By Kenanga Research
ACCORDING to data from the Malaysian Automotive Association (MAA), the total industry volume (TIV) in June dropped 5% year-on-year but rebounded 8% month-on-month to 53,631 units.
As expected, the year-on-year drop was mainly due to the ongoing wait-and-see attitude adopted by some of the consumers on expectations of lower car prices after the general election, although we reckon the effect is gradually moderating.
Meanwhile, the month-on-month gain was generally on account of aggressive sales campaigns by industry players targeting the pre-Hari Raya festive season.
Year-to-date six-month calendar year 2013 TIV remained in positive territory (+4% year-on-year), making up 49% of both ours and the MAA’s 2013 forecasts of 641,560 and 640,000 units respectively.
Total industry production (TPI) in the first half inched up by 4% to 293,511 units.
We believe that the TIV will trend higher in July and August amid the pre-Hari Raya sales coupled with the launching of new models.
June’s total industry production merely inched up by 1% to 49,432 as the decent production volume (+2%) in passenger vehicles was offset by a lower production volume (-8% ) in commercial vehicles.
Meanwhile on month-on-month basis, the TIP increased by 5% on the back of higher production volume in both passenger vehicles (+3%) and commercial vehicles (+17%).
In the first half, the TIP registered a growth of 4% to 293,511 units.
On year-on-year basis, the main marques, except for Honda and Nissan, recorded a decrease in passenger vehicle sales in June.
Note that for the non-national marques, Honda and Nissan, their sales jumped 19% and 48% to 3,232 and 3,392 respectively on the base effect coupled with the overwhelming sales of the Honda’s fourth generation CR-V and Nissan’s Almera.
Meanwhile on the national marques, both Proton and Perodua registered weaker sales of 10,803 units (-20%) and 15,757 (-4%) units respectively.
On month-on-month basis, sales were generally higher for the main car companies with the exception of Perodua and Honda.
Perodua registered lower sales growth of 6% to 15,757 vehicle units while Honda sales decreased by 5% to 3,232 units.
In the first half, passenger vehicle sales still remained in the positive territory with sales of 275,991 units (+4%).
This was on the back of better sales at Nissan (+79%) and Honda (+100%), which we believe to be mainly due to the low base effect in first half of 2012 (supply chain disruptions caused by the Thailand flood).
Meanwhile, on the commercial vehicles segment, sales declined by 3% with Isuzu and Hino being the main outperformers with total sales of 998 units and 620 units, an improvement of 19% and 14% respectively.
Month-on-month sales improved by 2%, led by better sales in Isuzu (29%) and Mitsubishi (15%). In the first half, commercial vehicle sales also remained in positive territory with sales of 37,497 units (+6%).
We concur with the MAA’s view that TIV should continue to trend marginally higher in July due to the festive season sales campaign.
On the upcoming revised National Automotive Policy (NAP), we believe that it will focus mainly on positioning the country as a regional hub for hybrid vehicles and energy-efficient vehicles), and thus, should be positive for all the motor players, especially DRB-Hicom as both will benefit from their partnerships and affiliations with foreign carmakers, which can be developed into further tie-ups and collaborations.
We are maintaining our “neutral” rating on the sector and retaining our 2013 TIV forecast of 641,560 units (+2.2%) despite the decent (May) growth of 4%, as we anticipate a lower second half 2013 growth due to the normalisation of base effect.
By Kenanga Research
Trading Buy (maintained)
Fair value: RM2.81
PESTECH is the best performing stock in our “On our radar” list, as its share price has more than doubled from RM1.18 per share since our first recommendation report at the end of February.
Back then, this stock which made its debut in May 2012, was trading at an attractive price-earnings ratio (PER) of four times. Even though the share price has doubled since then, an 8.8 times prospective PER is still not excessive, given the fact that the FBM Small Cap Index is currently trading at 10.8 times forward PER.
Pestech’s first Laos job – the 115kV Transmission Line Project from Pakse to the Laos-Thai border (memorandum of understanding (MoU) signed at end-May) – has yet to be finalised, pending approval from the Laos authority. We understand that the longer-than-expected approval period is due to funding changes. Electricite Du Laos, the country’s utility company is now funding the project internally instead of seeking third-party financial aid as originally planned. Hence, the ministry is taking more time to process the application.
Besides Laos, Pestech has registered with the National Grid Corp of the Philippines, thus, allowing it to be invited for projects in the country.
On June 27, Pestech signed an MoU with ABB Malaysia for technical collaboration. ABB will provide technical support, technical drawings and original equipment manufacturer products of Air Insulated Switchgear to Pestech under Pestech’s own product and brand name.
We understand that both parties need to sign one more agreement soon before the project starts. Production is likely to roll out in early 2016 and with global product distribution without restriction from ABB.
Pestech is expected to release its second-quarter results at the end of August. Net profit is likely to be RM4mil to RM5mil, on track to meet our financial year ending Dec 31, 2013 (FY13) projection of RM21mil. We project a new FY14 estimate with net profit growing at 15% year-on-year. Although its share price has risen significantly, we believe valuation remains undemanding. We project a higher fair value of RM2.81 per share based on 10 times FY14 PER, which is still slightly below the small cap valuation and at the lower range of YTL Power International Bhd and Tenaga Nasional Bhd of 11 times to 12 times PER.
Target price: RM6.35
WE see rising confidence in the listing of IOI Properties Group Bhd post-issuance of the initial public offering (IPO) draft prospectus. The key is the reasonable valuation shown in the valuer’s report addressing concern over asset pricing and potential upside post-IPO. The bulk of the revaluation comes from its Johor land bank and projects in Singapore, which remain valued at below market prices to stay conservative.
IOI Corp’s share price has appreciated slowly as the market starts to realise the value creation from the listing of IOI Properties and addresses the concern on asset pricing when the valuation report was made available in the latter’s IPO draft prospectus.
Based on the prospectus, a total of RM18.2bil assets are sold to IOI Properties, which carried about RM11.9bil in IOI Corp’s book. The main revaluation arises from the plantation land in Johor and properties in Singapore. Even after revaluation, the land bank in Johor is still very much below market prices.
We foresee strong interest to participate in IOI Property’s listing given its large market cap, strong earnings growth and large 44% discount to market value of RM5.53 per IOI Property share. The only way to participate in this large property listing is through IOI Corp as no new shares will be offered in this IPO.
We reiterate our positive view on the value creation to IOI Corp’s shareholders from the listing of IOI Property. IOI Corp’s shareholders will get two free IOI Property shares (in the form of dividend in-specie) and one IOI Property share at 30% discount to IPO price for every six IOI Corp shares. The dividend in-specie translates into 27.6% yield based on a total of RM9.6bil value in IOI Property shares to be declared as dividend in-specie.
IOI Property’s listing price (expected RM2.50 to RM 2.55 per share) is likely to be at a deep discount to revalued net asset value (RNAV) per share, that is, RM4.44 per IOI Property share. With strong execution capabilities, good track record and strong entrepreneurship, IOI Property is likely to command valuations on par with leading developers such as SP Setia Bhd, that is, could see IOI Porperty share trade at RNAV or just a small discount to RNAV/share.
Management’s target of at least RM1bil operating profit per year over the next three years is achievable on the back of the launches pipeline. A total gross development value (GDV) of RM14bil to RM15bil launches (refer to table on the right) were launched and about to launch support of least RM2.4bil-RM2.5bil sales. Assuming an operating profit margin of 50%, IOI Property would be able to deliver at least RM1bil-RM1.2bil in profit before tax (PBT) over the next 2-3 years. Based on the potential listing market cap of RM8.25bil, IOI Property’s forward PER should be around 11 times, which is cheaper than the valuations of the big-cap listed property plays in Malaysia.
Our Hong Kong-based property analyst commented that demand for Xiamen property is likely to be resilient despite the tightening measures. The mitigating factor is that Xiamen is located in the West Strait Economic Zone, which is the proposed economic development zone by the Fujian government and the central government. This proposed economic zone targets to integrate the economy and transportation in the coastal cities (including Xiamen and a few other cities in the Fujian province) and to strengthen economic ties and cooperation with Taiwan. The launch of 101 Park Bo Bay is expected to be in November. This development sits on a 7.66 acre piece of land. It comprises 632 high-end residential duplex town villas and condominiums, as well as 170 commercial units, occupying a saleable area of approximately 1.1 million sq feet for a total GDV of RM563mil.
We expect earnings per share of 27.3 sen, 33.6 sen and 39.9 sen for financial year ending June 30, 2013 (FY13), FY14 and FY15, respectively.
We maintain a “buy” and target price of RM6.35, based on sum-of-the-parts valuation at 17 times FY15 PER for the plantation business and a 5% discount to IOI Property’s RNAV. We are applying a smaller discount to RNAV for IOI Property as this will be a large cap listing in addition to great value enhancement from its strategic land bank near the new rail stations (LRT extension, MRT Line 2 and ERL).
By RHB Research
Target price: RM7.55
AS the operations of Cahya Mata Sarawak Bhd (CMS) – a conglomerate managed by professionals – are mostly based in Sarawak, the group’s cement, construction materials, and construction and road maintenance divisions are poised to benefit from the initiatives rolled out by the Sarawak Corridor of Renewable Energy (Score).
Our visit to CMS’ clinker plant in Mambong, Kuching, helped to soothe concerns as operations at the upgraded facility has been progressing smoothly since March. The unit is well on track to return to the black after it incurred a RM29mil loss in financial year ending Dec 31, 2012 (FY12) due to the plant’s prolonged shutdown. We expect efficiency to improve and production to grow from FY14 onwards.
Meanwhile, the group’s logistics prowess allows it to maintain its tight grip on Sarawak’s cement market.
During our visit to the group’s 51%- owned Samalaju Property Development Sdn Bhd, we discovered that there is still more upside for this unit. The occupancy rate of its workers’ lodge is expected to peak soon while the scale of works at its hotel, amenities and residential and commercial properties may be larger than projected earlier.
We also learnt that Phase 1 of a smelting project by 20%-owned OM Materials (Sarawak) Sdn Bhd may be commissioned in second quarter of 2014, earlier than our estimate of mid-2015.
We are keeping our earnings forecasts unchanged, pending further progress updates from management.
As our last visit to its operations have increased our optimism on the group, we lift our sum-of-parts-based fair value to RM7.55 (from RM6.60), implying 1.2 times price to book value and a 10.3 times price-to-earnings on FY14 forecast estimates after stripping off net cash. We maintain “buy” calls.
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