PBB earnings within consensus


  • Business
  • Friday, 20 Apr 2012

Public Bank Bhd

By OSK Investment Research

Neutral

Target price: RM14.40

PUBLIC Bank’s annualised earnings for its first quarter ended March 31, 2012 (Q1 2012) earnings was in line with both consensus and our full-year estimates with first quarter numbers representing 24.8% of our full-year earnings.

The first quarter, which reflected the maiden adoption of Malaysian Financial Reporting Standards (MFRS) 139, grew 6.4% year-on-year largely due to lower provisions from loan recoveries and lower collective assessment provisions following the slower loans growth.

The 6.4% earnings growth already incorporates a comparable restatement of Q1 2011’s provisions on full MFRS139 adoption that resulted in lower collective assessment from 1.5% to 0.8%.

The adoption of MFRS139 will have the effect of releasing RM859mil in excess collective assessment into retained earnings which will, in turn, boost the group’s core equity capital ratio by 0.5% to 8.1% by end-2012.

Although the entire writeback amount of RM859mil is distributable as dividends, contrary to earlier concerns that Bank Negara may insist on a writeback to non-distributable regulatory reserve, we believe that this one-off writeback is still unlikely to prompt an upward re-rating in recurring dividend payouts as the group still needs to conserve capital for (i) Basel 3 counter-cyclical buffers of up to 2.5%, raising the total core equity capital requirement to 9.5% by 2015; and (ii) the group’s intention to maintain its current low-teens growth rates.

As such, the writeback of its excess collective allowance into core equity tier-1 capital is certainly positive in removing some initial overhang of a potential equity capital raising exercise.

However, because the one-off boost of only 0.5 percentage points is not sufficient to raise the group’s core equity capital ratios comfortably above the 9% level to meet Basel 3’s additional counter cyclical buffer requirement of up to 2.5%, we believe that the group is likely to retain its existing 50% dividend payout ratio with minimal upside expected.

Q1 2012 gross loans rose at an annualised pace of 9.5%, which is lower than our projected 12% and management’s guidance of 12% to 13%, largely owing to a 5.8% contraction in overseas loans which dragged down domestic annualised loans growth of 12.4%.

Within the domestic loans portfolio, hire purchase was the key drag as it grew 7.2% year-on-year on an annualised basis, while residential and non-residential property loans growth remained robust at 16.4% and 24.2% respectively versus 2011’s 17.6% and 16.5%.

The loan-to-deposit ratio improved to 87% from 87.8% given the moderation in overall loans growth versus stronger traction in core deposit growth of 16.5% that was driven largely by fixed deposit’s growth of 22.6%. Reflecting the overall industry trend, current account savings account growth remains a challenge as it registered a growth of just 5.5%.

Malaysia Airports Holdings Bhd (MAHB)

By Maybank Invesment Bank Research

Buy

Target price: RM7.10

MAHB’s February 2012 passenger traffic growth of 2.3% year-on-year is a good performance. We had expected flat year-on-year growth given the fact that Chinese New Year (CNY) was earlier this year in January (versus February last year) and MAS has implemented its 10% capacity cuts.

Cargo traffic has also shown signs of life with growth of 10.4% year-on-year which under performed regional performance by a significant margin. It is too early to call for a structural recovery for the cargo markets as it could be a once-off restocking exercise post CNY.

KLIA’s traffic grew by 4.1% year-on-year in February 2012. This trails regional peers namely Changi (+11.2% year-on-year), Bangkok (+15.4%) and Dubai (+19.1%). We expect this relatively slower growth to continue for the remainder of 2012 due to MAS’ business restructuring, such as capacity cut.

We expect the relative performance to be similar for the upcoming March month. Note that March 2011 was bogged down by the Japanese earthquakes and tsunami; therefore the year on year comparison will be distorted.

We are optimistic with MAHB despite the industry challenges because it enjoys high utilization rates and strong cash flow. Any traffic growth – no matter how small, will help underpin profit growth and profit margins expansion. MAHB is our top pick for the aviation industry.

Due to MAS’ capacity cut of approximately 10% in February, MAHB’s passenger traffic growth was muted to only 2.3% year-on-year. The year-to-date traffic growth was at 6.7% and we believe this will be the growth rate expected for the year.

Cargo traffic has staged a strong growth of 10.4% year-on-year in February. This could be due to post CNY re-stocking exercise and it is too early to conclude that the downturn of the cargo market has reached a bottom.

QL Resources Bhd

By BIMB Securities Research

Neutral

Target price: RM3.43

We recently visited QL Resources’ pioneer marine plant in Hutan Melintang, Perak and were amazed with the cleanliness and the technology used in processing the surimi and the surimi-based products.

Certified by Jakim, we also acknowledged the products as “halalan toyyiban” with great growth potential judging from the sizeable and growing Muslim population in the global halal market.

As of 2010, there are 1.8 billion Muslims worldwide and this is expected to reach 1.9 billion by 2020.

To recap, QL Resources is currently the biggest producer of surimi, surimi-based products and fish meal manufacturer in Malaysia, with a 50% market share in the surimi segment and 30% each in the surimi-based products and fish meal.

Leveraging on its success and experience in Malaysia, QL Resources is replicating its business model in Indonesia with production capacity of 5,000 tonnes of surimi and fishmeal per year each.

With a capital expenditure of US$10mil, QL Resources is planning to boost its operations by adding its surimi and fishmeal production lines to 10,000 metric tonnes per year and this is expected to commence operations by December 2012.

QL Resources is one the rare few that was not affected by global vagaries. Over the years, its earnings growth went uninterrupted despite the advent of the Asian Financial crisis, SARS and sub-prime crisis.

Apart from marine products manufacturing, key earnings growth catalyst will come from its palm oil activities division when the 20,000 hectare Indonesian plantation reaches maturity and expected to deliver positive contribution in financial year 2013 (ending March 31) and beyond.

The same goes to its poultry farming in Indonesia and Vietnam, where contributions are expected to come onstream by its financial year 2013. Following our recent meeting with the management, we are convinced that QL Resources’ long term prospect remains intact and looking promising.

AUTOMOTIVE SECTOR

By CIMB Research

Overweight

We are upgrading the auto sector from neutral to overweight on the back of our upgrade of UMW Holdings Bhd (which sells Toyota vehicles via unit UMW Toyota Motor Sdn Bhd) from neutral to outperform. While annualised year-to-date sales volume stands at only 88% of our full-year projection, vehicle sales should catch up as supply recovers. DRB-Hicom Bhd is still our top pick in the sector.

Total vehicle sales fell 15% year-on-year to 53,583 units in March. Leading this double-digit contraction was the passenger vehicle segment’s 16% year-on-year decline. Sales of commercial vehicles fell 4% year-on-year.

However, the month-on-month sales comparison showed an encouraging 22% growth, which the Malaysian Automotive Association attributed to positive consumer sentiment, new model launches and a longer working month. Vehicle production rose 6% month-on-month (passenger segment +5%, commercial segment +15%) in March.

Toyota’s sales performance defied industry trends, rising 13% year-on-year (versus the industry’s -15% year-on-year) and 35% month-on-month (compared with the industry’s +22%).

Its market share rose 2% point in March 2012 to 19% while Honda gained 1.5% points to 2%. The market share of the other non-national brands remained largely stable on a month-on-month basis.

But market share slipped by 0.9% points for Proton and 4.5% points for Perodua, possibly due to tighter credit, which has a bigger impact on the price-sensitive national makes.

Annualised year-to-date sales volume stands at 554,176 units, which is only 88% of our full-year total industry volume projection of 628,022 units (+4.7%). But we are retaining our sales volume assumption on the expectation that vehicle sales will continue to recover as supply normalises.

Investors should stay on the sidelines. Fundamentally, vehicle sales are unlikely to be exciting. The sector lacks meaningful near-term re-rating catalysts.

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