September 17, 2010

HSL - Job score rises for HSL

Stock Name: HSL
Research House: OSK

Hock Seng Lee Bhd
(Sept 15, RM1.64)
Maintain buy at RM1.56 with target price of RM1.78
: HSL announced on Bursa Malaysia on Sept 14 that it has received an award worth RM83.3 million for infrastructure works from the Sarawak Timber Industry Development Corp (STIDC). The project involves sand filling, road works, drainage works, water reticulation and electrical and telecommunication infrastructure in Tanjung Manis, Sarawak. The target completion date is October 2012 (about two years).

Including this recent win, HSL has year-to-date (YTD)'' secured RM345 million worth of jobs, which is pretty much on track to meet our full-year target of RM400 million. Management has previously guided for an order book replenishment sum of RM600 million. Our current target is likely to be breached as management has hinted at a potential job within the next month, possibly worth RM100 million to RM150 million.

HSL has tendered for about 15 projects worth RM50 million to RM150 million. We gather these jobs have been allocated under the Sarawak Corridor of Renewable Energy (SCORE) and mainly comprise rural road networks. Apart from that, HSL is also eyeing the extension of the Mukah airport worth about RM300 million, for which tenders have been called. As for the Kuching Wastewater Project, we gather that HSL is currently in the process of negotiating the price for Phase 2, which we think could be worth more than'' RM500 million. We feel its chances of winning could be fairly decent given its experience with the current phase.

Based on our tracking of contract announcements on Bursa, the YTD job awards in Sarawak total RM1.26 billion (+33.2% year-on-year). We postulate that contract awards in Sarawak will further accelerate as we move closer to the state election, which is expected to be held early next year.

As the company's orderbook wins are still within our replenishment target, we make no changes to our estimates. Our RM1.78 target price (TP) is based on 12 times FY2011 earnings, representing a 20% premium to its historical one-year forward PER given its positive jobs momentum. We highlight the possibility of a further earnings and TP upgrade as HSL's new wins this year are likely to surpass our target. Maintain 'buy'. ' OSK Investment Research Sdn Bhd, Sept 15

This article appeared in The Edge Financial Daily, September 17, 2010.

CANONE - Can-One moving towards liquid milk

Stock Name: CANONE
Company Name: CAN-ONE BHD
Research House: INTER PACIFIC

Can-One Bhd
(Sept 15, RM1.05)
Maintain neutral at RM1.09 with target price of RM1.10
: We reiterate 'neutral' with our target price of RM1.10 derived based on FY2011's EPS of 15.6 sen and PER of seven times based on a discount of two times vis-''-vis its peers Johore Tin & Kian Joo Can Factory (KJCF). The merits of Can-One are: (i) jerry can leader in terms of production facilities in Malaysia; (ii) potential revenue boost from its sweetened condensed milk (SCM) and evaporated milk (EVM) market; (iii) potential synergistic effect if its proposed acquisition KJCF is successful; and (iv) tin can division which complements its liquid milk division (15% of tin can sales go towards its liquid milk division).

Can-One is involved in basically two business divisions ' the general can division (tin cans and jerry cans) and liquid milk (SCM and EM). At the moment, it holds a 23% share of the tin can market and the lion's share at 70% of the edible oil tin can segment. Its food product segments currently produce both SCM (three lines) and EV (one line). The EV line was introduced in 4QFY2009.

The absence of a considerable contract compared with 1HFY2009 saw 1HFY2010 revenue return to its normal level of RM201 million, while profits reduced owing to higher raw material costs as the spot price for tin hovered around US$20,000/mt to US$21,000/mt on the London Metal Exchange. The HDPE spot price for Southeast Asia was around US$900/mt to US$1,200/mt. Ebit margin is expected to increase in the 2HFY2010 due to the pass-on effect from the higher raw material cost.

Can-One's liquid milk production saw better demand, with revenue in 2QFY2010 surging by 60.2% year-on-year to RM46.3 million (2QFY2009: RM28.9 million). Its dairy arm accounts for 39.1% (YTD2010) of the total revenue compared to 31% in FY2009 benefitting from higher exports to South Africa in view of the 2010 Fifa World Cup. Operating at 85% of full capacity, with 70% of its products exported to Africa and the'' Middle East, Can-One plans to roll out additional lines (+1SCM, +2EVM) by end-FY2010 to cater for potential demand.

Margins are sensitive to raw material prices which account for 70% to 75% of the cost of production for tin cans (tin plates purchased from Perstima) and jerry cans (high density polythylene, HEPD); while raw materials make up 85% of the cost of their dairy products (skim milk powder, whey, oil palm). Nonetheless, they are able to pass down any price hikes to their customers.

The court hearing on Can-One's proposed acquisition of KJCF remains unresolved, implying that any setback or resistance by KJCF's management or potential synergies with Can-One remain hazy. Should the proposed acquisition materialise, Can-One's gearing of 1.2 times might increase to approximately 2.3 times, assuming it embarks on an all-debt financing route. Its borrowings at the moment stand at RM99.6 million working capital, RM96 million for expansionary items (machinery and additional lines) and RM29 million for the proposed KJCF proposed acquisition. ' Inter-Pacific Research Sdn Bhd, Sept 15

This article appeared in The Edge Financial Daily, September 17, 2010.

BJTOTO - Odds tilting more to BToto's favour

Stock Name: BJTOTO
Research House: ECMLIBRA

Berjaya Sports Toto Bhd
(Sept 15, RM4.21)
Maintain hold at RM4.23 with target price of RM4.53
: BToto's last recorded lotto revenue per draw was RM2.5 million. The last time lotto revenue was this high was way back in December 2008. Of its three lotto games, Supreme Toto 6/58 (6/58) has of course been the most successful. Due to its huge jackpot which currently stands at RM42.8 million, the largest ever offered, 6/58 alone recently recorded revenue per draw of RM2 million. As it has a larger matrix (the jackpot is more difficult to strike), we believe that 6/58's run will continue.

Historically, we observed that higher lotto revenue also led to higher 4D and other non-lotto revenue. Higher visitations to outlets driven by large jackpots also encouraged punters to bet on 4D and other non-lotto games. FY2011 should be no different with year-to-date lotto revenue already 43% higher year-on-year (y-o-y) due to the reasons stated above.

We revise our FY2011 total revenue/draw/outlet growth assumption from 2% to 8% to reflect the stronger lotto revenue growth. It basically assumes that lotto revenue, which has less than 10% revenue share, will grow at 50% y-o-y while non-lotto revenue will grow at a more tepid 5% y-o-y. We continue to assume total revenue/draw/outlet growth of 2% per year thereafter. We therefore upgrade our earnings estimates by 6% to 8%. Our discounted cash flow-based target price (TP) is raised by a mere 3% to RM4.53. On that note, we maintain our 'hold' call on BToto for now.

That said, we foresee a significant re-rating catalyst going forward. BToto and Magnum (77% combined market share) have lobbied the Ministry of Finance to reduce the 4D non first prizes to exactly offset the two percentage point hike in pool betting duty introduced in June. Reducing the 4D first prize will allow illegal operators to wrest market share with higher prizes. Therefore, we expect minimal if any negative impact on 4D sales from the prize payout reduction for 4D non first prizes. If their proposal is approved, we will upgrade our earnings estimates and TP by another 10%. Investors who believe that the prize payout reduction will be forthcoming may want to 'buy' BToto now in order to position themselves for the actual event itself. ' ECM Libra Investment Research, Sept 15

This article appeared in The Edge Financial Daily, September 17, 2010.

TOPGLOV - Rubber gloves - rubbing it in

Stock Name: TOPGLOV
Research House: MAYBANK

Rubber gloves sector
Downgrade to underweight (from Overweight)
: We are making a tactical downgrade to 'underweight' because two key near-term negative news stories are'' expected to depress share price performance: (i) Aggressive expansion plans, notably in the nitrile segment, could lead to average selling price (ASP) weakness; and (ii) Supernormal margins and profit enjoyed in the Brazilian market in the past will normalise as more players enter the market. Despite recent sharp share price declines (-16% to 29% from the peak in July), we see no reason to aggressively buy glovemakers on a six-month basis.

We are seeing an overcapacity emerging in the nitrile gloves market, with 9.4 billion new capacity earmarked for nitrile production coming onstream in 2010. This is 18% year-on-year (y-o-y) higher than the industry's overall new capacity in 2009 (eight billion gloves). In our view, some players could delay their expansion plans because of this, but we are seeing a short-term price undercutting trend emerging from several manufacturers who have recently commissioned their lines to fill up new capacity.

A potential price war could be brewing in the nitrile glove segment. YTY Industry Sdn Bhd, in our opinion, is the most aggressive in its expansion plans, growing capacity by 63% y-o-y to 5.2 billion pieces now. We gather that YTY is pricing its ASP competitively to fill up capacity from new customers. We foresee other competitors, notably Hartalega (largest nitrile producer in the world) countering this by putting further pressure on ASP. Hartalega has the margin advantage over its peers in any prolonged price war. Its Ebit margin of 31% is higher than YTY and Kossan (+10 to 16 percentage points).

Latex glove competition is heating up in Brazil with at least seven OEM manufacturers now qualified to sell their product (predominantly latex gloves) in Brazil'' (against two in early 2009), players like Top Glove (among the early movers there with super-normal margins in 2009) will be affected most as it derives 13% of its sales from Brazil with a 50% share of the market. We expect Top Glove's margins to contracting by one percentage point y-o-y in FY2011/12.

We expect our gloves universe three-year aggregated core net profit CAGR to taper down to 14% now from 17% previously. We downgrade Top Glove from a 'buy' to a 'sell' with a revised target price (TP) of RM5.40 (-17%) largely on normalising demand outlook and weaker near-term earnings and margins ahead. Hartalega and Kossan are now 'holds' ('buy' previously) with TPs of RM5.40 (-11%) and RM3.60 (29%) respectively, largely on an impending price war and overcapacity concerns in the nitrile market. ' Maybank IB Bhd Research, Sept 15

This article appeared in The Edge Financial Daily, September 17, 2010.

NAIM - OSK maintains Naim's 'buy' call

Stock Name: NAIM
Research House: OSK

OSK Research has maintained a "buy" recommendation on property and construction company, Naim Holdings Bhd with a target price of RM5.10, taking into consideration its newly won Sabah Oil and Gas Terminal (SOGT) contract worth RM2.44 billion.

The securing of the contract together with Naim's joint venture (JV) partner, Samsung Engineering Co, was announced two weeks ago.

In its research note today, OSK said Naim's earnings growth will be rather minimal this year at 2.7 per cent, but expected to be stronger at 29.4 per cent in financial year 2011.

"This is driven mainly by existing jobs gaining momentum, Fijian jobs moving from losses back into the black and contributions from the SOGT," it said.

OSK also said, excluding the SOGT, Naim's expected earnings would be cut by seven to 10 per cent and its target price reduced to RM4.71 but is still sufficient to warrant a "buy" rating on Naim.

The SOGT will see a 70:30 JV partnership between Samsung Engineering and Naim.

Samsung Engineering will be the project leader and Naim will mainly be involved in building support infrastructures.--BERNAMA

IVORY - AmResearch reaffirms Buy on Ivory Properties

Stock Name: IVORY
Research House: AMMB

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

Ivory had on Wednesday, Sept 15 has entered into an agreement to buy shares of Tanjong Tokong Garden Development Sdn Bhd (TTG) at RM37.6 million.'' Significance of this deal is that via TTG, Ivory would have the rights to develop prime freehold land in Tanjung Tokong, Penang measuring 2.3 acres.

'With an estimated gross development value of RM368 million, Ivory plans to develop "City Mall" comprising of 175 condominium units and a retail mall.

'We expect take-up to be strong due to its strategic location and we have initially assumed a GDV of RM250 million this into our NAV estimate. Based on an additional net profit of RM37 million, the development may boost our NAV by 17 sen a share (+6%) to RM2.87 a share,' it said.

GAMUDA - Gamuda hits 30-month, fair value raised

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

GAMUDA Bhd, a Malaysian builder, rose to a 30 month-high in Kuala Lumpur trading after after AmResearch Sdn Bhd raised its fair value to RM4.28 on expectations it will be involved in a mass rail project in the country's capital.

Its shares gained 1.6 per cent to RM3.76 at 10:06 a.m. local time, set for their highest close since March 3, 2008. - Bloomberg

KOSSAN - OSK Research maintains Buy on Kossan, lower TP at RM5.25

Stock Name: KOSSAN
Research House: OSK

KUALA LUMPUR: OSK Research said KOSSAN RUBBER INDUSTRIES BHD [] stands out among its peers for its balanced product mix comprising 60% natural rubber and 40% nitrile gloves.

It said on Friday, Sept 17 that it believes this partly cushions the company from the negative effects of normalizing demand for examination gloves.

OSK Research said Kossan expects to venture into the production of surgical gloves.

'Maintain Buy but with a lower target price of RM5.25 (previously RM5.65), as we do not see major catalysts for the stock as well as the glove sector in the immediate term,' it said.

LIONIND - HLG Research sees more upside for Lion Industries

Stock Name: LIONIND
Research House: HLG

KUALA LUMPUR: HLG Research said LION INDUSTRIES CORPORATION [], which had undertaken massive restructuring exercises, had turned around from FY01 net loss of RM473 million to strong FY10 net profit of RM364 million.

In a research note issued on Friday, Sept 17 that Lion Industries' net gearing position also improved from 2.9 times in FY06 to below 0.2x in FY10.

Lion Industries has been trading above the uptrend line (UTL) since March 2009 but was trapped in a downtrend line (DTL) triangle consolidation from its five-year high of RM3.10.

'However, there are signs of impending breakout above DTL given its positive trend and momentum readings and building its base above the 200-day SMA (around RM1.60) for the past three months.

'We see this as a precursor of more upside ahead, with immediate resistance levels at RM2.03 (38.2% FR), followed by RM2.23 (50% FR) and RM2.44 (61.8% FR). Meanwhile, major support levels are RM1.60 and UTL of RM1.50. Cut loss below RM1.60,' it said.

HLG Research said''at RM1.71, Lion Industries is trading at cheap valuations of 4.1 times FY11 P/E (industry 6.6) and 0.3 times (industry 1.0 times).

'ACCUMULATE Lion Industries with a six month technical price target of RM2.23, implying a 5.4 times FY11 P/E (five-year average P/E is 5.5 times),' it said.

September 15, 2010

SUNRISE - Sunrise ventures to multiple locations

Stock Name: SUNRISE
Company Name: SUNRISE BHD
Research House: INTER PACIFIC

Sunrise Bhd
(Sept 14, RM2)
Recommend outperform at RM2 with target price of RM2.32
: We recommend 'outperform' with our target price at RM2.32 ascribing forward PER of seven times and EPS of 33 sen. We had scaled down our forecast for FY2011 and FY2012 by 13%-20%, underpinned by cautious demand for Mont Kiara high-end condominiums and Kuala Lumpur office buildings. We project a slowdown in sales of MK28 and weaker demand for Solaris KL which is scheduled to be launched in September or October.

As at 4QFY2010, unbilled sales stand at RM861 million, of which 62% comes from MK11, while 37% from MK28 and 1% from other projects. Unbilled sales of RM681 million are the lowest over the past four financial years. Nonetheless, we expect the higher earnings registered in FY2010 to sustain as the bulk of the unbilled slaes are from a product mix of higher margin developments. In the near term, unbilled sales replenishment pivots on ongoing sales of MK28 which was 50% sold as at June. Sunrise achieved sales of RM98 million, mainly from MK28 in July and August CY2010. RM63 million out of the RM98 million are pending finalisation of sales and purchase agreements.

Sunrise has diversified its property development lead by two main pipeline projects that are scheduled for launch in September/October; (i) Menara Solaris, a Grade A office development with gross development value (GDV) of RM508 million. The development will offer net sales area of 600,000 sq ft on a strata basis; and (ii) Canada Richmond project that comprises apartment units with a small portion of retail properties. Pricing at C$500psf is at a discount by about 6% to 8% to the market price. The development margin of around 20% turns out to be slightly lower than Sunrise's existing development. Other projects in the pipeline in CY2011 are: (i) MK20; (ii) Solaris 3; (iii) Jelutong JV; (iv) Lot 149; (v) Kajang; and (vi) MK22. Sunrise's aggressive schedule of launches with total GDV of RM6.59 billion spanning FY2011-FY2012 is drawn based on its strong optimism over the property market. ' Inter-Pacific Research, Sept 14

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

AXIATA - AmResearch reiterates Buy on Axiata

Stock Name: AXIATA
Research House: AMMB

KUALA LUMPUR: AmResearch continues to recommend a BUY on Axiata Group Bhd valuing it at RM6.05/share, derived from sum-of-parts valuation.

Etisalat, the UAE's biggest phone company, has said it is considering investing in Idea Cellular to tap the world's second-largest wireless market. Entry to India would enable a pan India presence, as well as availability of recently awarded 3G licences.

Idea needs a strong financial backing for the outlay of 3G infrastructures and Etisalat has the ability to tap Middle Eastern petro dollars for such purpose.

Etisalat already has a working partnership in XL Indonesia via Axiata, owing a 16% stake.

'Idea Cellular does not disclose the amount it needs to allocate for 3G capex, but our ballpark figure would be US$5 billio to US$7 billion in the next five years.

'Despite its share price outperformance, we believe valuation is attractive at prevailing price, which implies a trailing enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA) of only 6.4 times (versus SingTel's 10.5 times and other regional (developing) peers 6.2 times),' it said.

DAYANG - HDBSVR positive on macro outlook of O&G

Stock Name: DAYANG
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research remains positive on the macro outlook of the oil & gas industry.

It said on Wednesday, Sept 15 that accelerated contract awards, improving visibility on pipeline of projects, and impending listing of several oil & gas big names (for example MMHE and Petronas Chemicals) are key catalysts to put the industry back in the limelight.

'Our top picks for the oil & gas sector are Dayang Enterprise (TP: RM3.00; beneficiary of contract flows) and Perisai Petroleum (TP: RM0.70; strong contender for local deepwater jobs),' it said.

Acceleration of contract awards may just be what that is needed to revitalize the industry. A clear visibility of major oil & gas contracts (e.g. RM1.2 billion maintenance contracts) in the pipeline should chart the industry's next growth chapter, and recent award of SOGT contract may just kick off the start of more local contracts.

Hwang DBS Vickers said the Malaysia deepwater development story is enfolding with Petronas recently agreed to take delivery of two drillships in September and November.

However, it believes one key hurdle to the progress of local oil & gas companies hinges on lack of communication with Petronas on its development plans.

'At this juncture, we see very limited engagement between Petronas and the local companies, which we think impedes the growth of local companies. We are of the view that an active dialogue would give local companies ample time and opportunity to carry out necessary groundwork for future development undertakings,' it said.

Local companies are keen to tap on the potential of Malaysia's deepwater projects. However, the high capital investment outlay needed to acquire asset and TECHNOLOGY [] deterred most from venturing aggressively.

"We believe that fiscal incentives, such as capital allowances or tax credits on value-added assets and technology investments would help encourage local companies to move up the value chain," it said

GENM - Hwang DBS Vickers Research upgrades Genting Malaysia to Hold

Stock Name: GENM
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research has upgraded Genting Malaysia to Hold and raised the target price to RM3.40 from RM2.50 after its unit Genting New York obtained the final approval for the Aqueduct racino.

The research house said on Wednesday, Sept 15 the racino would provide a 5%-19% boost to the 2011-2012 earnings before interest, taxation, depreciation and amortisation.

HDBSVR said Malaysian gaming operations have proven to be resilient. It also said the share price was supported by an aggressive buy-back programme.

'Upgrade to Hold, TP raised to RM3.40 (from RM2.50),' it said.

September 14, 2010

SPSETIA - S P Setia replenishes landbank in Iskandar Malaysia

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

S P Setia Bhd
(Sept 13, RM4.43)
Downgrade to hold at RM4.24 with target price of RM4.46
: S P Setia announced last Thursday the acquisition of a 259.1-acre freehold development tract adjacent to its Setia Indah township in Iskandar Malaysia for RM169.3 million or RM15 psf. It is located to the immediate north of and adjacent to the Group's matured Setia Indah Johor township. Other established projects in the vicinity include Taman Mount Austin and Taman Daya. Among others, the proposed acquisition is subject to the procurement of planning approval and revised layout approvals from Majlis Bandaraya Johor Baru and land authorities for the development of the land as a mixed development without any condition to construct low-cost housing.

On a psf basis, this acquisition is by far the most expensive by S P Setia in Johor. Land cost of its existing four projects in Johor ' Setia Indah, Bukit Indah, Setia Tropika and Setia Eco Gardens ' ranges from RM3.34 to RM7.05 psf as compared to RM15 psf for this acquisition. Having said that, based on management's estimated gross development value (GDV) of RM1.5 billion, the new project yields a GDV per acre of RM5.8 million which is well above the RM2 million to RM4 million range for S P Setia's existing projects in Johor. This implies management may be launching a combination of high-end and/or highrise properties. Looking at land cost as a proportion of GDV, the acquisition price seems reasonable as it makes up only 11% of GDV which is in line with existing projects in Johor.

The project which will replenish the company's diminishing landbank at Setia Indah is expected to be launched by end-2011 (FY2012) and spans a development period of approximately eight years. Assuming a pretax profit of 20%, the project will accrete 11 sen to realised net asset value of RM4.32.

No changes to our earnings estimates are necessary as earnings contribution from this new project will only be meaningful from FY2013. We downgrade S P Setia from 'buy' to 'hold' as we believe it is currently fairly valued. Our target price of RM4.46 remains unchanged. It is based on upper-end PER valuation of 20 times on CY2011 earnings. While earnings visibility in the near term is underpinned by strong sales of RM1.8 billion achieved during the first nine months of FY2010, there is heightened risk of a slowdown in sales going forward due to potential imposition of mortgage lending restrictions by Bank Negara Malaysia. ' ECM Libra Investment Research, Sept 13

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

EKIB - RHB Research maintains outperform on Emas Kiara Industries

Stock Name: EKIB
Research House: RHB

Emas Kiara Industries Bhd
(Sept 13, 58 sen)
Maintain outperform at 56 sen with fair value of RM1.52
: Emas Kiara has recently secured combined new geodrain orders of about RM30 million from all the three contractors involved in the land portion works of the Second Penang Bridge, as well as the other earthworks contracts for KLIA2. The new geodrain orders from the Second Penang Bridge are particularly timely as they will pick up where those of the KLIA2 are going to leave off.

Over the short to medium-term, new orders will be underpinned by the remaining works of the East Coast Expressway (geodrains), the potential revival of the West Coast Expressway (geodrains), as well as new contracts from the Brahmaputra Dyke project in Assam, India, (geodykes). The geodrain supply and installation for the RM4.6 billion West Coast Expressway, for instance, may come to as much as RM200 million.

Emas Kiara is penetrating into the European market in a more meaningful way via an OEM-like tie-up with an established player based in Europe. Emas Kiara's value proposition to this tie-up is its manufacturing capacity that the partner is lacking. The tie-up also stands testimony to Emas Kiara's internationally recognised product quality.

We maintain our forecasts, but risks to our view include: (i) Weaker than expected pick-up in the construction sector; and (ii) Rising prices of crude oil, hence geosynthetics, making geosynthetics less attractive as alternative building materials.

We maintain our 'outperform' call. We are upbeat on the construction sector as we foresee construction stocks to generally outperform the market in 2H2010, buoyed by news flow, particularly, from: (i) The RM36 billion KL MRT project; (ii) The RM7 billion Ampang and Kelana Jaya LRT line extension project; and (iii) Federal land deals. Fundamentally, Emas Kiara is well backed by: (i) The rising acceptance of geosynthetic products as substitutes to, or to be used along with, conventional building materials; (ii) The rising awareness towards environment protection, and in Malaysia particularly, coastal erosion control and preservation of mangrove areas that are niche areas to geosynthetics; and (iii) Emas Kiara's commanding market position in the geosynthetics sector in Malaysia with an estimated market share of 60%. Indicative fair value is RM1.52 based on 10 times FY2012/11 EPS, in line with our one-year forward target PER for the construction sector of 10 to 16 times. ' RHB Research Institute, Sept 13

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

MAHSING - Mah Sing raises money for future landbanking

Stock Name: MAHSING
Research House: MAYBANK

Mah Sing Group Bhd
(Sept 13, RM1.74)
Maintain buy at RM1.72 with target price of RM2.30
: MSGB's seven-year redeemable convertible secured bonds proposal is to fund future land acquisitions. It is eyeing a sizeable landbank (over 200 acres) in the Klang Valley. Without factoring in any new projects from bond proceeds utilisation, our FY2011-12 EPS could be diluted by 15% to 21% and realised net asset value (RNAV) per share down by 17% assuming full bond conversion. No change to earnings forecasts and RM2.30 target price for now. Maintain 'buy' call.

The issue price for the RM325 million bonds will be determined later, while the conversion price will be at a premium of circa 15% to the five-day volume weighted average market price of MSGB shares on price-fixing date. Coupon rate for the bonds is up to 3.5% per year (compared with its current circa 4.3% average floating rate borrowing cost) payable in arrears on a semi-annual basis. The bonds are convertible immediately after the issue date until maturity. There is a put option by bondholders on the fifth anniversary of the issue date to require the company to redeem, in whole or in part, the bonds. The proposal is expected to be completed by 1H2011.

No details are available yet on where the 200 acres MBSB wishes to acquire are located, but we suspect it could be somewhere in Cyberjaya, the recent 'hot spot' for developers (such as Glomac, UEM Land, OSK Property and Paramount) and near to MSGB's existing Garden Residence project (RM424 million remaining GDV; 45 acres remaining landbank).

Assuming RM1.98 conversion price (+15% premium to current price), MSGB's number of shares could jump to 996 million (+19.7%). Based on our estimates, ceteris paribus, the conversion could dilute our FY2011-12 EPS by about 15% to 21%, whilst RNAV could drop by circa 17% to RM1.92 per share. However, this scenario is unlikely as we believe: (i) bond conversion will occur in stages; and (ii) contributions from existing and potential 'new' projects will reduce the dilutive impact. Meanwhile, net gearing could potentially increase from estimated 0.2 times in FY2010 to 0.6 times in FY2011 post-bond issuance. ' Maybank IB Research, Sept 13

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

RHBCAP - RHB Capital's hustle and bustle

Stock Name: RHBCAP
Research House: HWANGDBS

RHB Capital Bhd
(Sept 13, RM7.15)
Maintain buy at RM7.10 with target price of RM8.30
: Seventy RHB Easy outlets have been opened since the initial rollout in July 2009, and RHB Capital targets 120 outlets by end-2010 and a total of 400 by 2012. These highly scaleable distribution channels are aimed at attaining coverage and speed-to-market in the consumer segment. We expect net profit to grow at two-year CAGR of 15%, supported by strong loan growth of 12% to 15% for FY2010-11F (above industry average of 12%), led by mortgage, hire purchase and ASB loans.

A selldown of EPF's stake to 40% (from 54%) by mid-2011 would raise free float and liquidity. RHB Capital's respectable return-on-equity (ROE) profile of 15% to 16%, on par with the industry average of 16% coupled with its current cheap valuation ' makes it an attractive M&A target. We think that any M&A activity for RHB Capital would add premium to its valuations.

As it stands, RHB Capital is still the cheapest stock in our large-cap universe at 1.4 times FY2011 P/BV against the sector average of two times. Our target price of RM8.30 is based on the Gordon Growth Model with the following assumptions: 15.5% ROE, 11.2% cost of equity and 4.6% long-term growth rate. We think there is a lot going for RHB Capital ' having strengthened its loans and deposits franchise, it is now expanding its distribution capabilities via RHB Easy. It has also regained a footing in the capital market arena ' market share in equity issues grew to 17% (ranked third) as at August against 8% (ranked eighth) in 2009. ' HwangDBS Vickers Research, Sept 13

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

TENAGA - OSK Research maintains Buy on Tenaga

Stock Name: TENAGA
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Buy on TENAGA NASIONAL BHD [] with a Target Price of RM9.90 as it raises its profit forecast and expects the strengthening ringgit to help contain coal costs.

The research house said on Tuesday, Sept 14 electricity demand in Peninsular Malaysia, as announced by the power giant, showed normalisation in its growth trend for July. Instead of the double digit growth year-on-year recorded for the months of January through June, July 2010 only showed a growth of 5.2%.

'Nonetheless, given the still above expectation numbers, we revise up our Group wide electricity sales growth for FY10 to 7.7% from 7.3% previously. However, we offset this with a slight reduction in our effective tariff rates to remain conservative.

'Our net profit forecasts are raised by 3% on the strong Ringgit. Despite the more than 5% rally in share price since its one-for-four bonus issue was announced late August, the strength of the Ringgit which helps contain coal costs and positive sentiment on the bonus issue leads us to maintain our Buy call,' OSK Research said.

September 13, 2010

SPSETIA - SP Setia downgraded to 'hold'

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

SP Setia Bhd, Malaysia's biggest listed property developer, had its rating downgraded to "hold" from "buy' at ECM Libra Capital Sdn Bhd, which said that the stock is now �??�??fairly valued'' at its current price in a report today.

ECM Libra didn't change its share price or earnings forecasts. -- Bloomberg

SPSETIA - OSK Research upgrades SP Setia to Buy

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

KUALA LUMPUR: OSK Research is positive on SP Setia's plan to acquire 259.1 acres of freehold land within the Tebrau Corridor in South Johor, Malaysia, from a private developer called Kelana Ventures SB. The acquisition is expected to be completed in late 2011.

SP Setia has been present in Johor for more than 13 years and is currently involved in the development of four ongoing projects, namely Bukit Indah Johor, Setia Indah Johor, Setia Tropika and Setia Eco Gardens. With Setia Indah Johor at the tail-end of its development, this new land acquisition in Tebrau Corridor will replenish Setia Indah's landbank.

OSK Research said on Monday, Sept 13 that it upgraded SP Setia to a BUY in its Sept 3 property sector report 'A Brewing Real Estate Mania' on the basis that it believes SP Setia will be buoyed by the coming property upcycle which will be primarily led by mid-to-high end landed PROPERTIES [].

'Leaving our earnings forecasts unchanged for now, we continue to value SP Setia at RM6.31 based on 2.8 times CY11 P/NTA, which is approximately 2.5 times above its 11-year historical mean. This land acquisition and its development prospects may further strengthen the developer's foothold to capitalize on this boom in mid-to-high end landed properties in Malaysia. SP Setia remains as our top pick for the property sector for the next 12 months,' it said.

ADVENTA - OSK Research maintains Buy on Adventa, lower target price

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

KUALA LUMPUR: OSK Research said ADVENTA BHD [] is expected to announce its 9MFY10 results later in September but expectations are that it may come in below consensus.

OSK Research said on'' Monday, Sept 13 that it also expects the earnings to be below the research house's expectations given that latex prices stayed at a high of about RM7 per kg, and the US dollar continued to weaken against the ringgit.

'However, we believe 4QFY10 would be a better quarter since the company will have additional capacity from its new nitrile glove lines. We are tweaking our FY10-11 earnings downward by 8%-13%. Maintain Buy, but at a lower target price of RM3.73,' it said.

AEON - OSK Research maintains Neutral on AEON Malaysia

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

KUALA LUMPUR: OSK Research is maintaining its NEUTRAL recommendation on AEON Malaysia at a Target Price of RM5.88, which is based on 13 times FY11 EPS.

It said on Monday, Sept 13 that as AEON Malaysia was not involved in the bidding process for Carrefour SE Asia's assets, there was no change to its earnings forecast.

On Sept 1, Reuters quoting three sources familiar with the matter confirmed that AEON Japan will bid for Carrefour Southeast Asia's assets.

However, due to the low bid price, AEON Japan and Tesco have lost their bids for Carrefour's Asia assets, the Wall Street Journal reported on Sunday.

Companies which have progressed to the next round of bidding, set for November, are France's Casino Guichard-Perrachon and Thai-owned Big C Supercenter PC, Thai retailer Central Group, Thai consumer products manufacturer Berli Jucker and Thailand's largest energy conglomerate by revenue, PTT which runs convenience stores at its gas station.