December 10, 2010

TENAGA - Tenaga signs deal with Yemen's Natco

Stock Name: TENAGA
Research House: MIDF

Tenaga Nasional Bhd
(Dec 9, RM8.79)
Maintain buy at RM8.58 with target price of RM9.98
: Tenaga announced that is has entered into a letter of understanding (LOU) with Yemen's National Trading Co (Natco) to explore cooperation in Yemen's power industry. The areas of cooperation will include: i) system planning; ii) design, project management and development; iii) system operation; iv) system maintenance; v) generation and distribution; and vi) related training. Tenaga's role in the project is yet to be determined.

Natco is a wholly owned by the Hayel Saeed Anam (HSA) Group, which is involved in industrial, trading, services and contracting in power utilities and manufacturing. Recently, it won a government tender to build a 90MW power generation plant in Yemen.

We believe the collaboration is in line with Phase 2 of Tenaga's 20-year strategic plan that will focus on geographical expansion in the Middle East and North Africa.

We do not expect any major obstacles with respect to Tenaga's capex requirements for the collaboration. The venture is based on a project financing option and Tenaga sits on a cash hoard of more than RM8 billion as at end FY2010. Reports in the media indicate that Tenaga's capital outlay is expected to be in the region of US$120 million (RM377 million). Pending further details, we reiterate our earnings forecasts for now.

We maintain our 'buy' recommendation with a target price pegged at RM9.98 on a discounted cash flow valuation (WACC: 10.9%, terminal growth: 3%). We remain positive about Tenaga because: i) strong power demand growth of 8.8% this year and 4.5% in 2011; ii) better cost management; iii) positive impact from the appreciation of the ringgit against the US dollar and the yen; and iv) a continued upward trend in its foreign shareholdings, at 12.6% in October (from 8.8% in March). ' MIDF Research, Dec 9

This article appeared in The Edge Financial Daily, December 10, 2010.

TOPGLOV - Weak 1Q earnings at Top Glove likely

Stock Name: TOPGLOV
Research House: AMMB

Top Glove Corp Bhd
(Dec 9, RM5.51)
Maintain hold at RM5.55 with fair value of RM5.40
: Top Glove Corp Bhd is scheduled to release its 1QFY2011 results next week.

Based on our analysis, 1Q performance is likely to be weak on lower sales volume and margins. This would mark a continuing decline in earnings on a sequential basis, after earnings peaked in 2QFY2010 (December 2009 to February 2010).

While management has implemented several hikes in the average selling price (ASP), prices still lag the surge in latex prices. As an indication, ASP was raised by an average 5% during 1Q, but average bulk latex as measured by SMR20 rose 11% in the same quarter.

We also understand sales volume for the quarter saw a slight dip, attributed mainly to lower orders for powder-free latex examination gloves. The upward trend in latex prices has naturally resulted in higher input costs for latex-based gloves. ASP for powder-free gloves is now at a 13% premium to both nitrile and powdered latex gloves (Powdered: US$31, Nitrile: US$31 to US$32 per 1,000 pieces).

Earlier in 4QFY2010, the group guided for a 10% increase in FY2011F sales and net profit. However, we see a growing earnings risk on a lower than expected rebound in customer orders in the following quarters, especially if the latex price environment remains unfavourable.

Assuming a flattish 1Q earnings growth, we are looking at cutting our FY2011/12F EPS forecast by some 30% and 28%, to 32 sen per share and 34 sen per share, respectively. No change to our recommendation and fair value of RM5.40 based on a target PER of 13 times CY2011F earnings, pending the release of the 1QFY2011 results.

High latex cost, a weak US dollar and overcapacity will continue to pose a challenge to earnings. ' AmResearch Sdn Bhd, Dec 9

This article appeared in The Edge Financial Daily, December 10, 2010.

TENAGA - AmResearch keeps 'hold' call on Tenaga

Stock Name: TENAGA
Research House: AMMB

AmResearch reiterates its "hold" call on Tenaga Nasional Bhd (TNB)'s plan to build power plants with capacities of over 100 megawatts (MW) each in Yemen.

TNB's chief executive officer Datuk Seri Che Khalib Mohamad Noh said the company aimed to build power plants with capacities of over 100 MW in Yemen to take advantage of the country's dire need for electricity.

AmResearch expects any initial Yemeni investment to have minimal impact on the group's earnings and net debt of RM13 billion compared with TNB's current installed capacity of 12,233 MW.

In a statement today, the research house said it would be negative if TNB were to take a significant equity stake in a Yemeni power project.

AmResearch said the view was based against a backdrop of past provisions for diminution in value for TNB's investment in Pakistan's 235 MW gas-fired power plant coupled with Yemen's uncertain political and regulatory risks.

"But, we believe management would attempt to mitigate the risks by focusing on operation and maintenance of power plants," it said.

The research house said Yemen was the least developed country in the Arab world, with an employment rate of 65 per cent amid dwindling natural resources as its oil reserves were expected to be depleted by 2017.

Since 2004, a civil war is being fought in Northern Yemen between Yemeni forces and Shiite Houthi rebels which has spread to the boarder region of Saudi Arabia, it said. -- Bernama

DRBHCOM - DRB-Hicom rated new 'buy'

Stock Name: DRBHCOM
Company Name: DRB-HICOM BHD
Research House: HWANGDBS

DRB-Hicom Bhd, an auto and financial services group, gained 2.4 per cent to RM1.69.

DRB-Hicom was rated new "buy" at HwangDBS Vickers Research Sdn Bhd, which said in a report today the company is a "strong proxy to the consumption story."

The brokerage has a share-price estimate of RM3.55 for the stock. -- Bloomberg

GAMUDA - HDBSVR reaffirms Buy rating on Gamuda, TP RM4.90

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

KUALA LUMPUR: Hwang DBS Vickers Research reaffirms its Buy rating and sum-of-parts derived target price of RM4.90 for GAMUDA BHD [], which remains on its high conviction list. Its last traded price was RM3.79.

The research house said on Friday, Dec 10 Gamuda is looking to bid for the Qatar MRT project next year worth US$45bn (RM141bn). This target completion date is 2021, ahead of the FIFA World Cup in 2022.

HDBSVR said within the Middle East, Gamuda already has two projects in Qatar ' the New Doha International Airport (88% completed) and Durkhan Highway (100% completed). It is also bidding for the second phase of Durkhan Highway worth at least RM1bn together with WCT where a result should be known soon.

Gamuda's Group MD Datuk Lin Yun Ling was quoted saying he believed the company will be able to garner enough resources for both the KL MRT and Qatar MRT should it be successful in bagging both.

'While not made official, we understand the MMC-Gamuda JV will be appointed project delivery partner (PDP) for the RM36bn MRT project. This will allow it full control over the project while also bearing execution risk.

'However, what remains unclear for now is the RM14bn tunneling works which the JV is eyeing. In our view, the JV is also frontrunner to clinch this given its past expertise which is a scarcity among the local contractors,' said HDBSVR.

The research house also noted that it was not in the government's interest to delay this project by opening up the tender to foreign contractors given the MRT is an vital component of the ETP programme.

THPLANT - RHB Research initiates coverage on TH Plantations, FV RM2.30

Stock Name: THPLANT
Research House: RHB

KUALA LUMPUR: RHB Research Institute is initiating an Outperform call on TH PLANTATION []s and assigned it a PE of 11 times FY11 and fair value of RM2.30.

The research house said on Friday, Dec 10 TH Plantations is the plantation arm of Lembaga Tabung Haji and it has plantation land bank of about 39,159 hectares and five palm oil mills with a total milling capacity of 702,000 tonnes per annum.

'We project TH Plantations THP to record a three-year earnings CAGR of 25% to FY12, on the back of a three-year revenue CAGR of 14%.

'The reason for the stronger profit growth is the higher CPO prices as well as an expectation of improved FFB yields, which translate to better margins. We project net dividend payouts at a consistent 55-60% p.a., which translate to attractive net yields of 5.6% for FY10, rising to 7-8% for FY11-12,' it said.

RHB Research said TH Plantations' earnings are very sensitive to CPO price movements and every RM100/tonne change in CPO price would impact earnings by 10%-12% per annum.

'Assigning it a PE of 11 times FY11, which is the mid-point of its historical average, we arrive at a fair value of RM2.30. Initiate with Outperform,' it said.

December 9, 2010

JTIASA - Jaya Tiasa a plantation company in the making

Stock Name: JTIASA
Research House: RHB

Jaya Tiasa Holdings Bhd
(Dec 8, RM4.09)
Maintain outperform at RM4.02 with revised target price of RM4.83 (from RM5.31)
: Owing to firm log prices and an improvement in log production of 8.6% quarter-on-quarter (q-o-q) in 2QFY2011 ending April, we expect Jaya Tiasa to report better earnings from its log division in its upcoming quarterly results. Going forward, we believe the tight log supply situation in Sarawak is likely to continue for another few months due to seasonal factors before log production starts to normalise.

Average selling prices for Jaya Tiasa's plywood division crept up by 3.1% q-o-q in 1QFY2011, while capacity utilisation rate improved to 60% (from 54% in 4QFY2010). Management agreed that demand volume is not that great but is sufficient for plywood prices to improve gradually. We note that South Korea's contribution to total plywood sales in 1QFY2011 has declined to a mere 6% (from 22% in 4QFY2010) due to the preliminary anti-dumping duties imposed on Malaysian plywood products by South Korea since early July.

Jaya Tiasa has revised downwards its fresh fruit bunch (FFB) production targets for future years, a result of lower assumptions of mature areas and average yield per hectare. We believe management is erring on the conservative side, as the revised FFB production forecast for FY2011 appears easily achieved based on current production levels and even after taking into account the potentially lower output in 2HFY2011 due to seasonal factors.

Risks include: i) timber and CPO prices falling; ii) a slower than expected recovery in the global economy; and iii) significant increase in crude oil-related glue and logistics costs.

We cut our FY2011/13 net profit by 6.1% to 9.7%, after adjusting for; i) lower FFB and CPO production projections; ii) a declining trend in cost of production per tonne; iii) higher interest expense going forward; and iv) lower depreciation expense.

We reduce our target price for Jaya Tiasa to RM4.83 (from RM5.31 previously) based on unchanged target PER of 12 times CY2011 earnings for the timber division and 13 times CY2011 earnings for the plantation division. Despite the cut in our target price, we maintain our outperform recommendation on Jaya Tiasa given the decent 20% potential upside as well as the significant upcoming change in its earnings profile, which will see the plantation division contributing about 70% to 75% of earnings from FY2011 onwards (from about 40% previously). ' RHB Research Institute Sdn Bhd, Dec 8

This article appeared in The Edge Financial Daily, December 9, 2010.

GENP - Genting Plantations offers buying opportunity on weakness

Stock Name: GENP
Research House: MIDF

Genting Plantations Bhd
(Dec 8, RM8.59)
Upgrade to buy at RM8.68 with target price of RM9.90
: Genting Plantations' share price has recently dropped 4.4% from its high of RM9. This presents a good buying opportunity as we remain bullish on the outlook for crude palm oil (CPO) prices and optimistic about the future performance of the company. Based on our target price of RM9.90 and dividend yield of 1.31%, we are expecting a total returns of 15.37%, which exceeds our buy recommendation threshold of 15%.

We are expecting 5,594ha of mature palms in Malaysia to be augmented by 1,716ha in Indonesia, which only started producing in July. At its 10-year average fresh fruit bunch (FFB) yield of 21.62, we are projecting total production next year to increase by 17%.

We are expecting positive contributions from the property and biotech divisions. The proceeds from the sale of industrial land in Johor is expected to contribute to the total earnings in 2011, after the completion of the condition precedents in the S&P agreement. In addition, management is projecting that the biotech division will start making a profit in 2013.

We are positive on'' CPO prices moving forward. The high price is likely to be strongest in 1Q11, as these bullish factors will coincide with expected low output and uncertainties in weather conditions coupled with strong global demand for vegetable oils. We maintain our target industry mean price at RM3,000 per tonne and realised CPO selling price for Genting Plantations of RM2,670 per tonne (+5.5%) for CY2011.

We foresee potential future growth for Genting Plantations on the back of: i) more matured acreage; ii) the planting programme for 10,000ha to 15,000ha mainly in Indonesia; and iii) improved contribution from the property segment with 93.2 acres of industrial land in Kulaijaya sold to a third party.

We are upgrading Genting Plantations to a buy with unchanged target price of RM9.90. The target price is pegged at 18 times 2011 PER, based on one standard deviation of its 11-year average historical PER of 13 times. ' MIDF Research, Dec 8

This article appeared in The Edge Financial Daily, December 9, 2010.

BJTOTO - Sigh of relief for BToto

Stock Name: BJTOTO
Research House: OSK

Berjaya Sports Toto Bhd
(Dec 8, RM4.25)
Maintain buy at RM4.25 with revised target price of RM4.86 (from RM4.50)
: Number forecast operators (NFO), including BJToto, hve received approval from the Ministry of Finance to revise the special prizes for the 4D Big game from RM200 per RM1 bet to RM180 per RM1 bet. The special prizes in the 4D Big permutation games have also been proportionally revised downwards.

The industry has been lobbying hard to pass on the recent two-percentage point (ppt) hike in pool betting duties to punters via the reduction of non-first, second and third prize payouts for its 4D games. This form of limited prize payout reduction restores margins without placing excessive pressure on revenue due to cannibalisation by illegal operators, which would have been more intense if the more lucrative first and second prize payout structure were to be reduced.

As there are 10 different variances of 4D numbers entitled to the special prize payouts (higher odds to strike) against just one for the first prize payout, the effect on the overall 4D theoretical prize payout ratio from the reduction of just RM20 in special prize payouts from RM200 to RM180 is equivalent to a RM200 reduction in the first prize payout structure from RM2,500 to RM2,300. The incremental reduction of just RM20 in special prize payouts is unlikely to deter punters from switching to the illegal operators in a meaningful way with most punters very much focused on the more lucrative top three prizes where the payout structure has remained intact.

The reduction in special prize payouts would result in a two ppts reduction in the group's 4D theoretical prize payout from 66% to 64%. However, as only 75% of the group's gaming business is derived from the 4D operation, the overall impact on the group's blended theoretical prize payout ratio is estimated to be a reduction of 1.5 ppts.

Apart from the lower prize payout ratio, we have also assumed that the lower special prize payouts will have a 1% reduction in sales growth, but this is more than offset by a 1.5 ppts decrease in theoretical prize payout ratio. Consequently, we have raised our FY2011 and FY2012 earnings by 3.2% and 8.1% respectively. As the revision in the new prize payout structure will only take effect on Dec 15, the impact on FY2011 earnings is only a 4.5-month contribution against a full-year impact on FY2012 earnings.

We are only forecasting 2.1% revenue growth for FY2012, where the higher prize payouts coupled with the mature industry dynamics are unlikely to translate into exciting medium-term growth. That said, despite the reduction in special prize draw payouts, the industry should still be able to eke out marginal growth as long as GDP continues to expand above the 4% level. During the last pool betting hike in 1999, with industry players passing on the cost to punters via a RM200 decrease in the 4D first prize payouts, industry revenue contracted by 2% to 3%. Given the stronger economic growth that we are currently experiencing, coupled with the smaller incremental reduction in special draw prize payouts against first prize payouts in 1999, we believe that low single-digit industry growth is sustainable.

Following our earnings upgrades, while retaining our dividend payout ratio assumptions of 95% and 90% respectively for FY2011 and FY2012, we are raising our discount dividend model-derived target price from RM4.50 to RM4.86 and hence maintain our buy recommendation as the stock's current gross dividend yield of 8% is still one of the highest among stocks under our coverage. ' OSK Investment Research, Dec 8

This article appeared in The Edge Financial Daily, December 9, 2010.

MISC - MISC cut to 'hold' at HwangDBS

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

MISC Bhd, the world's biggest owner-operator of liquefied natural gas tankers, was cut to "hold" from "buy" at HwangDBS Vickers Research Sdn Bhd to reflect weakening petroleum shipping rates.

The share-price estimate was reduced to RM8.90 from RM9.60, HwangDBS said in a report today. -- Bloomberg

AXIATA - Axiata rated 'overweight' at JPMorgan

Stock Name: AXIATA
Research House: JP MORGAN CHASE

Axiata Group Bhd, a Malaysian mobile-phone operator, rose to its highest level in more than two years after the stock was rated "overweight" at JPMorgan Chase & Co, citing the company's regional growth prospects.

The stock climbed 1.7 per cent to RM4.81 at 9:27 a.m. in Kuala Lumpur trading, set for its highest close since June 16, 2008.

The brokerage has a share-price estimate of RM5.90, according to a report by analysts including James R. Sullivan. -- Bloomberg

KENCANA - OSK Research: Kencana remains top pick for O&G sector

Stock Name: KENCANA
Research House: OSK

KUALA LUMPUR: OSK Research said KENCANA PETROLEUM BHD [], which is expected to announce its 1QFY11 results next Monday, Dec 13 will unveil numbers that are better on-quarter.

The research house said on Thursday, Dec 9 the better on-quarter performance would be underpinned by contributions from the MKR-1, recognition of a portion of fabrication works secured since April 2010, better yard utilisation on-quarter, as well as improved cost management and production efficiency.

'We believe the company's recently proposed fund raising exercise will also provide the stock with growth upside in the coming months. Kencana remains our top pick for the O&G sector. Maintain Buy with a higher target price of RM2.93 (previously RM2.57),' it said.

DAYANG - HDBSVR: Maintain Buy on Dayang, RM3.40 target price

Stock Name: DAYANG
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research in maintaining its Buy call on Dayang Enterprise Bhd as it expects maintenance and hook-up & commissioning (HUC) jobs to remain the earnings drivers going forward.

'We reiterate our Buy call and RM3.40 target price based on sector's 12.5x CY11F PE,' it said on Thursday, Dec 9.

Hwang DBS Vickers Research said its target price and earnings will be adjusted accordingly, closer to the completion of the disposal of its 40% stake in Borcos for RM135 million cash.

The proceeds would be used for working capital and capex.

'We believe Dayang is positioning itself to take on a possible maintenance contract that may be awarded in 1Q11. The loss in HUC was a let down but will not have significant impact,' it said.

December 8, 2010

SPSETIA - S P Setia needs a match maker

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

S P Setia Bhd
(Dec 6, RM5.24)
Maintain outperform at RM5.25 with a fair value of RM5.94
: Over the weekend, The Edge weekly speculated that Sime Darby Property will merge with S P Setia. We do not rule out the possibility, given the common major shareholder ' PNB, which owns 48% equity interest (Skim Amanah Saham + PNB) in Sime Darby ' and Sime may divest non-plantation assets,'' property, motor and industrial, in order to better concentrate on its plantation business. It was also mentioned that PNB could inject its own property assets into S P Setia as well, which include the privatised Pelangi, Petaling Garden and I&P. On the other hand, taking a cue from the other plantation players which group their property business together (IOI and Genting Plantation), Sime may retain its profitable property division to sustain its recurring income, considering its depressing earnings from the O&G division.

While S P Setia is known for its brand name and expertise, Sime has close to 8,000 acres of landbank, with and without development plans, spread across the Klang Valley, Negeri Sembilan, Kedah and Pahang. Key ongoing projects are USJ Heights, Bandar Bukit Raja, Ara Damansara, Denai Alam and Nilai Impian. Based on Sime's FY10 revenue and earnings before interest and tax (Ebit) of about RM1.8 billion and RM450 million for its property division (similar to S P Setia's earnings base) and applying 15 to 20 times PER multiple (benchmark valuations on S P Setia without a premium), we estimate the division would be worth about RM5 billion to RM6 billion if Sime were to divest its property arm.

Based on S P Setia's track record, while the company will continue to do well even without a new partner, it may fall off the investor radar screen upon the completion of the ongoing mega mergers, as the merged companies will be much larger and their shares will be more liquid. Note that S P Setia was the second largest after UEM Land in terms of market cap. Post corporate exercises of other companies, it will fall to the third position and its premium valuations could be narrowed over time as investor interest is drawn away.

The risks include: (i) competition from peers; (ii) regulatory risk; (iii) delays in launches and approvals; and (iv) country risk.

Our forecasts remain unchanged. The share price has performed well since we upgraded the stock in October. We maintain our 'outperform' rating on the stock as we believe the speculation on possible M&A will support the share price. We keep our indicative fair value unchanged at RM5.94 (20% premium on RNAV) for now, pending the company's results announcement on Thursday. ' RHB Research Institute Sdn Bhd, Dec 6

This article appeared in The Edge Financial Daily, December 8, 2010.

GAMUDA - Gamuda on the right track

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

Gamuda Bhd
(Dec 6, RM3.76)
Maintain buy at RM3.75 with a revised target price at RM4.45 (from RM4.35)
: Ganuda's 1QFY11 results, to be announced mid-December, should meet our revised RM355 million FY11 net profit forecast (+2%). Property sales have surpassed expectations with RM350 million locked in 1Q, against the RM880 million internal full-year target. The government's decision on the Klang Valley MRT project may continue to favour Gamuda-MMC. This positive news flow would support a higher share price level. Retain 'buy' with a raised RM4.45 (+2%) RNAV-based target price.

We expect an improved 1QFY11 (circa RM80 million net profit), leading to a 24% growth in full-year net profit. FY11 construction earnings should rise on higher works momentum (RM4.2 billion outstanding as at end-July, ex-Nam Theun 1) and margins recovery. We forecast 6.2% blended gross margin in FY11 against 5.2% in FY10. Property earnings in FY11 should be stronger on record sales in FY10 [RM820 million, of which RM560 million was unbilled at the close of FY10]). Tolled expressways meanwhile will receive a boost from a 31% rise in toll rates on Lebuhraya Damansara-Puchong in early-2011.

In 1QFY11, RM350 million locked-in sales made up 40% of the RM880 million internal target for FY11. Sales at Botanic, Jade Hills and Horizon Hills have surpassed expectations. Annualising 1Q sales implies RM1.4 billion new domestic sales in FY11. In Vietnam, Tan Thang's maiden launch has been deferred to Feb 2011 (from 1QFY11), due to a new decree which has led to more administration for launches before foundation work can complete. The new launch date coincides with the completion of the work. The RM700 million FY11 sales target for Vietnam is unchanged (Tan Thang: RM300 million, Yenso: RM400 million).

Recent media reports suggest that the National Economic Council's decision is forthcoming on the MRT project. Gamuda-MMC is vying for the chariot master/project delivery partner (PDP) role. If successful, Gamuda-MMC will implement the project on behalf of the government, rather than taking the entire RM36 billion works into its order book. Gamuda-MMC will also take on the delivery risks (cost and timing), hence, ring-fencing the risks by the government. In addition, open bids for all parcels of work will ensure cost efficiencies. We have imputed a 50 sen per share potential in our RNAV-based target price. ' Maybank Investment Bank Bhd Research, Dec 6

This article appeared in The Edge Financial Daily, December 8, 2010.

TM - TM completes placement of 90m Axiata shares

Stock Name: TM
Research House: ECMLIBRA

Telekom Malaysia Bhd
(Dec 6, RM3.41)
Maintain buy at RM3.44 with a target price of RM3.80
: TM announced to Bursa Malaysia that it had completed the book-building exercise for 90 million Axiata Shares on Dec 2. The 90 million shares had been placed to successful third-party institutional investors under private placement at a price of RM4.60 per Axiata share. TM holds a balance of 101.5 million shares after the placement. This has helped TM to raise gross proceeds of RM414 million and book in a gain on disposal of RM210 million.

We think that TM should not face any problems in placing out the remaining 101.5 million shares, given the speed at which the first placement of 90 million shares was taken up, which indicates that there is strong demand for Axiata shares. Our base case scenario assumes that TM will use the RM879.4 million proceeds from the sale of its entire stake in Axiata to repay US$260.3 million (RM817 million) of US dollar-denominated borrowings due to mature this month. This will help TM save on RM65.6 million of interest expenses annually (at 8% interest rate), therefore could revise upwards our FY11 and FY12 net profit by 10.3% and 9.8%, respectively. However, we do not discount the possibility that some or all of the proceeds could be returned to shareholders in the form of special dividends. TM already has an existing dividend policy of returning RM700 million or 90% of its net profit, whichever is higher. Assuming TM pays a special dividend of 25 sen per share, this could bring total dividends for this year to 44.5 sen per share (normal dividend of 19.5 sen + special dividend of 25 sen), which brings total dividend yield to an attractive 12.9%.

We reiterate our 'buy' call on TM with a target price of RM3.80, which is derived using discount dividend model-derived fair value of RM3.54 (LT growth rate: 1.5%, WACC: 7%) plus potential return from 25 sen per share of special dividends, as the sale of Axiata shares is positive regardless whether there are special dividends. Without special dividends, TM's FY11/12 earnings are boosted by 10.3% and 9.8% respectively, resulting from the savings on interest expense after paying back its US$260.3 million borrowings. ' ECM Libra Investment Research, Dec 6

This article appeared in The Edge Financial Daily, December 8, 2010.

POS - Pos earnings forecasts revised upward

Stock Name: POS
Research House: OSK

OSK Research has revised upwards Pos Malaysia Bhd's earnings forecast by eight per cent for financial year 2010 (FY10) and two per cent for FY12 while keeping FY11's intact.

In a research note today, OSK said the revision was prompted by Pos Malaysia's better-than-expected volume for the first nine months of this financial year following postal rate increase.

"It recorded a decline of only 5.4 per cent as opposed to our full-year expectations of a fall of 10.7 per cent," it said.

OSK said Pos Malaysia Bhd's transformation plan remained intact though impact to earnings would be marginal for next year.

It said the excitement over the unlocking of Pos Malaysia's land bank value remained in place as the Postal Land Act was scheduled to be tabled in Parliament this month.

"We foresee the relaxation on land bank usage will go through as it would make economic sense for the government to maximise the potential value of these land bank scattered nationwide.

"Currently, the land bank (of over 600 outlets) is restricted to offering postal-related services," it said.

The research firm said the relaxation on the usage would act as a key catalyst for Pos Malaysia.

"This will unlock the value potential of its land bank noting that other national postal service providers overseas have already leveraged on their postal branches by combining other forms of commercial activities such as supermarkets, banks and restaurants," it said.

It said other possible amendment of the Postal Land Act could also see Pos Malaysia expanding its foray into franchising its post offices to boost entrepreneurial activities among its employees and the unemployed.

OSK said it would maintain its ''buy'' call on Pos Malaysia with unchanged target price of RM4.33. -- Bernama

BJTOTO - Berjaya Sports Toto upgraded to 'buy'

Stock Name: BJTOTO
Research House: ECMLIBRA

Berjaya Sports Toto Bhd, a Malaysian gaming company, was upgraded to "buy" from "hold" at ECM Libra Capital Sdn Bhd after the government gave a green light to cut lottery prize money.

Its share forecast was raised to RM4.73 from RM4.53, ECM Libra analyst Yin Shao Yang said in a report today. -- Bloomberg

KNM - KNM climbs on higher price forecast

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

KNM Group Bhd, a Malaysian oil and gas services company, rose the most in more than a week in Kuala Lumpur trading after ECM Libra Capital Sdn Bhd raised its share forecast to RM2.29.

The stock climbed 2.1 per cent to RM1.97 at 9:04 a.m. local time, set for its biggest gain since Nov. 29. -- Bloomberg

KNM - OSK Research maintains Trading Buy on KNM

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

KUALA LUMPUR: OSK Research is maintaining a Trading Buy on KNM GROUP BHD [] and its target price remains unchanged at RM2.22 based on a PER of 9x FY11 EPS.

The research house said on Wednesday, Dec 8 that the worries over its liquidity have been successfully addressed and going forward, it expected KNM's outlook to gradually improve in line with the recovery of the global O&G and petrochemical industries.

OSK Research said KNM had, on Monday, finally held an analyst briefing after pausing for a few quarters as management believes the company's operation is finally turning around and the outlook for its process equipment segment is getting brighter.

'Going forward, it will expand its services business and go into nuclear energy. KNM is still supported by strong orderbook of over RM2 billion.

'The four growth directions for KNM include: i) more products with diversified manufacturing locations; ii) providing total solutions with process TECHNOLOGY []; iii) providing services, and iv)continuing to venture into new businesses,' it said.

PCHEM - OSK Research maintains Neutral on Petronas Chemicals

Stock Name: PCHEM
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Neutral call on Petronas Chemicals Group Bhd and retains its FY11-12 forecasts following the latest corporate development involving its parent Petroliam Nasional Bhd and BASF.

Petronas and BASF will undertake a joint feasibility study to produce specialty chemicals in Malaysia and are considering investing RM4.0 billion ('1.0 billion).

'Our target price for the company remains at RM5.51 based on a PER of 16 times FY12 EPS. We view the MOU positively,' OSK Research said.

The research house said BASF is an established petrochemical company and it would also be more commercially viable to jointly undertake the investment since the specialty chemicals may need RM4.0 billion in investments.

OSK Research said the development of a new specialty chemical products portfolio is in line with Petronas Chemicals' goal to further grow the downstream petrochemical business as part of its integrated plan to be a key player in the region as well as to spur domestic investment in the O&G and petrochemical industries.

'Despite our Neutral call on the stock, we continue to like the company's strong backing from Petronas Group, especially in keeping its feedstock prices low, and attractive dividend payout ratio of 50%, which is the highest among its closest peers,' it said.

PMETAL - AmResearch bullish on Press Metal

Stock Name: PMETAL
Research House: AMMB

KUALA LUMPUR: AmResearch is'' bullish on Press Metal amid an improving demand/supply imbalance for aluminium. Its fair value for Press Metal was RM3.30 while the last traded price was RM2.09.

'More importantly, we believe Press Metal is on the cusp of being transformed into an integrated regional aluminium giant ' with the successful commissioning of its Mukah smelter,' it said on Wednesday, Dec 8.

AmResearch said Phase 1B of the Mukah plant was commissioned last month ' doubling its capacity to 120,000 tonnes.

'With capacity for the entire Phase 1 (US$300 million) already frontloaded, we project P Metal to show a robust FY10F-12F EPS CAGR of 64%. Valuations are exceedingly compelling at FY10F-12F PEs of only 6.0 times to 13 times.

December 6, 2010

PETRA - OSK Research: Worst over for Petra Perdana

Stock Name: PETRA
Research House: OSK

KUALA LUMPUR: OSK Research said it recently visited Petra Perdana and concluded that the worst for the company should be over.

The research house said on Monday, Dec 6 that Petra Perdana's share price hit the lowest point of 73.5 sen recently and it believes that it has hit bottom.

'The company has successfully completed its 3:8 RI exercise, which had been view negatively by some investors. Also, we believe there is unlikely to be a further downgrade by MARC on its RM800 million dual currency revolving facility in the immediate term since the rating was done just recently.

'Finally, we think the 2QFY10 quarter was possibly the worst for the company when it reported a net loss of RM33 million, which it managed to improve its performance in 3QFY10 by narrowing the loss by 28% q-o-q,' it said.

TM - Strong demand for Axiata shares: ECM

Stock Name: TM
Research House: ECMLIBRA

Telekom Malaysia (TM) should not face any problem in placing out the remaining 101.5 million of Axiata shares, given the quick speed at which the first placement of 90 million Axiata shares were taken up.

"The quick speed indicates that there is strong demand for Axiata shares," said ECM Libra in a research note today.

TM announced to Bursa Malaysia that it has completed the book- building exercise for 90 million of Axiata shares on Dec 2, 2010.

The 90 million Axiata shares have been placed to successful third-party institutional investors under private placement at a price of RM4.60 per Axiata share.

ECM Libra said its base case scenario assumes that TM would use the RM879.4 million proceeds from the sale of its entire stake in Axiata to repay US$260.3 million (RM820 million) of USD-denominated borrowings due to mature this month.

"This will help TM to save on RM65.6 million of interest expenses annually, therefore could revise upwards our financial year 2011 and financial year 2012 net profit by 10.3 per cent and 9.8 per cent, respectively," it said.

However, it does not discount the possibility that some or all of the proceeds could be returned to shareholders in the form of special dividends, the research house said.

ECM Libra reiterates its "Buy" call on TM with a target price of RM3.80. -- Bernama

ALAM - OSK Research maintains Neutral on Alam Maritim

Stock Name: ALAM
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Neutral view on Alam Maritim as it is unsure of the latter's next course of action following the recent rejection of a debt revamp by Vastalux.

Vastalux has proposed that 20% of the amount it owes to its creditors to be settled through the issuance of 117.5 million new shares in Vastalux, 50% to be settled through the issuance of 293.6 million redeemable cumulative unsecured loan stocks (RCULS) and the remaining 30% to be waived.

Alam Maritim (M) Sdn Bhd will emerge as a substantial shareholder in Vastalux if it fully converts its portion of the proposed RCULS.

OSK Research said Vastalux directors were currently consulting their advisers on the next course of action. We are not aware of any timeline fixed for the next course of action.

'As we are unsure of Alam's next course of action, we maintain our Neutral view on the stock for now. Also, there is not expected to be much excitement in offshore marine support vessel industry in the near term, probably not until the marginal oilfield contracts have been awarded out to the fabricators first,' it said.

The research house said it was also not too upbeat on the company's 4QFY10 results, we believe its share price should hover within this level in the immediate term until there are further developments in the company or the vessel market.

'Our target price for Alam remains unchanged at RM1.00 based on a PER of 10 times FY11 earnings. As for longer term investors, we still believe that there is value in the company and they should look towards its 2011 performance,' it said.

KLK - KLK surges, OSK ups target price to RM20.50

Stock Name: KLK
Research House: OSK

KUALA LUMPUR: KUALA LUMPUR KEPONG BHD []'s (KLK) share price advanced in early trade on Monday, Dec 6 in thin trade while OSK Research raised its target price to RM20.50 from RM18.50.

However, its share price overshot the TP, surging 52 sen to RM21.90 with 1,700 shares done at 9.09am. KLK's major shareholder Batu Kawan climbed 12 sen to RM16.42.

The FBM KLCI rose 3.18 points to 1,504.16. Turnover was 38.86 million shares done valued at 42.45 million. There were 124 gainers, 33 losers and 84 stocks unchanged. Genting PLANTATION []s added 20 sen to RM8.80.

OSK Research said the young age profile of KLK's plantations should drive its production at double-digits. The weaker than expected performance in FY10 should be followed by a stronger FY11 output.

'Our forecast for FY11 is raised to RM1.20 billion from RM1.059 billion previously, factoring in a stronger production and average CPO price of RM2,700. Our target price is raised from RM18.50 to RM20.50 based on 18 times CY11 earnings. Maintain Neutral,' it said.