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Stocks In Focus MY (Carlsberg Brewery M’sia, Lafarge, Oriental Hldgs) – 04/03/15
Malaysia Daily Bulletin | 04 March 2015

Subdued Outlook For Carlsberg; Maintain ‘Hold’: CIMB

  • CIMB Equities Research said Carlsberg Brewery Malaysia highlighted while it was happy with its FY14 results, business environment in the current year is expected to be more competitive due to slower consumer spending in Malaysia and the competitive environment in Singapore.
  • The research house mentioned that the firm was able to boost its profitability as a result of improved operating efficiency, better pricing and product mix even though its Malaysia sales volume was flat year-on-year. It added that the firm’s premium brands continued to grow strongly but their sales contribution continues to be small. It noted that the firm’s management foresees that sales volume will be flat in 2015 so it hopes to continue spending wisely on advertising and promotion.
  • The group’s first quarter performance probably will be better year-on-year due to a boost from improved Chinese New Year sales but its second quarter performance will not be as good due to the introduction of the goods and services tax, according to the research house. It feels that the robust growth of the group’s premium brand sales and its Sri Lanka associate could help to mitigate the adverse effect of the slower consumer spending.

Significance: CIMB Research has maintained its ‘Hold’ rating on the stock and kept its target price of RM13.22 and 2015 to 2017 net profit forecasts. It does not recommend investors to add position but it feels the stock price would be well supported by the company’s high dividend yield of about 6 percent despite the expected challenging environment in 2015.

Lafarge Likely To Secure More Exclusive Contracts

  • CIMB Equities Research says Lafarge Malaysia is bullish on clinching more exclusive contracts for domestic large-scale projects, thus alleviating the continued higher costs and competitive environment amidst lower single-digit cement demand growth in 2015. However, it made a slightly negative point that it continues to be unclear if cement players will benefit from the 5.8 percent power tariff rebate until October 2015.
  • The research house noted the following key points in the company’s 4Q14 performance. Its 4Q14 operating parameters were lower sales volume, higher costs and competitive pricing. It believes the company will be competing for more exclusive agreements in Petronas’ Refinery and Petrochemical Integrated Development project and views the KL 118 tower as an opportunity for profit after winning a RM254 million contract from Rapid and a RM60 million job from the Langat 2 water treatment plant.
  • The research house predicted that pricing volatility and cost pressures will continue in the next 1 to 2 quarters due to the pre-goods and services tax (GST) and post-GST demand effect and higher electricity cost. It concluded that competitive risks as a result of the industry’s oversupply situation would persist in 2015. However, it feels that Lafarge will be able to overcome these problems because of its dominance in the technically specialized segment, which it roughly estimates to be over 70 percent in market share.

Significance: CIMB Research maintains a ‘Hold’ rating on Lafarge Malaysia and lowers its target price from RM10.23 to RM10.06. It cuts its FY15 to FY17 earnings per share (EPS) forecasts as its assumptions were too aggressive and foresees that there will be a more decent 5 percent to 6 percent EPS growth per annum backed by better margins from exclusive contracts. It advises that investors switch to contractors for a direct play on job roll-out

Oriental Buys 90% Stake In PT Suryaagro

  • Oriental Holdings’ unit, OAM Asia (Singapore), has acquired a 90 percent stake in PT Surya Agro Persada for RM98.3 million, following confirmation from the Indonesian Law and Human Rights Ministry of the acquisition of the stake from PT Kencana Sawit Abadi which then holds the remaining 10 percent. The company said that the purchase price would be funded by bank borrowings.
  • The firm said the acquisition was consistent with its strategic plan to expand its planted land holding in Indonesia since that would enable it to have its fourth crude palm oil mill in Indonesia and the first mill in South Sumatra, thus it strengthening its position as a key plantation player in Indonesia.
  • The group also said it anticipates that the acquisition will boost its future earnings from the cultivation and harvest of oil palm. It is optimistic that the acquisition will further increase its plantation division’s contribution to its performance.

Significance: The acquisition is expected to expand the firms upstream activities, thus enhancing its value chain which allows it to obtain synergies through enhanced operations and optimisation of costs across all its plantations through sharing of common resources and expertise, helping it reinforce its position in the palm oil and agribusiness industry, which it expects to have good upside potential since it foresees that global demand for crude palm oil will be robust in the long term.

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