BHIC - BHIC fair value cut to RM4.40

Stock Name: BHIC
Company Name: BOUSTEAD HEAVY INDUSTRIES CORP
Research House: AMMB

Boustead Heavy Industries Corp Bhd (BHIC) (June 4, RM3.73)
Maintain hold at RM3.69 with lower fair value of RM4.40 (from RM5.10): We maintain our hold rating on BHIC, but with a lower fair value of RM4.40 per share based on a FY10F PE (price-to-earnings) of 12 times (from 13.5 times earlier) at a lower premium of 10% to the stock's three-year average of 11 times. This implies a 20% discount to a revised sum-of-parts (SOP) valuation of RM5.50 per share.

The lower SOP valuation stems from a 19% cut in FY11F earnings as we have halved its fabrication revenue contribution from the next batch of six patrol vessels of which commencement is likely to be delayed. However, FY10F earnings are unchanged, as we have not factored in any contributions from the next generation of patrol vessels.

While we believe the group's long-term prospects remain bright given the potentially huge pipeline of new military contracts, a re-rating at this juncture is premature given the group's weak earnings deliverance over the past three quarters.

BHIC's wholly owned BHIC Defence Technologies Sdn Bhd has signed a joint-venture (JV) agreement with Prestige Pillar Sdn Bhd and Eurocopter Malaysia Sdn Bhd to undertake maintenance, repair and overhaul services for the government's rotary and fixed wings aircraft. The JV company has not secured any contracts from the government at this juncture.

But we understand that potential maintenance contracts could encompass the proposed 12 Cougar 725 helicopters worth '500 million (RM2 billion) from Eurocopter, which was earlier shelved after the global financial crisis. The first helicopter is expected to be delivered in 2012.

The stock currently trades at a fair FY10F's PE of 10 times, at parity to the oil and gas industry's average valuations and just below its three-year PE of 11 times. ' AmResearch, June 4







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

PROTON - Proton dips; OSK Research cuts target price to RM5.67

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

KUALA LUMPUR: PROTON HOLDINGS BHD [] share price fell in early trade Monday, June 7 after proposed tie-up between the national carmaker and Volkswagen AG (VW) collapsed as the latter had "other priorities".

Proton over the weekend confirmed that it had been informed by VW that as such, a potential collaboration with the Malaysian carmaker could not be pursued.

At 9.10am, Proton's share price dropped 13 sen to RM4.60.

"Proton acknowledges the decision made by Volkswagen. As one of the largest OEM (original equipment manufacturer), Volkswagen would (have been) an interesting collaboration partner for Proton," Proton said.

There had been speculation since late last month that talks between the two carmakers had collapsed.

The Edge weekly in its latest edition reported the speculation was that both parties could not reach an agreement as VW intended to assemble its low-priced models at Proton's plants, and that would most likely cannibalise the latter's sales.

The confirmation on Sunday also came amid heightened speculation over the state of affairs at Proton's board that had seen the resignation of two independent directors, which according to The Edge may be over differences of opinions on the right direction for the company.

In 2007, it was Proton that had rejected VW's overtures for a strategic tie-up. The then Proton management had reportedly convinced the government that it was on a turn-around and could garner a better deal with a stronger balance sheet.

Meanwhile, OSK Research maintained its buy call on the stock and said the near-term outlook over the next two years will continue to be in Proton's favour given the significant improvement in its operating landscape, which has yielded positive results on its network rationalisation and the continuity of its model pipeline (one car a year).

However, the research house cut its target price for Proton to RM5.67 (from RM6.94) as it trimmed its PE from 11 times to nine times on FY11 earnings given this negative development and the lack of positive news development over the near term.

SAPCRES - Reconnecting Sabah Oil & Gas Terminal

Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Research House: MAYBANK

Oil and gas (O&G) sector
Maintain overweight: The impending award from the recently reinstated Sabah Oil & Gas Terminal (SOGT) project by end-2010 will lead to greater project rollouts. Intensifying the development of domestic O&G fields, notably deep-water prospects, would benefit domestic service providers and kick-start contract flows and earnings momentum disrupted in 2008.

We are overweight on the O&G sector in anticipation of more positive news flow.

The invitation to bid for SOGT's engineering, procurement, construction and commissioning (EPCC) project has officially been in the market since mid-April after a three-year hiatus.

Petronas Carigali Sdn Bhd (PCSB) is the owner of this project. The first invitation to tender, made in 2007, was pulled back during the tender process due to 'technical reasons'.

The EPCC job is very similar to the earlier one, in terms of job scope. Prospective bidders will be requested to submit a base proposal as well as an alternative proposal considering that PCSB is seeking the lowest cost and shortest schedule options.

Tender submission for the project, initially scheduled to close by June 26, 2010, will most likely be extended should PCSB accede to participating companies' request for an extension.

The request for an extension will not be surprising considering the short lead time (2.5 months) to prepare the bid. Should PCSB consent to an extension not exceeding three months, we reckon it will likely meet the 4Q10 deadline for awarding the contract to the winning party. Based on the timeline, the SOGT should be operational by 2013 as the EPCC job will take about 24 months to complete.

Channel checks indicate that most of the bidders in the earlier tender are again vying at this round. Dialog, KNM, Kencana Petroleum, Muhibbah Engineering, Ranhill (all listed) and PFC Engineering Sdn Bhd (unlisted) are among the locals directly leading their respective tender.

Sinopec (China), JGC, Fumiko (Japan) and Technip (France) are the notable foreign operators, in joint ventures/consortiums with the local players.

Potential award(s) could drive interest and trigger a re-rating of the O&G stocks, probably in 2H10. We continue to put an overweight rating on the sector in the run-up to growing order flows on the back of a steady oil price environment. We have buy ratings for most of the O&G stocks under our coverage. ' Maybank IB Research, June 4







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

CIHLDG - OSK positive on CI Holdings' acquisition

Stock Name: CIHLDG
Company Name: C.I. HOLDINGS BHD
Research House: OSK

C I Holdings Bhd (CIH)
(June 4, RM2.34)
Maintain buy at RM2.33 with target price of RM3.66: CIH entered into a sale and purchase agreement with Bayplex Realty SB on June 3 for the purchase of a piece of land measuring 6.3ha in Bangi, Selangor with a warehouse on the land for RM29.5 million.

The warehouse has a built-up area of 1.9ha, of which 84% is tenanted. We think that the purchase value of RM29.5 million, equivalent to 1.2 times PBV (price-to-book value), is fair as the property is valued at RM30 million by property valuer Raine and Horne. CIH has had to engage three separate overflow warehouses located 35km-45km from its factory in Bangi, as opposed to the new property, which is only 400m from the plant.

This new warehouse will complement as well as ease the company's storage needs when its new hot-filled line kick starts in FY11. As such, the new property will help save substantial logistics and distribution costs, which currently comprises roughly 20% of total group revenue.

While we await information on the quantum on savings from the management, we note that CIH will benefit either from rental income as 84% of the warehouse is tenanted prior to its shifting into the new warehouse or from the saving of lease rental paid to overflow warehouses once it moves into the new warehouse.

CIH stated that rental from existing tenants in the new warehouse is sufficient to cover its interest payment on the property.

The purchase amount of RM29.5 million will mostly be funded by bank borrowings. CIH's net gearing as at March 31, 2010 was 0.4 times based on a net debt of RM59.9 million and shareholders funds of RM150 million.

The RM26 million in bank borrowing will increase its net gearing from 0.4 times to 0.6 times, which is still within its target gearing of 0.5 times to 0.6 times. Nonetheless, the new warehouse will help save on logistics costs. And when the new hotfilled line starts operation in FY11, CIH's gearing is expected to go down further.

As such, we maintain our FY10 and FY11 numbers and our buy recommendation. Our target price remains unchanged at RM3.66 based on a weighted PER (price-earnings ratio) of 11.3 times FY11 EPS (earnings per share). ' OSK Research, June 4







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

PETRA - Reconnecting Sabah Oil & Gas Terminal

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

Oil and gas (O&G) sector
Maintain overweight: The impending award from the recently reinstated Sabah Oil & Gas Terminal (SOGT) project by end-2010 will lead to greater project rollouts. Intensifying the development of domestic O&G fields, notably deep-water prospects, would benefit domestic service providers and kick-start contract flows and earnings momentum disrupted in 2008.

We are overweight on the O&G sector in anticipation of more positive news flow.

The invitation to bid for SOGT's engineering, procurement, construction and commissioning (EPCC) project has officially been in the market since mid-April after a three-year hiatus.

Petronas Carigali Sdn Bhd (PCSB) is the owner of this project. The first invitation to tender, made in 2007, was pulled back during the tender process due to 'technical reasons'.

The EPCC job is very similar to the earlier one, in terms of job scope. Prospective bidders will be requested to submit a base proposal as well as an alternative proposal considering that PCSB is seeking the lowest cost and shortest schedule options.

Tender submission for the project, initially scheduled to close by June 26, 2010, will most likely be extended should PCSB accede to participating companies' request for an extension.

The request for an extension will not be surprising considering the short lead time (2.5 months) to prepare the bid. Should PCSB consent to an extension not exceeding three months, we reckon it will likely meet the 4Q10 deadline for awarding the contract to the winning party. Based on the timeline, the SOGT should be operational by 2013 as the EPCC job will take about 24 months to complete.

Channel checks indicate that most of the bidders in the earlier tender are again vying at this round. Dialog, KNM, Kencana Petroleum, Muhibbah Engineering, Ranhill (all listed) and PFC Engineering Sdn Bhd (unlisted) are among the locals directly leading their respective tender.

Sinopec (China), JGC, Fumiko (Japan) and Technip (France) are the notable foreign operators, in joint ventures/consortiums with the local players.

Potential award(s) could drive interest and trigger a re-rating of the O&G stocks, probably in 2H10. We continue to put an overweight rating on the sector in the run-up to growing order flows on the back of a steady oil price environment. We have buy ratings for most of the O&G stocks under our coverage. ' Maybank IB Research, June 4







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

KNM - Reconnecting Sabah Oil & Gas Terminal

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

Oil and gas (O&G) sector
Maintain overweight: The impending award from the recently reinstated Sabah Oil & Gas Terminal (SOGT) project by end-2010 will lead to greater project rollouts. Intensifying the development of domestic O&G fields, notably deep-water prospects, would benefit domestic service providers and kick-start contract flows and earnings momentum disrupted in 2008.

We are overweight on the O&G sector in anticipation of more positive news flow.

The invitation to bid for SOGT's engineering, procurement, construction and commissioning (EPCC) project has officially been in the market since mid-April after a three-year hiatus.

Petronas Carigali Sdn Bhd (PCSB) is the owner of this project. The first invitation to tender, made in 2007, was pulled back during the tender process due to 'technical reasons'.

The EPCC job is very similar to the earlier one, in terms of job scope. Prospective bidders will be requested to submit a base proposal as well as an alternative proposal considering that PCSB is seeking the lowest cost and shortest schedule options.

Tender submission for the project, initially scheduled to close by June 26, 2010, will most likely be extended should PCSB accede to participating companies' request for an extension.

The request for an extension will not be surprising considering the short lead time (2.5 months) to prepare the bid. Should PCSB consent to an extension not exceeding three months, we reckon it will likely meet the 4Q10 deadline for awarding the contract to the winning party. Based on the timeline, the SOGT should be operational by 2013 as the EPCC job will take about 24 months to complete.

Channel checks indicate that most of the bidders in the earlier tender are again vying at this round. Dialog, KNM, Kencana Petroleum, Muhibbah Engineering, Ranhill (all listed) and PFC Engineering Sdn Bhd (unlisted) are among the locals directly leading their respective tender.

Sinopec (China), JGC, Fumiko (Japan) and Technip (France) are the notable foreign operators, in joint ventures/consortiums with the local players.

Potential award(s) could drive interest and trigger a re-rating of the O&G stocks, probably in 2H10. We continue to put an overweight rating on the sector in the run-up to growing order flows on the back of a steady oil price environment. We have buy ratings for most of the O&G stocks under our coverage. ' Maybank IB Research, June 4







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

MUHIBAH - Kenanga: Outlook mixed for Muhibbah

Stock Name: MUHIBAH
Company Name: MUHIBBAH ENGINEERING (M) BHD
Research House: KENANGA

Muhibbah Engineering (M) Bhd (June 4, 89.5 sen)
Maintain buy at 88.5 sen with a lower target price of RM1.35 (from RM1.80): Muhibbah's 1QFY10 net profit of RM5.3 million was below expectations at 6% and 8% of our forecast of RM85.2 million and RM63.8 million, respectively.

This is largely due to construction remaining loss-making at RM11.6 million. We are concerned that other projects in the Middle East could have cost overruns while it may have started making provisions on the receivables for the KIC Oil Sdn Bhd oil terminal in Johor which has issues with its bridging loan financier.

However, Muhibbah's shipyard and crane divisions are improving in its profitability.

Year-on-year (y-o-y), 1QFY10 net profit was 46% lower, being affected largely by the loss-making construction division with a pre-tax loss of RM11.7 million compared to a pre-tax profit of RM6.4 million. However, the losses were mitigated by the shipyard division which turned in a strong pre-tax profit on delivery of a vessel.

Quarter-on-quarter (q-o-q), it returned to net profit in 1QFY10 from a net loss of RM6.3 million as the shipyard division turned in a sterling set of results while construction pre-tax losses were lower with less cost overrun booked in.

The outlook for the group is mixed as its construction division continues to suffer with clients owing them substantial amounts for billings (its receivables, deposits and prepayment grew 30% q-o-q to RM940 million in 1QFY10).

However, order book remains strong with RM2.88 billion comprising RM1.79 billion of construction order book largely made up of the SKVE and Doha airport catering facility. Its crane and shipyard divisions continue to do well with RM491 million and RM596 million remaining order book, respectively.

We have lowered our FY10 and FY11 net profit by 35% and 21% to RM55.6 million and RM58.5 million respectively, factoring in lower construction margins and slow recognition of profit. Future contract awards have also been cut back as we believe Muhibbah will consolidate its efforts to complete existing jobs. We maintain buy with a lower target price of RM1.35 (previously RM1.80) using sum-of-parts revised net asset value (RNAV).

The stock is trading at a low PER (price-earnings ratio) of six times for FY10 and FY11. ' Kenanga Research, June 4







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

ALAM - Reconnecting Sabah Oil & Gas Terminal

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

Oil and gas (O&G) sector
Maintain overweight: The impending award from the recently reinstated Sabah Oil & Gas Terminal (SOGT) project by end-2010 will lead to greater project rollouts. Intensifying the development of domestic O&G fields, notably deep-water prospects, would benefit domestic service providers and kick-start contract flows and earnings momentum disrupted in 2008.

We are overweight on the O&G sector in anticipation of more positive news flow.

The invitation to bid for SOGT's engineering, procurement, construction and commissioning (EPCC) project has officially been in the market since mid-April after a three-year hiatus.

Petronas Carigali Sdn Bhd (PCSB) is the owner of this project. The first invitation to tender, made in 2007, was pulled back during the tender process due to 'technical reasons'.

The EPCC job is very similar to the earlier one, in terms of job scope. Prospective bidders will be requested to submit a base proposal as well as an alternative proposal considering that PCSB is seeking the lowest cost and shortest schedule options.

Tender submission for the project, initially scheduled to close by June 26, 2010, will most likely be extended should PCSB accede to participating companies' request for an extension.

The request for an extension will not be surprising considering the short lead time (2.5 months) to prepare the bid. Should PCSB consent to an extension not exceeding three months, we reckon it will likely meet the 4Q10 deadline for awarding the contract to the winning party. Based on the timeline, the SOGT should be operational by 2013 as the EPCC job will take about 24 months to complete.

Channel checks indicate that most of the bidders in the earlier tender are again vying at this round. Dialog, KNM, Kencana Petroleum, Muhibbah Engineering, Ranhill (all listed) and PFC Engineering Sdn Bhd (unlisted) are among the locals directly leading their respective tender.

Sinopec (China), JGC, Fumiko (Japan) and Technip (France) are the notable foreign operators, in joint ventures/consortiums with the local players.

Potential award(s) could drive interest and trigger a re-rating of the O&G stocks, probably in 2H10. We continue to put an overweight rating on the sector in the run-up to growing order flows on the back of a steady oil price environment. We have buy ratings for most of the O&G stocks under our coverage. ' Maybank IB Research, June 4







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

TGOFFS - Reconnecting Sabah Oil & Gas Terminal

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: MAYBANK

Oil and gas (O&G) sector
Maintain overweight: The impending award from the recently reinstated Sabah Oil & Gas Terminal (SOGT) project by end-2010 will lead to greater project rollouts. Intensifying the development of domestic O&G fields, notably deep-water prospects, would benefit domestic service providers and kick-start contract flows and earnings momentum disrupted in 2008.

We are overweight on the O&G sector in anticipation of more positive news flow.

The invitation to bid for SOGT's engineering, procurement, construction and commissioning (EPCC) project has officially been in the market since mid-April after a three-year hiatus.

Petronas Carigali Sdn Bhd (PCSB) is the owner of this project. The first invitation to tender, made in 2007, was pulled back during the tender process due to 'technical reasons'.

The EPCC job is very similar to the earlier one, in terms of job scope. Prospective bidders will be requested to submit a base proposal as well as an alternative proposal considering that PCSB is seeking the lowest cost and shortest schedule options.

Tender submission for the project, initially scheduled to close by June 26, 2010, will most likely be extended should PCSB accede to participating companies' request for an extension.

The request for an extension will not be surprising considering the short lead time (2.5 months) to prepare the bid. Should PCSB consent to an extension not exceeding three months, we reckon it will likely meet the 4Q10 deadline for awarding the contract to the winning party. Based on the timeline, the SOGT should be operational by 2013 as the EPCC job will take about 24 months to complete.

Channel checks indicate that most of the bidders in the earlier tender are again vying at this round. Dialog, KNM, Kencana Petroleum, Muhibbah Engineering, Ranhill (all listed) and PFC Engineering Sdn Bhd (unlisted) are among the locals directly leading their respective tender.

Sinopec (China), JGC, Fumiko (Japan) and Technip (France) are the notable foreign operators, in joint ventures/consortiums with the local players.

Potential award(s) could drive interest and trigger a re-rating of the O&G stocks, probably in 2H10. We continue to put an overweight rating on the sector in the run-up to growing order flows on the back of a steady oil price environment. We have buy ratings for most of the O&G stocks under our coverage. ' Maybank IB Research, June 4







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

DIALOG - Reconnecting Sabah Oil & Gas Terminal

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

Oil and gas (O&G) sector
Maintain overweight: The impending award from the recently reinstated Sabah Oil & Gas Terminal (SOGT) project by end-2010 will lead to greater project rollouts. Intensifying the development of domestic O&G fields, notably deep-water prospects, would benefit domestic service providers and kick-start contract flows and earnings momentum disrupted in 2008.

We are overweight on the O&G sector in anticipation of more positive news flow.

The invitation to bid for SOGT's engineering, procurement, construction and commissioning (EPCC) project has officially been in the market since mid-April after a three-year hiatus.

Petronas Carigali Sdn Bhd (PCSB) is the owner of this project. The first invitation to tender, made in 2007, was pulled back during the tender process due to 'technical reasons'.

The EPCC job is very similar to the earlier one, in terms of job scope. Prospective bidders will be requested to submit a base proposal as well as an alternative proposal considering that PCSB is seeking the lowest cost and shortest schedule options.

Tender submission for the project, initially scheduled to close by June 26, 2010, will most likely be extended should PCSB accede to participating companies' request for an extension.

The request for an extension will not be surprising considering the short lead time (2.5 months) to prepare the bid. Should PCSB consent to an extension not exceeding three months, we reckon it will likely meet the 4Q10 deadline for awarding the contract to the winning party. Based on the timeline, the SOGT should be operational by 2013 as the EPCC job will take about 24 months to complete.

Channel checks indicate that most of the bidders in the earlier tender are again vying at this round. Dialog, KNM, Kencana Petroleum, Muhibbah Engineering, Ranhill (all listed) and PFC Engineering Sdn Bhd (unlisted) are among the locals directly leading their respective tender.

Sinopec (China), JGC, Fumiko (Japan) and Technip (France) are the notable foreign operators, in joint ventures/consortiums with the local players.

Potential award(s) could drive interest and trigger a re-rating of the O&G stocks, probably in 2H10. We continue to put an overweight rating on the sector in the run-up to growing order flows on the back of a steady oil price environment. We have buy ratings for most of the O&G stocks under our coverage. ' Maybank IB Research, June 4







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

PROTON - CIMB Research downgrades Proton to neutral, cuts target price

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

KUALA LUMPUR: CIMB Research has downgraded PROTON HOLDINGS BHD [] to neutral from trading buy at RM4.73 and cut its target price for the stock to RM5.60 (from RM6.30) and said Proton's latest failed attempt to forge a partnership with Volkswagen Ag (VW) was negative news as the research house was banking on a strategic partnership to boost Proton's competitive edge.

Proton is also reported to be contemplating a sale of a 40% stake in its wholly-owned Lotus to its management team as a performance incentive, it said.

The research house said it was neutral on the news as the attractiveness of the sale depended very much on the sale price.

"Since our upgrade of the stock from Neutral to Trading Buy on expectations of positive newsflow on a tie-up with VW and the improvement in its earnings prospects, the share price has risen 26% against 7% for the KLCI.

"Although we are encouraged by Proton's turnaround in financial performance, we think that this has been partly reflected in the recent share price run-up," it said.

CIMB Research said given the negative news and lack of near-term catalysts, it was downgrading the stock to neutral.

"We retain our earnings forecasts but cut our target price from RM6.30 to RM5.60 as we widen the discount to its 10-year historical P/BV of 0.8 times from 20% to 30%.

"Tan Chong (outperform) is our top pick for exposure to the auto sector," it said.

At 9.40am, Proton fell 17 sen to RM4.56 with 171,900 shares traded.

MASTEEL - OSK remains neutral on Masteel

Stock Name: MASTEEL
Company Name: MALAYSIA STEEL WORKS (KL)BHD
Research House: OSK

Malaysia Steel Works (KL) Bhd (Masteel)
(June 3, 92 sen)
Reiterate neutral at 91.5 sen with target price of RM1: Masteel announced on June 2 that it has disposed of five million shares of RM1 each in wholly owned subsidiary, Bio Molecular Industries SB (BioM), for a cash consideration of RM1,000 to IBA Pharma SA (IBA).

The original issued and paid-up capital of BioM is 10 million shares of RM1 each.

BioM is principally engaged in the business of manufacturing and research and development of radio isotopes and radio-pharmaceuticals products for positron emission tomography (PET). The company is supposed to produce and market fluorine-labelled fluorodeoxyglucose (FDG), a diagnostic radio-pharmaceutical used in PET scans to detect and monitor the treatment of cancer.

To date, Masteel has invested about RM13.5 million in this company, which mainly covered the cost of the plant and a two-acre site in Sepang.

The new investor-cum-JV partner, IBA, is a wholly owned subsidiary of Ion Beam Application S A (IBA SA), which is listed on the pan-European stock exchange Euronet, and is a component of the BelMid Index.

IBA has undertaken to subscribe for another five million ordinary shares of RM1 each in the issued and paid-up capital in BioM upon signing the share purchase agreement with Masteel. It also agreed to absolve Masteel from the guarantee of about RM10 million for the purchase of cyclotron equipment from IBA SA for BioM.

Masteel's shareholding in BioM will be reduced to 45.34% on the completion of the above exercise plus capitalisation of additional capital injection in BioM, which we suspect will amount to RM3.5 million.

Masteel expects to incur a one-time disposal loss of about RM5.1 million from this transaction.

As we have expressed reservations on this investment since it was first announced in 2007, we are not surprised with the latest move to dispose of the stake at a loss. We have also not accounted for any contribution from this venture and think that the disposal loss can be categorised as an exceptional item, which would then not impact our core earnings estimates.

In view of this, we maintain our neutral recommendation on Masteel with a fair value of RM1. This is derived from five times EPS (earnings per share) and 0.59 times net tangible asset/share, or +1 standard deviation of the stock's historical trading band on FY10 numbers. ' OSK Research, June 3


This article appeared in The Edge Financial Daily, June 4, 2010.

BJTOTO - BToto raised to buy on emerging value

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

Berjaya Sports Toto Bhd
(June 3, RM4.37)
Upgrade to buy at RM4.24 with target price of RM4.91: We considered trimming our FY11 estimates to reflect cannibalisation from Berjaya Sports Toto's (BToto) punters shifting some of their bets to illegal sports betting during the 2010 World Cup.

Historically, this amounted to 4%-5% reduction in revenue per draw during the World Cup period. However, we noticed that the number forecasting operator (NFO) industry grew by 6% in 2006 despite the World Cup then because it was held in a different time zone, foreign workers were not deported and the regulatory environment then was favourable.

We deem the operating conditions surrounding the 2010 World Cup to be similar to that of 2006. Therefore, we maintain our earning estimates.

Although BToto is not expected to receive much from the touted 1% on retail sales commission payable by sister company Ascot Sports, we believe legalised sports betting will actually boost revenues.

Taking a leaf out of history, increased outlet visits driven by large jackpots led to higher revenues for both lotto and non-lotto games (4D, 5D and 6D).

In the same vein, we expect increased outlet visits driven by sports betting to again lead to overall revenue growth as punters who are not regular NFO punters bet on not only sports but mainstay NFO games.

More importantly, that little cannibalisation effect World Cups have had on BToto's revenue will be arrested once and for all.

We assumed a 15% reduction in revenue per draw for FY10 due to competition from Magnum's 4D Jackpot. Thereafter, we assumed 2% growth in revenue per draw (1998-2008 NFO industry compound annual growth rate: 2.6%).

Our unchanged target price of RM4.91 (terminal growth rate: 1.5%, weighted average cost of capital: 7.9%) currently offers 16% upside potential and 5.4% net dividend yields.

Thus, we revert back to our earlier buy call. We would also like to point out that BToto's share price is resilient during recessionary periods and periods of low consumer confidence due to its stable earnings (assuming stable prize payout ratios) and attractive dividend yields.

With the upcoming subsidy rationalisation programme, BToto will provide a 'safe harbour' for investors. ' ECM Libra Investment Research, June 3


This article appeared in The Edge Financial Daily, June 4, 2010.

HLBANK - Strong showing from banks in April

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

Banking sector
Downgrade to neutral (from overweight): Industry loans growth stable at 10% year-on-year (y-o-y) in April 2010, broadly unchanged from March 2010's +9.8% y-o-y.
Again, most of the growth was derived from the household segment, which reported growth of 12.2% y-o-y in April (March: 11.8% y-o-y). Business segment's loans growth slowed down somewhat to 4% in April from March 2010's 4.3% y-o-y.

Loans applications turned in a healthy growth rate of 26.8% y-o-y in April, comparable to the 23% growth recorded in March.

As for loans approved, the growth rate picked up again to a robust 26.7% y-o-y increase in April, which is certainly much higher than the 12.9% y-o-y and 11.8% y-o-y growth rates seen in March and February 2010, respectively.

Both the loan application and approval growth rates are surprisingly strong, and we had expected these to start to normalise given that the low base effect of 1Q09 will now be replaced by a more regularised base from March 2009.

The business segments are the main drivers in April 2010, with business applications growth rate strengthening to 40.2% y-o-y (March: +16.8% y-o-y), and business loans approved growth accelerating to +32.4% y-o-y (March: +4.8% y-o-y).

We understand the industry non-performing loans (NPL) figures would be somewhat of a hybrid, given that some banks are now reporting impaired loans based on FRS139, while others have yet to cross over to FRS139.

Nevertheless, as a gauge, April 2010's gross non-performing loans/impaired loans nudged up by RM357 million month-on-month (m-o-m), from a previous reduction of RM1.7 billion m-o-m in March 2010.

Gross NPL/impaired loan ratio is still somewhat stable at 3.5% in April (March: 3.5%), given higher loan base. Net NPL ratio is unchanged as well at 1.8% in April (March: 1.8%). Loan loss cover strengthened though to 97.8% in April, if compared to 95.9% in March.

April 2010's banking industry data indicates that loan growth is likely to remain healthy. However, we expect these to be largely discounted in our forecasts, as we now project 9.8% (previous 8%) calendarised loan growth for the seven banks under our coverage.

Looking ahead, we expect asset quality trends to be skewed by changes to accounting basis, when the other banks (AFG, HLBB, Maybank) adopt FRS139. Thus, a more relevant comparison will likely be possible only from the September 2010 banking statistics.

We are downgrading our sector rating to neutral from overweight. This is mainly due to our earlier downgrade on CIMB to hold from buy previously. Our sector top pick is still RHB Capital and HLBB. RHBCap in our view is still a laggard, trading at P/BV (price-to-book value) of only 1.4 times. We maintain our fair value on RHBCap at RM7.20 per share.

We remain positive on HLBB as we expect higher value extraction should its merger with EONCap goes through. We maintain buy on HLBB with unchanged fair value of RM10.90 per share. ' AmResearch, June 3


This article appeared in The Edge Financial Daily, June 4, 2010.

RHBCAP - Strong showing from banks in April

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

Banking sector
Downgrade to neutral (from overweight): Industry loans growth stable at 10% year-on-year (y-o-y) in April 2010, broadly unchanged from March 2010's +9.8% y-o-y.
Again, most of the growth was derived from the household segment, which reported growth of 12.2% y-o-y in April (March: 11.8% y-o-y). Business segment's loans growth slowed down somewhat to 4% in April from March 2010's 4.3% y-o-y.

Loans applications turned in a healthy growth rate of 26.8% y-o-y in April, comparable to the 23% growth recorded in March.

As for loans approved, the growth rate picked up again to a robust 26.7% y-o-y increase in April, which is certainly much higher than the 12.9% y-o-y and 11.8% y-o-y growth rates seen in March and February 2010, respectively.

Both the loan application and approval growth rates are surprisingly strong, and we had expected these to start to normalise given that the low base effect of 1Q09 will now be replaced by a more regularised base from March 2009.

The business segments are the main drivers in April 2010, with business applications growth rate strengthening to 40.2% y-o-y (March: +16.8% y-o-y), and business loans approved growth accelerating to +32.4% y-o-y (March: +4.8% y-o-y).

We understand the industry non-performing loans (NPL) figures would be somewhat of a hybrid, given that some banks are now reporting impaired loans based on FRS139, while others have yet to cross over to FRS139.

Nevertheless, as a gauge, April 2010's gross non-performing loans/impaired loans nudged up by RM357 million month-on-month (m-o-m), from a previous reduction of RM1.7 billion m-o-m in March 2010.

Gross NPL/impaired loan ratio is still somewhat stable at 3.5% in April (March: 3.5%), given higher loan base. Net NPL ratio is unchanged as well at 1.8% in April (March: 1.8%). Loan loss cover strengthened though to 97.8% in April, if compared to 95.9% in March.

April 2010's banking industry data indicates that loan growth is likely to remain healthy. However, we expect these to be largely discounted in our forecasts, as we now project 9.8% (previous 8%) calendarised loan growth for the seven banks under our coverage.

Looking ahead, we expect asset quality trends to be skewed by changes to accounting basis, when the other banks (AFG, HLBB, Maybank) adopt FRS139. Thus, a more relevant comparison will likely be possible only from the September 2010 banking statistics.

We are downgrading our sector rating to neutral from overweight. This is mainly due to our earlier downgrade on CIMB to hold from buy previously. Our sector top pick is still RHB Capital and HLBB. RHBCap in our view is still a laggard, trading at P/BV (price-to-book value) of only 1.4 times. We maintain our fair value on RHBCap at RM7.20 per share.

We remain positive on HLBB as we expect higher value extraction should its merger with EONCap goes through. We maintain buy on HLBB with unchanged fair value of RM10.90 per share. ' AmResearch, June 3


This article appeared in The Edge Financial Daily, June 4, 2010.

AXIATA - OSK Research maintains buy call on Axiata

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

KUALA LUMPUR: OSK Research has maintained its buy call on Axiata Group Bhd at RM3.77 with target price RM4.80 and said the company remains its top Malaysian and regional telecoms exposure on account of its positive longer-term prospects and strong operational execution.

"Axiata is currently on its Phase 2 transformation programme to become a regional champion by 2015.

"Its key earnings catalysts are: (i) the continuing strong growth at XL; and (ii) sustained performance of Celcom; and (iii) good group-wide cost management initiatives," it said in a note Friday, June 4.

EVERGRN - Evergreen's outlook remains favourable

Stock Name: EVERGRN
Company Name: EVERGREEN FIBREBOARD BHD
Research House: RHB

Evergreen Fibreboard Bhd
(June 2, RM1.43)
Maintain outperform at RM1.43 with a lower fair value of RM2.30 (from RM2.35): Evergreen expects 2Q10 results to be stronger by circa 5% quarter-on-quarter, due mainly to higher sales volume coupled with higher average selling prices. Its current capacity utilisation rate is above the 80% level while average selling prices have since strengthened by 3% in 2Q10 versus 1Q10. Total cost of production has dropped by 2.5% in 2Q10.

Evergreen will be commissioning its currently dormant Indonesian plant in 2H10. To be conservative, we have only assumed contributions from Indonesian operations to start from FY11 onwards. If the plant is commissioned on time in 2H10, this would potentially raise our FY10 forecast by 5%.

Evergreen expects growth to mainly come from an improvement of market share in the region as well as reduction in cost of production. Moving forward, Evergreen plans to grow both its Thailand and Indonesia market shares to 5% (from <2%) and 10% (from 6%), respectively in the near term.

We also believe that Evergreen may try to further reduce its cost of production through the securing of rubberwood log supply by acquiring rubber plantation land and/or the acquisition or commissioning of a third glue plant. Any acquisitions of existing MDF players would only take place earliest in 2012, if opportunities present themselves.

Given its stronger financial position currently, Evergreen highlighted that it may pay out more interim dividends in FY10 and FY11. Evergreen also targets to be in a net cash position by end-2011 (from 0.4 times net gearing currently). Following the management's commitment to paying out higher dividends in FY10-FY11, we have increased our net dividend payout assumption to 40%-45% in FY10-FY11 (from 25%), which would bring dividend, payouts back to '06 levels of 40% (before the acquisition of Takeuchi MDF and Hume Fibreboard). This translates to a very respectable 6%-7% net dividend yield for FY10-FY11 (from 3%-4% previously).

The risks to our view include: (1) sharp drop in MDF price; (2) sharp increase in log costs; (3) further escalation of crude oil related glue and logistics costs; and (4) strengthening of the ringgit which could reduce the company's export competitiveness.

We reduced our earnings forecasts by 1.4%-3.2% for FY10-FY12 per annum after updating our US dollar to ringgit assumptions; our FY09 numbers; and increasing our dividend payout assumptions.

Post earnings revision, we value Evergreen at RM2.30 (from RM2.35) based on unchanged target PER (price-earnings ratio) of 11 times FY12/10 earnings (which is at a three times PE discount to the timber sector due to its smaller market capitalisation). Maintain our outperform recommendation on the stock. ' RHB Research Institute, June 2


This article appeared in The Edge Financial Daily, June 3, 2010.

SAPCRES - SapuraCrest taps Mideast IPF market

Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Research House: RHB

SapuraCrest Petroleum Bhd
(June 2, RM1.95)
Reiterate outperform at RM1.96 with fair value of RM2.66: SapuraCrest announced that it had entered into joint venture (JV) with Al Rayan Investment (ARI) with an initial investment of RM308,700. We understand that SapuraCrest will have a 49% stake in this JV while ARI will own the remaining 51%.

Note that ARI was incorporated in Qatar in 2007 as a limited liability company and is a wholly owned subsidiary of Masraf Al-Rayan (Qatar's fourth-biggest lender by market cap). The businesses of ARI include real estate investment, private equity and investments and financial advisory services.

We are positive on the latest development as the JV would enable SapuraCrest to tap into the growing IPF (installation of pipelines and facilities) demand stemming from the resilient E&P (exploration and production) spending in the Middle East. Recall that SapuraCrest had secured few sizeable contracts from India (RM185 million Mumbai High South and RM255 million North Field projects) via the 40:60 JV with Larsen & Toubro. However, unlike the Acergy JV and L&T JV, this JV will not own an IPF vessel.

Risks to our view are: (1) rising costs of materials, labour and assets; 2) potential margin squeeze for the IPF division due to price competition for new contracts; and (3) potentially, more open competition from larger global players.

We maintain our forecasts, as it is premature to include earnings contribution from the JV.

We reiterate that medium-term earnings visibility remains bright on the back of: (1) RM9.1 billion effective order book and stronger order book replenishment from overseas (India and Australia) for its IPF division; (2) better cost control given ownership of its own IPF vessels as well as cost pass-through contract; and (3) stronger growth in rates for its drilling division.

Potentially, as we see more contracts secured, there may be upside to our fair value of RM2.66 per share, which is based on 16 times FY11 EPS (earnings per share). Hence, given still potential upside of 36% to our fair value, we reiterate our outperform call on the stock. ' RHB Research Institute, June 2


This article appeared in The Edge Financial Daily, June 3, 2010.

AIRASIA - Tax allowance extension is good news for AirAsia

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

AsiaAsia Bhd
(June 2, RM1.20)
Reiterate trading buy at RM1.25 with target price of RM1.48: AirAsia announced on Bursa Malaysia that the company has received the approval of the finance ministry vide its letter dated May 27, 2010 for an extension of investment allowance incentive for a period of another five years from July 1, 2009 until June 30, 2014.

This is indeed a piece of good news for AirAsia as 60% of its qualifying capital expenditure (capex)'' incurred from July 1, 2009 to June 30, 2014 will enjoy permanent tax savings. While the investment allowance can only be set off against 70% of statutory income for each year of assessment, we think the company may begin to record deferred tax assets (positive tax) in the coming quarter by topping up this extended allowance with regular capital allowance. AirAsia has begun to record some reversal of capital tax allowance since 3QFY09 after the company decided to slow down on the delivery of new aircraft.

As the investment allowance is granted only for aircraft based in Malaysia, we suspect this may lead to the company parking more aircraft under its books. However, we are uncertain whether the aircraft that are subsequently leased to its associates can enjoy similar incentives.

Apart from that, should any aircraft be sold or leased within five years, there would be a claw-back of the investment allowance utilised on the said aircraft. This may discourage AirAsia from selling and leasing back the new aircraft in order to fully capitalise on the tax incentive.

As we have been valuing AirAsia based on profit before tax (PBT) to exclude the implications of deferred tax recognition and our original estimates already incorporated a positive tax of RM20 million for FY10, we are keeping our projection. Together with this piece of good news, we also excited with the potential announcement of some corporate exercises pertaining to its plans for AirAsia X and Indonesia AirAsia soon. The board is also in talks with new investors to buy out the majority stake in its Indonesia associate, which was put up for sale by the original investors.

With the corporate exercises in the pipeline and as the share price offers some upside after the recent weakness, we maintain our trading buy recommendation with an unchanged fair value of RM1.48, derived from nine times FY10 EPS (earnings per share core- PBT level). ' OSK Research, June 2


This article appeared in The Edge Financial Daily, June 3, 2010.

TENAGA - Maybank IB downgrades Tenaga to sell, cuts target price to RM7.35

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

KUALA LUMPUR: Maybank Investment Bank Bhd Research has downgraded TENAGA NASIONAL BHD [] to a sell at RM8.29 and cut its target price for the stock to RM7.35 (from RM11.80).

It said in a note Thursday, June 3 that after three months since the Energy minister mentioned a need to educate the public to justify higher electricity prices, there was no sign of higher base tariffs, suggesting it was low on the government's priorities.

A recent Pemandu proposal is for a gas and corresponding electricity hike without a change in the base tariff to raise ROA, it said.

Maybank IB Research said incremental electricity demand will have to be coal-generated, which is more costly (than gas) and results in a more volatile cost structure.

Existing coal plants could operate at 90% capacity by 2015 and industry reserve margins below 20% by then, raising the possibility of power shortages, it said.

The research house said feed-in tariffs, the price at which Tenaga buys excess renewable energy from third parties, may be imposed on Tenaga without sorting out a base tariff hike.

"We are removing our assumed 4% tariff hike from our forecasts, reducing our discounted cash flow-based target price to RM7.35, with earnings falling by 18% and 11% in FY11-12," it said.

AIRASIA - AirAsia a 'buy' as tax savings a boost

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

The extension of the tax allowance for budget carrier AirAsia Bhd is indeed good news as 60 per cent of its qualifying capital expenditure incurred from July 1 2009 to June 2014 will enjoy permanent tax savings.

OSK Research, in a note today, said as the investment allowance was only granted for aircraft based in Malaysia, this may lead to the company parking more aircraft under its books.

The approval is subject to the condition that the capex will exclude any aircraft not based in Malaysia and should any aircraft be sold or leased within five years.

In such a case, there will be a clawback of the investment allowance used on the aircraft and this may discourage the airline from selling and leasing back new aircraft to fully capitalise on the tax incentive.
"Together with this piece of good news, we are also excited with the potential announcement of some corporate exercise pertaining to its plan for AirAsia X and Indonesia AirAsia," it said.

Thus, OSK said it was maintaining its "BUY" recommendation, with an unchanged fair value of RM1.48 on AirAsia, supported with the corporate exercise in the pipeline and as the share price offered some upside after the recent weakness. - Bernama

POS - Pos Malaysia brought down by impairment charges

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

Pos Malaysia Bhd
(June 1, RM2.62)
Reiterate outperform at RM2.67 with target price of RM3.28: The target price is based on FY10 EPS (earnings per share) of 23.4 sen and PER (price-earnings ratio) of 14 times. We expect Pos Malaysia's both top and botton line to benefit from the tariff hike which will come into effect from July 1.

Pos Malaysia's 1QFY10 revenue of RM231.08 million was lower than our forecast accounting for 21.5% of our FY10 projection. We expect its revenue to pick up in 2HFY10 benefiting from the tariff hike which is expected to raise its revenue by about 40%-50%.

1QFY10 revenue rose by 2.9% quarter-on-quarter (q-o-q) benefiting from all its business segments with the exception of its courier and logistic posted a negative growth of 0.8% q-o-q.

Retail business revenue was up 18.6% q-o-q to RM38.7 million which could be attributed to the refurbishment of post offices as well as the management's increasing concentration to develop this segment.

Pos Malaysia's profit margin fell due to higher expenses ' 1QFY10 operating profit fell by 14% year-on-year (y-o-y) to RM23.1 million in view of higher expenses, which were up 1.9% y-o-y to RM208 million following an increase in maintenance and supplies costs, transportation cost as well as promotional expenses.

Revenue, which gained by 0.1% y-o-y, failed to yield any major impact. Thus, the postal services provider's operating profit margin fell by 1.6 percentage points y-o-y to 10%.

Pos Malaysia's 1QFY10 profit before tax (PBT) fell by 69.8% y-o-y and 67.1% q-o-q to RM9.4 million due to impairment losses provided for non-current investments of RM19.4 million. Excluding all impairment charges, its 1QFY10 PBT would have contracted by 10.6% y-o-y, while on a quarterly basis, it rose 8.1%.

With Transmile's turnaround plan still unclear, this could put a lid on Pos Malaysia's interest into Transmile for its future growth plan. ' Inter-Pacific Research, June 1 ''


This article appeared in The Edge Financial Daily, June 2, 2010.

RHBCAP - RHBCap on track for another record year

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

RHB Capital Bhd (RHBCap)
(June 1, RM5.77)
Maintain buy at RM5.75 with target price raised to RM6.60 (from RM6.40): 1QFY10 net profit of RM350 million made up 26% of our and consensus' full-year forecast, with the slight upside coming from lower provision for impaired loan loss after the switch to FRS 139 from GP3.

Loan growth was also stronger than expected. We raise our 2010 net profit forecast by 5%, forecasting a strong 18% growth. Our discount dividend model-based target price is slightly enhanced to RM6.60. The stock remains a buy.

1QFY10 net profit up 53% year-on-year (y-o-y), 4% quarter-on-quarter (q-o-q). The strong y-o-y jump was broad based, coming from loan growth (+15.8%), net interest margin (NIM) expansion (+12 basis points), higher fee and foreign exchange income, and lower provision for impaired loan loss (-52%).

The relatively smaller q-o-q net profit growth was mainly due to lower operational expenditure (-13%) with some one-off marketing and administration costs in 4Q09 not being repeated, and lower provision for impaired loan loss (-25%).

NIM meanwhile rose 1bps q-o-q to 2.82%. Credit charge retraced 65bps y-o-y and 18bps q-o-q to 0.46%.

Loans grew a strong 17.4% annualised, driven by loans to government and statutory bodies, and individuals, while credit to businesses contracted marginally.

The management believes the strong momentum is sustainable. We raise our loan growth forecast for 2010 to 15% from 12%. We retain our credit charge assumption at 0.7% as guided.

Our net profit forecast is slightly enhanced by 5% for 2010, and 1%-2% per annum for 2011-2012. Our new forecast implies a return on equity of 15.2% for 2010, a tinge higher than management's 14.5%-15% target.

Bank Negara's approval has been obtained while discussions are still ongoing with Bank Indonesia. The acquisition, for an 80% stake, is now targeted for completion by end-3Q10 versus mid-2010 previously.

We have earlier estimated an EPS (earnings per share) dilution of 10% for an estimated 1-for-6 rights issue to raise up to RM1.3 billion to fund the acquisition.

At single-digit forward PERs (price-earnings ratio), RHB Cap remains the cheapest banking stock under our coverage. Our raised RM6.60 target price implies 10 times 2010 PER (before rights dilution). ' Maybank IB Research, June 1


This article appeared in The Edge Financial Daily, June 2, 2010.

BSTEAD - Boustead's slow start to 2010

Stock Name: BSTEAD
Company Name: BOUSTEAD HOLDINGS BHD
Research House: ECMLIBRA

Boustead Holdings Bhd
(June 1, RM3.52)
Maintain hold at RM3.54 with target price raised to RM3.56 (from RM3.30): Annualised, Boustead's net profits for 1QFY10 came in some 20% below our estimates and 10% below consensus estimates.

The key area where the shortfall came compared to our expectations was in the heavy industries segment. Otherwise, other segments performed within expectations. Year-on-year (y-o-y), earnings of the group as a whole were better predominantly due to a higher crude palm oil (CPO) average selling price (ASP) but on a quarter-on-quarter (q-o-q) basis, its bottom line was softer due to lower contributions from Affin Holdings.

For 1QFY10, the group achieved a CPO ASP of RM2,499 per tonne which is below the MPOB average price of RM2,569 and that helped the segment turn in a PBT (profit before tax) that was 163% higher y-o-y. Besides this, fresh fruit bunches (FFB) yields were also better y-o-y and FFB production was up 1.5% y-o-y and a good 9.6% q-o-q.

The group said yields in Peninsular Malaysia have been better this year after a period of tree stress over FY09. To note, matured hectarage in the peninsula makes up 35% of total group estates.

Indonesia continues to bring the group's average down however and until the estates are sold, the full potential of Boustead's plantation segment will not be realised.

Earnings of BHIC were off to a slow start this year with current total yard utilisation at only 60% and the group completing several commercial vessel jobs over 4Q09.

Besides that, Boustead Naval Shipyard has only one more vessel to be delivered (currently the vessel is being tested) and now awaits a new tranche of vessels to be built from the Royal Malaysian Navy.

Towards the 2H, we expect some pick-up in earnings with the commencement of the RM700 million ship life extension job.

Another job likely to be commenced this year is the Scorpene submarine job which has as yet not been finalised. In any case, we are taking a more conservative stance and trimming our earnings expectations from BHIC.

Adjusting down our assumptions on the heavy industries segment, we lower our FY10 EPS (earnings per share) by some 8.8%. We are switching our valuation on Boustead from sum-of-parts to historical PEs (price-to-earnings).

Since 2009, Boustead has traded at an average PE of nine times and we are pegging this multiple to FY10 EPS deriving a target price of RM3.56 (previously RM3.30). To note, the group announced a single-tier five sen first interim dividend for the quarter. ' ECM Libra Investment Research, June 1


This article appeared in The Edge Financial Daily, June 2, 2010.

MAXIS - OSK remains neutral on Maxis

Stock Name: MAXIS
Company Name: MAXIS BERHAD
Research House: OSK

Maxis Bhd
(June 1, RM5.20)
Maintain neutral at RM5.22 with target price of RM5.80: Maxis' 1QFY10 core earnings of RM552 million (-1.1% year-on-year/-5% quarter-on-quarter) made up 21% of our and consensus full-year forecast.

Revenue rose 1.1% y-o-y but eased 3% q-o-q due to (i) seasonality (shorter festivity-induced quarter/business closure/lower roaming revenue); and (ii) the slide in voice and wireless broadband (WBB) ARPUs (average revenue per user).

This was despite the decent 3% q-o-q (+11.4% y-o-y) subscriber growth as prepaid revenue per minute (RPM) came under renewed pressure coupled with the promotional offer of two-months' subscription waiver on its WBB plans introduced in 4Q09.

WBB additions slowed to 49,000 in 1Q10 from a strong 75,000 in 4Q09 as it ceded the share of additions to a much stronger Celcom, which garnered 124,000 subscribers during the quarter. The board has declared a first interim dividend of eight sen per share (payable on June 30), implying a net payout of 109%.

Tight cost controls have enabled Maxis to maintain its superior (Ebitda) earnings before interest, tax, depreciation and amortisation margin of 50.3% in 1Q10, steady q-o-q.

Data revenue contribution inched higher to 34.8% from 34.4% in 3Q09 although its non-voice revenue was flat q-o-q.

The management expects more pressure on broadband price-points (WBB ARPU fell to RM69 in 1Q10 from RM85 in 4Q09) as the mobile and alternative broadband providers slug it out to court subscribers in meeting the government's target of 50% broadband penetration by end-2010.

We note that Maxis' advanced data services (ADS) revenue has grown remarkably over the past five quarters, with 50% of it subs base now being active mobile Internet users.

Maxis is finalising the commercial terms of the HSBB (high-speed broadband) wholesale arrangement with TM for last mile access and backhaul investments. It expects to be able to roll out fixed broadband services to 65,000 homes and businesses by end-3Q10, pitting its services against TM's UniFi.

We gather from the management that an agreement had also been inked with Tenaga Nasional Bhd for Maxis to deliver fixed broadband to homes via the stringing of cable on power poles. This would be a more cost effective way to deliver high speed broadband to the masses compared to laying out ground cables. ' OSK Research, June 1


This article appeared in The Edge Financial Daily, June 2, 2010.

AIRASIA - AirAsia upgraded to 'outperform' at RHB

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: RHB

AirAsia Bhd was raised to "outperform" from "market perform" at RHB Research Institute Sdn Bhd after first-quarter earnings exceeded its estimates.

The fair value for the stock was increased to RM2.20 from RM1.49, RHB said in a report today. -- Bloomberg

WASEONG - OSK Research lowers target price for Wah Seong to RM2.85

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

KUALA LUMPUR: OSK Research has maintained its buy call on Wah Seong Corp at RM2.21 but lowered its target price to RM2.85 (from RM3.35).

It said Wah Seong's 1QFY10 results were below expectations, mainly due to the lower revenue generated in the engineering, renewable energy and E&P services divisions, although this was offset by higher revenue from the pipe coating, pipe manufacturing and trading divisions.

"Hence, we are downgrading our FY10-11 earnings by 19%-26%.

"We believe that the stock's potential upside lies with the management's review of a new three- to five-year strategy going forward since the JV with Socotherm is no longer in its plans," it said.

AXIATA - Strong start for Axiata

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

Axiata Group Bhd
(May 31, RM3.77)
Maintain buy at RM3.69 with revised target price of RM4.50 (from RM4.15): Axiata's 3MFY10 revenue was in line while core net profit was above house and consensus estimates. Reported net profit was much higher as Axiata recorded an exceptional gain from the partial disposal of XL stake. Revenue and net profit growth was driven by strong year-on-year (y-o-y) performance by all major operating units, including Dialog.

Celcom and XL experienced strong double-digit growth both in terms of revenue and profitability on the back of steady subs growth and ever improving earnings before interest, tax, depreciation and amortisation (Ebitda) margins. Both companies' Ebitda margins are near record highs at 45.4% and 51% respectively. But management is guiding for Ebitda margin to stabilise at mid-40s level due to competition.

Dialog surprisingly posted a net profit of Sri Lankan rupee (SLR) 705 million (RM20.19 million) compared to a loss of SLR1.87 billion in 3MFY09. The turnaround was mainly due to a 20-percentage point rise in Ebitda margin y-o-y to 34% due to opex improvements. Meanwhile, Robi managed to continue churning out profits albeit lower q-o-q despite being more aggressive in acquiring subs.

Prospects look positive for the group as a whole, mainly driven by Celcom and XL while previously underperforming opcos (Dialog and Robi) return to the black. High single-digit growth from Celcom and high teens growth from XL will underpin earnings growth. Despite volatile earnings, Robi has remained profitable for a second consecutive quarter and looks to be on track to remain profitable throughout the year. A positive surprise is Dialog's turnaround, and we are hopeful that continued cost control should enable Dialog to stay in the black this year.

We maintain our earnings estimates as competition will likely put downward pressure on the good margins recorded in 1QFY10 while contribution from XL will be lower from 2QFY10 onwards as Axiata trimmed its stake in XL from 86.49% to 68.49% in March. We also expect financing costs to increase given the recent US$300 million (RM978 million) bonds issuance.

However, we revised our sum-of-parts target price higher to RM4.50 (previously RM4.15) due to lower net debt due to the RM1.7 billion cash received from the partial disposal of XL stake. Hence, we reiterate our buy call. ' ECM Libra Investment Research, May 31


This article appeared in The Edge Financial Daily, June 1, 2010.

AFFIN - Affin's fair value increased to RM3.58

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

Affin Holdings Bhd was raised to "trading buy" from "market perform" at RHB Research Institute Sdn Bhd after the Malaysian bank reported first-quarter profit that was "above expectations."

The stock's fair value was increased to RM3.58 from RM3.03, RHB analyst David Chong said in a report today. -- Bloomberg

CARLSBG - Carlsberg - A merry past, present and future

Stock Name: CARLSBG
Company Name: CARLSBERG BREWERY MALAYSIA BHD
Research House: MAYBANK

Carlsberg Brewery Malaysia Bhd
(May 31, RM4.84)
Upgrade to buy from hold at RM4.73 with revised target price of RM5.50 (from RM4.60): Carlsberg's 1Q10 performance raises confidence that it will be able to realise the full measure of potential sales and synergies at Carlsberg Singapore Private Ltd (CSPL) of at least RM25 million net profit in 2010. We raise 2010-12 forecasts by 20%-22% and our discounted cash flow-based (DCF) target price to RM5.50 (from RM4.60) as a result.

1Q10 net profit of RM37.8 million was up 76.9% year-on-year (y-o-y) and 90.6% quarter-on-quarter (q-o-q). This was due to revenue growth of 30.6% y-o-y and 26% q-o-q coming from CSPL, which contributed, to 22.6% of this quarter's y-o-y sales growth. The slightly later Chinese New Year (CNY) in February 2010 (versus early January 2009) also allowed Carlsberg to capture a fuller part of the festive period's sales from the trade's stocking-up activities.

1Q10 net profit alone formed approximately 33% of our and consensus' full-year forecasts. Other than top-line growth, this was also boosted by improvements in earnings before interest, tax, depreciation and amortisation (Ebitda) margin, which stood at 14% in 1Q10 as compared to 11.4% in the corresponding quarter of 2009. Lower effective rate of 22.6% (-4 percentage points y-o-y, -2.5% percentage points q-o-q) due to lower tax rate in Singapore also contributed to the commendable bottom-line growth.

Carlsberg's 12-month moving average (MA) revenue totalled RM1.13 billion, or RM173.5 million more than its corresponding 12-month MA revenue of RM960.6 million. Allowing for new sales of RM131.9 million at CSPL, this implies that Carlsberg's 12-month MA revenue rose by RM41.6 million or 4.3%. This was less than its rival's RM66.7 million or 5.3% increase in 12-month MA revenue to RM1.33 billion. Thus, Carlsberg's revenue market share fell by 0.3 percentage point in 1Q10 to 43% as its rival Guinness' revenue market share grew more quickly.

With the World Cup football coming up next and the strong start from Singapore's two new integrated resorts, we see no reason for any tapering of near-term sales growth. We are placing our dividends forecasts under review for a potential upgrade. ' Maybank IB, May 31


This article appeared in The Edge Financial Daily, June 1, 2010.

KULIM - Inter-Pacific maintains outperform call on Kulim

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

Kulim (M) Bhd
(May 31, RM7.32)
Reiterate outperform at RM7.32 with target price of RM9: We reiterate outperform with our target price at RM9 based on sum-of-parts valuation. We find Kulim attractive in view of its more attractive PER of 10.1 times vis-a-vis its peers of similar size. As expected, Kulim did not declare any dividend for the quarter.

Kulim's profit before tax (PBT) result of RM165.9 million is fairly in line with our expectation, accounting for 22.7% of our FY10 estimation. We are confident that our forecast revenue and PBT of RM6.9 billion and RM731.1 million will be realised as historically, result will pick up during 2HFY10.

1QFY10 revenue grew by 14.4% year-on-year (y-o-y) to RM1.5 billion supported from all their business segments with the exception of shipping services which posted negative growth. Revenue from food and restaurant services via QSR Brands Bhd grew by 14.3% y-o-y to RM724.7 million, while plantation revenue rose by 16.4% y-o-y following a 24.8% y-o-y gain from Malaysia and 13.1% y-o-y gain from Solomon Islands respectively.

Their palm oil production in Malaysia which rose 8% y-o-y to 36,300 tonnes in 1QFY10 was due to higher OER yield of 20.6%, up 0.6 percentage point from 1QFY09. This, together with higher average CPO selling price of RM2,455 per tonne (RM1,904 per tonne in 1QFY09) saw its profit from Malaysia doubled to RM32.2 million in 1QFY10 (1QFY09: RM16.2 million).

Revenue from their subsidiary plantation business ie New Britain Palm Oil (NBPOL) which grew 13.1% y-o-y growth in 1QFY10 was due to higher fresh fruit bunches (FFB) production (+2% y-o-y) and average CPO selling price of US$767 (+2.7% y-o-y).

Manufacturing business led by Natural Oleo Chemicals posted a profit of RM14.3 million from a loss of RM31 million in 1QFY09. This was due to their oleochemical business that recorded higher revenue of RM277.6 million in 1QFY10 or up 16.2% y-o-y after revenue was hit from cancellation of contracts in 1QFY09. Excluding translation gain of RM19.8 million, the manufacturing segment will be in negative of RM5.5 million in 1QFY10, a much smaller loss in comparison to RM31 million in 1QFY09 and RM11 million in 4QFY09. ' Inter-Pacific Research Sdn Bhd, May 31


This article appeared in The Edge Financial Daily, June 1, 2010.

SIME - Sime Darby - uncertainties linger

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

Sime Darby Bhd
(May 31, RM7.75)
Maintain sell at RM7.83 with reduced target price of RM6.74 (from RM7.02): Sime Darby's 9MFY10 results were disappointing, even if we removed the effects of provisioning for its oil & gas (O&G) and engineering division amounting to RM1.33 billion year-to-date (YTD) and RM964 million for 3Q alone.

The plantation segment did better in the 9M, registering a 36.4% increase in earnings before interest and tax (Ebit). The improvement came from both upstream (RM1.56 billion against RM1.29 billion last year) and downstream, which turned around with a RM141,000 operating profit. Its Indonesian operation's fresh fruit bunches (FFB) production rose 23.3%, with group OER improving from 21.4% to 22%, driving the segment's profitability.

Despite the improvement, the segment profits so far suggest that our earlier estimates of RM2.64 billion were too high. Hence, we are cutting it by 8.6% to RM2.41 billion. FY11 and FY12 segment profit forecasts are also cut by similar percentage.

Provisions for Bakun are for estimated cost to completion. While some cost escalation has been provided for, there could still be more although we doubt it would be as significant as what was already provided for. So far, these provisions are non-cash items but will become cash items subsequently.

Segment Ebit declined by 14.8% on lower demand for new heavy equipment in Singapore and Australia. Stripping out the RM19 million gains from property disposal, Ebit fell by 17.8%. We are trimming contribution from Australia by between 9.7% and 13.2% for FY10'FY12 to reflect slower growth.

We have reduced our earnings forecast by 10.3% to 10.5% for FY10'FY12. We are rolling over our target price to 15 times CY11 earnings, which was based on our lower forecast, is cut from RM7.02 to RM6.74. While Sime's massive writedowns and its first-ever quarterly loss hog the limelight, these writedowns mask the weaker-than-expected results in other key divisions. Maintain sell on uncertainty over further writedowns and premium valuation against 'best of breed' companies. A lack of strategic focus and possibly loose internal controls, which we believe led to the sizeable losses, reinforce our belief that Sime's premium valuation is not justifiable. ' OSK Investment Research, May 31


This article appeared in The Edge Financial Daily, June 1, 2010.

MAXIS - Maxis upgraded to 'buy' at ECM Libra

Stock Name: MAXIS
Company Name: MAXIS BERHAD
Research House: ECMLIBRA

Maxis Bhd, Malaysia's biggest mobile phone operator, was upgraded to "buy" from "hold" at ECM Libra Capital Sdn Bhd.

This is due to recent weakness in its share price, ECM Libra said in a report today, maintaining its RM5.90 share forecast. -- Bloomberg