MEDIA - RHB Research maintains overweight on media sector

Stock Name: MEDIA
Company Name: MEDIA PRIMA BHD
Research House: RHB

Media
Maintain overweight: According to Nielsen Media Research (NMR), August's gross ad spend for print and TV media rose 8.7% year-on-year (y-o-y), with print and TV media reporting y-o-y growth of 11.3% and 5.7%, respectively.

For the print media segment, August's adex growth was led by the Malay dailies, where adex grew 22.2% y-o-y led by Berita Harian (+26.5% y-o-y) and Harian Metro (+24.1% y-o-y) largely due to the Hari Raya Aidilfitri celebration. This was followed by the English dailies, where adex grew 7% y-o-y led by NST (+13.4% y-o-y), while the Star recorded a modest adex growth of 2.6% y-o-y. As for the Chinese dailies, adex grew 4.5%, thanks to China Press (+20.1 y-o-y), but was offset by a weaker adex for Nanyang Siang Pau (-13.3% y-o-y).

August's TV growth slowed to 5.7% y-o-y (July: +20.7% y-o-y), the slowest monthly adex growth thus far this year. This was mainly due to slower adex growth for TV3, which only grew 0.7% y-o-y. Collectively, Media Prima Bhd's channels posted y-o-y growth of 4.2% led by 8TV (+15.5% y-o-y).

Although year-to-date, adex growth stands at 20.3%, we expect the growth rate to slow down in 2H10. First, following the strong start to the global economic recovery in 1H10, we believe the economy will likely grow at a more moderate pace in 2H10, although we do not expect the global economy to fall into a double dip recession. Secondly, adex will now be coming from a higher base. Nevertheless, adex growth should continue to remain healthy, supported by sporting events like the Commonwealth Games and the upcoming festive season.

The risks include: (i) weaker-than-expected consumer spending and demand (hence, adex), which could be due to a slower-than-expected recovery in the global economy, among others; (ii) higher-than-expected newsprint/content costs; and (iii) a weaker-than-expected ringgit against the US dollar.

We make no change to our earnings forecasts for now. We reiterate our outperform calls on MCIL Multimedia Sdn Bhd, Media Prima and Star Publications (M) Bhd and maintain our overweight stance on the sector. ' RHB Research Institute Sdn Bhd, Sept 23.


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

STAR - RHB Research maintains overweight on media sector

Stock Name: STAR
Company Name: STAR PUBLICATIONS (M) BHD
Research House: RHB

Media
Maintain overweight: According to Nielsen Media Research (NMR), August's gross ad spend for print and TV media rose 8.7% year-on-year (y-o-y), with print and TV media reporting y-o-y growth of 11.3% and 5.7%, respectively.

For the print media segment, August's adex growth was led by the Malay dailies, where adex grew 22.2% y-o-y led by Berita Harian (+26.5% y-o-y) and Harian Metro (+24.1% y-o-y) largely due to the Hari Raya Aidilfitri celebration. This was followed by the English dailies, where adex grew 7% y-o-y led by NST (+13.4% y-o-y), while the Star recorded a modest adex growth of 2.6% y-o-y. As for the Chinese dailies, adex grew 4.5%, thanks to China Press (+20.1 y-o-y), but was offset by a weaker adex for Nanyang Siang Pau (-13.3% y-o-y).

August's TV growth slowed to 5.7% y-o-y (July: +20.7% y-o-y), the slowest monthly adex growth thus far this year. This was mainly due to slower adex growth for TV3, which only grew 0.7% y-o-y. Collectively, Media Prima Bhd's channels posted y-o-y growth of 4.2% led by 8TV (+15.5% y-o-y).

Although year-to-date, adex growth stands at 20.3%, we expect the growth rate to slow down in 2H10. First, following the strong start to the global economic recovery in 1H10, we believe the economy will likely grow at a more moderate pace in 2H10, although we do not expect the global economy to fall into a double dip recession. Secondly, adex will now be coming from a higher base. Nevertheless, adex growth should continue to remain healthy, supported by sporting events like the Commonwealth Games and the upcoming festive season.

The risks include: (i) weaker-than-expected consumer spending and demand (hence, adex), which could be due to a slower-than-expected recovery in the global economy, among others; (ii) higher-than-expected newsprint/content costs; and (iii) a weaker-than-expected ringgit against the US dollar.

We make no change to our earnings forecasts for now. We reiterate our outperform calls on MCIL Multimedia Sdn Bhd, Media Prima and Star Publications (M) Bhd and maintain our overweight stance on the sector. ' RHB Research Institute Sdn Bhd, Sept 23.


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

TCHONG - Tan Chong ripe for profit taking

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

Tan Chong Motor Holdings Bhd
(Sept 23, RM5.77)
Downgrade to sell at RM5.95 with target price of RM4.60: Tan Chong Motor Holdings Bhd's wholly-owned subsidiary ETCM (V) Pte Ltd has proposed to acquire 74% charter capital of Nissan Vietnam Co Ltd from Kjaer Group A/S for US$7.4 million (RM22.9 million) cash to further expand its presence in Indochina.

According to various reports, the Vietnam auto industry still faces numerous difficulties, especially in terms of economies of scale. In 2008, 54 companies manufactured/assembled 152,509 vehicles in Vietnam, averaging 2,800 units per company per year.

The car population is also an issue with the current average car ownership in Vietnam at 50 cars per 1,000 people. It was forecast that the Vietnamese government is targeting to exceed the average by 2010. Multipurpose vehicles (MPVs) are estimated to account for more than 70% of the auto market.

Mirroring Tan Chong's recent ventures into Indochina, we expect a marginal contribution at best, with profit to be undermined by very thin margins. We make no material changes to our forecast. Through a contract assembly arrangement with a local assembler, Nissan Vietnam started distributing the first locally assembled Nissan model, Nissan Grand Livina, an MPV, in Vietnam in April through appointed local dealers. For the first seven months of 2010, Nissan Vietnam sold a total of 249 vehicles.

We downgrade our call to sell as the valuation is stretched. We fairly value the counter at RM4.60 based on 12 times FY11 earnings which is in line with its five-year average. We have not imputed the impact from any property investment until a much clearer picture emerges. However, at the current level the counter is trading at almost 20 times FY11 earnings, which is at a significant premium to its peers at an average of 11 times. Hence, the run-up in the share price could provide opportunities for profit taking. ' MIDF Research, Sept 23.


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

SUNREIT - Sunway REIT - the Goliath of MREITs

Stock Name: SUNREIT
Company Name: SUNWAY REAL ESTATE INVT TRUST
Research House: RHB

Sunway REIT
(Sept 23, 96.5 sen)
Initiating coverage with outperform call and fair value of RM1.05: Sunway REIT made its debut on July 7. It is the largest REIT in Malaysia by market capital, asset size, and total outstanding units. It has eight strategic commercial assets in its portfolio, which include three retail properties ' Sunway Pyramid Shopping Mall in Bandar Sunway, Sunway Carnival Shopping Mall in Penang and SunCity Ipoh Hypermarket in Ipoh; three hotel properties ' Sunway Resort Hotel & Spa and Pyramid Tower Hotel in Bandar Sunway, and Sunway Hotel Seberang Jaya in Penang; and two office towers ' Menara Sunway in Bandar Sunway and Sunway Tower in Kuala Lumpur. Total asset size is estimated at RM3.7 billion.

Investment case: (ii) High investibility due to its large market value and free float; (ii) A portfolio of quality retail and commercial assets that provide sustainable and steady earnings growth; (iii) Growing young demographics to support private consumption and retail spending growth; and (iv) A pool of assets available from Sponsor for future expansion in asset size.

The risks include: (i) Sharp increase in interest rates that will significantly affect borrowing costs; (ii) Subdued office market in Klang Valley; (iii) Outbreak of influenza which would affect tourist arrivals; and (iv) Country risks.

Our earnings per unit (EPU) forecasts are decent, estimated at 10% growth for FY11, on the back of slightly higher rental rates for Sunway Pyramid Shopping Mall, as well as higher occupancy rate for Sunway Resort Hotel & Spa and Pyramid Tower Hotel, supported by a better macroeconomic environment, hence, private consumption. Note that we have not factored in any potential acquisition of properties in our earnings projections and balance sheet forecasts.

We assume 100% payout for Sunway REIT over the next three years. As such, our dividend per unit (DPU) forecasts translate to a gross yield of 7% and 7.6% for FY11 and FY12. In line with our valuations for other REITs under our coverage (Axis REIT and Quill Capita), and based on our target MREIT yield of 7% against our FY2012 DPU forecast of 7.3 sen, our indicative fair value for Sunway REIT is RM1.05. We initiate coverage on Sunway REIT with an 'outperform' rating. ' RHB Research Institute, Sept 23.


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

KPJ - KPJ setting foot Down Under

Stock Name: KPJ
Company Name: KPJ HEALTHCARE BHD
Research House: OSK

KPJ Healthcare Bhd
(Sept 23, RM3.27)
Maintain buy at RM3.36 with target price of RM4.62: KPJ announced to Bursa Malaysia on Wednesday that its wholly-owned subsidiary, Kumpulan Perubatan (Johor) SB (KPJSB), has entered into subscription deeds to acquire up to 51% equity interest in Jeta Gardens Waterford Trust (JGWT) for a total consideration of RM19 million, to be financed by internally-generated funds. Separately, KPJ's associate company KPJ Al-'Aqar REIT announced the acquisition of properties owned by JGWT for RM134.9 million. JGWT is primarily involved in operating a retirement village in Queensland, Australia.

KPJ's acquisition of JGWT will be undertaken in two tranches, subject to the terms and conditions of the deeds. Upon the completion of the first tranche, KPJ's interest in JGWT shall be approximately 21%, which will result in JGWT becoming an associate of KPJ. Upon completion of the second tranche, which is subject to and conditional upon all approvals being obtained for the proposed acquisition by Al-'Aqar, KPJ's interest in JGWT will be 51%, which will result in JGWT becoming a subsidiary of KPJ.

We are surprised with the acquisition as it comes in earlier than expected. Management had previously said that it was looking to expand into the retirement home business in a few years. Nevertheless, we view the acquisition positively as it marks a milestone for KPJ in terms of business and geographical expansion. We believe KPJ, which is supported by its well-established hospital network in Malaysia, is more than ready and capable of expanding beyond its existing business of providing private hospital services. The acquisition is in line with KPJ's long-term mission to become an integrated healthcare provider via expansion across other healthcare-related services. Apart from enlarging its existing customer base, we believe the acquisition will further establish KPJ as one of the leading healthcare and healthcare-related services providers in the region.

JGWT owns the aged care facility with 108 beds, 23 retirement villas and 32 apartments known as Jeta Garden, located on 64 acres in Bethania, Queensland. Bethania is located between Brisbane (about 32km northeast of Bethania) and the Gold Coast (about 42km south of Bethania). Jeta Garden is targeting a niche market among the Asian community, with all its villas and apartments being ergonomically and aesthetically designed to meet the needs of Asian seniors. These have features such as lower bench heights, shower seats and oriental-themed artwork. In addition, there are 24 acres of gently undulating parkland comprising a Chinese garden, gazebo, family barbecue area, lake and community vegetable garden.

For FYE June 2009, JGWT registered an audited net loss of A$3.1 million (RM9.1 million) and net liabilities of A$1.8 million. Including the revaluation of the above-mentioned 64 acres, JGWT's net assets as at June 30, 2009, will increase by approximately A$15 million. We are not concerned about its loss-making position as we believe this is largely due to the fact that Jeta Garden is still in its gestation period as it was opened three to four years ago. Although it is difficult to gauge the fairness of the purchase price of RM19 million due to a lack of comparison, we believe KPJ, as a rather conservative company in terms of capital investment abroad, has taken proper consideration before arriving at the purchase price for the 51% stake.

Judging from KPJ's track record in turning loss-making hospitals back to profitability, we believe the group is highly capable of doing the same for JGWT within a reasonable period, considering the sizeable market potential in Australia supported by a large population of baby boomers reaching retirement. To the best of our knowledge, the home retirement sector is an important one in Queensland as it is favoured by retirees partly due to its sub-tropical climate. Nevertheless, the home retirement business is a highly regulated industry in Australia with high-entry barriers, which we believe works in favour of KPJ in terms of potential competition.

With the acquisition expected to be completed in 1QFY11, we leave our FY10 earnings forecast unchanged. Pending further details from management on the acquisition, we are also leaving our FY11 forecast unchanged at this juncture. We maintain our buy recommendation at an unchanged target price of RM4.62, based on 18.5 times PER on FY11 EPS. Although KPJ's PER valuation has increased significantly over the last one year and is currently at 13.4 times FY11 EPS, KPJ is trading below its regional peer Parkway, which currently commands more than 20 times PER on FY11 EPS. We'd like to reiterate that KPJ is an excellent choice for long-term investment as well as portfolio balancing as the stock offers an exciting growth story in a defensive sector that is backed by a steady dividend payout. ' OSK Investment Research, Sept 23.


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

SPSETIA - 'Hold' rating on SP Setia retained

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



Maybank likes SP Setia for its market leader position, revenue visibility and views it as a proxy to the booming local property demand.

Maybank maintains its forecasts, but raise target price to RM4.91, adding that the stock remains a 'Hold' with just an 8 per cent upside to target price.

MAS - MAS target price raised to RM2.61

Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
Research House: MAYBANK



Maybank upgraded Malaysian Airlines (MAS) on the back of strong air travel recovery and the benefits of new aircraft that are being deployed into the fleet.

Maybank revised MAS recurring net income methodology to account for cash settlement of derivatives, and reduced its 2010 earnings estimates to a RM275 million loss and increased the 2011-12 earnings by 15-193 per cent.

"Our target price is increased to RM2.61, based on 13.4 times 2011 price earnings ratio, a 10 per cent premium to global airlines after taking into account its strong profit growth prospects, Maybank said. - Reuters

TCHONG - Tan Chong slips on MIDF downgrade

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

KUALA LUMPUR: TAN CHONG MOTOR HOLDINGS BHD []'s share price took a dip on Friday, Sept 24 after MIDF Research had downgraded the stock to a sell a day earlier.

At 9.41am, the stock fell nine sen to RM5.68 with 210,100 shares traded.

MIDF Research kept its fair value on the counter at RM4.60 based on 12 times FY11 earnings, which the research house said was in-line with its five-year average.

"At the current level, the counter is trading at almost 20 times FY11 earnings, which is at a significant premium to its peers at an average of 11 times.

"Hence, the run up in the share price could provide opportunities for profit taking," it said in report on Thursday.

MMCCORP - MMC Corp rating cut to 'neutral'

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD
Research House: OSK



MMC Corp, a Malaysian builder and power producer, had its stock rating cut to "neutral" from "trading buy" to reflect the stock's limited upside following its recent rally.

The share price estimate was increased to RM3.07 from RM2.59, OSK analyst Chris Eng said in a report today. -- Bloomberg

COCOLND - AmResearch reaffirms Buy on Cocoaland

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

KUALA LUMPUR: AmResearch reaffirmed its BUY rating on Cocoaland Holdings (Cocoaland) with higher fair value of RM3.70/share (previously RM3.60/share).

It said on Friday, Sept 24 the higher fair value was based on target PE of 16 times FY11F earnings.

'We tweaked our FY11F and FY12F earnings forecast higher by 6%, taking into account the group's accelerated PET bottling expansion plan - as revealed during a company visit recently,' it said.

At more than 2.0 times the rate as initially planned, plans are afoot for installation of three additional lines, bringing total installed capacity from 120 million to 480 million bottles per annum by F12F.

'More importantly, our positive view of the group's growth trajectory has been reinforced, as secured high off-take rates by Fraser & Neave Holdings (F&N) from existing and upcoming second production line will truncate downside risks of idle capacity,' it said.

HELP - OSK Research maintains Neutral on HELP

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

KUALA LUMPUR: OSK Research said although HELP International Corp Bhd's nine-months net profit of RM12.62 million only made up about 68% of its forecast for the financial year ending Oct 31, 2010, 'we deem the results in line with our estimates'.

It said on Friday, Sept 24, this was after taking into account seasonal factors as the 9M earnings historically only comprised about 65% of the company's full-year earnings.

As expected, due to the summer break for courses from institutions in the northern hemisphere, 3Q10 revenue and net profit were significantly lower on-quarter.

'We maintain our forecast and NEUTRAL recommendation at an unchanged TP of RM4.30, based on 14 times PER on FY11 EPS plus a net cash value per share of 68 sen,' it said.

SUNWAY - Sunway Holdings' interior fit-out JV off

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

Sunway Holdings Bhd
(Sept 22, RM1.79)
Maintain buy at RM1.77 with target price of RM2.61: Sunway Holdings announced on Sept 21 that its wholly owned subsidiary Sunway Construction Sdn Bhd (SunCon) has entered into a deed of mutual termination with LCL Corp Bhd (LCL) to mutually terminate the shareholder's agreement which was signed on Oct 21, 2009.

To recap, the shareholder's agreement was signed for the purpose of forming a joint venture company, Sunway Interiors Sdn Bhd, to source interior works such as interior fit-out (IFO), system furniture and customised joinery systems for potential IFO projects in Abu Dhabi. SunCon held a 60% stake in Sunway Interiors while LCL held the remaining stake.

Concurrent to the termination of the shareholder's agreement, Sunway Holdings has acquired LCL's 40% stake in Sunway Interiors for RM4,000. We are not surprised by this development as LCL had been severely affected by the Dubai debt crisis, resulting in a default on its loan obligations in December 2009.

As Sunway Interiors is dormant and has not taken on any projects since inception, the termination of the shareholder's agreement will not have any impact on the group.

In a separate announcement, the group has proposed an issuance of up to RM500 million in nominal value of commercial paper/medium-term notes (CP/MTN) for a tenure of up to five years.

We understand that a portion of the CP/MTN programme will be used to refinance its existing term loans of approximately RM290 million.

Furthermore, we believe that the group is making arrangements for other financing facilities, which suggests that it may be making more opportunistic landbank acquisitions.

Sunway remains our top 'buy' for the construction sector. This is premised on: (i) strong earnings growth of 67.6% in FY2010; (ii) undemanding forward PER valuation of 7.7 times; (iii) more landbank acquisitions in the pipeline; and (iv) strength in securing overseas construction contracts.

Our target price is unchanged at RM2.61, derived from 10 times PER on mid FY2011 EPS.

This is further supported by sum-of-parts valuation of RM2.87. ' ECM Libra Investment Research, Sept 22


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

AEONCR - AEON Credit moving along

Stock Name: AEONCR
Company Name: AEON CREDIT SERVICE (M) BHD
Research House: OSK

AEON Credit Service (M) Bhd
(Sept 22, RM5.74)
Maintain buy at RM3.82 with target price of RM4.35: Revenue and net profit for 1HFY11 rose 2.9% and 9% year-on-year (y-o-y) respectively, mainly bolstered by: (i) stable revenue growth from easy payment schemes (+5.7%) backed by general easy payment (GEP: +8%); and (ii) continuous strong growth in other income by 20.8%. This was in line with its growing trade receivables, which were higher by 6% y-o-y.

Other income recorded a sterling 20.8% growth, largely underpinned by better bad debt recovery (+49%) and strong growth in insurance commission fee income (+33%) y-o-y. However, revenue from its credit card and personal financing segments registered negative growth of 5% and 8.2% y-o-y respectively.

Due to its prudent lending policy and effective credit management, AEON Credit's non-performing loans ratio moderated marginally to 1.73% (1QFY11: 1.80%). CAR is stable at 24.9% (FY10: 24.8%). The company has declared an interim gross dividend of 11.5 sen per share (net dividend per share of 8.6 sen), and therefore is on track to meet our FY11 gross DPS forecast of 25.5 sen.

As we expect stronger 2HFY11 results in conjunction with the upcoming major festive seasons, we are maintaining our 'buy' call on AEON Credit, with a target price of RM4.35 (based on a historical two-year PER band of 8.5 times over FY2011 EPS. ' OSK Investment Research, Sept 22


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

GLOMAC - Glomac - above expectation

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

Glomac Bhd
(Sept 22, RM1.53)
Recommend outperform at RM1.46 with target price of RM1.80: Our target price is pegged at RM1.80 based on EPS of 16.5 sen and ascribed undemanding PER ratio of 11 times. Glomac reiterated its intention to match its FY10 dividend payout of 8.5 sen or possibly a more attractive payout.

We like Glomac due to: (i) unbilled sales of RM585 million; (ii) scheduled launching of RM521 million worth of projects in FY11; and (iii) balance GDV of RM1.99 billion for launching beyond FY11.

The RM126.3 million in revenue and RM15.6 million bottom line registered in 1QFY11 made up 32.8% and 34.6% of our FY11 forecast as well as 31.5% and 34.7% of consensus.

The swelling top line was mainly attributable to: (i) construction of the Glomac Tower project is in full swing, reaching the 30th floor out of 36 floors. Completion is expected in CY11; (ii) Glomac Damansara and Glomac Cyberjaya have progressed beyond the initial stages; and (iii) sustainable contribution from the Bandar Saujana Utama township project.

We have made slight adjustments to top line and earnings forecasts as we are convinced of Glomac's improved earnings quality. We also introduce our earnings forecast for FY13.

1QFY11 PBT swelled by 78.9% quarter-on-quarter to RM29.5 million. Surging profit was mainly attributable to higher recognition of progress billings.

However, the 23.3% profit before tax (PBT) margin registered in 1QFY11 is less than 28% in 1QFY10, mainly due to RM4.9 million fair value adjustment on investment properties in FY10. Excluding the fair value gain, 1QFY11 PBT margin improved by 4% year-on-year.

Moving forward, we are expecting similar margins due to the earnings quality of current ongoing projects comprising commercial developments ' Glomac Tower, Glomac Damansara, Glomac Cyberjaya, Galeria Hartamas as well as the mature township development Bandar Saujana Utama.

Commercial developments usually command higher margins, while Bandar Saujana Utama offers higher earnings due to its ready infrastructure.

The main contributions to sales in 1QFY11 include Glomac Cyberjaya, Seri Bangi and Bandar Saujana Utama.

Moving forward, replenishment of unbilled sales pivot on FY11 launches, which are Glomac Damansara (RM385 million), Bandar Saujana Utama (RM82 million) and Saujana Rawang (RM54 million).

There were 3,000 registrants for its two blocks of service apartments with a GDV of RM240 million, priced at about RM600 psf. Scheduled for launching in FY11, Glomac Damansara includes a retail mall and a 16-storey office block worth RM145 million and RM70 million, respectively.

Glomac is looking to en bloc sales of the retail mall and the office block. However, it has not discounted the possibility of keeping the office block as its new HQ and retail mall as investment property if offers from prospective buyers are not up to its valuation.

In August CY10 Glomac acquired a seven-acre tract adjacent to its ongoing Glomac Cyberjaya project for RM27.4 million or RM90 psf. It plans for higher density projects compared with the existing RM200 million Glomac Cyberjaya development which comprises 63 shophouses and a 15-storey office tower.

The shophouses are sold out and the office tower is held up until Glomac's desirable valuation is met. We believe the newly acquired land will offer a higher GDV due to its higher density, though details of the development remain uncertain. ' Inter-Pacific Research, Sept 22


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

HSL - Hock Seng Lee gets another lift to order book

Stock Name: HSL
Company Name: HOCK SENG LEE BHD
Research House: MAYBANK

Hock Seng Lee Bhd
(Sept 22, RM1.69)
Maintain buy at RM1.70 with target price RM1.90: Hock Seng Lee's (HSL) RM99 million new road contract in Samarahan, Sarawak, has lifted its outstanding construction order book to RM1.32 billion (+8%). There is no change to our earnings forecasts as we have imputed job win potential in our model. We maintain our 'buy' call on HSL for its exposure to Sarawak's huge construction potential. Our target price is unchanged at RM1.90 (13 times 2011 earnings).

HSL has clinched a contract from AF Construction Sdn Bhd for the construction of the Gedong-Simunjan Road. The contract value is RM98.7 million and works include earthworks, road, drainage and bridges. The completion deadline is March 2013. This has positively lifted HSL's order book to RM1.32 billion in outstanding works value, we estimate, of which RM444 million are new works secured in 2010.

We estimate this new job will contribute RM13 million in net profit (2.3 sen EPS) assuming 18% in gross margin. Much of the recognition would be in 2011/12. We retain our earnings forecasts as we have imputed RM600 million potential job wins for 2010. Based on the strong momentum for job awards in Sarawak, HSL should have no problem meeting our job win forecast for the year. ' Maybank IB Research, Sept 22


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

TCHONG - OSK: Tan Chong to gain from Vietnam deal

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




Tan Chong Motor's move to acquire a 74 per cent stake in Nissan Vietnam Co Ltd from Kjaer Group is expected to strengthen its penetration into the huge Indochina market, said OSK Research.

"We are positive on the outlook for its Indochina venture given the region's under-penetrated markets, which Tan Chong can reap tremendous potential," it said in its research note today.

OSK said with a population of 107 million and annual vehicle sales representing only 20 per cent of Malaysia's total annual sales, the long-term market potential that beckoned Tan Chong was clearly substantial.

"This will be boosted by the increase in per capital income, vehicle penetration, better road infrastructure and the banking system promoting higher purchase financing," it said.

It maintained its 'buy' call on Tan Chong at a higher target price of RM7.29 from RM6.40.

Meanwhile, MIDF Research has downgraded Tan Chong to a 'sell' with a target price of RM4.90.

In its research note here today, MIDF said the contribution from the acquisition was expected to be marginal, at best with profits to be undermined by very thin margins.

It said at the current level, the counter was trading at almost 20 times financial year 2011 earnings, which was at a significant premium to its peers at an average of 11x.

"Hence, the run-up in the share price could provide opportunities for profit-taking," it said. -- BERNAMA

VITROX - Vitrox climbs on positive outlook by CIMB Research

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

KUALA LUMPUR: Vision inspection equipment maker Vitrox Corp Bhd's share price resumed its upward momentum, surging 11 sen to RM1.25 on Thursday, Sept 23 following a positive report by CIMB Equities Research.

At midday, it was up 11 sen to RM1.25 with 153,900 shares done.

The share price surged from 76.5 sen on Aug 13 to a high of RM1.41 on Aug 30 and it slipped to'' RM1.14 on Sept 22.

CIMB Research said Vitrox was 'on the cusp of explosive growth', having successfully executed its business re-engineering'.

'It is well-placed to tap into the vast revenue opportunity of US$1 billion to US$1.2 billion per annum presented by its new area of manufacture as it rides on its association with Agilent. Vitrox will benefit from Agilent's TECHNOLOGY [], channel partners, supply chain and outsourcing, and shorter product development cycle,' it said.

CIMB Research said the key drivers are:

i) its takeover of Agilent's market share for automated optical inspection (AOI) and automated X-ray inspection (AXI) machines.

ii) the drive towards more automated vision inspection,

iii) a wider product offering, and

iv) margin expansion possibilities.

'Vitrox is trading at 5.5 x FY11 P/E, a 25% discount to its peers due to its smaller market cap, lower ROE and dividend yield. If we were to apply a 20-30% P/E discount to its peers on FY12 EPS to factor in execution risks, potential shortfall in market share targets and Vitrox's smaller size, we would arrive at a valuation of RM1.83-RM2.09, which offers upside of 61-83% from current levels,' it said.

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SIME - RHB Research: Sime Darby has not precluded more provisions for other O&G projects

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute said Sime Darby's clarification that no additional provisions needed to be made for the four key projects which were audited in the forensic audit, as the provisions incurred were estimated costs to completion, would assure investors.

Sime had on Wednesday, Sept 22, had also said it would make the required announcement as to the nature of the breaches of duties and inappropriate conduct once legal proceedings have commenced.

'However, while this clarification will assure investors that all provisions that need to be made have already been made for those four projects, it does not preclude any additional provisions that may be required for any of Sime's other oil and gas projects,' it said.

RHB Research has a market perform and fair value of RM8.90 on Sime Darby.

At 2.39pm, Sime is unchanged at RM8.34. There were 1.77 million shares done at prices ranging from RM8.33 to RM8.49.

MSPORTS - OSK Research maintains Buy on Multi Sports at 93c

Stock Name: MSPORTS
Company Name: MULTI SPORTS HOLDINGS LTD
Research House: OSK

KUALA LUMPUR: OSK Research said it recently re-visited Bursa Malaysia-listed China shoe companies Xidelang (XDL) and Multi Sports, both based in Jinjiang in China.

In its research note issued on Thursday, Sept 23, it said the managements of both companies were optimistic on the sector outlook.

'While we see competition intensifying as the bigger players penetrate the lower tier cities and a consolidation as inevitable given the industry's highly fragmented structure, we believe this will take time to unfold as there is room for the pie to grow in the near term,' it said.

OSK Research said this is due to a mushrooming world population, disparities in consumer taste - which supports the existence of numerous sports brands - and the hosting of major sports events to stoke demand.

'We maintain our BUY call on Multi Sports at 93 sen. We like its focus on shoe sole production, which makes it less susceptible to changes in consumer demand and preference. Overall this segment remains under-invested within the Consumer sector, on which we remain Overweight,' it said.

AEONCR - OSK Inv maintains 'buy' call on AEON

Stock Name: AEONCR
Company Name: AEON CREDIT SERVICE (M) BHD
Research House: OSK



OSK Investment Research is maintaining a "Buy" call on AEON Credit with a target price of RM4.35 as it expects a stronger second-half in the financial year ending Feb 20, 2011.

AEON Credit operates a micro-financing business in Malaysia which provides easy payment schemes, personal financing and credit card facilities.

It recently announced a pre-tax profit of RM19.816 million for the quarter ended August 20, 2010, an increase of 8.99 per cent when compared with the corresponding quarter in the previous year.

As at 3.09pm, AEON Credit was traded at RM3.90, up eight sen from yesterday's close. - Bernama

SUNREIT - Sunway REIT - treasures of the pyramid

Stock Name: SUNREIT
Company Name: SUNWAY REAL ESTATE INVT TRUST
Research House: MAYBANK

Sunway REIT
(Sept 21, 95.5 sen)
Initiating coverage with a buy call at 96 sen and target price of RM1.15: Sunway REIT has become the largest in asset size and free float in the Malaysian REIT (M-REIT) sector, offering a sizeable exposure to the relatively more resilient nature of the retail sector. We initiate coverage on SunREIT with a RM1.15 DCF-based target price, a premium to the existing M-REITs, for its size, quality assets, earnings resilience and asset growth potential.

With RM3.73 billion in appraised asset value, SunREIT's portfolio far outweighs its Malaysian peers' average of RM914 million and CMMT's RM2.21 billion. SunREIT has a free float of RM1.16 billion, which is 34% of the sum of the other M-REITs' free float of RM3.38 billion and 1.6 times CMMT's free float of RM723 million. With asset size and free float closer to that of the Singapore retail REITs, SunREIT has drawn sizeable foreign interest, holding an estimated 25% of its total paid-up units.

Sunway Pyramid Shopping Mall makes up 61.7% of SunREIT's asset value, and we estimate that it will contribute 62.8% to gross rental income in FY2011. The 1998/2009 economic downturns, 2003 SARs and 2009 H1N1 outbreaks have seen greater resilience in occupancy rates at the Klang Valley's suburban shopping centres compared with those in Kuala Lumpur city centre. Rental at the Pyramid Mall has also experienced an uninterrupted uptrend since 2000.

SunREIT's added appeal lies in its long term growth potential from Bandar Sunway's expanding integrated resort city development providing a rising residential catchment. There is also a sizeable pipeline of potential asset injection by its sponsor, Sunway City, under a right of first refusal agreement. We estimate RM750 million worth of properties for near-term injection, growing SunREIT's asset size by 20%. SunREIT's 30% debt to-asset ratio allows it the capacity to borrow another RM750 million for asset acquisition.

We have used the discounted cash flow method to find SunREIT's intrinsic value and derived RM3.08 billion in equity value, the basis for our target price. This implies FY2011 dividend yield of 5.8% and cap rate of 6%. As a sector leader in M-REITs on several fronts, SunREIT's premium valuation over the other M-REITs is well justified. Listed industry leaders usually command a premium over their peers. ' Maybank IB Research, Sept 21


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

FABER - Faber's concession agreement likely to be renewed

Stock Name: FABER
Company Name: FABER GROUP BHD
Research House: RHB

Faber Group Bhd
(Sept 21, RM3.24)
Maintain outperform at RM3.16 with fair value of RM3.82: Recall Faber submitted its application for a renewal of its government hospitals non-medical support services concession to the Ministry of Health in October 2009.

The outcome is expected to be known by this October. Faber's 14-year track record and technical expertise are evident from: (i) the company's ability to expand its integrated facilities management (IFM) business locally and overseas; (ii) its access to skilled, semi-skilled and unskilled labour supply to support the five basic services under the concession; and (iii) the operation of laundry and waste disposal facilities required under the concession.

Therefore, we maintain our view that the concession agreement is likely to be renewed.

Management expects softer UAE earnings in 2H2010 due to seasonal factors, that is Ramadan and summer when less work can be done.

This is in line with our expectation.The implementation of the new IFRIC 15 accounting standard on real estate development has been deferred to January 2012, from July 2010 previously.

As such, Faber will continue to recognise its earnings based on percentage of completion, that is progressive billing method, rather than completion method under IFRIC 15. As such, we have revised up our FY2011 property earnings to RM200 million from none previously, while lowering our FY2012 property earnings to RM300 million (from RM495 million previously).

This has no impact on our fair value calculation which includes property based on discounted cash flow.

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

We make no change to our FY2010 forecast.

However, as highlighted above, our FY2011/12 EPS forecasts have been revised by 29.9% and -16.6% respectively for the deferment of IFRIC 15.

Our sum-of-parts (SOP) fair value remains unchanged at RM3.82.

If the concession is not renewed, our 'worst-case' SOP valuation will fall to RM2.21,that is 30% below the current share price, but we see little risk of this happening.

On the contrary, our forecasts currently factor in a 10% drop in service fees under a renewed concession, but we believe the company will likely negotiate for higher fees to account for inflation. We thus reiterate our 'outperform' call on the stock. ' RHB Research Institute, Sept 21


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

PLUS - PLUS - Jai Ho

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

PLUS Expressways Bhd
(Sept 21, RM4.15)
Maintain buy at RM4.15 with higher target price of RM4.84 (from RM4.57): It was announced on Bursa Malaysia yesterday that the 74:26 consortium between IDFC Projects Ltd (IP) and PLUS has won the tender from the National Highway Authority of India (NHAI) for a proposed design, build, finance, operate and transfer highway project.

The proposed highway from Jetpur to Somnath is 127.6km long. It is a brownfield job as it mainly involves converting the current single-lane carriageway into dual lanes. The Jetpur area passes through both commercial and residential areas while the end point of the highway is the approach to the famous Somnath temple. The highway forms part of the National Highway 8 (NH8) which connects the capital of New Delhi to the financial district of Mumbai.

IP is the project development arm of Infrastructure Development Funding Corp (IFDC), India's largest infrastructure finance intermediary. IFDC was set up by the Indian government in 1997 to lead private capital funding in commercially viable projects in the nation. Interestingly, PLUS' major shareholder, Khazanah Nasional Bhd, has a 9% stake in IFDC.

The concession agreement (CA) is expected to be inked in mid-October. While management did not provide any details on the toll structure, we understand that toll rates in India are increased every year in accordance to movements in the Wholesale Price Index,an inflation gauge. The concession period, which is expected to last 30 years, includes a 30-month construction period.

Assuming a development cost of RM1.3 billion (about RM10 million per km) and a 75:25 debt-to-equity ratio financing, PLUS will need to fork out RM84.5 million for the equity portion based on its 26% stake. This should not be an issue as we project that it can generate RM1.1 billion to RM1.6 billion in free cash flow to equity (FCFE) from FY2010 to FY2012. Management also guides that dividends should not be impacted. There will be no impact to the gearing of PLUS as the debts will be parked at the consortium level. As this is only an associate stake, it will not contribute to PLUS hitting its targeted 15% foreign revenue contribution by 2015.

Maintain 'buy' with a target price (TP) of RM4.84. We make no changes to our earnings forecast pending the announcement of the CA. Our TP is, however, raised as we narrow our discount to the FCFE valuation from 15% to 10% at an unchanged 9.2% equity cost. We continue to like PLUS for its defensive qualities and decent yields. ' OSK Investment Research, Sept 21


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

HSL - Hock Seng Lee lands RM98m road job

Stock Name: HSL
Company Name: HOCK SENG LEE BHD
Research House: OSK

KUALA LUMPUR: HOCK SENG LEE BHD [] (HSL) has secured a RM98.72 million contract from AF CONSTRUCTION [] Sdn Bhd to build the Gedong-Simunjan Road in Samarahan, Sarawak.

In a filing with Bursa Malaysia Securities on Sept 21, HSL said the scope of works include earthworks, road, drainage and bridges.

It said the project was due to be completed by March 2013. HSL said the contract was expected to contribute positively to its earnings for the financial years ending 2010 to 2013.

MMCCORP - OSK Research: Gamuda, MMC, MRCB to benefit from infra projects

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD
Research House: OSK

KUALA LUMPUR: OSK Research said key players involved in infrastructure development are expected to benefit from the implementation of the Economic Transformation Programme, including the RM36 billion KL mass rapid transit which features in the Greater Kuala Lumpur plan.

In a research note on Wednesday, Sept 22, it continued to see the beneficiaries being those involved in infrastructure development, including Gamuda (TRADING BUY, FV: RM4.00) and MMC Corp (TRADING BUY, FV: RM2.59) for the MRT and MRCB (TRADING BUY, FV: RM1.80), which may be involved in land development around KL.

'Do note that all these stocks have minimal or no upside to our fair values, and are very much Trading Ideas riding on positive sentiment from economic reform,' it said.

SPSETIA - HDBSVR maintains positive view on Malaysian property sector

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

KUALA LUMPUR: Hwang DBS Vickers Research is maintaining a positive view on Malaysian property sector.

In its research note issued on Wednesday, Sept 22, it'' expect property demand will continue to be supported by positive macro factors, that is the young population, urbanisation, shrinking household size, rising income, inflation hedging, and infrastructure improvements.

Its top pick is SP Setia which it has a Buy call and target price of RM4.80.

On Tuesday, Prime Minister Datuk Seri Najib Razak said Bank Negara may impose a lower loan-to-value (LTV) cap for subsequent purchases after the second property. First and second home buyers will be spared.

Hwang DBS Vickers Research said this was less onerous than expected as there was initial concern that the LTV cap may be imposed across the board, with only first home buyers and mass residential PROPERTIES [] being exempted.

'Impact to the property sector should be insignificant as we believe buyers with more than two properties are not widespread. Banks have been generally stringent on mortgage applicants with multiple properties and high monthly commitment,' it said.

GLOMAC - ECM Libra Research: Glomac 1Q earnings above expectations

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

KUALA LUMPUR: ECM Libra Research said Glomac's 1QFY11 results came in above house and market expectations as net profit of RM15.6 million already made up 33% and 35% of house and consensus full-year estimates respectively.

It said on Wednesday, Sept 22 that 1QFY11 revenue of RM126.3 million was 114.1% higher on-year as the Glomac Tower project is now in full swing. Revenue was also higher because new projects such as Glomac Damansara and Glomac Cyberjaya have also progress beyond initial stage.

ECM Libra said Glomac achieved decent property sales of RM80 million in 1QFY11 which was significantly lower as compared to RM277 million in 4QFY10 but that was mainly due to en bloc sale of Tower D, Glomac Damansara (RM170.7 million) in the preceding quarter.

'Unbilled sales was marginally lower at RM585 million (4QFY10: RM588 million) but otherwise is near record high and will provide earnings visibility over next two-three years,' it said.

The research house raised its FY11 and FY12 estimates by 24% and 19% respectively after imputing higher margins.

It also introduced FY13 numbers into its earnings model. Glomac remains a BUY premise upon its 3-year earnings CAGR of 19.4%.

'Our earnings upgrade led to TP revision from RM1.87 to RM1.93 but we peg a lower P/E target of 10 times (previously 12 times) to account for risk for mortgage lending restriction,' it said.

CMMT - CapitaMalls Malaysia Trust reeling in the Malaysian consumer

Stock Name: CMMT
Company Name: CAPITAMALLS MALAYSIA TRUST
Research House: MAYBANK

CapitaMalls Malaysia Trust
(Sept 20, RM1.11)
Initiate coverage with buy call at RM1.07 and target price of RM1.20: We are initiating coverage of CapitaMalls Malaysia Trust (CMMT) with a 'buy' and target price of RM1.20. CMMT's Gurney Plaza, Sungei Wang Plaza strata parcels and The Mines have prospered. These substantially fully-tenanted properties have navigated increasing competition and changing consumer trends and flourished. We see this continuing under the management of CMMT. Our RM1.20 per share discount dividend model-based target price translates into a 6.5% implied yield.

Size is not at the expense of quality. The three properties are located in the high-income, major urban markets of Penang Island, Kuala Lumpur city centre and the greater Klang Valley. They provide exposure to secular trends ' a younger, more affluent population with a propensity to spend, increasing urbanisation and rising tourism.

The assets are geographically diversified and no single property contributes more than 40% of total assets, net lettable area or net property income. The well-diversified tenant mix is substantially third-party, unrelated to CMMT. The top 10 tenants account for just 17% of gross rental income. The single largest takes 6%.

Management ability is exemplified in The Mines. Average rentals and occupancies rose even as net lettable area swelled and mall operations were disrupted by construction and renovation work at the depth of the 2009 recession. In fact, the entire portfolio saw better numbers throughout the challenging period, thanks to its hands-on in-house lease and design management teams.

Initiate coverage with 'buy' rating. CMMT is currently trading at 7.3% FY2011 yield, against a 7.9% industry average. We value CMMT at RM1.20, based on DDM valuation method. This represents 6.5% implied yield. The premium is justified, given its large portfolio of quality retail assets, proven management capability and access to a regional network. ' Maybank IB Research, Sept 20


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

BAT - Taxing time ahead for BAT

Stock Name: BAT
Company Name: BRITISH AMERICAN TOBACCO (M)
Research House: HWANGDBS

British American Tobacco (M) Bhd
(Sept 20, RM45.64)
Downgrade to fully valued at RM47.60 with target price of'' RM41.20: We believe there will be another round of excise duty hikes this year, before or during the Budget 2011 speech on Oct 15, amid the government's constant drive to reduce smoking. Higher duty would increase the government's tax revenue, estimated at RM2.5 billion in 2009 (+2.9% year-on-year) despite an 11% decline in legal industry volume (LTIV). Based on our sensitivity analysis, a 5% to 10% increase in excise duty would reduce FY2010F/12F earnings by 1% to 5%, assuming full tax pass-on to consumers and 0.5 to 1 percentage point decline in LTIV. Consequently, this would lower our discount dividend model-based (DDM) target price slightly to RM40.40 from RM40.80.

The Illicit trade in duty unpaid cigarettes remains high, accounting for 37% to 38% currently (against 25.7% in 2008) of the total cigarette market, hence dampening LTIV in Malaysia. Key factors to the burgeoning illicit trade are: (i) the widening price gap between legal and illegal cigarettes; and (ii) a lack of strict penalties on offenders including smugglers, consumers and retailers.

BAT share price rose 10% year-to-date and pushed the PER multiple to a 10-year high of 18 times (last peak in August 2004). There is limited upside potential amid the dim outlook for legal manufacturers clouded by high illicit trade. Therefore, we downgrade our call to 'fully valued' (previously 'hold') but maintain our target price at RM41.20. However, its prospective net yield of 5% may provide some buffer. ' HwangDBS Vickers Research, Sept 20


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

MAHSING - RHB Research maintains overweight on property sector

Stock Name: MAHSING
Company Name: MAH SING GROUP BHD
Research House: RHB

Property sector
Maintain overweight: Over the past few days, it has been widely reported that the latest land deal in Kuala Lumpur's Bukit Bintang by CDL Hotels (M) Sdn Bhd (a unit of London-based Millenium & Copthorne Hotels, 53% owned by Singaporean billionaire Kwek Leng Beng) to Urusharta Cemerlang (owns and operates the Pavilion KL Mall) was transacted at a record price of RM7,209 psf. The land is said to be the last empty lot in the prime location of Jalan Bukit Bintang. The price is more than three times higher than the latest transaction price of RM2,200 psf for a 0.65ha piece of land in Jalan Perak by Kuok Brothers and FFM Bhd last May.

The transaction price of RM7,209 psf for a piece of land measuring 29,127 sqf located at Jalan Bukit Bintang is unique, in our view. The buyer paid a premium for the value-added advantage and development potential to integrate the land with the development of Pavilion KL Mall. While the development plan for the land has not been reported, we believe the buyer has various options to utilise the land, such as: (i) enhancing the traffic access in the surrounding Pavilion mall ' a cut-through between Jalan Bukit Bintang and Jalan Raja Chulan; (ii) providing linkage to Fahrenheit 88, which will also be operated by Urusharta Cemerlang; or (iii) additional parking space for Pavilion mall. Hence, the transacted value of the land at RM210 million is relatively minimal compared with the total value of Pavilion mall, which we should view as an entirety. This also means that the price of RM7,209 psf is not reflective of the market value of land in KL city centre.

Land deals in the KLCC area have picked up since end-2009, and land prices will continue to hold well due to scarcity of prime land. However, we do not think the recent land deals will be a re-rating catalyst for the highrise residences in KLCC area, whose occupancy is highly dependent on the inflow of expats, which is tied to the amount of FDIs into Malaysia.

Key risks for the property sector will continue to be: (i) a cap on lending rates imposed by Bank Negara Malaysia; (ii) higher tax bracket for real property gains tax (RPGT); and (iii) country risks.

We maintain our 'overweight' stance on the property sector. Our top picks remain unchanged: IJM Land (outperform, fair value RM3), SunCity (OP, FV RM5.45) and Mah Sing (OP, FV RM2.06). ' RHB Research Institute, Sept 20


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

SUNCITY - RHB Research maintains overweight on property sector

Stock Name: SUNCITY
Company Name: SUNWAY CITY BHD
Research House: RHB

Property sector
Maintain overweight: Over the past few days, it has been widely reported that the latest land deal in Kuala Lumpur's Bukit Bintang by CDL Hotels (M) Sdn Bhd (a unit of London-based Millenium & Copthorne Hotels, 53% owned by Singaporean billionaire Kwek Leng Beng) to Urusharta Cemerlang (owns and operates the Pavilion KL Mall) was transacted at a record price of RM7,209 psf. The land is said to be the last empty lot in the prime location of Jalan Bukit Bintang. The price is more than three times higher than the latest transaction price of RM2,200 psf for a 0.65ha piece of land in Jalan Perak by Kuok Brothers and FFM Bhd last May.

The transaction price of RM7,209 psf for a piece of land measuring 29,127 sqf located at Jalan Bukit Bintang is unique, in our view. The buyer paid a premium for the value-added advantage and development potential to integrate the land with the development of Pavilion KL Mall. While the development plan for the land has not been reported, we believe the buyer has various options to utilise the land, such as: (i) enhancing the traffic access in the surrounding Pavilion mall ' a cut-through between Jalan Bukit Bintang and Jalan Raja Chulan; (ii) providing linkage to Fahrenheit 88, which will also be operated by Urusharta Cemerlang; or (iii) additional parking space for Pavilion mall. Hence, the transacted value of the land at RM210 million is relatively minimal compared with the total value of Pavilion mall, which we should view as an entirety. This also means that the price of RM7,209 psf is not reflective of the market value of land in KL city centre.

Land deals in the KLCC area have picked up since end-2009, and land prices will continue to hold well due to scarcity of prime land. However, we do not think the recent land deals will be a re-rating catalyst for the highrise residences in KLCC area, whose occupancy is highly dependent on the inflow of expats, which is tied to the amount of FDIs into Malaysia.

Key risks for the property sector will continue to be: (i) a cap on lending rates imposed by Bank Negara Malaysia; (ii) higher tax bracket for real property gains tax (RPGT); and (iii) country risks.

We maintain our 'overweight' stance on the property sector. Our top picks remain unchanged: IJM Land (outperform, fair value RM3), SunCity (OP, FV RM5.45) and Mah Sing (OP, FV RM2.06). ' RHB Research Institute, Sept 20


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

IJMLAND - RHB Research maintains overweight on property sector

Stock Name: IJMLAND
Company Name: IJM LAND BERHAD
Research House: RHB

Property sector
Maintain overweight: Over the past few days, it has been widely reported that the latest land deal in Kuala Lumpur's Bukit Bintang by CDL Hotels (M) Sdn Bhd (a unit of London-based Millenium & Copthorne Hotels, 53% owned by Singaporean billionaire Kwek Leng Beng) to Urusharta Cemerlang (owns and operates the Pavilion KL Mall) was transacted at a record price of RM7,209 psf. The land is said to be the last empty lot in the prime location of Jalan Bukit Bintang. The price is more than three times higher than the latest transaction price of RM2,200 psf for a 0.65ha piece of land in Jalan Perak by Kuok Brothers and FFM Bhd last May.

The transaction price of RM7,209 psf for a piece of land measuring 29,127 sqf located at Jalan Bukit Bintang is unique, in our view. The buyer paid a premium for the value-added advantage and development potential to integrate the land with the development of Pavilion KL Mall. While the development plan for the land has not been reported, we believe the buyer has various options to utilise the land, such as: (i) enhancing the traffic access in the surrounding Pavilion mall ' a cut-through between Jalan Bukit Bintang and Jalan Raja Chulan; (ii) providing linkage to Fahrenheit 88, which will also be operated by Urusharta Cemerlang; or (iii) additional parking space for Pavilion mall. Hence, the transacted value of the land at RM210 million is relatively minimal compared with the total value of Pavilion mall, which we should view as an entirety. This also means that the price of RM7,209 psf is not reflective of the market value of land in KL city centre.

Land deals in the KLCC area have picked up since end-2009, and land prices will continue to hold well due to scarcity of prime land. However, we do not think the recent land deals will be a re-rating catalyst for the highrise residences in KLCC area, whose occupancy is highly dependent on the inflow of expats, which is tied to the amount of FDIs into Malaysia.

Key risks for the property sector will continue to be: (i) a cap on lending rates imposed by Bank Negara Malaysia; (ii) higher tax bracket for real property gains tax (RPGT); and (iii) country risks.

We maintain our 'overweight' stance on the property sector. Our top picks remain unchanged: IJM Land (outperform, fair value RM3), SunCity (OP, FV RM5.45) and Mah Sing (OP, FV RM2.06). ' RHB Research Institute, Sept 20


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

PLUS - PLUS a 'buy' at RM4.84: OSK

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



OSK Research is maintaining a "buy" recommendation and has forecast a target price (TP) of RM4.84 for Plus Expressways Bhd (PLUS), against RM4.57 previously, after the company secured a tender from the National Highway Authority of India to build a four-lane highway in Gujarat.

"Our TP is, however, raised as we narrow our discount to the Free Cash Flow to Equity Valuation from 15 per cent to 10 per cent at an unchanged 9.2 per cent equity cost," said the research firm in a research note today.

OSK also said it continued to favour PLUS for its defensive qualities and decent yields. -- Bernama

HARTA - OSK Research downgrades glove sector to Neutral

Stock Name: HARTA
Company Name: HARTALEGA HOLDINGS BHD
Research House: OSK

KUALA LUMPUR: OSK Research said the rubber glove sector has been experiencing normalising demand since the start of 2H10 when the H1N1 pandemic lost its influence as a factor driving demand growth and as new capacity started to flood the market.

It said on Tuesday, Sept 21'' that as rubber glove manufacturers were unable to pass on to their customers all additional cost increases arising from higher latex prices and an unfavorable USD-ringgit exchange rate, most saw their margins as well as absolute bottom lines being compressed.

'In light of these developments, we are downgrading the sector to Neutral from Overweight,' OSK Research said.

OSK Research said it believed the 3Q and 4Q results of most rubber glove companies would at best be flat q-o-q, if not experiencing a drop, given the negative effects arising from normalising demand for examination gloves.

'We think there is a possibility that 3Q would be the worst quarter this year and see most of glove makers recovering in 4Q, during which we expect more aggressive stocking up of examination gloves just before the start of the wintering season of rubber trees in early 1H11, which will again drive up latex prices and in turn, the selling prices of gloves,' it said.

The research house said unless there is a surge in examination glove demand fuelled possibly by a new health pandemic or major healthcare reform, it forecast a flat 2011.

SUPERMX - OSK Research downgrades glove sector to Neutral

Stock Name: SUPERMX
Company Name: SUPERMAX CORPORATION BHD
Research House: OSK

KUALA LUMPUR: OSK Research said the rubber glove sector has been experiencing normalising demand since the start of 2H10 when the H1N1 pandemic lost its influence as a factor driving demand growth and as new capacity started to flood the market.

It said on Tuesday, Sept 21'' that as rubber glove manufacturers were unable to pass on to their customers all additional cost increases arising from higher latex prices and an unfavorable USD-ringgit exchange rate, most saw their margins as well as absolute bottom lines being compressed.

'In light of these developments, we are downgrading the sector to Neutral from Overweight,' OSK Research said.

OSK Research said it believed the 3Q and 4Q results of most rubber glove companies would at best be flat q-o-q, if not experiencing a drop, given the negative effects arising from normalising demand for examination gloves.

'We think there is a possibility that 3Q would be the worst quarter this year and see most of glove makers recovering in 4Q, during which we expect more aggressive stocking up of examination gloves just before the start of the wintering season of rubber trees in early 1H11, which will again drive up latex prices and in turn, the selling prices of gloves,' it said.

The research house said unless there is a surge in examination glove demand fuelled possibly by a new health pandemic or major healthcare reform, it forecast a flat 2011.

TOPGLOV - OSK Research downgrades glove sector to Neutral

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

KUALA LUMPUR: OSK Research said the rubber glove sector has been experiencing normalising demand since the start of 2H10 when the H1N1 pandemic lost its influence as a factor driving demand growth and as new capacity started to flood the market.

It said on Tuesday, Sept 21'' that as rubber glove manufacturers were unable to pass on to their customers all additional cost increases arising from higher latex prices and an unfavorable USD-ringgit exchange rate, most saw their margins as well as absolute bottom lines being compressed.

'In light of these developments, we are downgrading the sector to Neutral from Overweight,' OSK Research said.

OSK Research said it believed the 3Q and 4Q results of most rubber glove companies would at best be flat q-o-q, if not experiencing a drop, given the negative effects arising from normalising demand for examination gloves.

'We think there is a possibility that 3Q would be the worst quarter this year and see most of glove makers recovering in 4Q, during which we expect more aggressive stocking up of examination gloves just before the start of the wintering season of rubber trees in early 1H11, which will again drive up latex prices and in turn, the selling prices of gloves,' it said.

The research house said unless there is a surge in examination glove demand fuelled possibly by a new health pandemic or major healthcare reform, it forecast a flat 2011.

SIME - Sime up slightly, CIMB has HOLD, TP RM8.40

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: CIMB

KUALA LUMPUR: SIME DARBY BHD [] shares are up slightly in late afternoon trade on Tuesday, Sept 21, but off high of RM8.44.

At 3.29pm, 4.45 million shares done at prices ranging from RM8.32 to RM8.44.

CIMB Equities Research has HOLD call on Sime Darby with target price of RM8.40.

Sime Darby announced Monday the forensic and legal consultants tasked to look into certain projects under Sime Darby's energy and utilities division have found evidence of breaches in four key projects.

The work group, which completed their investigations and submitted their report to the board on Monday, suggested that on prima-facie basis, there may have been breaches of duties and obligations and inappropriate conduct. Sime Darby, said based on the findings of the work group, it has resolved to initiate legal proceedings and, where appropriate, to lodge reports with relevant authorities.

Sime was advised by its legal counsel to keep confidential the details of the report and nature of such proceedings so as not to adversely affect the interests of the group.

'The outcome is within market expectation but the decision to keep details of the report confidential will disappoint investors who are looking for more information on the reasons behind the huge losses at the energy & utilities.

'Sime plans to initiate legal proceedings, where appropriate, will likely keep this issue in the limelight in the medium term. CIMB has a HOLD call with a target price of RM8.40,' it said.

AXIATA - Axiata raised to 'buy' at Maybank

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



Axiata Group Bhd, owner of Malaysia's second-biggest mobile-phone operator, was upgraded at Maybank Investment Bank Bhd to reflect earnings growth prospects and "undemanding" valuations.

The stock was raised to "buy" from "hold" and its share price estimate increased to RM5.10 from RM4, Tan Chi Wei, an analyst at Maybank, said in a report today. - Bloomberg

HELP - OSK Research sees limited upside for HELP target price

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

KUALA LUMPUR: OSK Research said HELP International Bhd is anticipated to release its 3QFY10 results on Thursday, Sept 23, which it expects to be within expectations, with strong y-o-y topline and earnings growth.

'Nevertheless with its share price having appreciated by a whopping 150% YTD, we are downgrading our recommendation from TRADING BUY to NEUTRAL largely due to the limited upside to our TP. We maintain our forecasts and TP at RM4.30, based on 14x PER on FY11 EPS, plus a net cash value per share of 68 sen,' it said on Tuesday, Sept 21.

OSK Research said despite the downgrade, it remains positive on the company's outlook in view of its promising growth prospects locally and abroad.

With the ex-date of its 3-for-5 bonus issue set for Oct 1, its target price on a cum basis will be adjusted to RM2.69.

TOMYPAK - HLG Research: Accumulate Tomypak, 6-month PT of RM1.65

Stock Name: TOMYPAK
Company Name: TOMYPAK HOLDINGS BHD
Research House: HLG

KUALA LUMPUR: HLG Research said'' Johor-based TOMYPAK HOLDINGS BHD []'s share price is ikely to stage a positive breakout after short term consolidation.

In its report issued on Tuesday, Sept 21, it recommended investors accumulate the shares with a six-month price target of RM1.65.

Tomypak is the 2nd largest flexible packaging materials (FPM) manufacturer company in Malaysia with a 25% market share, behind Daiboci's 30-35%.

The research house said the recent flexible packaging materials companies 2Q10 results such as Daibochi and Tomypak were not positive, recording net profit decline of 16% and 33% on-quarter respectively, mainly due to continued rise in raw material costs.

'However, this should not be a major concern as Daibochi's and Tomypak's MNC customers review their prices every quarter for changes in raw materials and forex,' it said.

On the technical price chart, HLG Research said'' after peaking at 52-week high of RM1.55 on July 28, Tomypak's share price formed a triangle consolidation. However, there are signs of impending breakout above the DTL, supported by MFI and MACD gaining strength.

Tomypak has found its temporary low at RM1.20 following share split and bonus issue and is still gyrating in an uptrend channel, indicating that the recovery trend is still intact.

'We expect Tomypak to breach the DTL resistance around RM1.42 (76.4% FR from the top of RM1.55 and low of RM1) after undergoing a brief consolidation amid toppish slow stochastics. Upon further breakout, upside resistance are situated around RM1.55-RM1.65 zone.

'We see this as a low-risk buy but always put a stop below RM1.20. Our 3-month technical target is RM1.65, implying a 7.1 times FY11 P/E (about 10% discounts to Daiboci),' it said.

PLUS - PLUS up after MIDF Research raises target price to RM4.70

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

KUALA LUMPUR: PLUS Expressway Bhd's share price rose on Tuesday, Sept 21 after MIDF Research maintained its buy call and upped its target price for the stock to RM4.70 (from RM4.30).

The Edge Financial Daily had reported that PLUS, with its partner IDFC Projects Ltd (IP), had won a tender from the National Highway Authority of India (NHAI) to build four lanes of the Jetpur-Somnath Section of the National Highway 8D in Gujarat, India.

At 9.25am, PLUS was up three sen to RM4.18 with 271,800 shares traded.

MIDF Research said it continued to like PLUS as a strong defensive stock and its attractive dividend yields of 4% to 5%.

"PLUS had already announced an interim dividend of 7.5 sen for 2Q10 and we believe that PLUS would be able to give a dividend yield of 4.4% at current price in FY10.

"We expect PLUS' good performance to continue and its overseas highway to start contributing. Our target price is based on DDM valuation, discounted at its WACC of 8.7%," said MIDF Research.

IOICORP - Kenanga IB maintains neutral on plantation sector

Stock Name: IOICORP
Company Name: IOI CORPORATION BHD
Research House: KENANGA

Plantation sector
Maintain neutral: Production is up 6% month-on-month (m-o-m) as we move into the seasonal production months. While production in Peninsular Malaysia was flat, East Malaysian estates chalked up a growth of 15%.

Exports tumbled 18% m-o-m mainly as a result of lower exports to China (-44%) and Pakistan (-44%). The lower numbers from Pakistan were not unexpected given the higher base in July as a result of buyers holding off their purchases before the national budget which lowered import duties.

Year-to-date, exports up are 6%, underpinned by all-round growth except for India (-8%) and China (-3%).

Inventory surged 23%, mainly as a result of 18% lower exports and a 6% improvement in production. This is larger than the market's expectation and the first since December 2009.

A crude palm oil (CPO) price uptick is likely to be more muted in the near term after having run up strongly from the RM2,500 per metric tonne levels to nearly RM2,700 per mt based on the three-month future and higher production ahead. Technically, we suspect the CPO will most likely remain range bound between RM2,500 and RM2,700 per mt for the short and medium term.

We maintain neutral on sector given its premium valuation and recent liquidity-driven price uptick. We call a 'trading buy' on Sime Darby Bhd (TP: RM8.66), 'hold' on Genting Plantations Bhd (TP: RM7.17) and KL Kepong Bhd (TP: RM18.70). We maintain a 'trading sell' for IOI Corp Bhd (TP: RM4.80).' Kenanga IB Bhd Research, Sept 17


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

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KLK - Kenanga IB maintains neutral on plantation sector

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD
Research House: KENANGA

Plantation sector
Maintain neutral: Production is up 6% month-on-month (m-o-m) as we move into the seasonal production months. While production in Peninsular Malaysia was flat, East Malaysian estates chalked up a growth of 15%.

Exports tumbled 18% m-o-m mainly as a result of lower exports to China (-44%) and Pakistan (-44%). The lower numbers from Pakistan were not unexpected given the higher base in July as a result of buyers holding off their purchases before the national budget which lowered import duties.

Year-to-date, exports up are 6%, underpinned by all-round growth except for India (-8%) and China (-3%).

Inventory surged 23%, mainly as a result of 18% lower exports and a 6% improvement in production. This is larger than the market's expectation and the first since December 2009.

A crude palm oil (CPO) price uptick is likely to be more muted in the near term after having run up strongly from the RM2,500 per metric tonne levels to nearly RM2,700 per mt based on the three-month future and higher production ahead. Technically, we suspect the CPO will most likely remain range bound between RM2,500 and RM2,700 per mt for the short and medium term.

We maintain neutral on sector given its premium valuation and recent liquidity-driven price uptick. We call a 'trading buy' on Sime Darby Bhd (TP: RM8.66), 'hold' on Genting Plantations Bhd (TP: RM7.17) and KL Kepong Bhd (TP: RM18.70). We maintain a 'trading sell' for IOI Corp Bhd (TP: RM4.80).' Kenanga IB Bhd Research, Sept 17


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

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GENP - Kenanga IB maintains neutral on plantation sector

Stock Name: GENP
Company Name: GENTING PLANTATIONS BERHAD
Research House: KENANGA

Plantation sector
Maintain neutral: Production is up 6% month-on-month (m-o-m) as we move into the seasonal production months. While production in Peninsular Malaysia was flat, East Malaysian estates chalked up a growth of 15%.

Exports tumbled 18% m-o-m mainly as a result of lower exports to China (-44%) and Pakistan (-44%). The lower numbers from Pakistan were not unexpected given the higher base in July as a result of buyers holding off their purchases before the national budget which lowered import duties.

Year-to-date, exports up are 6%, underpinned by all-round growth except for India (-8%) and China (-3%).

Inventory surged 23%, mainly as a result of 18% lower exports and a 6% improvement in production. This is larger than the market's expectation and the first since December 2009.

A crude palm oil (CPO) price uptick is likely to be more muted in the near term after having run up strongly from the RM2,500 per metric tonne levels to nearly RM2,700 per mt based on the three-month future and higher production ahead. Technically, we suspect the CPO will most likely remain range bound between RM2,500 and RM2,700 per mt for the short and medium term.

We maintain neutral on sector given its premium valuation and recent liquidity-driven price uptick. We call a 'trading buy' on Sime Darby Bhd (TP: RM8.66), 'hold' on Genting Plantations Bhd (TP: RM7.17) and KL Kepong Bhd (TP: RM18.70). We maintain a 'trading sell' for IOI Corp Bhd (TP: RM4.80).' Kenanga IB Bhd Research, Sept 17


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

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SIME - Kenanga IB maintains neutral on plantation sector

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: KENANGA

Plantation sector
Maintain neutral: Production is up 6% month-on-month (m-o-m) as we move into the seasonal production months. While production in Peninsular Malaysia was flat, East Malaysian estates chalked up a growth of 15%.

Exports tumbled 18% m-o-m mainly as a result of lower exports to China (-44%) and Pakistan (-44%). The lower numbers from Pakistan were not unexpected given the higher base in July as a result of buyers holding off their purchases before the national budget which lowered import duties.

Year-to-date, exports up are 6%, underpinned by all-round growth except for India (-8%) and China (-3%).

Inventory surged 23%, mainly as a result of 18% lower exports and a 6% improvement in production. This is larger than the market's expectation and the first since December 2009.

A crude palm oil (CPO) price uptick is likely to be more muted in the near term after having run up strongly from the RM2,500 per metric tonne levels to nearly RM2,700 per mt based on the three-month future and higher production ahead. Technically, we suspect the CPO will most likely remain range bound between RM2,500 and RM2,700 per mt for the short and medium term.

We maintain neutral on sector given its premium valuation and recent liquidity-driven price uptick. We call a 'trading buy' on Sime Darby Bhd (TP: RM8.66), 'hold' on Genting Plantations Bhd (TP: RM7.17) and KL Kepong Bhd (TP: RM18.70). We maintain a 'trading sell' for IOI Corp Bhd (TP: RM4.80).' Kenanga IB Bhd Research, Sept 17


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

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PETRA - Petra Perdana proposes 3:8 rights issue

Stock Name: PETRA
Company Name: PETRA PERDANA BHD
Research House: OSK

Petra Perdana Bhd
(Sept 17, RM1.17)
Maintain neutral at RM1.14 with target price RM1.21: Last Wednesday, Petra Perdana (Petra) proposed a renounceable rights issue of up to 122.8 million new ordinary shares on the basis of 3:8 existing Petra Perdana shares at an issue price of 59 sen per rights share.

This represents a discount of 41% to the theoretical ex-right price of its shares calculated based on its five-day volume-weighted average market price. The ex-date for the right will be Sept 29. The rights issue is expected to increase the company's share capital to about 450 million shares once the entire 122.8 million rights are taken up.

The rights share also comes with free detachable warrants on the basis of 1:2 rights shares subscribed. The exercise price for the warrant is RM1.

The rights issue is expected to raise about RM72.4 million, which we believe would likely be used for working capital purposes, such as to partly pay for its latest vessel, Petra Odyssey, a work barge. Earlier, Petra Perdana had indicated that it would use the proceeds together with the 10% private placement raised earlier for: (i) payment of refundable deposits in respect of the sale and leaseback of vessels; (ii) partial repayment of borrowings (total borrowings were RM445.1 million as at Dec 31, 2009); (iii) working capital purposes, and (iv) corporate proposal expenses. Petra Perdana now has 17 AHTS, four work barges and three work boats, bringing its fleet to 24 vessels, excluding Petra Odyssey.

This of course excludes three work barges and two work boats parked under its 29% associate, Petra Energy.

We maintain 'neutral' with a target price of RM1.21 based on the existing PER of nine times FY2011 EPS.

However, on completion of the rights issue, it will drop to 94 sen in view of the earnings dilution from this issue and on our assumption that part of the proceeds will be used to repay some of its borrowings, hence, lowering its interest expenses accordingly. This compares with the theoretical ex-rights price of Petra, which will be 99 sen.

Also, based on our recent earnings downgrade, we expect its 2010 net loss to be about RM52 million, so we think this is a stock to look at in 2011 rather than now as we expect oil and gas activities to have cranked up by then. ' OSK Investment Research, Sept 17


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

GAMUDA - Next stop for Gamuda: KL MRT station?

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

Gamuda Bhd
(Sept 17, RM3.74)
Maintain buy at RM3.70 with higher fair value RM4.28 (from RM3.82): Our fair value on Gamuda Bhd (Gamuda) is raised from RM3.82 per share to RM4.28, based on an unchanged 5% discount to its revised sum-of-parts value, as we roll forward our valuation base to FY2011F.

Recent positive news flow has lent credence to our earlier conviction that the RM43 billion Klang Valley Mass Rapid Transit (MRT) has a high chance of taking off ' given its huge socio-economic benefits.

This massive project was among a few projects specifically showcased during Pemandu's Sept 15 briefing to analysts on the Economic Transformation Programme.

More concrete details are likely to be disclosed during Budget 2011 in October ' with the expected completion of feasibility studies by independent consultants by end this month.
Gamuda has also submitted a bid for the Klang Valley Light Rail Transit (LRT) extension ' Phase 1 (about RM2.3 billion) could be out by end-4Q2010.

We reckon the Gamuda-MMC JV is a strong contender for the MRT works because it is the originator of the MRT proposal, solidified by its rail-based and tunnelling expertise. This could potentially trigger a multiyear re-rating in Gamuda's earnings.

On a base-case scenario, assuming that the Gamuda-MMC JV secures only the tunnelling package worth about RM12.9 billion at a net margin of 10%, the uplift to Gamuda's FY2012F/13F earnings would be 9% to 14% (fair value: + 14% to RM4.86 per share).

Under a blue-sky scenario, where we assume the Gamuda-MMC JV would secure both the tunnelling package and project manager role at a blended net margin of 6.5%, Gamuda's FY2012F/13F earnings would jump by 16% to 26% (fair value: +29% to RM5.54 per share).

Even before including any potential impact from the MRT project, we forecast FY2011F net profit to expand by 26% year-on-year to RM345 million (FY2010F: +41%).

This is backed by a robust three-year EPS CAGR of 27% and healthy order book of RM6.5 billion.

Restoration of construction margins should gain traction ' rising to 6.7% to 9% for FY2011F/12F against 4% in FY2010F.

On the property front, Gamuda is targeting a near doubling of its pre-sales at RM1.7 billion for FY2011F (FY2010: about RM800 million) with nearly half coming from Vietnam.

Gamuda's imminent inclusion into the FBM KLCI 30 Index on Sept 20 could provide further valuation support.

The stock's foreign shareholding has increased circa 2% to 33% currently, from 31% prior to the initial announcement of the MRT project back in June. ' AmResearch, Sept 17


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

NAIM - Naim a laggard despite SOGT win

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

Naim Holdings Bhd
(Sept 17, RM3.54)
Maintain buy at RM3.53 with target price RM5.10: Two weeks ago, the 70:30 Samsung-Naim JV announced that it had won the Sabah Oil and Gas Terminal (SOGT) contract worth US$766.4 million (RM2.44 billion). Located in Kimanis, the SOGT will serve as a hub for crude oil and natural gas processing from the oilfields off Sabah. We feel that investors have under-appreciated the significance of this recent win. Although the SOGT has boosted Naim's order book by 70.8% to RM1.76 billion, the reaction to the award has been muted as its share price has risen by only 0.9% since the announcement.

Naim's lacklustre share price movement could possibly be due to execution concerns related to the SOGT. While this is warranted given Naim's minimal experience with O&G infrastructure, we draw comfort in knowing that the SOGT will be led by the JV's majority partner, Samsung Engineering, which has significant experience in refineries, petrochemical plants and LNG plants. We also understand that Naim's role will mainly centre on the SOGT's support infrastructure (roads, bridges, earthworks, site offices and so on). For the portions in which Naim lacks a track record, subcontractors will be employed. Overall, management is guiding for gross margins of 15% from the job, while we are assuming 10% at the profit before tax level.

We see Naim as the best proxy to the Sarawak infrastructure theme play. Based on our tracking, the year-to-date (YTD) contracts in Sarawak awarded to listed contractors totalling RM1.26 billion are 33.2% higher year-on-year. We think that contracts in the state will accelerate moving closer to the state elections, which must be held sometime in early 2011. Despite securing more jobs than its closest peer Hock Seng Lee (Buy, TP: RM1.78) YTD, Naim's share price has lagged behind by more than 20%.

Naim holds a Letter of Intent (LOI) for the RM1.3 billion Kuching flood mitigation project, in which it has a 50% stake. Phase 1 (RM149 million) has been completed and Phase 2 (RM200 million to RM250 million) could be awarded early next year. Naim also holds an LOI for an equipment supply contract to an education institution (RM100 million). There is also a resettlement village job (RM160 million) for residents affected by the Bengoh Dam. We gather that Naim could also be in the running for a UiTM campus in Sarawak via PFI.

We maintain our 'buy' call with a TP of RM5.10. We make no changes to our forecast, which already incorporates the SOGT into our FY2011/12 earnings. While Naim's earnings growth will be rather minimal this year at 2.7%, we expect FY2011 to be a stronger 29.4%, driven mainly by: (i) existing jobs gaining momentum; (ii) Fijian jobs moving from losses back into the black; and (iii) contributions from the SOGT. Our RM5.10 TP is based on: (i) 12 times FY2011 earnings ex-Dayang's contribution, and (ii) 9 times its share of Dayang's earnings. Excluding the SOGT, our FY2011/12 earnings would be cut by 7% to 10% and our TP reduced to RM4.71. Even under this scenario, there would be sufficient upside to warrant a 'buy' rating on Naim. In view of the recent run-up in share prices of larger contractors, small cap names like Naim could be in favour next. ' OSK Investment Research, Sept 17

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