September 9, 2011

Research houses mostly upbeat on DiGi

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: HWANGDBSPrice Call: BUYTarget Price: 32.20

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: MIDFPrice Call: BUYTarget Price: 35.50

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: ECMLIBRAPrice Call: BUYTarget Price: 35.05



HwangDBS Vickers research has raised DiGi.com Bhd's earnings forecast for the financial year 2011 by two per cent and financial year 2012-2013 by five-six per cent after the company decided to pass the six per cent service tax to prepaid customers effective Sept 15.

HwangDBS Vickers in a research note today said the higher earnings had
assumed marginal two per cent reduction in prepaid average revenue per user
(ARPU) to RM38-40.
"We believe the increase in prepaid cost could cause price sensitive
subscribers to reduce usage, and DiGi might cut rates to drive up usage," it
said.
Meanwhile, MIDF Research said DiGi's move to undertake a share split
exercise of one-to-ten to improve trading liquidity was a good move as it will
result in the company's prices becoming more affordable.
The research house expects the theoretical share price to be adjusted to
RM3.12 based on the September 5 closing price of RM31.20.
HwangDBS Vickers, along with another research house, Hong Leong Investment
Bank Research, maintained a "hold" call on DiGi with both raising the equity's
target price.
HwangDBS increased the target price to RM32.20 from RM30.80 while the latter
raised it to RM32.03 from RM29.20.
MIDF Research on the other hand, maintained a "buy" call on the
telecommunication company with a higher target price of RM35.50 from RM33.50
previously while ECM Libra upgraded its recommendation to "buy" with target
price set at RM35.05.--Bernama

MIDF 'negative' on auto sector

Stock Name: MBMR
Company Name: MBM RESOURCES BHD
Research House: MIDFPrice Call: BUYTarget Price: 3.60

Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Research House: MIDFPrice Call: HOLDTarget Price: 4.94

Stock Name: UMW
Company Name: UMW HOLDINGS BHD
Research House: MIDFPrice Call: HOLDTarget Price: 7.00

Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Research House: MIDFPrice Call: HOLDTarget Price: 3.30



MIDF Research has recommended a "buy" for MBM Resources Bhd at a target price of RM3.60 while maintaining a "neutral" on Tan Chong Motor Holdings Bhd at a target price of RM4.94.

MIDF also placed a "neutral" call on UMW Holdings Bhd and Proton Holdings
Bhd at target prices of RM7.00 and RM3.30 respectively.
The research house said the second quarter earnings of MBM and Tan Chong
came within its expectations after factoring the slower vehicle sales volume and
the supply chain disruption due to post-Japan's twin disaster.
The research house contended that the results recorded by both UMW and
Proton were below expectations.
"Nonetheless, we anticipate the shortfall over earnings in the second
quarter of financial year 2011 for the four stocks, to be recovered in the
second half of financial year 2011 as production normalises," MIDF Research said
in its Monthly Review and Outlook of the Automotive Sector here today.
The research house, however, retained its "negative" recommendation on the
automotive sector.
"We expect the impact from the auto supply shortages due to the post-Japan
calamities and the implementation of the amended Hire Purchase Act to be still
felt over the next few months following the intense competition in the near
term," it said.
MIDF Research, however, is maintaining its 2011 total industry volume (TIV)
forecast of 610,324 units, which has factored in lower sales volume due to the
auto supply shortages.
The Malaysian Association Automobile (MAA) had recently revised its
TIV projection for 2011 to 608,000 units from 618,000 units, 2.4 per cent below
the forecast number of MIDF.
MIDF Research said July's TIV rebounded strongly by 20.2 per cent
month-on-month to 50,252 units after three consecutive months of contraction in
vehicle sales, suggesting the start of a recovery on the back of a gradual
ramp-up in
production with the easing of part supply disruption.
"July's strong double-digit sales growth was also supported by a full-month
contribution from the new Perodua Myvi, which was launched in mid-June amid
the pre-Hari Raya sales promotion.
"Based on the encouraging numbers, we expect the August 2011 TIV to continue
the monthly uptrend in sales given the rush for deliveries before Hari Raya,"
MIDF Research said.
Meanwhile, July's vehicle production fell by eight per cent year-on-year to
53,453 units as the auto supply shortage lingers. - Bernama

KL Kepong still a 'buy' at HwangDBS

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD
Research House: HWANGDBSPrice Call: BUYTarget Price: 25.35



HwangDBS Vickers has maintained a "buy" call on Kuala Lumpur Kepong (KLK), with a target price of RM25.35 due to the company's earnings growth potential.

It said KLK had announced that it would invest RM706 million to develop its
palm oil processing facilities in Malaysia.
"This comes as an initiative to move up the value chain," it said in a
research note today.
The research firm understands that the projects will take 18 to 24 months to
complete and KLK has been given a RM134 million grant by the Malaysian Palm Oil
Board.
It said KLK would spend about RM500 million over the next two years.
HwangDBS understands that KLK is likely to reap a minimum 15 per cent
investment returns from the projects as was indicated by its chief executive
officer. -- Bernama

Puncak Niaga upgraded, stock jumps

Stock Name: PUNCAK
Company Name: PUNCAK NIAGA HOLDINGS BHD
Research House: OSKPrice Call: TRADING BUYTarget Price: 1.82



Puncak Niaga Holdings Bhd rose the most in 34 months after OSK Holdings Bhd upgraded the stock following a Business Times report the Malaysian water treatment operator may join a group to take over the national sewerage company.

The stock jumped 17 percent to RM1.33 at 11:02 a.m. local time in Kuala Lumpur trading, set for its biggest gain since Nov. 3, 2008.

OSK raised its stock rating to "trading buy" from "neutral," it said in a report today. -- Bloomberg

Bumi Armada inches up, Credit Suisse has Outperform, RM4.40

Stock Name: ARMADA
Company Name: BUMI ARMADA BERHAD
Research House: CREDIT SUISSEPrice Call: BUYTarget Price: 4.40



KUALA LUMPUR: Shares of Bumi Armada inched up in moderate trade at the midday break on Friday, Sept 9 in line with the firmer equities.

At 12.30pm, it was up two sen to RM3.68. There were 430,400 shares transacted at prices ranging from RM3.66 to RM3.69.'' Since Friday, Sept 2, the share price is up nine sen from RM3.59.

Credit Suisse Asia Pacific/Malaysia Equity Research had on Thursday initiated coverage on Bumi Armada with Outperform rating and a RM4.40 target price that implied 19% potential upside.

'Our target price is based on 20x FY12E earnings, in line with the average sector P/E for large-cap Singapore-Malaysia oil and gas stocks,' it said.

Credit Suisse Research said under the Economic Transformation Programme, the government is pushing to increase oil production levels through enhanced oil recovery (EOR) projects, and the development of deepwater and marginal fields.

The end of MISC's de-facto monopoly on the domestic floating production storage and offloading (FPSO) market leaves Bumi Armada well placed to tap into this development.

'Not only can the company provide FPSOs to domestic projects, such as Shell's St Joseph Chemical enhanced oil recovery (EOR) project, but it can also participate as a risk-sharing contractor to develop marginal fields in Malaysia.

DiGi advances on capital distribution plan

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



KUALA LUMPUR: DIGI.COM BHD [] shares rose on Friday, Sept 9 after the company announced plans for a capital distribution to its shareholders.

At 9.15am, DiGi rose RM1.88 to RM33.00 with 136,800 shares traded.

The company on Sept 8 had announced a 1-for-10 share split which would increase in the number of shares from 777.5 million shares to 7.775 billion shares.

Its unit, DiGi Telecommunications Sdn Bhd (DiGiTel), is proposing to undertake a capital management initiative whereby DiGiTel will distribute RM509 million to DiGi.com.

The proposed capital distribution entails the issuance of redeemable preference shares from DiGiTel to DiGi which upon redemption will result in a cash payment of RM509 million to DiGi.com.

DiGi said it intended to distribute the excess proceeds from the capital distribution to all its shareholders by the first half of 2012.

RHB Research in a note Sept 9 said it was positive that DiGi intended to distribute excess cash of about RM509m (65 sen per share) to shareholders by 1HCY12.

The research house upgraded the stock to Outperform previously Trading Buy) with DCF-derived fair value of RM34.00 (WACC=7.7%), which offers total upside of 15.7% inclusive of 6.4% net dividend yield.

It said DiGi should be paying more dividends for FY11 (versus FY10: RM1.63/share) totalling RM1.6 billion (RM2.05/share) comprising: 1) FY11 DPS forecast of RM1.40 based on 100% payout of FY11 EPS; and 2) RM509m capital distribution (65/share).

Based on core FY11 earnings (after stripping out accelerated depreciation), this implies a payout ratio of 114%, it said.

'DiGi still has about RM692 million (89 sen per share) in share premium left. Going forward, management intends to tap into this account for future cash distribution,' said the research house.

OSK maintains 'buy' call on SOP

Stock Name: SOP
Company Name: SARAWAK OIL PALMS BHD
Research House: OSKPrice Call: BUYTarget Price: 5.67



OSK Research continued to like Sarawak Oil Palms Bhd (SOP), which will be included in the FTSE Bursa Malaysia Mid 70 Index
from today, as it has one of the most favourable tree age profiles within their plantation universe.

SOP will be listed in the Mid 70 counters to replace EON Capital following completion of Hong Leong Bank's acquisition. The company was previously included in the FTSE Bursa Malaysia Small Cap Index.

In a investment research note today, OSK said the company saw the first half financial year 2011 fresh fruit bunch production surge 30.3 per cent year-on-year.

"SOP is also one of the few plantation companies that registered
quarter-on-quarter earnings growth in the second quarter financial year 2011 despite lower palm oil prices," it said.

Sorting the FBM Bursa Malaysia Mid 70 Index members based on their respective full market capitalisation, OSK said SOP would be the 52nd largest company on the index, with a market cap of RM1.83 billion.

OSK maintained a "buy" call on SOP and retained its fair value at RM5.67. At 11.58am, SOP added two sen to RM4.32, after opening at RM4.30. -- Bernama

CIMB Research maintains Outperform on Genting M'sia

Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD
Research House: CIMBPrice Call: BUYTarget Price: 4.50



KUALA LUMPUR: CIMB Equities Research is maintaining its Outperform call and sum-of-parts based target price of RM4.50 for Genting Malaysia.

It said on Thursday, Sept 8 US lawmakers are reportedly considering whether to allow table games in places like the Saratoga Casino and Raceway in New York.

Currently, table games are only allowed in tribe-operated casinos in New York. While it is still early days, this is good news for Genting New York's Resorts World New York (RWNY) as the net win for table games can be much higher than for slot machines or video lottery terminals (VLT).

'This suggests potential upside to our earnings projections which currently factor in only the VLT operations.

'As Genting Malaysia's overseas operations gain traction, the group's earnings profile will slowly but surely transform. We maintain our OUTPERFORM call and SOP-based target price of RM4.50 for Genting Malaysia,' it said.

CIMB Research maintains Outperform on DiGi

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



KUALA LUMPUR: CIMB Equities Research is maintaining its Outperform call on DIGI.COM BHD [] and retains its discounted cashflow-based target price of RM34.

It said on Friday, Sept 9 that it was positive on DiGi's move to potentially unlock RM692 million (RM0.89/share), on top of the RM509 million (RM0.65/share) capital distribution that is being proposed.'' DiGi also announced a 1-for-10 share split.

'We gather that the telco is confident of reaping RM1.1 billion in opex and capex savings from its collaboration with Celcom and would not be surprised if it exceeded the target.

'As we expect the capital distribution to be announced with its FY11 results, we raise our FY11 net DPS by 29%, which results in tweaks of less than 1% to our EPS forecasts,' it said.

However, CIMB Research said its DCF-based target price of RM34.00 is intact. It maintained its'' OUTPERFORM call, with likely re-rating catalysts being more capital management and consensus forecast upgrades for the just-announced prepaid sales tax pass-through.

September 8, 2011

'Maybank less susceptible to capital mart risks'

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD
Research House: HWANGDBSPrice Call: BUYTarget Price: 10.60



Malayan Banking Bhd (Maybank) will be less susceptible to capital market weakness, given its stronger commercial banking supported by transactional activities. HwangDBS Vickers Research said Maybank's recurring non-interest income at
59 per cent of total non-interest income with solid deposit franchise and high
share of current and savings accounts would give it a natural advantage over
peers to strengthen transaction banking. "Overall, Maybank's market-related income is 21 per cent of non-interest
income," it said in a note today. HwangDBS said the inclusion of Kim Eng would raise investment banking income
to eight per cent of total revenue (from two per cent), by leveraging on its
local capabilities and Kim Eng's franchise. It said the key risks were integration and execution of mandates, which
depended on market conditions. The research house has trimmed financial year 2011-2012 forecast earnings by
two-seven per cent on lower loan growth and net interest margin.
HwangDBS said it has maintained Maybank's "buy" call at target price of RM10.60. -- Bernama

HDBSVR lowers CIMB Group target price to RM7.40

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: HWANGDBSPrice Call: HOLDTarget Price: 7.40



KUALA LUMPUR: Hwang DBS Vickers Research has downgraded CIMB Group Holdings Bhd to a Hold and lowered the target price to RM7.40.

It said on Thursday, Sept 8 its revised target price implied 2.2 times CY12 book value based on 16.5% returns on equity, 6.5% growth and 11% cost of equity.

'CIMB's high 38% foreign shareholding (ex-MUFJ's strategic stake) poses risks of a selldown in times of deleveraging. Also, Indonesia policy risk is priced in at current valuations, although if implemented, the loss of 50% of its Indonesian contribution could reduce earnings by another 10%-13%,' it said.

HDBSVR said CIMB Group's FY11 earnings were likely intact although management seemed to err on the side of caution.

'But 2012 could see a repeat of 2008 if capital markets turn soft. In 2008, when capital markets were sluggish, CIMB's non-interest income tumbled 38% on-year. 'Our 2012 forecast is not bearish as we imputed only 13% drop in non-interest income to lead to 9% earnings contraction for the year,' it said.

The research house said in volatile times, market-related revenues would be most at risk.

'We estimate 40% of CIMB's non-interest income is market-related, mainly to capital market flows. Even mandates in the bag do not guarantee deals will 'go to the market'. This prompted us to trim non-interest income by 28-34% over FY12-13F.

'We also reduced loan growth assumptions to 12% from 17%, and trimmed NIM to 2.6%/2.5% from 2.7%/2.6%, over the same period, given persistent competition and a less aggressive loan growth agenda for Niaga. These led to 23-27% earnings cut. Key risk to our call is a quicker-than-expected rebound of capital market flows,' it said.

OSK cuts banking sector to 'neutral'

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: OSKPrice Call: HOLDTarget Price: 8.20

Stock Name: PBBANK
Company Name: PUBLIC BANK BHD
Research House: OSKPrice Call: HOLDTarget Price: 14.00

Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Research House: OSKPrice Call: HOLDTarget Price: 12.70

Stock Name: AMMB
Company Name: AMMB HOLDINGS BHD
Research House: OSKPrice Call: HOLDTarget Price: 6.95

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD
Research House: OSKPrice Call: BUYTarget Price: 9.60

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Research House: OSKPrice Call: BUYTarget Price: 9.90

Stock Name: AFG
Company Name: ALLIANCE FINANCIAL GROUP BHD
Research House: OSKPrice Call: BUYTarget Price: 3.80



OSK Research has downgraded its call on the banking sector to "neutral", citing lack of catalysts.

"While we do not expect any major meltdown in asset quality or liquidity constraints, we think that earnings growth momentum may have slowed significantly," the research house said in its Investment Research Daily today.

"With growth expected to moderate even more in 2012, consensus' current double digit earnings growth expectations for 2012 may be a little far-fetched, in our view, given the current global economic headwinds," it said.

It places a "neutral" call on CIMB with a fair value of RM8.20, Public Bank (RM14.00), Hong Leong Bank (RM12.70) and AMMB (RM6.95) but recommends a "buy" on Maybank (RM9.60), RHB Capital Bhd (RM9.90) and Alliance Finance Group (RM3.80).

Maybank's strong consumer banking franchise and fast expanding investment banking and corporate banking provided the group a well diversified earnings platform base to benefit from either the Economic Transformation Programme (ETP)-related financing upside or stronger than expected consumer recovery upside, OSK Research said.

RHB Capital, meanwhile, was expected to be back in the merger and acquisition spot light as further sector consolidation was likely to be revisited following the soon-to-be-unveiled Financial Sector Master Plan which focuses on liberalisation of the banking sector.

OSK Research said AFG was confident that the group would be able to deliver solid results going forward, riding mainly on higher non-interest income and decent loans growth. -- Bernama

Alam Maritim Resources stepping up contract wins

Stock Name: ALAM
Company Name: ALAM MARITIM RESOURCES BHD
Research House: MAYBANKPrice Call: HOLDTarget Price: 0.85



Alam Maritim Resources Bhd
(Sept 7, RM78.5 sen)
Maintain hold at 73 sen with target price of 85 sen: Offshore support vessel (OSV) hiring is gaining momentum, reflecting the improving prospects for local-flagged vessels in tandem with the intensification of Petroliam Nasional Bhd's capital expenditure programmes.

However, Alam's fleet growth remains constrained by its stretched balance sheet, impeding its earnings potential.

Maintain 'hold' with a 85 sen target price, pegged to nine times 2012 earnings per share (EPS).

Alam has secured a 3+2 year charter contract from ExxonMobil Exploration and Production Malaysia Inc for two vessels.

The contract has a value of RM220.8 million over the full five years and calls for one accommodation vessel (MV Setia Aman) and one anchor-handling tug (AHT).

Based on this and earlier contract announcements, we estimate that MV Setia Aman will be chartered out at a daily rate of at least RM70,000 and over RM30,000 for the AHT.

These rates are comparable to awards secured earlier in March and April this year (ranging from RM30,000 to RM70,000 a day).

Utilisation rates have improved although charter rates are likely to trend sideways for the next 24 months, as the market continues to absorb supply overhang in the 5,150 brake horse power (bhp) series segment.

Overall, we expect offshore marine activity to increase over the next year with the upcoming marginal and brownfield projects.

Assuming 40% gross margin, we expect this recent contract win to contribute up to RM40 million in net profit (five sen EPS) over the full five years of charter.

We retain our earnings forecasts having imputed contract wins earlier.

While we are encouraged by the size of Alam's recent contract win and financial improvement, its high gearing level is a concern, as it hampers long-term growth.

We retain our earnings forecasts and 85 sen target price. ' Maybank IB Research, Sept 7


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

Rubber gloves show signs of turnaround in 2Q

Stock Name: KOSSAN
Company Name: KOSSAN RUBBER INDUSTRIES BHD
Research House: AFFINPrice Call: BUYTarget Price: 4.18



Rubber gloves
Maintain overweight: After four sequential quarters of earnings decline, rubber glove manufacturers posted their first quarter-on-quarter (q-o-q) growth in 2QCY11. Aggregate core net profit for Top Glove Corp Bhd, Supermax Corp Bhd, Kossan Rubber Industries Bhd and Hartalega Sdn Bhd grew by 2.2% q-o-q, on the back of a 7.9% q-o-q increase in revenue.

Hartalega reported another strong quarter ' core net profit grew by 4.5% q-o-q, attributed primarily to higher sales volume (9.3% q-o-q) and higher average selling prices (7.4% q-o-q). Excluding Hartalega, aggregate earnings of natural rubber glove manufacturers grew, albeit by a marginal 0.6% q-o-q.

The 2QCY11 results for natural rubber glove manufacturers were largely characterised by: (i) lower latex prices. Average latex prices slid by 4.3% q-o-q in 2QCY11, easing cost pressure; (ii) improvement in earnings before interest and tax (Ebit) margins. Top Glove's Ebit margin remained steady at 6.4% (1QCY11: 6.4%), while Supermax added 0.4 percentage points to 8% (1QCY11: 7.6%); and (iii) lower than usual utilisation rates, specifically for Kossan and Supermax, due to the closure of certain plants for upgrading and refurbishment. Utilisation rates should gradually revert back to normal by 4QCY11.

As our earnings forecasts were up to 24% below consensus prior to the August 2011 reporting season, results were largely within our expectations though below consensus. Kossan, however, was below our expectation due to lower than expected utilisation rate. We made no changes to our earnings forecasts for Top Glove and Hartalega.

For Kossan, taking into account the lower utilisation rate and lower than expected 2QCY11 results, our FY11 to FY13 net earnings forecasts were cut by between 5% and 14%.

We make no change to our FY11 core net profit forecast of RM110 million for Supermax. After factoring in the delay of Glove City to FY14 and the addition of two new plants between FY12/FY13, our FY12/FY13 net earnings forecasts were lowered by 7% to 9%.

With signs of recovery finally emerging, we maintain our 'overweight' stance on the sector. We expect glove manufacturers' sequential earnings to improve on the back of: (i) lower and less volatile latex prices; (ii) higher utilisation rates as well as increased production as additional capacity expansion comes onstream in 4QCY11, and; (iii) continued steady demand growth.

Hartalega ('buy', target price: RM7.33) is our top pick for the sector, for: (i) its high Ebit margin of above 30%; (ii) insulation from volatile latex prices, and; (iii) consistent earnings delivery and strong operational efficiency. We also maintain our 'buy' recommendations for Supermax (TP: RM4.36) and Kossan (TP: RM4.18) on attractive valuations. Top Glove remains a 'reduce' (TP: RM4.62). ' Affin IB Research, Sept 8


This article appeared in The Edge Financial Daily, September 9, 2011.

Rubber gloves show signs of turnaround in 2Q

Stock Name: SUPERMX
Company Name: SUPERMAX CORPORATION BHD
Research House: AFFINPrice Call: BUYTarget Price: 4.36



Rubber gloves
Maintain overweight: After four sequential quarters of earnings decline, rubber glove manufacturers posted their first quarter-on-quarter (q-o-q) growth in 2QCY11. Aggregate core net profit for Top Glove Corp Bhd, Supermax Corp Bhd, Kossan Rubber Industries Bhd and Hartalega Sdn Bhd grew by 2.2% q-o-q, on the back of a 7.9% q-o-q increase in revenue.

Hartalega reported another strong quarter ' core net profit grew by 4.5% q-o-q, attributed primarily to higher sales volume (9.3% q-o-q) and higher average selling prices (7.4% q-o-q). Excluding Hartalega, aggregate earnings of natural rubber glove manufacturers grew, albeit by a marginal 0.6% q-o-q.

The 2QCY11 results for natural rubber glove manufacturers were largely characterised by: (i) lower latex prices. Average latex prices slid by 4.3% q-o-q in 2QCY11, easing cost pressure; (ii) improvement in earnings before interest and tax (Ebit) margins. Top Glove's Ebit margin remained steady at 6.4% (1QCY11: 6.4%), while Supermax added 0.4 percentage points to 8% (1QCY11: 7.6%); and (iii) lower than usual utilisation rates, specifically for Kossan and Supermax, due to the closure of certain plants for upgrading and refurbishment. Utilisation rates should gradually revert back to normal by 4QCY11.

As our earnings forecasts were up to 24% below consensus prior to the August 2011 reporting season, results were largely within our expectations though below consensus. Kossan, however, was below our expectation due to lower than expected utilisation rate. We made no changes to our earnings forecasts for Top Glove and Hartalega.

For Kossan, taking into account the lower utilisation rate and lower than expected 2QCY11 results, our FY11 to FY13 net earnings forecasts were cut by between 5% and 14%.

We make no change to our FY11 core net profit forecast of RM110 million for Supermax. After factoring in the delay of Glove City to FY14 and the addition of two new plants between FY12/FY13, our FY12/FY13 net earnings forecasts were lowered by 7% to 9%.

With signs of recovery finally emerging, we maintain our 'overweight' stance on the sector. We expect glove manufacturers' sequential earnings to improve on the back of: (i) lower and less volatile latex prices; (ii) higher utilisation rates as well as increased production as additional capacity expansion comes onstream in 4QCY11, and; (iii) continued steady demand growth.

Hartalega ('buy', target price: RM7.33) is our top pick for the sector, for: (i) its high Ebit margin of above 30%; (ii) insulation from volatile latex prices, and; (iii) consistent earnings delivery and strong operational efficiency. We also maintain our 'buy' recommendations for Supermax (TP: RM4.36) and Kossan (TP: RM4.18) on attractive valuations. Top Glove remains a 'reduce' (TP: RM4.62). ' Affin IB Research, Sept 8


This article appeared in The Edge Financial Daily, September 9, 2011.

Rubber gloves show signs of turnaround in 2Q

Stock Name: HARTA
Company Name: HARTALEGA HOLDINGS BHD
Research House: AFFINPrice Call: BUYTarget Price: 7.33



Rubber gloves
Maintain overweight: After four sequential quarters of earnings decline, rubber glove manufacturers posted their first quarter-on-quarter (q-o-q) growth in 2QCY11. Aggregate core net profit for Top Glove Corp Bhd, Supermax Corp Bhd, Kossan Rubber Industries Bhd and Hartalega Sdn Bhd grew by 2.2% q-o-q, on the back of a 7.9% q-o-q increase in revenue.

Hartalega reported another strong quarter ' core net profit grew by 4.5% q-o-q, attributed primarily to higher sales volume (9.3% q-o-q) and higher average selling prices (7.4% q-o-q). Excluding Hartalega, aggregate earnings of natural rubber glove manufacturers grew, albeit by a marginal 0.6% q-o-q.

The 2QCY11 results for natural rubber glove manufacturers were largely characterised by: (i) lower latex prices. Average latex prices slid by 4.3% q-o-q in 2QCY11, easing cost pressure; (ii) improvement in earnings before interest and tax (Ebit) margins. Top Glove's Ebit margin remained steady at 6.4% (1QCY11: 6.4%), while Supermax added 0.4 percentage points to 8% (1QCY11: 7.6%); and (iii) lower than usual utilisation rates, specifically for Kossan and Supermax, due to the closure of certain plants for upgrading and refurbishment. Utilisation rates should gradually revert back to normal by 4QCY11.

As our earnings forecasts were up to 24% below consensus prior to the August 2011 reporting season, results were largely within our expectations though below consensus. Kossan, however, was below our expectation due to lower than expected utilisation rate. We made no changes to our earnings forecasts for Top Glove and Hartalega.

For Kossan, taking into account the lower utilisation rate and lower than expected 2QCY11 results, our FY11 to FY13 net earnings forecasts were cut by between 5% and 14%.

We make no change to our FY11 core net profit forecast of RM110 million for Supermax. After factoring in the delay of Glove City to FY14 and the addition of two new plants between FY12/FY13, our FY12/FY13 net earnings forecasts were lowered by 7% to 9%.

With signs of recovery finally emerging, we maintain our 'overweight' stance on the sector. We expect glove manufacturers' sequential earnings to improve on the back of: (i) lower and less volatile latex prices; (ii) higher utilisation rates as well as increased production as additional capacity expansion comes onstream in 4QCY11, and; (iii) continued steady demand growth.

Hartalega ('buy', target price: RM7.33) is our top pick for the sector, for: (i) its high Ebit margin of above 30%; (ii) insulation from volatile latex prices, and; (iii) consistent earnings delivery and strong operational efficiency. We also maintain our 'buy' recommendations for Supermax (TP: RM4.36) and Kossan (TP: RM4.18) on attractive valuations. Top Glove remains a 'reduce' (TP: RM4.62). ' Affin IB Research, Sept 8


This article appeared in The Edge Financial Daily, September 9, 2011.

Oil and gas: Still pumped up

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



Oil and gas sector
Maintain positive: MIDF Research oil and gas sector aggregate earnings growth in 2QCY11 declined 8.9% quarter-on-quarter compared with 1QCY11's -2.9% q-o-q. Negative earnings surprises outweighed the positive (37% below expectation compared with 13% above expectation). Accordingly, our CY11 core aggregate profit forecast has been adjusted downwards by 4.2% mainly as a result of an earnings revision for Petronas Chemicals Group Bhd (PetChem)(-6.5%) and Bumi Armada Bhd (-12.9%). Although 2QCY11 results were a slight disappointment, sector fundamentals remain intact with estimated CY11 and CY12 earnings growth of 14.5% year-on-year and 22% y-o-y.

Petronas Gas Bhd (PetGas) continued to deliver consistent earnings in 2QCY11 despite gas supply constraints. This was attributed to its fixed charges structure and higher utilities sales. We see PetGas as a strong beneficiary from the liberalisation of the gas industry, continuous gas field development and rising natural gas demand. The upcoming LNG re-gasification plant in Melaka by mid next year and recently announced North Malay Basin gas project in the Gulf of Thailand are expected to be the next earnings drivers for PetGas.

Wah Seong Corp Bhd's earnings are expected to be sustained by its Gorgon LNG pipe-coating project. Potential pipecoating contracts for the North Malay Basin gas project and Australia LNG terminals development are also the catalysts for Wah Seong.

The gas supply shortage has affected PetChem's production and consequently its earnings growth, even though margin was still sustained on favourable product price spread. A potential global economic slowdown which might lead to slower demand growth for petrochemical products is another risk. On the bright side, a huge cash pile of about RM10 billion keeps PetChem in an excellent position to expand.

Bumi Armada's sizeable outstanding order book of RM5.8 billion is expected to support earnings growth. However, we believe that the current valuation has already factored in our earnings forecast (including the two new floating, production, storage and offloading (FPSO) contracts (Armada TGT1 and Armada Prima) secured this year, limiting the upside.

Earnings sustainability is the main concern for Malaysia Marine and Heavy Engineering Bhd (MMHE), given its slow job replenishment rate. Its order book as at June 2011 declined to RM2.9 billion from RM5.9 billion a year ago. Delay or failure in securing fabrication jobs namely for Turkmenistan B1 P2 and Malikai projects in CY12 will lead to a downward earnings revision.

The worst performer was KNM Group Bhd, whose share price was badly hit after the weaker results announcement. We do not rule out the possibility of an earnings downgrade should the financial close for its Peterborough project be delayed further. Our current 'buy' call for KNM is based on its strong order backlog of RM3.3 billion, incorporating the earnings recognition from Peterborough project starting FY12.

Our positive stance on the sector is mainly attributed to: (i) earnings growth of 14.5% y-o-y and 22% y-o-y for CY11 and CY12; and (ii) Petroliam Nasional Bhd's capital expenditure and its strategy to focus on domestic exploration and production.

Petronas has spent RM9.6 billion (+60% y-o-y) in 2QCY11. We believe higher Petronas' capex of an average RM60 billion per annum over the next five years (up from earlier announced RM50 billion to RM55 billion) will sustain job replenishment and earnings growth. Potential contracts to be awarded include the Malikai Deepwater project, North Malay Basin project and 14 sanctioned enhanced oil recovery projects. Nonetheless, from a valuation perspective, we are inclined to hold a 'neutral' view with a selective 'buy' recommendation.

Based on our stocks coverage earnings estimates, the sector 2011 price-earnings ratio and 2012 PER are pegged at 21.5 times and 17.7 times, compared with its historical average since 2008 of 18.3 times.

PetGas ('buy', target price: RM14.40) is among the top picks given its defensive business nature, consistent dividend payout with estimated 3.7% net yield and net cash position of RM1.27 per share. PetGas was also an outperformer during the previous stock market downturn. Other 'buy' recommendations include Wah Seong (TP: RM2.73) and Dialog Group Bhd (TP: RM2.94). ' MIDF Research, Sept 8


This article appeared in The Edge Financial Daily, September 9, 2011.

Oil and gas: Still pumped up

Stock Name: WASEONG
Company Name: WAH SEONG CORPORATION BHD
Research House: MIDFPrice Call: BUYTarget Price: 2.73



Oil and gas sector
Maintain positive: MIDF Research oil and gas sector aggregate earnings growth in 2QCY11 declined 8.9% quarter-on-quarter compared with 1QCY11's -2.9% q-o-q. Negative earnings surprises outweighed the positive (37% below expectation compared with 13% above expectation). Accordingly, our CY11 core aggregate profit forecast has been adjusted downwards by 4.2% mainly as a result of an earnings revision for Petronas Chemicals Group Bhd (PetChem)(-6.5%) and Bumi Armada Bhd (-12.9%). Although 2QCY11 results were a slight disappointment, sector fundamentals remain intact with estimated CY11 and CY12 earnings growth of 14.5% year-on-year and 22% y-o-y.

Petronas Gas Bhd (PetGas) continued to deliver consistent earnings in 2QCY11 despite gas supply constraints. This was attributed to its fixed charges structure and higher utilities sales. We see PetGas as a strong beneficiary from the liberalisation of the gas industry, continuous gas field development and rising natural gas demand. The upcoming LNG re-gasification plant in Melaka by mid next year and recently announced North Malay Basin gas project in the Gulf of Thailand are expected to be the next earnings drivers for PetGas.

Wah Seong Corp Bhd's earnings are expected to be sustained by its Gorgon LNG pipe-coating project. Potential pipecoating contracts for the North Malay Basin gas project and Australia LNG terminals development are also the catalysts for Wah Seong.

The gas supply shortage has affected PetChem's production and consequently its earnings growth, even though margin was still sustained on favourable product price spread. A potential global economic slowdown which might lead to slower demand growth for petrochemical products is another risk. On the bright side, a huge cash pile of about RM10 billion keeps PetChem in an excellent position to expand.

Bumi Armada's sizeable outstanding order book of RM5.8 billion is expected to support earnings growth. However, we believe that the current valuation has already factored in our earnings forecast (including the two new floating, production, storage and offloading (FPSO) contracts (Armada TGT1 and Armada Prima) secured this year, limiting the upside.

Earnings sustainability is the main concern for Malaysia Marine and Heavy Engineering Bhd (MMHE), given its slow job replenishment rate. Its order book as at June 2011 declined to RM2.9 billion from RM5.9 billion a year ago. Delay or failure in securing fabrication jobs namely for Turkmenistan B1 P2 and Malikai projects in CY12 will lead to a downward earnings revision.

The worst performer was KNM Group Bhd, whose share price was badly hit after the weaker results announcement. We do not rule out the possibility of an earnings downgrade should the financial close for its Peterborough project be delayed further. Our current 'buy' call for KNM is based on its strong order backlog of RM3.3 billion, incorporating the earnings recognition from Peterborough project starting FY12.

Our positive stance on the sector is mainly attributed to: (i) earnings growth of 14.5% y-o-y and 22% y-o-y for CY11 and CY12; and (ii) Petroliam Nasional Bhd's capital expenditure and its strategy to focus on domestic exploration and production.

Petronas has spent RM9.6 billion (+60% y-o-y) in 2QCY11. We believe higher Petronas' capex of an average RM60 billion per annum over the next five years (up from earlier announced RM50 billion to RM55 billion) will sustain job replenishment and earnings growth. Potential contracts to be awarded include the Malikai Deepwater project, North Malay Basin project and 14 sanctioned enhanced oil recovery projects. Nonetheless, from a valuation perspective, we are inclined to hold a 'neutral' view with a selective 'buy' recommendation.

Based on our stocks coverage earnings estimates, the sector 2011 price-earnings ratio and 2012 PER are pegged at 21.5 times and 17.7 times, compared with its historical average since 2008 of 18.3 times.

PetGas ('buy', target price: RM14.40) is among the top picks given its defensive business nature, consistent dividend payout with estimated 3.7% net yield and net cash position of RM1.27 per share. PetGas was also an outperformer during the previous stock market downturn. Other 'buy' recommendations include Wah Seong (TP: RM2.73) and Dialog Group Bhd (TP: RM2.94). ' MIDF Research, Sept 8


This article appeared in The Edge Financial Daily, September 9, 2011.

Oil and gas: Still pumped up

Stock Name: PETGAS
Company Name: PETRONAS GAS BHD
Research House: MIDFPrice Call: BUYTarget Price: 14.40



Oil and gas sector
Maintain positive: MIDF Research oil and gas sector aggregate earnings growth in 2QCY11 declined 8.9% quarter-on-quarter compared with 1QCY11's -2.9% q-o-q. Negative earnings surprises outweighed the positive (37% below expectation compared with 13% above expectation). Accordingly, our CY11 core aggregate profit forecast has been adjusted downwards by 4.2% mainly as a result of an earnings revision for Petronas Chemicals Group Bhd (PetChem)(-6.5%) and Bumi Armada Bhd (-12.9%). Although 2QCY11 results were a slight disappointment, sector fundamentals remain intact with estimated CY11 and CY12 earnings growth of 14.5% year-on-year and 22% y-o-y.

Petronas Gas Bhd (PetGas) continued to deliver consistent earnings in 2QCY11 despite gas supply constraints. This was attributed to its fixed charges structure and higher utilities sales. We see PetGas as a strong beneficiary from the liberalisation of the gas industry, continuous gas field development and rising natural gas demand. The upcoming LNG re-gasification plant in Melaka by mid next year and recently announced North Malay Basin gas project in the Gulf of Thailand are expected to be the next earnings drivers for PetGas.

Wah Seong Corp Bhd's earnings are expected to be sustained by its Gorgon LNG pipe-coating project. Potential pipecoating contracts for the North Malay Basin gas project and Australia LNG terminals development are also the catalysts for Wah Seong.

The gas supply shortage has affected PetChem's production and consequently its earnings growth, even though margin was still sustained on favourable product price spread. A potential global economic slowdown which might lead to slower demand growth for petrochemical products is another risk. On the bright side, a huge cash pile of about RM10 billion keeps PetChem in an excellent position to expand.

Bumi Armada's sizeable outstanding order book of RM5.8 billion is expected to support earnings growth. However, we believe that the current valuation has already factored in our earnings forecast (including the two new floating, production, storage and offloading (FPSO) contracts (Armada TGT1 and Armada Prima) secured this year, limiting the upside.

Earnings sustainability is the main concern for Malaysia Marine and Heavy Engineering Bhd (MMHE), given its slow job replenishment rate. Its order book as at June 2011 declined to RM2.9 billion from RM5.9 billion a year ago. Delay or failure in securing fabrication jobs namely for Turkmenistan B1 P2 and Malikai projects in CY12 will lead to a downward earnings revision.

The worst performer was KNM Group Bhd, whose share price was badly hit after the weaker results announcement. We do not rule out the possibility of an earnings downgrade should the financial close for its Peterborough project be delayed further. Our current 'buy' call for KNM is based on its strong order backlog of RM3.3 billion, incorporating the earnings recognition from Peterborough project starting FY12.

Our positive stance on the sector is mainly attributed to: (i) earnings growth of 14.5% y-o-y and 22% y-o-y for CY11 and CY12; and (ii) Petroliam Nasional Bhd's capital expenditure and its strategy to focus on domestic exploration and production.

Petronas has spent RM9.6 billion (+60% y-o-y) in 2QCY11. We believe higher Petronas' capex of an average RM60 billion per annum over the next five years (up from earlier announced RM50 billion to RM55 billion) will sustain job replenishment and earnings growth. Potential contracts to be awarded include the Malikai Deepwater project, North Malay Basin project and 14 sanctioned enhanced oil recovery projects. Nonetheless, from a valuation perspective, we are inclined to hold a 'neutral' view with a selective 'buy' recommendation.

Based on our stocks coverage earnings estimates, the sector 2011 price-earnings ratio and 2012 PER are pegged at 21.5 times and 17.7 times, compared with its historical average since 2008 of 18.3 times.

PetGas ('buy', target price: RM14.40) is among the top picks given its defensive business nature, consistent dividend payout with estimated 3.7% net yield and net cash position of RM1.27 per share. PetGas was also an outperformer during the previous stock market downturn. Other 'buy' recommendations include Wah Seong (TP: RM2.73) and Dialog Group Bhd (TP: RM2.94). ' MIDF Research, Sept 8


This article appeared in The Edge Financial Daily, September 9, 2011.

UEM Land a proxy for govt development

Stock Name: UEMLAND
Company Name: UEM LAND HOLDINGS BHD
Research House: MAYBANKPrice Call: BUYTarget Price: 2.70



UEM Land Holdings Bhd
(Sept 8, RM2.09)
Initiating coverage with buy rating at RM2.07 with target price of RM2.70: With strong Khazanah Nasional Bhd parentage, we view UEM Land as one of the frontrunners for government land developments in Singapore and Malaysia. The positive merger with Sunrise has raised its profile given Sunrise's expertise in high-rise integrated developments and branding.

UEM Land is also starting to reap the fruit of its flagship developments in Iskandar Malaysia. We initiate coverage on UEM Land with a 'buy' and RM2.70 target price (20% discount to RM3.36 realisable net asset value). The broader market weakness offers opportunity to buy for the long term.

UEM Land is the frontrunner for government land developments, including the Rubber Research Institute of Malaysia's 1,214ha in Sungai Buloh. UEM Land is sitting on the advisory panel, assisting EPF in formulating the master plan for the land. The company has also submitted bids for other government land ' the 7.7ha Unilever land in Bangsar and 8.5ha Pudu jail redevelopment in Bukit Bintang West in Kuala Lumpur. The securing of these developments will provide a strong impetus to UEM Land's earnings and valuation.

We are excited over its appointment as project manager for the S$11 billion (RM27 billion) Marina South and Ophir-Rochor government land developments in Singapore. The earnings impact for a project manager role is minimal, at 3% to 4% of our earnings before interest and tax (Ebit) estimates, but we believe its presence in Singapore has a more positive impact, promoting UEM Land's RM19 billion of properties in Nusajaya (within Iskandar). UEM Land could also benefit from outright land sale by M+S Pte Ltd, if any.

Iskandar's property prices should be boosted by a better transport system (Singapore-Johor Bahru intra-city train and rail transit system) and warmer bilateral ties. We expect increasing relocation/outsourcing economic activities from the island republic due to relatively cheaper costs in Iskandar. Flagship projects in Johor (Pengerang, Tanjung Langsat) will provide the population growth and are re-rating catalysts for the property/land prices in Iskandar.

Our 24% three-year net profit compound annual growth rate is premised on RM1.6 billion unbilled sales (0.8 times 2012 forecasts) and RM1.9 billion to RM2.9 billion per year sales forecasts. It could benefit from the government-linked company's share divestment plan which will improve its trading liquidity. Our 20% discount is to reflect its large exposure in Nusajaya (73% of total landbank, 62% total gross development value). ' Maybank IB Research, Sept 8


This article appeared in The Edge Financial Daily, September 9, 2011.

What if the MMC-Gamuda JV walks away from the MRT?

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: RHBPrice Call: BUYTarget Price: 3.79



Gamuda Bhd
(Sept 8, RM3.05)
Maintain outperform at 3.04 with revised fair value of RM3.79 (from RM3.70): The recent correction in Gamuda's share price may be partially attributable to the market pricing in an increased risk of MMC-Gamuda not winning the MRT tunnelling package, with the 'mighty' Chinese contractors coming into the picture.

The MMC-Gamuda JV may not be worse off walking away from the MRT tunnelling package if the Chinese contractors decide to drive the margins down to close to zero for tactical reasons. If MMC-Gamuda is not the contractor for the tunnelling package, instead of being the project delivery partner (PDP) for only the elevated portion, MMC-Gamuda JV can now become the PDP for the entire project including the tunnelling portion.

MMC-Gamuda JV may still come in via a backdoor if it is to replace the tunnelling contractor on dismissal on nonperformance grounds. The only issue is it will have to find a way or someone to complete the jobs at the same price.

The tunnelling package that is going to be up for bidding is only for Line 1, that is the Sungai Buloh-Kajang (SBK) Line. There will be two more tunnelling packages, one each for Lines 2 and 3 with an estimated combined value of RM12 billion.

We maintain our forecasts. Risks include: (i) the MRT project being delayed/scrapped; (ii) Gamuda getting a smaller role in the MRT project; and (iii) rising input costs.

We have turned positive on the construction sector as there is now even more urgency for the government to expedite the rollout of various public projects to pump prime the economy and shield it against the increased risk of the global economy slipping into a double dip recession. We believe the selldown on Gamuda is overdone as we feel that, as it stands today, it is untrue that the risks of the MRT project being delayed/scrapped or Gamuda getting a smaller role in the project, have risen significantly.

Indicative fair value for Gamuda is raised by 2% from RM3.70 to RM3.79 based on sum of parts, having raised our assumption on the total contract value (today's price) for the tunnelling packages for Lines 1, 2 and 3 of the MRT project to RM19.5 billion from RM13 billion previously. ' RHB Research, Sept 8


This article appeared in The Edge Financial Daily, September 9, 2011.

HLIB Research 8 September 2011 (Sunway; Traders Brief)

Stock Name: SUNWAY
Company Name: SUNWAY BERHAD
Research House: HLGPrice Call: BUYTarget Price: 3.12




Sunway (BUY, NEW)

Values undiscovered despite merger

'''' Since listing of Sunway, the market cap has tumbled 16% back to its Apr'11 low which was before the surge in share price of SunH-SunC, indicating that investors seeking to take profit have already done so and further selling pressure may have abated.

'''' Despite being one of the largest market cap stock in the property/construction sector, no premium is given to Sunway. Moreover, the company is currently trading at a P/E ratio of 9.4x and close to its NTA/share of RM1.91, representing a 15% premium. The premium (to NTA) is significantly lower than industry peers, which trade at a premium of up to 140%.

'''' In view of trading at a discount to its peers, no premium recognised despite the merger exercise and potential synergy benefits through having an integrated township developer which captures much of the value chain, we initiate with a BUY call on Sunway with a TP of RM3.12 based on SOP valuation.

''

FBM KLCI - A sense of calmness to return

'''' A sense of calmness is likely to return following the strong rebound on Wall St and Europe markets overnight.

'''' A strong close above the mid Bollinger band (at 1476 pts) on high volume would spur the index to retest the 1500 psychological level (which also coincides with the 30-day SMA at 1501).'' However, significant resistance levels still remain at 1510 (upper Bollinger band) and 1529 (200-d SMA).

''

Stock to watch - Tenaga:'' Technical rebound amid extremely oversold positions''''

'''' Looking at the charts, there is a high possibility that price may find its near term support around RM5.00 or 1x FY11 P/B, which is a 30% discount to Tenaga's 5-year historical average. Daily charts are signaling potential bottoming up in share prices, reflected by the reversals in MACD and RSI whilst the slow stochastics of circa 0.7% indicates limited downside. Potential technical rebound targets are RM5.55 (mid Bollinger band) to RM5.74 (30-d SMA).

'''' Cut loss below RM4.97 (lower Bollinger band)

''


HwangDBS cuts CIMB Group to 'hold'

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: DBS VICKERSPrice Call: HOLDTarget Price: 7.40



HwangDBS Vickers Research has forecast the earnings of CIMB Group Holdings next year to decline by nine per cent, led by a 13 per cent drop in non-interest income due the softer capital market.

HwangDBS Vickers said in volatile times, market-related revenue would be most at risk, impacting CIMB as 40 per cent of the bank's non-interest income is market-related, mainly to capital market flows.

"This prompted us to trim non-interest income by 28-34 per cent over the financial year 2012-2013 forecast," it said in a research note today.

The research house also reduced loans growth assumptions to 12 per cent from 17 per cent and trimmed CIMB's net interest margin prediction to 2.6/2.5 per cent from 2.7/2.6 per cent over the same period.

"This is given the persistent competition and a less aggressive loans growth agenda for CIMB Niaga TBK PT, leading to a 23-27 per cent earnings cut," it added.

CIMB Niaga is the bank's Indonesian subsidiary.

HwangDBS Vickers said the bank could face another earnings reduction by 10-13 per cent if Indonesia implements a new policy in the banking sector, leading to a 50 per cent loss in contribution from the country.

Therefore, HwangDBS Vickers has revised downward, CIMB Group Holdings recommendation to a "hold" from "buy" and has downgraded its target price to RM7.40 from RM10.10. -- BERNAMA

September 7, 2011

1H11 sales rise but mitigated by high costs

Stock Name: TONGHER
Company Name: TONG HERR RESOURCES BHD
Research House: AFFINPrice Call: BUYTarget Price: 2.85



Steel sector
Maintain neutral: In 1H11, earnings performance for companies under our steel sector coverage was a mixed bag. Two companies, Choo Bee Metal Industries Bhd and Tong Herr Resources Bhd came in above our expectation. Hiap Teck Venture Bhd and Kinsteel Bhd were below while Ann Joo Resources Bhd was within our expectation. However, all three companies covered by consensus (Ann Joo, Kinsteel and Hiap Teck), came in below street expectations.

Across the board, apart from Hiap Teck, companies reported an improvement in sales, underpinned by both higher sales tonnage and higher average selling prices. The average selling price of domestic steel bars has improved to RM2,200 to RM2,400 per tonne from a low of RM1,900 per tonne in 2010. Domestic demand for steel bars has also improved although not significantly. Export sales remained subdued on the back of the softening external environment.

Despite the improvement in demand and top line revenue, margins were affected by the surge in raw material costs. Across the board in 1H11, earnings before interest and tax (Ebit) margins were 0.5 to 9.0 percentage points lower. Recall that the price of iron ore has risen by more than 50% to a high of US$200 (RM596) per tonne from US$130 per tonne a year ago. Correspondingly, the scrap price has surged by more than 30% to around US$500 from US$380 per tonne. In addition, the recent 8% hike in electricity tariff has dented operating margins.

Evidently, domestic steel millers' profit was hit by high input costs. Year-to-date, apart from Tong Herr, where earnings were boosted by the consolidation of its stainless steel business, domestic millers suffered a year-on-year drop in earnings in the range of 25% to 180%.

For this quarter, we have:
(i) Upgraded Choo Bee to 'buy' (from 'add') given the weakness in share price. Target price remains unchanged at RM1.60 based on an unchanged target price earnings ratio (PER) of six times CY12;
(ii) Upgraded Tong Herr to 'buy' (from 'add') and raised our target price (TP) to RM2.85 (from RM2.60) following a 4% to 12% upgrade in FY11 to FY13 earnings forecast;
(iii) Downgraded Hiap Teck to 'sell' (from 'reduce') on the back of 39% to 51% cut in FY11 to FY13 earnings forecast. TP has been lowered to 70 sen (from RM1.05) tagged to seven times CY12 PER; and
(iv) Lowered Kinsteel's TP to 50 sen (from 70 sen) on the back of a 27% to 62% cut in FY11 to FY13 earnings forecast.

The much-anticipated MyRapid Transit (MRT) is expected to drive domestic steel demand. In the medium term, the indicative total project value for both the civil and tunnelling works for the 51km MRT will add up to around RM20 billion. The awarding of the various civil and tunnelling works will extend over the next six to nine months. However, we think real demand for steel stemming from the project will only come on full steam from 1H12 onwards.

After a staggering increase in steel prices over the last six months, mainly driven by re-stocking and cost-push factors, international steel prices are anticipated to soften in 4Q11 given the uncertainties in the developed economies. In addition, raw material cost is expected to remain high, continuing the mismatch between high production costs and weak selling prices. This will continue to affect millers' operating margins.

Although we expect the MRT project to support domestic steel demand in the medium to long term, in the short term we remain cautious on the sector given the doldrums in the external markets. Consequently, steel prices are expected to remain soft in 4Q11. Coupled with project implementation risk, we remain 'neutral' on the sector at this juncture. Upside risks to our view include better-than- expected demand from both domestic and export markets.

For exposure to the steel sector, we prefer long products millers to flat products manufacturers given the anticipated pick-up in construction activities. For short-term trading ideas, we like Ann Joo ('trading buy', TP; RM3.50) for its competent management and a more consistent earnings flow. Kinsteel remains a 'reduce' with a target price of 50 sen. We have a 'buy' on Tong Herr with a target price of RM2.85, given the improving demand for its stainless steel fasteners and expansion at its Thailand plant.

As for flat products, there is no change to our 'add' call on Choo Bee with an unchanged target price of RM1.60 (six times CY12 earnings per share). We prefer Choo Bee to Hiap Teck given the group's exposure to construction steel through its trading arm. Its trading business makes up about 60% of group's total revenue. Hiap Teck remains a 'sell' with an unchanged target price of 50 sen (seven times CY12 EPS). ' Affin IB Research, Sept 7


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

1H11 sales rise but mitigated by high costs

Stock Name: CHOOBEE
Company Name: CHOO BEE METAL INDUSTRIES BHD
Research House: AFFINPrice Call: BUYTarget Price: 1.60



Steel sector
Maintain neutral: In 1H11, earnings performance for companies under our steel sector coverage was a mixed bag. Two companies, Choo Bee Metal Industries Bhd and Tong Herr Resources Bhd came in above our expectation. Hiap Teck Venture Bhd and Kinsteel Bhd were below while Ann Joo Resources Bhd was within our expectation. However, all three companies covered by consensus (Ann Joo, Kinsteel and Hiap Teck), came in below street expectations.

Across the board, apart from Hiap Teck, companies reported an improvement in sales, underpinned by both higher sales tonnage and higher average selling prices. The average selling price of domestic steel bars has improved to RM2,200 to RM2,400 per tonne from a low of RM1,900 per tonne in 2010. Domestic demand for steel bars has also improved although not significantly. Export sales remained subdued on the back of the softening external environment.

Despite the improvement in demand and top line revenue, margins were affected by the surge in raw material costs. Across the board in 1H11, earnings before interest and tax (Ebit) margins were 0.5 to 9.0 percentage points lower. Recall that the price of iron ore has risen by more than 50% to a high of US$200 (RM596) per tonne from US$130 per tonne a year ago. Correspondingly, the scrap price has surged by more than 30% to around US$500 from US$380 per tonne. In addition, the recent 8% hike in electricity tariff has dented operating margins.

Evidently, domestic steel millers' profit was hit by high input costs. Year-to-date, apart from Tong Herr, where earnings were boosted by the consolidation of its stainless steel business, domestic millers suffered a year-on-year drop in earnings in the range of 25% to 180%.

For this quarter, we have:
(i) Upgraded Choo Bee to 'buy' (from 'add') given the weakness in share price. Target price remains unchanged at RM1.60 based on an unchanged target price earnings ratio (PER) of six times CY12;
(ii) Upgraded Tong Herr to 'buy' (from 'add') and raised our target price (TP) to RM2.85 (from RM2.60) following a 4% to 12% upgrade in FY11 to FY13 earnings forecast;
(iii) Downgraded Hiap Teck to 'sell' (from 'reduce') on the back of 39% to 51% cut in FY11 to FY13 earnings forecast. TP has been lowered to 70 sen (from RM1.05) tagged to seven times CY12 PER; and
(iv) Lowered Kinsteel's TP to 50 sen (from 70 sen) on the back of a 27% to 62% cut in FY11 to FY13 earnings forecast.

The much-anticipated MyRapid Transit (MRT) is expected to drive domestic steel demand. In the medium term, the indicative total project value for both the civil and tunnelling works for the 51km MRT will add up to around RM20 billion. The awarding of the various civil and tunnelling works will extend over the next six to nine months. However, we think real demand for steel stemming from the project will only come on full steam from 1H12 onwards.

After a staggering increase in steel prices over the last six months, mainly driven by re-stocking and cost-push factors, international steel prices are anticipated to soften in 4Q11 given the uncertainties in the developed economies. In addition, raw material cost is expected to remain high, continuing the mismatch between high production costs and weak selling prices. This will continue to affect millers' operating margins.

Although we expect the MRT project to support domestic steel demand in the medium to long term, in the short term we remain cautious on the sector given the doldrums in the external markets. Consequently, steel prices are expected to remain soft in 4Q11. Coupled with project implementation risk, we remain 'neutral' on the sector at this juncture. Upside risks to our view include better-than- expected demand from both domestic and export markets.

For exposure to the steel sector, we prefer long products millers to flat products manufacturers given the anticipated pick-up in construction activities. For short-term trading ideas, we like Ann Joo ('trading buy', TP; RM3.50) for its competent management and a more consistent earnings flow. Kinsteel remains a 'reduce' with a target price of 50 sen. We have a 'buy' on Tong Herr with a target price of RM2.85, given the improving demand for its stainless steel fasteners and expansion at its Thailand plant.

As for flat products, there is no change to our 'add' call on Choo Bee with an unchanged target price of RM1.60 (six times CY12 earnings per share). We prefer Choo Bee to Hiap Teck given the group's exposure to construction steel through its trading arm. Its trading business makes up about 60% of group's total revenue. Hiap Teck remains a 'sell' with an unchanged target price of 50 sen (seven times CY12 EPS). ' Affin IB Research, Sept 7


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

BToto: Tempering expectations but still optimistic

Stock Name: BJTOTO
Company Name: BERJAYA SPORTS TOTO BHD
Research House: MAYBANKPrice Call: BUYTarget Price: 4.85



Berjaya Sports Toto Bhd
(Sept 7, RM4.28)
Maintain buy at RM4.24 with revised target price of RM4.85 (from RM4.95): Berjaya Sports Toto will release its 1QFY12 results on Sept 21. The 4D Toto Jackpot outperformed expectations but 4D disappointed. Thus, we trim our earnings estimates by 5% to 6% a year. Assuming a normalised prize payout ratio, we expect 1QFY12 net profit of RM90 million to RM100 million. BToto may embark on a capital management exercise which will serve as a strong re-rating catalyst. We maintain our 'buy' call.

Since the introduction of 4D Toto Jackpot on June 11, lotto revenue per draw per outlet has surged from RM1,900 to RM4,500, above our forecast of RM3,600.'' That said, we understand that non-lotto revenue per draw per outlet especially 4D has remained flattish. We had expected it to grow by RM1,700, matching our forecast incremental lotto revenue per draw per outlet (RM3,600-RM1,900).

We understand this is because Magnum punters migrated some of their bets to BToto's 4D Toto Jackpot game but not to its 4D game (as we had expected). To reflect the above, we have trimmed our earnings estimates by 5% to 6% a year. Assuming a normalised prize payout ratio of 61% to 62%, we expect net profit of RM90 million to RM100 million in 1QFY12 (due to 1'' months impact from 4D Toto Jackpot) and RM100 million thereafter.

We estimate that 42% shareholder, Berjaya Land Bhd (BLand), assumed a bridging loan of RM200 million to RM300 million to redeem its RM695.4 million exchangeable bonds on Aug 15. Coupled with another RM459 million required for its Penang Turf Club land purchase, BLand will likely call on BToto to 'assist'. If BToto pays out all its cash of RM449.9 million (as at end-FY11) and draws down the remaining RM250 million of its medium-term notes facility, it can return RM700 million or 52 sen per share to investors.

We trim our discounted cash flow-based target price in tandem with our lower earnings estimates and minor housekeeping changes. We still like BToto for its attractive net dividend yields of over 5% and the potential to positively surprise via a special dividend. This high dividend yielding stock will be popular in these times of volatile equity markets. ' Maybank IB Research, Sept 7


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

MSM Malaysia is sweet enough

Stock Name: MSM
Company Name: MSM MALAYSIA HOLDINGS BERHAD
Research House: OSKPrice Call: HOLDTarget Price: 5.16



MSM Malaysia Holdings Bhd
(Sept 7, RM5.36)
Initiating coverage with neutral rating at RM5.40 and fair value of RM5.16: Sugar consumption in Malaysia has been increasing steadily over the past 20 years, growing at a compound annual growth rate of 4.1%. As sugar demand is fairly inelastic in nature and competition within the country is limited, we expect demand for MSM's products to remain stable even if economic conditions weaken. Any drop in commodity prices arising from a bleak economic backdrop will serve to lower the company's costs.

Half of MSM's sugar needs are secured by a three-year long-term contract. The current contract allows the company to purchase raw sugar at 17.5 US cents (52.2 sen) per lb, significantly below the current market price of'' 28 cents per lb. The contract not only enables MSM to fix in advance a substantial portion of its costs, but has historically allowed it to procure raw sugar at below market prices.

The current long-term contract expires at the end of this year. We think the new contract price is set to be higher than the present 17.5 cents per lb in view of current raw sugar prices. With additional sugar subsidies unlikely, how much the the government will raise the price ceiling for sugar in FY12 remains to be seen. Hence, there are uncertainties on both MSM's revenue and cost fronts.

MSM has been experiencing solid revenue and earnings growth over the past three years bolstered by strong volume growth, higher selling prices and cheap raw sugar supply. However, we expect revenue and earnings growth to slow down in 2011/12 on: (i) weaker growth in selling price and volume; and (ii) a higher raw sugar contract price from 2012 onwards.

We are valuing MSM at RM5.16 based on 13 times FY11 price-earnings ratio. While it is in a defensive business, the company appears to be fairly valued currently. Thus we initiate coverage on MSM with a 'neutral' rating. The stock offers a decent dividend yield of 5.2% for FY11 based on a 70% dividend payout ratio. ' OSK Research, Sept 7


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

HwangDBS keeps 'buy' call on Alam Maritim

Stock Name: ALAM
Company Name: ALAM MARITIM RESOURCES BHD
Research House: DBS VICKERSPrice Call: BUYTarget Price: 1.00



HwangDBS Vickers Research is positive on the latest long-term contract awarded by ExxonMobil Exploration and Production Malaysia Inc to Alam Maritim Resources Bhd.
The RM220.8 million contract is for the chartering of an accommodation
vessel and a Anchor Handling Tug. The contract comes with a three-year firm
period and an extension option of another two years.
"We are positive over this latest long-term contract which is estimated to
contribute RM44 million per annum, as it is likely to maintain its current high
fleet utilisation," the research firm said in a statement today. HwangDBS Vickers Research is also maintaining its earnings forecast and
"buy" call on Alam Maritim Resources with RM1.00 target price, implying a 37 per cent upside potential. It also said that financial year 2012 will be the company's year to showcase
its strong earnings visibility, driven by high vessel demand and more
installation jobs. Meanwhile, HwangDBS is neutral on shipbuilder Boustead Heavy Industries
Corp Bhd's (BHIC) proposal, to dispose of its 60 per cent stake in PSC Tema
Shipyard Ltd to the government of Ghana, given the minimal earnings impact from
it. "We understand that the yard is only breaking even while its total
investment in the yard (including acquisition cost) is estimated at RM8 million
since the joint venture agreement signed back in 1996. "There is no mention on the potential amount to be recouped by BHIC but we
expect the amount to be similar to its total investment amount or higher pending
negotiations on the proposed disposal," it said. -- Bernama

OSK stays 'neutral' on HELP Intl

Stock Name: HELP
Company Name: HELP INTERNATIONAL CORPORATION
Research House: OSKPrice Call: HOLDTarget Price: 2.38



OSK Research is maintaining a neutral
call on HELP International Corporation Bhd, despite its wholly-owned subsidiary,
HELP University College, being upgraded to the status of a full-fledged
university.
"We are not entirely surprised with the announcement as the management had
earlier indicated that it had submitted an application to the Ministry of Higher
Education for an upgrade to university status," the research house said in a
research note today. Nevertheless, OSK Research welcomed the move as the recognition is deemed as
an acknowledgement and mark of the quality of HELP University College. It is also revising its fair value to RM2.38 based on an increasingly
conservative stance in view of the current weakness in the equity markets amid
renewed concerns over an anemic global economic growth. OSK Research also remained wary of a potential equity dilution to fund
the RM150-RM200 million capital expenditure (CAPEX) allocated for HELP's
proposed Subang 2 campus in Sungai Buloh. --Bernama

RHBInvest Research Highlights 07 September 2011

Stock Name: TCHONG
Company Name: TAN CHONG MOTOR HOLDINGS BHD
Research House: RHBPrice Call: BUYTarget Price: 5.50

Stock Name: DRBHCOM
Company Name: DRB-HICOM BHD
Research House: RHBPrice Call: BUYTarget Price: 2.95

Stock Name: MBMR
Company Name: MBM RESOURCES BHD
Research House: RHBPrice Call: HOLDTarget Price: 3.25

Stock Name: UMW
Company Name: UMW HOLDINGS BHD
Research House: RHBPrice Call: HOLDTarget Price: 7.35

Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD
Research House: RHBPrice Call: SELLTarget Price: 2.50



07th September 2011
 
Top Story: Motor ' Jun 2011 quarter report card                      Neutral
Sector Update
Tan Chong: Fair value maintained at RM5.50                            Outperform
DRB-Hicom: Fair value maintained at RM2.95                           Outperform
MBM Resources: Fair value maintained at RM3.25                  Market Perform
UMW: Fair value maintained at RM7.35                                       Market Perform
APM: Fair value maintained at RM5.10                                         Market Perform
Proton: Fair value lowered to RM2.50                                          Underperform
''       Of the six stocks in the sector under our coverage, only three (Tan Chong, APM and DRB) reported Jun quarter earnings that were in line with expectations. Results at MBM, UMW and Proton disappointed.
 
Sector Call
 
Education: 1HCY11 results affected by regulatory changes                 Overweight
Sector Update
''       SEGi delivered strong numbers in 1HCY11, with results in line with estimates, but HELP and Masterskill's 1HCY11 results were below our and consensus expectations as their student numbers dropped due to external factors including regulatory changes that affected student intakes during the 1HCY11 peak period.
 
Corporate Highlights
 
Hong Leong Bank: Rights shares priced at RM8.65/share                 Market Perform
News Update
''       HL Bank announced that the issue price for its RM2.6bn rights issue has been fixed at RM8.65/share, at an entitlement basis of 1 Rights Share for every 5 existing HL Bank shares held. Based on the last closing price of RM12.20, the issue price represents a discount of 25.5% to the theoretical ex-rights price.

Maybank IB Research retains Hold on Alam Maritim

Stock Name: ALAM
Company Name: ALAM MARITIM RESOURCES BHD
Research House: MAYBANKPrice Call: HOLDTarget Price: 0.85



KUALA LUMPUR: Maybank Investment Bank Research sees headwinds remaining for Alam Maritim and retained its Hold call on with a target price of 85 sen.

It said on Wednesday, Sept 7 that Alam Maritim's success in securing RM220 million of offshore vessels (OSV) contracts was a positive factor.

Maybank Research said that OSV hiring was gaining momentum, reflecting the improving prospects for local-flagged vessels in tandem with the intensification of Petronas' capex programmes.

'However, Alam's fleet growth remains constrained by its stretched balance sheet, impeding its earnings potential. Maintain Hold with a 85 sen target price, pegged to 9.0 times 2012 EPS,' it said.

CIMB Research maintains Buy on Alam Maritim

Stock Name: ALAM
Company Name: ALAM MARITIM RESOURCES BHD
Research House: CIMBPrice Call: BUYTarget Price: 1.50



KUALA LUMPUR: CIMB Equities Research is maintaining its Buy recommendation on Alam Martim and raised the target price to RM1.50.

Alam has secured a RM220 million three+two year contract to supply an accommodation vessel and an anchor handling tug (AHT) vessel to ExxonMobil.

It said on Wednesday, Sept 7 that given the signs of a stronger recovery in 2H, it maintained its EPS forecasts, which already include this contract.

'Although we continue to value the stock at a 20% discount to our target market P/E, our target price rises from RM1.40 to RM1.50 as we roll it forward to end-CY12 and use our CY13 target market P/E of 13.4x (prev. 14.5x CY12).

'We continue to rate Alam a BUY, with the potential re-rating catalysts being 1) this announcement, 2) more pipe installation ventures, and 3) a stronger-than-expected turnaround,' it said.

September 6, 2011

Hong Leong Bank riding high on synergies

Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD
Research House: HWANGDBSPrice Call: BUYTarget Price: 16.00



Hong Leong Bank Bhd
(Sept 6, RM12.20)
Maintain buy at RM12.28 with revised target price of RM16 (from RM15): Hong Leong Bank (HLB) will reap strong synergies from the merger with EON Capital Bhd (EONCap) via improved efficiencies, higher net interest margins (NIMs), and larger presence in hire purchase and small and medium enterprises (SMEs). One of the key levers is the business banking unit that focuses on SMEs, which is now more scalable with EONCap's base. HLB now offers strong domestic organic growth coupled with a positive twist in its 20%-associate, Bank of Chengdu, which remains in growth mode in consumer, SME and local corporates, and also continuously building its deposit franchise. HLB's pure commercial banking business offers a defensive play away from volatile market-related income, while its low 8% foreign shareholding (as at June this year) will shield it from a major selldown in times of deleveraging.

Our FY12 to FY14 earnings estimates now consolidate EONCap's numbers. As an enlarged entity, we imputed 11% and 9% loan and deposit growth over FY12 to FY14F. NIMs will trend up in FY12 with the full consolidation of EONCap's higher yielding loans (only two months consolidation in FY11). Subsequently, NIMs should trend down due to competitive pressure. Our forecasts assume 20% discount for the rights issue, implying post-rights return on equity (ROE) should hover at 16%. Completion of the rights issue will restore Tier-1 capital adequacy ratio (CAR) and risk-weighted CAR (group) to 10% and 16% respectively. The pricing of its RM2.6 billion rights issue should be out by next week.

We remain positive on HLB. Our revised target price, which is equivalent to 2.4 times CY12 book value, is based on the Gordon Growth Model with the following assumptions: 16% ROE, 5% long-term growth and 9.4% cost of equity. ' HwangDBS Vickers Research, Sept 6


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