Bursa Malaysia Stock Price Target: 04/24/11

April 29, 2011

PANTECH - Promising outlook for Pantech's ops: OSK

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

Pantech Group Holdings's medium to longer term prospects look promising, OSK Research says.

It said although the company’s near term earnings outlook appeared unexciting, the research house remained hopeful of a turnaround in Pantech's first quarter numbers for the 2012 financial year.

"This is given the anticipated pick-up in oil and gas activities in the second half of 2011, boosted by the government’s Oil, Gas and Energy National Key Economic Areas which will likely spur activities in the sector," OSK Research said in its Malaysia Equity Investment Research Daily today.

It said Pantech's profit for the whole of 2011 of RM29.4 million was slightly below its estimates.

It maintained a "trading buy" recommendation on Pantech with a target price of 79 sen. - Bernama

MMCCORP - OSK maintains 'Buy call' on MMC

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

OSK Research is maintaining a "Buy" call on MMC Corporation, with an unchanged fair value of RM3.62.

The company based its optimism on expectation that some good news was coming MMC's way following news that Gulf International Investment Group Holdings Sdn Bhd had entered into a joint-venturent with Aluminium Corp of China (CHALCO) for the development of a US$1.6 bil aluminium smelting plant in Sarawak.

MMC Corp Bhd is the flagship company of local tycoon Tan Sri Syed Mokhtar Albukhary.

Syed Mokhtar's companies had previously worked with CHALCO, especially to set up a US$3 billion smelter in Jazan Economic City, Saudi Arabia.

"With MMC having built a relationship with CHALCO in relation to Jazan some four years ago, we continue to see Syed Mokhtar's companies being mutually beneficial," OSK Research said.
As at 3.15 pm, MMC Corp stood at RM2.68, down one sen. - Bernama

EONCAP - OSK keeps EONCap target price at RM7.30

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

OSK Research has maintained its "neutral call" and its RM7.30 target price for EON Capital Bhd to reflect the takeover offer price from Hong Leong Bank Bhd (HLB), with no other credible competing offer from domestic or foreign banks.

"Given the need to wait for Primus Pacific Partners Ltd' appeal to go through the courts, HLB is likely to extend the deadline for EON Cap to accept its offer to acquire the entire assets and liabilities of EON Cap beyond April 30," it said in a research note today.

Primus had lost its suit against several EON Cap directors over the proposed sale of 100 per cent of the assets and liabilities to HLB.

To recap, HLB has offered RM5.06 billion or RM7.30 per share to acquire the entire asset and liabilities of EON Cap.

Meanwhile, HwangDBS Vikers Research said the potential merger between HLB and EON Cap would be beneficial as it would create the fourth largest bank in Malaysia with pocket opportunities for expansion. - Bernama

EONCAP - OSK keeps EONCap target price at RM7.30

Stock Name: EONCAP
Company Name: EON CAPITAL BHD
Research House: S&P

EPMB - EP Manufacturing up after OSK Research raises TP to 89 sen

Stock Name: EPMB
Company Name: EP MANUFACTURING BHD
Research House: OSK

KUALA LUMPUR: EP MANUFACTURING BHD [] shares advanced in early trade on Friday, April 29 after OSK Research maintained its buy call on the stock and raised its target price to 89 sen from 78.7 sen previously.

At 9.35am, EPMB was up 3.5 sen to 80 sen with 2.32 million shares done.

OSK Research in a note April 29 said that while EPMB's earnings were better than expected (with Q1 representing 40% of its full-year forecast) owing to the low amortization rate, the research house preferred to be cautious and make no changes to its PBT forecast as it saw Perodua being hit by a components supply shortage.

'However, given the lower effective tax foreseen over the immediate to medium term, we are nudging up our bottomline earnings by some 13% for FY11-FY13 and revise upward our target price from 78.7 sen to 89 sen, with our Buy call retained.

'EPMB still offers decent upside given its attractive valuation as the stock is still trading below its 8-9x historical forward PE. At 5.2 times FY11 EPS, some 50% of its share price is made up of free cash flow. Maintain Buy,' it said.

''

HLBANK - Hong Leong said to sweeten EONCap offer

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

Hong Leong Bank Bhd, Malaysia’s sixth-biggest lender by market value, agreed to sweeten its RM5.06 billion (US$1.7 billion) takeover offer of smaller rival EON Capital Bhd by allowing it to pay a dividend to existing shareholders as part of the deal, a person familiar with the matter said.

EON’s board met last night to approve a dividend payment of about 40 sen per share after obtaining Hong Leong’s agreement following several rounds of negotiations, said the person, who asked not to be identified because the process is private.

Shares of EON and Hong Leong Bank were suspended on the Kuala Lumpur stock exchange today, pending an announcement.

Primus Pacific Partners Ltd, a Hong Kong-based investment fund which is EON’s biggest shareholder with a 20.2 per cent stake, has opposed the deal after paying RM9.55 a share for its interest in 2008. That’s 31 per cent more than Hong Leong’s all-cash offer, which equals to RM7.30 per share. While the takeover price remains the same, a one-off dividend would partially cushion this shortfall.

EON’s minority shareholders voted in favor of the takeover at a meeting last year. Primus then sued the bank and nine of its directors, claiming they had exceeded their powers and breached fiduciary and statutory duties in allowing the sale vote to proceed. In the suit filed through its local unit in June, the fund sought RM1.11 billion in damages if the transaction went ahead at the current offer price.

Court Ruling

A Malaysian court yesterday ruled that the planned acquisition by billionaire Quek Leng Chan’s Hong Leong is legal, thwarting Primus’s attempt to block the sale. There was no answer at Quek’s office when phoned today for comment before normal office hours.

With the court ruling, “the way is paved for a re-rating” for Hong Leong Bank shares, OSK Research Sdn Bhd analysts led by Chris Eng wrote in a report today. “The deal will be value accretive on all fronts,” according to the report.

Hong Leong’s stock rating was raised to “buy” from “trading buy” and its fair value increased to RM11.60 from RM9.86, Eng said. An EON takeover would help Hong Leong create the Southeast Asian nation’s fourth-biggest banking group by assets, he said.

‘Buying Time’

“The petitioner’s motive is purely to buy time in order to secure another bidder who’d pay more than RM7.30 per share,” Judicial Commissioner Varghese George Varughese said when delivering his judgment in a high court in Malaysia’s northern Penang state. “Corporate democracy must prevail.”

China Construction Bank Corp, the world’s second-largest lender by market value, expressed interest this month in buying EON, two people with knowledge of the matter said on April 26.

The Beijing-based bank sent a letter to Malaysia’s central bank asking for permission to start talks with some or all of the major shareholders of EON, hoping to secure the highest possible equity ownership in the Malaysian lender, according to the people who asked not to be identified as the information was confidential.

EON shares rose to 0.7 per cent to close at RM7.23 ringgit yesterday in Kuala Lumpur trading, paring an earlier 3.1 per cent gain after this afternoon’s verdict. Hong Leong Bank Bhd. rose 0.6 per cent to RM10.40, while its parent Hong Leong Financial Group Bhd jumped 4 per cent to a record RM9.90. -- Bloomberg

PARAMON - Paramount cut to 'market perform' at RHB

Stock Name: PARAMON
Company Name: PARAMOUNT CORPORATION BHD
Research House: RHB

Paramount Corp, a Malaysian property developer, was downgraded to “market perform” from “outperform” at RHB Research Institute Sdn Bhd as the stock was seen to be “fully valued”.

There is “less than 5 per cent upside to our fair value,” which was maintained at RM5.92, analyst Loong Kok Wen wrote in a report today. -- Bloomberg

UNISEM - CIMB Research Neutral on Unisem, keeps TP RM2.08

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

KUALA LUMPUR: CIMB Equities Research said the positive takeaways from Unisem's 1Q11 briefing were its expectations of a strong 2H11, commitment to its China expansion and confirmation of limited aftershocks from Japan's earthquake at this juncture.

It said on Friday, April 29 the main negative surprises were the steep drop in utilisation rates in 1Q and the more muted tone for 2Q.

'We are cutting our FY11-13 EPS by 4-8% to reflect cost pressures from a firmer ringgit and a bigger capacity base. The earnings adjustments have no impact on our target price of RM2.08, which we continue to base on a 40% discount to its mid-cycle valuation P/BV of 2.2x,' it said.

CIMB Research said it remains NEUTRAL on Unisem as the absence of immediate catalysts and its weak near-term earnings are balanced out by the attractive yield and volume loading from the tier-1 customer. Switch to Jobstreet.

April 28, 2011

TGOFFS - Tanjung Offshore: Caution ahead; flashing red flags

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

Tanjung Offshore Bhd
(April 27, RM1.29)
Maintain sell at RM1.39 with target price of RM1.07: We maintain our 'sell' call as 1QFY11 earnings will likely miss street expectations again. Cost management strategies and operating prospects remain the key concerns. An equity cash-call could ensue should the cash situation worsen. Tanjung will also suffer an RM8 million penalty cost for early bond redemption. Valuations are expensive and consensus forecasts are aggressive. Nonetheless, Ekuiti Nasional's (Ekuinas) next move remains a wild card.

Contrary to market expectations of an earnings rebound in 1Q11, we caution that Tanjung will likely remain in the red (losing RM2 million to RM5 million) with a contracting revenue trend (down 30% to 50% quarter-on-quarter). Losses will be exacerbated by the ongoing cost overruns at its UK-based process equipment unit, Citech Energy Recovery Systems, and Tanjung CSI Sdn Bhd. Its vessel operations will also see weaker earnings. Three of its vessels were idle in 1Q as Petroliam Nasional Bhd embarked on early contract termination.

We remain apprehensive over Tanjung's ability to turn around its engineering equipment, maintenance and drilling and platform divisions. Replenishment rates at these divisions have been poor and sliding. Tanjung will incur RM10 million on dry-docking costs for its three vessels (MV Tanjung Pinang 1, 2, 3) scheduled in 2011. Although most of the idle vessels will be contracted by 3Q, charter rates are likely to be flat with just one- to two-year tenures.

We cut 2011/13 earnings by 40% to 126% ahead of the poor 1Q and erratic earnings for the next nine months. Earnings visibility will remain opaque, making forecasting a challenge. We feel management needs to improve on its cost management, restructure its non-core operations and realign the business direction. We do not rule out the need for a cash call in the mid-term, given the tightening cash flow and high working capital requirements. Net gearing stood at 1.4 times as at December 2010.

Tanjung will refinance its long-term debt to stretch repayment. It will retire the RM110 million bonds and Islamic medium-term notes (RM120 million) and refinance them with a conventional term loan, which will stretch its principal repayment by four years to 2018. However, this would lift interest costs, considering that blended financing rates will grow from 5.6% to 6.0%. Tanjung will suffer a one-off cost of RM8 million from the early redemption, which will be recognised in 2Q. ' Maybank IB Research, April 27

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

WASEONG - Wah Seong up in early trade

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

KUALA LUMPUR: WAH SEONG CORPORATION BHD [] shares rose in early trade on Thursday, April 28 after CIMB Research upgraded the stock to an Outperform from Neutral and raised its target price to RM2.70 from RM2.50 previously.

At 9.30am, Wah Seong gained 12 sen to RM2.27 with 1.82 million shares done.

CIMB Research said in a note April 28 said the company's management yesterday shed more light on Wah Seong's recently-announced JVs with US-based Insituform.

This relationship could allow Wah Seong to venture into the US and set up a deepwater pipe coating plant in the Gulf of Mexico area, it said.

'We also note that pipe coating prospects in Malaysia and Australia have improved. Wah Seong is already bidding for Kebabangan's pipe coating package.

'Imputing potential contributions from the JVs, we raise our EPS forecasts by 7.2% for FY12 and 7.1% for FY13 while keeping our FY11 numbers unchanged,' it said.

CIMB Research raised its up from RM2.50 to RM2.70, still pegged to its target market P/E of 14.5 times.

'We upgrade Wah Seong from Neutral to OUTPERFORM in view of the potential re-rating catalysts of 1) success in new markets, and 2) pipe coating contract awards,' it said.

HLBANK - Hong Leong Bank up at late morning

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

KUALA LUMPUR: HONG LEONG BANK BHD [] (HLBB) shares rose on Thursday, April 28 and gained 16 sen to RM10.50 after AmResearch said the bank was nurturing a quality regional footprint.

AmResearch maintained its Buy rating on HLBB , with an upgraded fair value to RM12.20 from RM11.20 previously.

It said this was based on calendarised 2011 ROE of 15.7%, adding that this leads to a fair P/BV of 2.3 times (from 2.1 times previously).

The research house said HLBB's initial investment in a 19.99% stake in Bank of Chengdu Co Ltd since October 2007 is just beginning to pay off handsomely.

Bank of Chengdu's loan size is estimated to be similar to HLBB's in two years' time, which is significant considering that Bank of Chengdu's loan book was only about 30% of HLBB's in FY06 just before HLBB stepped in, it said.

More importantly, it said HLBB had done an excellent job in nurturing quality growth in Bank of Chengdu.

In terms of asset quality, Bank of Chengdu's gross NPL ratio was 1.31% as at end-FYE12/09, a vast improvement from 28.5% in FYE12/06, it said.

Loan loss cover was 167% as at FYE12/09, versus 154% in FYE12/08, it said.

Bank of Chengdu's contribution to overall pre-tax profit has now reached 12.4% in the latest December quarter, it said.

'We are now projecting overall contribution to rise to 15.9% in FY11F and 17.3% in FY12F. HLBB's overall annualised loans growth over the past two quarters has surprised on the upside, with the recent annualised loans growth touching a multi-year high of 17% in its 1H ending 31 December 2010.

'This was way ahead of the industry's similarly annualised loans growth of 11.5% during the same period. We maintain our view that HLBB provides a strong exposure to domestic top line growth, as well as a meaningful footprint in China, backed by a high quality risk management culture,' it said.

TA - 'Buy' call for TA Enterprise at RM1.40

Stock Name: TA
Company Name: TA ENTERPRISE BHD
Research House: HWANGDBS

HwangDBS Vickers Research today maintained a "buy" call on TA Enterprise Bhd with a higher target price of RM1.40, given it potential to benefit from a robust stock market.

"With a five per cent market share in the broking industry, coupled with the progressive initiatives outlined in the Capital Market Master Plan 2, we believe TA Enterprise is poised for re-rating," it said in a note today.

During the previous stock market rally in 2007, average daily turnover value rose to a high of RM2.1 billion and the company's share price peaked at RM1.90.

As of noon break, TA Enterprise's share price was down one sen at 73.5 sen.

It also expects income derived from broking to rise to 36 per cent in the 2012 financial year from 30 per cent recorded in 2011.

"We also look forward to the unlocking of value of its prime landbank in Kuala Lumpur," it added. -- Bernama

UNISEM - MIDF cuts Unisem's price target to 2.64: temporary hiccup

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

OSK Research has slashed Unisem (M) Bhd's earnings forecast by 34.1 per cent in view of the sub-par performance and inventory adjustments within the industry, albeit, to a lesser extent.

"We believe the appreciation of the ringgit versus the US dollar and bullish raw material prices will dampen earnings over the near-term while the components shortage in the supply chain will further aggravate the situation," it said in a research note today.

For the first quarter 2011, Unisems's core earnings of RM5.1 million fell short of consensus and OSK Research's estimates at 2.7 per cent and 2.5 per cent of projections respectively due.

Revenue fell 13 per cent for the third consecutive quarter to RM292.0 million as the Ringgit continued to appreciate against the US dollar.

MIDF Research, in a seperate note, said Unisem's first quarter 2011 revenue came in below expectation at only 19.0 per cent of its full year forecast as it had underestimated the extent of the softening sales volume in the quarter.

"Although, we had expected lower sales volume in the first quarter of 2011, it had earlier expected revenue to be within 20 per cent and 21 per cent for the full year.

"However, we expect that revenue will pick up in the subsequent quarter due to rising chip prices as a result of the Japanese earthquake," MIDF added. -- Bernama

TGOFFS - OSK 'neutral' on Tanjong Offshore

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

OSK Research is neutral on Tanjong Offshore Bhd despite it being awarded a RM15 million award for the provision of valve repair and maintenance services for Murphy Sarawak Oil Co Ltd.

It also maintained Tanjong's target price at RM2.18 based on a price earnings ratio of 15 times the financial year 2011 earnings per share.

"It is our review that unless the company consistently secures new contracts, this newly-secured RM15.0 million job is immaterial compared with its yearly revenue of over RM500.0 million," it said in a research note today.

Meanwhile, HwangDBS Vickers Research said the contract was unlikely to contribute much to Tanjong's earnings forecast.

"We project the maintenance services segment to only contribute five per cent of our financial year 2011 forecast earnings before interest and taxes," it added. -- Bernama

WASEONG - Wah Seong up in early trade

UNISEM - Unisem slides on downgrades

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

KUALA LUMPUR: Shares and warrants of UNISEM (M) BHD [] fell in early trade on Thursday, April 28 after it was downgraded by OSK Research and CIMB Research.

At 9.20am, Unisem shares fell seven sen to RM1.90 while its warrants shed two sen to 48 sen.

OSK Research said Unisem's 1QFY11 core earnings of RM5.1m fell short of both consensus and its estimates at 2.7% and 2.5% of the projections respectively.

It said on Thursday, April 28 this was due to an industry-wide inventory correction and continued appreciation of RM against USD.

'Changing our valuation basis from P/NTA to PER to better reflect its recurrent earnings, our Fair Value now stands at RM1.63, pegged at 8x FY11 PER.

'In view of the recent share price run up, which we deem unjustified as the potential setbacks from inventory adjustment and RM appreciation will cast a dark cloud over its near-term earnings visibility, we downgrade our call to a SELL,' it said.

Meanwhile, CIMB Research in a note April 28 said although it expects the remaining quarters to be stronger, Unisem's 1Q11 disappointed, being only 3% of its own and consensus full-year estimates.

It said shortfalls in sales and margins were to blame.

The research house chopped its FY11-13 EPS by 39-47% for lower 1) sales assumptions to reflect lower loading and ringgit firming and 2) margin estimates due to lower operating leverage and higher commodity prices.

'Given the poorer sector outlook and weaker near-term earnings, we apply a wider discount of 40% (30% previously) to Unisem's mid-cycle P/BV of 2.2 times. This, plus our earnings cuts, reduces our target price from RM2.44 to RM2.08.

'We downgrade Unisem from Outperform to NEUTRAL given its poor results, lack of immediate catalysts and outperformance against the market since our upgrade. Switch to Jobstreet,' it said.

FLBHD - RHB Research values Focus Lumber at 78 sen

Stock Name: FLBHD
Company Name: FOCUS LUMBER BERHAD
Research House: RHB

KUALA LUMPUR: RHB Research has valued Focus Lumber Bhd, which will be listed on Wednesday, April 28 at 78 sen, based on target PER of 7.0 times FY11 EPS of 11.2 sen. The offer price is 60 sen.

It said this was at a 5.0 times multiple discount to its target PER of 12 times FY11 EPS for the timber sector.

'The discount is to reflect the lack of timber concession and smaller market capitalisation.

'At our target price, Focus Lumber is trading at a reasonable P/NTA ratio of 0.7 times with an attractive net dividend yield of at least 5.6%. Upon listing, Focus Lumber's net cash position will increase to RM27.1m, which translates to 26 sen a share,' it said.

Under its floatation exercise, the company raised RM7.32 million from the issuance of 12.2 million new shares of 50 sen each at an offer price of 60 sen.

ECM Libra Research said at the IPO price, the stock was valued at 5.5 times FY10 price-to-earnings was fully valued as compared to the historical average price-to-earnings of 5.3 times of Eksons, also a small cap plywood player.

UNISEM - OSK Research has SELL on Unisem, FV RM1.63

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

KUALA LUMPUR: OSK Research said Unisem's 1QFY11 core earnings of RM5.1m fell short of both consensus and its estimates at 2.7% and 2.5% of the projections respectively.

It said on Thursday, April 28 this was due to an industry-wide inventory correction and continued appreciation of RM against USD.

'Changing our valuation basis from P/NTA to PER to better reflect its recurrent earnings, our Fair Value now stands at RM1.63, pegged at 8x FY11 PER.

'In view of the recent share price run up, which we deem unjustified as the potential setbacks from inventory adjustment and RM appreciation will cast a dark cloud over its near-term earnings visibility, we downgrade our call to a SELL,' it said.

FLBHD - Focus Lumber most active, top gainer on debut

Stock Name: FLBHD
Company Name: FOCUS LUMBER BERHAD
Research House: RHB

KUALA LUMPUR: Focus Lumber Bhd made an impressive debut on the Main Market of Bursa Malaysia on Thursday, April 28 and was the most active counter in early trade.

At 9.05am, Focus Lumber jumped 40 sen to RM1 with 6.11 million shares done.

RHB Research has valued Focus Lumber at 78 sen, based on target PER of 7.0 times FY11 EPS of 11.2 sen. The offer price was 60 sen.

WASEONG - CIMB Research upgrades Wah Seong to Outperform from Neutral

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

KUALA LUMPUR: CIMB Equities Research is upgrading Wah Seong Corp from Neutral to OUTPERFORM in view of the potential rerating catalysts of success in new markets and pipe coating contract awards.

It said on Thursday, April 28 that its phone conversation with management on Wednesday shed more light on Wah Seong's recently-announced JVs with US-based Insituform.

CIMB Research said this relationship could allow Wah Seong to venture into the US and set up a deepwater pipe coating plant in the Gulf of Mexico area.

It also noted that pipe coating prospects in Malaysia and Australia have improved. Wah Seong is already bidding for a Kebabangan pipe coating package.

'Imputing potential contributions from the JVs, we raise our EPS forecasts by 7.2% for FY12 and 7.1% for FY13 while keeping our FY11 numbers unchanged.

'Our target price goes up from RM2.50 to RM2.70, still pegged to our target market P/E of 14.5x,' it said.

April 27, 2011

ALAM - Alam Maritim charters out more vessels

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

Alam Maritim Resources Bhd
(April 26, RM1.18)
Maintain buy at RM1.14 with target price of RM1.50: Yesterday, Alam announced that its 100%-subsidiary, Alam Maritim (M) Sdn Bhd, has entered into two charter party agreements with two oil and gas (O&G) services companies for the provision of one work boat and one four-point mooring system work boat for a total of RM24.8 million.

Separately, it has also entered into a contract with an established oil major for the provision of one work boat and one anchor handling tug supply'' (AHTS) vessel for a total of RM8.8 million.

The value is small because the charter period is less than two months, unlike that for the first contract of two months to a year. Having said that, the contracts are estimated to total RM33.6 million.

This is a positive development but we make no change to our FY11 earnings because we had earlier assumed some order book replenishment for the company's vessels.

We understand that the offshore marine support vessel industry is still suffering from sluggish utilisation of vessels due to an oversupply caused by delays in awarding new O&G projects.

Most vessels, especially the older ones with expired contracts, have been left idle.

We also understand that Alam's fleet utilisation is close to about 70% after taking up these short-term and ad hoc vessel chartering jobs, and the company is waiting for the bigger and longer-term vessel contracts to be awarded.

We think that the next major award would come from marginal oilfields but we also understand that most of these oilfields are still at the developers' bidding stage.

As such, we think the situation would probably last up to 4Q11 before massive vessel contracts are rolled out.

We understand that the company has 37 vessels comprising 17 AHTS (mostly 5,000 bhp), 17 supply and utility vessels, two accommodation vessels and one pipe-lay barge.

The company also expects to receive two 12,000 bhp AHTS by 2012 to complement its existing fleet.

Hence, given that its vessels are mostly the smaller horse-power vessels and the water conditions at most of the marginal oilfields are not that demanding, we think that Alam may be one of the main beneficiaries of such developments, especially during the development and production stages of the fields.

As we mentioned earlier, the worst may be over for Alam after the company undertook a kitchen sinking exercise in FY10.

We maintain a 'buy' on the company for now, with an unchanged target price of RM1.50 based on the existing price-earnings ratio of 15 times FY11 earnings per share. ' OSK Research, April 26

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

GAMUDA - MRT and Vietnam to transform Gamuda's earnings

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

Gamuda Bhd
(April 27, RM3.78)
Maintain buy at RM3.79 with target price of RM5.25: While the tunnelling tender for the KL Mass Rapid Transit (MRT) system will be via Swiss challenge, we remain confident that the project delivery partner's reputation and overall better cost structure compared with foreign contractors will see it emerge the winner.

The tunnelling job for all three lines is worth about RM20 billion based on 40% of total MRT contract value of RM50 billion. Guidance is for 15% tunnelling pretax margins against 5% for non-tunnelling. The time line for the award of the approved Sungai Buloh-Kajang tunnelling works is by 1QCY12 (RM7.5 billion), and the other lines by 3QCY12. There is room to raise our RM2 per share discounted cash flow (DCF) value for the MRT project (we factored in 50% value in our sum-of-parts), premised on RM14 billion total tunnelling works and 8.3% blended margins.

We have raised FY12F/13F earnings by 12% to 30% to build in stronger local property sales of RM1.1 billion for each year (against RM730 million to RM790 million previously). Property sales in 6MFY11 of RM600 million implies Gamuda could exceed its RM1 billion FY11 sales target, which will be revised to RM1.3 billion because of the buoyant market. We also assume maiden sales contribution from Vietnam of RM1.2 billion and RM1.7 billion for FY12/13F respectively, based on average 60% take-ups and 16% to 18% margins. These are below Gamuda's targets of RM1.5 billion and RM2.1 billion and 20% to 25% margins. Celadon City in Ho Chi Minh City, slated for launch soon, is seeing strong interest (200 out of 250 units pre-registered). Gamuda City in Hanoi will receive in total 40ha of land by July, sufficient for three years of launches. The launch is scheduled for July.

We maintain our 'buy' call on Gamuda which is still most leveraged to the RM50 billion MRT. There is the likely conversion of RM10 billion (50% share) tunnelling contract wins in CY12 with lucrative 15% margins. Despite the expected higher earnings, there is no change to our target price because it is DCF-based. ' HwangDBS Vickers Research, April 27

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

KFC - KFCH slowing store openings in Malaysia to 25 per year

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

KFC Holdings (M) Bhd
(April 27, RM3.71)
Downgrade to underperform at RM3.70 with revised fair value of RM3.74 (from RM3.85): After our recent meeting with management, we understand that KFCH's new store opening target for Malaysia has been trimmed to 25 to 28 stores per year for FY11/13 (from 35 to 40 previously).

KFCH has 521 stores (end-FY10: 515) in Malaysia and has been aggressively expanding, opening 33 to 40 stores per year for the last five years.

The reason for the slowdown of store openings is partly due to the lack of supply of trained full-time employees. Note that approximately 70% of KFCH's employees are part-time, which includes secondary school students during school holidays.

Another reason for the slowing down of new store openings is the fact that due to the large number of stores already in Malaysia, we understand that KFCH is finding it slightly more challenging to obtain suitable locations for new stores.

Despite the slowdown in store openings in Malaysia, KFCH's expansion in India continues to be on track.

The company is currently running eight outlets in India, out of a total 110 KFCs in the country run by other Yum! franchisees. In terms of new outlets, KFCH's target remains the same as previously, with an expected nine or 10 store openings per year for FY11/12, in line with our original expectations.

We understand that KFCH is currently focusing on shopping malls for new outlets, and this will continue to be its focus in the near to medium term, while it will only look to opening stores in the rural or suburban areas in the long term.

Given the concerns over the rising cost of commodities, we were assured by management that KFCH's raw materials (corn and soy), which account for 10% to 12% of cost of sales, would not cause any significant margin erosion as the rise in costs could be passed down to consumers.

KFCH raised its selling prices across the board in November 2010 by 4% to 5% (based on our own estimates) to ease the pressure on margins.

The risks include: (i) escalation of bird/swine flu; (ii) a rise in corn and soybean prices which would eat into margins; and (iii) deteriorating consumer spending power resulting in lower same-store sales (SSS) growth.

Our FY11/13 earnings were revised downwards by 2.4% to 6.2% after taking into account: (i) the lower number of new outlets to be opened in Malaysia; (ii) higher FY13 growth assumption of 15% (from 10% previously) for its integrated poultry division; (iii) lower FY11/13 earnings before interest and taxes (Ebit) margins of 0.8% for its integrated poultry division; and (iv) lower capital expenditure of RM120 million per year (from RM200 million previously) for FY11/13 to incorporate the lower number of new stores to be opened.

Our fair value is reduced slightly to RM3.74 (from RM3.85 previously) based on unchanged 17 times FY11 earnings. Given the limited upside to our fair value as compared to the FBM KLCI, we are downgrading our call on the stock to an 'underperform'. ' RHB Research, April 27

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

KENCANA - Kencana: Kebabangan contracts roll out

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

Kencana Petroleum Bhd
(April 27, RM2.69)
Recommend buy at RM2.68 with fair value of RM3.40: Kencana Petroleum has secured a RM208 million contract from Kebabangan Petroleum Operating Company Sdn Bhd (KPOC) to fabricate the Kebabangan substructure for the Kebabangan northern hub development project off the coast of Sabah.

This one-off contract, expected to be delivered to KPOC by 3QCY12, involves the construction, engineering, procurement, fabrication, inspection, testing and commissioning, loadout and sea-fastening (EPC) of the KBB substructure.

As highlighted in our earlier reports, this contract was expected and signals the start of additional new jobs from the Kebabangan deepwater cluster.

Recall that Sime Darby Engineering Bhd secured the RM1.2 billion EPC job to fabricate the KBB topsides for this field on Monday.

As we had highlighted in our report on Tuesday, we expected additional works to be awarded from this massive contract, which involves a huge 14,000-tonne jacket. Note that KPOC has yet to award the EPC job for the jacket.

We understand that Kencana had been tendering for up to RM1 billion of works in the Kebabangan cluster, which did not include the recent EPC job secured by Sime. Recall that the KBB facility comprises a single integrated drilling, oil and gas production, utilities and quarters (PDUQ) topsides mounted on a fixed eight-leg jacket in 142m of water.

The Shell-operated Malikai deepwater field will be tied in via separate partially-stabilised liquid and dry gas lines shortly after first gas from Kebabangan.

Since the beginning of the year, Kencana has secured RM739 million of fresh contracts, including an estimated RM200 million EPC works for the Berantai marginal field ' in which the group has a 25% stake in the risk-sharing contract.

This represents 37% of the group's targeted new orders worth up to RM2 billion for this year.

Kencana's FY11F/13F earnings are maintained as we had already incorporated new order assumptions of RM1.5 billion to RM1.8 billion for FY11F/13F.

The stock currently trades at an attractive CY11F price-earnings ratio of 21 times, below its 2007 peak of 25 times.

Hence, we maintain our 'buy' call on Kencana, with an unchanged fair value of RM3.40 pegged to an FY12 PER of 22 times.

But our preferred exposure to the oil and gas sector remains Malaysia Marine & Heavy Engineering Holdings given its stronger order news flow, management revamp and radical margin-rating prospects. ' AmResearch, April 27

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

TGOFFS - Tanjung Offshore slips, Maybank IB Research sees disappointing earnings

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

KUALA LUMPUR: Shares of TANJUNG OFFSHORE BHD [] slipped in afternoon trade on Wednesday, April 27 as Maybank Investment Bank Research kept a Sell on the stocks and target price of RM1.07.

At 3pm, it was down three sen to RM1.36. There were 11,170 shares transacted at prices ranging from RM1.36 to RM1.39.

Maybank IB Research said it expected Tanjung Offshore's 1Q 2011 earnings to likely miss street expectations again.

'Cost management strategies and operating prospects remain the key concerns. An equity cash-call could ensue should the cash situation worsen.

'Tanjung Offshore will also suffer an RM8 million penalty cost for early bonds redemption. Valuations are expensive and consensus forecasts are aggressive. Nonetheless, Ekuinas' next move remains a wild card,' it said.

MMCCORP - OSK reiterates 'buy' call on MMC

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

OSK Research has given a positive outlook for MMC Corporation Bhd though it has yet to hog the limelight unlike its sister companies -- Padini Holdings Bhd and DRB-Hicom Bhd.

Among the possible upsides are MMC-owned Malakoff Bhd securing the 1,000MW extension to Tanjung Bin and MMC/Gamuda joint venture securing the tunnelling portion of the KL Mass Rapid Transit project, it said.

"So, it's a matter of time before MMC, a crown jewel of business tycoon Tan Sri Syed Mokhtar Albukhary, be back on the investors' radar screen," it said in a statement.

DRB-Hicom recently grabbed the headlines when it clinched the bid to buy 32 per cent stake in postal services provider, Pos Malaysia Bhd, from Khazanah Nasional Bhd, the government's investment arm.

Syed Mokhtar sold his substantial 28 per cent stake in Padini Holdings.

The research house also said there were possibilities of MMC securing the proposed East-West Railway project and resurgent newsflow at Iskandar Malaysia where MMC was the second largest private land bank owner.

Hence, OSK said, it was reiterating the "Buy" call on MMC shares with a fair value of RM3.62. At 11.55am, MMC shares were up three sen to RM2.65. -- Bernama

KENCANA - Kencana a top pick for OSK Res

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

Kencana Petroleum Bhd remains a top pick for OSK Research in the oil and gas sector due to its delivery track record.

The research house has maintained a trading "buy" for Kencana with the target unchanged at RM3.05.

"We believe another re-rating of its share price will happen
sometime in the fourth quarter of this year, when there is more guidance from management on the potential contribution from the Berantai marginal field," said OSK Research said in its research note today.

Yesterday, the company announced that its 100 per cent owned subsidiary, Kencana HL SB, has secured a contract from Kebabangan Petroleum Operating Company SB for the fabrication of Kebabangan substructure for Kebabangan Northern Hub Development Project.

"We had expected Kencana to win at least a portion of it given the company’s delivery track record and available yard space.

"We understand that Kencana’s utilisation rate had recently
increased to about 60 per cent but there is still ample room to take on more jobs," OSK Research added.

OSK Research said Kencana's order book should increase to about RM2.4 billion and this is expected to keep the company busy for the next two years. Meanwhile, Kencana’s tender book was about RM5.0 billion. -- Bernama

WASEONG - ECM Libra Research maintains Buy on Wah Seong, TP RM2.70

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

KUALA LUMPUR: ECM Libra Investment Research is maintaining its BUY call on Wah Seong, identifying the stock as one of the laggards in the O&G sector at the moment.

'We peg Wah Seong's FY11 EPS to their +1 standard deviation PE of 19 times to derive our target price of RM2.70,' it said on Wednesday, April 27.

The research house said Wah Seong has been quiet on the news flow front so far and it viewed this announcement as a good start.

'Global expansion has always been the group's intention and it is good to see it taking off with a credible partner in tow,' it said.

'In the nearer term, we expect that Wah Seong might be able to replenish their pipe coating order book with jobs they are bidding for in Australia. These include projects like Gladstone, APLNG, Wheatstone and also Ichthys,' it said.

WASEONG - ECM Libra Research maintains Buy on Wah Seong, TP RM2.70

HIRO - CIMB Research has Sell on Hirotako

Stock Name: HIRO
Company Name: HIROTAKO HOLDINGS BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research has a Sell on Hirotako Holding Bhd at RM2 where it is trading at a price-to-book value of 1.8 times.

The research house said in its technical outlook for the share price on Wednesday, April 27 that the uptrend from its September 2010 low is still intact but it is worried about the sustainability.

'At this juncture, we see RM2.09 as a level of significance. If prices fail to swing past this level over the next few days, expect greater selling pressure to set in,' it said.

The bearish divergence on the MACD indicator suggests that momentum is waning. RSI too is overbought.

'As near term gains are likely capped at RM2.09-2.15, we see any rebound as an opportunity to take profits. On the downside, support is at RM1.80, its 50-day SMA. There is also a minor support at RM1.95, its recent swing low,' it said.

April 26, 2011

SIME - Kebabangan job could revive Sime's O&G

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

Sime Darby Bhd
(April 26, RM9.05)
Maintain buy at RM9 with target price of RM10.60: We reiterate our 'buy' call on Sime Darby with an unchanged fair value of RM10.60, pegged to a 10% discount to our sum-of-parts value of RM11.78. Our fair value implies a CY11F price-earnings ratio (PER) of 17 times ' at parity to its three-year average.

We continue to like Sime, which is the most liquid proxy to the plantation sector currently enjoying bullish palm oil prices.

As we had indicated in our earlier oil and gas (O&G) reports, Sime's wholly owned Sime Darby Engineering Sdn Bhd has secured a RM1.2 billion contract to fabricate KBB topsides for the Kebabangan Northern Hub Development Project from Kebabangan Petroleum Operating Company Sdn Bhd (KPOC).

Petronas Carigali has a 40% stake in KPOC, Shell 30% and ConocoPhillips 30%.

The announcement did not describe in detail the project specifications, but according to Upstream Online this project may involve Kebabangan's 18,000-tonne topsides while Kencana Petroleum may be the front-runner for the 7,000 to 8,000-tonne jacket.

This contract will boost Sime's O&G order book by 77% from RM1.5 billion as at Dec 31, 2010 to RM2.7 billion.

We believe this huge domestic contract could lead to a turnaround in Sime's O&G segment, which recorded a loss of RM24 million in 1HFY11.

As the contract will be undertaken over a period of 29 months from April 22, 2011, full-year contribution from this job will materialise in FY12F/13F.

Assuming a conservative pre-tax margin of 5% vis-''-vis 9% for Malaysia Marine Heavy Engineering (MHB) and 15% for Kencana Petroleum, we estimate that this new Kebabangan contract could marginally add RM20 million or 0.5% to Sime's FY12F/13F earnings. As such, we maintain our forecasts.

The Edge weekly reported that MHB was looking to acquire Sime's engineering yard, in line with the Economic Transformation Programme's emphasis on consolidating local fabricators into regional players.

A return to profitability for this division could mean that the selling price for the yard may be more palatable to Sime.

Hence, there could be upcoming M&A news flow for the group.

The stock currently trades at a CY11F PER of 15 times compared with its three-year average of 17 times. ' AmResearch, April 26

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

SAPCRES - SapuraCrest geared for growth

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

SapuraCrest Petroleum Bhd
(April 26, RM3.72)
Maintain outperform at RM3.75 with fair value raised to RM4.61 (from RM4.37): SapuraCrest's transport and installation (T&I) portion of the contracting work for Berantai is expected to be worth US$100 million to US$150 million (RM299 million to RM448.5 million) and be performed closer to year-end (nearer to the first-gas stage).

Currently, the company is in the process of finalising the accounting treatment for the Berantai operation.

Note that our FY12/13 earnings forecasts have already incorporated contributions from Berantai of RM5.6 million and RM66.8 million respectively.

Other than the US$200 million capital expenditure for the equity in Berantai field, we believe the remaining US$700 million will be utilised for regional and asset expansion.

The capex is likely to be funded via borrowings given the company's strong balance sheet.

Assets of choice will be pipe-lay barges and we understand the company is not adverse to acquiring companies that have complementary assets in order to grow.

We raise our FY11/12 earnings forecasts by 5.3% and 3.9% respectively to RM294.1 million and RM367.5 million from RM279.2 million and RM353.6 million respectively, mainly due to higher joint-venture earnings and lower minority interest deductions.

We have also introduced our FY14 net earnings estimate of RM383.1 million, which has incorporated new wins of RM2 billion for the company's installation of pipeline and facilities (IPF) business under subsidiary TL Offshore Sdn Bhd and RM3 billion for its JV companies.

The risks to our view are: (i) higher than expected costs of materials, labour and assets; (ii) more aggressive price competition for new contracts, especially in overseas markets, could cause margin pressure for IPF; (iii) delays in contracts if global economic conditions turn negative; and (iv) continued losses at the marine division against our assumption of a turnaround in FY12.

We raise our forecasts and our fair value to RM4.61 (from RM4.37 previously) using an unchanged target price-earnings ratio of 20 times.

We believe the company is on the cusp of a new cycle, as its new pipe-lay fleet will create greater opportunities and its involvement in marginal fields will provide a new source of recurring income.

We believe SapuraCrest has all the right elements moving forward: (i) a sizeable order book that will sustain earnings at least for the next 1'' years; and (ii) the right partners (Seadrill, Acergy and Larsen&Toubro) to spearhead international aspirations.

As our fair value suggests a 22.9% upside to the current share price, we maintain our 'outperform' call on the stock. ' RHB Research, April 26

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

NESTLE - Nestle: Fully priced in - downgrade to 'sell'

Stock Name: NESTLE
Company Name: NESTLE (M) BHD
Research House: MAYBANK

Nestle (Malaysia) Bhd
(April 26, RM48)
Downgrade to sell at RM48.18 with target price of RM45: Nestle (Malaysia)'s share price has done well, up 11% year-to-date (YTD), outperforming the FBM KLCI by 0.3% and surpassing our RM45 discounted cash flow-based target price. Last Friday's analyst briefing post 1Q11 results reporting offers no new developments; we maintain our forecasts.

The stock currently trades at 25.6 times 2011 earnings, which is at one standard deviation above its mean price-earnings ratio of 24.8 times since 2000. We think its near-term earnings growth potential is fully in the price, while dividend yield has also tapered off with the rise in its share price.

Higher commodity prices affected 1Q11 margins. Domestic and export sales contributed 16.1% y-o-y to turnover growth in 1Q11. Domestic and export sales rose by 15.9% and 16.8% y-o-y respectively. Exports contribution to total turnover was, however, unchanged at 23%.

The higher 1Q11 turnover incorporated price hikes for Milo and Nescafe mixes by 6% and 4% respectively in February 2011. We estimate that 1Q11 sales volume rose by up to 10% y-o-y.

Higher commodity prices have affected margins which contracted 0.7 percentage points y-o-y to 16.5% at the operating levels.

There will be a second round of price hikes this year for Milo powder and Milo Fuze, by 4%, and for Nescafe soluble coffee by 6%. We estimate that the second price increase would only partially offset higher global cocoa and coffee prices, which have risen by an average of'' 5% and 15% to 30% respectively YTD. We estimate that Milo and Nescafe contributed 30% and 19% to total sales in 1Q11.

Nestle (Malaysia) plans to spend RM100 million to RM120 million in 2011 to raise capacity and maintenance. The amount spent in 1Q11 was only RM7 million. The planned capital expenditure for 2011 is lower than 2010's RM144 million.

We retain our RM140 million to RM150 million capex assumption for now. Our financial model derives RM500 million free cash flow for 2011, which supports our RM1.79 dividend per share forecast for the year. This implies 3.7% net yield at the current share price level.

Cereal Partners Worldwide, a 50:50 joint venture between General Mills Inc and Nestle SA, will invest RM115 million for a new breakfast cereal plant located adjacent to Nestle (Malaysia)'s existing plant in Chembong, Negri Sembilan.

This will be the third breakfast cereals production facility in the region besides the other two located in Lipa, the Philippines, and Tianjin, China.

The 6,500 sq m plant is expected to start production in 2Q12, selling to the domestic and export markets. Presently, all breakfast cereal for domestic consumption is imported from the Philippines. Nestle SA's venture will have no impact on Nestle (Malaysia)'s financials. ' Maybank IB Research, April 26

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

NESTLE - Nestle bracing for spiralling costs

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

Nestle (M) Bhd
(April 25, RM48.18)
Maintain neutral at RM45.30 with revised target price of RM47.43 (from RM47.90): Nestle's 1QFY11 revenue and net profit came in at RM1.18 billion (+16.1% year-on-year) and RM152.7 million (+10% y-o-y). While its current quarter's earnings represent 36.4% of our full-year forecast and 34.7% of consensus estimates, we deem this in line as we see Nestle registering softer sales and bottom line growth in the next few quarters in view of spiralling raw material prices and as restocking sales normalise. In the previous financial year, Nestle reduced the stocks of some product categories at its distributors' warehouses to cut costs and ensure the freshness of its products.

The better results y-o-y were mainly attributed to the domestic market (+15.9% to RM912 million). Customers bought more in the current quarter after stock levels were reduced previously and new products such as Nestea in the retail channel and Milo Sejuk were introduced towards end-1QFY11. Apart from the strong domestic demand, export sales grew 16.8% to RM273 million driven, by Southeast Asia countries and the company's additional capacity for soluble coffee and coffee creamer installed in the past two years. Against 4QFY10, revenue surged 22.9% while net profit soared more than 250% due to the restocking effect in the current quarter and the high operating expenses incurred in 4Q.

Despite rising raw material prices, gross profit margin improved 0.8 percentage points (ppts) to 34.3%, thanks to the favourable product mix, the increase in selling price for selected products, and the stronger ringgit against the US dollar. However, earnings before interest and taxes dipped 0.7 ppts y-o-y to 16.5% on higher operating costs, which offset the improvement in gross profit margin. This, coupled with the higher effective tax rate, led to net profit margin narrowing by 0.7 ppts to 12.9% y-o-y. To mitigate the high raw material prices, the group will implement another round of price increases on selected coffee and Milo products.

We maintain our FY11 and FY12 earnings forecasts at RM419.3 million and RM443.1 million respectively. Our fair value remains unchanged at RM47.43. ' OSK Research, April 25

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

ALAM - Alam rises on charter party contracts

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

KUALA LUMPUR: ALAM MARITIM RESOURCES BHD [] shares advanced on Tuesday, April 26 after its unit entered into two charter party agreements for a total sum of RM24.75 million.

At 9.25am, Alam was up two sen to RM1.16 with 930,400 shares traded.

In a statement Monday, April 25, Alam Maritim said its unit Alam Maritim (M) Sdn Bhd had entered into the agreements with two oil and gas services companies for the provision of one unit Workboat and one unit 4 Point Mooring System Workboat.

It said the 4 Point Mooring System Workboat contract worth RM6.75 million was for sixty days from April 17, with an extension option for another 30 days.

Meanwhile, the Workboat contract worth RM18 million was for a period of 12 months from April 18, with an extension option on a monthly basis.

OSK Research has maintained its Buy recommendation on the stock with an unchanged target price of RM1.50 based on the existing PER of 15x FY11 EPS.

''

ALAM - Alam rises on charter party contracts

AXIATA - iPhone launch to boost Celcom portfolio: OSK

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

The launch of the iPhone should strengthen Celcom Axiata Bhd's portfolio of smartphones with longer-term upside seen via improved data revenue, market share gains and lower churn rate, says OSK Research.

In a research note today, it said Celcom was targeting to boost its smartphone penetration from its current subscriber base of 20 per cent to 30 per cent by year-end.

"We understand that circa 23 per cent of DiGi and over 30 per cent of Maxis's subscribers are users of smartphones.

"The latter has much higher proportion of smartphones on its network as it was the first to roll out the iPhone in early 2009, followed by DiGi in March last year," OSK added.

Meanwhile, OSK maintained a "buy" recommendation on Celcom at fair value RM5.83.

"We believe the market may have overreacted to uncertainties and concerns over the exorbitant spectrum renewal fee proposed by the telecoms regulator in Bangladesh," it said.

As the telco sector is a major driver for foreign direct investment in Bangladesh, OSK is of the opinion that rationality would prevail in the setting up of a fair licence renewal fee for mobile operators. -- Bernama

ALAM - Alam Maritim unit gets RM24.75m charter party contacts

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

KUALA LUMPUR: ALAM MARITIM RESOURCES BHD []'s unit has entered into two charter party agreements for a total sum of RM24.75 million.

In a statement Monday, April 25, Alam Maritim said its unit Alam Maritim (M) Sdn Bhd had entered into the agreements with two oil and gas services companies for the provision of one unit Workboat and one unit 4 Point Mooring System Workboat.

It said the 4 Point Mooring System Workboat contract worth RM6.75 million was for sixty days from April 17, with an extension option for another 30 days.

Meanwhile, the Workboat contract worth RM18 million was for a period of 12 months from April 18, with an extension option on a monthly basis.

It said the contracts were expected to positively contribute to its earnings for the financial year ending Dec 31, 2011.

April 25, 2011

DRBHCOM - DRB-Hicom Pos-itive on deal

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

DRB-Hicom Bhd
(April 25, RM2.27)
Buy at RM2.30 with target price of RM3.80: DRB-Hicom will purchase Khazanah Nasional's 32.2% stake in Pos Malaysia for RM622.8 million or RM3.60 per share.

Of this, RM17.3 million or 10 sen per share is for 16 plots of land which will be rezoned for commercial use instead of the present postal service use. This will require an amendment to the Federal Land Commissioner's Act by Dec 31, or 10 sen per share would be refunded. The price tag seems fair for a controlling stake, and values Pos at 14 times FY11 earnings per share (EPS) and 2.3 times book value (BV), consensus data, and a discount to the regional sector average of 15 times. The expected completion of the sale is by 2QCY11. There is unlikely to be a general offer for the rest of the shares in Pos.

Assuming the deal is 70% financed by debt at 7% interest per year, and we use consensus earnings, the acquisition would enhance DRB-Hicom's FY12F and FY13F earnings by 2% and 2.4% respectively. And we expect gearing to rise to 0.25 times in FY12F against 0.16 times currently. There may not be immediate earnings impact, but it is a good acquisition because: (i) there will be synergies between Pos' distribution network and DRB-Hicom's 70%-owned Bank Muamalat, enabling a divestment of DRB-Hicom's 30% beyond our valuation of 1.1 times BV; (ii) its longer-term return-on-equity enhancing (Pos' 2010 ROE was 12.5% against DRB-Hicom's 10.8%) and would enable it to further strengthen services earnings and diversify out of its more cyclical motor business; and (iii) the likely amendment of the Federal Land Act will enable Pos to encash value from its valuable landbank, which is not captured in consensus numbers.

We expect the acquisition to be sum-of-parts neutral for now, but it could be SOP accretive once Pos unlocks value from its land. Moreover, the overall higher group services earnings (50% in FY13F versus 48% currently) will support price-earnings ratio expansion to reflect DRB-Hicom's true intrinsic value as a growing conglomerate. We value DRB-Hicom at RM3.80, implying a PER of 12.1 times FY12F EPS and 1.3 times BV against current valuations of 7.3 times and 0.8 times. ' HwangDBS Vickers Research, April 25

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

POS - Co-development of landbank with new owner next step for Pos

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

Pos Malaysia Bhd
(April 25, RM3.23)
Maintain hold at RM3.37 with fair value of RM3.95: We maintain our 'hold' on Pos Malaysia Bhd (Pos) based on a 10% discount to our unchanged discounted cash flow-value of RM4 per share (weighted average cost of capital: 8.2%, terminal growth: 2%) and surplus of 35 sen per share from the implied sale of unregulated land.

As we had anticipated, Khazanah Nasional's sale of a 32.2% stake in Pos was won by DRB-Hicom Bhd, with the winning bid of RM3.60 per share ' a 6.8% premium to last Friday's close.

Key details of the winning bid were: (i) Payment mechanism wasn't included in the announcement; (ii) The deal should be completed by end-June 2011, subject to the amendments to government's Golden Share in Pos; (iii) The amendments include the government's reservation to appoint up to two board members in Pos and the removal of rights to appoint the chairman and managing director and fix their remuneration. The modifications, however, may still include government approval of any future voluntary separation scheme (VSS) for Pos staff; and (iv) The offer price is conditional upon the liberalisation of land usage for Pos' 16 plots of identified land regulated by the Federal Land Commissioner (FLC). In the event the variation does not happen by December 2011, DRB-Hicom will be refunded 10 sen per share or RM17.3 million. The amendments will provide for the inclusion of commercial use (over and above the mandatory postal use), commercial development and outright sale.

While we have included ready-for-sale Pos land which is not regulated by the FLC in our valuation (market value of landbank), the most valuable land which falls under FLC's ambit is Pos' 3.1acres of postmen's quarters behind the Pudu Jail land redevelopment. We are positive about the liberalisation negotiation on the land, with a potential surplus of 19 sen per share just from an outright sale.

We believe that with the impending entry of DRB-Hicom and its property development arm Hicom Properties Sdn Bhd, Pos may co-develop the land with the new owners.

DRB-Hicom also plans to revitalise Pos' logistics division, which has taken a back seat under the current management. DRB-Hicom's ultimate shareholder, Tan Sri Syed Mokhtar Al-Bukhary, is a known logistics magnate, providing Pos a growth platform as a last-mile volume throughput for his extensive retail-based and industrial interests.

While we believe DRB-Hicom's bid replicates our valuation on Pos' current operations, investors looking at participating in Pos' imminent real-estate development should accumulate as our fair value only imputes its ready-for-sale land at market value. However, development of the landbank will be earnings accretive over a longer period, vis-a-vis an outright sale. ' AmResearch, April 25

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

MHB - MMHE: M&A talk chugs into motion

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

Malaysia Marine & Heavy Engineering Bhd
(April 25, RM6.89)
Maintain hold at RM6.90 with target price of RM7.25: According to The Edge, MMHE is said to be looking at taking over either some or all of Sime Darby's oil and gas (O&G) assets which are parked under Sime Engineering Sdn Bhd.

It was also said that MMHE was not the only interested party and there are two others eyeing Sime's assets.

MMHE has so far denied that it has been having discussions with Sime Darby but did not rule out the need to grow organically or through M&A.

This comes as no shocker as the consolidation of O&G fabricators in Malaysia was clearly spelled out in the Economic Transformation Programme. The government's intention is to create a regional fabrication champion to rival the likes of Singapore's Keppel FELS Ltd and Sembcorp Marine Ltd.

The news is a definite positive for MMHE should the deal come into fruition. MMHE is currently almost 90% utilised with jobs like the Gemusut-Kakap FPS taking up the bulk of its capacity in Malaysia. As such, the group has not added on new jobs for more than 24 months.

The only way for the group to grow would be to acquire more yard space. We view that just buying Sime's Pasir Gudang (which totals 328 acres compared with MMHE's current 150 acres) alone would double its annual tonnage capacity from the current 69,700mtpa. Earnings accretion, should it be able to convert all of Sime's yard into useable space would be very significant.

As for price, the most recent fabrication yard transaction was between Ramunia Holdings Bhd and OilFab Sdn Bhd. The price paid for the yard was RM1.47 million per acre. Assuming a similar price is used to purchase Sime's Pasir Gudang yard, it would amount to RM482 million which MMHE can pay for with cash raised from its IPO (current net cash is RM1.7 billion).

We believe this transaction could materialise. The most synergistic to MMHE would be to acquire Sime's Pasir Gudang yard given the proximity to its yard.

With this M&A news coming into play and also the potential for MMHE to announce a new major contract in Turkmenistan (potentially more than RM4 billion), we view that MMHE, despite current expensive valuations, will hold up in the coming months and as such we stay put with our 'hold' call and raise valuations.

We raising our price-earnings ratio on the group to 25 times from 20 times. The rationale for the 25 times multiple is from mirroring Kencana Petroleum Bhd's peak of more than 25 times that was seen during the 2007 O&G run. With a 25 times PER pegging CY11 earnings per share our target price of RM5.80 is raised to RM7.25. We make no changes to estimates at this juncture.

We will be writing further at a later date on potential earnings accretion to MMHE. ' ECM Libra Research, April 25

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

CIHLDG - CI Holdings feeling a sugar rush

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

CI Holdings Bhd
(April 22, RM2.90)
Maintain buy at RM2.94 with target price of RM4.78: Sugar was the main topic of discussion at last week's post-3QFY6/11 briefing. CIH has no plans to raise selling prices yet even though it is now paying a market price of around RM2.62/kg for sugar, 38% higher than the last subsidised price of RM1.90/kg. Other highlights are i) a continued rise in sales of non-carbonated drinks, and ii) improvement of infrastructure through a new PET line.

Our EPS forecasts are intact, which, together with an unchanged valuation basis of parity with our 14.5 times CY12 target market P/E, keeps our target price at RM4.78. We continue to rate CIH a 'buy' and our top F&B pick given the potential catalysts of i) an increasingly marketable product line, and ii) M&A.

Thanks to its recent price weakness, the stock is now an attractive investment proposition, offering single-digit FY12-13 P/Es and 4.1% dividend yield.

In 3Q11, sugar accounted for 20% of the cost of goods sold, up from 15% in 3Q10. Despite the cost pressure, CIH has not raised the selling prices of its drinks, not even for the juices under the Tropicana brand, which is the market leader. Instead, the company has opted to control selectively its price discounting and trade promotions. Depending on products and sales channels, CIH's price discounts can be as much as 7%.

CIH's top three bestselling brands are Twister, Pepsi and Mirinda. The introduction of Tropicana Twister in March 2008 has taken non-carbonated drinks from 20% of CIH's beverage sales a few years ago to 43% in 3Q11. CIH is aiming for a 50:50 sales split between carbonated and noncarbonated in the next few years.

After investing RM45 million on a new production line and RM29.5 million on a new warehouse in FY11, CIH plans to spend around RM20 million-25 million on a new line that can produce 600-litre PET bottles next year.

The company is also looking to expand its retail coverage to 45,000 outlets and roll out 19,000 chillers by end-FY11. ' CIMB Research, April 22

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

MAYBANK - Maybank: Funding for Kim Eng acquisition in place

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

Malayan Banking Bhd
(April 22, RM8.65)
Maintain buy at RM8.67 with fair value RM10.40: Malayan Banking Bhd (Maybank) announced that it has successfully priced its maiden issuance of S$1 billion (RM2.4 billion) capital subordinated notes (SG$ subnotes) at 3.8%.

Maybank reported the subnote has received a positive response with an oversubscription of 1.7 times the issuance size from investors in Singapore, Malaysia and Hong Kong.

This is the maiden issue under Maybank's US$2 billion (RM6 billion) multicurrency medium-term note programme.

The SG$ subnotes will qualify as Tier-2 capital for Maybank. The subnotes carry a tenure of 10 years from the issue date on a 10 non-callable 5 basis. As this is a subordinated issue, the SG$ subnotes have been accorded a rating of BBB+ by both Standard & Poor's Ratings Services and Fitch Ratings.

The issuance is in line with our expectations. We believe this will be used as part of its funding for its acquisition of 100% of Kim Eng Research for S$1.79 billion, which was announced in early January 2011. Maybank had hinted at that time that part of the funding would likely be through the issuance of foreign currency sub-debt.

We had earlier assumed RM2 billion in subnotes at a cost of funds of 4.5% in our earnings model. Thus, the announcement is positive in the sense that pricing of 3.8% is lower than our expectations.

The SG$ subnotes will also allow Maybank to patch back its total capital adequacy ratio (CAR) at the bank level, which would decline by 2.2ppt to 11.44%, from 13.68% as at end-December 2010 assuming the Kim Eng acquisition had taken place without the SG$ subnotes. With the successful issuance of the subnotes, and assuming the Kim Eng acquisition goes through, we estimate total CAR at the bank level to drop by only one percentage point to 12.7% from 13.68% as at end-December 2010. With this, we expect Maybank to finance the remaining portion of Kim Eng through internal funds.

The news is also positive as we expect Maybank's capacity to pay dividends to be maintained. We affirm our 'buy' rating on Maybank with an unchanged fair value of RM10.40. This is pegged to an unchanged fair price-to-book value of 2.3 times, based on a calendarised return on equity of 15.8% for 2011F. ' AmResearch, April 22

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

UMW - AmResearch reaffirms Hold on UMW, unch FV RM6.50

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

KUALA LUMPUR: AmResearch reaffirmed its HOLD rating on UMW Holdings with an unchanged fair value of RM6.50 a share on concerns that the global automotive supply chain disruption will impact local players' performance, in particular, UMW..

'Our sum-of-parts-derived valuation continues to peg UMW's auto division at 9 times FY11F earnings, at par to industry average given increasing earnings uncertainties arising from parts supply disruption,' it said.

AmResearch said Toyota Motor announced it will begin raising production at plants in Japan in July and at overseas plants in August. However, all plants will only resume normal production towards November or December this year.

In a related development, UMW indicated it was cutting production to single shift from April 25 until June 3.

Operations from June 6 onwards would hinge on the availability of parts supply. Recently, Toyota and Perodua indicated they only have sufficient inventories till May (at the prior production rate of 4,433 units/month, on average).

'In hindsight, we would anticipate Perodua to announce production cuts in the near-term as well,' it said.

AmResearch said these developments strongly underline our concerns that the global automotive supply chain disruption will catch on to local players' performance, in particular, UMW.

'We had earlier this month cut our FY11F earnings for UMW by 5%.'' We project UMW to register a lacklustre 3% FY11F earnings growth as a result of: (1) slower unit sales recognition and; (2) rising unit fixed cost given lower plant production rate.

'UMW remains the most expensive auto stock in our universe, trading at 11x FY11F earnings despite developing earnings uncertainties surrounding its auto division, which we estimate would account for some 83% of FY11F earnings,' it said.

NESTLE - OSK maintains 'neutral' call on Nestle

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

OSK Research has maintained a "neutral" call on Nestle (Malaysia) Bhd with an unchanged fair value of RM47.43.

The research house said Nestle's first quarter net profit of RM152.7 million was in line with its forecast.

"The strong first quarter results were mainly driven by higher purchases by customers after the previous reduction in stocks and the introduction of new products," OSK Research said in its Malaysia Equity Investment Research Daily today.

In the next few quarters, it said, Nestle was expected to register softer sales and bottom-line growth in view of spiraling raw material prices and as restocking sales normalise. -- Bernama

TENAGA - Tenaga H1 net profit above forecast: OSK

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

OSK Research says Tenaga Nasional Bhd's (TNB) annualised core net profit for the first half 2011 of RM1260.7 million was above its expectations and consensus, as the market had expected fuel costs to go up, given the ever-rising price of coal.

These higher costs are gradually being reflected in TNB’s bottom line, as the second quarter profit after tax plunged 46.1 per cent quarter-on-quarter while for the first half 2011, it fell 21.1 per cent, said OSK Research in its research note today.

It also said TNB had to generate more power from coal than gas
for the first time, given the incidences of gas curtailment, while coal prices rose to an average US$103.8 per tonne in the second quarter.

Nonetheless, it added, the company remains profitable and announced a 4.5 sen interim dividend for the quarter.

"Although by cutting demand forecasts and expecting more coal generation, our financial year 2011 and 2012 core net profit forecasts are cut by 3.4 per cent and 3.5 per cent respectively, with our fair value cut to RM7.03 from RM7.54," the research house said.

OSK Research said it maintained a "buy" call for TNB as it believes the market has sufficiently priced in the negative news related to coal prices, gas curtailment and tariff delay.

"While our "buy" call on TNB has been unproductive with the counter falling some 7.4 per cent and under performing the KLCI by about 21.5 per cent over the past 12 months, we believe the share price has reached a fairly well supported region," it added. -- Bernama

TCHONG - Tan Chong Motor cut to 'market perform'

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

Tan Chong Motor Holdings Bhd, a Malaysian automotive assembler, was downgraded at RHB Research Institute Sdn Bhd, citing concerns over the supply of parts following Japan’s earthquake and tsunami.

The stock was cut to “market perform” from “outperform,” Alexander Chia, an analyst at RHB, wrote in a report today.

The stock’s fair value was reduced to RM5.20 from RM6, he said.
-- Bloomberg

UMW - UMW skids at mid-morning

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

KUALA LUMPUR: UMW HOLDINGS BHD [] shares fell on Monday, April 25 following Toyota's confirmation that the normalisation of production in Japan and overseas plants to pre-earthquake levels would only be achieved by Nov or Dec. Meantime, production at its plants have already restarted but at reduced capacities.

At 11.05am, UMW fell eight sen to RM7 with 61,000 shares traded.

RHB Research reiterated its Market Perform recommendation on UMW but lowered its fair value to RM7.50 (from RM7.85).

The research house said it was believed that the new Myvi replacement model that was expected to be launched this month has been deferred till 2H11.

A longer-than-expected disruption of component supplies will result in extended waiting period that will affect financials from 3Q11 onward that will defer the recognition of profit to 2012, it said.

'In 1Q11, Toyota and Perodua sales were disappointing. Toyota registration for the quarter of 21,310 units was flat year-on-year, while Perodua registrations of 45,661 units were 4.4% lower year-on-year.

'We continue to believe that UMW is close to being fairly valued considering that near-term price catalysts remain absent while supply-side risks remain present,' it said in a note April 25.

POS - OSK Research maintains BUY on POS Malaysia at RM4.12

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

KUALA LUMPUR: OSK Research said DRB-Hicom announced that it has succeeded in its bid for Khazanah Nasional's 32.21% stake in Pos Malaysia for RM622.8m, or RM3.60 per share.

It said on Monday, April 25 the acquisition price reflects a RM17.3 million that is refundable if POS Malaysia cannot secure Government consent for commercial use of land leased to it by Dec 31, 2011.

OSK Research said DRB-Hicom, which owns a 70% of Bank Muamalat, was a good fit for POS Malaysia as the former could leverage on the latter's postal network to enhance both their operations and growth as a more complete network.

'Although we see the offer price as unattractive and not reflective of the value of POS Malaysia's related land, it still adequately reflects POS Malaysia's postal business at 14.5x FY11 PER.

'Given that we see DRB-Hicom aiming to redevelop POS Malaysia's land, we maintain our SOP derived FV of RM4.12, which includes the value of the 5 land plots directly owned by POS Malaysia.

'While the share price may suffer some selling pressure in the short term, we maintain our BUY call on potential longer term upside arising from DRB-Hicom unlocking the land value,' it said.

KLK - RHB Research keeps Market Perform on KL Kepong, FV unch RM24.35

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining its sum-of-parts based fair value of RM24.35 for KUALA LUMPUR KEPONG BHD [] (KLK).

'We maintain our Market Perform recommendation on the stock,' it said on Monday, April 25.

Last Friday, KLK announced its unit, KL-Kepong Industrial Holdings Sdn Bhd disposed of its remaining 40% interest in cocoa processor, Barry Callebut Malaysia Sdn Bhd (BCM) to Luijckx BV (a member of the Barry Callebaut group of companies) for a cash consideration of RM117.69m. With this disposal, BCM is no longer an associate of KLK.

'This sale was part of an option agreement made in 2008, when KLK sold the initial 60% stake back in 2008 for RM156.3m. The sale of the remaining 40% stake for RM117.7m, however, implies a higher price of RM294m for the company, 13% higher than the transacted price in 2008,' it said.

RHB Research said it was positive on this development, as this would imply a higher pricing in terms of PE, given that back in 2008, the selling price for the 60% stake implied a PE of approximately 7-8 times. It estimated this disposal would reduce KLK's net earnings by less than 1% p.a.

However, the main risks include: (1) a convincing reversal in crude oil price trend resulting in reversal of CPO and other vegetable oils price trend; (2) weather abnormalities resulting in an over or under supply of vegetable oils; (3) revision in global biofuel mandates and trans-fat policies; and (4) a slower-than-expected global economic recovery, resulting in lowerthan-expected demand for vegetable oils.