Rabu, 9 Oktober 2013

The Star Online: Business

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The Star Online: Business

Strong earnings growth for E&O



By AmResearch

Buy (initiate)

Fair value: RM3.00

AMRESEARCH initiated coverage on Eastern & Oriental Bhd (E&O) with a fair value of RM3/share – based on a 35% discount to its net asset value (NAV) of RM4.61/share after incorporating the significant accretion to its asset value from Seri Tanjung Pinang 2 (STP2).

STP2 (308ha) with its high sea-fronting development potential and lucrative profit margin is the primary valuation driver. AmResearch's investment thesis is centred on its conviction that STP2 would be granted regulatory approvals from the Penang government by the first half of 2014 to commence reclamation works.

STP2 is critical to alleviate traffic congestion on the island via the construction of an undersea tunnel to the mainland.

E&O needs to surrender 24.3ha in STP2 in lieu of the concession and reclaim a further 53ha along the tourist belt of Jalan Gurney for the state government, which also has a 21% stake in STP2.

Given the strong sales pipeline comprising several prolific projects, namely Avira Wellness in Iskandar Malaysia and Princess House in London, AmResearch sees E&O's earnings expanding by a compounded growth of 18% over the next three years, from RM141mil in financial year 2014 to RM200mil in financial year 2016.


By RHB Research Institute

Buy (upgrade)

Target price: RM18.70

LPI Capital Bhd's nine-month financial year 2013 results were a pleasant surprise to RHB Research, and prompted the brokerage to reverse its historical trend of earnings downgrades since 2010.

LPI's nine-month net profit growth of 24.7% year-on-year outpaced its topline premium growth of 5.3%. This robust performance was supported by stronger-than-expected underwriting margins in the general insurance segment (a positive surprise to us) and lower-than-usual effective tax rate due to a double tax deduction of RM2mil-RM3mil on the Malaysian Motor Insurance Pool. The general insurance segment's nine-month underwriting margins continued to improve to 28.5% (nine-month 2012: 23.3%, first half 2013: 26.8%). On a quarter-to-quarter basis, third quarter underwriting margins were largely unchanged at 31.6% vs 33.6% in second quarter 2013.

The research house was mainly surprised by the healthier overall net claims ratio of 46.5% for the nine months of 2013 (against 48.2% in the first half).

RHB Research adjusted its FY13/FY14 earnings per share upwards by 11.2%/13% as it believes the management is able to sustain a good track record.

The research unit expects LPI to announce the bulk of its dividends towards the fourth quarter, with a forecast FY13 dividend per share of 84 sen.


By CIMB Research

Underperform (maintain)

Target price: RM5.00

THE Government has indicated the possibility of a reduction in sugar subsidy in the upcoming budget, which CIMB Research believes would be negative for MSM.

In its view, the move is likely as raw sugar prices are considerably lower since the last adjustment. Any increase in sugar prices can negatively impact MSM's domestic sales growth.

CIMB Research estimated that every 1% reduction in demand growth would lower its FY14 earnings forecast for MSM by 0.5%.

Should the Government raise the ceiling price for sugar by an amount equal to the subsidy cut, demand for sugar may be hurt.

The Government can save around RM160mil for every 10 sen/kg reduction in sugar subsidy, assuming that it subsidises 1.6 million tonnes of refined sugar per annum.

The last revision to sugar subsidy was during Budget 2013 when sugar subsidy was reduced by 20 sen and the ceiling price was raised by 20 sen.

CIMB Research remains cautious on MSM ahead of Budget 2014 as it is concerned that the potential subsidy cut will hurt MSM's profit.

The brokerage's current preferred pick in the consumer space is QL Resources.


By PublicInvest Research

Neutral (downgrade)

Target price: RM5.40

ACCORDING to Reuters, Khazanah Nasional is selling up to RM293.5mil worth of shares in DiGi for RM4.80-RM4.97/share.

While PublicInvest Research viewed the disposal as short-term negative to DiGi's share price, the brokerage believed it was a matter of time before Khazanah sold off its non-core stake in DiGi.

In light of DiGi's recent share price outperformance over the past three months (relative returns of +6.9%) and limited upside to its target price of RM5.40, PublicInvest cut its call on DiGi to "neutral" from "outperform".

It said the disposal did not come as a surprise given that Khazanah's stake in DiGi was non-strategic. In addition, Khazanah is the largest shareholder (39%) in Axiata Group which wholly-owns Celcom (Malaysia's second largest mobile telephone operator and DiGi's competitor).

While PublicInvest said it liked DiGi for its strong cash flows and low gearing, it believes any upside may be capped in the near term due to Khazanah's disposal.

A key catalyst is the announcement of a business trust for DiGi's telecoms business. The company is expected to announce its decision on a business trust by year-end.

Petronas to defer retrofitting project on market uncertainty


KUALA LUMPUR: Petronas Penapisan (Melaka) Sdn Bhd has decided to defer the proposed retrofitting project of its lube base oil plant in Malacca.

In a statement on Thursday, Petronas said the deferment was made due to the uncertain outlook for base oil and the bid prices that have "adversely impacted the economic viability of the project".

It said the Malacca lube base oil plant started its commercial operation in 2008 with a capacity of producing approximately 270,000 tonnes per year of mostly Group III base oil, a major component for the manufacture of top tier automotive and industrial lubricants.

The retrofitting project, had it gone ahead, would have increased its production capacity by approximately 15% by 2017.

Korea central bank holds rates, eyes US impasse


SEOUL: South Korea's central bank held rates as expected for a fifth straight month on Thursday, keeping its base rate at 2.50%.

Governor Kim Choong-soo is due to hold a news conference from 11:20am (0220 GMT).

All 21 analysts in a Reuters poll forecast the Bank of Korea would leave its base rate unchanged at 2.50% at its Oct 10 meeting. A majority of those who gave a clear forecast on the central bank's future rate move said interest rates would be hiked in 2014.

The central bank will release its latest batch of economic growth forecasts for this year and 2014 later on Thursday, from its previous projection of an annual 2.8% growth this year.

"The Bank of Korea will likely maintain a relatively bullish 2014 growth forecast for the time being. However, there are downside risks exist to the strength of domestic demand given elevated household debt and sluggish property prices," said Ronald Man, an economist at HSBC in Hong Kong.

"For now, eyes will be on economic data from key export partners such as China, as Korea's recovery will likely be export-led."

Markets were unimpressed with the widely-anticipated rate decision and shrugged off the news. The won was down 0.3% on the day at 1,076.4 per dollar as of 0112 GMT and September futures on three-year treasury bonds rose 0.04 points to 105.85. Seoul shares were up 0.1% at 2,005.41 points.

The central bank has reiterated in recent weeks that Asia's fourth-largest economy is slowly but steadily on its path to recovery after weathering two consecutive global crises from 2008.

Analysts have said the Bank of Korea has little, if any, reason to change rates until after the central bank's new governor, who takes office next April, is settled in his or her new position.

The recent tug-of-war between Congress and the White House to raise the US's debt ceiling is expected to have limited results, although for South Korea the long-term risks are on the downside.

"Right now, price pressures are too light for interest rates to change and there is very little chance that the Bank of Korea will change its policy before advanced economies do," said Lee Jae-hyung, a fixed-income analyst at Tong Yang Securities. - Reuters

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