OSK maintains 'buy' call on Axiata

Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD

Research House: OSK

Price Call: BUY

Target Price: 5.60

KUALA LUMPUR: OSK Research Sdn Bhd today maintained its "buy" call on Axiata Group despite the revocation by India's Supreme Court of122 telecommunication licences held by eight operators, including Axiata's 19.7per cent-owned Idea Cellular and Spice Communication.

In a research note today, OSK said the fair value remained unchanged atRM5.60 per share but expected the news to contribute to further weakness in Axiata's share price.

As for Idea, the impact is expected to be minimal but the company is caught in a bind and is made to suffer due to the cancellation of licences despite being fully compliant at each stage of the licence allocation process.

Idea contributed less than 10 per cent of Axiata's net earnings.

"Excluding Idea's contribution, our sums-of-parts valuation on Axiata has dropped to RM5.30 (from RM5.60), which still represents a 12 per cent upside from current levels," added OSK Research. -- BERNAMA

AXIATA: India court moves to cancel 122 cellphone licenses

Stock Name: AXIATA
Company Name: AXIATA GROUP BERHAD

Research House: HWANGDBS

Price Call: HOLD

Target Price: 4.80

Axiata Group; Hold; RM4.73
Price target: RM4.80; AXIATA MK
India court moves to cancel 122 cellphone licenses

The India Supreme Court ruled that 122 cellphone licenses that were issued in 2008 be revoked, including Idea Cellular's nine licenses and four from Spice Communications Ltd, which Idea has a 41% stake in. Axiata owns c.20% in Idea Cellular.

However, the company would be allowed to continue operations for the next four months until a new auction for licenses is conducted. We understand this ruling is due to corrupt practices in the sale of the licenses at lower than market prices, costing the Indian treasury as much as US$36bn in revenue.

We expect minimal earnings impact from this as it is not a major contributor to Axiata's bottom line (Idea contributes associate income to Axiata; it made RM598m in 2010 which translated to a share of RM119m (or 3.7%) to Axiata's FY10 pretax profit). We maintain our Hold call with RM4.80 TP pending further updates on the matter.

Source: HwangDBS Research 3 Feb 2012

COASTAL - Breaking boundaries

Stock Name: COASTAL
Company Name: COASTAL CONTRACTS BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 3.25

Coastal Contracts; Buy; RM2.29
Price target: RM3.25; COCO MK
Breaking boundaries

Sustainable 2012 order book; upsides may follow. FPSO and LNG contracts may quadruple orderbook. Reiterate Buy with RM3.25 TP.

Source: HwangDBS Research 3 Feb 2012

1QFY12 Results Report

Stock Name: BSLCORP
Company Name: BSL CORPORATION BERHAD

Research House: NETRESEARCH

Price Call: BUY

Target Price: 0.47

From Melaka to Pengerang and Beyond

Stock Name: PETGAS
Company Name: PETRONAS GAS BHD

Research House: OSK

Price Call: BUY

Target Price: 17.00

2Q Setback no Cause For Alarm

Stock Name: SSTEEL
Company Name: SOUTHERN STEEL BHD

Research House: OSK

Price Call: HOLD

Target Price: 2.08

FY11 Operating Stats: Ending on a High Note

Stock Name: AIRASIA
Company Name: AIRASIA BHD

Research House: OSK

Price Call: BUY

Target Price: 4.57

Going ahead with 300MW Lahad Datu gas plant

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD

Research House: AMMB

Price Call: BUY

Target Price: 6.95

RHBInvest Research Highlights 02nd February 2012

Stock Name: MPI
Company Name: MALAYSIAN PACIFIC INDUSTRIES

Research House: RHB

Price Call: HOLD

Target Price: 3.47

02nd February 2012

 

Top Story

Hiap Teck ' Waiting for earnings contribution from blast furnace            Market Perform (Upgraded) Visit Note -          We believe Hiap Teck's manufacturing division will continue to be weak due to lacklustre domestic demand in the absence of significant water-related projects. This is evidenced by its low capacity utilisation rate of 50%. -          Demand for steel slabs produced by Eastern Steel is not likely to be an issue as there is a ready buyer. We estimate that Phase 1 of the blast furnace project could contribute roughly RM35-46m to Hiap Teck's FY07/14 net profit.

Corporate Highlights

MPI ' Seeing some signs of bottoming?                                                                  Market Perform Briefing Note -          MPI expects 3QFY06/12 revenue to be flat or at best record modest growth on qoq basis. This is contrary to some of its peers that 1QCY12 revenue would decline 5-10% qoq. -          In addition, the company highlighted that key customers Texas Instruments, Freescale have indicated that the industry is on the verge of bottoming-out in 1QCY12. -          Thus, this supports our view that the sector may have passed (or is close to) its worst and poised for a recovery in the 2H2012. Fair value of RM3.47 and forecasts maintained.

Regional Equities

PT Adaro : Coal production volume increased by 13% yoy                                              Outperform News Update -          For full year 2011, Adaro managed to increase its coal production volume by 13% yoy to 47.7m tonnes (vs. 42.2m tonnes in 2010) mainly due to better weather conditions. This is within our forecast of 47.0m tonnes for Adaro's coal production in 2011. -          Overburden removal increased by 32% yoy to 299.3m bank cubic metre (vs. 225.9m bcm in 2010). Based on production volume of 47.7m, we estimate that the blended strip ratio of Adaro's mines has increased to 6.3x in 2011 (vs. 5.5x in 2010). Adaro guided for a blended strip ratio of 6.4x for 2012, higher than our estimate of 6.1x. We suspect this could be due to higher-than-expected strip ratio at Tutupan mine. -          Forecasts maintained, pending the release of its 4Q11 results. Indicative fair value remains unchanged at IDR2,350 based on target PER of 12x FY12 EPS. -          Related story: Indonesia Coal Sector Initiation ' Resilient In Times of Uncertainty (18 Nov 2011)

Macro

Money Supply - Broad Monetary Aggregate Picked Up And Loan Growth Strengthened In Dec Economic Highlights (published 2 Feb 2012) -          The broader money supply, M3, picked up to 14.4% yoy in December, after bouncing back to grow by +12.4% in November, while loans growth strengthened to a three-month high of 13.6% yoy in December, following a moderation to +12.8% in November and compared with +13.1% in October.  This suggests that the economy is still in expansion. -          Going forward, we expect the banking system's loans to expand at a slower pace of 8-9% in 2012, after strengthening to 13.6% in 2011, in line with a slowdown in economic growth and policy tightening implemented by the Central Bank.    Interest Rates ' Bank Negara Maintained The OPR At 3.0% Economic Highlights (published 2 Feb 2012) -          The Central Bank kept the Overnight Policy Rate (OPR) unchanged at 3.0% for the fourth consecutive meeting on 31 January, as the urgency to ease monetary policy has been reduced significantly of late given that global economic activities held up relatively well and monetary policy remains accommodative in the country. -          Still, there is room for BNM to cut OPR by 25-50 basis points in 1H 2012, if global economic conditions were to worsen.

Hartalega: Maintain Buy - Low liquidity to be tackled; raising TP

Stock Name: HARTA
Company Name: HARTALEGA HOLDINGS BHD

Research House: MAYBANK

Price Call: BUY

Target Price: 8.50

Buy this stock. Although its share price has risen by an impressive 30% YTD, we see more upside. Hartalega's 2013 PER of 10x is still a 45% discount to Top Glove's 19x, despite industry-beating profitability over the last two years. Most importantly, we see a major re-rating catalyst from a potential bonus issue. Fundamentally, Hartalega's operating environment remains impeccable owing to favourable input costs. The stock remains our top sector pick, with TP upgraded 25% to RM8.50 on a conservative 12x 2013 PER (DCF previously), still a 30% discount to Top Glove's 5-year average PER.


Maybank Research 2 Feb 2012

Click here for full report

HwangDBS: Guan Chong - Challenging times

Stock Name: GUANCHG
Company Name: GUAN CHONG BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 2.80

Guan Chong; Buy; RM2.33
Price target: RM2.80 (Prev RM3.60); GUAN MK Price Target
Challenging times

Trimmed FY12-3F earnings after imputing weaker output and margins. An extended global economic slowdown could crimp earnings. Maintain Buy, TP cut to RM2.80 (pegged to FY12F fully diluted P/E of 8x).

Source: HwangDBS Research 2 Feb 2012

HwangDBS: TNB and Petronas to invest in Sabah gas power plant and LNG terminal

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 7.00

Tenaga Nasional; Buy; RM6.00
Price target: RM7.00; TNB MK
TNB and Petronas to invest in Sabah gas power plant and LNG terminal

The gas-fired power plant will be majority owned by TNB, with Petronas taking the lead to set up the LNG terminal. These projects are targeted for completion in 2015.

The new power plant will increase generation capacity in Sabah to address the frequent breakdowns occuring in Sabah. We estimate investment of RM1bn by TNB with bulk of the investment to be funded by internal cash. We expect TNB's annual capex to increase from RM4bn p.a. currently to c.RM5bn p.a. over the next 3 FYs due to new investments in the new coal and gas-fired power plants. TNB's net gearing remains reasonable at 0.4x.

We maintain our Buy rating for TNB with RM7.00 TP for strong earnings recovery in FY12. We expect TNB's earnings to recover strongly in FY12F following the RM2bn gas compensation and increase in gas supply to 1,150mmscfd for FY12. The gas shortages issue should also be resolved following the completion of the new regas plant by Petgas in Jul 2012.

Source: HwangDBS Research 2 Feb 2012

HwangDBS: Southern Steel - Persistent cost pressure

Stock Name: SSTEEL
Company Name: SOUTHERN STEEL BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 2.60

Southern Steel; Buy; RM2.05
Price target: RM2.60; SSB MK
Persistent cost pressure

RM5.5m net loss in 2QFY12 was larger than our and consensus estimates, hurt by high operating costs. Cut FY12F/13F earnings by 21%/16% after imputing higher scrap costs. Maintain Buy and RM2.60 TP pegged to 1.2x FY12 NTA.

Source: HwangDBS Research - 2 Feb 2012

MRT news flow looks promising

Stock Name: MRCB
Company Name: MALAYSIAN RESOURCES CORP

Research House: MIDF

Price Call: BUY

Target Price: 2.40

Petronas Gas surge after fair value raised

Stock Name: PETGAS
Company Name: PETRONAS GAS BHD

Research House: AMMB

Price Call: BUY

Target Price: 17.62

Petronas Gas Bhd surged to a record in Kuala Lumpur trading after the stock's so-called fair value was raised at AMMB Holdings Bhd to reflect rising demand for natural gas and the prospects of more gas plants in Malaysia.

Shares of the gas distributing arm of state oil company Petroliam Nasional Bhd, or Petronas, jumped as much as 12 per cent to RM17.50, the highest intraday price on record. They traded at RM16.06 at the 12:30 p.m. local time break. Petronas Gas is the third-best performer on the benchmark FTSE Bursa Malaysia KLCI Index today.

Petronas, which is building a $20 billion refining complex bordering Singapore, said in June it will construct a liquefied natural gas import and re-gasification terminal there. The oil and gas hub is aimed at complementing Malaysia's 10-year $444 billion program to build roads, railways and power plants.

"We remain positive on Petronas Gas due to the global shift from nuclear to natural gas for power generation," Alex Goh, an analyst at AMMB, wrote in a report today. The company will gain from the "multiple domestic re-gasification projects and expanding power generation ventures," he said. Goh raised his fair value for the stock to 17.62 ringgit from 15.30 ringgit and kept his "buy" rating.

Petronas and Tenaga Nasional Bhd., Malaysia's biggest power producer, are investing in a 300-megawatt gas plant and LNG terminal in eastern Sabah state, the Star newspaper reported today, citing Tenaga Chief Executive Office Che Khalib Mohd Noh. He couldn't be immediately available for comment when phoned at his office today, as he was out for a meeting.

Petronas Gas processes natural gas from offshore fields before being piped and delivered to power, industrial and commercial users. The company reported net income of 350.2 million ringgit ($116 million) for the second quarter ended Sept. 30. Revenue was 927.3 million ringgit. It gave no year-ago comparison after changing the company's fiscal year-end. -- Bloomberg

2QFY12 results review

Stock Name: TMCLIFE
Company Name: TMC LIFE SCIENCES BHD

Research House: NETRESEARCH

Price Call: HOLD

Target Price: 0.36

Amendments to the proposed fund raising exercise

Stock Name: MELEWAR
Company Name: MELEWAR INDUSTRIAL GROUP BHD

Research House: TA

Price Call: SELL

Target Price: 0.39

Contributions from Europe Begin to Flow In

Stock Name: FIBON
Company Name: FIBON BERHAD

Research House: TA

Price Call: BUY

Target Price: 0.55

MIDF 'neutral' on banking sector

Stock Name: MAYBANK
Company Name: MALAYAN BANKING BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 10.60

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD

Research House: MIDF

Price Call: BUY

Target Price: 9.20

Stock Name: AFG
Company Name: ALLIANCE FINANCIAL GROUP BHD

Research House: MIDF

Price Call: BUY

Target Price: 4.10

KUALA LUMPUR: MIDF Research is neutral on the banking sector as it expects net profits this year to be moderated by slower economic growth.

In a note today, MIDF said loan growth for this year was expected to be dampened and would grow at a slower rate of nine per cent.

It said exports and industrial production were expected to be affected by external environment.

"Eventhough the private sector is expected to cushion the impact from debt crisis and weaknesses of the advanced economies, overall, the growth of the domestic economy would still be impacted," it said.

MIDF said it expected the household sector loan growth to be trending lower for this year due to the new guidelines introduced by Bank Negara Malaysia on responsible financing to the retail sector.

"Judging from the key indicators, loan applications and approval slowed down in December 2011 which suggest a likelihood of a slower loan growth momentum moving into this year," it said.

It maintained its 'buy' calls on RHB Band with a target price of RM9.20 and Alliance Financial Group Bhd at RM4.10.

Meanwhile, HwangDBS Vickers Research expected the banking sector's growth to be led by both retail and business loans.

In a note today, HwangDBS said last year's loan growth hit 13.6 per cent as per its forecast, boosted by 1.5 per cent growth in December 2011.

"Overall, loans growth grew by 12 per cent, while business loans grew by 15 per cent," it said.

HwangDBS has recommended a 'buy' call on Maybank with a target price of RM10.60 for its resilient transactional banking income and dividend yields.

It also picked Hong Leong Bank for the potential synergies as a newly-merged entity. -- BERNAMA

HwangDBS keeps 'buy' call on Guan Chong

Stock Name: GUANCHG
Company Name: GUAN CHONG BHD

Research House: DBS VICKERS

Price Call: BUY

Target Price: 2.80

HwangDBS Vickers Research has maintained a "buy" call on Guan Chong Bhd shares with a lower target price of RM2.80.

In a research note today, HwangDBS said Guan Chong was expected to meet its full-year financial year 2011 net profit estimate of RM118.8 million but lack order visibilty post-financial year 2011.

HwangDBS said beyond the near-germ global uncertainties, the group was poised to be among the top five largest cocoa processors in the world.

"The group normally signs forward contracts with buyers to sell cocoa butter and cocoa powder or cake products to secure sales upfront," it said.

It said Guan Chong was also a net beneficiary of a stronger US dollar as nearly all receivables (exports accounted for over 95 per cent of sales) and payables were dominated in US dollar.

"This also provides a natural edge for the group's borrowings (RM384 million at end-September 2011), which are mostly denominated in US dollar and primarily used to purchase cocoa beans," it said.

HwangDBS said the stock, after plunging from a high of RM2.52 in November 2011 to a low of RM1.99 in December 2011, has recovered to RM2.33 currently.

It said the progressive disposal of 10.3 million Guan Chong shares and the cessation of Lembaga Tabung Angkatan Tentera as a substantial shareholder at end-December 2011 may lift near-term overhang on the stock. -- Bernama

Better days ahead

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD

Research House: ZJ

Price Call: HOLD

Target Price: 6.40

Overweight rate on rubber gloves sector stays

Stock Name: SUPERMX
Company Name: SUPERMAX CORPORATION BHD

Research House: OSK

Price Call: BUY

Target Price: 2.75

OSK Research retained its Overweight rating on the rubber gloves sector with its top pick being Supermax with a target price of RM2.75.

As at 4.55pm, the Supermax share price was unchanged at RM2.14.
In its research report, OSK Research said the high rating on the company was premised on its attractive valuation and the fact that it operated in a recession-resilient industry.

It also said that there had been isolated cases of bird flu in Asia and that although it has not reached alarming levels, healthcare MNCs may prepare themselves by gradually stocking up rubber gloves to avoid buying them at "cut throat" price should there be a pandemic break out.

It said risks included further artificial support of rubber prices by the Indonesian and Malaysian governments, and a rising Ringgit.

It expects latex price to stay above RM7 in the shorter term.
"This is due to the uplift in sentiment for the commodity created by the Thai Government," OSK Research said.
Last week, the media reported that the Thai Cabinet had approved a plan to increase the price of locally-grown natural rubber to THB120 (RM11.84)/kg.

This is done through the Bank of Agriculture and Agricultural Cooperatives offering soft loans of THB5bn to local agricultural institutes and another THB10bn soft loan to the Rubber Estate Organization, both at zero per cent interest to help them purchase natural rubber from local rubber farmers.

The main reasons given for the intervention include the poor rubber prices arising from the global economic slowdown; the flooding crisis in Thailand which had temporarily suspended its production of automobiles and parts, and slower automotive growth in China.

China also slowed down its purchase of Thai natural rubber and instead had switched to the cheaper Indonesian rubber.
"In our view, unless the Thai Government continues to support the price of rubber in the longer run, the price would still be ultimately decided by the forces of demand and supply," OSK Research said. -- Bernama

HwangDBS Malaysia Equity Research - 31 Jan 2012

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD

Research House: HWANGDBS

Price Call: HOLD

Target Price: 6.70

Stock Name: TENAGA
Company Name: TENAGA NASIONAL BHD

Research House: HWANGDBS

Price Call: BUY

Target Price: 7.00

Malaysia Airport Holdings; Hold; RM5.75
Price target: RM6.70; MAHB MK
Fund raising to cover higher costs of klia2

Malaysia Airports Holdings (MAHB) has proposed a private placement of 110m new shares, equivalent to 10% of its issued share capital of 1.1bn, in an effort to part finance klia2 which is slated to begin operations in April 2013. The pricing for the placement has not been determined yet and potential investors will be identified via a book building exercise later.

Assuming MAHB issues its new placement shares at RM5.50 per share, it would be able to raise RM605m, which would be used to finance the construction of new klia2. At this pricing level, the funds raised would be higher than our initial assumption of RM550m previously. This would reduce the additional borrowings required by MAHB. The Group expects to complete this fund raising exercise by 1H2012.

Tenaga Nasional; Buy; RM5.97
Price target: RM7.00; TNB MK
TNB's CEO will not renew contract upon expiry in June

Tenaga Nasional Bhd (TNB) CEO Datuk Seri Che Khalib Mohd Noh will not be renewing his contract when it expires in June this year after heading the national utility for the past seven years. TNB's board has accepted his request and has begun finding a replacement.

It is reported that the most suitable replacement would be TNB's chief operating officer/executive director Datuk Azman Mohd, but TNB is also getting consultants to identify potential candidates. An internal candidate would ensure smooth transition, while a new candidate may bring new excitement to TNB. Nevertheless, we expect minimal impact to TNB's stock price as the development is not new. The CEO has indicated earlier that he will not renew his contract upon expiry. In addition, the Energy Commission has taken a more proactive role recently to look into problems related to the power sector and take charge of the competitive bidding process for the new power plants. The Energy Commission is also responsible for the tariff review proposal.

We maintain our Buy rating for TNB with RM7.00 TP for strong earnings recovery in FY12. We expect TNB's earnings to recover strongly in FY12F following the RM2bn gas compensation and increase in gas supply to 1,150mmscfd for FY12. The gas shortages issue should also be resolved following the completion of the new regas plant by Petgas in Jul 2012.