SAPCRES - Price Target News

Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Research House: RHB

SapuraCrest Petroleum Bhd (SapCrest)
(March 25, RM2.49)
Maintain market perform at RM2.36, with fair value of RM2.66: SapCrest's core net profit for the financial year ended Jan 31, 2010 was largely in line, accounting for 103% and 95% of our full-year forecast and market consensus respectively.

Revenue for 4Q was down 53% quarter-on-quarter (q-o-q), mainly due to lower revenue from marine division (-47% q-o-q) on account of declining charter rates and lower utilisation rates as well as lower contribution from installation of pipeline and facilities (IPF) division (-71% q-o-q) due to seasonal factors.

Despite higher margins for IPF (+20.8 percentage points q-o-q), overall margins were dragged down by an operating loss of RM43.7 million for the marine division (versus 3Q operating loss of RM20.8 million) as well as declining drilling margin (-3.4 percentage points q-o-q) stemming from lower utilisation rates.

Stronger FY11, including the latest production sharing contractors' (PSCs) IPF contract worth RM1.5 billion, SapuraCrest's current effective order book now stands at RM7.4 billion. We note that the PSCs' IPF contract is for 2010 with additional contract sums to be awarded for 2011-12. Furthermore, we expect FY11-FY13 IPF operating margin to increase to 11.9%-12.2% respectively (versus 11.1% in FY10) given the higher contribution from higher-margin deepwater jobs as well as higher utilisation rates for its IPF vessels.

The company declared a final dividend of four sen per share. Coupled with its interim of three sen, total dividends for FY10 are seven sen implying a yield of 3%.

There are no changes to our forecasts for now. We have introduced our FY01/FY13 earnings projection.

As an investment case, we believe medium-term earnings visibility remains bright on the back of: RM7.4 billion order book and stronger order book replenishment from overseas (such as India and Australia) for its IPF division; better cost control given ownership of its own IPF vessels as well as cost pass-through contracts; and stronger growth in rates for its drilling division.

Potentially, as we see more contracts secured, there may be upside to our fair value of RM2.66 per share, which is based on 16 times FY11 earnings per share (EPS). Hence, we maintain our market perform call on the stock. - RHB Research Institute, March 25
This article appeared in The Edge Financial Daily, March 26, 2010.

KENCANA - Price Target News

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

Kencana Petroleum Bhd
(March 26, RM1.57)
Reiterate trading buy at RM1.59, target price raised to RM1.86: Earnings for the first half (1H) of the financial year ending July 31, 2010 (FY10) fell short of estimates, accounting for only 36.4% and 43% of ours and consensus' full-year estimate respectively. However, the second quarter (2Q) tends to be Kencana's weakest quarter.

Despite lower contract realisation, Ebit (earnings before interest and tax) margins were buoyed by favourable fabrication margins (on average higher than 15%) as most of the raw material costs, mobilisation expenses are passed down to its clients.

We believe management had implemented cost control measures as early as 1Q of calendar year 2009 to preserve earnings. Moving forward, we expect Kencana to lock in higher margin revenue derived from its marine segment which delivers high yields and constant income stream.

Order book replenishments were rather slow in 2H09. Nonetheless, we understand that the group is anticipating to be awarded several substantial projects in "smaller packets" in the near future. We believe the group will be in line with its annual targeted replenishment rates of at least RM1 billion per annum. The present order book is about RM1.7 billion comprising RM800 million from marine engineering, RM27.6 million from project management and RM827.2 million from Kencana Petroleum Ventures (KPV), the group's marine services division.

However, the current spare capacity may prove to be an advantage for Kencana as it is able to take on immediate new jobs.

There are possible immediate re-rating catalysts for Kencana. We understand that the group is in a solid position to win further fabrication contracts awarded by domestic PSC (production contract sharing) clients, which will warrant an earnings revision. This is also supported by the construction of anchor handling tug supply (AHTS) vessels and workbarges to provide steady income stream for its KPV segment and Petronas potentially awarding an estimated RM4 billion of new fabrication jobs. Kencana's spare capacity at its fabrication yard and solid track performance would be its biggest value propositions in bidding for jobs.

We reiterate our trading buy recommendation with an increased target price of RM1.86 (previously RM1.55 post-rights issue) based on 18 times price-to-earnings ratio (PER) of FY10, which is a 20% discount to its four-year PE average at 23 times.

We retain our FY11 numbers as we await the award of the forthcoming fabrication contracts which will have accretive effect on future earnings. Kencana is currently trading at 15.4 times earnings per share (EPS) 2010, within its four-year average PE of 13.9 times to 42.3 times. - MIDF Research, March 26


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

KENCANA - Price Target News

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

KUALA LUMPUR: OSK Research maintains its Buy call on Kencana Petroleum and it has upgraded its target price to RM2.04 based on higher PER valuation of 16x CY11 EPS (previously RM1.46 based on a PER of 14x FY11 EPS). It said on Friday, March 26 that historically, Kencana share price has even traded above 25x and it believes giving a slightly higher PER valuation of 16x is fair given the expected better prospects of the company. "Among the other listed O&G companies, we believe Kencana stands a better chance in securing new contracts soon given the nature of its business coupled with its international presence, delivery track record and availability of yard space," it said. OSK Research said to date, it still has a strong orderbook of about RM2 billion, which should last it for the next 12 months. Finally, Kencana is also one of the few O&G companies that had a net cash position of RM332.8 million as at 2QFY10 (versus RM93.0 million as at 1QFY10). To recap, the research house said Kencana's 2QFY10 results were within expectations. Again, this quarter had minimal new fabrication contracts from Petronas and its PSC contractors, resulting in Kencana's yard only 50% utilised. Also, there was delay in the commencement of KM1 to June 2010. It downgraded its FY10 forecast by 7% to factor in the lower 1H10 numbers but it upgraded the FY11 forecast by 9% to reflect the brighter prospect of the company.

IJMLAND - Price Target News

Stock Name: IJMLAND
Company Name: IJM LAND BERHAD
Research House: CITI GROUP

IJM Land Bhd
(March 26, RM2.30)
Initiation of coverage with buy/medium-risk, target price of RM2.95: IJM Land currently trades at a steep 39% discount to our fully diluted revised net asset value (RNAV) of RM3.69 per share. We expect the upside to RNAV will come from rising value of The Light, its flagship waterfront development, and potential Canal City land acquisition. Our RM2.95 target price is based on a 20% discount to RNAV, in line with peer S P Setia Bhd.

We recommend investors to switch to IJM Land and sell S P Setia. S P Setia has a calendar year 2010 (CY10) price-to-earnings ratio (PER) of 24 times and is trading almost inline with its RNAV.

IJM Land has stronger earnings growth (verssus S P Setia's three-year compound annual growth rate or CAGR of 10%), more compelling valuations, and larger landbank of 5,740 acres (versus S P Setia's 3,588 acres), making IJM Land a more compelling option for those seeking exposure to Malaysian developers.

We expect a three-year net profit CAGR of 59% in FY10 to FY12. The uplift in earnings from financial year ending March 31, 2011 (FY11) onwards should be driven by The Light project in Penang and projects in the Klang Valley. Sales from Penang make up close to 35% of our forecast property development earnings before interest and tax (Ebit). We also forecast expansion in property development margins from 15% in FY10 to 19% in FY11 due to higher margin products being launched.

There is an expected earnings upside from sale of land and property. IJM Land is currently in talks for the sale of its AEON mall in Melaka, and we have projected an RM50 million gain, although there could be upside risk to our estimate. The key focus development in Johor is Sebana Cove, hence there is a likelihood that land in other parts of Johor, such as Mount Austin (250 acres), could be sold at a profit.

Malaysia lacks large and liquid property developers to attract foreign investors. S P Setia has always been a firm favorite due to its size, strong management and liquidity. In our view, IJM Land could be a close rival to S P Setia with sales likely to hit close to RM1 billion in FY10 and forecast to increase to RM1.37 billion in FY11. S P Setia recorded RM1.65 billion sales in FY09. - Citi Investment Research, March 25


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

GAMUDA - Price Target News

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

KUALA LUMPUR: OSK Research says GAMUDA BHD []'s 1HFY10 earnings of RM131 million (+25.9%) made up 44% of its FY10 estimates. It said on Friday, March 26 Gamuda's orderbook was RM7 billion and jobs are on track. Prospective jobs have however either been delayed or tenders lost. "We see orderbook replenishment risk for FY10. On property sales, management expects a marginally weaker 2H. We are skeptical on the proposed water asset acquisition by SPLASH as many uncertainties remain," it said. OSK Research said valuations remain unattractive at 10x CY10 earnings vs its peers average of 14.5x. It maintained a Neutral call on Gamuda with a target price of RM2.75. To recap, Gamuda posted 2QFY10 revenue of RM603 million (+1.9% y-o-y, -3.3% q-o-q) and earnings of RM68 million (+38.6% y-o-y, +7.9% q-o-q). On a cumulative basis, revenue stood at RM1227 million m (+1.8% y-o-y) and earnings at RM131 million m (+25.9% y-o-y). From a y-o-y comparison, 1H margins were higher with EBIT and net amounts at 9.4% and 10.7% (FY09 comparatives at 7.6% and 8.6%). "Overall, 1H earnings made up 43.6% of our full year projections (42.7%% of consensus). We deem this to be marginally below expectations," it said.

HAPSENG - Price Target News

Stock Name: HAPSENG
Company Name: HAP SENG CONSOLIDATED BHD
Research House: CIMB

Plantations sector
Retain trading buy; Sime Darby remains top pick with fair value of RM10.70: The government has confirmed that it will roll out in stages the mandatory sale of biofuel in Malaysia from June next year. This is an official confirmation that the government has pushed back its timeline for nationwide implementation of B5.

This is a 16-month delay from the earlier target of February 2010 but is not a major surprise to the market. On a more positive note, the government has retained the target blend of 5%, contrary to earlier speculation that it may be scaled back to 3%.

We believe the delay was caused by the main issues of who will bear the cost of the implementation of biodiesel and the logistics of getting the biodiesel blend to the market, for instance, who will purchase the palm-based biodiesel for blending with the diesel and bear the additional costs? Secondly, who will subsidise the biodiesel which is more expensive than the subsidised diesel and whether the government will extend the same subsidy to biodiesel? Earlier estimates suggest that the cost of subsidising biodiesel in the country could touch RM250 million.

From the minister's statements, it appears that these two issues have been solved. The government will finance the construction of biodiesel blending facilities at six petroleum depots in the central region and has pushed back the implementation to give the petroleum companies sufficient time to prepare themselves for the sale of the new blended diesel.

As for the pump price of biofuel, the minister has indicated that it might fluctuate according to the prevailing price of petroleum and crude palm oil.

This suggests that by the time the biodiesel mandate is implemented, the government may have rolled back the subsidy on diesel and consumers will have to pay the market price of biofuel and diesel.

We expect this news to have minimal impact on crude palm oil (CPO) price in the near term given that the government had hinted earlier at the possibility of a delay. However, this news is positive in the medium term as full implementation will lead to additional domestic demand of 500,000 tonnes for palm-based biodiesel, which is equivalent to 3% of the current CPO production in Malaysia.

We retain our CPO price forecasts, which means status quo for the earnings estimates and target prices for all the Malaysian planters we track. We continue to rate the plantation sector a trading buy due to our positive take on CPO price and Malaysian planters' underperformance relative to regional peers since last year.

We continue to prefer the planters with higher exposure to Sabah estates as these players should register higher production growth in 2010 due to the recovery of yields from the poor weather in 2009. Also, planters in East Malaysia are subject to a higher CPO price threshold of RM3,000 per tonne for windfall tax compared to RM2,500 for Peninsular Malaysia planters and a lower windfall tax rate of 7.5% versus 15% for Peninsular Malaysia players.

In line with this strategy and given their attractive valuations, we like Genting Plantations and Hap Seng Plantations. Our top pick continues to be Sime Darby for its improved transparency and potential yield enhancement for its estates. - CIMB Research, March 25
This article appeared in The Edge Financial Daily, March 26, 2010.

SIME - Price Target News

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: CIMB

Plantations sector
Retain trading buy; Sime Darby remains top pick with fair value of RM10.70: The government has confirmed that it will roll out in stages the mandatory sale of biofuel in Malaysia from June next year. This is an official confirmation that the government has pushed back its timeline for nationwide implementation of B5.

This is a 16-month delay from the earlier target of February 2010 but is not a major surprise to the market. On a more positive note, the government has retained the target blend of 5%, contrary to earlier speculation that it may be scaled back to 3%.

We believe the delay was caused by the main issues of who will bear the cost of the implementation of biodiesel and the logistics of getting the biodiesel blend to the market, for instance, who will purchase the palm-based biodiesel for blending with the diesel and bear the additional costs? Secondly, who will subsidise the biodiesel which is more expensive than the subsidised diesel and whether the government will extend the same subsidy to biodiesel? Earlier estimates suggest that the cost of subsidising biodiesel in the country could touch RM250 million.

From the minister's statements, it appears that these two issues have been solved. The government will finance the construction of biodiesel blending facilities at six petroleum depots in the central region and has pushed back the implementation to give the petroleum companies sufficient time to prepare themselves for the sale of the new blended diesel.

As for the pump price of biofuel, the minister has indicated that it might fluctuate according to the prevailing price of petroleum and crude palm oil.

This suggests that by the time the biodiesel mandate is implemented, the government may have rolled back the subsidy on diesel and consumers will have to pay the market price of biofuel and diesel.

We expect this news to have minimal impact on crude palm oil (CPO) price in the near term given that the government had hinted earlier at the possibility of a delay. However, this news is positive in the medium term as full implementation will lead to additional domestic demand of 500,000 tonnes for palm-based biodiesel, which is equivalent to 3% of the current CPO production in Malaysia.

We retain our CPO price forecasts, which means status quo for the earnings estimates and target prices for all the Malaysian planters we track. We continue to rate the plantation sector a trading buy due to our positive take on CPO price and Malaysian planters' underperformance relative to regional peers since last year.

We continue to prefer the planters with higher exposure to Sabah estates as these players should register higher production growth in 2010 due to the recovery of yields from the poor weather in 2009. Also, planters in East Malaysia are subject to a higher CPO price threshold of RM3,000 per tonne for windfall tax compared to RM2,500 for Peninsular Malaysia planters and a lower windfall tax rate of 7.5% versus 15% for Peninsular Malaysia players.

In line with this strategy and given their attractive valuations, we like Genting Plantations and Hap Seng Plantations. Our top pick continues to be Sime Darby for its improved transparency and potential yield enhancement for its estates. - CIMB Research, March 25
This article appeared in The Edge Financial Daily, March 26, 2010.

TM - Price Target News

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

KUALA LUMPUR: Hwang DBS Vickers Research says there is no change to its forecasts and DCF-based price target of RM3.45. It said on Friday, March 26 that TM's share price has rallied 12% since it upgraded the stock in January 2010. "Factoring in 5.6% net dividend yield, total return on TM share is now only 5%. Share price has run-up since our upgrade, now offers limited upside. Downgrade to HOLD. Fundamental view on TM is intact," it said in a research note. HDBSVR said TM's lowest high-speed broadband package price of RM149 implies average revenue per user (ARPU) could be higher than it assumed. It said this strengthens its view that TM's 20 sen/share dividend commitment is intact The research house said in its earlier scenario analysis for the HSBB, it assumed RM150 ARPU. But with HSBB packages priced at RM149-RM249, HSBB ARPU may surpass its assumption of RM150. While these plans come with fair usage limits of 60GB-120GB, they offer free voice calls to TM fixed lines and cheap 10 sen/minute tariff to mobile numbers. "In our earlier scenario analysis, we concluded that TM's commitment to pay 20 sen/share dividend is sustainable. The potential upside to ARPU assumption further supports our view," it said.

TM - Price Target News

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

Telekom Malaysia Bhd (TM)
(March 25, RM3.48)
Maintain neutral at RM3.40, target price of RM3.03: We were at the high-speed broadband (HSBB) launch on Wednesday night at Merdeka Square in Kuala Lumpur. The key showcase piece was TM's much-awaited triple-play offering (branded as UniFi) where guests were treated to superior broadband bandwidth and a selection of 22 linear Internet protocol television (IPTV) channels.

We were reasonably impressed by the broadband experience which boasts consistent throughputs of 18Mbps-20Mbps with little noticeable service degradation (sceptics would argue that this is possible in a "closed" environment and it remains to be seen if such would prevail in a residential setting). On IPTV, the on-screen interface appears friendly and uncluttered. We gather that up to 50 true video-on-demand channels will be made available.

For a start, TM will be making available three bundled packages (voice+broadband+IPTV with speeds of 5Mbps, 10Mbps and 20Mbps, respectively) with monthly subscription rates that range from RM149 to RM249 for residential use while for business use, the rates are from RM199 to RM899.

The entry level plan is priced only slightly lower than its top- tier 4Mbps Streamyx Combo ADSL package which retails for RM150 per month (including fixed-line access). Subscribers will get a sleek Huawei set-top box, a router modem and an IP phone (TM's IP phone allows free inter-IP calls with an attractive flat rate tariff for mobile calls of 10 sen per min). Overall, we believe the price-points are attractive and would encourage some of its existing ADSL subscribers on 1Mbps/4Mbps lines to up-trade with some cannibalisation of the 4Mbps plan anticipated. To help boost broadband penetration in the country, TM also lowered the monthly access for its entry level 384kbps ADSL plan to RM38 per month from RM50 per month. With access to RM1 billion worth of Universal Service Provision funding (a fund under the Malaysian Communications and Multimedia Commission), it will also provide bundled netbooks to students under a student broadband package.

TM remains a neutral on valuation. Although the HSBB opens up a new revenue stream and is viewed as a longer-term panacea to TM's eroding fixed-line franchise, we are not overly excited given expectations of modest take-up in the medium term that will be accompanied by sharp increases in operating expenditure (opex) and capital expenditure (capex) (upside risks to capex) into financial year ending Dec 31, 2012 as TM expands its coverage to 1.3 million premises. - OSK Research, March 25
This article appeared in The Edge Financial Daily, March 26, 2010.

GENP - Price Target News

Stock Name: GENP
Company Name: GENTING PLANTATIONS BERHAD
Research House: CIMB

Plantations sector
Retain trading buy; Sime Darby remains top pick with fair value of RM10.70: The government has confirmed that it will roll out in stages the mandatory sale of biofuel in Malaysia from June next year. This is an official confirmation that the government has pushed back its timeline for nationwide implementation of B5.

This is a 16-month delay from the earlier target of February 2010 but is not a major surprise to the market. On a more positive note, the government has retained the target blend of 5%, contrary to earlier speculation that it may be scaled back to 3%.

We believe the delay was caused by the main issues of who will bear the cost of the implementation of biodiesel and the logistics of getting the biodiesel blend to the market, for instance, who will purchase the palm-based biodiesel for blending with the diesel and bear the additional costs? Secondly, who will subsidise the biodiesel which is more expensive than the subsidised diesel and whether the government will extend the same subsidy to biodiesel? Earlier estimates suggest that the cost of subsidising biodiesel in the country could touch RM250 million.

From the minister's statements, it appears that these two issues have been solved. The government will finance the construction of biodiesel blending facilities at six petroleum depots in the central region and has pushed back the implementation to give the petroleum companies sufficient time to prepare themselves for the sale of the new blended diesel.

As for the pump price of biofuel, the minister has indicated that it might fluctuate according to the prevailing price of petroleum and crude palm oil.

This suggests that by the time the biodiesel mandate is implemented, the government may have rolled back the subsidy on diesel and consumers will have to pay the market price of biofuel and diesel.

We expect this news to have minimal impact on crude palm oil (CPO) price in the near term given that the government had hinted earlier at the possibility of a delay. However, this news is positive in the medium term as full implementation will lead to additional domestic demand of 500,000 tonnes for palm-based biodiesel, which is equivalent to 3% of the current CPO production in Malaysia.

We retain our CPO price forecasts, which means status quo for the earnings estimates and target prices for all the Malaysian planters we track. We continue to rate the plantation sector a trading buy due to our positive take on CPO price and Malaysian planters' underperformance relative to regional peers since last year.

We continue to prefer the planters with higher exposure to Sabah estates as these players should register higher production growth in 2010 due to the recovery of yields from the poor weather in 2009. Also, planters in East Malaysia are subject to a higher CPO price threshold of RM3,000 per tonne for windfall tax compared to RM2,500 for Peninsular Malaysia planters and a lower windfall tax rate of 7.5% versus 15% for Peninsular Malaysia players.

In line with this strategy and given their attractive valuations, we like Genting Plantations and Hap Seng Plantations. Our top pick continues to be Sime Darby for its improved transparency and potential yield enhancement for its estates. - CIMB Research, March 25
This article appeared in The Edge Financial Daily, March 26, 2010.

KLK - Price Target News

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

Plantations sector
Retain trading buy; Sime Darby remains top pick with fair value of RM10.70: The government has confirmed that it will roll out in stages the mandatory sale of biofuel in Malaysia from June next year. This is an official confirmation that the government has pushed back its timeline for nationwide implementation of B5.

This is a 16-month delay from the earlier target of February 2010 but is not a major surprise to the market. On a more positive note, the government has retained the target blend of 5%, contrary to earlier speculation that it may be scaled back to 3%.

We believe the delay was caused by the main issues of who will bear the cost of the implementation of biodiesel and the logistics of getting the biodiesel blend to the market, for instance, who will purchase the palm-based biodiesel for blending with the diesel and bear the additional costs? Secondly, who will subsidise the biodiesel which is more expensive than the subsidised diesel and whether the government will extend the same subsidy to biodiesel? Earlier estimates suggest that the cost of subsidising biodiesel in the country could touch RM250 million.

From the minister's statements, it appears that these two issues have been solved. The government will finance the construction of biodiesel blending facilities at six petroleum depots in the central region and has pushed back the implementation to give the petroleum companies sufficient time to prepare themselves for the sale of the new blended diesel.

As for the pump price of biofuel, the minister has indicated that it might fluctuate according to the prevailing price of petroleum and crude palm oil.

This suggests that by the time the biodiesel mandate is implemented, the government may have rolled back the subsidy on diesel and consumers will have to pay the market price of biofuel and diesel.

We expect this news to have minimal impact on crude palm oil (CPO) price in the near term given that the government had hinted earlier at the possibility of a delay. However, this news is positive in the medium term as full implementation will lead to additional domestic demand of 500,000 tonnes for palm-based biodiesel, which is equivalent to 3% of the current CPO production in Malaysia.

We retain our CPO price forecasts, which means status quo for the earnings estimates and target prices for all the Malaysian planters we track. We continue to rate the plantation sector a trading buy due to our positive take on CPO price and Malaysian planters' underperformance relative to regional peers since last year.

We continue to prefer the planters with higher exposure to Sabah estates as these players should register higher production growth in 2010 due to the recovery of yields from the poor weather in 2009. Also, planters in East Malaysia are subject to a higher CPO price threshold of RM3,000 per tonne for windfall tax compared to RM2,500 for Peninsular Malaysia planters and a lower windfall tax rate of 7.5% versus 15% for Peninsular Malaysia players.

In line with this strategy and given their attractive valuations, we like Genting Plantations and Hap Seng Plantations. Our top pick continues to be Sime Darby for its improved transparency and potential yield enhancement for its estates. - CIMB Research, March 25
This article appeared in The Edge Financial Daily, March 26, 2010.

TANJONG - Price Target News

Stock Name: TANJONG
Company Name: TANJONG PUBLIC LIMITED COMPANY
Research House: HWANGDBS

Tanjong plc
(March 25, RM17.90)
Maintain buy at RM17.74, target price raised to RM19.50: Tanjong's result for its financial year ended Jan 31, 2010 (FY10) was within ours and market expectations with stronger power earnings.

Tanjong's FY10 revenue grew 5% led by higher contribution from all divisions. Net profit grew 46% year-on-year (y-o-y) despite only 25% growth in power earnings due to lower business development cost (RM114 million) and windfall tax (RM85 million), but gaming earnings before interest and tax (Ebit) fell 20% due to higher racing totalisator expenses. Excluding one-off items, FY10 net profit was flat y-o-y at RM677 million due to lower gaming margin (down six percentage points) as a result of special draws and racing totalisator (RTO) losses.

FY10 gross dividend per share (DPS) of RM1 implies 4% net yield. Tanjong declared a fourth interim gross DPS of 17.5 sen and a final 30 sen DPS, bringing FY10 gross DPS to RM1 (90 sen for FY09). We expect DPS to rise gradually as Tanjong plans to maintain a progressive dividend policy and achieve a balance between long-term growth and shareholder returns.

We continue to favour Tanjong for its good earnings visibility and potential earnings boost from new acquisition and number forecasting operation (NFO) games, unlocking value of its power and gaming businesses, and turnaround of Tropical Island after overnight accommodation is completed by end calendar year 2010.

Despite the run-up in the share price (+32% over last 12 months), Tanjong's valuation remains reasonable at 10 times CY11 price-to-earnings ratio (PER) against regional peers' average of 14 times. Maintain buy with upgraded sum-of-parts derived target price of RM19.50 per share after rolling forward our valuation window. - HwangDBS Vickers Research, March 25
This article appeared in The Edge Financial Daily, March 26, 2010.

TANJONG - Price Target News

Stock Name: TANJONG
Company Name: TANJONG PUBLIC LIMITED COMPANY
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research maintains its Outperform recommendation on Tanjong plc as the stock may be catalysed. The research house said on Friday, March 26 the factors are if it gets a replacement numbers forecast operations (NFO) game, ii) Tropical Islands makes a sustainable turnaround earlier-than-expected, iii) Tanjong lines up M&As, or iv) lists its power arm in the medium term. The report was issued after Tanjong's first ever post-results conference call, which were mostly negative. CIMB Equities Research said the points raised were there may be a cash call to fund large-scale M&As, ii) RTO losses are likely to rise 15% in FY11, and iii) there are unlikely to be any power unlocking efforts, at least not over the next few months. The main bright spot was management's commitment to a progressive dividend policy, which supports our projected gross dividend yields of 5-7%. CIMB Equities Research said after factoring in wider RTO losses, it trimmed its FY11-13 core earnings by 1-2%, which clips 5 sen off our end-CY10 target price, taking it to RM21.05, still based on a 10% SOP discount. "Despite the negative tone of the conference call, we continue to rate Tanjong an Outperform," it said.

IOICORP - Price Target News

Stock Name: IOICORP
Company Name: IOI CORPORATION BHD
Research House: CIMB

Plantations sector
Retain trading buy; Sime Darby remains top pick with fair value of RM10.70: The government has confirmed that it will roll out in stages the mandatory sale of biofuel in Malaysia from June next year. This is an official confirmation that the government has pushed back its timeline for nationwide implementation of B5.

This is a 16-month delay from the earlier target of February 2010 but is not a major surprise to the market. On a more positive note, the government has retained the target blend of 5%, contrary to earlier speculation that it may be scaled back to 3%.

We believe the delay was caused by the main issues of who will bear the cost of the implementation of biodiesel and the logistics of getting the biodiesel blend to the market, for instance, who will purchase the palm-based biodiesel for blending with the diesel and bear the additional costs? Secondly, who will subsidise the biodiesel which is more expensive than the subsidised diesel and whether the government will extend the same subsidy to biodiesel? Earlier estimates suggest that the cost of subsidising biodiesel in the country could touch RM250 million.

From the minister's statements, it appears that these two issues have been solved. The government will finance the construction of biodiesel blending facilities at six petroleum depots in the central region and has pushed back the implementation to give the petroleum companies sufficient time to prepare themselves for the sale of the new blended diesel.

As for the pump price of biofuel, the minister has indicated that it might fluctuate according to the prevailing price of petroleum and crude palm oil.

This suggests that by the time the biodiesel mandate is implemented, the government may have rolled back the subsidy on diesel and consumers will have to pay the market price of biofuel and diesel.

We expect this news to have minimal impact on crude palm oil (CPO) price in the near term given that the government had hinted earlier at the possibility of a delay. However, this news is positive in the medium term as full implementation will lead to additional domestic demand of 500,000 tonnes for palm-based biodiesel, which is equivalent to 3% of the current CPO production in Malaysia.

We retain our CPO price forecasts, which means status quo for the earnings estimates and target prices for all the Malaysian planters we track. We continue to rate the plantation sector a trading buy due to our positive take on CPO price and Malaysian planters' underperformance relative to regional peers since last year.

We continue to prefer the planters with higher exposure to Sabah estates as these players should register higher production growth in 2010 due to the recovery of yields from the poor weather in 2009. Also, planters in East Malaysia are subject to a higher CPO price threshold of RM3,000 per tonne for windfall tax compared to RM2,500 for Peninsular Malaysia planters and a lower windfall tax rate of 7.5% versus 15% for Peninsular Malaysia players.

In line with this strategy and given their attractive valuations, we like Genting Plantations and Hap Seng Plantations. Our top pick continues to be Sime Darby for its improved transparency and potential yield enhancement for its estates. - CIMB Research, March 25
This article appeared in The Edge Financial Daily, March 26, 2010.

BJTOTO - Price Target News

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

Berjaya Sports Toto Bhd (BToto)
(March 26, RM4.44)
Maintain buy at RM4.42 with target price of RM4.91: BToto's new lotto game, Supreme Toto 6/58 (6/58) recorded average revenue per draw of approximately RM800,000 since it was launched three draws ago on March 20, with a maiden jackpot of RM10.9 million. This was within expectations as Mega Toto 6/52 (6/52) and Super Toto 6/49 (6/49) recorded similar revenue per draw when their jackpot was approximately RM10 million.

Since 6/58 was launched, BToto recorded average lotto revenue per draw of RM1.5 million. The incremental average lotto revenue per draw was approximately RM500,000 (6/58 average revenue per draw of RM800,000 less discontinued 6/49 average revenue per draw of RM300,000) or some 30% higher. Lotto revenue per draw will trend higher as the last total jackpot offered was only RM18 million when the total minimum jackpot is RM13.9 million. This is especially so when the jackpots snowball to levels way higher than the minimum.

Lotto revenue comprised only 7% and 10% of FY08 and FY09 gross number forecast operation (NFO) revenue and grew RM132.4 million year-on-year (y-o-y) but was outpaced by non-lotto revenue which grew RM321.9 million y-o-y or two and a half times more.

Increased visits to outlets driven by large jackpots also resulted in higher non-lotto sales. With larger jackpots going forward due to the high 6/58 minimum jackpot of RM8.9 million, we foresee non-lotto revenue growth as well. With the competing Magnum 4D Jackpot being struck on Sunday, this will only help BToto's cause.

We maintain buy and RM4.91 target price. As only three draws have passed, we leave our earnings estimates unchanged for now. Our RM4.91 target price is premised on end-financial year ending April 30, 2011 (FY11) discounted cash flow, utilising 7.9% weighted average cost of capital and 1.5% terminal growth rate.

We forecast that investors will also receive 27 sen single-tier dividend per share (DPS) (fourth quarter of FY10: four sen single tier, FY11: 23 sen single tier) between now and end-FY11 translating into 17% upside potential. With 681 outlets (Magnum: 485, Da Ma Cai: 343), BToto is the single-largest NFO operator in Malaysia and is well poised to secure the sports betting licence. - ECM Libra Investment Research, March 26


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

MAYBANK - Price Target News

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD
Research House: HWANGDBS

Malayan Banking Bhd
(March 26, RM7.42)
Maintain hold, with target price at RM7.30: Maybank has proposed a dividend reinvestment plan that allows its shareholders to reinvest their dividends into new ordinary shares in Maybank.

Whether a cash dividend is announced, the board has the absolute discretion to determine that the proposed dividend reinvestment plan will apply to the whole or a portion of the cash dividend and where applicable any remaining portion will be paid in cash. Note that there is no tax advantage to be gained in either option, be it cash or shares.

We view this proposal positively as one of the methods of capital management which could potentially enhance Maybank's capital position over the longer term.

Note that Singapore banks have given their shareholders an option for script dividends each time a dividend is declared.

The proposed dividend reinvestment plan would enlarge Maybank's share base and strengthen its capital position, as well as the liquidity of Maybank's shares on Bursa Malaysia.

The issue price of the new Maybank shares to be issued under the proposed dividend reinvestment plan shall not be more than 10% discount to the five-day volume weighted average market price of Maybank shares prior to the price fixing date.

The proposed dividend reinvestment plan is conditional upon approvals from Bank Negara Malaysia, Bursa Securities Malaysia, Maybank shareholders and other relevant authorities, if required.

In addition, a separate approval from Bank Negara would be sought for each declaration of dividend and increase in the issued and paid-up capital of Maybank arising from the proposed dividend reinvestment plan.

We maintain hold on Maybank with target price at RM7.30. Our RM7.30 target price is derived from the Gordon Growth Model, and implies sustainable 14.5% return on equity (ROE), 6% long-term growth, and 10.6% cost of equity (COE). - HwangDBS Vickers Research, March 26


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

MAYBANK - Price Target News

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research is Neutral on MALAYAN BANKING BHD [] as its strong core EPS growth of 46% for FY10 and 15-17% for FY11-12 is largely priced in, given its above-average CY11 P/E of 11.6x vs. the sector's 10.4x. "We remain NEUTRAL on Maybank We prefer Public Bank for exposure to big-cap Malaysian banks," it said on Friday, March 26. The research house said Maybank's proposed dividend reinvestment plan comes as a surprise, but a pleasant one. CIMB Equities Research said the proposal will benefit shareholders as it gives them the option to reinvest dividends from the group in Maybank shares at up to 10% below market price and without transaction costs. From Maybank's perspective, there will be minimal earnings dilution as we estimate that the new shares to be issued annually will make up only 2%-3% of the share base and the shares will be issued at a limited discount to the market price. "We, therefore, maintain our earnings forecasts and target price of RM8.35, still based on a 5% premium over our DDM value," it said.

MAGNA - Price Target News

Stock Name: MAGNA
Company Name: MAGNA PRIMA BHD
Research House: HWANGDBS

Magna Prima Bhd
(March 24, RM1.02)
Not rated, 12-month price target of RM1.30: The company is repositioning as a niche property developer. Magna Prima was recently reclassified under the property sector on Bursa Malaysia, in line with its repositioning as a niche developer that focuses on high-value, small pockets of land in the Klang Valley. Following a change in top management in 2009, Magna Prima went on an acquisition spree to boost its landbank.

Magna Prima saw a major change in its management team last year with the resignation of its group managing director and CEO. The appointment of a new CEO and chief operating officer with vast experience in property development, investment and merchant banking is expected to steer Magna Prima forward.

Magna Prima has an aggressive launch pipeline, with plans for six projects worth RM1 billion by 2011, comprising gated landed residential and commercial developments in the Klang Valley (including the RM90 million One Jalil residential project which land acquisition is under litigation).

First off the block will be One Sierra, Selayang, in April with gross development value (GDV) RM150 million.

Its high-end condo project near the KLCC is expected to come on stream after 2013 (post-relocation of Lai Meng school pending approval from the education ministry). A potential joint-venture partner may be required given the massive size (GDV RM1 billion) and target market.

Cash flow management and cost control will be crucial. We expect Magna Prima's net gearing to balloon to 171% from 10% currently, due to recent land acquisitions and working capital requirements. This could decline to 130% by 2012 with improved operating cash flows. With an internal construction arm, there should be better management of cost, quality and execution. Land replenishment may be a concern given the aggressive launch plans and tight cash flow.

The valuation of Magna Prima shares is attractive, but launches may be delayed. It is currently trading at 55% discount to revised net asset value (RNAV), in line with small-cap developers. We value Magna Prima at RM1.30 based on 40% discount to its RM2.17 RNAV. If we exclude contribution from the Lai Meng high-end condos, its RNAV would be RM1.52.

Magna Prima may have one of the strongest earnings growth in the sector given its small base (three-year compound annual growth rate of 111%), but most of its recent land acquisitions have not been completed, which may result in delayed launches (we assumed most of its launches would be in 2011). - HwangDBS Vickers Research, March 24


This article appeared in The Edge Financial Daily, March 25, 2010.

SAPCRES - Price Target News

Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research retains its Outperform on SapuraCrest and its top oil & gas pick after it announced its earnings. It said on Thursday, March 25 SapuraCrest's 4QFY1/10 net profit of RM39 million took full-year bottomline to an all-time high of RM170 million (+47% Year-on-Year), 2% above its forecast and consensus estimate. However, the company surprised with a final DPS of 4 sen, which took FY10 DPS to 7 sen, above our forecast of 6 sen. "We maintain our earnings forecasts and target price of RM3.02 as we continue to value the stock at our target market P/E of 15x. "The potential share price triggers are 1) strong 4Q10 results, 2) active order book replenishment, 3) success in new markets, and 4) a growing fleet of strategic assets," it said.

ASTRO - Price Target News

Stock Name: ASTRO
Company Name: ASTRO ALL ASIA NETWORKS PLC
Research House: RHB

Media sector
Neutral; Media Prima remains preferred pick with fair value of RM2.23: According to Nielsen Media Research (NMR), February's gross advertising expenditure (adex) for television and print media rose 29.1% year-on-year (y-o-y) with both TV and print media reporting y-o-y growth of 55.3% and 11.7% respectively. On the whole, we believe this strong y-o-y growth was mainly due to the low base effect as a result of weak economic conditions a year ago.

Overall, February's print media y-o-y growth was led by the Chinese dailies, which grew 42.6% with stronger numbers generally posted across the board.
The English dailies also recorded better y-o-y figures (+5.4%), led by The Star and The Malay Mail, which grew (16.5% and 16% respectively). As for the Malay dailies, gross adex declined by 2.6% y-o-y, mainly due to weaker adex for Utusan Malaysia (-27.9%) and Berita Harian (-4.6%).

February's TV adex was still going strong, recording 29.1% y-o-y growth, mainly a reflection of last year's low base. The stronger TV adex growth was led by TV2 (+120.5%), of which, we believe was aided by their repositioning exercises last year.

We expect 2010 to be a relatively better year for ad spending, especially as compared to 2009. Based on our projected 2010 gross domestic product (GDP) growth of 4.5% (-1.7% in 2009) and the average GDP multiplier of 2.1 times (between 1989 and 2008), 2010 gross adex could see a growth of 9.5%.

Apart from higher overall ad spending anticipated as the global economy recovers, adex growth in 2010 would also be supported by "ad-friendly" events such as the 2010 FIFA World Cup, Thomas/Uber Cup and the Commonwealth Games.

The risks include weaker-than-expected consumer spending and demand, and hence, lower adex which could be due to a slower-than-expected recovery in the global economy, among others, higher-than-expected newsprint or content costs; and a weaker-than-expected ringgit versus the US dollar.

Media Prima Bhd (outperform, fair value of RM2.23) remains our preferred pick as we believe adex especially for TV will be a prime beneficiary of a recovering economy. We maintain our outperform call on Media Chinese International Ltd and market perform call on Star Publications Malaysia Bhd. We have, however, downgraded our call for Astro All Asia Networks plc to underperform (from trading buy previously), given that its share price has run up closer to the conditional offer price of RM4.30 per share.

We maintain our neutral stance on the sector. - RHB Research Institute, March 24


This article appeared in The Edge Financial Daily, March 25, 2010.

SILKHLD - Price Target News

Stock Name: SILKHLD
Company Name: SILK HOLDINGS BERHAD
Research House: MIDF

SILK Holdings Bhd
(March 24, 40.5 sen)
Maintain buy at 39 sen, with target price of 46 sen: SILK's net profit for the first half of financial year ending July 31, 2010 (1HFY10) is below forecast, accounting for 38.3% of our full-year estimate. The variance was due to lower-than-expected revenue in the highway division, where it accounts for 23.5% of our full-year revenue forecast. The oil and gas (O&G) division's revenue accounts for 49.8% of our full-year revenue forecast.

SILK's 1HFY10 net profit increased by 71.2% year-on-year (y-o-y) registering RM11.2 million with most of the contribution coming from the O&G division.

O&G is the new focus. O&G revenue was 29.9% higher y-o-y in 2QFY10 following the commissioning of three new vessels and gains from the disposal of a vessel. It now accounts for 81.4% of the group's total revenue, evident that O&G is becoming the new focus for the group as it continues securing new medium- and long-term contracts.

The highway division is improving as well. There were improvements in the highway division as revenue increased by 16.3% y-o-y in 2QFY10, to register RM10.7 million. It may be possible that the improvement was due to the school holidays in December as Kajang becomes a destination for its famous satay.

As for prospects, since oil is trading within the US$80 (RM265.60) levels, we expect that the O&G division will see further growth. We believe most of the demand will be fuelled by China and India as they continue to lead the economic recovery. Any collapse in the oil price which would affect SILK's offshore support vessels is mitigated as all of its vessels are on long-term contracts of between one and seven years.

We expect the highway division would continue its steady growth, although more to a natural growth as we do not see any major new township development happening in the area. The highway division would continue to register accounting losses but will be on a declining basis as support for the highway increases.

We maintain our buy recommendation with a target price of 46 sen as SILK's earnings prospects are fairly bright, driven by the expected growth in the O&G sector. Our valuation is based on sum of parts; with a discounted cash flow valuation for the highway subsidiary, using a WACC (weighted average cost of capital) of 4.38% and at 10 times price-earnings ratio (PER) of our projected FY11 on the O&G subsidiary. - MIDF Research, March 24


This article appeared in The Edge Financial Daily, March 25, 2010.

GAMUDA - Price Target News

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

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) is maintaining a Buy on GAMUDA BHD [] with a target price of RM4.20 after its associate, SPLASH made an offer of RM10.75 billion for Selangor water assets. Gamuda's 40%-associate, SPLASH, is offering to the Federal Government and Selangor State Government for the four water concessions in the state. This is higher than the Selangor Government's offer of RM9.2bn in July 2009 - difference is additional RM782m for Puncak Niaga and RM750m for Splash's O&M operators, Sungai Harmoni and Gamuda Water. "Since SPLASH is the acquirer in this exercise, we estimate that Gamuda's cash flow gain will be limited to its 80% stake in Gamuda Water. This works out to be RM320m (16 sen a share) assuming RM400m of the RM750m is for Gamuda Water," iot said. HDBSVR said SPLASH is requesting for only 2-3% annual tariff hike (9% every 3 years) vs 37% scheduled increase for Syabas, in return for a 30-year concession starting 2010, and would reduce NRW from 29% in 2010 to 15% in 2016. This seems like a win-win deal for all parties; the spanner in the works is political will and Puncak Niaga, which offer is now 15% higher. Recall Splash and ABASS accepted the Selangor Government's offer in July 2009, but the deal fell through because the other two operators rejected it. For the broad water sector, the deal would end the legal suits between the operators, appease consumers with muted tariff hikes, and it would not burden the Federal Government's already stretched balance sheet and end the 3-year dead lock. HDBSVR said despite risk of another false start, the deal is positive for Gamuda. HDBSVR said the positive factors are: i) potential special dividends - if Gamuda pays out half the RM320m, investors could gain a one-off 3% yield despite Gamuda potentially having to fork out more cash if Splash calls for a rights issue; ii) spillover of CONSTRUCTION []/ upgrading works for the water distribution network, and opportunity to clinch other portions of the Inter-State Water Transfer Project, and iii) (iii) with Splash controlling the water industry and the O&M operators, Gamuda will have a larger earnings base.

STAR - Price Target News

Stock Name: STAR
Company Name: STAR PUBLICATIONS (M) BHD
Research House: RHB

Media sector
Neutral; Media Prima remains preferred pick with fair value of RM2.23: According to Nielsen Media Research (NMR), February's gross advertising expenditure (adex) for television and print media rose 29.1% year-on-year (y-o-y) with both TV and print media reporting y-o-y growth of 55.3% and 11.7% respectively. On the whole, we believe this strong y-o-y growth was mainly due to the low base effect as a result of weak economic conditions a year ago.

Overall, February's print media y-o-y growth was led by the Chinese dailies, which grew 42.6% with stronger numbers generally posted across the board.
The English dailies also recorded better y-o-y figures (+5.4%), led by The Star and The Malay Mail, which grew (16.5% and 16% respectively). As for the Malay dailies, gross adex declined by 2.6% y-o-y, mainly due to weaker adex for Utusan Malaysia (-27.9%) and Berita Harian (-4.6%).

February's TV adex was still going strong, recording 29.1% y-o-y growth, mainly a reflection of last year's low base. The stronger TV adex growth was led by TV2 (+120.5%), of which, we believe was aided by their repositioning exercises last year.

We expect 2010 to be a relatively better year for ad spending, especially as compared to 2009. Based on our projected 2010 gross domestic product (GDP) growth of 4.5% (-1.7% in 2009) and the average GDP multiplier of 2.1 times (between 1989 and 2008), 2010 gross adex could see a growth of 9.5%.

Apart from higher overall ad spending anticipated as the global economy recovers, adex growth in 2010 would also be supported by "ad-friendly" events such as the 2010 FIFA World Cup, Thomas/Uber Cup and the Commonwealth Games.

The risks include weaker-than-expected consumer spending and demand, and hence, lower adex which could be due to a slower-than-expected recovery in the global economy, among others, higher-than-expected newsprint or content costs; and a weaker-than-expected ringgit versus the US dollar.

Media Prima Bhd (outperform, fair value of RM2.23) remains our preferred pick as we believe adex especially for TV will be a prime beneficiary of a recovering economy. We maintain our outperform call on Media Chinese International Ltd and market perform call on Star Publications Malaysia Bhd. We have, however, downgraded our call for Astro All Asia Networks plc to underperform (from trading buy previously), given that its share price has run up closer to the conditional offer price of RM4.30 per share.

We maintain our neutral stance on the sector. - RHB Research Institute, March 24


This article appeared in The Edge Financial Daily, March 25, 2010.

MEDIA - Price Target News

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

Media sector
Neutral; Media Prima remains preferred pick with fair value of RM2.23: According to Nielsen Media Research (NMR), February's gross advertising expenditure (adex) for television and print media rose 29.1% year-on-year (y-o-y) with both TV and print media reporting y-o-y growth of 55.3% and 11.7% respectively. On the whole, we believe this strong y-o-y growth was mainly due to the low base effect as a result of weak economic conditions a year ago.

Overall, February's print media y-o-y growth was led by the Chinese dailies, which grew 42.6% with stronger numbers generally posted across the board.
The English dailies also recorded better y-o-y figures (+5.4%), led by The Star and The Malay Mail, which grew (16.5% and 16% respectively). As for the Malay dailies, gross adex declined by 2.6% y-o-y, mainly due to weaker adex for Utusan Malaysia (-27.9%) and Berita Harian (-4.6%).

February's TV adex was still going strong, recording 29.1% y-o-y growth, mainly a reflection of last year's low base. The stronger TV adex growth was led by TV2 (+120.5%), of which, we believe was aided by their repositioning exercises last year.

We expect 2010 to be a relatively better year for ad spending, especially as compared to 2009. Based on our projected 2010 gross domestic product (GDP) growth of 4.5% (-1.7% in 2009) and the average GDP multiplier of 2.1 times (between 1989 and 2008), 2010 gross adex could see a growth of 9.5%.

Apart from higher overall ad spending anticipated as the global economy recovers, adex growth in 2010 would also be supported by "ad-friendly" events such as the 2010 FIFA World Cup, Thomas/Uber Cup and the Commonwealth Games.

The risks include weaker-than-expected consumer spending and demand, and hence, lower adex which could be due to a slower-than-expected recovery in the global economy, among others, higher-than-expected newsprint or content costs; and a weaker-than-expected ringgit versus the US dollar.

Media Prima Bhd (outperform, fair value of RM2.23) remains our preferred pick as we believe adex especially for TV will be a prime beneficiary of a recovering economy. We maintain our outperform call on Media Chinese International Ltd and market perform call on Star Publications Malaysia Bhd. We have, however, downgraded our call for Astro All Asia Networks plc to underperform (from trading buy previously), given that its share price has run up closer to the conditional offer price of RM4.30 per share.

We maintain our neutral stance on the sector. - RHB Research Institute, March 24


This article appeared in The Edge Financial Daily, March 25, 2010.

TM - Price Target News

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

KUALA LUMPUR: OSK Research retains its Neutral recommendation on Telekom Malaysia on its expensive valuations. It said on Thursday, March 25 the high-speed broadband (HSBB) opens up a new revenue stream and is viewed as a longer-term panacea to TM's eroding fixed line franchise. However, "we are not overly excited given expectations of modest take-up in the medium-term that will be accompanied by sharp increases in opex and capex(upside risks to capex) into FY12 as TM expands its coverage to 1.3 million premises," it said. OSK Research expects ballooning HSBB opex/capex to crimp earnings with suppressed EBITDA margins well into FY11. "TM remains expensive when stacked against our regional telecoms universe albeit boasting a decent dividend yield of over 7%. Maintain NEUTRAL based on TP of RM3.03," it said. It said under the HSBB, for a start, TM will be making available 3 bundled packages (voice+broadband+IPTV)- 5Mbps, 10Mbps and 20Mbps with monthly subscription likely ranging from RM149 to sub- RM250 (actual pricing unveiled this morning). The entry level plan is priced only slightly higher than its top tier 4Mbps Streamyx Combo ADSL package which retails for RM150/mth (including fixed line access). Subscribers will get a sleek Huawei set-top box, a router modem and an IP phone (TM's IP phone allows free inter-IP calls with an attractive flat rate tariff for mobile calls of 10sen/min). Overall, we believe the price-points are attractive and would encourage some of its existing ADSL subscribers on 1Mbps/4Mbps lines to up-trade with some cannibalisation of the 4Mbps plan anticipated. To help boost broadband penetration in the country, TM also lowered the monthly access for its entry level 384kbps ADSL plan to RM38/mth from RM50/mth. With access to RM1bn worth of USP funding, it will also provide bundled netbooks to students under a student broadband package.

TANJONG - Price Target News

Stock Name: TANJONG
Company Name: TANJONG PUBLIC LIMITED COMPANY
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research says Tanjong plc remains an Outperform as it sees potential re-rating for the power-gaming company. It said on Thursday, March 25 the catalysts will be a replacement NFO game, a sustainable turnaround at Tropical Islands, more M&As and a potential separate listing of its power arm. Tanjong's FY1/10 core results missed CIMB Research and consensus estimates by 4% due to higher-than-expected RTO losses and net interest expense. "But investors can take comfort in the higher-than-expected gross DPS of 47.5 sen in 4Q, which took FY10 total DPS to 100 sen, above our 95 sen estimate and FY09's 90 sen," it said. After i) updating FY10's figures and ii) imputing RM30 million scheduled maintenance costs for FY11, it scaled back its FY11-12 core EPS figures by 5-7% while introducing an estimate for FY13. CIMB Research raised its FY11-12 DPS estimates by 5% in view of FY10's higher payout. "Despite the earnings cuts, our end-CY10 SOP-based target price rises from RM19.85 to RM21.10 (10% discount intact) after i) updating our COE assumptions with the latest estimates, ii) reflecting FY10 actual figures, and iii) valuing TGV at its NBV following its first full-year contribution as a 100%-owned subsidiary," it said.

PBBANK - Price Target News

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

Public Bank Bhd
(March 24, RM11.66)
Maintain buy at RM11.64, with fair value of RM13: Public Bank remains on track to achieve an expansion in loans of 14%-15% for the financial year ending Dec 31, 2010 (FY10), we gathered from our recent meeting. Internally, it expects industry loan growth to pick up 8%-10% for 2010, from 7.8% in 2009.

Growth areas are still mortgages and small and medium enterprises, with targeted loan growth of 15% for both as well as auto loans (targeted 10%-12% growth).

In terms of fixed deposit rates, last week it adjusted upwards its one-year fixed deposit rates to 2.75%, from 2.6% it set on March 10 (previously 2.5%).

Public Bank clarified that there is no minimum requirement set by the regulators in terms of fixed deposits this time around. The main reason for its adjustment upwards in terms of pricing its one-year fixed deposit rates was due to its strategy to grow its deposit base.

As for net interest margin (NIM), Public Bank hinted that NIM is likely to expand on back of its latest rate increase. The guidance is now more positive then previously - the company indicated that it expects NIM to remain stable.

Loan loss provisioning is expected to have peaked in FY09, given that of RM397milliom in specific loan loss recorded in FY09, RM265 million was related to overseas operations, stemming mainly from its Hong Kong (HK) and Cambodia side. Cambodia was affected by more stringent regulation, while HK is expected to have stabilised.

Public Bank remains confident of achieving an ROE (return on equity) of 30% in three years' time. In addition, it remains committed to a dividend payout of 50% to 55%.

From our latest company visit, we expect to tweak upwards our forecasts to take into account higher loan growth outlook. We remain positive on Public Bank and maintain our buy recommendation with an unchanged fair value of RM13 a share.

Catalysts for the stock are; consistent dividend payout, better-than-expected loan growth; and higher-than-expected ROE. - AmResearch, March 24


This article appeared in The Edge Financial Daily, March 25, 2010.

MAGNA - Price Target News

Stock Name: MAGNA
Company Name: MAGNA PRIMA BHD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research has a Target Price of RM1.30 for Magna Prima which is a niche property developer with RM1 billion worth of launches in Klang Valley over next two years. The research house said on Wednesday, March 24 it sees strong earnings growth for Magna Prima, but cash flow management and cost control will be crucial. "The RM1.30 TP is based on small-cap 40% discount to RNAV of RM2.17 (RM1.52 excluding Lai Meng high-end condominiums)," it said. Hwang DBS Vickers Research said Magna Prima was recently re-classified under "Property" on Bursa Malaysia, in line with its repositioning as a niche developer that focuses on high-value, small pockets of land in the Klang Valley. Following a change in top management in 2009, it went on an acquisition spree to boost its landbank. Magna Prima plans to launch six projects worth RM1 billion by 2011, comprising gated landed residential and commercial developments in the Klang Valley. Its high-end condo project near KLCC is expected to come on stream after 2013 (post-relocation of Lai Meng school pending approval from Education Ministry). A potential JV partner may be required given the massive size (GDV of RM1b) and target market. "We expect Magna Prima's net gearing to balloon to 171% from 10% currently, due to recent land acquisitions and working capital requirements. "This could decline to 130% by 2012 with improved operating cashflows. With an internal CONSTRUCTION [] arm, there should be better management of cost, quality and execution. Land replenishment may be a concern given the aggressive launch plans and tight cashflow," it said. Hwang DBS Vickers Research said the stock was currently trading at 55% discount to RNAV, in line with small- cap developers.

GAMUDA - Price Target News

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

Gamuda Bhd
(March 23, RM2.83)
Maintain buy at RM2.74, with target price of RM4.20: Gamuda's results for 2QFY10 are due tomorrow. We expect 5%-10% growth in net profit quarter-on-quarter underpinned by gradual improvement in construction margin and higher recognition of property billings.

1QFY10 construction margin of 4% should show continuous improvement for the next eight quarters before stabilising at 10%-11% in FY11. 2QFY10 property earnings should remain robust driven by unbilled sales of about RM700 million. We understand 1HFY10 property sales have already reached RM490 million with full-year sales likely to reach RM800 million (versus FY09 of RM500 million and FY10 earlier target of RM600 million).

The stock may become an eventual Malaysian-Vietnam proxy. In our view, Gamuda is making the right move in entrenching its exposure in Vietnam, diversifying country and sector exposure out of construction.

With RM16 billion in gross development value and 12% of sum-of-parts (SOP) valuation (including Tan Thang) coming from Vietnam, Gamuda will be re-rated with improving incremental news flow in Vietnam. Next catalyst is a land sale in Yenso Park to a reputable foreign developer.

The company's large order book provides buffer. Gamuda's near-term prospects for new jobs may prove challenging if there are further delays in the rollout of mega projects, its main focus for now.

Gamuda's CY11 price-to-earnings ratio (PER) of 12.3 times and price-to-book value ratio of 1.6 times are below its 10-year average mean of 17.7 times and 1.8 times, implying limited downside. While construction jobs may be slow, we think incremental news flow on Vietnam and expectations of more transportation-related contracts (Gamuda's forte) during the 10th Malaysia Plan will be key catalysts to watch for. Buy with an SOP-derived target price of RM4.20.

We think the recent arbitration by Bahrain Asphalt Establishment (BAE), one of its asphalt subcontractors for the completed Durkan Highway project done jointly with WCT Bhd is a non-event. The total subcontract amount was RM200 million while BAE is claiming for RM101 million. - HwangDBS Vickers Research, March 23


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

HSL - Price Target News

Stock Name: HSL
Company Name: HOCK SENG LEE BHD
Research House: AMMB

Sarawak construction sector
Overweight; top picks are Naim Holdings Bhd at fair value of RM4.60 and Hock Seng Lee Bhd (HSL) at fair value RM2: We highlight Sarawak's deep development potential as a cornerstone theme for the construction sector.

Recent corporate manoeuvres have sparked interest in Sarawak plays. 1Malaysia Development Bhd recently signed a landmark deal with State Grid Corp of China to jointly invest US$11 billion (RM36.5 billion) in Sarawak. Such a move may be a prelude to stronger contract flows in Sarawak ahead of its state elections. This move would likely spin off job opportunities for top Sarawakian contractors - Naim, HSL and Cahya Mata Sarawak Bhd, as well as select steel fabricators such as KKB Engineering Bhd.

The Sarawak Corridor of Renewable Energy (Score) is one of Malaysia's five growth corridors with total targeted investments of RM334 billion. More importantly, allocation for basic infrastructure is crucial to support these huge investments - with RM65 billion being budgeted under Phase 1 of Score's implementation (2008-2015). Tenders for the Murum access roads (five packages) will be dished out simultaneously. Key areas of spending are: 1. At least RM4 billion-RM5 billion worth of road jobs up for grabs. These include two major access roads under Score - Murum (RM800 million) and Nanga-Merit (RM1.4 billion).

2. Water infrastructure. Naim is working hard to convert letters of intent for the remaining packages of the Kuching flood mitigation project (RM1.1 billion) into actual awards. Likewise, HSL is a leading candidate for balance of works worth RM2 billion under the Kuching sewerage project where it is already involved in initial works for Phase 1 with Nishimatsu of Japan.

3. Other notable jobs. We expect more concrete news flow on the status of the Mukah Airport extension worth RM600 million in the coming months. Also on the cards is a proposed Tg Manis port expansion worth RM350 million with HSL a potential beneficiary due to its prior track record of completed projects in the area (the RM300 million Tg Manis deepsea fishing port). Naim is in advanced negotiations for a proposed RM167 million Bengoh dam resettlement. A decision could be made by 2Q10.

A major draw card of Score is the ability to provide cheap power to heavy industries with a portion to be supplied to Peninsular Malaysia. So far, only two hydro dams are being built - Bakun: 2400MW, Murum: 944MW - against a total hydro potential of 20,000MW (2020 target: 10,000MW).

However with Sarawak's own rising future requirements, this may prod the state to ramp up rollout of five new hydro dams worth RM13 billion to plug the gap.

We do not discount a consortium being formed between foreign and local contractors - possibly Loh & Loh Corp Bhd - in bidding for these jobs. - AmResearch, March 23


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

GLOMAC - Price Target News

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

KUALA LUMPUR: ECM Libra Research maintains its Buy call on Glomac with unchanged target price (TP) of RM1.80 based on P/E of 12x on CY10 earnings which is supported by Glomac's three-year earnings CAGR of 16.6% with an undemanding implied PEG ratio of just 0.5x. It is also supported by RNAV of RM2.17 per share, it said in a research note on Wednesday, March 24 there. Over the next few months, ECM Libra Research said could be several positive news flow. They are the (1) en bloc sale of a 15-storey tower in Glomac Cyberjaya (RM100 million) and Phase 4 of Plaza Kelana Jaya (RM267 million), (2) launching of 378 units serviced apartments in Glomac Damansara which already has 3,000 registrants, and (3) acquisition of a major mixed development landbank in KL with potential GDV of RM4 billion to RM5 billion. "Glomac reported its best quarter in over two years with 3QFY10 net profit of RM10.6 million. 9MFY10 net profit of RM28.3 million was within expectations as it achieved 71% and 72% of house and consensus full-year estimates respectively," it said. Glomac's three sen net interim dividend as compared to 2.5 sen in 3QFY09 is a pleasant surprise. "We now expect FY10 net DPS to be at least 6 sen (previously 5 sen). Besides this, we also expect 4QFY10 results to be even better as management has guided that savings from lower CONSTRUCTION [] costs and higher floor space for Glomac Tower will be recognised from 4QFY10 onwards," it said.

PLUS - Price Target News

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

PLUS Expressways Bhd
(March 23, RM3.41)
Upgrade to buy at RM3.37, target price raised to RM3.85: PLUS is eyeing more highway concessions in the Asia-Pacific region as part of its expansion plan. We believe that India and Vietnam are the target markets.

The greatest potential would be in India. While PLUS is already managing and collecting toll for the 21.5km Bhiwandi-Kalyan-Shil Phata Highway in the state of Maharashtra, and is proposing to acquire 74% stake in Indu Navatuga Infra Project Private Ltd, a concessionaire of the 95% completed 38.6km Padalur-Trichy Highway in the state of Tamil Nadu, south of Chennai, we believe there are rooms for further expansion into the country.

India currently has 66,590km of highway called the National Highway, with 200km designated as expressway and 10,000km have four lanes or more. Although the highways constitute only approximately 2% of total road network, it carries nearly 40% of the total traffic.

PLUS had experienced delay in the completion of the highway and toll collection, due to issues pertaining to land acquisition process from the Indian authorities. However, the Indian Road Transport Ministry has asked the National Highway Authority of India to set up 150 land acquisition units to speed up the process and it plans to acquire at least 20km of land a day, which is incidentally the same length of road it targets to construct in a day.

With its experience and commitment by the Indian government to speed up land acquisition process, we expect that PLUS would be bidding to play some part in upgrading the 14,811km yet to be awarded.

We upgrade our recommendation to a buy with a higher target price of RM3.85 based of discounted-cash flow valuation of 10%. We believe the Indian government is fully committed to ensure the completion of the National Highway Development Project. We are revising our net profit forecast for financial year ending Dec 31, 2011 by 3% and onwards by an average of 8% to better reflect the growing overseas contribution. - MIDF Research, March 23


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

NAIM - Price Target News

Stock Name: NAIM
Company Name: NAIM HOLDINGS BHD
Research House: AMMB

Sarawak construction sector
Overweight; top picks are Naim Holdings Bhd at fair value of RM4.60 and Hock Seng Lee Bhd (HSL) at fair value RM2: We highlight Sarawak's deep development potential as a cornerstone theme for the construction sector.

Recent corporate manoeuvres have sparked interest in Sarawak plays. 1Malaysia Development Bhd recently signed a landmark deal with State Grid Corp of China to jointly invest US$11 billion (RM36.5 billion) in Sarawak. Such a move may be a prelude to stronger contract flows in Sarawak ahead of its state elections. This move would likely spin off job opportunities for top Sarawakian contractors - Naim, HSL and Cahya Mata Sarawak Bhd, as well as select steel fabricators such as KKB Engineering Bhd.

The Sarawak Corridor of Renewable Energy (Score) is one of Malaysia's five growth corridors with total targeted investments of RM334 billion. More importantly, allocation for basic infrastructure is crucial to support these huge investments - with RM65 billion being budgeted under Phase 1 of Score's implementation (2008-2015). Tenders for the Murum access roads (five packages) will be dished out simultaneously. Key areas of spending are: 1. At least RM4 billion-RM5 billion worth of road jobs up for grabs. These include two major access roads under Score - Murum (RM800 million) and Nanga-Merit (RM1.4 billion).

2. Water infrastructure. Naim is working hard to convert letters of intent for the remaining packages of the Kuching flood mitigation project (RM1.1 billion) into actual awards. Likewise, HSL is a leading candidate for balance of works worth RM2 billion under the Kuching sewerage project where it is already involved in initial works for Phase 1 with Nishimatsu of Japan.

3. Other notable jobs. We expect more concrete news flow on the status of the Mukah Airport extension worth RM600 million in the coming months. Also on the cards is a proposed Tg Manis port expansion worth RM350 million with HSL a potential beneficiary due to its prior track record of completed projects in the area (the RM300 million Tg Manis deepsea fishing port). Naim is in advanced negotiations for a proposed RM167 million Bengoh dam resettlement. A decision could be made by 2Q10.

A major draw card of Score is the ability to provide cheap power to heavy industries with a portion to be supplied to Peninsular Malaysia. So far, only two hydro dams are being built - Bakun: 2400MW, Murum: 944MW - against a total hydro potential of 20,000MW (2020 target: 10,000MW).

However with Sarawak's own rising future requirements, this may prod the state to ramp up rollout of five new hydro dams worth RM13 billion to plug the gap.

We do not discount a consortium being formed between foreign and local contractors - possibly Loh & Loh Corp Bhd - in bidding for these jobs. - AmResearch, March 23


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

TMCLIFE - Price Target News

Stock Name: TMCLIFE
Company Name: TMC LIFE SCIENCES BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Neutral call on TMC Life Sciences at 34 sen and maintains the RM5.8 million net profit forecast for FY10. In terms of recommendation, the research house said on Wednesday, March 24 it was still Neutral on the stock because of its unattractive FY10 PER. "Management reiterates that TMC will continue to pay dividends despite the Tropicana Medical Centre is going through a gestation period," it said. OSK Research said the management gave a detailed presentation on TMC's traditional fertility business and the new Tropicana Medical Center. Key highlight was that the new medical centre is expected to turn around this year. All the key operating statistics of the Tropicana Medical Centre such as number of admissions, average revenue / in-patient, number of new beds opened and number of in-patients have improved over the last three quarters. As a result, TMC had recorded positive EBITDA and reduced net losses. The research house said TMC had undertaken various initiatives to create greater awareness for the new hospital. Majority of its clientele thus far came from the surrounding communities and the company will continue to promote its services. In FY09, TMC derived 59% of its revenue from fertility services and another 29% from hospital services. Two other services namely the wellness program and the stem cell which contributed 9% and 3% respectively to FY09 revenue are expected to remain relatively stable in FY10. For the wellness program, marketing agency which has committed to bring in RM42 million sales over the 5 years period would provide stable revenue to TMC though not very significant. As for the stem cell business, because of pricing competition and limited stem cell therapies, OSK Research says it is not expecting this division to contribute significantly to TMC at least for the next two years.

PUNCAK - Price Target News

Stock Name: PUNCAK
Company Name: PUNCAK NIAGA HOLDINGS BHD
Research House: TA

Puncak Niaga Holdings Bhd
(March 22, RM2.50)
Maintain hold at RM2.43, target price of RM3: We continue to believe assets monetisation is the ideal exit point for shareholders, given the attractive potential upside - RM5.40 discounted cash flow valuation for Puncak Niaga and its 70%-subsidiary Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) versus the current market price of RM2.43. Uncertainty over the timing of the conclusion in negotiations however remains a key concern at this juncture. Hence, although potential upside to the stock price is now higher than 15% which warrants a buy, we retain our hold recommendation until we can get a clearer picture on the timeline on completion of the assets takeover exercise.

Water assets takeover talks between the state government and federal government presumably via Ministry of Finance-controlled Pengurusan Aset Air Bhd (PAAB) is still in the negotiation stage. We understand that the federal government is taking a more holistic approach in the restructuring of the Selangor state water assets by also addressing other outstanding issues, particularly the interstate water transfer project. This may be one of the causes the talks missed a few deadlines set by the ministry.

However, on a positive note, PAAB has completed the due diligence exercise on Puncak, leaving only the pricing issue outstanding. Our channel check indicates key stakeholders are targeting to complete the takeover talks by mid-2010, although we would not discount the possibility of negotiation dragging into 3Q10 given the complexity of the issues involved.

The management confirmed that Syabas has issued a letter of demand to the state government in respect of the tariff compensation in 2009. However, so far, we understand that the state government has yet to make any formal response. At this juncture, the management indicated that they prefer to wait for a reply before beginning to contemplate the next move, which naturally means proceeding to file a legal suit in court. We feel that the broader issue of a tariff hike would likely remain status quo until the water assets takeover talks are concluded, and based on the state's government public statements so far, nor could Syabas expect any compensation arising from the delay in tariff adjustment.

Without a tariff hike or conclusion to the assets takeover talks, Syabas is likely to sink further into the red. According to the management, Syabas loses about 10 sen to 20 sen per cu m water sold. Capital expenditure spending has been put on hold, except for emergency cases and must receive prior approval from SPAN (National Water Services Commission) and the state government. Cash flow management too is being prioritised with critical items such as financing cost and salaries taking precedents. - TA Securities, March 22


This article appeared in The Edge Financial Daily, March 23, 2010.

KNM - Price Target News

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

KUALA LUMPUR: Kenanga Investment Research recommends Hold on KNM GROUP BHD [] with a target price of 89 sen. It said on Tuesday, March 23 its recommendation was based on FY10 EPS of 5.9 sen and PER of 15 times. "We maintain our PER assumptions as share price should hold close to 90 sen until the exercise is firmed up. Our previous contention with the stock holds, contracts flows are expected to continue on slow in the near term, with potential improvement beyond 2010," it said. On Monday, KNM said it was not extending the exclusivity period for due diligence granted earlier to BlueFire Capital Group Ltd, a company controlled by KNM group managing director Lee Swee Eng. BlueFire, together with GS Capital Partners VI Fund LP and Mettiz Capital Ltd had proposed to take over KNM for RM3.5 billion. However, they target to conclude talks by April 16, 2010. Kenanga Research said speculation was rife on Monday that the due diligence exercise would not be fully completed by the committed March 22 deadline, and post that, a lower offer price could ensue. "We viewed KNM's first offer price of 90 sen as unfavourable to long term investors as it does not 1) reflect their previous earnings capacity; 2) their historical average PER trading ranges of c.15x; and 3) current global peers average FY10 PER of 15x-19x. With such reasons to prove as potential roadblocks, an even lower offer price is highly improbable," it said.

KNM - Price Target News

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

KUALA LUMPUR: RHB Research says the delay in BlueFire Capital Group Ltd's acquisition of KNM GROUP BHD [] would highlight the risk of the buyer looking at withdrawing its offer or lowering the offer price. It said on Tuesday, March 23 the buyer might look at withdrawing its offer or lowering the offer price given KNM's poor 4QFY09 results. It has a market perform with a fair value of 90 sen. On Monday, KNM said it was not extending the exclusivity period for due diligence granted earlier to BlueFire Capital Group Ltd, a company controlled by KNM group managing director Lee Swee Eng. BlueFire, together with GS Capital Partners VI Fund LP and Mettiz Capital Ltd had proposed to take over KNM for RM3.5 billion. However, they target to conclude talks by April 16, 2010.

AXREIT - Price Target News

Stock Name: AXREIT
Company Name: AXIS REITS
Research House: MAYBANK

M-REITs
Maintain overweight: Malaysian real estate investment trusts (M-REITs) are due for a re-rating, especially commercial REITs which are underpriced vis-à-vis prices transacted in the secondary (physical) market. A re-rating will also be spurred by the impending listing of three mega REITs with combined assets of up to RM8 billion, which will add to the depth and liquidity of the sector. A 50-basis point hike in the overnight policy rate in 2010 will have minimal impact on gross dividend yields, as M-REITs still provide sustainable yields of 7%-8.7%.

M-REITs are trading at a generous implied capitalisation rate of 6%-10.8%, as most M-REITs trade at 5%-39% discount to their net asset values (NAVs). This offers investors arbitrage opportunities as shop offices and strata-titled offices around the Klang Valley were recently traded at gross rental yields of 5%-6% per annum in the secondary market. Recent primary market launches around the Kota Damansara area also reflect similar yield patterns.

The total asset size of M-REITs may double to RM18 billion by end-2010 with three impending listings - Sunway City REIT (up to RM4 billion in asset size), CapitaRetail Malaysia Trust (up to RM3 billion) and Malaysia's first cross-border REIT, Qatar REIT (up to RM1 billion). To enhance the appeal of M-REIT, we understand the regulator currently favours creation of new REITs with market capitalisation of at least RM500 million on listing.

Merger and acquisition (M&A) activities are picking up momentum as capital market conditions are friendlier now. RM1 billion worth of assets will be acquired by three M-REITs, namely UOA REIT (RM500 million), Al-Aqar REIT (RM303 million) and AmanahRaya REIT (RM227 million) this year-end and more are expected to follow suit. Axis REIT will be in the race to achieve its RM1 billion asset size target by end-2010. On the other hand, Atrium REIT, is a prime takeover candidate as it is undervalued and among the smallest M-REIT in asset size.

In 2009, M-REITs provided attractive gross dividend yields of 7.1% to 8.8% compared to 12-month cash deposit rates (2.75%), EPF dividend yield (5.65%), KLCI dividend yield (2.9%) and 10-year government bond yield (4.2%). At current valuations, we believe the market has priced in zero-asset growth for 2010-2011.

Our top picks are AmanahRaya REIT with FY10 gross dividend yield of 8.4%, Axis REIT (7.9%) and Quill Capita Trust (7.6%). We also like UOA REIT and Tower REIT for their long-term value proposition and under-appreciated office values. - Maybank IB, March 22


This article appeared in The Edge Financial Daily, March 23, 2010.

QCAPITA - Price Target News

Stock Name: QCAPITA
Company Name: QUILL CAPITA TRUST
Research House: MAYBANK

M-REITs
Maintain overweight: Malaysian real estate investment trusts (M-REITs) are due for a re-rating, especially commercial REITs which are underpriced vis-à-vis prices transacted in the secondary (physical) market. A re-rating will also be spurred by the impending listing of three mega REITs with combined assets of up to RM8 billion, which will add to the depth and liquidity of the sector. A 50-basis point hike in the overnight policy rate in 2010 will have minimal impact on gross dividend yields, as M-REITs still provide sustainable yields of 7%-8.7%.

M-REITs are trading at a generous implied capitalisation rate of 6%-10.8%, as most M-REITs trade at 5%-39% discount to their net asset values (NAVs). This offers investors arbitrage opportunities as shop offices and strata-titled offices around the Klang Valley were recently traded at gross rental yields of 5%-6% per annum in the secondary market. Recent primary market launches around the Kota Damansara area also reflect similar yield patterns.

The total asset size of M-REITs may double to RM18 billion by end-2010 with three impending listings - Sunway City REIT (up to RM4 billion in asset size), CapitaRetail Malaysia Trust (up to RM3 billion) and Malaysia's first cross-border REIT, Qatar REIT (up to RM1 billion). To enhance the appeal of M-REIT, we understand the regulator currently favours creation of new REITs with market capitalisation of at least RM500 million on listing.

Merger and acquisition (M&A) activities are picking up momentum as capital market conditions are friendlier now. RM1 billion worth of assets will be acquired by three M-REITs, namely UOA REIT (RM500 million), Al-Aqar REIT (RM303 million) and AmanahRaya REIT (RM227 million) this year-end and more are expected to follow suit. Axis REIT will be in the race to achieve its RM1 billion asset size target by end-2010. On the other hand, Atrium REIT, is a prime takeover candidate as it is undervalued and among the smallest M-REIT in asset size.

In 2009, M-REITs provided attractive gross dividend yields of 7.1% to 8.8% compared to 12-month cash deposit rates (2.75%), EPF dividend yield (5.65%), KLCI dividend yield (2.9%) and 10-year government bond yield (4.2%). At current valuations, we believe the market has priced in zero-asset growth for 2010-2011.

Our top picks are AmanahRaya REIT with FY10 gross dividend yield of 8.4%, Axis REIT (7.9%) and Quill Capita Trust (7.6%). We also like UOA REIT and Tower REIT for their long-term value proposition and under-appreciated office values. - Maybank IB, March 22


This article appeared in The Edge Financial Daily, March 23, 2010.