MAYBANK - CIMB Research ups Maybank target price to RM8.50

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

KUALA LUMPUR: CIMB Equities Research said MALAYAN BANKING BHD [] surprised the market for the third straight quarter with a spectacular 3QFY6/10 net profit of RM1.03bn. It said on Friday, May 14 this pushed up 9MFY10 net profit to RM2.91bn or 80% of our full-year forecast and 86% of consensus. The variance came mainly from stronger-than-expected non-interest income. Loan growth moderated from 7.2% on-year in December 2009 to 5.9% on-year in March 2010 but net NPL ratio improved from 1.43% in December 2009 to 1.23% in March 2010. "Factoring in higher non-interest income, we up our EPS forecasts by 2-6% and our target price from RM8.35 to RM8.50, still pegged to a 5% premium over its DDM value. "Despite the strong results and favourable earnings outlook, we remain NEUTRAL due to its CY11 P/E of 11.9x vs. 10.7x for the sector and its ROE of 14.7%, which is still below the industry's 16.1%," it said. "We are also concerned about the slowdown in loan growth in Singapore. For exposure to big-cap Malaysian banks, we prefer Public Bank," it said.

JTINTER - CIMB Research ups JT Intl target price to RM5.65

Stock Name: JTINTER
Company Name: JT INTERNATIONAL BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research says JT International's (JTI) 1Q10 net profit accounted for 33% of its full-year estimate and 31% of consensus. In a research note issued on Friday, May 14, it said the results were broadly in line with expectations as 1Q has historically been strong, accounting for 30-34% of full-year profits over the past three years. "We expect a weaker 2H as A&P expenses are typically backloaded. As expected, no dividends were declared for the quarter. We retain our FY10 earnings forecast but have upgraded FY11-12 by 4-6% to reflect JTI's strong sales momentum," it said. CIMB Research said while there are no changes to our dividend assumptions as we expect JTI to revert to its traditional payout of 30 sen/share, its DDM-based target price has been raised from RM5.10 to RM5.65 after revising downwards its cost of equity assumption from 9% to 8%. Although industry fundamentals remain unexciting, JTI's consistent market share gains and earnings growth are impressive. "We expect it to sustain the growth momentum, thanks to Winston's and Mild Seven's continued strength. This underpins our upgrade of the stock from Underperform to NEUTRAL," it said.

SIME - OSK Research maintains sell call on Sime Darby

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

KUALA LUMPUR: OSK Investment Research has maintained its sell cal on SIME DARBY BHD [] at RM8.65 with target price RM7.02 after the conglomerate announced on Thursday it would recognise RM964 million in losses due to cost overruns related to the Qatar Petroleum project, Maersk Oil Qatar project, vessel CONSTRUCTION [] for the Maersk project and the Bakun dam.

It said these would significantly and negatively impact its FY10 profitability.

OSK Research said it had a net profit forecast of RM2.71 billion before the above losses surfaced.

"Assuming the RM964 million loss is at net level, our FY10 forecast will be cut by 35.6% to RM1.74 billion. The announcement probably did not take the market by surprise since rumors of Sime's RM1 billion loss from cost overruns have been widely circulating," it said in a note Friday, May 14.

On Sime president and CEO Datuk Seri Ahmad Zubir being asked to take a leave of absence prior to the expiry of his contract in November, OSK Research said while it do not disagree that a CEO needs to be held responsible for a company's massive losses, it believed that in Sime's case it was all too easy to put the blame on the CEO.

"We believe the source of Sime's problems is it being too big and too diverse to be managed and controlled properly. The lack of internal controls in the conglomerate is nothing new.

"In an earlier incidence, trading losses at Sime's PLANTATION [] downstream segment resulted in its financial controller being replaced. If Sime continues to be hit by losses from one segment or another, the only solution would be to break up the group into more manageable strategic business units," it said.

OSK Research made no changes to its core earnings forecast for FY10 and FY11, as it treated the project losses as one-off items.

"We recognise that there could be more losses in FY11 but these should not be as substantial as what has been announced," it said.

SIME - CIMB Research downgrades Sime Darby to trading sell

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

KUALA LUMPUR: CIMB Equities Research has downgraded SIME DARBY BHD [] to a TRADING SELL with lower target price of RM8.36. It said on Friday, May 14 Sime Darby estimates a RM964 million loss for its energy and utilities division, which is more than four times its worst-case estimate of RM227 million loss. "The only small consolation is the leave of absence taken by its CEO before his contract expires in November as this suggests some accountability in the group," it said. CIMB Research slashed its FY10 earnings estimate by 37% to account for the provisions. For FY11-12, it downgraded its earnings forecasts by 2% for lower contributions from the oil & gas unit. "We are cutting our target price by 13% to RM8.36 after (1) taking into account the additional provisioning, (2) cutting our valuation for the energy & utilities assets from 1x P/BV to 0.5x, and (3) applying a higher discount of 20% to its SOP value instead of 10%. "We expect the share price reaction to the news to be negative and downgrade the stock from Neutral to TRADING SELL. For exposure to the PLANTATION [] sector in Malaysia, we recommend a switch to Genting Plantation," it said.

WCT - WCT rating lowered to 'hold'

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

WCT Bhd, a Malaysian builder, had its stock rating downgraded to "hold" from "buy" at AmResearch Sdn Bhd which cut its earnings forecast by 48 per cent amid uncertainties surrounding the Bakun dam project.

The research house also cut the stock's fair value to RM3.03 from RM3.70.

WCT has an effective stake of 7.7 per cent in the Malaysia-China Hydro joint venture that handles the civil works on the project. -- Bloomberg

MUDAJYA - Mudajaya cranking up the power in 1Q

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

Mudajaya Group Bhd
(May 13, RM5.11)
Maintain buy at RM5.09 with target price raised to RM7.94: Mudajaya achieved a record quarter in 1QFY10. Although annualised core net profit made up 94% of our full-year forecast and 98% of consensus, we consider the performance to be above expectations as earnings in the remaining quarters are likely to be stronger quarter-on-quarter (q-o-q), as was the case in FY09. The main source of deviation was stronger-than-expected construction margins.

Margins should continue to improve, driven by accelerating EP (engineering and procurement) profits in India. Factoring in higher profit recognition for the Indian IPP (independent power producer), we raise our FY10-FY12 forecasts by 8%-15%. This pushes our target price from RM7.52 to RM7.94 based on an unchanged 20% discount to revised net asset value (RNAV).

This good set of results may extend the stock's re-rating, along with (i) contract awards, both local and overseas, (ii) completion of financial closure for the IPP, and (iii) swifter-than-expected progress of the ultra mega power plant (UMPP). We continue to recommend a buy.

1QFY10 revenue surged 91% year-on-year (y-o-y) and 13% q-o-q. However, core net profit more than tripled, fuelled by stronger construction earnings, of which 30% came from EP works for the Indian IPP. Construction Ebit (earnings before interest and tax) soared 288% y-o-y in 1QFY10 and 34% q-o-q, pushing the segment's Ebit margin up 17 percentage points to 35%, which is commendable by industry standards. The group declared a first single-tier interim dividend of one sen, higher than 1QFY09's 0.6 sen, which was a pleasant surprise.

Apart from the KLKS highway, EP works for the Chhattisgarh IPP should gain momentum in the coming quarters and extend the margin expansion seen in FY09. On average, core net profit rose 46% or RM9 million q-o-q in the four quarters of FY09. Going by this trend, our FY10 forecast of RM215 million is likely to be exceeded. In view of this, we raise our FY10-FY12 earnings forecasts by 8%-15%. This includes an upgrade of our construction net profit component, which constitutes 80% of our RNAV and raises our RNAV/share from RM9.40 to RM9.93.

Our target price goes up 6% from RM7.52 to RM7.94, still pegged to a 20% discount to RNAV. Mudajaya offers attractive CY10-11 P/Es (price-to-earnings) of 7-9 times which are among the lowest in the sector. We continue to rate the stock a buy given its strong fundamentals and growth via IPP ventures in India and EPCC (engineering, procurement, construction and commissioning) opportunities in the region.

Investors with higher risk appetite should consider the call warrants. - CIMB Research, May 13
This article appeared in The Edge Financial Daily, May 14, 2010.

GAMUDA - Maybank IB still overweight on construction

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

Construction sector
Maintain overweight: We visited three Middle Eastern cities (Doha, Abu Dhabi and Dubai) last week, and noted the possibility of a property supply glut still. We believe future spending would likely be concentrated on infrastructure works - roads, LRT lines, rail, power plants - with the Qatar Bahrain Friendship Bridge construction likely to commence this year. Malaysian construction players with local infrastructure expertise especially Gamuda Bhd and WCT Bhd could benefit.

There has been no let-up in construction spending in Abu Dhabi (UAE) and Doha (Qatar), with construction activities still in full swing at both locations. Local channel checks also implied likewise. Construction activities in Dubai (UAE) have however slowed considerably, with works having been halted at many project sites and tower cranes idle at many partially completed buildings.

Unsurprisingly, Malaysian contractors are unanimously bearish on their prospects in Dubai. IJM, the last of the big boys still in Dubai, will hand over its final project there, Fortune Executive, this month and shift its focus to Abu Dhabi.

Abu Dhabi and Doha are the commonly mentioned destinations for tenders among the Malaysian companies, which is of no surprise given the sizeable amount of spending undertaken by the local government entities. This includes a more than QR30 billion (circa RM30 billion) LRT and rail system at Qatar, as it embarks on its Vision 2030 programme. Other tender locations include Oman and Saudi Arabia. All locations share a common theme - the local governments are flushed with oil revenues.

Middle Eastern jobs now account for a relatively small proportion of the total outstanding order book for Gamuda (7%) and IJM (2%), but a sizeable chunk for Sunway (58%) and WCT (25%). We visited selected project sites - New Doha International Airport in Qatar (Gamuda-WCT), Rihan Heights (Sunway) and Fortune Executive Tower (IJM), both in Abu Dhabi, and saw good progress on the respective projects. For works that were recently completed, there have been no major collection issues.

Malaysian construction companies remain on the lookout for Middle Eastern contracts. Potential awards could yet trigger another re-rating of the construction stocks. We continue to overweight the sector in the run-up to the 10th Malaysia Plan and Sarawak state elections. We have buy ratings for all construction stocks under our coverage. - Maybank IB, May 13
This article appeared in The Edge Financial Daily, May 14, 2010.

SUNWAY - Maybank IB still overweight on construction

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

Construction sector
Maintain overweight: We visited three Middle Eastern cities (Doha, Abu Dhabi and Dubai) last week, and noted the possibility of a property supply glut still. We believe future spending would likely be concentrated on infrastructure works - roads, LRT lines, rail, power plants - with the Qatar Bahrain Friendship Bridge construction likely to commence this year. Malaysian construction players with local infrastructure expertise especially Gamuda Bhd and WCT Bhd could benefit.

There has been no let-up in construction spending in Abu Dhabi (UAE) and Doha (Qatar), with construction activities still in full swing at both locations. Local channel checks also implied likewise. Construction activities in Dubai (UAE) have however slowed considerably, with works having been halted at many project sites and tower cranes idle at many partially completed buildings.

Unsurprisingly, Malaysian contractors are unanimously bearish on their prospects in Dubai. IJM, the last of the big boys still in Dubai, will hand over its final project there, Fortune Executive, this month and shift its focus to Abu Dhabi.

Abu Dhabi and Doha are the commonly mentioned destinations for tenders among the Malaysian companies, which is of no surprise given the sizeable amount of spending undertaken by the local government entities. This includes a more than QR30 billion (circa RM30 billion) LRT and rail system at Qatar, as it embarks on its Vision 2030 programme. Other tender locations include Oman and Saudi Arabia. All locations share a common theme - the local governments are flushed with oil revenues.

Middle Eastern jobs now account for a relatively small proportion of the total outstanding order book for Gamuda (7%) and IJM (2%), but a sizeable chunk for Sunway (58%) and WCT (25%). We visited selected project sites - New Doha International Airport in Qatar (Gamuda-WCT), Rihan Heights (Sunway) and Fortune Executive Tower (IJM), both in Abu Dhabi, and saw good progress on the respective projects. For works that were recently completed, there have been no major collection issues.

Malaysian construction companies remain on the lookout for Middle Eastern contracts. Potential awards could yet trigger another re-rating of the construction stocks. We continue to overweight the sector in the run-up to the 10th Malaysia Plan and Sarawak state elections. We have buy ratings for all construction stocks under our coverage. - Maybank IB, May 13
This article appeared in The Edge Financial Daily, May 14, 2010.

HSL - Maybank IB still overweight on construction

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

Construction sector
Maintain overweight: We visited three Middle Eastern cities (Doha, Abu Dhabi and Dubai) last week, and noted the possibility of a property supply glut still. We believe future spending would likely be concentrated on infrastructure works - roads, LRT lines, rail, power plants - with the Qatar Bahrain Friendship Bridge construction likely to commence this year. Malaysian construction players with local infrastructure expertise especially Gamuda Bhd and WCT Bhd could benefit.

There has been no let-up in construction spending in Abu Dhabi (UAE) and Doha (Qatar), with construction activities still in full swing at both locations. Local channel checks also implied likewise. Construction activities in Dubai (UAE) have however slowed considerably, with works having been halted at many project sites and tower cranes idle at many partially completed buildings.

Unsurprisingly, Malaysian contractors are unanimously bearish on their prospects in Dubai. IJM, the last of the big boys still in Dubai, will hand over its final project there, Fortune Executive, this month and shift its focus to Abu Dhabi.

Abu Dhabi and Doha are the commonly mentioned destinations for tenders among the Malaysian companies, which is of no surprise given the sizeable amount of spending undertaken by the local government entities. This includes a more than QR30 billion (circa RM30 billion) LRT and rail system at Qatar, as it embarks on its Vision 2030 programme. Other tender locations include Oman and Saudi Arabia. All locations share a common theme - the local governments are flushed with oil revenues.

Middle Eastern jobs now account for a relatively small proportion of the total outstanding order book for Gamuda (7%) and IJM (2%), but a sizeable chunk for Sunway (58%) and WCT (25%). We visited selected project sites - New Doha International Airport in Qatar (Gamuda-WCT), Rihan Heights (Sunway) and Fortune Executive Tower (IJM), both in Abu Dhabi, and saw good progress on the respective projects. For works that were recently completed, there have been no major collection issues.

Malaysian construction companies remain on the lookout for Middle Eastern contracts. Potential awards could yet trigger another re-rating of the construction stocks. We continue to overweight the sector in the run-up to the 10th Malaysia Plan and Sarawak state elections. We have buy ratings for all construction stocks under our coverage. - Maybank IB, May 13
This article appeared in The Edge Financial Daily, May 14, 2010.

LOH&LOH - Maybank IB still overweight on construction

Stock Name: LOH&LOH
Company Name: LOH & LOH CORPORATION BHD
Research House: MAYBANK

Construction sector
Maintain overweight: We visited three Middle Eastern cities (Doha, Abu Dhabi and Dubai) last week, and noted the possibility of a property supply glut still. We believe future spending would likely be concentrated on infrastructure works - roads, LRT lines, rail, power plants - with the Qatar Bahrain Friendship Bridge construction likely to commence this year. Malaysian construction players with local infrastructure expertise especially Gamuda Bhd and WCT Bhd could benefit.

There has been no let-up in construction spending in Abu Dhabi (UAE) and Doha (Qatar), with construction activities still in full swing at both locations. Local channel checks also implied likewise. Construction activities in Dubai (UAE) have however slowed considerably, with works having been halted at many project sites and tower cranes idle at many partially completed buildings.

Unsurprisingly, Malaysian contractors are unanimously bearish on their prospects in Dubai. IJM, the last of the big boys still in Dubai, will hand over its final project there, Fortune Executive, this month and shift its focus to Abu Dhabi.

Abu Dhabi and Doha are the commonly mentioned destinations for tenders among the Malaysian companies, which is of no surprise given the sizeable amount of spending undertaken by the local government entities. This includes a more than QR30 billion (circa RM30 billion) LRT and rail system at Qatar, as it embarks on its Vision 2030 programme. Other tender locations include Oman and Saudi Arabia. All locations share a common theme - the local governments are flushed with oil revenues.

Middle Eastern jobs now account for a relatively small proportion of the total outstanding order book for Gamuda (7%) and IJM (2%), but a sizeable chunk for Sunway (58%) and WCT (25%). We visited selected project sites - New Doha International Airport in Qatar (Gamuda-WCT), Rihan Heights (Sunway) and Fortune Executive Tower (IJM), both in Abu Dhabi, and saw good progress on the respective projects. For works that were recently completed, there have been no major collection issues.

Malaysian construction companies remain on the lookout for Middle Eastern contracts. Potential awards could yet trigger another re-rating of the construction stocks. We continue to overweight the sector in the run-up to the 10th Malaysia Plan and Sarawak state elections. We have buy ratings for all construction stocks under our coverage. - Maybank IB, May 13
This article appeared in The Edge Financial Daily, May 14, 2010.

BJCORP - AmResearch ups BCorp fair value to RM2.15

Stock Name: BJCORP
Company Name: BERJAYA CORPORATION BHD
Research House: AMMB

KUALA LUMPUR: AmResearch Sdn Bhd has reaffirmed its trading buy rating on Berjaya Corp at RM1.54 and raised its fair value to RM2.15 (from RM1.80 previously) after the company announced on Wednesday,May 12 the acquisition of a 70% stake in Ascot Sports (Ascot) from its chairman Tan Sri Vincent Tan for RM525 million cash.

Ascot has been given the exclusive approval to operate sports betting.

The research house said the acquisition was pegged to an attractive PE of six times, based on a minimum profit guarantee of RM375 million over three years, or an average of RM125 million per annum.

BCorp will retain RM125 million plus a top up of RM62.5 million in acceptable securities from Tan as collateral for the guarantee.

AmResearch said BCorp expects to roll out sports betting in August 2010, coinciding with the start of the English Premier League's new season. Distribution will be via 220 B-Toto's outlets and tele-betting. Internet betting will not be permitted.

This lucrative sports betting deal should provide a kick to BCorp's share price on several counts, it said.

"Market potential is very significant. As a guide, sports betting sales in Hong Kong and Singapore have been growing by a robust CAGR of 19% and 21% over the last five years to RM15.4 billion and RM11.7 billion; respectively.

"We expect sports betting sales to surpass industry NFO sales of RM8 billion within the next 10 years," it said.

MUDAJYA - OSK Research raises target price for Mudajaya to RM7.33

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

KUALA LUMPUR: OSK Investment Research has maintain call on MUDAJAYA GROUP BHD [] at RM5.09 and raised its target price for the stock to RM7.33 (from RM6.48) after the company posted 1QFY10 earnings of RM51 million (+260% y-o-y, +23% q-o-q), which the research house said was above its own and consensus expectations.

It said Mudajaya remains its top pick in the sector and that it sees stronger showing in the subsequent quarters once Phase 2 gains further momentum.

"Forward prospects include India's UMPPs, LRT extension, domestic power plants, Saudi jobs and PFI projects. We raise our FY10-11 earnings by 13%-14%," it said.

BJTOTO - Berjaya Sports raised to 'Buy' at HwangDBS

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

Berjaya Sports Toto Bhd had its stock rating raised to "buy" from "hold" at HwangDBS Vickers Research Sdn Bhd after the company's parent agreed to buy a 70 per cent stake in a sports betting company.

Berjaya Sports will benefit because its outlets will be used for the sports betting game, according to HwangDBS, which set its price estimate for Berjaya Sports shares at RM5.20. - Bloomberg

MAYBANK - Maybank's BII optimistic on growth prospects

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD
Research House: CITI GROUP

Malayan Banking Bhd (Maybank)
(May 12, RM7.60)
Reiterate buy at RM7.53 with target price of RM8.03: We had a recent meeting with Bank Internasional Indonesia (BII) management in Jakarta. Overall, we believe 2010 would be a good year for BII (2009: Rp41 million or RM14,435 net loss) as new management has begun driving business growth more aggressively since late-2009 and provisions are declining. Reiterate buy/low risk (1L) for Maybank with rejuvenated domestic operations being supported by steady improvement at BII, which is estimated to contribute 9% of group FY10E earnings.

BII has submitted to Bank Indonesia a loan growth target of 20%-25% for 2010E. This is ahead of the 18%-20% average that most banks have committed to Bank Indonesia but the management is optimistic its target can be achieved given the positive macro outlook.

BII intends to stay focused on core customer groups - consumers and small and medium enterprises (SMEs) (each 35%-36% of total loans). But there will be increased push into the SME space in new territories. While we see the growth potential, strong credit risk management would be vital for success.

The management expects some margin compression coming from lower lending yields as banks fight for loan growth. Areas more vulnerable to pressure are cars and 2-wheelers. With current account and savings account (CASA) of 42% and loan deposit ratio (LDR) of 80.6%, there could also be some funding pressure, but BII can get some well-priced funds from Maybank and the management is also considering issuance of subdebt. It had NIM (net interest margin) of 5.98% in 1Q10 (1Q09: 5.48%).

BII's management is working to lower its CTI (cost-to-income) to 61% for 2010E (1Q10: 64%; 1Q09: 66.5%). However, with expansion plans, CTI would only improve to 55%-57% in the next three to five years. The management budgeted credit cost of 220 basis points for 2010E (1Q10: 188bps; 2009: 447bps ) but indicated possible downside risk as real lending had only begun in Oct 2009.

Maybank is scheduled to release its 3QFY10 results today. Compared against 2QFY10's RM993.5 million, net profit is likely to be flat to slightly higher due to seasonal factors.

We expect a loan growth of 2.5%-3% quarter-on-quarter, stable NIM and lower provisions. But this would be moderated by lower non-interest income. Our forecast net profit for FY10E stands at RM3.34 billion with EPS (earnings per share) at 47 sen. - Citi Investment Research, May 10


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

KENCANA - MIDF positive on Kencana's RM92m job win

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

Kencana Petroleum Bhd
(May 12, RM1.58)
Maintain trading buy at RM1.57 with target price of RM1.86: Kencana announced it had been awarded a RM91.9 million contract for the installation of a subsea pipeline and other related external works between a water treatment plant in Beaufort, Sabah and Labuan.

The contract was awarded by the ministry of energy, green technology and water. Initial works are expected to commence by July 2010 the earliest, with completion targeted by October 2010.

We view the award positively as it jives with our earlier view that contract awards will return, nevertheless in small packages. Its order book replenishment remains on track with its RM1 billion target of RM290 million year to date.

Our preliminary understanding suggests that the fabrication of the pipelines will be conducted by Kencana while the installation of the pipeline will be undertaken by its joint-venture partner namely Leighton Contractors (M) S/B via purpose-built pipe-lay barges (namely the Leighton Stealth and Leighton Eclipse).

Leighton has significant experience in the offshore oil and gas (O&G) business. The group has capabilities to lay large diameter offshore pipelines as well it being an industry leader in single- point mooring (SPM) system installations.

Leighton has previously worked on India's Mumbai High Field, offshore Sudan and the Black Sea. However, this may be the group's first foray into Malaysian O&G shores. The group's previous exposure to Malaysian project entails civil engineering and infrastructure development. Some of its involvements in Malaysia are the Rawang-Ipoh rail track project, Duta Plaza (Avenue K), KL-Putrajaya Highway and Maxis national optical fibre phase II.

Kencana's current order book levels stand at RM1.64 billion with Kencana Petroleum Ventures capturing the bulk of it (RM827.2 million). We understand Kencana is in a good position to capture further contracts given its present free utilisation space in its Lumut yard standing at 55%. We estimate possible project bids of up to RM1 billion in its present tender books.

Maintain trading buy with an unchanged target price of RM1.86 based on a rolled over earnings per share 2011 (EPS11) on 15 times. We believe Kencana will continue to be one of the key beneficiaries of Petronas contract awards given its proven track record with Petronas, spare yard capacity and Petronas preference for locally-flagged vessels. Furthermore, market players are suggesting more contracts are expected to be awarded in 2H10 with up to RM4 billion of fabrication and marine engineering contracts in 2010.

We will introduce our FY11 earnings forecasts after Kencana's 4QFY10 results which are due to be announced in mid-July 2010. The counter is currently trading at 15.1 times EPS FY10, within its five-year PER (price-earnings ratio) band of 13.9 times to 42.3 times. - MIDF Research, May 12


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

PETGAS - Maybank IB: PetGas' FY11 to reflect GPTA 4 terms

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

Petronas Gas Bhd (PetGas)
(May 12, RM9.93)
Maintain hold at RM9.88 with unchanged target price of RM10.40: PetGas' results met expectations, despite a weaker 4Q performance. With the fourth gas processing and transmission agreement (GPTA 4) taking effect in April 2010, PetGas will be operating on an improved business model (better terms, lower risks) from FY11 onwards.

Nevertheless, PetGas remains a hold as the positives have been priced in. The upside to our RM10.40 discounted cash flow-derived (DCF) target price is only 5%. The stock offers only decent income return potential with a forecast net dividend yield of 5%, without much of a capital upside potential.

4QFY10 net profit fell 24% quarter-on-quarter (q-o-q), on a 4.7 percentage point erosion in earnings before interest and tax (Ebit) margin, bringing FY10 net earnings to RM941 million (+1% year-on-year), in line with our and consensus expectations. The sequential weaker performance was largely due to weaker gross profits at utilities operations (-66%; mainly on lower turnover which contracted 12% q-o-q as margins continued to hold), lower associates contributions (-35%; mainly from 20%-owned Gas Malaysia) and higher effective tax rates (+4.6ppt to 27.2%).

PetGas' financials remain healthy, with net cash growing by 22% q-o-q to RM1.8 billion (or 93 sen per share) as at March 2010. Meanwhile, PetGas maintained a final dividend per share (DPS) of 35 sen (30 sen single-tier and five sen tax-exempt), which brings its FY10 DPS to 50 sen (105% net profit payout).

PetGas will operate under the terms of the GPTA 4 from April 2011 to March 2014. We opine that GPTA 4 is structurally better than GPTA 3. It is earnings enhancing and comes with lower operating risks. It also shields PetGas from fluctuations in gas prices and allows importation of a third party gas supply (LNG) into its PGU lines, thus removing shortage of gas supply risks from Peninsular Malaysia gas fields from 2019-21. All in, we expect net profit to grow by 40% in FY11. - Maybank IB, May 12


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

HARTA - Sparkling quarter for Hartalega

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

Hartalega Holdings Bhd
(May 12, RM7.89)
Maintain buy at RM7.85 with target price of RM9.89: Hartalega's FY10 results were slightly above consensus and our expectations, making up 106% and 107% of consensus and our forecasts, respectively.

As we mentioned in our results preview, the consistently good results quarter after quarter were mainly contributed by: (1) the company's success in passing on costs; (2) commencement of two new production lines, which ramped up sales volume; (3) continuously strong demand for nitrile gloves due to its narrowing price gap with that for natural rubber latex gloves, and (4) strong emphasis on technology to lower production costs and enhance production efficiency. With these, the 4QFY10 revenue and net profit of RM163.4 million and RM46.4 million rose 10% and 24.8% quarter-on-quarter, respectively. On a year-to-date comparison, FY10 revenue was higher by 29%, attributed to its bigger production capacity and higher selling prices of gloves, while net profit soared 69.4% on increased sales of higher margin gloves, with the nitrile glove mix rising to 80% from 70% a year ago. Also, it recorded a higher utilisation rate of 85% versus 75% in the previous year.

We are not surprised with Hartalega's one-for-two bonus issue proposal as it is in line with moves by its peers such as Top Glove, Supermax and Kossan. Hence, we believe there is possibility of a rerating of the sector given the improved liquidity.

On Tuesday, we upgraded our target price for Hartalega to RM9.89 (previously RM8.92) based on the existing price-earnings ratio (PER) of 14 times as we roll forward to FY12 earnings. We continue to like the company's global market leadership in nitrile gloves. Hartalega also declared a second interim dividend of five sen.

Investment risks include: (1) a shift in demand back to natural rubber gloves when latex prices start to fall, giving rise to a price gap between nitrile and natural rubber gloves; (2) weakening of the US dollar against the ringgit since the bulk of its sales is from exports, and (3) high reliance on two major customers, Medline and Microflex, which together account for more than 50% of total sales. - OSK Research, May 12


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

DIALOG - Strong showing all around in Dialog

Stock Name: DIALOG
Company Name: DIALOG GROUP BHD
Research House: OSK

Dialog Group Bhd
(May 13, RM1.09)
Maintain buy at RM1.07 with higher target price of RM1.29: Dialog's 3QFY10 results were within consensus but above our expectations, making up 80% and 85% of FY10 forecasts respectively. The better-than-expected numbers were mainly contributed by strong performance at all its divisions, especially the engineering and construction as well as plant maintenance divisions.

We believe the engineering and construction division got a boost from jobs related to the Langsat Terminal. Going forward, we believe there will be more jobs going to this division, especially when the independent deepwater storage terminal for oil products in Pengerang, Johor is ready for development.

Meanwhile, we believe its plant maintenance division will shine all year round, especially when there are not many new O&G projects in the pipeline and its customers would rather spend minimal capital expenditure to ensure that existing plants are operating at maximum efficiency.

Besides that, the good results were also due to Dialog having executed higher-margin jobs, which bolstered 3QFY10 net profit by 11.2% quarter-on-quarter (q-o-q) to RM31.8 million, although revenue rose marginally by 2.6% to RM282.8 million. Both FY10 revenue and net profit surged 15.7% to RM867.2 million and 41.7% to RM87.4 million respectively year to date, which were in tandem with the better operating environment following the recovery in the global economy and crude oil price.

We understand that the tanks in Phase 1 of the Langsat Terminal are about 30% utilised and the management expects to break even in 1-2 years' time.

This is based on an expected average turn of one time per month. As for Phases 2 and 3, we understand that Dialog is still in the midst of negotiating with potential customers.

We have also upgraded our FY10-FY11 earnings by 7%-14% in line with the improvement in its quarterly performance. Hence, our target price is accordingly upgraded to RM1.29 (previously RM1.17) based on a sum-of-parts valuation. Dialog is one of the most defensive O&G stocks within its sector, with a steady business model and net cash of RM203 million as at March 31, 2010 versus RM140.8 million as at Dec 31, 2009. It also provides an attractive dividend yield of about 5%. - OSK Research, May 13
This article appeared in The Edge Financial Daily, May 14, 2010.

PETGAS - OSK Research raises dividend forecast for Petgas to 70c

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

KUALA LUMPUR: OSK Investment Research maintained its buy call on Petronas Gas at RM9.88 with an unchanged discounted cash flow-based fair value of RM13.81 and said the company's FY10 results were within its and consensus forecasts despite a quarter-on-quarter (q-o-q) drop in profits given the rather conservative forecasts.

"As the q-o-q dip was due to the timing of its centralised utility facilities clients' maintenance activities as well as a one-off cost item at Gas Malaysia, we are largely maintaining our forecasts.

"We still see profits jumping by more than 37% year-on-year in FY11 on the new Gas Processing and Transmission Agreement terms and also raise our dividend forecast from 65 sen to 70 sen, or a 7.1% yield."

The research house said Petgas remains a good defensive buy given the current market volatility.

SUNWAY - Sunway is ECM's top construction pick

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

Sunway Holdings Bhd
(May 11, RM1.50)
Reiterate buy at RM1.49 with target price of RM2: Sunway had on May 6 entered into a memorandum of understanding (MoU) with XuanCheng municipal government for the purpose of developing an integrated city, consisting of an international-standard entertainment park, exhibition centre, hotels, shopping malls, offices and residential units on land to be acquired from XuanCheng municipal government.

XuanCheng is a prefecture-level city in southeastern Anhui province, China. It lies 260km to the west of Shanghai. Bordering the provinces of Jiangsu and Zhejiang, it covers an area of 12,340 sq km and has a population of 2.8 million.

The MoU sets out the intention and proposed collaboration between Sunway and the XuanCheng municipal government. Under the terms of the MoU, Sunway shall be the master developer and undertake a feasibility and market study on the proposed development. Sunway will also prepare a preliminary master plan within four months from the date of the MoU.

While details of the proposed venture are sketchy at this point in time, we are not bullish on this venture. In terms of economic development, Anhui province lags behind that of its neighbours, Jiangsu and Zhejiang. Furthermore, industrial activities in Anhui province are mainly concentrated in Maanshan and Wuhu, rather than XuanCheng.

We noted that gross domestic product (GDP) per capita of XuanCheng is RMB13,051 (RM6,134) as compared to Sunway's maiden property venture in Jiangyin, Jiangsu province which has GDP per capita of RMB91,538. Nevertheless, it is premature to jump into conclusion at this juncture as the proposed venture is still at the MoU stage.

Sunway is our top buy for the construction sector. This is premised on (1) strong earnings growth of 47.1% in FY10, (2) undemanding forward P/E (price-to-earnings) valuation of 7.5 times, (3) more landbank acquisition in the pipeline, and (4) strength in securing overseas construction contracts, in particular in Abu Dhabi and India.

Our target price is unchanged at RM2, which is derived from 10 times P/E on FY10 EPS (earnings per share). This is further supported by sum-of-parts (SOP) valuation of RM2.74. - ECM Libra Investment Research, May 11
This article appeared in The Edge Financial Daily, May 12, 2010.

GPACKET - OSK expects GPacket's Ebitda losses to halve

Stock Name: GPACKET
Company Name: GREEN PACKET BHD
Research House: OSK

Green Packet Bhd (GPacket)
(May 11, 93 sen)
Maintain buy at 94.5 sen with target price of RM1.30: GPacket will announce its 1QFY10 results tomorrow. We expect the WiMAX operator to kickstart the year on a high note with 1QFY10 revenue growth of over 14.5% quarter-on-quarter (q-o-q) on strong subs addition and stable ARPUs (average revenue per user). This would slash its earnings before interest, tax, depreciation and amortisation (Ebitda) losses by more than 49% q-o-q as subscriber acquisition cost (SAC) is expected to continue to trend down on manageable competition. Maintain buy.

The stock's rerating catalyst would be better earnings visibility over the next few quarters on sturdy net adds and as CPE (customer premise equipment) sales gain traction in tandem with mounting global WiMAX deployment.

We expect GPacket to kickstart 2010 on a high and unveil a good set of 1QFY10 numbers. We believe the strong top line in 4QFY09 spilled over to 1QFY10, translating into a +14.5% jump q-o-q, as the broadband net adds momentum snowballed, with more than 30,000 registered during the quarter in line with our expectations.

The encouraging more-than-20% year-on-year improvement in net adds is no coincidence as P1 repriced its W1GGY offerings in March and waived the RM60 registration fee for selected plans to get on par with its peers. Nonetheless, revenue is anticipated to come in below our expectation of 34.3% q-o-q growth. The underperformance could be attributed to the slow albeit recovering corporate voice wholesale and lower average selling prices for its modems. We are not overly concerned with the expected shortfall as the voice division, which typically commands Ebitda margin of 4%-5%, would pick up in tandem with Singapore's economic rebound.

On the flip side, operating costs are likely to be lower than our forecasts on decline in direct expenses whilst SAC is believed to have averaged RM350 per subscriber against our previous assumption of RM375/subscriber on lower modem costs. We expect SAC to ease progressively to RM300 towards end-FY10 after the introduction of WiMAX-equipped laptops in 2H10. Competition remains largely optimal within the WiMAX universe as our quick checks raise the possibility of further delays in Y-Max's launching. Meanwhile, CPE sales are expected to be on track to achieve our forecast of 900,000 units for FY10 as demand picks up ahead of more commercial rollouts in the region. All eyes will be on the upcoming broadband wireless access auction in India as Samsung is already in talks with local mobile operators to lobby for nationwide WiMAX implementation. As a whole, 1QFY10 Ebitda losses are likely to fall within RM31 million-RM32 million, in line with our forecast.

We reiterate our target price of RM1.30 based on eight times FY11 enterprise value/Ebitda. This translates into a lucrative upside of over 30% given the recent share price weakness. - OSK Research, May 11
This article appeared in The Edge Financial Daily, May 12, 2010.

SIME - RHB Research: Sime still an outperform

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

Sime Darby Bhd
(May 11, RM8.63)
Maintain outperform at RM8.60 with fair value of RM9.70: Sime Darby Motor Division Sdn Bhd has entered into a property sale agreement with Sapura Auto Sdn Bhd to acquire a 0.11-acre piece of freehold land on Jalan Tun Razak, Kuala Lumpur, together with the automobile showroom and related facilities for the provision of after-sales services for a cash consideration of RM49.05 million. The acquisition is to be completed by end-2010.

We are pleasantly surprised that this deal does not involve buying the company itself (which is loss-making) and only involves buying just the land and building. This means that Sime is not committed to buy any of Sapura's existing stock/inventory.

We believe this acquisition makes more sense for Sime, as it will be able to immediately utilise the existing showroom and the 4S centre for its BMW and MINI operations following the recent closure of its Bukit Bintang branch in December. Besides that, Sime would also have the opportunity to tap into Sapura's existing customer base, in line with its strategy of expanding in major cities like Kuala Lumpur.

Based on the market value of the property given by the valuer Henry Butcher of RM47 million, we would say this is a fair price to pay, given the prime location of the land.

Forecasts unchanged as this acquisition would only dent earnings by less than 2%. The risks to our view are: (1) the reversal in crude oil price trend resulting in a reversal of crude palm oil and other vegetable oils price trend; (2) weather abnormalities; (3) change in emphasis on implementing global biofuel mandates; and (4) slower-than-expected global economic recovery.

No change to our fair value of RM9.70 per share. Maintain outperform recommendation for Sime given its further potential upside from GLC reforms, additional merger synergies and yield improvements from its Indonesian plantations. - RHB Research Institute, May 11
This article appeared in The Edge Financial Daily, May 12, 2010.

LMCEMNT - 10MP likely catalyst for Lafarge

Stock Name: LMCEMNT
Company Name: LAFARGE MALAYAN CEMENT BHD
Research House: MAYBANK

Lafarge Malayan Cement Bhd
(May 11, RM6.53)
Maintain buy at RM6.68 with target price of RM7.40: Lafarge's share price fell 3% from its 12-month high in end-April. We have tweaked our 2010 forecasts downward by 3% on lower export contribution. Nevertheless, we remain buyers of Lafarge due to: (i) capital management being a recurring theme, with its strong free cash flow of 67 sen per share over 2010-11 (versus dividend per share of 38 sen per share); (ii) 10th Malaysia Plan (10MP) could be an event catalyst for a high beta stock like Lafarge.

Reiterate buy, with an unchanged target price of RM7.40 on 14 times 2011 earnings.

Lafarge's 1Q10 was affected by lower export average selling prices (ASPs). Results are set to be released on May 26. Earnings should be sequentially weaker due to seasonal factors - slower construction activities during Chinese New Year, lumpy maintenance charges. Year-on-year (y-o-y), though sales volume stayed flattish, we expect earnings to be weaker given: (i) heightened discounting activities (rebates have doubled y-o-y to RM28/mt); (ii) lower export contribution (20% of total production volume) due to lower ASP of US$35-38/tonne (-11% y-o-y) and the stronger ringgit (+7% y-o-y). Note that Lafarge is a net loser from a stronger ringgit as coal import accounts for 60% of export sales receipt.

Effective May 1, cement makers raised the gross ASP to RM300/tonne (+9%), justifiably passing on rising imported coal cost (+23% year to date).

Effective ASP (after rebates of RM25/tonne) is now around RM275/tonne (versus RM247 in 1Q10). While Lafarge's cheap coal inventory could run out in June 2010, we expect effective ASP to continue rising in 2H10 with government-led construction demand and cancel out cost inflation.

After adjusting for lower export ASP of US$38/tonne (-11%), we tweaked our 2010 forecasts downward by 3%. Lafarge is a high beta stock in search of a catalyst. If investors re-rate the construction sector further on higher government spending in the 10MP versus 9MP, and with the awarding of major infrastructure projects, Lafarge's share price could outperform traditional construction stocks. The cement sector's oligopolistic market structure is clearly superior to the competitive construction sector, in our view. - Maybank IB, May 11
This article appeared in The Edge Financial Daily, May 12, 2010.

HARTA - OSK Research raises Hartalega target price to RM9.89

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

KUALA LUMPUR: OSK Investment Research has maintained its buy call on Hartalega Holdings at RM7.79 with a higher target price of RM9.89 (from RM8.92), and said the company's 4QFY10 results scheduled to be announced Tuesday, May 11 would be in line with its own and consensus expectations.

"We see a better quarter-on-quarter performance, mainly contributed by 1) its timeliness in passing on the cost of higher latex price; 2) higher sales as a result of bigger production capacity, and 3) growing demand for nitrile gloves as the price difference with natural rubber gloves narrows due to the increase in natural rubber price.

"There is also the possibility of a bonus issue, following in the steps taken by its peers," it said in a note on Tuesday.

AIRPORT - OSK Research reiterates trading buy call on MAHB

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

KUALA LUMPUR: OSK Research reiterated its trading buy call on Malaysia Airports Holdings Bhd (MAHB) at RM4.95 with target price RM5.50, and said 1Q traffic statistics released by MAHB showed the robust trend in passenger and cargo figures in the past few quarters continued into 1Q.

Despite being lower quarter-on-quarter, this was purely due to seasonal weakness after 4Q's heavy holiday season, it said.

"We see a similar trend for the retail division, which has made headway since introducing its Retail Optimisation Plan (ROP).

"These factors, together with potential excitement from MAHB's fund raising via a new share placement, lead us to reiterate our trading buy call with a target price of RM5.50, derived from 16 times FY10 EPS," it said.

CIMB - CIMB downgraded to 'Hold'

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

CIMB Group Holdings Bhd. had its stock rating downgraded to "hold" from "buy" at AmResearch Sdn Bhd following recent gains in the company's share price.

AmResearch said it maintained the stock's fair value at RM15.10, based on its estimated return on equity ratio of 15.9 per cent for the full year. - Bloomberg

JOBST - Surprising rise in job postings on JobStreet

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

JobStreet Corporation Bhd
(May 10, RM2)
Maintain buy at RM1.98 with target price of RM3.20: The number of job postings on the Malaysian portal surged to 17,000 at end-March, the highest in JobStreet's history, and compares to about 13,000 at end-February and a low of 7,000 in January 2009.

This was a surprise as 1Q is typically a quiet period. Hence, 1QFY10F earnings should show improvement year-on-year and quarter-on-quarter. There could be upside to our FY10F earnings as we assumed about 14,000 jobs per month for Malaysia. Also, DBS economist recently upgraded 2010 GDP forecast to 8% versus our current assumption of 5.7%. Historically, 1% GDP growth would increase JobStreet's revenue by 3%-5%.

JobStreet is in a win-win situation. It is operating in the right growing online industry while capitalising on strong job creation in the Asean market. The government's National Broadband Initiative is creating stronger awareness in the SME market, which JobStreet is trying to penetrate.

This could be a strong catalyst for the stock. In our view, this will create a sustainable structural shift from print to online advertising. In fact, classified sales for appointments had been declining in 2007-2009. Our sensitivity analysis indicates that every 10% migration of classified sales from The Star to JobStreet would enhance JobStreet's earnings by 3%. Furthermore, the growing adoption of gadgets such as the iPhone and iPad will boost accessibility to JobStreet's services.

The swift improvement in the job market supports our view that JobStreet is one of the best proxy to economic recovery in the Asean markets. With SEEK raising its stake to 22.4% now, we can expect more tangible synergies such as marketing ideas, new user interfaces, analytics and also new markets. Meanwhile, major shareholders SEEK Ltd and Fidelity remain firm with their investments in JobStreet, with Fidelity raising its stake from 11.5% to 11.7% on April 10.

Given JobStreet's strong cash flow generation ability, it is well-positioned to reap further acquisition and investment opportunities. We estimate it will generate RM23 million-RM41 million free cash flow (FCF) over FY10-FY12F, while its balance sheet is in net cash position of RM50 million (16 sen per share).

However, as JobStreet has met its target of 20% stake in 104 Corp this year, it is unlikely to raise its stake further for now. Hence, with the excess cash in hand, we do not discount the possibility of a higher dividend payout (currently 35%, implies 1.5% net yield).

We are retaining our buy rating, and RM3.20 price target based on one time price earnings-to-growth (PEG) (FY09-FY12 net profit compound annual growth rate of 25%). This implies 19.9 times fully diluted FY12F PE. - HwangDBS Vickers Research, May 10


This article appeared in The Edge Financial Daily, May 11, 2010.

GAB - GAB riding on Tiger's success

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

Guinness Anchor Bhd (GAB)
(May 10, RM7)
Maintain hold at RM6.91 with unchanged target price of RM7: Appropriately led by its Tiger brand, GAB continued to gain market share in the malt liquor market (MLM) in 3QFY10. The seasonality factor also translated into a strong net profit growth of 43% year-on-year (y-o-y) to RM47 million.

There are no changes to our forecasts as we expect a slower sequential quarter after the seasonality factor wears off. Maintain hold.

As expected, 3QFY10 turned out to be solid quarter. GAB's RM47 million 3QFY10 net profit (+43% y-o-y; +6% quarter-on-quarter) was within our and market expectations, making up 31% of our and consensus forecasts. The brewer's strong 3Q performance is not comparable y-o-y due to the earlier timing of Chinese New Year (CNY) in 2009, which resulted in some of the CNY festive sales captured in 2QFY09 instead of 3QFY09.

GAB's 12-month cumulative moving average (MA) turnover and pre-tax profit up to 3QFY10 reached new highs of RM1.33 billion (+5% y-o-y) and RM195 million (+9% y-o-y) respectively.

These are better indications of the continuing strong momentum GAB has built up, which suggests that it is likely to improve on its performance to date with the upcoming World Cup football tournament beginning June 11. We expect GAB's products - lager and stout - to continue gaining market share in the next 6-12 months.

With 39 sen per share net cash at end-3QFY10 and forecast to grow to 72 sen per share by end-FY12, we continue to like GAB for its deep dividend potential. GAB also offers steady growth potential with its ability to grow market share, whilst competing in an industry that has a high defensive quality of earnings.

We maintain our hold call and RM7 discounted cash flow-based (DCF) target price, which translates into a near 7% net dividend yield. - Maybank IB, May 10


This article appeared in The Edge Financial Daily, May 11, 2010.

F&N - F&N dampened by dairy, property

Stock Name: F&N
Company Name: FRASER & NEAVE HOLDINGS BHD
Research House: CIMB

Fraser & Neave Holdings Bhd (F&N)
(May 10, RM10.82)
Maintain underperform at RM10.72 with target price RM8.65: F&N 2QFY9/10 net profit of RM85 million took 1H bottom line to RM163 million, which works out to 58% of our full-year forecast and 60% of consensus estimate. It is broadly in line with expectations as we anticipate a less robust 3Q in the absence of major festivities.

The interim dividend per share (DPS) of 18 sen gross and three sen tax-exempt was also not surprising. We maintain our forecasts, discounted cash flow-based target price of RM8.65 (weighted average cost of capital unchanged at 8.4%) and underperform recommendation.

The potential derating catalysts are further declines in the dairy and property businesses, and margin pressure from trade discounting. F&N is undoubtedly a venerable company, and trails behind QSR Brands, Cocoaland and CI Holdings, whose valuations are more attractive. QSR is our top food and beverage pick.

F&N's 2Q sales surged to a record RM1 billion, helped by strong festive soft drinks sales, which improved 15% year-on-year (y-o-y). All main products registered growth, with Coca-Cola and 100Plus again outshining the rest. Furthermore, the glass business sprang a nice surprise, chalking up a 14% y-o-y jump in sales volume in Vietnam and Thailand after a string of disappointing quarters.

However, the exciting growth recorded by the soft drinks and glass businesses was offset by the slowdown of dairy and property activities. Revenue for the dairy business stagnated as higher sales in Malaysia and Thailand/Indochina were offset by lower exports. The property business is expected to remain sluggish as no significant new projects are in the offing.

F&N has sealed an exclusive five-year agreement effective April 1 to distribute Red Bull energy drinks in Malaysia. The deal will expand F&N's product portfolio and help fill the sales void that Coca Cola and Sprite will leave behind when its transitional bottler's and distributor's agreements expire on Sept 30, 2011. - CIMB Research, May 7


This article appeared in The Edge Financial Daily, May 11, 2010.

CSCSTEL - A little more lustre for CSC Steel

Stock Name: CSCSTEL
Company Name: CSC STEEL HOLDINGS BERHAD
Research House: OSK

CSC Steel Holdings Bhd
(May 10, RM1.88)
Maintain buy at RM1.85 with target price of RM2.22: CSC Steel's 1Q numbers were above our and consensus estimates. 1Q earnings were down 17.6% from the previous corresponding quarter, mainly due to lower average selling prices as well as higher taxes paid. Nonetheless, we are positive on the upcoming one or two quarters as we see higher selling prices boosting the company's top line.

As such, we maintain our FY10 and FY11 numbers, which keep our target price unchanged at RM2.22. Maintain buy.

CSC Steel's 1Q numbers were 8% above our expectation and also beat consensus estimates. Quarter-on-quarter top line was flat but net profit fell 17.6%.

Although there was small growth in sales, the average selling prices of its finished goods were lower at US$680 (RM2,176) to US$780 per tonne (based on Steel Business Briefing's East Asia prices) during the quarter. This was partly due to Chinese New Year celebrations falling in mid-February 2010, during which steel demand was somewhat quiet. The decline was also partly due to the higher tax paid of RM8.6 million, which was 45% higher than that paid in 1Q.

On a year-on-year basis, net profit and revenue surged 435.9% and 62.6% respectively as stockists had held back on purchases last year as well as the higher inventory then.

We see higher CRC (cold rolled coils) prices as we believe the higher priced iron ore may have exerted cost pressure on prices. With the momentum set to gain pace, we think the company is poised to reap higher revenue over the next one or two quarters as downstream steel traders begin to stock up on inventory in anticipation of a further price hike in the CRC market.

However, we remain cautious for 2H as the improved sentiment may reverse, as there is an over-production of flat steel products. We maintain our forecasts for FY10 and FY11 and arrive at a target price of RM2.22 on adding our projected net cash per share forecast for FY10 to our six times FY10 EPS (earnings per share) valuation.

We are impressed with its strong balance sheet as the company pared down its debt during the quarter by RM4.5 million, which translated into net cash of RM288.3 million as at March 31, 2010. - OSK Research, May 10


This article appeared in The Edge Financial Daily, May 11, 2010.

GAB - World Cup 2010 to give Guinness Anchor a lift, says OSK Research

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

KUALA LUMPUR: OSK Investment Research has maintained its buy call on GUINNESS ANCHOR BHD [] (GAB) at RM6.91 with target price RM7.35, and said the company's earnings were within expectations, with the bottom line figures to date accounting for 76.5% and 78.3% of OSK Research's and consensus estimates.

Moving into 4Q10 (April-June), it said sales would remain firm on intensified promotion activities in view of the 2010 World Cup Soccer season.

Since the Malaysian brewery industry rides on seasonal and event factors, the World Cup has been a positive factor for the industry every four years, it said.

The research house expects GAB to see robust numbers in the next quarter, although strong competition from its closest competitor means the risk of downside to earnings will persist.

"We see the stronger earnings on the 2010 World Cup soccer season lifting earnings in 4Q and meeting our earnings forecast.

"As we are making no changes to our earnings estimates or valuation parameters, we maintain our discounted cash flow-derived target price for GAB at RM7.35, with our buy recommendation intact," it said.

SUNCITY - Suncity jumps after ECM Libra ups target price

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

KUALA LUMPUR: SUNWAY CITY BHD [] rose in morning trade Monday, May 10 after ECM Libra Investment Research maintained its buy call and raised its target price for the stock to RM5 (from RM4.33 previously).

The research house said Suncity was one of its top picks for the sector.

"At current market capitalisation, investors are not only paying 21% discount for the net cash proceeds and 38.25% in Sunway REIT valued at RM2.2 billion but also get all its property development landbank for free.

"We raise our target price from RM4.33 to RM5 based on 14 times P/E which is one standard deviation higher than average forward P/E of 9.9 times," it said.

ECM Libra said this was justified given the 18.7% EPS CAGR over next three years, unlocking hidden value in investment PROPERTIES [] and potential upside from further expansion.

KNM - KNM's valuation 'attractive', a 'buy'

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

KNM Group Bhd, a Malaysian oil and gas services provider, was upgraded at Maybank Investment Bank Bhd because the stock's valuation is "attractive" and its operations are improving.

The company's rating was raised to "buy" from "sell," Maybank Investment said in a report today.

Its share price estimate was unchanged at 68 sen. -- Bloomberg

MISC - Calmer seas ahead for MISC?

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

MISC Bhd
(May 7, RM8.85)
Maintain trading buy at RM8.82 with target price of RM10: MISC's FY10 results fell short of market expectations due to the still-heavy losses in liner and chemical shipping plus higher corporate taxes in 4Q. However, we remain excited over its recent cash call, which suggests a potential acquisition, in addition to a sentiment boost from MMHE's proposed listing. We expect a sharp upswing in its shipping business in FY11, particularly the liner business, and are thus keeping our original estimates and trading buy call. The RM10 fair value implies a valuation of 1.9 times book value and 27 times price-earnings ratio (PER) on FY11 numbers.

Excluding the disposal gain on ships, MISC's 4QFY10 core profit before tax (PBT) of RM279.1 million surged 45.6% quarter-on-quarter (q-o-q). Although this was encouraging, the FY10 core net profit of RM703.3 million was 20% and 27% short of our and market expectations respectively. The poor showing can be attributed to the still-heavy losses in liner and chemical shipping, while the petroleum shipping side posted a minor loss in 4Q.

Also, we suspect the higher corporate tax of RM52.5 million during the quarter was partly due to higher PBT contribution from MMHE.

While the bulk of the group's energy-related business is derived from long-term charters for liquefied natural gas (LNG) carriage that contribute consistent earnings, 4Q was a challenging quarter for the energy shipping division. The loss in chemical shipping widened to US$19.6 million (RM64.29 million) while petroleum shipping slipped into the red with a US$2.8 million loss in 4Q.

Lower spot cargo volume, escalating bunker costs and additional security arrangement fees also led to losses in the petroleum and chemical division. High expectations of the liner division mitigating the substantial loss did not materialise as it still incurred a huge loss of US$81.3 million.

Although the group pulled out of the loss-making Grand Alliance from Jan 1, 2010, the progressive return of chartered-in vessels was only completed at end-4Q. With the shipping industry seemingly bottoming, we see a sharp turnaround for MISC's businesses, especially the liner division, backed by good prospects for its Halal Express Services and much lower chartered-in cost.

MMHE's contribution surged in 4Q on higher revenue recognition. Apart from that, the offshore division also recorded a 31.7% improvement q-o-q but we think this was purely due to a one-off reversal in 3Q.

Despite the small disappointment in FY10 earnings, we are still excited over a potential M&A in the group, taking the cue from its recent cash call. The financial crisis resulted in many shippers needing to be bailed out, which opens up many acquisition opportunities. Also, the proposed listing of MMHE may give rise to positive market sentiment although we see little value creation. Therefore, we reiterate our trading buy call with our target price unchanged at RM10. - OSK Research, May 7


This article appeared in The Edge Financial Daily, May 10, 2010.

MEDIA - Stay tuned to Media Prima

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

Media Prima Bhd
(May 7, RM2.14)
Maintain buy at RM2.14 with higher target price of RM2.68: Media Prima Bhd (MP) is due to release its 1QFY10 results on May 18. We understand that MP will record 1Q net profit of circa RM20 million. This is a marked improvement from the 1QFY09 core net loss of RM9.9 million. Not only did 1Q TV advertising expenditure (adex) grow by double digits year-on-year, it grew by high single digits vis-à-vis a robust 1QFY08 (buoyed by the 12th general election then). The New Straits Times Press (NSTP) will also commence contributing to earnings in 1QFY10. We estimate that NSTP contributed circa RM10 million to MP's net profit in 1QFY10.

In tandem with healthy consumer sentiment (two-year high) driven by the recovering economy, total adex sentiment and growth have improved markedly. We understand that TV booking cycles have improved from two weeks to slightly over a month. Recall that TV booking cycles were approximately three months during the "heady" 2007 to 1H08 period. Therefore, despite potentially posting good 1Q10 results, there is a lot of room for improvement at MP.

We now assume 7.5% TV adex growth or 1.5 times real GDP growth for FY10 and 5% TV adex growth or one time real GDP growth thereafter (6% TV adex growth per annum previously). This is moderated by lower daily circulation of Berita Harian and New Straits Times as per the recent Audit Bureau Of Circulation 2009 Audit Report. The net impact is to leave our FY10 earnings estimates relatively unchanged but our FY11 and FY12 earnings estimates trimmed by 11% and 13% respectively.

We now ascribe a one-year forward PE of 18 times (average since listing in October 2003) to arrive at a revised target price of RM2.68 (RM2.17 previously on 13 times one-year forward PE).

Recall that MP was trading at 17 times to 21 times one-year forward PE during the 2007 to 1H08 period. Now that consumer and thus, adex sentiment has recovered to the levels witnessed during that period, we believe that MP should trade at those valuations.

Anyhow, as earnings are on the mend, MP should be trading close to historical average valuations anyway. We maintain our buy call on MP. It remains our top pick in the media sector for 25% upside potential. We will upgrade our estimates and target price should adex grow stronger than expected. - ECM Libra Investment Research, May 7


This article appeared in The Edge Financial Daily, May 10, 2010.

F&N - F&N's 1H results are pure enjoyment

Stock Name: F&N
Company Name: FRASER & NEAVE HOLDINGS BHD
Research House: MAYBANK

Fraser & Neave Holdings Bhd
(May 7, RM10.74)
Maintain buy at RM10.72 with target price of RM13.25: F&N thrashed consensus expectations in recording solid growth in all three core F&B divisions. Despite this, its CEO Tan Ang Meng is retiring early even as F&N readies for life after Coca-Cola in 18 months' time. We remain believers in F&N and though we are placing our forecasts under review pending an analysts' briefing last Friday, we maintain our buy call and RM13.25 target price.

RM85 million 2QFY10 net profit (+60% year-on-year; +10% quarter-on-quarter) was significantly beyond our and consensus expectations, coming in at 32.6% of our and 31.2% of market forecasts. This brought 1HFY10 recurring net profit to a record high RM163 million (+46% y-o-y) or 62.3% and 59.7% of our and consensus full-year forecasts.

Revenue from the soft drinks and glass divisions grew 19% and 14% y-o-y respectively as F&N posted RM1 billion in revenue (+10% y-o-y). In recurring operating profit terms, the dairies and soft drinks divisions were the stand-outs, growing by 31% and 18% as F&N benefited from higher festive sales volumes and lower raw material prices respectively to post a group-level 21% y-o-y growth to RM110 million in 2QFY10. Dairies further contributed to the outstanding 2QFY10 performance as its plant investment in Thailand lowered F&N's 2QFY10 effective tax rate to 19.4% (-4.1 percentage points y-o-y).

F&N declared interim dividends of 18 sen per share gross (less 25% tax) and three sen tax-exempt. This was 69% of 2QFY10's net profit and puts F&N on track to pay out at least 58.7 sen per share (gross) for the full year or another 27.5 sen per share in net dividends. F&N is thus maintaining its payout of at least 60% of net earnings annually in spite of its stellar growth.

We continue to like F&N for its ability to translate business growth in both soft drinks and dairies domestically and overseas into consistently strong earnings and dividend growth at group level. Our RM13.25 target price is based on 17 times CY11 PER, which is the high end of its average trading valuations over the last three years. - Maybank IB, May 7


This article appeared in The Edge Financial Daily, May 10, 2010.