Bursa Malaysia Stock Price Target: 07/03/11

July 8, 2011

CIMB Research has Buy on YTL Power, TP RM2.80

Stock Name: YTLPOWR
Company Name: YTL POWER INTERNATIONAL BHD

Research House: CIMB

Price Call: BUY

Target Price: 2.80

KUALA LUMPUR: CIMB Equities Research has a Buy call on YTL POWER INTERNATIONAL BHD [] with a sum-of-parts target price of RM2.80.

It said on Friday, July 8 that YTLP is selling a 43% stake in its unit YTL Jawa Power Holdings to Marubeni Corp for US$224 million or US$1.5 a MW, which is a fair price.

The deal could be positive as the partnership will improve YTLP's chances of clinching other Indonesian power projects.

'However, we cut our FY11-13 core EPS by 2-11% for lower contributions from YTL Jawa and higher WiMax losses. Our SOP-based target is now 2% lower at RM2.80 as cash received from Marubeni does not offset the drop in contributions from YTL Jawa and higher borrowings.

'We also cut FY11-13 net DPS by 31% to reflect a more conservative payout policy,' it said.

YTLP said despite the downgrade in its numbers, YTLP remains a BUY as it believe its share price already reflects the WiMax uncertainties and lower dividends.

It said there could be a re-rating on the back of M&A and positive WiMax developments.

July 7, 2011

Gaming: 'Playing away from home' a recurrent theme

Stock Name: GENTING
Company Name: GENTING BHD

Research House: RHB

Price Call: BUY

Target Price: 13.30

Gaming sector
Maintain overweight: Given the relatively mature gaming market in Malaysia, gaming companies have been looking to expand their business by branching out to different geographical locations globally. Berjaya Sports Toto Bhd (BToto) has attempted to do this by applying for a licence to run a nationwide lottery system in Vietnam in 2008, which is yet to be approved.

Genting Group's most recent successes overseas have been in Singapore ' Resorts World Sentosa, and in the Philippines ' Resorts World Manila. The group is now expanding its reach to New York (with Resorts World New York due to open in October); Miami (Resorts World Miami although no casino licence has been issued for this property yet); and Birmingham (with the recently announced award to set up a big casino in partnership with NEC there).

So far, all the new projects are pursued through Genting Malaysia Bhd, probably by virtue of it having the most under-utilised cash pile (RM2.8 billion as at end-1Q11).

We believe as more positive news flow on RWNY is forthcoming and the completion of the first phase draws nearer, the reality of the project and its earnings potential will become clearer to investors.

We believe this could result in earnings upgrades for Genting Malaysia and valuations would therefore look more attractive. As for Genting Bhd, it will continue to be a beneficiary of: (i) Genting Singapore's'' growing profit, which results in an earnings contribution of 50% to 55% to the group; (ii) stronger earnings growth from the plantation division on the back of high CPO prices; and (iii) any longer-term potential upside from Genting Malaysia's new projects.

In addition, the valuation gap between Genting and Genting Singapore provides investors with an arbitrage opportunity, as Genting is a much cheaper entry point into Genting Singapore.

For Genting Singapore, without junket approval from the government, we expect the fight for market share to continue to intensify in the near term, and therefore believe that the next re-rating for the stock may only come once the second phase is ready.

For BToto, we expect its new 4D jackpot game to drive earnings growth in the medium term, clawing back some market share from Magnum in the medium term, and expand the legal gaming revenue pie slightly, capturing some of the illegal gaming market share.

Risks include: (i) regulatory changes to gaming policies in the country; (ii) increase in illegal gambling activities; (iii) luck factor risks; and (iv) potential hike in gaming taxes.

We make no change to our forecasts and our 'overweight' on the sector. Our top pick for the sector remains Genting Malaysia (fair value: RM4.40), while we also have 'outperform' calls on Genting (FV: RM13.30) and BToto (FV: RM5.15), and 'market perform' on Genting Singapore (FV: S$2.15). ' RHB Research, July 7

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

Gaming: 'Playing away from home' a recurrent theme

Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD

Research House: RHB

Price Call: BUY

Target Price: 4.40

WCT awaiting the rollouts

Stock Name: WCT
Company Name: WCT BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 3.75

WCT Bhd
(July 7, RM3.15)
Maintain buy at RM3.12 with target price of RM3.75: WCT's 2011 job win target remains at RM2 billion riding on a sizeable RM10 billion tender book. This will provide the lift to its RM3.4 billion outstanding order book. We retain our forecast for a 31% growth in 2011 net profit supported by strong property sales, completion of the 1Medini earthworks and good progress at the Qatar government building works. Our target price pegs the stock to sum-of-parts (15 times 2012 price-earnings ratio plus 20 sen value enhancement for the KLIA2 retail concession).

Our optimism is based on an existing RM10 billion tender book of which 65% is in the Middle East and the rest in Malaysia. The former includes potential works in Abu Dhabi and Saudi Arabia. Domestic jobs include a government building job and the LRT Package B in which WCT has participated in the tender. The award for one of two lines (Kelana Jaya) is expected soon while the other (Ampang) at end-3Q or early-4Q.

WCT has also participated in the contractors pre-qualification for the Klang Valley MRT (Sg Buloh-Kajang line) elevated structure works, which closed on April 13. Despite more than 70 contractors having participated, we are positive on WCT being pre-qualified. The elevated structure, spanning an estimated 41.5km, offers a revised works value of RM12 billion to RM13 billion, we understand. The call for tender is expected in July, and work awards towards end-2011.

Locked-in sales for the quarter were at least RM20 million as at mid-June, against RM100 million in 1Q11. The relatively slow sales are believed to be seasonal, with target launches for 2011 staying at RM400 million and target sales at RM300 million. 1Medini condominium (gross development value raised to RM700 million from RM600 million) is still on track for its maiden launch in September. Unbilled sales of RM264 million (73% at Bandar Parklands, 27% in Sabah) should provide for stronger property earnings ahead. The terms are still being finalised with financing issues being sorted out.

WCT has a 70% stake in the concession, together with Malaysia Airports (30%). We derive a preliminary 9% concession internal rate of return based on RM520 million project cost and RM10 per sq ft rental income per month. Our preliminary estimate is a 20 sen per share value enhancement for WCT. ' Maybank IB Research, July 7

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

TRC Synergy at an inflection point

Stock Name: TRC
Company Name: TRC SYNERGY BHD

Research House: OSK

Price Call: BUY

Target Price: 2.40

TRC Synergy Bhd
(July 7, RM1.80)
Initiating coverage at RM1.76 with buy rating and fair value of RM2.40: Late last year, TRC surprised the market when it outbid many of the larger contractors to secure the RM950 million Kelana A LRT extension contract. Although TRC has never undertaken a job of such magnitude, we believe execution is not an issue. In 2007, the company secured the RM405 million Sepangar Bay submarine base project on a competitive bid and completed it within the estimated profit margin. To mitigate rising material prices, TRC will subcontract out 50% of the works and lock in its steel exposure.

The same contractors pre-qualified for LRT A are eligible for the B portion as the tender and evaluation processes are mutually exclusive. TRC has submitted its bid for the LRT B project and is keen on the Kelana portion (RM700 million). In our view, TRC's bid should be competitive given the economies of scale from LRT A. Awarding the job to TRC would also allow for better integration between A and B. Even if TRC does not win the main contract, it could still play a role as subcontractor.

Some 70 contractors have been pre-qualified for the MRT (Sungai Buloh-Kajang line) elevated portion worth RM12 billion, which will be implemented in 20 packages. We expect TRC to leverage on its LRT track record and secure some packages for the MRT. Being one of the larger and more experienced bumiputera contractors also gives TRC an edge, especially in light of the recent controversy over the lack of bumiputera participation in the MRT.

TRC is the only peninsula-based contractor with a UPK Class A licence for Sarawak, which enables it to bid for state-funded jobs. It has quite a good track record in Sarawak, having completed over RM700 million worth of jobs in the state. TRC has tendered for most of the RM2 billion worth of roads to be awarded in Sarawak. The first phase of awards worth RM500 million should be out soon.

On an ex-cash basis, TRC trades at an attractive FY11/FY12 price earnings ratio of 6.1 times and 4.5 times. Its balance sheet is strong with RM182 million net cash, making up 54% of its market cap. Our RM2.40 fair value is based on a fully diluted revised net asset value comprising: (i) 12 times mid CY12 earnings; (ii) net cash per share; and (iii) proceeds from warrants conversion. With a 36.2% upside, we initiate coverage on TRC with a 'buy'. ' OSK Research, July 7

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

Expect stronger performance from MRCB

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP

Research House: MIDF

Price Call: HOLD

Target Price: 2.54

Malaysian Resources Corp Bhd
(July 6, RM2.30)
Maintain neutral at RM2.22 with revised target price of RM2.54 (from RM2.46): MRCB announced that its 70% subsidiary'' Country Annexe Sdn Bhd (CASB) entered into a privatisation agreement on Tuesday with the government and Syarikat'' Tanah dan Harta Sdn Bhd (Hartanah) for three projects in Brickfields, Kuala Lumpur: (i) The upgrading of Jalan Tun Sambanthan, part of the Little India project;

(ii) Construction of The Pines Bazaar, a three-storey building consisting of office space, 28 stalls and 140 parking bays on'' Lot 172; and
(iii) The Ang Seng Development which involves the construction of 212 units of new government Class F quarters near Jalan Ang Seng to replace the quarters in Jalan Rozario.'' ''

In exchange for funding the construction cost of the projects, CASB will be given two pieces of land at the intersection of Lorong Chan Ah Tong and Jalan Tun Sambanthan, known as Lot 349, measuring 153,891 sq ft and Lot 266, measuring'' approximately 60,737 sq ft.

Upon completion of CASB's obligations, it will be entitled to take vacant possession of the land, which is valued at'' approximately RM601 per sq ft. CASB plans for a mixed development worth RM1 billion.

At this juncture, we are maintaining our forecast for MRCB as details of the mixed development remain sketchy. We maintain our 'neutral' recommendation with higher target price of RM2.54 based on sum-of-parts (SOP) valuation. Moving forward, we believe MRCB will be one of the beneficiaries of the Economic Transformation Programme (ETP) projects.'' Further clarity over the project development value of the 'River of Life' project and MRCB's actual role in the Sungai Buloh Rubber Research Institute Malaysia land redevelopment will be the catalysts for any upside revision of the SOP valuation. We also envisage more land banking in FY11 to ensure a sustainable growth of the property segment in the medium to'' longer term. ' MIDF Research, July 6

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

CIMB Research retains Hartalega TP at RM7.18

Stock Name: HARTA
Company Name: HARTALEGA HOLDINGS BHD

Research House: CIMB

Price Call: BUY

Target Price: 7.18

KUALA LUMPUR: CIMB Research expects Hartalega to report a 1QFY3/12 net profit of RM45 million to RM50 million early next month.

It said on Thursday, July 7 that at 23%-25% of its full-year estimate, it would be in line with expectations.

'We retain our forecasts and target price of RM7.18, which we continue to base on a forward P/E of 11.75 times, a 10% discount to Top Glove's forward P/E target of 13.05 times,' it said.

CIMB Research said Hartalega is eyeing Brazil as a source of earnings growth and expects to make its first shipment of natural rubber (NR) gloves by year-end.

The glove maker is positioning itself for a change in regulations in Brazil that will allow hospitals to use nitrile gloves, which is Hartalega's specialty.

'Strong sales to Brazil could be a re-rating catalyst, along with an earlier-than-expected commissioning of Plant 6 and lower input costs. The stock remains an OUTPERFORM,' it said.

July 6, 2011

Expect stronger performance ahead

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP

Research House: MIDF

Price Call: HOLD

Target Price: 2.54

Telecoms: Hanging up on the sales tax subsidy

Stock Name: DIGI
Company Name: DIGI.COM BHD

Research House: CIMB

Price Call: BUY

Target Price: 34.00

Telecommunications
Maintain overweight: We understand from the media and the telecommunications industry that mobile operators are planning to pass on the 6% sales tax on prepaid revenues to the users. Postpaid users are already footing this tax but the telcos have been subsidising it for prepaid users. Apparently, the industry had a change of heart when the government raised the sales tax from 5% to 6% this year. This was compounded by plunging voice tariffs.

We understand that the government has asked the industry to defer its plan until Sept 1, 2011. However, media reports indicate that the date has yet to be finalised.

The telcos, which currently book only 94% of prepaid revenues, will be able to recover the lost profits by passing on the sales tax to users. We understand the four mobile operators (including U Mobile) have agreed to coordinate the passing on of the tax. However, passing on the tax is similar to raising tariffs in our view. Being generally price sensitive, prepaid users may cut back on usage. We therefore do not expect a 6% rise in revenue when the sales tax is passed through.

DiGi.Com Bhd should benefit the most because it has the highest composition of prepaid users among the telcos. Prepaid revenues comprise about 75% of DiGi's total revenue against 59% to 60% for Celcom Bhd and 56% to 57% for Maxis Bhd. Assuming that half of prepaid users maintain their usage while the rest cut back, telcos effectively raise their revenue by 3% and core net profit could rise 4% to 8% on a full-year basis.

We gather that telcos are likely to build the 6% tax into the price of the reload vouchers (RM10.60 for a RM10 voucher) instead of deducting 6% from their vouchers (60 sen is deducted from RM10 worth of credits).

The telecom regulator does not have a say in the decision to pass on the sales tax to users. However, telcos have been 'asked' by the government to pass on the sales tax on Sept 1. We believe this is a sensitive issue as the rising cost of living has been a major source of angst for the man in the street. In the meantime, the telcos will have to educate their sales channel and reprogramme their billing systems to accommodate the pass-through.

Factoring in the tax pass-through, we raise our end-2011 target prices by 2% from RM6.08 to RM6.20 for Axiata, 8% from RM31.60 to RM34 for DiGi and 2% from RM5.80 to RM5.90 for Maxis. We upgrade DiGi from 'neutral' to 'outperform' as it stands to benefit significantly from the pass-through of the sales tax.

Axiata and Telekom Malaysia Bhd remain 'outperforms' while Maxis is still a 'neutral'. The sector remains an 'overweight'. The key uncertainties are: (i) a possible delay of the Sept 1 date; and (ii) the possibility of a further drop in call volumes when the 6% tax is passed on, resulting in very little incremental revenue for the telcos. ' CIMB Research, July 6

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

Telecoms: Hanging up on the sales tax subsidy

Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD

Research House: CIMB

Price Call: BUY

Target Price: 6.20

Ireka still looking for more jobs outside the group

Stock Name: IREKA
Company Name: IREKA CORPORATION BHD

Research House: AFFIN

Price Call: SELL

Target Price: 0.70

Ireka Corp Bhd
(July 6, 75.5 sen)
Maintain reduce at 72 sen with target price of 70 sen: All three new contracts secured so far in 2011 ' two in KL Sentral Office Towers & Hotel and the other in the City International Hospital (CIH) development, its maiden construction contract in Vietnam ' are from development projects that 23%-associate Aseana Properties Ltd (APL) has stakes in. An imminent new contract valued at about US$30 million (RM90 million) is also from the CIH development.

Tenders for projects outside the group with a total value of about RM1 billion have not been fruitful so far, as Ireka is not willing to bid lower in view of project requirements and the prospects of rising cost of construction. The last non-APL project secured by the group was the RM36.2 million contract for the Bandar Indahpura, Kulai-Second Link Expressway Interchange awarded by the Iskandar Regional Development Authority in April 2010.

For existing contracts, which have a total outstanding value of about RM470 million as at end-April 2011, management guided sustainable gross margins of 7% to 10%, which will translate into pre-tax margins of 3% to 4%. These margins continue to be the norm for many private sector building projects, leaving contractors vulnerable to the rising cost of materials (steel bar prices have risen by'' about 10%), labour shortage, unfavourable weather conditions as well as accidents (as occurred on one of Ireka's significant projects in FY11).

The FY11 was difficult for the group as four quarters of losses accumulated to a net loss of RM11.7 million for the financial year. Key reasons were: (i) losses at APL (reclassified as an associate for the first time in 4QFY10) due to a loss from the sale of properties in 1 Mont'Kiara, Kuala Lumpur, unrealised foreign exchange losses as well as management fees; (ii) mark-to-market losses for share investment in Kinh Bac City Development in Vietnam; and (iii) delays in the completion of a significant project due to labour shortages, weather and a couple of incidents on site.

Management expects a turnaround to profitability in FY12 as APL would be able to book profit from the sale of properties in Seni Mont'Kiara, Phase 1 of which was completed in April 2011 and Phase 2 scheduled for completion in 3Q11. Barring unforeseen delays and material price spikes, the construction division will also contribute on a target billing of about RM400 million and pre-tax margin of 3%.

The Kia Peng high-end residential development in the KLCC vicinity, a 30:70 joint venture between Ireka and APL, is expected to be profitable, but the likely adoption of IFRIC reporting standards would delay profit bookings to about 2015. With APL now almost fully invested, Ireka may venture into more development projects, leveraging on its reputation as a developer of high-end, high-rise properties.

While the projected turnaround in FY12 is positive, we believe the lethargic share price performance as well as institutional interest and trading volume require stronger drivers in the form of more contract awards from both APL projects as well as private and public projects from outside the group.

There are challenges, especially in view of its outstanding order book of about RM470 million and management target of about RM400 million in construction billings a year. Tenders for non-APL projects with the required margins have so far been unsuccessful while demand for higher-end properties in Vietnam has been affected by high interest rates, tighter credit and fear of further devaluation of the Vietnamese dong.

Pending more positive news flows on new construction and property development projects, we maintain our FY12/FY14 profit forecasts as well as target price of 70 sen (based on 40% discount to realisable net asset value) and 'reduce' call.

For exposure to the construction sector, we continue to prefer IJM Corp (RM6.49, 'buy', target price: RM7.80), Gamuda Bhd (RM3.92, 'buy', TP: RM4.51) and WCT Bhd (RM3.12, 'buy', TP: RM4.19). Gamuda also offers significant exposure to the property development sector in Vietnam. ' Affin IB Research, July 6

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

Timber in a sweet spot

Stock Name: JTIASA
Company Name: JAYA TIASA HOLDINGS BHD

Research House: RHB

Price Call: BUY

Target Price: 10.75

Timber sector
Maintain overweight: The outlook for Japan housing starts remains positive, although disruptions in the wake of the recent earthquake and tsunami will likely weigh on housing starts in the near term. According to Sekisui House Ltd, Japan's largest home builder, reconstruction-related housing demand is likely to come in strong to help to push Japan's annual housing starts above 900,000 units over the next two to three years, compared with 813,143 units in 2010.
While we do expect to see some easing of log prices in the near term, this is likely to have more to do with seasonal patterns as production should start to normalise when weather conditions improve. We do not expect log prices to come off very substantially from the current levels given that demand from India and China remains robust, while overall log supply can only increase by no more than 10% year-on-year (taking 2008 and 2009 production levels as well as the latest production quota as a guide).

According to the latest Japan Lumber report, plywood prices have remained firm so far in May and June at US$675 (RM2,031.75) to US$850 per cu m after the spike in March, which is in line with our expectations. We expect plywood prices will remain stable at this level for the next few months, before they start to rise again when reconstruction starts to gain pace.

We are positive on Ta Ann Holdings Bhd and Jaya Tiasa Holdings Bhd, as both companies have significant oil palm plantations similar to mid-sized plantation companies. Fresh fruit bunches (FFB) production for both companies is set to rise significantly over the next few years due to increasing mature hectarage.

The risks include: (i) lower than expected improvement in Japan's housing starts; and (ii) price discounting by neighbouring countries with lower cost of production, resulting in lower exports from Malaysia to its major export markets.

We maintain our 'overweight' call on the timber sector given robust near-term earnings growth for the timber division due to: (i) strong log prices owing to huge demand from India and China; and (ii) strong plywood prices due to increased demand from Japan for reconstruction activities. There will also be a significant boost to Jaya Tiasa and Ta Ann's earnings from the plantation division going forward due to increasing FFB production. ' RHB Research, July 6

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

Timber in a sweet spot

Stock Name: TAANN
Company Name: TA ANN HOLDINGS BHD

Research House: RHB

Price Call: BUY

Target Price: 8.54

Timber in a sweet spot

CIMB Research retains Outperform on Daibochi

Stock Name: DAIBOCI
Company Name: DAIBOCHI PLASTIC & PACKAGING

Research House: CIMB

Price Call: BUY

Target Price: 3.92

KUALA LUMPUR: CIMB Equities Research is retaining its Outperform recommendation on Daibochi Plastic & Packaging at RM2.59 and has a RM3.92 target price.

It said on Wednesday, July 6 the sharp fall in raw material prices since June should give Daibochi's 3Q11 profit margins a boost as selling prices for the quarter have already been locked at the market prices prevailing at end-May.

'We maintain our FY11-13 EPS forecasts while noting that there is upside to both our numbers as well as the share price if raw material prices continue to fall or if the company clinches some major contracts from new MNC clients over the next few quarters.

'We also retain our RM3.92 target price, which is based on 10.2x CY12 P/E, a 30% discount to our 14.5x target market P/E. Daibochi remains an Outperform and our top pick in the packaging sector, helped by its generous gross dividend yield of 8%,' it said.

UOA Development slumps to lowest since IPO

Stock Name: UOADEV
Company Name: UOA DEVELOPMENT BERHAD

Research House: RHB

Price Call: BUY

Target Price: 3.45

KUALA LUMPUR: Shares of UOA Development Bhd fell to the lowest since the initial public offer, slumping to RM2.08 in late afternoon on Wednesday, July 6.

At 4.16pm, it was down 11 sen to RM2.08 with 3.32 million shares done.

The FBM KLCI was up 5.43 points to 1,587.28. Turnover was 918.23 million shares done valued at RM1.62 billion. There were 385 gainers, 338 losers and 329 stocks unchanged.

UOA Development was listed on June 8 and ended the first day at RM2.59.

The institutional price was fixed at RM2.60 and the final retail price at RM2.52 after the bookbuilding exercise. The indicative retail price was RM2.90.

The listing exercise of UOA Development included an offer for sale of up to 407 million existing shares of 50 sen each.

RHB Research Institute had valued UOA Development at RM3.45, at its RNAV per share and in line with its valuations on IJM Land Bhd.

UOB Kay Hian maintains Buy on MRCB, RNAV target price RM3.02.

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP

Research House: UOB

Price Call: BUY

Target Price: 3.02

KUALA LUMPUR: UOB Kay Hian Malaysia Research is maintaining a Buy call on MALAYSIAN RESOURCES CORP []oration Bhd (MRCB) and a revised net asset value (RNAV) based target price of RM3.02.

It said on Wednesday, July 6 the catalyst would be the potential to co-develop the 24-acre site in Penang Sentral and a few parcels of the 2,400-acre Sg Buloh Land, more land acquisitions in Klang Valley and 'River of Life' project worth RM3 billion for Phase One.

On Tuesday, www.thedgemalaysia.com reported MRCB's subsidiary will undertake a RM128.7 million contract to upgrade Little India in Brickfields and build government quarters.

MRCB's 70% owned Country Annexe Sdn Bhd had on Tuesday, July 5 signed a privatisation agreement with the government and Syarikat Tanah dan Harta Sdn Bhd (Hartanah).

The agreement will see Country Annexe upgrading and beautifying Jalan Tun Sambanthan, Brickfields. It will also develop the Pines Bazaar ' a three-storey building with office space, 28 stalls and 140 car park bays. It will also build 212 government Class F quarters near Jalan Ang Seng to replace the government quarters at Jalan Rozario, Kuala Lumpur.

In return, Country Annexe will receive two pieces of land at the intersection of Lorong Chan Ah Tong and Jalan Tun Sambanthan, measuring 14,297 sq metres and 5,642.71 sq metres.

Country Annexe is a 70:30 special purpose vehicle between MRCB and DMIA Sdn Berhad to construct the projects in return for the exchange land and to undertake the development.

UOB Kay Hian said that on June 16, 2010, the government awarded MRCB the contract to jointly construct Project 1 with DMIA Sdn Bhd on a Design, Build, Finance and Transfer basis.

On Oct 26, 2010, Project 1 was completed at a cost of RM36.6m and the Certificate of Practical Completion was issued.

To support the government's initiatives for Greater Kuala Lumpur, Project 1 was subsequently expanded to cover Project 2 and Project 3.

'MRCB will be entitled to take possession of the Exchange Land that is valued at approximately RM601 psf, deemed as a fair price in Brickfields. Consequently, MRCB will have the opportunity to develop the exchange land into a mixed property development with a potential GDV of about RM1 billion. At this juncture, we expect no impact on FY11's earnings,' it said.

July 5, 2011

Gaming - not a zero sum game

Stock Name: BJTOTO
Company Name: BERJAYA SPORTS TOTO BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 4.95

Gaming
Maintain overweight: Punters' reception of Berjaya Sports Toto's (BST) 4D Toto Jackpot has yielded pleasant surprises. While the game's revenues are rising, it has not cannibalised BST's other lotto games, even Magnum 4D Jackpot. This suggests under-penetration of the numbers forecast operator (NFO) industry. Our sole call for the NFOs is a 'buy' on BST with a discounted cash flow-based target price of RM4.95. Multi-Purpose Holdings Bhd (not rated) makes for a good trading idea at current prices.

Since its introduction on June 11, 2011, BST's 4D Toto Jackpot revenue per draw per outlet has ranged from RM22,000 to RM28,000, doubling BST's total lotto revenue per draw per outlet to RM41,000 to RM48,000, above our forecast. As expected, 4D Toto Jackpot has been more popular than BST's three other lotto games due to its highest probability of being struck at 1 in 16.7 million and the ease of picking forecast numbers.

That said, the 4D Toto Jackpot game has yet to catch up with Magnum 4D Jackpot which is still recording higher revenue per draw per outlet of some RM55,000 post introduction of 4D Toto Jackpot. At the same time, BST's other lotto games have held their ground at revenue per draw per outlet of RM2,000 due to the substantial jackpots they currently offer.

Magnum 4D Jackpot's resilience suggests that the NFO industry is under-penetrated. In fact, total gross NFO revenue as a percentage of nominal GDP is at an all time low of 1.2%. This suggests that the possible introduction of a 4D Jackpot game at Da Ma Cai (under Tanjong plc) is likely to expand the NFO pie rather than cannibalise the other NFOs, a major boost.

With the 4D Toto Jackpot, we expect BST to regain the three percentage points of market share it lost to Magnum beginning late 2009. That said, we do not expect Magnum's absolute revenues to suffer but grow in tandem with the NFO industry. Again without a jackpot game, we expect Da Ma Cai to continue losing market share.

We recommend exposure to the NFO industry as it is recession resistant, amid external economic uncertainties. 4D Toto Jackpot will not only lift BST's lotto revenue but non-lotto revenue as well, especially 4D. In our view, Multi-Purpose will make for a good trading idea if it disposes of its non-core assets and transforms into a pure NFO.

Its current price implies that only Magnum Corp is accounted for, but not the other businesses. ' Maybank IB Research, July 5

This article appeared in The Edge Financial Daily, July 6, 2011.

Star buys 5% stake in Catcha Media

Stock Name: STAR
Company Name: STAR PUBLICATIONS (M) BHD

Research House: AMMB

Price Call: BUY

Target Price: 3.95

Star Publications (Malaysia) Bhd
(July 5, RM3.40)
Maintain buy at RM3.38 with fair value of RM3.95: Star Publications (Star) announced yesterday that it will acquire a 4.99% stake in Catcha Media Bhd's (Catcha) enlarged issued and paid-up capital as part of the latter's private placement, according to a Bursa announcement.

Catcha, a media owner and operator of magazine publishing business and an online media business, aims to raise RM17.25 million in its IPO. It is en route to be listed on Bursa Malaysia's ACE market on July 22, 2011.

Under the proposed acquisition, Star will be paying RM4.977 million for 6.636 million Catcha shares, the maximum equity shareholding allowed under Catcha's IPO structure.

Based on Catcha's FY10 profit after tax of RM8.1 million, this translates into a price-earnings ratio of 12.3 times.

Catcha publishes 14 magazine titles, while the online media segment involves the sale of Internet advertising space to Malaysian brand owners and advertising agencies. In addition, Catcha has exclusive sales rights for leading Malaysian website Lowyat.net.

We are mildly positive about Star's latest acquisition. While Catcha offers Star exposure to the high-growth Internet advertising expenditure, we believe an investment in a 'purer' Internet company could have been better. Online media contributes 76% to group earnings before interest and tax (Ebit), based on Catcha's 1HFY11 results. Internet adex in Malaysia recorded a growth of 29%, higher than the 14% for newspapers, for 2010.

Catcha is estimated to command a sizeable 26% market share of the country's online advertising segment, according to independent business research and consulting firm Frost & Sullivan.

We make no change to our earnings forecast and maintain 'buy' with an unchanged fair value of RM3.95 per share, at a 15% discount to our discounted cash flow value. We continue to like Star for its stronghold on the print adex segment, as backed by continuing advertiser preference for English print, stable circulation and market leadership in ad rates. ' AmResearch, July 5

This article appeared in The Edge Financial Daily, July 6, 2011.

Construction - zooming in on highway infrastructure

Stock Name: WCT
Company Name: WCT BHD

Research House: CIMB

Price Call: BUY

Target Price: 4.15

Construction sector
Maintain overweight: Our conclusion from our review and tour of highway projects is that they are a medium- to long-term story and that projects related to the 10th Malaysia Plan (10MP) and the Economic Transformation Programme (ETP) will remain the highlight for the construction sector in 2H11.

Although the recent approvals for the New Pantai Expressway (NPE) extension and the West Coast Expressway (WCE) suggest that execution of build-operate-transfer (BOT) highway projects is making tracks, we do not discount the announcement of more details of highway projects during the tabling of Budget 2012 in October.

We think that the award of the mass rapid transit (MRT) project and light rail transit (LRT) Phase 2 will offer more excitement. We continue to 'overweight' the construction sector. IJM Corp Bhd replaces Muhibbah Engineering (M) Bhd as one of our top picks for the sector, the other being WCT Bhd.

We visited the recently-opened Kuala Lumpur-Kuala Selangor (KLKS) Expressway which spans 32km from Templer's Park near Rawang in the east of Selangor to Ijok near Kuala Selangor in the west. This is one of the interlinking highways that form the Kuala Lumpur Outer Ring Road (KLORR). This BOT project was completed about three weeks ago and the highway was opened to the public on June 23. It will only charge toll from Sept 1 onwards.

We have identified 19 highways planned under the 9MP and 10MP. Most are located in the Klang Valley, while some are concentrated on the east coast of Peninsular Malaysia. Some 26% are operational or under construction, 11% have not seen major progress, 11% have been approved while 47% are still at the planning stages. One highway that is targeted to come onstream in 2012 is the Eastern Dispersal Link (EDL) in Johor.

The approval of the extension of the NPE and the construction of the WCE earlier this year is likely to pave the way for the implementation of other BOT highway projects in 2H11 and beyond. The other six highways are largely urban and intra-urban highways with a distance of between 20km and 70km. Based on our checks, they are estimated to cost between RM2 billion and RM4 billion.

Implementation of highway construction/BOT jobs should continue to buoy construction activities over the next few years. Approvals for the extension of the NPE and construction of the WCE have kick-started the development of highway infrastructure from 2011 onwards and the RM7 billion to RM8 billion total estimated construction cost should create subcontracting opportunities. For other highways, all the contractors under our coverage could get a slice of the action given their expertise and track record. ' CIMB Research, July 5

This article appeared in The Edge Financial Daily, July 6, 2011.

Construction - zooming in on highway infrastructure

Stock Name: IJM
Company Name: IJM CORPORATION BHD

Research House: CIMB

Price Call: BUY

Target Price: 7.81

CI Holdings update - Quenching Asahi's thirst for M&A?

Stock Name: CIHLDG
Company Name: C.I. HOLDINGS BHD

Research House: CIMB

Price Call: BUY

Target Price: 4.78

Tenaga active, up in early trade

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD

Research House: HLG

Price Call: BUY

Target Price: 8.80

KUALA LUMPUR: TENAGA NASIONAL BHD [] shares advanced on Tuesday, July 5 after Hwang DBS Vickers Research rated the stock as a Buy at RM6.75 with a target price of RM8.80.

At 9.20am, Tenaga rose five sen to RM6.80 with 1.19 million shares done.

HDBSVR said on July 5 that TNB plans to raise RM5 billion from a 20-year ringgit-denominated Islamic bond offering, according to its president and chief executive officer.

The proposed RM5 billion sukuk is TNB's first bond sales since 2004. Proceeds from the offering will be used to finance a coal-fired Manjung power plant in Perak.

HDBSVR said: 'We expect low utilisation of the facility for FY12-13F, but the full drawdown of the facility, estimated in FY14F, will increase TNB's net gearing to 0.5 times, from 0.4 times in 2Q11.

'We estimate IRR of c.10% for the new Manjung plant

C.I. Holdings advances in early trade

Stock Name: CIHLDG
Company Name: C.I. HOLDINGS BHD

Research House: MIDF

Price Call: BUY

Target Price: 3.92

KUALA LUMPUR: ''C.I. HOLDINGS BHD [] shares rose in early trade on Tuesday, July 5 following reports that Asahi Group Holdings'' Ltd'' of'' Japan'' was'' in'' talks with'' CI'' Holdings'' (CIH)'' over'' the'' purchase'' of'' its'' subsidiary, ''Permanis Sdn Bhd for US$200 million (RM600 million).

At 9.05am, C.I. Holdings added 14 sen to RM3.44 with 91,400 shares done.

MIDF Research in a note said it had been reported that that Asahi ''had'' been'' eyeing'' Permanis'' (which'' is'' PepsiCo'' Inc's'' bottler'' in ''Malaysia)'' to expand and drive stronger growth'' for'' its business ''and increase its presence in the global market.

The research house reiterated its BUY recommendation on CIH with an unchanged target price of RM3.92, implying a PER12 of 13 times.

'We believe CIH's valuation is still attractive as it is currently trading at a steep 31.55 discount to F&N's valuation of 19 times PER,' it said.

DRB-Hicom share estimate raised

Stock Name: DRBHCOM
Company Name: DRB-HICOM BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 3.95

DRB-Hicom Bhd, a Malaysian automaker, transport services and banking group, rose the most in more than a week after HwangDBS Vickers Research Sdn Bhd raised its share estimate to reflect the company's plan to double its profit in five years.

The stock climbed 1.8 per cent to RM2.24 at 11:03 a.m. local time in Kuala Lumpur, set for its biggest gain since June 24.

The share estimate was raised to RM3.95 from RM3.80, analyst Chong Tjen San wrote in a report today. -- Bloomberg

CI Holdings update - Quenching Asahi's thirst for M&A?

Stock Name: CIHLDG
Company Name: C.I. HOLDINGS BHD

Research House: CIMB

Price Call: BUY

Target Price: 4.78

July 4, 2011

HwangDBS cautious on Tanjung Offshore

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD

Research House: OSK

Price Call: HOLD

Target Price: 1.29

HwangDBS Vickers Research Sdn Bhd remains cautious of Tanjung Offshore Bhd's outlook given the slow performance of its non-marine chartering division which has been a drag on rofitability.

Tanjung Offshore has been awarded long-term charter contracts from Petronas for three offshore service vessels (OSVs) collectively valued at RM50 million.

The long-term contracts for the OSVs are for a period of between one and three years, effective June and July this year, respectively, with options to extend for a period of between one and two years.

HwangDBS said there was no change to its earnings forecast on Tanjung Offshore as it has imputed utilisation rate of 90 per cent for financial year 2011, which is likely given that all its 16 vessels are currently chartered out.

Meanwhile, OSK Research Sdn Bhd said it has no change to its financial year 2011 and 2012 forecasts as it had earlier assumed some orderbook replenishment for its vessels.

It maintained a "neutral" call on Tanjung Offshore with the fair value unchanged at RM1.29.

"At this junction, we are not too optimistic about the company given its two consecutive quarterly net losses, even though the bulk of its OSVs are on long-term charter with Petronas and its production-sharing contracts contractors," said the research house.

It said the immediate catalyst to Tanjung Offshore's share price recovery would be the listing of Bumi Armada, which is expected to boost the sentiment of all oil and gas vessel players in Malaysia. it added. -- Bernama

MMHE advances after AmResearch raises target price

Stock Name: MHB
Company Name: MALAYSIA MARINE AND HEAVY ENG

Research House: AMMB

Price Call: BUY

Target Price: 9.90

KUALA LUMPUR: Malaysia Marine & Heavy Engineering Holdings Bhd shares rose on Monday, July 4 after AmResearch said the stock was its preferred pick in the oil & gas industry as the proxy to Malaysia's deepwater and enhanced oil recovery projects in tandem with Petronas' accelerating capex rollout of RM300 billion over the next five years.

At 2.35pm, MMHE added 12 sen to RM8.52 with 410, 500 shares done.

AmResearch reiterated its Buy rating MMHE, with a raised fair value to RM9.90 (from RM8.25 previously), based on an unchanged but rolled-forward CY12F PE of 25 times ' a 15% premium to Kencana Petroleum's 2007 peak of 22 times.

'We have raised FY12F-FY13F earnings by 12%-15% from: (1) a 10% increase in new fabrication order assumption to RM4 billion-RM5billion; (2) 1ppt -EBIT margin increase to 12%-13%, compared with 9% in FY March 2011; and (3) lower effective tax rates from a faster recognition of investment tax allowances on the group's capital expenditure programme,' AmResearch said in a note July 4.

The research house said MMHE's higher fair value also partly stemmed from adjusting MMHE's forecasts for its FY-end change from March to December 2011.

'Although MMHE's share price has outperformed the FBMKLCI by 40% since the beginning of the year, we believe the company's re-rating catalysts remain intact.

'The stock currently trades at an FY12F PE of 21 times, on par with domestic O&G fabricators, but we expect further PE expansion driven by its exciting new order prospects, improving margin performance and being the only O&G fabricator to be included in the FBM KLCI,' it said.

Wah Seong rises on Aussie job

Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 3.10

KUALA LUMPUR: Wah Seong Corp Bhd shares rose in early trade on Monday, July 4 after it secured a US$45 million (RM136.78 million) contract from Australia Pacific LNG Pty Limited to provide pipeline coatings for the Australia Pacific LNG project in Australia.

At 9.05am, Wah Seong added three sen to RM2.42 with 5,000 shares done.

The contract secured by its pipe coating business unit on June 29 involved coating of over 700 km of pipes.

Maybank IB Research maintained its Buy rating on Wah Seong and said it was positive on the company's clinching of the AP LNG pipe-coating project and that it anticipate more of these to follow over the next few months.

'We are maintaining our forecasts. Wah Seong remains a Buy with a RM3.10 target price (14x 2012 EPS), which provides a 30% upside.

'Wah Seong is a proxy play to PETRONAS' domestic development programmes and worldwide gas, leveraging on Australia's multiple LNG project sanctions,' it said in a note July 4.

CIMB has Hold on DiGi, target price RM31.60

Stock Name: DIGI
Company Name: DIGI.COM BHD

Research House: CIMB

Price Call: HOLD

Target Price: 31.60

KUALA LUMPUR: CIMB Equities Research has a Hold call on DiGi.com with a target price of RM31.60.

The research house said the telco would embark on a transformation journey vital for its survival over the next 12 to 18 months and it would cover three areas - network, IT system and distribution.

CIMB Research said as part of the preparations, DiGi is swapping and upgrading its entire network and equipment, which will be completed by year-end.

"When you look at transformation, one of the things you need to focus on is to have an intelligent network. So, we have signed a vendor (China's ZTE) to complete the swap. All these will be 4G ready, everything will be one rack. So, when 4G is ready, it is just going to be a software upgrade," its CEO Henrik Clausen was quoted saying.

DiGi's next area of transformation involves upgrading its IT system such as billing to enable it to respond faster to the market and also support its business model.

CIMB Research said DiGi's last area which it plans to transform is its distribution and its plans are to expand into the underserved areas such as the East Coast and other geographical areas.

MRCB JV is PDP for The River of Life project

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP

Research House: OSK

Price Call: TRADING BUY

Target Price: 2.58

Malaysian Resources Corp Bhd
(July 4, RM2.22)
Maintain trading buy at RM2.20 with fair value of RM2.58: Last Friday Prime Minister Datuk Seri Najib Razak launched the much anticipated River of Life (ROL) project, which aims to revitalise and transform Kuala Lumpur's dirty rivers. The RM4 billion project is divided into three parts ' river cleaning, beautification and land development along the river.

In late February 2011, MRCB announced to Bursa Malaysia that the Ekovest'MRCB joint venture had received a letter of intent (LoI) from the government for the ROL project.

The LoI indicates the intention of the government to obtain the services of the Ekovest-MRCB JV as the project delivery partner (PDP) for the Entry Point Project (EPP) identified in the Greater Kuala Lumpur/Klang Valley National Key Economic Area (NKEA) under the Economic Transformation Programme (ETP). In late March, MRCB entered into an agreement with Ekovest to set up a 40:60 JV company known as KL Bund Sdn Bhd to undertake the ROL project.

The river cleaning project will involve a 110km stretch of the Klang river basin with the target to improve water quality from its current Class III to Class IIB, which would make the river suitable for recreational activities by 2020. The river beautification project will involve a 10.7km stretch of riverbank from Titiwangsa to Brickfields in Kuala Lumpur.

It was reported that a sum of RM3 billion has been allocated for the clean-up with the balance for beautification. For the river beautification project, Kuala Lumpur City Hall held a River of Life master plan competition that ended on June 15. It has short-listed five of the 22 entries. Three are from international companies with two from local planning companies.

The master plans are currently available for the public to view and vote on. A panel of expert jurors has been appointed to assess the plans. The winning plan will be based on a combination of votes from the public (20%) and the jurors (80%) with the winning proposal to be announced on July 30.

As for the land development along the river, potential government land will be identified and tendered out to private developers through competitive bidding.

As we have yet to understand the exact scope of MRCB's involvement in the ROL, we are unable to estimate the project's financial impact of the project on MRCB. Nevertheless, we believe the project will provide a sizeable future earnings enhancement to MRCB. We maintain our 'trading buy' recommendation at an unchanged fair value of RM2.58 based on sum-of-parts valuation.

Apart from being PDP for the project, with its expertise and track record in river cleaning and rehabilitation projects, we do not rule out the possibility of MRCB being appointed as one of the contractors to undertake the river cleaning project. ' OSK Research, July 4

This article appeared in The Edge Financial Daily, July 5, 2011.

Telekom Malaysia's Unifi soars

Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD

Research House: CIMB

Price Call: BUY

Target Price: 4.92

Telekom Malaysia Bhd
(July 4, RM3.95)
Maintain outperform at RM3.94 with revised target price of RM4.92 (from RM5.10): Our non-deal roadshow with TM left us feeling more upbeat on the telco. The positive surprise is that take-up of Unifi continues to rise and is trending a little ahead of our expectations. More importantly, the number of applications is still on the uptrend, which, together with increasing coverage of homes, suggests that the strong growth is sustainable.

The negative surprise was the higher-than-expected FY12/FY13 capital expenditure. We cut our FY12/FY13 earnings per share by between 9% and 10% and target price to RM4.92 from RM5.10 based on sum-of-parts after raising our capex assumptions to levels closer to management's. TM remains an 'outperform' and our top Malaysian telco pick. Likely price catalysts include strong take-up of Unifi, sale of its shares in Axiata Group Bhd and positive earnings surprises.

Based on numbers up to the third week of June, Unifi may have roped in about 45,000 users in 2Q, a substantial jump from the 31,000 added in 1Q and also above our estimate of 38,000. More importantly, the number of applications is still on the uptrend. This suggests that the strong growth is sustainable, especially since homes passed (coverage of homes) is on the rise.

TM targets wholesale revenue to rise from 9% of total revenue in FY10 to 12% in three to five years. It is confident of achieving this goal, helped by Celcom Bhd and Maxis Bhd, which have signed up for wholesale access to TM's high-speed broadband.

The main concerns highlighted were: (i) its low return on equity which TM thinks should rise on the back of the Unifi take-up; (ii) falling voice revenue; and (iii) potential rise in manpower costs if minimum wage is introduced or the retirement age raised. ' CIMB Research, July 4

This article appeared in The Edge Financial Daily, July 5, 2011.

PetGas, NRG to provide O&M services for Kimanis plant

Stock Name: PETGAS
Company Name: PETRONAS GAS BHD

Research House: RHB

Price Call: BUY

Target Price: 14.47

Petronas Gas Bhd
(July 4, RM13.38)
Maintain outperform at RM13.26 with fair value of RM14.47: Petronas Gas Bhd (PetGas) announced last week that it had entered into a shareholders agreement with NRG Consortium (Sabah) Sdn Bhd to provide operation and maintenance (O&M) services for the 300MW gas-fired power plant in Kimanis, Sabah. NRG is a wholly-owned subsidiary of Innoprise Corp, which is wholly owned by Yayasan Sabah. PetGas will hold a 60% stake in the joint venture.

Recall, PetGas is already in a JV with Yayasan Sabah (with a similar stakeholding) to develop the Kimanis Power Plant. The power plant is expected to capitalise on the availability of the gas from the Sabah Sarawak Integrated Oil and Gas Projects (SSIOGP) which involve the development of offshore fields like the Gumusut/Kakap and Kebabangan. It is targeted to meet the growing demand for electricity in Sabah. We understand that the plant will only be completed by end-2013, and as such the O&M revenue will only impact PetGas later.

Risks to our view include: (i) worse-than-expected impact from lower gas volume processed; (ii) rising costs of operation, including plant maintenance, materials and manpower; and (iii) delays in start-up of the LNG regassification plant and the Kimanis power plant.

Our earnings estimates are maintained at this juncture as impact to financials will only be felt by end-2013.

We continue to like the stock as it will be the beneficiary of any gas-based endeavours by Petroliam Nasional Bhd. We believe such endeavours are likely to be extensive moving forward as the national oil company tries to diversify its reliance on oil in favour of gas. PetGas is already involved in the RM3 billion regassification plant (targeted for operation by FY12) which will receive LNG from external sources, and we believe it will be the front runner for any upcoming projects. Our fair value suggests a potential upside of 9.2%, including the dividend yield of 4.5%. This implies a total upside of 13.7% from the current share price. As such, we maintain our 'outperform' call on the stock and RM14.47 fair value based on discounted cash flow. ' RHB'' Research, July 4

This article appeared in The Edge Financial Daily, July 5, 2011.