Sector Focus - Property Fighting For A Home

Fighting For A Home

• Recent launches sold via balloting due to overwhelming response
• Robust demand even at new benchmark prices
• Developers’ margins to pick up with higher selling prices & incentive roll-backs
• Recovery in sales & margins yet to be reflected in share prices.Maintain positive view on Malaysian property sector. Top pick: SP Setia.
  

Sales going strong at record prices. Huge turnouts seen at property launches over the last three weekends:

1. Desa Parkcity’s Casaman. All 147units were snapped up within five hours despite record pricing of RM1.7m–RM2.1m/unit for 2/3- storey link houses. More than 650 registrants were present for the balloting exercise, each armed with a bank draft for RM50-100k.
2. Boustead’s Surian condos at Mutiara Damansara (311 units at RM600psf). 80% sales were achieved after last weekend’s balloting (all non-Bumi units taken up). This was despite the high 50% Bumi quota (vs 30% typically) and large built-up areas of 1679-2443sf, priced at RM926k-1.3m/unit (most of the 850- 1400sf were sold prior to the ballot).
3. Sime’s Reika link houses at USJ Heights (107 units; RM982k/unit; land size: 24’ x 80’). Achieved 75% take up last weekend, at 19-22% higher ASP vs launch of Kayangan Puteri in Nov09 (RM808-838k).
4. Desa Parkcity’s Westside One condos (338 units; RM600psf). Approximately 90% of non-Bumi units were booked over just one weekend (built-up area : 969-2066sf).

In Penang, E&O’s Quayside Resort condos (RM685psf, 298 units) reached 65% sales (soft-launched in Oct09) – setting the stage for the launch of its second tower in Singapore soon at ~RM750psf. Later this month, SP Setia will also be conducting a balloting exercise for its Setia EcoPark Phase 8C semi-detached (24 units; RM1.8m/unit vs RM1.2m for Phase 8B launched in end-Oct09).

Positive outlook still not reflected in share prices. Malaysian property sector is trading at 0.74x P/BV (0.56x P/RNAV), still below 0.77x historical mean despite recovery in sales and margins. Malaysian property sector is trailing way behind regional peers in terms of share price recovery post-financial crisis. We remain positive on Malaysian property sector; top pick: SP Setia (sector leader, largest residential developer by sales). We also like E&O, DNP, and Sunrise for their prime landbank, strong brandname and attractive valuation. As for SunCity, its upcoming RM3bn REIT should help unlock value and strengthen its balance sheet.

Analyst
Yee Mei Hui +603 2711 1332
meihui@hwangdbsvickers.com.my
Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Berjaya Sports Toto - Dealt Another Blow

FULLY VALUED RM4.22 (Downgrade from Buy)
Price Target : 12- month RM 4.00 (Prev RM 4.80)
Reason for Report : Corporate Update
Potential Catalysts: Strong growth for 4D and lotto games; award of Vietnam NFO licence to associate

Pool betting duty raised to 8% from 6%, from Jun10

• 12-13% impact to FY11-13F earnings
• But potential support from bumper dividends
• Downgrade BST to Fully Valued (from Buy), TP cut to RM4.00 (from RM4.80)

Higher gaming tax. The government has recently turned hawkish on the gaming sector, due to political pressure and urgent need to source for income to narrow the widening budget deficit (although impact to government’s coffers will be small). After last week’s retraction of sports-betting licence granted to Ascot Sports (supposed to be injected into related party Berjaya Corp with BST acting as distribution agent), pool betting duty for NFOs has been raised to 8% from 6% (on net gaming revenue) effective 1 Jun 2010. The last gaming tax hike was in 1998 (from 7% to 8% of gross revenue), while pool betting duty was standardized to 6% from 6-12% in 2003. Higher gaming tax could lead to less attractive prize payout which would encourage punters to switch to illegal operators. NFOs could end up with lower revenue and margin compression.

Downgrade to Fully Valued, TP cut to RM4.00. We estimate the pool betting hike will reduce BST’s FY11-13F earnings by 12-13% (yet to factor in potential lower payout and loss of market share to illegal operators). This will bring down our valuation (based on dividend discount model) by 14% to RM4.00. Least affected NFO will be Tanjong (2-4%) as gaming only contributes 21% of EBIT.

Potential bumper dividends could provide some support. BST may declare higher dividends (but on weaker earnings) to help parent Berjaya Land finance the repayment of RM711m convertible bonds due in Aug 2011. This will be supported by its new RM800m medium-term-notes program (expected to draw-down initial RM500m by end- 10 to refinance debts and for working capital). We have only assume 75% payout (based on BST’s dividend policy).


Analyst
Yee Mei Hui +603 2711 1332
meihui@hwangdbsvickers.com.my

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Today's Market Preview (30-06-2010)

Green Packet - WiMAX embedded Intel chip is here!

Green Packet (RM1.00; Buy; Price Target: RM1.75; GRPB MK)
WiMAX embedded Intel chip is here!

In a full-page advertisement in The Star newspaper today, Intel introduces the arrival (in Malaysia) of its WiMAX-embedded processor, the Intel Core i5. P1, the WiMAX subsidiary of
GRPB, is a partner while Acer, Asus, Dell, Lenovo, MSi and Toshiba are the manufacturers of WiMAX-embedded notebooks/netbooks (WENB).

A phrase in the ad says “Why just WiFi when you can also WiMAX?” clearly states that the WENB also come with WiFi capability. We foresee WiMAX as a standard feature in future notebooks/netbooks, much like the path that WiFi took years ago. We also understand that WENB sold in Malaysia would be set to P1’s WiMAX service by default, though users have
the choice to change WiMAX operators on their own. This is not only a strong endorsement for P1, but also helps to channel subscribers to P1. The timing of this announcement is within our expectation (of mid-2010), and is positive for P1 and GRPB.

Meanwhile, our sum-of-parts price target of RM1.75 for GRPB is under review pending the official announcement and further detail of GRPB’s and P1’s tie-up with SK Telecom (SKT).
As mentioned in our earlier comment a month ago, the price target for GRPB could be lowered to c. RM1.60 due to the dilutive effect of SKT’s acquisition of c. 25% stake in P1. Nevertheless, our BUY call is intact.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Today's Market Preview (25-06-2010)

Berjaya Sports Toto, Raising debt = bumper dividends?

Berjaya Sports Toto (BST) has received the approval from Securities Commission to undertake a medium-term note (MTN) programme of up to RM800m (tenure may range between >1 to 10 years). The initial drawdown will likely be around RM500m, which proceeds will be used to refinance its remaining RM450m debt and for working capital.

BST’s net gearing has improved from 174% in 1QFY10 to 43% in 4QFY10. Its last debt raising exercise was mainly to finance bumper dividends declared in 4QFY09 (final dividend of 11 sen + advance FY10 interim dividend of 19 sen), in preparation for potential exercise of a put option for early redemption by parent Berjaya Land’s bondholders. BST has just declared a 8 sen second interim dividend in 4QFY10, which works out to ~RM107m. We do not discount the possibility of surprise bumper dividends as Berjaya Land’s RM711m convertible bonds will be due in Aug 2011.

On a worst case scenario, the initial RM500m MTN drawdown will increase net gearing to 155% and interest expense by RM25m (assuming 5% interest rate) or 5% of FY11 net profit. But the actual impact should be much lower as some existing debt will be refinanced, while repayment should be fairly quick given BST’s strong operating cashflows of RM400-500m p.a.

Maintain Buy on BST, and our TP of RM4.80, based on dividend discount model.

Report from
HWANGDBS Vickers Research Sdn Bhd (128540 U)

Axiata - Dividend and capex guidance

Axiata told the media after its AGM yesterday that it would announce a dividend policy by 3Q10. The company guided FY10F capex of RM3.6b, which includes RM1b for Celcom in Malaysia, USD500m for Excelcomindo in Indonesia, USD100m for Dialog in Sri Lanka and USD100m for Robi in Bangladesh. Further, Axiata plans to issue RM4.2b in Islamic debt by next month to refinance its existing loans. As the Islamic debt replaces existing facilities, there would
be negligible impact on our forecasts.

We had already factored in a slightly more conservative capex of RM3.7b for FY10F, which we see no need to update at this moment as the impact on earnings and valuation of Axiata is minimal. Since Axiata is announcing a dividend policy in 3Q10, which need not necessarily mean a payout, we had omitted a dividend payout for FY10F, but have assumed dividend payouts to start in FY11F. We have imputed a token amount of 10% only vs. a previous target of 30%,
which we intend to review once the official policy is announced.

We are keeping our forecasts, sum-of-parts price target of RM4.50 and BUY recommendation on Axiata. Further cost reduction in both operating and network costs are catalyst for future re-rating of Axiata.

Published by HWANGDBS Vickers Research Sdn Bhd (128540 U)