TGOFFS - Acquisition on the cards for Tanjung offshore

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

Tanjung Offshore Bhd
(July 6, RM1.25)
Maintain buy at RM1.26 with lower target price of RM1.40 (from RM1.45): Tanjung Offshore (TOFF) may acquire deepwater assets to move up the value chain. The next deepwater fields (Malikai and Kebabangan) earmarked to come onstream will cost over RM10 billion to develop.

We believe Ekuinas' entry as strategic investor at RM1.30 per share (pending EGM) will place the company on a stronger footing to expand its marine operation through acquisitions. In our view, TOFF can leverage on Ekuinas' financial muscle to acquire assets that were not possible with its own capacity by extending financing or taking strategic stakes in the assets.

Next quarter, 2Q10, will see the full earnings impact from TOFF's fleet of 16 vessels. To recap, in 1Q10 TOFF secured five long-term charter contracts worth about RM265 million for its newbuilds. CITECH, whose losses had weighed down FY09 earnings, has also returned to profit in 2Q10. Overall, we expect strong earnings turnaround in 2010.

We raised FY10-11F earnings by 4% and 7% after imputing higher fleet utilisation as well as interest savings as placement proceeds were used to repay debt. Adjusting for the enlarged share base post placement, our target price is trimmed to RM1.40/share (from RM1.45 previously), pegged to nine times FY11F EPS. Our buy rating is maintained as the stock is still grossly undervalued relative to its peers. Since listing, TOFF has been trading at average 16.9 times PER and 1.5 times PBV. ' HwangDBS Vickers Research, July 6




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

UMW - UMW Toyota not affected by Toyota recalls

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

UMW Holdings Bhd
(July 6, RM6.34)
Reiterate neutral at RM6.24 with target price of RM6.40: The worldwide recall of eight of Toyota's luxury Lexus and Crown Sedan models for an engine fault could affect up to 270,000 cars.

The defective V8 (4.6-litre) and V6 (3.5-litre) engines were installed in eight top-line models, including some hybrids ' Lexus LS460, Lexus LS600h, Lexus LS600hL, Lexus GS350, Lexus GS450h, Lexus GS460 and Lexus IS350 as well as Toyota Crown sedans. The models marked by 'h' are gasoline-electric hybrids.

UMW Toyota Motor will conduct a service campaign to address the improper functioning of valve springs found in some of the V8 (4.6-litre) and V6 (3.5-litre) engines manufactured between August 2006 and July 2008. Because of the defect, there is a small possibility of abnormal noise or unstable idling, and in rare cases the engine could shut down while driving.

There are about 100 units of Lexus LS460 affected in Malaysia. UMW Toyota Motor will notify all owners and will carry out the necessary corrective measures. All other Lexus or Toyota models are not involved. We believe the amount spent on the campaign will not be substantial, given that Lexus sales account for a small fraction, 0.6%, of Toyota's total sales. In our view, however, the recall could adversely affect Toyota's reputation and possibly its market share, as well as dampen the excitement over its upcoming models.

Our FY10-FY11 forecast remains intact. We reiterate neutral with our target price remaining at RM6.40.

We used SOP valuation with the implied FY10 PER for UMW's automotive division at 13 times, oil and gas division at 15 times and manufacturing and equipment division at 10 times. ' Inter-Pacific Research, July 6

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

MAHSING - Maybank IB positive on Mah Sing's Kinrara land deal

Stock Name: MAHSING
Company Name: MAH SING GROUP BHD
Research House: MAYBANK

Mah Sing Group Bhd
(July 6, RM1.69)
Maintain buy at RM1.66 with target price of RM2.20: We are positive on Mah Sing's purchase of 13.2 acres (5.34) of 98-year leasehold residential land in Kinrara for RM35.4 million. The land cost of RM61.60 psf is fair, given: (i) estimated locked-in sales of circa RM44 million (44% of gross development value), (ii) substantially completed infrastructure with no low-cost housing, open space and bumiputera quota requirements, and (iii) its strategic location.

This project, with an estimated RM100 million GDV over three years of development, is expected to boost our FY10/12 earnings forecasts by 2% to 4.5%. There is marginal change to our forecasts; immaterial impact on our RNAV-based target price. Maintain buy.

The land comprises 180 units of vacant terrace house lots. Year to date (YTD), the development has achieved 44% take-up or an estimated RM44 million sales (including booking) since its launch last April. The main infrastructure has been substantially completed by the landowner. We understand that the land is cleared and levelled and is ready for construction to begin. The land is in an established location with good accessibility and amenities, and is surrounded by matured housing townships.

Mah Sing is buying the land from Medan Damai Sdn Bhd, 100%-owned by Mahajaya Bhd. Assuming a pre-tax margin of 15%, as well as raising our earnings forecasts it will raise our RNAV per share by one sen. Upon the completion of the land acquisition, Mah Sing's net gearing is expected to increase marginally from 5% (1QFY10) to 9%.

This is the company's fourth land acquisition in FY10. Mah Sing has has expanded its landbank and enhanced its total GDV by 6.6% and 17.9% to 634 acres and RM5.4 billion, respectively.

Even with these acquisitions, Mah Sing's net gearing remains healthy at 9%. This suggests that there is still significant potential for future landbanking exercises. The management is now studying the potential investment in government lands. ' Maybank IB Research, July 6




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

PLUS - AmResearch maintains 'buy' on PLUS

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

KUALA LUMPUR: AmResearch is maintaining its "buy" call on PLUS Expressways with an unchanged fair value of RM4 per share.

It said on Wednesday, July 7 that at RM4, the share price is pegged to a 15% discount to its DCF value (WACC: 7.5%). This is well supported by strong free cash flow generation and alluring FY10F-12F yields of 5%- 7%.

'Key re-rating catalyst for the stock would include: (i) Stronger-than-expected traffic growth trajectory in 2H 2010; (2) Scheduled tariff hike in 2011F; and (3) Potentially value-accretive investments abroad,' it said.

PLUS EXPRESSWAYS BHD [] (PLUS) announced that Ministry of Works has approved its unit Projek Lebuhraya Utara-Selatan Bhd's (PLUS) request to undertake CONSTRUCTION [] of a fourth lane along certain stretches of its expressways.

The expressways concerned are the North-South Expressway (NSE) and New Klang Valley Expressway (NKVE). The expansion of an additional lane is for certain stretches along both expressways. This would include Shah Alam to Rawang, Shah Alam to Jalan Duta and a section from Nilai (North) to Seremban.

Estimated cost of the project is RM1.1bil. Funding details and further disclosures are currently still under review. However, we reckon PLUS will likely to tap into its existing Islamic Medium Term Notes facilities to raise part of the required funding. We forecast PLUS' net gearing levels at 128% in F10F against 134% in FY09.

APM - AmResearch affirms 'buy' on APM

Stock Name: APM
Company Name: APM AUTOMOTIVE HOLDINGS BHD
Research House: AMMB

KUALA LUMPUR: AmResearch has affirmed its "buy" on APM Automotive Holdings (APM) and maintain its fair value of RM5.40 a share.

It said on Wednesday, July 7 that Nissan Motor Indonesia has announced plans to invest over US$20mil to expand its existing plant in Indonesia.

APM is a key beneficiary of Nissan Motor Indonesia's aggressive expansion plans given its status as a Tier-1 supplier to Nissan Motor Indonesia's via its 50% stake in the JCI-Armada-APM consortium.

Nissan Motors' expansion plan in Indonesia comes hot on the heels of its plans to establish a strategic presence in Vietnam commencing with its first locally assembled model, the Grand Livina. Earnings revision cycle for APM remains strongly intact.

APM's strong net cash position of RM278mil (RM1.38/share) suggests potential special dividends considering available tax credits amounting to RM89mil, which will expire over the next three years.

APM's leverage to the auto sector and solid balance sheet positions it as an inexpensive yet quality alternative exposure to a solid recovery in the auto sector, Ex-cash, APM trades at just 4x FY10F EPS - at 67% and 56% discount to UMW (12x FY10F EPS) and Tan Chong (10x FY10F EPS).

BURSA - Bursa slips on Kenanga Sell call

Stock Name: BURSA
Company Name: BURSA MALAYSIA BHD
Research House: KENANGA

KUALA LUMPUR: BURSA MALAYSIA BHD [] share price fell on Wednesday, July 7 after Kenanga Investment Bank Bhd Research maintained its sell rating on the stock and price target of RM6.90.

At 10.25am, Bursa shares shed three sen to RM6.92 with 35,700 shares traded.

Kenanga Research said its sell rating was mainly due to FBM30 [] was trading at rich valuation of 15 times forward PER, suggesting that the market had limited upside from here.

'As a result, we see market has little excitement to further boost Bursa ADT (average daily trading) from here.

'Upside potential for the ADT appears limited now and the noise levels from the external front have the capability to drag the turnover lower than here,' it said.

PROTON - HwangDBS keeps 'buy' call on Proton, MBM

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

HwangDBS says Proton's share price to remain attractive and maintains its RM4.85 price target.

This it said is due to the higher utilisation rate of Proton plants from higher sales due to exports and strategic partnership.

Meanwhile, HwangDBS reiterates a buy call for MBM. It said that the healthy Perodua sales and a RM20 million budget to beef-up showrooms and service centres for luxury lines (eg Volvo and VW) are signs of better times ahead. - Reuters

TM - TM sets UniFi target

Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Research House: OSK

Telekom Malaysia Bhd
(July 5, RM3.36)
Maintain neutral at RM3.35 with a target price of RM3.28: According to news reports over the weekend, TM set a target of 6% to 8% subscribers out of its total of 750,000 premises for its high-speed broadband service, UniFi, by end-2010. It was reported that there are currently close to 5,000 subscribers comprising residential and business customers. TM added 18 new exchange areas in July to complement the four residential areas in which the service was rolled out on March 24.

The target of 60,000 subscribers by year-end reflects the maiden guidance from management and implies a monthly addition of about 7,000 to 9,000 per month, or 1,600 to 2,200 subscribers per week, in 2H2010. This compares with our forecast of 20,000 subscribers by end-2010 (premised on 2,500 additions per month from July-December) and the current Streamyx gross additions of about 5,000-7,000 per week. We consider the target to be somewhat stretched as: (i) UniFi's addressable market comprises existing Streamyx users, who are paying RM70-RM90 per month on average; (ii) the fact that UniFi is positioned as a niche product (subscription starts from RM149 per month); and (iii) potential inbound competition from Maxis (see point below). It would suggest that management is eyeing a bigger proportion of subscribers upgrading from their current Streamyx plans. In our June 29 report on TM, we said that the take-up on UniFi may have been diluted by the current 'Super Upgrade' promotion, which is a retention programme devised by TM to compel existing subscribers to upgrade to higher tier plans and the 'Blockbuster' promotion, which is a bundled package offering fixed line and broadband.

Maxis has revealed its intention to roll out high-speed broadband and IPTV to homes by 3Q2010, which in our opinion could pose a longer term threat to TM given that it could potentially bundle mobile services and content from sister company, Astro, effectively providing a quadruple-play value proposition to subscribers. Maxis has immediate access to 12 million mobile subscribers and three million pay-TV (Astro) subscribers to up-sell its services versus TM's 1.3 million premises targeted by UniFi under Phase 1 by end-2012. Maxis is currently in discussion with TM on the lease of wholesale access from UniFi and previously said it could roll out its service to 65,000 premises by end-3Q2010.

We are maintaining our projection on UniFi at this juncture and see revenue from the new service contributing a small 0.8%-2% of TM's group revenue over the next two FYs. The key risk to our forecast is the higher than anticipated take-up in the following months. TM remains a neutral due to its expensive valuations, trading at 19.5 times FY2011 earnings, amid emerging concerns over a potential threat from Maxis, which is also rolling out its fibre-to-the-home (FTTH) service. Maxis benefits from a strong brand name, marketing track record and compelling content from Astro. ' OSK Investment'' Research, July 5


This article appeared in The Edge Financial Daily, July 6, 2010.

GAMUDA - RHB Research upgrades construction sector to overweight

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

Construction sector
Upgrade to overweight: We are upgrading the construction sector to overweight from neutral as we foresee construction stocks will generally outperform the market in 2H2010, buoyed by news flow, particularly, from: (1) The RM36 billion KL mass rapid transit (MRT) project; (2) The RM7 billion Ampang and Kelana Jaya light rail transit (LRT) line extension project; and (3) Federal land deals.

Gamuda to ride on news flow from KL MRT. A series of events with regards to the KL MRT can buoy Gamuda's share price including: (1) the expected almost daily doses of news and commentaries on the project; (2) Cabinet approval; (3) the thumbs up for the project from businesses and the public; and (4) the commencement of the actual physical works.

Also, the market is likely to react positively to the announcement on the formal awards of federal land parcels to 'master developers' and the subsequent farming out of the subdivided smaller land parcels to various developers. Given the scale of the projects and that most construction boys are already involved in the property business, they are likely to get a slice of the action.

While we believe the market is fully aware that certain negative elements are still lingering in the sector, we feel that it is likely to 'brave' these negative elements and forge ahead with its move to position itself ahead of the curve, underpinned by the collective 'buy-first-on-news' mentality.

Our top 'tactical' pick for the sector is Gamuda (trading buy, FV = RM3.85) as we believe its share price will be buoyed by the sustained news flow from the RM36 billion KL MRT project. Our top 'value' pick for the sector is Sunway (outperform, FV = RM2.35) due to its undemanding valuation of 7-8 times 1-year forward earnings on a fully-diluted basis, coupled with its strong earnings visibility stemming from its firm construction margins and growing non-construction profits. ' RHB Research Institute, July 5


This article appeared in The Edge Financial Daily, July 6, 2010.

JOBST - Strong earnings momentum to continue in 2Q2010

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

JobStreet Corporation Bhd
(June 30, RM2.03)
Maintain buy at RM2.03 with a target price of RM3.30: Resumption of hiring as regional economies recover will continue to drive earnings momentum in 2Q2010. Malaysia, which commands more than 60% of group revenue, posted an average of 16,000 to 17,000 jobs per month on JobStreet's portal for April to June against 13,000 to 14,000 per month (+23% quarter-on-quarter) in January-March. Singapore also shows strong job posting sales of about 18,000 jobs currently, close to its all-time high, and higher than 1Q2010's 14,000 per month. 2Q2010 will also benefit from maiden associate earnings from 104 Corp, in which the group has a 20% interest.

Potential sales and market share gain with more marketing spends. JobStreet embarked on its aggressive marketing plan in April this year to build brand awareness mainly in Singapore. It plans to spend about 5% of sales in marketing, still a far cry from its major shareholder SEEK Ltd's 25%-30% of sales. JobStreet advertises in places with high public visibility such as the MRT, buses and taxis. While it is still early days, we understand it is closing its gap with JobsDB to 2,000 jobs posted per month, down from a 3,000 to 4,000-job gap previously.

Migration from print to online job advertising will boost online postings as: (i) broadband penetration increases; and (ii) more adoption of portable gadgets such as iPhone and iPad. The Malaysian government expects the broadband penetration rate to reach 75% by end-2015 (from 31% in 2009). According to a World Bank study, a 10% increase in household broadband penetration can raise GDP growth by more than 1%. Maintain buy on JobStreet with a RM3.30 target price based on 1 times PER. It is currently trading at 25% discount to its regional peers. ' HwangDBS Vickers Research, July 5


This article appeared in The Edge Financial Daily, July 6, 2010.

LMCEMNT - Lafarge mulls minority stake sale

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

Lafarge Malayan Cement Bhd
(July 5, RM6.49)
Maintain hold at RM6.60 with target price of RM6.40: French parent, Lafarge SA, is considering selling up to 11.2% of its total 62.2% stake in LMC to pare down its net debt of '14.6 billion (RM59 billion). We remain neutral on LMC as it is already trading at peak-cycle EV/tonne among Malaysian cement producers. Hence, we believe there will not be much upside to the valuation for any potential sale of a minority stake. Target price of RM6.40 (12 times 2011 PER) is retained.

Post-disposal, Lafarge SA would remain the majority shareholder, with a minimum 51% shareholding. It would also retain management control of LMC. There is no indication of who the potential buyer is yet. This stake sale, worth RM628 million based on last Friday's closing price, is part of Lafarge SA's 2010 divestment programme.

In June 2009, there were news reports that Indonesia's largest cement maker, PT Semen Gresik (Gresik), planned to acquire Cement Industries Malaysia Bhd (CIMA). Gresik indicated that it had set aside more than IDR3 trillion (RM1.25 billion) for a 2-3mmt local cement maker (size of CIMA or Tasek), but no such transaction has occurred. We do not think Gresik is the potential buyer for a minority stake in LMC as: (i) Gresik should be looking for a controlling stake to create synergy with its group; and (ii) given that Gresik exports its extra capacity and is ramping up its capacity (+26% by 2012) for domestic growth, we believe its acquisition aim is not to raise supply in the Indonesian market, but to derive a central coal procurement strategy. Among the largest four Malaysian cement makers, only LMC has an Asia-Pacific coal procurement arm, through the Lafarge Group.

Potential buyers could be the bumiputera funds, but we note that LMC was not able to meet the Foreign Investment Committee's requirement for a minimum bumiputera interest in the past, and LMC was granted an exemption for the bumiputera equity requirement in February 2009. We see little upside to its current share price, as its current peak-cycle EV/tonne valuation of US$207 is at a 74% premium to its local peers. LMC's EV/tonne discount of 28% to its Indonesian peers is also justified by a low domestic growth and overcapacity environment. ' Maybank IB Research, July 5


This article appeared in The Edge Financial Daily, July 6, 2010.

SUNWAY - RHB Research upgrades construction sector to overweight

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

Construction sector
Upgrade to overweight: We are upgrading the construction sector to overweight from neutral as we foresee construction stocks will generally outperform the market in 2H2010, buoyed by news flow, particularly, from: (1) The RM36 billion KL mass rapid transit (MRT) project; (2) The RM7 billion Ampang and Kelana Jaya light rail transit (LRT) line extension project; and (3) Federal land deals.

Gamuda to ride on news flow from KL MRT. A series of events with regards to the KL MRT can buoy Gamuda's share price including: (1) the expected almost daily doses of news and commentaries on the project; (2) Cabinet approval; (3) the thumbs up for the project from businesses and the public; and (4) the commencement of the actual physical works.

Also, the market is likely to react positively to the announcement on the formal awards of federal land parcels to 'master developers' and the subsequent farming out of the subdivided smaller land parcels to various developers. Given the scale of the projects and that most construction boys are already involved in the property business, they are likely to get a slice of the action.

While we believe the market is fully aware that certain negative elements are still lingering in the sector, we feel that it is likely to 'brave' these negative elements and forge ahead with its move to position itself ahead of the curve, underpinned by the collective 'buy-first-on-news' mentality.

Our top 'tactical' pick for the sector is Gamuda (trading buy, FV = RM3.85) as we believe its share price will be buoyed by the sustained news flow from the RM36 billion KL MRT project. Our top 'value' pick for the sector is Sunway (outperform, FV = RM2.35) due to its undemanding valuation of 7-8 times 1-year forward earnings on a fully-diluted basis, coupled with its strong earnings visibility stemming from its firm construction margins and growing non-construction profits. ' RHB Research Institute, July 5


This article appeared in The Edge Financial Daily, July 6, 2010.

PETRA - Petra Perdana sees entry of new shareholder Nam Cheong

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

Petra Perdana Bhd
(July 2, RM1.24)
Maintain outperform at RM1.28 with lower target price of RM1.92 (from RM1.96): Petra Perdana has completed the 10% private placement of new shares to Nam Cheong. Priced at RM1.32 per share, the exercise raised RM39.3 million worth of gross proceeds, which will be used as the deposit for two new vessels.

The new shares was listed July 2. We scale back our FY2010-12 EPS forecasts by 2% to 5%, as contribution from the two new vessels cannot fully offset the dilution from the new shares.

Consequently, our sum-of-parts (SOP)-based target price is lowered from RM1.96 to RM1.92. Petra Perdana remains an outperform, with the potential re-rating triggers being 1) an end to the boardroom tussle, 2) delivery of new vessels, and 3) improved vessel utilisation rate.

Petra Perdana raised gross proceeds of RM39.3 million from the private placement exercise. The proceeds will be used to pay for the deposit of two new vessels, namely Petra Marathon and Petra Superior.

Petra Marathon is a 12,240HP anchor handling tug supply vessel while Petra Superior is a work barge that can accommodate 300 men. Essentially, a work barge is a 'floating hotel'.

The shareholders approved Petra Perdana's proposal to place out new shares to Sarawak-based shipbuilder Nam Cheong at the June 28 AGM.
We view positively the entrance of Nam Cheong as a major shareholder. Nam Cheong has access to shipyard capacity in Malaysia and China, which Petra Perdana could tap for its ongoing fleet expansion.

Nam Cheong is an experienced and reliable builder, supplying vessels not just to Petra Perdana but also to Kencana Petroleum, Bumi Armada, Borcos and Lembaga Tabung Haji's TH Tech, among others.

Following the placement, Nam Cheong is now Petra Perdana's fifth-largest shareholder. It will, however, not be able to vote when the AGM continues on July 20 and deliberates on the re-election of four directors, namely MD Shamsul Saad, Surya Hidayat Abdul Malik, Raja Anuar Raja Abu Hassan and Idris Zaidel.

[Petra Perdana issued a statement last Friday, announcing that the reconvened AGM would consider Resolution 11 on the election of Hamdan Rasid (a Lembaga Tabung Haji representative) and additional Resolutions No 12, 13 and 14 regarding the election of (nominees) Datuk Syed Norulzaman Syed Kamarulzaman, Suhaimi Badrul Jamil and Datuk Shaik Sulaiman S Mohamed Ismail]
The nominees were originally rejected on the grounds that they did not meet the minimum 5% shareholding requirement.

The new shares dilute our earnings forecasts by 4.8% in FY2010 and 9.1% in FY2011-12, but contribution from the two new vessels partly offsets the dilution. Imputing the earnings dilution from the new shares and contribution from the new assets, we reduce our EPS forecasts by 2.5% in FY2010, 3.2% in FY2011 and 4.1% in FY2012.

The earnings downgrade has the effect of lowering our SOP-based target price from RM1.96 to RM1.92. Nonetheless, we hold the view that Nam Cheong will prove to be a strategic partner for Petra Perdana.

Congestion at the shipyard is often cited by marine support players as the cause of delay in vessel deliveries. With Nam Cheong as a major shareholder, the risk of late deliveries by Petra Perdana could lessen. As at March 31, Petra Perdana's net tangible asset stood at RM1.70 per share. ' CIMB Research, July 2

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This article appeared in The Edge Financial Daily, July 5, 2010.

GENM - Another related party transaction at Genting

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

Genting Malaysia Bhd
(July 2, RM2.62)
Maintain buy at RM2.74 with lower target price of RM3.40: Genting Malaysia is buying Genting Singapore plc's UK casino operations (Genting UK) for ''340 million (RM1.67 billion) at 1.2 times price-to-book value and enterprise value/earnings before interest, taxes, depreciation and amortisation of 11.5 times.

The rationale is that it provides access into the UK and European Union gaming market at reasonable valuations given the clean up and cost down process that Genting Singapore had undertaken over the years. Transaction should be completed towards end-2H10 and subject to approval of shareholders of Genting Malaysia and Genting Singapore, who are not connected to the companies' controlling shareholders or senior management team.

As such, dissenting shareholders still can frustrate the transaction if they secure sufficient votes. Bank Negara Malaysia's approval to make payment to a foreign party is also required. In the UK, special consent is also needed from the Gaming Commission to change the ownership of casinos. The transaction will be fully financed by internal funds. Net cash hoard, which stood at RM5.27 billion at end-1Q10 will be reduced to RM3.61 billion but we do not think that historical dividend of seven sen to nine sen per annum will be affected.

Original investment of ''699 million (RM3.43 billion) was written down to ''289 million at the latest Genting Singapore 1Q10 quarterly announcement. This would reduce the risk of a large impairment in the near future, especially since the UK casino market is turning around.

We are maintaining our FY10 and lowering FY11 net profit forecast by 6.8% to RM1.23 billion from RM1.32 billion.

Maintain buy with lower target price of RM3.40. With RM3.6 billion left, the group will actively continue to evaluate business opportunities. While we believe share price may react negatively to the proposed acquisition, the fundamental valuation remains intact. ' Kenanga Research, July 2

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This article appeared in The Edge Financial Daily, July 5, 2010.

CAROTEC - Risks at Carotech materialise

Stock Name: CAROTEC
Company Name: CAROTECH BHD
Research House: OSK

Hovid Bhd
(July 2, 17 sen)
Downgrade to sell at 20.5 sen with lower target price of 21 sen (from 28 sen): Hovid announced on Bursa Malaysia on July 1 that its 58%-owned subsidiary Carotech has defaulted on its principal and interest servicing in respect of certain banking facilities from financial institutions.

According to Hovid, it does not have any obligation with regard to the defaulted loans by Carotech. The latter is currently working directly with the financial institutions with assistance from the Corporate Debt Restructuring Committee (CDRC) to construct and implement a Debt Restructuring Plan.

As we had been highlighting in our previous reports, Carotech's high-net-gearing level exceeding 1.5 times was of grave concern, although the stock trading was at an attractive price-earnings ratio (PER).

Although Hovid does not have any obligation on the defaulted loans by Carotech, we believe the default may trigger a cross default with regard to Hovid's other lenders. Other than the interest costs, Carotech is also exposed to forex risk given that the bulk of its borrowings is in US dollars.

To recap, between 2006 and 2008, Carotech invested more than RM300 million to increase its capacity from 18,000 tonnes to 120,000 tonnes per annum to cater to increasing demand for phytonutrients and oleochemical products as the time.

However, the significant increase in commodity prices in late 2008, particularly the price of crude palm oil (which is the main material for Carotech's products), and the subsequent global economic turmoil dampened underlying demand and reduced the Carotech's ability to generate the cash flow to meet its debt obligations.

As such, we believe the default arose mainly due to over-expansion of capacity, a significant rise in working capital and the company's inability to clear stocks owing to reduced demand arising from poor economic conditions in Europe and the US, which are its major markets.

With such developments, we have cut our PER valuation from eight times to six times PER on FY11 earnings per share and arrive at a lower target price of 21 sen from 28 sen previously.

Despite the lack of downside on the stock, we have downgraded our recommendation from trading buy to sell, due to the negative sentiment arising from the default and amid uncertainties on the future. ' OSK Investment Research, July 2

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This article appeared in The Edge Financial Daily, July 5, 2010.

SUNWAY - Malaysia construction sector upgraded

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

Malaysia's construction industry was upgraded to "overweight" from "neutral" at RHB Research Institute Sdn Bhd on expected government rail and land contracts.

Gamuda Bhd was named RHB's top tactical pick as it may win a mass rail project in Kuala Lumpur, the research house said in a report today. RHB rates the stock "trading buy" with a fair value of RM3.85.

Sunway Holdings Bhd was its top value pick with an "outperform" rating and fair value of RM2.35, the report said. -- Bloomberg

GAMUDA - Malaysia construction sector upgraded

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

Malaysia's construction industry was upgraded to "overweight" from "neutral" at RHB Research Institute Sdn Bhd on expected government rail and land contracts.

Gamuda Bhd was named RHB's top tactical pick as it may win a mass rail project in Kuala Lumpur, the research house said in a report today. RHB rates the stock "trading buy" with a fair value of RM3.85.

Sunway Holdings Bhd was its top value pick with an "outperform" rating and fair value of RM2.35, the report said. -- Bloomberg

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

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.