MARKET DEVELOPMENT
Oriental No Longer A Value Proposition?
Oriental No Longer A Value Proposition?
31/05/2013 (The Star) - Investing in Oriental Holdings Bhd is no longer as compelling due to the stock's rich valuations in a backdrop of falling Honda sales and lower crude palm oil (CPO) prices.
Although first quarter core earnings-per-share (EPS) was up 3% year-on-year and accounted for 17% of CIMB Investment Bank Bhd's full-year forecast, the results were below expectations despite the probability of a better second-half given a weaker yen.
The investment bank's analyst Lucius Chong has downgraded the stock to “underperform” from “outperform” with the de-rating catalysts being the drop in the Honda sales market share and pricey valuations.
“We also cut our target price, still based on a 20% discount to RNAV (revised net asset value) following changes to our plantation and auto valuations,” he said. Chong advises a switch to Tan Chong Motor Holdings Bhd for a better play on the yen.
“Oriental's stock has risen 54% since we initiated coverage in July 2012. It has outperformed the market by 45% during this period. It is no longer a value play and is trading above our target price, where the 20% discount to RNAV factors in its low return on equity (ROEs),” he said in a report.
Chong has cut financial year ending December 31, 2013 (FY13) to FY15 EPS by 13% to 18% on lower average CPO prices and a drop in the company's Honda car sales market share to 10% from 15%.
He added that the much lower average CPO price achieved of RM2,000 per tonne in the first quarter compared with RM2,500 a year ago resulted in a 16% fall in plantation profit before tax (PBT) to RM45mil.
Plantations remain the biggest contributor to the company at 40% of PBT. “Our updated CPO price assumptions of RM2,530 for 2013, RM2,700 for 2014 and RM2,800 for 2015 are the main factors behind our lower EPS forecasts,” Chong said.
“Earnings will remain lacklustre until there is mergers and acquisitions to extend its focus in the plantations division but guidance on this front is to target unplanted land, which means no earnings catalysts in the foreseeable future,” he said.
Besides car sales and lower average CPO prices, the plastics business has also been a drag on the company's earnings. Chong said a turnaround would not expected to happen in the near future given the implementation of minimum wages while the industry remained extremely competitive besides being a legacy business for the company.
“The hotels division was the only bright spark in the results, recording a PBT of RM10mil, up 37% year-on-year and 21% quarter-on-quarter but mainly on favourable currency movements in its overseas operations,” he said.
Oriental closed 10 sen lower at RM10.22.
Although first quarter core earnings-per-share (EPS) was up 3% year-on-year and accounted for 17% of CIMB Investment Bank Bhd's full-year forecast, the results were below expectations despite the probability of a better second-half given a weaker yen.
The investment bank's analyst Lucius Chong has downgraded the stock to “underperform” from “outperform” with the de-rating catalysts being the drop in the Honda sales market share and pricey valuations.
“We also cut our target price, still based on a 20% discount to RNAV (revised net asset value) following changes to our plantation and auto valuations,” he said. Chong advises a switch to Tan Chong Motor Holdings Bhd for a better play on the yen.
“Oriental's stock has risen 54% since we initiated coverage in July 2012. It has outperformed the market by 45% during this period. It is no longer a value play and is trading above our target price, where the 20% discount to RNAV factors in its low return on equity (ROEs),” he said in a report.
Chong has cut financial year ending December 31, 2013 (FY13) to FY15 EPS by 13% to 18% on lower average CPO prices and a drop in the company's Honda car sales market share to 10% from 15%.
He added that the much lower average CPO price achieved of RM2,000 per tonne in the first quarter compared with RM2,500 a year ago resulted in a 16% fall in plantation profit before tax (PBT) to RM45mil.
Plantations remain the biggest contributor to the company at 40% of PBT. “Our updated CPO price assumptions of RM2,530 for 2013, RM2,700 for 2014 and RM2,800 for 2015 are the main factors behind our lower EPS forecasts,” Chong said.
“Earnings will remain lacklustre until there is mergers and acquisitions to extend its focus in the plantations division but guidance on this front is to target unplanted land, which means no earnings catalysts in the foreseeable future,” he said.
Besides car sales and lower average CPO prices, the plastics business has also been a drag on the company's earnings. Chong said a turnaround would not expected to happen in the near future given the implementation of minimum wages while the industry remained extremely competitive besides being a legacy business for the company.
“The hotels division was the only bright spark in the results, recording a PBT of RM10mil, up 37% year-on-year and 21% quarter-on-quarter but mainly on favourable currency movements in its overseas operations,” he said.
Oriental closed 10 sen lower at RM10.22.