PROTON - There's still mileage for your buck

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

Auto sector
Proton Holdings Bhd (trading buy, target price RM5.95. Jan 21, RM4.54); Tan Chong Motor Holdings Bhd (outperform, target price RM9.15. Jan 21, RM5.08); UMW Holdings Bhd (outperform, target price RM8.85. Jan 21, RM7.25)

We remain bullish on the auto sector and maintain 'outperform' as this traditionally high-beta cyclical sector should ride on the liquidity-driven market uptrend. The stock market is rising, the economy is projected to grow at a robust 5.5% this year and consumer sentiment is strong.

Against this backdrop, and backed by a solid pipeline of new models, 2011 should turn out to be a record year for vehicle sales. Although much of the ringgit's appreciation against the US dollar happened last year, the average US dollar cost is still expected to be lower this year, which will support the earnings of auto players with net exposure to the currency.

We maintain our 'overweight' call on the sector which could be catalysed by: (i) strong vehicle sales; (ii) a firming ringgit; and (iii) more accommodating auto policies. Our top pick remains Tan Chong.

The year 2010 was a watershed year for auto players in Malaysia. Vehicle sales breached the all-time high of 605,156 units (+13%), driven by strong pent-up demand, good response to new models and a broad-based recovery of economic conditions and consumer confidence.

Auto players' exposure to the US dollar positioned them as ideal plays on the ringgit's strength. Our auto index, which comprises the three stocks we cover (Tan Chong, Proton and UMW) began to outpace the KLCI in 2Q10 as the market sat up and took notice of the robust sales and impact of the strong ringgit.

A noteworthy performer in the sector was Tan Chong which saw a share price surge of 66%. Tan Chong's regional ambitions and its plans to expand its model mix to cater for new market segments created excitement among investors.

We believe 2011 will turn out to be a record year for vehicle sales even though the low-base effect enjoyed last year will no longer be in play.

The two key determinants of vehicle demand ' consumer sentiment and new model launches ' look favourable. We are projecting 2011 sales to breach a new high of 626,890 units (4% growth) from 605,156 units (+13% year-on-year) in 2010.

Beyond these fundamental drivers, expectations of a rising KLCI should also spark interest in higher-beta cyclicals such as the auto sector.

We have not made any changes to our earnings projections, target prices and recommendations for the three auto stocks under coverage. We continue to rate UMW (TP RM8.85) and Tan Chong (TP RM9.15) as 'outperforms' and Proton as a 'trading buy' (RM5.95).

Tan Chong remains our top pick. Its share price is down 15% from its Sept 17 peak of RM6 even though there have been no fundamental changes to the company.

We advise investors to accumulate this stock given its regional foray and the strategic expansion of its model mix into previously untapped market segments.

The three rounds of hire purchase rate hikes and two rounds of fuel price increases (July and December) failed to derail the vehicle sales growth momentum.

The unexpectedly strong sales performance prompted the Malaysian Automotive Association to upgrade its vehicle sales growth forecast for 2010 from 2% to 6% in June 10.

Apart from the sales-driven top line growth, auto companies, especially the non-national players, also benefited from the ringgit's surge against the greenback as this translated into lower costs for imported content. Auto players' exposure to the US dollar positioned them as ideal plays on the ringgit's strength. Over the span of 12 months, the ringgit appreciated close to 11% against the greenback. ' CIMB Equities Research, Jan 21


This article appeared in The Edge Financial Daily, January 24, 2011.

TENAGA - OSK Research: Tenaga 1QFY11 core net profit above forecast

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

KUALA LUMPUR: OSK Research said TENAGA NASIONAL BHD []'s 1QFY11 core net profit came in above its forecast and consensus as it expected the subsequent quarters to be poorer due to rising coal prices.

'While demand growth still looks reasonable at above 4.5% and coal prices may retreat after February, the lack of transparency in terms of a tariff hike to cover the high coal prices may likely dampen demand for TNB's shares despite the 98% q-o-q profit jump,' it said on Friday, Jan 21.

OSK Research said nonetheless, based on its longer term valuation and view, TNB remains a Buy at RM6.47, with longer term expectations for an 8% tariff hike and its sensitivity of a 9.5% profit jump for every 1% increase in tariff.

In the shorter term, the coal prices may have been fully factored in and TNB may stage a mild rebound. Its target price is RM7.74.

MAYBANK - ETP's 100-day progress well on track

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

Banking sector
Malayan Banking Bhd (Jan 21, RM8.81); RHB Capital Bhd (Jan 21, RM8.50); CIMB Banking Group Bhd (Jan 21, RM8.34); Hong Leong Bank Bhd (Jan 21, RM9.42)
Overweight on banking sector, top buys Malayan Banking Bhd, RHB Capital Bhd, CIMB Banking Group Bhd and Hong Leong Bank Bhd: Datuk Seri Idris Jala, Minister in the Prime Minister's Department and CEO of the Performance Management & Delivery Unit (Pemandu), has held a briefing to highlight the progress of the government's Economic Transformation Programme (ETP) 100 days after it was officially launched.

Pemandu highlighted that since the launch of the ETP in October, the number of private investors with serious commitments to the projects have now increased to 15 as at Jan 14, from seven as at Oct 26, 2010. The ones with private investors getting close to commitment have increased to 26 as at Jan 14 from 12 as at Oct 26, 2010.

Pemandu says projects which have been identified as part of the ETP initiatives are accorded high priority in terms of approval by government agencies.

This is also in relation to projects announced pre-ETP which have stalled largely due to bureaucratic red tape.

To a question raised by the floor as to why the approval process for the non-ETP projects is still accorded business-as-usual standard practices and why the government is not working towards harmonising these, Pemandu said this is one of the initiatives that the ETP has just begun in earnest.

Pemandu will be holding six labs from mid-February to cover standards, policies and procedures towards eventually easing the approval process for investors.

Pemandu goes through a weekly progress report on the ETP projects on every Friday, and these are subsequently forwarded to the Prime Minister's Department every Monday for an update report. This is clearly part of Jala's vision that the ETP has to be a programme, not a plan, with clearly defined actions, targets and timelines.

Following our upgrade of the banking sector on Jan 13 to 'overweight' from 'neutral', premised mainly on positive spillover multiplier effects on the banking sector arising from the ETP, we gather that the market continues to have mixed feelings about the successful execution of the ETP.

However, we are encouraged by the latest briefing. We are more positive as: (i) there are indications that the private investments are real, with one large one by Shell in particular expected to be invested in 2011; (ii) Pemandu will be undertaking initiatives to harmonise the approval process for investments in the country. This is new, and we feel it will be positive eventually for private investment into the country; and (iii) we are also positive that there is close monitoring of the ETP projects, which indicates less risks to execution of these ETP plans.

We remain 'overweight' on the Banking sector, with our top buys Maybank, RHB Cap, CIMB and HLBB. ' AmResearch, Jan 21


This article appeared in The Edge Financial Daily, January 24, 2011.

HLBANK - ETP's 100-day progress well on track

Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Research House: AMMB

Banking sector
Malayan Banking Bhd (Jan 21, RM8.81); RHB Capital Bhd (Jan 21, RM8.50); CIMB Banking Group Bhd (Jan 21, RM8.34); Hong Leong Bank Bhd (Jan 21, RM9.42)
Overweight on banking sector, top buys Malayan Banking Bhd, RHB Capital Bhd, CIMB Banking Group Bhd and Hong Leong Bank Bhd: Datuk Seri Idris Jala, Minister in the Prime Minister's Department and CEO of the Performance Management & Delivery Unit (Pemandu), has held a briefing to highlight the progress of the government's Economic Transformation Programme (ETP) 100 days after it was officially launched.

Pemandu highlighted that since the launch of the ETP in October, the number of private investors with serious commitments to the projects have now increased to 15 as at Jan 14, from seven as at Oct 26, 2010. The ones with private investors getting close to commitment have increased to 26 as at Jan 14 from 12 as at Oct 26, 2010.

Pemandu says projects which have been identified as part of the ETP initiatives are accorded high priority in terms of approval by government agencies.

This is also in relation to projects announced pre-ETP which have stalled largely due to bureaucratic red tape.

To a question raised by the floor as to why the approval process for the non-ETP projects is still accorded business-as-usual standard practices and why the government is not working towards harmonising these, Pemandu said this is one of the initiatives that the ETP has just begun in earnest.

Pemandu will be holding six labs from mid-February to cover standards, policies and procedures towards eventually easing the approval process for investors.

Pemandu goes through a weekly progress report on the ETP projects on every Friday, and these are subsequently forwarded to the Prime Minister's Department every Monday for an update report. This is clearly part of Jala's vision that the ETP has to be a programme, not a plan, with clearly defined actions, targets and timelines.

Following our upgrade of the banking sector on Jan 13 to 'overweight' from 'neutral', premised mainly on positive spillover multiplier effects on the banking sector arising from the ETP, we gather that the market continues to have mixed feelings about the successful execution of the ETP.

However, we are encouraged by the latest briefing. We are more positive as: (i) there are indications that the private investments are real, with one large one by Shell in particular expected to be invested in 2011; (ii) Pemandu will be undertaking initiatives to harmonise the approval process for investments in the country. This is new, and we feel it will be positive eventually for private investment into the country; and (iii) we are also positive that there is close monitoring of the ETP projects, which indicates less risks to execution of these ETP plans.

We remain 'overweight' on the Banking sector, with our top buys Maybank, RHB Cap, CIMB and HLBB. ' AmResearch, Jan 21


This article appeared in The Edge Financial Daily, January 24, 2011.

PBBANK - ETP's 100-day progress well on track

Stock Name: PBBANK
Company Name: PUBLIC BANK BHD
Research House: AMMB

Banking sector
Malayan Banking Bhd (Jan 21, RM8.81); RHB Capital Bhd (Jan 21, RM8.50); CIMB Banking Group Bhd (Jan 21, RM8.34); Hong Leong Bank Bhd (Jan 21, RM9.42)
Overweight on banking sector, top buys Malayan Banking Bhd, RHB Capital Bhd, CIMB Banking Group Bhd and Hong Leong Bank Bhd: Datuk Seri Idris Jala, Minister in the Prime Minister's Department and CEO of the Performance Management & Delivery Unit (Pemandu), has held a briefing to highlight the progress of the government's Economic Transformation Programme (ETP) 100 days after it was officially launched.

Pemandu highlighted that since the launch of the ETP in October, the number of private investors with serious commitments to the projects have now increased to 15 as at Jan 14, from seven as at Oct 26, 2010. The ones with private investors getting close to commitment have increased to 26 as at Jan 14 from 12 as at Oct 26, 2010.

Pemandu says projects which have been identified as part of the ETP initiatives are accorded high priority in terms of approval by government agencies.

This is also in relation to projects announced pre-ETP which have stalled largely due to bureaucratic red tape.

To a question raised by the floor as to why the approval process for the non-ETP projects is still accorded business-as-usual standard practices and why the government is not working towards harmonising these, Pemandu said this is one of the initiatives that the ETP has just begun in earnest.

Pemandu will be holding six labs from mid-February to cover standards, policies and procedures towards eventually easing the approval process for investors.

Pemandu goes through a weekly progress report on the ETP projects on every Friday, and these are subsequently forwarded to the Prime Minister's Department every Monday for an update report. This is clearly part of Jala's vision that the ETP has to be a programme, not a plan, with clearly defined actions, targets and timelines.

Following our upgrade of the banking sector on Jan 13 to 'overweight' from 'neutral', premised mainly on positive spillover multiplier effects on the banking sector arising from the ETP, we gather that the market continues to have mixed feelings about the successful execution of the ETP.

However, we are encouraged by the latest briefing. We are more positive as: (i) there are indications that the private investments are real, with one large one by Shell in particular expected to be invested in 2011; (ii) Pemandu will be undertaking initiatives to harmonise the approval process for investments in the country. This is new, and we feel it will be positive eventually for private investment into the country; and (iii) we are also positive that there is close monitoring of the ETP projects, which indicates less risks to execution of these ETP plans.

We remain 'overweight' on the Banking sector, with our top buys Maybank, RHB Cap, CIMB and HLBB. ' AmResearch, Jan 21


This article appeared in The Edge Financial Daily, January 24, 2011.

PETGAS - Petronas Gas price estimate lowered

Stock Name: PETGAS
Company Name: PETRONAS GAS BHD
Research House: OSK

Petronas Gas Bhd, a Malaysian natural gas distributor, had its share estimate cut to RM13.54 from RM13.65 at OSK Research Sdn Bhd, which said in a report today that the impact from the Bekok C gas platform fire in December was “worse than we had originally suspected.”

Some 125 million cubic feet per day of gas may be out of action for at least 12 months, OSK analyst Chris Eng wrote in the report.

The research house said it cut its 2012 financial earnings estimate by 3 per cent. -- Bloomberg

HARTA - Nitrile wave keeps rolling

Stock Name: HARTA
Company Name: HARTALEGA HOLDINGS BHD
Research House: MAYBANK

Hartalega Holdings Bhd
(Jan 19, RM5.38)
Upgrade to buy at RM5.44 from hold, target price RM6.80: Hartalega is set to profit from the structural demand switch to nitrile gloves at the expense of latex gloves.

Demand for nitrile gloves will continue to encroach into the latex gloves market as nitrile gloves' average selling price (ASP) discount to latex widens (atypical in the past).

Top Glove's M&A search for nitrile glovemakers and the declining earnings from latex gloves are some of the recent developments that support our 'buy' call for Hartalega.

Nitrile gloves are now up to 30% cheaper than latex gloves, an unforeseen, atypical trend in the past. This is due to continued escalation in latex costs (+60% year-on-year) vis-''-vis synthetic rubber (a major material cost for nitrile gloves; +28% y-o-y).

The price disparity favouring nitrile demand, which is evident in the US and European markets, is set to catch up in the emerging markets (Asia, Latin America).

Hartalega has for the first time started to sell nitrile gloves to Argentina this month. Kossan will dedicate a few of its recently installed 22 lines for the Brazil nitrile market. ASP-wise, Top Glove has now quoted its nitrile gloves on par with its low-end latex powdered gloves and is considering accelerating the expansion into the nitrile gloves segment via M&A.

We expect predominant nitrile glove producers like Hartelega to continuously show stronger quarter-on-quarter results, while the reverse is expected for latex glove producers (Top Glove, for example). We expect Hartalega to deliver a 4% to 5% sequential earnings growth in 3QFY11' the results are expected to be released on Feb 7.

Our new target price offers 25% upside. We have raised our FY11/13 earnings forecasts by 8% to 10%, taking into account a higher market share gain of 0.5 percentage point per year (0.3ppt previously). At our new RM6.80 TP (+26%) post earnings upgrade and removing a 10% discount for improving prospects, Hartalega is valued at an implied 11 times CY12 price-earnings ratio (PER) against Top Glove's 13 times.

We think the valuation discount to Top Glove (with a negative outlook) should narrow. We reckon the market will re-rate Hartalega upwards when the shifting nitrile trend takes hold.

The two biggest nitrile glovemakers (Hartalega and YTY Industry Sdn Bhd) have insignificant sales to Asia and close to zero sales to South America currently. The only notable nitrile glove supplier in South America is Latexx Partners Bhd.

We think the factors constraining nitrile glovemakers selling to the emerging markets are: (i) sticky regulations in Brazil limiting Hartalega's nitrile glove exports (it is able to meet the quality required but not the thickness); (ii) nitrile glovemakers' strategies to focus sales on the highly regulated/affluent markets (US and Europe) where their lower-end peers will not be able to compete.

But this is bound to change as distributors/end-users from the emerging markets will demand more of the cheaper nitrile gloves.

Since early-2010, nitrile gloves ASP has stayed below latex powder free (PF) gloves. The discount has widened gradually to 10% to 30% currently, depending on the prices quoted by the different glovemakers.

This is due to the high latex cost which continues to chart a new high on a daily basis and is unlikely to ease owing to the approaching 'wintering season' of rubber trees (typically from February to May).

With latex cost staying at such high levels and synthetic rubber cost only climbing gradually, we believe nitrile ASP could stay below that of powder-free gloves for an extended time. ' Maybank IB Research, Jan 19


This article appeared in The Edge Financial Daily, January 21, 2011.

MEDIA - Raising ad rates for TV and print

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

Media Prima Bhd
(Jan 21, RM2.66)
Maintain outperform, raise fair value to RM3.20 (from RM2.82): According to Nielsen Media Research (NMR), 4Q10 advertising expenditure (adex) for Media Prima's TV channels ended on a high note.

Adex for the TV segment jumped 9.3% quarter-on-quarter, thanks to NTV7 (+19.5% q-o-q) and 8TV (+16.9% q-o-q).

For the print segment, however, 4Q10 adex fell 11.3% q-o-q. This was not too surprising considering that 4Q tends to be a seasonally slower quarter for the Malay dailies post the Merdeka celebrations and Hari Raya festivities.

We understand from management that the company is raising its prime time ad rates for all its TV channels (TV3, 8TV, NTV7 and TV9) by 17% to 43%. TV9's ad rates will be raised the most due to a significantly lower base.

In addition, management is also looking to raise the ad rates for the fringe time slots for TV3 by about 40%, in order to lower the ad-to-content ratio to a more optimal level as this would help to reduce viewership leakages from excessive ad volume. The new ad rates will be effective January 2011.

For its print business, management is also raising the ad rates by approximately 6% to 21%. Despite the rise in ad rates for Harian Metro by about 15% to 21%, it is still about 14% to 15% than The Star's ad rates, even though HM's circulation has grown to 420,000 copies a day (from 340,000 in 2009). The circulation of The Star, on the other hand, is currently declining.

The risks include: (i) weaker than expected adex growth; (ii) high discounting activities; and (iii) high foreign shareholding level (about 31.7%).

We have marginally raised our FY10 revenue assumption for Media Prima's TV segment by 1.1% following the strong adex performance for its TV channels in 4Q10.

At the same time, we have revised our FY11 and FY12 revenue assumptions by 1.7% and 2.2% respectively. Thanks to its fixed cost structure, our FY10/12 earnings forecasts have been raised by 7.2% to 8.8%.

Given the stronger earnings outlook following the revision of our forecasts, we have revised our target price-earnings ratio (PER) to 17 times from 16 times.

Our revised target PER is based on one standard deviation above the stock's five-year average PER. Together with the earnings revision, we have raised our fair value to RM3.20 (from RM2.82).

There could be further potential upside to the current share price should adex growth (especially the TV segment) turn out to be stronger than expected and/or realisation of synergies for the recent NSTP deal. We reiterate our 'outperform' call on the stock. ' RHB Research Institute, Jan 21


This article appeared in The Edge Financial Daily, January 24, 2011.

PCHEM - Petronas Chems cut to 'neutral' at Macquarie

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

Petronas Chemicals Group Bhd was lowered to “neutral” from “outperform” at Macquarie Group Ltd, which said further gains may be “limited” given the prospects of a “near-term peak” in oil prices.

The brokerage raised the share-price estimate to RM6.9 from RM5.9, according to the report by Trevor Buchinski. -- Bloomberg

KPJ - KPJ Healthcare remains a 'buy': OSK

Stock Name: KPJ
Company Name: KPJ HEALTHCARE BHD
Research House: OSK

OSK Research has maintained the "buy" call for the KPJ Healthcare at RM4.62 unchanged target price based on 18.5 times price earnings ratio on 2011 financial year earning per share.

"We reiterate our view that KPJ is an excellent choice for long-term investment as it offers a growth story in a defensive sector and is supported by a strategic expansion plan," it said in a research note today.

Yesterday, KPJ's wholly-owned subsidiary, KPJSB, entered into a separate share sale agreement to acquire full interest in Sibu Medical Centre Corporation Sdn Bhd and Sibu Geriatric Health and Nursing Centre Sdn Bhd.

"We are positive on the proposed acquisitions as they tie in with KPJ's ongoing expansion strategy and enable the group to tap into the region's growing demand for private healthcare services, which are generally under-served," it added. -- Bernama

JOBST - World's 12th most popular job website

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

JobStreet Corp Bhd
(Jan 19, RM2.93)
Maintain sell at RM2.98, target price unchanged at RM2.32: After SEEK Ltd, the largest shareholder of JobStreet, announced its acquisition of 60% equity interest in JobsDB recently, we thought it would be interesting to know where these three companies stand in the worldwide e-recruitment industry.

From our search we found that 4icj.com ' an international employment directory selecting and reviewing worldwide top job site ' ranks SEEK, JobsDB and JobStreet as the 7th, 9th and 12th most popular e-recruitment websites in the world respectively, in its 2010 Jobsite Web Ranking.

4icj.com is a website owned by 4 International Careers & Jobs. The ranking is based on an algorithm including three unbiased and independent web metrics extracted from three different search engines, namely Google Page Rank, Yahoo Inbound Links and Alexa Traffic Rank. 4icj.com claims that the same philosophy is adopted by Google with regard to its search engine ranking algorithm.

The ranking aims to provide an approximate popularity ranking of world employment sites based on the popularity of their websites.

From the poll, JobStreet and JobsDB appear to host the most popular e-recruitment websites in Asean. For websites ranked higher than JobStreet and JobsDB and which are far bigger such as Monster, 51job, SEEK and Naukri, to the best of our knowledge, Asean is not their focus market.

The other Asian companies such as 51job, Zhaopin and ChinaHR mainly focus on the domestic Chinese market.'' Surprisingly, JobStreet's associate company in Taiwan, 104 Corp, was not among those ranked.

4icj.com's ranking affirms the position of JobStreet, alongside JobsDB, as a major e-recruitment company in Asean.

Furthermore, SEEK's investment in JobsDB and JobStreet will make it a formidable e-recruitment company in this part of the world.

The findings of our search are also in line with our view that the Malaysia, Singapore and Philippines markets, which together comprise 95% of JobStreet's 9MFY10 revenue, could potentially become an oligopoly for SEEK, as JobsDB is also a major players in these three countries.

JobStreet normally trades at a discount to the far larger Monster and 51job, but this could be because these two companies are listed on Nasdaq, This is evident from JobStreet's historic PER, which has been peaking at around 18 to 20 times PER every year since its IPO in 2005.

Although JobStreet's annualised 9MFY10 revenue and earnings were within market consensus and our estimates, its share price has appreciated by some 50% over the last few months, making what we thought was an already expensive stock even more expensive.'' At the current 20 times FY11 PER, which is its most expensive valuation since the IPO in 2005, we do not see much more upside for its share price.

Moreover, our 24% earnings growth estimate for FY11 is not conservative. Based on the estimated HK$70 million (RM27 million) cash which JobsDB is expected to end up with on the completion of the SEEK acquisition, SEEK will be buying JobsDB at about 22.1 times CY10 enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda).

This compares with JobStreet's 16.5 times FY10 EV/Ebitda (including available-for-sale investments and short-term investments), representing a 35% premium.

However, it is difficult to conclude if JobStreet is relatively undervalued from this perspective, simply because we think SEEK would have to pay a higher premium considering it is purchasing a 60% stake. ' OSK Research, Jan 19


This article appeared in The Edge Financial Daily, January 21, 2011.

POS - Tie-ups with banks to lift income

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

Pos Malaysia Bhd
(Jan 19 RM3.64)
Maintain buy recommendation, upgrade target price to RM4.45 from RM4.33: Pos Malaysia is expanding its range of counter services following its recent partnerships with Malayan Banking Bhd and RHB Bank Bhd to offer shared banking to the customers of both banks.

The company's efforts to expand its retail services prompt us to increase our revenue forecast for its retail division (Pos Niaga) by 10% for FY11 and 15% for FY12 as well as earnings growth of 3% for FY11 and 6% for FY12.

Pos Malaysia's strategic partnership with Maybank aims to provide selected over-the-counter services such as cash deposits and withdrawals for savings account holders as well as loan repayments.

Maybank plans to provide these services at more than 400 Pos Malaysia outlets by end-June this year. The partnership with Maybank comes on the heels of Pos Malaysia offering RHB Eazy Banking services in partnership with RHB, which will be extended from 21 to 300 branches by the middle of this year.

Pos Malaysia's alliance with the two banks will scale up their initiatives to provide banking services to a larger base of customers ' especially the underserved segment in rural areas, particularly Sabah and Sarawak, where there is limited access to internet banking ' by leveraging on the extensive reach of Pos Malaysia's outlets.

Pos Malaysia has changed its strategy, deploying staff from its automated mail processing centre to its branches to improve customer service delivery and efficiency.

In March 2007, Pos Malaysia inked a similar agreement with CIMB to distribute CIMB Bank's Xpress Cash, microcredit loans and credit cards to widen access to banking services, including in rural and less affluent areas.

However, the partnership ceased sometime in 2009, given the limited banking services offered by that tie-up owing to staff shortage, poor customer service and the long queuing time.

On average, Pos Malaysia will impose a RM1 service charge for every banking transaction. Although we are unable to reach management for now, we suspect that the Pos Malaysia and CIMB tie-up recorded some 7.5 to 8 million in transactions, which contributed RM7 to RM8 million of revenue through an estimated 50 to 60 branches.

This time around, we see the tie-ups with RHB and Maybank making significant contribution and are projecting that its retail revenue will grow by 10% for FY11 and 15% for FY12, given the wider range of services provided.

Following the higher revenue revision, we are raising our earnings estimates by 3% for FY11 and 6% for FY12.

As we adjust our earnings forecasts for FY11/12, we retain our 'buy' call and upgrade our target price to RM4.45 from RM4.33, based on sum-of-parts. ' OSK Research, Jan 19


This article appeared in The Edge Financial Daily, January 21, 2011.

CARLSBG - Capacity expansion, new premium beer on the cards

Stock Name: CARLSBG
Company Name: CARLSBERG BREWERY MALAYSIA BHD
Research House: RHB

Carlsberg Brewery (M) Bhd
(Jan 19, RM6.40)
Maintain outperform, revise fair value to RM7.87 from RM6.60: The malt liquor market (MLM) volume in Singapore is estimated to total approximately 1.5 million hectolitres (HL), similar to the volume in Malaysia despite its much smaller size.

Carlsberg's overall market share in Singapore stood at 21% as at 9MFY10, dominated by its Carlsberg Green Label brand.

The leader in terms of market share in Singapore is Asia-Pacific Breweries (APB), which controls about 40% of the total MLM. In terms of growth, management estimates that Singapore's MLM market grew at a steady rate of 8% to 9% in 2010 and is expected to maintain a similar momentum moving forward.

The strong top line growth expectation arising from Singapore is one of the reasons Carlsberg is planning to undertake a capacity expansion in its existing production facility in Shah Alam.

We understand that currently its overall production capacity stands at 1.3 million HL per year.

Carslberg plans to spend approximately RM6 million in capital expenditure to increase its production capacity. The expansion is expected to be completed by 2QFY11, which would increase Carlsberg's overall production capacity by 0.15 million to 0.2 million HL or 11.5% to 15.4%.

Carlsberg is planning to bring a new premium beer to the market to compete with Heineken, which may result in the discontinuation of Tuborg. We understand that the new premium beer would be a lager, and that it is a brand which is already distributed in the local market, albeit under the imported segment and not necessarily already distributed by Carlsberg.

After adjusting our assumptions for: (i) a higher revenue growth rate in Singapore of 8% for FY10/12 (from 3% previously); (ii) a higher growth rate of 5% for the Malaysian MLM for FY11 (from 1%); and (iii) higher capex and dividend payout assumptions of RM42 million and 70% respectively for FY11, our FY10/12 earnings are upgraded by 3.2% to 8.4%.

The risks include: (i) sharp drop in total industry volume; (ii) continued decline in Carlsberg's market share; and (iii) an excise duty hike in the budget proposals.

We are positive on Carlsberg's outlook moving forward, underpinned by its strong growth potential in Singapore.

Furthermore, we like the stock due to its strong dividend yield of 6.1% for 2011.

We have increased our DCF-derived fair value to RM7.87 (from RM6.60 previously) based on unchanged weighted average cost of capital of 9.2%. Our fair value implies a target FY11 price-earnings ratio (PER) of 15.5 times, which we believe is fair as it is two to three times lower than Guinness' current valuations, currently trading at 19 times CY11 PER. ' RHB Research Institute, Jan 19


This article appeared in The Edge Financial Daily, January 21, 2011.

ANNJOO - Riding on higher raw material price?

Stock Name: ANNJOO
Company Name: ANN JOO RESOURCES BHD
Research House: OSK

Ann Joo Resources Bhd
(Jan 18, RM3.05)
Maintain neutral call, revise fair value to RM2.89 from RM2.76: From our visit to Ann Joo Resources last Friday, we gather that the company may benefit from escalating steel prices by riding on its huge inventory pile, which was last reported to be worth RM1.2 billion.

However, the quantum may be limited and the numbers already included in our original estimates. We also think some quarters may be disappointed with the prolonged delay in its mini blast furnace project, and its 4QFY10 results may come in below market expectations.

Therefore, we are maintaining our 'neutral' call but revise our fair value upwards to RM2.89 after lifting our price-earnings ratio (PER) valuation to nine times from eight and maintain our 1.38 times book value per share on the FY11 numbers.

During our meeting with Ann Joo's management, managing director Datuk Lim Hong Thye gave us an insight into the outlook for the company and steel industry in general, as well as an update on the company's mini blast furnace project.

While we do not concur with Lim's view that the steel market will potentially experience a super cycle this year given the long-term material cost push and supply shortage of long steel, we share his opinion that the current hike in steel and its feed material prices may pull back in the next few weeks as the increase has been too steep.

Our belief is based on the fact that the present spike in raw material cost is largely driven by a sudden supply shortage caused by severe weather conditions, including floods in Queensland, Australia, and extreme winter in the US and Europe.

We think prices may retreat when weather conditions improve. We also sense from the meeting that Ann Joo may report weaker than expected 4QFY10 results, although its numbers were still stronger quarter-on-quarter, owing to weaker sales volume and a marginal recovery in profit margin.

Given its poor earnings visibility beyond six months, we are keeping our FY11 estimates almost unchanged but revise downwards our FY10 net profit by12.5% to RM146.7 million.

As for the long delayed commissioning of its mini blast furnace, management has put the blame on this being the first'' project of its kind in the country, and as such there are bound to be unexpected hiccups during the construction period.

Nonetheless, management is confident of putting the plant into operation in May or June 2011, barring unforeseen circumstances. Meanwhile, the company has had two loads of coke delivered earlier via Handymax bulker to its yard, but has yet to make any orders for iron ore since the mutual termination of its proposed long-term supply contract with BHP Billiton.

Management has also temporarily put on hold the slab caster project, but its capital expenditure still stands at RM650 million as it has invested in upgrading its steelmaking and rolling mill capacity, which have raised its billet capacity to 1.1 million tonnes per year (tpy) and 620,000 tpy for billet/wire rods. ' OSK Research, Jan 18


This article appeared in The Edge Financial Daily, January 19, 2011.

BJTOTO - BSports Toto downgraded at OSK, ECM

Stock Name: BJTOTO
Company Name: BERJAYA SPORTS TOTO BHD
Research House: OSK

Berjaya Sports Toto Bhd, a Malaysian lottery operator, was downgraded at OSK Research Sdn Bhd to reflect “subdued” revenue growth because of stronger-than-expected competition from Magnum Corp.

The stock was cut to “trading buy” from “buy,” OSK said in a report today.

The fair value was reduced to RM4.51 from RM4.65, it said.

Meanwhile, Berjaya Sports Toto was downgraded to “hold” from “buy” at ECM Libra Capital Sdn Bhd on lower earnings expectations.

Its share estimate was cut to RM4.56 from RM4.88, ECM Libra analyst Yin Shao Yang said in a report today. -- Bloomberg

EVERGRN - HDBSVR maintains Buy on Evergreen Fibreboard, TP RM2

Stock Name: EVERGRN
Company Name: EVERGREEN FIBREBOARD BHD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR)said Evergreen Fibreboard's 4Q10 would likely be weak due to margin squeeze.

It said on Wednesday, Jan 19 it had reduced FY0F-12F earnings by 9%-15% but it expected better quarters ahead with higher MDF prices and normalised glue prices.

'Maintain Buy and RM2 TP. As the world's 5th largest producer, Evergreen Fibreboard is positioned to benefit from the global economic recovery, also among the cheapest MDF players at 6x FY11F EPS,' it said.

HARTA - Maybank IB Research upgrades Hartalega to Buy, RM6.80 TP

Stock Name: HARTA
Company Name: HARTALEGA HOLDINGS BHD
Research House: MAYBANK

KUALA LUMPUR: Maybank Investment Bank Research has upgraded Hartalega to a Buy with a RM6.80 discounted cashflow-based target price.

It said on Wednesday, Jan 19 Hartalega is set to profit from the structural demand switch to nitrile gloves, at the expense of latex gloves.

Demand for nitrile gloves will continue to encroach into the latex gloves market as nitrile gloves ASP discount to latex widens (atypical in the past),' it said.

OSK Research said it had raised its FY11-13 earnings forecasts by 8-10% taking into account higher market share gain of 0.5 percentage point per annum (0.3-percentage poin previously).

At its new RM6.80 TP (+26%) post earnings upgrade and removing a 10% discount for improving prospects, Hartalega is valued at an implied 11.0 times CY12 PER versus Top Glove's 13 times.

'We think the valuation discount to Top Glove (with a negative outlook) should narrow. We reckon market will re-rate Hartalega upwards when the shifting nitrile trend take hold,' it said.

SPSETIA - SP Setia gains after fair value raised

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

SP Setia Bhd, a Malaysian property developer, rose the most in a week in Kuala Lumpur trading after AmResearch Sdn Bhd raised its fair value for the stock to RM7.10.

Its shares gained 3 per cent to RM6.60 at 9:10 a.m. local time, set for their biggest increase since Jan. 13. -- Bloomberg

BJTOTO - BSports Toto downgraded at OSK, ECM

Stock Name: BJTOTO
Company Name: BERJAYA SPORTS TOTO BHD
Research House: ECMLIBRA

Berjaya Sports Toto Bhd, a Malaysian lottery operator, was downgraded at OSK Research Sdn Bhd to reflect “subdued” revenue growth because of stronger-than-expected competition from Magnum Corp.

The stock was cut to “trading buy” from “buy,” OSK said in a report today.

The fair value was reduced to RM4.51 from RM4.65, it said.

Meanwhile, Berjaya Sports Toto was downgraded to “hold” from “buy” at ECM Libra Capital Sdn Bhd on lower earnings expectations.

Its share estimate was cut to RM4.56 from RM4.88, ECM Libra analyst Yin Shao Yang said in a report today. -- Bloomberg

SIME - Overweight on plantations

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

Plantations
Jan 18, 2011
Overweight, IOI Corp Bhd (Jan 18, RM5.98); Sime Darby Bhd (Jan 18, RM9.34); Tradewinds Plantations Bhd (Jan 18, RM3.45): Our call on plantations is 'overweight' and our top picks are IOI Corp ('buy', target price RM6.62); Sime Darby ('buy', TP RM10.76) and Tradewinds Plantations ('buy', TP RM4.60).

Key takeaways from Datuk Yeo How (president of Asian Agri Group, a leading private Indonesian palm oil group): Crude palm oil (CPO) price will average RM3,600 a tonne for 2011 (and has the potential of rallying beyond RM4,000 a tonne in the near term, albeit with greater price volatility relative to 2010).

Yeo's bullish outlook was underpinned by the record low inventory levels for several major oilseeds and grains due largely to adverse weather conditions; and strong demand outlook, with demand rationing by major oil consuming countries possibly not coming in to place.

He is of the view that the current high commodity prices will be cushioned by the record low inventory levels for several major oilseeds and grains (including soybean, sunflower oil and CPO). While the weak corn and soybean crop would have already been factored into the current high prices.

Yeo believes that soybean prices will soar higher should crops come in below expectations (which at the current juncture will likely to surprise on the downside) and hence result in higher CPO prices.

Beyond 1H11, while he believes that CPO output will recover from 2H11 onwards (which could potentially result in a much lower CPO price), it is important to note that the quantum of the crop recovery remains questionable. This will not soften CPO prices should crop recovery be weak.

Both demand and prices will likely strengthen post Chinese New Year as: (i) China will likely begin inventory replenishing post CNY given the low inventory level; and (ii) we will move away from seasonally weak demand during the winter months.

While there are concerns that skyrocketing commodity prices may result in demand rationing for CPO, Yeo believes that this is unlikely to happen at this juncture given that prices of other oilseeds have increased substantially as well.

Fundamentals aside, he believes that current high commodity prices are also supported by: (i) the flush of liquidity (he believes there is still room for financial demand to push CPO prices higher); and (ii) the weak US dollar (the inverse relationship between US dollar and CPO price).

For the downstream segment, while margins for the refining business will remain tight amid current high CPO prices, he believes that margins could still improve from 2011. As for the viability of biodiesel, Yeo believes mandates from various countries (promoting the use of biodiesel via subsidies) should help cushion biodiesel consumption despite it being still not economically viable on a free market basis.

The risks include: (i) Global vegetable oil (including CPO) production comes in higher than expected, which will result in lower than expected CPO prices; and (ii) demand rationing by certain oil-consuming countries (such as India) when vegetable oil prices skyrocket to a certain level, which would bring down consumption of vegetable oil.

While Yeo's 2011 CPO price forecast of RM3,600 a tonne is higher than our forecast of RM3,200 a tonne, we note that there is still plenty of upside to plantation stocks at current share price levels, as the five plantation stocks under our coverage (Genting Plantations Bhd, IOI Corp, Kuala Lumpur Kepong Bhd, Sime Darby and Tradewinds Plantations) are still trading at below two-year historical forward price-earnings mean. ' Hong Leong Investment Bank Research, Jan 18


This article appeared in The Edge Financial Daily, January 19, 2011.

RHBCAP - Ramping up distribution channels

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Research House: AMMB

RHB Capital Bhd
(Jan 18, RM8.60)
Maintain buy at RM8.60 with fair value of RM9.70): During our company visit on Monday, RHB Capital (RHB Cap) highlighted its plans for its new shared banking services tie-up with Pos Malaysia.

Under the first phase, 21 selected Pos Malaysia outlets in the Klang Valley and Negri Sembilan had been identified to offer the services. RHB Cap intends to offer this service in up to 300 of the approximately 600 Pos Malaysia outlets nationwide.

RHB Cap will also place 90 to 100 of its EASY banking kiosks in selected Pos Malaysia outlets.

We are positive on this, as the operating model for the shared banking services is low-cost with no fixed overheads. RHB Cap is expected to incur only variable costs based on transaction fees.

RHB Cap currently has 197 conventional branches, while as at end-December 2010 it had about 112 EASY branches.

In total, RHB now has about 309 branches and EASY outlets. With the Pos Malaysia tie-up, RHB Cap is on track to more than double its distribution channels by year-end. As a comparison, Maybank has 364 branches, CIMB 323 and Public Bank 248.

To put this in perspective, RHB Cap's current share of conventional banking branches is 9.8%. If we are to simplistically take into account just the existing EASY outlets and planned expansion into the 300 Pos Malaysia outlets, its market share of distribution channels will increase to 23%.

With better distribution channels, we foresee RHB Cap closing the gap in terms of its market share of deposits and loans. EASY's main selling product is still Amanah Saham Bumiputra financing, with the market share of this segment at about 7% currently.

RHB Cap's overall market share of loans is estimated at 9.4% while its market share of overall deposits is 7.8%, current deposits 9.9% and savings deposits 5.4% as at end-September 2010.

RHB Cap's share price has performed well over the last year, and we remain positive on RHB Cap's prospects. We have not yet included possible improvement in current account and savings account,'' and selected loan segments arising from its expanded distribution channels.

The company also says it is bullish on the opportunities arising from the government's Economic Transformation Programme. We maintain 'buy' on RHB Cap with fair value of RM9.70. ' AmResearch, Jan 18


This article appeared in The Edge Financial Daily, January 19, 2011.

IOICORP - Overweight on plantations

Stock Name: IOICORP
Company Name: IOI CORPORATION BHD
Research House: HLG

Plantations
Jan 18, 2011
Overweight, IOI Corp Bhd (Jan 18, RM5.98); Sime Darby Bhd (Jan 18, RM9.34); Tradewinds Plantations Bhd (Jan 18, RM3.45): Our call on plantations is 'overweight' and our top picks are IOI Corp ('buy', target price RM6.62); Sime Darby ('buy', TP RM10.76) and Tradewinds Plantations ('buy', TP RM4.60).

Key takeaways from Datuk Yeo How (president of Asian Agri Group, a leading private Indonesian palm oil group): Crude palm oil (CPO) price will average RM3,600 a tonne for 2011 (and has the potential of rallying beyond RM4,000 a tonne in the near term, albeit with greater price volatility relative to 2010).

Yeo's bullish outlook was underpinned by the record low inventory levels for several major oilseeds and grains due largely to adverse weather conditions; and strong demand outlook, with demand rationing by major oil consuming countries possibly not coming in to place.

He is of the view that the current high commodity prices will be cushioned by the record low inventory levels for several major oilseeds and grains (including soybean, sunflower oil and CPO). While the weak corn and soybean crop would have already been factored into the current high prices.

Yeo believes that soybean prices will soar higher should crops come in below expectations (which at the current juncture will likely to surprise on the downside) and hence result in higher CPO prices.

Beyond 1H11, while he believes that CPO output will recover from 2H11 onwards (which could potentially result in a much lower CPO price), it is important to note that the quantum of the crop recovery remains questionable. This will not soften CPO prices should crop recovery be weak.

Both demand and prices will likely strengthen post Chinese New Year as: (i) China will likely begin inventory replenishing post CNY given the low inventory level; and (ii) we will move away from seasonally weak demand during the winter months.

While there are concerns that skyrocketing commodity prices may result in demand rationing for CPO, Yeo believes that this is unlikely to happen at this juncture given that prices of other oilseeds have increased substantially as well.

Fundamentals aside, he believes that current high commodity prices are also supported by: (i) the flush of liquidity (he believes there is still room for financial demand to push CPO prices higher); and (ii) the weak US dollar (the inverse relationship between US dollar and CPO price).

For the downstream segment, while margins for the refining business will remain tight amid current high CPO prices, he believes that margins could still improve from 2011. As for the viability of biodiesel, Yeo believes mandates from various countries (promoting the use of biodiesel via subsidies) should help cushion biodiesel consumption despite it being still not economically viable on a free market basis.

The risks include: (i) Global vegetable oil (including CPO) production comes in higher than expected, which will result in lower than expected CPO prices; and (ii) demand rationing by certain oil-consuming countries (such as India) when vegetable oil prices skyrocket to a certain level, which would bring down consumption of vegetable oil.

While Yeo's 2011 CPO price forecast of RM3,600 a tonne is higher than our forecast of RM3,200 a tonne, we note that there is still plenty of upside to plantation stocks at current share price levels, as the five plantation stocks under our coverage (Genting Plantations Bhd, IOI Corp, Kuala Lumpur Kepong Bhd, Sime Darby and Tradewinds Plantations) are still trading at below two-year historical forward price-earnings mean. ' Hong Leong Investment Bank Research, Jan 18


This article appeared in The Edge Financial Daily, January 19, 2011.

MAXIS - New template for roaming rates soon

Stock Name: MAXIS
Company Name: MAXIS BERHAD
Research House: OSK

Telecommunications sector
Maintain neutral: At the recently concluded Asean Telecommunications and Information Technology Ministers Meeting, the Information, Communications and Culture Minister Datuk Seri Rais Yatim and Singapore's Information, Communications and Arts Minister Lui Tuck Yew jointly announced that both countries will be unveiling lower roaming rates in two months.

The proposal for lower roaming rates was mooted as far back as 2007, with a formal proposal tabled in June 2010. It was reported that mobile operators have agreed in principle to cut the voice call rate by up to 50% while the rate for SMS would be lowered by up to 30%.

Our random checks with telcos in Malaysia and Singapore elicited inconsistent responses, in particular on the statements made by the ministers on the timeline for implementation. While the mobile operators have agreed in principle to lower rates, we gather that there could be further delays in the finalisation of individual roaming agreements pending directives from telecom regulators in both countries.

Aside from the common dissatisfaction among the mobile operators, a key reason cited for the long delay in wrapping up the proposal is the fact that each individual operator would have to enter into separate agreements with their roaming partners with extended discussions on rates and conditions to be established.

The proportion of roaming revenue as a percentage of overall mobile revenue differs across the telcos in Malaysia and Singapore, with Singapore telcos (Singtel, StarHub and M1) likely to be more affected by the move as: (i) they have a higher proportion of roaming revenue; and (ii) have more roamers on their networks, both inbound and outbound.

We estimate that roaming revenue makes up circa 10% to 25% of the Singapore telcos' overall mobile revenue versus 8% to 10% of Malaysia's telcos (Maxis,Celcom and DiGi).

A reciprocal 30% reduction in roaming tariffs between the two countries, and assuming a third of the overall roaming revenues of the telcos are derived from travellers in both countries, would impact Singapore mobile revenues by 0.9% to 2.1% compared with an estimated 0.7% to 0.9% for Malaysian telcos, all else being equal.

The downside on revenues is mitigated by the fact that the telcos actively share and swap minutes with each other.
The lower roaming rates between Malaysia and Singapore will be used as a template for other Asean member countries to emulate, a longer-term aspiration under the Asean ICT Master Plan.

The proposal is perhaps similar to that adopted by the European Union, in which lower roaming tariffs (called Eurotariffs) were introduced in June 2007 for the 27 member countries following a directive by the European Commission. Given the different regulatory setting and challenges faced by the Malaysia and Singapore telcos, we think an Asean collaboration would be a tall order.

Our forecast is maintained for the telcos in Singapore ' SingTel ('neutral', target price: S$3.05) and Starhub ('neutral', TP: S$2.85).

Our 'buy' recommendation and target price for M1 are under review pending the release of its results later this week. We maintain our forecast and recommendations on the Malaysian mobile telcos ' Axiata ('buy', TP: RM5.80), Maxis ('neutral', TP: RM5.40) and DiGi ('neutral', TP: RM24.40).

While lower roaming rates are typically negative for the telcos in the short-term, given the inelastic nature of roaming calls, it is expected to stimulate usage over the longer term to offset the revenue dilution. ' OSK Research, Jan 17


This article appeared in The Edge Financial Daily, January 18, 2011.

TWSPLNT - Overweight on plantations

Stock Name: TWSPLNT
Company Name: TRADEWINDS PLANTATION BHD
Research House: HLG

Plantations
Jan 18, 2011
Overweight, IOI Corp Bhd (Jan 18, RM5.98); Sime Darby Bhd (Jan 18, RM9.34); Tradewinds Plantations Bhd (Jan 18, RM3.45): Our call on plantations is 'overweight' and our top picks are IOI Corp ('buy', target price RM6.62); Sime Darby ('buy', TP RM10.76) and Tradewinds Plantations ('buy', TP RM4.60).

Key takeaways from Datuk Yeo How (president of Asian Agri Group, a leading private Indonesian palm oil group): Crude palm oil (CPO) price will average RM3,600 a tonne for 2011 (and has the potential of rallying beyond RM4,000 a tonne in the near term, albeit with greater price volatility relative to 2010).

Yeo's bullish outlook was underpinned by the record low inventory levels for several major oilseeds and grains due largely to adverse weather conditions; and strong demand outlook, with demand rationing by major oil consuming countries possibly not coming in to place.

He is of the view that the current high commodity prices will be cushioned by the record low inventory levels for several major oilseeds and grains (including soybean, sunflower oil and CPO). While the weak corn and soybean crop would have already been factored into the current high prices.

Yeo believes that soybean prices will soar higher should crops come in below expectations (which at the current juncture will likely to surprise on the downside) and hence result in higher CPO prices.

Beyond 1H11, while he believes that CPO output will recover from 2H11 onwards (which could potentially result in a much lower CPO price), it is important to note that the quantum of the crop recovery remains questionable. This will not soften CPO prices should crop recovery be weak.

Both demand and prices will likely strengthen post Chinese New Year as: (i) China will likely begin inventory replenishing post CNY given the low inventory level; and (ii) we will move away from seasonally weak demand during the winter months.

While there are concerns that skyrocketing commodity prices may result in demand rationing for CPO, Yeo believes that this is unlikely to happen at this juncture given that prices of other oilseeds have increased substantially as well.

Fundamentals aside, he believes that current high commodity prices are also supported by: (i) the flush of liquidity (he believes there is still room for financial demand to push CPO prices higher); and (ii) the weak US dollar (the inverse relationship between US dollar and CPO price).

For the downstream segment, while margins for the refining business will remain tight amid current high CPO prices, he believes that margins could still improve from 2011. As for the viability of biodiesel, Yeo believes mandates from various countries (promoting the use of biodiesel via subsidies) should help cushion biodiesel consumption despite it being still not economically viable on a free market basis.

The risks include: (i) Global vegetable oil (including CPO) production comes in higher than expected, which will result in lower than expected CPO prices; and (ii) demand rationing by certain oil-consuming countries (such as India) when vegetable oil prices skyrocket to a certain level, which would bring down consumption of vegetable oil.

While Yeo's 2011 CPO price forecast of RM3,600 a tonne is higher than our forecast of RM3,200 a tonne, we note that there is still plenty of upside to plantation stocks at current share price levels, as the five plantation stocks under our coverage (Genting Plantations Bhd, IOI Corp, Kuala Lumpur Kepong Bhd, Sime Darby and Tradewinds Plantations) are still trading at below two-year historical forward price-earnings mean. ' Hong Leong Investment Bank Research, Jan 18


This article appeared in The Edge Financial Daily, January 19, 2011.

VITROX - Inspection specialist

Stock Name: VITROX
Company Name: VITROX CORPORATION BHD
Research House: RHB

ViTrox'' Corp Bhd
(Jan 18 RM1.27)
Not rated, indicative fair value of RM1.72: ViTrox Corp specialises in designing and developing automated vision inspection equipment and system-on-chip embedded electronics devices for the semiconductor and electronic packaging industries.

In 2009, US-based Agilent announced the closure of a subsection of the test and measurement division, exiting its automated optical inspection (AOI) and automated X-ray inspection (AXI) system business.

Obtaining the outsourcing service agreement from Agilent gave ViTrox the opportunity to obtain Agilent's technology, R&D team, manufacturing partners and channel partners, thus acquiring an instant position as a global player. In addition, together with the R&D team, ViTrox has been able to improve the performance of the equipment and cut per unit costs.

Its key earnings driver is automated board inspection (ABI). AOI and AXI, part of the ABI segment, mainly focus on printed circuit board'' inspection.

This equipment is important to provide a more reliable and efficient inspection tool than the traditional ICT printed circuit board assembly'' inspection.

Historically, machine vision system (MVS) has been the main revenue contributor for the company.

However, going forward, this segment is likely to be the key growth segment as ViTrox's equipment caters for: (i) a wider range of customers versus packaging players in the MVS segment; and (ii) increasing complexity and density of circuit boards.

The risks include: (i) strengthening of the ringgit against the US dollar; (ii) increasing competition; and (iii) rising raw material costs.

We forecast FY10/12 net profit to grow 1,103.4%, 40.5% and 34.9% per annum respectively, mainly driven by the: (i) stronger than expected demand for ABI and MVS; and (ii) resilient revenue stream from its electronic communication system'' on the back of growing need for automation equipment.

However, we expect the average sale per unit for some products ' MVS-Standard, AOI and AXI ' to drop 5% per year on the back of competitive pricing initiated by ViTrox in order to gain market share.

This implies that earnings before interest, tax, depreciation and amortisation margins will decline slightly, but this will be partially offset by higher utilisation rate coupled with higher-margin equipment.

We have pegged a target price-earnings ratio of'' eight times, which implies a 33% discount to peers' weighted average, due to its smaller market capitalisation.

Correspondingly, we have derived an indicative fair value of RM1.72, which implies a 31.3% upside. ' RHB Research Institute, Jan 18


This article appeared in The Edge Financial Daily, January 19, 2011.

POS - Pos-bank tie-ups to boost revenue: OSK

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

Pos Malaysia Bhd's partnership with Maybank and RHB Bank will increase its retail revenue by 10 per cent and 15 per cent respectively for the financial years 2011 and 2012, says OSK Research.

Following the higher revenue revision, OSK Research also raised its earnings estimates by three per cent and six per cent respectively, for the financial years 2011 and 2012.

OSK Research has maintained a "buy" recommendation and upgraded its target price to RM4.45 from RM4.33 previously, it said in an equity note today.

Pos Malaysia's partnership with Maybank aims to provide the bank's selected services over the counter, such as cash deposits and withdrawals for savings account holders, as well as loan repayments.

Maybank plans to extend those services at more than 400 Pos Malaysia outlets by the end of June this year.

The partnership with Maybank comes on the heels of Pos Malaysia offering RHB Eazy Banking services in partnership with RHB Bank, which will be extended from 21 branches to 300 branches by the middle of this year.

OSK Research said Pos Malaysia's alliance with the two banks will scale up their initiatives to provide banking services to a larger base of customers, especially the underserved segment in the rural areas, especially Sabah and Sarawak.

Pos Malaysia has changed its strategy, whereby, it is deploying staff from its automated mail processing centre to its branches to improve on customer service delivery and efficiency.

In March 2007, Pos Malaysia inked a similar agreement with CIMB Bank to distribute its Xpress Cash, microcredit loans and credit cards to widen the access to banking services, including in the rural and less affluent areas.

However, the partnership ceased in 2009, given the limited banking services offered by that tie-up owing to staff shortage, poor customer service and thelong queuing time. -- Bernama

TENAGA - RHB Research maintains Tenaga FV at RM7.50

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

KUALA LUMPUR: RHB Research Institute is maintaining its fair value of RM7.50 for TENAGA NASIONAL BHD [] (TNB) based on unchanged target CY11 PER of 13 times.

The research house said TNB lacks catalysts due to slowing electricity demand growth of 4.5% for FY11 (FY10: 8.8%) and no clear timeline for a formal fuel cost pass-through formula to help address the issue of fluctuating fuel prices.

It said TNB was expected to release its 1QFY11 results on Jan 19. With higher electricity unit sales growth and largely stable coal prices in 1Q, 'we estimate 1Q core net profit could come in at around RM700-800m (4QFY10: RM414m, 1QFY10: RM751m)'.

RHB Research expects 1QFY11 total operating cost to remain stable on-quarter, as it understands TNB's average coal price for 1QFY11 stood at US$100 a tonne, in line with management's guidance.

'Looking ahead, while the RM continues to strengthen against US$, we believe it is unlikely to be sufficient to mitigate the sharp rising trend in US$-denominated coal cost due to the floods in Queensland, Australia,' it said.

ANNJOO - OSK Research keeps Neutral call on Ann Joo Resources

Stock Name: ANNJOO
Company Name: ANN JOO RESOURCES BHD
Research House: OSK

KUALA LUMPUR: OSK Research is keeping its NEUTRAL call Ann Joo Resources but revises its fair value higher to RM2.89 after lifting its price-to-earnings ratio (PER) valuation to 9.0 times from 8.0 times and maintains its1.38 times book value per share on FY11 numbers.

It said on Tuesday, Jan 18 that from its visit to Ann Joo Resources last week, it gathered that the company may benefit from escalating steel prices by riding on its huge inventory pile, which was last reported to be RM1.2bn.

'However, the quantum may be limited and the numbers already included in our original estimates.

'We also think that some quarters may be disappointed with the prolonged delay on its mini Blast Furnace project and its 4QFY10 results, may come in below market expectation,' it said.

SPSETIA - SP Setia slides on downgrades

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

SP Setia Bhd, a Malaysian property developer, was downgraded to “sell” from “hold” at ECM Libra Capital Sdn Bhd after the company announced a private placement.

ECM Libra analyst Bernard Ching also revised his share estimate for SP Setia to RM6 in a report today.

Meanwhile, RHB Research Institute Sdn Bhd said the company’s proposed share placement will dilute earnings.

The stock slid 3.3 per cent to RM6.48 at 9:32 a.m. local time, set for its lowest close since Januaary 7.

RHB cut its fair value for the company to RM7.39 from RM8.05, it said in a report today. -- Bloomberg

PLUS - ECM Libra keeps 'hold' call on PLUS

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

ECM Libra is maintaining a "hold" on PLUS Expressways Bhd, following its announcement that it will not evaluate, consider or table Jelas Ulung Sdn Bhd's takeover offer at RM5.20 per share.

"There is uncertainty whether PLUS will be able to secure minority shareholders' approval as the question may arise whether the board has done all it can to extract the best return for its shareholders," ECMLibra said in a research note today.

The UEM-EPF offer of RM4.60 a share is lower in value when compared with Jelas Ulung's offer of RM5.20 a share.

The research house, however, reiterated that PLUS's share price never breached RM3.50 per share before July 2010, thus giving a majority of its shareholders a premium of some 31 per cent.

ECMLibra said the UEM-EPF offer had government blessings and removed concerns over strategic national assets being controlled by a little known private company.

The research house adjusted its target price to RM4.60 reflecting the only confirmed offer of RM4.60 put in by UEM-EPF.

In mid-December, Jelas Ulung came into the picture with its RM5.20 per share or RM26 billion offer, a higher offer by 13 per cent, just days before the PLUS extraordinary general meeting to vote on the proposed acquisition by UEM-EPF.

However, Jelas Ulung's failure to meet the deadline of placing a RM50 million deposit required by PLUS left only one formal offer on the table, which is the UEM-EPF offer of RM4.60 per share. -- Bernama

AXIATA - New template for roaming rates soon

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

Telecommunications sector
Maintain neutral: At the recently concluded Asean Telecommunications and Information Technology Ministers Meeting, the Information, Communications and Culture Minister Datuk Seri Rais Yatim and Singapore's Information, Communications and Arts Minister Lui Tuck Yew jointly announced that both countries will be unveiling lower roaming rates in two months.

The proposal for lower roaming rates was mooted as far back as 2007, with a formal proposal tabled in June 2010. It was reported that mobile operators have agreed in principle to cut the voice call rate by up to 50% while the rate for SMS would be lowered by up to 30%.

Our random checks with telcos in Malaysia and Singapore elicited inconsistent responses, in particular on the statements made by the ministers on the timeline for implementation. While the mobile operators have agreed in principle to lower rates, we gather that there could be further delays in the finalisation of individual roaming agreements pending directives from telecom regulators in both countries.

Aside from the common dissatisfaction among the mobile operators, a key reason cited for the long delay in wrapping up the proposal is the fact that each individual operator would have to enter into separate agreements with their roaming partners with extended discussions on rates and conditions to be established.

The proportion of roaming revenue as a percentage of overall mobile revenue differs across the telcos in Malaysia and Singapore, with Singapore telcos (Singtel, StarHub and M1) likely to be more affected by the move as: (i) they have a higher proportion of roaming revenue; and (ii) have more roamers on their networks, both inbound and outbound.

We estimate that roaming revenue makes up circa 10% to 25% of the Singapore telcos' overall mobile revenue versus 8% to 10% of Malaysia's telcos (Maxis,Celcom and DiGi).

A reciprocal 30% reduction in roaming tariffs between the two countries, and assuming a third of the overall roaming revenues of the telcos are derived from travellers in both countries, would impact Singapore mobile revenues by 0.9% to 2.1% compared with an estimated 0.7% to 0.9% for Malaysian telcos, all else being equal.

The downside on revenues is mitigated by the fact that the telcos actively share and swap minutes with each other.
The lower roaming rates between Malaysia and Singapore will be used as a template for other Asean member countries to emulate, a longer-term aspiration under the Asean ICT Master Plan.

The proposal is perhaps similar to that adopted by the European Union, in which lower roaming tariffs (called Eurotariffs) were introduced in June 2007 for the 27 member countries following a directive by the European Commission. Given the different regulatory setting and challenges faced by the Malaysia and Singapore telcos, we think an Asean collaboration would be a tall order.

Our forecast is maintained for the telcos in Singapore ' SingTel ('neutral', target price: S$3.05) and Starhub ('neutral', TP: S$2.85).

Our 'buy' recommendation and target price for M1 are under review pending the release of its results later this week. We maintain our forecast and recommendations on the Malaysian mobile telcos ' Axiata ('buy', TP: RM5.80), Maxis ('neutral', TP: RM5.40) and DiGi ('neutral', TP: RM24.40).

While lower roaming rates are typically negative for the telcos in the short-term, given the inelastic nature of roaming calls, it is expected to stimulate usage over the longer term to offset the revenue dilution. ' OSK Research, Jan 17


This article appeared in The Edge Financial Daily, January 18, 2011.

DIGI - New template for roaming rates soon

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: OSK

Telecommunications sector
Maintain neutral: At the recently concluded Asean Telecommunications and Information Technology Ministers Meeting, the Information, Communications and Culture Minister Datuk Seri Rais Yatim and Singapore's Information, Communications and Arts Minister Lui Tuck Yew jointly announced that both countries will be unveiling lower roaming rates in two months.

The proposal for lower roaming rates was mooted as far back as 2007, with a formal proposal tabled in June 2010. It was reported that mobile operators have agreed in principle to cut the voice call rate by up to 50% while the rate for SMS would be lowered by up to 30%.

Our random checks with telcos in Malaysia and Singapore elicited inconsistent responses, in particular on the statements made by the ministers on the timeline for implementation. While the mobile operators have agreed in principle to lower rates, we gather that there could be further delays in the finalisation of individual roaming agreements pending directives from telecom regulators in both countries.

Aside from the common dissatisfaction among the mobile operators, a key reason cited for the long delay in wrapping up the proposal is the fact that each individual operator would have to enter into separate agreements with their roaming partners with extended discussions on rates and conditions to be established.

The proportion of roaming revenue as a percentage of overall mobile revenue differs across the telcos in Malaysia and Singapore, with Singapore telcos (Singtel, StarHub and M1) likely to be more affected by the move as: (i) they have a higher proportion of roaming revenue; and (ii) have more roamers on their networks, both inbound and outbound.

We estimate that roaming revenue makes up circa 10% to 25% of the Singapore telcos' overall mobile revenue versus 8% to 10% of Malaysia's telcos (Maxis,Celcom and DiGi).

A reciprocal 30% reduction in roaming tariffs between the two countries, and assuming a third of the overall roaming revenues of the telcos are derived from travellers in both countries, would impact Singapore mobile revenues by 0.9% to 2.1% compared with an estimated 0.7% to 0.9% for Malaysian telcos, all else being equal.

The downside on revenues is mitigated by the fact that the telcos actively share and swap minutes with each other.
The lower roaming rates between Malaysia and Singapore will be used as a template for other Asean member countries to emulate, a longer-term aspiration under the Asean ICT Master Plan.

The proposal is perhaps similar to that adopted by the European Union, in which lower roaming tariffs (called Eurotariffs) were introduced in June 2007 for the 27 member countries following a directive by the European Commission. Given the different regulatory setting and challenges faced by the Malaysia and Singapore telcos, we think an Asean collaboration would be a tall order.

Our forecast is maintained for the telcos in Singapore ' SingTel ('neutral', target price: S$3.05) and Starhub ('neutral', TP: S$2.85).

Our 'buy' recommendation and target price for M1 are under review pending the release of its results later this week. We maintain our forecast and recommendations on the Malaysian mobile telcos ' Axiata ('buy', TP: RM5.80), Maxis ('neutral', TP: RM5.40) and DiGi ('neutral', TP: RM24.40).

While lower roaming rates are typically negative for the telcos in the short-term, given the inelastic nature of roaming calls, it is expected to stimulate usage over the longer term to offset the revenue dilution. ' OSK Research, Jan 17


This article appeared in The Edge Financial Daily, January 18, 2011.

HSL - 2011 should be even better for Hock Seng Lee

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

Hock Seng Lee Bhd
(Jan 14, RM1.89)
Maintain 'buy' at RM1.87 with target price of RM2.32: During our one-day OSK-DMG Asean Corporate Day in Singapore last week, HSL's management met up with 13 fund managers and buy-side analysts. As most of the funds were Singapore-based, very few were familiar with the company but what piqued their interest was the strong 67.6% run-up in HSL's shares last year, as well as its consistent earnings record.

While the official deadline for the Sarawak elections is in May, the management is unsure of the actual date. We have been strong promoters of the Sarawak infrastructure theme in the past year, partially fuelled by the upcoming state elections. Our call proved right as contract awards in Sarawak surged 44.9% to RM1.68 billion last year. While there are concerns that the contract flow may diminish post-election, the management believes otherwise and expects to know the outcome of most of its tenders after the polls.

Last year, HSL managed to secure RM532 million worth of jobs, which marginally surpassed our RM500 million target. This year, management is confident of bagging another RM500 million in new wins, with an upside potential of RM600 million, versus our assumption of a conservative RM400 million. In the near term, HSL may bag two road packages collectively worth RM150 million. It is also eyeing the Tg Manis port extension (RM300 million), Mukah airport extension (RM300 million), an education facility (RM260 million) and a flyover job (RM100 million).

We understand that the government intends to implement a mass affordable housing project across Sarawak worth RM1 billion. Another RM1 billion has also been allocated for rural infrastructure and utilities. While these jobs are sizeable, they will be broken up into packages worth RM20 million to RM30 million each, and we expect HSL to win some.

The management indicated that Phase 2 of the Kuching Wastewater Project is now 30% complete and on track for the 2Q2014 deadline. HSL has submitted its proposal for Phase 2 (RM500 million), with the results possibly made known after the state elections. The entire job over 4 phases is worth RM2.2 billion.

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 maintain the wastewater system once it is completed.

HSL's 4Q results will be announced sometime in February and the management is confident of achieving about RM70 million in earnings for the full year FY10, which is pretty much in line with our forecast of RM72.2 million. We make no changes to our earnings estimate, which implies an FY10-12 CAGR of 21.3%. Our RM2.32 target price continues to be based on 14.5 times FY11 earnings, which is 2 standard deviations above its historical mean PER. We argue that the stock's premium valuations are warranted given: (i) its uninterrupted earnings growth for eight consecutive years at a 25.1% CAGR, (ii) above-industry profit margins, (iii) net cash position, and (vi) expertise in marine engineering. -- OSK Investment Research, Jan 14


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

MPI - Semiconductor burrowing down in Year of the Rabbit

Stock Name: MPI
Company Name: MALAYSIAN PACIFIC INDUSTRIES
Research House: CIMB

Semiconductor sector
Downgrade to neutral: The factors that led to the underperformance of the semiconductor sector in 2010, i.e. economic uncertainty and weak PC sales, refuse to go away. These factors, plus other headwinds such as moderating chip sales growth for 2011, near-term earnings pressure from seasonality, a strengthening ringgit and elevated raw material costs, trigger our downgrade of the sector from 'overweight' to 'neutral'. We believe that conditions will remain weak over the next six months and we view 2H11 as a better time to re-enter the sector as seasonality patterns play out. Keeping in step with our sector downgrade, we cut Unisem and MPI from 'outperform' to 'neutral' as we scale back our target prices for wider discounts to their historical P/BV.

The semiconductor sector had a turbulent ride in 2010. The first eight to nine months of the year were strong, driven by a combination of inventory restocking, high utilisation rates and robust demand. But the sector's fortunes began to erode towards the end of 3Q10 when the PC segment was buffeted by competition and the emergence of media tablets, and inventory correction kicked in. The tech sector and MPI began to correct and underperform the broader benchmark index. Unisem, however, defied that trend and outperformed largely due to its earnings outperformance.

While little has changed over the past month, we recognise that we were overly optimistic about the sector. The sector still looks weak. There is a mixed picture in the US as mainstream US retailers have reported disappointing sales though overall retail sales including online sales appear to have risen in December. We think that high unemployment will continue to constrain consumer spending.

Moreover, chip sales have declined for two consecutive months in October and November, equipment bookings and billings have been heading south and earnings guidance for the stocks under our coverage is uninspiring, at least for the near term.

Global lead indicators lend credence to our economics team's view of a slowing pace of growth in both advanced and emerging economies. Despite that, it believes that a second output contraction is unlikely though there is a 30% chance of a double-dip recession for the advanced conomies.

The stellar 2010 will make way for more moderate growth in 2011. Most market researchers expect chip sales to rise by 5% to 11%. Besides that, the PC segment is showing notable weakness and is a cause for concern given that it also consumes the most chips. ' CIMB Research, Jan 14


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

AXREIT - Axis REIT to grow 19.6pc in 2011 says ECM

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

ECM Libra expects a 19.6 per cent earnings growth in Axis Real Estate Investment Trust (REIT) Financial Year 11 (FY11) due to contributions from four recently acquired properties.

Axis REIT has completed acquisition of PTP D8 in Johor, Axis Technology Centre in Petaling Jaya, Axis PDI centre in Kuala Langat, Selangor and Tesco Johor as well as its proposal to acquire an office building in Cyberjaya for RM51.3 million which will be completed in the first quarter of this year.

In its research note on Axis REIT, ECM Libra said it expects more acquisitions going forward.

"We understand that the management is working on the acquisition of an office warehouse in Petaling Jaya, a logistics warehouse in Johor and a warehouse/logistics and manufacturing facility in Shah Alam/Klang," ECM Libra said..

ECM Libra is recommending a "BUY" on Axis Real Estate Investment Trust (REIT) with a target price of RM2.90.

"Despite its defensive quality, Axis’ average annual total return of 23 per cent since its listing in 2005 outperforms the equity market as represented by the total return of the benchmark FBMKLCI over the corresponding period," the research house said.

ECM Libra said another plus point is its distribution visibility as Axis commits to distribute 99 per cent of its earnings on quarterly basis.

Axis has the most enviable acquisition track record among M-REITs as it has grown its asset under management (AUM) from five properties with AUM of RM260.4 million to 27 properties with AUM of RM1.4 billion now. -- Bernama

SAPCRES - ECM maintains 'buy' call on SapuraCrest

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

ECM Libra Investment Research has maintained its 'buy' call on SapuraCrest Petroleum Bhd following the company's strong orderbook and potential for more major jobs in and outside Malaysia.

The research firm also raised its target price for SapuraCrest to RM4.20 from RM3.50.

"We continue to like SapuraCrest and favour the stock as one of our top picks in the oil and gas (O&G) sector. "Basically, we see that earnings visibility is good into 2013 which is rare for an O&G company," it said in a research note today.

ECM Libra said despite a difficult year for many O&G companies, SapuraCrest sailed through 2010 relatively unscathed.

The company's installation of pipelines and facilities segment and joint-venture pipe-lay vessels performed well.

"The group is likely to end financial year 2011 with a bang, clocking in some 30 per cent net profit growth," it said. -- Bernama

BENALEC - Benalec a small-cap construction outfit but fast growing

Stock Name: BENALEC
Company Name: BENALEC HOLDINGS BERHAD
Research House: MAYBANK

Benalec Holdings Bhd
(Listing on Jan 17, IPO price RM1)
Fair value RM1.95: Benalec, listing on the Main Market today, offers marine construction services (land reclamation, dredging) and vessel chartering which contributed 79:21 to FY10's (June) gross profit. We forecast 56% net profit growth in FY11 and 24% in FY12. Industry outlook is bright and Benalec is in a good position to secure major works. We fairly value the stock at RM1.95 based on sum-of-parts, implying 12.5 times FY12 PER.

Benalec has completed RM468 million worth of marine construction works, but its recent job wins have been sizeable. Outstanding order book stands at RM664 million out of RM856 million in total contract value. The largest reclamation contract worth RM468 million in Melaka has a completion deadline into 2016.
Benalec has also a garnered sizeable landbank (238 acres remaining worth RM197 million, we estimate) which it can monetise. This land is settlement for past land reclamation works under an option for the payments to be in kind.

Benalec predominantly operates in Peninsular Malaysia with completed land reclamation jobs in Langkawi, Port Klang, Johor (Nusajaya's Puteri Harbour) and Melaka. There are few domestic players in land reclamation. Industry barriers include major capital outlay and skilled manpower.

Prospects are positive as reclamation and shoreline protection works will continue at Melaka, Penang, Nusajaya and the East Coast states. Singapore and the regional markets also offer significant opportunities.

1QFY11 reported a net profit was RM30 million on a RM52 million turnover. Based on its current order book and our RM650 million job win assumption over the next 18 months, we forecast RM91 million and RM113 million net profit in FY11 and FY12 respectively. This incorporates a RM17 million gain from a 59-acre land sale in Melaka presently being finalised, which will be recognised in FY11, and our assumption of another RM20 million land sale gain in FY12.

We value the operations on 12 times forward earnings and outstanding landbank at RM19 psf based on the recent land sale pricing. Benalec's marine construction operations are similar to Hock Seng Lee (HSL) for which we have a 'buy' call, with a target 14 times forward PER. As its earnings delivery track record is not as long as HSL's, we peg Benalec's operations at a discount. Benalec's market value is however, expected to be bigger at RM1.43 billion (based on our RM1.95 fair value) versus HSL's RM1.34 billion (at our RM2.30 target price). ' Maybank IB Research, Jan 14


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

UNISEM - Semiconductor burrowing down in Year of the Rabbit

Stock Name: UNISEM
Company Name: UNISEM (M) BHD
Research House: CIMB

Semiconductor sector
Downgrade to neutral: The factors that led to the underperformance of the semiconductor sector in 2010, i.e. economic uncertainty and weak PC sales, refuse to go away. These factors, plus other headwinds such as moderating chip sales growth for 2011, near-term earnings pressure from seasonality, a strengthening ringgit and elevated raw material costs, trigger our downgrade of the sector from 'overweight' to 'neutral'. We believe that conditions will remain weak over the next six months and we view 2H11 as a better time to re-enter the sector as seasonality patterns play out. Keeping in step with our sector downgrade, we cut Unisem and MPI from 'outperform' to 'neutral' as we scale back our target prices for wider discounts to their historical P/BV.

The semiconductor sector had a turbulent ride in 2010. The first eight to nine months of the year were strong, driven by a combination of inventory restocking, high utilisation rates and robust demand. But the sector's fortunes began to erode towards the end of 3Q10 when the PC segment was buffeted by competition and the emergence of media tablets, and inventory correction kicked in. The tech sector and MPI began to correct and underperform the broader benchmark index. Unisem, however, defied that trend and outperformed largely due to its earnings outperformance.

While little has changed over the past month, we recognise that we were overly optimistic about the sector. The sector still looks weak. There is a mixed picture in the US as mainstream US retailers have reported disappointing sales though overall retail sales including online sales appear to have risen in December. We think that high unemployment will continue to constrain consumer spending.

Moreover, chip sales have declined for two consecutive months in October and November, equipment bookings and billings have been heading south and earnings guidance for the stocks under our coverage is uninspiring, at least for the near term.

Global lead indicators lend credence to our economics team's view of a slowing pace of growth in both advanced and emerging economies. Despite that, it believes that a second output contraction is unlikely though there is a 30% chance of a double-dip recession for the advanced conomies.

The stellar 2010 will make way for more moderate growth in 2011. Most market researchers expect chip sales to rise by 5% to 11%. Besides that, the PC segment is showing notable weakness and is a cause for concern given that it also consumes the most chips. ' CIMB Research, Jan 14


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