Strong prospects seen for Gamuda

GAMUDA BHD
By RHB Research Institute Sdn Bhd
Buy (maintained)
Target price: RM4.49
WE
maintain our “buy” call, forecasts and fair value of RM4.49 on strong
prospects backed by a healthy outstanding construction order book and
construction order book pipeline, as well as strong property sales in
Malaysia, particularly, from Iskandar Malaysia.
The significant
roles played by Gamuda in the Klang Valley MyRapid Transit (MRT)
project make it undisputedly the best proxy to public infrastructure
spending in Malaysia.
Gamuda has set its sights on local jobs
worth about RM10bil over the immediate term comprising the Langat 2
water treatment plant (RM1.5bil), the tunnelling package for Line 2 of
the Klang Valley MRT (RM4.5bil) and the Southern (Gemas-Johor Bahru)
double-tracking project (RM4bil).
Gamuda said its share of
losses amounting to about RM119mil from two unfavourably ruled
arbitration cases with Wayss & Freytag (a subcontractor for the
SMART tunnel project) and Bahrain Asphalt Establishment (a
sub-contractor for the Dukhan Highway in Qatar) would be recognised in
the coming third quarter 2012 results.
On a brighter note, Gamuda said it did not have anymore outstanding material contract dispute with any client or supplier.
Gamuda
is on track to meet its financial year 2013 (FY13) property sales
target of RM1.35bil in Malaysia. Already, in the first eight months of
FY13, it achieved RM950mil property sales, with Horizon Hills in
Iskandar being the star performer, contributing about RM550mil.
However, Gamuda said the near-term outlook of the property market in Vietnam remained uncertain.
Post-13th
general election, we believe investors should refocus on sector
fundamentals that are reasonably attractive underpinned by a
construction upcycle.
We like Gamuda as it is the best proxy to
public infrastructure spending in Malaysia and we believe the Sg
Buloh-Kajang MRT Line project has gone beyond “the point of no return”,
given the massive physical works that have already been carried out on
the ground. Fair value is RM4.49.
MALAYSIA MARINE AND HEAVY ENGINEERING HOLDINGS BHD (MMHE)
By Kenanga Research
Underperform
Target Price: RM3.39
Contrary
to our initial view that fabrication contracts will be dished out by
mid-2013, we learnt that most of the larger fabrication contract awards
could be pushed to end-2013 and/or early mid-2014.
Management is
not exactly clear on the reasons for the potential delays but given
this scenario, it believes that the company may not be able to meet its
targeted RM3bil contract wins for financial year ending Dec 31, 2013
(FY13).
As at December 2012, MMHE's order book stood at RM3bil.
However, about 60% of the order book is expected to be completed in
2013.
On the other hand, management is uncertain if it can
achieve the requisite 25% threshold of its revenue recognition policy
for the Malikai TLP project, which means any contributions are likely
to be only in FY14.
Again, this is also contrary to our initial
assumption. The Malikai TLP project is expected to be completed by
third quarter FY15.
MMHE has embarked on cost rationalisation
and efficiency enhancement exercises to improve its execution track
record and margins. In its bid to do so, one of the strategies was to
sign long-term agreements with five key contractors on the provision of
structural fabrication services, and long-term agreements with 19
vendors on the supply of structure, piping and electrical and
instrumentation materials.
While this should result in future
margin expansions for the company, we understand that the impact would
not be in the near term as the restructuring takes time, and that the
new long-term agreements will only impact fabrication contracts won
after the Malikai TLP project.
These, as mentioned, could only
come in by 2014, at the earliest. Moreover, we understand that future
tenders could increasingly be open to international competitors, which
could put a cap to any potential exorbitant margin expansions, moving
forward.
In our view, all these factors could mean that FY13 margins could be, at best, flat in the near term.
Based on the reasons above, we are now taking a conservative view on MMHE's prospects.
Hence,
we are trimming our order book replenishment for FY13 and FY14 to
RM1.5bil and RM3.5bil respectively, from RM2.8bil and RM4bil
previously; and earnings before interest and taxes margins to 5.5% and
6.5% respectively, from 8.5% and 9% previously.
On the overall, we are cutting our FY13 and FY14 net profits by 34% and 30.2% respectively.
We
have rolled-forward our earnings base to FY14 as we are approaching the
mid-year. Consequently, our target price drops to RM3.39, from RM4.05
previously, based on an unchanged 18 times price-earnings ratio (PER)
with the lower FY14 earnings per share of 18.8 sen.
At this juncture, the stock is trading at calendar year 2014 (CY14) PER of 20.3 times vis-vis the CY14 PER of 14.8 times that SapuraKencana Petroleum Bhd is trading at.
We view this as expensive, considering that both stocks offer similar net profit growth of about 25.3% and 26.7%.
Given
that our target price implies a 10.5% downside to current share price,
we are downgrading our call to “underperform”, from “market perform”
previously.
Catalysts for a change to our call would be higher-than-assumed job wins and group margins.
BANKING SECTOR
By Maybank IB Research
Overweight (unchanged)
Loan
growth slipped from 11.4% year-on-year (y-o-y) in February 2013 to
10.6% y-o-y in March 2013, with the slippage in corporate lending being
the primary cause of this.
Much remains a waiting game for now,
for we do think that sentiment has been somewhat dampened by the
general election and that there should still be a pick-up in momentum
thereafter.
Our 2013 loan growth forecast of 10.7% is maintained, along with our “buy” call on AMMB, BIMB, RHB Capital and Hong Leong Financial Group, in that order.
Household
loan demand continues to be strong, up 12.1% y-o-y in March 2013 versus
12.2% in February 2013, but non-household loans grew by just 8.7% y-o-y
versus 10.5% in February.
Positively, however, non-household
loans rose 1.1% month-on-month (m-o-m) versus just 0.3% increase in
February, recovering from shorter working days in the previous month.
We
do think that businesses have adopted a more cautious stance ahead of
the general election while the award of some of the projects has been
deferred as well.
However, with just 11% of the total Economic Transformation Programme commitment of RM211bil actualised as at end-2012, we see much room for pick-up in the months ahead.
Loan
applications and loan approved declined 13% y-o-y and 10% y-o-y
respectively in March 2013. Contributing to both was a drop in
application and approvals for working capital loans.
Asset utilisation was stable, with the industry's loan or deposit ratio at 81.6% as at end-March 2013 (81.5% end-February).
Current
accounts savings accounts (CASA) grew at a slower pace of 11.4% y-o-y
versus 12.4% y-o-y in February and accounted for a lower 25.6% of total
deposits versus 26.1% at end-February.
The spread between
average lending and fixed-deposit rates dipped 2 basis points (bps)
m-o-m in March to 1.68%. The trend remains down and banks have
continued to guide for further margin compression of about 5 to 10bps
this year.
Overall, non-performing loan (NPL) ratios were down
across all segments, leading to a decline in the industry's gross NPL
to 1.99% at end-March, this being a historic low.
Loan loss coverage improved to 99.2% at end-March from 98.5% at end-February.
OIL AND GAS
By AmResearch Sdn Bhd
Overweight
Marginal
field developments in Malaysia may be getting a second wind from the
findings that their reserves may be much larger than earlier estimated.
Petroliam Nasional Bhd (Petronas)
has announced that the Cendor field development, the first marginal
field development in the country, has performed above expectations and
has significantly increased the recoverable reserves in Block PM304,
off Terengganu.
The group confirmed the presence of oil and some gas-bearing reservoirs after drilling to a depth of over 1,000 metres.
Recall that drilling was undertaken by Petrofac (Malaysia PM304) Ltd, the operator for Block PM304, together with joint-venture partners Petronas Carigali Sdn Bhd, Kuwait Foreign Petroleum Exploration Co and PetroVietnam Exploration Production Corp Ltd.
The
Cendor field was first discovered by Amerada Hess in 2001. However, the
discovery was initially regarded as marginal with estimated recoverable
resources of only 12 million barrels of oil and was therefore deemed
too risky and uneconomical for development.
In May 2004, Petrofac acquired Amerada Hess' interest and assumed operatorship of Block PM304.
According
to Petronas' announcement, the efforts undertaken has successfully
transformed Cendor from a field deemed marginal, which means reserves
of below 30 million barrels, to one of the biggest oilfields in
Malaysia.
These other developments in PM304, through
fast-tracked efforts in the last two years, are expected to commence
production in stages throughout 2013 which will propel production to
30,000 barrels per day by the end of the year.
This significant
increase in reserves from marginal fields augurs well for prospective
marginal field developments in the country.
Excitement in this
sector will be further supported by contract awards emanating from the
RM60bil RAPID project in Pengerang and tank terminal projects in
southern Johor, together with the massive gas cluster projects off
Sabah and Sarawak, which are tied in to the completion of the Bintulu
LNG complex expansion in 2015.
Hence, we maintain our “overweight” call on the sector with “buy” calls for SapuraKencana Petroleum, Bumi Armada, Dialog Group and Alam Maritim.