Bursa Malaysia Stock Price Target: 10/23/11

October 28, 2011

Supermax has plans to deal with overcapacity

Stock Name: SUPERMX
Company Name: SUPERMAX CORPORATION BHD

Research House: CIMB

Price Call: BUY

Target Price: 4.38

Supermax Corp
(Oct 27, RM3.56)
Maintain outperform with target price of RM4.38: A strengthening distribution platform will ensure that the world's second largest glovemaker emerges unscathed from the next one to three years of overcapacity. In addition, We gather that a bonus issue may be in the works.

Supermax's results briefing left us feeling more positive about its prospects as it is beefing up its distribution platform. We maintain our 'outperform' call and target a forward price-earnings ratio (PER) of 9.8 times. The stock would be catalysed by better earnings from easing costs and widening margins.

During the briefing, Supermax talked about initiatives that will take the company through the next one to three years of overcapacity. These include enhancing its distribution in Germany and North America while cautiously expanding into China. Supermax said it has exceeded internal sales targets in Germany and has qualified as a preferred supplier for some multinational companies. In the US, Supermax is purchasing warehouses as it expands into the US hospital market in 2012. Also in 2012, Supermax intends to start its distribution network in China.

Supermax indicated that the demand for nitrile gloves is declining due to the narrowing cost of production between nitrile and natural rubber. Even so, it is prepared to sell both types of gloves as 70% of its production lines are interchangeable. Without elaborating, it also said that it intends to make an announcement on an exercise to enhance shareholder value in the next few months.

Despite Supermax's comments that demand for nitrile gloves is on the wane, we believe that demand for nitrile remains strong. Our analysis suggests that the cost of producing nitrile gloves is 20% lower than natural rubber gloves, which we believe will incentivise distributors and hospitals to use nitrile gloves.

We gather that Supermax's announcement may be a bonus issue. While this is a positive surprise, for a company as liquid as Supermax the impact of the exercise will be less.

Investors should accumulate Supermax shares. At just 8.7 times FY12 PER, the stock trades at half the valuation of Top Glove Bhd, making it a cheaper play on the sector where earnings have bottomed out on the back of more stable rubber prices. ' CIMB IB Research, Oct 27

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

MAHB's numbers holding up well

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD

Research House: OSK

Price Call: BUY

Target Price: 7.36

Malaysia Airports Holdings Bhd
(Oct 27, RM5.88)
Maintain buy with target price of RM7.36: MAHB reported commendable earnings, with its cumulative core net profit coming in line with our estimates but ahead of consensus. Top line growth was fuelled by higher passenger spending while its bottom line got a boost from a higher utilisation rate and economies of scale.

Under the operating agreement signed in 2009, MAHB is entitled to compensation from the government should an overdue hike in tariffs be put on hold. As such, the government's recent move to freeze MAHB's proposed tariff hikes on aircraft landing and parking, due for an increase effective 2012, could see MAHB reducing the payment of user fees.

In the pipeline are two more joint venture (JV) initiatives and a 50-acre development of a factory outlet.

Save for a net exceptional loss item of RM2.2 million (after associates' FRS 139 impact and a RM22 million dividend income gain), MAHB's 3QFY11 core net profit stood at RM110.4 million or 17.3% quarter-on-quarter (q-o-q '16.6% year-on-year [y-o-y]; 12.1% year-to-date [YTD]) on the back of revenue of RM483.7 million or 2.4% q-o-q or 2.4% (8.4% y-o-y; 7% YTD). On a cumulative basis, the results were in line with our forecasts as revenue and core net profit accounted for 72% and 78% of our full-year forecasts, but beat consensus estimates. The y-o-y revenue growth was driven by resilient passenger growth (-0.3% q-o-q; 10.8% y-o-y; 12% YTD) although we note that q-o-q passenger growth was seasonally weaker owing to the lull during Ramadan. This was offset by higher non-aeronautical contribution boosted by more robust passenger spending on maximising rental space at the low-cost terminal.

MAHB managed to cut costs further during the nine-month period, with earnings before interest, tax, depreciation and amortisation (Ebitda) margin improving by 0.7 percentage points to 37.6% against 36.9% last year. Costs came down due to higher staff productivity as it achieved better economies of scale.

The management said KLIA2 may not be completed in time for commencement in 2012. Should the terminal be completed only in early 2013, the impact on our FY12 forecasts would be small as this may give rise to only a small 3.5% reduction in earnings. Valuation-wise, a delay would carry little weight in lowering our fair value for MAHB over the longer term. The management will be holding a briefing in the near future to update the investment community on the progress of KLIA2.

The management indicated that it is tendering for two more private JV initiatives with a utilities provider (likely to be Tenaga Nasional Bhd) and a hotelier. The JV will be structured like the recently announced JV partnership with WCT Bhd, in which MAHB is allocated free equity interest participation in exchange for the use of airport land by the JV partner. In addition, the government is developing a 50-acre (20ha) piece of land for a factory outlet to attract more visitors to the airport and boost non-aeronautical revenue.

With the 9MFY11 earnings in line with our estimates, we make no changes to our earnings at this juncture. We reaffirm our 'buy' call, with a discounted cash flow-derived target price of RM7.36, based on 9% weighted average cost of capital. MAHB is a defensive aviation play which will do well in both good and bad times owing to resilient air travel demand and its large base of budget travellers. ' OSK Research, Oct 27

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

HLIB Research 28 Oct 2011 (Aviation; Traders Brief)

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD

Research House: HLG

Price Call: BUY

Target Price: 7.00

Stock Name: AIRASIA
Company Name: AIRASIA BHD

Research House: HLG

Price Call: BUY

Target Price: 4.50

Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD

Research House: HLG

Price Call: SELL

Target Price: 1.19

Aviation (Overweight)

MAHB Championing Tariff Hikes

'''' MAHB has again announced new airport charges beginning 15 November 2011, which was deferred by the government back on 14 September 2011.

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

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

'''' Positives to MAHB, and slight negatives to AirAsia and MAS, as we expect airlines to pass-through the additional cost to consumers, while the additional cost are very marginal to travelling cost and unlikely to have significant impact on travelling demand.

'''' Separately, MAHB also announced setting up a new JV (23:77) with Tenaga, to supply chilled water and electricity to new KLIA2. MAHB expects the JV to contribute RM5m p.a.

'''' Raised MAHB FY12-13 earnings by 7.2% and 10.1% respectively.

'''' Recommendation:

'''' Maintained BUY on MAHB with higher target price of RM7.00 (Previously RM6.50) based on DCF to equity.

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

'''' Maintain SELL on MAS with TP of RM1.19.

Enjoy the ride toward 1500-1513 pts

'''' Riding on the overnight bullish Wall St and Europe markets, FBM KLCI is expected to continue its uptrend towards 1500 psychological barrier and probably to retest the 200-d SMA (now at 1513) after a mild profit taking consolidation. Immediate supports are 10-d SMA (1450) and 50-d SMA (1435) pts.

Coastal: Targeting RM2.10-2.25 amid bullish technicals

'''' Based on the weekly and daily charts, promising trend and momentum readings as well as rising +DMI suggest COASTAL could stage a meaningful upside towards RM2.10 (38.2% FR and upper channel) and RM2.25 (200-d SMA & 50% FR) in the short term. Supports are RM1.80-1.85. Cut loss below RM1.80.

OSK Research downgrades Tenaga to Neutral, sees losses ahead

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD

Research House: OSK

Price Call: HOLD

Target Price: 6.24

KUALA LUMPUR: OSK Research has downgraded Tenaga Nasional to a Neutral and it still sees the company reporting losses for 4QFY11 and 1QFY12.

It said on Friday, Oct 28 it is maintaining its profit forecasts pending the announcement of compensation or a fuel cost pass through. It is maintaining its fair value of RM6.24.

'Even with a potential write-back and the announcement of a new district cooling plant at KLIA2, we are unlikely to raise our FV substantially in the absence of a fuel cost pass through mechanism. As such, we maintain our DCF based FV for now, and downgrade the counter to a NEUTRAL given the limited upside after the recent price rally,' it said.

Tenaga will release its fourth quarter results on Friday evening.

'We maintain our estimates pending this evening's results release although we note that without compensation from Petronas, a disappointment is still likely. Given the limited upside to our RM6.24 DCF derived fair value, we downgrade our call on Tenaga Nasional to Neutral. A clear fuel cost pass through would have to be in place before we upgrade our FV substantially,' it said.

HDBSVR maintains buy on MAHB, ups TP to RM8.10

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 8.10

KUALA LUMPUR: Hwang DBS Vickers Research (HDBSVR) is maintaining a Buy on Malaysia Airports Holdings Bhd (MAHB) and raised the sum-of-parts based target price to RM8.10 from RM7.60 after an earnings upgrade.

It said on Friday, Oct 28 that at the current share price, this implies 38% upside.

'We continue to like MAHB for its long-term earnings potential from its cash-rich airport concession, land development, as well as overseas investments,' it said.

MAHB had received approval from the Ministry of Transport to raise the international passenger service charge (PSC) and aircraft landing and parking charges.

Effective Nov 15, International PSC for KLIA will increase from RM51 to RM65, while rates for LCCT KLIA and Terminal 2 Kota Kinabalu will increase from RM25 to RM32. And it will increase aircraft landing and parking charges by 9% and 18% per annum, respectively, on Jan 2012, Jan 2013 and Jan 2014. This is positive as we expect minimal incremental costs for MAHB.

'After imputing the resulting changes to airport rates and lower growth rates for passenger and aircraft movements, we nudged up FY11F-FY13F earnings by 1%-8%.

'Besides that, MAHB also signed an agreement with Tenaga Nasional (TNB) for the latter to supply cooling energy to KLIA2 for 20-years. Apart from securing operational requirement for KLIA2, MAHB will also receive royalties from the structured agreement,' it said.

October 27, 2011

HLIB Research 27 October 2011 (IOI; MAHB; Traders Brief)

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD

Research House: HLG

Price Call: BUY

Target Price: 6.50

IOI Corporation (Hold; TP: RM4.57)

Terminates RM830m land deal

'''' IOI issued a notice to Pertama Land & Development Sdn Bhd (a unit of DutaLand Bhd) to terminate the sale and purchase agreement (SPA) to acquire 11,977.9ha of oil palm plantation land in Sabah for RM830m, due to "non-compliance of certain terms and conditions which had been communicated to Pertama Land".

'''' According to IOI's announcement, OSK Trustees Bhd (the stakeholder of DutaLand Bhd) will have to refund IOI the RM83m deposit (10% of the purchase price) and interest accrued.

'''' However, DutaLand, on the other hand, said it does not accept IOI's reasons for termination of the SPA, and it has notified OSK Trustees not to remit the deposit paid by IOI.

'''' Worst case scenario, assuming IOI's 10% down payment is not refundable, it would reduce IOI's FY06/12 net profit by 3.5% to RM2,285.8m. However, it is still premature to determine if IOI will lose its deposit given the absence of further details in the announcement.

'''' TP (based on SOP) maintained at RM4.57 for now, and our Hold recommendation for IOI maintained.''

MAHB (BUY; TP: RM6.50)

Expect Strong 4Q11

'''' Slightly below our numbers '9M11 core earnings to RM289.9m (66.2% of HLIB's FY11 estimates and 74.0% of consensus).

'''' We expect strong result in 4Q11 given seasonally stronger period and the absence of RM30m airlines incentive provision in 4Q11.

'''' SGIA continued to make losses, while being offsets by MALE profits.

'''' Received one-off dividend payout of RM22m from its investment in Gas Distilled Cooling.

'''' MAHB highlighted possibility of lower dividend payout as it needed to reserve cash flow for KLIA2 construction.

'''' Cut FY11 earning by 4.4%, but raised FY12-13 earnings by 10.7% and 8.4% after accounting for higher passenger growth.

'''' Upgrade to BUY and TP of RM6.50 based on DCF.

More consolidation ahead

'''' Despite disappointment in ironing out a detailed masterplan at yesterday's EU Summit, overnight gains on Dow and news that China will buy bonds issued by the EFSF should bode well for the broader markets.

'''' Maintain SELL INTO RALLY or TAKE PROFITS near our envisaged resistance targets of upper Bollinger band (now at 1478 pts) and 100-d SMA (at 1497). Immediate pullback supports are 1436 (50-d SMA), 1410 (30-d SMA) and the 1400 psychological levels.

CPO price: Poised for a further breakout

'''' To recap, CPO prices jumped 2.1% to RM2951/MT on 25 Oct and had rebounded 6.5% from 52-wk low of RM2771 on 7 Oct.

'''' After surpassing its 30-d SMA and a breakout of the downtrend line (DTL) from 52-wk high, near term CPO outlook has turned better amid strengthening weekly and daily technical readings. Immediate upside resistance targets are RM3040-3217. Immediate supports are mid Bollinger band (now at RM2856) and lower Bollinger band of RM2763 levels.

IOI Corporation Terminates RM830m Land Deal (HLIB Research)

Stock Name: IOICORP
Company Name: IOI CORPORATION BHD

Research House: HLG

Price Call: BUY

Target Price: 4.57

News

IOI issued a notice to Pertama Land & Development Sdn Bhd (a unit of DutaLand Bhd) to terminate the sale and purchase agreement (SPA) to acquire 11,977.9ha of oil palm plantation land in Sabah for RM830m, due to 'noncompliance of certain terms and conditions which had been communicated to Pertama Land'.
According to IOI's announcement, OSK Trustees Bhd (the stakeholder of DutaLand Bhd) will have to refund IOI the RM83m deposit (10% of the purchase price) and interest accrued.
However, DutaLand, on the other hand, said it does not accept IOI's reasons for termination of the SPA, and it has notified OSK Trustees not to remit the deposit paid by IOI.
Recall, IOI had on 28 Jul 11 proposed to acquire 11,977.9ha of oil palm plantation land (consisting of 5 estates that are planted with oil palm) in Labuk and Sugut, Sabah for RM830m.

Financial impact
Worst case scenario, assuming IOI's 10% down payment is not refundable, the interest income forgone arising from the loss of deposit would reduce IOI's FY06/12 net profit by 0.1%. However, it is still premature to determine if IOI will lose its deposit given the absence of further details in the announcement.

Pros / Cons

We are slightly negative on the latest development, as we had earlier expected the acquisition to improve IOI's FFB yield and output growth over the longer term.
Also, we note that this is the second time IOI walking away from such deal (first time being IOI aborted plan to acquire Menara Citibank in Nov 2008) and this may hurt its share price sentiment arising from the potential loss of deposit.

Risks
Downside risks:

Global vegetable oil (including CPO) production comes in higher than expected, resulting in lower-than-expected CPO prices
Demand rationing by certain oil consuming countries (such as India) when vegetable oil prices skyrocket to certain level
Recent developments may give rise to reputation risk.

Forecasts
Maintained for now, pending further update from management.

Rating HOLD
Negatives: Perception to reputational risk (arising from the RSPO suspension) that would result in valuation multiple compression.
Positives: Strong balance sheet.

Valuation
Target Price (based on SOP) maintained at RM4.57 for now, and our Hold recommendation for IOI maintained.

News extracted from Hong Leong Investment Bank Research

AirAsia rises to RM4, highest since early August

Stock Name: AIRASIA
Company Name: AIRASIA BHD

Research House: UOB

Price Call: HOLD

Target Price: 3.70

KUALA LUMPUR: Shares of AIRASIA BHD [] rose to RM4 on Thursday, Oct 27, its highest since early August, in line with the fresh optimism in regional equities markets.

At 4.09pm, it was up five sen to RM3.93. There were 22.03 million shares done at prices ranging from RM3.90 to RM4.

Following the run-up in the share price, UOB Kay Hian Malaysia Research downgraded the low-cost carrier to HOLD from BUY.

The research house said the share price had run up by 33% since its upgrade on Oct 5 and exceeded its target price of RM3.70 (unchanged).

'Our target price is based on 7.5 times EV/EBITDA and adjusted for the value of its Thai and Indonesian associates. Recommended entry price is RM3.22,' it said.

Another sweet quarter for DiGi

Stock Name: DIGI
Company Name: DIGI.COM BHD

Research House: OSK

Price Call: HOLD

Target Price: 31.10

DiGi.Com Bhd
(Oct 25, RM31.62)
Maintain neutral with revised fair value of RM31.10 from RM28.60: DiGi continued to experience strong data growth and commendable expansion in voice revenue, aided by the Hari Raya Aidilfitri celebrations. The 9MFY11 results were slightly ahead of our expectations, prompting us to tweak upwards our FY11/FY12 earnings forecast by 1% to 4%.

This bumps up our fair value on the stock to RM31.10 (from RM28.60) based on 5.5 times FY12 enterprise value over earnings before interest, tax, depreciation and amortisation (EV/Ebitda) and 9.5% weighted average cost of capital (including the 65 sen capital distribution to be paid in 1H12). DiGi is our preferred Malaysian telco dividend pick alongside Telekom Malaysia Bhd.

At 81%, 76% and 75% of our estimates, consensus core earnings (excluding the one-off early medium-term notes (MTN) redemption charge in 2QFY11 of RM16.6 million) and revenue forecasts, DiGi's results slightly beat our expectation but were in line with street forecasts. The key takeaways were: (i) the continuing strong voice revenue growth of 2% quarter-on-quarter (+2.8% q-o-q in 2QFY11), supported by steady RPM and a higher subs base (+3.5% q-o-q); and (ii) robust 40.4% year-on-year (y-o-y) growth (+10.4% q-o-q) in non-voice revenue, raising data revenue contribution to 30% of mobile revenue (28% in 2QFY11) as DiGi benefited from the aggressive promotions of its mobile internet plans.

Ebitda margin widened 80bps q-o-q to a record 46.6%, bringing year-to-date (YTD) margin to 46.1%, ahead of our FY11 forecast of 44.8%. An expected 100% payout from net profit translates into an interim dividend of 37 sen per share, payable on Dec 8. (YTD dividends per share (DPS): RM1.10).

DiGi expects to capture a bigger slice of the mobile broadband market by narrowing its coverage gap (currently 50%) with that of its competitors (80%) and with progressively stronger smartphone take-up (currently 18% of its subs base). It estimates smartphone penetration in Malaysia at about 20% and sees that some 40% of handsets sold in 2011 will be smartphones. We contrast this with Singapore, which has a significantly higher smartphone penetration of more than 50% (80% of handsets sold are smartphones).

Management expects the outcome of the re-farming of the 900Mhz spectrum to be known within the next six to 12 months and is awaiting a directive from the telco regulator.

DiGi is back loading RM100 million of FY11 capital expenditure to FY12 due to the delays in the commencement of its network swap under the two-year network modernisation exercise. This results in a lowered capex guidance of RM550 million (against RM650 million) for FY11 while capex for FY12 is raised to RM800 million from RM700 million. The high single digit revenue growth guidance has been maintained, implying a more tepid revenue growth of 6% to 8% y-o-y in 4QFY11 given the higher base of smartphone sales in 4Q10. Given the stronger results, we raise our core profit forecast for FY11 by 4% and for FY12 by 1%, after modelling in a stronger Ebitda margin for the respective years. ' OSK Research, Oct 25

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

Dialog to grow earnings despite global concerns

Stock Name: DIALOG
Company Name: DIALOG GROUP BHD

Research House: RHB

Price Call: BUY

Target Price: 3.51

Dialog Group
(Oct 27, RM2.44)
Maintain outperform with fair value of RM3.51: Management appears confident that the Balai Cluster risk service contract (RSC) will be a success. In any case, the RSC is structured such that capital expenditure for both the pre-development and development phases is fully reimbursed by Petroliam Nasional Bhd regardless of success rate, and Dialog only bears the financing risk.

Once commercial production begins, payment from Petronas will be based on the rate of actual production and include the agreed return over the project costs. It is therefore in the company's best interests to begin producing as early as possible and at a higher production rate.

Management has guided average project internal rates of return (IRR) of 15% to 16%. We note that Dialog's RSC appears to be different from the SapuraCrest Petroleum Bhd/Kencana Petroleum Bhd RSC, as each is negotiated individually. The Balai Cluster appears to be more gas-based.

We understand Petronas is in the process of pre-qualifying foreign oil and gas companies for 20 marginal fields, and the process is expected to close by end-CY11/early CY12.

Thereafter, the foreign companies will choose the local parties they would like to work with. Dialog is keen to participate in the next round of marginal fields, and its proposed fundraising exercise (involving a rights and warrants issue) will provide sufficient funding for the Balai Cluster and others.

Risks include the delay or cancellation of projects and higher than expected cost of development. We have lowered our weighted average cost of capital (WACC) assumptions for Kertih and Tanjung Langsat terminals to 7.2% (from 10.1% previously) after removing the risk premium ascribed to the two terminals.

Our estimated revenue per cu m assumption is reduced to RM399 (from RM479 previously) for crude oil storage at Pengerang as we had previously assumed similar storage rates against petroleum products (at Tanjung Langsat terminal). We raise our net present value (NPV) per share estimate for the Balai cluster to be in line with the company's guided 15% IRR. Overall, there is no change to our sum-of-parts fair value estimate of RM3.51 per share.

Our meeting with Dialog gave us comfort that the company's long-term earnings fundamentals and visibility are intact and that conservative risk management remains paramount.

In our view, the company is well-positioned for the significant growth opportunities in the tank terminal business in the region, and capacity expansion plans both in Tanjung Langsat Port and Pengerang Deepwater Oil Terminal will support near- and long-term earnings growth in spite of global economic concerns. Moreover, Dialog's local projects secured thus far appear to be indicative of its strong link to Petronas. Maintain 'outperform'. ' RHB Research, Oct 27

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

MAHB's numbers holding up well

RHB Research ups UEM Land fair value to RM1.65

Stock Name: UEMLAND
Company Name: UEM LAND HOLDINGS BHD

Research House: RHB

Price Call: SELL

Target Price: 1.65

KUALA LUMPUR: RHB Research Institute has raised the fair value for UEM Land to RM1.65 from RM1.40 but maintains its underperform rating.

It said on Thursday, Oct 27 that due to the growing presence of more 'Singapore Inc.' in Johor in the midst of uncertain global economic environment, its optimism on the Iskandar development is revived slightly.

'We therefore narrow our discount to RNAV to 35% (from 45%) to derive our revised fair value of RM1.65 (from RM1.40),' it said.

On Tuesday, UEM Land announced that its 50:50 JV company with UM Land ' Nusajaya Consolidated Sdn Bhd had inked two agreements with The Ascott Limited (under Capitaland).

The agreements were for Ascott to provide technical advisory services as well as manage and operate 204 units of service residences to be known as 'Somerset Puteri Harbour' in Nusajaya upon its expected completion.

'We believe the strategic tie-up is via UM Land as Capitaland has a 21% stake in the company. This new Somerset will be Ascott first presence in Johor,' it said.

Supermax advances, CIMB keeps Buy, TP RM4.38

Stock Name: SUPERMX
Company Name: SUPERMAX CORPORATION BHD

Research House: CIMB

Price Call: BUY

Target Price: 4.38

KUALA LUMPUR: Shares of Supermax Corp Bhd advanced on Thursday, Oct 27 on the positive outlook for the glove maker while CIMB Equities Research maintained a Buy on the stock at a target price of RM4.38.

At 9.50am, it was up 16 sen to RM3.42 with 1.49 million shares done.

The FBM KLCI rose 5.24 points to 1,463.04. Turnover was 309.44 million shares valued at RM248.12 million. There were 226 gainers, 105 losers and 197 stocks unchanged.

CIMB Research said investors should accumulate Supermax shares. At just 8.7 times FY12 P/E, the stock was trading at half the valuation of Top Glove, making it a cheaper play on the sector where earnings have bottomed on the back of more stable rubber prices.

'A strengthening distribution platform will ensure that the world's second largest glove maker emerges unscathed from the next one to three years of overcapacity.

'Also, we gather that a bonus issue may be in the works. Supermax's results briefing left us feeling more positive about its prospects as it is beefing up its distribution platform,' it said.

OSK Research reaffirms Buy on MAHB

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD

Research House: OSK

Price Call: BUY

Target Price: 7.36

KUALA LUMPUR: OSK Research is reaffirming its Buy call on Malaysia Airports Holdings Bhd (MAHB) with a discounted cashflow (DCF)derived target price of RM7.36.

It said on Thursday, Oct 27 MAHB reported commendable earnings, with its cumulative core net profit coming in line with its estimates but ahead of consensus.

OSK Research said topline growth was fuelled by higher passenger spending while its bottom-line got a boost from a higher utilisation rate and economies of scale.

'MAHB is likely to see a reduction in User Fees paid to the Government given the freeze on the airport operator's proposed tariff hike, as the Government will pay compensation for the potential revenue loss,' it said.

The research house said in the pipeline are two more JV initiatives and a 50-acre development of a factory outlet.

'With its 9MFY11 earnings in line, we make no changes to our earnings at this juncture. We re-affirm our BUY call, with a DCF-derived target price of RM7.36, based on 9% WACC,' it said.

ECM Libra Research keeps IOI TP at RM6.11

Stock Name: IOICORP
Company Name: IOI CORPORATION BHD

Research House: ECMLIBRA

Price Call: TRADING BUY

Target Price: 6.11

KUALA LUMPUR: ECM Libra Research continues to have a Trading Buy call on IOI Corp as crude palm oil (CPO) prices have already corrected and appear to be rising again.

The research house said on Thursday, Oct 27 while it doesn't expect prices to strengthen significantly in the long term, there could nonetheless be some adjustment back to the RM3,000 a tonne level if more news on the La Nina emerges in the market in coming weeks.

However, it also said prices could also weaken further if there is more news on improving soybean supplies with ongoing South American plantings.

'Whatever the case, we view it to be a trading market at the moment and IOI makes for a good proxy given their healthy liquidity.

'Our target price of RM6.11 is unchanged based on FY12 P/E of 20.4x which represents mid-cycle valuation,' it said.

October 25, 2011

HLIB Research 25 October 2011 (DIGI; GenM; Traders Brief)

Stock Name: DIGI
Company Name: DIGI.COM BHD

Research House: HLG

Price Call: HOLD

Target Price: 31.70

Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD

Research House: HLG

Price Call: BUY

Target Price: 4.07

DiGi.Com (HOLD)

3Q11 Results

'''' 9M11 reported net profit of RM860.2m came in within expectation, accounting for 76.8% of our full-year forecast and 74.2% of consensus.

'''' DiGi reported a revenue of RM1,520m (+12.5% yoy, +3.5% qoq), EBITDA of RM708m (+19.2% yoy, +5.4% qoq), PAT of RM292.4m (+1.1% yoy, 23.7% qoq).

'''' Declared 3^rd interim tax exempt dividend of 37.0 sen, translating to a payout ratio of ~100%.

'''' Strong net adds pushing total base towards 10m. DiGi recorded total net adds of 327k comprising of 40k postpaid and 287 prepaid subscribers.

'''' Data: Accounted for ~30% of overall revenue mainly driven by increasing smartphone penetration, whereby 18% of DiGi subscribers are smartphone users. DiGi also shared that 40% of handset sales are smartphones.

'''' DDM-derived TP is tuned down to RM31.70 from RM32.03 (based on WACC of 6% and TG of 0%).

'''' Genting Malaysia (BUY '')

'''' GenM has entered into two sale and purchase agreements with (1) Sedby Ltd and Geremi Ltd to acquire 100% of E-Genting for a cash consideration of RM48m; and (2) Sedby for 100% Ascend International for a cash consideration of RM2m, financed by internally-generated funds.

'''' The acquisition of E-Genting is valued at ~5x to E-Genting's earnings and ~2x to its net assets, which we believe is fair.

'''' With the acquisition, GenM will be able to enjoy cost savings as opportunity cost of RM1.5m (RM50m at 3% FD rate) would be more than compensated albeit marginal (<0.5%) impact on earnings.

'''' Forecasts remained unchanged. Maintain BUY with target price of RM4.07 based on SOP valuation.

Positive cues from external markets

'''' Technically, more bullish tone from the external markets is likely to drive FBM KLCI higher towards our envisaged near term resistance targets of 1474 (upper Bollinger band). We expect more profit taking at this level before retesting the next resistance at 1495 (20-w SMA).

'''' Immediate pullback support levels are 1436 (50-d SMA), 1410 (30-d SMA) and the 1400 psychological levels.

HSL: Poised for a further breakout

'''' Based on daily chart, the rising trend and momentum indicators coupled with +DMI suggest HSL could stage a meaningful breakout above the downtrend channel to retest RM1.38 (50-d SMA), followed by RM1.44 (30-d SMA) and RM1.52 (100-d SMA). Significant resistance is RM1.65 (200-d SMA). The optimism is supported by a bottoming weekly chart as weekly RSI, slow stochastic and MACD technical readings are on the mend. Accumulate now but stop loss below RM1.18.

A Slow Quarter

Stock Name: NCB
Company Name: NCB HOLDINGS BHD

Research House: OSK

Price Call: SELL

Target Price: 3.12

Staying vigilant

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD

Research House: AMMB

Price Call: BUY

Target Price: 8.00

Proton seeks Chinese partner

Stock Name: PROTON
Company Name: PROTON HOLDINGS BHD

Research House: AMMB

Price Call: HOLD

Target Price: 2.60

Proton Holdings Bhd
(Oct 25, RM2.63)
Maintain hold with unchanged fair value: We maintain our 'hold' rating on Proton with an unchanged fair value of RM2.60 per share based on 0.5 times adjusted FY12F net tangible assets of RM5.30 per share. Proton and Chinese auto company Hawtai Motor Group Ltd (Hawtai) have signed a memorandum of understanding (MoU) to explore collaboration in product development with the aim of expanding Proton's presence in the Chinese market.

Proton and Hawtai will evaluate the establishment of a joint venture (JV) company in China to invest in joint new product development including joint design and development cost sharing. Proton says Hawtai is looking at manufacturing the Proton Exora MPV and the upcoming Proton P3-21A (Persona replacement set to debut in 2012) sedan in China. The two companies will explore the development of new models together in a later phase.

The JV will also be responsible for vendor sourcing and component development work with local Chinese vendors. This will hopefully allow Proton to tap into low-cost vendors in China and explore'' cross-supplying components from Malaysian vendors to China and vice versa. Beijing-based Hawtai can make about 200,000 vehicles, 300,000 engines and 300,000 automatic transmissions a year.

Since 2002, Hawtai has cooperated with Hyundai Motors to manufacture Chinese-market versions of the Hyundai Matrix, Hyundai Santa Fe and Hyundai Terracan. The JV ended late-2010 and it would appear Hawtai is in need of a new technology partner. Hawtai has repeatedly acquired foreign technologies, including engine and transmission technologies. Both of Hawtai's sedan models use Mitsubishi's 4G63 and 4G69 Mitsubishi innovative valve timing electronic control system (Mivec) engines. We do not rule out the Proton-MMC Bhd JV on engine development being involved with Hawtai if the Proton-Hawtai JV comes through.

We leave our forecasts unchanged at this juncture as details are still too sketchy. Feasibility studies will take three months before any deal is cemented. Additionally, the size of Proton's stake in the JV is still unclear. Main positives will be in: (i) shared vehicle development cost which typically ranges between RM500 million and'' RM1 billion; and (ii) cost competitive component sourcing from China.

Over the next 12 months, Proton's earnings prospects remain challenging given: (i) losses from the restructuring of Lotus; (ii) slowing domestic sales ' Proton has no waiting list except for the Exora; and (iii) heavy price discounting as Japanese marques strive to regain market share. ' AmResearch, Oct 25

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

Banks cautious over outlook next year

Stock Name: AMMB
Company Name: AMMB HOLDINGS BHD

Research House: RHB

Price Call: SELL

Target Price: 4.43

Banking sector
Maintain underweight: We visited Malayan Banking Bhd (Maybank), Public Bank Bhd and AMMB Holdings Bhd and attended a small group meeting held by CIMB Group Holdings Bhd. We sense cautiousness with respect to the outlook ahead with words and phrases such as 'challenging', 'uncertain', 'lack of visibility' being used to describe next year's outlook. CIMB sounded the most bearish while Public Bank remained optimistic its loan growth would continue to outpace the industry.

With just over two months remaining to the year, 2011 targets were kept unchanged. While the Economic Transformation Programme (ETP) is expected to play a key role in driving growth next year, thus far, the impact from larger ETP projects has yet to kick in. As for the investment banking (IB) pipeline, 3QCY11 was still healthy but the banks were mindful that weakening macro conditions ahead could put a dent in capital market activities. Finally, the banks were unanimous that at this juncture there are no signs of stress on asset quality.

Maybank: While management was comfortable with the loan-to-deposit ratio (LDR) of 90.1% as at end-June 2011, it admitted that asset growth ahead could be crimped if not matched with deposit growth. Already, Maybank is now less keen to match rates offered by some competitors while we understand that the message has been communicated to the overseas subsidiaries that they will need to raise their own funding to grow assets.

CIMB: While it's still early days, CIMB likes the Philippine market due to the potential growth ahead and given that CIMB does not have a presence there. Preference is for a controlling stake. Meanwhile, the IB pipeline has been reasonably healthy, although equity market-related activities have been rather weak.

Public Bank: The bank's LDR of 87% to 88% is not expected to affect loan growth. Continuous efforts will be made to grow core deposits to keep LDR manageable. For Basel III, management thinks Bank Negara Malaysia is unlikely to impose capital requirements that are more stringent than the 9% Common Equity Tier-1 required by the Monetary Authority of Singapore, so the group is unlikely to need any fundraising over the next 12 months.

AMMB: With the employment of its third generation score cards and risk-based pricing, AMMB does not target any particular income segment but is willing to lend as long as the customer is willing to pay. AMMB believes the balance sheet is well-positioned such that the impact of any rate increase or decrease would be largely neutral to the group.

We maintain our 'underweight' call on the sector.'' ' RHB Research Institute, Oct 25

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

Banks cautious over outlook next year

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD

Research House: RHB

Price Call: SELL

Target Price: 5.63

Banks cautious over outlook next year

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD

Research House: RHB

Price Call: SELL

Target Price: 6.84

Supermax Corp - - Getting the bounce back in its step

Stock Name: SUPERMX
Company Name: SUPERMAX CORPORATION BHD

Research House: CIMB

Price Call: BUY

Target Price: 4.38

1Q/FY12 results. Revenue within expectations but NPAT below. Revise to Hold Call.

Research House: RHB

Price Call: BUY

Target Price: 5.65

KUALA LUMPUR: Maxis Bhd shares rose in afternoon trade on Monday, Oct 24, but the gains were outpaced by other key KLCI stocks, though analysts were positive on the telco's tie up with U Mobile to provide its 3G radio access network (RAN)

At 3.01pm, Maxis rose nine sen to RM5.34. There were 831,500 shares done at prices ranging from RM5.30 and RM5.37.

RHB Research Institute said it was positive on the tie-up which would stretch an initial period of 10 years and cater for long-term evolution (LTE) when the spectrum becomes available.

Maxis and U Mobile entered into an agreement to share Maxis' 3G radio access network (RAN), for an initial period of 10 years and will cater for long-term evolution (LTE) when the spectrum becomes available.

'Details were vague, but we are positive on the move as a means to help maintain Maxis' industry leading EBITDA margin of 50% in the medium term through capex and opex savings,' it said.

RHB Research said the active sharing arrangement could help Maxis mitigate margin erosion arising from subscriber acquisition costs related to its new Home Services. Besides that, Maxis will also likely generate some roaming revenue on a net basis given its wider 3G network coverage.

'We however believe that both companies may not gain as much as the RM2.2bn capex and opex combined savings that Celcom and DiGi are targeting through passive sharing over 10 years, given that Maxis and U Mobile do not have significant overlap in 3G coverage, except in mainly urban areas such as the Klang Valley and Johor Baru.

'Also, U Mobile does not have a nationwide 2G network, relying instead on an existing domestic 2G network roaming arrangement with Celcom, which will expire by Sep 2013.

'DCF fair value maintained at RM5.65. As a defensive play with purely domestic mobile operations, we maintain our Outperform call on Maxis amid global external uncertainties,' it said.