May 6, 2011

IJM - HwangDBS raises target price for IJM

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

HwangDBS Vickers Research has raised its target price for IJM Corporation Bhd to RM8.70 from RM7.30 previously.

This follows its upgrading of the company's earnings per share forecast for the 2012 and 2013 financial years by nine to fourteen per cent.

On the construction side, it said there were two jobs in IJM's pipeline that could see its RM4 billion orderbook to at least double. They were the New Pantai Expressway extension and West Coast Expressway which were worth a combined RM5 billion.

Other potential jobs were the LRT extensions Phase 2 (RM2.2 billion), MRT tunneling works for the Blue Line (RM11 billion) and government building jobs such as the KL Financial District, RRIM land and Jalan Cochrane.

"We believe IJM is a strong contender for all these projects given its track record, strong balance sheet and niche in building jobs with experiences in Grade A office, luxury condominiums and other commercial and residential projects," the research house said in its Company Focus today.

In property, it highlighted Canal City and Sebana Cove which would be launched in 2012 with a total gross development value of RM7.4 billion.

"The success of Canal City is important because it would give IJM a much needed flagship Klang Valley township development to leverage on for further expansion, possibly including the RRIM land," it said. -- Bernama

F&N - F&N holds on to gains, AmResearch ups FV to RM22.70

Stock Name: F&N
Company Name: FRASER & NEAVE HOLDINGS BHD
Research House: AMMB

KUALA LUMPUR: Fraser & Neave Holdings Bhd (F&N) continued to be among the top gainers on Friday, May 6, underpinned by its strong earnings and dividends.
At 3.39pm, F&N was up 30 sen to RM18.70 with 60,800 shares done, bucking the weaker market.
The FBM KLCI was down 7.36 points to 1,513.82. Turnover was 602.43 million shares valued at RM908.24 million. Losers beat gainers 473 to 203 while 266 counters were unchanged.
The company posted net profit of RM131.98 million in the second quarter ended March 31, 2011 versus RM85.23 million a year ago, boosted by the sale of a college building.
Revenue was RM1 billion compared with RM872.09 million. Earnings per share were 36.80 sen versus 23.90 sen. It declared 35 sen in dividends.
AmResearch reiterate its BUY recommendation on F&N and lifted its fair value from RM17.40/share to RM22.70/share, based on a PE of 18 times CY11F earnings.
'We believe a small premium is justified given F&N's strong earnings profile within the non-discretionary food industry against a backdrop of rising material costs, as underpinned by its market share leadership position and brand equity strength,' it said.
The research house said though its valuation is at the higher-end of the stock's three-year PE band, it is still at a discount to peer Nestle Malaysia Bhd's current PE of 25 times, at parity to the five-year average historical discount.''



TENAGA - ECM keeps 'hold' call on Tenaga

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

With the expected announcement on the operations and maintenance of an 84MW hydro-power plant in Pakistan, Tenaga Nasional Bhd (TNB) is on track to achieve its Key Performance Indicator of RM1.8 to RM1.9 billion worth of revenue from non-regulated businesses.

"We are also pleased to hear that any political unrest in the Middle East is not holding back TNB from expanding its business into the region," said ECM Libra Capital Sdn Bhd in a research note today.

It was reported that TNB Repair and Maintenance Sdn Bhd (TNB Remaco) is aggressively expanding overseas to boost revenue. Its targeted revenue in 2015 is between RM600 million and RM700 million, up from RM500 million aimed for this year and RM335 million last year.

Of the RM600 million to RM700 million revenue, 30 per cent is expected to come from overseas, compared to the current 10 per cent.

TNB said it was in the process of selecting the right partner and would sign the agreement soon to operate and maintain an 84MW hydro-power plant in Laraib in Kashmir, Pakistan, which is a five plus five year contract.

ECM Libra has maintained a "hold" call on TNB. - Bernama

WASEONG - Wah Seong a 'buy' on better prospects

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

Wah Seong Corp was raised to “buy” from “neutral” at OSK Research Sdn Bhd, which cited improving earnings growth prospects at the Malaysian pipe-coating company.

The stock’s fair value was increased to RM2.60 from RM2.29, analyst Jason Yap wrote in a report today. -- Bloomberg

NHFATT - OSK Research maintains Buy on New Hoong Fatt, FV RM2.85

Stock Name: NHFATT
Company Name: NEW HOONG FATT HOLDINGS BHD
Research House: OSK

KUALA LUMPUR: OSK Research said New Hoong Fatt's'' 1QFY11 earnings were slightly weak, accounting for 20% of its full year forecast due to seasonality given the shorter number of working days.

It said on Friday, May 6 that margins were crimped by higher raw material cost but was somewhat cushioned by the higher income contribution from the sale of steel scrap at higher prices.

'While the gradual ban of imported used parts will commence with key critical items which New Hoong Fatt (NHF) does not have exposure to, we remain positive over the longer term as eventually the ban would also include body parts.

'We maintain our earnings forecast as we expect stronger quarters ahead. Our BUY call is maintained as with our FV of RM2.85, premised on 6x FY11 EPS. No dividend was announced,' it said.

DAIBOCI - CIMB Research keeps Daibochi TP at RM3.92, Outperform

Stock Name: DAIBOCI
Company Name: DAIBOCHI PLASTIC & PACKAGING
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research said despite that Daibochi's 1Q11 results coming in at only 75% of its forecast, when annualised, the earnings met its and market expectations as earnings in the remaining quarters should be stronger.

It said on Friday, May 6 that also within expectations was the interim tax-exempt DPS of 3.0 sen. We maintain our EPS and DPS forecasts.

'Our target price is also unchanged at RM3.92, based on 10.2x CY12 P/E, a 30% discount to our 14.5x target market P/E. We maintain our OUTPERFORM recommendation,' it said.

CIMB Research said factors that could spark a re-rating include i) further margin recovery over the next few quarters, ii) major contracts secured from major non-F&B companies and, iii) attractive gross dividend yield of 8-9%. Daibochi remains its top pick in the packaging sector.

TOMYPAK - CIMB Research maintains Outperform on Tomypak, lowers TP to RM1.53

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

KUALA LUMPUR: CIMB Equities Research said'' Tomypak's annualised 1Q11 net profit was only 48% of its forecast, clearly below expectations as the company absorbed some cost increases, probably to avoid a volume backlash.

It said on Friday, May 6 that however, the 1.4 sen interim DPS was within expectations.

'We are slashing our FY11 EPS by 23% to reflect the margin squeeze while cutting FY12-13 by 2-7% as margins should recover by then.

'Our FY11 DPS forecast is cut by only 13% as we revise our payout ratio from 25% to 30%.

'We now value Tomypak at 6x CY12 P/E, a 40% discount to our 10.1x CY12 target P/E for Daibochi instead of 30%. Although our target price drops from RM1.80 to RM1.53, the stock remains OUTPERFORM as it offers a CY12 P/E of only 4x and 7-10% dividend yields. The main potential catalyst is a sharp fall in raw material prices.'

May 5, 2011

AIRASIA - HDBSVR maintains AirAsia fully valued at RM2.94

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

KUALA LUMPUR: Hwang DBS Vickers Research is maintaining AirAsia Fully Valued at the current price of RM2.94 which is pegged at 11 times FY11 earnings per share.

'We remain concerned about the airline given the current high oil prices could dampen travel demand and earnings. The recently declared 2.8sen net DPS for FY10 is unlikely to recur,' it said on Thursday, May 5.

HDBSVR said Thai AirAsia has better growth prospects than PT Indonesia AirAsia (IAA), due to a less competitive and regulated domestic market

However, high jet fuel prices will remain a challenge for both, the research house said, adding its 12-month target price is RM2.

May 4, 2011

GUANCHG - Guan Chong hits 4-day low at RM2.85

Stock Name: GUANCHG
Company Name: GUAN CHONG BHD
Research House: HWANGDBS

KUALA LUMPUR: GUAN CHONG BHD [] shares fell to a four-day low of RM2.85 in late afternoon on Wednesday, May 4 as investors took profit after the recent strong run-up its share price in recent weeks.

At 4.04pm, it was down 15 sen to RM2.85 with 366,800 shares done. The warrants fell eight sen to RM1.31.

Hwang DBS Vickers Research had recently initiated coverage with Buy call and RM3.60 target price.

'Our fair value is pegged to 10x target PE, using fully diluted FY12F EPS. This is a steep discount to DBS Vickers' 15 times FY11/12 PE accorded to Singapore-listed Petra Food, its nearest peer,' it said.

HDBSVR said Guan Chong was an under-researched counter.

'We like it because its market cap (RM941 millio) is poised to expand along with strong profit growth. Potential risks to earnings are a global economic collapse (leading to customers deferring deliveries as demand falls) and disruptions to cocoa bean supply,' it said.

To recap, Guan Chong manufactures and sells cocoa ingredients: cocoa butter (54% of FY10 revenue), cocoa powder/cake (43%) and cocoa liquor (3%). Exports were 92% of sales last year as it counts global chocolate manufacturers like MARS, Hershey's and Lotte as customers.

Since 1990, its capacity has increased from 6,000 tonnes per annum to'' 140,000 tonnes now to rank among the top 10 cocoa processors in the world.

'It is set to grow bigger when another 60,000 tonnes per annum at its new plant in Indonesia ' which has the advantage of buying zero-tariff local beans ' is fully completed by 2Q12,' it said.

QL - OSK maintains 'buy' call on QL Resources

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

OSK Research has reduced its 2011/12 forecast earnings for QL Resources by one per cent to 5.3 per cent, saying that heavy rainfall in Indonesia and the stake dilution of 40.5 per cent to 35 per cent in Boilermech had delayed the company from achieving its target fresh fruit bunch production volume in Vietnam.

The research house however raised its Future Value (FV) from RM3.51 to RM4, pegging at a higher price earnings (PE) of 19 times earnings per share in 2012, taking into account the potential catalyst from its venture into renewable energy and higher share liquidity post share placement exercise.

QL Resources is a regional integrated livestock farming player
and has diversified into the fisheries sector through the development of a marine-based manufacturing chain.

Meanwhile, OSK also said there have been reaffirmation that radiation from Japan's nuclear plant disaster would not reach Malaysia due to the distance.

This means, QL Resources fish caught in South East Asian waters is safe for consumption. OSK Research has maintained a "Buy" recommendation on QL Resources. -- Bernama

DIGI - DiGi hits new high on BNP Paribas estimate

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: BNP Paribas

DiGi.Com Bhd, a Malaysian mobile-phone and Internet services provider, climbed to a record in Kuala Lumpur trading after BNP Paribas raised its share estimate to RM30.70 following last week’s quarterly earnings report.

The stock gained 1 per cent to RM29.90 at 9:24 a.m. local time. -- Bloomberg

AIRASIA - AirAsia gains mart share in neighbours

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

AirAsia Bhd's units in Indonesia and Thailand are gaining substantial market share and a strong foothold in the respective countries, says ECM Libra Capital Sdn Bhd.

Despite higher jet fuel costs, demand is looking up for Indonesia AirAsia (IAA) and Thailand AirAsia (TAA), it said in a research note today.

In the first quarter 2011, IAA's passenger traffic rose 33.1 per cent year-on-year to 1.5 billion, with the load factor up 2.5 percentage points year-on-year to 80 per cent.

Likewise, TAA's traffic grew 23.5 per cent year-on-year to 1.9 billion as the first quarter is usually the peak season for tourism. The load factor was up by 4.6 percentage points year-on-year to 84 per cent.

ECM Libra maintained a "buy" call on AirAsia.

According to AirAsia, both IAA and TAA will focus on improving their market share for international routes and identify, create and interconnect new uncharted routes through existing hubs.

ECM Libra said AirAsia's affiliates are currently preparing for their upcoming initial public offerings and listings, which are expected to take place in the fourth quarter of this year.

TAA is looking to raise US$150 million from the exercise while IAA plans to raise between US$150-US$200 million in proceeds. This is to finance future growth plans, including capacity expansion and acquisition of aircraft.

"As part of the listing exercise, accumulated debts may be cleared, which means AirAsia may start recognising earnings from IAA and TAA through its 49 per cent stake in the units.

"Based on the 49 per cent stake, AirAsia would be able to gain an additional RM224 million in earnings," ECM Libra said.-- Bernama

TRC - RHB Research maintains Outperform on TRC, fair value RM1.94

Stock Name: TRC
Company Name: TRC SYNERGY BHD
Research House: RHB

KUALA LUMPUR: RHB Research Institute is maintaining its Outperform on TRC Synergy with a Fair value of RM1.94.

It said on Wednesday, May 4 that TRC has secured a RM45m contract for the CONSTRUCTION [] of submarine safety conditioning facilities, submarine hangar and workshop facilities for the Royal Malaysian Navy.

This is the second key contract TRC has secured so far this year, boosting its YTD new contracts secured to RM88.8m and its outstanding construction orderbook by 4% to RM1.3bn.

'Assuming an EBIT margin of 6-8%, the contract will fetch RM2.7-3.6m EBIT.''Forecasts are maintained as we have assumed TRC to secure RM300m worth of new jobs per annum in FY11-13,' RHB Research.

DIGISTA - CIMB Research has Buy on Digistar at 35 sen

Stock Name: DIGISTA
Company Name: DIGISTAR CORPORATION BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research has a technical Buy call on Digistar Corp at 35 sen, at which it is trading at a price-to-earnings of 1.9 times.

It said on Wednesday, May 4 the recent pullback dragged Digistar to the 38.2% FR level. Since then, the bulls have come to the rescue.

'We think that a base is formed at the 38.2% FR level and there is potential of stronger rebounds ahead,' it said.

CIMB Research said the technical landscape is improving. MACD histogram bars are falling at a slower pace, suggesting that momentum is slowly picking up. RSI too has move above the 50pts mark.

'Any pullback is an opportunity to accumulate. The next upleg should lift prices towards RM0.375 and possibly even RM0.425 next. On the downside, a fall below RM0.31 would trigger our stop,' it said.

Digistar integrates IT infrastructure, teleconferencing, LANs, interactive media management systems, radio and television news automation, telecommunication systems and other related electronic systems.

May 3, 2011

AIRASIA - AirAsia soars to RM3, MAS struggles

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

KUALA LUMPUR: Shares of low-cost carrier AirAsia rose to RM3 in afternoon trade on Tuesday, May 3 but Malaysian Airline System (MAS) struggled below RM2, weighed by high fuel costs.

At 2.32pm, AirAsia was up 13 sen to RM3 with 7.37 million shares done, the highest since January.

MAS, meanwhile, shed one sen to RM1.81 with 203,900 shares done.

OSK Research after the drop in AirAsia's share price since the start of 2011, the announcement of its symbolic maiden dividend and the imposition of a fuel surcharge starting May and its encouraging 1Q traffic numbers should bring AirAsia back into the limelight of investors.

It said the surcharge should lift FY11 earnings by 4.15% while the traffic number, where group revenue per kilometre was up 26% on-year.

'The stock's valuations remains attractive, currently trading at a 34% discount against its peers, while the upcoming IPO of its two associates is expected to further crystallise valuations. Following the 4.15% upward revision in FY11 earnings from the fuel surcharge, we continue to retain our BUY recommendation at a higher fair value of RM3.57 premised at 12x FY11 EPS,' it said.

As for MAS, analysts were impressed by the national carrier's younger fleet plant which was anticipated to be MAS' key earnings kicker for a turnaround on better fuel burn, lower maintenance costs, and more reliability and flying hours.

However, they were concerned about the impact of the high oil prices.

A local research house said its higher revised oil price assumption prompted it to downgrade its earnings by 18% for FY11-FY12, which accordingly entailed a downgrade to SELL at a lower fair value of RM1.60, premised on 8.5 times enterprise value/earnings before interest, tax, depreciation and amortisation.

AIRASIA - AirAsia soars to RM3, MAS struggles

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

KUALA LUMPUR: Shares of low-cost carrier AirAsia rose to RM3 in afternoon trade on Tuesday, May 3 but Malaysian Airline System (MAS) struggled below RM2, weighed by high fuel costs.

At 2.32pm, AirAsia was up 13 sen to RM3 with 7.37 million shares done, the highest since January.

MAS, meanwhile, shed one sen to RM1.81 with 203,900 shares done.

OSK Research after the drop in AirAsia's share price since the start of 2011, the announcement of its symbolic maiden dividend and the imposition of a fuel surcharge starting May and its encouraging 1Q traffic numbers should bring AirAsia back into the limelight of investors.

It said the surcharge should lift FY11 earnings by 4.15% while the traffic number, where group revenue per kilometre was up 26% on-year.

'The stock's valuations remains attractive, currently trading at a 34% discount against its peers, while the upcoming IPO of its two associates is expected to further crystallise valuations. Following the 4.15% upward revision in FY11 earnings from the fuel surcharge, we continue to retain our BUY recommendation at a higher fair value of RM3.57 premised at 12x FY11 EPS,' it said.

As for MAS, analysts were impressed by the national carrier's younger fleet plant which was anticipated to be MAS' key earnings kicker for a turnaround on better fuel burn, lower maintenance costs, and more reliability and flying hours.

However, they were concerned about the impact of the high oil prices.

A local research house said its higher revised oil price assumption prompted it to downgrade its earnings by 18% for FY11-FY12, which accordingly entailed a downgrade to SELL at a lower fair value of RM1.60, premised on 8.5 times enterprise value/earnings before interest, tax, depreciation and amortisation.

AXIATA - ECMLibra maintains 'neutral' call on telco sector

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

ECMLibra Investment Research has maintained a neutral call on the telecommunication sector. It gave a buy recommendation on Axiata with target price of RM6.08.

"Axiata is our strong pick in the sector given strong growth prospects and potential upside surprises in dividend payments.

"Although earnings growth is lower for other telcos, valuations are likely to be supported by the high dividend yields," the research house said in its Sector Monthly Review (Telecommunication) today.

ECMLibra gave hold recommendations on Maxis, DiGi and TM with target prices of RM5.70. RM30.14 and RM3.86 respectively. -- Bernama

CIMB - Banking sector rebounds in March

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

Maintain overweight: The latest leading loan indicators have staged a strong rebound in March 2011 after a soft patch in February. This indicates that February data was likely affected by the Chinese New Year holidays. We are encouraged that fixed deposit and private sector deposits (from the business and individual segments) have continued to strengthen. Gross impaired loans data is also better.

Having said that, we believe leading loan indicators may slow going forward due to the supply chain disruption from the Japan earthquake. We believe the supply disruption has yet to be felt, largely due to a rundown in stocks. We expect slower leading loan indicators to start to show from May onwards. This could affect loans growth, or if the situation is prolonged, cash flow of business borrowers.

For the upcoming results season, we believe Malayan Banking Bhd (Maybank) and Malaysia'' Building Society Bhd (MBSB) will likely report results ahead of market expectations. Based on CIMB Niaga's results last week, we believe CIMB Group Holdings Bhd will likely be marginally below market consensus estimates. RHB Capital Bhd (RHBCap) is also likely to be below market consensus estimates given that a large chunk of earnings growth (non-interest income) will be related to the government's Economic Transformation Programme (ETP).

We foresee a stronger 2H11, as we still expect a pickup in corporate loans then with the likely rollout of the ETP. We are maintaining our sector rating at 'overweight', with our 'buy' ratings for CIMB, Maybank, MBSB, Hong Leong Bank Bhd and RHBCap.

Loans application growth rebounded in March 2011 to 37.5% year-on-year (y-o-y) from 17% in February. Loans approved growth also picked up strongly to 44.7% in March, after rising by only 7.1% in February. Both were driven by much higher corporate loans applied and approved growth, which is positive.

Residential mortgage growth was resilient at 19.8% y-o-y in March 2011 (February: 23%). Growth has certainly picked up against January's'' growth of 4.3% and December 2010's 8.6% when we believe there was some initial impact from the implementation of a loan-to-value (LTV) limit on the third mortgage and above at a maximum of 70% since the beginning of November 2010.

Auto loan applications growth was surprisingly resilient at 13.5% in March, likely due to consumers buying ahead of anticipated supply disruption due to the Japan earthquake.

Overall loans growth was stronger at 13.2% in March, compared with 12.2% in February. March growth accelerated in both the consumer and corporate loans segments. The consumer loans segment (64.7% of total loans) grew 13.7% in March against 13.2% in February. Corporate loans growth picked up to 12.3% in March 2011, ahead of February's +10.2% y-o-y.

Deposit growth was maintained at 9.7% y-o-y. The fixed deposit segment rose 8% in March against 6.1% in February 2011. This was the strongest expansion rate in 18 months since September 2009's 8.3%. Deposits growth from the private sector (business and individuals) has continued to strengthen for the fifth consecutive month.

Gross impaired loans remain benign. The industry's gross impaired loans ratio was slightly better at 3.2% in March 2011, compared with 3.3% in February, and was certainly better than the 3.6% of March 2010. Loan loss cover has gone up further to 91.1% in March from 89.6% in February. ' AmResearch, May 3


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

DIGI - Accelerated depreciation to hit DiGi earnings

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

DiGi.Com Bhd
(May 3, RM29.60)
Maintain neutral at RM29.08 with an upward revision of the target price to RM29.20 from RM27.90
: DiGi released its 1QFY11 results at mid-day on April 29. Core earnings came in at RM331.4 million (+19% year-on-year) against a revenue of RM1.43 billion (+11% y-o- y) supported by: (i) stronger data revenue momentum (+8% quarter-on-quarter/ +38% y-o-y), offsetting the extended contraction in voice revenue (-4% y-o-y and '3% q-o-q) with 15% of its subscriber base now on smartphones against 13% a quarter ago.

The continuing tight lid on operational expenditure contributed to the improvement in earnings before interest, taxes, depreciation and amortisation (Ebitda) margin, from 44.7% in 1Q10 and 45.7% in 4Q10 to 45.9% in 1QFY11. Management has declared 43 sen a share first interim dividend, equating to 100% of its net profit.

DiGi is undertaking a two-to-three year network modernisation exercise with ZTE Corp Sdn Bhd to swap its existing network for a new one.

This is to cater for growing data demand with the new network long-term evolution (LTE). The modernisation exercise will result in DiGi accelerating depreciation on its current 2G network as its lifespan is shortened. Management expects the impact to be front-loaded at RM400 to RM450 million for FY11, RM500 million to RM550 million in FY12 and less than RM100 million in FY13.

While putting pressure on earnings in the medium term, DiGi foresees good operational and capital expenditure savings in the longer term (post FY13). Management believes the accelerated depreciation will more than offset operational expenditure savings from the ongoing network collaboration with Celcom for FY11 and FY12, resulting in earnings being crimped.

DiGi has guided for the negative impact from the new roaming rates to be some RM1 million based on the profile of its roaming traffic.

We reduce our FY11/12 net profit forecast by 24% to 32% after building in the accelerated depreciation charges and making some housekeeping adjustments to our operational expenditure assumptions. Our fair value on the stock is raised to RM29.20 from RM27.90 as we now roll over to FY12.

DiGi remains a 'neutral' following our earlier downgrade on April 21 after the good share price run year-to-date. ' OSK Research, May 3


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

AIRASIA - Higher earnings forecast for AirAsia

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

AirAsia Bhd
(May 3, RM3.00)
Maintain buy at RM2.87 with an upward revision of target price to RM3.80 from RM3.50
: We revise up FY11 earnings by 9.7% after imputing higher passenger load factor, fares, and ancillary income as well as the implementation of a fuel surcharge to offset higher jet fuel prices. We have also increased our FY12/13 earnings forecast by 15% to 20%.

We also upgrade our target price for AirAsia to RM3.80 from RM3.50 per share previously after estimating higher net income for FY11/13. We use the sum-of-parts valuation method to better reflect AirAsia's valuation post listing of AirAsia X, Thai AirAsia and Indonesia AirAsia, and re-rating catalysts from the planned listing.

AirAsia has re-introduced a fuel surcharge for bookings from yesterday due to escalating jet fuel costs which have touched some US$140 (RM415.80) a barrel. To recap, AirAsia abolished its fuel surcharge on Nov 11, 2008, when jet fuel prices dropped to US$80 a barrel. The fuel surcharge will vary between RM10 and RM30, depending on the flight hours.

With this exercise, overall demand for AirAsia flights may be affected, as consumers may switch to competitors. However, we opine that the fuel surcharge is minimal as AirAsia's'' total fare is still one of the lowest and the airline will be able to sustain its market share due to its strong brand name, connectivity, frequency, and the continued strong growth of regional air travel.

The appreciation of the ringgit against the greenback has been providing some cushion against the impact of escalating jet fuel costs, as the fuel is denominated in US dollars.

On April 27 this year, AirAsia announced its maiden gross dividend payout of three sen a share, translating into a net dividend payout of 2.77 sen a share (0.97% net dividend yield). This was in line with our expectations of a possible low dividend payout. Nevertheless, we are positive on the move as it will widen the stock's appeal to investors who are looking for dividend yields (especially pension funds), apart from capital gains. ' Hong Leong Investment, May 3


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

PARAMON - Paramount land acquisition price reasonable

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

Paramount Corp Bhd
(May 3, RM5.66)
Maintain market perform at RM5.66 with target price of RM5.92
: Paramount announced that it had entered into an agreement with FK Realty Sdn Bhd for the acquisition of nine parcels of contiguous freehold commercial land in Klang, measuring 12ha. The total cash consideration of RM110 million will be funded by internal funds and borrowings.

The price tag translates into a cost of RM87 psf for the land. It seems reasonable given that the land has been approved for commercial development, hence it has some plot ratio. The land is located within a matured Klang town centre along Jalan Goh Hock Huat. It is easily accessible via the North Klang Valley Expressway, Shapadu Highway, and Federal Highway.

The land is also linked to Kuala Lumpur, Port Klang, Tanjung Malim and Seremban via KTM commuter. The Klang KTM station is situated at Jalan Raya Timer, which is just six minutes drive from the land. In the vicinity, there are Shaw Centre Point, Carrefour Klang, Jusco Bukit Raja and Klang Parade.

The land has been earmarked for an integrated commercial hub development. While the gross development value (GDV) for the project has not been disclosed pending finalisation and approval of a detailed layout plan, the project is expected to commence in FY12, with a development period of about 10 years.

We are positive on this acquisition, as Klang, with an estimated population of some 750,000, is the second largest city in the Klang Valley after Kuala Lumpur. A well-planned commercial development is therefore marketable. The risks include regulatory and country risks, delay in approvals and launches, and competition from peers.

There is no change in our earnings estimates pending guidance from the management on the GDV of the project. We maintain our 'market perform' rating on the stock, with an unchanged indicative fair value of RM5.92, based on a 30% discount to realisable net asset value. ' RHB Research, May 3


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

EPMB - EP Manufacturing: Bottom up, top down

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

EP Manufacturing Bhd
(April 29, 78.5 sen)
Maintain buy at 76.5 sen with revised target price of 89 sen (from 78.7 sen)
: EPMB registered revenue and net profit of RM125.5 million and RM8.6 million respectively for 1QFY11. Revenue fell 16% y-o-y (q-o-q: 5%) given the lower top line contribution arising from the slowdown in Perodua's volume in 1Q (by 4.1% y-o-y and 3.6% q-o-q) as production of the existing Myvi is expected to cease sometime end-1H.

But EPMB dropped a surprise with earnings soaring 109% y-o-y and 15% q-o-q, which beat our expectations as its 1Q earnings represented 40% of our full-year forecast.

Management also announced a tax-exempt final dividend for FY10 of one sen per share, bringing its full-year dividend to two sen per share.

Despite the lower revenue from its auto division, the segment's margins expanded as earnings before interest and taxes (Ebit) margin improved from 4.96% and 7.32% in Q1FY10 and Q4FY10 respectively to 8.68% during the quarter.

While economies of scale are unlikely in the recent quarter given Perodua's lower production volume, we suspect that the margin boost at Ebit level was due to the lower amortisation rate for Perodua's production line (based on unit output) as a significant portion was amortised in 2010, during which the volume sold beat initial projections.

Hence, we suspect that the better earnings before interest, taxes, depreciation and amortisation (Ebitda) margin amid rising raw material prices could have been relatively lower than in 4QFY10 but slightly higher than 1QFY10 owing to enhanced operating efficiency. A tax credit also contributed to the improved bottom line.

Despite the better than expected 1Q earnings, we are still concerned over a potential slowdown from Perodua in 2Q and 3Q arising from an acute disruption in components supply after Japan's earthquake in March, although things could pick up in 4Q once the new Myvi is launched.

After revising our numbers earlier and downgrading autos to underweight, we feel it is too early to make any changes to operating earnings.

Below the operating level, we are slashing off minority interest (as EPMB has fully acquired the remaining 4% stake from Proton Holdings) and lowering the effective tax rate from 25% to 20% in view of the favourable tax incentives EPMB will enjoy on investment allowances over the next three years as per management guidance.

This ultimately raises our earnings by 13% for FY11/13 and our fair value to 89 sen from 78.7 sen, premised on six times price-earnings ratio (PER) with our 'buy' call maintained. EPMB still offers a decent upside given its attractive valuation as it is still trading below its eight to nine times five-year historical forward PER.

Instead, the stock is trading at 5.2 times FY11 earnings per share, with 50% of the share price representing its free cash flow. Maintain 'buy'. ' OSK Research, April 29


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

DIGI - DiGi cut to 'market perform' at RHB

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

DiGi.Com Bhd was downgraded to “market perform” from “outperform” at RHB Research Institute Sdn Bhd which said the stock was “almost” fully valued following a rally in its share price.

Its fair value was raised to RM30 from RM29.10, analyst Lim Tee Yang wrote in a report today. -- Bloomberg

DIGI - CIMB Research Neutral on DiGi, ups target price to RM31.60

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

KUALA LUMPUR: CIMB Equities Research said though DiGi's 1Q11 annualised core net profit was only 1% above its forecast and consensus was spot on, it considered the performance to be above expectations as 1Q is a seasonally weak quarter.

CIMB Research said on Tuesday, May 3 that the outperformance came from better-than-expected revenue and margins.

'Although we raise our revenue and EBITDA margin assumptions, our FY11-12 core EPS numbers are reduced by 14-16% because of accelerated depreciation resulting from a network upgrade.

'FY13 EPS is raised by 11%. Our DCF-based target price, which uses an unchanged WACC of 11.6% rises from RM28.65 to RM31.60. We also cap our FY11-13 DPS forecasts at levels similar to FY10's.

'Rising prepaid competition and DiGi's stretched valuations keep the stock as a NEUTRAL despite the commendable results. Downside risks should be limited by its dividend yield of 7%. Axiata remains our top Malaysian telco pick,' it said.

HWGB - CIMB Research has Sell on Ho Wah Genting

Stock Name: HWGB
Company Name: HO WAH GENTING BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research has a Sell on Ho Wah Genting Bhf at 67 sen, at which it is trading at a price-to-book value of 3.2 times.

It said on Tuesday, May 3 HWGB is gyrating in a bearish flag pattern. Although prices could still inch a tad higher from here, it was worried about its medium term sustainability.

CIMB Research said if the 50-day SMA fails to hold, the support channel at 60 sen will be the next target.

Technical landscape remains subdued. MACD is still losing pace while RSI has slipped below the 50pts mark. Once the RM0.60 level is breached, prices would likely fall towards 56.5 sen and 51.5 sen.

'Our strategy here is to unload on strength, preferably near the 70 sen to 72 sen resistances. However, always put a buy stop at 73 sen, in case we underestimate the strength of this rebound,' it said.

HLBANK - AmResearch maintains Buy on Hong Leong Bank, unch FV RM12.20

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

KUALA LUMPUR: AmResearch maintains its Buy rating on HONG LEONG BANK BHD [] (HLBB), with an unchanged fair value of RM12.20/share.

'This is based on unchanged P/BV of 2.3 and calendarised 2011 ROE of 15.7%,' it said on Tuesday, May 3.

EON Capital (EON Cap) announced that its board had on April 28 confirmed to Hong Leong Bank Bhd's (HLBB) to accept the offer by HLBB to buy the entire assets and liabilities of EON Cap for RM5.06bil or RM7.30/EON Cap share.

However, EON Cap unexpectedly added in one major new condition before accepting the offer, which was that EON Bank, the wholly-owned subsidiary of EON Cap, will pay a net dividend of RM311.9mil, to EON Cap.

An application for the proposed interim dividend will be submitted to Bank Negara Malaysia (BNM).

HLBB has confirmed it has no objection to EON Bank declaring and paying net dividend amounting to RM311.9mil upon receipt by EON Bank the approval from BNM.

HLBB said it will maintain the acquisition price of RM5.06bil with no deduction for payment of the proposed interim dividend.

AmResearch said EON Cap has not yet announced it will pay up the dividend to its shareholders EON Cap's announcement is vague in the sense that it did not mention what it intended to do with the net dividend of RM311.9mil.

'We are not able to get further indications from EON Cap at this point. We expect EON Cap to pay the dividend eventually to shareholders, which will be RM0.45/share.

'Despite this, we expect EON Cap to eventually pay the unexpected net dividend of RM311.9mil to EON Cap's shareholders. This is on the basis that EON Cap will likely be delisted post the merger,' it said.

AmResearch said in EON Cap's circular to shareholders dated Sept 1, 2010, EON Cap's board said that it did not intend to maintain the listing status of EON Cap and would make the necessary arrangements to request for the delisting of EON Cap.

Also, in the circular to shareholders, EON Cap had said that it intended to pay a capital distribution amount of RM1.76bil or RM2.54/share, which represent the existing share capital and share premium reserve of EON Cap, as

AmResearch said EON Cap cannot declare a special dividend from these capital accounts, but only via a capital repayment exercise in accordance with Sections 60 and 64 of the Companies Act 1965.

On top of this, EON Cap had said that it intended to pay a special dividend of RM3.3bil or RM4.76/share, which comprise the retained earnings as at 31 December 2009 as well as realised capital gain from the proposed disposal of assets and liabilities to HLBB.

'On this basis, we expect the RM311.9mil that EON Cap will receive to be declared as dividends to EON Cap's shareholders. This works out to RM0.45/EON Cap share,' AmResearch said.