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24 May 2010 (First Resources, QL, IJM, EON Cap, PLUS, WCT, Furniweb; Technical: Hai-O, CIMB) Top Story : First Resources – Exponential earnings growth at inexpensive valuations Outperform New Coverage - First Resources (FR) is a small (by Indonesian standards) but efficient pure plantation company listed in Singapore. FR has 113,010ha of landbank in Indonesia and currently operates 8 palm oil mills. It has also ventured downstream via a 250k tonne capacity refinery and a 250k tonne capacity biodiesel plant. It is currently constructing a 300k tonne fractionation plant which will be completed by 1HFY12/011. - We believe there are five major reasons for investing in FR: 1) Its strong growth profile, given its young plantation age profile; 2) Aggressive planting targets, given its unplanted landbank; 3) Efficient planter, with below average cost of production; 4) Downstream expansion to boost bottomline; and 5) Valuations at unjustifiable significant discount to peers. We project FR to post a core net earnings (ex-EI and biological gains/losses) CAGR of 59.8% over the next three years to FY12. - FR is currently trading at 8.7x CY10 EPS and 7.2x CY11 EPS, which is a significant discount to the Malaysian plantation sector’s average PE of 19.2x for FY10 and 15.4x for FY11 and even to the regional plantation sector average of 12.6x for FY10 and 10.6x for FY11. Given FR’s efficiently-run estates, clean operating structure and sustainable earnings growth for the medium to long term, we believe FR does not deserve to trade at such a large discount to industry peers. We assign a target PE of 11.5x to FR’s FY11 EPS, which is a 30% discount to our Malaysian target PER for the mid-cap plantation stocks, to obtain our target price of S$1.55/share. We initiate coverage with an Outperform recommendation.
Corporate Highlights QL : Expecting strong FY10 results Outperform Results Preview - 4QFY3/10 results (due out today) are likely to come in within expectations. In 4Q10, we expect net profit to post double-digit % growth yoy driven mainly by its marine product manufacturing division, due to higher sales volume of surimi-based products coupled with increase in surimi prices of around 10% yoy. - QL is still targeting 10-15% net profit growth for FY11 on the back of higher sales volume from all divisions, margin improvement from continuous operating efficiency and lower cost of feedmeal, which is in line with our forecasts. In FY11 as well, QL’s palm pellet project will be undergoing commercialisation and there could be potential earnings contribution from this project during the year. We have yet to input any potential earnings from this project into our forecasts. - No changes to forecasts. Maintain Outperform with unchanged fair value of RM3.93 (13x CY10 PER). IJM Corp : Kajang-Seremban Highway’s traffic falls short of projection Market Perform News Update - Concessionaire Lekas expects the average daily traffic volume of the 44km Kajang-Seremban Highway to come in at only 70-80k in its first year of full opening, vis-à-vis the initial projection of 100k. - It expects the RM1.8bn highway to break even in 8-10 years. IJM owns a 50% stake in Lekas. - In our forecasts, we only assume construction profits but not tolling profits from the highway over our forecast period. - Maintain Market Perform. Fair value is RM4.88. EON Capital : Board decides to proceed with EGM Outperform News Update (published 21 May 2010) - EON Cap announced last Friday that the Board had decided to proceed and table HL Bank’s proposal to acquire the entire assets and liabilities of EON Cap for RM5.06bn (Offer or Proposed Disposal) for shareholders’ approval. - This is notwithstanding the independent financial adviser’s (IFA) view that the Offer by HL Bank was “not fair from a financial perspective”. - The Board’s decision does not come as a surprise to us as we had previously mentioned that the Board would still likely proceed with the EGM, regardless of the IFA’s opinion.
EON Cap also announced a proposal to distribute the cash proceeds arising from the Proposed Disposal to its shareholders. This will comprise a special dividend, which is estimated to be about RM3.3bn, followed by a capital repayment exercise for the balance of the proceeds. No change to our Outperform call and fair value of RM8.07 (15x FY10 EPS).
EON Capital : Starting off on a strong note Outperform 1QFY10 Results/Briefing Note - 1QFY10 net profit (+22.9% yoy; +58.8% qoq) was in line with our and consensus expectations. - Net interest income registered qoq growth for the third consecutive quarter. This was on the back of 2.4% qoq (9.3% yoy) loan growth while NIMs were roughly stable. - Non-interest income remained healthy, supported mainly by sustainable transactional fee income while CIR improved to 54.3% (4Q09: 64.6%; 1Q09: 57.1%). - Impairment allowances for loans were higher qoq and yoy, but this was largely a reflection of higher collective impairment allowance. - Following the adoption of EON Cap’s gross impaired loans ratio as at end-Mar’10 stood at 4.2%, as compared to the gross NPL ratio of 3.8% as at end-Dec’09 (4.3% based on FRS139). LLC stood at 76.6% as at end-1Q10 (4Q09: 78.5%; 1Q09: 70.6%). - Core capital ratio at end-1Q10 was 10.8% (4Q09: 11.2%; 1Q09: 9.5%). - No change to our forecasts. Fair value of RM8.07 (15x FY10 EPS) and Outperform call maintained. PLUS : 1QFY12/10 traffic volume rises by 9.1% Outperform 1QFY10 Results/Briefing Note - 1QFY12/10 came in within expectations, accounting for 25.0-25.3% of our full-year forecast and the fullyear market consensus. - Despite having achieved yoy traffic volume growth of 9.1% at PLUS’s core expressways, management expects traffic volume growth to moderate to 3-4% in remaining quarters, due mainly to high-base effect. - Toll operations of the newly-acquired Padalur-Trichy Highway has commenced since 6 May 10 (which means revenue contribution to PLUS) and the conditions precedent have been complied with and completed on 18 May 10. - Indicative fair value is RM4.13, equivalent to PLUS’s DCF-derived NPV. WCT : 1QFY12/10 net profit declines 11% yoy Underperform 1QFY10 Results - 1QFY12/10 net profit came in within expectations at 22-25% of our full-year forecast and the full-year market consensus. - 1QFY12/10 net profit declined 11% yoy as lumpy overseas jobs were already at tail-ends, while new local contracts had yet to hit significant billing milestones to fill up the vacuum. - WCT did not make any provision with regards to additional cost-overrun from Bakun. WCT owns an effective 7.7% stake in the consortium that was awarded the contract. - Maintain Underperform. Fair value is RM2.10. Furniweb : Above expectations Outperform 1QFY10 Results - 1QFY12/10 core net profit of RM1.6m (-15.4% qoq) accounted for 22.9% and 23.8% of our and consensus full-year estimates respectively. We consider this to be above our expectations given that 1Q is typically the weakest quarter. - We have raised our FY10-12 EBIT margin assumptions to 9.2%, 8.2%, and 8.2% respectively, but also raised our effective tax rate assumption to 30% p.a. (vs. 17.5% previously). - Consequently, our FY10 EPS forecast has been raised by 8.5%, while our FY11-12 EPS forecasts have been trimmed by 4.1% and 4.3% respectively. - We have raised our fair value estimate to RM0.71 (from RM0.66 previously) based on 8.5 FY10 PER.
Technical Highlights Daily Trading Strategy : Strong resistance-turn-support level at 1,300…
Due to the latest technical break down below the important psychological threshold of 1,300 last Friday, the FBM KLCI has confirmed a bearish medium-term outlook on the technical chart. Not only that, the weak closing with another bearish candle suggests that it is well underway to revisit the lower immediate support level of 1,250 soon. Should 1,250 give way to sellers, meaningful support is only near the next psychological level at 1,200. Having said that, with a triple-digit bounce on the US DJIA on last Friday, a mild rebound may appear on bargain-hunting activities today. Still, we remain bearish on the overall market direction, as we believe the rebound, if any will unlikely to be sustainable, and that it should meet a strong support-turn-resistance level at 1,300. On hind side, as we continue to expect investors to trim their positions in view of further correction ahead, we foresee investors to “sell into strength” as the market has moved into a retracement phase.
Daily Technical Watch: Hai-O Enterprise – Selling momentum to persist in the coming week … - 10-day SMA: RM4.015 - 40-day SMA: RM4.278 - Support: IS = RM3.67 S1 = RM3.20 S2 = RM2.59 - Resistance: IR = RM4.12 R1 = RM4.40 R2 = RM4.93 Weekly Trading Idea : CIMB – The 10-day SMA will cut below the 40-day SMA soon… - Strategy: Take Profit ahead of an imminent correction ahead. - Resistance: IR = RM7.03 R1 = RM7.41 - Support: IS = RM6.70 S1 = RM6.00 S2 = RM5.43 - Exit: It will return to bulishness if it removes the high at RM7.41. Take Profit
Commodities & Currencies – Weakness likely on the US Dollar … - Light Sweet Crude Oil futures (Crude): Potentially indicates a technical rebound underway. - Crude Palm Oil futures (CPO): Sentiment should remain negative bias. - Ringgit (RM)/US$: The ringgit will head towards the 35-week SMA near 3.35 soon. - Japanese Yen (JPY)/US$: A likelihood of selling resumption in US$ against the Japanese yen. - Euro Dollar (EUR)/US$: A possible halt in the previous rally on the US$ against the EUR. - US Dollar Index (DXY): A critical support level at 85.
Co/Sector IJM Land News IJM Land has acquired a 70% stake in Sova Holdings for RM18m cash that is currently developing high-rise residential apartments and retail and commercial properties on a 2.85 ha site in Dong Nai Province, Vietnam. The project, which is located in close proximity to six industrial parks four international standard golf clubs, is estimated to generate a total GDV of US$150m. It is expected to be launched by 3Q10. (Bursa) Impact Recom
Assuming a 51% stake in the JV, 15% pretax OP, FV = margin and development period of 3 years, the RM3.19 project is expected to boost IJM Land’s FY12 earnings forecast by about 3%.
Company New entitlements Leader Universal Jobstreet Corp Padiberas Nasional PBA Holdings Kinsteel Entitlement details First interim dividend of 1.5 sen less 25% tax First tax exempt interim dividend of 1.25 sen Final dividend of 12 sen less 25% tax Final tax exempt dividend of 2 sen Final dividend of 1 sen tax exempt Ex-date 4-Jun-10 17-Jun-10 28-Jun-10 28-Jun-10 21-Jul-10 Payment date 30-Jun-10 28-Jun-10 14-Jul-10 16-Jul-10 20-Aug-10
Central Industrial Corp Going “ex” on 25 May PIE Industrial Hap Seng Plantation Warisan TC Holdings Edaran Otomobil Nasional Atlan Holdings Atlan Holdings Tan Chong Motor Holdings Hartalega Holdings
Final dividend of 1.5 sen less 25% tax
1st and final div of 12 sen + special div of 23 sen, less 25% tax Final dividend of 5 sen tax exempt Final dividend of 6 sen less income tax Selective capital repayment and repayment exercise First interim dividend of 5 sen single-tier Distribution of treasury shares on basis of 1-for-20 Final dividend of 6 sen less tax Third interim single tier dividend of 5 sen
25-May-10 25-May-10 25-May-10 25-May-10 25-May-10 25-May-10 25-May-10 25-May-10
8-Jun-10 8-Jun-10 17-Jun-10 17-Jun-10 18-Jun-10 18-Jun-10 18-Jun-10 25-Jun-10
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