October 7, 2011

HLIB Research 7 October 2011 (CIMB; Traders Brief)

Stock Name: CIMB
Research House: HLGPrice Call: HOLDTarget Price: 7.20


In Talks To But BOC Philippines

'''' CIMB confirmed preliminary talks with San Miguel for the possible acquisition of a stake in Bank of Commerce (BOC) in the Philippines.

'''' Assuming acquisition of a 20% stake (from San Miguel's 58.16% stake), it will only cost RM290m with circa 0.1% dilution to earnings.

'''' .Despite potential small acquisition, it will expand CIMB's regional footprint and open the door for future collaboration with conglomerate San Miguel.

'''' Maintain Hold and target price maintained at RM7.20 (Gordon Growth with ROE of 16.3% and WACC of 10.7%).


FBM KLCI: Testing 1400 & Scouting for laggards

'''' Technically, yesterday pick up in trading volume post the Morning Star formation, MACD golden cross as well as both the FBM KLCI and 5-d SMA cut above the 10-d SMA imply bullish undertone and is likely to test the psychological and mid Bollinger band of 1400 today.'' Again, for sustainability, volume need to consistently surge above the 1bn mark. Immediate resistance levels are 1400 (also the mid Bollinger band) and 1423 (30-d SMA). Supports are situated at 1377 (5-d SMA), 1370 (10-d SMA), 1350 and 1333 (lower Bollinger band).

'''' With the strong rebound and uneven performance among stocks, we undertook a scan of top 100 stocks to compared their performances (i.e. percentage rebound from low in September and Oct) with the FBM KLCI to scout for laggards (see table in page 3).


Dow: Above 11k & MACD Golden Cross

'''' Technically, the Dow has crossed above the 11k psychological barrier, the 20-d SMA line and mid Bollinger band (11081) with MACD emitting a Golden Cross.'' These suggest that the 30-d SMA (11178) is well insight and could be testing the downtrend lines of 11172 (formed since Jul 11) and 11369 (since Aug 11).''''''

'''' Immediate resistance levels are 11,179 (30-d SMA), and tow downtrend lines (11172 and 11369) and 11550 (upper Bollinger Band) while support levels are the 11k psychological level, 10961 (10-d SMA), 10612 (lower Bollinger Band) 10429 (38.2% FR ' from low in Mar 09 to high in May 11) and 10390 (74.6% FR ' from low in Jul 10 to high in May 11).

Terminal to boost Dialog income: OSK

Stock Name: DIALOG
Research House: OSKPrice Call: BUYTarget Price: 3.66

OSK Research Sdn Bhd is positive on the construction of Langsat Terminal (Three) to Dialog Group Bhd as it will provide more recurring income and a constant future cash flow.

In a research note today, OSK said Dialog's (55 per cent) and MISC Bhd's (45 per cent) unit, Centralised Terminals Sdn Bhd, had signed a shareholders' agreement to set up the JV company, LgT-3, with China Aviation Oil (Singapore) Corp Ltd.

"LgT-3 will undertake the proposed design, development, operation, management and maintenance of an oil storage tank terminal facility near Tanjung Langsat Port in Johor," it said.

It said the development would allow the company to deploy more capital expenditure and take on higher risk projects such as marginal oilfields.

OSK said it has maintained its "buy" call on Dialog with a higher fair value of RM3.66 from RM3.43 previously. -- Bernama

OSK upgrades LPI Cap from 'buy' to ' neutral'

Stock Name: LPI
Research House: OSKPrice Call: BUYTarget Price: 13.60

OSK Research Sdn Bhd has upgraded LPI Capital Bhd to a 'buy' from 'neutral' with an unchanged fair value of RM13.60.

In a research note today, OSK said LPI Capital was expected to continue to create long-term shareholder value through unremitting growth and robust results given the group's resilient performance and strong fundamentals.

OSK said LPI Capital's net profit for the nine months of financial year 2011 jumped 14.1 per cent year-on-year (yoy), thanks to better underwriting surplus, which expanded on 21.2 per cent yoy surge in gross premium as well as healthier investment income (+29 per cent).

"The higher underwriting numbers also fuelled a 12 per cent yoy growth in pre-tax profit," it said.

OSK said LPI Capital's underwriting surplus expanded by 18.3 per cent yoy, propped up by more robust growth in gross premium.

"The growth was mainly attributed to the cargo, hull aviation and offshore segment, fire, and followed by the motor segment," it said.

It said with stringent risk selection and management surplus in place, LPI Capital has managed to tame its claims ratio to 48.1 per cent from 48.4 per cent in the same period last year. -- BERNAMA

October 6, 2011

HLIB Research 6 October 2011 (Banks; Mah Sing; Traders Brief)

Stock Name: MAHSING
Research House: HLGPrice Call: BUYTarget Price: 2.93

Banking (Overweight)

Less Sanguine But Still LT Positive

'''' Slower growth but absence of double-dip and blowup of Euro debt crisis will hold up asset quality.

'''' Factoring lower 2012 loans growth of 9% (vs. 10%), lower non-interest income and preemptive provisioning.

'''' Earnings forecasts cut by 0.3-13.2% (below consensus by 1.2-14.1%).'' Plus higher risk premium of 8.5% (vs. 8%), target prices cut by 6-26%.

'''' Despite that, we are still expecting decent earnings growth while valuations are not stretch.

'''' Volatility to persist but valuations unlikely to revisit 08 trough and should gravitate around post AFC means in LT.

'''' Still positive about LT on resilient (albeit slower) domestic economic growth underpinned by consumerism, ETP and Petronas awards.

'''' Foreign shareholding ' except for AMMB, CIMB and RHB Cap, rest have relatively low exposures.

'''' Maintain Overweight.

'''' Top picks are Maybank and AFG ' selection criteria: strong CASA franchise, strong capital ratios and asset quality, relatively low trading book to total assets, relatively low exposure to foreign shareholding and valuations that are not stretch.''

'''' AMMB, CIMB and RHB Cap have been downgrade to Hold.


Mah Sing (BUY)

Quick Turnaround Township In Rawang

'''' Mah Sing is acquiring 225.7 acres of freehold land in Rawang by acquiring shares in Semai Meranti Sdn Bhd ''for RM92m, implying land acquisition cost of RM9.36 psf (<10% of GDV).

'''' The Land will be developed into a lifestyle township, M Residence@Rawang, with estimated GDV of RM948m, offering beginner homes priced from RM390,000.

'''' We are positive on this move as we believe the affordable pricing will result in strong take up rates.'' Also, launch is targeted in 1H 2012, in-line with their quick turnaround business model.

'''' We maintain our price target (RM2.93) and earnings forecast for now, pending updates from management. Maintain BUY.


FBM KLCI: Rebound to continued but need higher volume to sustain

'''' The strong overnight surge in Dow is expected to filter through to Asian markets today.

'''' Technically, the formation of a Morning Star, the slight golden cross in the MACD and the 5-d SMA cut above the 10-d SMA suggest that yesterday rebound may continue.'' Volume need to consistently surge above the 1bn mark to sustain the rebound and test the psychological 1400.

'''' Immediate resistance levels are the 1376 (5-d SMA), 1400, 1409 (mid Bollinger band) and 1430 (30-d SMA). Supports are situated at the psychological 1350, 1330 (lower Bollinger band), 1310 (26 Sep pivot low) and the other psychological 1300 level.


Dow: Above 10-d SMA

'''' Technically, after second day of strong surge, the Dow has crossed above the 10-d SMA line at 10922, suggesting that the current rebound could test the mid Bollinger bank (or the 20-d SMA) at 11090.'' Again, for sustainability, volume needs to pick up.''''''

'''' Immediate resistance levels are the psychological 11k and 11,090 (mid Bollinger band) and 11568 (upper Bollinger Band) while support levels are the 10-d SMA, 10429 (38.2% FR ' from low in Mar 09 to high in May 11) and 10390 (74.6% FR ' from low in Jul 10 to high in May 11).

A crucial time for Faber

Stock Name: FABER
Research House: OSKPrice Call: TRADING BUYTarget Price: 2.57

Faber Group Bhd
(Oct 6, RM1.32)
Maintain trading buy at RM1.28 with revised fair value of RM2.57 (from RM2.90): We gather that Faber's concession period may be cut from 15 years to 10 years for the upcoming renewal. We had previously highlighted the possibility of the concession period being shortened to 10 years, similar to last year's renewal of Pharmaniaga's concession for a 10-year period. However, with all the facilities already in place and there being no major capital investment required, the shorter new concession is unlikely to affect the concessionaire's profitability and cash flow. As such, we are not overly concerned over the shorter duration.

It has been reported that the government might not renew Faber's Hospital Support Services (HSS) concession for East Malaysia and speculation has it that the concession might instead go to local parties from Sabah and Sarawak. However, as Faber has been asked to submit its request for proposal based on its current concession's geographical coverage comprising the northern region of the peninsula and East Malaysia, we believe this indicates a high possibility of Faber maintaining its current geographical coverage.

We maintain our 'trading buy' recommendation on Faber but at a lower fair value of RM2.57 against RM2.90 previously, on taking into account a potentially shorter effective period of 10 years for the renewed concession. Despite uncertainties over the concession renewal, our FY12 numbers are based on the assumption that the existing concession will be renewed based on its current rate and scope. ' OSK Research, Oct 6

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

Mah Sing makes strategic switch to affordable housing

Stock Name: MAHSING
Research House: RHBPrice Call: SELLTarget Price: 1.55

Mah Sing Group Bhd
(Oct 6, RM1.77)
Maintain underperform at RM1.80 with revised fair value of RM1.55 (from RM1.47): Mah Sing announced that it has entered into a shares sale agreement to acquire the entire stake in Semai Meranti Sdn Bhd for a total purchase consideration of RM92 million (out of which RM35 million is the liabilities in the company).

Semai Meranti is the beneficial owner of a piece of freehold development land (with development order) in Rawang measuring 225.7 acres (90.28ha). Therefore, the price tag translates into a land cost of RM9.36 psf, which is reasonable for a large tract of residential land in a suburb 30 to 40km outside Kuala Lumpur city.

We are positive on the acquisition. The land will be developed into a self-contained township named M Residence @ Rawang, offering entry level homes priced from RM390,000, townhouses, semi-dees, 3-storey shops and other amenities. Gross development value (GDV) is estimated at RM948 million, with a development period of three to four years.

The pricing is in line with the property prices in nearby areas ' RM430,000 for a 20' x 75', built-up of 1,800 sq ft terrace in Emerald West against RM390,000+ for 22' x 70', built-up of 2,000 sq ft in M Residence. We believe the key selling points for the township will be: (i) the Jusco Shopping Centre, which is just 5km away and expected to be completed by end-2011; and (ii) good accessibility via the North South Highway and KL-Kuala Selangor Expressway.

M Residence will be able to capture the upgraders from Batu Arang, Kundang, Kuang and Sungai Buloh. The project is expected to be launched in 1H12, as soon as the transaction is completed in 1Q12.

As at Sept 15, Mah Sing has secured RM1.74 billion worth of property sales, on track to meet its full-year sales target of more than RM2 billion. The bulk of the sales is contributed by high-end projects launched previously.

While Mah Sing is now switching to the affordable segment, the remaining outstanding projects such as Icon City PJ (GDV RM3.2 billion), Icon Residence Mont'Kiara, M-City and M-Sentral are likely to experience some overhang in view of slower economic growth next year. The risks are: (i) rising building material costs; (ii) competition from peers; and (iii) country risks.

Earnings from M Residence are expected to kick in only from FY13, raising our earnings estimate by 4.8%. After imputing the incremental net present value into our realisable net asset value estimate, our fair value is raised to RM1.55 (from RM1.47), based on an unchanged 35% discount to RNAV.

While the switch to affordable housing is welcome, we believe the volatile downtrend in the equity market does not support a high-beta cyclical property play. We therefore maintain an 'underperform' call on Mah Sing. ' RHB Research, Oct 6

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

KFCH: More time for India

Stock Name: KFC
Company Name: KFC HOLDINGS (M) BHD
Research House: MAYBANKPrice Call: HOLDTarget Price: 3.37

KFC Holdings (M) Bhd
(Oct 6, RM3.19)
Maintain hold at RM3.20 with a revised target price of RM3.37 (from RM3.97): Slower economic growth is likely to have some dampening effect on consumption demand. Therefore, we have lowered our same-store-sales growth assumption by 0.5 percentage point for 2012'' to 1.3% and 1.5% for 2013 and trimmed our profit forecasts for 2012 and 2013 by 5% each year. Our discounted cash flow-based target price is cut to RM3.37 from RM3.97 on lower earnings and a higher cost of equity of 8.6% from 7.9% previously on account of higher economic risks. Valuations are still not appealing, with KFCH trading at a prospective 2012 price-earnings ratio (PER) of 14.2 times and dividend yields of just 2.1%.

The group has closed 10 non-performing Rasamas outlets year-to-date, taking the number of outlets down to 29 from 39 as at end-2010. Rasamas' contribution to the group's total revenue has dropped from 1.2% in 2008 to just 1% in 2010. The 534 domestic KFC outlets have continued to perform.The average ticket has surpassed RM20 to RM21.50 with the introduction of new products, promotions, and improvements at its drive-through windows.

While the management is targeting 28 new outlets in India in 2011, we have factored in 23. The management's intention is to have 15 restaurants by end-2011 (nine presently) and 30 restaurants by end-2012. Breakeven is expected at around 25 outlets, and is likely to happen only in 2013. As at end-2010, India contributed 3.3% of total revenue in the restaurant segment, compared with 79% of the operations in Malaysia.

KFCH's price-to-book valuation at the lowest point during the global financial crisis in 2008 was 1.6 times, against 2.3 times for 2011 presently. Based on our estimated book value per share of RM1.56 for 2012, the estimated trough in share price would be about RM2.50. KFCH traded at a trough PER of about nine times, against 14.8 times presently. Our base case has factored in slower economic growth but not a recession. We do not expect trough valuations to be revisited. ' Maybank IB Research, Oct 6

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

Mah Sing edges up on Rawang township plan

Stock Name: MAHSING
Research House: MIDFPrice Call: HOLDTarget Price: 1.71

KUALA LUMPUR: MAH SING GROUP BHD [] shares rose in early trade on Thursday, Oct 6 after it said it ''planning a lifestyle township in Rawang with an estimate gross development value (GDV) of RM948 million.

At 9.05am, Mah Sing rose four sen to RM1.84 with 262,500 shares traded.

Mah Sing said it was acquiring Semai Meranti Sdn Bhd which owns 225.7 acres of freehold within the Northern Growth Corridor in Rawang, for RM57 million.

'The land will be developed into a lifestyle township with an estimated GDV of approximately RM948 million, offering beginner homes priced from RM390,000,' it said.

MIDF Research in a note Oct 6 it was positive over the purchase of land in Rawang as it would enable Mah Sing to balance its portfolio with the stable earnings stream of a township development.

However, the research house said property sales of M Residence might not be as impressive as compared to Mah Sing's existing development in more established areas in KL.

MIDF Research maintained its forecast for Mah Sing pending details on the target launch value for M Residence.

'We are maintaining our Neutral call for Mah Sing with a target price of RM1.71.

'We are ascribing PER of 6.9X against FY12 EPS of 25 sen. The PE of 6.9X is 0.5 standard deviation below the 10-year average PE,' it said.

CIMB Research cuts Mah Sing target price from RM3.55 to RM2.64

Stock Name: MAHSING
Research House: CIMBPrice Call: BUYTarget Price: 2.64

KUALA LUMPUR: CIMB Equities Research said in view of renewed global economic uncertainty, the recent global stockmarket slump and concerns over potential measures by the Malaysian government to cool down the property sector, it is changing the target basis for Mah Sing Group from P/E to RNAV.

It said on Thursday, Oct 6 that this is in line with most of its larger peers to which the research house has assigned RNAV discounts of up to 40% for the smaller less liquid developers.

SP Setia is the only company assigned a premium as it is the bellwether of the property sector. Like UEM Land, it valued Mah Sing at its RNAV.

'As a result, the target price for Mah Sing falls from RM3.55 to RM2.64. Note that Mah Sing's RNAV has been raised from RM2.54 to RM2.64 due to the surplus value of the new landbank.

'Despite the lower target, Mah Sing remains our preferred pick in the property sector,' it said.

To recap, Mah Sing had acquired 226 acres of land in Rawang for RM92 million which CIMB Research described as good news as it is a significant move that will boost longer-term contributions from township developments.

'This could be the start of brisk newsflow on landbanking in the coming months,' it said.

October 5, 2011

Sunway Bhd: Bargain basement valuations

Stock Name: SUNWAY
Research House: HWANGDBSPrice Call: BUYTarget Price: 3.30

Sunway Bhd
(Oct 5, RM2.03)
Maintain buy with adjusted target price of RM3.30 from RM3.50: Since listing on Aug 23, Sunway's shares have retreated 33% partly because it is now non-syariah compliant. But this should be corrected at the Securities Commission (SC) meeting in November, as Sunway Holdings and SunCity were both syariah-compliant pre-merger. And, both stocks were suspended during a volatile equity market, and investors took the opportunity to sell upon re-listing.

Property sales are on track to meet the FY11 target of RM1.4 billion (1HFY11: RM884 million). The recent launch of Miltonia Close in Singapore (gross development value [GDV] S$370 million [RM903 million], average selling price S$800 psf) saw a strong 70% take-up. Its Tampines design, build and sell scheme (DBSS) project in Singapore (GDV S$465 million) also garnered strong take up of 40% in the first week of launch. The group will launch another DBSS project at Yuan Ching Road (GDV S$360 million) which should attract more interest after recent adjustments to DBSS policies. Locally, the launch of RM446 million Sunway Velocity has raked in RM297 million sales (100% take-up for retail units, offices 90%, service apartments 50%). Given its proximity to Cochrane MRT station, we estimate each RM100 psf rise in land values would raise our base sum-of-parts (SOP) value by 2.3%.

It has been prequalified for all three scopes for the MRT (civil, depot and stations). Employing the virtual data centre (VDC) framework and being cost competitive ' clinching the RM569 million LRT extensions ' Sunway will be a strong contender for MRT elevated works.

The recent selldown has trimmed valuations to only 6.4 times FY12F price-earnings ratio and 0.7 times price-to-book value, making it the cheapest property and construction stock and second cheapest conglomerate in our coverage. Note that Tan Sri Jeffrey Cheah bought 4.7 million shares of Sunway (0.4% of paid up capital) recently at an average price of RM2.13. We maintain our 'buy' rating with adjusted target price of RM3.30 based on 10% discount to SOP. ' Hwang DBS Vickers Research, Oct 5

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

Renewal anxiety likely to persist for Faber

Stock Name: FABER
Research House: RHBPrice Call: HOLDTarget Price: 1.51

Faber Group Bhd
(Oct 5, RM1.28)
Maintain market perform with unchanged fair value of RM1.51: On Sept 23, we wrote about the reported start of the long awaited renewal process for the three concessionaires, including Faber Medi-Serve Sdn Bhd. We understand that Faber Medi-Serve submitted the request for proposal (RFP) on Oct 3. We are currently uncertain about the process timeline, but we believe extension letters will be given if the renewal is not completed by Oct 28.

We are confident of Faber's ability to retain its service areas in Peninsular Malaysia given its 15-year track record. We also understand that the three concessionaires, including Faber Medi-Serve, Pantai Medivest Sdn Bhd and Radicare (M) Sdn Bhd, are not seeking to expand beyond their existing service areas.

We believe there is a risk that new parties may emerge in Sabah and Sarawak. This was widely speculated in the market a year ago and rumours since resurfaced, but as yet remain unconfirmed. Even if this happens, via new joint ventures (JV) between Faber and the new parties, we believe Faber would not settle for less than a 51% stake. Moreover, we recall previous discussions with management about the risk ' Faber Medi-Serve's service infrastructure is already established in Sabah and Sarawak, and therefore the company would likely stand a good chance of remaining a subcontractor to each JV.

Faber still has outstanding claims of about RM120 million from the UAE contracts. We have not factored this into our forecasts. In our view, management may think twice about new business development in the region. On the other hand, India appears to be progressing well, with 41 Apollo hospitals and five Fortis hospitals now signed up, in addition to the annual IFM contract for Hyderabad airport.

We make no changes to our forecasts for now, although we highlight that there is potential risk in our assumptions for both the concession renewal and the UAE claims. For now, our forecasts reflect the assumption of a third party brought in as a 49% JV partner for the Sabah and Sarawak service areas.

The risks to our view include: (i) failure to secure an extension to the concession agreement; and (ii) lower-than-expected service fees.

As we await the completion of the renewal process, we believe the stock will face continued selling pressure on risk aversion and at best perform in line with the market in the near term. We maintain our 'market perform' call on Faber with an unchanged sum-of-parts fair value estimate of RM1.51 per share. ' RHB Research, Oct 5

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

Dayang talking shop with Perdana Petroleum

Stock Name: DAYANG
Research House: OSKPrice Call: BUYTarget Price: 2.70

Dayang Enterprise Holdings
(Oct 5, RM1.52)
Maintain buy call with unchanged fair value of RM2.70: Over the weekend, The Edge weekly reported that Dayang may buy into Perdana Petroleum Bhd and ultimately emerge as a substantial shareholder.

Dayang announced to Bursa Malaysia on Tuesday that it has always explored avenues to enhance its business, including discussions with Perdana with a view to exploring potential collaboration between both parties. In fact, this potential collaboration could result in Dayang acquiring a strategic stake Perdana, but no agreement has been reached to date.

We had previously highlighted in our reports that Dayang is cash rich, with net cash of RM131.9 million as at June 2011, and has a stable and recurring income business. As such, we are not surprised the company plans to utilise the cash for mergers and acquisitions to expand its business, either vertically or horizontally.

Companies which are a potential fit for Dayang would include those with exposure in marginal oilfield services, or provide vessel support or own a fabrication or repair and maintenance yard, including foreign partners looking to venture into the Malaysian upstream oil and gas (O&G) sector. Tuesday's announcement indicates that discussions with Perdana are ongoing.

Assuming that a tie-up materialises, we see a synergistic fit between the two companies, although there may be some duplication of assets such as work boats. We understand that Dayang has four work boats which are now fully utilised.

Perdana, on the other hand, is experiencing a low utilisation rate on its four work barges and three work boats. Its core expertise is in deep water offshore support vessels (OSVs, 15 anchor handling tug supply vessel [AHTS]).'' As for the AHTS, having exposure to Perdana's fleet could fast-track Dayang's potential involvement in marginal oilfields in the future.

Dayang's book value stood at RM1.10 as at June 30. Based on yesterday's closing price of 61.5 sen, the share is trading at a price-to-book value (P/BV) of 0.6 times, which is attractive considering that most of its peers are trading at more than 1 times P/BV.

However, as mentioned in the announcement, most of Perdana's work barges and work boats are attached to short-term contracts that are expiring soon. As such, they would come in handy for Dayang. An agreement has yet to be reached and we are unsure of how much Dayang would be willing to pay for Perdana shares, or how much of Perdana its existing shareholders are willing to sell since any potential acquisition would have to involve a strategic stake. Based on The Edge report, Perdana's shareholders include Datuk Henry Kho Poh Eng and his brother Koh Poh Wat, who are both executive directors of Perdana and collectively own 9.3% equity interest in Perdana.

The other substantial shareholder is Sarawakian Datuk Tiong Su Kuok of Nam Cheong Dockyard Sdn Bhd, who has a 6.9% stake in the company. At 61.5 sen, Perdana's market capitalisation is about RM277 million.

Our fair value for Dayang remains unchanged at RM2.70 based on a price-earnings ratio of 13 times FY12 earnings per share. We continue to like the company's robust order book of over RM1.5 billion, which is enough to keep it busy over the next two to three years, and qualify it as a defensive O&G pick, which should enhance its profile in view of the currently weak investing environment. ' OSK Research, Oct 5

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

Top Glove sees short term rally, but fundamentals weak

Stock Name: TOPGLOV
Research House: MAYBANKPrice Call: SELLTarget Price: 3.40

Top Glove Corp Bhd
(Oct 5, RM4.38)
Maintain sell with revised target price of RM3.40 from RM4.40: Top Glove's upcoming 4QFY11 results are likely to disappoint by 33%. Though the share price has rebounded on the weaker ringgit against the US dollar (still down 30% from its low in August 2011), we would continue to avoid Top Glove as the negative impact of lower demand for its latex glove (70% of capacity) outweighs the positive impact of a stronger US dollar, and we do not foresee the cost of latex coming off significantly. Additionally, its CY12 price-earnings ratio (PER) valuation is expensive at 19 times. We cut FY11 to FY13 earnings per share (EPS) forecasts by 9% to 19% and lower discounted cash flow-derived target price (TP) to RM3.40 (-23%), indicating 15 times CY12 PER.

Results for 4QFY11 are due on Oct 11 and we expect sequentially flat net profit (3QFY11: RM26 million) on flat sales volume (estimated 5.8 billion pieces) and stable margin (earnings before interest and tax [Ebit]: 9%). Sales volume has been persistently poor. Net profit for FY11 is likely to come in at RM114 million, 10% below consensus. The structural demand switch from latex gloves to nitrile has left 40% of its latex lines unutilised against 100% utilisation for the nitrile lines. Actual FY11 sales volume is now estimated at 23 billion pieces, 6% below our forecast.

We think the margin-induced nitrile capacity expansion by the latex-focused glovemakers in the industry should lead to a squeeze in nitrile glove margins. However, we think the extent of the margin compression will be capped by the existing low net margins of the latex-focused players (5% to 10%). Further, aggressive price cutting will result in losses for Top Glove.

Top Glove is a net beneficiary of a stronger US dollar. While the greenback has gained 9% against the ringgit in two months and is trading at RM3.20, Maybank FX Research forecasts that it will return to RM3.05 by end-2012. We have assumed an average rate of RM3.10 in FY12 and RM3 in FY13.

We expect a net dividend per share of six sen in 4QFY11, bringing full-year DPS to 11 sen (FY10: 16 sen, FY09: 11 sen). Our FY11 DPS forecast is based on 57% net profit payout. High foreign shareholding of 35% could continue to weigh on the share price. We advocate investors to switch into Hartalega ('buy', TP: RM6.80) for the potential multiple expansion on its newly gained leadership status. ' Maybank IB Reseach, Oct 5

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

SapuraCrest confirms RM100m contract for Labuan Shipyard

Stock Name: SAPCRES
Research House: AMMBPrice Call: BUYTarget Price: 5.44

SapuraCrest Petroleum Bhd
(Oct 4, RM3.52)
Maintain buy at RM3.51 with fair value of RM5.44: We reiterate our 'buy' call on SapuraCrest Petroleum Bhd (SapCrest) with an unchanged fair value of RM5.44 based on an unchanged CY12F price-earnings ratio (PER) of 22 times for the group's merged earnings with Kencana Petroleum Bhd.

Following Tanjung Offshore Bhd's announcement that it had awarded shipbuilding contracts worth RM200 million to Muhibbah Marine Engineering and SapCrest's 50%-owned Labuan Shipyard & Engineering Sdn Bhd for the construction and commissioning of two platform supply vessels (PSV), SapCrest confirmed it has secured one of those contracts. SapCrest's RM100 million contract involves engineering and constructing a 77m PSV for Tanjung Offshore within 21 months.
The PSV will be used to supply and support the deepwater operations of oil majors in operational waters in Southeast Asia on a long-term basis. The PSV will also be utilised for operations in unrestricted waters and is designed to perform: (i) transport of drilling mud, cement, brine, base oil, diesel fuel and chemicals; (ii) transport of common and speciality tools; and (iii) fire fighting capabilities.

Recall that SapCrest signed an agreement in June this year to acquire a 50% stake in Labuan Shipyard and Engineering Sdn Bhd (LSE) from Real Mild Sdn Bhd for RM25 million cash. Currently, this yard is supporting the repair and maintenance of SapCrest's rigs, construction of vessels/barges and offshore support vessels.

We expect minimal contribution from this contract given the change in the yard's management, coupled with weak delivery and financial track record. Assuming a pre-tax margin of 5%, we estimate that this contract will contribute less than 1% to SapCrest's FY13F earnings. Hence, we maintain FY12F to FY14F net profit.

We remain positive about SapCrest's prospects as the group clearly expects significant order book accretions with its recently announced award of a fabrication contract to Cosco Corp subsidiary Cosco Nantong Shipyard Co Ltd to build two pipelay-cum-heavylift offshore construction vessels for a combined value of US$227 million (RM726 million).

The stock currently trades at an attractive CY12F PER of only 14 times against its 2007 peak of 29 times. ' AmResearch, Oct 4

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

IOI Corp upgraded to 'neutral' at OSK

IOI Corp, a Malaysian palm oil producer, rose the most in a month after OSK Holdings Bhd upgraded the stock to "neutral" from "sell."

The stock gained 3.8 percent to RM4.60 at 9:05 a.m. local time, set for its steepest increase since Sept. 2. -- Bloomberg

OSK Research upgrades IOI to Neutral

Stock Name: IOICORP
Research House: OSKPrice Call: HOLDTarget Price: 4.64

KUALA LUMPUR:OSK Research is upgrading IOI Corp from a Sell to Neutral despite the lack of a rerating catalyst.

It said on Wednesday, Oct 5 that it believes the stock price could be close to a bottom, trading near its average trough PE of 13.5 times.

'Our unchanged earnings forecast factors in a conservative average palm oil price of only RM2,700 per tonne for CY12 and FFB production of 3.4m tonnes for FY12 compared to management's guidance of close to 3.5m tonnes. The stock's fair value remains unchanged at RM4.64,' it added.

CIMB Research has technical sell on MAA

Stock Name: MAA
Research House: CIMBPrice Call: SELLTarget Price: 40.00

KUALA LUMPUR: CIMB Equities Research has a technical sell call on MAA Holdings at 40 sen at which it is trading at a price-to-book value of 0.4 times.

The research house said on Wednesday, Oct 5'' MAA Holdings violated its long term support channel on Tuesday.

'Selling pressure is likely to accelerate in days to come, if not weeks. If we are right, the next downleg is going to be steep, probably pushing prices lower towards 38 sen, 35 sen and possibly even 30 sen,' it said.

CIMB Research said the technical landscape remains lethargic. MACD signal line is hovering in the negative territory while RSI has hooked downward. Sellers at the support-turned-resistance trend line are going to dominate for a while longer.

'Our strategy here is to unload on strength, especially near the 41 sen to 46 sen resistances,' it said.

CIMB Research has technical buy on UOA Development

Stock Name: UOADEV
Research House: CIMBPrice Call: BUYTarget Price: 1.21

KUALA LUMPUR: CIMB Equities Research has a technical buy call on UOA Development at RM1.21 at which it is trading at a FY12 price-to-earnings of 4.8 times and price-to-book value of 0.9 times.

It said on Wednesday, Oct 5 that UOA Development is still trapped in a downtrend channel but a short term bottom could have been formed.

'Aggressive traders may start to nibble now but always keep stop tight at RM1.16,' it said.

CIMB Research said the bullish divergence on its MACD indicator suggests that selling pressure has tapered off. RSI too has bounced off its lows.

'In the immediate term, prices are likely to edge closer towards RM1.27 and RM1.38. The 30-day SMA at RM1.43 is also a magnet for prices,' it said.

HLIB Research 5 October 2011 (Plantations; TWSP; Traders Brief)

Stock Name: TWSPLNT
Research House: HLGPrice Call: BUYTarget Price: 3.39

Plantations (Neutral)

Too early to turn positive

'''' Despite the recent downtrend in CPO prices, we are keeping our average CPO price assumptions of RM3,200/tonne in 2011 and RM3,000/tonne in 2012 and we remain positive on the sector's longer term outlook, underpinned by:

  1. The possibility of La Ni''a returning has heightened supply risk, which in turn may will push CPO prices higher;
  2. CPO's huge discount against soybean oil, which will in turn support both demand and prices of CPO; and
  3. The peaking of palm oil production cycle (likely by Oct), which means lower supply and stockpile from Nov-11 onwards.

'''' However, we believe it is still pre-mature to turn bullish on the sector, given that:

1.'''' The potential further unwinding of speculative positions in the commodity assets and further quantitative easing will likely be insufficient to create additional liquidity that could in turn send commodity prices higher; and

2.'''' Comparatively, Malaysian plantation companies are valued at a premium to the regional players.

'''' In line with the recent sector de-rating in the regional plantation sector, we are cutting our target P/Es for plantation companies under our coverage by 1x from 10-15x to 9-14x.

'''' Following the cut in our target P/Es, TPs of the 5 plantation stocks under our coverage were cut by 3.8-10.1%. With the exception of TWS Plant (whereby recommendation was upgraded from Hold to Buy), our recommendations on Genp, IOI, KLK and Sime Darby remain unchanged at Hold following the cut in TPs


Tradewinds Plantation (Buy; TP: RM3.39)

A step closer to acquiring Mardec

'''' Prisma Spektra Sdn Bhd (a wholly-owned subsidiary of Tradewinds Plantation) has entered into and executed a novation agreement with the Government, the Minister of Finance and Semi Bayu Sdn Bhd for the novation of all Semi Bayu's rights and liabilities to Prisma Spektra. This means the acquisition of Mardec will be completed soon.

'''' Based on our earlier conversation with the management, the acquisition will enhance Tradewinds Plantation's earnings by RM17-18m p.a., equivalent to 7.3-7.7% of our projected 2012 core net profit of RM233.6m.''

'''' Earnings forecasts maintained for now, pending further update with management.''


FBM KLCI: Taking cue from the Dow

'''' Asian markets are likely to take the cue from the Dow's strong overnight late surge.

'''' Technically, indicators are still turning south but the formation of a Doji suggest that selling pressure may be subsiding and there is a potential technical rebound.

'''' Immediate resistance levels are the 1375 (5-d SMA), 1400, 1409 (mid Bollinger band) and 1430 (30-d SMA). Supports are situated at the psychological 1350, 1330 (lower Bollinger band), 1310 (26 Sep pivot low) and the other psychological 1300 level.


Dow: Piercing Line ' potential reversal pattern

'''' After yesterday strong late surge, the Dow's Candlestick has formed a Piercing Line formation, a potential reversal pattern.''''''

'''' Immediate resistance levels are 10941 (10-d SMA), the psychological 11k and 11,114 (mid Bollinger band) while support levels are at yesterday low of 10404, 10429 (38.2% FR ' from low in Mar 09 to high in May 11) and 10390 (74.6% FR ' from low in Jul 10 to high in May 11).

October 4, 2011

RHBInvest Research Highlights 04th October 2011

Stock Name: PETGAS
Research House: RHBPrice Call: BUYTarget Price: 14.50

Stock Name: DIALOG
Research House: RHBPrice Call: BUYTarget Price: 3.26

Stock Name: KENCANA
Research House: RHBPrice Call: BUYTarget Price: 2.21

04th October 2011
Top Story: Oil & Gas ' Taking a step back in view of global headwinds        Neutral (down from OW)
Sector Update
Petronas Gas: Fair value at RM14.50                                                                  Outperform
Dialog: Fair value downgraded to RM3.26 from RM3.90                                   Outperform
Kencana: Fair value downgraded RM2.21 from RM2.99                                   Market Perform
SapuraCrest:  Fair value downgraded to RM3.36 from RM4.56                      Market Perform                                                                                                         
Petronas Chemicals: Fair value downgraded to RM5.62 from RM6.37         Market Perform
Dayang: Fair value downgraded to RM1.55                                                        Market Perform (down from OP)
Wah Seong: Fair value downgraded to RM1.87                                                 Market Perform (down from OP)
Perdana Petroleum: Fair value downgraded to RM0.60                                  Market Perform (down from OP)
KNM: Fair value downgraded to RM0.70 from RM0.93                                      Underperform
MMHE: Fair value downgraded to RM3.93 from RM5.62                                   Underperform
RH Petrogas: Fair value downgraded to S$0.75 from S$1.36                         Outperform                         
Sector Call
Semiconductor: Aug global chip sales falls 2.2% yoy               Underweight
Sector Update
Unisem: Fair value at RM0.73                                                       Underperform
MPI: Fair value at RM2.07                                                               Underperform
Notion Vtec: Fair value at RM1.30                                               Underperform
Corporate Highlights
Amway: Resilient fundamentals                                         Outperform
Visit Note
''       We recently had a meeting with management of Amway. Based on our discussions, we came out of the meeting fairly confident of the resilience of Amway's topline outlook, underpinned by a stable Core Distributor Force (CDF) recruitment drive and membership productivity.
SapuraCrest: Platform Supply Vessel contract win        Market Perform
News Update
''       Yesterday, the company announced that its 50%-owned Labuan Shipyard & Engineering (LSE) had been awarded a contract by Tanjung Offshore worth RM99.5m to engineer, construct, test and deliver a 77-metres platform supply vessel. The vessel is expected to be completed within 21 months, which will contribute to Sapuracrest's FY13 earnings.
SP Setia: A bigger development in Beranang                 Market Perform
News Update
''       SP Setia proposed to acquire 673.27 acres of freehold land in Semenyih for RM381.3m or RM13 psf.

Fair values of SapuraCrest, Kencana cut

SapuraCrest Petroleum Bhd dropped 0.9 percent to RM3.48 set for its lowest close in a week.

Kencana Petroleum Bhd dropped 0.8 percent to RM2.40, its third day of declines.

SapuraCrest's "fair value" was cut to RM3.36 from RM4.56 and Kencana's was reduced to RM2.21 from RM2.99 at RHB Capital Bhd to reflect concerns about the global economy and the outlook for energy demand. -- Bloomberg

JobStreet sees softer hiring outlook

Stock Name: JOBST
Research House: HWANGDBSPrice Call: HOLDTarget Price: 2.30

JobStreet Corp Bhd
(Oct 4, RM2.38)
Downgrade to hold from buy at RM2.38 with a revised target price of RM2.30 (from RM3.60): During the 2008/09 global financial crisis, JobStreet's job posting volume fell to a low of 7,000 per month in January 2009 from a peak of about 15,000 in July 2008. Its revenue fell for four consecutive quarters (4Q08 to 3Q09) by 4% to 16% year-on-year, trailing weaker GDP growth of between +0.2% and -6.2%. Earnings before interest and tax (Ebit) margin also slipped to 31% in 1Q09 (against 1Q range of 32% to 47%).

JobStreet is on track to meet our FY11F net profit of RM47 million (1H11 profit of RM24.6 million is 52% of our full-year forecast). But FY12/FY13F earnings could see downside risks. Historically, JobStreet's revenue correlated strongly with GDP, with each percentage point growth in GDP raising revenue by 3% to 5%.

Hence, the current monthly average of 23,000 job ads for 3Q11 may not be sustainable in 2012. We cut FY12/FY13F earnings by 20% to 21% as we assume job ads will drop 14% y-o-y (against +15%) and Ebit margin will be squeezed to 41% (from 43%) in FY12.

JobStreet's share price has retreated by 18% to RM2.38 currently (from RM2.90 in mid-August), possibly on concerns over lower job ads. Lacking near term catalysts, we downgrade JobStreet to 'hold' (from 'buy'), with a lower discounted cash flow-based target price of RM2.30 (from RM3.60) after imputing weaker earnings and lower terminal growth rate of 2% (from 3%) on moderate growth prospects. Meanwhile, the shareholding structure of SEEK with JobStreet and JobsDB (22.4% in JobStreet and 55.2% in JobsDB) is unresolved. Our target price implies minus one standard deviation of its price-to-book value multiple against its trough of -2SD during 2008/09. However, the share price could be supported by its RM0.20 per share net cash and prospective 3% net dividend yield for FY12F (50% payout). ' HwangDBS Vickers Research, Oct 4

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

Proton's electric dreams

Stock Name: PROTON
Research House: MIDFPrice Call: HOLDTarget Price: 2.70

Proton Holdings Bhd
(Oct 4, RM2.64)
Maintain neutral at RM2.65 with target price of RM2.70: The media has highlighted that Proton has plans to build electric vehicles (EV) in the C (1,300 to 1,500cc) and A (below 1,000cc) segments. Recently, it handed over eight EVs to the government for testing purposes under the fleet testing vehicle (FTV) programme. The models comprise the Saga plug-in EV and the Exora REEV (range extender electric vehicles).

The programme will run for 12 months, serving as a platform for Proton to accumulate technical and consumer data in its quest to improve the technology, design and development of the vehicles. The findings from the trial will be embedded in Proton's plan to commercialise the vehicles. Under the FTV,'' about 250 EVs will be given to the government in phases for fleet testing by the end of 2011 or early 2012. The initial plan was to commercially produce the eco-mobility advance solution by 2012 as its first global car.

Proton and the Innovation Institute of Malaysia (AIM) have signed a memorandum of understanding to work together to accelerate the development and commercialisation of innovative products and advanced technology in the automotive sector.

AIM is a statutory body under the Agensi Inovasi Malaysia Act 2010 to formulate strategies to enhance the national innovation ecosystem and create new-wave wealth from innovation.

We view this as a positive development for Proton in line with its strategy to become a global vehicle manufacturer and the country's commitment to reduce greenhouse gas emission by 40% in 2020.

Nonetheless, given the uncertain global macroeconomic outlook and Proton's high expenses at Lotus Group, we reiterate our 'neutral' recommendation. Our target price stays at RM2.70 based on industry peers' price-earnings ratio of eight times with FY12F earnings and price-to-net tangible assets of 0.4 times. ' MIDF Research, Oct 4

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

Maxis faces voice headwinds

Stock Name: MAXIS
Company Name: MAXIS BERHAD
Research House: CIMBPrice Call: HOLDTarget Price: 5.70

Maxis Bhd
(Oct 4, RM5.28)
Maintain neutral at RM5.29 with revised target price of RM5.70 (from RM5.90): Our recent visit did not alter our view that Maxis's voice revenues will remain under pressure. While prepaid voice revenue may improve as tariffs have stabilised, postpaid revenue continues to be under pressure as users switch to DiGi.Com Bhd.

We maintain our 'neutral' call but lower our target price as revenue headwinds suggest no re-rating, but downside risks are capped by its attractive dividend yield. With a dividend per share of 40 sen, Maxis is one of the few telcos in the region with an absolute dividend commitment.

Maxis said voice revenue is declining faster than expected because of the decline in postpaid users and price war in prepaid. We believe that the sharp discounts for pre-selected prepaid numbers have been detrimental not only to Maxis but the industry as well. There are early signs that voice and SMS are being substituted by data messaging.

Maxis acknowledged that DiGi has done a good job in attracting low-end postpaid users, which has come at the expense of Maxis' base. However, Maxis said that it was addressing this issue. We think that Maxis will find it a challenge wresting back these users given its premium positioning and DiGi's established position in the lower-end market.

We gather from the industry that Maxis will launch its home broadband service towards end-October. It has teamed up with Astro associate and Australia-based Fetch TV to launch IPTV as part of its triple-play offering. It is also bundling multimedia and interactive services.

We are lowering our revenue and core net profit by 3% to 9% after: (i) slashing our net add projections for wireless broadband from 400,000 per year in FY11 to FY13 to 60,000 per year. This is on the back of a sharp slowdown in this segment, which we believe is due to subscribers switching to Telekom Malaysia Bhd's fibre broadband and Maxis taking its foot off the pedal on customer acquisition to focus on the more profitable small screen data; (ii) cutting our assumption of fixed broadband customers from 40,000 to 5,000 in FY11, 110,000 to 80,000 in FY12 and 260,000 to 230,000 in FY13. This is to reflect the delayed rollout of its broadband service, which means that the early adopters would have been locked up by TM. We expect TM to have at least 180,000 fibre broadband customers by end-2011; (iii) reducing our FY12/FY13 capital expenditure assumptions from RM1.3 billion to RM1 billion on the back of the revised guidance provided during its 2Q11 results briefing. Maxis expects capex to be RM1 billion or below due to capex efficiencies.

On the back of our forecast downgrades and the roll forward of our valuation horizon from end-2011 to end-2012, we reduce our discounted cash flow-based target price from RM5.90 to RM5.70 (weighted average cost of capital 10.8%). Despite the revenue headwinds and our earnings cut, we maintain our 'neutral' recommendation as the downside'' should be limited by Maxis' attractive dividend yields. ' CIMB Research, Oct 4

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

Resilience on a relative basis

Stock Name: PBBANK
Research House: MAYBANKPrice Call: HOLDTarget Price: 12.30

Off to Semenyih

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: OSKPrice Call: HOLDTarget Price: 3.97

Confirms RM100mil contract for Labuan Shipyard

Stock Name: SAPCRES
Research House: AMMBPrice Call: BUYTarget Price: 5.44

SEG International COO buys 3.17m shares

Stock Name: SEG
Research House: RHBPrice Call: BUYTarget Price: 2.15

KUALA LUMPUR: SEG INTERNATIONAL BHD []'s chief operating officer Hew Moi Lan acquired 3.17 million shares of the education-based group from Sept 29 to Oct 3.

A filing showed Hew, who is also an executive director, raised her shareholding in SEGi to 6.668 million shares or 1.28%. SEGi's share price closed at RM1.70 on those three days.

Prior to the recent acquisitions, her shareholding was 3.498 million shares or 0.67%.

Hew was appointed as the group chief operating officer on Feb 27, 2009. Prior to that, she was the vice president of operations and the principal of SEGi College Kuala Lumpur, one of the core subsidiary companies of the SEGi Group.

RHB Research Institute maintained its outlook on SEGi as an outperformer, due to its track record and resilience in riding out market uncertainties and its CAGR of 26.3%.

It had SEGi as a top pick with a fair value of RM2.15.

RHB Research keeps market perform call on SapuraCrest

Stock Name: SAPCRES
Research House: RHBPrice Call: HOLDTarget Price: 3.36

KUALA LUMPUR: RHB Research Institute is maintaining its Market Perform call on SapuraCrest Petroleum and fair value estimate of RM3.36 a share based on 14 times FY12 EPS.

On Monday, Oct 3, SapuraCrest announced its 50%-owned Labuan Shipyard & Engineering (LSE) had secured a RM99.5 million contract from Tanjung Offshore to build a 77-metre platform supply vessel. The vessel is expected to be completed within 21 months, which will contribute to Sapuracrest's FY13 earnings.

RHB Research said on Tuesday the contract would be LSE's first meaningful contribution to Sapuracrest since it was acquired in June.

"We note from its website that LSE does not have prior PSV building experience, but assuming it earns the same PBT margins as Nam Cheong (average of 13.4% for FY08-10), the project will contribute around RM6.6m to Sapuracrest's PBT earnings.

'Whilst the earnings accretion is immaterial we believe that the experience will be positive for LSE given that PSVs seem to be gaining favour in the offshore marine industry. We note that besides this Tanjung Offshore contract, Bumi Armada has also ordered two PSVs from Nam Cheong,' it said.