CIMB Bank wins ‘Best Internet Bank in Malaysia’

KUALA LUMPUR: CIMB Bank Bhd clinched the inaugural Best Internet Bank Award in Malaysia at Global Finance’s World’s Best Internet Bank Awards, at its ninth annual awards dinner in New York.

Joseph D Giarraputo, publisher of Global Finance magazine said: “The world is becoming increasingly connected and more and more people are looking for convenience online. CIMB Bank has proven that the online facilities it offers its customers provide them just that, with no compromise to security.”

“CIMB Clicks, our online banking platform, has gained great traction in its uptake and as such, it is important that it consistently exceeds customers’ expectations for online banking. This award will spur us on to take it to greater heights,” said Peter England, head of retail and financial services with CIMB Bank.

The winners of the awards were selected based on the strength of their strategy for attracting and servicing online customers, success in getting clients to use web offerings, growth of online customer base, breadth of products offered, evidence of tangible benefits gained from Internet initiatives, and web site design and functionality.


This article appeared in The Edge Financial Daily, November 21, 2011.



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InsiderAsia’s model portfolio - 456

Last week was another bad one for global equities as developments in Europe continued to dominate headlines despite better-than-expected economic numbers in the US. On the local front, Bursa Malaysia’s designation of Harvest Court Industries Bhd also affected sentiment for retail and penny stocks.

Concerns over the widening eurozone debt crisis — which is stalking one country after another — remained pivotal, with attention shifting from Greece to Italy and now to Spain.

Bond yields in Italy and Spain rose last week as worries grew over the ability of eurozone leaders to contain the crisis. A Spanish government bond auction ended with a euro era high average yield just under 7%. US officials have also started warning that the debt crisis could affect US economic growth.

Indeed, the selloff came despite a number of better-than-expected economic reports from the US last week, including data on retail sales, industrial production, manufacturing activity and jobless claims. The latter showed the number of people applying for unemployment benefits dropped to a seven-month low. US home building also fell less than expected in October.

However, investor attention remained firmly set on the other side of the Atlantic.

On the local front, Bursa Malaysia’s classification of Harvest Court knocked the wind not only out of the sails of the former high-flying stock, but also penny and retail stocks in general. It was a move lauded to prevent excessive speculation, but some would argue that it was a little late in coming.

Harvest Court’s shares had surged some 30 times in the space of just about a month — hitting a high of RM2.14 on Nov 14, before trading restrictions were imposed. Its shares have hit limit down twice after being re-listed from a one-day suspension, but resumed its rally on Friday, rising 31% to RM1.36, still a third down from its peak.

Over the past week, the FBM KLCI lost 14.4 points or 1% to close at 1,454.4.

Portfolio review
Stocks in our model portfolio outperformed the benchmark index substantially in the past week. Total market value for our basket of 17 stocks was up by 0.71% to RM379,850, compared with the FBM KLCI’s 1% loss. Eight stocks in our portfolio chalked up gains, seven had losses while two were unchanged.

Bumi Armada Bhd was our top gainer for the week, rising 5.6%. This followed the announcement that the oil and gas player will be added to the MSCI Malaysia Index effective end-November.

DiGi.Com Bhd continued to chalk up good gains, rising 4.6% last week, ahead of its share split exercise. The stock will trade ex today for a subdivision of one ordinary share of 10 sen into 10 ordinary shares of 1 sen each. DiGi’s shares also traded ex last week for a 37 sen dividend, which we have added to our pool of realised profits.

Other notable gainers include two of our REITs — Al-’Alqar KPJ REIT (up 3.5%) and Al-Hadharah Boustead REIT (up 3.4%). The losers were led by Pantech Group Holdings Bhd warrants (down 8.3%) and CIMB Group Holdings Bhd (down 4.8%).

Including our cash holdings, for which no interest income is imputed, our total portfolio value was up by a lesser 0.41% to RM659,803.

Last week’s gains boosted our model portfolio’s cumulative returns since inception to 312.4% on our initial capital of just RM160,000. We continue to outperform the FBM KLCI, which was up by about 124.9% over the same period, by some distance.

Our total profits are very substantial at RM499,803, of which RM399,793 has already been realised from previous shares sales.

We kept our portfolio unchanged last week.


Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.


This article appeared in The Edge Financial Daily, November 21, 2011.



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Kossan set to bounce

Kossan Rubber Industries Bhd (Nov 18, RM3.08)
Upgrade to buy at RM3.07 with revised target price of RM3.59 (from RM3.04): Kossan’s 9MFY11 results were in line with our and consensus expectations, accounting for 70% and 68% of the full-year figure respectively. As expected, 9MFY11 earnings were 24.1% lower year-on-year (y-o-y) at RM67.5 million.

The good performance in 3QFY11 is unsurprising as the latex price has softened to RM6.77 per kg from its highest level in April 2011 of RM10.93. Higher earnings of RM23.6 million (+12.9% quarter-on-quarter [q-o-q]) were mainly anchored by strong results from both its divisions. Pre-tax profit surged 25.2% q-o-q for its gloves (due to lower latex price) and 16% for its technical rubber products (TRP) (strong demand from automotive sector). Earnings before interest and tax (Ebit) margin for 3Q fell within our estimate of 11% to 12% at 11.8%. We expect Ebit margin for FY11F to average around 11.5% to 12%.

Kossan has declared an interim tax-exempt dividend of three sen which is expected to be paid on Dec 20. The three sen accounts for about 40% of our full-year figure.

We are rolling our valuation to FY12F with a price-earnings ratio of 10 times, which is Kossan’s three year-historical average PER. Thus, we derive a higher target price of RM3.59 (from RM3.04). Therefore, we are upgrading our call to “buy” from “neutral” previously. We believe that average FY12 PER of 10 times is sensible given that Top Glove Corp Bhd has always traded at a premium among glove players with a multiple of 14 times and Hartalega Holdings Bhd at 11 times. — MIDF Research, Nov 18


This article appeared in The Edge Financial Daily, November 21, 2011.



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APM Automotive’s 3Q earnings disappoint

APM Automotive Holdings Bhd (Nov 18, RM4.40)
Maintain market perform at RM4.40 with fair value of RM4.50: APM’s 3QFY11 results were below expectations. Net profit for the quarter reached RM26.8 million (-4.41% quarter-on-quarter [q-o-q] and -11.4% year-on-year [y-o-y]) while cumulative 9MFY11 profit fell 12.2% y-o-y to RM82.7 million. Cumulative earnings amounted to just 66.4% of our previous 2011 estimate. The main reasons for the discrepancy were unfavourable average foreign exchange rates and operational upgrades that are likely related to costs associated with the consolidation of the Seri Kembangan plant to Port Klang during the quarter. In addition, effective tax rates for the quarter spiked higher to 29.6% due to deferred tax adjustments.

Revenue for the quarter rose 7.2% q-o-q to RM297.2 million, helped by the 10.3% q-o-q rebound in total industry volume (TIV). Cumulative revenue for 9MFY11 fell 1.7% y-o-y that was broadly in line with the 0.7% contraction in domestic TIV for the period. Revenue from overseas operations (mainly in Indonesia and Australia) disappointed, falling 24.7% y-o-y for the quarter and 15% y-o-y for the 9MFY11.

Higher revenue for the quarter helped lift earnings before interest and tax (Ebit) margin to 14.7% from 13.9% for 2QFY11 and 13.7% for 1HFY11.

We lower our 2011 forecasts by 9.4% after trimming our margin assumptions and factoring in higher effective tax rates. Our 2012/13 earnings estimates are unchanged. Prospects in 2012 remain decent, helped by strong sales of the new Myvi and supply of modules to DRB-Hicom Bhd for the locally assembled Volkswagen. APM’s longer term growth potential remains intact and will benefit from the ongoing localisation programmes by domestic assemblers in addition to being well-positioned to benefit from efforts by OEM auto manufacturers to geographically diversify and improve their supply chain redundancies after the natural disasters experienced by Japan and Thailand this year.

Key risks are lower car sales and unfavourable forex trends.

We make no change to our “market perform” recommendation and fair value estimate of RM4.50 derived from applying a 6.5 times target price-earnings ratio to 2012 earnings (unchanged). We believe APM is close to being fairly valued given 2010 to 2013 earnings compound annual growth rate of 5.8%. APM’s share price should also be supported by an expected gross yield of 5%. — RHB Research, Nov 18


This article appeared in The Edge Financial Daily, November 21, 2011.



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Pavilion REIT — initial public offering

Pavilion REIT (Offer price 88 sen)
Fair value of RM1: Pavilion REIT will be the sole premium retail REIT in Malaysia upon listing, with its most valuable asset being Pavilion KL Mall (with 1.3 million sq ft of net lettable area [NLA]), which is valued at RM3.4 billion. The REIT also manages Pavilion Tower — a 20-storey office tower with 167,400 sq ft of NLA valued at RM128 million. Pavilion KL Mall has a diversified tenant base, ranging from supermarkets/department stores (Parkson, Mercato) to high-end fashion outlets (Prada, Gucci, Michael Kors) only available in one or two malls in Malaysia. Overall occupancy rate is 99% with average rental rates of RM16.76 per sq ft (retail) and RM5.92psf (office).

Near-term growth will be organic, driven by positive rental reversions on expiring leases. Some 67.2% of Pavilion KL Mall’s leases are due to expire in FY13, which would lift our FY13F revenue forecast by 4% year-on-year (assuming 5% rental rate hike) to RM324.7 million. Y-o-y growth for FY12 is expected to be marginal as only 5.5% of the mall’s occupied NLA is set for renewal. We understand the managers are actively searching for yield accretive acquisitions in the Klang Valley, Penang and Johor that fit the REIT’s profile. Pavilion REIT also possesses rights of first refusal (ROFR) for Pavilion KL Mall extension and a retail mall in USJ Subang Jaya. Pavilion REIT also has ROFR for fahrenheit88, a 300,000 sq ft NLA mall located nearby, with plans to inject it into the REIT as early as 2014.

Pavilion REIT — which would be using 93% of its gross IPO proceeds of RM695 million to part finance the purchase price of RM3.3 billion — would have a gearing of 20.1% post-listing, below the 50% gearing limit. This suggests it could borrow an additional RM1 billion to fund its future acquisitions.

Our RM1 fair value is based on a discounted cash flow analysis with 7.5% weighted average cost of capital, 3% terminal growth and 0.5 Beta (based on CapitaMalls Malaysia Trust), thus valuing Pavilion REIT at a market capitalisation of RM3 billion. At our target price of RM1, the stock offers a distribution yield of 5.8% (based on FY12F dividend per unit of 5.8 sen). This is broadly comparable with the one-year forward yields for Sunway REIT (5.7%) and CapitaMalls Malaysia Trust (6.1%), its closest peers with dominant retail exposure and market capitalisation. — HwangDBS Vickers Research, Nov 18


This article appeared in The Edge Financial Daily, November 21, 2011.



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More losses in 3QFY11 for MAS?

Malaysian Airline System Bhd (Nov 18, RM1.40)
Downgrade to hold at RM1.41 with revised target price of RM1.55 (from RM2.70): MAS will release its 3QFY11 results in late November. We expect 3QFY11 to be loss-making due to the impact of 45% higher fuel price year-on-year (y-o-y) and the globally soft yield environment. The challenging global economy is undermining business activity, business confidence and the sentiment to travel. Against this backdrop, we have lowered our earnings forecasts and downgrade MAS to a “hold” (from “buy”) with a new target price of RM1.55 (from RM2.70) pegged to 5.6 times 2012 adjusted enterprise value/earnings before interest, tax, depreciation, amortisation and rental — on par with global peers.

MAS’ 3QFY11 passenger load factor contracted by 2.7 percentage points (ppt) y-o-y to 75.9%. Cargo load factor fell by 3.4 ppt y-o-y to 68.9%. The overall load factor (passenger + cargo) declined by 2.7 ppt y-o-y to 73.5%. Overall, we expect yield decline of 2% y-o-y, based on our observation of Singapore Airlines, Cathay Pacific Airways and Thai Airways’ results.

We estimate the Group’s 3QFY11 core net loss to be RM242 million after adjusting for FRS139 derivative mark-to-market which is non-cash. Fuel price was the culprit as it has risen by 45% y-o-y. Furthermore, the yield environment was very soft due to the challenging global economic outlook coupled with the negative impact of the Japanese disasters and Middle East uprisings.


The weak 3Q is likely to intensify based on the negative statements made by various other airline CEOs. We forecast 4QFY11 and the early part of 2012 to be loss-making for MAS after imputing for a higher jet fuel price of US$120 per bbl (previously US$110 per bbl) and a softer yield environment. MAS’ cost structure is not nimble enough to deal with the current market environment; it should be in better shape in 2HFY12 when it removes most of its old aircraft from the fleet.

We have lowered our earnings forecasts to adjust for higher fuel price, lower yields and lower capacity deployment. We are optimistic on the tie-up with AirAsia as it brings forth exciting opportunities with synergy potential in the billions; but execution plans are iffy in announcements and very slow. — Maybank IB Research, Nov 18


This article appeared in The Edge Financial Daily, November 21, 2011.



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WCT’s pillars are still strong

WCT Bhd (Nov 18, RM2.25)
Maintain outperform at RM2.40 with revised target price of RM3.20 (from RM3.30): Though we keep our valuation basis of 20% realisable net asset value (RNAV) discount, our target price is trimmed as we update for balance sheet items. The potential revival of project flows in the coming months supports our “outperform” call. WCT remains one of our top construction picks.

Overall 9MFY11 revenue was down 17% year-on-year (y-o-y) due to the depletion of jobs for the construction division and the timing of new launches for the property division. However, earnings before interest and tax (Ebit) margin climbed higher due to contributions from new jobs with better margins. This helped push core net profit up 15.3% y-o-y. Construction Ebit margin improved two percentage points y-o-y to 13%. We expect construction margins to hold steady from this point.

We continue to expect the RM4 billion worth of jobs that WCT has tendered for to start materialising in 2012. Some potential local jobs include the RM7 billion Gemas-Johor Baru double tracking, various large-scale building jobs worth around RM1 billion and private sector projects such the Vale iron ore facility which has yet to kick off in a big way. In the Middle East, prospects for order flows are still positive even though WCT is being more selective. Potential jobs include a building job in Bahrain and a highway project in Oman worth around RM1 billion each.

We think it is just a matter of time before project flows regain momentum as tenders approach the award stage. WCT’s order book visibility is intact. Within our construction coverage, the stock is one of the worst performers, having fallen 25% year-to-date. We believe that its share price has largely priced in the potential negatives, especially concerns over order book visibility. The stock is trading at a 40% discount to RNAV. — CIMB Research, Nov 18


This article appeared in The Edge Financial Daily, November 21, 2011.



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KPJ Healthcare still on the growth track

KPJ Healthcare Bhd (Nov 18, RM4.26)
Maintain buy at RM4.21 with fair value of RM5.21: Despite the strong top line growth, KPJ expects a slight slowdown in profit before tax growth largely due to slower yield growth at its new hospitals — Tawakkal Specialist Hospital, Penang Specialist Hopsital and Bumi Serpong Damai (BSD) in Jakarta. Generally, KPJ’s new hospitals do not operate at full capacity at the start of operation as the group reserves some floors for future expansion. With Tawakkal and Penang Specialist having reached their maximum occupancy rates, the limited bed capacity resulted in slower yield growth, with the rise in revenue lagging the increase in costs. Given the high fixed cost nature of the business and in order to improve yields, both hospitals have embarked on capacity expansion by opening new wards to reach optimum operating capacity. BSD is expected to remain in the red for at least a few more years as it is still in the early phase of gestation. Nevertheless, KPJ expects BSD’s financial performance to improve as it captures a bigger market share in Jakarta.

With construction of Bandar Baru Klang Specialist Hospital completed recently, the hospital is expected to start operation by 1QFY12 pending further approvals from the authorities. KPJ has four new hospitals under construction currently while construction on another three is expected to start next year. The group’s ongoing expansion will enable it to strengthen its position as the leading private healthcare services provider in Malaysia as well as tap the underserved markets where private healthcare is in high demand. We believe that the innovative use of the REIT as a vehicle to recycle its capital will allow KPJ to sustain its growth momentum without stretching its balance sheet.

Based on management’s guidance, we are raising our revenue forecast for FY11 by 2.2%. That said, we are trimming our net profit forecast by 1.2% after factoring in higher operating costs although our FY12 forecast stays. We maintain our “buy” rating at an unchanged fair value of RM5.21, based on 19.6 times price-earnings ratio on FY12 earnings per share. KPJ is excellent for long-term investment and portfolio balancing. — OSK Research, Nov 18


This article appeared in The Edge Financial Daily, November 21, 2011.



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