The Star Online: Business
The Star Online: Business |
- FBM KLCI maintains positive note in morning trade
- Malaysian tycoon to take Guoco Group private for US$1.1bil(update)
- P&O in win-win deal
| FBM KLCI maintains positive note in morning trade Posted: 11 Dec 2012 06:32 PM PST KUALA LUMPUR: Wednesday's trading at 10am on the FBM KLCI remained positive from the start of the day, at 1646.61, 5.04 points or 0.31% higher. A total of 188.88 million shares were traded with a turnover of RM250.5mil. Gainers led losers 215 to 118 while 182 counters were unchanged. BIMB Securities said in its market preview that clearer skies were ahead as improved consumer confidence from Germany coupled with expectations that more stimulus are to be announced for the US boosted sentiments as the Dow Jones Industrial Average jumped by almost 79 points to 13,248. "Likewise European stocks were broadly higher spurred by Germany and Spain's successful sale of its treasuries. However Asian equities were rather mixed as China declined following its below expectations new yuan loans," it said. It added: "Nonetheless, the FBMKLCI continued with its impressive uptrend with another 9.42 points gain to 1,641.57 as buying interests from foreign funds continued with another net inflow of RM268m yesterday." On the local bourse, the research house expected a buying trend to continue over the short term as the FBM KLCI has underperformed the region year-to-date. The index should test the 1,650 mark today. At 10am, gainers on the local bourse were plantation stocks with United Plantations Bhd which gained 62 sen to RM25.48; Kuala Lumpur Kepong which rose 48 sen to RM21.58 and Telekom Malaysia Bhd which went up 11 sen to RM5.79. Losers were Petronas Dagangan Bhd which lost 40 sen to RM23.12; Petronas Gas Bhd which dropped 28 sen to RM18.14 and Carlsberg Brewery (M) Bhd which shed 14 sen to RM12.78. |
| Malaysian tycoon to take Guoco Group private for US$1.1bil(update) Posted: 11 Dec 2012 06:08 PM PST HONG KONG: A major shareholder in Guoco Group, a Hong Kong investment company controlled by Malaysian tycoon Quek Leng Chan, has made an offer to take the company private for HK$8.25 billion ($1.1 billion), further underscoring the dealmaking prowess of Southeast Asians this year. Tycoons from Thailand to Indonesia have emerged as Asia's top dealmakers this year as domestic companies eye expansion outside their home markets using cheap loans and rising stock markets.. Guoco Group said on Wednesday that the offer of HK$88.00 per share was made by GouLine Overseas Ltd, a unit of Hong Leong Co (Malaysia), a 24.8 percent premium over Guoco's last traded price. Guoco shares have been suspended since Dec. 4 pending an announcement. The shares resumed trading on Wednesday, opening up 26.4 percent. Guoco owns a near 15 percent stake in Hong Kong's biggest family-run lender, Bank of East Asia Ltd, making it the second-biggest shareholder in the bank behind Spain's No.4 lender, CaixaBank SA. BEA has a market value of $8.1 billion. Guoco has previous experience running a bank and in 2001 it sold Hong Kong-based Dao Heng Bank to Singapore's DBS Group Holdings Ltd for about $5.7 billion. Apart from financial services, the group has investments in property, hospitality and leisure businesses. The privatisation will help the company support future business development of Guoco has its subsidiaries, the statement said. Guoco shares are down 2.4 percent this year, underperforming a 21 percent rise in the broader Hong Kong benchmark index . Guoco's controlling shareholders already own 71.5 percent of the company. Southeast Asia's most powerful tycoons - Thai billionaire Charoen Sirivadhanabhakdi and companies controlled by Indonesian businessman Stephen Riady - are currently engaged in a bidding war to control to control Singapore conglomerate Fraser and Neave Ltd. Just last week, a conglomerate controlled by Thailand's richest man, Dhanin Chearavanont's Charoen Pokphand Group, agreed to buy HSBC's $9.4 billion stake in Ping An Insurance. - Reuters |
| Posted: 11 Dec 2012 06:03 PM PST Outperform (maintain) Target Price: RM1.60 ON Nov 26, the Finance Minister via a letter from Bank Negara approved Pacific and Orient Bhd's (P&O) proposal to dispose 49% equity interest in Pacific & Orient Insurance Co Bhd (POI), a 100%-owned subsidiary, to Sanlam Emerging Markets Propriety Ltd. With this announcement on Monday, with both parties agreeing to the 49% stake valuation of RM270mil (2.46 times book value) and to the signing of a sales and purchase agreement, the last hurdle has been cleared. P&O will see cash proceeds of about RM270mil, with RM174mil in gains. The final valuation is better than our base case assumption of 2.3 times book value. This will translate into an additional book value/cash per share of RM1.38, which can be redistributed to shareholders. At the current price of RM1.27, the stock is now trading at a discount to its adjusted book value of RM2.30 by 81%. Sanlam is strategically an ideal fit for P&O. Its rationale for this deal is to acquire P&O's leading general insurance franchise to gain an immediate access into the Malaysian market. In addition, P&O can tap into Sanlam's strength in portfolio investment and this should help boost P&O's investment income. In general, the two financial companies complement each other and hence Sanlam represents an excellent strategic partner for P&O. At the current price of RM1.27, the stock will trade at a discount to its adjusted book value of RM2.30 by 45%. We believe the current discount above is not justifiable as the existing P&O's market capitalisation of RM312mil will only be 15.6% (RM45mil) more than the RM270mil cash it is expected to receive from the proposed 49% equity stake sale of POI. Post-disposal, if the sale goes through, P&O will still have a 51% controlling stake in POI as well as its IT business. With the total cash proceeds from the potential disposal of RM1.10 per share, the fair valuation of P&O should be pegged at RM1.90 (by adding in the fair value from the 51% stake left in POI), implying a strong 50% upside potential from here. Our valuation is based on a sum-of-part valuation methodology. This means that at the current price, investors will be getting the cash of RM1.10 per share and the remaining 51% stake of POI at a substantial discount of 79% to its book value per share. These assets could be worth as much as RM0.79 per share or even more as this valuation only implies a 6.0 times financial year 2013 times price-earnings ration. We believe the potential partial disposal of the general insurance business is timely and attractively valued. Currently, the share price has not fully reflected the above disposal. Should there be any capital repayment exercises going forward, the stock could be re-rated in our view. Already, the group offers one of the best dividend yields of around 4.9% (net) year-to-date with a total of 6.22 sen net dividends declared for the year-to-date. The higher-than-expected dividend payout clearly indicates that the group is likely to have a better earnings outlook in 2013. TOBACCO SECTOR Neutral (upgraded) COMPANIES under the sector recorded decent third-quarter results, with both British American Tobacco (M) Bhd (BAT) and JT International Bhd (JTI) results coming in line with Hong Leong Investment Bank's (HLIB) estimates this time around. Traditionally, BAT and JTI sales usually perform well in their third quarter from stocking up ahead of excise duty hike during the yearly budget announcement in fourth quarter. However, financial year 2012 turned out to be a unique case whereby both companies did not experience the traditional quarter-on-quarter jump of more than 10%. BAT and JTI's third-quarter sales (in sticks) were almost flat, with only 1.6% and 0.8% growth respectively. Overall, total industry volume (TIV) grew only 1.9% quarter-on-quarter. Looking into individual companies, the reasons behind the fair results were different. The increase in revenue and earnings for BAT was mainly from higher volume under their contract manufacturing decision as domestic sales volume declined 4.7% year-on-year. On the other hand, the slump in JTI's revenue and earnings were largely expected, given poor Winston (old range) sales, partially offset by Mild Seven and Winston Excel. Given that there was no excise duty hike for two years in a row now, we do not rule out any chances of a hike in the near term (within six-12 months). Separately, the media highlighted that having contraband cigarettes will soon be punishable offence once the Health Ministry adopts new amendments to the Control of Tobacco Products Regulations. The ministry plans to implement this by the first quarter of next year after engaging the public and getting their feedback. We opined that this is a positive initiative taken by the Government and would benefit the tobacco players. However, we are uncertain about the effectiveness of this new law as contrabands are harder to be identified, unless they are being inspected thoroughly. Risks include exceptionally high excise duty hike, increase in illicit trade volume, weaker-than-expected TIV and regulation tightening. The positives include high dividend yield stocks, counter-cyclical share price pattern, oligopoly industry and resilient earnings and low capital expenditure requirements. On the downside, the negatives include highly regulated industry, potential excise duty hike, high level of illicit cigarettes in the market and prices already reflect fundamentals. Given the sharp plunge in BAT's share price, we had taken the opportunity to upgrade our call to a "hold", with unchanged target price of RM52.42. As for JTI, we are maintaining out "hold" rating with target price: RM7.18, given the total potential return is largely within our house rule. Thus, factoring the upgrade in BAT's rating, we now rate the sector as "neutral", or upgrade from "underweight". By Maybank Investment Bank Research Buy (unchanged) Target price: RM3.81 SP Setia's upcoming financial year ending Oct 31, 2012 (FY12) results are likely to come in within our and consensus estimates. The fourth quarter (Q4) is likely to be stronger quarter-on-quarter and year-on-year supported by record sales of RM3.3bil achieved in FY11 and RM3.64bil in the first 11 months of FY12. We continue to like SP Setia for its market leadership, strong track record and strategic landbank, which underpins long-term growth potential. SP Setia will announce its FY12 results today. We expect Q4 net profit of RM101mil to RM108mil (+1-8% quarter-on-quarter, +23% to 31% year-on-year), taking FY12 core earnings to RM368mil to RM375mil (+25% to 27% year-on-year). Earnings will likely be driven by strong unbilled sales mainly from its township projects in Johor and Setia Alam. We expect SP Setia to declare a final gross dividend per share (DPS) of 8.6 sen, lifting full-year DPS to 13.6 sen. SP Setia had locked in RM3.64bil in sales in the 11 months of FY12, on track to meet its FY12 sales target of RM4bil. Key sales contributors include KL Eco City, Setia Alam and Fulton Lane. Quarter four sales should be boosted by strong take-ups at newly-launched Setia Sky 88 in Johor and Eco Glades in Cyberjaya. Unbilled sales of RM3.8bil at end-July 2012 were healthy, at 1.2 times our FY13 revenue forecast. Management has not revealed its sales target for FY13 but it could reach another record with the official launches of Battersea Power Station phase 1 (BPSP1) in April 2013, Eco Sanctuary in Singapore and Setia Eco Hills in Semenyih/Kajang in FY13. Response for the 800 apartments to be built in BPSP1 has been strong with more than 5,000 registrants, we understand. Meanwhile, Setia Eco Hill recently launched bungalow land plots at RM100 per sq ft. SP Setia has recently entered into a settlement agreement with Ban Guan Hin Realty to proceed with the sale and purchase agreement for the acquisition of a 1,011-acre plot of freehold land in Semenyih. The final purchase price of RM396.2mil cash (or RM9 per sq ft) is 20% higher than the initial pricing of RM330mil or RM7.50 per sq ft. To recap, SP Setia had proposed to acquire the land in August 2011. The deal hit a snag in December 2011 when the vendor did not agree to an extension of time for the fulfillment of the conditions precedent, including approvals for land transfer from Estate Land Board. PLANTATIONS By CIMB Bank Research Neutral (maintain) MALAYSIA'S palm oil stocks rose 2.3% in November to a new record high of 2.56 million tonnes, marginally below consensus numbers but above ours because of a 6% month-on-month surge in Sabah output to a new high for the year. We believe the higher stockpile has been captured in the current price. We expect crude palm oil (CPO) price to regain some strength in the coming months as palm oil stocks ease. However, the near-term upside will be capped somewhat until stocks fall to around two million tonnes. We maintain our CPO price forecasts and our "neutral" call on the regional plantation sector. We continue to prefer Singapore planters such as Wilmar, Golden Agri and Indofood Agri. Palm oil stocks in Malaysia climbed 2.3% month-on-month to a new record high of 2.56 million tonnes at end-November. The stockpile is a shade below consensus estimates of 2.58 million tonnes but is 9% above our estimate as we were too bullish on exports and were also surprised by the strong production from estates in Sabah. The record stockpile in November means that stocks remain bountiful in Malaysia. This may cap near-term upside for CPO price until stocks fall back to the two million tonne mark. The good news is that palm oil stocks in Malaysia did not go as high as the three million tonnes predicted by some and feared by the market. This is because demand has picked up ahead of festive events and tighter regulations in China. We project end-December stock to fall by 1% to 2.54 million tonnes as we expect exports to outweigh output. We also continue to believe that CPO price will perk up in first quarter 2013 as palm oil output falls during the lean months in the first quarter and demand picks up due to CPO's attractive pricing against soybean oil and crude oil. We maintain our average CPO price forecasts of RM2,820 for 2012, RM2,840 for 2013 and RM3,000 for 2014. We continue to advocate buying Wilmar and liquid Singapore planters to ride on our projected recovery in CPO prices in the coming months. Exports fell 6% month-on-month and were flat year-on-year at 1.66 million tonnes as the sharp pick-up in demand from China, Pakistan and the United States was not sufficient to offset weaker demand from India, the European Union and other export markets. Malaysian refiners notched up a weaker utilisation rate of 71.84% in Nov 12 (79% in Nov 11) due to lower domestic CPO supply. The year-on-year drop in utilisation rate could also be due to higher exports of CPO (+18% year-on-year) as the Government raised the tax-free quota for CPO from three million tonnes in 2011 to around 5.6 million tonnes this year. This is evident from the 34% year-on-year jump in 11-month 2012 CPO exports to 4.1 million tonnes or 73% of this year's tax-free quota. As a result, CPO's share of Malaysian palm oil exports for 11-month 2012 rose to 26% of the total. We expect output to fall 10% month-on-month and export volume to decline at a lower rate of 2% month-on-month as the attractive price and China's new regulations on quality prompt consumers to restock, CPO exports accelerate before the tax-free quota expires at year-end and favourable margins encourage refiners and biodiesel operators to crank up their operations. We recently downgraded our regional call for the plantation sector from "trading buy" to "neutral" as we are less bullish on CPO price prospects following the unexpected retreat of El Nino weather risks. Also, the palm oil stockpile has turned out higher than our expectations due to weaker demand and stronger seasonal supply. This is expected to keep CPO price lower for a longer period. Following our recent CPO price review and taking into account the potential impact of the minimum wage increase in Indonesia, we are switching our preference towards the Singapore-listed players as they offer higher share liquidity and will be less affected by the CPO price decline than the pure planters due to their exposure to the branded cooking oil business. We have also turned positive on Wilmar as we expect it to benefit from the higher sales volumes for palm oil and better refining margins. Singapore planters remain an "overweight". We maintain our "neutral" stance on Malaysian and Indonesian planters. |
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