Monday, March 01, 2010

TA Research Stock Pick

Maxis Bhd
Target Price : RM5.80 (Hold)
Maxis Berhad announced its FY09 results that came in within consensuses and our estimates reporting net profit of RM2.23bn. Cumulatively, net profit fell by 7% due to onetime costs of RM120mn relating to i)discount for shares issued to retail investors in relation to the IPO of RM53mn, ii)IPO listing expenses of RM50mn, iii)higher finance costs of RM77mn. Revenue grew by 2% thanks to higher mobile subscription base by 9%. EBITDA margin remained stable as guided at 50.4%.

On a QoQ basis, net profit fell by 18% mainly due to the onetime costs mentioned above. Revenue reported an increase by 3% mainly driven by 5% growth in total subscription. Its wireless broadband recorded a 40% increase in subscriptions to 264k. EBITDA margin fell slightly by 0.4p.p. mainly due to higher roaming expenses such as commission on sale of top-up ticket and related service tax coupled with higher sales and marketing expenses in line with its year-end promotional activities and festive seasons.

We think growth will be driven by broadband services. However, we expect Maxis’s mobile market share to be reducing given the current trends. We also estimate ARPU to continue to decline given the Malaysia’s operator’s competitive pricing. Thus, we expect EBITDA margin to be affected as mobile operators boost-up its expenses on network modernization and improvements to retain subscribers.

Maintain our target price on Maxis at RM5.80 based on a 17x FY10 PER. Due to limited capital upside, downgrade to Hold from Buy previously.

Genting Bhd
Target Price : RM9.37 (Buy)
Genting Bhd reported a core net profit of RM1.10bn, which came in within our, but above consensus estimates, accounting for 100% and 122% of full year forecasts respectively. On a YoY basis, power division was the best performer, with a 88% increase in PBT over FY08, mainly due to lower coal prices in its Kuala Langat and Meizhou Wan plants. Oil & Gas segment was the worst hit, recording PBT of only RM4.6mn from RM73.5mn previously, due to lower average oil prices during the year. Plantations division recorded a 38% decline in PBT, due mainly to lower palm product prices and lower FFB production.

No changes to forecasts. We are expecting plantations division to record a better year in FY10, buoyed by higher CPO prices. We have imputed a 10% YoY increase in plantations PBT, with an average CPO price assumption of RM2300 per tonne. L&H division is also expected to turnaround from showing a 10% decline in FY09, mainly due to increased contribution from RWS, as well as continued resilience in RWG’s business. We maintain Genting as Buy with target price of RM9.37. Key risk to our call would be 1) lower-than-expected visitors to RWS, 2) weakness from UK operations and, 3) sudden spike in H1N1 cases to affect tourist arrivals to Singapore.

Genting Malaysia Bhd
Target Price : RM2.95 (Hold)
Genting Malaysia reported its FY09 results, which came within ours, but above consensus estimates, accounting for 100% and 107% respectively. On a YoY basis, revenue was marginally up by 2%, thanks to higher business volume across the board, although this was partly mitigated by lower luck factor in the VIP segment. Visitor arrivals are up 4% in the final quarter, while overall FY09 visitation was 2% higher YoY. We are expecting a slight drop in arrivals in FY10, to the tune of 5% reduction, as the novelty factor of the IRs draws visitors to Singapore. Hotel segment did remarkably well, with ARR increasing from RM75 from RM78 previously. Occupancy rates also improved, up to 96% from 92%. This may also be due to the additional 3% in number of rooms available for rent in FY09. There has been no ‘discernable cannibalization’ in sales at Resorts World Genting since RWS’s opening, according to management.
They also do not have plans to adjust the junket rate. There has been a 10% growth in World Card memberships, and the count is at 3mn members so far. We take this as a very encouraging sign, as the database is crucial to the data-mining info of customers, which can be used to improve customer service.

No change to forecasts

Maintain target price at RM2.95, based on DCF(WACC=11.3%, g=1%). Genting Malaysia is upgraded to Hold, as it offers a capital upside of 11.26%, at current price levels.

KNM group Berhad
Target Price : RM0.90 (Hold)
KNM Group’s FY09 net profit plunged 49.2% to RM170.7mn. It came lower than ours and consensus expectations accounting for 69.4% and 59.2% of profit forecast respectively as it booked in some one-off items in the 4QFY09. In the final quarter, it revalued one of its properties and provide for foreseeable losses and higher operating costs for some of its operations. KNM revalued lower its Canadian asset by RM15mn to RM20mn and took into account another RM35mn to to RM50mn that need to be recovered from customers for raw material costs incurred in Canadian operation, potential losses at Brazil operation (due to inherited contracts) and cost overrun at Indonesia (underestimated cost). In total the amount ranged from RM50mn to RM70mn. Excluding the above items, FY09 profits would have fall within our expectations of RM246mn but still far away from the management’s guidance of 10% to 15% yoy contraction or RM285mn to RM302mn. Profit forecasts for FY10 and FY11 are maintained.

We have lowered our 15% premium to 8% in valuing the stock to be in-line with the 90 sen offer made by Ir.Lee as investors do not have the luxury of time to ride on strong earnings growth next year in view of the impending take over of the company’s business and undertakings. As such our Buy call has been downgraded to a Hold.

Perisai Petroleum Teknologi Bhd
Target Price : RM0.575 (Buy)
For FY09, the reported net profit rose 16.1% YoY to of RM33mn with the contribution from its Derrick Lay Barge (Enterprise 3) and portable SAT. EBITDA margin rose almost 33 p.p. to 71.1% due to the nature of the above bareboat charter agreements where customers pay for everything except for insurance, interest expense and maintenance charges. The results are below our expectation. Its two aged vessels, Allied Shield and ProShield, have been a drag on FY09 earnings as their average utilization for the year was only at 10%. Losses from these two vessels alone were around RM10mn.

We have cut FY10 and FY11 profit forecast by 26.2% and 26.5% to RM34.3mn and RM38.8mn respectively. Maintain Perisai as a Buy based on a target price of RM0.575after imputing a 10% discount to our CY10 target PER of 12x.

Petra Energy Berhad
Target Price : RM2.18 (Buyd)
Petra Energy’s FY09 net profit contracted 64% to RM15.9mn due to vessel delays, late delivery charges, dry docking expenses, provision for doubtful debts and charges related to acquisition of three vessels from Perdana Venus Limited. The result is below ours and consensus expectations. In 4QFY09 it plunged into a net loss of RM3mn due to a RM4.9mn late delivery charges for boiler business, a RM2.2mn provision for doubtful debts for the design and fabrication business, RM4.8mn mobilization charges for the 3 new vessels from Petra Perdana and RM1mn for dry docking expenses. FY10 and FY11 profit forecast was cut by 7.3% and 1.8%.

With the downward adjustment in earnings, target price is lowered to RM2.18 based on a 20% discount to FY10 PER of 12x. Maintain Buy.

Petra Perdana Berhad
Target Price : RM1.47 (Hold)
Petra Perdana’s FY09 reported net profit plunged 66.6% to RM29.3mn due to various reasons. Adjusting for the RM12.7mn gain from the sales of subsidiary and RM7.2mn forex losses, net profit came 73.1% lower at RM16.9mn. The adjusted net profit was grossly below ours and consensus as it only met 51% and 47.7% of FY09 profit forecasts respectively. FY10 profit forecast was cut by 14.9% to RM45.5mn after assuming a pickup in activities in 2H10 only and incorporating RM6.5mn profit contribution from Energy in 1HFY10. Our previous forecast excluded profits from Energy totally for FY10.

We have cut our target price for Petra Perdana to RM1.47 from RM1.72 based on a 20% discount to target sector PER of 12x. The discount is to account for execution risk and continuous earnings disappointments. The stock is downgraded to a Hold from Buy.

Scomi Group Berhad
Target Price : RM0.575 (Buy)
Scomi Group’s reported FY09 net profit plunged 91.5% to RM9.5mn due to associate Scomi Marine’s impairment loss on goodwill of RM158.6mn and provision for insurance claims and doubtful debts of RM13.7mn in the final quarter. This led to a RM35.4mn losses from associates in the 4QFY09 and full year contribution contracted by 135.3% to a loss of RM9.9mn. Excluding the one-off impact, its FY09 net profit of RM56.9mn still underperformed expectations at 73.5% and 79% our and consensus forecasts respectively.

We are cutting our profit forecast by 14.5% to RM89.9mn as OFS is expected to continue eroding profits until a firmer recovery is seen in the upstream sector in 2H10. Scomi Engineering and Scomi Marine’s net profit forecasts for FY10 stood at RM75.6mnn and RM62.4mn respectively. Maintain Buy with a lower target price of RM0.49 after attaching a 20% discount to our CY10 target PER of 12x (on diluted EPS).

RHB Capital Bhd
Target Price : RM7.10 (Buy)
FY09 results came within ours’ but sharply above consensus expectations. Net profit rose 14.6% YoY to RM1.2bn – accounting for 104% and 117% of ours’ and consensus full year estimates of RM1.15bn and RM1.03bn. Despite the 4% and 16% jump in operating expenses and allowances for loan losses, FY09 net profit rose 15% YoY anchored by higher net interest income, income from Islamic Banking operations, writeback of impairment losses amounting to RM18mn (vs. loss of 10mn in FY08) and lower taxes (FY09: 21.4%, FY08: 26%). On a QoQ basis however, net profit sank 15% QoQ underpinned by higher SPs and a 23% QoQ surge in operating expenses.

Net NPL ratio further improved to 2.21% (FY08: 2.24%) – albeit still higher than the industry’s 1.8%. Elsewhere,
RHB Bank’s capital position stood healthy with CCR and RWCR of 10.4% and 13.8% respectively as at end-Dec 2009. Elsewhere, a dividend of 17.45% has been proposed. Combined with the 5% paid earlier, total dividends for FY09 stands at 22.45% (FY08: 19.6%) - representing a payout of 30%.

We tweak our FY10-11 estimates slightly to incorporate the FY09 results. We now forecast RHB Cap’s FY10/11 net profit to rise by 10.2% and 15.5% YoY to RM1,323.9mn and RM1,528.6mn from RM1,302.5 and RM1,467.2mn previously. We forecast stronger net profit growth of 17.2% to RM1,791.3mn for FY12. We also raise DPS assumptions to 24/28/35 sen for FY10/11/12 in line with management’s commitment to maintain its dividend payout ratio of at least 30% per annum.

We are raising TP to RM7.10 (based on the Gordon Growth Model, assuming cost of equity of 10.0%, ROE of 14.3% and sustainable long-term growth of 3% or an implied P/BV of 1.61x) - from RM6.60 on the back of the earnings revision. BUY maintained.

United Overseas Bank Ltd
Target Price : S$20.70 (Hold)

UOB chalked up FY09 net profit of S$1,902mn, accounting for 108% and 104% of ours’ and consensus full year forecast of S$1,762mn and S$1,831mn respectively. 4Q09 results were sequentially higher on lower impairment charges but underlying performance remained weak. On a YoY basis however, FY09 results were dampened by high amortisation and impairment charges. Credit charge stood at 59 bps, compared to 33 bps in the last FY.

Loans momentum continued to accelerate in 4Q09, rising by a marginal 0.9% QoQ (3Q09: +0.7% QoQ, FY09: -0.6% YoY). Elsewhere, total NPL ratio improved to 2.2% in 4Q09 (3Q09: 2.4%, FY08: 2%) while allowance coverage rose remained little changed at 105% from 106% in the previous quarter. Current Tier 1 and RWCR rose to 14% and 19% (compared to 10.9% and 15.3% in FY08) due primarily to lower risk-weighted assets and higher retained earnings. UOB declared final DPS of 40 cents/share. In addition an interim DPS of 20 cents, total DPS for FY09 stands at 60 cents (unchanged from FY08). This represents a payout ratio of 48%.

We are raising our FY10-11 projections on the back of the better-than-expected FY09 numbers. We expect the economic recovery to drive UOB’s earnings in FY10/11/12, whereby we forecast net profit to grow by some 24/6/14% YoY to S$2.35/2.49/2.85b from S$1.91bn and S$2.12bn for earlier FY10 and FY11 estimates.

Rolling forward our ROE and BV/share assumptions to FY10, we derive a new TP of S$20.70 (based on the Gordon Growth Model, assuming cost of equity of 8.4%, ROE of 13.2% and sustainable long-term growth of 3.0% or implied PBV of 1.88x). Hold on potential capital gains of some 11.4% from the stock’s last closing price of S$18.58.

Nestle (M) Bhd
Target Price : RM35.20 (Hold)
NestlĂ©’s FY09 results came in within ours and consensus’ estimates, reporting full year net profit of RM351.8mn. Despite a 3% drop in sales, net profit increased by 3% mainly thanks to a lower tax rate driven by Halal tax incentives. The lower sales is attributed by i)lower selling prices of MILO and milk products earlier last year. The fall in key raw material costs too affected export selling prices thus the receding exports value. However, exports volumes grew by 11%.
On a QoQ basis, net profit grew by 8% thanks to lower tax rate by >10p.p. To add, increased revenue is reflected by the increase in marketing and promotional activities done in the 4Q.
Margins remain intact. Management announced a final dividend of 100sen per share bringing to a total of 150sen per share.
Maintain our DDM-based target price for Nestle at RM35.20, with a rate of return of 7.9%.

Asia File Corporation Bhd
Target Price : RM5.99 (Buy)
Asia File’s 9M10 results came in strong reporting cumulative net profit of RM46mn, outperforming our estimates by 10%.
Cumulatively, core net profit grew by 35% although sales declined by 16%. We believe the margin expansion came from higher sales of high margin products coupled with higher contribution from its associates.
On a QoQ basis, revenue rose by 15% to RM71mn. Net profit grew an explosive 60% driven by a lower tax rate by >10p.p. and improved margins of products. Management announced an interim dividend of 12sen per share.

We have adjusted our earnings estimates upwards by 19% and 13% for FY10-11 respectively.

Rolling over our valuations with our adjustments on earnings, we derive to a new target price of RM5.99 based on CY11 PER of 10x. Upgrade to Buy.

Target Price : RM3.04 (Buy)
WCT has provided a reasonable amount of provision for LAD for FY09 and this should safeguard FY10 earnings to be distorted by late completion. Putting this aside, we expect WCT construction margin to normalize to 6% from 7% in FY09 after making the provisions in FY09. WCT’s current order book stands at RM3.2bn (including some in house building jobs) this year and the management reiterate that the group targets to achieve RM2bn new jobs (50% local vs 50% overseas).

We raise our FY10-11 earnings higher by 8-23% to reflect the change in progress billing and upward adjustment of construction margins. Given the change in earnings, we raise our SOP-derived fair value to RM3.04/share. With a potential total return of more than 15%, we upgrade WCT to Buy from Hold

KSL Holdings Bhd
Target Price : RM1.59 (call)
Stripping off the one-off revaluation gain of RM44.3m, KSL’s FY09 net profit came in below our expectations and consensus estimate by 27-36% respectively. The variance was largely due to lower-than-expected progress billing and higher effective tax rate. The FY09 core net profit slipped 7% yoy to RM41m largely due to lower progress billings (revenue dropped 15% yoy). We attribute the decline in revenue to the delay in launches of new property in early FY09. On a quarterly basis, 4Q09 net profit dipped 96% due to lower revenue and higher effective tax rate
No change to our earnings projections. KSL’s fair value remained unchanged at RM1.59, based on unchanged PER of 8x CY10 EPS.

IJM Corporation Bhd
Target Price : RM4.62 (Sell)
IJM’s 9MFY10 net profit of RM221.5m accounted for 70% of our full-year forecasts. We consider this to be within expectations as we expect higher contribution from the property division in 4QFY10. Meanwhile, we also expect the plantation contribution to normalize in tandem with higher CPO price in 4QFY10.

We maintain our earnings projections. We maintain IJM’s SOP-derived target price to RM4.62/share.

Sino Hua-An International Bhd
Target Price : RM0.65 (Buy)
Huaan’s FY09 results came in below our expectations and consensus estimates. The variance was largely due to 1) lower production utilisation rate of 87% (vs our estimates of 89%); 2) higher-than-expected coking coal price at an average of Rmb1080/t (vs. our estimates of Rmb1020/t); and 3) a one off write-off of an old water treatment plant.

We downgrade our FY10-11 earnings estimates by 14-16% after revising our assumptions on coking coal price higher to Rmb1380-1449/t from Rmb1100-1157/t previously. Given the change in earnings, we downgrade Huaan’s fair value to RM0.65/share.

Kinsteel Bhd
Target Price : RM1.32 (Buy)
4Q09 net profit amounted to RM41m, turning around the full-year net profit to RM18.3m from RM22.9m loss a quarter ago. This came in above our expectation. Kinsteel’s cumulative net profit declined to RM18.3m from FY08’s adjusted net profit of >RM465m. This was largely due to: 1) decline in steel prices; and 2) production cut due to sluggish demand. However, Kinsteel has managed to turnaround since 3Q09, thanks to the recovery in export prices of billets.

No change to our FY10-11 earnings estimates. Maintain Kinsteel’s fair value at RM1.32/share.

YTL Power International Berhad
Target Price : RM2.65 (Buy)
YTL Power reported RM250.3mn net profit in 2Q 0, an improvement on both QoQ (+8.4%) and YoY (+21.7%). QoQ, contribution from PowerSeraya continue to improve with pretax profit of RM128.3mn compared with RM59.8mn in the preceding quarter. YTD, net profit rose 21.7% YoY to RM481.3mn, mainly due to consolidation of earnings from PowerSeraya. Malaysian power segment pretax profit was higher due to impact of windfall tax levy in the preceding period last year. Associate contribution too increased 46.6% to RM111.9mn, thanks to PT Jawa Power. PowerSeraya contributed RM188.2mn in pretax profit, but the impact was partially offset by a 7.8% decrease at Wessex Water and RM2.2mn pretax loss at the investment holding level (vs.57.8mn profit in 1H09). Declared second interim dividend of 3.75 sen (single tier) per share, similar to 2Q09.

FY10 estimate revised lower by 4.5% to impute the lower than expect income from Wessex Water and losses incurred at the investment holding level. Maintain YTL Power as Buy with RM2.65 revised target price. We continue to like the stock for its solid and diversified assets base, and potential earnings accretion, from economic recovery in the short term and successful execution of Wimax in the long term.

Kwantas Corporation Berhad
Target Price : RM2.00 (Hold)
Kwantas reported a net profit in 2Q10 after a few consecutive of losses, thanks to proactive provisioning in the previous quarters and normalising trading market condition. The group recorded a RM14.9mn net profit in 2Q10 compared with net loss of RM38.8mn and RM50.7mn in the preceding quarter and 2Q09, respectively. Turnover was flat YoY and increased by increased 6.1% QoQ mainly due to increased sales of oleochemical products. Average CPO selling price in 2Q10 was RM2,100 per tonne, lower than RM2,206 achieved in 2Q09 and RM2,138 in 1Q10. The situation at the China operation, which was the main culprit of losses incurred in the past few quarters appear to be normalising.

We are leaving earnings our earnings forecasts unchanged. We expect the group to post a RM36.3mn net profit in FY10 compared with a net loss of RM70.8mn in the preceding year.

We upgrade Kwantas to Hold with RM2.00 target price after partially removing risk premium imputed into beta in the DCF model (WACC = 9.6%, g = 4%). Our target translates into 8.1x FY11 EPS compare with 11x long term average PER. We think the discount is sufficient to justify any risk of earnings uncertainty.

Puncak Niaga Holdings Berhad
Target Price : RM3.00 (Hold)
4Q09 results were disappointing with a mere RM3.9mn net profit, a 91.6% contraction QoQ. The sharp contraction was due to seasonal decline in demand (high rainfall and holidays season), resulting in 7% drop in revenue. In addition, notes to the results also attributed the 10.8 p.p. contraction in EBIT margin to higher operating cost without elaborating on the details. Interest expense also increased sharply due to drawdown of new borrowings to finance operation. Consequently, FY09 net profit only amounted to RM142.6mn, significantly below ours and consensus expectations. Revenue increased by 33.2% YoY to RM1.9bn, which includes RM434mn in estimated compensation arising from the delay in water tariff revision, for the period of 1Q – 4Q of CY2009.

We trimmed FY10 and FY11 earnings forecasts by 14% - 15% to take into account the lower than expected operating margin in FY09.

Target price revised lower to RM3.00 in line with the downgrade in earnings forecasts. We continue to recommend Puncak as Hold given the potential upside from a value unlocking asset sale exercise.

Sime Darby Berhad
Target Price :RM9.06 (Sell)
Sime Darby finally revealed that there was cost overrun in its Maersk Oil Qatar (MOQ) project in Qatar. The group booked RM210mn provision in relation to the project in 2Q10, mainly to account impact of higher construction, raw material and logistic costs. As a result, 2Q10 net profit fell 37.5% to RM428.2mn. Stripping out forex effect, core net profit was 430.4mn, a 35.5% contraction QoQ. 1H10 core net profit declined by 11.8% to RM1.1bn , accounting for 40% of ours as well as consensus estimates, mainly due to the provision highlighted above and lower profits from the industrial segment. The latter reported a 15.1% drop in 1H10 operating profit due to slower off-take for new equipment and power system. Declared 7 sen single tier dividends (5 sen in 1Q09).

FY10 and FY11 earnings forecasts downgraded by 5.2% and 4.9% respectively. We have imputed the net impact of, 1) MOQ project cost overrun, lower margins for property, 3) weaker sales of industrial equipment and 4) higher than expected CPO price (RM2,382 vs. RM2,250 previously).

We rolled forward valuation base year to FY11 and upgrade TP to RM9.06. However, Sime Darby remains as Sell. Despite the recent correction, valuations are not compelling to trigger a review of our call on the stock. Key risk to our call is, 1) CPO price underperforming our expectations, 2) sharp correction in crude oil price, and 3) extended El-Nino weather condition.

Boustead Holdings Berhad
Target Price : RM4.10 (Buy)
Boustead announced a sharply improved 4Q10 set of results. Net profit grew by 71.4% QoQ to RM147.7mn on the back of 4.4% increase in revenue, partly due to an undisclosed amount of fair value gain booked on revaluation of investment properties. We believe this gain could be in the region of RM30mn – RM35mn (RM08: RM37.2mn) based on the information available in the result notes. In addition, BHPetrol too recorded stockholding gain but again the amount was not disclosed in the notes.

Although one-off gains were the key reasons earnings outperformed, we highlight notable improvement is other business segments. The finance & investment segment recorded a sharp jump in operating profit to RM24.6mn (Figure 1), thanks to interest savings after the recently completed rights issue exercise and better performance from BH Insurance. The heavy industries’ operating profit, although was lower QoQ but was far better than the RM43.1mn loss recorded in 4Q09, due to escalation of cost and delay in work progress.

FY10 earnings forecasts reduced by 3.3% due mainly to lower earnings assumption from the heavy equipment segment but the impact on target price was negligible. Maintain Boustead as Buy with RM3.42 target price. We continue to see value in Boustead given its attractive valuations. The group clinching new contract to construct OPVs would be the key re-rating catalyst.

Indofood Agri Resources Ltd
Target Price : SG$2.60 (Buy)
IFAR’s 4Q09 reported earnings fell 9.1% to Rp287.7bn on the back of a 8.3% contraction in revenue. Core net profit declined by a larger 28.1% QoQ to Rp151.6bn. The results were grossly below our expectations partly due to bulk charge of Rp55bn in relation to trade promotion (discounts given to cooking oil distributors) and below than expected average CPO selling price. Consequently, FY09 results came in below our expectations, accounting for 89% only of our full year estimate. Reported net profit increased by 33.9% to Rp1.5tr but this was largely owing to Rp622.6bn gain arising from revaluation of biological assets and Rp304bn in forex translation gain. Adjusting for these items, core net profit was Rp919.5bn, a 37.6% decline YoY.

No change in earnings forecasts. We upgrade target price to 2.60 based on revised target PER of 17x (16x previously). The higher target PER is necessary to reflect the narrowing valuation gap between Singapore listed plantation stocks compared with Malaysian. Malaysian big-caps are currently trading at 18x PER on average. We continue to like IFAR as a proxy to CPO price and to a smaller extent, rubber and sugar as well. Maintain IFAR as Buy.

Air Asia Berhad
Target Price : RM2.10 (Buy)
AirAsia’s FY09 results came in below TA’s and consensus estimates.
Cumulatively, group core net profit dipped by 36.8% to RM357.2mn compared to FY08 (RM565.0mn). FY09 core net profit, excluding exceptional items amounted to RM191.9mn. (cumulative forex gain of RM123.6mn, disposal of assets gain of RM45.8mn and unwinding of derivatives gains of RM22.5mn). It booked a deferred tax charge of RM91.9mn in FY09. Excluding the effects of deferred tax, core net profit actually increased by more than 100% to RM449.1mn compared with FY08. The group’s topline grew by a healthy 11.5% YoY, led by higher passenger volume achieved (+20.7% YoY) and higher contribution from ancillary income (+76.8% YoY) as well as other operating income (+73.0% YoY). Load factor was sustainable at 75.0% while cost per available seat kilometer (ASK) declined 18.7% to 10.41sen.

FY10 earnings forecast revised upward by 4% mainly due to lower cost structure and higher yield assumption and new hedging position.

Our target price remains unchanged at RM2.10 based on target PER of 9x. Given the potential upside of 45.8% from the current share price level, we maintain our Buy call on AirAsia. Key risk factors to our call are: 1) slower-than-expected recovery in passenger movements, 2) threat of a severe global pandemic, and 3) spike in fuel prices.

Scan Associates Berhad
Target Price : RM0.08 (Sell)
SCAN posted larger than expected FY09 losses mainly due to higher operational expenses incurred for the maintenance project of one of its subsidiaries in 4QFY09. The cumulative net loss of RM3.9mn was above our expectations. However, it is still smaller than the RM11.5mn net loss recorded in FY08. The lower net loss was mainly attributable to the higher revenue (+91.3% YoY), coupled with higher gross profit margin recorded compared with FY08.

On a sequential basis, SCAN’s net loss for 4QFY09 ballooned to RM2.4mn from RM0.7mn despite a 67.2% surge in revenue. The decrease was mainly due to the reasons highlighted above. We trim down our FY10 earnings forecast. For FY10, we are now expecting a RM0.2mn net loss for F10 as we have factored in higher operating cost and lower gross margin for Scan. Besides, we also factored in higher finance cost due to higher debt position. We expect SCAN to turn profitable in FY11 and conservatively assumed return to profitability (RM0.8mn earnings) in FY11.

We revised downward our target price to RM0.8 after the earnings adjustment. The new target price is based on a lower 30% discount to the adjusted NTA/share of 10.9sen for FY10. Maintain our Sell recommendation on Scan.

Allianz Malaysia Bhd
Target Price : RM5.10 (Hold)
Allianz reported an encouraging set of 4Q FY09 results. FY09 net profit surged by 68.1% YoY to RM118.9mn (vs. RM70.7mn last year) – sharply above ours’ and consensus estimates of RM78mn and RM79.1mn respectively.
On a sequential basis, net profit almost tripled to RM60.2mn despite the 17% QoQ fall in operating revenue. Compared to FY08, PBT rose by 48.3% YoY, underpinned by stronger topline growth, better underwriting profit from general insurance and the transfer of surplus of RM12mn from the Life Fund to the Shareholders’ Fund.

The BOD is recommending an unchanged first and final dividend of 2.0 sen/share. We are keeping our FY10-11 projections unchanged pending an analyst briefing by the management later today. With that, we also keep our TP unchanged at RM5.10. HOLD maintained.

Company Update

MISC Berhad
Target Price : RM6.10 (Sell)
MISC held an Analysts’ Briefing last Thursday to discuss its 3QFY10 results and outlook. After the disclosure of more operating data and prospectus at the meeting, we chose to maintain our earnings forecast. We feel that although MISC’s earnings had hit the bottom, its outlook remains uncertain. This is underpinned by a mixed global economy outlook and expected massive new tonnage over the next 2 years, which likely to create a vicious oversupply cycle and lower freight rates, in our opinion.

LNG shipping is the main savior for MISC. Its YTD revenue and PBT has increased 7.6% and 36.1% YoY thanks to contribution from new deliveries coupled with lower operating cost and lower deprecation (by extending the lifespan of its assets). MISC’s liner business did not show any improvement in 3QFY10 although TEU rebounded 2% QoQ. It suffered YTD loss amounting to RM955.4mn on the back of a 38.9% drop in revenue. We suspect the culprits are higher bunker cost (+24% YTD) and depressed rates due to overcapacity. Although the group has completely exited from Asia-Europe trade effective Jan 2010, nonetheless, there are still some residual costs to be recognised in 1QCY10 mainly due to equipment’s shifting cost back to Asia region.

We maintain our target price of RM6.10 based on PER of 20x on CY10 EPS. The target PER includes a 20% premium to conglomerate shipping companies’ average PER of 16.6x. We think the premium is justifiable given the group’s leverage on the strengths and integration synergies with its parent company – Petronas.


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