BURSA - Bursa raised to 'trading buy' at CIMB

Stock Name: BURSA
Company Name: BURSA MALAYSIA BHD
Research House: CIMB

Bursa Malaysia Bhd., the nation’s stock exchange manager, was upgraded at CIMB Investment Bank Bhd, which cited “better” earnings prospects on improved trading value in the stock market.

The stock’s rating was raised to “trading buy” from “neutral” and its share estimate increased to RM11.60 from RM8.64, Winson Ng Gia Yann, an analyst at CIMB, said in a report today. - Bloomberg

CIHLDG - Squeeze C I Holdings into your portfolio

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

C.I. Holdings Bhd
(Jan 27, RM3.60)
Maintain buy at RM3.51 with target price RM5.15: C I Holdings' (CIH) 2QFY11 from June net profit of RM11.3 million took 1H bottom line to RM23.1 million, which accounted for 54% of our full-year forecast and 53% of consensus estimate. We consider it to be broadly in line with expectations as 4Q is expected to be slow due to the absence of major festivities. Also not surprising is the interim dividend per share of five sen, higher than 1H10's four sen. We maintain our EPS forecasts and target price of RM5.15, pegged to an unchanged target market PER of 14.5 times. CIH remains a 'buy' and our top F&B pick, underpinned by the potential catalysts of an increasingly marketable product line and M&A. We view the recent share price weakness as a buying opportunity.

Net profit in 2Q11 jumped 43% year-on-year, aided mostly by new capacity and an aggressive distribution drive. The new RM45 million production line for non-carbonated drinks in Bangi started operations in September 2010 as scheduled. Tropicana Twister blackcurrant, which was unveiled in December 2010, is produced at the new facility. The extra capacity has also allowed the production of Lipton and Gatorade to be progressively taken back from contract packers to Bangi. Another major growth factor is a wider retail reach. As at June 2010, CIH's beverages are distributed at 42,000 outlets, an improvement over 36,595 as at June 2009. Fast-food outlets, hypermarkets and convenience stores make up CIH's major accounts. The company plans to expand its distribution outlets to 45,000 by June 2011.

The non-carbonated beverages led the double-digit year-on-year growth, with Tropicana remaining the bestseller. From a 20:80 sales split between non-carbonated and carbonated portfolios a few years ago, non-carbonated drinks made up about 40% of 2Q11 revenue, thanks to the popularity of Tropicana. With the start of the new production line in September 2010, CIH aims for a 50:50 sales contribution between non-carbonated and carbonated drinks over the next few years. ' CIMB Research, Jan 27


This article appeared in The Edge Financial Daily, January 28, 2011.

MHB - Malaysia Marine rated 'outperform'

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

Malaysia Marine & Heavy Engineering Bhd, the rig-building arm of MISC Bhd, was rated new "outperform" at Credit Suisse Group AG with a share estimate of RM7.15.

The company will benefit from high oil prices, which spurs demand for engineering and construction services, Annuar Aziz, an analyst at Credit Suisse, said in a report today. -- Bloomberg

KIMLUN - OSK Research initiates coverage of Kimlun, TP RM2.34

Stock Name: KIMLUN
Company Name: KIMLUN CORPORATION BERHAD
Research House: OSK

KUALA LUMPUR: OSK Research has initiated coverage on Kimlun with a BUY rating and RM2.34 TP (+34% upside) based on 12x mid CY12 earnings.

It said on Friday, Jan 28 that Kimlun's orderbook comprises fast-track jobs and has a clientele of reputable developers.

'Its use of the IBS (integrated building systems) CONSTRUCTION [] method gives it an advantage over traditional construction. Our proposition for the stock centers on three themes: Iskandar exposure, Singapore MRT expansion and the KL MRT. Kimlun is our top sector pick for small cap contractors,' OSK Research said.

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

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

KUALA LUMPUR: OSK Research said consistent with the general weakness in the stock market of late, SP Setia has been under heavy selling pressure, having fallen 10.7% from the peak of RM6.93 in two weeks.

The research house said on Thursday, Jan 27 as a result, SPSETIA-WB is now trading at a discount of 14 sen relative to its mother share, SP Setia.

'Hence, we believe there could be an arbitrage opportunity for the current shareholders of SP Setia. As an illustration, assuming that an existing shareholder now takes profit on the shares of SP Setia at a price of RM6.26, buys SPSETIA-WB at RM1.64 and then exercises the warrants at a conversion price of RM4.48, he/she will pocket a gross 14 sen, or 2.3% arbitrage gain.

'That notwithstanding, we maintain our BUY call on SP Setia with a price target of RM7.23 (cum), based on 3.1x CY11 P/NTA, the peak valuation it achieved in 2007,' it said.

CIHLDG - OSK Research maintains Buy on CI Holdings at RM3.51, TP RM4.47

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

KUALA LUMPUR: OSK Research said CI Holdings reported a respectable on-year revenue and earnings growth of 26% and 43% to RM300.2 million and RM23.1 million respectively for 1HFY11, which were within its and consensus forecasts.

The research house said on Thursday, Jan 27 the hearty numbers were mainly attributed to the beverage division. Despite spiralling raw material prices, EBIT margin improved by 1.1 percentage points on-year due to better cost efficiency, economies of scale, higher other operating income and stronger RM against USD.

'With the results being in line, we maintain our FY11 and FY12 earnings forecasts at RM42.3 million and RM48.5 million respectively. Maintain BUY at RM3.51,' it said.

SAPCRES - MIDF ups EPS estimate for SapuraCrest

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

MIDF Research has raised earnings per share (EPS) forecast for SapuraCrest Petroleum Bhd by 1.98 per cent to 20.12 sen, given its strong orderbook of nearly RM9 billion.

It has also increased the target price of the stock to RM3.95 from RM3.20 previously.

"SapuraCrest remains one of our sector's top picks given its strong order book and its dominance in the local drilling and installation of pipelines and facilities market with over 60 per cent share," it said in a note today.

It said SapuraCrest was one of the front-runners for the Cendor and Berantai projects.

"Given its good track record and ownership of strategic assets, SapuraCrest is also a potential beneficiary of Petroliam Nasional Bhd (Petronas) upcoming contracts," it said.

"Its unit, TL Offshore Sdn Bhd, was recently awarded a RM96 million contract from PC Myammar (HK) Ltd, a subsidiary of Petronas," it said.

MIDF said the contract was expected to contribute positively to SapuraCrest's earnings for financial year 2012. -- BERNAMA

PUNCAK - Puncak Niaga not likely to take the bait

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

Puncak Niaga Holdings Bhd
(Jan 27, RM2.55)
Maintain underperform at RM2.53 with fair value RM2.64: After receiving some clarifications from the Selangor Menteri Besar, Puncak Niaga on Wednesday released some details on the Selangor government's third offer of RM9 billion for the assets of all four water concessionaires in Selangor. At first glance, it may appear like a good deal for Puncak as the state government is undertaking the liabilities, but the numbers do not quite add up.

Among the terms is a clause that says the Selangor government will take over all the liabilities of Puncak Niaga (M) Sdn Bhd (PNSB) and Syarikat Bekalan Air Selangor (Syabas) as at Dec 31, 2009, subject to negotiation and due diligence (the state government will have the right to adjust the offer price based on its findings).

We note that the total liabilities of all the four water concessionaires alone amount to RM10.64 billion, assuming the state government extends the same terms to Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash) and Kumpulan Abass (Abass). Adding the equity portions payable for just PNSB and Syabas alone, as explained below, will increase the 'offer' to RM11.39 billion, which is well above the reported RM9 billion figure, and not yet factoring in equity portions for Splash and Abass.

We believe Puncak is unlikely to accept, as we estimate the state government's offer values Puncak at RM2.23, which is lower than our fair value. The state government valued the equity of PNSB at RM694.2 million (RM646.2 million payable to ordinary shareholders; RM48 million to preference shareholders). The equity of Syabas was valued at RM348.91 million (RM103.91 million payable to ordinary shareholders; RM245 million to loan stockholders).

We maintain our earnings forecast. The risks include: (i) whether compensation arising from the delayed 37% tariff hike is paid; (ii) the 37% tariff hike is granted; (iii) lower than expected variable costs, in particular chemical costs; and (iv) water sector restructuring completes earlier than expected.

We maintain our view that the water sector restructuring is not a stroll in the park given: (i) the pricing issue; and (ii) the tussle for the lucrative operation and maintenance (O&M) contract post the restructuring. Similarly, we continue to believe that the long overdue 37% scheduled tariff hike (or the 'compromise' 15% to 20% hike reported not too recently) is unlikely to happen anytime soon without the blessing of the Selangor government. Indicative fair value is maintained at RM2.64, at a 30% discount to its discounted cash flow-derived net present value of RM3.77 per share (based on WACC of 11.5%). Maintain 'underperform'. ' RHB Research Institute Sdn Bhd, Jan 27


This article appeared in The Edge Financial Daily, January 28, 2011.

SAPCRES - Myanmar just a foretaste of prolific orders to come for SapuraCrest

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

SapuraCrest Petroleum Bhd
(Jan 27, RM3.58)
Maintain buy at RM3.43 with fair value RM4.40: We reiterate our 'buy' call on SapuraCrest Petroleum Bhd (SapCrest) with an unchanged fair value of RM4.40 based on an FY12F PER of 22 times. The stock remains our top pick for the oil & gas sector for its attractive valuations, strong order book, re-acceleration of order book accretion and improving earnings delivery.

SapCrest has secured a fresh RM98 million (US$32 million) contract from Petronas' PC Myanmar (Hong Kong) Ltd to provide transport and installation of offshore facilities for Yetagun Phase 4 development in the Andaman Sea offshore Myanmar. Petronas has a 41% stake in the project while the other operators are JX Nippon Oil & Gas Exploration (19%), PTTEP (19%) and MOGE (20%).

The 40-day works, commencing in October or November 2011, involve the transport and installation of one booster compression platform. The Yetagun project, which lies at a water depth of 100m, includes 6,150-metric tonne topsides in three modules for the platform and a 4,650-tonne steel jacket, which are to be built by Thai Nippon Steel in Thailand and Batam Island. The gas is channelled into a cross-border pipeline running to Thailand.

As this is a shallow water project, we expect SapCrest to employ either LTS3000 (40:60 JV with Larsen & Toubro) or QP2000 (26:74 JV with Quippo and MDL) pipe lay construction vessels which were delivered in July last year. This is the first contract which SapuraCrest has secured this year after the US$160 million (RM504 million) Montara job in November 2010.

Assuming a pre-tax margin of 8%, we estimate that this contract will add 2% to FY12F earnings. For now, we maintain our forecasts pending the group's FY11 results in March. While this project will only add a slight 1% to the group's outstanding gross order book of RM9 billion, we believe that this is just a foretaste of the pipeline of massive new orders, given SapCrest's established capability in securing new jobs domestically and overseas.

SapCrest's share price has underperformed Dialog by -74% and Kencana by -29% since the beginning of 2010. The stock currently trades at an attractive CY11F PER only 18 times versus over 20 times for Dialog Group Bhd, Malaysia Marine and Heavy Engineering Sdn Bhd and Kencana Petroleum Bhd. We maintain our view that SapCrest is the favourite to secure offshore installation jobs from Petronas' prolific capex rollout, potentially up to RM40 billion this year. ' AmResearch Sdn Bhd, Jan 27


This article appeared in The Edge Financial Daily, January 28, 2011.

MPI - MPI posts better than expected earnings on lower operating expenses

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

Malaysian Pacific Industries Bhd
(Jan 26, RM5.55)
Upgrade to market perform at RM5.51 with revised fair value RM5.96 (from RM5.17): MPI's 6MFY11 core net profit of RM51.1 million (+17.6% year-on-year) was above our expectations but in line with consensus, accounting for 59.2% and 52% of our and consensus full-year estimates. This was mainly due to lower than expected operating expenses as we had anticipated higher costs on the back of rising raw material costs.

Revenue in 2Q was flat (-0.8% quarter-on-quarter) while earnings before interest, tax, depreciation and amortisation (Ebitda) margins fell by only 0.2 percentage point to 22.8% (1Q: 23%). However, due to the higher minority interest of RM6.7 million (1Q: RM5.3 million), net profit fell by 2.1% q-o-q but this was partially offset by a lower effective tax rate of 8.2% (1Q: 10.4%).

MPI is optimistic on the demand for its X3-MLP (micro leadframe packages) as these are highly used in space-constrained devices. We are positive on these developments as they will raise MPI's exposure to fast-growing segments such as mobile devices and tablet computers. Recall that MPI had already shipped 25 million units per month in December 2010 from less than one million per month in April 2010.

Risks to our view include: (i) slower than expected economic recovery dampening demand for equipment and consumer electronics; (ii) strengthening of the ringgit against the US dollar; and (iii) higher raw material costs.

We are raising our FY11/13 net profit by 21.6%, 10.5% and 10.4% respectively mainly to reflect: (i) reduction in operating expense assumptions as we expect MPI will be able to partially pass on raw material costs to customers in addition to higher conversion to copper wire bonding from gold wire bonding; (ii) imputing higher contribution for its module packages; and (iii) adjustments to our forecasts.

We are more optimistic on the near-term outlook on the industry as MPI's resilient earnings have alleviated our concerns of a potential capacity glut. We had expected a sharper sequential decline given the less optimistic guidance by management, which we believe implies a faster than expected inventory correction by its customers.

Going forward, we believe MPI's earnings should remain resilient driven by stronger than expected demand for MLP and micro-electro-mechanical systems packages. Post revision in earnings, our fair value is raised to RM5.96 (from RM5.17) based on 11 times CY11 EPS. Therefore, we are upgrading our recommendation to 'market perform' (from underperform). ' RHBRI, Jan 26


This article appeared in The Edge Financial Daily, January 27, 2011.

MASTEEL - Masteel: All eyes on rail project

Stock Name: MASTEEL
Company Name: MALAYSIA STEEL WORKS (KL)BHD
Research House: OSK

Malaysia Steel Works (KL) Bhd
(Jan 26, RM1.28)
Downgrade to neutral at RM1.30 with revised higher target price RM1.33 (from RM1.22): On Jan 19, Malaysia Steel Works (Masteel) and KUB Malaysia Bhd announced to Bursa Malaysia that they will be entering into a heads of joint venture agreement to form a JV company that has proposed to supply to and operate a rail transit network within Iskandar Malaysia and Woodlands in Singapore spanning some 106.5km.

The project cost is estimated at RM1.35 billion. We attended the briefing on Jan 21, during which Masteel managing director Datuk Seri Tai Hean Leng updated analysts and fund managers on the latest developments.

Undoubtedly, implementing the proposed rail transit network will ease traffic congestion, improve the existing public transport infrastructure and act as a backbone for efficient commuting in Johor Baru, especially within the Iskandar development region. Nonetheless, we do not see any immediate earnings contribution as we expect discussions with the relevant authorities to take time.

Negotiations on the concession-type project, particularly since this is the first of its kind in the country, will obviously require many rounds of deliberations before being firmed up. Tai hopes discussions can be completed by end-2011, and the rail transit system to be ready for operation no later than 2013.

As infrastructure and public transport are new areas of endeavour for Masteel, it would be fair for us to assume greater investment risk. We prefer to monitor the developments before incorporating this project into our earnings model.

However, we are happy that the earnings from the company's bread and butter steelmaking business have beaten its bigger peers. As its 3QFY10 core numbers were exceptionally strong, we see reasonably good 4Q earnings, albeit a bit lower quarter-on-quarter.

As we think investors will appreciate the commendable earnings from its core business, we bump up our target PER by a notch to six times from five times but retain our price-to-net tangible assets ratio of 0.59 times based on FY11 numbers. This raises our fair value to RM1.33.

However, as the share price has run ahead of the proposed rail project and now offers limited upside to our new fair value, we downgrade Masteel from 'trading buy' to 'neutral'. ' OSK Investment Research, Jan 25


This article appeared in The Edge Financial Daily, January 27, 2011.

MBMR - 'Nay' to forced merger in automotive sector

Stock Name: MBMR
Company Name: MBM RESOURCES BHD
Research House: MAYBANK

Automotive sector
Maintain neutral: The proposed merger between Proton and Perodua has been called off. This is not a setback. We have previously argued that the government-driven merger exercise offered minimal operational synergies. A loose collaboration without equity swap makes more sense. Local automakers need to look beyond the domestic market to remain relevant and competitive. We remain 'buyers' on Proton and MBM on undemanding valuations and 'holds' for UMW and Tan Chong.

The government will not force the merger between Proton and Perodua. Any solutions or proposals need to be agreed by both stakeholders. A study, sanctioned by the government, of the possible merger has been carried out by Frost & Sullivan. Its findings were submitted to the prime minister and Cabinet for consideration.

We have previously argued that this merger offers minimal operational synergies. We believe the merger is driven largely by the need to create market size, which in turn will enable shareholders to crystalise higher valuations on their stakes, depending on the pricing for the merger.

The Proton-Perodua merger, in our view, had to clear many hurdles, which involve pricing, stakeholders' role post-merger and operational synergies.

Notwithstanding that, forcing through a merger could see Daihatsu (Perodua's partner) exiting Malaysia and relocating its operations to Thailand or Indonesia.

The domestic market is near saturation point with demand growth projected to slow to 2% to 3% in 2011. Perodua, whose business model appeals more in a rising petrol price environment, will embark on a five-year road map. Proton has turned around, operationally and financially, but it needs to break into the regional market to remain competitive and relevant. This could happen through strategic partnerships with regional carmakers. ' Maybank IB Research, Jan 26


This article appeared in The Edge Financial Daily, January 27, 2011.

DAYANG - Dayang maintaining the edge

Stock Name: DAYANG
Company Name: DAYANG ENTERPRISE HOLDINGS BHD
Research House: RHB

Dayang Enterprise Holdings Bhd
(Jan 25, RM2.84)
Maintain outperform at RM2.85 with revised fair value RM3.54 (from RM3.36): The company is looking ahead and has high hopes of winning at least one of the upcoming topside maintenance contracts from Petronas. Worth a cumulative RM2 billion, the largest of the packages is for Sarawak at RM1 billion, while the Peninsular and Sabah packages are believed to be valued at RM500 million each. Assuming Dayang is successful, its order book will nearly double to RM1.86 billion.

Post the rights and bonus issuance plus the disposal of Borcos, we expect to see the company's cash pile growing to nearly RM300 million. We believe the surplus cash will first be utilised for the company's fleet expansion to beef up its core operations for the upcoming topside and maintenance contracts. We believe the company is also looking to purchase a work barge, given that its current fleet is mainly work boats.

We believe a tie-up with another offshore marine vessel party is unlikely in the near term. We foresee continual earnings pressure for such companies at least until mid-2011 as charter rates have yet to improve and vessel capacity is still ample. However, we would not rule out the possibility of M&As within the industry (e.g. Petra Energy and Shapadu).

We have assumed that the company will secure RM800 million of new wins in FY11. In terms of revenue recognition, we have assumed that the new

projects will start mid of CY11, and work on topside maintenance will be frontloaded to CY12 and CY13. We have also reincorporated the RM8 million of associate earnings into our FY10 forecasts as the Borcos disposal should only come into effect in April FY11. Our changes correspondingly result in our net earning estimates for FY10/12 increasing by 10.6%, 5.4% and 0.1% respectively.

Risks include high dependence on Petronas contracts leading to minimal control in project phasing and no contract replenishment which will hamper net earnings growth.

Overall, we still like the company for: (i) its position as one of the main brownfield/topside maintenance players in Malaysia; and (ii) its solid earnings track record thus far, which will continue to support its order book replenishment going forward. Based on our revised earnings forecasts, we estimate a new fair value of RM3.54 based on 15 times CY11 PER (from RM3.36 previously), which suggests an upside of 24.4% from the current share price. We thus maintain our 'outperform' call on the stock. ' RHB Research Institute Sdn Bhd, Jan 25


This article appeared in The Edge Financial Daily, January 26, 2011.

PBBANK - HDBSVR maintains Hold on Public Bank, TP RM13.10

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

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) is maintaining its Hold recommendation on PUBLIC BANK BHD [] and a target price of RM13.10 following the full-year earnings.

It said on Wednesday, Jan 26 Public Bank remains a Hold for its expensive valuation which is 3.4 times book value '(which is +2SD vs sector average of 2.3x), coupled with flat returns on equity (ROE) and net interest margin (NIM) compression ahead'.

HDBSVR said it expected dividend payout ratio to remain at 52%, translating into 4%-5% yields.

'As for the outlook for 2011,'' we expect loan growth to remain robust supported by the domestic market. Accordingly, we raised FY11-12F loan growth assumptions to 13-14% (from 12%). We expect competitive pressure in the consumer (HP and mortgages) and commercial segments to continue to squeeze NIM,' it said.

Analysing Public Bank's financial results, it said net interest income grew 2% on-quarter driven by 3% loan growth. NIM was flat at 2.2%. Non-interest income grew 3% driven mainly by its unit trust business.'' Loan provisions fell 29% in the absence of non-recurring provisions that were booked in 3Q10. Overheads rose 6% in the quarter due to higher staff costs, but cost-to-income ratio fell to 30%, implying better operating efficiency.

For full year FY10, loans grew 13.8% and were largely domestic driven (+15.6%). Mortgages and hire purchase (HP) remained the key loan growth drivers, rising 17% and 12% yoy, respectively. Tier-1 CAR inched up to 12.4% and RWCAR to 13.3%.

The group declared 25 sen second interim DPS (less 25% tax) and single tier 8 sen DPS, bringing FY10 total DPS to 58 sen or 52% payout, within HDBSVR's expectations.

PBBANK - Public Bank 2011 outlook positive: Kenanga

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

Kenanga Research expects Public Bank Bhd's outlook for 2011 to remain positive as the bank is well positioned to meet the challenges of a rising interest rate, low duration bond book and least asset risks.

The research firm said the bank's management has started managing its interest rate risk with the aim of growing fees income by 30 per cent year-on-year in financial year 2011.

"We believe the driver of earnings growth has shifted to fee incomes, instead of interest incomes previously," Kenanga Research said in a research note today.

"We believe non-interest income will focus on retail-driven fee growth and product expansion, with perhaps a better year for bancassurance and fund management," it added.

Kenanga Research has upgraded its rating for Public Bank to "buy" from "hold" previously and raised the target price to RM14.80.

"We believe this is justified due to its track record on earnings growth and high return on equity (RoE) target," it said.

Research firms, ECM Libra and AmResearch, have maintained their "hold" recommendation on Public Bank.

"We maintain our hold call but raise our target price to RM14.20 from RM13.30, as we rollover our valuations, to end current financial year 2011.

"Going forward, we are cautious on earnings and loans growth prospects which may be dampened by the rising loan-deposit ratio, as well as the need to preserve capital under new Basel III rules," ECM Libra said.

AmResearch is maintaining its "hold" recommendation on Public Bank with an unchanged fair value of RM14.30 per share.

The research firm said, while Public Bank has turned in a good performance, it still believes the stock will likely be traded in accordance with its dividend.

"We think the stock will rerate only on a significantly stronger-than-expected dividend.

"We also expect the dividend to continue to rise, but by a marginal pace as seen in financial year 2010, as core equity ratios will likely limit the upside to dividends," it explained.

Another research firm, MIDF Research, has maintained its neutral recommendation on Public Bank considering the upside for the stock is less than 15 per cent.

The research firm also maintained the target price for the bank at RM13.90.

Public Bank has posted a record pre-tax profit of RM4.086 billion for the year-ended Dec 31, 2010, an increase of 23 per cent from the RM3.321 billion registered in 2009.

The profit was achieved over a bigger revenue of RM11.035 billion achieved last year against the RM9.715 billion chalked up previously.

Its stellar performance was driven by the strong growth in net interest and finance income and higher non-interest income coupled with lower loan impairment allowances.

-- BERNAMA

THPLANT - RHB Research: TH Plantations undervalued stock

Stock Name: THPLANT
Company Name: TH PLANTATIONS BHD
Research House: RHB

KUALA LUMUR: RHB Research said TH PLANTATION []s Bhd remains an undervalued stock which would appeal to both growth and defensive investors.

The research house, which reiterated its Outperform recommendation, said on Wednesday, Jan 26 it had adjusted its earnings for FY10-12 by +2.8%, -3.5% and -3.7%, respectively.

'Based on an unchanged target PE of 11x FY11, our fair value is trimmed to RM2.70 (from RM2.80). This implies an upside of 33%, which does not even include its attractive dividend yield of 4.5-7.5% per annum,' it said.

RHB Research said TH Plantations' FY10 fresh fruit bunches (FFB) yield was below expectations, but more than offset by higher-than-expected oil extraction rate.

Among the key takeaways from its meeting with the company, it said the management targeted 15% annual FFB production growth for next five years, despite higher replanting targets for 2011; some CPO sold forward for FY11 while management fees were expected to grow by 10% per annum, purely from volume growth alone.

'We understand that THP is currently in advanced stages of negotiation to acquire two pieces of landbank, one in Indonesia and one in Sarawak, and intends to complete at least one acquisition by end-1H2011, with another potentially, by end-2011 or if not, early 2012. These acquisitions will not be an injection of land by Tabung Haji, but independent acquisitions by THP.

'The landbank under consideration is a piece of brownfield land in Indonesia (East Kalimantan) and a piece of greenfield land in Sarawak. Assuming each is about 10,000ha (which is the minimum landbank size that THP would consider for any acquisition), there is a possibility that THP's total landbank size could grow by 50% by year-end, although total planted landbank may only grow by 25%,' it said.

MPI - OSK Research maintains Sell on MPI at RM5.51

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

KUALA LUMPUR: OSK Research said MALAYSIAN PACIFIC INDUSTRIES [] Bhd's (MPI) annualised 1HFY11 earnings were within market consensus but 9.4% below its estimate, mainly due to its lower higher effective tax rate assumption.

The research house said on Wednesday, Jan 26 MPI's quarterly revenue continued to drop on-quarter for the second consecutive quarter while earnings growth declined from the triple digits on-year rate seen in FY10 to 45.4% in the previous quarter and finally -1.7% in 2QFY11.

'In terms of recommendation, in view of the 13% downside to our fair value, we maintain our Sell call,' it said. It has a Sell call at RM5.51 and target price of RM4.75.

The chip maker posted marginally lower earnings of RM25.29 million in the second quarter ended Dec 31, 2010 when compared with RM25.71 million a year ago. Its revenue increased 6% to RM367.59 million versus RM345.57 million. ''Its earnings per share were 13.05 sen compared with 13.19 sen a year ago.

MPI said the pretax profit of RM34.84 million against RM33.06 million a year ago, despite the higher revenue was mainly due to the strengthening ringgit against the US dollar.

PBBANK - Public Bank's high bar performance priced in

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

Public Bank Bhd
(Jan 26, RM13.36)
Maintain hold at RM13.34 with fair value RM14.30: We are maintaining our 'hold' call on Public Bank Bhd (PBB) with an unchanged fair value of RM14.30. This is based on our FY11F return on equity estimate of 24.6%, leading to fair price to book value of 3.7 times.

PBB reported a commendable +8.1% quarter-on-quarter and +24.8% year-on-year increase in 4QFY10 net earnings to RM846.2 million. This takes FY10 net earnings to RM3.05 billion, which is 8.1% above our forecast and 3% above consensus earnings. The main surprise for us is in the stronger non-interest income (+5.3% variance), due mainly to the better than expected performance from the unit trust division.

In addition, PBB managed to surprise marginally with a final gross dividend per share (GDPS) of 25 sen and a special tax-exempt dividend of 8 sen, which in total would be above our estimated final GDPS of 30 sen per share.

Taking into account the earlier announced interim GDPS of 25 sen per share, the total GDPS for FY10 would be 58 sen per share, higher than FY09's 55 sen (net DPS FY10: 45.5 sen; FY09: 41.25 sen). This would also be higher than our estimated 55 sen FY10F and consensus' 56 sen per share. Net dividend payout ratio was 52.7% FY10, in line with earlier guidance.

The company says the dividend payout ratio will likely remain within the 52% level seen in 2010, which we think is the lower end of the earlier stated dividend policy range of 50% to 55%. PBB reiterated that assuming a 15% rise in loans growth and dividend payout policy being maintained at 50% to 55%, its core equity ratio will likely be around 7.8% to 7.9% by 2019. This is just marginally above the required 7% level by 2019.

While it does look like PBB's core equity ratio will be above the minimum requirement, this is further dependent on the level of the counter cyclical capital conservation buffer that may be eventually set by local regulators.

While PBB has turned in a good performance, we still believe the stock will likely trade in accordance with its dividend. We think the stock will re-rate only on a significantly stronger than expected dividend. We expect dividends to continue to rise, but by a marginal pace as seen in FY10, as core equity ratios will likely limit the upside to dividends.

We remain neutral on PBB and maintain our 'hold' recommendation with unchanged fair value of RM14.30. ' AmResearch, Jan 26


This article appeared in The Edge Financial Daily, January 27, 2011.

PROTON - 'Nay' to forced merger in automotive sector

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

Automotive sector
Maintain neutral: The proposed merger between Proton and Perodua has been called off. This is not a setback. We have previously argued that the government-driven merger exercise offered minimal operational synergies. A loose collaboration without equity swap makes more sense. Local automakers need to look beyond the domestic market to remain relevant and competitive. We remain 'buyers' on Proton and MBM on undemanding valuations and 'holds' for UMW and Tan Chong.

The government will not force the merger between Proton and Perodua. Any solutions or proposals need to be agreed by both stakeholders. A study, sanctioned by the government, of the possible merger has been carried out by Frost & Sullivan. Its findings were submitted to the prime minister and Cabinet for consideration.

We have previously argued that this merger offers minimal operational synergies. We believe the merger is driven largely by the need to create market size, which in turn will enable shareholders to crystalise higher valuations on their stakes, depending on the pricing for the merger.

The Proton-Perodua merger, in our view, had to clear many hurdles, which involve pricing, stakeholders' role post-merger and operational synergies.

Notwithstanding that, forcing through a merger could see Daihatsu (Perodua's partner) exiting Malaysia and relocating its operations to Thailand or Indonesia.

The domestic market is near saturation point with demand growth projected to slow to 2% to 3% in 2011. Perodua, whose business model appeals more in a rising petrol price environment, will embark on a five-year road map. Proton has turned around, operationally and financially, but it needs to break into the regional market to remain competitive and relevant. This could happen through strategic partnerships with regional carmakers. ' Maybank IB Research, Jan 26


This article appeared in The Edge Financial Daily, January 27, 2011.

AIRASIA - 4Q operating stats the best by far for AirAsia

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: OSK

AirAsia Bhd
(Jan 25, RM2.66)
Maintain buy at RM2.82 with target price RM3.78: AirAsia posted sterling operating stats for Q4, making it the strongest quarter ever for the low-cost carrier (LCC). During the quarter, revenue per kilometre shot up 20.6%, 9.7% and 17.6% year-on-year (y-o-y) for Malaysia, Thailand and Indonesia respectively, accompanied by strong load factors of 82%, 80% and 78%. The number of passengers carried for Malaysia and Thailand surged 11.1% and 13.2% y-o-y respectively while that for Indonesia was 6.5% y-o-y, which we think was due to the flight disruptions caused by volcanic ash spewed from Merapi's eruption.

On a full-year basis, passengers carried on the Malaysian side came close to our forecasts, falling short by only 2% of our full-year estimate although we note that we have been a little too optimistic on AirAsia's associates given that their passengers carried missed our full-year estimate by 5%.

AirAsia is studying the possibility of a dual listing in more developed markets such as the United States or Hong Kong given the demand for its shares from foreign investors. This is also to enhance its ability to fetch a relatively higher valuation as AirAsia is possibly the world's cheapest airline in the LCC category. We are neutral on this development as typically a dual listing does not give rise to additional benefit in the longer term but incurs higher listing cost.

The airline's last reported foreign shareholding stood at 51.55% although this is likely to level off after the departure of some foreign funds yesterday, which led to the share price dropping by as much as 8% in the morning.

We believe this exodus was triggered by the shift in asset allocation by portfolio managers since from a fundamental valuation stand-point, AirAsia is still a compelling stock to own. We advise investors to take the opportunity to accumulate this company's shares after yesterday's sell-off.

Although AirAsia's passenger numbers missed our forecast slightly (2% on AirAsia Malaysia and 5% on its 2 associates), we still retain our earnings estimates at this juncture as we believe that the strong passenger yields garnered in the peak Q4 season will push its earnings closer to our full-year forecast.

Maintain 'buy' on AirAsia, with our target price unchanged at RM3.78, premised on the global LCC peer average 12 times PE. ' OSK Investment Research Sdn Bhd, Jan 25


This article appeared in The Edge Financial Daily, January 26, 2011.

IJMPLNT - Opportunity to accumulate IJM Plantations stocks

Stock Name: IJMPLNT
Company Name: IJM PLANTATIONS BHD
Research House: MIDF

IJM Plantations Bhd
(Jan 25, RM2.95)
Upgrade to buy at RM3 with target price RM3.52: IJM Plantations' (IJMP) share price has retraced by 2.6% year-to-date. We believe that this presents a good buying opportunity as we expect the CPO price to remain on the uptrend given the strong demand and supply fundamentals. We are also sanguine on the future performance of IJMP as 60% of the planted areas are prime mature trees. Based on our target price of RM3.52 and the expected dividend yield of 3.05%, we are expecting a total potential upside of 20.35%.

Given the better prospects for the CPO price moving forward, the return on equity for IJMP is expected to improve to 9.2% and 9.5% in FY11 and FY12 respectively, from a low of 6.6% in FY10.

We are expecting 308ha of Indonesian estates to start producing in FY12 and this would translate into 7.4% increase in fresh fruit bunch (FFB) production.

The FFB yield is estimated to increase by 3.1% year-on-year to 25 tonnes per hectare as the weather is expected to recover in 2HFY11.

We believe that the CPO price will continue its rising trend supported by the strong fundamental of stable demand coupled with the shortfall in supply. We maintain our target industry mean price at RM3,400 per tonne and realised CPO selling price for IJMP of RM3,247 per tonne and RM3,510 per tonne in FY11 and FY12 respectively.

IJMP's price retracement is due to profit-taking and not caused by an adverse shift in the company's fundamentals. This provides a buying opportunity to accumulate IJMP stock. We are upgrading IJMP to a 'buy' from 'neutral' with unchanged target price of RM3.52. The target price is pegged at 17.5 times EPS 12, based on its five-year historical PER. 'MIDF Research, Jan 25


This article appeared in The Edge Financial Daily, January 26, 2011.

AIRASIA - AirAsia valuations remain 'attractive'

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: CREDIT SUISSE

AirAsia Bhd’s prospects are “positive” and the Southeast Asian budget carrier will benefit from the upswing in the aviation industry, according to Credit Suisse Group AG.

“Valuations remain attractive,” Annuar Aziz, an analyst at Credit Suisse, said in a report today.

He kept his “outperform” rating on the stock with a share estimate of RM4.30 after AirAsia announced yesterday that it carried 13.1 per cent more passengers in 2010 compared with a year earlier.

The stock slid 2.1 per cent to RM2.76 at 10.31 am local time. It earlier gained as much as 1.8 per cent. Today’s decline extended a two-day, 5.7 per cent slump.

The shares, which have doubled in the past one year, are headed for their lowest close since January 11. -- Bloomberg

PANTECH - Better prospects ahead for Pantech

Stock Name: PANTECH
Company Name: PANTECH GROUP HOLDINGS BHD
Research House: OSK

Pantech Group Holdings Bhd
(Jan 24, 66 sen)
Upgrade to trading buy at 64 sen with target price revised to 79 sen (from 78 sen): We recently visited Pantech Steel Industries, the manufacturing arm of Pantech Group, in Klang. Adrian Tan, group executive director, updated us on the group's current undertakings and future plans.

Pantech is expected to release its results this week. We suspect the sluggishness in O&G activity could possibly drag its second half numbers lower than they were in the the first half. We believe that the expenses arising from its Esos as well as costs incurred from its bonus issue and rights issue of Iculs with free detachable warrants dragged down earnings in 3Q. We revise downwards our full-year bottomline estimates by 26.4% to RM31.1 million for FY11 after adjusting our earnings for a possibly weaker third quarter.

While we remain cautious on the near-term outlook, the company's medium- and longer-term prospects look brighter on anticipation of healthy news flows and contract announcements in the O&G sector for 2HFY11.

Pantech, being strategically positioned as a one-stop-solution supplier of pipes, fittings and flow controls for the O&G sector, stands to benefit from these developments. Pantech's new plant in Pasir Gudang is slated for initial commissioning in March or April this year to produce stainless steel pipes and fittings, with an initial output of 500 to 600 tonnes a month in FY12. In view of these positive developments, we have bumped up our FY12 profit after tax estimates by a slight 2.6% to RM50.9 million.

From this, we derive our target price of 79 sen from seven times FY12 EPS, and upgrade Pantech to a 'trading buy' from 'neutral'. ' OSK Investment Research, Jan 24


This article appeared in The Edge Financial Daily, January 25, 2011.

DAYANG - Dayang maintaining the edge

Stock Name: DAYANG
Company Name: DAYANG ENTERPRISE HOLDINGS BHD
Research House: RHB

Dayang Enterprise Holdings Bhd
(Jan 25, RM2.84)
Maintain outperform at RM2.85 with revised fair value RM3.54 (from RM3.36): The company is looking ahead and has high hopes of winning at least one of the upcoming topside maintenance contracts from Petronas. Worth a cumulative RM2 billion, the largest of the packages is for Sarawak at RM1 billion, while the Peninsular and Sabah packages are believed to be valued at RM500 million each. Assuming Dayang is successful, its order book will nearly double to RM1.86 billion.

Post the rights and bonus issuance plus the disposal of Borcos, we expect to see the company's cash pile growing to nearly RM300 million. We believe the surplus cash will first be utilised for the company's fleet expansion to beef up its core operations for the upcoming topside and maintenance contracts. We believe the company is also looking to purchase a work barge, given that its current fleet is mainly work boats.

We believe a tie-up with another offshore marine vessel party is unlikely in the near term. We foresee continual earnings pressure for such companies at least until mid-2011 as charter rates have yet to improve and vessel capacity is still ample. However, we would not rule out the possibility of M&As within the industry (e.g. Petra Energy and Shapadu).

We have assumed that the company will secure RM800 million of new wins in FY11. In terms of revenue recognition, we have assumed that the new

projects will start mid of CY11, and work on topside maintenance will be frontloaded to CY12 and CY13. We have also reincorporated the RM8 million of associate earnings into our FY10 forecasts as the Borcos disposal should only come into effect in April FY11. Our changes correspondingly result in our net earning estimates for FY10/12 increasing by 10.6%, 5.4% and 0.1% respectively.

Risks include high dependence on Petronas contracts leading to minimal control in project phasing and no contract replenishment which will hamper net earnings growth.

Overall, we still like the company for: (i) its position as one of the main brownfield/topside maintenance players in Malaysia; and (ii) its solid earnings track record thus far, which will continue to support its order book replenishment going forward. Based on our revised earnings forecasts, we estimate a new fair value of RM3.54 based on 15 times CY11 PER (from RM3.36 previously), which suggests an upside of 24.4% from the current share price. We thus maintain our 'outperform' call on the stock. ' RHB Research Institute Sdn Bhd, Jan 25


This article appeared in The Edge Financial Daily, January 26, 2011.

KOSSAN - Kossan is as good as it gets

Stock Name: KOSSAN
Company Name: KOSSAN RUBBER INDUSTRIES BHD
Research House: BIMB

Kossan Rubber Industries Bhd
(Jan 25, RM3.18)
Maintain buy with target price RM4.28: Kossan recorded a significantly higher revenue and net profit for 9MFY10 compared with the same period in FY09.

Revenue surged by 30% year-on-year while net profit rose even more strongly, jumping 54% year-on-year (y-o-y) to RM41.3 million from RM26.8 million recorded in 9MFY09. The higher net profit and revenue were lifted by higher sales volume and selling price, in tandem with the higher latex price and weaker US dollar against the ringgit. In addition, a good strategic move by the company to focus more on better margin products (such as nitrile gloves) has benefited its bottom line as the current cost for nitrile is more stable than the cost of latex which skyrocketed in 2010.

Kossan recorded an impressive 90% to 95% utilisation rate in FY05 to FY09 thanks to its strategy of supplying rubber gloves at optimum level. Thus, we foresee the company will benefit from any normalising of demand in the glove industry. Admittedly, there have been some oversupply issues as a result of normalising demand as distributors increased their inventory during the'' H1N1 influenza A outbreak last year. However, we believe demand will keep growing in the coming years. Thus, Kossan is aiming to add more production lines, a growth of 10% to 30% for FY11 and FY12. This will help the company to cater for the rising global demand that is expected to grow by 8% to 10% in FY10/FY12.

Other than the gloves division, the technical rubber products (TRPs) division has contributed to Kossan's earnings. This segment contributes about 20% of the group's annual revenue. For the cumulative 9MFY10 period, this division contributed RM5.9 million (against RM1.6 million in 9MFY09) to its bottom line as demand from industrial sectors has shown encouraging improvement recently. This segment will benefit from the turnaround in the auto sector, especially from the large exporting countries. Close to 60% of TRPs sales are meant for export while the remaining 40% are sold domestically.

With up to 99% focus on the medical sector, it is not surprising to learn that the nitrile gloves segment has been contributing around 80% of Kossan's total revenue. Currently, more than 40% of its production mix comes from nitrile and powder-free, with the balance 20% from the powdered latex gloves. The company will eventually increase its production mix to 50% nitrile gloves due to the low raw material cost compared with latex. In addition, the volatility of the latex price, especially for latex-based powdered and powder-free gloves, and the uncertain future latex price will drive customers to demand more nitrile gloves as the price is more stable. However, the company will still provide latex-based gloves as the demand for such gloves is higher than for nitrile gloves.

We are keeping our forecast unchanged as updates from management are largely in sync with our assumptions. We maintain our 'buy' call on this counter with target price of RM4.28 based on an unchanged target PER of 10 times (at a 10% discount to Kossans three-year average PER of 11 times) to FY11 EPS of 42.8 sen. We remain positive on the industry's demand side as this will be underpinned by: (i) the expected growth in the global demand for rubber gloves by 8% to 10% in FY10-FY12 on the back of resilient demand from the healthcare segment; and (ii) the expected liberalisation of the healthcare industry in major economies, especially China and India to be followed by other countries in the Americas, which would drive higher private healthcare spending. ' BIMB Securities Research, Jan 27


This article appeared in The Edge Financial Daily, January 28, 2011.

AIRASIA - HLIB Research maintains Buy on AirAsia, TP of RM3.46

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: HLG

KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research is maintaining a Buy on AIRASIA BHD [] with a target price of RM3.46 based on sum-of-parts, to better reflect Airasia's valuation post IPO exercises of associates and investment.

The research house said on Tuesday, Jan 25 AirAsia will continue to stand out against other regional LCCs and FSCs due to its strong brand name, large networks and low operating cost structure.

On Monday, AirAsia announced strong growth in 4Q10 operating statistics with continued high passenger load factor.

HLIB Research said the low-cost carrier's full year operating statistics were inline with its FY10 assumptions.'' AirAsia reported +20.6% yoy growth in RPK (demand) and +9.7% yoy in ASK (supply). Passenger load factor at historical high of 82.5%.

'The strong growth achieved by AirAsia group confirms our view of the potential growth of LCC market in Southeast Asia, due to regional economic growth and the emerging trend of air travels,' it said.

DAYANG - RHB Research ups Dayang FV to RM3.54

Stock Name: DAYANG
Company Name: DAYANG ENTERPRISE HOLDINGS BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining its Outperform call on Dayang Enterprise Bhd with a new fair value of RM3.54'' a share based on 15x CY11 PER (from RM3.36 previously at an unchanged target PER).

It said on Tuesday, Jan 25 Dayang has high hopes of winning at least one of the upcoming topside maintenance contracts which are worth a cumulative RM2 billion (Sarawak: RM1 billion; Peninsular and Sabah: RM500 million).

'Assuming Dayang is successful its order book will increase by nearly twofold to RM1.86 billion.'' We expect the company's cash pile to grow to nearly RM300 million after its rights issue and Borcos stake divestment. This will most likely be utilised for fleet expansion, to beef up its core operations for the upcoming topside and maintenance contracts. For M&A possibilities we expect the company to look within the industry (e.g. Petra Energy, Shapadu) instead of diversifying into another business (marginal oilfield),' it said.

RHB Research Institute increased its net earnings estimates for FY10-12 by 10.6%, 5.4% and 0.1% respectively on the back of new contract wins of RM800m in FY11.

'Overall we still like the company for: 1) its position as one of the main brownfield/topside maintenance players in Malaysia; and 2) its solid earnings track record thus far, which will continue to support its order book replenishment going forward,' it said.

GAB - Guinness jumps on bullish sales forecast

Stock Name: GAB
Company Name: GUINNESS ANCHOR BHD
Research House: OSK

Guinness Anchor Bhd, Malaysia’s second-biggest brewer, jumped to a 26-month high in Kuala Lumpur trading after OSK Research Sdn Bhd predicted “healthy” earnings and “bullish” sales this year after meeting management.

The stock climbed 6.2 per cent to RM10.62 at 9:17 a.m. local time, set for its biggest gain since November 2008.

OSK raised its share estimate to RM9.97 from RM7.97 in a report in Kuala Lumpur today. -- Bloomberg

DIGI - DiGi raised to 'buy' at UOB Kay Hian

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

DiGi.Com Bhd, a Malaysian mobile phone operator, was raised to “buy” from “hold” at UOB Kay Hian Group, which said fourth-quarter earnings may exceed consensus estimates.

The share estimate for the stock was increased to RM27.90 from RM24.40, UOB Kay Hian said in a report today. DiGi.Com may report earnings on Jan. 28, it said. -- Bloomberg

MRCB - Buy Malaysian Resources: HwangDBS

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

One of the best news for Malaysian Resources Corp Bhd (MRCB)is the RM1.2 billion Lot D project that had received approval from the Ministry of Housing for completion in 48 months vs the mandated 36 months, says HwangDBS.

"This means a possible launch in mid-2011 to diversify MRCB’s earnings away from construction, which dominated financial year 2009- 2010 forward earnings (50-75 per cent of EBIT)," adds HwangDBS.

HwangDBS expects the take-up to be strong with at RM1,000-RM1,200 per square feet, which is a discount to the adjacent St Regis.

"This will also coincide with the launch of its strata offices at Lot B (RM1.2 billion in gross development value). Abouit 30 per cent has been sold to committed buyers," HwangDBS said

HwangDBS, however understands that there is no firm commitment for a mass rapid trnsport (MRT) station at KL Sentral, but possibly one at the Museum nearby.

Given the strengthening KL Sentral franchise, Rubber Research Institure Malaysia (RRIM) land project and its robust contract flows in 2011. HwangDBS recommends MRCB a 'buy' with target price of RM3.05 (with a 41 per cent upside). - Reuters

GAB - OSK Research ups Guinness Anchor TP to RM9.97

Stock Name: GAB
Company Name: GUINNESS ANCHOR BHD
Research House: OSK

KUALA LUMPUR: OSK Research expects GUINNESS ANCHOR BHD [] (GAB) to post another set of healthy earnings for FY11.

'Although we did not make changes in our sales forecast following our last visit to the company, we are however lowering our operating cost assumption based on cheaper raw materials and lower excise duties,' it said on Tuesday, Jan 25.

OSK Research said the resulting higher earnings estimates and lower WACC assumption to 7.8% from 8.8% buoys our DCF target price to RM9.97 from RM7.97 previously.

'GAB is maintained a NEUTRAL. Given our revised dividend assumption, the stock will provide a net yield of 4.9% for FY11,' it said.

PANTECH - Pantech a 'trading buy': OSK

Stock Name: PANTECH
Company Name: PANTECH GROUP HOLDINGS BHD
Research House: OSK

OSK says that Pantech is expected to announce its nine month
financial year 2011 results this week, which it thinks may come in below consensus, taking the cue from the O&G sector’s
sluggishness in H2 current year 2010.

However, OSK believes that financial year 2012 holds more
promising prospects for the company, judging from the emergence
of more contracts for the sector, new capacity from its new Pasir Gudang plant coming onstream, and finalisation of its joint venture with Al-Otaishan in the Middle East.

According to OSK, it upgraded Pantech to 'trading buy', at a target price of 79 sen, based on 7 times price earnings ration on financial year 2012 earnings per share. Reuters

KFC - Consumer sector still positive for 2011

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
Research House: BIMB

Consumer sector
Recommend overweight: Consumer stocks under our coverage, Aeon, Padini, Parkson and KFC produced performances in line with our expectations, with earnings coming in within our full-year estimates. The good performances were mainly driven by: 1) a convincing economic recovery; 2) improving consumer sentiment; 3) seasonal spike in festival spending (Chinese New Year, Hari Raya, school holidays and other public holidays); 4) capacity-expansion plans; 5) operational efficiencies (especially for Aeon and Parkson); and 6) favourable exchange rate movements for Chinese renminbi and Vietnamese dong against the ringgit in the case of Parkson.

Aeon opened two new stores last year. The expansion throughout the year has pushed up AEON's 9MFY10 revenue and net profit by 5% and 56% year-on-year. In 2011, AEON will invest RM200 million to open its 28th store in Rawang, which is expected to be completed within a year. Furthermore, another one or two new stores will be opened in 2011, in the northern part of Peninsular Malaysia, either in Penang, Sungai Petani or Ipoh.

Padini has been aggressively growing with seven new stores in 2010 to bring its total outlets to 233 (including consignment stores) in Malaysia and 97 franchise and dealers' stores overseas. The company is expected to continuously spread its wings, with annual capex of RM20 million. In addition to that, Padini is also aiming to expand its brands outlets business (selling other brands) and is currently working on the expansion efforts to open two more outlets in Kota Baru and Setapak.

As for Parkson, the group has been aggressively leading its retail peers in its expansion drives with eight new stores in Malaysia, China and Vietnam. For 2011, it aims to open five stores in China and one or two stores in Malaysia and Vietnam, which would bring a total of at least 95 stores by year-end. For that, some RM200 million is expected to be spent this year.

We are positive about the retail players' expansion drives as this strategy is the key to spur strong growth in revenue and earnings. This is also in tandem with improving consumer sentiment on the back of positive economic growth domestically and in Asia.

KFC plans to continuously expand its restaurants in 2011. It has said it will open 30 new KFC restaurants, 25 Ayamas outlets and two to three RasaMas restaurants locally. KFC also plans to increase the number of its restaurants overseas. There will be one or two new restaurants opened in Brunei and Singapore. Meanwhile, in India, KFC expects to open more restaurants to increase its total number of outlets to 17 by end-2011.

In tandem with the strong economic growth (GDP growth for 3QFY10 of 5.3% and 2011F of 5.7%), consumer sentiment in Malaysia has been showing an improvement, reaching a two-year high at 115.8 points in September. We expect rising consumer confidence to continue in tandem with the positive economic growth, coupled with additional initiatives planned by the government to raise disposable income and spur domestic spending in Budget 2011 .

Therefore, we expect double-digit earnings growth for the companies under our coverage in FY11.

The prices of consumer goods have been continually on the uptrend driven by higher commodity prices globally. The strong surge in input prices over a short period will eventually impact consumer spending as inflation creeps up. For instance, consumer price index rose from 111.7 in January 2009 to 115 in November 2010.

Additionally, the government's intention to eventually remove most subsidies under the Economic Transformation Programme will hit consumer confidence and hence, spending, should disposable income not grow concurrently.

We are 'overweight' on the consumer sector with three 'buy' calls out of four stocks under our coverage, to be supported by the expected double-digit earnings growth in FY2011 and FY2012. We recommend a 'buy' call on Aeon (TP: RM7.30), and Parkson (TP: RM7.57), 'outperform' call on Padini (TP: RM1.22), and maintain our 'neutral' call on KFC (TP: RM3.97). ' BIMB Securities Research, Jan 24


This article appeared in The Edge Financial Daily, January 25, 2011.

UMW - Automotive sector caught in neutral

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

Automotive sector
Maintain neutral: We expect 2011 total industry volume (TIV) growth to slow to 2% to 3% as domestic demand drives towards saturation. Corporate earnings growth remains challenging. Margins will come under pressure on rising advertising and promotions (A&P) expenses.

The currency impact which aided last year's earnings is unlikely to be repeated. We are 'neutral' on the sector with 'buys' on Proton and MBM on undemanding valuations. We upgrade Tan Chong to 'hold' following a 15% correction in the share price since our 'sell' call on Sept 23, 2010. UMW remains a 'hold'.
TIV reached 605,156 units last year (+12.7% year-on-year), surpassing our estimates of 580,000 units, driven by stronger-than-expected December sales, which has seasonally been a slower month. New registration hit 54,765 units in December (+22.1% month-on-month). Both national and non-national vehicles reported impressive monthly growth, up 28.8% and 14.4% respectively to 31,000 and 23,765 units.

Perodua was the top performer in December. It reported a remarkable 6% m-o-m growth, which elevated its market share to 35.5% (+8.7 percentage points m-o-m). Perodua sold 19,444 units, underpinned by its flagship models: MyVi (+58%; 8,289 units), ViVa (+61%; 7,022 units) and Alza (+72%; 4,133 units). Toyota and Honda also reported growth, up 32% and 19% m-o-m respectively, while Nissan and Proton were the major losers in December, with contracting monthly sales of 14% and 4% respectively.

TIV growth is projected to slow to 2% to 3% y-o-y this year (or 617,000 to 623,000 unit sales) as domestic demand drives towards saturation. Also, higher interest rates in 2HFY11 (we expect a 50 basis points rise in the OPR in 2HFY11) will affect demand. We expect Perodua to retain its position as the best-selling marque as buyers continue to favour small vehicles, amid a rising petrol-price environment. We also see growing interests in hybrid cars (a small segment for now). The recent tax cuts and 'green theme' drive make them more affordable and appealing.

'Neutral' on autos; growth catalyst remains subdued. Interest for European (VW, Renault) and South Korean (Hyundai, Kia) marques are picking up, which could take away some of the local (Proton) and Japanese (Toyota, Honda, Nissan) marques' market shares. Margins will also come under pressure as A&P expenses rise to capture sales. The stronger ringgit (+10.5% against the US dollar in 2010), which benefited the majority of automakers' earnings last year is unlikely to so. We expect the ringgit to close at 3 to 3.05 (+1.0% y-o-y) for 2011. ' Maybank Investment Bank Bhd Research, Jan 24


This article appeared in The Edge Financial Daily, January 25, 2011.

MUDAJYA - OSK Research maintains Buy on Mudajaya, ups TP to RM7.44

Stock Name: MUDAJYA
Company Name: MUDAJAYA GROUP BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its Buy call on Mudajaya Corp Bhd and raised its target price to RM7.44.

It said on Monday, Jan 24 its recent meeting with the management rekindled its optimism in Mudajaya.

The award of the Janamanjung power plant could serve as the immediate catalyst via the civil works (RM1 billion). In India, the company has submitted thre highway proposals via build-operate-transfer totalling RM3 billion.

'We switch our valuation method to one based on SOP and raise our TP to RM7.44. Maintain BUY,' it said.

PBBANK - Affin maintains Public Bank's rating

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

From a recent meeting with PBB, Affin believes that Public Bank’s financial year 2010 net profit should be in-line with its forecast of RM3,065.3 million and also that of consensus’ RM2,921 million.

Public Bank Bhd’s Q4 financial year 2010 results are slated to be released on January 25.

Management also indicated that dividends will be based on a 50 per cent payout ratio going forward, notwithstanding potential capital raising needs (rights issue), should Bank Negara implements a more stringent capital adequacy requirement under the implementation timeline of Basel III.

Hence, Affin has upped its currently more conservative dividend forecasts from 55-60 sen (gross) to 58-70 sen for financial year 2010-2012.

Affin maintains its 'ADD' rating and Gordon Growth derived-Price Target of RM13.80, equivalent to 3.2 times price/book value based on financial year 2011 return on equity of 23.7 per cent, 5 per cent growth rate and a cost of equity of 10.8 per cent. - Reuters

TM - Citi ups TM's target price to RM3.22

Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Research House: CITI GROUP

Citi raised the target price for Telekom Malaysia (TM) to RM3.22, which factors in TM's earnings revisions by Citi.

This is a roll-forward of its discounted cash flow to financial year 2011, inclusion of proceeds from sale of its Axiata shares and the value of its remaining shares based on Axiata target price.

"We acknowledge that TM’s share price has risen on an expected bumper pay-out from cash generated from these asset sales. Still, we caution that dividends without changes in capital structure do not create extraordinary value as these are merely paid out of the existing value/cash flow of the company," says Citi.

Citi raised its target price for TM to RM3.22, but maintains a 'sell' call on the stock. - Reuters

PUNCAK - Buy Puncak Niaga shares: Kenanga

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

The proposed consolidation of water assets in Selangor is expected to be wrapped up by this year with more meaningful action by end-January.

In a note today, Kenanga Research said this was because the Selangor state government's offer would expire by then.

"We are also convinced the federal government will step in order to resolve the issue should the state government fails to wrap up the deal by the first half of 2011," it said.

Kenanga said the offer price for Puncak Niaga was somewhat considerably fair, as it was close to its target price of RM3.74.

It said the attractiveness of the offer also depended on the operation and maintenance (O&M) licence entitlement.

"Puncak Niaga may seek a higher price should the offer excluded its entitlement for O&M licence (post-consolidation)," it said.

Kenanga said it would maintain its 'buy' call on the company with an unchanged target price of RM3.74. -- Bernama

TCHONG - Automotive sector caught in neutral

Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Research House: MAYBANK

Automotive sector
Maintain neutral: We expect 2011 total industry volume (TIV) growth to slow to 2% to 3% as domestic demand drives towards saturation. Corporate earnings growth remains challenging. Margins will come under pressure on rising advertising and promotions (A&P) expenses.

The currency impact which aided last year's earnings is unlikely to be repeated. We are 'neutral' on the sector with 'buys' on Proton and MBM on undemanding valuations. We upgrade Tan Chong to 'hold' following a 15% correction in the share price since our 'sell' call on Sept 23, 2010. UMW remains a 'hold'.
TIV reached 605,156 units last year (+12.7% year-on-year), surpassing our estimates of 580,000 units, driven by stronger-than-expected December sales, which has seasonally been a slower month. New registration hit 54,765 units in December (+22.1% month-on-month). Both national and non-national vehicles reported impressive monthly growth, up 28.8% and 14.4% respectively to 31,000 and 23,765 units.

Perodua was the top performer in December. It reported a remarkable 6% m-o-m growth, which elevated its market share to 35.5% (+8.7 percentage points m-o-m). Perodua sold 19,444 units, underpinned by its flagship models: MyVi (+58%; 8,289 units), ViVa (+61%; 7,022 units) and Alza (+72%; 4,133 units). Toyota and Honda also reported growth, up 32% and 19% m-o-m respectively, while Nissan and Proton were the major losers in December, with contracting monthly sales of 14% and 4% respectively.

TIV growth is projected to slow to 2% to 3% y-o-y this year (or 617,000 to 623,000 unit sales) as domestic demand drives towards saturation. Also, higher interest rates in 2HFY11 (we expect a 50 basis points rise in the OPR in 2HFY11) will affect demand. We expect Perodua to retain its position as the best-selling marque as buyers continue to favour small vehicles, amid a rising petrol-price environment. We also see growing interests in hybrid cars (a small segment for now). The recent tax cuts and 'green theme' drive make them more affordable and appealing.

'Neutral' on autos; growth catalyst remains subdued. Interest for European (VW, Renault) and South Korean (Hyundai, Kia) marques are picking up, which could take away some of the local (Proton) and Japanese (Toyota, Honda, Nissan) marques' market shares. Margins will also come under pressure as A&P expenses rise to capture sales. The stronger ringgit (+10.5% against the US dollar in 2010), which benefited the majority of automakers' earnings last year is unlikely to so. We expect the ringgit to close at 3 to 3.05 (+1.0% y-o-y) for 2011. ' Maybank Investment Bank Bhd Research, Jan 24


This article appeared in The Edge Financial Daily, January 25, 2011.

PROTON - Automotive sector caught in neutral

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

Automotive sector
Maintain neutral: We expect 2011 total industry volume (TIV) growth to slow to 2% to 3% as domestic demand drives towards saturation. Corporate earnings growth remains challenging. Margins will come under pressure on rising advertising and promotions (A&P) expenses.

The currency impact which aided last year's earnings is unlikely to be repeated. We are 'neutral' on the sector with 'buys' on Proton and MBM on undemanding valuations. We upgrade Tan Chong to 'hold' following a 15% correction in the share price since our 'sell' call on Sept 23, 2010. UMW remains a 'hold'.
TIV reached 605,156 units last year (+12.7% year-on-year), surpassing our estimates of 580,000 units, driven by stronger-than-expected December sales, which has seasonally been a slower month. New registration hit 54,765 units in December (+22.1% month-on-month). Both national and non-national vehicles reported impressive monthly growth, up 28.8% and 14.4% respectively to 31,000 and 23,765 units.

Perodua was the top performer in December. It reported a remarkable 6% m-o-m growth, which elevated its market share to 35.5% (+8.7 percentage points m-o-m). Perodua sold 19,444 units, underpinned by its flagship models: MyVi (+58%; 8,289 units), ViVa (+61%; 7,022 units) and Alza (+72%; 4,133 units). Toyota and Honda also reported growth, up 32% and 19% m-o-m respectively, while Nissan and Proton were the major losers in December, with contracting monthly sales of 14% and 4% respectively.

TIV growth is projected to slow to 2% to 3% y-o-y this year (or 617,000 to 623,000 unit sales) as domestic demand drives towards saturation. Also, higher interest rates in 2HFY11 (we expect a 50 basis points rise in the OPR in 2HFY11) will affect demand. We expect Perodua to retain its position as the best-selling marque as buyers continue to favour small vehicles, amid a rising petrol-price environment. We also see growing interests in hybrid cars (a small segment for now). The recent tax cuts and 'green theme' drive make them more affordable and appealing.

'Neutral' on autos; growth catalyst remains subdued. Interest for European (VW, Renault) and South Korean (Hyundai, Kia) marques are picking up, which could take away some of the local (Proton) and Japanese (Toyota, Honda, Nissan) marques' market shares. Margins will also come under pressure as A&P expenses rise to capture sales. The stronger ringgit (+10.5% against the US dollar in 2010), which benefited the majority of automakers' earnings last year is unlikely to so. We expect the ringgit to close at 3 to 3.05 (+1.0% y-o-y) for 2011. ' Maybank Investment Bank Bhd Research, Jan 24


This article appeared in The Edge Financial Daily, January 25, 2011.

TIMECOM - HLIB Research: Buy Time dotCom, TP 95 sen

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

KUALA LUMPUR: Hong Leong Investment Bank Research (HLIB) is maintaining a Buy on Time dotCom (TdC) with a target price of 95 sen based on sum-of-parts.

It said on Monday, Jan 24 TdC is entering into a multi-year growth cycle with a high degree of operating leverage.

HLIB said TdC, by tapping into new growth areas such as global bandwidth and node fiberisation as well as proposing a series of synergistic acquisitions, the company is poised to become a regional growth telco.

'At the current price, TdC is trading at an estimated P/E of 26.5x and 20.4x for FY11 and FY12 respectively. We maintain our target price of RM0.95 based on SOP, pending the outcome of the recent proposed acquisitions and pending details on the collaboration with Astro.

NOTION - HDBSVR ups Notion TP to RM2.50, reiterates Buy

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

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) raised the target price of Notion VTec to RM2.50 and reiterated a Buy call.

It said on'' Monday, Jan 24 Samsung had placed an order for 900,000 per month pieces of 2.5-inch base plates by April 2011, more than triple the 250,000 pieces produced currently.

'This is very positive, and combined with the lower than expected decline of 2.5% for average selling price, Notion VTec would be able to achieve breakeven earlier than expected,' it said.

HDBSVR said this could imply that pricing pressure has abated on leaner inventory.

The research house said while it is still too early to suggest the industry is out of the woods, Western Digital (WD) highlighted in its Oct-Dec 2010 analyst's conference call that 2.5 inch volume has surpassed the 50% mark for the first time.

'This implies some migration from 3.5 inch to 2.5 inch form factor which should bode well for 2.5 inch demand,' said HDBSVR.

TENAGA - Making hay while the sun shines

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

Tenaga Nasional Bhd
(Jan 21: RM6.51)
Maintain buy, fair value at RM7.74: Tenaga Nasional Bhd's (TNB) 1QFY11 core net profit came in above our forecast and consensus as we expect 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 shares despite the 98% quarter-on-quarter profit jump.

Nonetheless, based on our longer term valuation and view, TNB remains a 'buy', 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, coal prices may have been fully factored in and TNB may stage a mild rebound.

TNB's core net profit for 1QFY11 of RM819.2 million was significantly above our expectations and consensus as we have built in expectations of higher coal costs in the subsequent quarters given the disruptions in Australian coal supply.

For 1Q alone, year-on-year core net profit rose 9%, lifted by higher interest income as TNB's cash pile increased and with net gearing dropping to 40.7%. On a quarter-on-quarter basis, there was an impressive 98% jump as a mixture of lumpy costs in the previous quarter and lower coal prices in 1Q boosted core net profit.

While management concurs with us that coal prices should drop past February as flood damage is repaired and the winter weather eases, we still stick to our coal cost of US$120 (RM367.20) per tonne for FY11 against management's guidance for US$110.

At the same time, we tweak our generation mix forecast more towards coal as we understand that the fire at the Bekok gas platform offshore Terengganu has caused a cut in gas supply from 1,250 mmscfd to 1,100 mmscfd.

As demand growth on the industrial side has trailed behind expectations while growth on the domestic side surprised, we tweak our growth mix accordingly but overall growth is still forecast at 4.9%.

At the same time, our tweaked generation mix leads to a FY11 earnings cut of 1.3% and FY12 to FY13 by less than 0.2%.

We maintain fair value at RM7.74. With power purchase agreement'' re-negotiations and tariff reviews ongoing, TNB may well secure a tariff hike as and when gas subsidies are cut.

We believe this could happen either this month or at the next review in June, with the June timeline likely more plausible.

With our sensitivity analysis still showing a 9.5% sensitivity to tariff and only 2% to coal prices, we maintain our 'buy' call on TNB although its share price remains hostage to factors largely out of its control, such as the government's decision to cut subsidies and rising global coal prices. ' OSK Research, Jan 21


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

SIME - Buy Sime Darby: ECM Libra

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

ECM Libra Investment Research has maintained a "buy" call on Sime Darby Bhd with a target price of RM11.80, following confirmation that it is bidding for the Telok gas development project.

Last week, it was reported that the Telok gas development had taken off with ExxonMobil and Petronas Carigali in the lead.

"The project is currently in the front end engineering and design stage. Telok will be developed via two remote satellite platforms to be tied back to the existing Guntong gas hub," ECM Libra said in a research note today.

It added that the platforms are expected to be fabricated at Sime Darby's Pasir Gudang yard in Johor.

"The scope of the project involves the procurement, construction, and hook up and commissioning of the Telok A and Telok B topsides and jackets.

"Given the 18-month duration of the job, we view that this contract could be worth RM500 million to RM800 million in value," ECM Libra explained. - Bernama

TIMECOM - Time dotCom shares slip

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

KUALA LUMPUR: Shares of Time dotCom slipped in early trade on Monday, Jan 24, as investors were concerned about the latest corporate development in the company following TIME ENGINEERING BHD []'s (TEB) proposed sale of its stake to its own shareholders.

At 9.09am, TdC was down four sen to 73 sen with 3.24 million shares done.

The FBM KLCI was up 2.63 points to 1,550.06. Turnover was 94.68 million shares valued at RM58 million. There were 179 gainers, 56 losers and 114 stocks unchanged.

Last Friday, Jan 21 TEB proposed to undertake a renounceable offer for sale its 626.18 million shares in TdC to TEB shareholders on the basis of eight offer shares for every 10 shares held in TEB.

The offer price would be not''less than 20% to the five-day volume weighted average market price up to the day prior to the price-fixing date. However, it shall not be less than 48 sen per offer share.

Meanwhile, Hong Leong Investment Bank Research (HLIB) is maintaining a Buy on Time dotCom (TdC) with a target price of 95 sen based on sum-of-parts.

It said on Monday, Jan 24 TdC is entering into a multi-year growth cycle with a high degree of operating leverage.

HLIB said TdC, by tapping into new growth areas such as global bandwidth and node fiberisation as well as proposing a series of synergistic acquisitions, the company is poised to become a regional growth telco.

'At the current price, TdC is trading at an estimated P/E of 26.5x and 20.4x for FY11 and FY12 respectively. We maintain our target price of RM0.95 based on SOP, pending the outcome of the recent proposed acquisitions and pending details on the collaboration with Astro.

MUDAJYA - Mudajaya shares below RM5 despite positive outlook

Stock Name: MUDAJYA
Company Name: MUDAJAYA GROUP BHD
Research House: OSK

KUALA LUMPUR: Shares of MUDAJAYA GROUP BHD [] fell on Monday, Jan 24 to below the RM5 level on profit taking in line with a weaker broader market while investors stayed cautious despite a longer-term positive outlook.

At 3.32pm, it was down 17 sen to RM4.99 with 1.12 million shares done.

The FBM KLCI fell 6.07 points to 1,541.36. Turnover was 1.17 billion shares valued at RM1.38 billion. There were 188 gainers, 568 losers and 268 stocks unchanged.

OSK Research said in its company report on Mudajaya said it was maintaining its Buy call and raised its target price to RM7.44 after its recent meeting with the management rekindled its optimism in Mudajaya.

The research house said the award of the Janamanjung power plant could serve as the immediate catalyst via the civil works (RM1 billion). In India, the company had submitted thre highway proposals via build-operate-transfer totalling RM3 billion.

'We switch our valuation method to one based on SOP and raise our TP to RM7.44. Maintain BUY,' OSK Research said.

WTK - WTK Holdings off to a good start

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

WTK Holdings Bhd
(Jan 24, RM1.27)
Maintain outperform at RM1.28 with revised fair value RM1.56 (from RM1.44): WTK is expected to report lower log-production volume of 4%to 5% quarter-on-quarter for 4QFY10 as a result of the seasonal wet weather. Nevertheless, the company is still expected to post a strong profit contribution from its log division for 4QFY10 as the selling price for its logs has been climbing up consistently, averaging about US$180 per cubic metre in 4QFY10 (compared with US$165 for 3QFY10).

WTK indicates that its plywood sales volume (mainly to Japan) has remained fairly stable since 3QFY10. Moreover, selling prices for its floorbase plywood (which constitutes 60% to 70% of WTK's production capacity) have been averaging close to US$615per cubic metre in 4QFY10, up by 7% from US$575 per cubic metre recorded in 3Q2010.

Capacity utilisation has also improved to 75% to 80% in 2HFY10, but cost of production has roughly remained at the same level of about RM1,650 per cubic metre due to higher log prices.

Currently, WTK has about 7,000ha to 8,000ha of planted area out of the 23,000ha of plantation land it owns. Planting has been slow in the past due to funding issues and also to the slump in its timber business. Hence, WTK's oil palm plantation is only expected to mature and start contributing meaningfully to its bottomline from 2012 onwards.

Management has guided that capex will be about RM75 million to RM80 million in 2011, mainly for maintenance of plant and machinery, oil palm plantation, and reforestation activity. We are forecasting a net dividend payout of 2.5 sen for FY10, which translates into a net yield of about 2%.
Risks include a decline in timber demand resulting in lower-than-expected timber prices; a slower-than-expected recovery in Japan's economy; and significant hike in glue and logistics costs.

We reduce our FY10 earnings forecast slightly by 3.8%, but raise our FY11/12 earnings forecasts to between 8% and 8.8% after adjusting for: 1) lower log prices in FY10; 2) higher log prices in FY11/12; 3) higher average selling prices for its plywood division in FY11/12; and 4) higher cost of production for its plywood division in FY11/12.

We are positive on WTK as we expect average selling prices for logs as well as plywood products to remain firm going forward on the back of steady demand from Japan (mainly plywood) and India (mainly logs).

Post-earnings adjustment, we revise our fair value to RM1.56 (from RM1.44 previously) based on unchanged target PER of 12 times revised FY11 EPS of 13 sen. Maintain 'outperform'. ' RHB Research Institute Sdn Bhd, Jan 24


This article appeared in The Edge Financial Daily, January 25, 2011.

AEON - Consumer sector still positive for 2011

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

Consumer sector
Recommend overweight: Consumer stocks under our coverage, Aeon, Padini, Parkson and KFC produced performances in line with our expectations, with earnings coming in within our full-year estimates. The good performances were mainly driven by: 1) a convincing economic recovery; 2) improving consumer sentiment; 3) seasonal spike in festival spending (Chinese New Year, Hari Raya, school holidays and other public holidays); 4) capacity-expansion plans; 5) operational efficiencies (especially for Aeon and Parkson); and 6) favourable exchange rate movements for Chinese renminbi and Vietnamese dong against the ringgit in the case of Parkson.

Aeon opened two new stores last year. The expansion throughout the year has pushed up AEON's 9MFY10 revenue and net profit by 5% and 56% year-on-year. In 2011, AEON will invest RM200 million to open its 28th store in Rawang, which is expected to be completed within a year. Furthermore, another one or two new stores will be opened in 2011, in the northern part of Peninsular Malaysia, either in Penang, Sungai Petani or Ipoh.

Padini has been aggressively growing with seven new stores in 2010 to bring its total outlets to 233 (including consignment stores) in Malaysia and 97 franchise and dealers' stores overseas. The company is expected to continuously spread its wings, with annual capex of RM20 million. In addition to that, Padini is also aiming to expand its brands outlets business (selling other brands) and is currently working on the expansion efforts to open two more outlets in Kota Baru and Setapak.

As for Parkson, the group has been aggressively leading its retail peers in its expansion drives with eight new stores in Malaysia, China and Vietnam. For 2011, it aims to open five stores in China and one or two stores in Malaysia and Vietnam, which would bring a total of at least 95 stores by year-end. For that, some RM200 million is expected to be spent this year.

We are positive about the retail players' expansion drives as this strategy is the key to spur strong growth in revenue and earnings. This is also in tandem with improving consumer sentiment on the back of positive economic growth domestically and in Asia.

KFC plans to continuously expand its restaurants in 2011. It has said it will open 30 new KFC restaurants, 25 Ayamas outlets and two to three RasaMas restaurants locally. KFC also plans to increase the number of its restaurants overseas. There will be one or two new restaurants opened in Brunei and Singapore. Meanwhile, in India, KFC expects to open more restaurants to increase its total number of outlets to 17 by end-2011.

In tandem with the strong economic growth (GDP growth for 3QFY10 of 5.3% and 2011F of 5.7%), consumer sentiment in Malaysia has been showing an improvement, reaching a two-year high at 115.8 points in September. We expect rising consumer confidence to continue in tandem with the positive economic growth, coupled with additional initiatives planned by the government to raise disposable income and spur domestic spending in Budget 2011 .

Therefore, we expect double-digit earnings growth for the companies under our coverage in FY11.

The prices of consumer goods have been continually on the uptrend driven by higher commodity prices globally. The strong surge in input prices over a short period will eventually impact consumer spending as inflation creeps up. For instance, consumer price index rose from 111.7 in January 2009 to 115 in November 2010.

Additionally, the government's intention to eventually remove most subsidies under the Economic Transformation Programme will hit consumer confidence and hence, spending, should disposable income not grow concurrently.

We are 'overweight' on the consumer sector with three 'buy' calls out of four stocks under our coverage, to be supported by the expected double-digit earnings growth in FY2011 and FY2012. We recommend a 'buy' call on Aeon (TP: RM7.30), and Parkson (TP: RM7.57), 'outperform' call on Padini (TP: RM1.22), and maintain our 'neutral' call on KFC (TP: RM3.97). ' BIMB Securities Research, Jan 24


This article appeared in The Edge Financial Daily, January 25, 2011.