Wednesday, February 15, 2017

MISC: Granted USD254.45m adjudication. The group has been awarded USD254.45m (MYR1.13b) for the variation works undertaken by its wholly-owned subsidiary Gumusut-Kakap Semi-F






Kuala Lumpur Kepong | Off to a seasonally good start
Chee Ting Ong







Sunway REIT | 2QFY17: In line
Kevin Wong







Dialog Group | 1HFY17 results in line
Thong Jung Liaw







Hartalega | Juggling cost increase
Yen Ling Lee









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COMPANY RESEARCH





Results Review





Kuala Lumpur Kepong (KLK MK)
by Chee Ting Ong





Share Price:
MYR25.10
Target Price:
MYR26.20
Recommendation:
Hold




Off to a seasonally good start

1QFY9/17 earnings are off to a seasonally good start as KLK benefited from high palm oil prices despite flattish YoY output. 1Q core PATMI met 35%/30% of our/consensus full-year earnings forecasts – above ours but within market estimates. We raise FY17 core PATMI forecast by 7.5% to incorporate higher CPO ASP (+4%) assumption. Following our earnings revision, our new TP is a higher MYR26.20 (previously MYR24.40) based on unchanged 26x FY17 PER (5-year mean).



FYE Sep (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
13,650.0
16,505.8
18,377.6
19,003.3
EBITDA
1,578.0
1,805.8
1,982.5
2,010.2
Core net profit
818.7
824.5
1,075.2
1,084.6
Core EPS (sen)
76.7
77.2
100.7
101.6
Core EPS growth (%)
(16.9)
0.7
30.4
0.9
Net DPS (sen)
45.0
50.0
60.4
61.0
Core P/E (x)
32.7
32.5
24.9
24.7
P/BV (x)
2.8
2.6
2.5
2.4
Net dividend yield (%)
1.8
2.0
2.4
2.4
ROAE (%)
10.0
15.8
10.1
9.8
ROAA (%)
5.4
4.6
5.8
5.7
EV/EBITDA (x)
16.6
16.0
15.1
14.7
Net debt/equity (%)
24.8
22.5
20.2
16.1










Results Review





Sunway REIT (SREIT MK)
by Kevin Wong





Share Price:
MYR1.77
Target Price:
MYR1.85
Recommendation:
Buy




2QFY17: In line

2QFY6/17 results and second gross DPU of 2.28sen (1HFY17: 4.55sen) were within expectations. Earnings were mainly supported by Sunway Pyramid’s sustained occupancy and positive rental reversions but mitigated by the weaker hotel segment. Our net profit forecasts are intact but we increase our TP by 5sen to MYR1.85 after rolling forward our DDM valuation base year to FY18 (unchanged 7.8% cost of equity).



FYE Jun (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
453.5
507.0
522.6
568.3
Net property income
340.8
373.9
395.8
433.7
Distributable income
256.6
270.6
268.6
299.0
DPU (sen)
7.8
8.3
8.2
9.1
DPU growth (%)
4.3
5.2
(1.0)
10.9
Price/DPU(x)
22.6
21.4
21.6
19.5
P/BV (x)
1.3
1.3
1.3
1.3
DPU yield (%)
4.4
4.7
4.6
5.1
ROAE (%)
14.1
8.1
6.7
7.5
ROAA (%)
4.0
4.0
4.1
4.4
Debt/Assets (x)
0.3
0.3
0.3
0.4










Company Update





Dialog Group (DLG MK)
by Thong Jung Liaw





Share Price:
MYR1.55
Target Price:
MYR1.93
Recommendation:
Buy




1HFY17 results in line

1HFY6/17 core earnings accounted for 54% of our FY estimates. Dialog is a direct proxy to PETRONAS’ RAPID and Pengerang play (tank terminals and regasification projects). It offers steady, long-term, sustainable growth prospects with strong cash flows and dividends to boot. It is net cash, which is atypical of the industry, is a testament to its lean management and largely cash flow driven tank terminal businesses.



FYE Jun (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
2,358.2
2,534.5
2,640.0
2,690.0
EBITDA
292.0
367.5
352.4
352.7
Core net profit
253.0
261.0
272.3
296.8
Core EPS (sen)
5.1
5.0
5.3
5.7
Core EPS growth (%)
18.2
(0.9)
4.3
9.0
Net DPS (sen)
2.2
2.2
2.2
2.3
Core P/E (x)
30.4
30.7
29.4
27.0
P/BV (x)
3.9
3.3
3.1
2.9
Net dividend yield (%)
1.4
1.4
1.4
1.5
ROAE (%)
15.5
13.4
10.9
11.1
ROAA (%)
7.4
6.7
6.9
7.8
EV/EBITDA (x)
27.3
21.7
24.0
24.2
Net debt/equity (%)
net cash
net cash
13.7
15.0


Thong Jung Liaw








Results Review





Hartalega (HART MK)
by Yen Ling Lee





Share Price:
MYR4.75
Target Price:
MYR3.80
Recommendation:
Sell




Juggling cost increase

Better 3QFY3/17 operational earnings was within expectations. While NBR cost is spiking up, its impact on near-term earnings could be offset by higher ASPs, sales volume growth and internal cost control. Though EBITDA margin has rebounded to 28% in 3QFY17, it is still lower than its peak of >30% in FY10-14 (when nitrile space was less crowded) and we expect the competition in nitrile space to elevate in 2HCY17. Maintain our EPS forecasts, SELL call, MYR3.80 TP (21x 2017 PER; mean).



FYE Mar (MYR m)
FY15A
FY16A
FY17E
FY18E
Revenue
1,146.0
1,498.3
1,627.7
1,860.1
EBITDA
321.6
386.8
426.6
495.5
Core net profit
209.7
257.6
277.2
315.1
Core FDEPS (sen)
13.4
15.5
16.7
19.0
Core FDEPS growth(%)
(15.1)
16.3
7.6
13.7
Net DPS (sen)
6.5
8.0
8.4
9.6
Core FD P/E (x)
35.6
30.6
28.4
25.0
P/BV (x)
5.8
5.2
4.8
4.3
Net dividend yield (%)
1.4
1.7
1.8
2.0
ROAE (%)
19.0
18.6
17.6
18.3
ROAA (%)
16.4
15.1
13.0
12.8
EV/EBITDA (x)
20.7
21.0
19.1
16.7
Net debt/equity (%)
net cash
10.9
21.5
26.1








MACRO RESEARCH






SELL US MARKET & BUY ASIA?
by Tee Sze Chiah


Technical Research





FBMKLCI ended a tad lower yesterday on the back of profit-taking activities. At day’s end, the benchmark fell 1.34pts to close at 1,708.90. Overall market breath was slightly negative. Losers outpaced gainers by 470 to 387 while 387 counters remained unchanged. Trading volume of 2.18b worth MYR2.47b was recorded yesterday. After another stellar movement in overnight US markets, expect FBMKLCI to trade slightly higher, likely between 1,705 and 1,715.







NEWS


Outside Malaysia:

U.S: Wholesale prices climb by most since September 2012. U.S. wholesale prices jumped in January, led by higher costs of gasoline and indicating inflation is beginning to stir. The 0.6% gain in the producer-price index followed a 0.2% advance the prior month. The measure was up 1.6% YoY. The pickup in prices, which also reflected higher retailer and wholesaler margins, is the latest signal that broader inflation continues to move toward the goal of Federal Reserve policy makers. While rising demand and higher commodity costs are reviving price pressures in the production pipeline, renewed strength in the dollar may pose a headwind. (Source: Bloomberg)

E.U: Euro-area economy expanded less than initially reported in 4Q 2016 as growth in three of its largest economies fell short of expectations. GDP rose 0.4% in the three months through December, the European Union’s statistics office said. (Source: Bloomberg)

U.K: Inflation picked up less than forecast in January as clothing-store discounts kept the rate from reaching the Bank of England’s target. The rate increased to 1.8% from 1.6% in December. The pound weakened and traders pared bets on a Bank of England interest-rate hike by the end of 2017. While less than anticipated, inflation is still running at the fastest pace in more than two years. Rising fuel costs coupled with a weaker pound are set to push it above the BOE’s 2% goal soon. (Source: Bloomberg)

China: Jan 2017 new loans at CNY 2.03t, PBOC says on website. Jan 2017 aggregate financing was CNY 3.74t following CNY1.63t reported in Dec 2016. M2 growth last month was +11.3% YoY matching estimates (range +10.8% YoY to +12% YoY, 36 economists) following the +11.3% YoY reported in Dec 2016. (Source: Bloomberg)

China: Producer prices increased the most since 2011, with the world’s biggest exporter further lifting the outlook for global inflation. Producer price index rose 6.9% YoY in January, compared with a 5.5% YoY December gain. Producer prices for mining products surged 31% YoY while those for raw materials climbed 12.9%, the National Bureau of Statistics said. (Source: Bloomberg)





Other News:

MISC: Granted USD254.45m adjudication. The group has been awarded USD254.45m (MYR1.13b) for the variation works undertaken by its wholly-owned subsidiary Gumusut-Kakap Semi-Floating Production System (L) Ltd (GKL) for Sabah Shell Petroleum Co Ltd. Last September, MISC commenced arbitration proceedings against Sabah Shell to seek resolution on contractual disputes covering claims for outstanding additional lease rates, payment for completed variation works and other associated costs for the Gumusut-Kakap semi-floating production system (Source: The Sun Daily)

Digi: To raise MYR5b via sukuk. Digi is establishing two Murabahah sukuk programmes with a combined limit of MYR5b in nominal value, to raise funds for capital expenditure and working capital. he debt papers will be issued via 15-year Islamic medium term notes (IMTN), which will have up to MYR5bi in nominal value, and seven-year Islamic commercial papers (ICP), with up to MYR1b in nominal value. The IMTN has been rated AAA/Stable by rating agency RAM Rating Services, with the ICP being rated P1, said DiGi. (Source: The Edge Financial Daily)

Hektar REIT: Declares 2.7 sen DPU. The group net property income slipped 4.1% to MYR18.73m for 4QFY16, from MYR19.53m a year earlier, due to higher service and maintenance charges. The REIT announced a distribution per unit of 2.7 sen for the quarter, unchanged from the 4QFY15 payout and representing a dividend yield of 6.7%. Amounting to MYR10.82m, it will be paid on March 16. For the full financial year (FY16), Hektar posted a 7% drop in realised net income to MYR41.5m, while revenue was down to MYR124.57m from MYR125.51m in FY16. (Source: The Edge Financial Daily)


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