KPS - Water - Fresh offer from Selangor government?

Stock Name: KPS
Company Name: KUMPULAN PERANGSANG SELANGOR
Research House: AMMB

Water sector
Maintain neutral: The Selangor government has made a new offer of RM9 billion to RM10 billion to acquire the water assets in the state, according to media reports. We gather that the new offers were dispatched to the private water entities within the state yesterday.

They are Puncak Niaga (M) Sdn Bhd, Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Konsortium Abass Sdn Bhd (Abass) and Syarikat Pengeluar Air Selangor Sdn Bhd (Splash).

This is the third such official offer from the state government towards consolidating the state's fragmented water industry. The state intends to make a 100% offer for the ordinary shares of the four entities ' RM64.62 per share for PNSB, RM20.78 per share for Syabas, RM5.95 for Splash and RM9.39 for Abass.

The first offer ' made in February 2009 for the water assets and equities ' was turned down by all four private water entities. The second offer of RM9.2 billion made four months later ' then including the water liabilities ' was rejected by both PNSB and Syabas (units of Puncak Niaga Holdings Bhd). In March 2010, Splash instead made a bid totalling RM10.7 billion.

Benchmarking the higher end of the state government's latest new offer (RM10 billion) against previous offers, the valuations appear to be higher than the RM9.2 billion being dished out under the state's second offer but lower than Splash's RM10.7 billion.

We gather that under the deal, the state government intends to transfer the ownership of the water assets back to the federal-backed Pengurusan Asset Air Bhd (PAAB). Any dispute can subsequently be brought up to an international arbitration court.

But, we reiterate our view that any resolution to this deadlock remains somewhat uncertain for now. First, the actual pricing has yet to be ascertained at this juncture, including any extended offers for convertible securities.

Second, the issue of control over water distribution rights ' now under Syabas ' remains a niggling problem. The state government has made it abundantly clear that it intends to lead consolidation in a holistic manner ' treatment and distribution under one roof as per the new water framework.

After all, the state government still holds considerable bargaining clout through the ownership of'' approximately 80% of the state's water assets, including raw water. Via Kumpulan Perangsang Selangor Bhd (KPS), it also owns stakes in Splash (30%) and Abass (55%). It also has a 30% share of Syabas (including 15% indirectly via KPS).

Third, dark clouds still linger over Syabas' proposed tariff hike. Fourth, earlier reports point towards disagreements between the federal and Selangor governments on the valuations of the physical assets (pipes and water treatment plants, for example).

As such, we maintain our 'neutral' weighting on the water sector. In line with our sector call, we retain our 'hold' ratings on Puncak (fair value: RM2.93) and KPS (FV: RM1.61). ' AmResearch, Jan 7


This article appeared in The Edge Financial Daily, January 10, 2011.

PUNCAK - Water - Fresh offer from Selangor government?

Stock Name: PUNCAK
Company Name: PUNCAK NIAGA HOLDINGS BHD
Research House: AMMB

Water sector
Maintain neutral: The Selangor government has made a new offer of RM9 billion to RM10 billion to acquire the water assets in the state, according to media reports. We gather that the new offers were dispatched to the private water entities within the state yesterday.

They are Puncak Niaga (M) Sdn Bhd, Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Konsortium Abass Sdn Bhd (Abass) and Syarikat Pengeluar Air Selangor Sdn Bhd (Splash).

This is the third such official offer from the state government towards consolidating the state's fragmented water industry. The state intends to make a 100% offer for the ordinary shares of the four entities ' RM64.62 per share for PNSB, RM20.78 per share for Syabas, RM5.95 for Splash and RM9.39 for Abass.

The first offer ' made in February 2009 for the water assets and equities ' was turned down by all four private water entities. The second offer of RM9.2 billion made four months later ' then including the water liabilities ' was rejected by both PNSB and Syabas (units of Puncak Niaga Holdings Bhd). In March 2010, Splash instead made a bid totalling RM10.7 billion.

Benchmarking the higher end of the state government's latest new offer (RM10 billion) against previous offers, the valuations appear to be higher than the RM9.2 billion being dished out under the state's second offer but lower than Splash's RM10.7 billion.

We gather that under the deal, the state government intends to transfer the ownership of the water assets back to the federal-backed Pengurusan Asset Air Bhd (PAAB). Any dispute can subsequently be brought up to an international arbitration court.

But, we reiterate our view that any resolution to this deadlock remains somewhat uncertain for now. First, the actual pricing has yet to be ascertained at this juncture, including any extended offers for convertible securities.

Second, the issue of control over water distribution rights ' now under Syabas ' remains a niggling problem. The state government has made it abundantly clear that it intends to lead consolidation in a holistic manner ' treatment and distribution under one roof as per the new water framework.

After all, the state government still holds considerable bargaining clout through the ownership of'' approximately 80% of the state's water assets, including raw water. Via Kumpulan Perangsang Selangor Bhd (KPS), it also owns stakes in Splash (30%) and Abass (55%). It also has a 30% share of Syabas (including 15% indirectly via KPS).

Third, dark clouds still linger over Syabas' proposed tariff hike. Fourth, earlier reports point towards disagreements between the federal and Selangor governments on the valuations of the physical assets (pipes and water treatment plants, for example).

As such, we maintain our 'neutral' weighting on the water sector. In line with our sector call, we retain our 'hold' ratings on Puncak (fair value: RM2.93) and KPS (FV: RM1.61). ' AmResearch, Jan 7


This article appeared in The Edge Financial Daily, January 10, 2011.

MAYBANK - Kim Eng's key attraction is its strong regional investment banking presence

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD
Research House: RHB

Malayan Banking Bhd
(Jan 7, RM9)
Maintain outperform at RM9.01 with target price of RM10.20: Maybank announced on Jan 6 the proposed acquisition of a 44.6% stake in Kim Eng Holdings for S$798 million (RM1.9 billion or S$3.10 per share) in cash. The vendors are Kim Eng chairman and CEO Ronald Ooi (15.44% stake in Kim Eng) and Yuanta Securities (29.19%). Upon completion of the proposed acquisition, Maybank intends to make a mandatory general offer (MGO) to acquire the remaining Kim Eng shares for S$3.10 per share in cash, with the intention of privatising the company. All-in, Maybank would need to fork out around S$1.79 billion (RM4.26 billion) for the full stake in Kim Eng.

Kim Eng's key attraction to Maybank is its stockbroking and investment banking presence in Singapore, Thailand, Indonesia and the Philippines (top five broker in these countries), as well as a presence in Hong Kong, Vietnam, New York, London and India. Maybank had previously identified Singapore and Indonesia as key markets it was targeting to move into for the investment banking unit, which is currently confined to Malaysia, and had not ruled out the possibility of acquisitions. Thus, the acquisition would be in line with Maybank's regional aspirations.

The acquisition/offer price of S$3.10 per share is at a 14.8% premium to Kim Eng's last traded price and translates to a price-to-book value (P/BV) multiple of 1.9 times, based on Sept 30, 2010, BV per share (26.7 times annualised 9MFY10 EPS). This may not appear cheap, relative to the P/BV multiple of 1.4 times that was transacted for the CIMB-GK Goh deal. However, the premium could be justified on grounds that it accelerates the group's investment banking build-out in Asean as well as Kim Eng's wider presence and strong position in the Asean region. We also do note that the privatisations of CIMB and AIGB were carried out at higher P/BV multiples of 2.1 and 2.6 times, but these transactions may be less comparable. On the whole, we are neutral as to the transaction valuations.

The acquisition of Kim Eng is not expected to have a significant impact on our FY12 net profit and return on equity projections (about +0.6% to profit after tax and minority interests). We also estimate the acquisition could lower the group's FY11 core capital ratio to 10.9%, from 11.9% projected, roughly in line with the 123 basis points decline in risk-weighted capital ratio management guided (based on Sept 30, 2010, balance sheet).

The proposed acquisition is subject to approvals from Bank Negara Malaysia and the Monetary Authority of Singapore, among others, and is expected to be completed by April, while the MGO is expected to be completed by May.

Our earnings forecasts are unchanged. Our fair value of RM10.20 (benchmark 16 times CY11 EPS) and 'outperform' call on the stock are unchanged. ' RHB Research, Jan 7


This article appeared in The Edge Financial Daily, January 10, 2011.

JCY - Notion VTec rallies, JCY ekes out marginal gains

Stock Name: JCY
Company Name: JCY INTERNATIONAL BERHAD
Research House: RHB

KUALA LUMPUR: Shares of Notion VTec and JCY International, whose shares had come under heavy selling last year over the weaker outlook for the hard disk drive market, managed to post some gains in late afternoon on Friday, Jan 7.

At 4.37pm, Notion was up 22 sen to RM1.92 while JCY added 1.5 sen to 85 sen.

The 30-stock FBM KLCI rose 1.98 points to 1,570.35. Turnover was 2.36 billion shares valued at RM3.07 billion. Gainers beat decliners 491 to 360 while 294 stocks were unchanged.

In a recent report, RHB Research said it was maintaining its underweight call on the semiconductior sector. It also kept its fair value for Notion at RM1.68 and JCY at 64 sen.

It said although November chip sales continued to rise 14.4% on-year to US$26 billion, the pace of growth continued to fall after registering 19.8% on-year in October and peaking 58.4% on-year in March.

"Nevertheless, we believe this is tandem as chip players look to cut back production to optimise stock levels as inventory levels have been rising due to combination of weaker-than-expected demand as well as post-festive seasons," RHB Research said.

NOTION - Notion VTec rallies, JCY ekes out marginal gains

Stock Name: NOTION
Company Name: NOTION VTEC BHD
Research House: RHB

KUALA LUMPUR: Shares of Notion VTec and JCY International, whose shares had come under heavy selling last year over the weaker outlook for the hard disk drive market, managed to post some gains in late afternoon on Friday, Jan 7.

At 4.37pm, Notion was up 22 sen to RM1.92 while JCY added 1.5 sen to 85 sen.

The 30-stock FBM KLCI rose 1.98 points to 1,570.35. Turnover was 2.36 billion shares valued at RM3.07 billion. Gainers beat decliners 491 to 360 while 294 stocks were unchanged.

In a recent report, RHB Research said it was maintaining its underweight call on the semiconductior sector. It also kept its fair value for Notion at RM1.68 and JCY at 64 sen.

It said although November chip sales continued to rise 14.4% on-year to US$26 billion, the pace of growth continued to fall after registering 19.8% on-year in October and peaking 58.4% on-year in March.

"Nevertheless, we believe this is tandem as chip players look to cut back production to optimise stock levels as inventory levels have been rising due to combination of weaker-than-expected demand as well as post-festive seasons," RHB Research said.

SIME - AmResearch maintains Buy on Sime Darby, FV RM10.60

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: AMMB

KUALA LUMPUR: AmResearch reiterated its Buy call on SIME DARBY BHD [] with a higher fair value of RM10.60 ashare, pegged to a 10% discount to its sum-of-parts value of RM11.78 a share.

The research house said on Friday, Jan 7 its fair value implies a CY11F PE of 17x - at parity to its three-year average.

Devastating floods in the north-eastern Australian state of Queensland have wreaked havoc on coal and commodity producers with production losses estimated at up to A$2 billion.

Sime's equipment sales to Australia can only be delivered in mid-2011. We have halved FY11F industrial revenue for Australia to RM2.4bil and cut its EBIT margin from 12.5% to 5%.

'But we have also raised our average CPO price assumptions by RM200/tonne to RM3,000/tonne for FY11F and RM3,200/tonne for FY12F-FY13F. The stock currently trades at an attractive CY11F PE of 16x, below its three-year average of 17x,' it said.

PUNCAK - OSK Research: Selangor govt RM9b water offer may be rejected

Stock Name: PUNCAK
Company Name: PUNCAK NIAGA HOLDINGS BHD
Research House: OSK

KUALA LUMPUR: OSK Research said the Selangor government's offer price of more than RM9 billion to take over the water assets may be rejected by the water concessionaires.

It said on Friday, Jan 9 that gauging from the offer price of over RM9 billion, this pricing comes close but is still lower than SPLASH's previous offer to consolidate the state's water assets at RM10.75 billion.

'This makes the latest offer price less attractive. Although the offer did not detail the Selangor government's valuation approach, we reckon that it is likely to have been based on book value,' it said.

OSK Research said despite claims that the offer has been made, it has yet to see any official announcements on Bursa Malaysia.

'Nonetheless, should an offer be based on the above-mentioned points, we reckon that water concessionaires are likely to reject the offer on the grounds that the crucial issues are not being addressed. We expect more details to be unveiled once an official announcement is made on Bursa.

'Thus far, we maintain our OVERWEIGHT recommendation on the water sector as well as Puncak's target price at RM3.85, for exposure to the Selangor state water asset consolidation. This target price is premised on our year-end forecast for Puncak's FY10 BV per share,' it said.

SPSETIA - OSK Research has Buy on SP Setia, TP RM7.23

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

KUALA LUMPUR: OSK Research said SP Setia's share price looks set to surpass its target price of RM6.58 and test the post-Asian crisis high of 3.1 times P/NTA, an indication that investors concur with its robust sector outlook.

The research house said on Friday, Jan 7 if the impending boom is indeed bigger than the 2007 upcycle, and given the stock's currently low foreign shareholding of 25% vs'' molre than 40% in 2007, then its current target valuation of 2.8x CY11 P/NTA appears conservative.

'Hence, we re-peg SP Setia to a higher P/NTA multiple of 3.1x, i.e. at its peak valuation in 2007, and arrive at a higher TP of RM7.23. Maintain as top sector BUY,' it said.

MAYBANK - HDBSVR: Maintains Buy on Maybank, TP RM10.80

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research is maintaining its BUY rating on MALAYAN BANKING BHD [] and a Target Price of RM10.80.

The research house said on Friday, Jan 7 that it likes Maybank's proposed acquisition of Singapore-listed stockbroking firm Kim Eng Holdings Ltd as it will accelerate Maybank's regional growth prospects in brokerage and investment advisory

HDBSVR said Maybank is paying S$3.10/share (1.9x BV) for Kim Eng; 100% stake would cost RM4.3bn

'Maintain Buy rating and RM10.80 TP; Maybank is our high conviction pick,' it said.

KENCANA - Kencana - Marginal marvels

Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Research House: MAYBANK

Kencana Petroleum Bhd
(Jan 6, RM2.57)
Initiating coverage with a buy call at RM2.52 and RM3.10 target price: We foresee that Kencana will feature prominently in Petronas' domestic agenda. Enhanced oil recovery (EOR) and marginal field development under the government's Economic Transformation Programme (ETP) are areas of growth for Kencana. We see Kencana: (i) expanding its yard space; (ii) growing its offshore units; and (iii) seeking strategic tie-ups to grow its income base while remodelling its business model to capture new opportunities. Evidently, Kencana has the balance sheet and management drive to gain from all this.

Prospects are bright for Kencana to ride on Petronas' domestic E&P programme. With 25 marginal fields identified and 10 fields ready for development, we expect Kencana to profit from these programmes from 2011 via stronger offshore engineering (E&C) and marine engineering works. Kencana's order book visibility is strong and sustainable, with opportunities in the shallow, marginal and JDA fields.

With projects picking up, we see Kencana expanding its yard space to capture growing opportunities in the offshore and marine engineering segment.This means Kencana could sustain a high RM2 billion job win per year for FY11/12. In addition, we also see Kencana: (i) seeking tactical tie-ups; (ii) prospecting for strategic assets; and (iii) remodelling its business into a hybrid service provider as it further develops in marginal field areas.

We project a three-year net profit compound annual growth rate of 26%, fuelled by a strong outstanding order book (RM1.9 billion as at December 2010) and tender pipeline visibility. The proposed corporate exercises: (i) a 10% private placement of new shares; and (ii) RM350 million Islamic securities to raise RM700 million to RM800 million denote growth; and position Kencana to capture increasing domestic opportunities in the EOR and marginal fields whilst keeping net gearing level at less than 1 time.

We tactically value Kencana at RM3.10, based on 20 times CY12 earnings per share. Our valuations appear aggressive, being at the higher-end, but are not excessive in a capex-fuelled, order book-driven environment. The sector has hit 26 times in the previous upcycle and we reckon it is just at the beginning of another cycle. ' Maybank Investment Bank Bhd Research, Jan 6


This article appeared in The Edge Financial Daily, January 7, 2011.

COCOLND - Positive developments at Cocoaland, but higher costs a drag

Stock Name: COCOLND
Company Name: COCOALAND HOLDINGS BHD
Research House: AMMB

Cocoaland Holdings Bhd
(Jan 6, RM2.76)
Maintain Buy at RM2.62 with lower fair value RM3.30 (previously RM3.70): We maintain our 'buy' recommendation on Cocoaland Holdings Bhd, but with a lower fair value of RM3.30 (previously RM3.70) as we fine-tuned our earnings forecasts after incorporating lower margin assumptions from higher raw material costs.

We have trimmed our FY10F/12F earnings by 13% to 15%, post upward adjustments in sugar and packaging material costs which constitute close to 45% of the group's cost structure. Recall, the government raised the sugar price by 21% to RM2.10 per kg on Dec 6, 2010, while packaging materials have surged 10% to 35% in the last three to four months, in tandem with higher crude oil prices.

While the unfavourable cost structure would result in weak earnings in the next few quarters, FY11F earnings would be well cushioned by eventful earnings contribution from its maiden 'hot-filling' PET production line.

Recently, the group, through its wholly owned subsidiary Cocoaland Industry Sdn Bhd, entered into separate contract packing agreements with F&N Beverages Manufacturing Sdn Bhd and F&N Foods Pte Ltd as a non-exclusive contract packer for the preparation, packaging, packing and delivery of their products.

We are positive about these developments. The formalisation of the contract packing agreements will underpin Cocoaland's robust earnings growth going forward, as secured high off-take rates by Fraser & Neave Holdings (F&N) will serve to truncate idle capacity.

Recall, the group plans to accelerate expansion plans for the installation of four PET production lines by end-FY12F, from just one currently. This would effectively bring total installed capacity from 120 million bottles to 480 million bottles.

We believe Cocoaland will be contract packing F&N's 'FruitTree' and 'Sunkist' range of juices, given the latter's intention to rival C.I. Holdings' 'Tropicana' juice for a broader market share. In the long term, we see good potential for venture opportunities between the group and F&N in non-beverage segments, in line with the latter's intention to build its third pillar within the food business.

Valuation is attractive, with the stock currently trading at 13 times FY11F earnings. Our fair value of RM3.30 is based on an unchanged target price-earnings ratio of 16 times FY11F earnings, or a 10% discount to F&N's target PER of 18 times. ' AmResearch Sdn Bhd, Jan 6


This article appeared in The Edge Financial Daily, January 7, 2011.

AXIATA - Telecommunications sector chasing demand for broadband

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

Telecommunications sector
Low broadband penetration in the country and the shift away from desktops to laptops and smartphones, as well as increasing use of the internet for social interaction, are expected to drive demand for data. We expect major mobile telcos' (Maxis Bhd, DiGi.Com Bhd and Celcom Axiata Bhd) share of mobile broadband revenue to grow from 3% to 6% in FY09 to 10% to 18% this year, driven by the continued growth of broadband subscribers. Green Packet's revenue is projected to jump 35% year-on-year in 2011on the back of a 46% increase in broadband revenue, while TM's share of internet revenue (against total retail revenue) is projected to inch up to 24% from 23% in FY09.

This is premised on the abundant broadband demand opportunities for all players. We expect telcos' profits and cash flows to be sustained this year, as a growing broadband subscriber base should drive broadband revenue and offset weak voice ARPUs. In turn, this should support dividend yields.

We have a 'buy' call and sum-of-parts-derived RM5.10 target price for Axiata. The group is set to record strong 48% FY09F/12F earnings compound annual growth rate. Its Malaysian unit (Celcom) continues to do well especially in the broadband segment, and it has exposure in fast-growing overseas markets including Indonesia, Sri Lanka and Bangladesh. We expect XL in Indonesia to continue to gain market share while keeping costs under control. The Bangladesh unit should continue to grow supported by the customer reactivation and retention exercises, while the Sri Lankan unit should improve further, riding on the country's economic recovery and an enhanced operating cost structure. ' HwangDBS Vickers Research, Jan 6


This article appeared in The Edge Financial Daily, January 7, 2011.

AEON - Further margin expansion unlikely for Aeon Co

Stock Name: AEON
Company Name: AEON CO. (M) BHD
Research House: RHB

Aeon Co (M) Bhd
(Jan 6, RM6.21)
Maintain market perform at RM6.16 with fair value RM6.47: We understand that for the 9MFY10, Aeon's same store sales (SSS) growth remained relatively weak at less than 1%, brought down by a few poor performing stores such as its Melaka and Cheras Selatan stores. The poor performance of the stores was due to cannibalisation from its own stores in nearby locations. For Cheras, its Cheras Selatan store was competing against its own Bandar Mahkota Cheras (opened in 2008) store in terms of customer traffic, thus affecting sales.

As we highlighted in our results note dated Dec 1, 2010, Aeon's retail earnings before interest and tax (Ebit) margin expanded strongly by 2.8 percentage points (ppts) year-on-year in the 9MFY10 to 6.3%. Management attributed the margin expansion to the cost-cutting measures Aeon has taken since end-2009. The measures involve the streamlining of separate departments, thus allocating resources more efficiently, and other cost-saving initiatives such as reducing the usage of plastic bags and electricity consumption. For FY10, management expects the retail margin to rise to circa 7% to 8%, in line with our forecast of 7% with improvement in 4Q10 coming from festive season spending. However, we understand that going forward, there will be little room for further margin improvement, thus we are leaving our FY11/12 retail margin at 7%.

Aeon is now in arbitration with the 1Utama management over the management of the shopping mall's old wing. We believe that it is already well known that Aeon will not retain the management contract which we have already removed from our forecasts. However, we understand that Aeon is negotiating for a bigger retail space in the shopping mall in exchange for losing the management contract. Aeon is now negotiating for the new tenancy and the issues relating to rental, location, layout and size.

After adjusting our FY10 SSS growth assumptions, our earnings were revised downwards by less than 1% per year for FY10/12.

The risks include: (i) eroding market share due to intensifying competition; and (ii) weakening of domestic economic conditions which could lead to a decline in consumer sentiment. Our fair value is maintained at RM6.47 based on unchanged 12 times FY11 target price-earnings ratio. Maintain 'market perform'. ' RHB Research Institute Sdn Bhd, Jan 6


This article appeared in The Edge Financial Daily, January 7, 2011.

TM - TM at 2-year high on 'dividend surprise'

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



Telekom Malaysia Bhd rose the most in almost two years after AmResearch Sdn Bhd said the company may announce a "dividend surprise" and investors should buy the stock as it has lagged behind its peers.

The stock gained 5.3 per cent to RM3.75 at the 12:30 p.m. local time break, set for its steepest gain since Feb. 25, 2009. Its fair value was raised to RM4 from RM3.90, AmResearch said in a report today. -- Bloomberg

NAIM - Construction jobs flow tracker for 4Q10

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

Construction sector
Maintain overweight: During 4Q10, RM6.3 billion worth of construction contracts were awarded, of which 75.1% were for domestic jobs. Domestic contract flows from October to December remained robust at RM4.7 billion (+48.5% year-on-year) as various packages of the LRT project extension were dished out. On a quarter-on-quarter basis, the value of domestic job flows was 16.2% lower, mainly due to the high base effect in 3Q as a result of the sizeable RM2.4 billion Sabah O&G Terminal (SOGT) award. For FY10, domestic contracts totalled RM15.6 billion, representing a strong 55.8% y-o-y jump and exceeding our RM13 billion target.

We believe the momentum of domestic job flow will be sustained this year and set our 2011 target at RM18 billion. This is expected to be fuelled by: (i) the possibility of an early general election; (ii) projects under the Economic Transformation Programme (ETP); and (iii) more private sector developments.

Overseas jobs for the quarter stood at RM1.6 billion, which was significantly higher y-o-y and q-o-q. The bulk was attributed to the RM1.4 billion administrative building in Qatar secured by WCT. However, for FY10, overseas contracts fell by 21.2% as the proportion of foreign-based contracts fell from 37.3% in 2009 to 23.1% in 2010. We find this unsurprising as many contractors had previously stated that they are refocusing their resources on Malaysia given the increasing number of domestic jobs. For 2011, we expect overseas awards to increase y-o-y, driven by more jobs from India and the Middle East.

The strong 55.8% y-o-y increase in domestic contract flows validates our 'overweight' call on the construction sector. We believe that our RM18 billion domestic jobs win target for 2011 could be breached should the various projects under the ETP kick off faster than expected. Given the likelihood of an early general election this year, we expect the momentum of news flow within the sector to accelerate. The KL Construction Index currently trades at 13.4 times forward earnings, equivalent to its long-term mean. Amid the more positive news flow, we expect valuations to re-rate to one standard deviation above mean at 16.4 times.

Our top sector pick is Gamuda ('buy', target price: RM4.78) for its MRT exposure with its Vietnam property launches and resolution of the water assets consolidation as the wild card. For the small caps, we like Ahmad Zaki ('buy', TP: RM1.55), which has a three-year earnings compound annual growth rate forecast 30.8%. In view of the state elections which must be held by May, we continue to like the Sarawak theme and highlight sector laggard Naim Holdings ('buy', TP: RM5.10). Investors may also consider looking at Iskandar construction plays, with Kim Lun (NR) as a key proxy. ' OSK Investment Research, Jan 5


This article appeared in The Edge Financial Daily, January 6, 2011.

IJMLAND - Changing property industry dynamics point to interesting times ahead

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

Property sector
Maintain overweight: Despite having a good run-up in 2H10, the sector still has legs for further upside. After the major change in the industry dynamics in November last year, we believe the following three factors will continue to support the performance of the sector: (i) better liquidity for the sector post mega-mergers ' market cap of the top four property companies (UEM Land-Sunrise, Suncity-Sunway, S P Setia and IJM Land) would amount to more than RM20 billion (a 15% to 20% increase), and the share base would also be much larger; (ii) M&A activities will continue ' there will be continued speculation on PNB merging its property assets given the buoyant market environment; and (iii) privatisation of government land will drive news flow for the year as the drafting of plans is expected to be completed in 1H11.

We were correct to advise investors to take positiona in large-cap developer stocks in 4Q10. Going forward, before the completion of the mergers, which normally take about six months, we expect small mid-cap developers to catch up to narrow the valuations gap, as share prices of some companies with M&A are likely to be capped by their offer price. On average in 4Q10, price-earnings ratios for the bigger cap stocks (S P Setia, IJM Land, Sunrise and Suncity) have expanded by five to seven times, mainly accelerated by the M&A announcements (except for S P Setia and IJM Land recently). Smaller caps' PERs, on the other hand, are largely unchanged over the same period of time. Based on the current undemanding valuations, we see good value in some of the quality small mid-caps, such as Mah Sing Bhd, KSL Holdings Bhd and Glomac Bhd.

Apart from the catalysts mentioned above, the fundamentals are still supportive for the property sector as a whole. These include: (i) demand growth led by young population growth, which we expect to taper off only in 2012/13; (ii) expectation of a delay in interest rate hike by Bank Negara Malaysia in 2011; and (iii) offering of incentives by developers that help lower the entry cost for a property. The possibility of another round of regulatory measures is low for now, after the of 70% loan-to-value cap took effect from Nov 3 last year.

Key risks are regulatory risks and country risks.

We rate the property sector 'overweight'. Our picks for the year are S P Setia ('outperform', fair value = RM6.95) and IJMLD (OP, FV = RM3.50) for big caps; and KSL (OP, FV = RM2.78) and Mah Sing (OP, FV = RM2.50) for small mid-caps. ' RHB Research, Jan 5


This article appeared in The Edge Financial Daily, January 6, 2011.

MAHSING - Changing property industry dynamics point to interesting times ahead

Stock Name: MAHSING
Company Name: MAH SING GROUP BHD
Research House: RHB

Property sector
Maintain overweight: Despite having a good run-up in 2H10, the sector still has legs for further upside. After the major change in the industry dynamics in November last year, we believe the following three factors will continue to support the performance of the sector: (i) better liquidity for the sector post mega-mergers ' market cap of the top four property companies (UEM Land-Sunrise, Suncity-Sunway, S P Setia and IJM Land) would amount to more than RM20 billion (a 15% to 20% increase), and the share base would also be much larger; (ii) M&A activities will continue ' there will be continued speculation on PNB merging its property assets given the buoyant market environment; and (iii) privatisation of government land will drive news flow for the year as the drafting of plans is expected to be completed in 1H11.

We were correct to advise investors to take positiona in large-cap developer stocks in 4Q10. Going forward, before the completion of the mergers, which normally take about six months, we expect small mid-cap developers to catch up to narrow the valuations gap, as share prices of some companies with M&A are likely to be capped by their offer price. On average in 4Q10, price-earnings ratios for the bigger cap stocks (S P Setia, IJM Land, Sunrise and Suncity) have expanded by five to seven times, mainly accelerated by the M&A announcements (except for S P Setia and IJM Land recently). Smaller caps' PERs, on the other hand, are largely unchanged over the same period of time. Based on the current undemanding valuations, we see good value in some of the quality small mid-caps, such as Mah Sing Bhd, KSL Holdings Bhd and Glomac Bhd.

Apart from the catalysts mentioned above, the fundamentals are still supportive for the property sector as a whole. These include: (i) demand growth led by young population growth, which we expect to taper off only in 2012/13; (ii) expectation of a delay in interest rate hike by Bank Negara Malaysia in 2011; and (iii) offering of incentives by developers that help lower the entry cost for a property. The possibility of another round of regulatory measures is low for now, after the of 70% loan-to-value cap took effect from Nov 3 last year.

Key risks are regulatory risks and country risks.

We rate the property sector 'overweight'. Our picks for the year are S P Setia ('outperform', fair value = RM6.95) and IJMLD (OP, FV = RM3.50) for big caps; and KSL (OP, FV = RM2.78) and Mah Sing (OP, FV = RM2.50) for small mid-caps. ' RHB Research, Jan 5


This article appeared in The Edge Financial Daily, January 6, 2011.

MEDIA - Media Prima - Slight growth in TV, newspaper adex in 2011

Stock Name: MEDIA
Company Name: MEDIA PRIMA BHD
Research House: ECMLIBRA

Media Prima Bhd
(Jan 5, RM2.70)
Recommend buy at RM2.70 with revised target price RM3 (from RM2.72): Media Prima's share price hit a 23-month high of RM2.70 on Jan 4. We believe that it is beginning to dawn on investors how robust its 2010 earnings will be. We understand 2010 TV and newspaper adex growth will end in the mid teens year-on-year against our assumption of 10% y-o-y for TV adex growth and a mere 5% y-o-y for newspaper adex growth. This implies 4Q10 TV and newspaper adex will remain relatively unchanged quarter-on-quarter despite a dearth of adex-friendly events.

While newspaper adex growth has been encouraging, this is surprising in light of declining circulation for Berita Harian and New Straits Times. We understand that increasing circulation for Harian Metro encouraged existing advertisers to shuffle more of their budget to Harian Metro from Berita Harian and New Straits Times instead of advertising in newspapers outside the NSTP group.

We understand from the company, and have verified with media buyers, that 1Q11 TV adex is poised to grow by low double digits y-o-y. This is very respectable given the lack of adex-friendly events this year, save for maybe the 14th general election. We note that gross total adex growth during quarters with general elections surged by more than 20% y-o-y.

Our revised estimates account for higher 2010 TV and newspaper adex growth of 15% tempered by revised newspaper circulation (assumes no circulation growth post-2010) and widening losses at New Media due to start-up costs for TonTon. We continue to conservatively assume 5% TV adex growth (one time real GDP growth) and 2.5% ('' time real GDP growth) newspaper adex for 2011 and beyond despite early indicators to the contrary.

Ascribing an unchanged 18 times one-year forward price-earnings ratio, we upgrade our target price on Media Prima from RM2.72 to RM3. We estimate that should Media Prima employ a net dividend payout per share of 75%, investors can expect another eight sen net dividend per share, or 3% net dividend yield (3Q10: 4 sen net DPS). Recall that Media Prima revised its net DPS policy from 25% to 50% to 25% to 75% in 3Q10. ' ECM Libra Investment Research, Jan 5


This article appeared in The Edge Financial Daily, January 6, 2011.

SPSETIA - S P Setia is a goliath with a proven track record

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

S P Setia Bhd
(Jan 5, RM6.35)
Maintain buy at RM6.30 with target price RM6.90: We like S P Setia Bhd for its proven track record and hands-on management. We expect a strong 36% earnings per share compound annual growth rate over the next three years, riding on the current positive property demand and overseas expansion. Also, we are increasingly positive because we expect S P Setia to gain further traction in government land development. With its significant size, it could turn acquisitive soon. We reiterate our 'buy' call with unchanged RM6.90 target price (10% premium to RM6.28 realisable net asset value).

We are excited over the RM6 billion KL Eco City development given its excellent connectivity (one station integrating KTM, LRT and MRT lines) and accessibility (mid-point between KL-PJ-Bangsar-Cheras-Sunway), supported by 30 million visitors per year from Mid Valley City. A 10% increase in the estimated RM6 billion gross development value would add two sen to its RNAV per share. S P Setia is now finalising a few office en bloc sales (close to RM1 billion) and we expect it to seal the deals soon.

Management has indicated its intention to grow the company organically or via M&As. This could spark another round of M&As in the property sector, involving assets held by its major shareholder, PNB (31% stake). This will boost S P Setia's asset size which has descended to No 2 post the UEM Land Holdings Bhd-Sunrise Bhd merger. However, we believe possible moves within this space at this juncture will be mostly direct land acquisitions.

We are expecting a 36% EPS CAGR between FY11 and FY13, driven by: (i) flagship residential projects, for example, Setia Alam and Setia Eco Park; (ii) RM11 billion worth of commercial project launches at KL Eco City and Setia City; (iii) overseas expansion, to Melbourne, Australia, and Vietnam; and (iv) RM1.8 billion unbilled sales as at Oct'' 2010, or one time our FY11 forecast.

We value S P Setia at RM6.90, based on a 10% premium to our RM6.28 RNAV, for its proven track record and hands-on management. The company traded at a 10% to 20% premium to its RNAV during the previous bull market. At RM6.90, S P Setia will trade at 27 times 2011 price earnings ratio. ' Maybank IB Research, Jan 5


This article appeared in The Edge Financial Daily, January 6, 2011.

PROTON - AmResearch keeps 'buy' call on Proton

Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Research House: AMMB



AmResearch has reaffirmed its "buy" call on Proton Holdings Bhd with an unchanged fair value of RM6.10 per share.

It said the national car manufacturer was in discussions to set up a contract assembly operation in India to be finalised by the end of the first-quarter.

"We believe Mahindra is a likely candidate given its existing joint-venture manufacturing operations with Renault and ready-sales network in India," the research house said in a statement today.

It said India opened up another huge Asian market for Proton, after China, and increased exports would help improve Proton''s plant utilisation which currently stood around 50 per cent and subsequently make a structural shift in its earnings trend.

Furthermore, it added the Indian venture would be an asset light, low-risk model given that a local partner undertook the asset investment and ownership.

"Besides offering the Saga, Persona and Exora models in India, Proton also plans to co-develop diesel-engine models for the market with a European carmaker," it said.

AmResearch also said Renault was renowned for its diesel-powered passenger models and it did not rule out a more comprehensive collaboration with the company in regards to Proton's global markets, forming in essence, a strategic alliance.

Proton recently completed a stake purchase in Renault's F1 team and this served as branding for its Lotus brand.

"We bear in mind that the technological advancement should trickle down to Proton models too," it said.

With the India venture adding up to the positive newsflow expected for Proton over the next 12 months, AmResearch said the newsflow should act as a strong share price catalyst amid low expectations on the stock. -- Bernama

COCOLND - Cocoaland remains a 'buy': AmResearch

Stock Name: COCOLND
Company Name: COCOALAND HOLDINGS BHD
Research House: AMMB



AmResearch has maintained its "Buy" recommendation on Cocoaland Holdings Bhd, but with a lower fair value of RM3.30 per share from RM3.70 per share previously.

The price was derived after incorporating lower margin assumptions from the higher cost of raw material.

In a research note today, AmResearch also trimmed the company's earnings forecast for the financial years from 2010 to 2012 by 13 per cent to 15 per cent, taking into account upward adjustments in sugar and packaging material costs.

These raw materials constitute close to 45 per cent of the group's cost structure.

"The Malaysian government raised sugar price by 21 per cent to RM2.10 per kg on December 6, 2010, while packaging materials have surged 10 per cent in the last 3-4 months, in tandem with higher crude oil prices," AmResearch explained.

"While the unfavourable cost structure would result in weak earnings in the next few quarters, FY11F earnings would be well cushioned by eventful earnings contribution from its maiden 'hot-filling' PET production line," AmResearch elaborated.

Recently, the group through its wholly-owned subsidiary, Cocoaland Industry Sdn Bhd (CISB), entered into separate contract packing agreements with F&N Beverages Manufacturing Sdn Bhd (F&NBM) and F&N Foods Pte Ltd (F&NF), as a non-exclusive contract packer for the preparation, packaging, packing and delivery of their respective products.

"We are positive about these developments. The formalisation of the contract packing agreements will underpin Cocoaland's robust earnings growth going forward, as secured high off-take rates by Fraser & Neave Holdings (F&N) will serve to truncate idle capacity," AmResearch said.

At 3.00pm, Cocoaland share was up 13 sen at RM2.75. -- Bernama

SIME - Nomura bullish on Sime, keeps 'buy' call

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: NOMURA



Nomura Securities Malaysia Sdn Bhd is bullish on Sime Darby Bhd and has maintained its 'buy' rating on the company with the target price of RM11.10.

Nomura said this was based on an improved outlook for the palm oil sector as well as improving sentiment surrounding the group's restructuring.

"The tighter vegetable oils outlook, stronger crude oil prices and a weaker US dollar lead us to expect higher crude palm oil (CPO) prices for financial year 2011," it said in its Asean Equity Strategy Outlook Report 2011 here today.

It said the new chief executive officer, Datuk Bakke Salleh, at the financial year 2010 results briefing, has reassured investors there would be no more write-downs stemming from the four infamous projects. - Bernama

PCHEM - Petronas Chems a 'buy': Deutsche Bank

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



Petronas Chemicals Group Bhd, a unit of Malaysia's state oil and gas company, was rated new "buy" at Deutsche Bank AG with a share price estimate of RM6.33.

The company's earnings are likely to rise from the financial year March 31, 2011 after a two-year decline, bolstered by higher product prices and volumes, Deutsche said in a report today. -- Bloomberg

SUNWAY - A good end to the year for Sunway Holdings

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

Sunway Holdings Bhd
(Jan 4, RM2.31)
Maintain buy at RM2.24 with target price RM2.60: Sunway Holdings announced on Jan 3 that its wholly owned subsidiary, Sunway Construction Sdn Bhd, had on Dec 30, 2010, accepted letters of award totalling RM218.8 million. The group was engaged for the proposed design, construction, completion, fitting, commissioning, and maintaining the main infrastructure works and satellite works for Universiti Teknologi Mara campus expansion for Package A and Package B. The project is expected to be completed by January 2013. The group also secured another contract for the design, construction and completion of the proposed link bridge Phase 2 from Impiana KLCC to Raja Chulan (Pavilion KL) by KLCC Holdings Sdn Bhd. This project is scheduled to be completed in 43 weeks by Oct 30, 2011.

With the latest contract wins, the group's outstanding construction order book stands at RM2.5 billion, about equally balanced between local and overseas jobs. Total contracts secured in 2010 amounted to RM906 million, slightly below our RM1 billion order book replenishment assumption. However, as one of the local construction players with a strong track record, we believe the group is poised to benefit from the impending roll-out of more jobs in 2011, as civil works for the MRT project will only be opened to local contractors apart from the tunnelling portion. Its total construction tender book is about RM16 billion, including highway projects in India and Phase 2 of the Arzanah development in Abu Dhabi. We are factoring in RM1.5 billion in order book replenishment for FY11.

We lower our FY11/FY12 earnings estimates marginally to adjust for the lower than anticipated contract replenishment for 2010. Sunway is our top 'buy' for the construction sector. This is premised on: (i) strong earnings growth of 17.8% in FY11; (ii) undemanding forward CY11 price-earnings ratio of 7.5 times; (iii) more landbank acquisition in the pipeline; and (iv) strength in securing overseas construction contracts. Although our realisable net asset value estimate stands at RM3.61, our target price reflects the offer price of RM2.60 in the proposed merger of the group with sister company Sunway City Bhd. ' ECM Libra Investment Research, Jan 4


This article appeared in The Edge Financial Daily, January 5, 2011.

KSL - KSL a value pick

Stock Name: KSL
Company Name: KSL HOLDINGS BHD
Research House: RHB

KSL Holdings Bhd
(Jan 4, RM1.83)
Initiate coverage with outperform rating at RM1.80 with fair value RM2.78: We believe KSL is a rising star among the small mid-cap property players. Having established a strong foothold in Johor, KSL is gradually moving to high potential areas in the Klang Valley. Its most valuable and strategic piece of land currently in the portfolio is the 446-acre tract in Klang that is designated for the development of a township named Bandar Bestari.

Apart from this, the company is gradually moving up the value chain by going into high-end property development ' D'Esplanade and D'Embassy @ Jalan Madge. Its flagship KSL City will be the first integrated commercial project in Johor Bahru and comprises a four-storey shopping podium, basement and multilevel car park, two blocks of high-end residential towers and two blocks of hotels. Based on this experience, KSL will move into the luxury segment by putting up low-rise residences this year on its land along Jalan Madge that it acquired last year.

Investment case: (i) a good proxy for Iskandar Development Region play; (ii) a realisable net asset value play ' the market value for the 446-acre tract in Klang has appreciated to RM25 to RM30 psf, against KSL's cost of only RM8 to RM9 psf; (iii) various property launches in 2011 ' Bandar Bestari (GDV: RM2.5 billion) ' KSL's first township development in the Klang Valley; One Mutiara ' a new township in Johor Bahru (GDV: RM380 million) and D'Embassy @ Jalan Madge (GDV: RM200 million); (iv) ramping up recurring income from property assets ' KSL City shopping mall from January 2011; and (v) potential disposal of KSL City shopping mall.

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

We estimate an impressive three-year earnings compound annual gorwth rate of 23.4%, largely driven by: (i) launch of Bandar Bestari Klang in 2011; (ii) recurring rental income from the KSL City shopping mall; and (iii) the full swing in the construction of KSL City service apartment.

Property sales from its Bandar Bestari, One Mutiara, and Jalan Madge projects will translate into strong earnings at least over the next five years. We initiate coverage on KSL with an 'outperform' rating. Based on a 30% discount to RNAV, our indicative fair value is RM2.78, giving an upside of 54%. KSL is our top pick for small mid-cap exposure.

The stock is undervalued, currently trading at a price-earnings ratio of only 7.7 times, against eight to nine times for its small mid-cap peers. ' RHB Research Institute, Jan 4


This article appeared in The Edge Financial Daily, January 5, 2011.

PCHEM - Citi rates Petronas Chems a 'buy'

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



Petronas Chemicals Group Bhd, a unit of Malaysia's state oil and gas company, was rated new "buy" at Citigroup with a share price estimate of 6.40 ringgit.

The stock is the "most competitive ethylene producer in Asia ex-Middle East, thanks to the attractively priced gas feedstock from its parent," Oscar Yee and Tushar Bagla, analysts at Citigroup, said in a report today. "We see potential earnings upside on the recent oil price strength."

PMETAL - Buy Press Metal: AmResearch

Stock Name: PMETAL
Company Name: PRESS METAL BHD
Research House: AMMB



AmResearch Sdn Bhd is projecting earnings of RM128 million for Press Metal Bhd this year and an income of RM142 million in the financial year ending 2012.

In a research note today, it said the projections were based on profit contributions from the company''s Mukah plant phase one.

It has placed a fair value of RM3.30 for its shares and a "buy" call for the aluminium company.

The company recorded RM86 million in earnings for the financial year ended 2010. Its current stock price is at RM2.75.

AmResearch said Press Metal was a proxy to the commissioning of Bakun dam because of its first-mover advantages with its aluminium smelter plant in Mukah.

The plant currently runs on a production capacity of 120,000 metric tonnes.

The resolution of the tariff structure should pave the way for Press Metal to execute Phase II of its capacity expansion plan costing US$600 million, taking advantage of the access to cheap power from Bakun dam.

AmResearch said Press Metal has strong bargaining leverage in securing power off take at favourable terms from the Bakun dam as it is the only energy-intensive player currently operational in the Sarawak Corridor of Renewable Energy (SCORE).

It was reported that the Sarawak state government had in September 2010 offered over RM6 billion to acquire the Bakun dam from the federal government and will raise its bid to more than RM7 billion if the federal government offers a flexible payment mode.

Meanwhile, the ownership status and tariff structure is expected to be finalised soon as the dam is expected to be commissioned by May this year. -- Bernama

SPSETIA - Property sector piling on fundamentals and M&A newsflow

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

Property sector
Maintain overweight: The year 2011 promises to be an even better year for the property sector than 2010, which turned out to be a very good year. Fundamentals remain robust as many developers achieved record sales in 2010 and have even loftier sales targets for 2011. On the mergers and acquisitions front, there was unprecedented activity as a few large M&As proposed towards the end of 2010 will change sector dynamics in a positive way and pressure the leading developers to do more. We expect developers to go for aggressive landbanking to kick up their expansion a couple of notches or take the even faster expansion route of M&A, or both.

We maintain our 'overweight' weighting on the property sector and our 'outperform' call on all the developers under coverage. KLCC Property remains our sole 'underperform' as it is a property investment company which offers lower dividend yields than the REITs. S P Setia stays as a core holding and our top pick in the sector.

The property sector languished in 1H10, weighed down by the surprise 5% real property gains tax announced at end-09, concerns over impact of IFRIC 15 on earnings and worries about a cap on the loans-to-value ratio. But the sector started to outperform quietly in 2H10 on the back of record sales by many developers.

Three major M&A deals carried the sector further in November. These M&As will change the property landscape and create large liquid property companies that may even be included in the KLCI. The KLPRP Index ended 2010 as one of the best-performing sectors in Malaysia.

S P Setia is aiming for a mind-boggling RM3 billion in sales for FY11 while Mah Sing is going for a record RM2 billion in 2011. We believe the companies may exceed these seemingly ambitious targets. The two key determinants of property demand ' the state of the economy and stockmarket ' continue to head higher and affordability of residential properties is near its best. News flow for the sector will remain robust in 2011, as developers go aggressively after landbank and M&As to keep up with their peers. The property sector should enjoy the twin engines of solid fundamentals and strong news flow this year.

The glut of commercial space can only get worse as developers will be releasing more supply into the market. We are particularly concerned about the worsening oversupply of office space and hotels. This does not bode well for property investment companies like KLCC Prop. For investors seeking yield, we prefer Malaysian REITs in general and Axis REIT in particular. We remain bullish on all developers and see re-rating catalysts in: (i) record sales leading to a strong profit outlook; (ii) aggressive landbanking by leading developers; and (iii) further M&A activity that will quickly unlock the hidden value of landbank. ' CIMB Research, Jan 3


This article appeared in The Edge Financial Daily, January 4, 2011.

KLCCP - Property sector piling on fundamentals and M&A newsflow

Stock Name: KLCCP
Company Name: KLCC PROPERTY HOLDINGS BHD
Research House: CIMB

Property sector
Maintain overweight: The year 2011 promises to be an even better year for the property sector than 2010, which turned out to be a very good year. Fundamentals remain robust as many developers achieved record sales in 2010 and have even loftier sales targets for 2011. On the mergers and acquisitions front, there was unprecedented activity as a few large M&As proposed towards the end of 2010 will change sector dynamics in a positive way and pressure the leading developers to do more. We expect developers to go for aggressive landbanking to kick up their expansion a couple of notches or take the even faster expansion route of M&A, or both.

We maintain our 'overweight' weighting on the property sector and our 'outperform' call on all the developers under coverage. KLCC Property remains our sole 'underperform' as it is a property investment company which offers lower dividend yields than the REITs. S P Setia stays as a core holding and our top pick in the sector.

The property sector languished in 1H10, weighed down by the surprise 5% real property gains tax announced at end-09, concerns over impact of IFRIC 15 on earnings and worries about a cap on the loans-to-value ratio. But the sector started to outperform quietly in 2H10 on the back of record sales by many developers.

Three major M&A deals carried the sector further in November. These M&As will change the property landscape and create large liquid property companies that may even be included in the KLCI. The KLPRP Index ended 2010 as one of the best-performing sectors in Malaysia.

S P Setia is aiming for a mind-boggling RM3 billion in sales for FY11 while Mah Sing is going for a record RM2 billion in 2011. We believe the companies may exceed these seemingly ambitious targets. The two key determinants of property demand ' the state of the economy and stockmarket ' continue to head higher and affordability of residential properties is near its best. News flow for the sector will remain robust in 2011, as developers go aggressively after landbank and M&As to keep up with their peers. The property sector should enjoy the twin engines of solid fundamentals and strong news flow this year.

The glut of commercial space can only get worse as developers will be releasing more supply into the market. We are particularly concerned about the worsening oversupply of office space and hotels. This does not bode well for property investment companies like KLCC Prop. For investors seeking yield, we prefer Malaysian REITs in general and Axis REIT in particular. We remain bullish on all developers and see re-rating catalysts in: (i) record sales leading to a strong profit outlook; (ii) aggressive landbanking by leading developers; and (iii) further M&A activity that will quickly unlock the hidden value of landbank. ' CIMB Research, Jan 3


This article appeared in The Edge Financial Daily, January 4, 2011.

E&O - Property sector piling on fundamentals and M&A newsflow

Stock Name: E&O
Company Name: EASTERN & ORIENTAL BHD
Research House: CIMB

Property sector
Maintain overweight: The year 2011 promises to be an even better year for the property sector than 2010, which turned out to be a very good year. Fundamentals remain robust as many developers achieved record sales in 2010 and have even loftier sales targets for 2011. On the mergers and acquisitions front, there was unprecedented activity as a few large M&As proposed towards the end of 2010 will change sector dynamics in a positive way and pressure the leading developers to do more. We expect developers to go for aggressive landbanking to kick up their expansion a couple of notches or take the even faster expansion route of M&A, or both.

We maintain our 'overweight' weighting on the property sector and our 'outperform' call on all the developers under coverage. KLCC Property remains our sole 'underperform' as it is a property investment company which offers lower dividend yields than the REITs. S P Setia stays as a core holding and our top pick in the sector.

The property sector languished in 1H10, weighed down by the surprise 5% real property gains tax announced at end-09, concerns over impact of IFRIC 15 on earnings and worries about a cap on the loans-to-value ratio. But the sector started to outperform quietly in 2H10 on the back of record sales by many developers.

Three major M&A deals carried the sector further in November. These M&As will change the property landscape and create large liquid property companies that may even be included in the KLCI. The KLPRP Index ended 2010 as one of the best-performing sectors in Malaysia.

S P Setia is aiming for a mind-boggling RM3 billion in sales for FY11 while Mah Sing is going for a record RM2 billion in 2011. We believe the companies may exceed these seemingly ambitious targets. The two key determinants of property demand ' the state of the economy and stockmarket ' continue to head higher and affordability of residential properties is near its best. News flow for the sector will remain robust in 2011, as developers go aggressively after landbank and M&As to keep up with their peers. The property sector should enjoy the twin engines of solid fundamentals and strong news flow this year.

The glut of commercial space can only get worse as developers will be releasing more supply into the market. We are particularly concerned about the worsening oversupply of office space and hotels. This does not bode well for property investment companies like KLCC Prop. For investors seeking yield, we prefer Malaysian REITs in general and Axis REIT in particular. We remain bullish on all developers and see re-rating catalysts in: (i) record sales leading to a strong profit outlook; (ii) aggressive landbanking by leading developers; and (iii) further M&A activity that will quickly unlock the hidden value of landbank. ' CIMB Research, Jan 3


This article appeared in The Edge Financial Daily, January 4, 2011.

AXREIT - Axis REIT logs another yield-accretive acquisition

Stock Name: AXREIT
Company Name: AXIS REITS
Research House: MAYBANK

Axis Real Estate Investment Trust
(Jan 3, RM2.37)
Maintain buy at RM2.37 with revised target price of RM2.63 (from RM2.60): We are positive on the latest office purchase in Cyberjaya, given its fair pricing as well as attractive 8% net property yield (against 6.9% funding cost). This yield-accretive acquisition is expected to enhance our 2011/12 earnings per share forecasts by 1.5% to 3.4%. We continue to like AXRB's proven track record and hands-on management. Maintain 'buy' with a higher RM2.63 target price (+1.2%).

AXRB has proposed to acquire a four-storey office building (with 116,388 sq ft'' net lettable arae) for RM51.3 million cash from FSBM Holdings Bhd. FSBM, a Bursa Malaysia-listed company, is involved in systems and solutions, communication and multimedia, education and healthcare services. The building is currently 72% occupied. However, it will be fully occupied upon completion of the proposed acquisition as FSBM will take up the remaining vacant space under a six-year lease agreement.

We are positive on the deal, given: (i) fair pricing as the purchase cost is 1.7% below the RM52.2 million market value appraised by an independent valuer; and (ii) the Cyberjaya acquisition is yield-accretive with attractive 8% net property yield (against 6.9% funding cost, assuming capital structure of 30% debt and 70% equity).

We are upgrading our 2011/12 earnings forecasts by 1.5% to 3.4% and target price by 1.2% to RM2.63 to factor in this new asset. Post-acquisition, AXRB's gearing would increase from 0.31 times (as at September 2010) to 0.34 times. With this acquisition, AXRB's total asset value will increase by 4% from RM1.3 billion to RM1.4 billion. It targets to hit RM1.5 billion asset size by end-2011.

AXRB remains one of our top picks for the M-REIT sector. We like its hands-on management and its proven track record in acquiring yield-accretive assets. It is currently trading at 7.8% yield compared with a 7.9% industry average. At our RM2.63 TP, AXRB will trade at 7% implied yield. ' Maybank IB Research, Jan 3

DIALOG - New EPCC win for Dialog

Stock Name: DIALOG
Company Name: DIALOG GROUP BHD
Research House: RHB

Dialog Group Bhd
(Jan 3, RM1.87)
Maintain outperform at RM1.79 with revised fair value of RM2.11 (from RM1.94): The company announced last week that it had won a contract from Asean Bintulu Fertiliser (ABF) for the engineering, procurement, construction, commissioning (EPCC) and associated works for a new cooling tower at Bintulu. The contract is worth RM64.6 million and is expected to be completed by September 2011.

The contract is Dialog's third contract announcement for 2010, and based on our assumption of 8% earnings before interest, tax, depreciation and amortisation (Ebitda) margins for EPCC works, the project will yield about RM5.2 million in Ebitda earnings.

We expect the company's EPCC to grow further once it starts construction on its massive Pengerang deepwater tank terminal. The EIA study is expected to be completed by 1QCY11, after which land reclamation could take another year. Post that, the construction of Phase 1 of the terminal could be another 18 to 24 months. As such, operations for Phase 1 would be up in FY13 the earliest.

As we currently expect the company to start construction of the Pengerang tank terminal by early CY12, we have increased our FY12/13 EPCC revenue by RM600 million (we expect Phase 1 of the Pengerang tank terminal to take two years). We have also fine-tuned our assumptions of Phase 1 of the Pengerang tank terminal and currently assume the capacity to commence by FY14 (instead of FY13 previously). Our FY12/13 net earnings have correspondingly increased by 18.1% and 7.3% respectively.

Risks include slower than expected construction of the Pengerang tank terminal; and weaker than expected operations from other segments of the company.

Our new fair value for the stock is RM2.11 (RM1.94 previously) based on an unchanged 19 times on CY11 price-earnings ratio and discounted cash flow on its tank terminal business. We highlight that our net present value valuations for the Pengerang tank terminal only incorporate a capacity of 1.2 million cu m, as the storage capacity for the subsequent phases is still far off at this juncture. This suggests further upside for the stock going forward. Given our positive view, we reiterate our 'outperform' call on the stock. ' RHB Research Institute, Jan 3


This article appeared in The Edge Financial Daily, January 4, 2011.

PETRA - Petra Perdana thrust back into the limelight

Stock Name: PETRA
Company Name: PETRA PERDANA BHD
Research House: ECMLIBRA

Petra Perdana Bhd
(Jan 3, RM1.10)
Upgrade to trading buy at RM1.06 with target price of RM1.09: Petra Perdana (Petra) has bucked our expectations of a further decline due to poor earnings, rising 40% since its 3Q results. Shares have been rising on talk of mergers and acquisitions as well as the recently dropped lawsuit instituted by former directors. On sentiments, we view that 2011 could be a better year for vessel players, as the many roll-outs of contracts to develop and redevelop offshore Malaysia will give rise to demand for vessels.

Petra reports that its latest total fleet utilisation stands at 55% for the 9MFY10 period. While no major long-term jobs have been inked, its newer vessels are seeing some spot charters, albeit not at attractive rates, hence the continued losses. Dragging down the group's utilisation is its AHTS fleet, with old vessels largely idle. However, its workboat and work barge fleet is 65% engaged, as they are locked in for jobs. We view that AHTS charters will only have a chance of picking up when major jobs like Tapis or Malikai come into play offshore Malaysia. Otherwise, with major projects still in the planning stages, there will be no hurry to engage vessel fleets just yet. As such, we view that recovery in Petra's earnings may materialise come mid to late-2011.

Given the company's current loss-making situation, we view it unreasonable to use price-earnings ratios for valuation. Also, given talk of Petra being a takeover target, it further justifies using its net tangible assets as a valuation basis. As such, we now value Petra at its FY11 prospective NTA of RM1.09 (previous target price of 42 sen based on FY11 non-diluted earningsd per share pegging an 11 times PER).

With our change in valuation methodology, we are raising our call on Petra to a 'trading buy'. Our rationale for the call is that there could be a corporate exercise on the cards. We view that while the group's AHTS may not be an attractive sell at the moment, given slow demand in the market, its work boats and barges could pique the interest of potential suitors in the maintenance business. Further catalyst for a sale is that earnings are still precarious and Petra continues to need cash to meet its operating lease commitments. ' ECM Libra Investment Research, Jan 3


This article appeared in The Edge Financial Daily, January 4, 2011.

SPSETIA - RHB raises SP Setia's fair value

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



SP Setia Bhd, a Malaysian property developer, climbed to a record after RHB Research Institute Sdn Bhd raised the stock's fair value to reflect a higher market value for its development landbank.

The stock climbed 1.3 per cent to RM6.38 at 9:53 a.m. in Kuala Lumpur trading, set to close at an all-time high.

The fair value for SP Setia was increased to RM6.95 from RM6.50, RHB said in a report today. -- Bloomberg

SAPCRES - SapuraCrest up at mid-morning

Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD
Research House: CIMB

KUALA LUMPUR: SAPURACREST PETROLEUM BHD [] shares advanced on Tuesday, Jan 4 as CIMB Research maintained its outperform call on the stock at RM3.13 and raised its target price to RM3.95 from RM3.30 previously.

At 10.45am, SapuraCrest was up nine sen to RM3.22 with 867,800 shares done.

CIMB Research in a note Jan 4 said it was encouraged by a report on Petrobras's invitation to SapuraCrest to submit a bid for a pipelay barge supply contract.

While it was still early days to talk about a potential bottomline boost, the contract, if secured, would enlarge the company's revenue base and open the doors for local companies with offshore support assets to venture into Brazil, said the research house.

'We maintain our EPS forecasts but raise our target price from RM3.30 to RM3.95, which is the highest in the market. We now attach a 20% premium to our 14.5 times target market P/E given SapuraCrest's superior growth.

'SapuraCrest remains an Outperform and our top oil & gas pick, with the potential re-rating catalysts being 1) active order book replenishment, 2) success in new markets, and 3) a growing fleet of assets,' it said.

TIMECOM - HLIB Research maintains Buy on Time dotCom, TP 95c

Stock Name: TIMECOM
Company Name: TIME DOTCOM BHD
Research House: HLG

KUALA LUMPUR: Hong Leong Investment Band (HLIB) Research is maintaining its Buy on TIME DOTCOM BHD [] and rolled forward its target price to end-2011 at 95 sen.

It said on Tuesday, Jan 4 that recent events, which saw Time dotCom signing agreements with DiGi and Astro, were consistent with its view that the company stands to benefit from the increasing need for wholesale fiber-broadband services.

The research house said over the weekend, Maxis Bhd chief executive officer Sundip Das also mentioned that Maxis was in talks with Time dotCom, further reinforcing its belief that more wholesale agreements are in the pipeline.

'For the beginning of the New Year, we roll-forward our target price to end-2011 at RM0.95 based on a rolled-forward PAT base year to 2011 in our sum-of-parts estimate,' it said.

HLIB Research said its target price assumes Time dotCom's business carries on as usual and does not take into account any contribution from the proposed acquisitions of GTL, GTC and AIMS.

'Additionally, our target price does not take into account any contribution from the recently proposed agreement with Astro. We maintain our BUY call on the stock, pending the inking of the deal with Astro and await the outcome of the proposed acquisitions in March,' it said.

KULIM - Kulim climbs, OSK ups target price

Stock Name: KULIM
Company Name: KULIM (M) BHD
Research House: OSK

KUALA LUMPUR: Shares of Kulim advanced in early trade on Tuesday, Jan 4 while OSK Research upgraded its target price to RM14.75 from RM11.20 previously.

At 9.03am, Kulim was up 20 sen to RM12.68 with 13,700 shares done.

The FBM KLCI rose 2.95 points to 1,536.37, which was another fresh high in intra-day trade. Turnover was 57.05 million shares valued at RM41.45 million.

OSK Research upgraded its target price for Kulim to RM14.75 from RM11.20 previously to factor in its higher CPO price assumption.

The research house said although the stock has outperformed the sector in the past two to three months, its valuation remains inexpensive; hence it is maintaining its Buy call.

KULIM - OSK ups target price for Kulim to RM14.75

Stock Name: KULIM
Company Name: KULIM (M) BHD
Research House: OSK



OSK Research has upgraded its target price for Kulim to RM14.75 from RM11.20 previously to factor in a higher crude palm oil price assumption.

"Although the stock has outperformed the sector in the past 2 - 3 months, its valuation remains inexpensive; hence we maintain our 'Buy' call," said the research outfit.

In the absence of a corporate exercise, OSK believes a further re-rating will depend on palm oil price staying firm.

Of late, laggard plantation stocks have started to perk up, suggesting that interest has shifted to lesser known names.

It is likely that buying interest will rotate back to Kulim, especially after its stock price consolidation. -- Reuters

KSL - KSL Hldgs rated 'outperform' at RHB

Stock Name: KSL
Company Name: KSL HOLDINGS BHD
Research House: RHB



KSL Holdings Bhd, a Malaysian property developer, rose to a three-week high in Kuala Lumpur trading after the company was rated "outperform" at RHB Research Institute Sdn Bhd, citing its earnings growth prospects.

The stock gained 1.7 per cent to RM1.83 at 9:14 a.m. local time, set for its highest close since Dec. 13.

KSL's fair value is RM2.78, RHB said in a report today. -- Bloomberg

MRCB - OSK Research maintains Neutral on M RCB, lower TP of RM2.05

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining a Neutral recommendation on MALAYSIAN RESOURCES CORP [] Bhd (MRCB), but revert to a lower target price of RM2.05 based on sum-of-parts valuation after the merger plan with IJM Land Bhd fell through.

The research house said on Monday, Jan 3 it was not really surprised since both parties did not meet the deadline to announce the final agreement on the potential merger, which was to have been wrapped up on Dec 29, 2010.

'With no financial impact on MRCB following the scrapping of the potential merger, we maintain our forecast and NEUTRAL recommendation on MRCB, but revert to a lower TP of RM2.05 based on SOP valuation (which was our previous target price prior to the merger announcement), against our previous TP of RM2.30 based on the merger valuation,' it said.

OSK Research said it believed the negative reaction arising from the aborted merger on MRCB's share price would be rather muted given that the market has generally viewed the proposal as being unfavourable, judging from the negative impact on its shares when the MoU was announced on Nov 23.

Since then, MRCB's share price has been languishing at levels below the pre-MOU period.