DIGI - Price Target News

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: MAYBANK

DiGi.com Bhd
(April 1, RM22.70)
Maintain hold at RM22.58 with target price of RM23.20: With its initial toehold snugly expanded into a meaningful foothold over the last five years, DiGi is now well-prepared for the next great sprint of a marathon to be a key wireless Internet and data provider.

Our RM23.20 discounted cash flow-based (DCF) target price is based on a weighted average cost of capital (WACC) of 8.3%, risk-free rate of 4%, beta of 0.7 and terminal growth rate of 2.4%.

DiGi's remarkable transformation in the 2005-2009 period when its revenue market share rose from 16 percentage points (ppts) to 26ppts, put into perspective how it is now a meaningful and sustainable third-placed telco.

Despite the many challenges of transition and competition in 2009, DiGi is now well-entrenched to reap a sustainable if not growing share of future mobile revenues.

With its 14.4Mbps High-Speed Packet Access (HSPA) network launched, DiGi can finally offer the full suite of mobile voice and data services that its competitors had a year's head start on.

Smartphones such as the BlackBerry and iPhone are now on offer, whilst capacity and coverage are now in place for DiGi to start competing effectively in the burgeoning non-voice and value-added segments.

Braced for potentially single-digit revenue growth in voice revenues, DiGi is focused on growing future mobile data revenues significantly. Although DiGi is prepared for continued price pressures in mobile Internet, it can be expected to rely on its operational efficiency to ensure generally neutral earnings before interest, tax, depreciation and amortisation (Ebitda) margins.

DiGi quoted various independent sources expecting the mobile broadband market to be worth RM3 billion to RM4 billion by 2013. DiGi's Internet revenue contribution though not likely to be significant in 2010, could be so in 2011.

There are already over 500,000 mobile Internet users at end-4Q09 of whom about 10% are on wireless broadband.

With recent discussions on spectrum refarming, DiGi is potentially a key beneficiary. DiGi has been a relatively efficient user of the limited spectrum available and therefore would seem to be a sensible choice for the award of more spectrum.

This could drive penetration and usage further, but may not happen in the immediate forecast 2010-2012 period.

The recent announcement of RM1 billion in Universal Service Provision funds allocated for the building of various community-focused broadband initiatives is generally positive for the industry.

Aiming for above-industry average growth. DiGi hopes to achieve a better than 5%-6% revenue growth in 2010, assuming gross domestic product growth influences revenue growth the most. Whilst this may be challenging, investors are likely to be pacified by its continued commitment to further active capital management. - Maybank IB, April 1


This article appeared in The Edge Financial Daily, April 2, 2010.

WCT - Price Target News

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

KUALA LUMPUR: OSK Research is retaining its OVERWEIGHT rating on Malaysian contractors driven by expectations of more positive news flow. Its top picks are Mudajaya (BUY, TP: RM6.48) for its strong earnings growth and WCT (BUY, TP: RM3.08), as it believes more contracts are in the pipeline. It also likes Naim (BUY, TP: RM4.21) for thematic Sarawak play but downgrade Hock Seng Lee (NEUTRAL, TP: RM1.50), owing to the recent run-up in its share price. OSK Research said on Friday, April 2 that over the 1Q10 period, about RM2.85 billion worth of jobs was awarded. Domestic contracts showed a healthy 16% y-o-y increase but contracted by 38% q-o-q due to the high base effect. "We believe the domestic contract flow will exceed last year's RM9.86 billion, with better numbers showing up in the upcoming quarters," it said. It said during the 1Q10 period, of the RM2.85 billion worth of jobs was awarded, 65.2% was domestic based and 34.8% foreign. The average size per domestic job stood at RM169 million, in line with one of its key sector themes for 2010 that jobs flow will be centred on the mid-small sized ones. OSK Research said contract awards in Sarawak appear to be gaining traction, with Hock Seng Lee (NEUTRAL, TP: RM1.50, Downgrade, given the share price run-up) and Naim (BUY, TP: RM4.21) collectively bagging RM245 million worth of jobs. For the more "popular" jobs, Gadang (NR) secured the LCCT EW2 (RM291m) while IJM (NEUTRAL, TP: RM4.70) was finally awarded the RM600m Besraya extension after almost a year. "Market talk is that the UEM-Bina Puri JV and privately held AHT Norlan-Carriage JV are the finalists for the LCCT terminal building (RM750 million to RM850 million) and satellite tower (RM400 million to RM500 million). Shortlisted contractors that did not make it were Sunway (NR), IJM and Gadang. The Government is also evaluating the proposal for a RM5-6bn highway parallel to the existing NSE connecting Banting (Selangor) and Taiping (Perak), which could eventually be extended all the way to Gelang Patah in Johor. "We think the proposal makes little economic sense as the current NSE is not fully utilised (festive seasons excluded). Furthermore, the completion of the Double Track at end-2013 would already provide an alternative route, especially for cargo flow," said OSK Research. In East Malaysia, there are plans to construct an 11km bridge linking Sabah and Labuan, which could cost RM3 billion (RM6 billion if delayed). "We are sceptical on the feasibility of this project as Labuan's population is a mere 90, 000," it said. Recently, the 60:40 JV between Loh&Loh (NR) and Sinohydro received the LOI for the Hulu Terengganu Dam (RM828 million). The other finalist for the job was Gamuda (NEUTRAL, TP: RM2.75).

MUDAJYA - Price Target News

Stock Name: MUDAJYA
Company Name: MUDAJAYA GROUP BHD
Research House: OSK

KUALA LUMPUR: OSK Research is retaining its OVERWEIGHT rating on Malaysian contractors driven by expectations of more positive news flow. Its top picks are Mudajaya (BUY, TP: RM6.48) for its strong earnings growth and WCT (BUY, TP: RM3.08), as it believes more contracts are in the pipeline. It also likes Naim (BUY, TP: RM4.21) for thematic Sarawak play but downgrade Hock Seng Lee (NEUTRAL, TP: RM1.50), owing to the recent run-up in its share price. OSK Research said on Friday, April 2 that over the 1Q10 period, about RM2.85 billion worth of jobs was awarded. Domestic contracts showed a healthy 16% y-o-y increase but contracted by 38% q-o-q due to the high base effect. "We believe the domestic contract flow will exceed last year's RM9.86 billion, with better numbers showing up in the upcoming quarters," it said. It said during the 1Q10 period, of the RM2.85 billion worth of jobs was awarded, 65.2% was domestic based and 34.8% foreign. The average size per domestic job stood at RM169 million, in line with one of its key sector themes for 2010 that jobs flow will be centred on the mid-small sized ones. OSK Research said contract awards in Sarawak appear to be gaining traction, with Hock Seng Lee (NEUTRAL, TP: RM1.50, Downgrade, given the share price run-up) and Naim (BUY, TP: RM4.21) collectively bagging RM245 million worth of jobs. For the more "popular" jobs, Gadang (NR) secured the LCCT EW2 (RM291m) while IJM (NEUTRAL, TP: RM4.70) was finally awarded the RM600m Besraya extension after almost a year. "Market talk is that the UEM-Bina Puri JV and privately held AHT Norlan-Carriage JV are the finalists for the LCCT terminal building (RM750 million to RM850 million) and satellite tower (RM400 million to RM500 million). Shortlisted contractors that did not make it were Sunway (NR), IJM and Gadang. The Government is also evaluating the proposal for a RM5-6bn highway parallel to the existing NSE connecting Banting (Selangor) and Taiping (Perak), which could eventually be extended all the way to Gelang Patah in Johor. "We think the proposal makes little economic sense as the current NSE is not fully utilised (festive seasons excluded). Furthermore, the completion of the Double Track at end-2013 would already provide an alternative route, especially for cargo flow," said OSK Research. In East Malaysia, there are plans to construct an 11km bridge linking Sabah and Labuan, which could cost RM3 billion (RM6 billion if delayed). "We are sceptical on the feasibility of this project as Labuan's population is a mere 90, 000," it said. Recently, the 60:40 JV between Loh&Loh (NR) and Sinohydro received the LOI for the Hulu Terengganu Dam (RM828 million). The other finalist for the job was Gamuda (NEUTRAL, TP: RM2.75).

GAMUDA - Price Target News

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

KUALA LUMPUR: OSK Research is retaining its OVERWEIGHT rating on Malaysian contractors driven by expectations of more positive news flow. Its top picks are Mudajaya (BUY, TP: RM6.48) for its strong earnings growth and WCT (BUY, TP: RM3.08), as it believes more contracts are in the pipeline. It also likes Naim (BUY, TP: RM4.21) for thematic Sarawak play but downgrade Hock Seng Lee (NEUTRAL, TP: RM1.50), owing to the recent run-up in its share price. OSK Research said on Friday, April 2 that over the 1Q10 period, about RM2.85 billion worth of jobs was awarded. Domestic contracts showed a healthy 16% y-o-y increase but contracted by 38% q-o-q due to the high base effect. "We believe the domestic contract flow will exceed last year's RM9.86 billion, with better numbers showing up in the upcoming quarters," it said. It said during the 1Q10 period, of the RM2.85 billion worth of jobs was awarded, 65.2% was domestic based and 34.8% foreign. The average size per domestic job stood at RM169 million, in line with one of its key sector themes for 2010 that jobs flow will be centred on the mid-small sized ones. OSK Research said contract awards in Sarawak appear to be gaining traction, with Hock Seng Lee (NEUTRAL, TP: RM1.50, Downgrade, given the share price run-up) and Naim (BUY, TP: RM4.21) collectively bagging RM245 million worth of jobs. For the more "popular" jobs, Gadang (NR) secured the LCCT EW2 (RM291m) while IJM (NEUTRAL, TP: RM4.70) was finally awarded the RM600m Besraya extension after almost a year. "Market talk is that the UEM-Bina Puri JV and privately held AHT Norlan-Carriage JV are the finalists for the LCCT terminal building (RM750 million to RM850 million) and satellite tower (RM400 million to RM500 million). Shortlisted contractors that did not make it were Sunway (NR), IJM and Gadang. The Government is also evaluating the proposal for a RM5-6bn highway parallel to the existing NSE connecting Banting (Selangor) and Taiping (Perak), which could eventually be extended all the way to Gelang Patah in Johor. "We think the proposal makes little economic sense as the current NSE is not fully utilised (festive seasons excluded). Furthermore, the completion of the Double Track at end-2013 would already provide an alternative route, especially for cargo flow," said OSK Research. In East Malaysia, there are plans to construct an 11km bridge linking Sabah and Labuan, which could cost RM3 billion (RM6 billion if delayed). "We are sceptical on the feasibility of this project as Labuan's population is a mere 90, 000," it said. Recently, the 60:40 JV between Loh&Loh (NR) and Sinohydro received the LOI for the Hulu Terengganu Dam (RM828 million). The other finalist for the job was Gamuda (NEUTRAL, TP: RM2.75).

PETGAS - Price Target News

Stock Name: PETGAS
Company Name: PETRONAS GAS BHD
Research House: OSK

Petronas Gas Bhd
(April 1, RM9.85)
Maintain buy at RM9.80 with target price raised to RM13.81: Our contrarian view was proven correct as Petronas Gas announced better conditions for the last term of its Gas Processing and Transmission Agreement (GPTA). Fixed revenue will be lower but this will be offset by higher variable revenue linked to the volume of gas processed and transported.

The terms now call for a clear demarcation between processing and transportation fees. While the fixed portion of processing fees is down by 40% due to new transportation fees, the variable volume related portion of fees is up four-fold. The net effect is that revenues are forecast to drop by only 1% under the new terms.

While revenue may be largely unchanged, Petronas Gas' costs will come down significantly as the company will no longer need to pay for the amount of gas it consumes as part of the processing business as long as the consumption level is within agreed operating parameters.

In fact, it may even earn an incentive if it can bring down the amount of gas consumed to a certain level. We believe Petronas Gas will be able to avoid paying for its gas but has not built in any incentives. Earnings before interest, tax, depreciation and amortisation (Ebitda) is therefore forecast to rise by 23% under the new terms.

As we maintain our other forecasts, including volume processed and associates income, Petronas Gas' bottom line will get a 35% boost in FY11 and 38% for FY12. This raises our discounted cash flow-based (DCF) fair value to RM13.81. We also maintain our dividend payout ratio while our dividend per share (DPS) forecast is raised to 65 sen, or a 6.6% yield in FY11.

With the gas cost element removed, Petronas Gas is no longer exposed to rising gas costs as subsidies are removed. The increase in variable volume related revenue also ties the company's revenue closer to performance where we see more upside if Petronas Gas can deliver.

We see no risk of a derating due to the upcoming listing of large Petronas subsidiaries but instead view Petronas Gas as a solid dividend play boosted by the new and more favourable GPTA.

Given the big jump in net profit forecast, our DCF-based fair value is raised from RM10.99 to RM13.81, thus giving an upside of 26%, which means Petronas Gas is a definite buy.

Other than the raised dividend yield forecast of 6.6% for FY11, the company now faces lower risk of hikes in its gas prices as subsidies are withdrawn.

There will of course always be detractors who can point out that the new favourable terms will only last until 2015 but we believe that by then, Petronas Gas will have expanded its business model into power generation and other utilities while still maintaining its role in gas transportation. - OSK Research, April 1


This article appeared in The Edge Financial Daily, April 2, 2010.

HSL - Price Target News

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

KUALA LUMPUR: OSK Research is retaining its OVERWEIGHT rating on Malaysian contractors driven by expectations of more positive news flow. Its top picks are Mudajaya (BUY, TP: RM6.48) for its strong earnings growth and WCT (BUY, TP: RM3.08), as it believes more contracts are in the pipeline. It also likes Naim (BUY, TP: RM4.21) for thematic Sarawak play but downgrade Hock Seng Lee (NEUTRAL, TP: RM1.50), owing to the recent run-up in its share price. OSK Research said on Friday, April 2 that over the 1Q10 period, about RM2.85 billion worth of jobs was awarded. Domestic contracts showed a healthy 16% y-o-y increase but contracted by 38% q-o-q due to the high base effect. "We believe the domestic contract flow will exceed last year's RM9.86 billion, with better numbers showing up in the upcoming quarters," it said. It said during the 1Q10 period, of the RM2.85 billion worth of jobs was awarded, 65.2% was domestic based and 34.8% foreign. The average size per domestic job stood at RM169 million, in line with one of its key sector themes for 2010 that jobs flow will be centred on the mid-small sized ones. OSK Research said contract awards in Sarawak appear to be gaining traction, with Hock Seng Lee (NEUTRAL, TP: RM1.50, Downgrade, given the share price run-up) and Naim (BUY, TP: RM4.21) collectively bagging RM245 million worth of jobs. For the more "popular" jobs, Gadang (NR) secured the LCCT EW2 (RM291m) while IJM (NEUTRAL, TP: RM4.70) was finally awarded the RM600m Besraya extension after almost a year. "Market talk is that the UEM-Bina Puri JV and privately held AHT Norlan-Carriage JV are the finalists for the LCCT terminal building (RM750 million to RM850 million) and satellite tower (RM400 million to RM500 million). Shortlisted contractors that did not make it were Sunway (NR), IJM and Gadang. The Government is also evaluating the proposal for a RM5-6bn highway parallel to the existing NSE connecting Banting (Selangor) and Taiping (Perak), which could eventually be extended all the way to Gelang Patah in Johor. "We think the proposal makes little economic sense as the current NSE is not fully utilised (festive seasons excluded). Furthermore, the completion of the Double Track at end-2013 would already provide an alternative route, especially for cargo flow," said OSK Research. In East Malaysia, there are plans to construct an 11km bridge linking Sabah and Labuan, which could cost RM3 billion (RM6 billion if delayed). "We are sceptical on the feasibility of this project as Labuan's population is a mere 90, 000," it said. Recently, the 60:40 JV between Loh&Loh (NR) and Sinohydro received the LOI for the Hulu Terengganu Dam (RM828 million). The other finalist for the job was Gamuda (NEUTRAL, TP: RM2.75).

SUNWAY - Price Target News

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

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) has a Buy call on Sunway Holdings with a sum-of-parts target price of RM1.95 Sunway had on Thursday, April 1 accepted the letter of award for a RM88 million contract from KLCC Holding Sdn Bhd to build Phase 2 of Impiana KLCC Development. This is an extension to the existing hotel wings comprising an additional three-storey car park podium and 22-storey tower block above the existing four- storey car park podium on Jalan Pinang, Kuala Lumpur The contract is targeted to be fully completed on Nov 2, 2011 with a sectional completion of a link bridge within 43 weeks from the commencement date. "This is Sunway's second contract win for 2010 bringing YTD contract wins to RM110 million. This forms c.14% of our RM800m order win assumption for FY10 and will lift Sunway's orderbook by 4% to RM2.5 billion," said HDBSVR in a research note on Friday. Assuming a margin of 8%, total pre-tax profit over the duration of the contract amounts to RM7 million or 1% and 3% of FY10 and FY11 core pretax profit, it said. "We continue to like Sunway as a small-mid cap pick to the sector. Earnings deliverance has been consistent while other key catalysts are a revival in India infrastructure contracts and the 10MP which would provide more clarity on contract flows," it said.

UNISEM - Price Target News

Stock Name: UNISEM
Company Name: UNISEM (M) BHD
Research House: AMMB

Unisem (M) Bhd
(April 1, RM2.74)
Maintain buy at RM2.68 with higher fair value of RM3.80: We maintain buy on Unisem with higher fair value of RM3.80 per share (RM3.30 previously) based
on price-to-book value (P/BV) of 1.9 times (1.7 times previously).

We rerate our multiple to be in line with a valuation it fetched during its last upcycle circa 2004-2005.
Following our company visit, we are raising out earnings estimate by 19% in FY10 and 41% in FY11 due to a 12.1% increase in revenue, prompted by stronger-than-previously expected order growth. First quarter FY10 alone may see sequential growth of more 9%, and we expect it to continue into 4Q10. Previously, we were only expecting 5%-7% growth. This puts us 43% ahead of consensus.

This takes into account that it still has spare capacity to fulfil demand growth of up to 20%, relative pricing power due to a supply glut, dividend surprise in FY10 and liquidity premium.

Global order strengths have gained traction since our last visit. Measured in sequential quarterly growth, global orders may exceed 45% in 1Q10 (versus 27% in 4Q09).

Within the industry's visible order, we expect pace of growth to strengthen. Industry's book-to-bill ratio has increased to 1.23 (1.07 from our previous visit), following seven consecutive months of above-1 time ratio.

More significantly it is happening in an environment of growing orders. Prior to that, book-to-bill ratio had dipped below one time for almost 35 straight months. It has not gone above 1.2 times since the dotcom bust.

More importantly, Unisem would be a leader in tapping this surge in demand, thanks to its capacity build-up. Unisem's plant in China may have received 10%-15% more orders in 1Q09. Parallel to that, it had not seen significant deterioration in turnover.

Despite global orders for plant equipment having registered around 10% QoQ growth 1Q09, we estimate this would only come on stream by 2Q11.

We are looking at a possible dividend of 10 sen per share, yielding 4.5%. Free cash flow generation should improve from 20 sen per share to 50 sen backed by new earnings estimates and firm capex of RM100 million. - AmResearch, April 1


This article appeared in The Edge Financial Daily, April 2, 2010.

AIRPORT - Price Target News

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

KUALA LUMPUR: OSK Research is maintaining its Trading Buy recommendation on Malaysia Airports Holdings Bhd (MAHB) with a target price of RM5.50 based on 16x FY0 EPS. The research house said on Friday, April 2 it was generally pleased with the five-year business direction --"Runway To Success: Building A World-Class Airport Business 2010-2014". The plan is to focus on aeronautical revenue as the backbone supported by a conservative traffic growth of 4.1%. MAHB's aim is to nurture its retail business, expand its horizon to strategic land development and boost its overseas earnings five years from now. The key target is to achieve EBITDA of RM822 million on a base case scenario and RM1.12 billion on an optimistic case for FY14. "Being an airport operator, air traffic growth remains MAHB's underlying fundamental. The company has estimated a base growth rate of 4.1% CAGR from 2008 to 2014, which may offer some upside given the robust growth in the Low Cost Carrier (LCC) segment and other Asian markets," said OSK Research. Nevertheless, as its earnings projection incorporates a potential increase in passenger service charges (PSC) in 2014 as well as 30% increase in landing charges plus other aeronautical charges in May 2011, OSK Research said it may see some road blocks covered by the Marginal Cost Support (MARCS) agreed to by the Government under the Operating Agreement (OA). The research house said MAHB has big plans to raise for its non-aeronautical contribution to 67.1% by 2014, or by an absolute revenue of RM2.1 billion, from RM860.6 million. The company has a strong retail and commercial team that has successfully implemented its past Retail Optimization Plan (ROP). Going forward, the company has established clear plans to grow the retail business by introducing the right products at the right locations. MAHB has identified 2,730 acres of land surrounding the KLIA for land development. "While the management has guided for rental on the high side and has a bullish revenue projection of RM112 million by FY14, we are upbeat on its potential, given its previous success in developing Malaysia International Aerospace Centre (MIAC) at Subang Airport. "The company has also been slowly building its name in airport management overseas, having 3 such ventures under its belt. The management is also bidding for two airport management jobs in Asia, and hopes to secure these by year-end. However, these investments will bear fruit only after a five-year gestation period," it said.

NAIM - Price Target News

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

KUALA LUMPUR: OSK Research is retaining its OVERWEIGHT rating on Malaysian contractors driven by expectations of more positive news flow. Its top picks are Mudajaya (BUY, TP: RM6.48) for its strong earnings growth and WCT (BUY, TP: RM3.08), as it believes more contracts are in the pipeline. It also likes Naim (BUY, TP: RM4.21) for thematic Sarawak play but downgrade Hock Seng Lee (NEUTRAL, TP: RM1.50), owing to the recent run-up in its share price. OSK Research said on Friday, April 2 that over the 1Q10 period, about RM2.85 billion worth of jobs was awarded. Domestic contracts showed a healthy 16% y-o-y increase but contracted by 38% q-o-q due to the high base effect. "We believe the domestic contract flow will exceed last year's RM9.86 billion, with better numbers showing up in the upcoming quarters," it said. It said during the 1Q10 period, of the RM2.85 billion worth of jobs was awarded, 65.2% was domestic based and 34.8% foreign. The average size per domestic job stood at RM169 million, in line with one of its key sector themes for 2010 that jobs flow will be centred on the mid-small sized ones. OSK Research said contract awards in Sarawak appear to be gaining traction, with Hock Seng Lee (NEUTRAL, TP: RM1.50, Downgrade, given the share price run-up) and Naim (BUY, TP: RM4.21) collectively bagging RM245 million worth of jobs. For the more "popular" jobs, Gadang (NR) secured the LCCT EW2 (RM291m) while IJM (NEUTRAL, TP: RM4.70) was finally awarded the RM600m Besraya extension after almost a year. "Market talk is that the UEM-Bina Puri JV and privately held AHT Norlan-Carriage JV are the finalists for the LCCT terminal building (RM750 million to RM850 million) and satellite tower (RM400 million to RM500 million). Shortlisted contractors that did not make it were Sunway (NR), IJM and Gadang. The Government is also evaluating the proposal for a RM5-6bn highway parallel to the existing NSE connecting Banting (Selangor) and Taiping (Perak), which could eventually be extended all the way to Gelang Patah in Johor. "We think the proposal makes little economic sense as the current NSE is not fully utilised (festive seasons excluded). Furthermore, the completion of the Double Track at end-2013 would already provide an alternative route, especially for cargo flow," said OSK Research. In East Malaysia, there are plans to construct an 11km bridge linking Sabah and Labuan, which could cost RM3 billion (RM6 billion if delayed). "We are sceptical on the feasibility of this project as Labuan's population is a mere 90, 000," it said. Recently, the 60:40 JV between Loh&Loh (NR) and Sinohydro received the LOI for the Hulu Terengganu Dam (RM828 million). The other finalist for the job was Gamuda (NEUTRAL, TP: RM2.75).

DIGI - Price Target News

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Neutral on DIGI.COM BHD [] based on target price of RM23.10. It said on Thursday, April 1 that valuation-wise, the stock trades at 16.4x FY10 earnings, at the higher end of its regional peers. The key share price re-rating catalysts going forward are capital management and better than expected results. OSK Research said DiGi had ingeniously customised its iPhone packages to cater for a larger addressable market of potential iPhone users. "Overall, we believe its plans are attractive and would entice existing 2G/3G subscribers to upgrade or recontract their plans and stoke interest among current users of alternative smartphones and regular 2G/3G handsets," it said. DiGi's entry level iPhone plan (iDigi88) comes with a monthly access of RM88, which is lower than Maxis' RM100 (IV1 plan). It is also offering two other plans, priced at RM138 and RM238, which competes with Maxis' RM155 and RM255 packages. DiGi is making the iPhone more affordable by lengthening the lock-in period to 36 months versus the maximum 24 months for Maxis. An "all-in-one" monthly extended package (handset inclusive), allows the cost of the handset to be "defrayed' over an additional 12 months via an easy payment scheme with 0% interest. "On a like for like comparison, (based on the 24-month contract), our calculation suggests that the effective monthly commitment is 4%-9% lower for Digi. We note that DiGi fully subsidises the older 3G 8GB model for its top tier plan," it said.

TOMYPAK - Price Target News

Stock Name: TOMYPAK
Company Name: TOMYPAK HOLDINGS BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research is maintaining its Overweight on the companies in the flexible packaging sector and continue to rate Daibochi and Tomypak as Outperforms. It said on Thursday, April 1 companies in its coverage, Daibochi and Tomypak, demonstrated their ability to pass on rising raw material costs to their customers, going by the double-digit pretax margins they recorded for four straight quarters. "This profit margin trend should continue in 2010, driven by similar catalysts as in 2009, which included food safety and rising demand for metallised film," it said. CIMB Research said it made no changes to its earnings numbers or target prices. Daibochi's target price of RM4.60 is based on 12x CY11 P/E. For Tomypak, it value the stock at a 30% discount to Daibochi, i.e. 8x CY11 P/E. This gives an unchanged target price of RM4.66 for Tomypak. Potential re-rating catalysts for both stocks include i) further margin expansion over the next few quarters, ii) contracts from major non-F&B companies and, iii) attractive dividend yields of 5%-6%.

DAIBOCI - Price Target News

Stock Name: DAIBOCI
Company Name: DAIBOCHI PLASTIC & PACKAGING
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research is maintaining its Overweight on the companies in the flexible packaging sector and continue to rate Daibochi and Tomypak as Outperforms. It said on Thursday, April 1 companies in its coverage, Daibochi and Tomypak, demonstrated their ability to pass on rising raw material costs to their customers, going by the double-digit pretax margins they recorded for four straight quarters. "This profit margin trend should continue in 2010, driven by similar catalysts as in 2009, which included food safety and rising demand for metallised film," it said. CIMB Research said it made no changes to its earnings numbers or target prices. Daibochi's target price of RM4.60 is based on 12x CY11 P/E. For Tomypak, it value the stock at a 30% discount to Daibochi, i.e. 8x CY11 P/E. This gives an unchanged target price of RM4.66 for Tomypak. Potential re-rating catalysts for both stocks include i) further margin expansion over the next few quarters, ii) contracts from major non-F&B companies and, iii) attractive dividend yields of 5%-6%.

DAYANG - Price Target News

Stock Name: DAYANG
Company Name: DAYANG ENTERPRISE HOLDINGS BHD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research believes Dayang is among the frontrunners to clinch some major oil & gas maintenance jobs to be awarded this year The research house said on Thursday, April 1 that several major maintenance jobs are expected to come on-stream this year. "We believe Dayang has a strong chance of securing some of these contracts, and to date has participated in several, notably the RM400 million SSB/SSPC contract," it said. Other contracts up for grab include Petronas Cargill's RM1.5b 5-year maintenance work and RM400m ExxonMobil contract. Dayang is the incumbent in some of these recurrent jobs and OSK Research believes its track record would stand the company in good stead as potential beneficiaries. "We expect earnings growth to be supported by active order book replenishment and maiden contribution from Borcos. We have assumed contract wins of RM500m for FY10. Dayang current work orders of RM520 million would keep the company busy till 2012, while Borcos has 80% of its vessels locked under long term charter contracts (1-3 years)," it said. Dayang is a good proxy to East Malaysia oil & gas play given its track record and growth story. "We initiate coverage with a Buy call and 12-month target price of RM2.60/share, pegged to 11x FY11F EPS. Dayang offers decent FY11F net yield of 2.7%, as well as superior margin (FY09 EBIT of 25.8%) relative to the sector (19.4%). The stock is currently trading at FY11F PE and PBV of 8.0x and 1.6x, respectively," it said.

PERWAJA - Price Target News

Stock Name: PERWAJA
Company Name: PERWAJA HOLDINGS BERHAD
Research House: OSK

Steel sector
Reiterate overweight: Bloomberg reported that Vale SA, the world's largest iron ore producer, and BHP Billiton Ltd have ended a 40-year system of setting annual prices by signing short-term contracts with Asian steel mills, with the Brazilian company clinching a 90% increase. Sumitomo Metal Industries Co, Japan's third-biggest steelmaker, agreed to pay Vale US$100 (RM327) to US$110 a tonne for the three months beginning April 1.

This is just after the coking coal suppliers recently sealed a quarterly deal with steel mills at a 55% rise for the burning material.

Obviously, the 90% and 55% price increases for iron ore and coking coal are way above our assumption of 25%, but we prefer to monitor the situation before fine-tuning our original assumption, as the settlement will be in force only for one quarter.

That said, our quick back-of-envelope calculation reveals that the higher cost of iron ore and coking coal may translate into an approximate US$85 and US$45 rise in every tonne of steel scrap cost, assuming perfect substitution.

Average selling prices (ASP) for steel products have been escalating since December 2009. The last we heard, steel billets and bars were traded at above US$600 and US$640 respectively in the East Asia market. Assuming that scrap cost weakens back to the US$430 level, finished and semi-finished steel prices may have a 5% upside potential. Otherwise, we expect at least another 8% to 10% upside to compensate for the current high scrap cost of electric arc furnace producers.

On the local front, we were last told that steel bars are transacting at about RM2,150 per tonne, almost similar to the present export pricing. We think that local steel prices may continue to enjoy some premium on logistics and distribution advantages, although the quantum of increase may range from RM100 to RM250 per tonne.

We continue to think that with ongoing projects helping to sustain 70% of regular annual long steel consumption, the balance may be compensated if most public projects are executed in a timely manner.

Local steel mills export on average more than one million tonnes of long steel products annually, particularly in the last two years. Malaysia's exports escalated after China imposed a 25% export tax on billets, creating a vacuum of five million tonnes of billets in the Southeast Asia market, as China previously supplied 75% of the region's requirements.

An improvement in the economies of the Middle East, Australia, Pakistan, and Bangladesh will also be a boon to Malaysia's billet exports. Nevertheless, the much sharper increase in the benchmark price needs close monitoring as too high a price may cause a sharp correction in steel prices if the market is unable to support such price levels.

As the higher coking coal and iron ore benchmark prices support our bullish short-to-medium-term view in terms of margin expansion, we reiterate our overweight rating on the steel sector. We have shown in our last report that there is a strong correlation of more than 0.85 times between steel price and share price performance. This gives us optimism of possible rotational play on steel counters given the possible surge in ASP in the near future.

We have buy recommendations on Lion Industries (target price RM2.51), Southern Steel (RM3.04) and Masteel (RM1.45), a trading buy on Perwaja (RM1.84) and Kinsteel (RM1.17), but a neutral on Ann Joo Resources Bhd (RM2.75). - OSK Research, March 31


This article appeared in The Edge Financial Daily, April 1, 2010.

PETGAS - Price Target News

Stock Name: PETGAS
Company Name: PETRONAS GAS BHD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) is maintaining its Fully Valued call on PETRONAS GAS BHD [] and it reduced its target price to RM8. PetGas announced poor terms for its fourth Gas Processing and Transmission Agreement (GPTA) for the period April 1, 2010 to March 31, 2014, with its reservation charge (60% of FY09 revenue) reduced by 40% to RM103.5 million a month. The flow rate charge structure is now dependent on zones that are the location of PetGas' customers. "We understand the intention of this structure is to fairly compensate PetGas for the distance it transmits the gas. "Although the breakdown of gas transmission is unavailable at this juncture, an initial estimate suggests a worse deal as only the Central zone, among four zones, commands higher flow rate charges (RM1.793/GJ) compared to RM1.57/GJ previously," HDBSVR said. Petronas will provide natural gas to PetGas for its internal consumption (IGC) at no cost provided PetGas operates within the agreed operating parameters. "We understand that IGC made up 15-20% of PetGas' throughput cost and estimated savings from the new term, despite widening margins, is insufficient to compensate for the lower fees. We expect PetGas throughput gross margins to improve to c.52% in FY11F," it said. HDBSVR lowered FY11-12F profit by 7-8% after taking into account its initial estimates of the new GPTA terms, but also upgraded PetGas' CUF earnings on improved outlook for the oil & gas sector.

POS - Price Target News

Stock Name: POS
Company Name: POS MALAYSIA BHD
Research House: KENANGA

Pos Malaysia Bhd
(March 31, RM2.24)
Maintain buy at RM2.25 with target price of RM2.86: The prime minister announced that Khazanah Nasional Bhd would divest its controlling stake (32%) in Pos Malaysia Bhd as part of the government-linked company's transformation plan and strive for higher income.

The divestment plan will be in two stages - addressing various aspects of its business environment including its regulatory structure, usage of government controlled land and welfare of its employees; and a bidding and evaluation process to select a new and entrepreneurial shareholder .

We are positive on this news as it will address the long outstanding issue of a postal tariff hike.

We expect Pos' business will remain regulated with certain revisions to be made in Malaysia Communication and Multimedia Commissions provisions. In our opinion there are two main areas in the first stage of Khazanah divestment plan, which could be implemented immediately - the revision of postal tariff to compensate the employee benefits and the development of government-owned land under Pos management such as the general post office at Dayabumi, and other mail processing centres.

The management highlighted that there are no immediate plans to sell its own assets like those in Brickfields and Klang with the land value of over RM200 million. The management also indicated that they would spend about RM170 million in 2010 for capital expenditure using internally generated fund.

The objective of raising the tariff is to bring postmen's salary to the level of other civil services. The postmen and auxiliary policemen wages represent 63% of its total staff cost. If Pos secures a 100% increase in postal tariff and raise the staff salary by 20% to be inline with the civil service salary package, Pos will incur an increase of RM68 million in staff costs.

After taking into account the increased salary cost, the 100% tariff increase would add RM12 million to the bottom line or 1.3% of our FY10 revenue estimates. We maintain a buy with a target price of RM2.86. Our target price is based on discounted cash flow-derived valuation with 9.3% weighted average cost of capital. - Kenanga Research, March 31


This article appeared in The Edge Financial Daily, April 1, 2010.

KINSTEL - Price Target News

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

Steel sector
Reiterate overweight: Bloomberg reported that Vale SA, the world's largest iron ore producer, and BHP Billiton Ltd have ended a 40-year system of setting annual prices by signing short-term contracts with Asian steel mills, with the Brazilian company clinching a 90% increase. Sumitomo Metal Industries Co, Japan's third-biggest steelmaker, agreed to pay Vale US$100 (RM327) to US$110 a tonne for the three months beginning April 1.

This is just after the coking coal suppliers recently sealed a quarterly deal with steel mills at a 55% rise for the burning material.

Obviously, the 90% and 55% price increases for iron ore and coking coal are way above our assumption of 25%, but we prefer to monitor the situation before fine-tuning our original assumption, as the settlement will be in force only for one quarter.

That said, our quick back-of-envelope calculation reveals that the higher cost of iron ore and coking coal may translate into an approximate US$85 and US$45 rise in every tonne of steel scrap cost, assuming perfect substitution.

Average selling prices (ASP) for steel products have been escalating since December 2009. The last we heard, steel billets and bars were traded at above US$600 and US$640 respectively in the East Asia market. Assuming that scrap cost weakens back to the US$430 level, finished and semi-finished steel prices may have a 5% upside potential. Otherwise, we expect at least another 8% to 10% upside to compensate for the current high scrap cost of electric arc furnace producers.

On the local front, we were last told that steel bars are transacting at about RM2,150 per tonne, almost similar to the present export pricing. We think that local steel prices may continue to enjoy some premium on logistics and distribution advantages, although the quantum of increase may range from RM100 to RM250 per tonne.

We continue to think that with ongoing projects helping to sustain 70% of regular annual long steel consumption, the balance may be compensated if most public projects are executed in a timely manner.

Local steel mills export on average more than one million tonnes of long steel products annually, particularly in the last two years. Malaysia's exports escalated after China imposed a 25% export tax on billets, creating a vacuum of five million tonnes of billets in the Southeast Asia market, as China previously supplied 75% of the region's requirements.

An improvement in the economies of the Middle East, Australia, Pakistan, and Bangladesh will also be a boon to Malaysia's billet exports. Nevertheless, the much sharper increase in the benchmark price needs close monitoring as too high a price may cause a sharp correction in steel prices if the market is unable to support such price levels.

As the higher coking coal and iron ore benchmark prices support our bullish short-to-medium-term view in terms of margin expansion, we reiterate our overweight rating on the steel sector. We have shown in our last report that there is a strong correlation of more than 0.85 times between steel price and share price performance. This gives us optimism of possible rotational play on steel counters given the possible surge in ASP in the near future.

We have buy recommendations on Lion Industries (target price RM2.51), Southern Steel (RM3.04) and Masteel (RM1.45), a trading buy on Perwaja (RM1.84) and Kinsteel (RM1.17), but a neutral on Ann Joo Resources Bhd (RM2.75). - OSK Research, March 31


This article appeared in The Edge Financial Daily, April 1, 2010.

SPSETIA - Price Target News

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: ECMLIBRA

S P Setia Bhd
(March 30, RM4.16)
Maintain hold at RM4.18 with target price of RM4.46: S P Setia announced on Monday its acquisition of a 1.07acre (0.43ha) land in Melbourne for a cash consideration of A$30 million (RM92.4 million) via a tender process. The said land is strategically located on the central spine of the Melbourne's Central Business District within the northern precinct, between A'Beckett Street and Franklin Street, and between Elizabeth and Queen Streets.

The site is a short walk to Melbourne Central Shopping Centre and Railway Station, and is close to the Queen Victoria Market with its vibrant atmosphere and multitude of high-quality fresh food providers. The acquisition is conditional upon the approval of Australia's Foreign Investment Review Board being obtained by S P Setia by May 3.

While no development details were revealed in the announcement, we understand that the said land is currently used as a car park and does not have any building plan approval yet. However, the land is situated in an area zoned for high density development. A residential development with limited commercial space may be launched within 18-24 months from the date of acquisition.

The proposed development has the potential to match the gross development value of S P Setia's existing projects in Penang, which currently stand at RM1.2 billion.

Assuming a gross margin of 20%, the project could potentially contribute RM168 million in net profit over a three-year development period or add 10 sen to existing revised net asset value (RNAV) of RM4.32.

While we are positive of the acquisition which expands S P Setia global reach to yet another vibrant property market, we are also wary of the risks involved. Median house price in Melbourne has rose by a staggering 19.7% in 2009 on the back of strong employment and migration.

However, Australian authorities are reportedly growing uneasy with the pace of price increase which may lead to asset bubble, thereby raising prospect of further interest rate hike by the Reserve Bank of Australia. Building regulations which are strict but transparent means that there will be less risk in procuring building plan approval though it will take awhile to meet these stringent requirements.

As such, we are not surprised by management's guidance of 18-24 months before the project can be launched. We leave our estimates unchanged for now until more development details are revealed by the management in due course. We also maintain our hold call and target price of RM4.46 based on upper-end price/earnings (P/E) valuation of 20 times on calendar year 2011 earnings. - ECM Libra Investment Research, March 30
This article appeared in The Edge Financial Daily, March 31, 2010.

ASTRO - Price Target News

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

KUALA LUMPUR: OSK Research has downgraded Astro All Asia Networks to Neutral with an unchanged target price of RM4.30, which is the privatisation offer. It said on Wednesday, March 31 that Astro's FY10 results were below its estimates but in line with consensus, with net profit coming in at about 82% of its full year forecast, as it had under-estimated its tax expenses and losses from associates. Numbers at the EBIT level were broadly in line with its expectation. For the full year, revenue grew 9.7% y-o-y while core EBITDA jumped 24% y-o-y on margin improvements. After imputing higher content cost and operating expenses, OSK Research said it was cutting its FY11 earnings forecast by 28%. "Due to the limited price upside, we are downgrading our recommendation from Buy to NEUTRAL at an unchanged TP of RM4.30, which is based on the privatisation offer price," it said.

EONCAP - Price Target News

Stock Name: EONCAP
Company Name: EON CAPITAL BHD
Research House: MIDF

KUALA LUMPUR: MIDF Equity Research is maintaining its Neutral call on EON CAPITAL BHD [] but adjust the target price to RM7.10 (from RM7.20), pegged at 12.7x PER on FY10 earnings per share. It said on Wednesday, March 31 there is a "high chance of the deal materialising this round". Hong Leong Bank had on Tuesday, returned with the same cash offer for EON Capital Bhd-- RM7.10 a share or RM4.92 billion -- for the latter's entire assets and liabilities. If If it does not receive EON Cap's confirmation on or before April 5, the offer will lapse. The research house said that Bank Negara had on March 25, approved seven new directors to the board of EON Cap. These new directors are in favour of Rin Kin Mei and with their appointment effective on March 26, in compliance with BAFIA. " We believe that the new offer this round will pass through the board's stage to be tabled for consideration and approval by the shareholders of EON Cap. "With four directors, Tan Sri Syed Zainol, Rodney Gordon, Datuk Dr Mohd Shahari and Yeo Kar Peng resigned from the Board, parties friendly to Rin Kin Mei sitting on the Board will comprise of more than the required 50% to pass through the offer for shareholders' approval," it said. MIDF Research said the offer price for EON Cap shares remain at RM7.10 per share which equates to 1.4x P/BV based on Eon Cap's financials as at end December 2009. "We believe that the Hong Leong Bank has not offered a higher price as the business of EON Cap is similar to Hong Leong Bank, with focus on retail lending and SME loan and that the acquisition will only increase its scale of operations with no other enhancements seen," it said.

KFC - Price Target News

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

KFC Holdings (Malaysia) Bhd (KFCH)
(March 30, not traded)
Upgrade to outperform at RM7.85, target price raised to RM9.63: As at end-FY09, KFCH operated 475 KFC restaurant outlets in Malaysia, including 29 drive-through outlets. KFCH management plans to open about 40 new outlets per year in FY10-FY12, including four or five drive-through outlets. We opine that the drive-through outlets are essential, given the rising "on-the-go" lifestyle habits of consumers, especially in urban areas, as well as to maintain its competitiveness against its closest competitor with 37 drive-through outlets. Same store sales (SSS) growth in FY09 in Malaysia improved during 2H09 as consumer sentiment improved, coupled with the festive season and school holidays, which helped to push full-year FY09 SSS growth to about 1% from slight negative growth in the 1H09. The management seems more upbeat on prospects now given that SSS in year to date-Feb FY10 has been growing at a double-digit rate of about 10%, which is significantly above our forecast of 4% per annum for FY10. As such, we are raising our SSS projections to 7% per annum for FY10-FY12, to reflect the better-than-expected YTD SSS growth. KFCH is also adding one outlet in Pune, India, scheduled to be opened today and another in Mumbai on the first week of April. The management indicates that it plans to open circa 10-12 outlets per annum in India, and as such, we have revised our new outlet assumptions for FY10-FY12 in the country to 10-12 per annum from five to 10 previously. We believe the long-term potential for the Indian market continues to be exciting, as we expect growth to be strongly backed by the about 19.1 million combined population in both cities, coupled with potential SSS growth of more than 20% per annum. Given the marked improvement in earnings prospects as the company becomes more aggressive in its growth plans, as well as better growth trajectory from the recovering economy, our fair value has been increased to RM9.63 (based on unchanged 12.5 times FY10 earnings per share (EPS), a 14% discount to consumer sector price earnings of 14.5 times) from RM8.84 previously. Upgraded to outperform from market perform. - RHB Research Institute, March 30
This article appeared in The Edge Financial Daily, March 31, 2010.

IGB - Price Target News

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

IGB Corporation Bhd
(March 30, RM1.89)
Downgrade to hold at RM1.93, fair value cut to RM2.20: We have downgraded IGB from buy to hold and cut our fair value to RM2.20 from RM2.80 based on a 45% (previously 30%) discount to our net asset value (NAV) estimate of RM4. Historically, IGB has traded at 50% discount to its NAV. Following our company visit, we understand that there will only be two residential launches this year, with an estimated gross development value (GDV) of RM140 million, down from our earlier expectation of around RM400 million-RM500 million in new launches. Final phase development of MidValley City remains status quo. Residential launches for this year are Seri Ampang Hilir low-rise condo units; (GDV: RM50 million) and Pandan mixed commercial (GDV: RM90 million). We had expected IGB to launch more residential projects, like 6 Stonor (estimated GDV: RM300 million) and more developments at Sierramas. The last phase of Mid Valley will be made up of two blocks of office towers (GDV: RM1billion) with saleable area of 600,000sf. Given the never-ending approval issues, management only expects to launch in FY2012. Our rating downgrade is further strengthened by the fact that the group is now less keen to monetise its assets via a REIT. This is because the group has a view that the restructuring of assets will not provide sufficient value to the group and shareholders. Nonetheless, IGB's property investments would continue to drive earnings with new properties stabilising. Occupancy at Gardens office towers is expected to strengthen to 90%- 100% by year-end from 50%-70% currently. We are expecting a solid rent reversal of circa 5% as well at Mid Valley Megamall in tandem with stronger consumer sentiment. We have slashed our earnings estimates for FY10-FY12 by 6%-11% to RM165 million to RM197 million due to the lower-than-expected pre-sales. Our earnings estimates will be driven by expected growth in income from IGB's assets at Mid Valley City. Despite its current valuation at 52% discount to NAV, which appears attractive, the slowdown in new residential presales and uncertainty in asset monetisation means IGB might lag leading property stocks such as IJM Land and S P Setia. - AmResearch, March 30
This article appeared in The Edge Financial Daily, March 31, 2010.

SPSETIA - Price Target News

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research is neutral on SP Setia's acquisition of a 1.07-acre piece of land in Melbourne for A$30 millio (RM92.4 million) as the strong potential earnings contribution offsets its concern that the Melbourne property market may be close to its peak. The A$644 psf (RM1,982 psf) price tag appears fair given its strategic location. However, this is a brand new market for SP Setia, which may have to pay the price of going through a learning curve as it did in Vietnam. "We make no changes to our earnings forecasts as this project is only likely to start contributing in FY13. We maintain our Outperform call and target price of RM5.51, based on a 20% premium over its fully diluted RNAV of RM4.59. "Factors that could catalyse the stock include 1) continued strong sales in FY10, and 2) SP Setia's renewed appetite for land banking, both domestically and internationally," it said.

SPSETIA - Price Target News

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: ECMLIBRA

KUALA LUMPUR: ECM Libra Research is maintaining its Hold call on SP SETIA BHD [] and a Target Price of RM4.46 based on the upper-end P/E valuation of 20x on CY11 earnings. It said on Tuesday, March 30 while it is positive of SP Setia's acquisition of a 1.07-acre land in Melbourne for A$30 million (RM92.4 million) via a tender process, it is also wary of the risk involved. The land acquired is located on the central spine of the Melbourne's Central Business District within the northern precinct, between A'Beckett Street and Franklin Street, and between Elizabeth and Queen Streets. The acquisition is conditional upon the approval of Australia's Foreign Investment Review Board being obtained by SP Setia by May 3, 2010. ECM Libra Research, explaining its concern, said median house price in Melbourne has rose by a staggering 19.7% in 2009 on the back of strong employment and migration. However, Australian authorities are reportedly growing uneasy with the pace of price increase which may lead to asset bubble, thereby raising prospect of further interest rate hike by the Reserve Bank of Australia. Building regulations which are strict but transparent means that there will be less risk in procuring building plan approval though it will take awhile to meet these stringent requirements. "As such, we are not surprised by management's guidance of 18-24 months before the project can be launched. "We leave our estimates unchanged for now until more development details are revealed by the management in due course. We also maintain our hold call and target price of RM4.46 based on upper-end P/E valuation of 20x on CY11 earnings," said ECM Libra Research.

SPSETIA - Price Target News

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: OSK

SP Setia proposed yesterday to acquire a piece of land measuring about 1.07 acresin Melbourne's Central Business District (Australia) for A$30 million.

The acquisition is expected to be completed in finnacial year 2010 and will be the company first venture into Australia.

Notwithstanding the fact that OSK is positive on the proposed land acquisition (based on the choice location), the company's near-term valuation remains rather lofty for now.

"As such, we maintain our 'take profit' call based on a current year 2010 with a target price of RM3.59." - Reuters

GAMUDA - Price Target News

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

Water sector
Maintain trading buy, Gamuda remains outperform with target price raised to RM4.60: News reports over the weekend centred on Syarikat Pengeluar Air Selangor Holdings Bhd's (Splash) RM10.8 billion proposal to take over all four water concessionaires in Selangor and the implications on the ongoing national water industry restructuring by the federal government and the water industry consolidation initiative by the Selangor state government.

The highlights were Splash's takeover proposal that was motivated by the unofficial/verbal takeover offer by Pengurusan Aset Air Bhd (PAAB) on March 18, which was lower than the Selangor state government's last offer.

PAAB's offer for Splash was, at most, half of the RM1.4 billion equity value offered by the Selangor state government.

Another big difference, according to Gamuda Bhd group managing director Datuk Lin Yun Ling, was that PAAB does not want to maintain the operations and maintenance rates for Sg Harmoni.

Lin noted that the state government's offer was not coordinated with the federal government and believed that there would be no closure to the issue. Gamuda owns 40% stake in Splash. He said Splash's proposal addresses funding and pricing, the two main concerns that arose from the Selangor state government's unsuccessful takeover offers. Splash plans to raise its paid-up capital from RM400 million to RM2.4 billion via equity injection by its existing shareholders.

With the large capital, banks would be willing to lend about RM8 billion. The RM2.4 billion would be more than enough to cover the risk of losses or cost overruns. The lenders/banks would tie the borrowings to Splash's cash flow/revenue and not the assets.

Splash's proposal is not only about a better price tag but is also about adequate capital structure and the ability to run the water operations without large tariff increases.

Syabas, which is the sole water distribution company in Selangor, has a paid-up capital of RM100 million and it has to raise tariffs for the cash flow to be sustainable. With the new capital structure post acquisition, Splash's proposed water tariff hike is 2%-3% per annum or 9% every three years over the life of its proposed concession agreement of 30 years.

It is too early to conclude that the proposal has a greater chance of success than the state government's previous moves.

We feel that Splash's approach to the restructuring of water operations in Selangor does have some merits as it addresses the funding issue, offers a better exit price for the concessionaires and provides an alternative operating structure post consolidation, leading to a win-win scenario.

Concessionaires should view the offer as attractive.

The surprise takeover move by Splash is positive in terms of pricing as it provides a benchmark floor valuation for the water assets. Splash's offer raised Puncak Niaga Holding Bhd's floor valuation from RM3.21 to RM4.54. As highlighted in our 2QFY10 results note for Gamuda, the new capital structure for the potentially enlarged Splash implies that it would need to raise RM7 billion, being the RM10.8 billion total takeover price less the RM3.7 billion valuation for Splash.

Gamuda's 40% stake translated into RM800 million, to be funded by bank borrowings. The remaining 70% of the RM7 billion would be funded by securitised borrowings.

Working on the proposed 9% water tariff hike per annum, a 50% cut in the cost of treated water and 16% IRR for Syabas, we arrive at an estimated RM865 million discounted cash flow value for Syabas, which is 18.4% of the total estimated value of RM4.7 billion for the enlarged Splash.

We continue to rate the sector a trading buy, along with Puncak Niaga, which remained its top pick given the attractive takeover price from Splash.

We maintain an outperform on Gamuda as the group would end up with a 40% share of the enlarged Splash, enhancing our target price by 8.5% from RM4.24 to RM4.60, based on an unchanged 10% discount to revised net asset value (RNAV) - CIMB Research, March 29


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

KFC - Price Target News

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

KUALA LUMPUR: RHB Research Institute raised its outlook for KFC Holdings Bhd (KFCH) to Outperform from Market Perform and raised its FY10-12 forecasts by 9%-15.8%. The research house said on Tuesday, March 30 KFCH's fair value has been lifted to RM9.63 (based on unchanged 12.5x FY10 PE, 14% discount to consumer sector PE of 14.5x) from RM8.84 previously. "Upgrade to Outperform that given the marked improvement in earnings prospects as the company becomes more aggressive in its growth plans, as well as better growth trajectory from the recovering economy," it said. RHB Research said KFCH management plans to open about 40 new outlets per year in FY10-12, which will be focused on small towns and East Malaysia. "As this is a more aggressive network expansion target than earlier guided (of 20-30 outlets per annum), we have raised our FY10-12 new outlet assumptions in Malaysia to 40 per annum from 20-30 outlets previously," it said.

MAS - Price Target News

Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
Research House: AFFIN

Shares of MAS traded higher right after the announcement of its better-than expected Q4 2009 results, gaining some 15 per cent to peak at RM2.19. Share price has since eased slightly to RM2.18, and despite the retracement, valuations is still lofty.

Affin said the target price remains unchanged at RM1.89, pegged to current year 2010 price earning ratio of 21.5 times, in line with the average valuation accorded during the last up cycle back in 2007.

Affin maintains the "reduce" rating on concerns over yields recovery (a function of ticket prices).

It said while the worse may be over, judging by the strong passenger figures reported for Q4 2009 and forward booking trend, heavily discounted airfares are still prevalent.
"This will curb a substantial recovery in yields and hence, profitability. As such, we believe it is still too premature to turn positive on MAS." - Reuters

TM - Price Target News

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

Telekom Malaysia Bhd (TM)
(March 29, RM3.43)
Upgrade to buy at RM3.43, target price increased to RM3.86: TM spectacularly and unequivocally quashed misplaced expectations that its high-speed broadband service (HSBB) services would be overpriced. We are now much more confident that consumers on both HSBB's fibre network and the existing Streamyx ADSL (copper wire) network will enjoy a better experience. Upgrade TM to buy with a raised target price of RM3.86 (from RM3.50) as we raise long-term growth assumptions.

TM's HSBB pricing is highly competitive, starting from RM149/month for 5Mbps Internet broadband bundled with pay-TV and fixed voice services. This is within our expectations. As long as TM introduces an entry-level package beginning from a touch below RM150/month, HSBB stands a great chance of being a solid commercial and economic success. Immediately, we expect eligible business customers to upgrade to HSBB's fibre-optic network.

ADSL Streamyx users should benefit too. As more and more users migrate from Streamyx to HSBB's UniFi brand, there is likely to be the knock-on benefit of freeing up capacity on Streamyx. TM continues to invest steadily in its ADSL network as existing demand, including that from outside the Klang Valley, continues to grow, resulting in monthly gross additions of about 36,000 (+13% year-on-year) in January and February 2010.

TM is the undisputed broadband champion, with 1.4 million subscribers (+2% quarter-on-quarter; +12% y-o-y) and a 55% market share at end-2009, churn in its Streamyx services has also dipped below 1% in 2010. This is within our expectations, with customers returning to TM's fixed broadband services having been disappointed by the embellished claims of some wireless broadband operators.

All eyes will be on TM's cash generation and dividends. Due to the front-loaded capital expenditure (capex) for HSBB, we expect a decent 7% net profit growth in 2009, before it begins to accelerate from 2010. Although execution risks remain, TM's core Internet broadband and data services will sustain the minimum RM700 million per annum net dividend.

The discounted dividend model (DDM) reflects undemanding expectations. Assuming TM maintains its undemanding RM700 million per annum net dividend, and earnings grow at just 1.5% per annum post-2012, our DDM-value for TM is RM3.86.

The key overhang of highly overpriced core Internet broadband services is now removed. If TM executes its HSBB platform successfully, we foresee considerable potential upside to our earnings forecasts and thus valuations. Our current RM3.86 target price imputes a weighted average cost of capital (WACC) of 6.8%, risk-free rate of 4%, market return of 10.5% and beta of 0.568. - Maybank IB, March 29


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

RHBCAP - Price Target News

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

RHB Capital Bhd
(March 29, RM5.70)
Maintain buy at RM5.62, fair value raised to RM7.20: We maintain our buy rating on RHB Capital (RHBCap) with a revised fair value of RM7.20/share (from RM7.10 previously). Our new fair value is based on higher fair price/book value (P/BV) of 1.8 times (from 1.7 times), as our return on equity (ROE) has now been tweaked upwards to 14.9% (from 14.8%) FY10F following our company visit.

We believe RHBCap is underestimated in the momentum in its loan growth. Loan growth has picked up significantly since its reorganisation exercise in early 2007 whereby its banking, investment banking, Islamic and insurance divisions are now regrouped under a more customer-centric retail, corporate and investment bank (CIB), Islamic and international divisions.

As such, RHBCap's loan growth is not only about new lending to the public sector. Its market share of loans has risen in key areas in FY09 versus FY08: (a) mortgage loan is up 7.4% from 7.1%; (b) non-residential mortgages up 5.3% from 4.3%; (c) credit cards to 8.5% from 8.4%; (d) auto loans to 6.7% from 6.5%, (e) working capital loans to 11.3% from 10.0%; (f) SME loans to 9.5% from 8.5%; and (g) overall market share of 8.5% versus 8.2%.

Besides this, there is room for non-interest income to come in stronger than expected, particularly on the forex side, given a pick-up in trade activities. Should forex profits reach FY07 and FY08's levels of say RM250 million (our current forecast: RM223.2 million), we estimate a 1.4% upgrade in net earnings for FY10F, taking ROE to 15.1% - our fair value would be upgraded further to RM7.40/share.

Our scrutiny of RHBCap's detailed composition of net earnings indicates that its ROE target of 14.5% to 15% FY10F would be easily achievable and sustainable. This is inclusive of potential rights issue to fund its Indonesia acquisition. We have modelled in an ROE estimate of 14.9% FY10F (our forecast has factored in the rights issue). Our net earning is 10.9% above consensus' RM1,276.8 million FY10F.

Despite this, RHBCap's valuation of P/BV of 1.4 times has yet to catch up with its ROE potential. We believe RHB is one of the most underrated mid-cap banks, trading only at a P/BV of 1.4 times (much lower than sector P/BV of 1.9 times), but on track to deliver mid-teen ROE close to the sector average ROE of 15%.

We maintain our buy on RHBCap. Key re-rating catalysts are (a) meeting its KPI targets outlined for FY10F; and (b) the successful execution of its expansion in Indonesia. - AmResearch, March 29


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

AFG - Price Target News

Stock Name: AFG
Company Name: ALLIANCE FINANCIAL GROUP BHD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) has initiated coverage on Alliance Financial Group (AFG) with a Buy rating and RM3.45 target price. HDBSVR said on Tuesday, March 30 AFG has successfully redefined its position with a niche in the consumer and SME markets following three years of transformation. "And the recovering consumer sentiment and spending power should pave the way for AFG to aggressively scale up its domestic franchise. Its clean balance sheet post-transformation is a stable platform to launch its growth strategy," it said. HDBSVR said earnings would be driven by: i) NIM upside from the imminent interest rates hike, given its higher share of variable rate loans (84% vs industry average of 65%) and low-cost deposits (41% vs industry average of 26%); (ii) non-interest fee-based income particularly from the treasury and wealth management units, and (iii) possibly further earnings upside from recoveries. AFG also tracks well in terms of asset quality improvement, with net NPL ratio stabilizing at 1.9%. HDBSVR said AFG's prospective ROE profile (c.14%) seems attractive given that it is trading at only 1.4x CY10 BV currently. Its 24% CY09-11 earnings CAGR is also superior to industry average of 17%. Coupled with being the smallest bank with a scaleable domestic franchise, AFG is an attractive acquisition target. "Initiate coverage with Buy rating. Our RM3.45 target price, implying 1.6x CY11 BV, is based on the Gordon Growth Model, and assumes 5% long term growth, 14% ROE, and 10.5% cost of equity. We like AFG as a small cap pure domestic play with a scaleable niche growth strategy and for M&A potential," it said.

ALAM - Price Target News

Stock Name: ALAM
Company Name: ALAM MARITIM RESOURCES BHD
Research House: OSK

KUALA LUMPUR: OSK Research maintains a Buy on Alam Maritim at RM1.80 with a target price of RM2.900 based on a PER of 12x FY10 earnings.

It said on Monday, March 29 it believes more vessel contract awards would be coming up in 2H10 to support the installation of pipelines and facilities work in Malaysia.

"With regard to this, we believe Alam would be a preferred candidate as it owns an all-Malaysian flagged fleet of vessels that are mostly new (at less than five years old) and which have a lower possibility of breaking down.

"Finally, the bulk of its fleet size is 5,000 brake horse power, which is not only easier and cheaper to operate but also suitable for use in Malaysian waters," it said.

Last Friday, Alam announced that its 100%-subsidiary, Alam Maritim (M) Sdn Bhd was awarded two long-term vessel contracts by established oil majors to provide; 1) one accommodation vessel for RM40 million, and 2) one accommodation workbarge for RM43.2 million.

Both contracts are expected to start work immediately. The first contract is for a primary period of three years, with 2 extension options of 1 year each, while the second is for a primary period of 13 months, with two extension options of one year each.

PROTON - Price Target News

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

KUALA LUMPUR: OSK Research keeps Buy call on PROTON HOLDINGS BHD [] with target price of RM5.90 following fresh corporate developments with Volkswagen.

It said on Monday, March 29 that with Proton and DRB-Hicom's share prices on the uptrend last week, Proton CEO's confirmation that the company was in discussions with Volkswagen rekindled the speculation that a tie-up was imminent.

"With Volkswagen likely to set up its sedan CKD assembly plant in Malaysia, Proton's Shah Alam plant is a good site for that facility.

"Aside from this speculation, we continue to view Proton favourably from the fundamental angle with our fair value of RM5.90 based on a combination of 10x PER and 0.8x P/NTA," it said.

TM - Price Target News

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

Telekom Malaysia Bhd, the state-controlled phone company, was upgraded to "buy" from "hold" at Maybank Investment Bank Bhd on higher long-term growth expectations.

Its share price forecast was raised to RM3.86 from RM3.50, Maybank said in a report today. - Bloomberg

RHBCAP - Price Target News

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

KUALA LUMPUR: AmResearch is maintaining its Buy rating on RHB Capital with a revised fair value of RM7.20/share (from RM7.10/share previously) on higher returns on equity (ROE) expected.

"Our new fair value is based on higher fair P/BV of 1.8x (from 1.7x), as our ROE has now been tweaked upwards to 14.9% (from 14.8%) FY10F following our company visit," it said.

AmResearch said it believed RHB Cap was underestimated in the momentum in its loan growth. Loan growth had picked up significantly since its reorganisation exercise in early 2007 - whereby its banking, investment banking, Islamic and insurance divisions are now regrouped under a more customer-centric -- Retail, Corporate and Investment Bank (CIB), Islamic and International divisions.

It said RHB Cap's loan growth was not about only new lending to the public sector. Market share of loans have risen all round in key areas in FY09 versus FY08. They are: (a) Mortgage loan is up 7.4% from 7.1%; (b) Non-residential mortgages up 5.3% from 4.3%; (c) Credit cards to 8.5% from 8.4%; (d) Auto loans to 6.7% from 6.5%, (e) Working capital loans to 11.3% from 10.0%; (f) SME loans to 9.5% from 8.5%; and (g) Overall market share of 8.5% versus 8.2%.

"Besides this, there is room for non-interest income to come in stronger-than-expected, particularly on the forex side, given a pick-up in trade activities. Should forex profits reach FY07 and FY08's levels of say RM250mil (our current forecast: RM223.2mil), we estimate a 1.4% upgrade in net earnings for FY10F, taking ROE to 15.1% - our fair value would be upgraded further to RM7.40/share," it said.

BURSA - Price Target News

Stock Name: BURSA
Company Name: BURSA MALAYSIA BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research is maintaining its Trading Buy call on Bursa Malaysia with a target price of RM10.70.

It said on Monday, March 29 there was was potential upside from retail participation if certain regulatory constraints are removed to help improve retail participation.

"Overall, we remain bullish on the stockmarket and maintain a KLCI target of 1,450 for end-2010. Our projected core EPS growth of 33.6% for FY10 is underpinned by an expected pick-up in velocity from 34% in 2008-09 to 40%.

"We retain our earnings forecasts and target price of RM10.70, pegged to an unchanged P/E of 33x," it said.

CIMB Research also maintained its Trading Buy call due to potential re-rating catalysts of (1) an expected rise in trading value, (2) sustained market sentiment, (3) a rebound in the effective clearing fee rate, and (4) stronger growth of the derivative business.