Tasek Corporation - 50-year anniversary goodie bag
Target RM16.85 (Stock Rating: HOLD)
Although Tasek's annualised 9M14 core net profit was 102% of our forecast, we deem it broadly in line as we expect intensified price competition and sustained cost pressures in 4Q. The main positive was the higher special interim single-tier DPS of 50 sen in conjunction with the group's 50-year anniversary but this is unlikely to be sustained. We raise our FY14 DPS forecast. Our target price rises as we roll over to an end-FY15 valuation and apply a higher P/BV multiple of 1.94x (unchanged 10% discount to Lafarge's historical 1-year P/BV). We maintain our Hold rating, with support from Tasek's decent FY14-16 dividend yield of 4-5%. We prefer contractors as they will be earlier beneficiaries of the infrastructure job rollout.
No major surprises in 9M14 operating figures
Annualised 9M14 core net profit was 2% above our full-year forecast but we deem it broadly in line as we expect pricing competition to intensify in 4Q and cost pressures to be sustained. We continue to expect minor full-year losses for the ready mix segment, in view of the weak sales volume in 9M14. The slight qoq improvement in pricing of both cement and ready mix in 3Q14 does not appear sustainable in the coming quarter. The only pleasant surprise was the higher special interim single-tier DPS of 50 sen, which appears to be a one-off in conjunction with the group's 50-year anniversary.
Cement demand a function of job timing
In our view, domestic demand for cement should be healthy in 4Q, driven by residential properties, as most of the new infrastructure jobs will not be implemented yet. The upcoming large-scale commercial buildings such as the Tun Razak Exchange (TRX) and Warisan Merdeka Tower (118-storey) are still in the early stages. The rollout of the RM25bn MRT 2 project is only expected in mid-2016, as the calling of tenders is expected in end-2015. Based on our industry checks, the general expectation for overall cement demand growth is c.4% in 2014 compared to 5-6% in 2013.
Cost risks could partially offset the higher list prices
The increasingly competitive landscape arising from new capacities is expected to persist and offset the benefits of the estimated c.9% increase in Tasek's list prices effective Jul 2014. The margin expansion potential is also capped by higher operating costs (higher electricity tariffs and removal of fuel subsidies).
Source: CIMB Daybreak - 05 November 2014
Target RM16.85 (Stock Rating: HOLD)
Although Tasek's annualised 9M14 core net profit was 102% of our forecast, we deem it broadly in line as we expect intensified price competition and sustained cost pressures in 4Q. The main positive was the higher special interim single-tier DPS of 50 sen in conjunction with the group's 50-year anniversary but this is unlikely to be sustained. We raise our FY14 DPS forecast. Our target price rises as we roll over to an end-FY15 valuation and apply a higher P/BV multiple of 1.94x (unchanged 10% discount to Lafarge's historical 1-year P/BV). We maintain our Hold rating, with support from Tasek's decent FY14-16 dividend yield of 4-5%. We prefer contractors as they will be earlier beneficiaries of the infrastructure job rollout.
No major surprises in 9M14 operating figures
Annualised 9M14 core net profit was 2% above our full-year forecast but we deem it broadly in line as we expect pricing competition to intensify in 4Q and cost pressures to be sustained. We continue to expect minor full-year losses for the ready mix segment, in view of the weak sales volume in 9M14. The slight qoq improvement in pricing of both cement and ready mix in 3Q14 does not appear sustainable in the coming quarter. The only pleasant surprise was the higher special interim single-tier DPS of 50 sen, which appears to be a one-off in conjunction with the group's 50-year anniversary.
Cement demand a function of job timing
In our view, domestic demand for cement should be healthy in 4Q, driven by residential properties, as most of the new infrastructure jobs will not be implemented yet. The upcoming large-scale commercial buildings such as the Tun Razak Exchange (TRX) and Warisan Merdeka Tower (118-storey) are still in the early stages. The rollout of the RM25bn MRT 2 project is only expected in mid-2016, as the calling of tenders is expected in end-2015. Based on our industry checks, the general expectation for overall cement demand growth is c.4% in 2014 compared to 5-6% in 2013.
Cost risks could partially offset the higher list prices
The increasingly competitive landscape arising from new capacities is expected to persist and offset the benefits of the estimated c.9% increase in Tasek's list prices effective Jul 2014. The margin expansion potential is also capped by higher operating costs (higher electricity tariffs and removal of fuel subsidies).
Source: CIMB Daybreak - 05 November 2014
