AXIATA - Price Target News

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

KUALA LUMPUR: RHB Research Institute is maintaining its Outperform on Axiata at RM3.85 with a fair value of RM4.05 as it continues to like Axiata for its strong earnings growth and exposure to the recovery in emerging markets where mobile penetration rates remain low. It said on Friday, March 12 Axiata had proposed an international private placement of up to 1.7 billion XL shares, representing 20% of XL's issued share capital, to eligible institutional/sophisticated investors via a bookbuilding exercise. The proposed offering is mainly to increase XL's free float, which could be raised up to 20.2%, from 0.2% currently. Axiata's stake could then fall to around 66.5% while Emirates Telecommunications Corporation would hold the remaining 13.3%. "XL's share price closed yesterday at a 52-week high of Rp3,550/share. Assuming the shares are placed out at a 15% discount to this price, we estimate Axiata could potentially raise a (gross) total of around RM1.7 billion (20 sen/share)," it said. RHB Research said Axiata's reduced stake in XL would mean that its share of XL's future net profits would now be lower as well. However, this could be mitigated by lower interest expense if the abovementioned amount raised is used to pare down borrowings. Assuming such a scenario, we estimate the proposed offering could be marginally dilutive to the group's earnings (up to 2%). "We thus estimate Axiata's proforma net debt/EBITDA as at end-2009 would fall further to 1.5 times from 1.8 times currently. This, we think, would help further ease concerns regarding Idea's potential funding need (Axiata's portion estimated at US$200-300m previously). "In addition, while we would not be surprised if management decides to return some of the cash to shareholders, we doubt the amount would be significant. However, we think that Axiata's fast-improving gearing levels could allow the group to start declaring "regular" dividends earlier than expected," it said.

TOPGLOV - Price Target News

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

KUALA LUMPUR: CIMB Equities Research is maintaining its Outperform call on Top Glove, along with its target price of RM16.99, pegged to a 10% premium over its target market P/E of 15 times. It said on Thursday, March 11 factors that could extend the re-rating of the stock include another potential round of strong results, the continuing uptick in glove demand and Top Glove's upcoming capacity expansion. The report was issued ahead of Top Glove's release of its 2QFY8/10 results on March 17. "Given the full utilisation of its latest factory and potential higher contribution from its Mediflex subsidiary, we believe that Top Glove could report 2Q earnings that are almost double the year-ago level and at least 5% higher than 1QFY10's earnings," it said. Annualised 1H net profit is expected to exceed CIMB Research's estimate of RM260 million as it expects stronger earnings in the remaining quarters given the additional capacity coming in during 2H. Factors that could extend the re-rating of the stock include another potential round of strong results, the continuing uptick in glove demand and Top Glove's upcoming capacity expansion, it said.

KKB - Price Target News

Stock Name: KKB
Company Name: KKB ENGINEERING BHD
Research House: OSK

KUALA LUMPUR: OSK Research says KKB Engineering's share price has appreciated by 64.9% over the past two weeks after the announcement of its above expectations FY09 results as well as bonus issue and share split on Feb 23. "We think the appreciation could partly be due to the anticipation of more contracts awarded closer to the state elections (in Sarawak) as well as excitement over the corporate exercises," it said on Thursday, March 11. KKB is bidding for new projects worth between RM280 million and RM350 million in both Sabah and Sarawak. KKB is primarily involved in steel fabrication and the manufacture of steel pipes and LPG cylinders. OSK Research said while it maintained its FY10 and FY11 numbers, it noted that interest on the company may be sustained until the bonus issue ex-date. This is further reinforced by the short term Sarawak theme play it is seeing in the market. It revised its TP of RM4.36 (ex price: RM1.36) to RM7.01 (ex price: RM2.19) as it accords a 10% premium to its previous 10x PER and roll over its valuation to FY11 EPS. "However, we are downgrading the stock to a Trading Buy recommendation from a Buy previously, given the risk of its share price retracing to our original TP post ex-bonus issue as well as the short term nature of the Sarawak theme," it said.

KPJ - Price Target News

Stock Name: KPJ
Company Name: KPJ HEALTHCARE BHD
Research House: RHB

KPJ Healthcare Bhd
(March 10, RM2.62)
Maintain outperform at RM2.57, fair value at RM3.20: KPJ is selling off three hospital buildings - RS Bumi Serpong Damai, Kluang Utama Specialist Hospital and Bandar Baru Klang Specialist Hospital to Al-Aqar KPJ REIT (KPJ REIT) for RM138.8 million to be satisfied with RM83.3 million cash and 56.6 million new units in KPJ REIT at an issue price of 98 sen and a 5.8% discount to its NAV (net asset value) of RM1.04 as at Feb 25, 2010.

The transaction will result in a one-off gain of RM3.36 million or an earnings improvement by 2.9% to the revised net profit forecast, increase KPJ's stake in KPJ REIT from 301.4 million units or 42.8% (after the completion on acquisition of Tawakal Hospital) to 358.1 million units of 50.9% and reduce KPJ's net debt and gearing from RM222.7 million and 0.36 time as at Dec 2009 to RM142.7 million and 0.23 time.

We are positive on KPJ's latest move as it is consistent with its strategy to continuously "recycle" its capital to drive growth, that is to partially cash out while maintaining control of its hospital assets by injecting them into KPJ REIT, and ploughing back the cash to fund further acquisitions.

We also think that the transaction price for the three hospital buildings is fair given that it is transacted at market value according to PT Penilai/Collier International.

We tweaked our earnings forecasts up by 0.2%-0.3% for financial year ending Dec 31, 2010 (FY10) to FY12 to reflect interest and depreciation savings and higher associate contributions, which would more than offset the increase in rental expense. We do not factor the RM3.36 million one-off gain in our forecast.

We maintain our outperform call on KPJ with fair value of RM3.20 based on 14.5 times FY12/10 earnings per share (EPS), in line with our 14.5 times target price earnings (PE) for the consumer sector.

We like KPJ as valuations remain lower than the regional peers average PER of 17 times; and rising affluence and higher take-up of insurance policies in Malaysia. Our target PE is on the high end of its historical five-year PE band of between five and 15 times. - RHB Research Institute, March 10


This article appeared in The Edge Financial Daily, March 11, 2010.

GLOMAC - Price Target News

Stock Name: GLOMAC
Company Name: GLOMAC BHD
Research House: MAYBANK

Glomac Bhd
(March 10, RM1.29)
Reiterate buy at RM1.29, target price at RM1.78: Glomac's earnings are set to pick up steam. The property developer's 3QFY10 results, due to be released end-March, are likely to meet our expectations at around RM10 million net profit (+8% quarter-on-quarter, +5% year-on-year). This follows at least RM367 million in 9MFY10 new sales compared with 9MFY09's RM148 million. With strong unbilled sales of RM554 million and net cash by April, earnings growth will be more visible over the next two years. Reiterate buy and RM1.78 target price.

Glomac's unbilled sales are rising. After visiting the company, we came away positive on Glomac's outlook into FY11. Counting only the two en-bloc sales in November 2009 (Glomac Damansara - RM171 million and Glomac Cyberjaya Phase 2 - RM41 million), 9MFY10 new sales should exceed RM367 million (2.1 times full-year FY09 new sales of RM172 million). Net unbilled sales (ex-minority interest) have topped RM554 million (+50% q-o-q, 1.7 times FY09 development revenue) as at Jan 30, 2010.

We highlight three possible en-bloc sales: (i) Glomac Damansara Tower A (gross development value RM70 million, 16-storey), which Glomac had planned to use as its own corporate office; we understand that two parties have shown interest in purchasing it en-bloc at a reserve price of RM670 psf; (ii) Glomac Cyberjaya office block (GDV RM100 million, 15-storey), which could revert to its initial plan as a data and call centre; however, we understand a multi-national corporation has proposed a long-term lease for the building; and (iii) Plaza Kelana Jaya (Phase 4) office tower (GDV uncertain, 16-storey), to be launched in FY11, which already has a potential buyer for an en-bloc purchase.

We continue to like Glomac for its strong growth potential (three-year earnings per share compound annual growth rate of 12%), low valuations (8.2 times FY11 price-earnings ratio, 0.5 time revised net asset value, 0.6 book value), and its above-peer gross dividend yields of 5%-8% for FY10-FY12.

Our target price of RM1.78 pegs the stock at a 25% discount to our fully diluted RNAV of RM2.37, which also implies 12 times FY11 PER. - Maybank IB, March 10


This article appeared in The Edge Financial Daily, March 11, 2010.

KULIM - Price Target News

Stock Name: KULIM
Company Name: KULIM (M) BHD
Research House: INTER PACIFIC

Kulim (M) Bhd
(March 10 , RM7.46)
Outperform at RM7.40, target price at RM9.24: We raise our forecast for Kulim's revenue in financial year ending December 2010 (FY10) to RM6.9 billion on the back of higher revenue contribution from the purchase of CTP (PNG) Ltd.

We expect Kulim's crude palm oil (CPO) production to increase by 61.7% to 748,400 tonnes due to higher contribution from Papua New Guinea (PNG) and Solomon Islands (SI) following the purchase of CTP and improved estate management which should see their oil extraction rate yield reach 22%.

Kulim has a target of 30:30 whereby the company hopes to achieve a fresh fruit bunch (FFB) yield of 30 tonnes a hectare (ha) and 30% of total extraction rate. They expect to achieve this target by FY11 or FY12 for PNG and probably within four to five years for its Malaysian plantation.

The recent purchase of CTP would double Kulim's planted area to some 74,500ha in both PNG and SI. The purchase of CTP at an average price of US$8,670 (RM28,784) per planted ha is viewed as fairly valued, as CTP's average tree age is 15 years besides the fact that CTP has five mills across its three oil palm plantation estates. The current plantation FFB yield for CTP stands at 18.5 tonnes per ha.

Kulim's replanting target in FY10 for its plantation in Malaysia is between 1,000ha and 2,000ha with an estimated capital expenditure (capex) of RM30 million to RM40 million. Meanwhile, new planting in PNG and SI is at 2,000ha to 3,000ha while replanting of oil palm trees in PNG and SI involves an estimated 1,000ha. Thus, total capex for PNG and SI is estimated to reach RM100 million.

Kulim's current cost of production ex-kernel is around RM1,200 per tonne. The cost of production should reduce in view of greater usage of natural fertiliser that is produced using natural compost from the production of palm oil. It is estimated that natural fertiliser will be able to reduce chemical fertiliser usage by 33%. This will significantly reduce dependence on chemical fertiliser which is affected by global pricing.

Kulim will be selling its Menara Ansar in Johor to Al-Aqar KPJ Reit via Al-Aqar's trustee AmanahRaya Trustees Bhd for RM105 million. The transaction will be paid partly in cash of RM63 million with the balance via the issuance of 42.9 million new units of Al -Aqar at an issue price of 98 sen per unit. Kulim is expected to utilise the RM105 million to repay the group's borrowings of RM1.7 billion which will increase following the purchase of CTP via a loan of US$200 million.

We remain positive on Kulim as its vast land in PNG and SI is expected to contribute further to the growth of its plantation business. We also take into account Kulim management's effort to continuously improve their plantation yield, besides the fact that the company's food and restaurant services under QSR Brands Bhd is expected to grow further on more franchise openings and better economic outlook.

Using the sum-of parts (SOP) valuation method, we revise our fair value for Kulim shares to RM9.24 which translates into a price-to-earnings ratio (PER) of 10.2 times. This is a discount compared to its equivalent peer which is valued at a PER of above 15 times. We recommend an outperform call for Kulim. - Inter-Pacific Research, March 10


This article appeared in The Edge Financial Daily, March 11, 2010.

ANNJOO - Price Target News

Stock Name: ANNJOO
Company Name: ANN JOO RESOURCES BHD
Research House: AFFIN

Steel sector
Maintain overweight: Despite the challenging 2009, most steel companies declared higher-than-expected dividends, which is likely an indication of optimism on 2010 outlook and an end to cash conservation mode. This also reaffirms our view that earnings turnaround for steel companies this year remains intact.

The much-improved 4Q09 earnings were primarily fuelled by a lower cost base as higher-priced raw material inventories were exhausted in 1H09. Moreover, we note 4Q09 operating margins have reverted to pre-crisis levels (2007).

While sales tonnage remained flat due to sluggish domestic demand, we take comfort that domestic steel bar prices have held steady at RM2,000/tonne due to more disciplined pricing strategies undertaken by steel millers. However, international steel prices softened in 4Q09 due to the winter season, where construction activities are kept to a minimum. This led to lower export sales in 4Q09, but has since picked up in 1Q10.

With the uptrend in selling prices, we believe operating margins are set to expand in the coming quarters, given the mismatch of higher spot selling prices and lower raw material cost purchased earlier.

Coupled with an uptick in steel demand, underpinned by infrastructure works like the Second Penang Bridge, LRT extensions as well as the construction of the new LCCT, we believe steel millers are on track to deliver sizeable earnings growth for 2010 (average of 160% year-on-year). This is consistent with our projection of a 4% y-o-y growth in construction GDP for 2010 followed by 5% y-o-y for 2011.

Given the strong earnings momentum, we believe current valuations for steel companies, trading at CY10 price earnings (PE) of 7-11 times, are undemanding. We are more optimistic on long steel players (Ann Joo & Kinsteel) compared to flat steel players (Choo Bee, Hiap Teck & Tong Herr) as demand for flat steel typically lags behind long steel, which is largely used for construction activities.

Hence, our top picks are Ann Joo (buy, target price RM3.41) and Kinsteel (buy, RM1.24). - Affin Research, March 8


This article appeared in The Edge Financial Daily, March 10, 2010.

GAMUDA - Price Target News

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining its Underperform on GAMUDA BHD [] with a fair value of RM2.12 after the infrastructure company and WCT BHD [] faced a legal suit in Qatar.

Bahrain Asphalt Establishment (BAE), a sub-contractor to the 51:49 JV between Gamuda and WCT for the Dukhan Highway project in Qatar, has served the Gamuda-WCT JV a request for arbitration.

BAE is claiming for QAR109.3 million (RM101.1 million), coupled with unquantified sums for legal, arbitration and interest costs.

Gamuda has stated it has a good defence against the claims.

"Based on Gamuda's 51% share of the total sum claimed (before legal, arbitration and interest costs) of RM51.5 million, the potential loss to Gamuda is 2.6sen per share that will put an 18% dent to our projected FY07/10 EPS of 14.4sen for Gamuda.

"Forecasts are maintained pending the outcome of the arbitration," it said.

KINSTEL - Price Target News

Stock Name: KINSTEL
Company Name: KINSTEEL BHD
Research House: AFFIN

Steel sector
Maintain overweight: Despite the challenging 2009, most steel companies declared higher-than-expected dividends, which is likely an indication of optimism on 2010 outlook and an end to cash conservation mode. This also reaffirms our view that earnings turnaround for steel companies this year remains intact.

The much-improved 4Q09 earnings were primarily fuelled by a lower cost base as higher-priced raw material inventories were exhausted in 1H09. Moreover, we note 4Q09 operating margins have reverted to pre-crisis levels (2007).

While sales tonnage remained flat due to sluggish domestic demand, we take comfort that domestic steel bar prices have held steady at RM2,000/tonne due to more disciplined pricing strategies undertaken by steel millers. However, international steel prices softened in 4Q09 due to the winter season, where construction activities are kept to a minimum. This led to lower export sales in 4Q09, but has since picked up in 1Q10.

With the uptrend in selling prices, we believe operating margins are set to expand in the coming quarters, given the mismatch of higher spot selling prices and lower raw material cost purchased earlier.

Coupled with an uptick in steel demand, underpinned by infrastructure works like the Second Penang Bridge, LRT extensions as well as the construction of the new LCCT, we believe steel millers are on track to deliver sizeable earnings growth for 2010 (average of 160% year-on-year). This is consistent with our projection of a 4% y-o-y growth in construction GDP for 2010 followed by 5% y-o-y for 2011.

Given the strong earnings momentum, we believe current valuations for steel companies, trading at CY10 price earnings (PE) of 7-11 times, are undemanding. We are more optimistic on long steel players (Ann Joo & Kinsteel) compared to flat steel players (Choo Bee, Hiap Teck & Tong Herr) as demand for flat steel typically lags behind long steel, which is largely used for construction activities.

Hence, our top picks are Ann Joo (buy, target price RM3.41) and Kinsteel (buy, RM1.24). - Affin Research, March 8


This article appeared in The Edge Financial Daily, March 10, 2010.

MRCB - Price Target News

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining a trading buy on MALAYSIAN RESOURCES CORP [] Bhd and raised the target price to RM1.75 from RM1.63. It said on Wednesday, March 10 the Employees Provident Fund Board's (EPF) offer of RM1.50 per share was a 5% premium to MRCB's weighted average price (VWAP) over the last two months and 3% below Tuesday's closing price of RM1.55. "Despite the slight premium we do not view the offer as attractive given that our previous fair value of RM1.63 per share exceeds the offer by 8.6%. Given that the EPF intends to maintain the listing status of MRCB we do not believe a privatization will likely occur. Nevertheless, the fact that the EPF is willing to make a takeover over offer shows that the EPF sees value in MRCB," it said. On the offer, OSK Research said at a glance the offer seems to be triggered more by a technicality after the excess shares allotment following the recent right issue. It added that some might even view the low premium for the offer price as an indication that the EPF does not desperately want to increase its stake in MRCB and that the offer only came about because of the laws requiring the EPF to do so. "However we could not rule out the possibility that the EPF does indeed have a intention to significantly increase its stake in MRCB but not to the extent of privatizing the company. One could also view the EPF's move as an effort to turn MRCB into its property arm which we believe is inline with the EPF's intention to increase its investment exposure in the property market," it said. OSK Research said although it is hard to predict the outcome from the offer as well as the possible move that might be taken by EPF as MRCB largest shareholder, it maintains its TRADING BUY recommendation as it believe regardless of the changes in its shareholder structure, there is still a lot of potential for the company. This underpinned by the strong business turnaround coupled with the possibility of JVs with the Government to develop government land, similar to what the Naza group has secured. "After some adjustment in our SOP valuation we have raised our TP from RM1.63 previously to RM1.75," it said.

PBBANK - Price Target News

Stock Name: PBBANK
Company Name: PUBLIC BANK BHD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research is retaining its earnings growth projections for Public Bank at 10-14% over FY10-12F, driven by strong revenue flows and stable low provisions given its robust asset quality. "Our 24-25% ROE projections take into account lower dividend payout (50-55%), but also more conservative loan growth," it said on Wednesday, March 10. HWDBS Research projects 12% loan growth for FY10F. It also expects Public Bank's overseas contribution to normalise following heavy provisioning in FY09. The research house said that capital issues will have to be looked into. It added Basel 3 is still being discussed and scheduled to be finalised only at end-2010. While Basel 3 appears punitive to banks, the proposed reforms may not be fully implemented. Currently, the adjusted calculation for risk weighted assets to incorporate counterparty risks remains murky. HWDBS Research did not discount a rights issue if Public Bank needs to meet stricter capital requirements.
"Maintain Hold and RM12.20 TP. We now expect ROEs to remain stable, instead of increase. Although earnings are expected to grow at 10%-14% over the next three years and loans at 10-12%, we expect ROEs to remain at 24%-25%. "Dividend yields are still decent at 4%-5%. The share price has risen 22% over the last 6 months, and coupled with lower dividend payouts ahead, we believe there is limited upside from here. Maintain Hold and RM12.20 target price based on the Gordon Growth Model with the following assumptions: 25% sustainable ROE, 3% long-term growth and 9.8% cost of equity," HWDBS Research said.

MAXIS - Price Target News

Stock Name: MAXIS
Company Name: MAXIS BERHAD
Research House: MAYBANK

KUALA LUMPUR: Maybank Equity Research has upgraded Maxis to a Buy with a DCF-derived RM6.20 target price from RM5.80. It said on Tuesday, March 9 that as all celcos focus on expanding domestic market share in 2010, it expects Maxis' larger advertising muscle and scale economies to sustain earnings growth and market share resilience. Maybank Equity Research said 2009 was a year of consolidation and investment although 4Q09 net subscriber additions hint at a more aggressive stance in 2010. Maxis ended 2009 with no market share losses in subscriber terms, at 40.5% (4Q09: +0.9%-pts QoQ) which was a bonus. "We believe that Maxis is now committed to defending its market-leadership by ensuring it at least matches the average industry growth rate, given its rivals' aggressive price promotions," it said. However, it lowered its net profit forecasts by 7% and 9% for 2010 and 2011, although EBITDA growth is raised to 5% and 6% respectively. The lower net profits are mainly a function of greater investment in its network capacity and higher finance costs although EBITDA will still grow. "Nevertheless, the minimum dividends we expect Maxis to pay out in 2010 is now raised to an 85% payout of net profit translating to a 4.7% net dividend yield in 2010, sustainable into 2012. "Buy, with ease of mind. We raise our DCF-value to RM6.20 as we update our DCF assumptions given better clarity post-IPO (beta: 0.8 from 1.0; WACC: 8.6% from 9.2%)," it said.

PPB - Price Target News

Stock Name: PPB
Company Name: PPB GROUP BHD
Research House: HWANGDBS

PPB Group Bhd
(March 8, RM16.60)
Maintain hold at RM16.10, target price at RM17.50: PPB Group has clarified that the RM600 million proceeds (after paying a special 50 sen dividend per share) from the sale of its sugar business would be utilised to expand its flour business in Indonesia and Vietnam, and to grow its property business.

PPB has a 1,000-tonne mill in Indonesia that was commissioned in October 2009. The utilisation rate is 40% currently, but will reach 55%-60% by year-end and generate RM10 million to RM12 million profit (12% of FY09 flour earnings before interest and tax (Ebit).

Indonesia is its key flour market given the large population (10 times of Malaysia's), lower flour consumption per capita (half of Malaysia's), and more importantly, it is an unregulated market there.

2010 will be a better year for its flour business, with lower overall wheat prices of US$270-US$280/tonne, almost half the peak of US$500/tonne. We are assuming average utilisation rates of 75%-80% and 10% Ebit margins, translating into 17% and 37% growth in revenue and Ebit to RM1.3 billion and RM128 million in FY10, respectively.

PPB said besides 1973, 2009 was the worst year for its flour business (-19% and -44% year-on-year decline in revenue and Ebit) due to higher wheat prices and collapse of futures prices.

The sweetener will be an expected liberalisation of the flour business in mid-2010, where prices will be based on market forces and volumes for general-purpose flour will rise. PPB is also exploring potential joint ventures with Wilmar to expand its flour business in China and India.

Valuation seems reasonable at 12 times CY11 earnings per share (EPS) (versus 17 times-18 times for IOI and Sime) for a large-cap agriculture-based company, but there is no near-term catalyst.

However, the management has strong business acumen and should make further inroads into the flour business. We prefer Wilmar (buy, target price S$8) as a more liquid direct proxy to growing opportunities in China. - HwangDBS Vickers Research, March 8


This article appeared in The Edge Financial Daily, March 09, 2010.

RHBCAP - Price Target News

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

RHB Capital Bhd
(March 8, RM5.75)
Maintain buy at RM5.70, target price at RM7.10: RHBCap announced that it is negotiating with TM Asia Life Malaysia Bhd (TM Asia) to establish a mutually exclusive 10-year bancassurance alliance in Malaysia.

The alliance is to sell, market and promote conventional life insurance products developed by TM Asia for sale by RHB Bank via its network of offices, branches and other alternative distribution channels developed jointly by them.

The alliance will be divided in two five-year terms - Term One and Term Two. TM Asia will pay RHB Bank a special incentive during Term One (and Term Two if RHB Bank meets the annual or cumulative annual milestones). According to the announcement, TM Asia will also pay an exclusivity fee of RM100 million in consideration of RHB Bank's commitment to the 10-year exclusive bancassurance relationship.

The arrangement is similar to the alliance between Public Bank (PBB) and ING Asia/Pacific in 2007. Here, we are positive over the potential tie-up between RHB Bank and TM Asia. We believe RHBCap would be able to reach another milestone of its Transformation Programme Initiatives via this potential alliance with TM Asia (after earlier negotiations for the establishment of a bancassurance alliance between RHB Bank and AIA had ceased).

We believe the tie-up with TM Asia would be able to enhance RHB Bank's operating income.

We also forecast the RM100 millionn upfront fee would help boost RHBCap's financial year ending Dec 31, 2010 net profit by close to 6%. We are not imputing the upfront fee or impact from this tie-up into our earnings estimates at this juncture pending a 90-day due diligence exercise to be undertaken by TM Asia.

No change to earnings estimates. We are projecting FY10/FY11/FY12 net profit to rise by 10.2%/15.5%/17.2% year-on-year to RM1.32/RM1.53/RM1.79 billion. DPS (dividend per share) assumptions are also maintained at 24/28/35 sen for FY10/FY11/FY12 in line with management's commitment to maintain its dividend payout ratio of at least 30% per annum. Target price maintained at RM7.10 (based on the Gordon Growth Model, assuming cost of equity of 10%, ROE (return on equity) of 14.3% and sustainable long-term growth of 3% or an implied price/book value of 1.61 times.

We also believe the Employees Provident Fund's (RHBCap's major shareholder) commitment to reduce its stake to strategic investors will add further value to the RHB banking franchise. - TA Securities, March 8


This article appeared in The Edge Financial Daily, March 09, 2010.

KOSSAN - Price Target News

Stock Name: KOSSAN
Company Name: KOSSAN RUBBER INDUSTRIES BHD
Research House: MAYBANK

Kossan Rubber Industries Bhd
(March 8 , RM7.55)
Maintain buy at RM7.38, target price raised to RM10.20: Kossan shares' target price is raised to RM10.20 from RM7 as we lift the company's core earnings by 24% to 40%, and dividend forecasts by 253% to 268% for 2010 and 2011 respectively on stronger operating and financial prospects. Maintain buy.

Two misfortunes - foreign exchange derivatives loss and fire incidents - which upset its business focus and reputation in 2009, are unlikely to be repeated in 2010. These incidents aside, we see immediate strong quarter ahead and expect Kossan to grow by 24% to 40% a year in 2010 and 2011, underpinned mainly by the glove manufacturing capacity expansion programme.

Kossan's 2010 and 2011 earnings forecast is raised by 24% to 40%, lifted by capacity expansion plans but on falling (Ebit) earnings before interest and taxes margin outlook due to average selling price (ASP) pressure as new capacity crowds the market.

Kossan is slated to add two billion pieces of gloves a year over the next two years, which will bring total capacity to 15 billion to 16 billion pieces by-end 2011.

Development will be staggered in four phases, with eight double former lines built every half-year. Capital expenditure (capex) is RM35 million to RM40 million per phase.

We have raised our dividend per share (DPS) forecasts to 30 sen for 2010 (+253% year-on-year ) and 35 sen (+268% y-o-y) for 2011.

The management has hinted that dividend payout will be higher from 2010 onwards on stronger free cash flows (FCF) expectation. We are guided that dividend payout could reach up to 40% on FCF strength which translates into DPS of 36 sen to 40 sen a year and dividend yield of 5%. For comparison, Kossan had made a DPS payout of 14% to 27% between 2006 and 2008.

We estimate Kossan to make FCF of RM84 million to RM88 million in 2010 and 2011 and turn into net cash by 2011.

We remain buyers of Kossan as valuations are attractive and yields are improving. Our RM10.20 target price includes a 10% discount to our discounted cash flow-derived valuations to reflect potential systemic issues arising from the industry.

Valuations are also attractive at a price-to-earnings ratio (PER) of 8.3 times which is within its eight -year average PER of 8.5 times but below the sector's 11 times. - Maybank IB , March 8


This article appeared in The Edge Financial Daily, March 09, 2010.