Ltd to bear fruit in the medium term as we believe that the management could venture into the oil and gas sector to complement its steel fabrication business. Technics will be a strong candidate for Eversendai to venture into the oil and gas industry as the latter can leverage on Technics' established track record and its own existing capacity.
To date, Eversendai has an equity holding of 13.9% in Technics. There is no changes to our earnings forecasts. We have upgraded our recommendation from a market “perform” to an “outperform” as the price has slipped recently and now offers a 16% upside to our unchanged target price of RM1.44. We are maintaining our target price based on an unchanged 8 times price-to-earnings ratio on the FY13 earnings per share.
The risks include escalating raw material costs and delays in construction projects. KLCC PROPERTY HOLDINGS BHD
By RHB Research
Market perform (maintain)
Target price: RM6.56
WE were slightly disappointed with the proposed stapled structure of KLCC Property Holdings Bhd (KLCCP), as the potential tax benefit and dividend stream are not being maximised as compared with a full-fledged real estate investment trust (REIT).
However, KLCCP Stapled does offer an additional property development or non-REIT segment that a typical REIT does not have. Another office tower potentially with a net lettable area (NLA) of almost 1 million sq ft will be constructed on the 1.4-acre Lot D1 land in the near future.
We believe the stapled structure is the resultant of the reluctance of CB Richard Ellis CBRE) letting go Suria KLCC, which is the crown jewel of the whole asset portfolio. CBRE global investors has taken over the 40% ownership of Suria since its acquisition of ING real estate arm at end-2011.
The risks include slow pick-up in office demand and rising competition from office space supply as well as decentralisation effect to move to between Bangsar, Damansara and Petaling Jaya area.
We revise our financial year ending Dec 31, 2013 (FY13) and FY14 earnings forecasts to incorporate the impact of the proposed stapled REIT exercise.
We revisit our valuations on KLCCP. Our fair value is revised to RM6.56 from RM5.92, based on sum-of-parts valuations to take into account both the dividend stream and the value of Lot D1 land.
At the current share price, we believe the prospects are largely priced in with a gross yield of 3.4% for FY013. Hence, we maintain our “market perform” recommendation.
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