JTINTER - Tobacco sector - smoke signals for 2011

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

Tobacco sector
Maintain 'underweight': In view of lower consumption and possibly higher illicit trade in the future, we project that tobacco industry volume will fall by 8%, thus resulting in tobacco manufacturers experiencing an earnings decline ranging from 5% to 10% next year. Notably, we expect the sector to see: (i) higher selling prices resulting in downtrading to value-for-money (VFM) brands from premium brands; (ii) a greater incidence of illicit trade, which will correspondingly cause the legal market to shrink; and (iii) a greater likelihood of brand switching in 2011.

BAT, in our opinion, could face a tough year in FY2011. On the back of declining tobacco industry volumes, we expect earnings to decline in spite of higher selling prices. Nevertheless, there may be a positive re-rating catalyst for the stock should its re-launched Peter Stuyvesant garner a higher market share next year.

JTI is likely to chart slightly lower earnings on lower industry volume. Although we see stiff competition among competitors limiting the earnings upside going forward, the company's sizeable net cash position means that it would still be able to pay out dividends. Notwithstanding the possibility of a special dividend payout, assuming that JTI paid a gross dividend of 30 sen per share, this will translate into a gross yield of 4.9%.

With concern over declining sales clouding the sector, we maintain our 'underweight' recommendation. In line with our conservatism, we maintain our 'sell' recommendation on BAT with its target price unchanged at RM38.75, while JTI is maintained a 'neutral', with its target price intact at RM5.96. ' OSK Investment Research, Dec 29


This article appeared in The Edge Financial Daily, December 30, 2010.

BAT - Tobacco sector - smoke signals for 2011

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

Tobacco sector
Maintain 'underweight': In view of lower consumption and possibly higher illicit trade in the future, we project that tobacco industry volume will fall by 8%, thus resulting in tobacco manufacturers experiencing an earnings decline ranging from 5% to 10% next year. Notably, we expect the sector to see: (i) higher selling prices resulting in downtrading to value-for-money (VFM) brands from premium brands; (ii) a greater incidence of illicit trade, which will correspondingly cause the legal market to shrink; and (iii) a greater likelihood of brand switching in 2011.

BAT, in our opinion, could face a tough year in FY2011. On the back of declining tobacco industry volumes, we expect earnings to decline in spite of higher selling prices. Nevertheless, there may be a positive re-rating catalyst for the stock should its re-launched Peter Stuyvesant garner a higher market share next year.

JTI is likely to chart slightly lower earnings on lower industry volume. Although we see stiff competition among competitors limiting the earnings upside going forward, the company's sizeable net cash position means that it would still be able to pay out dividends. Notwithstanding the possibility of a special dividend payout, assuming that JTI paid a gross dividend of 30 sen per share, this will translate into a gross yield of 4.9%.

With concern over declining sales clouding the sector, we maintain our 'underweight' recommendation. In line with our conservatism, we maintain our 'sell' recommendation on BAT with its target price unchanged at RM38.75, while JTI is maintained a 'neutral', with its target price intact at RM5.96. ' OSK Investment Research, Dec 29


This article appeared in The Edge Financial Daily, December 30, 2010.

TOMEI - Time to accumulate Tomei

Stock Name: TOMEI
Company Name: TOMEI CONSOLIDATED BHD
Research House: HLG

Tomei Consolidated Bhd
(Dec 29, 70 sen)
Accumulate at 67.5 sen with target price of 90 sen: Tomei was listed on the then Second Board in July 2006, and was subsequently transferred to the Main Board in Sept 2007. Tomei was founded in 1968, and has evolved from a small enterprise into an integrated manufacturer and retailer of jewellery.

On the back of appealing gold and gemstone designs, Tomei has set up a total of 59 retail outlets in Malaysia, 10 kiosks in Vietnam and three in China, operating under the brand names of Tomei, My Diamond, TH Jewellery and Le Lumiere.

In 9MFY2010, revenue grew 21% year-on-year to RM263 million while profit after tax jumped 26% to RM16 million, driven by improved consumer spending and higher retail prices for gold.

Investor concern over the sustainability in demand for jewellery as well as margin pressures following the recent spike in gold prices is misplaced as Tomei retains the ability to pass down the rising cost of raw materials.

As Tomei adheres to a policy of purchasing gold on a constant basis, the group benefits when gold prices increase and vice versa due to the average-cost principle. In other words, the spread between the purchase and selling prices of gold increases as gold prices move up, thereby enhancing the group's margins in the process.

Tomei's share price tumbled 18% from a 52-week high of 79.5 sen (Nov 15) to 65 sen (Dec 9) before closing at 67.5 sen (50% FR) on Dec 28, which has fulfilled the minimum retracement target.

In view of the uptick in the momentum and trend indicators after recovering from the oversold territory, indicating that the odds will remain in the bulls' favour as long as the price is held steady above the daily upper uptrend line (UTL) of 64.5 sen or 61.8% FR.

We are eyeing 70 sen (38.2% FR) as the immediate upside target, followed by the 74 sen (23.6% FR), and 80 sen (UTL of the weekly chart). A further run-up above 80 sen will spur prices higher to tough resistance zones of 85 and 90 sen. Immediate support levels are 64.5 and 63 sen (two-month low).

Tomei is trading at trailing 4.2 times price-earnings ratio (based on cumulative four-quarter earnings per share of 16.2 sen), which is greatly undervalued against its peers' PER of 8.9 times.

Our six-month target price is 90 sen, implying a 5.6 times trailing PER, in line with Poh Kong's PER of six times. Stop loss below 63 sen. ' Hong Leong Investment Bank Research, Dec 29


This article appeared in The Edge Financial Daily, December 30, 2010.

IJM - IJM Land better off without merger

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



IJM Land Bhd is better off without going through the merger with Malaysian Resources Corp Bhd (MRCB) because its valuations would otherwise be severely diluted by the injection of low-yielding assets from MRCB into the enlarged company.

In a report, AmResearch said it could not see how the enlarged entity would offer compelling earnings without the transfer of low-yielding assets out of the enlarged entity.

The latter exercise, it said, was to have taken place post-merger.

On the parent IJM Corp, AmResearch said there were strong catalysts underpinning its share price going into 2011 which included large highway jobs in India and roll-out of six highways including West-Coast Expressways.

IJM Land was sold down (pre-suspension share price of RM2.86) this morning prior to the announcement that the proposed merger with MRCB had been aborted.

IJM Land and MRCB, which were suspended at 11.34am, would resume trading on Monday, Jan 3, 2011.

The proposed merger has been scrapped as both parties were unable to reach an agreement on the definitive terms of the proposed merger.

AmResearch said it would maintain its 'buy' call on IJM Corp Bhd and IJM Land with unchanged price of RM7.52 and RM3.88 respectively. -- Bernama

IJMLAND - 'IJM Land better off without merger'

Stock Name: IJMLAND
Company Name: IJM LAND BERHAD
Research House: AMMB



IJM Land Bhd is better off without going through the merger with Malaysian Resources Corp Bhd (MRCB) because its valuations would otherwise be severely diluted by the injection of low-yielding assets from MRCB into the enlarged company.

In a report, AmResearch said it could not see how the enlarged entity would offer compelling earnings without the transfer of low-yielding assets out of the enlarged entity.

The latter exercise, it said, was to have taken place post-merger.

On the parent IJM Corp, AmResearch said there were strong catalysts underpinning its share price going into 2011 which included large highway jobs in India and roll-out of six highways including West-Coast Expressways.

IJM Land was sold down (pre-suspension share price of RM2.86) this morning prior to the announcement that the proposed merger with MRCB had been aborted.

IJM Land and MRCB, which were suspended at 11.34am, would resume trading on Monday, Jan 3, 2011.

The proposed merger has been scrapped as both parties were unable to reach an agreement on the definitive terms of the proposed merger.

AmResearch said it would maintain its 'buy' call on IJM Corp Bhd and IJM Land with unchanged price of RM7.52 and RM3.88 respectively. -- Bernama

AXIATA - OSK Research maintains Buy on Axiata, Neutral on TM

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

KUALA LUMPUR: OSK Research is maintaining a Buy on Axiata (target price: RM5.80) and NEUTRAL on Telekom Malaysia ((target price: RM3.28) as there is'' no fundamental change in its'' views on both stocks.

'Axiata remains our top pick for exposure to Malaysia and regional telecoms given its attractive regional growth prospects and undemanding valuations,' it said on Thursday, Dec 30.

TM and Axiata had on Wednesday issued statements on the potential links to Alcatel Lucent's (ALU) alleged payment of bribes to government officials and company employees in securing contracts, which reportedly took place between October 2004 and February 2006.

ALU has agreed to pay USD137 million (RM432 million) in fines and penalties to settle the charges after reaching an agreement with the US Department of Justice and Securities and Exchange Commission (SEC).

OSK Research said the developments related to the allegations and the participation of the Malaysian Anti- Corruption Agency (MACC) in the probe are lauded as these safeguard foreign perception and demonstrate that the government takes such allegations seriously in its efforts to promote foreign direct investments.

TM - OSK Research maintains Buy on Axiata, Neutral on TM

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

KUALA LUMPUR: OSK Research is maintaining a Buy on Axiata (target price: RM5.80) and NEUTRAL on Telekom Malaysia ((target price: RM3.28) as there is'' no fundamental change in its'' views on both stocks.

'Axiata remains our top pick for exposure to Malaysia and regional telecoms given its attractive regional growth prospects and undemanding valuations,' it said on Thursday, Dec 30.

TM and Axiata had on Wednesday issued statements on the potential links to Alcatel Lucent's (ALU) alleged payment of bribes to government officials and company employees in securing contracts, which reportedly took place between October 2004 and February 2006.

ALU has agreed to pay USD137 million (RM432 million) in fines and penalties to settle the charges after reaching an agreement with the US Department of Justice and Securities and Exchange Commission (SEC).

OSK Research said the developments related to the allegations and the participation of the Malaysian Anti- Corruption Agency (MACC) in the probe are lauded as these safeguard foreign perception and demonstrate that the government takes such allegations seriously in its efforts to promote foreign direct investments.

TENAGA - OSK Research: Tenaga an ideal post election play

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

KUALA LUMPUR: OSK Research continues to hold the view that TENAGA NASIONAL BHD [] is unlikely to secure a tariff hike apart from an overall subsidy reduction on gas prices.

'We also believe that such a reduction would only happen after the next General Elections, which therefore makes TNB an excellent post election play, especially since our house view is for an early General Election in 2011,' it said on Thursday, Dec 30.

OSK Research said for now, its discounted cashflow fair value remained at RM9.76 even as we raise our coal price assumption, and Tenaga remains a BUY recommendation for investors with a longer term investment horizon.

TM - TM raised to 'trading buy' at RHB Res

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



Telekom Malaysia Bhd was raised to "trading buy" from "market perform" at RHB Research Institute Sdn Bhd, which cited the likelihood of significant special dividends.

The stock's fair value was maintained at RM3.55, RHB said in a report today. -- Bloomberg

ADVENTA - Latexx, Adventa slip on concerns about outlook for sector

Stock Name: ADVENTA
Company Name: ADVENTA BHD
Research House: CIMB

KUALA LUMPUR: Shares of glove makers Latexx and Adventa extended their declines in late afternoon on Wednesday, Dec 29 on concerns about the outlook for the industry.

At 4.03pm, Latexx-WA fell 12 sen to RM2.03 and the shares eight sen to RM2.55. Adventa lost eight sen to RM2.39.

The FBM KLCI rose 5.19 points to 1,522.63. Turnover was 686.82 million shares valued at RM1.06 billion. There were 394 gainers, 316 losers and 334 stocks unchanged.

CIMB Equities Research said in a research note on Adventa's earnings that its FY10/10 core net profit was at 82% of its forecast and 83% of consensus numbers.

Adventa's FY10/10 core net profit, which excluded a RM7.6 million one-off tax writeback was below expectations due to higher raw material costs and a weak US dollar.

'After accounting for higher latex cost and a weaker US$, we lower our FY11-12 EPS forecasts by 10%-11%. This reduces our target price from RM3.79 to RM3.14, pegged to an unchanged 10.2 times CY11 P/E or a 30% discount to Top Glove's target price-to-earnings of 14.5 times,' said CIMB Research.

TAANN - RHB Research maintains overweight on timber sector

Stock Name: TAANN
Company Name: TA ANN HOLDINGS BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining its Overweight call on the timber sector given the promising outlook of firm average selling prices for plywood and logs.

The research house said on Wednesday, Dec 29 timber companies which have significant oil palm PLANTATION [] such as Jaya Tiasa and Ta Ann are also set to benefit from rising crude palm oil prices.

'Hence, our top picks are Jaya Tiasa (OP, FV = RM5.78) and Ta Ann (OP, FV = RM5.92),' it said.

RHB Research said the latest October 2010 Japan housing starts growth of 6.4% on-year'' was the fifth consecutive on-year rise following the previous 17.7% and 20.4% on-year growth recorded in September and August respectively. This was supported by the 3.4% on-year increase in number of building permits issued in Oct 2010.

'Going into 2011, we believe the tight log supply situation in Sarawak is likely to continue for a few more months due to seasonal factors, before log production starts to normalise.

'Nevertheless, we believe tropical log prices would remain firm even when log production starts to pick up, thanks largely to the huge and robust demand from India and China,' it said.

JTIASA - RHB Research maintains overweight on timber sector

Stock Name: JTIASA
Company Name: JAYA TIASA HOLDINGS BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining its Overweight call on the timber sector given the promising outlook of firm average selling prices for plywood and logs.

The research house said on Wednesday, Dec 29 timber companies which have significant oil palm PLANTATION [] such as Jaya Tiasa and Ta Ann are also set to benefit from rising crude palm oil prices.

'Hence, our top picks are Jaya Tiasa (OP, FV = RM5.78) and Ta Ann (OP, FV = RM5.92),' it said.

RHB Research said the latest October 2010 Japan housing starts growth of 6.4% on-year'' was the fifth consecutive on-year rise following the previous 17.7% and 20.4% on-year growth recorded in September and August respectively. This was supported by the 3.4% on-year increase in number of building permits issued in Oct 2010.

'Going into 2011, we believe the tight log supply situation in Sarawak is likely to continue for a few more months due to seasonal factors, before log production starts to normalise.

'Nevertheless, we believe tropical log prices would remain firm even when log production starts to pick up, thanks largely to the huge and robust demand from India and China,' it said.

QL - Consumer spending to remain resilient in 2011

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

Consumer sector
Maintain neutral: The government recently raised the prices of petrol and sugar by 2.7% and 2.8% respectively, and we expect a similar hike to follow in 1H2011, in line with its plan to reduce subsidies every six months. Due to the gradual and small nature of the subsidy reduction, we believe that it will have a minimal impact on consumer spending, which RHB Research Institute projects will grow by 5.4% in 2011 (against 5.6% estimated for 2010).

The stable consumer spending growth outlook of 5.4% will provide a growth platform for the retail stocks under our coverage that derive their revenues locally. We expect Aeon's ('market perform', fair value = RM6.47) same store sales (SSS) to grow at 3.5% in 2011 (2010: 2.5%). Parkson, on the other hand, will continue to ride on China's strong consumer spending growth in 2011 (2010: 10%), which is expected to grow by 9.4%, according to consensus estimates.

We believe domestic demand for F&B products such as those manufactured and distributed by CI Holdings ('outperform', FV = RM4.90), KFCH ('market perform', FV = RM3.85) and QL Resources ('outperform', FV = RM6.50) will continue to be resilient. However, in terms of growth, we expect F&B companies to be driven by expansion in either capacity (CI Holdings), geographical (KFCH), or both (QL Resources).

Dark days continue for the tobacco sub-sector and BAT ('underperform', FV=RM42.92), as the recent hike in excise duty of about 5% per stick effectively raised cigarette prices for both premium and value segments by 7.5% to 9%. We expect the higher cigarette prices, coupled with other government initiatives to reduce smoking, to cause legal total industry volume (TIV) to contract by 6% in 2011. Unlike tobacco, the brewery sub-sector was spared a hike in excise duty in Budget 2011, marking the fifth time in a row duty was not raised. However, Malaysia's excise duty on beer is the second highest in the world after Norway.

Risks include a further drop in consumer disposable income and rising costs of goods and services, reducing spending power.

We maintain our 'neutral' stance on the sector. Our top pick is CI Holdings as we are optimistic on its growth outlook. In our view, the stock is still inexpensive relative to its F&B peers. ' RHB Research Institute Sdn Bhd, Dec 28


This article appeared in The Edge Financial Daily, December 29, 2010.

CIHLDG - Consumer spending to remain resilient in 2011

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

Consumer sector
Maintain neutral: The government recently raised the prices of petrol and sugar by 2.7% and 2.8% respectively, and we expect a similar hike to follow in 1H2011, in line with its plan to reduce subsidies every six months. Due to the gradual and small nature of the subsidy reduction, we believe that it will have a minimal impact on consumer spending, which RHB Research Institute projects will grow by 5.4% in 2011 (against 5.6% estimated for 2010).

The stable consumer spending growth outlook of 5.4% will provide a growth platform for the retail stocks under our coverage that derive their revenues locally. We expect Aeon's ('market perform', fair value = RM6.47) same store sales (SSS) to grow at 3.5% in 2011 (2010: 2.5%). Parkson, on the other hand, will continue to ride on China's strong consumer spending growth in 2011 (2010: 10%), which is expected to grow by 9.4%, according to consensus estimates.

We believe domestic demand for F&B products such as those manufactured and distributed by CI Holdings ('outperform', FV = RM4.90), KFCH ('market perform', FV = RM3.85) and QL Resources ('outperform', FV = RM6.50) will continue to be resilient. However, in terms of growth, we expect F&B companies to be driven by expansion in either capacity (CI Holdings), geographical (KFCH), or both (QL Resources).

Dark days continue for the tobacco sub-sector and BAT ('underperform', FV=RM42.92), as the recent hike in excise duty of about 5% per stick effectively raised cigarette prices for both premium and value segments by 7.5% to 9%. We expect the higher cigarette prices, coupled with other government initiatives to reduce smoking, to cause legal total industry volume (TIV) to contract by 6% in 2011. Unlike tobacco, the brewery sub-sector was spared a hike in excise duty in Budget 2011, marking the fifth time in a row duty was not raised. However, Malaysia's excise duty on beer is the second highest in the world after Norway.

Risks include a further drop in consumer disposable income and rising costs of goods and services, reducing spending power.

We maintain our 'neutral' stance on the sector. Our top pick is CI Holdings as we are optimistic on its growth outlook. In our view, the stock is still inexpensive relative to its F&B peers. ' RHB Research Institute Sdn Bhd, Dec 28


This article appeared in The Edge Financial Daily, December 29, 2010.

PCHEM - Petronas Chemicals - fire at aromatic plant

Stock Name: PCHEM
Company Name: PETRONAS CHEMICALS GROUP BHD
Research House: OSK

Petronas Chemicals Group Bhd
(Dec 28, RM5.53)
Maintain neutral at RM5.53 with target price of RM5.51: On Monday, Petronas Chemicals Group announced on Bursa Malaysia that a fire had broken out at about 11.35pm last Friday, at the naphtha hydrotreater unit at an aromatic plant within its integrated petrochemical complex (IPC) in Kertih, Terengganu.

We understand that the fire was quickly put out, and although there were no casualties, plant operations have been suspended as a safety precaution. We understand that this was a minor incident as operations at the other facilities within the IPC were not affected. Petronas Chemicals is still waiting for the authorities to determine the damage.

Heavy naphtha is used to produce two chemical products ' paraxylene and benzene. Based on our FY2011 forecasts, these two chemicals make up about 26% of the olefins and polymers division's revenue and 20% of group revenue (comprising olefins and polymers as well as fertiliser and methanol). Hence, the financial impact will depend on how long operations are disrupted, which we are unable to assess at this point. However, judging from the total revenue contribution from paraxylene and benzene of about RM2.5 billion, a day's delay would give rise to a revenue loss of about RM7 million. Assuming an average net profit margin of 18% for its chemical products, this may lead to a loss of RM1.3 million per day on a rough calculation. For FY11, we forecast total revenue and net profit of RM12.7 billion and RM2.2 billion respectively. We are also keeping our FY11 forecast unchanged unless the recommencement time line is prolonged. As for the damage caused by the fire, we would assume the company is fully insured.

Our target price for the stock remains unchanged at RM5.51 based on a price-earnings ratio of 16 times FY12 earnings per share. Since the fire has been put out, we do not think there is any further downside to its current share price as a result of this piece of news, unless there is a delay in re-coommencing operations, which we do not anticipate. Despite our 'neutral' call, 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. ' OSK Investment Research, Dec 28


This article appeared in The Edge Financial Daily, December 29, 2010.

SUNWAY - Real construction growth forecasted at 4pc

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



Real construction growth for 2011 has been projected at four per cent, OSK Research said in its 2011 report.

It re-rated valuations upwards for the construction sector fuelled by the possibility of an early general election, implementation of the proposed projects under the Economic Transformation Programme and Budget 2011.

In its research note, OSK Research said the top pick was Sunway with a target price of RM2.72 and within the small cap space, AZRB, with a target price of RM1.51.

"Investors should pick Gamuda (TP: RM4.31) for the euphoria over the proposed MRT. Lastly, we recommend Naim (TP: RM5.10) for the Sarawak theme," OSK Research said.

In its overview of the construction sector, OSK Research said it was a constructive year for the construction sector.

"The KL Construction Index chalked up a year-to-date return of 24 per cent," it said, adding that a reduction was however expected for 2011 and 2012 development expenditure which would be negative for the sector.

"For 2011, development expenditure is targeted at RM48.5 billion, down 9 per cent year-on-year (y-o-y).

"We expect the negatives of lower development expenditure to be offset by more jobs being implemented via private finance incentives (PFI)," OSK Research added.

It said the momentum of contract awards would continue into 2011 and conservatively set domestic job wins at an estimated RM15 billion.

"Jan-Oct domestic contract awards totalled RM12.1 billion (+66.8 per cent y-o-y) and is very likely to surpass 2010 target of RM13 billion," OSK Research elaborated. -- BERNAMA

AIRPORT - MAHB up on KPI target

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

KUALA LUMPUR: Shares of Malaysia Airports Holdings Bhd (MAHB) advanced on Tuesday, Dec 28 after the airport operator said it was targeting earnings before interest, tax, depreciation and amortisation (EBITDA) of RM773.4 million; return on equity (ROE) of 10.73% and a top 5 worldwide ranking for KLIA in 2011.

At 11.15am, MAHB was up two sen to RM6.10.

Announcing its Headline Key Performance Indicators (Headline KPIs) for the financial year ending Dec 31, 2011 (FY2011) on Monday, MAHB said these targets were'' set based on MAHB's strategic plans and long term targets that were developed under MAHB's Five Year Business Direction (2010-2014) planning initiative ' with emphasis on the broader internal initiatives that are put in place for FY2011.

Hong Leong Investment Bank Bhd Research maintained its Buy rating on the stock with an unchanged target price at RM6.58 based on DCF valuations for FY11.

'MAHB's Headline KPIs were very much in line with our existing forecast for FY11.

'Our in-house FY11 EBITDA is estimated at RM795 million versus MAHB KPI of RM773 million and estimated ROE at 10.1% versus MAHB KPI of 10.7%,' it said in a note Dec 28.

HIAPTEK - Challenging outlook for steel; demand growth for cement priced in

Stock Name: HIAPTEK
Company Name: HIAP TECK VENTURE BHD
Research House: RHB

Building materials
Maintain neutral: We believe the outlook for the global steel sector in 2011 is challenging due to the slowing demand in China and less robust construction activities in the developed countries. Steel demand growth in China is expected to slow down with credit tightening measures and policies to curb speculation in the property sector.

Spot iron ore prices have been picking up recently due to supply disruptions in India. This has resulted in a 7% to 8% rise in quarterly benchmark price for iron ore in 1Q2011. In addition, scrap prices have also been on an upward trend, reaching US$430 (RM1,332)-US$440/tonne now. Owing to higher raw material costs, most large international steelmakers have raised their selling prices for January and February deliveries next year.
The potential hike in natural gas tariffs will hurt the margins of direct-reduced iron producers, while the potential hike in electricity tariffs will hurt the margins of upstream steelmakers in Malaysia as all of them produce steel via the electric arc furnace route. Higher electricity cost will also affect the margins of cement producers.

We project domestic cement consumption to grow by 6% in 2011 (vis-''-vis flat in 2010), underpinned by key on-going and potential large-scale infrastructure projects, robust property development activities, as well as potential mega privatised property projects on federal land such as the 2,680-acre Rubber Research Institute land in Sungai Buloh and the 400-acre Royal Malaysian Air Force land in Sungai Besi.
For steel, the risk of an oversupply situation in China and steep contraction in global steel consumption would weigh down on international steel prices. For cement, the risks are delays in the rollout of projects, steep rise in energy prices, and potential price war in the industry when new capacity is added in end-2012.

Overall, we are maintaining our neutral call on the sector. Valuations for the steel sub-sector are based on one-year target forward price-earnings ratio (PER) of 10 times, while for the cement sub-sector, valuations are based on one-year target forward PER of 13 to 16 times. ' RHB Research Institute Sdn Bhd, Dec 27


This article appeared in The Edge Financial Daily, December 28, 2010.

CSCSTEL - Challenging outlook for steel; demand growth for cement priced in

Stock Name: CSCSTEL
Company Name: CSC STEEL HOLDINGS BERHAD
Research House: RHB

Building materials
Maintain neutral: We believe the outlook for the global steel sector in 2011 is challenging due to the slowing demand in China and less robust construction activities in the developed countries. Steel demand growth in China is expected to slow down with credit tightening measures and policies to curb speculation in the property sector.

Spot iron ore prices have been picking up recently due to supply disruptions in India. This has resulted in a 7% to 8% rise in quarterly benchmark price for iron ore in 1Q2011. In addition, scrap prices have also been on an upward trend, reaching US$430 (RM1,332)-US$440/tonne now. Owing to higher raw material costs, most large international steelmakers have raised their selling prices for January and February deliveries next year.
The potential hike in natural gas tariffs will hurt the margins of direct-reduced iron producers, while the potential hike in electricity tariffs will hurt the margins of upstream steelmakers in Malaysia as all of them produce steel via the electric arc furnace route. Higher electricity cost will also affect the margins of cement producers.

We project domestic cement consumption to grow by 6% in 2011 (vis-''-vis flat in 2010), underpinned by key on-going and potential large-scale infrastructure projects, robust property development activities, as well as potential mega privatised property projects on federal land such as the 2,680-acre Rubber Research Institute land in Sungai Buloh and the 400-acre Royal Malaysian Air Force land in Sungai Besi.
For steel, the risk of an oversupply situation in China and steep contraction in global steel consumption would weigh down on international steel prices. For cement, the risks are delays in the rollout of projects, steep rise in energy prices, and potential price war in the industry when new capacity is added in end-2012.

Overall, we are maintaining our neutral call on the sector. Valuations for the steel sub-sector are based on one-year target forward price-earnings ratio (PER) of 10 times, while for the cement sub-sector, valuations are based on one-year target forward PER of 13 to 16 times. ' RHB Research Institute Sdn Bhd, Dec 27


This article appeared in The Edge Financial Daily, December 28, 2010.

AXIATA - Axiata divesting non-core investment

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

Axiata Group Bhd
(Dec 27, RM4.73)
Maintain buy at RM4.70 with target price RM5.50: It was announced on Dec 22 that Axiata has completed the sale of its entire stake of 18.9% in Samart Corp (parent of Samart group) to existing shareholders. The stake, which Axiata has held since 1997, was transacted for a total cash consideration of US$34.8 million (RM108.4 million). Axiata, however, still holds its 24.4% stake in Samart i-Mobile, a subsidiary of Samart Corp.

Samart group has three areas of interest. They are i) ICT solutions, ii) mobile-multimedia and iii) technology-related solutions. Samart i-Mobile's area of interest is in mobile-multimedia ' it develops its own mobile phones such as the i-mobile 8500.

We do not see any significant impact to earnings from the divestment. The cash consideration of RM108.4 million will only contribute 3.8% to the expected FY2010 earnings. We, however, welcome Axiata's move to divest its Samart stake as it is a non-core investment and will allow Axiata to focus on its core business, especially in the high-growth market of Indonesia and Bangladesh. Interestingly, it is holding on to Samart i-Mobile. It is possible that it may have future plans of entering Thailand's telecommunications market.

With the good performance expected in FY2010 and the growth potential in Indonesia and Bangladesh, we maintain our 'buy' recommendation for Axiata, with a target price of RM5.50 based on seven times enterprise value/earnings before interest, taxes, depreciation and amortisation, which is the average of its regional peers. ' MIDF Research, Dec 24


This article appeared in The Edge Financial Daily, December 28, 2010.

JOBST - M&A brewing in JobStreet?

Stock Name: JOBST
Company Name: JOBSTREET CORPORATION BHD
Research House: HWANGDBS

JobStreet Corporation Bhd
(Dec 27, RM2.80)
Maintain buy at RM2.81 with target price RM3.30: SEEK announced it is acquiring a 60% stake in JobsDB for HK$1.59 billion (RM632.87 million), translating into 22.1 times CY2010 enterprise value/earnings before interest, taxes, depreciation and amortisation (EV/Ebitda).

This gives SEEK greater exposure to e-recruitment advertising in the emerging markets such as Indonesia, Thailand and China. There, however, could be a potential conflict of interest for SEEK as it is now the major shareholder in JobsDB as well as JobStreet. It remains to be seen if SEEK would merge JobsDB and JobStreet (it owns 22.4%) as their presence overlaps in some markets.

JobsDB's price tag of 22.1 times EV/Ebitda implies a 27% premium over JobStreet's valuation. Although JobsDB is 38% and 26% larger than JobStreet in terms of revenue and Ebitda, respectively, JobStreet is 3.7 percentage points more profitable than JobsDB in terms of Ebitda margin and is expected to have a cash balance of RM67.5 million in CY2010F. A multiple of 22.1 times EV/Ebitda would imply a market cap of RM1.2 billion for JobStreet (RM3.55 per share versus our target price of RM3.30).

We maintain a buy for JobStreet with a RM3.30 target price based on one times PEG. While SEEK's strategy is unclear at this stage, we think the acquisition sets a pricing benchmark for JobStreet's shares. ' HwangDBS Vickers Research, Dec 24


This article appeared in The Edge Financial Daily, December 28, 2010.

HELP - HELP's FY10 margins not bad

Stock Name: HELP
Company Name: HELP INTERNATIONAL CORPORATION
Research House: OSK

HELP International Corporation Bhd
(Dec 27, RM2.17)
Upgrade to buy from neutral at RM2.30 with revised target price of RM2.59 (from RM2.69): HELP's FY10 revenue was 8% below our and consensus expectations but the better-than-expected margin led to its FY10 net profit coming in within our and consensus estimates.

Ebit margin for FY10 was higher at 26.1% compared with 22.6% a year ago, driven by the stronger demand for its home-grown programmes. Although its home-grown programmes generally fetch lower fees per student, they nevertheless command higher margins given that HELP does not have to pay royalty as it does for twinning or foreign courses developed by other institutions.

As anticipated, due to the weaker performance in 3QFY10 attributed to the summer break for courses that are conducted in collaboration with foreign institutions in the northern hemisphere, HELP's 4QFY10 revenue was higher by 16.9% q-o-q, which led to PBT soaring by 56.5% q-o-q, further driven by the high fixed cost nature of the business.

Ebit margin was higher at 30.1% compared with 23.1% in the previous quarter. Moving forward, in view of the summer break for the courses done in collaboration with foreign institutions in the southern hemisphere in 1QFY11, we see a seasonally weaker performance in the quarter. However, we expect the stronger demand for its home-grown courses to somewhat tone down the seasonal effect for the upcoming quarter.

We maintain our forecast for FY11 and introduce our FY12 numbers. After adjusting for the current net cash of 32 sen per share versus 42 sen previously, our TP has been reduced from RM2.69 to RM2.59 based on 14x PER on FY11 EPS plus the current net cash of 32 sen per share.

Despite being lower, the TP still offers a more than 10% upside. As such, we upgrade our recommendation from neutral to buy. ' OSK Investment Research, Dec 24


This article appeared in The Edge Financial Daily, December 28, 2010.