BSTEAD - Boustead's pockets of potential

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

Boustead Holdings Bhd (June 10, RM3.58)
Upgrade to buy at RM3.54 with higher target price of RM4.14 (previously RM3.56). We co-hosted an investors briefing with Boustead on Tuesday which was well attended by buy-side analysts and fund managers. We see for now three areas that can yield growth in coming years within the company's six divisions. These are plantations, heavy industries and'' properties.

Plantations will be positive if Sumatran estates are sold. Boustead's plantations segment generally underperforms the industry due to its underperforming Indonesian estates. They currently have 17,000ha in Indonesia of which 8,000ha are planted. Yields there have been dismal at roughly 10 tonnes/ha per annum.

The potential sale of this estate, should it materialise, will bring group yields to at least 23 tonnes per ha from the current less than 20 tonnes per ha group average. In terms of earnings, we estimate that it could raise FY11 plantation Ebit (earnings before interest and tax) by up to 60% (our FY11 Ebit estimate is currently RM150 million) hence enhancing the group's bottom line by some 16%.

Another item that would be significantly positive for Boustead is the expected award of contract to build another six vessels by the Royal Malaysian Navy. The segment currently has an order book of RM2 billion of which over 50% are jobs spanning up to five years.

As such, earnings could be subdued we believe, if new jobs are not awarded on time, especially the vessel jobs. It would boost their order book to over RM6 billion and provide earnings visibility for another five years to come.

Although it is still early, we believe the group will benefit from the spillover effect from LTAT (Lembaga Tabung Angkatan Tentera) being the prime beneficiary of government's land privatisation programme. First, we understand the Jalan Cochrane land is being offered to LTAT. Besides that, we note that LTAT reportedly has a 30% stake in the redevelopment project of the RMAF base in Sungai Besi.

There is potential for growth within the Boustead group and this will be slated for 2011 onwards. However, given that the timing of when their plans will materialise is vague, we are not raising our earnings just yet.

We do, however, want to take a more positive stance on the stock and are hence upgrading our call from hold to buy. We roll over valuations to FY11 EPS (earnings per share) and using the same historical average eight times PE (price-to-earnings), derive a target price of RM4.14 (previously RM3.56). To note, the group also makes for a good dividend play. ' ECM Libra Investment Research, June 10







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

CBIP - CBIP turning into upstream CPO play

Stock Name: CBIP
Company Name: CB INDUSTRIAL PRODUCT HOLDING
Research House: MAYBANK

CB Industrial Product Holdings Bhd (CBIP) (June 10, RM2.50)
Downgrade to hold at RM2.50, target price reduced to RM2.70 (from RM4.40 previously): In our view, earnings at CBIP's manufacturing division are stagnating and the plantation division is now the main driver to earnings variability.

We increasingly see CBIP as an upstream CPO (crude palm oil) play, albeit a less leveraged one as about half of its earnings are still manufacturing-based. We believe CBIP is attractively valued, but a rerating could be long-drawn due to a lack of catalysts.

CBIP's mills engineering has good visibility but limited upside potential. CBIP's outstanding order book stood at RM269 million, having secured RM33 million worth of new awards in 1Q10. We believe CBIP is on course to at least match 2009 billings of RM165 million.

The management is still confident of securing RM160 million-RM200 million worth of new contracts in 2010. Post-completion of its own mills, we estimate that the division could deliver about RM200 million of recurring revenue annually.

We see limited scope for significant top line growth as the utilisation rate is already high and there are no near-term plans to increase manufacturing capacity.

Milling and Indonesian planting commence in its plantations. CBIP's first mill (30 tonnes/hr) started operations this year and its second mill (45 tonnes/hr) is on course to begin operations in 2H10.

With the two mills on stream, CBIP will have sufficient capacity to process its entire FFB (fresh fruit bunches) crop. Its Malaysian estates are already mature, thus future production growth in Malaysia will be limited to gains from yield improvements.

CBIP is cultivating over 6,000ha of land (about 80% of total current planted area) in Kalimantan from 2010 to 2012. We expect earnings contribution to begin in 2013, when the first phase of plantings matures.

We bring down 2010-2011 EPS (earnings per share) by 19% and 20% respectively as we lower our manufacturing order flow and billing assumptions. Our target price is lowered to RM2.70 based on 6.4 timess forward PER (price-earnings ratio) which is 1 standard below the two-year mean.

Though we see deep value, a potentially lower CPO price and risk aversion towards small-cap stocks could hamper the realisation of CBIP's intrinsic value in the near term. ' Maybank IB Research, June 10







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

GENTING - AmResearch maintains buy calls on Genting, GenM

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

KUALA LUMPUR: AmResearch has maintained its buy call on GENTING BHD [] at RM6.94 with a fair value of RM7.66 and said Genting New York LLC's reported bid to construct and operate a slot machine-only casino at New York Aqueduct Racetrack as positive.

AmResearch said the bid would act as a platform for Genting Group to expand further in the US.

"Also, it should be earnings enhancing in the long-term although we reckon that any profit contribution could be small in the early stages," it said in a note Friday, June 11.

The research house said based on 4,500 slot machines, slot wins of US$350/day and EBITDA margin of 20%, it estimates that the racino (racing track and casino) could record annual EBITDA of US$115 million (RM379 million).

"Assuming Genting New York's shareholding in the joint venture is 50%, then the company's share could be US$58 million (RM190 million). Genting Bhd's EBIT was about RM2.7 billion in FY09.

"Assuming a Price/EBITDA of 10 times, then the racino could be worth US$1.2 billion (RM3.8 billion). Genting New York's 50% share would be US$575 million (RM1.9 billion)," it said.

AmResearch said the issue was whether the project would be injected into the subsidiaries of Genting Group as Genting New York is believed to be owned by Tan Sri Lim Kok Thay.

It said the only subsidiary with financial muscle to acquire the racino project should Genting New York win, was Genting Malaysia Bhd (GenM).

GenM's cash reserves stood at RM5.3 billion (US$1.6 billion) as at end-March 2010, it said.

"We maintain buys on Genting Bhd for its regional casino exposure and GenM for its potential overseas expansion," it said.

NAIM - A glimpse of 10MP for building sector

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

Construction sector
Overweight: In this report, we highlight our views on the upcoming 10th Malaysia Plan (10MP) ' due to be tabled in parliament today. The total development allocation during the 9MP was RM200 billion (inclusive of projects earmarked under the Private Finance Initiative or PFI: RM220 billion).

The total outlay was raised by another RM30 billion during the mid-term review of the 9MP. Out of the original development allocation under the 9MP, some RM47billion was set aside for infrastructure and utilities. For the upcoming 10MP, we gather that total allocation could either be flat or lower than the amount under the previous plan.

Unlike the expansionary stance taken during the 9MP, we believe infrastructure spending would likely moderate under the 10MP ' amid a need to curb or lower the federal fiscal deficit. In our view, renewed emphasis should be given to projects that have significant economic linkages to various sectors of the Malaysian economy.

However, what could excite the market under the 10MP is the inclusion of fresh projects or resumption of deferred jobs (such as the Gemas-Johor Bahru double-tracking project, West Coast Expressway). We are also hopeful that the plan would provide more clarity on the timeline of existing big-ticket jobs.

The key focus would likely be on two major areas (1) improvement of basic infrastructure in the rural areas; and (2) upgrading of public transportation in the Klang Valley, including the rollout of extension works for the LRT systems (RM7 billion).

From our checks on the ground, we understand that Malaysian contractors ' including those under the PFI public-private collaboration scheme ' have mooted several unsolicited bids. This would include select building (such as universities) or infrastructure projects as well as upgrading of several federal trunk roads.

The implementation of projects under the PFI scheme is not something new, with RM20 billion being earmarked under this method during the 9MP. However, the actual rollout of such projects has been far and few, where funding is still an issue. Similarly, we are unsure about the status of the new MRT lines jointly proposed by Gamuda Bhd (Gamuda) and MMC Corp Bhd (MMC) given the project's massive RM30 billion tag and associated funding concerns.

Sarawak could be the one bright spot, where we expect a further increase in development allocation ahead of its state elections, due by May 2011. Under the 9MP, Sarawak received 7% of total development allocation. More funds are likely to flow in the form of basic infrastructure needed to kick-start the development at Score.

From our channel checks, some key projects from Sarawak likely under the 10MP would include: (1) balance of works under the Kuching sewerage and flood mitigation projects (RM3 billion); (2) Sibu flood mitigation project (RM1 billion); and (3) at least RM4 billion-RM5 billion worth of road projects (including access roads to proposed energy sites).

Key beneficiaries would include homegrown contractors ' Naim Holdings Bhd (buy, fair value RM4.60/share) and Hock Seng Lee Bhd (buy, RM2/share). ' AmResearch, June 9







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

ALAM - AmResearch reaffirms buy on Alam Maritim

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

Alam Maritim Resources Bhd (June 9, RM1.64)
Reaffirm buy at RM1.64 with fair value of RM2.58: Alam Maritim made an announcement on Tuesday that another vessel from its fleet, Setia Aman, had been served with a warrant of arrest and a writ of summon by the High Court of Kuala Lumpur by MLC Barging Pte Ltd (MLCB), a company based in Singapore.

Similar to an earlier suit, MLCB is claiming: (1) a declaration that MLCB is the sole owner of the vessel; (2) a declaration that the possession of the vessel be decreed to MLCB; (3) costs; and (4) such other order or reliefs as the court deems fit and proper.

Setia Aman ' also an accommodation vessel ' was recently delivered and the arrest of this vessel will not have a material impact on the group given that no contracts have been secured, as yet.

Alam Maritim is puzzled by this claim given that the vessel has been fully paid ' via a JV with CIMB ' to MLC Sdn Bhd, a related company to MLCB, with all approvals obtained by the relevant authorities for the rightful ownership of this vessel.

Based on advice of its legal team, the group is confident that the plaintiff does not have a case against the group.

We are not concerned of this development at this juncture based on the facts given and thus maintain our estimates at this juncture.

In addition to that, as mentioned in our previous report, the management has started its investigation into this matter and findings should be known this week.

Our buy rating on Alam Maritim is reaffirmed at an unchanged fair value of RM2.58 share based on a PE (price-to-earnings) multiple of 12 times. ' AmResearch, June 9







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

AIRASIA - Minimal impact on AirAsia from AirAsia X IPO

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

AirAsia Bhd (June 9, RM1.33)
Maintain trading buy at RM1.27 with target price of RM1.47: In a statement on June 8, AirAsia X CEO Azran Osman-Rani announced that AirAsia X is planning for an initial public offering (IPO) by 2H11 to fund the acquisition of 27 new Airbus aircraft.

This is part of its ongoing efforts to expand its routes further from the current eight it is flying to London, Taipei, China (Tianjin, Hangzhou, Chengdu), Australia (Gold Coast, Melbourne, Perth) and India (Mumbai, Delhi).

With the expansion of its routes to South Korea and Japan, AirAsia X is increasing its aircraft to 11 from eight it currently has.

In its third year of operation, AirAsia X achieved revenues of RM720 million for FY09 with a net profit of RM87 million. This translates to a net profit margin of 12.1%. It is projected that its revenue will exceed RM1 billion in FY2010.

It is still uncertain how much AirAsia X is planning to raise from the IPO exercise. The latest IPO of a budget carrier, Tiger Airways, in the Singapore Exchange, raised S$247.7 million or RM583.5 million with an opening price of S$1.50, which values the company at 12.6 times PER (price-earnings ratio) of its March FY2011 earnings.

For AirAsia's IPO in 2004, it raised RM863 million, with a price of RM1.25 for institutional investor and RM1.16 for individual investors.

On a historical basis, we expect that AirAsia X would raise between RM500 million and RM900 million. We believe this would be sufficient for AirAsia X to start on its plan for aircraft expansion.

However, given that each aircraft cost an estimated RM400 million, we expect that the total number of aircraft would be scaled depending on the final fund raised.

We are positive to the planned IPO of AirAsia X as it would finally separate AirAsia from AirAsia X. This separation would allow the two respective companies to concentrate on its core competencies while taking advantage on synergies such as a common brand and feeder services ' long haul passenger on AirAsia X feeding into AirAsia for short haul travelling and vice versa.

Also, the separation would allow AirAsia X to stand on its own. Hence, any future burden on AirAsia to carry AirAsia X will be lifted.

We believe that the impact of the planned AirAsia X IPO to AirAsia would be minimal as it does not contribute significantly to AirAsia's earnings. Any potential upside for AirAsia would be on its 16% holdings of AirAsia X should it earn an attractive valuation during the IPO.

We maintain our trading buy recommendation as we do not expect the planned IPO to have any significant impact on AirAsia. We expect the catalyst would be the continuing growth in traffic on the back of an expected increase in regional tourism. Our target price of RM1.47 is pegged to a PER of 10 times based on the average PER of its peers. ' MIDF Research, June 9







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

HSL - A glimpse of 10MP for building sector

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

Construction sector
Overweight: In this report, we highlight our views on the upcoming 10th Malaysia Plan (10MP) ' due to be tabled in parliament today. The total development allocation during the 9MP was RM200 billion (inclusive of projects earmarked under the Private Finance Initiative or PFI: RM220 billion).

The total outlay was raised by another RM30 billion during the mid-term review of the 9MP. Out of the original development allocation under the 9MP, some RM47billion was set aside for infrastructure and utilities. For the upcoming 10MP, we gather that total allocation could either be flat or lower than the amount under the previous plan.

Unlike the expansionary stance taken during the 9MP, we believe infrastructure spending would likely moderate under the 10MP ' amid a need to curb or lower the federal fiscal deficit. In our view, renewed emphasis should be given to projects that have significant economic linkages to various sectors of the Malaysian economy.

However, what could excite the market under the 10MP is the inclusion of fresh projects or resumption of deferred jobs (such as the Gemas-Johor Bahru double-tracking project, West Coast Expressway). We are also hopeful that the plan would provide more clarity on the timeline of existing big-ticket jobs.

The key focus would likely be on two major areas (1) improvement of basic infrastructure in the rural areas; and (2) upgrading of public transportation in the Klang Valley, including the rollout of extension works for the LRT systems (RM7 billion).

From our checks on the ground, we understand that Malaysian contractors ' including those under the PFI public-private collaboration scheme ' have mooted several unsolicited bids. This would include select building (such as universities) or infrastructure projects as well as upgrading of several federal trunk roads.

The implementation of projects under the PFI scheme is not something new, with RM20 billion being earmarked under this method during the 9MP. However, the actual rollout of such projects has been far and few, where funding is still an issue. Similarly, we are unsure about the status of the new MRT lines jointly proposed by Gamuda Bhd (Gamuda) and MMC Corp Bhd (MMC) given the project's massive RM30 billion tag and associated funding concerns.

Sarawak could be the one bright spot, where we expect a further increase in development allocation ahead of its state elections, due by May 2011. Under the 9MP, Sarawak received 7% of total development allocation. More funds are likely to flow in the form of basic infrastructure needed to kick-start the development at Score.

From our channel checks, some key projects from Sarawak likely under the 10MP would include: (1) balance of works under the Kuching sewerage and flood mitigation projects (RM3 billion); (2) Sibu flood mitigation project (RM1 billion); and (3) at least RM4 billion-RM5 billion worth of road projects (including access roads to proposed energy sites).

Key beneficiaries would include homegrown contractors ' Naim Holdings Bhd (buy, fair value RM4.60/share) and Hock Seng Lee Bhd (buy, RM2/share). ' AmResearch, June 9







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

AXREIT - Axis REIT an outperform, says Inter-Pacific Research

Stock Name: AXREIT
Company Name: AXIS REITS
Research House: INTER PACIFIC

KUALA LUMPUR: Inter-Pacific Research is recommending Axis Real Estate Investment Trust (Axis REIT) an outperform at RM2 with target price RM2.30 on a 5% discount using discounted cash flow.

The research house said it had raised its FY10-FY11 revenue projection by 1.25%-14.7% and reckoned the acquisition of Axis PDI Centre and Axis TECHNOLOGY [] Centre will be finalised by late 4QFY10.

Full year contribution from both acquisitions had been imputed into our FY11 revenue forecast, it said.

"Nonetheless, we would not factor in the enlarged fund size of Axis REIT prior completion of fund raising exercise, likely in 4QFY10.

"We believe there is room for potential upward re-rating to the fair value given that Axis has two other PROPERTIES [] in the pipeline namely Axis Techpoint 1 in PJ and Axis SADC 2&3 in Shah Alam," it said.

BAT - Inter-Pacific neutral on tobacco sector

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

Tobacco sector
Reiterate neutral: We reiterate our neutral outlook for the tobacco sector. There are no changes to our earnings forecast, with British American Tobacco (M) Bhd (BAT) maintained as neutral with a discounted cash flow-based (DCF) target price of RM42 (weighted average cost of capital of 7.7%) and JT International Bhd (JTI) as outperform with a DCF-based target price of RM6.20 (WACC of 8.5%).

We continue to like JTI due to (1) its growing market share; (2) resilient quality, cash nature of its business; and (3) zero gearing and high dividend yield.

Amid its continuous investment in its global flagship brands ' Winston, Mild 7 and Camel ' they will remain JTI's key drivers to the earnings growth.

To recap, originally, the government initially planned to ban small packs on June 23, 2005 and was deferred to June 1, 2006. Subsequently, the government decided to defer again on June 1, 2006 to June 1, 2010.

On May 27, 2010, four days before the ban was supposed to take effect, the government decided to defer the ban to Jan 1, 2011, indicating it needed time to conduct a study on the impact of the ban of 14 packs on the incidence of illicit trade, currently at an all-time high of 38%.

This raised dissatisfaction especially by Philip Morris International (PMI) and JTI. The deferment would contribute to their earnings losses given that small packs of 14s require much higher operating margins as compared to their packs of 20s. PMI was also considering the option of suing the government if losses are incurred.

However, the government finally decided to implement the ban with immediate effect which was announced three days later after the effective date. This could be due to the brewing dissatisfaction amongst the tobacco players.

Also, it endorses the perception of our constant 'flip-flopping' in policy matters which to some extend, acts as a setback to investors' confidence.

Typically, small packs provide better margin as they are priced about 5% higher on a per stick basis. While demand is unlikely to drop, the ban is ultimately negative for tobacco players as margin will be compromised by either down trading to a lower segment or resort to the proliferation of illicit cigarettes.

We gather that about 40% of BAT's sales are in packs of 14s while JTI has a smaller 30% exposure. ' Inter-Pacific Research, June 8







This article appeared in The Edge Financial Daily, June 9, 2010.

JTINTER - Inter-Pacific neutral on tobacco sector

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

Tobacco sector
Reiterate neutral: We reiterate our neutral outlook for the tobacco sector. There are no changes to our earnings forecast, with British American Tobacco (M) Bhd (BAT) maintained as neutral with a discounted cash flow-based (DCF) target price of RM42 (weighted average cost of capital of 7.7%) and JT International Bhd (JTI) as outperform with a DCF-based target price of RM6.20 (WACC of 8.5%).

We continue to like JTI due to (1) its growing market share; (2) resilient quality, cash nature of its business; and (3) zero gearing and high dividend yield.

Amid its continuous investment in its global flagship brands ' Winston, Mild 7 and Camel ' they will remain JTI's key drivers to the earnings growth.

To recap, originally, the government initially planned to ban small packs on June 23, 2005 and was deferred to June 1, 2006. Subsequently, the government decided to defer again on June 1, 2006 to June 1, 2010.

On May 27, 2010, four days before the ban was supposed to take effect, the government decided to defer the ban to Jan 1, 2011, indicating it needed time to conduct a study on the impact of the ban of 14 packs on the incidence of illicit trade, currently at an all-time high of 38%.

This raised dissatisfaction especially by Philip Morris International (PMI) and JTI. The deferment would contribute to their earnings losses given that small packs of 14s require much higher operating margins as compared to their packs of 20s. PMI was also considering the option of suing the government if losses are incurred.

However, the government finally decided to implement the ban with immediate effect which was announced three days later after the effective date. This could be due to the brewing dissatisfaction amongst the tobacco players.

Also, it endorses the perception of our constant 'flip-flopping' in policy matters which to some extend, acts as a setback to investors' confidence.

Typically, small packs provide better margin as they are priced about 5% higher on a per stick basis. While demand is unlikely to drop, the ban is ultimately negative for tobacco players as margin will be compromised by either down trading to a lower segment or resort to the proliferation of illicit cigarettes.

We gather that about 40% of BAT's sales are in packs of 14s while JTI has a smaller 30% exposure. ' Inter-Pacific Research, June 8







This article appeared in The Edge Financial Daily, June 9, 2010.

GAMUDA - Gamuda's Tan Thang looking to sell like 'hot Pho'

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

Gamuda Bhd (June 8, RM2.97)
Maintain underperform at RM2.99 with higher fair value of RM2.74 (from RM2.05): Despite being located 9km away from Ho Chi Minh City's (HCMC) CBD (central business district), the areas surrounding the site of the Tan Thang project do not at all lack the hustle and bustle of HCMC.

An estimated population of 900,000 within a 5km radius of the site will translate to ready buyers for the 7,000 units of apartments of the Tan Thang project. In addition, demand will also come from HCMC's 12 million population as well as wealthy Viet Kieu or overseas Vietnamese and 'the powers that be' based in Hanoi.

Previously farm land, the land is flat and just a little lower than the road level which means it does not need extensive ground treatment other than some filling to raise the elevation. Most importantly, the land is 100% cleared of squatters.

To our surprise, the consultants we spoke to in Vietnam told us that at present, the prospects of the property market in Hanoi are actually stronger than HCMC. This is because Hanoi is where 'the powers that be' are based.

In fact, some believe that the 'liquidity from Hanoi' had helped to stoke the property bubble in HCMC before it burst in 2008. According to the consultants, 'given the right products, Yenso Park should do well'.

Our forecasts are maintained. Risks to our view include: (1) new construction contracts secured coming in above our target of RM1 billion per annum in FY07/10-11; and (2) stronger-than-expected recovery in construction margins.

We are neutral on the construction sector. On one hand, we foresee improved investors' risk appetite for construction stocks following: (1) the massive underperformance of the sector vis-''-vis the market in 4Q09 and 1Q10; and (2) a better sector news flow and new expectations leading up to the announcement of the 10th Malaysia Plan (10MP) soon.

On the other hand, certain negative elements remain such as: (1) the still slow pace of the rollout of public projects, shrinking margins and declining dominance of established players in large-scale projects locally; and (2) the not-so-rosy outlook and increased operating risks in key overseas markets.

We are raising our indicative fair value for Gamuda by 34% from RM2.05 to RM2.74, having imputed for the first time a value of RM1.23 billion, translating to 54 sen per share on a fully-diluted basis, to Gamuda's two property projects in Vietnam based on discounted cash flow. ' RHB Research Institute, June 8







This article appeared in The Edge Financial Daily, June 9, 2010.

LOH&LOH - Semantan job positive for construction sector

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

Construction sector
Maintain overweight: The award of the Semantan intake and pumping station works is a positive indication that works are rolling in, albeit after a long wait of 13 months. We believe the award for other upstream packages will follow.

News flow in the sector should remain strong this week with the unveiling of the 10th Malaysia Plan. This will drive interest in construction stocks.

We continue to overweight the sector. Loh & Loh (buy; target price: RM6), at its RM4.42 close, is undemanding, trading at just 5.8 times 2011 PER (price-earnings ratio) after stripping of net cash.

The Loh & Loh-George Kent-Hazama joint venture (JV) has secured the second package of the inter-state raw water transfer project ' Semantan intake and pumping station works. The contract value is RM317.6 million and work will take 46 months, to be completed by May 30, 2014. This is a long wait (13 months) in terms of project award ' the first package for a 45km tunnel works was awarded to Shimizu-Nishimatsu-UEM Builders-IJM JV back in May 2009. The completion deadline for the first package of work is also May 2014.

The other upstream works yet to be awarded are the Kelau Dam and piping works, where the former is worth circa RM300 million. We think that the dam will be the next to be awarded as it needs three years of work and another year to fill up the dam before testing and commissioning can be done. In addition, the downstream package comprising the Langat 2 treatment plant worth RM5 billion may have a little luxury of time ' to be awarded by latest mid- 2011, assuming three years of work, to be completed by May 2014.

Both Loh & Loh's and George Kent's announcements to Bursa Malaysia did not state their respective stakes in the JV. We think that Loh & Loh and Hazama would participate in the civil and structural (C&S) work, while George Kent said that it would feature in the mechanical and electrical (M&E) work. As M&E should be larger in size compared to the C&S portion, we think that Loh & Loh's participation could be up to the 30% level and George Kent up to 50%, with the balance taken up by Hazama.

Assuming an 8% gross margin and a 30% stake in the JV, we estimate that this new win would add RM5.7 million net profit (8.4 sen earnings per share) to Loh & Loh. As for George Kent, assuming a similar gross margin and a 50% stake, the earnings contribution is RM9.5 million (4.2 sen EPS). We believe that meaningful contributions for both would only start in 2011, potentially peaking in 2012 for Loh & Loh and 2013 for George Kent.

We retain our forecasts for Loh & Loh pending a corporate update. Our forecasts have upside potential as we have not incorporated further job wins this year, apart from the recently secured Hulu Terengganu hydroelectric project worth RM828 million where Loh & Loh has a 60% stake.

Including the Semantan works, we estimate that job wins year to date have topped RM700 million, a record high. Even before including the Semantan works, we project a strong 14% two-year net profit compound annual growth rate for Loh & Loh. George Kent is not under our coverage. ' Maybank IB Research, June 7







This article appeared in The Edge Financial Daily, June 8, 2010.

KPJ - KPJ moving to new valuation benchmark

Stock Name: KPJ
Company Name: KPJ HEALTHCARE BHD
Research House: RHB

KPJ Healthcare Bhd (June 7, RM2.97)
Upgrade to outperform at RM2.99 with higher fair value of RM3.50 (from RM3.20): There has been an increase in M&A activity in the healthcare sector recently, including Khazanah Nasional's partial general offer for Singapore-listed Parkway Holdings' shares, and the start of bidding for Australia-listed Healthscope by private equity groups and US-based healthcare companies.

Khazanah's partial offer for Parkway values the shares at FY10-FY11 PER (price-earnings ratio) of 27.2 times and 20.1 times respectively, versus 22.3 times and 16.5 times before the offer was announced (a premium of around 22%). We believe Khazanah is willing to pay a big premium to gain overall control of the company, and expand its foothold in the healthcare sector.

As for Australia-listed Healthscope, the top bid of A$1.84 billion or A$5.80/share (RM15.81) so far values the company at a CY10 PER of 17.1 times. We note that Healthscope's share price has jumped 28% since the first bid was announced on May 12. These large takeover premiums support our view that there is significant growth potential for the healthcare sector in the region.

We highlight that KPJ's FY10-FY11 PERs of 13.7 times and 12.9 times respectively are significantly lower than for Parkway, as well as other healthcare groups in Singapore, Thailand, India and Australia. Consensus estimates suggest a regional average FY10-FY11 PER of 17.9 times and 14.8 times respectively, or 31% and 15% above that of KPJ.

While KPJ is still far below the premium numbers and valuations currently commanded by Parkway, we note that KPJ is a community healthcare services provider which is in the process of expanding its geographical coverage and will also likely benefit from growth in higher-end healthcare services. The potential upside to its revenue/bed and profitability ratios is thus tremendous.

No change to our earnings forecasts for now.

The risks to KPJ's earnings include lower-than-expected patient numbers, which could be due to slower-than-expected economic recovery and serious disease outbreaks (such as SARS or swine flu) in Malaysia as well as slower-than-expected turnaround in loss-making hospitals.

Given KPJ's leading position and expansion plans in Malaysia's growing healthcare market, we believe the stock's discount valuations to regional peers should narrow. As such, we have raised our target FY10 PER to 16 times (versus 14.5 times previously based on the target PER for the consumer sector), after imputing a 10% discount to regional peers' average of 17.9 times to reflect the stock's relatively lower liquidity. Our fair value has thus been raised to RM3.50 (from RM3.20). Upgrade to outperform. ' RHB Research Institute, June 7







This article appeared in The Edge Financial Daily, June 8, 2010.

POS - Transformation in progress in Pos

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

Pos Malaysia Bhd (June 7, RM2.70)
Reiterate outperform at RM2.72 with target price of RM3.17: Our target price of RM3.17 is based on FY10 EPS (earnings per share) of 21.9 sen and PER (price-earnings ratio) of 14.5 times.

We like Pos Malaysia due to (1) its transformation plan (TMP) which is progressing well; (2) extra value-added if Pos Malaysia is able to convert some of its land/spaces to other retail usage; and (3) the continuous cost control which is yielding results through their margins.

Pos Malaysia's mail volume in 1QFY10 fell by 4.7% year-on-year (y-o-y) to 313.1 million mails due to the fall in business mail which encompasses about 91% of its total mail due to the migration from conventional mail to e-based mails.

Moving forward, we expect volume to remain depressed, expected to grow by 3.1% for FY10 and 3.9% in FY11 hurt by (1) effects of migration from conventional mail to electronic-based mails; and (2) tariff hike which will raise mailing cost. To negate the contraction mainly due to tariff hike, Pos Malaysia plans to review its discount policy to its business customers.

We take comfort from the rise of its retail revenue, up 18.7% quarter-on-quarter (q-o-q) in 1QFY10. The increase was due to a 7.4% q-o-q and 7.4% y-o-y increase in volume transacted, although revenue in 1QFY10 fell by 1.1% y-o-y partly due to government fuel revenue rebate in 1QFY09 that raised retail revenue by 19.5% y-o-y.

Through the TMP, Pos Malaysia has successfully refurbished the postal offices; introduced Pos Automated Machine (PAM); and Pos Shops which sell postal products and provide banking services.

On its operating expenditure, Pos Malaysia has reduced its staff cost by 2.5% y-o-y which accounts for 62% of its total operating cost following lower headcounts from the non-executive through natural attrition.

Total headcount after the reduction of 255 personnel is now at 15,525 personnel. Despite the reduction, its staff costs rose by 3.7% q-o-q to RM128.9 million following the annual salary increment. Also, 1QFY10 depreciation charges rose by 12.4% y-o-y due to the upgrading of its IT system. Thus, Pos Malaysia's annualised operating profit margin improved slightly to 10.0% from 9.1% in FY09.

The postal services provider is in the process of setting up Pos Laju as a separate operating entity from its mailing business. The reason being PosLaju is not regulated under the MCMC, unlike the mailing business.

By establishing a separate entity for PosLaju, it will be beneficial to Pos Malaysia by (1) increasing its revenue from its courier business following more efficiency in determining its courier price; and (2) lower license fee to the regulator estimated at RM800,000.

Pos Malaysia's capex includes the National Mail & Parcel Hub of RM200 million. Following the success of Pos-on-Wheels (PoW), it intends to add another 13 PoW to serve Sabah and Sarawak. Each PoW is expected to cost RM400,000. To recap, the PoW is to serve the rural areas without the presence of postal office.

Pos Malaysia's impairment charges of RM19.4 million on its 15% equity stake in Trasmile Group resulted in a weak 1QFY10 results. The high impairment charge was due to the implementation of FRS139 accounting standards. Prior to the implementation of FRS139, Pos Malaysia will recognise only a loss of RM5.9 million on impairment charges.

With Pos Malaysia's determination to ensure the TMP is a success, we believe the decision to purchase Transmile could take another 2-3 years as the purchase of Transmile is not in line with its TMP. Under the TMP, the logistic service will be set up as a support service. ' Inter-Pacific Research, June 7







This article appeared in The Edge Financial Daily, June 8, 2010.

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.