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KrisAssets 1H10 - Retain Hold

KrisAssets 1H10 - Retain Hold

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Published by limml63
We maintain our Hold recommendation on Kris but raise our DCFbased
12-month target price to MYR3.40
We maintain our Hold recommendation on Kris but raise our DCFbased
12-month target price to MYR3.40

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Published by: limml63 on Aug 27, 2010
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08/26/2010

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 All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
 
Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 1 of 4
KrisAssets Holdings
Recommendation:
HOLD
Stock Code:
6653
Bloomberg:
KRIS MK
Price:
MYR3.22
12-Month Target Price:
MYR3.40
Date:
 August 26, 2010
Price (MYR)
2.202.402.602.803.003.203.40Price30 Day Moving Average
 
Board:
 
Main
 
Sector:
 
Property
 
GICS:
 
Financials/Real Estate Operating Companies
Market Value - Total:
MYR1,084.7 mln
 
Summary:
KrisAssets Holdings (Kris) owns and operatesthe Mid Valley Megamall in Kuala Lumpur. The group’s mainsources of income are derived from rental collections and car park fees. Kris is a 75%-owned subsidiary of IGBCorporation Bhd.
 Analyst:
 
Alexander Chia, ACA
Vol ('000)
04008001,200Aug 07Oct 07Jan 08Mar 08May 08Jul 08Oct 08Dec 08Feb 09Apr 09Jul 09Sep 09Nov 09Jan 10Mar 10Jun 10Aug 10Volume
 
Results Review & Earnings Outlook
 
Kris’ 1H10 net profit jumped 89.9% YoY to MYR92.6 mln, exaggeratedby a MYR50 mln fair value gain on investment property in relation tothe Mid Valley Megamall. Stripping out the after-tax impact of the gain,the adjusted net profit of MYR55.5 mln is up 2.4% YoY and equivalentto 54.2% of our 2010 forecast. With 2H10 expense accruals expectedto be seasonally higher, we consider the core earnings to be in linewith our expectations.
 
2Q10 revenue of MYR60.2 mln was up 2.2% QoQ and 5.6% YoY,taking 1H10 revenues 4.9% higher to MYR119.1 mln as a result of higher rental incomes received. Gross margin for the period wasslightly improved at 78.8% from 78.1% in 1H09.
 
Kris’ balance sheet metrics remained solid with low net gearing of 23%at end-June from 25% at end-March. NAV rose to MYR3.56/sharefrom MYR3.36 at end-2009.
 
We lift our 2010 earnings estimate to MYR139.3 mln (from MYR102.3mln) after factoring in the fair value gain and keep our 2011 forecastbroadly unchanged. The Mid Valley Megamall remains a popular shopping destination, attracting strong visitor flows. The Mallcontinues to enjoy a 100% occupancy rate.
Recommendation & Investment Risks
 
We maintain our Hold recommendation on Kris but raise our DCF-based 12-month target price to MYR3.40 (from MYR3.20), after rollingforward our calculations by a year.
 
We continue to derive our target price using a discounted cash flow(DCF) approach, in view of Kris’ steady cash flow generation, but wehave rolled forward our calculations by a year to 2011. Our modelassumes a WACC of between 6.3% and 6.7% as well as a terminalgrowth rate of 1% (all unchanged).
 
We believe the stock is close to being fully valued, as it trades at 2011PER and P/B of 10.1x and 0.84x, respectively – valuations that remainwithin their respective three year trading bands. We understandmanagement is actively seeking to acquire foreign shoppingcomplexes to be injected into Kris to spur its future earnings growth,and we wait for such an acquisition to materialize before imputing anyadditional contributions. Parent IGB’s (IGB MK, MYR1.87, 3-STARS)potential future plans to inject its assets into a REIT could likely involvethe Megamall. Nevertheless, it is premature, in our opinion, to assessthe impact at this juncture until further clarity emerges.
 
Risks to our recommendation and target price include an unexpectedcurtailment in retail consumer spending that could significantly affectretail sales and ultimately impact Kris’s rental income.
Key Stock Statistics
FY Dec.
20092010E
Reported EPS (sen)
40.841.4
PER (x)
7.97.8
Dividend/Share (sen)
15.515.0
NTA/Share (MYR)
3.363.62
Book Value/Share (MYR)
3.363.62
No. of Outstanding Shares (mln)52-week Share Price Range (MYR)Major Shareholders:IGB Corporation Berhad*Stock deemed Shariah compliant by the Securities Commission.
336.92.51 - 3.30%74.8
 
Per Share Data
FY Dec.
2007200820092010E
Book Value (MYR)2.913.103.363.62Cash Flow (sen)22.321.929.529.6Reported Earnings (sen)37.229.740.841.4Dividend (sen)15.013.015.515.0Payout Ratio (%)51.732.853.036.3PER (x)8.710.87.97.8P/Cash Flow (x)14.414.710.910.9P/Book Value (x)1.11.01.00.9Dividend Yield (%)4.74.04.84.7ROE (%)7.79.99.111.8Net Gearing (%)42.934.225.416.5
 
 
 All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
 
Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 2 of 4
KrisAssets Holdings
Recommendation:
HOLD
Stock Code:
6653
Bloomberg:
KRIS MK
Price:
MYR3.22
12-Month Target Price:
MYR3.40
Date:
 August 26, 2010
FY Dec. / MYR mln
2Q102Q09% Change
Reported Revenue60.257.05.6Reported Operating Profit94.939.2>100Depreciation & AmortizationNANANANet Interest Income / (Expense)-6.9-7.1-3.0Reported Pre-tax Profit88.132.1>100Reported Net Profit65.623.3>100Reported Operating Margin (%)>10068.8-Reported Pre-tax Margin (%)>10056.4-Reported Net Margin (%)>10040.9-Source: Company data
Quarterly Performance
 
Profit & Loss
FY Dec. / MYR mln
200820092010E2011E
Reported Revenue216.6227.9239.3251.6Reported Operating Profit145.5207.9213.5169.0Depreciation & Amortization-1.2-1.1-1.1-1.1Net Interest Income / (Expense)-30.2-27.4-25.3-23.8Reported Pre-tax Profit115.3180.6188.2145.1Effective Tax Rate (%)14.924.726.026.0Reported Net Profit98.2136.0139.3107.4Reported Operating Margin (%)67.291.389.267.2Reported Pre-tax Margin (%)53.279.278.757.7Reported Net Margin (%)45.359.758.242.7*2009 net profit included a MYR50 mln revaluation surplus.Source: Company data, S&P Equity Research
 
 
 
Required Disclosures
Redistribution or reproduction is prohibited without written permission. Copyright © 2010 The McGraw-Hill Companies, Inc. Page 3 of 4
Standard & Poor’s Equity Research Services
Standard & Poor’s Equity Research Services U.S. includes Standard & Poor’sInvestment Advisory Services LLC; Standard & Poor’s Equity Research ServicesEurope includes Standard & Poor’s LLC- London; Standard & Poor’s EquityResearch Services Asia includes Standard & Poor’s LLC’s offices in Hong Kongand Singapore, Standard & Poor’s Malaysia Sdn Bhd, and Standard & Poor’sInformation Services (Australia) Pty Ltd.
GlossaryStrong Buy:
Total return is expected to outperform the total return of the KLCI or KL Emas Index respectively, by a wide margin over the coming 12 months, withshares rising in price on an absolute basis.
Buy:
Total return is expected to outperform the total return of the KLCI or KL EmasIndex respectively, over the coming 12 months, with shares rising in price on anabsolute basis.
Hold:
Total return is expected to closely approximate the total return of the KLCI or KL Emas Index respectively, over the coming 12 months with shares generallyrising in price on an absolute basis.
Sell:
Total return is expected to underperform the total return of the KLCI or KLEmas Index respectively, over the coming 12 months and share price is notanticipated to show a gain.
Strong Sell:
Total return is expected to underperform the total return of the KLCI or KL Emas Index respectively, over the coming 12 months by a wide margin, withshares falling in price on an absolute basis.
 S&P 12 Month Target Price
 – The S&P equity analyst’s projection of the marketprice a given security will command 12 months hence, based on a combination of intrinsic, relative, and private market valuation metrics.
Shariah-compliant stock -
As defined by the Shariah Advisory Council of Malaysia’s Securities Commission
Required Disclosures All of the views expressed in this research report accurately reflect theresearch analyst's personal views regarding any and all of the subjectsecurities or issuers. No part of analyst compensation was, is, or will be,directly or indirectly, related to the specific recommendations or viewsexpressed in this research report. Additional information is available upon request.Other Disclosures
 This report has been prepared and issued by Standard & Poor’s and/or one of itsaffiliates. In the United States, research reports are prepared by Standard & Poor’sInvestment Advisory Services LLC (“SPIAS”). In the United States, research reportsare issued by Standard & Poor’s (“S&P”); in the United Kingdom by Standard &Poor’s LLC (“S&P LLC”), which is authorized and regulated by the FinancialServices Authority; in Hong Kong by Standard & Poor’s LLC, which is regulated bythe Hong Kong Securities Futures Commission; in Singapore by Standard & Poor’sLLC, which is regulated by the Monetary Authority of Singapore; in Malaysia byStandard & Poor’s Malaysia Sdn Bhd (“S&PM”), which is regulated by theSecurities Commission; in Australia by Standard & Poor’s Information Services(Australia) Pty Ltd (“SPIS”), which is regulated by the Australian Securities &Investments Commission; and in Korea by SPIAS, which is also registered in Koreaas a cross-border investment advisory company.The research and analytical services performed by SPIAS, S&P LLC, S&PM, andSPIS are each conducted separately from any other analytical activity of Standard& Poor’s.A reference to a particular investment or security by Standard & Poor’s and/or oneof its affiliates is not a recommendation to buy, sell, or hold such investment or security, nor is it considered to be investment advice.Indexes are unmanaged, statistical composites and their returns do not includepayment of any sales charges or fees an investor would pay to purchase thesecurities they represent. Such costs would lower performance. It is not possible toinvest directly in an index.Standard & Poor's and its affiliates provide a wide range of services to, or relatingto, many organizations, including issuers of securities, investment advisers, broker-dealers, investment banks, other financial institutions and financial intermediaries,and accordingly may receive fees or other economic benefits from thoseorganizations, including organizations whose securities or services they mayrecommend, rate, include in model portfolios, evaluate or otherwise address.
CMDF-Bursa Research Scheme (“CBRS”)
This report has been prepared by S&PM for purposes of CBRS administered byBursa Malaysia Berhad, independent from any influence from CBRS or the subjectcompany. S&P will receive total compensation of RM15,000 each year for eachcompany covered by it under CBRS. For more information about CBRS, pleasevisit Bursa Malaysia’s website at:http://www.bursamalaysia.com/website/bm/ 
Disclaimers
 This material is based upon information that we consider to be reliable, but neither S&P nor its affiliates warrant its completeness, accuracy or adequacy and it shouldnot be relied upon as such. With respect to reports issued to clients in Japan and inthe case of inconsistencies between the English and Japanese version of a report,the English version prevails. With respect to reports issued to clients in Germanyand in the case of inconsistencies between the English and German version of areport, the English version prevails. Neither S&P nor its affiliates guarantee theaccuracy of the translation. Assumptions, opinions and estimates constitute our  judgment as of the date of this material and are subject to change without notice.Neither S&P nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is notnecessarily indicative of future results.This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Any opinionsexpressed herein are given in good faith, are subject to change without notice, andare only correct as of the stated date of their issue. Prices, values, or income fromany securities or investments mentioned in this report may fall against the interestsof the investor and the investor may get back less than the amount invested. Wherean investment is described as being likely to yield income, please note that theamount of income that the investor will receive from such an investment mayfluctuate. Where an investment or security is denominated in a different currency tothe investor’s currency of reference, changes in rates of exchange may have anadverse effect on the value, price or income of or from that investment to theinvestor. The information contained in this report does not constitute advice on thetax consequences of making any particular investment decision. This material is notintended for any specific investor and does not take into account your particular investment objectives, financial situations or needs and is not intended as arecommendation of particular securities, financial instruments or strategies to you.Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professionaladvice.For residents of the U.K. This report is only directed at and should only be relied onby persons outside of the United Kingdom or persons who are inside the UnitedKingdom and who have professional experience in matters relating to investmentsor who are high net worth persons, as defined in Article 19(5) or Article 49(2) (a) to(d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, respectively.For residents of Singapore - Anything herein that may be construed as arecommendation is intended for general circulation and does not take into accountthe specific investment objectives, financial situation or particular needs of anyparticular person. Advice should be sought from a financial adviser regarding thesuitability of an investment, taking into account the specific investment objectives,financial situation or particular needs of any person in receipt of therecommendation, before the person makes a commitment to purchase theinvestment product.For residents of Malaysia. All queries in relation to this report should be referred toAlexander Chia, Desmond Ch’ng or Ching Wah Tam.
 

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