June 17, 2011

PETGAS - Petronas Gas at multi-year high of RM12.92

Stock Name: PETGAS
Research House: HWANGDBS

KUALA LUMPUR: Shares of PETRONAS GAS BHD [] (PetGas)surged to multi-year high of RM12.92 in late afternoon trade as investors viewed the stock had more upside following the Melaka regasification plant and Kimanis power plant.

At 3.41pm, it was up 62 sen to RM12.92 with 2.21 million shares done.

The FBM KLCI rose 5.92 points to 1,560.16. Turnover was 585.13 million shares valued at RM1.16 billion. The broader market was mixed with 315 gainers, 332 losers and 341 stocks unchanged.

Hwang DBS Vickers Research said PetGas was eyeing new opportunities in stable utility businesses given its strong balance sheet with RM2.3 billion net cash.

'Our discounted cashflow-derived target price is unchanged at RM13.50 a share,' it said.

The research house said PetGas' Melaka regasification plant could lift FY12-FY13F net profit by between 10% and 20% per annum and there was an 8% upside from the new Kimanis power plant.

'The power purchase agreement (PPA) for Kimanis will be finalised soon, while the regasification service agreement (RSA) may be signed by end 2011 to be able to commission the plant in July 2012,' it said.

RHBCAP - RHB Capital gains on stake sale to Aabar

Stock Name: RHBCAP
Research House: MIDF

KUALA LUMPUR: RHB CAPITAL BHD [] shares rose on Friday, June 17 on reports that Abu Dhabi Commercial Bank (ADCB) has received''the green light from Bank Negara to sell its 25% stake in RHB Capital Berhad (RHB) to sister company Aabar investment PJSC.

RHB Capital was up seven sen to RM9.91 at 9.30am with 157,300 shares traded.

MIDF Research has maintained its Neutral recommendation on the stock but raised its target price to RM10.40 (from RM9.90 previously) based on a EPS forecast for FY11 of 75.8 sen pegged''to 13.7 times PER.

'PER of 13.7 times''is''the high side of 3 years PE band. Our target price also implies FY11 P/BV of 2.11 times,' it said in a note June 17.

MUHIBAH - Muhibbah active, up in early trade

Stock Name: MUHIBAH
Research House: CIMB

KUALA LUMPUR: Shares of Muhibbah Engineering Bhd were actively traded and rose on Friday, June 17 after having been sold down a day earlier following concerns that Asia Petroleum Hub (APH) -- which it undertook a project for -- faced receivership.

At 9.15am, Muhibbah was up one sen to RM1.53 with 3.02 million shares done. Its subsidiary Favelle Favco gained three sen to RM1.64.

Muhibbah suffered the steepest single day fall yesterday since Jan 14, 1998 in a knee-jerk reaction to the possibility that APH was facing receivership. The stock fell 20% or 38 sen to RM1.52 with 45.7 million shares done.

Some analysts viewed the selling yesterday as overdone and the worst-case scenario for Muhibbah was a write-down of the RM300 million due from APH, which would push Muhibbah into losses for FY11.

APH, the developer and operator of the APH oil terminal in Johor, faced the prospects of receivership, news reports said. Muhibbah was awarded the marine piling and jetty works worth RM820 million. Cost escalation in 2008 led to funding issues for APH and the stalling of payments due to Muhibbah.

CIMB Equities Research had said the unpaid amount accumulated to about RM300 million, which did not include RM187 million worth of outstanding works as at end-2010. It said the project was still deemed viable and the worst-case scenario for Muhibbah was a write-down of the RM300 million due from APH, which would push Muhibbah into losses for FY11.

'However, we believe that in a scenario where the receiver takes over management of APH, it may come up with a scheme to repay a large portion of the amount due to contractors, which would reduce the risk of a huge write-down,' it said.


MAS - CIMB Research maintains Underperform on MAS

Stock Name: MAS
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research maintained its Underperform call on MALAYSIAN AIRLINE SYSTEM BHD [] (MAS) and maintained a target price of RM1.52.

It said on Friday, June 17 that MAS had, in a briefing on Thursday, reiterated on the benefits of its oneworld alliance membership.

The network would enable MAS tap into a global network of connectivity, a seamless travel experience, frequent flier benefits and airport lounge access.

'We agree that joining oneworld is the right move and a MAS-Qantas partnership through the alliance could form an effective counterweight to the recently announced SIA-Virgin Australia tie-up.

'But we continue to rate MAS an UNDERPERFORM as the 2Q loss is expected to be much larger than the 1Q loss and the benefits of the alliance will only start flowing through in 2013. We maintain our EPS forecasts and target price of RM1.52, which is based on 2x P/BV,' it said.

June 16, 2011

IOICORP - IOI Corp 'planting' investment properties

Stock Name: IOICORP
Research House: MAYBANK

IOI Corp Bhd
(June 16, RM5.30)
Maintain hold at 5.30 with revised target price RM5.50 (from RM6.35)
: The recent foray into South Beach and IOI Resort City's development plans are set to accelerate IOI's property capex spending by about RM2.3 billion over the next three years, with 78% of these channelled to building its property investment portfolio. Investors looking for greater exposure to plantation have been slowly shying away from IOI. IOI lacks immediate re-rating catalyst, especially with limited earnings upside from its matured plantation while the new property ventures do not bring in immediate earnings; they are largely for investments. Our revised target price of RM5.50 on 16 times FY12 EPS is based on 1-SD below its five-year historical mean PER. Maintain 'hold'.

Corporate exercises in recent years suggest that IOI is shifting its focus towards the property business. Between FY07 and FY10, IOI spent RM1.6 billion in capex for the property business, higher than the combined capex spent for plantations (RM700 million) and resource-based manufacturing (RM800 million). IOI's last major plantation upstream acquisition was in 2007. It has perhaps been discouraged by limited upstream opportunities in this region.

In April 2011, IOI announced an investment of up to S$817 million (RM2 billion) for a 49.9% stake in the South Beach project in Singapore. This mixed development project, to be jointly developed by City Development (not rated), has a potential GDV of S$3.5 billion. We understand the current plan is to complete the project by 2015 and keep about 77% of the project (hotel, retail and office space) for recurring income. Closer to home, IOI is also developing the more than RM1 billion IOI Resort City, Putrajaya for rental income, with Phase 1 targeted for completion in 2013.

Following South Beach and IOI Resort City's investments, we have raised our FY11-FY13 capex assumptions from about RM300 million to RM1 billion each year. IOI will still be able to fund these investments via borrowings (with a low net gearing of 16% as at end-March 2011) and internally generated funds. Project financing for South Beach will be off-balance sheet as IOI has no controlling stake. We marginally raise our FY12-FY13 net profit forecasts by 1% and 5% respectively to factor in Singapore's contributions. ' Maybank IB Research, June 16

This article appeared in The Edge Financial Daily, June 17, 2011.

CBSA - CBSA extends content licence tie-up with Google

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

(June 16, 41.5 sen)
Upgrade to buy at 41.5 sen with revised fair value of 51 sen (from 32.5 sen)
: CBSA announced that it has entered into a content licence agreement with Google for the provision of business listings in six Southeast Asia countries (Malaysia, Singapore, Indonesia, Thailand, the Philippines and Vietnam) for five years. In return, CBSA will receive licence fees and annual update fees amounting to 10% of the initial licence fees during the duration of the agreement.

In 2007, CBSA embarked on a partnership with Google to include business listings from Superpages.com.my in Google Maps for the latter to tabulate the locations accordingly on Google Maps. The newly signed agreement is extending this partnership to include business listings from Panpages.com in Singapore, Indonesia, Thailand, the Philippines and Vietnam.

This will result in more Southeast Asia businesses being found through searches on Google Maps. We understand that charges will now be based on per business listing as opposed to the bundled arrangement under the previous agreement.

With 23 million SMEs registered in the six countries involved, we see huge potential for CBSA to build up its database and subsequently reselling the listings to Google. Regional database teams which mainly comprise locals are already in place in the respective countries.

More importantly, we believe the move complements CBSA's ambition of penetrating the regional advertising business by replicating its advertising model in more Southeast Asian countries. The cost of collecting the SME database, which is the bread-and-butter of the business, would ultimately be borne by Google, which mitigates the risk arising from its overseas ambition.

We revisited our model and adjusted our EPS forecasts by 8.9% for FY11 and 2.4% in FY12 to incorporate contribution from the extended tie-up. Given the improving outlook for its regional advertising market foray, we peg a higher FY11 PER of 10 times (seven times previously), with our 'fair value' now at 51 sen.

Upgrade to 'buy', with re-rating catalysts including potential for capital management to optimise its balance sheet and further expansion to the regional advertising markets. ' OSK Research, June 16

This article appeared in The Edge Financial Daily, June 17, 2011.

HARTA - Hartalega's nitrile gloves outpacing latex

Stock Name: HARTA
Research House: HWANGDBS

Hartalega Holdings Bhd
(June 16, RM5.59)
Initiating coverage with buy call at RM5.59 and target price at RM6.90
: Hartalega is currently the largest nitrile glove maker in the world with an annual production capacity of 9.6 billion pieces or 6% market share. It is known to be the most efficient glove maker with first class product and engineering innovations, which have allowed it to reap superior operating margins (28% versus 16% industry average) and ROE (36% vs 22% industry average). Future expansion will be supported by its strong balance sheet (RM78 million net cash or 21 sen per share).

Hartalega is building Factory 6 to raise capacity to 13 billion pieces (+42%) over the next two years. Although nitrile costs have risen in the past six months, nitrile gloves remain relatively cheaper than latex gloves due to the persistently high latex costs. This pricing gap will continue to create strong demand for nitrile gloves. Hartalega's FY11 (FYE March) net profit of RM190 million (+33% year-on-year) has closed its gap with Top Glove.

As the industry continues to consolidate, Hartalega is a compelling merger and acquisition (M&A) target given its niche in product and engineering innovation, higher-than-industry operating margins and ROE. And given its most attractive ROE-PE multiple matrix, Hartalega could set a new valuation benchmark.

We initiate coverage with 'buy' call and our RM6.90 target price is pegged to 12 times CY12 EPS or 10% discount to our 13 times target PE for Top Glove. We forecast Hartalega's net profit could surpass RM200 million in FY12F and there is potential for re-rating, premised on Top Glove's 16 times PE when it posted RM245 million net profit in FY ended August 2010. Key catalysts are robust healthcare spending, higher demand for nitrile gloves and M&A interest. ' HwangDBS Vickers Research, June 16

This article appeared in The Edge Financial Daily, June 17, 2011.

GAMUDA - Gamuda's 9-month results to meet expectations

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

Gamuda Bhd
(June 16, RM3.72)
Maintain market perform at RM3.73 with fair value of RM4.03
: We expect Gamuda's 3QFY11 results, due out by the end of next week, to come in within expectations. We expect Gamuda's 3QFY11 core net profit to come in at RM90 million to RM95 million, flattish vis-''-vis RM94 million recorded in 2QFY11 on sustained construction margins sequentially, taking the cue from the sequentially at best only stable/more normalised construction margins achieved by peers IJM and WCT in their just-released January-March 2011 results.

Over the last three months, IJM's construction profit before tax (PBT) margin eased slightly from 5.3% to 4.9% (excluding RM124 million one-off provisions), while WCT's construction earnings before interest and tax (Ebit) margin (adjusted for inter-company elimination) declined from 23.1% to 15.9% on reduced writebacks of over-provisions from certain completed overseas jobs.

Cumulatively, Gamuda's net profit of RM273 million to RM278 million is only equivalent to 70%-72% of our full-year forecast and the full-year market consensus. A bumper 4Q on the back of accelerated construction activities and hence billings should see Gamuda meeting the full-year expectations. At RM273 million to RM278 million, net profit in 9MFY11 will have grown 34%-36% year-on-year, in line with our full-year growth forecast of 37%, premised upon firmer construction margins under a more stable input cost environment.

Forecasts maintained.

Risks to our view include: (1) New contracts secured in FY11-FY13 (excluding the MRT) to come in below our target of RM2 billion per annum; (2) The RM40 billion MRT project fails to get off the ground; and (3) Rising input costs.

Over the immediate term, we expect construction stocks in general to only perform in line with the broader market due to 'news flow fatigue'. We suspect the market is already tired of the same news flow from the same projects such as the LRT extension, MRT, 'River of Life' (clean-up of the Klang River) and other infrastructure jobs proposed under the Economic Transformation'' Programme.

We believe the next round of re-rating will not take place until the market is more sure of the exact timing of the 'first oil' or maiden earnings contributions from these key public infrastructure jobs, particularly, the MRT project. Indicative fair value for Gamuda is RM4.03 based on 'sum of parts'. ' RHB Research, June 16

This article appeared in The Edge Financial Daily, June 17, 2011.

MUHIBAH - Muhibbah dn after Asia Petroleum Hub falls into receivership

Stock Name: MUHIBAH
Research House: CIMB

KUALA LUMPUR: Shares of Muhibbah Engineering Bhd fell in early trade on Thursday, June 16 after Asia Petroleum Hub (APH), the developer and operator of the APH oil terminal in Johor, was placed under receivership.

As one of the contractors for APH, Muhibbah was awarded the marine piling and jetty works worth RM820 million.

At 9.27am, Muhibbah was down six sen to RM1.84 with 2.50 million shares done.

The FBM KLCI fell 2.59 points to 1,553.60. Turnover was 81.31 million shares valued at RM75.08 million. There were 54 gainers, 187 losers and 154 stocks unchanged.

CIMB Research said the receivership status for the APH project was a negative surprise. However, it should not be a major concern at this juncture as APH is likely to negotiate for more time to resolve the matter and rope in a new investor.

'The worst-case scenario for Muhibbah is a write-down of the RM300 million due from APH, which would push Muhibbah into losses for FY11. However, there is no impact on RNAV as the amount is reflected as liabilities.

'As we view a write-down as remote at this juncture, we maintain our forecasts and RM2.75 target price, which is pegged to an unchanged 10% discount to RNAV,' it said.

June 15, 2011

TOPGLOV - Hold Top Glove for FY12 recovery

Stock Name: TOPGLOV
Research House: HWANGDBS

Top Glove Corp Bhd
(June 15, RM5.26)
Maintain hold at RM5.16 with target price of RM5.30
: Top Glove will release 3QFY11 results tomorrow. We expect them to be weak, given the continued high latex price coupled with a still weak US dollar during March-May. Latex prices averaged RM10 per kg in the quarter similar to 2QFY11 levels. On top of that, the US dollar has weakened another 2% against the ringgit quarter-on-quarter. Hence, demand remained flat due to high average selling prices (ASPs).

We initially expected earnings and margins to recover in 2HFY11, but given the current firm latex prices, we will only see a meaningful recovery in FY12. In addition, Top Glove will be hit by higher energy costs following the electricity tariff hikes this month.

We have revised our assumptions as follows: (i) 7% higher electricity costs; (ii) progressive 20%-45% hike in gas costs, and (iii) higher latex prices (RM8.10-RM8.80 per kg). Consequently, we cut FY11F earnings by 25% and nudged down FY12 by 1%.

Top Glove might declare lower dividend for FY11, given the need to conserve cash for expansion and working capital. As such, we lowered our dividend per share assumption to 11 sen (from 16 sen) based on 50% payout.

Maintain 'hold' and RM5.30 target price pegged to 13 times CY12 EPS. Top Glove remains a 'hold' because we believe the negative newsflow on earnings and dividends has been priced in. Key re-rating catalysts are a drop in latex prices and pickup in demand. ' HwangDBS Vickers Research, June 15

This article appeared in The Edge Financial Daily, June 16, 2011.

THPLANT - Bullish on corn and rapeseed, bearish for CPO

Stock Name: THPLANT
Research House: RHB

Plantation sector
Maintain neutral
: Malaysia's CPO production rose substantially in May by 13.7% month-on-month (m-o-m), while exports rose by 4.3% m-o-m. On a year-on-year (y-o-y) basis, the recovery is stronger, as production rose by 25.6% y-o-y, although exports rose by a smaller 2.7% y-o-y.

As a result of the larger increase in production vis-a-vis exports and the 53% m-o-m increase in CPO imports in May, closing CPO stock levels rose 14.8% m-o-m to 1.92 million tonnes in May (from 1.67 million tonnes in Apr). On a y-o-y basis, CPO stocks rose by a higher 22.8%.

As a result of the higher CPO stock levels, the stock/usage ratio in May rose to 11.15% (from 9.98% in Apr), and is now closer to the high end of historical scale of between 6.4% and 12.7%, quite a lot above the 9.1% historical average.

News flow from the global vegetable oil market has been mixed, with bullish factors for other vegetable oils like soybean, corn and rapeseed, and bearish factors for CPO and wheat. There continues to be production risk in northern US for corn and soybean, while conditions for growth of rapeseed in Europe are deteriorating due to insufficient rains.

In Malaysia and Indonesia, CPO production continues on its strong recovery trek, leading to rising stock levels in the midst of mediocre exports from Malaysia, while in Russia and Ukraine, wheat and grain crops are turning out higher than expected, leading to potential trade policy changes.

To complicate matters further, crude oil prices have fallen to below the crucial US$100 (RM303) a barrel mark again, thus increasing the bearish sentiment for CPO. CPO prices fell to as low as RM3,271 a tonne in the beginning of this week, down about 4% from last month's average of RM3,400.

Risks: (1) a significant change in crude oil price trend; (2) weather abnormalities; (3) change in emphasis on implementing global biofuel mandates and trans-fat policies; (4) significant changes in trade policies of vegetable oil importing or exporting countries; and (5) a sharper-than-expected global economic slowdown.

No change to our forecasts and CPO price assumptions of RM3,100 a tonne for 2011 and RM2,900 a tonne for 2012.

We maintain our 'neutral' stance on the sector, with 'outperform' on Sime Darby, TH Plantations, First Resources and CBIP; 'market perform' on KLK, Genting Plantations and IJM Plantations; and 'underperform' on IOI Corp. ' RHB Research, June 15

This article appeared in The Edge Financial Daily, June 16, 2011.

CMMT - CMMT buys shopping mall in Kuantan

Stock Name: CMMT
Research House: MAYBANK

CapitaMalls Malaysia Trust
(June 15, RM1.19)
Maintain buy at RM1.17 with target price of RM1.27
: We are positive on CMMT's latest RM310 million East Coast Mall acquisition given that it is yield accretive and attractive in pricing. More importantly, it would enhance our 2012-13 earnings forecasts by 10%-11%.

The purchase will be funded by a placement of up to 299 million new units (estimated RM332 million in proceeds, assuming issue price of RM1.11). We maintain our forecast and RM1.27 target price with a 'buy' call.

CMMT is acquiring East Coast Mall (ECM) in Kuantan for RM310 million cash from Astral Realty S/B (property investment as principal activities). Together with RM16 million acquisition-related costs and RM4 million working capital, total acquisition cost is RM330 million. The cost will be funded by debt and equity. ECM, the modern family lifestyle mall, (retail space: 441,342 sq ft NLA, 1,170 parking bays) is currently 97%-occupied.

Positive on the deal because: 1) the asset is attractively priced at a 6.1% discount to its market value of RM330 million; 2) it is a yield accretive acquisition with 7.1% property yield, versus 6.1% implied yield (assuming 30% funded by debt at 4.8% average debt cost; and 3) it is strategically located. ECM is situated in the heart of Kuantan town and is close to Zenith Hotel and Sultan Ahmad Shah International Convention Centre.

Proposes up to 299 million new unit placement to fund the acquisition of ECM (20% of existing units). Price will be determined via a book-building exercise. Assuming an issue price of RM1.11 (5% discount to current price), the placement would raise RM332 million and reduce CMMT's gearing ratio to 0.29 times from 0.33 times (end-1Q11), well below the SC's 0.5 times gearing cap.

We estimate a 10%-11% earnings enhancement post-acquisition based on the existing 97% occupancy rate. Post-ECM acquisition, CMMT's total assets will increase by 14% to RM2.7 billion whilst total NLA will jump by 22% to 2.5 million sq ft.

Apart from strengthening its position in the local retail market, the purchase also means its income base will be more diversified from Penang and the Klang Valley to the east coast of Peninsular Malaysia. ' Maybank IB Research, June 15

This article appeared in The Edge Financial Daily, June 16, 2011.

AEONCR - Smooth sailing for AEON Credit

Stock Name: AEONCR
Research House: OSK

AEON Credit Services (M) Bhd
(June 15, RM5.16)
Maintain buy at RM4.90 with fair value of RM5.40
: 1QFY11 revenue and net profit rose 22.4% and 45.5% year-on-year (y-o-y), mainly bolstered by: i) strong revenue growth in personal financing, which soared 78% y-o-y due to relentless telemarketing efforts; ii) a 57% y-o-y jump in other income as bad debts recovery surged 45%; and iii) higher revenue from the credit card segment (+55%) owing to the company's aggressive cardholder recruitment efforts and enhancement in card benefits.

Revenue at AEON Credit's core business of easy payment schemes, which contributed 66.6% of the total revenue, rose 11.3% y-o-y while that from general easy payment (GEP) and motorcycle easy payment (MEP) went up by 13% and 10% respectively. This was in tandem with growth in the company's financing receivables, which were higher by 7.6% year-to-date (YTD). Meanwhile, the transaction and financing volume for 1Q of RM373.2 million was 63% higher y-o-y.
Financing receivables (+7.6%) grew healthily across all segments while receivables from the credit card segment jumped 18.8% YTD from RM245 million to RM291 million.

In the personal financing segment, receivables grew 16.8% YTD to RM118 million versus RM101 million previously while general and motor easy payment receivables ticked up 1.2% and 4.1% respectively.

Non-performing loans eased to 1.77% from 1.83% in FY11 on better risk and portfolio management control while its CAR stood at 23.8% (FY11: 24%).

Going forward, the company plans to expand the range of products under its easy payment and personal financing schemes. It also aims to extend financing to small businesses for the purchase of office assets and equipment.

We believe AEON Credit is on track to deliver decent results by diversifying its revenue stream. We maintain our 'buy' call on AEON Credit, with a fair value of RM5.40, pegged to its historical two-year PE band of nine times based on FY12 EPS. ' OSK Research, June 15

This article appeared in The Edge Financial Daily, June 16, 2011.

KNM - A record high order book

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

KNM Group Bhd
(June 14, RM1.91)
Maintain buy at RM1.90 with target price of RM3.35
: At the analysts' briefing on Monday, the management remained optimistic of a recovery in 2011. As at May 2011, KNM had secured RM1.5 billion worth of new orders, taking its order backlog to RM5.5 billion. Its tender book remains strong at RM17 billion, which means it is likely to meet our FY11 target order win of RM3 billion given its historical success rate of 20%. We learned of delays at its RM2.2 billion EnergyPark Peterborough project and the management now expects it to commence next month.

The weaker-than-expected 1Q11 earnings were largely due to recognition of low margin jobs secured in FY09 and early FY10. KNM still has RM1 billion worth of old contracts in its backlog, which we expect to be exhausted by FY11. We cut FY11F earnings by 15% because the old projects, which will account for circa 50% of revenue this year, will yield lower margins. However, KNM's prospects remain buoyant, as its large order book will support long-term earnings visibility. Hence, we are retaining our forecasts for FY12.

KNM is currently trading at an attractive valuation of only eight times FY12 EPS, making it one of the cheapest oil and gas stocks in Malaysia. The recent

selldown by investors due to disappointing 1Q11 earnings is excessive. We remain bullish on KNM's long-term prospect and the full impact of normalised margins will be reflected in FY12. We recommend investors to buy on weakness. ' HwangDBS Vickers, June 14

This article appeared in The Edge Financial Daily, June 15, 2011.

BJTOTO - BJ Toto up on new jackpot game

Stock Name: BJTOTO
Research House: MAYBANK

KUALA LUMPUR: Shares of BERJAYA SPORTS TOTO BHD [] jumped in early trade on Wednesday, June 15 after the gaming group introduced a new 4D Toto Jackpot game over last weekend.

At 9.40am, BJToto was up 11 sen to RM4.42 with 1.1 million shares traded.

Maybank Investment Bank Bhd on June 14 had re-initiated coverage on the stock with a Buy call and RM4.95 DCF based target price after incorporating its new 4D variant, 4D Toto Jackpot.

'The new Jackpot game will not only lift BJ Toto's lotto revenue, which has performed poorly of late, but non-lotto revenue as well.

'Also, we estimate that BJ Toto's balance sheet will turn net cash by year end, paving the way for more dividends. Forward net dividend yields remain attractive at 5.6%,' it said.


AEONCR - HDBSVR raises Aeon Credit earnings by 13%, TP RM4.80

Stock Name: AEONCR
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) raised FY12-FY13F earnings for Aeon Credit by 13% and 11% respectively following the strong 1Q results.

It said on Wednesday, June 15 that it had factored higher revenue contribution from credit cards (as we assume higher percentage of outstanding credit cards purchases of 70%-75% from 45%-46%) and stronger fee income.

'Accordingly, our TP is raised to RM4.80, based on 7 times FY12 EPS. Maintain Hold,' it said.

HDBSVR said 1QFY12 net profit of RM19.2 million (+45% y-o-y) comprised 26% of its initial full-year forecast of RM72.7 million; above expectations. This was lifted by higher interest income recognized and other fee income and charges as total revenue grew 22.5% to RM77.1 million.

Key revenue drivers were personal financing and credit card segments which jumped 78% (to RM8.8m) and 55% (to RM13.1m), respectively. General easy payment (GEP) and motorcycle easy payment (MEP) schemes remain the breadwinners contributing 72% in total to group revenue.

'With greater economies of scale, EBIT margin increased 5.2 percentage points to 45.5% (vs 1QFY11: 40.3%). Sequentially, net profit declined slightly by 1% despite higher revenue of 5% (considering 1Q is typically a weak quarter).

'This was also dragged down by higher operating expenses (+8.8%) such as promotions, personnel and administration expenses. Meanwhile, 1QFY12 average funding cost and NPL ratio remained stable at 4.46% (vs 1QFY11: 4.41%) and 1.77% (vs 1QFY11: 1.80%) while CAR ratios slipped to 23.7% (vs 1QFY11: 25.4%), respectively,' it said.

June 14, 2011

KNM - Brace for further headwinds

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

KNM Group Bhd
(June 14, RM1.91)
Downgrade to hold at RM1.90 with revised target price of RM2 (from RM4.35)
: Our initial forecasts are too optimistic and the management is guiding for lower profits as earnings could remain weak over the next few quarters. This is disappointing for we had expected earnings to rebound on the new orders secured in the past 12 months. The financing for the Peterborough project is still unresolved. We lower our target price to RM2 based on reduced PE multiple target of 10 times (previously 14 times) as we also cut earnings forecasts.

Although order book build-up momentum has improved, earnings will remain depressed over the next nine months as KNM still needs to deliver RM1 billion worth of jobs committed under razor-thin earnings before interest and tax (Ebit) margins (5%-8%). These low margin orders account for 18% of its RM5.5 billion outstanding order book as at May 2011. Consequently, internal targets for 2011 revenue and Ebitda have been lowered by 8% and 26% to RM2.2 billion and RM270 million respectively.

We have cut our earnings forecasts by 18% to 35% for 2011-13, taking into account the downbeat prospect in the short mid-term period. We now expect KNM to deliver a lower net profit of RM139 million for 2011, RM190 million for 2012 and RM300 million for 2013. This is based on lower utilisation rate assumptions of 95,000 tonnes per annum for 2011 (-5%) and 100,000 tonnes per annum for 2012 (-9%) and reduced Ebit margin assumptions of 12.3% (-3.4 percentage points) and 14.1% (-4.1 percentage points) for 2011-12.

Its share price has fallen 25% post the poor 1QFY11 results which were sub-par. Its 1QFY11 net profit of RM19 million made up just 9% of our earlier full-year forecast, but this was aided by tax incentives (+RM18 million) which partially offset weak margins (4.1% Ebit, -1.3 percentage points quarter-on-quarter). While the share price should have by now substantially priced in the lower earnings expectations for the near term, the upside will be capped by the negative outlook surrounding its earnings deliverability. We reiterate that top line recovery is visible but KNM needs to deliver its normalised margins on the bottom line to rerate. ''' Maybank IB, June 14

This article appeared in The Edge Financial Daily, June 15, 2011.

MMCCORP - MMC secures power plant extension

Stock Name: MMCCORP
Research House: OSK

MMC Corp Bhd
(June 14, RM2.72)
Maintain trading buy at RM2,71 with fair value of RM3.58
: Just as we speculated in our June 3 report, MMC announced on Monday that a wholly owned subsidiary of Malakoff had accepted the conditional offer from the government via the Energy Commission to undertake the construction and development of a 1,000MW coal-fired power plant which will be located alongside the existing Tanjung Bin power plant.

The government's offer is subject to the finalisation of the terms of the agreement and approval of the detailed environmental impact assessment. The expected commercial operation date is March 1, 2016.

As we also mentioned in the report, we had expected an announcement to be made only in 3Q11. However, the rumour at that time hinted an announcement would be made earlier than expected, which is now proven correct.

We still expect MMC to incur a capex of RM4.5 billion and our profit forecasts are minimally changed up to 2012 as financing costs will be incurred starting from 2013.

Even as we had upgraded MMC back to a 'trading buy' on June 3 on potentially good news, which has now materialised in the form of the award of Tanjung Bin's extension, we see more good tidings ahead. These would include the kicking off of the MRT project in July and other construction projects that may be announced before year-end. We continue to recommend a 'trading buy' on MMC. ' OSK Research, June 14

This article appeared in The Edge Financial Daily, June 15, 2011.

ALAM - Alam secures RM54m Samsung Engineering contract

Stock Name: ALAM
Research House: AFFIN

Alam Maritim Resources Bhd
(June 14, RM1.09)
Maintain buy at RM1.08 with revised target price RM1.25 (from RM1.22)
: Alam Maritim announced that its wholly owned subsidiary Alam Maritim (M) Sdn Bhd had recently received a purchase order from Samsung Engineering Malaysia Sdn Bhd to supply engineering work, supply of materials, fabrication, load-out and commissioning of two units of single point mooring buoy for Sabah Oil and Gas Terminal (SOGT) project.

The contract value is approximately US$18 million (RM54.5 million) and Alam Maritim expects to commence work immediately, with a target completion by 1QFY12.

We are pleasantly surprised with the contract win ' we believe this is Alam Maritim's first contract win outside its core business operations in the chartering of offshore marine vessels and provision of underwater services.

The contract win is broadly in line with management's intention to move up the value chain, though we were expecting Alam Maritim to focus on provision of installation services rather than fabrications. We believe it is likely to work with third party contractors for the fabrication works for these two single point mooring buoys.

Assuming an earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 8%, we have raised Alam Maritim's FY11 and FY12 net profit forecast by 2%-4% to RM49.3 million and RM81.1 million respectively. We view this contract as a one-off and do not assume further EPCC contract wins in our current forecast horizon.

In tandem with our earnings upgrade, we have also lifted our target price for the stock to RM1.25 (from RM1.22) based on an unchanged 12 times CY12 PE. Maintain 'buy' on Alam Maritim.

Key re-rating catalysts are the award of SOGT pipelaying work, award of long-term charter contracts at attractive rates and stronger-than-expected quarterly earnings recovery. To recap, we have inputed in our forecasts the award of the SOGT pipelaying work ' a US$50 million-US$60 million contract that is likely to be awarded to Alam-YSS JV company in the form of a lump sum contract to be completed in two to four months.

Under the contract, Alam Maritim is likely to provide a pipelay barge and four OSVs for the pipelay operations. ' Affin IB Research, June 14

This article appeared in The Edge Financial Daily, June 15, 2011.

PUNCAK - Puncak Niaga an emerging O&G player

Stock Name: PUNCAK
Research House: RHB

Puncak Niaga Holdings Bhd
(June 14, RM2.17)
Maintain trading buy at RM2.17 with fair value of RM3.05
: Going forward, Puncak hinted of more news flow in terms of O&G contracts, though it declined to provide specific details. We view the impending news flow positively as it indicates Puncak will have an alternative core business to fall back on should the ongoing water restructuring end with Puncak not having an operations & maintenance (O&M) contract. Puncak is keen on turning O&G into a significant earnings contributor going forward, and that growth will be driven by M&A.

We gather from management that although Puncak Niaga is in talks with Bourbon, the focus is on chartering Bourbon's vessels to support Puncak's growing O&G activities, instead of being an agent for Bourbon. Recall that The Edge Financial Daily had reported on June 8 that Puncak was in talks with Bourbon to be the latter's agent for Southeast Asia, citing industry sources.

We understand the vessels will be chartered for supporting the recently acquired pipe laying barge (DLB 264) since the barge is quite old (43 years old) and lacks a propeller engine to move on its own. Also, there are no plans to acquire such vessels as these are costly and used only intermittently to move the barge.

While details are still sketchy at the moment, management has hinted of developing marginal O&G reserves and operating a deepwater supply base in Sabah as among the other scope of O&G work that Puncak is currently exploring. Management said studies are still ongoing and the related capex will be funded via borrowings.
No changes made to earnings forecasts.

The risks include: (1) No compensation for the delayed 37% scheduled tariff hike; (2) 37% scheduled tariff hike is not granted; (3) Higher-than-expected variable costs, in particular, chemical costs; and (4) Little progress in water sector restructuring.

Puncak's indicative fair value is maintained at RM3.05 at a 20% discount to its DCF-derived NPV of RM3.81/share (based on WACC of 11.5%).

We see the O&G business offering better growth prospects vis-''-vis Puncak's mature core water business, though its lack of track record translates into increased earnings risk for the group. With the impending buyout of the water bonds, we are cautiously optimistic that the water sector restructuring will finally make some progress provided the following issues are addressed: (1) The pricing issue (2) The tussle for the lucrative operation and maintenance contract post restructuring. Maintain 'trading buy'. 'RHB Research, June 14

This article appeared in The Edge Financial Daily, June 15, 2011.

ALAM - Alam rises on new RM52m contract

Stock Name: ALAM
Research House: CIMB

KUALA LUMPUR: ALAM MARITIM RESOURCES BHD [] shares rose on Tuesday, June 14 after it secured a contract worth RM52 million from Samsung Engineering Malaysia Sdn Bhd to supply two units of single point mooring buoy for Sabah Oil and Gas Terminal project.

At 9.15am, Alam was up three sen to RM1.11 with 343,100 shares done.

Its unit Alam Maritim (M) Sdn Bhd had received the purchase order from Samsung Engineering Malaysia.

Alam said the contract was expected to start immediately with delivery by the first quarter of the financial year ending Dec 31, 2012.

It said the contract was not renewable. Alam said the contract was expected to contribute positively to its earnings for the financial years ending Dec 31, 2011 and 2012.

CIMB Research maintained its Buy call on Alam and its target price of RM1.40.

'We maintain our EPS forecasts which already factor in the SOGT package, which we assume is worth US$50 million. Also intact is our target price of RM1.40 as we continue to value Alam at a 20% discount to our target market P/E of 14.5 times.

'We advise investors to Buy Alam given the potential share price catalysts of 1) the SOGT contract announcement, 2) consensus upgrades, and 3) more pipe installation ventures,' it said in a note June 14.

AXIATA - Axiata advances to RM4.97, CIMB Research keeps Outperform

Stock Name: AXIATA
Research House: CIMB

KUALA LUMPUR: Shares of Axiata Group Bhd advanced to a high of RM4.97 in morning trade on Tuesday, June 14 after its 19%-owned Indian associate Idea reported stronger performance in the FY11 results.

At 11.24am, Axiata was up nine sen to RM4.93 with 8.73 million shares done.

'We retain our earnings forecasts, sum-of-parts based target price of RM6.08 and Outperform call on Axiata. The likely re-rating catalyst is the dividend surprise given the strong free cashflow generation,' it said.

CIMB Research said Idea's FY11 results were 9% and 8% above its and consensus's full-year expectations, respectively. This is due to slightly higher-than-expected revenue and slightly lower-than-expected depreciation.

'The highlights of 4Q were the strong revenue growth, margin improvement and narrowing losses in the newer circles. Idea also guided for a higher capex of Rs40bn for FY3/12, which is 25% higher than FY3/11's level.

'Idea makes up about 5% of Axiata's SOP-based target price and 4% of Axiata's FY11 profit,' it said.

TOPGLOV - Top Glove slumps to 2-wk low

Stock Name: TOPGLOV
Research House: AMMB

KUALA LUMPUR: Shares of Top Glove Corp Bhd fell to a two-week low in late morning on Tuesday, June 14 as investors were concerned the glove maker could report a set of weaker earnings for the third quarter on Friday.

At 11.12am, it was down 12 sen to RM5.15 with 198,200 shares done. This was the lowest since May 30.

The FBM KLCI rose 5.64 points to 1,551.52. Turnover was 260.50 million shares done valued at RM324.27 million. There were 252 gainers, 237 losers and 273 stocks unchanged.

AmResearch said in recent report it was maintaining its Sell rating on the glove maker and cut its fair value from RM4.30 share to RM3.90, based on a price-to-earnings of 15 times CY12F earnings ' at parity to the stock's 10-year mean.

'We are again slashing our FY11F-13F earnings forecasts, by 13%-14% this time around. This represents our third earnings downgrade in the past nine months, underpinning our view that earnings have yet to hit the trough,' it said.

AmResearch said it anticipated Top Glove's 3Q results would again undershoot market expectations.

KPJ - RHB Research maintains Outperform on KPJ

Stock Name: KPJ
Research House: RHB

KUALA LUMPUR: RHB Research Institute reiterate its Outperform call on KPJ'' Healthcare (fair value RM4.94) given its stable growth profile and relatively inexpensive valuations compared to regional peers.

'We remain positive on Malaysia's healthcare industry as healthcare remains an integral part of the Government's initiative to develop Malaysia as a high income nation by 2020,' it said on Tuesday, June 14.

RHB Research however was more cautious view on the rubber glove players and'' maintained its Neutral call for the sector.

KNM - KNM remains a Buy at HDBSVR

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

KUALA LUMPUR: KNM GROUP BHD [] remains a Buy at Hwang DBS Vickers Research at RM1.90 and has a 12-month target price of RM 3.35.

It said on Tuesday, June 14 KNM which is currently trading at attractive valuation of only 8x FY12 EPS, making it one of the cheapest O&G stocks in Malaysia.

'The recent sell-down by investors, due to disappointing 1Q11 earnings, is excessive. We remain bullish on KNM's long-term prospect and the full impact of normalised margins will be reflected in FY12. We recommend investors to buy on weakness,' it said.

KNM - ECM Libra Research downgrades KNM to Hold, cuts TP to RM1.68

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

KUALA LUMPUR: ECM Libra Research has downgraded KNM GROUP BHD [] to a Hold from Buy previously and cut its target price for the stock from RM3.43 to RM1.68 after KNM lowered its FY11 profit guidance by some 26% on June 13 to RM270 million at EBITDA levels owing to project delays and also lower than expected margins.

The research house in a note Tuesday, June 14 said it was downgrading its earnings estimates for KNM by 48-54% for FY11-FY13 to be slightly lower than the group's already lowered guidance.

KNM's margins were now moving targets as project delays resulted in higher manufacturing costs, it said.

'We are cutting our FY11 earnings estimate by 51% to account for delays in the UK biomass project as well as overall lower margins for existing orderbook.

'We also cutting FY12 and FY13 earnings on the assumption that current orderbook will not be as lucrative as expected,' it said.


June 13, 2011

BJTOTO - BToto the game changer

Stock Name: BJTOTO
Research House: RHB

Berjaya Sports Toto Bhd
(June 13, RM4.27)
Upgraded to outperform at RM4.28 with revised fair value of RM5.10 (from RM4.50)
: In a surprise move, BToto last Saturday launched a new game called 4D Jackpot, which is a combination of a 4D game and a jackpot game, a very similar game to Magnum's 4D Jackpot, which has been performing extremely well since its launch in September 2009. This brings the total number of games BToto has to seven from six. BToto's 4D Jackpot game has five prize categories, with a minimum win of RM2 million for the first prize and RM100,000 for the second prize. The theoretical prize payout ratio (PPR) is 55%, same as its other lotto games.

Of the 55% prize pool, 55% (plus the upfront RM2 million and any snowballed amount) goes to the first prize, while 10% (plus any snowballed amount) goes to the second prize. As such, the actual payout for the first prize would be 30.25% and for the second prize 5.5%. We estimate the odds for the first prize are one in 16.67 million and for the second prize, one in 1.67 million, which is the same as Magnum's 4D Jackpot game. This game also has a cascading feature where if the Jackpot 1 prize is not won and the jackpot amount is RM30 million and above, then the Jackpot 1 prize money of any amount exceeding RM20 million shall cascade and be added to the Jackpot 2 prize money for the particular draw.

We believe this is a positive development for BToto given its languishing sales ever since Magnum's new 4D jackpot game was launched. We believe this game could give Magnum a run for its money and boost BToto's sales and profit quite substantially, particularly since this is not a replacement game for any existing games but a new game entirely. As a guide, Magnum's gaming revenue rose by 9.3% year-on-year (or RM281.5 million), while gaming profit before tax (PBT) rose by 55.3% (or RM135.8 million) in FY12/10, which was largely attributed to its new 4D jackpot game. As the market is already used to the mechanics of this type of game, it should take off quite easily while any cannibalisation of its existing 4D sales is not expected to be significant, as was the case with Magnum.

As for implications on the industry, this could mean that the government is now more open to liberalising the industry, and we would not be surprised if Pan Malaysian Pools (PMP) also gets to launch a similar game soon. This would then be a game changer for whoever the new buyers of PMP are (said to be a consortium of companies including the Genting group), as valuations would have to take this possibility into account.

Risks: 1) Poor luck factor; 2) Regulatory changes for the numbers forecast operator (NFO) industry to discourage gambling in the country or to allow competitors more outlets and more game variations; and 3) Hike in gaming taxes.

Our FY04/12-13 forecasts have been raised by 2.2% to 4.9%, but FY04/11 is unchanged. Post-earnings revision, our discounted cash flow-based fair value is raised to RM5.10 (from RM4.50). We raise our recommendation on the stock to 'outperform' (from market perform), as we believe this could be a catalyst for BToto, given the exciting potential and earnings prospects of this new game. ' RHB Research, June 13

This article appeared in The Edge Financial Daily, June 14, 2011.

SUNWAY - Further upside via merger entity for Sunway

Stock Name: SUNWAY
Research House: OSK

Sunway Holdings Bhd
(June 13, RM2.56)
Upgraded to trading buy at RM2.55 with revised fair value of RM3.27 (from RM2.60)
: Last November, both Sunway and SunCity (not rated) announced that they would be undertaking a merger exercise. The merged entity will be known as Sunway Bhd, but to avoid confusion, we shall just call it 'Newco' for now. The implied merger price for Sunway stands at RM2.60, which will be satisfied via 20% cash and 80% in Newco shares valued at RM2.80 each. For every five Newco shares held, the investor will also receive one 'at the money' Newco warrant. To summarise, for every Sunway share, the investor gets: i) 52 sen cash, (ii) 0.7429 Newco shares, and (iii) 0.1486 Newco warrants.

Any potential upside for the Newco implies an upside for Sunway owing to the fixed share swap ratio. As such, we are making a simple back-of-envelope calculation on what the Newco is potentially worth. The Newco would be listed at a price of RM2.80, which will give rise to a market cap of RM3.61 billion. It will have shareholders' funds of RM2.6 billion, which includes the negative merger reserve of RM1.18 billion. This implies a P/BV of 1.39 times upon listing (RM2.02 BV/ share).

Management estimates that 70% of Newco's profit before tax will come from property-related activities. As such, we have used property developers with market capitalisation of more than RM1.5 billion as a benchmark. Based on this sample set, the peer average historical P/BV will be 2.62 times.

But for prudence's sake, we are only valuing the Newco at 1.84 times BV, representing a steep 30% discount to its peer average. Its closest peers by market capitalisation, IJM Land (about RM3.9 billion) and UOA Development (about RM3 billion), are trading at P/BVs of 2.13 times and 3.73 times respectively, which are still at a premium to our valuation parameter for Newco.

At 1.84 times P/BV, the Newco would be valued at RM3.70, providing a 32.1% upside from its listing price of RM2.80. Should it trade up to RM3.70, then based on the swap ratio of 0.7429 Newco shares for every Sunway share, Sunway would be worth RM2.75 post-cash repayment. Adding in the 52 sen cash repayment (since it is a return to investors), Sunway is worth RM3.27 pre cash repayment. This gives rise to a 28.3% upside from the last close of RM2.55. ' OSK Research, June 13

This article appeared in The Edge Financial Daily, June 14, 2011.

CMMT - CMMT is largest 'pure-play' retail REIT

Stock Name: CMMT
Research House: RHB

CapitaMalls Malaysia Trust
(June 13, RM1.17)
Initiating coverage at RM1.17 with fair value of RM1.21
: CapitaMalls Malaysia Trust (CMMT) was listed on the Main Market of Bursa Malaysia on July 16 last year. CMMT is the second retail-focused REIT established in Malaysia after Hektar REIT. CMMT is currently the second largest REIT in Malaysia behind Sunway REIT. To date, its total asset size stands at RM2.4 billion and as at the last closing price of RM1.17, the market cap stands at RM1.75 billion (versus Sunway REIT's RM3.8 billion and RM2.93 billion respectively).

CMMT currently has three assets in its portfolio ' Gurney Plaza in Penang, Sungei Wang Plaza in Kuala Lumpur and The Mines in Seri Kembangan, Selangor. CMMT is managed by CapitaMalls Malaysia REIT Management Sdn Bhd, which is a joint venture by CMMT's sponsor, CapitaMalls Asia Ltd (CMA), one of Asia's largest listed shopping mall developers, and the Malaysian Industrial Development Finance Bhd. CMA is a major unitholder in CMMT and holds about 41.74% of the total units. Prominent institutions such as the Employees Provident Fund and Skim Amanah Saham Bumiputera also own notable stakes in CMMT, with current holdings of 8.7% and 6.7% respectively.

Investment case: i) A strong, stable and ever-expanding portfolio; ii) Low tenant concentration risks; (iii) Backed by a reputable and highly established sponsor with a proven track record in retail mall management; and (iv) Prudent capital management that suits rising interest rate environment.

The risks to our view include: i) competition from other shopping malls in the surrounding areas; ii) fast-growing inflation leading to higher inflationary risks; iii) new entries into the REIT sector; and iv) country risk.

We are estimating a 5% growth in average rental rates for FY11 and FY12, which is in line with the government's broad outlook on the Malaysia's economic growth and CMMT's average step-up rental rates. The acquisition of the Gurney Plaza extension in 1Q11 is also expected to contribute significantly to CMMT's income growth but the full extent of the earnings contribution will only be seen from FY12 onwards.

Our fair value estimate is RM1.21, based on a 7% target MREIT yield against our FY12 dividend per unit forecast of 8.5 sen. The 7% target yield is in line with the industry's average and our valuation methodology for other MREITs under our coverage (Axis REIT, Quill Capita and Sunway REIT). We initiate our coverage with a 'market perform' rating. ' RHB Research, June 13

This article appeared in The Edge Financial Daily, June 14, 2011.

SAPCRES - SapuraCrest - Upside potential to above-consensus estimates

Stock Name: SAPCRES
Research House: OTHER

SapuraCrest Petroleum Bhd
(June 13, RM4.14)
Initiate coverage at RM4.21 with price objective of RM5.07
: We initiate coverage on SapuraCrest, a leading offshore service provider for field development works in Malaysia, with a buy rating. Our RM5.07 price objective is based on a 19 times blended FY12/13E PE (FYE Jan) and cross-checked with a 0.8 times PEG. We expect new offshore projects and analysts' earnings upgrades to drive the stock.

SapuraCrest's installation of pipelines and facilities (IPF) division is the leading provider of offshore transportation and installation (T&I) services in Malaysia, with more than 70% market share. We believe it will be the prime beneficiary of Petroliam Nasional Bhd's expected increase of exploration and production (E&P) spending to RM55 billion per annum from April 2011 to March 2016, versus RM40 billion in its fiscal year to March 2011.

Our net profit forecasts for SapuraCrest are 5% above consensus for FY12 (FYE Jan), 12% for FY13, and 23% for FY14. This implies a 23% net profit CAGR in FY12-FY14E. We believe our more optimistic earnings forecasts are due to lower minority interest projections and higher operating profit margin expectations.

We expect SapuraCrest's timely use of its strong balance sheet to finance its US$900 million (RM2.74 billion) two-year capex plan should further boost earnings growth. Excluding US$200 million capex in the Berantai Phase 1 marginal oilfield project, the scenario analysis a 15% to 25% earnings boost to our forecast for FY14, from spending the remaining US$700 million capex on various types of offshore projects and assets. Our analysis shows that SapuraCrest can finance this capex plan using debt and operating cash flow, with low risk of a cash call in the next 12 months.

Key risks: 1) cost overruns for offshore T&I work, 2) poor use of US$900 million capex which diminishes prospects, and 3) unexpected retirement of older tender rigs. ' Bank of America-Merrill Lynch Research, June 13

This article appeared in The Edge Financial Daily, June 14, 2011.

GENTING - Genting top loser in late trade

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

KUALA LUMPUR: Genting'' Bhd was the top loser in late trade on Monday, June 13 as investors locked in some gains after the strong performance recently but overall volume was not very heavy.

At 3.29pm, Genting was down 24 sen to RM11.08. There were 1.58 million shares done.

The FBM KLCI fell 8.22 points to 1,547.97 in line with the weaker key Asian markets. Turnover was 519.31 million shares done valued at RM674.12 million. There were 149 gainers, 512 losers and 286 stocks unchanged.

UOB Kay Hian Malaysia Research has a Buy on Genting at RM11.32 (last Friday, June 10 price) with a target price of RM13.63.

'Maintain Buy on GENTING BHD [], which continues to sport the cheapest valuations among the large-cap casino operators, and provides a much cheaper entry to the good fortunes of Resorts World Sentosa (RWS), as well as its subsidiaries' ongoing M&A efforts,' it said.

SUNWAY - Sunway upgraded to 'trading buy'

Stock Name: SUNWAY
Research House: OSK

Sunway Holdings Bhd, a Malaysian builder and property developer, was upgraded to “trading buy” from “neutral” at OSK Research Sdn Bhd on potential upside from its planned merger with Sunway City Bhd.

The stock’s fair value was raised to RM3.27 from RM2.60, analyst Jeremy Goh wrote in a report today. -- Bloomberg

TENAGA - AmResearch maintains Hold on Tenaga, unch RM6.60

Stock Name: TENAGA
Research House: AMMB

KUALA LUMPUR: Amresearch is maintaining its Hold recommendation on Tenaga Nasional, with an unchanged discounted cashflow-derived fair value of RM6.60 a share.

It said on Monday, June 13 that Petronas had issued a statement last week that it has completed the maintenance works of its gas production facilities and has begun resupplying to its customers.

This was in response to a media report that Tenaga is purchasing 180MW of electricity (1% of Tenaga's power generation capacity) from YTL Power's Power Seraya Ltd in Singapore due to a shutdown of some of Petronas' gas production platforms.

The research house quoted Petronas as saying the shutdown was a planned one and its customers were aware of it and that the maintenance works were successfully completed as per their schedules.

'The maintenance shutdown of Petronas facilities has resulted in Tenaga importing electricity from PowerSeraya Ltd, which we understand is on a take-or-pay basis at rates of around 30 Singapore sen/kWh (2.2x Tenaga's new tariff of 33.5 sen/kWh) until June 15, 2011,' it said.

Amresearch said Petronas' maintenance periods appear to be slightly longer than the schedules which it had earlier reported in April this year.

'We understand that the higher electricity costs from Singapore could be partly offset by a lower capacity charge to the Tanjung Bin plant, which has a minimum availability period.

'But this still means that Tenaga may be experiencing a contraction in supply to 850mmscfd (32% below the agreed 1,250mmscfd threshold) for at least a month in 2HFY11. Management indicated that the gas supply should normalise by July this year, hence the purchase agreement from Power Seraya is only for a short duration,' it said.

The research house said as it had already incorporated higher coal usage in 2HFY11, its FY11F earnings ' which is 17% below street estimates ' appear achievable for now. The stock currently trades at a fair CY11F PE of 12 times, which is within Tenaga's one-year forward PE band of 11 times to 16 times.