Rabu, 9 April 2014

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The Star Online: Business

Tropicana asset monetisation strategy still intact

Posted: 09 Apr 2014 09:00 AM PDT


By UOB Kay Hian

Hold (downgraded)

Target Price: RM1.74

TROPICANA Corp Bhd's asset monetisation strategy is still intact with the most recent being its partial disposal of the Canal City land to EcoWorld, said UOB Kay Hian.

The research house said Tropicana's strategy was to part-monetise its smaller parcels of land and focus on its major developments.

The research house said it expected the sale of three parcels to be completed this year, including the recently announced sale of Canal City land to EcoWorld where the company could make RM170mil in net gains.

Currently, it said Tropicana's balance sheet still carried some prized assets. This includes the Tropicana City Mall along with an adjacent office tower, and Plaza Dijaya, an office tower located within the Golden Triangle of Kuala Lumpur.

The combined value is close to RM800mil.

The company is also in discussions for an en-bloc sale of its W Hotel and Residences.

UOB said it foresaw the company could monetise assets worth in excess of about RM1bil moving forward, with proceeds possibly used to pare down its gearing. The company has a net gearing of 0.55 times as of fourth-quarter 2014.

However, UOB downgraded the stock to "hold" after the recent stellar performance of the share price with an unchanged target price of RM1.74.

It said the target price represented a 45% discount to their fully-diluted revised net asset value per share of RM3.16. This implies a 2015 forecast price-earnings of 13 times.

The research house also highlighted concerns on the recent joint venture with Tebrau Teguh which involves land reclamation in Iskandar Malaysia. This involves a substantial investment. A good entry price would be RM1.40.


By Hong Leong Investment Bank


Target Price: RM4.26

According to Hong Leong Investment Bank (HLIB), Affin Holdings' pre-tax profit is expected to get a RM84mil boost with the acquisition of Hwang Investment on Tuesday.

However, the integration cost of RM54mil spread over 12 to 18 months would mitigate any benefits.

It also noted that the Affin Holdings' management also said it would only hit stability in financial year 2018 with synergies of RM43mil per annum (RM15mil revenue, RM36mil cost and RM8mil "dis-synergies").

HLIB reiterated that it was neutral on the merger and acquisition exercise.

It acknowledged that the acquisition is complementary with potential synergies.

However, it believes this will be negated by dilution to earnings per share (EPS), return on equity and capital ratios (arising from the planned RM1.25bil rights issue which is scheduled to complete in the second quarter) in the interim before the full synergistic process filters through.

Given that Affin Holdings' share price has depreciated by 8.3% since detailing its acquisition, HLIB said its initial EPS dilution estimate of 18% could be larger.

It maintained a target price of RM4.26 based on return on equity at 10% and weighted average cost of capital at 10.8%.

It added that although its potential return was now more than 10%, it was keeping its "hold" rating on the stock. Larger-than-expected dilution from the planned rights issue could potentially affect price performance.


By RHB Research Institute

Overweight (maintained)

RHB Research Institute remains "overweight" on the construction sector due to strong earnings visibility, backed largely by the RM73bil Klang Valley MRT project.

The MRT project, public housing and the East Malaysia/Sarawak Corridor of Renewable Energy (SCORE) will keep players busy until 2021.

The research house's top picks for the sector are Gamuda Bhd, Protasco Bhd and Hock Seng Lee Bhd.

RHB Research has a "buy" call on Gamuda with a target price of RM5.45 due to its MRT exposure.

It said the Klang Valley MRT project was the main pillar of support for the current upcycle, given its massive contract value of RM73bil.

The multiplier effect is tremendous. It will reverberate through the sector's entire value chain, creating a demand for management, general and specialist contractors, building materials with a long construction period until 2021.

Meanwhile, the provision of public housing has become a lucrative business for the private sector, thanks to the RM1bil allocation for the Housing Facilitation Fund under Budget 2014.

Hence, RHB Research has a "buy" call on Protasco with a target price of RM2.18 because the company has thus far secured the highest number of public housing contracts.

It believes Hock Seng Lee is the best construction proxy to East Malaysia/SCORE. It gives a "buy" call on the counter with a target price of RM2.06.

RHB Research said Sabah and Sarawak would see infrastructure works coming from three main initiatives – SCORE (roads, water supply and port), urbanisation (flood mitigation, waste management and traffic diversion), and rural development (roads, water supply and housing).

China March exports fall 6.6% on-year, imports down 11.3%

Posted: 09 Apr 2014 07:21 PM PDT

BEIJING: China's exports fell 6.6% in March from a year earlier, while imports slipped 11.3%, leaving the country with a trade surplus of US$7.7bil for the month, the Customs Administration said on Thursday.

That compared with market expectations in a Reuters poll of a rise of 4% in exports, a 2.4% rise in imports and a trade surplus of US$900mil. – Reuters

Japan machinery orders drop sharply, casts doubt on capex

Posted: 09 Apr 2014 06:56 PM PDT

TOKYO: Japan's core machinery orders fell sharply in February, casting doubt on the strength of capital spending as early signs suggest the world's third biggest economy may struggle to cope with a sales tax hike that kicked in this month.

Core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, declined 8.8%, Cabinet Office showed on Thursday.

The fall followed a 13.4 percent jump in January, the quickest gain since March 2013, but was much worse than the 3% drop forecast by analysts in a Reuters poll.

The data joins a recent run of weak economic reports that showed a loss of economic momentum after a solid performance in the first half of last year, which was fuelled by Tokyo's aggressive monetary and fiscal stimulus policies.

However, capital spending, private consumption and exports have lagged recently as the effects of Prime Minister Shinzo Abe's policies began to fade, raising pressure on the Bank of Japan to provide additional stimulus.

There is also growing concern among analysts that a chill in demand from an increase in the sales tax to 8% from 5% on April 1 will severely crimp growth.

"Companies remain wary of business conditions after the sales tax hike, so growth in capital spending is unlikely to pick up pace at least until this summer when the situation may become clearer," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo.

"Capital spending may underpin the economy but I doubt it could be strong enough to serve as a key drive," he said.

Governor Haruhiko Kuroda dismissed market expectations on Tuesday that the BoJ could ease again soon. The central bank has kept policy steady since last April when it embarked on an unprecedented monetary stimulus.

However, the latest data won't be taken lightly by policymakers.

Indeed, the Cabinet Office cut its assessment of machinery orders, saying the increasing trend is seen stalling, indicating a challenging outlook. Previously, it had said machinery orders were increasing as a trend.

Capital spending has been a weak link in the world's third largest economy as many firms hoard cash and refrain from boosting spending on plants and equipment. They have also been reluctant to raise wages substantially due to the gloomy economic outlook.

The BoJ's tankan showed big firms expect to raise capital spending by just 0.1% in the current fiscal year, against a 0.2% rise seen by economists and a 3.9% gain in planned spending for the fiscal year that ended in March.

In February, orders from manufacturers and the service sector fell 11.9% and 8.4% respectively from the previous month, the Cabinet Office data showed.

Compared with a year earlier, core orders, which exclude those of ships and electric power utilities, grew 10.8% in February, versus a 17.6% rise seen by analysts.

Analysts expect the economy to contract in April-June due to a pullback in consumption after the tax hike, before returning to moderate growth in following quarters. – Reuters 

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