POS - OSK maintains 'buy' call on Pos Malaysia

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

OSK Research is maintaining a "buy" call on Pos Malaysia Bhd but has lowered the target price to RM4.12, from RM4.45 previously, following spiraling costs of incorporating higher jet fuel assumption and its overall staff cost.

It toned down earnings expectation for financial year 2011 and 2012 by 17 per cent and 13.3 per cent, respectively.

OSK said the unveiling of Pos Malaysia's strategic partnership, expected to be announced within the next one to two months as the deadline of March 15 for bidding draws near, remained a key catalyst as it may be timed to coincide with measures to unlock the value of its landbank.

It said the potential relaxation of the use of its landbank under the purview of the Postal Bill appeared to be progressing well as the draft Bill would be tabled in Parliament sometime this month.

"We expect the proposed amendments related to relaxation to go through as it would make more economic sense for the government to optimise the potential value of the landbank," it added. -- Bernama

PBBANK - Banking sector: Valuations are undemanding

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

Banking sector
Maintain overweight:
The sector's value proposition lies in (i) stable economic growth which lends support to our aggregate net profit growth forecast of 11.6% for 2011 and 11.8% for 2012; (ii) benign inflation and bottoming margins; (iii) steady loan growth momentum; (iv) potential Economic Transformation Programme upside surprises; (v) cross-synergies and burgeoning contribution from regional operations to group earnings; (vi) healthy capital ratios; and (vii) decent valuations and dividend yields. RHB Capital and CIMB continue to be our top picks.

Results were broadly within expectations, with recurring net profit up 24% year-on-year (y-o-y). While cumulative loan growth was a commendable 12.9% y-o-y, net interest margin (NIM) compression during the period contributed to a more moderate 10.3% y-o-y expansion in net interest income, while fee income and other non-interest income growth rates were a modest 6.8% y-o-y respectively. Operating expenses, meanwhile, rose 10.1% y-o-y. Consequently, operating profit rose by a slower 11% y-o-y, while the jump in net profit was driven primarily by lower loan loss provisions, which fell a sizeable 34.5% y-o-y in 2010.

Our industry loan growth estimate is raised to 11.5% for 2011 from 10%-11% previously and we forecast 2012 loan growth at 10.5%. We expect household loan demand to moderate from 13.2% for 2010 to about 10.5% for 2011 and 8% for 2012, but expect non-household (business/government) lending to pick up the slack with growth rates of 12.7% and 13.5% for 2011 and 2012 respectively, from 12.3% for 2010.

We project recurring net profit growth of 11.6% and 11.8% for 2011 and 2012 respectively for the top 5 banks, on operating profit growth of 8.6% for 2011 and 12.4% for 2012. We expect cumulative loans (domestic and regional) for the top 5 banks to expand by 12% for 2011, 10.9% for 2012. While we have imputed a 6-11 basis points NIM contraction this year, we expect NIMs to bottom out and recover in 2012, aided in part by likely rate hikes in 2H10. Amid volatility in the external environment, we are factoring in moderately higher non-performing loans.

Valuations are undemanding, in our opinion, with the large banks trading at a prospective 2011 calendarised PER of 13.1 times, 11.7 times for 2012. Separately, the sector trades at a prospective 2012 P/BV of 1.9 times supported by an average ROE of 16.9%. Dividend yields, meanwhile, average a decent 4.2% and 4.7% for 2011 and 2012 respectively. ' Maybank IB Research, March 7


This article appeared in The Edge Financial Daily, March 8, 2011.

CIMB - Banking sector: Valuations are undemanding

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

Banking sector
Maintain overweight:
The sector's value proposition lies in (i) stable economic growth which lends support to our aggregate net profit growth forecast of 11.6% for 2011 and 11.8% for 2012; (ii) benign inflation and bottoming margins; (iii) steady loan growth momentum; (iv) potential Economic Transformation Programme upside surprises; (v) cross-synergies and burgeoning contribution from regional operations to group earnings; (vi) healthy capital ratios; and (vii) decent valuations and dividend yields. RHB Capital and CIMB continue to be our top picks.

Results were broadly within expectations, with recurring net profit up 24% year-on-year (y-o-y). While cumulative loan growth was a commendable 12.9% y-o-y, net interest margin (NIM) compression during the period contributed to a more moderate 10.3% y-o-y expansion in net interest income, while fee income and other non-interest income growth rates were a modest 6.8% y-o-y respectively. Operating expenses, meanwhile, rose 10.1% y-o-y. Consequently, operating profit rose by a slower 11% y-o-y, while the jump in net profit was driven primarily by lower loan loss provisions, which fell a sizeable 34.5% y-o-y in 2010.

Our industry loan growth estimate is raised to 11.5% for 2011 from 10%-11% previously and we forecast 2012 loan growth at 10.5%. We expect household loan demand to moderate from 13.2% for 2010 to about 10.5% for 2011 and 8% for 2012, but expect non-household (business/government) lending to pick up the slack with growth rates of 12.7% and 13.5% for 2011 and 2012 respectively, from 12.3% for 2010.

We project recurring net profit growth of 11.6% and 11.8% for 2011 and 2012 respectively for the top 5 banks, on operating profit growth of 8.6% for 2011 and 12.4% for 2012. We expect cumulative loans (domestic and regional) for the top 5 banks to expand by 12% for 2011, 10.9% for 2012. While we have imputed a 6-11 basis points NIM contraction this year, we expect NIMs to bottom out and recover in 2012, aided in part by likely rate hikes in 2H10. Amid volatility in the external environment, we are factoring in moderately higher non-performing loans.

Valuations are undemanding, in our opinion, with the large banks trading at a prospective 2011 calendarised PER of 13.1 times, 11.7 times for 2012. Separately, the sector trades at a prospective 2012 P/BV of 1.9 times supported by an average ROE of 16.9%. Dividend yields, meanwhile, average a decent 4.2% and 4.7% for 2011 and 2012 respectively. ' Maybank IB Research, March 7


This article appeared in The Edge Financial Daily, March 8, 2011.

SUNWAY - Another good year ahead for Sunway

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

Sunway Holdings Bhd
(March 7, RM2.20)
Maintain buy at RM2.18 with target price of RM2.60: Sunway announced last Friday that it had on March 3, 2011, accepted the letter of award for a contract worth RM258 million from IDR Assets Sdn Bhd for the proposed construction and completion of package 4 ' facility construction for Legoland Malaysia Theme Park development in Iskandar Malaysia. The contract is targeted to be completed on June 2, 2012 with a construction period of 15 months.

This contract is Sunway's second contract secured in FY11. Year-to-date, the group has secured RM295 million order book replenishment which boosted outstanding construction order book to RM2.7 billion. No changes are required to our earnings estimate as this contract win falls within our annual order book replenishment of RM1.5 billion. As one of the local construction players with a strong brand name, we think the group is poised to benefit from the impending roll out of contracts in 2011 both from remnant 9MP projects as well as the much touted mass rapid transit (MRT) project. Furthermore, apart from the tunnelling portion, civil works for the MRT project will only be open to local contractors. The completion of the merger exercise with sister company Sunway City Bhd (SunCity) by 1HFY11 could also assist the group in participating in larger scale projects. Total construction tender book remains at about RM16 billion, including highway projects in India and Phase 2 of the Arzanah development in Abu Dhabi.

Sunway is our top buy for the construction sector. This is premised on (1) strong earnings growth of 17.8% for FY11; (2) undemanding forward P/E valuation of 7.1 times; (3) more landbank acquisition in the pipeline; and (4) strength in securing overseas construction contracts. Although our RNAV estimate stands at RM3.45, our target price is adjusted to reflect the offer price of RM2.60 in the proposed merger with SunCity. ' ECM Libra Research, March 7


This article appeared in The Edge Financial Daily, March 8, 2011.

PCHEM - Petrochemical sector re-rating imminent

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

Petronas Chemicals Group Bhd
(March 4, RM6.33)
Maintain buy at RM6.29 with revised target price of RM8 (from RM6.70): We believe the fundamentals for the petrochemical industry have never been better, buoyed by recovery in demand, strong product margins and an increasing price divergence between natural products and synthetic alternatives.

Furthermore, high oil prices are beneficial as Petronas Chemicals' products generally track oil price increases. We raise our target price to RM8.00 (from RM6.70) based on 14.4 times 2011 ' which is the long-term industry mean price-earnings ratio.

The historical depiction of a super-cycle is when demand exceeds supply. This time however, the cycle will be driven by sustained strong demand from the emerging markets. Supply, however, will be prone to sporadic shortages due to feedstock scarcity and civil unrest at production facilities in the Middle East and North Africa. The rising oil price helps underpin higher petrochemical prices as they generally track each other with a 91% correlation factor.

Prices of many resource-based commodities have come close to or touched all-time highs.

The price-ratio relationship between natural commodities and synthetic alternatives has been diverging in favour of synthetics ' synthetics are getting cheaper. This will cause a fundamental shift in demand for synthetic products as consumers look to lower-cost alternatives.

We notice how the market is 'annualising' year-to-date figures to gauge full-year results. These figures are unreliable as the petrochemical industry is cyclical, and quarter-to-quarter earnings fluctuate widely due to price and volume instability. We believe 2011 numbers will be ahead of consensus.

We have re-tabulated our numbers to a December year-end (from March) as per a company announcement on March 2. We have upgraded our earnings by 14% for calendarised 2011, 7% for 2012 and 4% for 2013 to account for higher product margins, in line with the current market rates.

Petronas Chemicals will have two FYEs this year ' FY3/11 (12M, April 2010-March 2011), and FY12/11 (9M, April 2011-December 2011). ' Maybank IB Research, March 4


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

MAXIS - OSK keeps 'neutral' call on Maxis

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

OSK Research Sdn Bhd has maintained a "neutral" call on Maxis Bhd with an unchanged target price of RM5.20 as it lacks a share price catalyst with its recent dividend announcement being below expectations.

The assessment is also based on a weighted average cost of capital of nine per cent and terminal growth of 1.5 per cent, OSK said in reference to a report on Maxis being in the final leg of negotiations with Kuwait''s Baraka Telecom (Baraka), on a three-year Mobile Virtual Network Operator (MVNO).

"We see the impact from the potential tie-up as being negligible for Maxis given the niche focus of Baraka, whose target markets are Islamic mobile and data services, OSK said in a research note today.

Maxis' share price was down six sen to RM5.47 as at 12.30 pm.
Baraka, a unit of Reach Telecom Holding KSCC of Kuwait, plans to provide shariah-compliant telecommunications services in Malaysia.

OSK said the parties behind Baraka want to consider more options, including a revisit of its business model, in light of the extremely competitive mobile landscape in Malaysia and the challenges faced by MVNOs.

The decision to go along with Maxis is likely to have been encouraged by the close ties between the shareholders of Baraka and Saudi Telecom, a major shareholder of Maxis, OSK said. -- Bernama

SUNWAY - OSK Research maintains Buy on Sunway Holdings

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

KUALA LUMPUR: OSK Research is maintaining a Buy on SUNWAY HOLDINGS BHD [] after it won a RM258m job for the CONSTRUCTION [] of the Legoland Theme Park (Package 4) in Iskandar, Johor. The project is scheduled for completion in June 2012.

The research house said on Monday, March 7 it was not surprised that Sunway won the job as it had been consistently highlighting this possibility since it'' initiated coverage on the stock in May 2010.

OSK Research said Sunway has a track record with two other theme parks, namely Sunway Lagoon and Tambun Lost World. Including this recent award, Sunway has secured RM295.4m worth of jobs year-to-date.

'This compares with our assumption of RM1bn for FY11 and management's guidance for RM1bn to RM1.5bn. Other potential jobs are: (i) LRT Package B and subcontract for Package A, (ii) road networks in Sarawak under SCORE, and (iii) building-type jobs for the private sector,' it said.

The research house said as the company's job wins YTD are still within its replenishment target, it is keeping its estimates unchanged.

'Our TP continues to be based on the Sunway-SunCity merger price of RM2.60, which also implies 9.3x and 8.3x FY11-12 earnings. The EGM to vote on the merger is expected to be held sometime in April. If the proposal goes through, the merged entity should be listed in July-August,' it said.

FAJAR - RHB Research maintains Fajarbaru FV at RM1.37 and Outperform call

Stock Name: FAJAR
Company Name: FAJARBARU BUILDER GRP BHD
Research House: RHB

KUALA LUMPUR: RHB Research said on Monday, March 7 it is maintaining a fair value of RM1.37 and Outperform call on Fajarbaru Builder Group Bhd after it was appointed by Syarikat Prasarana Negara Bhd as the nominated sub-contractor for the light rail transit (LRT) extension projects.

Fajarbaru has been appointed to carry out the CONSTRUCTION [] of Stations 1 & 2 of Ampang LRT line extension project (Package A) valued at RM62.7m and Stations 1, 2 & 3 of Kelana Jaya LRT line extension project (Package A) valued at RM87.4m.

'These contracts have boosted Fajarbaru's YTD new contracts secured to RM249m and outstanding construction orderbook by 30% from RM496m to RM646m.'' Assuming an EBIT margin of 8%, the two contracts will fetch RM12m EBIT over the construction periods of 21 months.

'Forecasts maintained as we have assumed Fajarbaru secures RM250m worth of new jobs p.a. in FY11-12. Maintain fair value of RM1.37 and Outperform call,' RHB Research said.

AIRPORT - RHB Research maintains MAHB fair value at RM7.67

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD
Research House: RHB

KUALA LUMPUR: RHB Research is maintaining the fair value of Malaysia Airports at RM7.67 based on 'sum-of-parts'.

It said on Monday, March 7 that based on news reports, the Sarawak government has offered AirAsia land to construct a low-cost carrier terminal adjacent to the existing Kuching International Airport.

' We are more inclined to view the move as nothing more than a pressure tactic against MAHB to compel it to reduce the passenger service charge (PSC) of RM51 in KIA currently vis-''-vis RM25 in KLIA-LCCT,' it said.

RHB Research said AirAsia recently also refused to move to the new terminal at Kota Kinabalu International Airport despite agreeing initially.

'Assuming the PSC at KIA and KKIA is reduced by 20% and 50% to RM25.5 and RM41, MAHB's FY12 net profit would be eroded by 1.4% and 2.3%. In FY10, we estimate KIA and KKIA contributed 6.8% and 8.5% of MAHB's total passenger traffic.'''' Fair value is RM7.67 based on 'sum-of-parts',' it said.

DRBHCOM - Buy DRB-Hicom shares: HwangDBS

Stock Name: DRBHCOM
Company Name: DRB-HICOM BHD
Research House: HWANGDBS

HawangDBS says that it was reported in the media that DRB-Hicom Bhd is poised to receive a letter of award to supply 257 units of armoured personnel carriers (APCs) worth up to RM7.5 billion from the government this week.

We reaffirm our 'buy' rating and target price (TP) of RM3.55 based on a 20 per cent discount to our SOP value.

HwangDBS thinks the recent selldown is overdone and offers a opportunity to accumulate ahead of this news flow.

The third quarter of 2011 result also shows the company is well on its way towards a record year. - Reuters

SUNWAY - OSK sees Sunway Holdings a 'buy'

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

OSK says Sunway Holdings Bhd announced that it had won a RM258 million job for the construction of the Legoland Theme Park (Package 4) in Iskandar, Johor.

Including this recent award, Sunway has secured RM295.4 million worth of jobs year to date. Thus, OSK sees Sunway a buy with a target price if RM2.60.

This compares with its assumption of RM1billion for FY 2011 and management’s guidance for RM1-1.5 billion.

Other potential jobs are: the LRT Package B and subcontract for Package A, road networks in Sarawak under SCORE, and building-type jobs for the private sector. - Reuters

LIONIND - OSK keeps 'neutral' call on Lion Industries

Stock Name: LIONIND
Company Name: LION INDUSTRIES CORPORATION
Research House: OSK

OSK Research is maintaining a "Neutral" call on Lion Industries Corporation Bhd (LICB) but has downgraded its target price to RM1.57 per share from RM2.07 per share, previously.

It said the neutral stand and downgrade was in view of
LICB's weaker-than-expected first half financial year 2011 results.

"We see limited downside from here despite our caution on the investment risk posed by the proposed blast furnace project," OSK said in a research note today.

LICB entered into a conditional share subscription agreement with Lion Diversified Holdings Bhd and Lion Forest Industries Bhd for a proposed joint venture to invest 29 per cent, 51 per cent and 20 per cent stakes, respectively, in Lion Blast Furnace SB.

The estimated total cost of the blast furnace project is RM3.23 billion, in which the joint venture partners will subscribe for the agreed capital of RM970 million according to their respective stakes in the venture.

"The share price may potentially spring back in the event this proposed investment is shot down by shareholders at the upcoming EGM as this will help to substantially ease our concern," OSK added. -- Bernama

TGOFFS - AmResearch reaffirms Sell on Tanjung Offshore

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: AMMB

KUALA LUMPUR: AmResearch has reaffirmed its SELL rating on TANJUNG OFFSHORE BHD [] with an unchanged fair value of RM1.33 per share ' pegging fully diluted FY11F PE to 16 times.

Tanjung Offshore was reprimanded by Bursa Malaysia due to a 37% deviation in the reported net profit for FY09.'' Its earnings were RM3 million versus RM4.9 million initially reported during the release of 4QFY09 numbers.

The large deviation could be due to the over recognition of earnings which were related mostly to the insurance claims made by its associate company, Cendor Mopu Producer Ltd, and post acquisition profit in respect of its subsidiaries.

'We gather it was initially recommended by its auditors for the items to be included in FY09 earnings although somehow after an audit review, these items were not deemed to be appropriate for recognition in FY09. While it does not look good on the company, we view this as a one-off event.

'However, looking forward, while the oil and gas sector is very much positive given the expected strong pick-up in E&P works, we are not too positive about Tanjung Offshore,' it said.

AmResearch said while valuation is demanding ' currently trading at FY11F PE of 17 times, it was also cautious about the company's execution.

'Elsewhere, while it makes sense for Tanjung to bid for the right to develop the marginal fields'' ' it supplies MOPU and engineering equipments ' Tanjung's balance sheet is quite highly-leveraged with a current net gearing of 1.4 times,' it said.

PROTON - Proton top loser, investors ignore Nissan tie-up as Lotus woes weigh

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

KUALA LUMPUR: PROTON HOLDINGS BHD [] is the top loser in afternoon trade on Friday, March 4 as investors ignored its proposed collaboration with Nissan while worries about it becoming profitable weighed on sentiment.

At 2.30pm, Proton was down 22 sen to RM3.23 with 1.03 million shares done.

The FBM KLCI rose 14.62 points to 1,521.50. Turnover was 522.24 million shares done valued at RM850 million.'' There were 549 gainers, 150 losers and 242 stocks unchanged.

However, AmResearch reaffirm its contrarian BUY call on Proton with an unchanged fair value of RM5.10 a share, pegging it at 0.7 times FY12F adjusted NTA of RM7.30/share.

AmResearch said it anticipated the deal with Nissan to involve the use of Nissan Fuga as a replacement model for the Perdana and the use of Nissan March platform for Proton's EMAS model (whereby the upper body will be Lotus designed).

'We are positive about this development. We believe depressed earnings affected by Lotus' turnaround plan over the mid-term are more than priced-in,' it said.

KNM - RHB Research maintains Outperform on KNM, FV RM3.45

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

KUALA LUMPUR: RHB Research Institute is maintaining an Outperform on KNM GROUP BHD [] and retained its fair value of RM3.45 a share which is based on an unchanged target PER of 15 times.

'This implies an upside of 43.6% against the current share price,' said the research house on Friday, March 4.

On Thursday, KNM Group announced that it has secured new orders amounting to RM693m so far this year, underpinned by improved sentiments in the global oil and gas industry.

This takes the current order backlog to RM5.4bn, which is an all-time high for the group. Tender book currently stands at RM17bn.

RHB Research said KNM's continual wins and the strengthening order book indicated the recovery in KNM's business is on track.

'We previously mentioned that FY11 will be a better year for KNM given that order flows have improved since 2HFY10 on the back of rising crude oil prices and better global economic sentiment that have led to heightened spending by the global oil and gas players.

'With WTI crude oil prices hovering above US$100/barrel, we expect oil majors to gain confidence in going ahead with exploration and production spending, especially in high-end projects which require more sophisticated process equipment,' it said.

PPB - HDBSVR maintains PBB as fully valued, cuts TP to RM15

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

KUALA LUMPUR: Hwang DBS Vickers Research is maintaining PPB GROUP BHD [] as fully valued and sum-of-parts target price has been reduced to RM15.

'PPB's share price has fallen 11% since our downgrade in November 2010. We expect further downside as valuation remains uncompelling at 18-19x FY11-12F PE,' it said on Friday, March 3.

HDBSVR said it cut PPB's FY11-FY12F EPS by 15-20% after imputing lower Wilmar earnings.

This is premised on expectations the group would grow its soybean volumes less aggressively, and lower Oilseeds M&P margins would be offset by higher Palm & Lauric margins.

'Balance sheet remains strong with RM809m net cash (RM0.68/share). There are no plans to raise its stake in Wilmar, and FY11 group capex excluding expansion, should be minimal at RM120m,' it said.

On Thursday, PPB said at its analyst briefing that it faces a challenging year ahead with rising commodity prices and fuel costs affecting its flour business.

But the impact would be somewhat offset by still strong consumption patterns. Wheat prices remain high at US$9.42/bushel, albeit down from a peak of US$10.3 in mid-Feb 2011, but PPB believes it could drop further with new planting in Australia after the floods and softer US/Europe exports to the Middle East.

ALLIANZ - OSK Research initiates Buy on Allianz, TP RM5.68

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

KUALA LUMPUR: OSK Research has initiated coverage of Allianz Malaysia with a BUY, at a target price of RM5.68, derived from a sum of parts valuation.

It said on Friday, March 4 that riding on potentially strong growth in the life insurance industry and a re-rating of motor insurance, Allianz as the biggest general insurance player is poised to benefit from the encouraging industry outlook.

'The company is also seeking to establish a foothold in the fast growing takaful industry to diversify its business,' the research house said.

OSK Research said apart from being the No. 1 one player in Malaysia's general insurance industry with gross written premiums (GWP) totaling RM1.3bn in FY10, Allianz's life insurance business is no less a consistent performer, chalking up RM1bn in GWP on the back of a robust double digit growth of 18.5% in FY10.

Allianz is seeking opportunities to venture into the high-growth takaful industry as Malaysia aims to become the region's Islamic banking hub.

In December 2009, it began negotiating with MNRB HOLDINGS BHD [] on the proposed acquisition of equity interest in the latter's wholly-owned Takaful Ikhlas Sdn Bhd.

'We believe that if the deal goes through, it would certainly be a big plus for Allianz,' it said.

LIONIND - HLIB Research reduces earnings outlook for Lion Industries, cuts TP to RM1.61

Stock Name: LIONIND
Company Name: LION INDUSTRIES CORPORATION
Research House: HLG

KUALA LUMPUR: Hong Leong Investment Bank (HLIB) Research is reducing its FY12-13 core net profit forecasts for Lion Industries Corp Bhd (LICB) by 8.5%-9.2% to RM212 million and RM230.3 million respectively.

It said on Friday, March 4 that it reduced the target price (based on sum-of-parts) by 15.7% from RM1.91 to RM1.61.

HLIB Research said the reduction in the TP was to reflect its lower earnings assumption at the steel division (arising from higher borrowing cost to finance the blast furnace project); and'' changes to the latest market prices of LICB's stakes in the listed entities. Downgrade from Hold to Sell.

LCIB had on Thursday entered into a joint venture agreement with Lion Diversified (LDHB, the holding company), Lion Forest (a 73% subsidiary) and Lion Blast Furnace (LBF) to jointly undertake the CONSTRUCTION [] of a blast furnace project, which has a rated capacity of 2.1 million tonnes/annum. Under the agreement, LICB, LDHB and LFIB will invest 29%, 51% and 20% respectively in LBF.

LICB, LFIB, and LDHB would invest RM281.3 million, RM194 million and RM494.7 million respectively into the blast furnace project. LICB will also provide corporate guarantee to the project's loan facility.

HLIB Research said the proposed equity investment by LICB and LFIB turns LICB's net cash position into a net debt and net gearing of RM384.5 million and 0.12x respectively.

'Assuming a financing cost of 6% p.a. (before 25% corporate tax), the additional borrowing costs arising from the blast furnace project investment would bring down LICB's FY12-13 net profit forecasts by 8.5-9.2%.

'We believe the venture could likely take a while before it could yield positive results to the group, given: 1) The volatile iron ore and coal prices, which in turn affect the economic viability of the proposed blast furnace project; and 2)

'The huge investment outlay involved (despite 70% of the project cost will be funded by borrowings) that may affect LICB's near term working capital, in particularly, at the steel manufacturing division,' it said.

SPSETIA - SP Setia a 'buy' at HwangDBS

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

HwangDBS Vickers Research has maintained its 'buy' call on SP Setia Bhd and increased the target price to RM7.90 from
RM5.96.

In a research note today, HwangDBS said SP Setia was expected to increase its land bank with the coming RM1.1 billion placement and record RM1.8 billion unbilled sales.

"SP Setia has a knack of winning lucrative land deals, and is eyeing more high-density mixed development and townships in Klang Valley," it said.

It said SP Setia's gross development value was estimated at RM3 billion over six years commencing financial year 2012.

"This could boost its financial year 2013 earnings by three per cent and revised net asset value by two per cent," it said.

HwangDBS said the potential catalysts for the company would be robust sales, higher yield per acre and lucrative land sales. -- Bernama

SPSETIA - S P Setia replicating Eco Park on Cyberjaya land

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

S P Setia Bhd
(March 3, RM6)
Maintain buy at RM5.96 with target price of RM7.15: We are positive on the latest Cyberjaya land purchase by S P Setia given its fair pricing. More importantly, the land ' which will be developed into a mixed development with a gross development value (GDV) of RM3 billion ' will enhance our FY13 earnings forecast by 3%. S P Setia remains our top 'buy' in property with an unchanged target price (TP) of RM7.15 (10% premium to its RM6.50 realisable net asset value [RNAV]).

S P Setia has proposed the purchase a 268.1-acre (107.24ha) tract of freehold land in Cyberjaya for RM420.4 million (RM36 psf) from Cyberview Sdn Bhd and Setia Haruman Sdn Bhd. Cyberview, a subsidiary of the Minister of Finance, Inc, is the landowner, while Setia Haruman is the master developer of the Cyberjaya Flagship Zone area. The project will be developed via a 70:30 joint venture between S P Setia and Setia Haruman.

The land is strategically located within the Cyberjaya Flagship Zone and is highly accessible and well-connected by highways, including the North-South Expressway, Damansara-Puchong Expressway and the Maju Expressway. We consider the RM36 psf land cost to be fair given the RM24 to RM36 psf transacted prices in that area (for example, Mah Sing's Garden Residence extension at RM34 psf cost and Paramount's RM36 psf).

We understand that the land will be developed into a mid- to high-end gated and guarded mixed development with a similar 'Eco' concept to S P Setia's highly successful Setia Eco Park (RM3.5 billion remaining gross development value [GDV]; 17% of 2010 sales).

GDV is estimated at RM3 billion which would lift S P Setia's remaining development GDV to RM49 billion (+6.5%). From our ground check, we understand that the land has natural waterways which S P Setia can ride on for eco-theme purposes.

We conservatively expect a 25% pretax margin ( against Setia Alam's 25% and Setia Eco Park's 30%). Assuming a six-year development period and a full-year impact in FY13, we raise our FY13 earnings by 3%. Our RM6.50 RNAV is unchanged for now ('zero' land surplus).

The 10% premium to RNAV to derive our TP is also supported by S P Setia's strong 38% 3-year forward earnings per share compound annual growth rate potential, superior management team and its market leader position in the property industry. ' Maybank IB Research, March 3


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

PCHEM - O&G: Petronas' 3Q results up 14% on-year

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

Oil and Gas sector
Maintain overweight: Petronas' 3QFY11 till March year-to-date (YTD) net profit of RM35 billion (excluding an extraordinary gain of RM9.3 billion) was up 14% year-on-year (y-o-y) on the back of higher revenue from: (i) Higher realised prices of liquefied natural gas (LNG), petroleum products and crude oil; and (ii) Higher sales volume of its petroleum products and petrochemicals. In terms of segmental performance the downstream segment posted the highest YTD y-o-y gains (+32.4%) due to: (i) Improved refining margin; and (ii) Higher margin recorded by the petrochemical business.

During the quarter, the group completed the listings of both Malaysia Marine and Heavy Engineering Bhd and Petronas Chemicals Group. Post-listing, it currently owns 41.6% and 64.3% respectively in the companies. The listings resulted in a net gain of RM9.3 billion.

Overall, we believe the results are satisfactory given that average Malaysian crude prices (3QFY11: US$87.10/bbl [RM264.78]; 2QFY11:US$77.30/bbl and 3QFY10: US$81.6/bbl) had increased by 12.7% on a quarter-on-quarter (q-o-q) basis and 6.7% on a y-o-y basis.

We believe that in an environment of rising crude oil prices, the downstream segment would most likely be the best performer given that Petronas' petrochemicals arm currently has a competitive gas-based structure. We highlight that effective April 2011, the group will change its financial year-end from March to December.

We expect the domestic sector to remain vibrant given that: (i) Petronas has already committed to a capex expenditure of RM40 billion for the year and RM250 billion over the next five years, with heightened focus on the domestic exploration and production; and (ii) The sector is one of the national key economic areas. Key themes to watch out for in the near term are companies taking a stake in upcoming marginal oilfield awards, and increased M&A as companies consolidate to gear up for the upcycle in the sector. Our top picks are PetChem ('outperform', fair value: RM7.27) for the positive outlook on the petrochemicals business and Dialog Group Bhd ('outperform', fair value: RM2.82) for the company's robust fundamentals and conservative management. ' RHB Research, March 3


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

KFC - Robust industry growth prospects seen for KFCH

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

KFC Holdings (M) Bhd
(March 3, RM3.66)
Maintain buy at RM3.65 with fair value of RM4.15: According to Bernama, fast-food chain McDonald's Malaysia (McD) is forecasting a robust 20% year-on-year (y-o-y) growth in sales to RM1.3 billion for 2011, from just RM1 billion in the pre-vous year.

McD is estimated to command some 20% to 30% market share of the local fast and casual food arena; thus we see the optimistic view as a good gauge of industry prospects. This underscores our positive stance on closest competitor KFC Holdings (KFCH) for the strong food consumption trend in Malaysia, with same store sales (SSS) growth in FY11F expected to remain steady at 8% to 9%. Market share of McD and KFCH combined is believed to be 55% to 60%.

McD recently launched a new product called the 'Family Breakfast Box' as part of the extension to existing breakfast offerings. As the name suggests, the product is designed for two to four persons, with two options priced at either RM19.90 per set or RM24.90 per set.

Admittedly, with savings of up to RM11.15 compared with a la carte purchases, the Family Breakfast Box does look attractive. However, we see an insignificant impact on KFCH, as breakfast sales constitute a mere 2% to 3% to KFCH's total revenue. In contrast, breakfast contributes an estimated 25% to 30% to McD's turnover.

Moving forward, integrated poultry margins, which have been relatively flattish so far, could see some slight pressure due to rising raw material costs such as corn and potatoes. But this should be partially offset by the strong ringgit against the US dollar. The group last raised average selling prices by 2% to 3% back in 2007 during the commodities bull run.

We maintain 'buy' with an unchanged fair value of RM4.15 per share, based on a fair price-earnings ratio of 20 times FY11 earnings. We like KFCH for its high-cash generating food business model on the back of stable restaurant sales in Malaysia and exciting earnings growth potential in India. ' AmResearch, March 3


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

TCHONG - Tan Chong: Viewing nuts and bolts of Serendah

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

Tan Chong Motor Holdings Bhd
(March 3, RM4.74)
Maintain outperform at RM4.78 with target price of RM7.30: We organised a visit to Tan Chong's Serendah plant recently. It was well attended by over 15 fund managers and buy-side analysts. While there were no major surprises from the visit, it provided us with a broad overview of Tan Chong's vehicle assembly operations. We were given a briefing on the plant before being taken on a tour of the body shop, test track, paint shop and assembly shop. The day ended with a briefing on Tan Chong's 4Q10 results.

The Serendah plant is one of the two plants that Tan Chong has in Malaysia ' the other being the older one in Segambut. The Serendah plant was built at a cost of RM230 million and was designed to meet the Nissan integrated manufacturing system, that is world-class in quality, productivity and delivery performance. Construction began in 1Q06 and the plant was completed in 2Q07. It started production and rolled out its first model, the Latio, in 3Q07. Currently, the Serendah plant assembles the Latio, Grand Livina, Sylphy and Teana.

We gather that the Serendah plant, a Nissan-dedicated plant, is on par with Nissan's standards. This is no surprise since the plant was designed with technical support and advice from Nissan Motor to begin with.

The operations of the plant are currently supported by a total of 1,241 workers, 991 or about 80% of whom are assembly workers. We gather that close to 45% of the 991 assembly workers are Nepalese while the rest are predominantly Malaysians. Working hours are from 7.40am to 4.30pm from Monday to Saturday.

We visited three main sections of the plant: (i) the body shop where the external body panels and interior frames are welded together; (ii) the paint shop; and (iii) the assembly shop where car components such as seats and dashboard are installed. Most of the work done in the body shop is automated. Much of the assembly work in the assembly shop is still done manually but assisted by machines. We gather that it takes an average of six to seven days for a car to roll out of the assembly plant (body shop, one day; paint shop, two days; and assembly shop, three days).

The Serendah plant is currently running on two shifts (normal capacity), which means that it can churn out about 2,400 cars monthly. The utilisation rate stands at about 80%, higher than the current utilisation rate of 50% in Segambut. Tan Chong's total production capacity stands at 45,600 (two shifts in Serendah, one shift in Segambut).

The Latio, Grand Livina, Sylphy and Teana are assembled in the Serendah plant. The next major model to join the family is the B-segment car, which is slated to roll out simultaneously from Serendah and the Danang plant in Vietnam at the end of next year. This car will be competing head-on with the Toyota Vios and Honda City.

All in all, the plant visit was fruitful and reassured us of Tan Chong's assembling capabilities, and more importantly, its commitment to ensuring the growth and competitiveness of the Nissan brand in Malaysia and maintaining its relationship with Nissan Motor. We believe Tan Chong and Nissan Motor's longstanding relationship will continue. Recall that Tan Chong's relationship with its principal was taken to a new level when it was appointed the sole distributor of Nissan vehicles in Cambodia and Laos. Tan Chong also recently acquired 74% of Nissan Vietnam Corp, the exclusive importer and distributor of Nissan vehicles in Vietnam (26%-owned by Nissan Motor), which further cemented this relationship. As such, we think that the recent memorandum of understanding (MoU) signed between Proton and Nissan Motor is unlikely to dent the solid Tan Chong-Nissan partnership. We believe that Tan Chong will remain Nissan's key partner in this region.

Tan Chong's share price is down 20% from the RM6 peak reached on Sept 17, 2010, possibly because of the 4Q10 results shortfall and weak market sentiment. We stress that the 4Q results blip resulted partly from a delay in the recognition of Teana's sales as buyers opted to take delivery of their cars in 2011. This was evident in the increase in inventories from RM734 million at end-September 2010 to slightly over RM1 billon at end-December 2010. The delay in deliveries simply means that the bulk of Teana sales will only be reflected in 1Q11. In fact, January's sales were strong and we gather that inventory levels have normalised to about RM600 million currently. The recently announced MoU between Proton and Nissan may have also crimped the share price, leading to cheaper valuations. We advise investors to accumulate this stock for exposure to its regional forays and the strategic expansion of its model mix into previously untapped market segments. We reiterate our 'outperform' call in view of the potential catalysts of: (i) a stronger earnings growth trajectory; (ii) new model pipeline; and (iii) expansion into new markets. We make no changes to our earnings projections or sum of parts-based target price of RM7.30. ' CIMB Research, March 3


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

MAS - Growing yields the priority for MAS in FY11

Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
Research House: RHB

Malaysian Airline System Bhd
(March 2, RM1.82)
Maintain underperform at RM1.86 with fair value of RM1.91: MAS guided for a two sen increase in yields in FY11, driven by its ability to roll out higher-yielding product offerings with more new aircraft coming into the system as well as various operational initiatives such as: (i) The migration to a new revenue management system; (ii) Re-positioning of its regional managers to Kuala Lumpur; (iii) The distribution among MAS ticket offices around the world of flight seats via a 'bidding' process rather than a fixed allocation as previously; and (iv) Beefing up the high-yielding medium-haul sectors.

MAS reiterated that it has no plan for another cash call over the next one to two years as a strong balance sheet, positive operating cash flow, coupled with the availability of options to lease and/or enter into sale-and-lease-back agreements should take care of new aircraft delivery funding.

We maintain our forecasts. Upside risks to our view include: (i) a stronger than expected rise in MAS' yields; (ii) lower jet fuel cost; and (iii) effective containment of outbreaks of pandemic diseases.

MAS has addressed its key concern ' the inability to grow its yields ' via a comprehensive fleet renewal programme. However, it will take a few years before all the aircraft are delivered and commissioned.

The recent turnaround in the global aviation sector could also be cut short as the surging crude oil prices on the back of the unrest in North Africa and the Middle East could throw a spanner in the works. MAS has only hedged forward 25% of its FY11 fuel requirements at US$88/bbl WTI.

For every US$1/bbl increase in jet fuel cost (against our assumption of US$95/bbl), MAS's FY11 net profit will be eroded by 7%. Indicative fair value is RM1.91 based on 14 times FY11 earnings per share, in line with its nearest comparable issue, Singapore Airlines Ltd. ' RHB Research, March 2


This article appeared in The Edge Financial Daily, March 3, 2011.

PROTON - Proton going the extra mile with Nissan

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

Proton Holdings Bhd
(March 2, RM3.51)
Maintain neutral at RM3.58 with target price of RM4.50: Proton Holdings has entered into a memorandum of understanding (MoU) with Nissan Motor Corp which will pave the way for feasibility studies on specific areas of cooperation, including the potential use of Nissan's platform and power train. The feasibility studies will end on April 30, 2011, or upon execution of a legally binding agreement, whichever is earlier.

The announcement is a positive surprise to us. This was not disclosed, but we suspect that Proton's global entry car, Proton Emas, could be the basis for this partnership. It is no secret that Proton is aiming to roll out the global entry car, and management hinted earlier that it was in talks with a global original equipment manufacturer (OEM) to drive this initiative. Proton has set an ambitious target of 2012 for the roll-out of the car.

Press reports earlier indicated that Proton may attempt to enter the Indian market with a small car, which is underpinned by Nissan's small car platform that is used for Nissan March/Micra. It makes sense for Proton to tie up with a reputable OEM such as Nissan which has a ready platform that it can leverage on. Platform collaboration would not only speed up the product development-to-delivery process and quicken its expansion into new global markets such as India but should also lower the overall development cost of the model.

In fact, such tie-ups and platform sharing are not uncommon in the global auto industry. We gather that it would take about 17 to 24 months for the car to go into production, which means that the global entry car is likely to only hit the roads in 2H12, at the earliest.

Because of its sizeable auto market, India has long been on Proton's radar. It has been in talks with various parties to penetrate the Indian market since last year. But entry into India's competitive market will not be easy as major global makers have already established a presence in the country.

Nissan Motor Corp itself has an entrenched position in the market via the Nissan March, which is called the Micra in India. A tie-up with a reputable OEM like Nissan would definitely give Proton some mileage in export markets compared to entry into the market on its own.

This announcement inevitably raises questions on the impact of the potential Proton-Nissan collaboration on Tan Chong and Nissan's sales in Malaysia. Details on the extent of the tie-up are scarce and we will need to get further details from Proton and Tan Chong to better gauge the impact of this new development. But if Proton uses Nissan's small-car platform to develop its global small car, as indicated by earlier press reports, it could cannibalise the sales of Nissan March in Malaysia, which Tan Chong intends to bring in by this year, in completely-built-up (CBU) form.

But bear in mind that Proton's small car is likely to be released in FY12 at the earliest, which means that the Nissan March has at least one year of lead time.

Tan Chong plans to locally assemble another B-segment car next year, which we gather will be spun off the same small car platform. Platform sharing between Nissan and Proton could lower the overall small car platform cost, which should indirectly lower the cost of rolling out the B-segment car as well.

The MoU between Nissan and Proton is positive as it could pave the way for Proton to use Nissan's platform. This would reduce Proton's product development costs and could speed up the roll-out of new models.

But we do not expect the tie-up to yield immediate earnings as the global small car is only expected to be rolled out in 2012, at the earliest. Until then, concerns over Group Lotus's turnaround exercise are likely to prevail.

We maintain our 'neutral' call, pending further details from management on the non-binding MoU. Our target price of RM4.50 is unchanged, which is still based on a 10% premium over Proton's historical price-over-net-tangible-assets per share of 0.5 times. ' CIMB Research, March 2


This article appeared in The Edge Financial Daily, March 3, 2011.

RGB - CIMB Research: RGB International remains an Underperform

Stock Name: RGB
Company Name: RGB INTERNATIONAL BHD
Research House: CIMB

KUALA LUMPUR:'' CIMB Equities Research said RGB International Bhd remains an Underperform as its slow turnaround efforts and continued delays in new technical and support management (TSM) ventures.

It said on Thursday, March 3 that it was positive about the pickup of slot machine sales in the Philippines and ii) better visibility on the mobilisation plan which could lead to the writeback of FY10's RM8 million impairment loss, lifting FY11 EPS by 28.5%.

'On the flip side, we are disappointed with the machine placement projection which is 10% lower than our forecast. Factoring in lower machine placement, we cut our FY11-13 EPS by 10-27%. Accordingly, our end-CY11 target price falls from 6.1 sen to 5.3 sen, which is still based on a forward P/E of 8x or a 50% discount to its larger-cap peers,' it said.

SPSETIA - RHB Research maintains Outperform on SP Setia

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

KUALA LUMPUR: RHB Research is maintaining its Outperform recommendation on SP Setia but due to the prevailing weakening equity market sentiment, it is taking a more prudent valuation.

It said on Thursday,, March 3 that it had lowered its fair value to RM7.30 based on a 15% premium to RNAV (from RM7.39 based on 30x CY11 PE).

'The upcoming private placement exercise should lend some support to the share price,' RHB Research said.

SP Setia acquired approximately 268.11 acres of freehold land in Cyberjaya from Cyberjaya's master developer, Setia Haruman Sdn Bhd for a total of RM420.4 million.

SP Setia's president and CEO, Tan Sri Liew Kee Sin said the land would be developed by Setia Eco Villa, a joint venture company between SP Setia (70%) and Setia Haruman (30%) into a mixed development with an expected gross development value (GDV) of RM3 billion.

The project to be known as Setia Eco Glades is expected to commence in FY2012 pending approvals and is expected to take about six years.

WCT - OSK Research: WCT targets RM2b in new jobs, RM400m launches

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

KUALA LUMPUR: OSK Research has raised the earnings outlook for WCT BHD [] which is targeting RM2 billion in new contracts and RM400 millio in launches this year.

'Our FY11-12 earnings are raised by 3%-6% and TP revised upwards to RM3.75. Maintain BUY,' it said.

OSK Research said WCT management had assured that there will be no further provisions for the Bakun dam and that the Middle East unrest had not impacted its operations.

WCT - OSK Research: WCT targets RM2b in new jobs, RM400m launches

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

KUALA LUMPUR: OSK Research has raised the earnings outlook for WCT BHD [] which is targeting RM2 billion in new contracts and RM400 millio in launches this year.

'Our FY11-12 earnings are raised by 3%-6% and TP revised upwards to RM3.75. Maintain BUY,' it said.

OSK Research said WCT management had assured that there will be no further provisions for the Bakun dam and that the Middle East unrest had not impacted its operations.

CIMB - January banking stats still paint a positive picture

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

Banking sector
Maintain overweight: Loans applications started the year with solid growth of 22.2% year-on-year (y-o-y) in January 2011 (December 2010: +36.6%). While the corporate segment was the main driver of December 2010's jump in loan applications growth of 36.6%, this segment has somewhat retraced to a slower growth of 18.7% y-o-y in January 2011 (December 2010: +83.7% y-o-y).

Loans approved expanded at the same rate of 17.3% y-o-y in January 2011, unchanged from 17.3% in December 2010. Again, the corporate segment was somewhat softer, recording a decline of 3% y-o-y in January 2011. The latest January 2011 statistics highlight that the corporate segment is off to a slow start for 2011. However, we are not overly perturbed as this is expected to pick up towards 2H11 with the roll-out of the government's economic transformation programme (ETP).

The consumer loans segment remains the main driver to overall loans growth with a 13.4% y-o-y increase. But the corporate loans growth has almost caught up with a 12.6% y-o-y growth in January 2011.

Overall deposits managed to record a higher growth of 9.1% y-o-y in January 2011, the strongest growth rate over the past 12 months. The higher increase came from acceleration in demand and savings deposits, which is positive.

The industry's impaired loans data has been readjusted. With the adjustment, January 2011 will now be the second month of uptick in impaired loans on a y-o-y basis. January 2011's impaired loans rose 4.1% y-o-y, against +3.6% y-o-y in December 2010.

However, the industry's gross impaired loans ratio is unchanged, at 3.1% in January 2011 (December 2010: 3.1%), indicating that the rise in impaired loans was in line with the overall higher loans growth. Loan-loss cover stood at 90% in January 2011 (December 2010: 90%).

The latest leading loan indicators indicate that corporate sector loans are likely to retrace. We expect this to pick up pace later with the roll-out of the government's ETP in 2H11. Deposit growth has now picked up and is backed by stronger core deposits. The main downside risk is still net interest margin (NIM) but we are encouraged by the latest second consecutive month-on-month rise in average lending rate.

The second and new risk that is now being flagged is the y-o-y uptick seen in impaired loans. However, gross impaired loans ratio and loan-loss cover are still stable, indicating that the potential upward revisions to loan loss provision estimates may be limited.

We are maintaining our sector rating at 'overweight', with our top picks being CIMB Group, Malayan Banking Bhd and Hong Leong bank Bhd. ' AmResearch, March 2


This article appeared in The Edge Financial Daily, March 3, 2011.

ALAM - Contract renewal for Alam Maritim vessel

Stock Name: ALAM
Company Name: ALAM MARITIM RESOURCES BHD
Research House: AMMB

Alam Maritim Resources Bhd
(March 2, 87 sen)
Maintain buy at 90 sen with fair value of RM1.31: We reaffirm our 'buy' rating on Alam Maritim Resources Bhd with an unchanged fair value of RM1.31 based on an FY11F price-earnings ratio (PER) of 15 times.

Our 'buy' rating is underpinned by three key points: (i) Strong rebound in earnings expected for FY11F (+74% year-on-year) as FY10 earnings were affected by bad debt provision and an inactive oil and gas sector; (ii) Stronger roll-out of oil and gas contracts; and (iii) Further upside from possibly sizeable offshore, installation and construction (OIC) contracts.

Alam announced on March 1 that it had been awarded an extension of contract for the provision of an accommodation work barge for RM71 million. We understand the vessel will be chartered for 21 months with an option to extend for an additional year.

Based on this contract value, the daily charter rate awarded works out to about US$37,000 (RM112,000) per day. The rate awarded is higher (+12%) than what Alam received last year for its accommodation work barge. We are not changing our estimates as we have assumed a renewal to this vessel at about RM110,000 per day.

On the flip side, despite the marginal field hype, Alam would rather be on the sidelines at this juncture. The group is cautious about the development of marginal fields especially since it is relatively new for Malaysia's oil and gas sector.

Nonetheless, the group would be participating indirectly via the supply of offshore support vessels. Recall that Petronas Carigali requires 15 vessels in the near term mostly to support the development of the marginal field works. We understand Alam has submitted a few of its vessels for this tender.

While its maiden pipe-lay barge ' co-owned with Swiber ' has been delivered, Alam is still looking for OIC jobs, one of which is an 'umbrella' contract for shallow water pipe-laying works.

Alam has an added advantage, it can consolidate its underwater services while a memorandum of understanding signed with Yayasan Sabah earlier would enhance its chances of getting jobs especially in Sabah waters. ' AmResearch, March 2


This article appeared in The Edge Financial Daily, March 3, 2011.

PROTON - Proton going the extra mile with Nissan

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

Proton Holdings Bhd
(March 2, RM3.51)
Maintain neutral at RM3.58 with target price of RM4.50: Proton Holdings has entered into a memorandum of understanding (MoU) with Nissan Motor Corp which will pave the way for feasibility studies on specific areas of cooperation, including the potential use of Nissan's platform and power train. The feasibility studies will end on April 30, 2011, or upon execution of a legally binding agreement, whichever is earlier.

The announcement is a positive surprise to us. This was not disclosed, but we suspect that Proton's global entry car, Proton Emas, could be the basis for this partnership. It is no secret that Proton is aiming to roll out the global entry car, and management hinted earlier that it was in talks with a global original equipment manufacturer (OEM) to drive this initiative. Proton has set an ambitious target of 2012 for the roll-out of the car.

Press reports earlier indicated that Proton may attempt to enter the Indian market with a small car, which is underpinned by Nissan's small car platform that is used for Nissan March/Micra. It makes sense for Proton to tie up with a reputable OEM such as Nissan which has a ready platform that it can leverage on. Platform collaboration would not only speed up the product development-to-delivery process and quicken its expansion into new global markets such as India but should also lower the overall development cost of the model.

In fact, such tie-ups and platform sharing are not uncommon in the global auto industry. We gather that it would take about 17 to 24 months for the car to go into production, which means that the global entry car is likely to only hit the roads in 2H12, at the earliest.

Because of its sizeable auto market, India has long been on Proton's radar. It has been in talks with various parties to penetrate the Indian market since last year. But entry into India's competitive market will not be easy as major global makers have already established a presence in the country.

Nissan Motor Corp itself has an entrenched position in the market via the Nissan March, which is called the Micra in India. A tie-up with a reputable OEM like Nissan would definitely give Proton some mileage in export markets compared to entry into the market on its own.

This announcement inevitably raises questions on the impact of the potential Proton-Nissan collaboration on Tan Chong and Nissan's sales in Malaysia. Details on the extent of the tie-up are scarce and we will need to get further details from Proton and Tan Chong to better gauge the impact of this new development. But if Proton uses Nissan's small-car platform to develop its global small car, as indicated by earlier press reports, it could cannibalise the sales of Nissan March in Malaysia, which Tan Chong intends to bring in by this year, in completely-built-up (CBU) form.

But bear in mind that Proton's small car is likely to be released in FY12 at the earliest, which means that the Nissan March has at least one year of lead time.

Tan Chong plans to locally assemble another B-segment car next year, which we gather will be spun off the same small car platform. Platform sharing between Nissan and Proton could lower the overall small car platform cost, which should indirectly lower the cost of rolling out the B-segment car as well.

The MoU between Nissan and Proton is positive as it could pave the way for Proton to use Nissan's platform. This would reduce Proton's product development costs and could speed up the roll-out of new models.

But we do not expect the tie-up to yield immediate earnings as the global small car is only expected to be rolled out in 2012, at the earliest. Until then, concerns over Group Lotus's turnaround exercise are likely to prevail.

We maintain our 'neutral' call, pending further details from management on the non-binding MoU. Our target price of RM4.50 is unchanged, which is still based on a 10% premium over Proton's historical price-over-net-tangible-assets per share of 0.5 times. ' CIMB Research, March 2


This article appeared in The Edge Financial Daily, March 3, 2011.

AXIATA - Axiata remains top telco pick for OSK

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

Axiata Group Bhd, under the continued leadership of Datuk Seri Jamaludin Ibrahim, is well positioned to becoming a regional champion by 2015, says OSK Research.

Yesterday, Axiata announced it had renewed the contract of president and group chief executive officer (CEO) Jamaludin, for another three years.

He joined Axiata in 2008 as CEO following the demerger of the group (previously TM International) from Telekom Malaysia Bhd.

"Axiata remains our top pick for exposure to the telecoms sector. Our target price is retained at RM5.83," the research firm said in a note today.

"We like the stock's robust growth prospects, marked by its regional footprint in Indonesia, Sri Lanka, Bangladesh and India, and potential for further capital management," it added.

OSK said Axiata's market capitalisation had doubled from the point of demerger (effective April 24, 2008) to RM41.4 billion currently.

"We note that the market capitalisation of a few of Axiata's wholly-owned subsidiaries including, 66.7 owned XL Axiata and 86.8 per cent owned Dialog Axiata, which are listed on their home exchanges have also surged over the past three years," it highlighted.

The research firm said Axiata's market capitalisation is currently ahead of Maxis'. Jamaludin served as Group CEO of Maxis before his official retirement in July 2007.

During his tenure in Maxis, the company's market capitalisation soared to RM39 billion in 2005 - prior to the privatisation - on the back of a 20-fold increase in revenue to over RM7.6 billion. -- Bernama

PROTON - CIMB Research maintains Neutral call on Proton, TP RM4.50

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

KUALA LUMPUR: CIMB Equities Research is maintaining its Neutral call on PROTON HOLDINGS BHD [] with an unchanged target price of RM4.50 based on a 10% premium over Proton's historical P/NTA of 0.5x.

It said on Wednesday, March 2 that Proton's move to sign an MoU with Nissan Motor Co which could pave the way for the use of Nissan's platform and powertrain 'is a positive surprise to us'.

CIMB Research said it suspects that Proton's global entry car, Proton Emas, could be the basis for this partnership.

Apart from reducing Proton's product development costs, the tie-up could speed up the rollout of the new model, it said.

'But we do not expect the tie-up to yield immediate earnings as the global small car is only expected to be rolled out in 2012, at the earliest.

'From now until then, concerns over Lotus's turnaround exercise are likely to prevail. We maintain our NEUTRAL call, pending further details from management on the non-binding MOU,' it said.

MAS - RHB Research maintains underperform on MAS, FV RM1.91

Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD
Research House: RHB

KUALA LUMPUR: RHB Research said MALAYSIAN AIRLINE SYSTEM BHD [] (MAS) guided for a two sen increase in yields in FY11, driven by its ability to roll out higher-yielding product offering with more new aircraft coming into the system.

The research house said MAS was undertaking measures to increase the yields via various operational initiatives.

These include the migration to a new revenue management system; re-positioning of its regional managers to KL; and the distribution among MAS ticket offices around the world of flight seats via a 'bidding' process vis-''-vis fixed allocation previously; and beefing up the high-yielding medium-haul sectors.

'MAS reiterated that it has no plan for another cash call over the next 1-2 years as a strong balance sheet, positive operating cashflow, coupled with the availability of options to lease and/or enter into sale-and-lease-back agreements should take care of the funding of its massive new aircraft delivery,' it said.

TCHONG - OSK Research: Promising outlook for Tan Chong's motorcycle foray into Laos

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

KUALA LUMPUR: OSK Research said Tan Chong's venture into the motorcycle segment in Laos holds promise given the growth potential and the country's limited purchasing power.

It said on Wednesday, March 2 that in general, the Indo China region is characterised by a low GDP per capita of less than US$1000, according IMF data.

OSK Research said given Laos' poor road infrastructure, motorcycles are an important mode of transport and in view of their attractive pricing ranging from US$700-US$1,000 each, such vehicles are entry level products provide individuals with low cost and low risk mobility.

'Furthermore, we also believe that penetrating the entry market will allow Tan Chong to ultimately tap the after-sales market and progressively move into the upgraded four-wheeler market,' it said.

On Tuesday, Tan Chong announced it is establishing a new venture to undertake the assembly, sale and distribution of motorcycles in Savan-Seno Special Economic Zone in Laos.

Tan Chong has been issued a 75 years manufacturing license with favorable tax incentives by the Laos government.

ALAM - OSK Research maintains Buy on Alam Maritim, unch TP RM1.50

Stock Name: ALAM
Company Name: ALAM MARITIM RESOURCES BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining a Buy on Alam Maritim for now with an unchanged target price of RM1.50 based on the existing PER of 15x FY11 EPS.

It said on Wednesday, March 2 that unless Alam Maritim's 1QFY11 results significantly disappoint, it is keeping its FY11 forecasts unchanged for now.

On Tuesday, Alam Maritim announced it was awarded an extension of contract to provide one accommodation work barge for about RM70.52 million.

The extension is for 21 months from April 12, 2011 to January 2013, with a further option to extend for an additional year.

Earlier Tuesday, its share price was bashed down by about 10% in tandem with its other peers. Apart from the overall bearish market sentiment, the selldown was partly related to the company's announcement of a quarterly loss, especially after it made a provision for the debt owing by Vastalux.

'We expect its FY10 to be a kitchen sinking year for but Alam should start seeing a recovery in FY11. However, as we mentioned earlier, we do not expect its 1H11 results to be very good as it was still affected by the monsoon season in 1Q.

'Also, Petronas' focus is now on the initial stage of marginal oilfield development and not towards the tail end, which would be from 2H11,' OSK Research said.

ALAM - OSK Research maintains Buy on Alam Maritim, unch TP RM1.50

Stock Name: ALAM
Company Name: ALAM MARITIM RESOURCES BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining a Buy on Alam Maritim for now with an unchanged target price of RM1.50 based on the existing PER of 15x FY11 EPS.

It said on Wednesday, March 2 that unless Alam Maritim's 1QFY11 results significantly disappoint, it is keeping its FY11 forecasts unchanged for now.

On Tuesday, Alam Maritim announced it was awarded an extension of contract to provide one accommodation work barge for about RM70.52 million.

The extension is for 21 months from April 12, 2011 to January 2013, with a further option to extend for an additional year.

Earlier Tuesday, its share price was bashed down by about 10% in tandem with its other peers. Apart from the overall bearish market sentiment, the selldown was partly related to the company's announcement of a quarterly loss, especially after it made a provision for the debt owing by Vastalux.

'We expect its FY10 to be a kitchen sinking year for but Alam should start seeing a recovery in FY11. However, as we mentioned earlier, we do not expect its 1H11 results to be very good as it was still affected by the monsoon season in 1Q.

'Also, Petronas' focus is now on the initial stage of marginal oilfield development and not towards the tail end, which would be from 2H11,' OSK Research said.

FABER - Faber continues to lose ground after weaker earnings

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

KUALA LUMPUR: Shares of FABER GROUP BHD [] continued to lose ground in the afternoon session on Tuesday, March 1 after its earnings fell sharply following'' the non-renewal of two Abu Dhabi contracts with an estimated value of RM184 million per annum.

At 4.34pm, it was down 11 sen to RM1.82 with 2.38 million shares done.

The FBM KLCI rose 8.91 points to 1,500.16. Turnover was 998.17 million shares valued at RM1.31 billion.'' Declining stocks overtook advancers 443 to 318 while 305 stocks were unchanged.

Faber Group's net profit shrank to RM2.91 million in the fourth quarter ended Dec 31, 2010 from RM42.57 million a year ago. Revenue declined to RM203.95 million from RM303.93 million. Earnings per share were 0.8 sen only compared with 11.73 sen. It proposed dividend of eight sen per share compared with six sen.

For the financial year ended Dec 31, 2010 net profit was RM78.78 million compared with RM82.68 million in FY09.

RHB Research Institute had on Monday accorded a fair value of RM2.22 for Faber and retained a market perform for the stock.

''

WCT - WCT bullish on Qatar

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

WCT Bhd
(March 1, RM3.02)
Maintain buy at RM2.97 with target price of RM3.85: We view WCT's proactive initiative to close the chapter on Bakun dam positively. Impoundment works are being carried out and scheduled for completion by mid-2011, followed by handover at end-2011. The write-back on the provisions, depends on the government's approval which, if successful, will most likely happen in 2012.

Half of WCT's RM3 billion order book is from the Middle East, of which a total of RM78 million is derived from Bahrain, where the project is already completed pending final claims. The remaining projects are in Qatar where WCT is undertaking the RM1.4 billion Qatar Government Administrative Office project.

WCT does not see similar revolts happening in Qatar as the country is much more affluent with large oil and gas reserves compared with neighbouring countries. WCT is still bullish on Qatar by virtue of the country hosting the 2022 World Cup.

As at end-2010, WCT's unbilled property sales stood at RM178 million, accounting for 76% of its FY10 property sales.

Management has targeted RM400 million worth of launches in 2011. The terms and agreement for the KLIA2 concessionaire have more or less been finalised. Paradigm Mall is expected to be opened by end-2011 and 40% of the 700,000 sq ft net lettable area has been committed. The anchor tenant, Tesco, will occupy 120,000 sq ft.

Risks to WCT's performance include execution, regulatory and political risks, besides rising raw material prices.

We revise our forecast for WCT's FY11 and FY12 earnings per share downwards by 1.7% and 3.5% respectively.

But we maintain our 'buy' call on the stock due to the positive outlook for the sector. Share price weakness due to the Middle East turmoil is an opportunity to make an entry into the stock. Our target price for WCT shares is reduced to RM3.85 post earnings revision based on 15 times average FY11 and FY12 earnings. ' Hong Leong IB Research, March 1


This article appeared in The Edge Financial Daily, March 2, 2011.

TGOFFS - Tanjung Offshore's earnings remain volatile

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: MAYBANK

Tanjung Offshore Bhd
(March 1, RM1.54)
Maintain sell at RM1.65 with target price of RM1.07: Tanjung Offshore's results continue to be erratic, missing our forecasts and consensus. We remain concerned over its cost management strategies which have resulted in poor earnings. Valuations are expensive while consensus forecasts are overly aggressive.

In light of the earnings uncertainties, we adjust our target price valuations to 0.8 times in price-to-book value (PBV) terms. We had used price-earnings ratio (PER) valuations previously.

The company's reported net loss of RM116,000 in 4Q took full-year earnings to RM7 million (+128% growth year-on-year), below our and consensus forecasts of RM8 million to RM9 million.

Tanjung Offshore is unlikely to perform in 2011. It will incur RM10 million in dry-docking costs for its three vessels (MV Tanjung Pinang 1, 2, and 3) scheduled in 2011. We are apprehensive over its ability to turn around its engineering equipment, maintenance, and drilling and platform divisions, which have been in the red for the past few consecutive quarters. The firm may also suffer a one-off cost of between RM7million and RM8 million from the early redemption of its bonds as it plans to refinance its debts to conventional term loans in 1Q11.

We slash FY11 and FY12 earnings forecasts by 42% to 56%, taking into account the erratic earnings performance. Earnings visibility will remain opaque, which makes forecasting a challenge. With these uncertainties, we change our valuation basis from a PER of eight times 2012 earnings to PBV valuations. We now value Tanjung Offshore shares at RM1.07 based on a PBV ratio of 0.8 times.

Ekuinas' intentions with regards to Tanjung Offshore are unclear now, but we think it could eventually be a platform for Ekuinas to consolidate the oil and gas service providers in the market. This may enhance value for minorities in the long term. For now, Tanjung Offshore's valuations are extremely stretched at a PER of 53 times 2011 earnings and a PBV ratio of 1.2 times (historical). ' Maybank IB Research, March 1


This article appeared in The Edge Financial Daily, March 2, 2011.

EONCAP - EONCap FY10 numbers below OSK estimates

Stock Name: EONCAP
Company Name: EON CAPITAL BHD
Research House: OSK

EON Capital Bhd
(March 1, RM7.10)
Maintain neutral at RM7.14 with target price of RM7.30: EONCap's FY10 results were in line with consensus' full-year forecast but 6.5% below ours. The key drag on earnings in 4QFY10 was a 266.1% quarter-on-quarter spike in loan-loss provision, which resulted in a 26.9% q-o-q decline in 4QFY10 earnings.

However, the group still managed to register a full-year FY10 earnings growth of 29% despite a 38.% year-on-year (y-o-y) jump in full-year provisions due to a 15.4% climb in net interest income, a 16.5% growth in Islamic banking earnings, a 811% surge in trading profit, largely, from the sale of available-for-sale assets and a 14.6% increase in transactional banking fee income.

Effective operating cost containment efforts have also helped to bring down the cost-to-income ratio to 46.2% against 63.5% in FY09.

The group's FY10 loan growth was a commendable 14.4% y-o-y, ahead of our estimates of 12% but in line with management's targeted 14% growth as 4QFY10 loan growth traction gained significant momentum (+4.1% q-o-q).

By loan segment, although business loans and small and medium business loans expanded by 12.5% y-o-y, the consumer segment, in particular mortgages, was the key driver. Hire purchase (HP) grew at a more subdued 6.8% y-o-y as the group sought to rebalance its loan portfolio away from HP.

Absolute gross impaired loans rose 7.3% q-o-q with higher impaired loans within the HP and working capital loan segment. The group's exposure to collateralised loan obligation, which expired in September 2010, and the reclassification of RM107.5 million in previously restructured accounts as impaired under the FRS139 guidelines resulted in an increase in impaired loans.

Consequently, the higher provisions for the above-mentioned accounts pushed up credit costs by nine basis points (bps) to 68bps for FY10. However, despite the higher provisions, impaired loan loss coverage ratio dipped marginally to 89.6% from 90.1% q-o-q.

We have tweaked downwards our FY11 and FY12 earnings estimates by 5.3% and 2.7% respectively to account for the higher credit cost at 56bps and 52bps respectively. ' OSK Research, March 1


This article appeared in The Edge Financial Daily, March 2, 2011.

ALLIANZ - 2011 fundamentals intact for Alllianz

Stock Name: ALLIANZ
Company Name: ALLIANZ MALAYSIA BHD
Research House: RHB

Allianz Malaysia Bhd
(March 1, RM5.12)
Maintain market perform at RM5.05 with target price of RM5.34: Allianz is still in early stages of its planned acquisition of MNRB Holdings Bhd's Takaful Ikhlas arm. We understand that Allianz has not come to a decision with regards to the size of the stake that it is acquiring, much less the valuation. However, we expect a follow-up announcement within the next two months on the progress of the acquisition.

We maintain our view that assuming a deal does go through, it will be beneficial to both parties as Allianz could broaden its product offering with the inclusion of Takaful products, while MNRB could broaden its distribution channel for its Takaful Ikhlas products by leveraging on Allianz's agency force, which we understand numbers more than 8,000. As at Dec 31, 2010, the size of Takaful Ikhlas' family fund was RM850 million, while its general takaful fund was at RM85 million, with combined revenues of RM147 million as at 3QFY11.

Management confirmed the recent news in the media of the complete removal of motor tariffs although we understand that, as of now, there has been no confirmation of exactly how much the tariff will be reduced per year.

However, the company stresses that it will be gradual and Bank Negara Malaysia will most likely consider the financial impact on the man in the street before making any drastic decisions. Thus, any significant improvements in claims ratio will not be seen immediately in 2012, in our view.

Furthermore, management did not rule out the possibility of a de-tariffing exercise for the fire business, which in contrast to the motor business, is highly profitable due to its low claims ratio of 20% to 30% (motor average industry claims ratio is more than 100%).

If this were to happen, we believe overall industry claims ratio will be roughly similar to current levels of 65% to 80%. We are nonetheless keeping our claims ratio assumption at 60% for FY11 to FY13, pending further clarification on the matter. Also note that this will mean that the previous proposal by Bank Negara is no longer applicable.

In 2010, Allianz's general insurance gross written premiums grew 10.1% year-on-year (y-o-y) in line with our estimate of 10%. Almost half of the gross premiums (49%) came from motor policies, followed by fire (20%) and the rest was fragmented among other businesses.

Life insurance gross written premiums (GWP) grew by 18.5% y-o-y to RM1.03 billion in 2010 against RM870 million in 2009, mainly helped by recurring premiums which include long-term and retirement business. Single-premium business, which made up 14.4% of total GWP, actually declined y-o-y by 0.6%.

The risks to Allianz's performance include lower than expected premium growth, jump in claims ratios, intense competition from insurance sector liberalisation and a change in Bank negara policy that will require Allianz to increase its internal capital adequacy ratio in compliance with risk-based capital requirements.

We are leaving our forecasts and assumptions unchanged. We are also maintaining our 'market perform' call on the stock, and our sum-of-parts-derived fair value is unchanged at RM5.34 a share. ' RHB Research, March 1


This article appeared in The Edge Financial Daily, March 2, 2011.

GENTING - Genting climbs, KLCI near 1,500

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

KUALA LUMPUR: GENTING BHD [] advanced in late morning on Tuesday, March 1, on some buying interest after the recent selldown, giving the FBM KLCI a mild boost towards the key 1,500 level.

At 11.06am, it was up 17 sen to RM10.16 with 532,500 shares done.

The KLCI rose 7.75 points to 1,499. Turnover was 368.6 million shares done valued at RM381.19 million. There were 301 gainers, 227 losers and 268 stocks unchanged.

RHB Research recently reduced its fair value for Genting Bhd to RM12.40 from RM12.80 after the fourth quarter earnings ended Dec 31, 2010. However, it maintained its Outperform recommendation.

It had reduced the fair value after taking into account its recently reduced fair value for Genting PLANTATION []s of RM9.20 (from RM9.65), Genting Singapore of S$2.30 (from S$2.40) and Genting Malaysia of RM4.45 (from RM4.50) after their 4QFY10 results; (2) rolling over our DCF valuations for Genting's management fees; and (3) updating Genting's latest net debt (ex-Genting Malaysia and Genting Singapore.

MAXIS - Maxis cut to 'market perform' at RHB

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

Maxis Bhd, Malaysia’s biggest mobile-phone operator, was cut to “market perform” from “outperform” at RHB Research Institute Sdn Bhd to reflect slower growth prospects.

The fair value for the stock was reduced to RM5.65 from RM5.75, Lim Tee Yang, an analyst at RHB, wrote in a report today. -- Bloomberg

ALAM - OSK Research: Alam Maritim results below expectations, TP unchanged RM1.50

Stock Name: ALAM
Company Name: ALAM MARITIM RESOURCES BHD
Research House: OSK

KUALA LUMPUR: OSK Research said Alam Maritim's FY10 results were below expectation due to the provision made for doubtful debts, especially those related to Vastalux.

It said on Tuesday, March 1 that Alam Maritim's performance was also affected by soft vessel demand and continuously poor contribution from its underwater services and offshore installation and CONSTRUCTION [] divisions.

'However, we believe Alam has fully provided for the potential doubtful debt amount arising from Vastalux and going forward, we see more O&G activities pick up pace, which will spur demand for its vessels,' it said.

OSK Research said its target price for Alam remained unchanged at RM1.50, based on the existing PER of 15x FY11 EPS.

'We believe the company's outlook should brighten going forward since Alam has fully provided for Vastalux's potential doubtful debt. We also expect the pace of O&G activities to pick up as the projects awarded last year and early this year are progressively implemented,' it said.

MAXIS - HDBSVR maintains Hold on Maxis, TP RM5.10

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

KUALA LUMPUR: Hwang DBS Vickers Research is maintaining a Hold recommendation'' on Maxis Bhd with a discounted cashflow-based target price of unchanged at RM5.10.

It said on Tuesday, March 1 it reduced its EBITDA forecasts in FY11F-12F and cut its capex assumptions based on latest guidance.

'Note that we have also lowered our dividend payout assumptions in FY11F-12F to 100% (from 117%) considering its limited retained earnings as at end-FY10. However, net yield is still at attractive 6%,' it said.

HDBSVR said Maxis EBITDA rose 3% on-quarter on the back of 4% rise in revenue. This was mainly supported by 10% jump in non-voice revenue (39% of group revenue).

'We understand that the non-voice segment grew given higher small screen data usage and larger wireless broadband subscriber base. Wireless broadband revenue grew 5% on-quarter as Maxis gained 70,000 net adds (to 594,000 subscribers) although ARPU dipped 9% to RM64,' it said.

The research house Maxis' mobile voice revenue was flat on-quarter helped by higher postpaid ARPU of RM108, 4% rise in prepaid subscriber base (to 10.7 million) as well as stable MOUs in both segments.

Maxis' EBITDA margin was flat on-quarter at 51%. Maxis also announced total net DPS of 16 sen for the quarter which translates into 3% yield, above its expectation.

'Reduced FY11F-12F earnings by 3-6% mainly after raising our cost assumptions and lowering our non-mobile revenue growth forecasts (given the lower-than-expected performance in FY10).

'We expect Maxis to incur additional costs (including customer acquisition costs) for its new fixed Home services (partly via TM's HSBB network), which is expected to be launched at end-March 2011. Given that the services are new and therefore lacks scale, it could drag down margins but the impact should be minimal over the next two to three years,' it said.

PETRA - OSK Research: Worst over for Petra Perdana, maintain Buy

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

KUALA LUMPUR: OSK Research said PETRA PERDANA BHD []'s FY10 results were below expectations due to low vessel utilisation and charter rates as well as an impairment loss of RM7.7 million.

'We believe 2010 is a 'washout' year for the company and expect it to gradually recover. Maintain Buy,' it said on Tuesday, March 1.

In reviewing Petra Perdana results, OSK Research said the FY10 net losses were higher than what consensus and it had expected.

Overall, the company was still in the red in 4QFY10 with a loss of RM18.3 million due to: i) a low vessel utilization rate; ii) low charter rates, and iii) an impairment loss of RM7.7 million.

OSK Research said on a quarter-on-quarter comparison, the 4QFY10 numbers improved, with net losses lower by 22.7% contributed by: i) higher utilisation rate of vessels, and ii) lower mobilisation costs during the quarter.

Finally, on a YTD comparison, the company recorded a net loss of RM71.5 million m for FY10 versus a net profit of RM29.3 million m the previous year due to: i) lower revenue; ii) lower vessel utilization rate; iii) lower charter rate; iv) an impairment loss of RM7.7 million and v) a gain on the divestment of PETRA ENERGY BHD [] shares of RM12.7 million in 2009.

'We believe 2010 was a 'washout' year for the company and expect it to recover gradually. Hence, our target price on the stock remains unchanged at RM1.57, based on the existing PER of 15x FY11 EPS.

'Going forward, we expect Petra Perdana to be the biggest beneficiary among its peers when Petronas and its PSC contractors dish out new vessel contracts as it has the lowest utilisation rate of about 50% compared to its peers' 70%-80%,' it said.