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Tuesday, February 11, 2014

Rentals expected to boost IGB REIT FY14 profit

Published: Thursday January 30, 2014 MYT 12:00:00 AM 
Updated: Thursday January 30, 2014 MYT 6:53:54 AM

By Maybank Investment Bank Bhd
Hold (unchanged)
Target price: RM1.24

PROJECTING a 5% year-on-year financial year ending Dec 31, 2014 (FY14) core net profit growth, Maybank Investment Bank Bhd has rated IGB REIT “hold”. It said the projection was mainly driven by major rental reversions in The Gardens Mall since third quarter 2013. The bank-backed research house forecast FY14 to FY15 earnings plus 1% using discounted cash flow based target price at RM1.24.

It said the REIT’s management expected 2014 to be a challenging year amid rising costs including higher fuel bills, electricity tariffs and assessment fees, while 2015 would see the implementation of the GST and potentially a hike in the overnight policy rate.

Malaysia’s retail industry recorded a sluggish sales growth of 3.1% year-on-year in third quarter 2013 (versus plus 4.8% in third quarter 2012 and the Retail GroupMalaysia’s forecast of +6.5%) despite the Ramadan month and Hari Raya festivity during the quarter. Turnover rent currently accounts for about 12% to 13% of IGB REIT’s total revenue.

It said while many commercial leases included rent escalation clauses and cost pass-through to tenants, tenant retention remained a top priority and REITs generally might have to absorb part of the additional costs (assessment hikes).

By CIMB Investment Bank Bhd
Target price: RM6.73

CIMB Investment Bank Bhd has rated SapuraKencana a “add” following the acquisition of Newfield’s oil and gas (O&G) production blocks in Malaysia, which could be completed as early as mid-February following Bank Negara’s approval.

Expecting the acquisition to be finalised by around April, the bank-backed research house noted that the management remained keen on Newfield’s assets in China.

It said an early completion could allow SapuraKencana to book the Newfield contributions for the full financial year ending Jan 31, 2014 (FY14) and FY15 effective Feb 1, as opposed to May 1, which could potentially raise the FY14/15 earnings per share by 3%.

Continuing to value the stock at 22.5 times calendar year 2015 price-to-earnings (P/E) with a 40% premium over its implied market target of 16.1 times, it is still within the historical P/E range of the O&G big caps.

By Affin Investment Bank Bhd
Reduce (maintain)
Target price: RM3.24

MAINTAINING its “reduce” rating for KPJ Healthcare, Affin Investment Bank Bhd noted the earnings were lowered to reflect higher staff costs and utility expenses.

Since its peak in July 2013, KPJ’s share price has fallen by 27% reflecting several quarters of disappointing earnings performance.

Having lowered its financial year ended Dec 31, 2013 (FY13) to FY15 earnings forecast by 10% to 19% after modelling in a lower earnings before interest, taxes, depreciation and amortisation margin assumption of 9.4% to 10.5% from 10% to 12.5% previously, the investment bank noted that this was on the back of a higher staff cost assumption.

It said the higher staff cost was to account for the full impact post the implementation of minimum wage effective January 2013, the extension of retirement age to 60 years effective June 2013 as well as the group’s on-going expansion.

However, it added that impact from the combined three elements to bottomline was partially mitigated, as it expected a lower effective tax rate of 22% (versus 24% previously) leveraging on KPJ’s investment tax allowance.

The lower fair value of RM3.24 is based on an unchanged 24 times calendar year 2014 price–earnings ratio. The valuation also implies an enterprise value per earnings before interest, taxes, depreciation and amortisation of 14.1 times.

By MIDF Amanah Investment Bank Bhd
Neutral (maintained)
Price target: RM1.88

MAINTAINING a “neutral” rating on Malaysia Building Society Bhd (MBSB), MIDF Amanah Investment Bank Bhd noted the financial services provider’s full-year financial year ended Dec 31, 2013’s (FY13) net profit rose 33.8% to RM597.6mil.

Islamic banking income rose 8.1% quarter-on-quarter and 35.8% year-on-year in 2013 despite various tightened lending criteria imposed by Bank Negara.

It said measures such as the shortening of maximum personal financing tenure to 10 years, and thereby resulting in higher periodic payments for the same loan amount, would directly reduce the amount that banks would lend to highly-leveraged borrowers.

It added FY13 also witnessed a steady growth in corporate loans for the year, averaging about 5% to 5.5% and that gross income from corporate loans was higher due to higher disbursements and lower individual assessment impairment allowance for the year due to settlement of impairment accounts.

The investment bank has maintained a “neutral” call until further updates on MBSB’s corporate loan expansion plans.

With a revised target price of RM1.88, it is pegged to its FY14 forecast fully-diluted earnings per share of 24.6 sen to the three-year historical price–earnings ratio of approximately 7.5 times.

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