JTINTER - Tobacco sector - smoke signals for 2011

Stock Name: JTINTER
Company Name: JT INTERNATIONAL BHD
Research House: OSK

Tobacco sector
Maintain 'underweight': In view of lower consumption and possibly higher illicit trade in the future, we project that tobacco industry volume will fall by 8%, thus resulting in tobacco manufacturers experiencing an earnings decline ranging from 5% to 10% next year. Notably, we expect the sector to see: (i) higher selling prices resulting in downtrading to value-for-money (VFM) brands from premium brands; (ii) a greater incidence of illicit trade, which will correspondingly cause the legal market to shrink; and (iii) a greater likelihood of brand switching in 2011.

BAT, in our opinion, could face a tough year in FY2011. On the back of declining tobacco industry volumes, we expect earnings to decline in spite of higher selling prices. Nevertheless, there may be a positive re-rating catalyst for the stock should its re-launched Peter Stuyvesant garner a higher market share next year.

JTI is likely to chart slightly lower earnings on lower industry volume. Although we see stiff competition among competitors limiting the earnings upside going forward, the company's sizeable net cash position means that it would still be able to pay out dividends. Notwithstanding the possibility of a special dividend payout, assuming that JTI paid a gross dividend of 30 sen per share, this will translate into a gross yield of 4.9%.

With concern over declining sales clouding the sector, we maintain our 'underweight' recommendation. In line with our conservatism, we maintain our 'sell' recommendation on BAT with its target price unchanged at RM38.75, while JTI is maintained a 'neutral', with its target price intact at RM5.96. ' OSK Investment Research, Dec 29


This article appeared in The Edge Financial Daily, December 30, 2010.

BAT - Tobacco sector - smoke signals for 2011

Stock Name: BAT
Company Name: BRITISH AMERICAN TOBACCO (M)
Research House: OSK

Tobacco sector
Maintain 'underweight': In view of lower consumption and possibly higher illicit trade in the future, we project that tobacco industry volume will fall by 8%, thus resulting in tobacco manufacturers experiencing an earnings decline ranging from 5% to 10% next year. Notably, we expect the sector to see: (i) higher selling prices resulting in downtrading to value-for-money (VFM) brands from premium brands; (ii) a greater incidence of illicit trade, which will correspondingly cause the legal market to shrink; and (iii) a greater likelihood of brand switching in 2011.

BAT, in our opinion, could face a tough year in FY2011. On the back of declining tobacco industry volumes, we expect earnings to decline in spite of higher selling prices. Nevertheless, there may be a positive re-rating catalyst for the stock should its re-launched Peter Stuyvesant garner a higher market share next year.

JTI is likely to chart slightly lower earnings on lower industry volume. Although we see stiff competition among competitors limiting the earnings upside going forward, the company's sizeable net cash position means that it would still be able to pay out dividends. Notwithstanding the possibility of a special dividend payout, assuming that JTI paid a gross dividend of 30 sen per share, this will translate into a gross yield of 4.9%.

With concern over declining sales clouding the sector, we maintain our 'underweight' recommendation. In line with our conservatism, we maintain our 'sell' recommendation on BAT with its target price unchanged at RM38.75, while JTI is maintained a 'neutral', with its target price intact at RM5.96. ' OSK Investment Research, Dec 29


This article appeared in The Edge Financial Daily, December 30, 2010.

TOMEI - Time to accumulate Tomei

Stock Name: TOMEI
Company Name: TOMEI CONSOLIDATED BHD
Research House: HLG

Tomei Consolidated Bhd
(Dec 29, 70 sen)
Accumulate at 67.5 sen with target price of 90 sen: Tomei was listed on the then Second Board in July 2006, and was subsequently transferred to the Main Board in Sept 2007. Tomei was founded in 1968, and has evolved from a small enterprise into an integrated manufacturer and retailer of jewellery.

On the back of appealing gold and gemstone designs, Tomei has set up a total of 59 retail outlets in Malaysia, 10 kiosks in Vietnam and three in China, operating under the brand names of Tomei, My Diamond, TH Jewellery and Le Lumiere.

In 9MFY2010, revenue grew 21% year-on-year to RM263 million while profit after tax jumped 26% to RM16 million, driven by improved consumer spending and higher retail prices for gold.

Investor concern over the sustainability in demand for jewellery as well as margin pressures following the recent spike in gold prices is misplaced as Tomei retains the ability to pass down the rising cost of raw materials.

As Tomei adheres to a policy of purchasing gold on a constant basis, the group benefits when gold prices increase and vice versa due to the average-cost principle. In other words, the spread between the purchase and selling prices of gold increases as gold prices move up, thereby enhancing the group's margins in the process.

Tomei's share price tumbled 18% from a 52-week high of 79.5 sen (Nov 15) to 65 sen (Dec 9) before closing at 67.5 sen (50% FR) on Dec 28, which has fulfilled the minimum retracement target.

In view of the uptick in the momentum and trend indicators after recovering from the oversold territory, indicating that the odds will remain in the bulls' favour as long as the price is held steady above the daily upper uptrend line (UTL) of 64.5 sen or 61.8% FR.

We are eyeing 70 sen (38.2% FR) as the immediate upside target, followed by the 74 sen (23.6% FR), and 80 sen (UTL of the weekly chart). A further run-up above 80 sen will spur prices higher to tough resistance zones of 85 and 90 sen. Immediate support levels are 64.5 and 63 sen (two-month low).

Tomei is trading at trailing 4.2 times price-earnings ratio (based on cumulative four-quarter earnings per share of 16.2 sen), which is greatly undervalued against its peers' PER of 8.9 times.

Our six-month target price is 90 sen, implying a 5.6 times trailing PER, in line with Poh Kong's PER of six times. Stop loss below 63 sen. ' Hong Leong Investment Bank Research, Dec 29


This article appeared in The Edge Financial Daily, December 30, 2010.

IJM - IJM Land better off without merger

Stock Name: IJM
Company Name: IJM CORPORATION BHD
Research House: AMMB



IJM Land Bhd is better off without going through the merger with Malaysian Resources Corp Bhd (MRCB) because its valuations would otherwise be severely diluted by the injection of low-yielding assets from MRCB into the enlarged company.

In a report, AmResearch said it could not see how the enlarged entity would offer compelling earnings without the transfer of low-yielding assets out of the enlarged entity.

The latter exercise, it said, was to have taken place post-merger.

On the parent IJM Corp, AmResearch said there were strong catalysts underpinning its share price going into 2011 which included large highway jobs in India and roll-out of six highways including West-Coast Expressways.

IJM Land was sold down (pre-suspension share price of RM2.86) this morning prior to the announcement that the proposed merger with MRCB had been aborted.

IJM Land and MRCB, which were suspended at 11.34am, would resume trading on Monday, Jan 3, 2011.

The proposed merger has been scrapped as both parties were unable to reach an agreement on the definitive terms of the proposed merger.

AmResearch said it would maintain its 'buy' call on IJM Corp Bhd and IJM Land with unchanged price of RM7.52 and RM3.88 respectively. -- Bernama

IJMLAND - 'IJM Land better off without merger'

Stock Name: IJMLAND
Company Name: IJM LAND BERHAD
Research House: AMMB



IJM Land Bhd is better off without going through the merger with Malaysian Resources Corp Bhd (MRCB) because its valuations would otherwise be severely diluted by the injection of low-yielding assets from MRCB into the enlarged company.

In a report, AmResearch said it could not see how the enlarged entity would offer compelling earnings without the transfer of low-yielding assets out of the enlarged entity.

The latter exercise, it said, was to have taken place post-merger.

On the parent IJM Corp, AmResearch said there were strong catalysts underpinning its share price going into 2011 which included large highway jobs in India and roll-out of six highways including West-Coast Expressways.

IJM Land was sold down (pre-suspension share price of RM2.86) this morning prior to the announcement that the proposed merger with MRCB had been aborted.

IJM Land and MRCB, which were suspended at 11.34am, would resume trading on Monday, Jan 3, 2011.

The proposed merger has been scrapped as both parties were unable to reach an agreement on the definitive terms of the proposed merger.

AmResearch said it would maintain its 'buy' call on IJM Corp Bhd and IJM Land with unchanged price of RM7.52 and RM3.88 respectively. -- Bernama

AXIATA - OSK Research maintains Buy on Axiata, Neutral on TM

Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining a Buy on Axiata (target price: RM5.80) and NEUTRAL on Telekom Malaysia ((target price: RM3.28) as there is'' no fundamental change in its'' views on both stocks.

'Axiata remains our top pick for exposure to Malaysia and regional telecoms given its attractive regional growth prospects and undemanding valuations,' it said on Thursday, Dec 30.

TM and Axiata had on Wednesday issued statements on the potential links to Alcatel Lucent's (ALU) alleged payment of bribes to government officials and company employees in securing contracts, which reportedly took place between October 2004 and February 2006.

ALU has agreed to pay USD137 million (RM432 million) in fines and penalties to settle the charges after reaching an agreement with the US Department of Justice and Securities and Exchange Commission (SEC).

OSK Research said the developments related to the allegations and the participation of the Malaysian Anti- Corruption Agency (MACC) in the probe are lauded as these safeguard foreign perception and demonstrate that the government takes such allegations seriously in its efforts to promote foreign direct investments.

TM - OSK Research maintains Buy on Axiata, Neutral on TM

Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining a Buy on Axiata (target price: RM5.80) and NEUTRAL on Telekom Malaysia ((target price: RM3.28) as there is'' no fundamental change in its'' views on both stocks.

'Axiata remains our top pick for exposure to Malaysia and regional telecoms given its attractive regional growth prospects and undemanding valuations,' it said on Thursday, Dec 30.

TM and Axiata had on Wednesday issued statements on the potential links to Alcatel Lucent's (ALU) alleged payment of bribes to government officials and company employees in securing contracts, which reportedly took place between October 2004 and February 2006.

ALU has agreed to pay USD137 million (RM432 million) in fines and penalties to settle the charges after reaching an agreement with the US Department of Justice and Securities and Exchange Commission (SEC).

OSK Research said the developments related to the allegations and the participation of the Malaysian Anti- Corruption Agency (MACC) in the probe are lauded as these safeguard foreign perception and demonstrate that the government takes such allegations seriously in its efforts to promote foreign direct investments.

TENAGA - OSK Research: Tenaga an ideal post election play

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: OSK

KUALA LUMPUR: OSK Research continues to hold the view that TENAGA NASIONAL BHD [] is unlikely to secure a tariff hike apart from an overall subsidy reduction on gas prices.

'We also believe that such a reduction would only happen after the next General Elections, which therefore makes TNB an excellent post election play, especially since our house view is for an early General Election in 2011,' it said on Thursday, Dec 30.

OSK Research said for now, its discounted cashflow fair value remained at RM9.76 even as we raise our coal price assumption, and Tenaga remains a BUY recommendation for investors with a longer term investment horizon.

TM - TM raised to 'trading buy' at RHB Res

Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Research House: RHB



Telekom Malaysia Bhd was raised to "trading buy" from "market perform" at RHB Research Institute Sdn Bhd, which cited the likelihood of significant special dividends.

The stock's fair value was maintained at RM3.55, RHB said in a report today. -- Bloomberg

ADVENTA - Latexx, Adventa slip on concerns about outlook for sector

Stock Name: ADVENTA
Company Name: ADVENTA BHD
Research House: CIMB

KUALA LUMPUR: Shares of glove makers Latexx and Adventa extended their declines in late afternoon on Wednesday, Dec 29 on concerns about the outlook for the industry.

At 4.03pm, Latexx-WA fell 12 sen to RM2.03 and the shares eight sen to RM2.55. Adventa lost eight sen to RM2.39.

The FBM KLCI rose 5.19 points to 1,522.63. Turnover was 686.82 million shares valued at RM1.06 billion. There were 394 gainers, 316 losers and 334 stocks unchanged.

CIMB Equities Research said in a research note on Adventa's earnings that its FY10/10 core net profit was at 82% of its forecast and 83% of consensus numbers.

Adventa's FY10/10 core net profit, which excluded a RM7.6 million one-off tax writeback was below expectations due to higher raw material costs and a weak US dollar.

'After accounting for higher latex cost and a weaker US$, we lower our FY11-12 EPS forecasts by 10%-11%. This reduces our target price from RM3.79 to RM3.14, pegged to an unchanged 10.2 times CY11 P/E or a 30% discount to Top Glove's target price-to-earnings of 14.5 times,' said CIMB Research.

TAANN - RHB Research maintains overweight on timber sector

Stock Name: TAANN
Company Name: TA ANN HOLDINGS BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining its Overweight call on the timber sector given the promising outlook of firm average selling prices for plywood and logs.

The research house said on Wednesday, Dec 29 timber companies which have significant oil palm PLANTATION [] such as Jaya Tiasa and Ta Ann are also set to benefit from rising crude palm oil prices.

'Hence, our top picks are Jaya Tiasa (OP, FV = RM5.78) and Ta Ann (OP, FV = RM5.92),' it said.

RHB Research said the latest October 2010 Japan housing starts growth of 6.4% on-year'' was the fifth consecutive on-year rise following the previous 17.7% and 20.4% on-year growth recorded in September and August respectively. This was supported by the 3.4% on-year increase in number of building permits issued in Oct 2010.

'Going into 2011, we believe the tight log supply situation in Sarawak is likely to continue for a few more months due to seasonal factors, before log production starts to normalise.

'Nevertheless, we believe tropical log prices would remain firm even when log production starts to pick up, thanks largely to the huge and robust demand from India and China,' it said.

JTIASA - RHB Research maintains overweight on timber sector

Stock Name: JTIASA
Company Name: JAYA TIASA HOLDINGS BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining its Overweight call on the timber sector given the promising outlook of firm average selling prices for plywood and logs.

The research house said on Wednesday, Dec 29 timber companies which have significant oil palm PLANTATION [] such as Jaya Tiasa and Ta Ann are also set to benefit from rising crude palm oil prices.

'Hence, our top picks are Jaya Tiasa (OP, FV = RM5.78) and Ta Ann (OP, FV = RM5.92),' it said.

RHB Research said the latest October 2010 Japan housing starts growth of 6.4% on-year'' was the fifth consecutive on-year rise following the previous 17.7% and 20.4% on-year growth recorded in September and August respectively. This was supported by the 3.4% on-year increase in number of building permits issued in Oct 2010.

'Going into 2011, we believe the tight log supply situation in Sarawak is likely to continue for a few more months due to seasonal factors, before log production starts to normalise.

'Nevertheless, we believe tropical log prices would remain firm even when log production starts to pick up, thanks largely to the huge and robust demand from India and China,' it said.

QL - Consumer spending to remain resilient in 2011

Stock Name: QL
Company Name: QL RESOURCES BHD
Research House: RHB

Consumer sector
Maintain neutral: The government recently raised the prices of petrol and sugar by 2.7% and 2.8% respectively, and we expect a similar hike to follow in 1H2011, in line with its plan to reduce subsidies every six months. Due to the gradual and small nature of the subsidy reduction, we believe that it will have a minimal impact on consumer spending, which RHB Research Institute projects will grow by 5.4% in 2011 (against 5.6% estimated for 2010).

The stable consumer spending growth outlook of 5.4% will provide a growth platform for the retail stocks under our coverage that derive their revenues locally. We expect Aeon's ('market perform', fair value = RM6.47) same store sales (SSS) to grow at 3.5% in 2011 (2010: 2.5%). Parkson, on the other hand, will continue to ride on China's strong consumer spending growth in 2011 (2010: 10%), which is expected to grow by 9.4%, according to consensus estimates.

We believe domestic demand for F&B products such as those manufactured and distributed by CI Holdings ('outperform', FV = RM4.90), KFCH ('market perform', FV = RM3.85) and QL Resources ('outperform', FV = RM6.50) will continue to be resilient. However, in terms of growth, we expect F&B companies to be driven by expansion in either capacity (CI Holdings), geographical (KFCH), or both (QL Resources).

Dark days continue for the tobacco sub-sector and BAT ('underperform', FV=RM42.92), as the recent hike in excise duty of about 5% per stick effectively raised cigarette prices for both premium and value segments by 7.5% to 9%. We expect the higher cigarette prices, coupled with other government initiatives to reduce smoking, to cause legal total industry volume (TIV) to contract by 6% in 2011. Unlike tobacco, the brewery sub-sector was spared a hike in excise duty in Budget 2011, marking the fifth time in a row duty was not raised. However, Malaysia's excise duty on beer is the second highest in the world after Norway.

Risks include a further drop in consumer disposable income and rising costs of goods and services, reducing spending power.

We maintain our 'neutral' stance on the sector. Our top pick is CI Holdings as we are optimistic on its growth outlook. In our view, the stock is still inexpensive relative to its F&B peers. ' RHB Research Institute Sdn Bhd, Dec 28


This article appeared in The Edge Financial Daily, December 29, 2010.

CIHLDG - Consumer spending to remain resilient in 2011

Stock Name: CIHLDG
Company Name: C.I. HOLDINGS BHD
Research House: RHB

Consumer sector
Maintain neutral: The government recently raised the prices of petrol and sugar by 2.7% and 2.8% respectively, and we expect a similar hike to follow in 1H2011, in line with its plan to reduce subsidies every six months. Due to the gradual and small nature of the subsidy reduction, we believe that it will have a minimal impact on consumer spending, which RHB Research Institute projects will grow by 5.4% in 2011 (against 5.6% estimated for 2010).

The stable consumer spending growth outlook of 5.4% will provide a growth platform for the retail stocks under our coverage that derive their revenues locally. We expect Aeon's ('market perform', fair value = RM6.47) same store sales (SSS) to grow at 3.5% in 2011 (2010: 2.5%). Parkson, on the other hand, will continue to ride on China's strong consumer spending growth in 2011 (2010: 10%), which is expected to grow by 9.4%, according to consensus estimates.

We believe domestic demand for F&B products such as those manufactured and distributed by CI Holdings ('outperform', FV = RM4.90), KFCH ('market perform', FV = RM3.85) and QL Resources ('outperform', FV = RM6.50) will continue to be resilient. However, in terms of growth, we expect F&B companies to be driven by expansion in either capacity (CI Holdings), geographical (KFCH), or both (QL Resources).

Dark days continue for the tobacco sub-sector and BAT ('underperform', FV=RM42.92), as the recent hike in excise duty of about 5% per stick effectively raised cigarette prices for both premium and value segments by 7.5% to 9%. We expect the higher cigarette prices, coupled with other government initiatives to reduce smoking, to cause legal total industry volume (TIV) to contract by 6% in 2011. Unlike tobacco, the brewery sub-sector was spared a hike in excise duty in Budget 2011, marking the fifth time in a row duty was not raised. However, Malaysia's excise duty on beer is the second highest in the world after Norway.

Risks include a further drop in consumer disposable income and rising costs of goods and services, reducing spending power.

We maintain our 'neutral' stance on the sector. Our top pick is CI Holdings as we are optimistic on its growth outlook. In our view, the stock is still inexpensive relative to its F&B peers. ' RHB Research Institute Sdn Bhd, Dec 28


This article appeared in The Edge Financial Daily, December 29, 2010.

PCHEM - Petronas Chemicals - fire at aromatic plant

Stock Name: PCHEM
Company Name: PETRONAS CHEMICALS GROUP BHD
Research House: OSK

Petronas Chemicals Group Bhd
(Dec 28, RM5.53)
Maintain neutral at RM5.53 with target price of RM5.51: On Monday, Petronas Chemicals Group announced on Bursa Malaysia that a fire had broken out at about 11.35pm last Friday, at the naphtha hydrotreater unit at an aromatic plant within its integrated petrochemical complex (IPC) in Kertih, Terengganu.

We understand that the fire was quickly put out, and although there were no casualties, plant operations have been suspended as a safety precaution. We understand that this was a minor incident as operations at the other facilities within the IPC were not affected. Petronas Chemicals is still waiting for the authorities to determine the damage.

Heavy naphtha is used to produce two chemical products ' paraxylene and benzene. Based on our FY2011 forecasts, these two chemicals make up about 26% of the olefins and polymers division's revenue and 20% of group revenue (comprising olefins and polymers as well as fertiliser and methanol). Hence, the financial impact will depend on how long operations are disrupted, which we are unable to assess at this point. However, judging from the total revenue contribution from paraxylene and benzene of about RM2.5 billion, a day's delay would give rise to a revenue loss of about RM7 million. Assuming an average net profit margin of 18% for its chemical products, this may lead to a loss of RM1.3 million per day on a rough calculation. For FY11, we forecast total revenue and net profit of RM12.7 billion and RM2.2 billion respectively. We are also keeping our FY11 forecast unchanged unless the recommencement time line is prolonged. As for the damage caused by the fire, we would assume the company is fully insured.

Our target price for the stock remains unchanged at RM5.51 based on a price-earnings ratio of 16 times FY12 earnings per share. Since the fire has been put out, we do not think there is any further downside to its current share price as a result of this piece of news, unless there is a delay in re-coommencing operations, which we do not anticipate. Despite our 'neutral' call, we continue to like the company's strong backing from Petronas Group, especially in keeping its feedstock prices low, and attractive dividend payout ratio of 50%, which is the highest among its closest peers. ' OSK Investment Research, Dec 28


This article appeared in The Edge Financial Daily, December 29, 2010.

SUNWAY - Real construction growth forecasted at 4pc

Stock Name: SUNWAY
Company Name: SUNWAY HOLDINGS BHD
Research House: OSK



Real construction growth for 2011 has been projected at four per cent, OSK Research said in its 2011 report.

It re-rated valuations upwards for the construction sector fuelled by the possibility of an early general election, implementation of the proposed projects under the Economic Transformation Programme and Budget 2011.

In its research note, OSK Research said the top pick was Sunway with a target price of RM2.72 and within the small cap space, AZRB, with a target price of RM1.51.

"Investors should pick Gamuda (TP: RM4.31) for the euphoria over the proposed MRT. Lastly, we recommend Naim (TP: RM5.10) for the Sarawak theme," OSK Research said.

In its overview of the construction sector, OSK Research said it was a constructive year for the construction sector.

"The KL Construction Index chalked up a year-to-date return of 24 per cent," it said, adding that a reduction was however expected for 2011 and 2012 development expenditure which would be negative for the sector.

"For 2011, development expenditure is targeted at RM48.5 billion, down 9 per cent year-on-year (y-o-y).

"We expect the negatives of lower development expenditure to be offset by more jobs being implemented via private finance incentives (PFI)," OSK Research added.

It said the momentum of contract awards would continue into 2011 and conservatively set domestic job wins at an estimated RM15 billion.

"Jan-Oct domestic contract awards totalled RM12.1 billion (+66.8 per cent y-o-y) and is very likely to surpass 2010 target of RM13 billion," OSK Research elaborated. -- BERNAMA

AIRPORT - MAHB up on KPI target

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD
Research House: HLG

KUALA LUMPUR: Shares of Malaysia Airports Holdings Bhd (MAHB) advanced on Tuesday, Dec 28 after the airport operator said it was targeting earnings before interest, tax, depreciation and amortisation (EBITDA) of RM773.4 million; return on equity (ROE) of 10.73% and a top 5 worldwide ranking for KLIA in 2011.

At 11.15am, MAHB was up two sen to RM6.10.

Announcing its Headline Key Performance Indicators (Headline KPIs) for the financial year ending Dec 31, 2011 (FY2011) on Monday, MAHB said these targets were'' set based on MAHB's strategic plans and long term targets that were developed under MAHB's Five Year Business Direction (2010-2014) planning initiative ' with emphasis on the broader internal initiatives that are put in place for FY2011.

Hong Leong Investment Bank Bhd Research maintained its Buy rating on the stock with an unchanged target price at RM6.58 based on DCF valuations for FY11.

'MAHB's Headline KPIs were very much in line with our existing forecast for FY11.

'Our in-house FY11 EBITDA is estimated at RM795 million versus MAHB KPI of RM773 million and estimated ROE at 10.1% versus MAHB KPI of 10.7%,' it said in a note Dec 28.

HIAPTEK - Challenging outlook for steel; demand growth for cement priced in

Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD
Research House: RHB

Building materials
Maintain neutral: We believe the outlook for the global steel sector in 2011 is challenging due to the slowing demand in China and less robust construction activities in the developed countries. Steel demand growth in China is expected to slow down with credit tightening measures and policies to curb speculation in the property sector.

Spot iron ore prices have been picking up recently due to supply disruptions in India. This has resulted in a 7% to 8% rise in quarterly benchmark price for iron ore in 1Q2011. In addition, scrap prices have also been on an upward trend, reaching US$430 (RM1,332)-US$440/tonne now. Owing to higher raw material costs, most large international steelmakers have raised their selling prices for January and February deliveries next year.
The potential hike in natural gas tariffs will hurt the margins of direct-reduced iron producers, while the potential hike in electricity tariffs will hurt the margins of upstream steelmakers in Malaysia as all of them produce steel via the electric arc furnace route. Higher electricity cost will also affect the margins of cement producers.

We project domestic cement consumption to grow by 6% in 2011 (vis-''-vis flat in 2010), underpinned by key on-going and potential large-scale infrastructure projects, robust property development activities, as well as potential mega privatised property projects on federal land such as the 2,680-acre Rubber Research Institute land in Sungai Buloh and the 400-acre Royal Malaysian Air Force land in Sungai Besi.
For steel, the risk of an oversupply situation in China and steep contraction in global steel consumption would weigh down on international steel prices. For cement, the risks are delays in the rollout of projects, steep rise in energy prices, and potential price war in the industry when new capacity is added in end-2012.

Overall, we are maintaining our neutral call on the sector. Valuations for the steel sub-sector are based on one-year target forward price-earnings ratio (PER) of 10 times, while for the cement sub-sector, valuations are based on one-year target forward PER of 13 to 16 times. ' RHB Research Institute Sdn Bhd, Dec 27


This article appeared in The Edge Financial Daily, December 28, 2010.

CSCSTEL - Challenging outlook for steel; demand growth for cement priced in

Stock Name: CSCSTEL
Company Name: CSC STEEL HOLDINGS BERHAD
Research House: RHB

Building materials
Maintain neutral: We believe the outlook for the global steel sector in 2011 is challenging due to the slowing demand in China and less robust construction activities in the developed countries. Steel demand growth in China is expected to slow down with credit tightening measures and policies to curb speculation in the property sector.

Spot iron ore prices have been picking up recently due to supply disruptions in India. This has resulted in a 7% to 8% rise in quarterly benchmark price for iron ore in 1Q2011. In addition, scrap prices have also been on an upward trend, reaching US$430 (RM1,332)-US$440/tonne now. Owing to higher raw material costs, most large international steelmakers have raised their selling prices for January and February deliveries next year.
The potential hike in natural gas tariffs will hurt the margins of direct-reduced iron producers, while the potential hike in electricity tariffs will hurt the margins of upstream steelmakers in Malaysia as all of them produce steel via the electric arc furnace route. Higher electricity cost will also affect the margins of cement producers.

We project domestic cement consumption to grow by 6% in 2011 (vis-''-vis flat in 2010), underpinned by key on-going and potential large-scale infrastructure projects, robust property development activities, as well as potential mega privatised property projects on federal land such as the 2,680-acre Rubber Research Institute land in Sungai Buloh and the 400-acre Royal Malaysian Air Force land in Sungai Besi.
For steel, the risk of an oversupply situation in China and steep contraction in global steel consumption would weigh down on international steel prices. For cement, the risks are delays in the rollout of projects, steep rise in energy prices, and potential price war in the industry when new capacity is added in end-2012.

Overall, we are maintaining our neutral call on the sector. Valuations for the steel sub-sector are based on one-year target forward price-earnings ratio (PER) of 10 times, while for the cement sub-sector, valuations are based on one-year target forward PER of 13 to 16 times. ' RHB Research Institute Sdn Bhd, Dec 27


This article appeared in The Edge Financial Daily, December 28, 2010.

AXIATA - Axiata divesting non-core investment

Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD
Research House: MIDF

Axiata Group Bhd
(Dec 27, RM4.73)
Maintain buy at RM4.70 with target price RM5.50: It was announced on Dec 22 that Axiata has completed the sale of its entire stake of 18.9% in Samart Corp (parent of Samart group) to existing shareholders. The stake, which Axiata has held since 1997, was transacted for a total cash consideration of US$34.8 million (RM108.4 million). Axiata, however, still holds its 24.4% stake in Samart i-Mobile, a subsidiary of Samart Corp.

Samart group has three areas of interest. They are i) ICT solutions, ii) mobile-multimedia and iii) technology-related solutions. Samart i-Mobile's area of interest is in mobile-multimedia ' it develops its own mobile phones such as the i-mobile 8500.

We do not see any significant impact to earnings from the divestment. The cash consideration of RM108.4 million will only contribute 3.8% to the expected FY2010 earnings. We, however, welcome Axiata's move to divest its Samart stake as it is a non-core investment and will allow Axiata to focus on its core business, especially in the high-growth market of Indonesia and Bangladesh. Interestingly, it is holding on to Samart i-Mobile. It is possible that it may have future plans of entering Thailand's telecommunications market.

With the good performance expected in FY2010 and the growth potential in Indonesia and Bangladesh, we maintain our 'buy' recommendation for Axiata, with a target price of RM5.50 based on seven times enterprise value/earnings before interest, taxes, depreciation and amortisation, which is the average of its regional peers. ' MIDF Research, Dec 24


This article appeared in The Edge Financial Daily, December 28, 2010.

JOBST - M&A brewing in JobStreet?

Stock Name: JOBST
Company Name: JOBSTREET CORPORATION BHD
Research House: HWANGDBS

JobStreet Corporation Bhd
(Dec 27, RM2.80)
Maintain buy at RM2.81 with target price RM3.30: SEEK announced it is acquiring a 60% stake in JobsDB for HK$1.59 billion (RM632.87 million), translating into 22.1 times CY2010 enterprise value/earnings before interest, taxes, depreciation and amortisation (EV/Ebitda).

This gives SEEK greater exposure to e-recruitment advertising in the emerging markets such as Indonesia, Thailand and China. There, however, could be a potential conflict of interest for SEEK as it is now the major shareholder in JobsDB as well as JobStreet. It remains to be seen if SEEK would merge JobsDB and JobStreet (it owns 22.4%) as their presence overlaps in some markets.

JobsDB's price tag of 22.1 times EV/Ebitda implies a 27% premium over JobStreet's valuation. Although JobsDB is 38% and 26% larger than JobStreet in terms of revenue and Ebitda, respectively, JobStreet is 3.7 percentage points more profitable than JobsDB in terms of Ebitda margin and is expected to have a cash balance of RM67.5 million in CY2010F. A multiple of 22.1 times EV/Ebitda would imply a market cap of RM1.2 billion for JobStreet (RM3.55 per share versus our target price of RM3.30).

We maintain a buy for JobStreet with a RM3.30 target price based on one times PEG. While SEEK's strategy is unclear at this stage, we think the acquisition sets a pricing benchmark for JobStreet's shares. ' HwangDBS Vickers Research, Dec 24


This article appeared in The Edge Financial Daily, December 28, 2010.

HELP - HELP's FY10 margins not bad

Stock Name: HELP
Company Name: HELP INTERNATIONAL CORPORATION
Research House: OSK

HELP International Corporation Bhd
(Dec 27, RM2.17)
Upgrade to buy from neutral at RM2.30 with revised target price of RM2.59 (from RM2.69): HELP's FY10 revenue was 8% below our and consensus expectations but the better-than-expected margin led to its FY10 net profit coming in within our and consensus estimates.

Ebit margin for FY10 was higher at 26.1% compared with 22.6% a year ago, driven by the stronger demand for its home-grown programmes. Although its home-grown programmes generally fetch lower fees per student, they nevertheless command higher margins given that HELP does not have to pay royalty as it does for twinning or foreign courses developed by other institutions.

As anticipated, due to the weaker performance in 3QFY10 attributed to the summer break for courses that are conducted in collaboration with foreign institutions in the northern hemisphere, HELP's 4QFY10 revenue was higher by 16.9% q-o-q, which led to PBT soaring by 56.5% q-o-q, further driven by the high fixed cost nature of the business.

Ebit margin was higher at 30.1% compared with 23.1% in the previous quarter. Moving forward, in view of the summer break for the courses done in collaboration with foreign institutions in the southern hemisphere in 1QFY11, we see a seasonally weaker performance in the quarter. However, we expect the stronger demand for its home-grown courses to somewhat tone down the seasonal effect for the upcoming quarter.

We maintain our forecast for FY11 and introduce our FY12 numbers. After adjusting for the current net cash of 32 sen per share versus 42 sen previously, our TP has been reduced from RM2.69 to RM2.59 based on 14x PER on FY11 EPS plus the current net cash of 32 sen per share.

Despite being lower, the TP still offers a more than 10% upside. As such, we upgrade our recommendation from neutral to buy. ' OSK Investment Research, Dec 24


This article appeared in The Edge Financial Daily, December 28, 2010.

RHBCAP - RHB Capital pushing the boundaries with Easy outlets

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Research House: OSK

RHB Capital Bhd
(Dec 23, RM8.55)
Maintain buy at RM8.60 with target price of RM9.56: Its 'Easy' banking outlets have been a roaring success, contributing close to 6% of new loans drawn down over the past nine months. The group started with just two Easy banking outlets at the beginning of 2010. Given its relatively low start-up cost structure and pent-up demand as the group was able to create a new market segment, it has expanded the number of outlets to 100 as at 3QFY10 while bringing down its cost to income ratio from 42% to 40%. Most of the loans from RHB's Easy outlets are small, individual ASB-linked consumer loans that are secured against liquid government-linked ASB funds, which lower its risk profile. The success of its Easy outlets is reflected in the group's enlarged 14.4% market share of the ASB market vs 9.4% as at end 2009.

The group's ability to innovate and develop a relatively higher yielding and under-penetrated banking segment via a low-cost distribution channel has certainly paid off, as its 9MFY10 return on equity (ROE) of 15.1% has already beaten consensus' FY11 expectations. Given its aggressive rollout plans (in expanding the number of Easy outlets to 400 by 2012 from the current 120) and its ability to expand the distribution of higher ROE fee income banking products via its enhanced distribution network is likely to lift the group's ROEs in the longer term.

The group plans to replicate the high service standards of the Easy outlets at its traditional branches while the streamlining of the highly efficient processes throughout the group's mainstream branches is likely to benefit the entire organisation in terms of lower cost and increased competitive advantage.

To recap, the group's recent annualised 9MFY10 loans growth of 20% year-on-year (y-o-y) far exceeded industry's 11%, with its 3QFY10 sequential growth of 6.6% quarter-on-quarter being by far the strongest among the banks under our coverage. Government-linked loans were the strongest engine of overall growth at +70% y-o-y. Although the margins of such loans are lower than those from average corporate loans, a zero-credit risk allocation implies that net ROEs generated from such loans are typically higher than traditional loans, which are themselves currently experiencing yield compression as a result of competition. Smooth execution of the Economic Transformation Plans will provide further upside in the sustainability of the group's robust government linked loan growth.

RHB Capital remains our top mid-cap banking pick which boasts of ROE generation at the upper end of the industry average, while its current FY11 PBV of 1.72 times is at a discount to the industry's 1.86 times. EPF's commitment to further reduce its stake by another 9% will improve the stock's liquidity, which has been cited as the key reason for its below industry valuations despite its promising ROE growth. Maintain buy with a Gordon Growth-derived target price price of RM9.56 (1.92 times PBV, ROE: 14.8%, COE: 9.5% and growth rate of 4%). The stock is cheap as it is trading at an implied FY11 PER of only 11.7 times, despite having outperformed the broader market by 44.8% year-to-date. ' OSK Investment Research, Dec 23







This article appeared in The Edge Financial Daily, December 24, 2010.

BSTEAD - Boustead's MoU to buy MHS Aviation

Stock Name: BSTEAD
Company Name: BOUSTEAD HOLDINGS BHD
Research House: ECMLIBRA

Boustead Holdings Bhd
(Dec 23, RM5.39)
Maintain buy at RM5.41 with target price of RM5.96: On Wednesday, Boustead announced that they had entered into a Memorandum of Understanding (MoU) with Drire Equities Sdn Bhd and Tulus Sejagat Sdn Bhd with the intention to acquire 10.2m shares in MHS Aviation Bhd (MHS) representing 51% equity interest therein and 51% equity interest in a special-purpose vehicle (SPV) that shall purchase all the helicopters and aircrafts owned by the subsidiaries of Drire. Under the terms of the MoU, the parties have agreed that total purchase price for the acquisition shall not exceed RM100 million subject to result of the due diligence where RM60 million shall be for the payment of the shares in MHS and RM40 million shall be payment for the aircraft SPV company. The due diligence process will take one month from the date of the MoU and if all goes well, the SPA will be completed within three months

We are neutral on the news for now, given the lack of financial details on MHS. Boustead notes that MHS has some RM3.1 billion in contracts which includes a 10-year contract from Petronas Carigali. This then indicates that the company would have revenue per annum of at least RM300 million. Boustead is typically conservative, we believe and generally not willing to pay more than their own PE (currently at 14 times for FY10F) for an acquisition.

Under the MoU, Boustead is purchasing the stake from shareholders Ma'som Mahadi and Mohsein Ma'som, a father-and-son team which also act as the chairman and executive director of MHS. Our view is that the sellers' motives are to get access to funding through Boustead. There will be fund raising needed for the SPV company which is to buy new aircraft, likely to service the Petronas Carigali job. We continue to have a buy call on Boustead with an unchanged target price of RM5.96. This is based on FY11 EPS pegging a 12 times PE (+1 standard deviation above historical average). To note, the key catalysts for Boustead going into 2011 is the formalisation of their contract with the government to build six navy vessels which we estimate could be worth in excess of RM6 billion. Besides that, their plantation division should also be seeing strong earnings given the current strength in CPO prices. ' ECM Libra Research, Dec 23







This article appeared in The Edge Financial Daily, December 24, 2010.

RHBCAP - OSK maintains 'buy' call on RHBCap

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Research House: OSK



OSK Research has maintained a "Buy" call for RHB Capital Bhd with a target price of RM9.56.

It said RHB's stock was cheap as it was trading at an implied financial year 2011 (FY11) price earnings ratio of only 11.7 times despite having outperformed the boarder market by 44.8 per cent year-to-date.

"Our recent meeting with the management reinforces our belief that the group is on track to deliver return on equity in excess of 14 per cent, backed by surprising strong loans growth exceeding 20 per cent and stable asset quality.

"The company is our top mid-cap banking pick with return on equity generation at the upper-end of the industry average while its current FY11 price by volume of 1.72 times is at a discount to the industry's 1.86 times," OSK said in a research note today.

OSK explained that the key reason for RHB's below industry valuations was EPF's commitment to further its stake by another nine per cent which would further enhance the stock's liquidity.
-- BERNAMA

LMCEMNT - Lafarge Malayan raised to 'buy'

Stock Name: LMCEMNT
Company Name: LAFARGE MALAYAN CEMENT BHD
Research House: MAYBANK



Lafarge Malayan Cement Bhd was raised to "buy" from "hold" at Maybank Investment Bank Bhd to reflect sustained demand for cement.

The share price estimate was increased to RM8.50 from RM7.90, Lee Yen Ling, an analyst at Maybank, said in a report today. -- Bloomberg

PLUS - PLUS raised to 'trading buy' at RM5.20

Stock Name: PLUS
Company Name: PLUS EXPRESSWAYS BHD
Research House: RHB



PLUS Expressways Bhd, Malaysia's biggest toll road operator, was upgraded to "trading buy" from "underperform" at RHB Research Institute Sdn Bhd after receiving a RM26 billion takeover offer from Jelas Ulung Sdn Bhd, topping a rival bid.

The fair value was raised to RM5.20 from RM4.60 to "match the latest offer," Lim Tee Yang, an analyst at RHB Research said in a report today. -- Bloomberg

DIALOG - Dialog price estimate lifted to RM2.20

Stock Name: DIALOG
Company Name: DIALOG GROUP BHD
Research House: CIMB



Dialog Group Bhd was raised to "outperform" from "underperform" at CIMB Investment Bank Bhd to reflect the Malaysian oil and gas services provider's earnings growth prospects.

The share price estimate was increased to RM2.20 from RM1.10, Norziana Mohd Inon, an analyst at CIMB said in a report today. -- Bloomberg

RHBCAP - RHBCap cut to 'hold' at BNP Paribas

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Research House: OTHER



RHB Capital Bhd was cut to "hold" from "buy" at BNP Paribas, which said the company's relative valuation to larger peers has narrowed "substantially" and there's "less exciting" earnings growth prospects in 2011.

The brokerage raised the share-price estimate to RM8.70 from RM8.40, according to a report by analyst Ng Wee Siang. -- Bloomberg

FABER - OSK maintains 'buy' call on Faber

Stock Name: FABER
Company Name: FABER GROUP BHD
Research House: OSK



OSK Research has maintained its "buy" recommendation on Faber Group at an unchanged target price of RM4.00, based on the standard operating procedure valuation.

In a research note today, OSK said its fair value is based on the assumption that the group's bid for the hospital support services (HSS) concession in Sabah, would be renewed as it is.

In view of its track record and expertise, denying Faber the renewal will run counter to the government's recent economic reforms, OSK said.

It has been reported that Warisan Harta Sabah SB (WHSB) has submitted a bid for the HSS in Sabah, which it deemed, is "competitive and on par" with Faber Group's for the concession.

"Although this piece of news will continue to dampen sentiment in the Faber stock, we believe the negative sentiment has been partly priced into the current share price, as it had been on a downtrend since news first emerged in early October.

"We believe the current uncertainty may present a buying opportunity for investors who are still hopeful of a favorable outcome," OSK explained.

The HSS concession under Faber expires in November next year. -BERNAMA

NOTION - Notion Vtec sued over share sale agreement

Stock Name: NOTION
Company Name: NOTION VTEC BHD
Research House: OSK

Notion VTec Bhd
(Dec 16, RM1.62)
Maintain sell at RM1.65 with target price RM1.45: Notion has been served with a writ and statement of claim on behalf of three key personnel of Swiss Impressive Sdn Bhd for the alleged breach by Notion of a share sale agreement dated Dec 10, 2009.

The principal business of Swiss Impressive is in designing, tooling and manufacturing high precision appearance parts for digital cameras and other consumer electronic devices. Notion has 70% equity interest in this subsidiary, while two of the plaintiffs collectively own the remaining 30%. In FY10, Swiss Impressive recorded an unaudited revenue and loss after tax of RM3.5 million and RM300,000 respectively.

In 2009, Notion entered into a share sale agreement with the plaintiffs to dispose of its 70% equity interest in Swiss Impressive to the plaintiffs for RM400,000. Management was of the view the business of Swiss was no longer in line with Notion's present business strategy. The agreement lapsed prior to the completion and finalisation of an audit on Swiss. The suit came about due to the non-completion of the share sale agreement, which the plaintiffs alleged was due to a breach by Notion.

The plaintiffs are claiming RM4.5 million from Notion, but the company has instructed its solicitors to defend the action. This suit is unlikely to have a major impact on Notion. The financial contribution from Swiss to Notion was considered insignificant as Notion recorded RM226.8 million of revenue and RM37.4 million earnings in FY10. On the operations side, Notion had appointed new personnel to manage Swiss. Should Notion lose this case, it would have no problem absorbing the RM4.5 million claim considering that it has a cash hoard of RM36.9 million as at Sept 30.

Due to the poor outlook for the HDD business, possibly until 1Q11, and given the uncertainty over its 2.5' HDD business, we remain cautious and stick to our 'sell' call by pegging its target price at seven times FY11 price-earnings ratio. For FY11, the company will give more priority to the camera business to sustain its uninterrupted earnings growth streak since FY03. It plans to expand its plant in Thailand from 25,000 sq ft to 100,000 sq ft by May 2011, mainly to cater for Nikon and new camera customers. We think it is still too early to factor in any meaningful contribution from the Thai plant expansion. The Thailand plant only contributed revenue of about RM1.4 million for FY10. ' OSK Investment Research, Dec 16


This article appeared in The Edge Financial Daily, December 17, 2010.

MEDIA - Declining viewership not a concern for Media Prima

Stock Name: MEDIA
Company Name: MEDIA PRIMA BHD
Research House: RHB

Media Prima Bhd
(Dec 16, RM2.36)
Maintain outperform at RM2.32 with fair value RM2.82: Concerns have been raised over the declining trend in TV viewership for Media Prima's channels. On the whole, its viewership market share has fallen to 46% this year, compared with 50% in 2009, on the back of lower TV viewership share for TV3, NTV7 and TV9. According to management, the decline in viewership is partly due to fragmentation as Astro continues to increase the number of channels on its platform. In mitigation, while management believes advertisers will continue to pay attention to TV viewership numbers, it also thinks Media Prima's channels offer better value for advertisers, given the concentration of viewership over its four channels as opposed to Astro's over 100 channels. Hence, Media Prima's channels offer better value for money for advertisers to reach out to viewers. Nevertheless, as fragmentation continues Media Prima is actively repositioning itself as a content provider, allowing users to access its content via multiple platforms (for example tonton.com.my and Telekom Malaysia Bhd's UniFi).

If the general election is held next year, we think this will boost government ad spending. Recall that in March 2008, gross adex for both TV and print media jumped 24% year-on-year (y-o-y) with TV adex up 37.3% y-o-y while adex for print media recorded y-o-y growth of 17.5%. Within the print media segment, New Straits Times' gross adex for March 2008 rose 41% y-o-y while The Star and Media Chinese International Ltd's (MCIL) adex rose 2.1% y-o-y and 12.2% y-o-y respectively.

Both Media Prima's outdoor and radio segments continue to grow. Typically, adex for the outdoor segment has lagged the economic cycle due to its concession-based nature. Thus, earnings for the outdoor segment could potentially see a pick-up next year. After stripping out the new acquisition of Kurnia Asia Bhd, the outdoor division recorded a 15% y-o-y growth. Its radio segment also recorded a decent 17% y-o-y growth in terms of top line, while the division recorded 14% bottom line growth y-o-y due to higher direct costs during the year.

The risks include: (i) weaker than expected adex growth; (ii) high discounting activities; and (iii) high foreign shareholding level (circa 31.7%).
We maintain our earnings forecasts for now.

Our indicative fair value is maintained at RM2.82, based on CY11 price-earnings ratio of 16 times. We reiterate our 'outperform' call on the stock. ' RHB Research Institute, Dec 16


This article appeared in The Edge Financial Daily, December 17, 2010.

TOPGLOV - Persistent headwinds for Top Glove

Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: HWANGDBS

Top Glove Corporation Bhd
(Dec 16, RM5.12)
Maintain fully valued at RM5.45 with revised target price RM4.60 (from RM4.80): Southern Thailand, a major rubber growing area, has been hit by severe flooding since October. This has disrupted transportation, lowered rubber output, and delayed shipments. Unfavourable weather has also affected rubber harvesting in Indonesia, Malaysia and Vietnam. As a result, latex prices hit a record high of RM9.45 per kg, and averaged RM7.35 year-to-date. Top Glove has consistently raised average selling prices (ASPs) in the past three months to keep up with rising latex prices. ASPs (per box of 1,000 pcs) for powdered, powder-free and nitrile gloves now average US$31 (RM97), US$35 and US$33, respectively. But as the ASPs lag latex price hikes, Top Glove is being pressured by rising operating costs, given that 83% of its gloves are made from natural rubber latex.

Demand remains soft as destocking is still ongoing. We understand 1QFY11 sales volume fell 5% quarter-on-quarter and capacity utilisation has fallen to 70% from 75%. Given the excess capacity, Top Glove has again deferred the commissioning of Factory 7 and 21 by three to five months. Latex prices rose 11% in the quarter, and as expected there was a time lag in passing on the higher costs. The greenback has also weakened 2% against the ringgit. Given the persistent headwinds, we cut FY11F earnings per share by 9%.

Maintain 'fully valued' with the target price lowered to RM4.60. We have nudged down our TP to RM4.60 (previously RM4.80), pegged to 13 times CY11 EPS. But demand should start to normalise in the next three months when restocking resumes. ' HwangDBS Vickers Research, Dec 16


This article appeared in The Edge Financial Daily, December 17, 2010.

MISC - Tanker shipping's high tide to recede after cold snap

Stock Name: MISC
Company Name: MISC BHD
Research House: CIMB

Tanker Shipping
Maintain underweight: We maintain our 'underweight' call on the crude tanker shipping sector as freight rates are set to fall in the next two years as a result of excessive newbuild deliveries. Although the demand for oil has recovered this year, it has not been sufficient to offset the large pool of excess tankers. We view the current rate recovery as purely seasonal in nature, assisted by the delays at Turkey's Bosporus Straits caused by fog, the coming ice restrictions in the Baltic and the expected rise in oil consumption as a cold winter hits the northern hemisphere. We maintain our 'underperform' call for MISC Bhd (target price: RM7). Despite likely weaker chemical shipping rates in 2011, PT Berlian Laju Tanker Tbk (TP: IDR660) remains an 'outperform' on the basis of its attractive 0.4 time price-to-book value valuation.

The Baltic Dirty Tanker index rose 27% to 30% in the month to Dec 10, mainly on the back of a 26% rise in average suezmax earnings and a quadrupling of average aframax earnings since Nov 12. Both the suezmax and aframax sectors benefited from the congestion at Turkey's Bosporus Straits, where seasonal fog is causing transit delays of around 25 days for both north and southbound. However, suezmax and aframax rates in the Mediterranean dropped last week as the backlog of ships in the Bosporus began to clear and charterers reduced cargo bookings to bring rates down. Aframax rates in the Baltic more than doubled last week as the unseasonably cold month led to a rush to book scarce ice-class aframax ships before ice restrictions come into place at the Russian port of Primorsk. It is worth noting that only owners of a very limited pool of ice-class aframaxes benefit from this.

China's oil imports jumped 28% or 4.52 million tonnes month-on-month (m-o-m) in November, which more than offset a 5.4% or two million tonne m-o-m fall in US oil imports. This helped drive up chartering activity, leading to a rise in very large crude carrier (VLCC) rates in mid-November. However, the number of available VLCC units remained higher than demand and VLCC rates fell for the third straight week. Hopes for a winter rally are dissipating. Shipbroker Charles R Weber noted that another 10 to 15 VLCC cargoes can be expected for the rest of December, against an expected availability of 40 units. This suggests that the excess vessels will spill over into January and the VLCC sector could see a depressing start to 2011.

We introduce a set of floating storage lead indicators in this report, where we track the spread between the 12-month forward and spot crude oil prices and calculate whether a buy-spot-and-sell-forward strategy is profitable. We note that the rise in crude oil prices over the past month has actually been sharper at the front end of the curve, leading to a flattening of the contango which reduces the profit available to oil traders. After deducting charterhire costs and financing expenses, floating oil storage will actually yield a loss of US$5.10/bbl over 12 months. Under present circumstances, the employment of VLCC or suezmax ships for oil storage will be minimal and the full brunt of the excess capacity will bear on spot rates after the winter is over. ' CIMB Research, Dec 16


This article appeared in The Edge Financial Daily, December 17, 2010.

TA - Exciting prospects for TA Enterprise

Stock Name: TA
Company Name: TA ENTERPRISE BHD
Research House: HWANGDBS

TA Enterprise Bhd
(Dec 15, 77 sen)
Maintain buy at 76 sen with revised target price of RM1.25 (from RM1.30): The Greater KL Plan under the Economic Transformation Programme (ETP) aspires to transform the city into a vibrant economic hub and place it in the Top 20 most livable cities in the world. And TA Enterprise (TAE), which owns seven acres of prime land in KL, is one of the key beneficiaries given the scarcity and rapid rise in prime land prices. TAE's plan to launch projects with potential RM2.6 billion gross development value (GDV) in the KL prime area is intact.

Average daily trading value and volume soared to RM1.5 billion (+36% quarter-on-quarter) and 1 billion (+40%), respectively, in 3Q10, and almost doubled TAE's broking income in 3QFY11. Income from hotel operations grew 84% driven by strong occupancy rates at Swissotel. However, 9MFY11 net profit of RM49 million fell short of our estimate as we were too bullish on its hotel and property divisions. Hence, we cut FY11/13F earnings per share by 26% to 42%. Our forecast for the broking division is intact, and we believe trading momentum is sustainable given the slew of structural changes taking place at Bursa Malaysia that are aimed at improving trading interest and liquidity. Bursa's year-to-date-November 2010 average daily trading value of RM1.4 billion was ahead of our CY10F assumptions of RM1.2 billion.

We reiterate our 'buy' recommendation with our sum-of-parts-based target price reduced to RM1.25. Our TP is based on a SOP value, that is earnings before interest and tax for broking based on FY12F and overall launch pipeline still intact in spite of some deferment. Consolidation in the broking industry could stir interest in TAE. It has a strong retail franchise with 7% market share of trading volume. Its current valuation is attractive at 0.8 times book value. The market is assigning zero value to its cash-generating broking business, plus a 24% discount for TA Global given its implied market cap of RM1.7 billion against TAE's RM1.3 billion. ' HwangDBS Vickers Research Sdn Bhd


This article appeared in The Edge Financial Daily, December 16, 2010.

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KNM - KNM going to Sabah

Stock Name: KNM
Company Name: KNM GROUP BHD
Research House: RHB

KNM Group Bhd
(Dec 15, RM2.68)
Maintain outperform at RM2.33 with revised fair value of RM3.09 (from RM2.33): The company announced on Dec 14 that it is establishing a JV company with Petrosab Logistik (KNM Petrosab Sdn Bhd (KNMP)). Its total initial investment will be RM51,000 for a 51% stake in the company, but we have been guided that the paid-up capital of the company will be increased soon. Petrosab Logistik is a joint venture between Yayasan Sabah and Asian Supply Base Sdn Bhd (a wholly-owned company of Sabah Energy Corporation).

We are positive on the JV given that the tie-up with the Sabah government will improve KNM's success rate for potential contracts in the state. Besides this, a presence in East Malaysia is imperative for oil and gas players, given that most of the deeper water developments are located in the region. We believe the company will move some of its fabrication capacity from the peninsula to Sabah to support the venture.

The company has guided that it has its sights on the Kimanis and Sipitang areas for contracts. While we have not heard of potential contracts from Sipitang, we note that confirmed projects in Kimanis include the Sabah Oil and Gas Terminal (SOGT) and the 300MW power plant that is jointly owned by Yayasan Sabah and Petronas Gas. Another proposed Petronas project in Kimanis is the urea and ammonia plant.

We are upgrading our FY11/12 revenue assumptions by 9.6% and 5.8% respectively as we have increased our capacity utilisation forecasts for FY11/12 to 67.3% and 73.6% respectively (from 60.9% and 68.6% previously). This results in our FY11/12 core earnings per share increasing by 15.1% and 12.5% respectively.

Risks include sustained competition for mid-end process equipment; and slower than expected pick-up in E&P activities and contract flows.

Things look increasingly positive for the company going forward, and the pick-up in contract wins suggests that the company is heading for an earnings turnaround in 2011. As such we maintain our 'outperform' call on the stock with an upgraded target price of RM3.09 per share based FY11 target price-earnings ratio of 15 times (from RM2.33 per share and 13 times target PER previously). Our new target PER is line with the company's historical average one-year forward PER. ' RHB Research Institute Sdn Bhd, Dec 15


This article appeared in The Edge Financial Daily, December 16, 2010.

KLK - KLK sets foot in Europe

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD
Research House: MIDF

Kuala Lumpur Kepong Bhd
(Dec 15, RM21.36)
Maintain buy at RM20.98 with target price of RM24.02: Yule Catto, in which KLK is a substantial shareholder with 18.82% equity interest, has announced its acquisition of PolymerLatex Group (Europe's third largest latex producer) for about ''376 million (RM1.86 billion). PolymerLatex is owned by TowerBrook, which has built a '60 million plant in Pasir Gudang, Johor, and a new R&D facility near Dusseldorf.

We view the acquisition positively as it will pave way for Yule Catto to further expand into the latex market for the paint, construction, carpeting and adhesive industries. In addition, the acquisition will strengthen its position in Europe and Malaysia in the latex-coated paper market. It will also add value to the nitrile latex market in Malaysia.

The'' acquisition will be financed via a rights issue and bank borrowings. Yule Catto will issue a 4:3 rights issue to raise ''225 million at 116 pence per share, with KLKI to subscribe in full. Upon subscription, KLK will'' acquire an additional 36.55 million new shares that will result in total shares of 63.96 million. It is believed that KLK will use RM209 million of internal funds to purchase the 36.55 million new shares, which we feel will not be a strain given its cash position of RM1.3 billion.

We reiterate our 'buy' recommendation with a target price of RM24.02 based on a price-earnings ratio of 23 times and earnings per share in 2011 of 104.4 sen. ' MIDF Research, Dec 15


This article appeared in The Edge Financial Daily, December 16, 2010.

AXIATA - Secular growth trends at Axiata to continue

Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD
Research House: MAYBANK

Axiata Group Bhd
(Dec 15, RM4.68)
Maintain buy at RM4.75 with revised target price of RM5.45 (from RM5.10): We revisit our assumptions following Axiata's stellar 3Q10 results and tweak our earnings upwards to reflect the latest operating trends. We still like Axiata for its high growth pan-Asian footprint, and believe it will continue to benefit from a liquidity-induced market rally. We reiterate our 'buy' recommendation with a higher RM5.45 target price.

Robi (Bangladesh) has exhibited strong sequential earnings before interest, taxes, depreciation and amortisation (Ebitda) growth trends in recent quarters, a result of both revenue growth and margin expansion. Direct costs in particular, have been trending down. An Ebitda margin in excess of 35% (3Q10: 35.6%, 9M10: 32.3%) now appears sustainable in our view, from circa 30% previously. We expect Robi's Ebitda contribution to exceed that of Dialog (Sri Lanka) in 2011. Robi contributed 6% to group Ebitda in 3Q10.

Axiata is due to pay its maiden dividend in 2011. We still believe management has been conservative with regards to its 30% net profit payout guidance, and it has concurred that Axiata's balance sheet would still appear 'lazy' with a 30% payout. Our 50% payout assumption remains unchanged, which implies dividend yields in excess of 3.6% net at current share price.

We raise our 2010/12 earnings forecasts marginally by 2% to 4%. We value Axiata based on on sum-of-parts, with the main operating entities valued by discounted cash flow. Celcom and XL account for RM3.26 and RM1.33 per Axiata share respectively. Our target price implies 17 times 2011 price earnings ratio and 7.5 times 2011earned value/Ebitda.

With the market shaping up for a liquidity-driven rally in 2011, we favour Axiata for its high-beta characteristic. Stripping out the value of Axiata's listed subsidiaries and attributing the implied stub entirely to Celcom, the implied forward PER is an undemanding 11.7 times. ' Maybank Investment Bank Bhd Research, Dec 15


This article appeared in The Edge Financial Daily, December 16, 2010.

QL - QL making the most of Asean's natural assets

Stock Name: QL
Company Name: QL RESOURCES BHD
Research House: ECMLIBRA

QL Resources Bhd
(Dec 14, RM5.69)
Initiate coverage with a buy call at RM5.60 and target price of RM7.30: We initiate our coverage of QL Resources with a 'buy' recommendation and target price of RM7.30 based on 20 times CY11 PER. QL's products will benefit directly from rising global demand and price trends for food commodities. The group is one of Asia's largest surimi manufacturers and a Malaysian market leader in livestock feed trading, fish meal and egg production.

We have forecast a three-year forward forecast EPS CAGR of 17.3% (FY11/13), that will be driven by strong demand for QL's marine, livestock feed, poultry products and palm oil, with rising population and disposable income, as well as the group's steady capacity expansion. Diversification reduces earnings volatility by smoothing out the cyclical nature of its resource-based activities.

QL's expansion plan is both local and regional, with total group capex set to increase by 60% in the next two years to RM200 million annually. The group is replicating its business model in the Asean region with: (i) new poultry farms in Tay Ninh, Vietnam, and Cianjur, Indonesia; (ii) a new marine plant being constructed in Surabaya; and (iii) further planting and palm oil mill slated for its plantation in Tarakan, Kalimantan.

QL benefits from the government's pro-agriculture stance via tax incentives that translate to a lower tax rate (15% in FY10) and subsidised diesel for its deepsea fishing operations. The group's latest venture into renewable energy is directly in accordance with the government's promotion of green technology as contained in Budget 2011.

Despite what seems like expensive valuations, we are bullish on QL as we firmly believe it deserves premium valuation to peers as well as the market. QL's next two years' earnings CAGR of 16.1% is impressive compared with Malaysian peers of 5.6%. Furthermore, over the last 10 years, QL's average 12-month forward earnings growth is impressive at 23%. At our target price, PEG ratio is undemanding at only 0.9 times based on 10-year average growth rate. ' ECM Libra Investment Research, Dec 14


This article appeared in The Edge Financial Daily, December 15, 2010.

KFC - KFCH fast-tracking growth in India

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
Research House: RHB

KFC Holdings (M) Bhd
(Dec 14, RM3.81)
Upgrade to market perform at RM3.76 with fair value of RM3.85: KFCH announced that it is acquiring 100% of Kernel Foods Pte Ltd, via its subsidiary Pune Chicken Restaurants, by way of acquiring the total equity interest of the latter for RM84,000 and subscribing to an additional RM2.4 million worth of shares.

We understand that Kernel Foods has two KFC restaurants in Pune, India, where KFCH is currently running one of its stores in Deccan Mall. After the completion, KFCH will have three stores in Pune in total. Due to the higher number of stores in the city, KFCH will be able to enjoy more competitive rates from suppliers in terms of supply logistics, which would improve the overall profitability of its stores in India. While we consider this to be a positive move, we prefer to keep our profit margin forecasts for India unchanged for now, until we see some positive synergies coming through.

We believe the total purchase price of RM2.5 million is fair. Based on our previous discussions with management, it usually costs approximately RM1 million to RM1.2 million in set-up costs for KFCH to open a store in India. Furthermore, the direct purchase of the stores reduces the execution risk which is usually associated with opening a new 'greenfield' store. Recall that we previously highlighted that KFCH had some hiccups in opening new stores due to various construction and red-tape issues.

With the completion of the acquisition, KFCH will effectively have seven stores in total in the state of Maharashtra (currently five), which is the only state it is allowed to operate in currently. We consider this purchase as a new store opening, thus the total of seven store openings in FY10 is in line with our assumptions.

we make no change to our forecasts. Risks include: (i) bird/swine flu escalation; (ii) escalation of corn and soyabean prices, which would eat into margins; and (iii) deteriorating consumer spending power, resulting in lower same-store sales (SSS) growth.

We are maintaining our fair value for KFCH at RM3.85, based on unchanged 17 times target FY11 PER. We are, however, upgrading our call on the stock to 'market perform' (from 'underperform' previously) as we believe the downside risk from its current share price is minimal. ' RHB Research Institute, Dec 14


This article appeared in The Edge Financial Daily, December 15, 2010.

IJM - IJM Corp morphing into infrastructure powerhouse

Stock Name: IJM
Company Name: IJM CORPORATION BHD
Research House: AMMB

IJM Corporation Bhd
(Dec 14, RM6.20)
Maintain buy at RM6.20 with revised fair value of RM7.52 (from RM6.30): We maintain our 'buy' call on IJM Corp Bhd with a higher sum-of-parts (SOP) derived fair value of RM7.52 per share (previously: RM6.30 per share).

IJM Corp is poised to be a key beneficiary of an imminent rollout of the government's Economic Transformation Programme, with an added kicker from the proposed IJM Land-MRCB pact.

IJM Corp's exciting new contract pipeline centres on a few key areas: (i) RM43 billion Klang Valley LRT/MRT; (ii) seven new highways worth RM19 billion (for example, the West Coast Expressway or WCE); (iii) balance of works for the Pahang-Selangor water project (circa RM5 billion); (iv) several mega development proposals within Greater KL (for example PNB's 100-storey tower); and (iv) new infrastructure opportunities in India.

Near-term, an IJM Land-MRCB union provides the impetus for IJM to morph into an integrated infrastructure and property giant ' with the Emplyees Provident Fund as the major shareholder.

First, we expect IJM Corp to play a front-running role in several exciting infrastructure and development projects under the EPF's mandate, including the prized MRB land in Sungai Buloh. This is further solidified by IJM Corp's status as a premium builder of Grade-A buildings that are likely to dominate the Klang Valley skyline.

Second, it could pave the way for IJM Corp to unlock further value via a listing of its infrastructure units (including its Indian highways) and potentially elevate the group to the second largest highway operator in Malaysia after PLUS. Presently, infrastructure assets account for RM1.93 share or 26% of IJM Corp's SOP value.

Just premised on (i) a 20% controlling stake in the IJM Land-MRCB pact and (ii) a 20% stake in WCE Concession/Capex works, IJM Corp's SOP-based value is forecast to rise by 6% to RM7.95 per share along with a near tripling of its order book to RM9.4 billion.

Our FY12F/13F new contract forecasts are raised by 10% to 15% to RM2.2 billion to RM2.5 billion. Construction margins appear to have bottomed ' rising to 5.1% to 8.3% in FY11F/13F (FY10: 2.2%) as legacy jobs are due to be completed by end-FY11.

We recommend a switch away from Gamuda Bhd to IJM Corp for exposure to big-cap construction stocks, given the latter's more exciting news flow and prolific contract pipeline. According to our estimates, every RM500 million of new order book would lift its earnings by 1.4% to 5.6%.

Renewed interest from foreign shareholders, who now control circa 43% of IJM Corp against a peak of more than 60% in 2007, is another re-rating catalyst with a strengthening ringgit. ' AmResearch, Dec 14


This article appeared in The Edge Financial Daily, December 15, 2010.

TA - TA Enterprise a 'buy' at HwangDBS

Stock Name: TA
Company Name: TA ENTERPRISE BHD
Research House: HWANGDBS



HwangDBS rates TA Enterprise a "buy" with a lower target price of RM1.25, given that TAE one of the key beneficiaries given the scarcity and rapid rise in prime land prices in Kuala Lumpur.

TA Enterprise owns 7 acres of prime land bank in KL.

The Greater KL plan under the Economic Transformation Programme aspires to transform the city into a vibrant economic hub and the top-20 most livable cities globally.

TAE's plan to launch projects with potential RM2.6 billion Gross Development Value in the KL prime area is intact, says HwangDBS.

Average daily trading value and volume soared to RM1.5 billion (+36 per cent quarter-on-quarter) and RM1.0 billion (+40 per cent), respectively, in the third quarter of 2010, and almost doubled TAE's broking income in 3QFY11.

Income from hotel operations grew 84 per cent driven by strong occupancy rates at Swisshotel. However, 9MFY11 net profit of RM49 million fell short of "our estimate as we were too bullish on its hotel and property divisions," says the research firm.

" Hence, we cut FY11-13F EPS by 26 per cent-42 per cent.

"Our forecast for the broking division is intact, and we believe trading momentum is sustainable given the slew of structural changes taking place in Bursa that are aimed at improving trading interests and liquidity," says HwangDBS.

KNM - KNM jumps to highest since April on target price upgrades

Stock Name: KNM
Company Name: KNM GROUP BHD
Research House: MAYBANK

KUALA LUMPUR: KNM GROUP BHD []' shares and warrants advanced in active trade on Wednesday, Dec 15 after Maybank Investment Bank Bhd Research and OSK Investment Research upgraded their respective target prices for the stock.

At 11.01am, KNM was up 18 sen to RM2.51, the highest since April 20 this year, with 22.5 million shares done.

Its warrants added 1.5 sen to 16 sen with 28.15 million units done.

Maybank IB maintained its buy call on KNM and raised its target price to RM3.10 from RM2.20, while OSK Research said it was raising its target price to RM2.96 from RM2.22.

Maybank IB said it was positive over KNM's JV with Petrosab as East Malaysia fabrication opportunities are huge, riding on PETRONAS' rising domestic capex spend.

The Sabah Oil and Gas Terminal'' and Sipitang CTF projects are some of the JV's targeted projects, it said.

'KNM remains a Buy with a raised 12-month target price of RM3.10 (+41%) as we foresee a sustained recovery outlook, locally and globally.

'Our new target PER is 10 times (previously 9 times) and we roll-over valuations to 2012 earnings,' it said.

KENCANA - OSK Research: Maintain Buy on Kencana, TP RM2.93

Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Research House: OSK

KUALA LUMPUR: OSK Research said KENCANA PETROLEUM BHD []'s good 1QFY11 results were within estimates, boosted by a two-month contribution from MKR-1.

It said on Wednesday, Dec 15 the results were also boosted by the recognition of a portion of the fabrication works secured since April 2010, better yard utilization and improved cost management and production efficiency.

'We believe the robust quarter is just the beginning with more catalysts coming its way. Maintain Buy on Kencana with a target price of RM2.93. This stock remains our only pick in the O&G sector for now,' it said.

KLK - OSK Research maintains Neutral call on KLK, unch TP RM20.50

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Neutral call for Kuala Lumpur Kepong with its target price unchanged at RM20.50.

It said on Wednesday, Dec 15 that Yule Catto contributes very minimally to KLK's net profit i.e. with less than 1%. As such, its doubts the acquisition of PolymerLatex would make any material difference to KLK's bottom line.

To recap, KL Kepong will spend RM209.8 million to subscribe for Yule Catto & Co's rights issue. Yule Catto, which is listed on London Stock Exchange, has proposed to acquire PolymerLatex Group for 443 million euros via the rights issue and bank borrowings.

PolymerLatex Group is an emulsion polymer products manufacturer with assets in Europe and Asia, which among others, supplies raw material for the manufacture of synthetic rubber gloves.

OSK Research said'' KLK has a 18.8% stake in Yule Catto. As Yule Catto is trading at an undemanding 10.7 times'' CY11 earnings and 7.0x EV/EBITDA, it makes sense for KLK to subscribe for the rights to prevent its stake from being diluted.

'Moreover, the rights shares are priced at a steep discount of 34.7% to their theoretical ex-rights price. The subscription will do little to stretch KLK's balance sheet. Its gearing is very low at 7.2% and cash flow generation is very strong given the currently high CPO price. KLK generated an operating cash flow of RM783.9m in its FY2010,' it said.

GPACKET - OSK Research cautious on potential competition in Malaysia's broadband universe

Stock Name: GPACKET
Company Name: GREEN PACKET BHD
Research House: OSK

KUALA LUMPUR: OSK Research said it was turning increasingly cautious on potential competition in Malaysia's broadband universe and it believes Green Packet could lose out owing to Packet One's limited coverage.

The research house said on Wednesday, Dec 15 following its earnings revision, it cut its target price from 92 sen previously to 78 sen, based on an unchanged 8x FY11 EV/EBITDA.

'The stock price has retreated by more than 25% since mid-2010 and hence we maintain our NEUTRAL recommendation,' it said.

The key re-rating catalysts are: (i) potential earnings surprises in the near term on solid broadband net adds, (ii) a quicker-than-expected earnings turnaround on cost moderation, (iii) solution sales to surge on more WiMAX deployment, and (iv) expedited coverage expansion to take advantage of fledging broadband take-ups.

WCT - CIMB Research maintains Outperform on WCT, TP RM4.21

Stock Name: WCT
Company Name: WCT BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research said WCT's deal to develop a RM688 million commercial project in Medini was a positive surprise.

It said on Wednesday, Dec 15 this marks another milestone for WCT as it is its third venture in Medini and raises its profile as one of the leading developers and contractors in Iskandar.

'This project raises WCT's outstanding GDV to RM4.6bn, which will last 7-8 years. Though the project will only start filtering through to earnings from FY12, it reinforces our positive stance on the group's outlook.

'We make no changes to our EPS forecasts, OUTPERFORM call or RM4.21 target price, which is pegged to an unchanged 10% discount to RNAV. Potential re-rating catalysts include (i) this announcement, and (ii) other contract wins. WCT remains one of our top picks for the CONSTRUCTION [] sector,' CIMB Research said.

KNM - KNM up, OSK keeps Trading Buy, TP RM2.96

Stock Name: KNM
Company Name: KNM GROUP BHD
Research House: OSK

KUALA LUMPUR: Shares of KNM GROUP BHD [] rose in early trade on Wednesday, Dec 15 with OSK Research maintaining its trading buy on the stock with a higher target price of RM2.96 from RM2.22.

At 9.45am, KNM was up 14 sen to RM2.47 while its call warrants, KNM-CE rose 1.5 sen to 16 sen with 20.12 million units done.

The FBM KLCI rose 0.31 of a point to 1,510.89. Turnover was 213.36 million shares valued at RM233.46 million. Gainers led losers 201 to 142 while 217 stocks were unchanged.

OSK Research said sentiment in the O&G industry has improved tremendously over the last few weeks with the announcement of collaborations between Malaysia and its neighbouring countries on new oilfields, as well as the dishing out of new O&G contracts and a spate of positive news.

'We are maintaining our Trading Buy call on KNM with a higher target price of RM2.96 (previously RM2.22), based on a higher PER valuation of 12x (previously 9x) FY11 EPS,' it said.

OSK Research said KNM is one of the front-runners should there be a re-rating on the share prices of O&G stocks.

'Hence our target price higher as we believe there is still upside for investors to trade on the stock. In addition, KNM recently addressed concerns over its over-liquidity by implementing a 4-into-1 share consolidation. However, note that we are keeping our Trading Buy call until we see improved earnings potential for the company going forward,' it said.

YTLPOWR - Credit Suisse maintains Underperform on YTL Power

Stock Name: YTLPOWR
Company Name: YTL POWER INTERNATIONAL BHD
Research House: CREDIT SUISSE

KUALA LUMPUR: Credit Suisse Securities Research is maintaining its Underperform on YTL Power International on concerns about its investments in projects which are not widely adopted.

It said on Wednesday, Dec 15, YTL Power is fairly valued, as it is trading at a FY11E price-to-earnings (PE) of 15 times, which is in line with the Malaysian market P/E.'' It maintained its Underperform rating.

On Tuesday,'' YTL Power said it was investing in oil shale in Jordan with the acquisition of a 30% stake in Enefit's Jordanian oil shale projects, marking its foray into the upstream oil business.

The consortium plans to develop an oil plant with output of approximately 38,000 barrels per day and a 900 megawatt oil shale-fired power plant. As oil shale extraction is not widely adopted yet, the output figure may be contentious.

'Main concerns with oil shale: (1) cost has been significantly higher than conventional pumped oil (2) environmental concerns.

'As oil shale is still largely 'conceptual', we would not incorporate any profit contribution from this project yet. The risk profile of YTL Power continues to increase as it is investing in projects that are not widely adopted, that is Wimax and oil shale,' it said.

It rose one sen to RM2.42 at midday on Wednesday.

BJTOTO - BToto out of luck in 2Q

Stock Name: BJTOTO
Company Name: BERJAYA SPORTS TOTO BHD
Research House: CIMB

Berjaya Sports Toto Bhd
(Dec 13, RM4.23)
Maintain neutral at RM4.13 with target price of RM4.67: A higher-than-expected prize payout led to a subpar interim showing by BToto, with 1HFY4/11 core earnings coming in at only 39% of our projection and 34% of consensus.

The second interim tax-exempt dividend per share (DPS) of four sen was marginally below forecast and took year-to-date (YTD) DPS to 12 sen or 42% of our full-year estimate. Factoring in the higher payout for 2Q, we cut our FY11 EPS forecast by 11% and trim FY11 DPS by one sen. Our FY12-13 numbers are unchanged. Our discount dividend model-based end-CY11 target price also stays at RM4.67 due to the minimal reduction in dividends assumed.

We remain neutral on BToto given the competitive threat from Magnum's 4D Jackpot game and concerns over softer sales following the recent cut in prize payout for the Big 4D game. We prefer Genting for exposure to the sector.

2QFY11 topline fell 1.3% year-on-year (y-o-y) due to a lower number of draw days compared to the previous year. On a quarter-on-quarter (q-o-q) basis, 2Q sales advanced 1.3%, lifted mainly by stronger lotto sales despite the lower number of draw days. Like the previous quarter, Supreme Toto 6/58 was the main growth driver, propelling 2Q11 lotto revenue higher by a staggering 55% y-o-y and 26% up q-o-q, thanks to its attractive jackpot which snowballed to RM47.8 million during the quarter. On a year-to-date basis, revenue dipped 0.1% y-o-y as the gaming business was affected by the lower number of draw days and rising competition.

2Q11 earnings before interest and tax (Ebit) fell 33% y-o-y due to the two percentage points (ppts) hike in pool betting duty on June 1 and the less favourable prize payout ratio of 70% versus 2Q10's 63%. Ebit margin continued to narrow q-o-q due to the higher payout ratio. We expect BToto's gaming margin to improve in 4Q as the government recently approved a reduction in the special prize payout, which we estimate will lower the payout ratio for the Big 4D game by two ppts effective Dec 15.

Although we expect BToto to retain its market leadership in CY11 due to decent punting interest in its flagship 4D game and the boost from its three lotto variants, we expect its lead to be crimped by strong interest in Magnum's 4D Jackpot game. Because of this and the maturity of the NFO market in general, we see some downside risk to our flat to +3% annual topline growth projections for BToto for FY11-13. ' CIMB Research, Dec 13


This article appeared in The Edge Financial Daily, December 14, 2010.