IJM - IJM Corp upping its stake in Indian highway

Stock Name: IJM
Company Name: IJM CORPORATION BHD
Research House: MIDF

IJM Corp Bhd
(Oct 6, RM5.28)
Maintain neutral at RM5.25 with target price of RM5.24: IJM Group has entered into sale & purchase agreements to acquire the ordinary and preference shares in CIDB Inventures Sdn Bhd (CIDBI) and Swarna Tollway Pte Ltd (STPL) from the MTD Group for a total consideration of RM94 million.

CIDBI is principally involved in the construction, development, operation and management of highway projects in India. It was formed to participate in a 30-year concession agreement with the National Highways Authority of India for improvement and upgrading of two highway sections in Andhra Pradesh: (i) Tada to Nellore Section (NH-5); and (ii) Nandigama to Ibrahimpatnam section (NH-9). For FY09, CIDBI recorded a net loss RM940,000.

The core activity of STPL is to operate, maintain and collect toll at NH-5 and NH-9. STPL commenced toll collection upon completion of construction of the project in 2004, and the 30-year concession period will expire in September 2031. For FY10, STPL recorded a net loss of about RM6.5 million.

Upon the success of this deal, estimated sometime in 1Q11, IJM's stake in CIDBI and STPL will increase to 78.14% and 76.44% respectively.

There could be marginal impact on IJM Group's earnings due to greater exposures in loss-making entities in the near term. However, prospects are more promising as India's vehicle population is expected to continue showing robust growth.

We make no change to our forecast and maintain 'neutral'. At the current level, the stock is trading at FY11 PER of 18 times and FY12 PER of 16 times, a premium to the sector average of 14 times. Our target price of RM5.24, pegged at 18 times PER (in line with its historical PER), suggests potential total returns of 1% (including dividend yield of 1.2%). ' MIDF Research, Oct 6


This article appeared in The Edge Financial Daily, October 7, 2010.

SPSETIA - S P Setia achieving full-year sales target

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: INTER PACIFIC

S P Setia Bhd
(Oct 6, RM4.80)
Recommend neutral at RM4.50 with target price of RM4.94: S P Setia's unbilled sales stand at about RM1.8 billion, about 1.4 times the revenue contribution from the property segment in FY09. We like S P Setia because: (i) its diversified property developments which include overseas ventures; and (ii) its net gearing ratio of 0.29 times justifies its financial strength.

A comfortable gearing ratio will support future landbanking as well as possible participation in the government's public-private partnership projects. We recommend 'neutral' with our target price at RM4.94, which is a 5% premium over our RNAV-based valuation. We believed S P Setia's position as one of the superior brands among developers warrants such a premium.

Strong sales momentum was sustained in the 10th month of FY10, with RM1.95 billion sales achieved as at Aug 31, 2010. Cumulative sales of RM1.95 billion exceeded FY09 full-year sales of RM1.65 billion by 18%. Projects in the central region, which comprise Setia Alam, Setia Eco Park, Setia Sky Residence, and Setia Walk, contributed to 67% of total sales. The southern region, which mainly concentrated on Johor projects, and northern region contributed 27% and 7% respectively. There are unlikely to be new launches before the financial year ends in October. Nonetheless, we believe S P Setia is well in line to achieve its full-year sales target of RM2 billion via the unsold units of existing launches. We estimate that the unsold launched units could generate sales of about RM230 million.

During the economic downturn in CY09, S P Setia embarked on innovative measures to capture a market share in the luxury high-rise and integrated commercial sector and further consolidation in the landed residential segment via promotional campaigns such as the 5:95 campaign.

On the flip side, revenue sustained in FY09 was at the expense of margin erosion. Normalised net earnings year-to-date in 3QFY10 were about 12.2%, which has shown no sign of improvement since FY09. ''

Moving forward into FY11, we expect its net earnings to improve, underpinned by higher property prices in FY10 following the expiration of the 5:95 campaign which will restore product margins. We have taken this adjustment into account in our forecast and margins. ' Inter-Pacific Research, Oct 6


This article appeared in The Edge Financial Daily, October 7, 2010.

TOPGLOV - Top Glove - Medi-Flex ends year in the black

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

Top Glove Corp Bhd
(Oct 6, RM5.69)
Maintain underperform at RM5.66 with fair value of RM5.30: Medi-Flex (not rated), reported on Oct 5 full-year core net profit of RM6.6 million, a turnaround from a core net loss of RM4.6 million in FY09.

We believe the improvement in earnings was largely due to higher utilisation rates, which resulted in earnings before interest and tax (Ebit) margin expansion, notwithstanding higher latex cost (49.3% year-on-year) and weakening US dollar against the ringgit (-7% y-o-y).

Half-on-half'' (h-o-h), revenue rose 17% on the back of a higher average utilisation rate of 90% versus 85% in 1H10, as Medi-Flex switched from the production of clean room gloves to medical gloves for Top Glove's existing customers.

However, despite the higher revenue, 2H10's net profit fell 25.2% h-o-h as a result of a margin contraction due to the time lag in passing on the higher latex cost (+26.4% h-o-h) and weakening US dollar (-5.6% h-o-h).

We remain cautious on the near-term outlook for glove manufacturers on the back of: (i) slowdown in demand for rubber gloves as customers opt to run down their inventory levels due to the high latex price; (ii) high latex price; and (iii) weakening US dollar against ringgit (by around 10.5% year-to-date). We believe the slowdown in orders would adversely affect Top Glove. It will be harder to adjust prices to pass on higher costs to customers.

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

We have left our earnings forecasts unchanged for now. We have retained both our indicative fair value of RM5.30 (based on target CY11 PER of 12.5 times) and 'underperform' call on the stock. ' RHB Research Institute, Oct 6


This article appeared in The Edge Financial Daily, October 7, 2010.

BURSA - Bursa stepping up the game

Stock Name: BURSA
Company Name: BURSA MALAYSIA BHD
Research House: HWANGDBS

Bursa Malaysia Bhd
(Oct 6, RM8.24)
Upgrade to buy from fully valued at RM8.20 with target price raised to RM9.60 (from RM6.20): The capital market would be a major source of funding for the US$444 billion (RM1.4 trillion) worth of investments identified under the Economic Transformation Programme (ETP).

Government-linked companies have been reducing stakes to increase free float and more GLCs will be listed.

The stockbroking industry will be fully liberalised by 2015, and there are plans for strategic alliances with regional exchanges such as Hong Kong and Singapore. These should improve trading volumes and values, and ultimately velocity, a key re-rating catalyst for Bursa.

Bursa remains far behind in terms of velocity (31% against SGX's 53%), partly due to lower liquidity and fewer product offerings.

SGX has 21 derivatives products while Bursa has 11, of which only KLCI and CPO Futures are actively traded. However, the CME partnership would globalise the Malaysian CPO futures market and boost derivatives revenue. We expect trading interest to improve and the velocity gap should narrow with Malaysia's derivatives products now traded on CME's Globex platform, more product offerings, higher free floats, and listing companies with larger market caps (planned initial public offering of two Petronas units that can increase total market cap for Malaysian stocks by 4%). We raise our FY11/12F earnings by 6% to 9% after raising average trading values by 8% to13%.

We upgrade Bursa to 'buy' and raise our target price (TP) to RM9.60. Our TP is based on discount dividend model (DDM) valuation with the following assumptions: (i) 6% long-term growth rate, (ii) 11% cost of equity, and (iii) 90% dividend payout.

Bursa has delivered dividend payouts of at least 90% since listing in 2005.

Given its consistent dividend track record, we think the DDM would be a more suitable valuation base and given its excess cash position, we do not discount the possibility of special dividends in the future. ' HwangDBS Vickers Research, Oct 6


This article appeared in The Edge Financial Daily, October 7, 2010.

JCY - JCY extends losses on cautious outlook

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

KUALA LUMPUR: JCY International Bhd's share price extended its losses in late afternoon trade on Thursday, Oct 7 as investors maintained their cautious outlook for the hard disk drive manufacturer.

At 3.34pm, JCY was down three sen to 94 sen. It was actively traded with 12.79 million shares done.

The FBM KLCI slipped 2.65 points to 1,476.96. Turnover was 515.38 million shares valued at RM887.64 million. The broader market was weaker with losers beating gainers 430 to 221 and 295 stocks unchanged.

RHB Research had in a report issued on Tuesday, Oct 5 said that in the near term, it remained cautious on the sector and reiterated its Neutral call.

It cited the risks arising from: 1) persistent weak demand for PCs; 2) Overcapacity that will put downward pressure on average selling prices and ultimately margins; and 3) weaker-than-expected consumer spending due to the austerity measures in the Euro zone and uneven economic recovery in the U.S.

The research house maintained its forecast for JCY and fair value of RM1.32.

PBBANK - 'Public Bank needs to conserve capital'

Stock Name: PBBANK
Company Name: PUBLIC BANK BHD
Research House: KENANGA



Public Bank Bhd (PBB) needs to conserve capital not just to comply with the potential new cyclical buffer but also to support its business growth, according to Kenanga Research.

"If not, both credit growth and dividend payout could be restricted by capital capacity," it said in a research note today.

Kenanga Research has downgraded Public Bank to "hold" from "buy" but the target price was maintained at RM13.

The bank management has not ruled out the possibility of raising core capital if Bank Negara Malaysia imposes more stringent capital requirements, such as a zero to 2.5 per cent cyclical buffer, the research house said.

Public Bank has one of the lowest core capital ratios among local banks with only 7.3 per cent at group level and six per cent at the bank level, it said.

Kenanga Research said hire purchase's growth is encouraging and should continue to see strong demand for non-national car sales as more new models are launched.

Public Bank's hire purchase loan approval rate of 22 per cent year-on-year is sustainable, it said.

In a preliminary guidance for financial yeas 2011, Public Bank is targeting a loan growth of 15 per cent versus industry outlook of 12 per cent, Kenanga Research said.

"With these, we estimate Public Bank''s earning growth will be moderating going forward and has passed its peak," it said. -- Bernama

AXIATA - Axiata unit in Singapore to get capacity boost

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



Axiata Group Bhd's associate, M1 Ltd, will receive a capacity boost in Singapore following additional spectrum alloted to it and the two other existing telecommunications companies, says MIDF Research.

Singapore's Infocomm Development Authority (IDA) has announced it is alloting additional spectrum to the three existing telecommunications companies and foregoing the auction of a fourth 3G spectrum.

However, MIDF said it does not expect the extra spectrum for M1 to have a significant impact on Axiata's net profit as it is only at an associate level.

For first half 2010, M1 contributed only three per cent to net profit and it is expected to increase between four and five per cent at most, given the additional spectrum.

The IDA's move would not only be beneficial for M1 as it allows better offerings of its services, especially in the smartphone market and also means there would be no new entrant into a saturated market, said MIDF.

"This would negate any pressure on M1's margin," MIDF said in its research note today.

It also said M1 would now be able to offer pay-TV, competing against other Singaporean telcos, already offering the service.

This is due to the new ruling by Singapore's Media Development Authority, which requires pay-TV providers to share previously deemed exclusive content.

"We expect that growth for Axiata will come from its other overseas markets, especially, Indonesia and Bangladesh," it added.

MIDF maintained its 'buy' recommendation for Axiata due to its diversified exposure and growth potential. - Bernama

BSTEAD - Boustead not short of catalysts: ECM

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



ECM Libra Investment Research believes Boustead Holdings Bhd is not short of catalysts.

In a research note today, ECMLibra said the only thing about the company is that its timing of corporate activities and contracts can be quite vague.

"We are banking on a few items to really drive earnings going
forward.

"They are, the sale of loss-making Sumatran estates, the award of another tranche of vessels for the Royal Malaysian Navy worth probably in excess of RM5 billion and new land in Greater KL arising from Lembaga Tabung Angkatan Tentera's (LTAT)involvement in the government land privatisation programme to drive property division.

"With Tan Sri Lodin Wok Kamaruddin, deputy chairman and group managing director of Boustead Holdings mentioning a private placement several times already this year, in efforts to boost liquidity, we feel this exercise may see execution soon.

"We see no need to make changes to our estimates for now," the research firm added.

To capture the recently improved sentiment on Boustead, ECMLibra is raising the target price of the stock to RM6.70 compared to RM4.48 previously.

The research firm also upgraded Boustead to a "buy" from a "hold". -- Bernama

TOPGLOV - Top Glove downgraded at MIDF

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



MIDF Research has downgraded Top Glove Corporation Bhd to "neutral" from a "buy", after it revised downward the company's earnings forecast for FY11 by 11 per cent.

Its also cut Top Glove's target price to RM5.14 from RM7.10 previously.

"This is to factor in the risks due to glove demand normalisation, excess production capacity and declining cost-passing power.

"Note that our target price excludes the net cash per share of 49 sen or any impact on earnings due to any potential acquisition," the research house noted.

Given normalised glove demand and excess glove production capacity, MIDF said it expect the company's cost-passing ability and hence earnings margin, to continue to be under pressure moving forward.

Its margin will also be dragged down by a persistently high latex price and weaker US dollar.

"At the same time, Top Glove's management has indicated that consolidation might also take place among industry players.

"From a positive angle, we believe this could be the opportunity for Top Glove to utilise its huge net cash pile of RM300 million," it added.

Meanwhile, OSK Research said it its maintaining a "neutral" review on Top Glove with its target price unchanged at RM6.06 as its expects the company's 1QFY11 to not be very different from the 4QFY10 performance.

"This is unless, there is significant improvement in two factors over October and November. These are, a lower latex price and the strengthening of the US dollar against the ringgit.

"In our view, we are neutral on the 1QFY11 quarter outlook and we think the latex price and exchange rate will continue to be unfavorable. But this would be offset by the stocking up activities by its customers," it added.

Top Glove yesterday reported a net profit of RM45.06 million in the fourth quarter ended Aug 31, 2010, down 20.6 per cent from RM56.81 million a year ago.

Revenue, however was 27.5 per higher at RM541.38 million from RM424.51 million previously. -- Bernama

TM - HLG Research: Potential share overhang for Axiata, TM?

Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Research House: HLG

KUALA LUMPUR: HLG Research said there were recent concerns of a potential overhang on Axiata Group Bhd and TELEKOM MALAYSIA BHD []'s share price from a 2006 issued Khazanah Rafflesia Sukuk which is due to mature in Oct 2011.

In a research note issued on Thursday, Oct 7, it said the Rafflesia Sukuk is currently trading at a 13.7% premium to its dissolution price.

'Sukuk holders have the option of converting the Sukuk to Axiata and TM shares (and selling in the open market). At current share prices, Sukuk holders would have a 15% conversion gain over the dissolution price,' it said.

HLG Research said given the positive outlook for MYR appreciation, investors may choose to maintain their shareholdings to realize additional forex gains.

High dividends and good prospects for TM and Axiata may attract investors to maintain their holdings with these companies.

'We maintain our BUY calls on Axiata and TM and leave our forecasts unchanged. We remain positive on these two stocks and view any price weakness from the overhang as an opportunity to accumulate,' it said.

AXIATA - HLG Research: Potential share overhang for Axiata, TM?

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

KUALA LUMPUR: HLG Research said there were recent concerns of a potential overhang on Axiata Group Bhd and TELEKOM MALAYSIA BHD []'s share price from a 2006 issued Khazanah Rafflesia Sukuk which is due to mature in Oct 2011.

In a research note issued on Thursday, Oct 7, it said the Rafflesia Sukuk is currently trading at a 13.7% premium to its dissolution price.

'Sukuk holders have the option of converting the Sukuk to Axiata and TM shares (and selling in the open market). At current share prices, Sukuk holders would have a 15% conversion gain over the dissolution price,' it said.

HLG Research said given the positive outlook for MYR appreciation, investors may choose to maintain their shareholdings to realize additional forex gains.

High dividends and good prospects for TM and Axiata may attract investors to maintain their holdings with these companies.

'We maintain our BUY calls on Axiata and TM and leave our forecasts unchanged. We remain positive on these two stocks and view any price weakness from the overhang as an opportunity to accumulate,' it said.

MUDAJYA - Mudajaya advances after OSK report

Stock Name: MUDAJYA
Company Name: MUDAJAYA GROUP BHD
Research House: OSK



Mudajaya Group Bhd, a builder, advanced 2 per cent to RM4.53,
on course for its highest close since August 10.

OSK Research Sdn Bhd raised its rating for Malaysia's building industry to "overweight" from "neutral," citing Mudajaya among its top picks.

The company will benefit from more construction contracts in coming months, said OSK analyst Jeremy Goh in the report. - Bloomberg

TOPGLOV - Top Glove raised to 'buy' at Citigroup

Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: CITI GROUP



Top Glove Corp, the world's largest rubber-glove maker, was raised to "buy" from "hold" at Citigroup Inc because the recent slide in the shares has priced in the "negative" impact of the stronger ringgit and high latex prices on earnings.

The company's outlook is expected to be better from the second quarter of its financial year 2011, Fiona Leong, an analyst at Citigroup, said in a report dated Oct. 6.

The share-price estimate was cut to RM6.70 from RM7.25. -- Bloomberg

TOPGLOV - AmResearch maintains Hold on Top Glove

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

KUALA LUMPUR: AmResearch maintains HOLD on Top Glove Corp Bhd, but with lower fair value of RM5.40/share based on a target PE of 13x CY11F earnings.

It said on Thursday, Oct 7 that notwithstanding FY10 net profit, which met its expectations, it'' maintained its long-standing negative stance in view of increased earnings downside risk due to overcapacity amid strong headwinds in high latex cost and a weak US dollar: ringgit exchange rate.

'We caution that earnings have yet to bottom out. As expected, Top Glove reported a sequentially weaker net profit of RM37mil for 4Q. We understand Top Glove would be deferring capacity expansion of Factory 23 (F23) by a possible five to six months to November 2011,' it said.

While the deferment may not impact AmResearch's earnings forecast significantly, it underlies its view of an overcapacity situation within the industry.

DIALOG - AmResearch maintains Hold on Dialog, FV RM1.32

Stock Name: DIALOG
Company Name: DIALOG GROUP BHD
Research House: AMMB

KUALA LUMPUR: AmResearch said DIALOG GROUP BHD [] currently trades at a fair CY11F PE of 15x, at a premium to the oil & gas sector's 10x, and offers decent dividend yields at 3%.

'We maintain our HOLD call on Dialog with an unchanged SOP-derived fair value of RM1.32/share,' it said on Thursday, Oct 7.

On Wednesday, Dialog subsidiary, Dialog E&C Sdn Bhd secured a RM60.66 million contract from Petronas Carigali Sdn Bhd to build and commission a new condensate tank and associated facilities at Bintulu crude oil terminal.

The project will commence immediately and with completion within 20 months.

''

DNP - DNP leveraging on 'Wing Tai' brand name

Stock Name: DNP
Company Name: DNP HOLDINGS BHD
Research House: HWANGDBS

DNP Holdings Bhd
(Oct 5, RM1.78)
Maintain buy at RM1.72 with target price of RM2.25: DNP is seeking to ride on the 'Wing Tai' brand name. It is requesting shareholder approval at its annual general meeting in November to rebrand itself.

The rebranding exercise is a re-rating catalyst as DNP would be able to leverage more on parent Wing Tai's strong brand name, global marketing network, and institutional following. Wing Tai has started to buy DNP shares again after a hiatus of more than three years, acquiring 7.5 million shares (2.3%) on the open market since August to raise its stake to 55.8%. We believe Wing Tai sees deep value in DNP, given its attractive 0.7 times P/BV and 0.46 times P/RNAV against the sector's one time and 0.61 time, respectively. As one of the largest landowners around KLCC (4.9 acres), DNP will benefit from rising land values and the government's plan to turn Kuala Lumpur into a more livable and vibrant city.

We see the potential for strong earnings growth (three-year CAGR of 48%), supported by four high-end launches worth RM2 billion: (i) Verticas Residensi at Bukit Ceylon (Tower B: 15% take-up at RM1,100 psf; Tower A: 70% at RM950 psf); (ii) U-Thant condos (average selling price (ASP): RM1,100 psf, launch-ready); (iii) Le Nouvel luxury condos opposite Petronas Twin Towers/diagonally across from upcoming Four Seasons (ASP: RM2,000 psf, expected launch 2H11); and (iv) Sunway link and semi-detached houses (expected launch 1H11). We understand DNP has received approval to resume the development of Sering Ukay Phase 3 (semi-detached, bungalows), which has been stalled due to concerns over hillside projects (possible write back of RM37 million impairment charge booked in FY08 not factored into earnings).

DNP is actively seeking more land in the Klang Valley, facilitated by a strong balance sheet (almost net cash) and operating cash flows. Its investment property at Ampang, Lanson Place Condo 8 (three-acre tract), also has redevelopment potential. ' HwangDBS Vickers Research, Oct 5


This article appeared in The Edge Financial Daily, October 6, 2010.

VS - V S Industry's recovery gains traction

Stock Name: VS
Company Name: V.S INDUSTRY BHD
Research House: KENANGA

V S'' Industry Bhd
(Oct 5, RM1.46)
Maintain buy at RM1.46 with revised target price of RM1.85 (from RM1.52): 12M10 revenue jumped 10% to RM800 million while net was up 365% to RM24.3 million mainly as a result of better associate's performance.

Improved demand and rising economies of scale had all helped to underpin a better FY10 which was some 7% higher than our forecast at the net.

Quarter-on-quarter, revenue jumped 30% on the back of higher orders from key customers namely Dyson as well encouraging uptick from its Indonesian EMS operation, mitigated however by higher provisioning associated with its coal operation in Indonesia.

Year-on-year, revenue surged 45% while net was up nearly eight-folds in the absence of substantial associate losses and improved demand from its key EMS clients.

Management is guiding positively on the back of encouraging demand from key customers. We gather from management that order visibility is now a good six months and with new customers on-board, FY11 should be a positive year.

A surprising final five sen single-tier dividend brings the total dividend to 6.5 sen for FY10 which is higher than our forecast'' of 3.2 sen.

Payout of 48% is not a problem given the relatively low gearing of 27% coupled with strong operational cash flow of RM47 million.

Upping FY11F by 16% to RM39.4 million and introducing our FY12F. Raising target price to RM1.85 on eight times CY11F (from RM1.52 on eight times FY10F previously).

Improving prospects on the back of the current global economic uptick, absence of further provisioning for their Indonesian mining project coupled with better associate performance should be potential rerating catalysts.

Yield of 6% should help to underpin any substantial downside risks. Buy maintained. ' Kenanga IB Research, Oct 4


This article appeared in The Edge Financial Daily, October 6, 2010.

UMW - UMW's Naga 1 gets extended

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

UMW Holdings Bhd
(Oct 5, RM6.75)
Maintain market perform at RM6.73 with fair value of RM7.27: The company announced on Oct 4 that its 85%-owned Naga One semi-submersible rig (semi-sub) contract with Petronas Carigali Sdn Bhd (PSCB) has been extended for another five years at a total contract value of US$250 million (RM778 million). The previous contract (signed in June 2006) for 20 firm wells is expected to be completed by end-2010. The new contract has yet to stipulate the number of new wells.

The new contract translates to a per day charter rate of US$136,000, 63.1% higher than the previous US$84,000 guided for by management for the initial contract. However, the rate is still below the market rate for semi-subs, which is in the range of US$300,000 to US$400,000 per day depending on the rig zone. The significant discount could be because the charter is a long-term one, instead of the current short-term rolling one.

While the extension is unsurprising, its duration is longer than the two-year timeline the management had guided for. Given the uncertainty the division has faced thus far, the long-term charter is a welcome change. Even though it is significantly below the average market rate, it will provide some stability to the division's earnings.

The company announced that Naga Two reached its destination at the Ujung Pangkah field on Sept 20, while the technical assistance cooperation agreement in relation to the rig is expected to be concluded by November. Naga Three is close to delivery, however, contract negotiations are still ongoing and management hopes it can be chartered out by FY11.

We maintain our forecasts at this juncture, given that our earnings estimates already incorporate around US$130,000 per day for the charter rate from Naga One. In the near term, the oil and gas division is likely to be weak unless the company can turn around the other associates significantly by FY11.

We believe the stock is close to fairly valued at this juncture as the moderation in auto sales in 2HFY10 could spill over to FY11 as well. We will review our call on the stock should automotive sales prove to be stronger than our estimates. As such, although we are maintaining our fair valuations at RM7.27 per share, we have downgraded the stock to 'market perform' in our last strategy piece. ' RHB Research Institute, Oct 5


This article appeared in The Edge Financial Daily, October 6, 2010.

QL - QL Resources expanding downstream in palm oil

Stock Name: QL
Company Name: QL RESOURCES BHD
Research House: OSK

QL Resources Bhd
(Oct 5, RM4.75)
Recommend buy at RM4.68 with higher target price of RM5.28 (from RM5.20): QL proposes to acquire 40.51% equity interest in Boilermech Sdn Bhd for a total cash consideration of RM29.2 million.

Boilermech is primarily engaged in the business of design, manufacturing, installation and commissioning of biomass boilers (industrial and power generation machinery used to generate steam using biomass fuel exclusively for power generation and sterilisation of fresh fruit bunches in the palm oil industry), manufacturing and supply of boiler ancillary equipment and major repairs of existing boilers. Boilermech began operations in the early 1980s as a boiler part supplier and boiler repair company and has since established itself as an industrial boiler and boiler auxiliary equipment manufacturer. Aside from Malaysia, it has a presence in Indonesia and other palm oil producing countries such as Thailand, Myanmar, Ivory Coast and Cambodia. As at April, Boilermech recorded a revenue and net profit of RM98.8 million and RM12.3 million, respectively.

Based on Boilermech's FY10 net profit of RM12.3 million, QL is acquiring its 40.5% stake in Boilermech at 5.9 times PER. While we are unable to comment on the valuation of the acquisition due to lack of peer comparison, we believe that QL has conducted sufficient feasibility studies on the prospects of the palm oil industry before proceeding with the acquisition.

Additionally, management has indicated that acquisition targets are constantly tabled to QL, but the group only thoroughly considers those which would benefit and suit QL the best. It is worth noting that QL is trading at a FY10 PER of 17.4 times, and therefore the acquisition is definitely value enhancing. QL intends to fund the acquisition via internally generated funds. As at June, the company had total cash of RM70.7 million.

The investment in Boilermech complements QL's strategy to expand its renewable biomass energy business. We see this acquisition as a further extension of the group's involvement in the business. The group has developed palm pellet technology that converts empty fruit bunches (EFB), a waste product of palm oil processing, into palm pellets which can be used as fuel for biomass plants. The acquisition also allows QL to: (i) acquire technology and know-how in agricultural biomass power and heat generation; and (ii) enhance its palm oil milling margin, as the group could possibly source boilers from its associate at a cheaper price. On the whole, we are positive on this acquisition as we believe the prospects of the biomass energy sector are bright given the increasing demand for renewable energy due to the high cost and shortage of fossil fuel.

We raise our FY11 and FY12 earnings forecast by 2.7% to 3.1% to RM126 million and RM139.2 million respectively, taking into account the associate contribution from Boilermech and reduced interest income. Our target price is raised to RM5.28 from RM5.20. ' OSK Investment Research, Oct 5


This article appeared in The Edge Financial Daily, October 6, 2010.

IJM - IJM downgraded to 'underperform'

Stock Name: IJM
Company Name: IJM CORPORATION BHD
Research House: RHB



IJM Corp, a Malaysian construction and property group, was downgraded to "underperform" from "market perform" at RHB Research Institute Sdn Bhd in light of its recent share-price rally.

Its fair value was maintained at RM5.01, RHB said in a report today. That's below yesterday's closing price of RM5.25. -- Bloomberg

BURSA - Bursa Malaysia raised to 'buy'

Stock Name: BURSA
Company Name: BURSA MALAYSIA BHD
Research House: HWANGDBS



Bursa Malaysia Bhd was raised to "buy" from "fully valued" at HwangDBS Vickers Research Sdn Bhd, which said structural changes will "rev up" capital markets, boosting trading volumes and values.

The share-price estimate was increased to RM9.60 from RM6.20, Hon Seow Mee, an analyst at HwangDBS said in a report today.

Bursa shares rose 0.5 per cent to RM8.24, set for its highest close since November 19. - Bloomberg

AXIATA - Axiata up as Macquarie raises share forecast

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



Axiata Group Bhd, owner of Malaysia's second-biggest mobile-phone operator, rose to a one-week high in Kuala Lumpur trading after Macquarie Group Ltd raised its share price forecast to RM5.72.

The stock gained 1.6 per cent to RM4.50 at 9.15 am local time, set for its highest close since September 27. - Bloomberg

PETGAS - Petronas Gas raised to 'buy' at Maybank

Stock Name: PETGAS
Company Name: PETRONAS GAS BHD
Research House: MAYBANK



Petronas Gas Bhd was raised to "buy" from "hold" at Maybank Investment Bank Bhd, which said the natural gas distributor is a major beneficiary as Malaysia liberalizes its gas supply and prices.

The share-price estimate was increased to RM12.80 from RM10.40, Andrew Lee, an analyst at Maybank Investment, said in a report today. - Bloomberg

QL - Kenanga keeps 'buy' call on QL Res

Stock Name: QL
Company Name: QL RESOURCES BHD
Research House: KENANGA



Kenanga Research today revised upward the FY11's net profit forecast on QL Resources Bhd by 1.5 per cent to RM127.6 million from RM125.5 million previously.

In a note today, the research house said QL Resources is expected to see higher contributions from its new associates', Lay Hong Bhd and Biolermech Sdn Bhd.

The company recently had proposed to acquire 40.51 per cent in Biolermech.

Kenanga said Biolermech is expected to strongly compliment QL's renewable energy project in Tawau, as it provides a wider range of biomass energy solutions to various industrial players, with both biomass feedstock and boilers.

Furthermore, QL Resources also stands to benefit from Boilermech''s market presence in Indonesia, Thailand, Myanmar, the Ivory Coast and Cambodia and also a steady contribution at the associate level.

Kenanga maintained a buy review on QL Resources at a target price of RM5.15. - Bernama

PLUS - AmResearch maintains Overweight on toll concessionaires

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

KUALA LUMPUR: AmResearch is maintaining its Overweight call on the toll concessions sector, with PLUS (BUY, FV=RM4.72/share) as its top pick.

'Privatisation manoeuvre aside, we continue to like PLUS as a proxy to a recovering Malaysian economy ' backed by its solid dividend yield of 4%-6%. For the first eight months of 2010, traffic along the main PLUS highway grew by a robust 7.7% YoY,' it said on Wednesday, Oct 6.

AmResearch said an added kicker would come from PLUS' broadening footprint into potentially value-accretive overseas investments, notably in India.

This is further solidified by the group's successful joint bid for a highway project in Gujerat worth 950 Crores (about RM660mil) with IDFC Projects Ltd ' its third highway concession in India.

GENTING - AmResearch maintains Overweight on Genting

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

KUALA LUMPUR: AmResearch is maintaining an Overweight stance on the gaming sector and it has a BUY recommendation on GENTING BHD [] for casino exposure to Malaysia, Singapore, Britain and the US.

It said on Wednesday, Oct 6 that recently, there were reports that international private equity firms and a consortium led by the Cheng family are eyeing Tanjong plc's gaming business.

CVC Capital Partners Ltd owns 49% of Magnum Corporation Bhd and talk of CVC exiting its investment in Magnum via an IPO has been around for some time.

AmResearch said Tanjong's NFO division is the smallest among the three listed number forecasting operators in the country. It only has 347 outlets versus BERJAYA SPORTS TOTO BHD []'s 681 outlets and Magnum Corporation's 485 branches.

Despite this, Tanjong's NFO business is a consistent cash-generating division. Cash from the NFO division is used to pay almost 75% to 85% of Tanjong's dividends every year.

'We value Tanjong's NFO business at a DCF-based value of RM2.6 billion. The division recorded EBIT of RM235mil to RM237mil annually from FYE1/08-FYE1/10,' it said.

However, the thorn in Tanjong's gaming business is the RTO (racing totalisator) division. The division has been loss-making since FYE1/00. Losses at the RTO division widened considerably from RM27mil in FYE1/09 to RM66 million'' in FYE1/10 due to mounting expenses.

Previously, Tanjong said that it is discussing with the turf clubs and Ministry of Finance to restructure the division.

'It is not known if Tanjong would decide to sell just the NFO division or the entire gaming business in totality. We believe that if Tanjong wants to concentrate on building its power portfolio, then the group would be interested to sell low-yielding assets like RTO or Tropical Islands Resort. Another non-power asset, which Tanjong owns, is the TGV cinemas,' it said.

AmResearch said cashflows from the disposal of the non-power assets can be used to acquire more power assets overseas.

"A reason why Tanjong's acquisition of overseas power assets has been slow is because of the difficulty in raising funds due to the credit crunch in 2008," it said.

QL - OSK Research maintains Buy on QL Resources, RM5.28

Stock Name: QL
Company Name: QL RESOURCES BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its earnings forecast and Buy recommendation on QL Resources at RM5.28.

The research house said on Wednesday, Oct 6 that following an analyst briefing on Tuesday, 'we feel that QL is optimistic on the prospects of the biomass renewable energy industry given Malaysia's efforts to promote green energy'.

To recap, the group proposed to acquire 40.51% of Boilermech which is primarily involved in the manufacturing and distribution of biomass boilers.

OSK Research said aside from its palm pellet TECHNOLOGY [] which could convert empty fruit bunches (EFB) to palm pellets, the group is also currently running trials on another technology to generate energy from palm effluent for in-house usage.

'Additionally, QL is also exploring into conversion of palm oil waste to energy via gasification. We maintain our earnings forecast and BUY recommendation on QL at RM5.28,' it said.

GAMUDA - Construction continues to ride on news flow

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

Construction sector
Maintain overweight: We are upbeat on construction stocks as we believe they will continue to generally outperform the market from 4Q10, buoyed by news flow from: (i) The infrastructure development for the Greater KL National Key Economic Area (NKEA) under the Economic Transformation Programme (ETP), particularly, the RM36 billion MRT project; and (ii) The RM7 billion Ampang and Kelana Jaya LRT line extension project.

In addition, news flow can also come from other public projects earmarked for implementation under the 10th Malaysia Plan, 'high impact' projects worth RM62.7 billion 'under consideration' to be implemented via private finance initiative (PFI), backed by a RM20 billion 'facilitation fund'.

Also, the market is likely to react positively to the announcement of the formal awards of federal land parcels to 'master developers' and the subsequent farming out of the subdivided smaller land parcels to various developers.

Given the scale of the projects and that most construction boys are already involved in property business, they are likely to get a piece of the action.

We are raising our indicative fair value of Malaysian Resources Corp Bhd by 28% from RM1.94 to RM2.49, largely to reflect higher margins from its KL Sentral property project.

Our top 'tactical' pick for the sector is Gamuda ('trading buy'; FV = RM4.51) as we believe its share price will be buoyed by the sustained news flow from the RM36 billion KL MRT project. Our top 'value' pick for the sector is Sunway ('outperform', FV = RM2.35) due to its undemanding valuations, coupled with its strong earnings visibility stemming from its firm construction margins and growing non-construction profits. ' RHB Research Institute, Oct 4


This article appeared on the Live it! page, The Edge Financial Daily, October 5, 2010.

SUNWAY - Construction continues to ride on news flow

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

Construction sector
Maintain overweight: We are upbeat on construction stocks as we believe they will continue to generally outperform the market from 4Q10, buoyed by news flow from: (i) The infrastructure development for the Greater KL National Key Economic Area (NKEA) under the Economic Transformation Programme (ETP), particularly, the RM36 billion MRT project; and (ii) The RM7 billion Ampang and Kelana Jaya LRT line extension project.

In addition, news flow can also come from other public projects earmarked for implementation under the 10th Malaysia Plan, 'high impact' projects worth RM62.7 billion 'under consideration' to be implemented via private finance initiative (PFI), backed by a RM20 billion 'facilitation fund'.

Also, the market is likely to react positively to the announcement of the formal awards of federal land parcels to 'master developers' and the subsequent farming out of the subdivided smaller land parcels to various developers.

Given the scale of the projects and that most construction boys are already involved in property business, they are likely to get a piece of the action.

We are raising our indicative fair value of Malaysian Resources Corp Bhd by 28% from RM1.94 to RM2.49, largely to reflect higher margins from its KL Sentral property project.

Our top 'tactical' pick for the sector is Gamuda ('trading buy'; FV = RM4.51) as we believe its share price will be buoyed by the sustained news flow from the RM36 billion KL MRT project. Our top 'value' pick for the sector is Sunway ('outperform', FV = RM2.35) due to its undemanding valuations, coupled with its strong earnings visibility stemming from its firm construction margins and growing non-construction profits. ' RHB Research Institute, Oct 4


This article appeared on the Live it! page, The Edge Financial Daily, October 5, 2010.

KNM - Second lease of life for KNM

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

KNM Group Bhd
(Oct 4, 50 sen)
Upgrade to buy at 46 sen with target price of 55 sen: Activities are picking up in the global O&G industry (including petrochemical). In the Middle East alone, an estimated US$60 billion (RM185 million) has been allocated to develop the industry over the next four or five years.

We also see oil majors raising funds for exploration and development as in Petrobras' recent share sale. On the local front, Petronas has kicked off its development plans with the recent award of the Sabah oil & gas terminal project.

Other projects in the pipeline that could potentially benefit KNM include the US$700 million LNG regassification plant, and development of marginal fields.

From a low of RM11 billion as at end-2009, KNM's tender book size has grown to RM16 billion currently, reinforcing our view of an improving industry outlook. We understand that KNM has had'' about a 20% hit rate on jobs it bid for.

And as it is on track to secure RM2 billion worth of jobs this year (on a tender book size of RM11 billion), KNM could be carrying over a backlog of over RM3 billion into 2012, implying strong earnings growth and clear visibility with 1.7 times book-to-bill ratio.

We upgrade KNM to 'buy' premised on our belief that increasing activities on the global front will benefit KNM significantly in terms of contract awards. However, our FY10/11F earnings are cut by 22% to 29% to reflect sluggish margins ahead,'' below consensus. Our 55 sen target price is unchanged despite adjusting for a higher PER multiple of 12.5 times to reflect an improving industry outlook. At the current price, KNM is trading at attractive FY11 and FY12 PER of 10 times and seven times, respectively.

Comparatively, local (more than RM1 billion market cap) and regional peers are trading at FY11 PER of 12 times and 17 times, respectively. ' HwangDBS Vickers Research, Oct 4


This article appeared on the Live it! page, The Edge Financial Daily, October 5, 2010.

SUNCITY - Sunway City - limited upside to stock

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

Sunway City Bhd
(Oct 4, RM4.02)
Maintain hold at RM3.90 with fair value of RM4.13: We are maintaining our 'hold' rating on Sunway City (SunCity) with our fair value revised to RM4.13 per share based on a 30% discount to its revised NAV estimate of RM5.90 per share.

We see value in this company, and our call is premised on: (i) Limited upside to the stock as share price has gained 20% this year; (ii) Valuation is a bit stretched ' FY11F fully diluted PER of 14 times against the sector average of 10 or 11 times; (iii) 50% of gross development value (GDV) (RM2.6 billion) of planned launches in 2011 are made up of overseas and non-key projects.

Following our visit, we are more convinced about Sunway Velocity and Damansara, which have a combined GDV of about RM600 million.

Management has guided strong interests in its Velocity shop office units. We think a lack of new and quality commercial development in the area will drive demand.

Similarly, healthy demand for commercial lots in Damansara will be driven by the heavy traffic volume in the vicinity and wide catchment area.

But going forward, launches for 2011 are a bit of a mixed bag. About 50% of planned launches in 2011 are overseas projects. Domestic projects are smallish, non-high conviction ones, for example Ipoh and Melawati.

While SunCity has done well with its maiden China project ' 80% take-up ' we are neutral at this juncture as the development value is insignificant at RM114 million. The market will only re-rate the stock upon seeing significant contribution from overseas.

With the successful listing of SunREIT, the group is now in a strong position to gear up for land acquisitions. The group received net proceeds of RM500 million ' after settling its debt (about RM800 million).

We view a recent land deal in Penang positively, but we think landbanking in the Klang Valley would be challenging now given scarce supply of prime pockets of land.

That aside, management has already stated that it is keen to be involved in the redevelopment of RRI land in Sungai Buloh.

We are revising our earnings estimates to RM176 million to RM207 million for FY10F to FY12F following the listing of its REIT unit, and adjusting for new landbank in Penang and increased stake in Sunway Lagoon unit.

Sunway City is currently trading at 34% discount to our NAV estimate of RM5.90 per share, which we think is justified. ' AmResearch, Oct 4


This article appeared on the Live it! page, The Edge Financial Daily, October 5, 2010.

JCY - JCY active, up after RHB Research maintains outperform call

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

KUALA LUMPUR: JCY International was actively traded on Tuesday, Oct 5 after RHB Research Institute maintained its outperform recommendation on the stock with a fair value of RM1.31.

At 3pm, JCY was up 2.5 sen to 99 sen with 11.87 million shares traded.

RHB Research said that going forward, JCY's earnings would be mainly driven by strong demand for the 2.5'' hard-disk drive (HDD) fuelled by stronger-than-expected demand for mobile PCs and consumer electronics; resilient demand for the 3.5'' HDD stemming for demand for desktops and gaming consoles; and improving corporate and consumer IT spending.

'We upgraded the stock to Outperform from market perform in our 4Q2010 strategy report dated 1 Oct. Our fair value of RM1.32 per share is based on an unchanged 10 times FY11 EPS,' RHB said in a note on Oct 5.

UMW - OSK raises target price on UMW

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



OSK Research Sdn Bhd has upgraded its target price on UMW Holdings Bhd to RM8.38 from RM8.20 previously with its "buy" call retained based on standard operations procedure.

UMW has posted year-to-date gains of only six per cent versus the double-digit returns of its smaller peers, the research house said in a statement here, today.

The comeback of its oil and gas segment by financial year 2011 (FY11) will also spur further interest in the stock.

Trading at an attractive FY11 price-to-earnings (PE) of only 9.4 times versus nine to 10 times of its peer average, OSK also considers UMW a bargain in the auto sector.

It noted that the counter historically trades at a premium, given its Toyota and Perodua exposure. -- Bernama

BAT - AmResearch maintains Hold on BAT

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

KUALA LUMPUR: AmResearch is maintaining its Hold on BRITISH AMERICAN TOBACCO (M) [] Bhd (BAT) but with a higher DCF-based fair value of RM44.30/share (previously RM42.00/share), as it rolls over its valuation base year from FY10F to FY11F.

The Government had quietly raised excise duty on tobacco by 15.8%, or an additional 3sen/stick. This brings the total excise duty from 19sen/stick to 22 sen/stick effective Oct 1, 2010.

'As expected, no reprieve was given as in the previous years. The Government's latest move is reminiscent to that of last year, in which it unexpectedly raised excise duty on tobacco products ahead of the annual Budget. We do not expect another hike in the upcoming Budget on Oct 15,' it said.

AmResearch said the quantum of increase at three sen/stick was above its expectations. It had only anticipated a hike of up to two sen/stick, given the challenging tobacco business operating environment.

In 2007 and 2008, the Government imposed a punitive hike of 3sen/stick, but toned it down with a symbolic one sen/stick increase in 2009.

JTINTER - Malaysia tobacco sector downgraded

Stock Name: JTINTER
Company Name: JT INTERNATIONAL BHD
Research House: OSK



Malaysia's tobacco industry was downgraded to "underweight" from "neutral" at OSK Research Sdn Bhd following a rise in excise duties.

The broking house said in a report today that this prompted it to lower its earnings estimates and share forecasts.

British American Tobacco Malaysia Bhd's fair value was cut to RM38.75 from RM40.12.

While JT International Bhd's was reduced to RM5.68 from RM5.96, according to the report. -- Bloomberg

BAT - Malaysia tobacco sector downgraded

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



Malaysia's tobacco industry was downgraded to "underweight" from "neutral" at OSK Research Sdn Bhd following a rise in excise duties.

The broking house said in a report today that this prompted it to lower its earnings estimates and share forecasts.

British American Tobacco Malaysia Bhd's fair value was cut to RM38.75 from RM40.12.

While JT International Bhd's was reduced to RM5.68 from RM5.96, according to the report. -- Bloomberg

KENCANA - AmResearch maintains Buy on Kencana

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

KUALA LUMPUR: AmResearch has maintained its Buy call on KENCANA PETROLEUM BHD [] with an unchanged fair value of RM2 a share, pegged to a CY10 PE of 20 times.

It said on Tuesday, Oct 5 that it remains positive on Kencana, which is poised to ride on an up cycle in new domestic oil & gas contract rollouts coupled with the listing of MISC's Malaysia Marine & Heavy Engineering and Petronas Chemical Group by year-end.

Kencana currently trades at an attractive CY11F PE of 14 times, way below its 2007 peak of 25 times

Kencana had secured two contracts worth RM31 million, which will be completed in 1QCY11. As Kencana's only fabrication facility currently is a 135-acre yard in Lumut.

'We understand that the group may still be eyeing Labuan Shipyard's ship-repair facilities for offshore vessels and to bid for hook-up and commissioning services for Petronas' oil rigs in peninsula Malaysia as well as Sabah and Sarawak,' it said.

TENAGA - Tenaga - no tripping this power player

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

Tenaga Nasional Bhd
(Oct 1, RM8.82)
Maintain buy at RM8.82 with higher target price of RM10.10 (from RM9.90): Tenaga is due to release its 4QFY2010 results in mid-October. We understand that FY2010 core net profit will come in within expectations at RM2.6 billion to RM2.7 billion, the second highest in its history. This implies 4QFY2010 core net profit of RM500 million to RM600 million, relatively unchanged quarter-on-quarter as the average coal price remains above US$90/MT (metric tonne). Thanks to the strengthening ringgit against the US dollar (Aug 31, 2010: RM3.15), Tenaga will also record FY2010 forex gains of RM600 million to RM700 million.

We also understand that the slower July unit demand growth of 6% year-on-year was due to lower steel smelting activities, but we are not overtly concerned as we believe that the steel sector is on the cusp of an up-cycle driven by building projects in the US and capacity cuts in China. On the cost front, coal prices have remained relatively benign at US$93/MT (US$78/MT FOB + US$15/MT freight cost), easing off the recent high of US$100/MT.

We revise our FY2011 and FY2012 unit demand growth assumption upwards from 3% to 4%. This is still at the lower end of management guidance of 4% to 5% or one time real GDP growth. The average coal price assumption in US dollars is raised from US$90/MT to US$95/MT, but as the US dollar-ringgit exchange rate is now below RM3.10 against our initial RM3.30 assumption the average coal price assumption in ringgit remains relatively stable at slightly under RM300/MT. Net impact is to raise net profit estimates by 5% and 8%.

We tweak our target price (TP) from RM9.90 to RM10.10 based on 15 times FY2011 PER. Our TP is reinforced as it implies a decent 23% discount to end-FY2011 discounted cash flow-based TP of RM13.08 (WACC: 9.5%, TGR: 3%).

Foreign shareholding is still rather tepid at 11%, so we anticipate further upside potential on foreign buying when the re-rating catalysts materialise and the subsidy rationalisation programme actually comes to pass. At 13 times one-year forward PER, it is trading at only two times higher than the recent trough. Therefore, we still rate Tenaga as a 'buy'. ' ECM Libra Investment Research, Oct 1


This article appeared in The Edge Financial Daily, October 4, 2010.

MMCCORP - MMC Corp: Laggard play on Johor, MRT

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

MMC Corporation'' Bhd
(Oct 1, RM3.12)
Upgrade to outperform with higher target price of RM3.80 (from RM2): We are upgrading MMC to an 'outperform' (from 'neutral') as the market, in our view, has under-appreciated two key developments on the stock: (i) south Johor land, and (ii) the Kuala Lumpur Mass Rail Transit (MRT) project. We view MMC as a laggard play on these developments.

As the second largest land owner in south Johor (Iskandar Malaysia), MMC is a beneficiary of improving Malaysia-Singapore relations. We are now more confident that the Temasek-Khazanah JV will launch the Iskandar wellness project within the next 12 months, which we believe will pave the way for more investment in Iskandar. In our view, this will increase demand for land within Iskandar, which could lead to an upward re-rating of land values in south Johor.

MMC and Gamuda are jointly bidding for the KL Mass Rail Transit (MRT) project. Despite the positive news flow on the project, MMC's share price performance has underperformed Gamuda in the last month, leading us to view MMC as a laggard play on the MRT project.
We are upgrading MMC's target price to RM3.80 (from RM2) on: (i) higher land values of RM32 per sq ft (against RM20 previously); and (ii) rolling year-end valuations to FY2011; and (iii) using a multiple of 7.5 times earnings to value the operations. With an implied 29% potential upside, we are upgrading MMC to an 'outperform' (from 'neutral'). ' Credit Suisse, Sept 30


This article appeared in The Edge Financial Daily, October 4, 2010.

BAT - BAT Malaysia cut to 'sell' at Maybank

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



British American Tobacco (Malaysia) Bhd. was cut to "sell" from "hold" at Maybank Investment Bank Bhd as 2011 profit may decline and higher cigarette prices will erode its earnings. - Bloomberg

KNM - KNM gains after HwangDBS 'buy' call

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



KNM Group Bhd, a Malaysian oil and gas services provider, rose to its highest level in a week in Kuala Lumpur trading after HwangDBS Vickers Research Sdn Bhd upgraded the stock to "buy" from "hold".

Its shares gained 1.1 per cent to 46.5 sen at 9:07 a.m. local time, set for their highest close since Sept. 27.

KNM has potential orders valued at RM3 billion next year, HwangDBS said in a report today. -- Bloomberg

UEMLAND - HLG Research: Take profit on UEM Land

Stock Name: UEMLAND
Company Name: UEM LAND HOLDINGS BHD
Research House: HLG

KUALA LUMPUR: HLG Research said UEM Land, as the master developer of Nusajaya with an enormous strategic land bank in Nusajaya at low carrying costs, the company is expected to benefit from the strong commitment to the project from the Government and the inevitable asset reflation amidst economic recovery.

'However, we advocate take profits amid overbought readings and excessive valuations, despite its long term positive outlook. Our three month technical price target is RM2.10 or 3.0 times price/book (in line with its two-year high of 3.4 times) on 1H10's book value of 70 sen,' it said.

Last Friday's hanging man candle could be seen as a prelude to more profit taking ahead. Easing below the five-day SMA of RM2.18 would suggest that the RM2.37 high is its medium term peak. Further resistance targets are situated around RM2.50-RM2.60.

'As the trend now favours the bears, we would advocate traders to turn defensive. Traders may want to unload into strength near resistance levels around RM2.37-RM2.50. If RM2.18 is violated, next downside targets are RM2.06 (38.2% FR from 3M low of RM1.57 and high of RM2.37) and RM1.97 (50% FR). Put a buy stop at RM2,' it said.

KENCANA - OSK Research maintains Buy on Kencana

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

KUALA LUMPUR: OSK Research is maintaining its Buy call on KENCANA PETROLEUM BHD [] and remains its top pick for the O&G sector.

The research house said on Monday, Oct 4 that its target price for the company is RM2.06 based on a calendarised PER of 16x FY11 EPS.

The Edge weekly reported there is a possibility of Kencana taking over Labuan Shipyard and Engineering Sdn Bhd, which is a unit of Umno-linked Realmild Sdn Bhd.

'If this news flow is true, we believe it would be positive to Kencana given that the industry is moving towards being a one-stop solution provider, which include both technical knowledge as well as geographical presence to be cost effective for the customers. Having Labuan Shipyard will boost Kencana's presence in the Sabah and Sarawak's markets,' it said..

The takeover is for Kencana to beef up its facilities to qualify for theRM3.8bn contract to be awarded by Petronas soon. This contract is believed to be a four-year contract for the topside maintenance as well as hook-up and commissioning for all Petronas's oil rigs in Peninsular Malaysia as well as Sabah and Sarawak.

According to Labuan Shipyard's website, the yard had been in existence since 1972. To-date, it has an extensive and proven track record in O&G engineering and fabrication, shipbuilding, ship repair and CONSTRUCTION [] of power barge.

Besides that, Labuan Shipyard is also actively involved in the refitting, modernization and scheduled and maintenance of naval craft. It also has a covered workshop ratio of 1.2:2.0.

PBA - OSK Research ups PBA target price to RM1.48

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

KUALA LUMPUR: OSK Research has raised its target price for PBA HOLDINGS BHD [] to RM1.48 from RM1.23 and maintains a Buy on the stock.

Effective Nov 1, PBA will raise its water tariff rates chargeable to trade consumers higher by a flat 27%.

'As this will certainly bolster its financial performance for next year and going forward, we raise our earnings estimates for PBA and hence its target price as well,' it said in a research note on Monday, Oct 4.

The tariff hike is a flat increase in trade consumers' water tariff rates by as much as 27%. For the first 20,000 litres of water consumption, rates have been upped to 66 sen per 1,000 litres from 52 sen per 1,000 litres previously.

For the consumption band of 20,000 litres to 40,000 litres and 40,001 to 200,000 litres, rates are also upped by a similar quantum to 89 sen per 1,000 litre and RM1.15 per litre respectively.

'Post increase, the Penang state water tariff rates will be the second lowest in Peninsular Malaysia at RM1.19 per 1,000 litres for the first 500,000 litres of water used from 94 sen previously. The Peninsular Malaysian average is at RM1.58,' it said.

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.