• 1Q09 adex data point south. Although total gross adex for Jan-Mar 09 shrank
3.9%, it was better than the 20% contraction seen after the 1997-8 Asian financial
crisis. The worst performer was the newspaper segment which saw a 9% decline
compared with a 3.7% growth for TV adex. But ad volume visibility extends only 2-3
months out, leaving question marks over advertising commitments for 2H09.
• Downbeat expectations. The lacklustre adex showing in Jan-Mar 09 ties in with
the 1Q09 results reported by Media Prima and NSTP. It also confirmed the
generally bearish expectations of the media companies since the beginning of the
year, with a few being taken by surprise by the magnitude of the deceleration. Our
previous 2009 projection of an adex range of 1.1% contraction to 6% growth does
not hold and we now revise it to 6-10% adex contraction.
• Newspapers at risk. Fundamental risks could be more severe for newspaper
companies as newspaper adspend continues to take a hit from depressed GDP
data. Although there are signs of resilience in the Malay newspaper segment, this
does not mean total immunity against the potential worsening of adex volume in the
coming months. The top Malay newspaper NST’s Harian Metro is the main winner
but this is not expected to help the group much given that Harian Metro is a small
contributor.
• Indicators leading at inflection point? We concur with our economic research
team’s view that the CLI could hit the trough in Jun-Aug 09 and that the economic
recovery from the trough is likely to take at least 12 months given the severity of the
current global crisis. Advertisers should reposition their spending for a gradual
recovery from 2010. Historical trends suggest that adex in Malaysia should recover
in 1Q2010 based on a 3-6 months’ lag period.
• End-2009 a good potential entry point. We believe end-09 will be a good re-entry
point for exposure to selected media stocks as positives such as earnings visibility,
improved sentiment of advertisers, cheaper newsprint and gradual economic
recovery are likely to kick in as catalysts then. We will monitor closely the situation
on the ground and official stats but so far, adex for the months ahead appears to be
southbound. The share prices of media companies have recovered somewhat since
the start of the year and we fail to see any additional near-term re-rating catalysts.
• Staying NEUTRAL on media sector for now. In view of this, we maintain our
NEUTRAL stance on the media sector but recommend investors to switch to Astro
(Trading Buy) which has very little exposure to adex and minimal downside risks to
its Malaysian operations where the subscriber trend could turn out to be resilient.
We remain NEUTRAL on Media Prima (MPR MK), Star Publications (STAR MK)
and Media Chinese International (MCIL MK). NSTP is kept as an
UNDERPERFORM
The document provides a summary and analysis of Malaysian companies' 1Q09 earnings results. Some key points:
- The results season was not as bad as feared, with fewer companies missing expectations than in previous quarters. EPS forecasts for 2009 and 2010 were surprisingly raised rather than cut.
- Six sectors disappointed expectations while two performed above. The revision ratio improved to 0.6x, indicating less negative earnings momentum.
- The worst could be over as future quarters may see more balanced results and fewer EPS cuts. However, EPS growth may not turn positive again until 3Q09.
- During the results period, the analyst raised forecasts for eight companies and lowered forecasts for 23 companies.
The document summarizes market performance in August 2010 and KBCAM's outlook. Global equity markets declined in August while European bonds increased. News was mixed with strong corporate earnings but concerns around the US economy. KBCAM maintains the view that the global economy will avoid recession, though volatility is expected in the near term. Future food shortages are highlighted as a major challenge given population growth, increasing demand, and limited agricultural supply. Investment opportunities exist across the food value chain.
Be realistic, be selective. We believe this market rally has pushed
valuations to the point where growth expectations have reached
implausible levels. In fact, profits have just begun to turn down. We are
not overly bearish – our Buy list is longer than our Sell list – but we
caution that optimism over growth can disappear as quickly as it
appeared. Domestic factors, particularly political developments, may
be a positive catalyst.
Profit recession has just begun. Industrial production peaked in
January 2008, but profits only began a broad-based decline in 1Q09.
Within our coverage, 63% of the companies that have released 1Q
earnings reported lower sequential quarterly net profits. In seven
sectors, our entire coverage list suffered profit contractions. This
suggests the recession in profits has just begun.
Market valuation implies an optimistic view of growth. The market
currently trades at 15.2x 2009 earnings, up from 12x earlier this year.
This is only 10% below the previous cycle’s mid-cycle value, but today,
we face growth of -7.7% (2009) and +9.7% (2010), taking market
earnings only 1% higher by the end of 2010 from its end-2008 level.
Market growth expectations seem to be running ahead of reality.
History tells us the bear market isn’t over. Two previous bear
markets over 1981-86 and 1993-98 lasted 57 and 58 months
respectively. It has now been 17 months from the January 2008
collapse. Those bear markets had 22-38 trend reversals of 5% or more;
we have now seen 12 since January 2008. These comparisons suggest
we are, at best, half way through this bear market.
Bet on Prime Minister Najib, but Sell hope. Our top stock picks are
in the construction sector. We expect PM Najib will deliver on the fiscal
spending promises, reinvigorating the construction and building
materials sectors. Our top Sells are stocks where high hopes and
expectations have been built in; where current prices have run well
ahead of both our and consensus target prices.
Politics a positive wildcard. Beyond rapidly executed fiscal packages,
the country’s new leadership could make further changes to longstanding
policies to attract foreign investment and win back broader
support from all Malaysians. These initiatives should be positive for
equity market at least in the short-term.
• Some glimmers of hope… Rays of hope are permeating the semiconductor
industry, which probably saw most of the bad news in 1QCY09. Global chip sales
improved slightly in Mar 09 with a 30.0% yoy decline compared with a 30.1% yoy
fall in Feb 09. The book-to-bill ratio has ticked up with preliminary Mar 09 numbers
hitting 0.61x, up from Feb 09’s abysmal 0.47x. Finally, utilisation rates have scraped
bottom as some production facilities have been shuttered and inventory control is
being exercised. The end-user markets appear to have troughed, with PC and
handset sales probably hitting the bottom. Furthermore, trade credit is now
normalising. That said, stabilisation does not equate to a recovery and we believe
that restocking activity as inventory runs low is the primary factor in the improving
outlook. We still expect 2009 to be a difficult year where the typical seasonal pick up
in 3Q may not materialise given the current re-stocking activities.
• …but no full-blown recovery until 2010. We argue that a true recovery will only
take root when the global economy begins to move upwards. A meaningful and
sustained recovery will only take place when consumer sentiment and spending
spring back to life and cause ASPs to start rising. We believe that a more
convincing uptrend will take hold only from 2H10 onwards.
• Global economies to start stabilising towards year-end. Our economists believe
that the world economy will feel the full impact of the global financial crisis this year.
Although the process of sorting out the financial system will take time and
resources, the cumulative effects of sizeable fiscal stimuli and aggressive monetary
easing globally will work to provide some stability. Recent global indicators are less
negative. Considering the extremely low base this year, global growth should pick
up in 2010 but will probably fall short of its long-run average growth rate of 3.7%.
• Upgrade sector to TRADING BUY. While the fundamentals for the sector remain
uncertain, we think that downside to share prices is limited as valuations are still
below trough levels. We upgrade the sector from Underperform to TRADING BUY.
Furthermore, in line with our market strategy, we think that investors’ risk appetite is
increasing and higher beta plays such as semicon should be in vogue. Investors
should start picking up semicon stocks ahead of the recovery of the sector as
historically, the share prices for both MPI and Unisem cratered 13-18 months before
the upturn of the sector. Sector catalysts include a) a sooner-than-expected revival
of end-user demand and b) a faster-than-expected economic recovery.
• Upgrade Unisem and MPI to Trading Buy. In tandem with the sector upgrade, we
upgrade MPI and Unisem from Underperform to Trading Buy. We raise our target
prices for both after cutting our discounts to their 5-year historical average by 30-
60% pts to 20-40% for Unisem and MPI respectively. We assign a lower discount to
Unisem, our top pick, as its higher liquidity and beta make it a better play on a
market rebound. Re-rating catalysts include a) qoq improvement in earnings, b)
revival of end demand and c) the higher betas on offer.
The document initiates coverage on Tata Motors as a buy, with a target price of Rs. 262 per share representing an upside of 22.4% from the current market price of Rs. 214. Strong growth from JLR brands, expected recovery in commercial vehicle sales, and better performance of Tata's diesel passenger vehicles are expected to drive consolidated revenues and earnings over FY12-13. JLR volumes are forecast to grow at a CAGR of 17.1% through new product launches and expansion in international markets like China, while commercial vehicle sales are expected to benefit from an interest rate cycle reversal.
This document provides a sector update and analysis of the media industry in Malaysia. Some key points:
1) Advertising expenditure (adex) in March 2009 contracted only 1% year-over-year, a much better showing than previous months, driven by a 13% increase in TV adex.
2) However, the analyst maintains a cautious outlook due to difficult year-over-year comparisons and lack of major events in 2009 that boosted adex in 2008.
3) The analyst downgrades their recommendation on Media Prima and Star to Sell, as their share prices have risen ahead of underlying fundamentals in the weak economy. The media sector outlook is downgraded to Underweight.
We expect transactions to fall and prices to ease in 2009, in line with the projected 3%
real GDP contraction. Transactions could fall 20-30% or as much as 35-50% in the
worst-case scenario, matching the performance during the 1997/8 Asian financial
crisis. However, most major developers have pushed out innovative financing
schemes to lure buyers. Response has been mixed, with good response garnered by
the likes of SP Setia (RM500m sales) and Mah Sing (RM170m sales) but lacklustre
sales for many other developers
The majority down. 62% of our 72-stock universe suffered lower
sequential quarterly net profits, with 24% surprising on the downside.
The combined 1Q09 net profit of our research universe fell by just 3.5%
QoQ. But stripping out 5 large gainers, net profits fell a larger 13.6%
QoQ. Consumers and glove manufacturers’ defied gravity, but net
profits of virtually all stocks in nine sectors fell quarter-on-quarter.
A surprising combined result, but the devil is in the details. The
combined net profit of our research universe declined just 3.5% QoQ
despite an overwhelming 62% of companies reporting a sequential
quarterly decline. But excluding five companies, combined net profit fell
13.6% QoQ, an acceleration from previous quarters. A broad-based
earnings decline is being masked by a few companies, including some
monopolies.
Declines in nine sectors, but consumer sector unscathed. Every
stock in nine sectors, excluding monopolies Petronas Gas and KLCCP,
experienced a drop in quarterly sequential earnings. The sectors are
gaming, oil & gas, property, REITs, construction, building materials,
semi-conductors, plantations and toll roads. Consumer stocks and
glove manufacturers showed particular resilience.
An ‘energy dividend’ took effect; monopolies fared well. Lower oil
prices benefited heavy fuel users AirAsia and Tenaga. Their gains were
only partially offset by lower earnings at the oil & gas services
companies. Net profits of Telekom, Tenaga and Petronas Gas, all
effectively monopolies, improved on a quarterly basis although only
Petronas Gas raised prices in 1Q09.
The biggest disappointment and downgrade: 1Q GDP. First quarter
2009 GDP fell 6.2% YoY, against consensus expectations of a 3-4%
drop. We have revised our GDP forecasts to -3.8% in 2009 and +4.0%
YoY in 2010 (previously -1.3% and +3.5% respectively). The
government, to be ahead in the expectations game, is projecting 2009
GDP growth of -4% to -5%. The silver lining is the government is now
under greater pressure to implement its fiscal stimulus plans quickly.
A reversal of fortune ahead for construction, building materials.
Despite uniformly lower earnings this 1Q, we believe the construction
and building materials sectors are only 2-3 quarters away from
improved revenues. Share prices of stocks in these sectors will likely
be driven by newsflow from the fiscal stimulus rather than earnings.
The document provides a summary and analysis of Malaysian companies' 1Q09 earnings results. Some key points:
- The results season was not as bad as feared, with fewer companies missing expectations than in previous quarters. EPS forecasts for 2009 and 2010 were surprisingly raised rather than cut.
- Six sectors disappointed expectations while two performed above. The revision ratio improved to 0.6x, indicating less negative earnings momentum.
- The worst could be over as future quarters may see more balanced results and fewer EPS cuts. However, EPS growth may not turn positive again until 3Q09.
- During the results period, the analyst raised forecasts for eight companies and lowered forecasts for 23 companies.
The document summarizes market performance in August 2010 and KBCAM's outlook. Global equity markets declined in August while European bonds increased. News was mixed with strong corporate earnings but concerns around the US economy. KBCAM maintains the view that the global economy will avoid recession, though volatility is expected in the near term. Future food shortages are highlighted as a major challenge given population growth, increasing demand, and limited agricultural supply. Investment opportunities exist across the food value chain.
Be realistic, be selective. We believe this market rally has pushed
valuations to the point where growth expectations have reached
implausible levels. In fact, profits have just begun to turn down. We are
not overly bearish – our Buy list is longer than our Sell list – but we
caution that optimism over growth can disappear as quickly as it
appeared. Domestic factors, particularly political developments, may
be a positive catalyst.
Profit recession has just begun. Industrial production peaked in
January 2008, but profits only began a broad-based decline in 1Q09.
Within our coverage, 63% of the companies that have released 1Q
earnings reported lower sequential quarterly net profits. In seven
sectors, our entire coverage list suffered profit contractions. This
suggests the recession in profits has just begun.
Market valuation implies an optimistic view of growth. The market
currently trades at 15.2x 2009 earnings, up from 12x earlier this year.
This is only 10% below the previous cycle’s mid-cycle value, but today,
we face growth of -7.7% (2009) and +9.7% (2010), taking market
earnings only 1% higher by the end of 2010 from its end-2008 level.
Market growth expectations seem to be running ahead of reality.
History tells us the bear market isn’t over. Two previous bear
markets over 1981-86 and 1993-98 lasted 57 and 58 months
respectively. It has now been 17 months from the January 2008
collapse. Those bear markets had 22-38 trend reversals of 5% or more;
we have now seen 12 since January 2008. These comparisons suggest
we are, at best, half way through this bear market.
Bet on Prime Minister Najib, but Sell hope. Our top stock picks are
in the construction sector. We expect PM Najib will deliver on the fiscal
spending promises, reinvigorating the construction and building
materials sectors. Our top Sells are stocks where high hopes and
expectations have been built in; where current prices have run well
ahead of both our and consensus target prices.
Politics a positive wildcard. Beyond rapidly executed fiscal packages,
the country’s new leadership could make further changes to longstanding
policies to attract foreign investment and win back broader
support from all Malaysians. These initiatives should be positive for
equity market at least in the short-term.
• Some glimmers of hope… Rays of hope are permeating the semiconductor
industry, which probably saw most of the bad news in 1QCY09. Global chip sales
improved slightly in Mar 09 with a 30.0% yoy decline compared with a 30.1% yoy
fall in Feb 09. The book-to-bill ratio has ticked up with preliminary Mar 09 numbers
hitting 0.61x, up from Feb 09’s abysmal 0.47x. Finally, utilisation rates have scraped
bottom as some production facilities have been shuttered and inventory control is
being exercised. The end-user markets appear to have troughed, with PC and
handset sales probably hitting the bottom. Furthermore, trade credit is now
normalising. That said, stabilisation does not equate to a recovery and we believe
that restocking activity as inventory runs low is the primary factor in the improving
outlook. We still expect 2009 to be a difficult year where the typical seasonal pick up
in 3Q may not materialise given the current re-stocking activities.
• …but no full-blown recovery until 2010. We argue that a true recovery will only
take root when the global economy begins to move upwards. A meaningful and
sustained recovery will only take place when consumer sentiment and spending
spring back to life and cause ASPs to start rising. We believe that a more
convincing uptrend will take hold only from 2H10 onwards.
• Global economies to start stabilising towards year-end. Our economists believe
that the world economy will feel the full impact of the global financial crisis this year.
Although the process of sorting out the financial system will take time and
resources, the cumulative effects of sizeable fiscal stimuli and aggressive monetary
easing globally will work to provide some stability. Recent global indicators are less
negative. Considering the extremely low base this year, global growth should pick
up in 2010 but will probably fall short of its long-run average growth rate of 3.7%.
• Upgrade sector to TRADING BUY. While the fundamentals for the sector remain
uncertain, we think that downside to share prices is limited as valuations are still
below trough levels. We upgrade the sector from Underperform to TRADING BUY.
Furthermore, in line with our market strategy, we think that investors’ risk appetite is
increasing and higher beta plays such as semicon should be in vogue. Investors
should start picking up semicon stocks ahead of the recovery of the sector as
historically, the share prices for both MPI and Unisem cratered 13-18 months before
the upturn of the sector. Sector catalysts include a) a sooner-than-expected revival
of end-user demand and b) a faster-than-expected economic recovery.
• Upgrade Unisem and MPI to Trading Buy. In tandem with the sector upgrade, we
upgrade MPI and Unisem from Underperform to Trading Buy. We raise our target
prices for both after cutting our discounts to their 5-year historical average by 30-
60% pts to 20-40% for Unisem and MPI respectively. We assign a lower discount to
Unisem, our top pick, as its higher liquidity and beta make it a better play on a
market rebound. Re-rating catalysts include a) qoq improvement in earnings, b)
revival of end demand and c) the higher betas on offer.
The document initiates coverage on Tata Motors as a buy, with a target price of Rs. 262 per share representing an upside of 22.4% from the current market price of Rs. 214. Strong growth from JLR brands, expected recovery in commercial vehicle sales, and better performance of Tata's diesel passenger vehicles are expected to drive consolidated revenues and earnings over FY12-13. JLR volumes are forecast to grow at a CAGR of 17.1% through new product launches and expansion in international markets like China, while commercial vehicle sales are expected to benefit from an interest rate cycle reversal.
This document provides a sector update and analysis of the media industry in Malaysia. Some key points:
1) Advertising expenditure (adex) in March 2009 contracted only 1% year-over-year, a much better showing than previous months, driven by a 13% increase in TV adex.
2) However, the analyst maintains a cautious outlook due to difficult year-over-year comparisons and lack of major events in 2009 that boosted adex in 2008.
3) The analyst downgrades their recommendation on Media Prima and Star to Sell, as their share prices have risen ahead of underlying fundamentals in the weak economy. The media sector outlook is downgraded to Underweight.
We expect transactions to fall and prices to ease in 2009, in line with the projected 3%
real GDP contraction. Transactions could fall 20-30% or as much as 35-50% in the
worst-case scenario, matching the performance during the 1997/8 Asian financial
crisis. However, most major developers have pushed out innovative financing
schemes to lure buyers. Response has been mixed, with good response garnered by
the likes of SP Setia (RM500m sales) and Mah Sing (RM170m sales) but lacklustre
sales for many other developers
The majority down. 62% of our 72-stock universe suffered lower
sequential quarterly net profits, with 24% surprising on the downside.
The combined 1Q09 net profit of our research universe fell by just 3.5%
QoQ. But stripping out 5 large gainers, net profits fell a larger 13.6%
QoQ. Consumers and glove manufacturers’ defied gravity, but net
profits of virtually all stocks in nine sectors fell quarter-on-quarter.
A surprising combined result, but the devil is in the details. The
combined net profit of our research universe declined just 3.5% QoQ
despite an overwhelming 62% of companies reporting a sequential
quarterly decline. But excluding five companies, combined net profit fell
13.6% QoQ, an acceleration from previous quarters. A broad-based
earnings decline is being masked by a few companies, including some
monopolies.
Declines in nine sectors, but consumer sector unscathed. Every
stock in nine sectors, excluding monopolies Petronas Gas and KLCCP,
experienced a drop in quarterly sequential earnings. The sectors are
gaming, oil & gas, property, REITs, construction, building materials,
semi-conductors, plantations and toll roads. Consumer stocks and
glove manufacturers showed particular resilience.
An ‘energy dividend’ took effect; monopolies fared well. Lower oil
prices benefited heavy fuel users AirAsia and Tenaga. Their gains were
only partially offset by lower earnings at the oil & gas services
companies. Net profits of Telekom, Tenaga and Petronas Gas, all
effectively monopolies, improved on a quarterly basis although only
Petronas Gas raised prices in 1Q09.
The biggest disappointment and downgrade: 1Q GDP. First quarter
2009 GDP fell 6.2% YoY, against consensus expectations of a 3-4%
drop. We have revised our GDP forecasts to -3.8% in 2009 and +4.0%
YoY in 2010 (previously -1.3% and +3.5% respectively). The
government, to be ahead in the expectations game, is projecting 2009
GDP growth of -4% to -5%. The silver lining is the government is now
under greater pressure to implement its fiscal stimulus plans quickly.
A reversal of fortune ahead for construction, building materials.
Despite uniformly lower earnings this 1Q, we believe the construction
and building materials sectors are only 2-3 quarters away from
improved revenues. Share prices of stocks in these sectors will likely
be driven by newsflow from the fiscal stimulus rather than earnings.
The sell-off in high-yield bonds in May was primarily driven by fears over European sovereign debt rather than deteriorating fundamentals of corporate bond issuers. While markets may remain volatile, the author believes recent weakness presents an attractive opportunity because corporate fundamentals continue improving with surging profits and interest coverage ratios, while yields have increased and valuations are more attractive. Developments in Europe will continue being monitored, but domestic profit growth, yields, and valuations should ultimately have a greater impact and benefit high-yield bonds.
The Massachusetts commercial real estate market showed signs of stabilization in the first quarter of 2010. While unemployment remained high at 9.3% and many jobs have been lost since 2008, the education and healthcare sectors added jobs. The Boston area saw a higher vacancy rate of 17.7% due to losses in finance and professional services, but rent declines slowed. Cambridge fared better with lower vacancy rates and stabilizing rents due to education, biotech and tech tenants. Conditions in the suburbs changed little from the previous quarter. Overall, after significant losses, the market appears to have reached a bottom.
The document discusses the costs of financial procrastination and the benefits of starting to save for retirement early. It provides an example showing that an investor who invests $3,000 annually for 30 years, earning a 5% average annual return, will end up with $199,317. In contrast, an investor who invests the same amount for only 20 years will have an ending balance of only $99,198, despite investing the same total amount of $60,000. Starting retirement savings earlier allows investments more time to benefit from compound growth and earn higher returns over the long run.
The document discusses trends in the hospitality industry in 2011. It notes that after years of turmoil, fundamentals have stabilized and the industry is recovering, though unevenly by region and segment. Emerging markets remain a key source of growth. While performance is improving, operators are proceeding with caution and focusing on capital strategies. Financing is slowly returning primarily to top assets in major markets, and transaction activity is expected to increase as the recovery strengthens.
TME players have been facing challenging conditions in recent years as consumer spending on telecom, media, and entertainment has grown more slowly than the overall economy. The document analyzes past trends in TME spending and projects future growth. It finds that while overall TME spending is expected to stagnate, some categories like gaming and PVRs may continue growing moderately. The document recommends strategies for TME players to tap these pockets of growth, such as bundling across devices, content, and delivery, and developing customized offerings for specific consumer segments.
The global outsourcing industry is constantly evolving through new contracting award characteristics and an expanding universe of successful service providers. ISG's TPI Index helps industry participants, enterprises and organizations keep pace and capitalize from the latest data on outsourcing trends. It is the authoritative source for marketplace intelligence related to outsourcing: transaction structures and terms, industry adoption, geographic prevalence and service provider metrics.
Computaris and Ovum – Strategic Drivers for Early to Market PolicyComputaris
The document discusses the mobile broadband market status and outlook. It notes that mobile broadband connections and small screen devices are growing rapidly, driving increased data usage and a shift to mobile content consumption. This is resulting in increased traffic volumes and revenues for operators, however revenues are not growing as quickly as connections. The emergence of 4G/LTE networks is also intensifying competition around pricing and data speeds. While data traffic is booming, operators are not benefiting from the growth in content, apps and paid downloads, as they derive only a small portion of revenues from these areas.
The document summarizes the Wealth Management Process quarterly newsletter. It discusses estate and legacy planning topics that help clients ease difficult transitions. It also covers succession planning for family businesses and identifying areas where further expertise is needed. The next quarter's topic will be on protection planning.
This article examines four key trends that have influenced the concept of diversification, and considers the implications on modern-day portfolios and investors.
1) Munjal Showa Ltd is a leading manufacturer of auto components like shock absorbers and struts. It has a dominant market share of over 55% in two-wheeler shock absorbers in India.
2) The company is expected to benefit from the expansion plans of its major clients Hero Motocorp and Honda Motorcycle & Scooter India.
3) The analyst initiates coverage with a "Buy" rating and target price of Rs. 85.71, arriving at attractive valuations.
The document summarizes Vivo's financial and operating performance in 2Q10. Key highlights include:
- Accelerated growth in revenues and EBITDA compared to previous periods. Revenues grew 10.7% and EBITDA grew 10.6% year-over-year.
- Improved customer mix and market share gains led to a more stable and active customer base, driving increased consumption and revenue per user.
- Data services revenue grew significantly, accounting for 19.4% of revenues and fueling overall growth.
- Solid cash generation supported a dividend payment of R$417 million in April 2010 while consolidating Vivo's leadership position in the market.
This report initiates coverage of MRV, a major Brazilian homebuilder focused on low-income housing, with a recommendation to BUY and a target price of R$16.93. While Brazil faces economic challenges, MRV is well positioned due to guaranteed credit lines and experience in its segment. The report estimates MRV's profit CAGR at 15% through 2015 based on continued strong demand and growth outpacing competitors. Risks include increased competition and a slowing economy reducing credit availability.
The banking sector in Malaysia saw stable loan growth of 10.9% year-over-year in March 2009, driven partly by a 20-30% jump in loans to government agencies and non-bank financial institutions. However, leading loan indicators remained subdued and loan growth is expected to slow significantly to 2-3% in 2009 due to weaker economic conditions. Non-performing loan ratios continued to improve in March. The report maintains a neutral outlook on Malaysian banks, expecting them to perform better than anticipated despite the economic downturn.
Computer People It Monitor November 2011Paul Jordan
The document summarizes IT recruitment trends in the UK for October 2011. It finds that permanent vacancies decreased slightly while contractor vacancies increased slightly. Retail vacancies declined significantly due to low consumer confidence and spending. Banking/finance vacancies grew slightly. Media/creative vacancies increased the most. Telecoms permanent vacancies grew while contractor vacancies declined sharply. The public sector continued declining. Overall, the cautious economic outlook is keeping hiring muted, though some sectors like media are staffing up.
Short Dycom Perennially NPV Negative, 60% Downside To Fair ValueLester Goh
- Dycom has seen strong revenue and earnings growth in recent years but its valuation appears unjustified given its business model and competitive dynamics.
- Dycom operates in a commodity-like industry with few barriers to entry and faces direct competition from similarly-sized rival MasTec.
- Dycom's growth has likely come at the expense of MasTec, and going forward MasTec may engage in aggressive price competition to drive its recovery.
- Even assuming continued growth, Dycom has never generated meaningful free cash flow due to high capital expenditures. Its valuation appears to give little consideration to capital intensity and ignores the likelihood that growth will not translate into value creation.
We initiate coverage on Mahindra & Mahindra Ltd (M&M) as a BUY with a Price Objective of `975. At CMP of `727, the stock is trading at 16.2x and 14.1x its estimated earnings for FY13 & FY14 respectively, representing a potential upside of ~34% over a period of 15 months. UV sales (XUV500 and Xylo) and LCVs (Maximmo, Genio and Gio) are expected to be the key drivers of growth, while the tractor business is expected to weather the cyclical downturn and experience moderate traction. In addition the tangible benefits of the Ssangyong acquisition would be felt over the medium term as the joint R&D efforts and new product launches materialize. We forecast revenues and earnings to grow at a CAGR of 15.6% and 10.7% to `40,062.3 and `3,169.7 crore, respectively over FY12-14.
XUV 500 and refurbished Xylo to sustain volume growth in the UV segment
After having witnessed a CAGR of 23% over FY09-12, M&M UV sales are expected to moderate going ahead on account of new launches by competitors, rising fuel prices and higher interest rates. We expect M&M UV sales to post a CAGR of 13.2% over FY12-14 to ~2,60,000 units led by capacity ramp up of XUV 500 and strong demand for its existing products.
Weathering the cyclical downturn in tractor sales
The tractor industry being cyclical in nature has been witnessing a downturn since November 2011, after posting robust growth in the preceding two years. We expect this moderation in growth to continue in the near term led by a host of new capacity additions which will affect pricing power, expectation of an unfavorable monsoon and rising interest rates, which would affect serviceability of tractor loans. However, favorable factors like increasing budgetary allocation towards the rural sector, rising non-farm usage, higher MSP among others are likely to partially offset the downturn. While CMIE expects the volumes to grow by 8% for the entire industry, we are less optimistic and expect much lower growth of ~6%. However, southern India which is under penetrated is expected to grow much faster than the industry growth. On the back drop of its new facility of 1,00,000 units p.a. being commissioned at Zaheerabad in Karnataka, we expect M&M the market leader to grow faster than the industry.
We expect M&M (market leader with a share of ~40%) to post a CAGR of 7.5% over FY12-14 to reach ~2,72,000 units by FY14 and consequently revenues from this segment are expected to reach ~`11,500 crore by FY14 (CAGR of 8.6%). However, we expect significant pressure on margins led by higher raw material costs and lack of pricing power given the large capacity expansions across the industry.
LCV growth momentum to continue
Despite being a late entrant in the commercial vehicles (CV) market, M&M has carved for itself an enviable market share of ~30% in a relatively short span of time. Although the growth in the LCV markets is expected to tone down to a CAGR of 14% (from a 3 year CAGR of 32.9% over FY09-11), we expect M&M to outperform th
The document summarizes the findings of a survey of logistics sector executives in Central and Southeast Europe conducted in January-February 2009. It found that the logistics sector performance was expected to decline significantly across the region due to the economic crisis. Major problems identified included decreased production and trade volumes, financial difficulties, and overcapacity. However, some executives also saw opportunities for consolidation and gaining market share through new business models and cost efficiency.
Computer People It Monitor September 2011Dominicsmith
The document summarizes IT recruitment trends in the UK for August 2011. It finds that overall vacancies dropped significantly from July to August as key decisions were postponed until after summer. Permanent vacancies fell 9.81% while contractor vacancies declined slightly by 0.18%. Most sectors saw reductions in permanent vacancies for the month. Contractor salaries continued to rise substantially in August despite fewer vacancies, increasing 5.90% monthly and 5.31% yearly.
Computer People IT Monitor September 2011Paul Jordan
- The number of permanent IT vacancies dropped significantly in August by 9.81% while contractor vacancies declined slightly by 0.18%.
- Salaries remained steady for permanent roles and increased for contractors, rising 5.90% monthly and 5.31% yearly on average.
- Demand remained strong for developers, project managers, and analysts, though vacancies declined across all sectors in August as is typical during the summer months.
- The number of permanent IT vacancies dropped significantly in August by 9.81% while contractor vacancies declined slightly by 0.18%.
- Salaries remained steady for permanent roles and increased for contractors, rising 5.90% monthly and 5.31% yearly on average.
- Demand remained strong for developers, project managers, and analysts, though vacancies declined across all sectors in August as is typical during the summer months.
Computer People It Monitor September 2011michellekegg
- The number of permanent IT vacancies dropped significantly in August by 9.81% while contractor vacancies declined slightly by 0.18%.
- Salaries remained steady for permanent roles and increased for contractors, rising above the yearly average.
- Most sectors saw declines in permanent vacancies for the month, with media/new media seeing a small increase in contractor vacancies.
- Demand remains for developers, project managers, and analysts while salaries increased marginally for most permanent roles and more substantially for contractors.
- The key indicator of market direction will be vacancy numbers in September after the summer holiday period.
HCLT Whitepaper: Insurance~ The market will contract not collapseHCL Technologies
The insurance market will surely contract, but it will not collapse. Consumers and companies will still require risk management - albeit, the number of buyers are fewer. Some of the now marginal mid-tier and small carriers may be acquired, or simply fail. Prices will flatten, and rate increases will be needed to raise capital, but the size will be restrained by the contracting economy. However, most insurance industry leaders think that we will be in that contraction through the first half of 2010. With that return to expansion, the industry will still be confronted with the challenges/ opportunities discussed in my last two missives - expanded demand for more sophisticated products and
the need for time-to-market agility while managing losses and expenses.
The sell-off in high-yield bonds in May was primarily driven by fears over European sovereign debt rather than deteriorating fundamentals of corporate bond issuers. While markets may remain volatile, the author believes recent weakness presents an attractive opportunity because corporate fundamentals continue improving with surging profits and interest coverage ratios, while yields have increased and valuations are more attractive. Developments in Europe will continue being monitored, but domestic profit growth, yields, and valuations should ultimately have a greater impact and benefit high-yield bonds.
The Massachusetts commercial real estate market showed signs of stabilization in the first quarter of 2010. While unemployment remained high at 9.3% and many jobs have been lost since 2008, the education and healthcare sectors added jobs. The Boston area saw a higher vacancy rate of 17.7% due to losses in finance and professional services, but rent declines slowed. Cambridge fared better with lower vacancy rates and stabilizing rents due to education, biotech and tech tenants. Conditions in the suburbs changed little from the previous quarter. Overall, after significant losses, the market appears to have reached a bottom.
The document discusses the costs of financial procrastination and the benefits of starting to save for retirement early. It provides an example showing that an investor who invests $3,000 annually for 30 years, earning a 5% average annual return, will end up with $199,317. In contrast, an investor who invests the same amount for only 20 years will have an ending balance of only $99,198, despite investing the same total amount of $60,000. Starting retirement savings earlier allows investments more time to benefit from compound growth and earn higher returns over the long run.
The document discusses trends in the hospitality industry in 2011. It notes that after years of turmoil, fundamentals have stabilized and the industry is recovering, though unevenly by region and segment. Emerging markets remain a key source of growth. While performance is improving, operators are proceeding with caution and focusing on capital strategies. Financing is slowly returning primarily to top assets in major markets, and transaction activity is expected to increase as the recovery strengthens.
TME players have been facing challenging conditions in recent years as consumer spending on telecom, media, and entertainment has grown more slowly than the overall economy. The document analyzes past trends in TME spending and projects future growth. It finds that while overall TME spending is expected to stagnate, some categories like gaming and PVRs may continue growing moderately. The document recommends strategies for TME players to tap these pockets of growth, such as bundling across devices, content, and delivery, and developing customized offerings for specific consumer segments.
The global outsourcing industry is constantly evolving through new contracting award characteristics and an expanding universe of successful service providers. ISG's TPI Index helps industry participants, enterprises and organizations keep pace and capitalize from the latest data on outsourcing trends. It is the authoritative source for marketplace intelligence related to outsourcing: transaction structures and terms, industry adoption, geographic prevalence and service provider metrics.
Computaris and Ovum – Strategic Drivers for Early to Market PolicyComputaris
The document discusses the mobile broadband market status and outlook. It notes that mobile broadband connections and small screen devices are growing rapidly, driving increased data usage and a shift to mobile content consumption. This is resulting in increased traffic volumes and revenues for operators, however revenues are not growing as quickly as connections. The emergence of 4G/LTE networks is also intensifying competition around pricing and data speeds. While data traffic is booming, operators are not benefiting from the growth in content, apps and paid downloads, as they derive only a small portion of revenues from these areas.
The document summarizes the Wealth Management Process quarterly newsletter. It discusses estate and legacy planning topics that help clients ease difficult transitions. It also covers succession planning for family businesses and identifying areas where further expertise is needed. The next quarter's topic will be on protection planning.
This article examines four key trends that have influenced the concept of diversification, and considers the implications on modern-day portfolios and investors.
1) Munjal Showa Ltd is a leading manufacturer of auto components like shock absorbers and struts. It has a dominant market share of over 55% in two-wheeler shock absorbers in India.
2) The company is expected to benefit from the expansion plans of its major clients Hero Motocorp and Honda Motorcycle & Scooter India.
3) The analyst initiates coverage with a "Buy" rating and target price of Rs. 85.71, arriving at attractive valuations.
The document summarizes Vivo's financial and operating performance in 2Q10. Key highlights include:
- Accelerated growth in revenues and EBITDA compared to previous periods. Revenues grew 10.7% and EBITDA grew 10.6% year-over-year.
- Improved customer mix and market share gains led to a more stable and active customer base, driving increased consumption and revenue per user.
- Data services revenue grew significantly, accounting for 19.4% of revenues and fueling overall growth.
- Solid cash generation supported a dividend payment of R$417 million in April 2010 while consolidating Vivo's leadership position in the market.
This report initiates coverage of MRV, a major Brazilian homebuilder focused on low-income housing, with a recommendation to BUY and a target price of R$16.93. While Brazil faces economic challenges, MRV is well positioned due to guaranteed credit lines and experience in its segment. The report estimates MRV's profit CAGR at 15% through 2015 based on continued strong demand and growth outpacing competitors. Risks include increased competition and a slowing economy reducing credit availability.
The banking sector in Malaysia saw stable loan growth of 10.9% year-over-year in March 2009, driven partly by a 20-30% jump in loans to government agencies and non-bank financial institutions. However, leading loan indicators remained subdued and loan growth is expected to slow significantly to 2-3% in 2009 due to weaker economic conditions. Non-performing loan ratios continued to improve in March. The report maintains a neutral outlook on Malaysian banks, expecting them to perform better than anticipated despite the economic downturn.
Computer People It Monitor November 2011Paul Jordan
The document summarizes IT recruitment trends in the UK for October 2011. It finds that permanent vacancies decreased slightly while contractor vacancies increased slightly. Retail vacancies declined significantly due to low consumer confidence and spending. Banking/finance vacancies grew slightly. Media/creative vacancies increased the most. Telecoms permanent vacancies grew while contractor vacancies declined sharply. The public sector continued declining. Overall, the cautious economic outlook is keeping hiring muted, though some sectors like media are staffing up.
Short Dycom Perennially NPV Negative, 60% Downside To Fair ValueLester Goh
- Dycom has seen strong revenue and earnings growth in recent years but its valuation appears unjustified given its business model and competitive dynamics.
- Dycom operates in a commodity-like industry with few barriers to entry and faces direct competition from similarly-sized rival MasTec.
- Dycom's growth has likely come at the expense of MasTec, and going forward MasTec may engage in aggressive price competition to drive its recovery.
- Even assuming continued growth, Dycom has never generated meaningful free cash flow due to high capital expenditures. Its valuation appears to give little consideration to capital intensity and ignores the likelihood that growth will not translate into value creation.
We initiate coverage on Mahindra & Mahindra Ltd (M&M) as a BUY with a Price Objective of `975. At CMP of `727, the stock is trading at 16.2x and 14.1x its estimated earnings for FY13 & FY14 respectively, representing a potential upside of ~34% over a period of 15 months. UV sales (XUV500 and Xylo) and LCVs (Maximmo, Genio and Gio) are expected to be the key drivers of growth, while the tractor business is expected to weather the cyclical downturn and experience moderate traction. In addition the tangible benefits of the Ssangyong acquisition would be felt over the medium term as the joint R&D efforts and new product launches materialize. We forecast revenues and earnings to grow at a CAGR of 15.6% and 10.7% to `40,062.3 and `3,169.7 crore, respectively over FY12-14.
XUV 500 and refurbished Xylo to sustain volume growth in the UV segment
After having witnessed a CAGR of 23% over FY09-12, M&M UV sales are expected to moderate going ahead on account of new launches by competitors, rising fuel prices and higher interest rates. We expect M&M UV sales to post a CAGR of 13.2% over FY12-14 to ~2,60,000 units led by capacity ramp up of XUV 500 and strong demand for its existing products.
Weathering the cyclical downturn in tractor sales
The tractor industry being cyclical in nature has been witnessing a downturn since November 2011, after posting robust growth in the preceding two years. We expect this moderation in growth to continue in the near term led by a host of new capacity additions which will affect pricing power, expectation of an unfavorable monsoon and rising interest rates, which would affect serviceability of tractor loans. However, favorable factors like increasing budgetary allocation towards the rural sector, rising non-farm usage, higher MSP among others are likely to partially offset the downturn. While CMIE expects the volumes to grow by 8% for the entire industry, we are less optimistic and expect much lower growth of ~6%. However, southern India which is under penetrated is expected to grow much faster than the industry growth. On the back drop of its new facility of 1,00,000 units p.a. being commissioned at Zaheerabad in Karnataka, we expect M&M the market leader to grow faster than the industry.
We expect M&M (market leader with a share of ~40%) to post a CAGR of 7.5% over FY12-14 to reach ~2,72,000 units by FY14 and consequently revenues from this segment are expected to reach ~`11,500 crore by FY14 (CAGR of 8.6%). However, we expect significant pressure on margins led by higher raw material costs and lack of pricing power given the large capacity expansions across the industry.
LCV growth momentum to continue
Despite being a late entrant in the commercial vehicles (CV) market, M&M has carved for itself an enviable market share of ~30% in a relatively short span of time. Although the growth in the LCV markets is expected to tone down to a CAGR of 14% (from a 3 year CAGR of 32.9% over FY09-11), we expect M&M to outperform th
The document summarizes the findings of a survey of logistics sector executives in Central and Southeast Europe conducted in January-February 2009. It found that the logistics sector performance was expected to decline significantly across the region due to the economic crisis. Major problems identified included decreased production and trade volumes, financial difficulties, and overcapacity. However, some executives also saw opportunities for consolidation and gaining market share through new business models and cost efficiency.
Computer People It Monitor September 2011Dominicsmith
The document summarizes IT recruitment trends in the UK for August 2011. It finds that overall vacancies dropped significantly from July to August as key decisions were postponed until after summer. Permanent vacancies fell 9.81% while contractor vacancies declined slightly by 0.18%. Most sectors saw reductions in permanent vacancies for the month. Contractor salaries continued to rise substantially in August despite fewer vacancies, increasing 5.90% monthly and 5.31% yearly.
Computer People IT Monitor September 2011Paul Jordan
- The number of permanent IT vacancies dropped significantly in August by 9.81% while contractor vacancies declined slightly by 0.18%.
- Salaries remained steady for permanent roles and increased for contractors, rising 5.90% monthly and 5.31% yearly on average.
- Demand remained strong for developers, project managers, and analysts, though vacancies declined across all sectors in August as is typical during the summer months.
- The number of permanent IT vacancies dropped significantly in August by 9.81% while contractor vacancies declined slightly by 0.18%.
- Salaries remained steady for permanent roles and increased for contractors, rising 5.90% monthly and 5.31% yearly on average.
- Demand remained strong for developers, project managers, and analysts, though vacancies declined across all sectors in August as is typical during the summer months.
Computer People It Monitor September 2011michellekegg
- The number of permanent IT vacancies dropped significantly in August by 9.81% while contractor vacancies declined slightly by 0.18%.
- Salaries remained steady for permanent roles and increased for contractors, rising above the yearly average.
- Most sectors saw declines in permanent vacancies for the month, with media/new media seeing a small increase in contractor vacancies.
- Demand remains for developers, project managers, and analysts while salaries increased marginally for most permanent roles and more substantially for contractors.
- The key indicator of market direction will be vacancy numbers in September after the summer holiday period.
HCLT Whitepaper: Insurance~ The market will contract not collapseHCL Technologies
The insurance market will surely contract, but it will not collapse. Consumers and companies will still require risk management - albeit, the number of buyers are fewer. Some of the now marginal mid-tier and small carriers may be acquired, or simply fail. Prices will flatten, and rate increases will be needed to raise capital, but the size will be restrained by the contracting economy. However, most insurance industry leaders think that we will be in that contraction through the first half of 2010. With that return to expansion, the industry will still be confronted with the challenges/ opportunities discussed in my last two missives - expanded demand for more sophisticated products and
the need for time-to-market agility while managing losses and expenses.
This document contains a disclaimer from Banco Santander (Mexico) regarding forward-looking statements in the presentation. It cautions that actual results could differ materially from expectations due to risks and uncertainties. It also notes legal requirements for any securities offerings and says statements about historical performance do not guarantee future results. The presentation provides an overview of Santander Mexico, highlighting its strong franchise, efficient infrastructure, solid performance and profitability compared to peers.
This document provides a quarterly outlook for Q4 2009. It discusses the potential "Japanization" of financial markets, where record stimulus could lead to higher stock valuations and lower bond yields, similar to post-1990 Japan. Government budget deficits may continue to drive treasury issuance but deflationary pressures could keep rates low. The document also notes signs of economic stabilization but at depressed levels, with consumer deleveraging expected to continue for years.
Employers in the Midlands and North of England expect a net increase of 28.5% in permanent hires and 1.2% in contract/temporary hires for Q4 2011. This shows resilience in the region despite economic uncertainty. Employers in the Home Counties and South West expect a smaller net increase of 13.8% in permanent hires and 0.9% in contract hires, indicating greater caution in this region.
Employers reported on hiring trends and employee productivity expectations for the fourth quarter of 2011 in England. In the Midlands and North of England, employers expected a net increase of 28.5% in permanent hires and 1.2% for contract/temporary hires. In the Home Counties and South West, expectations were for a 13.8% increase in permanent hires and 0.9% for contract hires. Regarding Fridays, 40.5% of employers reported shortened hours, with most seeing slightly reduced productivity but benefits like happier employees and better work-life balance.
The report analyzes the stock market performance of 126 technology, media, and telecommunications companies from 2005-2009. It finds:
1) The average 5-year annual returns for the sectors were 6.2% for technology, 5.3% for telecom, and 2.5% for media, below the overall market average of 6.6%.
2) Companies from emerging economies dominated the top performers, holding 7 of the top 10 spots in telecom, 5 in media, and 4 in technology.
3) While the sectors as a whole lagged, the top 10 companies in each achieved much higher average annual returns of 23.3% in technology, 26.2% in media
R Finpro Pulse 09 Survey In Construction 090306 FinalAttila Debreczeni
The document summarizes findings from a survey of construction sector managers in Central and Southeast Europe conducted in February 2009. It finds that the sector performance is expected to decline across the region due to major problems in obtaining financing from banks. However, some opportunities are seen in public infrastructure projects funded by EU funds or private investments in more stable markets.
The document initiates coverage on Tata Motors as a buy, with a target price of Rs. 262 per share, representing an upside of 22.4% from the current market price of Rs. 214. Strong growth from JLR brands, expected recovery in commercial vehicle sales, and better performance of Tata's diesel passenger vehicles are expected to drive consolidated revenues and earnings over FY12-13. JLR volumes are forecast to grow at a CAGR of 17.1% through new product launches and expansion in international markets like China, while commercial vehicle sales are expected to benefit from an interest rate cycle reversal.
APN News & Media Ltd. holds a diversified portfolio of media assets across Australia, New Zealand, and Hong Kong, including positions in radio broadcasting, publishing, and outdoor advertising. While this provides some diversification away from structurally declining print media, APN remains exposed to cyclical advertising volumes and structural challenges. Financially, APN's leverage is significant but expected to improve over the next two years if it can generate sufficient free cash flow without large acquisitions. The stable outlook reflects the view that APN's diversification will allow it to maintain adequate credit metrics through the ongoing industry changes.
SANTANDER CONSUMER FINANCE-SANTANDER INVESTOR DAY 2011BANCO SANTANDER
Santander Consumer Finance se mueve en niveles récord de beneficios en 2011 y continuará haciéndolo en 2012 y 2013. Presentación Magda Salarich. Santander Investor Day 2011
1) In times of economic uncertainty, marketers feel pressure to focus on short-term sales over long-term strategy through increased promotions and advertising cuts.
2) However, brands that maintain marketing investment through recessions tend to emerge stronger as they hold brand equity while weaker brands decline.
3) The document recommends marketers review their plans, maintain consistent branding activities, and focus on long-term brand building even during economic downturns.
Foreign boys not spared a 20% 1Q earnings decline. The combined net profit
of the five major foreign banks in Malaysia fell 19.7% yoy to RM824.6m in 1Q09,
worse than the 14% slide recorded by the local banks. Clearly, the foreign boys
are not spared the impact of the economic downturn, with earnings dents coming
primarily from (1) a 1.3% yoy drop in net interest income, (2) 25% slump in non-
interest income, and (3) 23% jump in loan loss provisioning (LLP).
• Foreign banks’ loan growth trailing local banks’. As expected, foreign banks
recorded slower net loan growth of 3.1% yoy in Mar 09 compared to 12% for
local banks’ domestic lending. The performance of foreign banks was pulled
down by a 6.8% contraction in Citibank’s loan base, due primarily to a drop in
property and business loans. Other major foreign banks registered single-digit
loan growth ranging from 3.3% (for UOB) to 8.7% (for OCBC).
• Higher NPL ratios and credit costs. Against the backdrop of a grim economic
climate in 1Q09, all major foreign banks saw a rise in their net NPL ratios. The
blended net NPL ratio of these five banks increased from 1.68% in Dec 08 to
1.81% in Mar 09, lower than the industry’s 2.2%. The hike in NPL ratios led to a
23% yoy surge in 1Q09 LLP.
• Better performance by local banks. In 1Q09, local banks outperformed their
foreign peers in the areas of (1) net profit – 14.2% yoy drop vs. 19.7% for foreign
banks, (2) non-interest income – down 7.1% yoy vs. 25.3% for foreign banks
despite their higher exposure to poor investment banking income, and (3) NPL
ratios – a few local banks, i.e. Maybank, Public Bank, AMMB and Alliance
managed to contain their NPL ratios while qoq rises were evident for all the
major foreign banks.
• Maintain NEUTRAL. Foreign banks’ poor 1Q09 financial results reflect the
adverse operating environment. We take heart in the outperformance of the local
banks during these difficult times as it suggests that the improvements in local
banks’ operations, especially in the area of risk management, have helped them
to weather the economic downturn. On this note, we are maintaining our
NEUTRAL stance on Malaysian banks as local banks may trump our and market
expectations in countering the slowdown in loan growth and the uptick in NPLs.
Our top pick for the sector remains Public Bank.
An improved performance. While the results announced by oil & gas (O&G)
companies in Mar-May 09 were a mixed bag, they leaned towards the positive,
unlike the previous quarter. A third of the six companies in our portfolio missed our
forecasts, an improvement on 50% in 4Q08. Half of the companies broadly met our
expectations (4Q08: 17%) and one (17%) surprised on the upside (4Q08: 33%).
Since 1 May 09, the share prices of O&G stocks under our coverage have jumped
by an average 28%, reflecting the overall encouraging reporting season.
• Three trends in 1Q09. 1) Margins picked up as companies climbed the value chain:
Except for Dialog, all the companies in our O&G portfolio showed margin
improvement, with average EBIT margin rising from 14% in 4Q08 to 20% in 1Q09.
2) Late delivery remains a problem for offshore support vessel (OSV) operators: In
total, Petra Perdana and Alam missed six vessel delivery dates due to assembly
line congestion and delayed shipment of parts. 3) Petroleum retailers and refiners
bounced back: The rising crude oil price supports the selling prices of products that
are not subject to automatic pricing mechanism (APM) and refiners benefited from
inventory gains.
• Service providers stand to benefit. YTD, the oil price has jumped 56%, reflecting
factors such as 1) a weakening US dollar, which encourages speculative money to
flow into the market, and 2) an increased risk appetite among investors who
anticipate an economic recovery. As a producing country, Malaysia is poised to
benefit from the upward march of the oil price. Petronas-licensed service providers
offering works and facilities such as yards, tank terminals, offshore structures and
maintenance job stand to win the most.
• Target price increases. There are no changes to our forecasts. However, we are
raising our target prices by 11% for Dialog, Kencana, SapuraCrest and Wah Seong
to reflect our recent index target upgrade. We now apply our revised target market
P/E of 15x to the stocks, instead of 13.5x. Our target prices for Alam, Petra Perdana
and Petronas Dagangan are maintained.
• Kencana replaces Petra Perdana as top pick. YTD, Petra Perdana’s share price
has risen by a whopping 120%, making the stock an outstanding performer in our oil
& gas portfolio. While we still like the stock, we are replacing it with Kencana as our
top pick. We believe Kencana’s newsflow and order book replenishment over the
next few months will be more exciting.
• Maintain OVERWEIGHT. We remain OVERWEIGHT on the oil & gas sector in view
of the potential re-rating catalysts of 1) M&As, and 2) more active newsflow. Also
unchanged are all our stock recommendations and earnings forecasts.
– February results continued the eight month decline in unit sales (avg -2.6%) across fast moving consumer goods (FMGC) as consumers continue to cut back on shopping trips in the U.S..– Additionally, while the percent change in basket ring increased 2.3% in the U.S., they are off from the January increase of 3.9% possibly due to declining prices as many retail channels did see enhanced shopping frequency in the 1st two months of the year – There was a noticeable up tick in store brands, given the 6.4% increase in unit sales across all store brands in the U.S.. This is the highest lift we have seen since August 2008 as the gap between branded items and store brands widened. – Despite the shift to store brands in the US, National Brands in Canada are still holding their share (81.2) as they capitalize on the consumers need for value through increased feature pricing activity. Over the past year unit sales on feature price increased 8% for National Brands to now account for 38.5% of unit sales. PL remained flat reporting a 1% decline in feature price sales.– Canadians are still shying away from multiple store visits. One stop shopping continues to expand – they are making 4% fewer shopping trips but once in store, they are spending 6% more, driven primarily by rising prices.– Expect March sales to be negatively impacted by the seasonal adjustment of Easter, which in 2008 occurred on March 23rd vs April 12 in 2009.
Be cautious into 3Q. 1Q09 results of the six banking stocks we cover
were generally in line, with combined net profit down 2.1% QoQ and
13.1% YoY. However, the weak 1Q09 GDP suggests growing stress in
system loans over the coming months. We remain cautious on banks’
profits, especially from 3Q09. Underweight the sector.
1Q down a sharp 13.1% YoY. Other than AMMB’s positive surprise,
results were generally in-line. The combined net profit of our banking
universe was flattish QoQ but fell a sharp 13.1% YoY on lower treasury
and FX income and higher loan loss provisions. Net interest income
expanded, but the weak equity market continued to affect brokerage
income, which contracted for the 5th to 6th consecutive quarter.
Some signs of stress. Domestic loans continued growing at most
banks. QoQ loan growth at the major banks (Maybank, CIMB Bank and
Public Bank) outpaced system growth. Some loan segments, however,
have begun showing stress. Domestic NPL saw upticks in the
consumer (mortgage, autos) and working capital segments. Net NPL
ratios continued to trend down due to the expanded loans base.
Earnings to contract. There were no major revisions in our individual
earnings forecasts except for AMMB (FY09: +16%, FY10: +7%). Our
combined net profit forecast was upgraded by a marginal 0.1% for 2009
and 0.7% for 2010. We expect sector earnings to contract 9.9% in
2009, before recovering to 6.8% growth in 2010 (previously -10.1%,
+6.1% respectively). This excludes further impairment in the value of
long-term investments, merger costs and other one-offs.
Asset quality concerns. 1Q09 GDP (-6.2% YoY, -7.7% QoQ) should
be the weakest, suggesting that the worst may be over. However, we
expect economic recovery to be slow, with real GDP to return to the
3Q08 high only in 4Q10. There is a 3-6 month interval from GDP trough
to NPL peak. Hence, banks are set to report weaker profits on rising
NPLs and higher credit charges from 3Q09.
Mainly Sells. Against regional peers, the larger Malaysian banks are
pricey. The current liquidity driven market has pushed valuations up but
prospects for a strong economic recovery stay hazy. Sell into strength.
Upping CPO price forecasts. In this report card on the recent results season, we
are raising our CPO price (cif) forecasts by 18% for 2009 and 8% for 2010 to
US$710 per tonne for both years. The reasons for our upgrades are Argentina’s
lower soybean crops, the slower decline in demand growth from key consumers
and a slower-than-expected recovery in palm oil output. Our new local CPO price
forecasts are RM2,280 for 2009 and RM2,250 for 2010.
• CPO price to pull back in 3Q before recovering in 4Q. We remain positive
about CPO price until end-2Q as the replenishment of stocks will require time,
India’s import duties on edible oils remain at zero and there is concern over the
delay in plantings in US. We expect CPO price to pull back in 3Q before
recovering towards the end of the year.
• Upgrading earnings forecasts and target prices. In view of our higher CPO
price forecasts and recent changes in our rupiah assumptions, we are raising our
FY09-10 earnings forecasts for all the planters in our coverage by up to 30%.
This, along with higher target P/Es following our upgrade of regional
stockmarkets, bumps up our target prices by 3-53%. We are raising Hap Seng
Plantations and Sampoerna Agro to Neutral given their recent underperformance.
• Upgrading Malaysian plantation sector to Neutral. We are raising our rating for
the Malaysian plantation sector from Underweight to Neutral as its valuation
premium over regional peers has narrowed following its recent underperformance,
selected plantations stocks will benefit from an increase in their weightings in the
new FBM30 indices on 6 July 2009, we are more bullish on the Malaysian stock
market and foreign shareholding levels have fallen.
• Staying NEUTRAL on regional plantation sector. Despite our CPO price
upgrade, we remain NEUTRAL on the regional plantation sector as the share
prices of most planters in our universe have done well YTD, reflecting the more
upbeat CPO price outlook and expectations of a correction of CPO price in 3Q
due to seasonally higher production and potential cutbacks in demand from major
consuming countries if crop prospects improve. There is also no change to our
Overweight rating on the Singapore plantation sector and Neutral call on the
Indonesian plantation sector. For exposure to the regional plantation sector, we
continue to recommend large-cap liquid planters. Our top picks in the region are
Wilmar, Sime Darby, Indofood Agri and London Sumatra.
Welcome to the 2009 edition of
The Wealth Report, the third such collaboration
between Knight Frank and Citi Private Bank.
Over the past 12 months the economic outlook has
become even more uncertain. Most of the developed
world is now in recession, and even the emerging
economies have been forced to pause for breath. Every
commentator accepts 2009 will be tough. Our Attitudes
Survey (page 12) indicates clearly that HNWIs will look
to protect their wealth from the ravages of the
downturn with an emphasis firmly on security and
transparency rather than risk.
The tangible nature of property means it is well
placed to benefit from this shift in emphasis, and there
are signs that some mature prime property markets,
such as London and New York, have readjusted to price
levels that offer good value for purchasers. For some
emerging markets, the rollercoaster ride looks set to
continue. A full analysis of prime global markets is
included on page 26, and we recommend 10 locations
and sectors that offer potential for growth on page 23.
As property is just one aspect of wealth, we have
expanded the scope of The Wealth Report by including
an investigation into the performance of alternative
assets, from art and cars to wine (page 36), and an
assessment of the state of the philanthropy sector
(page 16). Influential thinkers, such as Alain de Botton
(page 20), also share their views on how the world will
adjust to life post credit crunch.
We hope you enjoy reading the report.
We raise our CPO price assumption to RM2,000/t (from RM1,600/t)
on the current high price of RM2,800/t and YTD RM2,178/t average.
We do not foresee CPO prices staying at current levels beyond 2Q due
to rising 2H production and slowing exports. The present CPO price is
81-123% above its long term historical price in USD and Ringgit
equivalents. EPS forecasts are upgraded by up to more than 100% but
company valuations remain stretched. Maintain Underweight.
Recent CPO price spike unsustainable. We view the recent 40%
spike to the RM2,800/t level from an average of RM1,950/t in 1Q09 as
too fast, too furious. Traders and speculators justified the high price on
tight inventory. We think a significant price correction in 2H is imminent
as inventory is expected to build up on slowing exports and stronger 2H
production. Also, the present CPO price is 81% and 123% above its 30-
year long term historical price in USD and Ringgit equivalents of
USD430/t and RM1,257/t respectively.
Bearish 2H price outlook. CPO production, which has disappointed in
1H09 due to poor weather and tree stress, is likely to rebound strongly
in 2H. Besides production recovery, narrowing palm oil discounts
against competing oils should slow exports. A return of normal weather
in the next planting season for South America, and increased trade
protectionism by the West on palm biodiesel are some of the other
bearish fundamental factors for CPO.
Earnings forecasts upgraded. With CPO price having averaged
RM2,178/t YTD and likely to remain high in 2Q on tight supply, we raise
our CPO price assumption from RM1,600/t to RM2,000/t for 2009-11.
This results in EPS upgrades for plantation companies under our
coverage ranging from 17% to over 100% for 2009-11.
Valuations remain expensive. We rate the sector Underweight.
Valuations remain stretched, especially for IOI and KLK which trade at
20.1x and 16.9x 2010 PER. We downgrade Asiatic to Sell (from Hold)
as the stock has soared 54% YTD and is highly leveraged on CPO
price swings. Sime has been raised to Hold (from Sell). Risks to our
price view are a weaker USD, higher energy prices, and further supply
shocks due to weather anomalies.
• Palm oil stocks at 22-month low but… Malaysia’s palm oil stocks fell for the fifth
straight month to a 22-month low of 1.29m tonnes at end-Apr 09 as exports and
domestic consumption exceeded domestic palm oil production.
• … at high end of expectations. Stocks fell 5.4% mom to 1.29m tonnes, which is at
the high end of market expectations ranging from 1.2m tonnes to 1.3m tonnes. The
decline in inventory is bullish for CPO price as it suggests tight palm oil supplies for
Malaysia, a key palm oil producer.
• Stock level may have hit trough in April. Our rough modelling, which assumes
the mom growth pattern for production and exports in the month of May will be
similar to the historical 3-year average growth pattern, suggests that Malaysia’s
CPO stocks could rise 5% mom to around 1.35m tonnes in May due to higher
production and lower exports.
• CPO price forecast intact. For the first four months of the year, average CPO price
fell 41% yoy to RM2,031 per tonne. This is marginally higher than our 2009 CPO
price forecast of RM1,950 per tonne due to lower-than-expected soybean harvests
from Argentina and weaker palm oil production from Malaysia and Indonesia. We
maintain our view that CPO prices will remain firm in the next few months due to
current tight supplies and potential further downgrade in Argentina soybean
harvests but are likely to trend lower in 3Q when palm oil supply improves and
demand weakens due to the higher selling prices. That said, the recent CPO price
strength has taken us by surprise due to deteriorating soybean crop prospects for
Argentina. In view of lower-than-expected yields, Oil World has cut its current-year
soybean crop estimates for Argentina by a further 1.5m tonnes to 33m tonnes last
week or a decline of 28.5% yoy. Although we are not changing our CPO price
forecasts of RM1,950 per tonne for 2009 and RM2,150 per tonne for 2010, there is
RM100-200 potential upside to our forecast for 2009 in view of the recent
downgrade of soybean supply from Argentina.
• Maintain UNDERWEIGHT. Our earnings forecasts for all the Malaysian planters
remain intact, along with our UNDERWEIGHT stance on the Malaysian planters due
to their expensive valuations relative to their regional peers. Potential de-rating
catalysts for the Malaysian planters are falling CPO price in 3Q, lower crude oil price
and improved weather prospects in major planting areas. Our only pick in the
Malaysian plantation sector is Sime Darby as the stock stands to benefit from the
move towards the new FBM 30 index, has the lowest P/E multiple and foreign
shareholding among the three largest big-cap planters in Malaysia and may engage
in earnings-enhancing M&As. We maintain our preference for the Singapore-listed
planters.
More excitement ahead. The eventual award of the RM1.3b Pahang-
Selangor raw water transfer tunnel works on 28 Apr confirms that the
new administration sees the urgency for construction in stimulating the
economy. Langat 2 should be next in the limelight, together with the
massive Klang Valley LRT system. We expect more positive news flow
over the near-term. Continue to Overweight Construction.
Langat 2 next. Langat 2, the downstream portion of the water transfer
project, comprises a 2,180 mld treatment plant and the distribution
pipelines. The estimated RM5b construction contract was awarded in
Feb ’08 to Kumpulan Darul Ehsan, which holds 60% of Kumpulan
Perangsang Selangor (KPS). As KPS does not have a major
construction arm, we think that potential beneficiaries are Gamuda, Loh
& Loh and Taliworks, which have had working experience with, and/or
are affiliated to KPS via shareholdings.
Klang Valley LRT to follow. Local companies have been invited to
submit “expressions of interest” for the LRT extension and upgrading
works, with the government keen to see construction works start within
the next 3-4 months, according to today’s Edge. The extension works
could cost RM7b, including RM1b to buy rolling stocks. Our view is that
the project may be parcelled out and experienced contractors like IJM,
Gamuda, UEM Builders and YTL Corp may bid as turnkey contractors.
Overweight Construction. We continue to expect mid-sized projects
to lead the momentum of construction sector recovery under the fiscal
stimulus. Meanwhile, the inter-state water transfer (including Langat 2)
and Klang Valley LRT extension are also two priority projects under the
9th Malaysia Plan with works expected to start before the decade turns.
IJM, WCT and HSL remain on our Buy list. Meanwhile, Gamuda is a
strong contender for the two mega water and LRT projects. Our Hold
call on the stock is under review, with upward revision potential.
• Extended wedge formation. We were expecting the DJIA to break down from its
wedge formation last week but it continued to rise further towards the 8,300 levels
before correcting end of last week. The Index could still be in an extended wedge
formation and the breakdown the wedge support trend line at the 8,100pt would
confirm the end of this pattern.
• If we are wrong… If we are wrong, our alternative wave count shows that DJIA
could have already started its minor wave “c” up leg after completion of the wave
“b” triangle consolidation since early Apr last week (refer to chart below). This wave
count is supported by the breakout of the major resistance trend line since Nov-08.
Confirmation of this alternative wave count if DJIA breaks above 8,300pt.
• US banking stocks remains in consolidation phase. If banking stocks are
leading the market, DJIA is still in an extended wedge formation. The KBW Bank
Index has just broken down below its uptrend channel support trend line since
early-Mar. This indicates further consolidation in the immediate term for the Index.
• Crude oil uptrend is not over. We were looking for crude oil prices to break down
last week but the price has since bounced back above the US$53/barrel levels.
This has negated our preferred wave count and a likely “double zig-zag” is taking
place, targeting the US$60-70/barrel levels in 2H09.
• Channel breakout. MSCI Asia ex-Japan Index (MAxJ) only experienced a mild
correction last week and closed strong for the week at 336. The Index just broke
out of its channel resistance trend line since Nov-08. This is a positive sign if the
Index is able to hold above this trend line over the next few weeks.
• Still expect consolidation. However, we still expect Asian equity markets to
consolidate over the next few weeks to build up a support base before charging up
in June-July. If RSI breaks out of its current consolidation range, this would likely
indicate that Asia has kick started its next up leg towards the June-Jul period.
A milestone for the sector. We take a positive view of this news as it is a significant
milestone for the water sector. The timing of the award was a slight surprise as we
had expected the recent cabinet reshuffle to result in a slight delay for the project
award following the award of the letter of intent (LOI) to the Shimizu consortium a few
months back. The water transfer project is the first mega job to be rolled out under the
9MP after the announcement of the second stimulus package in Mar 09. Our channel
checks indicate that the tunnelling job will move fairly quickly from here on and the
notification to start work should be received in a matter of days. Once site possession
is obtained, major resource mobilisation will be underway, including Shimizu’s
positioning of the tunnel boring machine (TBM) near the Titiwangsa range. We think
that actual work could start within a month, suggesting a mid-2014 timeframe for
completion of the project.
No details on scope of works. Details of the scope of works are not available. IJM’s
share of works based on its 20% stake works out to RM260m or just RM26m profit
enhancement assuming a 10% pretax margin. We are not revising our earnings
forecasts as the RM260m share of works is already part of our assumption for new
contracts for IJM. That said, the award of the project raises IJM’s profile as it is one of
the main contractors of the country’s largest water infrastructure project.
Focus will now shift to the remaining major components of the water transfer project,
i.e. the Kelau dam and the Langat 2 water treatment plant. We expect the feasibility
studies for both to be concluded sometime in early 2H09, making way for the
tendering process. We gather that the Shimizu consortium is eyeing the Kelau dam
job which has an estimated value of roughly double the tunnelling job. This suggests
that IJM’s potential share of works could be more than RM500m.
BANKING Mar 09 Statistics Some ResilienceBoyboy cute
Positive signs. Loan disbursements, repayments, applications and
approvals rebounded with strong double-digit MoM growth, flattish-tolow-
teens YoY growth, and in absolute term, were back to pre-Aug/Sep
’08 levels. Absolute NPLs continued to inch lower, mainly from the
working capital segment. Nonetheless, it is early to tell whether these
are sustainable as global fundamentals remain weak.
Strong loan disbursements and repayments. Banking loans (net of
repayments) grew to RM733.9m in Mar ’09 (+0.6% MoM, +10.9% YoY)
on expansion in both household (+0.4% MoM, +8.8% YoY) and
business loans (+0.9% MoM, +9.5% YoY). The pace of disbursements
and repayments was strong (disbursements: +27.4% MoM, +9% YoY;
repayments: +15.7% MoM, +4.8% YoY), mainly for working capital.
YTD loans growth was +1% (household: +1.5%, business: +0.5%).
Forward indicators bounced MoM but still flattish YoY. Loan
applications and approvals also rebounded strongly: +24.3% MoM and
+35.3% MoM respectively. On a YoY comparison, loan applications
were up 4.7%, driven by household loan applications (+21.5%), mainly
for home purchases, which off-set lower applications from businesses
(-11%). Overall loan approvals were rather flattish YoY, with approvals
up for household loans (+12.6%) but down for business loans (-13%).
Absolute NPLs contracted further. Absolute gross NPLs continued
to inch lower, at a slightly higher pace of -3.7% MoM to RM33.6b (Feb
‘09: -0.04% MoM). On a 3-month comparison (see table in page 4),
the lower NPLs came mainly from the working capital segment,
reflecting perhaps resilient business strength. Meanwhile, net NPL ratio
was little changed at 2.24% (Feb ‘09: 2.23%).
Remain Underweight. YTD loans growth, if sustained, should lead to
the upper end of our 2-3% loans growth forecast for 2009. Our other
assumption is for absolute NPLs to expand by 50% YoY by end-2009,
leading to a projected 10% decline in combined net profit for 2009.
While loans quality was resilient in Mar ’09, we remain concerned over
rising NPLs – our analysis shows a 3-6 months interval from GDP
trough to NPL peak. The other main risk is a protracted economic
slowdown leading to rising unemployment and asset deflation.
This document summarizes the Malaysian government's recent liberalization measures for the country's financial services sector. Key points include:
1) Allowing up to 7 new licenses for foreign commercial and Islamic banks, with 4 in 2009 and 3 in 2011 that can be wholly foreign owned.
2) Increasing the foreign equity limit for domestic insurance, takaful, and investment banks to 70% from 49% previously.
3) Providing greater operational flexibility for foreign commercial banks, such as allowing microfinance branches and new regular branches.
4) The changes follow Malaysia's gradual "managed approach" to financial sector liberalization outlined in its 2001 Financial Sector Master Plan.
Bank Negara announced yesterday measures for further liberalisation of the financial
sector:
Increase in foreign equity limits. The foreign equity limit for investment banks,
Islamic banks, insurance companies and takaful operators has been raised from 49%
to 70%. It is envisaged that these institutions’ business potential and growth prospects
will be enhanced by the international expertise and global networks of foreign
shareholders. However, the cap on foreign shareholdings in domestic commercial
banks remains at 30%.
New banking and Takaful licences up for grabs. New licences will be issued to
strong and world-class players in the following categories:
• In 2009, up to two new Islamic banking licences will be issued to foreign players to
establish new Islamic banks with paid-up capital of at least US$1bn.
• In 2009, up to two new commercial banking licences will be issued to foreign
players that will bring in specialised expertise.
• In 2011, up to three new commercial banking licences will be dished out to worldclass
banks that can offer significant value propositions to Malaysia.
• In 2009, up to two new family takaful licences will be made available.
Greater operational flexibility for foreign banks. Locally-incorporated foreign
commercial banks can establish up to 10 microfinance branches with immediate
effect. Further branches will be considered based on the effectiveness of these
branches in servicing microenterprises. Foreign banks will also be allowed to establish
up to four new branches in 2010 based on the distribution ratio of 1 branch in market
centres, 2 in semi-urban areas and 1 in non-urban areas.
Locally-incorporated foreign insurance companies and takaful operators are now
allowed to set up branches nationwide without restriction. The restriction against these
companies entering into bancassurance/bankatakaful arrangements with banking
institutions has been lifted.
Other liberalisation. Banks, insurance companies and takaful operators now have
greater flexibility to employ specialist expatriates with expertise to continue the
development of Malaysia’s financial system. Offshore financial institutions that meet
the predetermined criteria will be given the flexibility to have a physical presence
onshore – from 2010 for banking institutions and from 2011 for insurance companies.
Comments
Liberalisation well expected. The further liberalisation of the financial sector is within
our and market expectations as it is in line with the objectives laid out in the Financial
Sector Master Plan (FSMP) issued in 2001. Furthermore, the government has alluded
to announcements on this matter this week.
Upping foreign equity limits for Islamic and investment banks... However, it is a
surprise to us that Bank Negara has increased the foreign equity limits for Islamic and
investment banks from 49% to 70% as this means that foreigners will control these
entities. It appears that the authorities view the relaxation as necessary to attract more
foreign players into the Malaysian market to help develop these segments.
…but not for commercial banks. We are also surprised that the government did not
increase the 30% foreign equity limit for domestic commercial banks, which is
something the market had been looking forward to. An increase in the equity limit for
• B-Toto is worth a bet now as i) its core gaming operations remained resilient even
during the post-CNY off-peak period and appear likely to surpass our 6-7% gaming
revenue growth target for FY4/09, ii) 2009’s special draw allocations for all three
NFOs could take place over the next few weeks and iii) there is upside potential to its
6-8% gross dividend yield based on its policy of a minimum payout of 75% if B-Toto
dishes out higher dividends to lend its parent a helping hand.
• Adjusting earnings but implied yields still decent. We raise our FY09-11’s
revenue per draw growth assumptions by 2-4% pts following the stronger-thanexpected
YTD showing. But FY10-11’s bottomline is lowered by 4-5% as we also
raise our blended prize payout assumption from 62-64% to 63-64% to better reflect
the payout trends seen so far. FY09’s numbers are largely intact despite these
adjustments. Even after a 3-5% cut in our FY10-11 DPS projections (unchanged
80% payout ratio), our forecasts still imply a decent yield.
• Reiterate OUTPERFORM. Our DPS downgrades trim our end-CY09 target price
from RM5.95 to RM5.65, based on an unchanged 5% discount to its DDM value. We
continue to like B-Toto for its steady, low-risk topline growth, superior ROEs and
sustainable dividend yields. Being a low-beta stock, B-Toto may fall out of favour in a
rising market. However, we flag the likelihood of bumper dividends over the short
term. This is a potential share price catalyst that underpins our OUTPERFORM
recommendation, along with the normalisation of luck factor and market share gains.
Harking back to the SARS nightmare? The surgical masks, empty stadiums and
deserted streets of Mexico’s cities remind Asians of the devastating outbreak of the
SARS avian flu in east Asia in early 2003.
Yesterday, aviation stocks responded to those fears. Singapore Airlines’ share price
declined 4.5%, Malaysia Airlines fell 3.8%, AirAsia dropped 8.8%, Thai Airways
corrected 6.9%, and Cathay Pacific (Not rated) fell 8%. Airport shares also dropped,
but not by as much. Airports of Thailand fell 2.1%, while Malaysia Airports (Not rated)
fell 0.6% yesterday.
The current swine flu outbreak in Mexico has already killed more than 100 people and
has spread to neighbouring US and Canada. The World Health Organization said that
the outbreak has “pandemic potential” and has rated the seriousness of the outbreak
as a 3 on the scale of 1 to 6, with 6 being the most severe. US President Obama said
that the swine flu outbreak is a "cause for concern and requires a heightened state of
alert…but is not a cause for alarm".
If the outbreak turns into a global pandemic, aviation could be hit by a sudden
collapse of travel demand. During SARS, Singapore Airlines’ passenger numbers fell
50% yoy in Apr 03 and 60% yoy in May (Figure 1) while Cathay Pacific’s passenger
traffic plunged by as much as 75% in May (Figure 2).
Malaysia Airlines saw a 40% yoy fall in international passengers in May 2003 although
domestic traffic was relatively more resilient, pulling back a maximum 25% yoy
(Figures 3 and 4). AirAsia also experienced a sudden demand fall during that period,
although official numbers are unavailable as the company was not listed then.
In Thailand, Airports of Thailand saw international passengers through its 5 airports
plunge 43% yoy in April 2003 and 48% yoy in May while domestic traffic retreated
15% yoy in April and 14% yoy in May (Figures 5 and 6).
Bank Negara: Tan Seri Dr Zeti Akhtar Aziz, pointed out that OPR had been
“front-loaded”. Zeti indicated that, there will not be any further OPR rate cuts
provided in improvement is seen in the second half of the year and further
improvement going into next year. Zeti expects the global and domestic
economies to improve by the second half of the year. (Source: The Edge Daily)
Axiata: Announcement of Headline KPIs for FY08. Axiata failed to achieve its
FY08 KPIs targets, citing increasing competition in the mobile market of Axiata’s
operating countries, currency volatility, liquidity shortages, and fluctuation of
interest rates. Axiata did not meet its target for revenue growth, EBITDA margin
and ROE for FY08. (Source: Bursa Announcement)
Ramunia: Currently engaging in preliminary discussion with Sime Darby
Engineering Sdn Bhd as a strategic partner. Ramunia and Sime Darby
clarified in an announcement that, they are in engaged in a discussion on a
potential corporate transaction as part of Ramunia’s search for a strategic
partner. (Source: Bursa Announcement)
Air Asia: Eyeing new associates in the Philippines and Vietnam. Datuk Seri
Tony Fernandes is keen on setting up affiliate airlines in the two countries. He
envisioned all AirAsia affiliates in Asean to become a single entity, ultimately.
(Source: Business Times)
G-7: Says strength of recovery depends on clean-up of banks' toxic
assets. In warning that the world economy could still take another turn for the
worse, the finance ministers and central bankers who met over the weekend in
Washington singled out the banks' impaired balance sheets as the biggest threat
to a sustainable recovery. Their remarks indicate it will be critical to follow
through on commitments to deploy taxpayer funds to buy distressed assets,
even as some gauges of financial stress ease. U.S. officials aim to finance the
purchases of as much as USD 1tr of loans and securities, and Germany is
pushing a plan to remove EUR 853b (USD 1.1tr) from balance sheets. (Source:
Bloomberg)
Mexico: Swine flu outbreak may deepen economic decline. The outbreak of
deadly swine flu may curtail tourism and compel shoppers to stay home, further
damaging an economy already reeling because of a U.S. recession that has cut
demand for exports. President Felipe Calderon closed Mexico City schools until
May 6, shut public events and declared emergency powers to order quarantines
to fight the flu, which has killed as many as 103 in Mexico. Finance Minister
Agustin Carstens said there’s “high potential” the outbreak will disrupt the
economy, with hotels and restaurants being the hardest hit. (Source: Bloomberg)
Germany: GfK consumer confidence holds steady for a third month in May
as slower inflation boosted household purchasing power and the recession
showed first signs of easing. GfK AG’s confidence index for, based on a survey
of about 2,000 people, was unchanged from April at 2.5%, the Nurembergbased
market-research company said in a statement. German business and
investor confidence increased this month on hopes that interest-rate cuts and
government stimulus packages will lift the economy out of its worst recession in
over six decades. Germany’s leading economic institutes predict the economy,
Europe’s largest, will shrink by 6% YoY this year. (Source: Bloomberg)
Ireland: Banks may report EUR 22.5b of loan losses. Ireland’s government is
preparing to buy EUR 90b (USD 119b) of property loans in a bid to stave off
nationalizing its biggest lenders. It may still end up with majority control of the
country’s banks. Companies led by Allied Irish Banks Plc may get 25% less than
the face value of their loans under the proposal from the National Asset
Management Agency, according to the median estimate of seven analysts
surveyed by Bloomberg News. That implies losses of EUR 22.5b. Analyst
estimates for the discount ranged from 15% to 30%. (Source: Bloomberg
• Momentum halted US equities indices were in a +/-1% range, after Treasury
Secretary Geithner said the “vast majority” of banks have enough capital and
comments allayed concerns about next month’s “stress test” results, after an earlier
leak indicating otherwise. Big European banks also reported a brighter 1Q09 results or
guidance. Regional markets were mixed, with profit taking in Indonesia, Hong Kong
and Singapore, while Thailand and Malaysia were up.
• 14 painful years to breakeven at 5.4% p.a. Based on the available sample of MSCI
FExJ data, the long term capital returns for the MSCI FExJ markets works out to 5.4%
p.a. Including dividends, the total returns go up to 8.4% to 9.4%. The bad news is that
at this rate, it would take 14 miserable years before breakeven is achieved for
investments made at the October 2007 market.
• But 6.8% is probably more accurate The good news is that the 8.4% to 9.4% p.a.
returns is likely to be an underestimation of the potential returns of Asian equities. A
sanity check based on the historical cost of equity and the underlying ROE of the
countries under our coverage suggests that the long term returns are likely to be in the
10-18% range. Adding a trendline – albeit crude – to the FExJ index throws up an
implied 6.8% p.a. long term capital returns, or close to 12% total returns if dividends
are accounted for. This is also consistent with the long term returns of 10.7% that have
been documented for US equities.
• Juicing the returns beyond long term returns Returns are determined by the timing
of entry into the market. By definition, markets tend to oscillate around the long term
trendline. The FExJ index is currently below the trendline of its long term growth profile,
as expected. If investors are accurately discounting the GDP turning point that is
months away, risk tolerance should improve and equities should continue its march
upward. A reversion to the long term growth profile of the FExJ markets by the end of
this year implies an annualised return of 52%, while a less optimistic view of a
reversion only by the end of next year produces annualised returns of 24%. At 3.5x and
7.6x long term returns on conservative forecasts, the timing factor favours investors.
Disinflation momentum continues…
Consumer Price Index (CPI, 2005=100) moderated further in Mar ’09 to 3.5% YoY (Maybank IB estimate: 3.7% YoY; Consensus estimate: 3.6% YoY) from 3.7% YoY in Feb 09 and the peak of 8.5% YoY in Jul-Aug ‘08. This marked the seventh consecutive month of disinflation. MoM, inflation rate was down by 0.2%, the sixth sequential drop over the past seven months. Led by “disinflation” in Food and Non Alcoholic Beverages (FNAB) prices and “deflation” in Transport costs... The YoY increase in FNAB prices slowed for the sixth straight month while Transport costs declined for the fourth month in a row. Both account for 47.3% of CPI’s basket of goods and services and ¾ of last month inflation rate. There were no significant movements or notable changes in the price trends of other goods and services. Consequently, our measure of CPI ex-FNAB and Transport was little changed at 2.1% YoY last month compared with 2.2% YoY in the preceding month. Technical deflation is on the card as % YoY monthly inflation rate may turn negative between mid-year up to late-3Q09 or early-4Q09 due to the high-base from last year’s sharp hike in fuel and energy prices, as well as taking cue from the producer price index (PPI) which has turned negative since Nov ‘08. Therefore, maintaining our 2009 and 2010 inflation rate forecasts of 1% and 1.5% respectively, which is a marked deceleration from 5.4% in 2008 amid the environment of global/local economic downturn and lower commodity prices. Year-to-date inflation rate is 3.7%.
Spend a little to make a bundle
We maintain a selective Overweight call on the Consumer sector, mainly on market-leaders who continue to thrive even in the face of a domestic consumption slowdown.
AEON Co, AEON Credit Services
Top Buys are KFC and QL. Investors seeking liquid defensive plays should also be attracted to BAT’s earnings resilience and high dividend yield. , KFC Holdings and QL Resources are on track to continue posting >10% net growth rates in 2009-10, defying conventional logic and market expectations.
Reaping the fruits of disciplined ‘labour.’ AEON Co, AEON Credit Services
Sector Summary Table , KFC Holdings and QL Resources are expected to register double-digit net profit growth in 2009-10. For AEON Co and KFC, their less-than-one-year-old stores will contribute new sources of revenue and profits, even though existing stores, opened for more than one full calendar year, may not cumulatively register meaningful sales growth. AEON Co’s niche of providing comfortable one-stop shopping malls in many suburban areas continues to differentiate itself from other retailers domestically, whilst KFC continues to thrive as the most popular choice of fast food. Reaping the rewards of painstaking integration. In addition to the slew of growth activities at its Integrated Farming business, the integrated nature of QL Resources’ Marine Products business cushions fluctuating product prices. Although surimi (semi-processed fish paste) prices have fallen back to just above 2007-08 levels, this has instead made fishmeal and surimi-based products more affordable and encourages volume sales and margins for these products. Reaping the benefits of significant relationships. In AEON Credit Service’s case, despite the recent decline in motorcycle sales and relative uncertainty in 2009’s GDP growth prospects, its existing loans book, riding on 3-4 year loans profile, provides an earnings buffer against significant slow down in loans growth over the next 6-12months. Further, significant synergies with sister company AEON Co is expected to start showing with the likely combining of the latter’s privilege card (J Card) with the former’s credit cards. Currently, there are at least 10 times as many J Card holders as there are AEON Credit credit card holders. When growth and value come together. While we remain cautious of the broader market over the next few quarters, we continue to like the long-term value offered by our selection of four compelling growth stocks. Arguably, these three stocks offer the relative security of growing steadily within the generally defensive Consumer sector.
OJP data from firms like Vicinity Jobs have emerged as a complement to traditional sources of labour demand data, such as the Job Vacancy and Wages Survey (JVWS). Ibrahim Abuallail, PhD Candidate, University of Ottawa, presented research relating to bias in OJPs and a proposed approach to effectively adjust OJP data to complement existing official data (such as from the JVWS) and improve the measurement of labour demand.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
South Dakota State University degree offer diploma Transcriptynfqplhm
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2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
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1. SECTOR UPDATE
20 May 2009
MALAYSIA
CIMB Research Report
NEUTRAL Maintained
Media
AD-amantly southbound
Sharizan Rosely +60 (3) 2084 9864 - sharizan.rosely@cimb.com
• 1Q09 adex data point south. Although total gross adex for Jan-Mar 09 shrank
3.9%, it was better than the 20% contraction seen after the 1997-8 Asian financial
crisis. The worst performer was the newspaper segment which saw a 9% decline
compared with a 3.7% growth for TV adex. But ad volume visibility extends only 2-3
months out, leaving question marks over advertising commitments for 2H09.
• Downbeat expectations. The lacklustre adex showing in Jan-Mar 09 ties in with
the 1Q09 results reported by Media Prima and NSTP. It also confirmed the
generally bearish expectations of the media companies since the beginning of the
year, with a few being taken by surprise by the magnitude of the deceleration. Our
previous 2009 projection of an adex range of 1.1% contraction to 6% growth does
not hold and we now revise it to 6-10% adex contraction.
• Newspapers at risk. Fundamental risks could be more severe for newspaper
companies as newspaper adspend continues to take a hit from depressed GDP
data. Although there are signs of resilience in the Malay newspaper segment, this
does not mean total immunity against the potential worsening of adex volume in the
coming months. The top Malay newspaper NST’s Harian Metro is the main winner
but this is not expected to help the group much given that Harian Metro is a small
contributor.
• Indicators leading at inflection point? We concur with our economic research
team’s view that the CLI could hit the trough in Jun-Aug 09 and that the economic
recovery from the trough is likely to take at least 12 months given the severity of the
current global crisis. Advertisers should reposition their spending for a gradual
recovery from 2010. Historical trends suggest that adex in Malaysia should recover
in 1Q2010 based on a 3-6 months’ lag period.
• End-2009 a good potential entry point. We believe end-09 will be a good re-entry
point for exposure to selected media stocks as positives such as earnings visibility,
improved sentiment of advertisers, cheaper newsprint and gradual economic
recovery are likely to kick in as catalysts then. We will monitor closely the situation
on the ground and official stats but so far, adex for the months ahead appears to be
southbound. The share prices of media companies have recovered somewhat since
the start of the year and we fail to see any additional near-term re-rating catalysts.
• Staying NEUTRAL on media sector for now. In view of this, we maintain our
NEUTRAL stance on the media sector but recommend investors to switch to Astro
(Trading Buy) which has very little exposure to adex and minimal downside risks to
its Malaysian operations where the subscriber trend could turn out to be resilient.
We remain NEUTRAL on Media Prima (MPR MK), Star Publications (STAR MK)
and Media Chinese International (MCIL MK). NSTP is kept as an
UNDERPERFORM.
Sector comparisons
Target Core 3-yr EPS P/BV ROE Div
Bloomberg Price price Mkt cap P/E (x) CAGR (x) (%) yield (%)
Ticker Recom. (Local) (Local) (US$ m) CY2009 CY2010 (%) CY2009 CY2009 CY2009
Media Prima MPR MK N 1.26 1.40 305 13.8 12.0 (6.5) 3.6 28.7 3.6
Astro ASTR MK TB 2.58 3.00 1,414 16.3 12.3 53.4 5.2 24.5 6.4
Star Publications STAR MK N 3.20 3.50 670 12.9 11.9 8.3 1.8 14.1 6.6
MCI MCIL MK N 0.57 0.60 272 12.0 11.4 (5.4) 0.8 7.2 3.5
NSTP NST MK U 1.18 0.90 73 13.2 13.3 (21.0) 0.3 2.1 4.2
Simple average 13.6 12.2 5.8 2.3 15.3 4.9
O = Outperform, N = Neutral, U = Underperform, TB = Trading Buy and TS = Trading Sell
Source: Company, CIMB Research
Please read carefully the important disclosures at the end of this publication.
2. Reality check
Looking beyond 1Q09’s adex contraction of 4%, we still expect ad volume to remain
under pressure and stay southbound in the months ahead. The industry is unlikely to
bottom out any earlier than end-09, at which point the risk-reward ratio is likely to turn
positive for investors as advertisers reposition their spending for a gradual recovery in
2010. Media stocks were bombed-out last year and have recovered somewhat since
the start of year. As of now, we fail to see any additional near-term re-rating catalysts.
Adex contraction in 2009 could range between 6% and 10%.
1Q09 adex report card
4% contraction, led by newspapers. According to Nielsen Media Research (NMR),
total adex pulled back by 4% yoy in 1Q09, mainly because of a 9% decline in
newspaper ad volume. The post Chinese New Year (CNY) month of Feb 09 was the
worst month for almost all mediums, which saw ad volume drops of between 13% and
37%. Ad volume for newspapers and TV dipped 13-14% in Feb but only the TV
segment recovered in Mar 09. Chinese newspapers witnessed the worst February
month in five years while the Malay segment showed some signs of resilience
compared to the English segment. Newspapers’ share of total adex continued to
shrink from 59% in 1Q08 to 56% in 1Q09 while TV’s market share reached an all-time
high of 33%.
Decline was not as bad as in 1998. The 4% contraction in total ad volume in 1Q09,
amidst the global economic slowdown, is muted compared to the 20% plunge in 1Q98
adex during the Asian financial crisis. The 1Q09 contraction came largely from a 30%
slump in adex in Feb, led by the TV segment. Newspapers held the biggest market
share of 60% but remained the worst-performing segment for that quarter.
For 2009, while adex volume is likely to continue shrinking for the rest of the year, the
deceleration does not appear to be mirroring the 1998 downshift. Furthermore, the 4%
decline in 1Q09 reflects the high base from the election-driven adspend that occurred
in 1Q08.
Media players have low expectations. The lacklustre adex showing in Jan-Mar 09
ties in with the 1Q09 results reported by Media Prima and NSTP. This also confirmed
the generally bearish expectations of the media companies since the beginning of the
year, with a few being taken by surprise by the magnitude of the deceleration. Our
previous 2009 projection for an adex range of 1.1% contraction to 6% growth does not
hold.
[ 2 ]
3. Figure 1: 1Q adex in 1998, 2008 and 2009
Segments (RM'm) 1998 1Q98 2008 1Q08 2009 1Q09
Jan Feb Mar YTD Jan Feb Mar YTD Jan Feb Mar YTD
FTA TV 63.1 31.0 40.0 134.2 129.2 140.3 146.4 416.0 145.1 121.7 164.8 431.6
Newspapers 102.4 67.2 106.5 276.1 268.3 242.5 292.0 802.9 258.2 208.1 264.7 731.0
Magazines 9.0 7.0 7.8 23.9 10.3 10.4 12.9 33.5 10.5 9.0 10.7 30.2
Radio 6.7 4.0 4.8 15.5 21.4 19.0 20.7 61.2 24.7 16.9 25.3 66.8
Cinema 1.3 0.7 0.6 2.6 2.2 2.0 1.0 5.2 2.7 1.3 1.1 5.0
Outdoor 0.8 0.8 1.0 2.6 7.8 7.9 8.2 23.9 8.3 8.2 8.0 24.5
Point Of Sale 2.4 1.6 1.5 5.4 6.7 5.9 6.3 18.9 7.1 6.1 6.5 19.7
Total 185.8 112.4 162.2 460.3 445.9 428.0 487.7 1,361.6 456.6 371.3 481.1 1,308.9
Growth (yoy) 1998 1Q98 2008 1Q08 2009 1Q09
Jan Feb Mar YTD Jan Feb Mar YTD Jan Feb Mar YTD
FTA TV 6% -41% -28% -20% 49% 43% 37% 43% 12% -13% 13% 4%
Newspapers -20% -25% -19% -21% 16% 17% 17% 17% -4% -14% -9% -9%
Magazines 1% -18% -14% -10% -4% 1% 4% 0% 2% -13% -17% -10%
Radio -15% -25% -19% -19% 30% 5% 23% 19% 15% -11% 22% 9%
Cinema 117% -15% 37% 38% 17% -17% -40% -13% 19% -37% 10% -4%
Outdoor -42% -12% -15% -25% -13% -9% -4% -9% 7% 4% -3% 3%
Point Of Sale 2% -7% 1% -1% 52% 34% 36% 41% 7% 4% 3% 5%
Total -11% -30% -21% -20% 24% 23% 22% 23% 2% -13% -1% -4%
Market share (%) 1998 1Q98 2008 1Q08 2009 1Q09
Jan Feb Mar YTD Jan Feb Mar YTD Jan Feb Mar YTD
FTA TV 34% 28% 25% 29% 29% 33% 30% 31% 32% 33% 34% 33%
Newspapers 55% 60% 66% 60% 60% 57% 60% 59% 57% 56% 55% 56%
Magazines 5% 6% 5% 5% 2% 2% 3% 2% 2% 2% 2% 2%
Radio 4% 4% 3% 3% 5% 4% 4% 4% 5% 5% 5% 5%
Cinema 1% 1% 0% 1% 0% 0% 0% 0% 1% 0% 0% 0%
Outdoor 0% 1% 1% 1% 2% 2% 2% 2% 2% 2% 2% 2%
Point Of Sale 1% 1% 1% 1% 1% 1% 1% 1% 2% 2% 1% 2%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
1998 : Asian Financial Crisis
2008 : Second strongest adex growth afther the slump in 2005
2009 : Impact of global economic slowdown
Source: NMR, CIMB/CIMB-GK Research
6-10% contraction in 2009
2009 previous worst-case scenario compromised. It appears that we had
underestimated the degree of adex contraction in 2009. In our Jan 09 sector note, we
outlined our worst-case scenario of a 1.1% adex decline as we applied a 2.2x adex-
GDP growth multiplier to our previous worst-case estimate of a 0.5% GDP contraction.
Applying our revised 3% GDP contraction for 2009 to an unchanged 2.2x multiplier,
we now get an adex decline of 6.6% for this year. We would consider this as a base
case considering that media players are expecting declines of as much as 10%. This
gives a range which is still lower than the 17% plunge in 1998 when monthly double-
digit adex contractions lasted for the entire year (Figures 2 and 3 below).
Newspaper segment to suffer the most. Fundamental risks could be more severe
for newspaper companies as newspaper adspend continues to take a hit from
depressed GDP data. Although there are signs of resilience in the Malay newspaper
segment, this does not mean total immunity against the potential worsening of adex
volume in the coming months. The top Malay newspaper Harian Metro is the main
winner but this is not expected to help the group much given that Harian Metro is a
small contributor. The TV segment’s bundling strategy will mitigate the weakness in ad
volume, which may allow this segment to show ad volume recovery earlier than
newspapers.
[ 3 ]
4. Figure 2: Adex growth in Malaysia (1997-2008)
30%
Start of global
20%
Asian Financial Crisis economic slowdown
10%
0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Nov-08
-10%
Adex contracted by
-20%
17.2% in 1998 adex growth GDP growth
.
Source: NMR, CIMB Research
Figure 3: Monthly total adex growth (1997 vs. 1998)
20%
13.0% 13.4%
15% 12.4% 11.8% 11.7% 12.5% 12.1% 11.2% 10.1%
8.6% 8.9%
10% 6.5%
5%
0%
-5% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
-10%
-15% -11.2%
-20% -17.2%
-19.3% -19.9% -19.5% -19.1% -18.5% -17.8% -17.9% -18.4% -18.7% -18.2%
-25%
1997 1998
.
Source: NMR, CIMB Research
Spotting the inflection point
Indicators at inflection point. Leading economic indicators suggest that the
decelerating adex, which tracks GDP performance, could come to a turning point
sometime towards the end of 2H09. According to our economic research team, the
bottom of this economic downturn will be reached when we see (i) stabilising financial
markets and no further systemic events, (ii) restoration of investor confidence in asset
valuations and alleviation of counterparty concerns, (iii) normalisation of credit
markets, especially in the inter-bank market, (iv) resumption of borrowing and lending
activities, and (v) an end to the US housing correction.
The OECD CLI is designed to provide early signals of turning points (peaks and
troughs) between upswings and downswings in the growth cycle of economic activity.
Cyclical turning points are directly captured in the ratio to trend form of the CLI.
When the CLI is increasing and above 100, it signals an expansion; decreasing but
above 100 signals a downturn; decreasing and below 100 signals a slowdown; and
increasing but below 100 signals a recovery. Typically, turning points in industrial
production or GDP have been found about six months after the signals of turning
points had been detected in the CLI.
[ 4 ]
5. Figure 4: OECD CLI very close to the low in Jan 75
CLI
105
100
95
90
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
Source: Organisation for Economic Co-operation and Development (OECD)
Figure 5: Malaysia’s leading index vs. OECD leading index
Annualised 6M Malay sia's Leading Index OECD CLI (RHS)
% chg Leading Index (trend line) CLI
25 104
20 102
15 100
98
10
96
5 94
0 92
-5 90
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09
Source: DOS, Organization for Economic Co-operation and Development (OECD)
What it means. While the CLIs will continue to fall, the pace of decline should
continue to ease. Our economic research team believes the CLI could hit the trough in
Jun-Aug 09. Due to the severity of the current global crisis, the recovery process –
from the CLI hitting bottom and stabilising and eventually moving into positive territory
– is likely to take at least 12 months from the estimated trough in Jun-Aug 09.
For now, the situation could get worse before small improvements are evident in the
later part of the year. Taking into account the 6-month lag between the CLIs and the
real economy, the projected trough in CLI means that the real economy should begin
recovering at end-09 or early-2010. The recovery process is expected to be gradual
before settling on a healthy rate of expansion.
Positive signs for advertisers
Turning the corner at the end of 2009. What does this mean for advertisers?
Business conditions and the advertising environment are set to improve moderately
over the next 6-12 months from the estimated trough in Jun-Aug 09. Advertisers
should view this positively and reposition their spending for a gradual recovery from
2010. The potential shift in advertisers’ sentiment should arrest further deterioration in
ad volume in 2010.
BSI and CSI. After plunging 38-55% in 2008, the Business Condition Index (BSI) and
Consumer Sentiment Index (CSI) recovered 11-13% in Mar 09. The BSI and CSI
should continue to track a mild recovery path as long as economic data continue to
show an easing in the pace of deterioration. In view of this, we look beyond the 1Q09
adex contraction of 4% and foresee adex volume weakness to bottom out sometime
at end-09.
[ 5 ]
6. Figure 6: Business Condition Index (BSI) and Consumer Sentiment Index (CSI)
140.0
120.0
100.0
80.0
60.0
Turning point
40.0
20.0
0.0
Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09
Business Condition Index Consumer Sentiment Index
Source: CEIC
The auto and property industries, which are among the top 20 major advertisers in
Malaysia and make up 20-30% of total industry adex, have also showed signs of a
turnaround based on the Auto Industry Index (AII) and Residential Property Index
(RPI).
Figure 7: Auto Industry Index (AII) and Residential Property Index (RPI)
175.0
150.0
125.0
100.0
75.0
50.0
Turning point
25.0
0.0
Mar-03 Nov-03 Jul-04 Mar-05 Nov-05 Jul-06 Mar-07 Nov-07 Jul-08 Mar-09
Auto Industry Index Residential Property Index
Source: CEIC
Medium-term outlook is weak
Ad spending trails GDP data by 3-6 months. We observe that over the past 10
years, ad volume growth followed the trend of both the leading indicators and GDP
growth, but with roughly a time lag of 3-6 months. Using the Jun-Aug 09 trough for
both CLI and Malaysian GDP as a reference point, the historical trend suggests a
recovery path for adex from 1Q2010 (Figure 8).
But medium-term outlook remains weak. From our industry checks, it appears that
advertisers are still cautious and retain a wait-and-see attitude. On yoy basis, 2Q09
adspend is likely to contract by around 8-10%. Visibility of adspend in 2H09 is even
murkier as there are no major events to drive advertising this year compared to 2008
which featured the Olympics and Euro 2008.
Figure 8: Adex growth tracks leading index and GDP
20.0 40
15.0 Adex growth lags GDP 30
growth by 3-6 months
10.0 20
5.0 10
0.0 0
1Q98
3Q98
1Q99
3Q99
1Q00
3Q00
1Q01
3Q01
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
-5.0 -10
-10.0 -20
-15.0 -30
Leading index (RHS) Malaysia GDP Adex growth (LHS)
Source: DOS, Organization for Economic Co-operation and Development (OECD)
[ 6 ]
7. 1Q09 results set the tone
2009 earnings likely to remain weak. We expect the upcoming 1Q09 results for the
media companies under our coverage to set the tone for media companies’ earnings
for 2009. Data from NMR already indicate the weakness of ad volume in 1Q09 which
should be reflected in the numbers for these companies. We would not be surprised if
other companies like Star and Media Chinese reported disappointments in their
numbers. We are maintaining our earnings forecasts and target prices for these
stocks while noting the possibility of a downgrade after the release of their quarterly
results. Earlier indications from NMR are negative, with both English and Chinese
newspaper adex falling 15% yoy in 1Q09.
For newspaper companies, the benefits of cheaper newsprint prices can only be felt in
2010 when newsprint inventories run out. Newsprint spot prices have dropped by 18%
to US$623/tonne from a peak of US$756/tone at end-Dec 08. It will take a few months
to confirm the downtrend as prices could pull back due to plant shutdowns in North
America and rising oil prices.
Figure 9: Newsprint price (US$/tonne)
779
729
679
629 Peaked at
US$756/tonne in end-08
579
529
Jan-08
May-08
Jun-08
Jul-08
Oct-08
Nov-08
Dec-08
Jan-09
May-09
Feb-08
Mar-08
Apr-08
Aug-08
Sep-08
Feb-09
Mar-09
Apr-09
Source: Bloomberg
Valuation and recommendation
End 2009 a good potential entry point. We believe end-09 will be a good re-entry
point for exposure to selected media stocks as positives such as earnings visibility,
improved sentiment of advertisers, benefits of cheaper newsprint and gradual
economic recovery are likely to kick in as catalysts then. We will monitor closely the
situation on the ground and official stats but so far, adex for the months ahead
appears to be southbound. The share prices of media companies have recovered
somewhat since the start of the year and we fail to see any additional near-term re-
rating catalysts. Short-term correction would not be a good buying opportunity. We
look beyond the 1Q09 adex contraction of 4% and foresee adex volume to stay
southbound in the months ahead. A bottoming-out will probably occur no earlier than
end-09, a point when we think the long-term risk-reward ratio is likely to turn positive.
Staying NEUTRAL on media sector for now. In view of this, we maintain our
NEUTRAL stance on the media sector. We recommend investors to switch to Astro
whose appeal lies in its limited exposure to adex and minimal downside risks to its
Malaysian operations where the subscriber trend could turn out to be resilient. Astro
remains a TRADING BUY with a higher DCF-based target price of RM3.00 (RM2.40
previously), tagged to an unchanged 10% discount to DCF, which we now base on a
WACC of 13% (15.5% previously). Its dividend yield of over 6% is among the highest
in the sector. We remain NEUTRAL on Media Prima (MPR MK), Star Publications
(STAR MK) and Media Chinese International (MCIL MK). NSTP is kept as an
UNDERPERFORM.
[ 7 ]
8. QUICK TAKES
20 May 2009
MALAYSIA
CIMB Research Report
TRADING BUY Maintained
Astro All Asia Networks Plc RM2.58 Target: RM3.00
Switch to this channel Mkt.Cap: RM4,990m/US$1,414m
TV - Satellite
ASTR MK / AAAN.KL Sharizan Rosely +60 (3) 2084 9864 – sharizan.rosely@cimb.com
1Q09 adex
Firmly southbound. Although industry gross adex for Jan-Mar 09 shrank 3.9%, it
was better than the 20% contraction seen after the 1997-8 Asian financial crisis. The
worst performer was the newspaper segment which saw a 9% decline compared to a
3.7% growth for TV adex. But ad volume visibility extends only 2-3 months out, which
leaves question marks over advertising commitments for 2H09.
Not a major concern for Astro. We do not expect the weakening adex in 2009 to
have a material impact on Astro as adex constitutes less than 10% of its total revenue,
the bulk of which comes from subscription fees. A projected 6-10% slowdown in
adspend in 2009 will, therefore, not have a substantial impact on Astro. Astro’s
domestic pay TV operations remain the group’s key driver and could turn out to be
more resilient than expected.
Valuation and recommendation
Maintain TRADING BUY with higher target price of RM3.00. We retain our
forecasts which already reflect lower EBITDA margins from higher content costs and a
higher churn of 9%. Considering that this will be a challenging year for adex, Astro
looks appealing as it has very little exposure to adex and the downside risks for its
Malaysian operations are minimal as the subscriber trend could turn out to be resilient.
Using a lower WACC of 13% (15.5% previously), we get a higher target price of
RM3.00 (RM2.40 previously), still pegged to a 10% discount to its DCF value.
We reiterate our TRADING BUY recommendation on Astro as the outlook continues to
shift to its core Malaysian pay TV operations and India, where execution and
regulatory risks are much lower than in Indonesia. From a recent news report, it
appears that the preliminary ruling by the Singapore International Arbitration Centre
(SIAC) favoured Astro in that it urged PT Ayunda Prima Mitra, a subsidiary of Lippo
Group, to discontinue its lawsuit against Astro. While this may not mark the end of
what is likely to be a long-drawn legal process, we view this progress positively.
Potential re-rating catalysts for Astro are (i) continued progress in sorting out the
legalities in Indonesia, (ii) stronger-than-expected performance for its Malaysian
operations, and (iii) investors’ switch from adex-centric companies. Astro’s dividend
yield of over 6% is among the highest in the sector.
[ 8 ]
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[ 10 ]
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RECOMMENDATION FRAMEWORK #1*
STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS
OUTPERFORM: The stock's total return is expected to exceed a relevant OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is
benchmark's total return by 5% or more over the next 12 months. expected to outperform the relevant primary market index over the next 12
months.
NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant NEUTRAL: The industry, as defined by the analyst's coverage universe, is
benchmark's total return. expected to perform in line with the relevant primary market index over the next
12 months.
UNDERPERFORM: The stock's total return is expected to be below a relevant UNDERWEIGHT: The industry, as defined by the analyst's coverage universe,
benchmark's total return by 5% or more over the next 12 months. is expected to underperform the relevant primary market index over the next 12
months.
TRADING BUY: The stock's total return is expected to exceed a relevant TRADING BUY: The industry, as defined by the analyst's coverage universe, is
benchmark's total return by 5% or more over the next 3 months. expected to outperform the relevant primary market index over the next 3
months.
TRADING SELL: The stock's total return is expected to be below a relevant TRADING SELL: The industry, as defined by the analyst's coverage universe,
benchmark's total return by 5% or more over the next 3 months. is expected to underperform the relevant primary market index over the next 3
months.
* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected returns to be
temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
CIMB-GK Research Pte Ltd (Co. Reg. No. 198701620M)
[ 11 ]
12. RECOMMENDATION FRAMEWORK #2 **
STOCK RECOMMENDATIONS SECTOR RECOMMENDATIONS
OUTPERFORM: Expected positive total returns of 15% or more over the next OVERWEIGHT: The industry, as defined by the analyst's coverage universe,
12 months. has a high number of stocks that are expected to have total returns of +15% or
better over the next 12 months.
NEUTRAL: Expected total returns of between -15% and +15% over the next NEUTRAL: The industry, as defined by the analyst's coverage universe, has
12 months. either (i) an equal number of stocks that are expected to have total returns of
+15% (or better) or -15% (or worse), or (ii) stocks that are predominantly
expected to have total returns that will range from +15% to -15%; both over the
next 12 months.
UNDERPERFORM: Expected negative total returns of 15% or more over the UNDERWEIGHT: The industry, as defined by the analyst's coverage universe,
next 12 months. has a high number of stocks that are expected to have total returns of -15% or
worse over the next 12 months.
TRADING BUY: Expected positive total returns of 15% or more over the next 3 TRADING BUY: The industry, as defined by the analyst's coverage universe,
months. has a high number of stocks that are expected to have total returns of +15% or
better over the next 3 months.
TRADING SELL: Expected negative total returns of 15% or more over the next TRADING SELL: The industry, as defined by the analyst's coverage universe,
3 months. has a high number of stocks that are expected to have total returns of -15% or
worse over the next 3 months.
** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the
prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
[ 12 ]