RHBInvest Research Highlights 11th January 2012

Stock Name: YTLPOWR
Company Name: YTL POWER INTERNATIONAL BHD

Research House: RHB

Price Call: HOLD

Target Price: 1.70

Stock Name: SAPCRES
Company Name: SAPURACREST PETROLEUM BHD

Research House: RHB

Price Call: BUY

Target Price: 4.50

11th January 2012

 

Top Story

Plantation ' Demand unlikely to fall off the cliff                                                              Overweight Sector Update -          Malaysia's CPO production fell by 8.2% mom in Dec, while exports fell by a slightly smaller 4.5% mom. On a yoy basis, production rose by 21.3% yoy in Dec (+11.3% 2011), while exports rose by 23.1% yoy in Dec (+7.9% 2011). As a result, closing CPO stock levels fell by 1.5% mom to 2.04m tonnes in Dec (from 2.07m tonnes in Nov). We are now well and truly in the low season for CPO, although we suspect the slowdown in production was exacerbated by the wetter-than-usual weather patterns. As a result of the lower CPO stock levels, the stock/usage ratio in Dec fell to 10.36% (down from 10.5% in Nov and up from 8.7% in Dec 2010). -          Related story: Plantation Sector Update ' Risk Of Crop Losses Rising? (3 Jan 2012)   Timber ' Jaya Tiasa and Ta Ann to benefit from plantation                                                    Neutral Sector Update -          Given the recent rally in the plantation sector, we believe this will likely spur investors' interest in quasi plantation stocks. While Jaya Tiasa and Ta Ann are generally perceived as timber companies, earnings profile for Jaya Tiasa and Ta Ann have actually transformed considerably over the years, with more than 70% of earnings likely to be contributed by the plantation divisions going forward. -          Related story: Timber Sector Update ' Plywood Inventory In Japan Continues To De-stock (4 Jan 2012)

Corporate Highlights

YTL Power ' Just Chugging Along                                                                         Market Perform Visit Note -          Not much clarity on the future outlook on dividends by management. Besides WiMAX losses, management attributed the recent decision to cut dividends on preparation for potential M&A. -          Lacks catalysts due to more delays in launching Android-based smartphones for Yes and feasibility study not yet done for the Jordan oil shale project. -          Maintain Market Perform with unchanged fair value of RM1.70. -          Related story: Utilities Sector Update ' A Potentially Bumpy Ride (20 Dec 2011); YTL Power Results Note ' Dividends Cut (18 Nov 2011)   Top Glove ' Tail winds taking shape?                                                  Market Perform (Upgraded) Briefing Note -          On the whole, management appeared rather positive on the prospects ahead as two key factors, i.e. forex rates and latex prices, appear to be trending favourably. Given how latex prices have trended in recent weeks, management appeared more optimistic and now thinks latex prices could ease further and stabilise towards the RM6.00/kg mark over the next 3-6 months. -          Related story: Top Glove Results Note ' Below Expectations (19 Dec 2011); Rubber Glove Sector Update - Outbreak Of Bird Flu In Hong Kong (23 Dec 2011)   SapuraCrest ' New subsea construction contract                                                          Outperform News Update -          Yesterday, the company announced that its JV, SapuraAcergy, has been awarded a contract for a subsea construction project, offshore Vietnam , understandably from Subsea 7. The project is worth US$100m (c. RM310m) and is expected to be performed in mid 2012. -          We are positive on the win as it is in-line with Sapuracrest's goal of enhancing its international revenue contribution. We maintain our fair value of RM4.50/share and Outperform call on the stock. We forsee the company being a large formidable entity post its merger with Kencana expected to be completed by Feb-12. -          Related story: Oil and Gas Sector Update - Resilient Despite Macroeconomic Uncertainties (12 Dec 2011)

Macro

IPI ' Softened In November, Real GDP Growth Will Likely Weaken In The 4Q Economic Highlights (published 10 Jan 2012) -          Industrial production softened to 1.8% yoy in Nov, the lowest in four months, after easing to a revised +2.9% in Oct, from +3.0% in Sep mainly due to a slowdown in manufacturing production on slowing external demand and disruption to the supply chain caused by Thailand's flood. -          This suggests that real GDP growth will likely weaken to 4.8% yoy in the 4Q. Going forward, we expect real GDP growth to slow down to 3.6% in 2012, from +5.0% estimated for 2011.