CIMB - HDBSVR sees more excitement ahead for CIMB Group

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) sees more excitement in store for CIMB Group Holdings Bhd and raised its target price to RM17. It said on Friday, April 30 that CIMB is its high conviction pick. Its higher TP is raised to RM17 after rolling forward its book value base to CY11, as it did for other Malaysian banks under our coverage. "The TP implies 2.4x CY11 BV and is based on the Gordon Growth Model with the following assumptions: 17% sustainable ROE, 8% long term growth, and 11.2% cost of equity," it said. HDBSVR sees stronger contribution from CIMB Niaga. CIMB Niaga's 1Q10 net profit is 16% of its FY10F profit for CIMB Group. Key positives were net interest income, which grew 8% quarter-on-quarter (Q-o-Q) as NIM expanded 18 bps to 6.78% (due to lower funding costs) and provisions fell 58% Q-o-Q on lower charge-off rates of 0.29% (vs 0.71% in 4Q09). Key drag to earnings were lower non-interest income (-43% Q-o-Q) and higher operating expenses (+8%Q-o-Q). Notably, deposits grew 9% Q-o-Q, stronger than for Bank Danamon and Bank Mandiri. Loans grew 1% Q-o-Qand 14% Y-o-Y. CASA to total deposits rose to 48% from 46% in 4Q09. Assets quality was stable with gross NPL ratio at 3.1%. CIMB is the key beneficiary of recovering capital market as the Securities Commission approved 10 IPOs in 1Q2010. The potential sell-down of stakes in government-linked companies to increase free floats (e.g. Khazanah's 32% stake in Pos Malaysia) and potential listing/privatisation of two sizable Petronas units, Percetakan Nasional Malaysia Berhad, CTRM Aero Composites Sdn Bhd, Nine Bio Sdn Bhd and Innobio Sdn Bhd will beef up M&A activities. "We expect a large supply of new government-related debt issues (MGS) and possibly debt-raising by government-linked entities. We believe CIMB Group will be a key beneficiary of the listings, advisory and transactions, which should boost its non-interest income," it said.

NOTION - Maybank IB Research: Notion VTech remains growth stock

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

KUALA LUMPUR: Maybank Investment Bank Research says Notion VTech's 1HFY10 results tracked expectation with a stronger 2H outlook. It said on Friday, April 30 that Notion VTech remains a growth stock with high scalability prospects. "Our RM4.20 target price implies a total return of 31% before taking into account new business prospects," it said.

Maybank Research said the proposed 10% private placement and one-for-five free warrants will enlarge its share base by 32% and provide the funds for expansion. It said the company's profits improved while margins expanded year-on-year (Y-o-Y). The 2QFY10 net profit grew 165% Y-o-Y on expanded EBITDA margin (+1.4 percentage points Y-o-Y), bringing 1HFY10 earnings to RM26 million (+123% Y-o-Y), on track to meet its estimates. Notion VTech is a global high precision component manufacturer for the hard disk drives (HDD), camera and automotive industries. "The underlying strength in 2Q was broad based. Camera operations led revenue growth (+126%Y-o-Y), fuelled by increased orders from Nikon, a recent major shareholder of the group with 9% stake, followed by HDD (+59%Y-o-Y) and auto segments (+317%Y-o-Y)," it said.

AXIATA - Axiata's fair value lifted, stock jumps

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

Axiata Group Bhd, a Malaysian mobile phone operator, hit a 19-month high after AmResearch Sdn Bhd increased its fair value to reflect "tremendous" profit margin expansion at its Indonesian unit in the first quarter.

The stock climbed 3.7 per cent to RM3.93 at 9:54 am local time in Kuala Lumpur trading. It ended the morning session 3.4 per cent higher at RM3.92 on course for its steepest gain since March 1.

RHB Research Institute Sdn. said in a note today that there may be a "potential upside" to its earnings forecast for Axiata after the company's Indonesian unit reported first-quarter profit that exceeded the broker's estimates.

AmResearch, in a report today, increased its fair value for Axiata to RM5.05 from RM5.
PT XL Axiata yesterday posted first-quarter net income of 598.4 billion rupiah compared with a restated loss of 217.2 a year earlier. -- Bloomberg

NOTION - Notion VTEC up on raised price forecast

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

NOTION VTEC Bhd, a Malaysian metal processor and tools maker, rose the most in a month in Kuala Lumpur trading after OSK Research Sdn Bhd raised its share price forecast to RM3.55.

The stock climbed 2.5 per cent to RM3.28 at 9:03 a.m. local time, set for its biggest gain since March 29. - Bloomberg

GAMUDA - Some transparency seen in LRT extension shortlistings

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

Construction sector
According to the Syarikat Prasana Negara Bhd, 17 contractors have been pre-qualified to be the main contractor for the RM7 billion to RM8 billion light rail transit (LRT) extensions.

Also, 15 companies were pre-qualified as nominated sub-contractors for the fabrication and delivery of segmental box girders.

Prasana's group managing director was quoted as saying that the final railway scheme has been submitted to the Department of Railways and is awaiting final approval from the government.

Construction will commence after the approval. There was no mention on whether both the Kelana Jaya and Ampang extensions will kick off simultaneously but we understand the priority is the first 9.2km stretch of the Kelana Jaya line.

The 32 main and sub-contractors were shortlisted out of 118 which submitted their pre-qualification tenders in December 2009.

Contractors vying for the main contractor role are the UEM Builders-Intria Bina joint venture (JV), IJM Construction Sdn Bhd, Sunway Construction Sdn Bhd, Gamuda Bhd, Loh & Loh Construction Sdn Bhd, JVs of WCT Bhd-Sinohydro, MMC Corp-Zelan Bhd, Ranhill Bhd-China Communication Construction Company Ltd, Fajarbaru Builders Sdn Bhd-Signatium Construction Sdn Bhd, BPHB-Tim Sekata, Zabima-Leighton and MTDC-Persys.

Others on the list are Muhibbah Engineering Sdn Bhd, Malaysian Resources Corp Bhd (MRCB), Trans Resources Corp Sdn Bhd and Ahmad Zaki Sdn Bhd.

As for the sub-contractors, all of the main contractors are also present except for Gamuda, Loh & Loh Corp Bhd, Mudajaya Group Bhd and Trans Resources Corp.

Five companies under our coverage are in the running for the main contractor role - Gamuda (buy, target price RM4.45), IJM Corp (buy, target price RM6), MRCB (buy, target price RM2.25), Sunway Holdings Bhd (buy, target price RM1.95) and WCT Bhd (fully valued, target price RM2.25).

Based on balance sheet strength and past experience alone, we think Gamuda and IJM are the strongest contenders. In any case, IJM, MRCB, WCT and Sunway have also been shortlisted for the sub-contractor role which hedges their bets somewhat.

Another non-listed GLC contractor which we think is also a front runner is UEM Builders. While no indication on values has been given for the main and sub-contractor roles, we expect the chunkier portion to be skewed to the main contractor.

For the broader construction sector, it appears that Prasana is trying to ensure more contractors benefit with even the shortlisting of subcontractors which is normally done by the main contractor. We think this is also positive as it ensures some transparency for the sector. - HwangDBD Vickers Research, April 29


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

IJM - Some transparency seen in LRT extension shortlistings

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

Construction sector
According to the Syarikat Prasana Negara Bhd, 17 contractors have been pre-qualified to be the main contractor for the RM7 billion to RM8 billion light rail transit (LRT) extensions.

Also, 15 companies were pre-qualified as nominated sub-contractors for the fabrication and delivery of segmental box girders.

Prasana's group managing director was quoted as saying that the final railway scheme has been submitted to the Department of Railways and is awaiting final approval from the government.

Construction will commence after the approval. There was no mention on whether both the Kelana Jaya and Ampang extensions will kick off simultaneously but we understand the priority is the first 9.2km stretch of the Kelana Jaya line.

The 32 main and sub-contractors were shortlisted out of 118 which submitted their pre-qualification tenders in December 2009.

Contractors vying for the main contractor role are the UEM Builders-Intria Bina joint venture (JV), IJM Construction Sdn Bhd, Sunway Construction Sdn Bhd, Gamuda Bhd, Loh & Loh Construction Sdn Bhd, JVs of WCT Bhd-Sinohydro, MMC Corp-Zelan Bhd, Ranhill Bhd-China Communication Construction Company Ltd, Fajarbaru Builders Sdn Bhd-Signatium Construction Sdn Bhd, BPHB-Tim Sekata, Zabima-Leighton and MTDC-Persys.

Others on the list are Muhibbah Engineering Sdn Bhd, Malaysian Resources Corp Bhd (MRCB), Trans Resources Corp Sdn Bhd and Ahmad Zaki Sdn Bhd.

As for the sub-contractors, all of the main contractors are also present except for Gamuda, Loh & Loh Corp Bhd, Mudajaya Group Bhd and Trans Resources Corp.

Five companies under our coverage are in the running for the main contractor role - Gamuda (buy, target price RM4.45), IJM Corp (buy, target price RM6), MRCB (buy, target price RM2.25), Sunway Holdings Bhd (buy, target price RM1.95) and WCT Bhd (fully valued, target price RM2.25).

Based on balance sheet strength and past experience alone, we think Gamuda and IJM are the strongest contenders. In any case, IJM, MRCB, WCT and Sunway have also been shortlisted for the sub-contractor role which hedges their bets somewhat.

Another non-listed GLC contractor which we think is also a front runner is UEM Builders. While no indication on values has been given for the main and sub-contractor roles, we expect the chunkier portion to be skewed to the main contractor.

For the broader construction sector, it appears that Prasana is trying to ensure more contractors benefit with even the shortlisting of subcontractors which is normally done by the main contractor. We think this is also positive as it ensures some transparency for the sector. - HwangDBD Vickers Research, April 29


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

SUNWAY - Sunway is ECM Libra's top buy for construction sector

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

Sunway Holdings Bhd
(April 29, RM1.54)
Reiterate buy at RM1.54, with target price of RM2: Sunway announced on Wednesday the acquisition of 33.37 acres (13.35ha) of leasehold land in Taman Equine, Selangor from Equine Capital for RM37.8 million or RM26 per sq ft which will be paid progressively over the development period.

The land is located close to the mature townships of Puchong, Bandar Sunway and Petaling Jaya, and easily accessible via Lebuhraya Damansara-Puchong (LDP) and Maju Expressway (MEX).

Other notable amenities nearby include a premier international school, Alice Smith, Universiti Putra Malaysia and various hypermarkets including Giant and Tesco. The land acquisition is conditional upon, among others, the procurement of development order and building plan as well as conversion of land use from agricultural to residential.

Sunway has high-end residential project of RM250 million in gross development value (GDV) in the works comprising semi-detached houses and bungalows. Indicative pricing is around RM1.2 million to RM2 million per unit. The project is targeted to be launched by first quarter of financial year ending Dec 31, 2011 (1QFY11) and will be developed over three financial years (FY11 to FY13).

Assuming a pre-tax margin of 20%, this project will contribute RM37.5 million net earnings over the development period.

There's improving earnings visibility. This is the third land secured year to date which has added 148.7 acres and GDV of RM870 to the existing landbank.

The remaining GDV now stands at RM3.4 billion and the management is expected to continue to add more landbank to capitalise on buoyant property market. Sunway's earnings visibility from property projects have been enhanced and our earnings estimate for FY11 and FY12 have been upgraded by 1.9% and 15.6% respectively.

Sunway is our top buy for the construction sector. This is premised on strong earnings growth of 47.1% in FY10, undemanding forward price-to-earnings ratio (PER) valuation of 7.7 times, more landbank acquisition in the pipeline, and strength in securing overseas construction contracts, in particular in Abu Dhabi and India.

Although our target price is unchanged at RM2 which is derived from 10 times PE on FY10 earnings per share (EPS), sum-of-parts valuation has been upgraded from RM2.67 to RM2.74. - ECM Libra Investment Research, April 29


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

ANNJOO - AmResearch: It can only get better for Ann Joo

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

Ann Joo Resources Bhd
(April 29, RM2.89)
Maintain buy at RM2.85 with fair value of RM4.20: Ann Joo reported first quarter (1Q) of financial year ending Dec 31, 2010 (FY10) net profit of RM41 million on back of a RM474 million turnover. While results were only 23% of our full-year estimates (consensus: 25%), we expect the group's sequential earnings momentum to gain further traction in the coming quarters on the back of rising steel demand.

During the quarter, Ann Joo's earnings jumped 82% quarter-on-quarter (q-o-q) on back of a 4.4 percentage point rise in manufacturing earnings before interest and tax (Ebit) margins to 7.8%. This was buoyed by a pick-up in regional steel exports from December last year - of which Vietnam makes up 50%. As at end-1QFY10, Ann Joo had close to 100,000 tonnes of steel products yet to be delivered.

Going forward, we expect several catalysts unfolding that would likely prod a further rerating in Ann Joo's share price. First, Ann Joo's management believes that rising scrap prices and the landmark acceptance by Japanese mills of quarterly iron ore pricing terms beginning April may imply stronger steel demand in the coming months.

This should trigger further expansion in Ann Joo's margins in the coming months as prices of semi-finished/finished steel products have begun to move up since March.

Second, the recovery should be further supplanted by imminent signs of a resurgence in local steel demand - prices of Malaysian steel bars have since risen 20%-25% to RM2,400 per tonne to RM2,500 per tonne from around RM2,000 per tonne in December 2009.

Third, Ann Joo's new blast furnace is on track for cold commissioning by June. With mutual termination of its agreement with BHP Billiton, Ann Joo aims to seal its iron ore supply from local mines instead by June. We gather that prices of domestic iron ore for grades below 60% ferum content are up to US$40 per tonne cheaper compared to international iron ore.

We maintain our buy on Ann Joo for its structural positioning within the current steel price up cycle. Stock continues to trade at compelling FY10 to FY12 price-to-earnings (PE) ratio of five times to eight times against robust earnings per share compound annual growth rate of 106%. - AmResearch, April 29


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

SIME - Long-term sustainability intact at Sime Darby

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

Sime Darby Bhd
(April 29, RM8.75)
Maintain outperform at RM8.76, with reduced target price of RM9.70: We had six key takeaways from our recent visit. They are slower fresh fruit bunch (FFB) production in Indonesia now, longer-term FFB growth sustainable, crude palm oil (CPO) price view unchanged, production costs to decline, but not as significantly as seen in the first half (1H) of the financial year ending June 30, 2010 (FY10), property division picking up speed and capital expenditure is higher than expected.

The management is now guiding for a decline in FFB production of from 5% to 7% year-on-year (y-o-y) for FY10 (versus the guidance of 5% to 8% y-o-y growth two months ago), caused by the weather conditions as well as tree stress seen recently at its Indonesian estates. Although this is lower than our projected FFB growth forecast of 6.1% y-o-y for FY10, we still believe there will be some growth in FFB production in FY10, albeit at a smaller amount, given the recovery in production seen in March 2010, of 21.2% month-on-month (m-o-m). We are revising our FFB production forecasts down to project a 1.8% y-o-y growth for FY10 (from 6.1% previously). For FY11 to FY12, we are now projecting FFB production growth of between 4.1% and 5.5% per annum (from 4.2% and 4.4% previously), on the back of yield improvements in Indonesia, assuming normal weather conditions.

In the longer term however, future growth should come from an increase in mature areas (as 10% of its planted landbank is immature) and an improvement in age profile (as 20% of its landbank is between four to eight years in age).

Our forecasts have been revised down by 2.8% to 6.4% per annum for FY10 to FY12, after reducing our FFB yield and production estimates, adjusting our new planting assumptions for those years based on management guidance, raising our sales projections for the property development division; and raising our capex assumptions.

Risks include a reversal in crude oil price trend resulting in reversal of CPO and other vegetable oils price trend, weather abnormalities, change in emphasis on implementing global biofuel mandates; and a slower-than-expected global economic recovery.

As an investment case, post-earnings revision and adjustment of some of the target price-to-earnings (PE) ratio valuations for Sime's other divisions, we reduce our sum-of-parts based fair value for Sime to RM9.70 (from RM9.85). We have raised our target PEs for the motor sector to 14 times calendar year 2010 (from 12 times previously), the energy & utilities sector to 16 times calendar year 2010 (from 15 times), the heavy equipment sector to 14 times calendar year 2010 (from 13.5 times) and the property sector to 14 times calendar year 2010 (from 13.5 times), to be in line with the recent upgrades in these sectors' target valuations.

Maintain outperform recommendation for Sime given its further upside potential from government linked company reforms, additional merger synergies and yield improvements from its Indonesian plantations. - RHB Research Institute, April 29


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

ANNJOO - OSK Research maintains Neutral on Ann Joo Resources

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

KUALA LUMPUR: OSK Research is maintaining its Neutral recommendation on ANN JOO RESOURCES BHD [] with a fair value of RM2.75. It said on Thursday, April 29 Ann Joo's annualised 1QFY10 net profit of RM41.5 million marginally beat its estimates but was lower than street estimates. Improving global steel demand in tandem with the recovering general economy and higher average selling prices (ASP) led to delivery tonnage nearly doubling, with revenue soaring 115.3% y-o-y and 71.5% q-o-q. OSK Research said the gradually improving demand and average selling prices (ASP) plus stocking up activities towards the end of the reporting quarter contributed to the good profit. "While we expect a mismatch between cheap material and higher ASP to push up its 2Q profit, we remain cautious on the outlook in 2H, especially given the lack of a demand-push factor to date. "Uncertainty still clouds the fate of its mini blast furnace (BF) despite management's assurance that it's on schedule for commissioning in 3Q. That said, we maintain our NEUTRAL recommendation with a fair value of RM2.75," it said.

KINSTEL - HDBSVR maintains Buy on Kinsteel, TP RM1.30

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

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) is maintaining a Buy on Kinsteel with a target price of RM1.30 based on 1.3 times NTA. It said on Thursday, April 29 it likes Kinsteel for its earnings recovery story and estimates net profit to grow five times in FY10, from a low of RM18 million in 2009. HDBSVR said this is supported by the upward trend in steel and iron ore prices, coupled with improving demand outlook as evidenced in the planned increase in production capacity. Kinsteel is trading at attractive valuations of 1.0x P/NTA (vs Southern Steel and Ann Joo of 1.3x) and has a decent ROE of 10-12% in FY10-11. The research house said the steelmaker's average selling price (ASP) for billets jumped to US$660 per tonne (+20%) and steel bars to US$760 a tonne (+27%) since January this year while it expects to secure iron ore ex-freight at US$183 a tonne. The stronger steel prices in 2010 would lift Kinsteel's revenue and earnings. It expects the risks of price volatility or sudden price collapse are mitigated, following Vale, Rio Tinto and BHP Billiton's decisions to shorten the long-term agreements for international iron ore prices. "We expect local demand to pick up in the later part of the year while exports to continue its growth momentum (grew 15% in 2009)," it said.

MISC - MISC raised to 'neutral' at JPMorgan

Stock Name: MISC
Company Name: MISC BHD
Research House: JP MORGAN CHASE

MISC Bhd was raised to "neutral" from "underweight" at JPMorgan Chase & Co because the Malaysian shipping group is at the start of a "strong" earnings recovery.

The share price estimate was increased to RM10 from RM7.70, JPMorgan said in a report dated April 28. -- Bloomberg

HARTA - Hartalega's outperformance to continue

Stock Name: HARTA
Company Name: HARTALEGA HOLDINGS BHD
Research House: MAYBANK

Hartalega Holdings Bhd
(April 28, RM7.80)
Maintain buy at RM7.90 with target price raised to RM10.10: We expect strong earnings in the fourth quarter (4Q) of financial year ended March 31, 2010
(FY10). Discounted-cash-flow-based (DCF) target price raised by 22% to RM10.10.

Underlying strength, based on operating efficiencies and economies of scale, is sustainable into FY12.

Overcapacity concerns are overplayed as customers would continue to fall back on proven and trusted original equipment manufacturers (OEMs) like artalega, assured of product quality and delivery. In fact, Hartalega may gain market share should a price war ensue.

Earnings could surpass estimates. We see 4QFY10 core net profit growing a spectacular 18% to 24% quarter-on-quarter (q-o-q) to RM44 million-RM46 million, ahead of our earlier projected RM39 million, which would bring full-year net profit to RM141 million to RM143 million or in percentage terms 78% to 80% year-on-year (y-o-y).

Growth would come from a higher sales volume after the commercialisation of two new lines at Plant 5 in the first quarter of 2010, which will increase capacity by 564 million pieces a year to 6.44 billion pieces a year.

Also, earnings before interest and tax (Ebit) margins would expand one to two percentage points q-o-q, from lower material costs (latex) and higher average selling price (ASP). We also expect a final dividend per share (DPS) of nine sen to 10 sen, bringing FY10 payout to 20 sen (+100% y-o-y; 34% net profit payout).

FY10 to FY12 earnings forecasts have been raised 5% to 23%. This is based on the anticipated sterling 4QFY10 performance, higher ASP of 1%-17% y-o-y, and improving plant utilisation (+3 percentage points y-o-y to 88%).

The higher ASP is on the back of higher latex prices and the stronger ringgit which would be fully passed on. Hartalega has successfully raised production for its new Plant 5 to 33,000 pieces/hr from 30,000 pieces.

Our earlier forecast incorporated the lower output. Earnings before interest, tax, depreciation and amortisation (Ebitda) margins should fall by 0.8-2.4 percentage points y-o-y, after incorporating RM8 million expenses on ESOS (3.5 sen earnings per share or EPS) per annum, to be realised from FY11.

A planned Plant 6 is expected to lift visibility beyond FY12. Plant 5 will be fully operational by 3QFY11, contributing 2.8 billion pieces per year. artalega has earmarked Plant 6 for its expansion programme, solely intended for natural rubber gloves. Total production will reach 9.5 billion pieces per annum by 2012 should Plant 6 be commercialised. - Maybank IB, April 28


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

UNISEM - Unisem's target price raised to RM4.44

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

Unisem (M) Bhd
(April 28, RM3.34)
Maintain outperform at RM3.30, target price raised to RM4.44: Unisem is set to extend its run of quarter-on-quarter (q-o-q) topline growth to four straight quarters when it releases its 1QFY10 results in the first week of May.

This positive trend is underpinned by strong demand in key segments, ongoing shortage in the test and assembly space and fairly low inventory in the channels. We raise our FY10 to FY12 earnings by 11% to 24% for higher revenue and margin assumptions.

The stronger assumptions reflect the more optimistic outlook for Unisem, the strong demand which should lubricate its earnings momentum for the next few quarters, the progressive capacity expansion plans, ongoing recovery of the global economy and the operating leverage derived from higher utilisation rates.

Our target price is also raised from RM2.90 (30% premium over historical price-to-book value or P/BV) to RM4.44 based on a P/BV of 2.2 times, slightly higher than its mid-cycle valuation. We retain our outperform rating, with potential catalysts being a quarterly improvement in earnings, a more sustained pace of economic recovery and a revival of consumer spending. Unisem is our top pick in its sector given its more liquid nature and its higher beta.

Unisem is now projecting multi-quarters of revenue growth, potentially extending it to seven straight quarters of q-o-q growth. It expects turnover to hit an all-time high of RM1.5 billion (+44% year-on-year) in FY10.

Among the key drivers, the inventory replenishment cycle appears to be over, as true demand seems to be returning. The corporate replacement cycle should begin to kick in as many corporations under-invested during the recession.

Finally, integrated device manufacturers (IDMs) are once again beginning to outsource the excess demand, which will translate into increased business for contract manufacturers. From our recent visit, we found that business conditions remained strong, with 1QFY10 bucking the normal seasonal trend. Earnings visibility extended to multiple quarters, driven by corporates' earlier under-investments in systems. Unisem has also raised its dividend guidance.

Unisem has upped its net dividend per share (DPS) forecasts from 2.5 sen to five sen for FY10 and from five sen to 10 sen for FY11. We believe that it can afford this level of dividend even after factoring in the increased capital expenditure (capex) guidance and change in debt repayment schedule.

Based on our revised forecasts, we expect Unisem's free cash flow (FCF) per share to hit about 20 sen in FY10 and 42 sen in FY11. We are raising our net DPS estimates from 2.5 sen to five sen for FY10 and from five sen to 10 sen for FY11. - CIMB Research, April 28


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

MRCB - HwangDBS: MRCB is not all about RRIM land

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

Malaysian Resources Corp Bhd (MRCB)
(April 28, RM1.55)
Maintain buy at RM1.55 with unchanged target price of RM2.25: We hosted MRCB at DBSV (DBS Vickers) Pulse of Asia Conference in Hong Kong.

Attendance was good and the feedback was positive. Besides the core key catalyst - MRCB's participation in the 3,000-acre (1,214ha) Rubber Research Institute Malaysia (RRIM) land - we believe there are other catalysts to look forward to.

There are some chunky environmental projects in the pipeline, solidifying the KL Sentral presence. We understand there could be about RM4 billion worth of environmental projects when the 10th Malaysia Plan is tabled.

This is MRCB's niche - a case in point is its current RM258 million Sg Pahang rehabilitation project, from which it could bag another RM1.4 billion in additional works. Margins for such contracts are also lucrative at 15% to 20%, double that for average infrastructure contracts, while competition in this space is limited.

Other potential contract wins amount to RM700 million, 1.8 times our financial year ending Dec 31, 2010 (FY10) order win forecast. This is for the Sg Prai environmental project, Putrajaya hospital building job and infrastructure works in Penang. It is also bidding for the light rail transit (LRT) extension worth about RM7 billion.

The company is in a position to retain some KL Sentral gems. MRCB's balance sheet was insufficient to retain investment properties when KL Sentral first started. On a stronger footing now, 40% of space at Lot 348 is due for completion in 2012, where Shell has signed a 15-year lease to take up 60% of the NLA (nett lettable area) at rentals starting from RM8.50 psf.

It is also retaining Lot E despite the offer of RM1,200 per sq ft (cap rate of 6%), which could be a new benchmark for office space in Malaysia. Shell has the option to take up the other 40% of space and also the adjacent serviced apartments to be managed by Ascott.

We do not discount potential en bloc sales after two to three rental reversion cycles. Property investment, coupled with its concessions, Duta-Ulu Kelang Expressway or DUKE and Eastern Dispersal Link or EDL in Johor Bahru, should be bigger contributors by 2013.

We maintain buy and sum-of-parts-derived (SOP) RM2.25 target price for MRCB, a high-conviction pick for the sector. - HwangDBS Vickers Research, April 28


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

GAB - Brewers still thirsty after 3 percent price hike

Stock Name: GAB
Company Name: GUINNESS ANCHOR BHD
Research House: AMMB

Brewery sector
Maintain overweight: Carlsberg Brewery Malaysia Bhd and Guinness Anchor Bhd have announced a price increase of about 3% across all its products by early May 2010.

The management cited higher raw ingredient costs particularly costs of barley, hops and aluminium, which have been hovering at high levels. In the past, brewery players had implemented two to three price increases - over 2008 and 2009 - to maintain margins. We are neutral on this development, as we eckon higher prices are unlikely to have any significant impact on consumption. Raw materials typically constitute circa 13% of group revenue of Carlsberg and Guinness, respectively.

Furthermore, we expect a boost to consumption levels on back of special world events such as the World Cup 2010 from June 11 and Commonwealth Games 2010 from Oct 3.

Moving forward, we maintain our forecast of 2% growth for the malt-liquor market in the financial year ending 2010 (Dec 31 for Carlsberg, June 30 for Guinness) versus growth in FY09 of 0.5%.

With status quo of excise duty at RM7.40/litre for this year, both players are hopeful of seeing 2% to 3% industry growth. We expect healthy competition between the two players with more product launches in the coming few months leading to the World Cup event.

As it is, Guinness launched its limited edition "Tiger Crystal" beer early April 2010, aimed exclusively at pubs and eateries. Tiger Crystal is filtered at the crystal cold temperature of 1° Celsius to preserve its flavour. Our preliminary checks revealed positive feedback, with most outlets in the Klang Valley reporting good sales.

We maintain our overweight stance on the malt liquor sector for dividend play with yields of 6%-7%. Compared to other defensive alternative such as the tobacco sector, which yields similar dividend yield, the malt liquor sector offers a better proposition in view of the encouraging overall business operating environment.

We maintain our buy recommendation on Guinness with an unchanged discounted cash flow-based (DCF) fair value of RM7.60 per share (discount: 10%, due to its dominant 56% market leadership). We also maintain a buy on Carlsberg, but its fair value is under review pending its first-quarter FY10 results. - AmResearch, April 28


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

HELP - Inter-Pacific Research recommends HELP as an outperform

Stock Name: HELP
Company Name: HELP INTERNATIONAL CORPORATION
Research House: INTER PACIFIC

Inter-Pacific Research Sdn Bhd has recommended HELP International Corp Bhd an ourperform at RM2.48 with fair value of RM2.94, following a premium to its PER ie 10.9 times, EPS of 27sen FY11 and P/BK of 1.8.

The research house said its recommendation was based on HELP's strong fundamentals reflected by the favorable brand name resulting to strong student growth of about 10,000-11,000 currently; healthy balance sheet and sitting in net cash position; and good growth prospects reflected by the business strategy ie expanding their wings into strategic foreign markets like China and Vietnam via franchise or twinning and increasing expansion in Malaysia which should see student growth hit their 20,000 target by 2010.

"We think HELP's current PER of 9.9 times and nine times for FY10 and FY11 respectively are low, given the overall strong fundamental and health of the company," it said.

Inter-Pacific Research said HELP is seen to be enjoying a strong brand name, reflected by its franchises with reputable foreign universities.

Also, it has garnered "the affiliate centre status" by the prestigious University of London/London School of Economics, which is an endorsement to HELP of its reputation and credibility in delivering quality education, it said.

"We found HELP has a prudent and well strategised business model that clearly maps out its business vision and growth strategies.

"Apart from focusing on the traditional 'brick and mortar' courses, HELP has also embarked into a new milestone that is focusing on: (1) online learning; (2) animation; (3) merchandising; and (4) culinary and vocational," it said.

PLUS - CIMB Research Hold on PLUS, target price RM3.84

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

KUALA LUMPUR: CIMB Equities Research has a Hold call on PLUS EXPRESSWAYS BHD [] with a target price of RM3.84. It said on Wednesday, April 28 PLUS Expressways will go ex on May 4 to adjust for a final single-tier DPS of 10sen. For FY10, we estimate that the company will pay out a gross dividend of 22.3 sen, which translates into a yield of 6.6%, based on its last traded price. Last June when the price adjusted for dividends, PLUS traded within an intraday high-low of RM3.34-RM3.24 versus its theoretical ex-price of RM3.23. "Therefore, if history repeats itself, we see this as a low risk investment. In the past 5 years, the stock posted an average 0.3% return by buying one day ahead of the ex-date while those who held the stock for a month period would generate a positive return of about 3.9%. "Fundamentally, PLUS is well known its defensiveness. CIMB has a HOLD call on the stock with a target price of RM3.84," it said.

MAYBANK - Maybank upgraded to 'buy'

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

Malayan Banking Bhd, Malaysia's biggest bank, was upgraded to "buy" from "neutral" at OSK Research Sdn Bhd, which said its overseas expansion and improving asset quality will propel earnings.

The share price estimate was increased to RM8.50 from RM7.05, OSK said in a report today. -- Bloomberg

PANTECH - OSK sees better quarters ahead for Pantech

Stock Name: PANTECH
Company Name: PANTECH GROUP HOLDINGS BHD
Research House: OSK

Pantech Group Holdings Bhd
(April 27, 92.5 sen)
Maintain neutral at 93 sen, target price of 88 sen: Pantech's results for the financial year ended Feb 28, 2010 (FY10) were within our expectation but 17.5% below consensus.

Its bottom line (net profit) was well in line with our full-year forecast of RM50.7 million but was 17.5% below consensus estimates.

Its 4QFY10 revenue of RM66.5 million was 27.9% lower than that in the previous quarter while net profit was down 12.4% quarter-on-quarter (q-o-q), mainly due to a 26.3% dive in trading of pipe, fittings and flow controls (PFF) but this was partly cushioned by improved sales from the manufacturing division (28.5% growth q-o-q).

Although year-on-year (y-o-y) earnings fell 18%, the expansion in Ebit (earnings before interest and tax) margins from 16.6% to 18.6% could be due to the timing mismatch in steel prices, which were suppressed in 2009, and the dim outlook for the oil and gas sector last year.

However, we see brighter quarters ahead and expect demand for Pantech's manufactured products to recover gradually as stockists start to replenish stocks given the better steel prices as well as brighter outlook in crude oil prices.

We saw the manufacturing division consistently outperform its trading division over the past two quarters with strong double-digit growth q-o-q. Nonetheless, the more favourable raw material cost also helped expand margins at the trading division, which saw pre-tax profit margins go up from 20.6% to 22.7%.

Meanwhile, with crude oil price gradually moving up and trading above US$75 (RM239.25) per barrel, we believe that new exploration jobs will slowly come back and flow to Pantech's trading division as it is a leading oil and gas pipe supplier in the region.

Pantech has declared a final single-tier dividend of 1.2 sen, for a total dividend of 4.2 sen per share. This translates into a dividend yield of 4.5%. We believe the company would continue to maintain this quantum of dividend in the future as it has pared down its debts and brought down its net gearing of 0.62 times last year to 0.25 times as at FY10.

We maintain our FY11 forecasts and retain our previous target price of 88 sen per share based on six times price to earnings ratio FY11. We also maintain our neutral recommendation. - OSK Research, April 27


This article appeared in The Edge Financial Daily, April 27, 2010.

ENCORP - HwangDBS Vickers likes Encorp's PKNS factor

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

Encorp Bhd
(April 27, RM1.16)
Not rated, price target of RM1.70: In our view, the biggest positive for Encorp is its close ties with Perbadanan Kemajuan Negeri Selangor (PKNS) dating back to 2001.

This is positive on two counts. There is a ready pipeline of prime landbank and secondly, it enables Encorp to run an asset-light business model as land cost is paid in stages.

Given its balance sheet has minimal gearing (excluding RM1.16 billion bonds ring fenced for concession), we think the RM137 million raised from its redeemable convertible secured loan stocks (RCSLS) is for further property development with PKNS given the latter's large tract of land in the Klang Valley as well as government-led project financing initiatives (PFI) projects similar to the teachers' housing project, further bolstering its recurring income base.

Encorp, a mid-sized property developer-cum-contractor, started operations with a RM1.4 billion National Teachers' Housing project for the government. Its two key projects, the RM1 billion "Strand" in Kota Damansara and RM630 million "Cahaya Alam" in Shah Alam, are strategic joint ventures with PKNS, the Selangor state-owned development arm.

We envisage both projects to leverage on the successful adjacent maturing developments, Sunway Giza and Setia Alam, respectively, which have done very well.

Initial launches at the Strand fully sold 265 units of shophouses, with a 69% capital gain reported for units that were sold in the secondary market.

Cahaya Alam's Camelia 1 is fully sold while the second phase is priced 7% higher. We expect a net profit compound annual growth rate (CAGR) of 50% over financial year ended Dec 31, 2009 (FY09) to FY12 driven by its property development projects such as garden SOHO, service apartments at the Strand and Cahaya Alam.

Valuations are attractive with Encorp among the cheapest property/contractors in our universe, trading at a price-to-earnings (PE) ratio of just 10 times FY2011 fully-diluted earnings per share (EPS) and a PE of five times on basic EPS and 0.9 times book value on the back of a three-year EPS CAGR of 50%.

We set our target price at RM1.70, based on 20% discount to our fully diluted sum-of-parts (SOP) value of RM2.10. This is in line with the discount for similar small-cap developers. - HwangDBS Vickers Research, April 27


This article appeared in The Edge Financial Daily, April 27, 2010.

THPLANT - High prices mask TH Plantations' output decline

Stock Name: THPLANT
Company Name: TH PLANTATIONS BHD
Research House: MIDF

TH Plantations Bhd (THP)
(April 27, RM1.61)
Maintain buy at RM1.58 with target price of RM2: THP's 1QFY10 (financial year-end Dec 31) net profit of RM17.8 million is equivalent to 20% of our full-year estimate (25% of consensus).

The number is slightly below our expectation as the "low season" quarter of end-March generally contributes around 22% of the full-year figure.

Higher-than-average shortfall in output contributed to the slight underperformance. Revenue was higher by 29% year-on-year (y-o-y) to RM77.2 million and net profit jumped by 112% y-o-y. Higher product prices contributed to better top and bottom lines performance despite lower sales volume.

For the top line, there were higher crude palm oil (CPO) and palm kernel prices as compared to the corresponding quarter last year.

The improvement in the topline figure was achieved despite lower sales volume as fresh fruit bunch production dropped by more than 10% to 108,695 tonnes in 1Q10 vis-à-vis 121,460 tonnes in 1Q09. The double-digit drop in THP output was in contrast to the almost 2% rise in national output during the quarter ended March 2010.

In 1QFY10, net profit was significantly higher by 112% to RM17.8 million as compared to RM8.4 million for the same quarter last year. Operating margin rose to 38%, a marked increase of more than 13 percentage points over that in 1QFY09.

Cost of sales was up by only 6% while revenue shot up by 29%. The big improvement in operating margin was mainly a result of better product prices.

We maintain our buy recommendation with a target price of RM2. We expect CPO prices to remain on an upward secular trend despite intermittent volatilities, for as long as the general bullishness in the world's commodities market continues.

We reiterate our mean CPO price targets of RM2,450 per tonne and RM2,650 for 2010 and 2011 respectively. Moreover, THP's relatively low leverage position provides room for further growth via debt-funded acquisitions.

The target price of RM2 is based on FY10 earnings of 11.2 times, which is equivalent to the mean historical price-to-earnings (PE) ratio of THP. - MIDF Research, April 27


This article appeared in The Edge Financial Daily, April 27, 2010.

HLBANK - Inter-Pacific Research reiterates outperform recommendation on Hong Leong Bank

Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Research House: INTER PACIFIC

KUALA LUMPUR: Inter-Pacific Research Sdn Bhd has reiterated its outperform recommendation on HONG LEONG BANK BHD [] (HLBB) at RM8.75 with an upgraded our fair value of RM10.20 from RM9.34 previously.

It said the upward revision was based on higher expected earnings growth, price to book of two times and higher ROE of 16.1% by assuming the EON merger will go through.

"Our sensitivity analysis showed through the proposed fund raising exercise, both EPS and book value would be enhanced. EPS could potentially increase between by 14% and 10% respectively for the two case scenarios in FY11, while the book value is projected to increase around 5.3%," it said.

The research house said that looking at EON Cap's loan loss coverage, it stood at 86.1% end-December 2009 which turned out to be below HLBB's 123.5%.

"Possibilities for EON Cap's loan loss coverage to be alleviated above 100% cannot be ruled out. Should this happen, we are looking at a one-off provision of RM164.5 million.

"Also, we expect a slight dilution to the ROE close to 1 percentage from the enhancement of book value/share," it said.

Inter-Pacific Research said the merger would augur well for HLBB due to: (1) achieves greater economic of scale which is vital to be competitive; (2) larger distribution network, stronger products and services, and rolling out of more innovative and competitive products; (3) large and diversified fund base which will provide more flexibility to support the business; and (4) wider range of talented people and skills.

GENM - Genting Malaysia makes more investment in MGM notes

Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD
Research House: HWANGDBS

Genting Malaysia Bhd
(April 26, RM2.86)
Maintain buy at RM2.85 with target price of RM3.90: Genting Malaysia Bhd (GenM) has invested another US$48 million (RM152.6 million) in MGM Mirage's 4.25% convertible senior notes (2010/2015) as part of the latter's recent US$1.15 billion placement.

This is on top of GenM's earlier US$18 million investment in MGM's 9% 10-year senior secured notes (2010/2020) in March this year, and US$25 million in 10.375% notes due May 2014 and US$25 million 11.125% notes due November 2017 acquired in May 2009.

This brings GenM's total investment in MGM to US$116 million (RM371 million). Back in May 2009, Genting Bhd (which owns 48.26% in GenM in latest available filings) had also invested US$100 million for a 3.2% equity stake in MGM and US$50 million in similar senior secured notes as GenM.

The latest notes proceeds will be used to repay a portion of MGM's revolving indebtedness under its senior credit facility. The notes are general unsecured senior obligations of MGM, guaranteed by substantially all of its subsidiaries.

Interest is payable semi-annually, and the notes are convertible anytime at an initial conversion price of US$18.58 (27.5% premium to MGM's share price).

We see minimal impact to GenM's earnings and RM5.2 billion cash reserve. We try not to read too much into the investment given the small quantum, although the notes' coupon does seem rather unattractive (almost similar to Malaysian Government Securities 10-year yield of 4%).

Genting group was reported to be interested in investing in the US, and this could be a pre-cursor to bigger things to come. MGM had indicated in March 2010 that it would be selling its 50% stake in Borgata Hotel Casino & Spa in Atlantic City as part of a settlement with the New Jersey Division of Gaming Enforcement (the New Jersey casino controller had expressed concern over MGM's ties with Pansy Ho, its joint-venture partner in Macau).

We maintain our buy call on GenM and sum-of-parts target price of RM3.90, with potential catalysts being resilient Malaysian gaming operations despite the opening of Singapore's "integrated resorts" since 85% of visitors to Gentings Highlands are locals with 75% being day-trippers.

Secondly, there is the possible upside from opportunistic mergers and acquisitions with RM5.2 billion cash reserve. Our valuation remains attractive at 9.3 times 2011 price-to-earnings ratio (ex-cash) and 5.6 times EV/Ebitda (enterprise value to earnings before interest, tax, depreciation and amortisation). - HwangDBS Vickers Research, April 26


This article appeared in The Edge Financial Daily, April 27, 2010.

AJIYA - Ajiya's expansion plans in motion

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

Ajiya Bhd
(April 26, RM2.15)
Reiterate buy at RM2.15 with an upward revised target price of RM2.59: In view of Ajiya's seasonally weaker first quarter ended Feb 28, 2010 due to the Chinese New Year festivities (57% year-on-year jump in net profit to RM5.65 million and 8.15% y-o-y growth in revenue to RM76.7 million; financial year ending Nov 30, 2010), the earnings were within our expectations.

Although revenue growth was below our expectations, its strong net earnings growth beat our estimates. We make marginal adjustments (less than 5%) to our earnings forecast on adjusting our balance sheet numbers to reflect its latest reported audited accounts.

Nevertheless, we now arrive at a higher target price of RM2.59 against RM1.90 previously, on adjusting our valuation parameters to account for higher peers' price-to-earnings (PE) ratio, price-to-book value (P/BV) and five-year PE band.

Recovery is in sight for the company. Although y-o-y revenue grew by only 8%, which was lower than our full-year forecast of 14% growth, Ajiya's combination of better product selling mix and economies of scale pushed up its net profit growth by more than 50% y-o-y.

Pre-tax margins on a y-o-y basis grew to 13% from 9.3% a year ago. Going forward, we reckon that product orders will strengthen on higher demand while selling prices will be higher as prices of steel are surging, which will drive revenue growth.

There are some preliminary developments. We visited Ajiya recently to seek an update on its expansion plans this year. Although there are no specific details, management nonetheless shared its growth targets for this year and next.

Broadly, Ajiya will be looking to expand its domestic production capacity by approximately 4% to 10% in the second half of this year while possibly expanding capacity by 10%-30% next year upon constructing and commencing its first anchor plant in Thailand to increase its regional presence.

On slightly higher assumptions to our earnings estimates and adjusting our valuation parameters to account for a higher peers PE (11.9 times from 5.9 times), P/BV (0.76 times from 0.67 times) and five-year PE band (5.69 times from 7.47 times), we arrive at a revised target price for Ajiya of RM2.59. Our target price factors in a 10% discount owing to the low liquidity in the stock. - OSK Research, April 26


This article appeared in The Edge Financial Daily, April 27, 2010.

PELIKAN - CIMB: Pelikan unlikely to stamp its mark on Pos Malaysia

Stock Name: PELIKAN
Company Name: PELIKAN INT.CORPORATION BHD
Research House: CIMB

Pelikan International Corp Bhd
(April 26, RM1.32)
Maintain trading buy at RM1.27, target price at RM1.65: The Edge weekly reported that Pelikan's president Loo Hooi Keat is one of the parties interested in buying Khazanah Nasional Bhd's 32.2% stake in Pos Malaysia Bhd.

Loo is executive vice-president of Konsortium Logistik Bhd. We think that Loo's vehicle for such a deal is likely to be Konsortium rather than Pelikan given that Pelikan's management has its hands full this year with merging its operations with recently acquired Europe-based stationery company Herlitz. Furthermore, Pos Malaysia offers little in terms of synergies for Pelikan.

We continue to rate Pelikan a trading buy instead of an outright outperform as we want to see if management delivers the touted cost savings and economies of scale from Herlitz.

Our target price remains unchanged at RM1.65, based on 7.8 times calendar year 2011 price-to-earnings (PE) ratio, a 40% discount to the regional sector target PE of 13 times to mainly reflect the execution risks.

This news of Loo's interest has taken us by surprise. We believe Pelikan needs more manpower now that Herlitz is under its umbrella.

We are of the view that management could be spread too thin and would have difficulty coping with Pos Malaysia. The Herlitz acquisition, which was completed in early April, is expected to almost double Pelikan's revenue.

Also, Pos Malaysia offers little in terms of synergies for Pelikan unless Pelikan wants to sell stationery in post offices, which we believe is unlikely.

With the acquisition of Herlitz, more than 80% of Pelikan's revenue will come from Europe, which should be Pelikan's focus, not the domestic market. Logically, interest in Pos Malaysia, if any, should come from Konsortium Logistik rather than Pelikan.

A third reason is that the Herlitz acquisition has taken Pelikan's net gearing to around 40%. Acquisition of a stake in Pos Malaysia could push its net gearing close to 0.8 times. As the company completed a rights issue early this year, it is unlikely to consider another capital-raising exercise so soon. - CIMB Research, April 26


This article appeared in The Edge Financial Daily, April 27, 2010.

HLBANK - HDBSVR maintains Buy on HL Bank, TP RM10.50

Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research is maintaining a Buy on Hong Leong Bank with a target price of RM10.50.

"Our RM10.50 target price is based on the Gordon Growth Model and implies 2.2x CY11 BV, with the following assumptions: 16% ROE, 4% long-term growth and 9.4% cost of equity," it said on Monday, April 26.

Last Friday, April 23, Hong Leong Bank and EON Cap submitted applications to Bank Negara on the former's offer. Target to hold EGM by end May 2010. Hong Leong Bank also plans to raise capital via rights issue (up to RM1.6bn) and issue of capital qualifying securities (up to RM1.8bn)

"Maintain Buy and RM10.50 TP. We like Hong Leong Bank for its strong domestic franchise, ability to leverage on its low loan-to-deposit ratio and its regional expansion plans," it said.

Hwang DBS Vickers Research said based on the announcement, it appears that Hong Leong Bank is sticking to its all cash offer for EON Cap, which it plans to fund with internally generated funds.

Subsequently, Hong Leong Bank intends to strengthen its balance sheet and reinforce its capital base by (i) raising up to RM1.6bn via rights issue, and (ii) raising up to RM1.8bn via the issue of capital qualifying securities.

"The rights issue price will be fixed later. In our scenarios, we assumed it would be a combination of both. We believe that upon completion of these exercises, Hong Leong Bank's Tier-1 CAR would at least be restored to 10%," it said.

BAT - BAT a dividend 'addiction', says Maybank IB

Stock Name: BAT
Company Name: BRITISH AMERICAN TOBACCO (M)
Research House: MAYBANK

British American Tobacco (M) Bhd (BAT)
(April 23, RM42.90)
Maintain hold recommendation at RM42.78 with unchanged target price of RM43: Although its 1QFY10 (FY ends Dec 31) net profit declined by 6.8% year-on-year (y-o-y), this was in line with our expectations given that steps were taken in the quarter to mitigate the impact of withdrawal of 14-stick packets come June 2010. We maintain our hold call with a discounted cash flow-based target price of RM43 as we expect investors to be ""addicted'' to its rich dividend.

RM192 million 1Q10 net profit was in line with our and consensus forecasts, forming approximately 25% and 26% of full-year estimates respectively. This was 6.8% lower y-o-y although revenue increased by 1.3% y-o-y due to higher, front-loaded marketing expenses. Marketing expenses were higher to support the launch of its re-sealable RELOC 20-stick packets.

To counter the impact of the 14-stick ban, BAT introduced RELOC 20-stick packets, which can help prolong the freshness of cigarettes. BAT hopes that this would help prevent smokers from deserting its premium-priced brand, thus keeping the negative sales impact minimal.

As expected, the market share of illicit cigarettes fell, from a high of 38.7% in mid-09, to about 37% at end-2009. This and the stable market share of exceptionally low-priced cigarettes at about 8% suggest that the industry outlook is benign. We are forecasting industry sales volume growth of 2%, 1.5% and 1% in 2010-12 as opposed to the 11% and 2.4% declines in 2009 and 2008 respectively.

While earnings growth is forecast to be lacklustre, net dividend yields of 6%-7% remain attractive. In addition, longer-term shareholders should benefit from an additional dividend potential of 50 sen per share over the 2010-2012 period. - Maybank IB, April 23


This article appeared in The Edge Financial Daily, April 26, 2010.

SUPERMX - A bountiful quarter for Supermax

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

Supermax Corp Bhd
(April 23, RM6.98)
Maintain buy at RM6.99 with higher target price of RM11.39: Supermax's 1QFY10 (FY ends Dec 31) results were above consensus and our expectations, making up 31% of the FY10 forecasts. The 1QFY10 revenue of RM220.7 million was higher by 12.3% quarter-on-quarter (q-o-q), mainly contributed by surging sales and higher selling prices of gloves as the company passed on the higher latex cost to its customers.

The increase was also contributed by continuous demand for medical examination gloves, which allows Supermax to effectively pass through more than 90% of its costs in a timely manner (less than one month). The revenue growth also led to a higher 1QFY10 core net profit of RM51.5 million, which was an increase of 4% q-o-q.

To recap, there was an exceptional item in 4QFY09 in the form of a one-off interest payment of RM5.4 million arising from the company's earlier redemption of its bonds. Revenue and net profit were higher year-to-date, bolstered mainly by higher production capacity and higher selling prices of gloves.

Upgrading our FY10-11 forecasts by 14%-18%. Our upgrade is in line with the stellar 1QFY10 results and anticipation of robust demand for examination gloves as hygiene awareness among the global population grows.

We are upgrading our target price for Supermax to RM11.39 based on the stock's existing PER of 15 times FY11 EPS. We continue to like the company's ideal product mix (more than 70% natural rubber gloves) targeting the right markets in developing countries.

We believe the company is poised to be one of the big beneficiaries as hygiene standards in developing countries like China and India start to move up as awareness grows. - OSK Investment Research, April 23


This article appeared in The Edge Financial Daily, April 26, 2010.

KFC - RHB positive on KFC's land deal

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

KFC Holdings (M) Bhd
(April 23, RM7.98)
Maintain outperform at RM7.98, fair value at RM9.63: KFCH has entered into a sale and purchase agreement with Johor Land Bhd for the acquisition of a two-acre (0.8ha) piece of land (which forms part of an 8.1 acre piece of commercial land) in Bandar Dato Onn (BDO), Johor Bahru, for cash consideration of RM5.9 million, which will be funded by internally generated funds.

The purchase of the land is for the construction of four outlets consisting of KFC, Pizza Hut (under QSR), Kedai Ayamas and Rasamas. The land is situated in the commercial area of BDO and is situated nearby BDO and other mature townships (such as Taman Daya, Taman Kempas Indah, Seri Austin, Setia Indah, Taman Adda Heights and Desa Tebrau).

Despite being a related party transaction, which conjures negative sentiment, we believe the purchase consideration, which translates to about RM68 psf (a premium to KPJ's recent acquisition of land at RM50 psf in Plentong), is fair as the land is located closer to Johor Bahru and benefits from nearby growing and mature townships. Furthermore, the present market value of the property is RM6.3 million according to independent property valuer, KGV Lambert Smith Hampton.

We are overall positive on the deal given that BDO and its surrounding townships is a populous area, with an estimated residents population of more than 132,800. Furthermore, the land is sited within the BDO commercial area, which is also located nearby the JCorp Office and Paramount College, which are currently under construction, as well as the yet to be constructed police station and mosque.

Risks: bird/swine flu outbreak; escalation of corn and soybean prices, which would eat into margins; and deteriorating consumer spending power, resulting in lower same-store sales growth.

No change to our forecasts as we have already projected capital expenditure of approximately RM90 million for FY10 ending Dec 31, which have assumed 58 new stores to be set up in the current year.

No change to our fair value of RM9.63 based on unchanged 12.5 times FY10 EPS. We believe on-going promotions will help boost KFCH's same-store-sales growth going forward, while its aggressive new store expansion strategy would help strengthen its presence in the country and enable KFC to maintain its strong market share. Maintain outperform - RHB Research Institute, April 23


This article appeared in The Edge Financial Daily, April 26, 2010.