January 14, 2011

SPSETIA - RHB Research ups SP Setia share to RM8.05 from RM6.95

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

KUALA LUMPUR: RHB Research said the boost in SP Setia's share price has prompted it to relook at its valuations.

It said on Friday, Jan 14 that instead of using its previous revised net asset value (RNAV) based valuations, it changed its valuation methodology to price-to-earnings.

'From our quantitative analysis, SP Setia's historical forward PE is highly correlated (correlation factor 0.9) to the new property sales.

'Given the high correlation, this suggests that target price based on PE is hence meaningful. Based on SP Setia's sales target of RM3bn for this year, the forecast PE is actually 30x,' it said.

RHB Research said based on a PE of 30x, it raised its indicative to RM8.05 (from RM6.95). Maintain Outperform.

QL - Sabah plants to contribute significantly to QL

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

QL Resources Bhd
(Jan 13, RM5.92)
Maintain 'buy' at RM5.86 with target price of RM6.88
: Recently, we took a group of 10 fund managers and analysts to Kota Kinabalu, Sabah on a visit to QL's poultry farm and marine plant. The two-day visit started with a tour of its broiler farms followed by a presentation and a visit to the marine plant where surimi, fishmeal and frozen fish are produced and where deepsea fish is processed. The plants are equipped with automated machines, are clean and organised, and comply with EURO and HACCP standards. The management conducted a briefing, which was followed by questions from the visitors that focused on QL's operations.

QL has nine marine manufacturing plants and six poultry farms in Malaysia, which include one marine manufacturing plant in Kota Kinabalu and three poultry farms in Kota Kinabalu, Tawau and Kuching. Its marine manufacturing plant and poultry farm in Kota Kinabalu, Sabah produce 20%-30% of its total surimi and fishmeal production and 17% of total broilers production/year.

QL is now replicating its success in Indonesia (setting up a surimi and fishmeal plant and at the same time constructing breeder and layer farms) and Vietnam (setting up layer farm). All these expansion plans are on track for completion and to achieve the targeted production volume between end of FY11 to 1QFY13. On the other hand, the group has planted 8,200ha in its new oil palm estate in Kalimantan, Indonesia and aims to finish planting 15,000ha by FY14. It is also targeting to commence production of its biogas and palm pellet plants by early February 2011.

We like QL for its experienced and hands-on management, its leadership in the poultry and marine manufacturing industry, which also helps to lower cost of production, its ability to ride through tough times and the replication of its strategy in Vietnam and Indonesia, which all serve to drive the group to a higher level. Hence, we maintain our 'buy' call on the stock, with a target price of RM6.88, based on 16 times CY12 EPS. Meanwhile, QL has proposed to acquire 51% stake in Pilihan Mahir SB, an associate of QL Endau Marine, for RM500,000. Upon completion, QL Endau will own 100% of Pilihan Mahir SB. ' OSK Investment Research, Jan 13


This article appeared in The Edge Financial Daily, January 14, 2011.

TM - TM looking forward to higher UniFi take-up

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

Telekom Malaysia Bhd
(Jan 14, RM3.74)
Maintain 'trading buy' at RM3.70 with fair value raised to RM4.05
: The take-up of UniFi services is quite low so far, but the management is not too worried, stating that the high-speed broadband (HSBB) network was rolled out with a supply-driven approach in mind. As at December 2010, TM had 33,000 UniFi subscribers out of the 750,000 premises passed as at end-December 2010. Together with 40,000 orders, this indirectly brings its take-up rate to 9.7%, marginally exceeding its initial target of 6%-8%. The blended HSBB ARPU is RM160, implying most subscribers opted for the cheapest package that costs RM149/month.

On a more positive note, the number of installations per month has increased to 300-400, from 100-200 previously. This is mainly driven by expanding the number of UniFi installation teams and upgrading the capability of some teams to install UniFi in two (instead of one) premises per day. Assuming TM sustains this momentum, TM should have at least 125,000 UnFi subscribers out of 1.1 million premises by end-2011. This translates to an expected take-up rate of 11%, but contribution to overall revenue will still be modest, in the range of mid-single digit.

While UniFi is among, if not the cheapest, broadband in the market (measured on per gigabyte (GB) basis), affordability may be hindering take-up. The cheapest UniFi package starts at RM149/month, but mobile operators are offering monthly packages as low as RM38/month. To boost UniFi take-up, TM is embarking on more aggressive marketing to raise brand awareness. We believe TM may not have much room to lower its prices, given the huge cost of the HSBB network at RM11.3 billion (with RM2.4 billion co-investment by the government).

The risks include: 1) further fixed-to-mobile substitution leading to declining revenues; 2) low returns from HSBB project; 3) weaker-than-expected earnings, which could adversely affect dividend payments; and 4) further irregularities on TM's purchasing procedures.
We have left our earnings forecasts unchanged.

We maintain our 'trading buy' call on TM for the high likelihood of 50 sen per share in special dividends (TM has about RM1 per share in gross cash), in addition to its minimum annual dividend per share of 19.6 sen. In total, dividend yields in 2011 could potentially reach 19% (please refer to report dated Dec 3, 2010). We raise our fair value to RM4.05 after imputing the potential special dividends, while retaining the required net yield assumption of 5.5% on the minimum RM700 million dividends. ' RHB Research, Jan 14


This article appeared in The Edge Financial Daily, January 17, 2011.

CIMB - AmResearch keeps 'buy' call on CIMB

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: AMMB

AmResearch expects CIMB Niaga to contribute 28 per cent to group pre-tax in financial year 2011 forecast from 25 per cent from 2010 financial year.

It said CIMB Niaga has just completed its fund-raising exercise in the form of Rupiah (Rp) 1.6 trillion sub-debt last month and Rp 1.5 trillion rights in early 2011.

For financial year 2011 forecast loans, CIMB Niaga was looking at achieving growth rates of about 18 to 20 per cent, which are similar to the latest quarterly trend in September last year.

"Its loan portfolio mix is still quite evenly spread between retail, business and corporate," it said in a research note.

AmResearch maintained its "buy" call on CIMB at a fair value of RM10.20. - Bernama

GENM - Genting (M) upgraded at Credit Suisse

Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD
Research House: CREDIT SUISSE

Genting Malaysia Bhd was raised to “neutral” from “under perform” at Credit Suisse Group AG after raising its profit forecasts to reflect new contributions from the UK casinos and its upcoming slot-machine-style terminals in New York City.

The share estimate was increased to RM3.30 from RM2.50, Loke Foong Wai, an analyst at Credit Suisse, said in a report today. - Bloomberg


HSL - HSL target price at RM2.32: OSK

Stock Name: HSL
Company Name: HOCK SENG LEE BHD
Research House: OSK

OSK Research has maintained the earnings forecast of Hock Seng Lee Bhd (HSL) for financial year ending 2010.

In a research note today, OSK said HSL's fourth quarter results would be announced sometime next month.

"The management is confident of achieving RM70 million in earnings, which is pretty much in line with our forecast of RM72.2 million," it said.

OSK said HSL management has said that Phase 2 of the Kuching Wastewater project was now 30 per cent complete and on track for the second quarter 2014 deadline.

"Given HSL's experience with Phase 1 and possession of the necessary equipment, we think it stands a good chance with the subsequent phases.

"We also gather that HSL is in discussions on a concession to main the wastewater system once it is completed," it said.
The entire job, over four phases, is worth RM2.2 billion, it said.

OSK has maintained a 'buy' call on the company with the target price at RM2.32. -- Bernama

MEDIA - Citigroup upgrades Media Prima

Stock Name: MEDIA
Company Name: MEDIA PRIMA BHD
Research House: CITI GROUP

Media Prima Bhd, a newspaper publisher and broadcaster, climbed 0.8 per cent to RM2.70, its second straight day of gains, after Citigroup Inc raised its share estimate to RM3.10 from RM2.70 ringgit to reflect higher television advertising rates. - Bloomberg

January 13, 2011

FABER - Target price for Faber lowered on loss of profit engines

Stock Name: FABER
Company Name: FABER GROUP BHD
Research House: HWANGDBS

Faber Group Bhd
(Jan 13, RM2.19)
Downgrade to fully valued at RM2.63 with reduced target price of RM2 (from RM2.90)
: Faber announced that the two major facilities management (FM) contracts in the UAE worth a total of RM184 million will not be renewed by its client, Western Region Municipality (WRM). The contracts are due to expire in 2Q11. It is understood that there is a change in management at WRM and the new management is revisiting the contracts.

Slashed FY11F-12F earnings by 29%-45% to account for the non-renewal of the contracts (resulted in 18%-30% cut of earnings). Taking a conservative stance, we are also cutting our new contract assumptions in the UAE (which drags down earnings by another 11%-14%). Thus, FM business in the UAE is no longer the second major contributor to earnings; its share of profit before tax is expected to shrink to 4% in FY12F from 38% in FY10F.

With a downgrade to fully valued (from hold), the sum-of-parts-based target price is reduced to RM2 (from RM2.60). Unless Faber secures the renewal or new contracts, we think there will be no major earnings driver in the near term. We gathered that Faber is bidding for several military hospital contracts in the UAE but no details are available and we do not expect the size of the contracts to be significant.

Furthermore, there is limited earnings visibility given the uncertainty over the renewal of the hospital support service (HSS) concession which is expiring in October 2011. While we think the risk of not getting the HSS concession renewed is low, Faber has yet to announce any indication of the renewal which should have been known in October 2010. ' HwangDBS Vickers Research, Jan 13


This article appeared in The Edge Financial Daily, January 14, 2011.

MAHSING - RHB Research maintains Overweight on Johor property sector

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

KUALA LUMPUR: RHB Research believes property stocks which have high exposure to the Johor region, and high beta (>1.8) such as UEM Land, Tebrau Teguh and Mulpha International, are likely to attract trading interests.

'Maintain Overweight on the sector,' it said on Thursday, Jan 13. Its top picks are SP Setia (OP, FV = RM6.95), and IJM Land (OP, FV = RM3.50) for big caps; and KSL (OP, FV = RM2.78) and Mah Sing (OP, FV = RM2.50) for small-mid caps. For Johor exposure, KSL is its fundamental pick.

RHB Research said the market has been attaching increasingly generous valuations to UEM Land (ULHB) and Dialog.

At the current share price of ULHB of RM3.22, the market is valuing the company's landbank in Johor at an average price of RM26-29 psf. We believe the re-pricing of the land and property values in Johor is likely to spill over to other property companies which have substantial landbank in the Johor region.

Indeed, some property companies such as Suncity and SP Setia are getting keener to have (more) development in Johor by buying more landbank there, sharing the growth story of the Iskandar Development Region.

SIME - Sime raised to 'outperform' at RHB Research

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

Sime Darby Bhd, the world’s biggest listed palm oil producer, was upgraded at RHB Research Institute Sdn Bhd, which said potential changes to its earnings portfolio from likely asset sales will benefit investors.

The stock was raised to “outperform” from “market perform” and its fair value increased to RM11.10 from RM9.80, RHB said in a report today. -- Bloomberg

QL - QL on track in Indonesia and Vietnam: OSK

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

QL Resources Bhd's new ventures in Vietnam and Indonesia are all on track for completion and management with the third quarter financial year 2011 results to be in line with consensus estimates, says OSK Research.

QL has set up in Indonesia a surimi and fishmeal plant and at the same time, constructed, breeder and layer farms. In Vietnam, it is setting up a layer farm.

The company has nine marine manufacturing plants and six poultry farms in Malaysia. This includes one marine manufacturing plant in Kota Kinabalu and three poultry farms in Kota Kinabalu, Tawau and Kuching.

Its marine manufacturing plant and poultry farm in Kota Kinabalu produces 20-30 per cent of its total surimi and fishmeal production and 17 per cent of total broilers production annually.

In a research note today, OSK said all the expansion plans are on track for completion and to achieve the targeted production volume between end of financial year 2011 to the first quarter financial year 2013.

Meanwhile, the group has planted 8,20O hectares of its new palm oil estate in Kalimantan,Indonesia, It aims to finish planting 15,000 hectares by financial year 2014.

The company is also targeting to commence production of its biogas and palm pellet plants by early February this year.

"We maintain our buy call on the stock, with a target price of RM6.88, based on 16 times calendar year 2012 earnings per share," it said.

Meanwhile, QL has proposed to acquire a 51 per cent stake in Pilihan Mahir SB, an associate of QL Endau Marine, for RM500,000.

Upon completion, QL Endau will own 100 per cent of Pilihan Mahir SB. -- Bernama

UMW - Auto sales, O&G recovery to drive UMW earnings

Stock Name: UMW
Company Name: UMW HOLDINGS BHD
Research House: BIMB

UMW Holdings Bhd
(Jan 13, RM7.72)
Maintain 'buy' with target price of RM8.11
: UMW recorded an above-expectation strong 82% year-on-year (y-o-y) growth in net profit in 9MFY10, driven mainly by stronger sales of Toyota and Perodua cars, weaker US dollar (USD) against ringgit and stronger performance of equipment division. A total of 212,700 units of Toyota and Perodua vehicles were sold in 9MFY10, accounting for 47% of total industry volume (TIV) of 453,000 units.

Meanwhile, USD weakened by almost 10% against the ringgit during the same period, largely driving the improvement in earnings before interest and tax (Ebit) and net profit margins by 4% and two percentage points respectively.

Meanwhile, on year-to-date (YTD) basis, the sales of Perodua and Toyota vehicles grew by 11.7% and 11% y-o-y respectively to 169,200 and 82,300 units, driven by the overall improvement in domestic vehicle sales on the back of improving economic condition, coupled with the introduction of Alza and other facelift variants.

The oil and gas (O&G) division was in the red for three consecutive quarters mainly due to protracted losses suffered by WSP Holdings as exports of O&G pipes especially to North America (particularly in the US) were hampered by anti-dumping ruling introduced since 2009, coupled with the delay in the commissioning of Naga 2 and Naga 3 oil rigs.

Although the overall performance of the group would still be largely driven by the expected steadier performance by the automotive division, the management expects its O&G division to turn around in 2011. While the vehicle sales of UMW Toyota are expected to come in around this year's level (2010F: 90,000; 2011F: 92,000), Perodua's management expects its vehicle sales to reach 190,000 units, to be underpinned by the still resilient sales of Viva, Alza and the introduction of Myvi replacement model. We expect domestic TIV to grow by a modest 3.1% next year, to be underpinned by the steady economic growth, new model launches (facelift included) and the still favourable financing environment.

Meanwhile, O&G division is expected to recover to be driven especially by UMW's various greenfield investments and new contributions from the Naga 2 and Naga 3 oil rigs. Earnings of key O&G associates especially the ones producing O&G pipes like the 40%-owned Shanghai Tube Cote, 25%-owned Shanghai BSW Petropipe, 29.4%-owned Zhongyou and NYSE-listed 22.3%-owned WSP Holdings should experience recovery in 2011 and organic improvement going forward, in tandem with the expected recovery in the O&G pipe segment. Note that WSP has been actively looking and successfully securing new customers in the international markets to absorb the impact of anti-dumping ruling in the US which appeared to have been the major factor for its lacklustre performance.

Additionally, UMW's continuous M&A activities and potential JV agreements especially in key emerging markets like India and China are expected to boost the O&G earnings contributions exponentially going forward. Besides that, more excitement could be expected in 2011, on the back of stronger contributions from its (1) 32.5%-associate, United Seamless Tubular in India, which has already commenced its commercial production and shipment of seamless tubular green pipes; and (2) PT TPCO Pan Asia, a new plant in Batam, Indonesia, which began processing and threading of OCTG pipes in 2H10.

The USD has weakened by almost 10% YTD, and note that, our sensitivity analysis shows that UMW's Ebit would be enhanced/squeezed by circa 4% for every 1% decrease/increase in USD against the ringgit as UMW Toyota is now purchasing its completely built up and completely knocked down packs from Toyota Motor Corp more in the greenback (against in yen previously). Therefore, in line with our house view of expecting the USD to weaken to around RM3 per USD in 2011, the margins enhancement trend is expected to sustain at least into 1H11, ceteris-paribus.

We continue to like UMW for its (1) commanding presence in the domestic automotive industry through Perodua and Toyota's dominance in the national and non-national segment respectively; (2) market leadership in certain segments in equipment and manufacturing businesses; (3) O&G division's turnaround prospects in 2011 and its long-term growth potentials; and (4) good dividend play with payout commitment of at least 50% of net profit.

Moreover, UMW's healthy potential dividend yields of 4.4% and 4.5% (conservatively based on 50% dividend payout target) in FY11 and FY12 offer a good defensive play.

Key re-rating catalysts include (1) improvement in O&G earnings; (2) higher-than-expected Toyota and Perodua vehicle sales; (3) higher-than-targeted dividend payout (as evident historically); and (4) material announcement on the proposed O&G listing. Additionally, material announcement on its O&G division's listing may also provide short-term excitement in the share price. ' BIMB Securities Research, Jan 13


This article appeared in The Edge Financial Daily, January 14, 2011.

PCHEM - Petronas Chemicals the new big show on KLCI

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

Petronas Chemicals Group Bhd
(Jan 13, RM6.03)
Initiating coverage with 'buy' call at RM6.02 with target price of RM6.70
: Petronas Chemicals Group (PetChem) is an opportunity to participate in: (i) the world's most consistently profitable petrochemical company; just after its earnings trough, with (ii) huge earnings growth prospects, (iii) low indebtedness profile and (iv) generates significant free cash flow. PetChem is the world's 22nd largest chemical company by market value, and it will inevitably be included into major chemical indices ' a strong pull factor to international investors. Valuations are attractive compared with global peers' forward PERs and EV/Ebitda.

The petrochemical industry is in the recovery stage of a cyclical uptrend; 2009 was the last trough, the next boom will be in three-five years. Product volume growth to GDP correlation is one to two times, positive for PetChem as its customers are in the high growth Asia-Pacific region. In the previous upcycle, net profit margins soared to 30.5%, and the main ingredients to this growth are very similar now.

(1) Organic growth ' boost volumes on higher utilisation rate and facility efficiency enhancements; (2) venturing to the production of niche chemicals that commands higher and stable profit margins; and (3) opportunistic acquisition from third party or existing JV partners. Furthermore, PetChem is extracting structural fixed cost reductions from the synergies of business consolidation.

Based on PER, PetChem is worth RM6.70 per share, and RM6.86 per share based on discounted cash flow valuations. This implies FY12 PER of 13.1 times which is undemanding relative to its strong growth prospects (+20% three-year earnings CAGR). Dividend hunters will be charmed by its strong cash flow and 50% committed payout ratio. Its capacity to pay dividends is substantial, with projected free cashflow yields of 10.7%-19.0% in FY11-FY13.

In the next upcoming cyclical peak, PetChem is likely to surpass its previous net income record of RM3.9 billion achieved in FY08. With its leaner fixed cost structure, PetChem can easily render the highest absolute net profit of any KLCI member (currently Maybank holds the record with RM3.8 billion). We think it is only a matter of time before PetChem becomes KLCI's next 'big show'. We initiate coverage with a 'buy' call and RM6.70 PER-based target price. ' Maybank IB Research, Jan 13


This article appeared in The Edge Financial Daily, January 14, 2011.

SPSETIA - SP Setia climbs on target price boost

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

SP Setia Bhd, a property developer, climbed 1.1 per cent to RM6.76 ringgit, set to close at a record. HwangDBS Vickers Research Sdn Bhd increased its share-price estimate to RM7.70 from RM7, citing the company’s earnings growth prospects. - Bloomberg

KSL - RHB Research maintains Overweight on Johor property sector

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

KUALA LUMPUR: RHB Research believes property stocks which have high exposure to the Johor region, and high beta (>1.8) such as UEM Land, Tebrau Teguh and Mulpha International, are likely to attract trading interests.

'Maintain Overweight on the sector,' it said on Thursday, Jan 13. Its top picks are SP Setia (OP, FV = RM6.95), and IJM Land (OP, FV = RM3.50) for big caps; and KSL (OP, FV = RM2.78) and Mah Sing (OP, FV = RM2.50) for small-mid caps. For Johor exposure, KSL is its fundamental pick.

RHB Research said the market has been attaching increasingly generous valuations to UEM Land (ULHB) and Dialog.

At the current share price of ULHB of RM3.22, the market is valuing the company's landbank in Johor at an average price of RM26-29 psf. We believe the re-pricing of the land and property values in Johor is likely to spill over to other property companies which have substantial landbank in the Johor region.

Indeed, some property companies such as Suncity and SP Setia are getting keener to have (more) development in Johor by buying more landbank there, sharing the growth story of the Iskandar Development Region.

IJMLAND - RHB Research maintains Overweight on Johor property sector

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

KUALA LUMPUR: RHB Research believes property stocks which have high exposure to the Johor region, and high beta (>1.8) such as UEM Land, Tebrau Teguh and Mulpha International, are likely to attract trading interests.

'Maintain Overweight on the sector,' it said on Thursday, Jan 13. Its top picks are SP Setia (OP, FV = RM6.95), and IJM Land (OP, FV = RM3.50) for big caps; and KSL (OP, FV = RM2.78) and Mah Sing (OP, FV = RM2.50) for small-mid caps. For Johor exposure, KSL is its fundamental pick.

RHB Research said the market has been attaching increasingly generous valuations to UEM Land (ULHB) and Dialog.

At the current share price of ULHB of RM3.22, the market is valuing the company's landbank in Johor at an average price of RM26-29 psf. We believe the re-pricing of the land and property values in Johor is likely to spill over to other property companies which have substantial landbank in the Johor region.

Indeed, some property companies such as Suncity and SP Setia are getting keener to have (more) development in Johor by buying more landbank there, sharing the growth story of the Iskandar Development Region.

SPSETIA - RHB Research maintains Overweight on Johor property sector

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

KUALA LUMPUR: RHB Research believes property stocks which have high exposure to the Johor region, and high beta (>1.8) such as UEM Land, Tebrau Teguh and Mulpha International, are likely to attract trading interests.

'Maintain Overweight on the sector,' it said on Thursday, Jan 13. Its top picks are SP Setia (OP, FV = RM6.95), and IJM Land (OP, FV = RM3.50) for big caps; and KSL (OP, FV = RM2.78) and Mah Sing (OP, FV = RM2.50) for small-mid caps. For Johor exposure, KSL is its fundamental pick.

RHB Research said the market has been attaching increasingly generous valuations to UEM Land (ULHB) and Dialog.

At the current share price of ULHB of RM3.22, the market is valuing the company's landbank in Johor at an average price of RM26-29 psf. We believe the re-pricing of the land and property values in Johor is likely to spill over to other property companies which have substantial landbank in the Johor region.

Indeed, some property companies such as Suncity and SP Setia are getting keener to have (more) development in Johor by buying more landbank there, sharing the growth story of the Iskandar Development Region.

FABER - OSK Research downgrades Faber to Trading Buy

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

KUALA LUMPUR: OSK Research has downgraded FABER GROUP BHD [] to a a Trading Buy and lowered its sum-of-parts (SOP) valuation from RM4 to RM3.39.

It said on Thursday, Jan 13, the downgrade followed the non-renewal of two contracts of Faber's Abu Dhabi-based subsidiary Faber Ltd Liability Co. (FLCC). The contracts have an estimated value of RM184 million per annum.

'Despite the still-sizeable price upside, we are downgrading our recommendation from BUY to Trading Buy, largely because non-renewal of the contracts will dampen sentiment and create some uncertainty over the fate of Faber's existing concession in Malaysia,' it said.

OSK Research said nevertheless, with Abu Dhabi's Western Region Municipality (WRM) expected to invite a fresh round of tenders for its infrastructure contracts, the potential upside catalyst for Faber would be the possibility the company secures new contracts from WRM.

Another catalyst would be the renewal of its concession in Malaysia which could possibly be announced anytime.

'We also believe that the revenue shortfall resulting from non-renewal of the UAE contracts will be partly mitigated by improving prospects for Faber's property division,' it said.

FABER - Faber falls on non-renewal of contracts

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

KUALA LUMPUR: Shares of FABER GROUP BHD [] fell in early trade on Thursday, Jan 13 following news of the non-renewal of two Abu Dhabi contracts with an estimated value of RM184 million per annum.

At 9.08am, Faber was down 16 sen to RM2.47 with 407,700 shares done.

The FBM KLCI rose 5.7 points to 1,572.19. Turnover was 202.28 million shares valued at RM127.78 million. Advancers led decliners 274 to 40 while 151 stocks were unchanged.

OSK Research downgraded Faber to a Trading Buy and lowered its sum-of-parts (SOP) valuation from RM4 to RM3.39.

It said the downgrade followed the non-renewal of two contracts of Faber's Abu Dhabi-based subsidiary Faber Ltd Liability Co. (FLCC).

'Despite the still-sizeable price upside, we are downgrading our recommendation from BUY to Trading Buy, largely because non-renewal of the contracts will dampen sentiment and create some uncertainty over the fate of Faber's existing concession in Malaysia,' it said.

TSH - HDBSVR ups TSH Resources TP to RM3.40

Stock Name: TSH
Company Name: TSH RESOURCES BHD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) expects TSH RESOURCES BHD []'s earnings to grow to RM125 million in FY13F from RM60 million in FY10F, premised on c.15,000 ha of young trees maturing over the period.

It said on Thursday, Jan 13 the fresh fruit bunches (FFB) volume is projected to register 24% CAGR to 540,000 tons by FY13F.

'There is also potential upside from higher yields, if TSH employ Wakuba ramet (high quality clone) that can yield 38MT/ha of FFB in prime years (vs. c.22MT/ha now). We understand TSH has started small scale new planting of Wakuba,' it said.

HDBSVR said TSH, despite its high gearing, the cash flow is strong. 'We remain positive on TSH despite its relatively high gearing (90% as at September 2010),' it said.

It raised the target price to RM3.40 after imputing lower capex. Valuations are undemanding currently at 14x PE FY11F EPS, the cheapest in the reseach house coverage of Malaysia PLANTATION []s and below sector average of 18x.

'TSH's FY10-13F FFB CAGR of 24% is also the strongest in our regional universe,' it said.

January 12, 2011

SAPCRES - Domestic capex rollout propels O&G rally further

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

Oil & Gas
Maintain 'overweight'
: Prime Minister Datuk Seri Najib Razak on Tuesday announced that ExxonMobil and Shell would invest up to RM15 billion to upgrade their existing oil & gas (O&G) fields and facilities.

ExxonMobil and its production sharing contract partner, Petronas Carigali, plan to invest over RM10 billion to rejuvenate mature facilities and undertake enhanced oil recovery activities in the Tapis and the Telok gas fields off Terengganu while Shell Malaysia will invest RM5 billion in upgrading and expanding upstream, midstream and downstream facilities across Malaysia.

For fabricators, we believe the likely beneficiaries will be Malaysia Marine & Heavy Engineering (MMHE), Kencana Petroleum and Sime Engineering, all of whom have successfully executed Petronas' projects in the past. We expect the RM7 billion Tapis contract to be awarded to MMHE, as its Pasir Gudang yard will have spare capacity by mid-2011 when the topside of the Gemusut-Kakap floating production storage semi-submersible is lifted onto its hull.

Given the support of Petronas, MMHE is also likely to be the front-runner for the Telok project. But as the Tapis and Telok projects are expected to commence operations in 2013, we are unsure if MMHE can undertake both jobs simultaneously. Hence, we believe Kencana and Sime Engineering have a fair chance of securing the Telok award or at least a subcontracted portion.

For installation services, SapuraCrest is by far the most likely provider given that the group currently operates three pipelaying-cum-construction vessels while other bidders could be the Kencana-McDermott, Alam Maritim-Swiber and Perisai Petroleum-Ezra Holdings joint-ventures. For Shell's upgrading works, we expect equipment and service providers such as Dialog Group, Kencana, Wah Seong and KNM Group to secure some of the fabrication jobs.

Rampant global liquidity flows coupled with the prolific new domestic projects being implemented by Petronas and the government's push to create a regional hub are expected to continue stretching the industry's valuations to the peaks experienced in the past three years. We note that, in 2007, the one-year forward PEs of Dialog reached 40 times, SapuraCrest 29 times and Kencana 22 times.

As such, we have raised our PE targets to 22 times for SapuraCrest (from 16 times earlier) and Kencana to 22 times (from 18 times earlier) while assigning 25 times for MMHE ' a 15% premium for its greater order book clarity.

The O&G upcycle is still running full tilt with up to RM10 billion largely from enhanced oil recovery, marginal and deepwater fields over the next six months. Hence, we maintain our 'overweight' view on the sector with SapuraCrest being our top 'buy' call given Petronas' capex rollouts and underpinned by the group's huge lock-in order book which should sustain earnings for the next three years.

Dialog remains a 'buy' in spite of a possible retracement after its impressive share price run given the excitement from the Pengerang deepwater development. The share rally on Kencana ' while still a 'buy' due to marginal fields and M&A newsflows ' could moderate with its proposed equity raising exercise. ' AmResearch, Jan 12


This article appeared in The Edge Financial Daily, January 13, 2011.

KENCANA - Domestic capex rollout propels O&G rally further

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

Oil & Gas
Maintain 'overweight'
: Prime Minister Datuk Seri Najib Razak on Tuesday announced that ExxonMobil and Shell would invest up to RM15 billion to upgrade their existing oil & gas (O&G) fields and facilities.

ExxonMobil and its production sharing contract partner, Petronas Carigali, plan to invest over RM10 billion to rejuvenate mature facilities and undertake enhanced oil recovery activities in the Tapis and the Telok gas fields off Terengganu while Shell Malaysia will invest RM5 billion in upgrading and expanding upstream, midstream and downstream facilities across Malaysia.

For fabricators, we believe the likely beneficiaries will be Malaysia Marine & Heavy Engineering (MMHE), Kencana Petroleum and Sime Engineering, all of whom have successfully executed Petronas' projects in the past. We expect the RM7 billion Tapis contract to be awarded to MMHE, as its Pasir Gudang yard will have spare capacity by mid-2011 when the topside of the Gemusut-Kakap floating production storage semi-submersible is lifted onto its hull.

Given the support of Petronas, MMHE is also likely to be the front-runner for the Telok project. But as the Tapis and Telok projects are expected to commence operations in 2013, we are unsure if MMHE can undertake both jobs simultaneously. Hence, we believe Kencana and Sime Engineering have a fair chance of securing the Telok award or at least a subcontracted portion.

For installation services, SapuraCrest is by far the most likely provider given that the group currently operates three pipelaying-cum-construction vessels while other bidders could be the Kencana-McDermott, Alam Maritim-Swiber and Perisai Petroleum-Ezra Holdings joint-ventures. For Shell's upgrading works, we expect equipment and service providers such as Dialog Group, Kencana, Wah Seong and KNM Group to secure some of the fabrication jobs.

Rampant global liquidity flows coupled with the prolific new domestic projects being implemented by Petronas and the government's push to create a regional hub are expected to continue stretching the industry's valuations to the peaks experienced in the past three years. We note that, in 2007, the one-year forward PEs of Dialog reached 40 times, SapuraCrest 29 times and Kencana 22 times.

As such, we have raised our PE targets to 22 times for SapuraCrest (from 16 times earlier) and Kencana to 22 times (from 18 times earlier) while assigning 25 times for MMHE ' a 15% premium for its greater order book clarity.

The O&G upcycle is still running full tilt with up to RM10 billion largely from enhanced oil recovery, marginal and deepwater fields over the next six months. Hence, we maintain our 'overweight' view on the sector with SapuraCrest being our top 'buy' call given Petronas' capex rollouts and underpinned by the group's huge lock-in order book which should sustain earnings for the next three years.

Dialog remains a 'buy' in spite of a possible retracement after its impressive share price run given the excitement from the Pengerang deepwater development. The share rally on Kencana ' while still a 'buy' due to marginal fields and M&A newsflows ' could moderate with its proposed equity raising exercise. ' AmResearch, Jan 12


This article appeared in The Edge Financial Daily, January 13, 2011.

WASEONG - Wah Seong to make stronger recovery: ECM

Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Research House: ECMLIBRA

Wah Seong Corporation Bhd is expected to make a stronger earnings recovery, driven by the Gorgon liquefied natural gas (LNG) coating project as well as a pick up in orders in the engineering segment.

In a research note today, ECMLibra Investment Research said the international oil and gas service group would likely be able to replenish its order book before the completion of the Gorgon project, expected to be in the first quarter of 2012.

The engineering segment, in particular, had seen its order book growing from RM220 million in the second quarter of 2010 to RM390 million as at end of 2010, it said.

New pipe coating jobs awarded over the first half of this year that may commence towards the later part of the second half, were expected to add to earnings of the pipe coating segment.

"Our order book assumption for Financial Year 2011 is RM1.5 billion while we expect an average of RM1.7 billion for Financial Year 2012.

"We are upping our earnings estimates for Financial Year 2011 and upgrading Wah Seong to a 'buy' from a 'hold'," ECMLibra said.

Wah Seong is currently pre-qualified for coating work in Australia, namely for the Australian Pacific LNG and Gladstone LNG development.

ECMLibra believes the group is likely to snag at least one of the two jobs as it is neck to neck with Bredero Shaw, the world leader in pipe coating solutions, in the bidding process. -- Bernama

JTINTER - Local tobacco crop failures a boon for JTI

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

JT International Bhd
(Jan 12, RM6.25)
Maintain 'buy' at RM6.08 with higher target price of RM8.10 (from RM6.50)
: JTI's share price rose 28% over 2010 to close at RM6.05 at the year-end. Whilst this was commendable, we believe that 2011 could outperform 2010 for two simple reasons.

First, local crop failures will result in cost savings for JTI. Second, JTI's build-up of cash reserves suggests that valuations ex-cash will lag market valuations once more. Our updated discounted cash flow-valuation rises to RM8.10 (+34%) although we have left earnings forecasts unchanged.

Tobacco crop failures in 2009 and 2010 mean that manufacturers like JTI have no choice other than to source their leaf supply from overseas. Local tobacco leaf production fell by 56% y-o-y to 3.25 million tonnes in 2009 from 7.36 million tonnes in 2008, and was estimated to have either stayed largely unchanged or risen just marginally in 2010.

This is positive for JTI, given that local leaf was as much as 50% more expensive than similar leaf sourced from neighbouring countries.

Our unchanged forecasts point to a net cash per share position of RM1 and RM1.42 by end-2011 and end-2012, assuming an unchanged gross dividend payout of 30 sen per share per annum. Recall however, when JTI had net cash of RM1.11 per share at end-1Q08 as reported in May 2008, it proceeded to declare a special dividend of 28 sen per share followed by a proposed capital repayment of 75 sen per share in July 2008.
B
In our estimation, with a shrinking addressable market, there is every chance that JTI may undertake a similar exercise and return similar amounts some time between end-2011 and before end-2012.

With its track record of growing sales volumes and profits albeit within a shrinking industry, we would argue that JTI would not be out of place trading at a narrow 10%-20% discount to wider market valuations of circa 14 times 2012 earnings.

At its last done price of RM6.08, this implies a forward PER of just 10 times, with a CAGR of 44% for its net cash per share over the 2010-12 period. Our higher target price of RM8.10 is supported by our updated DCF valuation (WACC: 7.1%, g: -0.5%) which also translates into just 13.1 times 2012 PER. ' Maybank IB Research, Jan 12


This article appeared in The Edge Financial Daily, January 13, 2011.

TOPGLOV - High latex price still an issue for Top Glove

Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: OSK

Top Glove Corporation Bhd
(Jan 12, RM5.27)
Maintain 'neutral' at RM5.38 with target price of RM5.74
: Management believes that the unrelenting rise in latex price was due to adverse weather conditions, which have resulted in low latex production in rubber trees, rather than due to speculation as some of its peers believe. We believe, however, that both factors have been at play as there was flooding in southern Thailand as well as speculative trading of the commodity since the price has not come down since 2H09.

This increase was at the expense of powdered latex and vinyl gloves. Nevertheless, powdered latex gloves still contributes the major share of about 52% to Top Glove's total products, followed by powder-free latex gloves at 30% and nitrile gloves at 10% currently. The remaining 8% is contributed by vinyl and surgical gloves.

Going forward, the management expects to increase its nitrile mix to 15%-20% since more customers prefer these types of gloves as they are currently cheaper than natural rubber gloves by about 10%-20% with nitrile latex price now lower than that of natural rubber latex. We are positive on the management's move to increase its nitrile mix but are still unsure how fast it can make the switch, given that nitrile gloves are mainly sold to established healthcare multi-national corporations which have fixed orders from their existing suppliers.

Hence, unless Top Glove is targeting its existing customers, it may not be so easy to penetrate new markets or garner new customers since this type of glove is used for medical purpose, which is required to meet high Food and Drug Administration (FDA) requirements.

Top Glove will invest about RM160 million for 8,000 hectares of land, planting and facilities for a concession period of 70 years in Cambodia. It will then start planting rubber trees and expects to tap them in six to seven years' time. The plantation is expected to contribute about 15% of the company's latex requirement.

Although we are positive on this move since it would act as a hedging mechanism, its contribution to Top Glove's total requirement may be insufficient. The management will buy more land once this move turns out to be a success.

Our target price for the company remains unchanged at RM5.74, based on a PER of 15 times FY12 EPS. ' OSK Investment Research, Jan 12


This article appeared in The Edge Financial Daily, January 13, 2011.

DIALOG - Domestic capex rollout propels O&G rally further

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

Oil & Gas
Maintain 'overweight'
: Prime Minister Datuk Seri Najib Razak on Tuesday announced that ExxonMobil and Shell would invest up to RM15 billion to upgrade their existing oil & gas (O&G) fields and facilities.

ExxonMobil and its production sharing contract partner, Petronas Carigali, plan to invest over RM10 billion to rejuvenate mature facilities and undertake enhanced oil recovery activities in the Tapis and the Telok gas fields off Terengganu while Shell Malaysia will invest RM5 billion in upgrading and expanding upstream, midstream and downstream facilities across Malaysia.

For fabricators, we believe the likely beneficiaries will be Malaysia Marine & Heavy Engineering (MMHE), Kencana Petroleum and Sime Engineering, all of whom have successfully executed Petronas' projects in the past. We expect the RM7 billion Tapis contract to be awarded to MMHE, as its Pasir Gudang yard will have spare capacity by mid-2011 when the topside of the Gemusut-Kakap floating production storage semi-submersible is lifted onto its hull.

Given the support of Petronas, MMHE is also likely to be the front-runner for the Telok project. But as the Tapis and Telok projects are expected to commence operations in 2013, we are unsure if MMHE can undertake both jobs simultaneously. Hence, we believe Kencana and Sime Engineering have a fair chance of securing the Telok award or at least a subcontracted portion.

For installation services, SapuraCrest is by far the most likely provider given that the group currently operates three pipelaying-cum-construction vessels while other bidders could be the Kencana-McDermott, Alam Maritim-Swiber and Perisai Petroleum-Ezra Holdings joint-ventures. For Shell's upgrading works, we expect equipment and service providers such as Dialog Group, Kencana, Wah Seong and KNM Group to secure some of the fabrication jobs.

Rampant global liquidity flows coupled with the prolific new domestic projects being implemented by Petronas and the government's push to create a regional hub are expected to continue stretching the industry's valuations to the peaks experienced in the past three years. We note that, in 2007, the one-year forward PEs of Dialog reached 40 times, SapuraCrest 29 times and Kencana 22 times.

As such, we have raised our PE targets to 22 times for SapuraCrest (from 16 times earlier) and Kencana to 22 times (from 18 times earlier) while assigning 25 times for MMHE ' a 15% premium for its greater order book clarity.

The O&G upcycle is still running full tilt with up to RM10 billion largely from enhanced oil recovery, marginal and deepwater fields over the next six months. Hence, we maintain our 'overweight' view on the sector with SapuraCrest being our top 'buy' call given Petronas' capex rollouts and underpinned by the group's huge lock-in order book which should sustain earnings for the next three years.

Dialog remains a 'buy' in spite of a possible retracement after its impressive share price run given the excitement from the Pengerang deepwater development. The share rally on Kencana ' while still a 'buy' due to marginal fields and M&A newsflows ' could moderate with its proposed equity raising exercise. ' AmResearch, Jan 12


This article appeared in The Edge Financial Daily, January 13, 2011.

MHB - Domestic capex rollout propels O&G rally further

Stock Name: MHB
Company Name: MALAYSIA MARINE AND HEAVY ENG
Research House: AMMB

Oil & Gas
Maintain 'overweight'
: Prime Minister Datuk Seri Najib Razak on Tuesday announced that ExxonMobil and Shell would invest up to RM15 billion to upgrade their existing oil & gas (O&G) fields and facilities.

ExxonMobil and its production sharing contract partner, Petronas Carigali, plan to invest over RM10 billion to rejuvenate mature facilities and undertake enhanced oil recovery activities in the Tapis and the Telok gas fields off Terengganu while Shell Malaysia will invest RM5 billion in upgrading and expanding upstream, midstream and downstream facilities across Malaysia.

For fabricators, we believe the likely beneficiaries will be Malaysia Marine & Heavy Engineering (MMHE), Kencana Petroleum and Sime Engineering, all of whom have successfully executed Petronas' projects in the past. We expect the RM7 billion Tapis contract to be awarded to MMHE, as its Pasir Gudang yard will have spare capacity by mid-2011 when the topside of the Gemusut-Kakap floating production storage semi-submersible is lifted onto its hull.

Given the support of Petronas, MMHE is also likely to be the front-runner for the Telok project. But as the Tapis and Telok projects are expected to commence operations in 2013, we are unsure if MMHE can undertake both jobs simultaneously. Hence, we believe Kencana and Sime Engineering have a fair chance of securing the Telok award or at least a subcontracted portion.

For installation services, SapuraCrest is by far the most likely provider given that the group currently operates three pipelaying-cum-construction vessels while other bidders could be the Kencana-McDermott, Alam Maritim-Swiber and Perisai Petroleum-Ezra Holdings joint-ventures. For Shell's upgrading works, we expect equipment and service providers such as Dialog Group, Kencana, Wah Seong and KNM Group to secure some of the fabrication jobs.

Rampant global liquidity flows coupled with the prolific new domestic projects being implemented by Petronas and the government's push to create a regional hub are expected to continue stretching the industry's valuations to the peaks experienced in the past three years. We note that, in 2007, the one-year forward PEs of Dialog reached 40 times, SapuraCrest 29 times and Kencana 22 times.

As such, we have raised our PE targets to 22 times for SapuraCrest (from 16 times earlier) and Kencana to 22 times (from 18 times earlier) while assigning 25 times for MMHE ' a 15% premium for its greater order book clarity.

The O&G upcycle is still running full tilt with up to RM10 billion largely from enhanced oil recovery, marginal and deepwater fields over the next six months. Hence, we maintain our 'overweight' view on the sector with SapuraCrest being our top 'buy' call given Petronas' capex rollouts and underpinned by the group's huge lock-in order book which should sustain earnings for the next three years.

Dialog remains a 'buy' in spite of a possible retracement after its impressive share price run given the excitement from the Pengerang deepwater development. The share rally on Kencana ' while still a 'buy' due to marginal fields and M&A newsflows ' could moderate with its proposed equity raising exercise. ' AmResearch, Jan 12


This article appeared in The Edge Financial Daily, January 13, 2011.

LPI - LPI Capital's earnings in line with expectations

Stock Name: LPI
Company Name: LPI CAPITAL BHD
Research House: RHB

LPI Capital Bhd
(Jan 12, RM13.96)
Maintain 'underperform' at RM13.90 with fair value of RM12.37
: LPI recorded 4QFY12/10 net profit of RM36.9 million (+2% q-o-q) bringing its full-year FY10 earnings to RM137.9 million (+9.4% y-o-y). This accounted for 98% and 99% of our and consensus full-year estimates respectively.

LPI declared a second single-tier interim dividend of 45 sen, bringing total dividends declared to 55 sen year-to-date, implying a net payout of 86%, higher than our forecast 74% payout.

LPI's 12M10 earnings grew by 9.4% y-o-y, on the back of revenue growth of 12.6%. Gross premiums grew by 12% during the year of which 34% was ceded to reinsurers, similar to FY09's 35% reinsurance ratio. The lower reinsurance ratio, combined with the 12% premium growth and a lower combined ratio for FY10 of 76.2% (FY09: 76.9%), resulted in 19.1% growth in underwriting surplus.

LPI's combined ratio showed improvement y-o-y in both its commission and management expenses by one percentage point (ppt) and 0.4 ppt respectively, which more than offset the higher claims ratio of 47.8% (+0.6 ppt y-o-y).

It was recently announced that beginning this year, employers are required to purchase medical insurance coverage for each foreign worker, at an annual premium of RM120 per employee. We believe this new business will be worth a total of RM200 million, based on an estimated 1.8 million foreign workers currently in Malaysia.

We believe LPI will be able to derive incremental revenues from this new business and we expect it to be profitable given: 1) a limit of RM10,000 claims per employee; and 2) claims can only be made at government hospitals, which are cheaper than private hospitals. However, given that it is a small business in total and the estimated impact towards LPI's bottomline is expected to be minimal, we are leaving our forecasts unchanged for the time being.

Risks included change in government policy that may result in lower car prices; jump in claims ratio; combined ratio may exceed 100%; and intense competition from the insurance sector liberalisation.

In our 2011 sector strategy report, we adjusted LPI's FY10-12 claims ratio assumptions which subsequently raised our earnings forecasts by 5%-13%. We are not making any further changes for the time being. We introduce our FY13 forecast.

Our fair value is RM12.37 (post earnings revision in 2011 sector strategy report) based on unchanged target 16 times FY11 EPS. Maintain 'underperform'. ' RHB Research Institute, Jan 12


This article appeared in The Edge Financial Daily, January 13, 2011.

GENTING - Genting a 'buy' says UOB

Stock Name: GENTING
Company Name: GENTING BHD
Research House: UOB

Genting Bhd, a Malaysian casino and power group, rose to a record in Kuala Lumpur trading, set to become the biggest gainer on the benchmark stock index.

The stock climbed 4.2 per cent to RM11.90 at 4:45 p.m. local time, set to close at an all-time high. Genting is still the “best proxy to the group’s growing footprint in the global casino market,” UOB Kay Hian Group said in a report today. It rates the stock a “buy” with a share estimate of RM12.54. -- Bloomberg

FABER - Buy Faber Group: MIDF

Stock Name: FABER
Company Name: FABER GROUP BHD
Research House: MIDF

MIDF Research has reiterated its "buy" recommendation on Faber Group Bhd with the target price unchanged at RM3.60 despite the renewal risk of Faber's Hospital Support Services (HSS) concession in Sabah and Sarawak.

It said the unchanged target price was based on Sum-of-Parts (SOP) valuation with an implied price earning ratio of 12.2 times and estimated financial year 2011 earnings-per-share growth of 12.5 per cent. - Bernama

MAYBANK - OSK keeps 'buy' call on Maybank

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

Malayan Banking Bhd's (Maybank) RM4.3 billion proposed acquisition of Singapore-based stockbroker, Kim Eng Holdings Ltd, will enable it to fast-track growth of the latter's retail broking in key under-penetrated growing markets like Indonesia.

In a note today, OSK Research said the acquisition would give Maybank an immediate investment banking and broking distribution access to eight countries, with the key market focus being Singapore, Indonesia, Thailand and Philippines, in which Kim Eng was one of the top seven brokerages.

"Judging from the success CIMB has had with the acquisition of GK Goh, there are certainly viable and apparent synergies that Maybank can unlock from bringing Kim Eng into the fold," it said.

OSK said overall, it was 'neutral to slightly positive' on the deal as the near term earnings impact was negligible.

It maintained its 'buy' call on Maybank with target price of RM10.07. -- Bernama

SAPCRES - SapuraCrest leaps to a record

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

SapuraCrest Petroleum Bhd. jumped to a record in Kuala Lumpur trading after Maybank Investment Bank Bhd said the Malaysian oil and services provider will gain from higher spending by oil companies.

The stock surged 8.7 per cent to RM3.75 at 12:05 p.m. local time, set to close at a record high.

The stock’s potential upside target areas is between RM3.85 and RM4.05, Maybank said in its technical chart report today. - Bloomberg

JTINTER - JT hits 12-year high on raised share estimate

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

JT International Bhd, a Malaysia cigarette maker, rose to its highest level in more than 12 years after Maybank Investment Bank Bhd. increased its share estimate on expectations of a potential special dividend and falling costs.

The stock climbed 3.3 per cent to RM6.28 at 10:22 a.m. in Kuala Lumpur trading, set for its highest close since June 1998.

The share estimate was raised to RM8.10 from RM6.50, Khair Mirza and Chai Li Shin, analysts at Maybank Investment, wrote in a report today. - Bloomberg

TOPGLOV - RHB Research maintains Top Glove FV at RM4.10

Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining its fair value for Top Glove Corp Bhd at RM4.10 based on unchanged target CY11 PER of 12.5 times.

'We believe the near-term outlook for Top Glove remains challenging given the longer time frame now required to pass on the higher cost and lower proportion of cost increase that can be passed on to its customers as demand for rubber gloves continues to remain weak,' it said on Wednesday, Jan 12.

RHB Research said there was no change to its Underperform call on the stock.

To recap, 1Q11 revenue rose 4.1% on-year on the back of the upward revision in selling prices to partially pass on the rising latex cost and weakening RM. 1Q11 net profit, however, fell 45% on-year due to margin contraction (EBITDA margin fell 9.5%-pts on-year) resulting from the time lag in passing on the higher latex cost and weakening US$.

During a briefing on Tuesday, RHB Research said Top Glove management mentioned that the time lag could continue for the next 1-2 quarters ahead as latex price is still at a high (currently at RM9.81/kg).

Although typically glove manufacturers are able to pass on the higher cost, the time lag for Top Glove to pass on the higher cost is now longer (currently 3-6 months, as compared to 1-2 months previously) as customers are less willing to absorb higher prices given the ample capacity available in the industry following the H1N1 pandemic last year.

Apart from the longer time lag, Top Glove is now only able to pass on a lower proportion of the cost increase to their customers (previously around 80% is passed on, as compared to 60% currently).

'Nevertheless, they opined that latex prices should start to ease in the next 3-4 quarters ahead as fresh new supply would be coming into the market from Malaysia, Cambodia and Vietnam and seasonality effects,' said RHB Research.

E&O - HDBSVR maintains Buy on E&O, up TP to RM1.70

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

KUALA LUMPUR: Hwang DBS Vickers Research has raised the Target Price for Eastern & Oriental Bhd (E&O)'' to RM1.70 (from RM1.40) based on 20% discount to RNAV of RM2.14.

It said on Wednesday, Jan 12 E&O's net gearing has improved significantly to 32% (2QFY10: 79%) post-rights issue, while unbilled sales stands at a record RM605 million (2.1x FY10 property development revenue).

'Given its prime landbank, strong execution track record, and attractive valuation, we see E&O as a potential M&A/JV candidate,' it said.

January 11, 2011

POS - Transmile legacy nearing end for Pos Malaysia

Stock Name: POS
Company Name: POS MALAYSIA BHD
Research House: AMMB

Pos Malaysia Bhd
(Jan 11, RM3.35)
Recommend buy at RM3.42 with fair value RM3.60
: Pos Malaysia's 15%-owned Transmile Group Bhd finally announced a buyer for its four MD-11 aircraft on Jan 10. Transmile will be selling the planes ' left idle since April 2008 ' to Federal Express Corp for US$17 million (RM52.2 million) each, to be satisfied entirely in cash.

Total purchase consideration is US$68 million (about RM208.8 million) ' against the planes' Sept 30 carrying amount of RM242.1 million.

Proceeds from the sale will be employed to reduce Transmile's heavy outstanding debt burden of RM528.9 million. We believe that the group of lenders led by the Employees Provident Fund (see report May 13, 2010), which served Transmile with a winding-up petition, will be paid first.

With the completion of the partial settlement, the group's debt obligations are expected to be reduced by up to 39% to about RM320.1 million. We expect a fresh proposal of Transmile's restructuring before its PN-17 delisting deadline on Feb 22, 2011.

Pos Malaysia impairs Transmile on a quarterly basis, and thus based on the Dec 31 price, 4QFY10 result is expected to include a non-core impairment loss of RM4 million. We reiterate that dividend will be made from profit before tax and exceptional items. We expect a minimum payout of 40%, yielding 4% in FY11F.

As at Monday's closing prices, Transmile is worth only RM8.9 million to Pos Malaysia, or 1 sen per share. We have ceased to incorporate Transmile in our valuation since April 2010.

While prices have inched up nearer to our discounted cash flow valuation of RM3.60 per share, Price-earnings-wise Pos Malaysia still offers value at a 30% discount to its historical valuation of 14 times - expect a bidding war when the Prime Minister announces the final bidders for Khazanah Nasional Bhd's 32% stake and a probable mandatory general offer. ' AmResearch, Jan 11


This article appeared in The Edge Financial Daily, January 12, 2011.

WCT - Construction - the next leg up is imminent

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

Construction sector
Gamuda remains our high-conviction 'buy' for most leverage to the mass rapid transit (MRT) project, but we also like MMC Corp Bhd as an alternative proxy. We raise our target price (TP) for Gamuda Bhd and MMC to RM5.25 and RM4.05, respectively, by removing the debt portion from our discounted cash flow (DCF) value for the MRT tunnelling works as the project is expected to be fully funded by the government now. We expect the RM14 billion tunnelling works to add RM1 per Gamuda share and 76 sen per MMC share based on our DCF value (50% win probability). Approximately 20% of the initial Sungai Buloh-Kajang line will be tunnelling works. In spite of the aborted merger, we like MRCB (raise TP to RM3.05) as we expect it to carve out the most lucrative portion of the 3,400-acre Rubber Research Institute Malaysia land ' the transport hub with commercial content, where the red and green lines will converge. We raise TPs for IJM Corp Bhd (TP RM7.50) and WCT Bhd (TP RM4.15) after imputing larger contract wins as both surprised on the upside in 2010.

This will be the year of project rollouts following a year of planning and tabling of the 10th Malaysia Plan (10MP) in 2010. The pump-priming story also ties in with expectations for a general election in 2011. With RM221 billion worth of contracts identified under the 10MP (RM100 billion transport-related), we envisage the government playing this quick-to-execute trump card to create the 'feel good factor' by aggressively dishing out new contracts. The MRT is a prime example ' it is expected to contribute RM8 billion to RM10 billion a year to gross national income based on 2.5 to 3.5 times multiplier effect and is vital to the economy of Greater KL.

The MRT project has received Cabinet approval with the MMC-Gamuda JV appointed project development partner ( PDP). Hence, work is likely to start on schedule by July 2011. Also, contractors with stronger track records and leaner cost structures will benefit as the PDP would want to ensure minimal execution risks. IJM and Sunway are strong contenders with their manufacturing arms, as is WCT with its lean cost structure and tested partnership with Gamuda. We do not foresee meaningful foreign participation due to time constraints, and the JV has the required expertise.

We are disappointed that IJM will not be able to capitalise on Malaysian Resources Corp Bhd's construction and concession assets. But there is still much to look forward to with the revival of the West Coast Expressway, private sector jobs and India infrastructure spending while its manufacturing arm is a prime beneficiary of the LRT, MRT and six new highways. The Sunway-SunCity merger will eventually have a RM3.6 billion market cap and larger balance sheet, enabling its construction business to be more competitive in overseas bids. And TRC Energy Bhd may be an ideal merger and acquisition target given its market cap/orderbook ratio of 0.2 times and 77 sen net cash per share. ' HwangDBS Vickers Research


This article appeared in The Edge Financial Daily, January 12, 2011.

IJM - Construction - the next leg up is imminent

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

Construction sector
Gamuda remains our high-conviction 'buy' for most leverage to the mass rapid transit (MRT) project, but we also like MMC Corp Bhd as an alternative proxy. We raise our target price (TP) for Gamuda Bhd and MMC to RM5.25 and RM4.05, respectively, by removing the debt portion from our discounted cash flow (DCF) value for the MRT tunnelling works as the project is expected to be fully funded by the government now. We expect the RM14 billion tunnelling works to add RM1 per Gamuda share and 76 sen per MMC share based on our DCF value (50% win probability). Approximately 20% of the initial Sungai Buloh-Kajang line will be tunnelling works. In spite of the aborted merger, we like MRCB (raise TP to RM3.05) as we expect it to carve out the most lucrative portion of the 3,400-acre Rubber Research Institute Malaysia land ' the transport hub with commercial content, where the red and green lines will converge. We raise TPs for IJM Corp Bhd (TP RM7.50) and WCT Bhd (TP RM4.15) after imputing larger contract wins as both surprised on the upside in 2010.

This will be the year of project rollouts following a year of planning and tabling of the 10th Malaysia Plan (10MP) in 2010. The pump-priming story also ties in with expectations for a general election in 2011. With RM221 billion worth of contracts identified under the 10MP (RM100 billion transport-related), we envisage the government playing this quick-to-execute trump card to create the 'feel good factor' by aggressively dishing out new contracts. The MRT is a prime example ' it is expected to contribute RM8 billion to RM10 billion a year to gross national income based on 2.5 to 3.5 times multiplier effect and is vital to the economy of Greater KL.

The MRT project has received Cabinet approval with the MMC-Gamuda JV appointed project development partner ( PDP). Hence, work is likely to start on schedule by July 2011. Also, contractors with stronger track records and leaner cost structures will benefit as the PDP would want to ensure minimal execution risks. IJM and Sunway are strong contenders with their manufacturing arms, as is WCT with its lean cost structure and tested partnership with Gamuda. We do not foresee meaningful foreign participation due to time constraints, and the JV has the required expertise.

We are disappointed that IJM will not be able to capitalise on Malaysian Resources Corp Bhd's construction and concession assets. But there is still much to look forward to with the revival of the West Coast Expressway, private sector jobs and India infrastructure spending while its manufacturing arm is a prime beneficiary of the LRT, MRT and six new highways. The Sunway-SunCity merger will eventually have a RM3.6 billion market cap and larger balance sheet, enabling its construction business to be more competitive in overseas bids. And TRC Energy Bhd may be an ideal merger and acquisition target given its market cap/orderbook ratio of 0.2 times and 77 sen net cash per share. ' HwangDBS Vickers Research


This article appeared in The Edge Financial Daily, January 12, 2011.

MRCB - Construction - the next leg up is imminent

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

Construction sector
Gamuda remains our high-conviction 'buy' for most leverage to the mass rapid transit (MRT) project, but we also like MMC Corp Bhd as an alternative proxy. We raise our target price (TP) for Gamuda Bhd and MMC to RM5.25 and RM4.05, respectively, by removing the debt portion from our discounted cash flow (DCF) value for the MRT tunnelling works as the project is expected to be fully funded by the government now. We expect the RM14 billion tunnelling works to add RM1 per Gamuda share and 76 sen per MMC share based on our DCF value (50% win probability). Approximately 20% of the initial Sungai Buloh-Kajang line will be tunnelling works. In spite of the aborted merger, we like MRCB (raise TP to RM3.05) as we expect it to carve out the most lucrative portion of the 3,400-acre Rubber Research Institute Malaysia land ' the transport hub with commercial content, where the red and green lines will converge. We raise TPs for IJM Corp Bhd (TP RM7.50) and WCT Bhd (TP RM4.15) after imputing larger contract wins as both surprised on the upside in 2010.

This will be the year of project rollouts following a year of planning and tabling of the 10th Malaysia Plan (10MP) in 2010. The pump-priming story also ties in with expectations for a general election in 2011. With RM221 billion worth of contracts identified under the 10MP (RM100 billion transport-related), we envisage the government playing this quick-to-execute trump card to create the 'feel good factor' by aggressively dishing out new contracts. The MRT is a prime example ' it is expected to contribute RM8 billion to RM10 billion a year to gross national income based on 2.5 to 3.5 times multiplier effect and is vital to the economy of Greater KL.

The MRT project has received Cabinet approval with the MMC-Gamuda JV appointed project development partner ( PDP). Hence, work is likely to start on schedule by July 2011. Also, contractors with stronger track records and leaner cost structures will benefit as the PDP would want to ensure minimal execution risks. IJM and Sunway are strong contenders with their manufacturing arms, as is WCT with its lean cost structure and tested partnership with Gamuda. We do not foresee meaningful foreign participation due to time constraints, and the JV has the required expertise.

We are disappointed that IJM will not be able to capitalise on Malaysian Resources Corp Bhd's construction and concession assets. But there is still much to look forward to with the revival of the West Coast Expressway, private sector jobs and India infrastructure spending while its manufacturing arm is a prime beneficiary of the LRT, MRT and six new highways. The Sunway-SunCity merger will eventually have a RM3.6 billion market cap and larger balance sheet, enabling its construction business to be more competitive in overseas bids. And TRC Energy Bhd may be an ideal merger and acquisition target given its market cap/orderbook ratio of 0.2 times and 77 sen net cash per share. ' HwangDBS Vickers Research


This article appeared in The Edge Financial Daily, January 12, 2011.

MMCCORP - Construction - the next leg up is imminent

Stock Name: MMCCORP
Company Name: MMC CORPORATION BHD
Research House: HWANGDBS

Construction sector
Gamuda remains our high-conviction 'buy' for most leverage to the mass rapid transit (MRT) project, but we also like MMC Corp Bhd as an alternative proxy. We raise our target price (TP) for Gamuda Bhd and MMC to RM5.25 and RM4.05, respectively, by removing the debt portion from our discounted cash flow (DCF) value for the MRT tunnelling works as the project is expected to be fully funded by the government now. We expect the RM14 billion tunnelling works to add RM1 per Gamuda share and 76 sen per MMC share based on our DCF value (50% win probability). Approximately 20% of the initial Sungai Buloh-Kajang line will be tunnelling works. In spite of the aborted merger, we like MRCB (raise TP to RM3.05) as we expect it to carve out the most lucrative portion of the 3,400-acre Rubber Research Institute Malaysia land ' the transport hub with commercial content, where the red and green lines will converge. We raise TPs for IJM Corp Bhd (TP RM7.50) and WCT Bhd (TP RM4.15) after imputing larger contract wins as both surprised on the upside in 2010.

This will be the year of project rollouts following a year of planning and tabling of the 10th Malaysia Plan (10MP) in 2010. The pump-priming story also ties in with expectations for a general election in 2011. With RM221 billion worth of contracts identified under the 10MP (RM100 billion transport-related), we envisage the government playing this quick-to-execute trump card to create the 'feel good factor' by aggressively dishing out new contracts. The MRT is a prime example ' it is expected to contribute RM8 billion to RM10 billion a year to gross national income based on 2.5 to 3.5 times multiplier effect and is vital to the economy of Greater KL.

The MRT project has received Cabinet approval with the MMC-Gamuda JV appointed project development partner ( PDP). Hence, work is likely to start on schedule by July 2011. Also, contractors with stronger track records and leaner cost structures will benefit as the PDP would want to ensure minimal execution risks. IJM and Sunway are strong contenders with their manufacturing arms, as is WCT with its lean cost structure and tested partnership with Gamuda. We do not foresee meaningful foreign participation due to time constraints, and the JV has the required expertise.

We are disappointed that IJM will not be able to capitalise on Malaysian Resources Corp Bhd's construction and concession assets. But there is still much to look forward to with the revival of the West Coast Expressway, private sector jobs and India infrastructure spending while its manufacturing arm is a prime beneficiary of the LRT, MRT and six new highways. The Sunway-SunCity merger will eventually have a RM3.6 billion market cap and larger balance sheet, enabling its construction business to be more competitive in overseas bids. And TRC Energy Bhd may be an ideal merger and acquisition target given its market cap/orderbook ratio of 0.2 times and 77 sen net cash per share. ' HwangDBS Vickers Research


This article appeared in The Edge Financial Daily, January 12, 2011.

GAMUDA - Construction - the next leg up is imminent

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

Construction sector
Gamuda remains our high-conviction 'buy' for most leverage to the mass rapid transit (MRT) project, but we also like MMC Corp Bhd as an alternative proxy. We raise our target price (TP) for Gamuda Bhd and MMC to RM5.25 and RM4.05, respectively, by removing the debt portion from our discounted cash flow (DCF) value for the MRT tunnelling works as the project is expected to be fully funded by the government now. We expect the RM14 billion tunnelling works to add RM1 per Gamuda share and 76 sen per MMC share based on our DCF value (50% win probability). Approximately 20% of the initial Sungai Buloh-Kajang line will be tunnelling works. In spite of the aborted merger, we like MRCB (raise TP to RM3.05) as we expect it to carve out the most lucrative portion of the 3,400-acre Rubber Research Institute Malaysia land ' the transport hub with commercial content, where the red and green lines will converge. We raise TPs for IJM Corp Bhd (TP RM7.50) and WCT Bhd (TP RM4.15) after imputing larger contract wins as both surprised on the upside in 2010.

This will be the year of project rollouts following a year of planning and tabling of the 10th Malaysia Plan (10MP) in 2010. The pump-priming story also ties in with expectations for a general election in 2011. With RM221 billion worth of contracts identified under the 10MP (RM100 billion transport-related), we envisage the government playing this quick-to-execute trump card to create the 'feel good factor' by aggressively dishing out new contracts. The MRT is a prime example ' it is expected to contribute RM8 billion to RM10 billion a year to gross national income based on 2.5 to 3.5 times multiplier effect and is vital to the economy of Greater KL.

The MRT project has received Cabinet approval with the MMC-Gamuda JV appointed project development partner ( PDP). Hence, work is likely to start on schedule by July 2011. Also, contractors with stronger track records and leaner cost structures will benefit as the PDP would want to ensure minimal execution risks. IJM and Sunway are strong contenders with their manufacturing arms, as is WCT with its lean cost structure and tested partnership with Gamuda. We do not foresee meaningful foreign participation due to time constraints, and the JV has the required expertise.

We are disappointed that IJM will not be able to capitalise on Malaysian Resources Corp Bhd's construction and concession assets. But there is still much to look forward to with the revival of the West Coast Expressway, private sector jobs and India infrastructure spending while its manufacturing arm is a prime beneficiary of the LRT, MRT and six new highways. The Sunway-SunCity merger will eventually have a RM3.6 billion market cap and larger balance sheet, enabling its construction business to be more competitive in overseas bids. And TRC Energy Bhd may be an ideal merger and acquisition target given its market cap/orderbook ratio of 0.2 times and 77 sen net cash per share. ' HwangDBS Vickers Research


This article appeared in The Edge Financial Daily, January 12, 2011.

PLUS - UEM-EPF the sole bidder for PLUS

Stock Name: PLUS
Company Name: PLUS EXPRESSWAYS BHD
Research House: MAYBANK

PLUS Expressways Bhd
(Jan 11, RM4.45)
Recommend 'hold' (from 'buy') at RM4.69 with target price of RM4.70
: MMC Corp Bhd did not throw in a new bid for PLUS as speculated. Jelas Ulung Sdn Bhd did not put in a RM50 million cash deposit, which means that it is out of the race. All eyes will now be back on UEM-EPF, which is the lone 'bidder'. The offer implies RM4.60 per PLUS share.

PLUS is now officially a 'hold'; our call has been put under review since its share price started trending close to the UEM-EPF offer price. UEM-EPF's offer is fair and close to our RM4.70-discounted cash flow-derived target price.

PLUS said that it did not receive any new offers as at 5 pm on Monday, being the final deadline for potential offers for PLUS' businesses.

Also, only UEM-EPF has remitted the RM50 million cash deposit and submitted a letter from their financiers with regards to its financial ability to undertake and complete the proposed acquisition of PLUS.

The cash deposit and unconditional written confirmation on the financial ability of the offerer to complete the acquisition of PLUS' businesses are requirements for the offer to be considered by PLUS' board of directors. As Jelas Ulung did not meet the conditions, it would imply that it is now out of the race. Business Times reported that Jelas Ulung cited a 'lack of clarity' for its failure to meet the conditions. Hence, UEM-EPF's RM23 billion offer is the only one left.

PLUS' EGM held on Dec 23, originally to vote on UEM-EPF's RM23 billion offer, was adjourned following Jelas Ulung's 11th hour RM26 billion attempt.

PLUS' directors will now have to call for another EGM to approve the sale of PLUS' businesses to UEM-EPF. The deal's completion is still contingent upon the successful restructuring of PLUS' toll concessions, expected to be completed in 4Q11. We advise shareholders to vote for the deal.

The decision on PLUS' sale to UEM-EPF will hinge on minorities holding 32.52% of PLUS, of which 10.6% are foreigners. Khazanah-UEM-EPF, which hold a combined 67.48%, cannot vote.

The number of votes required to take the deal through will have to come from minorities holding 16.27% of PLUS (50%+1 share).

The votes of two existing substantial shareholders: Kumpulan Wang Amanah Pencen (who holds 5.05% of PLUS), and Permodalan Nasional Bhd (and its related funds, 8.55%), are crucial. ' Maybank Investment Bank Research, Jan 11


This article appeared in The Edge Financial Daily, January 12, 2011.

PETRA - Up, up and away for O&G sector

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

Oil and gas sector
Maintain 'overweight'
: We believe that the key themes of 2011 would be: 1) Increased news flows from the government in line with its Economic Transformation Programme aspirations; 2) An uptrend in crude oil prices with the second round of quantitative easing in G3 countries; 3) Increased mergers and acquisitions as companies gear up for the upcycle in the sector; and 4) Enhanced marginal oil field, deepwater and greenfield projects being awarded by Petroliam Nasional Bhd as long-term reserve replenishment objectives become even more imperative going forward.

This appears to be true thus far. As a result, most of the oil and gas (O&G) stocks under our coverage have been spiking up in the first week of January.

Despite the rally in share prices, we expect the trading sentiment of the sector to continue as we believe that investors are pegging the current O&G sector valuations to the upcycle seen in 2007/08, where Malaysian O&G stocks traded at the one-year forward price-earnings ratios of up to 30 to 35 times. As such we do not discount share prices trading higher as news of contract awards continue and there is still ample liquidity in the market.

While we are positive on what the sector holds for 2011, as share prices continue to increase on news flows, investors should be mindful that the uptrend could be derailed by: 1) execution risks; 2) timing risks; and 3) liquidity risks.

Nevertheless, we reckon the positive news will continue for now given the factors highlighted above. We have thus raised the fair values of Dialog Group Bhd, Kencana Petroleum Bhd and Petra Perdana Bhd. We have kept Dialog an 'outperform', and downgraded our call on Kencana to a 'market perform' as we believe much of the news about marginal-field development has been priced in at this juncture. For Petra Perdana, we have lifted the stock to a 'market perform' based on FY2011 net tangible asset per share.

We reiterate that we are positive on the overall sector going into 2011, as the contract pipeline looks very strong, while crude oil prices that are expected to stay above the US$85 (RM261) per barrel mark will provide optimism the sector needs. As such, we are reiterating our 'overweight' call on the sector. ' RHB Research Institute, Jan 11


This article appeared in The Edge Financial Daily, January 12, 2011.

KENCANA - Up, up and away for O&G sector

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

Oil and gas sector
Maintain 'overweight'
: We believe that the key themes of 2011 would be: 1) Increased news flows from the government in line with its Economic Transformation Programme aspirations; 2) An uptrend in crude oil prices with the second round of quantitative easing in G3 countries; 3) Increased mergers and acquisitions as companies gear up for the upcycle in the sector; and 4) Enhanced marginal oil field, deepwater and greenfield projects being awarded by Petroliam Nasional Bhd as long-term reserve replenishment objectives become even more imperative going forward.

This appears to be true thus far. As a result, most of the oil and gas (O&G) stocks under our coverage have been spiking up in the first week of January.

Despite the rally in share prices, we expect the trading sentiment of the sector to continue as we believe that investors are pegging the current O&G sector valuations to the upcycle seen in 2007/08, where Malaysian O&G stocks traded at the one-year forward price-earnings ratios of up to 30 to 35 times. As such we do not discount share prices trading higher as news of contract awards continue and there is still ample liquidity in the market.

While we are positive on what the sector holds for 2011, as share prices continue to increase on news flows, investors should be mindful that the uptrend could be derailed by: 1) execution risks; 2) timing risks; and 3) liquidity risks.

Nevertheless, we reckon the positive news will continue for now given the factors highlighted above. We have thus raised the fair values of Dialog Group Bhd, Kencana Petroleum Bhd and Petra Perdana Bhd. We have kept Dialog an 'outperform', and downgraded our call on Kencana to a 'market perform' as we believe much of the news about marginal-field development has been priced in at this juncture. For Petra Perdana, we have lifted the stock to a 'market perform' based on FY2011 net tangible asset per share.

We reiterate that we are positive on the overall sector going into 2011, as the contract pipeline looks very strong, while crude oil prices that are expected to stay above the US$85 (RM261) per barrel mark will provide optimism the sector needs. As such, we are reiterating our 'overweight' call on the sector. ' RHB Research Institute, Jan 11


This article appeared in The Edge Financial Daily, January 12, 2011.

KNM - Up, up and away for O&G sector

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

Oil and gas sector
Maintain 'overweight'
: We believe that the key themes of 2011 would be: 1) Increased news flows from the government in line with its Economic Transformation Programme aspirations; 2) An uptrend in crude oil prices with the second round of quantitative easing in G3 countries; 3) Increased mergers and acquisitions as companies gear up for the upcycle in the sector; and 4) Enhanced marginal oil field, deepwater and greenfield projects being awarded by Petroliam Nasional Bhd as long-term reserve replenishment objectives become even more imperative going forward.

This appears to be true thus far. As a result, most of the oil and gas (O&G) stocks under our coverage have been spiking up in the first week of January.

Despite the rally in share prices, we expect the trading sentiment of the sector to continue as we believe that investors are pegging the current O&G sector valuations to the upcycle seen in 2007/08, where Malaysian O&G stocks traded at the one-year forward price-earnings ratios of up to 30 to 35 times. As such we do not discount share prices trading higher as news of contract awards continue and there is still ample liquidity in the market.

While we are positive on what the sector holds for 2011, as share prices continue to increase on news flows, investors should be mindful that the uptrend could be derailed by: 1) execution risks; 2) timing risks; and 3) liquidity risks.

Nevertheless, we reckon the positive news will continue for now given the factors highlighted above. We have thus raised the fair values of Dialog Group Bhd, Kencana Petroleum Bhd and Petra Perdana Bhd. We have kept Dialog an 'outperform', and downgraded our call on Kencana to a 'market perform' as we believe much of the news about marginal-field development has been priced in at this juncture. For Petra Perdana, we have lifted the stock to a 'market perform' based on FY2011 net tangible asset per share.

We reiterate that we are positive on the overall sector going into 2011, as the contract pipeline looks very strong, while crude oil prices that are expected to stay above the US$85 (RM261) per barrel mark will provide optimism the sector needs. As such, we are reiterating our 'overweight' call on the sector. ' RHB Research Institute, Jan 11


This article appeared in The Edge Financial Daily, January 12, 2011.

SAPCRES - Up, up and away for O&G sector

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

Oil and gas sector
Maintain 'overweight'
: We believe that the key themes of 2011 would be: 1) Increased news flows from the government in line with its Economic Transformation Programme aspirations; 2) An uptrend in crude oil prices with the second round of quantitative easing in G3 countries; 3) Increased mergers and acquisitions as companies gear up for the upcycle in the sector; and 4) Enhanced marginal oil field, deepwater and greenfield projects being awarded by Petroliam Nasional Bhd as long-term reserve replenishment objectives become even more imperative going forward.

This appears to be true thus far. As a result, most of the oil and gas (O&G) stocks under our coverage have been spiking up in the first week of January.

Despite the rally in share prices, we expect the trading sentiment of the sector to continue as we believe that investors are pegging the current O&G sector valuations to the upcycle seen in 2007/08, where Malaysian O&G stocks traded at the one-year forward price-earnings ratios of up to 30 to 35 times. As such we do not discount share prices trading higher as news of contract awards continue and there is still ample liquidity in the market.

While we are positive on what the sector holds for 2011, as share prices continue to increase on news flows, investors should be mindful that the uptrend could be derailed by: 1) execution risks; 2) timing risks; and 3) liquidity risks.

Nevertheless, we reckon the positive news will continue for now given the factors highlighted above. We have thus raised the fair values of Dialog Group Bhd, Kencana Petroleum Bhd and Petra Perdana Bhd. We have kept Dialog an 'outperform', and downgraded our call on Kencana to a 'market perform' as we believe much of the news about marginal-field development has been priced in at this juncture. For Petra Perdana, we have lifted the stock to a 'market perform' based on FY2011 net tangible asset per share.

We reiterate that we are positive on the overall sector going into 2011, as the contract pipeline looks very strong, while crude oil prices that are expected to stay above the US$85 (RM261) per barrel mark will provide optimism the sector needs. As such, we are reiterating our 'overweight' call on the sector. ' RHB Research Institute, Jan 11


This article appeared in The Edge Financial Daily, January 12, 2011.