August 27, 2010

LMCEMNT - Lafarge - caution, wet cement

Stock Name: LMCEMNT
Research House: CIMB

Lafarge Malayan Cement Bhd
(Aug 26, RM7.09)
Maintain underperform at RM6.95 with revised target price of RM5.90 (from RM6)
: Lafarge's 2Q2010 results were largely in line with expectations. Annualised 1H net profit made up 71% of our full-year forecast and 62% of consensus. We expect 2H to be stronger as there should be an uptick in cement demand and 2H is usually a stronger period for Lafarge than 1H. The second interim dividend per share (DPS) of eight sen was also largely in line with expectations, taking year-to-date DPS to 16 sen (1H2009: 15 sen). Although the results are broadly in line, we have made some minor adjustments to our borrowing cost assumptions, resulting in 2% to 5% earnings cuts for FY2010-12. This trims our target price from RM6 to RM5.90 as we continue to use a blend of 15 times PER and 1.1 P/BV. While we acknowledge that stronger demand could come through in 2H, we continue to rate Lafarge an 'underperform' as we see limited short-term catalysts for the stock given the subdued demand and competitive pricing in the cement industry. For a play on pump-priming, we prefer direct exposure to the contractors.

Demand for cement remained soft in 2Q, leading to relatively flat 1H2010 domestic cement demand. Clinker utilisation rates were still running at about 85% to 90% as output from the spare capacity could be exported at lower prices. However, the 4% weakening of the US dollar during the quarter dragged down export earnings which account for about 30% of sales. Nevertheless, a 10% increase in domestic prices on May 1 allowed the company to pass on rising costs and report higher earnings before interest, tax, depreciation and amortisation (Ebitda) margins of 21.9% in 2Q2010 (1Q2010:17.7%). This helped push its bottom line growth to 57% quarter-on-quarter.

Domestic cement demand remains muted at the beginning of 3Q. However, Lafarge remains optimistic that demand will continue to improve in 2H2010 given the implementation of ongoing and new infrastructure projects. The company still expects growth in cement demand this year, albeit less than 5%. We are cautious about this as we expect demand to stay soft in 2H given the absence of major construction projects. The lull could also create price competition, which could pose a threat to cement players' market share and earnings.

Although Lafarge's results were largely in line with our expectations, we may have underestimated our borrowing cost assumptions. We have, therefore, made some minor adjustments to our assumptions and now project average interest costs of 4.8% (2.4% previously), leading to FY2010-12 earnings cuts of 2%-5%. ' CIMB Research, Aug 26

This article appeared in The Edge Financial Daily, August 27 2010.

AXIATA - Axiata's 2Q figures surpassing headline KPIs

Stock Name: AXIATA
Research House: ECMLIBRA

Axiata Group Bhd
(Aug 26, RM4.47)
Maintain buy at RM4.42 with revised target price of RM4.95 (from RM4.77)
: Axiata's 6MFY2010 revenue was in line with expectations while adjusted net profit was above house and consensus estimates. Adjusted net profit was higher after adjustments for forex losses and impairments, partially offset by a gain from the XL stake disposal. Axiata's revenue growth was driven by strong year-on-year performance from all major operating companies (opcos) comprising Celcom, XL, Dialog and Robi. Net profit was driven higher by improvements in margins from all opcos except Robi.

Main revenue drivers Celcom and XL (both contributing 83% of group revenue) experienced strong double-digit growth both in terms of revenue and profitability for 6MFY2010 due to continuous lean cost management. For 2QFY2010, earnings before interest, tax, depreciation and amortisation (Ebitda) margins for Celcom and XL were at record highs of 47.9% and 53% respectively.

The smaller opcos, Dialog and Robi (both contributing 16% of group revenue), saw a sustained turnaround quarter-on-quarter. Dialog is expected to benefit from a more stable environment with floor pricing, while Robi continues to see strong subs growth through improving distribution strategies.

We continue to like Axiata for steady single-digit growth in Celcom and high-teens growth in XL going forward. Meanwhile, Dialog and Robi have shown positive results in maintaining their turnaround. With Axiata for 6MFY2010 showing 25% revenue growth (KPI: 12.1%) and 45% Ebitda growth (KPI: 14.1%), it appears that management is well on track to exceed their 2010 headline KPIs.

With stronger free cash flow, Axiata unveiled its dividend policy for FY2011, aiming to achieve a payout of 30%, quite close to our forecast of 25%.

We are pleasantly surprised by Celcom's strong Ebitda margins, and with management hinting of stable margins going forward, we have revised our earnings estimates by 7% to 8% for FY2010-12. The agreement to be signed by year-end between Celcom and DiGi.Com Bhd on a potential active collaboration also bodes well for further upside in margins for Celcom. Hence, we maintain our 'buy' call while revising our sum-of-parts target price from RM4.77 to RM4.95. ' ECM Libra Investment Research, Aug 26

This article appeared in The Edge Financial Daily, August 27 2010.

DELLOYD - A commendable 1H by Delloyd Ventures

Stock Name: DELLOYD
Research House: OSK

Delloyd Ventures Bhd
(Aug 26, RM3)
Maintain buy at RM3.30 with target price of RM3.90
: Delloyd Ventures (DV) posted a strong quarter with a net profit of RM10.2 million (quarter-on-quarter: 25%, year-on-year: 4%, year-to-date: 31%) on the back of revenue of RM90 million (q-o-q: 12%, y-o-y: 30%, YTD: 26%). For 1H, numbers were well within our estimates (but above consensus) although revenue slipped by 9% when annualised, partly due to the lower output and yield fetched for 1H. Revenue from the auto side remained strong q-o-q, y-o-y and YTD while contributions from the plantation side were only weaker y-o-y as the heavy rainfall in Indonesia put pressure on output and yields despite better fresh fruit bunch (FFB) prices. The associate side saw a q-o-q jump of 323% thanks to the higher number of lamps and mirrors produced ahead of the rush in festive season orders.

Overall, margins have continued to improve, notably on the auto side given the improved production efficiencies thanks to the higher output, while vehicle distribution has been able to break even since 1Q. For the quarter under review, however, the plantation segment saw margins dropping due to the initial setup costs of its crude palm oil (CPO) mill. However, we expect this to reverse over 2H as yields are expected to increase and the setup of the mill will facilitate DV in the sale of CPO (earlier FFB only) which will command a higher margin.

We expect the automotive division from the Malaysia side to be relatively weaker into 2H but this will be well compensated by the higher contribution from the plantation segment as yields rise. DV is also expected to see more contributions from the bus segment as more buses are due for delivery over 2H. It was also reported that DV is bringing a lower decked version of its Komodo buses to Malaysia for a trial run. If this is successful, chances are that more buses will be secured. We opine that manufacturing will likely stay in Indonesia as setting up a new production line here may not be deemed feasible. ' OSK Investment Research, Aug 26

This article appeared in The Edge Financial Daily, August 27 2010.

WASEONG - Wah Seong results still below expectations

Stock Name: WASEONG
Research House: INTER PACIFIC

Wah Seong Corporation Bhd
(Aug 26, RM2.10)
Maintain outperform at RM2.30 with revised target price of RM2.90 (from RM3.10)
: We have tweaked downwards our FY2010F/11F earnings by 5% to 8% and trimmed our target price to RM2.90 (previously RM3.10) based on FY2010 EPS of 18.1 sen and PER of 16 times. Nonetheless, we reiterate our 'outperform' recommendation. Our optimism is due to Wah Seong's (i) vast experience in pipe coating; (ii) new contracts to pour in by 2HFY2010 with mergers and acquisitions (M&A); and (iii) sizeable cash pile of RM214.4 million as at end-June.

Wah Seong's annualised 1HFY2010 result came below both ours and consensus expectations at 26.4% and 28.4% of FY2010 forecast respectively. As expected, Wah Seong declared a first interim dividend of two sen per share for the quarter under review.

In 2QFY2010, net profit fell by 94.3% year-on-year on the back of lower revenue which fell by 33% y-o-y. The deteriorating performance was due to the huge drop in earnings contribution from the following core divisions: pipe coating (-137.7% y-o-y); pipe manufacturing (-144.8% y-o-y) and engineering (-101.3% y-o-y) given the sluggish demand for gas compressors, built by wholly-owned Gas Services International's yard in Singapore, as well as on the unexpected downtime on the Gorgon project. Production was stopped for a few weeks from late June. However, its trading gains will offset this (+100.7% y-o-y) as well as exploration and production (E&P) services (+10.4% y-o-y) respectively.

To recap, Wah Seong has secured the pipe coating job for the entire Gorgon project valued at about US$162.9 million (RM551.2 million). This will keep its Kuantan plant up and running until early FY2012. We learn that bulk of its revenue and profit will be recognised in FY2011. We believe the gross margin is healthy at 20% to 30% although the margins are not as attractive as the Gemusut deepwater pipe coating job executed in FY2009. ' Inter-Pacific Research, Aug 26

This article appeared in The Edge Financial Daily, August 27 2010.

KOSSAN - 'Buy' call on Kossan, Supermax maintained

Stock Name: KOSSAN
Research House: OSK

OSK Research has maintained a buy decision on Supermax Corporation Bhd and Kossan Rubber Industries, saying their financial results were within expectations.

The research house maintained its target price for Supermax at RM9.11, saying the company's product mix with 70 per cent natural rubber gloves was targeting the right markets in developing countries.

"Going forward, the company is poised to be one of the biggest beneficiaries of rising hygiene standards in developing countries such as China and India as health awareness grows against a backdrop of reasonably good demand for medical examination gloves."

Kossan's target price was also retained at RM5.65 and the company was commended for having a good product mix comprising 60 per cent natural rubber gloves and 40 per cent nitrile gloves, allowing it to target all markets.--BERNAMA

LITRAK - Litrak may get to raise toll next year

Stock Name: LITRAK
Research House: MIDF

LINGKARAN Trans Kota Holdings Bhd (Litrak), the concessionaire of Damansara-Puchong Highway (LDP), is expected to obtain government approval for a toll increase next year, MIDF Research says.

The research house said the toll hike could affect traffic for the financial year ending March 2011 but the decrease was not expected to be drastic as LDP is still an important route for commuters especially with the lack of efficient public transportation.

"We also believe that the new toll rates should moderate any impact from traffic decrease," it said in a research note today.

In the financial year ended March 2010, traffic at LDP grew 2.0 per cent year-on-year to 470,000.

As for the impact of a fuel price hike, MIDF Research said: "Historically, there has been a knee-jerk reaction from any fuel price increase.

"However, a significant increase in fuel price may cause commuters to find alternative transportation, causing a lost in traffic."

The research house maintained a "buy" recommendation for Litrak with a target price of RM3.60.

"We continue to like Litrak as a strong defensive stock given that LDP still enjoys continuing support from its catchment area of Puchong, Kelana Jaya and Bandar Seri Damansara."

For the first quarter of the current financial year, Litrak registered a 26.1 per cent year-on-year growth in net profit to RM29.5 million which MIDF Research said was due to lower share of losses in Sprint Highway.

"The net profit was only 20 per cent of our full year estimate as we are expecting the scheduled toll rate hike in 2011," it said. - BERNAMA

ALAM - Target price for Alam Maritim cut

Stock Name: ALAM
Research House: OSK

OSK Research has maintained a "buy" recommendation for Alam Maritim Resources Bhd although it downgraded the offshore maritime transportation service provider's target price to RM1.63 from RM1.99 previously.

"We like the company's sound strategy in penetrating new businesses and new geographical markets (Middle East and India) as well as financial strategy using the joint venture option, which entails both parties sharing the risks and rewards," OSK said in a research note today.

OSK downgraded Alam Maritim's financial year 2010-2011 earnings projections by between 19 per cent and 22 per cent.

"Our downgrade is in line with the poorer-than-expected performance in second-quarter 2010, a sluggish outlook for the vessel market in terms of charter rates and new contract awards, and weakening of US dollar against the ringgit," OSK said.

Alam Maritim's pre-tax profit for the second quarter ended June 30, 2010, fell to RM17.91 million from RM33.49 million in the corresponding quarter last year while revenue also declined to RM67.42 million from RM80.67 million previously. --BERNAMA

SIME - Sime gains on brokerages' upgrade

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: JP MORGAN CHASE

Sime Darby Bhd rose to a two-month high as brokerages including JPMorgan Chase & Co raised the stock on speculation the worst may be over for the world's biggest listed palm-oil producer after posting its latest loss.

The shares gained 1.4 per cent to RM7.99 at 11:34 am local time in Kuala Lumpur trading, the highest since June 30. The advance pared the decline this year to 11 per cent, the most on the Malaysian stock index. Chief executive officer Mohd Bakke Salleh said yesterday the company has "identified" problems it faced in the oil and gas business and expects a turnaround.

Simone Yeoh, an analyst at JPMorgan, upgraded Sime to "overweight" from "neutral," lifting her share forecast to RM9.40 from RM8.40. Hoe Lee Leng, an analyst at RHB Research Institute Sdn Bhd, raised the recommendation on the stock to "market perform" from "underperform," while AmResearch Sdn Bhd rated the stock a new "buy" with a RM9.20 target.

"Consistency in performance under leadership of the new CEO is key for a sustainable re-rating," Yeoh said in a report. "We see prospects for shorter term opportunity in Sime shares with the overhang from further provisions now behind us, stable to strong core profits from most divisions, and our recent more positive outlook on crude palm oil prices."

The Kuala Lumpur-based company posted a second consecutive quarterly loss yesterday after adding provisions of RM777.3 million (US$247 million) for oil and gas projects, largely in the Middle East. This brought its total provisions to RM2.1 billion for its fiscal year ended June 30, it said.

The 100-year-old Malaysian company reported a fourth- quarter net loss of RM77.4 million, a reversal from a RM984 million-ringgit rofit a year earlier.

"Sime is currently under-owned by institutional funds due to the losses across the group's energy and utilities operations," Alex Goh, an analyst at AmResearch, wrote in a report today. "We believe that the stock is at an inflection point for an upward re-rating." -- Bloomberg

CIMB - MIDF downgrades CIMB to neutral, raises target price to RM8.50

Stock Name: CIMB
Research House: MIDF

KUALA LUMPUR: MIDF Research downgraded CIMB Group Holdings Bhd to neutral from buy previously after the banking group posted net profit RM889.5 million in its second quarter ended June 30, 2010 compared to RM838.1 million in 1Q.

MIDF Research said the higher net profit was contributed by i) higher net interest income from increase in NIM, ii) higher non interest income and iii) lower loan impairment expenses.

"We adjust our target price for the stock to RM8.50 (from RM8), based on 16 times PER on FY11 EPS.

"We continue to peg the stock to a forward PER of 16 times which is higher than its average 5 years historical PER due the Group's stronger position as a regional bank," it said on Friday, Aug 27.

MIDF Research said that as CIMB's share price had surged strongly (+23.4% YTD) beating the KLCI and KLFIN's gain of 10.6% YTD and 15.3% YTD respectively, total return expected (based on the revised target price and dividend yield) is less than 15%.

"Hence, we downgrade our call on the stock from Buy to Neutral," it said.

NESTLE - OSK Research ups target price for Nestle to RM38.53

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

KUALA LUMPUR: OSK Research has raised its target price for NESTLE (M) BHD [] to RM38.53 from RM31.49 previously, and maintained its neutral recommendation on the stock.

In a note on Friday, Aug 27, OSK Research said Nestle's 1HFY10 earnings were above its own and consensus estimates, making up 61.8% of the research house's full-year forecast.

It said Nestle's year-on-year earnings swelled 28.6% on the back of improving export sales, mainly from its new coffee and non-dairy creamer lines in Shah Alam.

"Earnings before interest and tax margins rose from 12.9% to 14.5%. Meanwhile, quarter-on-quarter earnings declined 27.8% as marketing expenses rose during the quarter, with new products such as Nescaf'' Ipoh White Coffee and Maggi whole wheat noodles being launched.

"We revise upwards our earnings forecasts for FY11 and target price to RM38.53 from RM31.49. Maintain Neutral," it said.

August 26, 2010

CIHLDG - CIMB, OSK keep 'buy' call on CI Hldgs

Stock Name: CIHLDG
Company Name: C.I. HOLDINGS BHD
Research House: OSK

CIMB Research and OSK Research have maintained a "buy" call on CI Holdings Bhd (CIH), driven by the group's strong results of its beverage division despite rising cost and competition.

"Our target price goes up from RM3.90 to RM4.20, pegged to an unchanged 20 per cent discount to 15-time target market price to earnings in view of the stock's relatively low liquidity," CIMB Research said in a report today.

Another contributing factor was CIH's aggressive distribution drive and additional production capacity, it said.

As at June 2010, CIH's beverages reached 42,000 outlets nationwide, an improvement on 36,595 outlets as at June 2009.

The group recorded a total revenue of RM516.40 million, an increase of 42 per cent from the previous year.

Much of the growth came from a strong response to non-carbonated drinks, especially Tropicana Twister which was showing no signs of slowing down, said CIMB Research.

It now holds 35 per cent of the market, followed by Marigold Peel Fresh at 30 per cent, and Fruit Tree and Sunkist at 13 per cent.

OSK Research said CIH's new non-carbonated line, which is scheduled to begin operations in the coming September/October period would allow the group to launch more non-carbonated products from the new Tropicana flavours and Lipton range.

"We see potential in this segment as more new drinks are launched. However, we have some concerns over the competition from Minute Maid and Marigold which may eat into Tropicana's market share as the brands are now engaging in aggressive promotional activities," it said. -- Bernama

IJM - IJM Corp has good chance to secure bid: OSK

Stock Name: IJM
Research House: OSK

IJM Corporation Bhd, which has tendered for jobs worth more than RM5 billion to date domestically and aboard, has a good chance of securing them given its track record,says OSK Research.

In a research note today, OSK Research said IJM has already identified several road project packages that it intends to bid for in India withindications that tenders would be out by year end.

"India intends to construct 54,000km of roads by 2012 and IJM has a trackrecord of completing 1,400km of roads in the country.

"Given India's local capacity constraint, some of these packages must beawarded to foreigners if the target is to be met," OSK Research noted. In the domestic market, IJM has managed to bag RM597 million worth of jobs.

It also added that the RM5 billion worth of projects that IJM had bid forthe year-to-date, does not include the LRT extension.

Some of the prospective jobs are the Putrajaya Hospital worth RM700 million,pipelines for the inter-state water transfer project (RM200 million - RM300million) in a joint venture with JAKS, the Kelau Dam (RM200 million -RM250million) and some Sarawak-based infrastructure project.

OSK Research also said it believes that IJM could potentially participate inthe West Coast Expressway, which was revived under the 10th Malaysia Plan. IJM is also eyeing the Islamic Teaching Hospital, a project worth RM300million to RM400 million via the private finance initiatives.

On the property side, OSK Research said IJM Land currently has unbilledsales of RM800 million and is looking to launch RM1.2 billion worth ofdevelopment for the 2011 financial year.

However, OSK Research has made a neutral call for IJM Corporation with atarget share price of RM5.32 amid a thin construction margin and limited upside. ECM Libra on the other hand, maintained a "hold" call on the shares with a target price of RM4.77. At 11am, IJM's share price perked five sen to RM4.95. -- Bernama

QSR - QSR Brands - meaty 2Q results

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

QSR Brands Bhd
(Aug 25, RM4.37)
Maintain outperform at RM4.43 with target price RM5.60
: As previewed, QSR's interims were in line with our forecast but below market expectations. 1H2010 net profit came in at 48% of our full-year forecast and 41% of consensus estimates. 2H is typically stronger due to festivities and longer school holidays. Dividend per share (DPS) surprised on the upside, coming in at six sen against four sen for 2Q2009. We raise our FY2010-12 DPS forecasts from 13 sen to 15 sen but leave our earnings forecasts largely untouched. Our target price remains at RM5.60, pegged to 16 times forward PER, which factors in a 10% discount to the average valuation of bigger F&B producers. QSR stays an outperform and our top F&B pick. Potential share price catalysts are (i) a sustainable improvement in same-store sales growth, and (ii) success in new markets, namely India and Cambodia. Any share price weakness resulting from earnings downgrades by the market would be a buying opportunity.

In 2Q, net profit rose 18% year-on-year, reflecting new outlets, higher same-store sales growth and record average ticket prices. In Malaysia, QSR added six outlets while 50.3%-owned KFC Holdings opened 11. Furthermore, the successful introduction of innovative products by Pizza Hut (Fish King Pizza) and KFC (Black Pepper Crunch) helped to push the average same-store sales growth to 8% for Pizza Hut and 4% for KFC. During the quarter, the group's average ticket prices hit all-time highs of RM40 for Pizza Hut and RM20 for KFC.

The group's FY2010 capex requirements amount to RM40 million for Pizza Hut (including RM10 million for image enhancement) and RM110 million for KFC (including RM40m for image enhancement). It is on track to open 16 to 18 new Pizza Hut outlets and 30 KFC outlets in Malaysia by year-end. But India is where the excitement is. Currently, KFCH operates one outlet each in Mumbai and Pune. Eight more outlets, all located in shopping malls, are expected to start operations this year. Monthly sales for the existing two outlets have been encouraging, hitting as high as RM450,000 per outlet. This may help increase KFCH's chances of taking over four outlets which are now under Yum!. Yum!'s outlets are already profitable. ' CIMB Research, Aug 25

This article appeared in The Edge Financial Daily, August 26 2010.

KAWAN - Kawan Food's 1H net profit slightly below expectations

Stock Name: KAWAN
Company Name: KAWAN FOOD BHD
Research House: KENANGA

Kawan Food Bhd
(Aug 25, RM1.34)
Maintain buy at RM1.40 with target price of RM1.60
: Kawan Food's (KFB) 1HFY2010 net profit of RM6.5 million came in within market consensus but slightly below our expectations, constituting 43.6% of our FY10 estimate of RM14.9 million and 54.16% of consensus forecast of RM12 million.

Year-on-year, 1HFY2010 net profit has declined by 1.8% due to the depreciation of the US dollar, though this is being offset by the slight improvement in revenue growth of 1.1%, supported by strong sales growth in the domestic market (14.2%), Europe (5.5%) and North America (6.1%), while Asia (excluding Malaysia) registered a decline of 4.7% and Oceania a 9.7% lower revenue.

Quarter-on-quarter, KFB registered a lower turnover by 1.3% while profit before tax declined to RM4.15 million due to lower sales and weaker demand generated in 2QFY10. The improvement in economy and the increase in purchasing power do not fare well for KFB, as consumers in developed countries opt to dine out. Consequently, Ebit margin declined to 18.1% from 19.3% and we believe this is due to the higher costs of raw materials.

Earnings estimate for FY10 and FY11 remain unchanged. We anticipate stronger 2HFY2010 earnings as new capacity from the Nantong, China and new Shah Alam plants comes on-stream, in addition to festive seasons to stimulate demand.

Maintain buy recommendation with target price of RM1.60 based on the same 13 times PER applied to revised FY10 EPS of 12.4 sen. We believe that the Nantong and new Shah Alam plants could become earnings contributor sooner than initially expected (FY11) due to the ready demand from KFB's existing export markets. KFB's existing Shah Alam plant is already running close to full capacity. ' Kenanga IB Research, Aug 25

This article appeared in The Edge Financial Daily, August 26 2010.

KFC - KFCH looking forward to 'tastier' numbers

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
Research House: OSK

KFC Holdings (Malaysia) Bhd
(Aug 25, RM10.58)
Maintain neutral at RM10.70 with higher target price RM10.30 (from RM9.17)
: KFCH's 1HFY2010 net profit and revenue of RM69.97 million and RM1.2 billion respectively were well in line with our and consensus estimates, coming in at 48.6% of our full-year forecast. While quarter-on-quarter (q-o-q) revenue was flat, its net profit shows slight improvement by 4.3% growth. Year-on-year (y-o-y) earnings were stronger at 15.9%. Cumulative earnings before interest and tax margins improved slightly to 11.5% from 11.4% previously.

Comparing KFCH restaurants on a y-o-y basis, we note decent operating profit growth of 14.1%. We believe the robust growth was driven by the introduction of new products and promotional items such as Colonel's Royal Briyani Combo, Iron Man 2 movie tie-ups and Shrimp Hearties. Fifteen new restaurants were also opened during the quarter. Additionally, its Singapore operations also saw a q-o-q increase of 7.4% in operating profit mainly attributed to value products and new products including the Ultimate Value Box meal and egg tarts. Aside from that, integrated poultry registered improved sales by 8.8% with increasing sales of Ayamas products to the local open market and export market.

As KFC Malaysia has opened its first two new stores in Pune and Mumbai in April and June, it is now targeting to open another 12 outlets in India by year-end to capture further market share in the fast food business. We think India is the next growth catalyst for the group, given that the Malaysian market is saturated and could potentially accommodate only another 200 to 300 new restaurants.

As KFC is looking at opening another 12 outlets in India, we see potential earnings contribution coming from India. As such, we raise our earnings forecasts for FY2011 by 3% from RM158.2 million to RM162.9 million. Given that most food counters have re-rated to a trading range of 12 to 13 times, we also increase our valuation PER from 11.4 times to 13 times, translating to a new target price of RM10.30 from RM9.17 previously. We maintain our neutral recommendation. ' OSK Investment Research, Aug 25

This article appeared in The Edge Financial Daily, August 26 2010.

IOICORP - IOI's estates fully matured

Stock Name: IOICORP
Research House: ECMLIBRA

IOI Corporation Bhd
(Aug 25, RM5.16)
Maintain hold at RM5.25 with revised target price RM5.89 (from RM5.54)
: IOI's full year adjusted net profit for FY2010 came in some 10% above our estimates but 8.4% below street numbers. Revenue declined 14% as the group saw a lower CPO average selling price (ASP) of RM2,372 per mt for the year (RM2,831 per mt in 2009). CPO ASP was in line with our RM2,400 expectation for FY2010. The group's earnings still showed growth as its downstream and property business (from sales in Singapore) had a better year.

IOI, unlike peers, does not have any newly maturing estates like KLK or Genting Plantations. For FY2010, IOI saw a 6.1% decline in FFB production as FFB yield/ha dropped from 26mt/ha to 24.4mt/ha. Mature hectarage also saw a shrinking of 0.7% at end-2010. We understand the group to be actively planting in Indonesia (est 15,000 to 20,000 ha pa) but this will not likely be contributing to earnings until post 2013. As such, IOI is likely to see rather flattish FFB production in the coming few years.

CPO prices look to be trading with a rather wide range of RM2,300 to RM2,800 per mt and we view this volatility to continue into IOI's FY2011. This is in tandem with our neutral view on the sector. We don't see the potential for any supply or demand shocks in the coming 12 months as stock levels in Malaysia are not threateningly low and demand has not been supernormal. On exogenous factors, the soybean market looks likely to be flush with a record crop from North America by year-end and this will keep soy prices bearish into 2011. Given the wide trading range of CPO prices, we view a CPO ASP of RM2,500 per mt as more realistic than RM2,400 per mt. Changes to earnings include (i) raising CPO ASP from RM2,400 to RM2,500, (ii) lowering FFB yield to 26mt/ha from 27mt/ha, and (iii) increasing manufacturing margins from 4% to 5%.

The net effect of our adjustments turns out to be positive and raises FY2011 EPS by 6.6%. As such, our target price increases from RM5.54 to RM5.89 (pegging 22 times historical average PER) and we maintain our hold call on IOI at this juncture. ' ECM Libra Investment Research, Aug 25

This article appeared in The Edge Financial Daily, August 26 2010.

AXIATA - Axiata on track to exceed KPI: ECM Libra

Stock Name: AXIATA
Research House: ECMLIBRA

Axiata Group Bhd, the country'ssecond-largest mobile-phone operator is well on track to exceed its 2010 key performance index (KPI), amid steady growth in its units.

In a research note today, ECM Libra said the company's KPI for 2010 was 12.1per cent revenue growth, earnings before interest, taxes, depreciation and amortisation (EBITDA) of 14.1 per cent and return on invested capital (ROIC) of10.1 per cent.

"We continue to like Axiata for steady growth in its domestic unit Celcom,and high teens growth for XL in Indonesia going forward," said ECM Libra.

Its other units, Dialog based in Sri Lanka and Robi in Bangladesh have shownpositive results in maintaining their turnaround, it added.

Axiata, yesterday, announced its second quarter financial result that beat market expectations amid an outstanding performance by its subsidiaries, with the domestic unit Celcom Axiata being the major contributor.

Its pre-tax profit rose to RM970.97 million for the second quarter endedJune 30, 2010, compared with RM878.62 million for the same quarter in 2009.

Axiata attributed the higher quarterly revenue to contributions from PT XLAxiata, Celcom and Axiata (Bangladesh) Ltd. Revenue increased to RM3.854 billion from RM3.214 billion previously.

Going forward, ECM Libra has revised its earnings estimation by 7-8 per centfor financial year 2010-2012 and the pending agreement to be sealed by Celcomwith DiGi on potential collaboration, bodes well for an upside margin for Celcom.

Hence, ECM Libra is maintaining a buy call for its share and has increased its target price to RM4.95 from RM4.77 previously. OSK Research also raised its target price for Axiata's shares to RM5.50 fromRM4.80 and marks the group as among its top regional telecommunication pick. -- Bernama

PROTON - A good start for Proton

Stock Name: PROTON
Research House: OSK

Proton Holdings Bhd
(Aug 24, RM4.73)
Maintain buy at RM4.66 with unchanged target price of RM5.67
: Proton's 1Q2011 ended June 30 net profit of RM84.7 million was within estimates, while revenue continued to be on an up-trend as exports picked up speed year-on-year (y-o-y) and domestic sales remained encouraging.

Proton continued to chalk up favourable profit-before-tax (PBT) margins of 4.6% for the quarter (4QFY2010: 5.08%), thanks to the better operating environment.

Although we think 1Q may have been negatively impacted by a glitch in distribution, the company has over the past year been marked by improving production efficiency and higher sales productivity achieved from the consolidation of its distribution network.

As we continue to see volume on a rising trend, we expect margins to remain sustainable going forward. As such, we expect overall PBT for the year to perk to 5.2% for FY2011.

Model launches are expected this year with the rebadged Lancer replacing the aging Waja, sometime end-CY2010. The Persona replacement is also due to hit the roads in November 2011.

While volume will remain sustainable given the new models, we see the upcoming Perodua Myvi replacement, which will be due for mass production in early 2H, to pose a threat to Proton.

However, despite a challenging market, we are still optimistic about Proton's export contribution from China. Proton has increased its completely-knock-down production capacity to 50,000 units per year. We forecast export volume to grow by 28% over the next two years.

With our earnings unchanged, we continue to retain our RM5.67 target price for Proton based on FY2011 EPS pegged at nine times PER and maintain our 'buy' call.

Proton is still trading at depressed levels given the long-term uncertainties plaguing the automaker. But over the short term Proton will see a turnaround as exports increase progressively. ' OSK Research, Aug 24

This article appeared in The Edge Financial Daily, August 25 2010.

PARKSON - Parkson's China subsidiary 2Q results in line with expectations

Stock Name: PARKSON
Research House: RHB

Parkson Holdings Bhd
(Aug 24, RM5.49)
Maintain outperform at RM5.52 with unchanged fair value at RM7.72
: Parkson's 51.6% subsidiary, Parkson Retail Group (PRG)'s 1HCY2010 core net profit of 544.9 million yuan (RM252.3 million) or 17.9% year-on-year (y-o-y) was within our and consensus expectations, accounting for 47% of our and consensus earnings forecasts. PRG declared a first interim dividend of'' 0.06 yuan per share.

1HCY2010 same-store-sales (SSS) growth continues to be in line with our expectations at 10.7% y-o-y on the back of improving consumer sentiment.

We are projecting a 10% overall SSS growth for PRG for the FY2010 ending Dec 31 for China operations, which we believe should be achievable based on its 1H SSS growth and the upcoming festive season in 2HCY2010.

The company is seeing improved gross margins with overall gross margin rising marginally y-o-y by 0.2 percentage points to 19% due to reduced discounting in light of recovering consumer sentiment and improved market conditions.

Furthermore, commission rates also improved for both concession and direct sales to 19.3% and 16.9% in 1HCY2010 from 19.1% and 16.7% respectively in 1HCY2009.

Parkson is opening new stores and enhancing current ones. In our previous report on Aug 19, we highlighted that the group is expected to open a new store in Beijing by end-August. The group also plans to open a second store in Wuxi before the end of 3QCY2010, a first store in Zigong, Sichuan and a second store in Hefei city in 4QCY2010.

This is in line with our forecast of five stores for CY2010. In 2Q, the company began to enhance the Hefei and Xi'an Shidai stores. The work is expected to be completed by the end of the year, after which the stores will carry premium cosmetic brands and upmarket fashion brands.

Potential risks include a sharper than expected contraction in consumer spending in China, Malaysia and Vietnam.

Parkson's current share price of RM5.52 implies a 40% upside to our sum-of-parts derived fair value of RM7.72. We believe the current weak share price is an opportunity for investors to gain an exposure to China's retail growth through Parkson Holdings. Maintain 'outperform'. ' RHB Research Institute, Aug 23

This article appeared in The Edge Financial Daily, August 25 2010.

TM - Contribution from Unifi service has not fired up yet for TM

Stock Name: TM
Research House: AMMB

Telekom Malaysia Bhd
(Aug 24, RM3.52)
Maintain buy at RM3.55 with unchanged fair value of RM3.90
: Telekom Malaysia (TM) made a net profit of RM124.4 million (3.5 sen per share) in 2Q2010, against RM497 million for our full-year estimate.

Stripping off translation gain of RM18.1 million and other one-off gains of RM3.2 million, net income would have been RM104.2 million.

We consider this largely within our estimate. We are looking at 2H2010 to register only slightly better numbers due to a more robust Unifi subscriber base.

Revenue for the quarter of RM2.15 billion ' up 0.4% quarter-on-quarter (q-o-q) and +1% year-on-year (y-o-y) ' was largely from a push by better contributions from non-voice sales; in line with expansion in its Streamyx customer base.

Streamyx saw a net addition of 56,000 customers during the quarter against 54,000 in 1Q2010. Internet, which includes Unifi and Streamyx, expanded 1.9% q-o-q and 7.2% y-o-y. Non-voice continues to be in the driving seat, with an improved revenue contribution from 54% to 56% currently. More importantly, operating margin from non-voice revenue is higher than that of voice, which should push earnings in subsequent quarters.

Ebitda margin eased against 1Q2010 to 31.6% (from 33.2%) due to higher cost of supplies and materials, marketing expenses and other operating costs, mainly related to the faster rollout Unifi. We expect this to scale back in 2H2010 on the back of better cost management in Unifi rollout.

We believe 2Q2010 has not taken into account the full-blown impact of Unifi take-up ' as it was only launched at the end of 1Q2010. On this, we shall see better performance in 2H2010, when Unifi take-up rate is expected to increase to at least 20,000 by year-end. there are currently about 12,000 subscribers to Unifi, implying a monthly net addition of about 3,000 per month from the 18 newly launched areas in the current quarter.

The catalyst for the take-up rate would be the earlier than expected rollout which is to cover at least 750,000 premises passed before the year end. This compares with about 500,000 premises passed currently.

We maintain our preference for TM on its unique buffer dividend policy. We continue to rate TM as a 'buy' with fair value of RM3.90 per share on a discounted-case-flow-based valuation (terminal growth 1.5% and weighted-average-cost-of-capital 9.7%).

On dividend yield comparison, the company offers a slightly higher yield of 5.2% against 5% in DiGi.Com Bhd and 4.8% in Maxis Bhd. ' AmResearch, Aug 24

This article appeared in The Edge Financial Daily, August 25 2010.

IJM - CIMB Research maintains Outperform on IJM Corp

Stock Name: IJM
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research said IJM Corp's annualised 1QFY3/11 core net profit made 95% of its forecast and 88% of consensus.

It said on Thursday, Aug 26 the performance was broadly in line as subsequent quarters should be stronger. The CONSTRUCTION [] division remained the weakest link as major contracts had been completed in FY10 and new jobs have yet to kick off in a big way.

The margin for earnings before interest and tax (EBIT) ticked up 6.6 percentage points on-year, driven by PLANTATION []s, industries and property.

CIMB Research said IJM remains optimistic that it can top up its order book by RM2 billion by end-2010.

'We think this is achievable and make no changes to our forecast, Outperform call or RM6.65 RNAV-based target price. The main potential re-rating catalyst is project awards,' it said.

WASEONG - OSK Research: Wah Seong 1H results below expectations

Stock Name: WASEONG
Research House: OSK

KUALA LUMPUR: OSK Research said Wah Seong Corp'' Bhd's' 1HFY10 results were below expectations due to the slower revenue generation across all its division and the delay in the commencement of some of the pipe coating jobs.

Nevertheless, the research house said on Thursday, Aug 26 that it expected a better 2H10 for the company, coming mainly from its pipe coating division as well as engineering division to some extent.

'Downgrading FY11 earnings by 11%. Since FY11 is still five months away, we will be prudent and reduce our FY11 earnings forecast until we see a turnaround of the O&G industry in the later part of 2H10,' it said.

OSK Research had downgraded the stock to Neutral. Its target price was reduced to RM2.40 (previously RM2.71) based on the existing PER of 14 times FY11 earnings following our FY11 earnings downgrade. To-date, the company is still supported by its orderbook of RM1.2 billion.

LIONIND - OSK Research: Lion Industries FY10 net profit above forecast

Stock Name: LIONIND
Research House: OSK

KUALA LUMPUR: OSK Research said Lion Industries' FY10 net profit of RM363.5 million was 11.6% above its numbers but way above street estimates.

The research house said on Thursday, Aug 26 the impressive results were achieved on the back of improved contribution from its core steel operation as well as commendable performance from other sub-divisions.

'While we remain cautious on FY11, particularly for 1H, of a potential inverse position of higher iron ore pellet and scrap costs vis-''-vis lower selling prices possibly eroding margins, we think there would be a trading opportunity given the robust results plus the stock's still undemanding valuation compared to its peers,' it said.

OSK Research said as such, it maintained its Trading BUY recommendation, with its fair value unchanged at RM2.01.

August 25, 2010

IOICORP - IOI Corp growth below industry's: OSK

Stock Name: IOICORP
Research House: OSK

IOI Corporation's growth will continue to be below industry over the next four to five years, unless it plants more aggressively, says OSK Research.

"IOI's low production of young trees means its production growth would remain relatively stagnant, hence earnings growth and stock price appreciation would also slow down.

"The stock has been underperforming its peers and we do not see any rerating catalyst on the horizon," OSK said in a research note today.

OSK also said, based on its numbers, IOI's young mature trees only made up about eight per ent of its mature hectarage compared to its peers of 20 per cent to 35 per cent.

"Its percentage of trees not yet at peak maturity is also low at 15 per cent compared to its peers at 28 per cent to 46 per cent. This means IOI's growth will continue to be below industry, unless more aggressive planting takes place," OSK explained.

It also said with IOI's new refinery in Rotterdam having started operations in July and along with palm oil price volatility starting to pick up, refinery margin should improve.

However, this is provided, the company can ensure sufficient palm oil supply after cutting off Sinar Mas Group as supplier.
"We make no change to our earnings forecast, which has factored in contribution from the new refinery.

"There's room for an earnings upgrade if IOI's effective tax rate stays at its fourth quarter level and our target price based on 15 times of current year 2011 earnings, is maintained at RM3.91," OSK explained.

Meanwhile, Kenanga Research said: "Based on guidance, Fresh Fruit Bunches (FFB)production will most likely improve five per cent year-on-year and which we have adjusted accordingly in lowering our assumptions by some seven per cent." -- Bernama

POS - Pos Malaysia earnings to grow by 66.4pc

Stock Name: POS
Research House: OSK

POS Malaysia Bhd's earnings in financial year 2011 will grow by 66.4 per cent from financial year 2010 as full contribution from the postal tariff hike takes effect, according to OSK Research.

The research house maintained a "buy" recommendation on Pos Malaysia with target price of RM4.03 in a research note today.

It also maintained Pos Malaysia's financial year 2010 revenue forecast of RM978.3 million.

OSK Research expects operating margins in the second half of this year to improve as the quantum of tariff hike offsets the higher staff and operating costs.

On Khazanah Nasional's plan to divest its stake in Pos Malaysia, the research house said the foreign and local strategic partners from the entire Khazanah stake sale have been quite active in the past two months.

The potential suitors include DHL, TNT and recently a leading global private equity firm, CVC, emerged as another bidder, it said.

"We do not rule out that this may have progressed to the advanced stage as the year-end deadline approaches," it added.

According to OSK Research, a synergistic partnership will be able to drive efforts to boost Pos Malaysia's retail segment to provide more value offerings upon the revision of the Postal Land Act to enable the company to use its government land bank for non-postal services. - BERNAMA

RHBCAP - Kenanga raises RHB Cap earnings forecast

Stock Name: RHBCAP
Research House: KENANGA

Kenanga Research today raised its earnings forecast for RHB Capital Bhd's FY10-11 by five and seven per cent respectively, but maintained a "hold" rating on the share.

"We rolled forward our valuation year to FY11 with a new target price of RM7.00 with a 15.4 per cent return on equity estimate," it stated.

Meanwhile, OSK Research in a note said it is maintaining a buy call on RHB Capital at a target price of RM7.85.

It said that the group's near term operational outlook remains intact, with 2QFY10 loans growth momentum remaining strong at 4.1 per cent quarter-on-quarter.

"1HFY10 return on equities came in at 15.3 per cent versus our full year forecast of 14.2 per cent, signalling compelling growth traction," OSK added. -- Bernama

MRCB - HDBSVR expects stronger earnings momentum in 2H10 for MRCB

Stock Name: MRCB
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research is maintaining its Buy call on MALAYSIAN RESOURCES CORP [] Bhd (MRCB) and its sum-of-parts (SOP) derived target price of RM2.25.

The research house said on Wednesday, Aug 25 that MRCB's 2Q10 net profit of RM12 million, (up 24% on-quarter and up 2% on-year) on the back of 8% decline in revenue to RM174 million was 'broadly within our and consensus estimates'.

The highlight was the doubling of CONSTRUCTION [] margins to 9.7% in 2Q10 vs 5.0% in 1Q10, due to ramp up of works for Eastern Dispersal Link, Permai Hospital, and on-going works at KL Sentral with higher economies of scale.

'We expect stronger earnings momentum in 2H10 buoyed by the ramped 'S' curve construction progress at KL Sentral for Lots A, 348, E and G, and its RM0.9bn external orderbook,' it said.

Hwang DBS Vickers Research expects MRCB's appointment as master developer of the Rubber Research Institute Malaysia (RRIM) land, coupled with its construction and developer role, to transform its fortunes considerably.

'It is also an indirect beneficiary of the RM43bn MRT project as there will be a key station on the RRIM land. Other potential catalysts are a surge in construction flows and possible participation in the Jalan Cochrane land, which we understand it is still pursuing,' it said.

IOICORP - Price estimate for IOI Corp raised at ECM

Stock Name: IOICORP
Research House: ECMLIBRA

IOI Corp, Malaysia's second-largest listed palm oil producer, rose to a three-month high after ECM Libra Capital Sdn Bhd raised its share price estimate to reflect higher earnings prospects as palm oil prices gain.

The stock climbed 0.8 per cent to RM5.29 at 9:25 am local time in Kuala Lumpur, set for its highest close since May 17.

The share estimate was increased to RM5.89 from RM5.54, ECM said in a report today. -- Bloomberg

HUAAN - OSK Research maintains Trading Buy on Sino Hua An

Stock Name: HUAAN
Research House: OSK

KUALA LUMPUR: OSK Research said the weakening steel market since May 2010 may have capped Sino Hua An's (Huaan) earnings upside but the net profit of RM4.8 million in 2Q ended June 30, 2010 managed to pull the company out of the red.

It said on Wednesday, Aug 25 that the recovery in steel prices in past weeks reflects an improvement in market conditions for metallurgical coke in China although its sustainability remains uncertain.

'With this, together with the Chinese government's move to force the closure of outdated coke plants, we reiterate our Trading BUY call, with a target price of 47 sen. The fair value is derived from 0.7 times FY10 book value/share,' it said.

GENTING - Genting upgraded at Credit Suisse

Stock Name: GENTING
Company Name: GENTING BHD
Research House: CREDIT SUISSE

Genting Bhd, Asia's second-biggest listed casino operator, had its rating raised to "outperform" from "underperform" at Credit Suisse Group AG to reflect the earnings potential of the company's Singapore unit.

The share price forecast was increased to 10.65 ringgit from 6 ringgit, Credit Suisse analyst Foong Wai Loke said in a report today. -- Bloomberg

August 24, 2010

SUNCITY - Sunway City to be lighter and nimbler

Stock Name: SUNCITY
Research House: HWANGDBS

Sunway City Bhd
(Aug 23, RM3.85)
Maintain buy at RM3.73 with target price of'' RM4.70
: Results in line with expectations. 2Q2010 net profit ex-exceptionals came in at RM39 million (+50% year-on-year, -6% quarter-on-quarter). The leisure and hospitality segments reported stronger earnings before interest and tax (EBIT) y-o-y (school holidays & Middle East tourists, 4QFY2009 affected by Influenza A H1N1 outbreak), while property development saw a q-o-q decline due to completion of Sunway Giza commercial project. Interim dividend per share of 31 sen (4QFY2009: eight sen) with net yield of 6.2% (FBM KLCI: 2.8%), to reward shareholders post-REIT listing.

Robust physical sales of RM285 million (+239% y-o-y, +105% q-o-q), driven by Sunway Damansara Rymba Hills bungalows, Sunway SPK 3 Harmoni townhouses, Sunway Guanghao condos, and Sydney industrial lot sale. 1H2010 sales of RM424 million are on track to meet the RM1 billion 2010 target. Riding on robust demand, the launch target has been raised to RM1.76 billion with RM800 million slated for 2H2010, including Sunway Velocity (maiden launch of shopoffices & serviced apartments), South Quay condos, and Sunway Damansara (SOHO, shopoffices). Unbilled sales stood at RM743 million (twice FY2009 annualised property development revenue).

Stronger balance sheet post-REIT. The listing of Sunway REIT has helped to unlock value and provide a ready avenue for SunCity to monetise more of its investment properties in the future. REIT net proceeds of about RM500 million (after minority interest and RM780 million debt repayment) should come in handy for working capital and landbank replenishment. We raised FY2010-12F earnings by 8% to 25% to factor in acceleration in project launches and REIT impact (annual REIT dividend and management fees along with interest savings should help offset lower property investment contribution). SunCity will also recognise a RM530 million one-off gain on disposal in 3Q2010. ' HwangDBS Vickers Research, Aug 23

This article appeared in The Edge Financial Daily, August 24 2010.

AFFIN - Affin results in line with expectations

Stock Name: AFFIN
Research House: INTER PACIFIC

Affin Holdings Bhd
(Aug 23, RM3.06)
Recommend outperform at RM3.05 with target price of RM3.50
: We recommend 'outperform' with fair value at RM3.50 based on the Gordon Growth Model with weighted average cost of capital of 8.51% and FY2011 P/BV of 0.9 times and ROE of 10.0%. With its cheap valuation, stable earnings, better asset quality and brighter prospects, we think it is a good buying opportunity.

1HFY2010 profit before tax (PBT) and net profit fell in line with expectations, accounting for 51.8% and 50.8% of our FY2010 forecast respectively. Strong growth in PBT by 36.4% year-on-year (y-o-y) in 1HFY2010 was due to the robust PBT growth in 2QFY2010 by 25.5% y-o-y to RM154.3 million. Drivers to such stellar growth are: (i) higher operating income (+3.5% y-o-y); (ii) sharp fall in impairment allowances by 56.4% y-o-y; (iii) net interest income (+5.5%) and (iv) income from Islamic banking (+11.9% y-o-y).

In tandem with improving profitability, cost/income ratio eased to 46.8% in 1HFY2010, from 49.1% in 1HFY2009. Annualised ROE and ROA was at 10.1% and 1.2%, which is above their FY2010 targets of 8.4% and 1.0% respectively. Gross loans outstanding in 1HFY2010 rose by 9.6% or an annualised growth rate of 19.2%. Customer deposits expanded by 8.4% in 1HFY2010 or an annualised growth rate of 16.8%. Quarter-on-quarter, gross loans outstanding grew by 4.8% and deposits up 6.1%. Underpinned by the strong loans growth against deposit, the loan/deposit ratio rose to 80.3% end 1HFY2010 against 75.8% at end-June 2009.

Gross impaired loans ratio fell to 3.6% end-June FY2010, from 4.6% in 1QFY2010, on par with industry standards. But the impaired loans coverage ratio under the adoption of FRS 139 fell to 63% end-June FY2010 from 69.7 % in 1QFY2010 owing to some allowance written-off in 2Q10. Adding on, the core capital ratio and risk-weighted capital ratio stayed healthy at 11.49% and 13.23 % as at end-June FY2010. Net NPL ratios based on Bank Negara Malaysia/GP3 guidelines stood at 2% as at end June-FY2010, which is close to the FY2010 target of 2%. ' Inter-Pacific Research, Aug 23

This article appeared in The Edge Financial Daily, August 24 2010.

UMW - UMW's 2Q performance reflected in price

Stock Name: UMW
Research House: MIDF

UMW Holdings Bhd
(Aug 23, RM6.51)
Maintain neutral at RM6.43 with revised target price of RM6.92 (from RM6.80)
: The group's 1H2010 numbers outperformed expectations with a net profit of RM344.6 million, accounting for 66% of full-year and also ahead of the street's estimate of RM542 million.

For 1H2010, the group's automotive revenue went up by 32.5% year-on-year (y-o-y) to RM4. 96 billion (1H2009: RM3.75 billion), while the equipment division's revenue increased by almost 30% y-o-y (RM757.2 million against RM582.9 million). The oil and gas division continued to experience a slowdown with revenue falling 24.2% y-o-y as business suffered from the lack of growth in demand.

1H2010 operating margin was at 10.7% against 5.2% recorded in the same period last year, and we expect this level to sustain for the remainder of this year on the back of (i) higher ringgit against US dollar that helped to push manufacturing costs lower, (ii) better economies from the ramp-up in production in the period.

Perodua and Toyota remain the market leaders in their respective segments. Perodua still the market leader in the country with market share at circa 33%, while Toyota continues to hold its position as the leading non-national brand. For 1H2010, Perodua sold 94,936 cars, a 23.2% growth y-o-y, while Toyota shifted 43,502 vehicles, marking an 18% increase y-o-y.

A potentially long wait for the O&G to recover. The overall prospect of earnings recovery remains in question but the signing of a new deal for Naga 2 could provide the catalyst needed to this division. There is still expectation of a better 2H2010 but overall sentiment remains cautious.

The main risk factor is the slump in sales due to the threat of rising interest rates that would put a damper on the overall sales target for this year.

The strong 2Q2010 automobile market is within expectations with long-term growth prospects from the O&G. Another catalyst would be the revival of the construction sector that will result in a stronger demand for heavy equipment.

We have increased our FY2010 and FY2011 EPS forecast by 26% and 8.5% respectively. Maintain 'neutral' with target price upped to RM6.92 based on DDM on the back of potentially higher dividend payout going forward. ' MIDF Research, Aug 23

This article appeared in The Edge Financial Daily, August 24 2010.

MISC - MISC's visibility improving, target price raised

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

(Aug 23, RM8.80)
Maintain buy at RM8.86 with revised target price of RM10.05 (from RM9.05)
: Last Friday's analyst briefing reaffirmed our conviction about MISC's improving short-mid-long term prospects. We make no change to our earnings forecasts, but we raise our target price to the full value of our sum-of-parts valuation (previously 10% discount) as earnings visibility improves in the container business, and prospects brighten in virtually all other segments. We maintain our 'buy' call.

Container losses will halve in FY2011, per guidance. This equates to a pre-tax loss of RM570 million. The global shortage of container boxes owing to manufacturers' 'slow steaming' delivery is expected to persist into 2011.

This has helped to cap tonnage increase and provide support to rates, which are now re-negotiated at two-month intervals. Global container traffic is set to improve by 8.5% in 2010 and 7.3% in 2011.

Expanding petroleum business. MISC expects the division's performance in FY2011 to equal FY2010's (RM116 million pre-tax profit).

Nevertheless, fleet expansion for long-term growth includes five newbuilds in 2QFY2011 and expansion into the Suezmax space, a market new to MISC. It believes newbuilds now cost less than existing second hand vessels. Newbuilds also allow MISC to control its delivery period.

Two LNG vessels earmarked for conversions. This division will continue to anchor MISC's earnings.

It registered a pretax profit of RM384 million in 1QFY2011, accounting for 81% of group earnings. Management has confirmed that two LNG vessels, currently laid up, to be converted for offshore operations (these are FSRU and FLNG vessels).

Positive for heavy engineering. Technip Soci''t'' Anonyme (TEC FP; not rated) of France has confirmed it is taking up a strategic 8% to 10% stake in MMHE in its upcoming IPO in 4Q.

Technip is a world leader in project management, engineering and construction, with an extensive portfolio of innovative solutions and technologies.

Technip offers MMHE technical expertise and technological advantage. Technip already has a track record constructing FLNG vessels for Shell.

Offshore business brightens. Two LNG conversion projects, estimated to cost US$3 billion (RM9.4 billion), could lift MMHE's order book beyond RM5 billion and contribute to heavy engineering profits from FY2012. MISC may co-own these vessels, backed by long-term charters. If so, from FY2014, they will provide steady earnings to the offshore division. We gather that several offshore units (MOPU,FSO, FPSO) will be built over the next few years. ' Maybank IB Research, Aug 23

This article appeared in The Edge Financial Daily, August 24 2010.

AXIATA - Axiata climbs to 23-month high

Stock Name: AXIATA
Research House: ECMLIBRA

Axiata Group Bhd, a Malaysian mobile phone operator, rose to a 23-month high after ECM Libra Capital Sdn Bhd increased its share price estimate, citing higher revenue growth projections at the company's Indonesian unit.

The stock advanced 1.4 per cent to RM4.44 at 9:47 a.m. local time in Kuala Lumpur, set for its highest close since Sept 19, 2008.

The share price forecast was raised to RM4.77 from RM4.50, ECM said in a report today. - Bloomberg

PROTON - HDBSVR ups Proton TP to RM6.60

Stock Name: PROTON
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research has raise its target price for PROTON HOLDINGS BHD [] to RM6.60, after upgrading valuation multiple to 0.7x CY11F NTA (vs. 0.5x previously).

'This is a 10% discount to its mean+1SD of 0.8x, which is its historical peak valuation (Fig. 4), and reflects its positive outlook for the consumer sector. With more than 40% capital appreciation potential, Proton remains a BUY,' it said in a report on Tuesday, Aug 24.

HDBSVR said Proton's annualised 1QFY11 profit beat its estimate, but was within consensus'.

While 1QFY11 revenue of RM2.3 billion (+1.2% q-o-q; +24% y-o-y) was within its estimate, EBIT margin rose 0.7ppt to 4.5% q-o-q (+1ppt y-o-y).

Domestic division revenue grew 7% q-o-q on the back of 3% increase in unit sales to 40,000 units (+10% y-o-y) and 4% higher average selling price to RM49,000 (+10% y-o-y).

'This was due to larger contribution from higher margin vehicles. Proton also benefited from reduced infighting among dealers (following the realignment of dealerships) and an improved inventory system,' it said.

August 23, 2010

DIALOG - Dialog doing well with Tanjung Langsat

Stock Name: DIALOG
Research House: MAYBANK

Dialog Group Bhd
(Aug 20, RM1.10)
Upgraded to buy with higher target price of RM1.25
: We have upgraded Dialog to a 'buy', with a higher RM1.25 sum-of-parts-based target price, following an 18% to 19% rise in our FY2011/12 earnings forecasts, as the midterm outlook is turning positive, helped by early contributions from its new Tanjung Langsat operations. This expansion will drive earnings and cash flows and eventually higher dividends. The successful execution of the Pengerang tank farm and its Saudi Arabia supply base plans are further re-rating catalysts.

The 4QFY10 net profit of RM29 million ' a drop of 5% year-on-year (y-o-y) and 10% quarter-on-quarter (q-o-q) ' took FY10 earnings to RM116 million (a 26% y-o-y rise), ahead of our RM101 million expectation but within consensus' RM112 million. Dialog declared a final dividend per share (DPS) of 1.8 sen, which lifted full-year DPS to 3.1 sen.

The stronger-than-expected 4Q performance was fuelled by higher associates profit contribution (a 28% q-o-q rise to RM11 million). We think the outperformance came from its Tanjung Langsat tank terminal business, which commenced operations in April and has started to contribute ahead of expectations. We had initially projected a startup loss for this.

Despite a 17% q-o-q decline in 4Q turnover, the domestic operations (ex-associates) turned in higher pretax profit (a 34% q-o-q rise) on margin expansion (7.1 percentage points higher q-o-q). It accounted for 66% of group pretax profit in 4Q. This negates a lower pretax earnings from its overseas operations (an 85% q-o-q drop).

We have raised our FY2011/12 earnings forecasts by 18% to 19%, taking into account the earlier-than-expected earnings contributions from its 30% stake in the Tanjung Langsat operations, a sustainable growing income stream.

We also lift our FY2011/12 DPS forecasts by 17% to 20%, based on a 55% net profit payout. Operationally, Dialog is well-positioned to leverage onto Petronas' upcoming engineering and construction and downstream operations ' namely Sabah Oil and Gas Terminal, catalyst handling and maintenance services ' over the next few years. ' Maybank IB Research, Aug 20

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

PLUS - Upping the ante

Stock Name: PLUS
Research House: CIMB

PLUS Expressways Bhd
(Aug'' 20, RM4.06)
Maintain outperform at RM3.98 with target price raised to RM4.92
: PLUS' annualised 1H10 core net profit was 1% above our forecast and 4% above consensus. We consider the results to be above expectations as 2H should be a stronger period, driven by seasonally strong traffic volume.

In view of this, we raise our FY2010-12 earnings forecasts by about 2%. Our discounted cash flow (DCF) value, however, goes up 5.4% from RM5.18 to RM5.46 as we now use a lower risk premium. We are also raising our FY2010-12 dividend per share (DPS) by 15% as the single-tier 7.5 sen DPS declared for 2Q was above expectations.

In view of the increasingly positive macro outlook and a strengthening of investor preference for defensive stocks, we now value the stock at a 10% discount to its DCF value instead of 25%. This raises our target price from RM3.90 to RM4.92.

We maintain an 'outperform' on the stock due to its defensive qualities and attractive dividend yield of 6.4%. Potential re-rating catalysts include (i) stronger-than-expected traffic volume growth, (ii) continued positive macroeconomic indicators, and (iii) investors' continued preference for defensive stocks. The 1H10 revenue rose 10.8% year-on-year (y-o-y), fuelled by the 9.8% y-o-y traffic volume growth for its main highway, the North-South Expressway (NSE) compared with 14.2% for ELITE, 21.4% for Linkedua, 10.8% for KLBK and 1% from BKSP in India. NSE contributed 84% of the group's toll revenue in 1H10. Earnings before interest, taxes, depreciation, and amortisation (Ebitda) were relatively flat y-o-y while core net profit grew 10.5% y-o-y.

Although traffic volume growth is likely to moderate to single digits in 2H10, traffic volume in absolute terms should pick up pace in 2H as economic conditions continue to improve. We are raising our traffic volume growth assumption from 4% to the guided 5% for FY2010 while keeping our 4% growth assumption for FY2011/12. This raises our FY2010-12 earnings forecasts by about 2%.

However, our DCF value goes up by 5.4% from RM5.18 to RM5.46 as we lower our weighted average cost of capital (WACC) assumption from 12.2% to 10.6% to account for a lower risk premium.

The group declared a 7.5 sen single-tier interim dividend, higher than last year's 6.5 sen and above our projections. As PLUS is targeting a minimum payout of 75% for FY2010, we raise our gross dividend forecast by 15% to 25.6 sen. ' CIMB Research, Aug 20

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

TENAGA - TNB hit by Lahad Datu rejection

Stock Name: TENAGA
Research House: OSK

Tenaga Nasional Bhd
(Aug 20, RM8.79)
Maintain buy at RM8.72 with unchanged fair value of RM9.90
: The Department of Environment (DOE)'s rejection of the detailed environmental impact assessment (DEIA) on the Lahad Datu coal plant will likely mean that TNB needs to find alternative power plant solutions for the east coast of Sabah.

While this could mean costlier biogas plants, we are leaving our assumptions intact for now. We maintain our 'buy' call on TNB, given the growing foreign interest in the counter recently as well as weaker coal prices.

Our fair value is unchanged at RM9.90 while we await further developments with regard to the 2,000MW plant-up.

According to East Malaysian media, the DOE rejected the DEIA for the proposed 300MW coal-fired power plant in Sinakut, Lahad Datu, because the report failed to address a large number of important environmental parameters.

The power plant, initially to have been located in Silam, Lahad Datu, has a controversial history.

It was twice relocated, to Sandakan and then to Sinakut, due to opposition from environmental groups, which highlighted the risk that its cooling water outflow would warm the surrounding seas and harm marine breeding grounds while its emissions could result in acid rain.

Nonetheless, it cannot be denied that the east coast of Sabah is badly in need of modern power plants, as it is currently served by ageing and inefficient diesel plants, while up to 40% of its power requirement is imported from the west of Sabah via the East-West Sabah grid. This has led to frequent power supply interruptions in east Sabah.

Given that the DOE has exercised independent judgment on the matter, we believe TNB, which has a 40.8% stake in the Lahad Datu plant, would be forced to consider other alternatives, such as biomass, given the abundance of oil palm plantations in Sabah, or the long-discussed Liwagu dam in central Sabah.

For now, given the uncertainty over possible alternatives, we leave our assumptions on the Lahad Datu plant unchanged as an investment in associates in TNB's balance-sheet forecast.

While this latest development may be viewed as a setback ' Sabah Electricity SB will continue to require government subsidy for its coal ' we make no changes to our estimates for now and leave our discounted-cash-flow-based fair value unchanged at RM9.90.

We note the increasing foreign interest in TNB, with its foreign shareholding having risen back above 9% amid weaker coal prices, and await further developments on the 2,000MW new supply plant-up to replace power from the Bakun dam. ' OSK Research, Aug 20

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

HLBANK - Pace of loan growth quickens for HLBB

Stock Name: HLBANK
Research House: OSK

Hong Leong Bank Bhd
(Aug 20, RM 8.90)
Maintain trading buy at RM8.84 with target price raised to RM9.20
: We are raising our target price for HLBB to RM9.20 from RM8.80 to factor in a higher price-to-book-value (PBV) multiplier of two times (implied 15.8% ROE) post earnings revision.

Although the share price upside from current levels is rather limited, we are maintaining our 'trading buy' recommendation as a successful merger with EONCap could see a re-rating of our fair value for HLBB to RM9.80 on the back of higher book value accretion and return on equity (ROE) of 16%.

HLBB's FY10 results (+9.1% y-o-y) were marginally above consensus and our expectations (+6.3% and +5.8% respectively). The strong 4QFY10 numbers (+51.1% year-on-year and +32.1% quarter-on-quarter) were underpinned by: (i) a pick-up in quarterly loans growth momentum (+3.5% q-o-q), (ii) effects of the OPR hike giving rise to higher NIMs (+11bps to 2.05%), (iii) lumpy writeback in specific allowance, which helped lower full-year credit costs to 27bps against FY2009's 44bps, and (iv) higher contribution from share of associate, Chengdu Bank (+103.4%).

Mitigating the upside were higher staff expenses (+6.7%) and forex income (-38.9%), which in turn resulted in a 14.1% y-o-y and 15.9% q-o-q decline in other operating income.

Compared with the 3QFY10 earnings, the group reported an 86.9% q-o-q drop in loan loss provision, largely due to a 97.3% surge in specific provision writeback. We think this is justified given the marked improvement in asset quality, whereby gross NPLs dipped 6.2% q-o-q and 9.2% y-o-y.

In addition, the group has been raising its general provisioning buffer in tandem with its robust loans growth and despite the lower overall provisions for the quarter, its loan loss cover rose to 117.4% from 116.1% q-o-q.

There was an encouraging sustained pick-up in HLBB's quarterly loans growth to a faster 3.5% rate in 4QFY10. This boosted gross loans growth to 8.4% y-o-y, which is still slightly below the industry average.

The bulk of the growth was from working capital (+21.7%) and mortgages (+13%) while hire purchase loans contracted 0.3%. Given the equally strong quarterly pick-up in deposit growth, its loans to deposit ratio remained stable at 54.1% but was up from FY2009's 51.5% as loans grew at a faster pace than deposits.

We are revising upwards our FY2011 and FY2012 earnings by 14.1% and 8.5% respectively, after tweaking higher our loans growth assumption to 9.5% and 8.2% for FY2011 and FY2012 against our original estimates of 7% and 7.5%, coupled with a lower credit cost of 30bps for FY2011. ' OSK Research, Aug 20

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

MAYBANK - Target price for Maybank revised up

Stock Name: MAYBANK
Research House: ECMLIBRA

ECM Libra has revised upwards its target price for Malayan Banking Bhd (Maybank) to RM9.81 from RM8.98, saying that the country's largest lender remained a "buy" counter.

The bank's financial year 2010 results came in within expectations as net profit was 3.1 per cent and 3.7 per cent above house and consensus estimates respectively, said ECM Libra.

"Full-year dividend per share was declared at 41.3 sen, implying payout ratio of 76.5 per cent and net yield of 5.1 per cent," it said in a research note today.

According to OSK Research, Maybank is well positioned to ride on the economic recovery.

"Its previous conservative provisioning, improving asset quality, strengthening capital base and larger regional footprint will propel earnings," it said in a research note.

OSK Research said the group remained relatively well capitalised, with its core equity, Tier 1 and risk-weighted capital ratio (RWCR) at 8.6 per cent, 11.06 per cent and 14.7 per cent respectively.

"This will give more scope for future dividend upside as management has alluded that future payouts may exceed 60 per cent if Basel III capital requirements prove to be less stringent than expected," it said. -- Bernama

PROTON - CIMB Research Neutral on Proton, maintains TP of RM5.15

Stock Name: PROTON
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research is retaining its earnings projections for aPROTON HOLDINGS BHD [] as the car maker will be releasing its 1QFY11 results on Monday, Aug 23.

'The stock remains a Neutral. Also intact is our target price of RM5.15 as we continue to apply a 10% premium to its five-year historical P/BV of 0.5 times,' it said in a research note.

The Edge Weekly reported that Proton's unit Lotus Group will need cash injection of close to RM500 million over the next two years to develop new models. Proton's management also plans to issue new Lotus shares to investors to raise another RM420 million.

CIMB Research said although the RM500 million cash injection is vital in helping Lotus's management turn around the company, it is negative for Proton as it is a drain on its cashflow.

'But we take a positive view of the emergence of new shareholders as it would ease Proton's burden of financing Lotus while allowing Proton to continue tapping Lotus's expertise and TECHNOLOGY [],' it said.

AXIATA - Axiata earnings forecast raised 20pc

Stock Name: AXIATA
Research House: NOMURA

Axiata Group Bhd's earnings forecasts for 2010-2012 were raised by between 13 per cent and 20 per cent at Nomura Holdings Inc to reflect higher contributions from its overseas units.

Axiata, a Malaysian mobile phone operator, may report a "solid" second-quarter earnings this week, Nomura said in a report.

The share price estimate was increased to RM5.60 from RM4.50, Nomura said. -- Bloomberg