July 2, 2010

MRCB - MRCB buys out JV partner at 348 Sentral

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP
Research House: RHB

Malaysian Resources Corporation Bhd
(July 1, RM1.52)
Maintain trading buy at RM1.56 with a fair value of RM2.10
: MRCB is buying out its partner in 348 Sentral, an office & service apartment development with a total gross development value of RM850 million in KL Sentral. It is paying RM105 million for a 60% stake in the project held by Gapurna (linked to businessman Datuk Mohamad Salim Fateh Din), thereby boosting its stake in the project to 100%.

At this price tag, 348 Sentral in its entirety is valued at RM175 million. This is a 60% premium to the valuation of the entire project of RM109.5 million when MRCB first bought a 40% stake, also from Gapurna, for RM43.8 million in December 2007. We believe the higher valuation is justified as: (1) the land value should have appreciated over the last two to three years; (2) the project is now 15% completed, via-a-vis just bare land when MRCB bought the initial 40% stake; and most importantly (3) Shell has been roped in as tenant for 60% of the office space for 15 years. Ceteris paribus, the acquisition will increase MRCB's net debt and gearing of RM430 million and 0.36 times as at March 31, 2010, to RM535 million and 0.43 times, which is still manageable.

Forecasts are maintained as rental income (the project will be held as an investment property) will only come in beyond our forecast period. Completion is expected by 4Q2012. Risks include: (1) new construction contracts secured in FY12/10 coming in below our target of RM500 million per year; and (2) rising input costs.

We maintain a trading buy. We are upbeat on the construction sector as we expect construction stocks to generally outperform the market over the short term, buoyed by news flow, particularly from the RM36 billion KL mass rapid transit (MRT) project and the RM7 billion Ampang and Kelana Jaya light rail transit (LRT) line extension project. For MRCB, additional kickers could come from the possibility of it bagging prime federal government land parcels in KL and Sungai Buloh. We estimate that the land parcels could enhance its valuation by RM1.2 billion or 86 sen per share. Indicative fair value is RM2.10 based on a sum-of-parts valuation. ' RHB Research Institute, July 1


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


TANJONG - ECM Libra upgrades Tanjong to buy

Stock Name: TANJONG
Company Name: TANJONG PUBLIC LIMITED COMPANY
Research House: ECMLIBRA

Tanjong plc
(July 1, RM17.30)
Upgrade to buy at RM17.44 with a higher target price of RM18.66 (from RM18.08)
: Tanjong recorded a 1QFY11 net profit of RM177.2 million (-7% year-on-year), which was within expectations as it comprised 25% of our earnings estimate and 26% of consensus estimate. 1QFY11 revenue of RM945.8 million (-3% y-o-y) was also within expectations at 24% of our FY11 estimate. The 1QFY11 dividend per share (DPS) of 20 sen less 25% tax (1QFY10: 17.5 sen less 25%) declared was a pleasant surprise given the y-o-y easing in earnings.

1QFY11 power generation Ebit (earnings before interest and tax) declined 10% y-o-y to RM238.4 million due to a stronger ringgit against the US dollar, which caused its overseas power plants to contribute RM15 million less, and non-recurrence of RM10 million in warranty claims received in 1QFY10. Gaming Ebit for the quarter dipped 24% y-o-y despite two additional draws and below a theoretical prize payout ratio of 63% due to 9% poorer NFO (numbers forecast operation) sales per draw and additional special contributions (three additional special draws).

Sequentially, 1QFY11 net profit surged 54% quarter-on-quarter because of the lower prize payout ratio of 63% (4QFY10: 69%) and improved visitorship and cost control at Tropical Island. At the theoretical prize payout ratio of 65% to 66%, we do not believe 1QFY11's results will be repeated in 2QFY11. We trim our earnings estimates to reflect a stronger US dollar-ringgit exchange rate of RM3.30 (RM3.50 previously). The net impact is to trim our earnings estimates by 12% per year.

Despite trimming our earnings estimates, we tweak our discounted cash flow based target price higher by 3% to RM18.66 (previously RM18.08) for housekeeping changes post the release of its latest annual report. Coupled with an expected 75.8 sen net DPS for FY11, we expect Tanjong to yield 11% returns. Thus, we upgrade the counter from hold to buy. Re-rating catalysts include securing a new lotto game and overseas power plants. At only 0.9 times net gearing, Tanjong is able to gear up to embark on M&A. We expect low-beta and high-dividend-yielding stocks like Tanjong to outperform in volatile markets. ' ECM Libra Research, July 1


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


PANTECH - Pantech proposes bonus, ICULS and warrants

Stock Name: PANTECH
Company Name: PANTECH GROUP HOLDINGS BHD
Research House: KENANGA

Pantech Group Holdings Bhd
(July 1, 86 sen)
Maintain buy at 85.5 sen with a target price of RM1.14
: Pantech proposed a 1:5 bonus issue and a rights issue of up to RM77.24 million nominal value of ICULS and 77.24 million warrants attached on the basis of one for every 10 ICULS subscribed. They also proposed an exemption for CTL Capital Holding Sdn Bhd as well as several other parties from the obligation to undertake a mandatory general offer for the remaining Pantech shares not already owned by CTL.

The bonus issue will raise its share base to 463.5 million (assuming all 11.2 million ESOS options are exercised prior to the entitlement date) from the present 375.03 million shares, improve trading liquidity and reward the existing entitled shareholders by allowing them to have greater participation in the equity of the company.

ICULS issuance in the maximum scenario, together with warrant conversions, could see an additional 206 million new shares issuance. The RM77.3 million proceeds from the ICUL issuance is expected to be used for the acquisition of property, plant and equipment, investments in related and/or complementary businesses ' including investments overseas ' and for working capital requirements.

Net profit estimates for FY10 and FY11 are kept unchanged. The bonus exercise will not have any material impact on earnings, but will result in a downwards adjustment to basic EPS for FY11F and FY12F by 19.5% and 19% respectively to 12 sen and 13.2 sen (previously FY11F: 14.9 sen; FY12F: 16 sen). The ICULS is expected to raise Pantech's interest expenses by RM5.4 million in the maximum scenario. However, we hold off incorporating any changes to earnings until the completion of the exercise.

We maintain a buy call with a target price of RM1.14 (95 sen ex-bonus assuming maximum scenario). Exercise is expected to be completed by 4QCY2010. ' Kenanga Investment Bank Research, July 1


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


HIAPTEK - Hiap Teck remains within estimates

Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD
Research House: OSK

Hiap Teck Venture Bhd
(July 1, RM1.26)
Maintain neutral at RM1.29 with a revised target price of RM1.14 (from RM1.10)
: Hiap Teck's 9MFY10 reported net profit of RM38 million was within our earlier projection of RM51.6 million, coming in at 74% of our full-year forecast but was below consensus estimates. As per our earlier report, we had expected better 3Q results due to improving buying sentiment at end-February and early March.

Quarter-on-quarter, both top line and bottom line registered stronger numbers, improving by 15.2% and 326% respectively. Ebit (earnings before interest and tax) margins expanded from 3.4% to 8.7%. The company also benefited from cheaper inventory during the quarter as there was a mismatch in the prices of HRC, which was lower from November 2009 to January 2010, before the average selling prices of its products moved up in 3Q. The better performance in 3Q got another boost when customers held back on purchases due to the long weekends in 2Q.

Nonetheless, we are concerned over the outlook for 4Q and FY11 as the market appears to be unprepared for selling prices that are too high. The 'mismatch' between high material costs and lower ASPs may narrow Hiap Teck's margins in the medium term.

We understand that the new subsidiary is finalising the blast furnace project and is in the midst of getting quotations for the machineries, but do note that the substantial capital outlay ' as mentioned in an earlier report ' may potentially inflate its net gearing to 180.2%. Aside from that, the management has assured that operations will remain as usual with the emergence of a new shareholder and management.

We maintain our earnings estimates for FY10 and FY11 as we believe the mismatch in cost and revenue may hit the company in the medium term. Nevertheless, our target price has been revised from RM1.10 to RM1.14 as we roll over to FY11 EPS on seven times PER. Due to the limited upside on the stock, we maintain a neutral recommendation. ' OSK Research Sdn Bhd, July 1


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


MAYBANK - Maybank upgraded to 'buy'

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

Malayan Banking Bhd, Malaysia's biggest lender by market value, was upgraded to "buy" from "hold" at AmResearch Sdn Bhd on expectations of lower bad loan provisions and impairment losses on investments.

Its fair value was raised to RM8.60 from RM7.20, AmResearch said in a report today. -- Bloomberg

GENM - Genting Malaysia slides on UK ops acquisition

Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD
Research House: HWANGDBS

KUALA LUMPUR: Genting Malaysia's shares fell in early trade on Friday, July 2 after proposing to acquire Genting Singapore's under-performing UK operations, which analysts said was at the higher-end of peers' valuation.

At 9.16am, the share price was down 15 sen to RM2.59 with 10.34 million shares done.

The FBM KLCI was down 2.22 points to 1,306.54. Turnover was 46.62 million shares valued at RM47.65 million.

Hwang DBS Vickers Research said Genting Malaysia was acquiring Genting Singapore's under-performing UK operations at higher-end of peers' valuation.

It said the transaction was positive for Genting Singapore as it could focus more on Singapore, less pressure on balance sheet, room to explore other integrated resorts.

"But negative for Genting Malaysia. Expensive for risky market, minimal synergy, less efficient use of cashpile," it said.

"Maintain Buy on Genting Singapore (TP raised to S$1.25), but downgrade Genting Malaysia to Fully Valued (TP cut to RM2.30). GENTING BHD [] remains a Buy, TP adjusted to RM8.20," it said.


BJTOTO - Berjaya Sports share forecast cut to RM4

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

Berjaya Sports Toto Bhd, a Malaysian gaming company, was downgraded to "fully valued" from "buy" at HwangDDB Vickers Research Sdn Bhd after the Southeast Asian nation raised pool betting duties.

Its share forecast was cut to RM4 from RM4.80, HwangDBS said in report today. -- Bloomberg


PROTON - Proton downgraded to 'hold'

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

Proton Holdings Bhd, a Malaysian automaker, was downgraded to "hold" from "buy" at AmResearch Sdn Bhd on earnings concerns.

Its fair value was cut to RM5 from RM6.30, AmResearch said in a report today. -- Bloomberg

July 1, 2010

KPJ - Healthcare sector to grow 8%-10% per annum

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

KUALA LUMPUR: RHB Research expects Malaysia's healthcare sector to grow at a resilient 8% to 10% per annum despite overall solwer growth in consumer spending.

It said on Thursday, July 1 the healthsector's growth will be underpinned by 2% steady population growth; ageing population; and greater affluence.

"We anticipate higher allocations from the Government for public healthcare to benefit Faber (OP; FV = RM3.54). Recent news reports that UEM Group is looking to dispose of its 34% stake in Faber could provide trading opportunities for the stock," it said.

On consumer spending, RHB Research expected it to grow at a slower pace of 4.6% YoY in the 2H versus +5.4% YoY in the 1H, with more downside risk arising from uncertainty in government policies.

The uncertainties could especially on the cut in consumer subsidies, which could further dampen consumer spending particularly on big-ticket items.

"Expect retailers and MLM players to be most affected, while healthcare and F&B sectors would be least affected," it said.

RHB Research said higher uptake in insurance policies would benefit the private healthcare sector, such as KPJ (OP; FV = RM4.25). Together with news flow on M&A in the regional healthcare sector, we believe that KPJ deserves to be trading at a higher valuation, further narrowing its discount to regional peers' PER of 18x.

The research house's top pick for the sector is KPJ. It is keeping its Neutral stance on the sector given its Underperform call on BAT; and slower increase in consumer spending outlook coupled with uncertainties arising from the cut in consumer subsidy issue.


FABER - Healthcare sector to grow 8%-10% per annum

Stock Name: FABER
Company Name: FABER GROUP BHD
Research House: RHB

KUALA LUMPUR: RHB Research expects Malaysia's healthcare sector to grow at a resilient 8% to 10% per annum despite overall solwer growth in consumer spending.

It said on Thursday, July 1 the healthsector's growth will be underpinned by 2% steady population growth; ageing population; and greater affluence.

"We anticipate higher allocations from the Government for public healthcare to benefit Faber (OP; FV = RM3.54). Recent news reports that UEM Group is looking to dispose of its 34% stake in Faber could provide trading opportunities for the stock," it said.

On consumer spending, RHB Research expected it to grow at a slower pace of 4.6% YoY in the 2H versus +5.4% YoY in the 1H, with more downside risk arising from uncertainty in government policies.

The uncertainties could especially on the cut in consumer subsidies, which could further dampen consumer spending particularly on big-ticket items.

"Expect retailers and MLM players to be most affected, while healthcare and F&B sectors would be least affected," it said.

RHB Research said higher uptake in insurance policies would benefit the private healthcare sector, such as KPJ (OP; FV = RM4.25). Together with news flow on M&A in the regional healthcare sector, we believe that KPJ deserves to be trading at a higher valuation, further narrowing its discount to regional peers' PER of 18x.

The research house's top pick for the sector is KPJ. It is keeping its Neutral stance on the sector given its Underperform call on BAT; and slower increase in consumer spending outlook coupled with uncertainties arising from the cut in consumer subsidy issue.


GPACKET - SK Telecom boost for Green Packet

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

Green Packet Bhd
(June 30, 97.5 sen)
Maintain buy at RM1 with a lower target price of RM1.60 (from RM1.75)
: South Korea's SK Telecom is acquiring 25.8% of Green Packet's WiMAX subsidiary Packet One Networks (Malaysia) Sdn Bhd (P1) for US$100 million (RM324 million) cash. The price for the P1 stake is 6% below our fair value. SK Telecom's purchase price implies a valuation of US$389 million for P1. This acquisition also dilutes Green Packet's effective stake in P1 to 57% from 75% previously.

SK Telecom is known globally for its success in South Korea's wireless broadband segment. Its commitment to P1 signals its confidence in Green Packet's management and the healthy prospects of Malaysia's broadband market. But we see few synergies, besides operational expertise, that it can transfer to P1.

There is a minimal 1% reduction in Green Packet's group net loss following the US$100 million cash injection into P1. We have lowered our sum-of-parts target price for Green Packet to RM1.60 because of its diluted stake in P1. We remain optimistic about Green Packet's long-term prospects both in the Malaysian broadband space and its regional telco solution sales. ' HwangDBS Vickers Research Sdn Bhd, June 30


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


GLOMAC - Glomac's FY10 revenue below expectations

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

Glomac Bhd
(June 30, RM1.28)
Recommend outperform at RM1.26 with target price of RM1.70
: Glomac is poised for stronger and sustainable growth from FY11 onwards in view of (1) record unbilled sales of RM588 million; (2) RM508 million sales achieved in FY10, which is about three times the sales registered in FY09; (3) the launch of four existing projects worth of RM621 million in FY11, which achieved commendable sales in FY10; and (4) sizeable projects worth RM930 million in the pipeline for launch in FY12. Our target price is pegged at RM1.70 based on an EPS of 15.3 sen and ascribed undemanding PER of 11 times. FY10 dividend stands at 8.5 sen or 6.7%. Glomac intends to match FY10 payout.

The RM317.8 million top line and RM40.7 million net earnings registered in FY10 made up 81% and 105% of our FY10 forecast and 88% and 106% of consensus. FY10 revenue was below expectations due to the Suria Stonor project, a key contributor to revenue, which was completed in FY09. This, coupled with the full impact of new projects like Glomac Damansara and Glomac Cyberjaya, will start yielding positive contribution from FY11 onwards.

Growth in PBT (profit before tax) margin was due to (1) better earnings from projects like Glomac Tower and Bandar Saujana Utama, a mature township that yields better margins than its new developments; (2) Glomac Damansara's maiden contribution; and (3) a RM9.1 million fair value adjustment to investment properties, which was partially offset by a final RM1.85 million provision for CLO (collaterised debt obligations) sub-bonds. If we exclude item (3), which is a one-off item, PBT would have increased by 19.5% y-o-y.

Glomac Tower's super structure is now at Level 20, implying it is on target for handover in CY11. Unbilled sales of RM147 million from Glomac Tower is expected to be recognised in FY11 and FY12. The first launch of 87 units in Bandar Saujana Utama's new phase of 262 double-storey link houses was fully taken up within a week. Judging from the healthy take-up rate, we expect Glomac to achieve its RM82 million sales target for the development. Glomac Cyberjaya's remaining 15-storey office block will be marketed en-bloc or leased on a long-term basis to MNCs.

Glomac Damansara is the company's main growth driver with RM385 million worth of launches in FY11. The RM800 million flagship development chalked up total sales of RM216 million in FY10, with Phase One of the shopoffices fully sold and the 25-storey Tower D sold to Lembaga Tabung Haji. Glomac will launch the retail mall worth RM145 million in 1HFY11 and two blocks of serviced apartments with a gross development value of RM240 million in 2HFY11. Despite an enquiry of an en-bloc sale for the retail mall, Glomac is expected to launch the mall on strata basis. Management is confident of achieving 65% to 70% sales for its retail mall in view of the positive response from buyers. ' Inter-Pacific Research Sdn Bhd, June 30


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


FABER - Faber - favourably positioned

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

Faber Group Bhd
(June 30, RM2.67)
Maintain buy at RM2.56 with target price of RM3.58
: Although we are slightly surprised with the unconfirmed news that the UEM Group might dispose of its stake in Faber, it is nevertheless within UEM's restructuring plan to focus on its core business. With neither Faber nor UEM having commented on the matter, the potential disposal largely remains a rumour at this juncture. As we believe a potential disposal would largely involve a change in shareholding without affecting Faber's business direction, the market seems to have unjustifiably over-reacted to the rumour, especially since the company's fundamentals and future prospects remain intact.

Although our sources were unable to confirm the rumour, we believe the potential disposal might be in the pipeline. However, we think that it may not happen so soon as the decision whether or not Faber's concession is renewed by the government will only be known in October. The concession renewal would probably be a requirement before a buyer agrees to the pricing.

With Faber's diversified business consisting of Integrated Facilities Management (IFM) for healthcare concessions and non healthcare, as well as property development, we believe it would be rather difficult to find a strategic buyer for the group. As such, we believe the disposal would most likely attract passive investors or buyers rather than strategic buyers.

With the potential disposal by UEM still remaining a rumour and even if it does materialise, we believe that Faber's business fundamentals will remain intact. As such, we maintain our forecast and buy recommendation at an unchanged target price of RM3.58 based on sum-of-parts valuation. Following the sharp price correction over the last two days, we believe that the current price level is attractive. Faber's current valuation is an attractive 9.7 times and 8.9 times PER on FY10 and FY11 EPS respectively. ' OSK Research, June 30


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


VS - VS Industry sees improvement

Stock Name: VS
Company Name: V.S INDUSTRY BHD
Research House: KENANGA

VS Industry Bhd
(June 30, RM1.80)
Upgrade to buy at RM1.20 with target price of RM1.52
: Revenue of RM551 million was 78% of our forecast, while net profit of RM15 million was 69%. Revenue was flat, while net profit jumped 127% mainly due to lower associate losses augmented by improved margins with gross profit rising 15bps to 15.3% (9M09: 13.8%)

Revenue was up 6.4% q-o-q, while net profit was 46% higher on lower associate losses and improved margins, which jumped 23bps to 16.4% (2Q10: 14.1%) at the gross due to rising scale and improved efficiency. Dyson, the group's major customer, has seen improved business conditions, which translated into higher loadings as a result. Based on guidance, we gather that orders from Dyson had seen a 6% sequential improvement.

Revenue was up 13% y-o-y, while net profit jumped 253% mainly due to lower associate losses and improved margins. Recall that in 3Q09, operations were challenged by the credit crisis which saw orders tail off with financing hard to come by even for genuine businesses. Associate's operations under 44%-owned VS Industry Group Ltd, which has China as its base, was hit particularly hard. Margins also improved, with gross margin reaching 16.4% versus 9.4% previously.

Outlook is on the mend as global economic conditions improve. Visibility remains a healthy six months with Dyson once again seeing improved loadings with models refreshed. While clients ' including Hoselock and Valeo ' remained muted, new products from clients that include those from Japan and Korea, albeit small, should pave the way for more excitement to come once execution is proven. We gather from the management that prospects for Malaysian electronic manufacturing service providers, including VS Industry, should improve as China's loses its competitive edge due to rising costs.

We tweak FY10F net profit higher by 4% as we reduce the associate's losses, mitigated by higher than forecasted taxes. The management is guiding associates to break even for the financial year as business conditions normalise post-crisis. However, FY11F is raised 23.4% to RM34.1 million as we factor in higher loadings on improved economic conditions. We roll over our benchmark to FY11 and based on eight times multiple will yield a new target price of RM1.52 (RM1.08 on eight times CY10F). Upgrade to buy. ' Kenanga Investment Bank Bhd Research, June 30


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


KMLOONG - CIMB Research has Buy on Kim Loong at RM1.97

Stock Name: KMLOONG
Company Name: KIM LOONG RESOURCES BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research has a Buy on Kim Loong at RM1.97 where is it is trading at a price-to-book value of 1.4 times.

The research house said on Thursday, July 1 that Kim Loong is still trapped in a downtrend channel but things have improved in recent weeks.

'Prices hit a low of RM1.80 and have since bounced back above its 30-day and 50-day SMAs. Looking at the chart, it seems that the candles will soon test the downtrend resistance line at RM2.02,' it said.

CIMB Research said if the RM2.02 level is taken out, next upside targets are RM2.18 and RM2.29. Its positive stance is also backed by the improving technical readings.

'MACD is about to turn positive while RSI is also rising. The rebound could be extended and traders with higher risk appetite may want to take some position ahead of the breakout. However, always place a stop at RM1.80, its recent low,' it said.

Kim Loong cultivates oil palm and cocoa. It owns and leases leasehold land, manufactures concrete culverts, processes and markets oil palm products, and manufactures compost fertilizers. The company also trades in fresh fruit bunches.


PROTON - CIMB Research has sell into strength on Proton

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

KUALA LUMPUR: CIMB Research has a Sell into strength on Proton Holdings at RM4.42. It is trading at FY11P/E of 7.4 times, P/BV: 0.5 times.

It said on Thursday, July 1 Proton broke below its rising wedge support on Wednesday. This would likely weigh down on its share price performances.

'As prices are also below its key moving averages, we expect the 200-day SMA (now at RM4.24) to be tested soon,' it said.

CIMB Research said the technical landscape looks fragile. MACD has slipped into the negative territory while its RSI is also falling towards the lower band of the neutral zone.

Once the RM4.24 level gives way, next downside supports are RM4.00, RM3.80 and RM3.63. Use any rebound towards RM4.52-RM4.77 to sell into strength as it believes RM5.03 (its 52-week high) is likely its medium term high.


June 30, 2010

JTINTER - Tobacco sector sees muted impact from price cut

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

Tobacco sector
Recommend neutral
: Our latest channel checks revealed that 'the Big 3' tobacco manufacturers have dropped prices of certain cigarette labels, namely those within the premium segment. We understand the discounted labels include Dunhill by British American Tobacco (BAT), Salem by JT International (JTI) and Marlboro variations by Philip Morris.

It appears that the price cuts are not uniform across the Big 3, with certain premium labels available for as low as RM8.90 per pack only at targeted distribution outlets. This compares with the standard retail price of RM9.30 per pack of 20s for a premium label.

Under regulations stipulated by the Malaysian government, tobacco manufacturers are allowed price discounts of up to three times a year, not exceeding 30 days on each occasion. In addition, the Ministry of Health must be notified of any price cuts.

We view this latest development negatively, although we are not surprised by the move. Tobacco manufacturers have engaged in price discounts in the past, mainly with the objective to attain market share.

But unlike previous occasions in 2005 and late 2008, which led to a five-month price war, we see little chance of this happening, given the more tightly regulated environment this time around. We note the 40 sen discount, or less than 5% of the retail price, complies with the quantum allowed by the government.

We are keeping our earnings forecast for BAT and JTI unchanged as impact to FY10F earnings will be insignificant at 0.8% to 1%, assuming one-month discount period.

Given higher advertising expenses and operating costs in preparation for the ban on the 14s pack, which went into effect on June 2, we believe tobacco manufacturers will want to exercise a more systematic marketing strategy to avoid a costly price war.

We maintain a hold call on BAT, with unchanged discounted cash flow-based fair value of RM42, and a buy on JTI with a fair value of RM5.80 due to its better mix of value-for-money brands. We expect JTI to be the greater contender on the back of Winston's strong brand equity with market share growth ' in anticipation of further down-trading activities due to the ban on the 14s pack. ' AmResearch Sdn Bhd


This article appeared in The Edge Financial Daily, June 30, 2010.


PERISAI - Perisai Petroleum lean and mean

Stock Name: PERISAI
Company Name: PERISAI PETROLEUM TEKNOLOGI
Research House: HWANGDBS

Perisai Petroleum Teknologi Bhd
(June 29, 54 sen)
Initiate coverage with a buy call at 54 sen and target price of 70 sen
: Perisai has been shedding its non-core and non-profitable assets to achieve a leaner structure to focus on acquiring specialised assets for local deepwater projects. The next deepwater fields (Malikai and Kebabangan) earmarked to come onstream will cost over RM10 billion to develop. We believe Perisai's new managing director, Zainol Izzet, is the right person to steer the company into the deepwater segment given his past experience as CEO of SapuraCrest Petroleum. Separately, Perisai's crown jewel ' a derrick pipelay barge (E3) ' has a long-term charter contract ending mid-2013, thus providing clear earnings visibility.

We understand that Perisai is looking to acquire vessels that can cater to Petronas' deepwater fields. In our view, this could be in the form of asset injection by Ezra Holdings. Perisai is leveraging on Ezra's fleet size and deepwater expertise to penetrate the local deepwater market. Ezra is the second largest shareholder in Perisai after acquiring a 19.9% stake for RM64 million or 48.5 sen per share in April 2010.

We initiate coverage with a buy call, current valuation cloud potential return from E3. Given the long-term cash flow that E3 will generate, we value the stock on a discounted cash flow method and derive a 70 sen per share value. We believe the market has not fully priced in the value of E3 nor the superior margins it commands (Ebit margin: 41% versus peers' 19%), considering the niche market and small supply of locally flagged pipelay barges. Our scenario analysis on a vessel acquisition of US$100 million indicates significant earnings upside for Perisai. ' HwangDBS Vickers Research Sdn Bhd


This article appeared in The Edge Financial Daily, June 30, 2010.




PETRA - OSK Research maintains Buy on Petra Perdana

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

KUALA LUMPUR: OSK Research is maintaining its Buy on Petra Perdana with a target price of RM1.77 based on the existing PER of 9x FY11 earnings.

'Currently, we understand that there are still a tussle between the 2 groups of Petra shareholders and hope of this being resolved soon. Otherwise, Petra faces the risk of losing out on new vessel contract awards to its listed peers like Alam Maritim and Tanjung Offshore,' it said on Wednesday, June 30.

OSK Research said however, going forward, should the internal strife be resolved, it believed Petra could possibly be the biggest beneficiary of new vessel contract awards.

The factors are because: 1) it has spare capacity, with an average utilization of below 50% now, and 2) deepwater projects like Gemusut should start first oil production in 2011 and Petra's 10,000 to 12,000 brake horsepower vessels should come in handy here.


KENCANA - Kencana on its way to a record year

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

Kencana Petroleum Bhd
(June 29, RM1.45)
Maintain outperform at RM1.47 with a target price of RM2.15
: Kencana posted a 3QFY7/10 net profit of RM31 million, taking its 9M bottom line to RM94 million. At 72% of our full-year forecast and 73% of consensus estimate, the performance was broadly in line with expectations. A stronger 4Q is anticipated to make up for the shortfall and round off a record year. The company is reaping the benefits of moving up the value chain, evident from the double-digit bottom line growth despite a top line contraction. We maintain our forecasts and target price of RM2.15 as we continue to apply our target market PER of 15 times. Kencana remains an outperform, premised on the potential rerating catalysts of active order book replenishment, and M&A.

3Q revenue fell 3% year-on-year (y-o-y) mostly due to the completion of sizeable projects, for example the RM980 million Petronas Carigali job. However, net profit climbed 13% y-o-y with contribution from high-margin structures such as drilling rig KM1. The fabrication of the rig has been completed. It will be on a five-year, RM827 million Petronas drilling contract effective August. Fabrication of the second drilling rig KM has been suspended pending clearer visibility of Petronas' drilling requirements.

Kencana is poised to hit a record net profit of RM132 million (+11% y-o-y) in FY10. We expect FY11 annual growth to be more exciting at 62%, mostly due to the contributions from these businesses: 1) Drilling: KM1's drilling profits will flow for the first year in FY11. Now 25%-owned, the rig will be entirely Kencana's come 1QFY11, assuming the company's proposed US$66.6 million deal with Mermaid Maritime materialises (see our note dated June 22). 2) Marine support: This business commenced its operations on Jan 10. FY11 will be its first full year of contribution. Kencana currently owns two AHTS vessels and is considering to expand its fleet. As at April 30, the company had net cash of RM178 million or 11 sen per share.

Since April 15, Kencana has clinched five contracts worth RM389 million, taking the value of its current orders to RM2 billion. We expect news flow from the company to stay active as it is vying for RM1 billion worth of fabrication contracts in Malaysia, India and Australia. Capacity is not an issue as Kencana's 169-acre yard in Lumut is running at 50% utilisation, with extra space earmarked for new contracts. ' CIMB Research


This article appeared in The Edge Financial Daily, June 30, 2010.




BAT - Tobacco sector sees muted impact from price cut

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

Tobacco sector
Recommend neutral
: Our latest channel checks revealed that 'the Big 3' tobacco manufacturers have dropped prices of certain cigarette labels, namely those within the premium segment. We understand the discounted labels include Dunhill by British American Tobacco (BAT), Salem by JT International (JTI) and Marlboro variations by Philip Morris.

It appears that the price cuts are not uniform across the Big 3, with certain premium labels available for as low as RM8.90 per pack only at targeted distribution outlets. This compares with the standard retail price of RM9.30 per pack of 20s for a premium label.

Under regulations stipulated by the Malaysian government, tobacco manufacturers are allowed price discounts of up to three times a year, not exceeding 30 days on each occasion. In addition, the Ministry of Health must be notified of any price cuts.

We view this latest development negatively, although we are not surprised by the move. Tobacco manufacturers have engaged in price discounts in the past, mainly with the objective to attain market share.

But unlike previous occasions in 2005 and late 2008, which led to a five-month price war, we see little chance of this happening, given the more tightly regulated environment this time around. We note the 40 sen discount, or less than 5% of the retail price, complies with the quantum allowed by the government.

We are keeping our earnings forecast for BAT and JTI unchanged as impact to FY10F earnings will be insignificant at 0.8% to 1%, assuming one-month discount period.

Given higher advertising expenses and operating costs in preparation for the ban on the 14s pack, which went into effect on June 2, we believe tobacco manufacturers will want to exercise a more systematic marketing strategy to avoid a costly price war.

We maintain a hold call on BAT, with unchanged discounted cash flow-based fair value of RM42, and a buy on JTI with a fair value of RM5.80 due to its better mix of value-for-money brands. We expect JTI to be the greater contender on the back of Winston's strong brand equity with market share growth ' in anticipation of further down-trading activities due to the ban on the 14s pack. ' AmResearch Sdn Bhd


This article appeared in The Edge Financial Daily, June 30, 2010.


SUNWAY - Sunway wins RM129m job

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

Sunway Holdings Bhd
(June 29, RM1.50)
Maintain buy at RM1.55 with a target price of RM2.22
: It was announced yesterday on Bursa Malaysia that Sunway had won a RM129 million job to construct a dairy products factory in Pulau Indah, Port Klang, Selangor. The job was awarded by PLM Dairies SB and is expected to be completed over the next 12 months. Imputed in our projections is a RM1 billion per year order book replenishment for FY10 to FY12. Including this recent win, Sunway has bagged six jobs YTD, collectively valued at RM602 million or 60% of its FY10 new jobs target.

SunCity has another RM1 billion to RM1.5 billion worth of contracts to be tendered out over the next one to two years, including the Pyramid mall extension, Sunway office tower (Sunway is currently doing the ground works), Monash University extension, student apartments and Sunway Medical Centre extension. There are also plans to construct a new office tower beside the former Wisma Denmark in KL. The launch of Sunway REIT (NR) will also free up some cash for SunCity to embark on more development projects which could eventually benefit Sunway.

On the domestic front, Sunway has RM10 billion in target tenders (a 50:50 mix between private and government jobs). Some of these jobs are the Penang and Ipoh airport upgrades (RM300 million), Kelau Dam (RM200 million to RM250 million), Kuantan treatment plant and some jobs in Putrajaya. We understand that Sunway has submitted the lowest bid for the LCCT building (RM750 million to RM850 million) on a design-and-build basis. We understand that there are only three to four contractors remaining.

Sunway has submitted RM1.3 billion worth of bids for road works in India and will be tendering for more when they open up (likely very soon). In the Middle East, work on Phase 1 of Arzanah is on track and is now more than 30% complete. Tenders for Phase 2 should be out early next year. We expect Sunway to have a decent chance of winning given its preferred contractor status with the developer. In Singapore, management expects more contracts for the supply of its precast concrete structures. Its plant is currently 70% to 80% utilised and should be able to accommodate higher demand.

Our recent meeting with management has reinforced our optimism on Sunway. Yesterday's RM129 million job win further supports our view that contract flows will be strong. As YTD job wins are still within our RM1 billion order book replenishment target, we make no changes to our estimates. Our RM2.22 target price is based on 12 times partially diluted FY10 EPS. We have a three-year CAGR of 31.7%. Management has guided that it may introduce a dividend policy with a 20% to 25% payout versus our current assumption of 10%. Foreign shareholding now stands at 8% versus the 17% to 18% peak in 2007. Along with Mudajaya (Buy, TP: RM7.33), Sunway remains one of our top sector picks. ' OSK Research Sdn Bhd


This article appeared in The Edge Financial Daily, June 30, 2010.


June 29, 2010

SAPCRES - A good start for SapuraCrest in FY2011

Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Research House: INTER PACIFIC

SapuraCrest Petroleum Bhd
(June 28, RM2.27)
Recommend outperform at RM2.25 with target price of RM2.90
: We like SapuraCrest, given its unleashed prospects. Earnings catalyst will come from (1) active orderbook replenishment; 2) success in new markets; and 3) a growing fleet of strategic assets. Our target price is at RM2.90 with FY2011 earnings per share of 16.9 times and FY2011 price-earnings ratio of 17.1 times.

In 1QFY2011, despite a decline in revenue, net profit swelled by 97.5% year-on-year (y-o-y) ' thanks to better margins from the installations of pipelines and facilities (IPF), which went up 8.8 percentage points to 12.9% y-o-y, while drilling was up 9.7 percentage points to 39.2% y-o-y. The PCSB Umbrella project win and commendable joint-venture contribution bumped up IPF margins, while improved drilling margins were caused by higher drilling charter rates garnered in FY2010 for T9 and Teknik Berkat.

With the orderbook standing at RM9.1 billion, SapuraCrest's earnings visibility appears to be good, at least for the next two years. However, we learnt that there are risks should installation contracts be delayed, especially if the direction of crude oil prices remains uncertain.

Any review of the safety standards of offshore facilities could also potentially escalate cost estimates and affect the viability of new projects. ' Inter-Pacific Research Sdn Bhd


This article appeared in The Edge Financial Daily, June 29, 2010.


AIRPORT - MAHB wins Maldives International Airport bid

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

Malaysia Airports Holdings Bhd
(June 28, RM5.00)
Maintain trading buy at RM5 with higher target price of RM5.83 (from RM5.65)
: Malaysia Airports Holdings Bhd (MAHB) announced it had won the bid to build, operate, modernise and expand the Male International Airport (MIA) via its GMR-MAHB consortium.

The participants of the consortium are Aeroport De Paris (France-TAV, Turkey), Zurich Airport-GVK consortium and GMR-MAHB but there are still no details about MAHB's stake in the venture. While contribution may be minimal in the near term, not to mention higher business risks and additional requirement for investment cost, it is still in line with the group's long-term diversification objective.

Following the MIA project award, MAHB is looking to secure the expansion work for the Prince Mohammed Bin Abdulaziz Airport (Medina) in Saudi Arabia through a consortium. The total value of the project is estimated at RM4.9 billion and is planned for completion by 2016.

With the addition of MIA, MAHB will have four overseas airport operations ' the Rajiv Gandhi International Airport in Hyderabad (11% stake), the Indira Gandhi International Airport in New Delhi (10% stake) and the Sabiha Gocken International Airport in Turkey (20% stake). We expect contribution from this segment to be minimal in the near term, given the gestation period of three to five years before it can generate stable income.

At present, the management is looking to achieve 10% passenger growth in 2010 as reported. The strong traffic growth will yield a positive impact on its retail segment. In the meantime, we have not imputed any overseas business operations into our valuation, while being more optimistic on higher passenger movements and the company's existing domestic business. Higher traffic growth in April prompts us to revise our passenger-movement growth assumptions from 3% to 5% in FY2010, on the back of resilient air-travel demand from Asia Pacific. ' Kenanga Investment Bank Bhd Research.

We revise our earnings forecast upwards by 3% for FY2010 and FY2011 after imputing higher passenger growth at 5% for FY2010 from 3% previously, while pegging a 16 times price earnings FY2010 to derive a new target price at RM5.83. ' Kenanga Investment Bank Bhd Research


This article appeared in The Edge Financial Daily, June 29, 2010.


KENCANA - OSK Research maintains Buy on Kencana

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

KUALA LUMPUR: OSK Research is maintaining its Buy call on Kencana Petroleum with a higher target price (TP) of RM2.06 from the earlier RM1.85.

The research house said on Tuesday, June 29 the higher TP was based on existing PER of 16x CY11 EPS following its FY11 earnings upgrade.

'Going forward, we remain positive on the company's performance,' it said.

OSK Research said although the fabrication portion of its current orderbook of RM1.6bn (comprising RM800m fabrication jobs and RM800m from MKR-1), would continue to be pared down pending new contracts, 'we believe it would not have problems securing new contracts given its outstanding delivery track record'.


HAIO - OSK Research downgrades Hai-O to neutral

Stock Name: HAIO
Company Name: HAI-O ENTERPRISE BHD
Research House: OSK

Hai-O Enterprise Bhd
(June 28, RM3.87)
Downgrade to neutral at RM4.12 with reduced target price of RM4.42 (from RM5.03)
: Hai-O's FY2010 net profit of RM70.9 million was spot on compared with our FY2010 earnings forecast of RM71.7 million but below consensus' forecast of RM93.1 million. Full-year revenue rose 17.4% year-on-year (y-o-y) to RM511.1 million while net profit jumped 35.6% y-o-y on better earnings before interest and tax margin or EBIT (+1.3% points y-o-y). Full-year sales at the MLM division surged 19.8% y-o-y while that in the wholesaling and retail divisions inched up by 4% and 6.7% respectively.

Given that the 4QFY2010 topline and profit before tax shrank (PBT) 25.6% and 32.3% y-o-y respectively, the impressive full-year y-o-y revenue and profit growth were mainly attributed to the strong 9MFY2010 results.

The better showing was also driven by higher rental income from leasing in Klang and a lower effect tax of 24.8% versus 30.1% in FY2009.

While 4Q's results are usually strong, this time around, 4QFY2010's y-o-y revenue and PBT fell 25.6% and 32.3% respectively, dragged down by the MLM division, which reported a 35.5% y-o-y contraction in sales, although this was partially offset by strong retail sales growth of 44.7% y-o-y.

The MLM division was impacted by slower membership growth which in turn was affected by: (i) the more stringent rules on new member recruitment set by the authorities, and (ii) reduced appetite for loans following the rise in interest rates recently.

On the other hand, the retail division recorded historical highs in sales and profit, mainly attributed to the (i) success in promoting in-house brands ' y-o-y EBIT margin improved 6.9% points in 4QFY2010; (ii) the Chinese New Year festival which fell late this year and coincided with the year-end members' sales promotion. On a quarter-on-quarter basis, revenue and net profit declined by 24.7% and 20.8% y-o-y respectively, due to the poor performance from its MLM division.

We cut our FY2011 and FY2012 earnings forecast by 12% to 18% to RM74.6 million and RM83.6 million respectively, to factor in the slower growth from its MLM division.

Hai-O has proposed a final dividend of 10 sen and a single-tier dividend of 4.5 sen, bringing the total full-year gross dividend to 21.8 sen. ' OSK Investment Research Sdn Bhd


This article appeared in The Edge Financial Daily, June 29, 2010.


D&O - CIMB Research: Buy on D&O at 71c

Stock Name: D&O
Company Name: D&O GREEN TECHNOLOGIES BERHAD
Research House: CIMB

KUALA LUMPUR: CIMB Retail Research has a Buy on D&O Green Technologies at 71 sen as the technical landscape is improving. It is trading at a price-to-book value of 2.7 times.

It said on Tuesday, June 29 D&O is hovering near the 38.2% FR level from its RM0.975 high. It added a base pattern seems to have formed in the process and this should provide a platform for the next up leg.

'If prices can swing above the 50-day SMA (at RM0.74), RM0.78 (also its 23.6% FR) and RM0.865 will be its next targets,' it said.

CIMB Research said the technical landscape is improving. MACD has staged a positive crossover and is now rising towards the zero level. Meanwhile, its RSI is also rising towards the upper band of the neutral zone.

'As long as prices hold on steady above its recent low of RM0.655, we believe this uptrend still has legs. Traders may start to nibble now to ride this recovery. A fall below RM0.655 would trigger our stop,' it said.

D&O Green Technologies, through its subsidiary, manufactures semiconductor components. The company manufactures and assembles semiconductor components under original equipment manufacturer contract manufacturing.


KENCANA - Kencana downgraded to 'underperform'

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

Kencana Petroleum Bhd, a Malaysian oil and gas services provider, was downgraded to "underperform" from "market perform" at RHB Research Institute Sdn Bhd to reflect lower earnings assumptions.

RHB cut its earnings estimates for its 2010-12 financial years by 11 per cent to 19 per cent, the research house said in a report today. It also reduced its fair value to RM1.27 from RM1.52, RHB said. -- Bloomberg

HAIO - OSK cuts price estimate on Hai-O

Stock Name: HAIO
Company Name: HAI-O ENTERPRISE BHD
Research House: OSK

Hai-O Enterprise Bhd, a seller of traditional health-care products, slid 3.4 per cent to RM3.74, on course for its lowest close since May 25.

OSK Research Sdn Bhd cut its share price estimate to RM3.57 from RM4.42 to reflect slower earnings growth prospects, according to its report today. -- Bloomberg

June 28, 2010

GAMUDA - Transiting to new heights with MRT project

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

Gamuda Bhd
(June 25, RM3.24)
Maintain buy at RM3 with fair value at RM3.82
: Gamuda reported 3QFY10 net profit of RM73 million, taking 9MFY10 earnings to RM204 million. Results were in line with our expectations which accounted for 76% of our full-year forecast but only 69% of consensus.

Net profit for the first nine months of FYT10F rose 36% year-on-year (y-o-y) thanks to better contributions from both its construction as well as property divisions. Gamuda's earnings performance could have been better if not for some one-off adjustments to the amortisation policy of 30%-owned toll unit ' Kesas ' due to a lowering of its traffic projections.

Restoration of construction margins is gaining traction ' rising to 5.2% in 3QFY10 against 4.3% in 2QFY10 (9MFY10: 4%) as working progress on the double-tracking projects comes into full swing.

The big call for Gamuda in the near term would centre on the proposed MRT project which is central to Malaysia's RM50 billion plan to integrate and upgrade Klang Valley's public transportation system.

We think the MRT project has a good chance of taking off.'' The proposal has been included under the 10MP and is in line with the Malaysian government's plans for a gradual phase-out of petrol subsidies.

The project is at the advanced stage of evaluation at the federal level where a decision could be known by year-end (targeted commencement of construction works early-2011). To be sure, the federal government has frozen new development permits for areas that have been identified within the MRT routes.

Including the existing LRT system works, construction works are estimated at RM43 billion of which 30% would be tunnelling works. The MRT system would take up to eight years to complete. We believe the Gamuda-MMC joint-venture (JV) is a strong contender for the tunnelling works package worth RM13 billion given its track record in undertaking the STORM. Gamuda is also the sole Malaysian contractor to date to have delivered an MRT system in Kaoshiung, Taiwan.

Based on a 50% share of the tunnelling works and a net margin of 10%, this contract should potentially lift Gamuda's fair value by 26 sen or 7% to RM4.08 per share and double its outstanding order book to RM13 billion. We are maintaining our buy rating on Gamuda with an unchanged fair value of RM3.82 per share based on a 5% discount to its sum-of-parts (SOP) value of RM4.03 per share ' AmResearch, June 25


This article appeared in The Edge Financial Daily, June 28, 2010.




TOPGLOV - Top Glove - still fit

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

Top Glove Corp Bhd
(June 25, RM13.38)
Reiterate outperform at RM13 with unchanged target price of RM17.90
: Despite the 9%quarter-on-quarter (q-o-q) earnings slippage due to margin erosion stemming from a time lag in passing on the latex price rise, the group was generally satisfied with its performance for 3QFY8/10.

Sales volume was 1% higher than the previous quarter even though some customers held back orders in hopes of a further fall in latex prices after the rubber wintering season ends.

The US market currently makes up about 28% of Top Glove's sales. The management said that demand from the US has been positive and it expects a further improvement, driven by the healthcare reform and improving economy in that country.

The group also commented that the usage of cleanroom and safety gloves has increased as environmental groups and oil & gas workers have started cleaning up the oil spill in the Gulf of Mexico.

For other markets such as Europe and Latin America, demand has generally been slow over the past few months as customers are waiting for latex prices to come off due to the rubber wintering season. However, Top Glove started seeing some improvement in orders this month despite latex prices holding up above RM7 per kg.

Given that the rubber wintering season has ended and the El Nino effect has eased, global rubber supply had improved in recent weeks. In light of this, Top Glove holds the view that the current latex price of RM7.06 per kg may not hold any longer and is bound to come off soon.

The management continues to believe that global rubber glove demand will show 8%-10% annual growth, backed by the tightening of global healthcare regulations, rising hygiene awareness and new demand from non-medical sectors in developed countries such as the food industry.

It estimates that rubber glove demand will be at about 150 billion pieces this year. As a result, the company is holding firm to its expansion plans which include the progressive addition of 88 lines by May 11. This could raise capacity by 25% from the current 33 billion pieces per annum to 41.3 billion pieces per annum.

Top Glove has RM273 million (90 sen per share) net cash on hand which could be used to finance further expansion, payment of higher dividends and possibly the acquisition of small rubber glove companies around the region particularly Thailand, Indonesia and Malaysia. The management confirms that it is in talks with potential parties and expects deals to be finalised within a year.

For the China market, it expects operations to remain profitable despite rising competition from local players in the vinyl glove market. The company reiterates its target of 30% global market share by end-2010 compared to 23% currently.

We continue to like Top Glove for its demand as the market leader and its focus as a volume player.

Our valuation basis remains a 10% premium over our target market P/E of 15 times, giving us an unchanged market price of RM17.90. ' CIMB Research, June 25


This article appeared in The Edge Financial Daily, June 28, 2010.




PARKSON - Parkson spared the worst of economic crisis last year

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

Parkson Holdings Bhd
(June 25, RM5.66)
Maintain buy at increased target price of RM6.75
: Due to strong spending by the Chinese consumer, Parkson was spared the worst of the economic crisis last year, as its quarterly year-on-year (y-o-y) margins and profit had continued to go up since 1QFY09 despite higher A&P expenses.

Apart from support from its China operation, which recorded a decent 7.5% average same-store-sales (SSS) growth, Parkson saw surprisingly impressive average SSS growth in Malaysia as well as Vietnam. The former achieved a 9MFY10 SSS growth of 10.1% while the latter chalked up 29%, beating guidance of 5%-6% and 20%-25%, respectively.

With the strong retail sales growth in China (Jan-May, +23.7% y-o-y) and Vietnam (Jan-May, +36% y-o-y), we believe Parkson's average SSS growth should remain strong.

With regard to its expansion plan, Parkson's total retail space has expanded by 23.4% year to date( YTD). In FY11, the plan is to open three more stores in China (Zigong, Baoding and Changzhou), three stores in Malaysia (Kuala Terengganu, Festival City and Avenue) and one in Vietnam (Hanoi). These will see total retail space expanding by 8.7% compared to FY10.

The group also expects to inject one of its excluded stores into Parkson Retail Group anytime soon. We raised our earnings forecast by 1.7%-1.8% to factor into our in-house forecast of RMB appreciation of 2% against the ringgit.

Our target price is hence raised to RM6.75 which is based on RNAV of 24 times PE for its China operation, 12 times PE for its Malaysia operation and 10 times PE for Vietnam and excluded stores.

Despite its large exposure in China and high-growth countries such as Vietnam as well as resilient earnings growth even during poor economic conditions, the stock is only trading at 14 times forward PE versus AEON's (a sole local retailer) forward PE of 11 times.

Parkson is our top big-cap pick for the consumer retail sector. ' OSK Research, June 25


This article appeared in The Edge Financial Daily, June 28, 2010.


TENAGA - AmResearch maintains buy call on TNB

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

Tenaga Nasional Bhd
(June 25, RM8.45)
Maintain buy at RM8.45 with unchanged fair value of RM10
: We continue to like TNB due to the following:

(1)'' ''resurgence in power consumption growth which has risen by 10% year-on-year (y-o-y) in 8MFY10. Recall that TNB has registered an impressive consumption growth of 18% y-o-y in April this year (from 12% y-o-y in the previous month) to reach an all-time monthly consumption high of 7,929 Gwh.

(2)'' ''Stronger ringgit outlook, as a 10% ringgit appreciation can raise TNB's earnings by 12%. By the end of the year, our economist expects the ringgit to strengthen to RM3.10=US$1 vis-''-vis our FY10F-FY12F assumption of RM3.30=US$1.

(3)'' ''Improving economies of scale with declining power reserve margin ' at 45% this year. The declining reserve margin essentially means higher economies of scale as operating margins improve on the back of incremental revenues vis-a-vis the group's fixed expenditures. We estimate that every 1ppt increase in TNB's unit sales could lead to a 0.3% ppt improvement in FY11F net margin.

(4)'' ''Potential corporate moves such as bonus issue or higher dividend payout.

(5)'' ''Return of foreign investors to one of the most liquid stocks on Bursa Malaysia. Foreign shareholding has risen to 9.3% currently from 8.6% in February.

Key takeaways from a recent meeting with TNB's president/CEO Datuk Seri Che Khalib and fund managers is that any hikes in electricity or gas prices are unlikely this year given the government's uncertain political will in reducing subsidies.

Also, the government will continue to support TNB in ensuring that higher natural gas costs, if it occurs, will be fully passed through to consumers.

In addition, higher coal costs, around US$90 (RM290.70) per tonne vis-''-vis US$85 per tonne incorporated in the current tariff structure, is likely to be offset by a stronger ringgit.

As for the closed tender for the 2,000MW coal-fired power plant costing RM7 billion, it'' is likely to open in September. TNB has the advantage over the other two bidders given its cheap funding cost and willingness to accept a lower IRR compared with its contenders.

TNB's capex is likely to be around RM4-RM5 billion even with the construction of two hydropower plants in Pahang and Terengganu, given reduced spending of transmission and distribution.

The upcoming 9MFY10 results, expected to be announced on July 14, are likely to be in line with street estimates.

We reiterate our buy call on TNB with unchanged fair value of RM10 per share based on 10% discount to DCF of RM11.10 per share. Valuation-wise, TNB currently trades at an attractive CY10F PE of 11 times compared to its three-year average of 13 times with its peak of 18 times in 2007. ''' AmResearch, June 25


This article appeared in The Edge Financial Daily, June 28, 2010.


GAMUDA - Gamuda upgraded to 'trading buy' at RHB

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

Gamuda Bhd, a Malaysian construction and infrastructure company, was upgraded to "trading buy" from "underperform" at RHB Research Institute Sdn on expectations it may participate in a mass rail project.

Its fair value was raised to RM3.85 from RM2.74, RHB said in a report today. -- Bloomberg