By Maybank Investment Bank Research
Target price: RM6.75
THE group’s first quarter ended March 31 core profit after tax and minority interest of RM1.1bil makes up 27% of our full year forecast and 29% of consensus. This better-than-expected results was derived from stable utilisation rates and higher average selling prices (ASPs).
We revise our 2013 forecast upwards by 3.8% to take into account the first quarter 2013 numbers, and subsequently raise our target price by 4% to RM6.75 per share on unchanged 12.8 times 2013 price to earnings ratio (PER) – in line with global peers. Maintain hold on limited upside to our new target price.
We were positively surprised by the group’s stable utilisation rate year-on-year of 90% in first quarter 2013.
We have initially forecast a decline of 3.5 percentage point taking into consideration some maintenance shutdowns. PetChem was able to keep the downtime to a minimum and took full advantage of the stable feedstock supply in the period. ASPs were up by 6%-7%, we estimate. Consensus will revise upwards to factor in the healthy state of the industry and the fact that PetChem’s feedstock supply gremlins seemed to be resolved.
Product prices have soften by 3% to 5% quarter-on-quarter since mid-March as the industry supply-demand relationship is in balance. PetChem is also expected to report lower utilisation rates in second quarter due to upcoming scheduled maintenance shutdowns.
We revise our 2013 earning forecast by 3.8% to take into account the strong first quarter 2013 results. The global outlook for petrochemicals is encouraging, with positive manufacturing numbers globally and the quantum of new capacity rollout at manageable levels. However, PetChem is trading close to fair value with limited upside potential. We recommend holding for its respectable dividend yields of 4%.
Fair Value: RM4.43
THE softer economic growth experienced in China and Vietnam has consequently lead to same-store-sales growth (SSSG) contraction of 2% and 1%, respectively. Having said that, Malaysia and Indonesia are sustaining positively with 6% and 5% SSSG respectively.
We believe Chinese New Year spending had somewhat supported nine-month financial year 2013 (ended March 31) SSSG, but were offset by higher discounting activities. Nonetheless, a seasonal lower performance is expected in the fourth quarter in absence of major festivities.
Despite a shy 3% year-on-year increase in revenue, overall merchandise gross margin compressed to 19.1% from 19.4% in nine-month financial year 2012. This weighed down earnings before interest and tax (EBIT) significantly by 26% year-on-year which were also impacted by slow sales and new stores opening.
Intensifying competition for brands and tenants in China are partly the major reasons for Parkson Retail Group’s (PRG) decline, which have generated lower sales due to shift in footfall, in our view.
In addition, product mix is reckoned to have further dragged profitability down to lower levels, as witnessed by China’s EBIT margins shrinking to 21% first half financial year 2012’s 31%.
Going forward, we expect PRG’s SSSG to contract 2% for the full year of the forecast financial year 2013, with a moderate recovery, at best in the forecast financial year 2014 of 1%.
That said, we think much of these negatives arising from PRG in particular – slower SSSG expectation and slowing network of expansion considerations – have been reflected in Parkson Holdings Bhd’s share price.
Rolling out of new stores, albeit at a slower pace, appears to be well on track, with upcoming opening of: seven stores in China by year-end and one store each in Malaysia, Vietnam, Indonesia and Myanmar by financial year 2013.
Given Parkson China’s earlier entry, efforts are made to revamp existing portfolio of stores as its competitors’ stands to benefit from a sweet spot of younger store portfolio.
LAFARGE CEMENT (M) BHD
By CIMB Research
Target price: RM11.50
OUR earnings per share (EPS) forecasts are intact, as is our target price which remains based on 2.93 times 2013 price to book value (P/BV), a 20% premium over its one-year average.
We remain “neutral” given the sustained competitive pressures. Benefits from larger-scale construction projects are likely to be realised over the longer term. Switch to contractors, the earlier winners in the construction upcycle.
Lafarge’s results briefing which was attended by over ten analysts and fund managers held no major surprises.
President and chief executive officer Bradley Mulroney and chief financial officer Chen Then Aik talked about the group’s first quarter 2013 (Q113) results, industry trends and outlook.
The main takeaways were domesic demand for cement, ready-mix concrete and aggregates in Q1, 2013 continued to be buoyant despite being hit by weather patterns and plant maintenance. Lafarge is looking at 4% cement demand growth in 2013, similar to 2012.
Cement industry volume growth was positive in Q113 but the supply from new players kept up the pressure on pricing.
Management will press on with a re-introduction of a previous product line “Harimau” catering for the mass segment.
Management needs five to eight more weeks to finalise its expansion plans which aim to tap into the favourable domestic and export market conditions. Details are still preliminary and will be shared in the next quarterly briefing.
The reasons for the weakness in 1Q13’s headline numbers were not a surprise. We had expected pricing pressure to continue at least in the first half of 2013 as construction activities and procurement for ongoing projects are still picking up.
Management believes that pricing pressure could ease in the coming months. But we believe that a recovery, if any, is likely to be more noticeable from second half onwards.
Stay on the sidelines as sustained pricing pressures and the lagged effect of new large-scale projects on cement demand could cap upside to its share price.
By RHB Research
Target Price: RM5.43
KOSSAN’S first quarter for the financial year ended March 31, (Q113) earnings were well within our expectation and slightly above consensus, comprising 26% and 28% of both financial year 2013 forecasts.
The company recorded revenue of RM327.3mil, which was up 2.7% quarter-on-quarter and 13.1% year-on-year, contributed by higher sales volume as well as higher production capacity.
Correspondingly, its net profit improved 14.6% quarter-on-quarter and 54.9% year-on-year to RM34mil, as further automation at its factories boosted production efficiency.
On a sequential basis, Kossan’s Q113 results were generally attributed to easing prices of raw material prices such as natural rubber latex and nitrile.
Kossan is looking to expand its production capacity from the current 16 billion pieces to 20 billion pieces per annum by 2014.
Management has indicated that it will concentrate more on the higher-end surgical and nitrile gloves segment moving forward as these products give the company better pricing power and broader margins.
Following an internal coverage transition, we revamped our financial model and revised our assumptions accordingly. We are now forecasting a net profit of RM132mil for financial year 2013 and RM145mil for financial year 2014.
We continue to like Kossan’s balanced product mix of 50:50 comprising natural rubber latex and nitrile gloves, which allows it to tap into both market segments.