Weak Q4 seen for Lafarge


By CIMB Research

Neutral (Maintain)

Target Price: RM9.83

WE cut earning per share (EPS) forecasts to reflect the fourth quarter of 2012 blip, lowering our target price which continues to be based on 2.4xprice per book vakue (P/BV), a 10% premium to Lafarge's one-year average. Price distortions from a new player and temporary slowdown in cement demand are key concerns. The stock is maintained as neutral, a sustainable dividend from the net cash position is the sole attraction.

Lafarge's results briefing last Friday was attended by over 15 analysts and fund managers. Management was represented by president and CEO Bradley Mulroney and CFO Chen Then Aik. Domestic demand was strong over the past three quarters.

However, the fourth quarter is likely to be weak as demand has been impacted by the rainy season. Although the commissioning of Hume's 1.5 million per tonne per annum capacity is not expected to adversely hurt Lafarge's industry position, there is likely to be pricing pressure.

Lafarge's recent hike in list prices (gross selling price) in Aug 12 will not immediately boost margins in view of the rebates and bulk discounts. Operating costs over the next four quarters are expected to be stable, unless Tenaga Nasional Bhd hikes electricity tariffs, which is reviewed every six months.

A potentially weaker fourth quarter was a negative surprise. We had earlier expected the hike in prices to be the key driver in the second half of 2012, and underestimated the impact of the weather patterns on cement demand.

However, this is likely to be partially offset by stronger interest income given the group's net cash position. The earnings kicker from the My Rapid Transit (MRT) would only flow through once the tunnel lining work commences.

Local cement demand outlook remains positive. The 4% growth in 2012 is likely to be repeated in 2013, thanks to Economic Transformation Programme jobs. The group intends to maintain its high dividend payout ratio, backed by its net cash position as at the third quarter. Dividend yield stood at 3.6%. We see this as the sole attraction to the stock.


By Kenanga Research

Market Perform (Maintain)

Target Price: RM2.80

THE first nine months of 2012 results came in below expectations. The 9-month core net profit of RM182mil only accounted for 52% and 46% of ours and the consensus' financial year 2012 full-year forecasts. The lower than expected earnings were mainly due to higher expectation of the earnings contribution from the Gamuda-MMC joint venture (JV) this year, which now looks like it will only make a more meaningful contribution next year.

As expected, no dividend was declared. The year-on-year in the 9-month core net profit of RM182mil increased by 62% despite a lower revenue growth of 8%. This was mainly due to the strong contribution from its energy division, that is, Malakoff due to a higher energy volume despatch during the year but this was mitigated by a lower revenue contribution from Gas Malaysia.

Quarter-on-quarter, the third quarter of 2012 revenue and core net profit fell 18% and 34% respectively. This was due to the higher operating cost for its port's operation and lower revenue contribution from its transport division. To recap, MMC recorded a RM750mil gain from the disposal of Gas Malaysia upon its listing in second quarter of 2012. However, note that this is excluded from our core net profit computation.

We have toned down our 2012 earnings by 23% as we pushed the earnings contribution from Gamuda-MMC JV to 2013.

We are maintaining our Market Perform recommendation despite the positive news flows expected in 2013 as the coming general election could raise the sentiment risk on the stock. We are maintaining our fair value at RM2.80 based on some-of-parts valuation.

Delays in the construction of MRT works and the late delivery of MRT's tunnel boring machine.

Telekom Malaysia Bhd

By MIDF Research

Buy (Maintain)

Target Price: RM6.75

TELEKOM Malaysia (TM) registered a nine-month net profit of RM928.3mil, which was within our expectation arriving at 75.1% of our full-year forecast. However, it had beaten consensus' estimate.

The 9-month financial year 2012 earnings growth of 47.9% year-on-year for TM was due to the tax incentives relating to the high speed broadband (HSBB), deferred tax credit and forex gains rising from 4% appreciation of ringgit vs US dollar.

Focusing just on operational issue and discounting the tax incentives and forex impact, TM still posted strong growth. Profit after tax and minority interest for the nine months rose 50.1% year-on-year, while we estimated that the normalised net profit grew 44.4% year-on-year.

The strong growth was due to robust revenue expansion which outpaced the increased in operating cost.

Earnings before interest, taxes, depreciation, and amortisation (EBITDA) in the third quarter of 2012 declined 7.5% year-on-year to RM751.5mil due to higher operating cost arising from higher international outpayment, universal service provision and content cost. This resulted in muted growth for the 9-month EBITDA, expanding 1.8% (yoy) to RM2.33bil. However, cost was efficiently controlled as cost as percentage of revenue was 89.1% for the nine months vs 89.7% the previous year. EBITDA margin was 32.5%.

TM posted revenue of RM7.18bil for the period, a robust 7.2% year-on-year growth. As expected, it was led by internet revenue which increased 19.6% year-on-year to RM1.75bil, driven by UniFi, its HSBB. Data and other segment went up by 6.2% year-on-year and 12.7% year-on-year to RM1.56bil and RM1.08bil respectively. Voice revenue was flat at -0.6% year-on-year to RM2.80bil due to the performance in the third quarter. Voice revenue in the third quarter declined 4.3% quarter-on-quarter and 4.4% year-on-year to RM905mil due to enterprise and SME segment affected by the festivities.

We like the fact that arpu in the third quarter remains stable for TM's traditional services, fixed and Streamyx, at RM34 and RM79. UniFi arpu declined slightly by RM4 to RM180 from the third quarter 2011 but this is understandable due to increased number of users. Nevertheless, arpu for UniFi was supported by customers subscribing to premium channels and video-on-demand via its IPTV offerings which totalled 15% of its customer base.

We expect that TM will continue its good performance in 2013. As it is, HSBB has yet to reach a saturation point. While competition is increasing in the high speed broadband space, TM is the owner of the fibre infrastructure. Hence, TM is a “winner” either way regardless of the service provider as telcos offering HSBB will have to lease the capacity from TM. This is evident by its indifference to the pricing strategy adopted by its rivals. TM will be introducing a loyalty program for early adopters of UniFi, which we believe will limit the churn for Unifi.

We are maintaining our 2012 and 2013 earnings forecasts as the third quarter earning was in-line with our expectation.

We believe that current share price does not fully reflect the growth potential of UniFi. Hence, we reiterate our Buy recommendation. Our target price of RM6.75 is based on the dividend discount model.

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