Thursday March 7, 2013
Stronger Iskandar Malaysia thematic seen post-election
By Maybank IB Research
WE maintain a “neutral” stance, with positive bias. Developers with large exposure in Iskandar Malaysia have seen strong investor interest since December 2012.
This follows news flow of rising foreign investments and the proposed JB-Singapore Rapid Transit System (RTS) by 2018, which would be positive for property prices.
Land banks at Iskandar Malaysia should re-rate further with the listing of Iskandar Waterfront Holdings (IWH) in the fourth quarter of 2013. Post-general election, we think the Iskandar Malaysia thematic will become stronger.
Any weakness in share prices following the dissolution of Parliament thus offers opportunities to accumulate. Our picks are UEM Land and Sunway.
IWH, the third-largest landowner in Iskandar Malaysia after UEM Land and Genting Plantations, could be the second-largest listed developer by market cap on Bursa Malaysia after UEM Land.
The listing could re-rate other existing players, depending on the values assigned to IWH's land bank on listing and the realisable net asset value of its projects in Iskandar Malaysia.
We see UEM Land as the best alternative to IWH, given its similar government-linked shareholding, product offering and close proximity to IWH's land bank.
Other alternatives are Sunway, Crescendo, Tebrau and Mulpha International.
Iskandar Malaysia stands out as a compelling and convenient investment destination for Singaporean companies due to its close proximity to the island.
Warmer bilateral ties and policies friendly to foreign investment have attracted considerable investment in Iskandar Malaysia thus far, including from CapitaLand, Ascendas and Temasek.
Their investments, which have raised Iskandar Malaysia's profile at the international level, should attract more foreign and Singaporean investments into Iskandar Malaysia in future.
RTS and High-Speed Rail (HSR) are positive for property prices. The proposed RTS and KL-Singapore HSR, which will improve connectivity and shorten travelling time between Johor Baru-Singapore and KL-Singapore, will further boost Iskandar Malaysia' profile as a lower-cost alternative location to Singapore.
As the authorities release more information on the location of the RTS (Thomson line-Tanjung Puteri) and HSR (Nusajaya) stations, we expect demand for properties nearby to surge.
The biggest beneficiaries are IWH (RTS) and UEM Land (HSR).
Recent land transactions at record prices (for example, Country Garden's land in Danga Bay transacted at RM376 per sq ft) will re-rate property and land prices in Iskandar Malaysia and are positive for existing landowners.
Property prices at Iskandar Malaysia will be further lifted by a better transportation system (RTS tram system and HSR). AXIATA GROUP BHD
Market perform (unchanged)
Target price: RM6.86
Indian newspaper Business Standard reported that Axiata had approached Bharti Airtel to acquire the Indian operator's business in Sri Lanka and also Hutchison to acquire the latter's Sri Lankan operations.
The Indian daily said Airtel Lanka, the operating company of Bharti Airtel in Sri Lanka, has an estimated market share of 8%-9% versus Dialog Axiata of 40%.
Airtel Lanka has 1.7 million customers across 25 administrative districts and offers 3.5G services in the major Sri Lankan towns and has a distribution network of 42,000 retailers.
The news is not a surprise to us as Axiata has always reiterated its forward strategy (to the investor community) to focus on in-country consolidation within its subsidiary companies.
We understand that Bharti Airtel has invested over US$325mil (RM1.01bil) in its Sri Lanka operations. Airtel Lanka is currently providing an island-wide coverage, supported by 1,600 towers covering all 25 districts.
Of these, over 650 towers offer 3G services to each region. In fiscal 2012, Dialog contributed 7.7% to the Axiata Group's total turnover of RM17.6bil.
Its normalised profit after tax and minority interests, meanwhile, accounted for 6.2% of the Axiata Group's core net profit of RM2.8bil.
Funding is not an issue in our view should any in-country consolidation exercise materialises. As at end-2012, the group has a cash pile of RM7.9bil with a gross debt/earnings before interest, taxes, depreciation, and amortisation ratio of 1.7 times.
The ratio is still below its optimal capital structure of two to 2.2 times gross debt/earnings before interest, taxes, depreciation, and amortisation level, suggesting that Axiata still has room to leverage up its balance sheet if needed.
We estimate that Axiata can raise up to RM3.6bil if the company decides to maximise its optimal capital structure.
The group's data business is expected to continue to be its main growth driver in 2013, especially in the more mature markets.Meanwhile, we believe competition is intensifying in both Robi (Bangladesh) and Dialog (Sri Lanka) while XL (Indonesia) may continue to face challenges due to the changing industry dynamics.
We maintain our target price at RM6.86 based on an unchanged targeted fiscal 2013 enterprise value/forward earnings before interest, taxes, depreciation, and amortisation of 8.7 times.
Target price: RM4
We understand QL Resources has acquired a surimi manufacturer in Kuantan with around 5,000-tonne capacity for RM22mil.
The added capacity could contribute about RM2.5mil in pre-tax profit per year (11% of QL Resources' 2013 forecast for surimi manufacturing's pre-tax profit) and expand QL Resources' surimi market share to about 70%-80% (from circa 60%). This could translate to potential circa 1% upside to 2014 to 2015 earnings.
QL intends to invest in a prawn aquaculture business in Kudat, Sabah, with RM50mil in capital expenditure over four years.
This business could start in 2015. The group is also exploring possible acquisition of a surimi-based manufacturer in China to expand its market presence.
Over the medium term, earnings growth is supported by its Indonesia operations with doubling of fish-meal production to 10,000 tonnes by end-2013, doubling of egg production to 900,000 per day by end-2013, increasing day-old-chick production to 2.5 million (from 1.3 million) by end-2013 and targeted completion of new feedmill in April 2014.
Also, QL Resources has been raising its stake in associate Boilermech, given the strong synergies between their respective businesses. We maintain “buy” with a discounted cashflow-based RM4 target price.
Its 13 times 2014 price earnings is inexpensive, based on its three-year earnings per share compounded annual growth rate of 16%, while having major domestic market share for its key businesses.