Thursday, November 3, 2011
Kencana Petroleum BUY Target Price RM3.17 by OSK
Bernama reported that there is no change in Petroliam Nasional Bhd's (Petronas) licensing policy related to companies engaged in Malaysia's upstream oil and gas (O&G) industry. The report said that under the Petroleum Regulation 1974, both local and foreign companies wishing to commence or even carry out any business or services related to Malaysia's O&G upstream operations must apply for a licence from Petronas.
The clarification was made following The Edge report last week that such a licence may not be required going forward in bidding for local O&G jobs.
First, we note that Petronas has embarked on a long-term plan to nurture the local O&G service providers, with the first few being Kencana Petroleum Bhd, SapuraCrest Petroleum Bhd and Dialog Group Bhd, which have been awarded marginal oilfields to expose these companies to upstream O&G activities.
Second, we understand that most of the local O&G service providers currently have spare capacity as O&G activities have slowed compared with before the global economic recession in 2008 when their capacity was mostly tailored to local needs.
Noting this spare capacity, it may not make economic sense for Petronas to get resources from the non-local O&G services providers whose capacity is mostly built to meet the requirements of their own countries or regions of operation.
Finally, this licensing requirement does not prevent foreign companies from participating in Malaysia's O&G sector as what is required is a partnership with a local licence holder. In fact, such participation facilitates the transfer of technology and helps enhance the competence of the local companies while at the same time allowing the foreign companies to benefit from the development of the country's resources.
Our top picks are Kencana ('buy', fair value (FV): RM3.17) and Dialog ('buy', FV: RM3.66). With an improving global economic outlook and the crude oil price having gone back to around US$90 (RM277)/barrel, we believe that O&G activities will gradually pick up, which would then benefit all O&G service providers through better utilisation rates and higher sales/unit or services/hour rates.
On the local front, we expect the industry to be in for more marginal oilfield developments and the increasing need for brownfield services to boost O&G production while waiting for the commencement of deepwater activities on a large scale after pre-development preparations are completed.
We gather that the ratio between shallow water and deepwater O&G production is still at 70:30 but over time, the deepwater portion will pick up after all the easy O&G finds deplete.
Hence, we think Petronas is now preparing the local O&G supporting services providers for marginal oilfield (shallow water) developments first before embarking into the more challenging terrain (deepwater). ' OSK Research, Oct 31
Rio Tinto BUY Target Price AUD100 by UBS
UBS has maintained its “buy” rating and $100 price target for Rio Tinto following the company’s investor review, where management reiterated that it remains bullish on “end user” demand and sees no material signs of slowing.
Wednesday, July 27, 2011
Malaysia Airports BUY Target Price RM7.55 by Maybank IB Research
Maintain buy at RM6.50 with revised target price of RM7.55 (from RM7.12): MAHB will release its 2Q11 results tomorrow. The second quarter is seasonally the weakest for the year. Based on the operating statistics published, we expect a core net profit (less foreign exchange translation and all other non-cash items) of RM110.5 million (+24.5% year-on-year [y-o-y], -1.4% quarter-on-quarter [q-o-q]). We maintain our 'buy' call with a higher discounted cash flow-based target price of RM7.55, after imputing for a higher passenger growth of 10% in 2011 (previously 8%). Our new target price offers undemanding 15.2 times 2012 earnings.
For the first five months of 2011, passenger numbers were higher than expected, with a better mix profile. Growth was 13.3% y-o-y, substantially above management's guidance of 8% growth in 2011. Cargo was down by 2.6% y-o-y, which is in line with the global soft trend. International passengers make up 48.5% of total passengers, a 0.3 percentage point rise y-o-y. These factors will underpin strong profit growth as international passengers pay higher service charges.
KLIA continues to surprise positively by delivering an impressive 15.7% y-o-y passenger growth (5M 2010: +13.8% y-o-y). If KLIA can maintain this growth momentum for the remainder of the year, it will probably register traffic of 38 to 39 million passengers; thus making it the 25th to 27th busiest airport in the world ' up from 31st in 2010.
KLIA 2 may face another delay and we think it will be completed in 2013 as opposed to the guided 3Q11. This is not major and is expected for a project of this scale. The cash flow impact is small, but the depreciation charge of KLIA 2 will only commence in 2013 and thus impact our 2012/13 earnings.
We have tweaked numbers by +0.7%, +14% and -4.3% for 2011 to 2013 after imputing a higher passenger traffic growth and the new estimated KLIA 2 completion date. MAHB is trading at attractive levels compared with global peers: 10.1 times price-to-cash flow ratio (11% discount to peers), 8.9% return on capital (26% higher) and it is lowly geared at 0.39 times against a peer group average of 0.66 times. '
For the first five months of 2011, passenger numbers were higher than expected, with a better mix profile. Growth was 13.3% y-o-y, substantially above management's guidance of 8% growth in 2011. Cargo was down by 2.6% y-o-y, which is in line with the global soft trend. International passengers make up 48.5% of total passengers, a 0.3 percentage point rise y-o-y. These factors will underpin strong profit growth as international passengers pay higher service charges.
KLIA continues to surprise positively by delivering an impressive 15.7% y-o-y passenger growth (5M 2010: +13.8% y-o-y). If KLIA can maintain this growth momentum for the remainder of the year, it will probably register traffic of 38 to 39 million passengers; thus making it the 25th to 27th busiest airport in the world ' up from 31st in 2010.
KLIA 2 may face another delay and we think it will be completed in 2013 as opposed to the guided 3Q11. This is not major and is expected for a project of this scale. The cash flow impact is small, but the depreciation charge of KLIA 2 will only commence in 2013 and thus impact our 2012/13 earnings.
We have tweaked numbers by +0.7%, +14% and -4.3% for 2011 to 2013 after imputing a higher passenger traffic growth and the new estimated KLIA 2 completion date. MAHB is trading at attractive levels compared with global peers: 10.1 times price-to-cash flow ratio (11% discount to peers), 8.9% return on capital (26% higher) and it is lowly geared at 0.39 times against a peer group average of 0.66 times. '
Royal Plaza on Scotts Hotel Singapore Promotion 2011
Royal Plaza On Scotts Hotel, Singapore
Royal Plaza on Scotts is a 5-minute walk from Orchard MRT Station. Shopping malls like ION Orchard, Takashimaya and Paragon are a 10-minute walk away.
Modern rooms at the hotel are equipped with air conditioning and a private bathroom with a rainshower and hairdryer. A flat-screen TV and Nespresso coffee machine are included. Room service is available 24 hours.
BToto BUY Target Price RM4.98 by Hong Leong IB
Berjaya Sports Toto Target Price RM4.98 with a BUY Rating by Hong Leong Investment Banking.
Highlights
Since BToto launched its new game variant known as 4D Jackpot on 9 June 2011, its sales per draw have been growing rapidly. It recorded a sales of RM982k on its first draw, 35% higher compared to Magnum’s first sales per draw of RM725k. Average is now RM1.6m per draw
Our regression study and analysis suggest that there will be cannibalization on lotto and existing 4D games (but no impact on Magnum 4D Jackpot). However, the impact is marginal (circa RM200k per draw on lotto games).
Hence, we believe that 4D Jackpot has created a “new” market segment on its own and will result in elevated sales level.
With assumption of RM1.3m sales per draw under 4D Jackpot, revenue will increase by an additional RM224.9m or equivalent to 6.1% extra growth.
Drawing from Magnum 4D Jackpot experience, BToto 4D Jackpot sales per draw is expected to stabilize after 6 months and expand at faster rate than existing games.
The above expected change in overall sales mix (or reduction in 4D contribution) is expected to reduce group theoretical prize payout ratio given 4D Jackpot fixed payout of 55% vs. 4D’s variable 64.5%. This will result in elevated but more stabilized profitability and dividend payout.
Highlights
Since BToto launched its new game variant known as 4D Jackpot on 9 June 2011, its sales per draw have been growing rapidly. It recorded a sales of RM982k on its first draw, 35% higher compared to Magnum’s first sales per draw of RM725k. Average is now RM1.6m per draw
Our regression study and analysis suggest that there will be cannibalization on lotto and existing 4D games (but no impact on Magnum 4D Jackpot). However, the impact is marginal (circa RM200k per draw on lotto games).
Hence, we believe that 4D Jackpot has created a “new” market segment on its own and will result in elevated sales level.
With assumption of RM1.3m sales per draw under 4D Jackpot, revenue will increase by an additional RM224.9m or equivalent to 6.1% extra growth.
Drawing from Magnum 4D Jackpot experience, BToto 4D Jackpot sales per draw is expected to stabilize after 6 months and expand at faster rate than existing games.
The above expected change in overall sales mix (or reduction in 4D contribution) is expected to reduce group theoretical prize payout ratio given 4D Jackpot fixed payout of 55% vs. 4D’s variable 64.5%. This will result in elevated but more stabilized profitability and dividend payout.
KNM BUY Target Price RM2.80 by OSK Research
OSK Research is maintaining its trading buy on KNM Group with the fair value remaining unchanged at RM2.80.
KNM is undertaking the refinery/polypropylene and storage projects at Teluk Ramunia, Johor, and the research house said this could be a potentially positive contribution to the existing orderbook.
"Currently, we believe KNM Group's orderbook is still above RM5 billion while the tenderbook is over RM17 billion," OSK Research said.
KNM announced yesterday that it and Zecon Bhd have entered into two agreements with Gulf Asian Petroleum SB (GAP)for the refinery/polypropylene and storage projects at Teluk Ramunia, Johor.
The company said it would form a consortium with Zecon Bhd and Korean/Chinese contractors to undertake the engineering, procurement and construction (EPC) of the projects.
But more information is needed to gauge the financial impact on KNM, according to OSK Research.
"KNM will need to arrange a sukuk issuance of up to RM1.5 billion to cover the project financing during construction, while GAP will arrange a financial guarantee from a local investment fund of up to RM1.5 billion during the construction period, to be converted into a long-term loan thereafter and a facilitation fund of up to RM300 million," OSK Research said.
OSK Research believes KNM would have the financial muscle to take up the preliminary investment of RM240 million as its net gearing is still below 1x.
"Based on its 1QFY11 results, it had net debts of RM534.6 million with total debts of RM1 billion and cash equivalents of RM479.5 million. Hence, this also led to a net gearing of 0.3 times," OSK Research said.
Although these projects could potentially contribute positively to its FY12-15 earnings, OSK Research said it is keeping the FY12 forecast unchanged for now, pending more financial guidance from management.
"Also, due to past events, we harbour some doubts on whether the project will take off," it added.
Other than that, OSK Research believes that securing the project financing itself has some uncertainty given the huge sum needed.
KNM is undertaking the refinery/polypropylene and storage projects at Teluk Ramunia, Johor, and the research house said this could be a potentially positive contribution to the existing orderbook.
"Currently, we believe KNM Group's orderbook is still above RM5 billion while the tenderbook is over RM17 billion," OSK Research said.
KNM announced yesterday that it and Zecon Bhd have entered into two agreements with Gulf Asian Petroleum SB (GAP)for the refinery/polypropylene and storage projects at Teluk Ramunia, Johor.
The company said it would form a consortium with Zecon Bhd and Korean/Chinese contractors to undertake the engineering, procurement and construction (EPC) of the projects.
But more information is needed to gauge the financial impact on KNM, according to OSK Research.
"KNM will need to arrange a sukuk issuance of up to RM1.5 billion to cover the project financing during construction, while GAP will arrange a financial guarantee from a local investment fund of up to RM1.5 billion during the construction period, to be converted into a long-term loan thereafter and a facilitation fund of up to RM300 million," OSK Research said.
OSK Research believes KNM would have the financial muscle to take up the preliminary investment of RM240 million as its net gearing is still below 1x.
"Based on its 1QFY11 results, it had net debts of RM534.6 million with total debts of RM1 billion and cash equivalents of RM479.5 million. Hence, this also led to a net gearing of 0.3 times," OSK Research said.
Although these projects could potentially contribute positively to its FY12-15 earnings, OSK Research said it is keeping the FY12 forecast unchanged for now, pending more financial guidance from management.
"Also, due to past events, we harbour some doubts on whether the project will take off," it added.
Other than that, OSK Research believes that securing the project financing itself has some uncertainty given the huge sum needed.
Monday, July 25, 2011
AirAsia BUY Target Price RM4.34 by OSK Research
OSK Research Sdn Bhd has upgraded its fair value on AirAsia Bhd to RM4.34 from RM3.89 while maintaining its 'buy' call.
In a research note today, OSK said AirAsia's revenue passenger kilometres (RPK) and passenger carriage for first half of financial year 2011 (1HFY11) remained consistently strong, growing by 16 per cent and 23.2 per cent year-to-date.
"Considering that 1H is typically the weaker half of the year, AirAsia's numbers nevertheless remained consistently strong despite the fuel surcharge having taking full effect in May," it said.
It said AirAsia's second quarter earnings were expected to rise further quarter-on-quarter on the back of improving yields due to the fuel surcharge, loan factor and RPK.
In a research note today, OSK said AirAsia's revenue passenger kilometres (RPK) and passenger carriage for first half of financial year 2011 (1HFY11) remained consistently strong, growing by 16 per cent and 23.2 per cent year-to-date.
"Considering that 1H is typically the weaker half of the year, AirAsia's numbers nevertheless remained consistently strong despite the fuel surcharge having taking full effect in May," it said.
It said AirAsia's second quarter earnings were expected to rise further quarter-on-quarter on the back of improving yields due to the fuel surcharge, loan factor and RPK.
Wednesday, July 13, 2011
Monday, July 4, 2011
SPH BUY Target Price $4.32 by OCBC Research
Singapore Press Holdings (SPH) recently bid S$917m for a 99-year white site beside Jurong East MRT station and came just 5.4% below the top bid. We think management is committed to expanding their retail landlord business and could be interested in three GLS sites in 2H11, or TripleOne and 313@Somerset which are likely to come onto the market. We visited Clementi Mall and found that it has opened for operations smoothly with good foot traffic. Our S$4.32 fair value indicates an upside of 13.4% against the current price of S$3.81. Also, we think the downside is limited by an attractive dividend yield of 7.1%, which is underpinned by a core newspaper segment yielding solid recurrent cash. Upgrade SPH to BUY with a fair value estimate of S$4.32.
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