August 19, 2011

Sweet quarter for MSM

Stock Name: MSM
Research House: MIDFPrice Call: HOLDTarget Price: 5.25

MSM Malaysia Holdings Bhd
(Aug 18, RM5.44)
Recommend neutral at RM5.46 with revised target price of RM5.25 (from RM4.20): MSM's 1HFY11 net profit of RM138.8 million slightly exceeded our and consensus expectations, accounting for 52.3% and 50.8% of the full-year forecast. No dividend was declared for the current quarter.

The marginal drop was due to lower sales volume for the domestic market despite higher average prices. We believe this is partly attributable to the second round removal of sugar subsidy (price increased to RM2.30 per kg in May) this year (the first round was in January, which saw the sugar price increase to RM2.10 from RM1.90 per kg). In 1H10, the price of sugar was much lower, at around RM1.65 per kg.

We are encouraged by the fact that revenue rose 11.9% quarter-on-quarter in 2QFY11 to RM562.9 million. The increase was mainly driven by higher local and export sales.

Earnings before interest and tax (Ebit) margin in 1HFY11 remained intact at 18% as cost kept pace with higher selling prices. Despite steady volume, net profit climbed to RM138.8 million (more than 100% year-on-year) against RM62.6 million in 1HFY10. This was due to a fair value gain in derivatives by RM30.3 million. In 1HFY10, there was a corresponding loss of RM62.8 million.

MSM does not meet our 'buy' definition at its current level. However, we have identified MSM as one of the stocks to hold if the economy experiences a downturn. For now, we are recommending a 'neutral' with a higher target price of RM5.25 per share from the previous RM4.20 per share. We are ascribing a higher FY12 earnings per share multiple of 12.5 times against the previous10 times at the same level as its regional peers' average. ' MIDF Research, Aug 18

This article appeared in The Edge Financial Daily, August 19, 2011.

MISC downgraded by research houses

Stock Name: MISC
Company Name: MISC BHD
Research House: KENANGAPrice Call: SELLTarget Price: 6.72

Stock Name: MISC
Company Name: MISC BHD
Research House: OSKPrice Call: SELLTarget Price: 6.93

Research houses do not expect MISC to stage a strong performance for its second half financial year due to the bleak outlook on the global economic front and the Euro debt crisis.

OSK Research said MISC's liner losses were expected to widen as demand from China eases on monetary tightening.

"Of late, demand has also shifted from sea to air, an indication that most container shipping companies have just missed the Christmas shipping season owing to the earlier global supply chain disruption following Japan's earthquake," OSK said.

OSK said MISC's first quarter earnings was below its estimates, representing 16 per cent and 15 per cent of the research house's and consensus full year forecasts respectively, although revenue was in line.

According to OSK, MISC's lower revenue and earnings were due to weaker contribution from its heavy engineering and continued losses from both its petroleum and liner divisions.

"Our net profit estimates are cut by 17.5 per cent and 12.6 per cent for financial year 2011 and financial year 2012," OSK said.

It also downgraded MISC to "sell" with its fair value revised down to RM6.93 from RM7.44.

Meanwhile, Kenanga Research said the earnings outlook of MISC's financial year 2011 remained unexciting in anticipation of flat earnings from the group's LNG Shipping. On the other hand, the group's Petroleum and Chemical Shipping is expected to face low charter rates and oversupply of vessel.

However, Kenanga said the earnings from its heavy engineering was likely to be sustainable as the RM952 million marine conversion contracts awarded in May 2011 would take them to complete in the second quarter of calendar year 2013.

Due to the disappointing first quarter results for financial year 2011, Kenanga has trimmed its financial year 2011 and financial year 2012 earnings per share estimates by 43 per cent and 22 per cent respectively on assumptions of a 20-30 per cent reduction in charter rates for Petroleum and Chemical Shipping.

"Post earnings revision, our new price target is now RM6.72. Hence we downgrade MISC to `underperform'," Kenanga added.--Bernama

Kenanga maintains 'buy' call on Kimlun Corp

Stock Name: KIMLUN
Research House: KENANGAPrice Call: BUYTarget Price: 2.66

Kenanga Research has maintained its "buy" recommendation on Kimlun Corporation with a higher target price of RM2.66
compared with RM2.16 previously.

In its Company Update today, the research house said Kimlun had secured a contract from Tanah Sutera Development Sdn Bhd to develop residential units in Mukim Pulai due to complete by August 2013.

"With this award, its current outstanding order-book is approximately RM1 billion," it said.

"It is also worth noting that Kimlun could potentially benefit from the Klang Valley MY Rapid Transit (KVMRT) tunneling portion," it added.

Kenanga Research said the management of Kimlun was actively looking for a piece of land in the Klang Valley for its manufacturing base, highlighting its confidence in the KVMRT project.

This strategy was also largely aimed at addressing the higher mobilisation cost issue should Kimlun win the project as the utilisation of its Johor plant was currently dedicated for its projects in Singapore and Johor.

"We like Kimlun for its IBS exposure and its niche position in the construction sector where it stands a higher chance to win the KVMRT project (tunnel lining segment)," Kenanga Research said. -- Bernama

Hong Leong Bank still a 'buy': HwangDBS

Stock Name: HLBANK
Research House: HWANGDBSPrice Call: BUYTarget Price: 15.00

HwangDBS Vickers Research Sdn Bhd has maintained its 'buy' call on Hong Leong Bank (HLB) with a target price of RM15 due to regionalisation efforts and synergies from merger and acquisition.

The research house said despite the rising share price since April, HLB still carried a solid franchise that justified higher valuations.

"With a stronger balance sheet and greater financial muscle, it can also expand internally to meet its regional aspirations," HwangDBS said in its research note here today.

HwangDBS expected HLB's coming fourth quarter financial year 2011 to report between RM380 million and RM400 million in net profit (including contribution from EON Capital).

"We expect the merged entity to see higher net interest margin from higher yielding loans, and larger presence and market shares in hire purchase and small and medium enterprise businesses," it said.

As at 3.55pm, HLB shares were traded unchanged at RM12.84. -- Bernama

AirAsia's 1H earnings to hit RM442m

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: MIDFPrice Call: BUYTarget Price: 4.60

AirAsia Bhd's earnings for the first half of this year is expected jump by 4.6 per cent to RM442.3 million as compared to a year ago, on the back of a commendable year-to-date operating statistics.

The airline, which is expected to announce its second quarter results next week, saw its available seat kilometres (ASK) for the first half of 2011 grow by 7.9 per cent year-on-year (yoy) to 12.810 billion.

The revenue passenger kilometres (RPK) increased by 23.2 per cent yoy to 10.358 billion.

"For the second quarter, we expect earnings to hit RM270.4 million, a 35.9 per cent yoy jump," said MIDF Research in its report today.

The number of passengers carried in the second quarter rose by 14.9 per cent yoy to 4.5 million while the seat load factor improved by four percentage points to 81 per cent with an 9.1 per cent yoy increase in seat capacity to 5.5 million.

"Also, we expect that AirAsia will perform well in the second half of 2011, as evident from the continuing good performance highlighted by its July operating statistics," said the research house.

Although high fuel costs could shrink AirAsia's bottomline, the move to reimpose the fuel surcharge since February would help it to cushion some the impact.

"While we expect global economic conditions to remain uncertain, we believe that AirAsia will weather the storm due to its position as a low cost carrier," MIDF Research said.

MIDF has made a trading "buy" recommendation with a target price of RM4.60.

At 11.55 am, AirAsia was down eight sen to RM3.64. -- BERNAMA

CIMB Research maintains MISC as Underperform

Stock Name: MISC
Company Name: MISC BHD
Research House: CIMBPrice Call: SELLTarget Price: 5.75

KUALA LUMPUR: CIMB Equities Research is maintaining its Underperform rating on MISC BHD [] with several potential derating catalysts ahead.

The research house said on Friday, Aug 19 that MISC's 1Q11 core net profit came in at only 12.5% of its full-year forecast and 14.6% of consensus, which was probably due to the usual suspects - tanker and liner losses - and an unusual suspect, heavy engineering.

'We are maintaining our earnings forecasts and target price of RM5.75 (1.2x P/BV) pending today's briefing but flag that we may cut earnings by 30-50% for FY11 and 10-20% for FY12-13,' it said.

CIMB Research said as expected, no dividends were declared for 1Q11, which is the quarter ending June 11 due to a change in the fiscal year-end from March to December.

'We continue to rate MISC an UNDERPERFORM, with the potential de-rating catalysts being (1) these poor results, (2) weak near-term prospects for petroleum and chemical tanker freight rates, and (3) swelling liner losses. We recommend a switch into the aviation sector instead,' it said.

CIMB Research downgrades Tenaga to Neutral

Stock Name: TENAGA
Research House: CIMBPrice Call: HOLDTarget Price: 6.77

KUALA LUMPUR: CIMB Equities Research has downgraded TENAGA NASIONAL BHD [] from Trading Buy to Neutral and reduced the target price from RM7.60 to RM6.77.

The research house said on Friday, Aug 19 that Tenaga's comment that gas supply has not recovered was a negative surprise as it had said during its 3QFY8/11 results that supply would recover.

'After speaking with management, we cut FY11-12 core net profit by 13%-15% and FY11-12 DPS by 12%-13% as we were too optimistic even after slashing our numbers after the 3Q results.

'Our target falls from RM7.60 to RM6.77 due to lower earnings and the lowering of our target P/BV from 1.4x to 1.25x as we apply a higher risk premium,' it said.

CIMB Research said it downgraded Tenaga from Trading Buy to NEUTRAL. Although valuations are attractive and gas supply should eventually recover, this is offset by the lack of a robust cost pass-through mechanism.

'While cost sharing with Petronas is possible, there is no definite timeline. We recommend a switch to Petronas Gas,' it said.

CIMB Research maintains Outperform on Tomypak

Stock Name: TOMYPAK
Research House: CIMBPrice Call: BUYTarget Price: 1.52

KUALA LUMPUR: CIMB Equities Research said Tomyopak's failure to pass through cost increases was the main reason for its poor interims.

The research house said on Friday, Aug 19 that annualised 1H11 net profit was only 62% of its forecast though this did not stop the company from meeting its 1.4 sen interim DPS expectations.

'Although we foresee a strong earnings recovery in 2H following the recent steep fall in raw material prices, we are slashing our FY11 EPS by 21% for the weak 1H earnings. But FY12-13 EPS forecasts and FY11-13 DPS numbers are intact,' it said.

CIMB Research retained its RM1.52 target price as it continues to value Tomypak at 6x CY12 P/E, a 40% discount to its 10.1x CY12 target P/E for Daibochi. CY12 P/E is only 4x while gross dividend yields are 8-10%.

'We maintain our OUTPERFORM rating as a continuation of the raw material price decline could spark a re-rating,' it said.

Nestle up on interim dividend

Stock Name: NESTLE
Company Name: NESTLE (M) BHD
Research House: MIDFPrice Call: BUYTarget Price: 46.90

KUALA LUMPUR: Nestle (Malaysia) Bhd shares rose on Friday, Aug 19 after the company declared an interim dividend of 55 sen per share, tax exempt under single-tier tax system.

At 9.30am, Nestle added 10 sen to RM48.

The company said on Aug 18 that its net profit for the second quarter ended June 30, 2011 rose 6.4% to RM106.55 million from RM100.15 million a year earlier, driven by both domestic and export sales.

Revenue for the quarter rose to RM1.16 billion from RM1.05 billion in 2010. Earnings per share was 45.44 sen while net assets per share was RM2.58.

MIDF Research maintained its Neutral rating on Nestle, and said that based on the estimated dividend per share of RM2.05 in FY12 with WACC and a slight lower growth rate assumption of 7.6% and 3.2% (from 3.3% given uncertainty in global economy) respectively, its target price was maintained at RM46.90 per share.

'However, we expect Nestle to outperform during troubled times and we view it as attractive given its high dividend yield of 4.7%.

'We like Nestle for its defensive business and strong brand name,' it said in a note Aug 19.


August 18, 2011

Catcha: Catch this while you can

Stock Name: CATCHA
Research House: OSKPrice Call: BUYTarget Price: 1.21

Catcha Media Bhd
(Aug 18, 81 sen)
Initiating coverage at 84 sen with buy call and fair value of RM1.21: Given our 'overweight' stance on the media sector on the belief the sector will still flourish in 2H11 despite the global turmoil, we like Catcha Media's direct exposure to the industry. According to AC Nielsen, Malaysia's 1H11 advertising expenditure surged 11.6% year-on-year to RM3.9 billion. Spurred by factors such as an impending general election and the upcoming major festive celebrations, we reiterate our view that the media sector as a whole will continue to prosper in 2H11 to close the year at two to three times our revised 2011 GDP forecast of 5.1%. Hence, we believe Catcha Media will directly benefit from sturdy advertising spending and see this as an opportune time to get exposure in the Internet media segment.

The development of the online media industry relies heavily on the growth of the average Internet speed provided by local Internet service providers. With the introduction of fibre-optic broadband services in Malaysia with average surfing speeds of five to 20Mbps, we see vast potential for Internet advertising to mushroom on improved transmission of content and enhanced web browsing experience. These present great opportunities for Catcha Media to capitalise on given the potential exponential growth in Internet adex as surveys show that the online media industry will bloom as Internet infrastructure becomes more established.

Catcha Media entered into a strategic alliance with Microsoft and in 2009 to manage its online properties by selling advertising space on their respective portals. We see great potential in these two core web portals given the vast volume of Internet traffic, which stood at a combined 10 million unique users per month as at October 2010. We also understand that management is working to secure two more online properties by the end of this year, with at least one million unique users per month each. ' OSK Research, Aug 18

This article appeared in The Edge Financial Daily, August 19, 2011.

KNM has bottomed out

Stock Name: KNM
Company Name: KNM GROUP BHD
Research House: HWANGDBSPrice Call: BUYTarget Price: 2.10

KNM Group Bhd
(Aug 18, RM1.56)
Maintain buy at RM1.57 with revised target price of RM2.10 (from RM3.35): Given the slower-than-expected rollout of EnergyPark Peterborough, we understand the client has not secured financial close, we trim FY11 to FY13F gross profit margins by 1.2% to 1.9%. Consequently, FY11 to FY13F earnings were cut by 17% to 32%, also indicating a slower rollout. We had initially assumed 15% completion by FY11, but now push back commencement to FY12, which will see 23% earnings contribution. We remain confident the project will take off given that it is a renewable energy project, in line with the UK government's commitment to sourcing 15% of its energy from renewable sources by 2020.

We expect 2QFY11 earnings to be similar to 1QFY11, reflecting sluggish margins for old contracts secured in FY09 and 1H10. As highlighted in our previous reports, we expect earnings recovery to be more pronounced in 2HFY11, especially 4QFY11 with the completion of old contracts. KNM's tender book is still hovering at RM17 billion, indicating a still buoyant outlook.

Following the earnings downgrade, we cut our target price to RM2.10, pegged to 12 times FY12 earnings per share, in line with the sector average.
The recent selldown on an expectedly weak global economic outlook has provided an opportunity to accumulate KNM shares on weakness. KNM's share price has dropped to a two-year low despite its better prospects compared with the last two years. Earnings visibility remains supported by a RM5.5 billion order book as at July 2011 (against RM2.4 billion in July 2010), implying 3.5 times book-to-bill ratio. We remain bullish on KNM's long-term prospects. The full impact of normalised margins will be reflected in FY12. ' HwangDBS Vickers Research, Aug 18

This article appeared in The Edge Financial Daily, August 19, 2011.

Few signs of recovery at JT International

Stock Name: JTINTER
Research House: OSKPrice Call: HOLDTarget Price: 7.27

JT International Bhd
(Aug 18, RM6.80)
Maintain neutral at 6.83 with revised target price of RM7.27 (from RM7.30): JTI's 2QFY10 revenue came in at RM306.6 million (+2.7% year-on-year, +5.5% quarter-on-quarter) while earnings amounted to RM30.5 million (-9.2% y-o-y, -11.7% q-o-q). During 1H, earnings totalled RM65 million, down 8.9% y-o-y while volume fell 7.3% y-o-y as the 11.2% rise in Mild Seven sales was more than offset by Winston's sales decline of 13.3%. Owing to higher costs from new launches, margins were lower, with earnings before interest and tax (Ebit) and net amounts at 14.6% and 10.9% (1HFY10 at 15.7% and 11.7%). At 54.3% of our full-year estimates, the 1H results were within our expectations but below consensus (47.3%).

Despite stricter enforcement on minimum pricing in the sub-value for money (VFM) segment, Winston's sales volume in 2Q still fell by 11.1%. We believe that smokers switched from the sub-VFM to illicit cigarettes given their lower pricing and availability, instead of turning to VFMs. As a result, management expects the next wave of illicit trade figures to come in higher. To recap, illicit trade from October to December 2010 stood at 32% (2010: 36.3%), which was probably artificially lower since customers preferred the sub-VFM segment which previously did not adhere to minimum pricing requirements.

Premium brand Mild Seven showed a strong 14.8% y-o-y volume growth in 2Q. To further capitalise on the brand, JTI recently launched a menthol variant. We believe this will help JTI capture the male segment among menthol smokers. In our view, there should be minimal cannibalisation to its Salem (also menthol variant) brand as it is perceived to be for female smokers. We note that competition within the menthol segment has been intensifying, with rival British American Tobacco (Malaysia) Bhd ('neutral', fair value: RM43.41) also recently launching the Dunhill Boost & Switch and Pall Mall Ice.

We are assuming that excise duties will be raised by 30 sen per pack (3% to 3.5%) this year, which should impact the VFM segment the most given the high price sensitivity of its smokers. While we may see some substitution from premium to VFM cigarettes as the former will breach the RM10 per pack mark, this would be insufficient to cushion the latter's volume decline. With high illicit trade still plaguing the industry, any excise duty hike will hit the VFM segment hard. ' OSK Research, Aug 18

This article appeared in The Edge Financial Daily, August 19, 2011.

Rocky road ahead for Proton

Stock Name: PROTON
Research House: RHBPrice Call: SELLTarget Price: 3.00

Proton Holdings Bhd
(Aug 18, RM3.15)
Maintain underperform at RM3.15 with fair value of RM3: We expect Proton to report lower 1QFY12 earnings on a year-on-year (y-o-y) basis (1QFY11: RM84.7 million). Although Proton's domestic sales volume for the quarter to June (1QFY12) was up 0.9% y-o-y to 40,353 units, earnings are likely to be dragged lower by expenses associated with the ongoing turnaround programme (LTP) at 100%-owned Lotus Group.

The programme budgeted at ''480 million (RM2.4 billion), involves the rationalisation of its dealer network, rebranding, expansion of production facilities and investment in five new models that will be gradually introduced from 2013.

The receipt and recognition of R&D grants could skew earnings for the quarter as well. Recall Proton reported FY11 net profit of RM152.1 million after recognising R&D grants totalling RM222 million for the year. Note that our forecasts exclude R&D grant income.

Although domestic registrations fell 10.1% quarter-on-quarter (q-o-q), Proton generally fared better than Perusahaan Otomobil Kedua Sdn Bhd (Perodua) and other non-national marques during the quarter. The Japan earthquake and tsunami left Proton relatively unscathed although sales of the Inspira (a rebadged Mitsubishi Lancer) declined 44.5% q-o-q to 1,900 units.

Key metrics to look out for in the results announcement include: (i) consolidated losses at Lotus Group; (ii) R&D grant income accreted; (iii) export sales volumes; and (iv) gross cash and gross debt. The latter will give an indication as to the pace of drawdown of the ''270 million syndicated loan by Lotus. No dividend is expected as Proton continues to prioritise the conservation of cash.

The upside risks include: (i) higher-than-expected domestic car sales; (ii) favourable exchange rate movements; and (iii) A quicker than expected turnaround at Lotus.

Our forecasts are unchanged. Proton's FY12 domestic sales volumes are expected to stay relatively flat y-o-y. The Exora Turbo MPV has been delayed till end-2011 while the Persona replacement is slated for launch in 1Q12.

We maintain our 'underperform' call on Proton and reiterate our fair value of RM3 (0.3 times CY12 book value of equity per share). The multi-year LTP is a significant risk for Proton, being predicated on sufficiently strong domestic earnings to maintain cash flows, combined with a favourable macroeconomic environment when Lotus begins its launch programme in 2013 with the Esprit.

The lack of clarity on the financial implications of the LTP on Proton will also continue to cloud investor sentiment. ' RHB Research, Aug 18

This article appeared in The Edge Financial Daily, August 19, 2011.

2QFY11 results - deemed in line. Expects a stronger 2HFY11 performance.

Stock Name: K1
Research House: ZJPrice Call: BUYTarget Price: 0.46

2QFY11 Results Review

Stock Name: GUH
Research House: NETRESEARCHPrice Call: HOLDTarget Price: 1.32

Ni Hsin Resources Bhd RR 2Q FY11

Stock Name: NIHSIN
Research House: WILSON & YORKPrice Call: BUYTarget Price: 0.23

Hektar REIT 2QFY11 in line: Pocketing healthy rental reversions

Stock Name: HEKTAR
Company Name: HEKTAR REITS
Research House: CIMBPrice Call: HOLDTarget Price: 1.45

Kulim offers to takeover at RM3.00 per Sindora share

Stock Name: SINDORA
Company Name: SINDORA BHD
Research House: NETRESEARCHPrice Call: SELLTarget Price: 3.00

Axiata says no immediate plans to up IDEA stake beyond 20%

Stock Name: AXIATA
Research House: OSKPrice Call: BUYTarget Price: 5.77

KUALA LUMPUR: Axiata Group Bhd has no immediate plans to increase its stake in Indian-associate IDEA Cellular Ltd beyond a 20% threshold, the company said, denying reports that it is looking to raise its stake to 25%.

'We have no current plans of increasing our stake in IDEA,' Axiata said in an emailed reply on Thursday, Aug 18.

It confirmed, though, that the group had just increased its holdings in IDEA by 0.9% through open market purchases, raising holdings to 19.98%.

Citing unnamed sources familiar with the deal, The Economic Times of India reported Axiata may be looking to raise its stake in IDEA to 25%, once it receives permission from IDEA's main shareholders, the Aditya Birla group.

IDEA shares rose as much as 3.23% to INR97.5 intra-morning following the report. The stock was trading at INR95.95 at 1pm Kuala Lumpur time.

Axiata had paid an average of INR103 for the additional 0.9% stake in IDEA, OSK Research wrote in a note this morning, citing shareholder filings on the Bombay Stock Exchange. That's 9.05% above the INR94.45 that IDEA closed on Aug 17.

'A small stumbling block' to Axiata increasing its holdings in IDEA beyond 20% could be the approval needed from the Adita Birla Group, OSK Research wrote in the note this morning, ahead of the statement from Axiata to deny the news report.

The additional stake purchase from the market 'would serve to average down the implied cost of its investment in India's third largest mobile operator', OSK Research added in the note, pointing out that Axiata had written down the value of its 19.1% stake in IDEA to INR120 in 4QFY2010.

OSK retained a 'buy' on Axiata and a target price of RM5.77, calling the group its preferred pick in the telecoms sector alongside TELEKOM MALAYSIA BHD [].

Axiata rose as much as 3 sen or 0.6% to RM5.01 this morning before ending the first session at RM4.99, up 1 sen or 0.2% from Wednesday's close.

Petronas Gas advances in early trade

Stock Name: PETGAS
Research House: MIDFPrice Call: BUYTarget Price: 14.40

KUALA LUMPUR: Petronas ''Gas Bhd shares rose on Thursday, Aug 18 after posted net profit RM386.74 million on the back of revenue RM916.55 million for the three months ended June 30, 2011, due to higher gas processing revenue and utilities sales, and lower tax expense.

At 9.30am, Petronas Gas added 10 sen to RM13.64 with 46,000 shares traded.

MIDF Research maintained its Buy call on the stock and raised its target price to RM14.40 (from RM13.10) after incorporating Petronas Gas's net cash of RM1.27 per share.

The research house said this was to reflect better the company's intrinsic value, adding that its valuation for Petronas Gas was still pegged at unchanged 16.5x PER.

Petronas Gas is one of the defensive stocks that MIDF Research has identified as would outperform the market during uncertain period moving forward.

'We like PGas given its stable earnings, sustainable cash flows, net cash position and attractive 3.7% dividend yield.

'A cash rich company is also well positioned to acquire any earnings-accretive asset. In addition, potential listing of its 20-owned associate, Gas Malaysia Sdn Bhd, is another factor to generate buying interest,' the research house said in note Aug 18.

1QFY11: Within expectations

Stock Name: PETGAS
Research House: ECMLIBRAPrice Call: HOLDTarget Price: 14.14

Good to hold MSM Malaysia shares: MIDF

Stock Name: MSM
Research House: MIDFPrice Call: HOLDTarget Price: 5.25

Shares in Malaysia's biggest sugar refiner MSM Malaysia Holdings Bhd are a good bet to hold if the economy goes into a downturn due to its monopoly in the industry.

"Sugar is a staple food in Malaysia. So, the demand will be consistent even during a downturn and given that they are the largest refiner here, there is minimal competition in the industry," said an analyst with MIDF Research.

MSM Malaysia, which controls more than half of the local sugar market, with production capacity of 1.1 million was listed on Bursa Malaysia on June 28.

The company has notified before its intention to pay 50 per cent net profit as dividend, which shareholders stand to gain.

"We are foreseeing a year-on-year dividend yield of 4.7 per cent," the analyst told Bernama.

Yesterday, the company announced that its pre-tax profit jumped 43 per cent to RM97.9 million in its second quarter mainly due to fair value gains in derivatives by RM30.3 million.

The group recorded RM68.5 million in the same period last year.

In a filing to Bursa Malaysia, the company said revenue, however, dwindled slightly to RM97.918 million from RM68.503 million in 2010.

MSM Malaysia Holdings said the lower revenue was due to dismal domestic sales in the second quarter despite higher average price.

No dividend was announced yesterday.

MIDF Research has recommended a neutral call with a higher target price of RM5.25 per share from previous RM4.20 per share.

At 3.50pm, the shares stood at RM5.44, down two sen. -- BERNAMA

Mah Sing a 'buy': research firms

Stock Name: MAHSING
Research House: OSKPrice Call: BUYTarget Price: 3.01

Stock Name: MAHSING
Research House: MIDFPrice Call: BUYTarget Price: 2.90

Stock Name: MAHSING
Research House: HLGPrice Call: BUYTarget Price: 2.87

Stock Name: MAHSING
Research House: KENANGAPrice Call: BUYTarget Price: 2.87

OSK Research expects Mah Sing Group Bhd, a diversified conglomerate with core activities being in property development and plastic, to register 13.2 per cent and 6.2 per cent net profit growth for financial year 2011 and 2012 respectively, driven by a higher revenue forecast.

In a research note today, the firm said Mah Sing's net profit for 2011 and 2012 is expected to grow to RM170.9 million and RM208 million respectively on the back of a revenue forecast of RM1.491 billion this year and RM1.833 billion next year.

The forecast follows Mah Sing's announcement on Wednesday that in the first half of this year, the company had achieved total sales of RM1.24 billion, which made up more than 60 per cent of its 2011 sales target of over RM2 billion.

"The company's unbilled sales remained strong at RM1.9 billion, more than twice the revenue recognised from property division last year, which we believe will provide strong earnings visibility moving forward," the research house said.

Hong Leong Investment Bank said the future earnings visibility of Mah Sing remained high with future projects to boost the growth.

"We maintain our forecast of 22 per cent to 29 per cent earnings per share growth for financial year 2011-2013," the research house said.

In a related development, MIDF Research said Mah Sing's remaining 35 projects in the Klang Valley, Penang and Johor Baharu, which yields a combined remaining gross development value of approximately RM14.5 billion, will sustain the company's earnings for next five to seven years.

OSK Research and MIDF Research maintained their 'buy' call on Mah Sing with an unchanged fair value of RM3.01 and unchanged target price of RM2.90 respectively.

Meanwhile, Hong Leong Investment remained the 'buy' call on Mah Sing and Kenanga Research placed an 'outperform' status on the property developer with a target price of RM2.87. -- Bernama

August 17, 2011

Kulim to go 'big league' with plantation buy

Stock Name: KULIM
Company Name: KULIM (M) BHD
Research House: OSKPrice Call: BUYTarget Price: 4.77

OSK Research Sdn Bhd expects the acquisition of Johor Corp Bhd's 13,687 hectares of plantation in Johor by Kulim (M) Bhd to catapult the company into the league of big planters.

The research firm said the estate acquisition would increase Kulim's planted hectarage by 10.7 per cent to 124,256 hectares.

"We view the acquisition price of RM51,000 per hectare as very attractive, compared with IOI Corp's acquisition of a plantation estate in Sugut, Sabah, for RM69,000 per hectare," OSK said in a note today.

It said that the acquisition would also increase Kulim's net debts to RM2.2 billion from RM1.5 billion as of the end of March 2011.

"The consensus estimate has been revised upward by RM100 million since a quarter ago to RM462 million. But, we believe there is still more room for an upward revision," OSK said, adding, it maintained a "buy" call on Kulim, with a fair value of RM4.77.

Meanwhile, the research firm is neutral on Kulim's purchase of the remaining 24.5 per cent stake in Sindora Bhd, as it views the company's listing status as redundant.

"Hence, it does make sense to de-list the company, especially if it intends to list the shipping business," it added. -- Bernama

2Q/FY11 results. Within expectations. Upgrade to Buy Call on strong 1H results.

Stock Name: DEGEM
Company Name: DEGEM BHD
Research House: MERCURYPrice Call: BUYTarget Price: 1.14

MAHB hiking PSC and aircraft charges

Stock Name: AIRPORT
Research House: RHBPrice Call: BUYTarget Price: 8.10

Malaysia Airports Holdings Bhd
(Aug 17, RM6.50)
Maintain outperform at RM6.45 with revised fair value of RM8.10 (from RM7.82): MAHB has confirmed recent news reports it is increasing the passenger service charge (PSC). Starting Sept 15, MAHB will raise the PSC for international passengers at its low-cost carrier terminals (LCCT) and full-service carrier terminals. PSC in LCCTs ' LCCT-KLIA and Kota Kinabalu-Terminal 2 ' is expected to increase by RM7 to RM32, while full-service carrier terminals ' KLIA main terminal, Sultan Abdul Aziz Shah Airport, Langkawi, Penang, Kota Kinabalu-Terminal 1 and Kuching will be raised by RM14 to RM65.

MAHB will also increase aircraft landing and parking charges in three stages. Landing charges will be raised by 9% and parking charges by 18% for the next three years, in January 2012/13/14. However, MAHB will continue its incentive scheme which provides free landing for three years for all new routes and additional frequencies by airlines.

We believe the MAHB's PSC is still competitive compared with regional peers' international PSC ' Bangkok (RM71), Singapore (RM68) and Hong Kong (RM67). Similarly, the PSC for international charges in LCCT is lower than Singapore's LCCT PSC charge of RM36.

We are positive on these hikes given that they will boost MAHB's aeronautical revenue which has not been reviewed since 2002. We are raising our FY11 to FY13 net profit forecasts by 1.4%, 8.3% and 10.1% to reflect these changes.

Risks'' include: (i) regulatory risk, particularly, inability to raise airport charges; (ii) traffic risk on an economic downturn and outbreak of pandemic diseases; and (iii) operating risks in overseas ventures.

Our fair value is raised to RM8.10 (from RM7.82 previously) based on sum-of-parts valuation. The long-term prospects of the air travel sector in the region remain bright, backed by rising per capita income, rapid urbanisation and rising mobility. We continue to like MAHB, as: (i) it is an excellent proxy to the booming air travel sector in the region; (ii) it allows investors to piggy-back on LCC growth; and (iii) good execution for its overseas ventures. Maintain 'outperform'. ' RHB Research, Aug 17

This article appeared in The Edge Financial Daily, August 18, 2011.

Timber: Japan plywood imports may have peaked

Stock Name: JTIASA
Research House: AMMBPrice Call: BUYTarget Price: 8.51

Timber sector
Maintain neutral: Japan's plywood imports are expected to remain high in expectation of strong domestic demand when the reconstruction of the disaster-hit areas moves into full swing, said the International Timber Organisation (ITTO), citing the Japan Lumber Report (JLR). However, the JLR is of the view that plywood imports may have passed their peak, as manufacturers not affected by the March disaster continue to maintain high levels of production, while some of those affected have resumed production.

The affected manufacturers of softwood plywood said it will take a long time for them to return to pre-earthquake production levels. The JLR said the supply of domestic plywood may temporarily exceed demand in the short term, given the current high inventories.

The bulk of domestic plywood production involves the processing of softwood, while tropical hardwood-based plywood is mostly imported, including from Sarawak. Tropical plywood is not only used in houses, but also general construction purposes due to its durability and tough features.

The ITTO said plywood demand in the three prefectures most affected by the disaster'' has been driven by emergency repairs and the 'plywood business is booming' for the first two weeks of this month. Sales have been slow in other areas.

The ITTO said plywood imports in June grew to 384,000 cu m (up 38% year-on-year versus +63% y-o-y in May), but expects it to decline after this month. It said domestic inventories at end-June were estimated at 153,000 cu m, a slight increase over May. We believe the bulk of the inventories comprise softwood plywood.

The latest reports are still consistent with our view that the high inventory of plywood would be temporary, while a steady and constant demand for imported plywood, including Sarawak's hardwood plywood, would resume once reconstruction begins in earnest ' expected by year-end. Notably, the JLR reported that local associations have submitted a proposal to the government on the utilisation of wood debris. It is estimated about 65% of the debris is wood, which can be used to produce wood-based panels. According to the ITTO, wood waste and logs soaked in seawater were used to produce particle-board when Hokkaido suffered damage from a typhoon three years ago. We do not believe this would have a significant impact on the import of panel products, particularly tropical plywood.

We maintain 'neutral' on the timber sector. Our top pick continues to be Jaya Tiasa Holdings Bhd ('buy', fair value: RM8.51 per share) backed by its oil palm division's rapid growth. This follows a much more aggressive plantation acquisition strategy over the years, compared with Ta Ann Holdings Bhd's.

Ta Ann ('hold' FV: RM5.83) continues to be one of the beneficiaries of the'' rebuilding in Japan. It exports over 90% of its plywood, including the premium Tasmania floor base products, to Japan. However, the full impact may only be felt from FY12F onwards, in tandem with the rebuilding in Japan. Key catalysts include: (i) Japan rebuilding picks up momentum; (ii) even more funds for reconstruction; and (iii) global economic recovery resuming long-term trend pace.

The main risks include: (i) a global double-dip recession; (ii) lower-than-expected crude palm oil prices; and (iii) rebuilding in Japan stalls due to further political/budgetary issues, and/or further deterioration of the Fukushima nuclear plant crisis. ' AmResearch, Aug 17

This article appeared in The Edge Financial Daily, August 18, 2011.

2Q/FY11 results. Within expectations. Maintain Buy Call.

Stock Name: CENTURY
Research House: MERCURYPrice Call: BUYTarget Price: 2.60

Strong 2Q rebound for Century Logistics

Stock Name: CENTURY
Research House: MIDFPrice Call: BUYTarget Price: 2.00

Century Logistics Holdings Bhd
(Aug 17, RM1.74)
Maintain buy at RM1.70 with revised target price of RM2 (from RM2.32): Century Logistics posted a strong rebound in its 2QFY11 earnings, growing 12.8% year-on-year (y-o-y) to RM8.5 million, reversing the 4.6% y-o-y decline in 1QFY11. This resulted in a 4.7% y-o-y increase in 1HFY11 net profit due to an improved performance in the total logistics services. Century's 1HFY11 net profit of RM14.8 million was within our expectations at 46.6% but below consensus, coming in at 44.6% of full-year estimates.

For 1HFY11, Century registered revenue growth of 5.5% y-o-y to RM120.5 million in total logistics services. Management indicated that contract logistics played a key part in the growth with the securing of notable customers such as Fraser & Neave Holdings Bhd and Celcom Bhd. We understand contract logistics contributes approximately 42% to total revenue. We expect revenue growth to continue as management increases its efforts to secure new logistics accounts.

The 1HFY11 revenue decline of 1.7% y-o-y to RM20.5 million in the procurement logistics business was due to lower export shipments. We are not overly concerned by the decline as we understand that management is exploring other high growth regional destinations, where it might emulate its Syrian business model. We believe that the Indian subcontinent such as Sri Lanka and Bangladesh could be possible locations.

We like the fact that Century continues to develop its contract logistics model. We believe contract logistics will moderate any negative impact from any slowdown in its other business units. The length of a'' logistics contract for a given customer is usually 2+1 years or 3+1 years.

Management indicated that it is also looking to grow its oil and gas logistics. Currently, O&G logistics provide stable revenue for Century. However, we do not expect any impact in FY11 or FY12. Hence, we are maintaining our FY11 and FY12 earnings.

We maintain our 'buy' recommendation for Century as it continues to deliver the results. Growth will be supported mainly by the contract logistics business. Century announced an interim dividend of five sen or 28% payout from 1HFY11 earnings. We forecast a dividend yield of 4.1% for FY11. Rolling over our valuation to FY12, our adjusted target price is derived by pegging our FY12 earnings per share to a price-earnings ratio of 5.1 times based on a 10% discount to its five-year average PER. While we are expecting Century's growth to continue in FY12, we are applying a discount to the PER due to uncertain market conditions that might affect stock valuations. ' MIDF Research, Aug 17

This article appeared in The Edge Financial Daily, August 18, 2011.

Final LRT packages go to Sunway, MRCB

Stock Name: SUNWAY
Research House: MAYBANKPrice Call: BUYTarget Price: 3.85

Construction sector
Maintain overweight: Sunway Holdings Bhd's RM569 million win is a pleasant surprise after press reports the Kelana Jaya Line Package B would go to TRC Synergy Bhd. Malaysian Resources Corp Bhd's (MRCB) RM1.33 billion win is also above the RM800 million to RM900 million estimates for the Ampang Line Package B. The LRT chapter, in terms of awards for the civil works portion, is coming to an end with all eyes now on MyRapid Transit which will enter the tendering stage for the elevated works portion in stages from September to December 2011. Our fair value for Sunway is RM3.85.

Sunway Holdings (en route to listing) and MRCB have won the main contracting final work packages for the Klang Valley LRT from Syarikat Prasarana Negara. We understand that both awards relate to just civil works and do not include rolling stock. Including the sub-contracting portion, we estimate RM79 million per km cost for the 8.1km Kelana Jaya route and RM129 million per km for the estimated 10.3km Ampang route (sources: Sunway and MRCB announcements, Prasarana's website). The huge cost disparity between the two lines, we understand, is due to design and traffic management which is more complex for the Ampang line.

Sunway's win has lifted its outstanding order book to RM2.38 billion (+31% from RM1.81 billion as at June 2011), positive for the stock which will be listed on Aug 23. This has also lifted job wins for the year-to-date to RM961 million, closing in on our RM1.2 billion forecast for 2011. The work includes site clearance; earthworks; viaduct, road and drainage works; traffic management and structural works. Work is expected to start upon the handing over of site possession, expected in September with a 29-month construction period. Assuming a 5% net margin, we estimate RM28 million net profit (2.2 sen earnings per share [EPS]) contribution into 2014.

Besides RM1.33 billion for the Ampang line, MRCB has also won the RM67 million sub-contract for the fabrication and delivery of segmental box girders for the Kelana Jaya line awarded to Sunway.

The RM1.33 billion comprises the construction of facilities, including the fabrication and delivery of segmental box girders for the Ampang line extension. The work period is 30 months from the site possession date.

Assuming a 5% net margin, we estimate RM70 million net profit (five sen EPS) contribution into 2014. This win has doubled MRCB's outstanding order book to RM2.64 billion from RM1.24 billion as at June 2011. ' Maybank IB Research, Aug 17

This article appeared in The Edge Financial Daily, August 18, 2011.

OSK may raise MMC fair value

Stock Name: MMCCORP
Research House: OSKPrice Call: BUYTarget Price: 3.58

OSK Research says Malaysia Mining Corporation's (MMC) fair value will be raised only if the Initial Public Offering (IPO) price of its subsidiary, Gas Malaysia, exceeds RM1.06 during the
book-building exercise.

"While the institutional price has yet to be decided by the book-building exercise, we have a discounted cashflow value of RM1.36 billion for Gas Malaysia, or an indicative price of RM1.06 per Gas Malaysia share," it said.

The research house said MMC would strive to secure a better pricing than this in its IPO. At this valuation, MMC will raise RM147.9 million from its 10.87 per cent stake sales, it said.

"If MMC does secures at least this valuation for Gas Malaysia, it will be neutral to our Sum of Parts fair value (SOP FV) for MMC as the cash raised will just offset the drop in effective stake from 41.8 per cent to 30.9 per cent," OSK said in its research note today.

Therefore, OSK is maintaining a "trading buy" call on MMC shares and keep its SOP FV on MMC intact at RM3.58.

"After the recent selldown on global uncertainties, MMC looks very attractive and the IPO announcement should serve as a positive catalyst," it said.

MMC shares gained two sen to close at RM2.63 in the morning session today. -- Bernama

ECM maintains 'buy' call on Sunway Hldgs

Stock Name: SUNWAY
Research House: ECMLIBRAPrice Call: BUYTarget Price: 3.71

ECM Libra Investment Research has maintained a "buy" on Sunway Holdings after the company secured a RM569 million contract for Package B of the Kelana Jaya Line Extension Project.

"With year-to-date new jobs of RM962 million, it is on track to achieve our annual order book replenishment estimate of RM1.5 billion," the research house said today.

"This job also strengthens its credential to win some of the 11 packages of MRT jobs it has been prequalified for," it added.

In a statement yesterday, Sunway Holdings said works under Package B, awarded to Sunway Construction, involved the construction and completion of facilities along a 8.1km route from Persiaran Kewajipan in Subang Jaya to Putra Heights.

The 29-month project is expected to contribute positively to Sunway group's earnings for the financial year ending 2012 onwards.

ECM Libra also said that the impending completion of Sunway Holdings' merger with Sunway City would remain the key re-rating catalyst.

The merged entity would make it as an integrated developer with in-house construction capabilities, thereby raising prospects for revenue and cost synergies, it said.

"It will also be one of the earlier beneficiaries of the Sungai Buloh-Kajang MRT line as it has two key commercial projects with combined gross development value of RM5.6 billion located along this line.

"We believe the immediate fair value of the merged entity should be RM3.71 per share. Working backwords, this suggests fair value of Sunway Holdings should be RM3.41." -- Bernama

Kenanga lifts MRCB earnings estimates

Stock Name: MRCB
Research House: KENANGAPrice Call: BUYTarget Price: 3.44

Stock Name: MRCB
Research House: MIDFPrice Call: BUYTarget Price: 2.66

Malaysian Resources Corporation Bhd's (MRCB) earnings from next year onwards is expected to be spurred by the RM1.33 billion contract for the Light Rail Transit (LRT) Ampang line extension project.

Kenanga Research estimates MRCB's revenue to jump to RM1.164 billion this year and RM1.641 billion next year from the RM1.067 billion in 2010.

Similarly, the pre-tax profit will rise to RM94.6 million and RM181.3 million in 2011 and 2012 respectively, compared to the RM67.3 million posted last year.

"We have tweaked our financial year 2012 earnings by 35 per cent as we have imputed in higher construction earnings, attributable to the newly secured LRT contract and RM500 million potential new contract next year," the research house said.

MRCB, it said, will remain as the main beneficiary of the highly anticipated construction sector run-up in the fourth quarter of 2011 onwards.

MIDF also raised its earnings forecast for MRCB by seven per cent and 29 per cent in the current financial year and 2012, respectively.

It also made a "buy call for MRCB shared with a target price of RM2.66, while Kenanga kept the share as "outperform" with a higher target price of RM3.44.

At 11am, MRCB shares were up four sen to RM2.33. -- Bernama

MIDF keeps 'neutral' call on Malaysia Marine

Stock Name: MHB
Research House: MIDFPrice Call: HOLDTarget Price: 6.70

MIDF Research is keeping its neutral call on Malaysia Marine and Heavy Engineering (MMHE), considering the potential earnings contribution from the proposed acquisition of Sime Darby's Pasir Gudang Yard and joint venture (JV) with Technip to provide hull engineering services on floating structures.

The research house is maintaining the neutral call on MMHE with a target price of RM6.70 per share. As at 12.00 pm, MMHE declined two sen to RM6.62.

MIDF Research reckons that the current valuation has already priced in the fact that MMHE is likely to secure potential sizable contracts like Malikai and Turkmenistan Phase 2 going forward.

"This might cap further an upside in MMHE's share price. "Most importantly, MMHE has net cash of RM2 billion or RM1.26 per share
with no borrowings at all. The company is well-positioned as an acquirer," the research house said.

Meanwhile HwangDBS Vickers Research revised downward the target price for MMHE to RM6.25 following an earnings downgrade.

HwangDBS Vickers said the proposed acquisition of Sime Darby's yard is currently undergoing an extended due diligence to consider novation of Sime Darby's outstanding book of RM2 billion.

"Should it be concluded by end 2011, it could potentially raise Financial Year 2012 earnings by 14 per cent," it added. -- Bernama

HLIB Research 17 Aug 2011 (Construction; Aviation; Sunway; KLK; AFG; WCT; Traders Brief) 2/2

Stock Name: AIRPORT
Research House: HLGPrice Call: HOLDTarget Price: 6.70

Stock Name: AIRASIA
Company Name: AIRASIA BHD
Research House: HLGPrice Call: BUYTarget Price: 4.50

Stock Name: MAS
Research House: HLGPrice Call: SELLTarget Price: 1.65

Stock Name: KLK
Research House: HLGPrice Call: BUYTarget Price: 24.91

Stock Name: AFG
Research House: HLGPrice Call: BUYTarget Price: 3.70

Stock Name: WCT
Company Name: WCT BHD
Research House: HLGPrice Call: BUYTarget Price: 3.85

Construction (OVERWEIGHT '')

LRT extension package B

'''' Prasarana has finally awarded the LRT Extension Package B to MRCB and Sunway for RM1.4bn and RM569m respectively. The construction duration for this project is'' ~29-30 months upon site possession.

'''' The award of LRT project is a welcomed newsflow for the sector and we believe that more projects will be awarded emanating from the implementation of the ETP. Hence, we continue to maintain our OVERWEIGHT stance for the sector favouring the mid/smaller cap construction players.


Aviation (Overweight '')

Higher Airport Charges

'''' The new rates for international passenger departing from airports (ex-LCCTs) will be increased from RM51 to RM65 (RM14 previously subsidized by government) and LCCTs will be increased from RM25 to RM32.

'''' Aircraft landing charges will be increased by 9% p.a. and parking charges will be increased by 18% p.a. for the next 3 years starting January 2012.

'''' Positive for MAHB due to overall increase in revenue, with no extra cost.

'''' Additional cost to airlines and passenger. However, the incremental cost is marginal and unlikely to have major impact to the overall air travel demand.

'''' Recommendation:

'''' Maintained Hold on MAHB with higher target price of RM6.70 (Previously RM6.08) based on DCF to equity.

'''' Maintain BUY on AirAsia with TP of RM4.50.

'''' Maintain SELL on MAS with TP of RM1.65.


Sunway Bhd (Not Rated)

Consolidated 1Q11 results & LRT contract

'' The new Sunway Bhd, arising from the merger of Sunway Holdings and SunCity released their consolidated quarterly results for 1Q11 for the FYE Dec.

'' The consolidated 1Q11 PATMI for Sunway Bhd was RM68.3m, making up ~21% of FY10's core PATMI of RM325m. FY11 earnings will be flat due to higher financing and restructuring costs. Thereafter, we expect the company to resume earnings growth of 10-15%.

'' On a separate note, Sunway Bhd has been awarded the LRT Package B contract for the Kelana Jaya line worth RM569m. This new order will boost their current order book to RM2.38bn (as of Jun'11), translating to ~2.2x FY10's construction revenue.

'' We believe that the merged entity (Sunway Bhd) has the potential of realising higher valuations and closer to our conservative estimated worth of RM3.22 (25% discount to FD RNAV), translating to an implied historical FY10 P/E of 12.8x. Hence, this implies an upside of 15% upon listing.


Kuala Lumpur Kepong (Buy)

9MFY11 core rises 67%

'' 9MFY11 core net profit of RM1,111.3m came in within our expectation at 76.3% of our full-year forecast. Against the market consensus, the results accounted for 78.3% of the full-year market estimates.

'' Maintain net profit forecasts, TP of RM24.91 (based on 18.5x CY2012 EPS of 134.7 sen) and BUY recommendation on the stock.


AFG (BUY '')

Write Back & Trading Gains

'' 1QFY12 net profit was 28% of HLIB and consensus forecasts mainly due to write back in provision (CA) and higher gains from sale of securities (mainly HTM ' RM12m).

'' Loans growth still well behind industry average.'' However, given record approvals (during Apr-Jul), pick up in momentum is slated towards 3/4QFY12.

'' Double-digit yoy deposits growth well ahead of industry.

'' NIM recovered qoq arising from OPR hike.''''

'' Fee income jump 25% qoq and yoy ' reflecting its strategy of focusing on transactional banking.

'' Asset quality continued to improved and capital ratios remained robust and able to meet Basel III.

'' Maintain Buy and target price of RM3.70 based on Gordon Growth (ROE of 12.8% and WACC of 10.1%).


WCT (BUY '')

Flat 2Q results

'' 2Q11 revenue came in at RM375.9m with PATMI of RM37.8m translating to EPS of 4.71 sen/share and diluted EPS of 4.40 sen/share. Although PATMI made up only 40% of our FY11 estimates, we consider results to be inline as we expect quarterly earnings to grow in the 2H11 due to timing of recognition.

'' Overall 2Q results were flat, however, management reiterated that their core operations are still intact and we belief that the coming quarter may see growth in their results as construction activities pick-up considering that the bulk of the construction orders were secured end of 2010.

'' Outstanding order book remains healthy at RM2.6bn (see Figure #3), translating to ~1.1x order book/market cap and ~1.7x FY10's construction revenue. As for the property division, current unbilled sales is at RM330m translating to 1.4x FY10's property revenue.

'' Maintain BUY with TP of RM3.85, as we expect more orders to materialise under the ETP and the company is the cheaper large cap construction stock compared to IJM and Gamuda.


FBM KLCI - Major hurdles remain at 1510-1530 levels

'' Following last week's massive selldown, Dow and most of the key regional bourses are trapped in bearish territory after falling below the long term support of 200-d SMA (within -2% to -15%), except Indonesia and Thailand (please refer to Table A).

'' We believe most of the key bourses are likely to stay below the 200-d SMA for a while given current sluggish economic outlook.'' For KLCI, the 200-d SMA remains a tough resistance during this Aug reporting season, as well as ahead of a long holiday week in end Aug and first week of September (due to Hari Raya and Merdeka day).


1H FY11 Driven by Investments and Lower Claims

Stock Name: KURASIA
Research House: TAPrice Call: BUYTarget Price: 0.595

Encouraging YoY Performance

Stock Name: ALLIANZ
Research House: TAPrice Call: BUYTarget Price: 5.80

The chips are still down

Stock Name: MPI
Research House: CIMBPrice Call: HOLDTarget Price: 4.21

Listing of PAG to be value enhancing

Stock Name: PARKSON
Research House: OSKPrice Call: BUYTarget Price: 7.58

Big boost from FFB output recovery

Stock Name: KLK
Research House: MAYBANKPrice Call: HOLDTarget Price: 21.60

Momentarily weaker

Stock Name: JTINTER
Research House: MAYBANKPrice Call: BUYTarget Price: 8.10

1QFY11: Starting the year slow

Stock Name: MHB
Research House: ECMLIBRAPrice Call: HOLDTarget Price: 7.53

3QFY11: Better oleochemical performance

Stock Name: KLK
Research House: ECMLIBRAPrice Call: HOLDTarget Price: 21.75

August 16, 2011

RHB Research maintains Market Perform on MAS

Stock Name: MAS
Research House: RHBPrice Call: HOLDTarget Price: 1.98

KUALA LUMPUR: RHB Research Institute said MALAYSIAN AIRLINE SYSTEM BHD [] (MAS) struggled to defend its decision to put an end to its low-cost jet operation under Firefly.

'We feel that it has failed to dispel the perception that the decision was a 'concession' made to AirAsia/Tune Air,' it said on Tuesday, Aug 16.

RHB Research said it felt that MAS has too simplistically attributed its problems to 'being distracted to competition with a low-cost carrier' and also too simplistically believes that the problems can be solved with 'a strategic shift' back into focusing on the premium segment.

'We are giving MAS the benefit of the doubt that it will turn around in FY12/12, driven largely by rising yields on the back of the roll-out of higher-yielding products from its new aircraft, partially offset by sustained high fuel cost,' it said.

RHB Research said fair value was raised by 18% from RM1.68 to RM1.98 based on 2x book value (from 1.7x previously).

This was a premium to regional peers' average of 1.5x to reflect strong trading sentiment on expectations of changes to be brought about by the revamped top management as well as the entrance of a new shareholder, Tune Air. Fair value is upgraded from RM1.68 to RM1.98.

AMMB advances in early trade

Stock Name: AMMB
Research House: MIDFPrice Call: BUYTarget Price: 7.30

KUALA LUMPUR: AMMB HOLDINGS BHD [] shares advanced on Tuesday, Aug 16 after its net profit for the first quarter ended June 30, 2011 rose 19.9% to RM441.52 million from RM368.28 million a year earlier, underpinned by higher income growth as well as improved asset quality with lower charge offs and allowances.

At 9.04am, AMMB added four sen to RM6.52 with 35,500 shares traded.

Revenue for the quarter rose to RM1.95 billion from RM1.70 billion in 2010. Earnings per share was 14.75 sen, while net assets per share was RM3.54

MIDF Research maintained its Buy call on AMMB and raised its earnings forecast for FY12 by 12% after taking into account stronger growth in non interest income, improved asset quality as well as consistency in operating expenses against total income.

'We maintain Buy recommendation for AMMB with target price of RM7.30 by ascribing a PE of 13.4X against FY12 EPS of 54.4 sen. We have ascribed a lower PE of 13.4X which is the 5 years average of the PE band.

'Moving forward, AMMB will embark on a 3 years plan to improve return from FY12-FY14. Key strategies of AMMB are profitable growth and rebalancing, diversification and new business development, non-interest income and deposit growth, and customer centricity,' the research house said on Aug 16.


Affin rises on 2Q earnings

KUALA LUMPUR: AFFIN HOLDINGS BHD [] shares rose in early trade on Tuesday, Aug 16 after it reported a stronger set of earnings in the second quarter ended June 30, 2011.

At 9.03am, Affin was up seven sen to RM3.20 with 41,500 shares done.

On Monday, the banking group said its 2Q net profit rose 20.1% to RM134.19 million, due mainly to increase in both net interest income and Islamic banking income. Revenue for the quarter rose to RM642.77 million from RM534.61 million in 2010. Earnings per share was 8.98 sen while net assets per share was RM3.64.

For the six months ended June 30, Affin's net profit slipped to RM240.25 million from RM247.04 million in 2010, on the back of a 20% increase in revenue to RM1.26 billion.

However, CIMB Equities Research said it was maintaining its Underperform rating on Affin. It added Affin's results at the midway stage met expectations as 1H11 net profit eased 2.7% and worked out to 48% of its full-year forecast and 47% of consensus estimates.

The research house said it retained its EPS forecasts and DDM-based target price of RM3.40.

CIMB Research said the weak 1H performance, characterised by decelerating loan growth and margin erosion, underpinned its decision to maintain its Underperform rating.

'The stock could be de-rated by the (1) continuing loan growth slippage, (2) wider-than-expected margin contraction, and (3) weak non-interest income growth. We prefer Maybank (Outperform),' it said.

HLIB Research 16 August 2011 (AMMB ; Affin ; MAS ; CSC Steel ; Traders Brief)

Stock Name: AMMB
Research House: HLGPrice Call: BUYTarget Price: 7.71

Stock Name: AFFIN
Research House: HLGPrice Call: HOLDTarget Price: 3.54

Stock Name: MAS
Research House: HLGPrice Call: SELLTarget Price: 1.65

Stock Name: CSCSTEL
Research House: HLGPrice Call: HOLDTarget Price: 1.62

AMMB Holdings (BUY '')

Boosted By Trading gains & Lower Provision

'''' 1QFY12 net profit was 30% of HLIB and consensus forecasts mainly due to higher-than-expected gains from sale of securities and lower-than-expected provision.

'''' Management indicated unlikely repeat of the gains and higher credit charge for full year as well as expect ROE to normalize within its KPI range.

'''' Hence, we are maintaining our forecasts.

'''' The high gains and lower provision more than offset significantly lower NIM and higher overheads.''''

'''' In line with its focus on non-retail loans (to avoid irrational pricing), loans growth was decent but lower than industry average.'' However, deposits growth is higher than loans growth as well as industry average.

'''' Asset quality continued to improved and capital ratios well positioned for Basel III and dividend policy of 40%.

'''' Maintain Buy and target price of RM7.71 based on Gordon Growth (ROE of 14.2% and WACC of 9.5%).


Affin Holdings (HOLD '')

Provision Boon

'''' 1HFY11 results (excluding RM40m provision for mitigation loss reported in 1QFY11) were in line with HLIB and consensus forecasts.

'''' Strong loans and deposits growth as both were ahead of industry averages.

'''' NIM recovered qoq post OPR hike.

'''' Asset quality continued to improve for the second consecutive quarter post the temporary blip in 4QFY10.

'''' Capital ratios remained robust.

'''' Factor in the mitigation loss, FY11 cut by 5.7%.

'''' Consequently, target price cut from RM3.73 to RM3.54 based on Gordon Growth.

'''' Maintain Hold.


MAS (Sell '')

MAS Conference

'''' Focus on inventory and capacity management to improve overall yield (Revenue/ASK).

'''' Annual synergies of RM1.2bn identified, with MAS-AirAsia enjoying 50-50% basis.

'''' MAS existing ancillary services will be strengthened to generate higher profits and potentially being monetised through JVs.

'''' MAS and AirAsia to meet MAHB on potential deferment of higher aircraft landing and parking charges, as well as higher passenger tariff.

'''' More positive with MAS potential restructuring.

'''' Remained concern on MAS capability to compete with renowned regional FSC i.e. SIA and Cathay and emerging Emirates.

'''' Execution and end result remained as huge risks given MAS 'ill-fated' history.

'''' TP increase to RM1.65 on better optimism of its new management. However, as share price has ran ahead of our TP, downgrade to Sell.


CSC Steel (Neutral '')

Buys properties in Melaka

'''' CSC Steel acquired Constant Mode Sdn Bhd for RM750k. Constant Mode has 10 parcels of 3-bedroom apartments in Pangsapuri Taman Pelangi Ayer Keroh, Melaka, of which the apartments are currently rented to CSC Steel as living quarters for its foreign workers.

'''' CSC Steel is currently renting these apartments for RM5.5k per month.''

'''' While the latest transaction will result in cost savings for CSC Steel, we are keeping our net profit forecasts unchanged, as the latest transaction is immaterial (with <0.1% of our forecast 2011 net profit). TP maintained at RM1.62 based on unchanged 8x 2012 EPS of 20.3 sen.


FBM KLCI - 200-day SMA (1531) Next Major Hurdle

'''' Overall, we remain cautious and will only turn bullish if the KLCI is able to penetrate the 200-d SMA (1531 pts now) level on high volume. Relief rally targets are 1510 (50% FR), 1531 and 1535 (strong downtrend line resistance). Support levels are 1470, 1464 (76.4% FR) and 1450 pts. ''


Stock to watch - COASTAL: Relief rally targets at RM2.24-2.38

'''' Although there could be further consolidation ahead as share prices are still below RM2.17 (200-d SMA) and RM2.24 (50% FR), the risk-reward matrix favours the bulls, as indicators are showing signs of bottoming up. Target resistance levels are RM2.24-2.38. Cut loss below RM1.92.