Strategy | M A L A Y S I A 2011 Outlook
NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] TOP DOWN
A N C H O R
R E P O R T
Wai Kee Choong +60 3 2027 6893 And the Malaysia Research Team
The rally is still young Most of the characteristics of the super bull market in the early 1990s have resurfaced, with five key features clearly apparent: economic recovery, liquidity, sector rotational plays, M&A activity and rising retail participation. The excitement infused by the ongoing flurry of M&A activity in three different sectors can only be positive for market sentiment, not to mention for investment banking earnings. Set against a favourable backdrop of — 1) an ongoing consumption boom, driven by a younger and wealthier population; 2) improving commodity prices; and 3) ample liquidity supporting asset reflation evident in the buoyant property market — the bull market in Malaysia looks set to continue into 2011. Going into the New Year, we believe the property, palm oil and bank sectors will be the winners. Our top picks include CIMB, Maybank, AMMB, Media Prima, SP Setia, Sime Darby and Genting Malaysia.
The 5Cs M&A euphoria — a positive new theme Consumption and asset reflation theme Index target and sector strategy
Stocks for action We recommend those stocks we think will be prime beneficiaries of the consumption boom in Malaysia: Maybank, AMMB, CIMB, Media Prima, SP Setia, Sime Darby and Genting Malaysia.
Stock
Rating
Price Price target
Upside (%)
Maybank (MAY MK)
BUY
8.44
10.70
AMMB (AMM MK)
BUY
6.19
7.30
18
CIMB (CIMB MK)
BUY
8.38
10.00
19
Media Prima (MPR MK)
BUY
2.39
2.90
21
Sime Darby (SIME MK)
BUY
8.63
11.10
29
SP Setia (SPSB MK)
BUY
5.24
6.11
17
Genting (GENM MK )
BUY
3.22
4.12
28
Prices as of 1 December 2010
Analyst Wai Kee Choong +60 3 2027 6893
[email protected] And the Malaysia Research Team
Nomura Anchor Reports examine the key themes and value drivers that underpin our sector views and stock recommendations for the next 6 to 12 months.
Don’t miss our companion outlook reports on Asia and Singapore, published on 6 December 2010.
Any authors named on this report are research analysts unless otherwise indicated. See the important disclosures and analyst certifications on pages 105 to 108. Nomura
6 December 2010
27
Strategy | M A L A Y S I A NOMURA SECURITIES MALAYSIA SDN BHD
Wai Kee Choong
+60 3 2027 6893
[email protected] TOP DOWN
Action
Stocks for action
The 2010 market rally shares many characteristics of the super bull market of the early 1990s. Reminiscent of those booming days, market liquidity and trading volumes are surging, corporate activity through mergers and acquisitions is picking up. Interest is broadening to more sectors from the usual GLCs and banking stocks. We are turning even more Bullish. Anchor themes In addition to our recently introduced ‘Malaysia’s consumption boom’ and ‘Asset reflation’ themes, a new M&A theme is emerging that will help broaden market interest to more sectors. While the consensus earnings upgrades cycle is likely to remain in positive territory, we believe the Malaysia consumption boom story will be the next focus.
We recommend those stocks we think will be prime beneficiaries of the consumption boom in Malaysia: Maybank, AMMB, CIMB, Media Prima, SP Setia and Genting Malaysia. Rating
Price (RM)
Price target
Maybank (MAY MK)
BUY
8.44
10.70
AMMB (AMM MK)
BUY
6.19
7.30
CIMB (CIMB MK)
BUY
8.38
10.00
Stock
Media Prima (MPR MK)
BUY
2.39
2.90
Sime Darby (SIME MK)
BUY
8.63
11.10
SP Setia (SPSB MK)
BUY
5.24
6.11
Genting Malay (GENM MK )
BUY
3.22
4.12
Prices as at 1 December, 2010 close
Analysts
The rally is still young
Wai Kee Choong +60 3 2027 6893
[email protected] Malaysia Boleh #25: The favourite “5Cs” are back The 5Cs The 2010 market rally shares many characteristics (“C”s) of the super bull market of the early 1990s. The five bull market characteristics – economic recovery, rising liquidity, rotational interest in different sectors, buoyant M&A activity and small but rising participation from retail investors – are being found in the current market rally. Together with the forecast 13% currency appreciation, we expect 15% further upside to the market.
M&A euphoria a positive new theme It has been a long time since the Malaysian stock market was dominated by the hubbub of M&A news and activity. The M&A euphoria has spread from the property sector to the usually quiet consumer sector. In the past four weeks alone, we have seen three major M&A announcements involving six companies.
Consumption and asset reflation themes In addition to our recently introduced ‘Malaysia’s consumption boom’, ‘Asset reflation’ is another theme we like. Strong demand for residential properties continues to drive property sales and earnings. Malaysians are consuming more, aided mainly by improving consumer confidence.
Index target and sector strategy Our bottom-up analysis implies that the FBM KLCI index target will hit 1,703 by end-2011. Going into 2011, we believe property, palm oil, and banks will be the clear winners. Our top picks include CIMB, Maybank, AMMB, AFG, Media Prima, SP Setia, Genting Malaysia, Sime Darby and Malaysia Airports.
Nomura
1
Julian Chua +60 3 2027 6892
[email protected] Jacinda Loh +60 3 2027 6889
[email protected] Ken Arieff Wong +60 3 2027 6895
[email protected] Muzhafar Mukhtar +60 3 2027 6891
[email protected] Daniel Raats +852 2252 2197
[email protected] B. Roshan Raj +65 6433 6961
[email protected] Andrew Lee +852 2252 6197
[email protected] Tanuj Shori +65 6433 6981
[email protected] 6 December 2010
Strategy | Malaysia
Wai Kee Choong
Contents Bull market ver. 2.0
3
M&A euphoria a positive new theme
5
Consumption boom story
6
Stock and Sector recommendations
10
Sector views
12
Banks
12
Property
13
Construction
14
Power
14
Telcos
15
Plantations
15
Rubber gloves
15
Airlines
15
Also see our Anchor Report: Asia Pacific Strategy — Deflation, inflation and the return of the productive economy (6 December, 2010)
Latest company views AirAsia Berhad
22
Alliance Financial Group Bhd
25
AMMB Holdings
28
Axiata Group Berhad
31
British American Tobacco (M)
34
CIMB Group Holdings
37
DiGi.Com
40
Evergreen Fibreboard Bhd
43
Gamuda
46
Genting Malaysia Bhd
49
IJM Corp
52
IOI Corporation
55
Kossan Rubber Industries
58
Kuala Lumpur Kepong
61
Malayan Banking
64
Malaysia Airports Holdings Bhd
67
Malaysian Airline Systems
70
Maxis Communications
73
Media Prima
76
Public Bank
79
Sime Darby
82
SP Setia
85
Supermax Corporation Berhad
88
Telekom Malaysia
91
Tenaga Nasional
94
UEM Land Holdings Berhad
97
WCT Bhd
Nomura
Also see our Anchor Report: Singapore Strategy — Riding the reflation cycle in 2011 (6 December, 2010)
100
2
6 December 2010
Strategy | Malaysia
Wai Kee Choong
2011 Outlook
Bull market ver. 2.0 The 2010 market rally has many characteristics of the super bull market of the early 1990s. Emerging from the 2008 global financial crisis, the Malaysian stock market has rebounded by a whopping 77% from the bottom in 2009 to stage a 17% YTD increase in 2010. Back in the early 1990s, Malaysia, like everyone else in the region, was newly discovered as one of the fast-growing emerging economies.
Reminiscent of the 1990s
Exhibit 1. Bull market check list 1993
Ver. 2.0
Strong FDI
√
×
Rising exports
√
√
Property boom
√
√
Low interest rates
√
√
Foreign ownership
√
×
Infrastructure boom
√
√
Strengthening ringgit
√
√
“The Amah Syndrome” Inflow of foreign capital
√ √
× √
Rotational thematic plays
√
√
Large current account surplus
√
√
Consensus view on bull market
×
√
Source: Nomura research
In the early 1990s, strong foreign direct investment (FDI) and exports growth led to strong account surpluses, which added further liquidity into the market. With interest rates at record low levels, the stock market was an ideal place for investors to seek extra returns. The general view that the ringgit was undervalued also attracted strong capital inflows into the country as economic growth prospects were underscored by the prolonged infrastructure spending up-cycle then. Although the missing part in the current rally is Malaysia’s much smaller share of FDI flowing into the region, the Malaysian stock market boasts five important characteristics (5Cs) of a bull market reminiscent of the bull market days of the early 1990s.
1st C: Economic recovery Malaysia’s GDP growth is firmly back on a positive trajectory. And this is the most important characteristic in our view. It allows investors to have a positive perspective on the corporate earnings outlook. It gives investors confidence to buy on intermittent market corrections. In Malaysia, signs of a lasting bull market are emerging and encouraging. We are seeing improving investor confidence and appetite for stock ideas on market weakness.
2nd C: Liquidity As the saying goes, “no money, no talk”; liquidity is equally important. And no matter how one can slice and dice, a bull market rally will be short-lived in the absence of strong and sustainable liquidity inflow. In a relatively illiquid and under-owned market such as Malaysia, it doesn’t take a lot of liquidity for the market to shine. The ample liquidity conditions currently are ripe for a further rally in the market as market trading volumes continue to pick up.
Nomura
3
6 December 2010
Strategy | Malaysia
Wai Kee Choong
3rd C: Sector rotational plays Another important bull market characteristic is the evidence of strong investor interest and participation rotating from one sector to another. Rotational plays on different sectors help sustain trading volume and momentum. In Malaysia, investors have been rotating their focus from banks and construction to the property sector lately.
4th C: Buoyant M&A activity and GLC divestments Corporates are bullish on the outlook of the economy and the stock market as signalled by the spate of M&A activities taking place in the past few weeks. Controlling shareholders’ willingness to embark on M&A activities underscores our Bullish view. The improving market outlook will likely lead to more M&A activities in the coming months. Year 2011 is likely to be another busy year for the GLCs as we expect more divestments to take place. The divestments by Khazanah so far have been well received by investors as more shares were released into the market to lift liquidity. The continuous improvement in financial performance among the GLCs will continue to allow Khazanah to lighten its stakes in the GLCs.
5th C: The “Amah Syndrome” As Andrew Sheng (former Chairman of the Hong Kong Securities and Futures Commission) put it in his book titled From Asian to Global Financial Crisis, the two main indicators to the irrational exuberance during the super Bull Run in 1993 were: 1) the amah (domestic maid) syndrome, and; 2) when businessmen began to speculate in the stock market seeking better returns from excess cash on corporate balance sheets. In Malaysia, at least, there is a strong belief that when the amah or retail investors start to be active in the stock market, it is usually a signal that the market is near its peak. Psychologically, investors can draw comfort that the market has yet to reach its peak as none of the above-mentioned syndromes prevails in the present bull market.
Bull market Ver. 2.0 Malaysian companies have grown larger in the current bull market cycle through acquisitions and organic growth. In the banking sector, the contribution from Indonesia has been one of the key growth drivers to the Malaysian banks, especially for CIMB and Maybank. Malaysian telcos are also reaping the fruits of their early forays into the Indonesia market, which has been the main growth driver. The recent mergers and acquisitions in the property sector will see Malaysian property companies growing to be larger companies both in land bank assets and market capitalisation terms. With trading liquidity expected to improve post mergers, the sector should be more appealing to institutional investors. Although the Malaysian market has rallied 77% over the 90 weeks from the bottom in 2009, we see further upside driven mainly by strong corporate earnings.
Exhibit 2. FBMKLCI rallies — Duration and performance Date
% Increase
Weeks
1982/83
70
50
Post US Recession
1986/87
155
71
Post US Recession
1987/90
136
119
1992/93
112
67
1998/00
205
79
2007/08
68
104
Average
124
82
77
90
2009/2010
Rally Event
Post Black Monday Foreign Fund Inflows Post Asian Crisis Liquidity Driven Surge Post Global Credit Crisis
Source: Bloomberg, Nomura research
Nomura
4
6 December 2010
Strategy | Malaysia
Wai Kee Choong
2011 Outlook
M&A euphoria a positive new theme It has been a long time since the Malaysian stock market was dominated by the hubbub of M&A news and activities. The M&A euphoria has spread from the property sector to the usually quiet consumer sector. In the past four weeks alone, we have seen four major M&A announcements involving six property companies and a consumer group.
Property As highlighted in our potential sector consolidation note out on 3 November, the recent spate of mergers and acquisitions and consolidation (UEM-Sunrise, IJM Land-MRCB, Sunway Holdings-SunCity) is likely to ensure: 1) continued interest and focus on the property sector in FY11F, and: 2) the emergence of larger and more liquid players which could put the Malaysian property sector on the radar for more investors. Besides improved liquidity being a catalyst for the re-rating, we are also positive on sector fundamentals as a whole – we see favourable supply demand dynamics emerging in Malaysia residential property where demand has increased up to 6% in major cities while incoming supply growth has contracted in recent years. Latent demand remains strong where the average additions of 200k units to housing supply pa are balanced by c. 190k marriages pa. We see latent demand being unlocked from 2011F on the back of improving affordability and income levels; positive Budget 2011 measures to increase home ownership (instead of previously anticipated restrictions) are likely to spur ‘would be’ buyers out of ‘wait and see’ mode while these attractive demographics and high savings rates top off a powerful combination to propel the property sector forward in 2011F.
Banks We see select bankers benefiting from the pick-up in M&As. CIMB, as the premier investment banking group, is the clear leader especially for deals related to the government-linked companies, in our view. Recent transactions such as the proposed UEM Land-Sunrise merger and the VGO for Parkway by Khazanah were advised by CIMB. On the other hand, we have seen deals involving companies where the EPF is the major shareholder being advised by RHB Capital, such as the MRCB-IJM Land merger proposal. Other key players are Maybank (potential adviser within the PNB stable of companies) and AMMB (potential adviser to private entrepreneur-run companies such as IOI and Berjaya Group). The other angle worth exploring is M&As within the banking space itself. The last completed merger was Southern Bank’s acquisition by CIMB back in 2006. Since then, Hong Leong Bank has launched a bid for EON Bank group although this deal is currently subject to legal issues being ironed out. What’s next? The obvious targets are the smaller banks and here we think Alliance Financial Group could be a suitable candidate for a foreign bank looking for a presence in Malaysia. Among the mid-sized banks, we think AMMB and RHBC would make a good pair: 1) AMMB would benefit from RHBC’s larger low-cost CASA deposit base; 2) RHBC’s higher proportion of variable rate loans (~70%) would reduce the structural mismatch at AMMB, where variable rate loans are only ~50% of total loans, and; 3) this allows EPF to dilute its current 54% shareholding in RHBC to a smaller stake in a banking group that is nearly double in size.
Nomura
5
6 December 2010
Strategy | Malaysia
Wai Kee Choong
2011 Outlook
Consumption boom story An ongoing theme worth revisiting On 26 July, 2010, we launched the Malaysian consumption boom theme, highlighting that the potential impact was under-researched and overlooked by the Street, in our view. The strong 3Q earnings in the banking and property sectors reaffirmed our view that Malaysia’s augmented consumer base will continue to be a strong and growing pillar to the Malaysia consumption boom story.
To put this figure into perspective, the 5mn increase is larger than the entire population of Singapore
Who would have imagined that Malaysia’s population would have doubled to 28mn over the past 30 years growing an average of 2.4% pa during this period? In the past decade alone, the population has grown by nearly 5mn. To put this figure into perspective, the 5mn increase is larger than the entire population of Singapore and close to Hong Kong’s population of 6.98mn. According to government statistics, there is one birth every 58 seconds and a net increase in population of one person every 56 seconds. Malaysia’s population has been growing at a rate of about 560K per year, or nearly 2% pa from 2000 to 2010. We estimate that Malaysia’s population will probably exceed 30mn by 2015. Between 2000 and 2008, within the ASEAN region, Malaysia has the fastest growing population base.
Malaysia’s population will probably exceed 30mn by 2015
Exhibit 3. ASEAN: Population growth 2000-2008 (%) 2.5 2.0 1.5 1.0 0.5
Myanmar
Thailand
Viet Nam
Indonesia
Cambodia
Lao PDR
Singapore
Malaysia
Philippines
Brunei Darussalam
0.0
Source: UNESCAP
Large and growing Malay population What’s more surprising and remains relatively unknown is the huge increase in the indigenous group or Bumiputera – mainly Malay – population, which now accounts for 61% of all Malaysians. This segment has more than doubled over the past 30 years, increasing from 8.1mn in 1980 to an estimated 17.0mn this year. The next largest ethnic group, the Chinese, has grown at a slower pace from 4.4mn in 1980 to an estimated 6.5mn in 2010 and now accounts for 23% of the population, down from 32% back in 1980. This decline has largely been filled by non-citizens (mainly foreign workers who now comprise nearly 9% of the nation’s headcount).
Bumiputera population – mainly Malays, have more than doubled over the past 30 years, rising from 8.1mn in 1980 to about 17.0mn in 2010
The government forecasts that the Bumiputera population will grow by about 1.7% pa over the next 5 years (similar to the growth rate from 2000-2010) to 18.5mn and will account for 62% of total population. The Chinese population is expected to grow at a slower pace of 1.2% pa to 6.7mn, but it is expected that the immigrant population will decline about 2.2% pa through 2015.
Bumiputera population will grow by about 1.7%pa over the next 5 years to 18.5mn
Nomura
6
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Exhibit 4. Malaysian population 1980
(%)
1990
(%)
2000
(%)
2010F
(%)
2015F
Bumiputeras
8.1
59
11.1
61
14.3
61
17.0
60
18.5
62
Chinese
4.4
32
5
27
5.8
25
6.5
23
6.7
22
Indian
1.1
8
1.4
8
1.7
7
1.9
7
2.0
7
Others
0.1
1
0.7
4
1.7
7
2.9
10
2.6
9
Total
13.7
18.2
23.5
28.3
29.8
Source: 5-year Malaysia Plans
Young demographic Because of the relatively strong birth rate, Malaysia has a young population base, with 50% of the population under the age of 25 years, and 73% below the age of 40. The young population tends to consume more and is a key driver of consumption growth. Furthermore, the young population profile and high rate of household formation (2% pa growth) also feeds into demand for mortgages and car financing.
Some 50% of the population under the age of 25 years
Exhibit 5. Some 50% of Malaysians under 25 years of age 65+ years 5% 40-64 years 23%
25-39 years 22%
0-14 years 32%
15-24 years 18%
Source: CEIC
Strong GDP per capita growth … Even as the population is growing at a clip, Malaysia enjoys a relatively high GDP per capita in the region. Malaysia’s GDP per capita (in current terms) was US$6,897 in 2008 compares favourably with Thailand’s US$3,939 and Indonesia’s US$2,329. After PPP adjusting, GDP per capita levels for Malaysia at US$14,082 with Thailand at US$8,232 and Indonesia at US$3,980. GDP per capita has risen at a decent pace of 9% pa since 2000. Sectors leading the growth were government services, mining/quarrying, accommodation/restaurants (ie, tourism-related sectors), agriculture, telcos, general commerce and business services. If we could distil this into three main areas, it would be government, commodities and services sector. Manufacturing however, has lagged behind, expanding at just 5% pa.
Nomura
7
6 December 2010
(%)
Strategy | Malaysia
Wai Kee Choong
Exhibit 6. Malaysia: Nominal GDP growth 2000-2009 (%)
12 10 8 6 4 2 Manufacturing
Construction
Utilities
Transport & storage
Finance & insurance
Nominal GDP growth
Real estate & biz services
Wholesale, retail trade
Communication
Agriculture
General commerce
Mining & quarrying
Government services
0
Source: Bank Negara Malaysia
… strong surge in the number of middle class consumers After 20 years of strong economic growth and development, not only did GDP per capita rise at a healthy pace, income levels are now more evenly distributed compared to 1990. Some 55% of households now earn at least RM2,500/month compared to 60% of households earning less than RM1,000/month back in 1990. This has given rise to a much bigger middle-income consumer group and a meaningful bankable population. Among the three major ethnic groups, Bumiputera household incomes are growing the fastest, growing at a rate of 6% pa from 1999-2009. As a result, the income gap between the Chinese and Bumiputera households narrowed to 35% in 2007 from 43% in 1999.
Some 5% of households now earn at least RM2,500/month compared to 60% of households earning less than RM1,000/month back in 1990
Mean income (RM)
Exhibit 7. Malaysia: Mean Monthly Gross Household Income 1970-2000 (RM) 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
Bumiputera
Chinese
Indian
CAGR of Bumiputera monthly gross household income
6%
8%
12%
1970
7%
1979
1989
1999
2009
Income disparity ratio of Bumiputera to Chinese
1:2.29
1:2.04
1:1.74
1:1.74
1:1.38
Income disparity ratio of Bumiputera to Indians
1:1.77
1:1.54
1:1.29
1:1.36
1:1.10
Source: 10th Malaysia Plan
Nomura
8
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Exhibit 8. Malaysia: Distribution of households by income 1990, 2009 (%) Bottom 40%
40
Top 20%
Middle 40%
% of households
35 30 25
1990
20
2009
15 10 5 >= 10000
70009999
5000 6999
40004999
3500 3999
30003499
2500 2999
20002499
1500 1999
10001499
500 - 999
< 500
0
Source: 10th Malaysia Plan
Positive effects of high commodity prices The effects of high palm oil prices have finally reached the smaller rural planters. Based on statistics provided by Federal Land Development Authority, the average income of FELDA’s settlers has risen more than three times since the start of the commodities in 2007. Consumption spending, which has traditionally been stronger in urban areas is now being felt in the rural cities, as seen in recent car sales data.
Exhibit 9. FELDA settlers average income rise in tandem with CPO prices 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: Federal Land Development Authority
Nomura
9
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Actionable ideas
Stock and Sector recommendations To ride on the consumption, asset reflation and M&A themes, we are recommending CIMB, Maybank, Media Prima, Genting Malaysia, SP Setia, Axiata, Evergreen Fibreboard, AMMB, UEM Land, Sime Darby, AFG and Malaysia Airports as our top Buy ideas.
Exhibit 10. Sector allocation
Source: Nomura research
Index target and sector strategy Our bottom-up analysis implies that the FBM KLCI index target will hit 1,703 by end2011. Going into 2011, we believe property, palm oil, banks will be the clear winners. Our top picks include CIMB, Maybank, AMMB, AFG, Media Prima, SP Setia, Genting Malaysia, Sime Darby and Malaysia Airports. In our view, the price-to-book valuation for the Malaysian market, while approaching +1sd above the historical mean, could stay high, as we saw in the liquidity-driven bull market days of 2007 and early 2008. After a 65% jump in FY10F EPS, consensus market EPS growth is estimated at 12.6% for FY11F and 10.7% in FY12F.
Exhibit 11. Malaysia – 12 month forward P/E (x) 18 17
12mth fwd P/E(x)
+1 stdev
Mean
-1 stdev
Exhibit 12. Malaysia – Trailing P/B
15 13
- 1 stdev
Mean
+1 stdev
2.4
2.3x
2.2
13.8x
14
P/B
2.6
15.3x
16
(x) 2.8
12.4x
12
2.0x
2.0 1.8x
1.8 1.6
11
Current P/E = 14.95x
10
1.4
Current P/BV = 2.27x
Source: FTSE, ExShares, Nomura Strategy Research
Nomura
Source: FTSE, ExShares, Nomura Strategy Research
10
6 December 2010
Jul-10
Jul-09
Jul-08
Jul-07
Jul-06
Jul-05
Jul-04
Jul-03
Jul-02
Jul-01
Jul-10
Jul-09
Jul-08
Jul-07
Jul-06
Jul-05
Jul-04
Jul-03
Jul-02
Jul-01
Jul-00
9
Jul-00
1.2
Strategy | Malaysia
Wai Kee Choong
Exhibit 13. Malaysia – Dividend yield (%) 6
Div Yield (%) Mean
Exhibit 14. Malaysia – ROE (%) 21
-1 stdev +1 stdev
5
19
4
17
3.4%
3
15
2.7%
13
2.0%
2
11
1
9
Current dividend yield = 2.73%
0
Source: FTSE, ExShares, Nomura Strategy Research
Source: FTSE, ExShares, Nomura Strategy Research
Exhibit 15. Malaysia – Revision index
Exhibit 16. Malaysia – Earnings revisions
18 mths
1.6 13 mths
500
10
400
1.0
300
0.8 0.6
200 Revision index (12m MA) MSCI Malaysia
(15) (20) Current ER = 6.06%
(25)
100
Source: IBES, Nomura International (HK) Ltd. - Quantitative Research
Source: FTSE, ExShares, Nomura Strategy Research
Exhibit 17. Malaysia – Fund flows
Exhibit 18. Malaysia – Portfolio investment Benchmark (US$, MSCI index)
3,000
400
2,000
300
1,000
200
0
100
(1,000)
Aug-10
Dec-09
Apr-09
Aug-08
Dec-07
Apr-07
Aug-06
Dec-05
Apr-05
Aug-04
0 Dec-03
(2,000) Apr-03
Cumulative net inflow (US$mn)
500
Source: Bloomberg, EPFR Global, Nomura International (HK) Ltd Quantitative Research
Nomura
Oct-10
(RMmn) 40,000 30,000 20,000 10,000 0 (10,000) (20,000) (30,000) (40,000) (50,000) (60,000) 1Q 2005 2Q 2005 3Q 2005 4Q 2005 1Q 2006 2Q 2006 3Q 2006 4Q 2006 1Q 2007 2Q 2007 3Q 2007 4Q 2007 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010
MSCI Malaysia (RHS) Cumulative Malaysia
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Oct-08
Jan-09
Jul-08
Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10
(35)
Apr-08
0
Jan-08
(30)
0.0
4,000
Jul-10
(10)
Jul-07
0.2
0 (5)
Oct-07
0.4
Earnings Revision
5
Apr-07
1.2
(%) (%) 15
Jan-07
Revision index
1.4
600
MSCI Malaysia
1.8
Jul-09
Jul-08
Jul-07
Jul-06
Jul-05
Jul-04
Jul-03
Jul-02
Jul-01
Jul-00
Jul-10
Jul-09
Jul-08
Jul-07
Jul-06
Jul-05
Jul-04
Jul-03
Jul-02
Jul-01
Jul-00
7
Source: Bank Negara Malaysia, Nomura Research
11
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Malaysia by Sector
Sector views Banks Loan growth for end-2010 is on track to reach double-digit territory for the second time over the past 10 years. Unlike the 2008 loan growth of 13%, this year’s growth has been driven largely by the consumer sector, which accounts for nearly 60% of incremental growth. The bulk of this growth comes from mortgages, which comprise roughly half of consumer loans outstanding. Going forward, we remain Bullish on the consumer sector. The debt service ratio is comfortable, at 25% of average household income. Household savings in the form of financial assets are huge and outnumber household liabilities by 2.5x to 1. The population has doubled to 28mn over the past 30 years, growing an average of 2.4% pa since 1980. Due to the relatively large household size of about 4.5 persons per household (3.5 in Singapore, 2.9 in Hong Kong), we view that household formation as remaining firm, underpinning demand for mortgages and car loans. As for the business sector, much hinges on the successful execution of the economic transformation programme, where the government envisages total investments of >US$440bn over the next ten years. We have not factored in the potential infrastructure projects in our forecasts given the uncertainty in timing as well as execution. However, if these projects do materialise, it would be a boon to loan growth. For 2011, assuming a constant RM7bn increase in loans per month (RM4.5bn from consumer, RM2.5bn from businesses), we would arrive at a loan growth of about 10%. Nominal GDP growth is expected to be 9% next year, thus a 10% loan growth rate is not unreasonable. Our bottom-up forecast suggests growth of 11%. The central bank has raised interest rates three times in 2010, bringing the Overnight Policy Rate to 2.75% from 2.00%. For 2011, our economics team believes that Bank Negara will continue its normalisation process, taking the OPR to 3.25%, representing an increase of 50bps. The real policy rate will fall next year – we forecast CPI to rise to 3.3% in 2011 from 1.7% this year. Furthermore, global uncertainty (which was the main factor behind BNM’s current rate pause) should subside. That said, the key risk to this view is further strengthening of the ringgit, which acts to tighten monetary conditions and reduce the need for OPR hikes. Rate hikes from current levels are positive for banks. They enjoy a temporary lift to margins as lending rates reprice faster than deposit rates. Banks with ample liquidity or a low loan-deposit ratio (Public Bank), a high proportion of variable rate loans (AFG) and a high CASA base (Maybank, AFG) should benefit from a margin perspective. In contrast, higher rates will likely have a negative impact on AMMB as 50% of its loans are on a fixed-rate basis. However, we would note that AMMB has been positioning its balance sheet for a rise in interest rates and thus the hikes may not have as great an impact. In recent months, banks have started to compete aggressively again in mortgages and auto loans. Recall, back in November 2009, the domestic banks reduced the discount on mortgages to BLR minus 1.8-1.9%. This held true until August 2010, when banks Bank began offering mortgages at BLR minus 2.2%. This means that the incremental margins for housing loans will come under pressure. Thus, we expect net interest margins to remain stable as rising interest rates should offset industry competitive pressure. Amid ample liquidity, the Malaysian asset reflation theme is manifesting itself in strong property demand while the stock market is near historical peaks. Moreover, there are several high-profile deals on the table, such as the privatisation of Plus Expressways and acquisition of Sunrise by UEM Land. Add to this mix the ongoing divestment of the government's stakes in government-linked entities, as well as firming commodity prices, and we believe the capital markets will continue to excite investors and corporates next year. As we see it, the Quantitative Easing programme in the US is expected to result in favourable liquidity conditions globally and, in particular, the ASEAN economies, given a strong domestic demand growth outlook driven by the rise of the
Nomura
12
6 December 2010
Strategy | Malaysia
Wai Kee Choong
middle class. For Malaysia in particular, we think the commodities boom should be an added bonus. Taken together, we see brightening prospects for the capital markets next year. First, strong market liquidity should put downward pressure on bond yields and boost bond prices. Second, the movement of liquidity should result in better FX flows, leading to improved FX income for the banks. Third, tighter corporate spreads and ample liquidity should result in greater disintermediation in the banking space, as companies increasingly tap into the bond market to secure long-term funding at relatively low interest rates. So far, banks have been surprising on the upside with regards to loan losses. For 1H10, we estimate that average credit losses came in at 54bps versus our earlier forecast of 71bps (FY09: 90bps). While selective banks have been implementing the new accounting standard FRS139, the overall impact to loan-loss provisions have been minimal in spite of the higher headline NPL ratios. This was attributed to the sector build-up of loan loss coverage prior to implementation of FRS139 as banks front-loaded the bulk of the provisioning for problem loans. We believe that asset quality will remain robust but the improvement is unlikely to be as dramatic. We have lowered our credit cost forecast to 52bps for FY10F and 45bps for FY11F-FY12F. The Basel Committee on Banking Supervision recently announced its final recommendation on capital requirements. Key takeaway from the announcement is that banks are given a long lead-time to implement these capital requirements. Furthermore, the deductions from capital are likely to be less than earlier expectations. Under the original recommendation, Maybank was to deduct its entire investment in associates, MCB of Pakistan and An Binh Bank of Vietnam, with a (written-down) book value of RM2.47bn, which is equivalent to 1pp of capital. Under the revised measure, the deduction for its investments is reduced to circa 0.3pp. There will be also be some prudent recognition of minority interest, versus zero recognition under the original document. The excess capital above the minimum of a subsidiary will now be deducted in proportion to the minority interest share. Public Bank, where minorities own a 27% share of Public Financial Holdings (HK), was estimated to see a 0.5pp reduction from the de-recognition of minority interests. Under the new guideline, the impact is reduced to 0.3pp, on our estimates. What remains to be seen is how much countercyclical buffer will be imposed by Bank Negara. For banks like Maybank, CIMB and Public Bank, there is also expected to be an additional capital requirement for systemically important banks. In our view, the banks best-positioned to implement Basel III are AMMB and AFG, where current core Tier-1 capital ratios are in excess of 10%, even after applying a 2.5% counter-cyclical buffer.
Property As highlighted in our potential sector consolidation note out on 3 November, the recent spate of mergers and acquisitions and consolidation (UEM-Sunrise, IJM Land-MRCB, Sunway Holdings-SunCity) is likely to ensure 1) continued interest and focus on the property sector in FY11F and 2) the emergence of larger and more liquid players which could put the Malaysian property sector on more investors’ radars. Besides improved liquidity being a catalyst for the re-rating, we are also positive on sector fundamentals as a whole – we see favourable supply demand dynamics emerging in Malaysia residential property where demand has increased up to 6% since 2000 in major cities while incoming supply growth has contracted in recent years. Latent demand remains strong where the average addition of 200k units to housing supply pa are balanced by c. 190k marriages p.a. We see latent demand being unlocked from 2011F on the back of improving affordability and income levels; positive Budget 2011 measures to increase home ownership (instead of previously anticipated restrictions) are likely to spur ‘would be’ buyers out of ‘wait and see’ mode while these attractive demographics and high savings rates top off a powerful combination to propel the property sector forward in 2011F.
Nomura
13
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Construction The Malaysian construction sector has had a good run (YTD, IJM is up 30%, Gamuda is up 40% and WCT is up 14% whilst the KLCI index is up 17%) on the back of excitement surrounding mega projects such as MRT. Although MRT is a real possibility, the execution challenges will be high and earnings support should take a long time to come. Similarly most of the other domestic projects are long term contracts. We believe the run-up is now ahead of fundamentals, with sector looking expensive on P/E CY11F valuations (IJM 18x, Gamuda 23x and WCT 19x). Order inflow and improving margins should lead construction businesses to report healthy growth. Similarly, strong property sales over the past 12 months will flow down to the bottom-line in CY11F, in our view. Overall, we expect a strong earnings CAGR (FY10-12F) for all three players – 30% for Gamuda, 32% for IJM and 25% for WCT. But the run-up has mostly priced in these expectations, in our view. MRT’s inclusion in the government’s budget speech and Economic Transformation Programme suggests an announcement on the project could be forthcoming. But implementing such a massive project will be a challenge and concerns over funding and foreign competition may evolve over a period of time. On property, our channel checks suggest things may be cooling a bit after the recent momentum. Thus, we think the risks are more on the downside to our and the Street’s earnings assumptions. We remain NEUTRAL on IJM, Gamuda and WCT, hence on the entire Malaysian construction space. Among the domestic players, we continue to prefer IJM for its diversified business model and exposure to plantations and property businesses, as compared to the construction-dominated businesses of Gamuda and WCT. The positive news flow seems to be priced in, as the stocks are trading rich, more expensive than their regional peers; investors may look to pare weightings.
Power We approach 2011 with a Neutral stance on the Malaysian power sector, reflecting our view on Tenaga as Malaysia’s dominant genco and the industry’s sole downstream offtaker. While electricity consumption demand has picked up strongly in 2010 and momentum will likely remain healthy into the coming year, this is being driven primarily by low margin industrial segment sales. Moreover, with gas supplies to the power industry capped and tariffs stagnant, we see increased near-term margin pressure given upwardly trending coal costs and the fact that, at the margin, incremental demand will likely be met with more costly coal-fired generation. Over a more extended horizon, an increased dependence on internationally sourced coal, in the absence of an automatic tariff setting mechanism and a credible regulatory environment, creates scope for amplified volatility and a downward bias in TNB’s operating margins, in our view. Moreover, with elections looming we believe the implementation of structural reforms to natural gas prices, TNB’s tariff setting mechanism and the balance of risks in the industry – in our view a precondition to a sustainable re-rating of TNB – are unlikely over the near term For upstream IPPs, an increasingly constrained investment universe following the privatisation of Tanjong, highly insulated PPAs mean little exposure to more robust volume trends. However, reserve margins are once again approaching levels conducive to future capacity win opportunities, with government looking to allocate an additional 1000MW of coal fired capacity by early 2011. Moreover, given the strength of Malaysia’s consumption rebound in 2010 and with Bakun’s 1,800MW capacity no longer destined to service Malaysia’s shores, we see little alternative to regulators extending substantially all of the c.4,100MW of first generation PPAs due to mature over 2014/16F
Nomura
14
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Telcos In FY11, we continue to see: 1) reasonable revenue and earnings growth outlook, ranging from 3-17%; 2) solid cashflows with 5-9% FY11F FCF yield, and; 3) reasonable risk-return profile. Although a pick-up in the competitive intensity appears likely, driven by the WiMAX service providers and the overall higher broadband coverage by all operators, we do not think an aggressive price war is likely. Also, we expect investment levels to decline across all major operators and incremental areas of cost reduction likely to be further explored. On the regulatory front, we expect MCMC’s proposal on spectrum refarming to be the key development (expected around 1Q11) and depending on the outcome (auction, beauty pageant etc.) there could implications for the wireless operators over the medium term. On a relative basis, we favour Axiata over DiGi and TM – all rated BUYs, followed by Maxis – rated NEUTRAL.
Plantations We recently upgraded our view of the plantation sector to Bullish on the back of our higher CPO price assumptions. We think tighter supply/demand fundamentals for the vegetable oil complex, higher crude oil prices and increased flows into the commodities space provide support for higher CPO prices and our more positive view on the sector. Our sector pick is Sime Darby, which we think offers cheaper exposure to strong plantation earnings, as well as upside from management turnaround
Rubber gloves Going into FY11F, we see demand rebounding as customers work off excess inventory accumulated from the 2009 H1N1 crisis (even up to 1Q10 this year), companies like Supermax continue to see orders rebounding up to March delivery – regardless of high latex prices. While high latex prices may dampen sentiment, price hikes of anywhere between 6-8% have been instituted and we flag that demand (in terms of number of pieces sold) is still up anywhere from 20-50% for the glove makers we cover – evidencing a continued structural demand which we believe has been largely overshadowed by high latex prices and ringgit appreciation headwinds, not unlike the 2008 cycle which saw latex prices hit highs then. It is in these headwinds, the ringgit appreciation and latex price highs, that we see potential opportunities for consolidation – a theme that may likely occur next year (similar to the consolidation when the ringgit was depegged in 2005, reducing the number of Malaysian manufacturers from >100 to 60 in the span of a year or so) should cost and forex headwinds persist – as larger players with more resilient long term margins see cheap acquisition opportunities in smaller players with smaller number of lines and lower margin resilience; inevitably ensuring that world demand continues to remain in the hands of the famous five (Top Glove, Supermax, Kossan, Siam Sempermed (unlisted), Hartalega. For larger potential upside in the next two-three months, we recommend Supermax and Kossan given a higher exposure in the nitrile segment, which is comparatively benefiting more owing to all-time high latex prices.
Airlines We see two key themes emerging in the Malaysian airline sector in 2011F: 1) continued ringgit appreciation (Nomura’s new forecasts are RM2.80 in FY11F – an 13% strengthening from current levels) benefiting Malaysian-based airlines arising from a US$-skewed debt and cost structure, and; 2) continued flow-throughs from intra-ASEAN travel leading to our overall passenger forecasts of 6-10% growth for MAS and AirAsia. Lower hedging proportions of c. 33% of our airlines may turn out to be in their favour arising from a depreciating US dollar, which offsets any increase in oil prices (Nomura forecasts US$95/bbl in 2011F). We like MAS in the Malaysian space as we see: 1) its 3Q10 profit turnaround to continue seeing exponential upside (from years of restructuring and unprofitability) with its new fleet delivery in FY11F which is likely to strengthen its product offering; 2) greater yield and profitability upsides arising from the said new fleet offering, and; 3) as potentially a laggard play for airlines given its highest underperformance among Asian airlines this year.
Nomura
15
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Exhibit 19. Coverage universe Company
Bloomberg code
M/Cap US$ mn
Rating
Target Pr RM
Price Pr Perf (%) Ave Vol EV/EBITDA (x) N.EPS Grwth (%) Norm PER (x) PBV (x) Yield (%) ROE (%) 1-Dec YTD 1 M 3M 3M (US$mn) FY10F FY11F FY10F FY11F FY10F FY11F FY10F FY11F FY10F FY11F FY10F FY11F
1 2 3 4 5 6
Consumer Related British American Tobacco Bhd Genting Berhad IOI Corporation Bhd Kuala Lumpur Kepong Bhd Sime Darby Berhad QSR Brands
ROTH MK GENT MK IOI MK KLK MK SIME MK QSR MK
52,255 4,000 11,986 12,331 6,960 16,446 532
Reduce Neutral Neutral Neutral Buy Buy
42.00 10.38 6.20 21.70 11.10 6.12
44.18 10.18 5.81 20.56 8.63 5.78
3 39 6 25 (4) 75
(8) (4) (1) 4 (3) 10
(3) 8 10 21 3 32
9.74 1.39 17.81 13.99 5.41 17.81 2.03
12.9 12.0 6.6 13.9 13.9 16.8 4.5
9.7 12.1 5.3 13.3 11.1 9.1 3.7
4 (2) 63 9 62 (68) 40
129 (2) 37 26 30 350 16
37.4 17.4 22.4 22.8 22.1 71.4 14.7
16.7 17.6 16.3 18.0 17.1 15.9 12.7
4.2 19.3 2.5 3.5 3.6 2.5 1.7
3.8 18.1 2.2 3.2 3.4 2.4 1.5
1.7 5.3 0.8 2.1 2.7 0.7 2.4
2.6 5.4 0.9 2.0 3.5 3.1 2.8
21 133 10 21 17 3 17
23 106 14 18 20 15 18
7 8 9 10 11 12 13
Financials Aeon Credit Service M Bhd Alliance Financial Group Bhd AMMB Holdings Bhd Bursa Malaysia Bhd CIMB Group Holdings Bhd Malayan Banking Bhd Public Bank Bhd-Foreign Mkt
ACSM MK AFG MK AMM MK BURSA MK CIMB MK MAY MK PBKF MK
61,920 141 1,512 5,917 1,311 19,755 18,946 14,338
Buy Buy Buy Buy Buy Buy Neutral
6.10 3.90 7.30 9.00 10.00 10.70 13.70
3.70 3.08 6.19 7.78 8.38 8.44 12.80
(5) 14 24 (3) 31 23 15
2 (6) (3) (9) 0 (6) 0
(1) (1) 7 8 7 (1) 5
10.20 0.13 2.18 7.24 3.02 27.43 26.02 5.38
N/A N/A N/A 12.9 N/A N/A N/A
N/A N/A N/A 11.7 N/A N/A N/A
30 11 31 19 96 26 44 16
19 18 33 34 7 25 16 10
16.3 8.2 15.8 18.5 21.6 16.8 15.6 15.1
13.6 7.0 11.9 13.8 20.0 13.5 13.5 13.6
2.6 1.8 1.6 1.9 4.2 2.4 2.1 3.6
2.3 1.5 1.5 1.7 4.1 2.1 2.0 3.2
3.0 4.6 2.1 1.5 4.4 1.1 4.9 3.6
3.2 5.8 3.4 2.9 4.7 1.5 4.4 4.0
17 23 11 12 22 16 14 25
18 23 13 13 22 17 15 25
GENM MK BST MK
7,837 6,042 1,796
Buy Neutral
4.12 4.40
3.22 4.19
15 (4)
(8) 1
7 1
4.69 7.68 1.70
7.6 6.8 10.1
7.0 6.0 10.6
(3) (2) (8)
4 6 (2)
14.6 14.5 14.8
14.0 13.6 15.1
4.2 1.7 12.7
3.6 1.5 10.5
2.7 1.9 5.6
2.8 2.0 5.6
28 12 82
26 12 76
Health Care & Pharmaceuticals 16 Kossan Rubber Industries KRI MK 17 Supermax Corp Bhd SUCB MK 18 Top Glove Corp Bhd TOPG MK
1,921 329 465 1,128
Buy Buy Buy
4.76 7.00 6.82
3.24 4.31 5.75
19 15 15
3 (4) (5) (15) 6 (7)
2.56 0.82 3.79 3.08
8.2 6.1 8.1 8.9
6.7 4.3 6.6 7.4
28 (5) 25 39
23 34 21 21
12.0 9.3 7.0 14.8
9.8 6.9 5.8 12.3
2.8 2.3 1.6 3.5
2.4 1.8 1.3 2.9
2.7 1.9 2.9 2.8
3.2 2.5 3.5 3.3
27 28 27 27
27 29 26 26
Industrials 19 Gamuda Bhd 20 IJM Corp Bhd 21 WCT Bhd
GAM MK IJM MK WCT MK
5,585 2,361 2,486 738
Neutral Neutral Neutral
3.93 5.80 3.50
3.64 5.80 2.96
40 29 14
(4) 5 (4)
3 16 4
6.38 9.63 6.78 2.72
20.3 31.0 14.3 6.1
14.6 23.4 9.5 3.2
17 45 (5) 4
30 24 37 25
27.2 26.2 30.8 18.3
22.4 24.0 22.5 17.4
1.8 2.2 1.5 1.3
1.6 2.1 1.3 0.9
1.5 1.9 0.9 2.3
2.0 2.4 1.5 2.9
8 9 7 10
9 10 7 9
Media & Internet 22 Media Prima Bhd
MPR MK
759 759
Buy
2.90
2.39
43
9
15
0.68 0.68
8.6 8.6
7.6 7.6
260 260
18 18
18.3 18.3
15.5 15.5
2.3 2.3
2.1 2.1
2.7 2.7
3.2 3.2
19 19
14 14
Power & Utilities 23 Tenaga Nasional Bhd 24 YTL Power International Bhd
TNB MK YTLP MK
17,305 11,715 5,591
Neutral Neutral
9.60 2.28
8.47 2.43
1 8
(4) 4
(6) 6
12.26 20.06 4.47
8.5 6.4 12.7
8.0 6.0 12.2
31 19 57
8 9 5
15.1 14.3 16.9
13.8 13.1 15.3
1.6 1.3 2.2
1.5 1.2 2.0
3.5 2.9 4.7
2.8 1.8 4.8
13 12 16
12 11 16
AXIATA MK DIGI MK MAXIS MK T MK
34,984 12,350 6,121 12,609 3,904
Buy Buy Neutral Buy
5.90 30.00 5.45 4.00
4.61 24.82 5.30 3.44
51 13 (1) 12
3 (3) 0 1
1 1 (1) (3)
8.86 18.24 2.86 7.83 6.52
7.8 6.1 8.3 9.8 5.4
7.3 5.4 7.7 9.6 5.2
24 58 15 (1) 7
9 17 3 3 15
17.2 14.9 16.8 17.3 24.4
15.8 12.8 16.3 16.8 21.2
4.7 1.8 12.7 4.5 1.8
4.4 1.7 11.0 4.5 1.8
3.9 0.0 6.0 6.0 5.7
4.9 3.5 4.9 6.0 5.7
29 15 76 26 9
28 14 72 27 8
SPSB MK ULHB MK MRC MK
5,005 1,690 2,461 854
Buy Buy Neutral
6.11 2.88 2.13
5.24 2.13 1.95
34 73 54
3 (5) (5)
14 25 15
4.70 3.26 6.64 4.22
102.8 23.7 179.6 38.0
50.7 18.2 82.4 23.5
(24) 17 (56) (14)
50 21 59 84
71.2 26.6 104.9 62.1
45.6 22.0 65.9 33.7
2.7 2.5 3.0 2.3
2.6 2.4 2.9 2.2
0.8 2.3 0.0 0.3
1.0 2.7 0.0 0.5
6 10 4 5
7 11 4 7
AIRA MK MAS MK PLUS MK MAHB MK
13,665 2,268 2,248 6,979 2,170
Reduce Buy Neutral Buy
1.74 2.65 5.01 8.54
2.58 2.12 4.40 6.22
87 (4) 35 57
2 (4) 0 2
47 0 4 14
5.24 5.68 1.57 12.78 0.94
11.0 10.3 14.1 10.3 10.6
8.2 8.2 6.3 7.8 11.8
25 (5) 104 13 13
253 63 1314 48 10
37.0 13.2 145.2 16.5 16.0
11.0 8.1 10.3 11.1 14.5
2.8 2.3 2.1 3.4 2.0
2.4 1.8 1.6 3.1 1.9
3.0 0.0 0.0 4.7 3.7
3.3 0.0 0.0 5.5 3.3
16 19 2 21 12
24 24 18 29 13
Buy
2.99
1.35
(4)
(9) (15)
0.28 0.28
4.4 4.4
3.3 3.3
46 46
12 12
5.6 5.6
5.0 5.0
0.9 0.9
0.8 0.8
7.4 7.4
8.1 8.1
17 17
17 17
Gaming, Hotels & Leisure 14 Genting Malaysia Bhd 15 Berjaya Sports Toto Bhd
25 26 27 28
Telecoms Axiata Group Berhad DiGi.Com Bhd Maxis Bhd Telekom Malaysia
Property 29 SP Setia 30 UEM Land 31 Malaysian Resources 32 33 34 35
Transport/Logistics Air Asia Malaysian Airline Systems PLUS Expressways Malaysia Airports Holdings
Basic Materials 36 Evergreen Fibreboard
EVF MK
Nomura Coverage (36 companies)**
220 220 201,456
Source: Bloomberg, Nomura research. Prices as at 1 December, 2010. Sector coverage ratios are weighted by market cap.
Exhibit 20. Sector coverage N. FD P/E (x) Nomura Malaysia Coverage Basic Materials Consumer Related
Norm EPS growth (%)
Yield (%)
ROE (%)
FY09
FY10F
FY11F
FY09
FY10F
FY11F
FY09
FY10F
FY11F
FY09
FY10F
FY11F
23.4
24.8
15.7
(1)
20
61
2.1
2.7
3.2
19.2
19.9
21.0
8.2
5.6
5.0
11
46
12
0.0
7.4
8.1
12.9
16.7
17.0
27.7
37.4
16.7
(31)
4
129
1.7
1.7
2.6
23.0
21.0
23.5 26.4
Gaming, Hotels & Leisure
14.2
14.6
14.0
0
(3)
4
2.6
2.7
2.8
34.3
28.1
Financials
22.9
16.3
13.6
2
30
19
1.6
3.0
3.2
13.3
17.4
18.0
Health Care & Pharmaceuticals
15.4
12.0
9.8
40
28
23
2.1
2.7
3.2
23.2
26.8
26.8
Industrials
29.9
27.2
22.4
(34)
17
30
2.6
1.5
2.0
7.0
8.0
8.6
Media & Internet
65.8
18.3
15.5
(76)
260
18
3.8
2.7
3.2
25.8
18.8
14.2
Power & Utilities
21.1
15.1
13.8
(25)
31
8
2.8
3.5
2.8
5.7
13.2
12.5
Property
42.4
71.2
45.6
52
(24)
50
0.8
0.8
1.0
7.7
5.8
7.1
Telecoms
20.8
17.2
15.8
69
24
9
2.9
3.9
4.9
30.4
28.9
28.2
Transport/Logistics
13.3
37.0
11.0
(53)
25
253
2.3
3.0
3.3
19.5
16.3
24.0
Source: Bloomberg, Nomura research. Prices as at 1 December, 2010
Nomura
16
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Exhibit 21. Top picks
Company
Ticker
Avg Market Updaily cap Price TP side vol 3M (US$mn) (local) (local) (%) (US$mn)
Normalised EPS gth (%)
Norm. P/E (x)
P/BV (x)
Yield (%)
ROE (%)
FY10F FY11F FY10F FY11F FY10F FY11F FY10F FY11F FY10F FY11F
BUY 1
CIMB Group Holdings CIMB MK
19,755
8.38
10.00
19
27.4
26
25
16.8
13.5
2.4
2.1
1.1
1.5
16
17
2
Malayan Banking
MAY MK
18,946
8.44
10.70
27
26.0
44
16
15.6
13.5
2.1
2.0
4.9
4.4
14
15
3
AMMB Holdings
AMM MK
5,917
6.19
7.30
18
7.2
19
34
18.5
13.8
1.9
1.7
1.5
2.9
12
13
4
Alliance Financial Gp AFG MK
1,512
3.08
3.90
27
2.2
31
33
15.8
11.9
1.6
1.5
2.1
3.4
11
13
5
Sime Darby
SIME MK
16,446
8.63
11.10
29
17.8
(68)
350
71.4
15.9
2.5
2.4
0.7
3.1
3
15
6
Axiata Group
AXIATA MK
12,350
4.61
5.90
28
18.2
58
17
14.9
12.8
1.8
1.7
0.0
3.5
15
14
7
Genting Malaysia
GENM MK
6,042
3.22
4.12
28
7.7
(2)
6
14.5
13.6
1.7
1.5
1.9
2.0
12
12
8
SP Setia
SPSB MK
1,690
5.24
6.11
17
3.3
17
21
26.6
22.0
2.5
2.4
2.3
2.7
10
11
9
UEM Land Holdings
ULHB MK
2,461
2.13
2.88
35
6.6
(56)
59 104.9
65.9
3.0
2.9
0.0
0.0
4
4
10
Malaysia Airports
MAHB MK
2,170
6.22
8.54
37
0.9
13
10
14.5
2.0
1.9
3.7
3.3
12
13
16.0
11
Evergreen Fibreboard EVF MK
220
1.35
2.99 121
0.3
46
12
5.6
5.0
0.9
0.8
7.4
8.1
17
17
12
Media Prima
759
2.39
2.90
0.7
260
18
18.3
15.5
2.3
2.1
2.7
3.2
19
14
MPR MK
21
Source: Bloomberg, Nomura research. Prices as at 1 December, 2010
Exhibit 22. Valuation methodology and investment risks Company
Valuation methodology
Investment risks
AEON Credit Service
We peg a fair P/E of FY12F 10x for ACSM, a 29% discount to the current market P/E of 14x.
Select commercial banks are aggressively competing in the microlending space, which may negatively affect ACSM’s market share and profit margins, in our view. Any sudden increase in funding costs will result in narrower margins. Provision for bad and doubtful debts (and bad debt recovery) is a function of domestic economic growth
AirAsia
We value AirAsia on FY11F BVPS applied to a target multiple of 1.2x, the average levels it has traded at for the past few years
Upside risks include: 1) better-than-expected improvement in its associates’ financial performance, yield improvement and passenger growth numbers and eventuation of listings; 2) US dollar appreciation from our assumptions of a strengthening ringgit (Nomura’s house view is for RM3.18 in 2010F, 2.80 in 2011F and 2.65 in 2012F), and; 3) ASEAN Open Skies liberalisation occurring earlier than anticipated by 2015; we currently do not assume any impact from ASEAN open skies given that agreements are largely still in the negotiation stage
Alliance Financial Group
Our Gordon-growth-based price target is derived after imputing an FY12 ROE forecast of 13.8% and rolling forward to FY12F book value of RM 2.29. This implies an FY12F P/BV of 1.7x, which is mid-way between the postcrisis mean and +1 standard deviation P/BV
Downside risks include: 1) higher-than-expected loan charge-offs and sluggish loan growth if the domestic economy recovers more slowly than expected, and; 2) delay in further policy rate hikes by Bank Negara, which could result in lower margin expansion than forecast
AMMB Holdings
Our Gordon growth-based price target is based on cost of equity of 9.75%, a terminal growth rate of 4% and a riskfree rate of 3.75% (all unchanged from previous assumptions). Our new price target is based on our new ROE forecast of 14.7% and implies an FY12F P/B of 1.9x. This falls between the post-crisis mean of 1.5x and +1 standard deviation level of 2.2x
Key downside risks include: 1) Weaker-than-expected economic growth which could result in slower loan growth and higher credit costs, and; 2) sharper-than-anticipated interest rate hikes that would cause NIMs to contract given the large fixed-rate hire purchase portfolio which accounts for 40% of total loans
Axiata Group
Our price target is based on a sum of the valuations of subsidiaries and associates. We use DCF methodology for valuing the four key subsidiaries: Celcom, XL, AxB, and Dialog using WACCs of 7.7%, 12.6%, 7.7%, and 8.0%, respectively; our terminal growth rates are 2.5%, 3%, 1.5%, and 1.5%, respectively
Key downside risks include aggressive price competition; weakerthan-expected take-up of wireless broadband in Malaysia; and tariff wars and regulatory risks in Indonesia, India, Sri Lanka and Bangladesh
Berjaya Sports Toto
To derive our price target, we apply a 16% historical average discount to our 12-month forward DCF-derived RNAV. To derive our intrinsic value, we discount its future cashflows by a weighted average cost of capital (WACC) of 7.8%. The WACC is derived from a cost of equity of 8.2%, a risk-free rate of 3.75%, an equity risk premium of 4.5% and beta of 0.983
Economic downturns and further regulatory changes, such as higher taxes and betting duties, are key downside risks
British American Tobacco
We currently assume a risk free rate of 3.7%, with an equity risk premium of 5.2%, a beta of 0.45 and a terminal growth rate of 0.5%. The implied P/E of 16.8x for FY11F is in line with its historical average P/E of 16.8x
Upside risks to our PT and earnings forecasts include a halt in industry volume contractions, lower-than-expected downtrading and illicit trade, and a likelihood of BAT being able to recover market share in the value-for-money segment of the market
Bursa Malaysia
Our Gordon-growth based price target assumes an FY10F ROE of 22%, dividend payout of 90%, terminal growth rate of 4.2% and cost of equity of 7.8%
Risks: 1) Reversal of liquidity trends, resulting in a fall in equity and derivative trading volumes, and; 2) Weaker-than-expected economic growth, which will cause corporate earnings to slow
CIMB Group Holdings
Our Gordon growth-based target price implies a FY11F price to book multiple of 2.5x. The higher price target is driven by our higher earnings estimates; we keep our cost of equity (9.25%) and terminal growth rates (4.25%) unchanged.
Downside risks to our call include a reversal in sentiment, leading to a downswing in capital markets. This would likely impact CIMB's earnings. A weaker economic growth outlook in Malaysia and/or Indonesia could result in lower loan growth and higher credit costs for both businesses
Nomura
17
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Company
Valuation methodology
Investment risks
Digi.Com
We derive our price target using DCF valuation, assuming 7.8% WACC, 8.5% cost of equity, 5% cost of debt and 15% gearing. Our terminal growth rate is at 1%
Key risks to our rating and price target for DiGi include a continued macro slowdown, increased competition, pricing pressure and weaker-than-expected take-up of broadband services
Evergreen Fibreboard
We value EVF by ascribing to our 2011F EPS estimate a P/E multiple of 11x , which is +1 standard deviation above the company's average historical 12 month forward P/E (actual earnings)
Downside risks include: 1) a slower-than-expected economic recovery, particularly in Asia; 2) higher-than-expected cost increases, and; 3) large sudden currency swings
Gamuda
We value Gamuda using a SOTP methodology. We value its construction business at 15x and its water assets at their NAV. We apply a 10% discount to our NAV estimates for its property business and expressway BOT assets.
A delay in the award of key mega-projects may impact our order inflow assumptions, thereby affecting construction revenues and earnings negatively. Delays in upcoming launches due to a correction in property markets and/or lower margins would result in downside risks to our property revenues and earnings estimates. Any regulatory action directed towards decreasing/abolishing tolls from concession assets could also hurt revenues and earnings. Gamuda being awarded the MRT project in capacity of project manager with further increase in project cost would result in upside risk to construction revenues and earnings estimate. Very high margins from the new and upcoming property projects could also lead to upward revision of revenues and earnings
Genting Bhd
In deriving our price target, we value GENT’s listed assets using our price targets for GENM and GENS. Other components of the RNAV were the discounted cash flow (DCF) values of its non-listed assets such as the casino management, power generation and oil & gas businesses. Shareholders’ funds were added to the computation but costs of its listed assets were deducted
Downside risks could come from regulatory issues related to its gaming business, with its gaming licence renewable on a quarterly basis. Competition from regional casinos is an emerging threat. New large-scale casino developments have started operations in Singapore and are reaching completion in Macau. Disease outbreaks could impede overseas and/or local arrivals. On the power side, GENT is required to operate its existing plants at a minimum availability level for dispatch based on its PPAs. Failure to meet these obligations would mean lost revenue and penalties. Risks to its plantation division earnings include CPO price volatility and lower-than-expected yields. Upside risks include a recovery in the valuations of global gaming companies, better-than-expected news flow on its Singapore IR project (GENS) and favourable regulatory policies, which could lead to a re-rating of GENT shares
Genting Malaysia
We are setting our price target based on the stock’s average historical discount to DCF-based RNAV since 1997. On average, GENM shares have traded at a 12%discount to DCF-based RNAV since then. Applied to our DCF-derived RNAV estimate for FY11F, this translates into a price target of RM4.12/share. GENM’s intrinsic value, if measured by the discounted cashflow (DCF) model, comes to RM4.69/share (before discounts), on our estimate. In deriving this value, we have discounted its future cashflow by a weighted average cost of capital (WACC) of 9.7%. The WACC is derived from a cost of equity of 9.7%, risk-free rate of 3.75%, equity risk premium of 4.5% and beta of 1.32
Risk: Although we believe that to a large extent fear of potential loss of revenue to the two Singapore casinos has been largely priced in, a sharper-than-expected fall in GENM’s revenue would likely see the shares trading at a sharper discount to RNAV. Conversely, a lower-than-expected loss in revenue could be an upside risk to our estimates and price target. Historically, the shares have traded at up to a 45% discount to RNAV in 1998 and 34% discount in 2001
IJM Corp
We value IJM using a sum-of-the-parts (SOTP) methodology (unchanged). We value its construction, plantation and industrial businesses at 15x and apply a 10% discount to our NAV estimates for its IJM Land and BOT assets.
Delays in the awarding of key mega projects may affect our order inflow assumptions, which could have a negative impact on construction revenue and earnings. Delays in upcoming launches due to correction in property markets and/or lower margins could also result in downside risks to our property revenue and earnings estimates. Moreover, any regulatory action directed towards decreasing/abolishing tolls from concession assets could hurt revenue and earnings. Very high margins from property and construction projects, and progress on the IJM Land-MRCB merger could lead to upward revision of revenues and earnings
IOI Corp
Our PT is derived by pegging our rolling 12M-fwd P/E to 18x and rolling forward to FY11F from 15x, being +0.6sd from its mean P/E of 15x
Upside risks for IOI include better-than-expected FFB yields while a downside risk would be larger-than-expected global vegetable oil production, thus hurting CPO prices
Kossan Rubber Industries
We peg Kossan’s target 10x FY11F P/E at a ~30% historical discount to Top Glove’s FY11F P/E of 14.5x and apply this to our FY11F EPS forecast
Potential downside to our view includes delays / hiccups to the new product launch, which could affect Kossan’s strategy to gain market share from other nitrile players and the higher-end segment. Industry downsides are similar to those that apply to Top Glove
Kuala Lumpur Kepong
We now value KLK at 18x FY11F EPS, slightly above +1sd above its five-year historical average of 17.5x. This is justified, in our view, since KLK has the strongest mature hectarage growth among Malaysian planters (mature area expected to expand by >6% pa through to FY12F, on our estimates)
The key downside risk to our call is if global vegetable oil (mainly including palm oil) production comes in higher than expected in 2011, lowering realised CPO prices below our assumption
Malaysia Airports Holdings
Our target price is derived by summing: (i) the discounted free cashflow to equity for domestic operations until Feb 2034; (ii) the residual cash held; (iii) proceeds from the sale of Sepang International Circuit in 2019 discounted at a risk free rate of 3.79%; (iv) our fair value estimate of its KLIA land bank assuming 2,730 acres is leased out for 60 years at RM20/sqm/year in 2015. NPV calculations are discounted to 2011-end, and use cost of equity of 9.78%, except for the SIC sale which uses the risk free rate of 3.79%
Downside risks for MAHB include: (i) extraordinary events such as disease, terrorism and natural disasters affecting passenger traffic; (ii) significant KLIA 2 construction delay; (iii) further significant investments overseas
Nomura
18
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Company
Valuation methodology
Investment risks
Malaysian Airline System
We value MAS at the average of FY11-12F book value pegged to a target midcycle valuation of 1.8x P/BV, as we believe mid-FY11-12F will be a defining period for MAS as its fleet rejuvenation is expected to take firm hold by then
Key downside risks to our view include further delays of MAS’s fleet deliveries and stronger-than-expected competition from low cost carriers and other full service carriers. Other downside risks include: current sentiment on the uncertainty of the strength of the economic rebound, political and environmental (ie, plane delays from natural disasters) headwinds, as well as oil price uncertainty could persist for the next few quarters, dampening possible performance. Also, in a worst-case scenario, assuming zero hedging (as hedging policy varies), we highlight a potential 15% earnings impact from each 1% movement in the US dollar
Malayan Banking
Our Gordon-growth based price target is derived after imputing a FY12F ROE forecast of 16.2%. Our price target implies a P/BV of 2.5x, which is just above its post-crisis average P/BV of 2.4x
Risks: 1) weaker-than-expected economic growth could result in slower loan growth and higher credit costs; and 2) Bank Negara curbs on mortgage LTV would result in slower growth in the consumer space
Maxis
Our DCF-based valuation methodology uses a WACC of 7.4%, an 8.5% cost of equity, 5% cost of debt, a 1.5% terminal growth rate and 20% gearing
Key upside risks include a strong pickup in broadband growth and active capital management. Key downside risks include aggressive price competition, weaker-than-expected take-up of wireless broadband and further sell-off by Binariang GSM (BGSM)
Media Prima
Our DCF-based price target uses a discount rate of 10.3% (risk -free rate 3.75%, beta of 1.3x and terminal growth rate of 2%)
Risks include the following: 1) if the global recovery is slower than expected, consumer demand/sentiment and ultimately advertising spending will follow; 2) forex changes – a sharp depreciation in the ringgit would lead to significantly higher costs of programming content and newsprint; and; 3) competition – if competitors become more aggressive in gaining TV adex market share, it may result in greater discounting for ad space
Malaysian Resources Corp
We peg MRCB’s price target at parity to our RNAV-based fair value, derived from: 1) the net present value of profits from its property segment at 10% discount rate; 2) valuing the construction profits at 15x P/E based on the multiples used for other construction stocks in our rating universe, and; 3) valuing the two toll concessions using a 10% discount rate
Downside risks exist should: 1) project billings be delayed; 2) landbank / orderbook replenishment remain weak; or 3) slowdown in the economy, double dip or recessionary scenario moving forward. Upside risks include faster than expected orderbook wins and faster progress billing pace
PLUS Expressways
We value PEB: 1) using an FCFE model to calculate the NPV of the Malaysian concessions and PLUS BKSP; using a cost of equity of 9.00% and 12.74%, respectively, and; 2) subtracting the net debt held at parent company level from this total
Downside risks: 1) Non-cash compensation for toll rate variations, and; 2) government intervention / regulatory changes that are not NPV-neutral. Upside risks: 1) a significantly higher competing offer
Public Bank
Our Gordon-growth based price target is derived after imputing an FY11F ROE of 24.9%, cost of equity of 8.5%, terminal growth rate of 1.8% and risk-free rate of 3.75%
Key downside risks: 1) weaker-than-expected economic growth could result in slower loan growth and higher credit cost, and; 2) a high counter-cyclical capital buffer imposed by regulators would be negative on capital adequacy. Upside risks: better-than-expected loan growth benefiting from continued strength in the domestic consumer business
QSR Brands
Our SOTP valuation is arrived at by ascribing: 1) a 22.2x multiple to the FY11F PAT of the Indian operations, based on the three-year India consumer stock average multiple, and; 2) the rest of the businesses at 12x FY11F PAT based on the midway of the stock's historical mean and -1SD level. Our fair value is based on the average ofFY11F-12F fair value, given we believe the company's growth profile is likely to be different by FY12F, as India's growth is likely to be more meaningful then as the Malaysian operations mature and growth stabilises for Malaysia
Downside risks to our PT include: 1) non-renewal of the franchise licence with Yum! after the 10+10 year contract period; 2) deteriorating domestic consumer confidence on concerns of a double dip in QSR’s key markets; 3) fewer-than-expected store openings; and 4) a sharp and sustained spike in input costs
Sime Darby
We value Sime Darby using an SOTP valuation: 1) ascribing a P/E multiple of 18x to its plantations division FY11F PAT, 14x to heavy equipment FY11F PAT, 15x to automobiles FY11F PAT, 10x to Utilities FY11F PAT, and 8x to others; and 2) valuing the property business at RNAV
Risks to the group include poor execution of its restructuring, weaker-than-expected CPO production and a sharp fall in CPO prices
SP Setia
We peg SPSB’s price target at parity to our RNAV-based and diluted fair value (after accounting for any warrants conversion), derived from a combination of a net present value of profits from on-going projects at a discount rate of 9% and revaluation surplus of land values above their book value
Risks to our PT include: 1) any project delays or disappointing takeup rates could dent our earnings forecasts. Profit margin could also vary at different stages of billing – a slower actual schedule might result in a difference between actual reported net profit and our estimates. Project delays could arise from longer-than-expected approval/completion on land acquisition and building designs; 2) Project concentration in Johor / Klang Valley - While the company has stepped up its diversification efforts in recent years by securing projects in Vietnam and China, the bulk of its portfolio still consists of projects in Malaysia, and in particular, residential projects in Johor and Klang Valley. Its operational as well as stock performance is therefore closely tied to the Johor and Klang Valley residential markets, and; 3) double dip or recessionary scenario occurring moving forward
Supermax Corp
We peg Supermax’s target P/E of 11.5x at a 21% discount to Top Glove, derived from its historical discount of ~30% to Top Glove; however, we argue that it should see an upward re-rating given its write-off of the APLI investment.
Downside to our call is industry-related similar to Top Glove, as well as adverse and rapid currency movements that could affect income from its overseas distribution arms
Nomura
19
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Company
Valuation methodology
Investment risks
Telekom Malaysia
Our DCF-based valuation methodology uses a WACC of 7.7%, an 9.0% cost of equity, 5% cost of debt, a 1% terminal growth rate and 25% gearing
Key downside risks include competition from cellular operators, and weaker -than-expected pick up of HSBB
Tenaga Nasional
We value TNB using 14.5x forward P/E multiple applied to our FY12F normalised EPS estimate
We believe the key downside risks to our view include weakerthan-anticipated volumes and higher-than-expected coal costs without an upward adjustment to Tenaga’s tariffs. On the upside, an automatic pricing mechanism and or base tariff review should support a strong re-rating of this name
Top Glove Corp
We value Top Glove by ascribing an FY11F P/E of 11.8x to FY11F EPS, close to its three-year average P/E and equal to the one-year forward market P/E of 14.5x
Downside to our call is mostly industry-related and includes: 1) overcapacity and price wars occurring sooner than expected (ie, by end-FY10); 2) if the government removes natural gas subsidies on an immediate basis instead of a gradual approach, and 3) a sharp, quick appreciation of the ringgit
UEM Land Holdings
We peg ULHB’s price target at parity to our RNAV-based fair value, derived from a combination of a net present value of profits from on-going projects at a discount rate of 10% and revaluation surplus of its landbank above its book value
Risks include: 1) slowdown in the economy, double dip or recessionary scenario moving forward; 2) negative newsflow on land sales / deals progress; 3) any reversal in the positive tone and progress in Malaysia-Singapore relations as negotiations continue; 4) political events, eg, election upsets that could encroach on UEM Land’s position as a strategic Khazanah holding and change the regulatory environment; and 5) delayed launches / project delays which could lead to earnings downsides as Nusajaya is less concentrated than the markets of Selangor and KL
WCT
We value WCT’s construction business at 15x FY11F earnings, and apply a 10% discount to our NAV estimates for the property development business and BOT assets. We have built in the contribution from the new LCCT concession and other recent project awards into our forecasts
A delay in the award of key mega-projects may impact our order inflow assumptions, thereby affecting construction revenues and earnings negatively. Delays in upcoming launches due to correction in property markets and/or lower margins would result in downside risks to our property revenues and earnings estimates. Any regulatory action directed towards decreasing/abolishing tolls from concession assets could also hurt revenues and earnings. Very high margins from property and construction projects could lead to upward revision of revenues and earnings
YTL Power International
We value YTLP using a SOTP valuation based on COE of 9.0% for Malaysia, and 17% for Indonesia. We value Wessex Water at 1.08x FY11F RAB and PowerSeraya at 11.5x EV/EBITDA
Key risks include the Malaysian regulatory environment and exchange rate risk, specifically relating to YTLP's Wessex Water in the UK
Source: Nomura research
Nomura
20
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Company views
Nomura
21
6 December 2010
AirAsia Berhad A I R A M K AI R L I N E S | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] REDUCE
Action
Closing price on 1 Dec
At current levels, it appears the market is pricing in the listing of Thai and Indonesia AirAsia by 3Q11 as a certainty, and implying a listing multiple of at least 22x P/E. We do not expect 3Q10 earnings to disappoint given strong seasonality, but at 8x EV/EBITDA (on par with EasyJet and at an 18% premium to Ryanair) we believe it is priced for execution perfection in FY11F, while local niche budget carrier Firefly is stepping up domestic competition with its competitive fares; any potential delays in listing may trigger a de-rating of AirAsia. Maintain REDUCE.
(s et on 15 Nov 10)
We expect Malaysian airlines to be beneficiaries of the consumption boom and ringgit appreciation, although FY11F may see domestic competitive pressures.
Maintain REDUCE, valuation on par with global peers We are already 10% higher than consensus, we think owing to our inhouse forex assumptions which we have revised up by 7-9% from our earlier forecasts. On EV/EBITDA, AirAsia is trading at par/premium to its global peers, suggesting little room for upside. Instead, given competition is not static, we believe there is potential downside risk arising from stiff competition in the domestic market, which contributes some 60% of its total revenues.
31 Dec (RMmn)
FY09 FY10F FY11F FY12F
Re venu e Re porte d n et profit
3,133 507
3,802 541
4,47 9 88 2
5,290 950
No rma lise d n et profit No rma lise d E PS (RM)
507 0.21
541 0 .20
88 2 0.3 2
950 0.34
No rm. EPS growth (% ) No rm. P/E (x)
(8.8) 12.5
( 5.2) 1 3.2
63.0 8.1
7.7 7.5
EV/EBITDA (x) Price/b ook (x)
11.3 2.4
1 0.3 2.3
8.2 1.8
8.2 1.4
Divide nd yield (%) RO E ( %)
0.0 24.0
0.0 1 8.7
0.0 24.5
0.0 21.0
261.8
24 5.3
182.0
182.9
Previous n orm. net pr ofit Ch ange fro m previous (%)
541 -
88 2 -
950 -
Previous n orm. EPS (RM)
0 .20
0.3 2
0.34
Ne t debt/eq uity (% ) Earnings revis ions
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price
(RM)
Rel MSCI Malaysia
2.9
190 170
2.4
150 130
1.9
110
1.4
90 70 Oct10
Absolute (RM)
1m 2.4
3m 47.4
6m 106.4
Absolute (US $) Re lative to Index
0.5 4.1
46.3 42.4
116.4 93.8
Market cap (US$mn) Estimated fre e float (% )
2,267 60.0
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
2 .65/1.11 5.59
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Tu ne A ir Employees Pro vid ent Fund
26.4 6.9
Source: Company, Nomura estimates
Nomura
Nov1 0
Sep 10
Aug1 0
Ju l10
Jun10
A pr10
Fe b10
0.9 Jan 10
While AirAsia has postponed the delivery of seven planes scheduled for 2011, MAS recently announced Firefly’s expansion plan for 30 737-800s to be added to its fleet in the next five to six years, with the first two to be on the KL-Kota Kinabalu and KL-Kuching routes, which we think contribute at least 15% of AirAsia’s total revenues. News flow on AirAsia has been positive, with the announcement of new routes such as KL-Haneda and KL-Seoul. However, we believe investors need to focus on the earnings impact: these routes do not contribute directly to AirAsia’s earnings given they are operated by unlisted AirAsiaX.
882 -0.5%
Key financials & valuations
Dec09
Competition is dynamic and will only grow
FY11F net profit (RMmn) Difference from consensus
We are at the higher end, given we like the business model, but high expectations are in the price, while competition and moderating growth point to earnings pressure in FY11F.
Anchor themes
We believe AirAsia’s current share price factors in certainty of the listings of both associates at at least 22x P/E (trailing), assuming AirAsiaX is listed at 16x P/E. We, on the other hand, believe it is still too early to accurately price in any certainty. An improving capital market outlook leads us to shift from valuing AirAsia on an adjusted BVPS basis (adjusted for receivables due, where repayment was contingent upon the listing of the associates) to normal BVPS. However, we believe any news on a potential delay or any event affecting the associates’ operations or a deterioration in economic conditions could trigger a fairly quick de-rating of the stock.
-32.6% -37.9%
Nomura vs consensus
Potential re-rating catalysts include better-than-expected performance from associates (Thai AirAsia and Indonesia AirAsia) and passenger and yield numbers.
High hopes for associates’ listings at current level
Upside/downside Difference from consensus
Source: Nomura
Catalysts
High hopes, priced for perfection
RM2.58
RM1.74
Price target
May10
+60 3 2027 6889
Mar10
Jacinda Loh
22
6 December 2010
AirAsia Berhad
Jacinda Loh
Financial statements Income statement (RMmn) Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
FY08
FY09
FY10F
FY11F
FY12F
2,855 (2,477) 378
3,133 (2,345) 788
3,802 (2,864) 938
4,479 (3,188) 1,291
5,290 (3,872) 1,418
378
788
938
1,291
1,418
725 (347) 378 (283) 66 162 373 534
1,236 (448) 788 (290) 125 623 (116) 507
1,442 (504) 938 (430) 50 558 (17) 541
1,769 (479) 1,291 (442) 80 928 (46) 882
1,985 (568) 1,418 (498) 80 1,000 (50) 950
-
-
507
882 882
950 950
(342)
507
541
882
950
11.4 7.7 na na 3.8 18.8 36.0 13.2 25.4 13.2 (12.0) (230.7) na 91.9 7.6
12.5 8.4 12.5 8.1 2.4 11.3 17.8 25.1 39.4 25.1 16.2 18.6 62.2 4.4
13.2 8.9 13.2 5.7 2.3 10.3 15.9 24.7 37.9 24.7 14.2 3.0 66.9 5.1
8.1 5.5 8.1 5.5 1.8 8.2 11.2 28.8 39.5 28.8 19.7 5.0 25.0 2.3
7.5 5.1 7.5 4.6 1.4 8.2 11.5 26.8 37.5 26.8 18.0 5.0 60.1 5.6
na 8.2
24.0 7.9
18.7 8.2
24.5 10.2
21.0 9.8
Growth (%) Revenue EBITDA
48.5 29.6
9.7 70.4
21.4 16.7
17.8 22.7
18.1 12.2
EBIT Normalised EPS Normalised FDEPS
12.5 28.8 28.8
108.4 (8.8) (8.8)
19.1 (5.2) (5.2)
37.5 63.0 63.0
9.8 7.7 7.7
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
(0.14) 0.23 0.23 0.68 -
0.21 0.21 0.21 1.07 -
0.20 0.20 0.20 1.14 -
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %)
507
-
541 541
Dividends Transfer to reserves
534 (876) (342)
-
0.32 0.32 0.32 1.46 -
Lowering finance costs by 13% on seven plane delay
No positive contribution seen from Thai and Indonesia associates since start-up in 2004; earnings accretion from untapped potential in Thailand and Indonesia unlikely at least until FY12F
0.34 0.34 0.34 1.80 -
Source: Nomura esti ma tes
Nomura
23
6 December 2010
AirAsia Berhad
Cashflow (RMmn) Year-end 31 Dec
Jacinda Loh
FY08
FY09
FY10F
FY11F
FY12F
725 (548) (593) (416) (2,623) (3,039) (27) (24) 0 196 (2,894) 3 3,046
1,236 243 (695) 784 (1,948) (1,164) 0 (424) (0) 1 (1,587) 509 1,670
1,442 416 (612) 1,246 (2,544) (1,298) (4) (1,302) 1,352
1,769 155 (634) 1,290 (1,120) 170 (12) 158 589
1,985 (10) (432) 1,543 (3,180) (1,637) (7) (1,644) 1,794
3,048 154 154 6,453
2,180 592 154 746 6,862
1,352 50 746 796 7,756
589 748 797 1,544 7,360
1,794 150 1,545 1,695 9,133
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity
FY08 154 689 21 1,032 1,896 27 6,594 9 856 24 9,406 539 1,030 164 1,733 6,068 0 7,800 237 632 736 1,606
FY09 746 721 21 733 2,221 27 7,942 9 751 449 11,398 540 1,156 13 1,710 7,068 0 8,777 276 1,138 1,207 2,621
FY10F 797 625 25 654 2,101 27 10,045 9 500 449 13,130 600 1,412 3 2,015 7,953 0 9,968 276 1,680 1,207 3,162
FY11F 1,545 798 28 484 2,854 27 10,687 9 500 449 14,525 780 1,572 3 2,355 8,125 0 10,481 276 2,562 1,207 4,044
FY12F 1,695 1,015 34 608 3,353 27 13,299 9 600 449 17,736 859 1,910 3 2,772 9,969 0 12,741 276 3,512 1,207 4,995
Total equity & liabilities
9,406
11,398
13,130
14,525
17,736
1.09 1.3
1.30 2.7
1.04 2.2
1.21 2.9
1.21 2.8
Leverage Net debt/EBITDA (x) Net debt/equity (%)
8.90 401.9
5.55 261.8
5.38 245.3
4.16 182.0
4.60 182.9
Activity (days) Days receivable Days inventory Days payable Cash cycle
44.2 1.5 76.1 (30.4)
82.2 3.2 170.1 (84.7)
64.6 3.0 163.7 (96.1)
58.0 3.1 170.8 (109.8)
62.7 3.0 164.6 (98.9)
EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
Big swing in free cashflow owing to capex reductions for FY11F; as of now, no plane delays have been announced for FY12F
Source: Nomura esti ma tes
Balance sheet (RMmn)
Liquidity (x) Current ratio Interest cover
Source: Nomura esti ma tes
Nomura
24
6 December 2010
Alliance Financial Group Bhd A F G M K F I N AN C I AL S / B AN K S | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] BUY
Action
Closing price on 1 Dec
Loan growth should gather momentum in 2011 when the new management team is comfortable with credit risks and external environment, in our view. AFG is one of the most under-leveraged banks in the sector, with a core equity Tier 1 ratio of 12.8%. Reiterate BUY.
(set on 30 Sep 10)
Catalysts Further OPR hikes by the Central Bank would benefit AFG. We consider AFG a potential M&A play if other banks in the region look to establish a Malaysian presence.
Valuations now marginally above mid-cycle level We see ROE expanding to 14% by FY13F after factoring in loan growth of 12-13% over the next 3 years, 13bps expansion in NIMs and credit costs contained at 30bps. Our target price of RM3.90 implies an FY12F P/BV of 1.7x, which is mid-way between the postcrisis mean and +1 standard deviation P/BV.
Nomura
31 Mar (RMmn)
FY10 FY11F FY12F FY13F
PPOP Re porte d n et profit
510 301
610 401
71 2 46 8
800 528
No rma lise d n et profit No rma lise d E PS (RM)
301 0.19
401 0 .26
46 8 0.3 0
528 0.34
No rm. EPS growth (% ) No rm. P/E (x)
31.0 15.8
3 2.9 1 1.9
16.9 10.2
12.7 9.0
Price/a dj. book (x) Price/b ook (x)
1.62 1.62
1 .47 1 .47
1.3 4 1.3 4
1.22 1.22
Divide nd yield (%) RO E ( %)
2.1 10.6
3.4 1 2.9
3.9 13.8
4.5 14.2
RO A ( %) Earnings revis ions
0.95
1 .19
1.2 3
1.25
Previous n orm. net pr ofit Ch ange fro m previous (%)
401 -
46 8 -
528 -
Previous n orm. EPS (RM)
0 .26
0.3 0
0.34
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price
(RM) 3.5
115 110 105 100 95 90 85 80
Rel MSCI Malaysia
3.3 3.1 2.9 2.7
Nov1 0
Oct10
S ep10
Jul10
A ug10
Ju n10
May10
2.5 2.3 Fe b10
Our economics team expects Bank Negara to raise the overnight policy rate to 3.25% in 2011. This is positive for AFG as more than 80% of its loan portfolio is on variable rate basis, while about 35% of its total deposits are low-cost CASA which does not reprice. Meanwhile, asset quality should remain robust with the NPL ratio forecast to trend lower to 3.6% in FY12F from 3.8% in FY11F.
468.2 4.3%
We think AFG can surprise positively on loan growth, asset quality and net interest margins.
Jan 10
NIMs will see a lift next year
FY12F net profit (RMmn) Difference from consensus
Key financials & valuations
Dec09
At present, management appears to be adopting a more cautious approach to loan growth and seems focussed on growing fee income revenue, which at 12% of gross income is far lower than the sector average of 18%. Emphasis will be on broadening the fee/commission from wealth management, treasury, remittances and derivatives. Current loan growth is 6% y-y (Industry: +12%), which is all the more disappointing as AFG is operating off a small base. However, we view this as a temporary concern given the senior management changes in 2010. The encouraging part is that asset quality has been very strong even during this transition phase. The bank remains one of the most under-leveraged in the sector, with a core equity Tier 1 ratio of 12.8%. Once the new management is comfortable with the credit risk and a clearer picture emerges on external environment, we can expect healthier loan growth. AFG could potentially be an acquisition target, in our view. The bank is part of the Temasek stable of banks. We see DBS – also a Temasek-linked company – as a potential suitor given its stated intentions of increasing its revenue base in the Asean region.
26.6% 13.4%
Nomura vs consensus
Malaysia’s strong population growth rate is feeding into the consumption boom. The young population base and surge in the middle class are creating a large bankable population. Household debt has risen but household financial assets are currently 2.5x debt levels, suggesting leverage levels are still comfortable.
Loan growth to pick up next year, in our view
Upside/downside Difference from consensus
Source: Nomura
Anchor themes
Our top small-cap pick
RM3.08
RM3.90
Price target
Apr 10
+60 3 2027 6892
Mar10
Julian Chua
Absolute (RM)
1m ( 6.4)
3m (0.6)
6m 10.8
Absolute (US $) Re lative to Index
( 8.1) ( 4.5)
(1.4) (5.3)
16.2 (6.5)
Market cap (US$mn) Estimated fre e float (% )
1,512 70.0
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
3 .30/2.41 2.13
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Vertica l Theme EPF
29.1 13.3
Source: Company, Nomura estimates
25
6 December 2010
Alliance Financial Group Bhd
Julian Chua
Financial statements Profit and Loss (RMmn) Year-end 31 Mar Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves
FY09
FY10
FY11F
FY12F
FY13F
1,250 (589) 662 132 97 168 397 1,058 (51) 0 (513) 494 (190) 303
1,094 (478) 617 132 51 264 448 1,065 (56) 0 (499) 510 (101) 409
1,305 (580) 725 145 50 290 485 1,210 (60) 0 (540) 610 (65) 545
1,638 (813) 825 160 50 322 532 1,357 (65) 0 (580) 712 (75) 637
1,910 (1,000) 910 185 60 370 615 1,525 (65) 0 (660) 800 (82) 718
0 303 (74) 229 0
0 409 (107) 302 (0)
0 545 (144) 401 (0)
0 637 (169) 468 (0)
0 718 (190) 528 (0)
229
301
401
468
528
229 (97) 132
301 (99) 202
401 (160) 240
468 (187) 281
528 (216) 312
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%)
20.8 26.4 20.7 2.0 1.7 1.7 2.84 5.37 2.27 3.10 37.5 53.3 24.5 42.2 8.6 0.77 11.3 1.02
15.8 20.0 15.8 2.1 1.6 1.6 2.33 4.13 1.71 2.42 42.1 52.1 26.3 32.9 10.6 0.95 14.3 1.29
11.9 15.1 11.9 3.4 1.5 1.5 2.48 4.47 1.96 2.51 40.1 49.6 26.5 40.0 12.9 1.19 17.6 1.62
10.2 12.9 10.2 3.9 1.3 1.3 2.48 4.93 2.43 2.50 39.2 47.5 26.5 39.9 13.8 1.23 18.8 1.68
9.0 11.4 9.0 4.5 1.2 1.2 2.46 5.17 2.68 2.50 40.3 47.5 26.5 40.9 14.2 1.25 19.3 1.70
Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
3.9 4.2 22.0 (9.8) (39.7) (41.5) (39.7)
(6.8) 12.9 (2.8) 3.3 31.6 31.0 31.6
17.5 8.3 8.3 19.6 32.9 32.9 32.9
13.8 9.7 7.4 16.7 16.9 16.9 16.9
10.3 15.6 13.8 12.4 12.7 12.7 12.7
NIMs to expand 13bps from FY10F low
Source: Nomura esti ma tes
Nomura
26
6 December 2010
Alliance Financial Group Bhd
Balance Sheet (RMmn) As at 31 Mar
Julian Chua
FY09
FY10
FY11F
FY12F
FY13F
4,998 199 199 6,681
3,565 150 259 6,086
3,500 199 228 7,681
3,000 199 256 8,681
3,000 199 285 8,681
19,590 (872) 18,718 0 337 369
21,410 (761) 20,648 0 163 362
24,000 (858) 23,142 0 280 362
27,000 (936) 26,064 0 280 362
30,500 (1,024) 29,476 0 280 362
354 31,854 25,575 1,191 1,261 28,027 1,061 29,088 5 1,548
431 31,664 23,628 2,290 1,766 27,684 1,028 28,712 5 1,548
377 35,768 27,000 2,500 1,958 31,458 1,061 32,519 8 1,548
1,235 40,076 31,000 2,500 1,958 35,458 1,061 36,519 8 1,548
2,358 44,641 35,500 1,500 2,285 39,285 1,450 40,735 8 1,548
481
595
960
1,268
1,243
733 2,762 31,854 875
804 2,947 31,664 806
733 3,241 35,768 912
733 3,549 40,076 972
1,108 3,898 44,641 1,037
Balance sheet ratios (%) Loans to deposits Equity to assets
76.6 8.7
90.6 9.3
88.9 9.1
87.1 8.9
85.9 8.7
Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%)
4.5 0.97 2.74 99.7 10.3 14.7
3.8 0.47 2.40 94.4 11.7 16.0
3.8 0.27 2.40 94.1 11.1 14.9
3.6 0.28 2.33 96.3 11.0 14.6
3.4 0.27 2.29 98.7 11.0 14.1
Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth
19.8 24.1 17.6 15.1 19.8
10.3 5.2 (1.2) (0.6) (7.6)
12.1 15.1 13.6 13.0 14.3
12.6 12.6 12.7 12.0 14.8
13.1 9.8 10.8 11.4 14.5
Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RM)
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) DPS (RM) PPOP PS (RM) BVPS (RM) ABVPS (RM) NTAPS (RM)
0.15 0.15 0.15 0.06 0.32 1.78 1.78 1.55
0.19 0.19 0.19 0.06 0.33 1.90 1.90 1.67
0.26 0.26 0.26 0.10 0.39 2.09 2.09 1.86
0.30 0.30 0.30 0.12 0.46 2.29 2.29 2.06
We expect loan growth to accelerate to 12-13% next year from 6% currently
0.34 0.34 0.34 0.14 0.52 2.52 2.52 2.28
Source: Nomura esti ma tes
Nomura
27
6 December 2010
AMMB Holdings A M M M K F I N AN C I AL S / B AN K S | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] BUY
Action
Closing price on 1 Dec
Contrary to earlier fears, AMMB’s net interest margins have held up better than expected, while asset quality remains robust. Business loan volumes are gaining traction and leading top-line growth. Valuations are still at relatively attractive levels and we expect the re-rating to continue. BUY reaffirmed.
(set on 16 Nov 10)
Catalysts
The stock is trading at a FY11F P/BV of just 1.7x. We expect ROE to trend higher to 14.9% by FY13F, in line with management’s forecast of 15% in 2 years. Our target price of RM7.30 implies a FY12F P/BV of 1.9x, which falls between the post-crisis mean of 1.5x and +1 standard deviation level of 2.2x.
FY10 FY11F FY12F FY13F
PPOP Re porte d n et profit
2,089 1,009
2,330 1,356
2,60 0 1,65 8
2,885 1,851
No rma lise d n et profit No rma lise d E PS (RM)
1,009 0.33
1,356 0 .45
1,65 8 0.5 5
1,851 0.61
No rm. EPS growth (% ) No rm. P/E (x)
19.0 18.5
3 4.5 1 3.8
22.2 11.3
11.7 10.1
Price/a dj. book (x) Price/b ook (x)
1.94 1.94
1 .74 1 .74
1.5 8 1.5 8
1.43 1.43
Divide nd yield (%) RO E ( %)
1.5 11.6
2.9 1 3.3
3.3 14.7
3.6 14.9
RO A ( %) Earnings revis ions
1.08
1 .35
1.5 1
1.56
Previous n orm. net pr ofit Ch ange fro m previous (%)
1,356 -
1,65 8 -
1,851 -
Previous n orm. EPS (RM)
0 .45
0.5 5
0.61
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price
(RM) 6.9
115
Rel MSCI Malaysia
Absolute (RM)
1m ( 2.5)
3m 6.7
6m 26.3
Absolute (US $) Re lative to Index
( 4.3) ( 0.7)
5.9 2.0
32.5 9.8
Market cap (US$mn) Estimated fre e float (% )
5,916 45.0
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
6 .35/4.61 7.07
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
ANZ Amco rpGroup
23.8 16.8
Source: Company, Nomura estimates
Nomura
Nov1 0
90 Oct10
95
4.4 S ep10
4.9 Jul10
100
A ug10
105
5.4
Ju n10
110
5.9
May10
6.4
Fe b10
Valuations are still reasonable
31 Mar (RMmn)
Jan 10
So far, the rate of NPL formation has been under control. After peaking at 2% at the depth of the recession in 4Q FY09, it has been on an improving trend and averaged 0.9% over the past four quarters. Credit costs have been low at just 57bps in 1H FY11 (in line with our forecast of 60bps). The recent RM66mn impairment charge for securities and foreclosed asset recorded in 2Q FY11 is expected to be one-off. We estimate the credit charge for FY12-13 to average 44bps.
1,658 10.0%
Key financials & valuations
Dec09
Sturdy asset quality
FY12F net profit (RMmn) Difference from consensus
Consensus is underestimating asset quality and NIM resilience, in our view.
Malaysia’s strong population growth rate is feeding into the consumption boom. The young population base and surge in the middle class are creating a large bankable population. Household debt has risen but household financial assets are currently 2.5x debt levels, suggesting leverage levels are still comfortable.
AMMB’s recent results showed resilience in margins that helped it post the highest quarterly pre-provision profit of RM646mn. We forecast an average PPOP growth of 12% pa over the next two years on loan growth of 10% and steady net interest margins. NIMs have been surprising on the upside: 1) management has been actively hedging off interest rate risks on its fixed-rate loan portfolio; 2) there has been strong growth in low-cost CASA deposits – nearly double the industry rate over the past six quarters and 3) it has maintained pricing discipline in hire purchase in the face of stiffening competition.
17.9% 11.3%
Nomura vs consensus
Anchor themes
Pre-provision earnings to stay strong
Upside/downside Difference from consensus
Source: Nomura
Consistent outperformance in net interest margins and asset quality would lead to an upward re-rating of the stock.
Resilient top-line growth
RM6.19
RM7.30
Price target
Apr 10
+60 3 2027 6892
Mar10
Julian Chua
28
6 December 2010
AMMB Holdings
Julian Chua
Financial statements Profit and Loss (RMmn) Year-end 31 Mar
FY09
FY10
FY11F
FY12F
FY13F
3,793 (2,017) 1,776 457 (115) 690 1,032 2,808 (78) (1,191) 1,539 (416) 1,123
3,615 (1,728) 1,887 542 195 967 1,704 3,591 (86) (1,416) 2,089 (712) 1,377
4,250 (2,180) 2,070 585 200 1,085 1,870 3,940 (90) (1,520) 2,330 (470) 1,860
4,940 (2,730) 2,210 635 220 1,240 2,095 4,305 (95) (1,610) 2,600 (330) 2,270
5,360 (2,970) 2,390 665 240 1,390 2,295 4,685 (100) (1,700) 2,885 (350) 2,535
(0) 1,123 (339) 783 (17) -
(1) 1,377 (334) 1,043 (34) -
2 1,862 (484) 1,378 (22) -
2 2,272 (591) 1,681 (24) -
2 2,537 (660) 1,877 (26) -
Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves
766 95 861 (163) 698
1,009 0 1,009 (283) 725
1,356 0 1,356 (538) 818
1,658 0 1,658 (625) 1,033
1,851 0 1,851 (680) 1,171
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%)
23.6 27.8 19.6 1.0 2.2 2.2 2.70 5.76 2.74 3.02 36.7 45.2 30.2 19.0 11.6 1.00 15.1 1.30
18.5 21.8 18.5 1.5 1.9 1.9 2.62 5.02 2.20 2.82 47.5 41.8 24.3 28.1 11.6 1.08 15.9 1.48
13.8 16.2 13.8 2.9 1.7 1.7 2.54 5.22 2.60 2.62 47.5 40.9 26.0 39.7 13.3 1.35 18.3 1.85
11.3 13.3 11.3 3.3 1.6 1.6 2.47 5.53 3.00 2.53 48.7 39.6 26.0 37.7 14.7 1.51 20.1 2.07
10.1 11.9 10.1 3.6 1.4 1.4 2.44 5.46 3.01 2.46 49.0 38.4 26.0 36.7 14.9 1.56 20.4 2.13
Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
6.4 (28.3) 3.6 (18.4) 6.1 (7.8) 6.1
6.2 65.2 18.9 35.7 31.7 19.0 27.5
9.7 9.7 7.4 11.5 34.5 34.5 34.5
6.8 12.0 5.9 11.6 22.2 22.2 22.2
8.1 9.5 5.6 11.0 11.7 11.7 11.7
Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items
NIMs were earlier forecast to fall 21bps in FY11F
Source: Nomura esti ma tes
Nomura
29
6 December 2010
AMMB Holdings
Balance Sheet (RMmn) As at 31 Mar
Julian Chua
FY09
FY10
FY11F
FY12F
FY13F
Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends
17,187 46 518 8,823 58,769 (1,821) 56,948 2 235 1,808 4,327 89,893 64,132 6,135 6,481 76,748 5,234 81,981 175 2,723
11,627 1,832 168 11,387 66,283 (1,857) 64,426 1 236 1,825 4,978 96,480 68,874 4,315 7,185 80,374 6,262 86,636 206 3,014
11,000 2,000 217 12,200 73,000 (2,359) 70,642 2 236 1,808 7,036 105,140 75,000 4,500 7,785 87,285 6,930 94,215 215 3,014
12,000 2,000 235 14,000 80,000 (2,525) 77,475 2 236 1,808 6,424 114,180 83,000 4,000 7,785 94,785 7,330 102,115 235 3,014
12,000 2,000 255 16,000 87,000 (2,695) 84,305 2 236 1,787 7,242 123,827 91,000 4,000 7,785 102,785 7,730 110,515 255 3,014
1,823 -
2,557 -
3,630 -
4,749 -
5,976 -
Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RM)
3,190 7,736 89,893 2,426
4,067 9,638 96,480 1,866
4,067 10,711 105,140 2,190
4,067 11,830 114,180 2,240
4,067 13,057 123,827 2,436
Balance sheet ratios (%) Loans to deposits Equity to assets
91.6 8.6
96.2 10.0
97.3 10.2
96.4 10.4
95.6 10.5
Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%)
4.1 0.71 2.03 75.1 9.7 15.2
2.8 1.07 1.92 99.5 13.1 17.4
3.0 0.64 2.24 107.7 13.3 17.2
2.8 0.41 2.21 112.7 13.7 17.6
2.8 0.40 2.18 110.6 13.9 17.5
Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth
8.3 1.4 8.7 8.1 15.0
13.1 17.3 4.7 7.3 7.4
9.6 9.3 8.6 9.0 8.9
9.7 10.2 8.6 8.6 10.7
8.8 9.4 8.4 8.4 9.6
0.33 0.33 0.33 0.09 0.69 3.20 3.20 2.59
0.45 0.45 0.45 0.18 0.77 3.55 3.55 2.95
0.55 0.55 0.55 0.21 0.86 3.92 3.92 3.32
0.61 0.61 0.61 0.23 0.96 4.33 4.33 3.74
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) DPS (RM) PPOP PS (RM) BVPS (RM) ABVPS (RM) NTAPS (RM)
Loan growth of 10%
0.32 0.28 0.26 0.06 0.57 2.84 2.84 2.18
Source: Nomura esti ma tes
Nomura
30
6 December 2010
Axiata Group Berhad A X I A T A M K TE L E C O M S | M AL AY S I A
Maintained NOMURA SINGAPORE LIMITED
[email protected] [email protected] BUY
Action
Closing price on 1 Dec
For FY11F, we continue to see growth in Axiata’s earnings, led by: 1) solid revenue and earnings growth at XL; 2) potential upside to Celcom’s data growth, as it gets more active with Smartphones and broadband; and 3) possible upside surprise on margins, driven by continued cost saving initiatives. Axiata’s 13% average earnings growth over FY11F-12F will be one of the highest in regional telcos, according to our estimates. We also see upside bias to our 4-5% dividend yield forecast. BUY.
(set on 15 Nov 10)
Celcom is likely to provide a consistent cash flow stream; XL to provide the revenue / earnings growth appeal; trends at subsidiaries, associates can improve.
We believe disposal of smaller assets is likely to be explored over the next 12-18 months. However, a material M&A initiative may not unfold in the near term. As such, we see limited cash flow risks over the medium term and see potential upside to our 4-5% yield forecasts.
Axiata remains our key regional pick At 13x FY11F PE, Axiata’s valuation remains attractive compared to 13-14x for regional peers. It remains our key regional telco pick.
Nomura
FY09 FY10F FY11F FY12F 13,105
15,638
17,266
Reported net profit
1,653
2,940
3,044
3,315
Normalised net profit
1,653
2,605
3,044
3,315
Normalised EPS (RM) Norm. EPS growth (%)
0. 20 226.4
0.31 57.6
0.36 16.8
0.39 8.9
23.6
14.9
12.8
11.7
9.5 2.1
6.1 1.8
5.4 1.7
4.7 1.6
Norm. P/E (x) EV/EBIT DA (x) Price/book (x) Dividend yield (% )
18,644
0.0
0.0
3.5
5.1
ROE (%)
11.2
15.0
13.9
14.1
Net debt/equity (% )
56.7
25.2
14.0
3.9
2,605
3,044
3,315
0.31
0.36
0.39
Earnings r evisions Prev ious norm. net profit Change from previous (% ) Prev ious norm. EPS (RM) Sou rce: Comp any, No mura esti mates
Share price relative to MSCI Malaysia Price
(RM)
Rel MSCI Malaysia
4.8
140 130
4.3
120
3.8
110
Oc t10
Nov10
Sep10
Jul10
Aug10
J un10
90 Apr10
100
2.8 Mar10
3.3
Jan10
Limited M&A initiatives, near-term
31 Dec (RMmn) Revenue
Feb10
Cost management will be a key focus area across the group and could be a driver for possible margin surprises ahead, in our view. We expect Celcom to progress on executing its network sharing plans with Digi. In our opinion, XL could possibly continue to drive revenue growth ahead of expenses – further margin uplift, and margins at other subsidiaries could hold stable.
3,044 0.1%
Key financials & valuations
Dec09
Celcom is likely to increase its visibility in the Smartphone segment, where both Maxis and Digi have so far been more active. Increasing broadband coverage beyond current 70-75% levels and more aggressive broadband pricing appear likely – drive broadband growth and offset competition from WiMAX operators.
FY11F net profit (RMmn) Difference from consensus
Our above-consensus price target is driven by the expectation of continued growth at Celcom and XL, and easing investment risks.
Anchor themes
XL’s strong execution in FY10 is likely to continue in FY11F and we see another 13-15% growth in revenue and EBITDA with scope for upside surprises. Data is already a key revenue contributor – 41% of total revenue versus 38% in FY08 and we expect it to drive the medium-term growth trend at XL. Barring a drastic pick-up in cellular competition, we see limited risks to XL’s operational outlook.
28.0% 20.4%
Nomura vs consensus
Continued operational strength in domestic and overseas businesses remains a potential catalyst. FY10F dividend timing could positively surprise.
Data growth remains a key for XL and Celcom
Upside/downside Difference from consensus
Source: Nomura
Catalysts
Consistent execution to continue
RM4.61
RM5.90
Price target
May10
B Roshan Raj +65 6433 6961 Sachin Gupta, CFA +65 6433 6968 Pankaj Suri (Associate)
Absolute (RM) Absolute (US$)
1m 3.4 1.4
3m 1.3 0.5
Relative to Index
5.1
(3.4)
Mark et cap (US$mn) Estimated free float (% )
6m 23.3 29.3 6.6 12,344 31.7
52-week range (RM)
4. 61/3.01
3-mth avg daily turnover (US$mn)
18.16
Stock borrowability Major shareholders (% )
Hard
Khazanah Nasional Berhad
44.5
Employees Provident Fund Board
15.2
Sou rce: Comp any, No mura esti mates
31
6 December 2010
Axiata Group Berhad
B Roshan Raj
Financial statements Income statement (RMmn) Year-end 31 Dec
FY08 11,348 (3,140) 8,207 (6,190) (29) 1,989
FY09 13,105 (3,538) 9,567 (7,270) 918 3,214
FY10F 15,638 (3,791) 11,847 (7,652) 400 4,595
FY11F 17,266 (4,215) 13,052 (8,343) 200 4,909
FY12F 18,644 (4,575) 14,069 (9,019) 200 5,250
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
4,356 (2,319) (48) 1,989 (1,015) (59) 914 (435) 480 27 -
5,157 (2,860) 918 3,214 (649) 101 2,666 (910) 1,756 (103) -
7,202 (3,007) 400 4,595 (560) 141 173 4,349 (1,044) 3,305 (366) (335)
7,841 (3,132) 200 4,909 (411) 230 4,728 (1,182) 3,546 (502) -
8,419 (3,369) 200 5,250 (320) 270 5,200 (1,300) 3,900 (585) -
506 506
1,653 1,653
2,605 335 2,940
3,044 3,044
3,315 3,315
Dividends Transfer to reserves
506
1,653
2,940
(1,370) 1,674
(1,989) 1,326
76.9 98.4 76.9 15.7 3.5 12.8 28.0 72.3 38.4 17.5 4.5 47.5 46.9 2.3 4.8 6.8
23.6 30.1 23.6 8.2 2.1 9.5 15.3 73.0 39.4 24.5 12.6 34.1 25.1 1.2 11.2 9.6
14.9 19.1 13.2 6.0 1.8 6.1 9.6 75.8 46.1 29.4 18.8 24.0 23.0 1.2 15.0 13.6
12.8 16.4 12.8 3.5 5.7 1.7 5.4 8.6 75.6 45.4 28.4 17.6 25.0 45.0 20.0 1.1 13.9 14.7
11.7 15.0 11.7 5.1 5.3 1.6 4.7 7.6 75.5 45.2 28.2 17.8 25.0 60.0 17.0 0.9 14.1 15.6
Growth (%) Revenue EBITDA EBIT
13.5 5.3 (20.4)
15.5 18.4 61.6
19.3 39.7 43.0
10.4 8.9 6.8
8.0 7.4 6.9
Normalised EPS Normalised FDEPS
(70.4) (70.4)
226.4 226.4
57.6 57.6
16.8 16.8
8.9 8.9
0.35 0.31 0.31 2.50 -
0.36 0.36 0.36 2.70 0.16
0.39 0.39 0.39 2.86 0.24
Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %)
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.06 0.06 0.06 1.33 -
0.20 0.20 0.20 2.15 -
We expect a double-digit FY09-12F CAGR in revenue and EBITDA
Source: Nomura estim ates
Nomura
32
6 December 2010
Axiata Group Berhad
Cashflow (RMmn) Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
B Roshan Raj
FY08 4,356 122 (1,991) 2,487 (5,324) (2,837) (5,914) (441) (5,914) (71) 5,990 (9,188) (30)
FY09 5,157 (195) (216) 4,746 (3,290) 1,457 5,734 (1) 559 (6,304) 1,444 90
FY10F 7,202 491 (1,204) 6,489 (3,597) 2,892 2,018 4,910 90
FY11F 7,841 403 (1,393) 6,851 (3,453) 3,398 3,398 (1,280)
FY12F 8,419 317 (1,420) 7,316 (3,169) 4,147 4,147 (1,899)
10,477
(8,118)
(1,250)
(750)
(750)
103 10,551 1,363 1,968 3,330 16,692
5,260 (2,768) (1,325) 3,331 2,006 10,317
(1,160) 3,750 2,006 5,756 5,316
(2,030) 1,368 5,756 7,125 3,198
(2,649) 1,498 7,125 8,623 950
FY08 3,331
FY09 2,006
FY10F 5,756
FY11F 7,125
FY12F 8,623
1,540 77 129 5,077 5,914 14,960
1,559 35 97 3,698 181 15,815
2,142 35 97 8,031 181 16,405
2,365 35 97 9,622 181 16,726
2,554 35 97 11,309 181 16,527
8,326 3,075 37,352 9,477 4,538 195 14,211 10,546
8,563 8,887 37,144 2,149 4,263 221 6,634 10,173
8,563 7,094 40,274 1,899 5,337 221 7,458 9,173
8,563 7,234 42,326 1,649 5,963 221 7,834 8,673
8,563 7,414 43,993 1,399 6,469 221 8,090 8,173
898 25,655 481
1,457 18,264 696
1,457 18,088 1,062
1,457 17,964 1,564
1,457 17,720 2,150
3,753 7,463
8,445 9,739
8,445 12,679
8,445 14,353
8,445 15,679
11,217 37,352
18,184 37,144
21,124 40,274
22,798 42,326
24,124 43,993
0.36 2.0
0.56 5.0
1.08 8.2
1.23 12.0
1.40 16.4
3.83 148.8
2.00 56.7
0.74 25.2
0.41 14.0
0.11 3.9
39.4 8.9 494.5 (446.2)
43.2 5.8 454.0 (405.1)
43.2 3.4 462.1 (415.5)
47.6 3.1 489.3 (438.6)
48.3 2.8 497.3 (446.2)
Source: Nomura estim ates
Balance sheet (RMmn) As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle Source: Nomura estim ates
Nomura
33
6 December 2010
British American Tobacco (M) ROTH MK C O N S U M E R R E L AT E D | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] REDUCE
Action
Closing price on 1 Dec
Although we like BAT Malaysia as a company, we think the poor fundamentals of the Malaysian tobacco industry make an unappealing investment case. Industry volumes have been contracting for six consecutive years, and we expect this trend to continue on annual strong excise duty hikes (making cigarettes more expensive for consumers) and the enduring problem of illicit trade (e.g., sale of unlicensed competing cigarettes). Maintain REDUCE rating on unappealing valuation.
(set on 5 Oct 10)
Weaker-than-expected total inventory volumes, coupled with the full impact of the small-pack ban (lower margins) on earnings are negative catalysts.
Maintain REDUCE – valuation not compelling Valuation of 17.6x FY11F P/E (+0.7SD) and a low dividend yield of 5.4% versus historical yield (below its -1SD of 5.5%) are difficult to justify in light of the weak industry fundamentals (our outlook for industry volume contraction and illicit trade continuing) and the lower margins post the small-pack ban (June 2010) still weighing on the stock. The stock reached a peak of RM49.94 in October, up from its recent trough of RM42 in May (+16.7%, but underperforming the index by 1.8%). The stock has since retreated (underperforming the index by 14%), but we would need it to pull back further before we would recommend holding the company for its dividend yield.
Nomura
31 Dec (RMmn)
FY09 FY10F FY11F FY12F
Re venu e Re porte d n et profit
3,923 747
3,963 727
4,08 7 71 5
4,046 708
No rma lise d n et profit No rma lise d E PS (RM)
739 2.59
727 2 .55
71 5 2.5 1
708 2.48
No rm. EPS growth (% ) No rm. P/E (x)
(9.0) 17.1
( 1.6) 1 7.4
(1.6) 17.6
(1.0) 17.8
EV/EBITDA (x) Price/b ook (x)
11.4 28.7
1 2.0 1 9.3
12.1 18.1
12.1 17.3
Divide nd yield (%) RO E ( %)
5.3 176.5
5.3 13 2.9
5.4 105.9
5.3 99.5
Ne t debt/eq uity (% ) Earnings revis ions
109.6
6 5.4
53.8
44.4
Previous n orm. net pr ofit Ch ange fro m previous (%)
727 -
71 5 -
708 -
Previous n orm. EPS (RM)
2 .55
2.5 1
2.48
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price Rel MSCI Malay sia
(RM) 52 50
105 100
48 46
95 90
44
85
42 40 Oct10
Nov10
S ep10
Aug1 0
Jul1 0
Jun10
May10
Fe b10
80 Jan10
The Deputy Finance Minister on 4 October confirmed an excise duty hike for tobacco which took most by surprise. The 3sen per stick increase (to 22sen in excise duties per stick) we believe is higher than what most would have hoped (given the relatively tame 1sen increase last year). This we believe will continue to drive down industry volumes and promote illicit trade (due to higher cigarette prices). The earnings impact should, however, be relatively muted given that the excise duty hike will be passed through, although we note that the company has taken a smaller margin increase than usual (negative for earnings).
715 -2.5%
Key financials & valuations
Dec0 9
Recent surprise excise duty hike doesn’t help
FY11F net profit (RMmn) Difference from consensus
We are largely in agreement with the street’s negative view on the stock, although our earnings estimates are lower on more conservative margin estimates.
Continued contraction of the legal tobacco industry volumes, weaker margins following the small-pack ban, and stiff competition for a shrinking pie, remain key negative themes for the industry.
We like BAT for its strong management, ability to execute and decent dividend yield (5-6% historically). However, we think that poor industry fundamentals make it hard to justify the recent run-up in valuations (close to 19x P/E in October). Total industry volumes have been falling for six consecutive years (as much as 10.7% in 2009) – mainly on higher selling prices (annual excise duty hikes by the government) and consistently high illicit trade. We continue to expect a contraction in industry volumes (-1.5% for 2010F and -3% for 2011F), and remain Bearish on the tobacco sector.
-4.9% -1.5%
Nomura vs consensus
Anchor themes
Continue to expect further industry contraction
Upside/downside Difference from consensus
Source: Nomura
Catalysts
Sector fundamentals weak
RM44.18
RM42.00
Price target
Apr10
+60 3 2027 6895
Mar10
Ken Arieff Wong
Absolute (RM)
1m ( 7.7)
3m (2.9)
6m 0.2
Absolute (US $) Re lative to Index
( 9.4) ( 5.8)
(3.7) (7.6)
5.1 (17.6)
Market cap (US$mn) Estimated fre e float (% )
4,000 50.0
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
49.94/41.60 1.41
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
British Amer ican Tobacco BV Skim A SB
50.0 6.3
Source: Company, Nomura estimates
34
6 December 2010
British American Tobacco (M)
Ken Arieff Wong
Financial statements Income statement (RMmn) Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY08
FY09
FY10F
FY11F
FY12F
4,135 (2,465) 1,670 (544)
3,923 (2,379) 1,544 (473)
3,963 (2,483) 1,480 (476)
4,087 (2,617) 1,470 (486)
4,046 (2,591) 1,455 (483)
1,126
1,072
1,004
984
972
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
1,200 (74) 1,126 (21) (24) 1,081 (269) 812 812 812
1,152 (80) 1,072 (22) (44) 1,005 (259) 747 (8) 739 8 747
1,090 (86) 1,004 (35) 969 (242) 727 727 727
1,076 (92) 984 (30) 954 (238) 715 715 715
1,070 (98) 972 (28) 944 (236) 708 708 708
Dividends Transfer to reserves
(757) 55
(674) 73
(669) 58
(680) 36
(673) 35
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x)
15.5 14.8 15.5 6.0 14.7 31.0 11.0 11.7 40.4 29.0 27.2 19.6 24.9 93.2 2.5 1.4
17.1 16.2 16.9 5.3 13.6 28.7 11.4 12.2 39.4 29.4 27.3 19.0 25.7 90.2 2.7 1.3
17.4 16.5 17.4 5.3 19.9 19.3 12.0 13.0 37.3 27.5 25.3 18.3 25.0 92.0 1.8 0.8
17.6 16.8 17.6 5.4 15.8 18.1 12.1 13.2 36.0 26.3 24.1 17.5 25.0 95.0 1.7 0.8
17.8 16.9 17.8 5.3 15.8 17.3 12.1 13.3 36.0 26.5 24.0 17.5 25.0 95.0 1.7 0.7
215.7 80.3
176.5 79.3
132.9 74.1
105.9 68.4
99.5 68.1
ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
7.9 5.0
(5.1) (4.0)
1.0 (5.4)
3.1 (1.3)
(1.0) (0.5)
5.4 10.9 10.9
(4.8) (9.0) (9.0)
(6.3) (1.6) (1.6)
(2.0) (1.6) (1.6)
(1.2) (1.0) (1.0)
2.62 2.59 2.59 1.54 2.36
2.55 2.55 2.55 2.29 2.34
2.51 2.51 2.51 2.44 2.38
2.48 2.48 2.48 2.55 2.36
2.84 2.84 2.84 1.42 2.65
Contraction in sales caused by lower-than-expected price hikes coupled with our assumptions of tobacco industry sales volume contraction
Source: Nomura esti ma tes
Nomura
35
6 December 2010
British American Tobacco (M)
Cashflow (RMmn) Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
Ken Arieff Wong
FY08
FY09
FY10F
FY11F
FY12F
1,200 36 (379) 856 (102) 755 (15)
1,152 72 (298) 926 (107) 819 5
1,090 (171) (285) 634 (70) 564 0
1,076 (11) (268) 797 (70) 727 1
1,070 (8) (264) 798 (70) 728 (1)
740 (751) (751) (11) 71 59 591
823 (714) (714) 109 59 169 481
564 (511) (511) 53 169 222 428
728 (674) (674) 54 222 276 374
727 (676) (676) 51 276 327 323
FY08 59
FY09 169
FY10F 222
FY11F 276
FY12F 327
112 225 200 596
214 169 552
109 272 173 775
112 287 182 856
111 284 191 912
474 412 5
459 412 19
451 412 19
428 412 19
400 412 19
Source: Nomura esti ma tes
Balance sheet (RMmn) As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity
1,487 250 178 204 632 400
1,442 300 300 650
1,657 180 120 299 650
1,715 189 126 315 650
1,743 187 125 312 650
48 1,081 143 264 407
53 1,003 143 297 439
53 1,002 143 512 655
54 1,019 143 553 696
53 1,015 143 585 728
Total equity & liabilities
1,487
1,442
1,657
1,715
1,743
0.94 54.9
1.84 47.9
2.59 28.9
2.71 32.9
2.92 34.9
0.49 145.2
0.42 109.6
0.39 65.4
0.35 53.8
0.30 44.4
9.7 34.8 23.1 21.4
5.2 33.7 13.7 25.2
5.0 35.7 13.2 27.5
9.8 39.0 25.7 23.1
10.1 40.3 26.6 23.8
Could see another special dividend if cash balance continues to build up in the coming years
Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle Source: Nomura esti ma tes
Nomura
36
6 December 2010
CIMB Group Holdings C I M B M K F I N AN C I AL S | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] BUY
Action
Closing price on 1 Dec
Capital markets in 2011 are expected to be buoyant against the backdrop of positive GDP growth and ample liquidity in Malaysia/South East Asia. Group asset quality and growth momentum have been stronger than anticipated. While P/BV at 2.4x has moved above the +1 standard deviation level, we believe the stock could well trend closer to its post-crisis peak of 2.9x given the strong capital markets.
(set on 8 Nov 10)
Catalysts
We expect decent FY11 loan growth albeit with NIM squeeze We expect GFY10F loan growth of 14% for the group, led by a strong 23% y-y growth at CIMB Niaga and a 15% expansion in domestic consumer loans. Corporate loans, however, are expected to lag at 8% y-y. The key drivers for FY11F growth of 13% will still be Indonesia and domestic consumers, particularly the mortgage segment. However, we factor in a 6bps decline in NIMs owing to stiff competition in these same growth segments. We expect asset quality to be stable.
Nomura
31 Dec (RMmn)
FY09 FY10F FY11F FY12F
PPOP Re porte d n et profit
4,952 2,807
5,809 3,734
6,88 9 4,65 0
7,530 5,132
No rma lise d n et profit No rma lise d E PS (RM)
2,807 0.40
3,734 0 .50
4,65 0 0.6 3
5,132 0.69
No rm. EPS growth (% ) No rm. P/E (x)
45.7 21.1
2 6.4 1 6.8
24.5 13.5
10.4 12.2
Price/a dj. book (x) Price/b ook (x)
2.88 2.88
2 .43 2 .43
2.1 1 2.1 1
1.85 1.85
Divide nd yield (%) RO E ( %)
1.6 15.0
1.1 1 6.3
1.5 17.0
1.6 16.4
RO A ( %) Earnings revis ions
1.26
1 .46
1.6 2
1.62
Previous n orm. net pr ofit Ch ange fro m previous (%)
3,734 -
4,65 0 -
5,132 -
Previous n orm. EPS (RM)
0 .50
0.6 3
0.69
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price
(RM) 8.8
115
Rel MSCI Malaysia
8.3
110
7.8 7.3
105 100
6.8
95
6.3 5.8
Absolute (RM) Absolute (US $) Re lative to Index
Nov1 0
Oct10
S ep10
Jul10
A ug10
Ju n10
May10
Fe b10
90 Jan 10
CIMB's 9M10 net profit was 74% of consensus full-year forecast. Given the 4Q10 is likely to be stronger with the completion of the two mega IPOs (AIA HK and Petronas Chemicals), the full year results are likely to come in ahead of expectations. Management has retained its FY10F ROE guidance of 16% but highlighted a promising 4Q following its best quarter of IPOs ever. Special dividend of RM1bn declared which we believe was due to the minimal impact from implementing Basel II and greater clarity over Basel III, and this is positive for the stock
4,650 6.0%
Key financials & valuations
Dec09
CIMB recorded consensus-beating results
FY11F net profit (RMmn) Difference from consensus
Consensus appears divided on the growth outlook for the stock. We are more optimistic on domestic capital markets prospects.
Liberal US monetary policy coupled with the commodities boom form positive macro conditions for Malaysian economic growth and capital markets. The Malaysia market has lagged some of its Asean peers such as the Philippines, Indonesia and Thailand.
Amid ample liquidity, the Malaysian asset reflation theme is manifesting itself in strong property demand, while the stock market is near historical peaks. Moreover, there are several high-profile deals on the table, such as the privatisation of Plus Expressways and the acquisition of Sunrise by UEM Land. Add to this mix the ongoing divestment of the government's stakes in government-linked entities as well as firming commodity prices, and we believe the capital markets will continue to excite investors and corporates next year. This scenario reminds us of the liquidity-led rally of 2007 and the property/stock market boom of the mid-1990s.
19.3% 14.5%
Nomura vs consensus
Anchor themes
Capital markets entering a sweet spot
Upside/downside Difference from consensus
Source: Nomura
Stronger-than-expected capital markets revenue and asset quality should continue to underpin CIMB’s stock performance.
2011 = 2007 + the 90s?
RM8.38
RM10.00
Price target
Apr 10
+60 3 2027 6892
Mar10
Julian Chua
1m 0.2
3m 7.4
6m 23.6
( 1.6) 2.0
6.6 2.7
29.6 7.0
Market cap (US$mn) Estimated fre e float (% )
19,748 55.0
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
8 .56/6.11 27.10
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Khazanah EPF
29.0 14.2
Source: Company, Nomura estimates
37
6 December 2010
CIMB Group Holdings
Julian Chua
Financial statements Profit and Loss (RMmn) Year-end 31 Dec
FY08
FY09
FY10F
FY11F
FY12F
9,590 (4,930) 4,661 1,813 317 949 3,080 7,741 (216) 0 (3,906)
10,540 (4,471) 6,069 2,150 730 1,721 4,601 10,670 (320) 0 (5,398)
12,200 (5,290) 6,910 2,350 600 2,370 5,320 12,230 (350) 0 (6,071)
13,730 (5,950) 7,780 2,600 750 2,750 6,100 13,880 (370) 0 (6,621)
15,300 (6,750) 8,550 2,700 850 3,050 6,600 15,150 (420) 0 (7,200)
3,619 (861) 2,758 (42) 2,716 (703) 2,013 (61)
4,952 (1,174) 3,778 34 3,812 (765) 3,047 (240)
5,809 (750) 5,059 25 5,084 (1,170) 3,914 (180)
6,889 (750) 6,139 30 6,169 (1,419) 4,750 (100)
7,530 (750) 6,780 35 6,815 (1,568) 5,247 (115)
Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves
1,952 0 1,952 (662) 1,290
2,807 0 2,807 (927) 1,880
3,734 0 3,734 (688) 3,047
4,650 0 4,650 (920) 3,730
5,132 0 5,132 (1,020) 4,112
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%)
30.7 36.7 30.7 1.1 3.5 3.5 3.11 6.40 2.92 3.48 39.8 53.2 25.9 33.9 11.9 1.00 16.8 1.42
21.1 25.2 21.1 1.6 2.9 2.9 3.45 5.99 2.32 3.68 43.1 53.6 20.1 33.0 15.0 1.26 20.2 1.69
16.8 20.0 16.7 1.1 2.4 2.4 3.35 5.91 2.42 3.49 43.5 52.5 23.0 18.4 16.3 1.46 22.1 1.98
13.5 16.1 13.4 1.5 2.1 2.1 3.29 5.81 2.43 3.38 43.9 50.4 23.0 19.8 17.0 1.62 22.4 2.14
12.2 14.6 12.1 1.6 1.9 1.9 3.25 5.81 2.49 3.32 43.6 50.3 23.0 19.9 16.4 1.62 21.6 2.14
Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
6.0 (21.1) (3.1) (11.2) (6.3) (11.7) (11.7)
30.2 49.4 38.2 36.8 43.8 45.7 45.3
13.9 15.6 12.5 17.3 33.0 26.4 26.1
12.6 14.7 9.1 18.6 24.5 24.5 24.5
9.9 8.2 8.7 9.3 10.4 10.4 10.4
Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items
3-year non-interest income CAGR of 10% pa
Source: Nomura esti ma tes
Nomura
38
6 December 2010
CIMB Group Holdings
Balance Sheet (RMmn) As at 31 Dec
Julian Chua
FY08
FY09
FY10F
FY11F
FY12F
Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends
24,409 4,063 2,736 37,264 122,537 (5,155) 117,382 914 1,820 7,156 10,992 206,736 153,425 7,119 20,302 180,845 7,528 188,373 1,098 3,578 200 5,234 -
28,729 2,383 844 44,811 148,905 (6,687) 142,218 649 2,126 9,362 9,316 240,438 178,882 10,132 16,284 205,298 12,494 217,792 2,102 3,532 200 6,832 -
25,194 13,335 1,506 48,000 170,000 (9,951) 160,049 175 1,274 9,676 11,645 270,854 208,000 8,201 15,537 231,738 12,635 244,373 851 7,434 200 9,355 -
26,194 13,335 1,682 53,100 192,000 (10,445) 181,555 175 1,274 9,676 14,773 301,765 235,000 8,201 15,537 258,738 12,635 271,373 900 7,434 200 13,317 -
30,000 13,335 1,844 58,100 215,000 (11,058) 203,942 175 1,274 9,676 12,591 330,937 260,000 8,201 15,537 283,738 12,635 296,373 960 7,434 200 17,529 -
Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RM)
8,252 17,264 206,736 6,056
9,981 20,545 240,438 7,417
8,641 25,630 270,854 10,779
8,541 29,492 301,765 10,973
8,441 33,604 330,937 11,324
Balance sheet ratios (%) Loans to deposits Equity to assets
79.9 8.4
83.2 8.5
81.7 9.5
81.7 9.8
82.7 10.2
Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%)
4.9 0.70 2.49 85.1 9.2 13.9
5.0 0.79 2.78 90.2 11.1 15.1
6.3 0.44 3.67 92.3 10.7 15.7
5.7 0.39 3.46 95.2 10.3 14.4
5.3 0.35 3.34 97.7 11.0 15.0
Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth
22.4 16.8 15.1 13.1 20.9
21.2 17.8 13.5 16.3 16.6
12.5 17.2 12.9 12.6 16.3
13.4 12.0 11.7 11.4 13.0
12.3 11.0 9.7 9.7 10.6
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) DPS (RM) PPOP PS (RM) BVPS (RM) ABVPS (RM) NTAPS (RM)
0.27 0.27 0.27 0.09 0.51 2.41 2.41 1.41
0.40 0.40 0.40 0.13 0.70 2.91 2.91 1.58
0.50 0.50 0.50 0.09 0.78 3.45 3.45 2.15
0.63 0.63 0.62 0.12 0.93 3.97 3.97 2.67
Falling charge-off rates reflect stronger asset quality
0.69 0.69 0.69 0.14 1.01 4.52 4.52 3.22
Source: Nomura esti ma tes
Nomura
39
6 December 2010
DiGi.Com D I G I M K TE L E C O M S | M AL AY S I A
Maintained NOMURA SINGAPORE LIMITED
[email protected] [email protected] BUY
Action
Closing price on 1 Dec
For FY11F, we expect Digi to focus on three key areas: 1) Smartphones, which have already led postpaid growth and delivered positive surprises in 9M10, 2) broadband – could see a lot more activity, as net-adds/revenue remain below peers and there is a rising threat from WiMAX operators and 3) incremental cost reduction opportunities. These initiatives could deliver positive surprises to our revenue and earnings forecasts. Also, capital management remains a possibility.
(s et on 26 Oct 10)
Capital management, operational improvement in cellular and broadband metrics stand as potential catalysts.
Conservative guidance with capital management? Based on our current estimates, with a 130-135% total dividend payout (8% yield) in FY10, Digi's balance sheet gearing will reach the lower end of its 0.5x to 0.8x net-debt/equity target. However, moving ahead, in the absence of another capital management in FY11, its gearing could fall below target. As a result, we expect Digi to maintain its capital management initiatives over the medium term, despite a relatively more cautious tone from management. Maintain BUY.
Nomura
FY09 FY10F FY11F FY12F 4,919
5,348
5,642
Reported net profit
1,000
1,152
1,186
1,213
Normalised net profit
1,000
1,152
1,186
1,213
Normalised EPS (RM)
1.29
1.48
1. 53
1.56
Norm. EPS growt h (% )
(13.5)
15.1
3.0
2.2
Norm. P/E (x) EV/EBITD A (x)
19.3 9.3
16.8 8.3
16.3 7.7
15.9 7.3
Price/ book (x)
12.7
12.7
11.0
9.6
7.2
6.0
4.9
5.0
ROE (%)
58.5
75.7
72.3
64.5
Net debt /equity (% )
32.3
Dividend yield (%)
5,897
4.8 net cash net cash
Earnings r evisions Previous norm. net profit
1,152
1,186
Change from previous (% )
-
-
-
Previous norm. EPS (RM)
1.48
1. 53
1.56
1,213
Sou rce: Comp any, Nom ura estim ates
Share price relative to MSCI Malaysia Price Rel MSCI Malaysia
(RM) 26
110
Oct10
N ov10
80 Sep10
85
20 Aug10
90
21 Jul10
95
22
Jun10
100
23
Apr10
105
24
May10
25
Feb10
For 9M10, despite data revenue contribution increasing 400bps to 23%, Digi was able to improve EBITDA margins by 50bps y-y to 45%. This was driven by various opex initiatives and looking ahead, we see scope for possible margin surprise. Digi could start making some progress in executing its network sharing plans with Celcom, while also exploring incremental cost reductions such as traffic, staff etc.
31 Dec (RMmn) Revenue
Jan10
Costs to be closely monitored; margins could surprise
1,186 -1.5%
Key financials & valuations
Dec09
In wireless broadband, Digi has made steady gains in net-adds and revenue, but we expect to see a lot more activity in FY11F. In 2Q10, Digi’s 8% broadband revenue share (within the top three operators) was an improvement from 2Q09, but still below its 25-26% cellular revenue share – potential reason to advance broadband network roll-out and provide relatively more aggressive tariffs, we believe. Given Digi’s under-geared balance sheet and strong 7% FCF yield, we believe the company is well placed to tap available opportunities in cellular and broadband segments.
FY11F net profit (RMmn) Difference from consensus
Our price target is higher than consensus, as we see limited downside risks of higher capex.
The focus for Malaysian telcos is on driving data growth, both on handsets and WBB. Broadband penetration remains low providing solid growth opportunity.
Smartphones remain critical to Digi’s appeal in the postpaid segment and we expect the company’s involvement to expand to more brands and tariff options.
20.9% 22.4%
Nomura vs consensus
Anchor themes
Smartphones and broadband to deliver data growth
Upside/downside Difference from consensus
Source: Nomura
Catalysts
Relatively more opportunities
RM24.82
RM30.00
Price target
Mar10
B Roshan Raj +65 6433 6961 Sachin Gupta, CFA +65 6433 6968 Pankaj Suri (Associate)
Absolute (RM)
1m (3.0)
3m 0.6
Absolute (US$)
(4.8)
(0.1)
13.7
Relative to Index Mark et cap (U S$mn)
(1.2)
(4.0)
(9.0) 6,118
Estimated free float (% )
6m 8.4
32.2
52-week range (RM)
25. 60/21.00
3-mth avg daily turnover (US$mn)
2.82
Stock borrowability
Hard
Major shareholders (% ) TELENO R SA
49.0
EPF
17.2
Sou rce: Comp any, Nom ura estim ates
40
6 December 2010
DiGi.Com
B Roshan Raj
Financial statements Income statement (RMmn) Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY08 4,827 (1,333) 3,494 (1,958) 1,536
FY09 4,919 (1,454) 3,465 (2,071) 1,393
FY10F 5,348 (1,648) 3,700 (2,134) 1,566
FY11F 5,642 (1,758) 3,884 (2,289) 1,595
FY12F 5,897 (1,840) 4,057 (2,444) 1,613
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves
2,172 (636) 1,536 12 1,548 (406) 1,142 1,142 1,142 (1,444) (302)
2,125 (731) 1,393 (27) 1,366 (366) 1,000 1,000 1,000 (1,384) (384)
2,344 (779) 1,566 (30) 1,536 (384) 1,152 1,152 1,152 (1,152) -
2,451 (856) 1,595 (13) 1,581 (395) 1,186 1,186 1,186 (949) 237
2,547 (935) 1,613 4 1,617 (404) 1,213 1,213 1,213 (970) 243
16.7 20.2 16.7 7.6 9.4 10.0 8.9 12.6 72.4 45.0 31.8 23.7 26.2 126.5 18.5 1.4 65.7 40.3
19.3 23.3 19.3 7.2 11.7 12.7 9.3 14.2 70.4 43.2 28.3 20.3 26.8 138.3 14.6 1.0 58.5 32.3
16.8 20.3 16.8 6.0 8.5 12.7 8.3 12.4 69.2 43.8 29.3 21.5 25.0 100.0 13.6 0.9 75.7 36.5
16.3 19.7 16.3 4.9 9.2 11.0 7.7 11.9 68.8 43.4 28.3 21.0 25.0 80.0 13.9 0.9 72.3 37.4
15.9 19.2 15.9 5.0 8.9 9.6 7.3 11.5 68.8 43.2 27.3 20.6 25.0 80.0 13.4 0.8 64.5 38.6
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA
10.3 3.0
1.9 (2.2)
8.7 10.4
5.5 4.5
4.5 3.9
EBIT Normalised EPS Normalised FDEPS
7.6 5.0 5.0
(9.3) (13.5) (13.5)
12.4 15.1 15.1
1.9 3.0 3.0
1.1 2.2 2.2
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
1.49 1.49 1.49 2.47 1.88
1.29 1.29 1.29 1.96 1.78
1.53 1.53 1.53 2.26 1.22
1.56 1.56 1.56 2.57 1.25
1.48 1.48 1.48 1.96 1.48
Expect 9% revenue growth for FY10F
Source: Nomura estimates
Nomura
41
6 December 2010
DiGi.Com
Cashflow (RMmn) Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
B Roshan Raj
FY08 2,172 266 (406) 2,032 (893) 1,139 (10)
FY09 2,125 (89) (381) 1,655 (718) 937 (0)
FY10F 2,344 365 (433) 2,277 (726) 1,551 -
FY11F 2,451 94 (445) 2,100 (782) 1,318 -
FY12F 2,547 69 (453) 2,163 (790) 1,373 -
14 1,143 (1,501) 98 14 (1,389) (246) 577 331 67
15 951 (1,376) 523 (853) 99 331 430 492
19 1,570 (1,152) (1,152) 418 430 849 73
36 1,354 (949) (949) 405 849 1,253 (332)
53 1,426 (970) (970) 456 1,253 1,710 (788)
FY08 331 10 421 17 779 2,870 994 12 4,656 298 1,494 476 2,267 100 392 2,759 78 1,819 1,897 4,656
FY09 430 11 420 13 874 2,896 950 12 4,732 150 1,429 447 2,026 772 413 3,211 78 1,444 1,521 4,732
FY10F 849 11 457 13 1,329 2,913 881 12 5,134 150 1,831 447 2,428 772 413 3,613 78 1,444 1,521 5,134
FY11F 1,253 11 483 13 1,760 2,908 811 12 5,491 150 1,951 447 2,547 772 413 3,733 78 1,681 1,759 5,491
FY12F 1,710 11 505 13 2,238 2,833 742 12 5,825 150 2,042 447 2,639 772 413 3,824 78 1,923 2,001 5,825
Current ratio Interest cover
0.34 na
0.43 51.6
0.55 52.3
0.69 119.2
0.85 na
Leverage Net debt/EBITDA (x)
0.03
0.23
0.03
net cash
net cash
Net debt/equity (%)
3.5
32.3
4.8
net cash
net cash
29.9 2.9 361.0 (328.2)
30.4 2.7 392.6 (359.5)
30.7 2.6 397.0 (363.7)
Source: Nomura estimates
Balance sheet (RMmn) As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities
Balance-sheet gearing remains low
Liquidity (x)
Activity (days) Days receivable Days inventory Days payable Cash cycle
29.3 3.5 367.1 (334.3)
31.2 3.8 366.8 (331.8)
Source: Nomura estimates
Nomura
42
6 December 2010
Evergreen Fibreboard Bhd E V F M K B AS I C M AT E R I AL S | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] [email protected] BUY
Action
Closing price on 1 Dec
We expect EVF’s top-line growth in 2011F to be supported by higher volumes (boosted by the Indonesian plant) and ability to pass on both higher raw material prices and USD weakening (due to its 85% sales exposure to Asia). A stronger balance sheet in 2011 should make catalytic asset acquisitions or dividend increases more feasible. Asia’s third largest MDF producer looks attractive at 5x 2011F P/E. Reiterate BUY.
(s et on 12 Oct 10)
Improving sales and margins, acquisition of land for raw material supply, expansion via acquisitions.
Still appealing at 5x FY2011F P/E The stock looks attractive at 5.2x FY2011F P/E, versus its historical mean 12-month forward consensus P/E of 7.2x. Compared with its closest peer Vanachai (VNG TB) (2011F P/E of 7x with EPS growth of 7%), it looks relatively undervalued.
772 85.0
966 12 3.8
1,05 7 139.2
1,148 149.4
No rma lise d n et profit No rma lise d E PS (RM)
85.0 0.17
12 3.8 0 .24
139.2 0.2 7
149.4 0.29
No rm. EPS growth (% ) No rm. P/E (x)
10.7 8.2
4 5.7 5.6
12.5 5.0
7.3 4.6
7.0 1.0
4.3 0.9
3.2 0.8
2.6 0.7
Divide nd yield (%) RO E ( %)
0.0 12.9
7.4 1 6.7
8.1 17.0
8.7 16.5
Ne t debt/eq uity (% ) Earnings revis ions
42.6
2 7.9
EV/EBITDA (x) Price/b ook (x)
9.5 net cash
Previous n orm. net pr ofit Ch ange fro m previous (%)
12 3.8 -
139.2 -
149.4 -
Previous n orm. EPS (RM)
0 .24
0.2 7
0.29
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price Rel MSCI Malaysia
(RM) 1.8 1.7
130 120
Absolute (RM) Absolute (US $) Re lative to Index
Oct10
Nov1 0
80 70 Sep 10
90
1.3 1.2 Aug1 0
1.4
Ju l10
110 100
Jun10
1.6 1.5
A pr10
We expect net debt/equity to drop 35% to 0.28x by the end of 2010, and for EVF to reach a net cash position by early 2012F. With no major capex required, EVF may use its stronger balance sheet for acquisitions (land or plants) or higher dividends in 2011-2012F.
FY09 FY10F FY11F FY12F
Re venu e Re porte d n et profit
Fe b10
Low net gearing accommodative of positive catalysts
31 Dec (RMmn)
Jan 10
Average wood costs will likely remain supported by rubber prices but are only 25% of total costs. Increasing oil prices will likely cause resin production costs (20% of total costs) to rise, but a stronger ringgit should mitigate this. Management is confident about passing on raw material costs, based on recent feedback from customers. Our shipping team expects overall freight rates to decline in 2011, due to stronger supply growth.
139.2 4.4%
Key financials & valuations
Dec09
We expect cost pressures to remain in check
FY11F net profit (RMmn) Difference from consensus
We are more optimistic than consensus on Evergreen’s sales and margin recovery.
Medium density fibreboard is the fastest-growing primary wood product. We expect demand to improve the most in those regions emerging fastest from the recession.
Although MDF export prices are slowly approaching the peaks seen in 2008, sentiment among buyers is still weak and furniture inventories are relatively low, leaving room for upside. We think EVF’s 85% revenue exposure to Asia will continue to support high utilisation rates (85-90%) and its ability to raise export prices to counter the weakening USD (albeit with a two-three months delay). Full contribution from Indonesia (9%) capacity will likely support sales volume growth.
121.2% 16.6%
Nomura vs consensus
Anchor themes
Asian exposure and Indonesia to support sales growth
Upside/downside Difference from consensus
Source: Nomura
Catalysts
Earnings uptrend intact
RM1.35
RM2.99
Price target
May10
+60 3 2027 6891 +60 3 2027 6893
Mar10
Muzhafar Mukhtar Wai Kee Choong
1m ( 8.8)
3m (14.6)
6m (5.6)
(1 0.5) ( 6.9)
(15.2) (19.1)
(1.0) (23.6)
Market cap (US$mn) Estimated fre e float (% )
219.6 54.2
52-week ra nge (RM) 3-mth avg daily turnover (US $mn) Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Kuo Fa mi ly EPF
45.8 5.2
Source: Company, Nomura estimates
Nomura
1 .76/1.26 0.28
43
6 December 2010
Evergreen Fibreboard Bhd
Muzhafar Mukhtar
Financial statements Income statement (RMmn) Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY08
FY09
FY10F
FY11F
FY12F
731 (533) 198 (127) 71
772 (562) 209 (129) 81
966 (670) 296 (151) 145
1,057 (734) 323 (149) 174
1,148 (799) 350 (159) 190
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
111 (40) (0) 71 (9) 2 0 64 5 69 8 77 77
140 (59) (1) 81 (16) 2 14 81 0 81 4 85 85
206 (60) (0) 145 (10) 3 139 (14) 125 (1) 124 124
236 (61) (0) 174 (7) 4 172 (22) 150 (10) 139 139
253 (63) (0) 190 (2) 4 193 (29) 164 (15) 149 149
Dividends Transfer to reserves
(22) 55
85
(51) 72
(56) 83
(60) 89
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x)
9.0 20.0 9.0 3.1 5.2 1.1 9.7 15.0 27.1 15.2 9.7 10.5 (8.3) 28.2 34.0 6.2
8.2 18.0 8.2 4.8 1.0 7.0 12.0 27.1 18.2 10.5 11.0 (0.3) 2.5 0.3
5.6 12.4 5.6 7.4 4.2 0.9 4.3 6.1 30.6 21.3 15.0 12.8 10.0 41.4 2.1 0.3
5.0 11.0 5.0 8.1 3.1 0.8 3.2 4.3 30.6 22.3 16.5 13.2 13.0 40.5 2.4 0.4
4.6 10.3 4.6 8.7 3.5 0.7 2.6 3.4 30.5 22.1 16.6 13.0 15.0 40.3 2.6 0.5
ROE (%) ROA (pretax %)
13.4 7.5
12.9 7.2
16.7 12.7
17.0 15.4
16.5 16.9
Growth (%) Revenue EBITDA
(0.1) (32.8)
5.6 26.6
25.2 46.5
9.4 14.9
8.6 7.3
EBIT Normalised EPS Normalised FDEPS
(48.1) (35.4) (35.4)
14.3 10.7 10.7
79.4 45.7 45.7
20.2 12.5 12.5
9.0 7.3 7.3
0.15 0.15 0.15 1.19 0.04
0.17 0.17 0.17 1.37 -
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.24 0.24 0.24 1.51 0.10
0.27 0.27 0.27 1.67 0.11
EPS growth to moderate after rebound in 2010F, but still solid
0.29 0.29 0.29 1.85 0.12
Source: Nomura esti ma tes
Nomura
44
6 December 2010
Evergreen Fibreboard Bhd
Muzhafar Mukhtar
Cashflow (RMmn) Year-end 31 Dec
FY08
FY09
FY10F
FY11F
FY12F
EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
111 22 0 133 (248) (116) (161) (2) (9) 22 (265) (22) 234 (12) 200 (65) 142 76 393
140 (8) 11 143 (19) 124 (2) (3) 7 126 (67) (22) (90) 37 76 113 300
206 (27) (14) 164 (20) 144 (3) 8 149 (51) (97) (15) (163) (14) 113 99 217
236 9 (22) 223 (25) 198 (4) 10 204 (56) (89) (12) (158) 46 99 145 82
253 (25) (29) 200 (30) 170 (4) 12 178 (60) (54) (9) (124) 54 145 198 (26)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity
FY08 76 44 137 33 289 903 18 15 21 1,246 255 56 96 407 215 8 630 6 128 373 110 611
FY09 113 57 112 28 310 885 18 15 23 1,251 102 47 81 231 310 5 546 2 128 458 118 704
FY10F 99 69 185 48 400 845 18 14 26 1,303 94 76 128 298 221 5 525 3 128 530 118 776
FY11F 145 69 140 35 389 809 18 14 30 1,260 59 59 98 216 167 5 388 13 128 613 118 859
FY12F 198 81 213 54 547 776 18 14 34 1,390 59 88 149 296 113 5 414 28 128 702 118 948
Total equity & liabilities
1,246
1,251
1,303
1,260
1,390
Current ratio Interest cover
0.71 8.0
1.35 5.0
1.34 14.5
1.80 26.2
1.85 119.4
Leverage Net debt/EBITDA (x) Net debt/equity (%)
3.55 64.4
2.13 42.6
1.05 27.9
0.35 9.5
net cash net cash
Activity (days) Days receivable Days inventory Days payable Cash cycle
24.0 75.0 35.0 64.0
23.8 80.8 33.5 71.1
23.8 80.8 33.5 71.1
23.8 80.8 33.5 71.1
23.9 81.0 33.6 71.3
Source: Nomura esti ma tes
Balance sheet (RMmn)
Low net gearing and high interest cover implies increased ability to gear up and acquire assets
Liquidity (x)
Source: Nomura esti ma tes
Nomura
45
6 December 2010
Gamuda G A M M K I N D U S TR I AL S / E N G I N E E R I N G & C O N S TR U C TI O N | M AL AY S I A
Maintained NOMURA SINGAPORE LIMITED
[email protected] NEUTRAL
Action
Closing price on 1 Dec
Gamuda has risen ~14% over the past five months on excitement around the MRT project and increased liquidity following inclusion in the KLCI 30 Index. While Gamuda remains the best proxy to the Malaysian construction story, its valuation looks expensive to us (it has been trading at ~25x FY11F P/E for over a month now). However, the MRT may be approved, leading to positive news flow, which along with liquidity, may support near-term valuation. Maintain NEUTRAL.
(s et on 29 Sep 10)
Positive catalysts will be news flow regarding the MRT project, and other awards in Malaysia, India and the Middle East. On the downside, a slowdown in property momentum and delay in awards may exert pressure on stock prices.
Maintain NEUTRAL, as risk/reward remains unfavourable Although Gamuda remains the best proxy to the Malaysian construction story, it is trading at 23x CY11F (34% higher than 1x SD) and looks expensive compared to its local and region peers. The key near-term catalyst for the stock would be MRT, new land bank and launch of its Vietnam property project. However, our earnings growth estimate of 30% in FY11F already builds in these bullish assumptions and any slip up could lead to a downward revision, in our view.
Nomura
2,727 193.7
2,455 28 0.7
2,87 9 346.9
4,160 465.8
No rma lise d n et profit No rma lise d E PS (RM)
193.7 0.10
28 0.7 0 .14
346.9 0.1 7
465.8 0.23
No rm. EPS growth (% ) No rm. P/E (x)
(41.2) 37.9
4 4.6 2 6.2
23.6 24.0
34.3 17.9
24.3 2.3
1 9.5 2.3
17.5 2.1
13.1 2.0
1.6 6.2
1.9 8.7
2.4 10.4
2.9 13.1
12.2
1 9.2
37.2
36.2
Previous n orm. net pr ofit Ch ange fro m previous (%)
28 0.7 -
346.9 -
465.8 -
Previous n orm. EPS (RM)
0 .14
0.1 7
0.23
EV/EBITDA (x) Price/b ook (x) Divide nd yield (%) RO E ( %) Ne t debt/eq uity (% ) Earnings revis ions
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price Rel MSCI Malaysia
(RM) 4.4
130 120
3.9
110
3.4
100
Oct10
Nov1 0
Sep 10
Aug1 0
Ju l10
80 Jun10
90
2.4 A pr10
2.9
Mar10
During the double-tracking project as well, Gamuda followed a similar pattern. However, the share price consolidated after the project was awarded. Increasing liquidity helped by inclusion in the KLCI 30 index (FII holdings have not moved much over the past four months) and positive news flow may support near-term valuations, in our view.
FY09 FY10F FY11F FY12F
Re venu e Re porte d n et profit
Fe b10
Last time as well, run-up was followed by consolidation
31 Jul (RMmn)
Jan 10
Gamuda is targeting ~RM14bn (34%) of the ~RM40bn project, with the added responsibility of project supervision. Even including MRT’s share of the pie to Gamuda, the potential addition to market cap should be only RM1.2bn, on our estimates, of which ~RM1bn has been added over the past month’s run-up in stock price. However, the earnings contribution from MRT will start only after a year or so.
346.9 -10.3%
Key financials & valuations
Dec09
Earnings support will come only long term
FY11F net profit (RMmn) Difference from consensus
We believe MRT upside is being priced in at current levels. News flow may remain positive, but the project will have its own implementation risks, in our view.
The government plans to achieve construction sector growth of 5-6% over the next two years, compared with 2-3% sector growth seen over the past few years.
Gamuda is up 30% y-t-d (vs a 16% rise in the KLCI), spurred by excitement over the MRT project. Its inclusion in the Economic Transformation programme and subsequent news flow indicates that the Malaysian government may announce the MRT project next month with the budget. However, in our view, implementing such a massive project would still be a challenge and concerns over funding and foreign competition may evolve over a period of time.
8.0% -8.1%
Nomura vs consensus
Anchor themes
It has been all about MRT, MRT and MRT
Upside/downside Difference from consensus
Source: Nomura
Catalysts
Running too fast for comfort
RM3.64
RM3.93
Price target
May10
Tanuj Shori +65 6433 6981 Raashi Gupta (Associate)
Absolute (RM)
1m ( 4.2)
3m 2.5
6m 24.7
Absolute (US $) Re lative to Index
( 6.0) ( 2.4)
1.7 (2.2)
30.7 8.1
Market cap (US$mn) Estimated fre e float (% )
2,360 76.3
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
Hard
Sto ck borrowabili ty Majo r shareh olders ( %) Employees Pro vid ent Fund Genera si Setia
8.9 7.4
Source: Company, Nomura estimates
46
3 .98/2.58 10.03
6 December 2010
Gamuda
Tanuj Shori
Financial statements Income statement (RMmn) Year-end 31 Jul Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY08
FY09
FY10F
FY11F
FY12F
2,404 (2,106) 298
2,727 (2,570) 157
2,455 (2,220) 235
2,879 (2,533) 346
4,160 (3,657) 503
298
157
235
346
503
316 (12) (7) 298 (0) 173
179 (15) (7) 157 (18) 143
260 (18) (7) 235 (19) 154
372 (19) (7) 346 1 127
530 (20) (8) 503 (12) 142
471 (132) 339 (14) -
282 (78) 204 (10) -
370 (81) 289 (9) -
474 (118) 355 (8) -
632 (158) 474 (9) -
325 325
194 194
281 281
347 347
466 466
(370) (45)
(121) 73
(140) 140
(173) 173
(210) 256
22.8 24.7 22.2 5.1 na 2.4 17.2 17.9 12.4 13.2 12.4 13.5 28.0 113.9 2.4 4.7
37.9 41.0 37.8 1.6 12.0 2.3 24.3 26.0 5.8 6.6 5.8 7.1 27.6 62.3 1.8 3.3
26.2 28.3 26.1 1.9 20.8 2.3 19.5 20.7 9.6 10.6 9.6 11.4 21.8 50.0 2.0 2.8
24.0 25.9 21.1 2.4 na 2.1 17.5 18.4 12.0 12.9 12.0 12.1 25.0 50.0 15.6 24.2
17.9 19.3 15.7 2.9 69.4 2.0 13.1 13.6 12.1 12.7 12.1 11.2 25.0 45.0 1.2 2.6
ROE (%) ROA (pretax %)
10.8 10.5
6.2 6.2
8.7 7.7
10.4 8.4
13.1 10.3
Growth (%) Revenue EBITDA
58.5 95.8
13.5 (43.3)
(10.0) 44.9
17.3 43.1
44.5 42.5
104.4 53.3 72.7
(47.1) (41.2) (39.8)
49.4 44.6 44.9
47.1 23.6 9.1
45.3 34.3 34.3
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x)
EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.16 0.16 0.16 1.52 0.18
0.10 0.10 0.10 1.57 0.06
0.14 0.14 0.14 1.62 0.07
0.17 0.17 0.15 1.70 0.09
Earnings likely to remain strong
0.23 0.23 0.20 1.83 0.10
Source: Nomura esti ma tes
Nomura
47
6 December 2010
Gamuda
Tanuj Shori
Cashflow (RMmn) Year-end 31 Jul
FY08
FY09
FY10F
FY11F
FY12F
EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
316 (600) (38) (321) (57) (378) 5 (211) (31) 171 (444) (378) 89 (248) 845 309 (135) 980 846 973
179 443 (11) 611 (50) 561 (81) 212 (14) (18) 661 (121) 36 (280) 11 (353) 308 846 1,154 385
260 202 (110) 352 (50) 302 (683) 71 1 801 492 (140) (2) 251 (590) (481) 12 1,154 1,166 624
372 (297) (141) (67) (450) (517) (57) 153 (421) (173) (57) (230) (651) 1,166 515 1,275
530 (229) (195) 106 (50) 56 (72) 168 152 (210) (1) (210) (59) 515 456 1,334
As at 31 Jul Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity
FY08 846 20 1,624 110 5 2,605 1 615 82 2,472 5,774 782 786 26 1,594 1,037 46 2,677 46 2,005 915 132 3,052
FY09 1,154 101 1,459 101 24 2,839 1 691 89 2,259 5,878 328 1,084 15 1,427 1,211 33 2,671 47 2,009 988 164 3,161
FY10F 1,166 784 1,608 80 15 3,652 1 626 84 2,188 6,551 511 1,411 8 1,930 1,279 34 3,243 50 2,026 1,086 145 3,258
FY11F 515 784 1,540 99 15 2,953 1 1,112 77 2,245 6,388 511 1,067 7 1,585 1,279 34 2,898 59 2,026 1,260 145 3,431
FY12F 456 784 2,225 144 15 3,624 1 1,142 69 2,317 7,153 511 1,545 30 2,086 1,279 34 3,399 67 2,026 1,516 145 3,687
Total equity & liabilities
5,774
5,878
6,551
6,388
7,153
1.63 939.1
1.99 8.5
1.89 12.3
1.86 na
1.74 41.7
3.08 31.9
2.14 12.2
2.40 19.2
3.43 37.2
2.52 36.2
191.3 21.8 129.1 83.9
206.3 15.0 132.8 88.5
228.0 14.9 205.1 37.7
199.6 12.9 178.5 33.9
165.7 12.2 130.7 47.1
Source: Nomura esti ma tes
Balance sheet (RMmn)
Gearing is at comfortable levels
Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle Source: Nomura esti ma tes
Nomura
48
6 December 2010
Genting Malaysia Bhd G E N M M K G AM I N G , H O T E L S & L E I S U R E | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] BUY
Action
Closing price on 1 Dec
Malaysia’s GGR has been resilient in 2010 despite competition from the two newly opened casinos in Singapore. GENM should comfortably see decent organic growth, with meaningful contributions from the newly acquired UK and US operations seen kicking in from 2H11. Despite its sustainable and growing EBITDA of US$650mn, GENM is at a modest-looking 6x FY11F EV/EBITDA, on our estimates. BUY.
(s et on 25 Nov 10)
Catalysts
4,992 1,324
4,968 1,274
5,21 4 1,35 3
5,449 1,455
No rma lise d n et profit No rma lise d E PS (RM)
1,305 0.23
1,274 0 .22
1,35 3 0.2 4
1,455 0.26
No rm. EPS growth (% ) No rm. P/E (x)
(5.1) 14.6
( 1.5) 1 4.5
6.2 13.6
7.5 12.7
7.1 1.8
6.8 1.7
6.0 1.5
5.1 1.4
1.7 14.3
1.9 1 2.0
2.0 11.7
2.1 11.6
EV/EBITDA (x) Price/b ook (x) Divide nd yield (%) RO E ( %) Ne t debt/eq uity (% ) Earnings revis ions
net cash ne t ca sh net cash net cash
Previous n orm. net pr ofit Ch ange fro m previous (%)
1,274 -
1,35 3 -
1,455 -
Previous n orm. EPS (RM)
0 .22
0.2 4
0.26
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia
Oct10
Absolute (RM)
1m ( 7.7)
3m 7.3
6m 15.0
Absolute (US $) Re lative to Index
( 9.4) ( 5.8)
6.5 2.6
20.6 (2.1)
Market cap (US$mn) Estimated fre e float (% )
6,039 51.7
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
3 .64/2.51 7.99
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Genting
48.3
Source: Company, Nomura estimates
Nomura
Nov1 0
Sep 10
115 110 105 100 95 90 85 80 Aug1 0
Ju l10
Jun10
A pr10
Price Rel MSCI Malaysia
(RM) 3.9 3.7 3.5 3.3 3.1 2.9 2.7 2.5 2.3
May10
As the novelty starts to wear off in Singapore, we think growth in visitor arrivals for GENM will pick up in 2011F. GENM at one stage had lost more customers in the southern region, but we believe the trend has stabilised. Longer term, we think affordability could be an issue for Malaysian punters, since it costs more to gamble in Singapore. Malaysia’s casino is highly correlated to GDP growth, and given the relationship between gaming revenue and GDP, we see continued upside surprises in consensus and our gaming revenue assumptions. Despite having a sustainable, growing EBITDA of US$650mn, GENM is priced at a modest-looking 6x FY11F EV/EBITDA, on our estimates.
FY09 FY10F FY11F FY12F
Re venu e Re porte d n et profit
Fe b10
Favourable outlook
31 Dec (RMmn)
Jan 10
Stripping out the effect of poor luck factor and weaker sterling against the Singapore dollar, business volume in its recently acquired UK casino business showed further improvement in 3Q earnings. We reiterate our view that a price tag of 1.2x the written-down book value of the UK assets is a decent price for GENM to gain access to the UK casino market, with over 30% market share. We see scope for positive surprises to consensus and our assumed EBITDA contribution in 2011F. Similarly, we think its new US slot machines business could spring surprises in EBITDA contribution from 2H11F.
1,353 -1.0%
Key financials & valuations
Dec09
EBITDA expansion in 2011F
FY11F net profit (RMmn) Difference from consensus
We continue to believe GENM’s recent acquisition of the UK business will spring surprises, starting in 2011. EBITDA expansion should lead to street upgrades.
We believe GENM offers investors good exposure to the strong and rising domestic consumption story. Competition for its mass market business is likely to be shortlived. Its domestic operation should continue to generate strong cashflows.
Despite competition from the two newly opened casinos in Singapore, we believe GENM’s core Malaysian gaming business is intact. It chalked up a commendable 2.7% y-y growth in gaming revenue to RM1.2bn in 2Q, bringing 1H to 8.2% y-y growth. Thanks to a better luck factor, its EBITDA margin was unchanged at 39%.
28.0% 13.9%
Nomura vs consensus
Anchor themes
Resilient mass market business
Upside/downside Difference from consensus
Source: Nomura
We see further street upgrades to reflect the turning around of the UK business and to take into account the newly acquired US business.
US$650mn EBITDA priced at 6x
RM3.22
RM4.12
Price target
Mar10
Wai Kee Choong +60 3 2027 6893 Nishit Jalan (Associate)
49
6 December 2010
Genting Malaysia Bhd
Wai Kee Choong
Financial statements Income statement (RMmn) Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY08
FY09
FY10F
FY11F
FY12F
4,887 (2,904) 1,983 (230)
4,992 (3,072) 1,919 (250)
4,968 (3,121) 1,846 (248)
5,214 (3,269) 1,945 (261)
5,449 (3,371) 2,078 (272)
1,753
1,670
1,598
1,684
1,806
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
2,013 (260) 1,753 114 1 1,868 (493) 1,375 0 1,375 (741) 634
1,940 (270) 1,670 78 (1) 1,746 (441) 1,305 0 1,305 18 1,324
1,892 (294) 1,598 101 1,699 (425) 1,274 0 1,274 1,274
2,000 (316) 1,684 119 1,804 (451) 1,353 0 1,353 1,353
2,143 (338) 1,806 134 1,939 (485) 1,454 0 1,455 1,455
Dividends Transfer to reserves
(280) 354
(323) 1,000
(343) 932
(363) 990
(385) 1,070
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x)
13.9 17.8 29.2 1.5 10.8 2.2 7.2 8.3 40.6 41.2 35.9 13.0 26.4 44.2 5.4 1.0
14.6 18.7 14.0 1.7 11.4 1.8 7.1 8.2 38.5 38.9 33.5 26.5 25.3 24.4 2.6 0.5
14.5 18.5 14.4 1.9 12.4 1.7 6.8 8.1 37.2 38.1 32.2 25.7 25.0 26.9 7.2 1.2
13.6 17.5 13.6 2.0 11.8 1.5 6.0 7.1 37.3 38.4 32.3 26.0 25.0 26.8 6.8 1.1
12.7 16.2 12.6 2.1 11.0 1.4 5.1 6.0 38.1 39.3 33.1 26.7 25.0 26.5 6.5 1.1
ROE (%) ROA (pretax %)
7.7 31.4
14.3 30.5
12.0 26.3
11.7 27.6
11.6 29.4
Growth (%) Revenue EBITDA
12.3 15.6
2.2 (3.6)
(0.5) (2.5)
5.0 5.7
4.5 7.1
EBIT Normalised EPS Normalised FDEPS
17.1 24.4 19.1
(4.7) (5.1) (5.1)
(4.3) (1.5) 0.8
5.4 6.2 6.2
7.2 7.5 7.5
0.23 0.23 0.22 1.76 0.06
0.22 0.22 0.22 1.94 0.06
0.24 0.24 0.24 2.11 0.06
0.26 0.26 0.25 2.30 0.07
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.11 0.24 0.23 1.45 0.05
We are projecting a decline in FY10F revenue, as we have projected a loss in mass market share
Source: Nomura esti ma tes
Nomura
50
6 December 2010
Genting Malaysia Bhd
Cashflow (RMmn) Year-end 31 Dec
Wai Kee Choong
FY08
FY09
FY10F
FY11F
FY12F
2,013 121 (416) 1,719 (262) 1,457 1,384 265 (1) 14 (1,188) 1,931 (280) (147) (428) 1,503 3,052 4,555 (4,555)
1,940 51 (369) 1,622 (130) 1,492 (1,039) (215) (310) 55 1,108 1,090 (300) (74) (374) 717 4,555 5,272 (5,272)
1,892 60 (468) 1,485 (357) 1,128 101 1,229 (331) (331) 898 5,272 6,169 (6,169)
2,000 22 (463) 1,559 (357) 1,203 119 1,322 (351) (351) 971 6,169 7,141 (7,141)
2,143 21 (498) 1,667 (357) 1,310 134 1,444 (372) (372) 1,072 7,141 8,212 (8,212)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity
FY08 4,555 5 201 60 4,821 934 3,638 30 9,423 541 238 779 312 1,091 7 590 7,384 351 8,325
FY09 5,272 204 62 5,538 1,977 3,491 340 11,346 635 200 835 367 1,202 7 590 8,408 1,139 10,137
FY10F 6,169 141 62 6,372 1,977 3,553 340 12,242 632 200 832 367 1,199 7 590 9,308 1,139 11,037
FY11F 7,141 147 65 7,352 1,977 3,593 340 13,263 664 200 863 367 1,230 6 590 10,298 1,139 12,027
FY12F 8,212 153 68 8,433 1,977 3,612 340 14,363 693 200 893 367 1,260 6 590 11,368 1,139 13,097
Total equity & liabilities
9,423
11,346
12,242
13,263
14,363
6.19 na
6.63 na
7.66 na
8.52 na
9.44 na
net cash net cash
net cash net cash
net cash net cash
net cash net cash
net cash net cash
EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt Source: Nomura esti ma tes
Balance sheet (RMmn)
After the acquisition of the UK and US casino business, GENM will still have US$500mn cash
Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
12.9 7.5 65.1 (44.7)
14.8 7.3 69.9 (47.8)
12.7 7.2 74.1 (54.2)
10.1 7.1 72.3 (55.2)
10.1 7.2 73.7 (56.4)
Source: Nomura esti ma tes
Nomura
51
6 December 2010
IJM Corp I J M M K I N D U S TR I AL S / E N G I N E E R I N G & C O N S TR U C TI O N | M AL AY S I A
Maintained NOMURA SINGAPORE LIMITED
[email protected] NEUTRAL
Action
Closing price on 1 Dec
Adjusted for one-off gains, IJM’s 2Q earnings of RM88mn were in line with our estimates. 1H FY11 forms 48% of our full-year estimate. The positive results were mostly led by a sharp pick up in plantation earnings (up 171% y-y). Also in the news was a proposed IJM Land-MRCB merger that values IJM Land at 34% above our implied value. We expect the stock to react positively to these developments and maintain it as our preference in the Malaysian construction sector. NEUTRAL.
(s et on 27 Oct 10)
Positive catalysts include news flow regarding the MRT project and other awards in Malaysia, India and the Middle East. On the downside, slowdown in property momentum and delay in awards may exert pressure on stock prices.
IJM remains our preference, given its diversified model As reflected by results, IJM’s diversified model helped it to deliver strong growth. We expect the industrial and plantation divisions to continue doing well in an inflationary scenario. In our view, IJM is the way to take advantage of improving news flow and momentum across construction in Malaysia & India, given its diversified exposure. We remain NEUTRAL, but prefer IJM to its peers.
Nomura
4,014 333
4,562 378
5,31 3 47 8
6,479 648
No rma lise d n et profit No rma lise d E PS (RM)
276 0.29
378 0 .40
47 8 0.5 1
648 0.69
No rm. EPS growth (% ) No rm. P/E (x)
(5.3) 30.8
3 7.3 2 2.5
26.3 17.8
35.7 13.2
EV/EBITDA (x) Price/b ook (x)
13.7 1.5
9.3 1.3
8.0 1.2
6.3 1.1
0.9 6.7
1.5 6.8
1.9 7.7
2.5 9.8
52.7
2 4.4
18.6
17.9
Previous n orm. net pr ofit Ch ange fro m previous (%)
378 -
47 8 -
648 -
Previous n orm. EPS (RM)
0 .40
0.5 1
0.69
Divide nd yield (%) RO E ( %) Ne t debt/eq uity (% ) Earnings revis ions
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price Rel MSCI Malaysia
(RM) 6.1
115 110
5.6
105
5.1
100
Oct10
Nov1 0
Sep 10
Aug1 0
Ju l10
90 Jun10
95
4.1 A pr10
4.6 May10
A key catalyst for the stock would be progress on the proposed IJM Land-MRCB merger; the signed MOU was announced on 23 November. The proposed deal values IJM Land (IJMLD MK, RM3.08, not rated) at a 19% premium to its current price and 34% premium to our implied valuation. (The proposal values IJM Land at RM4bn (RM3.65/share)).
FY10 FY11F FY12F FY13F
Re venu e Re porte d n et profit
Fe b10
IJM Land-MRCB merger; possible upside to valuation
31 Mar (RMmn)
Jan 10
IJM’s upcoming launches in Penang and development in the Sebana Cove and Canal City projects are on track. In construction, it is bidding for most mega jobs and should get a decent share of the MRT project, we believe. This should also boost demand for building materials and help IJM’s industrial division sales. We expect next year’s earnings growth to be supported by stronger CPO prices.
477.8 50.0%
Key financials & valuations
Dec09
Launches on track, queuing for awards and CPO upside
FY12F net profit (RMmn) Difference from consensus
We believe the stock has limited upside given rich valuations. We build in lower IJM Land contribution for FY11, as we believe 1Q was a one-off exceptional quarter for the segment.
The government plans to achieve construction sector growth of 5-6% over the next two years, compared to 2-3% sector growth seen over the past few years.
IJM delivered 2Q earnings of RM88mn (up 32% y-y) and PBT of RM167mn (up 28% y-y), in line with our estimates. The positive results were mainly led by plantation (PBT up 171% y-y), due to higher CPO prices. Construction PBT and margins improved with the clearing of low-margin jobs. Property PBT fell 48% q-q and 10% y-y. The industry segment disappointed due to lower selling prices, while infrastructure was steady at 10% q-q growth.
0.1% -1.0%
Nomura vs consensus
Anchor themes
In-line 2Q results (up 32% y-y), led by plantations
Upside/downside Difference from consensus
Source: Nomura
Catalysts
Focus shifts to IJM Land
RM5.80
RM5.80
Price target
Mar10
Tanuj Shori +65 6433 6981 Raashi Gupta (Associate)
Absolute (RM)
1m 5.5
3m 15.8
6m 22.1
Absolute (US $) Re lative to Index
3.5 7.1
14.9 11.0
28.0 5.4
Market cap (US$mn) Estimated fre e float (% )
2,484 71.1
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
5 .80/4.30 6.79
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Employees Pro vid ent Fund Zela n B hd
19.5 8.6
Source: Company, Nomura estimates
52
6 December 2010
IJM Corp
Tanuj Shori
Financial statements Income statement (RMmn) Year-end 31 Mar Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY09
FY10
FY11F
FY12F
FY13F
4,601 (3,793) 808 (152)
4,014 (3,276) 737 (169)
4,562 (3,586) 976 (177)
5,313 (4,214) 1,099 (185)
6,479 (5,099) 1,380 (193)
656
569
799
914
1,187
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
808 (85) (67) 656 (147) 19 529 (127) 402 (112) 290 290
737 (101) (67) 569 (135) 31 57 521 (155) 366 (91) 276 57 333
976 (110) (67) 799 (127) 22 694 (173) 520 (142) 378 378
1,099 (118) (67) 914 (75) 32 871 (218) 653 (175) 478 478
1,380 (126) (67) 1,187 (65) 68 1,190 (298) 893 (244) 648 648
Dividends Transfer to reserves
(263) 27
(70) 263
(114) 265
(143) 334
(195) 454
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x)
26.5 26.5 18.8 3.5 12.7 1.6 12.8 15.7 17.6 17.6 14.3 6.3 24.0 90.8 3.3 1.8
30.8 30.8 16.4 0.9 12.4 1.5 13.7 17.6 18.4 18.4 14.2 8.3 29.7 21.0 3.7 1.5
22.5 22.5 14.4 1.5 31.2 1.3 9.3 11.3 21.4 21.4 17.5 8.3 25.0 30.0 3.3 1.4
17.8 17.9 11.4 1.9 12.9 1.2 8.0 9.5 20.7 20.7 17.2 9.0 25.0 30.0 2.8 1.3
13.2 13.2 8.4 2.5 na 1.1 6.3 7.2 21.3 21.3 18.3 10.0 25.0 30.0 2.3 1.2
6.2 6.3
6.7 5.4
6.8 7.1
7.7 8.1
9.8 9.9
Growth (%) Revenue EBITDA
(0.8) 20.0
(12.8) (8.8)
13.7 32.4
16.5 12.6
21.9 25.6
EBIT Normalised EPS Normalised FDEPS
21.7 (49.0) (48.6)
(13.3) (5.3) (13.9)
40.5 37.3 36.9
14.4 26.3 26.1
29.8 35.7 35.5
0.31 0.31 0.22 3.62 0.20
0.35 0.29 0.19 3.89 0.05
ROE (%) ROA (pretax %)
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.40 0.40 0.26 4.59 0.09
0.51 0.51 0.33 4.84 0.11
Margin expansion to pick up in FY11-12F
0.69 0.69 0.44 5.18 0.15
Source: Nomura esti ma tes
Nomura
53
6 December 2010
IJM Corp
Tanuj Shori
Cashflow (RMmn) Year-end 31 Mar
FY09
FY10
FY11F
FY12F
FY13F
EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
808 190 (568) 430 (153) 277 (93) (235) (274) 17 287 (22) (263) 219 14 331 301 279 667 946 2,792
737 (285) (11) 441 (150) 291 (268) (184) (70) 236 6 (70) 34 1,158 (853) 270 276 946 1,222 2,703
976 449 (1,250) 175 (150) 25 (133) 848 740 (114) 656 (300) (150) 92 832 1,222 2,054 1,473
1,099 (184) (491) 425 (150) 275 (10) 313 578 (143) (150) (293) 284 2,054 2,338 1,189
1,380 (673) (1,083) (376) (150) (526) (36) 871 309 (195) 150 (150) (195) 115 2,338 2,453 1,224
As at 31 Mar Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity
FY09 946 73 2,082 2,090 121 5,313 836 1,299 83 66 4,313 11,910 1,498 1,977 60 3,534 2,240 520 6,294 846 942 1,714 2,114 4,770
FY10 1,222 108 2,173 2,042 54 5,599 1,069 1,227 75 92 4,497 12,558 959 1,689 37 2,685 2,966 450 6,101 1,328 1,327 1,972 1,830 5,129
FY11F 2,054 108 1,827 2,515 53 6,557 1,069 1,376 75 92 4,630 13,799 861 2,264 37 3,163 2,666 450 6,279 1,470 1,327 2,237 2,486 6,050
FY12F 2,338 108 1,631 2,566 53 6,697 1,069 1,408 75 92 4,640 13,981 861 1,937 37 2,835 2,666 450 5,951 1,645 1,327 2,572 2,486 6,385
FY13F 2,453 108 2,586 3,495 53 8,695 1,069 1,432 75 92 4,676 16,039 861 3,147 37 4,045 2,816 450 7,311 1,889 1,327 3,026 2,486 6,839
Total equity & liabilities
11,910
12,558
13,799
13,981
16,039
Current ratio Interest cover
1.50 4.5
2.09 4.2
2.07 6.3
2.36 12.2
2.15 18.3
Leverage Net debt/EBITDA (x) Net debt/equity (%)
3.45 58.5
3.67 52.7
1.51 24.4
1.08 18.6
0.89 17.9
160.9 197.2 180.4 177.7
193.5 230.2 204.2 219.5
160.0 231.9 201.2 190.7
119.1 220.6 182.4 157.3
118.8 216.9 181.9 153.8
Source: Nomura esti ma tes
Balance sheet (RMmn)
Gearing at a healthy level
Liquidity (x)
Activity (days) Days receivable Days inventory Days payable Cash cycle Source: Nomura esti ma tes
Nomura
54
6 December 2010
IOI Corporation I O I M K C O N S U M E R R E L AT E D / AG R I - R E L AT E D | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] NEUTRAL
Action
Closing price on 1 Dec
We are Bullish on the regional palm oil sector, as we are positive on palm oil prices through 2011. IOI has one of the highest betas for large Malaysian planters, offering good leverage to stronger CPO prices. However, IOI Corp’s growth in CPO production will likely lag the industry, in our view, which may make IOI less attractive relative to peers. Maintain NEUTRAL on fair valuation.
(s et on 19 Oct 10)
Catalysts
30 Jun (RMmn)
FY10 FY11F FY12F FY13F
Re venu e Re porte d n et profit
12,543 2,036
13,563 2,073
1 4,16 5 2,37 3
14,327 2,603
No rma lise d n et profit No rma lise d E PS (RM)
1,640 0.26
2,073 0 .32
2,37 3 0.3 7
2,603 0.40
No rm. EPS growth (% ) No rm. P/E (x)
9.5 22.8
2 6.4 1 8.0
14.5 15.7
9.7 14.3
EV/EBITDA (x) Price/b ook (x)
13.4 3.5
1 2.6 3.2
11.1 2.9
10.1 2.7
Divide nd yield (%) RO E ( %)
2.1 21.3
2.0 1 8.4
2.5 19.2
2.8 19.3
8.1
6.6
4.4
1.8
Previous n orm. net pr ofit Ch ange fro m previous (%)
2,073 -
2,37 3 -
2,603 -
Previous n orm. EPS (RM)
0 .32
0.3 7
0.40
Ne t debt/eq uity (% ) Earnings revis ions
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia
Nomura
105 100 95 90 85 Oct10
Nov1 0
Sep 10
Aug1 0
Ju l10
Jun10
A pr10
80 Fe b10
Downstream division could see weaker margins We note that earnings at IOI’s resource-based manufacturing division could come under pressure, especially with current high feedstock prices. The division’s operating margin was weak in the most recently reported quarter due lower refining margins and weak end-product prices (e.g., glycerine) at its Oleochemicals division. This may be further exacerbated if Asian currencies continue the same strength seen in 2010 (Nomura has a bullish view on Asian currencies in 2011) given that a considerable amount of sales for the downstream division is done in Europe (i.e., euro-denominated).
Price Rel MSCI Malaysia
(RM) 6.1 5.9 5.7 5.5 5.3 5.1 4.9 4.7 4.5 Jan 10
IOI’s mature hectarage growth looks increasingly capped, and we expect it to post a CAGR of only 3.2% over FY10-13F (ex Indonesia). IOI’s FFB yields have generally been one of the strongest in the industry, and would likely have very little room for upside through operational improvements. These would translate to a low CPO volume growth, with a large part (~78%) of the trees already of prime yielding age, leaving less ability for the company to offset any unexpected CPO price decline. Earnings will be buffered by the property business, which is gradually becoming a large part of overall earnings mix, comprising 23% of FY10F earnings vs 12% in FY09.
2,373 4.6%
Key financials & valuations
Dec09
Limited growth in CPO production; property to support
FY12F net profit (RMmn) Difference from consensus
We are more bullish on our FY1112F forecasts for CPO prices, which translates to higher earnings forecasts for plantation companies under our coverage.
Tighter global vegetable oils outlook, stronger crude oil prices and a weaker US$ lead us to expect higher CPO prices for next year – a key driver for upstream earnings and valuations.
Although we expect CPO prices to remain strong through 2011 (we assume CPO prices of RM2,625/mT in 2010F and RM3,000/mT in 2011F), we are NEUTRAL on the stock given limited growth potential from its plantations division in the near term, coupled with an uncompelling valuation. Our price target of RM6.20 represents potential upside of 7% from current levels at relatively fair valuations of 17x rolling 1-yr forward earnings.
6.7% 11.1%
Nomura vs consensus
Anchor themes
No longer the market favourite; maintain NEUTRAL.
Upside/downside Difference from consensus
Source: Nomura
Sustained high CPO prices, a pick-up in FFB yields and overall improving outlook for commodities could sustain a further re-rating of the sector.
Lagging in production growth
RM5.81
RM6.20
Price target
May10
+60 3 2027 6895
Mar10
Ken Arieff Wong
Absolute (RM)
1m ( 0.7)
3m 9.6
6m 17.4
Absolute (US $) Re lative to Index
( 2.5) 1.1
8.8 4.9
23.1 0.4
Market cap (US$mn) Estimated fre e float (% )
12,329 47.5
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
5 .97/4.69 14.35
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Ta n S ri Dato' Le e S hin Ch eng Employees Pro vid ent Fund
39.8 12.7
Source: Company, Nomura estimates
55
6 December 2010
IOI Corporation
Ken Arieff Wong
Financial statements Income statement (RMmn) Year-end 30 Jun Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY09
FY10
FY11F
FY12F
FY13F
14,600 (12,631) 1,969
12,543 (9,907) 2,636
13,563 (10,839) 2,723
14,165 (11,101) 3,064
14,327 (11,008) 3,319
1,969
2,636
2,723
3,064
3,319
2,200 (231)
2,868 (232)
2,974 (250)
3,331 (267)
3,603 (283)
1,969 (171) (248)
2,636 (174) 88
2,723 (96) 175
3,064 (82) 224
3,319 (62) 256
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
1,550 (487) 1,063 (80) 462
2,551 (486) 2,065 (29) (396)
2,803 (701) 2,102 (29)
3,206 (801) 2,404 (31)
3,514 (878) 2,635 (32)
1,446 (462) 984
1,640 396 2,036
2,073
2,373
2,603
2,073
2,373
2,603
Dividends Transfer to reserves
(346) 638
(785) 1,251
(746) 1,327
(940) 1,433
(1,031) 1,572
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x)
24.9 26.6 36.7 1.0 12.6 4.3 21.5 24.4 13.5 15.1 13.5 6.7 31.4 35.2 2.9 1.8
22.8 24.3 18.3 2.1 19.4 3.5 13.4 14.6 21.0 22.9 21.0 16.2 19.0 38.5 3.4 1.8
18.0 19.2 18.0 2.0 15.4 3.2 12.6 13.7 20.1 21.9 20.1 15.3 25.0 36.0 3.7 2.0
15.7 16.8 15.7 2.5 12.6 2.9 11.1 12.0 21.6 23.5 21.6 16.8 25.0 39.6 3.5 1.9
14.3 15.3 14.3 2.8 11.8 2.7 10.1 10.9 23.2 25.1 23.2 18.2 25.0 39.6 3.5 1.8
ROE (%) ROA (pretax %)
11.8 12.3
21.3 20.2
18.4 20.6
19.2 21.5
19.3 21.9
Growth (%) Revenue EBITDA
(0.4) (35.2)
(14.1) 30.4
8.1 3.7
4.4 12.0
1.1 8.2
EBIT Normalised EPS Normalised FDEPS
(37.9) (36.5) (36.5)
33.9 9.5 9.5
3.3 26.4 26.4
12.5 14.5 14.5
8.3 9.7 9.7
0.16 0.23 0.23 1.35 0.06
0.32 0.26 0.26 1.68 0.12
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.32 0.32 0.32 1.84 0.12
0.37 0.37 0.37 2.00 0.15
Strong CPO prices to support earnings growth
0.40 0.40 0.40 2.19 0.16
Source: Nomura esti ma tes
Nomura
56
6 December 2010
IOI Corporation
Cashflow (RMmn) Year-end 30 Jun
Ken Arieff Wong
FY09
FY10
FY11F
FY12F
FY13F
2,200 817 (164) 2,852 (422) 2,430 (178) (196) 5 (51) (18) 1,991 (1,002) (611) (401)
2,868 210 (1,153) 1,926 (427) 1,498 (164) (88) 24 (84) (16) 1,171 (589) (11) (797)
2,974 49 (593) 2,430 (500) 1,930 (564) (79) (71) (16) 1,200 (1,037) 471
3,331 98 (453) 2,975 (500) 2,475 (765) (102) 15 (16) 1,607 (1,305) (82)
3,603 39 (477) 3,164 (500) 2,664 (749) (102) 44 (16) 1,841 (1,432) (628)
(409) (2,423) (432) 2,896 2,464 3,090
1,644 247 1,418 2,464 3,882 876
(50) (616) 584 3,882 4,466 774
(50) (1,437) 170 4,454 4,623 564
(49) (2,108) (268) 4,582 4,315 247
FY09 2,464
FY10 3,882
FY11F 4,454
FY12F 4,582
FY13F 4,271
1,431 1,647 465 6,007 3,101 6,309 514
1,346 1,575 357 7,160 3,265 6,378 514
1,455 1,703 450 8,062 3,829 6,755 504
1,520 1,779 450 8,331 4,594 6,988 493
1,537 1,799 450 8,058 5,344 7,205 484
51 15,982 199 958 120 1,277 5,355
27 17,343 409 941 83 1,433 4,348
27 19,176 450 1,017 386 1,853 4,778
27 20,434 495 1,063 579 2,136 4,651
27 21,117 544 1,075 643 2,262 3,974
577 7,210 426
493 6,274 289
422 7,053 307
437 7,224 325
481 6,716 345
625 6,858
668 8,415
668 9,452
668 10,520
668 11,691
864 8,346
1,697 10,780
1,697 11,817
1,697 12,885
1,697 14,056
15,982
17,343
19,176
20,434
21,117
Current ratio Interest cover
4.70 11.5
5.00 15.2
4.35 28.5
3.90 37.5
3.56 53.9
Leverage Net debt/EBITDA (x) Net debt/equity (%)
1.40 37.0
0.31 8.1
0.26 6.6
0.17 4.4
0.07 1.8
Activity (days) Days receivable Days inventory Days payable Cash cycle
39.7 59.2 30.6 68.2
40.4 59.4 35.0 64.8
37.7 55.2 33.0 59.9
38.4 57.4 34.3 61.6
38.9 59.3 35.4 62.8
EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt Source: Nomura esti ma tes
Balance sheet (RMmn) As at 30 Jun Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x)
M&A opportunities with a build-up of its war chest (strong balance sheet)
Source: Nomura esti ma tes
Nomura
57
6 December 2010
Kossan Rubber Industries K R I M K H E AL T H C AR E & P H AR M AC E U TI C AL S | M AL AY S I A
Maintaining NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] BUY
Action
Closing price on 1 Dec
Among the three glove makers, Kossan showed the lowest sequential earnings contraction of c9% (3Q10), largely due to its historical strategy of more measured capacity expansion and locking in as much demand from the beginning of the year. Management believes its value-driven strategy (vs a capacity-driven one) is likely to stand it in good stead, especially in the face of cost headwinds. BUY.
(set on 12 Mar 10)
Catalysts
BUY at a price target of RM4.76 Currently at 7x FY11F P/E, Kossan is also trading below its historical mean of 9.9x. We base our price target to an FY11F P/E of 10x, which is pegged at a historical 30% discount to Top Glove’s FY11F P/E of 14.5x.
FY09 FY10F FY11F FY12F
Re venu e Re porte d n et profit
837 66.8
1,020 11 3.1
1,20 6 151.6
1,268 154.9
No rma lise d n et profit No rma lise d E PS (RM)
119.8 0.37
11 3.1 0 .35
151.6 0.4 7
154.9 0.48
No rm. EPS growth (% ) No rm. P/E (x)
42.2 8.6
( 5.5) 9.2
34.0 6.8
2.2 6.7
6.5 2.9
6.0 2.3
4.3 1.8
3.6 1.5
Divide nd yield (%) RO E ( %)
1.3 20.4
2.2 2 7.8
3.0 29.0
3.1 23.8
Ne t debt/eq uity (% ) Earnings revis ions
45.1
2 0.4 net cash net cash
EV/EBITDA (x) Price/b ook (x)
Previous n orm. net pr ofit Ch ange fro m previous (%)
11 3.1 -
151.6 -
154.9 -
Previous n orm. EPS (RM)
0 .71
0.9 5
0.97
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price R el MSC I Malaysia
4.7
170 160 150 140 130 120 110 100 90
4.2 3.7 3.2 2.7 Oct10
Absolute (RM)
1m 3.2
3m (3.9)
6m (10.0)
Absolute (US $) Re lative to Index
1.3 4.9
(4.6) (8.5)
(5.6) (28.3)
Market cap (US$mn) Estimated fre e float (% )
328.5 44.0
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
4 .25/2.46 0.81
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Kossa n Holdi ngs Sd n B hd
51.8
Source: Company, Nomura estimates
Nomura
Nov1 0
Sep 10
Aug1 0
Ju l10
Jun10
A pr10
2.2 Fe b10
Management’s value-driven strategy, instead of a capacity-driven one, has also contributed to margin resilience, we believe (as it refines its customer base towards what it deems as the more value-sensitive than price-sensitive customers). Continuous refining of its existing products (improving on its CheMax 7th Sense range, for example) combined with higher output and selling more high-margin nitrile gloves is expected to differentiate its business from its competitors. The margin lift of 10% experienced when it first launched CheMax 7th Sense has reaffirmed management’s value-driven focus.
31 Dec (RMmn)
Jan 10
business
151.6 12.9%
Key financials & valuations
Dec09
On track with its plans to grow its high-margin nitrile
FY11F net profit (RMmn) Difference from consensus
Our FY11F earnings forecast is above consensus, as we expect Kossan’s value-driven strategy to continue to bear fruit despite current persisting cost headwinds.
While easy wins are over, we believe value remains as structural demand growth is still evident. Since initiation, the largest glovemakers in the world are our top picks for more resilient margins, diversified revenue base and efficient cost structures.
Smaller sequential earnings swings during periods of escalating latex prices and RM appreciation have demonstrated Kossan’s relative margin resilience among the three glovemakers we cover. Its technical rubber products arm (although small at 5-10% of revenue) also likely has helped to sustain margins (as the company occupies a niche segment in this country). Visibility is c. two months while it is running at full capacity. Similar to other glovemakers, it also reports double-digit growth (12%) in y-y volumes sold – evident of the structural growth of the industry, which we believe has largely been overshadowed by the cost headwinds at the moment.
46.9% 7.0%
Nomura vs consensus
Anchor themes
Most resilient margins amongst glovemakers
Upside/downside Difference from consensus
Source: Nomura
Better-than-expected demand for its new special purpose glove that captures market share from the higher-end surgical segments.
Hey, steady Eddy
RM3.24
RM4.76
Price target
May10
+ 60 3 2027 6889
Mar10
Jacinda Loh
58
6 December 2010
Kossan Rubber Industries Berhad
Jacinda Loh
Financial statements Income statement (RMmn) Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY08
FY09
FY10F
FY11F
FY12F
897 (629) 268 (160) 108
837 (526) 311 (162) 150
1,020 (701) 319 (169) 149
1,206 (829) 376 (178) 198
1,268 (868) 400 (198) 202
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
133 (26) 108 (9) 99 (14) 85 (1) 84 84
184 (34) 150 (9) 140 (20) 120 (0) 120 (53) 67
187 (37) 149 (10) 140 (26) 113 (0) 113 113
238 (40) 198 (11) 187 (35) 152 (0) 152 152
242 (40) 202 (11) 191 (36) 155 (0) 155 155
Dividends Transfer to reserves
(8) 76
(14) 53
(23) 90
(31) 121
(32) 123
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x)
12.3 18.1 12.3 0.8 18.0 3.5 9.2 11.4 29.9 14.9 12.0 9.4 13.9 9.7 7.4 2.6
8.6 12.7 15.5 1.3 19.8 2.9 6.5 8.0 37.2 21.9 17.9 8.0 14.3 20.6 3.8 0.9
9.2 13.5 9.2 2.2 9.6 2.3 6.0 7.6 31.2 18.3 14.6 11.1 18.8 20.4 3.9 1.1
6.8 10.0 6.8 3.0 7.1 1.8 4.3 5.2 31.2 19.7 16.5 12.6 18.8 20.4 3.3 1.0
6.7 9.8 6.7 3.1 6.7 1.5 3.6 4.3 31.5 19.1 16.0 12.2 18.8 20.4 -
ROE (%) ROA (pretax %)
30.6 18.8
20.4 22.9
27.8 22.2
29.0 28.1
23.8 28.1
Growth (%) Revenue EBITDA
27.7 17.8
(6.7) 37.6
21.9 1.7
18.2 27.5
5.2 1.7
EBIT Normalised EPS Normalised FDEPS
19.2 8.2 8.2
38.6 42.2 42.2
(0.1) (5.5) (5.5)
32.8 34.0 34.0
2.0 2.2 2.2
0.21 0.37 0.37 1.12 0.04
0.35 0.35 0.35 1.43 0.07
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.26 0.26 0.26 0.93 0.03
0.47 0.47 0.47 1.84 0.10
Forex losses from a structured hedge
0.48 0.48 0.48 2.23 0.10
Source: Nomura esti ma tes
Nomura
59
6 December 2010
Kossan Rubber Industries Berhad
Cashflow (RMmn) Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
Jacinda Loh
FY08
FY09
FY10F
FY11F
FY12F
133 (6) (70) 58 (66) (9) 0 0 6 (6) (8) (11) 2 6 (3) (11) 27 16 190
184 (45) (86) 52 (32) 20 12 (12) 20 (8) (9) 4 (13) 7 16 22 161
187 3 (82) 108 (40) 68 68 (14) 7 14 7 75 23 97 94
238 (23) (69) 146 (40) 106 106 (23) 20 23 20 126 97 223 (12)
242 (11) (78) 154 154 154 (31) 31 154 223 377 (166)
FY08 16 161 112 1 290 361 1 2 0 654 151 136 1 289 54 11 354 1 80 218 1 299
FY09 23 195 110 328 359 1 1 0 690 138 117 7 262 46 23 331 1 80 276 1 357
FY10F 97 168 116 381 396 1 0 778 131 98 7 237 60 23 319 1 80 376 1 458
FY11F 223 198 136 558 396 1 0 955 131 126 7 264 80 23 367 1 80 506 1 587
FY12F 377 209 141 727 357 1 0 1,085 131 131 7 269 80 23 372 1 80 631 1 712
654
690
778
955
1,085
Source: Nomura esti ma tes
Balance sheet (RMmn) As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover
1.00 11.5
1.25 16.3
1.61 15.5
2.11 17.9
2.70 18.2
Leverage Net debt/EBITDA (x) Net debt/equity (%)
1.42 63.5
0.88 45.1
0.50 20.4
net cash net cash
net cash net cash
Activity (days) Days receivable Days inventory Days payable Cash cycle
60.8 57.8 66.6 52.1
77.7 77.2 87.9 67.0
64.9 58.9 56.0 67.9
55.4 55.5 49.3 61.6
58.7 58.5 54.0 63.2
Source: Nomura esti ma tes
Nomura
60
6 December 2010
Kuala Lumpur Kepong K L K M K C O N S U M E R R E L AT E D / AG R I - R E L AT E D | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] NEUTRAL
Action
Closing price on 1 Dec
We believe KLK has the best growth potential within the Malaysian plantation largecaps and good leverage to the current CPO price strength. We also note solid downstream earnings and an improving outlook at its retail division. However, we believe that KLK’s recent run-up may have priced in our better outlook assumption for the sector. Maintain NEUTRAL on fair valuation.
(s et on 19 Oct 10)
Catalysts
6,584 994
7,57 7 1,28 7
8,293 1,438
613 0.57
994 0 .93
1,28 7 1.2 0
1,438 1.35
(41.1) 35.8
6 2.1 2 2.1
29.5 17.1
11.7 15.3
EV/EBITDA (x) Price/b ook (x)
19.5 3.9
1 3.5 3.6
10.9 3.4
9.7 3.1
Divide nd yield (%) RO E ( %)
1.9 11.0
2.7 1 7.0
3.5 20.5
3.9 21.0
8.1
7.8
8.1
6.4
Previous n orm. net pr ofit Ch ange fro m previous (%)
994 -
1,28 7 -
1,438 -
Previous n orm. EPS (RM)
0 .93
1.2 0
1.35
No rma lise d n et profit No rma lise d E PS (RM) No rm. EPS growth (% ) No rm. P/E (x)
Ne t debt/eq uity (% ) Earnings revis ions
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price Rel MSCI Malaysia
(RM) 21 20
115 110
19 18
105 100
17
95
16 15 Oct10
Absolute (RM)
1m 3.9
3m 21.1
6m 29.3
Absolute (US $) Re lative to Index
2.0 5.6
20.1 16.2
35.6 13.0
Market cap (US$mn) Estimated fre e float (% )
6,959 53.6
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
20.62/15.56 5.32
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Batu K awa n Employees Pro vid ent Fund
46.5 15.8
Source: Company, Nomura estimates
Nomura
Nov10
S ep10
Aug1 0
Jul1 0
90 Jun10
KLK’s downstream division has shown a 19% y-y growth in revenues and earnings of RM112mn in 9M10, from a loss a year ago, due to the improving performance of its oleochemical business boosting margins. The retail division (Crabtree & Evelyn) is also likely to end the year in the black, versus a loss last year, likely due to the closure of its unprofitable stores (mostly in the US, post restructuring). However, we are still cautious on the retail division, and would look for two-three sequential quarters of steady earnings, before building in significant upside to these numbers, given margin improvement headwinds.
6,658 613
May10
Manufacturing and retail division performance improves
FY09 FY10F FY11F FY12F
Re venu e Re porte d n et profit
Fe b10
We expect strong CPO production growth of 7.6-7.3% pa over FY1112F, given our expectations of 10,000ha maturing each year and contributing meaningfully to volumes, and a relatively younger tree age profile ramping up yields, as they reach peak production age. We also see FFB yields steadily improving to 23mT/ha over FY11-12F, after a temporary blip in FY10F, due to weather-related disruptions.
30 Sep (RMmn)
Jan10
area
1,287 10.9%
Key financials & valuations
Dec0 9
Expect high CPO production growth on newly maturing
FY11F net profit (RMmn) Difference from consensus
We are more bullish on our CPO price outlook, which has led to our higher-than-consensus earnings forecasts for the company.
Tighter global vegetable oils outlook, stronger crude oil prices and a weaker US$ lead us to expect higher CPO prices for next year – a key driver for upstream earnings and valuations.
Following our marketing, it is clear that KLK is the market darling, with most investors very positive. On our Bullish sector outlook, it is hard to fault the fastest growing large-cap planters in Malaysia, but we think valuations are fairly priced after the recent run-up. We value KLK at 18x FY11F EPS, which is already slightly above +1SD its five-year historical average, but justified in our view, given KLK’s strong mature hectarage growth amongst the Malaysian planters. Mature area should grow at >6% pa through to FY12F. Our PT of RM21.70 implies upside of 6%; and we are NEUTRAL on fair valuation of 17x FY11F EPS.
5.5% 18.7%
Nomura vs consensus
Anchor themes
We like KLK but think current valuations are fair
Upside/downside Difference from consensus
Source: Nomura
Sustained high CPO prices, a pick-up in FFB yields and an overall improving outlook for commodities could sustain a further re-rating of the sector.
Market favourite but priced-in
RM20.56
RM21.70
Price target
Apr10
+60 3 2027 6895
Mar10
Ken Arieff Wong
61
6 December 2010
Kuala Lumpur Kepong
Ken Arieff Wong
Financial statements Income statement (RMmn) Year-end 30 Sep Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
FY08
FY09
FY10F
FY11F
FY12F
7,855 (6,191) 1,664 (197)
6,658 (5,546) 1,113 (191)
6,584 (4,973) 1,611 (211)
7,577 (5,545) 2,032 (231)
8,293 (6,034) 2,259 (251)
1,467
922
1,400
1,801
2,007
1,664 (197)
1,113 (191)
1,611 (211)
2,032 (231)
2,259 (251)
1,467 (64) 42
922 (69) 35
1,400 (77) 44
1,801 (82) 40
2,007 (87) 40
1,445 (356) 1,090 (49)
887 (245) 643 (30)
1,367 (342) 1,025 (31)
1,759 (440) 1,319 (32)
1,961 (490) 1,470 (33)
1,041
994 994
1,287 1,287
1,438 1,438
1,041
613 613
Dividends Transfer to reserves
(586) 454
(427) 185
(596) 398
(772) 515
(863) 575
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x)
21.1 22.3 21.1 2.7 48.2 4.0 13.2 14.9 21.2 21.2 18.7 13.2 24.6 56.3 6.6 2.7
35.8 37.8 35.8 1.9 18.8 3.9 19.5 23.4 16.7 16.7 13.8 9.2 27.6 69.7 6.7 2.3
22.1 23.3 22.1 2.7 17.7 3.6 13.5 15.5 24.5 24.5 21.3 15.1 25.0 60.0 6.4 2.0
17.1 18.0 17.1 3.5 16.8 3.4 10.9 12.2 26.8 26.8 23.8 17.0 25.0 60.0 5.5 1.8
15.3 16.1 15.3 3.9 14.4 3.1 9.7 10.9 27.2 27.2 24.2 17.3 25.0 60.0 5.1 1.7
ROE (%) ROA (pretax %)
19.9 21.8
11.0 13.0
17.0 19.2
20.5 22.9
21.0 23.5
Growth (%) Revenue EBITDA
55.0 60.6
(15.2) (33.1)
(1.1) 44.8
15.1 26.1
9.4 11.2
EBIT Normalised EPS Normalised FDEPS
64.8 49.9 49.9
(37.2) (41.1) (41.1)
51.9 62.1 62.1
28.7 29.5 29.5
11.5 11.7 11.7
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.97 0.97 0.97 5.18 0.55
0.57 0.57 0.57 5.28 0.40
0.93 0.93 0.93 5.64 0.56
1.20 1.20 1.20 6.13 0.72
EPS growth strong on higher CPO prices and better production
1.35 1.35 1.35 6.67 0.81
Source: Nomura esti ma tes
Nomura
62
6 December 2010
Kuala Lumpur Kepong
Cashflow (RMmn) Year-end 30 Sep
Ken Arieff Wong
FY08
FY09
FY10F
FY11F
FY12F
1,664 (182) (1,025) 456 (521) (65) (137) 282 107 19 79 286 (457) 4 719
1,113 133 (80) 1,166 (448) 718 92 (161) (10) 48 61 748 (591) 15 (30)
1,611 70 (442) 1,239 (419) 820 21 (169) (43) (44) (2) 584 (596) 93
2,032 (184) (536) 1,312 (419) 893 (61) (165) 1 42 710 (772) 105
2,259 (133) (595) 1,531 (419) 1,112 (49) (165) (1) 1 42 940 (863) 118
113 379 664 496 1,160 620
(9) (615) 133 1,160 1,292 458
(503) 81 1,292 1,374 470
(667) 42 1,374 1,416 533
(744) 195 1,416 1,611 455
FY08 1,160
FY09 1,292
FY10F 1,374
FY11F 1,416
FY12F 1,611
902 1,220 34 3,316 748 3,799
929 882 85 3,189 656 4,064
919 872 30 3,195 634 4,526
1,057 1,004 30 3,507 695 4,909
1,157 1,099 31 3,898 745 5,273
300 348 8,510 859 657 86 1,602 921
338 357 8,604 627 574 43 1,244 1,123
321 400 9,077 609 567 43 1,219 1,235
305 400 9,817 590 653 44 1,287 1,358
290 401 10,608 573 714 45 1,332 1,494
247 2,770 203
295 2,662 309
251 2,705 340
252 2,898 372
253 3,080 405
1,068
1,068
1,068
1,069
1,070
4,470 5,537
4,567 5,634
4,964 6,032
5,479 6,547
6,054 7,123
8,510
8,604
9,077
9,817
10,608
Current ratio Interest cover
2.07 22.9
2.56 13.4
2.62 18.1
2.72 22.0
2.93 23.1
Leverage Net debt/EBITDA (x) Net debt/equity (%)
0.37 11.2
0.41 8.1
0.29 7.8
0.26 8.1
0.20 6.4
Activity (days) Days receivable Days inventory Days payable Cash cycle
40.5 65.1 36.1 69.5
50.2 69.2 40.5 78.9
51.2 64.4 41.9 73.7
47.6 61.7 40.2 69.2
48.9 63.8 41.5 71.2
EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt Source: Nomura esti ma tes
Balance sheet (RMmn) As at 30 Sep Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x)
Strong balance sheet will allow the group to capitalise on M&A opportunities as they arise, in our view
Source: Nomura esti ma tes
Nomura
63
6 December 2010
Malayan Banking M A Y M K F I N AN C I AL S / B AN K S | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] BUY
Action
Closing price on 1 Dec
We like Maybank’s visible consumer franchise in Malaysia; it is well positioned to ride the consumer spending boom. The dividend policy is likely to stay high as there is now greater clarity on Basel III coupled with the dividend reinvestment programme. BUY reaffirmed.
(set on 30 Sep 10)
Catalysts
Post implementation of stricter accounting standards for NPL recognition, there was a 7bps increase in impaired loans ratio to 4.7%. This was largely attributed to asset quality weakness at BII where NPL ratio rose to 3.5% from 2.9%. While worse than expected, we believe it is near the inflexion point because: 1) corporate NPL in the transport sector is not likely to repeat – these are legacy corporate accounts granted prior to Maybank’s entry; 2) SME/commercial loan growth has been reined in to exercise greater control over underwriting quality and 3) seasonal downturn in collections from auto loans given the Lebaran (Eid Al-Fitr) holidays.
Nomura
FY10 FY11F FY12F FY13F
PPOP Re porte d n et profit
6,460 3,818
7,086 4,416
8,01 5 5,01 4
8,825 5,571
No rma lise d n et profit No rma lise d E PS (RM)
3,818 0.54
4,416 0 .62
5,01 4 0.7 1
5,571 0.79
No rm. EPS growth (% ) No rm. P/E (x)
43.5 15.6
1 5.7 1 3.5
13.5 11.9
11.1 10.7
Price/a dj. book (x) Price/b ook (x)
2.14 2.14
2 .02 2 .02
1.8 8 1.8 8
1.75 1.75
Divide nd yield (%) RO E ( %)
4.9 14.5
4.4 1 5.4
5.0 16.4
5.6 16.9
RO A ( %) Earnings revis ions
1.18
1 .25
1.3 0
1.36
Previous n orm. net pr ofit Ch ange fro m previous (%)
4,416 -
5,01 4 -
5,571 -
Previous n orm. EPS (RM)
0 .62
0.7 1
0.79
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price
(RM) 10 9 9 8 8 7 7 6
115
Rel MSCI Malaysia
110 105 100 95 No v10
O ct10
Sep10
A ug10
Jul10
Jun1 0
A pr10
90 Feb 10
Asset quality: approaching the bottom for FY11F
30 Jun (RMmn)
Jan10
In FY10, Maybank’s NIMs received a 5bps boost from the three Overnight Policy Rate hikes totalling 75bps. For FY11F, we forecast margins will remain flat. Our economics team expects Bank Negara to resume rate hikes next year. This should be positive for Maybank given its high proportion of CASA deposits (37% of total deposits) which do not reprice when interest rates rise. However, given ongoing competition in the domestic consumer, Singapore and Indonesia we conclude that margins will remain relatively flat.
5,014 5.7%
Key financials & valuations
Dec09
Net interest margin likely to remain stable
FY12F net profit (RMmn) Difference from consensus
Consensus is mixed on Maybank’s ability to sustain double-digit profit gains from here.
Malaysia’s strong population growth rate is feeding into the consumption boom. The young population base and surge in the middle class are creating a large bankable population. Household debt has risen but household financial assets are currently 2.5x debt levels, suggesting leverage levels are still comfortable.
We view the 1Q FY11 anaemic loan growth of 1% q-q – attributed to lumpy corporate repayments – as unrepresentative of the full-year loan growth trend. Loan growth in other segments has been strong: 14% y-y growth in domestic consumer segment, 39% y-y growth in Indonesia and a decent 7% y-y growth in Singapore. Excluding the domestic commercial/corporate, loan growth was 11% y-y and within striking distance of our full-year loan growth estimate of 12%. Management guidance is that there was some pick-up in loan drawdown momentum in October, which could continue into 2011.
26.8% 5.9%
Nomura vs consensus
Anchor themes
Loan growth expected to accelerate next year
Upside/downside Difference from consensus
Source: Nomura
Gains in consumer market share in mortgages, auto loans and credit cards will boost overall loan growth
Banker to the masses
RM8.44
RM10.70
Price target
May10
+60 3 2027 6892
Mar10
Julian Chua
Absolute (RM)
1m ( 6.2)
3m (0.6)
6m 14.4
Absolute (US $) Re lative to Index
( 8.0) ( 4.4)
(1.4) (5.3)
19.9 (2.7)
Market cap (US$mn) Estimated fre e float (% )
18,940 35.0
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
9 .29/6.71 25.38
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Skim A ma nah Saham Bumip utera EPF
44.9 11.8
Source: Company, Nomura estimates
64
6 December 2010
Malayan Banking
Julian Chua
Financial statements Profit and Loss (RMmn) Year-end 30 Jun
FY09
FY10
FY11F
FY12F
FY13F
11,570 (5,650) 5,920 2,058 (57) 2,599 4,600 10,519 (146) (5,413)
10,955 (4,184) 6,771 2,607 534 2,960 6,101 12,872 (182) (6,230)
13,550 (6,050) 7,500 2,800 450 3,145 6,395 13,895 (190) (6,619)
15,750 (7,440) 8,310 3,000 500 3,405 6,905 15,215 (200) (7,000)
17,300 (8,350) 8,950 3,250 540 3,725 7,515 16,465 (210) (7,430)
4,960 (1,896) 3,064
6,460 (1,211) 5,249
7,086 (1,018) 6,068
8,015 (1,134) 6,881
8,825 (1,189) 7,636
100 3,163 (924) 2,239 (59)
122 5,370 (1,402) 3,968 (150)
154 6,222 (1,680) 4,542 (126)
184 7,065 (1,907) 5,157 (143)
214 7,850 (2,119) 5,730 (159)
2,181 (1,489) 692 (425) 267
3,818 0 3,818 (2,920) 899
4,416 0 4,416 (2,649) 1,767
5,014 0 5,014 (3,010) 2,004
5,571 0 5,571 (3,344) 2,227
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/book (x) Price/adjusted book (x) Net interest margin (%) Yield on interest earning assets (%) Cost of interest bearing liabilities (%) Net interest spread (%) Non-interest/operating income (%) Cost to income (%) Effective tax rate (%) Dividend payout (%) ROE (%) ROA (%) Operating ROE (%) Operating ROA (%)
27.4 34.7 70.8 0.7 2.4 2.4 2.52 4.92 2.32 2.60 43.7 52.8 29.2 61.4 3.1 0.24 13.9 1.06
15.6 19.8 15.6 4.9 2.1 2.1 2.57 4.16 1.55 2.61 47.4 49.8 26.1 76.5 14.5 1.18 19.9 1.62
13.5 17.1 13.5 4.4 2.0 2.0 2.56 4.63 2.04 2.59 46.0 49.0 27.0 60.0 15.4 1.25 21.1 1.71
11.9 15.1 11.9 5.0 1.9 1.9 2.55 4.84 2.31 2.53 45.4 47.3 27.0 60.0 16.4 1.30 22.5 1.79
10.7 13.6 10.7 5.6 1.8 1.8 2.55 4.93 2.44 2.49 45.6 46.4 27.0 60.0 16.9 1.36 23.2 1.87
Growth (%) Net interest income Non-interest income Non-interest expenses Pre-provision earnings Net profit Normalised EPS Normalised FDEPS
9.1 9.4 33.0 (7.7) (36.1) (40.1) (50.9)
14.4 32.6 15.1 30.2 75.1 43.5 75.1
10.8 4.8 6.2 9.7 15.7 15.7 15.7
10.8 8.0 5.8 13.1 13.5 13.5 13.5
7.7 8.8 6.1 10.1 11.1 11.1 11.1
Interest income Interest expense Net interest income Net fees and commissions Trading related profits Other operating revenue Non-interest income Operating income Depreciation Amortisation Operating expenses Employee share expense Op. profit before provisions Provisions for bad debt Other provision charges Operating profit Other non-operating income Associates & JCEs Pre-tax profit Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves
Dividend payout to stay high at 60%
Source: Nomura esti ma tes
Nomura
65
6 December 2010
Malayan Banking
Balance Sheet (RMmn) As at 30 Jun Cash and equivalents Inter-bank lending Deposits with central bank Total securities Other interest earning assets Gross loans Less provisions Net loans Long-term investments Fixed assets Goodwill Other intangible assets Other non IEAs Total assets Customer deposits Bank deposits, CDs, debentures Other interest bearing liabilities Total interest bearing liabilities Non interest bearing liabilities Total liabilities Minority interest Common stock Preferred stock Retained earnings Proposed dividends Other equity Shareholders' equity Total liabilities and equity Non-performing assets (RM) Balance sheet ratios (%) Loans to deposits Equity to assets Asset quality & capital NPAs/gross loans (%) Bad debt charge/gross loans (%) Loss reserves/assets (%) Loss reserves/NPAs (%) Tier 1 capital ratio (%) Total capital ratio (%) Growth (%) Loan growth Interest earning assets Interest bearing liabilities Asset growth Deposit growth Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) DPS (RM) PPOP PS (RM) BVPS (RM) ABVPS (RM) NTAPS (RM)
Julian Chua
FY09
FY10
FY11F
FY12F
FY13F
23,608 6,299 4,051 58,074 193,363 (7,580) 185,783 2,630 1,422 4,374
28,708 8,915 4,471 54,170 213,258 (7,703) 205,555 2,471 1,712 4,481
25,000 10,050 4,784 67,450 239,000 (8,980) 230,020 2,950 1,712 4,600
25,000 9,870 5,121 68,104 265,000 (9,582) 255,418 3,100 1,712 4,600
25,000 9,870 5,409 68,104 288,000 (8,755) 279,245 3,250 1,712 4,600
24,498 310,739 212,599 28,782 18,219 259,599 25,372 284,971 869 7,078
26,216 336,700 236,910 23,258 20,991 281,159 26,876 308,035 788 7,078
24,673 371,239 263,000 28,283 19,481 310,764 30,000 340,764 950 7,078
24,549 397,473 285,000 28,283 19,481 332,764 32,000 364,764 1,000 7,078
23,267 420,457 303,000 28,283 19,471 350,754 35,150 385,904 450 7,077
7,988
9,926
11,558
13,742
16,137
9,833 24,899 310,739 6,715
10,873 27,877 336,700 6,186
10,889 29,524 371,239 8,365
10,889 31,709 397,473 8,480
10,889 34,103 420,457 9,216
91.0 8.0
90.0 8.3
90.9 8.0
93.0 8.0
95.0 8.1
3.5 0.98
2.9 0.57
3.5 0.43
3.2 0.43
3.2 0.41
112.9 11.0 15.0
124.5 11.1 14.9
107.4 11.2 15.1
113.0 11.0 14.8
95.0 11.1 14.7
12.9 17.7 14.6 15.5 13.6
10.6 7.4 8.3 8.4 11.4
11.9 14.4 10.5 10.3 11.0
11.0 8.4 7.1 7.1 8.4
9.3 7.1 5.4 5.8 6.3
0.71 0.71 0.71 0.43 1.13 4.48 4.48 3.83
0.79 0.79 0.79 0.47 1.25 4.82 4.82 4.17
0.12 0.38 0.31 0.06 0.85 3.52 3.52 2.90
0.54 0.54 0.54 0.41 0.91 3.94 3.94 3.31
0.62 0.62 0.62 0.37 1.00 4.17 4.17 3.52
Loan growth driven by consumer sector
Source: Nomura esti ma tes
Nomura
66
6 December 2010
Malaysia Airports Holdings Bhd MAHB MK
Maintained
TR AN S P O R T/ L O G I S TI C S | M AL AY S I A
[email protected] BUY
Action
Closing price on 1 Dec
With a defensive business model and a positive outlook for MAHB’s key earnings driver (passenger traffic growth), the downside risk for core earnings appears limited, making the “free” option on its 16,156-acre landbank especially attractive. On our estimates, the landbank is worth at least RM1.7bn, implying the market is valuing MAHB’s core operations at 10x FY11F P/E, versus a peer average of 22x, or a P/B of 1.2x versus a peer average of 1.6x.
(s et on 26 Oct 10)
Unlocking of land bank value in KLIA, progress on KLIA 2 construction, ASEAN air transport liberalisation (Open Skies), profitability of foreign airports.
Risk-reward looks attractive With a defensive business model and limited downside risk for passenger traffic (a key earnings driver), we believe the “free” option on the landbank, a big source of potential re-rating, is attractive. On our estimates, the landbank is worth at least RM1.7bn, implying MAHB’s domestic operations are at just 10x FY11F P/E. Including the land in its BVPS also implies a P/B of 1.2x, vs a peer average of 1.6x.
1,884 386
2,067 472
2,51 1 41 3
2,946 571
No rma lise d n et profit No rma lise d E PS (RM)
429 0.39
472 0 .43
41 3 0.3 8
571 0.52
No rm. EPS growth (% ) No rm. P/E (x)
13.0 16.0
1 0.1 1 4.5
(12.4) 16.5
38.1 12.0
EV/EBITDA (x) Price/b ook (x)
10.6 2.0
1 1.8 1.9
9.8 1.8
7.8 1.6
Divide nd yield (%) RO E ( %)
3.7 11.6
3.3 1 3.4
3.2 11.1
3.7 14.3
Ne t debt/eq uity (% ) Earnings revis ions
19.2
6 9.2
74.1
62.6
Previous n orm. net pr ofit Ch ange fro m previous (%)
472 -
41 3 -
571 -
Previous n orm. EPS (RM)
0 .43
0.3 8
0.52
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price Rel MSCI Malaysia
(RM) 6.4 5.9
150 140
Oct10
Absolute (RM)
1m 2.5
3m 14.1
6m 25.7
Absolute (US $) Re lative to Index
0.6 4.2
13.2 9.3
31.8 9.1
Market cap (US$mn) Estimated fre e float (% )
2,169 40.0
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
6 .22/3.71 0.97
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Khazanah EPF
60.0 9.3
Source: Company, Nomura estimates
Nomura
Nov1 0
100 90 Sep 10
110
3.9 3.4 Aug1 0
4.4
Ju l10
130 120
Jun10
5.4 4.9
A pr10
We expect domestic (2011F: 5.2%) and regional GDP growth (AsiaPacific: 6.7%) to continue to drive traffic, which should also be boosted by the increasing liberalisation of ASEAN air transport and growing tourism (Malaysia was the 9th most-visited country in 2009).
FY10F FY11F FY12F FY13F
Re venu e Re porte d n et profit
Fe b10
Traffic outlook positive for 2011
31 Dec (RMmn)
Jan 10
MAHB is unlocking its 16,156-acre landbank at KLIA, with the initial development of 2,730 acres by 2015. We believe the market has assigned zero value to this, and that concerns regarding the viability of this initiative are overstated: passenger traffic at KLIA should reach 40-50mn pa by 2015, third-party demand to develop the land is already demonstrably present and actual risk for MAHB is minimal since it is pursuing a landlord/minority partner strategy.
413.5 -1.3%
Key financials & valuations
Dec09
Landbank development overlooked, underestimated
FY12F net profit (RMmn) Difference from consensus
We believe the landbank potential at KLIA is grossly undervalued, if valued at all.
Air traffic growth is closely correlated with GDP. Above average growth rates in ASEAN and the rest of Asia, as well as growing tourism, should result in strong airport passenger throughput growth in Malaysia.
With traffic at the LCCT (15mn for 2010F) already close to the critical mass required to support KLIA 2 (~18mn by our estimates), and still growing at double digits, MAHB’s greater capacity post-KLIA 2 and its increasing focus on monetising traffic should allow it to achieve EPS growth of 38% in 2013F following the 12% dip in 2012F (due to the higher depreciation and interest charges from KLIA 2).
37.3% 34.5%
Nomura vs consensus
Anchor themes
Capacity expansion and commercialisation focus
Upside/downside Difference from consensus
Source: Nomura
Catalysts
MAHB: “free” option on landbank
RM6.22
RM8.54
Price target
May10
+60 3 2027 6891
Mar10
Muzhafar Mukhtar
NOMURA SECURITIES MALAYSIA SDN BHD
67
6 December 2010
Malaysia Airports Holdings Bhd
Muzhafar Mukhtar
Financial statements Income statement (RMmn) Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY09
FY10F
FY11F
FY12F
FY13F
1,637 (1,183) 454 (18) 436
1,884 (1,326) 558 (13) 545
2,067 (1,435) 632 (14) 618
2,511 (1,820) 691 (17) 674
2,946 (2,052) 894 (18) 876
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
586 (150)
707 (162)
793 (174)
988 (314)
1,203 (328)
436 (4) 3 45 480 (100) 380 (1) 379 (1) 378
545 (6) 11 549 (121) 429 429 (42) 386
618 (17) 11 613 (141) 472 472 472
674 (142) 12 544 (131) 413 413 413
876 (126) 12 761 (190) 571 571 571
Dividends Transfer to reserves
(186) 192
(251) 135
(227) 245
(218) 195
(254) 317
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x)
18.0 24.8 18.1 2.7 na 2.1 12.0 16.2 27.7 35.8 26.6 23.1 20.9 49.2 19.9 2.2
16.0 21.9 17.7 3.7 17.5 2.0 10.6 13.8 29.6 37.5 28.9 20.5 22.0 65.1 28.8 3.3
14.5 19.9 14.5 3.3 16.8 1.9 11.8 15.1 30.6 38.4 29.9 22.8 23.0 48.2 94.9 11.2
16.5 22.7 16.5 3.2 9.3 1.8 9.8 14.4 27.5 39.3 26.8 16.5 24.0 52.8 28.4 2.3
12.0 16.4 12.0 3.7 8.8 1.6 7.8 10.8 30.3 40.9 29.7 19.4 25.0 44.5 5.1 0.5
ROE (%) ROA (pretax %)
11.7 9.6
11.6 10.8
13.4 9.9
11.1 8.8
14.3 11.0
Growth (%) Revenue EBITDA
14.1 12.0
15.1 20.5
9.7 12.2
21.5 24.7
17.3 21.8
EBIT Normalised EPS Normalised FDEPS
18.2 27.1 27.1
25.0 13.0 13.0
13.5 10.1 10.1
9.0 (12.4) (12.4)
29.9 38.1 38.1
0.38 0.38 0.38 3.48 0.20
0.52 0.52 0.52 3.77 0.23
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.34 0.34 0.34 2.96 0.17
0.35 0.39 0.39 3.08 0.23
0.43 0.43 0.43 3.30 0.21
Source: Nomura esti ma tes
Nomura
68
6 December 2010
Malaysia Airports Holdings Bhd
Cashflow (RMmn) Year-end 31 Dec
Muzhafar Mukhtar
FY09
FY10F
FY11F
FY12F
FY13F
586 (684) (208) (306) (326) (633) 18
707 (198) (118) 391 (542) (150) 13
793 (87) (299) 407 (1,962) (1,555) -
988 (80) (172) 736 (712) 24 -
1,203 (105) (323) 776 (150) 626 -
9 219 (339) (726) (177) 505 (10) 317 (409) 677 268 240
29 (4) (28) (141) (264) 504 (8) 232 91 268 360 652
(128) 134 (1,549) (227) 1,700 (87) 1,386 (164) 360 196 2,515
(42) 50 32 (218) 400 (140) 42 74 196 270 2,840
(144) 167 649 (254) (150) (404) 245 270 514 2,594
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity
FY09 268 314 60 319 961 35 1,998 1,720 358 5,073 0 110 541 651 508 653 1,812 5 1,100 1,335 821 3,256
FY10F 360 367 74 350 1,151 22 2,425 1,681 329 5,607 122 429 551 1,012 649 2,212 5 1,100 1,470 821 3,390
FY11F 196 408 87 462 1,152 22 4,360 1,637 329 7,501 131 499 630 2,711 521 3,861 5 1,100 1,714 821 3,635
FY12F 270 503 117 582 1,471 22 4,806 1,589 329 8,218 165 631 795 3,110 478 4,383 5 1,100 1,909 821 3,830
FY13F 514 598 146 635 1,893 22 4,678 1,540 329 8,462 181 687 868 3,109 334 4,310 5 1,100 2,226 821 4,147
Total equity & liabilities
5,073
5,607
7,501
8,218
8,462
1.48 118.0
2.09 87.9
1.83 36.8
1.85 4.8
2.18 6.9
Leverage Net debt/EBITDA (x) Net debt/equity (%)
0.41 7.4
0.92 19.2
3.17 69.2
2.87 74.1
2.16 62.6
Activity (days) Days receivable Days inventory Days payable Cash cycle
78.8 18.3 33.1 63.9
66.0 18.5 32.0 52.5
68.4 20.4 32.2 56.7
66.3 20.5 29.7 57.1
68.2 23.4 30.7 60.8
EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt Source: Nomura esti ma tes
Balance sheet (RMmn)
Liquidity (x) Current ratio Interest cover
Source: Nomura esti ma tes
Nomura
69
6 December 2010
Malaysian Airline System M A S M K AI R L I N E S | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] BUY
Action
Closing price on 1 Dec
MAS shares have lagged other airline shares, despite positive data points, such as loads continuing to hit 15-year highs and gradual yield improvements. We see the 3Q10 profit turnaround continuing into FY11F coupled with a new fleet arrival. Moreover, with our conducive ringgit appreciation outlook (+7-9% from our previous estimates), we expect a material incremental earnings jump in FY11-12F. Maintain BUY, with PT of RM2.65.
(s et on 16 Nov 10)
Catalysts include a better-than-expected rebound in passenger numbers and substantive yield improvement continuing even in a seasonally weak 1Q11F.
Maintain BUY and PT of RM2.65 We reaffirm our BUY rating on MAS in anticipation of a solid earnings recovery. We value MAS at the average of FY11-12F P/BV of 1.8x (unchanged), as we believe mid-FY11F to FY12F will be a defining period for MAS.
11,574 496
13,417 49
1 4,90 6 69 0
16,994 1,051
No rma lise d n et profit No rma lise d E PS (RM)
(667) (0.32)
49 0 .01
69 0 0.2 1
1,051 0.31
No rm. EPS growth (% ) No rm. P/E (x)
(370.1) na
na 14 5.3
1,314.4 10.3
52.3 6.7
na 5.9
1 3.8 2.1
6.3 1.6
4.1 1.3
0.0 20.2
0.0 2.3
0.0 17.6
0.0 21.5
net cash
8.1
77.8
76.5
Previous n orm. net pr ofit Ch ange fro m previous (%)
49 -
69 0 -
1,051 -
Previous n orm. EPS (RM)
0 .01
0.2 1
0.31
EV/EBITDA (x) Price/b ook (x) Divide nd yield (%) RO E ( %) Ne t debt/eq uity (% ) Earnings revis ions
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price Rel MSCI Malaysia
(RM) 2.7
110
60 Oct10
70
1.7
Absolute (RM)
1m ( 3.6)
3m 0.5
6m 7.1
Absolute (US $) Re lative to Index
( 5.4) ( 1.8)
(0.3) (4.2)
12.3 (10.4)
Market cap (US$mn) Estimated fre e float (% )
2,246 14.0
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
2 .59/1.80 1.57
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Khazanah Nasional Employees Pro vid ent Fund
69.0 13.0
Source: Company, Nomura estimates
Nomura
Nov1 0
80
1.9 Sep 10
2.1
Aug1 0
90
Ju l10
100
2.3
Jun10
2.5
A pr10
MAS has restructured its fuel hedge, reducing the hedging proportion to 33% for FY11F at US$93/bbl, from 40% at US$100/bbl previously, alleviating one of the most-cited concerns on the name. MAS was also excluded from the list of airlines found to have breached EU competition laws on cargo price-fixing and fined a total of €799mn. It has also provided the bulk of one-off redelivery provisions for FY10F (27 planes at around RM200mn), leaving only four planes to provide for in FY11F.
FY09 FY10F FY11F FY12F
Re venu e Re porte d n et profit
Fe b10
Easing earnings uncertainty in FY11F
31 Dec (RMmn)
Jan 10
Given solid, consistent operating statistics during its non-peak quarters, MAS recorded a profit turnaround for 3Q10 (from a 2Q10 loss of RM250mn due to redelivery provisions), which we believe will continue in the coming quarter. Continued new fleet delivery in FY11F, announcement of a new eastern hub in Kota Kinabalu (to benefit from East Malaysia travel), expansion of its 30-plane budget airline Firefly and our stronger in-house ringgit assumptions (+7-9% from our previous forecast) point to exponential earnings upside for FY11F.
690 84.3%
Key financials & valuations
Dec09
FY10F breakeven – exponential upside from FY11F
FY11F net profit (RMmn) Difference from consensus
Consensus NPAT is wide-ranging. We expect the fleet turnaround to gather momentum and generate a leg up on yield, plus MAS to benefit from ringgit appreciation and the consumption boom.
With Asian economies expected to recover at a much faster pace, airlines with Asian hubs should see an earlier recovery than global peers. Malaysian players stand to benefit from the consumption boom and RM appreciation theme in FY11F.
September 2010 operating statistics saw load factors at their best levels in 15 years, mainly driven by the international sector, where the full-year passenger number looks set to return to the 2006-07 peaks of around 8.5mn. Admittedly, yield growth has been slow (7% y-y), but the company’s recently instituted price hikes should have an impact in coming quarters, in our view.
25.0% 17.8%
Nomura vs consensus
Anchor themes
Operational statistics — best since 15 years
Upside/downside Difference from consensus
Source: Nomura
Catalysts
MAS fly more
RM2.12
RM2.65
Price target
May10
+60 3 2027 6889
Mar10
Jacinda Loh
70
6 December 2010
Malaysian Airline System
Jacinda Loh
Financial statements Income statement (RMmn) Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY08
FY09
FY10F
FY11F
FY12F
15,504 (13,026) 2,477 (2,172) 305
11,574 (10,135) 1,440 (2,068) (628)
13,417 (11,122) 2,295 (2,150) 145
14,906 (11,648) 3,258 (2,300) 957
16,994 (12,965) 4,028 (2,555) 1,473
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
633 (328) 305 (61) 20 265 (19) 246 1 247
522 (377) 145 (102) 12 55 (3) 52 (3) 49 49
1,662 (705) 957 (240) 12 729 (36) 693 (3) 690
2,745 (1,272) 1,473 (390) 12 1,094 (40) 1,054 (3) 1,051
247
(312) (316) (628) (85) 12 (701) 31 (670) 3 (667) 1,163 496
690
1,051
Dividends Transfer to reserves
247
496
49
690
1,051
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x)
18.5 23.1 17.6 na 1.0 7.4 14.8 16.0 4.1 2.0 1.6 7.2 4.9 2.3
na na 8.8 na 5.9 na na 12.4 (2.7) (5.4) 4.3 na 7.9 2.9
145.3 181.6 145.3 139.1 2.1 13.8 47.0 17.1 3.9 1.1 0.4 6.0 17.6 6.3
10.3 12.8 10.3 4.0 1.6 6.3 10.8 21.9 11.2 6.4 4.6 5.0 29.2 6.2
6.7 8.4 6.7 2.3 1.3 4.1 7.6 23.7 16.2 8.7 6.2 3.7 16.4 2.2
6.1 5.4
20.2 (10.0)
2.3 2.2
17.6 8.9
21.5 10.5
Growth (%) Revenue EBITDA
1.8 (48.1)
(25.3) (149.3)
15.9 na
11.1 218.4
14.0 65.1
EBIT Normalised EPS Normalised FDEPS
(65.1) (69.6) (69.6)
(305.7) (370.1) (370.1)
na na na
560.0 1,314.4 1,314.4
53.8 52.3 52.3
0.12 0.12 0.11 2.04 -
0.24 (0.32) (0.31) 0.36 -
0.01 0.01 0.01 1.03 -
ROE (%) ROA (pretax %)
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.21 0.21 0.21 1.31 -
Cost-cutting to continue in FY10F-12F, resulting in costs rising at a slower pace, while the top line rebounds on improving yields
0.31 0.31 0.31 1.62 -
Source: Nomura esti ma tes
Nomura
71
6 December 2010
Malaysian Airline System
Cashflow (RMmn) Year-end 31 Dec
Jacinda Loh
FY08
FY09
FY10F
FY11F
FY12F
633 (1,328) 71 (624) (764) (1,387) (15)
(312) 1,822 (3,158) (1,648) (914) (2,561) (8)
522 (922) 451 51 (2,361) (2,310) -
1,662 (433) 563 1,792 (4,348) (2,557) -
2,745 (216) 502 3,030 (2,779) 252 -
81 114 (200) (1,408)
195 613 (12) (1,772)
(120) (727) (3,158)
(21) (2,578)
(69) 183
0 546
865
1,671 2,788
2,936
1,098
546 (862) 4,434 3,572 (2,273)
865 (907) 3,572 2,665 (832)
4,459 1,301 2,665 3,966 278
2,936 358 3,966 4,324 3,415
1,098 1,280 4,324 5,605 4,127
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity
FY08 3,572 2,020 380 795 6,767 73 2,465 106 1 659 10,072 425 2,409 2,054 4,887 873 114 5,875 11 1,671 (2,129) 4,643 4,186
FY09 2,665 1,447 385 287 4,785 81 3,044 110 34 464 8,518 288 2,236 2,973 5,497 1,545 727 7,770 12 1,671 (5,590) 4,655 736
FY10F 3,966 1,969 525 287 6,748 81 5,096 110 34 584 12,653 434 2,596 2,354 5,383 3,810 9,193 12 3,342 (5,542) 5,647 3,448
FY11F 4,324 2,236 1,043 287 7,891 81 8,740 110 34 584 17,440 603 2,947 2,354 5,904 7,137 13,040 12 3,342 (4,852) 5,897 4,388
FY12F 5,604 2,549 1,359 287 9,800 81 10,246 110 34 584 20,856 469 3,360 2,354 6,183 9,262 15,446 12 3,342 (4,091) 6,147 5,398
Total equity & liabilities
10,072
8,518
12,653
17,440
20,856
1.38 5.0
0.87 (7.4)
1.25 1.4
1.34 4.0
1.59 3.8
0.53 8.1
2.05 77.8
1.50 76.5
46.5 14.9 79.3 (17.9)
51.5 24.6 86.8 (10.8)
51.5 33.9 89.0 (3.6)
EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt Source: Nomura esti ma tes
Balance sheet (RMmn)
Gearing to climb on the back of new fleet expansion
Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
net cash net cash
45.2 10.5 76.1 (20.4)
na net cash
54.7 13.8 83.6 (15.2)
Source: Nomura esti ma tes
Nomura
72
6 December 2010
Maxis Communications M A X I S M K TE L E C O M S | M AL AY S I A
B Roshan Raj +65 6433 6961 Sachin Gupta, CFA +65 6433 6968 Pankaj Suri (Associate)
Maintained NOMURA SINGAPORE LIMITED
[email protected] [email protected] NEUTRAL
Action
Closing price on 1 Dec
RM5.30
RM5.45
Price target
We believe Maxis could get more aggressive to gain higher market share in FY11F even at the cost of margins. With its planned RM1.4bn capex in FY10 (higher than peers) and initiatives in delivering demand-based fixed line services, driving y-y subscriber growth could be relatively easier, in our view. However, execution will be a challenge in the face of competition from incumbents, as well new (WiMAX) entrants. We see Maxis’ 6% ordinary yield as reasonable, but potential capital management (with 8-9% yield) should drive incremental interest.
(s et on 25 Aug 10)
Upside/downside Difference from consensus
2.8% 0.9%
FY11F net profit (RMmn) Difference from consensus
2,368 -4.3%
Source: Nomura
Catalysts
Nomura vs consensus
Capital management; operational improvement in cellular and broadband metrics.
Our NPAT estimates are below consensus, as we believe the risk to Maxis’ margins are to the downside.
Anchor themes With a saturated cellular market, incremental subscriber growth is limited. Maxis’ focus will be to drive data usage and take leadership in Broadband.
Valuation remains expensive at 17x FY11PE Maxis’ 17x FY11F PE is at a 23% premium to regional telcos, which are trading at 13-14x. Its 9.6x FY11F EV/EBITDA remains expensive too and in the absence of any near-term catalysts, we maintain our NEUTRAL rating.
2,368
2,410
Normalised net profit
2,309
2,297
2,368
2,410 0.32
0.31
0.31
0. 32
Norm. EPS growt h (% )
(3.7)
(0.5)
3.1
1.8
Norm. P/E (x) EV/EBITD A (x)
17.2 10.1
17.3 9.8
16.8 9.6
16.5 9.3
Price/ book (x)
4.4
4.5
4.5
4.5
Dividend yield (%)
2.8
6.0
6.0
6.0
ROE (%)
42.6
25.8
26.8
27.3
Net debt /equity (% )
43.5
53.2
56.1
56.3 2,410
Earnings r evisions Previous norm. net profit
2,297
2,368
Change from previous (% )
-
-
-
Previous norm. EPS (RM)
0.31
0. 32
0.32
Sou rce: Comp any, Nom ura estim ates
Share price relative to MSCI Malaysia Price Rel MSCI Malaysia
(RM) 5.6
105
5.5
100
5.4
95
5.3
90
5.2
Absolute (RM) Absolute (US$) Relative to Index Mark et cap (U S$mn)
Oct 10
Nov 10
80 Sep10
5.0 Aug10
85 Jul10
5.1
1m 0.4
3m (1.5)
(1.5)
(2.3)
6.9
2.1
(6.1)
(15.8) 12,603
Estimated free float (% )
6m 1.9
30.0
52-week range (RM)
5.52/ 5.12
3-mth avg daily turnover (US$mn)
7.48
Stock borrowability
Hard
Major shareholders (% ) MCB
70.0
Vanguard
0.6
Sou rce: Comp any, Nom ura estim ates
Nomura
10,021
Normalised EPS (RM)
Jun10
Maxis’ 6% ordinary dividend remains appealing, but may not be incrementally attractive, in our view. As such, we expect the company to be more active with capital management over the next 12 months. This remains feasible, as even with a RM50¢/share total dividend (89% yield) for FY10, Maxis’ FY11F gearing will remain reasonable i.e. ~1.3x net-debt / EBITDA, below its stated 1.75-2.0x target.
9,633
2,297
Apr10
Ordinary dividend may not be incrementally attractive
9,139
2,232
May 10
In order to tap these opportunities, effective execution will be a key necessity, as we expect the market to be relatively more competitive, driven by incumbents and the recent service launch by YTL.
8,611
Mar10
However, Maxis’ RM1.4bn investment plan in FY10 is ahead of peers (RM700mn to RM1.0bn) and this could improve its network quality and support a more robust subscriber growth. In broadband, Maxis could get more active – drive higher network coverage and offer more aggressive price plans. Also, it could gain more traction with its integrated services – fixed line telephony and broadband, which currently generate only 2% of total revenue.
FY09 FY10F FY11F FY12F
Reported net profit
Feb10
Since 4Q08, Maxis has lost about 4% revenue market share to its cellular peers, reaching 42% (2Q10) from 46%. Its recent trends have not been encouraging either – 2% y-y revenue growth in 1H10 has lagged peers and so has its 2% EBITDA decline.
31 Dec (RMmn) Revenue
J an10
Can it improve its operational trends?
Key financials & valuations
Dec09
Potential for operational uplift?
73
6 December 2010
Maxis Communications
B Roshan Raj
Financial statements Income statement (RMmn) Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY08 8,450 (2,651) 5,799 (2,592)
FY09 8,611 (2,797) 5,814 (2,759)
FY10F 9,139 (2,981) 6,158 (2,709)
FY11F 9,633 (3,159) 6,473 (2,971)
FY12F 10,021 (3,271) 6,751 (3,211)
3,207
3,055
3,449
3,503
3,540
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves
4,402 (1,149) (46) 3,207 18 3,225 (827) 2,398 2,398 2,398 (720) 1,678
4,337 (1,224) (59) 3,055 (48) 3,007 (775) 2,232 77 2,309 (77) 2,232 (1,125) 1,107
4,524 (1,019) (56) 3,449 (355) 3,094 (797) 2,297 2,297 2,297 (2,400) (103)
4,671 (1,112) (56) 3,503 (312) 3,191 (822) 2,368 2,368 2,368 (2,400) (32)
4,793 (1,197) (56) 3,540 (293) 3,247 (837) 2,410 2,410 2,410 (2,400) 10
16.6 17.0 16.6 1.8 12.3 26.1 8.9 12.2 68.6 52.1 38.0 28.4 25.7 30.0 9.4 0.7 213.6 330.1
17.2 17.7 17.8 2.8 12.7 4.4 10.1 14.3 67.5 50.4 35.5 25.9 25.8 50.4 14.2 1.0 42.6 32.9
17.3 17.8 17.3 6.0 13.7 4.5 9.8 12.9 67.4 49.5 37.7 25.1 25.8 104.5 15.3 1.4 25.8 20.5
16.8 17.3 16.8 6.0 11.6 4.5 9.6 12.8 67.2 48.5 36.4 24.6 25.8 101.3 13.1 1.1 26.8 20.5
16.5 17.0 16.5 6.0 10.8 4.5 9.3 12.6 67.4 47.8 35.3 24.1 25.8 99.6 12.8 1.1 27.3 20.6
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA
na na
1.9 (1.5)
6.1 4.3
5.4 3.2
4.0 2.6
EBIT Normalised EPS Normalised FDEPS
na na na
(4.7) (3.7) (3.7)
12.9 (0.5) (0.5)
1.6 3.1 3.1
1.1 1.8 1.8
0.32 0.32 0.32 0.20 0.10
0.30 0.31 0.31 1.19 0.15
0.31 0.31 0.31 1.18 0.32
0.32 0.32 0.32 1.17 0.32
0.32 0.32 0.32 1.18 0.32
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
Expect mid- to low-single digit revenue growth
Source: Nomura estimates
Nomura
74
6 December 2010
Maxis Communications
Cashflow (RMmn) Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
B Roshan Raj
FY08 4,402 (1,249) 69 3,222 (796) 2,426 1 (8) 2,419 (1,943) (1,943) 476 721 1,197 (529)
FY09 4,337 1,712 (2,924) 3,125 (1,222) 1,903 1,023 (13) 2,913 (2,555) (1) 704 (1,067) (2,919) (5) 1,197 1,192 3,889
FY10F 4,524 (457) (1,159) 2,908 (1,398) 1,510 1,510 (2,325) 2,008 (317) 1,193 1,192 2,385 4,704
FY11F 4,671 (197) (1,052) 3,422 (1,263) 2,159 2,159 (2,400) (750) (3,150) (991) 2,385 1,393 4,946
FY12F 4,793 (40) (1,088) 3,665 (1,287) 2,378 2,378 (2,400) (500) (2,900) (522) 1,393 871 4,968
FY08 1,197 473 21 33 1,724 186 35 1,195 3,140 238 934 14 1,186 430 1,616 1,294 230 1,524 3,140
FY09 1,192 796 134 10 2,132 4,555 11,019 92 17,798 89 3,166 56 3,311 4,992 550 8,853 750 8,195 8,945 17,798
FY10F 2,385 757 134 10 3,286 4,912 11,111 92 19,401 89 2,670 56 2,815 7,000 745 10,560 750 8,092 8,842 19,401
FY11F 1,393 798 134 10 2,335 5,063 11,055 92 18,546 89 2,514 56 2,659 6,250 827 9,735 750 8,060 8,810 18,546
FY12F 871 830 134 10 1,845 5,153 10,999 92 18,089 89 2,505 56 2,650 5,750 869 9,269 750 8,071 8,821 18,089
1.45 na
0.64 63.6
1.17 9.7
0.88 11.2
0.70 12.1
Source: Nomura estimates
Balance sheet (RMmn) As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities
Strong balance sheet with room for incremental gearing
Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x)
net cash
0.90
1.04
1.06
1.04
Net debt/equity (%)
net cash
43.5
53.2
56.1
56.3
31.0 16.4 357.3 (309.9)
29.5 15.5 299.5 (254.5)
29.7 15.0 280.8 (236.1)
Activity (days) Days receivable Days inventory Days payable Cash cycle
10.2 1.4 64.5 (52.8)
26.9 10.1 267.5 (230.5)
Source: Nomura estimates
Nomura
75
6 December 2010
Media Prima M P R M K M E D I A & I N TE R N E T/ M E D I A | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
[email protected] BUY
Action
Closing price on 1 Dec
We think the TV division will precipitate 18% growth in Media Prima’s net earnings for FY11F, while the print segment grapples with rising newsprint costs. Dividends could surprise on the upside given the group’s strong free cash flow and low net gearing.
(s et on 24 Aug 10)
Catalysts
Key financials & valuations 31 Dec (RMmn)
754 194.8
1,501 20 0.7
1,60 7 174.2
1,739 202.2
No rma lise d n et profit No rma lise d E PS (RM)
35.7 0.036
14 7.7 0.131
174.2 0.15 4
202.2 0.179
No rm. EPS growth (% ) No rm. P/E (x)
(75.5) 65.8
25 9.4 1 8.3
17.9 15.5
16.1 13.4
EV/EBITDA (x) Price/b ook (x)
21.2 2.5
8.6 2.3
7.6 2.1
6.6 2.0
Divide nd yield (%) RO E ( %)
3.8 25.8
2.7 1 8.8
3.2 14.2
3.7 15.3
Ne t debt/eq uity (% ) Earnings revis ions
45.9
2 7.4
19.6
12.2
Previous n orm. net pr ofit Ch ange fro m previous (%)
14 7.7 -
174.2 -
202.2 -
Previous n orm. EPS (RM)
0.131
0.15 4
0.179
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price Rel MSCI Malays ia
(RM) 2.5
Target price of RM2.90 implies 21% upside Our DCF-based price target of RM2.90 is based on a discount rate of 10.3% (risk free rate 3.75%, beta of 1.3x and a terminal growth rate of 2%). Media Prima is at an FY11F EV/EBITDA of 7.4x, compared with the regional average of 7.7x. On a P/E basis, it is also attractively valued at 15.1x FY11F P/E compared with the regional average of 18x, in our view.
Absolute (RM) Absolute (US $) Re lative to Index
Oct10
80
1m 8.6
3m 15.5
6m 12.2
6.6 1 0.2
14.5 10.7
17.7 (5.0)
Market cap (US$mn) Estimated fre e float (% )
759 55.0
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
2 .40/1.60 0.67
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Employees Pro vid ent Fund Board Amanah Raya Bhd
23.4 12.5
Source: Company, Nomura estimates
Nomura
Nov1 0
90
1.5 Sep 10
100
1.7 Aug1 0
1.9
Mar10
110
Fe b10
120
2.1
Jan 10
Management has raised the upper limit of its dividend policy to 75% from 50%. Media Prima’s free cash flow is expected to be higher than its net profit while net gearing is forecast to fall to 0.2x by end 2011. Thus, the group can certainly afford to raise its payout ratio to 75%, which would offer a yield of 5% next year.
130
2.3
Dec09
Potential increase in the dividend payout
FY09 FY10F FY11F FY12F
Re venu e Re porte d n et profit
Ju l10
Media Prima’s top selling newspaper, Harian Metro, has seen its circulation rise nearly 20% y-y to ~415K/day. However, we estimate a mere 3% growth in pretax earnings for the print segment given the rising newsprint costs, now at US$720/tonne from 7% FCF yield in FY11F versus a 6% dividend yield (implied by RM700mn dividend) and strong balance sheet at 1.1x net-debt/EBITDA, we see room for capital management over the medium term. We believe the risk to TM’s capex remains to the downside and a higher than ordinary payout remains feasible.
613
Normalised net profit
468
499
574
613
Normalised EPS (RM)
0.132
0.141
0.162
0.173
Norm. EPS growt h (% )
(64.2)
6.5
15.0
6.8
26.0 5.0
24.4 5.5
21.2 5.2
19.9 5.0
Norm. P/E (x) EV/EBITD A (x)
1.7
1.8
1.8
1.8
Dividend yield (%)
5.8
5.7
5.7
5.7
ROE (%) Net debt /equity (% )
7.5
9.2
8.4
9.1
46.1
48.5
46.8
43.3 613
Earnings r evisions Previous norm. net profit
499
574
Change from previous (% )
-
-
-
Previous norm. EPS (RM)
0.141
0.162
0.173
Sou rce: Comp any, Nom ura estim ates
Share price relative to MSCI Malaysia Price Rel MSCI Malaysia
(RM) 3.7 3.6 3.5 3.4 3.3 3.2 3.1 3.0 2.9
115 110 105 100 95
Absolute (RM) Absolute (US$) Relative to Index Mark et cap (U S$mn)
Oct 10
Nov 10
Sep10
Jun10
Apr10
90
1m 1.5
3m (2.8)
(0.4)
(3.6)
8.7
3.2
(7.5)
(14.0) 3,864
Estimated free float (% )
6m 3.6
36.8
52-week range (RM)
3.58/ 2.99
3-mth avg daily turnover (US$mn)
6.52
Stock borrowability
Hard
Major shareholders (% ) Khazanah Nasional Berhad
41.8
Employees Provident Fund Board
11.1
Sou rce: Comp any, Nom ura estim ates
Nomura
9,277
Price/ book (x)
May 10
Although the pace of voice revenue decline has slowed to 6% y-y decline in 1H10, the risk remains to the downside, as voice usage and fixed line subs are expected to decline, in our view. Hence, data and internet growth is likely to be the key focus area on both the copper and the newly rolled out HSBB network. We forecast 10-12% growth in data and internet traffic during FY11-12F — higher growth will be a positive in our view.
574
Mar10
Voice expected to decline; data offers opportunity
8,994
639
Feb10
Separately, TM's legacy DSL service (Streamyx) is likely to be expanded to interior areas and could see continued subscriber growth despite DSL to fibre migration in the most urban areas. In areas where Streamyx to HSBB migration is limited or HSBB does not exist, we expect TM to re-work its Streamyx pricing, bundling and service quality issues to fend off competition from wireless alternatives.
8,739
643
J an10
With bulk of the fibre being rolled out this year end i.e.750k premises, reaching 1.1mn premises (our estimate) by FY11 remains achievable, and this should improve HSBB’s addressable market and a pick-up in subscriber net-adds appears likely, in our view. Also, altering HSBB’s price and content strategy to stimulate higher HSBB take-up rates could be explored, in our view. In turn, this could provide upside to our modest 1% (FY11) and 3% (FY12) revenue contribution forecasts.
8,608
Reported net profit
Dec09
Expect HSBB’s traction to improve
Aug10
Another step ahead with HSBB
RM3.44
RM4.00
Price target
Jul10
B Roshan Raj +65 6433 6961 Sachin Gupta, CFA +65 6433 6968 Pankaj Suri (Associate)
Maintained
91
6 December 2010
Telekom Malaysia
B Roshan Raj
Financial statements Income statement (RMmn) Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY08 8,675 (3,830) 4,845 (4,115)
FY09 8,608 (3,805) 4,803 (3,739)
FY10F 8,739 (3,941) 4,797 (3,711)
FY11F 8,994 (4,034) 4,960 (3,973)
FY12F 9,277 (4,161) 5,116 (4,096)
729
1,065
1,087
987
1,020
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves
2,917 (2,188)
3,103 (2,038)
2,900 (1,814)
3,004 (2,017)
3,081 (2,061)
729 (205) (0) (170) 354 (78) 276 (109) 1,106
1,065 (184) 1 41 922 (248) 673 (30) (175)
1,087 (195) 1 892 (223) 669 (30) (140)
987 (182) 1 805 (201) 604 (30) -
1,020 (163) 1 858 (214) 643 (30) -
1,272 (481) 792 (700) 92
468 175 643 (707) (63)
499 140 639 (700) (61)
574 574 (700) (126)
613 613 (700) (87)
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %)
9.3 10.8 15.0 5.9 3.4 1.2 6.0 23.8 55.8 33.6 8.4 9.1 21.9 88.4 21.2 0.8 5.3 2.4
Growth (%) Revenue EBITDA
4.6 (9.9)
EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
26.0 30.3 19.0 5.8 3.8 1.7 5.0 14.7 55.8 36.0 12.4 7.5 26.9 109.9 29.2 1.2 7.5 5.8
24.4 28.4 19.1 5.7 4.8 1.8 5.5 14.6 54.9 33.2 12.4 7.3 25.0 109.6 25.6 1.2 9.2 6.4
21.2 24.7 21.2 5.7 4.6 1.8 5.2 15.9 55.2 33.4 11.0 6.4 25.0 122.0 19.4 0.9 8.4 5.6
19.9 23.1 19.9 5.7 4.5 1.8 5.0 15.2 55.2 33.2 11.0 6.6 25.0 114.2 18.9 0.8 9.1 5.7
(0.8) 6.4
1.5 (6.5)
2.9 3.6
3.1 2.6
(21.3) (40.4) (40.4)
46.0 (64.2) (64.2)
2.1 6.5 6.5
(9.2) 15.0 15.0
3.4 6.8 6.8
0.23 0.37 0.37 2.97 0.20
0.18 0.13 0.13 1.97 0.20
0.18 0.14 0.14 1.96 0.20
0.16 0.16 0.16 1.92 0.20
0.17 0.17 0.17 1.89 0.20
Reasonable revenue growth for an incumbent fixed-line operator
Source: Nomura estimates
Nomura
92
6 December 2010
Telekom Malaysia
Cashflow (RMmn) Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
B Roshan Raj
FY08 2,917 (7,221) 7,795 3,492 (1,839) 1,653 -
FY09 3,103 4,733 (4,612) 3,224 (2,516) 707 -
FY10F 2,900 60 (418) 2,542 (2,233) 309 -
FY11F 3,004 2 (383) 2,623 (1,742) 881 -
FY12F 3,081 22 (378) 2,726 (1,749) 976 -
(298) 1,355 (2,521)
4,895 5,602 (731)
252 561 (700)
881 (700)
976 (700)
(112)
(272)
(1,000)
(750)
(500)
(799) (3,431) (2,077) 4,172 2,095 4,905
(3,203) (4,207) 1,396 2,095 3,491 3,223
(1,700) (1,139) 3,491 2,351 3,362
(1,450) (569) 2,351 1,782 3,181
(1,200) (224) 1,782 1,559 2,905
FY08 2,095
FY09 3,491
FY10F 2,351
FY11F 1,782
FY12F 1,559
2,891 123 4,303 9,412
2,284 111 295 6,180
2,319 111 183 4,963
2,386 111 183 4,462
2,462 111 183 4,313
11,772
12,330
13,610
13,808
13,497
2 1,347 22,533 35 2,848 589 3,471 6,965
313 1,119 19,943 917 2,949 576 4,441 5,797
313 1,120 20,006 917 3,043 576 4,536 4,797
313 1,120 19,704 917 3,113 576 4,606 4,047
313 1,121 19,244 917 3,211 576 4,703 3,547
1,622 12,059 227
2,575 12,813 143
3,575 12,907 173
4,048 12,700 203
4,048 12,298 233
7,761 2,487
4,555 2,432
4,555 2,371
4,555 2,245
4,555 2,158
10,248 22,533
6,988 19,943
6,926 20,006
6,800 19,704
6,713 19,244
2.71 3.6
1.39 5.8
1.09 5.6
0.97 5.4
0.92 6.2
Source: Nomura estimates
Balance sheet (RMmn) As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities
We expect balance sheet gearing to decline
Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x)
1.68
1.04
1.16
1.06
0.94
Net debt/equity (%)
47.9
46.1
48.5
46.8
43.3
153.8 14.5 539.9 (371.6)
109.7 11.2 278.0 (157.1)
96.1 10.2 277.5 (171.1)
95.5 10.0 278.5 (173.1)
95.6 9.7 278.2 (172.8)
Activity (days) Days receivable Days inventory Days payable Cash cycle Source: Nomura estimates
Nomura
93
6 December 2010
Tenaga Nasional T N B M K P O W E R & U TI L I TI E S | M AL AY S I A
Maintained NOMURA INTERNATIONAL (HK) LIMITED
[email protected] [email protected] NEUTRAL
Action
Closing price on 1 Dec
While TNB will likely benefit from an appreciating ringgit through its US$ and yen debt and the containment of internationally sourced coal costs, with elections looming we believe the implementation of structural reforms to natural gas prices and TNB’s tariff setting mechanism – a precondition to a sustainable rerating of this name – are unlikely over the near term. We maintain our NEUTRAL stance.
(set on 29 Oct 10)
Catalysts
Key financials & valuations 31 Aug (RMmn)
FY10 FY11F FY12F FY13F
Revenue Reported net profit Normalised net profit Normalised EPS (RM) Norm. EPS growth (%) Norm. P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%) Earnings revisions Previous norm. net profit Change from previous (%) Previous norm. EPS (RM)
30,320 3,202 2,569 0.59 19.0 14.3 6.4 1.3 2.9 11.7 44.9
Lack of credible catalysts; Maintain NEUTRAL Despite our continued positive stance on TNB’s undemanding valuations (12.8x/1.1x FY12F PER/PB) and its leverage to an appreciating ringgit, we see no credible near-term catalyst to support a sustainable re-rating. Maintain NEUTRAL.
34,431 3,100 3,100 0.71 7.9 11.8 5.3 1.0 2.0 8.8 28.0
2,796 0.64
2,874 0.66
3,100 0.71
Price Rel MSCI Malaysia
105 100
9
95
9
90
Absolute (RM) Absolute (US$) Relative to Index Market cap (US$mn) Estimated free float (%) 52-week range (RM) 3-mth avg daily turnover (US$mn) Stock borrowability Major shareholders (%) Khazanah Nasional Employees Provident Fund
1m (3.6) (5.4) (1.8)
Nov10
Oct10
Sep10
Aug10
Mar10
80 Feb10
85
8 Jan10
8 Dec09
With Malaysia’s election looming we believe the implementation of structural reforms to natural gas prices and TNB’s tariff setting mechanism, both in our view prerequisites for a sustainable re-rating of this name, is an increasingly remote upside risk. An escalating fixed cost base and a diminishing contribution margin led by higher coal costs and disproportionate volume growth in the low margin industrial consumer segment does not bode well for a narrowing spread between TNB’s ROIC (~6%) and WACC (~8.4%) in FY11F.
33,121 3,053 2,874 0.66 2.8 12.8 5.6 1.1 2.5 9.4 32.5
Share price relative to MSCI Malaysia 10
Tariff outlook uncertain, ROICs lagging
32,013 3,190 2,796 0.64 8.8 13.1 6.0 1.2 1.8 10.7 41.7
Source: Company, Nomura estimates
Jul10
With Malaysia’s generation mix increasingly tilted towards coal-fired capacity and management’s coal cost guidance for FY11F raised to US$100/MT-US$102/MT (US$88.2/MT in FY10), notwithstanding the partially alleviating impact of a strengthening ringgit, we expect increased margin pressure in the coming financial year should tariffs remain unchanged.
3,053 -5.4%
Jun10
Cost pressure looming
FY12F net profit (RMmn) Difference from consensus
Our above consensus FY11F profit reflect anticipated paper-revaluations gain on TNB’s yen and US$ debts; on a normalised basis our forecasts modestly below consensus.
We are broadly more positive on Indonesian and Philippine power markets given tight supply, robust medium-term consumption growth expectations and, for the latter, an unregulated generation sector and pro-investment regulatory regime.
On the back of a rebound in power demand in 2010 (+9%y-y) and with Bakun no longer destined to serve Peninsular Malaysia, the focus has once again turned to adding capacity. TNB is expected to add a further 1600MW to its capacity base over FY10/16F, with scope for an additional 1,000MW by 2016 should it successfully bid for the government’s second coal-fired capacity allocation in FY11F.
13.3% -6.3%
Nomura vs consensus
Anchor themes
Approaching another capex cycle
Upside/downside Difference from consensus
Source: Nomura
Although unlikely over the near-term given looming elections, we believe reform to Malaysia’s tariff setting mechanism would underpin a sharp re-rating of TNB.
Lack of credible catalysts
RM8.47
RM9.60
Price target
Apr10
+852 2252 2197 +852 2252 6213
May10
Daniel Raats Ivan Lee, CFA
3m (5.9) (6.6) (10.5)
Source: Company, Nomura estimates
Nomura
94
6 December 2010
6m 2.0 7.0 (15.6) 11,647 40.1 9.24/7.81 20.07 Hard 35.6 14.8
Tenaga Nasional
Daniel Raats
Financial statements Income statement (RMmn) Year-end 31 Aug Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY09 28,786 (16,974) 11,811 (8,470)
FY10 30,320 (17,379) 12,941 (9,141)
FY11F 32,013 (18,675) 13,338 (9,198)
FY12F 33,121 (19,416) 13,704 (9,621)
FY13F 34,431 (20,127) 14,304 (10,042)
3,342
3,800
4,140
4,084
4,262
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
6,903 (3,538) (24) 3,342 (950) 33 357 2,782 (690) 2,092 65
7,751 (3,926) (24) 3,800 (861) 45 382 3,366 (802) 2,564 5
8,282 (4,118) (24) 4,140 (759) 36 360 3,777 (965) 2,812 (16)
8,450 (4,343) (24) 4,084 (616) 37 375 3,880 (990) 2,889 (15)
8,859 (4,572) (24) 4,262 (510) 38 392 4,182 (1,066) 3,116 (16)
2,157 (1,239) 918
2,569 633 3,202
2,796 394 3,190
2,874 179 3,053
3,100 3,100
Dividends Transfer to reserves
(577) 341
(1,067) 2,135
(665) 2,525
(928) 2,124
(740) 2,360
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x)
17.0 19.3 40.0 1.6 5.7 1.4 7.7 15.8 41.0 24.0 11.6 3.2 24.8 62.8 14.3 1.2
14.3 16.2 11.5 2.9 4.5 1.3 6.4 12.9 42.7 25.6 12.5 10.6 23.8 33.3 12.5 1.0
13.1 14.9 11.5 1.8 5.1 1.2 6.0 11.9 41.7 25.9 12.9 10.0 25.5 20.8 17.2 1.3
12.8 14.5 12.0 2.5 5.0 1.1 5.6 11.6 41.4 25.5 12.3 9.2 25.5 30.4 15.1 1.2
11.8 13.4 11.8 2.0 4.7 1.0 5.3 10.9 41.5 25.7 12.4 9.0 25.5 23.9 17.4 1.3
3.6 5.2
11.7 5.9
10.7 6.3
9.4 6.0
8.8 6.1
16.3 1.5
5.3 12.3
5.6 6.9
3.5 2.0
4.0 4.8
2.9
13.7
8.9
(1.4)
4.4
(15.8) (15.8)
19.0 19.1
8.8 8.8
2.8 2.8
7.9 7.9
0.74 0.64 0.64 7.10 0.15
0.70 0.66 0.66 7.86 0.21
0.71 0.71 0.71 8.37 0.17
ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.21 0.50 0.50 6.00 0.13
0.74 0.59 0.59 6.64 0.25
Valuations are in very attractive risk-reward territory, in our view
…even factoring unflattering return metrics
Source: Nomura estimates
Nomura
95
6 December 2010
Tenaga Nasional
Daniel Raats
Cashflow (RMmn) Year-end 31 Aug EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
FY09 6,903 479 (983) 6,399 (4,128) 2,271 18 (3) 11 865 (776) 2,385 (477) 15 (1,205)
FY10 7,751 (162) 619 8,207 (3,776) 4,431 5 (5) 4,431 (621) 98 (703)
FY11F 8,282 531 (1,651) 7,162 (5,500) 1,662 37 78 (493) 378 1,662 (946) (3,241)
FY12F 8,450 (45) (1,085) 7,320 (5,000) 2,320 (37) 24 186 (174) 2,320 (744) (1,354)
FY13F 8,859 (72) (982) 7,805 (6,000) 1,805 (38) 24 202 (188) 1,805 (872) (1,149)
61 (1,605) 780 5,384 6,164 16,452
(1,025) (2,250) 2,181 6,164 8,345 12,919
(1,184) (5,371) (3,709) 8,345 4,636 12,835
(2,098) 222 4,636 4,858 11,080
(2,021) (216) 4,858 4,642 10,147
FY09 6,164 21 3,774 1,956 44 11,959 343 58,227
FY10 8,345 81 3,881 2,451 37 14,796 390 58,032
FY11F 4,636 21 4,201 2,105 47 11,010 413 60,160
FY12F 4,858 21 4,348 2,277 49 11,553 450 61,818
FY13F 4,642 21 4,522 2,453 50 11,688 488 63,246
834 71,363 1,158 5,604 501 7,263 21,458 16,596 45,317 40
864 74,081 3,163 5,597 941 9,701 18,101 17,465 45,267 36
786 72,369 1,595 6,407 645 8,647 15,876 16,972 41,495 73
762 74,582 1,390 6,661 667 8,718 14,548 17,158 40,424 88
738 76,159 1,254 6,905 703 8,862 13,535 17,360 39,756 104
4,337 15,480 325
4,353 18,389 425
4,337 19,854 747
4,337 23,403 465
4,337 25,448 650
Other equity and reserves Total shareholders' equity
5,865 26,006
5,612 28,779
5,864 30,802
5,864 34,070
5,864 36,299
Total equity & liabilities
71,363
74,081
72,369
74,582
76,159
1.65 3.5
1.53 4.4
1.27 5.5
1.33 6.6
1.32 8.4
Source: Nomura estimates
Balance sheet (RMmn) As at 31 Aug Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends
Modest gearing
Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x)
2.38
1.67
1.55
1.31
1.15
Net debt/equity (%)
63.3
44.9
41.7
32.5
28.0
45.8 45.0 116.0 (25.2)
46.1 46.3 117.6 (25.3)
46.1 44.5 117.3 (26.7)
47.2 41.3 123.2 (34.6)
47.0 42.9 123.0 (33.1)
Activity (days) Days receivable Days inventory Days payable Cash cycle Source: Nomura estimates
Nomura
96
6 December 2010
UEM Land Holdings Berhad U L H B M K P R O P E R TY | M AL AY S I A
Maintained NOMURA SECURITIES MALAYSIA SDN BHD
Jacinda Loh
+60 3 2027 6889
[email protected] BUY
Action
Closing price on 1 Dec
Our BUY call is premised on an undervalued landbank, which we think will re-rate on warming Sing-Malay relations. Our PT of RM2.88 implies a RM28psf price tag on its 8,379-acre landbank in Johor, where land sales range from RM12psf to RM180psf of late. As Khazanah’s flagship development arm, it stands to benefit from development of the land swap parcels, which we estimate to be worth 16% more than UEM Land’s current market cap. Implied upside of 35% to our PT exists on a potential full incorporation of Sunrise’s projects into UEM’s RNAV.
(set on 27 O ct 10)
Upside/downside Difference from consensus
35.2% 53.2%
FY11F net profit (RMmn) Difference from consensus
117.7 7.7%
Source: Nomura
Nomura vs consensus
Catalysts
Consensus is split. We are positive on the unlocking of landbank value on political breakthroughs and the Johor market, which is a key beneficiary of the Budget 2011 home ownership measures.
Continued news flow on catalytic developments, land sales and further JV tie-ups, plus positive outcomes of further warming of Sing-Malay relations. Anchor themes Compelling demographics and improving affordability are driving a consumption boom in Malaysia, which is likely to fuel property demand for the next decade.
“Free” lunch ahead
RM2.13
RM2.88
Price target
Key financials & valuations 31 Dec (RMmn)
FY09 FY10F FY11F FY12F
Re venu e Re porte d n et profit
468 111.6
239 7 3.8
54 2 117.7
807 153.7
relations
No rma lise d n et profit No rma lise d E PS (RM)
111.6 0.046
7 3.8 0.020
117.7 0.03 2
153.7 0.042
UEM Land’s 8,379-acre landbank can be monetised for anywhere between RM12psf and RM180psf, according to our estimates. Strategic land sales have historically contributed 16-79% of the topline. While management emphasises its commitment to three avenues of earnings, namely property, residential development and construction, we believe the absence of a long-standing track record versus peers is likely to ensure that the most credible form of valuation in the near- to mid-term will be in bulk based on its landbank value. Budget 2011 announcements increasing home affordability for houses priced < RM350,000 are likely to benefit the Johor market and UEM Land’s new projects in that price range, in our view.
No rm. EPS growth (% ) No rm. P/E (x)
54.9 46.3
(5 5.9) 10 5.1
59.5 65.9
30.6 50.5
EV/EBITDA (x) Price/b ook (x)
72.8 3.4
10 8.3 3.0
63.5 2.9
46.2 2.7
0.0 8.0
0.0 3.6
0.0 4.5
0.0 5.6
19.8
8.0
9.9
11.4
Previous n orm. net pr ofit Ch ange fro m previous (%)
7 3.8 -
117.7 -
153.7 -
Previous n orm. EPS (RM)
0.020
0.03 2
0.042
BUY and RNAV-based PT of RM2.88 Our RNAV-based valuation is based on recently transacted land values in the area, as well as the NPV of on-going projects. Our PT of RM2.88 implies a price tag of RM28psf in the Johor market, where land sales range from RM12psf (for raw land) to RM180psf (for prime commercial land) of late.
Nomura
Share price relative to MSCI Malaysia Price Rel MSCI Malaysia
(RM) 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0
180 160 140 120 100 Oct10
Nov1 0
Sep 10
Aug1 0
Ju l10
Jun10
A pr10
May10
80 Mar10
Recent newsworthy deals between the governments of Malaysia and Singapore (ie, railway land swap, wellness project development) have been cited as the biggest breakthroughs in Sing-Malay bilateral relations in four decades with expected record Singapore investments in the Iskandar Development Region this year. This, we believe, bodes well for UEM Land’s landbank capital appreciation and proposed residential developments in the long term. We estimate that full acceptance and consolidation of Sunrise’s projects could lift RNAV / PT by 8% to RM3.11. We also expect consolidated earnings to double while FY11F P/E halves.
Source: Company, Nomura estimates
Fe b10
Sunrise deal
Gearing (% ) Earnings revis ions
Jan 10
Potential upside from land swap, landbank purchase,
Divide nd yield (%) RO E ( %)
Dec09
Undervalued landbank, beneficiary of warming Mal-Sing
Absolute (RM)
1m ( 5.3)
3m 24.6
6m 55.5
Absolute (US $) Re lative to Index
( 7.1) ( 3.5)
23.6 19.7
63.0 40.4
Market cap (US$mn) Estimated fre e float (% )
2,460 23.0
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
2 .49/1.15 6.05
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Khazanah Nasional
77.0
Source: Company, Nomura estimates
97
6 December 2010
UEM Land Holdings Berhad
Jacinda Loh
Financial statements Income statement (RMmn) Year-end 31 Dec Investment properties Property development Hotels/serviced apartments Other Revenue Revenue EBIT contributions Investment properties Property development Hotels/serviced apartments Other income Management expenses EBITDA Depreciation and amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves
FY08 506 101 607
FY09 399 69 468
FY10F 239 239
FY11F 542 542
FY12F 807 807
66
83
38
90
134
68 (2) 66 (6) 11 3 74 (1) 73 (1)
86 (3) 83 (8) 29 23 127 (14) 113 (1)
43 (5) 38 (7) 29 23 82 (7) 75 (1)
96 (7) 90 (6) 29 23 135 (15) 120 (2)
141 (8) 134 (7) 29 23 178 (21) 157 (3)
72
112
74
118
154
72
112
74
118
154
72
112
74
118
154
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) EBIT margin (%) Effective tax rate (%) Dividend payout (%) ROA (pretax %)
71.8 97.1 71.8 na 4.1 104.9 107.9 10.9 0.9 2.7
46.3 62.7 46.3 na 3.4 72.8 74.8 17.7 11.0 3.5
105.1 142.1 105.1 na 3.0 108.3 117.1 15.9 8.8 1.9
65.9 89.1 65.9 50.7 2.9 63.5 67.0 16.5 11.2 3.1
50.5 68.3 50.5 41.9 2.7 46.2 48.4 16.5 11.7 4.0
Growth (%) Revenue EBITDA EBIT Normalised EPS Normalised FDEPS
(67.6) (84.0) (84.5) (88.0) (88.0)
(22.9) 26.2 25.6 54.9 54.9
(49.0) (49.7) (54.4) (55.9) (55.9)
127.0 122.0 136.7 59.5 59.5
49.0 47.1 49.0 30.6 30.6
0.03 0.03 0.03 0.51 -
0.05 0.05 0.05 0.63 -
0.02 0.02 0.02 0.70 -
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.03 0.03 0.03 0.74 -
Look beyond FY10F (where property development is still in gestation period) to a pick-up in sales / launches as well as continued landbank monetizing via strategic tieups and outright sales
0.04 0.04 0.04 0.78 -
Source: Nomura esti ma tes
Nomura
98
6 December 2010
UEM Land Holdings Berhad
Cashflow (RMmn) Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
Jacinda Loh
FY08 68 (80) (20) (32) (27) (59)
FY09 86 142 (250) (22) (23) (44)
FY10F 43 (437) 164 (229) (16) (245)
FY11F 96 (226) 283 153 (16) 137
FY12F 141 (47) 91 185 (17) 168
5 (11) (53) (118) 85 (161) 193 117 (1) 27 27 572
(329) 31 282 (61) (114) 130 134 150 89 27 116 585
(1) (185) (431) 965 1 (361) 605 174 116 290 21
(275) (139) 2 100 102 (37) 290 254 160
(91) 77 3 100 103 179 254 433 83
As at 31 Dec Cash & equivalents Properties held for sale Accounts receivable Other current assets Total current assets Investment properties Other fixed assets (net) Associates Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Shareholders' Equity Other equity and reserves Total shareholders' equity Total equity & liabilities
FY08 27 29 447 855 1,358 12 40 1,650 3,061 9 390 224 622 591 145 1,358 452 1,214 36 1,250 3,061
FY09 116 36 499 718 1,369 29 57 99 1,979 3,533 9 333 345 687 691 176 1,554 453 1,216 310 1,526 3,533
FY10F 290 499 894 1,684 29 67 128 1,979 3,887 11 37 345 392 300 175 868 454 1,821 744 2,565 3,887
FY11F 254 499 1,189 1,942 29 77 156 1,979 4,184 13 106 345 464 400 175 1,039 456 1,821 867 2,688 4,184
FY12F 433 499 1,297 2,229 29 87 185 1,979 4,509 16 166 345 527 500 175 1,202 460 1,821 1,026 2,847 4,509
Leverage Interest cover Gross debt/property assets (%) Net debt/EBITDA (x) Net debt/equity (%)
10.4 19.6 8.40 45.8
11.0 19.8 6.80 38.3
5.4 8.0 0.48 0.8
15.4 9.9 1.66 5.9
20.1 11.4 0.59 2.9
Dupont decomposition Net margin (%) Asset utilisation (x) ROA (%) Leverage (Assets/Equity x) ROE (%)
11.9 0.2 2.5 2.4 5.9
23.9 0.1 3.4 2.4 8.0
30.9 0.1 2.0 1.8 3.6
21.7 0.1 2.9 1.5 4.5
19.0 0.2 3.5 1.6 5.6
Fluctuations due to y-y changes in capitalized development costs as its property development projects are carried out
Source: Nomura esti ma tes
Balance sheet (RMmn)
Source: Nomura esti ma tes
Nomura
99
6 December 2010
WCT Bhd W C T M K I N D U S TR I AL S / E N G I N E E R I N G & C O N S TR U C TI O N | M AL AY S I A
Maintained NOMURA SINGAPORE LIMITED
[email protected] NEUTRAL
Action
Closing price on 1 Dec
WCT reported weak 3Q FY10 earnings with 9M at 10% below Street expectations. Construction disappointed with reduced earnings. WCT is looking to increase its exposure and earnings stream from property development and investment assets, but that will take some time, in our view. Trading at 18x CY11 P/E, close to its upcycle range, WCT looks expensive to us. Considering possible Street earnings downgrades post results, we maintain NEUTRAL on WCT.
(s et on 27 Oct 10)
Positive catalysts including newsflow regarding the MRT project and other awards in Malaysia, India and the Middle East. On the downside, slowdown in property momentum and delay in awards may pressure the stock.
We see limited upside, maintain NEUTRAL
4,667 147.1
2,208 15 2.3
2,59 1 190.9
3,049 238.1
No rma lise d n et profit No rma lise d E PS (RM)
147.1 0.19
15 2.3 0 .19
190.9 0.2 4
238.1 0.30
No rm. EPS growth (% ) No rm. P/E (x)
43.0 15.8
3.5 1 8.3
25.4 17.4
24.7 14.0
7.5 1.9
5.9 1.3
3.1 0.9
2.2 0.9
Divide nd yield (%) RO E ( %)
2.4 12.1
2.3 1 0.1
2.9 8.9
3.6 9.2
Ne t debt/eq uity (% ) Earnings revis ions
22.7 ne t ca sh net cash net cash
EV/EBITDA (x) Price/b ook (x)
Previous n orm. net pr ofit Ch ange fro m previous (%)
15 2.3 -
190.9 -
238.1 -
Previous n orm. EPS (RM)
0 .19
0.2 4
0.30
Source: Company, Nomura estimates
Share price relative to MSCI Malaysia Price Rel MSCI Malaysia
(RM) 3.4
115
Oct10
90 Nov1 0
95
2.4 Sep 10
100
2.6 Aug1 0
2.8
Ju l10
105
Jun10
110
3.0
A pr10
3.2
May10
Construction disappointed in 3Q with reduced earnings. Margins improved which could be due to strong JV contribution as reflected by a sharp rise in minority interest income. However, WCT has won sufficient projects over the past year. With recent project wins worth RM1.48bn, WCT looks on track to deliver RM2bn in inflows, as guided for initially. WCT may also get a good share in LRT packages, Pahang Selangor piping works and Iskandar shopping mall tenders, to be announced soon. We believe healthy accretion in the order book should ensure strong construction earnings growth medium term.
FY09 FY10F FY11F FY12F
Re venu e Re porte d n et profit
Fe b10
One of the few companies with healthy accretion to OB
31 Dec (RMmn)
Jan 10
Property development op income improved 204% y-y and 79% q-q to RM29mn in 3Q and operating margins improved sequentially by 4ppt to 34%. WCT is gearing up for new launches and targeting new landbank as its existing property projects mature. WCT’s venture into high-margin luxury and commercial property development should provide margin uptick in the property segment, in our view. WCT is also trying to increase its property management earnings, but significant inflection in these earnings will take some time, in our view.
190.9 7.3%
Key financials & valuations
Dec09
Property development & management to grow over time
FY11F net profit (RMmn) Difference from consensus
We believe the stock has limited upside on rich valuations. We have already built in strong earnings growth for FY11 and FY12, and we believe risks are on the downside.
Malaysia plans to achieve construction sector growth of 5-6% over the next two years, compared to 2-3% growth delivered by the sector over the past few years.
WCT reported 3Q earnings of RM31mn (down 8% y-y and 10% q-q). 9M FY10 earnings were 10% below Street expectations. Construction disappointed with a 16% drop y-y and 3% drop q-q in op profit. Property development op income was up y-y and q-q and margins improved. 9M formed only 67% of full-year consensus estimates and could lead to possible earnings downgrades.
18.2% -4.1%
Nomura vs consensus
Anchor themes
3Q FY10 below expectations; construction disappointed
Upside/downside Difference from consensus
Source: Nomura
Catalysts
Has run its course, time to pause
RM2.96
RM3.50
Price target
Mar10
Tanuj Shori +65 6433 6981 Raashi Gupta (Associate)
Absolute (RM)
1m ( 4.2)
3m 4.2
6m 11.7
Absolute (US $) Re lative to Index
( 6.0) ( 2.4)
3.4 (0.5)
17.1 (5.5)
Market cap (US$mn) Estimated fre e float (% )
738 48.2
52-week ra nge (RM) 3-mth avg daily turnover (US $mn)
3 .27/2.48 2.76
Sto ck borrowabili ty Majo r shareh olders ( %)
Hard
Employees Pro vid ent Fund WCT Capital
21.7 20.7
Valuations at 18x CY11PE, (at 0.4 SD above historical mean) look expensive, trading close to upcycle range. Maintain NEUTRAL. IJM remains our top pick among local players due to its diversified model.
Source: Company, Nomura estimates
Nomura
100
6 December 2010
WCT Bhd
Tanuj Shori
Financial statements Income statement (RMmn) Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit
FY08
FY09
FY10F
FY11F
FY12F
3,795 (3,613) 182
4,667 (4,422) 244
2,208 (1,936) 272
2,591 (2,257) 334
3,049 (2,644) 405
182
244
272
334
405
EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT
256 (74) 182 (44) 21
331 (87) 244 (50) 17
367 (95) 272 (51) 13
429 (95) 334 (54) 15
500 (95) 405 (54) 16
159 (13) 146 (44) (0)
211 5 216 (69) (0)
235 (66) 169 (17) 0
295 (83) 212 (21) 0
368 (103) 265 (26) 0
102 102
147 147
152 152
191 191
238 238
Dividends Transfer to reserves
(55) 47
(56) 91
(53) 99
(67) 124
(83) 155
Valuation and ratio analysis FD normalised P/E (x) FD normalised P/E at price target (x) Reported P/E (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x)
22.8 26.9 22.6 2.4 na 1.9 9.9 13.5 4.8 6.7 4.8 2.7 8.2 54.2 3.2 1.7
15.8 18.7 15.8 2.4 9.4 1.9 7.5 10.0 5.2 7.1 5.2 3.2 (2.3) 38.0 1.0 0.5
18.3 21.6 15.2 2.3 11.9 1.3 5.9 7.8 12.3 16.6 12.3 6.9 28.0 35.0 -
17.4 20.6 12.2 2.9 8.3 0.9 3.1 4.0 12.9 16.6 12.9 7.4 28.0 35.0 -
14.0 16.5 9.7 3.6 7.1 0.9 2.2 2.7 13.3 16.4 13.3 7.8 28.0 35.0 -
9.9 6.2
12.1 6.9
10.1 8.0
8.9 10.2
9.2 11.9
Growth (%) Revenue EBITDA
36.4 (27.5)
23.0 29.6
(52.7) 10.8
17.3 16.8
17.7 16.6
EBIT Normalised EPS Normalised FDEPS
(39.5) (43.0) (42.0)
34.1 43.0 43.6
11.6 3.5 (13.4)
22.7 25.4 5.2
21.3 24.7 24.7
0.13 0.13 0.13 1.53 0.07
0.19 0.19 0.19 1.60 0.07
0.19 0.19 0.16 2.26 0.07
ROE (%) ROA (pretax %)
Per share Reported EPS (RM) Norm EPS (RM) Fully diluted norm EPS (RM) Book value per share (RM) DPS (RM)
0.24 0.24 0.17 3.23 0.09
Margin expansion to pick up in FY10-11F
0.30 0.30 0.21 3.42 0.11
Source: Nomura esti ma tes
Nomura
101
6 December 2010
WCT Bhd
Tanuj Shori
Cashflow (RMmn) Year-end 31 Dec
FY08
FY09
FY10F
FY11F
FY12F
EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
256 (96) (225) (65) (122) (187) (65) 5 (587) 524 68 (242) (55) 47 258 1 251 9 711 719 414
331 152 (236) 247 (48) 200 8 35 (208) 163 198 (56) 2 (151) 0 (204) (6) 719 714 285
367 (56) (116) 195 195 (133) (50) (28) 28 11 (53) 418 153 0 518 528 714 1,242 (90)
429 (13) (137) 279 279 (15) 15 279 (67) 634 567 846 1,242 2,088 (936)
500 (15) (157) 329 329 (16) 16 329 (83) (83) 245 2,088 2,333 (1,181)
FY08 719
FY09 714
FY10F 1,242
FY11F 2,088
FY12F 2,333
1,451 151 180 2,500 625 627 6 722 4,480 302 1,390 0 1,692 831
1,478 114 248 2,553 617 603 19 687 4,478 207 1,600 1 1,808 792
1,016 85 255 2,598 750 500 12 737 4,598 570 1,061 1 1,632 581
1,191 99 255 3,633 765 405 12 737 5,552 570 1,237 1 1,807 581
1,401 116 255 4,105 781 311 12 737 5,946 570 1,449 1 2,019 581
600 3,123 169 6 368 372
392 2,992 233 4 369 465
364 2,577 250 4 787 564
364 2,753 271 4 1,421 688
364 2,965 298 4 1,421 843
443 1,188
416 1,254
416 1,771
416 2,529
416 2,683
4,480
4,478
4,598
5,552
5,946
Current ratio Interest cover
1.48 4.2
1.41 4.9
1.59 5.4
2.01 6.2
2.03 7.5
Leverage Net debt/EBITDA (x) Net debt/equity (%)
1.62 34.8
0.86 22.7
net cash net cash
net cash net cash
net cash net cash
129.3 12.4 135.5 6.2
114.5 10.9 123.4 2.1
Source: Nomura esti ma tes
Balance sheet (RMmn) As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities
Building in potential warrant dilution
Net cash due to warrant conversion
Liquidity (x)
Activity (days) Days receivable Days inventory Days payable Cash cycle
206.2 18.7 250.9 (26.0)
155.5 14.9 185.8 (15.4)
155.6 14.9 185.9 (15.4)
Source: Nomura esti ma tes
Nomura
102
6 December 2010
Strategy | Malaysia
Nomura
Wai Kee Choong
103
6 December 2010
Strategy | Malaysia
Nomura
Wai Kee Choong
104
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Other Team Members: Pankaj Suri, Nishit Jalan, Raashi Gupta, (Associates) — all enquiries arising from this note should be directed to Wai Kee Choong.
Any Authors named on this report are Research Analysts unless otherwise indicated ANALYST CERTIFICATIONS We, Wai Kee Choong, Julian Chua, Jacinda Loh, Ken Wong, Muzhafar Mukhtar, Daniel Raats, B. Roshan Raj, Andrew Kam Wing Lee and Tanuj Shori, hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
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Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America for ratings published from 27 October 2008 The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to price target defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'RS-Rating Suspended', indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.nomura.com/research);Global Emerging Markets (exAsia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.
Nomura
105
6 December 2010
Strategy | Malaysia
Wai Kee Choong
Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Price Target - Current Price) / Current Price, subject to limited management discretion. In most cases, the Price Target will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'RS' or 'Rating Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe, Middle East and Africa, US and Latin America published prior to 27 October 2008) STOCKS A rating of '1' or 'Strong buy', indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. A rating of '2' or 'Buy', indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '3' or 'Neutral', indicates that the analyst expects the stock to either outperform or underperform the Benchmark by less than 5% over the next six months. A rating of '4' or 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark by 5% or more but less than 15% over the next six months. A rating of '5' or 'Sell', indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage. Nomura might not publish additional research reports concerning this company, and it undertakes no obligation to update the analysis, estimates, projections, conclusions or other information contained herein. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next six months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next six months. Benchmarks are as follows: Japan: TOPIX; United States: S&P 500, MSCI World Technology Hardware & Equipment; Europe, by sector Hardware/Semiconductors: FTSE W Europe IT Hardware; Telecoms: FTSE W Europe Business Services; Business Services: FTSE W Europe; Auto & Components: FTSE W Europe Auto & Parts; Communications equipment: FTSE W Europe IT Hardware; Ecology Focus: Bloomberg World Energy Alternate Sources; Global Emerging Markets: MSCI Emerging Markets ex-Asia.
Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008 STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Fair Value - Current Price)/Current Price, subject to limited management discretion. In most cases, the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. However, if the analyst doesn't think the market will revalue the stock over the specified time horizon due to a lack of events or catalysts, then the fair value may differ from the intrinsic fair value. In most cases, therefore, our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Recommendations are set with a 6-12 month horizon unless specified otherwise. Accordingly, within this horizon, price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. A 'Strong buy' recommendation indicates that upside is more than 20%. A 'Buy' recommendation indicates that upside is between 10% and 20%. A 'Neutral' recommendation indicates that upside or downside is less than 10%. A 'Reduce' recommendation indicates that downside is between 10% and 20%. A 'Sell' recommendation indicates that downside is more than 20%. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
Nomura
106
6 December 2010
Strategy | Malaysia
Wai Kee Choong
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Nomura
107
6 December 2010
Strategy | Malaysia
Wai Kee Choong
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Nomura
108
6 December 2010
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Nomura International (Hong Kong) Limited, Taipei Branch 17th Floor, Walsin Lihwa Xinyi Building, No.1, Songzhi Road, Taipei 11047, Taiwan, R.O.C. Tel: +886 2 2176 9999 Fax: +886 2 2176 9900
Seoul
Nomura Financial Investment (Korea) Co., Ltd. 17th floor, Seoul Finance Center, 84 Taepyeongno 1-ga, Jung-gu, Seoul 100-768, Korea Tel: +82 2 3783 2000 Fax: +82 2 3783 2500
Kuala Lumpur
Nomura Securities Malaysia Sdn. Bhd. Suite No 16.5, Level 16, Menara IMC, 8 Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Tel: +60 3 2027 6811 Fax: +60 3 2027 6888
India
Nomura Financial Advisory and Securities (India) Private Limited Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India Tel: +91 22 4037 4037 Fax: +91 22 4037 4111
Indonesia
PT. Nomura Indonesia Suite 209A, 9th Floor, Sentral Senayan II Building Jl. Asia Afrika No. 8, Gelora Bung Karno, Jakarta 10270, Indonesia Tel: +62 21 2991 3300 Fax: +62 21 2991 3333
Sydney
Nomura Australia Ltd. Level 25, Governor Phillip Tower, 1 Farrer Place, Sydney NSW 2000 Tel: +61 2 8062 8000 Fax: +61 2 8062 8362
Tokyo
Equity Research Department Financial & Economic Research Center Nomura Securities Co., Ltd. 17/F Urbannet Building, 2-2, Otemachi 2-chome Chiyoda-ku, Tokyo 100-8130, Japan Tel: +81 3 5255 1658 Fax: +81 3 5255 1747, 3272 0869
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