July 23, 2010

COCOLND - Potential upside for Cocoaland earnings

Stock Name: COCOLND
Company Name: COCOALAND HOLDINGS BHD
Research House: TA

Cocoaland Holdings Bhd
July 22, RM2.85
Downgrade to hold at RM2.87 with target price of RM3.11
: Cocoaland announced last Wednesday that it is in negotiations with potential partners to broaden its growth, a move which may lead to placement of shares in the company at a discount. However, in the announcement it was stated that no financial decisions had been made.

There has been news of a potential merger and acquisition involving Cocoaland in recent months. We remain neutral on this as management has yet to announce anything. Note that Cocoaland's share price has appreciated by more than 100% in one month.

Cocoaland is allocating RM50 million as capital expenditure (capex)'' this year to grow its operations. This includes output expansion for its fruit'' gummy and Cocopie products, besides the company's polyethylene terephthalate or PET bottling operations.

We are positive on this development'' as it will boost earnings from FY2011. We expect capex to be partially internally funded. Recall that Cocoaland had raised RM16 million from its placement of 12 million new shares earlier this year.

Given the potential growth spurt, we revise our earnings forecast for Cocoaland upwards by between 17% and 32% for FY2011-12.

By year end, Cocoaland is installing an additional production line each for its fruit gummy and Cocopie products, a move which is expected to'' boost output capacity for both products by 50% each.

The capacity expansion is expected to boost the company's revenue by RM50 million to RM60 million.

On its PET bottling division, Cocoaland has commenced operations and has taken orders. We believe trial runs with multinational corporations for original equipment manufacturer (OEM) contracts earlier this quarter will be translated into sales'' next month. Cocoaland also plans to add another'' line to double its PET bottling capacity next year.

Recall that Cocoaland is also producing its own fruit drink, which will be launched soon under the brand 'Fruit 10'. According to management, its PET bottling division will cater more for the OEM market.

By rolling over our valuations to FY2011, we derive a new target price of RM3.11 for Cocoaland shares based on FY2011 PER of 12 times. Given total returns of less than 15%, we downgrade Cocoaland to a hold. ' TA Securities, July 22


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


DAYANG - Smooth Sailing for Dayang Enterprise Holdings

Stock Name: DAYANG
Company Name: DAYANG ENTERPRISE HOLDINGS BHD
Research House: HWANGDBS

Dayang Enterprise Holdings Bhd
(July 22, RM2.10)
Maintain buy at RM2.04 with target price of RM3
: Dayang has secured approximately RM680 million worth of contracts this year. This is 25% of the contracts awarded to the local oil and gas companies we track. This brings its order book to a record high of RM1.1 billion, implying strong earnings visibility for the next five years.

We understand that some of the contracts could be worth much more because, typically, additional work may need to be carried out, providing further upside to our earnings forecast.

To date, the company has met our FY2010 contract win assumption (RM600 million) and we are looking at RM1 billion contract wins for FY2011.

We expect 2Q2010 earnings to be close to 1Q2010 (RM13 million), before picking up pace in the 2H2010 driven by the RM400 million Shell contract.

FY2010F earnings are fully accounted for based on its current order book.

We also gather there could be an interim contract awarded for the five-year SKO & SBO (Sabah & Sarawak) topside maintenance contract which expires this August.

We believe Dayang stands a good chance of securing the contract given that it is the incumbent operator and it has previously succeeded in securing interim PMO (peninsular) contracts.

We are retaining our target price of RM3 per share pegged to 11 times FY2011F earnings per share (EPS).

Dayang offers strong earnings growth (FY2009-11F net profit compounded annual growth rate of 46.2%), underpinned by a sizable order book, superior margins, and new contract wins.

Valuation remains undemanding at 7.5 times FY2011F price-to-earnings ratio (PER) against the sector's 9.1 times. ' HwangDBS Vickers Research, July 22



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


KULIM - Kulim exiting oleochemical business

Stock Name: KULIM
Company Name: KULIM (M) BHD
Research House: MIDF

Kulim Bhd
July 22, RM7.75
Neutral recommendation on stock remains with revised target price to RM7.92
: The historical mean PER is eight times. However in view of the more streamlined operations, focusing on better margin and more stable businesses, we expect the PER rating of Kulim to be re-rated upwards in line with other mid-sized plantation groups which are trading at around the early teens. We thereby raised our target price to RM7.92 based on FY2011 PER of 10.5 times.

Kulim entered into a share sale agreement with PGEP Group Sdn Bhd, a subsidiary of Wilmar International Ltd, for the proposed sale of its 91.38% equity in Natural Oleochemicals Sdn Bhd (NatOleo) for a cash consideration of RM450 million (effectively valuing the entire NatOleo at RM492.5 million). The National Land Finance Cooperative Society Ltd holds the remaining 8.62% stake in NatOleo.

As at Dec 31, 2009, the net assets of NatOleo amounted to RM308.2 million. Hence the proposed disposal is pegged at 1.6 times its book value.

The rationale for the proposed disposal is to provide Kulim with an exit strategy to unlock the value of its investment in NatOleo, which produces mainly basic oleochemicals and is characterised by significant volatility in earnings. Hence, by disposing of NatOleo, Kulim will be able to focus more attention on its better-margin, stable and more profitable businesses, oil palm plantations and quick service restaurant under QSR Bhd.

Based on NatOleo's financial statements for FY2009 ended Dec 31, it incurred a net loss of RM23 million on the back on revenue of RM1.10 billion.

However in the quarter ended March 31, 2010, Kulim's oleochemicals business experienced a turnaround with a pre-tax profit of RM15.8 million in tandem with the recovery in the global demand for oleochemicals. The proposed disposal will result in Kulim forgoing NatOleo's earnings prospects of around RM20 million to RM30 million per annum as the global demand for oleochemicals recovers from the 2008/2009 economic slump.

Nevertheless, the proposed disposal will provide Kulim with immediate cash proceeds, which have been earmarked for future investment and working capital. Should the proceeds be re-invested in high profit-yielding assets, these investments may yield better returns to Kulim compared with the earnings forgone with the disposal of NatOleo. Kulim recently acquired 80% equity interest in CTP PNG Ltd for US$200 million.

Hence, proceeds from the disposal of NatOleo may be used to refinance the purchase and further capital expenditure of CTP. In the interim, however, the RM450 million cash proceeds may earn Kulim around RM12 million per annum in additional income.

Kulim is expected to record an accounting gain of approximately RM168.3 million arising from the sale of NatOleo, which translates to a gain of approximately RM0.54 per share. ' MIDF Research, July 22


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


CARLSBG - Carlsberg to distribute Asahi beer

Stock Name: CARLSBG
Company Name: CARLSBERG BREWERY MALAYSIA BHD
Research House: OSK

Carlsberg Brewery Malaysia Bhd
July 22, RM5.04
Maintain buy at RM5 with target price of RM5.30
: Through 70%-owned subsidiary Luen Heng F&B Sdn Bhd, Carlsberg now holds the right to distribute and market all Asahi beer brands and'' products in Malaysia beginning this month. Carlsberg expects to drive sales of Asahi beer via its distribution network. Distribution will be centred on on-trade (hotel, restaurant, caf'') and off-trade (supermarkets) channels.

Although Asahi beer commands a small market share of less than 1% in Malaysia, Carlsberg intends to expand the brand's presence by leveraging the group's distribution network. The move will benefit both Carlsberg and its Japanese partner Asahi Breweries. Carlsberg will'' expand its brand coverage to compete with market leader Guinness Anchor while Asahi gets to grow its presence in Malaysia.

Available at premium pricing at both on-trade and off-trade channels, Asahi will be priced on par with other premium beers such as Hoegaarden'' and Kilkenny.

Pricing may well be some 20% to 38.5% (as per its price at Cold Storage) higher than standard lagers such as Tiger and Carlsberg's Green Label at off-trade channels while those at on-trade channels will be priced at the respective outlets' discretion, although still at a premium.

The newly-acquired rights came with the introduction of three new stock-keeping units. Apart from the typical 330ml cans, 330ml bottles and larger 640ml bottles, the collaboration will also see the introduction of a new 135ml can, enlarged one-litre can and also a two-litre giant-sized can.

Excluding the larger one and two-litre cans, which are currently only available at duty-free outlets, the other variants are available at all distribution channels.

In view of the smallish market share of Asahi beer brands in Malaysia, there should be no major earnings impact on Carlsberg. Nonetheless, the inclusion of Asahi into Carlsberg's brand portfolio will certainly be a boost since the Asahi brand can now leverage on Carlsberg's distribution network. Furthermore, Asahi is a brand familiar to the Malaysian market, being widely known in Japanese restaurants and AEON's Jusco supermarkets. ' OSK Research, July 22


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


ZHULIAN - Zhulian an 'irresistible jewel'

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



Zhulian Corp, a multilevel marketing company, gained 3.6 per cent to RM2.02, on course for its highest close since July 14.

The company was rated new �??buy" at HwangDBS Vickers Research Sdn Bhd, which said the stock is an "irresistible jewel" with overseas expansion to drive future growth.

The share price estimate is RM2.85, HwangDBS said in a report today. -- Bloomberg


ALAM - OSK Research maintains Buy on Alam Maritim

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

KUALA LUMPUR: OSK Research is maintaining its Buy on Alam Maritim, with an unchanged price of RM1.99 based on the existing PER of 12x FY10 earnings.

It said on Friday, July 23 that judging from the uptrend in its share price, having moved up from its recent low of RM1.05 on May 26, it did not expect a material negative financial impact on the company arising from the court case.

'Going forward, we continue to like the company's sound strategy in penetrating new businesses (such as its pipe-laying barge) and new geographical markets (Middle East and India), and its solid financial strategy (using the JV option to finance its new vessels), which will not only safeguard its gearing but also instill investor confidence in the company,' it said.

Alam Maritim announced its two vessels -- MV Setia Aman and Setia Ulung ' were released after a court order. The release was made after MLC Barging Pte Ltd had discontinued the main admiralty suits in rem.


July 22, 2010

QSR - QSR advances, Nomura sees more upside

Stock Name: QSR
Company Name: QSR BRANDS BHD
Research House: NOMURA

KUALA LUMPUR: QSR saw its shares and warrants buck the cautious overall market at the midday break on Thursday, July 22 after an upbeat report from Nomura Research which forecast 12% to 14% earnings growth over the next three years.

At 12.30pm, QSR was up 28 sen to RM4.53 with 889,300 shares while the warrants, QSR-WB added 15 sen to RM1.63.

Nomura Research said it was upbeat on QSR, which is the most diversified KFC franchise owner in the region, with 830 KFC and Pizza Hut stores across Asean and India.

'We see 12-40% earnings growth over the next three years, driven by a young and high poultry-consuming population. Strong catalysts also exist via its start-up India presence. Its single-digit FY11F P/E compares favourably historically and versus its peers. We initiate on QSR with a BUY rating and PT of RM5.47,' it said.

The catalysts include continued store openings in Malaysia and India; 2) sustained positive consumer sentiment; and 3) confidence in robust economic recoveries across the region.


DIGI - DiGi results within expectations

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

DiGi.Com Bhd
(July 21, RM23.74)
Maintain hold at RM23.66 with target price of RM23.20
: DiGi's 6MFY10 results were within expectations, as revenue and net profit both achieved 51% of our FY2010 estimates. Compared to consensus estimates, DiGi also met expectations as revenue and net profit were at 50% and 51% of FY10 estimates respectively.

6MFY10 revenue rose as its subscriber base expanded, and net profit grew correspondingly on the back of stable margins. On a sequential basis, 2QFY10 net profit was flat as 2QFY10 earnings before interest, tax, depreciation and amortisation (Ebitda) margins dropped 1.3 percentage points (ppts) q-o-q to 43.3%, mainly due to handset subsidies related to the'' iPhone (launched in April), partially mitigated by cost savings (which otherwise would have been 2 ppts). Subscriber growth momentum weakened for second consecutive quarter in 2QFY10 as DiGi added 157,000 new subscribers (1QFY10: +227,000) q-o-q to 8.1 million.

DiGi added 102,000 prepaid subscribers to 6.78 million while postpaid subscribers increased 56,000 to 1.33 million. From its total subscriber base, 2.7 million are mobile Internet users of which 122,000 are mobile broadband (dongle) users.

Prepaid ARPU remains under pressure, declining slightly to RM47 (1QFY10: RM48) due to price competition, but postpaid ARPU was stable at RM83 (1QFY10: RM82) due to contributions from the data segment and stable prices.

The second interim net dividend implies almost full payout from 2QFY10 earnings (as similarly seen in 1QFY10).

Given DiGi's improving cash flow and reiterated guidance for gearing levels at 35% to 45% net debt against 55% to 65% equity, we believe our FY10 dividend per share forecast of RM1.84 or 7.8% yield (130% payout) is achievable as DiGi guided for FY10 capex to be lower than FY09, while there is room to gear up from its current 25% net debt/equity.

We reiterate our hold rating on DiGi and two-stage discounted cash flow-derived target price at RM23.20 (WACC: 6.9%, long-term growth: 2%). DiGi guided that based on the new termination rates of 5 sen/min, the impact will be largely neutral based on existing traffic patterns.

Ebitda margin is expected to stabilise in 2HFY10, while capex will likely pick up to achieve its year-end 3G population coverage of 50% (currently 35%). On the progress of the MoU with Celcom, DiGi expects a successful conclusion to current discussions and should sign an agreement by year-end. The active network collaboration between both parties will lead to substantial opex and capex savings, though DiGi declined to disclose specific numbers. ' ECM Libra Investment Research, July 21


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


BOLTON - Bolton ready for the big league

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

Bolton Bhd
(July 21, 94.5 sen)
Initiate coverage with buy call at 95 sen, target price of RM1.50
: Bolton is a compelling turnaround story with strong earnings growth potential. The past four years have seen Bolton disposing of non-core assets and rebranding itself as a niche property developer. Led by Datuk Azman Yahya (ex-head of Danaharta), Bolton's net gearing has improved significantly from 105% in FY2006 to just 10% in FY2010. Armed with RM133 million of unbilled sales and a RM195 million debt facility, Bolton is in a good position to accelerate launches and replenish its landbank, including participating in the'' redevelopment'' of government land in the Klang Valley. It aims to be among Malaysia's top 10 developers within four years (now top 30).

Bolton is poised to launch three high-end condos in prime Kuala Lumpur and a commercial project in Puchong worth RM1.1 billion by end-2010: i) 6 Ceylon (90% booked since June 2010, average selling price: RM800 psf); ii) Arata@Kenny Hills (~30% sold en-bloc; ASP: RM750 psf); iii) 51 Gurney (ASP: RM900 psf); and iv) Wharf@Taman Tasik Prima (retail & serviced apartments; GDV: RM650 million). Bolton will still have 1,210 acres for future launches (including 54 acres of prime land in the Klang Valley).

Bolton is trading at a steep 62% discount to realised net asset value (RNAV) and 0.7 times P/BV against small/mid-cap developers' average of 45% and 0.8 times respectively. Our RNAV of RM2.43 has yet to factor in potential development value of its four-acre Jalan Mayang land (JV with CapitaLand's UM Land, about RM1.4 billion GDV) which could boost RNAV by 38 sen or 17%. ' HwangDBS Vickers Research, July 21


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




PBBANK - Inter-Pacific downgrades Public Bank

Stock Name: PBBANK
Company Name: PUBLIC BANK BHD
Research House: INTER PACIFIC

Public Bank Bhd
(July 21, RM12.14)
Downgrade to neutral at RM12.20, target price cut to RM12.70 (from RM13.34)
: We have slashed our target price to RM12.70 based on the Gordon Growth Model with weighted average cost of capital of 7.46%, return on equity (ROE) of 26% FY2010 and P/BV of 3.4 times. Our recommendation is lowered to neutral from outperform in view of the underlying concern over the risk of potentially onerous regulatory core equity capital requirements. Our previous target price was RM13.34. Nonetheless, PBB is on track to deliver the 15% loans growth target in FY2010, driven by its strategic organic focus on retail business reflected by strong consumer spending and business activities. Further lending support is PBB's superior asset quality.

Net profit in 2QFY10 rose 20.2% year-on-year (y-o-y) or 7.1% q-o-q to RM734.1 million, bringing 1HFY10 net profit to RM1.42 billion or +18.3% y-o-y. Healthy 1HFY10 performance was due to higher net interest and financing income (+15.6% y-o-y to RM2.6 billion); higher non-interest income (+19% y-o-y to RM787.1 million) driven by the increase in unit trust management fees as well as higher forex income and brokerage and commission; and lower loan impairment allowance (-6.6% y-o-y to RM314.5 million). These were partially offset by higher other operating expenses (+15.8% y-o-y to RM1.2 billion) following higher personnel costs due to the expansion of the marketing sales force and higher business volume.

Net interest margin (NIM) in 2QFY10 benefitted from the two rate hikew in March and May totalling 50 basis points. It resulted in a direct improvement in NIM, raising it to 2.7% in 2QFY10 from 2.5% in 1QFY10'' from a low of 2.4% in 1Q 09. We expect NIM in the subsequent quarters to continue enjoying a positive impact from the OPR. But rates of medium- to long-term deposits will eventually reset and revert NIM expansion to the 2.4% level.

Higher q-o-q 2QFY10 loan impairment allowances rose 25% to RM174.7 million due to (i) higher collective assessment allowance in 2Q2010 attributed to stronger loan growth; (ii) absence of certain one-off recovery in 1Q2010; and (iii) higher credit charges incurred in the Cambodia operations. But it fell by 6.6% y-o-y to RM314.5 million in 1HFY10 due to lower loan impairment allowance for overseas operations of 28%. For the domestic operations, loan impairment allowance rose by 7.6% following higher loan growth of 7.3% or 14.6% annualised achieved in 1HFY10.

Underpinned by improving economic conditions, loans grew by 7.3% y-o-y in 1HFY10 or 14.6% annualised growth to reach RM147.6 billion. Domestic loans rose by 8.4% (annualised 16.7%) in 1HFY10, while overseas loan growth fell 3.2% y-o-y from the impact of the exchange rate, that is the strengthening of the ringgit against the US dollar. Deposits grew 2.2% supported by the stronger domestic core customer deposit growth of 7.6% (annualised 15.2%). Hence, asset expansion was driven by strong loans and deposit growth, up 0.9% y-o-y to RM219 million.

The loan approval rate for vehicle financing and housing in 1HFY10 surged by 22.5% y-o-y and 12.8% y-o-y respectively. SME lending, accounts for 20.4% of the total loans approved in 1HFY10, rose by 8.7% y-o-y. Underpinned by the strong loan approvals in 1HFY10, we expect it will continue to support loan growth momentum in the coming quarters.

Despite more stringent criteria on classification of impaired loans due to the adoption of FRS 139 from 2010, impaired loans ratio remained low at 1.2% with high loan loss reserve of 133.9%. Based on old GP3 classification of three months non-performing loans, NPL ratio improved to 0.9% from 1% at end-December 2009.

Loan loss coverage ratio at 133.9% is still one of the highest and most prudent in the banking industry. RWCR and CCR are at 13.9% and 10% respectively as at end-June 2010. Cost-to-income ratio remains efficient at 34.6% agaisnt 48% for the industry. ' Inter-Pacific Research, July 21


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




MISC - AmResearch reaffirms Buy on MISC

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

KUALA LUMPUR: AmResarch is reaffirming its non-consensus BUY rating on MISC BHD [] (MISC) and maintains its sum-of-parts derived fair value of RM11.80/share.

It said on Thursday, July 22 charter rates, in recent months, have turned in positive YoY growth following 17 months of contraction.

Tanker scrapping in 1H 2010 was 5% higher than 1H 2008. We sense that MISC is aggressively positioning itself for a tanker industry upcycle. A string of tanker acquisitions follows its recent buy of Vitol's tank terminal unit, VTTI.

'MISC's balance sheet remains strong, even after factoring in impact from recent vessel acquisitions of RM2.1bil and purchase of 50% stake in VTTI for RM2.8bil,' it said in a research note.

AmResearch said assuming MISC gears up to similar levels now, it estimates acquisition capacity at RM5bil-RM6bil - sufficient to buy small to mid scale tanker owners.

MISC is hugely under owned by the market having underperformed the FTSE Bursa Malaysia KLCI by 32% over the past 12 months.

'Convergence of the abovementioned catalysts should trigger a significant re-rating of MISC's share price, which in turn will trigger massive portfolio rebalancing by institutional funds given MISC's position as the 9th largest stock on the index with a significant 3.8% weighting,' it said.


DAYANG - HDBSVR maintains Buy on Dayang Enterprise

Stock Name: DAYANG
Company Name: DAYANG ENTERPRISE HOLDINGS BHD
Research House: HWANGDBS

KUALA LUMPUR: HwangDBS Vickers Research (HDBSVR) is maintaining a Buy on Dayang Enterprise and retains its target price of RM3 per share, pegged to 11x FY11F EPS.

It said on Thursday, July 22 that Dayang offers strong earnings growth (FY09-11F net profit CAGR of 46.2%), underpinned by a sizable order book, superior margins, and new contract wins.

'Valuation remains undemanding at 7.5x FY11F PE against the sector's 9.1x,' it said.

Dayang Enterprise has secured about RM680 million worth of contracts this year, or 25% of contracts awarded to local oil & gas companies that the research house tracks.

'This brought its order book to a record high of RM1.1b, implying strong earnings visibility for the next five years,' it said.


TOPGLOV - CIMB Retail Research: Sell on Top Glove

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

KUALA LUMPUR: CIMB Retail Research has a Sell call on Top Glove at RM6.80 after the stocks violated its short term uptrend support yesterday following three days of losses.

In its technical outlook issued on Thursday, July 22, CIMB Research said the world's largest glove maker's share price is currently finding some support around the 30-day and 50-day SMA, around the RM6.52 to RM6.74 leve.

'We do not expect the bulls to be able to keep prices up for much longer following the trend line breakdown. Technical landscape looks fragile with RSI now below its support trend line and MACD about to confirm its dead crossover. There are also bearish divergences seen on both its MACD and RSI, which makes the stock a SELL,' it said.

CIMB Research said any rebound towards the support turned resistance trend line at RM7.00 is a chance to sell.

'We expect prices to fall to at least the May low of RM5.59, if not lower. Its 200-day SMA at RM5.65 could also attract prices towards it,' it said.


July 21, 2010

LUXCHEM - CIMB Research: Sell on Luxchem at RM1.15

Stock Name: LUXCHEM
Company Name: LUXCHEM CORPORATION BHD
Research House: CIMB

KUALA LUMPUR: CIMB Retail Research has a sell on industrial chemicals supplier Luxchem Corp Bhd at RM1.15.

The research house said on Wednesday, July 21'' Luxchem has been a good trading stock since October 2009 as prices were moving between the 90 sen and RM1.20 range for the past few months.

'If history repeats itself, traders should use any rebound to unload on strength. For the past three attempts, it failed to inch past the RM1.20 resistance trend line and we think it will be indifferent this time around,' it said.

CIMB Research said the bearish divergence on MACD suggests that momentum has faded. Its RSI has also hooked down from the overbought territory.

'Traders may want to offload some position now as we anticipate strong resistance head. Even if RM1.20 is taken out, the bears at RM1.27 will also keep the bulls at bay,' it said.

''


NAIM - Naim could see strong earnings from Dayang

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

Naim Holdings Bhd
(July 20, RM3.15)
Maintain buy at RM3.17 with target price of RM4.10
: We met with Tengku Yusof and Bailey Kho, managing director and head of corporate affairs respectively, of Dayang Enterprise Holdings Bhd. We came away positive as the company is bidding for new projects from Petronas and adding new contracts to its existing RM1.1 billion order book. Dayang is seeing excellent market opportunities. Naim owns 36% of Dayang.

Significant numbers of offshore topside structural maintenance contracts are expected to be opened for tender over the next 6 to 12 months. In 2010, there will be RM2 billion worth of expiring maintenance contracts up for renewal and Dayang will be looking at bidding for some of these.

In March, Dayang announced that it had been awarded a RM400 million contract by Shell, boosting its order book to RM1.1 billion, which will last until 2015.

Earnings re-rating for Dayang is expected, given that it has a current tender book of RM540 million and there is RM1.3 billion in upcoming maintenance contract tenders from Petronas for the rest of 2010. Besides Dayang, bidders for these contracts are Petra Energy, Kencana, Shapadu and Vastalux.

However, we believe Dayang has a relative advantage given its bidding success rate of 75% and excellent track record of 100% on-time delivery over the last 20 years. One of the key reasons is its investment in sufficient operating capacity with four workboats and it has a strong marine fleet with 37 vessels to support its maintenance services. This has also enabled the company to enjoy high operating margins of 22%.

Besides strong earnings contribution, Naim's 36% stake in Dayang has already doubled in investment value given its low entry cost of 96 sen per share. Considering the last closing price of RM2.09, Naim has an unrealised investment gain of RM143 million. At 96 sen, the effective entry valuation in Dayang is only 3.6 times FY2011 EPS of 27.2 sen. Based on consensus estimates, Dayang could contribute net profit of RM24 million to Naim in FY2010 and RM35 million in FY2011 with possible further upgrade if awarded new contracts. These provide stable and recurring profit to Naim. At this juncture, we estimate Dayang contributing RM15 million in FY2010 and RM16 million in FY2011, hence we see room to raise our earnings estimates in Naim as well as our valuation.

Maintain buy for Naim, with a target price of RM4.10 applying 11 times FY2010F EPS of 36.9 sen and a 41% discount to the top three construction companies average of 16.9 times. Naim is the prime beneficiary of pump priming for SCORE, including potential infrastructure investments, and is in line to secure major projects. FDI will eventually draw new population growth into Sarawak, benefitting its property development division. ' Kenanga Investment Bank Bhd Research, July 20


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




AXIATA - Axiata focusing on its core business

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

Axiata Group Bhd
(July 20, RM4.08)
Reiterate outperform at RM4.10 with target price of RM4.52
: We reiterate our outperform recommendation with our fair value pegged at RM4.52 based on a sum-of-parts valuation which translates into a PER of 14.4 times based on FY2010 EPS of 31.45 sen.

Axiata entered into an agreement with Adnan Asdar Ali (current CEO of Multinet Pakistan) to dispose of'' the former's entire shareholding of 89% in Multinet Pakistan (Private) Limited (Multinet) for a total cash consideration of US$15 million (RM48.3 million). Adnan is expected to repay the PKR973.3 million (RM36.7 million) which Axiata advanced to Multinet. Axiata will also be free from all guarantees and financial support provided to Multinet amounting to US$65 million.

The move is in line with Axiata's divestment of non-core business. To recap, Multinet was part of a TM subsidiary that was divested to TMI during the demerger of TM to TMI and TM.

The deal will have a minimal impact on Axiata as Multinet accounts for 0.58% and 1.2% of Axiata's FY2009 revenue and net profit.

Possible potential divestment of other non-core business could be Samart Corp in Thailand (dealing with the sale of mobile phone bundled with mobile multimedia) and MTCE in Iran which is suffering from limited growth because it has an operating licence in Esfahan province. ' Inter-Pacific Research Sdn Bhd, July 20


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




AXREIT - Axis REIT's annualised numbers below expectation

Stock Name: AXREIT
Company Name: AXIS REITS
Research House: OSK

Axis Real Estate Investment Trust
(July 20, RM2.10)
Maintain neutral at RM2.07 with target price of RM1.93
: After stripping out the exceptional gains, which were mainly due to a property revaluation surplus, the annualised 1H2010 core earnings were 9% below our full-year projection. This was mainly due to: (i) loss of income from Nestle House (now called Quattro West) in 1H2010 and Shah Alam Distribution Centre 1 (SADC1) in 1Q2010 due to fit-out work to accommodate new long leases for those properties; and (ii) the recently proposed acquisitions of two properties ' the Axis PDI Centre and Axis Technology Centre ' will not contribute to earnings until, perhaps, sometime from 4Q2010.

Although the annualised earnings were a shade below our estimates, we are unperturbed because: (i) rental income from SADC1 recommenced from April 1, 2010 at an 8% increase; and (ii) rental income from Quattro West should have recommenced from early July 2010. To date, 100% of the Quattro West has been leased out to at least three tenants at significantly higher rental rates.

As we believe Axis REIT's full-year realised earnings will eventually meet our expectation, we are leaving our forecasts on realised earnings unchanged for now. However, to reflect the gains from the property revaluation surplus in 1H2010, we are revising our reported earnings forecast upwards by 18%.

In line with our unchanged forecasts, we maintain our target price of RM1.93 by pegging Axis REIT's unchanged dividend per unit against the average dividend yield of 8.4% of its peers. However, given the still limited upside from the current price level, we are maintaining our neutral call. ' OSK Investment Research Sdn Bhd, July 20


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


KHSB - CIMB Research: Buy KHSB at 42.5 sen

Stock Name: KHSB
Company Name: KUMPULAN HARTANAH SELANGOR BHD
Research House: CIMB

KUALA LUMPUR: CIMB Retail Research has a Buy on property developer KUMPULAN HARTANAH SELANGOR BHD [] at 42.5 sen.

The research house said on Wednesday, July 21 KHSB may have found a temporary low at RM0.35. Since then, prices had rebounded a tad higher.

'On Tuesday, the candles also went close to challenge its downtrend resistance line. If it breaks out, prices would likely re-rate towards 45 sen and 48.5 sen next. A breakout above its 200-day SMA would instil more positives into the stock,' it said.

CIMB Retail Research said technical indicators also show signs of recovery. MACD has finally turned black while its RSI is rising towards the upper band of the neutral zone.

'Risk takers may start to nibble now. However, always put a stop at the support trend line (now at 38 sen) in case this is just a dead cat bounce. A slip below 35 sen would cancel out the upward momentum,' it said.


PBBANK - Mixed stock ratings for Public Bank

Stock Name: PBBANK
Company Name: PUBLIC BANK BHD
Research House: OSK



HwangDBS retained its "hold" stock rating on Public Bank with a raised target price of RM13.10.

The research firm raised its Public Bank's FY10-12F earnings estimates on positive outlook.

"We expect loan growth to remain strong in 2H10 given the strong loan approvals in 1H10," HwangDBS said.

Meanwhile, OSK said Public Bank's annualized first-half 2010 results were largely in line with consensus and full-year estimates.

"We are maintaining our target price of RM13.00, which implies a ROE of 26 per cent," the research firm said.

OSK has maintained its "buy" recommendation for the stock.

Meanwhile, "with another 25bps OPR hike in July, Public Bank would stand to benefit from higher NIM assuming minimal competition for deposits".

"Our target dividend payout is revised to 50-51 per cent (from 55 per cent) over FY10-12F, with gross DPS of 60sen, 68sen and 78sen," said HwangDBS.

Meanwhile, Affin has made an "add" call on Public Bank with a higher target price of RM12.70 from RM12.50 previously.

"We have adjusted our earnings forecast for FY10-12 by 0.4-0.8 per cent subsequent to the OPR hike in July 2010 and have reduced our dividend assumption for FY10-12from 45-55 sen net to 41.3-45 sen," said Affin.

PBBANK - Mixed stock ratings for Public Bank

Stock Name: PBBANK
Company Name: PUBLIC BANK BHD
Research House: HWANGDBS



HwangDBS retained its "hold" stock rating on Public Bank with a raised target price of RM13.10.

The research firm raised its Public Bank's FY10-12F earnings estimates on positive outlook.

"We expect loan growth to remain strong in 2H10 given the strong loan approvals in 1H10," HwangDBS said.

Meanwhile, OSK said Public Bank's annualized first-half 2010 results were largely in line with consensus and full-year estimates.

"We are maintaining our target price of RM13.00, which implies a ROE of 26 per cent," the research firm said.

OSK has maintained its "buy" recommendation for the stock.

Meanwhile, "with another 25bps OPR hike in July, Public Bank would stand to benefit from higher NIM assuming minimal competition for deposits".

"Our target dividend payout is revised to 50-51 per cent (from 55 per cent) over FY10-12F, with gross DPS of 60sen, 68sen and 78sen," said HwangDBS.

Meanwhile, Affin has made an "add" call on Public Bank with a higher target price of RM12.70 from RM12.50 previously.

"We have adjusted our earnings forecast for FY10-12 by 0.4-0.8 per cent subsequent to the OPR hike in July 2010 and have reduced our dividend assumption for FY10-12from 45-55 sen net to 41.3-45 sen," said Affin.

BOLTON - Bolton rated new 'buy' at HwangDBS

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



Bolton Bhd, a Malaysian property developer, was rated a new "buy" at HwangDBS Vickers Research Sdn Bhd, which said the company has a "compelling turnaround story" with strong earnings growth potential.

The share price estimate for the company is RM1.50, it said in a report today. The stock rose 0.5 per cent to 95.5 sen at 9.56 am local time in Kuala Lumpur. - Bloomberg





COCOLND - AmResearch initiates coverage of Cocoaland, FV RM3

Stock Name: COCOLND
Company Name: COCOALAND HOLDINGS BHD
Research House: AMMB

KUALA LUMPUR: AmResearch has initiated coverage of Cocoaland Holdings with a BUY at fair value of RM3 per share.

It said on Wednesday, July 21 the FV of RM3 was based on target PE of 12x FY11F earnings, pegged to a 10% discount to the average PE for consumer stocks (13x).

Cocoaland is South-East Asia's largest producer of fruit gummies and one of Malaysia's leading confectionery producer of snacks and chocolate food products. The group is now well positioned to leverage on efficiency gains after its successful production automation programme (FY09).

'FY10F will also see an eventful maiden contribution from the group's PET bottle operations with pre-secured OEM orders. Despite major capex totalling RM59mil from FY10F-11F, our earnings model indicates a net cash position, and decent dividend yields of 3%- 5% p.a., premised on the stock's historical dividend payout ratio of 40%,' it said.

AmResearch said Cocoaland's valuation is undemanding, with the stock trading at forward PE of 10x. We like the stock's high ROE of 24% and strong balance sheet (below 1% gearing). Better-than-expected response to the group's soon to-be-launched proprietary tea and fruit-based beverages are potential re-rating catalysts near term,' it said.


TCHONG - Maybank overweight on car sector

Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Research House: MAYBANK



Maybank has maintained its "overweight" recommendation on the car sector, but downgraded Tan Chong Motors to "hold" on less palatable valuations, as it has reached the target price of RM4.40.

"New auto sales remain robust in June and 1H 2010 but we expect a softer 2H as higher financing rates and lower consumer sentiment from higher petrol prices kick in," says Maybank.

Auto remains an overweight sector with buy calls for Proton and MBM, says Maybank.

A Proton-Perodua merger is regurgitated tabloid news, an unlikely event unless it is forced.


DIGI - OSK Research maintains Neutral on DiGi

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

KUALA LUMPUR: OSK Research said DIGI.COM BHD []'s 1HFY10 results were in line with its and consensus expectations.

The research house said on Wednesday, July 21 the key takeaways were: (i) the strong 16% quarter-on-quarter jump in postpaid revenue from maiden iPhone sales; (ii) improved mobile broadband revenue traction, and (iii) a second interim DPS of 35sen/share declared.

'We maintain our forecast but increase our target price on the stock to RM24.40 (from RM23.10) on lowering our WACC assumption to 9.5% from 10.5% on the back of the progressive efforts to optimise its balance sheet over the next 12 months. Given the more than 10% share price upside, our NEUTRAL call is maintained,' it said.


July 20, 2010

F&N - Insignificant impact from cut in sugar subsidy for F&N

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

Fraser & Neave Holdings Bhd
(July 19, RM14.22)
Maintain buy at RM14.20 with fair value of RM15.20
: The government has announced subsidy cuts for sugar, petrol, diesel and liquefied petroleum gas (LPG) as part of its gradual subsidy rationalisation programme.

With the upward adjustment of 25 sen/kg (+15%) for sugar, the effective retail price of coarse sugar is now RM1.90/kg in Peninsular Malaysia and RM2/kg in Sabah & Sarawak, compared with RM1.65/kg and RM1.75/kg previously.

While this development does not bode well for most F&B companies in general, we are not surprised by the move given the government's intention to reduce subsidies. Recall, the sugar price was raised by 20sen/kg in January 2010.

We see insignificant impact on F&N's earnings; more than 2% of FY2010F core earnings, assuming one or two months time lag in passing down costs. While sugar is one of the main ingredients in F&N's soft drinks and dairy products, such as condensed and evaporated milk, it makes up only 10% to 12% of total operating costs. Almost 50%, or the bulk of total operating costs, come from packaging materials such as aluminium and PET (polyethylene terephthalate plastics).

We reckon the group will be able to pass down the additional costs to consumers by increasing the prices of its products with relative ease, judging from previous experience and its strong brand equity. Furthermore, with almost 80% of its products retailing under the RM3 mark, we do not think the small quantum of increase will deter consumption.

The group has been shifting its focus toward production of beverages with a lower sugar content and over the last five years has reduced the average amount of sugar by 7.5% in its products.

No change to our earnings forecast and buy recommendation with fair value of RM15.20 per share, based on target PER of 18 times CY2011F earnings. We expect further upside arising from a possible earnings accretive M&A, while the strong fundamentals of core soft drinks and dairies should continue to fuel positive investor interest. 'AmResearch Sdn Bhd, July 16


This article appeared in The Edge Financial Daily, July 20, 2010.




GAMUDA - Gamuda expanding its Malaysian landbank

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

Gamuda Bhd
(July 19, RM3.37)
Maintain hold at RM3.36 with target price of RM3.50
: The Edge Financial Daily has reported that Gamuda's wholly owned property development arm, Gamuda Land, has acquired a plot of freehold land in Jalan Pudu for a mixed commercial development with an estimated gross development value (GDV) of RM600 million. A sale and purchase agreement was entered into last month for the acquisition of the 2.94-acre parcel of commercial land located at the intersection of Jalan Pudu and Jalan Robertson for RM105 million or RM820 per sq ft from Wearne Brothers Properties Pte Ltd.

Known for their development of sprawling suburban townships, the project is Gamuda's first mixed commercial development in Malaysia. The plot of land is located in the heart of Kuala Lumpur within walking distance of the bustling Bukit Bintang area and the Plaza Rakyat LRT station. The development is expected to take three years, with the initial launch tentatively scheduled for early FY2012. Assuming a pre-tax margin of 20% and a sales period corresponding to the development period, the project should contribute about RM90 million in after-tax earnings over the development period. We expect our earnings estimate for FY2012 to be boosted by just 0.5% as the project will still be in the start-up stage. Therefore, we leave earnings estimates unchanged for now.

Although the construction division remains the biggest earnings contributor, Gamuda's property division will see the strongest pre-tax earnings growth over the next two years at CAGR of 67%. This is underpinned by its large scale ventures in Vietnam, which will begin contribution in FY2011. Recall that its first Vietnam property project, Yenso Park in Hanoi, is slated for a soft launch in October 2010. Its mixed development in Tan Thang, Ho Chin Minh City, also known as Celadon City, is also scheduled for launch in August 2010. With a combined GDV of RM16 billion, these projects are expected to overshadow all the Malaysian property projects combined.

We maintain our hold call as we believe Gamuda is fairly valued at current valuations. Our target price is unchanged at RM3.50 based on FY2011 EPS pegged to a historical average PER of 20 times. ' ECM Libra Investment Research, July 19


This article appeared in The Edge Financial Daily, July 20, 2010.




BURSA - Bursa's 1HFY10 net below consensus

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

Bursa Malaysia Bhd
(July 19, RM7.05)
Maintain sell at RM7.02 with target price of RM6.90
: Bursa's 2QFY10 net profit of RM27.5 million was -2%, quarter-on-quarter (q-o-q). The 1Q profit after tax (PAT) of RM28.1 million and its 1HFY2010 net profit of RM55.6 million was below consensus full-year estimate of RM140 million (40%) but in line with ours (47% of RM119.2 million).

Turnover was flat in 2Q. Q-o-q, average daily trading value (ADT) was roughly 15% lower than 1Q's RM1.53 billion, impacted by external economic uncertainties.

Volume pressure is expected to continue near-term due to the noise level on the external front. There could be downward pressure on ADT assumptions for FY2010/11 and the negative impact on earnings would likely be severe to Bursa's bottom line.

Consensus estimates are too bullish. The possibility of sudden market correction has not been fully factored into current consensus earnings estimates. Many analysts still argue strong volume performance is sustainable despite Europe's sovereign debt chaos and China's soft landing. Consensus net profit forecast for Bursa is RM140 million in FY2010, assuming an ADT of RM1.6 billion. We believe these estimates are too aggressive.

We maintain our sell rating and price target of RM6.90. We value the exchange based on 30 times FY2010 EPS of 23 sen per share. We are comfortable with a target PER of 30 times against Bursa's historical average PER of 34 times. ' Kenanga Investment Bank Bhd Research, July 19


This article appeared in The Edge Financial Daily, July 20, 2010.




TENAGA - Tariffs could provide support for Tenaga

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

Tenaga Nasional Bhd
(July 19, RM8.56)
Maintain buy at RM8.61 with target price cut to RM9.90 from RM10.15
: Tenaga's annualised 9MFY2010 core net profit of RM2.1 billion was 8% below consensus and 20% below our forecast. The discrepancy with our forecast was mainly because we were overly optimistic on the tariff rates Tenaga was expected to enjoy. At the same time, non-electricity revenue was below expectation while 'other costs' came in higher than expected. While Tenaga still posted a 21.9% year-to-date (YTD) jump in core net profit, quarter-on-quarter (q-o-q) core net profit plunged 37% as the 4.1% jump in units sold was not enough to offset the 11.3% rise in coal prices. Nonetheless, its balance sheet improved further as net gearing fell below 50% for the first time in over six years, raising the possibility of Tenaga considering higher dividends going forward.

YTD, given the constraints in gas supply, which is being channelled to non-power customers, the generation mix comprises 54% gas and 40% coal. As we do not expect much change to gas availability going forward, we tweak our forecast generation mix to 56% gas and 37% coal and leave our gas and coal price estimates unchanged for now.

Given that goods and services and deferred income revenue disappointed, we revise downwards our forecasts for these categories. We also trim our effective tariff rates and revise upwards 'other costs'. Based on these changes, our FY2010 core net profit forecast is reduced by 17.2% while our FY2011 forecast is cut by 14.6%.

The reduction in our profit forecast leads to our discounted cash flow-based fair value being lowered to RM9.90 from RM10.15 previously. Nonetheless, we maintain our buy call on Tenaga, noting that foreign shareholding in the counter had risen to 10.65% in June from a low of 8.51% in January. Tenaga remains a blue chip laggard that could draw greater interest. Our RM9.90 fair value is equivalent to 13.5 times FY2011 PER.

In 4Q, the ringgit somewhat stabilised against the US dollar and actually weakened against the Japanese yen. We believe this should prevail up to end-August. Having previously forecast an exception item in terms of forex gains of RM700 million for FY2010 versus the YTD gains of RM680.7 million, we leave our forecast forex gains unchanged for now.

YTD, Tenaga's peninsula demand numbers rose 10% while groupwide numbers are up 9.4% for 9MFY2010. Tenaga has expressed reservations on demand going forward as July demand has thus far showed a slight non-seasonal dip. Nonetheless, it expects peninsula FY2010 demand to grow by 9.5%, while for FY2011 the group is still hopeful of 3% to 4% growth. Given the contraction in sales in exports and Liberty Power, we cut our forecast group-wide sales growth from 8% to 7.3% but maintain our FY2011 growth at 3.8%.

As the major cost items ' IPP charges, fuel charges, repair & maintenance and staff costs ' were all within our estimates, we maintain our earlier assumptions on these costs, including effective coal prices of US$92 per tonne for FY2010 and US$98 for FY2011.

While the major cost items were within our expectations, the effective tariffs were lower than expected, as were non-electricity sales. 'Other costs' were also higher than expected. Incorporating these into our forecasts, our effective tariff is cut from 31.7 sen per kWh to 31.5 sen per kWh. We also cut our sales numbers for EGAT and LPL while raising our 'other cost' forecasts and tweaking our generation mix to reflect less hydro and more coal use. All in, our FY2010 core net profit forecast is lowered by 17.2%, our FY2011 cut by 14.6% and FY2012 down by 11.5%.

As Tenaga's profits will likely remain unspectacular due to higher coal costs, we believe the main catalyst shoring up its share price may be the anticipation of a tariff hike, particularly since the petrol subsidy has been reduced. While we are not including a tariff hike into our forecasts, we note that Tenaga's profit is most sensitive to a change in tariff. For now, we continue to value the counter on a DCF basis but tweak our WACC slightly lower from 10.7% to 10.4% to reflect greater optimism on tariff hikes. Nonetheless, the cut in our profit forecast reduces our fair value from RM10.15 to RM9.90. Maintain a buy call on Tenaga given its laggard blue-chip nature. ' OSK Investment Research, July 19


This article appeared in The Edge Financial Daily, July 20, 2010.




JCY - CIMB Research: Sell on JCY Intl at RM1.48

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research has a Sell on JCY International at RM1.48, based on its technical charts. It is trading at a FY11 price-to-earnings of 8.0 times and price-to-book value of 3.2 times.

'The stock has fallen back to its debut price after hitting a high of RM1.98. The pullback has been severe and does not look like a correction. We expect further price weakness in the medium term as it is now forming a bearish flag pattern,' it said on Tuesday, July 20.

Prices could still push a tad higher from here but as long as it remains in the channel, that is below RM1.62 to RM1.65, the next leg is likely to be down since a flag is a continuation pattern.

A break below the RM1.44 would signal that prices are heading lower towards RM1.30, based on the height of the flag. There is also a good chance that it could even drop below RM1.30.

JCY International Bhd manufactures hard disk drive mechanical components.


HELP - OSK Research lowers HELP to Trading Buy

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

KUALA LUMPUR: OSK Research has downgraded HELP International Corp Bhd to Trading Buy from Buy following its share price appreciation recently.

However, it is maintaining its target price of RM4.30, which is based on 14 times price-to-earnings ratio (PER) on FY11 EPS plus a net cash of 68 sen per share.

'Due to the limited upside from the current share price following its sharp price appreciation recently, we are downgrading our recommendation from BUY to TRADING BUY.

'Despite the limited upside, we believe the positive sentiment arising from the proposed bonus issue would be a catalyst sustaining the positive momentum of the share price over the short term,' it said in a research note on Tuesday, July 20.

OSK Research said with potential improvement in its share liquidity following the proposed bonus, it did not rule out the possibility of assigning a higher PER multiple in its valuation for HELP in near future, in line with the PER valuation of its comparable peers.

Post ex-date for the proposed bonus issue, our current TP of RM4.30 will be adjusted to RM2.69.

On Monday, HELP proposed a three-for-five bonus issue as part of its corporate exercise. Its share price had surged 29 sen to a record high of RM4.05'' ahead of the announcement. The corporate exercise involves the bonus issue of 53.26 million new shares on a three-for-five basis at an entitlement date to be determined later.


July 19, 2010

TITAN - Kenanga Research maintains hold on Titan

Stock Name: TITAN
Company Name: TITAN CHEMICALS CORP. BHD
Research House: KENANGA

Titan Chemicals Corporation Bhd
(July 15, RM1.85)
Maintain hold at RM1.85 with target price of RM1.88
: 1H10 reported net profit of RM177.9 million achieved 33.1% of our net profit forecast (RM538.2 million) and 33.6% of consensus estimates (RM529.3 million). We suspect this is due to lower polymer-naphtha margins since 1QFY10 that has resulted in a margin squeeze in earnings. Inventory writedowns of RM36.8 million also led to the lower 1H10 earnings. Excluding the writedown 1H10 net profit is RM214.7 million (39.9% of full year estimates and 40.6% consensus).

Quarter-on-quarter (q-o-q) reported net profit (RM72.2 million) was sequentially down 31.7%, mainly due to the RM29.6 million inventory write-down mentioned above. Barring it, Titan would have reported net earnings of RM101.8 million and a minimal sequential drop of 9.9% instead.

Year-on-year (y-o-y), net profit was down 58.5% (2Q09: RM174 million), as the general increase in price of naphtha versus the polymer products led to a squeeze in gross and profit before tax margins. Again, excluding the writedown, Titan's bottom line fell 40.3%.

Demand for polymer products is expected to hold going forth, however margins will come under pressure as additional capacity from the new manufacturing plants in the Middle East and China will be operational. We are inclined to pare down our net estimates based on this outlook, however we will only do so pending their upcoming analyst briefing.

Market talk has it that the corporate proposal to be announced later last Friday maybe a general offer post a stake divestment by Titan's major shareholders ' the Chao Group and PNB. In our earlier report (Company Update: Up for sale? dated June 17) we had opined that a buy-out is not surprising given that Titan is priced attractively against international peers despite its world class production facilities. At present its FY10F PER is 6.2 times, P/BV is 0.7 times and EV/Ebitda is 4.3 times. Comparatively, the international peers are at FY10F PER of 11.1 times, P/BV of 1.7 times and EV/Ebitda of 9.6 times.

Maintain hold call and target price of RM1.88 at this juncture, pending further information from management post the corporate proposal announcement and their analyst briefing expected by the month's end. ' Kenanga Investment Bank Bhd Research, July 16


This article appeared in The Edge Financial Daily, July 19, 2010.


PLUS - MIDF Research positive on toll sector,no adverse impact from fuel price hike

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

Toll sector
Maintain positive
: The government announced last Thursday that it is reducing the subsidy on fuel from July 16. The price of RON95 petrol will be increased by five sen to RM1.85 and retail diesel will be increased by five sen to RM1.75. RON97 petrol will no longer be subsidised. It will be subjected to a managed float with a monthly automatic pricing mechanism. For now, the price of RON97 will increase by five sen to RM2.10. Total saving for the government from the fuel price subsidy cuts is estimated to be RM495.8 million.

We are not surprised by the announcement of the fuel price increase as we anticipated such a move'' after the scrapping of the two-tier fuel subsidy system.'' Recall that the government was supposed to introduce the two-tier system on'' May 1, under which the fuel subsidy was to be based on engine capacity. We had expected earlier that the fuel price would be increased by 10 sen probably during the budget in August.

We expect the fuel price to rise again, most probably in 1H2011, by another five sen. Currently, the price of RON95 without subsidy is RM1.97, which'' means'' that'' the government is subsidising 12 sen per litre. However, we expect that the subsidy will not be rationalised dramatically as the government has yet to finalise a'' targeted subsidy scheme aimed at providing a safety net for the most deserving. ''

For comparative'' purposes, we exclude ELITE, LINKEDUA and the Butterworth-Kulim Expressway (KLBK) as these highways were only acquired in December 2007, March 2008 for KLBK, and focus on the traffic growth of PLUS' North-South Highway, NKVE, Federal Highway route 2 and the Seremban-Port Dickson highway'' (collectively as 'main'' highway').

The traffic growth for PLUS' main highway has consistently declined in the month following a fuel price increase, with the largest decline being 4.2% year-on-year (y-o-y) in August 2005. This is probably due to the 'shock' to users as it was the first significant price increase.

As for LITRAK, we look at the traffic growth in the LDP as it is now considered a mature highway, while SPRINT is still a growth highway. That is why in FY2006, traffic growth grew 8.3% as the LDP was still in its 'ramp-up' period. However, traffic only grew 2.9% y-o-y in FY2009 when there was an initial fuel price hike of 78 sen to RM2.70. We believe that FY2009 traffic growth would be lower if not for the seven fuel price revisions, when fuel price finally settled at RM1.80 per litre by December 2008. ''

While a fuel price increase has always produced a knee-jerk reaction from toll users, as can be seen historically in PLUS and LITRAK traffic growths, we do not expect that the current increase would have a significant impact on traffic on both highways. This is probably due to the fact that the current fuel price increase has been expected and the quantum of the increase is not significant enough'' to change travel habits. Therefore, we are maintaining our revenue forecast for both PLUS and LITRAK at RM3.31 billion and RM345.6 million respectively.

With the latest fuel price hike not expected to have an adverse impact on the traffic growth of the highway, we maintain our positive call on the sector. We believe that any drop in traffic will not be as severe as that in the past. We retain our buy calls on PLUS (TP:RM3.85) and LITRAK (TP:RM3.60). ' MIDF Research, July 16


This article appeared in The Edge Financial Daily, July 19, 2010.


LITRAK - MIDF Research positive on toll sector, no adverse impact from fuel price hike

Stock Name: LITRAK
Company Name: LINGKARAN TRANS KOTA HOLDINGS
Research House: MIDF

Toll sector
Maintain positive
: The government announced last Thursday that it is reducing the subsidy on fuel from July 16. The price of RON95 petrol will be increased by five sen to RM1.85 and retail diesel will be increased by five sen to RM1.75. RON97 petrol will no longer be subsidised. It will be subjected to a managed float with a monthly automatic pricing mechanism. For now, the price of RON97 will increase by five sen to RM2.10. Total saving for the government from the fuel price subsidy cuts is estimated to be RM495.8 million.

We are not surprised by the announcement of the fuel price increase as we anticipated such a move'' after the scrapping of the two-tier fuel subsidy system.'' Recall that the government was supposed to introduce the two-tier system on'' May 1, under which the fuel subsidy was to be based on engine capacity. We had expected earlier that the fuel price would be increased by 10 sen probably during the budget in August.

We expect the fuel price to rise again, most probably in 1H2011, by another five sen. Currently, the price of RON95 without subsidy is RM1.97, which'' means'' that'' the government is subsidising 12 sen per litre. However, we expect that the subsidy will not be rationalised dramatically as the government has yet to finalise a'' targeted subsidy scheme aimed at providing a safety net for the most deserving. ''

For comparative'' purposes, we exclude ELITE, LINKEDUA and the Butterworth-Kulim Expressway (KLBK) as these highways were only acquired in December 2007, March 2008 for KLBK, and focus on the traffic growth of PLUS' North-South Highway, NKVE, Federal Highway route 2 and the Seremban-Port Dickson highway'' (collectively as 'main'' highway').

The traffic growth for PLUS' main highway has consistently declined in the month following a fuel price increase, with the largest decline being 4.2% year-on-year (y-o-y) in August 2005. This is probably due to the 'shock' to users as it was the first significant price increase.

As for LITRAK, we look at the traffic growth in the LDP as it is now considered a mature highway, while SPRINT is still a growth highway. That is why in FY2006, traffic growth grew 8.3% as the LDP was still in its 'ramp-up' period. However, traffic only grew 2.9% y-o-y in FY2009 when there was an initial fuel price hike of 78 sen to RM2.70. We believe that FY2009 traffic growth would be lower if not for the seven fuel price revisions, when fuel price finally settled at RM1.80 per litre by December 2008. ''

While a fuel price increase has always produced a knee-jerk reaction from toll users, as can be seen historically in PLUS and LITRAK traffic growths, we do not expect that the current increase would have a significant impact on traffic on both highways. This is probably due to the fact that the current fuel price increase has been expected and the quantum of the increase is not significant enough'' to change travel habits. Therefore, we are maintaining our revenue forecast for both PLUS and LITRAK at RM3.31 billion and RM345.6 million respectively.

With the latest fuel price hike not expected to have an adverse impact on the traffic growth of the highway, we maintain our positive call on the sector. We believe that any drop in traffic will not be as severe as that in the past. We retain our buy calls on PLUS (TP:RM3.85) and LITRAK (TP:RM3.60). ' MIDF Research, July 16


This article appeared in The Edge Financial Daily, July 19, 2010.


UMW - UMW looking into export markets

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

UMW Holdings Bhd
(July 16, RM6.34)
Maintain buy at RM6.34 with target price RM6.95
: UMW Toyota plans to locally assemble Camry models by mid-2012 as part of its RM170 million assembly plant upgrade programme. Over the next three years the paint shop, welding and automation departments will be upgraded. Doing so will reportedly increase annual production volume from 67,000 to 70,000. In 1HCY2010, UMW sold 44,000 Toyota cars (+19% year-on-year), of which 6,000 units were Camrys.

A large segment of the RM170 million to be spent will be used to improve the overall quality of vehicles. Currently, the assembly plant produces five major models ' Vios, Innova, Hilux, Fortuner and Hiace. In addition to the assembly plant expansion, UMW plans to increase local content in its Toyota models from 40% to 50%.

We are positive on the news, as we understand from management that the assembly plant upgrade will offer the company the opportunity to tap into the export markets in the medium term. Upgrading the assembly plant will help boost the overall quality of its models, in particular the Vios, which we understand UMW has identified as among the Toyota models for exports.

The other model is the Camry, most likely once UMW has enough production capacity to cater for the domestic market probably within three to five years.

We believe Toyota will likely assemble the next generation Camry instead of the current fourth generation Camry which is already about four years old and is approaching its five-year replacement cycle.

By assembling the Camry models locally, UMW will likely benefit from higher margins by keeping the value of assembly within the company, while keeping pricing largely unchanged if UMW justifies the quality of the locally assembled models as comparable to the completely built-up (CBU) models. Currently, all Camry models are CBUs brought in from Thailand.

As the export plans have a medium-term horizon beyond our earnings forecast period, we are leaving our earnings estimates unchanged for now. While UMW remains a buy on the back of improving vehicle sales, its earnings may be bogged down by its underperforming oil and gas (O&G) division due to potential further delays in securing charter awards for its jack-up drilling rigs NAGA 2 and NAGA 3.

Given the current oversupply of jack-up drilling rigs and languidly recovering contract news flow, we believe UMW's O&G profitability may be somewhat dampened by the inability to secure favourable charter rates for NAGA 2 and NAGA 3. Our sum-of-parts target price of RM6.95 remains unchanged. ' ECM Libra Investment Research, July 16


This article appeared in The Edge Financial Daily, July 19, 2010.




AFG - Banking overweight on growth from Indonesia

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

Banking sector
Reaffirm overweight
: Regional comparison reaffirms overweight on Malaysian banks. In our comparison of banks across our Asean-4 + HK/China coverage, Malaysia comes off as a mature market, albeit one that still enjoys a favourable operating environment of 10% to 11% annual loan growth and stable non-performing loans (NPL) ratios. Although Malaysian banks do not offer the superlative growth and lofty net interest margins of their counterparts in Indonesia, a few have taken stakes in Indonesian banks to get a slice of this high-growth market. We project earnings growth of 23.3% in 2010 for Malaysian banks, coming from the economic upturn, positive sentiment in the capital markets and fast-rising overseas contributions. We continue to overweight the Malaysian banking sector, with the potential re-rating catalysts being (i) strong earnings growth, (ii) higher investment banking income, (iii) brighter growth prospects for overseas operations, and (iv) potential general provision write-backs. AMMB remains our top pick.

With a loan-to-GDP ratio of 115%, which is even higher than Singapore's 106%, Malaysia's banking system is considered a mature one. Malaysian banks have the traits of mature banks, that is moderate loan growth of 8% to 10% per annum in the next three years and net interest margin of 2.1% to 2.2%. In comparison, Indonesia's developing banking industry has a loan-to-GDP ratio of only 25.6% and offers much higher loan growth of 18% to 20% and net interest margins in excess of 6%.

For the countries in our coverage, Indonesia is the market with the most attractive growth prospects for banks. This is supported by (i) its unrivalled net interest margin of 7.4% against 2.2% to 3.5% in other countries, (ii) brisk loan growth of 18% to 20%, and (iii) low non-interest income ratio as this suggests that several segments such as treasury and investment banking are still untapped. Even now, Indonesian banks have the highest return on equity (ROE) of 25.1% and return on asset (ROA) of 2.6% among the countries under our coverage.

One of the key catalysts for Malaysian banks is their exposure to the high-growth market in Indonesia. CIMB owns 78.3% of Bank CIMB Niaga, Indonesia's fifth largest bank, Maybank controls Bank Internasional Indonesia (BII), the ninth largest bank, RHB Capital is buying 80% of Bank Mestika and Affin Holdings is purchasing a controlling stake in Bank Ina Perdana. For Maybank, loans in Indonesia are expected to increase from 6.4% of total loans in FY2009 to 8% in FY2010.

We are upgrading Maybank from neutral to outperform while raising our target price from RM8.50 to RM8.92 as we widen the premium over its discount dividend model value from 5% to 10%. Among the banks under our coverage, Maybank has the strongest presence in Indonesia, with a 97.5% stake in BII. This will help to improve the group's overall loan growth and net interest margin. We are projecting a brisk three-year CAGR of 51.7% for BII's net profit in FY2009-12, which could be exceeded if BII can match the industry's loan growth of 18% to 20% instead of our projected 16%.

Although AMMB Holdings does not have a foothold in Indonesia, it still tops our league table for Malaysian banks as we believe that its transformation programme should help it raise its ROE from 11.6% in FY2003/10 to 14.6% in FY2012. ' CIMB Research, July 16


This article appeared in The Edge Financial Daily, July 19, 2010.


AFFIN - Banking overweight on growth from Indonesia

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

Banking sector
Reaffirm overweight
: Regional comparison reaffirms overweight on Malaysian banks. In our comparison of banks across our Asean-4 + HK/China coverage, Malaysia comes off as a mature market, albeit one that still enjoys a favourable operating environment of 10% to 11% annual loan growth and stable non-performing loans (NPL) ratios. Although Malaysian banks do not offer the superlative growth and lofty net interest margins of their counterparts in Indonesia, a few have taken stakes in Indonesian banks to get a slice of this high-growth market. We project earnings growth of 23.3% in 2010 for Malaysian banks, coming from the economic upturn, positive sentiment in the capital markets and fast-rising overseas contributions. We continue to overweight the Malaysian banking sector, with the potential re-rating catalysts being (i) strong earnings growth, (ii) higher investment banking income, (iii) brighter growth prospects for overseas operations, and (iv) potential general provision write-backs. AMMB remains our top pick.

With a loan-to-GDP ratio of 115%, which is even higher than Singapore's 106%, Malaysia's banking system is considered a mature one. Malaysian banks have the traits of mature banks, that is moderate loan growth of 8% to 10% per annum in the next three years and net interest margin of 2.1% to 2.2%. In comparison, Indonesia's developing banking industry has a loan-to-GDP ratio of only 25.6% and offers much higher loan growth of 18% to 20% and net interest margins in excess of 6%.

For the countries in our coverage, Indonesia is the market with the most attractive growth prospects for banks. This is supported by (i) its unrivalled net interest margin of 7.4% against 2.2% to 3.5% in other countries, (ii) brisk loan growth of 18% to 20%, and (iii) low non-interest income ratio as this suggests that several segments such as treasury and investment banking are still untapped. Even now, Indonesian banks have the highest return on equity (ROE) of 25.1% and return on asset (ROA) of 2.6% among the countries under our coverage.

One of the key catalysts for Malaysian banks is their exposure to the high-growth market in Indonesia. CIMB owns 78.3% of Bank CIMB Niaga, Indonesia's fifth largest bank, Maybank controls Bank Internasional Indonesia (BII), the ninth largest bank, RHB Capital is buying 80% of Bank Mestika and Affin Holdings is purchasing a controlling stake in Bank Ina Perdana. For Maybank, loans in Indonesia are expected to increase from 6.4% of total loans in FY2009 to 8% in FY2010.

We are upgrading Maybank from neutral to outperform while raising our target price from RM8.50 to RM8.92 as we widen the premium over its discount dividend model value from 5% to 10%. Among the banks under our coverage, Maybank has the strongest presence in Indonesia, with a 97.5% stake in BII. This will help to improve the group's overall loan growth and net interest margin. We are projecting a brisk three-year CAGR of 51.7% for BII's net profit in FY2009-12, which could be exceeded if BII can match the industry's loan growth of 18% to 20% instead of our projected 16%.

Although AMMB Holdings does not have a foothold in Indonesia, it still tops our league table for Malaysian banks as we believe that its transformation programme should help it raise its ROE from 11.6% in FY2003/10 to 14.6% in FY2012. ' CIMB Research, July 16


This article appeared in The Edge Financial Daily, July 19, 2010.


AMMB - Banking overweight on growth from Indonesia

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

Banking sector
Reaffirm overweight
: Regional comparison reaffirms overweight on Malaysian banks. In our comparison of banks across our Asean-4 + HK/China coverage, Malaysia comes off as a mature market, albeit one that still enjoys a favourable operating environment of 10% to 11% annual loan growth and stable non-performing loans (NPL) ratios. Although Malaysian banks do not offer the superlative growth and lofty net interest margins of their counterparts in Indonesia, a few have taken stakes in Indonesian banks to get a slice of this high-growth market. We project earnings growth of 23.3% in 2010 for Malaysian banks, coming from the economic upturn, positive sentiment in the capital markets and fast-rising overseas contributions. We continue to overweight the Malaysian banking sector, with the potential re-rating catalysts being (i) strong earnings growth, (ii) higher investment banking income, (iii) brighter growth prospects for overseas operations, and (iv) potential general provision write-backs. AMMB remains our top pick.

With a loan-to-GDP ratio of 115%, which is even higher than Singapore's 106%, Malaysia's banking system is considered a mature one. Malaysian banks have the traits of mature banks, that is moderate loan growth of 8% to 10% per annum in the next three years and net interest margin of 2.1% to 2.2%. In comparison, Indonesia's developing banking industry has a loan-to-GDP ratio of only 25.6% and offers much higher loan growth of 18% to 20% and net interest margins in excess of 6%.

For the countries in our coverage, Indonesia is the market with the most attractive growth prospects for banks. This is supported by (i) its unrivalled net interest margin of 7.4% against 2.2% to 3.5% in other countries, (ii) brisk loan growth of 18% to 20%, and (iii) low non-interest income ratio as this suggests that several segments such as treasury and investment banking are still untapped. Even now, Indonesian banks have the highest return on equity (ROE) of 25.1% and return on asset (ROA) of 2.6% among the countries under our coverage.

One of the key catalysts for Malaysian banks is their exposure to the high-growth market in Indonesia. CIMB owns 78.3% of Bank CIMB Niaga, Indonesia's fifth largest bank, Maybank controls Bank Internasional Indonesia (BII), the ninth largest bank, RHB Capital is buying 80% of Bank Mestika and Affin Holdings is purchasing a controlling stake in Bank Ina Perdana. For Maybank, loans in Indonesia are expected to increase from 6.4% of total loans in FY2009 to 8% in FY2010.

We are upgrading Maybank from neutral to outperform while raising our target price from RM8.50 to RM8.92 as we widen the premium over its discount dividend model value from 5% to 10%. Among the banks under our coverage, Maybank has the strongest presence in Indonesia, with a 97.5% stake in BII. This will help to improve the group's overall loan growth and net interest margin. We are projecting a brisk three-year CAGR of 51.7% for BII's net profit in FY2009-12, which could be exceeded if BII can match the industry's loan growth of 18% to 20% instead of our projected 16%.

Although AMMB Holdings does not have a foothold in Indonesia, it still tops our league table for Malaysian banks as we believe that its transformation programme should help it raise its ROE from 11.6% in FY2003/10 to 14.6% in FY2012. ' CIMB Research, July 16


This article appeared in The Edge Financial Daily, July 19, 2010.


MAYBANK - Banking overweight on growth from Indonesia

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

Banking sector
Reaffirm overweight
: Regional comparison reaffirms overweight on Malaysian banks. In our comparison of banks across our Asean-4 + HK/China coverage, Malaysia comes off as a mature market, albeit one that still enjoys a favourable operating environment of 10% to 11% annual loan growth and stable non-performing loans (NPL) ratios. Although Malaysian banks do not offer the superlative growth and lofty net interest margins of their counterparts in Indonesia, a few have taken stakes in Indonesian banks to get a slice of this high-growth market. We project earnings growth of 23.3% in 2010 for Malaysian banks, coming from the economic upturn, positive sentiment in the capital markets and fast-rising overseas contributions. We continue to overweight the Malaysian banking sector, with the potential re-rating catalysts being (i) strong earnings growth, (ii) higher investment banking income, (iii) brighter growth prospects for overseas operations, and (iv) potential general provision write-backs. AMMB remains our top pick.

With a loan-to-GDP ratio of 115%, which is even higher than Singapore's 106%, Malaysia's banking system is considered a mature one. Malaysian banks have the traits of mature banks, that is moderate loan growth of 8% to 10% per annum in the next three years and net interest margin of 2.1% to 2.2%. In comparison, Indonesia's developing banking industry has a loan-to-GDP ratio of only 25.6% and offers much higher loan growth of 18% to 20% and net interest margins in excess of 6%.

For the countries in our coverage, Indonesia is the market with the most attractive growth prospects for banks. This is supported by (i) its unrivalled net interest margin of 7.4% against 2.2% to 3.5% in other countries, (ii) brisk loan growth of 18% to 20%, and (iii) low non-interest income ratio as this suggests that several segments such as treasury and investment banking are still untapped. Even now, Indonesian banks have the highest return on equity (ROE) of 25.1% and return on asset (ROA) of 2.6% among the countries under our coverage.

One of the key catalysts for Malaysian banks is their exposure to the high-growth market in Indonesia. CIMB owns 78.3% of Bank CIMB Niaga, Indonesia's fifth largest bank, Maybank controls Bank Internasional Indonesia (BII), the ninth largest bank, RHB Capital is buying 80% of Bank Mestika and Affin Holdings is purchasing a controlling stake in Bank Ina Perdana. For Maybank, loans in Indonesia are expected to increase from 6.4% of total loans in FY2009 to 8% in FY2010.

We are upgrading Maybank from neutral to outperform while raising our target price from RM8.50 to RM8.92 as we widen the premium over its discount dividend model value from 5% to 10%. Among the banks under our coverage, Maybank has the strongest presence in Indonesia, with a 97.5% stake in BII. This will help to improve the group's overall loan growth and net interest margin. We are projecting a brisk three-year CAGR of 51.7% for BII's net profit in FY2009-12, which could be exceeded if BII can match the industry's loan growth of 18% to 20% instead of our projected 16%.

Although AMMB Holdings does not have a foothold in Indonesia, it still tops our league table for Malaysian banks as we believe that its transformation programme should help it raise its ROE from 11.6% in FY2003/10 to 14.6% in FY2012. ' CIMB Research, July 16


This article appeared in The Edge Financial Daily, July 19, 2010.


AXIATA - CIMB Research maintains Outperform on Axiata

Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research is maintaining its Outperform call and sum-of-parts based target price of RM4.95 for Axiata Group Bhd.

It said on Monday, July 19 that likely catalysts are further earnings surprises. While consensus estimates are rising, it still thinks that the market is behind the curve, it added.

'Our forecasts are 21%-23% above consensus although the gap is down from 30%-34% two months ago. Axiata remains our top Malaysian telco pick but XL Axiata is our favourite regional telco play,' it said.


KLCCP - KLCC Property a 'hold': HwangDBS

Stock Name: KLCCP
Company Name: KLCC PROPERTY HOLDINGS BHD
Research House: HWANGDBS



HwangDBS has recommended a "hold" stock rating for KLCC Property with a target price of RM3.70.

The securities firm noted that KLCC Property's 2010 earnings (ex-fair value gains) grew by 4 per cent to RM233 million.

Revenue rose 2 per cent, driven by office and retail segments' +3 per cent and +8 per cent respectively, which helped to mitigate the 13 per cent dip in hotel operations.

While retail turnover at Suria has returned to pre-crisis' RM2 billion and footfalls remained a high RM42 million, Mandarin Oriental saw lower occupancy rate of 55 per cent (FY09: 65 per cent) albeit stable ARR of RM636.

KLCCP has no intention to cut ARR but rather focus on product differentiation, value add promotions and cost control. Long term locked-in rental income from blue-chip tenants should continue to sustain future earnings.

BURSA - Bursa Malaysia a 'sell': Maybank

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



Maybank has reiterated its "sell" call on Bursa Malaysia with a price target of RM6.50.

"Results were below expectations with 1H10 (first half) net profit at 45 per cent of our full year forecast and 41 per cent of consensus," Maybank said.

The weaker equity market in the second quarter of 2010 was a surprise, said Maybank, as it only expected slower trading activities in the second half of this year.

"We retain our earnings forecasts and target price for now.

"Although share price has also consolidated, the stock continues to be pricey," said Maybank.

SSTEEL - OSK ups target price for Southern Steel

Stock Name: SSTEEL
Company Name: SOUTHERN STEEL BHD
Research House: OSK



OSK is revising upwards its target price for Southern Steel to RM2.05 to match the mandatory general offer price.

Signaland SB, a SPV linked to Tan Sri Quek Leng Chan, has announced a mandatory general offer (MGO) to acquire all the remaining ordinary RM1 shares in Southern Steel that it and related parties does not already own for RM2.05 apiece.

With the share price having surged close to the offer price in trading last Friday, the offeror is also unlikely to revise upwards its offer price.

"This, including the gloomy industry outlook for 2H, prompts us to keep our neutral recommendation on Southern Steel," OSK said.

Meanwhile, HwangDBS has a "hold" recommendation on Southern Steel.

TENAGA - Tenaga a 'buy' at lower fair value

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



OSK rated Tenaga Nasional a "buy" with a lower fair value of RM9.90.

"TNB's results were below our estimates, mainly due to its effective tariffs not matching our expectations as well as lower non-electricity revenue and higher 'other costs'," OSK said.

OSK noted that while year-to-date core net profits rose 22 per cent on higher electricity demand, quarter-on-quarter profits fell by 37 per cent although the higher coal costs were within expectations.

"Going forward, TNB will have to continue using more coal for generation as gas is diverted for non-power use. As such, we adjust our generation mix to reflect more coal usage, tweak down our effective tariff rates and revise up our 'other costs'.

"This effectively reduces our core net profit forecast by 17 per cent for FY10 and 15 per cent for FY11, as well as our DCF based fair value from RM10.15 to RM9.90, which is equivalent to 13.5x FY11 PER," OSK said.

BPURI - Bina Puri upgraded on LCCT job

Stock Name: BPURI
Company Name: BINA PURI HOLDINGS BHD
Research House: KENANGA



Kenanga raised its stock rating on Bina Puri to "buy" with a target price of RM1.77, citing the news that Bina Puri's venture winning the LCCT contract as favourable.

Bina Puri announced that its 40:60 joint venture with UEMC had been awarded the LCCT contract worth RM997 million.

Bina Puri holds 40 per cent in the venture which will add some RM398 million to the topline for the next 1.5 years.

The completion of the project is expected within 20 months which is until first quarter of 2012.

"We see that this news as favourable for Bina Puri as it will contribute positively to its FY10 and FY11 earnings," Kenanga said.