KENCANA - UOB Kay Hian Research Overweight on Malaysian O&G fabrication yards

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

KUALA LUMPUR: UOB Kay Hian Research has initiated with an Overweight on Malaysia's oil & gas (O&G) fabrication yards as the industry is undergoing a strong cyclical recovery.

It said on Tuesday, June 7 that Petroliam Nasional Bhd (Petronas) had pledged to spend RM50 billion to RM55 billion per year for the next five years, a big increase of 35%-48% from 2010 capex of RM37 billion.

'The rate of increase in Petronas spending is a good gauge of the industry's prospective growth which could be in the region of 20%-30% this year,' it said.

UOB Kay Hian estimated Petronas' capex spending in 2011 would exceed the government's 2011 budgeted development expenditure of RM49 billion.

The three major O&G upstream players' (Marine and Heavy Engineering (MMHE), SAPURACREST PETROLEUM BHD [] and Kencana Petroleum'' Bhd) combined top-line of RM10 billion (which includes overseas contribution) is dwarfed by Petronas' spending plans.

The research house initiated coverage on MMHE with a BUY. It said MMHE wass the closest proxy to Petronas spending as Petronas still had a 40% indirect stake in MMHE after its IPO.

'We project MMHE to deliver net profit CAGR of 24% over the next few years and will be a leading consolidation play. Our target price of RM8.80 is based on 21 times FY12F PE. MMHE's monopoly over deepwater fabrication in Malaysia is its strong point.

As for Kencana, it has initiated coverage on Kencana Petroleum with a HOLD.

'Our target price is RM2.44, based on 18 times FY12F PE, a discount to MMHE's, due to its smaller size. We believe most of its recent contract wins have been factored in its current share price. Entry price is RM2.20,' it said.

UOB Kay Hian said under the Economic Transformation Programme (ETP), the government has proposed the O&G sector to consolidate so that Petronas can create a healthy and growing secondary O&G services industry.

It said Malaysia's fabrication yards give out a good portion of work to subcontractors, surrendering margins. Industry consolidation will reduce fabrication yards' reliance on subcontractors and eliminate execution risks associated with outsourcing.

'MMHE's proposed acquisition of Sime Darby's Ramunia yard would effectively double its Pasir Gudang yard's capacity to 130,000 million tonnes and also raise its share of domestic capacity to 50%.

'Equity partners such as Kencana are moving into a utility-based model where cash flows are more certain. Developing marginal fields with short lifespan also requires the mobilisation of floating production systems (FPS) and mobile operating and storage units (MOPU). Both MMHE and Kencana have the capability to fabricate and convert rigs into FPS and MOPU,' it said.

MHB - UOB Kay Hian Research Overweight on Malaysian O&G fabrication yards

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

KUALA LUMPUR: UOB Kay Hian Research has initiated with an Overweight on Malaysia's oil & gas (O&G) fabrication yards as the industry is undergoing a strong cyclical recovery.

It said on Tuesday, June 7 that Petroliam Nasional Bhd (Petronas) had pledged to spend RM50 billion to RM55 billion per year for the next five years, a big increase of 35%-48% from 2010 capex of RM37 billion.

'The rate of increase in Petronas spending is a good gauge of the industry's prospective growth which could be in the region of 20%-30% this year,' it said.

UOB Kay Hian estimated Petronas' capex spending in 2011 would exceed the government's 2011 budgeted development expenditure of RM49 billion.

The three major O&G upstream players' (Marine and Heavy Engineering (MMHE), SAPURACREST PETROLEUM BHD [] and Kencana Petroleum'' Bhd) combined top-line of RM10 billion (which includes overseas contribution) is dwarfed by Petronas' spending plans.

The research house initiated coverage on MMHE with a BUY. It said MMHE wass the closest proxy to Petronas spending as Petronas still had a 40% indirect stake in MMHE after its IPO.

'We project MMHE to deliver net profit CAGR of 24% over the next few years and will be a leading consolidation play. Our target price of RM8.80 is based on 21 times FY12F PE. MMHE's monopoly over deepwater fabrication in Malaysia is its strong point.

As for Kencana, it has initiated coverage on Kencana Petroleum with a HOLD.

'Our target price is RM2.44, based on 18 times FY12F PE, a discount to MMHE's, due to its smaller size. We believe most of its recent contract wins have been factored in its current share price. Entry price is RM2.20,' it said.

UOB Kay Hian said under the Economic Transformation Programme (ETP), the government has proposed the O&G sector to consolidate so that Petronas can create a healthy and growing secondary O&G services industry.

It said Malaysia's fabrication yards give out a good portion of work to subcontractors, surrendering margins. Industry consolidation will reduce fabrication yards' reliance on subcontractors and eliminate execution risks associated with outsourcing.

'MMHE's proposed acquisition of Sime Darby's Ramunia yard would effectively double its Pasir Gudang yard's capacity to 130,000 million tonnes and also raise its share of domestic capacity to 50%.

'Equity partners such as Kencana are moving into a utility-based model where cash flows are more certain. Developing marginal fields with short lifespan also requires the mobilisation of floating production systems (FPS) and mobile operating and storage units (MOPU). Both MMHE and Kencana have the capability to fabricate and convert rigs into FPS and MOPU,' it said.

MAS - MIDF Research retains sell call on MAS

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

KUALA LUMPUR: MIDF Research has retained its sell call on Malaysia Airlines (MAS) and said that while the national carrier's membership of the oneworld alliance would help boost its revenue and lessen costs, any favourable results will only be noticed in 2013 onwards.

The research house said it was making no changes to its earnings forecast for now till 2012.

'Due'' to'' limited'' implied ''upside potential as well as headwinds'' from escalating'' fuel prices and ''some'' impact'' from'' the'' MENA'' civil'' unrest'' and'' Japanese'' natural ''disasters, we are expecting the coming 2Q11 numbers to be impinged.

'Therefore we reaffirm Sell with a target price of RM1.24, derived by pegging ''its EPS11 to 13.6x PER, which is the average PER of its peers,' said MIDF Research in a note June 7.

''

CENSOF - Century's fair value lifted at OSK

Stock Name: CENSOF
Company Name: CENTURY SOFTWARE HOLDINGS BHD
Research House: OSK

Century Software Holdings Bhd, a Malaysian software company, rose to a record in Kuala Lumpur trading after OSK Research Sdn Bhd said it increased its fair value to 98 sen.

The stock gained 4 per cent to 78.5 sen at 9:16 a.m. local time. -- Bloomberg

MBMR - MBM Resources upgraded to 'buy'

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

MBM Resources Bhd, which owns a stake in Malaysian automaker Perusahaan Otomobil Kedua Sdn Bhd, rose to a three-month high in Kuala Lumpur trading after OSK Research Sdn Bhd upgraded the stock to “buy” with a higher fair value of 3.80 ringgit.

Its shares increased 1.3 per cent to RM3.14 at 11:40 a.m. local time, set for their highest close since March 2. -- Bloomberg

PENERGY - Affin Research maintains Buy on Petra Energy

Stock Name: PENERGY
Company Name: PETRA ENERGY BHD
Research House: AFFIN

KUALA LUMPUR: Affin Investment Bank Bhd Research has maintained its Buy call on PETRA ENERGY BHD [] after the company signed a MOU with Labuan Shipyard & Engineering Sdn Bhd to utilize Labuan Shipyard's facilities at Victoria Harbour, Labuan for its fabrication activities.

Under the MOU, the two parties may also explore areas for cooperation to collaborate on projects pertaining to leasing of fabrication yards, fabrication works and storage facilities.

Affin Research said in a note Friday, June 3 that it was neutral on the signing of the MOU as it was an ordinary business arrangement that allows Petra Energy to lease the required yard space to support its RM400m Petronas Carigali HUC work at a stable, pre-agreed rental rate.

'We maintain our Buy rating on Petra Energy with an unchanged TP of RM1.89, based on 12x CY12 PE.

'We continue to like Petra Energy given: (i) our expectation for more HUC, topside maintenance jobs to be awarded in FY11-12; (ii) Petra Energy's established track record in integrated brown field services give them a competitive advantage in contract bidding; and (iii) its RM900m unbilled sales provide visible contract billings for the next 2 years.

DELLOYD - Delloyd plantation division exceeds expectations

Stock Name: DELLOYD
Company Name: DELLOYD VENTURES BHD
Research House: ALLIANCE

Delloyd Ventures Bhd
(June 1, RM3.50)
Maintain buy at RM3.40 with revised target price of RM5.13 (from RM3.97): Delloyd registered a 43% year-on-year (y-o-y) increase but 9.7% reduction in revenue in the absence of delivery of 25 bus chassis this quarter.

However, the plantation division emerged as the star performer with more than five times y-o-y and 17.9% quarter-on-quarter pre-tax earnings growth on better production yield and higher crude palm oil (CPO) prices.

The results were slightly below our expectation, achieving 93% of our annualised net profit of RM54.9 million with higher stock writeoffs and provisions. Delloyd also declared a final dividend of 10 sen, bringing the full-year dividend to 18 sen or a dividend yield of 5.3%.

The contribution from the plantation division will continue to grow as fresh fruit bunches (FFB) production is envisaged to increase by 23.9% and yield by 5.5% in FY12. Hence, it will overtake the automotive division as the major earnings contributor with an estimated pre-tax contribution of 51% in FY12 ending March from the current 47.5%.

Outlook for the automotive division appears promising as Delloyd has secured contracts to supply parts to the Myvi and Proton Persona replacement models. The company is in the process of tendering to supply 48 buses in FY12 and 50 in FY13, so revenue growth may accelerate further.

Based on new plantation/automotive pre-tax contribution of 49:51 in FY12 (from our earlier assumption of 75:25 for FY11), we raise our target price from RM3.97 to RM5.13 with plantation and automotive business valued at six times and nine times.

We reiterate our 'buy' call for Delloyed with an upside potential of 56.8%. The risks to our recommendation include failure to secure new bus contracts, a sudden drop in demand for motor vehicles and a plunge in CPO prices to below RM3,000 per tonne. ' Alliance Research, June 1


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

SAPCRES - SapuraCrest stomping the yard in Labuan

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

SapuraCrest Petroleum Bhd
(June 2, RM4.05)
Maintain outperform at RM3.93 with target price of RM5.12: On Wednesday, SapuraCrest announced that it has signed an agreement with Realmild Sdn Bhd and Labuan Shipyard & Engineering Sdn Bhd (LSE) to subscribe to a 50% stake in LSE. The yard is sited on 13ha of land within the port of Victoria Harbour in Labuan with deepwater access. Its annual capacity is 36,000 tonnes.

Although it is positive, the announcement did not come as a surprise. In an update on Oct 21, 2010, following our US roadshow with management, we wrote that mergers and acqusitions might be on the cards and that a venture into the oil and gas fabrication segment would make the most commercial sense, especially if the company plans to add new drilling rigs and/or pipelay barges to its fleet. All the existing rigs and barges were built by fabricators in Europe and Asia.

We take a favourable view of the acquisition as it could help expand SapuraCrest's local and regional presence and fast-track its bottom line growth. We are also encouraged that the new business is oil and gas-related and involves a promising segment that SapuraCrest does not have exposure to. The company currently operates in the drilling, installation of pipelines and facilities and marine services segments.

SapuraCrest paid RM25 million for the 50% stake in LSE, which we understand has broken even following a rough patch in recent years. The remaining 50% stake is held by Umno-linked Realmild, which had been leasing the yard from the Ministry of Finance (MoF) for a reported RM7 million per year. We believe SapuraCrest and Realmild will now jointly lease the yard from the MoF. We understand that LSE has a modest order book of around RM250 million, which SapuraCrest hopes to expand over the next 12 months. Already, Petra Energy Bhd has indicated its interest in using the yard's facility for minor fabrication works. Petra Energy and LSE were to sign the agreement yesterday at the 13th Asian Oil, Gas and Petrochemical Engineering Exhibition at the Kuala Lumpur Convention Centre. Petra Energy executive director and CEO Kamarul Baharin Albakri was quoted as saying that the yard was selected for its strategic location and proximity to oil production facilities in Sabah.

SapuraCrest's move into fabrication is not a threat to Kencana Petroleum Bhd, which operates a fully-equipped yard in Lumut. Given the low level of activities at the LSE yard in recent years, SapuraCrest's management expects the yard to be fully developed in three years. With its 13ha yard and RM250 million jobs in hand, LSE is currently not batting in the same league as Kencana, which has a yard sprawling 89ha and an order book of RM1.5 billion.

Pending substantial new orders at the LSE yard, we maintain our forecasts and target price of RM5.12. We continue to value SapuraCrest at a 40% premium over our 14.5 times target market price-earnings ratio given its marginal field venture and superior growth. The stock remains an 'outperform' and our top oil and gas pick in view of the potential catalysts of this new venture, more marginal field work and fleet expansion.

On Jan 31, a consortium comprising Petrofac (Malaysia) Sdn Bhd (50%), SapuraCrest (25%) and Kencana (25%) secured the nine-year, US$800 million (RM2.4 billion) Berantai marginal field contract. SapuraCrest's transport and installation works are being executed as scheduled, helped by its in-house pipelay barges. Results for 1HFY12 should include a maiden contribution from the project. ' CIMB Research, June 2


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

BENALEC - Benalec crystallising more value in Melaka

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

Benalec Holdings Bhd
(June 2, RM1.47)
Maintain buy at RM1.45 with fair value of RM1.90: We maintain a 'buy' on Benalec Holdings Bhd with an unchanged fair value of RM1.90 based on the sum-of-parts method. Benalec announced to Bursa Malaysia on Wednesday that the group has entered into an agreement with Vista Selesa Development Sdn Bhd for the proposed disposal of land in Klebang, Melaka.

The land measures 2,977,736 sq ft, with a 99-year leasehold period. It is strategically located within seven km west of Bandar Melaka and 15km southwest of Ayer Keroh town. In the future, it will also have direct access from the proposed Coastal Highway which links Duyong, Mahkota Parade, Kota Laksamana and Klebang.

Benalec will receive a total cash consideration of RM46 million for the first portion of the land measuring 1,627,405 sq ft (about 15ha).

For the remaining portion, Benalec has entered into a joint venture with Vista Selesa to develop 1,350,331 sq ft (12.5ha) of land into a mixed development project. Under the deal, Benalec would either receive a cash consideration of RM38 million or 25% of the project's estimated gross development value, whichever is higher, when it is completed in 2013.

Benalec also announced that it has proposed to undertake a private placement and a share buyback exercise of up to 10% each of its share capital.

Taken together with Benalec's net entitlement to the land sale on the first portion and estimated proceeds from any proposed private placement, based on the five-day volume-weighted average price at current values, we estimate that Benalec could potentially raise proceeds of about RM144 million.

We believe the latest move is part of Benalec's strategic positioning to raise capital ahead of more value-accretive deals in the future. To be sure, we gather that it intends to use part of any new monies raised to fund its upcoming Kota Laksamana project in Melaka.

We believe the 101ha Kota Laksamana land holds immediate development potential as it sits on prime seafront land within the Melaka city centre. We gather that Benalec is in the process of obtaining approvals from the authorities and the project could kick off by 4Q11. The group is also open to forging strategic partnerships with reputable developers to realise the deeply-embedded value of the land.

Based on land sales alone, we estimate that Benalec could reap a net gain of RM80 million or about RM27 million per year over a three-year period based on a conservative value of RM28 psf. ' AmResearch, June 2


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

DIALOG - Dialog's Pengerang project takes off, target price raised

Stock Name: DIALOG
Company Name: DIALOG GROUP BHD
Research House: MAYBANK

Dialog Group Bhd
(June 2, RM2.80)
Maintain buy at RM2.82 with revised target price of RM3.35 (from RM2.60): Securing the engineering, procurement, construction and commissioning (EPCC) job for the Pengerang centralised tankage facility (CTF) project denotes progress. We expect the Pengerang CTF project, on full-scale commercial operation by 2017, to be the main driver to Dialog's earnings with dividends to boot. Dialog is also highly tipped to bag the next few marginal field projects (Balai and Bentara), a positive to sentiment and price performance. We maintain our 'buy' call.

Dialog has clinched the EPCC contract from Pengerang Independent Terminals Sdn Bhd (PITSB) to construct the first phase of the independent deepwater petroleum terminal there. PITSB is a special purpose vehicle, 10% held by the State Secretary, Johor (Inc), and 90% owned by Pengerang Terminals Sdn Bhd (PTSB). Vopak Terminal Pengerang BV and Dialog are the joint owners of PTSB with a 49% and 51% stake.

The contract, valued at RM1.9 billion, will commence immediately and is expected to complete by 2014. The first phase of the project will have an initial storage capacity of 1.3 million cu m and six vessel berths. However, it can be expanded to 2.3 million'' cu m (+77%) in storage space should the need arise.

We are positive on the news, which tracks our expectation following the recent approval secured from the Department of Environment. EPCC job wins to date have surpassed the RM2 billion mark from three projects. Based on the contract value and time line, Dialog should recognise average revenue of RM543 million per year for this project. In total, we expect Dialog to make about RM95 million in net profit from the EPCC project, based on an estimated 5% net profit margin.

We are keeping our forecasts unchanged, as we have incorporated RM700 million to RM750 million revenue per year for the EPCC division. Our FY11 to FY13 earnings forecasts, which imply a 10% three-year compound annual growth rate, have ample room for upgrades, as we have not incorporated: (i) marginal fields impact, (ii) full earnings potential from Pengerang CTF, (iii) the Saudi Arabia supply base, and (iv) Phase 3 and beyond for the Tanjung Langsat CTF.

This lifts our target price to RM3.35, 19% upside. We have raised our sum-of-parts valuation by 29% as we have doubled the storage capacity estimate for Pengerang CTF to 2 million cu m. Other assumptions (Kertih, Tanjung Langsat CTF, other operations) remain unchanged. ' Maybank IB Research, June 2


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

CBIP - CBIP sells plantation subsidiaries, RM1.07 per share gain on sale

Stock Name: CBIP
Company Name: CB INDUSTRIAL PRODUCT HOLDING
Research House: RHB

CB Industrial Product Holding Bhd
(June 2, RM4.30)
Upgrade to outperform at RM4.26 with revised fair value of RM5.90 (from RM4.90): CBIP entered into two share sale agreements to dispose of its 100%-owned subsidiaries, Sachiew Plantations Sdn Bhd for RM108.12 million cash and Empresa (M) Sdn Bhd for RM159.94 million cash.

Apart from the consideration for Sachiew, the purchasers have also agreed to settle all amounts owed by Sachiew to CBIP totalling RM2.88 million, to take over two hydrogenated palm oil (HP) facilities amounting to RM1.48 million and to assume a RM60 million corporate guarantee granted by AmBank (M) Bhd.

For Empresa, the purchasers have also agreed to settle all amounts owed by Empresa to CBIP totalling RM6.44 million, to take over a RM300,000 HP facility and to assume a RM65.25 million corporate guarantee granted by OCBC Al-Amin Bank.

Sachiew is the holder of a provisional 60-year lease for 3,720ha of land in Suai, Miri, which also has a 30-tonne per hour'' crude palm oil mill. Empresa is the holder of a provisional 99-year lease for 5,936ha of land in Bok, Miri, which has a 45-tonne per hour CPO mill.

The Empresa land is the subject of a dispute concerning native customary land rights (NCR). The indigenous people are claiming 3,307ha of land. Besides this claim, the Empresa land is also the subject'' of two other ongoing NCR disputes.

The rationale for the disposal is for CBIP to unlock the value of its investments while enabling it to focus on its core business of manufacturing palm oil equipment. CBIP will record an estimated gain on disposal of RM140.8 million, or about RM1.07 per share. CBIP will use the sale proceeds for working capital and to defray the disposal expenses of RM3 million, to be utilised within two years. The disposal is to be completed by 3Q11. CBIP's net gearing will fall to 0.09 times (from 0.47 times) after this disposal.

Based on the total consideration (including liabilities to be assumed) and excluding a value of RM75 million for the two CPO mills, CBIP is receiving about RM21,140 per ha for the land, which is on the lower end of previous transactions ranging between RM20,000 and RM40,000 per ha for brownfield land in Sarawak. On a price-earnings ratio basis, however, the transaction is valued at about 16.6 times FY10 PER, on the high end of peer valuations of other plantation companies of 12'' to 17 times.

The main risks include: (i) a significant decline in oil mill engineering contracts due to slower than expected economic recovery and plantation investment in Indonesia as well as Malaysia; (ii) a stronger than expected rise in steel prices and weakening of the US dollar, resulting in weaker than expected margins for the oil mill engineering division; (iii) a fall in CPO and other global vegetable oil prices caused by weather abnormalities; and (iv) a reversal in crude oil prices and thus CPO prices.

This will reduce our forecasts by 3.4% in FY11, and by 9% to 14% for FY12/13. Despite our earnings reduction, we raise our sum-of-parts-based target price for CBIP to RM5.90 (from RM4.90), after updating for the cash to be received from the disposal.

We believe CBIP could put the cash to good use by either returning the money to shareholders or by investing in another asset which provides better returns. As such, we upgrade our recommendation on CBIP to 'outperform' (from 'market perform'). ' RHB Research, June 2


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

AXIATA - OSK trims forecast for Axiata by 5-6pc

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

OSK Research has trimmed its financial year 2011/2012 forecast for Axiata Group by five-six per cent, driven mainly by the lower earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin assumptions for Celcom.

"The revision entails a reduction in the EBITDA margin assumptions for Celcom to 41-43 per cent from 43-44 per cent previously on higher handset sunsidies, low group of income and associate contributions," OSK said in a research note today.

It said Axiata has targeted to progressively raise its dividend payout (currently 30 per cent) over time but did not offer further clarity on the timeline for a more definitive capital management initiative.

"Given that we do not expect the group to engage in a major merger and acquisition as the its coffers are rapidly building up, we do not rule out a return of surplus cash over the longer term," OSK said. -- Bernama

AIRASIA - AirAsia a 'neutral' at Goldman Sachs

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: GOLMAN SACHS

AirAsia Bhd was rated “neutral” in new coverage at Goldman Sachs Group Inc., which said returns will probably “remain flat due to unit cost inflationary pressure.”

The brokerage set the share-price estimate at RM3.20, according to a report by analysts Hino Lam and Ricky Tsang. –- Bloomberg

CBIP - CBIP rises on plantation land sales

Stock Name: CBIP
Company Name: CB INDUSTRIAL PRODUCT HOLDING
Research House: MAYBANK

KUALA LUMPUR: CB INDUSTRIAL PRODUCT HOLDING [] Bhd shares advanced in early trade on Thursday, June 2 after the company proposed to sell its entire equity interests in Sachiew PLANTATION []s Sdn Bhd and Empressa (M) Sdn Bhd for a total of RM268.06 million.

At 9.05am, CBIP rose 10 sen to RM4.36.

Sachiew is principally involved in the cultivation of oil palm and production of crude palm oil and palm kernel, while Empressa engages in the cultivation of oil palm and the operation of a palm oil mill.

CBIP said the gross proceeds of RM268.06 million from the disposal would be utilised for its working capital including for financing receivables, inventories, and repayment of bank borrowings.

Maybank Investment Bank Bhd Research said CBIP's proposed plantation disposal was positive as it unlocks value of its below-average plantation yielding estates; raising RM1.95 per share (RM268 million) in cash and making RM1.02 per share (RM141 million) in disposal gain.

'Post disposal, with potential net cash at 95sen per share, CBIP is looking for expansion opportunities, failing which it may return part of its cash as special dividends to shareholders.

'We maintain our earnings forecasts and target price of RM4.75 based on 7 times 2011 EPS for now,' it said.

SAPCRES - ECM Libra maintains Buy on SapuraCrest

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

KUALA LUMPUR: ECM Libra Research has maintained its Buy call on SapuraCrest Petroleum with a with view to upgrade its target price after the company announced on June 1 that it was taking a 50% interest in Labuan Shipyard that gives it foot into the fabrication industry.

'Pegging a 18x P/E multiple (based on +1 standard deviation to 1-year rolling forward average PE) to our CY11 EPS (23.4 sen) derives our TP of RM4.20.

'We continue to be positive on the group given their RM8.6 billion orderbook and as such, solid earnings visibility going until FY13.

'Other positive news for the group that has yet to be formally announced is the purchase of 2 more derrick pipe lay barges to add to their current fleet of 3. Also, they are participating in a Petrobras tender that (if they win) may require them to build an additional vessel in Brazil to carry out the long term contract,' it said in a note June 2.

''

UMLAND - UM Land: A good build-up in 1Q11

Stock Name: UMLAND
Company Name: UNITED MALAYAN LAND BHD
Research House: CIMB

United Malayan Land Bhd
(May 31, RM1.91)
Maintain buy at RM1.88 with revised target price of RM2.53 (from RM2.11): UM Land's 1Q11 net profit was broadly in line at 27% of our full-year forecast. Future quarters may not be as strong, depending on the timing of the Puteri Harbour launch and the response to it. We make no changes to our earnings forecasts or 'buy' recommendation but raise our target price from RM2.11 to RM2.53 after lowering the discount to its RM4.22 realisable net asset value from 50% to 40%. The lower discount factors in the likely improvement in liquidity after the proposed one-for-four bonus issue as well as the group's improving earnings prospects. Potential share price catalysts include: (i) the buoyant property market; (ii) more land acquisitions; and (iii) strong sales for new condo projects.

Annualised 1Q net profit made up 108% of our full-year forecast. Net profit for 1Q jumped 61% year-on-year (y-o-y) due to a marked improvement in sales for the Suasana Bukit Ceylon condo project. As expected, and in line with last year, UM Land did not propose a 1Q dividend. The proposed one-for-four bonus issue will go ex in August.

Sales in 1Q rose 6% quarter-on-quarter and 56% y-o-y to RM134 million, of which 28% came from townships and 72% from niche developments. The bulk of the sales came from the Suasana Bukit Ceylon condo where the take-up rate has improved from 17% worth RM47 million to 48% worth RM146 million. As at mid-May, the take-up had risen further to 56% worth RM166 million, excluding bookings for another 30 units worth RM46 million. Sales in 1Q exceeded UM Land's internal target by RM15 million.

The group is targeting to launch RM495 million worth of properties in 2011, including the RM189 million condo scheme Puteri Harbour in Johor. The retail component worth RM46 million was sold to Khazanah Nasional Bhd in February. The launch date for the condos, however, appears to have been pushed back yet again. Originally targeted for launch at end-2010, it was delayed to 1Q11, then to 2Q11 and now to 3Q11. Preliminary indications are that the pricing for the condos will average RM650 psf. ' CIMB Research, May 31


This article appeared in The Edge Financial Daily, June 1, 2011.

LITRAK - Litrak still not sprinting

Stock Name: LITRAK
Company Name: LINGKARAN TRANS KOTA HOLDINGS
Research House: MIDF

Lingkaran Trans Kota Holdings Bhd
(May 31, RM3.75)
Downgrade to neutral at RM3.72 with target price of RM4.07: Litrak's FY11 net profit of RM98.4 million was below expectations, accounting for only 70.6% and 79.2% of our and'' consensus numbers. The big variance to the forecast was due to our assumption of a scheduled toll rate hike in 2011, which did not materialise. However, FY11 earnings still grew by 14.5% on higher revenue and other income. ''

Net profit dropped 41.2% quarter-on-quarter (q-o-q) to RM15.5 million, caused by a higher share of losses at Sprint, caused mainly by the higher amortisation of highway development expenditure based on the latest toll revenue projections prepared by independent consultants concluded at the end of 4QFY11, hence the entire adjustment has been accounted for in the quarter. ''

All is not lost with Litrak. Revenue was boosted in 4QFY11 to RM83.6 million (+5.1% year-on-year; +6.2% q-o-q), due to holiday traffic as well as the accruals made (based on the terms of the concession agreement) on the scheduled toll hike in January 2011 that the government decided to defer until further notice.

However, FY11 dividend per share was similar to FY10's at 17 sen, a yield of 4.6%. Based on our more than RM250 million'' free cash flow projection for the LDP in FY12, we expect Litrak to raise its FY12 DPS to 19.1 sen (5.14% yield).

We expect traffic loss in FY12 due to fuel price increases and toll rate hike in 2011. However, we do not expect traffic to'' decrease drastically as the LDP is an important commuter route, especially with the lack of'' efficient public transport. We also believe that the new toll rates should moderate any impact from traffic decrease.

Higher fuel prices, such as the recent 20 sen price increase for RON97 to RM2.90 per litre and possible increase for RON95'' (currently'' at RM1.90 per litre), may cause commuters to find alternative transport causing a 'loss' in traffic.'' ''

We are trimming our earnings forecast for FY12 by 30% to reflect escalating fuel prices as well as'' traffic leakage to the'' Duta-Ulu'' Klang'' Expressway (Duke). We also introduce our FY13 earnings forecast of RM127.8 million, assuming a 4%'' increase in traffic, underpinned by new housing developments in Petaling Jaya.

This is based on the dividend discount model, with a weighted average cost of capital of 6.33% and a risk free rate of 4%. We expect investors' interest in Litrak to be intact for its FY12 dividend yield potential of 5.14%, providing a 9.38% upside for its share price.

Litrak is a good defensive stock given that the LDP still enjoys support from its catchment area of'' Puchong, Kelana Jaya, and Bandar Sri Damansara. However, as the upside is capped in a rising market, we are downgrading our recommendation to 'neutral'. ' MIDF Research, May 31


This article appeared in The Edge Financial Daily, June 1, 2011.

MAXIS - ECM Libra Research maintains Hold rating on Maxis

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

KUALA LUMPUR: ECM Libra Research has maintained its Hold rating on Maxis Bhd at RM5.42 with a target price of RM5.71, and said the company's 1QFY11 results came within its expectations.

'We believe Maxis is a good dividend play, with management once again re-iterating that it will maintain dividends at last year's levels of 40 sen, yielding 7.4%.

'It also revealed that it will soon be launching IPTV services riding on Astro's content soon. Maintain Hold,' it said in a note June 1.

PCHEM - Utility hikes dampener on PetChem's earnings

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

Petronas Chemicals Group Bhd
(June 1, RM7.24)
Maintain buy at RM7.24 with fair value of RM8.43: We maintain our 'buy' call on Petronas Chemicals Group (PetChem) but with a slightly lower fair value of RM8.43, pegged to an unchanged FY12F earned value-earnings before interest, tax, depreciation and amortisation (EV/Ebitda) ratio of 10 times, a 15% discount to the region's average of 12 times.

The government has announced the price of natural gas will be raised by RM3 per mmbtu every six months from yesterday to Dec 1, 2015. Tenaga Nasional Bhd is also raising its electricity tariff by an average 7.12% from yesterday, with industrial rates rising by an average of 8.3%.

We believe that PetChem's electricity and natural gas costs, which are affected by this hike, fall under the group's energy and utilities category which accounted for 12% of FY10 cost of revenue. PetChem's gas feedstock costs, which are separately contracted with Petroliam Nasional Bhd and accounted for 58% of FY10 cost of revenue, are not impacted by this change in gas price.

PetChem has announced that the volume of gas subject to the tariff adjustment for the seven-month period from June 1 to Dec 31, 2011 is estimated at seven million mmbtu. This means that its annual costs will gradually increase by RM54 million in FY12F, RM108mil in FY13F and by RM216 million in FY14F.

We estimate that electricity costs amount to RM250 million annually. Assuming that industrial electricity rates are raised by 8% every six months with the RM3 mmbtu increase in gas costs, we estimate that power costs will rise by RM20 million in FY12F, RM62mil in FY13F and by RM135 million in FY14F.

All in, we have reduced our earnings estimate by 1% for FY12F, 3% for FY13F and 5% for FY14F. Note that we will be adjusting our forecasts for the change in financial year-end from March to December 2011.

The electricity and gas rate hikes are a negative development for PetChem but the impact appears manageable over the next three years. As petrochemical prices have a high correlation to naphtha, a by-product of oil refining, we remain sanguine about PetChem's earnings outlook with crude oil prices currently at the US$100 (RM300) per barrel level.

The stock currently trades at an attractive CY11F EV/Ebitda of nine times, a 20% discount to the average regional valuation of 12 times. Additionally, CY11F dividend yield of 4% is on par with regional valuations. ' AmResearch, June 1


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

MAXIS - Margin pressure looms for Maxis

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

Maxis Bhd
(June 1, RM5.42)
Maintain neutral at RM5.42 with target price of RM5.20: The habitual 1Q softness led to a contraction in mobile revenue at Maxis, which fell 5.3% quarter-on-quarter in 1QFY11 (+0.7% year-on-year) with weakness across both the voice (-6.3% q-o-q) and non-voice revenue (-4% q-o-q) segments. We note the larger than expected y-o-y erosion in voice revenue in recent quarters, although management said this is now behind the company.

Non-voice revenue contribution rose to 42.1% in 1QFY11. The group's earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 51.6% in 1QFY11 appears to beat our forecast of 48.6% although this is not reflective of underlying trends due to the softer advertising and promotions spending in 1QFY11 and our expectations that margins will come under pressure from 2QFY11. Maxis is scaling back on the low margin hubbing business (less than 5% of revenue).

Positively, Maxis is pioneering stricter subscriber definitions to rightsize its customer registry based on activity. It now excludes postpaid/wireless broadband subscribers barred for more than 50 days (typically 60 days for the industry) and prepaid subscribers that are non-revenue generating beyond 50 days. This affected its prepaid, postpaid and web-based business subscribers base by 1.4%, 12% and 5.3% in 1QFY11, but resulted in a blended average revenue per user (ARPU) accretion of 6.5%. The revision is neutral to Maxis' revenue and Ebitda.

Although not a complete surprise, Maxis revealed an imminent partnership with sister company, Astro All Asia Networks, to offer IPTV. It indicated that more than 100 additional multi-dwelling units (MDUs) were fiberised in 1Q. This compares with the 60,000 MDUs passed by Timedotcom, which rolled out IPTV with Astro in early April.

Management has scaled back its target fibre-to-the-home (FTTH) subscribers from 65,000 to 42,000 to 45,000 by end-2011 due to the delayed handover from Telekom Malaysia Bhd and hopes to achieve positive cash flow when the subscriber base tops one million, likely by 2018.

We are keeping our FY11 and FY12 core net profit forecasts of RM2.40 billion and RM2.49 billion, premised on a core Ebitda margin of 46.8% to 49% for the two years, and revenue growth of 3% to 4% (guidance of 3% to 5% for FY11).

The key risks to our forecasts are: (i) stronger/lower than expected revenue and Ebitda margins; and (ii) capital expenditure (1QFY11: 20% of new FY11 capex guidance of RM1.3 billion, in line with our RM1.2 billion forecast). ' OSK Research, June 1


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

MMCCORP - MMC Corp operations still strong

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

MMC Corp Bhd
(June 1, RM2.75)
Buy at RM2.81 with revised target price of RM3.70 (from RM4.05): MMC reported 1QFY11 headline net profit of RM43 million (-56% quarter-on-quarter; +25% year-on-year) which was below our and consensus estimates. Earnings were dragged down by larger losses at Zelan Bhd of RM53 million against RM30 million loss in 1QFY10.

Operationally, the key divisions did well, as reflected in the 7% y-o-y earnings before interest tax (Ebit) growth to RM627 million. 1QFY11 transport and logistics Ebit jumped 27% y-o-y driven by its port business.

Pelabuhan Tanjung Pelapas Bhd's (PTP) throughput rose 18% to 1.8 million TEU, while Johor Port's conventional cargo volume and container volume rose 15% and 3% y-o-y. For its energy and utilities division, the overall higher dispatch factor for Malakoff Corp Bhd of 51% in 1QFY11 (against 49% in 1QFY10) and 6% y-o-y higher volume for Gas Malaysia Sdn Bhd drove 1QFY11 Ebit up 22% y-o-y.

We reduce our FY11 to FY13F profit by between 11% and 17% to prudently reflect continued losses at Zelan, where we factor in liquidated ascertained damages or provisions for its projects in Indonesia and Abu Dhabi.

We also take into account the recent unfavourable price structure for Gas Malaysia, whose spreads will narrow to RM2.04 to RM2.08 per mmbtu against RM3.95 previously. However, the impact will be offset by higher volume growth and strong TEU growth for PTP.

We recommend a 'buy' with a lower target price of RM3.70. We drop our target price after factoring in lower discounted cash flow value for Gas Malaysia.

While the news on Gas Malaysia might throw off valuations for a potential listing, there are other catalysts to look forward to. These are: (i) the expansion of 2,100MW Tanjung Bin coal-fired plant by 1000MW, with MMC being one of two parties short-listed. A decision will be made in 3QCY11; (ii) the RM50 billion mass rapid transit project, we use conservative assumptions in our sum-of-parts valuation; and (iii) higher values for its land in Johor. ' HwangDBS Vickers Research, June 1


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