November 19, 2010

MEDIA - Media Prima showing you the money

Stock Name: MEDIA
Research House: ECMLIBRA

Media Prima Bhd
(Nov 18, RM2.24)
Maintain buy at RM2.22 with target price RM2.72
: Media Prima (MPR) recorded 3QFY10 core net profit of RM51.3 million (+65% year-on-year, +64% quarter-on-quarter) bringing 9MFY10 core net profit to RM110.5 million (+183% y-o-y) or 72% of our earnings estimate. 9MFY10 revenue of RM1.1 billion (+116% y-o-y) and earnings before interest, tax, depreciation and amortisation (Ebitda) of RM267.3 million (+150% y-o-y) was above expectations at 78% and 79% of our 2010 estimate. 9MFY10 core net profit would have been higher by RM12.4 million if not for an ex-exceptional items tax rate of 32%

Unlike Star's 3QFY10 core net profit, MPR's 3QFY10 core net profit was sequentially driven higher by TV adex which expanded 51% q-o-q. We understand that MPR reduced its discounting rate by three percentage points (ppts) q-o-q to 64% to take advantage of improving consumer and thus, adex sentiment. This also explained Ebitda margins improving by three ppt q-o-q to 25%.

3QFY10 core net profit was higher y-o-y, not only due to adex growth but maiden contributions from NSTP and Kurnia Outdoor. New media losses expanded six fold y-o-y likely due to the launch of TonTon but was more than made up for by TV, radio and outdoor which all recorded y-o-y growth. 9MFY10 core net profit was of course higher y-o-y for the same reasons.

MPR also announced that it is revising its dividend policy from 25% to 50% net dividend payout ratio (DPR) to 25% to 75% net DPR effective this year. Going forward, dividends will be paid twice a year. To this end, it announced a single-tier interim dividend of four sen and another is expected to be announced at year-end. Assuming 75% net DPR, investors can expect another six sen net dividend per share or 3% net dividend yield at year-end.

We leave our earnings estimate unchanged. 4QFY10 will likely be a slightly weaker quarter due to the lack of adex friendly events. The last major adex friendly event was Hari Raya Aidifiltri in September or end 3QFY10. Our RM2.72 target price is based on 18 times one-year forward PER, the historical average. We continue to like MPR for its earnings outperformance and now its potential to pay more dividends. ' ECM Libra Investment Research, Nov 18

This article appeared in The Edge Financial Daily, November 19, 2010.

FABER - It just gets better for Faber Group

Stock Name: FABER
Research House: OSK

Faber Group Bhd
(Nov 18, RM2.72)
Maintain buy at RM2.75 with target price RM4
: For 9MFY10, Faber reported revenue and net profit of RM684.9 million and RM75.9 million respectively, which were largely within our expectations, accounting for around 77% of our net profit forecasts for FY10. Revenue jumped 34.5% year-on-year (y-o-y) while net profit surged more than 89% y-o-y. The strong revenue growth y-o-y was attributed to higher contribution from its integrated facilities management (IFM) business concession and non-concession divisions.

Growth in the concession division was attributed to higher variation orders, higher bed occupancy rates and new facilities at the government hospitals under Faber's concession. Meanwhile, the significant increase in its non-concession division was driven by revenue contribution from the IFM contracts it secured in'' UAE last year. However, due to seasonal factors related to the summer season and Ramadan month, revenue and net profit were lower quarter-on-quarter on lower work billings from its IFM contracts in Abu Dhabi.

While revenue for 9MFY10 was up by 34.5% y-o-y, earnings before interest and tax (Ebit) rose 44.6% y-o-y on wider margins from its non-concession division, particularly from its IFM contracts in Abu Dhabi. Other than the higher revenue and improved margins, a lower effective tax also lent support to net profit, which jumped by more than 89% y-o-y. We gather that the lower effective tax was largely attributed to Faber LLC, which operates in a tax-free UAE.

As we expect Faber to register similar performance in 4QFY10, we have revised upwards our earnings forecast for FY10 and FY11 by 7.9% and 4.7% respectively, after adjusting our margins and effective tax rate assumptions. We maintain our 'buy' recommendation at an unchanged target price of RM4 based on sum-of-parts valuation. Our fair value is premised on the assumption that Faber's concession will be renewed on existing terms. We still think that Faber should get its existing concession renewed in view of its track record and excellent execution of the concession. ' OSK Investment Research, Nov 18

This article appeared in The Edge Financial Daily, November 19, 2010.

TSH - 'Buy' call on TSH Resources maintained

Stock Name: TSH
Research House: MIDF

MIDF Research has maintained its 2010 and 2011 forecasts for TSH Resources Bhd as it believed the company will benefit from higher crude palm oil (CPO) price and the improving production for the current financial year and onwards.

In its research note today, MIDF said TSH's revenue was expected to increase to RM1.01 billion in 2010 and RM1.51 billion in 2011.

MIDF Research said with the positive outlook on the CPO prices and more palm trees growing to the prime maturity age, it has maintained its "buy" call on TSH at target price of RM3.50.

It said the valuation was based on its historical average price earning of 14 times forward earnings.

TSH's third quarter 2010's net profit of RM18.2 million represented only 53.5 per cent (54 per cent of consensus) of its full-year estimates.

Its revenue in the third quarter 2010 actually increased by 5.25 per cent year-on-year to RM214.3 million.

However, this was offset by a 25 per cent jump in operating expenses of RM37.4 million, it said. -- Bernama

KOSSAN - Kossan to focus on higher-end exam gloves

Stock Name: KOSSAN
Research House: OSK

Kossan Rubber Industries Bhd will continue to focus on higher-end examination gloves, said OSK Research.

In its research note today, OSK said Kossan, in comparison with some of its peers, had gotten the head start by having the intention and putting the efforts to focus on the higher-end examination gloves such as the powder-free nitrile and surgical gloves.

"We understand the company will continue with efforts to upgrade its Chemax glove launched a few years ago, which yields higher product margin as well as look to producing surgical gloves starting from next year to further strengthen its presence in the higher-end examination glove market," it said.

OSK said Kossan has delivered a good set of results for the third quarter ended Sept 30, 2010.

"Its net profit was only down by 4.8 per cent quarter-on-quarter unlike some of its peers where their net profits were down between 17 per cent and 30 per cent during the corresponding period following the high latex prices and unfavorable exchange rate," it said.

For the third quarter ended Sept 30, 2010, Kossan's pre-tax increased to RM38 million from RM21 million in same quarter of 2009.

Revenue increased to RM276 million from RM210 million previously.
OSK said it would maintain its "buy" call on Kossan with the target price unchanged at RM5.25. -- Bernama

KOSSAN - MIDF raises Kossan's EPS estimates

Stock Name: KOSSAN
Research House: MIDF

MIDF Research has revised upwards Kossan Rubber Industries Bhd financial year 2010 earnings per share estimates by 9.4 per cent due to better-than-expected glove and technical rubber products sales.

Kossan's third quarter financial year 2010 net profit grew 21 per cent year-on-year to RM28.6 million on a comparable basis excluding forex losses incurred in the third quarter of last year.

Its third quarter revenue this year grew by 31.2 per cent year-on-year to RM275.6 million, underpinned by favourable performance of the glove manufacturing and technical rubber products divisions.

Actual quantity of gloves sold in the third quarter of this year was 2.30 billion pieces compared with 2.28 billion in the second quarter, totalling 6.9 billion pieces in the cumulative nine months, said the research house today.

Gloves utilisation rate has hit an all-time high of 92 per cent. -- Bernama

SUNREIT - OSK Research Neutral on Sunway REIT, TP 98c

Stock Name: SUNREIT
Research House: OSK

KUALA LUMPUR: OSK Research has initiated coverage of Sunway Real Estate Investment Trust (Sunway REIT), which is the largest Malaysian REIT (M-REIT) with an asset size of RM3.7bn and a free float of about RM1.6bn.

It said on Friday, Nov 19 that it has accorded a Neutral call on Sunway REIT at 98 sen based on 1.0 times P/NAV with a Neutral call.

OSK Research said Sunway REIT provided investors with exposure to the retail, hospitality and office sub-sectors, Sunway REIT is a defensive REIT that offers unit holders a longer-term growth catalyst.

'Given its low dividend yield of 6.7% (vs the sector's 8.0%) and the fact that it will be trading at 1.0x P/NAV, Sunway REIT may likely to appeal to only certain classes of investors, especially those with a defensive investment strategy,' it said.

KNM - OSK Research upgrades KNM to Trading Buy

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

KUALA LUMPUR: OSK Research has upgraded KNM GROUP BHD [] to a Trading Buy with a Target Price of 56 sen after securing a US$216 million (RM680 million) bid to develop gas condensate fields in Uzbekistan from Lukoil Uzbekistan Operating Company.

The research house said on Friday, Nov 19 KNM's current share price has an upside of about 29% to its target price of 56 sen which it derived based on a PER of 9x FY11 earnings.

'We are upgrading our call to Trading Buy from Neutral previously,' it said. 'We believe its share price would react positively to this big one-off contract in the short term.'

OSK Research said for KNM's share price sustainability in the longer term, investors would need assurance on the

continuous contract flows which it still doubted as the global O&G industry had not fully reached its recovery stage in the past 12 months although crude oil price had stabilised between US$70 to US$80 a barrel over the period.

It said as more countries raise interest rates, this may suppress the global economic growth, which then result in lower demand for energy (O&G) and this again may delay the oil majors and national oil companies from spending further capex.

'Do note that KNM is a global O&G process equipment company and hence its business is dependent on the health of the global economy rather than Malaysia alone. Therefore, we have a Trading Buy call on the stock rather than a Buy,' it said.

PROTON - Proton downgraded to 'hold' at UOB

Stock Name: PROTON
Research House: UOB

Proton Holdings Bhd, a state-controlled carmaker, was downgraded at UOB Kay Hian (Malaysia) Holdings Sdn Bhd on concerns over future research and development grants and possible earnings dilution from becoming a potential Formula One title sponsor.

The stock was cut to "hold" from "buy" and its share price estimate reduced to RM5.20 from RM5.60, UOB said in a report today. -- Bloomberg

November 18, 2010

AXIATA - Stable outlook for Axiata

Stock Name: AXIATA
Research House: RHB

Axiata Group Bhd
(Nov 16, RM4.44)
Maintain outperform at RM4.46, fair value RM5.52
: We think Celcom may offer iPhones in the future, judging by the change in management's tone. After making good progress in the big-screen business, management appears to be turning its attention to the small-screen.

The iPhone commands strong visibility and brand affinity, and should significantly enhance its smartphone portfolio. Apart from that, Celcom is adopting a wait-and-see approach on YTL Communications' impending entry into the market.

Looking ahead, management believes competition in Indonesia will remain relatively stable, with the major mobile operators focused on maximising revenue from their subscriber base.'' Earnings before interest, taxation, depreciation and amortisation (Ebitda) margins should remain stable at 50% as mobile penetration is now at about 80%, giving operators little incentive to engage in painful price wars to win over subscribers.

Further growth is expected to come from expanding its prepaid subscriber base, as well as boosting small-screen broadband usage.

As for India, the outlook is still challenging, despite the worst of the price war being over.

Earnings growth has been lacking, as margins have been trending marginally downward due to higher costs and losses from new service areas. The introduction of mobile number portability this month will only increase the intensity of the competition.

In Sri Lanka, Dialog's recent 3QFY2010 results help reaffirm its return to profitability on the back of sequential revenue growth and narrowing losses in the broadband and TV businesses. The outlook looks quite positive, thanks to the floor pricing regime introduced on July 15 and should benefit Dialog the most as the market leader with 57% revenue market share.

Management is upbeat on Robi in Bangladesh, given that mobile penetration is low at 40% in a country with a population of 160 million. Hence, management is keen on generating rapid subscriber growth but earnings and margins may continue to fluctuate in FY2011 due to the SIM tax subsidy. We maintain our earnings forecasts but risks include: (i) weaker than expected performance by Celcom as well as from regional cellcos due to competition and macroeconomic factors such as inflation and so on; and (ii) over-priced acquisitions.

We maintian our sum-of-parts derived fair value at RM5.52 and 'outperform' recommendation on the stock. We continue to like Axiata for its strong growth prospects from regional exposure and cheaper valuations against domestic peers. ' RHB Research, Nov 16

This article appeared in The Edge Financial Daily, November 18, 2010.

YTLPOWR - YTL Power subsidiary ties up with Primeworks, RTM for WiMAX content

Stock Name: YTLPOWR
Research House: AMMB

YTL Power International Bhd
(Nov 16, RM2.51)
Fair value under review, RM2.53
: YTL Power International Bhd's (YTL Power) 60%-owned YTL Communications Sdn Bhd signed a memorandum of understanding on Monday with RTM and Media Prima Group's Primeworks Studio to provide internet television content for its 4G WiMAX services.

While the 4G WiMAX service is expected to be launched this Friday, the content for YTL Communications' Internet television services are due to be launched only at end-2011.

Recall that the group plans to invest up to RM2 billion to deploy hybrid television services in Malaysia and the Asia-Pacific region to spur interest in its WiMAX wireless broadband services. This will combine WiMax wireless broadband, under the Yes brand, with the terrestrial digital broadcast television system platform for the new hybrid TV service. The group claims to be able to combine traditional TV, on-demand movies and Internet content for delivery to all screens including a mobile hand-held device, a personal computer or a TV set.

Newspapers cited Tan Sri Francis Yeoh, managing director of YTL Power, as saying that the agreements would effectively make Malaysian content available to the region and 'propel Malaysia towards becoming a regional, digital broadcast hub'.

He also indicated the possibility of undertaking joint bidding for local and international content as well as joint productions for regional broadcast.

YTL Power's shares have surged recently on news that the pre-launch response to its WiMAX service has been above management's internal targets. But note that this is not confirmed registration or fee-paying subscribers as the current internet bookings allow potential customers to choose their own numbers.

We have not assigned any value for the WiMAX investment to our sum-of-parts valuation of RM2.15 per share. Assuming a one time book value, our sum-of-parts will rise to RM2.33 per share.

YTL Power's fair value remains under review pending greater clarity on the pricing structure, technical capabilities and customer response to the WiMAX service. The stock currently trades at a fully diluted CY11F PER of 18 times ' above its three-year diluted PER band of 10 to 16 times.

It is still offering a decent dividend yield of 5%, which we understand is unlikely to be adversely affected by the RM2.5 billion WiMAX capital expenditure programme. ' AmResearch, Nov 16

This article appeared in The Edge Financial Daily, November 18, 2010.

PARKSON - Parkson still chalking up profit

Stock Name: PARKSON
Research House: OSK

Parkson Holdings Bhd
(Nov 16, RM5.80)
Maintain 'buy' at RM5.76, target price at RM6.64
: Parkson Holdings' 1QFY11 results were in line with our forecast and consensus estimates of RM373.6 million and RM370.3 million respectively.

Parkson's 1QFY2011 revenue and net profit increased by 2.3% to RM656.5 million and 17.7% to RM76.2million year-on-year (y-o-y) respectively, attributed to a 6% growth in commissions from concessionaires to RM371 million.

Direct sales dipped 1.9% y-o-y to RM255.3 million, in line with the group's strategy to shift from direct to concessionaire sales.

Apart from new openings, the stronger results were attributed to the impressive same-store-sales (SSS) growth in China (+10.9%), Malaysia (+9.1%) and Vietnam (+20%), which was at least in line with management's SSS growth guidance of 10% for China, 5% to 6% for Malaysia and 15% to 20% for Vietnam.

If not for the stronger ringgit, which has appreciated by 10% and 16% against the renminmbi and Vietnamese dong, net profit would have surged by 28.4%. On a quarter-on-quarter basis, its top and bottom line improved by 5.8% and 2.7% respectively, as sales in the current quarter were boosted by the Hari Raya festive season.

Commission rate was flat at 20.8% y-o-y while direct sales margins expanded slightly to 16.7% from 15.9%. Overall merchandise gross margin was flat at 20.3% in 1QFY2011 versus 20.2% in 1QFY2010.

In tandem with the stronger merchandise gross margin and higher other operating income, earnings before interest and taxation (Ebit) margin rose 1.1 percentage points to 27.5%.

In FY2011, the locations earmarked for new outlets in China are Beijing, Zhejiang, Zigong and Baoding. In Malaysia, there are tentatively two new outlets in the pipeline ' in Festival City, Jalan Genting Klang, and First Avenue in Penang, while one new outlet is slated to open in Ho Chi Minh city, Vietnam, this December.

Given that the results were in line with our forecast, we maintain our FY2011 and FY2012 earnings estimates at RM373.6 million and RM444.3 million respectively. Our target price is maintained at RM6.64, based on an RNAV of 24 times PER for its China operation, 12 times PER for its Malaysia operation and 10 times PER for both Vietnam and the excluded stores. ' OSK Research, Nov 16

This article appeared in The Edge Financial Daily, November 18, 2010.

HLBANK - ECM keeps 'hold' call on Hong Leong Bank

Stock Name: HLBANK
Research House: ECMLIBRA

ECM Libra Investment Research is maintaining its "hold" call on Hong Leong Bank Bhd (HLBB), with the target price revised upwards to RM9.43 per share from RM9.12 per share.

"Our target price is derived by pegging the historical average price by volume chart of 1.67 times," it said in its research note today.

The research house said HLBB's 2011 financial year first-quarter results was within expectation.

"As expected, no interim dividends were declared," it added.

ECM Libra said HLBB's net profits was 9.8 per cent higher, year-on-year, primarily due to net loans growth of 11.6 per cent over the last 12 months.

"However, on a quarter-on-quarter basis, net profits declined 14.6 per cent despite the company reporting a three per cent increase in net interest income," it said.

OSK Research, meanwhile, said it maintained a "buy" call on HLBB at a target price of RM9.86.

"The numbers were largely in line with consensus and our full year forecast as we expect lower provisions in the subsequent quarters to help shore up its full-year numbers," it added.

The research house added that results were underpinned by a pick-up in quarterly loans growth momentum, higher contribution from associates, Chengdu Bank and lower loan loss provisions.
-- Bernama

MEDIA - Buy Media Prima: OSK, ECM

Stock Name: MEDIA
Research House: OSK

OSK Research and ECM Libra have maintained a "buy" call on Media Prima Bhd following the company's better than expected nine-month financial performance.

"The company registered a core net profit of RM110 million for its nine-month financial period, which was above our expectation and accounted for 83 per cent of our net profit forecast for financial year 2010," said OSK Research in a research note today.

"Without consolidating the revenue from NSTP and Kurnia Outdoor, Media Prima reported a 22 per cent year-on-year increase in revenue supported by revenue growth from all of its other media platforms such as television, radio and outdoor media," it said.

OSK Research has revised the company's financial year 2010 and 2011 earnings forecast by 18 per cent and 12.9 per cent respectively, with a higher target price of RM3.30.

Meanwhile, ECM Libra mentioned in a research note, that Media Prima had revised its dividend policy and going forward, paying twice a year.

"Assuming a 75 per cent net dividend payout ratio (DPR), investors can expect another six sen net dividend per share (DPS) or three per cent dividend yield at year. -- Bernama

HLBANK - AmResearch: Credit quality in Hong Leong Bank shines

Stock Name: HLBANK
Research House: AMMB

KUALA LUMPUR: AmResearch said HONG LEONG BANK BHD [] registered net earnings of RM257.2mil (-14.6% QoQ, +9.8% YoY) in 1QFY11, which if annualised would be 4.5% below its forecast and 5.9% below consensus of RM1,093mil FY11F.

'We maintain our BUY rating on Hong Leong Bank, with a raised fair value to RM11.20/share from RM10.90 previously,' it said.

AmResearch said it was rolling forward its base to calendar year 2011 instead of financial year-ending June 2011.

Based on calendarised ROE of 15.5% CY11F (previously FY11F of 15.9%), it estimated fair P/BV of 2.1x on a book value of RM5.23 (previously FY11F of RM4.93).

November 16, 2010

KENCANA - A new partner in the pipeline for Kencana?

Stock Name: KENCANA
Research House: CIMB

Kencana Petroleum Bhd
(Nov 15, RM2)
Maintain outperform at RM1.98 with target price RM2.28
: Over the weekend, The Edge quoted Kencana's CEO Datuk Mokhzani Mahathir as saying that he was not paring down his stake in the company. He also denied speculation that McDermott is looking to buy up to 5% of his holdings in Kencana. However, he confirmed that the company is considering raising funds for its expansion plans.

We are not surprised by the denial as Mokhzani has been consistently clear about his commitment to Kencana, which he bought into well before the company listed in 2006. He owns 38.6% of Kencana directly and indirectly through Khasera Baru Sdn Bhd. The other substantial shareholder is the Employees Provident Fund with an 8.2% stake.

As for the involvement with McDermott, we understand that the US-based company may surface as a JV partner of Kencana instead of a shareholder. We believe Kencana could be interested in working with McDermott to build a pipeline installation business after its attempt with US-based Global'' failed earlier this year.

Following the breakdown of the JV with Global in May, Kencana has maintained its interest in owning and operating pipelay barges, either by going it alone or by roping in a partner. McDermott has extensive experience in Malaysia and has been working closely with Bumi Armada in the pipeline installation business.

As a 2,000-tonne shallow-water pipelay barge would cost no less than US$100 million (RM314 million), Kencana may issue new shares to beef up its war chest and reduce borrowings. As at end-July, the company had borrowings of RM228 million, which amounted to 30% of shareholders' funds. At last Friday's closing price, a 10% private placement would raise gross proceeds of RM328 million. Kencana has received shareholders' approval for a private placement but the time line of the exercise has not been disclosed.

On Nov 11, Kencana's share price scaled to a new all-time high of RM2.11 before closing at RM2.03 with 31 million shares traded. Apart from the possibility of a new JV partner, order book expansion may have been a catalyst of the share price jump and active trade. In our visit note dated Nov 2, we wrote that Kencana is eyeing deals worth RM5.2 billion in Malaysia and at least US$300 million in India. We understand that the contract that may be awarded sooner than the others is the RM600 million fabrication contract given out by Petroliam Nasional Bhd (Petronas) and its production-sharing contractors. Year-to-date, the company has secured 12 jobs worth RM819 million, bringing its order book value to RM1.9 billion.

The potential entrance of a new high-profile partner adds to Kencana's attractions. The company is already benefiting from a steady flow of projects in Malaysia, Vietnam, India and Australia, and is expected to expand its order book. We maintain our EPS forecast and target price of RM2.28, pegged to an unchanged target market PER of 13.8 times. We continue to rate Kencana an outperform, with the potential share price triggers being: (i) active order book replenishment; (ii) a new JV partner; and (iii) M&A. ' CIMB Research, Nov 15

This article appeared in The Edge Financial Daily, November 16, 2010.

UCHITEC - AmResearch re-initiating coverage on Uchi Technologies

Stock Name: UCHITEC
Research House: AMMB

Uchi Technologies Bhd
(Nov 15, RM1.31)
Re-initiate coverage at RM1.32 with hold call and fair value of RM1.43
: We are re-initiating our coverage on Uchi Technologies Bhd with a hold call and a fair value of RM1.43, an 11 times PER multiple of its FY11 earnings. This is a relatively undemanding valuation on the back of a 19 times PER valuation commanded in the technology sector in general.

Uchi has growth opportunities from the current coffee module market, which it has dominance. However, there is lingering concern in Europe, which is the main market for Uchi brand partners' final products, especially given that the euro value is still relatively unstable. On this factor, we reckon valuation on the company would not be stretched further than 15 times circa 2004-2006 valuation during the semicon mini boom period.

Our projection of its FY11 earnings of 13.3 sen per share basically takes into account 1) the growth of existing business; 2) growth in new business stream and 3) thorough cost control on margins.

Our earnings estimate implies an 18% year-on-year (y-o-y) growth rate in the bottomline, supported by a 15% growth in the topline.

The main growth driver is indicated by Uchi's partner in Europe, which supplies the parts for the final coffee machines, pointing towards a growth circa of 10%-15% y-o-y for FY11.

In addition to that, the management is also looking at diversifying away from coffee machines into other households appliances, while maintaining its field of expertise ' heat-related modules. It is currently in early stages of talks with a household appliances brand owner in Spain.

If the talk is fruitful, it may add up to a further 5%-10% of annual revenue to the company, on top of the growth estimates in coffee machines modules.

Consumer confidence in Europe is slowly improving. We reckon, rising demand had driven FY10 growth and shall continue into FY11, as more people find employment.

We rate Uchi as a hold at this junction, on valuation of 11 times PER of 13.3 sen per share. This implies a price-to-book valuation of three times, relatively conservative compared to the historical average in excess of four times, inclusive of the miniboom period. ' AmResearch Sdn Bhd, Nov 15

This article appeared in The Edge Financial Daily, November 16, 2010.

GAMUDA - Penang's EDTP stopwork order only temporary for Gamuda

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

Gamuda Bhd
(Nov 15, RM3.55)
Maintain buy at RM3.46 with target price of RM4.38
: Gamuda's RM450 million loss in market value last Friday (down 22 sen per Gamuda share) is overdone, in our view. The share price weakness is due to the Penang government's stop-work order on the electrified double-tracking rail (EDTP) project on the Penang mainland. We think that the stopwork order is temporary, and the impact on our earnings forecasts will not be major considering that work pace on the project is already slow in the first place in light of the seasonal heavy rain. Maintain buy with a RNAV-based RM4.38 target price (TP).

The Penang government has issued a stopwork order on the EDTP effective immediately. The chief minister said that the pre-emptive move was necessary to prevent major floods as the recent floods in Kedah were possibly due to the project. The stopwork order will be effective until MMC-Gamuda provides a written guarantee that it will bear all losses should a similar problem arise on the Penang mainland, and removes any structure that causes water retention or water to overflow if flooding occurs.

The RM12.48 billion project awarded in end-2007 involves bridges, tunnels and new double-track railway lines traversing 329km across four states: Perak, Penang, Kedah and Perlis. We estimate that the track alignment on the Penang mainland comprises 16%-18% of the entire 329km stretch. Works on the entire project have crossed the half-way mark, with 49% completed as at July. Nonetheless, about 5% of the total land alignment has yet to be handed over to MMC-Gamuda as at July, which much of this land is believed to be located on the Penang mainland.

We think that the stopwork order would be restored once the year-end rainy season passes. Also, the transport minister is stepping in to explain to the Penang government that the worsening of floods (ever) in Kedah was not due to the project. We believe that the pace of work on the project overall is already slow in the first place due to the year-end rainy season. Hence, the stopwork order should not materially affect earnings. Gamuda's balance of works is about RM3.2 billion. The project has a 2013 completion deadline. ' Maybank IB, Nov 15

This article appeared in The Edge Financial Daily, November 16, 2010.

TCHONG - Tan Chong lays seeds for Indon expansion

Stock Name: TCHONG
Research House: AMMB

Tan Chong Motor Holdings Bhd
(Nov 15, RM5.47)
Maintain hold at RM5.39 with fair value RM6.20
: We re-affirm our hold rating on Tan Chong Motor Holdings Bhd (TCM) with an unchanged fair value of RM6.20 per share. Our sum-of-parts valuation continues to peg TCM at 11 times FY11F earnings.

TCM last Friday announced the acquisition of a licence in Sabah to manufacture luxury passenger vehicles and commercial vehicles in Kota Kinabalu Industrial Park. A plant will be set up with an initial capacity of 3,000 units per annum at an estimated capex of US$15 million (RM47 million).

The licence forms the last link of TCM's Asean asset ownership strategy ' which serves as a gateway into Indonesia's underserved Kalimantan and Sulawesi islands. As the plant will only be ready in 2013, earnings inflow from the investment will only trickle into TCM's books two years from now.

While we are positive about this development long term, TCM's pricey valuation amid normalising total industry volume (TIV) growth locally, which still forms the bulk of TCM's earnings, positions the stock unfavourably in the sector.

Furthermore, TCM's fortunes in the local market over the next 12 months may face headwinds from new launches by competitors, particularly against its predominantly C-segment, passenger car models, which form 30% of Nissan TIV. Prospects to offset any significant market share deterioration hinge largely on the success of its Teana model ' scheduled to be officially launched today.

As it is, our FY11F projections already factor in some 22% earnings growth, mainly driven by the new Teana. Against consensus, our projection hardly translates into any further potential upside revision. Furthermore, announcements on its Asean expansion since December 2009 have driven valuation expansion from eight times in late-2009 to 11 times currently. TCM's prospects in 2011 are fraught with execution risks as it moves from a news flow-driven stock in 2010 to an earnings-driven one in 2012.

Our sum-of-parts derived valuation continues to peg TCM at 11 times FY11F earnings ' a premium to the sector average of nine times ' which in our view fairly reflects its enhanced positioning in Asean following regional acquisitions over the past 12 months.

As an alternative, we prefer APM (Buy, FV: RM6.80) as a play into Tan Chong group's regional expansion, given its much cheaper valuation of six times FY11F earnings, prospects of significant earnings revision over the next 12 months and net cash of RM313 million which could lead to a dividend surprise. ' AmResearch Sdn Bhd, Nov 15

This article appeared in The Edge Financial Daily, November 16, 2010.

TCHONG - OSK keeps 'buy' call on Tan Chong

Stock Name: TCHONG
Research House: OSK

OSK Research has maintained a "buy" call on Tan Chong Motor Holdings over the company's structural changes that will see an increase in volume and earnings over the next three years.

Recently, the company had announced its intentions to set up a manufacturing plant in Kota Kinabalu Industrial Park, Sabah, with a RM285 million investment over five years on a 20-hectare site.

"Tan Chong is expected to kickstart production sometime in the second quarter of 2012 with an initial output of 3,000 units at its Navara assembly line, which would cost US$15 million at most in the first phase," OSK Research said in a statement today.

It has maintained its target price of RM7.29 on the company as well.

"With production to commence and noting that the upcoming Navara's content would be localised, which translates into higher margins, we have increased our units sold assumption by an additional 1,000 for 2012.

"This effectively nudges up our earnings estimates for 2012 by 4.7 per cent, for a year-on-year growth of 30 per cent for the year, which will also be boosted by its Indochina foray and localised B-segment model," it said.

The research house also noted that Sabah currently lacks a conducive supply chain and infrastrucutre to support the company's venture.

"However, we may potentially see Tan Chong luring other global original equipment manufacturers (OEMs) in establishing new manufacturing bases in Sabah, noting the high possibility that it could also bring APM Automotive Holding Berhad into Sabah going forward.

"We do not rule out the possibility of Tan Chong becoming an assembler of other margues given the sizeable land that it is acquiring," it said. -- Bernama

PETDAG - CIMB upgrades Petronas Dagangan

Stock Name: PETDAG
Research House: CIMB

Petronas Dagangan Bhd, the retail arm of Malaysia's state oil and gas company, was raised to "outperform" from "underperform" at CIMB Investment Bank Bhd, to reflect higher earnings growth prospects.

The share price estimate was increased to RM14.70 from RM9.10, analyst Norziana Mohd Inon said in a report today. - Bloomberg

PARKSON - ECM keeps 'buy' call on Parkson

Stock Name: PARKSON
Research House: ECMLIBRA

ECM Libra Investment Research has maintained its "buy" call on Parkson Holdings, with the target price unchanged at RM6.70.

In a research note today, it said the target price is unchanged, pending an anticipated better results in the second quarter financial year 2011, due to year-end festivities and strengthening domestic consumption growth in China and Malaysia.

The research house said Parkson's first quarter financial year 2011 core net profit of RM76.2 million was in line with its expectations.

Parkson's net profit rose by 18 per cent year-on-year in spite of revenue increasing by only two per cent.

"The weak revenue growth was the result of lower ringgit-denominated revenue given the currency''s strength against the Chinese renminbi and Vietnamese dong," it explained. - Bernama

CSCSTEL - AmResearch downgrades CSC Steel

Stock Name: CSCSTEL
Research House: AMMB

KUALA LUMPUR: AmResearch has downgraded CSC Steel Holdings Bhd to a HOLD with a lower fair value of RM2 a share from RM2.20'' a share, assigning a 4.6 times peg to FY11F EPS.

The research house said on Tuesday, Nov 16 this represented a 20% discount to its historical valuation ' which is justified as demand boost remains uncertain in a high-cost and cheaper import substitutes market.

'FY10F-12F EPS were also trimmed 17%-20% as we moderated our utilisation assumption from 70% to 65%. Current net cash accounts for 41% of our fair value,' said AmResearch.

PBA - OSK Research maintains Buy on PBA, lowers target price

Stock Name: PBA
Research House: OSK

KUALA LUMPUR: KUALA LUMPUR: OSK Research said'' PBA HOLDINGS BHD []'s (PBA) earnings came in below its expectations as a sudden surge in costs during 3Q washed out its estimates.

OSK Research said on Tuesday, Nov 16 that although it was unable to reach management for immediate comment, it reckoned that this was largely due to higher chemical and maintenance expenses.

'The latest development prompts us to revise our earnings lower this year and going forward, as well as cut our target price to RM1.35 from RM1.48 previously. The stock is maintained as a BUY,' it said.


PARKSON - OSK Research maintains Buy on Parkson, TP RM6.64

Stock Name: PARKSON
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Buy call and target price of RM6.64 for PARKSON HOLDINGS BHD [].

Parkson reported a 1QFY11 revenue of RM656.5 million (+2.3% y-o-y) and net profit of RM76.2 million (+17.7% y-o-y). If not for the stronger RM against RMB and VND, net profit would have surged 28.4% y-o-y.

OSK Research said on Tuesday, Nov 16 the robust numbers were attributed to the impressive same store sales growth in all the countries under its umbrella, as well as new openings. Despite the higher expenses incurred for new openings, commission rates, direct sales and EBITDA margins were flat y-o-y.

'As the results were within our forecast, we maintain our FY11 and FY12 earnings estimates at RM373.6m and RM444.3m.'' Parkson has declared a 10 sen tax exempt dividend per share. Maintain BUY,' it said.

November 15, 2010

TENAGA - OSK Research maintains Buy on Tenaga, FV RM9.76

Stock Name: TENAGA
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Buy on TENAGA NASIONAL BHD [] with a fair value of RM9.76 following the latest development that the power giant's proposed Lahad Datu coal plant is suspended.

At 4.08pm, Tenaga is up one sen to RM8.52 with 4.11 million shares done on Monday, Nov 15.

OSK Research issued the flash note after the Sabah Environment Minister had said that as far as he was concerned the project was suspended.

'This latest news come as no surprise. We do note however, that there has been a short sharp selldown on TNB last week for which we cannot really indentify a clear reason. This news may have contributed as well as the weakness in the Ringgit.

'In our model, sensitivity analysis shows that for every 1% weakness in ringgit, TNB's net profit are cut by 1.5% due to higher coal costs. However, the strength in USD should be offset somewhat by weakness in coal prices,' it said.

OSK Research said in any case, its assumptions are very conservative already at US$100 coal price at RM3.13 to the USD for FY11.

'We also note that TNB is a rare post election stock as AFTER the elections, tariff may well go up. Our sensitivity shows for every 1% hike in tariff, TNB's net profits are raised by 7%,' it said.

AMMB - MIMB lifts AMMB profit forecast

Stock Name: AMMB
Research House: MIMB

MIMB Investment Bank Bhd has revised upwards, AMMB Holdings Bhd's net profit forecast for financial year 2011 and 2012, to RM1.35 billion and RM1.60 billion respectively from RM1.228 billion and RM1.33 billion respectively.

"With the improved operating environment and slightly better-than-expected results, we have fine-tuned our estimated financial year 2011 and 2012 net profit by 5.5 per cent and 20.3 per cent respectively," said MIMB Investment in a research note today.

AMMB posted a 40.7 per cent increase in profit after tax and minority interests to RM701.2 million in the first half of its financial year ending March 31, 2011.

Revenue during the period rose to RM3.477 billion from RM3.155 billion previously.

MIMB Investment said AMMB's reported first half financial year ending March 2011 net profit of RM701.16 million, accounted for 54.7 per cent of its previous full year estimate of RM1.28 billion.

It also raised AMMB's 2011 fair value to RM6.40 from RM5.60, representing a price-to-book (P/BV) ratio of 1.9x and 1.7x for financial year 2011 and 2012 on the back of an estimated Return On Equity (ROE) of 13.5 per cent and 14.6 per cent respectively. -- Bernama

MAYBANK - Maybank Q1 profit within expectation

Stock Name: MAYBANK
Research House: MIMB

The first quarter financial year 2011 net profit for Malayan Banking Bhd (Maybank), is within expectations, said MIMB Investment Bank Bhd in a research note today.

With the improved operating environment and earnings prospect especially in Indonesia, the research house has fine-tuned its financial year 2011 and 2012 net profit estimates by 3.4 per cent and 0.9 per cent respectively.

"Even so, we reckon that the calendar year 2011 fair value of Maybank should be pegged at RM9.46, representing a price to book ratio of 2.3x and 2.2x for financial year 2011 and 2012 respectively," it said.

MIMB has downgraded the stock from a trading buy to neutral.
Maybank's first quarter financial year 2011 net profit of RM1.0 billion grew 16.6 per cent and 12.7 per cent on year-on-year and quarter-on-quarter respectively.

" The result is pretty much in-line with our previous full year estimates of RM4.09 billion. With the improved operating environment and earnings prospect, especially in Indonesia, we have revised our estimations.

"We have revised upward the estimated financial year 2011 and financial year 2012 net profit to RM4.23 billion and RM4.52 billion respectively, from the RM4.09 billion and RM4.48 billion," it added. -- Bernama

GENTING - Genting cut to 'neutral' at Goldman

Stock Name: GENTING
Company Name: GENTING BHD
Research House: GOLMAN SACHS

Genting Bhd was lowered to "neutral" from "buy" and Genting Singapore Plc was cut to "sell" from "neutral" at Goldman Sachs Group Inc.

The brokerage cited rising regulatory risk for the Singapore unit as the government is becoming concerned before the general election about gambling by citizens.

The brokerage raised Genting Bhd's share-price estimate to RM11.70 from RM10.50 and Genting Singapore's price estimate to S$1.73 from S $1.50, according to the report by David Ng, analyst at Goldman Sachs. -- Bloomberg

GENTING - Genting up on O&G project rights sale

Stock Name: GENTING
Company Name: GENTING BHD
Research House: CREDIT SUISSE

Genting Bhd, a Malaysian casino and power group, rose the most in almost a month in Kuala Lumpur trading after receiving US$136.5 million from selling its rights to future sales of an oil and gas (O&G) project in Indonesia.

The stock climbed 1.6 per cent to RM10.32 at 10.51 am, set for its steepest gain since October 19.

Genting also climbed after its share-price estimate was raised to RM13 from RM10.65 at Credit Suisse Group AG, which said Genting is a "cheaper" exposure to its Singapore unit. - Bloomberg

PETGAS - OSK Research expects poor 2Q for Petronas Gas

Stock Name: PETGAS
Research House: OSK

KUALA LUMPUR: OSK Research expects a poor 2Q quarter for PETRONAS GAS BHD [] when it announces its results at month's end since the July'Aug quarter is traditionally weaker given the higher staff and maintenance costs.

In a research note issued on Monday, Nov 15, it also pared down its medium term forecasts to account for slower centralised utilities facilities growth and lower Throughput margins, in line with management's cautious statements.

Nonetheless, the longer term prospects are brightening, with the upcoming LNG import terminal expected to bring in some 11% more gas to Petronas Gas's pipelines.

'While our earnings forecast has been cut, we are raising our terminal growth rate and our DCF value is only pared down to RM13.25. Maintain Buy,' it said.

CSCSTEL - CSC Steel down on 3Q net loss

Stock Name: CSCSTEL
Research House: HLG

KUALA LUMPUR: Shares of CSC Steel Bhd fell in early trade on Monday, Nov 15 after it posted net loss of RM1.6 million in the third quarter ended Sept 30.

At 9.13am, it was down 7.0 sen to RM1.75 with 360,700 shares done.

The FBM KLCI fell 2.16 points to 1,497.65. Turnover was 61.79 million shares valued at RM47.60 million. There were 116 gainers, 124 losers and 128 stocks unchanged.

Hong Leong Investment Bank Research (HLIB Research) said 9MFY10 result came in below expectations, at 71.7% of its full-year forecast and 67.9% of the consensus full-year estimates.

'The 3QFY10 turned into a net loss of RM1.6 million from net profit of RM31.6 million in 2QFY10 (3QFY09: RM38.9m) on the back of lower sales volumes and selling prices; and RM10 million inventory writedown,' it said.

HLIB Research lowered FY10 net profit forecast by 13.7% on weaker-than-expected set of 3QFY10 performance. FY11-12 net profit forecasts maintained.

'No change to target price of RM2.17, based on 8x FY10 EPS of 27.2 sen.'' Maintain BUY,' it said.