By Kenanga Research
Target price: RM1.96
WE went on a site visit to Cambodia last week to look at Pestech's major projects there a 98km transmission line from North Phnom Pehn (NPP) to Kampong Cham and NPP substation.
This visit was beneficial and has helped us to better understand Pestech's business in the country.
The two projects are ahead of their schedules with the transmission line ahead by eight months (completing in May 2013) and the NPP substation by one month (completed in March 2012).
During our visit, we met up with state-owned power utility player, Electricite Du Cambodge.
We understand that a new installed capacity of 1500MW is being planned, which will ensure the absence of blackouts in the city by 2015. With this new capacity, a total of 10 substations (about US$20mil each) would be needed.
In the past two to three years, the electricity demand growth was 20% to 25% per annum in Cambodia and this strong growth phase is expected to continue to the next four to five years.
Pestech has submitted a small tender (US$1mil to US$2mil) in Cambodia recently and it has also recently tendered for its first project (US$20mil) in Laos, with both outcomes likely to be known in the next two and three months.
The gross margins for these projects are expected to be about 20% to 25%. Meawnhile, we have upgraded our financial year ending 2013 (FY13) earnings per share (EPS) by 3.5% after factoring its recent US$3mil contract won in Mali.
The share price has risen impressively by 49% since our first report on Feb 26 and has also surpassed our initial fair value of RM1.42.
Post-earnings upgrade, we are upgrading its new fair value to RM1.96, based on eight times 2013 price-to-earnings (PER) from six times previously, which is still below the FBM KLCI small cap average PER of 8.5 times. The stock is now trading at 7.2 times 2013 PER versus YTL Power and Tenaga Nasional of 9.5 times to 12.5 times PERs.
Following a “Bullish Pennant” breakout earlier last week, Pestech's share price has now come close to the RM1.80 measurement objective. We reckon that traders should adopt a strategy of buying on weakness (at the RM1.67 and RM1.50 support levels) from here, rather than to buy into a rally.
By Maybank Investment Bank Research
Target price: RM1.12
OFFSHORE support vessel (OSV) hiring momentum continues to accelerate as Petronas' capex programmes gather pace, improving prospects for local vessel owners.
A new batch of jobs worth RM85.2mil raises Alam's year-to-date job win tally to RM917.1mil.
Future catalysts could take the form of further Underwater Services or Transport & Installation contract wins.
We reiterate our “buy” call as we are seeing a sustained recovery in the OSV sector and forecast Alam to deliver a strong core net profit growth of 39% in 2013.
Alam has won three contracts worth RM85.2mil, comprising: 1) a 5+1-year OSV charter for RM61.3mil, 2) a 405-day OSV charter for RM13mil, and 3) a RM10.9mil 104-day workbarge charter.
We suspect the vessels to be used for these jobs will be: 1) Setia Gigih (sailing school vessel [SSV]; 5,000bhp, 49%-owned), 2) Setia Nurani (anchor handling tug supply [AHTS]; 5,000bhp, wholly owned), and 3) 1Mas 300 (pipelay barge, 50% joint venture) respectively.
All the contracts have begun/will begin soon. Signs of continuing market strength.
We estimate the daily charter rates (DCR) to be about US$1.75 to US$1.85bhp (for the SSV) and US$1.90 to US$2.00bhp (for the AHTS), while the 1Mas' contract value equates to a DCR of RM105,000 (US$339,000).
These rates are comparable to other OSV charters won in 2013, but are 15% to 20% higher than levels in 2011.
Equally important, we would point out that the total value of Alam's contract wins in the first four months of 2013 alone (RM917.1mil) are up 74% year-on-year compared with the whole of 2012 (RM527.5mil).
We estimate that the jobs will contribute RM4.1mil to RM7mil to Alam's 2013 net profit (based on a net margin assumption of 15-25%), making up 5.3-9% of our 2013 net profit estimate for the group.
We make no change to our earnings forecasts, as we have already imputed new RM1bil OSV contract wins for 2013.
However, we are encouraged by Alam's contract win momentum year-to-date and remain positive on Alam's prospects. We maintain our “buy” call on the stock with an RM1.12 target price pegged to 10 times its 2014 EPS.
KLCC PROPERTY HOLDINGS BHD
Target Price: RM7.20
SHAREHOLDERS' approval of the formation of Malaysia's first-ever stapled security should act as a catalyst for KLCC Property Holdings Bhd (KLCCP) as we think that fund managers will not be able to ignore its sheer size by asset size and by market cap.
We maintain our “outperform” rating while raising our dividend discount model-based target price for a lower weighted average cost of capital as we think that news of the shareholders' approval will catalyse the stock.
Further catalysts are the potential transfer of assets like Suria KLCC and Kompleks Dayabumi to the REIT, which could mean higher dividends as tax savings can be returned to shareholders.
KLCCP's shareholders have approved all the resolutions put forward at an EGM held earlier. This paves the way for the company to form Malaysia's first-ever stapled security. In the circular to shareholders issued prior to the EGM, the company also stated its intention to pay out 95% of its financial year ending Dec 31, 2013 distributable income, in line with our forecast.
We are not surprised by the shareholders' approval as investors have responded well to the proposal, going by the 27% rise in KLCCP's share price since the proposal was announced on Nov 27, 2012.
We believe that KLCCP stapled group deserves to trade at least in line with the bigger-cap retail REITs such as IGB REIT and Pavilion REIT. This is due to its sheer asset size (RM15.4bil), largest market cap, most prime location in Kuala Lumpur city centre, best-in-class asset quality (the iconic Twin Towers), best tenant (Petronas) and low risk profile.
Its low gearing ratio of 15% means that it has more than RM5bil debt headroom for any acquisition opportunities before hitting the 50% statutory limit.
Accumulate KLCCP on requotation on the stock exchange as a stapled group in early May, KLCCP will easily be Malaysia's largest REIT by asset value and market cap, with a portfolio size that is three times that of the current leader Sunway REIT.
We believe its size alone will make it a stock that fund managers will not be able to ignore and will want to hold.
By RHB Research
Target Price: RM15.75
WE maintain our “buy” call on LPI Capital Bhd, pegging our RM15.75 fair value to a three-year price-to-earnings (P/E) band of 19.4 times financial year ending Dec 31, 2013 (FY13) earnings per share.
We remain positive on the company's consistent track record of above-industry combined ratios, and attractive dividend yields of between 5% and 6%. No changes to our earnings forecasts for now as there were no major surprises from LPI's first-quarter results.
LPI's first-quarter FY13 earnings of RM42.1mil were in line, accounting for 23.4% and 21.5% of our and consensus' full-year estimates for the year.
Earnings surged 33.8% from the first quarter FY12 despite a flat 4.8% growth in gross premiums. This was on the back of a healthier claims ratio of 53.6% versus 60.1% in the quarter, during which it suffered from exposure to the Thais floods, and an unusually low net commission ratio of 5.4% versus 8.6%.
We believe that the low net commission ratio of 5.4% is not likely to recur, although LPI recorded substantial reinsurance commission income. Its treaty agreements were profitable across all segments while its fire premiums segment in particular was highly successful, recording a commission ratio of a record-low 1.6%.
Note that fire premiums continue to be a profitable segment, contributing about 36.2% to total premiums, but accounting for as much as 52.1% of underwriting income before management expenses.
We note that insurance contract liabilities rose from RM1.15bil to RM1.3bil while total assets stood at RM2.92bil as at March 31, significantly boosting the company's financial position during that quarter.
We do not see this as a major concern as the group typically recognises higher technical reserves in the first quarter, and we expect it to release a sizeable amount of technical reserves towards the end of the financial year. We gather that LPI released about RM18mil towards end-FY12.