Friday, June 25, 2010

9月或可進場 馬股下半年行情 看俏

Gamuda-hwang

Gamuda

BUY RM3.21

Price Target : 12-month RM 4.35



Bagging the big one

• More positive on RM36bn MRT project post-briefing

• 3QFY10 result was in line

• High conviction infrastructure pick with RM4.35 TP



MRT- from the horse’s mouth. Dato Lin made a rare appearance at the analyst briefing yesterday and talked extensively about the proposed RM36bn MRT project. The key takeaways are:- i) the probability of getting cabinet approval is high since it was included in the 10MP, the government has frozen land acquisition for key corridors, the MMC-Gamuda JV has started initial soil investigation and engaged foreign town planners; ii) the JV is only interested in tunneling works worth RM13-14bn, but wants to act as ‘Chariot Master’ for the other infrastructure portions. The sweetener for this is a potential share with the government for the project budget and VOP for certain cost items if there is a surplus; and iii) the JV is committed to raise RM3bn in bridging loan and RM1.8bn performance bond to finance initial works under construction. The remaining works will likely be funded by the government on a deferred payment basis. The JV hopes to have the final design by September and commence work in early 2011.



Another solid quarter. 3QFY10 result was within our and consensus expectations with net profit at RM73m (+7% qo- q, +58% y-o-y), the strongest since the last seven quarters. 3QFY10 construction EBIT margin improved further to 6.0% vs 5.6% in 2QFY10 and 4.0% in 1QFY10. And property sales normalised to RM130m, bringing YTD sales to RM620m – it is on track to hit RM800m in FY10.



Maintain BUY and RM4.35 TP. Gamuda is an excellent proxy to the Malaysian infrastructure story with the potential RM36bn MRT project doubling its RM6.5bn orderbook. It is also an ideal proxy to the long term structural boom of the property market in Vietnam. For the first time, Gamuda has also guided for property sales in Vietnam of RM820m and RM1.25bn in FY11 and FY12, respectively, offering some upside to our forecasts.

Gamuda-rhb

Gamuda
Share Price : RM3.21
Fair Value : RM2.74
Recom : Underperform (Maintained)
9MFY07/10 Net Profit Grows 36% YoY, Lobbying Hard For KL MRT

♦ Missed consensus. 9MFY07/10 net profit came in within our expectation at 74% of our full-year forecast but missed market expectation at only 68% of the full-year market consensus.

♦ Lobbying hard for KL MRT. Gamuda was open about, it via its 50:50 JV with MMC Corp, lobbying hard for the much-talked-about RM36bn KL mass rapid transit (MRT) project. It did acknowledge that at this point of time, it “will not call it a project, but just a proposal pending the Cabinet’s approval”.

♦ Two new lines, one circle line. Key tentative terms and features of the proposed KL MRT are:
1. The proposed RM36bn KL MRT will have two new lines, i.e. Damansara – Serdang and Kepong – Kajang, and a circle line around KL City Centre, with a total length of 180km;

2. As per news reports, Gamuda said that the JV will only keep the tunneling works that make up about 30% of total project value with the remaining 70% to be awarded out to other players on a competitive basis;

3. The JV will assume the role of “Chariot Master” to drive the entire project and manage the interfacing between various work packages of the project such as foundation, diaphragm walls, tunneling, stations and M&E, tracks and systems; and

4. In the event the JV is unable to complete the project for various reasons, the Government can seize the completed but not-yet-paid-for work of up to RM3bn, as well as call on the JV’s performance bond amounting to RM1.8bn.

♦ Work to start in Jan 2011? Gamuda is hopeful that work can start in Jan 2011. We believe this target is simply too ambitious, if the much delayed Ampang and Kelana Jaya LRT line extension project is a guide. On project funding, we feel that Gamuda’s suggestion of “AAA-rated government-guaranteed securities backed by assets in the form of certified completed works” may be easier said than done.

♦ Maintain Underperform. We are Neutral on the construction sector. Indicative fair value for Gamuda is RM2.74, valuing its operations ex-Vietnam at 14x fully-diluted CY11 EPS of 15.7sen, in line with our benchmark 1-year forward target PER of 10-14x for the construction sector, and its two property projects in Vietnam based on a 30% discount to their NPV, translating to 54sen per Gamuda share on a fully-diluted basis.

Gamuda-cimb

Gamuda Bhd
OUTPERFORM-Maintained
RM3.21 on 24/05/10, Target: RM4.30
Setting MRT wheels in motion

• Broadly in line; maintain OUTPERFORM. Although Gamuda’s annualized 9MFY7/10 core net profit made up 89% of our full-year forecast and 92% of consensus, we deem the results to be broadly in line as 4Q10 should be stronger, driven by better construction margins and property sales. The second interim DPS of 6 sen was also in line, bringing the YTD payout to 12 sen. Yesterday’s results briefing dwelt at length on its proposal for the new MRT system. It was overall positive and reinforced our belief that there is a strong chance that this project will go ahead. We make no changes to our earnings forecasts, OUTPERFORM call and RM4.30 target price which is based on an unchanged 10% discount to RNAV. The stock is likely to extend its re-rating, premised on more newsflow on the MRT project.

• Construction and property drivers. 9MFY10 revenue dipped 2.5% yoy (-11.8% yoy in 3Q10) despite strong property sales of RM620m (+150% yoy). However, EBIT surged 37% yoy (52% yoy in 3Q10) while EBIT margin expanded almost 3% pts to 9.2%, boosted by a strong 12% EBIT margin in 3Q10 which was fuelled by the construction division. This division chalked up a yoy tripling of pretax profit in 3Q and contributed 19% of group pretax profit. We expect an even better showing in 4Q10, aided by the northern double tracking project which has reached 44% completion. Pretax profit from the property division jumped 57% yoy in 3Q and accounted for 27% of group pretax. Overall, 9M10 core net profit rose 36% yoy (56% yoy in 3Q10).

• The spotlight is trained on the MRT. Gamuda confirmed that it is vying for the RM13bn-14bn MRT tunnelling works which it believes it has a strong chance of securing even under the Swiss Challenge tender method. The total estimated value of the MRT works is RM36bn comprising RM23bn for the first phase (2011-2016) and RM13bn for Phase 2 (2014-2019). We were positively surprised to learn that there has already been extensive background work, design and preparation for implementation. The proposal aims to commence work on Jan 2011

Gamuda

Gamuda
Hold
(RM3.21 GAM MK)
Target Price: RM3.50


Net profit came in at RM73.0m for 3QFY10 and RM204.1m for 9MFY10. Although results achieved 69.5% and 67.7% of house and consensus full-year estimates, we deem it to be broadly in line as we expect a stronger 4QFY10. A second net interim dividend of 4.5 sen (6 sen gross) per share has been declared, bringing total net dividends declared YTD to 9 sen per share, which matches our expectations.

We do not expect a final dividend in 4QFY10. Y-o-y, 9MFY10 revenue at RM1.74bn is pretty flattish compared to RM1.79bn in 9MFY09. However, 9MFY10 net profit of RM204.1m is a 36.7% improvement over 9MFY09’s RM150.4m. The improved performance is attributed to margin expansion across all three business segments, and has gradually trended up since early 2009 as building material prices eased off.

For the construction segment, Yenso Park infrastructure works and the Electrified Double Tracking Project (EDTP) contributed to the improved margins. Work on the EDTP has reached 44% completion, with 95% of project corridor successfully handed over. Outstanding construction order book is about RM6.5bn, including the RM1.8bn Nam Theun 1 project which is pending finalisation.

Meanwhile, property sales remain strong with RM620m sales YTD, an improvement of RM130m from 2QFY10. The company is on track to achieve the targeted RM800m in sales, while unbilled sales stands at RM600m. Going forward, the company’s projects in Vietnam is set to gain traction, with Tan Thang and Yenso Park development slated for soft launch in August and October respectively. As the projects contribute a total of RM16bn in GDV, they are expected to overtake Malaysian property ventures in the coming years.

Mass Rapid Transit (MRT) proposal
Management shed some light on the proposed RM36bn MRT project at the analyst briefing yesterday. Gamuda and its 50:50 JV partner, MMC Corporation, will be vying for the tunnelling works of the MRT and are confident that this project will be rolled out by early CY2011 although it is has yet to obtain Cabinet’s approval. Having said that, we understand discussions are ongoing and evaluations are at an advanced stage.

The MRT proposal has been unveiled in the 10th Malaysia Plan as part of the Government’s efforts at improving public transportation system. Together with the proposed RM7bn LRT extension, 185km of new rail lines will be constructed, with the MRT contributing 150km and the LRT 35km. The project driver will be Gamuda-MMC, whose role will be to obtain approval for the MRT proposal, undertake design and specification works and finalise project budget, among other things.

The MRT proposal includes the construction of 3 lines, named the Red Line, Green Line and Circle Line respectively. As the name indicates, the Circle Line aims to integrate the Red and Green line with the existing 2 LRT lines operated by Putra and Star LRT. The project will be undertaken in 2 phases. The first phase has been allocated a budget of RM23bn, to be constructed over a period of 5 years (2011 – 2016), while the second phase will be constructed over a period of 4 years (2015 – 2019) with an estimated value of RM13bn. In terms of value, about 30% of the MRT will be built underground, running a length of approximately 40km –50km. As few contractors in the country possess a track record in tunnelling works, Gamuda-MMC will undertake the tunnelling portion of the MRT project, with an estimated value of RM13bn. As it falls into Phase 2 of the project, the duration of the project will be 5 years until 2016.

To undertake the project, Gamuda-MMC would be required to raise RM3bn debt and RM1.8bn performance bond. The project would be undertaken on a deferred payment
scheme, in which the deferred payment period will be over the tenure of the securities. The tenure of the debt securities has not been confirmed, although we gather it will be 10 to 20 years. As current discussions goes, the government will also undertake to make payments on the RM3bn debt to be raised. Therefore, we see little risks in Gamuda-MMC’s ability to raise debt.

While this project will boost orderbook significantly in the near term, we believe ordebook replenishment post securing this mega project will be minimal given capacity constraint. Currently, we have assumed annual order book replenishment of RM2bn.

Assuming Gamuda’s share of the project at RM6.5bn and a conservative EBIT margin of 10%, FY11 and FY12 EPS will only by marginally higher by 0.8% and 1.6%. As such, we make no changes to our estimates pending the Cabinet’s approval. The 10MP detailed development programme for 2011 – 2012 scheduled for release in August may provide better clarity on the implementation timeline of the MRT project

As share price has achieved our existing TP of RM3.18 since the announcement of the MRT project, we downgrade our call from a BUY to a HOLD as we believe upside potential has mostly been priced in. Our TP has however be revised to RM3.50 as we rollover our valuation to FY11 while maintaining our 20x P/E target which is inline with historical average.

Gamuda-ecm

Gamuda - Hold
RM3.21 - 24/06/10
Target Price: RM3.50


Net profit came in at RM73.0m for 3QFY10 and RM204.1m for 9MFY10. Although results achieved 69.5% and 67.7% of house and consensus full-year estimates, we deem it to be broadly in line as we expect a stronger 4QFY10. A second net interim dividend of 4.5 sen (6 sen gross) per share has been declared, bringing total net dividends declared YTD to 9 sen per share, which matches our expectations.

We do not expect a final dividend in 4QFY10. Y-o-y, 9MFY10 revenue at RM1.74bn is pretty flattish compared to RM1.79bn in 9MFY09. However, 9MFY10 net profit of RM204.1m is a 36.7% improvement over 9MFY09’s RM150.4m. The improved performance is attributed to margin expansion across all three business segments, and has gradually trended up since early 2009 as building material prices eased off.

For the construction segment, Yenso Park infrastructure works and the Electrified Double Tracking Project (EDTP) contributed to the improved margins. Work on the EDTP has reached 44% completion, with 95% of project corridor successfully handed over. Outstanding construction order book is about RM6.5bn, including the RM1.8bn Nam Theun 1 project which is pending finalisation.

Meanwhile, property sales remain strong with RM620m sales YTD, an improvement of RM130m from 2QFY10. The company is on track to achieve the targeted RM800m in sales, while unbilled sales stands at RM600m. Going forward, the company’s projects in Vietnam is set to gain traction, with Tan Thang and Yenso Park development slated for soft launch in August and October respectively. As the projects contribute a total of RM16bn in GDV, they are expected to overtake Malaysian property ventures in the coming years.

Mass Rapid Transit (MRT) proposal
Management shed some light on the proposed RM36bn MRT project at the analyst briefing yesterday. Gamuda and its 50:50 JV partner, MMC Corporation, will be vying for the tunnelling works of the MRT and are confident that this project will be rolled out by early CY2011 although it is has yet to obtain Cabinet’s approval. Having said that, we understand discussions are ongoing and evaluations are at an advanced stage.

The MRT proposal has been unveiled in the 10th Malaysia Plan as part of the Government’s efforts at improving public transportation system. Together with the proposed RM7bn LRT extension, 185km of new rail lines will be constructed, with the MRT contributing 150km and the LRT 35km. The project driver will be Gamuda-MMC, whose role will be to obtain approval for the MRT proposal, undertake design and specification works and finalise project budget, among other things.

The MRT proposal includes the construction of 3 lines, named the Red Line, Green Line and Circle Line respectively. As the name indicates, the Circle Line aims to integrate the Red and Green line with the existing 2 LRT lines operated by Putra and Star LRT. The project will be undertaken in 2 phases. The first phase has been allocated a budget of RM23bn, to be constructed over a period of 5 years (2011 – 2016), while the second phase will be constructed over a period of 4 years (2015 – 2019) with an estimated value of RM13bn. In terms of value, about 30% of the MRT will be built underground, running a length of approximately 40km –50km. As few contractors in the country possess a track record in tunnelling works, Gamuda-MMC will undertake the tunnelling portion of the MRT project, with an estimated value of RM13bn. As it falls into Phase 2 of the project, the duration of the project will be 5 years until 2016.

To undertake the project, Gamuda-MMC would be required to raise RM3bn debt and RM1.8bn performance bond. The project would be undertaken on a deferred payment
scheme, in which the deferred payment period will be over the tenure of the securities. The tenure of the debt securities has not been confirmed, although we gather it will be 10 to 20 years. As current discussions goes, the government will also undertake to make payments on the RM3bn debt to be raised. Therefore, we see little risks in Gamuda-MMC’s ability to raise debt.

While this project will boost orderbook significantly in the near term, we believe ordebook replenishment post securing this mega project will be minimal given capacity constraint. Currently, we have assumed annual order book replenishment of RM2bn.

Assuming Gamuda’s share of the project at RM6.5bn and a conservative EBIT margin of 10%, FY11 and FY12 EPS will only by marginally higher by 0.8% and 1.6%. As such, we make no changes to our estimates pending the Cabinet’s approval. The 10MP detailed development programme for 2011 – 2012 scheduled for release in August may provide better clarity on the implementation timeline of the MRT project

As share price has achieved our existing TP of RM3.18 since the announcement of the MRT project, we downgrade our call from a BUY to a HOLD as we believe upside potential has mostly been priced in. Our TP has however be revised to RM3.50 as we rollover our valuation to FY11 while maintaining our 20x P/E target which is inline with historical average.

Thursday, June 24, 2010

World Cup A Bane?

World Cup A Bane?
Who said that the World Cup will affect the stock market? Who said that we should sell in May and go away? If we had believed in these theories, we would have missed a decent rally!

Strangely, the World Cup years have always been plagued by some crisis or another – either big or small – but the World Cup months in June to July have always been good for investors. In 1998, as soon as the World Cup kicked off in mid-June, the STI from a low of 950 points to close at 1,000 points a month later.

In 2002, the STI traded at 1,564 points during kick off but soon jumped to a high of 1,665 points jut before the World Cup came to a close. The year 2006 was the best, climbing from 2,277 to 2,456 from mid-June to mid-July.

This is good enough evidence to show that the World Cup does not have a negative impact on the stock market, but the street thinks otherwise and continues to say that the World Cup will cause the stock market to fall.

In 1998 and 2002, we were faced with the Asian financial crisis and the burst of the tech bubble respectively. Still the stock market rallied through the months of June and July, while 2006 experienced the strongest rally during the World Cup period because it was a bull market year.

Is The Crisis Over?

Is The Crisis Over?

As far as the crisis is concerned, the panic stage where everyone just cares about selling is over as stability and order has returned. The key going forward is to make sure that the contagion effect does not spread to the other bigger European Union countries.

It is useful to note that the debt owed by Greece was not even enough to rescue AIG and the rest of the US corporate bigwigs that nearly suffocated to death. Perhaps we can say that the panic ended when Spain’s downgrade from AAA to AA+ failed to shake the markets. Or maybe the central banks did intervene in the foreign exchange market to stabilize the Euro or perhaps the US$1 trillion rescue package had finally made its presence felt.

We can now safely say that the crisis is over unless some of the PIIGS shock us with news that we hate to hear.

The beneficiary of the entire crisis has been those that profited from the entire financial market turmoil. The short-sellers of stocks, bonds and the Euro are now laughing all the way to the bank by creating a sense of panic, attacking the financial markets one after another followed by buying up the same financial instruments that they sold short once they believe that enough was enough.

Even those with the bravest heart who knew that the crisis was not as big as everyone made it out to be had to sell along. There was simply no way anyone would and could resist taking money off the table when the fear factor and uncertainty was that huge.

Once again, we have learnt that the best time to buy is when everyone is selling. But who dares?

US Interest

The US Fed Pledged To Keep Interest Rate Low For An Extended Period
The US Federal Reserve pledged to keep the benchmark interest rate at a record low of 0-0.25% for an extended period,
repeating language from every policy meeting since March 2009, and signaled that Europe’s sovereign debt crisis may
hurt the country’s economic growth. This was because the underlying inflation has trended lower and it is likely to be
subdued for some time given substantial resource slack that would continue to restrain cost pressures. As it stands, the
Fed’s preferred price index, which excludes food and energy costs, moderated to 1.2% yoy in April, the slowest pace
since 2001 and from a high of +1.6% in December last year. On the other hand, the Fed expressed its concern that
financial conditions have become less supportive of economic growth, largely reflecting developments abroad.
Meanwhile, the Fed’s assessment suggests that the economic recovery is proceeding and that the labour market is
improving gradually. Household spending is increasing but remains constrained by high unemployment, modest income
growth, lower housing wealth, and tight credit. It noted that business spending on equipment and software has risen
significantly but investment in non-residential structures continues to be weak and employers remain reluctant to add to
payrolls. Also, housing starts remain at a depressed level. As a whole, this suggests that the US economic recovery
will remain gradual. As a result, economists now expect the Fed would only raise rates in 1Q 2011, a delay when they
expect it to happen in late 2010.
The Fed did not mention what it is going to do with the one other remaining open emergency-lending programme, the
Term Asset-Backed Securities Loan Facility, which has been scheduled to close on 30 June. The programme was designed
to aid the commercial real-estate market by subsidising investor purchases of mortgage-backed securities.

Wednesday, June 23, 2010

Gamuda- hwang

Gamuda
BUY RM3.06 KL
Price Target : 12-month RM4.35

Positives outweigh negatives
• 3QFY10 to show continuous margin expansion
• RM36bn MRT project a key milestone catalyst
• BUY, SOP-backed TP lowered to RM4.35

Continued margin expansion in 3QFY10. 3QFYJul10 results expected this week should show gradual improvement in construction margins beyond the 5.3% in 2Q. Contrary to MMC’s RM30m reversal of profit for double tracking in 1Q10, Gamuda is still guiding for at least 1%pt increase in margins per quarter before hitting 11% in FY11. 3QFY10 property sales have normalized to a more sustainable level at RM130m, with YTD sales of RM620m.

Positives. The government’s nod on the RM36bn MRT project proposed by the Gamuda-MMC JV will be a key milestone catalyst for Gamuda giving it another 10 years earnings visibility backed by a potential 80% increase in orderbook to RM12.6bn. The upgrading of urban transport is a Key Result Area for the Government Transformation
Programme and, in our view, the probability of a go ahead is high. For Splash, we think Gamuda’s proposed buyout has kickstarted consolidation efforts and this is expected to be resolved soon. It was reported that all parties are close to agreeing on pricing with PAAB and Selangor State being the owner of the assets. Its RM7bn Tan Thang project in HCMC is still slated for a soft launch in August and is not impacted by the change in recent resettlement laws.

Negatives. Gamuda’s very selective bidding process has not worked to its benefit with continued delays in awards of the mega contracts. There is also some delay for its maiden property launch at Yenso Park, now expected in July/August vs May. The land sale in Yenso Park, slated for mid-2010, may also be delayed.

Maintain BUY, TP: RM4.35. FY10-FY12F lowered by 3- 9%, as we have assumed lower contract wins for FY10, offset to some extent by higher property sales. With this, our TP is lowered slightly to RM4.35. The swing factor will be this potential MRT project, which will entrench its Malaysian construction franchise locally whilst giving more room to focus on its other key market, Vietnam.

Key catalyst - RM36bn MRT project
While contract wins have been muted at RM377m YTD for Gamuda, the key catalyst to watch out for will be the award of the RM36bn MRT project.

A special task force has been set up within the Cabinet Committee on Public Transport to study this project. This committee is chaired by the Prime Minister. This MRT will be integrated with existing monorail and LRT systems and will also connect northwest and southeast of Klang Valley. There is a total 3 lines where one of the lines will run through Sungai Buloh, Kota Damansara, Kuala Lumpur and Cheras until Kajang. The second line will connect Sungai Buloh, Kepong, Kuala Lumpur and Serdang while the third line will loop around KL’s CBD providing a link between the monorail and LRT services.

Other salient points we have gathered so far are :-
i) The project size is estimated at RM36bn vs earlier estimate of RM30bn. This makes it the most expensive mega project in Malaysia’s history;
ii) The project could receive RM3.6bn or 10% of cost from the facilitation grant of RM20bn set aside for PPP projects during the 10MP;
iii) The proposal by MMC-Gamuda was unsolicited and the government has decided to put it out to tender in a ‘Swiss challenge’. Other parties in particular a China company led consortium is threatening to steal this project away from the JV.
iv) Gamuda-MMC JV will only be bidding for the tunneling portion works estimated at 30% of project cost or RM10.8bn.
v) The rationale of the project is to bring Malaysia more in line with other developed countries in terms of number of km of rail per one million population. Malaysia currently stands at 15 vs Singapore of 40, Hong Kong of 26, Seoul of 27, London of 53 and New York of 47.
vi) Gamuda-MMC JV has set a target of 40% of all trips in and out of Greater KL done via public transport and half of this done via rail by 2020. Currently Greater KL has a population of 4.3m. Of the 8m trips done to and fro everyday, only 18% or 1.44m trips are via public transport (bus and rail) and of this 1.44m trips, only 400,000 or 20% are done via rail;
vii) The MRT lines will be mostly underground with stops every 500m to 1km in high traffic areas like the Golden Triangle; and
viii) The project duration is estimated at 10 years.

We view what has been revealed so far as positive for the Gamuda-MMC JV for a few reasons.

First, we can expect a speedier approval process with our PM chairing the Cabinet Committee. This proposal is already in advanced stages of negotiation and, in our view, the probability of it being approved is high as the government intends to beef up public transport given the potential increase in fuel prices arising from a scheduled cut in
subsidies.

Second, while the project will be open to other contractors, the MMC-Gamuda JV will have the last right of refusal to outbid the highest bidder.

Third, with the majority of the MRT lines being underground, this bodes well for Gamuda which has prior experience in completing the Kaohsiung Metropolitan, MRT in Taiwan and also the smart tunnel in Malaysia.

Fourth, the JV would have carved out the most lucrative portion of works. While the contract amount of RM10.8bn for the JV is lower than expected (RM5.4bn equalled shared between Gamuda and MMC), we expect this portion to be the most lucrative carrying the highest margins. Gamuda’s current orderbook stands at RM7bn. Hence this project could lift its orderbook by 77% to RM12.4bn. Assuming a pretax margin of 12%, potential profit accretion throughout the tenure of the project is RM648m or 24 sen per share while also providing strong earnings visibility for the next decade. With this contract, there should be very little need to bid for other less attractive contracts to replenish its orderbook, and Gamuda can then channel more resources to Vietnam. We suspect the project will contain clauses for escalation in raw material prices being government backed.

Construction
YTD FYJul10, Gamuda has only clinched one project, which is additional works for its New Doha International project amounting to RM377m. As we are now already in June, our FY10 order win forecast of RM1.6bn is looking increasingly difficult to achieve. Given the timing of some of the mega contracts which Gamuda has bid for is fluid, we think the worst case scenario for more new orders is nil for end-2010. Gamuda has bid for the c. RM300m Kelau dam and will be bidding for the c. RM2-3bn Langat 2 water treatment plant, c. RM300-400m LCCT runway, RM7-8bn LRT extensions which have yet to officially open for tender.

In the Middle East, there is one sizeable highway job in Qatar which Gamuda is bidding for. The tender is expected to open soon. Given its prior experience with the completed Durkhan highway, Gamuda has good chance of clinching this. Its existing orderbook stands at RM7bn (RM5.2bn executable excluding the RM1.8bn Nam Theun 1 project which is in deadlock). The outstanding amount for its double tracking project (Gamuda’s share) is RM3.8bn and has reached c. 41% completion vs 38% in 2QFY10. The balance c.59% will be recognized progressively until 2013 with the official extension of time given. Gamuda will continue to hold one year forward of steel inventory. As the double tracking project should reach 80% completion by 2012, we think there could be upside in margins should steel prices stay at current levels until end-2011. There will be minimal steel requirements for double tracking post 2012. Infrastructure works for its Yenso Park is progressing as planned and should be completed by end-2011.

Property
Progress for its RM10bn Yenso Park property project has been disappointing. We understand that there may be a delay in its maiden launch of initial sales of US$170m in May to July or even later. This is because there have been delays in the handing over of certain residential parcels of land even though the corresponding infrastructure work is completed. This project is unique, the first of its kind in Hanoi. As such, there are bound to be more complicated procedures to follow. This involved Gamuda receiving parcels of land gradually for development in exchange for the completion of infrastructure work. Gamuda has received some parcels of land already but these were commercial land. The expected land sale expected in mid-2010 may not materialize as we understand both parties are still debating on pricing. On a more positive note, its Tan Thang development in Ho Chi Minh City is slated for a soft launch in July/August 2010, maiden launch in October 2010. Initial sales are expected at US$100m with pricing of c. US$1,100-US$1,200 per sq m. In terms of the recent change in resettlement laws in Vietnam, which raises land cost overall, we understand there will be some impact on Yenso Park but not Tan Thang development.

On the local property front, 3QFY10 property sales have moderated to a more sustainable RM130m (vs 2QFY10 of RM240m) bringing YTD sale to RM620m. Gamuda is still on track to achieve RM800m in sales for FY10. It also continues to look for opportunistic land banking and there may be a strategic parcel of land within the CBD area purchased soon.

Water
In our view, Gamuda’s proposals involving its 40%-owned associate, Splash, buying out the water concessions and more recently the proposal of being an O&M operator for all the concessions, is a cleverly devised strategy. Although it is unlilkely that the federal government will agree to both proposals, it has at least managed to kick start the shelved negotiations and instilled some sense of urgency in seeing the completion of this exercise.

It was reported in The Edge Financial Daily that the deadlock in the water restructuring in the Selangor State may soon be resolved with all parties close to agreeing on pricing and also ironing issues on operations and maintenance (O&M). Sources revealed that the Selangor State government and federal government-owned Pengurusan Aset Air Bhd (PAAB) would jointly pay for the water assets. PAAB would be the owner of the assets but the Selangor State would also have a stake in the management of assets. It is likely that PAAB’s purchase price would be 1x book value of the assets while the Selangor State will pay for an agreed sum over and above that. It was also reported that funding by the Selangor State is being provided by the AmBank Group. On the O&M portion, current negotiations lean towards setting up of a SPV but control of the SPV has yet to be sorted out. We expect the offer for Splash to be at least equivalent to the Selangor State’s revised offer in July 2009. This valued 100% of Splash at RM2.975b and includes the assumption of water related debt of RM1.396bn and is based on 1x net book value. Hence, the offer translates into RM1.579bn where Gamuda’s 40% stake works out to be RM0.632bn (or 28 sen/share).

Cutting FY10-FY12 EPS and TP – Still a high conviction pick
We are trimming our FY10-FY12 EPS by 3-9%. This largely factors in lower order wins for FY10 vs RM1.6bn previously offset by higher property revenue of RM620m vs RM525m previously. We keep our new order win assumptions for FY11 and FY12 unchanged at RM2.5bn and RM3bn respectively. This will be easily met if the proposed MRT project comes to fruition or from portions of the LRT extension and LCCT runway.

For SOP-derived TP, we have lowered it to RM4.35/share. This factors in the lower earnings from construction but is offset by the inclusion of its Tan Thang property development in HCMC, Vietnam. We have done a NPV of development profits assuming a GDV of RM6bn, step up in margins from 22-25%, discount rate of 13% and development duration of 7 years.

In spite of the cut in our TP, this still offers 45% upside from current levels. Gamuda is one of large-cap high conviction pick for the sector. Reiterate BUY.

Lippo-Mapletree Indonesia - OCBC

LMIR Trust: Macro signals continue to show strength

Maintain BUY
Previous Rating: BUY
Current Price: S$0.485 / Fair Value: S$0.55

Indonesian economy sees growth. Indonesia’s Deputy Finance Minister said this week that the economy is likely to have grown by 5.9% YoY in 2Q10. The Central Statistics Agency reported that Indonesia’s GDP grew 5.7% YoY in 1Q10. Domestic consumption accounts for about two-thirds of the Indonesian economy. The Indonesian government has forecast growth of 5.8% in 2010. It also expects growth of 6.1% to 6.4% next year. Earlier this month, Indonesia’s Finance Minister Agus Martowardojo said that he expected economic growth to be underpinned by “household consumption that stays strong, the improving investment climate and the increase in export activities”. We note inflation hit 4.16% in May – its highest level in a year; the IMF noted that monetary policy may need to be adjusted later in 2010 “if inflationary pressures increase”.

Leasing efforts positive. In our view, strong domestic consumption could lift the fortunes of both retailers and retail landlords like LMIR Trust (LMIR). At 1Q10 results, LMIR had reported that retail mall occupancy as of 31 Mar fell 2.2 percentage points compared to three months ago to 93.8%. The manager attributed the occupancy decline mainly to the expiry of rental guarantees, granted by the vendor at the time of LMIR’s IPO, on spaces that had undergone extensive asset enhancement. After including temporary leasing and new leases committed by way of signed letters of intent, occupancy at Mar 2010 was 96% (flat). We spoke to the manager this week and understand that leasing efforts are going well, and occupancy trends are positive. LMIR also reports continued growth of customer average spend per visit. This is supported by other accounts of increasing consumer confidence and consumption – PT Astra International said it expects vehicle sales of 650,000 units in 2010, up 34% YoY.

Valuation. The manager noted at 1Q10 results that the REIT’s “portfolio has a very defensive position with very low upcoming expiries and already high occupancy levels”, which may cap near-term earnings upside from the improving retail environment. Nevertheless, LMIR still has scope for accretion from new acquisitions, thanks to its low leverage of 10.2% debt-to-assets (the lowest in the S-REIT sector). Meanwhile, CFO Shane Hagan tendered his resignation this month, after just a year with LMIR. We don’t expect a significant impact to the REIT, with LMIR’s CEO assuming Mr Hagan’s duties until a replacement is found. Our fair value estimate of S$0.55, at a 20% discount to SOTP value, remains unchanged. With a 23.7% estimated total return, maintain BUY.
Occupancy trends. The biggest declines in occupancy at 1Q10 had been reported at The Plaza Semanggi (-600bps), Bandung Indah Plaza (-470bps) and Ekalokasari Plaza (-820bps). After including temporary leasing and new leases committed by way of signed letters of intent, occupancy at Mar 2010 was 96% (flat). The manager had said at the time that with improving sentiment, it continued to receive various leasing enquires for vacant space. It is also in the midst of re-mixing its tenant profile as it positions the portfolio for a more favorable retail climate.

CFO exits. Mr Shane Hagan, the Chief Financial Officer, tendered his resignation with effect from 15 Jun to pursue "personal interests". He was appointed as CFO just a year ago, on 01 Jun 2009. Mr Hagan is the second CFO to exit the REIT since its Nov 2007 IPO. LMIR's Board of Directors said that it is currently in the midst of "finalizing its discussion with a suitable candidate to assume the role" of CFO and an appropriate announcement would be made in due course. In the interim, CEO Ms Viven Sitiabudi will assume the role of CFO.

Tuesday, June 22, 2010

Sunway REIT IPO -HwangDBS

Sunway REIT
Largest REIT in Malaysia. Sunway REIT (SunREIT) will be the largest REIT in Malaysia (MREIT), in terms of both market cap and asset size, upon listing. With a total of
RM3.7b assets under management, SunREIT’s 8 properties stretch across diversified sectors ie retail, hospitality and office, and multiple locations ie Klang Valley, Penang and Ipoh (details of the properties can be found in Appendix).

The properties were purchased from SunCity at the appraised value, to be satisfied via issuance of REIT units, IPO proceeds and borrowings (30% gearing). SunCity will
retain a 38% stake in SunREIT, while GIC will hold 5% and another three cornerstone investors ie EPF, PNB, and Great Eastern, a collective 14%. GIC currently owns 21%
stake in SunCity and 52% stake in Sunway Pyramid, Sunway Resort Hotel and Pyramid Hotel.

Diversified portfolio strategy, to reduce the risk of overreliance on a particular industry/location and spread out source of rental income. SunREIT has over 600 domestic and over 200 international tenants, operating in a range of industries - no single tenant contributes more than 3% of total rental income. This strategy although has its merits may turn off some investors who are looking for exposure to specific segments.

Retail exposure is single largest. Retail properties make up 75% of REIT’s total net lettable area (excluding hospitality assets), and are expected to account for 65% of FY11
rental income. As for the three hospitality assets, they will be leased to Sunway Resort Hotel Sdn Bhd (SRH) and Sunway Hotel (Seberang Jaya) Sdn Bhd (SHSJ) under Hotel
Master Leases whereby SRH and SHSJ will provide fixed monthly rental income to SunREIT. The arrangement provides SunREIT the earnings visibility needed in view of
the seasonality of the hospitality industry. We expect this segment to contribute c.20% of the REIT’s gross rental income, while the remaining 15% from office properties.

Crown jewel – Sunway Pyramid. The prime shopping mall is one the largest shopping centre in Malaysia by net lettable area (1.5m sqft retail; 143,467 sqft convention
centre). As at Feb 10, the mall has an occupancy rate of 99.3%. Occupancy dropped in 2007 due to the expansion phase carried out in the mall. The new Phase 2 has helped the mall to double its number of visitors since its opening in late 2007.

Currently, it has 711 well-established tenants with 10 of its largest tenants contributing not more than 13.4% of the gross rental income of the mall. 75% of tenancies are based on the greater of a fixed base rent or turnover rent, with the remaining tenancies on a fixed base rent basis. 60% of the mall’s total NLA is up for renewal over the
next 12 months, with expected 15% increase in average monthly rental (over typical 3 years lease period). To date, 20% of the expiring tenancies have been renewed with 15-17% growth in rental rate. We expect the mall to contribute c.55% to the REIT total rental income in FY11.

Risks
Incoming supply could intensify competition. Occupancy rates of retail malls in the city centre and suburb are currently at a respectable 90% and 85%, respectively. An
additional 7.8m sqft NLA of retail space is expected to be completed between 2010 and 2012, mostly in Klang Valley suburb (78%) and remaining in city centre. We
expect the emergence of new shopping malls, offering the same entertainment amenities, would increase competition further – although we believe established malls in prime locations (such as Sunway Pyramid) should be able to hold up.

3.5m sqft of additional office space would also be made available within the vicinity of SunREIT’s properties over the next 3 years. This could put downward pressure on
occupancy rates and average rentals.

Acquisitions may be slow. We see limited visibility to SunREIT’s acquisition pipeline although it has been granted the first right of refusal by SunCity to purchase assets that the latter intends to sell in the future. We understand RM2.6b worth of SunCity’s assets have been indentified for future injection as SunREIT targets to double its RM3.6b portfolio over the next 5-7 years. But we believe at this juncture, most of SunCity’s remaining investment properties have yet to achieve the minimum yield required to be injected into the REIT (some assets are still relatively new while some are still under construction/ yet to be developed). Post-IPO, SunREIT will sit on a healthy gearing level of 30%. We estimate SunREIT can still raise another RM370m for acquisitions before reaching 40% gearing (still below the 50% allowable limit).

Valuation
Expensive valuation. SunREIT has guided 100% distribution for the first two years, and >90% thereafter. This translates to FY11 distribution of 6.7sen or 6.9% yield (based on retail offer’s 97 sen) - 20% premium over sector average of 8.6%. Based on P/RNAV, SunCity is also priced above the sector at 1.0x vs 0.9x. Although it can be argued that SunREIT deserves a higher valuation for its size and liquidity, its lack of visible acquisition pipeline (especially timing) and diversified mix of assets may not justify such a large premium.

The institutional price will be set via a book-building exercise, while retail price will be at the lower of 97sen or 97% of institutional offer price. 92% or 1.52b units out of SunREIT IPO’s 1.65b units will be offered to institutions.

A blended yield based on respective segment’s average yield and SunREIT’s asset portfolio mix works out to about 9.6%. Even if we assume a 20% premium, SunREIT’s fair yield should be around 7.7% (implied share price of ~88sen). Axis REIT (industrial/office REIT) and Quill Capita Trust (office REIT) are currently trading at 7.7% yield

Sunway City-hwangDBS

Sunway City
BUY RM3.94
Price Target : 12-month RM 4.70

Two Sides to a Coin
• REIT to help unlock value and re-rate SunCity
• REIT’s valuation expensive: 6.9% yield (based on 97sen indicative retail price) vs sector’s 8.6%, with timing of future acquisitions unclear
• Prefer SunCity (Buy/ TP: RM4.70, based on 11% discount to RNAV of RM5.30) over SunCity REIT

Much awaited catalyst. Upon its listing in Jul 2010, Sunway REIT (SunREIT) will be the largest M-REIT with a market cap of RM2.6b. SunREIT will help SunCity unlock its investment properties’ value, provide a ready avenue for future asset monetization (subject to SunREIT’s requirements), and lead to more efficient allocation of resources to boost ROA. SunCity is expected to turn net cash (1Q10: 49% net gearing) with RM600m net proceeds available for project development, landbank acquisitions and working capital.

But REIT’s valuation looks rich, at 6.9% FY11 yield vs sector’s 8.6%. Although it can be argued that SunREIT deserves a higher valuation for its size and liquidity, its lack of visible acquisition pipeline and diversified mix of assets may not justify such a large premium. While we understand RM2.6b worth of SunCity’s assets have been identified for future injection as SunREIT targets to double its RM3.6b portfolio over the next 5-7 years, but this will likely come later rather than sooner given the “immaturity” of the assets. Rising interest rate environment could force yields higher. Every 100bps change in IPO yield would affect disposal proceeds by 9% and SunCity’s RNAV by 13%.

SunCity the obvious winner. Although we expect SunREIT to be priced at a more reasonable yield of ~7.7%, SunCity’s RNAV will still be an attractive RM4.70. Ex- SunREIT and net proceeds from disposal, SunCity’s other assets (mainly property development) are trading at an attractive 3x 2011 PE. The launch of SunREIT should help
re-rate SunCity and narrow its discount to RNAV.
Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)
“错过时机”胜于“搞错对象”:不会全军覆没!”
做自己熟悉的事,等到发现大好机会才投钱下去

乔治·索罗斯(George Soros)

“犯错误并没有什么好羞耻的,只有知错不改才是耻辱。”

如果操作过量,即使对市场判断正确,仍会一败涂地。

李驰(中国巴菲特)
高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo


There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
冷眼(冯时能)投资概念
“买股票就是买公司的股份,买股份就是与陌生人合股做生意”。
合股做生意,则公司股份的业绩高于一切,而股票的价值决定于盈利。
价值是本,价格是末,故公司比股市重要百倍。
曹仁超-香港股神/港股明灯
1.有智慧,不如趁势
2.止损不止盈
成功者所以成功,是因为不怕失败!失败者所以失败,是失败后不再尝试!
曾淵滄-散户明灯
每逢灾难就是机会,而是在灾难发生时贱价买股票,然后放在一边,耐性地等灾难结束
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