Bursa Malaysia Stock Price Target: 09/25/11

September 30, 2011

OSK maintains 'neutral' call on CIMB Group

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD

Research House: OSK

Price Call: HOLD

Target Price: 7.62

OSK Research Sdn Bhd has maintained its "neutral" call on CIMB Group Holdings but reduced its fair value for the stock to RM7.62.

With the increasing volatility in the capital markets and its potential negative repercussions on equity deal flows, OSK Research has toned down its earnings estimates for the group by 3.6 per cent with expectations of a further slowdown in capital market activities.

The research house said it was reacting "neutral" to the news where CIMB Group has proposed to acquire a 70 per cent stake in a public listed Thai broker, SICCOSecurities Public Ltd (SICCO), for a cash consideration of RM78.4 million.

"We are neutral on the acquisition as both the earnings impact and capital commitment is negligible, at less than 0.1 per cent to group earnings, and 0.3 per cent of the group's cash balance," it said in its research note here today.

SICCO is a small Thai broker with an approximately 1.5 per cent brokerage market share in Thailand, translating into a revenue and net profit of just RM41.1 million and RM3.9 million respectively as at Dec 31, 2010.

"CIMB Group intends to be among the top five players in the Thai Securities market and this acquisition is expected to raise its market share to approximately three per cent.

This is still significantly below the UBS Wealth Management Solutions in Thailand, which is currently ranked fifth, with a brokerage share of 4.88 per cent," it added. -- Bernama

'Top Glove, Supermax to gain from lower latex price'

Top Glove Bhd and Supermax are the main beneficiaries of the expected fall in natural rubber latex price, says OSK Research.

In a research note today, OSK Research said it also sees Supermax as a cheaper exposure than Top Glove, since both share the closest product mix with the latter share price being three times more expensive.

"Although there is possibility of sales volume stagnating following the slowdown in the global economy, Supermax can still improve its profits by producing more higher end gloves such as dental and surgical grade gloves," it added.

OSK Research said besides producing more dental gloves, Supermax expects to ramp up its surgical glove production from 60 million pieces now to about 672 million pieces by December this year.

"We understand that there is a ready market for its product since its surgical glove is being sold five to six months forward," it added.

This surgical glove can contribute a margin of about 10-20 per cent higher compared to the basic examination glove.

"Our fair value for Supermax remains unchanged at RM5.50 and continue to like this company for its attractive valuation as well as operating in a recession resilient industry," OSK Research said. -- Bernama

HLIB Research 30 September 2011 (RHB Cap; Gamuda; Traders Brief)

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD

Research House: HLG

Price Call: BUY

Target Price: 9.49

Stock Name: GAMUDA
Company Name: GAMUDA BHD

Research House: HLG

Price Call: BUY

Target Price: 3.81

RHB Cap (BUY)

Merger Talks With OSK

'''' RHB Cap and OSK submitted applications to BNM, seeking approval to commence merger negotiations.''

'''' For illustration only, assuming that RHB Cap acquires OSK at 1.34x P/B (30% discount to Maybank's acquisition of Kim Eng at 1.91x) for cash and annualizing OSK 1HFY11 results, RHB Cap's FY11 net profit could be enhanced by circa 1.2%.

'''' Tier-1 and RWCAR (at bank level) would be diluted by circa 66bps and 86bps to 10.1% and 13.1% respectively.

'''' Despite minimal impact, the acquisition will be positive for RHB Cap as it will gain immediate IB presence in the region and also almost double its brokerage market share to number one position.

'''' Maintain Buy. Target price unchanged at RM9.49 based on Gordon Growth with ROE of 14.7% and WACC of 10.8%.

Gamuda (BUY)

Record breaking year

'''' FY11 earnings came in at a record high of RM425m (20.7 sen/share), in line with HLIB forecast but 7.6% above consensus numbers.

'''' Strong performances from all divisions buoyed Gamuda's earnings to record highs, which grew by 32% YoY. Outstanding active order book fell to RM2.3bn (RM2.1bn from EDTP), translating to only 1.2x FY11's construction revenue. Hence, the MRT tunnelling project is crucial for Gamuda to replenish its order book.

'''' Launches in Bandar Botanic, Horizon Hills and Jade Hills continued to do well with some ~RM300m new sales achieved during 4Q11. Unbilled sales remained at ~RM1bn, translating to 1.4x FY11's property revenue. For FY12 property sales target, Gamuda has already secured ~RM350m new sales out of the targeted RM1.35bn in local property sales.

'''' As for Vietnam, response has been poor due to the high interest rate environment and the lack of development track records. The management has revised their Vietnam property sales target downwards drastically by >50%, from RM1.5bn to RM650m.

'''' FD SOP valuation trimmed by 2.8% from RM3.92 to RM3.81 as we introduced a 10% discount in our SOP valuation to reflect the current risk adverse appetite in the market.

''

FBM KLCI: Heading towards relief rally targets at 1400-1423 pts

'''' Technically, after filling the 1377-87 gap, upside momentum has increased with potential rebound targets at 1400 psychological barrier, 1423 (mid Bollinger band) and 1443 (30-d SAM). Supports are situated near 1364 (5-d SMA), 1341 (lower Bollinger band) and 1310 (26 Sep pivot low).''

PCHEM: Relief rally targets at RM6.00-6.10

'''' PCHEM rebounded 6% from recent low of RM5.23 to close at RM5.55 yesterday amid strong buying spree (especially from EPF) as the 31% plunge from 52-wk high has bashed down its valuations to relatively undemanding against market P/E (as it is the 3^rd largest market cap on Bursa) and its regional peers.

'''' Technical rebound targets are RM5.85-6.00 whilst supports are RM5.23-5.47 Cut loss below RM5.20.

CIMB Research downgrades RHB Cap to Neutral

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD

Research House: CIMB

Price Call: HOLD

Target Price: 8.95

KUALA LUMPUR: CIMB Equities Research has downgraded RHB Capital to Neutral following surprising news about RHB Cap's potential merger talks with OSK HOLDINGS BHD [].

It said on Friday, Sept 30 that the proposal for RHB Cap was short-term negative but long-term positive.

'News on RHB Cap's potential merger talks with OSK surprised us as management had not shown any interest in acquiring an investment bank. We estimate that it could lead to 9-11% EPS dilution due to a likely high price and potential rights issue,' it said.

CIMB Research said still, it would be positive in the longer term as it would give RHB Cap a regional presence and boost its domestic retail broking business.

'We retain our earnings forecasts. Though we roll our target price forward to 2012, it drops from RM10.70 to RM8.95 because we now value it on parity with its DDM value, instead of 10% premium, and scale back our dividend growth rate assumption by 2% pts to 15.1% because of weakening investment banking deal flow,' it said.

The research house said in line with its sector downgrade, it downgraded RHB Cap from Outperform to Neutal and preferred Maybank.

OSK Holdings at highest since April on merger plan

KUALA LUMPUR: Shares of OSK HOLDINGS BHD [] climbed to the highest since April 26 this year, hitting an intra morning high of RM1.77 after it announced plans for a merger with RHB CAPITAL BHD [].

At 10.10am, OSK was up 25 sen to RM1.64 with 10.81 million shares done. RHB Capital rose nine sen to RM7.25 with 968,900 shares done.

The FBM KLCI surged 14.74 points to 1,402.20. Turnover was 314.36 million shares valued at RM301 million. Gainers led losers 367 to 96 while 155 counters were unchanged.

MIDF Research maintained its buy call on RHB Capital with a target price of RM9.35. It said the valuation remained undemanding at PER of 12.3 times to its PS forecast of 76 sen and PBV of 1.62 times to its projected book value for FY12.

'We retain our BUY recommendation on the stock. As it is merger talk is still in preliminary stages with not much details available, we make no adjustments to our forecast at this juncture,' it said.

A strong finish

Stock Name: GAMUDA
Company Name: GAMUDA BHD

Research House: ECMLIBRA

Price Call: HOLD

Target Price: 2.94

Results 1QFY12 below expectation - Hiccups

Stock Name: BJCORP
Company Name: BERJAYA CORPORATION BHD

Research House: CIMB

Price Call: HOLD

Target Price: 1.13

A Good Start

Stock Name: UMCCA
Company Name: UNITED MALACCA BHD

Research House: TA

Price Call: SELL

Target Price: 6.94

CIMB Research retains Underperform on Hong Leong Bank

Stock Name: HLBANK
Company Name: HONG LEONG BANK BHD

Research House: CIMB

Price Call: SELL

Target Price: 10.80

KUALA LUMPUR: CIMB Equities Research is retaining its Underperform rating on Hong Leong Bank as it sees challenges in its integration with EON Bank, including management distraction and possible attrition of key managers/clients.

It said on Friday, Sept 30 that credit cost could rise to restore loan loss coverage after the merger.

"We cut our FY12-14 net earnings forecasts by 4%-12% to factor in the rights issue, which would lead to a 19% increase in its share base."

"This, together with the withdrawal of the 10% premium over the DDM value, brings down our target price from RM13.50 to RM10.80. We prefer Maybank (Outperform) for exposure to the sector," it said.

OSK Research sees upside for Supermax, Top Glove

Stock Name: SUPERMX
Company Name: SUPERMAX CORPORATION BHD

Research House: OSK

Price Call: BUY

Target Price: 5.50

KUALA LUMPUR: OSK Research said with the expected fall in natural rubber latex price, it sees Top Glove and Supermax as the main beneficiaries.

It said on Friday, Sept 30 that it also sees Supermax as a cheaper exposure than Top Glove since they share the closest product mix and Top Glove's share price is 3.0 times more expensive than Supermax.

"Going forward, Supermax expects to increase its higher end glove production which includes dental and surgical gloves. Maintain Buy," it said.

It has a fair value of RM5.50 for Supermax which closed at RM2.50.

RHB Capital, OSK shares up on possible merger plan

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD

Research House: MIDF

Price Call: BUY

Target Price: 9.35

KUALA LIUMPUR: RHB CAPITAL BHD [] and OSK HOLDINGS BHD [] (OSK) shares advanced in early trade on Friday, Sept 30 after the former said it intends to start merger talks with OSK Investment Bank Bhd.

At 9.05am, RHB Capital was up 12 sen to RM7.28 with 179,900 shares done while OSK jumped 29 sen to RM1.68 with 2.51 million shares traded.

RHB Capital and OSK have submitted applications to Bank Negara Malaysia for approval to commence negotiations for a possible merger between the two groups.

In separate filings on Thursday, Sept 29, the companies said they were seeking Bank Negara's approval in principle to commence negotiations for a possible merger of businesses between the RHB banking group and OSK investment banking group.

MIDF Research maintained its Buy rating on RHB Capital and target price of RM9.35, and said valuation remains undemanding at PER of 12.3 times to its EPS forecast of 76 sen and PBV of 1.62 times to projected book value for FY12.

'We retain our Buy recommendation on the stock. As it is merger talk is still in preliminary stages with not much detail available, we make no adjustments to our forecast at this juncture,' it said on Sept 30.

September 29, 2011

CIMB Research retains Underperform on Adventa

Stock Name: ADVENTA
Company Name: ADVENTA BHD

Research House: CIMB

Price Call: SELL

Target Price: 1.49

KUALA LUMPUR: CIMB Equities Research is retaining its underperform call on glove maker Adventa as it believes higher energy costs and weak demand will be de-rating factors for the stock.

It said on Thursday, Sept 29 that Adventa's nine-months results were at 60% of its full-year estimate and 65% of consensus.

The lack of a dividend was expected as Adventa pays a single final dividend after 4Q. Net profit continued to slip on quarter-on-quarter basis, falling 12% in 3Q due to rising costs and weak demand.

'As a result of the underperformance, we are cutting our FY11-13 EPS forecasts by 15%-40%. We roll over our valuation year to CY13.

'Even so, because of the earnings downgrade, our target price falls from RM2.01 to RM1.49, still based on a forward P/E of 9.14 times or a 30% discount to Top Glove's target P/E of 13.05 times,' it said.

RHB Research downgrades banking sector to Underweight

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD

Research House: RHB

Price Call: SELL

Target Price: 6.84

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD

Research House: RHB

Price Call: SELL

Target Price: 5.63

Stock Name: AFG
Company Name: ALLIANCE FINANCIAL GROUP BHD

Research House: RHB

Price Call: SELL

Target Price: 2.83

Stock Name: AMMB
Company Name: AMMB HOLDINGS BHD

Research House: RHB

Price Call: SELL

Target Price: 4.43

Stock Name: AFFIN
Company Name: AFFIN HOLDINGS BHD

Research House: RHB

Price Call: SELL

Target Price: 2.12

KUALA LUMPUR: RHB Research has downgraded the Malaysian banking sector to Underweight from Neutral and said the worsening economic conditions that were not reflected in market valuations.

It said on Thursday, Sept 29 that banks were often viewed as proxies to the economy and share prices tend to underperform the market during a downturn.

The research house said share prices of banking stocks fell about 60% from their peaks during recent financial crisis while PER and P/BV valuations de-rated by an average of 54% and 52.5% respectively from peak levels.

It said if 2008-09 de-rating experience was repeated, valuations could fall by another 20% to 49% before reaching trough valuations in terms of PERs.

In terms of P/BV, another 15% to 57.6% compression could take place.

Currently the banking stocks are trading around mean valuations, it said.

'However, the derating experience above was notwithstanding the sector's net profits resilience during that period (2008: +6.5% year-on-year while 2009: +10.8% y-o-y).

"This suggest that fundamentals take a back seat during a downturn but we observe that efficiently run banks with sound asset quality tend to fare better than peers," it said.

The research house'' cut the fair values of Maybank, CIMB and AFG to RM6.84, RM 5.63 and RM2.83 respectively, and downgraded them from market perform to underperform.

RHB Research cut its fair value for AMMB to RM4.43 from RM6.15, while Affin's fair value was downgraded to RM2.12 from RM2.77.

Both banks were rated underperform by the research house.

Meanwhile, Hong Leong Bank was rated at market perform although its fair value was reduced from RM12.11 to RM9.7.

Only Public Bank was upgraded from market perform to outperform with a reduced fair value of RM12.54.

At 11:24am, Maybank fell 1 sen to RM7.96, CIMB lost 16 sen to RM6.65, Public Bank shed 2 sen to RM12.02, Hong Leong Bank down 2 sen to RM9.78, AMMB fell 5 sen to RM5.79, AFG fell 4 sen to RM3.16 and Affin lost 2 sen to RM2.43.

''

Adding onto asset base in Penang

Stock Name: AXREIT
Company Name: AXIS REITS

Research House: MAYBANK

Price Call: BUY

Target Price: 2.80

Safe Haven in Uncertain Times

Stock Name: BJTOTO
Company Name: BERJAYA SPORTS TOTO BHD

Research House: OSK

Price Call: BUY

Target Price: 4.72

Weaker earnings outlook seen

Stock Name: TOPGLOV
Company Name: TOP GLOVE CORPORATION BHD

Research House: AMMB

Price Call: SELL

Target Price: 3.10

Things are still okay at Malaysia Airports

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 7.55

Malaysia Airports Holdings Bhd
(Sept 29, RM5.33)
Maintain buy at 5.35 with target price of RM7.55: MAHB's July 2011 traffic statistics revealed a respectable 13.4% year-on-year (y-o-y)'' passenger growth (7M 2011: +12.7% y-o-y). This is way ahead of regional and global growth rates which underpins our positive stance for MAHB. Cargo volumes saw signs of a recovery with volume growth of 2% y-o-y (7M 2011: -1.8% y-o-y).

Maintain 'buy'; no change to our earnings forecasts and RM7.55 per share discounted cash flow-based target price. KLIA is a formidable Southeast Asian hub. KLIA continues to surprise positively by delivering an impressive 12.7% y-o-y passenger growth (7M 2011: +13.3% y-o-y). If KLIA can maintain this growth momentum for the remainder of the year, it will probably register traffic of 38 million to 39 million passengers; thus making it the 25th to 27th busiest airport in the world ' up from 31st in 2010.'' ''

MAHB's passenger traffic growth of 13.4% in July significantly outpaced the Asia-Pacific's average growth of 5.5% and world's average growth of'' 5%. Its cargo shipment'' has also fared better with 2% growth as opposed to a contraction of 1.8% in Asia-Pacific and a 5.6% decline for world average.

The strong traffic statistics suggested that AirAsia, MAS and Firefly will report a strong traffic growth running up to 3Q. But the yield environment will be challenging as the industry grapples with excess capacity and customers are disinclined to pay higher fares. We expect MASKargo to show improved performance compared with 1H.'' ''

Share price collapse presents attractive value. MAHB's share price has plunged by 17.5% since our post 2Q results commentary dated July 29 due to the intense volatility of global equity markets. We think this presents an excellent entry point as the company's fundamentals remain solid with continued strong passenger growth, high utilisation rate of primary asset (KLIA is ''85%),'' and it is'' trading at 10.8 times 2012 PER and 9.1 times 2012 EV/Ebitda ' cheap against its historical average. ' Maybank IB Research, Sept 29

This article appeared in The Edge Financial Daily, September 30, 2011.

Another muted quarter for Hai-O Enterprise

Stock Name: HAIO
Company Name: HAI-O ENTERPRISE BHD

Research House: AFFIN

Price Call: SELL

Target Price: 1.27

Hai-O Enterprise Bhd
(Sept 29, RM1.67)
Maintain sell at RM1.66 with target price of RM1.27: Hai-O's topline in the first quarter of FY04/12 declined by 6.9% year-on-year (y-o-y) to RM51 million.
The respective revenue growth of 6.1% y-o-y and 8.7% y-o-y in the retail and wholesale divisions was not enough to offset the 18.3% y-o-y revenue decline in the MLM division. Accounting for 57% of total revenue, the MLM division continued to be plagued by slow recruitment of new members and weak sales.

On the bright side, 1QFY04/12 earnings before interest and tax (Ebit) margin expanded by two percentage points to 21.7% (1QFY04/11: 19.7%), attributed to the increased contribution from the sale of higher margin products (including house brands); lower costs of imported goods due to the stronger ringgit and improvement in operational efficiency and productivity.

Consequently, 1QFY04/12 net profit fell by a smaller 0.9% y-o-y to RM7.7 million (1QFY04/11: RM7.8 million). Results were within both our and consensus expectations.

On a sequential basis, 1QFY04/12 net profit fell sharply by 9.5% on a 12.4% decline in revenue. This was partially attributed to a higher base effect as 4QFY04/11 captured aggressive year-end sales campaign in the MLM division, and sales campaign/year-end stock clearance in the retail division. Coupled with continuing low monthly membership additions, revenue from the MLM division fell by 15.8% quarter on quarter (q-o-q). Revenue from the wholesale and retail divisions fell by a sharper 24.7% q-o-q and 22.9% q-o-q respectively.'' ''

There are no changes to our FY12-14 net earnings forecasts. We remain negative on Hai-O due to slow recovery in the MLM division, which is unlikely to return to the level of robust revenue it reaped in 2009-2010 (more than RM100 million per quarter); a slow takeoff of its MLM operations in Indonesia, and lofty valuations considering its smallish market cap and slow growth outlook. ' Affin IB Research, Sept 29

This article appeared in The Edge Financial Daily, September 30, 2011.

Prestariang rises and shines like a star

Stock Name: PRESBHD
Company Name: PRESTARIANG BERHAD

Research House: OSK

Price Call: BUY

Target Price: 0.92

Prestariang Bhd
(Sept 29, 53.5 sen)
Initiating coverage with a buy rating at 50 sen with a fair value of 92 sen: Prestariang is involved in the provision of information and communications technology (ICT) services focusing on professional training and certification, as well as the distribution and management of software licences. We like the company's sturdy order book of close to RM280 million, its established relationship with key partner Microsoft, innovative in-house developed products and its appealing valuation backed by a dividend yield of more than 10% in the next two years. ''

We see strength in Prestariang's two core businesses given their synergy and complementary characteristics, whereby ICT training and certification is typically provided together with the licensing of the software used in its training and certification. While it can be argued that Prestariang is a technology player, we see greater potential in its professional training and certification business, which pits it closer to education players such as SEGi, Masterskill and HELP. ''

Prestariang has to date secured an order book of close to RM280 million, with projects spanning one to four years up to 2015. Its anchor projects include the RM80 million industry-based certification programme, which received the nod earlier for renewal for another four years and its RM60 million MUSE programme through which it provides and maintains software licences for all public higher education institutions in Malaysia.

Its close rapport with valued partners such as Microsoft, Oracle, IBM and Autodesk, helped sustain profitability margins. Of note, Prestariang has established close ties with Microsoft, which has been its single most important partner for the last eight years for provision of software and training certification. Going forward, we see more upside potential for the group's profit margins going into FY12, with a target of 36% at the net level at the close of the year on greater economies of scale.

Prestariang also focuses on R&D activities to develop new programmes in-house by working with partners in related fields. We like its R&D-centric focus as creating its own intellectual properties could help to drive up margins as well as provide a launching pad for its regional expansion going forward.

Given its'' robust balance sheet with minimal capex requirements apart from R&D expenditure, management has set a dividend policy of up to 50% for the next three years. For our forecast earnings, this translates into a lucrative dividend yield of more than 10% for both FY11 and FY12 given the recent weakness in share price, which has retraced by >44% since going public in late July this year. ' OSK Research, Sept 29

This article appeared in The Edge Financial Daily, September 30, 2011.

Waning optimism in the coming quarter

Stock Name: MEGB
Company Name: MASTERSKILL EDUCATION GROUP

Research House: RHB

Price Call: SELL

Target Price: 1.25

Education sector
Downgraded to neutral: We are turning cautious on prospects for the education sector in the coming quarter given rising macroeconomic headwinds; illiquidity of the stocks in the sector; the relatively small market cap of the education stocks (less than RM1 billion); and high foreign shareholdings for HELP (12.5%) and Masterskill (49%), increasing their susceptibility to volatile portfolio flows. ''

We see few re-rating catalysts for the sector over the coming quarter. Previously, the sector was driven by ETP news flow. However, the excitement is now beginning to recede, as reflected in the uninspiring share price performance of the stocks in the sector. Entry point projects (EPP) involving SEGi such as the establishment of the Early Childhood Care and Education (ECCE) hub and the SkillsMalaysia INVITE programme are already under way, while the announcement of the gradual liberalisation of the education sector under the Strategic Reform Initiatives (SRI) is already priced in.

Risks include further regulatory changes; increase in competition; and slowdown in demand for private higher education as consumers could turn cautious on multi-year commitments to course fees.

Across the board, we are cutting our target FY12 PER for the stocks by one to two times, in line with RHBRI's lower target PER of 13 times (from 14 times).

Our previous valuations look overly optimistic given the more bearish macroeconomic outlook. Given our revised fair value estimates, we downgrade our recommendation on HELP to 'underperform' from 'outperform' and Masterskill to 'underperform' from 'market perform', while SEGi remains an 'outperform'.

We are downgrading the sector to 'neutral' from 'overweight', as the market is no longer excited by the news flow on the education sector with few potential re-rating catalysts for the sector in the immediate term. SEGi is still our pick for the sector due to its good track record and resilience in riding out market uncertainties. SEGi deservedly trades at a premium to its peers at 12.8 times FY12 PER (versus HELP and Masterskill at 12.6 times and 8.8 times respectively), supported by its superior compound annual growth rate (CAGR) of 26.3% (versus HELP and Masterskill at 7.7% and -19.6% respectively). We continue to believe that SEGi is best poised to deliver growth going forward. ' RHB Research, Sept 29

This article appeared in The Edge Financial Daily, September 30, 2011.

Waning optimism in the coming quarter

Stock Name: SEG
Company Name: SEG INTERNATIONAL BHD

Research House: RHB

Price Call: BUY

Target Price: 2.15

Waning optimism in the coming quarter

Stock Name: HELP
Company Name: HELP INTERNATIONAL CORPORATION

Research House: RHB

Price Call: SELL

Target Price: 1.80

OSK Research upgrades Hai-O to Neutral, FV RM1.70

Stock Name: HAIO
Company Name: HAI-O ENTERPRISE BHD

Research House: OSK

Price Call: HOLD

Target Price: 1.70

KUALA LUMPUR: OSK Research said HAI-O ENTERPRISE BHD []'s 1QFY12 revenue dropped 6.9% on-year to RM51 million while net profit was down slightly by 0.9% on-year to RM7.7 million, which was below its expectations.

The research house said on Thursday, Sept 29 the drop in revenue was mainly due to lower contribution from the multi-level marketing side which recorded 18.3% on-year sales decline on slower membership growth and lower average sales per distributor.

OSK Research said despite the weaker sales, EBIT margin improved to 21.7% from 19.7% in 1QFY11.

The better margins were due to increased contribution from higher margin products, lower costs of imported goods on stronger RM against USD and general improvement in operational efficiency and productivity.

Net profit however declined due to a higher effective tax rate.

'Given the below than expected results, we cut our FY12/13 earnings forecast by 11.8% - 18.3% respectively. Our fair value is hence reduced to RM1.70. Nonetheless, after the sharp slide in share price, our FV still offers 2.7% upside and hence we upgrade Hai-O from Sell to Neutral,' it said.

OSK Research maintains Neutral on HELP

Stock Name: HELP
Company Name: HELP INTERNATIONAL CORPORATION

Research House: OSK

Price Call: HOLD

Target Price: 1.99

KUALA LUMPUR: OSK Research is maintaining its Neutral call on HELP International Corp Bhd with fair value at RM1.99.

It said on Thursday, Sept 29 that HELP's 9MFY11 core earnings of RM13.5 million (excluding one-off setup cost of RM4.0 million for its new campus) is deemed in line with both consensus and its expectation at 63% and 65% of the estimates respectively given seasonal factors.

'Nonetheless, we slash our core earnings forecasts by 17%-20% based on lower student net-adds as well as average fees as risks of earnings shortfall spike up amidst stiffening competition.

'Having said that, we maintain our NEUTRAL call given the recent weakness in share price, which has slumped 11% over the last week. Our FV now stands at RM1.99 based on an unchanged 12 times FY12 PER plus its net cash per share of 38 sen as of July 2011,' it said.

September 28, 2011

Journey of a thousand miles begins with this one step for MPHB

Stock Name: MPHB
Company Name: MULTI-PURPOSE HOLDINGS BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 3.64

Multi-Purpose Holdings Bhd
Maintain buy at RM2.21 with revised target price of RM3.64 (from RM3.60): Cash proceeds from Multi-Purpose Holdings' (MPHB) sale of Menara Multi-Purpose (MMP) for RM375 million will be utilised to pare debt. We trim our post-2011 earnings estimates by 2% on rental income foregone but tweak our target price (TP) higher by 1% to RM3.64 on higher-than-expected consideration. This development shows that management is committed to disposing of non-core assets and distilling MPHB into a purer gaming concern. Maintain 'buy'.

MPHB entered into a sale and purchase agreement (SPA) with the Malaysian Chinese Association to dispose of Menara Multi-Purpose (MMP) with 414 car park bays for RM375 million cash. Based on MMP's net book value (NBV) as at Dec 31, 2010 of RM175.4 million, MPHB will record a RM199.6 million gain on disposal. On a recurring basis, we expect it to forego RM7 million in net profit (RM25.2 million in rental income, 50% Ebitda margin, 20% tax) or 2% to our 2012 earnings estimate.

RM37.5 million or 10% had been received as deposit. RM87.5 million will be received within 30 days from the date of the SPA while the remaining RM250 million will be received within 90 days from the date of the SPA. The consideration will be utilised to pare debt. We had hoped that a third of the consideration will be returned to shareholders as special dividends. With this disposal, our estimated net gearing as at end-2011 will fall from 67% to 51%.

The disposal is expected to be completed by end-2011. We trim our post-2011 earnings estimates by 2% on the rental income foregone but tweak our sum-of-parts or SOP/share valuation higher by 1% to RM4.04 to account for the consideration that was RM80.9 million above expectations. On an unchanged 10% discount, we tweak our TP higher by 1% to RM3.64.

We are highly encouraged by this development as it proves that management is committed to disposing of its non-core assets and distilling itself into a purer gaming concern. We like MPHB for its cheap valuations at eight times one-year forward PER. Disposal of non-core assets will re-rate this stock, albeit, gradually via special dividends and stronger recurring dividends. ' Maybank IB Research, Sept 27

This article appeared in The Edge Financial Daily, September 28, 2011.

Telekom sees strength in Unifi

Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 5.00

Telekom Malaysia Bhd
(Sept 27, RM3.99)
Upgraded to buy at RM3.98 with revised target price of RM5 (from RM3.90): Malaysia should experience similar demand trend as seen in other highly penetrated markets such as South Korea and Singapore, given Malaysia's still low fixed broadband penetration of 28%. The rollout of fibre-based high-speed broadband (HSBB) network will hasten the growth of fixed broadband over the next few years, and TM will benefit as the largest provider. As at Sept 20, TM has about 159,000 Unifi subscribers. This translates into about 20,000 net add (seasonally adjusted) a month since end-2Q11,versus 2Q11's 15,000 and 1Q11's 10,000.
Average revenue per unit (ARPU) should remain healthy as TM has not cut monthly fees for Unifi packages.

We raised FY12F-13F earnings by 13% to 19% on 4% revenue growth, prompted by better-than-expected achievements at Unifi. We raised Unifi subscriber numbers by 86% to 89% for FY12F-13F, and estimate Unifi's ARPUs at RM181-RM185. With larger contribution from Unifi, Ebitda margin should improve to 34%-35% (versus 33% before) for FY12F-13F, as revenue expands with a larger subscriber base. HSBB is likely to turn around next year when subscriber numbers exceed about 200,000.

TM's valuation seems expensive against its peers', but it dominates the high-entry barrier fixed broadband market. TM offers resilient earnings and stable dividend yields, and strong potential growth from Unifi. The stock has been relatively resilient (+0.5%), since the broader market correction in the last two months. There could also be a special dividend of 13.1 sen per share if TM returns the RM468 million proceeds from the recent sale of Axiata stake. ' HwangDBS Vickers Research, Sept 27

This article appeared in The Edge Financial Daily, September 28, 2011.

BRDB - no deal for now till property valuation

Stock Name: BRDB
Company Name: BANDAR RAYA DEVELOPMENTS BHD

Research House: OSK

Price Call: TRADING BUY

Target Price: 2.93

Bandar Raya Developments Bhd (Sept 28, RM1.92)
Maintain buy at fair value of RM2.93 from RM3.14: On Monday, Bandar Raya Developments Bhd (BRDB) announced that it ceased all negotiations with Ambang Sejati SB (ASSB) in relation to the proposed disposal of BRDB's selected assets. Subsequently BRDB has opted to dispose of the selected assets by way of a tender and ASSB will be invited to participate in it.

On Sept 19, BRDB announced that it had proposed to dispose of selected investment assets namely Permas Jusco Mall, CapSquare Retail centre and its entire 100% equity interest in BR Property Holdings SB which owns the Bangsar Shopping Centre (BSC) and Menara BRDB to its major shareholder ASSB for a total consideration of around RM914 million. The announcement has resulted in negative reaction from various stakeholders expressing their concerns especially in regard to the transparency and fairness of the offer price.

Following the backlash, BRDB has decided to cease all negotiations with ASSB relating to the proposed disposal. After taking into account expressions of interest received from credible parties to acquire those assets, BRDB has opted to call for an open tender where ASSB will be invited to participate in the tender. To facilitate the potential disposal, BRDB will appoint an independent property valuer to manage the tender exercise with an announcement to be made at an appropriate time.

Given that we think the price offered by ASSB was unattractive, we view BRDB's decision to opt for the tender route positively as it would enable the group to garner better pricing for the assets via more competitive bids submitted from other interested parties. We reiterate our view that it is acceptable for BRDB to monetise its assets so long as they are disposed of at a fair and attractive pricing.

We maintain our 'trading buy' recommendation on BRDB but reverted to our previous valuation which was premised on its FY12 net tangible asset (NTA) before the disposal of the assets. Previously, we had valued BRDB based on 0.8x FY12 P/NTA post the disposal plus net cash dividend of 80 sen to arrive at our fair value (FV) of RM3.14.

As the timeframe for the tender exercise is yet to be determined, we now value BRDB at 0.8x FY12 P/NTA excluding the potential disposal. This gives rise to a new FV of RM2.93. ' OSK'' Research, Sept 28

This article appeared in The Edge Financial Daily, September 29, 2011.

Expecting distressed valuation in an economic downturn

Stock Name: SUNWAY
Company Name: SUNWAY BERHAD

Research House: MIDF

Price Call: BUY

Target Price: 1.97

Property sector
Downgrade to negative: The KL property index has underperformed the FBM KLCI in recent months, declining 27% since early July compared with the FBM KLCI which fell 15.9% over the same period. Moving forward, we believe the property sector will continue to underperform the FBM KLCI as global economic uncertainty heightens and we reckon investors may avert exposure to property companies with high beta.

National Property Information Centre's (Napic) statistics continue to stay solid, but the numbers are always lagged by at least a quarter. The fact is property prices and transactions are heavily correlated to GDP growth. As the global economy is heading towards a possible 'double-dip' recession, we believe property developers will be more cautious with their launches and sales target for 2012 will not be as aggressive compared with that in 2011. In the near future, however, we believe earnings of property developers will not be adversely affected.

Based on the latest House Price Index (HPI) data released by Napic, average house prices in Malaysia rose to RM208,725 in 2Q11 compared with RM206,513 in 1Q. Nevertheless, growth rates of average house prices decelerated for the first time since 3Q10. Average house prices grew 7.4% year-on-year (y-o-y) in 2Q compared with 9% y-o-y growth in 1Q. Growth rates of property hotspots which moderated include Selangor (+11.5% y-o-y compared with +12% y-o-y in 1Q), Kuala Lumpur (+6.17% y-o-y vs 8.68% y-o-y in 1Q) and Penang(+5.51% vs 6.23% in 1Q). The quarterly sequential growth rate suggested potential stabilising of house prices. House prices gained by 1.1% quarter-on-quarter (q-o-q) in 2Q and 1.3% q-o-q in 1Q, which is well below the quarterly growth rate of about 2.4% q-o-q from 2Q10 to 4Q10.

New housing launches decreased by 43% from 12,189 units recorded in 1Q10. Nevertheless, we are not worried as the preliminary data normally accounted for about half of actual launches. Overhang properties declined by 9.15% y-o-y suggesting a better absorption. Vacant space of shopping complexes was maintained at 19% and office vacancy worsened to 21.2% in 1Q from 20.9% in 1Q10. We maintain our projection of single-digit growth in transaction value in 2011 and we are mainly concerned about the oversupply in the high-end segment of residential properties and office development at this moment.

We are downgrading our view on the property sector to 'negative'. There are no clear indicators of a downtrend in the property segment and three out of five property companies under our coverage registered stellar earnings growth during the 1HFY11 results reporting season. The downgrading in our view is primarily due to uncertainties in the global economic conditions and weaker investor confidence. We have not revised our earnings forecasts for property companies as future earnings are supported by their impressive unbilled sales built up over the past two years of the property market upcycle.

Overall, our revision of percentage changes in target price of companies under our coverage range from -6% to -41%. We only had one 'buy' call for Sunway Bhd with a target price of RM1.97 compared with other property developers. Sunway earnings streams are more diversified with other sources of income from construction, property investment, manufacturing and trading. ' MIDF Research, Sept 28

This article appeared in The Edge Financial Daily, September 29, 2011.

Strong Revenue Growth

Stock Name: CRESNDO
Company Name: CRESCENDO CORPORATION BHD

Research House: TA

Price Call: BUY

Target Price: 1.84

HLIB Research 28 September 2011 ( MRCB; Traders Brief)

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP

Research House: HLG

Price Call: BUY

Target Price: 2.05

MRCB (BUY, NEW)

Strategic integrated property developer

'''' MRCB's earnings growth for the immediate term will be supported by the existing development of KL Sentral, which has a huge unbilled sales of ~RM1.2bn, translating to ~6.3x FY10's property revenue. Hence, providing strong earnings visibility over the next few years

'''' From 2013 onwards, rental income will become a substantial earnings contributor for the Group as NLA will jump from the current ~995 sq ft to ~2,400 sq ft, which will most likely make up ~15% of MRCB's PATAMI. New investments ' 348 Sentral and Nu Sentral Retail Mall have already received ~60% commitment for its NLA and we expect it to be fully occupied as the unique proposition of KL Sentral will be able to address the huge incoming supply of office space within KL

'''' With the unique qualities of KL Sentral to support earnings growth and potential in developing strategic land banks, coupled with an healthy property unbilled sales and construction order book, we initiate with a BUY call on MRCB, which provides 24% upside from our TP. TP of RM2.05 based on SOP valuation.

FBM KLCI: Banking on Euro-crisis resolution

'''' Technical indicators are beginning to improve following yesterday's strong gains but whether it is a sustainable bounce hinges on the follow-through reaction from Europe this week. Supports are 1310 (26 Sep pivot low), 1300 and 1293 (38.2% FR from 311 low and 1597 high) whilst strong resistance levels are the 1377-1387 gap'' (23 Sep) and 1400 pts

MUDAJAY: Potential rebound targets at RM2.13-2.35

'''' The 4.4% jump in share prices to RM1.88 yesterday, accompanied by 21% hike in volume could indicate a temporary bottom for MUDAJYA, given its steep oversold positions, cheap valuations, continuous share buyback and a 2.5 sen interim dividend (ex-date: 6 Oct). Technical rebound targets are RM2.13 (10-d SMA) to RM2.36 (mid Bollinger band) whilst supports are RM1.61 (23.6% FR) to RM1.80. Cut loss below RM1.60.

OSK Research upgrades MSM to Buy from Neutral

Stock Name: MSM
Company Name: MSM MALAYSIA HOLDINGS BERHAD

Research House: OSK

Price Call: BUY

Target Price: 5.24

KUALA LUMPUR: OSK Research has upgraded MSM Malaysia to a Buy from Neutral after the significant share price retracement.

It said on Wednesday, Sept 28 its fair value for MSM was RM5.24 while the last close was RM4.49.

OSK Research said MSM's share price has lost significant ground of 16.1% over the past two weeks.

'We see this as an opportunity to accumulate given that declining commodity prices, as witnessed now, will bode well for MSM by reducing its raw sugar costs,' it said.

The research house said with sugar consumption fairly inelastic, it expected that demand for MSM's products would remain stable even under a tough economic environment.

'We are thus upgrading MSM to a BUY from NEUTRAL previously after the significant share price retracement. Our FV is revised upwards slightly to RM5.24 as we roll forward our valuation horizon to 13.0 times mid-CY12 PER,' it said.

MISC dips on challenging outlook

Stock Name: MISC
Company Name: MISC BHD

Research House: MIDF

Price Call: HOLD

Target Price: 5.50

KUALA LUMPUR: MISC BHD [] shares fell in early trade on Wednesday, Sept 28 given the challenging outlook for the shipping industry going forward, including in the next financial year.

At 9.25am, MISC fell six sen to RM5.74 with 72,100 shares traded.

MIDF Research maintained its Neutral rating on the stock and said the company was already going through a tumultuous period as its 1Q11 earnings registered a decline of 59.3% year-on-year to RM187.8 million on its net profit due to losses in Petroleum and higher losses in Integrated Liner Logistics.

'Hence, we are revising downwards our FY12 earnings forecast by -31.7%, which lowers our target price to RM5.50 (from RM7.40), based on Sum-of-Parts,' the research house said on Sept 28.

''

September 27, 2011

Challenges ahead in manufacturing

Stock Name: NOTION
Company Name: NOTION VTEC BHD

Research House: OSK

Price Call: BUY

Target Price: 1.71

Technology sector
Maintain underweight: With the US and Europe's back-to-school season typically falling within mid-July to early September, 3Q PC sales are seasonally stronger. Nonetheless, we believe such a scenario is unlikely for this year as we expect 3Q11 PC sales to register mid-to-high single digit at best while full-year growth is estimated to hover around 2%-5% given the proliferation of close substitutes, consumers holding back spending amid uncertainty on the global economic front and slowing corporate replacement cycle taking toll from the anaemic pace of global economic recovery amid the worsening Europe debt crisis.

Our cautious stance is reaffirmed by Western Digital and Seagate, which have both guided for a flattish to low single-digit sales growth quarter-on-quarter despite the seasonally stronger 3Q11 as the inventory buildup in 2Q11, on fears over supply disruption from the Japan earthquake aftermath leading to order pull-forwards by original equipment manufacturer (OEM) customers to create inventory buffer, would most likely dampen sales in 3Q11.

We continue to remain cautious on the global semiconductor market and believe that the industry would likely experience negative growth in 2H11 as the much anticipated global economic stagnation would likely exert further downward pressure on sales.

Although the Semiconductor Industry Association's worldwide sales of semiconductors reported a fairly decent growth of 5% year-to-date in July 2011, we believe the positive momentum will eventually succumb to cautious consumer spending, as evident in the slowing equipment orders which serves as a strong indication that the manufacturers are expecting to see a slowdown in demand in the few quarters ahead.

Market research firms with the likes of IC Insights, Gartner, IDC and iSuppli are all taking an increasingly conservative stance in view of the anaemic global economic growth.

The quads are now forecasting for low-to-mid single-digit growth for both 2011 PC and semiconductor sales highlighting that the existing semiconductor inventories are at worryingly high levels and the likelihood that consumer and business spending will be weaker than expected.

The downgrades bode well with our cautious stance and reflect the increasingly gloomy outlook of the sector.

All in, we reiterate our ''underweight' call on the technology sector as we expect subpar growth in the seasonally sturdy 3Q of the year. Although valuations have retraced to as low as below net book value for some, we believe it is still premature to attempt bottom-fishing with firm recovery unlikely until 2Q12 given the current global macro outlook. ' OSK Research, Sept 27

This article appeared in The Edge Financial Daily, September 28, 2011.

Challenges ahead in manufacturing

Stock Name: UNISEM
Company Name: UNISEM (M) BHD

Research House: OSK

Price Call: SELL

Target Price: 0.90

Challenges ahead in manufacturing

Stock Name: MPI
Company Name: MALAYSIAN PACIFIC INDUSTRIES

Research House: OSK

Price Call: SELL

Target Price: 2.00

HLIB Research 27 September 2011 (KLCC Property; Traders Brief)

Stock Name: KLCCP
Company Name: KLCC PROPERTY HOLDINGS BHD

Research House: HLG

Price Call: HOLD

Target Price: 3.46

KLCC Property (HOLD)

Refinancing its debt

'''' KLCC's 50.5% owned subsidiary, Midciti Resources Sdn Bhd has agreed to fully repay its bonds outstanding to parent company PETRONAS, at a premium of RM35.31m.

'''' The bonds in question are the RM199m secured Bai Al-Dayn Bonds and the RM600m 13-year bond, due in Nov 2011 and Nov 2012 respectively.'' They will be refinanced from the proposed issuance RM880m Sukuk.

'''' Impact is uncertain, as the interest rate for the new RM880m, 10-year sukuk have yet to be announced.

'''' However, we do note that interest costs for the refinanced bonds were RM67m, or 47% of last year's total financing costs.

'''' Maintain HOLD on KLCC, given lack of upside catalysts and unresolved RCULS conversion issue. Target price maintained at RM3.46.

FBM KLCI: Taking cues from overseas

'''' On the monthly chart, the KLCI remains vulnerable to further downward correction towards 1259 (lower Bollinger band) and 1200 (50% FR) in the medium to long term. Immediate supports are 1310 (26 Sep pivot low), 1300 and 1293 (38.2% FR).

'''' Without a firm recovery in euro-zone solution, any market bounce-ups from an oversold position will likely be short-lived. Based on the daily charts, resistance levels are 1363 (lower Bollinger band), 1383 (5-d SMA) and 1409 (10-d SMA).

Crude oil: Supports: US$70-75; Resistance: US$90-95

'''' If prices can breach the mid Bollinger band of US$85, we expect more upside targets to US$88 (50-d SMA) and US$90 (downtrend line resistance). Beyond that, it is likely to face tremendous hurdles at US$92.6 (upper Bollinger band) and US$95.4 (200-d SMA).

'''' On the other hand, deteriorating economic outlook and failure to tackle the euro-zone debt crisis in the near term will dampen sentiment and trigger another round of selldown towards US$75-79 territory. A global recession may see prices sliding further towards US$65-74 levels (weekly chart)

MPHB rises on asset sale to MCA

Stock Name: MPHB
Company Name: MULTI-PURPOSE HOLDINGS BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 3.64

KUALA LUMPUR: MULTI-PURPOSE HOLDINGS BHD [] (MPHB) shares rose on Tuesday, Sept 27 after the company's decision to dispose its its Menara Multi-Purpose to the Malaysian Chinese Association (MCA) for RM375 million cash was viewed as a positive move to make MPHB into a purer gaming concern.

At 9.15am, MPHB gained seven sen to RM2.28 with 441,200 shares done.

MPHB on Sept 26 had said that the proceeds from which would be utilised to repay its bank borrowings.

It had entered into a sale and purchase agreement with MCA to sell the office tower together with 414 car park bays. Its original cost of investment in the office tower from 1993 to 1996 and the parking bays in 2004 was a total of RM289.03 million.

MPHB said based on the latest net book value of the PROPERTIES [] as at Dec 31, 2010 of RM175.38 million, the company would have an estimated gain of RM199.62 million from the sale.

Maybank IB Research maintained its Buy rating on the stock and raised its target price to RM3.64 from RM3.60.

'We are highly encouraged by this development as it proves that management is committed to disposing its non-core assets and distilling itself into a purer gaming concern.

'We like MPHB for its cheap valuations at 8 times 1-year forward PER. Disposal of non-core assets will re-rate this stock, albeit, gradually via special dividends and stronger recurring dividends,' it said on Sept 27.

''

TM upgraded to 'buy' by HwangDBS

Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 5.00

HwangDBS Vickers has upgraded Telekom Malaysia (TM) to a "buy" and raised its target price to RM5.00, from RM3.90, previously.

The research house explained that although TM's valuation seemed expensive against its peers, it dominated the high-entry-barrier fixed broadband market.

"TM offers resilient earnings and stable dividend yields, and has strong potential growth from Unifi," it said in a research note today, adding that TM had about 159,000 Unifi subscribers as of Sept 20.

The stock was hovering at RM3.99, up one sen, on Bursa Malaysia at 10.55am.

HwangDBS also said there was a possibility a special dividend of 13.1 sen or share being declared if TM returned the RM468 million proceeds from the recent sale of Axiata stake.

Meanwhile, it said Malaysia should experience a similar demand trend, as seen in other highly-penetrated markets such as Korea and Singapore, given the country's still low-fixed broadband penetration of 28 per cent.

"The rollout of fibre-based high-speed broadband network will hasten the growth of fixed broadband over the next few years and TM will benefit as the largest provider," it added. -- Bernama

September 26, 2011

Execution is key to turnaround

Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD

Research House: MAYBANK

Price Call: SELL

Target Price: 2.64

S P Setia strengthening foothold in Australia

Stock Name: SPSETIA
Company Name: SP SETIA BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 3.93

S P Setia Bhd
(Sept 26, RM3.10)
Maintain buy at RM3.08 with revised target price of RM3.93 (from RM3.90): The success of Fulton Land phase 1 (70% take-up) in Melbourne has convinced S P Setia to further strengthen its foothold in Australia via the latest purchase at South Yarra, Melbourne. We raise our RNAV estimate by two sen but leave FY11-13 earnings forecasts unchanged. Our target price is raised marginally to RM3.93 (+three sen) based on higher revised net asset value (RNAV) of RM4.36. Buy.

S P Setia has entered into a conditional contract of sale to buy a 2.23-acre (0.89ha) freehold land in Melbourne's South Yarra suburb for A$25.3 million (RM61.7 million); A$260 psf from Portbridge Pty Ltd. The A$260 psf price tag seems attractive given the A$697-A$800psf paid by Melbourne and China-based developers, Buxton Group and Sunnyland Investment Group, respectively for development sites at St Kilda Road in 2010.

The land is at a prime corner development site on Australia's premier boulevard with two street frontages: St Kilda Road and Moubray Street. It is surrounded by schools, colleges, retail centres, parks and hospital. Moubray Street tram station is located nearby, providing good connectivity and accessibility. We understand that the land has permit for a multi-staged residential development comprising 329 apartments and 369 underground car parks.

Despite the softening Melbourne property market as buyers grow more cautious amid wild stock market swings, we are mildly positive on the land deal given its good accessibility supported by the Moubray Street tram station and strong followings by SPSB's existing Malaysian house buyers. The land to be developed into high-rise apartments has an estimated A$250 million gross development value.

Up RNAV but maintain earnings forecasts as we expect the project to start contributing from FY14, beyond our earnings forecast period. Our RNAV estimate of RM4.36 (+two sen) assumes 15% pretax margin and four years of development period for this new Melbourne project. Post land acquisition, S P Setia's net gearing would increase to 3.2%, from 0.7% as at July 2011; remains manageable. ' Maybank IB Research, Sept 26

This article appeared in The Edge Financial Daily, September 27, 2011.

TNB: Breaking up is hard to do?

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD

Research House: AMMB

Price Call: BUY

Target Price: 6.40

Tenaga Nasional Bhd
(Sept 26, RM4.99)
Maintain buy at RM5.02 with fair value of RM6.40: The Edge reported that a special-purpose unit My-Power Corp is overseeing the government's proposal to break up Tenaga's transmission, distribution and generation divisions as part of the nation's power sector reforms. Three accounts will be individually scrutinised to improve transparency and identify problem areas. My-Power Corp was established primarily to review the existing power purchase agreements (PPA) between independent power producers and TNB, and this remains one of the many issues under evaluation.

One of the solutions being considered is a government takeover of TNB's less profitable divisions ' the transmission and distribution operations, while the more profitable power generation remains in the listed entity. This will open up the transmission and distribution system to all players and enable the government to choose the cheapest electricity in its grid.

The proposal to break up TNB had been mooted over 10 years ago before the California energy crisis in 2000 and was eventually abandoned. In our view, the key obstacles to breaking up TNB's integrated operations are:

1) Fixed reservation charges for PPAs are expected to continue, with the earliest expiring in September 2015 (for YTL Power's Paka and Pasir Gudang plants). Earlier attempts to restructure or charge a windfall tax resulted in sharply increased funding costs in the capital markets and were subsequently aborted.

2) No automatic cost pass- through mechanism for the country's electricity tariffs due to political sentiments and potentially adverse impact to the country's general economic well-being.

Hence, even if the government takes over the unprofitable operations of TNB, this would still represent a subsidy unless electricity and natural gas prices are fully deregulated. As the government's stated policy is to gradually deregulate natural gas prices by 2022, we view the proposed plan to break up TNB as a protracted affair.

The current natural gas shortfall and high fuel costs have resulted in TNB trading at a highly attractive single-digit FY12F PE valuation of only eight times ' at the bottom of its five-year band of eight to 15 times. It is also trading below its book value of RM5.32 per share, matching its lowest level for the past 12 years. ' AmResearch, Sept 26

This article appeared in The Edge Financial Daily, September 27, 2011.

Tougher period ahead for NTPM

Stock Name: NTPM
Company Name: NTPM HOLDINGS BHD

Research House: OSK

Price Call: SELL

Target Price: 0.46

NTPM Holdings Bhd
(Sept 26, 51.5 sen)
Downgrade to sell at 53 sen with revised fair value of 46 sen (from 53 sen): NTPM's 1QFY12 revenue and net profit came in at RM107 million (13.2% year-on-year) and RM9.2 million (-25.6% y-o-y), below our full-year forecast of RM49.6 million. The stronger revenue was mainly driven by the 9.7% sales growth in its tissue products (79.7% of total sales) and 29% revenue growth in the personal segment which contributed 20.3% of the sales pie. Baby diapers categorised under the personal care segment grew by 69.1% y-o-y to RM10.5 million due to their affordable prices.

1QFY12 Ebit margin fell 5.8 percentage points y-o-y to 12.2% due to: (i) the gas and electricity price hikes of 7%-8% since June 2010; (ii) higher pure (+32.4% y-o-y) and recycled pulp prices; and (iii) higher indirect raw material prices such as chemical and packaging. Also, NTPM is now currently using 100% pure pulp for its facial tissue products instead of blending with recycled pulp which is cheaper than pure pulp.

While the management guided that 2Q margin could be better due to the higher sales volume during the recent Hari Raya festivities, we believe margins will remain under pressure in the near term due to higher utility cost and recycled pulp price although indirect raw material and pure pulp prices have stabilised. Furthermore, the ringgit is expected to weaken against the US dollar in 2012.

Having said that, we expect pulp prices to retrace if global economic condition worsens and this could bode well for NTPM. We understand that NTPM has no intention to pass on the cost increase to consumers and will take necessary measures such as the launch of new products to cope with the higher operating cost environment.

Given the weaker-than-expected results, we cut our FY12/FY13 earnings forecasts by 13.3% and 12% to RM43 million and RM48.5 million respectively, incorporating higher utility and labour costs and recycled pulp prices. Our fair value is reduced accordingly to 46 sen. This gives 10% more downside versus its last closing price of 53 sen, and we downgrade the stock to 'sell'. ' OSK Research, Sept 26

This article appeared in The Edge Financial Daily, September 27, 2011.