SAPCRES - AmResearch keeps Buy on SapuraCrest, unch FV RM3.12

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

KUALA LUMPUR: AmResearch reiterates BUY call on SAPURACREST PETROLEUM BHD [] (SapCrest) with unchanged fair value of RM3.12/share based on a CY10F PE of 22 times.

The research house said on Friday, June 25 SapCrest remains its top pick in the oil & gas sector.

The factors are its (i) Dominant position in the deepwater pipe-laying market; (2) Healthy balance sheet; (3) Sizeable oil & gas asset ownership; (4) Substantial Seadrill equity participation of 24% currently; and (5) Strong FY09-FY13F earnings CAGR of 23%.

AmResearch said SapCrest's 1QFY11 net profit of RM57 million came in within expectations, accounting for 25% of both its FY11F forecast of RM202 million and 23% of street estimate of RM217million.

"We caution that the group's 4Q earnings tend to be the weakest due to lower offshore CONSTRUCTION [] work during the monsoon season. Hence, we maintain FY11F-FY13F earnings. Group did not declare any quarterly dividend as expected," it said.

TOPGLOV - Price estimate for Top Glove raised

Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: HWANGDBS

HwangDBS Vickers Research Sdn Bhd has increased its share price estimate for Top Glove Corp to RM14.45 from RM14.40 to reflect the company's earnings growth prospects.

The shares of Top Glove, the world's largest rubber-glove maker, added 0.8 per cent to RM13.10.

ZHULIAN - OSK Research Overweight on consumer retail sector

Stock Name: ZHULIAN
Company Name: ZHULIAN CORPORATION BHD
Research House: OSK

KUALA LUMPUR: OSK Research see brighter days ahead for the consumer retail sector and its top pick is Parkson Holdings where it has a Buy with a target price of RM6.75.

It said on Friday, June 25 Malaysia retail sales remained resilient in 2009, growing 0.8% y-o-y while companies under its coverage generally outperformed the industry.

In 1QCY10, these companies delivered positive revenue and earnings growth. More importantly, they performed better in Oct-Mar 10 versus Oct-Mar 08.

"Despite the proposed subsidy cuts, we believe that retail sales will continue to be strong fuelled by better sentiment and economic recovery. We are OVERWEIGHT on the retail sector.

"Besides the favorable outlook, the sector is one of the highest dividends yielding, which makes it a good pick in anticipation of a volatile 2H10," it said.

OSK Research's top pick is Parkson Holdings (BUY, TP 6.75), which is poised to ride on the strong recovery in China's domestic consumption and Zhulian (BUY, TP RM3.77), given its solid fundamentals compared to its peers, as well as its attractive dividend yield.

GAMUDA - HDBSVR maintains Buy on Gamuda

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

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) is maintaining a Buy on GAMUDA BHD [] with a Target Price of RM4.35.

It said on Friday, June 25 that Gamuda is an excellent proxy to the Malaysian infrastructure story with the potential RM36 billion mass rapid transit (MRT) project doubling its RM6.5 billion orderbook.

"It is also an ideal proxy to the long term structural boom of the property market in Vietnam.

"For the first time, Gamuda has also guided for property sales in Vietnam of RM820m and RM1.25bn in FY11 and FY12, respectively, offering some upside to our forecasts," it said.

PARKSON - OSK Research Overweight on consumer retail sector

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

KUALA LUMPUR: OSK Research see brighter days ahead for the consumer retail sector and its top pick is Parkson Holdings where it has a Buy with a target price of RM6.75.

It said on Friday, June 25 Malaysia retail sales remained resilient in 2009, growing 0.8% y-o-y while companies under its coverage generally outperformed the industry.

In 1QCY10, these companies delivered positive revenue and earnings growth. More importantly, they performed better in Oct-Mar 10 versus Oct-Mar 08.

"Despite the proposed subsidy cuts, we believe that retail sales will continue to be strong fuelled by better sentiment and economic recovery. We are OVERWEIGHT on the retail sector.

"Besides the favorable outlook, the sector is one of the highest dividends yielding, which makes it a good pick in anticipation of a volatile 2H10," it said.

OSK Research's top pick is Parkson Holdings (BUY, TP 6.75), which is poised to ride on the strong recovery in China's domestic consumption and Zhulian (BUY, TP RM3.77), given its solid fundamentals compared to its peers, as well as its attractive dividend yield.

TANJONG - Tanjong downgraded by Credit Suisse

Stock Name: TANJONG
Company Name: TANJONG PUBLIC LIMITED COMPANY
Research House: CREDIT SUISSE

Tanjong Plc, a power and gaming group was cut to "neutral" from "outperform" by Credit Suisse Group AG analyst Tan Ting Min, who said the company will face "strong headwinds."

The brokerage cut its share-price estimate to RM17.4 from RM18.60.

The company lost 1 per cent to RM17.92, the most since June 1. - Bloomberg

PROTON - New plan signals Proton's intention to hold on to Lotus

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

Proton Holdings Bhd
(June 23, RM4.75)
Maintain buy at RM4.69 with a target price of RM5.80: Proton has unveiled a new business plan to make Group Lotus profitable within five years. One of the key points in the plan is that Proton will work with Lotus to produce small global cars based on its EMAS concept car first shown at the recent Geneva International Motor Show 2010. That platform will produce a five-door compact car for the Asias and Middle Eastern markets and a three-door sports car made by Lotus for the global market. The cars can be developed within 18 to 24 months.

Having highly experienced and able personnel is key to the success of this five-year plan and on paper at least, the ensemble looks very promising. Proton has a new CEO in Danny Bahar, former senior vice-president of commercial and brand'' for Ferrari, where he was responsible for worldwide road car sales and after-sales business, overall road car and F1 marketing activities, licensing and merchandising'' business. He is also credited with the establishment of Red Bull Racing and Scuderia Toro Rosso in Formula One. Other key personnel are highly experienced executives who have worked for established car companies such as Ferrari, Porsche, Aston Martin and Fiat.

We do not expect much change in Proton's business fundamentals in the medium term at least, thus no change was made to our recommendation on Proton. Should the business plan gain momentum in the next few years, more commitment will be asked of Proton, especially in terms of funding, which we do not expect to be much of a burden.

Establishing a brand in the highly competitive car market is a very challenging task. Thus, we expect Proton to continue to hold on its prized asset despite buy offers from other companies. Lotus is a well-established marque with a strong automotive history, which makes the investment a good one. The cost to acquire 100% of Lotus was about RM493 million. We maintain a buy, with our target price unchanged at RM5.80 per share and pegged at 10 times FY2011 earnings or 0.5 times its estimated PBV for FY2011. ' MIDF Research, June 23


This article appeared in The Edge Financial Daily, June 24, 2010.

QL - QL Resources - So much good news, so little time

Stock Name: QL
Company Name: QL RESOURCES BHD
Research House: MAYBANK

QL Resources Bhd
(June 23, RM4.03)
Maintain buy at RM3.97 with higher target price of RM5.10 (from RM4.56): FY11 will mark the first year of positive net profit contribution from its Indonesian plantation, while more overseas projects begin to come onstream. Maintain buy with a raised RM5.10 discounted cash flow (DCF)-based target price (from RM4.56). QL remains our top consumer sector pick.

Since its first planting began in 2007, QL has invested steadily in its 74.5%-owned 10,000ha of palm oil plantations in East Kalimantan. We expect the first positive net profit contributions in FY11, and about RM20 million net profit in FY13. Our baseline projection for QL's FY13 net profit growth is 20.9%, with upside risks. This will help lift QL's baseline annual growth trend by as much as five percentage points from FY13, assuming crude palm oil (CPO) prices of RM2,400/MT.

We expect its wholly owned Vietnam layer farm to begin operations by end-FY11. Meanwhile, its marine division in Surabaya, Indonesia, will have its own plant and jetty by early-FY12 at the latest to boost overall surimi and fishmeal capacity by about 8% initially. These will help cement the 15% to 20% per annum net profit growth in FY12/13 and further out.

A layer farm near Jakarta, Indonesia, could be operational in mid-FY12 or 12 to 18 months out. This means that production capacity across its various downstream farming activities could rise by at least 15% to 20% per annum over the FY11/15 period.

After replacing our FY13 semi-explicit forecast (10% earnings before interest, tax, depreciation and amortisation growth) with our newly introduced FY13 forecast, our new DCF-based target price is RM5.10 (from RM4.56). We note, however, that should QL deliver on all its overseas expansion projects, there are upside risks to our FY12 and FY13 forecasts. ' Maybank IB Research, June 23


This article appeared in The Edge Financial Daily, June 24, 2010.

PLUS - ECM Libra maintains buy call on PLUS

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

PLUS Expressways Bhd
(June 23, RM3.38)
Maintain buy at RM3.38 with a target price of RM3.98: Malaysia and Singapore have agreed to reduce their respective toll charges at the Second Link by 30% effective Aug 1, 2010. The consensus was reached after a meeting between Prime Minister Datuk Seri Najib Razak and his Singapore counterpart, Lee Hsien Loong, yesterday.

This came as a surprise as the news coming out of the toll industry recently has been more toll rate increases rather than decreases. While the rate reduction of 30% is substantial, we do not expect much impact to PLUS earnings as the Second Link contributes about 4% to total toll collection. The Second Link is not highly utilised at 14% only, and a lower toll rate may effectively boost traffic volumes on the highway. There is a lack of clarity on compensation at this juncture. In the last toll rate revision for the Second Link, the concession period was extended by 15 years to expire in 2038. We do not discount the possibility that compensation may again be in the form of non-cash compensation given the government's drive to reduce its budget deficit and curb subsidies. It is also unclear whether the Second Link will obtain its scheduled toll rate increase every five years in this new arrangement. However, for the purposes of quantifying the impact to earnings, we have taken into account the lower toll rate and maintained its scheduled toll increase, while imputing a traffic growth rate of 8%, higher than our previous 5%. Based on our analysis, the impact to EPS is minimal at less than 1% for FY11 and FY12. Thus, no changes are made to our estimates.

We maintain our buy call on PLUS with an unchanged target price of RM3.98 based on a dividend discount model (cost of equity of 6.2%, long term growth rate of 1.5%) pending more details regarding the toll rate reduction. We expect PLUS to achieve a 75% dividend payout ratio in FY10, in line with its headline KPIs. We like PLUS for its (1) attractive dividend yields, (2) 37.9% earnings growth in FY11, and (3) potential growth via acquisitions. ' ECM Libra Investment Research, June 23


This article appeared in The Edge Financial Daily, June 24, 2010.

CSCSTEL - CSC Steel - Potential weakness in 2HFY10

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

CSC Steel Holdings Bhd
(June 23, RM1.90)
Downgrade to neutral at RM1.91with a reduced target price of RM2.02 (from RM2.22): We expected CSC Steel to post higher revenue in its upcoming 2Q results as we had foreseen good sales from steel traders who were stocking up on anticipation of higher steel prices. While prices of cold rolled coil (CRC) had indeed moved up from November 2009 to May 2010, bolstered by higher sales in April and May, management has indicated that sales slowed in June. Looking at the potential 2Q results, although there were higher sales in April and May, we think the effect of the better numbers in these two months may have been dampened by the accelerated drop in commodity prices in June. Furthermore, as hot rolled coil prices tend to lag the selling price of finished goods, including CRC, galvanised iron (GI) and pre-painted GI (PPGI) by one month, this may give rise to a mismatch of lower revenue and higher production costs, thus narrowing its profit for 2Q.

We believe the move to lift the annual benchmark pricing system on iron ore may have curbed steel demand as most traders are adopting a 'wait and see' attitude, especially when steel product prices are not rising as fast as iron ore prices, unlike the usual phenomenon where traders stock up on steel products ahead of any changes in iron ore prices. Apart from that, the lower steel demand is further dampened by the European debt crisis and fiscal tightening in China. Thus, with expectations of steel prices being capped in the coming months since the market is not ready for selling prices that are too high, the 'mismatch' between high material costs and lower average selling prices may erode CSC's margins in 2H2010.

With the recent developments reflecting our earlier concerns on 2H, we are prompted to reduce our estimates on CSC Steel by 19.5% and 20.6% for FY10 and FY11 respectively. We downgrade the stock from buy to neutral at a reduced target price of RM2.02 from RM2.22 previously. This valuation is based on six times PER rolled over to FY11 EPS and our projected cash position of 81 sen per share. ' OSK Research Sdn Bhd, June 23


This article appeared in The Edge Financial Daily, June 24, 2010.

IOICORP - IOI, KL Kepong upgraded at Maybank

Stock Name: IOICORP
Company Name: IOI CORPORATION BHD
Research House: MAYBANK

IOI Corp and Kuala Lumpur Kepong Bhd (KL Kepong), two Malaysian palm oil producers, were upgraded at Maybank Investment Bank Bhd on earnings growth prospects.

IOI's stock rating was raised to "hold" from "sell" and its share estimate increased to RM5.20 from RM4.70, Maybank analyst Tan Chi Wei said in a report today.

KL Kepong was upgraded to "buy" from "hold," and its target price raised to RM18 from RM15. - Bloomberg

KLK - IOI, KL Kepong upgraded at Maybank

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD
Research House: MAYBANK

IOI Corp and Kuala Lumpur Kepong Bhd (KL Kepong), two Malaysian palm oil producers, were upgraded at Maybank Investment Bank Bhd on earnings growth prospects.

IOI's stock rating was raised to "hold" from "sell" and its share estimate increased to RM5.20 from RM4.70, Maybank analyst Tan Chi Wei said in a report today.

KL Kepong was upgraded to "buy" from "hold," and its target price raised to RM18 from RM15. - Bloomberg

EPMB - CIMB Research: Buy EP Manufacturing at 51c

Stock Name: EPMB
Company Name: EP MANUFACTURING BHD
Research House: CIMB

KUALA LUMPUR: CIMB Retail Research said there is more upside for EP Manufacturing and has a Buy at 51 sen. Its FY11P/E is at 4.9 times and P/BV 0.4 times.

The research house said on Thursday, June 24 the stock broke out of its triangle resistance on Wednesday. The run-up also took out its key moving averages along the way. This should pave way for more upside ahead. Immediate resistance is at 54.5 sen while further gains should reach 56 sen and 60 sen.

'Indicators look compelling at current levels. MACD is about to turn positive while its RSI is rising towards the upper band of the neutral zone.

'Risk takers may start to nibble now. However, always put a stop at 50 sen (support trend line) or 44.5 sen (May 26 low) depending on one's risk appetite. Falling below RM0.445 will eliminate our bullish view,' it said.

EP Manufacturing makes engineering plastic products, moulds, dies, and bicycles. EP Manufacturing also assembles lamps and switches, and markets bicycles.

LMCEMNT - Lafarge - Capital repayment is key

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

Lafarge Malayan Cement Bhd
(June 22, RM6.52)
Maintain hold at RM6.65 with target price of RM6.40: Share price remains firm (+6% year-to-date) despite poor 1Q10 results. Although Lafarge has the potential for a capital repayment, we think it may be too early to buy the stock because: (i) domestic cement demand has yet to show a clear rebound, and demand optimism has had false starts in the past; and (ii) capital repayment might materialise only in 2011. We maintain our hold rating and target price of RM6.40 (12 times 2011 PER).

Poor 1Q10 results (earnings before interest, tax, depreciation and amortisation: -31% year-on-year,-41% quarter-on-quarter) was mainly due to non-recurring plant repair and cost-cutting measures. We expect earnings to recover gradually in 2Q10 and normalise from 3Q10 onwards, given that: (i) the plant will be back to its optimal efficiency level by 3Q10; and (ii) the cement price hike (+9%) in May 2010 more than compensates for coal cost inflation. We cut our 2010 EPS by 16%, imputing the one-off plant repair, while our EPS for 2011-2012 is retained.

A capital repayment could be declared as early as February 2011 (in conjunction with its 4Q10 results) because even without gearing, our estimate of net cash by end-2010 is 25 sen per share, after normal annual dividends. In 2007, the company regeared to net gearing level of 20% to make a capital repayment of 20 sen per share in 2007 (RM566 million).

Our expectation of capital repayment is also supported by its French parent's (Lafarge SA has a 62% stake in Lafarge) net debt of '14.6 billion. Additionally, Lafarge SA also posted an ex-EI loss of '73 million in 1Q10 (versus a loss of '17 million in 1Q09), largely dragged down by its North American business. Quarterly DPS. Lafarge paid a maiden first quarter dividend in 1Q10, indicating it is moving towards quarterly dividend payments. As long as the cement industry remains closed and price consensus holds, cement manufacturing will remain a cash-cow business. However, we are only inclined to upgrade the stock to a buy when the timing of capital repayment is clearer, demand growth is more visible, or valuation is more appealing. ' Maybank IB Research, June 22


This article appeared in The Edge Financial Daily, June 23, 2010.

KFC - KFCH jumps after MIDF Research ups target price to RM10.24

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

KUALA LUMPUR: KFC Holdings Bhd share price jumped on Wednesday, June 23 after MIDF Research reiterated its buy call on the stock and upped its target price to RM10.24 from RM8.95.

At 9.40am, KFCH added 90 sen to RM10 with 664,400 shares traded.

"We continue to like KFCH on its sound fundamentals, impressive double-digit ROE of 18.1% in average'' for the past three years and strong brand name," said MIDF Research.

KENCANA - Kencana making a splash with purchases from Mermaid

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

Kencana Petroleum Bhd
(June 22, RM1.47)
Maintain outperform at RM1.50 with higher target price of RM2.15 (from RM1.90): Kencana has proposed to buy out Mermaid's shares in three jointly owned drilling units for US$66.6 million (RM213.2 billion). One of the target units is MKR1 which owns drilling rig KM1.

The deal is slated for completion in 1QFY10/11. Imputing the new earnings stream, we raise our FY11-12 EPS forecasts by 11.3-14.0% while retaining our FY10 forecast. Our target price rises from RM1.90 to RM2.15, pegged to an unchanged target market PER of 15 times. Kencana remains an outperform, with the potential share price triggers being 1) an active order book replenishment and 2) mergers and acquisitions.

The announcement was not entirely a surprise to us as management had hinted at the possibility of a sizeable acquisition in the drilling business during the May 20 analyst briefing. To recap, KMD is the operating unit for drilling activities while MKR1 is the rig owner. Kencana and Mermaid inked their JV agreements on Oct 22, 2007.

The acquisition price of US$66.6 million is fair. Also, we take a positive view of the proposed acquisitions because they will give Kencana total control of the drilling assets and provide an earnings boost. Furthermore, Kencana will be in a unique position as it will be involved in the entire process from fabrication (via Kencana HL) to drilling (via KMD) and asset ownership (via MKR1). For comparison, SapuraCrest Petroleum Bhd, which is currently Malaysia's biggest driller, owns and operates its five tender rigs on a JV basis with Norway-based Seadrill but does not fabricate them.

As at Jan 30, Kencana had net cash of RM333 million or 20 sen per share. Assuming a 50:50 split between borrowings and internally generated funds, we expect the drilling business, mostly through the deployment of KM1, to contribute a net profit of RM40 million in FY12. However, for FY11, we expect a net profit contribution of RM30 million as the deal is likely to be completed in 1QFY11.

We note that the proposed acquisitions will more than cover the earnings vacuum caused by Kencana's termination of its JV with Global Offshore. Before Kencana walked away from the JV, we had forecast an annual net profit contribution of RM15 million from the JV, inferior to the RM40 million that is expected from the main drilling units. ' CIMB Research, June 22


This article appeared in The Edge Financial Daily, June 23, 2010.

SUPERMX - Demand of rubber gloves still ahead of supply

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

Rubber gloves
Maintain overweight: Recently, we invited Supermax Corporation Bhd executive chairman and group managing director Datuk Seri Stanley Thai to give fund managers an update on the rubber glove industry. We gather that demand is still strong as most of the rubber glove manufacturers have sold forward up to September 2010 in spite of the current high selling prices of gloves reflecting a rise in latex price. Although margins will dip as glove makers only pass on the cost increase to their customers, most importantly the absolute net profit figures will be maintained and therefore EPS and fair values are intact. We remain overweight on the sector, with our top picks being Top Glove (Buy, TP: RM15.15), Supermax (Buy, TP: RM9.11) and Kossan (Buy, TP: RM11.30).

The global annual consumption of medical examination and surgical gloves is expected to reach about 155 billion pieces by 2011 from 135 billion pieces in 2009, boosted by growing healthcare awareness after the H1N1 pandemic and healthcare reforms in many countries and the recent passing of reforms in US as standards of living improve. Of the total world exports, Malaysia supplies 63% of global demand. Also, about 54% of the global market is shared among the top six rubber glove companies listed in Malaysia.

Medical grade gloves make up about 85% of Malaysia's total glove exports. The product mix between natural rubber and nitrile gloves is in the ratio of 74:26 while that for powder-free and powdered gloves is 67:33. More than 70% of these gloves are sold to developed countries, and there is huge potential demand from developing countries like China and India in the coming years.

Latex price has remained at a high of about RM7 per kg. The US dollar is still struggling to regain lost ground against the ringgit. Although rubber glove manufacturers can pass on most of the costs associated with these negative factors to their customers, they may experience a time lag in adjusting prices, especially in supplying to non-healthcare MNCs. Nevertheless, as supply still lags demand since most of gloves are sold forward up to September 2010, we believe these two factors would not pose a major threat to the rubber glove industry.

We remain positive owing to: 1) continuously strong demand from the medical and hygiene markets; 2) increasing awareness of health and cleanliness following the H1N1 pandemic; 3) the possibility of governments in developing countries making compulsory the use of gloves for the medical sector; 4) a recovery in the global economy and living standards rise; and 5) local rubber glove manufacturers again embarking on capacity expansion to boost revenues and profits. ' OSK Investment Research, June 22


This article appeared in The Edge Financial Daily, June 23, 2010.

TOPGLOV - Demand of rubber gloves still ahead of supply

Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: OSK

Rubber gloves
Maintain overweight: Recently, we invited Supermax Corporation Bhd executive chairman and group managing director Datuk Seri Stanley Thai to give fund managers an update on the rubber glove industry. We gather that demand is still strong as most of the rubber glove manufacturers have sold forward up to September 2010 in spite of the current high selling prices of gloves reflecting a rise in latex price. Although margins will dip as glove makers only pass on the cost increase to their customers, most importantly the absolute net profit figures will be maintained and therefore EPS and fair values are intact. We remain overweight on the sector, with our top picks being Top Glove (Buy, TP: RM15.15), Supermax (Buy, TP: RM9.11) and Kossan (Buy, TP: RM11.30).

The global annual consumption of medical examination and surgical gloves is expected to reach about 155 billion pieces by 2011 from 135 billion pieces in 2009, boosted by growing healthcare awareness after the H1N1 pandemic and healthcare reforms in many countries and the recent passing of reforms in US as standards of living improve. Of the total world exports, Malaysia supplies 63% of global demand. Also, about 54% of the global market is shared among the top six rubber glove companies listed in Malaysia.

Medical grade gloves make up about 85% of Malaysia's total glove exports. The product mix between natural rubber and nitrile gloves is in the ratio of 74:26 while that for powder-free and powdered gloves is 67:33. More than 70% of these gloves are sold to developed countries, and there is huge potential demand from developing countries like China and India in the coming years.

Latex price has remained at a high of about RM7 per kg. The US dollar is still struggling to regain lost ground against the ringgit. Although rubber glove manufacturers can pass on most of the costs associated with these negative factors to their customers, they may experience a time lag in adjusting prices, especially in supplying to non-healthcare MNCs. Nevertheless, as supply still lags demand since most of gloves are sold forward up to September 2010, we believe these two factors would not pose a major threat to the rubber glove industry.

We remain positive owing to: 1) continuously strong demand from the medical and hygiene markets; 2) increasing awareness of health and cleanliness following the H1N1 pandemic; 3) the possibility of governments in developing countries making compulsory the use of gloves for the medical sector; 4) a recovery in the global economy and living standards rise; and 5) local rubber glove manufacturers again embarking on capacity expansion to boost revenues and profits. ' OSK Investment Research, June 22


This article appeared in The Edge Financial Daily, June 23, 2010.

KOSSAN - Demand of rubber gloves still ahead of supply

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

Rubber gloves
Maintain overweight: Recently, we invited Supermax Corporation Bhd executive chairman and group managing director Datuk Seri Stanley Thai to give fund managers an update on the rubber glove industry. We gather that demand is still strong as most of the rubber glove manufacturers have sold forward up to September 2010 in spite of the current high selling prices of gloves reflecting a rise in latex price. Although margins will dip as glove makers only pass on the cost increase to their customers, most importantly the absolute net profit figures will be maintained and therefore EPS and fair values are intact. We remain overweight on the sector, with our top picks being Top Glove (Buy, TP: RM15.15), Supermax (Buy, TP: RM9.11) and Kossan (Buy, TP: RM11.30).

The global annual consumption of medical examination and surgical gloves is expected to reach about 155 billion pieces by 2011 from 135 billion pieces in 2009, boosted by growing healthcare awareness after the H1N1 pandemic and healthcare reforms in many countries and the recent passing of reforms in US as standards of living improve. Of the total world exports, Malaysia supplies 63% of global demand. Also, about 54% of the global market is shared among the top six rubber glove companies listed in Malaysia.

Medical grade gloves make up about 85% of Malaysia's total glove exports. The product mix between natural rubber and nitrile gloves is in the ratio of 74:26 while that for powder-free and powdered gloves is 67:33. More than 70% of these gloves are sold to developed countries, and there is huge potential demand from developing countries like China and India in the coming years.

Latex price has remained at a high of about RM7 per kg. The US dollar is still struggling to regain lost ground against the ringgit. Although rubber glove manufacturers can pass on most of the costs associated with these negative factors to their customers, they may experience a time lag in adjusting prices, especially in supplying to non-healthcare MNCs. Nevertheless, as supply still lags demand since most of gloves are sold forward up to September 2010, we believe these two factors would not pose a major threat to the rubber glove industry.

We remain positive owing to: 1) continuously strong demand from the medical and hygiene markets; 2) increasing awareness of health and cleanliness following the H1N1 pandemic; 3) the possibility of governments in developing countries making compulsory the use of gloves for the medical sector; 4) a recovery in the global economy and living standards rise; and 5) local rubber glove manufacturers again embarking on capacity expansion to boost revenues and profits. ' OSK Investment Research, June 22


This article appeared in The Edge Financial Daily, June 23, 2010.

POS - Pos Malaysia set for dream collaboration with global giants

Stock Name: POS
Company Name: POS MALAYSIA BHD
Research House: AMMB

Pos Malaysia Bhd
(June 22, RM3.02)
Maintain buy at RM3.08 with a fair value of RM3.80: The Edge weekly in its report said that a total of 11 parties have expressed interest in picking up Khazanah Nasional Bhd's RM563 million (at current prices) stake in Pos Malaysia, including two global express and courier players ' DHL Express and TNT NV. Local players said to be eyeing the 32% equity interest include Nationwide Express Courier Services, Konsortium Logistik, the Employees Provident Fund (EPF), DRB-Hicom and Tune Group.

Our channel checks reveal that Khazanah had opened the initial stages of the bidding in May, with bidding parties teaming up ' led by government-linked entities (GLEs). We believe Pos Malaysia's existing GLE shareholders ' Permodalan Nasional (8.5%), Skim Amanah Saham Bumiputera (8.2%), Valuecap (1.9%) and EPF (5.8%) ' will lead a consortium, with select industry players, for Khazanah's stake ' much in line with its efforts to find 'a fit and proper' Pos Malaysia.

Asia remains the growth driver even in times of crisis for international express providers. DHL's Asia-Pacific operations saw a three-year CAGR of 8% (2005-2008), which contributed 25% (15% in FY05) of total FY09 revenue. TNT Asia-Pacific contributes 8% of total group revenue and has a 7% share of the Asia-Pacific express market.

Both companies are not fresh in expanding in Malaysia, however DHL's 38% dominance in the Asia Pacific express market together with a leaner balance sheet will help Pos Malaysia better expand its courier and logistic segment. Last year, DHL Malaysia handled over 4.8 million global shipments while Pos Malaysia had only a meagre 1% share of overseas courier and logistic volume. Our view is that a strategic tie-up with DHL would give Pos Malaysia a boost internationally.

Furthermore, Malaysia's inexpensive aircraft landing rights make it a potential regional hub for DHL's Southeast Asian inbound cargo. For DHL, having a partner with enough bureaucratic leverage would be a priority, and a collaboration with Pos Malaysia would create land redistribution synergies. DHL would be able to pass its volume throughput to Pos Malaysia's wide infrastructure network.

With current trade at six times FY11F PER and a conservative assumption of 40% payout (three-year average of 60%), Pos Malaysia represents an excellent opportunity to own a 6.3% yielding stock, backed by revenue growth potential from synergies with Khazanah's preferred partner. This will be sweetened by the regazetting of usage on its RM200 million KL Sentral land. We maintain our buy rating with a fair value of RM3.80 per share. ' AmResearch Sdn Bhd, June 22


This article appeared in The Edge Financial Daily, June 23, 2010.

QL - OSK Research keeps Overweight on F&B sector

Stock Name: QL
Company Name: QL RESOURCES BHD
Research House: OSK

KUALA LUMPUR: OSK Research is keeping its Overweight recommendation on the food and beverage sector with its Top Buys being CI Holdings (BUY, fair value: RM3.66) and QL Resources (BUY, FV: RM4.65).

It said in a research note on Wednesday, June 23 that the government's Performance Management and Delivery Unit (Pemandu) has proposed an aggressive reduction in subsidies in Malaysia.

If implemented, the proposed hike in flour prices is unlikely to make a significant impact on food companies, which are not entitled to these subsidies in the first place, although its removal will certainly affect end users.

'Although a hike in sugar price may slightly impact the companies under our coverage, we believe the food and beverage companies would have strategies in place to mitigate the increase, such as by altering their ingredient ratios or re-sizing their packaging to boost sales, to minimize the impact on their bottom lines,' it said.

OSK Research said as such, it maintains its Overweight on the sector with its Top Buys being CI Holdings (BUY, FV: RM3.66) and QL Resources (BUY, FV: RM4.65).

If sugar and flour subsidies are removed as proposed by the Performance Management and Delivery Unit (Pemandu), sugar price will go up by 20 sen per kg and increase every six months up to 2012 for a total of RM1 increase per kg.

Flour price will increase by 20 sen per kg, and increase by another 25 sen per kg in 2011 for a total of 45 sen increase per kg.

SAPCRES - Price Target News

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

KUALA LUMPUR: CIMB Equities Research said at its recent Small to Mid Cap Conference, fleet expansion ranked high on fund managers' topics of interest when it came to SapuraCrest.

It said in a research note issued on Wednesday, June 23 that key points from the briefing are:

1) A bigger fleet of drilling rigs is possible but the SapuraCrest-Seadrill JV must first secure a contract.

2) The two new shallow-water barges are ready for mobilisation and will play a major role in the execution of the RM8bn transport and installation contract.

3) Management is optimistic that the marine services business will be profitable this year.

'We maintain our earnings forecasts and target price of RM3.02, pegged to an unchanged target market P/E of 15x. SapuraCrest remains an OUTPERFORM and our top oil & gas pick.

'Factors that could catalyse the stock include 1) active order book replenishment, 2) success in new markets, and 3) a growing fleet of strategic assets,' CIMB Equities Research said.

CIHLDG - OSK Research keeps Overweight on F&B sector

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

KUALA LUMPUR: OSK Research is keeping its Overweight recommendation on the food and beverage sector with its Top Buys being CI Holdings (BUY, fair value: RM3.66) and QL Resources (BUY, FV: RM4.65).

It said in a research note on Wednesday, June 23 that the government's Performance Management and Delivery Unit (Pemandu) has proposed an aggressive reduction in subsidies in Malaysia.

If implemented, the proposed hike in flour prices is unlikely to make a significant impact on food companies, which are not entitled to these subsidies in the first place, although its removal will certainly affect end users.

'Although a hike in sugar price may slightly impact the companies under our coverage, we believe the food and beverage companies would have strategies in place to mitigate the increase, such as by altering their ingredient ratios or re-sizing their packaging to boost sales, to minimize the impact on their bottom lines,' it said.

OSK Research said as such, it maintains its Overweight on the sector with its Top Buys being CI Holdings (BUY, FV: RM3.66) and QL Resources (BUY, FV: RM4.65).

If sugar and flour subsidies are removed as proposed by the Performance Management and Delivery Unit (Pemandu), sugar price will go up by 20 sen per kg and increase every six months up to 2012 for a total of RM1 increase per kg.

Flour price will increase by 20 sen per kg, and increase by another 25 sen per kg in 2011 for a total of 45 sen increase per kg.

DIGI - DiGi top loser in late afternoon

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: MAYBANK

KUALA LUMPUR: Shares of DIGI.COM BHD [] fell the most in late afternoon trade on Tuesday, June 22 in line with the weaker broader market which came under some profit taking.

At 4.36pm, it was down 64 sen to RM22.80. The FBM KLCI fell 8.9 points to 1,326.39.

Maybank Investment Bank Research said it continues to expect single-digit earnings growth from DiGi in 2010-12, with the ability to sustain an 8% net dividend yield per annum if it decides to pay out all excess cash instead of actively pursuing double-digit earnings growth.

"At our DCF-based TP of RM23.20, DiGi would trade at a prospective 15.2x 2011 PER," it said.

LMCEMNT - Lafarge Malayan Cement not a Buy yet

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

KUALA LUMPUR: Maybank Investment Bank Research says Lafarge Malayan Cement is not on its Buy list.

It said on Tuesday, June 22 the share price remains firm (+6% year-to-date) despite poor 1Q10 results.

"Although Lafarge has the potential for a capital repayment, we think it may be too early to buy the stock," it said.

The research house said the factors were: (i) domestic cement demand has yet to show clear rebound, and demand optimism has had false starts in the past; (ii) capital repayment might materialise only in 2011.

"We maintain our Hold rating and TP of RM6.40 (12x 2011 PER)," it said.

HELP - HELP - An excellent mid-term

Stock Name: HELP
Company Name: HELP INTERNATIONAL CORPORATION
Research House: OSK

HELP International Corporation Bhd
(June 21, RM2.90)
Maintain buy at RM2.78 with higher target price of RM3.58 (from RM2.40): The 1QFY10 earnings came in within our and consensus expectation. Revenue grew 11.7% while net profit soared 42.3% year-on-year on higher student enrolment and fees as well as better margins. We believe the margin improvement is largely attributed to prudent cost management and the increasing number of its homegrown courses, which generally command higher margins, as this does not require royalty payments as in twinning or foreign courses developed by other institutions. As a result, its earnings before interest and tax (Ebit) margin in 1HFY10 improved to 25.5% from 20.9% in 1HFY09. As expected, revenue and net profit jumped significantly as more classes were conducted during the quarter.

Although HELP has a presence in China through course collaboration with Chinese education institutions over the last few years, it recently teamed up with property developer AP Land to form a JV to set up a new campus in Changshu, China, which is expected to begin operation by October. We are definitely positive on the JV as it enables HELP to tap China's enormous education market potential without having to deploy significant capital investment given that HELP's responsibility in JV is to provide the education programmes while AP Land sets up the physical infrastructure. Although we are not expecting significant earnings enhancement from the JV so soon, it would in the long run be a key growth catalyst for HELP in view of China's lucrative and untapped private education market.

With the results being in line within our expectation, we maintain our FY10 and FY11 projections. We maintain our 'buy' recommendation at a higher target price of RM3.58 from RM2.40 previously after revising downwards our WACC assumption in our residual income model from 11% to 10% on increasing visibility on its earnings growth and therefore reduced equity risk. We believe its strong and clean balance sheet will enable HELP to comfortably embark on its current and future expansion strategy without straining its balance sheet. ' OSK Investment Research'' ''


This article appeared in The Edge Financial Daily, June 22, 2010.

3A - three-A Resources - Moving towards structural growth inflexion point

Stock Name: 3A
Company Name: THREE-A RESOURCES BHD
Research House: AMMB

Three-A Resources Bhd
(June 21, RM1.87)
Upgrade to 'buy' from 'hold' at RM1.83 with fair value of RM2.21 (from RM2.12): We are upgrading Three-A Resources (3A) from 'hold' to 'buy', and raising our fair value from RM2.12 per share to RM2.21 per share based on unchanged PER of 24 times FY11F earnings or at 15% discount to the average PERs of relative consumer stocks in China (28 times PER).

We raise our earnings estimates by 4% to 5% to reflect higher profit accretion from the recent formalisation of its China joint venture with Wilmar International. We now expect 3A to deliver earnings of RM34 million in FY11F and rising to RM40 million in FY12F from just RM22 million in FY10F.

The JV's 'blueprint' plant, which forms part of a broader plan to invest up to US$40 million (RM127.27 million) in F&B ingredients production in China, will have higher-than-expected production capacity of 50,000 tonne/month. When commissioned in mid-FY11F, the US$7 million maiden plant would boost the group's overall production capacity by an estimated 67% to 80,000 tonne/month.

Payback period is a short 18 months. The 'blueprint' plant is strategically located with close proximity to a cluster of Wilmar manufacturing hubs at Qinhuangdao seaport in China, giving rise to immense logistical synergies and distribution strength for 3A.

Beyond this maiden plant, a multiple plant expansion strategy is in the pipeline to leverage on Wilmar's extensive presence in China where it has at least 60 plants and a wide distribution network.

In our earnings model, we have only assumed contributions from just the maiden Chinese plant and only three product lines, versus six in its Malaysian plant. Hence, there may be further upside to our earnings estimates when 3A accelerates its Chinese plant expansion or broadens its product lines. Such a move appears likely.

Locally, expansion plans are on track to alleviate supply constraints due to lack of production capacity. With glucose and maltodextrin production currently operating at maximum threshold, earnings are set to get a boost from enlarged capacity of new glucose (+62% to 13,000 tonnes/month) and maltodextrin plants (+166% to 3,200 tonnes/month) by end-2010.

Net gearing is a healthy 20% for FY10F. Assuming the group gears up for more plants in the pipeline, net gearing is still a comfortable 40%. And, we are not unduly worried because of the short payback and the infrastructure advantages from its tie up with Wilmar.

At forward PER of 20 times currently, the valuation is not expensive given 3A's robust capacity-driven earnings growth from geographic and product line expansion, a strong franchise in maltodextrin production and a solid 'hands-on' management team. ' AmResearch Sdn Bhd


This article appeared in The Edge Financial Daily, June 22, 2010.

LATEXX - CIMB Research maintains overweight on rubber glove sector

Stock Name: LATEXX
Company Name: LATEXX PARTNERS BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research said despite the potential hiccups, it remains positive on the rubber glove sector and retain its OVERWEIGHT call.

It said on Tuesday, June 22 the outlook for rubber gloves remains positive as demand is still set to rise by at least 8-10% p.a., led by growth in the usage of medical gloves in emerging countries.

CIMB Research said the results announced during Apr- Jun proved that the rubber glove is a resilient sector and that cost changes have minimal impact on margins due to the transparent method of passing on the previous month's average latex price and RM:US$ exchange rate to customers.

'We expect earnings for rubber glove players to continue heading higher this year, especially given the additional capacity that is coming in. We make no changes to our earnings forecasts or Outperform calls for all the rubber glove players,' it said.

Its top picks remain are Supermax which sells most of its gloves under its own brand which allows it to command higher margins and gives it a strong presence in markets such as the US and Brazil.

It added that Latexx is well on course for continued growth, thanks to its aggressive expansion and move into the premium segment.

'Our Outperform call remains intact, along with our target price of RM5.44, which we continue to base on an 11.6x P/E or a 30% discount to Top Glove's target P/E of 16.5x,' it said.

KENCANA - CIMB Research keeps Kencana an Outperform

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

KUALA LUMPUR:'' CIMB Equities Research is positive on KENCANA PETROLEUM BHD []'s proposed buy-out of Mermaid's shares in three jointly owned drilling units for US$66.6 million.

It said on Tuesday, June 22 that one of the target units is MKR1, which owns drilling rig KM1.

'We take a positive view of the acquisitions because they will give Kencana total control of the drilling assets and provide an earnings boost. The deal is slated for completion in 1QFY1/11,' it said.

CIMB Research said imputing the new earnings stream, it raised its FY11-12 EPS forecasts by 11.3-14.0% while retaining its FY10 forecast.

'Our target price rises from RM1.90 to RM2.15, pegged to an unchanged target market P/E of 15x. Kencana remains an OUTPERFORM, with the potential share price triggers being 1) active order book replenishment, and 2) M&As,' it said.

EONCAP - OSK Research comments on Primus suit against certain EONCap directors, shareholders

Stock Name: EONCAP
Company Name: EON CAPITAL BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its NEUTRAL recommendation on EON CAPITAL BHD [] and an unchanged RM7.30 target price to reflect the current offer price from Hong Leong Bank.

'Assuming that Primus Pacific Partners was successful in its legal suit and the offer from HLBank is reversed, we may revert back to our fundamental fair value of RM6.80 (1.25x FY10 PBV, 11% ROE, 3% growth rate),' it said in a research note issued on Tuesday, June 22.

On Monday, Primus filed a legal suit against a number of respondents including certain members of the board of directors of EONCap.

In the suit, Primus alleged that:-

1. The manner in which the offer is being implemented constitutes an arrangement that irrevocably severs the ties between the shareholders and EONCap

2. The appointment of the seven new directors to the Board of EONCap was not viewed as being in the best interest of the shareholders of EONCap, whereby the appointment of the new directors was essentially for the purpose of helping to revive and to force through the offer by HLBank to help certain groups of shareholders to realize their investment.

3. The actions of certain directors following their appointment were not consistent with the principals of the law, whereby they were deemed to have failed to exercise their fiduciary duties.

OSK Research said Primus has opted to file a full legal lawsuit with the hearing date being fixed for July 6. A certificate of urgency has also been filed, for which a decision from the court could be obtained by early August.

Although the board of EONCap had planned to convene the EGM for shareholders to decide on the offer from HLBank by mid-July, the research house believed that the board of EONCap could now make a decision at Tuesday's AGM to potentially delay the proposed EGM date to a later date pending the court's final decision as this would only be deemed fair in the eyes of minority shareholders.

'Primus will not be seeking a court injunction to stop the upcoming EGM as an injunction would only be temporary in nature while a swift legal suit that works in its favor would essentially serve to overturn the proposed resolution by the EONCap board to table the offer by HLBank to shareholders of EONCap, thus ensuring continuity in Primus' current role in EONCap,' it said.

OSK Research said given that legal matters and their implications are not within its area of expertise, it would not be fair for it to draw a conclusion on the outcome of the legal suit.

'That said, Primus may have a point with regard to the manner in which the sheer number of new directors were appointed to the board that may have had the effect of creating an unfair board majority to push through the HLBank offer to shareholders.

'However, as a mitigating factor, we also note that the new board line-up has been ultimately approved by Bank Negara Malaysia, which would have acted in the best interest of safeguarding standards of corporate governance,' it said.

SUNWAY - Chance for Sunway to expand in Sri Lanka

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

Sunway Holdings Bhd
(June 18, RM1.53)
Reiterate buy at RM1.53 with target price of RM2: Sunway announced last Thursday that they have entered into a memorandum of understanding (MoU) with Dasa Tourist to explore the possibility of forming a joint venture to construct and develop a 34 storey building comprising 71 commercial units and 176 residential units in Colombo city, Sri Lanka.

The proposed development is located on prime freehold land in the premium mixed-used zone of Bambalapitiya in District Colombo 4 with a potential to generate a total sellable area of 400,000 sq ft. Total gross development value (GDV) is estimated to be RM250 million. Sunway will undertake feasibility studies and market research within two months from the date of the MoU.

Colombo city is the trade capital of Sri Lanka and is located within the most highly populated Western Province. With political turmoil behind them, Sri Lanka has since experienced economic growth, with GDP rising 6.2% in the three months ended December 2009 from a year earlier after gaining 4.2% in the previous quarter.

Inflation remains low while the repurchase rate and reverse repurchase rate was maintained at 7.5% and 9.75% respectively, a five-year low. With US$1 billion (RM3.25 billion) pledged in infrastructure spending, the economy is headed for a boost while many multinational corporations have stepped up operations and investments.

While we acknowledge the risks involved in venturing into unchartered waters, the materialisation of this project would allow Sunway to test the Sri Lankan market on a smaller scale, in comparison with its other property development ventures abroad.

We are positive on this development as it offers an opportunity for geographical expansion as the group does not currently have a presence in Sri Lanka.

Sunway is our top buy for the construction sector. This is premised on (1) strong earnings growth of 46.4% in FY10, (2) undemanding forward P/E valuation of 7.7 times, (3) more land bank acquisition in the pipeline, and (4) strength in securing overseas construction contracts, in particular Abu Dhabi and India.

Our target price is unchanged at RM2 which is derived from 10 times P/E on FY10 EPS. This is further supported by sum-of-parts valuation of RM2.74. ' ECM Libra Research, June 18


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

AFG - AmResearch maintains buy call on AFG

Stock Name: AFG
Company Name: ALLIANCE FINANCIAL GROUP BHD
Research House: AMMB

Alliance Financial Group Bhd
(June 18, RM2.90)
Maintain buy at RM2.80 with fair value of RM3.30: Alliance Financial Group (AFG) announced that its subsidiary, Alliance Bank Malaysia Bhd, has appointed Sng Seow Wah as its new group CEO. Approval for the appointment was obtained from Bank Negara Malaysia last Thursday.

AFG said Sng is an experienced banker with more than 24 years of experience. He was executive vice-president and head of enterprise banking (EB) at OCBC Bank in Singapore where he led the successful transformation of the business into a sustainable, high-performing unit.

In the years under his leadership, the EB business produced consistently excellent results and high employee engagement ratings.

Prior to his stint with OCBC Bank in Singapore, Sng was with Citibank Singapore where he established and led the emerging local corporate (ELC), a business unit, which covered commercial banking.

His portfolio was later expanded with his appointment as managing director of the local corporate group. Before joining Citibank, Sng held senior commercial and corporate banking positions in Westpac Banking Corp and Banque Nationale De Paris.

Sng was the head of human resources, special projects and corporate communications at Fullerton Financial Holdings (International) Pte Ltd before his appointment as Alliance Bank Malaysia's group CEO. He is expected to commence his appointment in July 2010.

The news is not entirely a surprise given that the press had on May 18 reported on Sng's possible appointment. We view the news positively as this will allow the banking group to move ahead.

We maintain our buy call on AFG with fair value of RM3.30 per share. This is based on fair P/BV of 1.6 times, on unchanged ROE of 11.6% FY11F. Catalysts for the stock are higher-than-expected ROEs and loan growth.

The group is targeting loan growth in the low teen level for FY11F. Our sensitivity analysis shows that should loan growth come in stronger at around the 11% target FY11F (our forecast: 6.6%), we are looking at a further upgrade to fair value by 20 sen per to RM3.50. ' AmResearch Sdn Bhd, June 18


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

TGOFFS - Tanjung Offshore - A strategic partnership

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

Tanjung Offshore Bhd
(June 18, RM1.20)
Maintain buy at RM1.20 with lower target price of RM1.30 (from RM1.45): Ekuiti Nasional Bhd's (Ekuinas) entry into Tanjung Offshore (TOFF) is positive to the latter's financials and operations. We think Ekuinas will create value for TOFF, in terms of opening up new business opportunities, and could raise its stake beyond 20% in later years.

TOFF remains a buy but we have lowered our 2010-12 EPS forecasts by 7%-10% taking into account the enlarged share base effect. Corresponding to that, our target price is adjusted to RM1.30 with an unchanged seven times FY11 EPS.

Ekuinas, a government-linked private equity fund, will emerge as a new shareholder at TOFF following the completion of (i) the private placement exercise of 26 million new shares, and (ii) the purchase of 30.5 million shares from co-founder Haji Abdullah (18.5 million shares) and other existing major shareholders (12 million shares) at RM1.30 per share. Subsequently, Ekuinas will become TOFF's second largest shareholder with a 20% stake (ex-ESOS and warrants).

The private placement exercise is expected to be completed by 3Q2010, pending shareholders' approval at the next AGM. The purchase price is at a 8.3% premium to last Thursday's closing price but is deemed fair as it is transacted at 6-9 times FY10-12 EPS and 10% discount to our earlier target price.

The RM33.8 million proceeds from the private placement exercise will help TOFF lower its net borrowings and net gearing levels to RM532 million (-6%) and 148% (-29 percentage points) respectively.

Ekuinas' entry into TOFF is strategic and fulfils its investment criteria as it has a positive view of the oil & gas (O&G) sector, which we concur.

We think Ekuinas will be keen to open up new business opportunities for TOFF, locally and abroad and help consolidate small bumiputra-linked companies. In view of this, we do not rule out Ekuinas raising its stake in TOFF beyond 20%. ' Maybank IB Research, June 18


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

SPSETIA - S P Setia's sales performance a blowout

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: CIMB

S P Setia Bhd
(June 18, RM4)
Maintain outperform at RM4.03 with target price of RM5.51: S P Setia's interims largely met expectations even though annualised 1HFY10/10 net profit made up 88% of our full-year forecast and 91% of consensus estimates.

This is because 2H is traditionally stronger and should make up for lost ground. 1H physical sales were robust at RM1.2 billion, ahead of its RM2 billion full-year target. We make no changes to our earnings forecasts and outperform recommendation.

Our target price remains at RM5.51 as we continue to apply a 20% premium to its fully diluted RNAV of RM4.59, given S P Setia's position as the bellwether property stock. Potential rerating catalysts include 1) continued strong sales in FY10, and 2) S P Setia's renewed appetite for land banking, domestically and internationally.

1HFY10 core net profit was broadly in line with expectations, coming in at 44% of our full-year forecast and 46% of consensus estimates. We deem the results to be in line as 2H typically contributes 55%-60% of full-year profits. We expect future quarters to make up for the shortfall, given the robust sales so far.

April 2010's sales figure of RM271 million was the third highest since the company started disclosing monthly sales. S P Setia proposed an interim dividend of six sen per share, above 1HFY09's five sen and in line with our full-year forecast of 17 sen.

1HFY10 actual sales were strong at RM1.2 billion which is 130% higher than a year earlier. 2Q sales of RM595 million nearly matched 1Q's RM608 million and were 42% higher year-on-year.

The robust sales came primarily from the Klang Valley which made up 74% of total sales. The four townships in Johor contributed 24% of sales while Penang chipped in a mere 3%. The flagship Bandar Setia Alam township, which included the niche high-end Eco Park, contributed RM639 million sales or 53% of total group sales.

S P Setia's monthly sales are holding very firm despite the 5% real property gains tax which took effect on Jan 1, 2010. Its annualised 1H sales of RM2.4 billion are 20% above its target and a whopping 45% above last year's record RM1.65 billion sales.

The strong performance is a good indication of how the industry is faring. Other developers such as Mah Sing are also enjoying brisk sales. Mah Sing's 1QFY3/10 sales of RM601 million were also a record for the group and matched S P Setia's 2QFY10 sales. ' CIMB Research, June 18


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

PUNCAK - Puncak Niaga raised to 'market perform'

Stock Name: PUNCAK
Company Name: PUNCAK NIAGA HOLDINGS BHD
Research House: RHB

Puncak Niaga Holdings Bhd, a Malaysian water treatment operator, was upgraded at RHB Research Institute Sdn Bhd after the Edge Financial Daily newspaper reported that a deadlock in the proposed restructuring of Selangor state's water assets may be broken.

The company was raised to "market perform" from "underperform" and its fair value increased to 2.92 ringgit from 2.55 ringgit, RHB said in a report today. -- Bloomberg

MAXIS - Maxis cut to 'hold' at Maybank

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

Maxis Bhd was cut to "hold" from "buy" at Maybank Investment Bank Bhd, citing the prospects of slower-than-expected industry growth.

The share price estimate was reduced to RM5.78. Its previous target was RM6.20, according to Bloomberg data. -- Bloomberg