AmResearch sees arbitrage opportunity in APM

APM Automotive Holding Bhd
(April 15, RM4.44)
Reaffirm buy at RM4.47 with fair value of RM5.40: Our valuation continues to peg APM at ex-cash FY10F price earnings (PE) of seven times. APM is now trading at a huge 57% discount to sister company Tan Chong Motor Holdings Bhd's valuation (ex-Segambut land value) of 11.6 times FY10F earnings per share (EPS).

APM announced recently that dealings with sister company - revenue from Tan Chong - had exceeded its earlier estimated value (which is 10% of APM's total revenue) as stated in its circular. APM will have to seek, at its next meeting with shareholders, approval to increase its intended related party transaction limit to over 20% of its revenue. This will not disrupt operations in any way.

What this means is that contribution from Tan Chong increased substantially in 1Q10, reinforcing our earlier view that inventory replenishment activities by auto manufacturers, especially Tan Chong given its very conservative CKD (completely knocked-down) kit orders in FY09, will likely give APM's earnings a boost for the next few quarters.

Inventory levels at auto manufacturers - Tan Chong (+34% q-o-q) and Proton (+9% q-o-q) - indicate signs of an uptick in 4Q09 but inventory days are still lean at 30% to 40% lower than peak levels in 4Q08. Tan Chong will increase its production to two shifts by June while Perodua will raise its production of the Alza by 50% to 6,000 units/month. Additionally, Perodua announced record sales in March of 18,500 units which brings its 1Q10 sales to 47,755 units. Annualised (at 191,000), this would be 9% higher than even Perodua's own projection.

Our projections for APM remain 44% to 55% higher than consensus, and we expect 1Q10 earnings, which will be announced next month, to strongly outperform conservative consensus estimates of just RM83 million net profit for FY10F versus our RM118 million projection. We would not be surprised if APM's earnings were to account for as much as one third of consensus' estimate in 1Q10.

APM is positioned favourably as a cheap play into a strong cyclical recovery in the auto sector. Its net cash (RM1.40/share) accounts for over 30% of market cap. Ex-cash, APM trades at just five times FY10F earnings.

More importantly, APM is lagging its peers in Thailand, which trade at a range of nine to 14 times FY10F EPS. APM is trading at 44% to 64% discount despite its superior return on equity (ROE), strong free cash flow, growing dividends and a solid balance sheet.

The recent strong run-up in Tan Chong's share price and generally other auto manufacturer's, positions APM as a favourable arbitrage opportunity as it would be the ultimate beneficiary of any rise in sales for auto manufacturers and an earlier play into such catalysts. APM's discount to auto manufacturers has now expanded to 41% versus a historical average discount of 29%. - AmResearch, April 15


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

Selldown in Supermax unjustified, says CIMB

Supermax Corporation Bhd
(April 15, RM6.93)
Maintain buy at RM6.98 with target price of RM9.65: Supermax is scheduled to release its 1QFY10 results on Monday. Although no new capacity came onstream during the quarter, we estimate that net profit more than doubled year-on-year to around RM50 million, thanks to strong demand.

Given the expected stronger contributions in the coming quarters, we are likely to raise our FY10 to FY12 earnings forecasts by 23% to 25% when the results are announced. For now, we also retain our target price of RM9.65, which is pegged to a 20% discount to Top Glove's target price to earnings (P/E) of 16.5 times.

We think that the recent selldown of Supermax is unjustified given the resilient demand for rubber gloves and glove manufacturers' ability to pass on cost increases, be it latex, energy or even a weaker US dollar. We maintain our buy call on Supermax, premised on the potential re-rating catalysts of the anticipated strong 1Q results, continuing uptick in glove demand and upcoming capacity expansion. Supermax remains one of our top picks for the sector.

Our positive stance remains. Rubber glove stocks have come under selling pressure of late as investors fret about a repeat of the share price collapse in 2008 when investors assumed that record latex prices, high energy prices and a weakening US dollar would dampen glove makers' earnings significantly. We think that the recent selldown of the stocks is unjustified, given the resilient demand for rubber gloves and glove manufacturers' ability to pass on cost increases. Moreover, glove manufacturers proved their resilience against the 2008-2009 global economic turmoil and earnings continued to rise despite the weakening US dollar and high costs during 2008. On average, the total net profit of the companies in our coverage increased 19.5% in FY08 and 65.3% in FY09. We strongly believe that industry prospects remain favourable and Supermax is one of the key beneficiaries.

Given the additional capacity coming in during 2Q, we expect Supermax's core net profit to grow by at least 25% this year. The company's return on equity (ROE) improved to an impressive 27% last year. The company is also strengthening its balance sheet position, with net gearing falling to 31.5% in 2009 from 90% the year before. - CIMB Research, April 15


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

Maybank IB upbeat on Notion's growing aspirations

Notion VTEC Bhd
(April 15, RM3.35)
Maintain buy at RM3.29 with target price of RM4.20: We stay buyers of Notion VTEC. Notion's FY10 to FY12 earnings will be explosive should it successfully capitalise on higher 2.5" HDD component orders from Samsung and Alphana.

Our projected three-year sales compound annual growth rate (CAGR) of 23% could jump to 61% if these prospects materialise. Valuations are low at single-digit forward price-earnings ratios (PERs) for a growth stock with high scalability prospects and an improving track record. Our target price pegs the stock to five times EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation) for FY11.

Samsung and Alphana Tech have indicated interest to double Notion's 2.5" HDD base plate, motor hub and stator assembly monthly orders, from one million pieces per annum now to seven million by end-2012. Channel checks also suggest that Semco, Samsung's sub-contractor has invited Notion to set up a manufacturing plant in Dongguan, China. We suspect Notion will also diversify its business beyond the HDD, camera and auto segments.

Should Samsung and Alphana's HDD orders materialise, Notion is expected to lease, with the option to purchase, a third manufacturing factory adjacent to its current plant in Klang with a 150,000 sq ft space.

New orders from Samsung and Alphana could elevate Notion's revenue by RM73 million to RM392 million per annum in FY10 to FY12 based on average selling price of US$1.60 to US$1.80, which implies an explosive three-year sales CAGR of 61%. We suspect plant expansion into Dongguan is unlikely as Notion's main priority is getting the third plant in Klang running.

These positives have not been incorporated into our forecasts. 2QFY10 results are expected to be released by April 29. Net profit performance should reflect 1Q's RM14 million, a positive considering that 2Q is seasonally the weakest. The strengthening of the ringgit has a negative effect on Notion. Sensitivity analysis suggests that every 5% variation in the US dollar would affect Notion's net profit by RM2 million. - Maybank IB, April 15


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

Kenanga positive on Wah Seong's tie-up in Nigeria

Wah Seong Corporation Bhd
(April 15, RM2.65)
Maintain buy at RM2.63 with target price of RM3.13: Wah Seong announced on Wednesday that it had entered into a commercial assistance and technical support agreement with its Nigerian counterpart, Pipe Coaters Nigeria (PCN) that is owned by Orleans Group, in respect of the provision of three-layer and concrete pipe-coating services for any contracts PCN secures in Nigeria.

In our update dated March 17, we mentioned that we were positive should Wah Seong opt for the "technical assistance" route instead of committing an equity stake in the pipe-coating assets with Orleans Group, as it can focus on building its presence and brand gradually, and at the same time, get a feel of the operating conditions but at lower cost of entry (in monetary and country risk terms).

The management guided that while projects are being pursued, contribution should be immaterial, given that this is just a commercial support service agreement. Hence, no change to our estimates.

Nigeria is a market not to be missed. According to the Energy Information Administration, Nigeria has an estimated 36.2 billion barrels of proven oil reserves as of January 2009 and crude oil production that averaged 1.94 million bbl per day (Malaysia: 727,000 bbl per day), in 2008, making it the largest crude oil producer in Africa.

Major foreign producers in Nigeria are the likes of Shell, Chevron, ExxonMobil, Total, and Eni/Agip, while RM423 billion (75% of RM564 billion) has been earmarked for deep water exploration and production market in West Africa, Brazil and the Gulf of Mexico for the next five years.

Eyes are, of course, trained on Wah Seong's bid for Socotherm's distressed assets, as it opens up doors to the lucrative "deep water oil and gas hot spots" like Brazil, the Middle East and the Gulf of Mexico. Latest indications are that, creditors in Italy could surface by mid-May, and if everything goes smoothly, the acquisition could be completed within the year.

The management is keeping mum on the price tag, guiding only that cash and credit lines are already in place for the acquisition if it comes to fruition. Beyond that, they also guided the integration timeline of between 18 and 24 months.

We maintain buy at target price of RM3.13, based on 15 times FY10F. Our positive stance on the stock remains as Wah Seong's plum position as the second-largest pipe-coater in the world with potential expansion into new markets is a precursor to a higher earning capacity going forward. - Kenanga Research, April 15


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

KENCANA - MIDF Research maintains trading buy call on Kencana

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

KUALA LUMPUR: MIDF Research has maintained its trading buy call on Kencana Petroleum at RM1.56 with an unchanged target price of RM1.86 after the company in collaboration with Yinson Marine Services Sdn Bhd (a part of YINSON HOLDINGS BHD []) were awarded a service contract for the provision of an offshore support vessel by Petronas Carigali Vietnam Limited.

The charter contract tenure is awarded for one year with an option to extend another.

The guided contract fee of RM33 million spread out over two years indicate charter rates between US$1.50 to US$2.60 per brake horse power (bhp), said the research house.

"We estimate the anchor handling tug supply (AHTS) to commence operation in 2Q10. Our preliminary estimation suggests the collaboration will encompass Kencana supplying its technical expertise while Yinson Marine providing the vessel.

"We believe the charter could encompass either AHTS or workbarges. No immediate impact to FY10 earnings," it said.

MIDF Research nevertheless expects marginal upside revision to its forecasts with FY11/12 earnings increasing by 0.48% and 0.64% assuming Kencana supplies the AHTS.

"We have yet to impute earnings contribution from this contract into our forecasts.

"Maintain trading buy with an unchanged TP of RM1.86 based on rolled-over EPS to FY11 of 15 times, a premium against our employed sector average EPS11 of 14 times," it said.

PBBANK - MIDF Research reaffirms buy call on Public Bank

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

KUALA LUMPUR: MIDF Research has reaffirmed its buy recommendation on PUBLIC BANK BHD [] at RM12.04 with an unchanged target price of RM12.80, and said the banking group's 1Q10 net profit of RM685.3 million accounted for 23.2% of its forecast net profit for FY10 and 23.6% of consensus full FY10 estimates. The reported net profit was higher by 1.04% quarter-on-quarter and 16.29% year-on-year, it said. The improved results were driven by higher net interest income, improvement in contribution by non-interest income as well as lower loan impairment allowance, it said. 1Q10 annualised ROE was 25% (versus 26.1% for FY09), it said. "The group is on track to achieve its target loan growth of 15% for FY10. "We maintain our buy call on the stock with an unchanged target price at RM12.80, pegged at 15 times PER on FY10 EPS," it said.

WASEONG - Kenanga positive on Wah Seong tie-up in Nigeria

Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Research House: KENANGA

Wah Seong Corporation Bhd
(April 15, RM2.65)
Maintain buy at RM2.63 with target price of RM3.13: Wah Seong announced on Wednesday that it had entered into a commercial assistance and technical support agreement with its Nigerian counterpart, Pipe Coaters Nigeria (PCN) that is owned by Orleans Group, in respect of the provision of three-layer and concrete pipe-coating services for any contracts PCN secures in Nigeria.

In our update dated March 17, we mentioned that we were positive should Wah Seong opt for the "technical assistance" route instead of committing an equity stake in the pipe-coating assets with Orleans Group, as it can focus on building its presence and brand gradually, and at the same time, get a feel of the operating conditions but at lower cost of entry (in monetary and country risk terms).

The management guided that while projects are being pursued, contribution should be immaterial, given that this is just a commercial support service agreement. Hence, no change to our estimates.

Nigeria is a market not to be missed. According to the Energy Information Administration, Nigeria has an estimated 36.2 billion barrels of proven oil reserves as of January 2009 and crude oil production that averaged 1.94 million bbl per day (Malaysia: 727,000 bbl per day), in 2008, making it the largest crude oil producer in Africa.

Major foreign producers in Nigeria are the likes of Shell, Chevron, ExxonMobil, Total, and Eni/Agip, while RM423 billion (75% of RM564 billion) has been earmarked for deep water exploration and production market in West Africa, Brazil and the Gulf of Mexico for the next five years.

Eyes are, of course, trained on Wah Seong's bid for Socotherm's distressed assets, as it opens up doors to the lucrative "deep water oil and gas hot spots" like Brazil, the Middle East and the Gulf of Mexico. Latest indications are that, creditors in Italy could surface by mid-May, and if everything goes smoothly, the acquisition could be completed within the year.

The management is keeping mum on the price tag, guiding only that cash and credit lines are already in place for the acquisition if it comes to fruition. Beyond that, they also guided the integration timeline of between 18 and 24 months.

We maintain buy at target price of RM3.13, based on 15 times FY10F. Our positive stance on the stock remains as Wah Seong's plum position as the second-largest pipe-coater in the world with potential expansion into new markets is a precursor to a higher earning capacity going forward. - Kenanga Research, April 15


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

NOTION - Maybank IB upbeat on Notion growing aspirations

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

Notion VTEC Bhd
(April 15, RM3.35)
Maintain buy at RM3.29 with target price of RM4.20: We stay buyers of Notion VTEC. Notion's FY10 to FY12 earnings will be explosive should it successfully capitalise on higher 2.5" HDD component orders from Samsung and Alphana.

Our projected three-year sales compound annual growth rate (CAGR) of 23% could jump to 61% if these prospects materialise. Valuations are low at single-digit forward price-earnings ratios (PERs) for a growth stock with high scalability prospects and an improving track record. Our target price pegs the stock to five times EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation) for FY11.

Samsung and Alphana Tech have indicated interest to double Notion's 2.5" HDD base plate, motor hub and stator assembly monthly orders, from one million pieces per annum now to seven million by end-2012. Channel checks also suggest that Semco, Samsung's sub-contractor has invited Notion to set up a manufacturing plant in Dongguan, China. We suspect Notion will also diversify its business beyond the HDD, camera and auto segments.

Should Samsung and Alphana's HDD orders materialise, Notion is expected to lease, with the option to purchase, a third manufacturing factory adjacent to its current plant in Klang with a 150,000 sq ft space.

New orders from Samsung and Alphana could elevate Notion's revenue by RM73 million to RM392 million per annum in FY10 to FY12 based on average selling price of US$1.60 to US$1.80, which implies an explosive three-year sales CAGR of 61%. We suspect plant expansion into Dongguan is unlikely as Notion's main priority is getting the third plant in Klang running.

These positives have not been incorporated into our forecasts. 2QFY10 results are expected to be released by April 29. Net profit performance should reflect 1Q's RM14 million, a positive considering that 2Q is seasonally the weakest. The strengthening of the ringgit has a negative effect on Notion. Sensitivity analysis suggests that every 5% variation in the US dollar would affect Notion's net profit by RM2 million. - Maybank IB, April 15


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

SUPERMX - Selldown in Supermax unjustified, says CIMB

Stock Name: SUPERMX
Company Name: SUPERMAX CORPORATION BHD
Research House: CIMB

Supermax Corporation Bhd
(April 15, RM6.93)
Maintain buy at RM6.98 with target price of RM9.65: Supermax is scheduled to release its 1QFY10 results on Monday. Although no new capacity came onstream during the quarter, we estimate that net profit more than doubled year-on-year to around RM50 million, thanks to strong demand.

Given the expected stronger contributions in the coming quarters, we are likely to raise our FY10 to FY12 earnings forecasts by 23% to 25% when the results are announced. For now, we also retain our target price of RM9.65, which is pegged to a 20% discount to Top Glove's target price to earnings (P/E) of 16.5 times.

We think that the recent selldown of Supermax is unjustified given the resilient demand for rubber gloves and glove manufacturers' ability to pass on cost increases, be it latex, energy or even a weaker US dollar. We maintain our buy call on Supermax, premised on the potential re-rating catalysts of the anticipated strong 1Q results, continuing uptick in glove demand and upcoming capacity expansion. Supermax remains one of our top picks for the sector.

Our positive stance remains. Rubber glove stocks have come under selling pressure of late as investors fret about a repeat of the share price collapse in 2008 when investors assumed that record latex prices, high energy prices and a weakening US dollar would dampen glove makers' earnings significantly. We think that the recent selldown of the stocks is unjustified, given the resilient demand for rubber gloves and glove manufacturers' ability to pass on cost increases. Moreover, glove manufacturers proved their resilience against the 2008-2009 global economic turmoil and earnings continued to rise despite the weakening US dollar and high costs during 2008. On average, the total net profit of the companies in our coverage increased 19.5% in FY08 and 65.3% in FY09. We strongly believe that industry prospects remain favourable and Supermax is one of the key beneficiaries.

Given the additional capacity coming in during 2Q, we expect Supermax's core net profit to grow by at least 25% this year. The company's return on equity (ROE) improved to an impressive 27% last year. The company is also strengthening its balance sheet position, with net gearing falling to 31.5% in 2009 from 90% the year before. - CIMB Research, April 15


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

APM - AmResearch sees arbitrage opportunity in APM

Stock Name: APM
Company Name: APM AUTOMOTIVE HOLDINGS BHD
Research House: AMMB

APM Automotive Holding Bhd
(April 15, RM4.44)
Reaffirm buy at RM4.47 with fair value of RM5.40: Our valuation continues to peg APM at ex-cash FY10F price earnings (PE) of seven times. APM is now trading at a huge 57% discount to sister company Tan Chong Motor Holdings Bhd's valuation (ex-Segambut land value) of 11.6 times FY10F earnings per share (EPS).

APM announced recently that dealings with sister company - revenue from Tan Chong - had exceeded its earlier estimated value (which is 10% of APM's total revenue) as stated in its circular. APM will have to seek, at its next meeting with shareholders, approval to increase its intended related party transaction limit to over 20% of its revenue. This will not disrupt operations in any way.

What this means is that contribution from Tan Chong increased substantially in 1Q10, reinforcing our earlier view that inventory replenishment activities by auto manufacturers, especially Tan Chong given its very conservative CKD (completely knocked-down) kit orders in FY09, will likely give APM's earnings a boost for the next few quarters.

Inventory levels at auto manufacturers - Tan Chong (+34% q-o-q) and Proton (+9% q-o-q) - indicate signs of an uptick in 4Q09 but inventory days are still lean at 30% to 40% lower than peak levels in 4Q08. Tan Chong will increase its production to two shifts by June while Perodua will raise its production of the Alza by 50% to 6,000 units/month. Additionally, Perodua announced record sales in March of 18,500 units which brings its 1Q10 sales to 47,755 units. Annualised (at 191,000), this would be 9% higher than even Perodua's own projection.

Our projections for APM remain 44% to 55% higher than consensus, and we expect 1Q10 earnings, which will be announced next month, to strongly outperform conservative consensus estimates of just RM83 million net profit for FY10F versus our RM118 million projection. We would not be surprised if APM's earnings were to account for as much as one third of consensus' estimate in 1Q10.

APM is positioned favourably as a cheap play into a strong cyclical recovery in the auto sector. Its net cash (RM1.40/share) accounts for over 30% of market cap. Ex-cash, APM trades at just five times FY10F earnings.

More importantly, APM is lagging its peers in Thailand, which trade at a range of nine to 14 times FY10F EPS. APM is trading at 44% to 64% discount despite its superior return on equity (ROE), strong free cash flow, growing dividends and a solid balance sheet.

The recent strong run-up in Tan Chong's share price and generally other auto manufacturer's, positions APM as a favourable arbitrage opportunity as it would be the ultimate beneficiary of any rise in sales for auto manufacturers and an earlier play into such catalysts. APM's discount to auto manufacturers has now expanded to 41% versus a historical average discount of 29%. - AmResearch, April 15


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

OSK: IJM Corp riding on recovery

IJM Corporation Bhd
(April 14, RM4.86)
Upgrade to buy at RM4.83 with higher target price of RM5.45: We are turning bullish on IJM following our recent meeting with the management.

Tenders have been on the rise and construction margins are expected to recover in FY11. IJM also stands to be a key winner of more road jobs in India while its industries and property divisions are expected to remain strong. We raise our FY11 to FY12 earnings by 5% to 8%.

IJM's order book balance currently stands at about RM4.2 billion (RM3.6 billion excluding the stalled IT Tower in Pakistan). The management said it experienced an increase in tenders during the 4Q09 to 1Q10 period, with tenders totalling RM4 billion.

At the "point of tender", PBT (profit before tax) margin estimates stood at 6% to 8%. Note that the sum tendered excludes jobs being directly negotiated or those for which IJM has been approached by potential clients. We assume a total RM2 billion in new jobs for FY11 to FY12 (RM1.49 billion in FY10).

Construction margins have remained suppressed since 2QFY09 due to outstanding "legacy jobs" in India, and newly secured jobs that have yet to go into full swing (no profits are recognised until completion hits 10%). We expect construction margins to remain at current levels until 1QFY11 before making a more meaningful recovery. This is rather in line with the management's guidance that construction margins will only revert to normalised levels in FY12.

India intends to construct 53,639km of roads in seven phases from now up to 2012. Some US$20 billion (RM64 billion) worth of road jobs are expected to be awarded by 1H10. We understand that Malaysia's Construction Industry Development Board (CIDB) is in negotiations with the National Highway Authority of India (NHAI).

Under this framework, NHAI will allocate some of the road projects to CIDB, which will then decide how to award them to Malaysian contractors. Having completed 1,406km of roads in India, we see IJM as a clear beneficiary.

We continue to see strong contributions from its industries division, with a potential surprise from 82%-owned ICP Jiangmen, which has a monthly capacity of 20,000 tonnes and is about 50% utilised. Higher orders could potentially be driven by the implementation of the Hong Kong-Macau-Zhuhai Bridge and the expansion of ports in Guangdong province. We gather that there is potential for ICP Jiangmen to double its capacity.

The management expects properties to be the "star performer" in FY11. For the 9MFY10 period, sales totalled RM970 million, with RM800 million unbilled. Its Light Linear and Light Point developments in Penang (RM320 million collective gross development value) are now 70% to 85% sold. As The Light development commands higher margins (over 20% PBT), we see its blended property margins being lifted in FY11 as works have commenced.

We raise our FY11 earnings forecasts by 5.4% and that for FY12 by 8.1% (FY10 unchanged), which incorporates a construction margins recovery and stronger property revenue recognition.

Besides the earnings adjustments, we are making the following changes to our sum-of-parts (SOP) valuation: cut our construction earnings multiplier from 15 times to 14 times in line with the sector average, raise our industries earnings multiplier from nine times to 10 times given the strong performance, mark to market its stake in listed entities, mainly IJM Land (not rated) and remove our 10% discount to SOP valuation.

We upgrade the stock to buy. Our RM5.45 target price implies 18.3 times FY11 earnings, representing some one standard deviation above its historical mean price-earnings ratio (PER). We think such bullish parameters are achievable given IJM's construction margin recovery, news flow arising from more project awards and a sizeable pool of concession assets. - OSK Research, April 14


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

Tenaga bouncing off a low base

Tenaga Nasional Bhd
(April 14, RM8.42)
Maintain buy at RM8.37, target price of RM11.80: Tenaga's 2Q result will be released by month-end. While year-on-year (y-o-y) numbers will look good, quarter-on-quarter (q-o-q), they will be flattish. Power demand soared 14% y-o-y, off 2009's recession-hit low base in the three months ended Feb. Q-o-q, growth was just 1%. 2HFY10 will be challenging as higher costs kick in. A tariff hike and the reinstatement of the tariff formula are crucial. There are increasing expectations the government will deliver. We call a buy on the stock.

We estimate 1H net profit ex-forex items to be in the region of RM1.4 billion (+17% year to date). This is assuming 2Q costs costs were similar to those in 1Q, which may not necessarily be the case. For example, "other costs" ranges widely every quarter from RM240 million (1QFY10) to RM748 million (4QFY08). In general, costs tend to be back-loaded into the second half. The stronger ringgit in 2Q should result in a RM85 million translation gain for the quarter, taking the 1H gain to RM40 million (1Q: RM45 million loss).

Demand growth could slow from the 8% in 1H. The industrial sector grew a blistering 18% in Jan and 36% in Feb (1H: 9.4%). This might have been driven by stockpiling ahead of the then widely anticipated electricity and gas price hikes. Power demand could slow in the coming months if we are proven right. Our full-year forecast is for 4% growth.

2H headwinds include higher coal prices and independent power producer (IPP) payments. An additional RM550 million of capacity payments to IPP Jimah will be incurred in 2HFY10, in accordance with the power purchase agreement (PPA) terms.

Also, while we believe Tenaga secured most of its 1H coal requirements at about US$80/tonne (RM256), prices have been rising. Every US$10 increase in the price of coal results in about US$160 million of additional costs per year.

There has been no word on the status of CEO Datuk Seri Che Khalib Mohamad Noh, whose second three-year term expires in June.

Tariffs are the other major issue. Tenaga requires a 4% tariff hike to recover the capacity payments to Jimah, and the tariff formula to pass on fuel cost variations. Our forecasts include a 4% tariff hike effective June. - Maybank IB, April 14


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

Disappointing 3Q from HPI Resources, says Kenanga

HPI Resources Bhd
(April 14, RM1.64)
Downgrade to hold at RM1.65 with target price lowered to RM1.60: HPI's 3QFY10 results disappointed due to margin compression. While 9MFY10 revenue of RM271 million was 73% of our forecast, its net profit of RM15.6 million merely accounted for 68% of our full-year forecast. The sudden crimping of its margins on higher input prices, especially paper, was to blame.

Quarter-on-quarter, revenue rose 7% on higher contribution including both its Malaysian operation (+6.5%) as well as from Cambodia (+11.3%). Margins however took a beating with group gross margin easing to 13.6% from 18.9% previously. Malaysian pre-tax margin eased to 4.2% (2QFY10: 7.6%) while Cambodia collapsed to a mere 1.2% (2QFY10: 14.8%).

Year-on-year, revenue rose 22% with net profit jumping 110% driven by a general improvement in the global economic conditions, higher turnover and lower effective taxes.

HPI's outlook is becoming slightly more uncertain in the near term especially on its margins given the volatile commodity and currency markets. While global economic conditions continue to improve, profitability could pose a near-term risk given the recent volatility in input prices and currencies. Paper prices have continued to firm on growing demand from China while the supply for pulp was crimped due to the recent quake in Chile which supplies some 8% of global pulp.

Our forecast has been trimmed given the heightening risk to profitability. While maintaining our top line forecast, margins are lowered as we factor in a tougher environment going forward. The repricing of its end products could slow down the commodity and currency cycles in the near term. We are lowering our net forecast by 22% to RM18 million for FY10 and another 32% for FY11 to RM16.2 million. Our target price is lowered to RM1.60 and our recommendation is also downgraded to hold from buy. - Kenanga Research, April 14


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

RHB sees JAKS powering up

JAKS Resources Bhd
(April 14, 89.5 sen)
Not rated, fair value of RM2: We note that JAKS has primarily been identified with the water sector, including the construction of water infrastructure projects and the manufacture of steel pipes and steel hollow sections.

Although the water business is still important, we believe JAKS has been very busy over the last year spreading its wings to property and power.

We believe JAKS' outlook is about to change for the better, given three major positive developments since March, which in our view will improve its financial position from FY10/2010.

These include the joint development agreement by 51%-subsidiary Jaks Island Circle (JIC) and Star Publications to develop a piece of land in Petaling Jaya, the letter of award for construction of the Paya Peda Dam in Besut, Terengganu for a total contract sum of RM333 million and memoranda of agreement with various Vietnam authorities for a 2x600 MW coal-fired power plant in Hai Duong province near Hanoi.

We believe the power purchase agreement (PPA) has also been confirmed with Electricity of Viet Nam (EVN), which is Vietnam's national power utility. As the first foreign-owned independent power producer (IPP) in Vietnam, and upon the successful completion of this power plant in FY15, we believe JAKS will be in the running for other IPP projects there. From this first IPP, we estimate an incremental net profit of around RM52.7 million in FY16, or five times of our projected FY10/2010 net profit of RM11.1 million.

We believe the market has yet to fully reflect JAKS' power plant venture in Vietnam, which alone is worth RM676.8 million or RM1.54/share based on discounted cash flow (DCF). We thus estimate a sum-of-parts (SOP) fair value for JAKS of RM2, which implies a huge upside of 141% from current levels.

Our SOP valuation includes JAKS' construction, manufacturing and trading businesses at 10 times FY10/10 price-earnings ratio (PER), rental income from UTAR at DCF, land development in Section 13, Petaling Jaya at revised net asset value (RNAV) and power plant venture in Vietnam at DCF.- RHB Research Institute, April 14


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

PBBANK - OSK Research: Public Bank on track to meet strong profit targets

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

KUALA LUMPUR: OSK Research says Public Bank is on track to meet its strong profit targets and upgraded it from Neutral to Buy as the bank is set to announce its first quarter earnings on Thursday, April 15. It said on Thursday that after an upward earnings revision, it is raising its target price for Public Bank from RM11.80 to RM13.00. "Our new TP assumes a ROE of 26.0%, a long-term growth of 4.0% and 9.3% cost of equity. The current share price implies a relatively conservative 22% ROE vs management's 3-year target of 30%," it said. OSK Research sees its performance remaining firmly on the uptrend, and largely on course to deliver 2%-3% quarter-on-quarter earnings growth, although the 1Q period is typically a weaker quarter. The relatively strong results are likely to be underpinned by: 1) an uptrend in net interest margins from repricing of mortgages and higher HP rates, 2) quarter-on-quarter growth in wealth management fee income on the back of higher management fees from its unit trust business, 3) a 2%-3% quarter-on-quarter expansion in gross loan base, and 4) continued downtrend in loan loss provisions.

IJM - OSK Research maintains buy call on IJM Corp

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

KUALA LUMPUR: OSK Research has maintained its buy call on IJM Corp at RM4.86 with target price RM5.45 and said the company could achieve pre-tax margins of 6%-8% for the Murum Dam access road projects worth RM246.7 million.

IJM announced that it has received two Letters of Award (LOA) for the Murum Dam access road totaling RM246.7 million. Package A1 (RM125.2m) is for a 20km road while Package B2 (RM121.5m) is for one of 10.5km.

Other associated works are minor bridges, culverts, drains and pavement works. The jobs, for which CONSTRUCTION [] would take two years, were awarded by Sarawak's Ministry of Works.

OSK Research said following the increase in projects tendered for during the 4Q09-1Q10 period, it expects the award momentum to accelerate in FY11 and are assuming the group would secure RM2 billionn in new jobs.

"We see India as a key contributor to IJM's contract flows. There are no changes to our estimates and we maintain our buy call ahead of its construction margin recovery," it said.

Incorporating this new job, IJM's orderbook is estimated at about RM4.45 billion, it said.

"We leave our earnings unchanged as the contract value is still within our FY11 replenishment target of RM2 billion. Our RM5.45 TP is based on the Sum of Parts methodology, which implies 18.3 times FY11 earnings.

"We think the time is ripe to buy into IJM ahead of its construction margin recovery and anticipated strong performance of its property division," it said.

KNM - Maybank Research downgrades KNM to sell

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

KUALA LUMPUR: Maybank Investment Bank Bhd Equity Research has downgraded KNM GROUP BHD [] to a sell at 73.5 sen with a lower target price of 68 sen (75 sen previously) following the aborted takeover by its founder.

While KNM's business is fundamentally unaffected, the failed takeover is negative on its major shareholder's reputation and credibility, which will be played out in its share price, it said.

Share price recovery may therefore take a while too, said the research house.

"We suspect an unattractive revised offer price and the recent tax incentives had caused the deal to fall through," it said.

KNM was the most actively trade stock in the morning trade on Thursday, April 15 with 82.24 million shares done at 9.31am. The share fell 6.5 sen to 67 sen.

WASEONG - AmResearch maintains Buy on Wah Seong

Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Research House: AMMB

KUALA LUMPUR: AmResearch is maintaining its Buy call on Wah Seong Corp Bhd with an unchanged fair value of RM3.40 per share, pegged to FY10F's PE of 18 times at parity to the stock's four-year average.

It said on Thursday, April 15 Wah Seong will provide commercial support and assistance to Pipe Coaters Nigeria (PCN) to secure a three-layer and concrete pipe-coating contracts/projects in Nigeria.

"We are Neutral on this agreement as contribution would be insignificant to the group. We understand that Wah Seong is currently eyeing three low margin contracts worth around US$40 million in Nigeria," it said.

AmResearch said if this Nigerian plant turnarounds on top of political risks moderating in Nigeria, the group could be looking at an equity stake later.

"We maintain our FY10F-FY12F estimates, which project average earnings growth of 8%. Stock currently trades at an attractive CY10F diluted PE of 13 times, above Malaysia's oil & gas sector of 12 times but below its five-year average of 16 times and peak of over 25 times," it said.

KNM - KNM Group downgraded at JPMorgan

Stock Name: KNM
Company Name: KNM GROUP BHD
Research House: JP MORGAN CHASE

KNM Group Bhd had its stock rating downgraded at JPMorgan Chase & Co after a group led by BlueFire Capital Group Ltd failed in its takeover bid for the Malaysian oil and gas services provider.

The stock was cut to "underweight" from "neutral," JPMorgan analyst Nicole Goh said in a report dated April 14.

The share price estimate was reduced to 66 sen from 90 sen.

The shares of KNM fell 10 per cent to close at 66 sen, its steepest decline since December 5, 2008. -- Bloomberg

TENAGA - Tenaga bouncing off a low base

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

Tenaga Nasional Bhd
(April 14, RM8.42)
Maintain buy at RM8.37, target price of RM11.80: Tenaga's 2Q result will be released by month-end. While year-on-year (y-o-y) numbers will look good, quarter-on-quarter (q-o-q), they will be flattish. Power demand soared 14% y-o-y, off 2009's recession-hit low base in the three months ended Feb. Q-o-q, growth was just 1%. 2HFY10 will be challenging as higher costs kick in. A tariff hike and the reinstatement of the tariff formula are crucial. There are increasing expectations the government will deliver. We call a buy on the stock.

We estimate 1H net profit ex-forex items to be in the region of RM1.4 billion (+17% year to date). This is assuming 2Q costs costs were similar to those in 1Q, which may not necessarily be the case. For example, "other costs" ranges widely every quarter from RM240 million (1QFY10) to RM748 million (4QFY08). In general, costs tend to be back-loaded into the second half. The stronger ringgit in 2Q should result in a RM85 million translation gain for the quarter, taking the 1H gain to RM40 million (1Q: RM45 million loss).

Demand growth could slow from the 8% in 1H. The industrial sector grew a blistering 18% in Jan and 36% in Feb (1H: 9.4%). This might have been driven by stockpiling ahead of the then widely anticipated electricity and gas price hikes. Power demand could slow in the coming months if we are proven right. Our full-year forecast is for 4% growth.

2H headwinds include higher coal prices and independent power producer (IPP) payments. An additional RM550 million of capacity payments to IPP Jimah will be incurred in 2HFY10, in accordance with the power purchase agreement (PPA) terms.

Also, while we believe Tenaga secured most of its 1H coal requirements at about US$80/tonne (RM256), prices have been rising. Every US$10 increase in the price of coal results in about US$160 million of additional costs per year.

There has been no word on the status of CEO Datuk Seri Che Khalib Mohamad Noh, whose second three-year term expires in June.

Tariffs are the other major issue. Tenaga requires a 4% tariff hike to recover the capacity payments to Jimah, and the tariff formula to pass on fuel cost variations. Our forecasts include a 4% tariff hike effective June. - Maybank IB, April 14


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

HPI - Disappointing 3Q from HPI Resources, says Kenanga

Stock Name: HPI
Company Name: HPI RESOURCES BHD
Research House: KENANGA

HPI Resources Bhd
(April 14, RM1.64)
Downgrade to hold at RM1.65 with target price lowered to RM1.60: HPI's 3QFY10 results disappointed due to margin compression. While 9MFY10 revenue of RM271 million was 73% of our forecast, its net profit of RM15.6 million merely accounted for 68% of our full-year forecast. The sudden crimping of its margins on higher input prices, especially paper, was to blame.

Quarter-on-quarter, revenue rose 7% on higher contribution including both its Malaysian operation (+6.5%) as well as from Cambodia (+11.3%). Margins however took a beating with group gross margin easing to 13.6% from 18.9% previously. Malaysian pre-tax margin eased to 4.2% (2QFY10: 7.6%) while Cambodia collapsed to a mere 1.2% (2QFY10: 14.8%).

Year-on-year, revenue rose 22% with net profit jumping 110% driven by a general improvement in the global economic conditions, higher turnover and lower effective taxes.

HPI's outlook is becoming slightly more uncertain in the near term especially on its margins given the volatile commodity and currency markets. While global economic conditions continue to improve, profitability could pose a near-term risk given the recent volatility in input prices and currencies. Paper prices have continued to firm on growing demand from China while the supply for pulp was crimped due to the recent quake in Chile which supplies some 8% of global pulp.

Our forecast has been trimmed given the heightening risk to profitability. While maintaining our top line forecast, margins are lowered as we factor in a tougher environment going forward. The repricing of its end products could slow down the commodity and currency cycles in the near term. We are lowering our net forecast by 22% to RM18 million for FY10 and another 32% for FY11 to RM16.2 million. Our target price is lowered to RM1.60 and our recommendation is also downgraded to hold from buy. - Kenanga Research, April 14


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

Blue skies ahead for Mah Sing

Mah Sing Group Bhd
(April 13, RM1.70)
Maintain buy at RM1.74, fair value raised to RM1.96: We have revised our target price higher based on fully diluted sum-of-parts (SOP) revised net asset value (RNAV) using the discounted cash flow (DCF) method for development profits of projects that will be launched in the next six to nine months.

The buoyant share price lately was driven by the much anticipated liquidity from the recent 1-for-5 bonus issuance, approaching our previous RM1.75 fair value (RNAV of land at market value). We have changed our valuation method to DCF of development profits to reflect Mah Sing's quick turnaround business model allowing for quicker realisation of its landbank.

1Q10 sales of RM516 million were well ahead of target sales as they account for 52% of FY10E sales target of RM1 billion. iParc @ Bukit Jelutong (42 units), Perdana Residence 2 (209 units) and Garden Residence @ Cyberjaya (402 units) were launched in early 2010; achieving take-up rates of 95%, 83% and 53%, respectively. FY10E sales target is 38% higher than FY09's sales of RM725 million.

We are estimating RM1.4 billion worth of gross development value (GDV) in FY10E launches. Besides the above- mentioned projects , there are seven more projects up for launch over FY10 - Legenda @ Southbay, Southbay City (commercial), Icon Residence @ Mont'Kiara, One Legenda, Garden Villas @ Hijauan Residence, iParc @ HICOM and Bayu Sekamat - carrying a total GDV of RM1.8 billion.

The larger projects (such as Southbay City) are likely to be launched in phases, hence, we estimate Mah Sing could launch an additional RM600 million worth of projects over the next three quarters.

We are tweaking FY10 to FY11 net profit upwards by 1% to 2% to RM113 million and RM137 million, respectively. We have raised our FY10 to FY11E sales assumptions by 10% to RM1.1 billion to RM1.2 billion, respectively.

We reiterate a buy call as there is more upside to our estimate of 19% three-year compound annual growth rate (CAGR). We expect Mah Sing to raise its FY10 to FY11E sales targets on the back of improving sentiment and exciting product pipeline.

The property group is planning to acquire more land in the immediate term given its net cash position with RM397 million cash balance and its quick turnaround model. Additional sweeteners include the finalisation of its Changzhou, China project. At current prices, 12.8 times FY10E price-earnings ratio (PER) is attractive versus its historical 16.4 times (adjusted for bonus), while fair value implies 14.4 times FY10E PER. Dividend yield of more than 4% is attractive versus 2% to 3% peer's average.

We continue to like Mah Sing as it is consistently able to quickly turn around the landbank that it purchased. Foreign shareholding is still low at 16% versus FY07's peak of circa 40%. - Kenanga Research, April 13


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

Tanjong plc awaits next re-rating catalyst

Tanjong plc
(April 13, RM18.52)
Downgrade to market perform at RM18.50, with unchanged target price of RM19.20: The next leg of growth for the power division would depend on acquisitions, and the management had previously expressed a target of doubling its current power capacity to 8,000MW over the next four to five years.

This could include greenfield and/or brownfield projects with particular focus on regions such as South Asia, Southeast Asia, the Middle East and North Africa.

According to the management, globally, the power industry appears to be showing signs of recovery from the economic crisis and greenfield projects that were previously deferred are now seeing a return. Tanjong's preference is for greenfield projects and the management has a target internal rate of return (IRR) of low-mid teens for greenfield projects in emerging markets.

While we understand Tanjong could launch a new jackpot game later this year, not much details are known at the moment. Nevertheless, we believe the game would likely be similar to BToto's jackpot games. Assuming the new game brings in around RM1 million in sales per draw, we estimate a full-year impact could lift our earnings projections by around 2%.

As for the racing totalisator (RTO) segment, while the management continues to work towards a resolution to the escalating expenses, the message we took away was that this would take time. In our model, we have assumed operating losses of RM60 million per annum for FY11-FY13.

For Tropical Islands (TI), visitor arrivals and the average revenue per unit have been trending up while the construction of accommodation (19 homes built and sold thus far) should further help address the challenge of low weekday visitor attendances and short-stay visitors.

As for Tanjong Golden Village (TGV), we expect its FY10 operating profit contribution of RM14.8 million to hold steady going forward.

While Tanjong does not have a specific dividend policy, we understand that dividends going forward should not be lower than FY10's gross dividend per share (DPS) of RM1. We project FY11-FY13 gross DPS of RM1.02-RM1.06, which translates to net dividend yields of 4.1%-4.3%.

The risks to our recommendations are: (1) the stronger ringgit/US dollar rate would impact overseas power profits; (2) higher-than-expected numbers forecast operator (NFO) prize payout; (3) sovereign risk of overseas power projects; (4) change in landscape under the National Energy Plan; and (5) high foreign shareholding (38.5% as at end-Feb).

There is no change to our forecasts for now.

Our sum-of-parts-derived (SOP) fair value of RM19.20 is unchanged. Tanjong's strong share price performance means that the gap to our SOP valuation has narrowed significantly and the stock's total potential return of 8% is roughly in line with our expected market return. Consequently, we have downgraded our recommendation to market perform from outperform.

In our view, Tanjong stands a strong chance in securing some of the new power projects, which we believe would be value accretive. Our SOP valuation does not reflect such additions and hence, we see upside potential to our fair value if Tanjong is successful with its bids. - RHB Research Institute, April 13


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

RHB Capital a laggard, says HwangDBS

RHB Capital Bhd (RHBCap)
(April 13, RM5.95)
Maintain buy at RM5.98, target price raised to RM7.30: RHBCap is a beneficiary of interest rate hikes given its higher proportion of variable rate loans. We have imputed a 50 basis points (bps) rise in interest rates in our estimates, and every additional 25bps rise in the overnight policy rate (OPR) would expand RHBCap's net interest margin (NIM) by 10bps and raise earnings by 6%-7%.

Largely a domestic-based bank, RHBCap is targeting higher contribution from its international business over the next three years. Overseas contribution is currently from its seven-branch Singapore operation, at 3% of group earnings. The inclusion of Bank Mestika (expected to be completed by 2H10) would add another 4% to full-year pre-tax profit.

RHBCap introduced a new and simplified banking concept with a unique selling proposition called "Easy by RHB" in July 2009. The unique selling proposition for "Easy by RHB" is that it offers products that are relevant and attractive, while making customers' banking experience simple and convenient.

"Easy" outlets are situated closer to the community and operate during "non-traditional" banking hours for easy access. As of March 2010, there are 45 "Easy" outlets, and RHBCap targets to open another 35-40 outlets by end-2010.

The outlets will be developed with partners like Tesco and Pos Malaysia or as stand-alone kiosks. Due to the simple infrastructure and concept of the outlets, the investment cost is lower than setting up a full-fledged banking branch.

Although the income contribution is small now, the concept is highly scalable and expected to tap into new demographic markets, expand customer base and raise net interest income.

Recovering capital market activities could add to non-interest income. RHBCap could benefit from the recovery in capital market activities given that it is one of the top 10 underwriters in debt and equity issues.

RHBCap was ranked third in Bloomberg's league table for debt and took 13.2% market share in 2009. It was ranked fifth with a 5.6% market share in 1Q10. In equities, RHBCap's market shares were decent at 2.1% and 3.1% for the respective periods. We believe RHBCap is a strong contender for potential listings, advisory and fund-raising transactions in 2010.

We expect capital market activities to pick up strongly in 2010, with more fund-raising and merger and acquisition (M&A) activities, in line with the recovering economy. As such, we expect more underwriting and arrangement fees, and corporate advisory fees, as part of non-interest income. Currently, RHBCap's fee-based income forms around 55% of total non-interest income; we forecast this segment to grow 10% year-on-year in FY10-FY12F.

RHBCap is a laggard relative to its peers and stands out as a value proposition in terms of its price-to-book value (PBV) and return on equity (ROE) metrics. It is trading at 1.2 times FY11F PBV, a 32% discount to the sector average of 1.9 times, while its ROE profile is respectable at 14%-15%. It is also trading at its 10-year historical mean, while most Malaysia banks are trading above mean or one time standard deviation.

We raised our target price to RM7.30 after shifting valuation base to FY11F (indicative target price ex-rights is RM6.80). RHBCap is the cheapest stock in our Malaysia large-cap universe at only eight times forward price earnings (PE). - Hwang-DBS Vickers Research, April 13


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

SUNCITY - Inter-Pacific: SunCity property earnings to stay visible for 2 years

Stock Name: SUNCITY
Company Name: SUNWAY CITY BHD
Research House: INTER PACIFIC

KUALA LUMPUR: Inter-Pacific Research Sdn Bhd is recommending SUNWAY CITY BHD [] an outperform at RM3.90 with a target price of RM4.70, and said unbilled sales at RM637 million at end-December 2009 indicated the company's property division earnings will remain visible for the next two years.

"Driven by a better contribution from the property segment in 2010, our fair value is pegged at RM4.70, based on a PER of 12 times and EPS of 39 sen.

"Our target price is 28% discount from the estimated RNAV per share of RM6.51. We recommend outperform," it said.

Sunway City had proposed to inject its entire eight investment PROPERTIES [] into 'real estate investment trust' (REIT). The properties included will be (1) Sunway Pyramid shopping mall; (2) Sunway Resort Hotel and Spa; (3) Pyramid Tower Hotel; (4) Menara Sunway; (5) Sunway Hotel Seberang jaya ; (6) Suncity Ipoh Hypermarket; (7) Sunway Carnival Mall and (8) Sunway Tower.

"The offer price is yet to be determined.

"These REITs could be valued around RM3 billion which is about 63.8% of the total investment properties under Sunway City holdings that also includes other assets like Sunway Giza, Sunway University College and Monash University Sunway Campus," said the research house.

Inter-Pacific Research said that in FY09 Sunway City enjoyed a revaluation gain of RM804.9 million from its investment properties. Sunway Pyramid Shopping Mall was revalued to RM2.24 billion, raising their fair value gain by RM680.4 million.

Sunway Carnival Mall was revalued to RM248.5 million, lifting the fair value gain by RM58.5 million. Twenty other investment properties were also revalued to RM847.6 million, which rose the fair value gain to RM66 million, it said.

"The proceeds raised from REIT will be used for the property division, ie for two office towers expected to be launched by end 2010. The first tower with 277,000 sq ft of NLA will be built next to Sunway Resort Hotel & Spa and linked to Sunway Pyramid Mall.

"The second tower with 550,000 sq ft of NLA will be built next to Menara Sunway. SunCity will spend RM400 million to build the towers, which could either be leased or sold via en bloc or injected into REIT," it said.

TENAGA - CIMB Research remains Neutral on Tenaga

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

KUALA LUMPUR: CIMB Equities Research is maintaining its Neutral stance on Tenaga Nasional and its end-CY10 target price stays at RM9.15 based on an unchanged forward price-to-book value of 1.4 times. It said on Wednesday, April 14 Tenaga's 2QFY8/10 results, scheduled for release on April 20, are likely to beat expectations. "But beyond the potential results outperformance, we see limited re-rating catalysts. Although there is some market speculation of a mid-year tariff hike, we do not see an urgent need to raise tariffs then," it said. The more pressing issue is Tenaga's vulnerability to rising fuel costs which could return to the limelight in FY11 in the absence of a transparent formula. CIMB Research said other concerns include uncertainty about its i) role in the Bakun and undersea cable project, and ii) succession plan as its CEO's contract will lapse soon. "Although we retain our FY10-12 earnings forecasts pending the results release, we flag that we may raise FY10 demand growth from 4.8% to 6-7%, which could raise our core earnings by 3-4%," it said.

JAKS - JAKS up, RHB sees sum-of-parts FV at RM2

Stock Name: JAKS
Company Name: JAKS RESOURCES BERHAD
Research House: RHB

KUALA LUMPUR: JAKS Resources Bhd's share price advanced in mid-morning on Wednesday, April 14 after RHB Research sees sum-of-parts (SOP) fair value at RM2 due to Vietnam power plant, dam and property joint ventures. At 11am, it was up 1.5 sen to 84.5 sen with 6.53 million shares done. RHB Research said it believed the market has yet to fully reflect JAKS' power plant venture in Vietnam, which alone is worth RM676.8 million or RM1.54/share based on DCF.

"We thus estimate a SOP fair value for JAKS of RM2.00, which implies an upside of 141% from current levels," it said.

RHB Research believed JAKS' outlook is about to change for the better, given three major positive developments since Mar, which in its view will improve its financial position from FY10/10.

These include the joint development agreement by 51%-subsidiary Jaks Island Circle (JIC) and Star Publications to develop a piece of land in Petaling Jaya.

JAKS received a letter of award for CONSTRUCTION [] of the Paya Peda Dam in Besut, Terengganu for a total contract sum of RM333 million while it inked memorandum of agreements with various Vietnam authorities for a 2x600 MW coal-fired power plant in Hai Duong province near Hanoi.

"We believe the PPA has also been confirmed with Electricity of Viet Nam (EVN), which is Vietnam's national power utility," it said.

MAHSING - Blue skies ahead for Mah Sing

Stock Name: MAHSING
Company Name: MAH SING GROUP BHD
Research House: KENANGA

Mah Sing Group Bhd
(April 13, RM1.70)
Maintain buy at RM1.74, fair value raised to RM1.96: We have revised our target price higher based on fully diluted sum-of-parts (SOP) revised net asset value (RNAV) using the discounted cash flow (DCF) method for development profits of projects that will be launched in the next six to nine months.

The buoyant share price lately was driven by the much anticipated liquidity from the recent 1-for-5 bonus issuance, approaching our previous RM1.75 fair value (RNAV of land at market value). We have changed our valuation method to DCF of development profits to reflect Mah Sing's quick turnaround business model allowing for quicker realisation of its landbank.

1Q10 sales of RM516 million were well ahead of target sales as they account for 52% of FY10E sales target of RM1 billion. iParc @ Bukit Jelutong (42 units), Perdana Residence 2 (209 units) and Garden Residence @ Cyberjaya (402 units) were launched in early 2010; achieving take-up rates of 95%, 83% and 53%, respectively. FY10E sales target is 38% higher than FY09's sales of RM725 million.

We are estimating RM1.4 billion worth of gross development value (GDV) in FY10E launches. Besides the above- mentioned projects , there are seven more projects up for launch over FY10 - Legenda @ Southbay, Southbay City (commercial), Icon Residence @ Mont'Kiara, One Legenda, Garden Villas @ Hijauan Residence, iParc @ HICOM and Bayu Sekamat - carrying a total GDV of RM1.8 billion.

The larger projects (such as Southbay City) are likely to be launched in phases, hence, we estimate Mah Sing could launch an additional RM600 million worth of projects over the next three quarters.

We are tweaking FY10 to FY11 net profit upwards by 1% to 2% to RM113 million and RM137 million, respectively. We have raised our FY10 to FY11E sales assumptions by 10% to RM1.1 billion to RM1.2 billion, respectively.

We reiterate a buy call as there is more upside to our estimate of 19% three-year compound annual growth rate (CAGR). We expect Mah Sing to raise its FY10 to FY11E sales targets on the back of improving sentiment and exciting product pipeline.

The property group is planning to acquire more land in the immediate term given its net cash position with RM397 million cash balance and its quick turnaround model. Additional sweeteners include the finalisation of its Changzhou, China project. At current prices, 12.8 times FY10E price-earnings ratio (PER) is attractive versus its historical 16.4 times (adjusted for bonus), while fair value implies 14.4 times FY10E PER. Dividend yield of more than 4% is attractive versus 2% to 3% peer's average.

We continue to like Mah Sing as it is consistently able to quickly turn around the landbank that it purchased. Foreign shareholding is still low at 16% versus FY07's peak of circa 40%. - Kenanga Research, April 13


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

TANJONG - Tanjong plc awaits next re-rating catalyst

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

Tanjong plc
(April 13, RM18.52)
Downgrade to market perform at RM18.50, with unchanged target price of RM19.20: The next leg of growth for the power division would depend on acquisitions, and the management had previously expressed a target of doubling its current power capacity to 8,000MW over the next four to five years.

This could include greenfield and/or brownfield projects with particular focus on regions such as South Asia, Southeast Asia, the Middle East and North Africa.

According to the management, globally, the power industry appears to be showing signs of recovery from the economic crisis and greenfield projects that were previously deferred are now seeing a return. Tanjong's preference is for greenfield projects and the management has a target internal rate of return (IRR) of low-mid teens for greenfield projects in emerging markets.

While we understand Tanjong could launch a new jackpot game later this year, not much details are known at the moment. Nevertheless, we believe the game would likely be similar to BToto's jackpot games. Assuming the new game brings in around RM1 million in sales per draw, we estimate a full-year impact could lift our earnings projections by around 2%.

As for the racing totalisator (RTO) segment, while the management continues to work towards a resolution to the escalating expenses, the message we took away was that this would take time. In our model, we have assumed operating losses of RM60 million per annum for FY11-FY13.

For Tropical Islands (TI), visitor arrivals and the average revenue per unit have been trending up while the construction of accommodation (19 homes built and sold thus far) should further help address the challenge of low weekday visitor attendances and short-stay visitors.

As for Tanjong Golden Village (TGV), we expect its FY10 operating profit contribution of RM14.8 million to hold steady going forward.

While Tanjong does not have a specific dividend policy, we understand that dividends going forward should not be lower than FY10's gross dividend per share (DPS) of RM1. We project FY11-FY13 gross DPS of RM1.02-RM1.06, which translates to net dividend yields of 4.1%-4.3%.

The risks to our recommendations are: (1) the stronger ringgit/US dollar rate would impact overseas power profits; (2) higher-than-expected numbers forecast operator (NFO) prize payout; (3) sovereign risk of overseas power projects; (4) change in landscape under the National Energy Plan; and (5) high foreign shareholding (38.5% as at end-Feb).

There is no change to our forecasts for now.

Our sum-of-parts-derived (SOP) fair value of RM19.20 is unchanged. Tanjong's strong share price performance means that the gap to our SOP valuation has narrowed significantly and the stock's total potential return of 8% is roughly in line with our expected market return. Consequently, we have downgraded our recommendation to market perform from outperform.

In our view, Tanjong stands a strong chance in securing some of the new power projects, which we believe would be value accretive. Our SOP valuation does not reflect such additions and hence, we see upside potential to our fair value if Tanjong is successful with its bids. - RHB Research Institute, April 13


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

RHBCAP - RHB Capital a laggard, says HwangDBS

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

RHB Capital Bhd (RHBCap)
(April 13, RM5.95)
Maintain buy at RM5.98, target price raised to RM7.30: RHBCap is a beneficiary of interest rate hikes given its higher proportion of variable rate loans. We have imputed a 50 basis points (bps) rise in interest rates in our estimates, and every additional 25bps rise in the overnight policy rate (OPR) would expand RHBCap's net interest margin (NIM) by 10bps and raise earnings by 6%-7%.

Largely a domestic-based bank, RHBCap is targeting higher contribution from its international business over the next three years. Overseas contribution is currently from its seven-branch Singapore operation, at 3% of group earnings. The inclusion of Bank Mestika (expected to be completed by 2H10) would add another 4% to full-year pre-tax profit.

RHBCap introduced a new and simplified banking concept with a unique selling proposition called "Easy by RHB" in July 2009. The unique selling proposition for "Easy by RHB" is that it offers products that are relevant and attractive, while making customers' banking experience simple and convenient.

"Easy" outlets are situated closer to the community and operate during "non-traditional" banking hours for easy access. As of March 2010, there are 45 "Easy" outlets, and RHBCap targets to open another 35-40 outlets by end-2010.

The outlets will be developed with partners like Tesco and Pos Malaysia or as stand-alone kiosks. Due to the simple infrastructure and concept of the outlets, the investment cost is lower than setting up a full-fledged banking branch.

Although the income contribution is small now, the concept is highly scalable and expected to tap into new demographic markets, expand customer base and raise net interest income.

Recovering capital market activities could add to non-interest income. RHBCap could benefit from the recovery in capital market activities given that it is one of the top 10 underwriters in debt and equity issues.

RHBCap was ranked third in Bloomberg's league table for debt and took 13.2% market share in 2009. It was ranked fifth with a 5.6% market share in 1Q10. In equities, RHBCap's market shares were decent at 2.1% and 3.1% for the respective periods. We believe RHBCap is a strong contender for potential listings, advisory and fund-raising transactions in 2010.

We expect capital market activities to pick up strongly in 2010, with more fund-raising and merger and acquisition (M&A) activities, in line with the recovering economy. As such, we expect more underwriting and arrangement fees, and corporate advisory fees, as part of non-interest income. Currently, RHBCap's fee-based income forms around 55% of total non-interest income; we forecast this segment to grow 10% year-on-year in FY10-FY12F.

RHBCap is a laggard relative to its peers and stands out as a value proposition in terms of its price-to-book value (PBV) and return on equity (ROE) metrics. It is trading at 1.2 times FY11F PBV, a 32% discount to the sector average of 1.9 times, while its ROE profile is respectable at 14%-15%. It is also trading at its 10-year historical mean, while most Malaysia banks are trading above mean or one time standard deviation.

We raised our target price to RM7.30 after shifting valuation base to FY11F (indicative target price ex-rights is RM6.80). RHBCap is the cheapest stock in our Malaysia large-cap universe at only eight times forward price earnings (PE). - Hwang-DBS Vickers Research, April 13


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

IJM - IJM Corp raised to buy at OSK

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

IJM Corp, a Malaysian builder, was raised to "buy" from "neutral" at OSK Research Sdn.Bhd to reflect wider contruction margins and the prospects for more road contracts in India.

The share price estimate was increased to RM5.45 from RM4.70, OSK said in a report today. -- Bloomberg

AIRPORT - HDBSVR ups MAHB target price to RM6.15

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

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) has upgraded its sum-of-parts derived target price to RM6.15 (from RM4.75) after fine-tuning FY10F-11F earnings upwards by 3%. It said on Wednesday, April 14 it had also factored in additional rental space at the new LCCT and valuation for the land development project. "We expect under-utilisation of new LCCT when it is completed in 2012. However, AirAsia's strong fleet expansion should boost utilization in subsequent years. We believe the stock should be valued based on its long-term earnings potential from its cash rich airport concession, land development, and new LCCT," it said. Hwang DBS Vickers Research said in its opinion, potential value from new LCCT and development potential around KLIA has not been fully priced in. It added the and near KLIA offers huge development potential. The project, known as "KLIA Aeropolis", will transform KLIA into a multi-functional airport city similar to some major international airports e.g. Incheon in South Korea and Schiphol in The Netherlands. "It adds 88 sen (DCF-based) to our TP assuming leasing of additional 5-10% of lettable area at RM41 per sq m per year with 10% increase every 3 years, starting from 2013 onwards (vs marginal holding cost of c.5.6sen per sq m per year). "Our forecast excludes potential revenue sharing or contribution from joint ventures with developers, which could further drive revenue upwards," it said.

Wellcall recovering well, says CIMB

Wellcall Holdings Bhd
(April 12, RM1.38)
Outperform at RM1.29, target price raised to RM1.76: From our recent visit, we gathered that prospects in the medium term are bullish. Orders are coming in strong, prompting us to up our FY10 to FY12 earnings per share (EPS) forecasts by 2% to 5%.

Gross dividend per share (DPS) forecasts for FY10 to FY12 are also raised 40% on expectations of a higher dividend payout. As a result of our earnings upgrade and a rise in our target price earnings (PE) for Top Glove from 15 times to 16.5 times, our target price goes up from RM1.61 to RM1.76, still based on a 30% discount to our target PE for Top Glove. We continue to rate Wellcall an outperform as the stronger-than-expected demand recovery and potential capacity expansion could catalyse a rerating.

The share price is supported by generous net 8% to 9% dividend yields and a net cash of 30 sen/share (24% of the current share price).

Wellcall has seen a strong recovery in demand over the past few months, mainly from the Middle East, South America and Asia. Although it is running on two shifts, its order backlog now stretches to three months because of some production bottlenecks. The bottlenecks arose mainly due to labour shortage, which it recently partially addressed by bringing in new foreign workers.

Since 3QFY10 (April-June 2009), Wellcall's Ebitda (earnings before interest, tax, depreciation and amortisation) margin has recovered to the 25% level, indicating its ability to pass on rising raw material costs to its customers.

As its pioneer status will expire in mid-2010, we have raised our effective tax rate assumptions for FY11 to FY12 from 9% to 24%, closer to the corporate tax rate. However, in view of Wellcall's demonstrated ability to pass on rising raw material costs to its customers, we have raised our FY10 to FY12 Ebitda margins by three percentage points to 25%. Our FY11 to FY12 revenue forecasts have also been revised upwards by 4% to 5% to reflect better demand growth prospects.

We are raising our FY10 to FY12 net dividend payout ratio from 60% to 80%, which increases our gross DPS forecasts by 40%. DPS could even be higher. Assuming a 100% payout of our FY10 forecast net profit, net DPS would be 13.7 sen. - CIMB Research, April 12


This article appeared in The Edge Financial Daily, April 13, 2010.

WCT is Maybank IB's preferred construction pick

WCT Bhd
(April 12, RM2.80)
Maintain buy at RM2.77 with target price of RM3.40: WCT is our preferred pick among the construction big caps. We see a further upside in WCT's share price given good order flow visibility (we believe WCT could exceed its RM2 billion target of new contracts) and scope for margin expansion following the near-completion of legacy contracts. Its target price is pegged to 14 times 2011 earnings.

We assume RM2 billion of job wins in 2010. WCT's current order book (RM3.2 billion as at Dec 2009) is low by historical standards (peak backlog of RM7.3 billion worth of jobs). Potential awards include packages in the Klang Valley LRT extension, Pahang-Selangor water transfer (dam, piping, Langat 2), Sepang LCCT, water infrastructure in Sabah and infrastructure projects in the Middle East. We believe news flow on potential awards could intensify in the next 12 months.

WCT is benefiting from higher infrastructure spending in Qatar. Following the implementation of a fiscal stimulus programme by the Qatari government in 2009, the aggregate value of contracts awarded by the Qatar Public Works Authority doubled in 2009. For 2010, some US$378 million (RM1.21 billion) worth of contracts have been awarded in 1Q10 and about US$500 million worth of projects are up for tender. We believe WCT, with its partner, is actively sourcing for projects in Qatar.

We retain our net profit forecast, projecting a 15% growth in 2010, supported by an outstanding order book of RM3.2 billion and margin restoration for Middle Eastern jobs. For 2011, we project a 12% growth on higher contributions from property development after maiden launches in 2010 at 1Medini (gross development value: RM600 million), Paradigm (GDV: RM1.4 billion) and Vietnam's Platinum (GDV: RM1 billion). There is an upside to our forecasts on the final contract sum at ADF1 (Abu Dhabi Formula One track) and Bakun.

We believe WCT's valuations are not yet stretched. Its current share price implies a 2011 price-earnings ratio (PER) of 11.4 times versus a peak of 37 times. Its foreign shareholding, at 9% latest, has also retraced substantially from a recent peak of 28% as at end-2007/early-2008. - Maybank IB, April 12


This article appeared in The Edge Financial Daily, April 13, 2010.

RHB positive on Sunway's Puncak Jalil project

Sunway Holdings Bhd
(April 12, RM1.68)
Maintain outperform at RM1.56 with target price of RM1.69: Geneba Dua, a 65:35 joint venture (JV) between Sunway and a private company called Monty Properties, plans to venture into a high-end residential property project comprising terrace and semi-detached houses with a total gross development value (GDV) of RM120 million on land parcels measuring a total of 16.9 acres (6.8ha) in Puncak Jalil, Selangor.

We understand from sources that Monty Properties is the "beneficial owner" of the land, and the land will be sold to the JV company at a later stage. For a start, Sunway and Monty Properties will each pump in equity amounting to RM3.9 million and RM2.1 million respectively to the JV company.

We are positive on Sunway's latest proposed property venture, given the good location in the mature and highly sought-after area, south of Kuala Lumpur. Assuming a profit before tax (PBT) margin of 30%, we estimate that the latest property project will earn Sunway RM23 million PBT.

The latest deal will effectively boost Sunway's outstanding landbank in Malaysia by 4% to 396 acres, underpinning its property profits in Malaysia over the long term. Including Singapore (at associate level), we project Sunway's property profits to make up 23% to 30% of group profits in FY12/2010 to 2011.

We maintain our forecast as we already assumed Sunway to register a property turnover and earnings before interest and tax (Ebit) in Malaysia of about RM50 million and RM15 million per annum respectively in FY12/2010 to 2011, underpinned by recurring sales at its existing property projects as well as contributions from new property ventures.

We are beginning to turn a little more upbeat on the sector, prompted largely by investors' improving risk appetite for construction stocks following the massive underperformance of the sector vis-à-vis the market in 4Q09 and 1Q10, better sector news flow and new expectations leading up to the announcement of the 10th Malaysia Plan (10MP) in June. These may moderate negative elements such as the slow pace of the rollout of public projects, shrinking margins and declining dominance of established players in large-scale projects locally, and the not-so-rosy outlook and increased operating risks in key overseas markets (following the Dubai credit crisis, dong's devaluation and rising arbitration cases).

We maintain our outperform call. The indicative fair value is RM1.69 based on 10 times fully diluted FY12/10 earnings per share (EPS) of 16.9 sen, in line with our benchmark one-year forward target price-earnings ratio (PER) for the construction sector of 10 times to 14 times. - RHB Research Institute, April 12


This article appeared in The Edge Financial Daily, April 13, 2010.

Ezra expanding assets, markets

Ezra Holdings Ltd
(April 12, S$2.41)
Maintain buy at S$2.55 with fair value of S$2.75: We are positive on Ezra's acquisition of a 20% stake in Malaysia-listed Perisai Petroleum Teknologi Bhd (Perisai) for RM64 million at a fair CY10F price earnings (PE) of nine times. While Perisai's earnings largely stem from its derrick lay barge Enterprise 3 (chartered by SapuraCrest Petroleum), the company holds the patent to a self-installing integrated production storage platform called the mobile offshore production and storage unit (Mopsu) for marginal oil fields. The marketing of Mopsu will likely be led by Ezra.

Ezra's1HFY10 net profit of US$29 million (RM93.09 million) was within expectations, accounting for 33% of FY10F earnings of US$86 million and 35% of street estimates of US$84 million. In comparison, 1HFY09 accounted for 35% of FY09 net profit. Hence, we maintain our FY10F to FY12F earnings.

Ezra's 1HFY10 net profit rose 18% year-on-year despite a 23% decline in group revenue to US$135 million, mainly reduced by the completion of a major drilling contract by its deepwater subsea services division in 1HFY09 and redeployment of offshore support vessels. But net profit still rose due to the doubling of associate contributions and a sharp drop in effective tax rate to 4% (from 21% in 1HFY09), stemming from a higher proportion of tax-exempt charter income from marine vessels.

The group's 2QFY29 net profit declined 44% quarter-on-quarter to US$10 million despite a 22% revenue increase to US$75 million. Higher revenue stemmed from a five-time increase in its marine services' low-margin procurement and equipment supply activities. Coupled with lower revenue from offshore support services (-29%) due to redeployment and maintenance schedules, this resulted in 2QFY10 gross margin falling to 25% from 32% in 1QFY10.

The group's two multi-functional support vessels - Lewek Fulmar and Falcon - will be delivered in August 2010 and March 2011 respectively, while DP3 deepwater subsea construction vessel Lewek Crusader will arrive in August 2010. The addition of platform supply vessel Lewek Aries (3,600 DWT) and the 8,000bhp AHTS vessel Lewek Merlin in March-April this year raised Ezra's fleet under its management to 31.

The group's net debt of 48% as at Feb 28, 2010 should remain manageable despite capital expenditure of US$100 million in FY10F to FY11F given Ezra's growing earnings base.

Ezra's prospects remain bright as it recently secured new contracts worth US$79 million comprising new and renewal charters for its AHTS vessels while its marine services division was awarded a US$50 million engineering and fabrication contract. The deepwater subsea services division's energy services unit also recently won its second drilling and well intervention contract.

Ezra currently trades at a fair core CY10F PE of 14 times - a slight discount to Singapore's oil and gas (O&G) peers of 15 times. We remain positive on Ezra due to its aggressive moves to expand its operations into higher margin subsea operations and the addition of new vessels which will propel the group's earnings prospects.

Hence, we maintain our buy call with a fair value of S$2.75/share, pegged to a CY2010F PE of 15 times.- AmResearch, April 12


This article appeared in The Edge Financial Daily, April 13, 2010.

TENAGA - OSK Research has target price of RM10.40 for Tenaga

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

KUALA LUMPUR: OSK Research has raised the target price for Tenaga Nasional to RM10.04 from the earlier RM9.38.

It said on Tuesday, April 13 the share price was finally playing catch up, it incorporates the effects of stronger demand (4.7% growth versus 3.0% previously for FY10).

It had included a stronger ringgit (RM3.25/USD versus RM3.45 previously) to end up with a 12.7% increase in its FY10 forecast net profit.

"We also increase our FY11 and FY12 net profit by 7% and 4.5% respectively, which raise our DCF-based fair value to RM10.04. We maintain Tenaga as one of our Top Big Cap Buys," it said.

OSK Research said it had not incorporated a tariff hike into its numbers although Petronas' plan to import LNG into the peninsula would imply that gas subsidies would be withdrawn before imports start in 2013.

It also said its sensitivity analysis shows that Tenaga should see a 1.1% PAT rise for every USD1 drop in coal price and a 4.2% PAT rise for every 1% increase in demand.

"As such, given the US$5.1 effective fall in coal price and 1.7% increase in demand growth, our net profit is raised by 12.7% for FY10. The expected coal price hikes for FY11 and FY12 tone down our net profit hike to 7% and 4.5% respectively," it added.

The research house said its DCF based fair value is accordingly raised to RM10.04. It maintains its Buy call and bring attention to the fact that its forecasts and fair value do not incorporate any tariff hike adjustment.

HTPADU - HDBSVR has trading buy on HeiTech Padu

Stock Name: HTPADU
Company Name: HEITECH PADU BHD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) has a trading buy on HeiTech Padu as the company is close to signing an agreement with U.S. IT giant Microsoft anytime soon. It said on Tuesday, April 13 that the share price, at RM1.12, has stagnated after bouncing up from a trough of 76.5 sen in late October 2008 to a high of RM1.21 in mid-August last year. "Presently lingering somewhere in the middle of a sideways trading pattern since then, the counter is poised to trend higher ahead as its upside potentials outweigh the downside risks," it said. HDBSVR said on the chart, a target price of RM1.24 (+10.7% from Monday's closing price) is probable riding on technical strength. If there is a breakout from this point, then the stock is expected to be on its way to test the next resistance target of RM1.31 (+17.0% upside potential). In terms of downside cushions, we see support lines at RM1.07 (first) and RM1.03 (second), which translate to possible losses of 4.5% and 8.0%, respectively. The research house said HeiTech Padu – an ICT solutions provider – is currently trading at a historical P/E ratio of 11x based on FY Dec 09 earnings. It posted a full-year net profit of RM10.1m, of which 78% was made in the final quarter. (This compared with a net profit of RM29.7m in FY09, which was skewed by a one-off gain from sales of property, plant & equipment of RM28m, development expenditure written off (RM4m) and provision in diminution in value and amount due from related companies (RM7.9m)). In addition, fundamental downside is supported by a book value per share of RM1.81 (as of end-Dec 09), substantially above Monday's closing price of RM1.12.

TANJONG - Tanjong lowered to market perform

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

Tanjong Plc, a Malaysian power and gaming group, had its stock rating downgraded to "market perform" from "outperform" at RHB Research Institute Sdn Bhd after recent gains in the share price.

RHB maintained Tanjong's fair value at RM19.20. -- Bloomberg

WELLCAL - Wellcall recovering well, says CIMB

Stock Name: WELLCAL
Company Name: WELLCALL HOLDINGS BHD
Research House: CIMB

Wellcall Holdings Bhd
(April 12, RM1.38)
Outperform at RM1.29, target price raised to RM1.76: From our recent visit, we gathered that prospects in the medium term are bullish. Orders are coming in strong, prompting us to up our FY10 to FY12 earnings per share (EPS) forecasts by 2% to 5%.

Gross dividend per share (DPS) forecasts for FY10 to FY12 are also raised 40% on expectations of a higher dividend payout. As a result of our earnings upgrade and a rise in our target price earnings (PE) for Top Glove from 15 times to 16.5 times, our target price goes up from RM1.61 to RM1.76, still based on a 30% discount to our target PE for Top Glove. We continue to rate Wellcall an outperform as the stronger-than-expected demand recovery and potential capacity expansion could catalyse a rerating.

The share price is supported by generous net 8% to 9% dividend yields and a net cash of 30 sen/share (24% of the current share price).

Wellcall has seen a strong recovery in demand over the past few months, mainly from the Middle East, South America and Asia. Although it is running on two shifts, its order backlog now stretches to three months because of some production bottlenecks. The bottlenecks arose mainly due to labour shortage, which it recently partially addressed by bringing in new foreign workers.

Since 3QFY10 (April-June 2009), Wellcall's Ebitda (earnings before interest, tax, depreciation and amortisation) margin has recovered to the 25% level, indicating its ability to pass on rising raw material costs to its customers.

As its pioneer status will expire in mid-2010, we have raised our effective tax rate assumptions for FY11 to FY12 from 9% to 24%, closer to the corporate tax rate. However, in view of Wellcall's demonstrated ability to pass on rising raw material costs to its customers, we have raised our FY10 to FY12 Ebitda margins by three percentage points to 25%. Our FY11 to FY12 revenue forecasts have also been revised upwards by 4% to 5% to reflect better demand growth prospects.

We are raising our FY10 to FY12 net dividend payout ratio from 60% to 80%, which increases our gross DPS forecasts by 40%. DPS could even be higher. Assuming a 100% payout of our FY10 forecast net profit, net DPS would be 13.7 sen. - CIMB Research, April 12


This article appeared in The Edge Financial Daily, April 13, 2010.

WCT - WCT is Maybank IB preferred construction pick

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

WCT Bhd
(April 12, RM2.80)
Maintain buy at RM2.77 with target price of RM3.40: WCT is our preferred pick among the construction big caps. We see a further upside in WCT's share price given good order flow visibility (we believe WCT could exceed its RM2 billion target of new contracts) and scope for margin expansion following the near-completion of legacy contracts. Its target price is pegged to 14 times 2011 earnings.

We assume RM2 billion of job wins in 2010. WCT's current order book (RM3.2 billion as at Dec 2009) is low by historical standards (peak backlog of RM7.3 billion worth of jobs). Potential awards include packages in the Klang Valley LRT extension, Pahang-Selangor water transfer (dam, piping, Langat 2), Sepang LCCT, water infrastructure in Sabah and infrastructure projects in the Middle East. We believe news flow on potential awards could intensify in the next 12 months.

WCT is benefiting from higher infrastructure spending in Qatar. Following the implementation of a fiscal stimulus programme by the Qatari government in 2009, the aggregate value of contracts awarded by the Qatar Public Works Authority doubled in 2009. For 2010, some US$378 million (RM1.21 billion) worth of contracts have been awarded in 1Q10 and about US$500 million worth of projects are up for tender. We believe WCT, with its partner, is actively sourcing for projects in Qatar.

We retain our net profit forecast, projecting a 15% growth in 2010, supported by an outstanding order book of RM3.2 billion and margin restoration for Middle Eastern jobs. For 2011, we project a 12% growth on higher contributions from property development after maiden launches in 2010 at 1Medini (gross development value: RM600 million), Paradigm (GDV: RM1.4 billion) and Vietnam's Platinum (GDV: RM1 billion). There is an upside to our forecasts on the final contract sum at ADF1 (Abu Dhabi Formula One track) and Bakun.

We believe WCT's valuations are not yet stretched. Its current share price implies a 2011 price-earnings ratio (PER) of 11.4 times versus a peak of 37 times. Its foreign shareholding, at 9% latest, has also retraced substantially from a recent peak of 28% as at end-2007/early-2008. - Maybank IB, April 12


This article appeared in The Edge Financial Daily, April 13, 2010.