KPJ earnings forecast trimmed

by **Cals** Sat 30 Nov 2013, 17:12

Published: Saturday November 30, 2013 MYT 12:00:00 AM
Updated: Saturday November 30, 2013 MYT 6:53:48 AM
KPJ earnings forecast trimmed
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KPJ HEALTHCARE BHD
By AffinInvestment Bank
Reduce (downgrade)
Target price: RM5.85

FOR the third quarter ended Sept 30, 2013, KPJ Healthcare Bhd registered a weaker core net profit of RM19.4mil (-41.8% year-on-year), taking the nine-month core net profit to RM69.8mil (-31.3% year-on-year).
This came in below AffinInvestment Bank and consensus expectation, accounting for only 50% of AffinInvestment’s and 57% of consensus’ estimates, which was primarily due to start-up costs from its recently opened hospitals – KPJ Klang and KPJ Pasir Gudang, as well as losses from its Indonesian hospital.
KPJ declared a second interim dividend of 2 sen for the quarter.
AffinInvestment continues to be upbeat on KPJ’s ongoing expansion roadmap.
However, in the near-to-medium term, the initial start-up cost will be a dampener on the group’s bottomline, while theoretically, the gestation period of a new setup is three to five years.
AffinInvestment cut its financial year ending Dec 31, 2013 to 2015 earnings forecast by 9% to 20% from expected higher operational costs from the opening of new hospitals.
At current price level, the stock is trading at 25 times 2014 price-earnings ratio (PER) and 15 times enterprise value per EBITDA (EV/EBITDA).
Given the earnings downgrade, AffinInvestment has lowered its target price to RM5.85 tagged to 24 times 2014 PER, which equates to 14.4 times EV/EBITDA. As such AffinInvestment downgrades KPJ to “reduce”.

PUNCAK NIAGA HOLDINGS BHD
By CIMB Research
Trading buy (maintain)
Target price: RM3.83

PUNCAK Niaga Holdings Bhd’s annualised nine-month ended Sept 30, 2013 core net profit made up 75% of CIMB Research’s full-year forecast but was 3% above consensus.
The main deviation came from its lower-than-expected earnings before interest, tax, depreciation, and amortisation (EBITDA) margin.
The absence of dividends was within expectation.
The latest clarification of Kumpulan Darul Ehsan Bhd’s takeover proposal on Puncak’s water assets looks favourable for valuations. This is because the valuation deficit arising from the combined total debt of over RM4bil for Puncak Niaga Sdn Bhd (PNSB) and Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) versus lower net book value is likely to be waived.
This means that working on the total equity value of RM1.6bil, which translates to RM3.80 per share for Puncak.
CIMB reduced its sum-of-part (SOP) discount from 30% to 20%, as the clarification on takeover valuations looks favourable for Puncak. Newsflow should intensify leading to the new deadline on Dec 4. CIMB cut its financial year ending Dec 31, 2013 to 2015 earnings per share and impute, in its SOP, equity values of PNSB and Syabas based on the state’s offer.

GENTING BHD
By Alliance Research
Trading buy (maintain)
Target price: RM12.50

Alliance Research said Genting Bhd’s nine-month financial year 2013 net profits came in within expectations.
It said stripping out the various exceptional adjustments including one-off social responsibility contributions estimated to be about RM190mil incurred in first quarter financial year 2013, the group reported nine-month financial year 2013 core net profit of RM1.47bil, representing 73.3% of its full year earnings estimates.
It revised its financial year 2013 to financial year 2015 core earnings per share estimates by -0.6% to 2.3%, to mainly account for the combined effect of 6% increase in financial year 2013 earnings per share of Genting Malaysia, lower financial year 2013 earnings per share by 16.5% for Genting Plantation, and housekeeping changes.
It raised its target price for the group from RM11.24 to RM12.50, upon updating the consensus target price for Genting Singapore and our house target price for Genting Plantation.
Alliance is maintaining a trading buy on the company.

TELEKOM MALAYSIA BHD
By RHB Research
Neutral (maintain)
Target price: RM5.50

RHB Research said Telekom Malaya Bhd (TM)’s nine-month 2013 results were a positive surprise due to better-than-expected earnings before interest and tax (EBIT) margins. It said management was tight-lipped on plans for HSBB Phase 2, but indicated that it was a continuation of the current partnership with the government, which suggests possible further government co-investment.
It said the continued strength of TM’s EBIT margin was still a positive surprise but runs contrary to management’s initial expectation that margins will be squeezed in second half from high labour, content and HSBB maintenance costs.
It said margins would likely trend lower in fourth quarter, as TM ramped up marketing activities, the full-quarter impact of Astro SuperSport channels was felt while new customer projects may increase maintenance costs.
RHB Research maintained a neutral stance on the company with its revised discounted cashflow based fair value at RM5.50.
“As financial year 2014 earnings growth is lacking due to the expiry of tax incentives on top of the minimal room to gear up further for capital management initiatives, we think the stock lacks immediate catalysts,” it said.
It also raised its financial year 2013 forecast and financial year 2014 FY13F-14F earnings by 10 to 11% after factoring in the better-than-expected EBIT margins and low taxation.