Business

Saturday March 7, 2009

Broker's Call


Proton Holdings Bhd       (RM1.67 as at March 5)

Proton Holdings Bhd suffered a third quarter loss of RM75mil for financial year 2009, compared with a RM44mil profit for the previous quarter in the same financial year. Revenue for the third quarter amounted to RM1.5bil compared with RM1.8bil in the preceding quarter. The company said the net loss was due to operating inefficiencies as a result of the lower volumes and the surge in prices of raw material and higher exchange rates for the yen and US dollar.

Comment by OSK: In the second quarter of the current financial year, we had highlighted that Proton’s margin could be at risk as it was already experiencing losses at gross level. This RM75mil net loss is expected to drag down its profit.

We estimate its annualised net profit to fall short by 85% and 78% below consensus. We are, therefore, also drastically cutting our earnings by 80% for financial year 2009, and 71% and 69% for 2010 and 2011 financial year.

We estimate that on average each vehicle produced incurs up to about US$700 in raw materials, bringing the total raw material cost that is subject to fluctuating currencies to RM467mil (12% of cost of goods sold) for FY09, assuming an average of RM3.50/US dollar. The yen and US dollar have surged by 12% each since the second quarter, thus putting cost pressure on raw material prices, which were still high during that quarter, before falling sharply in November 2008.

Proton typically makes orders three to six months in advance for raw materials given its huge volume. Assuming a one to two-month lag effect, starting from the upcoming quarter, we anticipate the full effects of lower material prices to benefit the group. Thus, we reiterate that profitability margins would be razor-thin, with net profit margin of only 0.5% for FY09.

In terms of valuation, at a trough of 0.16 price to net tangible asset (P/NTA) given the earnings risk on potential losses, we derive a target price of RM1.46 (from RM1.82).

Recommendation: SELL

Guinness Anchor Bhd (Rm5.40 as at March 5)                                   

Guinness Anchor Bhd recorded sales of RM1.1bil for 2007 and RM1.2bil for 2008 financial year. Pre-tax profit was RM152.8mil and RM168.8mil respectively.

Comment by Maybank Research: The malt liquor market (MLM) registered a double-digit growth in 2008. Guinness Anchor Bhd, being the market leader with an estimated 58% share, benefited from the growth, registering more than 12% increase in volume in 2008.

Its first half year 2009 sales rose 12.8% year-on-year, which is in line with industry volume growth. We understand that cheap retailing prices seen in hypermarkets during the Chinese New Year sale reflects heavier price discounting by its key rival, as well as retailer subsidies.

Nevertheless, we still expect Guinness to deliver 6% to 7% earnings growth in FY09. Our forecast implicitly assumes that 2H09 earnings would flatten out or contract mildly year-on-year as consumers reduce discretionary spending amid a sharp economic slowdown.

Adding an important buffer to our forecast, it appears that the government is in favour of abolishing the security ink ruling, which could provide Guinness an annual savings of RM15mil. Finally, we take the view that the government is unlikely to raise excise duties on beer and stout this year.

Guinness remains one of our favourite high yielding picks, providing a prospective FY09 gross dividend yield of 9.4%, lifting the prospects of a more generous dividend policy.

Recommendation: BUY with a target price of RM6.20.

Scomi Group Bhd (31.5 sen as at March 5)

Scomi Group Bhd reported a pretax profit of RM141.6mil for financial year 2008, about half of its previous financial year. Net profit (earnings) was RM116.6mil, 60% less than the RM285mil in 2007.

Comment by AM Research: Although Scomi’s financial year 2008 earnings of RM116.6mil was considerably less than the previous year, it is actually 41% above our forecast of RM81mil and 18% above consensus. This better-than-expected performance was mainly due to stronger than expected sales growth (+6%) in the oilfield services (OFS) segment, where we forecast a growth of 1%.

Nevertheless, the operating profits for both its oilfield services and energy & logistics dropped considerably, that is, 38% and 47% respectively. Incidentally, both these divisions are the main drivers of Scomi.

Margins were weak due to intense competition and high materials cost which is slow to adjust to market prices. Additionally, Scomi made a one-off provision amounting to RM32mil relating to its inventories and bad debts.

We expect flattish growth from financial year 2009 and 2010.

As for Scomi Engineering Bhd’s monorail project in Mumbai, the company had earlier won the contract to design, develop, construct, operate and maintain that 20km monorail line.

To be completed over a 30-month period, the contract includes a three-year operation and maintenance contract.

We are cautious on this RM823mil project given the poor record of Malaysian construction companies in past Indian projects. These companies have had to incur additional costs due to complex regulations and tough operating environments.

The management’s target of at least 10% margin for this project may be a bit optimistic.

As for Scomi Marine Bhd, its 2008 financial year net profit increased 20% year-on-year despite a flat revenue growth of only 1%, mostly driven by strong contribution from its 29% associate CH Offshore Ltd.

This division contributed 85% of Scomi Marine’s profit after tax in the last quarter of the 2008 financial year. Although charter rates could see a decline, this unit is secured by medium to long term contracts until 2011.

Recommendation: SELL

 
PROTON :  [Stock Watch]  [News] 
GUINESS :  [Stock Watch]  [News] 
SCOMI :  [Stock Watch]  [News]


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