The Star Online: Business
The Star Online: Business |
- Cautious outlook for SEGi
- Hong Kong's sukuk bill on track but local interest dim
- Lagarde: M’sia can achieve 4.5% growth
| Posted: 14 Nov 2012 05:38 PM PST Market perform (downgrade) Target Price: RM2.02 WE met SEGi's founder and managing director Datuk Seri Clement Hii and its top management and came back with a more cautious view on the group's future outlook. This is due mainly to several issues including higher-than-expected staff cost increase as a result of its ongoing faculty expansion and slower pace of net increase in the number of students due to the high number of nursing student graduating. Also noted were the group's unfavourable decision to change its 50% dividend payout policy to a discretionary dividend policy due to business expansion and its need to solve some operational issues on its SkillsMalaysia International Technical Education and Vocational Training Programme (Invite) project before a major rollout targeted by mid-2013. Given the limited price upside and the more cautious outlook for SEGi, we are downgrading our call to "market perform" with a lower target price of RM2.02 (versus RM2.32 previously) based on an unchanged financial year ending Dec 31, 2013 (FY13) forward price-to-earnings ratio level of 13.7 times over our revised FY13E earnings per share of 14.8 sen (versus 17 sen previously). Our FY13 share capital calculation is based on 689.4 million shares after assuming 27.6 million conversion of the group's outstanding warrants in FY13. In line with SEGi's future expansion plans to become an integrated education player (pre-school, primary and secondary schools), the group has recently revised its dividend policy from a 50% dividend payout to a discretionary policy, where the payout will depend on the group's future cash flow ability. Management has indicated that the change was because it needed to conserve funds for future growth with its upcoming international school project capital expenditure budgeted at approximately RM180mil (inclusive of land purchase and construction of building). While the school is tentatively scheduled to be completed by end-2014, we believe that the group will gear up its existing net cash position at the expense of a higher dividend payout going forward. Hence, we have revised down our dividend payout assumption for FY13 to 30% (versus 50% previously) or a 2.2% of net dividend yield, based on a more conservative view while maintaining our FY12 dividend payout assumption at 50% or a 3% of net dividend yield. According to management, there were about 2,500 nursing students (or 9% of the total students) graduating in the third quarter of 2012, which has resulted in a sharp fall in SEGi's total student population. We believe the large graduation number was partly due to the higher number of nursing student intake during the "nursing bandwagon" in 2009. However, after the Government imposed a higher minimum entry requirement for the diploma nursing programme from three credits to five credits and reduced the value in the National Higher Education Fund Corp loan scheme for diploma students, the enrolment rate for the nursing programme has shrunk. In addition, management also foresees an additional two batches of nursing students to graduate in FY13. It aims to replenish the shortfall with the intake of more international and local students for various other programmes. All in, we estimate SEGi to have 27,500 (increase 8% year-on-year) and 30,300 (increase 10% y-o-y) students in FY12 and FY13 respectively (16% y-o-y growth in FY11). Recall that SEGi was appointed by the Government as project leader for SkillsMalaysia Invite back in 2011 to provide technical and skills-based training to foreign trainees and learners. We understand that the progress of this government-to-government initiative project is currently at an advanced stage. SEGi needs, however, to solve some operational issues before a major rollout targeting by mid-2013. Although the current number of trainees is small at this juncture, we gather that the memorandum of understanding allows for approximately 10,000 candidates from Vietnam to be trained under this project from 2012 to 2015 for various technical and skill-based courses. Management has clarified that the higher selling, general and administrative (SG&A) cost during the first nine months of 2012 was mainly attributed to higher staff cost due to faculty expansion and salaries increase, a one-off building maintenance of approximately RM2mil and higher lease rental. After taking all the above-mentioned factors into consideration, we have trimmed our FY12 estimate to FY13 estimate net profits by 15% and 13% to RM79.7mil and RM101.8mil, respectively, mainly to impute higher SG&A margin assumptions of 52.1% (increase 2.9%) and 50.9% (increase 3.8%) for those years. Outperform Target Price: RM10.90 GENTING Singapore (GENS) reported poor third quarter of 2012 (3Q12) numbers that were well below expectations. Resorts World Sentosa (RWS) is adjusting to find a steady state of growth in the face of tough regulation. Genting's diversified earnings base remains the best proxy for the group. We cut our earnings per share (EPS) forecasts by 3% to 9% following our earnings revisions for Our revised net asset value (RNAV)-based target price is lowered to RM10.90 following the revision in our target price for GENS, which makes up 45% of Genting's RNAV. Mergers and acquisitions (M&As) and restructuring opportunities remain key catalysts for Genting. GENS' 3Q12 results were well below expectations with the first nine months accounting for only 55% of our full-year estimate. As a result, we cut our earnings estimates for GENS by 15% for financial year ending Dec 31, 2012 (FY12), 20% for FY13 and 11% for FY15. We believe RWS has not gone ex-growth but making a difficult transition where the first two euphoric years unlocked significant pent-up demand. The next few years will involve finding a steady state of growth in the face of tough regulation both on the VIP and local mass market business. International mass market seems to be the only avenue of growth at this at this stage and management has set up a team specially to focus on this segment. However, it will require an extended amount to build the business which we have not factored into our forecast years for GENS. Since GENS makes up just over 40% of Genting's net profit, we cut our earnings per share for Genting accordingly. We were disappointed with GENS' performance as we had expected 2Q12 to be one-off event following the conscious effort to cut back on VIP credit. the third quarter showed underlying growth in both VIP and mass market gaming turnover was weakening. Genting remains a top pick in the Malaysian gaming sector for its diversified earnings base. M&As opportunities are also beckoning with the latest interest in Korean legislation apparently driving the recent share price movement. We expect Genting to have unencumbered cash of RM22.4bil in FY13. At price-to-book value of 1.4 times for FY13, valuations remain attractive as the stock traded at these levels only three times in the last two decades. PERISAI PETROLEUM TEKNOLOGI By Maybank Investment Bank Research Buy (unchanged) Target Price: RM1.40 PERISAI'S upcoming third quarter of 2012 (3Q12) results, due on Nov 20, will likely meet our estimates. More importantly, we are optimistic about its chances of securing a Malaysia-based floating production storage and offloading (FPSO) charter contract by end-2012, which would significantly boost its earnings, business profile and target price. There is upside to our forecast three-year net profit compound annual growth rate (CAGR) of 73% should Perisai bag this job. An emerging growth stock with multiple growth catalysts, Perisai remains one of our preferred small-cap oil and gas (O&G) plays. We expect 3Q12 earnings to be similar to 2Q12 results, with quarterly net profit of RM23mil. This would bring first nine months of 2012 earnings to RM70mil or 77% of our full-year forecast, in line with expectations. Earnings will be anchored by the charters for Enterprise 3 (E3) pipelay vessel, mobile offshore production unit (MOPU) Rubicon and eight offshore support vessels (OSVs) held under 51%-owned Intan Offshore, on a forecast 46:37:7 profit split. Following the recent charter extension for the eight OSVs under 51%-owned Intan Offshore on a three-plus-two year contract (which started on Sept 1), Perisai will enter talks with TL Offshore Sdn Bhd soon to extend E3's contract beyond June 2013. We do not foresee Perisai encountering any difficulty in securing the charter extension considering the robust plans for O&G activities in Malaysia and abroad in 2013. E3 gets US$1.9mil per month and an additional US$20,000 a day if usage is more than 270 days under the current charter terms. We foresee Perisai, in partnership with Emas Offshore, bagging Hess' FPSO charter for the Kamelia field. Its FPSO Arunothai, currently undergoing refurbishment works in Singapore, should be ready to meet its July 2013 work commitment. Unless the job is re-tendered, no FPSO is available in the market to meet this deadline. Our back-of-the-envelope calculation suggests a potential earnings increment of RM27mil to RM36mil per annum, based on a 50% stake in the US$400mil asset, 70:30 debt:equity financing, and 15% to 20% return on equity. This would be a major catalyst for the stock. Perisai will only enter into contracts requiring asset ownership if the job meets its internal project internal rate of return of 15%, and will cap its gearing at sub-2x. Operations will be Malaysia-focused as it capitalises on import-substitution demand for Malaysian-owned assets and services. We are confident that Perisai will secure a charter for its jack-up drilling rig, scheduled for delivery in July 2014, as it rides on the import-substitution effect. Of the 15 jack-up rigs operating in Malaysia, only one is locally owned. PLANTATION SECTOR By OSK Research Overweight (maintain) MALAYSIA'S palm oil inventory rose only marginally in October as exports remained robust while local consumption picked up and production entered a seasonal downcycle. While inventory may peak only this month or in December, signs of inventory flattening should trigger a recovery in palm oil price. We continue to believe a structural price upcycle will occur next year, albeit from a lower base. This will be propelled by a deceleration in Indonesia's production, coupled with sustained global consumption growth. Malaysia's production is entering a seasonal downcycle after peaking at two million tonnes in September. The inventory downcycle should commence soon with the production downcycle having begun. We note that since 2001, the decline in inventory has been averaging 436,700 tonnes from peak to trough, which will put inventory at 2.1 million tonnes by mid-2013. In a low price environment like the current one, the inventory decline could be even faster. During the 2008 to 2009 and 2009 to 2010 inventory downcycles, stockpiles were down by an average of 903,300 tonnes from peak to trough. This may put Malaysia's mid-2013 inventory trough at just 1.6 million tonnes. We note a marked increase in local consumption to 208,700 tonnes compared with the average 154,500 tonnes since the start of 2011. As there was no increase in oleochemical shipment during the month, the additional consumption could have been due to conversion to biodiesel in preparation for the nationwide rollout of mandatory B5 biodiesel. Despite concerns of demand weakness, China and India have continued to snap up edible oil. As China's imports of edible oil surged 25.8% through October 2012 is poised to be the first year since 2007 that China has raised its edible oil imports, which have been steadily declining since 2008. |
| Hong Kong's sukuk bill on track but local interest dim Posted: 14 Nov 2012 05:34 PM PST DUBAI: Hong Kong's bill to facilitate the issuance of sukuk, or Islamic bonds, is expected to be ready early next year but initially at least, it may attract little interest among issuers. In March, the government asked for industry feedback on the subject and this month, it said it aimed to introduce a bill in early 2013. A draft bill could take three months to prepare and then be passed quickly into law provided there is no controversy, said Marcellus Wong, co-chairman of the taxation policy committee at the Taxation Institute of Hong Kong, an association of tax professionals. But the appetite from local firms to tap the sukuk market does not appear to be as strong as it was when the idea of issuing sukuk in Hong Kong was first considered seriously. "It is good to have the framework in place but market interest has gone. The consultation was expected a few years back; the market is not that buoyant now," Wong said. "It is already a few years late." Previously, arrangers hoped that the main issuers of sukuk in Hong Kong would be mainland Chinese companies seeking to tap large pools of Islamic funds from southeast Asia and the Gulf. Hong Kong's market for yuan bonds has been growing rapidly; last year it saw over 100 billion yuan ($16 billion) of issuance from 81 issuers, three times the volume of 2010, according to the Hong Kong Monetary Authority. But recent trends within the market have not been favourable for yuan sukuk, analysts said. For one thing, the yuan stopped appreciating against the U.S. dollar in the first eight months of this year and although appreciation has resumed in the last few weeks, the market now sees greater risk of two-way movements in the Chinese currency. This has reduced the potential appeal of yuan-denominated sukuk to investors, making any deals more expensive for issuers, the analysts said. "Issuing sukuk is not a priority for Chinese corporates at this moment," said Ivan Chung, vice president and senior credit officer at Moody's Investors Service in Hong Kong. "Last year, it was almost purely a currency play with lots of short-tenor, small-amount, low-yield bonds. While the change in market dynamics has prompted currency-play investors to leave the market, issuers will be more inclined to launch longer-tenor bond with larger amounts, and thus more eager to attract a larger scope of investors. "Sukuk is more appealing to a niche investor base, which they (issuers) will likely consider after establishing the larger international institutional investor base." For potential Hong Kong issuers of sukuk, the territory's real estate sector would probably be the main source of assets to back the Islamic bonds. But returns on such assets have declined, making sukuk based on them less attractive. In September, monthly investment yields in Hong Kong's real estate market reached their lowest levels since data began in 1999, according to data from the government's Rating and Valuation Department. FIRST MOVER Davide Barzilai, banking partner and Asia Pacific head of Islamic Finance at Norton Rose in Hong Kong, said of expected sukuk issuance in the territory: "I think it will only be a small number - this is never going to be a major market." A first-mover will be needed to show how the laws work in practice, before most companies consider an issue, Barzilai noted. "It will have to stand the test from a real deal." The idea of a Hong Kong sukuk has been raised as far back as 2008, when the territory's Airport Authority considered selling an Islamic bond of up to $1 billion, but that issue has not materialised. "We have no further updates on both our financing plan and on the subject of sukuk financing," a spokesperson for the authority told Reuters. The most important aspect of Hong Kong's sukuk bill will be to clarify the tax status of sukuk. Islamic bonds can face heavy taxation because they involve multiple transfers of the assets backing them; bankers hope the bill will remove this obstacle. Amirali Nasir, chairman of the Islamic finance working group at the Hong Kong Law Association, said he expected the law to be passed within 2013. He noted that the government had accepted the industry's recommendation to add the wakala (agency) sukuk structure to four other types of sukuk covered by the bill, in order to broaden issuers' options. By the time the law is passed, however, many issuers and investors may have become used to issuing in other markets than Hong Kong - particularly Malaysia. In October, Hong Kong-headquartered Noble Group, a global trader and supply-chain manager, opted to issue a three-year, 300 million ringgit wakala sukuk in Malaysia. In September, Malaysia's mobile phone operator Axiata Group issued a two-year, 1 billion yuan sukuk, listed on the Malaysian and Singapore stock exchanges. Last year, Malaysia's sovereign wealth fund Khazanah issued a three-year, 500 million yuan sukuk, listed on the Malaysian and Labuan exchanges. Most interest in issuing yuan sukuk does not now come from Hong Kong or Chinese companies, but from Malaysian companies, said Hassan Ali Shah, special assistant to the chairman at Okasan International (Asia), a Hong Kong-based brokerage. In April, Hong Kong signed a tax treaty with Malaysia clarifying investors' tax liabilities, which has made it easier for Hong Kong investors to buy sukuk issued in Malaysia. - Reuters |
| Lagarde: M’sia can achieve 4.5% growth Posted: 14 Nov 2012 05:28 PM PST KUALA LUMPUR: Malaysia can achieve its growth target of 4.5% this year as it diversifies away from a reliance on external trade, according to International Monetary Fund managing director Christine Lagarde. "It is quite impressive to see Malaysia's gradual transition from an economy that was largely export-led to one that is more balanced between exports, investment and domestic consumption. "I believe this is a sustainable pattern," she told a press conference yesterday at the start of her three-country tour of South-East Asia. She is on her maiden visit to Malaysia as head of the IMF and will visit the Philippines and Cambodia next. The IMF's first female chief added that she was impressed by Malaysia because of two factors. "The first is the combination of short-term objectives and a much longer-term vision with the identification of those sectors that will be driving the economy forward. "The second thing is that the country's economy includes many players from the real economy, whether it is the public or private sector, as well as the financial sector." However, she highlighted three risks that Malaysia needed to address, the first being its foreign direct investment, which she said had yet to return to pre-crisis levels. "There is a need to ask why. Next is the high level of debt and the third is inequality." In her speech later, Lagarde said that while the country had held up well so far with growth at above 4.5%, it remained in "risky territory". "This year, growth in emerging Asia fell to its lowest level since 2008, partly from domestic slowdowns in China and India, but also because of strong gusts from storms in the West. "Demand from Europe and the United States each accounts for about a third of emerging Asia's net exports. Foreign participation in local sovereign debt markets has nearly doubled over the past five years. "Again we see this here in Malaysia, where foreigners now hold almost 30% of government bonds. So, from all sides, Asia is exposed to sudden shifts in sentiment. "Going forward, we believe growth will pick up again, and Asia will retain its position as a growth leader, expanding 2% faster than the world average next year." On Greece, she stressed that its creditors were on the same page in their mission to rescue the debt-stricken nation, even as she fell out with eurozone finance ministers earlier this week on its deficit targets. "All partners share the same objective and concern to make sure Greece is back on track and can return to economic stability as soon as possible. From the IMF's perspective, we expect a real fix, not a quick fix, and that means debt that is sustainable," Lagarde pointed out. AFP reported that she and Eurogroup president Jean-Claude Juncker had on Monday "clashed openly" in a rare public disagreement on Greece's bailout schedule. Lagarde had insisted that Greece should stick to its original target of trimming its debt-to-gross domestic product to 120% from some 170% currently by 2020, while eurozone finance ministers are considering extending the deadline to 2022 amid crippling austerity protests in the southern European state. Greece's debt is forecast to rise to 190% of its gross domestic product next year. |
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