More jobs flowing into Naim's Dayang

Naim Holdings Bhd
(April 8, RM3.40)
Maintain buy at RM3.44, fair value of RM4.60: This pegs the stock at an unchanged 25% discount to its estimated sum-of-parts (SOP) value of RM6.14 per share.

In an announcement to Bursa Malaysia on Wednesday, Naim's 36%-onwed associate Dayang Enterprise Holdings Bhd said it has received an oil and gas-related job from Sarawak Shell Bhd. The contract is valued at RM400 million and is to be undertaken over a period of five years.

The scope of works would include the provision of topside maintenance services. This represents the third contract secured by Dayang for FY10, taking total new orders secured to date to RM77 million against an outstanding order book of circa RM700 million to RM800 million.

The earlier two contracts involved a workboat charter for reservoir management to Brunei Shell, and the hook-up and commissioning activities at the Tangga Barat site.

More importantly, the latest development underscores Dayang's expanding order flows and further solidifies the group's position as a leading provider of oil and gas services within Sarawak's shores.

We project Naim's share of associate earnings from Dayang to expand RM17 million to RM24 million in FY10 to FY12 against RM15 million in FY08 amid its burgeoning contract pipeline. This would be further underpinned by full-year contributions from Syarikat Borcos.

We continue to like Naim as an excellent proxy play on the Sarawak Corridor of Renewable Energy (Score) ahead of the Sarawak state elections that are due by May 2011.

Naim's earnings deliverance is on the ascendancy. We project a record core net profit of RM86 million for FY10, rising to RM98 million to RM128 millio in FY11 to FY12 respectively. Valuations are undemanding at FY10 to FY11 price earnings (PEs) of eight times to nine times, at the lower end of its historical PE band of seven times to 13 times.

Near-term key re-rating catalyst would include new contract wins,and stronger than expected property pre-sales. - AmResearch, April 8


This article appeared in The Edge Financial Daily, April 9, 2010.

Maybank IB sees strong finish to IJM's FY10

IJM Corp Bhd
(April 8, RM4.88)
Upgrade to buy at RM4.80 with higher target price of RM5.50: We believe near-term news flow on potential awards could intensify in the months leading to the announcement of the 10th Malaysia Plan, and as IJM begins bidding more aggressively for contracts in India.

The outlook for the non-construction divisions remains positive. We revise our earnings forecasts, and raise our target price following a change in methodology.

In our view, IJM's recent lacklustre order flow in India was due to a deliberate decision by the management to cut back on tenders amid an environment of high operating costs.

Cost escalation clauses stipulated in government contracts failed to fully compensate contractors for the spike in raw material prices, namely steel and cement, in 2007 and 2008.

With the recent normalisation of building material prices and borrowing costs, we believe the management will resume normal bidding for Indian jobs. We assume construction pre-tax margins of 2% in FY10 and 3.5% in FY11.

We expect IJM's construction margin to remain depressed in FY11, given the still significant legacy contracts on the books, about a third of IJM's RM3.2 billion order book as at March. We forecast the construction division to account for only 12% of IJM's FY11 earnings.

We expect the property and building materials divisions to remain as IJM's main earnings contributors, accounting for 31% and 30% of IJM's FY11 earnings respectively, while plantations and infrastructure would account for 17% and 10% respectively.

Our revised FY10 net profit implies earnings of RM100 million in 4QFY10, which is up 20% quarter-on-quarter, driven by stronger plantation earnings given the higher CPO price. - Maybank IB, April 8


This article appeared in The Edge Financial Daily, April 9, 2010.

Hai-O back to a buy, says OSK

Hai-O Enterprise Bhd
(April 8, RM4.40)
Upgrade to buy at RM4.42, target price of RM5.04: We believe Hai-O is on track to achieve our FY10 profit forecast of RM72.6 million, driven mainly by better year-on-year (y-o-y) multi-level marketing (MLM) sales on a higher membership base, better y-o-y and quarter-on-quarter (q-o-q) retail sales.

The MLM division reported 9MFY10 and 3QFY10 y-o-y sales growth of 34.6% and 46.1% respectively. We believe this division will give a good showing in 4QFY10 results given the higher y-o-y number of members to date.

Compared to the same period last year, Hai-O recruited 30,000 more members. We see a y-o-y sales growth of some 20% in 4QFY10. Hai-O's 3QFY10 and 9MFY10 retail sales contracted by 19.3% and 5.3% y-o-y respectively.

While this may be cause for concern, the contraction was mainly due to seasonal factors as the Chinese Lunar New Year which took place in late 4Q. We believe the shortfall in 3Q sales would be made up for in 4Q and as such, we see better retail sales in the last fiscal quarter.

Hai-O said Chinese New Year sales were encouraging, with FY10 10-month same-store-sales growth coming in at 3.5% y-o-y.

With regard to its newly formed thermal transfer business, despite the lack of details, the management revealed that there had been some developments and that all is progressing as planned. It has also guided that the current investment cost is about RM3 million and that no additional cost is needed as yet.

Based on this piece of information, we believe the break-even period for this business could be shorter than the management's break-even target of two years.

Should this business make good progress, apart from the potentially high return on investment (ROI), this division together with the retail division should provide a strong earnings support during a downturn, which may render the group more resilient than other MLM players.

Hai-O's share price has rallied strongly since early this year, driven by its uninterrupted stream of good quarterly results. While we are maintaining our FY10 and FY11 net profit forecasts, we upgrade Hai-O to a buy at an unchanged target price of RM5.04 based on 12 times FY11 earnings per share (EPS), given there is a price upside of more than 10% after its shares have retraced by some 5% since our downgrade on March 22. - OSK Research, April 8


This article appeared in The Edge Financial Daily, April 9, 2010.

All set for India's biggest auction

Telco sector
Maintain neutral: India's 3G auction is slated for today, and the broadband wireless access (BWA) auction will follow two days after the conclusion of the 3G auction. The government hopes to raise about Rs350 billion (RM25.23 billion) in total. The spectrum usage rights for both auctions last for a period of 20 years.

Nine bidders, mostly incumbents and a handful of new entrants, have been qualified for the 3G auction where six are bidding on a nationwide basis. The government will auction three slots in 17 of the 22 circles and four slots in the remaining five circles. Each slot is a 2X5 MHz spectrum. The reserve price for a pan-Indian licence remains unchanged at Rs35 billion.

Winning bidders must pay the full amount within 10 days of the auction's close. Winners can only launch commercial operations on Sept 1, 2010. Within five years of the grant date, the winner will have to roll out to 90% of the population in metro areas and in other service areas, and to 50% of the district headquarters (DHQ), out of which at least 15% of the DHQs should be rural short-distance charging areas.

The BWA auction has 11 qualified bidders vying for two blocks of 20MHz unpaired spectrum in each circle. The reserve price is unchanged at Rs17.5 billion for a pan-Indian licence. The spectrum will be allocated immediately and rollout obligations are the same as 3G's.

The combination of a limited amount of spectrum blocks and the high number of bidders will drive up the bid prices for both the 3G and BWA auctions, in our view.

We think that the winning bids for a nationwide 3G spectrum could range anywhere from US$1 billion to US$1.5 billion higher than the nationwide base price as operators jostle for this prized resource.

Similarly, we think that the competition for the BWA auction could be even more intense as there are fewer blocks and even more bidders than the 3G auction.

We believe that Bharti and Vodafone are bound to go in more aggressively given their presence in all the 22 circles and the spectrum crunch experienced by both.

We also think that nationwide CDMA players - Reliance and Tata - will bid aggressively to further drive wireless data take-up and get additional spectrum even though they already offer EV-DO datacard services.

We believe that smaller incumbents such as Idea and Aircel will bid selectively in circles where they are strong in and have a large subscriber base.

The winners will also have to fork out for capex to roll out 3G services, adding burden to their balance sheet. That said, the burden may not be that high due to passive infrastructure sharing and falling equipment prices among others.

We believe that new licences will weigh down sentiment on SingTel (underperform) as Bharti makes up about 18% of both SingTel's sum-of-parts-based (SOP) target price and FY10 core net profit. Idea contributes a smaller 4% to Axiata's estimated FY10 earnings. We remain neutral on the telco sector. - CIMB Research, April 8


This article appeared in The Edge Financial Daily, April 9, 2010.

TOPGLOV - Price Target News

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

KUALA LUMPUR: AmResearch Sdn Bhd has downgraded the rubber glove sector to underweight, and said Top Glove Corp's recent 2QFY10 results showed signs of normalisation in demand.

It said checks revealed shorter order lead time of 50 days for 2QFY10, as compared to 90 days in the preceding quarter.

On average, Top Glove and Kossan Rubber Industries (Kossan) have consistently recorded an order lead-time of 30 to 40 days during normalised trading periods, it said.

The implications from this is that demand growth had peaked and should decelerate going forward, and shift of pricing power from manufacturers to consumers to accelerate, exacerbated by oncoming additional production capacity as early as mid-2010, it said.

AmResearch said as such, there could be increased resistance from consumers to accept higher selling prices going forward.

With higher latex cost, weaker Ringgit against the US dollar and potentially pricier energy costs, it sees growing concern for earlier-than-expected margin compression, said the research house.

"All in, we have cut FY11F-12F earnings by 8%-11% for Top Glove and a smaller 2%-4% for Kossan on lower margins. In view of our less bullish stance on earnings going forward, we are downgrading Top Glove to a hold recommendation with lower fair value of RM12.50 based on PE of 13 times FY11F earnings.

"Following our sector de-rating, we are downgrading Kossan after pegging Kossan's FY10F earnings to a lower PE of 11 times to arrive at our revised fair value of RM7.65," it said.

KOSSAN - Price Target News

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

KUALA LUMPUR: AmResearch Sdn Bhd has downgraded the rubber glove sector to underweight, and said Top Glove Corp's recent 2QFY10 results showed signs of normalisation in demand.

It said checks revealed shorter order lead time of 50 days for 2QFY10, as compared to 90 days in the preceding quarter.

On average, Top Glove and Kossan Rubber Industries (Kossan) have consistently recorded an order lead-time of 30 to 40 days during normalised trading periods, it said.

The implications from this is that demand growth had peaked and should decelerate going forward, and shift of pricing power from manufacturers to consumers to accelerate, exacerbated by oncoming additional production capacity as early as mid-2010, it said.

AmResearch said as such, there could be increased resistance from consumers to accept higher selling prices going forward.

With higher latex cost, weaker Ringgit against the US dollar and potentially pricier energy costs, it sees growing concern for earlier-than-expected margin compression, said the research house.

"All in, we have cut FY11F-12F earnings by 8%-11% for Top Glove and a smaller 2%-4% for Kossan on lower margins. In view of our less bullish stance on earnings going forward, we are downgrading Top Glove to a hold recommendation with lower fair value of RM12.50 based on PE of 13 times FY11F earnings.

"Following our sector de-rating, we are downgrading Kossan after pegging Kossan's FY10F earnings to a lower PE of 11 times to arrive at our revised fair value of RM7.65," it said.

HAIO - Price Target News

Stock Name: HAIO
Company Name: HAI-O ENTERPRISE BHD
Research House: OSK

Hai-O Enterprise Bhd
(April 8, RM4.40)
Upgrade to buy at RM4.42, target price of RM5.04: We believe Hai-O is on track to achieve our FY10 profit forecast of RM72.6 million, driven mainly by better year-on-year (y-o-y) multi-level marketing (MLM) sales on a higher membership base, better y-o-y and quarter-on-quarter (q-o-q) retail sales.

The MLM division reported 9MFY10 and 3QFY10 y-o-y sales growth of 34.6% and 46.1% respectively. We believe this division will give a good showing in 4QFY10 results given the higher y-o-y number of members to date.

Compared to the same period last year, Hai-O recruited 30,000 more members. We see a y-o-y sales growth of some 20% in 4QFY10. Hai-O's 3QFY10 and 9MFY10 retail sales contracted by 19.3% and 5.3% y-o-y respectively.

While this may be cause for concern, the contraction was mainly due to seasonal factors as the Chinese Lunar New Year which took place in late 4Q. We believe the shortfall in 3Q sales would be made up for in 4Q and as such, we see better retail sales in the last fiscal quarter.

Hai-O said Chinese New Year sales were encouraging, with FY10 10-month same-store-sales growth coming in at 3.5% y-o-y.

With regard to its newly formed thermal transfer business, despite the lack of details, the management revealed that there had been some developments and that all is progressing as planned. It has also guided that the current investment cost is about RM3 million and that no additional cost is needed as yet.

Based on this piece of information, we believe the break-even period for this business could be shorter than the management's break-even target of two years.

Should this business make good progress, apart from the potentially high return on investment (ROI), this division together with the retail division should provide a strong earnings support during a downturn, which may render the group more resilient than other MLM players.

Hai-O's share price has rallied strongly since early this year, driven by its uninterrupted stream of good quarterly results. While we are maintaining our FY10 and FY11 net profit forecasts, we upgrade Hai-O to a buy at an unchanged target price of RM5.04 based on 12 times FY11 earnings per share (EPS), given there is a price upside of more than 10% after its shares have retraced by some 5% since our downgrade on March 22. - OSK Research, April 8


This article appeared in The Edge Financial Daily, April 9, 2010.

IJM - Price Target News

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

IJM Corp Bhd
(April 8, RM4.88)
Upgrade to buy at RM4.80 with higher target price of RM5.50: We believe near-term news flow on potential awards could intensify in the months leading to the announcement of the 10th Malaysia Plan, and as IJM begins bidding more aggressively for contracts in India.

The outlook for the non-construction divisions remains positive. We revise our earnings forecasts, and raise our target price following a change in methodology.

In our view, IJM's recent lacklustre order flow in India was due to a deliberate decision by the management to cut back on tenders amid an environment of high operating costs.

Cost escalation clauses stipulated in government contracts failed to fully compensate contractors for the spike in raw material prices, namely steel and cement, in 2007 and 2008.

With the recent normalisation of building material prices and borrowing costs, we believe the management will resume normal bidding for Indian jobs. We assume construction pre-tax margins of 2% in FY10 and 3.5% in FY11.

We expect IJM's construction margin to remain depressed in FY11, given the still significant legacy contracts on the books, about a third of IJM's RM3.2 billion order book as at March. We forecast the construction division to account for only 12% of IJM's FY11 earnings.

We expect the property and building materials divisions to remain as IJM's main earnings contributors, accounting for 31% and 30% of IJM's FY11 earnings respectively, while plantations and infrastructure would account for 17% and 10% respectively.

Our revised FY10 net profit implies earnings of RM100 million in 4QFY10, which is up 20% quarter-on-quarter, driven by stronger plantation earnings given the higher CPO price. - Maybank IB, April 8


This article appeared in The Edge Financial Daily, April 9, 2010.

MISC - Price Target News

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

KUALA LUMPUR: MIDF Research maintained its neutral recommendation on MISC BHD [] at RM8.17 with an unchanged target price of RM7.81 after the company announced on April 8 it was listing its subsidiary Malaysian Marine & Heavy Engineering Sdn Bhd (MMHE).

The research house said the announcement came as a surprise as it had expected that the two Petronas subsidiaries considered for listing would come from Petronas directly.

"We believe that the capital to be raised would be used for M&A activities. We are maintaining our target price and our neutral recommendation for the moment as it is still early days.

"We also expect that the dilution of income from MMHE would facilitate a potential M&A either by MISC or MMHE. Our target price of RM7.81 is derived from sum-of-parts valuation," it said.

TCHONG - Price Target News

Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research has upgraded its outlook for TAN CHONG MOTOR HOLDINGS BHD [] and rated it as an outperform and its top pick in the auto sector. It said on Friday, April 9 that its sum-of-parts based target price is pushed from RM4.55 to RM7. CIMB Research said this is an excellent entry point to ride on the following major themes for Tan Chong over the next three years. The factors are strong earnings growth trajectory; model mix expansion, and regional ambitions and Indochina strategy. "We are now projecting an impressive EPS CAGR of 47% as our FY10-12 earnings are raised 38-62% after 1) upping our sales volume forecasts by 5-13%, and 2) raising operating margins by 1-2 percentage points for a stronger ringgit, better product mix and economies of scale," it said.

NAIM - Price Target News

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

Naim Holdings Bhd
(April 8, RM3.40)
Maintain buy at RM3.44, fair value of RM4.60: This pegs the stock at an unchanged 25% discount to its estimated sum-of-parts (SOP) value of RM6.14 per share.

In an announcement to Bursa Malaysia on Wednesday, Naim's 36%-onwed associate Dayang Enterprise Holdings Bhd said it has received an oil and gas-related job from Sarawak Shell Bhd. The contract is valued at RM400 million and is to be undertaken over a period of five years.

The scope of works would include the provision of topside maintenance services. This represents the third contract secured by Dayang for FY10, taking total new orders secured to date to RM77 million against an outstanding order book of circa RM700 million to RM800 million.

The earlier two contracts involved a workboat charter for reservoir management to Brunei Shell, and the hook-up and commissioning activities at the Tangga Barat site.

More importantly, the latest development underscores Dayang's expanding order flows and further solidifies the group's position as a leading provider of oil and gas services within Sarawak's shores.

We project Naim's share of associate earnings from Dayang to expand RM17 million to RM24 million in FY10 to FY12 against RM15 million in FY08 amid its burgeoning contract pipeline. This would be further underpinned by full-year contributions from Syarikat Borcos.

We continue to like Naim as an excellent proxy play on the Sarawak Corridor of Renewable Energy (Score) ahead of the Sarawak state elections that are due by May 2011.

Naim's earnings deliverance is on the ascendancy. We project a record core net profit of RM86 million for FY10, rising to RM98 million to RM128 millio in FY11 to FY12 respectively. Valuations are undemanding at FY10 to FY11 price earnings (PEs) of eight times to nine times, at the lower end of its historical PE band of seven times to 13 times.

Near-term key re-rating catalyst would include new contract wins,and stronger than expected property pre-sales. - AmResearch, April 8


This article appeared in The Edge Financial Daily, April 9, 2010.

JOBST - Price Target News

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

KUALA LUMPUR: OSK Research says JobStreet's valuations have become rather expensive at FY10 PER and it is maintaining its Neutral stance. It said on Friday, April 9 that looking at JobStreet's historical PER since its listing in 2005, the company is trading near its peak valuation based on FY10 PER. "Based on FY10 earnings, we increase our fair value to RM1.80 by pegging the stock's historic high 18.5x PER compared to 15x previously as expectations of (Australian Stock Exchange-listed) SEEK Ltd buying more shares and a strong equity market are likely to support a higher valuation," it said. SEEK, which initially only owned a 10% stake in JobStreet in 2008, started accumulating more JobStreet shares from February 2010. Within two months, SEEK has raised its shareholdings in JobStreet to 22.4% as at March 31, 2010. OSK Research said the recent strengthening in JobStreet's share price could have been mainly supported by SEEK's accumulation. In view of JobStreet's rather expensive FY10 PER, it is maintaining its Neutral stance. "There have been a few rounds of meetings between JobStreet and SEEK. As far as we know, it is unlikely that a major business tie-up will be announced soon. "However, as SEEK already owns more than 20% interest in JobStreet and is also the latter's single largest shareholder, we believe it is a matter of time that the two companies will embark on business ventures together," it said.

AEON Credit: A micro-financing wonder

AEON Credit Service (M) Bhd
(April 7, RM4.12)
Initiating coverage with a buy at RM3.93 with target price of RM4.95: Riding on a solid track record, low non-performing loan (NPL) ratio, a growing customer base and attractive dividend yield, we are initiating coverage on AEON Credit with a buy recommendation.

Listed on the Bursa Malaysia Main Board on Dec 12, 1997, AEON Credit started off by providing easy payment schemes for the purchase of consumer durables through appointed merchants and retail stores. Its four main revenue contributors are motorcycle easy payment, general easy payment, personal financing and credit card.

In the past two years, the group has been registering a solid revenue and net profit compound annual growth rate (CAGR) of 26.9% and 57.3% respectively.

Going forward, we expect earnings to grow in tandem with its growing customer base and stronger consumer spending. Via a prudent lending policy and effective credit management, it has managed to keep NPLs at below 2%.

Although management has indicated that credit card application growth slowed down slightly after a service tax was imposed on credit cards, this is not a concern as AEON Credit's credit card business has yet to contribute to its bottom line as it is still struggling to break even.

Instead, we believe its earnings growth momentum is on track and there could be a re-rating on the stock when investors realise that its fundamentals are intact despite the imposition of the service tax.

AEON Credit's 3QFY10 net gearing ratio is still relatively high at 302.1% compared with 191.2% for RCE Capital Bhd.

However, we believe this is a norm in the micro-financing business as players are unable to tap into bank deposits to finance their lending activities. That said, the company's risk weighted capital ratio, which has been hovering above 20%, exceeds Bank Negara's requirement of 16% for the credit card business.

Applying a historical two-year price earnings (PE) band of 8.5 times over FY11 earnings per share (EPS), we derive a target price of RM4.95. We believe this is justifiable based on the company's attractive dividend yield, earnings track record, low NPLs, high profit margin and increasing demand for micro-financing among the younger generation. - OSK Research, April 7


This article appeared in The Edge Financial Daily, April 8, 2010.

RHB: Media Chinese still an outperform

Media Chinese International Ltd (MCIL)
(April 7, 87 sen)
Reiterate outperform at 90 sen, fair value raised to RM1.09: MCIL has enjoyed a strong start to the year with its share price up 59.3% year to date (YTD). This has outperformed both the FBM KLCI and FBM100.

We believe the strong share price performance was due to factors such as improving economic conditions, which would generally benefit advertising expenditure (adex), and above-consensus quarterly results.

We also note that ad spending for the Malaysian operations has started on a strong note. According to Nielsen Media Research, YTD gross adex for MCIL's Chinese dailies, namely, Sin Chew, Nanyang, China Press and Guang Ming, grew 20.6% year-on-year (y-o-y).

Apart from a recovery in adex, we believe the strong y-o-y growth is also a reflection of the low base effect as a result of the weak economic conditions a year ago.

Generally, we remain positive on the outlook for ad spending this year. Apart from an economic recovery, we expect adex to also be supported by "ad-friendly" events such as the 2010 FIFA World Cup and the Commonwealth Games among others.

Recall MCIL's 3QFY10 earnings before interest and tax (Ebit) margin for the publishing and printing division expanded by 7% quarter-on-quarter. This was due to stronger ad revenue during the quarter, which would flow straight to operating profit, and ongoing cost-control measures.

The Malaysian operations are currently carrying around six to eight months worth of stock at an average cost of US$530 (RM1,701.30) to US$550 per tonne while the Hong Kong operations have around three months worth of stock at similar cost.

Apart from newsprint, the group's headcount has been reduced by around 4%-5% this year, resulting in staff cost savings of around US$8 million. With two major cost items under control, we think MCIL is poised to benefit from the upswing in ad spend ahead.

Our earnings forecasts remain unchanged. MCIL's trading volume has improved rather significantly of late as more investors start to recognise the group's fast improving fundamentals, in our view.

Given the improved liquidity, we are raising our target CY10 price-earnings ratio (PER) to 13 times from 11 times. Consequently, our indicative fair value has been raised to RM1.09 from 92 sen. - RHB Research Institute, April 7


This article appeared in The Edge Financial Daily, April 8, 2010.

PetGas GPTA details shed new light

Petronas Gas Bhd (PetGas)
(April 7, RM10)
Upgrade to hold at RM9.89, with a higher target price of RM10.60: PetGas met with the investing community on Tuesday to explain the fourth Gas Processing and Transmission Agreement (GPTA) terms and underlying need for the distinct processing and transportation remuneration structure.

The lower reservation charge, which reflected both gas processing and transportation charges previously, is now only for gas processing.

We understand that the transportation tariff under the new capacity reservation sharge, which is a function of investment cost and distance gas transmitted, makes up the rest.

Historically, the proportion of gas transmitted to each zone is 25% (zone 1: east), 15% (zone 2: southern), 45% (zone 3: central), and 15% (zone 4: north). We estimate this to be RM1.2 billion. Cost savings derived from free internal gas consumption of between RM400 and RM500 million exceed our forecast.

The said underlying reason behind the new remuneration structure is to position PetGas to take on additional gas supply from new clients in the future. As production in Terengganu gas fields continues to drop, natural gas imports will inevitably grow to meet rising gas demand in the country.

We upgrade PetGas to hold following further details of the new GPTA, and prospects of new gas supplies. Our discounted cash flow-derived (DCF) RM10.60 per share target price is based on 7.5% weighted average cost of capital (WACC).

PetGas is now trading at 17.2 times CY11 price earnings (PE) and 2.3 times price-to-book value (PBV) against regional peers' 18.1 times and 3.1 times, respectively.

Gas imports would need a re-gasification plant. We believe the new gas supply might come from the Santos-Petronas LNG project in Australia, which is expected to come onstream in 2013. - HwangDBS Vickers Research, April 7


This article appeared in The Edge Financial Daily, April 8, 2010.

Proton one of "cheapest' auto stocks

Proton Holdings Bhd
(April 7, RM4.83)
Reiterate buy at RM4.84, with a higher fair value of RM6.30: This valuation follows upward revisions to our adjusted net tangible asset (NTA) projection, to factor in market value of Proton's Shah Alam assets.

Our channel checks suggest possibilities of foreign carmakers taking up spare capacity and simultaneously, striking a strategic alliance with Proton.

We understand that Proton is in talks with a third original equipment manufacturer (OEM) namely Mitsubishi, besides Renault and Volkswagen currently. Negotiations with Mitsubishi go beyond model specific developments and platform sharing that was agreed upon earlier.

Proton's manufacturing assets have turned increasingly strategic following growing interest by foreign carmakers to set up assembly operations in the country and recent news flow suggests VW is looking to finalise plans for a local assembly plant by the end of this year.

Additionally, the government's move to lift a freeze on manufacturing licences for luxury passenger vehicles with engine capacities of 1.8cc and above should attract interest from luxury makes in the country.

Besides BMW, Mercedes, Peugeot and Volvo, the other luxury marques that lack manufacturing presence here are VW, Audi, which is also under the VW group, Renault and Porsche.

VW initiated talks with Proton in October 2004. Since then, talks between Khazanah and VW have been rough.

While talks were revived late 2005, this too ended in disappointment - understood to be caused by the reluctance of the government to give away a controlling stake in Proton and monetary demand by VW from the government to streamline Proton's operations.

In the past couple of months however, relations have been warming up and VW has been reported to be back on the negotiating table with Proton.

What might VW bring to Proton? We think VW has the technology, economies of scale, global reach and excellent commitment to quality that Proton needs to become a global player. VW has been successful in the car business, having successfully built various models across its marques by using only four platforms.

Out of the key manufacturing plants in the country, Proton's plants entail the largest capacity, at a collective 400,000 units per annum, by a very large gap and remains well under utilised. Currently, the plants have a 50% utilisation rate, which leaves ample excess capacity to undertake contract assembly operations.

Proton's Shah Alam assets that measure over 200 acres (81ha) have not been revalued since 1985, entailing a book value of just RM147 million.

We have revised up our adjusted NTA projection to RM7.70 per share from RM6.50 previously to factor in market value of Proton's Shah Alam assets at an assumption of RM60 psf, which contributes to a surplus of 80 sen per share or RM440 million.

We do not rule out future divestment of Proton's plant in Shah Alam given its future status as a non-core asset - should Proton decide to consolidate operations to Tanjung Malim.

Proton announced earlier in the year that it is exploring possibilities of either selling or leasing out its plant in Shah Alam, where a decision will be made during the second half of 2010.

Proton is one of the cheapest auto stocks under our coverage at just six times FY11 earnings. Net cash accounts for 22% of market cap and ex-cash, Proton trades at five times FY11 earnings per share (EPS).

Additionally, when talks were initiated with VW in 2006, Proton's valuation re-rated upwards to over one time adjusted NTA and 0.7 times book value. Current valuations are at deep 40% and 43% discount respectively. - AmResearch, April 7


This article appeared in The Edge Financial Daily, April 8, 2010.

SUNCITY - Price Target News

Stock Name: SUNCITY
Company Name: SUNWAY CITY BHD
Research House: HWANGDBS

Sunway City Bhd, a Malaysian property group, was upgraded at HwangDBS Vickers Research Sdn Bhd after the company announced a plan to set up a real estate investment trust.

The company was upgraded to "buy" from "hold" and its share price estimate increased to RM4.70 from RM3.10, HwangDBS said in a report today.

The stock climbed 1.6 per cent to RM3.76 at 9:09 am local time in Kuala Lumpur trading, headed for the highest close since February 6, 2008. -- Bloomberg

HAIO - Price Target News

Stock Name: HAIO
Company Name: HAI-O ENTERPRISE BHD
Research House: OSK

Hai-O Enterprise Bhd, Malaysia's only listed seller of traditional Chinese herbs, had its stock rating upgraded to "buy" from "neutral" at OSK Research Sdn Bhd on a higher sales outlook.

OSK maintained the share price estimate at RM5.04, it said in a report today. -- Bloomberg

MEDIAC - Price Target News

Stock Name: MEDIAC
Company Name: MEDIA CHINESE INTERNATIONAL LT
Research House: RHB

Media Chinese International Ltd (MCIL)
(April 7, 87 sen)
Reiterate outperform at 90 sen, fair value raised to RM1.09: MCIL has enjoyed a strong start to the year with its share price up 59.3% year to date (YTD). This has outperformed both the FBM KLCI and FBM100.

We believe the strong share price performance was due to factors such as improving economic conditions, which would generally benefit advertising expenditure (adex), and above-consensus quarterly results.

We also note that ad spending for the Malaysian operations has started on a strong note. According to Nielsen Media Research, YTD gross adex for MCIL's Chinese dailies, namely, Sin Chew, Nanyang, China Press and Guang Ming, grew 20.6% year-on-year (y-o-y).

Apart from a recovery in adex, we believe the strong y-o-y growth is also a reflection of the low base effect as a result of the weak economic conditions a year ago.

Generally, we remain positive on the outlook for ad spending this year. Apart from an economic recovery, we expect adex to also be supported by "ad-friendly" events such as the 2010 FIFA World Cup and the Commonwealth Games among others.

Recall MCIL's 3QFY10 earnings before interest and tax (Ebit) margin for the publishing and printing division expanded by 7% quarter-on-quarter. This was due to stronger ad revenue during the quarter, which would flow straight to operating profit, and ongoing cost-control measures.

The Malaysian operations are currently carrying around six to eight months worth of stock at an average cost of US$530 (RM1,701.30) to US$550 per tonne while the Hong Kong operations have around three months worth of stock at similar cost.

Apart from newsprint, the group's headcount has been reduced by around 4%-5% this year, resulting in staff cost savings of around US$8 million. With two major cost items under control, we think MCIL is poised to benefit from the upswing in ad spend ahead.

Our earnings forecasts remain unchanged. MCIL's trading volume has improved rather significantly of late as more investors start to recognise the group's fast improving fundamentals, in our view.

Given the improved liquidity, we are raising our target CY10 price-earnings ratio (PER) to 13 times from 11 times. Consequently, our indicative fair value has been raised to RM1.09 from 92 sen. - RHB Research Institute, April 7


This article appeared in The Edge Financial Daily, April 8, 2010.

AEONCR - Price Target News

Stock Name: AEONCR
Company Name: AEON CREDIT SERVICE (M) BHD
Research House: OSK

AEON Credit Service (M) Bhd
(April 7, RM4.12)
Initiating coverage with a buy at RM3.93 with target price of RM4.95: Riding on a solid track record, low non-performing loan (NPL) ratio, a growing customer base and attractive dividend yield, we are initiating coverage on AEON Credit with a buy recommendation.

Listed on the Bursa Malaysia Main Board on Dec 12, 1997, AEON Credit started off by providing easy payment schemes for the purchase of consumer durables through appointed merchants and retail stores. Its four main revenue contributors are motorcycle easy payment, general easy payment, personal financing and credit card.

In the past two years, the group has been registering a solid revenue and net profit compound annual growth rate (CAGR) of 26.9% and 57.3% respectively.

Going forward, we expect earnings to grow in tandem with its growing customer base and stronger consumer spending. Via a prudent lending policy and effective credit management, it has managed to keep NPLs at below 2%.

Although management has indicated that credit card application growth slowed down slightly after a service tax was imposed on credit cards, this is not a concern as AEON Credit's credit card business has yet to contribute to its bottom line as it is still struggling to break even.

Instead, we believe its earnings growth momentum is on track and there could be a re-rating on the stock when investors realise that its fundamentals are intact despite the imposition of the service tax.

AEON Credit's 3QFY10 net gearing ratio is still relatively high at 302.1% compared with 191.2% for RCE Capital Bhd.

However, we believe this is a norm in the micro-financing business as players are unable to tap into bank deposits to finance their lending activities. That said, the company's risk weighted capital ratio, which has been hovering above 20%, exceeds Bank Negara's requirement of 16% for the credit card business.

Applying a historical two-year price earnings (PE) band of 8.5 times over FY11 earnings per share (EPS), we derive a target price of RM4.95. We believe this is justifiable based on the company's attractive dividend yield, earnings track record, low NPLs, high profit margin and increasing demand for micro-financing among the younger generation. - OSK Research, April 7


This article appeared in The Edge Financial Daily, April 8, 2010.

DAYANG - Price Target News

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

KUALA LUMPUR: Hwang DBS Vickers Research is maintaining a Buy call on Dayang Enterprise Bhd at RM2.60 a share, pegged to 11 times FY11F EPS. It said on Thursday, April 8 that Dayang is a growth story at an attractive valuation. "Dayang offers strong growth (FY09-11F net profit CAGR of 37.1%) with earnings underpinned by a strong order book, superior margins, new contract wins, and maiden contribution from OSV operation, Borcos. "Valuation remains compelling at 9.0 times FY11F EPS and 1.7 times PBV. Maintain Buy call and RM2.60/share target price, pegged to 11 times FY11F EPS," it said. Dayang's subsidiary Dayang Enterprise Sdn Bhd clinched a RM400 million contract from Shell Sarawak Bhd to provide top-side maintenance execution services over a period of five years, with an option to renew for one year. This is expected to contribute positively to the group's earnings from 2010 to 2015.

PROTON - Price Target News

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

Proton Holdings Bhd
(April 7, RM4.83)
Reiterate buy at RM4.84, with a higher fair value of RM6.30: This valuation follows upward revisions to our adjusted net tangible asset (NTA) projection, to factor in market value of Proton's Shah Alam assets.

Our channel checks suggest possibilities of foreign carmakers taking up spare capacity and simultaneously, striking a strategic alliance with Proton.

We understand that Proton is in talks with a third original equipment manufacturer (OEM) namely Mitsubishi, besides Renault and Volkswagen currently. Negotiations with Mitsubishi go beyond model specific developments and platform sharing that was agreed upon earlier.

Proton's manufacturing assets have turned increasingly strategic following growing interest by foreign carmakers to set up assembly operations in the country and recent news flow suggests VW is looking to finalise plans for a local assembly plant by the end of this year.

Additionally, the government's move to lift a freeze on manufacturing licences for luxury passenger vehicles with engine capacities of 1.8cc and above should attract interest from luxury makes in the country.

Besides BMW, Mercedes, Peugeot and Volvo, the other luxury marques that lack manufacturing presence here are VW, Audi, which is also under the VW group, Renault and Porsche.

VW initiated talks with Proton in October 2004. Since then, talks between Khazanah and VW have been rough.

While talks were revived late 2005, this too ended in disappointment - understood to be caused by the reluctance of the government to give away a controlling stake in Proton and monetary demand by VW from the government to streamline Proton's operations.

In the past couple of months however, relations have been warming up and VW has been reported to be back on the negotiating table with Proton.

What might VW bring to Proton? We think VW has the technology, economies of scale, global reach and excellent commitment to quality that Proton needs to become a global player. VW has been successful in the car business, having successfully built various models across its marques by using only four platforms.

Out of the key manufacturing plants in the country, Proton's plants entail the largest capacity, at a collective 400,000 units per annum, by a very large gap and remains well under utilised. Currently, the plants have a 50% utilisation rate, which leaves ample excess capacity to undertake contract assembly operations.

Proton's Shah Alam assets that measure over 200 acres (81ha) have not been revalued since 1985, entailing a book value of just RM147 million.

We have revised up our adjusted NTA projection to RM7.70 per share from RM6.50 previously to factor in market value of Proton's Shah Alam assets at an assumption of RM60 psf, which contributes to a surplus of 80 sen per share or RM440 million.

We do not rule out future divestment of Proton's plant in Shah Alam given its future status as a non-core asset - should Proton decide to consolidate operations to Tanjung Malim.

Proton announced earlier in the year that it is exploring possibilities of either selling or leasing out its plant in Shah Alam, where a decision will be made during the second half of 2010.

Proton is one of the cheapest auto stocks under our coverage at just six times FY11 earnings. Net cash accounts for 22% of market cap and ex-cash, Proton trades at five times FY11 earnings per share (EPS).

Additionally, when talks were initiated with VW in 2006, Proton's valuation re-rated upwards to over one time adjusted NTA and 0.7 times book value. Current valuations are at deep 40% and 43% discount respectively. - AmResearch, April 7


This article appeared in The Edge Financial Daily, April 8, 2010.

PETGAS - Price Target News

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

Petronas Gas Bhd (PetGas)
(April 7, RM10)
Upgrade to hold at RM9.89, with a higher target price of RM10.60: PetGas met with the investing community on Tuesday to explain the fourth Gas Processing and Transmission Agreement (GPTA) terms and underlying need for the distinct processing and transportation remuneration structure.

The lower reservation charge, which reflected both gas processing and transportation charges previously, is now only for gas processing.

We understand that the transportation tariff under the new capacity reservation sharge, which is a function of investment cost and distance gas transmitted, makes up the rest.

Historically, the proportion of gas transmitted to each zone is 25% (zone 1: east), 15% (zone 2: southern), 45% (zone 3: central), and 15% (zone 4: north). We estimate this to be RM1.2 billion. Cost savings derived from free internal gas consumption of between RM400 and RM500 million exceed our forecast.

The said underlying reason behind the new remuneration structure is to position PetGas to take on additional gas supply from new clients in the future. As production in Terengganu gas fields continues to drop, natural gas imports will inevitably grow to meet rising gas demand in the country.

We upgrade PetGas to hold following further details of the new GPTA, and prospects of new gas supplies. Our discounted cash flow-derived (DCF) RM10.60 per share target price is based on 7.5% weighted average cost of capital (WACC).

PetGas is now trading at 17.2 times CY11 price earnings (PE) and 2.3 times price-to-book value (PBV) against regional peers' 18.1 times and 3.1 times, respectively.

Gas imports would need a re-gasification plant. We believe the new gas supply might come from the Santos-Petronas LNG project in Australia, which is expected to come onstream in 2013. - HwangDBS Vickers Research, April 7


This article appeared in The Edge Financial Daily, April 8, 2010.

POS - Price Target News

Stock Name: POS
Company Name: POS MALAYSIA BHD
Research House: INTER PACIFIC

KUALA LUMPUR: Inter-Pacific Research Sdn Bhd has reiterated its outperform recommendation on POS MALAYSIA BHD [] (Pos) at RM3.23, and upgraded its fair value to RM3.80 based on an average PER of 14.4 times and FY10 EPS of 26.4 sen following the national courier's tariff revision effective July 1.

The research house said the price hike was expected to raise revenue by 34%, adding that following the new tariff hike to be implemented in 1HFY10, revenue should increase by 33.5% year-on-year (y-o-y) to RM770.1 million in FY10 and 23.1% y-o-y to RM948.3 million in FY11.

"Despite increasing competition from digital TECHNOLOGY [], Malaysia's average previous five years traffic volume has been fairly stable, averaging at 1.15 billion mails.

"Our FY10 and FY11 revenue expectation is inclusive of a slight drop in household mail volume on the increase of postal tariff but supported by slight growth in business mail as global economy improves," it said.

SALCON - Price Target News

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

Salcon Bhd
(April 6, 72.5 sen)
Buy at 72 sen, target price of 81 sen: In 2004, Salcon Bhd underwent a major change in substantial shareholders who initiated a revamp of its entire business structure. Its main shareholder, Naga Muhibbah Sdn Bhd, took over from previous shareholder Kumpulan Emas.

The makeover, which involved the divestment of various small businesses, one of which was insurance, led to Salcon refocusing on its core operations of water engineering and construction.

The latest change in Salcon also entails the inclusion of its China-related water and wastewater concession as part of its key operation.

Salcon's construction and engineering order book stood at RM1.2 billion as at end-FY09. Of this amount, the outstanding order book is worth RM576 million.

With its current tender book at RM1.5 billion, Salcon is poised to secure jobs worth RM300 million to RM450 million this year, based on its historical success rate of 20% to 30%. We see the construction and engineering division increasing revenue by 35.5% in FY10. Its order book could well enlarge in FY11 on the back of its growing exposure to overseas projects, namely in Thailand, Vietnam, India and Sri Lanka. Salcon has to date secured eight water and wastewater concessions, one of which is in Vietnam and the rest in China.

Apart from providing a recurring income, we see Salcon's concession holdings division contributing approximately 20% to 30% of its bottom line earnings every year. In the next two to three years, we see Salcon securing more China-related concessions.

We peg Salcon with a buy recommendation. We ascribe a 12-month target price of 81 sen for Salcon, which translates into an upside of 12.5% based on its current share price. The stock's target price is based on a sum-of-parts (SOP) approach valuing its concession operations at 41 sen with a weighted average cost of capital (WACC) of 12%, while applying a price earnings (PE) of nine times on its FY10 construction earnings per share (EPS) of four sen.

Our nine times construction PE is based on the average PE for small-cap construction companies - OSK Research, April 6


This article appeared in The Edge Financial Daily, April 7, 2010.

PROTON - Price Target News

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

KUALA LUMPUR: AmResearch reiterates its BUY rating on Proton Holdings (Proton) and raised its fair value (FV) to RM6.30/share from RM5.50/share previously. It said on Wednesday, April 7 the higher FV followed its upward revisions to its adjusted NTA projection - to factor in market value of Proton's Shah Alam assets. "Our valuation remains pegged to 0.8x FY11F adjusted NTA - which now stands at RM7.70/share," it said. AmResearch said its channel checks suggested possibilities of foreign carmakers taking up spare capacity and simultaneously, striking a strategic alliance with Proton. "We understand that Proton is in talks with a third OEM namely Mitsubishi, besides Renault and VW currently. "Negotiations with Mitsubishi goes beyond model specific developments and platform sharing that was agreed upon earlier," it added. Proton's manufacturing assets have turned increasingly strategic following growing interest by foreign carmakers to set up assembly operations in the country -and recent newsflows suggests VW is looking to finalise plans for a local assembly plant by end of 1H10. AmResearch said additionally, the Government's move to lift a freeze on manufacturing licenses for luxury passenger vehicles with engine capacities of 1.8 litres and above should attract interest from luxury makes in the country.

PETGAS - Price Target News

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

Petronas Gas Bhd, Malaysia's state-controlled natural gas transmission company, was upgraded to "hold" from "sell" at Maybank Investment Bank Bhd, after concluding a new five-year delivery agreement.

Its share price forecast was raised to RM10.40 from RM8.80, Maybank said in a report today.

Meanwhile, RHB Research Institute Sdn Bhd raised Petronas Gas to "market perform" from "underperform" and increased its earnings estimates for the company.

The stock's fair value was raised to RM10.51 from RM9.72, RHB said in a report today. -- Bloomberg

PETGAS - Price Target News

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

KUALA LUMPUR:OSK Research has a Buy call on Petronas Gas at RM9.89 with a target price of RM13.81 as its longer term prospects seem even brighter. The research house said on Wednesday, April 7 the new gas processing and transmission agreement (GPTA) terms serve to prepare Petronas Gas to leverage on excess capacity in its gas pipeline network to generate additional revenue. "Management's revelation that a new LNG regasification plant will be built in Peninsular Malaysia also helps to assuage concerns that the peninsula's gas is running out while the new plant will ensure continued utilisation of Petronas Gas's GPPs and pipelines," it said. OSK Research said it maintained its earnings forecasts and above consensus target price of RM13.81. It said the company's management met with the investment community on Tuesday to provide more details on the revised GPTA terms, explain the rationale for the revision and map out Petronas Gas's future direction. The details unveiled by management include the scope of the 4 zones specified in the transportation tariff and confirmation of the previous gas price paid. Petronas Gas management also highlighted that the separation of the processing and transportation revenue paves the way for Petronas Gas's to act as an independent gas transportation company to any party who wishes to import gas into Malaysia in the future. "While our shorter term forecasts are unchanged, Petronas Gas's revelation of plans to build a LNG regasification plant in Peninsular Malaysia to ensure the continuity of gas supply - even as the offshore gas fields deplete - means that the GPPs and the PGU will continue to be utilised and PTG's business model is sustainable past the expiry of the GPTA in 2014," it said. This helps mitigate concerns of what Petronas Gas's business model would look like past 2014. In fact, PTG's business model of separating gas processing and transportation charges will enable it to capitalise on excess capacity in its pipelines for transporting gas even as it reaches maximum utilisation in the processing business. "While some have raised questions over the reasons why Petronas would give Petronas Gas such favourable terms, as reflected in the 37% jump in our net profit forecast for FY11, we would like to point out that the main reason for Petronas Gas's continued listing in Bursa Malaysia is to give Malaysians an opportunity to share the wealth of Petronas. "As such, we do not see these terms, which basically prepare Petronas Gas for a possible deregulated gas market, as being to the disadvantage of Petronas. Maintain Buy," it said.

SIME - Price Target News

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

Sime Darby Bhd
(April 6, RM8.76)
Maintain sell at RM8.75, target price of RM7.02: Sime Darby's conditions for its sale and purchase agreement (SPA) for Ramunia have been fulfilled, hence all parties involved will now take the necessary action to complete the acquisition.

Ramunia's fabrication capacity is estimated at 85,000 tonnes per annum. Assuming that its fabrication revenue was able to generate about RM15,000 per tonne, the total revenue contribution expected from this yard at full operational capacity would be about RM1.3 billion.

Also, if we assume an operating margin of 15%, this would contribute to about RM200 million annually.

Having said that, our estimation is only superficial as some higher margin oil and gas (O&G) products can generate operating margins of 20% to 30%.

However, we only expect this yard to achieve utilisation of about 30% in FY11. Our assumption is on the basis that Kencana's yard is currently about 50% utilised and assuming that Petronas and its production sharing contract (PSC) contractors dished out new fabrication contracts in 2H10, we believe that Kencana and MMHE would be the main beneficiaries given their delivery track record, while the balance of the jobs will flow down to other yards.

Also, we believe that the Ramunia yard will incur some start-up costs and go through a learning curve given its kick-start by a new management team.

Even assuming full utilisation of the Ramunia yard, the contribution to Sime's earnings will not be significant. The plantation segment is still the dominant contributor to Sime's earnings, making up 67% of 1HFY10 earnings before interest and tax (Ebit). If we factor in a crude palm oil (CPO) price of RM2,600 per tonne for CY10 and CY11, Sime's earnings would be bumped up to RM3 billion for FY10 and RM3.4 billion for FY11, which is slightly higher than consensus earnings.

At a CPO price RM2,600 per tonne, Sime's earnings per share (EPS) will be 52 sen for CY10, translating into a price-earnings ratio (PER) of 16.8 times. At our target PE of 15 times, Sime will be worth RM7.80, which is still below the current share price of RM8.75.

On the other hand, if Sime's PE can stretch to 20 times, it would be worth RM10.40. Hence, for investors to turn in a profit buying Sime at current levels, its PE needs to hit 20 times again with CPO at RM2,600. - OSK Research, April 6


This article appeared in The Edge Financial Daily, April 7, 2010.

TM - Price Target News

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

KUALA LUMPUR: AmResearch has upgraded TELEKOM MALAYSIA BHD [] (TM) to a buy at RM3.50 with a higher fair value of RM3.90, and has also revised its earnings estimate for the company.

"We basically prefer TM in the current intense competition for space that is going on in the mobile broadband segment. This effectively puts risks to the established dividend policy of the others.

"TM on the other hand is insulated from this as it has set a minimum payout ratio of 20 sen per share," it said.

AmResearch said TM has the highest yield at 5.2% (versus Digi 5.1% and Maxis 4.7%).

"With this our neutral view on the sector remains.

"We are looking at broadband (both fixed line and mobile) to be the growth driver. We are upbeat on net addition of subscriber base. We have imputed more than 45% year-on-year subscriber growth for FY10," it said.

KINSTEL - Price Target News

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

Kinsteel Bhd
(April 6, RM1.04)
Upgrade to buy at RM1.03, target price raised to RM1.23: Kinsteel's share price fell 12% from its peak in January and was the worst-performing construction steel stock on a six-month basis. We upgrade Kinsteel to buy from hold, with a revised target price of RM1.23 (previously RM1.03), after raising our earnings forecasts and a higher eight times 2011 price-earnings ratio (PER) target on optimism for near-term margin growth.

We have turned positive on Kinsteel as its April-May 2010 billet deliveries have been sold forward at US$550 (RM1,765.50) per tonne (versus US$600 per tonne currently) but already reflecting the inflated iron ore costs.

Its current iron ore inventory, sufficient till June 2010, was procured at an average price of US$110 per tonne (versus 2Q10 quarterly contract of US$200 per tonne). The resulting margin expansion will be more than sufficient to compensate for a potential gas price hike.

With a three-month iron ore inventory in hand, Kinsteel will not commit to the 2Q10 iron ore contract (90% above 2009 annual benchmark of US$90 per tonne for iron ore pellet). The management may consider sourcing iron ore from domestic reserves which could have more favourable pricing. Our channel checks indicate that Malaysia has at least 50 million tonne of iron ore reserves. Perwaja consumes two million tonnes per annum, which would preserve margins for longer.

We think the shares offer a better risk reward ratio now, given higher steel prices, positive global steel fundamentals, and low foreign shareholding of less than 10% (3Q08: 25%). Our visit last week to Kinsteel's 37%-owned Perwaja steel plant (in Kemaman, Terengganu) with foreign fund managers was well received.

We raise our 2010 earnings per share (EPS) by 13% while that of 2011 is largely unchanged, reflecting latest steel prices and iron ore input costs. This upgrade brings our forecast to the top-range of broker estimates. - Maybank IB, April 6


This article appeared in The Edge Financial Daily, April 7, 2010.

TANJONG - Price Target News

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

Tanjong plc
(April 6, RM18.96)
Maintain buy at RM18.96, target price of RM19.10: Tanjong aims to double its power capacity as it sees plenty of potential for the power division, especially in the Middle East and North Africa. It aims to double its current 3,951MW of installed capacity over the next five years. However, this will not be at the expense of returns.

Shareholder value is still its paramount concern. Our RM19.10 per share target price does not include anything for new projects.

Many power projects, which had been held back amidst the financial turbulence last year, are now open for bidding. Tanjong's experience in greenfield development as well as its success in integrating new plant acquisitions stand it in good stead. A deal similar to the 895MW Globaleq acquisition in 2007 could add about RM1.80 per share to our revised net asset value (RNAV).

As for its Tropical Islands venture, operating losses have narrowed to €3 million to €4 million (RM12.9 million to RM17.2 million) per annum. Tanjong's developer joint-venture partner has completed 21 homes and is targeting another by summer-end. Profitability is contingent on more accommodation units being built.

However, Tanjong will not be injecting any further equity. It will seek partnerships. To this end, a development master plan is being prepared.

On its gaming plans, Tanjong's application for a new game, made a few months ago, is still pending. Elsewhere, the management is engaging the tote board, turf clubs and regulators on the issue of rising totalisator losses. Sports betting, if introduced, is unlikely to cannibalise the 4D game. The markets are different, and also, sports betting would not be entirely new. The licensed operator will likely take market share from the informal operators.

Tanjong has a solid platform for growth. We forecast RM1.5 billion per annum free cash flow (FCF) over the next three years. Maintaining the RM1 gross dividend per share (DPS) requires just RM302 million per annum. Gearing the balance up 70:30 gives the group a total RM12 billion of acquisition currency, sufficient for 2,500MW to 3,600MW at US$1 million (RM3.21 million) to US$1.5 million per MW. Its last acquisition of seven power plants from Globaleq in 2007 was at US$700,000 per MW. - Maybank IB, April 6


This article appeared in The Edge Financial Daily, April 7, 2010.

AZRB - Price Target News

Stock Name: AZRB
Company Name: AHMAD ZAKI RESOURCES BHD
Research House: OSK

Ahmad Zaki Resources Bhd (AZRB)
(April 5, 91.5 sen)
Maintain buy at 89 sen, target price lowered to RM1.16: Last Friday, AZRB announced that it had received a letter of award from Putrajaya Holdings Sdn Bhd for project "Block 1, Menara PJH, No 2, Persiaran Perdana, Precinct 2, 62100 Putrajaya" valued at RM60 million.

This announcement is not really a surprise as we had highlighted in our FY09 results review the possibility of AZRB winning it. The contract involves AZRB constructing some shoplots and an office, namely a three-storey building with a basement car park. The job will commence immediately and is scheduled for completion over the next 24 months to April 7, 2012.

From our tracking of contracts awarded on Bursa, the average domestic job size during 1Q10 stood at RM169 million in comparison to the same period in 2009 where the average size was RM183 million. As one of our key sector themes for 2010, we expect most jobs to be small in nature. Small-cap contractors such as AZRB are in the best position to benefit from this as their order books usually constitute job of this size namely between RM100 million and RM300 million.

Including this recent job win, we estimate AZRB's order book to date at more than RM1.3 billon. The management is guiding for a replenishment target of RM600 million for FY10, while our assumption stands at RM300 million. We gather that AZRB is eyeing a housing job in Terengganu worth RM100 million.

Recent media reports said that Perdana Parkcity Sdn Bhd, a subsidiary of the Samling Group, has shortlisted seven companies, including AZRB, to build a RM250 million hospital in Desa Parkcity. Apart from that, AZRB is also eyeing two private finance initiative-type (PFI) jobs. On the LRT extension worth RM5 billion ex land acquisition cost, AZRB has been prequalified and intends to participate in some civil works packages.

We maintain buy with a target price of RM1.16. For the sake of consistency, our target price for AZRB is based on 11 times FY10 earnings, previously we had used a blended approach using price-earnings ratio (PER) and price/book value (P/BV) multipliers. Our RM1.16 target price implies a decent 30.5% upside from current levels. - OSK Research, April 5


This article appeared in The Edge Financial Daily, April 6, 2010.

PETRA - Price Target News

Stock Name: PETRA
Company Name: PETRA PERDANA BHD
Research House: CIMB

Petra Perdana Bhd, a Malaysian oil and gas services provider, rose to a three-month high after CIMB Investment Bank Bhd increased the share price estimate to RM2 from RM1.82 on earnings prospects.

The stock surged 8.8 per cent to RM1.74 at 9:31 am local time in Kuala Lumpur trading, bound for its highest close since January 7. -- Bloomberg

SALCON - Price Target News

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

KUALA LUMPUR: OSK Research has initiated coverage of Slacon Bhd with a Buy at 81 sen as the company focuses on water engineering and water related concession. The research house said on Tuesday, April 6 that it sees Salcon supported by its growing CONSTRUCTION [] orderbook in the next few years and securing more water and wastewater concessions in China. "Seeing that its earnings will gradually improve in the coming years, we initiate coverage on Salcon with an SOP-derived target price of RM0.81 on the stock. BUY recommended," it said. OSK Research said it ascribed a 12-month target price of 81 sen for Salcon, which translates into an upside of 12.5% based on its current share price. It said the stock's target price is based on a sum-of-parts approach valuing its concession operations at RM0.41 (WACC; 12%) while applying a PE of 9 times on its FY10 construction EPS of 4 sen per share. Our 9.0 times construction PE is based on the average PE for small cap construction companies," it said.

WCT - Price Target News

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

Malaysian Resources Corp Bhd (MRCB)
(April 5, RM1.69)
Maintain buy at RM1.68, with a higher target price of RM2.25: Our view that minority shareholders should shun the conditional takeover offer at RM1.50 per share by the Employees Provident Fund (EPF) has turned out to be correct with MRCB's share price having overtaken the offer price.

Our reasoning was simple in that something was brewing when the majority shareholder sees more value in the stock by launching a GO (general offer) exercise.

The recent announcement by the prime minister that the EPF and the government will form a joint venture to develop the 3,400 acres (1,376ha) of RRIM land in Sungai Buloh has derailed the EPF's conditional takeover exercise. This is because MRCB's share price is clearly above RM1.50/share on expectations that MRCB will be formally appointed as the master developer of this land.

Nonetheless, we read the EPF's market moves as it being serious in seeing this conditional takeover materialise and it solidifying its shareholding prior to a formal material announcement. In our view, this could be a sizeable government land deal or even the EPF injecting some of its lucrative assets into MRCB. We believe the key risk for MRCB is the timing of the award of the government land. We understand that various GLC-linked developers have made presentations to the government and approval for the award of land is now at the cabinet level. There are expectations that the award will materialise in June to coincide with the tabling of the 10th Malaysia Plan.

We do not discount the EPF raising the offer beyond RM1.50 per share as it is unlikely that MRCB's share price will drift back to its offer price until the expiry on April 13. At our previous base case target price of RM1.80/share, we estimate that the EPF has to fork out an additional RM209 million to raise its stake by another 8.5% to 50% for the offer to become unconditional. This is by no means a small amount considering it is a pension fund and has certain obligations to its contributors.

Should the takeover materialise, we think the EPF will retain its stake at 50% to avoid triggering the creep-up rule. We provide in this report a scenario analysis on our previous sum-of-part-derived (SOP) target price of RM1.80/share assuming MRCB clinches the various government land that are up for grabs.

This is not an exhaustive list as we understand MRCB is also bidding for other parcels that we are not privy to.

Among the scenarios include an additional 25 acres in KL Sentral, which would raise our SOP value to RM2.20. We think this is a highly probable scenario.

Another scenario involves the additional 3,400 acres of RRIM Land, where with the EPF's involvement, MRCB will likely be appointed the master developer for this whole parcel of land and will receive fee income. Besides this, there are a myriad of possible scenarios in terms of how this large tract of land will be parcelled out and whether MRCB will be joint landowners, contractor or developer.

This will raise our SOP value to RM2.70 per share assuming a development duration of 20 years and pre-tax margins of 15%.

The general perception of MRCB is that it is a high-beta leveraged proxy to the sector with historically very patchy earnings delivery. With three quarters of above average earnings deliverance and three-year earnings per share (EPS) compound annual growth rate (CAGR) of 40%, we think MRCB is transforming itself into a credible GLC-linked property/contractor with its strong KL Sentral franchise and now solid earnings support to boot.

With the EPF's involvement in the RRIM land having exponential spillover effects on MRCB, we are comfortable in raising our target price to RM2.25 per share based on our revised SOP value. - HwangDBS Vickers Research, April 5


This article appeared in The Edge Financial Daily, April 6, 2010.

TENAGA - Price Target News

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

Kenanga has maintained a "trading buy" recommendation on Tenaga Bhd, given limited downside as demand is strengthening whilst coal cost appears to be within the coal compensated price.

"However, a formal fuel-pass-through (FPT) tariff formula is still required to strengthen fundamentals and re-rate TNB convincingly," the research house said.

Foreign shareholding is still very low at 8.6 per cent at 28/2/10, Kenanga noted.

Meanwhile, AmBank reiterated "our BUY call on Tenaga Nasional Bhd (Tenaga) with a higher fair value of RM10.00 a share".
"We expect Tenaga's 2QFY10 results, which will be announced on 29 April 2010, to be stronger than expected due to a sharp rebound in electricity demand growth while coal costs remain under control."

"All-in, given strong demand recovery, there is likelihood that street estimates will be raised over the next two quarters," AmBank said.

"We have raised Tenaga's demand growth to 5 per cent from 4 per cent in FY10F and 6 per cent from 5 per cent in FY11F."

This raised FY10F-FY12F net profit by 5 per cent-8 per cent and our DCF from RM9.90 a share to RM11.10.

" Applying a 10 per cent discount for tariff review uncertainty, our fair value translates to RM10.00 a share," said AmBank.

SIME - Price Target News

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

The Teluk Ramunia fabrication yard which Sime Darby Bhd is acquiring from Ramunia Holdings Bhd, will not be a significant contributor to its earnings, OSK Research says.

It said Ramunia's fabrication capacity was estimated at 85,000 tonnes per annum and assuming that its fabrication revenue was able to generate about RM15,000 per tonne, the total revenue contribution expected from this yard at full operational capacity would be about RM1.3 billion.

"Also, if we assume an operating margin of 15 per cent, this would contribute to about RM200 million per annum.

"Having said that, our estimation is only superficial as some higher margin oil and gas products can generate operating margins of 20 to 30 per cent," it said in a research note today.
Sime Darby announced yesterday that all the conditions precedent relating to the sale and purchase agreement for the Teluk Ramunia fabrication yard had beenful filled.

Hence, the sales and purchase agreement is now unconditional and all parties involved will now take the necessary action to complete the acquisition.

OSK said further that its assumption of revenue and operating profit contributions of RM1.3 billion and RM200 million respectively were on the basis of 100 per cent utilisation.

"However, we only expect this yard to achieve utilisation of about 30 per cent in financial year 2011," it said.

The research house said the plantation segment was still the dominant contributor to Sime Darby's earnings, making up 67 per cent of the company's earnings before interest and taxes for the first half of 2010 financial year.

"If we factor in a crude palm oil price of RM2,600 per tonne for the 2010and 2011 calender years, Sime Darby's earnings would be bumped up to RM3.0billion for financial year 2010 and RM3.4 billion for financial year 2011," it added.

OSK rates Sime Darby a "sell" with a target price of RM7.02 a share. -- Bernama

TASEK - Price Target News

Stock Name: TASEK
Company Name: TASEK CORPORATION BHD
Research House: CIMB

Tasek Corp Bhd
(April 5, RM5.35)
Downgrade to neutral at RM5.20, target price raised to RM5.90: Tasek is Malaysia's fourth-largest cement manufacturer with an annual capacity of 2.3 million tonnes each for cement and clinker. The group is also one of the top five ready-mixed concrete producers in Malaysia.

While our recent plant tour left us feeling optimistic about the company's medium-to-long term prospects, earnings could be weak in the near term given lower sales volumes and higher rebates across the industry.

In light of this, we are cutting our FY10 earnings per share (EPS) by 11%. However, our blended target price is raised from RM5.20 to RM5.90 as we revise our target valuations to 13.5 times price/earnings (P/E) from 12 times previously and one times price/book value (P/BV) from 0.8 time previously given the potential improvement in the mid-to long-term prospects.

While we acknowledge that a stronger pick-up in demand is likely to come through in 2H, the rise in demand is coming through slower than expected. Furthermore, there is limited share price upside as buying interest since its 4Q results announcement has pushed Tasek's share price up 33% year to date, better than the market's 5% gain.

Given the lack of short-term catalysts due to weak demand and high rebates, we downgrade the stock from outperform to neutral. For better exposure to pump-priming, we prefer direct exposure to the contractors.

The growth prospects for the construction sector and the fundamentals for the building materials sector remain positive for 2010 and beyond. We project growth of 4.6% for the construction sector in 2010 and 5.6% in 2011. Demand for building materials should rise in tandem.

Tasek is hoping that demand for cement picks up about 5% this year, led by stronger growth in the second half. This should enable it to scale back its rebates, leading to further upside to earnings and margins.

When it announced its 4Q results in February, Tasek proposed a dividend and capital repayment. Although it will involve an amount of about 29% of its end-FY09 cash pile of RM356 million, Tasek expects its cash position to stay strong given the RM80 million free cash flow generated each year.

We believe that the cash could be used for further downstream expansion into precast concrete or upstream expansion. - CIMB Research, April 5


This article appeared in The Edge Financial Daily, April 6, 2010.

UMW - Price Target News

Stock Name: UMW
Company Name: UMW HOLDINGS BHD
Research House: AFFIN

UMW is Affin's top pick in the automotive sector as Affin believes earnings may surprise on the upside given UMW's aggressive O&G expansion, bright prospects and management prowess.

Affin rates UMW an "add" with a target price of RM7 a share.

Affin also lists key re-rating catalysts for the stock:

(1) product pipeline visibility for 51 per cent-owned UMW Toyota Motor Sdn Bhd:
(2) potential listing of the Group's O&G unit; and

(3) active capital management.

"Initial overhanging fear, at least on our part, of sharp decline in domestic Toyota car sales given the massive global Toyota car recalls have been proven unfounded," Affin said.

POS - Price Target News

Stock Name: POS
Company Name: POS MALAYSIA BHD
Research House: INTER PACIFIC

Pos Malaysia Bhd
(April 5, RM2.93)
Maintain neutral at RM2.78, target price of RM2.12: Following the announcement that Khazanah Nasional Bhd will divest its 32% stake in Pos Malaysia Bhd on March 30, when the New Economic Model (NEM) was unveiled, we found Pos Malaysia's daily volume of shared traded had swelled, averaging 7.78 million between March 30 and April 2. In tandem, its share price gained by 35% or up 72 sen to close at RM2.78 last Friday.

Prior to the announcement, Pos Malaysia's one-year average price was RM2.22, with a high of RM2.54.

With its 35% gain from March 30 to April 2 to RM2.78 following the announcement of Khazanah's intention to divest, its share price has surpassed our target price of RM2.12 by 31.1% and consensus target price of RM2.25 by 24.4%. Also, it outperformed the FBM KLCI, which gained only 1.2% during the period to close at 1,335.9 points.

Details of the divestment plan have not been unveiled.

With the price having moved significantly and no clear details on the divestment plan, we think the potential upside could be limited from the current news, which implies that there is great room for investors to take profit.

We forecast Pos Malaysia's revenue and net profit for FY10 to come in at RM940 million and RM75.3 million respectively. - Inter-Pacific Research, April 5


This article appeared in The Edge Financial Daily, April 6, 2010.

TRC - Price Target News

Stock Name: TRC
Company Name: TRC SYNERGY BHD
Research House: HWANGDBS

Malaysian Resources Corp Bhd (MRCB)
(April 5, RM1.69)
Maintain buy at RM1.68, with a higher target price of RM2.25: Our view that minority shareholders should shun the conditional takeover offer at RM1.50 per share by the Employees Provident Fund (EPF) has turned out to be correct with MRCB's share price having overtaken the offer price.

Our reasoning was simple in that something was brewing when the majority shareholder sees more value in the stock by launching a GO (general offer) exercise.

The recent announcement by the prime minister that the EPF and the government will form a joint venture to develop the 3,400 acres (1,376ha) of RRIM land in Sungai Buloh has derailed the EPF's conditional takeover exercise. This is because MRCB's share price is clearly above RM1.50/share on expectations that MRCB will be formally appointed as the master developer of this land.

Nonetheless, we read the EPF's market moves as it being serious in seeing this conditional takeover materialise and it solidifying its shareholding prior to a formal material announcement. In our view, this could be a sizeable government land deal or even the EPF injecting some of its lucrative assets into MRCB. We believe the key risk for MRCB is the timing of the award of the government land. We understand that various GLC-linked developers have made presentations to the government and approval for the award of land is now at the cabinet level. There are expectations that the award will materialise in June to coincide with the tabling of the 10th Malaysia Plan.

We do not discount the EPF raising the offer beyond RM1.50 per share as it is unlikely that MRCB's share price will drift back to its offer price until the expiry on April 13. At our previous base case target price of RM1.80/share, we estimate that the EPF has to fork out an additional RM209 million to raise its stake by another 8.5% to 50% for the offer to become unconditional. This is by no means a small amount considering it is a pension fund and has certain obligations to its contributors.

Should the takeover materialise, we think the EPF will retain its stake at 50% to avoid triggering the creep-up rule. We provide in this report a scenario analysis on our previous sum-of-part-derived (SOP) target price of RM1.80/share assuming MRCB clinches the various government land that are up for grabs.

This is not an exhaustive list as we understand MRCB is also bidding for other parcels that we are not privy to.

Among the scenarios include an additional 25 acres in KL Sentral, which would raise our SOP value to RM2.20. We think this is a highly probable scenario.

Another scenario involves the additional 3,400 acres of RRIM Land, where with the EPF's involvement, MRCB will likely be appointed the master developer for this whole parcel of land and will receive fee income. Besides this, there are a myriad of possible scenarios in terms of how this large tract of land will be parcelled out and whether MRCB will be joint landowners, contractor or developer.

This will raise our SOP value to RM2.70 per share assuming a development duration of 20 years and pre-tax margins of 15%.

The general perception of MRCB is that it is a high-beta leveraged proxy to the sector with historically very patchy earnings delivery. With three quarters of above average earnings deliverance and three-year earnings per share (EPS) compound annual growth rate (CAGR) of 40%, we think MRCB is transforming itself into a credible GLC-linked property/contractor with its strong KL Sentral franchise and now solid earnings support to boot.

With the EPF's involvement in the RRIM land having exponential spillover effects on MRCB, we are comfortable in raising our target price to RM2.25 per share based on our revised SOP value. - HwangDBS Vickers Research, April 5


This article appeared in The Edge Financial Daily, April 6, 2010.

KINSTEL - Price Target News

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

KUALA LUMPUR: Maybank Investment Bank Equity Research (Maybank IB) has upgraded KINSTEEL BHD [] to BUY from HOLD at RM1.03, with a higher target price of RM1.23 -- compared to the previous target of RM1.03 -- after raising its earnings forecasts, and placing a higher eight times 2011 PER target on optimism for near-term margin growth. The research house said it had turned positive on Kinsteel as its Apr-May '10 billet deliveries have been sold forward at US$550 per tonne (versus US$600 per tonne currently), while reflecting the inflated iron ore costs. "Its current iron ore inventory, sufficient till June 2010, was procured at an average price of US$110 per tonne (versus 2Q10 quarterly contract of US$200 per tonne). "The resulting margin expansion will be more than sufficient to compensate for a potential gas price hike," it said. Maybank IB said with a three-month iron ore inventory in hand, Kinsteel would not commit to the 2Q10 iron ore contract (90% above 2009 annual benchmark of USD90 per month for iron ore pellet). Management may consider sourcing iron ore from domestic reserves in nearby Pahang, Terengganu and Kelantan, which could have more favourable pricing. The research house said that Kinsteel shares offered a better risk-reward ratio now, given higher steel prices, positive global steel fundamentals, and low foreign shareholding of less than 10%, compared to 25% in 3Q08. "We raised our 2010 EPS by 13% while that of 2011 is largely unchanged, reflecting latest steel prices and iron ore input costs. "This upgrade brings our forecast to the top-range of broker estimates. Our new target price is RM1.23 (+19%), applying 8 times PER to 2011 fully-diluted EPS (6 times previously), in line with our target for Ann Joo," it said.

MRCB - Price Target News

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

Malaysian Resources Corp Bhd (MRCB)
(April 5, RM1.69)
Maintain buy at RM1.68, with a higher target price of RM2.25: Our view that minority shareholders should shun the conditional takeover offer at RM1.50 per share by the Employees Provident Fund (EPF) has turned out to be correct with MRCB's share price having overtaken the offer price.

Our reasoning was simple in that something was brewing when the majority shareholder sees more value in the stock by launching a GO (general offer) exercise.

The recent announcement by the prime minister that the EPF and the government will form a joint venture to develop the 3,400 acres (1,376ha) of RRIM land in Sungai Buloh has derailed the EPF's conditional takeover exercise. This is because MRCB's share price is clearly above RM1.50/share on expectations that MRCB will be formally appointed as the master developer of this land.

Nonetheless, we read the EPF's market moves as it being serious in seeing this conditional takeover materialise and it solidifying its shareholding prior to a formal material announcement. In our view, this could be a sizeable government land deal or even the EPF injecting some of its lucrative assets into MRCB. We believe the key risk for MRCB is the timing of the award of the government land. We understand that various GLC-linked developers have made presentations to the government and approval for the award of land is now at the cabinet level. There are expectations that the award will materialise in June to coincide with the tabling of the 10th Malaysia Plan.

We do not discount the EPF raising the offer beyond RM1.50 per share as it is unlikely that MRCB's share price will drift back to its offer price until the expiry on April 13. At our previous base case target price of RM1.80/share, we estimate that the EPF has to fork out an additional RM209 million to raise its stake by another 8.5% to 50% for the offer to become unconditional. This is by no means a small amount considering it is a pension fund and has certain obligations to its contributors.

Should the takeover materialise, we think the EPF will retain its stake at 50% to avoid triggering the creep-up rule. We provide in this report a scenario analysis on our previous sum-of-part-derived (SOP) target price of RM1.80/share assuming MRCB clinches the various government land that are up for grabs.

This is not an exhaustive list as we understand MRCB is also bidding for other parcels that we are not privy to.

Among the scenarios include an additional 25 acres in KL Sentral, which would raise our SOP value to RM2.20. We think this is a highly probable scenario.

Another scenario involves the additional 3,400 acres of RRIM Land, where with the EPF's involvement, MRCB will likely be appointed the master developer for this whole parcel of land and will receive fee income. Besides this, there are a myriad of possible scenarios in terms of how this large tract of land will be parcelled out and whether MRCB will be joint landowners, contractor or developer.

This will raise our SOP value to RM2.70 per share assuming a development duration of 20 years and pre-tax margins of 15%.

The general perception of MRCB is that it is a high-beta leveraged proxy to the sector with historically very patchy earnings delivery. With three quarters of above average earnings deliverance and three-year earnings per share (EPS) compound annual growth rate (CAGR) of 40%, we think MRCB is transforming itself into a credible GLC-linked property/contractor with its strong KL Sentral franchise and now solid earnings support to boot.

With the EPF's involvement in the RRIM land having exponential spillover effects on MRCB, we are comfortable in raising our target price to RM2.25 per share based on our revised SOP value. - HwangDBS Vickers Research, April 5


This article appeared in The Edge Financial Daily, April 6, 2010.