Wednesday May 8, 2013

CIMB: Good time to accumulate Tenaga

Analyst Reports


By CIMB Research

Outperform (upgraded)

Target price: RM10.20

WE upgrade Tenaga to “outperform” from “trading buy” as Barisan Nasional's win ensures continuity of reforms.

We change our valuation method from 1.37 times price to book value (P/BV) of 15% below the 10-year average to 14.2 times price-to-earnings ratio (P/E), in line with the KLCI's three-year rolling average, as we believe investors should focus on earnings and not cost volatility alone, which lifts our target price.

Tenaga is our new top pick and would be catalysed by tariff reforms.

Barisan won 133 of 222 parliamentary seats in the 13th general election, retaining power of the federal government with a decent majority.

This gives the coalition a fresh mandate for five more years, reducing the probability that punitive policies will be implemented in the power sector.

We believe Tenaga is the primary beneficiary of this news as it owns 50% of Peninsular Malaysia's generation capacity and fully controls transmission and distribution.

Also, a continuation of Barisan at the Federal level provides comfort that electricity tariff reforms will accelerate as natural gas subsidies are not sustainable.

This includes the implementation of a stabilisation fund and/or the incentive-based regulation (IBR) framework.

The former will ensure Tenaga's costs are fully accounted for while the IBR will set clear rules for changes in electricity tariffs.

At the same time, Malaysia will appoint a new energy minister as Datuk Seri Peter Chin did not seek re-election in the general election.

A change at the top could mean tariff reforms stall but we believe this probability is low.

Malaysia's tariff framework must be enhanced and energy subsidies cannot continue in its current form.

Investors should accumulate Tenaga stock as we believe risks to the government's reform agenda are lower. With a fresh mandate, Barisan can take a longer-term view and implement tariff reforms in a stable, structured and systematic manner.


By Kenanga Research

Neutral (maintained)

WHILE modest improvements continued to be seen in the global semiconductor sales as well as the Semiconductor Equipment and Materials International's (Semi) book-to-bill ratio, we are maintaining our “neutral” rating on the sector as we understand that the recovery will only be reflected in the local companies in three to six months' time.

Global semiconductor sales in March 2013 continued to inch up on a year-on-year (y-o-y) and month-on-month (m-o-m) basis.

According to the Semiconductor Industry Association, global semiconductor sales in March 2013 inched up by a mere 0.9% y-o-y to US$23.5bil.

In terms of the regional sales performance breakdown, the decent growth contributed by the Asia-Pacific (+6.9% y-o-y) and Europe (+0.7% y-o-y) segments was negated by the sharp decline in the Japan (-18% y-o-y, which also reflected in part the devaluation of the Japanese yen) and Americas segments (-1.5% y-o-y).

On a m-o-m basis, global semiconductor sales in March 2013 grew by 1.1% from its low base in February 2013 (due to a weak seasonal trend) driven by the Europe (+5.7%) and Asia-Pacific (+1.7%) segments despite the weaker sales of the Americas (-1.9%) and Japan (-1.6%) segments.

Semi's book-to-bill ratio came in higher at 1.14 times in March 2013.

According to Semi, the book-to-bill ratio for North America-based semiconductor equipment manufacturers improved to 1.14 times in March from 1.1 times in February.

A ratio of 1.14 times means that US$114 worth of orders were received for every US$100 of products billed for the month.

On a m-o-m basis, March's bookings grew by 6% while billings also increased by 3%. On a y-o-y basis, February's bookings and billings both declined by 21% and 22% respectively.

Although the ratio of 1.14 times points to a stronger demand, a y-o-y comparison basis on absolute bookings and billings numbers suggests that both orders and billings still remained relatively soft and we reckon that this could be due to the ongoing pressure from a frail global economy.

Unisem Bhd's financial year 2013 first quarter results came in below expectations, although the group managed to narrow its earnings before interest and taxes with the rationalisation of certain low margin and unprofitable product lines.

The main culprit was the weaker top line performance (-3% y-o-y, -7% quarter-on-quarter) dragged down by a lower sales volume in its Asia segment.

While Malaysian Pacific Industries Bhd's financial year 2013 third quarter results managed to return to the black, driven by stringent cost controls, its results, nonetheless, came in below market expectations due to flat revenue growth.

If we were to take the latest results of these two main players as indicators, other tech companies' 2013 first quarter results under our coverage could also come under pressure, mainly on the back of lacklustre sales momentum amid the frail global economic condition.

On a macro view, while modest improvements continued to be seen in these main indicators, we are still being prudent and prefer to err on the conservative side as we understand that the recovery will only be reflected in the sales of the companies in three to six months' time.

Thus, we are reiterating our earlier conviction that any light at the end of the tunnel could only be seen in second half of this year on the back of a catch-up in global chip demand amid a possible better global economic condition then.


By Maybank IB Research

Buy (unchanged)

Target price: RM1.40 PERISAI'S first quarter results, to be released today, are unlikely to spring any surprise.

Overall, we expect a stronger second half vis-vis the first half for this year both operationally and financially, as activities pick up.

We see upside to our forecasts - three-year net profit compounded annual growth rate of 21% - for the earnings impact from its second rig has not been incorporated into our forecast yet.

We expect Perisai's first quarter net profit to just about match its last year's performance at RM23mil, making up 23% of our full-year forecast. Earnings will be driven by the charter of mobile operating production unit at 61%, followed by its pipelay vessel E3 at 28% and the operation of eight offshore support vessels at 11% and our forecasts are unchanged.

We expect Perisai to secure its maiden jackup rig contract by second half of this year, before the delivery of its Pacific 101 jack-up rig by end of July 2014.

Perisai should command prevailing market rates of about US$150,000 to US$170,000 per day for this rig.

Meanwhile, we expect its 51%-owned floating, production, storage and offloading (FPSO) to be deployed in July 2013.

Perisai will likely dispose of its pipelay vessel (E3) concurrently with the deployment of the FPSO.

Nevertheless, there is further upside to our earnings estimates, for we have not incorporated profit contributions from its second jack-up rig, scheduled for delivery by second quarter of 2015.

Our forecasts incorporate a net profit of RM50mil per annum from its first rig charter (i.e. Perisai Pacific 101, on assumption daily charter rates of US$160,000)

Perisai trades at financial year 2013 to 2015 price-earnings ratio of eight to 11 times, undemanding relative to its strong fundamentals of robust earnings growth potential and a proactive management team.

The stock should gain wider traction and re-rate as UMW lists its oil and gas division comprising largely drilling rig operations, which is similar to Perisai's, at potentially higher ratings.


By RHB Research


Target price: RM18.66

IN our recent discussions with new managing director Hans Essaadi and finance director Mahendran Kapuppial, it is clear that the company will continue to innovate over the next 15 months and possibly roll out new brands.

GAB will also beef up its marketing efforts to gain further traction among the younger generation.

We were told that the company intended to upgrade its product packaging and extend the lines for its three core brands of Guinness, Heineken and Tiger, and was also exploring the prospects of introducing a new beer to the Malaysian market. Apart from the heavy investments in marketing, GAB is also putting more emphasis on maximising consumer experience at the point of purchase.

Although the company has historically focused on brewing and distributing beer to outlets, it is now also emphasising quality at the retail level in order to enhance volume growth and protect its brand equity.

While the risk of the excise duty for beer being raised has increased now that the general election is over, we do not expect a duty hike for the brewers because the sector has a role in the health of the tourism industry. Besides, Malaysian beer duties are already the second highest in the world.

Dividend yields have narrowed substantially following the stock's recent price appreciation, falling to a historic low of just 3.7%.

Now that the election overhang is over, we think that investors will turn to the more cyclical sectors, which will reduce the premium attached to strong and stable consumer companies.

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