Hiap Teck Venture - Above Expectations (OSK)

Hiap Teck Venture (HTVB) made a strong come back in 3QFY13 with a net profit of MYR9.1m (+>100% q-o-q), exceeding our and street estimates. The company has yet to book in earnings from its blast furnace plant, which it expects to complete by end-2013. We have revised our earnings model following the internal reallocation of coverage resources. Maintain Trading BUY, with our new MYR0.66 FV derived from a 0.5x FY14F P/E.
 Strong comeback in 3Q. HTVB reported 3QFY13 net profit of MYR9.1m (+>100% q-o-q, -27.2% y-o-y), a strong comeback after having posted sluggish net earnings of MYR1.7m in the preceding quarter. Its EBITDA margin improved by 3.4%-pts q-o-q despite the flattish revenue sequentially, mainly attributed to lower production cost on more effective controls and higher production efficiency.
 Blast furnace plant yet to generate earnings. As the company targets to complete its blast furnace plant by end-2013, it has yet to realize any contribution from this segment. Nonetheless, we believe that once the plant starts operation, it should contribute positively to the Group’s bottomline.
 Change of analyst and valuation method. Due to our internal resource reallocation, there had been a switch in the analyst covering HTVB as well as a change in our valuation methodology on the stock. We are now valuing HTVB using a P/B multiple, given that earnings growth may not be too significant before its blast furnace plant is completed. Therefore, we believe that the P/B valuation method should be more reflective of the company’s true value.
 Maintain Trading BUY, FV revised up. Based on our new valuation methodology that pegs HTVB to 0.5x FY14F P/B, we revise our FV upwards to MYR0.66, which still offers investors a potential upside of 26%. Nonetheless, as the business of steel counters is cyclical in nature, with volatile earnings, we maintain our Trading BUY recommendation on HTVB.

Ho Hup and Muhibbah (CIMB)

Ho Hup Construction Co Bhd expects to complete its financial regularisation plan by the fourth quarter of this year. Its executive director Derek Wong Kit Leong said the company has received Bursa Malaysia's approval for its regularisation proposal on May 13, 2013. "Based on the listing requirement, we will apply to Bursa for upliftment of Practice Note 17 (PN17) status after we have achieved two consecutive quarters of profits upon completion of the proposed regularisation exercise," he said.

 For its future growth, Wong said the company aims to focus on property development, construction and the ready mixed concrete business. "Ho Hup has a long track record in the property development and construction sectors and we will continue to leverage on our core business strengths and build on our vast experience for renewed growth," he added. (sun)

Muhibbah Engineering has been awarded a licence by Petronas as an approved supplier for offshore facilities construction and major onshore fabrication works. This allows the company to tender and participate in upcoming offshore facilities construction and major onshore fabrication works for Petronas, as well as other oil operators in Malaysia. (StarBiz)

Ho Hup eyes PN17 exit by October, profitability (Star)

Ho Hup Construction Co Bhd aims to wrap up its ongoing regularisation exercise and exit PN17 by September or October. The company is also expected to return to profitability this year.

Executive director Derek Wong said on Thursday Ho Hup's regularisation was almost complete, with only a few milestones, such as negotiations with creditors, left to be finalised.

"We think our debtors will agree to the settlement. It's a good deal. They don't have to take a haircut and are getting cash and shares," he told journalists following a shareholders meeting.

Wong added that based on the firm's year-to-date earnings, he sees Ho Hup turning profitable this year after five years of losses.

"Our agreement with Malton to co-develop the land in Bukit Jalil is key to this," he said.

Ho Hup had received Bursa Malaysia's approval for its regularisation plan on May 13.

It will apply to be uplifted from PN17 once it has showed two consecutive quarters of profits upon completion of the regularisation.

Cheaper proxy to Favco (HuangDBS)

(OSK) Muhibbah  may  climb  further  after  the  strong  move  yesterday. Purchase  can  be  made  if  the  stock  closes  above  MYR1.50,  with  a close  below  MYR1.40  as  a  stop-loss.  Price  target  is  MYR1.75,  if  the recent  high  of  MYR1.60  is  broken.  Failure  to  get  above  MYR1.50, however,  could  leave  the  stock  trading  sideways  and  it  could  slide further if the stop-loss is triggered. 

Muhibbah Engineering, Buy; RM1.50 (HuangDBS)
Price Target : RM2.15; MUHI MK
Cheaper proxy to Favco
Cheap proxy to Favelle Favco with exposure to other growing segments. RAPID projects and Myanmar
airports biddings still key catalysts. Attractive valuation with 4-6x FY13-15 PE. Maintain BUY with RM2.15 TP (SOP valuation)

The race is on for monorail (CIMB)

Latest news in the extension of the KL Monorail that the contract scope is now larger came as a positive surprise. MRCB, IJM Corp and Scomi are initial contenders. We believe an IJM-Scomi consortium will have a greater advantage given Scomi's rolling stock expertise.

What Happened 

The Edge Weekly reported that the proposed extension of the KL Monorail to Old Klang Road has sparked new interest and involves further stretching the alignment to Sunway. Sources said that MRCB submitted its proposal to Prasarana a month ago while other companies like IJM Corp are also looking to submit their proposals. In all proposals, Scomi Engineering is the technical partner to provide systems and cars.  

What We Think

This news is not a surprise as we are aware that proposals and tenders for the KL Monorail extension will progress in 2H13. However, stretching the KL Monorail extension to Bandar Sunway is a positive surprise. MRCB's proposal was unexpected as the group did not hint at such a move. IJM's incoming proposal is in line with the group's guidance that it will continue to explore domestic infrastructure opportunities in collaboration with Scomi (IJM holds a 9.1% stake). The RM3bn potential cost is a huge boost to any order book. Civil works (est. RM2.5bn) will raise IJM's order book by 89% to RM5.3bn and more than double MRCB's to RM3.9bn. We expect a 5-6% pretax margin from the monorail project as the award will be based on an open tender. This news is positive for the overall sector. New rail jobs over the next 5-10 years go beyond MRT and the KL-Singapore HSR. 

What You Should Do 

Stay invested in MRCB and IJM as expectations that both companies will win the monorail job could trigger a re-rating. However, we prefer IJM to MRCB for exposure to monorail jobs. We believe an IJM-Scomi consortium stands a better chance of winning the bid as the JV's cost advantage lies in Scomi's expertise in monorail rolling stocks. MRCB may not lose out as it was reported that the group is the frontrunner for freight rail upgrade jobs in Klang Valley worth over RM2bn.

Sumatec sees brighter prospects after completing plans (STAR)

Troubled oil and gas counter Sumatec Resources Bhd expects to see brighter prospects ahead after its regularisation plans are completed, targeted by end-August.

Shareholders passed the nine resolutions proposed and tabled at its EGM yesterday.

Major shareholder Tan Sri Halim Saad told reporters after the meeting that the company would be debt-free following the restructuring, which centred around the injection of his Kazakhstan oil and gas assets into the PN 17 company.

This was done through the joint investment agreement Sumatec signed with Halim’s vehicle Markmore Energy (Labuan) Ltd and CaspiOilGas LLP (a subsidiary of Markmore Energy Sdn Bhd) last April.

The agreement enables Sumatec to participate in the development and production of oil and gas in the Rakushechnoye oil field (or better known as the Shelly oil field) until 2025, which transforms it into an exploration and production operator from a services provider.

CEO Christopher Layton Dalton said: “Our strategy is to explore and produce oil from mature onshore assets as the method is less risky.”

He also said it aimed at exiting PN 17 status in the second quarter of 2014.

There were five operational and producing wells out of the 47 wells in the field, he added.

Sumatec will get 100% net profit from the sale of net volume of oil or gas produced for the first two years. From the third year onwards, the profit sharing will be on a 50:50 basis.

It projected earnings before interest, taxes, depreciation and amortisation of RM107.9mil and net profit of RM69.3mil in the financial year ending Dec 31, 2014.

Some key risks the company identified included delays and cost overruns, and volatility in oil prices.

Muhibbah’s shares rally on vessel delivery (BT)

Muhibbah Engineering Bhd’s shares rallied after the company delivered Malaysia’s first homemade diesel electric platform supply vessel (PSV) to Icon Offshore Bhd, the country’s third largest offshore vessel support company.

Muhibbah was the eighth most actively traded stock, jumping some 18 sen to end at RM1.60 a share, its highest close in nine months.

A total of 20.3 million shares were traded, about 11.6 times more than the previous day’s volume.

This month alone, two brokers upgraded Muhibbah’s target price and ratings amid expectations that the Klang-based company, which has a growing international presence, will match the upbeat market outlook on the company.

Muhibbah owns 62 per cent of Favelle Favco Bhd, which is one of the world’s top offshore crane makers.

CIMB Research in a report said it expects Muhibbah to add between RM200 million and RM300 million worth of new jobs in the second half of the year.

At the group level, Muhibbah has an order book valued at RM2.1 billion, of which RM645 million is for cranes and RM196 million for shipyards.

At the handover ceremony of the PSV yesterday, Icon’s chief executive officer Dr Jamal Yusof said the Muhibbah-built ship has a market value of between US$25 million and US$30 million (RM79 million and RM95 million).

“We expect to take delivery of another diesel electric PSV from Labuan Shipyard and Engineering Sdn Bhd in November,” Jamal said, adding that the value is similar to the current vessel.

Meanwhile, Muhibbah managing director Mac Ngan Boon said the company will continue to maintain its focus on oil and gas activities.

“The present trend in the country is towards oil and gas activities, so certainly we are focusing a lot more on that,” said Mac.

Kenanga Research, which increased Muhibbah’s target price to RM1.63 this month, expects the company’s net profit at the group level in the current year ending December 31 2013 to come in at RM81.86 million, and RM93.33 million the following year.

In 2012, Muhibbah posted a net profit of RM76.55 million.

Read more: Muhibbah’s shares rally on vessel delivery http://www.btimes.com.my/Current_News/BTIMES/articles/20130619235400/Article/index_html#ixzz2Wk0Z9nFJ

MyEg (Target Price: 1.74) - Moving up the ladder (CIMB)

At our Asia Pacific Conference today, MyEG’s management unleashed a few positive surprises. We see this as a sign that the company is not resting on its laurels but is striving to move up the value chain. This is long-term positive for the company.

We raise our FY14-15 EPS forecasts by 6-14% to reflect higher fees for its foreign workers annual permit renewal services (FWWPAR). This increases our target price, which is still based on 18.7x CY14 P/E (20%
premium to our target market P/E). MyEG’s premium is backed by a solid 3-year EPS CAGR of 32%. Better-than-expected revenue growth and CSTM concession are the key catalysts. Maintain Outperform.

What Happened
Today, MyEG participated in our CIMB Annual Asia Pacific Conference. MyEG’s Managing Director, TS Wong presented in small group meetings. There were a few positive surprises, including 1) the probable year-end launch of new online services from the Road Transport Department (JPJ), such as the registration of new cars and bidding for new car number plates, 2) a higher fee of RM100 per worker for its FWWPAR (vs. our earlier assumption of RM50), 3) it has secured a new major contract from a plantation GLC company to handle the FWWPAR for its 40,000 foreign workers, and 4) the proposed launch of a new mobile payment system called “iPayEasy” in early-2014, riding on the custom service tax monitoring system (CSTM) infrastructure.

What We Think
The positive surprises indicate that MyEG's management is not resting on its laurels but is striving to move up
the ladder chain by providing new services to the market. This is long-term positive for the company.

What You Should Do
Remain invested in the stock. The stock is already up more than 80% this year and is one of our top
performing small-caps so far this year. However, its long-term growth prospects remain exciting with a
multitude of new services and projects in the pipeline. Our EPS forecast is conservative as we have yet
to impute potential earnings from CSTM, “iPayEasy” and the new JPJ services. Any EPS contribution from
these new projects over the next few quarters would be a bonus to our current EPS forecasts for MyEG.

Small is in (ext.CIMB)

The 1Q13 quarterly results for small caps continued to improve from the bottom in 3Q12. The FBM Small Cap Index outperformed the KLCI this year, up 28% compared to the KLCI’s 4.8% gain. The strongest outperformance was obvious just after the May general elections.

Review of 1Q13 corporate results
In our small cap universe, quarterly results improved further in 1Q13 from the worst-ever showing in 3Q12 when none of the small caps we monitored beat expectations. In the 1Q13 results season, 23% (14% in 4Q12) of our small cap universe trumped expectations while 23% (30% in 4Q12) were below. Companies that performed above expectations in 1Q13 include Jobstreet, Muhibbah and Uchi. Those that performed below expectations were Asia File, Eksons and Tomypak. Asia File’s revenue depends on troubled Europe, while Eksons is experiencing higher log costs, weak plywood demand and prices. Tomypak faced higher raw material costs during the quarter.

Recommendation changes
In May, we upgraded Jobstreet and Wellcall from Neutral to Outperform and downgraded Eksons and Asia File from Neutral to Underperform due to poor earnings growth outlooks. During the month, we initiated coverage on ICT education stock Prestariang with an Outperform call. This stock offers strong long-term EPS growth and attractive dividend yields, paid quarterly. At the same time, we dropped coverage on Pelikan mainly due to the lack of institutional investor interest.

MyEG outperformed this year
MyEG, our top small pick, did very well in 2013, outperforming the market by a wide margin, especially in May. YTD, the stock is up more than 90%, with most of the gains coming just after the recent General Elections. The stock has re-rated from just 11-12x to 18x 1-year forward P/E in the past month.

Prestariang is our new top small cap pick
MyEG’s share price has so far done very well this year. However, in this quarter, we are switching our top small cap pick from MyEG to Prestariang, which offers potentially greater price upside in the medium term. In May, we initiated coverage on Prestariang, an education ICT company, with an Outperform recommendation. This company is the country’s largest provider of information communications technology training, certification and software licence management and distribution.

In 2012, the company set up the country’s first boutique university, the University Malaysia of Computer Science and Engineering (UniMy). UniMy will be devoted to providing specialised computer science and engineering education in the country.

We like the company’s defensive revenue, 60% of which is currently recurring. This percentage should rise with UniMy. We are projecting 16% three-year EPS CAGR for Prestariang, with growth coming from existing services and contributions from UniMy. The valuation is attractive at only 8.8x CY14 P/E vs. MyEG’s 18x P/E. Prestariang’s net dividend yield remains attractive at 5.6%, even after the strong price outperformance in the past month.

Summary of our Outperform ratings (Selective)
Cypark. Cypark is ASEAN's largest renewable energy developer with plans to bring online 60MW of generation capacity over the next two years. While the company's share price has rerated post elections, we believe the stock remains below value based on our DCF-based target price of RM2.82. We forecast a two-year core EPS CAGR of 29%, underpinned by a gradual increase in generation capacity. For FY13, we expect the 2H to be better as the bulk of the additional 15MW new capacity for the year will come on line then. Cypark is also a proxy for the booming economy of Myanmar where the company intends to partner local players and build biogas farms to help meet the country's thirst for electricity.

Muhibbah Engineering. Muhibbah's orderbook prospects have improved due to greater visibility of jobs. We expect oil & gas-related infrastructure jobs under the ETP and port expansion projects to act as catalysts from 2H13, with potentially RM200m-300m worth of new jobs in the medium term. The group has a fair chance of benefiting from Petronas's Rapid project in Greater Iskandar, and has prequalified for three packages. Its shipyard and cranes segments remain key beneficiaries of local and regional oil & gas ventures. MRT remains more of a longer-term story. We maintain our Outperform rating with RM1.83 target price, pegged to an unchanged 40% RNAV discount.

MyEG. The company is confident about signing the custom service tax monitoring system (CSTM) concession soon. MyEG holds a 40% stake in the consortium. If all goes as planned, the company plans to launch this project nationwide this year. Total project capex is RM100m. Conservatively, we have not assumed any earnings from the CSTM concession. We maintain our EPS forecasts and target price based on 18.7x CY14 P/E, a 20% premium over our target market P/E of 15.6x. MyEG’s premium valuation is supported by its above-market 26.5% three-year EPS CAGR. Higher revenue growth from new services and signing of the custom service tax monitoring concession are catalysts.

Perisai. We like Perisai because it is moving up the value chain by going into higher-margin segments, namely floating production, storage and offloading (FPSO) and drilling. Now armed with 10 assets, the company is set to add FPSO vessel Lewek Arunothai to its fleet soon. The vessel will be deployed at the Kamelia field of the North Malay Basin to execute a Hess contract, with first gas expected in late Jul. Meanwhile, Perisai is scheduled to take delivery of its first jack-up rig in Jul 2014 and the second one in 2Q15. The company has yet to secure contracts for the rigs. The stock remains an Outperform.

Perisai (2.00) - Not the usual drill (CIMB)

Although drilling is a new business for Perisai, the company is making its presence felt by building two jack-up rigs. These new assets, along with an FPSO vessel, will allow the company to secure stronger growth from FY14 onwards and enjoy record net profits until at least FY16.

Our target price (2.00) rises as we raise our FY14-15 EPS to impute the new assets. We reduce our FY13 EPS to factor in lower contribution from a pipelay barge. We continue to value the stock at a CY14 P/E of 15.6x, which is a 30% discount to the P/E of oil & gas big-caps. Perisai remains an Outperform and our top small-cap oil & gas pick. Successful drilling and FPSO ventures are potential re-rating catalysts.

Beneficiary of import substitution model
We left our recent meeting with Perisai's MD, Izzet Ishak, feeling more bullish about the company's
earnings prospects. The jack-ups are still undergoing construction and will only be delivered in Jul 2014 and 2Q15 but an acute shortage of Malaysian-flagged jack-ups ensures immediate deployment of the assets once construction is completed. Perisai is indeed capitalising on Petronas's import substitution model, which favours local companies with assets that are currently supplied by foreigners.

Aggressive fleet expansion
The jack-ups provide a new growth platform for Perisai, which has swiftly expanded its fleet from just one asset to ten since Izzet took over the company's leadership in Apr 2010. More importantly, the new assets facilitate the transformation of the company's business model from a bareboat chartering structure to an operational model. Izzet is growing Perisai just like he grew pre-merger SapuraCrest ten years ago, in our view.

Cheaper exposure to vibrant sector
Our revised FY15 EPS is 10% above consensus, which has yet to fully impute the jack-ups' contributions. Despite a 27% expansion in share base, Perisai's 3-year EPS CAGR is commendable at 13.8%. Also, the stock provides cheaper exposure to the vibrant Malaysian oil & gas sector, trading at 10-15x FY13-15 P/Es, substantially lower than the sector'saverage of 18-24x.

Faber Group – Cheap Exposure To Healthcare (OSK)

Faber Group (FAB MK; FV = MYR2.34) – Cheap Exposure To Healthcare

¨      We met up with Faber Group’s management for an update on its operations following the release of its 1QFY13 results.
¨      Management highlighted that the new concession agreement will be inked soon upon the blessing of the Minister of Health Datuk Seri Dr Subramaniam Sathasivam.
¨      While this would likely translate into a loss of income in the long run, Faber is looking to take up the subcontractor role for an interim period of 6-12 months.
¨      Management is looking to expand its non-concession facilities management services, possibly by 20%-30% pa., with an eye on the O&G segment in particular.
¨      We are forecasting its non-concession segment to chalk in revenues of MYR65m-MYR70m pa. Upgrades to our estimates are likely should there be any major contract wins in the near term.
¨      Maintain our BUY call with our FV upgraded to MYR2.34 (from MYR1.94 previously) rolling forward our valuation to FY14. Its sturdy cash pile of MYR312.5m with minimal borrowings as of 1QFY13 translates into net cash per share of MYR0.85.

Malton Berhad - A Small Cap Developer With A Perfect Mix (OSK)

Malton Berhad - A Small Cap Developer With A Perfect Mix

We value Malton at MYR1.80 at 50% discount to RNAV. The stock is deeply undervalued at 0.5x P/B. A few big projects have been sorted out, such as the Bukit Jalil and Pusat Bandar Damansara developments. Three big projects in the pipeline worth MYR7.9bn are all at prime locations, namely Bukit Jalil, Batu Kawan and Pengerang. They make up 40% of RNAV. Malton could also potentially play a bigger role in PBD.

♦  The making of “Pavilion 2” at Bukit Jalil worth MYR3.5bn. Malton will put up a mall as sizeable as Pavilion Mall in KL at Bukit Jalil. Other commercial and residential components will be easily sold given the strategic location, 5.3m population catchment, and buyers’ confidence as reflected by the success of Pavilion and Banyan Tree project in KL.

♦  300 acres with MYR3.88bn GDV at Batu Kawan right off the PSB. Malton is also a Penang mainland play. The launch of Phase 1, comprising shop offices and superlink-homes worth MYR440m, is targeted in mid-2014, just timely after the opening of the Penang Second Bridge (PSB) when the growth visibility is substantiated.

♦  200 acres at Pengerang Johor. Malton is well-positioned at Pengerang, which is the next mega oil & gas hub in Malaysia. Its project has a GDV of MYR480m, located near the fisherman village and Chinese settlement area. We believe the market may not be aware of this land in Malton’s portfolio. The stock should see a catch-up in valuations, to be in line with the steep appreciation of many Iskandar plays over the last two months.

♦  Involvement in Pusat Bandar Damansara (PBD) a wild card. Datuk Desmond Lim now effectively holds the PBD land after the settlement with Johor Corp recently. Given that he is also the 38% major shareholder of Malton, we do not rule out the possibility that Malton could play a bigger role in the project. The commercial redevelopment could worth MYR2-3bn given that two MRT stations will be located in the vicinity and prime land is scarce at the affluent Bukit Damansara area. 

♦  Fair value at MYR1.80. We value Malton at MYR1.80, based on 50% discount to RNAV. At current share price, the stock is trading at a massive 80% discount to RNAV. The undervaluations make Malton an attractive takeover target given its strategic landbank exposure.