September 3, 2010

KENCANA - Kencana secures new HUC jobs as expected

Stock Name: KENCANA
Research House: AMMB

Kencana Petroleum Bhd
(Sept 2, RM1.57)
Maintain buy at RM1.54 with fair value RM2
: Kencana Petroleum (Kencana) has secured small jobs worth RM32 million for provision of hook-up and commissioning services (HUC) for fields located offshore Malaysia by unnamed production sharing contractors. This is not a surprise as we had highlighted that Kencana was poised to secure several small HUC jobs in our past reports.

With these new orders, on top of an RM11 million contract to provide HUC services for Petronas Carigali's Samarang field located off Sabah, Kencana has secured RM77 million to date in HUC contracts for 2010.

Including this contract, Kencana has secured RM634 million worth of contracts since the beginning of 2010. Including this new job, Kencana has almost secured our new order assumption of RM1 billion for FY2010.

As our new order assumptions are maintained, we likewise maintain FY2010F-12F earnings.

This new contract marginally raised Kencana's outstanding fabrication order book of RM1 billion. But including Petronas Carigali's drilling charter for the tender rig and marine charter for the 8,080bhp Gemas anchor handling tug and supply vessel, the group's total outstanding contracts stand at RM1.9 billion, 1.5 times FY2010F revenue.

As the Samsung-Naim Holdings JV recently secured the US$766 million Sabah oil and gas terminal (SOGT) in Kimanis, we estimate that the group's tenders have fallen from RM6.5 billion back to RM4 billion. This still represents a healthy four times Kencana's outstanding fabrication order book, and we highlight that Kencana was not one of the bidders favoured to win the SOGT job.

We remain positive on Kencana, which is poised to ride on an up-cycle in new domestic O&G contract rollouts coupled with the listing of MISC's Malaysia Marine & Heavy Engineering this October. We understand that there could be fabrication contracts worth up to RM9 billion, which could be open for bidding over the next few months.

We maintain our 'buy' call on Kencana with unchanged fair value of RM2, pegged to a CY2010 PER of 20 times. The stock currently trades at an attractive CY2010F PER of 16 times, way below its 2007 peak of 25 times. ' AmResearch, Sept 2

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

NESTLE - Pricier commodities a tough one for Nestle to digest

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

Nestle (Malaysia) Bhd
(Sept 2, RM40.48)
Maintain underperform at RM40.10 with target price RM28
: Liquid drinks took centre stage at Wednesday's analyst briefing. This business was one of the star performers in 2Q, supporting Nestle's 17% year-on-year net profit growth. But the tone of the briefing was cautious as management talked about the price crunch from key commodities, especially cocoa which leapt to a 33-year high in July.

Having raised prices for Milo powder and 3-in-1 mixes by 9% in February, Nestle may not be able to increase prices again this year, putting margins at risk. We maintain our earnings forecasts and discounted cash flow-based target price of RM28.00 (9% WACC). With PERs at a demanding 24 to 26 times, Nestle remains an 'underperform'. The potential de-rating catalysts are: (i) a further upturn in commodity prices; and (ii) deceleration of export growth. We advise investors to switch to our top F&B pick, QSR Brands.

To recap, 2Q net profit jumped 17% y-o-y to RM100 million as revenue stayed above the RM1 billion mark for the second consecutive quarter. Domestic and export sales fared well. Exports have been encouraging as Nestle is riding on both its status as the Nestle group's global halal hub and the economic recovery in Asean. Furthermore, most product categories are growing, particularly liquid drinks and chilled dairy operations. Liquid drinks include Milo (in cans and Tetrapak), Nescafe (in Tetra-Pak), Omega (in Tetra-Pak) and Nesvita (in Tetra-Pak) which are produced at the Shah Alam and Batu Gajah plants.

An aggressive distribution push is a major driving factor. To make the products more accessible, the new business manager's team has been active in securing new accounts beyond the hypermarkets, supermarkets and mom-and-pop outlets. Currently, the distribution network includes less fancy sales channels such as snooker centres, fruit stalls and newspaper kiosks. A wider retail reach has helped liquid Milo and Nescafe to lead their respective markets. Milo (in cans) commands more than 90% of the cocoa liquid drinks market, with competition coming from Power Root's Oligo Cocoa which is marketed by Natural Bio Resources. Nescafe (in cans) commands more than 50% of the coffee liquid drinks market. Among its competitors are Pokka and C I Holdings' Boss. A recent launch of Nescafe Ipoh White Coffee (in cans) has been well received. The brisk sales enjoyed by liquid Milo and Nescafe helped to push the revenue contribution from beverages from 47.9% in FY2009 to 49.3% in 1H2010.

The liquid drinks team is now courting new consumers ' young adults at colleges. This is a smart strategy as demand for carbonated drinks is slowing with the rise of health consciousness. To make the products more relevant to the target crowd, a Facebook page and attractive contests have been put in place.

In FY2008, F&B producers faced a steep increase in the prices of soft commodities. Consequently, Nestle raised the prices of Nescafe and Maggi by 8% to10% in July 2008. The softening of the commodity prices later prompted the company to reduce the prices of Milo and milk products by 7% to 12% in February 2009, its first price-cutting exercise in six years. But crop prices reversed to higher levels earlier this year. In February, Nestle hiked the prices of Milo powder and 3-in-1 mixes by 9%.

Wildfires in Russia have caused wheat and other produce prices to shoot up. Cocoa prices reached a 33-year high in July, helped along by speculative activities. Costs for powdered wheat, cocoa, milk, coffee and wheat have risen at double-digit rates over the past few months. Nestle, like most F&B producers, is accustomed to commodity fluctuations and is therefore planning accordingly. At the briefing, management assured us that there are no plans for now to make consumers fork out more for Nestle products. We believe the company is monitoring a possible pricing action by its competitors. While it is true that it has some pricing power, consumers are shopping harder for deals, choosing more store-brand products and keeping an eye out for discounts.

FY2009's RM267 million record capex for new production lines for Nescafe and Coffeemate and the aggressive distribution drive for liquid drinks prove that Nestle has been increasing its investment in its brands. However, input costs are going up and the price pressure, especially from commodities, could pinch margins. While we continue to like Nestle's huge consumer base and reliable dividends, there is no mistaking management's cautious tone at Wednesday's briefing. Furthermore, the stock is the most expensive in our Malaysian F&B portfolio, trading at 24 to 26 times PER despite offering a bite-sized three-year EPS CAGR of 5.2%. ' CIMB Research, Sept 2

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

SAPCRES - Renewed charters for SapuraCrest's T-6, T-10 rigs

Stock Name: SAPCRES
Research House: MIDF

SapuraCrest Petroleum Bhd
(Sept 2, RM2.43)
Maintain buy at RM2.34 with target price RM2.80
:SapuraCrest Petroleum (SapCrest announced charter renewals for both of its self-erecting tender rigs, the T-6 and'' T-10. The T-6 charter was scheduled to expire this December, while the T-10 charter ended in July. ''

The T-6 rig will be charted at US$85 million for 24 months with an option of two extensions, for three months each. This'' is about 50% higher than the previous rate and translates into a per day'' charter of US$101,100 or RM 323,800. At present, T-6 is chartered by Carigali Hess Operating Company and Carigali PTTEPI Operating Company in the waters of the Malaysia-Thailand joint-venture'' development area (MTJDA).

The T-10 rig will be chartered at RM49 million for 24 months at US$68,300 per day or RM218,500 per day. The lower rate is warranted as it is a bare-boat charter'' which usually commands less favourable rates. The rig is also operating in MTJDA waters for Seadrill UK for Chevron's Thailand offshore drilling. ''

The 50% upward revision of the T-6 rig rate was as we had forecast premised on prevailing market rates. However, the T-10 rate is short of expectation given that it is a bare-boat charter. Both quoted rates are in line with the present global rate of US$117,000 per day, however, against the market high of US$124,000 in April this year. ''

Our earnings forecasts will be kept largely unchanged as we had already factored in a similar revision in the rates of both rigs. We have made some minor'' adjustments towards T-10's contributions.'' ''
Note that the next revision of SapCrest's'' three other rigs, the T-3'' (1Q2012), T-9 and Teknik Barat (both 2Q2012) are expected to be reviewed by 2012. As such, we'' expect contributions from the Drilling segment to remain steady throughout FY2011-12. ''

Maintain 'buy' with unchanged target price (TP) of RM2.80. Our TP is based on a PER for 2011 of 15 times, a premium against our employed'' sector average'' EPS 2011 of 14'' times. SapCrest'' remains our top pick in the sector given its strong order book visibility, ownership of strategic assets (via'' pipe-lay and Seadrill's rigs)'' as well as the fact that it is a potential beneficiary of Petronas contracts given its proven track record. Currently, SapCrest is trading at 12.5 times, within its five-year median PER'' band of 7.6 times to 20 times. ' MIDF Research, Sept 2

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

MMCCORP - Winds of change for MMC Corp

Stock Name: MMCCORP
Research House: HWANGDBS

MMC Corp Bhd
(Sept 2, RM2.77)
Initiate coverage with buy call at RM2.53 and target price RM3.20
: MMC, an integrated utilities and infrastructure player, is strongly leveraged on Malaysia's improving economy (1H2010 GDP 9.5% year-on-year). For example, container volume at PTP and Johor Port are up 13% and 5% y-o-y for year-to-date June, passenger traffic at Senai airport is resilient at 1.4 million, Malakoff IPP's average despatch factor is 50% (against 49% in 4Q2009) and Gas Malaysia's volume is up 14% for 1H2010.

The company is a strong proxy to Iskandar Malaysia, which makes up an estimated 68% of MMC's sum-of-parts (SOP) value. It owns two ports ' PTP and Johor Port, the only airport, located in Senai, 16 water treatment plants, and a landbank of 4,296 acres. Completion of key infrastructure projects by 2012, such as Legoland, the Newcastle University Medicine Malaysia Campus in EduCity and Marlborough College will yield steep appreciation potential in land values. We estimate every RM5 psf rise in land value will raise our SOP valuation by 8%. Recent transactions by EQ solar and MOX valued raw land at RM25 psf with infrastructure. Improving relations between Singapore and Malaysia could also offer substantial development opportunities, such as a rapid transit system between Tanjung Puteri in JB and Singapore, bullet train and/or a third link to Singapore. This will see land values reflate.

Alternative proxy to MRT. Key to its construction arm will be the MMC-Gamuda JV bid for RM36 billion MRT project in Kuala Lumpur.

If it comes to fruition its order book will triple and add another 17 sen per share to its SOP. Other potential projects include other road-based projects and replicating the SMART tunnel in other states. We assume every RM1 billion increase in new order wins will raise our SOP valuation by 4%. It is the only construction-related stock included in the KLCI FBM 30 and should command some IPP premium with the delisting of Tanjong. ' HwangDBS Vickers Research, Sept 2

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

SPSETIA - SP Setia, IGB upgraded at OSK

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: OSK

SP Setia Bhd., Malaysia's biggest property developer, and IGB Corp had their stock ratings upgraded at OSK Research Sdn Bhd to reflect their growth prospects.

SP Setia was raised to "buy" from "take profit" while its share price estimate was increased to RM6.31 from RM3.59, OSK said in a report today. IGB was raised to "buy" from "neutral" and its target price revised to RM2.41 from RM1.94. -- Bloomberg

SUNCITY - Sunway City a 'hold' at AmResearch

Stock Name: SUNCITY
Research House: AMMB

AmResearch has rated Sunway City a "hold" with a price target of RM3.94.

The research firm noted that Sunway City had announced that it had proposed to acquire an additional 45 per cent stake in Sunway Lagoon Sdn Bhd (SLSB) for RM129 million.

Post acquisition, SunCity's interest would increase to 96 per cent from 51 per cent previously.

"This exercise can be seen as a strategic move to strengthen its earnings - SLSB owns the Sunway Lagoon theme park, which in turn owns Sunway South Quay development," AmResearch said.

SunCity's effective stake in the latter would increase to 58 per cent from 31 per cent.

SLSB also owns a 31 per cent stake in 46 hectare of land in Sydney via Eastern Glory, another subsidiary of SLSB.

"While impact to SunCity's earnings should be minimal in FY10, we estimate that this exercise would provide an uplift of about 16 per per cent to our EPS in FY11F," said AmResearch. -- Reuters

DAIBOCI - CIMB Research Overweight on flexible packaging stocks

Stock Name: DAIBOCI
Research House: CIMB

KUALA LUMPUR: CIMB Research said investors looking for a cheaper alternative to the small-cap food and beverage (F&B) sector can opt for flexible packaging stocks such as Daibochi and Tomypak which derive some 90% of their revenue from the F&B sector.

'These stocks are trading at only 5 .0 times to 8 times CY11 P/E even though YTD, the share prices of the F&B and packaging stocks in our small-cap coverage have shot up 65% on average compared to 9.6% for the FTSE Bursa Small Cap Index,' it said.

The research house said on Friday, Sept 3 that'' Daibochi and Tomypak also offer attractive gross dividend yields of 5% to 7%. In addition, these two companies pay dividends on a quarterly basis.

'We continue to rate these stocks Buys and maintain our earnings forecasts and target prices of RM4.60 for Daibochi (12.0 times CY11 P/E or a 20% discount to 15 times target market P/E) and RM1.98 for Tomypak (8.4 times CY11 P/E or a 30% discount'' to Daibochi's 12 times target P/E),' it said.

TOMYPAK - CIMB Research Overweight on flexible packaging stocks

Stock Name: TOMYPAK
Research House: CIMB

KUALA LUMPUR: CIMB Research said investors looking for a cheaper alternative to the small-cap food and beverage (F&B) sector can opt for flexible packaging stocks such as Daibochi and Tomypak which derive some 90% of their revenue from the F&B sector.

'These stocks are trading at only 5 .0 times to 8 times CY11 P/E even though YTD, the share prices of the F&B and packaging stocks in our small-cap coverage have shot up 65% on average compared to 9.6% for the FTSE Bursa Small Cap Index,' it said.

The research house said on Friday, Sept 3 that'' Daibochi and Tomypak also offer attractive gross dividend yields of 5% to 7%. In addition, these two companies pay dividends on a quarterly basis.

'We continue to rate these stocks Buys and maintain our earnings forecasts and target prices of RM4.60 for Daibochi (12.0 times CY11 P/E or a 20% discount to 15 times target market P/E) and RM1.98 for Tomypak (8.4 times CY11 P/E or a 30% discount'' to Daibochi's 12 times target P/E),' it said.

September 2, 2010

MMCCORP - MMC rises on HwangDBS 'buy' rating

Stock Name: MMCCORP
Research House: HWANGDBS

MMC Corp, a Malaysian builder, power producer and port operator, rose the most in more than a month after HwangDBS Vickers Research Sdn Bhd recommended investors to buy the stock for its "solid" growth prospects.

The stock advanced 3.2 per cent to RM2.61 at 12:10 p.m. local time in Kuala Lumpur, set for its largest increase since July 23. MMC was rated new "buy" at HwangDBS with a share-price forecast at RM3.20. -- Bloomberg

JCY - JCY rebounds, CIMB keeps target price RM1.88

Stock Name: JCY
Research House: CIMB

KUALA LUMPUR: Shares of JYC International Bhd rebounded in late morning trade on Thursday, Sept 2 as CIMB Research said the recent selldown was unjustified and instead viewed this as an opportunity to accumulate the shares.

At 11.58am, it was up 8.5 sen to 98 sen with 16.7 million shares done.

The FBM KLCI was up 1.66 points to 1,433.62. Turnover was 442.22 million shares valued at RM695.59 million.

CIMB Research continued to rate the stock an OUTPERFORM with an unchanged target price of RM1.88, still based on 12.0 times CY11 P/E.

'Potential catalysts for the stock include (1) turnaround of the hard disk drive sector, (2) more meaningful contributions from Hitachi and Samsung, and (3) positive news on its successful penetration into Toshiba,' it said.

The research house said the foreign labour issue was solved in mid-August;

The Edge FinancialDaily reported that JCY's share price had plunged more than 22% over the past 1'' weeks, due to a delayed market response to labour protests in mid-August.

CIMB Research said: 'This was discussed during the results briefing on Aug 20. We understand that the issue was quickly addressed and there was minimal disruption to production. We do not think the share price plunge is justified and that with the big decline in share price, the upside now is very significant at 109%,' it said.

JCY - JCY cut to 'hold' at Alliance on bleak outlook

Stock Name: JCY
Research House: OTHER

JCY International Bhd, a Malaysian disk-drive components supplier, was downgraded to "hold" from "outperform" at Alliance Research Sdn Bhd to reflect a "bleak" outlook for its business.

The recent plunge in its shares was due to worker protests at the company's plant, it said in a report today. Salary adjustments for the workers would reduce earnings by RM7 million, Alliance said.

The share target price was cut to 94 sen from RM2.60 ringgit, it said. -- Bloomberg

NAIM - AmResearch maintains Buy on Naim, ups fair value to RM5.09

Stock Name: NAIM
Research House: AMMB

KUALA LUMPUR: AmResearch is maintaining its Buy call on NAIM HOLDINGS BHD [] and raised the fair value from RM4.60 a share to RM5.09 after factoring in the Sabah Oil & Gas Terminal (SOGT) project.

Naim had on Wednesday, Sept 1 revealed that the Samsung-Naim JV had received a letter of award dated Aug 27, 2010 from Petronas Carigali Sdn Bhd for the SOGT project.

The contract value is RM2.4 billion or about 20% higher than initial estimates of RM2 billion. The proposed terminal is located in Kimanis, Sabah.

AmResearch said on Thursday, Sept 2 that Naim stands to benefit from its strategic partnership with Samsung.

'The latest contract would lift Naim's outstanding order book to about RM3.1 billion or almost 10 times its FY09 CONSTRUCTION [] revenue. As such, we have doubled our new order book assumptions for Naim to RM1 billion for FY10F.

'We continue to like Naim as an excellent proxy to Sarawak's score. On revised earnings, Naim trades at alluring FY10F-12F PEs of only 6.0 times to 9.0 times against a robust EPS CAGR of 20% and market cap/order book ratio of 0.3 times,' it said.

HARTA - Ex-date for Hartalega bonus issue on Thursday

Stock Name: HARTA
Research House: OSK

KUALA LUMPUR: OSK Research said the ex-date for Hartalega's one-for-two bonus issue is on Thursday, Sept 2 and the proposed issuance of up to 121.2 million bonus shares will enlarge its share capital base to 363.5 million shares from the existing 242.3 million shares.

The research house said based on the latest three-month average volume to date, Hartalega's share volume is the lowest compared to its peers at only some 200,000 shares.

'Hence, we think Hartalega would benefit from this corporate exercise compared to its peers. The shares are currently controlled by Hartalega Industries Sdn Bhd, which holds a 50.6% equity stake.

'Our ex-bonus fair value is revised downwards to RM7.93 (cum-basis RM11.89), based on the existing PER of 14x FY12 EPS, while the theoretical share price is adjusted to an ex-bonus price of RM5.05, based on Wednesday's closing price of RM7.58. We continue to like the company's global market leadership in nitrile gloves,' it said.

September 1, 2010

JCY - JCY slides to historic low, heavy volume

Stock Name: JCY
Research House: RHB

KUALA LUMPUR: Shares of hard-disk drive manufacturer fell to its historic low of 87.5 sen in late afternoon trade on Wednesday, Sept 1 in the absence of fresh negative news despite RHB Research Institute maintaining a market perform call and fair value of RM1.32.

At 3.31pm, it was down eight sen to 88.5 sen. There were 23.74 million shares done at prices ranging from 87.5 sen to 96 sen.

RHB Research said that JCY, given its reliance on Western Digital and Seagate, was looking to expand its customer base as well as increase its margins.

Going forward, JCY's earnings will be mainly driven by: 1) strong demand for the 2.5'' HDD fuelled by stronger-than-expected demand for mobile PCs and consumer electronics; 2) resilient demand for the 3.5'' HDD stemming for demand for desktops and gaming consoles; and 3) improving corporate and consumer IT spending.

'We maintain our Market Perform call on the stock with a fair value of RM1.32/share based on an unchanged 10x FY11 EPS,' it said.

GLOMAC - Glomac shares still a 'buy': ECM

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

Property developer Glomac Bhd's recent acquisition of Berapit Properties Sdn Bhd has expanded its land bank in Cyberjaya which now potentially has a gross development value of RM158 million, according to ECM Libra Investment Research.

"We believe more land bank acquisitions are in the offing," ECM Libra said in a research note today.

The research house maintained a "buy" in Glomac shares with an unchanged target price of RM1.87 based on the company's two-year earnings compound annual growth rate of 14.1 per cent and prospects of more land bank acquisitions.

Shares of Glomac traded unchanged at RM1.34 on Bursa Malaysia as at 2.17pm today.

"We are keeping our estimates unchanged until we get further information from management," ECM Libra said. -- Bernama

MASTEEL - Masteel rated 'neutral' at OSK

Stock Name: MASTEEL
Research House: OSK

OSK Research has reiterated its neutral call on Malaysia Steel Works (KL) Bhd due to weaker steel prices and "not so rosy" outlook as the steel producer and seller may have been caught with some high cost scrap metal when prices surged to US$500 a tonne in May.

In contrast, the company's average scrap metal cost is likely to be US$400 a tonne, OSK said in a research note today.

OSK also revised Masteel's target price to 88 sen. Its shares are currently hovering at 86 sen on Bursa Malaysia.

The research house sees limited room for steel prices to pick up further despite the recovery at end-July caused possibly by the build-up for high inventory by steel mills, suggesting possible dumping on any price escalation.

As a result, the buyers are likely to hold back on procurement.

"The weakening steel price plus the lack of a demand-push factor prompt us to cut our financial year 2010 projection by 16.3 per cent although we retain our financial year 2011 figures." it said, adding that it remains cautious on the second half outlook. -- Bernama

IREKA - Ireka stock downgraded at Affin

Stock Name: IREKA
Research House: AFFIN

Affin has downgraded its recommendation on Ireka to "add" and lowered its target price on the stock to RM0.86.

"Overall profit performance of the group is not expected to be impressive until Aseana Properties show a profit from 2012 provided there are no further sale of properties at a loss to realise cash flows," said Affin.

KNM - TA slashes earnings forecasts for KNM

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

TA has slashed its earnings forecasts for KNM Group for financial year 2010 and 2011 by 51.9 per cent and 37.9 per cent respectively.

TA said it was assuming a weaker performance in Asia & Oceania, mainly Malaysia, and slower pickup in orders and pricing power.

"We also have cut utilization rate assumption for FY11 to 65 per cent from 72 per cent, after taking into consideration the above factors and capacity addition from the Saudi Arabian plant," said TA.

"We downgrade the stock to a 'Sell' from 'Buy' due to risk of continuous earnings disappointments in the absence of big contracts," TA added.

The stock is valued at RM0.44 based on a 10 per cent discount to calendar year 2011 target sector PER of 11x.

ASIAFLE - Asia File lowered to 'sell' at TA

Stock Name: ASIAFLE
Research House: TA

TA downgraded Asia File to "sell" as the stock now only offered nine per cent upside.

"We derive a new target price of RM4.40 based on FY11 PER of 8.5x," said the research firm.

"Its peers are currently trading at 9-11x earnings and we attached a discount to Asia File due to bleak outlook," said TA.

KPJ - Affin keeps 'buy' call on KPJ Healthcare

Stock Name: KPJ
Research House: AFFIN

Affin has maintained its "buy" call on KPJ Healthcare for its undemanding valuations.

"In tandem with our earnings upgrade, our target price is raised to RM4.31 (previously, RM4.00)," said Affin.

MAXIS - Maxis cut to 'underperform' at CIMB Invt

Stock Name: MAXIS
Company Name: MAXIS BERHAD
Research House: CIMB

Maxis Bhd, Malaysia's biggest mobile-phone operator, was cut to "underperform" from "neutral" at CIMB Investment Bank Bhd after first-half earnings came in below the brokerage's estimates.

The share price estimate was reduced to RM4.80 from RM5.50, CIMB said in a report today. -- Bloomberg

KULIM - OSK Research maintains Buy on Kulim

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

KUALA LUMPUR: OSK Research is maintaining its Buy call on Kulim Bhd with a a target price of RM10.30.

It said on Wednesday, Sept 1 that Kulim's 1HFY10 core earnings at RM96.8 million were below its full-year forecast at RM269.6m as its oleochemical segment swung from an EBIT of RM17.9 million in 1Q to a loss of RM18.6 million in 2Q ended June 30, 2010.

'While the 2Q results were weighed down by a turn for the worse at the oleochemical division, Kulim is in the process of completing its sale, which should no longer be a drag from 4Q onwards,' it said in a research note.

OSK Research the stock is trading at a very cheap valuation of 11.1 times FY10 and 9.6 times FY11 earnings compared to its peers' at 17 times to 20 times forward earnings. It said this is especially so considering the quality of Kulim's assets and its industry-leading sustainable palm oil practices.

KKB - OSK Research maintains Trading Buy on KKB Engineering

Stock Name: KKB
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Trading Buy on KKB ENGINEERING BHD [] with its target price tagged at RM2.37, based on 10 times FY10 EPS.

KKB's subsidiary, Harum Bidang Sdn Bhd secured a RM114 million contract to supply concrete-lined mild steel pipes and mild steel mechanical couplings to'' CMS Infra Trading SB (CMSIT).

The research house said on Wednesday, Sept 1 the award was expected to contribute positively to the company's earnings for FY11 and FY12, although it preferred to keep its original estimates since the new contract has been included in its replenishment order assumption.

'We continue to be bullish on the company's prospects given its good order book replenishment record, the potential of more contracts in view of the upcoming state election, and a possible upside from its new fabrication yard.

PLUS - AmResearch maintains Buy on PLUS Expressways

Stock Name: PLUS
Research House: AMMB

KUALA LUMPUR: AmResearch is maintaining its ''BUY call on PLUS EXPRESSWAYS BHD [] with fair value raised from RM4.33 a share to RM4.72 a share after the earnings upgrade following strong traffic numbers.

The research house said on Wednesday, Sept 1 that it raised its forecast for 2010 traffic growth projections from 5% to 5.5%, which is slightly higher than PLUS management's guidance.

'Proposed 4th lane expansion program would likely provide an added kicker to its traffic levels over the long-term. We continue to like PLUS for its sturdy cash flows and strong management team - backed by attractive yields of 5%- 6% over FY10F-12,' it said.

AmResarch said more upside could come from potentially value accretive investments abroad - particularly in India as well as Indonesia. PLUS' level of foreign shareholding stood at 9.4% as at June 2010.

August 30, 2010

MAHSING - Mah Sing's earnings on track

Stock Name: MAHSING
Research House: MIDF

Mah Sing Group Bhd
(Aug 27, RM1.81)
Maintain buy at RM1.84 with target price RM1.94
: Mah Sing Group's (MSGB) 1HFY10 earnings met both our and consensus expectation, accounting for 53.6% and 57% of full-year numbers respectively. ''

Development rollout accelerated growth. The launch of the Residence series and commercial developments (iParc and Southgate) drove earnings growth. We'' believe the present momentum of project launches will continue through 2H10 given the positive sector sentiment.

Cumulative earnings before interest and tax (Ebit) and operating margins declined 2.77 percentage points (pps) and 5pps. Decline can be attributed to ongoing sales and marketing'' expenses (SME), such as interest payments'' to banks during construction and marketing promotions. Nevertheless, 1HFY10 operating profit rose 37.1% year-on-year on the back of further launches from projects in the pipeline. Continue to expect SME to rise as the group gears up for new'' launches with other promotions. However, we believe SME will remain within manageable levels.'' ''

The group's impressive year-to-date (YTD) sales stand at RM1.02 billion, beating its RM1 billion target for 2010. We remain confident MSGB will surpass its new 2010 target of RM1.5 billion. Sales growth will come on the back of up to RM28 million in new launches in the Klang Valley, Penang and Johor. ''

We maintain our forecasts unchanged at this'' juncture as we await further confirmation on the reception of the recent launches of Kinrara'' Residence, Hijaun'' Residence, One Lagenda and M-Suites. We are confident of strong-take-up rates which will warrant an upward revision of our present estimates.

Maintain 'buy' with unchanged target price (TP) of RM1.94. Our TP is derived from the group's RNAV parity. We believe MSGB's landbank replenishment momentum will taper off after its recent RM1.1 billion acquisition of Kinrara (Puchong), Subang-Damansara (Sungai Buloh) and Bukit Jelutong (Shah Alam) land parcels. Present jobs on-hand provide strong earnings visibility through 2013 and should outsee the possible lumpy effect of IFRIC15. At'' present, MSGB has'' a combined GDV balance and unbilled sales of RM7.44 billion. We believe earnings growth prospects to be positive for the group. ''

MGSB remains our top pick for the sector given'' its (i)'' proven 'quick turnaround' model; (ii) commendable GDV balance and proven achievable sales target; (iii) healthy balance sheet; (iv) steady historical dividend yield'' (4%to 6%) with a consistent mid-teens ROE (five-year average 15.7%) and (v) it is one of the few developers with exposure to all product ranges (residential, commercial and industrial). ' MIDF Research, Aug 27

This article appeared in The Edge Financial Daily, August 30 2010.

COCOLND - Cocoaland's cocoa-licious with F&N on board

Stock Name: COCOLND
Research House: AMMB

Cocoaland Holdings Bhd
(Aug 27, RM2.76)
Maintain buy at RM 2.87 with fair value RM3.60
: We re-affirm our 'buy' rating on Cocoaland Holdings (Cocoaland) with higher fair value of RM3.60 per share, post a 14% to 43% upward revision to our earnings forecasts and pegging FY11F revised earnings to target PER of 16 times (previously 12 times).

Cocoaland announced the entry of Fraser & Neave (F&N) as a strategic partner, with the latter buying 39.6 million new shares via a private placement for RM54.6 million, or RM1.38 per share. Post the placement exercise, F&N will hold 23.08% equity interest in Cocoaland.

We are excited by this latest development. The entry of F&N lends credence to Cocoaland's shareholding structure and its growth trajectory. F&N plans to partner the group in accelerating existing hot-filled PET bottling operations in a bid to advance its competitive advantage through rapid market share expansion within the juices category.

F&N is a good fit for Cocoaland by virtue of its established distribution network and niche in product development. For instance, F&N's homegrown 100Plus is synonymous with isotonic drinks. On the other hand, Cocoaland offers F&N a ready platform to leverage on its existing bottling facilities capable of 'hotfilling' PET bottles. Hotfilling PET bottles allows for pasteurised liquids to be filled hot into the bottle, effectively extending the beverage shelf life by six to 12 months.

To recap, Cocoaland is set to see an eventful maiden earnings contribution from its PET bottling operations in FY10F. With commercialisation by end-September, earnings contribution from this division is poised to increase significantly from less than 5% to an estimated 44% in FY11F, on a par with the group's core production of fruit gummies.

Most significantly, we see robust earnings growth with three-year CAGR of 39% on the back of accelerated capex spending. We have raised our FY11F and FY12F earnings by 15% to RM38 million (y-o-y: +88%) and 43% to RM53 million (y-o-y:+40%), respectively, after incorporating our latest assumptions of higher off-take rates and product expansion by F&N.

Valuation-wise, we are not unduly worried. Stock is trading at forward PER of 13 times. Our target PER of 16 times is at a 10% discount to F&N's target PER multiple of 18 times. Much like the entry of Wilmar International Ltd resulting in an upward rerating by nine or 10 times for Three-A Resources, the institutionalisation of shareholding structure coupled with earnings accretion warrants a higher PER for Cocoaland. ' AmResearch Sdn Bhd

This article appeared in The Edge Financial Daily, August 30 2010.

ALAM - Profit forecast for Alam Maritim cut by 6pc

Stock Name: ALAM
Research House: KENANGA

Kenanga Research has revised downwards its net profit forecast for Alam Maritim Resources Bhd by six per cent for financial year 2010 to RM105 million from RM111.5 million and by four per cent for financial year 2011 to RM108 million from RM112 million.

The revised target was factored by softer earnings from offshore marine vessels and lower contribution from underwater division due to the idling delivery time of the pipe-lay barge expected to be in September 2010, it said in a research note today.

Upon revising Alam Maritim's net profit forecast, Kenanga Research also downgraded its recommendation for Alam Maritim shares to "hold" with a revised target price of RM1.06, saying that it is being cautious at this juncture until contracts are secured.

The research house, however, remained positive on Alam Maritim's prospects in view of upcoming new builds (anchor handling tug and supply vessel and pipe-lay barge).

Alam Maritim's first half financial year 2010 recorded a net profit of RM38.1 million, a 25.6 per cent drop from the previous year net profit of RM51.2 million on declining revenue of RM134.3 million from RM152 million previously.

The net profit recorded was 34 per cent lower than Kenanga Research and consensus expectations with quarter-on-quarter net profit declining by 24.5 per cent to RM16.4 million from RM21.7 million in the preceding year, despite the
marginal increase of revenue. -- Bernama

ALAM - Alam Maritim - Weak contribution by OSV and underwater services

Stock Name: ALAM
Research House: INTER PACIFIC

Alam Maritim Resources Bhd
(Aug 27, RM1.13)
Maintain outperform at RM1.17 with revised target price RM1.70 (from RM2.40)
: We have tweaked downwards our FY10F/11F earnings by 2% to 4%. Rolling over our valuation to FY11F, we have trimmed our target price to RM1.70 (previously RM2.40) based on FY11 EPS of 16.4 sen and PER of 10.3 times. Nonetheless, we reiterate our 'outperform' recommendation. We like Alam Maritim (AMRB) due to its strong operating track record and strategy in venturing into new businesses, such as its pipe lay barge and the Middle East and India markets, with its solid financial strategy of using the JV option to finance its new vessels.

AMRB's annualised 1HFY10 net profit came below both our forecast and market consensus, which accounted for 64.8% and 68.7% of FY10 forecast respectively. The reason being lower earnings contribution from the offshore support vessels (OSV) services and underwater services segment. AMRB declared a final dividend of 75 sen during the quarter under review, translating into a gross yield of 0.6%.

In 2QFY10, net profit deteriorated by 33.7% year-on-year (y-o-y) on the back of 16.4% y-o-y drop in revenue. The weak performance was due to lower sales in the OSV services segment (-17.8% y-o-y) and underwater services segment (-71.6% y-o-y). Additionally, its share of profit from jointly controlled entities shrank by 28.1% to RM6.3 million, about 38.1% of its bottom line. Its earnings before interest and tax (Ebit) margin slipped by 13.5pps to 24.4% y-o-y due to higher operating expenses, up 14.4% y-o-y for 2QFY10.

AMRB's key driver over the next two years is underpinned by the delivery of an estimated seven new vessels and contribution from its JV partners. We understand that about 60% to 70% of its current fleet of 33 vessels is chartered to Petronas and its PSC contractors, mostly on two to three-year terms. This will benefit AMRB by providing a recurring income and constant cash flow as well as an expansion of its business via vertical integration into new businesses such as pipe laying. ' Inter-Pacific Research, Aug 27

This article appeared in The Edge Financial Daily, August 30 2010.

SUNRISE - Sunrise venturing into serviced apartments

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

Sunrise Bhd
(Augt 27, RM2)
Maintain buy at RM2.05 with target price RM3.58
: FY10 results came in within house and market expectations as net profit of RM134 million achieved 101% and 97% of house and consensus estimates respectively.

A first and final net dividend per share (DPS) of 3.75 sen was declared which was in line with our expectation. Revenue declined 26.5% to RM590.7 million due to completion of certain projects while net profit fell 14.2% to RM134 million.

However, stripping out one-off gain of RM19.4 million in FY09, net profit only fell 2.1%. Earnings before interest and tax margin on the other hand improved from 26.2% to 31.4% due to more projects with higher margin.

Sunrise achieved property sales of RM637.9 million in FY10 which was a two-year high amid decent take-up for its MK28 project (50% sold).

Although unbilled sales were lower at RM861.3 million, it is on a rising trend after bottoming out at RM714 million in 2QFY10. Despite the decent numbers, sales of MK28 have stagnated of late and management attributed that to more stringent credit evaluation by end-financiers.

To better manage capital values and yields of properties post completion, management has ventured into the business of operating serviced apartments. No meaningful contribution is expected in the near term and immediate focus is to differentiate and improve marketability of Sunrise products.

Management informed that implementation of IFRIC 15 has been deferred to January 2012 from July 2010. This is a huge relief to investors who are concerned with volatility of developers' earnings post IFRIC 15 although our view is that fundamentally it changes nothing.

Sunrise will be launching two new projects outside Mont Kiara in September or October 2010. The first is Menara Solaris (GDV RM508 million) where there are currently interested en bloc purchasers.

However, if negotiation falls through, the project will be launched on strata basis. The second project is the first phase of Quintet (GDV CAD$400 million or RM1.2 billion), Sunrise's Canadian project, which will be developed on build-then-sell basis. Management is confident of these projects and has set a RM1.25 billion sales target in FY11.

Sunrise is undervalued (5.7 times P/E and 43% discount to RNAV) and we believe improving sales and resumption of project launches will narrow the valuation gap. We reiterate our 'buy' call and maintain target price of RM3.58 based on average P/E of 10 times. RNAV remains unchanged at RM3.58. ' ECM Libra Investment Research, Aug 27

This article appeared in The Edge Financial Daily, August 30 2010.

NESTLE - Nestle Malaysia raised to 'buy'

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

Nestle (Malaysia) Bhd, a unit of the world's biggest food company, was raised to "buy" from "hold" at Maybank Investment Bank Bhd to reflect its growth prospects and better margins.

The share-price estimate was increased to RM43.86 from RM29.50, Maybank analyst Khair Mirza said in a report today. -- Bloomberg

PETGAS - Petronas Gas upgraded, at 33-month high

Stock Name: PETGAS
Research House: RHB

Petronas Gas Bhd, a Malaysian natural gas distributor, had its stock upgraded to "outperform" from "market perform" at RHB Research Institute Sdn Bhd after posting higher first-quarter net income.

Its fair value was raised to RM11.63 from RM10.71, RHB said in a report today.

The stock rose to a 33-month high in Kuala Lumpur trading after fiscal first-quarter net income climbed 42 per cent from a year earlier.

The stock gained 1.4 per cent to RM10.54 at 9:31 am local time, bound for its highest close since February 5, 2008. -- Bloomberg

PROTON - OSK Research maintains Buy on Proton

Stock Name: PROTON
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Buy call on PROTON HOLDINGS BHD [] at RM4.53 being the cheapest auto stock under its coverage which is only trading at forward PE of 7.2 times versus the sector average of 10 times.

The research house said on Monday, Aug 30 that it is not making any changes to its earnings estimates for Proton pending more clarification from management on how the injection to Lotus will be structured (whether a new issuance of shares will be involved).

'On its foray into the India market, we believe it is too early to tell how this would contribute to earnings (which we have not factored in yet) although we are still generally positive on whatever the outcome given the market potential,' it said.

OSK Research also said in the shorter term, Proton is expected to post favourable results on the back of its new model pipeline going forward in addition of the much improved operating landscape.

PERWAJA - OSK Research downgrades Perwaja to Sell

Stock Name: PERWAJA
Research House: OSK

KUALA LUMPUR: OSK Research said while Perwaja's 2Q net profit improved 49.9% q-o-q, the cumulative 1HFY10 net profit of RM33.1 million was way below of its and street estimates.

It said on Monday, Aug 30 that other than the untimely procurement and selling which translated into only flat margin q-o-q, 'we also suspect its conversion costs came in higher than expected'.

'While the company's earnings are unimpressive, we have incorporated 0.75x NTA/share to capture its plant and machinery valuation, besides retaining our 6x PER on FY10 numbers. Our new target price of RM0.92 warrants a downgrade to SELL,' it said.