Saturday, November 21, 2009
The company is cashed up and looking for new avenues of growth. Potash, used mainly in fertilizer to grow fruits, vegetables, soy and corn, offers just the right opportunity.
BHP Chief Executive Marius Kloppers is so excited about expanding into potash, he talks about it in the same breath as he talks about the company's most profitable business, iron ore.
His bullishness on potash has prompted takeover speculation in the sector, with investors betting BHP might bid for one of the two big North American producers, Potash Corp of Saskatchewan (POT.TO) or Mosaic Co (MOS.N), in a drive for instant scale.
Friday, November 20, 2009
Wednesday, November 18, 2009
Maintain Buy on Dialog. Our target price of RM1.52 is based on a FY10 sum-of-parts valuation. Dialog is a steady defensive O&G stock that provides investors an attractive dividend yield of about 4%. It held net cash of RM143m as at 30 Sept, 2009.
Kinsteel’s 3Q09 results were below expectations, largely on the back of lowerthan- expected volume sales. Nevertheless, what is positive is that with higher steel prices and lower production cost, Perwaja (PERH MK, MYR1.36, Not Ranked) and the group as a whole, returned to the black after three consecutive quarters of losses.
Billet prices rose an average of 5%-8% QoQ in 3Q09. Nevertheless, group revenue declined 28% QoQ on the back of lower sales volume, likely due to the slow pickup in domestic infrastructure projects.
Operationally, however, the group turned around to profit on the back of lower production costs, with an increase in the utilization of cheaper DRI as opposed to scrap metal, as its primary raw material.
Perwaja reported a net profit of MYR13.1 mln in 3Q09 vs. a loss of MYR84.9 mln in 2Q09. Cumulatively, however, the group continues to be in the red, with a total loss of MYR128.3 mln for 9M09.
Taking into account a more moderate recovery in selling prices and sales, we reduce our 2009 net profit estimate to MYR10.3 mln (from MYR24.4 mln) and our 2010 net profit estimate to MYR112.3 mln (vs. MYR128 mln).
Recommendation & risk
We maintain our Buy recommendation on Kinsteel with an unchanged 12-month target price of MYR1.10.
We continue to utilize a blend of PER and P/B multiples to value Kinsteel. Our target multiples are unchanged at 11x PER and 1x P/B, but are rolled forward and applied to our estimated 2011 EPS (2010 previously).
Our calculations are fully diluted after taking into account Kinsteel’s outstanding warrants (exercise price at MYR0.20), which will expire on Nov. 11, 2011. The target PER and P/B multiples are benchmarked to peer and historical averages. We continue to expect a better outlook for the industry, as we believe support for higher demand and selling prices will come from more infrastructure projects being rolled out. We also expect Kinsteel’s 2010 earnings to get a lift from plans to modernize and expand its facilities by mid-2010.
Risks to our recommendation and target price include slower-than-expected demand, higher-than-expected raw material costs and volatility in international steel prices.
Modest 1Q Growth ---- Results tak cantik
We retain our 3-STARS (Hold) recommendation on Parkson Holdings (PHB) after minor adjustments to our earnings projections following the release of 1QFY10 (Jun) results. PHB is trading at a 33% discount to the market value of its stake in its main subsidiary, Parkson Retail Group (PRG) (03368, HKD13.36, Not Ranked), which is close to the historical average of 27%. We believe PHB will continue to trade at a discount to PRG, given PHB’s smaller market capitalization and lower share liquidity relative to PRG.
1QFY10 (Jun) results were at the lower end of our expectations due to marginally weaker-than-expected contribution from the China operation, which is held via 51.6%-owned PRG. PHB's 1QFY10 net profit rose 8% YoY on the back of revenue growth of 3%. We estimate that PRG accounted for about 80% of PHB’s earnings. The China, Malaysia and Vietnam operations saw same-store sales (SSS) growth of 7.5%, 4% and 22% respectively in 1QFY10. Malaysia’s 1QFY10 SSS growth is within the full-year target of 3%-4%, while Vietnam’s is above the full-year target of 15%-20%. Meanwhile, PRG’s SSS growth of 7.5% in 3Q09 and 7.1% in 9M09 are
at the lower end of its 2009 target of a "high single digit" growth. Nonetheless, we expect growth to gather pace next year, as consumer demand improves in line with stronger economic growth.
PHB’s concessionaire rate fell slightly to 20.8% in 1QFY10 from 21.1% in 1QFY09, while the China operation’s concessionaire rate (via PRG) fell to 19.8% from 20.3%, due to promotions to drive sales. We expect fewer promotional activities as consumer sentiment picks up.
We have fine-tuned our forecast for PRG, resulting in a 3%-4% cut in our net profit forecast for PHB. We project a 3-year recurring net profit CAGR of 23% driven by PRG, which is targeting a floor space increase of 15% p. a.
PHB offers exposure to retail markets in three countries, namely China, Vietnam and Malaysia. In our view, PHB is well-positioned to benefit from rising purchasing power in China and Vietnam over the longer term. Management has extensive experience in the retail business and PHB is an early entrant into the fast-growing retail markets in those countries. In China, its first-mover advantage has enabled it to build a strong brand name and a nationwide network.
Meanwhile, with concessionaire sales accounting for 86% of merchandise sales, inventory risk is minimized.
Our 12-month target price of MYR5.50 is unchanged. Our target price continues to be based on a 25% holding company discount to the sum-of-parts (SOP) value, plus projected net DPS.
The 25% discount that we apply to our SOP value is close to the historical 27% discount that PHB trades to PRG in terms of the market value of its stake in the latter. In our view, the market value discount reflects PHB’s smaller market capitalization and lower share liquidity relative to PRG.
Our valuation of PRG is based on a combination of discounted cash flow and relative valuation. PRG’s relative valuation is derived from a target 2010 PER of 24x (unchanged). Meanwhile, our valuation of the Malaysia and Vietnam operations is based on a target FY11 PER of 8x.
Tuesday, November 17, 2009
Many commentators are talking with doomsday language of an imminent Dollar plunge. While a further decline in the Dollar is certainly possible, a "plunge" doesn't seem in the cards. First, the
Inventories at US businesses fell in September to the lowest level in almost four years, signaling orders will rise in coming months as spending picks up. The 0.4% decrease in stockpiles was smaller than anticipated and brought the value of goods on hand down to USD1.3trn, the fewest since November 2005. Sales decreased 0.3%, reflecting a slump in demand for autos that was reversed last month. Companies depleted inventories at a record rate in the first half of the year, laying the groundwork for economic growth in the second half as consumers and businesses started spending again. Lean stockpiles at manufacturers such as carmakers and growing exports will spur a factory rebound that will propel the economic expansion into next year. (Bloomberg)