Mah Sing set to hit RM3b sales target

Mah Sing Group Bhd

By RHB Equity Research

Rating: Neutral

Target Price: RM2.11

MAH Sing's fourth-quarter 2012 net profit of RM55.4mil came in within ours and the market's expectations. Projects from the Klang Valley, Penang and Johor Bahru have all contributed to the company's earnings.

Full-year earnings grew 36.8% on the back of a 13% increase in the topline. Overall earnings before interest and taxes (EBIT) margin improved to 17.3% from 14.7%.

Net gearing fell to 25.5% from 30% in the last quarter.

Meanwhile, accounts payable surged substantially to RM1.3bil from RM736mil, largely attributed to the outstanding payment for the Bangi land (about RM300mil) as well as the Medini land on a staggered basis.

A 7.6 sen dividend (0.4 sen taxable dividends per share plus 7.2 sen single-tier dividend) was declared.

This was lower than last year's 11 sen, as financial year's 2012's (FY12) dividend takes into account the impact of the enlarged share base subsequent to the rights and bonus issue, and payment date will be in September this year.

Mah Sing achieved RM2.503bil property sales in FY12. This is a 10.6% growth from FY12's sales of RM2.26bil. A bulk of the sales came from Kinrara Residence, Clover @ Garden Residence, M City, Southbay City, and M Residence 1.

The RM3bil sales target is likely to be hit, on the back of RM3.7bil of launches this year.

The projects that will be rolled out include Southville City, M Residence 2, Ferringhi Residence, iParc@Tanjung Pelepas, The Meridin@Medini, and Sutera Avenue in Kota Kinabalu.

Projects in Iskandar (iParc and Meridin) will gain significant interest as the area is now capturing sales from Singaporeans, after various rounds of property tightening measures in Singapore.

The indicative pricing for Meridin Suites of RM580 per sq ft (starting price) is in line or just slightly below the current price going at WCT's 1Medini.

Ferringhi Residence (20 five-storey blocks with two units per floor) has seen a take-up of more than 80% since the release of the initial six blocks.

As for Southville, it has received over 8,000 registrants.

The Savanna suites will be put into the market in mid-2013, with prices from RM280,000 (or about RM290 per sq ft) for a three-bedroom 975 sq feet unit.

Our revised fair value of RM2.11, a 20% discount to revised net asset values, reflect only the impact of the rights issue (entitlement date was Feb 25 and closing date of acceptance of rights is March 12), as the entitlement date of the bonus issue will be after the completion of the rights issue, sometime in the second quarter.

We maintain our “neutral” rating on Mah Sing. Strategic landbanking at reasonable price could be the re-rating catalyst for the stock.

Tan Chong Motor Holdings Bhd (TCM)

By Maybank Investment Bank

Rating: Buy

Target Price: RM5.90

TAN Chong's financials are in line with our forecast, but below street's. As expected, strong Almera sales lifted TCM's financial year 2012 (FY12) net profit to RM158mil, accounting for 95% of ours and 92% of consensus' full-year forecasts.

Going forward, we lift our FY13-14 vehicle sales assumption to 58,000 (+9%) and 60,000 (+3%) units respectively to account for higher Almera sales.

Concurrently, we also shave our auto earnings before interest, taxes, depreciation and amortisation (EBITDA) margins by 0.6 percentage points (ppt) to account for higher advertising and promotion expenses.

These translated to a 1% shave in our 2013 earnings estimate. Reiterate “buy” with an unchanged target price of RM5.90 pegged at 11 times 2014 earnings per share.

Solid fourth-quarter 2012's net profit of RM48mil was underpinned by stronger vehicle sales, and the expansion in EBITDA margins.

Interest expenses rose in 2012 as TCM's short-term borrowings increased to accommodate its inventory stock-up in anticipation of stronger sales.

Barring all unforeseen circumstances, this marks the beginning of stronger profits as TCM continues to record healthy bookings for the highly demanded B-segment Almera.

On the back of strong bookings for the Almera (18,000 units booked in the three months since its launch), we raise our Almera sales assumption to 2,500 units per month (from 2,000 units per month previously), lifting our 2013-2014 vehicles sales forecasts to 58,000 and 60,000 units respectively.

Since its launch, TCM has delivered 9,000 units of Almera as of end-January. Recall that Nissan's total industry volumes jumped to 5,600 units in January.

Despite a bigger net loss of RM11.2mil in Nissan's Vietnam (NVL) operation, we are positive that TCM will post stronger profits in 2013 following the introduction of Almera into the market.

Also, with the higher demand, TCM will be able to enjoy economies of scale from increasing its production.

Our revised earnings forecasts for TCM implies a three-year forward net profit compounded annual growth rate of 53%.

The stock is trading at 9.6 times FY14 EPS currently, while TCM's valuation is undemanding relative to its robust near-term growth prospects. We reiterate our “buy” call.

Telekom Malaysia Bhd (TM)

By CIMB Research

Ratings: Neutral

Target Price: RM5.70

TM declared a final DPS of 12.2 sen to total 22 sen for the financial year 2012 (FY12) or 90% payout, consistent with its policy and above our estimates of 20 sen.

We will cut our FY13-14 EPS by 3%-9% to reflect operating expenditures pressure and reduce our discounted cashflows (DCFs)-based target price (base on the weighted average capital cost of 8.9%) by 7% to factor in its subdued key performance indicators (KPIs).

TM remains a “neutral” as it faces rising competition. TM's fourth quarter and 2012's core net profits were bolstered by the booking of revenues from expanding the Malaysian Emergency Response System 999, and the sale of land.

Excluding these items, TM's operational performance was broadly within our estimates.

Internet/broadband and data revenues saw robust growth as TM added 56,000 Unifi users in the fourth quarter, while churns at Streamyx service declined.

Unifi's average revenue per user rose 1% quarter on quarter (q-o-q) as more users signed up for premium pay TV content.

However, operating expenditure pressures are emerging: in the labour segment increments. Maintenance costs rose as warranties on the high speed broadband networks expire.

TM issued its FY13 KPI, which calls for growth of 6% for revenue (FY12: 9.9%) and 3% for EBIT (FY12: 22%). This is due to operating expenditures and depreciations. Its FY15 KPI calls for revenue to grow 6% and EBIT 8%.

During its 2012 conference call, Maxis said it is confident of securing 33%-55% of net additions in 2013 through its collaboration with Astro, up sharply from 14% in the second half of 2012.

Riding on TM's HSBB network, Maxis and Astro are partnering to offer bundled pay TV, fixed and mobile broadband, and fixed voice service. They will launch their service at the end of the first quarter of FY13.

Meanwhile, TM held its quarterly conference call, hosted by its CEO Datuk Seri Zamzamzairani Mohd Isa and the chief financial officer Datuk Bazlan Osman.

Questions mainly centred on its KPIs for FY13 and FY15, competition and the tax benefits that were booked in its FY12 net profit.

We believe operating expenditure pressures will continue to rise on the back of labour segment, among other things.

With 6% of its employees reaching 55 years of age and 20% above the age of 50, it will come under greater pressures as the statutory retirement age is raised to 60 from 55.

Moreover, TM does not plan to apply to the Government to defer implementation of this retirement age to the end of this year.

It currently has no plans to undertake a retrenchment programme to address its bloated workforce, but instead plans to redeploy employees to other functions.

TM kept it plans to counter rising competition close to its chest. We believe it will raise its broadband speeds to match similar-priced plans of its rivals.

TM did not reveal its target for its high-speed broadband services rollout beyond the government-mandated 1.34 million premises. Its network passed 1.377 million premises at end-2012.

DRB-Hicom Bhd

By HwandDBS Vicker's Research

Rating: Buy

Target Price: RM2.56

DRB-HICOM Bhd (DRB) reported third-quarter financial year 2013's (FY13) net profit of RM392mil, taking nine months FY13 net profit to RM505mil. This included RM413mil gain from the sale of Hicom Power to Malakoff.

Stripping this out, core earnings were generally short of expectation because of RM89mil losses at the motor division (due to Proton) and lower-than-expected earnings from Honda due to year-end offers.

But motor segment earnings will improve, led by the restructuring of Proton's distribution business and an effective turnaround plan.

The services division picked up with EBIT improving 20% quarter-on-quarter and 76% year on year (y-o-y) to RM146mil led by improvements at Bank Muamalat and Alam Flora.

We raised FY13 forecast (F) headline net profit after imputing the one-off gain, but cut FY14-FY15F earnings by 5%-6% on more modest earnings from Proton and Honda.

DRB is reportedly in talks with Audi to start production of completely-knocked-down models.

We had highlighted this possibility earlier, and it makes perfect sense given the long waiting list for Audi vehicles and growing acceptance of the marque.

Audi Malaysia sold 1,414 units in 2012, and is targeting to 2,500 unit sales this year with the launch of the A6 Hybrid, A1 Sportback and A5 Sportback.

We recommend a “buy” call with a lowered target price to RM3.60. We continue to like DRB because it is a growing Malaysian conglomerate with hands on entrepreneurial management.

This is evident in Pos Malaysia's strong results (our “buy” call and target price of RM4.60).

A near-term catalyst could be the award of contracts during the LIMA show in late March.

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