Business News

Magnum a good dividend play

Tuesday, 6 August 2013

MAGNUM BHD

By CIMB Research

Outperform

Price target: RM3.90

MAGNUM Bhd shares went ex for the 48 sen capital repayment last Friday.

This is the first milestone in proving to investors that it is now a fully transformed, high dividend-paying, pure gaming company.

We expect a 5%-6% yield with the strong possibility of special dividends.

We lower our dividend discount model (DDM)-based target price for the 48 sen capital repayment. No change to our earnings per share (EPS) forecasts.

The key catalyst is fulfilling its minimum 80% dividend payout policy.

The capital repayment will be paid out on Aug 20.

The RM696.5mil of proceeds came from the decoupling exercise of Magnum’s non-gaming assets, which were spun off into an initial public offering (IPO) called MPHB Capital.

We are adjusting our target price to RM3.90 as we included the 48-sen capital repayment in our DDM valuation.

Investors looking at Magnum from this point onwards can still look forward to a minimum 80% dividend payout.

We also do not rule out the possibility of special dividends since the company will be turning net cash this year after being under the debt burden for many years following a leveraged buyout of the gaming business.

Magnum also has up to RM1bil of proposed 20-year medium term notes that it can issue to pay dividends that it has not executed yet.

Investors’ interest in dividends is aligned with that of the major shareholders, especially Asia 4D Holdings, which has 11% of the company. It represents the shares held by the private equity fund CVC Capital Partners, which helped finance the initial leveraged buyout of the gaming business in 2008.

We remain positive on Magnum as a fully-transformed clean gaming dividend story. The capital repayment is the first step in its new chapter and investors should continue to favour the stock as a high-yield play with the potential for payouts to surprise.

WCT HOLDINGS

By Maybank Investment Bank Research

Buy (unchanged)

Target price: RM3.00

WE expect a slew of positive news flow and surprises from WCT Holdings, including a potential RM1bil job win from Qatar, contract variation order and higher internal property sales forecasts due to accelerated property launches.

Despite its robust prospects, WCT has been a laggard.

Given its competitive strength in clinching more projects locally and overseas, strategic property land bank and growing recurring income from property investments, there is further re-rating potential.

We reiterate “buy” with an unchanged target price of RM3 based on 14 times mid-financial year 2014 price-earnings ratio (14x mid-FY14 PER) plus 20 sen increment from KLIA-IC (integrated complex) concession.

WCT has tendered for RM2bil worth of civil construction works in Doha, Qatar.

Leveraging on its solid track record in the Middle East, WCT could potentially clinch jobs worth RM1bil in Doha soon.

Locally, WCT has bid for RM3bil worth of jobs including a hospital in Sabah, construction of buildings in Putrajaya and civil works at Kwasa Damansara Land.

WCT hopes to bag RM1bil in local contracts in 2013 (year-to-date (YTD): RM577mil). The target foreign-local works proportion would be 50-50 (currently it’s 34-66).

WCT’s new property launches YTD in Klang Valley and Iskandar have achieved strong takeup rates of between 60% and 93%.

In view of the commendable response, particularly for properties in Iskandar, WCT plans to bring forward the maiden launch of its A60-Medini North at Iskandar to 2013.

This would increase the total gross development value of new property launches in 2013 to above RM1bil from the initial RM877mil, signifying upside to its previous 2013 internal property sales target of RM775mil.

WCT is looking to acquire more land bank in Iskandar in the near term.

We maintain our estimates for now. Being a laggard, WCT’s share price could play catch-up on the positive newsflow.

AIRASIA X

By RHB Research Institute

Buy (Initiation)

Target price: RM1.65

AirAsia X’s (AAX) strengths lie in two crucial elements: operating at the lowest possible unit cost, and churning up high passenger volume.

Being the only long-haul LCC operator in Malaysia, AAX has not only been able to take market share from the full service carriers, but also successfully stimulated passenger traffic in the routes it operates.

The airline has picked Bangkok as its new hub, in tandem with its vision to be a leading long haul LCC.

Together with other carriers in the AirAsia group, it is working towards building the world’s first multi-hub long-haul LCC network.

We foresee robust compound annual growth rate (CAGR) in earnings by 136% from financial year 2012 to financial year 2015, fuelled by rising passenger traffic as AAX expands its fleet, enhances yield, and launches new ancillary initiatives.

We value AAX at RM1.65 per share, based on an adjusted enterprise value per earnings before interest, tax, depreciation, ammortisation, and restructuring costs multiple of 8.5x for financial year 2014.

Its implied 12x price-earnings ratio of financial year 2014 – although at a 1% premium to its LCC peers – is justifiable given its low implied price to earnings to growth ratio (P/EG) of 0.5x (versus peers’ 0.8x), as reflected by the LCC’s strong 3-year profit CAGR of 136%.

We initiate coverage on AAX with a “buy”.

PETRONAS DAGANGAN

By CIMB Investment Bank

Outperform

Target price: RM30.50

WE maintain our forecasts pending the release the second-quarter results on Aug 21.

We continue to value the stock at 21.8 times price-earnings ratio for calendar year 2014 (21.8x 2014 P/E), a 40% premium over our target market P/E of 15.6x and still within the historical P/E range for oil and gas big caps. Swift expansion is a re-rating catalyst that supports our “outperform” call.

Malaysia Airports Holdings Bhd (MAHB) has released its second quarter results. In the first half of 2013, 19.7% more passengers disembarked at KL International Airport’s (KLIA) main terminal building year-on-year (yoy), far outpacing our previous full-year growth projection of 6.4%.

The robust growth was achieved amidst an influx of capacity from Malaysia Airlines (MAS) and new entrant Malindo.

MAS’ strategy to increase its Europe-bound capacity to better utilise its six A380s also led to higher transit traffic, which made up 29% of total traffic at the main terminal building.

With 18% yoy growth in sales volume, the commercial business was Petronas Dagangan’s (PetDag) star performer in first quarter of 2013, thanks to higher demand for jet fuel.

If MAHB’s first quarter results are any indication, PetDag’s commercial segment remained a key growth driver in the second quarter.

We understand that PetDag now controls around 70% of Malaysia’s jet fuel market, up from 63% as at March 2007, with its main customer being MAS.

PetDag provides refuelling services to MAS, not just at the KLIA, but also at Heathrow and Hong Kong airports. PetDag has also installed a new fuel hydrant system at KLIA2.

Stay invested as PetDag offers both growth and dividends.



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