LOH&LOH - Loh & Loh - RM4.85 GO price not good enough

Stock Name: LOH&LOH
Company Name: LOH & LOH CORPORATION BHD
Research House: MAYBANK

Loh & Loh Corporation Bhd
(Sept 30, RM4.75)
Buy (under review) at RM4.49 with target price of RM4.85 (GO price): PetroSaudi's offer for UBG shares, which came after more than nine months (since mid-January), has triggered multiple general offers (GO) affecting UBG's subsidiaries, Loh & Loh and Putrajaya Perdana. The GO price for Loh & Loh is a disappointment as it did not consider its strong order book and its potential in water infrastructure. The ball is in the authorities' court to approve this deal, as it does not require shareholders' approval.

PetroSaudi International's offer to UBG's major shareholders became unconditional on Wednesday. Accordingly, it made a RM2.50 offer on Wednesday to UBG major shareholders to take over their combined 89.8% stake in UBG. This has triggered a mandatory GO for the remaining 10.2% UBG shares, and also 19.7% of Loh & Loh and 14.2% of Putrajaya Perdana shares not owned by UBG. The offer price for Loh & Loh and Putrajaya Perdana shares is RM4.85 each.

The offer prices for all three stocks are the same as when Abu Dhabi-Kuwait Malaysia Investment Corp (ADKM) injected Loh & Loh and Putrajaya Perdana into UBG in July 2008 in return for new UBG shares. At that time, the deal also resulted in GOs for all three companies: RM2.50 for UBG and RM4.85 each for Loh & Loh and Putrajaya Perdana. The deal then resulted in ADKM emerging as the largest shareholder of UBG (52.6%), which in turn ended up with 80.3% of Loh & Loh and 85.9% of Putrajaya Perdana.

PetroSaudi's offer price seems to have disregarded the value created in Loh & Loh, where the BVPS has risen 24% from RM2.57 as at end-2007 (to which the GO by ADKM was cross referenced), to RM3.19 as at end-2009. Also, PetroSaudi's offer values Loh & Loh at just 0.33 time, as a ratio of its outstanding construction order book, against 0.42 time in the ADKM offer, 21% lower. This is derived using RM330 million in market value at the RM4.85 offer price over RM1 billion estimated outstanding order book now, against RM780 million during ADKM's offer.

PetroSaudi's offer values Loh & Loh at 9.2 times 2011 PER based on our earnings estimates, significantly below its peers in niche construction services. A close comparison is Hock Seng Lee, which has a niche in marine engineering, now trading at 11.9 times 2011 PER. Excluding a huge cash reserve of RM113 million in Loh & Loh as at June 2010, the offer values the stock at just six times 2011 PER. Loh & Loh's expertise is in water infrastructure works with a huge potential in water infrastructure and the construction of hydroelectric dams in Sarawak. ' Maybank IB Research, Sept 30


This article appeared in The Edge Financial Daily, October 1, 2010.

KENCANA - Kencana's record 4Q fuels a record FY10

Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Research House: CIMB

Kencana Petroleum Bhd
(Sept 30, RM1.66)
Maintain outperform at RM1.66 with target price of RM2.28: As previewed, Kencana posted a record 4QFY2010 net profit of RM42 million, taking full-year bottom line to an all-time high of RM136 million. At 3% above our full-year forecast, we consider the performance to be in line with our expectations.

However, it exceeded the consensus estimate by 6%. Similar to last year, the dividend announcement will be made at a later date.
The company is reaping the benefits from moving up the value chain, evident from the double-digit bottom line growth despite a top line contraction.

We maintain our forecasts and target price of RM2.28 as we continue to apply our target market PER of 13.8 times to the stock. Kencana remains an 'outperform', premised on the potential re-rating catalysts of active order book replenishment and mergers and acquisitions.

Its 4Q net profit rose 37% year-on-year (y-o-y), helping Kencana to cap the year on a strong note. FY2010 net profit grew 15% y-o-y, despite a 5% fall in revenue, as Kencana took on more works for higher-end structures which gave better margins.

The double-digit growth in FY2010 was mostly supported by two factors: (i) Completion of the US$136 million (RM420 million) construction of KM1, work on which started in January 2008; and (ii) Commencement of marine support operations, formerly the missing link in the company's offshore operations. During the year, Kencana launched two AHTS vessels, the 67%-owned 5,500HP KPV Kapas and wholly owned 8,080HP KPV Gemia.

Kencana will open another new chapter this year with the start of its drilling business. KM1 is on a five-year, RM827 million Petronas Carigali drilling contract. Management confirmed that the contract started on Sept 2 and the rig starts drilling this week for a daily charter rate of US$130,000 per day, higher than the average global rate of US$114,617.

Also, this year, investors can look forward to a potential third marine support asset after the two AHTS vessels. It is no secret that Kencana is keen to own a pipelay barge following the JV breakdown with Global Offshore Malaysia Sdn Bhd in June.

Among the listed oil & gas companies, Kencana's news flow has been the most active year-to-date. Since April, it has secured nine new contracts worth a collective RM772 million. The new jobs take the company's outstanding order book to RM2.4 billion. This compares with its all-time high of RM2.8 billion recorded in October to December 2008. ' CIMB Research, Sept 30


This article appeared in The Edge Financial Daily, October 1, 2010.

BSTEAD - Boustead - a sleeping giant awakens

Stock Name: BSTEAD
Company Name: BOUSTEAD HOLDINGS BHD
Research House: HWANGDBS

Boustead Holdings Bhd
(Sept 30, RM4.91)
Initiate coverage with buy call at RM4.45 with target price of RM6.60: We initiate coverage of Boustead with a 'buy' rating and RM6.60 target price based on 20% discount to sum-of-parts (SOP) value. Our core investment thesis is three-fold:

1) More proactive management. Major shareholder, LTAT, is looking to raise Boustead's free float by cutting its 60% stake to 50% by end-2010. It also recently bought 86.1% of Pharmaniaga Bhd, a government healthcare service provider, which would allow for vertical integration within the group and aid in the 55% EPS growth for FY2011F. We think the market has not priced in the significant earnings accretion. On the cards is also the potential sale of its Indonesian plantation estates (about 18,000ha) that are capping its current blended FFB yield at 16.7 tonnes per hectare.

2) GLC-property proxy. Its property arm is due for a major transformation as LTAT is currently finalising two lucrative government land deals ' (i) 60 acres of Jalan Cochrane land and (ii) the 245-acre Batu Cantonment army base in Jalan Ipoh, both in Kuala Lumpur. Both developments will have a MRT station. We estimate these projects could add RM2.05 per share, raising our SOP value to RM10.35. This excludes more recently the rights to claim highly valuable land in Penang. Execution risk is minimal premised on its highly successful development in Mutiara Damansara.

3) Surge in contracts for BHIC. BHIC is expected to capitalise on the next batch of six out of 27 patrol vessels from the Royal Malaysian Navy. If the initial six vessels were a benchmark, this contract could be worth at least RM6.7 billion, almost triple its RM2.5 billion order book value. Our new order win assumptions are conservative at RM800 million per year for FY2010 to FY2012F.

Boustead's valuation is appealing at a one-year forward PER of seven times and 0.9 time P/NTA, while offering a 5% yield. These are roughly at its historical mean levels, but we expect valuations to expand when the market recognises the earnings-accretive Pharmaniaga acquisition and the formalisation of the two key land deals.

Boustead's current RM4.2 billion market capitalisation implies its lucrative plantation assets, growing property business, and trading arm, are currently trading at only six times CY2011 earnings. ' HwangDBS Vickers Research, Sept 30


This article appeared in The Edge Financial Daily, October 1, 2010.

SAPCRES - SapuraCrest's results within expectations

Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Research House: INTER PACIFIC

SapuraCrest Petroleum Bhd
(Sept 30, RM2.39)
Maintain outperform at RM2.36 with target price of RM2.90: We reiterate our 'outperform' recommendation with SapCrest's potential earnings catalysts coming from: (i) active order book replenishment; (ii) success in new markets; and (iii) growing fleet of strategic assets. We therefore maintain our target price at RM2.90 with FY2011 EPS of 16.9 times and FY2011 PER of 17.1 times.

SapCrest's 1HFY2011 net profit came within our and consensus expectations, accounting for 48%. SapCrest declared a single-tier interim dividend of three sen per share during the quarter under review.

For 1HFY2011, despite a decline in revenue, net profit swelled by 33.2% year-on-year (y-o-y), thanks to better margins from the installation of pipelines and facilities (IPF), up four percentage points (ppts) to 9.2% y-o-y, and drilling, up 7.87 ppts to 42.4% y-o-y. The Petronas Carigali Sdn Bhd Umbrella project win and commendable JV contribution bumped up IPF margins, while improved drilling margins were caused by higher drilling charter rates for T9 and Teknik Berkat.

With its order book standing at RM10 billion, SapCrest's earnings visibility appears to be good, at least for the next two years. However, there are risks should there be a delay in the installation contracts, especially if the direction of crude oil prices remains uncertain. Any review of the safety standards of offshore facilities could potentially also escalate cost estimates and affect the viability of new projects. Nonetheless, by including the full five-year Pan Malaysian pipe-laying contract, its gross order book would be bigger at RM13 billion.

SapCrest has been awarded new drilling contracts for two of its drilling rigs, T-6 and T-10. The T-6 contract from Carigali Hess Operating Company Sdn Bhd and Carigali PTTEPI Operating Company Sdn Bhd is worth US$85 million (RM269.5 million), translating to a daily charter rate of US$101,000 (previously US$99,000). The contract duration is 28 months with an option for two extensions of three months each. Seadrill UK, meanwhile, has chartered T-10 on a bare boat basis for 24 months for US$49 million (RM155.3 million), a lower charter rate of US$68,000 per day (previously US$88,000 per day). We believe the new charter rates are fair and within our earnings forecast for FY2011 to FY2012. ' Inter-Pacific Research, Sept 30


This article appeared in The Edge Financial Daily, October 1, 2010.

TENAGA - ECM Libra keeps 'buy' call on TNB

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: ECMLIBRA



ECM Libra Investment Research has maintained a "buy" call for Tenaga Nasional Bhd (TNB) shares with an upward target price of RM10.10 from RM9.90 previously.

"Our target price is reinforced as it implies a decent 23 per cent discount to end-financial year 2011 discounted cash flow-based target price of RM13.08," it said in a research note today.

According to ECM Libra, the recent pullback in TNB share price gives investors the opportunity to accumulate TNB shares.

The research house has revised TNB's 2011 and 2012 financial year unit demand growth assumption higher from three to four per cent, due to the average coal price assumption in ringgit remaining relatively stable at slightly under RM300 per metric tonne.

"We also understand that the slower July 2010 unit demand growth of six per cent year-on-year was due to lower steel smelting activities but are not overtly concerned as we believe that the steel sector is at the cusp of an upcycle driven by building projects in the United States and capacity cuts in China," it said.

ECM Libra expect that TNB's financial year 2010 core net profit to come in within expectations at RM2.6 billion to RM2.7 billion.

"TNB will also record financial year 2010 forex gains of RM600 million to RM700 million," it said. - BERNAMA

SILKHLD - MIDF maintains 'buy' call for Silk

Stock Name: SILKHLD
Company Name: SILK HOLDINGS BERHAD
Research House: MIDF



MIDF Research is maintaining its "BUY" recommendation for Silk Holdings Bhd (SHB) with a target price of RM0.46 as the company's earnings prospects was fairly bright, driven by the expected growth in the oil and gas sector.

Silk Holdings is responsible for the construction of Kajang Dispersal Link Expressway, upgrading and widening of existing roads and, the design and construction of a new alignment.

In a research note today, MIDF said the valuation was based on a discounted cash flow valuation for the highway subsidiary, using a weighted average cost of capital of 4.38 per cent.

The justification also included 10 times the price earnings ratio for the projected financial year 2011 for the highway operator's oil and gas division.

"The oil and gas division continues to be the group's focus, contributing 81 per cent to group revenue, as it continued to secure new, medium and long-term contracts," it said.

The research house expects to see further growth in the oil and gas division as the RM3 billion Petronas platform maintenance contract and the RM2 billion Exxonmobil enhanced oil recovery project would support major and supporting players such as Silk Holdings. - BERNAMA

JCY - OSK Research Neutral on JCY International

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Neutral view on hard disk drive (HDD) manufacturer JCY International.

In a research note issued on Friday, Oct 1, the research house said at the current price, JCY is trading close to the 10 times historical peak PER valuation of Notion and Engtek over the last five years and 11 years respectively.

Due to a lack of historical valuation given that JCY was only listed earlier this year, it is still too early to gauge the valuation range that the market is ascribing to the Malaysia's largest HDD components manufacturer.

'As the valuation of the other HDD component makers have fallen slightly, we are valuing JCY based on 8.0 times FY11 PER, from which we derive a fair value of RM1.15. For now, we think JCY's share price could be supported by the decent 6% FY10 net dividend yield based on a 48% dividend payout.

'However, this is not attractive enough to alter our Neutral view given the potential of more earnings disappointments for the next two quarters,' it said.

Meanwhile, the six-month moratorium on the company's IPO shares ended last month. While JCY's shares have fallen by about 30% from the IPO price, which we believe is mainly due to an unattractive offer price and disappointing results.

SAPCRES - CIMB Research maintains Outperform on SapuraCrest

Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Research House: CIMB

KUALA LUMPUR: CIMB Research is maintaining its Outperform on SAPURACREST PETROLEUM BHD [] and its top oil & gas pick.

The research house said in its report issued on Thursday, Sept 30 that factors which could catalyse the stock are 1) active order book replenishment, 2) success in new markets, i.e. the Middle East, and 3) a growing fleet of strategic assets.

SapuraCrest posted a 2QFY1/11 net profit of RM53 million, taking the first-half bottomline to a record RM104 million.

CIMB Research said at 49% of its full year forecasts and 48% of consensus estimate, we consider the performance to be broadly in line with expectations. Also not surprising is an interim DPS of 3 sen, which matches last year's payout.

'We maintain our earnings forecasts but raise our target price from RM3.02 to RM3.13 as we roll it over to end-CY12 and apply our revised target market P/E of 13.8x from 15x previously,' it said.

MMCCORP - PM says MRT among large projects, MMC Corp shares up on upgrade

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD
Research House: CREDIT SUISSE

KUALA LUMPUR: Shares of MMC Corp rose in the morning session on Friday, Oct 1 after Credit Suisse upgraded it to an Outperform and raised the target price to RM3.80.

At 11.17am, MMC Corp was up 12 sen to RM3.12 with 4.13 million shares done.

The positive sentiment was also boosted by a wire report that the government would soon announce seven large projects including the mass rail transit (MRT) soon in Kuala Lumpur.

Prime Minister Datuk Seri Najib Razak was quoted saying the government was ready to announce the seven huge projects soon. 'The MRT will be one of our largest projects and it will have a huge impact to the country's economy,' he said.

Meanwhile, Credit Suisse upgraded MMC Corp to an Outperform (from Neutral), as the market had underappreciated two key developments on the stock. They were the South Johor land and the Kuala Lumpur MRT. It viewed MMC as a laggard play on these developments.

AXIATA - Axiata's XL looking better

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

Axiata Group Bhd
(Sept 29, RM4.40)
Maintain buy at RM4.44 with higher target price RM5.10 (from RM4.95): Street projects 1H2010: 2H2010 earnings before interest, taxes, depreciation and amortisation (Ebitda) of 52:48 compared to 41:59 in 2009 and 50:50 in 2008. Competition peaked in 2H2008, and is unlikely to repeat in 2H2010. DBS Vickers projects 49:51 Ebitda for 1H2010: 2H2010, and estimates that XL's 2H2010 revenue could grow by 19% year-on-year (y-o-y), with Ebitda margin at 49%.

These may still be conservative against 1H2010 revenue growth of 35% y-o-y and 52% Ebitda margin.

With Telkomsel as quality leader in the market, XL and Indosat compete for price leadership. However, XL's focus on small screen data results against Indosat's focus on large screen data results in: (i) lower FY2010F capex-to-sales of 31% (against 44% for ISAT); and (ii) lower network costs as percentage of revenue of 31% (versus 36% for ISAT).

DBS Vickers raised XL's FY2010F to FY2012F net profit by 7% to 31%, and upgrades its fair value to IDR6,800 versus IDR5,900 previously.

We raise Axiata's FY2010F to FY2012F net profit by 2% to 7% after factoring in DBS Vickers' upgrades for XL. Axiata continues to do well in Malaysia, especially in the broadband segment, while it capitalises on economic recovery in Sri Lanka. In Bangladesh, Axiata has found an effective balance between subsidising and profit margin. ' HwangDBS Vickers Research, Sept 29


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

CARLSBG - Tobacco and breweries may get a blow from Budget 2011

Stock Name: CARLSBG
Company Name: CARLSBERG BREWERY MALAYSIA BHD
Research House: OSK

Tobacco and brewery sectors
Maintain neutral on both: The tobacco and brewery industries are referred to by some as the 'sin sector' (together with the gaming industry) in Malaysia. Like most parts of the world, these sectors are governed by tough government regulations and pay high excise duties. Our findings, which we elaborate in this report, are mainly focused on excise duty related to the sin sector.

Tobacco: From our recent channel checks, we sense that there is a possibility of cigarette pack prices being increased by about 30 sen to 60 sen per pack. This translates into a price increment of 1.5 sen to 3 sen per stick. Benchmarking against a premium 20s cigarette pack at RM9.30 (note that small 14s packs are no longer available), this could translate into pack prices potentially ranging from RM9.60 to RM9.90.

Although we did not manage to unearth the actual sum of the hike in tobacco excise duty, historically price increases have often involved a mark-up of 0.5 sen to 1 sen per stick above existing excise duty rates.

As such, the excise duty on cigarettes may go up by 1 sen to 2.5 sen per stick. All in all, we understand that the upward price adjustment in response to the excise duty rate hike will not breach the psychological level of RM10 per pack.

Brewery: We initially expected alcohol excise duties to be spared from a raise in the upcoming Budget 2011. However, the minister's remarks about a possible hike in alcohol excise duty would be negative for the sector. Although we are unable to gauge the amount of increase, we deem any hike from the current RM7.40 per litre level as 'damaging'. As a relative measure, alcohol-related duties and taxes account for some 48% of the retail price of beer. Adjusting for disposable income, alcoholic beverage prices in Malaysia may well be considered the highest in the world.

We see the companies in our 'sin sector' coverage being slapped by higher excise duties in Budget 2011.

For the tobacco sector, although we do not make any changes to our earnings for now, we downgrade British American Tobacco (M) Bhd (target price: RM40.12) to a 'sell' from 'neutral' previously, given that its stock price has rallied strongly in the past quarter, while keeping JT International Bhd as a 'buy' (TP:RM5.96) for its solid fundamentals, which will see it strongly positioned in the value-for-money cigarette segment, which is fast gaining popularity.

Brewers enjoyed a grace period from 2006 to 2009, when they were spared from hikes in alcohol excise duty.

However, the honeymoon seems to be over and we see an impending hike in Budget 2011 likely to scald sentiment.

We maintain our 'neutral' recommendation for Guinness Anchor Bhd (TP: RM7.90) and our 'buy' recommendation on Carlsberg Brewery Malaysia Bhd (TP: RM5.80). ' OSK Invesment Research


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

GAB - Tobacco and breweries may get a blow from Budget 2011

Stock Name: GAB
Company Name: GUINNESS ANCHOR BHD
Research House: OSK

Tobacco and brewery sectors
Maintain neutral on both: The tobacco and brewery industries are referred to by some as the 'sin sector' (together with the gaming industry) in Malaysia. Like most parts of the world, these sectors are governed by tough government regulations and pay high excise duties. Our findings, which we elaborate in this report, are mainly focused on excise duty related to the sin sector.

Tobacco: From our recent channel checks, we sense that there is a possibility of cigarette pack prices being increased by about 30 sen to 60 sen per pack. This translates into a price increment of 1.5 sen to 3 sen per stick. Benchmarking against a premium 20s cigarette pack at RM9.30 (note that small 14s packs are no longer available), this could translate into pack prices potentially ranging from RM9.60 to RM9.90.

Although we did not manage to unearth the actual sum of the hike in tobacco excise duty, historically price increases have often involved a mark-up of 0.5 sen to 1 sen per stick above existing excise duty rates.

As such, the excise duty on cigarettes may go up by 1 sen to 2.5 sen per stick. All in all, we understand that the upward price adjustment in response to the excise duty rate hike will not breach the psychological level of RM10 per pack.

Brewery: We initially expected alcohol excise duties to be spared from a raise in the upcoming Budget 2011. However, the minister's remarks about a possible hike in alcohol excise duty would be negative for the sector. Although we are unable to gauge the amount of increase, we deem any hike from the current RM7.40 per litre level as 'damaging'. As a relative measure, alcohol-related duties and taxes account for some 48% of the retail price of beer. Adjusting for disposable income, alcoholic beverage prices in Malaysia may well be considered the highest in the world.

We see the companies in our 'sin sector' coverage being slapped by higher excise duties in Budget 2011.

For the tobacco sector, although we do not make any changes to our earnings for now, we downgrade British American Tobacco (M) Bhd (target price: RM40.12) to a 'sell' from 'neutral' previously, given that its stock price has rallied strongly in the past quarter, while keeping JT International Bhd as a 'buy' (TP:RM5.96) for its solid fundamentals, which will see it strongly positioned in the value-for-money cigarette segment, which is fast gaining popularity.

Brewers enjoyed a grace period from 2006 to 2009, when they were spared from hikes in alcohol excise duty.

However, the honeymoon seems to be over and we see an impending hike in Budget 2011 likely to scald sentiment.

We maintain our 'neutral' recommendation for Guinness Anchor Bhd (TP: RM7.90) and our 'buy' recommendation on Carlsberg Brewery Malaysia Bhd (TP: RM5.80). ' OSK Invesment Research


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

GAMUDA - Gamuda - all eyes on MRT

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

Gamuda Bhd
(Sept 29, RM3.85)
Maintain outperform at RM3.80 with higher target price RM4.96 (from RM4.78): Gamuda's FY7/10 core net profit made up 91% of our full-year forecast and 83% of consensus. Despite an improved earnings before interest and tax (Ebit) margin, which anchored the 45% year-on-year (y-o-y) growth in net profit, the results were below expectations as we had overestimated associates' contributions. We cut our FY2011/12 forecasts by 4% to 6% and introduce our FY2013 numbers.

This, plus the effects of rolling forward our valuation horizon to end-2011 and applying our revised 13.8 times target market PER (15 times previously) to our construction profit component raises our RNAV-based target price from RM4.78 to RM4.96.

We reiterate our 'outperform' call with main potential re-rating catalysts being more progress and eventual approval of the MRT project. The stock remains one of our top picks for the sector.

FY2010 revenue dipped 10% y-o-y, mainly due to depleting construction jobs and despite strong property sales of RM820 million, surpassing the targeted RM800 million. However, Ebit surged 49% y-o-y while Ebit margin expanded almost two percentage points to 8.9%, boosted by all segments. At the pre-tax profit level, the construction division chalked up a y-o-y doubling of pre-tax profit and contributed 21% of group pre-tax profit. Construction pre-tax margins stood at 4.5%, and are likely to further improve in the coming quarters. Pre-tax profit from the property, expressways, and water segments grew by 15% to 28% y-o-y and accounted for 78% of group pre-tax profit. Overall core net profit grew by 45% y-o-y. No dividends were declared, which was no surprise.

During the results briefing, management sounded more optimistic about the progress of the MRT proposal, reinforced by the key deliverables of the Economic Transformation Programme (ETP). The MRT proposal is still at the consultants' evaluation stage, which is expected to be completed by end-September. Management expects more details to be unveiled during the tabling of Budget 2011 on Oct 15, with likely Cabinet approval before end-2010. Clinching the RM13 billion to RM14 billion tunnelling works would bump up the current RM6 billion outstanding order book to over RM12 billion. ' CIMB Research, Sept 29


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

TGOFFS - OSK Research maintains Neutral on Tanjung Offshore

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Neutral recommendation on Tanjung Offshore and its target price is RM1.73 based on PER of 11x FY11 EPS after the company secured a contract extension valued at RM100 million.

'We continue to like the company for its diversified businesses ranging from the provision of offshore vessel services, drilling, production and platform services to supply of equipment, engineering and maintenance services,' it said on Thursday, Sept 30.

On Wednesday, Tanjung Offshore announced its unit Tanjung Offshore Services was awarded a contract extension by Petrofac (Malaysia PM-304) Ltd (Petrofac) to supply of mobile offshore production unit for Cendor Field, Block PM-304 for an extended period effective Sept 24, 2010 to the 2Q13.

OSK Research said the contract extension will reduce its reliance on a particular business segment in the event if there is a slowdown due to the delay in new contract awards.

'Going forward, we believe the recent emergence of Ekuinas as a substantial shareholder of the company holding 24% of its stake will further boost the profile of the company,' it said.

FABER - OSK Research upgrades Faber TP to RM4

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

KUALA LMPUR: OSK Research has upgraded the target price of FABER GROUP BHD [] to RM4.00 from RM3.58 and maintained its Buy recommendation.

It said on Thursday, Sept 30, with Faber's 15 year concession for government hospital support services (HSS)'' due for expiry in October 2011, it was looking at several possible outcomes related to the renewal.

These scenarios range from the worst case of 'No Concession Renewal' to the best case of '2% p.a. inflation adjusted Rate Revision'.

'As our Base Case is for the concession to be renewed at the similar terms as the existing one, we are imputing the DCF value of the concession based on this assumption into our SOP valuation as well as valuing its non-concession IFM business separately.

"Subsequently our TP has been upgraded to RM4.00 from RM3.58 previously. With the sizeable upside we maintain our BUY recommendation at the higher TP of RM4,' it said.

KENCANA - OSK Research: Kencana results within expectations

Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Research House: OSK

KUALA LUMPUR: OSK Research said KENCANA PETROLEUM BHD []'s FY10 results were within expectations.

It said on Thursday, Sept 30 that although the 4QFY10 revenue was quite flattish on-quarter, the net profit was up 33% on-quarter contributed by the lower expenses incurred and better cost management as well as fabrication of higher margin product mix.

'Going forward to the next quarter, Kencana will have additional revenue contribution coming from the MKR-1. Maintain Buy on Kencana with a target price of RM2.06 based on PER of 16 times CY11 EPS,' it said.

F&N - F&N - hot-filling the gap

Stock Name: F&N
Company Name: FRASER & NEAVE HOLDINGS BHD
Research House: INTER PACIFIC

Fraser & Neave Holdings Bhd
(Sept 28, RM14.48)
Recommend neutral at RM14.70 with higher target price of RM14.90: We recommend 'neutral' on Fraser & Neave (F&N) based on FY2011's EPS of 80.7 sen with a PER of 18.5 times. We have adjusted our target price to RM14.90 (previously RM14.52). The potential drivers for F&N are: (i) equity ownership in Cocoaland Holdings Bhd (CHB); and (ii) sales and distribution of Red Bull, expected to fill the gap that will be created by Coke as Coca-Cola Company (CCC) is not extending its bottling and distribution agreement which will end on Sept 30, 2011, with F&N. The underpinning risks are: (i) rising raw material prices ' milk powder, sugar and aluminium; and (ii) the removal of government subsidies which could dampen consumer sentiment.

F&N's investment in Cocoaland is viewed positively. Its 23.08% stake in CHB, which it acquired for RM54.6 million (RM1.38 per share), will allow F&N to use the hot-filling facility it currently does not have. At the moment, CHB's capacity for hot-filling is 120 million bottles (one line) per year. Following the investment by F&N, it plans to step up its capacity to 360 million bottles per year by FY2012, with the opening of an additional three lines.

The synergy between F&N and CHB bodes well for both parties. While the latter will be able to capitalise on F&N's vast marketing and distribution strength, the former will benefit from CHB's know-how'' and its hot-filling capacity in polyethylene terephthalate (PET), used for bottling fruit/vegetable juices and tea products. F&N plans to launch 50 new products over the next 24 months, focusing on tea and fruit juices, capitalising on the increased production capacity of CHB's hot-filling lines.

Under the transition agreement with CCC, F&N is now free to launch new brands and products (except for cola and lemon & lime carbonates) for both the domestic and export markets. F&N was previously not allowed to export its own brand soft drink products in its agreement with CCC. The partnership with CHB will enable F&N to tap into CHB's export network, as 50% of CHB's products are exported.

The local juice industry is geared up for intensive competition driven by the rolling out of new brands and products by the current players, and the emergence of new players, taking advantage of the shift by local consumers to a healthier lifestyle. New products looking for a slice of the market pie include: (i) CCC's Minute Maid Pulpy (introduced June 2010); and (ii) F&N's Ambient Juices under the Fruit Tree brand'' (introduced August 2010). The market is currently dominated by C I Holdings' Tropicana (35%), Malaysia Milk's Marigold (30%), and F&N's Fruit Tree and Sunkist (13%).
F&N's equity interest in CHB marks its second partnership in FY2010. The first was with Red Bull in February. The popular Red Bull energy drink will complement its existing products and should bring in about 10% of F&N's beverage sales revenue. ' Inter-Pacific Research, Sept 28


This article appeared in The Edge Financial Daily, September 29, 2010.

TOPGLOV - Top Glove expecting weaker earnings

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

Top Glove Corp Bhd
(Sept 28, RM5.25)
Downgrade to underperform at RM5.25 with lower fair value of RM5.30 (from RM6.90): Top Glove is expected to announce its full-year results on Oct 6. While we expect weaker numbers quarter-on-quarter (q-o-q), for the full-year, we see year-on-year (y-o-y) growth of approximately 40% to 45% largely due to: (i) higher sales volume on the back of the new lines in F19 and F20; and (ii) y-o-y margin expansion resulting from better economies of scale.

We expect earnings to be weaker by 30% to 40% q-o-q on the back of: (i) weaker revenue largely due to lower sales volume as customers opt to run down their inventory levels due to the high latex price; and (ii) margin contraction largely due to the time lag in passing on the weakening US dollar against ringgit'' (-1.7% q-o-q).

According to management there are no plans for now to delay expansion plans. However, management will be monitoring the situation closely. Should demand remain weak for the next one or two quarters, the planned expansion at F23 could be pushed back. Currently, Top Glove's average utilisation rate stands at approximately 70% to 75%, which the group believes is at a comfortable level to take advantage of any potential surge in demand for its gloves.

The risks include: (i) sharp surge in raw material (latex) and/or energy (natural gas) prices, which may result in margin squeeze; (ii) an appreciating ringgit against the US dollar; (iii) execution risk from capacity expansion; and (iv) weaker than expected results from overseas operations.

We have kept our FY2010 earnings forecast unchanged for now. However, we have lowered our FY2011 and FY2012 earnings forecasts by 10.4% and 9.7% respectively after lowering our FY2011 and FY2012 capacity utilisation rate assumptions to 77.5% and 82.5% (from 85% and 90%) respectively.

Given the weaker earnings outlook, we have cut our target PER to 12.5 times from 15 times. Our revised target PER is based on one standard deviation below the stock's five-year average PER. Together with the earnings revision above, we have lowered our fair value to RM5.30 from RM6.90. In our view, Top Glove's near-term outlook appears challenging on the back of the high latex cost, strengthening ringgit (against the US dollar) as well as slowing orders, which, we believe, makes it harder for Top Glove to adjust prices for the higher costs. We'' therefore downgrade our call on the stock to 'underperform' from 'market perform'. ' RHB Research Institute, Sept 28


This article appeared in The Edge Financial Daily, September 29, 2010.

PUNCAK - Tariff hike soon for Puncak Niaga?

Stock Name: PUNCAK
Company Name: PUNCAK NIAGA HOLDINGS BHD
Research House: MIDF

Puncak Niaga Holdings Bhd
(Sept 28, RM2.82)
Maintain trading buy at RM2.85 with target price of RM3.55: The Edge Financial Daily, quoting sources, says a 15% to 20% water tariff hike may be in the offing for Syarikat'' Bekalan Air Selangor Sdn Bhd (Syabas).

Such a rumour is not surprising given that the water tariff hike is long overdue. It'' was reported that the federal government has given the green light and is just waiting for the Selangor government to agree.

The'' 37% hike in the water tariff was scheduled for Jan 2009. Puncak received compensation from both state and federal governments totalling RM434 million last year. For 1H2010, the group received RM197 million (1H2009: RM109 million) in'' compensation. We do not expect much variation in the compensation for 2H2010.

In terms of overall earnings, the impact on the bottom line is very much neutral given that the compensation will offset the non-hike in tariff.

On the downside, compensation is given biannually, and this will create disruption to cash flow that would impact payments'' to water treatment players. Hence, the decision by rating agencies to downgrade Selangor water players ratings recently.

The outlook on the water asset consolidation is still sketchy. We maintain our view that, barring unexpected events, there could be a lengthy wait for the decision on this matter. It will'' boil down'' to'' political will.

Key risk factors are further delays in the implementation of the tariff ke and the decision on water asset consolidation.

We maintain our 'trading buy' call for those with a bigger appetite for risk with a'' unchanged target price of'' RM3.55. Numbers aside, speculation could persist over the issue of the transfer of Puncak Niaga's water assets, which may provide'' a near-term catalyst for price appreciation. We set our target price at RM3.55, a 30% discount to its NPV of RM5.10 per share. ' MIDF Research, Sept 28


This article appeared in The Edge Financial Daily, September 29, 2010.

GENTING - Genting going global

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

Genting Bhd
(Sept 28, RM9.88)
Maintain buy at RM9.77 with higher target price of RM14.05 (from RM11.70): Genting group's Singaporean (Resorts World at Sentosa or RWS) and Malaysian gaming assets (Genting Malaysia) both performed above expectations in their 2QFY2010 quarterly results. This reinforces our view that the two new integrated resorts in Singapore have enlarged the region's gaming pie with minimal cannibalisation impact on Genting Malaysia's business. The group's relatively stable and expanding gaming business continued to form the bulk of its earnings at 85%, as at 1HFY2010, with Singapore already contributing 52% of the group's total revenue. We expect this to increase over time given the robust growth trajectory of its Singapore gaming operation.

The group's gaming assets (per share) alone are worth RM11.36 at the current market value, and RM13.33 based on our fair value versus Genting group's current market price of RM9.77. This implies that the stock is currently trading at a significant 33.6% discount to its sum-of-parts (SOP) valuation based on the current market value of the group's listed entities, and at an even steeper 40.8% discount based on our fair value of S$2.65 for Genting Singapore.

Following our recent earnings upgrade on Genting Singapore, we are raising our FY2010 and FY2011 earnings forecasts for the group by 19.9% and 8.3% respectively. Genting Bhd currently trades at an undemanding 14.6 times and 12.4 times FY2010 and FY2011 PER respectively, against its five-year historical average PER of 16.5 times. Its valuation is all the more undemanding if one considers its compelling three-year CAGR of 41%, largely driven by Genting Singapore's early cycle growth stage. Against the backdrop of such compelling growth, we think that the stock's current FY2010 and FY2011 EV/Ebitda valuations of 6.3 times and 5.2 times are indeed attractive.

The group's fast expanding global gaming footprint, covering gaming interests in Malaysia, Singapore, the UK, the Philippines and the US, is certainly not reflected in its below industry average valuations of 6.3 times and 5.2 times FY2010 and FY2011 EV/Ebitda. This compares with the likes of Las Vegas Sands and Wynn's, trading at a one-year forward 14 times and 12 times EV/Ebitda respectively despite their slower earnings growth and much higher gearing. Incorporating our recently revised target price for Genting Singapore, we are raising our SOP target price for Genting Bhd from RM11.70 to RM14.05, to which we have also pegged a 15% holding company discount. Its future catalysts include its ability to unlock the value of its power assets by potentially listing them. ' OSK Investment Research, Sept 28


This article appeared in The Edge Financial Daily, September 29, 2010.

GAMUDA - RHB Research raises Gamuda fair value by 14% to RM4.51

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

KUALA LUMPUR: RHB Research Institute raised its net profit forecasts for GAMUDA BHD [] for FY07/11-12 by 23% to 27% largely to reflect stronger property profits in Malaysia.

The research house said on Wednesday, Sept 29, the fair value was raised by 14% from RM3.96 to RM4.51.'' It maintained its Trading Buy call on the infrastructure-property company.

For the financial year ended July 31, 2010, Gamuda's earnings rose to RM280.69 million from RM193.69 million. Revenue was lower at RM2.45 billion compared with RM2.73 billion in FY09.

RHB Research said the FY07/10 net profit came in within its forecast and the market expectation.

Gamuda had said it was confident about securing the Cabinet approval for the RM36 billion MRT project 'before the end of the year'.'' It is optimistic that physical work can start as soon as by mid or late-2011.

Gamuda had also emerged one of the five final contenders for the RM1.5 billion Durkhan Highway 2 project in the Gulf states.

Gamuda is on track to launch the Tan Thang project in Vietnam in October 2010.'' However, the maiden launch of the Yenso Park project in Hanoi has been delayed to Feb 2011 from Aug 2010.

PROTON - HLG Research: 6-month technical target price for Proton at RM6

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

KUALA LUMPUR: HLG Research said PROTON HOLDINGS BHD []'s share price has been steadily picking up to as high as RM5.03 from a three-month low of RM4.35.

In a research note issued on Wednesday, Sept 29, it said the national car maker's share price gained seven sen to RM4.87 after the 20 sen final dividend went ex on Tuesday.

On the share price performance, it said the factors were:

(1) A strong 56% jump in its 1QFY11 earnings and aniticipating an equally good 2Q results ;

(2) Speculation of'' a consolidation in the auto industry has re-emerged;

(3) Ongoing speculation that Lotus might be sold to third parties, underscoring the company's inherent values;

(4) Strong domestic auto sales outlook;

(5) The replacement Waja as a potential catalyst for Proton, similar to the Exora which was released last year;

(6) Talks of strategic partners still ongoing after the VW deal fell through; and

(7) The completion of feasibility study on plant consolidation by year-end, as moving its production from Shah Alam to Tanjung Malim should also help trim costs, enhance operational efficiency and enable Proton to unlock the value of its 143-acre land in Shah Alam.

'At RM4.87, Proton is trading at 8.3x FY11 P/E (industry 9.2x) and 0.5x FY11 P/B (industry 1.3x). We expect the 9.8% P/E and 51% P/B discounts to the industry to narrow, underpinned by its improving fundamentals and strong net cash/share of RM2.64.

'Our 6-month technical target price for Proton is RM6, implying a 0.59x FY11 P/B, which is 15% discount to its 10-year average P/B of 0.7x,' it said.

JTIASA - RHB Research keeps outperform on Jaya Tiasa, FV RM4.43

Stock Name: JTIASA
Company Name: JAYA TIASA HOLDINGS BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining its Outperform recommendation on JAYA TIASA HOLDINGS BHD [] with an indicative fair value (FV) of RM4.43.

The research house said on Wednesday, Sept 29 the FV was based on 12 times CY11 timber and PLANTATION [] division earnings.

'We believe that Jaya Tiasa's prospects are looking up, given improving average selling prices of plywood and Japan housing starts. Earnings momentum is also supported by still strong demand for logs from China and India as well as the maturing age profile of Jaya Tiasa's plantation,' it said.

For the first quarter ended July 31, 2010, Jaya Tiasa's net profit was RM22.69 million versus only RM791,000 a year ago. Revenue rose 12% to RM185.5 million from RM166.3 million. Pre-tax profit jumped to RM30.1 million from RM2.1 million.

Better results in revenue and pre-tax profit were mainly due to improved proceeds from logs sales with 7% increase in average selling price; better margin of plywood sales with 16% reduction in costs of production due to higher production volume; and 66% increase in sales volume and 9% higher average selling price of fresh fruit bunches (FFB).

'The 1Q FY04/11 net profit of RM22.5 million came in at 31% and 40% of our and consensus forecast respectively. In line with our forecast as we expect Jaya Tiasa to record lower net profit in the next few quarters due to the strengthening of RM versus US dollar,' it said.

SUNWAY - Sunway Holdings in Sri Lankan endeavours

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

Sunway Holdings Bhd
(Sept 27, RM1.91)
Maintain buy at RM1.79 with target price RM2.52: Last Friday, Sunway announced on Bursa Malaysia that it had entered into a joint-venture agreement with Dasa Tourist Complex Private Ltd (Dasa) to undertake a mixed development in Colombo, Sri Lanka. The development will comprise at least 318,000 sq ft of net saleable areas comprising residential units and 60,000 sq ft of commercial units.

Sunway will have a 65% stake in the JV while Dasa will hold the balance of 35%. Dasa is a Sri Lankan incorporated company with its primary business being in the manufacture of textiles and garments.

It is estimated that the proposed mixed development will have a gross development value (GDV) of US$80 million (RM250 million). The development will comprise a 34-storey building consisting of 70 commercial and 180 residential units with an ocean view. It will be located roughly 5km from the central business district of Colombo. Colombo is the largest city in Sri Lanka (former capital) with an estimated population of 1.3 million. The central business district of Colombo is located 40km from the Bandaraneyake Airport.

Following the defeat of the Liberation Tigers of Tamil Eelam in May 2009, Sri Lanka is now enjoying political stability. The International Monetary Fund projects Sri Lanka's gross domestic product to grow by 5.5% in 2010 and 6.5% in 2011. Both economic growth and a stable political climate have spurred an uptrend in its property prices. Prices have also been supported by limited supply in both the residential and commercial segments.

Management expects the launch to take place in 2Q2011. Our estimates are, however, unchanged for now as we are unable to ascertain the potential take-up rate from this new venture. We have a three-year earnings CAGR forecast of 33.9%. Our RM2.52 target price continues to be based on 12 times partially diluted mid CY2011 EPS. Sunway remains one of our top sector picks for its undemanding valuation and strong earnings growth. ' OSK Investment Research, Sept 27


This article appeared in The Edge Financial Daily, September 28, 2010.

TCHONG - A festive drive home for auto industry

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

Automotive sector
Maintain overweight: Total industry volume (TIV) in August advanced 14% year-on-year (y-o-y) and 3% month-on-month to 55,208 units, the third highest monthly sales in five years after October 2005's 56,695 units and March 2010's 56,139 units. Sales in August were largely buoyed by the rush for delivery before the Hari Raya Aidilfitri festive season. We maintain our 'overweight' call on the auto sector as major demand drivers such as the economic outlook, consumer sentiment, the availability of credit, and new models are intact. On the cost front, a stronger ringgit against the greenback and the recent intervention by the Japanese government to control the rising yen spell good news for auto players. Potential re-rating catalysts include: (i) the strong sales performance; (ii) a firming ringgit; and (iii) more accommodating policies.

We are keeping our 10% growth projection of 590,955 units. Although annualised year-to-date vehicle sales are 4% ahead of our expectations, we expect y-o-y sales growth to moderate in the subsequent months as the base of comparison is relatively higher, given that vehicle sales recovered towards 2H2009. We expect the festive-shortened September to be soft on a quarter-on-quarter basis. We are also keeping our 5% TIV growth assumption for 2011.
The sales of most major MPVs such as Proton Exora, Perodua Alza, Nissan Grand Livina, Honda Freed, Toyota Innova and even the flailing Toyota Avanza strengthened in August. We think more families may have opted for larger vehicles in the run-up to the festive season when they expected to travel more.

We retain our earnings forecasts, recommendations and target prices for Tan Chong ('outperform'; target price RM9.30), UMW ('outperform'; TP RM8.70), and Proton ('trading buy'; TP RM5.95).'' Tan Chong remains our top pick in the auto sector. Backed by its expansion plans and stronger industry fundamentals, Tan Chong boasts impressive earnings growth potential over the next three years, which should support our EPS CAGR projection of 47%. Catalysts would be: (ii) stronger earnings growth trajectory; (ii) new model pipeline; and (iii) strategic positioning which will help it gain market share and tap into regional demand. ' CIMB Research, Sept 27


This article appeared in The Edge Financial Daily, September 28, 2010.

PROTON - A festive drive home for auto industry

Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Research House: CIMB

Automotive sector
Maintain overweight: Total industry volume (TIV) in August advanced 14% year-on-year (y-o-y) and 3% month-on-month to 55,208 units, the third highest monthly sales in five years after October 2005's 56,695 units and March 2010's 56,139 units. Sales in August were largely buoyed by the rush for delivery before the Hari Raya Aidilfitri festive season. We maintain our 'overweight' call on the auto sector as major demand drivers such as the economic outlook, consumer sentiment, the availability of credit, and new models are intact. On the cost front, a stronger ringgit against the greenback and the recent intervention by the Japanese government to control the rising yen spell good news for auto players. Potential re-rating catalysts include: (i) the strong sales performance; (ii) a firming ringgit; and (iii) more accommodating policies.

We are keeping our 10% growth projection of 590,955 units. Although annualised year-to-date vehicle sales are 4% ahead of our expectations, we expect y-o-y sales growth to moderate in the subsequent months as the base of comparison is relatively higher, given that vehicle sales recovered towards 2H2009. We expect the festive-shortened September to be soft on a quarter-on-quarter basis. We are also keeping our 5% TIV growth assumption for 2011.
The sales of most major MPVs such as Proton Exora, Perodua Alza, Nissan Grand Livina, Honda Freed, Toyota Innova and even the flailing Toyota Avanza strengthened in August. We think more families may have opted for larger vehicles in the run-up to the festive season when they expected to travel more.

We retain our earnings forecasts, recommendations and target prices for Tan Chong ('outperform'; target price RM9.30), UMW ('outperform'; TP RM8.70), and Proton ('trading buy'; TP RM5.95).'' Tan Chong remains our top pick in the auto sector. Backed by its expansion plans and stronger industry fundamentals, Tan Chong boasts impressive earnings growth potential over the next three years, which should support our EPS CAGR projection of 47%. Catalysts would be: (ii) stronger earnings growth trajectory; (ii) new model pipeline; and (iii) strategic positioning which will help it gain market share and tap into regional demand. ' CIMB Research, Sept 27


This article appeared in The Edge Financial Daily, September 28, 2010.

UMW - A festive drive home for auto industry

Stock Name: UMW
Company Name: UMW HOLDINGS BHD
Research House: CIMB

Automotive sector
Maintain overweight: Total industry volume (TIV) in August advanced 14% year-on-year (y-o-y) and 3% month-on-month to 55,208 units, the third highest monthly sales in five years after October 2005's 56,695 units and March 2010's 56,139 units. Sales in August were largely buoyed by the rush for delivery before the Hari Raya Aidilfitri festive season. We maintain our 'overweight' call on the auto sector as major demand drivers such as the economic outlook, consumer sentiment, the availability of credit, and new models are intact. On the cost front, a stronger ringgit against the greenback and the recent intervention by the Japanese government to control the rising yen spell good news for auto players. Potential re-rating catalysts include: (i) the strong sales performance; (ii) a firming ringgit; and (iii) more accommodating policies.

We are keeping our 10% growth projection of 590,955 units. Although annualised year-to-date vehicle sales are 4% ahead of our expectations, we expect y-o-y sales growth to moderate in the subsequent months as the base of comparison is relatively higher, given that vehicle sales recovered towards 2H2009. We expect the festive-shortened September to be soft on a quarter-on-quarter basis. We are also keeping our 5% TIV growth assumption for 2011.
The sales of most major MPVs such as Proton Exora, Perodua Alza, Nissan Grand Livina, Honda Freed, Toyota Innova and even the flailing Toyota Avanza strengthened in August. We think more families may have opted for larger vehicles in the run-up to the festive season when they expected to travel more.

We retain our earnings forecasts, recommendations and target prices for Tan Chong ('outperform'; target price RM9.30), UMW ('outperform'; TP RM8.70), and Proton ('trading buy'; TP RM5.95).'' Tan Chong remains our top pick in the auto sector. Backed by its expansion plans and stronger industry fundamentals, Tan Chong boasts impressive earnings growth potential over the next three years, which should support our EPS CAGR projection of 47%. Catalysts would be: (ii) stronger earnings growth trajectory; (ii) new model pipeline; and (iii) strategic positioning which will help it gain market share and tap into regional demand. ' CIMB Research, Sept 27


This article appeared in The Edge Financial Daily, September 28, 2010.

PUNCAK - Puncak Niaga still a 'buy'

Stock Name: PUNCAK
Company Name: PUNCAK NIAGA HOLDINGS BHD
Research House: KENANGA



KENANGA Research has maintained its "buy" recommendation on Puncak Niaga Holdings, with an unchanged target price of RM3.74 despite the proposed water tariff hike.

It was reported in a local newspaper that the federal government has agreed in principle for 15 per cent to 20 per cent water tariff for Syarikat Bekalan Air Selangor Sdn Bhd (Syabas).

Nonetheless, the report stated that the decision has yet to get the approval from Selangor state government as per the concession agreement.

To recap, Syabas was supposed to get a 37 per cent tariff hike in the financial year 20009 which was delayed due to a consolidation tussle.

"We still like Puncak Niaga for takeover angle and the fundamental lies on its concession agreement which could provide some push factor to bid for higher price during the consolidation process," Kenanga said in a research note today.

The research house said it believed that the proposed tariff hike is initiated by the federal government to mitigate further downgrade in credit rating for the water related bonds.

Syabas is a 70 per cent owned by Puncak Niaga.

Kenanga said the proposed tariff hike is positive for the sector as a whole but this proposal is not expected to resolve Puncak Niaga's financial issue in the long run.

Both Syarikat Pengeluar Air Selangor Sdn Bhd (Splash) and Konsortium Abbas Sdn Bhd made a claim for about RM250 million from Puncak Niaga for unpaid receiveable since late financial year 2008.

"We believe that should Syabas gets the tariff hike, it will add another RM18.5 million a month due to delay in tariff," Kenanga said.

Currently, the state's water assets are parked under four concessionaires comprising Puncak Niaga, Syabas, Splash and Konsortium Abbas. -- BERNAMA

TOPGLOV - RHB Research downgrades Top Glove to Underperform

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

KUALA LUMPUR: RHB Research has downgraded Top Glove Corp Bhd to underperform from market perform based on the weaker earnings outlook.

The research house said on Tuesday, Sept 28 it had cut its target PER to 12.5 times from 15 times and lowered the fair value to RM5.30 (from RM6.90).

Top Glove is expected to announce its full-year results on Oct 6. While it expects weaker numbers on-quarter, for the full-year, it sees on-year growth of approximately 40%-45% largely due to higher sales volume; and'' margin expansion on the back of better economies of scale.

On-quarter,'' RHB Research expects earnings to be weaker on the back of weaker revenue; and margin contraction largely due to time lag in passing on weakening US dollar.

'We have kept our FY10 earnings forecast unchanged for now. However, we have lowered our FY11 and FY12 forecasts by 10.4% and 9.7% after lowering our corresponding capacity utilisation rate assumptions,' it said.

At 2.32pm, Top Glove shares are unchanged at RM5.25. There were 645,800 shares transacted at prices ranging from RM5.21 to RM5.31.

HLBANK - Hong Leong Bank still a 'buy' at OSK

Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Research House: OSK



OSK Research Sdn Bhd is maintaining a "buy" call on Hong Leong Bank Bhd, saying, any share price weakness should be seen as an opportunity to accumulate.

OSK Research also said the completion of the deal with regard to the proposed takeover of EON Capital Bhd's assets and liabilities, would prompt it to raise the target price for HLBB to RM9.80.

"The acquisition will be EPS (earnings per share), ROE (return on equity) and book value-accretive to an enlarged HLBank, even without factoring in any merger synergies," OSK Research said in latest research note today.

It however, maintained a "neutral" call on EONCap shares.

EONCap yesterday received an approval of 97 per cent of the voting shares at an extraordinary general meeting (EGM) to consider the proposed acquisition of the group by HLBB for RM5.06 billion.

"The tabling of the offer at an EGM even before the court makes a decision, implies that the board is confident of securing the necessary majority support from shareholders, to see the deal through.

"It is also unfazed by Primus' pending legal suit, which would only serve to delay the deal," the research house said.

It said the completion of the HLBank-EONCap deal could only be ascertained and finalised by end-2010.

This is because the deal, is contingent on the final decision of the court hearing, which would only be made known by end-2010. - Bernama

ADVENTA - OSK Research maintains Buy on Adventa

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

KUALA LUMPUR: OSK Research maintains a Buy on Adventa with a target price of RM3.73.

It said on Tuesday, Sept 28, the glove maker's 3QFY10 results were within expectations.

Although this quarter's results were affected by continuously high latex prices and an unfavorable exchange rate, Adventa's 3QFY10 net profit leapt by 27.1% on-quarter, mainly contributed by the higher sales of surgical gloves, which fetch higher margin.

'Despite our recent downgrade on the rubber glove sector to Neutral, we continue to like the company's leadership in the surgical and dental gloves segment. Maintain Buy with a target price of RM3.73,' it said.

OSK Research said its target price of RM3.73 was based on a PER valuation of 12 times FY11 EPS. Although it was Neutral on the rubber glove sector, it continued to like the company's market leadership in surgical gloves as well as its niche in the dental glove segment.

'Currently, we observe that the higher end examination gloves have proven to be more resilient to normalization in demand, which we believe is the main factor hampering the performance of some of the listed rubber glove companies,' it said.

GAMUDA - HDBSVR reaffirms Buy on Gamuda, TP RM4.40

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

KUALA LUMPUR: Hwang DBS Vickers Research reaffirms its Buy rating on Gamuda and sum-of-parts derived target price of RM4.40 following the recent developments in the Selangor water industry.

The Edge FinancialDaily reported on Tuesday, Sept 28 that Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) will likely receive a 15%-20% water tariff hike which has been agreed by the federal government.

The Edge FD also said the increment would be a lifesaver for the water treatment players, Syarikat Pengeluar Air Sungai Selangor Holdings Bhd (Splash) and Konsortium Abass Sdn Bhd, which are both on the verge of defaulting on their debt commitments.

Hwang DBS Vickers Research said the 15%-20% water tariff hike was however lower than the stipulated 37% as per its concesssion agreement it was supposed to receive early last year.

'The tariff hike has not been approved by the Selangor State government which was against it given that Syabas had not fulfilled the majority of the terms of its concession agreement,' it said.

The research house said while this piece of news will be positive for SPLASH, Gamuda's 40%-owned water concession, it may still be difficult to get the Selangor State Government's approval.

SUNWAY - Sunway Holdings still rated a 'buy'

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



ECM Libra Investment Research is maintaining a "buy" call on Sunway Holdings Bhd in anticipation of strong earnings growth and more landbank acquisitions in the pipeline.

In a research note here today, ECM Libra said, it has raised Sunway's estimates for financial year 2011 and 2012 by 0.7 per cent to 7.5 per cent respectively, as the company remains the top "buy" for the construction sector.

"This is premised on a strong earnings growth of 67.6 per cent in financial year 2010 and undemanding forward price to earnings (P/E) valuation of 7.8 times, more landbank acquisitions in the pipeline as well as strength in securing overseas construction contracts," it said.

ECM Libra's target price, which based on 10 times price to earning on mid financial year earnings per share (EPS), remains unchanged at RM2.61 as the impact on financial year earnings is negligible.

Last Friday, Sunway Holdings entered into a joint venture (JV) agreement with Dasa Tourist Complex Pvt Ltd to undertake a mixed development project in Colombo, Sri Lanka.

The project is on a piece of 0.46 hectares (1.14 acres) freehold land with an expected gross development value (GDV) of RM250 million.

The development is for a 34-storey building comprising 180 residential and 70 commercial development units.

Sharing the same view, OSK Research is also maintaining a "buy" call on Sunway Holdings with a target price of RM2.52.- Bernama

YTLCMT - YTL Cement target price revised to RM4.20

Stock Name: YTLCMT
Company Name: YTL CEMENT BHD
Research House: ECMLIBRA



ECM Libra has increased its target price for YTL Cement to RM4.20 from RM3.98 previously, maintaining a "hold" call for the cement producer.

Recently, the group had offered to acquire the remaining 35.16 per cent stake not already owned by it for RM200 million in Perak-Hanjoong Simen Sdn Bhd.

"The acquisition would allow YTL Cement to integrate in full, Perak-Hanjoong's operations and recognise a larger portion of its profits," ECM Libra said in a research note today.

It said, the cement industry is likely to see better demand next year, as building activity picks up from large infrastructure contracts like the new low cost carrier terminal and the light rail transit extension project.

With two plants in Padang Rengas, Perak and a production capacity of 3 million metric tonnes per annum for clinker, and 3.4 million metric tonnes annually for cement, Perak-Hanjoong is the second largest cement producer in the country.

It also has a cement depot and packing plant near Batu Caves, Selangor with an annual capacity of 600,000 metric tonnes. - Bernama

TENAGA - Kenanga keeps 'buy' call on Tenaga

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: KENANGA



Kenanga Research is maintaining a "buy" call on Tenaga Nasional Bhd (TNB) with a fair value of RM10.47 based on a higher strong earnings forecast for financial year 2011.

The research company, in a statement today, said it maintained its forecast on TNB's net profit for the 2010 and 2011 financial years between RM3.46 billion and RM3.18 billion, respectively.

"However we do not expect overly significant contributions given the small stake," it said.

Kenanga said a potential tariff hike in Jan 2010 and an influx of foreign funds could lift TNB to a price earnings ratio (PER) of 15 times from its current FY10 and FY11 core PER of 13.5 times and 12.8 times.

It, however, maintained that any sharp re-rating would be short-lived unless a formalised formula for tariff was in place.

The research company said that it was pleased the utility company was actively using its excess funds to tap into new revenue streams.

"TNB can enjoy better returns given translation gains arising from the stronger Ringgit if the consortium takes out US dollar denominated debts.

The research note also said that TNB was currently discussing with an Egyptian conglomerate to set up a gas-fired power plant and hoped to complete negotiations before year-end. -- Bernama

TCHONG - OSK Research remains Overweight on auto sector

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

KUALA LUMPUR: OSK Research said the total industry volume (TIV) for vehicles in August got a boost from the rush in pre-Raya sales.

It said on Monday, Sept 27 that being suitable for the Hari Raya exodus, MPVs and SUV/4WDs were the flavour of the month although sales in the sedan segment continued to be encouraging.

'Growth was a strong 16.5% growth YTD but we expect sales to weaken going forward due to seasonality, and hence maintain our TIV projection at 585,719 units (9.1% on-year growth) for 2010,' it said.

Despite the weaker quarter, it expected earnings to be cushioned by the strong ringgit which have reached a record 13 year high.

OSK Research remained OVERWEIGHT on the Auto sector as its outlook is likely to remain favourable up to next year given that valuations attractive, with Tan Chong (BUY, TP RM7.29) being its top sector pick for its sound fundamentals and earnings trajectory in view of its growing exposure in the Indochina market, which is still at its infancy.

DXN - HLG Research: More upside for DXN

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

KUALA LUMPUR: HLG Research said the traded volume and share price of DXN HOLDINGS BHD [] had rallied since July 28 after it released its 1QFY11 results.

The research house said on Monday, Sept 27 that the traded volume and share price had since then jumped 5% and 16% on-week to 2.3 million'' shares a day and RM1.13, respectively.

Despite the share prices rally, it still likes DXN because of (1) its current business structure of controlling and effectively managing the supply chain - upstream and downstream; (2) its strong foothold in the international markets and ahead of many competitors in global expansion; (3) stable and strong financial position, sound management and strong dividend yield; (4) DXN's dividend policy of distributing at least 50% of its net profit to shareholders, to be paid on a quarterly basis; and (5) Possible earnings and dividend upgrade as management is guiding a stronger 2QFY11 results and overall FY11 performance.

'Pending the release of its 2Q results in mid October, we maintain our three-month technical target of RM1.36, implying a 8.2 times (about 25% discount to industryprice-to-earnings of 10.7 times) on 16.6 sen FY11 EPS. In terms of price-to-book, DXN is also trading at huge 65% discount to the industry's price-to-book of 3.4 times,' it said.

DXN tested its resistance upper boundary of its channel formation around RM1.15 last Friday, Sept 24.

Some selling pressure could emerge over the next few days but it stands a chance to break out of the channel.

Should the price swing above the resistance trend line, the research house expects the bulls to gain pace quickly. Thereafter, price should move a tad closer towards RM1.21 and RM1.30.

HLG Research said its positive stance was also premised on the improving technical landscape.

'Risk takers may buy now in anticipation for a breakout run while a more risk-averse investor may accumulate near its key SMAs support at RM1.10 (50% FR), RM1.05 (38.2% FR) and RM1.00. Cut loss below RM1,' it said.

GAMUDA - HDBSVR: Gamuda, Maintain Buy

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

KUALA LUMPUR: Hwang DBS Vickers Research keeps Gamuda high on its conviction pick and raised the target price to RM4.40.

In its report on Monday, Sept 27, it raised the target price to RM4.40 after factoring in the recent purchase of land along Jalan Pudu (RM600m gross development value), where Gamuda plans to build shop offices and service apartments.

At 19 times one-year forward PE and 2.1 times price/book value, valuations do not seem cheap, but they are at mean levels.

'We expect valuations to at least test 1SD above mean and for it to trade at premium valuations to its peers should it be awarded the mass rapid transit project,' it said.

Hwang DBS Vickers Research said in the two-months leading to the award of its RM12.5bn double tracking project, it traded at average 1-year forward PE of 29 times and peaked at 39 times a month later.

Gamuda's investability will also gain traction having replaced Tanjong in the 30-stock FBM KLCI.