ZHULIAN - Zhulian en route to a promising start

Stock Name: ZHULIAN
Company Name: ZHULIAN CORPORATION BHD
Research House: INTER PACIFIC

Zhulian Corp Bhd
(July 15, RM2.68)
Recommend outperform at RM2.73 with target price of RM3.45: We recommend outperform with our target price at RM3.45 based on FY2011's EPS tagged to a PER of 11 times based on the average of Amway and Hai-O.

Zhulian Corp 1HFY2010 topline is in line with our expectations, accounting for 48% of our FY2010 forecast. Zhulian is expected to perform better in 2H owing to the various festive seasons that will spur consumer spending. The company announced its second interim dividend of three sen per share, making a total of six sen per share. We project Zhulian's FY2010 dividend payout to be at 15 sen per share.

Although Zhulian's topline rose by 5.9% year-on-year (y-o-y) to RM77.9 million in 2QFY2010, their profit from operations fell by 14.9% y-o-y to RM13.9 million. This is due to a drop in operating margins by 19.7% y-o-y to 17.8%. The drop in profit from operations is expected as Zhulian conducts its yearly marketing activities in 2Q. Zhulian's quarter-on-quarter revenue fell by 9.7% to RM77.9 million due to weaker overseas demand. The political unrest in Thailand is believed to be the cause, given that the Thai market garners about 40% of Zhulian's sales.

We remain vigilant on Zhulian's ability to gather members due to stiff competition in the MLM industry. Festive seasons in 2H2010, coupled with signs of political stability in Thailand and firm gold prices, should lend support to boost demand for cheaper alternative like Zhulian's costume jewellery. ' Inter-Pacific Research, July 15


This article appeared in The Edge Financial Daily, July 15, 2010.

HELP - HELP: Well balanced education

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

HELP International Corp Bhd
(July 15, RM3.50)
Maintain buy at RM3.40 with higher target price of RM4.30 (from RM3.58): Other than the recently announced joint venture in China, HELP has already established its presence in other overseas markets, such as Indonesia and Vietnam, largely through franchising and licensing of its courses. As part of its internationalisation plan, HELP will establish its presence in Australia, Cambodia and'' Thailand.

With the internalisation plan is well in place, we would not, be surprised if within a few years time its overseas business overtakes its local business in terms of revenue and earnings contribution to the group.

Started as a single-facility institute, HELP is progressively moving towards a multi-facility city university model with the establishment of several new facilities in different locations.

We believe, other than to overcome capacity constraints by boosting its student capacity, this will enable HELP to capture different market segments and demographics based on location and diversify its student profile.

We are switching our valuation parameter from residual income model (RIM) to PER valuation as we have opted for a short-term view horizon in order to capture HELP's rapid growth strategy over the next few years.

RIM generally assumes steady growth potential despite the fact that HELP is still in the growth phase.

In order to reflect its strong and clean balance sheet we have added its net cash value per share together with the PER valuation to arrive at our target price.

Based on 14 times PER on FY2011 EPS, plus a net cash value per share of 68 sen, we arrived at a higher target price of RM4.30 from RM3.58 previously.

With the sizeable upside, we maintain our buy recommendation at a target price of RM4.30. We believe the potential corporate exercise involving the group could provide short-term upside catalyst for HELP while its growth prospects will sustain its long-term upside catalyst. ' OSK Research, July 15


This article appeared in The Edge Financial Daily, July 15, 2010.

CSCSTEL - CSC Steel riding through volatility on back of the dividend giant

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

CSC Steel Holdings Bhd
(July 15, RM1.65)
Initiating coverage with buy call at RM1.60; fair value of RM1.96: We initiate coverage of CSC Steel Holdings (CSC) with a buy on fair value of RM1.96 ' pegging FY2011F BV/share at 15% premium to CSC's long-term average P/B of 0.7 times. This factors in: (i) potential deployment of CSC's excess cash to help fund parent, CSC Corp's expansion plans in Vietnam; and (ii) its strategic positioning within Malaysia's cold rolled coil (CRC) supply chain. its current net cash consists of 48% of current price.

From record average earnings before interest, tax, depreciation and amortisation (Ebitda) margins of 20% over the past three quarters, we expect margins to normalise as CSC draws down on lower-priced inventories secured last year. But, we foresee margins remaining decent at 12% to 13% ' above the industry average of 10% ' thanks to better sales mix of higher-end products and preferential hot rolled coil (HRC) input pricing from its parent.

We project CSC to post moderate earnings growth at 6% to 9% in FY2010-12F as the group benefits from record property sales in 4Q2009 and Malaysia's best automotive season (FY2010F total industry volume in-house forecast to grow 6% year-on-year). In line with a recovering economic outlook, we project average mill utilisation rate at 68% in FY2010F (FY2009: 63%), rising further to 69% to 74% in FY2011-12F.

Admittedly, there are near-term concerns over the volatility of iron ore prices which are widely expected to rise around 30% from July quarter contracts. Another issue would be lingering fears of excess Chinese inventory coming into the Asean market.

These transitory instabilities should be ridden out via: (i) restocking of Shanghai inventories from 4-month low levels; (ii) abolishment of China's export rebates; (iii) no capacity expansion under Chinese regulations until 2011; and (iv) a recent indication by major HRC producers to pass down increasing costs. We gather that prices of the group's CSC products are stickier downwards and that they fare better in a stable input price environment.

We observe that since 1Q2009, the widening of HRC-CRC spread was at a 4-year high, staying above 25%. Average spread was 45% 1Q2010, before easing to 34% in 2Q2010. We believe CRC premiums in the range of 25% to 30% will provide downstream flat players with margin breathers.

As CSC's products are negotiated on a monthly basis, this allows for better cost and inventory management. On our estimates, every RM100/tonne increase in CRC prices would lift the group's FY2010F-11F earnings by 11% to 13%. But prospects for additional capacity kickers for CSC appear remote, with no major capex programmes in the near term. Instead, parent CSC Corp is expanding its regional footprint via Vietnam instead of Malaysia.

Just based on the group's minimum payout of 50%, we project CSC's FY2010F-12F yields to be an attractive 8.2% to 9.5%. With no major capex plans, FY2011F net cash is expected to swell to RM1.11 per share providing more room for capital management upside. Despite enjoying a strong run-up in its share price, CSC trades at an ex-cash PER of only three times with further valuation support coming from its proactive share buyback policies. ' AmResearch, July 15


This article appeared in The Edge Financial Daily, July 15, 2010.

TENAGA - Tenaga results dampened by coal cost, provisions

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

Tenaga Nasional Bhd
(July 15, RM8.60)
Maintain outperform at RM8.61 with lower fair value of RM10.20 (from RM10.50): Excluding forex gains of RM573 million, Tenaga's 3Q results were broadly in line with our and consensus estimates with 9MFY2010 core net profit of RM2.1 billion (+21.8% year-on-year) accounting for 70% to 73% of our and consensus FY2010 net profit forecasts.

We expect 4Q results to benefit from stronger demand (typically stronger in 4Q) as well as the absence of provision for vacated accounts of RM63 million booked in 3Q, partly offset by higher coal cost. As expected, Tenaga did not declare any dividend.

Quarter-on-quarter (q-o-q), electricity unit sales for Peninsular Malaysia rose 5.1% led by the domestic (+13.6% q-o-q) and commercial (+5.3% q-o-q) segments. The demand from the industrial segment was flattish q-o-q due to the shorter working period for February (reflected in March's billings).

Core pre-tax profit, however, slipped by 37.6% q-o-q resulting from a combination of the abovementioned provision for vacated accounts and higher generation cost due to: (i) higher generation from coal-fired plants (3QFY2010: 43.6% of total generation against 2QFY2010: 36.9%); and (ii) higher average coal cost (3QFY2010: US$91.6/tonne against 2QFY2010: US$82.2/tonne). According to the'' management, gas supply was capped between 900 and 1,100mmscfd in 3Q due to scheduled maintenance. Gas supply in 4Q is likely to average similar levels.

Year-to-date (September 2009-June 2010) unit sales growth stood at +9.9% y-o-y, and with June electricity demand still up in double digits (+11% y-o-y) the management raised its FY2010 demand growth guidance to 10% from 7% to 8%. As for coal, pricing for the bulk of FY2010's requirement has been locked in and is expected to average at an unchanged US$90/tonne. Finally, the implementation of Pemandu's gas subsidy revision proposal is a matter of timing according to the management.

However, in addition to the revision in electricity tariffs for the higher gas price, the management believes this could be accompanied by a base tariff review and fuel cost pass-through formula. Both of these, if they materialise, would be a major re-rating catalyst for Tenaga.

Risks to our view include: (i) slower-than-expected demand growth; (ii) depreciating ringgit; and (iii) rise in coal prices.

We toned down our FY2010-12 net profit forecasts by 1.6% to 3.8% largely after adjusting for: (i) demand growth assumptions; (ii) generation mix; and (iii) provision for doubtful debts (FY2010).

Following the earnings revision above, our indicative fair value has been lowered to RM10.20 from RM10.50, based on target FY2011 PER of 13 times.

Outperform call on the stock, however, is unchanged. ' RHB Research Institute, July 15


This article appeared in The Edge Financial Daily, July 15, 2010.

SEG - CIMB Research: Sell on SEGi at RM1.94

Stock Name: SEG
Company Name: SEG INTERNATIONAL BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research has a Sell call on SEG INTERNATIONAL BHD [] at RM1.94.

It said on Friday, July 16 prices have rallied strongly to a high of RM2.06 on Wednesday, where a spinning top was formed. Again, here it sees signs that this uptrend is slowing down.

"MACD Histogram and RSI show bearish divergence which is usually a precursor to a reversal. At this point, it is still possible to climb towards the RM2.06-2.10 levels but we doubt the sustainability of it.

"Another bearish candle today could confirm that prices are taking a breather in the days and weeks ahead. A minimum retracement is about its 38%FR, which is around the RM1.40 levels. Bulls should remain vigilant in the days ahead," it said.

At RM1.94, the education service provider is trading at price to book value of 2.7 times.

BURSA - No near term catalyst for Bursa Malaysia: HDBSVR

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

KUALA LUMPUR: HwangDBS Vickers Research (HDBSVR) expects Bursa Malaysia, which will announce its 2Q earnings on Friday, July 16, to be weak, dragged by lower turnover value, volume and velocity.

The research house lowered FY10-12F earnings by 10-11% to reflect the softer market. Capital market activities were slower than expected.

"Valuation is demanding at 26x forward PE vs Asian market average of 24x and with no near term re-rating catalyst. Maintain Fully Valued and lowered TP to RM6.20," it said.

HDBSVR said Bursa's 2Q's average daily turnover volume dropped 20% to 788m (vs 1Q's 986m) while average daily turnover value fell 16% to RM1.16bn (vs 1Q's RM1.38bn).

For 6M10, average daily value held up well at RM1.26bn (with the exception of June which fell 31% m-o-m to RM907m). This was in line with the research house's full year estimate of RM1.23bn.

"However, the average daily volume fell short of our estimates (6M10 at 883m vs ours at 1.03bn) due to lower trade volume by retailers and trading of large cap stocks by institutions.'' Derivatives trading remained soft as volume fell 6% q-o-q. ''

"Capital market activities in 2Q were slower than expected especially in the equity front with only RM688m raised from secondary listings and IPOs (vs 1Q's RM5.1bn) despite having 9 IPOs in 2Q vs 3 in 1Q. However, debt market improved with RM15.3bn raised vs RM4.7bn in 1Q," it said.

HDBSVR said given the lackluster data, it expects weaker revenue from equity, derivatives and stable income. We estimate velocity of 29% and net profit of RM20-25m for 2Q.

"We lowered our earnings by 10-11% after reducing our average daily trading volume assumptions by 13% for FY10-12 to 896m, 986m and 1.1bn, respectively. Our FY10-12 average daily value assumptions remained unchanged at RM1.2bn, RM1.3bn and RM1.5bn, respectively.

"We have also cut our velocity assumption to 30% from 35% to reflect a softer market. Our TP is lowered to RM6.20 based on 23x FY11F EPS (previously 25x), the target multiple is derived from a correlation relationship with market velocity. Our TP is consistent with DDM valuation," it said.

AEON - Aeon Malaysia rating cut to 'neutral'

Stock Name: AEON
Company Name: AEON CO. (M) BHD
Research House: OSK



Aeon Co (M) Bhd, the Malaysian arm of a Japanese retailer, was cut to "neutral" from "buy" at OSK Research Sdn Bhd on concern it may need to shut one of its stores in Selangor state.

Its share forecast was reduced to RM5.42 from RM5.62, OSK said in a report today. -- Bloomberg

GENM - Worst over for Genting Malaysia?

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

KUALA LUMPUR: Nomura Securities Research Malaysia says the worst is over for Genting Malaysia (GentingM) after the recent sell down and downgrades by the market.

"We believe that all the bad news has been priced in. Fundamentally, we see earnings upgrades as the key catalyst going forward," it said on Thursday, July 15.

Trading at 4x FY11F EV/EBITDA, the research house said GentingM looked appealing on a risk-reward basis. Its proposed acquisitions of UK and US casinos will exhaust most of its cash, removing the overhang of concern on its plan for its huge cash reserves. Upgrade to BUY; target price RM3.70.

The consensus earnings upgrades post 2Q10 earnings, scheduled to be released in August 2010, would likely trigger a re-rating of the stock.

GentingM offers investors good exposure to the strong and rising domestic consumption story. Competition for its mass market business is likely to be shortliv! ed. Its domestic operation should continue to generate strong cash flows.

Nomura Research said GentingM's latest move, of proposing to spend most of its cash reserves on two acquisitions, confirmed its view that paying out its cash reserves in the form of higher dividends was the last thing it was contemplating.

The research house said after a series of downgrades by the Street attaching zero value to its cash reserves, there is nothing much left for the market to discount. The latest move also helped remove an overhang on its intention for its cash reserves.

FABER - Faber a more visible GLC

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

Faber Group Bhd
(July 14, RM2.89)
Maintain buy at RM2.87 with target price RM3.55: We think the news that UEM wants to dispose its stake in Faber is at best a rumour. While management is not privy to the corporate moves of UEM/Khazanah, we see Khazanah's tussle for SGX-listed Parkway as an indicator that it is not willing to relinquish control of the facilities management (FM) healthcare business locally.

In our view, Khazanah will use Faber as the listed vehicle to monetise the embedded value of Pantai's concession, while also giving the listed entity immediate enlargement in market capitalisation, scale and market penetration. Based on our estimates, the merger with Pantai could see FM revenue rising by 21% with a higher market share of 68%, against 50% currently, of the local healthcare FM business.

Faber has been making inroads in the non-healthcare FM segment, which accounted for 3% of FY2009 revenue. While contract wins YTD for this segment have been small, it has the potential to expand. It has clinched cleansing works for the LRT worth RM4 million per annum (pa) and also potentially a RM2 million pa contract for Tesco. On the overseas front, its Dh66 million (RM57.5 million) contract in Abu Dhabi to provide civil, maintenance and electrical maintenance services for low-cost housing has been renewed for another year and it recently clinched a RM20.4 million new contract in Abu Dhabi. We estimate every RM50 million increase in new UAE contracts pa will lift FY2010F/11F EPS by 7% to 8%. In India, Faber was awarded its maiden contract with Fortis, but the contract is small at just RM2.2 million pa for three hospitals. More importantly, this puts it in good stead to bid for more contracts with Fortis, which has 37 hospitals in North India.

Our sum-of-parts-derived target price is RM3.55, implying 13.6 times CY2011F EPS and 2.4 times CY2011F BV. The 2Q2010 results due out early August are expected to show sequential improvement buoyed predominantly by property. We expect a stronger 2H2010 supported by contributions from recent FM wins and stronger property earnings (recent RM136 million Taman Desa launch is 70% sold).

This should underpin confidence on meeting its 2010 KPIs. Faber should be notified regarding the potential renewal of its concession agreement in October 2010, another potential catalyst. ' HwangDBS Vickers Research, July 14


This article appeared in The Edge Financial Daily, July 15, 2010.

AFFIN - Affin legal suit may dent 2QFY10 results

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

Affin Holdings Bhd
(July 14, RM3.07)
Maintain outperform at RM3 with fair value RM3.55: Affin announced on July 13 that after the decision of the High Court on a legal case, it has paid RM48.2 million to Maybank.

This is a long outstanding case (initiated in 2000) relating to a dispute between Maybank's predecessor-in-title, PhileoAllied Bank, and Affin's predecessor-in-title, BSN Commercial Bank, with regards to rights over a mutual customer's collateral that consisted of shares. In November 2002, the High Court ruled that Maybank had priority over the shares and Affin had to deliver the shares or payment of the proceeds if the shares had been sold. On May 31, 2010, the High Court allowed Maybank's subsequent application for monetary judgment and Affin was ordered to pay RM30 million plus interest from December 2002. Affin complied with the High Court ruling, although we also note that Affin has appealed the ruling and is currently waiting for a hearing date.

The risks include: (i) slower-than-expected loan growth; (ii) deterioration in asset quality; and (iii) changes in market conditions that may adversely affect investment portfolios.

According to Affin's 1QFY2010 results announcement, no provision had been made with respect to this court case. Hence, a provision for the RM48.2 million (or 3.2 sen per share) could be incurred in the upcoming 2Q results. While this charge could impact our FY2010 net profit forecast by 11.5% (8.8% if the amount is tax deductible), we are keeping our earnings forecasts unchanged as we view this as a one-off charge.

Our indicative fair value of RM3.55 remains unchanged and is based on target CY2011 PER of 13 times. With better consistency in earnings over the last six quarters as well as improvement in asset quality, the Group's prospects appear bright, in our view. We see a potential for recurring earnings to surprise on the upside ahead, which could come from stronger-than-expected loan growth (management targets FY2010 loan growth of 13% to 15% against our 8.3% assumption) and/or lower-than-expected impairment allowances on loans as asset quality improves. Thus, no change to our outperform call on the stock. ' RHB Research Institute, July 14


This article appeared in The Edge Financial Daily, July 15, 2010.

AXIATA - Axiata cream of the crop

Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD
Research House: INTER PACIFIC

Axiata Group Bhd
(July 14, RM4.15)
Maintain outperform at RM4.13 with target price RM4.52: We reiterate outperform, with fair value pegged at RM4.52, based on sum-of-parts valuation which translates into a PER of 14.4 times based on FY2010 EPS of 31.45 sen. Our optimism is due to (i) its regional growth potential coupled with a new dividend policy expected to be announced in 3QFY2010; and (ii) improving margin resulting from active cost management and network efficiency programmes.

We believe Axiata's new dividend policy will not match DiGi.Com Bhd's of 80% and Maxis Bhd's of 75% due to (i) funds needed for capex to fund its operating companies (OpCo) growth in developing markets; and (ii) its focus as a growth stock rather than a dividend yield stock. We expect Axiata to pay out 15% of its FY2010 EPS and subsequently adopt a dividend payout of 30%, which translates to a yield of about 3% in line with the FBM KLCI dividend yield.

Low mobile penetration rate (less than 100%) coupled with huge population exposure in its OpCo should propel Axiata's current subscriber base of 129.7 million to 137.5 million and 152 million in FY2010 and FY2011 respectively. We also expect Axiata to benefit from the strong brand names of its various OpCo, reflected by their market position in the various countries.

Axiata's earnings before interest, tax, depreciation and amortisation (Ebitda) margin is poised to improve gradually from 39.3% in FY2009 to 44 % in FY2010 with margins to remain at 44% in FY2011 and FY2012. Our positive view on Axiata's Ebitda margin is due to its active network efficiency programmes, cost optimisation and customer retention programmes which are executed across OpCo. We draw comfort that each OpCo in Axiata has a specific strategy to optimise margins. We believe that the lessons learned from implementing such strategies will be shared across the OpCo thus benefitting Axiata.

We see the MoU signed between DiGi and Celcom Axiata focusing on three collaborative areas, that is operations and maintenance; transmission and site sharing; and radio access network; as a positive step forward in the industry. The proposed active sharing model should elevate both Celcom Axiata and DiGi's Ebitda margins which are already lagging behind Maxis. We foresee that Celcom's Ebitda margin will hit 45.5% in FY2010 (FY2009: 44.6%) following strong initiatives in cost reduction. Our Ebitda margin does not include the impact of the network sharing as a more definite agreement will only be presented by end-CY2010. We expect network sharing to be the trend moving forward in order to boost cellular operators' Ebitda margins.

With a cash balance of RM2.8 billion (1QFY2010) and an expected Ebitda of RM6.7 billion, Axiata should be comfortable enough to generate internally its expected capital expenditure of RM3.6 billion, out of which RM1 billion is for Celcom. With the sale of XL shares, Axiata's cash balance should balloon to above RM4 billion. The issuance of'' RM4.2 billion in sukuk with a tenure of five years, seven years and 10 years should provide some breathing room to its cash usage as it will be used to refinance its existing debt, which is due to mature in two years, and at the same time hedge its position against increasing rates.

We expect the lowering of the mobile termination rates (MTR) and fixed termination rates (FTR) by 40.2% and 17.6% respectively to five sen/min will lower Axiata's bottom line by less than 1%. The impact on Celcom, which contributes to 48% of Axiata's 1QFY2010 Patami is expected to be minimal with its position as the second largest mobile operator in Malaysia. We expect savings from outgoing interconnect will not be sufficient to offset the lower incoming interconnect revenue from other operators. ' Inter-Pacific Research, July 14


This article appeared in The Edge Financial Daily, July 15, 2010.

BAT - BAT against all odds

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

British American Tobacco (M) Bhd
(July 14, RM44.00)
Maintain neutral at RM43.80 with target price RM42.18: BAT's 1HFY2010 results are slated to be released next Thursday. Overall we see flat or weaker year-on-year (y-o-y) earnings growth in low single digits at the net level on the back of weakening sales and higher operating costs with the implementation of the 'reloc' packaging.

The earnings weakness impact will, however, be partially mitigated by higher selling prices following a price revision last year in response to the hike in tobacco excise duties. In late September last year, tobacco excise duties were raised by 1 sen per stick (p/s), lifting tobacco duty to 19 sen p/s. Subsequently, tobacco manufacturers raised cigarette selling prices by 1.5 sen p/s to pass on the cost to consumers.

In our April 23, 2010 report reviewing BAT's 1QFY2010 results, we had expected tobacco total industry volume (TiV) to be flat y-o-y. However, BAT's volume declined slightly by 2.9%. We believe this was mainly due to downtrading activities, as could be seen from the growth in market share of value-for-money (VFM)-type cigarettes to 22% from 21% previously.

BAT's share of VFM-type cigarettes fell to 36.5% from 37.1% a year earlier. Its shrinking share of the VFM segment is likely to be due to the strengthening of rival JT International Bhd's flagship VFM cigarette brand, Winston, which currently dominates the market.

Although we do not see many changes for the coming quarter's y-o-y earnings performance, we expect see things get more exciting in 2H2010.

Recently, BAT relaunched its Peter Stuyvesant (PS) brand, previously a premium cigarette, as a VFM-type cigarette. Priced at RM7.80, PS is BAT's answer to JTI's dominance in VFM via Winston.

Meanwhile, at the latest update illicit trade currently stands at 37.5%, down slightly from 38.7% previously.

This may indicate that illicit trade of tobacco products may have stabilised or has tapered off slightly due to greater enforcement by the authorities. ' OSK Investment Research, July 14


This article appeared in The Edge Financial Daily, July 15, 2010.

TENAGA - AmResearch maintains Buy on Tenaga at RM10

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

KUALA LUMPUR: AmResearch is maintaining a Buy on TENAGA NASIONAL BHD [] with an unchanged fair value of RM10 a share, based on a 10% discount to discounted cashflow of RM11 per share.

'We maintain Tenaga's FY10F-FY12F net profit even though 9MFY10 core net profit of RM2.1bil came in below expectations. Tenaga's 9MFY10 net profit accounted for only 63% of our and street estimate of RM3.1bil,' it said.

AmResearch said on Thursday, July 15 it continues to like the stock due to:

(1) Resurgence in power consumption growth;

(2) Appreciating Ringgit;

(3) Improving economies of scale with declining power reserve margin - currently at 42%;

(4) Potential corporate moves such as bonus or increasing dividend'' payout; and

(5) Return of foreign investors to one of the most liquid stocks on Bursa Malaysia.

'Valuation-wise, Tenaga currently trades at an attractive CY10F PE of 12x compared to its 3-year average of 14x,' it said.

FAJAR - RHB Research maintains outperform call on Fajarbaru

Stock Name: FAJAR
Company Name: FAJARBARU BUILDER GRP BHD
Research House: RHB

Fajarbaru Builder Group Bhd
(July 13, 93.5 sen)
Maintain outperform at 93 sen with fair value of RM1.39: Fajarbaru has proposed to buy out the minority shareholders of Potential Region Sdn Bhd for RM16 million cash. Three individuals hold a combined 49.75% equity interest in the company, while Fajarbaru has a 50.25% stake. Potential Region holds 140.3 acres of freehold land in PD Homestead Resort, off Jalan Si-Rusa-Sunggala, Port Dickson, Negri Sembilan.

The price tag of RM16 million for the 49.75% stake in Potential Region is fairly consistent with the minority interests of RM16.5 million in Fajarbaru's balance sheet (solely from Potential Region as it is the only non-wholly-owned subsidiary of Fajarbaru). This means that the transaction values the land effectively at its book value of RM46.2 million, or RM7.55 psf, at a premium to the asking prices of RM2.40 to RM6.05 psf in the Si-Rusa-Sunggala area in Port Dickson. However, we believe the premium is justifiable given that 91% of the land is already subdivided into orchard homestead/bungalow lots, 3% into commercial land with the remaining 6% carrying an agricultural land title.

We are neutral on the latest development. We believe Fajarbaru's latest move is purely tactical, that is to have full control over Potential Region. We do not believe Fajarbaru is in a hurry to relaunch the PD Homestead Resort project, given the generally soft property market in Port Dickson. Ceterus paribus, the acquisition will reduce Fajarbaru's net cash of RM123.7 million, or 74 sen per share as at March 31, 2010, to RM107.7 million or 64.8 sen per share.

Forecasts maintained as the interest income foregone on the RM16 million cash outflow will reduce FY2006/11 net profit by less than 1%.

The risks include new contracts secured in FY2006/11-12 coming in below our target of RM250 million per year and rising input costs.

We are positive on the construction sector as we foresee construction stocks to generally outperform the market in 2H2010, buoyed by news flow particularly from: (i) the RM36 billion Kuala Lumpur mass rapid transit (MRT) project; (ii) the RM7 billion Ampang and Kelana Jaya light rail transit (LRT) line extension project; and (iii) federal land deals. For Fajarbaru, additional kickers will come from its still undemanding valuations and a strong balance sheet with net cash of RM123.7 million as at March 31, 2010, translating to a whopping 74 sen per share. Indicative fair value is RM1.39 based on 10 times fully-diluted CY2011 EPS of 13.9 sen, in line with our benchmark one-year forward target PER for the construction sector of 10 to 16 times. ' RHB Research Institute, July 13




This article appeared in The Edge Financial Daily, July 14, 2010.

KNM - New orders for KNM picking up

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

KNM Group Bhd
(July 13, 52 sen)
Maintain hold at 52 sen with target price of 55 sen: KNM has secured RM1 billion worth of jobs thus far, double what it secured in 1H2009. Its current order book is at a year-high of RM2.4 billion, compared with RM1.8 billion at the beginning of the year. Its average selling price (ASP) has also improved moderately to close to RM20,000/MT from a low of RM18,500 in 2009 (record high of RM22,500 in 2008). We understand KNM is eyeing several sizeable contracts (more than RM100 million) in Southeast Asia and Europe. We expect accelerating oil and gas activities for the rest of this year to drive future demand for process equipment.

KNM may add two more plants to extend its global market presence. But the investments would be small at about RM40 million, with a potential JV local partner. KNM expanded its Saudi Arabia capacity recently, bringing total group capacity to 157,300MT/year (+6.8%). Meanwhile, its Kuantan plant is currently being upgraded to manufacture Borsig's boilers for the global market. There is also a plan to package Borsig's membrane equipment in Malaysia to take advantage of the RM1.4 billion tax incentive and improve overall cost efficiency.

We are maintaining our earnings assumptions at this juncture, as utilisation rate remains low at 60% and margins are still expected to be sluggish in 2Q2010. Re-rating catalyst for the stock would depend on job orders in 2H2010. We reiterate our hold rating for KNM with a target price of 55 sen, pegged to nine times FY2011F PER. The counter is currently trading at 8.4 times FY2011F PER against the sector's 8.8 times and the region's 15 times. ' HwangDBS Vickers Research, July 13

''

This article appeared in The Edge Financial Daily, July 14, 2010.

SCOMI - Scomi to be cash rich from exercise

Stock Name: SCOMI
Company Name: SCOMI GROUP BHD
Research House: AMMB

Scomi Group Bhd
(July 13, 41 sen)
Maintain buy at 40 sen with fair value of 76 sen: Scomi Group Bhd's (SGB) associate company, Scomi Marine Bhd (SMB), has entered into heads of agreement (HOA) with PT Rig Tenders (PTRT), an 84%-owned subsidiary of SMB, and Port Offshore Inc (POI) to dispose of its marine logistics business to POI for US$172 million (RM550 million). The acquisition will be funded through US$100 million in bank borrowings and a US$72 million rights issue.

After this sale, PTRT will no longer be a subsidiary of Scomi Marine. It will be a 24.75%-owned associate of the group and POI will become the major shareholder of PTRT.

We are positive on this disposal mainly because of the introduction of a cabotage law in Indonesia which will come into effect end-2010, which will pose more challenges to SMB. The cabotage rule requires vessels to be at least 51%-owned by an Indonesian party. With this rule in place, SMB's earnings could be at risk with contracts hard to come by and less favourable rates.

However, SMB is keen to remain a partner to try to capture the upside potential of the strong Indonesian market. It believes that POI, given its financial strength and operational background, will be able to enhance its marine logistics business.

But we feel that SMB should have disposed of its entire stake in PTRT rather than remaining as a minority partner where earnings risk remains. This would have made more cash available to the group as well.

From this disposal, SMB will make losses of RM433 million (including forex losses of RM100 million). Admittedly, there will be some impact to our SGB estimates, but we are maintaining our estimates as the deal is in the preliminary stages.

The silver lining to this exercise is that SMB will be cash rich ' RM552 million (about 75 sen per share) will be available to the company.

Management has not decided on to how to use this cash, but it did indicate the possibility of purchasing more offshore support vessels, injecting/acquiring a marine-related business or returning cash to the shareholders.

Elsewhere, we gather that there are more tenders for transport jobs in Brazil for the preparation of the 2014 FIFA World Cup, although decision-making remains rather slow. The group is also interested in getting a slice of the Kuala Lumpur MRT job via M&E works, given the sheer size of the project.

We maintain our buy rating on Scomi Group with an unchanged fair value of 76 sen, pegging a PER of 12 times. ' AmResearch, July 13

''

This article appeared in The Edge Financial Daily, July 14, 2010.

PARKSON - Worst is over for retailers

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

Parkson Holdings Bhd
(July 13, RM5.47)
Reiterate outperform at RM5.47 with target price of RM6.50: We reiterate our outperform recommendation based on a sum-of-parts (SOP) valuation, with CY2011 EPS of 35.4 sen and PER of 10 times for Malaysia; 12 times for Vietnam; 22 times for China; and 10 times for China excluding stores. Based on SOP, our target price is RM6.50. We like Parkson Holdings Bhd for: (i) its conservative management, reflected by its same-store-sales growth (SSSG) target of 10% for China; 5% to 6% for Malaysia; and 20% to 25% for Vietnam; (ii) the improving consumer sentiment underpinned by a more positive global economic outlook; and (iii) its focus on the mid-high income target market which is more resilient to economic vulnerabilities.

According to management, plans for ongoing store acquisitions, particularly in China, and the setting up of new stores in the tri-country area are on target. Among the key highlights is the progress of the Festival Mall in Danau Kota, Kuala Lumpur, Parkson's first owned-and-operated mall in Malaysia, and the performance of existing stores.

The mall is scheduled to open by end-CY2010 will have 500,000 sq ft of net lettable area (NLA). The management has said that 120,000 sq ft will be occupied by either Giant or Cold Storage. The mall is expected to contribute RM20 million to RM30 million to Parkson's Ebit (earnings before interest and tax) in FY2011.

9MFY2010 SSSG grew by 11% for China, 10% for Malaysia and 27% for Vietnam, as opposed to management's expectation of 10%, 5%-6% and 20%-25% respectively for these countries. This lifted its 9MFY2010 revenue by 5% year-on-year to RM2.1 billion despite the economic slowdown. The revenue boost was also due to the inclusion of the Chinese New Year sales, which were included in the 3QFY2010 revenue.

The earnings before interest, tax, depreciation and amortisation (Ebitda) margin in FY2010 is expected to be slightly lower at 31.5% against 32.7% in FY2009 owing to unplanned promotions and additional discounting in 1HFY2010 to entice customers during the sluggish period. According to management, there will not be any additional impromptu sales in 2HFY2010 and 1HFY2011, while discounting will be at a more reasonable level.

We believe the worst is over for retailers, reflected by an improving consumer confidence index for both China and Malaysia. Malaysia's Consumer Sentiment Index rose to 114.2 points in 1QCY2010 (trough 71.4 in 4Q2008), while China's Consumer Confidence Index was at 108 points in May 2010 (trough of 100.3 in March 2009). As of June 2010, Parkson has 45 stores in China, 6 in Vietnam and 35 in Malaysia.

With Parkson's focus on the mid-high level income consumers in Malaysia, the uncertainty over the government's decision on subsidy cuts will have little impact on its earnings as the upper income level is typically impervious to such cuts.

We can observe a similar scenario in Vietnam, where Parkson is the only foreign upscale retailer operating in major cities. Demand in Vietnam for retail products is expected to grow in CY2010 because of improving consumer purchasing power on the back of steady economic growth. We have projected Vietnam's real GDP to expand by 6% in CY2010 and 6.5% in CY2011. ' Inter-Pacific Research, July 13

''

This article appeared in The Edge Financial Daily, July 14, 2010.

UNISEM - AmResearch affirms Buy on MPI, Unisem

Stock Name: UNISEM
Company Name: UNISEM (M) BHD
Research House: AMMB

KUALA LUMPUR: AmResearch has affirmed its Buy on MALAYSIAN PACIFIC INDUSTRIES [] and Unisem as it expects the chip makers to ride on the optimistic outlook for the industry after Intel posted a strong set of earnings.

In its research note, AmResearch said on Wednesday, July 14 that Intel's 2Q10 result of US$10.7bil beat the average street forecast for the current quarter.

For 2Q, ended June 26, Intel's revenue rose 34% to US$10.77 billion, from US$8.02 billion a year ago. Intel also expects 3Q10 to further chart sequential growth; predicting a rake in revenue of US$11.2 billion to US$12 billion, surpassing analysts' forecasts of US$10.92 billion.

Intel cited that the strong revenue imputes a replenishment demand for laptops and desktops. In addition to traditional demand, Intel has also seen diverse demand for its laptop, desktop and server. Operating margins should remain high.

"Current margin for Taiwanese companies; are between 11.5%- 15.0%, comparable to Unisem's and MPI's margin of between 11% and 13.9%. Intel's 2Q10 sends a very positive signal for Unisem and MPI to chart a similar pattern.

"We affirm our BUY on MPI (FV=RM8.90, 1.7x price-to-book) and Unisem (FV=RM3.80, 1.9x price-to-book). Our valuation is still below peak boom time 2.3x price-to-book observed in 2004-2005.'' Unisem stands to exploit more from constraints as its China operation would be coming on stream as early as end 3Q10," it said.

F&N - AmResearch maintains Buy on F&N

Stock Name: F&N
Company Name: FRASER & NEAVE HOLDINGS BHD
Research House: AMMB

KUALA LUMPUR: AmResearch reiterates its BUY on Fraser & Neave Holdings (F&N) with unchanged fair value of RM15.20/share, based on target PE of 18x CY11F earnings.

'We expect further upside arising from a possible earnings accretive M&A - while strong fundamentals of core soft drinks and dairies should continue to fuel positive investor interests,' it said in a research note issued on Wednesday, July 14.

While there is a 12 to 24 month timeline as F&N embarks on an M&A, the group remains open to the nature of the potential business opportunities or strategic alliances.

'In our opinion, we believe the group would be keen to enlarge its footprint in Indo-China via its bread-and-butter business in beverages and dairy products. Net cash is an estimated RM340mil for FY10F,' it said.

AmResearch said it maintained its earnings forecast for FY10F-12F, which already reflects a one-off disposal net gain of RM324.7 million.

There is no change to its FY10F-12F dividend forecasts. Should the group revert to a possible capital repayment, the potential special dividend of up to 91 sen/share would bump up AmResearch's FY11F dividend forecast to 137sen/share, and raise its net dividend yield from 4% to 12%.

MPI - AmResearch affirms Buy on MPI, Unisem

Stock Name: MPI
Company Name: MALAYSIAN PACIFIC INDUSTRIES
Research House: AMMB

KUALA LUMPUR: AmResearch has affirmed its Buy on MALAYSIAN PACIFIC INDUSTRIES [] and Unisem as it expects the chip makers to ride on the optimistic outlook for the industry after Intel posted a strong set of earnings.

In its research note, AmResearch said on Wednesday, July 14 that Intel's 2Q10 result of US$10.7bil beat the average street forecast for the current quarter.

For 2Q, ended June 26, Intel's revenue rose 34% to US$10.77 billion, from US$8.02 billion a year ago. Intel also expects 3Q10 to further chart sequential growth; predicting a rake in revenue of US$11.2 billion to US$12 billion, surpassing analysts' forecasts of US$10.92 billion.

Intel cited that the strong revenue imputes a replenishment demand for laptops and desktops. In addition to traditional demand, Intel has also seen diverse demand for its laptop, desktop and server. Operating margins should remain high.

"Current margin for Taiwanese companies; are between 11.5%- 15.0%, comparable to Unisem's and MPI's margin of between 11% and 13.9%. Intel's 2Q10 sends a very positive signal for Unisem and MPI to chart a similar pattern.

"We affirm our BUY on MPI (FV=RM8.90, 1.7x price-to-book) and Unisem (FV=RM3.80, 1.9x price-to-book). Our valuation is still below peak boom time 2.3x price-to-book observed in 2004-2005.'' Unisem stands to exploit more from constraints as its China operation would be coming on stream as early as end 3Q10," it said.

MEDIA - Malaysia media sector upgraded at ECM

Stock Name: MEDIA
Company Name: MEDIA PRIMA BHD
Research House: ECMLIBRA



Malaysia's media industry was upgraded to "overweight" from "neutral" at ECM Libra Capital Sdn Bhd, which said it expects recovering consumer sentiments to continue unabated.

ECM Libra's top pick is Media Prima Bhd. with a "buy" recommendation and share forecast of RM2.68, the research house said in a report today.

Star Publications Malaysia Bhd was also rated "buy" with a RM3.94 share forecast, according to the report. - Bloomberg

JADI - Private Placement of up to 61.46 mil shares at RM 0.20

JADI IMAGING is proposing a private placement of up to 10% of the company's paid-up share capital, or 61.5mil shares. The issue price is fixed at RM0.20, which represents a premium of approximately 11% to the 5-days volume-weighted average market price of Jadi's shares up to 9 July 2010. This exercise is expected to raise RM12.09mil for working capital purposes.

Highlights
Private placement of up to 10% of Jadi's paid-up share capital
JADI IMAGING is proposing a private placement of up to 10% of the company's paid-up share capital, or 61.5mil shares. The issue price is fixed at RM0.20, which represents a premium of approximately 11% to the 5-days volume-weighted average market price of Jadi's shares up to 9 July 2010. Once the exercise is completed, the company's paid-up share capital will increase by 10%, from 614.62mil to 676.08mil.

Proceeds utilisation
Assuming Jadi issues up to 10% placement shares at RM0.20 per share, this exercise is expected to raise RM12.29mil for working capital purposes (RM12.09mil) and corporate proposal expenses (RM0.2mil).

Positive on the proposal
Overall, we view this proposal positively as the proceeds will be utilised for working capital purposes where it is expected to contribute positively to the future earnings of the company. Besides that, this fund raising option enables Jadi to raise funds without incurring interest cost as compared to bank borrowings. Going forward, we expect the company's prospect to remain positive on the back of a sustainable rebound in demand. According to the company, an additional monochrome toner line is scheduled to be fully installed in third quarter this year, which is in line with the company's ongoing efforts to increase its productivity and efficiency.

Valuation and recommendation
Maintain Buy with an unchanged TP of RM0.23
We value the stock at RM0.23 per share, which is derived from its 3-years average PER(adjusted) of 11.09x and forecasted FY10 EPS of 2.06 sen.

-- JF APEX SECURITIES BERHAD --

MMCCORP - Additional gas supply from Petronas

Gas Malaysia has signed a second Supplemental Gas Supply Agreement with Petronas for an additional supply of 82 mmscfd natural gas. Accordingly, we have uplift our earnings forecast for FY2010 and FY2011 for MMC and upgrade our recommendation to BUY with target price of RM2.74.

Additional gas – MMC has announced that Gas Malaysia has signed a second Supplemental Gas Supply Agreement with Petronas for an additional supply of 82 mmscfd natural gas, in which the extra supply shall be effective until 31st December 2011.

Uplift earnings forecast for FY2010 and FY2011 - In our view, this should contribute positively to FY2010 and FY2011 earnings for MMC. After adjusting for 41.8% ownership of MMC in Gas Malaysia, we have raised our earnings forecast for MMC to RM681.2m in FY2010 and RM753.4m in FY2011.

Upgrade to Trading Buy with TP RM2.74 – In our Sum-Of-Parts valuation, we have adjusted our value of MMC's 41.8% ownership in Gas Malaysia to RM4312.0m. Accordingly, we have upgraded our recommendation to BUY with target price of RM2.74 after applying 30% discount. This represents possible 13.7% price appreciation as compared to yesterday closing price.

-- JF APEX SECURITIES BERHAD --

MAHSING - Mah Sing on a roll in landbanking

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

Mah Sing Group Bhd
(July 12, RM1.72)
Maintain buy with higher target price of RM2.40 (from RM2.30): Mah Sing's acquisition of four parcels of land with gross development value (GDV) totalling RM1.2 billion last week exemplifies the group's mastery of its tried-and-tested 'quick turnaround' model.

Last week, Mah Sing announced the acquisition of four parcels of land ' two in Puchong next to Bandar Kinrara, one in Bukit Jelutong and one in Sungai Buloh. All in, it is buying 167.8 acres for RM311.6 million. We take a positive view as the price tags are fair and the demand for mixed development, industrial and commercial properties in those locations should be strong. The four parcels with GDV potential of RM1.2 billion lift the group's undeveloped and unrecognised GDV to RM7.5 billion.

So far this year, Mah Sing has acquired seven plots of land totalling 195 acres with a GDV potential of RM1.9 billion. We are raising our FY2010 to FY2012 EPS forecasts by 1% to 9% for the four new projects and the robust year-to-date actual sales. In 1QFY2010, Mah Sing sold a record RM601 million worth of properties, meeting 60% of its full-year target in a single quarter. At this rate, it could exceed RM2 billion in sales in 2010 if its upcoming condominium launches in Kuala Lumpur and Penang are well-received. There is further upside to our earnings forecasts if the response to its second half launches is strong and pretax margins are wider than our projections of 20% to 25%.

We take a positive view of the acquisitions as the price tags are fair and there are potential upside revisions to GDVs from its various projects, particularly the mammoth commercial project in Petaling Jaya, and the group's total GDV could approach the RM10 billion mark.

Our target price goes up from RM2.30 to RM2.40, based on an unchanged 10% discount to our target market price-to-earnings-ration (PER) of 15 times. We continue to rate Mah Sing a buy, with the potential re-rating catalysts being continued strong news flow on landbanking exercises, and robust sales and accelerating earnings growth. ' CIMB Investment Bank, July 12

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This article appeared in The Edge Financial Daily, July 13, 2010.

RHBCAP - Indonesia is the next growth story for Malaysian banks

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

Banking sector
Maintain buy on Malayan Banking Bhd with unchanged target price of RM9.10, maintain buy with unchanged target price of RM7.30 on RHB Capital Bhd: Our recent visit to Indonesia reinforced our view of robust prospects for Indonesian banks. We expect industry loans to grow 20% in 2010 compared to 10% in 2009, supported by positive economic sentiment, benign inflation, and relatively low interest rates.

Up to April 10, total loans grew 3% and were 15% higher than the year before, while year-to-date (YTD) loan approvals surged 111%. Notably, consumer loans, which comprise 33% of total loans, grew strongly by 8% YTD April 10 or 25% year-on-year (y-o-y). Indonesia has low penetration of the banking population, and rising domestic demand points to robust growth potential especially in the consumer, SME and commercial space.

We believe that the banks are excellent proxies to the economic recovery with the DBS economist projecting 2010 gross domestic product (GDP) growth at 5.5% for Indonesia. Asset quality is in check with non-performing-loan ratio improving further to 3.2% (March: 3.3%).

The Indonesian operations of Maybank and RHB Cap (once Bank Mestika acquisition is completed) can provide a boost to growth. Indonesia banks generally deliver higher net-interest-margin, currently averaging 5% to 6% versus regional peers' 2% to 3% and offer return-on-equity that are superior to regional peers' (26% versus 14%).

Our high conviction picks are Maybank and RHB Cap.

We believe the market has not priced in prospects for Bank Internasional Indonesia's (BII) 51% subsidiary of Maybank acquired in September 2008 and RHB Cap's proposed acquisition of 89% of PT Bank Mestika Dharma expected to be completed. For Maybank, we expect a loan growth of 12% to 15% for financial year ended June 30, 2010 (FY2010) to FY2012 above industry average of 8% to 9%, supported by its domestic franchise, especially in hirepurchase and mortgages, and Indonesia prospects.

BII is focusing on branches' performance and productivity via various improvement programs and staff initiatives. Up to March, BII expanded its network by 11 branches to 266, and added 19 automated-teller-machines (ATMs) to bring its ATM network to 806. Loans grew 2% quarter-on-quarter (q-o-q) and 8% y-o-y.

The motorcycle financing business under WOM (BII's 50.8%-owned subsidiary) grew 25% q-o-q and reported significant improvement in asset quality, with delinquency rate (90 days) falling to 2.2% from 2.6% in December 2009 as a result of step up in its monitoring and recovery process.

We believe BII's growth is on track after it registered net profit of Rp208 billion or RM75 million (46% gain q-o-q) in the March quarter.

RHB Cap is the cheapest stock in our Malaysia large cap universe at only eight times forward price-to-earnings-ratio (PE) and 1.2 times financial year ending Dec 31, 2011 book value versus sector average of 1.7 times, and its return on equity profile is respectable at 14% to15%.

Maybank and RHB Cap ' which trade at lower multiples compared to Indonesian banks' average forward 2.8 times book value, provide a cheaper exposure to the Indonesian growth story. ' HwangDBS Vickers Research, July 12

''

This article appeared in The Edge Financial Daily, July 13, 2010.

MAYBANK - Indonesia is the next growth story for Malaysian banks

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

Banking sector
Maintain buy on Malayan Banking Bhd with unchanged target price of RM9.10, maintain buy with unchanged target price of RM7.30 on RHB Capital Bhd: Our recent visit to Indonesia reinforced our view of robust prospects for Indonesian banks. We expect industry loans to grow 20% in 2010 compared to 10% in 2009, supported by positive economic sentiment, benign inflation, and relatively low interest rates.

Up to April 10, total loans grew 3% and were 15% higher than the year before, while year-to-date (YTD) loan approvals surged 111%. Notably, consumer loans, which comprise 33% of total loans, grew strongly by 8% YTD April 10 or 25% year-on-year (y-o-y). Indonesia has low penetration of the banking population, and rising domestic demand points to robust growth potential especially in the consumer, SME and commercial space.

We believe that the banks are excellent proxies to the economic recovery with the DBS economist projecting 2010 gross domestic product (GDP) growth at 5.5% for Indonesia. Asset quality is in check with non-performing-loan ratio improving further to 3.2% (March: 3.3%).

The Indonesian operations of Maybank and RHB Cap (once Bank Mestika acquisition is completed) can provide a boost to growth. Indonesia banks generally deliver higher net-interest-margin, currently averaging 5% to 6% versus regional peers' 2% to 3% and offer return-on-equity that are superior to regional peers' (26% versus 14%).

Our high conviction picks are Maybank and RHB Cap.

We believe the market has not priced in prospects for Bank Internasional Indonesia's (BII) 51% subsidiary of Maybank acquired in September 2008 and RHB Cap's proposed acquisition of 89% of PT Bank Mestika Dharma expected to be completed. For Maybank, we expect a loan growth of 12% to 15% for financial year ended June 30, 2010 (FY2010) to FY2012 above industry average of 8% to 9%, supported by its domestic franchise, especially in hirepurchase and mortgages, and Indonesia prospects.

BII is focusing on branches' performance and productivity via various improvement programs and staff initiatives. Up to March, BII expanded its network by 11 branches to 266, and added 19 automated-teller-machines (ATMs) to bring its ATM network to 806. Loans grew 2% quarter-on-quarter (q-o-q) and 8% y-o-y.

The motorcycle financing business under WOM (BII's 50.8%-owned subsidiary) grew 25% q-o-q and reported significant improvement in asset quality, with delinquency rate (90 days) falling to 2.2% from 2.6% in December 2009 as a result of step up in its monitoring and recovery process.

We believe BII's growth is on track after it registered net profit of Rp208 billion or RM75 million (46% gain q-o-q) in the March quarter.

RHB Cap is the cheapest stock in our Malaysia large cap universe at only eight times forward price-to-earnings-ratio (PE) and 1.2 times financial year ending Dec 31, 2011 book value versus sector average of 1.7 times, and its return on equity profile is respectable at 14% to15%.

Maybank and RHB Cap ' which trade at lower multiples compared to Indonesian banks' average forward 2.8 times book value, provide a cheaper exposure to the Indonesian growth story. ' HwangDBS Vickers Research, July 12

''

This article appeared in The Edge Financial Daily, July 13, 2010.

IJMPLNT - RHB Research maintains Neutral on plantations

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining its Neutral recommendation on the PLANTATION [] sector, as it believes there are not many positive catalysts which would move CPO prices up in the near term.

In a research note issued on Tuesdya, July 13, it said based on these factors, it therefore expected plantation companies' share prices to remain lacklustre until this scenario changes.

"Despite this, we continue to have Outperform recommendations on some stocks within the sector including SGX-listed First Resources (FV = S$1.35), KLK (FV = RM20.55), IOIC (FV = RM6.65) and CBIP (FV = RM3.70), while we maintain our Underperform recommendations on Sime Darby (FV = RM8.15), Genting Plantation (FV = RM6.50) and IJMP (FV = RM2.30)," it said.

PETGAS - Negligible impact on PGas seen from upstream gas shutdown

Stock Name: PETGAS
Company Name: PETRONAS GAS BHD
Research House: AMMB

Petronas Gas Bhd
(July 12, RM10.16)
Maintain buy with unchanged target price of RM11.30: In our view, the emergency shutdown of one of Petroliam Nasional Bhd's (Petronas) oil production platform off eastern peninsular Malaysia is unlikely to have a significant impact on Petronas Gas Bhd's (PGas) valuations.

News reports over the weekend said that Petronas has shut down oil platforms and production pipelines offshore of eastern peninsular Malaysia in an emergency procedure after a thin layer of oil was sighted in nearby waters. Petronas did not specify which oilfields were affected. Several oil and gas fields including Tapis, Seligi, Guntong, Semangkok, Irong Barat, Tabu and Palas are located off Malaysia's east coast.

Petronas indicated that the facilities, located 240km offshore Malaysia, were operated by Petronas' production sharing contractors ' upstream unit Petronas Carigali, ExxonMobil Exploration and Production Malaysia and Newfield Peninsular Malaysia. As per standard procedure, emergency response and oil spill teams, including those from the Petroleum Industry of Malaysia Mutual Aid Group and East Asia Response Ltd, were mobilised.

Our channel checks indicated that the affected oil field also produces some 100 to 150 million standard cubic metres per day (mmscfd) in gas. This represents up to 7% of PGas financial year ending March 31, 2010 (FY2010) output of 2,088mmscfd. For now, we understand that Petronas is replacing the lost gas production by increasing output of other fields off peninsular Malaysia.

Under the fourth Gas Processing & Transmission Agreement (GPTA), effective since April 1 this year, we estimate that the new transportation remuneration payment amounts to 48% of PGas' throughput revenue. The variable flow rate incentive of 22 sen per gigajoule is unlikely to have any significant impact ' as gas production is assumed to be below 2,100mmscfd threshold.

Assuming that the gas production drops by 150mmscfd, we estimate that the lower transportation remuneration will shave the group's net profit by RM5 million per month or 0.4% of FY2011 earnings. Pending further developments on the shutdown, we maintain our forecast for FY2011 to FY2013.

The stock's calendar year 2010 price-to-earnings-ratio of 15 times is below its past three-year average of 18 times but still at a premium to oil and gas sector's 10 times due to its defensive earnings profile. Gross dividend yield is attractive at 6%. ' AmResearch, July 12

''

This article appeared in The Edge Financial Daily, July 13, 2010.

GENP - RHB Research maintains Neutral on plantations

Stock Name: GENP
Company Name: GENTING PLANTATIONS BERHAD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining its Neutral recommendation on the PLANTATION [] sector, as it believes there are not many positive catalysts which would move CPO prices up in the near term.

In a research note issued on Tuesdya, July 13, it said based on these factors, it therefore expected plantation companies' share prices to remain lacklustre until this scenario changes.

"Despite this, we continue to have Outperform recommendations on some stocks within the sector including SGX-listed First Resources (FV = S$1.35), KLK (FV = RM20.55), IOIC (FV = RM6.65) and CBIP (FV = RM3.70), while we maintain our Underperform recommendations on Sime Darby (FV = RM8.15), Genting Plantation (FV = RM6.50) and IJMP (FV = RM2.30)," it said.

IOICORP - RHB Research maintains Neutral on plantations

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

KUALA LUMPUR: RHB Research Institute is maintaining its Neutral recommendation on the PLANTATION [] sector, as it believes there are not many positive catalysts which would move CPO prices up in the near term.

In a research note issued on Tuesdya, July 13, it said based on these factors, it therefore expected plantation companies' share prices to remain lacklustre until this scenario changes.

"Despite this, we continue to have Outperform recommendations on some stocks within the sector including SGX-listed First Resources (FV = S$1.35), KLK (FV = RM20.55), IOIC (FV = RM6.65) and CBIP (FV = RM3.70), while we maintain our Underperform recommendations on Sime Darby (FV = RM8.15), Genting Plantation (FV = RM6.50) and IJMP (FV = RM2.30)," it said.

KLK - RHB Research maintains Neutral on plantations

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

KUALA LUMPUR: RHB Research Institute is maintaining its Neutral recommendation on the PLANTATION [] sector, as it believes there are not many positive catalysts which would move CPO prices up in the near term.

In a research note issued on Tuesdya, July 13, it said based on these factors, it therefore expected plantation companies' share prices to remain lacklustre until this scenario changes.

"Despite this, we continue to have Outperform recommendations on some stocks within the sector including SGX-listed First Resources (FV = S$1.35), KLK (FV = RM20.55), IOIC (FV = RM6.65) and CBIP (FV = RM3.70), while we maintain our Underperform recommendations on Sime Darby (FV = RM8.15), Genting Plantation (FV = RM6.50) and IJMP (FV = RM2.30)," it said.

SIME - RHB Research maintains Neutral on plantations

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

KUALA LUMPUR: RHB Research Institute is maintaining its Neutral recommendation on the PLANTATION [] sector, as it believes there are not many positive catalysts which would move CPO prices up in the near term.

In a research note issued on Tuesdya, July 13, it said based on these factors, it therefore expected plantation companies' share prices to remain lacklustre until this scenario changes.

"Despite this, we continue to have Outperform recommendations on some stocks within the sector including SGX-listed First Resources (FV = S$1.35), KLK (FV = RM20.55), IOIC (FV = RM6.65) and CBIP (FV = RM3.70), while we maintain our Underperform recommendations on Sime Darby (FV = RM8.15), Genting Plantation (FV = RM6.50) and IJMP (FV = RM2.30)," it said.

Now is the time to invest in local motor stocks

Motor sector

Maintain overweight: We believe now is the best time to invest in local motor stocks as the sector is currently into its second year of a new three-year cycle that started in 2009.

A closer look at Malaysia's total-industry-volume (TIV) reveals that the local motor sector has been moving in three-year cycles since 2000, that is from 2000 to 2002, 2003 to 2005, 2006 to 2008 and potentially we see this again for 2009 to 2011.

We believe the replacement cycle for motor vehicles, widely believed to be five to seven years, may have accelerated in recent years. Buyers may have been enticed by more new models.

Also, car owners may have realised that the resale value of their new cars can only be maximised if the cars are replaced within three years, given the shortened product life cycle of new models now.

We project Malaysia's TIV to jump 9.5% (previously 8.9%) in 2010, followed by a decent 4% (previously 2.8%) growth in 2011 as we have revised our projections for Proton due to positive sentiment.

We believe our new TIV projection of 587,698 units in 2010 is achievable. TIV for the first five months in 2010 already made up 42% of our full-year forecast.

We have rolled forward our valuation base year for motor stocks to financial year ending 2010 (FY2011) from FY2010 previously. Tan Chong Motor Holdings, UMW Holdings Bhd and MBM Resources Bhd have December financial year-ends, while Proton Holdings Bhd which has a March year-end.

For Tan Chong, our indicative fair value has been raised to RM6.16 per share (from RM5.26 previously), which is now based on 14 times, FY2011 earnings per share (EPS). We maintain an outperform call.

Our SOP-based fair value for UMW has been reduced slightly to RM7.50 (previously RM7.52) based on 14 times price-to-earnings-ratio (PER) (previously 16 times PER) for its automotive and oil and gas divisions, eight times for its heavy equipment and seven times for its manufacturing division. We maintain our outperform call.

We have raised our EPS forecasts for Proton from 65.3 sen to 67.4 sen for FY2011 and from 70.2 sen to 75.2 sen for FY2012. We reiterate our outperform call on the stock with an indicative fair value of RM5.50 based on stripped down book value.

For MBM, our fair value was revised up to RM5.31 per share (from RM5.04 previously), based on 11 times FY2011 EPS. Reiterate outperform.

In terms of technical analysis for Tan Chong, at market close last Friday, it ended with an insignificant candle at RM4.23, suggesting a persistent sideways movement ahead.

Although the stochastic oscillators showed a fresh buy signal from the oversold region, the 10-day simple moving average (SMA) is due to cut below the 40-day SMA, this implies further rangebound trading ahead.

Technically, unless the stock breaks out from the current trading range, it is more likely to stay within the current levels. — RHB Research Institute, July 12

This article appeared in The Edge Financial Daily, July 13, 2010.

QL - QL Resources up, CIMB Research 'Buy' at RM4.16

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

KUALA LUMPUR: QL RESOURCES BHD [] advanced in early trade on Tuesday, July 13 with CIMB Equities Research had a Buy on the stock at RM4.16.

At 9.35am, it was up 10 sen to RM4.26 with 77,900 shares done. The FBM KLCI rose 4.63 points to 1,331.37.

QL Resources broke out of its rising wedge resistance on Monday and the research house said it views this as a positive sign as the breakout should instil greater positiveness into the stock.

'Prices should swing towards RM4.40 and RM4.52 next. The current rising trend will remain intact as long as prices stay above RM3.80,' it said.

CIMB Research said the MACD remains in the positive territory despite recent consolidation while RSI is also above the 50pts mark. In the past, prices usually hit new highs after breaking out of its consolidation zone.

'Risk takers may start to nibble now though we prefer to accumulate near the RM3.92 support level (also close to its 30-day SMA). Only a break below RM3.80 would trigger our stop,' it said.

QL Resources is trading at'' FY11P/E of 13.8 times and P/BV of 3.2 times.

GENM - Genting rises on 'overweight' call

Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD
Research House: MORGAN STANLY



Genting Malaysia Bhd, the country's sole casino operator, rose the most in three weeks in Kuala Lumpur trading after Morgan Stanley initiated coverage of the stock with an "overweight" call and RM3.05 share forecast.

The stock rose 1.1 per cent to RM2.69 at 9:05 a.m. local time, set for its biggest gain since June 18. -- Bloomberg

LPI - RHB Research maintains outperform call on LPI

Stock Name: LPI
Company Name: LPI CAPITAL BHD
Research House: RHB

LPI Capital Bhd
(July 9, RM16.80)
Maintain outperform at RM16.28 with fair value of RM19.23: LPI reported 1HFY12/10 net profit of RM64.8 million (+11.2% year-on-year), which was 42% of our and 44% of consensus full-year estimates.

However, we note that 2Q earnings have consistently been the weakest, mainly due to the lower investment income at group level as dividends from Public Bank were recognised in 1Q and 3Q.

The 2Q revenue grew 13.3% y-o-y on the back of higher gross premiums, while profit before tax (PBT) grew by 19.7% due to higher underwriting surplus.

Q-o-q revenue declined by 19.8% due to 1Q being seasonally stronger, while net profit declined by 31% as a result of a higher tax rate and lower investment income at group level (RM23.6 million against RM400,000). The underwriting surplus was better by 36.1% due to lower management expense and claims ratios.

LPI declared a single-tier interim net dividend of 10 sen for 2QFY12/10, which is low compared with the dividend in the same period last year of 26.25 sen.

As highlighted in our previous report, we expect LPI to undertake a corporate exercise to increase its share liquidity. LPI proposed a 1-for-2 bonus issue which would result in an issuance of up to 69.4 million new shares.

LPI also proposed a 1-for-10 rights issue at an issue price of RM7 which would further result in an issuance of up to 13.9 million new shares. The proceeds of up to RM95.3 million from the rights issue would be utilised for working capital.

Based on the proposals, we estimate that earnings per share (EPS) would be diluted by 4.7% for the rights issue. However, we are leaving our forecasts unchanged until the approval of the proposals, which we understand will be by the end of 3Q.

Risks include: (i) Change in government policy that may result in a lower fire premium; (ii) Jump in claims ratio; (iii) Combined ratio may exceed 100%; and (iv) Intense competition from insurance sector liberalisation.

We maintain our outperform call on the stock, with a new fair value of RM19.23 after rolling forward our valuation base year to FY11 (from FY10 previously) with an unchanged target price-earnings ratio (PER) of 15 times. ' RHB Research, July 9

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This article appeared in The Edge Financial Daily, July 12, 2010.

ALLIANZ - Allianz's ICPS rights start trading

Stock Name: ALLIANZ
Company Name: ALLIANZ MALAYSIA BHD
Research House: RHB

Allianz Malaysia Bhd
(July 9, RM3.70)
Maintain outperform at RM3.79 with fair value of RM5.32: The rights to purchase Allianz's irredeemable convertible preference shares (ICPS) started trading last Friday, and would cease trading at 5pm July 16. Allianz's share price has already been adjusted ex-rights as at July 6 to RM3.83.

Every 100 Allianz shares held would be entitled to rights to purchase 125 ICPS. The rights would thus be priced at 61 sen, i.e. the difference between the share price and the ICPS issue price.

We estimate, based on the current share price of RM3.79 and an overall combined FY11 dividend payout of 35% (for ordinary shares and ICPS), and bearing in mind the 1.2 times dividend payout for the ICPS, Allianz's ordinary dividend yield would be around 3.2%. Meanwhile, the ICPS should theoretically enjoy a dividend yield of 3.8% assuming the ICPS were worth the same as the ordinary shares.

Assuming the yield impact was neutralised for both the ordinary shares and the ICPS, this implied the ICPS should be trading 20% higher than the ordinary shares, or at RM4.55.

Working backwards, after deducting the ICPS issue price of RM3.18, the implied ICPS rights price should be RM1.37. (Note: the ICPS rights fell 15.5 sen to 45.5 sen from the reference price of 61 sen last Friday)

The risks to our forecast for Allianz include: 1) lower-than-expected premium growth; 2) jump in claims ratio; 3) change in Bank Negara policy that would require Allianz to further strengthen its Internal Capital Adequacy Ratio (ICAR); and 4) the changing competitive landscape in the insurance industry due to liberalisation.

We maintain our premium growth and earnings forecasts but we are adjusting our sum-of-parts (SOP) valuations to account for: 1) the fully-diluted earnings per share after adjusting for ICPS; and 2) the rollover of our base valuation year to FY11 from FY10 previously.

Our new SOP fair value is RM5.32, which implies an upside of 40% from its current share price. We continue to be positive on the company.

Notwithstanding the change in capital structure, we reiterate our positive view on Allianz based on: 1) its above-industry average premium growth and below-industry average claims ratio; 2) its bancassurance tie-up with CIMB; 3) the strong growth potential of the life insurance industry in Malaysia; and 4) strong backing by its parent.

Furthermore, the proceeds from the ICPS issue would strengthen its capital base, giving Allianz room to take on more business while reducing its earnings retention ratio so that it could pay more dividends. Maintain "outperform" with a new ex-rights fair value of RM5.32. ' RHB Research, July 9

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This article appeared in The Edge Financial Daily, July 12, 2010.

TENAGA - AmResearch maintains Buy on Tenaga

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

KUALA LUMPUR: AmResearch says Tenaga is currently trading at an attractive CY10F PE of 11 times vis-''-vis its five-year average of 14 times.

It said on Monday, July 12 that it reiterated its BUY call with an unchanged DCF-based fair value of RM10 per share.

The factors are (1) Resurgence in power consumption growth; (2) Appreciating Ringgit; (3) Improving economies of scale with declining power reserve margin - currently at 45%; 4) Potential corporate moves such as bonus or increasing dividend payout; and (5) Return of foreign investors to one of the most liquid stocks on Bursa Malaysia.

UEMLAND - UEM rises to 2-week high on 'outperform'

Stock Name: UEMLAND
Company Name: UEM LAND HOLDINGS BHD
Research House: CREDIT SUISSE



UEM Land Holdings Bhd, a Malaysian property developer, rose to a two-week high after Credit Suisse Group AG rated the stock "outperform" with a share-price estimate of RM2.

The stock climbed 1.3 per cent to RM1.54 in Kuala Lumpur trading at 9:07 a.m. local time, set for its highest close since June 28. -- Bloomberg

GPACKET - P1 to return to black earlier, says OSK

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



Packet One Networks (P1), a subsidiary of Green Packet Bhd, expects to return to the black earlier than expected on stronger subscriber base due to growing interest in the wireless broadband segment, says OSK Research House.

The company would be capturing a bigger share of the wireless broadband segment from WiMAX-embedded notebooks, it said.

Currently, 20 per cent of its total subscribers are from the wireless broadband segment, it said in its research note. The research house said the segment would gain popularity as major PC retail outlets have begin to stock up the models.

"We believe the crowd-pulling events launched by Intel and PI two weeks ago were vital to drum up interest on wireless broadband and to attract tech-savvy mobile internet users," it said.

OSK Research also visited the various computer outlets to make a quick check on interest in the wireless broadband. The findings confirmed most retailers have placed orders for the models expected to be on their shelves by next month.

"We gather that shopkeepers are generally upbeat on the anticipated sales in view of the many enquiries received so far," it said.

Meanwhile, it also maintained "buy" for Green Packet based on the RM1.30 target price. -- Bernama