ECM to review 'hold' call on SP Setia

SP Setia Bhd, a Malaysian property developer, had its 'hold' stock rating and price estimate under review at ECM Libra Capital Sdn Bhd following a newspaper report of a potential land purchase in Kuala Lumpur.

The Edge weekly newspaper reported on January 15 that SP Setia probably won a bid to purchase a prime land in Bangsar after the company agreed to build a government health institute in Shah Alam, outside of Kuala Lumpur, citing an undisclosed news report in September.

ECM will review the rating and share price estimate of RM5.20 pending the announcement of the said land deal, it said in its research note today.

QL - QL making the most of Asean's natural assets

Stock Name: QL
Company Name: QL RESOURCES BHD
Research House: ECMLIBRA

QL Resources Bhd
( RM5.69)
Initiate coverage with a buy call at RM5.60 and target price of RM7.30: We initiate our coverage of QL Resources with a 'buy' recommendation and target price of RM7.30 based on 20 times CY11 PER. QL's products will benefit directly from rising global demand and price trends for food commodities. The group is one of Asia's largest surimi manufacturers and a Malaysian market leader in livestock feed trading, fish meal and egg production.

We have forecast a three-year forward forecast EPS CAGR of 17.3% (FY11/13), that will be driven by strong demand for QL's marine, livestock feed, poultry products and palm oil, with rising population and disposable income, as well as the group's steady capacity expansion. Diversification reduces earnings volatility by smoothing out the cyclical nature of its resource-based activities.

QL's expansion plan is both local and regional, with total group capex set to increase by 60% in the next two years to RM200 million annually. The group is replicating its business model in the Asean region with: (i) new poultry farms in Tay Ninh, Vietnam, and Cianjur, Indonesia; (ii) a new marine plant being constructed in Surabaya; and (iii) further planting and palm oil mill slated for its plantation in Tarakan, Kalimantan.

QL benefits from the government's pro-agriculture stance via tax incentives that translate to a lower tax rate (15% in FY10) and subsidised diesel for its deepsea fishing operations. The group's latest venture into renewable energy is directly in accordance with the government's promotion of green technology as contained in Budget 2011.

Despite what seems like expensive valuations, we are bullish on QL as we firmly believe it deserves premium valuation to peers as well as the market. QL's next two years' earnings CAGR of 16.1% is impressive compared with Malaysian peers of 5.6%. Furthermore, over the last 10 years, QL's average 12-month forward earnings growth is impressive at 23%. At our target price, PEG ratio is undemanding at only 0.9 times based on 10-year average growth rate.

MEDIA - Media Prima showing you the money

Stock Name: MEDIA
Company Name: MEDIA PRIMA BHD
Research House: ECMLIBRA

Media Prima Bhd
(Nov 18, RM2.24)
Maintain buy at RM2.22 with target price RM2.72: Media Prima (MPR) recorded 3QFY10 core net profit of RM51.3 million (+65% year-on-year, +64% quarter-on-quarter) bringing 9MFY10 core net profit to RM110.5 million (+183% y-o-y) or 72% of our earnings estimate. 9MFY10 revenue of RM1.1 billion (+116% y-o-y) and earnings before interest, tax, depreciation and amortisation (Ebitda) of RM267.3 million (+150% y-o-y) was above expectations at 78% and 79% of our 2010 estimate. 9MFY10 core net profit would have been higher by RM12.4 million if not for an ex-exceptional items tax rate of 32%

Unlike Star's 3QFY10 core net profit, MPR's 3QFY10 core net profit was sequentially driven higher by TV adex which expanded 51% q-o-q. We understand that MPR reduced its discounting rate by three percentage points (ppts) q-o-q to 64% to take advantage of improving consumer and thus, adex sentiment. This also explained Ebitda margins improving by three ppt q-o-q to 25%.

3QFY10 core net profit was higher y-o-y, not only due to adex growth but maiden contributions from NSTP and Kurnia Outdoor. New media losses expanded six fold y-o-y likely due to the launch of TonTon but was more than made up for by TV, radio and outdoor which all recorded y-o-y growth. 9MFY10 core net profit was of course higher y-o-y for the same reasons.

MPR also announced that it is revising its dividend policy from 25% to 50% net dividend payout ratio (DPR) to 25% to 75% net DPR effective this year. Going forward, dividends will be paid twice a year. To this end, it announced a single-tier interim dividend of four sen and another is expected to be announced at year-end. Assuming 75% net DPR, investors can expect another six sen net dividend per share or 3% net dividend yield at year-end.

We leave our earnings estimate unchanged. 4QFY10 will likely be a slightly weaker quarter due to the lack of adex friendly events. The last major adex friendly event was Hari Raya Aidifiltri in September or end 3QFY10. Our RM2.72 target price is based on 18 times one-year forward PER, the historical average. We continue to like MPR for its earnings outperformance and now its potential to pay more dividends. ' ECM Libra Investment Research

PARKSON - ECM keeps 'buy' call on Parkson

Stock Name: PARKSON
Company Name: PARKSON HOLDINGS BHD
Research House: ECMLIBRA



ECM Libra Investment Research has maintained its "buy" call on Parkson Holdings, with the target price unchanged at RM6.70.

In a research note today, it said the target price is unchanged, pending an anticipated better results in the second quarter financial year 2011, due to year-end festivities and strengthening domestic consumption growth in China and Malaysia.

The research house said Parkson's first quarter financial year 2011 core net profit of RM76.2 million was in line with its expectations.

Parkson's net profit rose by 18 per cent year-on-year in spite of revenue increasing by only two per cent.

"The weak revenue growth was the result of lower ringgit-denominated revenue given the currency''s strength against the Chinese renminbi and Vietnamese dong," it explained.

DAYANG - Dayang continues to slide

Stock Name: DAYANG
Company Name: DAYANG ENTERPRISE HOLDINGS BHD
Research House: ECMLIBRA

KUALA LUMPUR: Dayang Enterprise extended its losses on Wednesday, Nov 10 as investors were negative about its proposed rights issue.

At 11.52am, Dayang was down 11 sen to RM2.18. Volume traded was 1.23 million shares.

The FBM KLCI was down 0.41 of a point to 1,526.12. Turnover was 821.5 million shares valued at RM912.35 million. There were 289 gainers, 414 losers and 293 stocks unchanged.

ECM Libra Investment Research had raised its estimates to reflect stronger marine charter margins. It added'' Dayang has gained significantly in recent weeks, surging past its previous RM2.65 target price and the stock was fully valued now.

'Also, we view that the much talk about oncoming orders is already be priced in. We are revising Dayang from buy to HOLD as there is only 4% upside to our revised TP of RM3.17.

'The revised TP reflects FY11 EPS pegged to a 15 times price-to-earningsE (15 times is the average PE of small-mid cap oil & gas stocks). To note, the group announced a proposal for a one-for-four bonus issue to be followed by a one-for-four rights issue on Monday,' it said.

DAYANG - Dayang Ent cut to 'hold' at ECM Libra

Stock Name: DAYANG
Company Name: DAYANG ENTERPRISE HOLDINGS BHD
Research House: ECMLIBRA



Dayang Enterprise Holdings Bhd, a Malaysian oil and gas services provider, was cut to "hold" from "buy" at ECM Libra Capital Sdn Bhd because the stock has limited upside as incoming orders have already been priced in.

The share price estimate was raised to RM3.17 from RM2.65, analyst Bernard Ching, said in a report today.

The stock rose in Kuala Lumpur trading, set for a record close after the company proposed a bonus share issue and third-quarter profit more than doubled.

The stock climbed 1 per cent to RM3.07 at 9:13 am local time. -- Bloomberg

SUNWAY - ECM keeps 'buy' call on Sunway

Stock Name: SUNWAY
Company Name: SUNWAY HOLDINGS BHD
Research House: ECMLIBRA



ECM Libra Investment Research has maintained a "buy" call on Sunway Holdings Bhd with its target price remaining unchanged at RM2.61.

This is premised on strong earnings growth of 67.6 per cent in the financial year 2010, more landbank acquisitions in the pipeline, and its strength in securing overseas construction contracts, ECM Libra Investment said in a research note today.

Last Friday, Sunway announced that it had entered into a Memorandum of Understanding (MoU) with Shanghai Zhushengyuan Real Estate Co. Ltd (SZRE). - Bernama

KLK - KL Kepong buys land at reasonable price

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD
Research House: ECMLIBRA



The acquisition of 7,177 hectares will add to the 133,114-hectare oil palm landbank of Kuala Lumpur Kepong Bhd (KLK) in Indonesia, according to ECM Libra Investment Research.

KLK announced yesterday its subsidiary KL-Kepong Plantation Holdings Sdn Bhd was buying 95 per cent of PT Bumi Makmur Sejahtera Jaya (PTBMS) from Tjong Hasan Agus Salim and Tjhang Ardy Fadrinata.

PTBMS holds two certificates of Izin Lokasi for land measuring 2,336.62 hectares in Desa Mentawak and Desa Air Kelik, Kecamatan Kepala Kampit, Belitung Timur, and another 4,840 hectares in Desa Lilangan, Desa Limbongan, Desa Jangkar Asam, and Desa Gantung, Kecamatan Gantung, Belitung Timur.

"In terms of purchase price for the Izin Lokasi (location permit) land, the purchase price comes up to roughly RM12,300 per hectare," ECM Libra Investment said in an equity note today.

"Generally, RM12,000 per hectare for green-field land is a reasonable price to pay, whether in Malaysia or in Indonesia," it said.

ECM Libra Investment said that KLK has a planting target of 15,000 hectares per annum.

"With its current unplanted landbank in Indonesia (including the acquisition) and assuming no new acquisitions, the group will take 4.2 more years to complete planting. Major maturities in Indonesia will kick in two to three years' time," it said.

ECM Libra Investment said it continued to have a "buy" on KLK with a target price of RM21.70. -- Bernama

SIME - Sime Darby is a dark horse

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: ECMLIBRA

Sime Darby Bhd
(Oct 18, RM8.81)
Upgrade to buy at RM8.84 with revised target price RM11.80 (from RM7.75): Year-to-date, Sime Darby's stock lags significantly behind the FBM KLCI's 17.6% gain at a -1.45% decline, making it a serious laggard. With improving crude palm oil (CPO) fundamentals, we believe Sime's plantation segment could shine through the problems that Sime Engineering has caused.

We expect the Malaysian equity market to be driven by foreign net equity inflows in 4QCY10, and in this respect Sime is also a laggard. Its foreign shareholding hit a high of about 22.3% in early 2008 before the commodity price crash. Management says foreign shareholding is at 14% as at 3QCY10, which indicates there may be upside should foreigners take further interest in the stock. To note, quarter-on-quarter, foreign shareholding has already gained 0.9 percentage point.

Keeping CPO prices buoyant at the moment are: (i) stronger exports driven by new demand from Pakistan and Egypt, as well as demand from the US and EU; (ii) production is a bit weak as October production surge may not be sufficient to take the industry through the upcoming festive season and 1QCY11 cyclical downturn in production; and (iii) potential for a supply crunch in the soyabean market despite record crops in North America as supplies are eing mopped up by China and from bio-diesel demand.

We are raising our FY11 CPO average selling price (ASP) to RM2,700 per metric ton from RM2,400 previously and raising FY12 CPO ASP from RM2,400 to RM2,600. Changes to our EPS actually show a decline from previous estimates as we have made adjustments to other segments, which are: (i) assuming that the E&U division breaks even at best (previously we were forecasting some RM150 million profit); (ii) lower property segment margins from 33% to 25% as were seen in FY10; and (iii) flattened growth prospects for the industrial segment due to slow machine orders.

When CPO prices reached past RM3,000 in early 2008, Sime traded at a rolling forward PER in excess of 25 times. Currently, Sime still trades at 18 times on FY11 EPS. We believe there is still room to run given the said fundamentals. As such, we are raising our PER target to +1 standard deviation above historical average which gives a PER of 24 times. Pegging FY11 EPS to 24 times raises our target price to RM11.80 (RM7.75 previously on 15 times PER) which implies 35% upside from the current price. ' ECM Libra Investment Research, Oct 18


This article appeared in The Edge Financial Daily, October 19, 2010.