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TA Ent 20090929 Initiate

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					Company Focus TA Enterprise
Bloomberg: TAE MK EQUITY

|

Reuters: TAES.KL

Malaysia Equity Research PP 11272/04/2010(023521)

29 Sep 2009

BUY RM1.39 KLCI : 1,205.95
(Initiating Coverage) Price Target : 12-Month RM 2.10 Reason for Report : Initiate Coverage Potential Catalyst : Recovery in stock market and listing of TA Global Analyst Chong Tjen-San, CFA +603 2711 2222 general@hwangdbsvickers.com.my Malaysia Research Team general@hwangdbsvickers.com.my

A balance of ‘yin’ and ‘yang’
• • • Opportunity to own 5th largest market cap property stock with prime KLCC landbank Strong proxy to recovery in market volume Initiate with Buy with SOP derived PT of RM2.10

Price Relative
RM 2.30 2.10 1.90 1.70 1.50 1.30 1.10 0.90 0.70 0.50 2005 2006 2007 2008 Relative Index 233 213 193 173 153 133 113 93 73 2009

TAE is an established player in the stockbroking industry. It also had the foresight to venture into property with its opportunistic landbanking and hotel purchases but stockbroking remains the core earnings driver contributing 60% of EBIT for FY10F. It is set to capitalize on future launches of RM6bn in GDV from its extremely prime land bank of 58 acres. Of which, 6.7 acres is in the KLCC vicinity with a potential GDV of RM2.6bn. The group also has an impressive portfolio of hotels including the Radisson Plaza, Westin Melbourne, Aava Whistler and Swissotel. Buy; Target Price RM2.10. Our target price is derived using sumof-parts valuation on an ex-basis, based on 13x FY11-12F EPS for the broking business and revaluing its 55% stake in TA Global’s property assets at current market value.

TA Enterprise (LHS)

Relative KLCI INDEX (RHS)

Forecasts and Valuation
FY Jan (RM m) 2009A 2010F 2011F 2012F

Turnover EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (sen) EPS Pre Ex. (sen) EPS Gth Pre Ex (%) Diluted EPS (sen) Net DPS (sen) BV Per Share (sen) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Consensus EPS (sen):

535 167 134 92 92 6.4 6.4 (59) 6.4 3.4 144.7 21.6 21.6 16.8 8.0 2.4 1.0 CASH 4.4

450 176 145 107 107 7.5 7.5 16 7.5 3.7 148.8 18.6 18.6 14.9 9.4 2.7 0.9 CASH 5.1 N/A

742 264 220 124 124 8.7 8.7 16 8.7 4.3 153.7 16.0 16.0 12.7 8.6 3.1 0.9 0.1 5.7 N/A

1,100 360 299 153 153 10.7 10.7 24 10.7 5.4 160.1 13.0 13.0 10.8 6.0 3.9 0.9 0.0 6.8 N/A

Key catalyst - Listing of TA Global is scheduled in Nov-09 and involves the spinoff of TAE’s property business in totality. As there will be no public issue, investors wanting exposure to one of the largest land owners in KLCC can only gain access via TAE. This will be done via a dividend-in-specie where investors holding 5 TAE shares will receive 3 TA Global shares and 3 ICPS. We do not discount the potential for special dividends for TAE shareholders with the expected cash received from the listing exercise. Capitalizing on recovery in trading volumes. We view TAE as a better alternative to Bursa Malaysia to ride the recovery in trading volumes given the latter’s richer valuations. Given TAE’s strong retail base, it has managed to raise its market share of the stockbroking business to 6.4% for YTD Aug 2009 vs 3.9% in 2008. With the recovery in the economy, we expect volumes to average c.1bn per day from 1Q09’s 406m.
At A Glance Issued Capital (m shrs) Mkt. Cap (RMm/US$m) Major Shareholders Tiah Tee Kian (%) Fleet Investments Mgt (%) Deroy Investments Holdings Free Float (%) Avg. Daily Vol.(‘000)

ICB Industry : Financials ICB Sector: Stocking and Property General Financial Principal Business: Principally involved in stockbroking, money lending, fund management, property development, property investment and hotel operations.

1,712 2,380 / 686 33.7 4.7 4.0 66.3 6,485

Source of all data: Company, DBS Vickers, Bloomberg

Refer to important disclosures at the end of this report

HWANGDBS

Company Focus TA Enterprise

The Business Model Company Background. TA Enterprise Berhad (TAE) is an investment holding company incorporated on 13 March 1990 and listed on the Bursa Malaysia since 23 November 1990. TAE Group is largely involved in stockbroking, property development, property investment and operation of hotels. A balance of ‘yin’ and ‘yang’. With exposure to both stockbroking and the broader property sector, we think TAE exudes characteristics of having an ideal balance of ‘yin’ and yang’. Under financial services, the Group has business interests in stock broking, share financing, ESOS financing, fund management, derivatives trading, unit trust fund management. Meanwhile, the property business includes hotel operations, property development, construction, property management and investments in over 5 countries namely Malaysia, Singapore, Australia, Canada and China. Revenue Breakdown By Segment
100% 80% 60% 40% 20% 0% 2006A
Broking Hotel Operations

(iv) Proposed Dividend-in-Specie by TAE of up to 1,140.6m TA Global shares and 1,140.6m ICPS to TAE shareholders, on the basis of 3 ordinary shares and 3 ICPS for every 5 existing TAE shares held; and (v) Proposed Offer for sale by TAE of up to 460m TA Global shares at indicative price of RM0.50 each to TAE’s Bumiputera shareholders and, eligible directors and employees. In total, TA Global will issue up to 4.8b shares of RM0.50 each, which consist of 3.6b ordinary shares and 1.2b ICPS. The whole exercise, together with the listing of TA Global in the Main Market of Bursa is expected to conclude by Nov-09. How does an investor gain exposure to TA Global? The listing exercise will not involve any public issue of shares while the offer for sale is only for bumiputera shareholders. Hence, investors wanting exposure to TA Global can only gain entry by purchasing TAE shares and receiving the dividend-in-specie on the basis of 3 ordinary shares and 3 ICPS for every 5 existing TAE shares held. Hence, the market cap of TA Global at its listing price of RM0.50 will be RM2.4bn. This will make it the 5th largest property stock listed on Bursa. Assuming all the bumiputera investors subscribe to the offer for sale, TAE will end up with an estimated 55% stake in TA Global. Ranking by market capitalisation
Market Capitalisation (RMb)

2% 21% 34% 13% 30%

3% 21% 27% 12% 38%

5% 15% 24% 8% 48%

5% 14%

6% 29% 9% 10% 47%

4% 33% 24% 7%

54%

8% 19%

33% 2011F

2007A

2008A

2009A

2010F

Property Investment Others

Property Development

Source: Company, DBS Vickers

Listing of TA Global TAE is reorganising its group structure and is looking to realise the deep embedded value of its property business via a listing exercise. Broadly, this listing exercise encompasses: (i) Proposed Acquisitions by TA Global of all TAE’s assets under property investment, property development and hotel operations, via TA Global issuing 2,290m ordinary shares and 1,215m Irredeemable Convertible Preference Shares (ICPS) of RM0.50 each to TAE; (ii) Proposed Rights Issue by TA Global of 270m ordinary shares at issue price of RM0.50 each, on the basis of 1 new share for every 8.48 existing shares; (iii) Proposed Capitalisation by TA Global of the outstanding amount owing to TAE of RM520m, via the issuance of 1,040m ordinary shares of RM0.50 each to TAE;

1 2 3 4 5 6 7

SP Setia UEM Land KLCC Property IGB Corporation TA Global IJM Land Sunway City

4.18 3.81 3.29 2.64 2.41 2.37 1.47

Source: Bloomberg

Page 2

HWANGDBS

Company Focus TA Enterprise

TA Global : Impact of the Proposed Corporate Exercise And Listing On Equity And Share Base.
RM mil Before Proposals As at FY09 (i) Proposed Acquisitions ^ (ii) Proposed Rights Issue ^ (iii) Proposed Capitalisation ^ (iv) Proposed Div In Specie * Proposed Offer For sale * Proforma After Proposals (i)+(ii)+(iii)+(iv)

Total Assets Total Liabilities

0 (2) (2)

1,753 1,753 1,753 1,753 2,290 1,215 3,505

135 135 135 135 270 270

520 520 520 520 1,040 1,040

-

-

1,888 518 2,406 2,408 (2) 2,406 3,600 1,215 4,815 0.50

Share Capital Reserves Total Equity Ordinary shares (mil) ICPS (mil) Total shares (mil) BVPS (RM) Shareholder - TAE Shareholders - Others

0 (2) (2) 0 0

100% -

98% 2%

98% 2%

99% 1%

64% 36%

55% 45%

* No effects on TA Global’s proforma financials. The Proposed Dividend-in-Specie and Offer for Sale essentially dilute TAE’s stake in TA Global. Source: Company, Bursa Announcement, DBS Vickers. ^ refers to corporate exercise as detailed in previous page.

HWANGDBS

Page 3

Company Focus TA Enterprise

Stock broking Trading volume on a recovery path. The equity market has gradually shown signs of recovery underpinned by improving investor’s sentiment and ample liquidity in the system. In our view, 2Q08 was the trough. 2Q09 average daily trading volume and value on Bursa Malaysia soared to 1.63bn (1Q09: 0.41bn) and RM1.49bn (1Q09: RM0.62bn), respectively. For the rest of 2009, we assume that the daily trading volume and value will be sustainable at approximately 1b shares and RM1b, respectively. TAE’s trading volume and value grew strongly in 2Q09 in tandem with the run up in the equity market, and correspondingly broking income improved significantly. TAE : Average Daily Trading Value and Volume
mil 400 300 200 100 0 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 Av erage daily v alue Av erage daily v olume

Market share of 6.4% YTD up from 3.9% in 2008. Following the robust trading activities, TAE’s market share grew to 6.4% as at Aug-09 from 3.9% in 2008. In terms of brokers’ ranking, TAE sits at the sixth position as at Aug-09, a vast advancement from the12th spot held in 2008. It has strong retail base where commissions are generally higher than institutional commissions. Brokers Ranking By Trading Value (YTD Aug 2009)
Market Share Brokers Ranking YTD 2009 Market Share 2008 Market Share 2007

CIMB HwangDBS AmInvest OSK Kenanga TA Maybank Others

9.5% 8.9% 7.9% 7.3% 6.5% 6.4% 6.0% 47.6% 100.0%

11.4% 9.4% 8.0% 5.4% 6.8% 3.9% 4.6% 50.5% 100.0%

10.1% 10.9% 8.0% 7.0% 7.5% 5.0% 3.9% 47.6% 100.0%

Source: Bursa Malaysia, DBS Vickers

Source: Bursa Malaysia, DBS Vickers

Stock broking : Revenue and EBIT Trend
RMm 300 250 200 150 100 50 0 2006A 2007A
Broking Revenue

80% 60% 45% 47% 39% 39% 60% 42% 40% 20% 0% 2008A 2009A
Broking EBIT

2010F

2011F
EBIT Margin

Source: Company, DBS Vickers

TAE : Key Assumptions for Broking Revenue and EBIT
Bursa Trd Value RMm TAE Market Share % TAE Trd value RMm Rev/ Val % Revenue RMm EBIT RMm EBIT Margin %

FY08 (A) FY09 (A) FY10(F) FY11(F) FY12(F)

1,172,723 549,121 937,531 1,046,087 1,152,146

5 4 5 5 5

57,009 21,540 45,939 52,304 57,607

0.46 0.47 0.46 0.46 0.46

259.97 101.06 212.51 241.95 266.48

156.457 39.243 82.88 101.62 114.59

60 39 39 42 43

Source: Company, Bursa Malaysia, DBS Vickers

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HWANGDBS

Company Focus TA Enterprise

Property Development Sizeable land bank - includes 6.7 acres within KLCC. TAE owns about 6.7 acres of prime land within KLCC, on top of the 236 acres land held for development. Based on conservative assumptions of a plot ratio of 10x, ASP of RM1,100 psf, the 6.7 acres in KLCC will have a GDV of RM2.6bn. GDV of RM6b to be launched from now till 2012. TAE is planning to launch commercial and residential projects with estimated total GDV of RM6b in KLCC, Bukit Bintang and Bandar Sri Damansara. The more visible upcoming developments include residential development in Dutamas and U-Thant, and the first phase of a mixed development in the mature township Bandar Sri Damansara. An already established brandname. TAE’s Damansara Idaman- a gated and guarded residential enclave comprising 136 units of bungalows, has won the CNBC Asia Pacific TAE : List of current and future development
Description

Property Awards 2008 for best development. A more recent launch under Damansara Idaman is the 27 bungalow units called Amania. TAE’s other developments - Idaman Villas and Idaman Residence have done well with take-up rates of 70% and 92%, respectively. Property Development : Revenue and EBIT Trend
RMm 300 250 200 150 100 50 0 2006A 2007A 2008A 2009A 2010F 2011F
EBIT Margin

51% 41% 33%

57%

60% 40% 25% 25% 20% 0%

Property Development Revenue

Property Development EBIT

Source: Company, DBS Vickers

GDV (RMm)

Land Area (acres)

Launch Date

Units

Take-up rates

Current Development Damansara Idaman (Note 1) Idaman Villas Idaman Residence Future Development Sri Damansara (Sri Suria) Bukit Bintang (Nova Sq) KLCC area (TA3 & TA4) Dutamas U Thant Others Mixed Development Mixed Development Mixed Development Residential Residential 3,000 1,300 1,200 300 110 n.a. 5,910 48.1 3.0 2.3 3.0 1.4 184.8 242.6 1Q2010 2012 2011 2010 2010 n.a. Bungalows - Amania Phase Semi-detached houses 34-storey condominium 122 135 500 757 45.0 7.0 1.5 53.5 Nov-08 Feb-07 Dec-05 27 54 250 50% 70% 92%

Note 1: Total land area for development is 45 acres, which comprised of 136 units, of which 109 units were sold. The remaining 27 units are the recently launched Amania Phase. Source: Company, DBS Vickers.

TAE : Property land bank – held for future development
Landbank Status Date acquired Area (acre)

Sri Damansara (Sri Suria) Bukit Bintang (Nova Sq) KLCC area (TA3 & TA4) Dutamas U-Thant Mukim of Kluang Bandar Serendah Others

Freehold - commercial Freehold - commercial Freehold - commercial & residential Freehold - agricultural Freehold Freehold - mixed development Freehold - commercial Freehold

Jul-05 Sep-05 Jul-91, Dec-95 & Oct-04 Oct-94 & Feb-05 Aug-07 & Jun-08 Nov-94

48.1 3.0 2.3 3.0 1.4 95.2 78.7 10.9 242.6

Book Value (RMm)

Cost (RM/sf)

199.0 64.7 2.7 34.2 7.5 44.9 34.4

95.0 657.4 654.6 20.5 565.3 1.8 13.1

85.4

See Note 2

472.8

Note 2 : S&P was entered into in May 2009 by TA First Credit Sdn Bhd, a wholly-owned subsidiary of TA Properties Sdn Bhd, which in turn is a wholly-owned subsidiary of TA Enterprise. Expect to complete the acquisition by Jan 2010. Source: Company, DBS Vickers.

HWANGDBS

Page 5

Company Focus TA Enterprise

Property Investments and Hotel Operations Stable source of income. The property investments provide a stable source of income to the Group, in contrast to the more cyclical contribution from stock broking and property development. Currently, the Group owns and manages two office towers, Menara TA One and Teresan Center – both are located at the prime business district in Kuala Lumpur and Vancouver. The average occupancy rate for both buildings is consistently above 98%. Upside in rental rates for Menara TA One. TAE is planning to spend RM20m to refurbish its 34-storey corporate office. In addition, the group plans to relocate some of its support divisions out from Menara TA One to raise the available NLA for rental. With the facelift, Menara TA One is expected to raise its rental rates to RM6.00 psf from the current RM4.50 psf. This is more in line with rental rates within the KLCC vicinity. Property Investments : Revenue and EBIT Trend
RMm 60 50 40 30 20 10 0 2006A 2007A 2008A 2009A 2010F 2011F
EBIT Margin

Respectable hotel portfolio. The Radisson Plaza has won several industry accolades in 2008 for its service excellence, and contributes about 10% of Group revenue. Tapping on its experience in the hotel industry, TAE has been growing its hotel portfolio internationally. Recently, TAE sealed the acquisition of Swissotel, Singapore for SGD260m (or RM636m). Just a few months before, TAE acquired Westin Hotel, Melbourne for AUD160m (or RM375m) and Aava Whistler Hotel, Vancouver for CAD33m (or RM107m). Aava Whistler is currently undergoing renovation and is scheduled for reopening in Nov 2009, in time for the Winter Olympics in Feb 2010. These newly acquired hotels are expected to further enhance TAE’s hospitality operations in major cities around the world and triple the Group’s hotel revenue in 2011. Hotel Operations : Revenue and EBIT Trend
RMm 250 200 40% 30% 26% 22% 12% 50 0 20% 20% 23% 20% 10% 0% 2006A 2007A 2008A 2009A
Hotel EBIT

57% 46%

60% 52% 36% 40% 42% 40%

150 100

20%

2010F

2011F
EBIT Margin

Hotel Revenue

0%

* F Y2010 introducing 9 mths revenue contribution from Westin Melbourne and 2 mths rev enue contribution from Aav a Whistler. ^ FY 2011 introducing 12 mths rev enue contribution from Swissotel.

Property Investment Revenue

Property Investment EBIT

Source: Company, DBS Vickers

Source: Company, DBS Vickers

List of Property Investments
Location Equity Interest

Menara TA 1 Teresan Center

Kuala Lumpur Vancouver

100% 100%

NBV as at 31 Jan-09 (RMm)

NLA (Sq)

Occupancy rate

180.5

373,741 349,390

98% 98%

Blended rental rates (psf)

RM4.50/sf

180.3

CAD20.00/sf

Source: Company, DBS Vickers

List of Hotels
Location

Radisson Plaza Westin Aava Whistler Swissotel

Sydney Melbourne Canada Singapore

Equity interest

100%

AUD115m CAD33m

Acquisition costs

Acquisition costs (RMm)

233

Completion Date

No. of rooms

Occupancy rate

Dec-97

363 262 180 476

83% 82% 75% 78%

100% 100% 100%

AUD160m SGD260m

389 107 635

Apr-09 Sept-08 Jan-10

Source: Company, DBS Vickers

Page 6

HWANGDBS

Company Focus TA Enterprise

Growth Prospects Stock broking still the key earnings driver; attractive valuation relative to Bursa. In our opinion, TAE with a market share of 6.4% is a better proxy to Bursa Malaysia (FV, TP RM6.05) following the recovery in the stock market. Bursa’s valuations remain stretched trading at PE and PBV of 32x and 5x FY09F, respectively. On the other hand, TAE is priced at a multiple of 16x PE and 0.9x PBV, premised on its current share price of RM1.39. Given TAE’s strong presence in the stock broking industry, we believe that the stock would be a cheaper proxy to Bursa, riding on the recovery in trading volumes. TAE’s PBV vs Bursa’s Daily Trading Value
RM 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 97 98 99 00 01 P/BV 02 03 04 05 06 07 08 09 1,000 4,000 3,000 2,000 mil 6,000 5,000

Unlocking value of property business via the listing of TA Global. With already an established brandname in the property market, TAE is poised to further entrench its presence in the property market. It is set to launch projects worth RM6b in GDV from now to 2012. The Group is expanding its hotel operations on the international front and runs a prestigious office building in Vancouver and Kuala Lumpur. Hence, we believe that the value of its existing property business is currently under appreciated. As part of the restructuring and listing exercise, TAE’s shareholders will be paid a dividend-in-specie, in the form of TA Global shares. With the bulk of its prime land bank to be launched only upon the listing of TA Global, we believe TA Global’s earnings are set for an upswing. Hence, there will likely be potential appreciation in TA Global shares. Our current earnings forecasts assume TA Global is a 55% subsidiary of TAE.

Daily Trading V alue in Bursa

Source: Bursa Malaysia, DBS Vickers

HWANGDBS

Page 7

Company Focus TA Enterprise

Segmental Analysis Segmental contributions. In terms of top line contribution, stock broking and property development would still be the key drivers, followed by hotel operations. Meanwhile, property investments provide a steady stream of income and cashflows. In terms of earnings contribution, broking income remains the most prominent. We foresee property development to play a bigger role in the longer term, given the anticipated GDV of RM6b. Key Assumptions used in forecasts: Broking. Malaysia daily trading volume and value is sustainable at approximately 1b shares and RM1b, respectively. We have also assumed that TAE will maintain a market share of 5% in the near to medium term. Property Investment. Average occupancy rates in Menara TA One and Teresan is above 98% and rental yield of at least 5% is imputed in our forecasts. Property Development. We have assumed property sale launches of RM1.2b for both FY11F and FY12F coming from largely projects such as Sri Suria, Dutamas, U-Thant and Menara TA 3 & TA4. The timing of these projects is still fluid depending on the listing date of TA Global, market sentiment Segmental Analysis
FY Jan 2007A

and other operational issues such as infrastructure for these projects. We have conservatively assumed EBIT margins of 25% for the new launches. Hotel Operations. We maintain the average occupancy rates close to 80% for the hotels. Risks to forecasts: Broking. A slower than expected recovery in the stock market could derail our volume and value assumptions. Property Investment. The unexpected termination of key tenants could reduce our rental yields assumptions. Property Development. Delay in the launch of pipeline projects. Slower than expected revival of the economy could weaken investor sentiment and demand. Hotel Operations. Unexpected global widespread of diseases, terror attacks or prolonged economic recession could dampen travelling and hurt occupancy rates.

2008A

2009A

2010F

2011F

2012F

Revenues (RM m) Broking Property Investment Property Development Hotel Operations Others Total EBIT (RM m) Broking Property Investment Property Development Hotel Operations Others Total EBIT Margins (%) Broking Property Investment Property Development Hotel Operations Others Total

134 41 95 73 11 355 63 23 39 16 25 167 47.0 56.8 40.9 21.8 n.m 47.0

261 46 133 82 25 547 156 24 68 21 32 301 60.0 52.4 50.9 25.6 n.m 55.1

102 42 291 77 25 535 39 15 165 16 (82) 153 38.5 36.1 56.8 20.4 n.m 28.6

213 43 39 130 26 450 83 17 10 26 3 138 39.0 40.0 25.0 20.0 10.0 30.7

242 48 182 242 27 742 102 20 45 56 3 226 42.0 42.0 25.0 23.0 10.0 30.4

266 50 507 247 29 1,100 115 23 127 62 3 329 43.0 45.0 25.0 25.0 10.0 29.9

Source: Company, DBS Vickers

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HWANGDBS

Company Focus TA Enterprise

Quarterly / Interim Performance 1Q10 returned to profit. Earnings contracted y-o-y in almost all business segments but the declines were set off by some RM6m forex gains at the investment holding level. The weak y-o-y performance was mainly due to the overall lacklustre stock market activities and subdued property market. On quarterly basis, stock broking, property investments and hotel operations fared better q-o-q on the back of higher revenue and improved margins, coupled with the absence of provision of doubtful debts of RM51m which was booked in 4Q08. Meanwhile, 2Q10 net profit grew 5% q-o-q on the back of

70% q-o-q growth in revenue, driven by stockbroking and property investment income. Stronger quarterly performances ahead. We are anticipating better performances in the coming quarters following the recovery in the stock market from the previous lows and, the return of consumers’ confidence and spending in the property market. In addition, revenue from hotel operations is expected to grow exponentially in the next two years with the addition of Westin Melbourne, Aava Whistler and Swissotel in the portfolio.

Quarterly / Interim Income Statement (RM m)
FY Jan 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010

Revenue Cost of Goods Sold Gross Profit Other Oper. (Exp)/Inc Operating Profit Other Non Oper. (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Net Profit Net profit bef Except. Revenue By Segment Broking Property Investment Property Development Hotel Operations Others

148 0 148 (51) 97 0 0 (3) 0 94 (23) (0) 71 71

126 0 126 (81) 45 0 (0) (2) 0 43 (3) (0) 40 40

116 0 116 (76) 40 0 0 (2) 0 38 (9) (0) 29 29

167 0 167 (100) 66 0 0 (1) 0 65 (15) 0 50 50

142 0 142 (89) 53 0 0 (1) 0 51 (13) 0 38 38

112 0 112 (130) (18) 0 0 (1) 0 (20) (6) 0 (26) (26)

72 0 72 (30) 42 0 0 (2) 0 39 (9) 0 30 30

123 0 123 (77) 46 0 0 (4) 0 42 (11) 0 32 32

65 12 37 23 11 148

49 11 40 21 6 126

34 10 46 22 4 116

26 14 100 21 5 167

22 14 83 18 4 142

19 5 65 15 9 112

23 11 18 18 1 72

42 15 26 35 4 123

EBIT By Segment Broking Property Investment Property Development Hotel Operations Others

39 6 20 7 25 97 6.7 25.0 26.2 65.6 48.3

25 6 23 5 (14) 45 (14.4) (53.5) (44.0) 35.7 31.7

16 3 20 6 (5) 40 (7.9) (11.0) (28.2) 34.5 24.7

9 4 57 5 (9) 66 43.3 65.5 72.5 39.8 29.7

7 6 48 4 (12) 53 (15.0) (20.6) (22.9) 37.2 27.0

5 2 36 2 (63) (18) (20.8) (134.3) (166.8) (16.1) (22.8)

13 4 12 3 11 42 (35.8) (331.1) (219.2) 58.0 42.3

24 5 11 2 5 46 70.2 10.1 4.9 37.6 26.1

Sales Gth (%) Operating Profit Gth (%) Net Profit Gth (%) Operating Margins (%) Net Profit Margins (%)

Source: Company, DBS Vickers

HWANGDBS

Page 9

Company Focus TA Enterprise

Financials – Income Statement Robust top line growth (3-year CAGR of 27% from FY09A to FY12F) Revenue in FY09A contracted 2% y-o-y largely due to broking income which plunged 61% y-o-y. This was offset by revenue from property development which doubled y-o-y due to the strong take-ups for Idaman Villas and Idaman Residence. We anticipate revenue in FY10F to contract 16% y-o-y due to the no new property launches in FY10F. An apparent recovery would be reflected in FY11-12F with top line growing 48-65% driven by a more robust equity market,

new property launches and the expansion of the Group’s hotel operations. Net earnings’ expected to register 3-year CAGR of 18% from FY09A to FY12F. Net profit in FY09A slumped 59% y-o-y as revenue fell and operating margin narrowed. Following our revenue growth assumptions in broking, property and hotel operations, we expect FY10-12F net earnings to grow by 1624%.

Sales Trend
RM m

Operating Cost Trend
800
62.6% 52.6% 42.6% 32.6% 22.6% 12.6% 2.6% -7.4% -17.4%

Profitability Trend
58% 38% 150 100 50 0 18% (02%) (22%) (42%) (62%) 2008A 2009A 2010F 2011F 2012F Net Profit (After-extraordinaries) Net Profit Growth (%) (YoY)

1,000 800 600 400 200 0 2008A 2009A 2010F 2011F 2012F
Total Revenue Revenue Growth (%) (YoY)

700 600 500 400 300 200 100 0 2008A 2009A 2010F 2011F 2012F
Other Operating Expenses (-) Cost of Goods Sold (-)

200

FY Jan (RM m)

2007A

2008A

2009A

2010F

2011F

2012F

Turnover Cost of Goods Sold Gross Profit Other Opg (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net profit before Except. EBITDA Sales Gth (%) EBITDA Gth (%) Operating Profit Gth (%) Net Profit Gth (%) Opg Margins (%) Net Profit Margins (%) % of Opg Expenses to Sales Effective Tax Rate (%)

355 0 355 (246) 108 44 0 (9) 0 143 (9) (1) 0 133 133 180 13.4 35.6 146.2 65.6 30.5 37.5 69.5 6.6

547 0 547 (312) 202 94 0 (9) 0 287 (62) (1) 0 224 224 323 54.2 79.7 87.1 68.5 37.0 41.0 63.0 21.5

535 0 535 (433) 103 38 0 (6) 0 134 (42) 0 0 92 92 167 (2.1) (48.5) (49.2) (59.0) 19.2 17.2 80.8 31.4

450 0 450 (312) 138 12 0 (6) 0 145 (36) (1) 0 107 107 176 (15.9) 5.9 34.7 16.3 30.7 23.7 69.3 25.0

742 0 742 (516) 226 6 0 (12) 0 220 (55) (41) 0 124 124 264 64.6 49.6 63.0 15.7 30.4 16.7 69.6 25.0

1,100 0 1,100 (771) 329 0 0 (30) 0 299 (75) (71) 0 153 153 359.8 48.3 36.4 45.6 23.5 29.9 13.9 70.1 25.0

Source: Company, DBS Vickers

Page 10

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Company Focus TA Enterprise

Financials – Balance Sheet Net Cash Position. The Group’s stable net cash position is largely supported by its highly cash generative stock broking business and the stable revenue source from investment property. Nevertheless, we foresee that the position of net cash would be reversed to net debt in FY11F as a result of the
Breakdown of Assets (2010)
Debtors 37.7%

hotels and land bank acquisitions made recently. The acquisitions of Westin Melbourne (AUD160m) and Swissotel (SGD260m) are part financed with bank term loans of AUD46m and SGD150m, respectively. As such, FY11F is expected to register net gearing of 0.1x.

Breakdown of Capital (2010)

Financial Leverage & Net Debt to Equity
230 1.8 1.6 1.4 1.2 190 170 1.0 0.8 0.6 0.4 0.2 130 2008A 2009A 2010F 2011F 2012F 0.0

ST Debt LT Debt 0.3% 5.0% Net Fixed Assets 44.7% Inventory 0.0% Bank, Cash and Liquid Assets 17.6%

210

Common Shareholder s' Equity 94.6%

150

Net Debt/(Cash) Financial Leverage (X) (R.H.S)

Net Debt to Equity (X) (R.H.S)

FY Jan (RM m)

2007A

2008A

2009A

2010F

2011F

2012F

Net Fixed Assets Invts in Assocs & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholder’s Equity Minority Interests Total Cap. & Liab. Total Debt Net Cash / (Debt) Coverage Ratios (x) Net Interest Cover Free Cashflow to interest Exp Leverage Analysis (x) EBITDA Gross Interest Cover Total Debt to EBITDA Total Debt to Total Assets Total Debt to Capital Net Debt to Equity Net Debt to Equity ex MI Capex to Debt Liquidity Analysis (x) Cash Ratio Current Ratio Quick Ratio

488 15 622 422 1 1,144 241 2,933 22 895 125 20 1,863 8 2,933 147.1 275 11.8 nm 19.6 0.8 0.1 0.1 CASH (0.1) 0.1 0.5 2.0 1.7

483 15 675 781 1 861 272 3,087 8 786 129 21 2,134 9 3,087 137.1 644 21.7 16.5 34.8 0.4 0.0 0.1 CASH (0.3) 0.1 1.0 2.4 2.1

546 15 636 770 0 482 220 2,669 7 461 109 17 2,065 9 2,669 117.0 653 16.7 11.3 27.0 0.7 0.0 0.1 CASH (0.3) 1.1 1.6 3.1 2.7

526 15 1,135 580 0 444 220 2,919 7 521 239 17 2,124 11 2,919 246.5 333 23.7 nm 30.2 1.4 0.1 0.1 CASH (0.2) 2.0 1.1 2.4 1.9

531.2 15 1,770 378 1 730 220 3,644 7 782 591 17 2,194 52 3,644 599.0 (221) 18.3 nm 21.4 2.3 0.2 0.3 0.1 0.1 1.1 0.5 1.7 1.4

511 15 1,758 537 1 1,083 220 4,125 7 1,101 591 17 2,285 123 4,125 599.0 (62) 11.0 5.3 12.0 1.7 0.1 0.2 0.0 0.0 0.0 0.5 1.7 1.5

Source: Company, DBS Vickers

HWANGDBS

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Company Focus TA Enterprise

Financials – Cash Flow Hotels buying spree strained cashflow? The recent acquisitions of Westin (AUD160m), Aava Whistler (CAD33m), Swissotel (SGD260m) and a piece of land held for development in Bukit Beruntung (RM45m) are part financed

via internal funds. This inevitably put a strain on the Group’s cashflow. However, a good mix of financing between internal and external funds, coupled with the prospective earnings and cashflows generated from the investments would ultimately reap a higher return on equity for the Group.

Cash Flow Trend
461 261 61 -139 -339 -539 -739 2008A CF from Op 2009A 2010F 2011F CF from Fin 2012F
0.21 0.11 0.01 (0.09) (0.19) (0.29)

Free Cash Flow Per Share
250 200 150 100 50
(0.39) 2008A 2009A 2010F 2011F 2012F

Free Cash Flow As At Year End

CF from Invt

Free Cash Flow Per Share

Free Operating Cash Flow Per Share

2008A

2009A

2010F

2011F

2012F

FY Jan (RM m)

2007A

2008A

2009A

2010F

2011F

2012F

Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Net Cashflow Opg CFPS (sen) Free CFPS (sen)

143 28 (4) 0 0 (181) (14) (8) 0 0 0 (203) (211) (29) (5) 0 (8) (42) (267) (1.1) (1.7)

287 27 (72) 0 0 (6) 236 (9) 0 0 0 19 11 (74) (23) 98 (44) (42) 205 16.5 15.9

134 26 (34) 0 0 182 309 (133) 0 0 0 (38) (171) (107) (8) 0 (6) (121) 18 21.7 12.4

145 26 (13) 0 75 0 233 (505) 0 0 0 0 (505) (48) 130 0 0 81 (191) 11.0 (19.1)

220 32 (36) 0 (44) 0 171 (672) 0 0 0 0 (672) (53) 353 0 0 299 (202) 15.1 (35.1)

299 31 (55) 0 (54) 0 220 0 0 0 0 0 0 (62) 0 0 0 (62) 159 19.3 15.4

Source: Company, DBS Vickers

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Company Focus TA Enterprise

Financials Operating margins are sustainable above 30%. Despite the earnings volatility in most of its business segments (stock broking, property development and hotel operations), the Group was able to deliver healthy operating margins of between 19-37% in FY07-09. Thanks to the diversification in earnings portfolio, the Group was able to weather through the recent 2008 economic crisis and reported a
ROAE / ROAA Trend (%)
12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2008A 2009A 2010F 2011F 2012F Ret on Avg Equity (ROAE) % Ret on Avg Assets (ROAA) %

decent EBIT margin of 19% and net profit margin of 17%. Our FY10-12F net profit implies EBIT margin of 39-43% from stock broking, 40-45% from property investment, 25% from property development and 20-25% from hotel operations. All in, we are comfortable that an average EBIT margin of at least 30% is sustainable, going forward.

Margin Trend (%)
60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 2008A EBITDA Margin % 2009A 2010F 2011F 2012F EBIT Margin % Net Income Margin %
300 200 500 400 600

Total Debt & Gross Interest Cover
25.3x 23.3x 21.3x 19.3x 17.3x 15.3x 13.3x 100 0 2008A 2009A 2010F 2011F 2012F 11.3x 9.3x

Total Debt (+)

Gross Interest Cover (X) (YoY)

FY Jan

2007A

2008A

2009A

2010F

2011F

2012F

Profitability Ratios Sales Growth (%) Operating Margin (%) Net Profit Margin (%) Financial Leverage (x) Tax Retention Rate (%) Sustainable Growth (%) ROAE (%) ROA (%) ROCE (%) Activity Ratios Debtors Turn (average days) Creditors Turn (average days) Inventory Turn (average days) Total Asset Turnover (x) Fixed Asset Turnover (x) Asset Replacement Ratio (x)

13.4 30.5 37.5 1.6 93.4 3.3 7.3 5.0 5.0

54.2 37.0 41.0 1.4 78.5 5.9 11.2 7.4 7.3

(2.1) 19.2 17.2 1.3 68.6 2.1 4.4 3.2 3.1

(15.9) 30.7 23.7 1.4 75.0 2.6 5.1 3.8 4.5

64.6 30.4 16.7 1.6 75.0 2.9 5.7 3.8 6.4

48.3 29.9 13.9 1.7 75.0 3.4 6.8 3.9 8.4

937.6 n.m (6.7) 0.1 0.7 0.3

669.2 n.m (13.0) 0.2 1.1 0.3

457.6 n.m (12.8) 0.2 1.0 5.1

374.9 n.m (6.0) 0.2 0.8 19.4

288.8 n.m (5.9) 0.2 1.4 21.1

300.8 n.m (9.4) 0.3 2.1 0.0

Source: Company, DBS Vickers

HWANGDBS

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Company Focus TA Enterprise

Valuation Dividend Policy. TAE has been consistently rewarding its shareholders with dividend payout ratio of 36-55% in FY0509A. The Group’s dividend policy is to pay out 40-60% of its annual net profits to shareholders subject to the availability of cash reserves. Going forward, we assumed that the Group would maintain this dividend policy. There could be also upside in terms of special dividends from the anticipated RM230m cash received from the listing of TA Global. Buy; Target Price RM2.10. Our target price is derived using sum-of-parts valuation, based on 13x FY11-12F EPS for broking business and whilst revaluing TAE’s 55% stake in TA Global’s property assets at market value. Key assumptions to our sum-of-parts value Stockbroking We have valued its broking business using a PE of 13x. We think this is fair and is line with the average multiple it traded in 2007-2008 during the last upcycle. Property For its property business, we have marked-to-market its current outstanding land bank/assets to existing market values. In our view, this is conservative as it does not take into account the development potential of its highly realisable land bank, of which 7-acres is within the KLCC vicinity. Broadly our key assumptions are as follows:i) For its 2.3 acre land bank in KLCC (TA 3 & 4), we have valued it at RM2,300 psf. We think this is fair taking into the prime location of this land just adjacent to the Petronas Twin Towers with also a permanent unobstructed view. The value is still at a discount to Sunrise's purchase of the 1.56 acre v) For its hotel business, we have only assigned the purchase price paid by TA of its more recent hotel purchases of Westin Melbourne, Whistler Canada and Swissotel, Singapore. For Radisson Plaza, Sydney, we have pegged the market value to the more recent valuer's report. iii) For its 1.4 acre land bank along Jalan U-Thant, we have valued it at RM800 psf. The discount to the land prices above is consistent with the lower density and plot ratios assigned to this vicinity due to the presence of embassies. iv) For its property investment business, we have valued Menara TA1 at RM1,000 psf translating into an implied cap rate of 6.6% based on the anticipated increase in rental rates post the refurbishment. This is at a discount to Menara Maxis (RM1,230 psf), Menara Exxon Mobil (RM1,100 psf), Glomac Tower (RM1,150 psf) and Menara YNH (RM1,250 psf which is still awaiting signing of S&P agreement). The capital value of Terasen Centre of RM 1,630 psf is based on the more recent valuer's report. Angkasa Raya land in early 2008 for a benchmark price of RM2,588 psf. ii) For its 3.0 acre piece of land bank at the junction of Jalan Bukit Bintang and Jalan Imbi, we have valued it at RM1,500 psf. The most recent land transaction in this area was in January 2008 where a half acre plot located off Jalan Imbi was sold for RM2,100 psf. The purchaser, YTL Corp likely paid a premium due to synergisitc nature of its exisiting assets nearby such as the Ritz Carlton. In the medium term, we believe there is substantial room for appreciation in both land values and capital values in this vicinity given the redevelopment potential within Jalan Imbi where there will likely be amalgamation of shop lots.

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Company Focus TA Enterprise

TAE sum-of-parts valuation
Stockbroking EBIT EBIT net of tax Target PE Value for Stockbroking Property Development Sri Suria Bukit Bintang KLCC - TA 3 and TA 4 Dutamas U-Thant Kluang Serendah Subtotal (a) Property Investment Menara TA1 Terasen Centre Subtotal (b) Hotels Radisson Plaza, Sydney Westin, Melbourne Whistler, Canada Swissotel, Spore Subtotal (c) Cash (d) Value for TA Global (a)+(b)+(c)+(d) TAE's 55% stake in TA Global Total SOP (Stockbroking + 55% in TA Global) No. shares (m) SOP per share (RM) FY11F 101.62 76.22 FY12F 114.59 85.94 Average Value 108.10 81.08 13x 1,054.02 Value (RMm) 251.43 196.02 230.43 19.60 48.79 41.47 51.42 839.16 Value (RMm) 373.74 569.60 943.34 Value (RMm) 336.00 389.12 201.60 635.80 1,562.52 135.00 3,480.03 1,914.01 2,968.03 1,427.41 2.10 Market Value Value as per S&P dated Dec 08 Value as per S&P dated Sept 08 and includes estimated renovation costs. Value as per S&P dated July 09

Average PE multiple for 2007-08.

Land (acres) 48.10 3.00 2.30 3.00 1.40 95.20 78.70

MV (RM psf) 120 1,500 2,300 150 800 10 15

Market Value Market Value Market Value Market Value Market Value Market Value Market Value

NLA (sq ft) 373,741 349,390

MV (RM psf) 1,000 1,630

Market Value Market Value

No of rooms 363 262 180 476

Value per room (RMm) 0.93 1.49 1.12 1.34

Arising from TA Global’s Proposed Rights Issue

Source: Company, DBS Vickers

Rolling forward PE Band
(RM) 3.00 2.50 2.00 1.50 1.00 0.50 0.00 97 98 99 00 01 02 03 04 05 06 07 08 09 20x 16x 12x 8x 5x

Rolling forward PB Band
(RM) 2.50

2.00 1.2x 1.50 1.0x 0.8x 1.00 0.6x 0.4x

0.50

0.00 97 98 99 00 01 02 03 04 05 06 07 08 09

Source: Company, Bloomberg, DBS Vickers

HWANGDBS

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Company Focus TA Enterprise

Peer Comparison : Stockbroking
Share Price RM Mkt Cap RMm CY08 PE (x) CY09 CY10 CY08 PNTA (x) CY09 CY10 ROE (%) CY09

TA Enterprise OSK KNK KAF HDBS Average

1.39 1.42 0.61 1.16 1.55

2,379.6 955.8 373.2 139.2 412.1

19.3 6.8 n.a n.a 0.3 8.8

18.8 8.4 n.a n.a n.a 13.6

16.2 6.2 n.a n.a n.a 11.2

1.0 0.8 0.5 0.7 0.6 0.7

0.9 0.7 n.a n.a n.a 0.8

0.9 n.a n.a n.a n.a 0.9

6.3 8.0 n.a n.a n.a 7.2

Note * n.m :not meaningful as it is in loss position . Source: Bloomberg, DBS Vickers

Peer Comparison : Property
Share Price RM Mkt Cap RMm Book Value RM P/BV (x) RNAV RM P/RNAV (x)

KLCC Property SP Setia DNP E&O Sunrise SunCity TA Enterprise Average

3.36 4.00 1.61 1.49 2.15 3.12 1.39

3,138.5 4,067.2 517.6 898.6 1,065.1 1,466.2

3.68 1.94 2.23 1.36 1.86 3.69 1.49

0.91 2.06 0.72 1.10 1.16 0.85 0.93 1.10

4.67 5.55 3.73 2.66 3.40 4.56 2.10

0.72 0.72 0.43 0.56 0.63 0.68 0.66 0.63

Source: Bloomberg, DBS Vickers

Key Management Team
Manager Tiah Thee Kian (1987- current) Current Appointment Previous Experience Ownership 33.7%

Executive Chairman - Responsible for the Executive Director, Credit Leasing Group’s vision and strategic direction Corporation. General Manager, TA Securities. Founded TA Securities. Managing Director & CEO - Responsible for the Group’s overall operations Executive Director - Responsible for TA Properties’s business and overseas operations. Executive Director, TA Securities. Co-founded TA Securities. Co-founded TA Securities.

Tan Kuay Fong (1987- current) Kimmy Khoo (1987- current)

^33.7% n.m

^ Deemed interested by virtue of her spouse’s shareholding Source: Company

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Company Focus TA Enterprise

This document is published by HWANGDBS Vickers Research Sdn Bhd (“HDBSVR”), a subsidiary of HWANGDBS Investment Bank Berhad (“HDBS”) and an associate of DBS Vickers Securities Holdings Pte Ltd (“DBSVH”). The research is based on information obtained from sources believed to be reliable, but we do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. HDBSVR accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBS Vickers Securities Holdings Pte Ltd is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. HDBSVR, HDBS, DBSVH, DBS Bank Ltd, and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other banking services for these companies. HDBSVR, HDBS, DBSVH, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc (“DBSVUSA”), a U.S.-registered broker-dealer, may beneficially own a total of 1% or more of any class of common equity securities of the subject company mentioned in this document. HDBSVR, HDBS, DBSVH, DBS Bank Ltd and/or other affiliates of DBSVUSA may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the subject company. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively. DBS Vickers Securities (UK) Ltd is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Services Authority. Research distributed in the UK is intended only for institutional clients.

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Published and Printed by HWANGDBS Vickers Research Sdn Bhd (128540 U) Suite 26-03, 26th Floor Menara Keck Seng, 203, Jalan Bukit Bintang, 55100 Kuala Lumpur, Malaysia. Tel.: +603 2711-2222 Fax: +603 2711-2333 email : general@hwangdbsvickers.com.my

HWANGDBS

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