THPLANT - TH Plantations pricing issue persists

Stock Name: THPLANT
Company Name: TH PLANTATIONS BHD
Research House: MAYBANK

TH Plantations Bhd
(Nov 3, RM1.67)
Maintain hold at RM1.68 with target price of RM1.75: We raise our FY10/FY11 earnings by 12.1% and 2.2% respectively after incorporating higher average selling price (ASP) ' 2010: RM2,300 to RM2,550, 2011: RM2,400 to RM2,600 ' and higher minority contribution.

While THP is attractively valued relative to its peers, we believe the discount is merited given the company's almost perennial pricing issues. We maintain 'hold' with a higher target price of RM1.75.

Net profit for 3Q was RM22 million (+183% quarter-on-quarter, +68% year-on-year), bringing 9MFY10 net profit to RM47 million (+50% y-o-y). The ASP in 3Q (RM2,529 per tonne) trended up in line with market movements, but is still below spot (RM2,639 per tonne).

Nevertheless, the discount to spot prices has narrowed, as the commissioning of a new mill in Sabah nearer THP's estates has shortened the time taken for fruits to be processed, resulting in better oil quality.

Fresh fruit bunch (FFB) production grew 25% q-o-q and 7% y-o-y. On a year-to-date (YTD) basis, however, FFB production is down 5% y-o-y due to a weak first half.

While production trends are likely to remain favourable in 4Q, we believe THP is unlikely to achieve its FFB target of 21.6 tonnes per hectare in FY10. Our yield assumption of 19.2 tonnes per ha in FY10 remains unchanged.

By our estimate, a 50% payout translates into a dividend yield of about 4% at current prices. THP pays annual dividend in its entirety after 4Q results are declared. We forecast THP's gearing will remain at a reasonable level of 26% post-payout in FY10.

We raise our target price to RM1.75 based on 11.4 times forward price-earnings ratio, representing the two-year mean. We think a significant upward re-rating is unlikely, at least until management has permanently addressed the price inferiority issue.

However THP's relatively high dividend yield should provide downside support for the share price in our view. ' Maybank IB Research, Nov 3


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

THPLANT - TH Plantations pricing issue persists

Stock Name: THPLANT
Company Name: TH PLANTATIONS BHD
Research House: MAYBANK

TH Plantations Bhd
(Nov 3, RM1.67)
Maintain hold at RM1.68 with target price of RM1.75: We raise our FY10/FY11 earnings by 12.1% and 2.2% respectively after incorporating higher average selling price (ASP) ' 2010: RM2,300 to RM2,550, 2011: RM2,400 to RM2,600 ' and higher minority contribution.

While THP is attractively valued relative to its peers, we believe the discount is merited given the company's almost perennial pricing issues. We maintain 'hold' with a higher target price of RM1.75.

Net profit for 3Q was RM22 million (+183% quarter-on-quarter, +68% year-on-year), bringing 9MFY10 net profit to RM47 million (+50% y-o-y). The ASP in 3Q (RM2,529 per tonne) trended up in line with market movements, but is still below spot (RM2,639 per tonne).

Nevertheless, the discount to spot prices has narrowed, as the commissioning of a new mill in Sabah nearer THP's estates has shortened the time taken for fruits to be processed, resulting in better oil quality.

Fresh fruit bunch (FFB) production grew 25% q-o-q and 7% y-o-y. On a year-to-date (YTD) basis, however, FFB production is down 5% y-o-y due to a weak first half.

While production trends are likely to remain favourable in 4Q, we believe THP is unlikely to achieve its FFB target of 21.6 tonnes per hectare in FY10. Our yield assumption of 19.2 tonnes per ha in FY10 remains unchanged.

By our estimate, a 50% payout translates into a dividend yield of about 4% at current prices. THP pays annual dividend in its entirety after 4Q results are declared. We forecast THP's gearing will remain at a reasonable level of 26% post-payout in FY10.

We raise our target price to RM1.75 based on 11.4 times forward price-earnings ratio, representing the two-year mean. We think a significant upward re-rating is unlikely, at least until management has permanently addressed the price inferiority issue.

However THP's relatively high dividend yield should provide downside support for the share price in our view. ' Maybank IB Research, Nov 3


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

PROTON - Hybrid likely to be below RM100,000

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

Proton Holdings Bhd
(Nov 3, RM4.86)
Maintain buy at RM4.88 with target price of RM6.18: We are quite surprised that Proton's hybrid line-up is to be launched next year, as media reports had indicated a launch sometime in FY12 with the commercialisation of the EMAS model, one of which will be based on a hybrid/electric engine.

Given that three of the prototype cars will be tested with 50 units to be used by the government, we believe product testing is in the final stages before mass production begins.

As the commercial launch is slated sometime next year, we think the hybrid engine could potentially be fitted into the Saga or Persona, for which the earlier price indication is about RM80,000, taking into account the higher cost of the batteries.

Plagued by negative perceptions arising from legacies of negative quality issues, we think Proton's upcoming hybrid variant will meet with some scepticism.

Furthermore, following the Budget 2011 announcement on incentives for hybrid cars ' the 100% exemption on import and excise duties on hybrid cars below 2,000cc (which saw the price of the Toyota Prius and Honda Civic trimmed down to RM139,900 and RM108,980) we see Proton having a tough time competing with the Japanese automakers.

Fortunately for Proton, the temporary tax and duty exemption on imported hybrid cars is only valid for 2011.

This gives a strong indication that Proton's hybrid will likely be commercially launched'' by 2012, once the tax exemption is lifted (which would see imported hybrid cars reverting to their original prices), thus making Proton's hybrid potentially 50% cheaper than other marques.

While we are sceptical on Proton's hybrid variant should it be launched next year, given the shorter development time frame, we think Proton could well be ready by 2012.

We are also encouraged by strong bookings of the Proton Inspira, which to date could exceed 2,000 units. Proton's valuation remains appealing as the stock is trading at a FY11 price-to-earnings ratio (PER) of 6.7 times against the sector PER of'' nine to 10 times.

We maintain 'buy' at an unchanged target price of RM6.18, based on its FY12 earnings per share of 8.5 times PER. ' OSK Research, Nov 3


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

UNISEM - Bracing for a busy quarter ahead

Stock Name: UNISEM
Company Name: UNISEM (M) BHD
Research House: AMMB

Unisem (M) Bhd
(Nov 3, RM1.92)
Maintain buy at RM1.86 with fair value of RM3.25: We maintain a 'buy' call on Unisem following its latest 3QFY10 results. Our forecast earnings of 28 sen per share are set to be achieved given that the strength of orders has yet to diminish despite economic concerns in Europe and the US.

Unisem's results, announced on Tuesday, were within our expectations. It posted a net profit of RM51.9 million, bringing 9M net profit to RM141.4 million on the back of a cumulative revenue of RM1.059 billion.

Year-to-date, the company has fulfilled about 75% of our estimated profit for FY10 (RM186 million), making up 76.3% of our topline numbers.

On a quarterly basis, net income improved 8.2% against 2QFY10, while revenue, the main indicator of the industry's strength, improved by 3.1%, partly because of seasonal effects.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) margin in 3QFY10 rose 0.1 of a percentage point (ppt) to 26.5% from 26.4% over the previous quarter, largely due to a slight decrease in operating costs.

Production utilisation for all plants, we reckon, is still above 90%, not taking into account the new lines which would not have been producing at an optimal level yet.

We understand order visibility for the sector is normally between four and six months. While we have not got the firm order numbers from all companies under our coverage, early indications from Unisem's management are very positive, at least for 1QFY11, when compared with previous 1Qs.

We reckon the strength may spill over to 2QFY11. However, the outlook for the 2HFY11 remains a wild card.

On the supply side, any bottleneck within the supply chain that persists would prevent price deterioration. We recently met another production machine supplier, whose management confirmed to us that its orders had increased, stretching delivery time from a normal one month to the current four months.

We continue to value Unisem at RM3.25. Our 1.9 times price-to-book value is about a 10% discount to the previous up-cycle multiple, which we believe is justified as we are looking at a longer growth period (six quarters against four quarters in the previous up-cycles). We have also rolled over our valuation year to FY11. ' AmResearch, Nov 3


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

MRCB - More upside to MRCB

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP
Research House: HWANGDBS

Malaysian Resources Corp Bhd
(Nov 3, RM2.07)
Maintain buy at RM2.04 with target price of RM2.90: MRCB's share price has risen 59% year-to-date (YTD) but there is more upside. We raised FY11/FY12F earnings by 13% to 27% after imputing larger new contract wins of RM600 million per year (against'' RM400 to RM600 million previously), and the launch of Lot D in 2H11 (GDV RM1.2 billion; ASP RM900 to psf RM1,200 psf, JV with CapitaLand and Quill).

Consequently, we raise our target price (TP) to RM2.90, also accounting for: (i) higher RM1,200 psf average selling price (ASP) for the remaining 12 acres of land in KL Sentral premised on a scarcity premium for the strong maturing franchise. The last benchmark for offices was Lot G at more than RM1,000 psf, similar for recent strata units of Lot B; (ii) higher values for its concessions, EDL and Duke, and (iii) inclusion of building services business at 10 times CY11 PER.

Pending a formal participation in the RRIM land, MRCB seems set to capitalise on more 10th Malaysia Plan projects, which carry stronger emphasis on environmental projects. We expect MRCB to be able to carve out the most lucrative portion of the land which is the transport hub and surrounding commercial development.

MRCB's completion of phase 1 of the Kuala Sungai Pahang project worth RM258 million and the RM20 million Kampung Perai, Penang River project will put it in the driver's seat to clinch the remaining RM1.2 billion and RM480 million of projects.

Other potential projects in the pipeline are: (i) LRT extensions; (ii) Klang river cleaning project as proposed by Pemandu; and (iii) Putrajaya building projects. We understand its shelved RM300 million Penang Sentral project will be revived with the eventual completion of the Ipoh-Padang Besar double tracking project in 2013.

With the MRT closer to receiving cabinet approval, MRCB's fortunes are even brighter with the red and green line converging at RRIM. It would benefit from: (i) better pricing power over our RM300 psf assumption. Every RM100 psf increase would raise our SOP by 7%; and (ii) it would likely receive a sizable portion of MRT construction works for the portion leading to the RRIM land.

Another wild card could be MRCB's involvement in the redevelopment of Pudu Jail given its prior works for Gaya Bangsar condominium.

We remain confident that with the Employees Provident Fund's strong shareholder backing, MRCB will have a strong role to play for the RRIM land. In Budget 2011, this development received special mention indicating the commitment to launch this project soon.

According to a recent media article, the EPF has initiated a masterplan for the land development, which is expected to take six months to a year to complete. As expected, the land will be sub-divided into several parcels which would benefit several local and also foreign developers.

This would be via an open tender system in 2H11. It appears that the master developer would likely be Kwasa Land Sdn Bhd, the JV between the government and EPF. We are not unduly disappointed if MRCB does not become the master developer given the prohibitive land cost of owning such a large land parcel.

But we expect MRCB to be able to carve out the most lucrative portion of the land, the transport hub and surrounding commercial development and'' high-rise and low-rise residential as per its KL Sentral development.

To recap, in our sum-of-parts (SOP) value, we assume the government will divide the 3,400 acres of land and award parcels to six developers or JV companies. Hence the MRCB-EPF JV (50:50) would end up with 567 acres. And we conservatively assume three times plot ratio and RM300 psf ASP, translating into a RM18 billion gross development value (GDV).

We think the reported development value of the RRIM land by the government of RM10 billion is way too conservative. In any case, once the land is parcelled out to the developers, they will determine the pricing.

Based on estimated land cost of RM10 psf, construction costs of RM180 psf, and other interest and holding costs, the breakeven cost is RM243 psf. For the purpose of our SOP value, we have assigned a 50% discount to our net present value (NPV) of development profits of RM2.3 billion.

Given that this development would have a key MRT station where the red and green lines would converge, we conducted a sensitivity analysis that assumes ASP beyond our base case of RM300 psf.

In each scenario, we assumed a RM100 psf increase in ASP with a corresponding RM30 to RM40 psf increase in construction costs from the base case of RM180 psf, to reflect the higher selling prices.

At the lower end of RM400 psf, our SOP-derived TP would be raised to RM3.09, while at the upper end of RM800 psf ASP, our TP would be raised to RM3.71. ' HwangDBS Vickers Research, Nov 3


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

MRCB - MRCB advances in active trade, TP at RM2.90

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP
Research House: HWANGDBS

KUALA LUMPUR: Shares of MALAYSIAN RESOURCES CORP [] Bhd rose in active trade in late afternoon on Thursday, Nov 4 after it was recently upgraded by a local research house due to MRCB's strong proxy to the 10th Malaysia Plan (10MP).

At 3.21pm, MRCB was up 10 sen to RM2.17. There were 10.9 million shares done.

The FBM KLCI was up 1.87 points to 1,509.47. Turnover was 858.37 million shares done valued at RM1.01 billion. There were 371 gainers, 356 losers and 305 stocks unchanged.

Hwang DBS Vickers Research (HDBSVR) said MRCB strong proxy to 10MP projects and raised its target price to RM2.90

'We raised FY11-FY12F earnings by 13-27% after imputing larger new contract wins of RM600m p.a (vs RM400 million to RM600 million previously), and the launch of Lot D in 2H 2011 (GDV RM1.2 billion; average selling price RM900-RM1200 psf, JV with CapitaLand and Quill),' it said.

HDBSVR said it raised TP to RM2.90, also accounting for (i) higher RM1,200 psf ASP for the remaining 12 acres of land in KL Sentral premised on a scarcity premium for the strong maturing franchise. The last benchmark for office was Lot G at more than RM1,000 psf, similar for recent strata units for Lot B; (ii) higher values for its concessions, EDL and Duke, and (iii) inclusion of building services business at 10x CY11 PE.

HDBSVR said pending a formal participation in the Rubber Research Institute Malaysia (RRIM) land, MRCB seems set to capitalise on more 10MP projects, which carry stronger emphasis on environmental projects.

With the mass rapid transit (MRT) closer to receiving Cabinet approval, MRCB's fortune is even brighter with the red and green line converging at RRIM.

'It will benefit from: (i) better pricing power over our RM300 psf assumption. Every RM100 psf increase will raise our SOP by 7%, and (ii) it will likely receive a sizable portion of MRT CONSTRUCTION [] works for the portion leading to the RRIM land. Another wildcard could be MRCB's involvement in the redevelopment of Pudu Jail given its prior work for Gaya Bangsar condominium,' said the research house.

SUNRISE - ECM keeps 'buy' call on Sunrise

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



ECM Libra Investment Research has maintained its "buy" call on Sunrise Bhd with the target price unchanged at RM3.58.

In a research note today, it said the target price was unchanged, pending the widely expected announcement of a corporate exercise today involving UEM Land Holdings Bhd.

ECM Libra reduced its numbers for the financial year 2011 to 2013 taking into account, retention of some units from future launches, for the operation of serviced apartments.

"But this will be offset by recognition of Quintet - residential project in Richmond, Canada - earnings on percentage completion basis at group level instead of at unit level.

"Despite our above consensus numbers, we still expect Sunrise to post record earnings in financial year 2011, backed by strong sales and unrecognised revenue," ECM Libra said.

Sunrise launched the phase one of Quintet with a gross development value (GDV) of RM374 million on Sept 28 and the project is sold-out as of to date.

Phase two with a GDV of RM825 million will be launched in the first quarter next year.

Meanwhile, Menara Solaris with a GDV of RM480 million is expected to be launched within the next three weeks.

During the first quarter financial year 2011, property sales of about RM100 million was achieved, but this does not include RM351 million sales from Quintet achieved in Oct 2010.

Unrecognised revenue remains flattish quarter-on-quarter at RM864 million but would swell to RM1.2 billion in Oct 2010, ECM Libra said.

OSK Research, meanwhile, said it is maintaining a "buy" call on Sunrise but downgraded the target price to RM4.33 from RM4.62 previously.

This was due to the unexpected interim dividend surprise of 26.67 sen as well as some changes to its forecast assumptions on the Quintet.

OSK Research is upgrading Sunrise's financial year 2011 and 2012 earnings upwards by 5.6 per cent and 12.1 per cent respectively.
The management has been guided that earnings from the Quintet, including phase two, would be recognised on a progress billing basis.

Although Sunrise's first quarter financial year 2011 turnover fell by 10 per cent year-on-year, net profit dipped by a mere two per cent as progress billings from its recently launched high-margin projects, such as 11 Mont Kiara and 28 Mont Kiara, picked up momentum.

On the other hand, quarter-on-quarter turnover surged 32 per cent but net profit dropped five per cent on higher expenses incurred on commencement of its Canadian project.

Sunrise's latest unbilled sales totaled RM1.22 billion amounting to 2.1 times of financial year 2010 total turnover. -- Bernama

MRCB - OSK Research: Traders can accumulate MRCB above RM2

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP
Research House: OSK

KUALA LUMPUR: While MALAYSIAN RESOURCES CORP [] Bhd (MRCB) is still trending higher along the mid-term uptrend line stretching all the way from the 2008 low, its rally has turned more aggressive since the beginning of September this year.

OSK Research said on Thursday, Nov 4 the sharp rally has caused its share price to trade further away from the mid-term uptrend line.

It added MRCB is now consolidating the rally by constructing a new support floor at above the RM2 level.

'Traders can consider accumulating the shares at above the RM2 level and wait for a breakout from the recent high of RM2.22 to extend further the sharp rally that started in September.

'We are eyeing the RM2.70 level as the upside target. Our cut-loss point is pegged at below the strong RM2 support floor while next support is seen at the RM1.80 level,' it said.

CIHLDG - OSK Research maintains Buy on CI Holdings, TP of RM4.78

Stock Name: CIHLDG
Company Name: C.I. HOLDINGS BHD
Research House: OSK

KUALA LUMPUR: CI Holdings Bhd reported respectable a year-on-year revenue and earnings growth of 24.1% and 43.2% to RM153.63 million and RM11.8 million respectively for 1QFY11, which were within its and consensus forecast.

OSK Research said the hearty numbers were mainly attributed to the strong growth of non-carbonated and isotonic drink sales. Despite spiraling raw material prices,

'EBIT margin improved by 1.2 percentage points y-o-y on better cost efficiency, higher other operating income and a stronger ringgit against the US dollar. In view of the in line results, we maintain our FY11 and FY12 earnings forecasts at RM45.3 million and RM52.9 million respectively. Maintain BUY, at a TP of RM4.78,' it said.

KLK - KL Kepong acquires another Indonesian company

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

Kuala Lumpur Kepong Bhd
(Nov 2, RM19.74)
Maintain outperform at RM19.78 with fair value at RM24.70: Kuala Lumpur Kepong (KLK) has entered into an agreement to acquire a 95% stake in PT Anugrah Surya Mandiri (PT ASM) for IDR13,585 million (RM4.72 million).

PT ASM holds a location permit (izin lokasi) for 3,700ha of land in Kampung Batu Putih, Kecamatan Batu Putih, Kabupaten Berau, Indonesia, which it intends to develop into oil palm plantations.

The purchase consideration will be financed by KLK's internally generated funds and the acquisition is expected to be completed in 1Q2012.The acquisition price of RM4.72 million'' for an effective 3,515ha of land works out to RM1,342 per ha, which is in line with other greenfield land transactions in Indonesia of RM1,200 to RM2,000 per ha.

We are positive on the acquisition as it would provide KLK with synergies, given that the land is adjacent to one of KLK's plantations in Kalimantan Timur. We estimate this acquisition will increase KLK's Indonesian landbank by about 2.6% to 136,630ha.

Main risks include: (i) a convincing reversal in crude oil price trends resulting in reversal of crude palm oil (CPO) and other vegetable oils price trends; (ii) weather abnormalities resulting in an over or under-supply of vegetable oils; (iii) revision in global biofuel mandates and trans-fat policies; and (iv) a slower than expected global economic recovery, resulting in lower than expected demand for vegetable oils.

We expect contributions from this acquisition to come through only in FY15/16, assuming KLK is able to start planting immediately once the acquisition is completed, while the acquisition cost of RM4.72 million would have already been included in our capital expenditure (capex) assumptions for FY11.

We maintain our sum-of-parts (SOP)-based fair value for KLK at RM24.70. We continue to like KLK for its inexpensive valuations (it remains the cheapest among the big-cap plantation stocks) and for its strong management with a good track record.

Further catalysts could come from better than expected fresh fruit bunch (FFB) production growth as well as sustainable return to profitability of the retail division. We maintain our 'outperform' rating on the stock. ' RHB Research Institute, Nov 1


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

FABER - Uncertainty may present buying opportunity

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

Faber Group Bhd
(Nov 2, RM2.91)
Maintain buy at RM2.87 with target price of RM4: We are not entirely concerned about the expiry of the original deadline for renewal of Faber's hospital support services (HSS) concession, given that Pharmaniaga experienced the same thing with regard to the renewal of its pharmaceutical supply concession, which was eventually renewed.

While there is speculation that the government might not renew Faber's concession for East Malaysia and politics might possibly take priority, we strongly believe that the renewal should be based on track record and performance if the government is truly committed to its transformation plan.

All said, we maintain our 'buy' recommendation on Faber at an unchanged target price (TP) of RM4 as the current uncertainty might present a buying opportunity for investors who are still hopeful of a favourable outcome.

Under the Clause 2.3 of the existing concession agreement, in the event that any of the current concession holders does not get any response from the government by Oct 28, it can assume that the concession is naturally terminated at the end of its expiry.

Much to Faber's and our relief, the company received last week a letter from the Public Private Partnership Unit (3PU) of the Economic Planning Unit acknowledging Faber's submission for renewal. The letter added that 3PU was in the process of evaluating the proposal and Faber would be informed on the progress.

Although the letter did not guarantee the concession's renewal, it could be considered as throwing a 'lifeline' to Faber and an indication that it is still in the running for the concession renewal.

It was reported early last month that the government might not renew Faber's HSS concession for East Malaysia, and speculation that the concession might be awarded to local parties from Sabah and Sarawak instead.

At the end of the day, if the concession is awarded to other parties, they would still have to engage Faber as the sub-contractor to undertake the concession as the former might not have the expertise and experience to carry out the job.

As such, East Malaysia would still contribute to Faber's earnings, although margins might be lower.

In the event that Faber loses its concession for East Malaysia, we believe it is always possible for the government to compensate Faber with a concession in West Malaysia that has wider geographical coverage.

Despite the uncertainty over the renewal of the concession renewal, we maintain our 'buy' recommendation on Faber at an unchanged TP of RM4 based on sum-of-parts valuation.

Our fair value is based on the assumption that the concession will be renewed as it is. In view of its track record and expertise, denying Faber the renewal would run counter to the government's recent economic reforms.

Faber is expected to release its 3QFY10 results in the middle of this month, tentatively on Nov 16. The company expects to record strong year-on-year (y-o-y) growth in revenue and earnings, supported by the lower base impact in the corresponding quarter last year, as it only started recognising contributions from its major integrated facilities management (IFM) contracts in Abu Dhabi in 4Q09.

Despite the summer season and Ramadan month, Faber expects the contribution from Abu Dhabi to remain strong in 3Q10 as the company had ramped up its activities prior to Ramadan.

As such, we expect Faber to record quarter-on-quarter growth bolstered by higher progress billing from its property division. ' OSK Research, Nov 2


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

GENTING - Buy Genting as proxy to S'pore unit: OSK

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



Investors should buy Genting Bhd, a Malaysian casino operator for its "alluring growth trajectory" and the company is also a cheaper proxy to its Genting Singapore Plc unit, OSK Research Sdn Bhd said in a report today.

Genting's active search for acquisitions of a rival global casino and potential sale of its power assets are potential share-price catalysts, OSK said.

It has "buy" rating and a share-price estimate of RM14.05. -- Bloomberg

CNOUHUA - RHB Research fair value for China Ouhua at 69 sen

Stock Name: CNOUHUA
Company Name: CHINA OUHUA WINERY HLDGS LTD
Research House: RHB

KUALA LUMPUR: RHB Research Institute has accorded a fair value of 69 sen for China Ouhua Winery Holdings Ltd which will be listed on Wednesday, Nov 3. Its offer price is 60 sen.

'We have derived a fair value of 69 sen share after applying an FY11 target of 6x PER, which is between the weighted average FY11 PER of Malaysian F&B companies with similar market capitalisation and the weighted average FY11 PER of three out of four Chinese shoemakers,' it said.

RHB Research said Xidelang was not included as there were no forward earnings estimates. Its fair value implies an upside of 15%, although it noted that Ouhua offers attractive dividend yields of 5.1-6.6% p.a. for FY10-12.

BSTEAD - HLG Research maintains Buy on Boustead Holdings

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

KUALA LUMPUR:'' HLG Research is maintaining its Buy recommendation on BOUSTEAD HOLDINGS BHD [] with a target price of RM5.67 following the latest corporate development.

The research house said on Wednesday, Nov 3 that at RM5.67, this is a 10% holding company discount to its conservative sum-of-parts of RM6.30.

The Edge FinancialDaily reported Boustead is issuing up to RM1 billion MTN to build a war chest of over RM500 million to continue its acquisition trail.

The first tranche of RM620 million will be used to fund the acquisition of Pharmaniaga, its manufacturing and property divisions and repay borrowing.'' The group is also very positive about the property sector on the back of government's efforts to revitalise KL and is eyeing some PROPERTIES [] in the Klang Valley that are close to developed areas and targeting to achieve 25% annual property development revenue growth, it reported.

HLG Research, in its comments, said this fund raising exercise (besides funding its already announced acquisitions) is to position itself for the injection of 60 acres Jalan Cochrane land (deal expected to be finalized by end 2010) and the 245 acres Batu Cantonment army base.

Given its track record in developing Mutiara Damansara and Mutiara Rini (Johor), the two strategically located landbank would further add value to the group and further consolidate its status as a undervalued stock and attract interest from investors.

"Maintain Buy with a target price of RM5.67 (10% holding company discount to our conservative SOP of RM6.30). We stressed that our SOP is conservative as we are using flat CPO price assumption of RM2,500 a tonne for FY10-12 vis-''-vis circa RM3,000 a tonne currently.

'Moreover, we are only using 14.5x FY11 P/E vis-''-vis sector average of 16.5 times currently and yet to include any value from the potential injection of the two abovementioned landbank.'' By simply raising our CPO assumption to RM2,700 a tonne, our target price would have increased to RM6.22,' it said.

UNISEM - AmResearch maintains Buy on Unisem

Stock Name: UNISEM
Company Name: UNISEM (M) BHD
Research House: AMMB

KUALA LUMPUR: AmResearch is maintaining a Buy call on Unisem Bhd, following its latest 3QFY10 results.

The research house said on Wednesday, Nov 3 its forecast earnings of 28 sen a share is set to be achieved given that the strength of orders has yet to diminish despite economic concerns in Europe and the US.

'We continue to value Unisem at RM3.25. Our 1.9 times price-to-book value is about a 10% discount to the previous upcycle multiple, which we believe is justified as we are looking at a longer growth period (more than six quarters vs four quarters in the previous upcycles). We have also rolled over our valuation year to FY11,' it said.

AIRPORT - All goes well for Malaysia Airports

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD
Research House: MAYBANK

Malaysia Airports Holdings Bhd
(Nov 1, RM6.07)
Maintain 'buy' at RM6.07 with target price of RM7.12: The RM275 million (+15.7%) 9M10 recurring net income was 64% of our full-year forecast and 74% of consensus. The fourth quarter is seasonally the strongest, and assuming 3Q momentum is replicated, MAHB should have no problem hitting our RM152 million (10% y-o-y) 4Q2010 forecast.

MAHB is our top aviation pick as it is well-placed to enjoy the current air travel up-cycle. Buy, with RM7.12 per share discounted cash flow-based (DCF) target price (TP).

The RM95 million (+12% y-o-y, 5% q-o-q) 3Q recurring net profit was in line with our RM101 million expectation. The main variance was a higher 32% tax rate (we forecast the statutory 25%) which added RM3 million in costs.

We tweak our forecasts on post-result housekeeping and TP is maintained.

The bulk of the 7.5% y-o-y 3Q passenger traffic growth was from international passengers (19.1% y-o-y). Domestic passengers grew a slower 3% y-o-y.

This has increased the average passenger service charges (PSC) by 6.6% y-o-y as international passengers command four to seven times higher PSC than domestic passengers.

We were surprised to see that MAHB's cash flow is already experiencing the burden of the KLIA 2 construction with a cash outflow of RM145 million in 3Q2010. We initially thought it would hit in a big way only in 2011/12.

However, MAHB's strong balance sheet of RM1.2 billion of gross cash would allow it to navigate this 'cash flow heavy' period with little fuss.

We have tweaked our FY2010 numbers by +0.2% to reflect the higher tax rate and adjustments of other variables. The fourth quarter is looking very promising, with continued strong passenger growth, higher international passenger mix and robust retail spend.

Industry experts predict this strong air travel is likely to carry over into 2011 which may make our 2011 forecast seem modest. We hold our forecast for now pending a company visit.

Revenue was up by 18.3% y-o-y, driven by a combination of 7.5% passenger growth, 10% higher unit revenue and 0.8% from higher price/mix.

The higher unit revenue was achieved from: (1) higher average PSC of RM9.47 (6.6% y-o-y) stemming from higher percentage of international passenger mix (3.6 ppt y-o-y); (2) retail sales per passenger rose to RM6.94 per passenger (8% y-o-y); and (3) higher landing charge of RM340 (2% y-o-y) due to bigger aircraft utilising MAHB's airports.

FRS139 penalises MAHB on two fronts: (1) fair value of future cash stream from Sabiha Gochen, where the discount rate is high; and (2) mark-to-market adjustment of financial derivatives.

Both had negative implications to MAHB in 3Q2010, resulting in a net charge of RM32.9 million. We value MAHB on a cash flow basis and FRS139 adjustments have no implication on our valuations.

We retain our DCF valuation methodology with a target price of RM7.12. Our assumptions are: (i) a 10-year cash flow projection, (ii) a terminal yield of 0%, and (iii) weighted average cost of capital (WACC) of 8.83%.

MAHB's 2010F valuation is compelling: Price/operating cash flow per share of 8.6 times is at a 25% discount to peer group average, return on capital of 11% is 51% higher, and dividend yield of 2.9% is 39% higher.

Furthermore, MAHB's three-year collateralised fund obligation compounded annual growth rate is the second highest and gearing ratio of 0.15 times is significantly lower than peer group average of 0.93 times.

On a balanced scorecard basis (equal weighting for all five valuation metrics), MAHB is the most attractive listed airport in the world, followed by Xiamen, Shenzhen and Vienna ' Maybank IB Research, Nov 1


This article appeared in The Edge Financial Daily, November 2, 2010.

WASEONG - RHB Research maintains FV for Wah Seong at RM2.21

Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Research House: RHB

KUALA LUMPUR: RHB Research is maintaining its fair value of RM2.21 for Wah Seong Corp Bhd and is keeping its market perform recommendation.

The research house said on Tuesday, Nov 2 that it believes much of the negative sentiment surrounding the sector has been priced in by investors. Share prices did not experience any significant pull-back during the quarterly results reporting in Aug and in fact some stocks have performed strongly in recent months.

'Two main reasons for this: 1) Sustained crude oil prices above the US$70 per barrel mark; and the 2) Resolution of several global energy issues,' it said.

AmResearch said in the short-term, it believes several stocks to see ample trading interest on the back of positive newsflows.

They are stocks linked to the initiatives planned in the Economic Transformation plan (Dialog); provide brownfield services to the domestic energy market (Dayang/ Kencana); and; Are in the same value chain as the two Petronas listings (Kencana/Petronas Gas) could see ample trading interest on the back of positive newsflows.

FABER - OSK Research maintains Buy on Faber, unch TP RM4

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

KUALA LUMPUR: OSK Research said it is not entirely concerned about the expiry of the original deadline for renewal of FABER GROUP BHD []'s Hospital Support Services (HSS) concession.

In its research note issued on Tuesday, Nov 2, it said that Pharmaniga Bhd experienced the same thing with regard to the renewal of its pharmaceutical supply concession, which was eventually renewed.

'While there is speculation that the Government might not renew Faber's concession for East Malaysia and politics may possibly take priority, we strongly believe that the renewal should be based on track record and performance if the Government is truly committed to its transformation plan,' it said.

OSK Research said it maintains its BUY recommendation on Faber at an unchanged TP of RM4 as the current uncertainty may present a buying opportunity for investors who are still hopeful of a favourable outcome.

CIMB - CIMB lifted to 'buy' at AmResearch

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: AMMB



CIMB Group Holdings Bhd. was upgraded to "buy" from "hold" at AmResearch Sdn Bhd on expectations of improved non-interest income, particularly from overseas capital markets in Asia.

Its appointment as one of 11 bookrunners for AIA Group Ltd's Hong Kong initial public offering is testimony to its growing regional investment banking franchise, AmResearch said in a report today.

CIMB's fair value was raised to RM9.60 from RM7.80, according to the report. - Bloomberg

KFC - AmResearch keeps 'buy' rating on KFC

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
Research House: AMMB



AmResearch re-affirmed "BUY" rating on KFC Holdings Bhd (KFC) with enticing earnings growth from KFC India.

The research house said it was according a small premium to reflect an expected robust earnings growth of KFC India.

"We re-affirm our BUY rating on KFC with a higher fair value of RM4.15 per share," said AmResearch in a research note today. - Bernama

AIRPORT - OSK lowers MAHB's earnings forecasts

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD
Research House: OSK



OSK Research has lowered Malaysia Airports Holdings Bhd's (MAHB)core earnings by between 13 and 15 per cent for the 2010/2011 financial year.

It said earnings fell short because of the higher than expected provisions for doubtful debts.

For the 2012 financial year, OSK Research said it expected earnings to be flat on the back of higher operating costs and depreciation expenses although, going forward to the next five years, earnings are expected to expand at a compound annual growth rate of 6.57 per cent.

"Including Sabiha Gokcen International Airport, OSK Research derived a fair value for MAHB of RM8.47, up from RM6.26 previously, with our "BUY" call maintained.

MAHB won the right to operate Sabiha Gokcen airport, the smaller of Istanbul's two airports, which is currently operating at only 35 per cent and making losses.

"From our analysis, we believe that the 451 milion Euros airport should be free cash flow positive by the 2011 financial year on the back of its improved operating cost structure as passenger utilisation rates improve to over 60 per cent," OSK Research said. -- Bernama

CIHLDG - CI Hldgs climbs after OSK ups fair value

Stock Name: CIHLDG
Company Name: C.I. HOLDINGS BHD
Research House: OSK



CI Holdings Bhd, a beverage and construction group, climbed 3.9 per cent to RM3.96, bound for its highest close since September 2000.

The company's fair value was raised to RM4.78 from RM3.66 at OSK Research Sdn Bhd to reflect its earnings growth prospects, according to a report today. - Bloomberg

AXIATA - Axiata upgraded to 'outperform' at RHB

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



Axiata Group Bhd, a Malaysian mobile-phone operator, had its stock upgraded to "outperform" from "market perform" at RHB Research Institute Sdn Bhd due to "strong" growth prospects from regional exposure and cheaper valuations against domestic peers.

Axiata's share fair value was raised to RM5.52 from RM4.75, RHB analyst Lim Tee Yang, said in a report today. -- Bloomberg

AIRPORT - Hwang DBS Vickers Research maintains Buy on MAHB

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research said Malaysian Airport Holdings Bhd (MAHB) 3Q10 core net profit of RM82.9 million (down 1% q-o-q) was above its expectation but in line with consensus.

It said on Monday, Nov 1 that MAHB's lower staff cost and strong passenger volume supported earnings.

'MAHB said 4Q10 should be seasonally stronger on higher passenger traffic. Hence, we look to raise FY10F earnings by c.5-10%. Maintain Buy, our SOP-derived TP of RM6.15 is under review with upward bias,' it said.

Hwang DBS Vickers Research said it continues to like MAHB for its long-term earnings potential from its cash-rich airport concession, land development, as well as the new LCCT.

'There could be more upside from its overseas investments, which we have yet to factor in our valuations,' it said.