August 6, 2010

MISC - CIMB Retail Research: MISC prices may pause soon

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

KUALA LUMPUR: CIMB Retail Research said MISC has been trading in the RM9.15-RM7.80 band for the past few months.

In a technical outlook issued on Friday, Aug 6 it said if history repeats itself, there is a high possibility that prices may take a breather soon. In the past, the odds usually favour the bears when the candles are hovering near the upper band of this trading zone.

'Indicators are showing subdued pattern, suggesting that future rebound could be weak. Both MACD and RSI signal lines have flattened out,' it said.

CIMB Retail Research said traders should use any rebound towards RM9.15 to sell into strength. However, put a buy stop at RM9.30, just in case.

'If this level is taken out, this would likely be a renewed uptrend trend. Otherwise, next downside targets are RM8.46 (its 200-day SMA), RM8.04 and RM7.80,' it said.

QL - QL Resources rated 'buy' at Citigroup

Stock Name: QL
Research House: CITI GROUP

QL Resources Bhd was given a "buy" rating in new coverage by Citigroup Inc analyst Alyson Shin, who said the company had strong earnings growth prospects.

The brokerage set its share-price estimate at RM5.50. -- Bloomberg

IVORY - AmResearch has Buy on Ivory Properties

Stock Name: IVORY
Research House: AMMB

KUALA LUMPUR: AmResearch reaffirmed its'' BUY rating on Ivory PROPERTIES [] Bhd (Ivory) with unchanged fair value of RM1.75/share based on 35% discount to its NAV/share of RM2.70/share.

The research house said on Friday, Aug 6 that Ivory is buying prime seafront land (1.1 acres) at the Batu Ferringhi seafront area on Penang island for RM25 million - conditional on Ivory securing planning approval from the local council.

Project comprises 96 units of luxury condominiums with built up areas from 2,400sf to 8,000sf, housed in a 41-storey tower.

'With gross development value of RM159mil, market response is expected to be strong due to the project's scarcity premium and unique appeal,' it said.

AmResearch said potential enhancement to its earnings estimates and NAV is significant. Ivory will be stepping up presales from RM500mil in FY10F to RM750mil in FY11F.

'Current unbilled sales are RM385mil - and rising. Despite its share price outperformance, the stock is still at the early stages of a sustained re-rating cycle. At RM1.28/share currently, Ivory is trading at a steep 53% discount to our NAV of RM2.70/share.

'Forward PE multiples ' 3x-4x, are attractive with EPS CAGR of 63%. Taken together, Ivory remains an excellent transformational growth story,' it said.

MULPHA - CIMB Retail Research: Sell Mulpha Intl into strength

Stock Name: MULPHA
Research House: CIMB

KUALA LUMPUR: CIMB Retail Research said Mulpha International is still trapped in a declining channel.

In its technical outlook issued on Friday, Aug 6, it said in the past three attempts, prices failed to inch above the resistance trend line and it thinks it will be indifferent this time around.

'Currently, the candles are just holding above its 30-day and 50-day SMAs but sustainability remains a concern,' it said.

MACD histogram bars are beginning to lose pace while its RSI has also hooked down from the overbought territory. These do not bode well for any recovery effort.

'Sell into strength looks like the best option here. Unless prices can inch above the April high of 52.5 sen, we would prefer to stick with the bears' camp. Next downside targets are 40 sen and 35 sen,' it said.

August 5, 2010

MUDAJYA - Mudajaya falls to lowest since December

Stock Name: MUDAJYA
Research House: OSK

KUALA LUMPUR: Shares of MUDAJAYA GROUP BHD [] fell as much as 8.7% or 43 sen to RM4.50 in the morning session on Thursday, Aug 5 as worries resurfaced about impact of the Securities Commission's probe into company.

At 12.01pm, it was off its early low, and shed 32 sen to RM4.61 with 3.2 million shares done.

At RM4.61, this was the lowest since Dec 28, according to stock market data.

Market speculation had it that the SC probe followed a complaint about the company's independent power producing project in India, with some analysts noting the company had exceptionally high margins compared with its bigger peers.

However, OSK Research had on Wednesday, maintained a buy on Mudajaya at RM5.08 with a target price of RM7.33.

"Based on our estimates, Phase 1 (RM762 million) hit 41.9% completion as of June versus 23.2% in January. We understand that deliveries for the key plant components are slightly delayed to August from June as scheduled earlier due to minor specification changes," it said.

OSK Research said nonetheless, the management reaffirmed that the entire project is on track for completion by end-2012.

"We expect the bulk of the revenue recognition for Phase 1 to take effect this year. There are also plans to expand capacity by another 2x360MW when the existing four plants near completion.

"This means Mudajaya could land another EP contract estimated to be worth RM1.7 billion," it said.

GAB - AmResearch downgrades Guinness Anchor to Hold

Stock Name: GAB
Research House: AMMB

KUALA LUMPUR: AmResearch is downgrading GUINNESS ANCHOR BHD [] (GAB) to HOLD.

It said on Thursday, Aug 5 that despite the group's still positive earnings prospects, its higher fair value of RM8.62/share (at parity to DCF-estimates) offered limited upside potential (<15%)'' and valuation is no longer attractive.

GAB's earnings for the 12 months ended 30 June was up a decent 8% YoY to RM153mil, meeting AmResearch's full-year forecast as well as consensus estimates.

Year-to-date, GAB maintained its leadership position with 57% market share, and circa 70% of industry profit pool.

'In view of GAB's proven track record in maintaining its leadership position with 57% market share in the duopoly industry, we have removed the 10% discount to our DCF-based valuation model.

'Consequently, we arrive at our higher fair value of RM8.62/share (previously RM7.50/share) based at parity to our DCF-estimates,' it said.

AIRASIA - AirAsia a 'buy', says Citigroup

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: CITI GROUP

AirAsia Bhd was raised to "buy" from "sell" at Citigroup Inc after Southeast Asia's biggest discount carrier slowed plane deliveries, a move which will reduce capital expenditure requirements and net gearing.

The share price estimate for the company was increased to RM2.10 from RM1.10, it said in a report dated August 4. -- Bloomberg

DAIBOCI - CIMB Research sees more downside for Daibochi share price

Stock Name: DAIBOCI
Research House: CIMB

KUALA LUMPUR: CIMB Retail Research has a Sell on Daibochi Plastics and Packaging Bhd after the share price broke below its bearish flag pattern few days ago.

The research house said on Thursday, Aug 5 there was still room to the downside. At RM3.14, it is trading at FY11 P/E of 8.1 times and P/BV: 1.9 times.

CIMB Research said its bearish stance is also supported by the fact that prices have also violated its 50-day SMA.

The research house also said the MACD was about to turn negative while its RSI is also below the 50pts mark. These do not bode well for a strong recovery. Near term gains are likely capped at RM3.18-RM3.24.

'A deeper correction would likely take place if prices breach the 200-day SMA at RM2.93. Next downside supports are RM2.93 and RM2.69. Put a buy stop at RM3.30, just in case,' it said.

August 4, 2010

PLUS - RHB sees strong 2Q performance in PLUS

Stock Name: PLUS
Research House: RHB

PLUS Expressways Bhd
(Aug 3, RM3.80)
Maintain outperform at RM3.80 with a fair value of RM4.33
: We believe PLUS' 2QFY2012/10 results (due out by end-August) will likely to come in stronger (both year-on-year and quarter-on-quarter), thanks to the encouraging growth registered at its core expressways (consisting of the North-South Expressway, New Klang Valley Expressway, Federal Highway Route 2 and Seremban-Port Dickson Highway) in 2QFY2012/10 (+10.5% y-o-y and 5.8% q-o-q).

Based on an actual traffic volume of 4,069.9 million passenger cars unit per-km registered at PLUS' core expressways in 2QFY12/10, we believe PLUS will likely register a net profit of RM321.7 million in 2QFY2012/10.

This means PLUS' 1HFY2012/10 net profit is likely to come in at RM620.8 million, which is 50.6% to 50.7% of our full-year forecast and the full-year market consensus.

While the increase in petrol price will hurt PLUS's traffic volume, we believe the impact will likely be temporary.

Recall, traffic volume at PLUS' core expressways contracted by 0.1% y-o-y in 2QFY2012/06 (down from a 1.4% y-o-y growth in registered in 1QFY2012/06), following the 30 sen/litre hike in RON97 petrol price at the end of February 2006.

However, PLUS had already started to shrug off the impact, recording a 0.8% y-o-y growth in traffic volume in 3QFY2012/06 (the second full quarter after the petrol price hike) and the traffic volume subsequently normalised in 4QFY2012/06 (+4.2% y-o-y).

This time around, we believe the impact is also likely to be contained given that the price rise is small compared with the previous petrol price hikes in February 2006 and June 2008.

We maintain our earnings forecasts. Risks to our view include: (i) FY1202/10-12 traffic volume growth rate of PLUS' core expressways coming in below our assumption of 5% for FY2012/10, and 3% per annum for FY2012/11 and FY2012/12; (ii) higher-than-expected maintenance costs; and (iii) operating risks in overseas ventures (in particular, Indonesia and India).

Although PLUS' share price has risen by 12.7% since July 5 due to strong traffic volume growth, we are maintaining our outperform recommendation and discounted cash flow-derived fair value of RM4.33 (based on WACC of 7.7%).

We continue to like PLUS for its defensive earnings quality and decent dividend yield of 5% to 6% per annum. ' RHB Research Institute, Aug 3

This article appeared in The Edge Financial Daily, August 4, 2010.

AMMB - OSK Research downgrades AMMB to neutral

Stock Name: AMMB
Research House: OSK

AMMB Holdings Bhd
(Aug 3, RM5.15)'' ''
Downgrade to neutral at RM5.40 with a target price of RM5.60
: The group has proposed to undertake a dividend re-investment plan as part of its capital management exercise, whereby shareholders of AMMB have the option of reinvesting their dividend entitlements in new AMMB shares. This will give AMMB greater flexibility to meet capital adequacy requirements.

This is similar to Maybank's proposed dividend re-investment scheme, which provided the group with flexibility to boost its core equity ratios, on which Basel 3 is expected to put greater emphasis. The group's core equity ratios were already at a comfortable 8.2% as at March 31, 2010. As such, the proposed scheme is a conservative step taken by the management to gradually raise AMMB's core equity buffers progressively over the next few years without the group resorting to aggressive equity fund raising.

The degree of dilution will depend on: (i) the issue price of the new shares; (ii) quantum of dividends paid; (iii) level of shareholder participation; and (iv) the board's decision on the portion of the cash dividend that shareholders can elect to re-invest as new shares.

Based on our assumptions of a 22% dividend payout ratio for FY2011 and FY2012, and assuming that the entire dividend payout can be converted into new shares, our estimate of the full-equity dilution impact would be slightly less than 2% for FY2011/12.

Given the limited upside to our unchanged target price, we are downgrading our recommendation on the stock to neutral. A longer-term expansion in less volatile transaction fee income and a solidifying forex and derivative platform could be the group's key catalysts for its medium-to-longer term return on equity (ROE) targets of 15% to 18%. The group's immediate-term margins are likely to be pressured by the rising interest rate environment given its high fixed rate loan portfolio and relatively low current account saving account (CASA) deposit base.

We are maintaining our target price at RM5.60 (1.6 times FY2011 PBV, underpinned by 12% FY2011 ROE). We prefer RHB Capital within the mid-size domestic banking space for its superior ROEs of 14% and undemanding 1.2 times to 1.3 times FY2010/11 PBV. ' OSK Research, Aug 3

This article appeared in The Edge Financial Daily, August 4, 2010.

UNISEM - Unisem growing from strength to strength

Stock Name: UNISEM
Company Name: UNISEM (M) BHD
Research House: INTER PACIFIC

Unisem (M) Bhd
(Aug 3, RM2.21)
Maintain outperform at RM2.24 with a target price of RM2.77
: We reiterate outperform with our target price pegged at RM2.77 based on 1.8 times P/BV and BV/share of RM1.54.

Unisem's revenue grew for the sixth consecutive quarter driven by the Ipoh, Europe, Chengdu and Batam operations, which more than offset the marginal loss of RM188,000 incurred by UAT. The management expects 3QFY2010 revenue to grow 5% to 8% quarter-on-quarter on the back of strong bookings across all product lines. All its operations are currently in line with, if not outperforming its budgeted revenue.

With capital expenditure (capex) for 2QFY2010 at RM86.4 million, it brings the total capex in 1HFY2010 to RM148.3 million, much higher than FY2009's RM135.5 million. The bulk of Unisem's capex is for the expansion of its China's operation. Capex in 2HFY2010 is expected to be much lower, around RM64.5 million, bringing its total capex for FY2010 to about RM200 million.

The lower capex in 2HFY2010 is due to the longer lead time for machinery purchase with most of the machines expected to be delivered in FY2011. The capacity utilisation rate is currently at 85% with all newly installed capacity booked.

We view positively of the qualification of WLSCP and QFN packaging with Broadcom. It is seen as another step forward for Unisem to become the supplier to Broadcom since it is a major player in semiconductors for wired and wireless communications with customers that include Alcatel, Apple, Nokia and Samsung. The Ipoh operation will focus on WLCSP package while the Chengdu China operation will focus on QFN package.

Unisem Batam will focus on automotive and BGA products. The automotive business is expected to grow with several products to be qualified for Bush and Melexis. The qualification is expected to start production in FY11. Their newly introduced LFGA package is expected to garner interest from its customers as it provides a cheaper alternative to FBGA packages which will provide savings up to 40% even for gold wire.

Work for Chengdu's Phase 2 expansion is expected to start in 3QFY2010 with Phase 2A to be completed by 1QFY2011. Phase 2A, which is expected to increase the production area by 130,000 sq feet, will cater for wafer bumping, wafer level CSP, modules, BGAs and MEMs packaging.

The management guided that Unisem's dividend policy should return to its pre-crisis level of 10% of its par value of 50 sen. ' Inter-Pacific Research, Aug 3

This article appeared in The Edge Financial Daily, August 4, 2010.

AXIATA - Exciting growth ahead for Axiata

Stock Name: AXIATA
Research House: HWANGDBS

Axiata Group Bhd
(Aug 3, RM4.32)
Recommend buy at RM4.24 with a higher target price of RM4.75 (from RM4.50)
: We found during a meeting with Axiata's wholly-owned subsidiary, Celcom Axiata, that it is a well-managed company that is growing healthily in the broadband segment, and on track to meet its 70,000 BlackBerry net add target for this year. This is supported by its widest 80% 3G/3.5G coverage.

The GSM segment remains key to Celcom Axiata, with growth opportunities in the foreign worker segment, under-served rural areas, and MVNO partnerships. We expect the company to perform well this year and next, with a sustainable earnings before interest, tax, depreciation and amortisation (Ebitda) margin of circa 45%. Celcom Axiata makes up circa 45% of the parent company's earnings and 68% of our valuation estimate.

Its 67%-owned XL in Indonesia reported strong 2Q2010 results on Monday, beating the consensus Ebitda estimate by 18%. This was mainly driven by growth in the SMS and mobile Internet segments. DBS Vickers raised FY2010F-FY2011F net profit for XL by more than 20%, which resulted in 6% to 8% upside to Axiata's group net profit. However, this is mitigated by 1% to 2% downward pressure (on group NI) by Dialog in Sri Lanka. A tariff hike (started in July) in a price sensitive market due to regulatory intervention (price floor) could dampen revenue growth ahead.

We raise our price target following a 13% upgrade to XL's valuation. Celcom Axiata's performance in Malaysia remains healthy, while the outlook for XL in Indonesia is improving. Axiata group's growth prospects are good, with forecast three-year earnings CAGR of 43%. ' HwangDBS Vickers Research, Aug 3

This article appeared in The Edge Financial Daily, August 4, 2010.

EONCAP - AmResearch: Fair value for EON Cap remains at RM7.30

Stock Name: EONCAP
Research House: AMMB

KUALA LUMPUR: AmResearch is maintaining its fair value for EON Capital at RM7.30 per share and expects Hong Leong Bank's (HLBB) takeover to likely proceed.

On Tuesday, Aug 3 EON Cap announced the company has received a letter of approval from Bank Negara Malaysia stating the Minister of Finance had on July 26, granted the approval for EON cap to dispose of'' more than 5% interest in EON Bank Bhd and MIMB Investment Bank Bhd (an indirect unit of'' EON Cap).

MoF also granted approval for EON Cap to enter into an agreement or arrangement with Hong Leong Bank (HLBB) which will result in the change of control of EON Bank Bhd and MIMB Investment Bank Bhd.

MoF also granted approval for the disposal of shares in EON Cap Islamic Bank Bhd to HLBB.

Separately, HLBB announced it was granted similar approvals (to acquire EON Cap's subsidiaries. HLBB also announced that it has been granted approval to transfer the banking operations of EON Bank to HLBB, as well as transfer the banking operations of EON Cap Islamic to HLBB.

MoF also allowed EON Bank and EON Cap Islamic to continue to use the word 'bank' in their respective names for a period of one year from the date of the transfer of their banking operations.

However, HLBB must finalise the position of MIMB by Dec 31,'' 2010 in line with Bank Negara's policy which prohibits a domestic banking group from holding two investment banking licences.

AmResearch said the approvals by Bank Negara and MoF were originally anticipated by mid-October 2010, after EON Cap's EGM on Aug 19, 2010.

'Thus, if shareholders vote for the go-ahead for the takeover at the EGM, EON Cap's board of directors is now empowered to decide whether or not to accept the offer from HLBB,' the research house said.

However, this is subject to a final decision of the court on the petition filed by Primus (Malaysia) Sdn Bhd. The High Court has fixed the case management date on Aug 17, 2010, and trial dates on Sept 20-23 and 27-28.

The second condition is that the Securities Commission approval for the proposed change in ultimate shareholders of MIMB, being a holder of a Capital Market Services Licence issued by the SC.

'We maintain our view the takeover will likely proceed pending a favourable outcome to the defendants,' said AmResearch.

ANNJOO - RHB Research upgrades Ann Joo Resources to Outperform

Stock Name: ANNJOO
Research House: RHB

KUALA LUMPUR: RHB Research has upgraded ANN JOO RESOURCES BHD [] from market perform to Outperform and raised its net profit forecasts.

The research house said on Wednesday, Aug 4 that Ann Joo's 1HFY12/10 net profit of RM112.4 million came in above expectations at 68.8% to 70.5% of its and the full-year market estimates. The key variance versus its forecast came largely from higher-than-expected selling prices.

Ann Joo declared a first interim DPS of 6 sen (less 25% tax), which translates to a gross yield of 2.4%.

'We are keeping our full-year gross DPS forecast of 24 sen equivalent to 71.2% payout ratio and 9.4% yield,' it said.

RHB Research said it was raising its FY12/10-12 net profit forecasts by 4.5-10.5%, largely to reflect higher selling prices.

'Correspondingly, our fair value is upgraded by 3.6% from RM2.74 to RM2.84 based on 9x revised FY12/10 fully-diluted EPS of 31.6 sen. Upgrade to Outperform,' it said.

NOTION - CIMB Research sees likely disappointment in earnings for Notion VTec

Stock Name: NOTION
Research House: CIMB

KUALA LUMPUR: Notion VTec's share price has fallen close to 20% over the past two days on what CIMB Research suspects to be mounting concern that its 3QFY9/10 results could disappoint.

The research house said on Wednesday, Aug 4 that the disappointment could be due to the poorer-than-expected performance and guidance of its major customer, Western Digital.

CIMB Research said it suspects that a bigger earnings dampener could emanate from higher costs for its 2.5-inch base plate manufacturing for Samsung due to high rejection rates.

'We also gather that it is unlikely to go ahead with the 10% private placement. Given the downside risk to earnings as a result of rising industry risks and cost pressure from base plate manufacturing, we are turning more cautious on the stock.

'We are likely to downgrade our OUTPERFORM call, target price of RM4.05 (20% discount to its peers or 9.3x CY11 P/E) and earnings forecasts when the 3Q results are released on Thursday,' it said.

August 3, 2010

NOTION - Notion VTec top loser on downgrade

Stock Name: NOTION
Research House: RHB

KUALA LUMPUR: Shares of Notion VTec fell the most in recent months, sliding to RM2.11, which is the lowest since October 2009.

At midday on Tuesday, Aug 3, it was down 24 sen to RM2.11 with 2.2 million shares.

RHB Research Institute said while Notion's earnings may be supported by its camera segment, it was concerned on the outlook for personal computer sales and the hard disk drives.

"Given the negative view, we have cut our FY09/10-12 EPS forecasts by 21.1%, 36.2%, and 47.4% respectively. Hence, we have downgraded the stock to Underperform (from Outperform) with a fair value of RM2.07 per share," it said.

SCOMI - Scomi to benefit from Brazil monorail job re-tender

Stock Name: SCOMI
Research House: AMMB

Scomi Group Bhd
(Aug 2, 43.5 sen)
Maintain buy at 43 sen with a fair value of 80 sen
: The Edge Financial Daily reported yesterday that the 23.9km Tiradentes monorail project in Sao Paolo, Brazil has been re-tendered.

It was indicated that the Brazilian authorities had requested for a re-issue of the tender, with modifications such as less tight delivery dateline and better payment structure.

We think this is positive news, which gives Scomi Bhd (and its partner Almeida SA) another shot at the contract where we understand Bombardier was the favourite.

This project is worth US$35 million-US$40 million (RM110.6 million to RM126.4 million) per km or RM3 billion in total.
Notwithstanding that, as highlighted in our previous reports, the scale of planned monorail projects in Brazil is massive ' a total of 77km of monorail line is planned.

Even if Scomi were to miss out on the first line (Tiradentes), the group could still be involved in the remaining lines.

We understand two other tenders are coming up (i) Manaus ' 20km (Aug 9); and (ii) Sao Judas ' 21.5km (September)
Obviously, looking at the size of the Tiradentes contract (RM3 billion) ' assuming 45% stake in the JV with a net margin of 6%, Scomi's EPS for FY11F-FY12F would be boosted by 30%-35% (9.9 sen to 11.5 sen).

On the flipside, there would be some concerns on the operating environment in Brazil given the unfamiliar territory.

We maintain our buy rating on Scomi Group with an unchanged fair value of 80 sen per share based on a 5% discount to our sum-of-parts valuation of 84 sen per share.

We think Scomi Group is undervalued by the market due to'' (i) true enough earnings deliverance track record has been weak and (ii) concerns over political connections or lack of it currently; whereby it should benefit from the strong news flows for SEB and impending new rail jobs. ' AmResearch, Aug 2

This article appeared in The Edge Financial Daily, August 3, 2010.

P&O - Kenanga sees P&O worth even more

Stock Name: P&O
Research House: KENANGA

Pacific & Orient Bhd
(Aug 2, RM1.15)
Recommend buy at 92.5 sen with a target price of RM1.65
: The media speculated that Prudential UK has submitted an application to Bank Negara Malaysia (BNM) to commence talks on the potential acquisition of local general insurance company, Pacific & Orient Bhd (P&O). The details of the potential merger and acquisition (M&A) exercise between the two parties are still unclear. This has added fuel to recent market talk that P&O had emerged on the radar of potential buyers.

P&O's share price has climbed by 46% since we initiated coverage on July 22. The news flow on the M&A is in line with our expectation as one of our key investment cases was that P&O is well positioned to benefit from industry dynamics and regulatory shifts by leveraging its niche customer base, well organised distribution network, improving infrastructure and high rated underwriting culture. These key strengths pave the way for P&O to be an attractive M&A target for foreign insurers seeking to gain a foothold in Malaysia.

We believe BNM wants to see a consolidation of the insurance sector, with weaker insurers merging with the larger and well capitalised players. This expedites the consolidation of the industry, tackling the over-insurance issue. Interestingly, the central bank has also deregulated the industry allowing a higher foreign equity limit of more than 70%. This will be considered on a case-by-case basis for players that can facilitate the consolidation and rationalisation of the industry.

Lately, large foreign insurance companies in the general insurance sector have been on the lookout for prospective M&A deals. Two listed companies with general insurance businesess have announced that BNM has given the green light to commence negotiations on the potential disposal of their insurance units. Jerneh Asia Bhd made an announcement six months back while Pacific Mas Bhd made its announcement in April.

We see a 25% upside to our base case valuation of RM 1.15. This values the group at an undemanding FY2011 PER of six times, which is at the low end of the six to 15 times 2010/11 PER of Malaysian general insurers.

P&O'' has an M&A valuation of RM 1.65. Although there is already substantial price upside to our base case valuation, the stock is worth even more on an M&A basis. We value P&O in the range of 1.5-2 times FY11 P/BV, which is in comparison with first phase consolidation of Malaysian banking sector. ' Kenanga Investment Research, Aug 2

This article appeared in The Edge Financial Daily, August 3, 2010.

UNISEM - A strong half year for Unisem

Stock Name: UNISEM
Company Name: UNISEM (M) BHD
Research House: INTER PACIFIC

Unisem (M) Bhd
(Aug 2, RM2.24)
Reiterate outperform at RM2.29 with a target price of RM2.77
: We reiterate outperform with our target price pegged at RM2.77 based on 1.8 times P/BV. We believe Unisem will continue to benefit from the current positive momentum exhibited by the uptrend in global semiconductor sales and strong book-to-bill ratio of 1.19 times in June.

Unisem's 1HFY2010 revenue of a'' RM688.8 million, or up 58% year-on-year (y-o-y), is in line with our expectation, accounting for 50% of our FY2010 forecast.

In tandem with strong revenue growth and better profit before tax (PBT) margin of 14.4%, Unisem's 1HFY2010 PBT garnered a surplus of RM89.7 million after incurring a loss of RM3.7 million in 1HFY2009.

The 2QFY2010 revenue growth of 9.2% quarter-on-quarter (q-o-q) was above the management's guidance of 5% to 8%.

The above expectation was due to 10% q-o-q growth in Asia and 5.3% q-o-q growth in the US. However, the upside growth was negated by the euro crisis.

Uncertainty in the euro due to the debt crisis hurt Unisem's earnings from this segment which was down by 19.7% q-o-q.

Unisem's 1HFY2010 operating profit margin of 15.5% exceeded our expectation by 1.3 percentage points.

The higher margin was due to better sales volume and average selling price that continued to remain strong owing to low capacity shortage. ' Inter-Pacific Research, Aug 2

This article appeared in The Edge Financial Daily, August 3, 2010.

KINSTEL - CIMB Retail Research positive on Kinsteel

Stock Name: KINSTEL
Company Name: KINSTEEL BHD
Research House: CIMB

KUALA LUMPUR: CIMB Retail Research said Kinsteel had a good run over the past few weeks and the upward trend also pushed prices above the downtrend channel.

'We see this as a precursor of more upside ahead. If our count is correction, the stock will most probably swing past its 200-day SMA at 93.5 sen before inching towards RM1.01 next,' it said in a technical report issued on Tuesday, Aug 3.

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

'Our positive stance on the stock is further reinforced by the fact that its 30-day SMA has cut above the longer term 50-day SMA. Unless the candles breach its uptrend support line, at RM0.845-RM0.835, we think the odds still favour the bulls,' it said.

BOLTON - OSK Research: More upside for Bolton

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

KUALA LUMPUR: OSK Research sees more upside for Bolton and said traders can accumulate the shares at above the RM1 level and bet on a continuation of last Friday's aggressive rally.

In its technical outlook issued on Tuesday, Aug 3, it said'' Bolton's share price rallied strongly last Friday and it was seen consolidating these gains yesterday.

'As long as the consolidation of the share price is at around the RM1 level, or in the vicinity of a 50% retracement of last Friday's gains, the consolidation phase should be viewed as healthy,' it said.

Traders can consider accumulating the shares at above the RM1.00 level. OSK Research said its cut-loss point is pegged at below last Friday's opening level of 96 sen.

'We are eyeing the RM1.25 level as the upside target. From the above chart, we can see how its price trend has been changing ' from the sideways trend during the July 09-June 10 period to the recent strong surge in its share price,' it said.

IJM - CIMB Research: Sell IJM Corp into strength

Stock Name: IJM
Research House: CIMB

KUALA LUMPUR: CIMB Retail Research says IJM Corp is still entrenched in an uptrend channel but its concern here is its sustainability.

It said on Tuesday, Aug 3 that if the candles dwindle below its 30-day SMA, most probably the RM5.16 high will be its near term peak. This would then drag the prices towards RM4.90, RM4.70 and RM4.47 next.

'MACD has staged a dead cross while its RSI has also fallen below the overbought territory. Near term gains are likely limited, with resistance seen at RM5.16-RM5.22,' it said.

'Use any rebound to sell into strength. Unless IJM can inch past the RM5.32 level, we believe the bears have the upper hand here,' it said.

August 2, 2010

YTLPOWR - YTL Power - a 'must have' defensive stock

Stock Name: YTLPOWR
Research House: KENANGA

YTL Power International Bhd
(July 30, RM2.26)
Initiating coverage with a buy call at RM2.28 and target price of RM2.45
: YTLPI buys assets at attractive valuations by capitalising on its large cash hoard during financial downturns in various economies. Wessex was acquired for an enterprise value (EV) of ''1.24 billion (RM6.15 billion) or a 7% discount to its regulatory capital value (RCV) against a current 38% to 45% premium based on recent UK water company M&A activities. Seraya was acquired at an EV of S$3.8 billion (RM8.9 billion) or 1.2 times EV/MW against the recent sale of Singaporean power asset average of 1.3 times.

We also think greenfield projects are likelier targets, especially in terms of duplicating its power and water business models. Potential developing nations (for example, China and the Middle East) may offer better growth opportunities than developed nations, given better economic growth prospects and first-movers advantages. The group is also embarking on its maiden WiMAX venture which could offer surprising earnings upside upon successful rollout.

We see no issue with raising new debt or equity to finance the WIMAX capital expenditure given the company's credible track record. New acquisitions are typically financed on a 70:30 debt-equity funding. The company has strong debt servicing abilities with 2.2 to 2.4 times interest cover ratio and a RM6.6 billion cash pile. Additionally, major assets are 'ring fenced' regulated concessions (for example, Wessex, Electranet) or on limited recourse loans (Seraya), allowing YTLPI to raise fresh financing for new ventures.

Growth will mainly be driven by Seraya's full-year contributions and recovering economic conditions in Singapore. It is timely, given that the weakened UK pound will subdue growth from Wessex. Future WiMAX contributions could surprise on the upside; WiMAX contributions have not been factored into estimates.

A must-have defensive stock with FY2010/11E 7.7% to 7.8% gross yields, with a potential higher yield of 8.4% if share dividends are proposed. It is timely to accumulate YTLPI as we expect the market to be range bound by global and local economic uncertainties. The WiMAX venture should not dampen the dividend given YTLPI's strong balance sheet and vendor financing. While most of YTLPI's businesses are regulated, steady cashflow is assured. ' Kenanga Investment Bank Bhd Research

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

GENM - Genting Malaysia - analysing the Aqueduct

Stock Name: GENM
Research House: ECMLIBRA

Genting Malaysia Bhd
(July 30, RM2.85)
Maintain hold at RM2.76 with target price of RM2.78
: In this report, we study the Aqueduct bid and the industry it operates in. The industry recorded 35% CAGR in revenues over the last five years due to the opening of Empire City Casino just outside New York City and successful bus programmes. It even weathered the global credit crunch, growing 7% year-on-year in FYE March 2010 due to the aforementioned factors. Empire City Casino has the highest average daily win per VGM of all the video gaming operators at US$286 (RM909) due to its superior urban location.

More than half of industry revenues are channelled to the state education fund and the New York Lottery, Perusing the Aqueduct Request for Proposal (RFP), the successful bidder will be entitled to 30% to 31.5% of VGM revenues. This is likely lower than the other video gaming operators, because the successful bidder will also have to channel VGM revenues to the New York Racing Association (NYRA) and its breeders.

We believe that Genting Malaysia will secure the concession because (i) it is the sole bidder after the SL Green-led consortium and Penn National Gaming were disqualified (ii) the NYRA will be insolvent without its share of Aqueduct's VGM revenues, and (iii) the locals are looking forward to the 1,300 temporary and 800 permanent jobs it will create.

Assuming average daily win per VGM of US$300, or 5% higher than Empire City Casino's due to its strategic location within the New York City limits, we estimate that Aqueduct will generate some US$30 million in net profit. Assuming an average US dollar/ringgit exchange rate of RM3.30, and 2% interest income foregone on the US$300 million licensing fee, the Aqueduct will accrete 6% to Genting Malaysia's FY2012 earnings.

Strangely, the market seems to have accounted for the US$300 million licensing fee already by discounting all of Genting Malaysia's net cash. Securing the concession will add 19 sen (ex-licensing fee discounted cash flow [DCF] value) to RM2.97 from our ex-net cash DCF-based valuation of RM2.78. With only 8% upside potential if the Aqueduct bid is secured, we still rate Genting Malaysia as a hold. We maintain our estimates for now pending the bid result but employ the RM2.78 target price (RM2.48 previously based on Resort World at Genting only). ' ECM Libra Investment Research

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

AXIATA - Axiata poised to XL again

Stock Name: AXIATA
Research House: OSK

Axiata Group Bhd
(July 30, RM4.26)
Maintain buy at RM4.31 with target price of RM4.80
: Axiata's 66.5%-owned subsidiary, XL Axiata (XL), is slated to announce its 2Q10 results today. It is likely that the third-largest mobile operator in Indonesia gained additional revenue market share in the quarter at the expense of Indosat, which recently adjusted its cumulative subscriber base downwards on previously under-estimated subscriber churn. Axiata's share price has appreciated by 17% over the past three months, having outperformed the FBM KLCI by 14%.

We expect XL to deliver another stellar set of quarterly numbers due today. This comes on the heels of the better 2Q10 results reported by Dialog Axiata (86%-owned) earlier last week, which saw core earnings jump 95% quarter-on-quarter (q-o-q) against the 2% rise in revenue on further cost de-scaling efforts and its broadband business returning to positive earnings before interest, tax, depreciation and amortisation (Ebitda). We expect XL to report a 5%-6% q-o-q revenue growth (+30%-32% y-o-y), ahead of the 4% q-o-q growth (+42% y-o-y) recorded in 1Q10, driven by the continuing aggressive move to monetise traffic and generally stronger data lift. However, its Ebitda growth is likely to moderate q-o-q from the 9% growth seen in 1Q10 due to the seasonally weak advertising and promotional spending in the preceding quarter, supported by cost optimisation efforts. Both XL and Dialog make up about 45% of Axiata's group earnings and 27% of our sum of the part (SOP) target on Axiata.

Despite the intense competition in the local wireless broadband (WBB) space and the launch of the iPhone by DiGi.Com Bhd, we believe Celcom's performance held up well in 2Q10 due to the 'Blue Campaign', which was a cleverly orchestrated acquisition/retention initiative to ride on the World Cup frenzy. Celcom gave out limited edition World Cup dongles for subscribers signing up for a broadband plan and offered promotional mobile tariffs to drive usage. Celcom's mobile revenue grew 0.2% q-o-q in 1Q10, with mobile broadband revenue contributing 8% of total revenue, up from 6% in the preceding quarter. Celcom accounts for 63% of our SOP on Axiata.

We are maintaining our buy recommendation based on an unchanged SOP target of RM4.80, and would be looking to adjust our numbers post the release of its full results by end-August. Aside from the positive results news flow, other re-rating catalysts for the stock are: (i) the disclosure of a maiden dividend policy; (ii) further monetisation of non-core assets; and (ii) the opex and capex savings arising from the collaboration between Celcom Axiata and DiGi to share network infrastructure. We also maintain our buy recommendation on XL, based on a target price of IDR4,600 (RM1.63) pending the results announcement and a conference call with management. ' OSK Investment Research Sdn Bhd

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

FABER - Faber - IFM biz likely to boost 2QFY10 earnings

Stock Name: FABER
Research House: RHB

Faber Group Bhd
(July 30, RM2.79)
Maintain outperform at RM2.82 with fair value of RM3.54
: Faber is expected to announce its 2QFY10/12 results on Aug 5. We believe 2Q net profit could be higher year-on-year (y-o-y) due to stronger contributions from both concession and non-concession integrated facilities management (IFM) businesses, while quarter-on-quarter (q-o-q), net profit is expected to be better thanks to higher contribution from its overseas IFM business.

Faber recently secured a contract with Abu Dhabi Health Services Company to maintain all mechanical systems and equipment and various electrical installations and fittings at Sheikh Khalifa Medical City (Main Campus) and affiliated buildings in Abu Dhabi. The project is worth approximately RM20.4 million for a three-year period starting from Aug 16, 2010. We also note that an IFM contract in Madinat Zayed, Abu Dhabi, was renewed in May for another year with an annual value of RM57.8 million, while a second contract (likely to be more than RM100 million), also in Madinat Zayed, is expected to be renewed by year-end.

Faber's local non-concession IFM business is also expanding -' the company recently secured contracts worth approximately RM7 million per annum from various vendors that include Tesco, RapidKL and private healthcare companies.

As for the property segment, we expect stronger property earnings to come onstream in 2HFY10 following the recognition of earnings from the launch of Taman Desa Phase 1A DBKL in May. The company received a good response from the public, and over 60% of the development has been sold. It plans to launch Phase 1A (Fleet) at Taman Desa as well as Phase 4 for the Laman Rimbunan development in Cheras by 3Q10.

Risks in our view: (i) Failure to secure an extension to the concession agreement with the government; and (ii) Further delays in property launches and approvals, which could affect revenues from the property segment.

We have kept our FY10/12 earnings forecasts for now.

We continue to like Faber for its resilient earnings derived from the concession business, together with its ongoing expansion plans for its non-concession business both locally and overseas. Indicative fair value of RM3.54, which is based on sum-of-parts valuation, is maintained. We reiterate our outperform call on the stock. ' RHB Research Institute Sdn Bhd

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

UNISEM - OSK Research: Take profit on Unisem

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

KUALA LUMPUR: OSK Research has recommended investors take profit on Unisem, citing that the share price, which hit a high of RM3.50 (cum bonus price) in May, was nearing its historical 9-year average high P/NTA of 2.2x.

"We continue to worry if such valuations could be sustained as the industry is expected to slow down by about 50% after this year. Hence, we stick to our call and fair value based on 1.2x FY10 P/NTA," it said on Monday, Aug 2.

OSK Research said also the 16.5% upward adjustment on earnings has no impact on its FY10 P/NTA valuation, considering that Unisem's paid-up share capital to be enlarged by 25% after the exercise of its warrants.