December 24, 2010

RHBCAP - RHB Capital pushing the boundaries with Easy outlets

Stock Name: RHBCAP
Research House: OSK

RHB Capital Bhd
(Dec 23, RM8.55)
Maintain buy at RM8.60 with target price of RM9.56
: Its 'Easy' banking outlets have been a roaring success, contributing close to 6% of new loans drawn down over the past nine months. The group started with just two Easy banking outlets at the beginning of 2010. Given its relatively low start-up cost structure and pent-up demand as the group was able to create a new market segment, it has expanded the number of outlets to 100 as at 3QFY10 while bringing down its cost to income ratio from 42% to 40%. Most of the loans from RHB's Easy outlets are small, individual ASB-linked consumer loans that are secured against liquid government-linked ASB funds, which lower its risk profile. The success of its Easy outlets is reflected in the group's enlarged 14.4% market share of the ASB market vs 9.4% as at end 2009.

The group's ability to innovate and develop a relatively higher yielding and under-penetrated banking segment via a low-cost distribution channel has certainly paid off, as its 9MFY10 return on equity (ROE) of 15.1% has already beaten consensus' FY11 expectations. Given its aggressive rollout plans (in expanding the number of Easy outlets to 400 by 2012 from the current 120) and its ability to expand the distribution of higher ROE fee income banking products via its enhanced distribution network is likely to lift the group's ROEs in the longer term.

The group plans to replicate the high service standards of the Easy outlets at its traditional branches while the streamlining of the highly efficient processes throughout the group's mainstream branches is likely to benefit the entire organisation in terms of lower cost and increased competitive advantage.

To recap, the group's recent annualised 9MFY10 loans growth of 20% year-on-year (y-o-y) far exceeded industry's 11%, with its 3QFY10 sequential growth of 6.6% quarter-on-quarter being by far the strongest among the banks under our coverage. Government-linked loans were the strongest engine of overall growth at +70% y-o-y. Although the margins of such loans are lower than those from average corporate loans, a zero-credit risk allocation implies that net ROEs generated from such loans are typically higher than traditional loans, which are themselves currently experiencing yield compression as a result of competition. Smooth execution of the Economic Transformation Plans will provide further upside in the sustainability of the group's robust government linked loan growth.

RHB Capital remains our top mid-cap banking pick which boasts of ROE generation at the upper end of the industry average, while its current FY11 PBV of 1.72 times is at a discount to the industry's 1.86 times. EPF's commitment to further reduce its stake by another 9% will improve the stock's liquidity, which has been cited as the key reason for its below industry valuations despite its promising ROE growth. Maintain buy with a Gordon Growth-derived target price price of RM9.56 (1.92 times PBV, ROE: 14.8%, COE: 9.5% and growth rate of 4%). The stock is cheap as it is trading at an implied FY11 PER of only 11.7 times, despite having outperformed the broader market by 44.8% year-to-date. ' OSK Investment Research, Dec 23

This article appeared in The Edge Financial Daily, December 24, 2010.

BSTEAD - Boustead's MoU to buy MHS Aviation

Stock Name: BSTEAD
Research House: ECMLIBRA

Boustead Holdings Bhd
(Dec 23, RM5.39)
Maintain buy at RM5.41 with target price of RM5.96
: On Wednesday, Boustead announced that they had entered into a Memorandum of Understanding (MoU) with Drire Equities Sdn Bhd and Tulus Sejagat Sdn Bhd with the intention to acquire 10.2m shares in MHS Aviation Bhd (MHS) representing 51% equity interest therein and 51% equity interest in a special-purpose vehicle (SPV) that shall purchase all the helicopters and aircrafts owned by the subsidiaries of Drire. Under the terms of the MoU, the parties have agreed that total purchase price for the acquisition shall not exceed RM100 million subject to result of the due diligence where RM60 million shall be for the payment of the shares in MHS and RM40 million shall be payment for the aircraft SPV company. The due diligence process will take one month from the date of the MoU and if all goes well, the SPA will be completed within three months

We are neutral on the news for now, given the lack of financial details on MHS. Boustead notes that MHS has some RM3.1 billion in contracts which includes a 10-year contract from Petronas Carigali. This then indicates that the company would have revenue per annum of at least RM300 million. Boustead is typically conservative, we believe and generally not willing to pay more than their own PE (currently at 14 times for FY10F) for an acquisition.

Under the MoU, Boustead is purchasing the stake from shareholders Ma'som Mahadi and Mohsein Ma'som, a father-and-son team which also act as the chairman and executive director of MHS. Our view is that the sellers' motives are to get access to funding through Boustead. There will be fund raising needed for the SPV company which is to buy new aircraft, likely to service the Petronas Carigali job. We continue to have a buy call on Boustead with an unchanged target price of RM5.96. This is based on FY11 EPS pegging a 12 times PE (+1 standard deviation above historical average). To note, the key catalysts for Boustead going into 2011 is the formalisation of their contract with the government to build six navy vessels which we estimate could be worth in excess of RM6 billion. Besides that, their plantation division should also be seeing strong earnings given the current strength in CPO prices. ' ECM Libra Research, Dec 23

This article appeared in The Edge Financial Daily, December 24, 2010.

December 23, 2010

RHBCAP - OSK maintains 'buy' call on RHBCap

Stock Name: RHBCAP
Research House: OSK

OSK Research has maintained a "Buy" call for RHB Capital Bhd with a target price of RM9.56.

It said RHB's stock was cheap as it was trading at an implied financial year 2011 (FY11) price earnings ratio of only 11.7 times despite having outperformed the boarder market by 44.8 per cent year-to-date.

"Our recent meeting with the management reinforces our belief that the group is on track to deliver return on equity in excess of 14 per cent, backed by surprising strong loans growth exceeding 20 per cent and stable asset quality.

"The company is our top mid-cap banking pick with return on equity generation at the upper-end of the industry average while its current FY11 price by volume of 1.72 times is at a discount to the industry's 1.86 times," OSK said in a research note today.

OSK explained that the key reason for RHB's below industry valuations was EPF's commitment to further its stake by another nine per cent which would further enhance the stock's liquidity.

December 22, 2010

LMCEMNT - Lafarge Malayan raised to 'buy'

Stock Name: LMCEMNT
Research House: MAYBANK

Lafarge Malayan Cement Bhd was raised to "buy" from "hold" at Maybank Investment Bank Bhd to reflect sustained demand for cement.

The share price estimate was increased to RM8.50 from RM7.90, Lee Yen Ling, an analyst at Maybank, said in a report today. -- Bloomberg

December 21, 2010

PLUS - PLUS raised to 'trading buy' at RM5.20

Stock Name: PLUS
Research House: RHB

PLUS Expressways Bhd, Malaysia's biggest toll road operator, was upgraded to "trading buy" from "underperform" at RHB Research Institute Sdn Bhd after receiving a RM26 billion takeover offer from Jelas Ulung Sdn Bhd, topping a rival bid.

The fair value was raised to RM5.20 from RM4.60 to "match the latest offer," Lim Tee Yang, an analyst at RHB Research said in a report today. -- Bloomberg

DIALOG - Dialog price estimate lifted to RM2.20

Stock Name: DIALOG
Research House: CIMB

Dialog Group Bhd was raised to "outperform" from "underperform" at CIMB Investment Bank Bhd to reflect the Malaysian oil and gas services provider's earnings growth prospects.

The share price estimate was increased to RM2.20 from RM1.10, Norziana Mohd Inon, an analyst at CIMB said in a report today. -- Bloomberg

RHBCAP - RHBCap cut to 'hold' at BNP Paribas

Stock Name: RHBCAP
Research House: OTHER

RHB Capital Bhd was cut to "hold" from "buy" at BNP Paribas, which said the company's relative valuation to larger peers has narrowed "substantially" and there's "less exciting" earnings growth prospects in 2011.

The brokerage raised the share-price estimate to RM8.70 from RM8.40, according to a report by analyst Ng Wee Siang. -- Bloomberg

December 20, 2010

FABER - OSK maintains 'buy' call on Faber

Stock Name: FABER
Research House: OSK

OSK Research has maintained its "buy" recommendation on Faber Group at an unchanged target price of RM4.00, based on the standard operating procedure valuation.

In a research note today, OSK said its fair value is based on the assumption that the group's bid for the hospital support services (HSS) concession in Sabah, would be renewed as it is.

In view of its track record and expertise, denying Faber the renewal will run counter to the government's recent economic reforms, OSK said.

It has been reported that Warisan Harta Sabah SB (WHSB) has submitted a bid for the HSS in Sabah, which it deemed, is "competitive and on par" with Faber Group's for the concession.

"Although this piece of news will continue to dampen sentiment in the Faber stock, we believe the negative sentiment has been partly priced into the current share price, as it had been on a downtrend since news first emerged in early October.

"We believe the current uncertainty may present a buying opportunity for investors who are still hopeful of a favorable outcome," OSK explained.

The HSS concession under Faber expires in November next year. -BERNAMA