SUNWAY - OSK Research initiates coverage on Sunway with buy call

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

KUALA LUMPUR: OSK Research has initiated coverage on SUNWAY HOLDINGS BHD [] with a buy recommendation at RM1.43 with target price RM1.96 and said it has a positive outlook on the domestic CONSTRUCTION [] scene and view Sunway as a strong proxy.

Its established track record should give Sunway the clout to secure repeat jobs from existing clients, said the research house.

"We also expect more jobs to flow from overseas markets such as Abu Dhabi, India and Singapore.

"Sunway's property earnings should be anchored by its Singapore developments, for which there has been strong take-up. We initiate coverage on Sunway with a by rating and target price RM1.96," it said in a note Friday, May 21. ''

MEDIA - Media Prima's reversal of fortune

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

Media Prima Bhd
(May 20, RM2.03)
Maintain buy at RM2.09 with target price of RM2.68: Media Prima recorded 1QFY10 core net profit of RM28 million. This is a huge reversal in fortune from the 1QFY09 core net loss of RM9.9 million.

The 1QFY10 core net profit was above expectations at 19% of our full-year estimate. Historically, 1Q core net profit comprised 10% to 15% of full-year core net profit due to seasonally lower adex (advertising expenditure) spend.

1QFY10 revenue of RM323.7 million was also above expectations at 23% of our 2010 estimate. Historically, 1Q revenue comprised 15% to 20% of full-year revenue.

The outperformance was due to TV net adex which surged 32% year-on-year (y-o-y), ahead of our 7.5% forecast for the whole of 2010, due to the recovering economy and maiden contributions from 90% owned, The New Straits Times Press (Malaysia) (NSTP).

Due to the relatively fixed costs nature of its businesses, the incremental revenue caused earnings before interest, tax, depreciation and amortisation (Ebitda) margins to surge 16 percentage points y-o-y to 23%. Save for new media, every segment recorded higher earnings y-o-y.

As expected, 1QFY10 core net profit was 20% lower quarter-on-quarter due to seasonally lower adex spend. While we are pleased with the 1QFY10 results, to err on the side of caution, we maintain our earnings estimates for now.

Given the bright consumer and adex sentiment, Media Prima's earnings are poised to recover strongly this year. We forecast 2010 EPS (earnings per share) to surge by 57% y-o-y.

The exit offer to the remaining shareholders owning 10% of NSTP will close in August 2010, and NSTP will be delisted in September 2010. Recall that the exit offer is based on terms similar to the voluntary general offer (1.2 Media Prima shares and 0.2 Media Prima warrant for every 1 NSTP share). We continue to assume that Media Prima will own 100% of NSTP by year-end.

Our RM2.68 target price is premised on 18 times one-year forward PE (price-to-earnings), which is the average since listing. Our valuation methodology is reinforced with the fact that Media Prima was trading at 17 times to 21 times one-year forward PE when consumer sentiment was strong during the 'heady' 2007 to 1H08 period.

Consumer sentiment has since recovered to those levels. Therefore, Media Prima should at least trade at historical average valuations. ' ECM Libra Investment Research, May 20


This article appeared in The Edge Financial Daily, May 21, 2010.

AMWAY - Amway results within expectation

Stock Name: AMWAY
Company Name: AMWAY (M) HOLDINGS BHD
Research House: INTER PACIFIC

Amway (Malaysia) Holdings Bhd
(May 20, RM7.45)
Recommend neutral at RM7.35 with target price of RM8.11: The target price is based on 50.7 sen FY10 EPS (earnings per share) and PER (price-earnings ratio) of 16 times. A re-rating is evident on the back of (1) improving consumer sentiment due to better economic outlook; (2) the strengthening ringgit against the US dollar and (3) contribution from their growth plans through higher compensation schemes for distributors, new products and better pricing.

Amway should negate the stiff competition and any potential backlash on consumer spending.

Amway's 1QFY10 earnings of RM175.5 million (+7.1%'' year-on-year) came in within our expectations, representing only 25.5% of our full-year forecast of RM685.7 million and consensus estimates. Its revenue's 7.1% rise y-o-y was due to pre-price increase buying ahead of the distributor price increase effective March 1, 2010.

Profit before tax fell by 14% y-o-y due to higher distribution expenses incurred from consumer access strategies; brand building initiatives and higher purchase price of products. These issues negated its favourable foreign exchange movements and better sales revenue.

1QFY10 earnings before interest and tax (Ebit) margin was lower at 14.8% versus 19.6% in the previous corresponding quarter. On a q-o-q basis, the 1QFY10 revenue and net profit grew at a slower 2.1% and 2.2% respectively.

We expect similar dividend payout of that in FY09 with a total payout of 48 sen net per share in FY10. A first interim dividend of nine sen net per share was declared on May 19, 2010. ' Inter-Pacific Research, May 20


This article appeared in The Edge Financial Daily, May 21, 2010.

TSH - TSH earnings dragged by wood, cocoa businesses

Stock Name: TSH
Company Name: TSH RESOURCES BHD
Research House: MIDF

TSH Resources Bhd
(May 20, RM1.82)
Maintain buy at RM1.80 with lower target price of RM2.30: TSH registered an increase of 31.7% in 1Q10 revenue to RM240.5 million from RM182.6 million in 1Q09.

This was mainly contributed by higher crude palm oil (CPO) and palm kernel prices in 1Q10.

The improvement in top line figure was achieved despite lower sales volume as CPO production dropped by 11.1% to 50,353 tonnes in 1Q10 vis-''-vis 56,614 tonnes recorded in 1Q09.

In 1Q10, net profit was significantly higher by 97.4% to RM11.3 million compared to RM5.7 million for the same quarter last year.

While TSH's palm oil division registered an operational gain of RM29.5 million in 1Q10, its wood products and cocoa manufacturing businesses posted operational losses of RM1.1 million and RM5.3 million respectively.

As the bulk of the finished products from the wood products and cocoa manufacturing businesses are exported to Europe and the US, the uneven recovery among the major western economies coupled with the strengthening of the ringgit have resulted in the less-than-favourable results.

At this juncture, we are maintaining our earnings forecasts for FY10 and FY11 as we expect a turnaround in the wood and cocoa divisions just as the economies of major western countries are beginning to find their footings.

Moreover, we expect CPO prices to remain on an upward secular trend despite the 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 per tonne for 2010 and 2011, respectively.

While we previously attached a slight premium to our valuation of TSH due to the expected double-digit growth in output (from its mostly young and maturing oil palm estates), however, due to the recent underperformance of its wood and cocoa businesses, we now believe a mean historical benchmark would suffice.

Hence we maintain our buy recommendation on the stock but with a revised target price of RM2.30, based on FY11 multiples of 10.8 times, which is equivalent to its 10-year, mean historical PER (price-earnings ratio). ' MIDF Research, May 20


This article appeared in The Edge Financial Daily, May 21, 2010.

NOTION - RHB Research: Notion Vtec set to deliver

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

Notion Vtec Bhd
(May 20, RM2.69)
Maintain outperform at RM2.73 with higher fair value of RM4.68: According to the management, construction work on its new 150,000 sq ft plant is near completion. The new plant, which is expected to house most of the base plate production capacity, is set to commence production by September 2010.

Note that the management expects capex of around RM80 million to ramp up the base plate capacity to one million per month, five million/month, and seven million/month by FY10-FY12 respectively from 350,000-400,000 per month currently versus 100,000 per month in January 2010, pending the arrival of additional equipment and machinery.

The company expects stronger volume loading in 2H10 from Western Digital (WD) on the back of strong demand for hard disk drive (HDD) components ' antidisks, disc clamp, and spacers ' as well as WD's market share gain.

Recall that WD overtook Seagate as the No 1 HDD vendor in 1Q10. WD now expects to increase its total HDD shipments by more than 20%. While Notion's current capacity for these components is 800,000-900,000 per month, the management is expecting to increase capacity to 1.5 million-2 million per month by end-2010.

Given the volume loading of the HDD segment, as well as the anticipation of a robust demand for data storage, we have re-adjusted our forecast assumptions.

Given the anticipation of higher costs this year stemming from higher start-up costs and product testing, we have trimmed our FY10 net profit forecast by 4.3% to RM53.6 million.

However, given stronger volume loading as well as tight cost control and higher utilisation rate, we have tweaked upwards our FY11-FY12 net profit by 0.8% per annum.

After the revision in earnings, our indicative fair value has been raised to RM4.68 from RM4.64 based on 10 times target FY09/11 PER (price-earnings ratio). We are maintaining our outperform call on the stock. ' RHB Research Institute, May 20


This article appeared in The Edge Financial Daily, May 21, 2010.

ALAM - OSK Research maintains buy call on Alam Maritim

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

KUALA LUMPUR: OSK Investment Research has maintained its buy recommendation on ALAM MARITIM RESOURCES BHD [] at RM1.62 with a target price of RM2.99 after the company on Wednesday proposed to undertake a bonus issue of up to 272.5 million bonus shares.

The bonus issue will be on the basis of one new bonus share for every two existing shares and will be held at a date to be determined and announced later.

The research house said historically, Alam's shares have not been very liquid, with the three-month average volume being less than 500,000.

Its free float is also less than 40%, as the bulk of its shares is controlled by its major shareholder, SAR Venture Holdings SB, which has 50% equity interest, it said.

"Assuming that all its ESOS shares totaling 36.5 million shares were exercised, the bonus issue would increase its issued share capital to about 800 million shares compared with the existing 500 million shares.

"Besides increasing its share liquidity, the bonus issue is also meant to reward Alam's existing shareholders as they now would have more shares to trade," it said.

OSK Research said its target price for Alam remains unchanged at RM2.99 based on existing PER of 12 times FY10 earnings.

"Our ex-bonus fair value will be revised down to RM1.99 while the theoretical share price will adjust to an ex-bonus price of RM1.08, which still provides about 84% upside from the current price.

"Going forward, we continue to like the company's sound strategy in penetrating new businesses (such as its pipelay barge) and new geographical markets (Middle East and India), and its solid financial strategy (using the JV option to finance its new vessels), which will not only safeguard its gearing but also instill investor confidence in the company," it said.

BRDB - OSK Research upgrades BDRB to trading buy

Stock Name: BRDB
Company Name: BANDAR RAYA DEVELOPMENTS BHD
Research House: OSK

KUALA LUMPUR: OSK Investment Research has upgraded BANDAR RAYA DEVELOPMENTS BHD [] to a trading buy at RM1.62 with target price RM1.83 and said the company's annualised 1QFY10 net profit was within its expectation but 36% below consensus estimates.

It said that as expected, 1QFY10 year-on-year (y-o-y) and quarter-on-quarter (q-o-q) turnover fell marginally by 7% on lower property sales and diminishing unbilled sales due to lack of new launches.

Net profit, however, improved by 16% y-o-y and 18% q-o-q on Mieco's improving operating performance, it said.

"We are leaving our earnings forecast unchanged for now.

"As the stock price has now fallen substantially inline with other property counters, we are upgrading the stock back to a Trading Buy, with an unchanged CY10 target price of RM1.83 based on 0.52 times CY10 P/NTA," it said.

WASEONG - Buy Wah Seong on share price weakness

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

Wah Seong Corporation Bhd
(May 19, RM2.31)
Maintain buy at RM2.50 with target price of RM3.40: It was announced early yesterday that the board of directors of Socotherm SpA has accepted an offer for a share capital investment from an investor group consisting of ShawCor Ltd of Toronto, Canada and two private equity firms ' France's 4D Global Energy Advisors of Paris and Argentina's Sophia Capital of Buenos Aires.

Completion of the share capital investment will result in the investor group attaining a 95% ownership interest in Socotherm with ShawCor Ltd holding a 40% interest in the investor group.

ShawCor's investment will be approximately '30 million (RM118.88 million) (the full investment being '75 million). The completion of the investment is subject to a number of conditions, including approval of the Italian court supervising Socotherm's restructuring process as well as the approval of Socotherm's creditors.

We had indicated that there would be a strong possibility that Bredero Shaw may instead get the stake in Socotherm given their financial muscle and market positioning. Besides that, the tie-up with the two private equity funds may have bolstered their case.

Again, we view the loss in getting Socotherm as only a minor setback for Wah Seong. The group had never promised a positive outcome for the bid but only indicated that they were bidding.

With RM471 million cash sitting in its books, we don't doubt that Wah Seong will still be looking for other avenues into new markets. We expect the company to make an announcement on the progress into Nigeria soon and this essentially also frees it up to look for other acquisitions.

We also view that with Bredero Shaw operating as a monopoly in some markets, Wah Seong could have a preference for entry as clients would want to keep the market competitive. As such, we see the possibility of the group getting tender invitations.

The market will no doubt take this news negatively and we view that any share price weakness is a good time to buy into Wah Seong.

We continue to like Wah Seong for its operational strengths as well as solid order book and track record. We maintain our buy call on the stock with target price of RM3.40. This is based on 20 times PE (price-to-earnings) (historical average) pegging FY10 EPS (earnings per share). ' ECM Libra Investment Research, May 19
This article appeared in The Edge Financial Daily, May 20, 2010.

JOBST - JobStreet downgraded on expensive valuation

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

Jobstreet Corporation Bhd
(May 19, RM2.05)
Downgrade to sell at RM2 with a lower target price of RM1.62: JobStreet's 1QFY10 revenue rose 19.3% quarter-on-quarter (q-o-q) and 27% year-on-year (y-o-y) while net profit for the quarter surged 38.6% q-o-q and 55.4% y-o-y.

The growth directly reflected the improvement in economic conditions, which has had a positive impact on sales. Revenue from JobStreet's core products, namely JobStreet Essential (online job posting service) and JobStreet Impact (career website management service), soared 53% and 84.9% y-o-y respectively. However, the increase was partially offset by a decrease in revenue from JobStreet Resource (provision of contract staffing services) by 22.9%.

Net profit grew at a faster pace compared to revenue because JobStreet Essential and JobStreet Impact contributed to better margins. 1QFY10 profit before tax margin came in at 45.8% compared to 41.9% a quarter ago.

JobStreet will benefit from the region's economic recovery and the resumption of hiring by companies. However, the management highlighted that FY10 performance would still very much depend on factors such as continuing uncertainties in the global economy, the ability of JobStreet to gain market share and the performance of JobStreet's investments.

JobStreet's balance sheet remains very strong due to its high free cash flow business. As at March 31, 2010, the company held RM46.6 million in net cash and another RM131.5 million in short-term and long-term investments.

JobStreet declared a first tax-exempt interim dividend of 1.25 sen. It also announced on Tuesday that it has revised its dividend policy, with its dividend payout ratio now at 50% of net profit compared to a third previously.

We downgrade JobStreet to sell as we worry that its current share price, which is nearing to its historical five-year average high PER (price-earnings ratio) of 18.4 times, is unsustainable.

Despite its 50% dividend payout policy, JobStreet's current FY10 net dividend yield of 3% is already deemed unattractive. Pegging a fair FY10 PER of 14.5 times (from 18.5 times previously), which is at around its historical five-year average PER, we arrive at a fair value of RM1.62. ' OSK Research, May 19
This article appeared in The Edge Financial Daily, May 20, 2010.

MRCB - Inter-Pacific Research neutral on MRCB

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP
Research House: INTER PACIFIC

Malaysian Resources Corporation Bhd (MRCB)
(May 19, RM1.49)
Recommend neutral at RM1.55 with target price of RM1.72: MRCB 1QFY10 revenue and net profit fell short of our full-year forecast by 18.2% and 18.1% respectively and consensus' 16.6% and 16.2% respectively.

Nonetheless with its current outstanding order book of about RM4 billion, with RM1.24 billion being external ongoing projects that are expected to be completed within two years, we believe MRCB is well in line to achieve our FY10 forecast. We recommend neutral and our target price is RM1.72 using RNAV (revised net asset value).

The improvement in its 1Q performance was mainly from: (1) engineering and construction (E&C) segment which grew by 84.2% year-on-year (y-o-y) driven by the recognition of ongoing works on Lot G, Lot 348, Lot A, Permai Hospital, Salak South transmission works; (2) infrastructure and environmental work segment which grew by 7.5% y-o-y driven by contracts revenue from Kuala Sg Pahang and Sg Kuantan rehabilitation projects; and (3) property development segment which grew by 40.6% y-o-y steered by Lot G development in KL Sentral which is a joint venture (JV) between MRCB and Aseana Properties Limited (UK).

To recap, DUKE (Duta-Ulu Klang Expressway) is an MRCB JV with Wira Kristal Sdn Bhd at an equity stake of 30%. However, the toll concession is yet to capture sufficient traffic volume to register profit. Losses for the period stand at RM2.1 million, accounting for 75% of losses registered in 1QFY10 share of results of jointly controlled entities and associates which is 159% higher compared to the corresponding quarter last year.

MRCB's current outstanding order book is at RM3.98 billion with an estimated 36% of it comprising internal construction works for KL Sentral developments (Lot A, Lot 348, Lot G etc).

In terms of order book replenishment, MRCB is still one of the main contenders for the RM7 billion LRT extension/upgrade as well as some environmental projects within the range of RM200 million-RM300 million following its expertise and track record in this segment.

We could expect positive surprises from the 10th Malaysia Plan next month regarding awards of government construction projects as well as redevelopment of government land.

Meanwhile, proceeds from its rights issue are not utilised yet. MRCB had allocated RM315 million from RM510.4 million raised from its rights issue for investment in prime land for property development. Its bank balance and deposit currently stand at RM1.16 billion.

We believe MRCB's focus will be to replenish their depleting landbank in view of the completion of KL Sentral development in about five years. We believe MRCB will be engaging its funds in larger landbank, which offers higher gross development value and development life span. ' Inter-Pacific Research, May 19
This article appeared in The Edge Financial Daily, May 20, 2010.

AEON - An eventful start for AEON Co

Stock Name: AEON
Company Name: AEON CO. (M) BHD
Research House: MAYBANK

AEON Co (M) Bhd
(May 19, RM5)
Maintain hold at RM4.99 with unchanged target price of RM5.10: AEON got off to a good start by posting its best ever 1Q performance. Unfortunately, sentiment may still be subdued because of the uncertainty over future earnings at the pivotal One Utama mall.

We like AEON as a long-term investment but maintain our hold call and RM5.10 target price for now.

AEON's RM41 million 1QFY10 recurring net profit (+58% year-on-year; -26% quarter-on-quarter) was above expectations, accounting for 28% of our and consensus' forecasts.

Net revenue rose 4.7% y-o-y to RM730 million aided by the buoyant Chinese New Year period. The generally better economic conditions and lower costs as a result of only one new store opening (in Melaka), were key drivers in AEON's quicksilver start to 2010.

AEON's continued delivery of double-digit earnings growth despite fewer new store openings in 2009-2010 justifies our expectations of continued earnings growth.

We remain mindful, however, that with the lease to manage the One Utama Shopping Complex in Bandar Utama up for renewal in August 2010, there is a possibility of a step-down in property management earnings in 2010 and 2011. Our current forecasts already reflect this worst-case scenario.

Encouragingly, AEON generated an operating cash flow of RM65 million (1Q09: -RM53 million) and net cash flow of RM38 million in 1Q10 (1Q09: -RM134 million).

It now has 50 sen per share in net cash at end-1Q10, which is a 70 sen per share improvement on its net debt position of 20 sen per share at end-1Q09.

Overall, AEON should be emboldened to begin acquiring new store sites again given the right mix of improving economic fundamentals and strengthened financials.

We maintain our earnings forecasts for now despite a stronger 1Q10. Our RM5.10 target price is based on a 25% discount to its sum-of-parts (SOP) valuation.

Whilst we like AEON's earnings track record, we await a demonstrated willingness to embark on a renewed store expansion plan, before reviewing our call and forecasts. ' Maybank IB Research, May 19
This article appeared in The Edge Financial Daily, May 20, 2010.

WASEONG - CIMB Research: Bredero-led group beats Wah Seong for Socotherm bid

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

KUALA LUMPUR: CIMB Equities Research says it has spoken to the management of Wah Seong Corp who confirmed that a Bredero-led consortium has beaten Wah Seong to the bid for Socotherm. 'While this news is a surprise, it does not have any impact on our earnings numbers as we did not factor in any contributions from Socotherm,' it said on Wednesday, May 19. CIMB Research said furthermore, Wah Seong has a healthy order book of RM1.42bn and is also vying for RM5.3bn worth of contracts. Management is still keen on M&As and is putting in the groundwork in Africa. 'We continue to apply our target market P/E of 15x to the stock, leading to an unchanged target price of RM3. 'Wah Seong remains an OUTPERFORM, premised on the potential re-rating triggers of 1) order book expansion, and 2) M&As. The share price may react negatively to this news. Investors should take the opportunity to accumulate,' it said.

MAYBULK - OSK Research reiterates neutral call on Maybulk

Stock Name: MAYBULK
Company Name: MALAYSIAN BULK CARRIERS BHD
Research House: OSK

KUALA LUMPUR: OSK Investment Research has reiterated its neutral recommendation on Malaysia Bulk Carriers Bhd (Maybulk) at RM2.99 with target price RM3.03 and said the company's 1Q core earnings were above its own and street estimates.

The higher time charter rates coupled with stable hire days lifted contributions from the bulker and tanker side but this was offset by lower contribution from the offshore business, it said.

"Despite expecting a better POSH contribution in 2H, we are cautious on the outlook of the bulker and tanker markets as newbuildings may give rise to a supply overhang.

"Therefore, we reiterate our neutral recommendation with a sum-of-parts target price of RM3.03," it said.

MISC - MISC buys stable, complementary biz

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

MISC Bhd
(May 18, RM8.73)
Maintain buy at RM8.73 with target price of RM9.05: We are positive on the acquisition, operationally and financially. The move to buy a 50% stake in VTTI from Vitol Holding BV for US$735 million (RM2.35 billion) by November 2010 is potentially earnings accretive and has strong cash generative appeal, similar to Dialog-Petronas JV Kertih Terminal Facility in Terengganu.

Furthermore, MISC will gain an instant footprint to the tank terminal business worldwide with an established partner. Buy with an unchanged discounted cash flow-based (DCF) RM9.05 target price.

This is a win-win deal for both. The purchase fits well into MISC's operations. VTTI, a top 10 independent tank terminal operator worldwide (by size) offers: (i) immediate access to tank farm terminal assets, strategically located at the crossroads of major product and energy shipping lanes of the world, and (ii) the opportunity to leverage, cross-sell and complement its petroleum and chemical shipping operations. Vitol, in return, gets to unlock value and ride on Petronas' global operations and franchise.

Tank terminal operations are a crucial part of the oil and product trading industry. It is an asset-light, low-capex and high-margin business, which generally delivers a steady income and is largely immune to the volatile oil price environment. This underlying strength provides a good fit to MISC's overall business segments as petroleum, chemical and liner logistics shipping earnings are cyclical in nature.

VTTI's financials were unavailable, which handicapped our earnings assessment. Based on preliminary valuation work on its peers (Odfjell's historical operating and financial statistics), VTTI could generate an annual revenue of US$330 million-US$450 million (based on US$55-US$75/cbm on six million cbm of capacity), US$132 million-US$225 million in Ebitda (40%-50% margin) and US$40 million-US$80 million in profits (12%-18% margin).

We estimate MISC to equity account RM13 million-RM81 million to group's net profit, based on its 50% stake in VTTI and after netting off the loss of interest income (US$16 million @ 2.2% FD rate). Overall impact to its bottom line is a potential 1%-2% rise in FY11's net profit, based on our assessment of its peers.

MISC should easily fund this acquisition with the proceeds raised from the recent rights issue exercise (RM5.2 billion). Its net gearing would only rise to 31.4% (+10.6 percentage point), manageable in our view.

With a combined capacity of six million cbm, VTTI is arguably one of the largest independent tank terminal operators in the world with a network of terminals spreading across 11 countries. Based on its expansion programme, VTTI is expected to add 25% (1.5 million cbm) to its tank terminal capacity by 2012.

We are not ruling out a potential listing of VTTI in the future, for it seems to qualify for a direct listing offering a market capitalisation of RM2 billion-RM5 billion based on 15 times-20 times PE multiples. ' Maybank IB Research, May 18
This article appeared in The Edge Financial Daily, May 19, 2010.

MAS - MAS 1Q artificially higher, says OSK

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

Malaysian Airline System Bhd (MAS)
(May 18, RM2.04)
Reiterate sell at RM2.06 with target price of RM1.50: On the back of robust air passengers and cargo traffic, MAS managed to trim its 1Q core loss to half of that in the previous year but this was still way above our and street estimates.

While we expect further improvement in air traffic and yield, especially after a seasonally weak quarter, the key drawback is still the stock's already rich valuation. Therefore, we reiterate our sell recommendation with a 12-month target price of RM1.50.

Excluding the RM329 million compensation received from Airbus for delay in the delivery of A380s from 2007 to 2011 and a marked-to-market (MTM) gain of RM56.7 million for fuel hedging, MAS' core net loss of RM75.6 million for 1Q was way above our estimates of full-year profit and market expectation of a loss of only RM50.3 million for FY10.

Furthermore, as 1Q is a seasonally lower travel period compared to 4Q, the quarter-on-quarter (q-o-q) loss widened, mainly attributed to weaker traffic against the relatively high fuel costs. Nevertheless, core loss was slashed by about half compared to 1QFY09, mainly driven by a huge 29.4% and 28.7% year-on-year (y-o-y) jump in international and domestic air traffic.

Also, the cargo numbers continued to shine, with a PBT (profit before tax) of RM25.3 million in 1Q against a loss of RM85 million in the previous year, boosted by a combination of higher load tonne kilometres (LTK) of 31.3% y-o-y and a 16.4% jump in overall cargo yield to RM79.50 per LTK.

We think the recent volcano eruption in Iceland may not have severely impacted MAS given its limited route exposure to the European region. While the management has said that the ash crisis may result in a RM15 million loss, we think the actual loss may be subjective, as most passengers stranded by the closure of air space may have to catch the later flights to their respective destination.

Sentiment is also positive, with the management expected to add capacity with the delivery of three leased B738s in 3Q and two new B738s in 4Q. This, together with the gradually increasing air fares despite being applicable to only selected routes, may progressively boost overall yield.

Meanwhile, a key risk to MAS remains on its fuel hedges covering 60% and 40% of its fuel requirement in FY10 and FY11 respectively at around US$100 (RM322) per barrel should crude oil continues to slip.

We are keeping our original estimates despite the poor 1Q given a potential revival in the next few quarters. While we reckon the completion of a recent 1-for-1 rights issue has beefed up the company's balance sheet, its valuation is still an obstacle to investment.

Our fair value of RM1.50, which offers no upside, implies an aggressive 1.3 times book value and 27 times PER (price-earnings ratio) on FY10, is also at a premium to renowned airlines like Singapore Airlines, which prompts us to maintain our sell recommendation. ' OSK Research, May 18
This article appeared in The Edge Financial Daily, May 19, 2010.

AIRPORT - MIDF: MAHB not grounded yet

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

Malaysia Airports Holdings Bhd (MAHB)
(May 18, RM4.99)
Maintain neutral at RM4.98 with a higher target price of RM5: MAHB posted a revenue of RM436.4 million, which was 25.2% and 24.8% of consensus' and our full-year forecast.

The higher revenue is due to the strong growth in passenger, traffic and aircraft movements in 1Q10 as leisure and business travel continue to recover. However, net profit fell by 21.1% year-on-year (y-o-y), which is only 18.2% of our full-year forecast as we had underestimated the income tax expense for the quarter. The variance is also attributable to the adoption of FRS139, which resulted in marked-to-market losses for MAHB's holdings in an associate company.

Passenger movement in 1Q10 grew by 21% y-o-y, showing four consecutive quarters of growth. However, on a sequential quarter basis, it declined by 7.7% quarter-on-quarter (q-o-q). This is as expected as the first quarter is traditionally a slow period following the festive holidays in the previous quarter. ''

Overall aircraft movement for 1Q10 increased by 11.5 % y-o-y, with the international aircraft segment growing by 12.9% y-o-y. As expected, the cargo movement would be a beneficiary of continuing global recovery and an increased in exports. Cargo movement registered a growth of 21.6% y-o-y in 1Q10.

Total revenue per passenger movements declined 7.1% y-o-y to register RM31.83 suggesting that the travellers at the airport were spending less in 1Q10.

However, the non-aeronautical revenue per passenger movement declined only marginally by 0.5% y-o-y to RM15.12, and on a sequential quarter basis it showed a 10% q-o-q increase. This suggests a further potential for MAHB to grow its retail business.

Although, MAHB posted a lower-than-expected net profit, we are not concerned of its prospects. Operationally, MAHB remains strong as its operating profit grew 19.5% y-o-y to RM150.4 million. We expect that the net profit will pick up especially in the third and fourth quarters. However, we believe that the market has already factored in MAHB's potential.

Therefore, we maintain our neutral recommendation of the stock with a revised target price of RM5, based on a PER (price-earnings ratio) of 13.8 times, which is a 7% discount to regional peers' average multiple of 14.8 times. ' MIDF Research, May 18
This article appeared in The Edge Financial Daily, May 19, 2010.

KENCANA - Kencana spicing up its order book

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

Kencana Petroleum Bhd
(May 18, RM1.57)
Maintain outperform at RM1.57 with target price of RM2: Kencana is on a winning streak, having secured four contracts in five weeks, the latest being a RM45 million contract from India's Larsen & Toubro announced on Tuesday. This takes its order book to just a shade below RM2 billion. We expect more contracts to be announced in the coming months. Kencana is aiming for RM1 billion worth of new fabrication contracts this year, of which 70% is expected to be domestic jobs.

We maintain our forecasts and target price of RM2 as we continue to apply our target market P/E (price-to-earnings) of 15 times to the stock. Kencana remains an outperform, premised on the potential re-rating catalysts of 1) active order book replenishment, and 2) M&As.

Kencana announced that its wholly owned unit and main fabrication arm Kencana HL has been awarded a US$14 million (RM45 million) contract to construct jackets for offshore platforms to be located in India. The client is India's Larsen & Toubro. This one-off contract is expected to run from 1Q to 3QFY7/11.

The management continues to deliver its promise of growing the order book. The recent contract is Kencana's fourth since April 15. The new contracts, worth a collective RM336 million, take Kencana's outstanding order book to slightly below RM2 billion. The announcement was not unexpected. As we highlighted in our visit note on Tuesday, we expect active news flow from the company as it vies for RM1 billion worth of fabrication contracts this year, of which 70% is expected to be domestic jobs. Capacity is not an issue as Kencana's 169-acre yard in Lumut is running at 50% utilisation with extra space earmarked for new contracts.

New contracts (Malaysia, India and Australia) and new ventures (offshore support, drilling and pipeline installation) fuel our optimism on Kencana. We continue to like the company for its favourable earnings prospects and its strategy of moving up the value chain with the new ventures.

As we have factored in RM1 billion worth of new contract wins per annum, we maintain our earnings forecasts and target price of RM2, pegged to an unchanged target market P/E of 15 times. ' CIMB Research, May 18
This article appeared in The Edge Financial Daily, May 19, 2010.

CIMB - Credit Suisse maintains 'outperform' for CIMB

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: CREDIT SUISSE

Credit Suisse is maintaining its stock rating for CIMB at "outperform" with a target price of RM16.80.

Credit Suisse notes that CIMB's 1Q10 results are tentatively due to be released on May 20 2010.

"We expect operating profit to be robust but could be partially mitigated by a QoQ increase in provisions. CIMB will also be the first bank to fully adopt FRS139 in the 1Q10 results," Credit Suisse says.

So far, CIMB Niaga and CIMB Thai's 1Q10 results have exceeded "our expectations".
Operating trends appear positive: 1) loan growth has picked up, 2) NIM has increased and 3) credit cost has declined.

KLCCP - KLCC Property a 'hold' at Kenanga

Stock Name: KLCCP
Company Name: KLCC PROPERTY HOLDINGS BHD
Research House: KENANGA

Kenanga is maintain its "hold" call on KLCC Property Holdings with an unchanged fair value of RM3.44, based on SOP RNAV.

The share price of KLCC is expected to remain capped in the short to medium term due to dilution issues arising from uncertain RCULS conversion timeline.

"FY10 recurring net profit (RNP) of RM237 million came within expectations, accounting for 98 per cent of street's FY10E RNP of RM242 million and 100 per cent of our RM237 million," says Kenanga.

CIMB - CIMB cements Indonesia position

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

CIMB Group Holdings Bhd
(May 17, RM14.38)
Maintain buy at RM14.50 with target price of RM15.75: CIMB Niaga is expected to be the group's key growth driver, bolstered by Indonesia's promising macro growth profile. The group aims to increase profit before tax (PBT) contribution from CIMB Niaga from 21% currently to 42% by 2014.

As such, raising its stake in CIMB Niaga at the current inflection point of CIMB Niaga's potentially strong earnings delivery trend over the foreseeable future ensures that the group does not overpay if it increased its stake at a later stage and also serves to help achieve its aggressive targeted profit contribution from CIMB Niaga.

Khazanah's 19.67% stake in CIMB Niaga is being priced at a relatively attractive 2.4 times price-to-book value (P/BV), lower than the 2.7 times P/BV that CIMB Niaga acquired PT Bank Lippo for in 2007 and RHBCap's 3.5 times P/BV for its recent acquisition of Bank Mestika. The attractive pricing also helps to mitigate any risk of material losses, assuming the group has to comply with new regulatory changes in Indonesia which may require it to sell down its stake in CIMB Niaga to meet a stipulated free float.

However, we understand that the group is currently not required to meet any specified free float requirement even with a 97.9% stake in CIMB Niaga post-completion of the deal.

Despite the issuance of 134 million new CIMB shares representing a 3.8% increase in its share base at RM14.50 per CIMB share to fund the acquisition, we estimate that the deal would still be marginally EPS (earnings per share) enhancing to CIMB by 0.2% to 0.4%.

This is underpinned by CIMB Niaga's robust earnings growth exceeding 25% and the fact that the new CIMB shares will be issued at a higher 2.5 times P/BV versus the 2.4 times P/BV that the group will be paying for Khazanah's 19.67% CIMB Niaga stake. The EPS accretion will depend on CIMB Niaga's growth trajectory, for which we are looking at 26% earnings growth in FY10. In fact, CIMB Niaga's annualised 1QFY10 numbers are already implying a stronger 32% growth.

We make no changes to our core earnings forecast for FY10 and FY11 pending the completion of the deal. Our Gordon growth derived valuation will remain largely unchanged as the slightly lower ROE (return on equity) of 15.2% (versus current 15.7%) post share issuance, will be compensated by accretion in equity from the new share issuance.

We believe that the group is on track to hit its ROE targets as it rides on a robust capital market and steady net interest margins. The management's ROE targets of 18% to 20% versus our 15.7% and consensus' 16.4% implies that the market may not have factored in any future capital management upside. ' OSK Research, May 17
This article appeared in The Edge Financial Daily, May 18, 2010.

AMMB - AMMB joins billion-dollar club, says CIMB

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

AMMB Holdings Bhd
(May 17, RM5.04)
Maintain outperform at RM4.99, target price raised to RM6.50: In line with our forecast. AMMB's FY3/10 net profit rose 17.2% year-on-year (y-o-y) to touch the RM1 billion mark, 5.2% above consensus but only 1.2% higher than our forecast.

However, the final net dividend per share (DPS) of 9.4 sen (gross: 4.4 sen less tax and 6.1 sen single tier) was above our 8.4 sen estimate. Factoring in a stronger loan growth, net non-performing loans (NPL) ratio and Islamic banking income, we up our FY11-12 EPS (earnings per share) forecasts by 7%-8% and our target price from RM6.15 to RM6.50 (10% premium over dividend discount model value). We see bright prospects ahead and project net profit growth of 18% for FY11. The stock remains our top pick and an outperform, premised on the potential re-rating catalysts of (1) value-add from ANZ, (2) benefits from the group revamp, (3) potential increase in investment banking income from improved deal flow, (4) new growth avenue in the foreign exchange and derivative businesses, and (5) the strong FY10 results and higher-than-expected dividend.

The 22.2% y-o-y rise in FY10 revenue was largely driven by a 58.1% y-o-y jump in non-interest income. This was underpinned by investment income of RM230.4 million (RM9.6 million in FY09), 18.5% y-o-y rise in fee income and foreign exchange gain of RM3.7 million (versus a loss of RM15.5 million in FY09).

The robust loan growth of 11.7% y-o-y in FY3/10 beat our forecast of 8%, the industry's growth of 9.8% and the 4.9% rate a year ago. Net NPL ratio improved from 1.8% in December 2009 to 1.5% in March 2010 (versus our 2.6% forecast). Loan loss coverage rose from 92.8% to 99.5%.

Our 7%-8% upgrade of FY11-FY12 forecasts is underpinned by: (1) an increase in FY11 loan growth from 8.8% to 11.5%, (2) a cut in FY11-FY12 net NPL ratio from 2.5%-2.6% to 1.3%-1.5%, and (3) 31%- 37% upgrades of FY11-FY12 Islamic banking income.

FY11 DPS is raised by 16.5% to 19 sen as we increase our assumed dividend payout ratio from 30% to 35%, in line with the levels in FY12-FY13.

The earnings upgrade lifts our target price from RM6.15 to RM6.50, still pegged to a 10% premium over the DDM value (cost of equity of 15.2% and dividend growth rate of 18.9% in the interim growth phase). ' CIMB Research, May 17
This article appeared in The Edge Financial Daily, May 18, 2010.

KOSSAN - RHB Research: Kossan still an outperform

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

Kossan Rubber Industries Bhd
(May 17, RM7.76)
Maintain outperform at RM7.77 with fair value of RM10.74: Kossan is due to announce its 1QFY10 results this week. We expect Kossan to post low double-digit year-on-year (y-o-y) revenue and net profit growth due to a combination of: 1) higher volume sales for the glove segment; 2) improved demand for its technical rubber products (TRP) as a result of the economic recovery; and 3) margin expansion due to the improvement in sales mix as more higher value gloves were sold during the quarter.

Quarter-on-quarter (q-o-q), we expect revenue growth of high single digit mainly on the back of: 1) upward adjustments to selling prices to pass on the higher raw material cost (latex price: +32.3% q-o-q), partly offset by the weakening of the US dollar against ringgit (-1.0% q-o-q); and 2) stronger demand for the TRP segment.

1QFY10 core earnings, however, could possibly remain flat q-o-q due to lower margins resulting from the usual time lag in passing on the higher raw material prices and weakening US dollar, partly offset by stronger performance from the TRP segment.

Capacity expansion at its new factory in Jalan Meru is ongoing, and upon completion, it will house a total of 32 double-former lines. This factory currently houses eight double-former lines, which started commercial production in October 2009. In total, Kossan's annual production capacity would increase by 20.8% from 12 billion pieces currently to 14.5 billion pieces by end-2010 and further by 24.1% to 18 billion pieces by end-2011.

Although these 32 double-former lines are capable of producing both synthetic and natural rubber gloves, they will focus on the production of powdered natural rubber medical gloves to cater for demand from emerging markets such as China and India.

The risks to our view include: 1) sharp surge in raw material (latex) prices, which may result in margin squeeze; 2) an appreciating ringgit against the US dollar; and 3) execution risk from capacity expansion.

We are keeping our FY10-12 earnings forecasts unchanged for now. We maintain both our fair value of RM10.74, which is based on target CY10 PER (price-earnings ratio) of 13 times, and outperform call on the stock. ' RHB Research Institute, May 17
This article appeared in The Edge Financial Daily, May 18, 2010.

F&N - F&N selling glass division to focus on beverages

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

Fraser & Neave Holdings Bhd
(May 17, RM11.74)
Maintain buy at RM11.68 with higher target price of RM14.60: Following its announced review of the glass division in November 2009, F&N has now proposed the disposal of the division for a total consideration of RM830.84 million. Maintain buy with a raised RM14.60 target price being the sum of 15 times FY12 PER (price-earnings ratio) (forecast low post-Coca-Cola contract loss) and RM1.30 per share in special dividends being 60% of net proceeds from the proposed disposal.

F&N is proposing to sell its glass division to a 50-50 joint venture between a 100% subsidiary of Owens-Illinois Inc and Berli Jucker PCL, which is a unit of the giant Charon Pokphand conglomerate in Thailand. The agreed sale consideration of RM830.8 million is composed of RM709.4 million in cash and the settlement of RM121.4 million in intercompany loans in F&N's favour.

Apart from the requisite simple majority at an EGM, the disposal requires the approval of the Ministry of International Trade and Industry (Miti). This should not be an obstacle, however, as Owens-Illinois is the largest glass packaging manufacturer globally, by sales.

It is possible that F&N could return net proceeds of about RM2.17 per share from the disposal to shareholders, although we are conservatively forecasting only 60% of net proceeds or RM1.30 per share to be paid out in FY11.

We think this disposal will relieve F&N from running an upstream business that passes cost increases only with a six- to nine-month time lag. It will also allow F&N to focus on its core, downstream beverage businesses. Today, its two core beverage divisions have also ceased using glass packaging containers and thus F&N enjoys no direct synergies from operating the glass division.

We raise our forecasts by 15%-17%, taking into account the strong 1HFY10 and the recently announced sale of land in Ampang. Nevertheless, we lower our target PER valuation from 16 times CY11 to 15 times FY12, being the low point of its forecast earnings. ' Maybank IB, May 17
This article appeared in The Edge Financial Daily, May 18, 2010.

MAS - CIMB Research retains outperform on MAS

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

KUALA LUMPUR: CIMB Equities Research is maintaining its earnings forecasts, RM3 target price (unchanged 6.0 times CY12 core price-to-earnings) and Outperform recommendation on MALAYSIAN AIRLINE SYSTEM BHD [] (MAS).

"Potential re-rating catalysts include the global yield recovery and a structural cost reduction from FY11 onwards," it said on Tuesday, May 18.

MAS incurred a core net loss of RM224 million in the first quarter ended March 31. The 1Q loss, when annualised, worked out to 13% below the research house's full-year loss forecast of RM1.026 billion.

"However, we consider this to be broadly in line as the seasonally stronger 2H may be offset by potentially higher jet fuel prices," it said.

CIMB Research said the core net loss narrowed from RM793m in 1Q09 and also from a loss of RM287m in 4Q09.

Despite the rising jet fuel price, MAS achieved a lower loss on the back of yoy and qoq improvement in cargo profits as well as narrower passenger losses on yoy basis.

The reported 1Q net profit was RM310m, partly due to RM329m exceptional income received in compensation for A380 delays in 2007-11.

MISC - OSK Research upgrades MISC to buy

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

KUALA LUMPUR: OSK Research has upgraded MISC to a buy at RM8.73 with target price RM10, and said it welcomed the company's decision to acquire a 50% stake in VTTI BV, which it said would provide a new income stream on top of MISC's stable tank terminal business.

"While the details are scarce, we sense a hint of synergy beyond the usual acquisition as its vendor, Vitol - a major energy trader cum explorer - may provide MISC new opportunities in businesses involving tankers, and offshore and engineering CONSTRUCTION [].

"We upgrade our call on MISC to buy with an unchanged target price of RM10 pending further details. Its fair value implies 1.7 time BV and 22 time PER on FY3/11 numbers," said the research house.

MAS - Kenanga rates MAS a 'hold'

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

Kenanga is maintaining its "hold" stock rating on Malaysia Airlines (MAS) with a target price of RM1.69.

The research firm notes that MAS first quarter net profit of RM253 million was ahead of "our expectations and consensus".

It upgraded its forecast on MAS by narrowing down the losses by 51 per cent to RM360.6 million from RM744.9 million.

"We have imputed in better yield for cargo segment and lower down the operating cost," Kenanga says.
"Our TP is based on the price-to-sales at 0.44x at FY10."

However, Kenanga is cautious on the outlook for FY10 outlook for MAS as 2Q10 earnings could be hit by volcanic ash in Europe despite of weak industry recovery.

Meanwhile, Malaysia Airlines is rated "outperform" at CIMB with a target price of RM3.00.

MAS incurred a 1Q10 core net loss of RM224 million, which, annualised, works out to 13 per cent below the full-year loss forecast of RM1,026 million, says CIMB.

"However, we consider this to be broadly in line as the seasonally stronger 2H may be offset by potentially higher jet fuel prices," it added.

The core net loss narrowed from RM793 million in 1Q09 and also from a loss of RM287m in 4Q09.

Despite the rising jet fuel price, MAS achieved a lower loss on the back of year-on-year and quarter-on-quarter improvement in cargo profits as well as narrower passenger losses on year-on-year basis.

AMMB - AMMB an outperform, says Inter-Pacific Research

Stock Name: AMMB
Company Name: AMMB HOLDINGS BHD
Research House: INTER PACIFIC

KUALA LUMPUR: Inter-Pacific Research Sdn Bhd reiterated its outperform call on AMMB HOLDINGS BHD [] at RM4.99 with a fair value of RM5.74.

It said concerns that could continue to weigh down AMMB's performance included rising interest rates that could hurt their fixed income products that include hire-purchase which accounts for more than 50% of its business; and earnings catalysts for investment banking may not be that significant in the near term.

"Nonetheless, we remain optimistic driven by ANZ's value add; positive impact from the group revamp, and new growth avenue from the foreign exchange and derivative businesses," it said.

JTINTER - Inter-Pacific Research reiterates outperform call on JTI

Stock Name: JTINTER
Company Name: JT INTERNATIONAL BHD
Research House: INTER PACIFIC

KUALA LUMPUR: Inter-Pacific Research has reiterated its outperform recommendation on JT INTERNATIONAL BHD [] at RM5.39 with target price RM6.20 based on its discounted cash flow valuation with weighted average cost of capital of 8.5%.

"We continue to remain positive on JTI led by its positive growing market share and continuous investment effort in its global flagship brands ie Winston and Mild 7 as their key drivers to their earnings growth," it said.

In 1QFY10, BAT posted a negative growth market share of 5.9% year-on-year, while Philip Morris experienced a flat growth in its market share, it said.

"But JTI market share stayed in the positive growth, up 4.9% year-on-year, underpinned by their two ever popular key brands ie Winston and Mild 7 chalking up a 1.5 percentage point and 0.4 percentage point rise in market share to 13.5% year-on-year and 4.1% year-on-year in 1QFY10.

"Continued improved performance was led by JTI's focus in the Value For Money (VFM) segment, which benefited as consumers down traded from premium brands and higher excise-led price increase, thus negating the lost of traction from their other brands," it said.

MAYBANK - Maybank's 3Q boosted by one-off gains

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

Malayan Banking Bhd (Maybank)
(May 14, RM7.72)
Maintain hold at RM7.72 with fair value upgraded to RM7.20: We maintain our hold rating on Maybank with an upgraded fair value of RM7.20 or fair P/BV (price/book value) of 1.8 times. This is based on a return on equity (ROE) of 14.8% on a calendarised basis for 2010.

Maybank reported net earnings of RM1.03 billion (+3.7% quarter-on-quarter, +104.7% year-on-year), for 3QFY10, taking full 9MFY10 net earnings to RM2.91 billion. Its 3QFY10's net earnings, if annualised, would be 13.7% above our full-year forecasts and 16.8% above consensus estimates.

However, net earnings were boosted by a RM305.3 million unrealised gain on its securities held-for-trading and derivatives position (relating mostly to is cross currency swap transaction, which had benefited from a strengthening of the ringgit) in 9MFY10. We estimate about two-thirds of this gain were included in 3QFY10 (the balance in 2QFY10). Aside from this, we estimate there was also a more than a RM50 million gain related to unrealised foreign exchange gain from its RM519 million debt raised as part of its working capital to fund Bank Internasional Indonesia (BII).

In short, if one were to exclude these one-off items, 9MFY10's net earnings if annualised would be estimated to be -2.2% below our forecasts, and +0.5% above consensus' RM3.37 billion net earnings estimate for FY10F. We would therefore consider its 3QFY10 to be in line with our estimates.

Maybank set a confident tone overall during its briefing for analysts. It does not expect its net credit charge-off to be higher than 56 basis points (bps), which is better than its earlier guidance of 60-70bps for FY10F. With the inclusion of unrealised one-off gains, the company is likely to exceed its ROE target of 13% for FY10F. Foreign shareholding has edged up to 12.6% currently from 10.9% end 2009.

We revisited our forecast assumptions, namely loan growth and credit costs. We revise upwards our overall loan growth assumption to 9% y-o-y for FY10F, from 4% previously in view of Maybank's annualised loan growth of 7.6% for 9MFY10. We have also adjusted our net credit charge-off rate to 56bps FY10F, from 60bps previously.

Our net earnings have been upgraded by 6.7% FY10F, 5.1% FY11F and 4.9% FY12F. As such, our ROE is now lifted to 14.2% FY10F, 15.4% FY11F and 15.5% FY12F (from 13.4%, 14.8% and 15% respectively). Based on our upgrades, we derive a new fair P/BV of 1.8 times, based on calendarised ROE of 14.7% 2010.

This leads to new fair P/BV of RM7.20/share. We believe a better ROE performance is priced in. For a substantial rerating of the stock to say RM9, we estimate ROE will need to be uplifted to at least 17%. ' AmResearch, May 14
This article appeared in The Edge Financial Daily, May 17, 2010.

SUNRISE - Sunrise an outperform, says Inter-Pacific

Stock Name: SUNRISE
Company Name: SUNRISE BHD
Research House: INTER PACIFIC

Sunrise Bhd
(May 14, RM2.07)
Outperform at RM2.08 with target price of RM2.92: We recommend outperform with our target price at RM2.92, ascribing forward PER (price-earnings ratio) of eight times and EPS (earnings per share) of 36.5 sen.

Sunrise had continued to pare down its gearing from 46% beginning FY10 to 33% in 3QFY10, indicating the management's seriousness in bringing down its gearing level to zero. Unbilled sales currently stand at RM907 million excluding sales pending sale and purchase agreement finalisation of RM164 million which would underpin earnings for next two financial years. Further catalysts to its growth would be the new launches ' Canada's Richmond and Solaris Tower KL, expected to be launched by 2H10.

Year-to-date (YTD) top line accounted for only 56.1% of our full-year forecast and 55.4% of consensus estimation. The 18.7% fall in Sunrise's revenue was due to the completion of Meridin, MK10 and part of Solaris Dutamas. The drop is seen as inevitable in our view considering delays to new launches in CY09 following the global and domestic recession, which saw poor take-up rate for high-end property market in the Klang Valley. Hence, we have revised downwards our FY10 revenue forecast by 15% and net profit forecast by 14%.

Despite net profit receding by 15.7% year-on-year, net profit margin improved by 3.7%. Excluding exceptional gains of RM19.4 million YTDFY09, net profit margin in FY09 would have been 16.5%, which is 4% lower than YTDFY10 net margin. The improvement in net margin was due to better contribution from the higher margin products ' Residences and MK11.

As part of its strategy to branch out to different product segments and multiple locations, Sunrise has lined up two launches in KL and Canada. Solaris Tower, located off Jalan Sultan Ismail, is being tentatively scheduled for launching in 2HCY10. The development consists of two towers offering 570,000 sq ft of office space and 20,000 sq ft of retail space. We believe the strata development will attract the attention of buyers looking for smaller office space in the CBD (central business district) area as opposed to purpose-built offices which are intended for en bloc sales and corporation leasing. Canada's Richmond project is tentatively scheduled for launching in 3Q-4QCY10. The RM1.11 billion integrated development will be launched in two phases over three years apart under the build-and-sell concept.

Solaris Dutamas' retail space is set to open in 1QCY11, with pre-leasing in 2010. The retail mall's NLA is 335,000 sq ft with 5,000 car parks. Other investment assets include the Solaris Dutamas district cooling system, 53,902 sq ft of retail space in Solaris Plaza Mont'Kiara and Solaris Mont'Kiara as well as 1,776 car parks bays at Solaris Mont'Kiara. According to the management, they had no intention of setting up a real estate investment trust (REIT) as reported earlier. Judging from the size of investment assets of some 400,000 sq ft, setting up a REIT is not viable. ' Inter-Pacific Research, May 14
This article appeared in The Edge Financial Daily, May 17, 2010.

NHFATT - New Hoong Fatt bitten by higher costs

Stock Name: NHFATT
Company Name: NEW HOONG FATT HOLDINGS BHD
Research House: OSK

New Hoong Fatt Holdings Bhd (NHF)
(May 14, RM2.26)
Maintain buy at RM2.25 with lower target price of RM2.62: NHF reported 1QFY10 revenue and net profit of RM52.8 million and RM6.41 million respectively.

The annualised numbers were 5% and 18% below our estimates respectively as revenue shrank on the fewer working days while its bottom line was weighed down by higher raw material prices. Year-on-year (y-o-y) revenue, though, was higher by 16% on contribution from its new joint-venture trading partner and a recovery in exports. Its quarter-on-quarter (q-o-q) top line was quite flat but we see revenue gaining pace on the back of increasing contribution from the export market while the domestic market will continue to be driven by the positive tone in the overall economy.

NHF's bottom line expanded by 14.4% y-o-y (q-o-q: -3%). While its revenue was no cause for concern, we are leaving our top line forecasts unchanged.

However, we had earlier underestimated the impact of higher raw material prices as cold rolled coil (CRC) prices have risen by as much as 12% y-o-y based on a three-month stockpile over 1Q.

This has pressured Ebit (earnings before interest and tax) margins, which came in at a lower 13.9% during the quarter versus 15.3% in the preceding quarter (1QFY09 at 13.5%). To date, CRC prices have surged by as much as 47% y-o-y (our previous forecast was 20%). This prompts us to cut our earnings forecasts by 10% for FY10, and by 4% and 15% respectively for FY11 and FY12.

NHF would only see an increase in production capacity to capitalise on the potential in the export market once its plant starts operation by 3QFY10.

The company is running at about 70% capacity and will increase production by more than 15% with the new plant.

Following the earnings downgrade of 4%-15% over FY10-FY12, we have lowered our target price from RM2.75 to RM2.62. Maintain buy. Our target price is premised on seven times PE (price-to-earnings), which is in line with NHF's auto parts peer average. ' OSK Research, May 14
This article appeared in The Edge Financial Daily, May 17, 2010.

JTINTER - Maybank IB finds JTI simply irresistible

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

JT International Bhd (JTI)
(May 14, RM5.39)
Maintain buy at RM5.36 with higher target price of RM6: A solid 14% year-on-year (y-o-y) bottom line growth reinvigorates our bullish outlook on the stock. We have raised 2010-2012 forecasts by 6%-8% on an industry sales volume growth of 2% (from -2%).

We maintain our buy call with a higher discounted cash flow-based (DCF) target price of RM6.

2010 started off in line with our and consensus forecasts, with 1QFY10 net profit of RM37.8 million (+14.4% y-o-y, +103.2% quarter-on-quarter, or q-o-q) forming approximately 30% and 31% of full-year estimates respectively. The commendable results came from sales growth (+7.4% y-o-y, +3.9% q-o-q) coupled with lower depreciation, operating and marketing expenses.

Encouraging volume growth returned in 1QFY10, underpinning our market contrarian +2% volume growth forecast for the industry in 2010. Note however that the below 20's packs ban effective June 2010 has already been taken into account to limit further growth in 2H10. Further, the high illicit incidence of above 35% is expected to stagnate and no longer increase.

We prefer JTI for its ability to grow market share and thus sales volume within this volatile industry. With forecast annual double-digit growth over 2010-12, we expect JTI to comfortably outperform index benchmarks.

Our RM6 DCF-based target price assumes conservative assumptions of -0.5% terminal growth and costs growth greater than revenue growth from 2013. ' Maybank IB, May 14
This article appeared in The Edge Financial Daily, May 17, 2010.