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Wednesday, October 29, 2014

Suria Buy?

Kenanga initiate coverage on Suria stock. Current price RM2.59 with Suria fair value of RM3.43.

The price didnt move much. Maybe valuation not good enough? Or price and volumn have increased recently/previous day.

Tuesday, October 28, 2014

Carimin Petroleum IPO fair value RM1.12

According to TA Securities....., Carimin Petroleum Bhd (Carimin) is an O&G contractor that provides hook-up and commissioning (HUC), platform maintenance, and manpower services.

Carimin was one of the winners of Petronas’ Pan Malaysia HUC contract in 2013. The bulk (89%) of Carimin’s RM900mn orderbook comprises of this contract currently. Therefore, our primary concern is that the group may emerge as a one trick pony if it doesn’t manage to secure sizeable new contracts outside of HUC.

To recap, there will be no new tenders for local HUC contracts until expiry of the Pan Malaysia umbrella contract in 2018. Nevertheless, we understand that the group is actively bidding for maintenance projects to replenish its orderbook. In fact, we believe the group stands a fair chance to secure a package from Petronas’ upcoming RM1.5bn Pan Malaysia Inspection, Repair, and Maintenance (IRM) contract. On top of that, there will also be earnings upside from:- 1) additional work orders for Pan Malaysia HUC, 2) more vessel acquisitions, 3) diversification into marine services, and 4) yard upgrade.

We arrive at a fair value (FV) of RM1.12 for Carimin based on 12.0x CY15 P/E. This is in-line with its peers’ average, and at a 6% discount to the mean of its peers in the HUC & Brownfield segment. The recent weakness in crude oil price could cap near term share price performance. Nonetheless, we reiterate the potential of the stock price if management delivers on contract replenishment.

FV of RM1.12 at 12x CY15 P/E. We arrive at a fair value (FV) of RM1.12 for Carimin based on 12.0x CY15 P/E. This is in-line with its peers’ average, and at a 6% discount to the average of its peers in the HUC & Brownfield segment (Dayang and Petra Energy). The discount is to reflect Carimin’s much smaller market cap and order book relative to the latter two. Carimin’s size is merely 10%-12% of Dayang and Petra in terms of market cap, whilst its fleet size is smaller too, with its competitors having 8-9 vessels each.

We stress that there is potential upside to our estimates and FV if the following catalysts emerge, which we have not factored into our forecasts:- 1) additional ad-hoc jobs with higher margin for Pan Malaysia HUC, 2) the group secures a package from Pan Malaysia IRM contract, and 3) new contracts to replenish orderbook. The recent weakness in crude oil price could cap near term share price performance. Nonetheless, we reiterate the potential of the stock price if management delivers on contract replenishment.

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I saw Carimin dividend yield zero in that report.

Monday, October 27, 2014

CSENIC Stock Price Up

I saw a CIMB research on Classic Scenic. Past few quarters the profit lack of growth, and I was wondering what will CIMB write. Yes, on cash and dividend. They emphase on cash and dividend. But CIMB went beyond that also. They link with Warren Buffett, little capital required and strong cash flow. Good one CIMB. Price up more than 10%.


 Extract from the write-up from CIMB, based on CSENIC share price of RM1.17 (now already RM1.29).

Classic Scenic (CSB) is a typical Warren Buffett-type company. It operates in a profitable niche industry with minimal capex and strong free cashflow. Berkshire Hathaway’s Larson Juhl is CSB’s thirdlargest customer. CSB offers investors dividend yields of almost 10%.

Warren Buffett bought the US picture framing giant, Larson Juhl in 2002, citing superior economics as his reason. Investors have the same chance today in CSB. CSB has paid total dividends of 47 sen over the past five years, representing 40% of its current market cap. Combined with its net cash of 13 sen/share, this solid dividend-yielder could be worth RM1.53-2.06, based on SOP, offering investors 31-76% upside.

DDM valuation of RM1.53-2.06 We value CSB using the sum-of-parts methodology (SOP), which comprises a dividend discount model (DDM) to value the annual dividend cashflow to shareholders plus its net cash holdings.

The DDM formula is:- P = D/(r-g), where D is the value of next year’s dividends, r is the cost of equity and g is the constant growth rate in dividends to perpetuity.
We estimate the cost of equity for CSB to be 6.0%, using a risk-free rate of 4% (10-year government bond yield), beta of 0.5x, market return of 6.4% and g of 1.5% (estimated long-term growth rate of the US economy).

Conservative: Assuming D at 8 sen (final FY14 dividend of 4 sen, interim FY15 dividend of 4 sen). This yields a value of RM1.53.
Base case: Assuming D at 9 sen (FY14 final dividend of 5 sen, interim FY15 dividend of 4 sen ), this yields a potential value of RM1.71.
Aggressive: Assuming D at 11 sen (FY14 final dividend of 6 sen, interim FY15 dividend of 5 sen), this yields a potential value of RM2.06.




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