Monday, August 1, 2016

Wah Seong | Nord Stream 2 game changer






Wah Seong | Nord Stream 2 game changer
Thong Jung Liaw







CIMB Group Holdings | Stronger 2H16 required for Niaga
Desmond Ch'ng









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Malaysia Banking | Where is the light?
Desmond Ch'ng









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COMPANY RESEARCH





Company Update





Wah Seong (WSC MK)
by Thong Jung Liaw





Share Price:
MYR0.77
Target Price:
MYR1.08
Recommendation:
Buy




Nord Stream 2 game changer

We raise 2017-18 earnings by 84%-727% to factor in the Nord Stream 2 contract win. We estimate the contract value to be MYR2.4b-MYR3b, sizeable to single-handedly drive WSC and address its orderbook replenishment and earnings risks over the next 3 years. WSC’s valuations are inexpensive now relative to growth, a prospect that currently eludes the market. Our new TP (+731% from initial MYR0.13), based on an unchanged 10x 2017 PER, offers a 40% upside.



FYE Dec (MYR m)
FY14A
FY15A
FY16E
FY17E
Revenue
2,438.6
1,839.5
1,605.0
2,550.0
EBITDA
296.6
143.3
87.5
223.8
Core net profit
145.4
22.7
(6.6)
83.5
Core EPS (sen)
18.8
2.9
(0.9)
10.8
Core EPS growth (%)
215.9
(84.4)
nm
nm
Net DPS (sen)
5.7
3.0
0.0
0.0
Core P/E (x)
4.1
26.0
(89.0)
7.1
P/BV (x)
0.5
0.5
0.5
0.5
Net dividend yield (%)
7.4
3.9
0.0
0.0
ROAE (%)
14.1
2.1
(0.6)
7.3
ROAA (%)
5.4
0.8
(0.2)
3.0
EV/EBITDA (x)
6.4
12.2
17.0
6.9
Net debt/equity (%)
71.7
80.4
71.2
70.3


Thong Jung Liaw








Company Update





CIMB Group Holdings (CIMB MK)
by Desmond Ch'ng





Share Price:
MYR4.39
Target Price:
MYR4.10
Recommendation:
Hold




Stronger 2H16 required for Niaga

CIMB Niaga’s (Niaga, BNGA IJ, Not Rated) 2Q16 results were decent but with cumulative 1H16 net profit at just 33% of our full-year forecast, 2H16 has to play catch-up. At this stage, we deem the results to be within expectations and maintain our forecasts for CIMB Group. CIMB Group remains a HOLD with an unchanged TP of MYR4.10, pegged to an FY17 P/BV of 0.8x.



FYE Dec (MYR m)
FY14A
FY15A
FY16E
FY17E
Operating income
14,145.9
15,395.8
15,869.0
16,764.9
Pre-provision profit
5,854.0
6,146.8
6,669.3
7,193.7
Core net profit
3,159.0
3,411.2
3,647.7
3,885.5
Core EPS (MYR)
0.38
0.40
0.43
0.46
Core EPS growth (%)
(31.1)
5.6
6.3
6.5
Net DPS (MYR)
0.15
0.14
0.18
0.19
Core P/E (x)
11.5
10.9
10.3
9.6
P/BV (x)
1.0
0.9
0.9
0.8
Net dividend yield (%)
3.4
3.2
4.1
4.3
Book value (MYR)
4.53
4.87
4.98
5.25
ROAE (%)
9.3
8.7
8.8
8.9
ROAA (%)
0.8
0.8
0.8
0.8







SECTOR RESEARCH






Sector Note
by Desmond Ch'ng


Where is the light?





There continues to be very little to excite where the banking data for June is concerned. Loan growth continues to moderate, loan approvals are still declining, deposits are still contracting YoY, while there has been some stress in asset quality. A challenging environment no doubt, thus our NEUTRAL weight. BUY AFG, HL Bank and HLFG.









MACRO RESEARCH






Economics Research
by Suhaimi Ilias


Growth languishing at low single-digit





Money supply (M3) growth remained sluggish (June 2016: +1.9% YoY; May 2016: +2.2% YoY), affected by decline in total deposits and slower credit growth amid stable external reserves. Policy-wise, BNM cut OPR by 25bps at its “post-Brexit” 12-13 July 2016 MPC, and our eyes are on the 22-23 Nov 2016 MPC meeting, which is after the potential risk event of US Presidential Election on 8 Nov 2016.







NEWS


Outside Malaysia:

U.S: Struggling economy propped up by consumer-spending gain. The U.S. economy stumbled in the first half of 2016 as companies retrenched, leaving consumers to shoulder the burden of sustaining growth heading into the presidential election. A 4.2% gain in household purchases in the second quarter, among the biggest of the current expansion, was the lone bright spot in an otherwise bleary picture as the economy had its worst first half since 2011. Businesses hunkered down, trimming inventories and reducing outlays on equipment and construction projects, while government agencies also cut back. That limited the gain in gross domestic product last quarter to a 1.2% annualized rate, figures from the Commerce Department showed. (Source: Bloomberg)

Saudi Arabia: Said to have offered USD 4b to banks. Saudi Arabia’s central bank offered lenders short-term loans in late June to help ease liquidity constraints, according to five people familiar with the matter. The Saudi Arabian Monetary Agency, or SAMA, as the central bank is known, offered about SAR 15b (USD 4b), two of the people said, asking not to be identified as the information is private. The loans were offered at a discounted rate, two of the people said. SAMA offered individual banks as much as SAR 1.5b, based on their balance sheets, four people said. The loans are for up to one year. (Source: Bloomberg)

Crude Oil: Resumes decline toward USD 40 as US drilling gains amid glut of crude and fuel supplies that are at the highest seasonal level in at least two decades. Brent for October settlement dropped as much as 42 cents, or 1 percent, to USD 43.11/bbl on the London-based ICE Futures Europe exchange. Drillers boosted the number of rigs by 3 for the longest run of gains since August, according to a data from Baker Hughes Inc. Libya has reopened four oil export ports, according to a statement from the Petroleum Facilities Guard. (Source: Bloomberg)





Other News:

AirAsia: Air Asia, Scottish firm in data analytics JV. AirAsia’s data science unit MadCience Consulting Sdn Bhd has entered into an agreement with Scotland’s Big Data For Humans Ltd (Bd4h) to set up a data analytics joint venture (JV) in Asia Pacific. The JV will be responsible for building a software-as-a-service business in the region, with its first client being AirAsia. It will be operated through Big Data For Humans APAC Ltd (Bd4h APAC), which is expected to commence operations in 4QFY16. MadCience Consulting also subscribed to one million unsecured convertible loan notes issued by Bd4h for GBP1m (MYR5.36m), of which GBP500,000 will be used to finance the JV. (Source: The Sun Daily)

FGV: FGV, Felda still working on restructuring land lease deal. The planned restructuring of Felda Global Ventures Holdings Bhd’s (FGV) 99-year land lease agreement (LLA) with its parent company is work in progress with nothing concrete formulated yet, says FGV group president and CEO Datuk Zakaria Arshad. To recap, the LLA between FGV and its parent company Federal Land Development Authority (Felda) entails FGV having to pay Felda a fixed lease amount of MYR250m per year in cash for 20 years. Zakaria said, the company is planning to reduce the LLA land and to increase the direct ownership of land. The reduction of the LLA land is by carving out marginal non-productive land and returning that back to Felda while increasing direct ownership is by acquiring new plantations. (Source: The Star)

WZ Satu: Accepts MYR27m contract. WZ Satu has accepted a letter of award worth MYR27.03m from Shell MDS (Malaysia) Sdn Bhd for the mechanical package of SMDS Pipeline project for a duration of 13 months and is expected to commence on Aug 1, 2016. The contract is expected to contribute positively to WZ Satu’s future earnings and net assets per share for the financial year ending Aug 31, 2017. (Source: The Sun Daily)


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