Saturday February 16, 2013

Bumi Armada set to make waves in India

Outperform (maintain)

Target price: RM4.44

BUMI Armada Bhd is likely to make waves in India as it is tipped to be the frontrunner to secure Oil and Natural Gas Corp (ONGC's) Cluster 7 (C7) floating production storage and offloading (FPSO) contract, reported Upstream Online.

We continue to value its stock at 18.6 times calendar-year 2014 price-earnings, a 40% premium to our target for the market in view of Bumi Armada's solid earnings visibility.

New FPSO contracts are potential re-rating catalysts for our unchanged “outperform” call.

Upstream Online reported that India's state-owned ONGC was negotiating with Bumi Armada on a contract for FPSO vessel for deployment at the C7 marginal field development off India's west coast.

A fellow Malaysian, M3nergy, is the only other short-listed bidder. ONGC is offering a nine-year contract, extendable by another seven years in one-year increments. It estimates the day rate for the FPSO at around US$180,000 (RM558,000) and would reportedly accept day rates plus or minus 10%.

We are thrilled by the positive updates on the C7 contract, which we understand could be awarded as early as this month, as highlighted in our Feb 6, 2013 visit note. Bumi Armada has always been seen as the frontrunner for the contract because it had won a previous D1 FPSO contract from ONGC.

In addition, the company is bidding for seven other FPSO contracts: one each in Malaysia, Indonesia and Angola and two each in Nigeria and the North Sea. Malaysia's Belud could be rolled out next month, followed by the North Sea's Kraken by mid-year.

At the moment, Bumi Armada has five FPSO contracts: two in Nigeria and one each in Vietnam, India and Australia.

Despite a dry spell in 2012 for the global FPSO market, Bumi Armada's earnings visibility is solid, backed by long-term contracts, which support our three-year earnings per share compounded annual growth rate of 24.3%.

The FPSO primary terms will last until 2018 to 2019 but extension options could stretch until 2025 to 2026.

CIMB GROUP HOLDINGS BHD

By RHB Research

Trading buy (maintain)

Target price: RM8.70

CIMB Niaga reported fourth quarter for the financial year ended Dec 31, 2012 net profit of 1.13 trillion rupiah (growth of 42% year-on-year; 1% quarter-on-quarter), which brought 2012 net profit to 4.2 trillion rupiah (growth of 33% year-on-year).

Quarter-on-quarter, net profit was flattish with lower overheads (drop of 4.5% quarter-on-quarter) due to lower personnel cost (minus 18% quarter-on-quarter) largely offset by higher impairment allowances.

Thus, while fourth quarter of 2012 cost-to-income ratio (CIR) improved to 43.6% from 46.7% in the third quarter of 2012, quarterly credit cost rose nine basis points (bps) quarter-on-quarter to 23bps.

Fourth quarter of 2012 net interest margin (NIM) was down 13bps quarter-on-quarter mainly due to the dilution in average asset yield (minus 22bps quarter-on-quarter), which we believe reflects the stronger loan growth from the corporate and high-end commercial segments.

Gross loan growth picked up pace, up 16% year-on-year and 5% quarter-on-quarter with year-on-year growth in line with the guided range.

Quarter-on-quarter loan growth was driven by the commercial and corporate segments while year-on-year growth was broadbased, with retail, commercial and corporate loans up 14%, 22% and 9% year-on-year respectively.

Total customer and current and savings account (CASA) deposit growth stood at 15% and 12% year-on-year respectively. Thus, group loan-deposit ratio inched up quarter-on-quarter to 95% while CASA ratio stood at 42.3% at end-2012.

Absolute gross non-performing loan was flat quarter-on-quarter but with the continued loan growth, the gross impaired loan ratio improved 16bps quarter-on-quarter to 2.68%.

No growth numbers were provided for 2013, but it appears that CIMB Niaga is expecting a pick-up in loan growth for the corporate (e.g. better economic conditions) and consumer (e.g. mortgages from segmented marketing approach) segments.

Auto loan growth, however, is expected to be impacted with the introduction of loan-to-value requirements for syariah financing by both Bapepam and Bank Indonesia this year. That said, the longer-term target is for the consumer segment to make up 40% of loan mix (versus 30% currently).

Management guided for NIM compression of 15bps to 20bps this year mainly due to competition, cushioned by efforts to grow CASA. Finally, investments in systems this year is expected to put some slight upward pressure on overheads.

CIMB Niaga guided for CIR to rise to around 47% to 48% versus 45.8% in 2012.

Niaga's full-year results contribute around 34.5% to our 2012 group pre-tax profit forecast. We have retained our fair value of RM8.70. We see CIMB as an excellent proxy to the ongoing rollout of projects under the Economic Transformation Programme, public private partnership and various economic corridor projects.

However, a near-term risk we see is the upcoming general election, although this could present investors the opportunity to “buy on weakness”. “Trading buy” recommendation maintained.

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Saturday February 16, 2013

Bumi Armada set to make waves in India