Bursa Malaysia Stock Price Target: 10/30/11

November 4, 2011

RHBInvest Research Highlights 4th November 2011

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

Research House: RHB

Price Call: SELL

Target Price: 0.92

Stock Name: MPI
Company Name: MALAYSIAN PACIFIC INDUSTRIES

Research House: RHB

Price Call: SELL

Target Price: 2.19

4th November 2011

Top Story: Genting Malaysia ' The Big Apple buzz Outperform

Visit Note

'' Resorts World New York (RWNY) opened on 28 Oct with much fanfare. The initial response to the racino was largely positive with 20k eager patrons waiting in line to get into the casino. All in, GM would spend a total of US$830m (US$380m for the licence and US$450 for capex), including the US$250m government grant. Applying RWNY's closest competitor, Empire City 's net win per day of US$330/VLT to its 5,000 machines, RWNY's gaming revenue could be c. US$600m p.a.. Management believes it should be able to make a similar EBITDA as Empire City of about US$80-100m once it is fully operational. We have now imputed earnings for RWNY into our forecasts.

Sector Call

Semiconductor: Moving to P/BV valuation methodology Underweight

Sector Update

Unisem: New fair value of RM0.92 Underperform

MPI: New fair value of RM2.19 Underperform

'' With the poor earnings visibility on the back of weak guidance by major players in the industry, the outlook for 2012 remains in doubt amidst the bearish outlook in the global economy. Furthermore, post Unisem's analyst briefing recently, there was lack of conviction as to whether the guided 4Q2011 revenue decline would be short-term, with a quick a recovery in 2012, although management appeared optimistic on such a scenario.

Corporate Highlights

Parkson: Positive earnings and valuation impact after PRA listing Outperform (up from MP)

Company Update

'' Parkson Retail Asia's (PRA) listing on the SGX yesterday effectively resulted in Parkson Holdings (PHB) becoming a full holding company with a 51.5% ownership of HK-listed Parkson Retail Group (PRG) and 70.5% ownership of PRA.

'' Our earnings model has been changed to impute PRA's earnings as a group, with the same assumptions as we had in our IPO note dated 3 Nov.

MMHE: Tapis EOR project finally in; but downside risks persist Underperform

News Update

'' Yesterday, MMHE announced that it had won the Exxonmobil Tapis EOR fabrication project worth RM1.4bn. The project is expected to be completed by end-2013.

'' We are not surprised by the news. We understand that revenue recognition will begin in FY12. Based on our 9.5% EBIT margin assumption, the project will contribute around RM66.5m over its 2 year period.

'' Now that it has acquired the Sime Engineering yard, MMHE has put its yard optimisation plans on hold. As such, tax credits for the year will be minimal and the company's effective tax rate will rise on a yoy basis.

Lingui: Core net profit fell by 56% qoq Underperform (down from MP)

1QFY12 Results

'' 1QFY06/12 core net profit of RM24.2m came in within expectations at 23% of our full-year forecasts and 22% of the full-year market consensus.

Maybank IB Research maintains Buy on MMHE

Stock Name: MHB
Company Name: MALAYSIA MARINE AND HEAVY ENG

Research House: MAYBANK

Price Call: BUY

Target Price: 8.00

KUALA LUMPUR (Nov 4): Maybank Investment Bank Research is maintaining a buy on Malaysia Marine and Heavy Engineering Bhd (MMHE) at a target price of RM8, based on 20 times 2013 earnings per share.

It said on Friday that MMHE's latest Tapis contract, valued at RM1.4 billion, readily filters concerns over its replenishment rate.

'Orderbook momentum is set to continue into 2012-15 with the FLNG, TLP and RAPID projects among the high profile projects that would propel orders and earnings growth. MMHE remains as among our top pick in the oil & gas sector,' it said.

Maybank IB Research said the job scope entails the CONSTRUCTION [] and installation of the main structure for the Tapis R topside.

The Tapis R topside is an 18,000MT integrated deck that includes facilities for gas compression, water injection, production separation and living quarters for 145 personnel.

'A RM1.4b job with an 18-month delivery date. Works will be undertaken at its Pasir Gudang yard. Installation of facilities is scheduled to commence in 2Q 2013 and EMEPMI targets to start production by end-2013. The Tapis R platform will be connected by a bridge to the existing Tapis B platform and a new riser platform, known as Tapis Q,' it said.

OSK Research raises Guinness FV to RM14.20

Stock Name: GAB
Company Name: GUINNESS ANCHOR BHD

Research House: OSK

Price Call: BUY

Target Price: 14.20

KUALA LUMPUR (Nov 4): OSK Research has raised the fair value for GUINNESS ANCHOR BHD [] to RM14.20 and is maintaining its Buy rating.

It said on Friday, GAB reported earnings of RM55 million in the first quarter ended Sept 30, 2011, which was a 43% increase year-on-year and 90% quarter-on-quarter, which was in line with its expectations. GAB's Tiger brand is now the best selling beer, while Guinness and Heineken registered double-digit growth.

'With no excise duty hike announced in the recent Budget 2012, we expect continued growth in industry volume, with Euro 2012 being an added near-term kicker. We raise our FV to RM14.20 and maintain our BUY rating,' it said.

4QFY11 earnings hampered by prolonged gas curtailment

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD

Research House: ZJ

Price Call: HOLD

Target Price: 6.40

November 3, 2011

Glenealy Plantations still a bargain

Stock Name: GNEALY
Company Name: GLENEALY PLANTATIONS (M) BHD

Research House: OSK

Price Call: BUY

Target Price: 7.25

Glenealy Plantations (Malaya) Bhd
(Nov 3, RM5.80)
Maintain buy with fair value RM7.25: Glenealy registered strong year-on-year (y-o-y) growth both at the top and bottom line, although this performance was slightly weaker on a sequential basis amid declining crude palm oil prices and fresh fruit bunch (FFB) production.

The company's earnings and production came in within expectations, with FFB production rising by a healthy 12.8% y-o-y. The stock remains cheap, especially in terms of enterprise value (EV) per planted ha, being the least expensive among plantation companies within our coverage from this viewpoint. Maintain 'buy' with a fair value of RM7.25.

Glenealy's 1QFY12 earnings made up 27.3% of our full-year FY12 forecast, soaring by 156.5% y-o-y but rising at a softer 1% sequentially. Revenue surged 68.2% y-o-y but declined by 6.7% quarter-on-quarter (q-o-q) despite the positive sequential CPO sales volume growth as the company's realised prices fell 6.7%.
As FFB production had historically skewed towards 1HFY12, our expectations of CPO prices weakening in 2HFY12 should see Glenealy's earnings in the second half account for less than half of our full-year earnings estimates. Our current projected FY12 average CPO price is RM2,950 per tonne, lower than the RM3,107 achieved so far.

Glenealy's FFB production slipped 2.9% q-o-q after experiencing a strong 20.1% sequential growth in the previous quarter. Nonetheless, production rose 12.8% on a y-o-y basis, which is in line with our 10.9% growth estimate.

Even though production is entering a traditional upcycle, the q-o-q decline may have been partly due to the month of Ramadan in August, during which the availability of labour for harvesting was somewhat affected. Some 60% of the company's FFB comes from Sabah, where production could have been hit by the tail-end effects of the drought in 1QCY10.

We are keeping our FY12 and FY13 forecasts unchanged. Glenealy's share price has been well supported despite the current economic headwinds, partially owing to its low beta and dry trading volume. Along with its strong balance sheet and cheap EV per planted ha of US$5,800 (RM18,270), we maintain our 'buy' call, with a fair value of RM7.25, based on 12 times FY12 price-earnings ratio. ' OSK Research, Nov 3

This article appeared in The Edge Financial Daily, November 4, 2011.

KKB Engineering - Growing with Score

Stock Name: KKB
Company Name: KKB ENGINEERING BHD

Research House: OSK

Price Call: BUY

Target Price: 2.20

KKB Engineering Bhd
(Nov 3, RM1.72)
Maintain buy with revised fair value of RM2.20 from RM2.83: The presence of KKB plus Samalaju Industrial Park's attraction to investors given its good basic infrastructure, available water supply and huge capacity to supply electricity at competitive pricing, we expect some sizeable contracts to come KKB's way in FY12 and FY13.

While we like the company's solid balance sheet and potential to reap enormous earnings from the Sarawak Corridor of Renewable Energy (Score), we maintain our 'buy' recommendation but revise lower our fair value to RM2.20 on incorporating lower earnings arising from the temporary slowdown of contracts flow this year, and on applying a more conservative 8 times price earnings ratio (PER).

Having clinched its first job in Samalaju via a water supply project in Bintulu worth RM196 million as well as the contract to carry out earthworks for OM Materials, KKB is positioned to make its presence felt in Samalaju Industrial Park. As the company has been pre-qualified to construct plants for Tokuyama, Asia Mineral Ltd, OM Materials and Press Metal's investments in Samalaju, we expect it to secure more sizeable contracts here in the near term.

Phase 1 of the company's expansion plan involves doubling the fabrication capacity of its new deepriver front yard to 30,000 tonnes per annum. This has just been completed while construction of a jetty to facilitate access to Sungai Sarawak is still in progress. Phases 2 and 3 are scheduled to be completed by 2014. By then, KKB's earnings would rise to another level, boosted by the additional fabrication capacity and logistics advantage from the deepwater front and jetty

The developments in Score slowed down in 1H to make way for the state elections. Nevertheless, we are seeing a pick-up in contracts flow of late and KKB recently secured some contracts, although these are small. We believe that Score projects will be revived in FY12 given that the construction of most plants in Samalaju will kickstart next year.

We remain positive on KKB's progress although its share price is down 21% from its 2011 peak in tandem with the market-wide correction. As we like the company's strong balance sheet and good track record, we maintain our 'buy' recommendation. However, we prefer to lower our estimates for the next two years and slash our PER parameter to 8 times from 10 times, for a new fair value of RM2.20. ' OSK Research, Nov 3

This article appeared in The Edge Financial Daily, November 4, 2011.

Mah Sing enhancing franchise value of Icon City

Stock Name: MAHSING
Company Name: MAH SING GROUP BHD

Research House: MAYBANK

Price Call: HOLD

Target Price: 1.76

Mah Sing Group Bhd
(Nov 3, RM 1.99)
Maintain hold with target price RM1.76: The potential joint venture (JV) with Thailand's largest retail developer Central Pattana to develop and manage the shopping mall in Icon City, Petaling Jaya, should enhance the marketability of the RM3.2 billion project.

We make no change to our earnings forecasts and RM1.76 target price (based on 40% discount to RM2.94 revised net asset value). We maintain a 'hold' on Mah Sing Group in anticipation of slower property sales going forward with the peaking of the property cycle.

Mah Sing has entered into a memorandum of understanding with Central Pattana Public Co Ltd to study the possibility of jointly developing and managing the more than one million sq ft retail mall in Mah Sing's Icon City project (comprising retail lots, hotel, retail mall, offices, and serviced apartments).

Central Pattana is a property development and management company that specialises in developing shopping centres, office towers and related real estate projects in Thailand. It is the largest retail developer in Thailand with 16 shopping centres, six office buildings, two hotels and two residential projects in Thailand, including Central Plaza, Central World and Central Festival.

It the JV materialises, will add vibrancy to and enhance the marketability of Icon City. The potential JV will also allow Mah Sing to tap its partner's expertise in managing commercial properties, complementing its existing development businesses. Mah Sing has not decided if Icon City shopping mall will be kept as investment property or outright sales.

Icon City has received strong take-ups since its July 2011 launch. Its i-SoVo (SoHo; RM800 to RM900 psf; 751sq ft and 1,094 sq ft) and 30 jewels (seven to eight- storey shops fronting main road; RM780 psf) experienced brisk sales with 96% to 97% take-up. Its Gourmet street (F&B shop lots; RM1,200 psf; launched in July) take-up is'' about 40%. The recent soft launch of its Phase 1a serviced apartments also received strong response.

All 120 serviced apartments (RM940 psf) are booked. ' Maybank IB Research, Nov 3

This article appeared in The Edge Financial Daily, November 4, 2011.

Parkson lowers FY12/FY14 profit forecasts post PRA listing

Stock Name: PARKSON
Company Name: PARKSON HOLDINGS BHD

Research House: AFFIN

Price Call: BUY

Target Price: 7.15

Parkson Holdings Bhd
(Nov 3, RM 5.58)
Maintain buy with lower target price RM7.15 from RM7.97: Parkson Retail Asia (PRA) was listed on the Main Board of the Singapore Stock Exchange (SGX) yesterday.

Details of the IPO are as follows: (i) Issuance of 80 million new PRA shares and 67 million existing PRA shares under the offer for sale programme (total: 147 million shares) at a price of S$0.94 per share. The over-allotment option of 22 million shares has also been subscribed/purchased, bringing the total number of offered PRA shares to 169 million; (ii) Overall, the IPO will raise S$158.9 million (RM391.2 million), while the offer price values PRA at S$636.7 million (based on an enlarged share base of 677.3 million shares). We estimate that Parkson Holdings Bhd's (PHB) share of the IPO proceeds amount to S$77.5 million.

Our calculations imply that prior to the listing, the market was pricing PRA at a mere 6.3 times CY12 price earnings ratio, far below PHB's CY12 PER of 13.5 times and and Parkson Retail Group's (PRG) 17.2 times.

Based on: (i) our CY12 net profit forecast of S$44 million; and (ii) PRA's IPO price of S$0.94 per share, PRA is valued at a much higher CY12 PER of 14.4 times. This is, in our opinion, a fairer valuation given PRA's exposure to the growing regional consumer market. In 2012, PRA will be launching two new stores in Vietnam, three in Malaysia and two to three new stores in Indonesia.

We ascribe a PER target of 16 times for PRA, representing a 19% premium to PHB's CY12 PER of 13.5 times. We believe the premium is justified, given PRA's regional presence and strong Asean growth opportunities, particularly within Indonesia and Vietnam and the present investment holding company status of PHB.

Coupled with: (i) the stake dilution in PRA from 90.1% to 67%; (ii) a lower PER target of 23 times (previously, 25 times) for PRG, to reflect the weaker global market sentiment; (iii) a higher holding company discount of 20% (previously, 10%) and; (iv) raising our net cash balance, our sum-of-parts-based target price of RM7.97 is lowered to RM7.15.

Despite the downgrade, there is still 30% upside to the current share price of RM5.50. Maintain 'buy' on PHB, for its exposure to both PRG and PRA. ' Affin Investment Research, Nov 3

This article appeared in The Edge Financial Daily, November 4, 2011.

Maybank Research upgrades Guinness to Buy

Stock Name: GAB
Company Name: GUINNESS ANCHOR BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 11.50

KUALA LUMPUR (Nov 3): Maybank Investment Bank Research has upgraded GUINNESS ANCHOR BHD [] to a Buy with a marginally higher target price of RM11.50 (from RM11.30) on raised earnings.

It said on Thursday that GAB's'' first quarter net profit for the period ended Sept 30 (1QFY12) of RM55.2 million (+42.7% YoY, 89.9% QoQ) were broadly above expectations.

Maybank Research said revenue hit a new record of RM445 million and margins expanding further.

'What is positive is that Guinness would appear to be gaining market share in the malt liquor market and with decent gross yields of about 5.6% in FY12 to boot, we upgrade our call to a Buy with a marginally higher target price of RM11.50 (from RM11.30) on raised earnings,' it said.

The research house said the 1QFY12 net profit accounted for about 26% of its full-year forecast and this is fairly strong, considering the fact that 2Q and 3Q are typically the seasonally better quarters for earnings. 1Q12 revenue growth was an impressive 21% YoY (+27% QoQ) to RM444.6m (+21.3% YoY, +27.5% QoQ).

HLIB Research 3 November 2011 (Mah Sing; Traders Brief)

Stock Name: MAHSING
Company Name: MAH SING GROUP BHD

Research House: HLG

Price Call: BUY

Target Price: 2.16

Mah Sing (BUY)

Roping in Thai partner for Icon City Mall

'''' Mah Sing has entered into an MOU with Central Pattana to possibly develop and manage a 1m sq ft shopping mall within Phase 2 of Icon City.

'''' Central Pattana is Thailand's largest retail developer with more than 2mil square metres of retail shopping centers, and office towers.

'''' We are positive on this development as Mah Sing progressively expands their footprint in the commercial segment. No financial impact expected in FY12 given that Mah Sing is busy with a number of projects including flagship developments in Icon City and M City, as well as M Sentral @ Pekeliling and M Residence @ Rawang.

'''' Maintain BUY Rating as well as our RNAV-based price target of RM2.16 (30% discount to RNAV).

Taking cues from overseas

'''' Given the hazy outlook, investors should trim positions on further rallies and pocket some profits, as the external wild swings will accelerate an overdue correction on KLCI towards the immediate near term supports at 10-d SMA (now at 1462) and 50-d SMA (1434) pts. Further supports are 61.8% FR at 1421 and 30-d SMA (at 1419) levels. Immediate resistance zones are 38.2% FR (at 1488), 1493 (last week's high) and 1500 psychological barrier.

TONGHER: Mid to long term targets at RM2.54-2.86''

'''' Given the successful breakout above the mid Bollinger band (now at RM1.96) and downtrend channel (on 27 Oct) coupled with the improving technical landscape, short term upside targets are situated around RM2.35 (200-d SMA) and RM2.42 (weekly upper Bollinger band). A breakout above RM2.42 will drive TONGHER to our mid to long term price objective near Rm2.54 (61.8% FR) and RM2.86 (50% FR). Cut loss below RM1.82.

November 2, 2011

Another financing deal for Puncak Niaga

Stock Name: PUNCAK
Company Name: PUNCAK NIAGA HOLDINGS BHD

Research House: OSK

Price Call: BUY

Target Price: 1.82

Puncak Niaga Holdings Bhd
(Nov 2, RM1.19)
Maintain buy with fair value RM1.82: Puncak Niaga informed Bursa Malaysia on Tuesday that its wholly-owned subsidiary, Puncak Niaga Sdn Bhd (PNSB), has entered into a conditional sale and purchase agreement (SPA) with Acqua SPV Bhd to sell its entire holdings of PNSB redeemable, insecured, coupon bearing notes (JNA notes) to Acqua for a total consideration of RM328.1 million.

Separately, Puncak Niaga said its newly acquired wholly-owned subsidiary, Global Offshore (M) Sdn Bhd (GOM), had accepted syndicated credit facilities from OCBC Bank (M) Bhd and Hong Leong Bank Bhd.

The credit facility, amounting to RM546.9 million, was issued by Puncak Niaga on Nov 20, 2001. It allows note holders to exercise a put option to the company to repurchase all or some of their notes, which fall due on Nov 18, 2011. Puncak Niaga also has a call option that gives the company the right to redeem all outstanding JNA notes at the full outstanding principal amount on the call date. The outstanding principal amount of the notes, including the fifth mandatory partial repayment of RM54.7 million, is RM328.1 million.

We welcome the move to restructure the notes that will push forward the mandatory annual redemption total of RM54.7 million at the original repayment period from 2011 to 2016 to November 2016 to 2019. Already, the group's cash flow is strained amid the prolonged tussle with the Selangor government over the tariff hike and other issues.

Nonetheless, the extended repayment period under the new arrangement will incur a much higher coupon rate of 5.68% per year compared with the previous 2.5% up to Nov 2011 and 3.5% per year thereafter, causing its financing costs to bloat. Acqua is a wholly-owned subsidiary of Pengurusan Aset Air Bhd (PAAB).

OCBC Bank and Hong Leong Bank have granted GOM a US$43.9 million (RM137.4 million) revolving credit, a RM20 million letter of credit (sub-limit), an up to RM50 million bank guarantee and an up to RM95 million foreign currency exchange line. The credit facilities effectively give this new kid on the block a major boost to participate in the lucrative oil and gas (O&G) business.

We understand from Datuk Hashim Mahfar, Puncak Niaga managing director, at the company's last analyst briefing that GOM expects to benefit from Petroliam Nasional Bhd's O&G capital expenditure projects, namely offshore installation and construction (OIC) in the area of replacing old O&G pipelines, platforms and so on.

GOM and SapuraCrest Bhd are the only two players in this segment in Malaysia. Hashim sees RM400 million to RM500 million worth of contracts from Petronas annually over the next four to five years.

We are generally positive on the JNA notes refinancing and syndicated credit facilities obtained by GOM. While the earlier expected participation in Indah Water Konsortium Sdn Bhd's (IWK) potential privatisation is still pending, we see a good 'trading buy' opportunity in Puncak Niaga, especially if its share price drifts down further. We are also keeping our 'fair value' of RM1.82, derived from 0.7 times FY11 book value, which was the benchmark number before IC Interpretation 12 adjustment. ' OSK Research, Nov 2

This article appeared in The Edge Financial Daily, November 3, 2011.

AirAsia 3QFY11 results preview

Stock Name: AIRASIA
Company Name: AIRASIA BHD

Research House: AFFIN

Price Call: HOLD

Target Price: 3.45

AirAsia Bhd
(Nov 2, RM3.85)
Maintain neutral with target price RM3.45: AirAsia is scheduled to release its 3QFY11 results on Tuesday. Based on its July to September operating statistics, we expect 3QFY11 figures to come in flat on a quarter-on-quarter (q-o-q) basis but higher year-on-year (y-o-y).

In 3QFY11, AirAsia carried 4.3 million passengers, 3% lower q-o-q but 7.6% up y-o-y. Load factor in 3QFY11 fell marginally by 3.7 percentage points to 77.9% as available seat kilometres (ASK) expanded at a faster rate than revenue passenger kilometres (RPK). For'' 9MFY11, the number of passengers carried rose to 13.1 million (+13%), or 73% of our full-year forecast of 18 million passengers. Load factor improved by 6.4% to 79.9%, as RPK expanded at a faster pace of 17% y-o-y, compared with the 7.7% increase in ASK.

The positive impact from the improvement in operating statistics will be partially offset by the spike in jet fuel prices. In 3QFY11, the average jet fuel price was US$125 per barrel, some 45% higher than the US$87 per barrel average in 3QFY10. Although the price has eased from the peak of US$140 per barrel, it remains high at around US$120 per barrel, as the crack spread continues to widen from an average of US$10 per barrel to about US$40 per barrel currently.

We make no changes to our average jet fuel assumptions of US$110 per barrel in FY11 and US$115 per barrel in FY12 and FY13. Given the slower global growth and continued de-leveraging risk, we think there is downside potential of jet fuel cost.

In 3QFY10, AirAsia's ancillary income per pax was RM44, some 14% lower than 2QFY11's RM50. AirAsia targets to grow this to RM60 per pax, driven by its joint ventures; Internet travel portal Expedia and Canada's CAE for flight training. The collaboration with MAS is expected to lead to cost savings through various divisions including engineering and maintenance of aircraft, academy facilities and supply of meals.

Last week, AirAsia received consent from its financiers to transfer five of its aircraft to Indonesia AirAsia (IAA) (51%-owned). The financing facilities shall also be restructured to reflect the aircraft transfer. The total consideration for the transfer of the five aircraft is approximately RM550.8 million.

The one-off disposal gain from the transaction is about RM49.7 million, which translates into two sen per share. This will be reflected in its 4QFY11 earnings.

We are positive on this development as it indicates a step closer to the listing. IAA is targeted to list in 2012. ' Affin IB Research, Nov 2

This article appeared in The Edge Financial Daily, November 3, 2011.

Lafarge a strong proxy to construction sector

Stock Name: LMCEMNT
Company Name: LAFARGE MALAYAN CEMENT BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 7.60

Lafarge Malayan Cement Bhd
(Nov 2, RM6.90)
Maintain buy with revised target price of RM7.60 from RM7.85: As the largest cement producer in the country, Lafarge is undoubtedly a proxy to, and a major beneficiary of, the high-growth construction sector, which should see robust activity once projects under the Economic Transformation Programme (ETP) take off.

In addition, we expect its share price to be supported by its decent net dividend yield of 5%. Maintain 'buy' with a marginally lower target price of RM7.60 (RM7.85 previously) on 17 times 2013 price earnings ratio (PER) as we roll forward valuations after trimming earnings forecasts by 11% per year.

Results for 3QFY11 are due to be released in the third week of this month. Earnings are likely to mirror 2QFY11 (net profit: RM77 million) on flattish sales volume, given the Hari Raya Aidilfitri festivities in 3QFY11. Margins are expected to match 2QFY11 as both net average selling prices (ASP) and coal cost were stable.

While electricity tariff was raised by 8% in June this year, the overall impact is minimal as electricity makes up 20% of production cost, hence, we estimate the net impact to be only a 2% increment in its electricity bill. At flattish sequential 3QFY11 net profit, we estimate 9MFY11 net profit to hit RM207 million (-4% year-on-year).

As it stands, coal prices are off about 16% from their high this year. Accounting for 40% of production cost, we estimate that every 1% decline in coal cost contributes to a 0.8% increase in earnings for Lafarge. With the prospect of slower global economic growth into 2012, coal prices could potentially slip further, which in turn would have a positive impact on LMC's bottom line.

Price competition has picked up of late, and as a result we are imputing a lower market share of 38% (-2 percentage points) for Lafarge. This in turn results in a 4% downward revision of its sales volume.

Overall, however, we expect Lafarge to weather the situation well with its strong cash pile and with an annual free cash flow generation of more than RM400 million (against an annual dividend payout of RM290 million), we expect the company to be able to sustain a dividend per share of 34 sen to 36 sen over the next two years, which translates into prospective net dividend yields of more than 5%. ' Maybank IB Research, Nov 2

This article appeared in The Edge Financial Daily, November 3, 2011.

HLIB Research 2 November 2011 (MRCB; Traders Brief)

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP

Research House: HLG

Price Call: BUY

Target Price: 2.19

MRCB (BUY)

KL Sentral development to remain resilient

'''' We had a discussion with MRCB's management and walked away feeling reassured that the development within KL Sentral will remain robust.

'''' Q Sentral Office has achieved an 80% take up rate from 70% last month, while Tower A of Sentral Residences has achieved 70% sales. ASP/sq ft for these two developments ranges ~RM1,100-1,200 sq/ft and we believe this premium will stay given the uniqueness of KL Sentral.

'''' Overall, MRCB has a huge unbilled sales of ~RM1.2bn, translating to ~6.3x FY10's property revenue and outstanding order book to ~RM1.84bn, translating to ~2.2x FY10's construction and environmental revenue.

'''' On a separate note, 3Q results will be announced either on the 15th or 25th Nov. We are expecting a seasonally weak quarter.

'''' We maintain BUY call on MRCB with an increased TP of RM2.19 after fine-tuning our SOP valuation to reflect Brickfields development and higher rental income.

Downbeat tone amid external woes

'''' The downbeat external woes will accelerate an overdue correction on KLCI towards the immediate near term supports at 10-d SMA (now at 1459) and 50-d SMA (1435) pts. Further supports are 61.8% FR at 1421 and 30-d SMA (at 1417) levels. Immediate resistance zones are 38.2% FR (at 1488), 1493 and 1500 psychological barrier.

Hang Seng Index: Heading towards 18k on weakening technicals''

'''' Technically, near term HSI outlook has turned negative following the failure to reclaim the 100-d SMA (now at 20337) and the downtrend slope (near 21660) coupled with deteriorating technical readings. Immediate resistance levels are 20337-22016 while supports are situated at 18000-19000.

November 1, 2011

HLIB Research 1 November 2011 (Banking; HSL; TRC ;Econs ; Traders Brief)

Stock Name: HSL
Company Name: HOCK SENG LEE BHD

Research House: HLG

Price Call: BUY

Target Price: 2.09

Stock Name: TRC
Company Name: TRC SYNERGY BHD

Research House: HLG

Price Call: BUY

Target Price: 0.72

Banking (OVERWEIGHT)

Sep Bank Stats ' Leading Indicators Slowed

'''' Loans growth accelerated due to business but household decelerated.'' Leading indicators lower mom but approval rate maintained at >50%.''

'''' LD ratio decreased slight, ample liquidity (RM273bn).

'''' Still supports loans growth, albeit at slower rate.'' Maintain 2011 projection at 12% and expect it to slow to 9% in 2012.''

'''' Business segment expected to continue support loans growth with ETP and Petronas awards.'' Household segment to sustain on back of budget goodies for lower income.

'''' Lending rate flat but pressure on NIM to continue, sustain loans growth to mitigate the impact.''

'''' Asset quality improved.'' Deterioration in certain purposes but none exhibits any alarming trend, mitigating major earnings risk.''

'''' Capital ratios declined but still robust to support growth, M&A and more active capital management.

'''' Maintain Overweight.'' Top picks remained Maybank and AFG.''

Hock Seng Lee (BUY)

Samalaju water treatment plant project

'''' HSL has secured a RM90.28m contract from Jabatan Kerja Raya Sarawak for a rural water treatment plant project located in Samalaju, Bintulu. The project is due to be completed by Apr-13.

'''' This contract also marks HSL's first successful tender to be directly awarded by RECODA (Regional Corridor Development Authority) and it indicates the growing presence HSL has within the Sarawak construction landscape.

'''' Overall, HSL has secured RM244m worth of new orders YTD, which comes close to our jobs win assumption of RM300m for FY11. The latest order will boost HSL's outstanding order book to ~RM1.06bn, translating to ~2.3x FY10's construction revenue and ~1.26x order book-to-market cap ratio.

'''' We maintain BUY call on HSL with a TP of RM2.09 with a positive outlook in the construction activities within the SCORE region and potential treasury share distribution (currently 5.9% of issued shares).

TRC Synergy (BUY)

Secures Lumut jetty upgrade project

'''' Following the major Bruneian job win, TRC continued to build up on their order book with a RM51.4m contract from Jabatan Kerja Raya to upgrade the infrastructures and facilities for the jetty operations in Lumut, Perak. Thus, bringing its YTD order book wins to RM483m.

'''' Overall, total outstanding order book climbed slightly to ~RM1.52bn, translating to ~4x FY10's revenue and ~5x order book-to-market cap ratio.

'''' We maintain our BUY call on TRC Synergy with a TP of RM0.72 in view of its huge order book which provides clear earnings visibility over the next few years and strong balance sheet (net cash of ~25 sen/share).

Highlights of BNM Statistics (Sep 2011)

'''' M1 growth softened slightly to 13.3% yoy (Aug: +13.7% yoy) while M3 growth picked up to 12.2% yoy (Aug: +10.3% yoy) despite decline in BNM reserves (Sep: -US$5.3bn; Aug: +US$0.9bn) due to outflows of foreign funds during the month.''

'''' We estimated that 3Q GDP had expanded by 4.5% yoy (2Q: +4.0%) judging from the resilient M1 growth of 13.9% yoy in 3Q coupled with the latest IPI and trade numbers.

'''' We reiterate our expectations of a higher 2H GDP growth of 4.7% on the back of resilient consumer spending and improvement in mining output. We maintain our GDP growth forecast of 4.6% for 2011 and 4.5% for 2012.

'''' We expect BNM to focus on growth agenda given the recent external developments while inflation is on moderation trend. We see BNM holding the OPR steady at 3.00% until end-2012.

'''' Indicators of liquidity in the banking system shot up in September reflecting higher level of excess cash holding after the massive equity selldown during the month.

Due for a pullback

'''' Technically speaking, after reversing path to cut above the downtrend line resistance, the FBM KLCI will probably stage a mild consolidation due to overbought indicators and weakening external backdrops. Immediate supports are 1430-1450 whilst resistances are 1500-1515.

Crude oil: A breakdown below uptrend line support will spur prices lower to US$85-87/barrel''

'''' In the wake of overbought technical readings, oil prices are expected to consolidate its gains near immediate uptrend line support near US$90.65 (61.8% FR from top $114.8 and low of $75.7). A break down will spur prices lower towards US$87 (mid Bollinger band) and US$85 (30-d SMA). For upside, oil prices will encounter stiff resistance at US$95-100.

RHBInvest Research Highlights 1st Nov 2011

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

Research House: RHB

Price Call: SELL

Target Price: 0.73

Stock Name: MPI
Company Name: MALAYSIAN PACIFIC INDUSTRIES

Research House: RHB

Price Call: SELL

Target Price: 2.07

Stock Name: NOTION
Company Name: NOTION VTEC BHD

Research House: RHB

Price Call: SELL

Target Price: 1.30

Sector Call

Semiconductor : Chip sales downtrend continues Underweight

Sector Update

Unisem : Fair value is RM0.73 Underperform

MPI : Fair value is RM2.07 Underperform

Notion : Fair value is RM1.30 Underperform

Corporate Highlights

HSL : Lands RM90.3m water job in Bintulu Outperform

News Update

- HSL has secured a RM90.3m contract for the construction of a new water treatment plant, reservoir and associated facilities in Samalaju, Bintulu.

TRC : Lands RM51.4m Lumut Jetty upgrading project Outperform

News Update

- TRC has secured a RM51.4m contract for the upgrading of basic infrastructure of Lumut Jetty, Perak.

Wah Seong : Losing out on a portion of Wheatstone Market Perform

News Update

- We understand that Wah Seong's main competitor, Bredero-Shaw has been awarded the pipeline coatings contract for the gas supply trunkline of the Wheatstone Project in Australia . The value of the contract was not mentioned, but we understand that the trunkline portion makes up the major part of a pipeline contract. We had assumed that the contract would be worth US$200m (RM610m) and kick-start in FY12.

MBSB : 3Q11 results surpasses expectations yet again Outperform

3QFY11 Results

- MBSB's 3Q11 results beat our and consensus expectations with 9MFY11 net profit of RM241.6m (+81.4% yoy) accounting for 81.9% of our and 84.7% of consensus full-year net profit forecasts respectively.

First successful tender for Score

Stock Name: HSL
Company Name: HOCK SENG LEE BHD

Research House: MIDF

Price Call: HOLD

Target Price: 1.50

Hock Seng Lee
(Nov 1, RM1.43)
Maintain neutral with target price of RM1.50: Hock Seng Lee'' Bhd (HSL) secured a contract worth RM90.3 million from the Regional Corridor Development Authority (Recoda) of Score (the Sarawak Corridor of Renewable Energy) with a contract period of 17 months.

The contract was HSL's first successful tender for a project to be directly awarded by Recoda.

The scope of work for the project includes substantial mechanical and electrical works, earthworks, drainage and retaining structures, piling, piping and actual construction of the treatment plant and associated works.

The associated works involve the construction and commissioning of a pump house, chemical house, aerators, flocculation tanks, sedimentation tanks and other filtration process facilities.

One of the beneficiaries of Budget 2012, HSL's current outstanding order book stands at RM1.1 billion. To date, HSL has secured RM243.2 million worth of projects. Moving forward, we will maintain our RM400 million order book replenishment assumption for HSL as it could be one of the beneficiaries of Budget 2012.

Under Budget 2012, the prime minister announced a RM5 billion allocation to provide basic rural infrastructure including roads, power and water supply.

The prime minister made particular mention of the government's concern over clean water supply to communities in the remote areas of Sabah and Sarawak.

Rural water supply is a field that HSL is keen to pursue, drawing on its marine engineering skills.

We are maintaining our earnings projection as total project value secured is still within our order book replenishment assumption.

We are maintaining our 'neutral' recommendation with target price of RM1.50 for HSL by ascribing price-to-earnings ratio of 8.2 times against FY12 earnings per share of 18.4 sen. ' MIDF Research

This article appeared in The Edge Financial Daily, November 2, 2011.

MBSB scaling new heights

Stock Name: MBSB
Company Name: MALAYSIA BUILDING SOCIETY BHD

Research House: OSK

Price Call: BUY

Target Price: 2.70

Malaysia Building Society Bhd
(Nov 1, RM1.78)
Maintain buy with a new fair value of RM2.70: MBSB group's earnings were ahead of consensus and our full-year forecasts by 16.2% and 16.4% respectively.

Net profit surged 81.4% year-on-year (y-o-y) boosted by: i) Islamic banking income soaring by a hefty 207% y-o-y, well supported by a 98% year-to-date (YTD) growth in personal loans for civil servants and ii) stronger other income (+71.8 y-o-y) arising from higher transaction and processing fees, which expanded in tandem with the enlarged loans base. Consequently, total income increased by 100.5% y-o-y.

The group's gross loans rose 22.5% YTD, translating into an annualised loans growth of 30%.

The main loans contributor, personal financing (PF-i), expanded by 98% YTD as MBSB provided PF-i to civil servants at more attractive terms including bundling it with will writing and takaful products.

However, mortgage and corporate loans contracted by 2.1% and 11.2% respectively due to aggressive industry competition.

Annualised deposits growth came in at 38.4%, which was higher than the industry average while the cost-to-income ratio (CIR) remained at a favourable 18.1% vs 25.9% 9MFY10 due to efficient cost control and a fast-growing top line. Meanwhile, net impaired loans trended lower to 11% from 16% in FY10.

Besides the retail segment, the company plans to grow its mortgage and corporate loans by launching new products and engaging agents to bring in new business.

It has opened one full-fledged branch and two new representative offices in Selangor, Johor and Perak to extend its network and expand its customer base.

We are tweaking up our FY11 and FY12 earnings by 13.6% and 5.1% respectively after taking into account the strong Islamic banking income from PF-i.

We maintain our 'buy' call on the stock, with a revised fair value of RM2.70 as we roll over our valuation from FY11 to FY12, based on 2.6 times FY12 price-to-book value (4% growth rate, cost of equity of 11% and returns on equity of 22.4%). ' OSK Research

This article appeared in The Edge Financial Daily, November 2, 2011.

MRCB: What property slowdown?

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP

Research House: HWANGDBS

Price Call: BUY

Target Price: 3.25

Malaysian Resources Corp Bhd
(Nov 1: RM1.95)
Reiterate buy, with target price of RM3.25: Despite concerns over a slowing property market, MRCB's two key launches ' Q Sentral and Sentral Residences'' were runaway successes with RM1.3 billion sales. Q Sentral strata offices (gross development value or GDV of RM1.2 billion) is 80% sold at RM1,350 psf average sale price (ASP) vs RM1,250 psf expectation. The first tower of Sentral Residences (GDV RM1.4 billion, ASP RM1,100 psf), which is next to St Regis (ASP RM2,200 psf), is 70% sold.

We believe the strong property sales at KL Sentral are due to its maturing franchise there, and established partners and clients such as Quill, CapitaLand and Daol.

With new launches next year in Batu Ferringhi (GDV RM185 million), Jalan Kia Peng (GDV RM324 million) and Setapak (RM2 billion), property will contribute 51% of FY12F earnings before interest and tax vs 35% in FY10.

MRCB's RM2.6 billion order book ensures earnings visibility over next two years. It is one of 11 contractors prequalified for mass rapid transit elevated civil works and also a project delivery partner for the River of Life Project with Ekovest.

After winning the RM47 million Sungai Pahang rehabilitation project, we expect it to secure more environmental-related jobs, which carry high 15% pre-tax margins.

It is also negotiating for several projects with the government possibly on a private finance initiative basis. Our RM800 million per annum new order win targets for FY12F to FY13F are more conservative than MRCB's RM1 billion guidance.

Currently trading at mean levels (vs peak of +2 standard deviation). MRCB is attractively priced for exposure to a growing GLC-linked developer with improving earnings delivery and visible share price catalysts.

Our target price is based on sum-of-parts valuation. Other key catalysts are formal participation in the Rubber Research Institute Malaysia land and later launching a RM2.5 billion real estate investment trust. ' Hwang DBS Vickers Research

This article appeared in The Edge Financial Daily, November 2, 2011.

Petronas sticks to contract policy with O&G service providers

Stock Name: DIALOG
Company Name: DIALOG GROUP BHD

Research House: OSK

Price Call: BUY

Target Price: 3.66

Oil and gas
Maintain overweight
Last Friday, Bernama reported that there is no change in Petroliam Nasional Bhd's (Petronas) licensing policy related to companies engaged in Malaysia's upstream oil and gas (O&G) industry. The report said that under the Petroleum Regulation 1974, both local and foreign companies wishing to commence or even carry out any business or services related to Malaysia's O&G upstream operations must apply for a licence from Petronas.

The clarification was made following The Edge report last week that such a licence may not be required going forward in bidding for local O&G jobs.

First, we note that Petronas has embarked on a long-term plan to nurture the local O&G service providers, with the first few being Kencana Petroleum Bhd, SapuraCrest Petroleum Bhd and Dialog Group Bhd, which have been awarded marginal oilfields to expose these companies to upstream O&G activities.

Second, we understand that most of the local O&G service providers currently have spare capacity as O&G activities have slowed compared with before the global economic recession in 2008 when their capacity was mostly tailored to local needs.

Noting this spare capacity, it may not make economic sense for Petronas to get resources from the non-local O&G services providers whose capacity is mostly built to meet the requirements of their own countries or regions of operation.

Finally, this licensing requirement does not prevent foreign companies from participating in Malaysia's O&G sector as what is required is a partnership with a local licence holder. In fact, such participation facilitates the transfer of technology and helps enhance the competence of the local companies while at the same time allowing the foreign companies to benefit from the development of the country's resources.

Our top picks are Kencana ('buy', fair value (FV): RM3.17) and Dialog ('buy', FV: RM3.66). With an improving global economic outlook and the crude oil price having gone back to around US$90 (RM277)/barrel, we believe that O&G activities will gradually pick up, which would then benefit all O&G service providers through better utilisation rates and higher sales/unit or services/hour rates.

On the local front, we expect the industry to be in for more marginal oilfield developments and the increasing need for brownfield services to boost O&G production while waiting for the commencement of deepwater activities on a large scale after pre-development preparations are completed.

We gather that the ratio between shallow water and deepwater O&G production is still at 70:30 but over time, the deepwater portion will pick up after all the easy O&G finds deplete.

Hence, we think Petronas is now preparing the local O&G supporting services providers for marginal oilfield (shallow water) developments first before embarking into the more challenging terrain (deepwater). ' OSK Research, Oct 31

This article appeared in The Edge Financial Daily, November 1, 2011.

Petronas sticks to contract policy with O&G service providers

Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD

Research House: OSK

Price Call: BUY

Target Price: 3.17