July 15, 2011

SP Setia falls to March low, CLSA downgrades

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: CLSAPrice Call: SELLTarget Price: 4.30



KUALA LUMPUR: SP SETIA BHD []'s share price hit a low of RM3.84 in late afternoon trade on Friday, July 15, the lowest since early March as analysts downgraded it to underperform.

At 3.28pm, it was down 17 sen to RM3.84 with 2.34 million shares done. KLCCP slipped 10 sen to RM3.40.

The FBM KLCI fell 5.02 points to 1,574.82. Turnover was 431.83 million shares valued at RM756.03 million. There were 185 gainers, 422 losers and 315 stocks unchanged.

CLSA Asia-Pacific Research had downgraded SP Setia to Underperform from Outperform with a revised target price of RM4.30, based on a 10% discount to RNAV of RM4.80.'' It said this was in line with the discount applied to other property names under its coverage.

'Given that SP Setia is a pure property developer play, we believe that the 10% discount is justified from zero discount previously. We do not see any compelling reason for SP Setia to be valued at a premium compared to the rest of the property companies given that the visibility of the physical property market has been reduced by the mixed signals,' it said.

However, CLSA said it did not change its earnings estimates for FY11 and FY12 as these will continue to be supported by the strong unbilled sales recorded at RM1.8billion as at FY10, which had subsequently increased to RM3billion as at H111.

'For FY13 earnings estimates, we see potential downside risk if the mixed signals above tilted towards more negative outlook. Another potential headwind could be the change in government policy in tightening the lending requirement, which at this stage, still unclear as it remains at the proposal stage,' it said.

Buy 51% stake in Anewa

Stock Name: DIALOG
Company Name: DIALOG GROUP BHD
Research House: MIDFPrice Call: BUYTarget Price: 2.94



The relocation of AirAsia's operations in KK

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: MIDFPrice Call: HOLDTarget Price: 3.43



AirAsia remains a 'buy' at OSK Res

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: OSKPrice Call: BUYTarget Price: 3.89



OSK Research Sdn Bhd has maintained its "buy" call on AirAsia Bhd at a fair price of RM3.89 as it views the possible tie-up with All Nippon Airways (ANA) of Japan as positive.

In a research note today, OSK said an announcement of the joint venture (JV)to set up a low-cost carrier, likely to be called AirAsia Japan, was expected sometime next week.

"The JV's structure is uncertain but it may see both companies taking up equity stakes, with AirAsia being the airline's operator," it said.

OSK said although the management has yet to comment on the proposed JV, the likelihood of it materialising could be high since Japan's aviation market was increasingly being liberalised.

It said there was also a high chance of AirAsia being roped in into another JV, Peach Aviation, with a stake ownership.

"Peach Aviation, the country's first low-cost carrier, is expected to start operation in March next year. It is a partnership between ANA, Hong Kong's First Eastern Investment Group and Innovative Network Corp of Japan," it said.

Meanwhile, MIDF Research said the relocation of AirAsia's operations in Kota Kinabalu International Airport, from current Terminal 2 to Terminal 1, was expected to increase its operational costs.

In a note today, MIDF said it would, however, not lead to a reduction in the number of flights and one million passengers annually as highlighted in the media.

"The move is win-win to all parties as it will not only help AirAsia improve efficiency in operations, but will also result in better customer satisfaction and boost passenger traffic due to better connectivity," it said.

MIDF has reiterated a 'neutral' call on the stock with a target price of RM3.43.

On Bursa Malaysia, AirAsia fell five sen to RM3.50 at 11.50am. -- Bernama

ECM Libra Research expects Tenaga 3Q results to be weak

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: ECMLIBRAPrice Call: BUYTarget Price: 7.84



KUALA LUMPUR: ECM Libra Research expects TENAGA NASIONAL BHD [] (TNB) to report weak results for its 3QFY11 results. The results are due on July 21.

'We expect the results to be weak, as the company had earlier issued a profit warning during the 2QFY11 results conference call.

'Weak results will mainly be attributed to gas shortages leading to TNB burning more alternative fuels such as coal, oil, distillate and even resorting to importing electricity from Power Seraya, Singapore,' it said.

ECM Libra Research said unfortunately, this gas shortage problem coincided with seasonally strong demand in April and May, which further adds to TNB's fuel costs, as it burns more alternative fuel to meet the strong seasonal demand.

'Over a 12-months horizon, we are still positive on TNB's fundamentals. Hence, any short-term price weakness arising from the weak 3QFY11 results will be a good opportunity to accumulate,' it said.

It said the gas curtailment problem should be over, after the last of three scheduled maintenance work by Petronas is completed by end-June. From July onwards, it will be business as usual for TNB as gas supply to the power sector should recover to the usual 1,150 mmscfd.

The government has set-up a new special-purpose unit called MyPower Corp to review the power purchase agreements (PPAs) between TNB and the IPPs.

'We view the setting up of this special-purpose unit positively, as it signals that the IPP re-negotiation is gaining momentum.

Investment merits are:

A big-cap, index-linked stock trading at a discount to market P/E multiple.

Beneficiary of improving regulatory environment for the power sector.

Re-rating catalysts:

Successful pass-through of higher coal costs in the next tariff review in Dec 2011.

Favourable outcome from power purchase agreements re-negotiation with the independent power producers (IPP) leading to lower future capacity payments (CP).

Key risks:


Continued appreciation in coal prices resulting in higher fuel costs. TNB's current tariffs are only covered up to USD85/MT, compared to market price of about US$120 a tonne.

Longer-than-expected gas curtailment from Petronas.

Valuation:

Maintain BUY on TNB with a target price of RM7.84, based on unchanged P/E multiple of 15x on CY11 EPS.

CIMB Research ups Maybank TP to RM11.20

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD
Research House: CIMBPrice Call: BUYTarget Price: 11.20



KUALA LUMPUR: CIMB Research has replaced RHB Capital with Maybank as its top pick for the sector as its well-diversified business portfolio makes it the biggest bank beneficiary of the implementation of Economic Transformation Programme (ETP).

It said on Friday, July 15 that the ETP spillovers will drive its investment banking income, consumer and business loan growth as well as the growth of its insurance and asset management businesses.

'We retain our earnings forecasts but raise our target price from RM10.30 to RM11.20 (10% above the DDM value) as we increase the assumed dividend growth rate from 7.7% to 8.7% to reflect ETP prospects.

'Our BUY rating is reaffirmed, premised on the potential re-rating catalysts of (1) ETP catalysts, (2) swift expansion in Indonesia, (3) faster-than-expected loan growth, and (4) the pick-up in investment banking income. The stock also commands the best dividend yield of about 7%,' it said.

July 14, 2011

Unisem still seeing weak demand

Stock Name: UNISEM
Company Name: UNISEM (M) BHD
Research House: UOBPrice Call: SELLTarget Price: 0.99



Unisem (M) Bhd
(July 14, RM1.57)
Maintain sell at RM1.56 with target price 99 sen: Unisem's upcoming 2Q11 is likely to be impacted by the prolonged weakness in demand. The company had guided a 5% to 6% sequential growth in top line in 2Q11. Even if Unisem manages to meet its internal targets, revenue for 1H11 will still be at least 12% lower than a year before.

The minor recovery in sales could have been faster and more immediate if not for the weakening US dollar in 2Q11, which has fallen by 1% quarter-on-quarter.
Higher cost of outsourcing in US dollars will reduce the attractiveness of outsourcing from Unisem's foreign Integrated Device Manufacturers (IDM) clients.

Order visibility is weak as customers pull back their orders. Orders are based on global economic outlook and consumer sentiments, where there is still a lot of pessimism. Unisem's customers are currently adopting a wait-and-see approach before committing to any further orders.

Unisem could currently be running at below 70% utilisation, showing no marked improvement from 1Q11's near break-even levels of 65%.

The Chengdu operation has been affected by the Chinese government's attempts to cool down the economy. The energy rationing policies imposed by the Chinese government didn't affect its plant operations but Unisem Chengdu is not doing as well as expected. The clampdown on China-made handsets by the authorities has affected chip sales. Consumer electronics chips account for more than 30% of Unisem's product.

Capital expenditure has been put on hold for now due to the sedate recovery in demand. We expect Unisem to spend around RM100 million on equipment, down from 2010's heavy investment in new equipment of RM260 million.

We keep our earnings forecasts unchanged. We forecast that Unisem's earnings will contract by 54% year-on-year (y-o-y)'' for 2011, before recovering in 2012.
Our estimates are 18% below consensus, and there could be more downside if the recovery in demand is slower than expected.

Margins will remain thin, and on the net level will be in the single-digits for 2011/12. The rest of 2011 will remain challenging for Unisem.

Maintain 'sell' with a target price of 99 sen based on eight times FY11 price-earnings ratio. Unisem is currently trading at 12.7 times FY11 PER, significantly higher than its historical PER of eight times.

Semiconductor revenue saw a y-o-y decline for the first time in April and May, since the global financial crisis. Growth rates for chip sales are forecast to moderate to low single-digits in 2011.

Lower capital spending could be a sign that the industry is expecting a slowdown. Book-to-bill ratio for semiconductor equipment spending has fallen below its historical long-term mean parity levels.

The aggregate inventory level taken from a sample of the Philadelphia Semiconductor Index component members is increasing faster than sales growth.

Disruption risk from the Japanese earthquake and its impact could potentially surface in 2Q11 or 3Q11 results with a lag impact. This will weigh down the already poor performance in 1Q11. Semiconductor packaging companies have a short turnaround time, hence profitability could be severely affected if the turnaround time is lengthened. ' UOBKayHian, July 14


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

Public Bank's underlying earnings momentum intact

Stock Name: PBBANK
Company Name: PUBLIC BANK BHD
Research House: AFFINPrice Call: BUYTarget Price: 15.00



Public Bank Bhd
(July 14, RM13.40)
Maintain add at RM13.32 with revised target price of RM15 (from RM14.35): Public Bank's 2QFY11 results are expected to be released next week, with earnings to be in line with consensus' and Affin's full-year net profit estimate of RM3.4 billion. Management remains optimistic on achieving 13.5% growth rate on group loans and a 13% to 13.5% group deposit growth for FY11. Dividends for FY11 will be based on a payout ratio of between 50% and 55% while asset quality has continued to improve, with gross impaired loans ratio dipping below 1% for the group on the back of lower individual allowances. Credit charge-off rate for FY11 is expected to decline to around 30 basis points (bps).

Recent amendments to the Hire Purchase Act 1967 resulted in a slowdown in car sales in the past month. Nonetheless, based on Public Bank's management feedback (the bank has the largest industry share at 25.6% as at 1QFY11), the industry has been gradually recovering in the last one or two weeks. A total industry volume growth rate of 14% to 15% year-on-year is likely achievable. In our view, the situation should remain under control and will not affect Public Bank's hire purchase financing (HPs) growth given a revival in loan applications/approvals. Based on the assumption that HPs growth for FY11 to FY13 slows down to half of our projections, FY11 to FY13 net profits are expected to be impacted by 2.6% to 7.3%.

Management shared the view that interest rates are still on an uptrend, despite the impact on the consumer debt-servicing burden as Bank Negara Malaysia targets to curb speculative investments and irrational price competition. Coupled with another 1% hike in the Statutory Reserve Requirement (SRR) to 4% effective tomorrow, this will erode another 3.5bps off Public Bank's net interest margins which stood at 2.6% in 1HFY11. Nonetheless with another potential hike in the overnight policy rate by September, this should help mitigate the squeeze in margins.

We maintain our 'add' rating and raise our target price to RM15 from RM14.35, as we roll forward our valuation to FY12. This equates to three times price-to-book value based on FY12 return on equity of 22.9% (FY11 ROE of 24.1%), 5% growth rate (unchanged) and a cost of equity of 10.8% (unchanged). We still like Public Bank for its superior asset quality, good earnings visibility, established franchise, deep market penetration and strong leadership in the consumer loan market segment and unit trust business. ' Affin IB Research, July 14


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

Mudajaya still top sector pick for OSK

Stock Name: MUDAJYA
Company Name: MUDAJAYA GROUP BHD
Research House: OSKPrice Call: BUYTarget Price: 5.48



The appointment of Datuk Yusli Mohamed Yusoff as an independent, non-executive director should reinforce Mudajaya Bhd's credibility and assure investors that there are no suspicious dealings going on in the company.

OSK Research, in a note today, said it viewed the appointment positively.

It said Mudajaya's share price has been unjustifiably punished since the "poison pen" saga in July last year, despite the issue being resolved with no charges being pressed.

OSK said Mudajaya remained its top sector pick, with a strong possibility of an upwards earnings revision.

It maintained its 'buy' call on the stock with a fair value of RM5.48. -- Bernama

OSK positive of Tasco's international business

Stock Name: TASCO
Company Name: TASCO BERHAD
Research House: OSKPrice Call: BUYTarget Price: 1.93



OSK Research, positive of Tasco Bhd's international business, is expected to see high volume growth hence giving the management greater bargaining power on rates, vis-'-vis, shipping lines and airlines.

Tasco, a leading third party logistics provider, was optimistic its trucking and auto completely built-up division will perform well supported by the robust domestic economy and strong demand for the Honda Insight, it said in a research note today.

"Although fuel price has escalated, TASCO has been able to transfer the higher cost to its customers within three months as it can adjust its fuel cost under the Association of Malaysian Hauler's Fuel Adjustment Sector Formula," it added.

The research house maintained a "buy" call on TASCO with an unchanged fair value of RM1.93 based on seven times the financial year 2011 earnings per share. -- BERNAMA

Padini rated a 'buy', stock jumps

Stock Name: PADINI
Company Name: PADINI HOLDINGS BHD
Research House: MAYBANKPrice Call: BUYTarget Price: 1.30



Padini Holdings Bhd, a Malaysian garment market and retailer, rose 1.9 per cent in Kuala Lumpur trading after being rated a new "buy" at Maybank Investment Bank Bhd with a share estimate of RM1.30.

The stock climbed to RM1.07, set for its highest close since July 8. -- Bloomberg

July 13, 2011

HwangDBS keeps 'buy' call on Alliance

Stock Name: AFG
Company Name: ALLIANCE FINANCIAL GROUP BHD
Research House: HWANGDBSPrice Call: BUYTarget Price: 4.30



HwangDBS Vickers Research has maintained its "buy" recommendation on Alliance Financial Group (AFG) but raised the target price to RM4.30 from RM3.85.

"We like AFG for its scaleable domestic franchise and non-interest income traction which will boost sustainable earnings and ultimately return on equity," the research house said in its Company Focus today.

HwangDBS said AFG was the cheapest stock in its bank universe, currently trading at 1.6 times book value compared to the sector average of 2.3 times.

The RM4.30 target price implies 1.8 times book value for the 2012 calendar year.

"Its attractive valuation, coupled with strong earnings visibility going forward, makes AFG stand out as a gem in the next round of bank consolidation," it said. -- Bernama

ECM keeps 'buy' call on CapitaMalls



ECM Libra Capital Sdn Bhd has maintained a 'buy' call on CapitaMalls Malaysia Trust with unchanged target price of RM1.50.

In a research note today, ECM Libra said CapitaMalls'' six-month financial year 2011 distributable income of RM55.8 million was within expectations.

"It achieved 47 per cent and 49 per cent of house and consensul full-year estimates respectively," it said.

It said a distribution per unit of 2.16 sen was declared for the period from March 25 to June 30, 2011, bringing year-to-date total to 3.90 sen.

ECM Libra said the management was on track to achieve the financial year 2011''s forecast of 7.46 sen. -- Bernama

SILK: Boost to the oil and gas division

Stock Name: SILKHLD
Company Name: SILK HOLDINGS BERHAD
Research House: MIDFPrice Call: BUYTarget Price: 0.46



SILK Holdings Bhd
(July 12, 29.5 sen)
Maintain buy at 26.5 sen with target price 46 sen: According to The Edge Financial Daily, on July 12 SILK secured four'' long-term deals worth RM39.75 million from Petronas Carigali Sdn Bhd to provide four anchor handling tug supply vessels (AHTSV), commencing July 2011, with options to extend for a further one year each. Year-to-date, SILK has secured a total'' of'' RM63.75 million (RM24 million + RM39.75 million) in contracts for its AHTSV business, to be realised in FY12 ending July 31.

We remain buoyant on SILK's oil and gas division as we think the high oil price and the recent announcement of Petroliam Nasional Bhd raising its capex to RM300 billion over the next five years, signify more oil exploration and production which will in turn favour SILK, as more than 70% of its group revenue was contributed by the O&G business. Furthermore, our house view of a positive sentiment within the O&G sector highlights its potential.

We are raising our earnings projection for FY12 by 13% to factor in the RM39.75 million contracts from Petronas Carigali.

We retain 'buy' with an unchanged target price of 46 sen, as we foresee depreciation and amortisation paring down in'' FY12, bringing the figures back to the black. We continue to like SILK for its steady earnings base and the bright prospects from the local O&G sector. Our valuation is based on sum-of-parts; with a discounted cash flow valuation for'' the highway subsidiary, using a weighted average cost of capital of'' 5.89% and at 8.1 times price earnings ratio of our'' projected FY12 earnings per share on the O&G subsidiary. ' MIDF Research, July 12


This article appeared in The Edge Financial Daily, July 13, 2011.

MBSB in a different league now

Stock Name: MBSB
Company Name: MALAYSIA BUILDING SOCIETY BHD
Research House: OSKPrice Call: BUYTarget Price: 2.35



Malaysia Building Society Bhd
(July 13, RM1.39)
Initiating overage at RM1.38 with buy rating and fair value of RM2.35: As an exempt finance company, MBSB is allowed to undertake the financing business in the absence of a banking licence. Under the leadership of CEO Datuk Ahmad Zaini Othman, the company has since 2009 undertaken major reform. From being a traditional mortgage lender, MBSB has moved to a more dynamic platform offering more products, including retail and corporate loans.

The company has carved a niche in the provision of personal financing to civil servants. It can make direct salary deductions, having obtained the code from Angkatan Koperasi Kebangsaan Malaysia (Angkasa) in 2005. The total loans portfolio in this niche segment has grown in prominence, surging from 1% of MBSB's entire loan base in FY05 to 27.5% in FY10, while its personal loan base has more than quadrupled, from RM92.2 million to RM4 billion, in just five years.

Currently, MBSB has extended RM90 million in personal loans to civil servants through Angkasa, compared with an estimated total market worth RM143 billion, a gap which indicates a potential market of RM53 billion. We see huge potential for MBSB in leveraging the growth in personal financing for civil servants.

Its high impaired loans ratio due to legacy accounts originated from bridging and revolving loans extended to property development projects during the 1997 Asian financial crisis has been trending lower in the past few years. On a brighter note, these loans are collateralised by properties with an estimated market value of RM8.2 billion, which is adequate to cover the RM4.9 billion in gross impaired loans in FY10. Furthermore, MBSB has fulfilled the minimum risk-weighted capital ratio (RWCR) of 7% and achieved the internal target of 7% for core capital ratio (CCR), the minimum required under Basel III. Thus, the company's improved asset quality and capital buffer will firmly anchor its future growth.

We initiate coverage on MBSB with a 'buy' call and a fair value of RM2.35. Our valuation is based on a 2.6 times FY11 book value of 90 sen, by applying a 4% growth rate, cost of equity of 11% and return on equity of 22.8%. With earnings on the uptrend, strong growth in personal loans to civil servants and better risk management, we are confident that MBSB will be able to scale new heights. ' OSK Research, July 13


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

Rubber gloves not going anywhere yet

Stock Name: HARTA
Company Name: HARTALEGA HOLDINGS BHD
Research House: MAYBANKPrice Call: BUYTarget Price: 6.80



Rubber gloves
Maintain neutral: The cost of latex has come down while nitrile has risen. But we retain our preference for nitrile glovemakers premised on our view that latex cost remains on a long-term rising trajectory due to the inflexible production, in light of rising demand from the growing auto industry. We downgrade Top Glove Corp Bhd to 'sell' (from 'hold'), with a lower discounted cash flow-derived target price (TP) of RM4.40 (from RM5.10). We maintain our 'buy' calls on Hartalega Sdn Bhd (TP RM6.80) and Kossan Rubber Industries Bhd (RM3.60).

The average selling price (ASP) disparity between latex and nitrile gloves has narrowed substantially. Current glove quotations still favour nitrile gloves with the ASP about 10% lower than powder free latex gloves and on par with to slightly higher than powdered latex gloves.

The ASP gap was 20% to 30% in 1Q11, favouring nitrile over latex powder free gloves. We believe the ASP gap will widen again in 4Q11 on seasonally higher latex cost and lower nitrile cost (in tandem with the falling crude oil price).

We see downside risk on consensus estimates for Top Glove's FY12/FY13 earnings, which imply a 46% year-on-year growth in FY12 and 15% growth in FY13. Brokers' earnings expectations in FY12/FY13 are banked on a sharp pick-up in sales volume (15% to 20%), at levels above the Influenza A H1N1 period and also above the 8% to 10% global glove demand growth. We cut our earnings estimates for Top Glove'' by 14% after lowering our sales volume assumption by between 4% and 5%.

Hartalega could see its near-term margins crimped by the higher nitrile cost year to-date and upcoming 1QFY12 results may see a quarter-on-quarter dip. Nevertheless, this is within our expectation as we impute for lower margins in FY12 to FY14 (-3.5 to 4.5 basis points). We continue to like Hartalega for its superior margins and return on equity, which enable the company to defend its market share, especially in a higher cost and overcapacity environment.

We are lukewarm on the sector as there are no fresh catalysts. The falling latex cost theme is fully played out with Top Glove's recent share price performance (+5% in one week) and forward price-earnings ratio valuation of 20 times.

Hartalega remains our top pick but we think'' share price momentum will be slow as the market takes note of the rising nitrile cost. The lull provides a good opportunity to accumulate the stock. ' Maybank IB Research, July 13


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

Rubber gloves not going anywhere yet

Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD
Research House: MAYBANKPrice Call: SELLTarget Price: 4.40



Rubber gloves
Maintain neutral: The cost of latex has come down while nitrile has risen. But we retain our preference for nitrile glovemakers premised on our view that latex cost remains on a long-term rising trajectory due to the inflexible production, in light of rising demand from the growing auto industry. We downgrade Top Glove Corp Bhd to 'sell' (from 'hold'), with a lower discounted cash flow-derived target price (TP) of RM4.40 (from RM5.10). We maintain our 'buy' calls on Hartalega Sdn Bhd (TP RM6.80) and Kossan Rubber Industries Bhd (RM3.60).

The average selling price (ASP) disparity between latex and nitrile gloves has narrowed substantially. Current glove quotations still favour nitrile gloves with the ASP about 10% lower than powder free latex gloves and on par with to slightly higher than powdered latex gloves.

The ASP gap was 20% to 30% in 1Q11, favouring nitrile over latex powder free gloves. We believe the ASP gap will widen again in 4Q11 on seasonally higher latex cost and lower nitrile cost (in tandem with the falling crude oil price).

We see downside risk on consensus estimates for Top Glove's FY12/FY13 earnings, which imply a 46% year-on-year growth in FY12 and 15% growth in FY13. Brokers' earnings expectations in FY12/FY13 are banked on a sharp pick-up in sales volume (15% to 20%), at levels above the Influenza A H1N1 period and also above the 8% to 10% global glove demand growth. We cut our earnings estimates for Top Glove'' by 14% after lowering our sales volume assumption by between 4% and 5%.

Hartalega could see its near-term margins crimped by the higher nitrile cost year to-date and upcoming 1QFY12 results may see a quarter-on-quarter dip. Nevertheless, this is within our expectation as we impute for lower margins in FY12 to FY14 (-3.5 to 4.5 basis points). We continue to like Hartalega for its superior margins and return on equity, which enable the company to defend its market share, especially in a higher cost and overcapacity environment.

We are lukewarm on the sector as there are no fresh catalysts. The falling latex cost theme is fully played out with Top Glove's recent share price performance (+5% in one week) and forward price-earnings ratio valuation of 20 times.

Hartalega remains our top pick but we think'' share price momentum will be slow as the market takes note of the rising nitrile cost. The lull provides a good opportunity to accumulate the stock. ' Maybank IB Research, July 13


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

DiGi 2Q dampened by depreciation

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: CIMBPrice Call: BUYTarget Price: 34.00



DiGi.Com Bhd
(July 13, RM30)
Maintain outperform at RM29.50 with target price of RM34: We estimate that DiGi's 2Q11 core net profit fell 21% year-on-year (y-o-y) and 6% quarter-on-quarter (q-o-q) to around RM260 million to RM265 million on the back of higher depreciation as the telco began to accelerate the depreciation of its equipment.

We assume that it increased depreciation by RM100 million in 2Q11, given its guidance of RM400 million to RM450 million acceleration in FY11, followed by RM500 million to RM550 million in FY12 and less than RM100 million in FY13 as it switches its network to a multi-technology (2G/3G/4G) single RAN system. DiGi is scheduled to announce its 2Q results on July 20.

In our view, 2Q probably rose 1% to 2% q-o-q and 9% to 10% y-o-y, driven by non-voice revenues and subscriber growth. Voice revenue continued to decline on the back of further erosion of average revenue per minute (ARPM), and increasing substitution by data messaging.

During the quarter, DiGi launched 'Super Reload' which bundles RM75 worth of minutes, SMS and MMS in a RM15 reload voucher. We think that these features will further commoditise voice, SMS and MMS. That said, we expect DiGi to continue making headway in the Malay and rural user segments, which will mitigate the decline in voice revenues.

We think that earnings before interest, tax, depreciation and amortisation (Ebitda) margin was at least stable on a q-o-q basis at around 45%, thanks to DiGi's efficiency measures. Recall that Ebitda margin had risen by 1.1 percentage points q-o-q and 0.4 pps y-o-y in 1Q11.

We expect DiGi to maintain its dividend per share (DPS) of 53 sen, unchanged from 1Q11 and up 23% y-o-y despite the lower net profit arising from the higher depreciation. The company has said that it will maintain its absolute DPS in 2011 ' its payout will exceed 100% against its announcement earlier this year that the payout will be capped at 100%.

We maintain our 'outperform' and discounted cash flow-based target price of RM34 (weighted average cost of capital 11.6%). We like its high single-digit revenue growth, which is the highest among the telcos, and the steady rise in Ebitda margins.

As 75% of its revenue comes from prepaid users, DiGi will be a key beneficiary of the industry's plan to pass on the 6% sales tax to prepaid users on Sept 1. This is a likely catalyst and will help net profit surprise on the upside. Our FY12/FY13 core net profit estimates are 13% to 23% above consensus. ' CIMB Research, July 13


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

OldTown to open slightly higher

Stock Name: OLDTOWN
Company Name: OLDTOWN BERHAD
Research House: HWANGDBSPrice Call: BUYTarget Price: 1.50



KUALA LUMPUR: Cafe chain operator and coffee beverage manufacturer OldTown Bhd is expected to open slightly higher on Wednesday, July 13 amid the overall cautious market sentiment.

Stock market data showed there were buy orders at RM1.30, which was just five sen above its offer price of RM1.25, in pre-opening trade.

Some 63.4 million new shares were issued, of which 10 million were allocated for the public. This portion was oversubscribed by 10.8 times.

Hwang DBS Vickers Research fair value was RM1.50 based on FY12 price-to-earnings of 12 times.

Malaysia Building a 'buy', stock jumps

Stock Name: MBSB
Company Name: MALAYSIA BUILDING SOCIETY BHD
Research House: OSKPrice Call: BUYTarget Price: 2.35



Malaysia Building Society Bhd rose for the first time in four trading sessions in Kuala Lumpur after OSK Research Sdn Bhd newly rated the stock as a "buy" with a fair value of RM2.35.

Its shares climbed 2.2 per cent to RM1.41 at 9:16 a.m. local time, set for their biggest gain since July 7. -- Bloomberg

Malaysia Marine cut to 'neutral' at OSK

Stock Name: MHB
Company Name: MALAYSIA MARINE AND HEAVY ENG
Research House: OSKPrice Call: HOLDTarget Price: 8.23



Malaysia Marine and Heavy Engineering Bhd, the rig builder of MISC Bhd, was cut to "neutral" from "buy" at OSK Research Sdn Bhd, which cited the stock's "rich" valuation relative to its peers. -- Bloomberg

2QFY11: Within expectations

Stock Name: CMMT
Company Name: CAPITAMALLS MALAYSIA TRUST
Research House: ECMLIBRAPrice Call: BUYTarget Price: 1.50



July 12, 2011

Better outlook for Ajiya, but for 2H

Stock Name: AJIYA
Company Name: AJIYA BHD
Research House: OSKPrice Call: BUYTarget Price: 2.17



Ajiya Bhd
(July 11, RM1.76)
Maintain buy at RM1.76 with revised target price of RM2.17 (from RM2.25): During our recent visit, Ajiya's management appeared confident that the Economic Transformation Programme (ETP) may have positive spillover effects on the building materials sector. It thinks that the Greater Kuala Lumpur National Key Economic Area (NKEAs) will be a big boost for the sector while key projects such as Kuala Lumpur International Financial District (KLIFD) and mass rapid transit system (MRT) may potentially lift demand for the company's products. However, the contribution from these projects is only expected from 2H or later in 2012 at the earliest.

The company is expanding its metal roll-forming and safety glass manufacturing operations in Senai (Johor), Shah Alam (Selangor), Bukit Minyak (Penang) and Sungai Petani (Kedah) as it prepares to increase its market share as the projects rolled out under ETP gain momentum. The company also plans to establish a plant in Thailand later in 2012.

After a weak 1QFY11, management said the slow start to the year was due to delays in implementation of projects which led to pallid sales volume, higher operating costs on escalating raw material costs and the fact that some customers had shifted to lower margin, cheaper products. While we suspect the company may encounter a similar situation in 2Q and we see almost flattish q-o-q numbers, we are more upbeat on its 2H posting better numbers. Our view is premised on the fact that its new plants are set to be commissioned in the next few months while demand may also pick up as the momentum of projects under the ETP gets going.

As we expect slower 1H results, our FY11 net profit assumption is lowered by 13.5% to RM20.7 million while we expect Ajiya's revenue to increase by a marginal 3.1% to RM340 million. Rolling forward our valuation parameter to the stock's FY12 earnings per share and tagging a price-earnings ratio of 6.6 times, we derive a fair value of RM2.17. We still think Ajiya is a 'buy' given the still sufficient upside to our fair value moving into FY12 as the industry outlook improves and its balance sheet remains robust. ' OSK Research, July 11


This article appeared in The Edge Financial Daily, July 12, 2011.

SILK up on Carigali contracts

Stock Name: SILKHLD
Company Name: SILK HOLDINGS BERHAD
Research House: MIDFPrice Call: BUYTarget Price: 0.46



KUALA LUMPUR: SILK Holdings Bhd shares rose on Tuesday, July 12 after it secured four long term contracts worth RM39.75 million from Petronas Carigali Sdn Bhd to provide four anchor handling tug supply vessels (AHTSV).

At 9.10am, SILK was up three sen to 29.5 sen with 927,600 shares traded.

Its subsidiary Jasa Merin (Malaysia) Sdn Bhd secured four long term contracts for the four AHTSV were for the primary period of one year, with various effective commencement dates in July and options to extend for a further period of one year each.

MIDF Research has maintained its Buy rating on SILK with an unchanged Target Price of 46 sen.

'Our valuation is based on sum-of-parts; with a DCF valuation for the highway subsidiary, using a WACC of 5.89% and at 8.1x PER of our projected EPS FYJuly12 on the O&G subsidiary,' it said.

Kencana, SapuraCrest rise on merger plan

Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Research House: OSKPrice Call: BUYTarget Price: 3.17



KUALA LUMPUR: KENCANA PETROLEUM BHD [] and SAPURACREST PETROLEUM BHD [] shares advanced in early trade on Tuesday, July 12as investors viewed the merger of the companies under Integral Key Sdn Bhd (IKSB), a special purpose vehicle would put it on firmer footing to secure bigger downstream projects.

At 9.05am, Kencana rose 12 sen to RM2.92 with 2.35 million shares done while SapuraCrest added three sen to RM4.52 with 253,700 shares traded.

The merged entity would become one of the world's largest oil and gas service providers in terms of market capitalisation and assets.

On Monday, IKSB had made a RM11.85-billion offer to acquire all their assets and liabilities in a share swap.

OSK Research is maintaining a Buy on Kencana with an unchanged fair value of RM3.17 given the longer term potential following a merger with SapuraCrest Petroleum.

IKSB proposed to acquire Kencana's entire business and undertakings, including its assets and liabilities for RM5.98 billion or equivalent RM3 a share.

Concurrently, IKSB will also acquire the entire assets and liabilities of Sapura Crest Petroleum for an equivalent of RM4.60 per share.

'We view the merger between Kencana and SapCrest positively as we see both their businesses complementing one another despite minor duplication in their less important business segments,' OSK Research said.

''

July 11, 2011

'Buy' call on Ajiya stays: OSK Res



OSK Research is maintaining its "buy" recommendation on Ajiya Bhd but has lowered the stock's fair value to RM2.17 from RM2.25 previously.

In its Investment Research Daily today, OSK said slower demand, rising material cost and customers' shift to lower margin products might continue to dampen the company's first half earnings.

"Nonetheless, the company is making progress inexpanding its production line to capture opportunities in supplying building materials for Economic Transformation Programme (ETP) projects moving into the second half or later in 2012," it said.

Ajiya's principal activities are in the manufacture of steel and glass building material products. -- Bernama

Berjaya Corp update - A costly Cosway

Stock Name: BJCORP
Company Name: BERJAYA CORPORATION BHD
Research House: CIMBPrice Call: HOLDTarget Price: 1.42



Sabah and Labuan's turn to get tariff hike

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD
Research House: ECMLIBRAPrice Call: BUYTarget Price: 7.84



UOB Kay Hian FV for MRCB at RM3.02

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP
Research House: UOBPrice Call: BUYTarget Price: 3.02



KUALA LUMPUR:'' UOB Kay Hian Malaysia Research is maintaining a Buy on MALAYSIAN RESOURCES CORP [] Bhd (MRCB) at RM2.32 and has a fair value of RM3.02 as it expects MRCB to benefit from more redevelopment projects.

It said on Monday, July 11 MRCB's share price has crept up with volume last week, from RM2.21 to RM2.32.

'We continue to expect more positive newsflow in 2H11 for MRCB, particularly on the redevelopment of the Rubber Research Institute land in Sungai Buloh (GDV: RM10 billion), 'River of Life' project worth RM3 billion for phase 1 and also more sizeable land deals in Selangor, which will allow them to develop at least RM4 billion to RM5 billion of GDV in the future.

UOB Kay Hian Malaysia Research said if successful, the acquisition would lift its total GDV to a whopping RM12b. We maintain BUY with a RNAV-based share price of RM3.02.

Genting Malaysia surfing USA

Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD
Research House: MAYBANKPrice Call: HOLDTarget Price: 3.74



Genting Malaysia Bhd
(July 11, RM3.78)
Maintain hold at 3.86 with revised target price of RM3.74 (from RM3.67): Resorts World New York (RWNY) looks set to open in 4Q11 with average daily win per video lottery terminal (VLT) of US$400 (RM1,204). We believe Florida's gross gaming revenue (GGR) will rival the Las Vegas strip's if Florida's casino industry is liberalised, a major re-rating catalyst to Genting Malaysia Bhd. Valuations are fair for now but not short on other re-rating catalysts (for example table games at RWNY, revival of Genting Malaysia's JV to develop an integrated resort in Hoi An, Vietnam).

The VLT operator closest to New York City, Empire City Casino, is still recording year-on-year growth in average daily win per VLT of US$340 to US$350. RWNY, with its superior location, should be able to meet our average daily win per VLT assumption of US$400. An additional 475 VLTs are on the cards and lobbying is underway to introduce table games.

Our analyses reveal that Florida's GGR can more than double to US$5.3 billion to US$5.6 billion should the casino industry be liberalised. Assuming Genting Malaysia commands US$1 billion in GGR, we estimate that it will accrete +66% to earnings before interest, tax, depreciation and amortisation (Ebitda). Its decision to acquire the Miami Herald Media Co property to develop Resorts World Miami (RWM) is a masterstroke as it is located between the Port of Miami and Miami International Airport.

Resorts World Genting (RWG) operations are stabilising after marked VIP volume attrition y-o-y in 1Q11. The recently secured Solihull large casino licence to be developed into Resorts World at the National Exhibition Centre (RWNEC) at Birmingham, United Kingdom, is not expected to contribute materially to earnings. Genting Malaysia's 50:50 joint venture to develop an integrated resort in Hoi An, Vietnam is, we understand, being renegotiated and not aborted.

Our earnings estimates are relatively unchanged as we have not imputed the additional 475 VLTs at RWNY until approval has been secured and RWNEC will not commence contributions until 2014, beyond our investment horizon. Our discounted cash flow-based target price is tweaked to RM3.74. Maintain 'hold' but we will turn very positive should table games be introduced at RWNY and the Florida and Vietnamese casino industries be liberalised. ' Maybank IB Research, July 11


This article appeared in The Edge Financial Daily, July 12, 2011.

MISC: Bumi Armada IPO lifts valuations of MISC's offshore assets

Stock Name: MISC
Company Name: MISC BHD
Research House: RHBPrice Call: BUYTarget Price: 8.47



MISC Bhd
(July 11, RM7.79)
Upgrade to outperform at RM7.70 with revised fair value of RM8.47 (from RM7.26): We are upgrading our indicative fair value for MISC by 17% from RM7.26 to RM8.47, having raised our valuations for MISC's offshore assets comprising 10 floating production storage offloading (FPSO)/floating storage offloading (FSO) units and two mobile offshore production units (MOPUs) from 1.2 times book value to two times.

The upgrade in our valuations of MISC's offshore assets is inspired by the reportedly RM3.03 strike price arrived at for Bumi Armada Bhd shares by way of book-building pursuant to its IPO (The Star and Business Times dated July 9, 2011). Based on Bumi Armada's estimated post-IPO proforma book value of RM1.09 per share (as disclosed in the integrated offshore oil and gas player's IPO prospectus on page 20), the price-to-book valuation works out to be 2.8 times.

We still hold the view that MISC's offshore assets should be valued at a discount to Bumi Armada (the former's two times book value against the latter's 2.8 times) given that Bumi Armada offers more direct exposure to the offshore oil and gas sector while the exposure to MISC's offshore assets at present is through MISC, which is also engaged in the less lucrative shipping business. However, the discount should not be too excessive (to the extent of 1.2 times book value for MISC's offshore assets we assumed previously against Bumi Armada's 2.8 times).

We maintain our forecasts but the risks include a prolonged downturn in the shipping sector and higher-than-expected bunker cost.

The performance of MISC's petroleum, chemical and container liner segments will continue to be capped by the weak freight rates and volumes over the next one to two years. However, value has emerged with an imminent re-rating of the valuations of MISC's offshore assets on the heels of Bumi Armada's IPO.

Operationally, we also expect steady income stream in its LNG division and high growth at its offshore and engineering businesses. Indicative fair value is raised by 17% from RM7.26 to RM8.47 based on sum-of-parts. We upgrade to 'outperform' from 'underperform'. ' RHB Research, July 11


This article appeared in The Edge Financial Daily, July 12, 2011.

UEM Land standing on the shoulders of giants

Stock Name: UEMLAND
Company Name: UEM LAND HOLDINGS BHD
Research House: UOBPrice Call: BUYTarget Price: 3.44



UEM Land Holdings Bhd
(July 11, RM2.74)
Upgrade to buy at RM2.78 with revised target price of RM3.44 (from RM2.86): The recently announced Khazanah Nasional Bhd-Temasek Holdings joint venture (M+S Pte Ltd) to develop projects worth RM34 billion in Singapore and Malaysia should encourage more participation by Singapore property developers in Iskandar Malaysia. Most importantly, UEM Land stands to be the main beneficiary of this JV. The group will participate in the development in Marina South and Ophir-Rochor in Singapore.

We upgrade our target price from RM2.86 to RM3.44 (10% discount to realisable net asset value (RNAV) per share) as we have clearer visibility of its future earnings. Most importantly, we believe the JV between the two sovereign funds will positively impact Iskandar going forward, and UEM Land is the direct proxy and beneficiary of this event. Upgrade to 'buy'.

The estimated gross development value (GDV) of the development in Marina South (two blocks of office towers and residential towers each) of about RM27 billion, with a permitted gross floor area (GFA) of up to 3.7 million sq ft, indicates a floor selling price of RM6,000 psf or S$2,500 psf. UEM Land will work with Singapore's Mapletree Investments Pte Ltd to oversee the marketing and development of the project in Marina South.

We gather that UEM Land will also work with Singapore-based CapitaLand Ltd to oversee the Ophir-Rochor project. This project is estimated to have a GFA of 1.72 million sq ft and a potential GDV of RM7.4 billion, or S$2,000 psf. Construction is due to start in June 2012 and complete in mid-2016.

M+S, which is 60:40 owned by Khazanah and Temasek, will take charge of developing land parcels in Marina South and Ophir-Rochor in Singapore. Pulau Indah Ventures Sdn Bhd, which is a 50:50 joint venture between Khazanah and Temasek, will develop projects in Iskandar Malaysia in Johor.

Malaysia and Singapore announced the land swap deal in September 2010 and now it has materialised. UEM Land will be involved in marketing and developing both projects in Marina South and Ophir-Rochor. Moreover, we believe the incorporation of a Singapore subsidiary under Sunrise's brand could be a prelude to potential development contracts for these projects. Assuming UEM Land taking up 60% of both developments, our RNAV could potentially increase by 25 sen from RM3.57. Both the developments contribute about 44 sen to our estimated RNAV per share.

With UEM Land's huge landbank in Johor and Sunrise's strong capability in developing high quality products, the merged entity could enhance and expedite the development of Nusajaya township in Johor.

The commitment from the Singapore government to jointly develop the wellness township in Medini is a positive catalyst in attracting more investors to Iskandar. Hence, it reinstates our view on asset reflation and we expect narrower land premium between Iskandar and Singapore. Also, the terminating stations of the Rapid Transit System which have been identified to be in the vicinity of JB Sentral and Republic Polytechnic in Woodlands (target operation by 2018) would also serve as a catalyst to improve the property sentiment in Johor.

We raise our FY11 to FY13 net profit forecasts by 26%, 25% and 28% after factoring in the latest project status and unbilled sales from Sunrise. We are 6% and 4% higher than consensus for FY12 and FY13. We have not factored in both the Singapore developments as there will be no material impact on earnings for FY11/FY12. However, we do see earnings upside in the next five years from the project management.

The key risk to our forecasts is the timing and take-up rates of projects.

The share price should react on positive news flow from the JV and more details on UEM Land's participation in both the Marina South and Ophir- Rochor developments. ' UOBKayHIan, July 11


This article appeared in The Edge Financial Daily, July 12, 2011.

MISC upgraded at RHB

Stock Name: MISC
Company Name: MISC BHD
Research House: RHBPrice Call: BUYTarget Price: 8.47



MISC Bhd. was upgraded at RHB Research Institute Sdn Bhd to reflect higher valuations for the Malaysian shipping group's offshore vessels.

The stock was raised to "outperform" from "underperform" and its fair value increased to RM8.47 from RM7.26, Joshua CY Ng, an analyst at RHB, wrote in a report today.

Rival Bumi Armada Bhd's initial public offering has increased the valuations of MISC's offshore assets, he said. - Bloomberg





CIMB Research maintains UMW target price of RM8

Stock Name: UMW
Company Name: UMW HOLDINGS BHD
Research House: CIMBPrice Call: HOLDTarget Price: 8.00



KUALA LUMPUR: CIMB Equities Research said Perodua's dominance has weakened considerably over the past year due to waning demand for its models, especially its top seller Myvi, as buyers waited for the replacement model.

It said on Monday, July 11 this led to a disappointing 10% on-year decline in sales during the January-May period. Its market share has narrowed from 32% in January to May 2010 to only 28% in January to May 2011.

Having released the new Myvi 1.3l, Perodua should be in a better position to defend its turf. Despite the supply disruptions from Japan's earthquake and tsunami in March, Perodua is keeping its 2011 sales target at 195,000 units, in line with our projection. This implies moderate growth of 3%.

'We maintain our earnings forecasts, SOP-based target price of RM8.00 and NEUTRAL recommendation for UMW.

'While the earlier-than-expected launch of the new Myvi is good news, it is unclear if this car will help Perodua recover the market share that it has lost over the past year. We prefer Tan Chong (Outperform) for exposure to the auto industry,' it said.