Monday June 18, 2012
Maybank to lead in Asean
By Kenanga Research
Target price: RM10.40
SINCE the launch of Malayan Banking Bhd's Global Wholesale Banking (GWB) operations, which included corporate banking and investment banking in July 2010, the group has made significant progress in building up the GWB's business. We are convinced that it's Maybank's wholesale banking would eventually become a leading player in the Asean region.
We continue to maintain our “outperform” rating with an unchanged target price of RM10.40.
Under Maybank's Enterprise Transformation Services programme, GWB is one of the three pillars under the new Maybank group. It aims to regain domestic leadership and aggressively pursue an Asean market expansion through better client interaction. Since the start of this transformation programme, the group has been gaining market shares in both the corporate and investment banking businesses locally.
In the first quarter ended March 31 (1Q12), Maybank IB was ranked either first or second place in a few IB businesses such as merger and acquisitions, equity capital market, debt capital market and equity brokerage. This has contributed positively to the group's strong 1Q12 performance.
Maybank's 1Q12 profit after tax (PAT) of RM1.347bil made up 27% of the consensus' forecast and 26% of ours. Its non-interest incomes were RM1.654bil, a 54.5% increase year-on-year, on the back of stronger local IB business and Kim Eng's contribution in the quarter.
Corporate banking and Investment banking contributed RM800mil to RM5.020bil total revenues, which accounted for 39% of total revenues in 1Q12.
The group remains optimistic on its 2Q12 profit guidance as it still has a strong pipeline of investment banking deals. Although, the economic situation remains volatile with the eurozone crisis, we believe that positive growths in the local ETP's related sectors are expected to stimulate private investments and in turn, spur domestic loans growth as well as fuel local capital market activities.
The next journey would see the group aiming to be a leading wholesale bank in Asean by 2015. Areas of opportunities in the region include driving more cross border deals, growing its Islamic banking business and seeking more treasury products businesses, which should result in a non-interest income growth over the medium term. Maybank is likely to be one of the key beneficiaries from ETP projects rollout this year with its corporate loans growth likely to see an impressive rise for the second half (2H) of the year.
We do not discount the possibility of the group delivering or even outperforming its FY12 total loans growth target of 16.2%. Adding to that, earnings upside could also come from a lower credit charged-off rate going forward as well as a stronger than expected fee-based incomes after the acquisition of Kim Eng. The group offers a good dividend yield of 6.3%.
SAPURAKENCANA PETROLEUM BHD
By CIMB Research
Target price: RM2.90
WE continue to rate SapuraKencana Petroleum Bhd as “outperform” at 18.2 times calendar year 2013 (CY13) price earnings ratio (P/E), which is a 40% premium over our target market (P/E).
It is still our top pick for oil and gas (O&G) big caps. Management recently shared the good news that the Berantai marginal field is set to produce first gas by August. We are encouraged that the construction of seven new vessels, namely two drilling rigs, two derrick lay vessels and three pipelay or diving support vessel (PLSV), is on track. The delivery of the new assets in CY14 will allow SapuraKencana to undertake larger and more complex jobs.
The three new PLSVs are required to execute three contracts worth US$1.4bil that were awarded by Brazil's state-owned Petrobras in November 2011. The contract accounts for 31% of SapuraKencana's order book.
It calls for the charter and operation of the three PLSVs for five years from 4QFY1/15. All three vessels will work in Brazil.
Datuk Shahril confrmed that SapuraKencana and Norway's Seadrill are bidding for its second project in Brazil to capitalise on the country's burgeoning O&G sector. It will involve the charter and operation of six 600-tonne PLSVs, of which SapuraKencana and Seadrill hope to clinch three. Seadrill is SapuraKencana's major shareholder with a 6.4% stake and a drilling partner.
We understand the biggest challenge SapuraKencana faces is human resources. Currently, the workforce of 9,000 across more than 20 countries is sufficient but with the delivery of seven new assets in CY14 and potentially more marginal fields, it will need more offshore personnel.
With RM15bil worth of existing contracts in its orderbook, management is upbeat about the prospects in Malaysia and Brazil. The company has set its sights on RM12.5bil worth of projects, which does not include potential new marginal field jobs. We understand that the company is bidding for another marginal field project with UK's Petrofac.
We encourage investors to accumulate the stock aggressively. The company has an attractive growth story, offering three-year earnings per share (EPS) compounded annual growth rate (CAGR) of 39%, on the back of contributions from Berantai and swift fleet expansion. Its earnings visibility is good given a solid and long-term order book that will last up to FY1/20.
Target price: RM5
TOP Glove Corp's third quarter and nine months' core net earnings for financial year ending Aug 31, 2012 (FY12) beat our and consensus' expectations.
Its nine months FY12 core net profit of RM141mil (excluding fair value impact of forex contracts) is 79% of our FY12 estimate.
Revenue grew 10% quarter-on-quarter, led by a 9% increase in sales volume, stronger US dollar/ringgit (+6%) and higher average selling price from higher latex prices (+7%).
The company's EBITDA (earnings before interest, taxes, depreciation and amortisation) margin continued to improve, to 13.9% from 12.8% a quarter ago.
The company also declared a seven sen (single-tier) interim dividend per share with ex-date on Jun 28.
Meanwhile, the management expects the RM900 per month minimum wage to be implemented in January 2013 to raise its wage costs by 30%.
Hence, it is pumping in RM40mil to RM50mil capital expenditure to increase automation of processes (robotic arm, auto-packing and stacking system) at its factories, which would need 100 workers less per factory (they will be deployed to its expansion project) and thus, contain the increase in its wage bill to 10%, which we expect to be passed on to customers.
We maintain our hold rating on the stock, and raised our target price to RM5per share, pegged to 15.5 times current year 2012's earnings per share.
We lifted FY12/13 forecast earnings by 8%/1% after imputing higher revenue and sales volumes.
Top Glove will be able to maintain EBITDA at 14% if raw material prices are close to current levels (year to date - May average latex price is RM7.50 per kg).
By RHB Research Institute
Market Perform (maintained)
Target Price: RM2.82
AXIS REIT announced a proposed acquisition of two properties in Petaling Jaya (the Wisma Academy parcel and the annex) for a total purchase consideration of RM85mil. With the inclusion of these two assets, Axis REIT's total investment assets value will now be in the RM1.5bil region. Axis is also proposing a placement of up to 90.8 million new units, or about 20% of its existing 453.8 million units.
We are not surprised by the proposed placement exercise, as Axis REIT has previously issued new units as part-funding for its asset acquisitions.
The larger of the two assets, the Wisma Academy parcel (representing 91.02% of the share units in the strata-titled Wisma Academy) includes an office and warehouse.
Total net lettable area (NLA) is about 234,000 sq ft. As at Apr 2012, occupancy stood at 77%; however, the management expects this to increase to 100% upon the completion of the acquisition, when the new tenancy agreement is executed. Tenants include Tenaga Nasional Bhd and also Axis REIT's Manager.
The annex, which is smaller in size with total NLA of 37,000 sq ft, consists of a showroom and warehouse with occupancy at 100%. Net yields for the assets are at 8.5% (Wisma Academy) and 6.7% (annex).
We believe that the net yields are reasonable, as they are still above the REIT's estimated gross yield of 6.6%. Furthermore, the annex represents less than 1% of Axis' total NLA, hence any dilutive impact would be negligible.
We are estimating year-end gearing to be at 29.5%, which is still below the Securities Commission's gearing cap of 50% and Axis' internal gearing target of 35%. Also taking into consideration of the placement proceeds, Axis will have sufficient funding capacity for more asset acquisitions.
With the acquisition expected to be completed in 4QFY12, we estimate that the assets will only start their revenue contributions from the first quarter of FY2013 onwards. Although our FY2012-2014 net profit estimates have increased, our EPU forecasts are reduced by 2.4% to 3.7% per annum as we assume that about 45 million new units (50% of the 90 million under the proposed placement), will be issued as part-funding for its acquisitions this year (including Nilai's property cost of RM26.5mil), hence leading to a larger unit base.
We expect to incorporate the remaining half of the placement units next year when more acquisitions are executed.
Despite the downward adjustments in earnings per unit and dividends per unit (DPU), our Dividend Discount Model based fair value is raised to RM2.82 (from RM2.76) as we also fine-tune our cost of equity assumptions. We maintain our market perform call on Axis REIT. We reiterate our view that the REIT will have to do more yield-accretive asset acquisitions over the near term if it wants to grow its DPU again.