MISC (SELL)
Glooming Outlook
'''' Higher average bunker cost, adverse weather, and overcapacity has been affecting its Petroleum, Chemical and Liners divisons.
'''' Recognized US$1.9m gain from the disposal of LPG carrier and 4 workboats. However, forex loss was US$6.3m for the quarter.
'''' MISC denied bidding for the 8 LNG fleets by Maersk.
'''' Outlook continued to be dismal for petroleum tanker, chemical tanker and container freight due to oversupply issue and high bunker rates, as well as slowing global economy.
'''' Downgrade to SELL with lower TP of RM6.04.
''
Vitrox Corp (HOLD)
2Q11 net profit rises 35% qoq
'''' 1H11 reported net profit accounted for 47.8% of our full-year forecast. We consider the results within our expectation: (1) 1H performance was dragged by seasonally weaker 1Q; and (2) We do not expect RM to appreciate further for the rest of the 2011.
'''' DCF-derived TP cut by 23.5% from RM1.53 to RM1.17 as we raised Vitrox's WACC from 8.5% to 13.0% to reflect latest 2-year adjusted beta (1.2x from 0.53x previously).''
''
Tenaga (BUY)
Profit Warning for Tenaga
'''' Tenaga has issued profit warnings on the potential lower earnings for FYE08/11 as compared to the consensus' RM1.4bn net profits. For 9MFY11, it reported core net profit of RM813m.
'''' Tenaga has been suffering from gas curtailment since March 2011, forcing it to source for energy from alternative fuels power generation, which cost 5-6x higher than gas power generation.
'''' Tenaga incurred additional fuel cost of RM400m/month for the past few months, affecting Tenaga's cash flow and dividend payout.
'''' No change to HLIB's forecast, as we have already projected the lower earnings with a forecast of RM1bn for FY08/11 (29% below consensus).
'''' Lower target price to RM6.52 after accounting for higher cost of equity. Upgrade to BUY since share price has plunged below our new target price.
''
Hock Seng Lee (BUY)
RM45.7m water treatment plant order
'''' HSL has been awarded a RM45.7m subcontract from AF Construction S/B for the construction of a water treatment plant. The project is part of the Sibu Rural Water Supply and is due for completion by 4Q 2012.
'''' This order marks HSL's first major single job win announcement for FY11. The contract translates to 10% of FY10's construction revenue and will boost their outstanding order book marginally to RM1.023bn, which translates to 2.2x FY10's construction revenue and 1.2x order book-to-market cap ratio.
'''' With the latest order, HSL has secured RM153.7m worth of projects for FY11, which makes up ~50% of our order book replenishment assumption.
'''' Maintain BUY with TP of RM2.44 based on 14x average FY11 and FY12 earnings. Share buyback initiatives (currently 5.4% of issued shares) translate to higher earnings yield and may result in additional returns in the form of treasury share distribution.
''
FBM KLCI - Crucial supports near 1443-1466
'''' Indicators are weak, implying the local bourse may drift lower in quiet trading ahead of the long holidays next week. As such, we only advocate investors to stay defensive or sidelines. Alternatively, for risk-takers, adopt a short term trading oriented approach to buy on sharp falls in share prices and sell into any rebound. Key support levels are 1443-1466 pts
''
Dow Jones - Likely to build a base around 10000-10300 levels
'''' A break below recent low at 10604 will trigger further selldown towards our envisaged support at 10383 (76.4% FR) and 10000 psychological mark. We believe the Dow is likely to defend the 10000 pts and begin its base building activities amid extremely oversold positions as weekly RSI will then be approaching 3-year low of around 13 (recorded in Oct 08) from 31 now.
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