March 16, 2012

TOPGLOV - Staying the course

Stock Name: TOPGLOV
Research House: HWANGDBSPrice Call: HOLDTarget Price: 4.80

Top Glove; Hold; RM4.80
Price Target: RM4.80; TOPG MK

2Q12/6M12 results in line; earnings led by volume growth and lower latex prices. Increasing automation to improve efficiency. Maintain Hold and RM4.80 TP.

Source: HwangDBS Research - 16 March 2012

Top Glove Corporation - Mirage in the desert

Stock Name: TOPGLOV
Research House: CIMBPrice Call: SELLTarget Price: 3.63

Target RM3.63

Investors should not get excited about Top Glove's interims as the outperformance came from wider margins arising from a 21.5% qoq fall in natural rubber (NR) prices. This is unsustainable as NR prices went up 15.4% qoq in 2Q. Switch to Hartalega, our top glove pick. 1HFY8/12 net profit came in at 64% of our full-year forecast and 55% of consensus estimates. Factoring in better margins, we upgrade FY12 EPS. Our target price (13.05x CY13 P/E) rises slightly as our FY13 EPS is only tweaked. Still an Underperform.

Source: CIMB Daybreak - 16 March 2012, Full PDF Report

UEM Land: A young behemoth with appetite for landbank

Stock Name: UEMLAND
Research House: HLGPrice Call: HOLDTarget Price: 2.35

UEM Land:
A young behemoth with appetite for landbank
  • UEM Land is transitioning to the next stage of their lifecycle, from conceptstock to mature developer.
  • Share price has been supported by positive newsflow, which we expect tocontinue given improving bilateral relations between Malaysiaand Singapore.
  • Has set an RM3.0bn sales target for FY12 on back of RM4.4bn of launches.
  • In our view, upside is capped by its sector-leading 24.9x P/E, vs.mid-teen levels for other large-cap developers.
  • We set our target price at RM2.35, based on 25% discount to RNAV. HOLD
 Source: HLIB Research - 16 March 2012

Stock Overview - TIGER - 16 Mar 2012

Stock Name: TIGER
Research House: JUPITERPrice Call: BUYTarget Price: 0.20

TIGER ( 7079 : 0.16 ) : Targeting 0.20


Resistance : 0.20
Support : 0.14

RSI of 71
RSI is overbought

It is on an upswing

Following the consolidation breakout, it is targeting 0.20. A tight stop loss should be placed at 0.14

Trading Strategy
Buy. Stop loss is at 0.14

Source:Jupiter Securities Research 16 March 2012

Stock Overview - INGRESS - 16 Mar 2012

Stock Name: INGRESS
Research House: JUPITERPrice Call: BUYTarget Price: 0.96

INGRESS ( 7112 : 1.02 ) : Stop loss 0.96

Auto parts

Resistance : 1.38
Support : 0.96

RSI of 77
RSI is overbought

It is on an upswing


The current up-kick is targeting 1.38. A tight stop loss should be placed at 0.96

Trading Strategy
Buy. Stop loss is at 0.96

Source:Jupiter Securities Research 16 March 2012

Stock Overview - CIMB - 16 Mar 2012

Stock Name: CIMB
Research House: CIMBPrice Call: BUYTarget Price: 7.86

CIMB ( 1023 : 7.42 ) : Targeting 7.86


Resistance : 7.86
Support : 7.28

RSI of 59
RSI is on the rise

It is on an upswing

The current rebound off the lower trendline has an upside of 7.86. Stop loss is at the price gap of 7.28

Trading Strategy
Buy. Stop loss is at 7.28

Source:Jupiter Securities Research 16 March 2012

Top Glove: Maintain Sell - Earnings rebound priced-in

Stock Name: TOPGLOV
Research House: MAYBANKPrice Call: SELLTarget Price: 4.20

Results in line. 6MFY12 core net profit of RM85m (+37% YoY) was 53-54% of our and consensus' full-year forecasts. The earnings rebound has been priced-in given the 23% run-up in share price over the past 6 months. With the stock trading at its historical mean of 16x forward earnings, we see no compelling reason to upgrade, especially in view of the environment risks (rising latex cost, weaker USD, energy/ minimum wage hikes). Maintain Sell and RM4.20 TP (14x CY13 PER).

Maybank Research 16 March 2012

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TOPGLOV (FV RM6.00- BUY) 1HFY12 Results Review: Higher Sales Offset Lower Selling Prices

Stock Name: TOPGLOV
Research House: OSKPrice Call: BUYTarget Price: 6.00

Higher SalesOffset Lower Selling Prices

The 1HFY12 results were within expectations. On  the surface, the 2QFY12 EBIT was higher by 64.9% q-o-q but excluding a forexgain in 2QFY12 and forex loss in 1QFY12, it was  actually down  8% q-o-q. Meanwhile,  latex  price may inch up slightly in the shorterterm due to the wintering season but in the longer term, the commodity's pricemay fall in view of an potential global supply surplus. Maintain Buy, with anunchanged fair value of RM6.00.

Within estimates.  Top Glove's 1HFY12 results were within consensus and our expectations,making up 54% and 50% of the FY12 forecasts. Overall, the 2QFY12 revenue ofRM549.0m was flattish q-o-q as higher sales volume (up 5% q-o-q) were offset by  lower selling prices of its gloves  due to lower latex cost (down 18%q-o-q).  The 2QFY12 EBIT of RM68.7m wasalso higher q-o-q as it included an unrealized forex gain of RM15.8m while thatfor 1QFY12 included an unrealized forex loss of RM16.0m. However, if weexcluded these unrealized amounts, the 2QFY12 EBIT was actually 8% weaker q-oq.Finally, on a YTD comparison, Top Glove's 1HFY12 revenue jumped 13% due to a 3%q-o-q rise in  sales volume  on the back of a  higher production capacity. The  company's 1HFY12 EBIT was also higher YTD dueto product margin improvement and the minimal impact from forex as the 1HFY12numbers included an unrealized forex gain of RM5.3m while in 1HFY11 it incurredan unrealized forex loss of RM0.7m.

High latex price maynot be sustainable in the long run. According to Top Glove's presentationwhich included data from the International Rubber Study Group, although the globalrubber surplus is forecast to drop from 50k tonnes in 2011 to 31k tonnes in2012, this surplus is expected to go up to 74k tonnes  and 190k  tonnes in 2013 and 2014 respectively. Hence, although latex may go  up slightly from the  current  price of close to RM8.00/kg due to thewintering season  for  rubber trees, we  do not foresee this price remaining high  over  the longer term.  However,  a reasonable price would be around RM7.00-RM7.50/kgsince the Thai Government has proposed a floor price for hard rubber of  RM11.84/kg, which  infers that the floor price  for latex should be at RM7.10/kg since latex comprises 60% hard rubber and 40%water.

Maintain Buy. Ourfair value for Top Glove remains unchanged at RM6.00, based on the existing PERof 20x, as we roll forward to the company's FY13 earnings.

Source: OSK188

Stock Overview - YTL - 16 Mar 2012

Stock Name: YTL
Research House: JUPITERPrice Call: BUYTarget Price: 2.00

YTL ( 4677 : 1.74 ) : Targeting 2.00


Resistance : 2.00
Support : 1.66

RSI of 63
RSI is on the rise

It is on an upswing

The current rebound has an upside of 2.00. A tight stop loss should be placed at 1.66

Trading Strategy
Buy. Stop loss is at 1.66

Source:Jupiter Securities Research 16 March 2012

Eyeing for MEX?

Stock Name: EPMB
Research House: TAPrice Call: BUYTarget Price: 1.11

Top Glove Corporation (Results Review): 2H to be lower than 1H, valuation rich

Stock Name: TOPGLOV
Research House: ECMLIBRAPrice Call: SELLTarget Price: 4.00

Maintain SELL, TP: RM4.00

1HFY12 net profit of RM84.9m (+38% y-o-y) was above expectations at 55-63% of house and consensus full year estimates. The variance from our forecast was due to lower-than-expected natural latex price. However, we are keeping our earnings forecasts unchanged as we anticipate lower 2H earnings due to higher-than expected input natural latex price which could potentially lead to lower-than expected sales. YTD feedstock natural latex price has risen 22% to RM7.79/kg. Over the medium term, latex prices may remain high due to the Thai government's intervention to support rubber prices, coupled with the wintering season (Feb-May 2012). Top Glove is trading at 23x FY12 EPS (28% above its historical average of 18x) vis-''-vis 13% average earnings growth in FY12-14 which implies a rich PE. Maintain Sell with TP of RM4.00 based on 18x CY12 EPS, in line with its historical average. (refer to report for details)

March 15, 2012

Stock Overview - WONG - 15 Mar 2012

Stock Name: WONG
Research House: JUPITERPrice Call: BUYTarget Price: 0.46

WONG ( 7050 : 0.33 ) : Targeting 0.46

Fabricated metals

Resistance : 0.46
Support : 0.29

RSI of 77
RSI is overbought

It is on an upswing

Following the consolidation breakout, it is heading higher to the 61.8% retracement of 0.46

Trading Strategy
Buy. Stop loss is at 0.29

Source:Jupiter Securities Research 15 March 2012

PCHEM - No sign of strong recovery

Stock Name: PCHEM
Research House: HWANGDBSPrice Call: SELLTarget Price: 5.90

Petronas Chemicals; Fully Valued; RM6.78
Price Target: RM5.90; PCHEM MK
Weak economic recovery may undermine demand. Raised FY12/13 earnings by 7%/18% on higher utilisation and selling prices. Maintain Fully Valued with revised RM5.90 TP.

TA - Second Canadian property development in the bag

Stock Name: TA
Research House: HWANGDBSPrice Call: BUYTarget Price: 1.10

TA Enterprise; Buy; RM0.59
Price Target: RM1.10; TAE MK

TA Global (TAG), 73%-owned subsidiary of TA Enterprise (TAE) together with Birkbeck Trust will jointly develop a high-rise mixed project consisting of hotel and residences in Vancouver, Canada. Datuk Tiah Thee Kian who is the Executive Chairman of TAG is the ultimate beneficiary of Birkbeck Trust. The Proposed Joint Development consists of a 8 level underground parkade and a 64- storey building comprising a 4 level podium and a 60-storey point block which will house the hotel of approximately 161 guest rooms with supporting amenities such as restaurant and lounge, bar and pool, gym, spa and approximately 249 units of residences. The development is adjacent to the existing 24-storey triple-A rated corporate office building owned by TAG. Construction is expected to commence by the third quarter of 2012 and complete by 2016.

The estimated gross development value is C$496.4m (c.RM1.5bn) and total development cost (including land cost of C$110m) is approximately C$359.8m (c.RM1.1bn). Total financial commitment for TAG  works out to be C$185m (c.RM560m), which will be financed via internal funds and external borrowings.

Assuming 50% is financed via external funds, this would raise TAE's net gearing to 0.4x from 0.3x, which
is still manageable. This project will add another RM750m (+11%) to TAG's existing RM7bn GDV. At this juncture, we do not expect any impact on FY12-13F earnings (FYE-Jan). There should be potential earnings upside for our FY14F. Depending on the timing and sales value of the initial launch, we are keeping our FY14F unchanged for now.

Maintain Buy and our RM1.10 SOP-based TP is based on 45% discount to RNAV for property and 0.8x BV for broking. We believe the successive launches of TAG's property projects both in Malaysia and overseas, will be a catalyst for earnings traction and valuation lift.

Source: HwangDBS Research 15 March 2012

PROTON - RM62k-RM75k price tag for P3-21A

Stock Name: PROTON
Research House: HWANGDBSPrice Call: HOLDTarget Price: 5.50

Proton; Hold; RM5.43
Price Target: RM5.50; PROH MK

Proton has unveiled its expected price tag of RM62k-RM75k for its upcoming P3-21A model which is scheduled to launch in April. The pricing is positioned between the Persona and Inspira model which cost about RM49k-RM59k and RM78k-RM91k respectively.

In 2011, Persona has sold 46,415 units while the Inspira, which was launched towards the end of the year, sold 9,840 units. We expect a portion of potential buyers who initially opt for the Persona and Inspira to shift their purchases to the P3-21A given the close range of pricing. Therefore, we are forecasting about 8k-10k units to be sold this year given the less favourable outlook for the industry and production might not match up with the demand. Based on ASP of RM68.5k, this will translate into sales contribution of RM548m-RM685m (5.3%-6.6%) of our FY13F's topline earnings of RM10.4bn.

We maintain our Hold rating for Proton with RM5.50 TP pegged at the offer price. The 42.7% stake acquisition by DRB-HICOM is expected to complete within 6 days from today; resulting in Proton being a 50.01%-owned subsidiary.

TRC - Secures RM36m new contract

Stock Name: TRC
Research House: HWANGDBSPrice Call: BUYTarget Price: 0.80

TRC Synergy; Buy; RM0.75
Price Target: RM0.80; TRC MK

TRC Synergy (TRC) has received a Letter of Award from Kompleks Dayabumi Sdn Bhd for the proposed alteration and addition of construction works to existing Kompleks Dayabumi (Phase 2) for a contract sum of RM36m.

This represents TRC's first contract win for FY12F and accounts for 7% of our new order win assumption of RM500m. We expect margins to be at c.5-6% typical of building jobs.

The bigger catalyst remains the MRT project. TRC is one of 28 contractors short-listed to bid for elevated works of the Sungai Buloh-Kajang line worth RM12bn (elevated portion). It is present in all categories - elevated civil works, stations and depots - in both the open and bumiputera categories.

We maintain our BUY rating and TP of RM.80. This is pegged to 12x FY12F EPS, which is based on 25% discount to the sector average. TRC's RM1.3bn outstanding orderbook provides earnings visibility for 2-3 years.

Source: HwangDBS Research 15 March 2012

WCT - Buys land in OUG Briefing

Stock Name: WCT
Company Name: WCT BHD
Research House: HWANGDBSPrice Call: BUYTarget Price: 3.75

WCT; Buy; RM2.61
Price Target: RM3.75; WCT MK

WCT has entered into a sale and purchase agreement to acquire 3 parcels of land spanning 23 ha or 56.8 acres in Overseas Union Garden, KL via the entire equity interest in Timor Barat Properties. The shareholders of Timor Barat are Eng Lian Entereprise, Shen & Sons and AMC.

The land is situated along Taman Yarl and will be a mixed development. The acquisition price translates into RM180 psf based on a purchase price of RM450m. The conversion premium of RM15 psf which is pending will be borne by the vendors. We think this is fair for a prime piece of land in a matured neighbourhood. Timor Barat has also applied for a contiguous piece of land in the area and if approved will be acquired by WCT for RM150 psf (freehold) and RM135 psf (leasehold).

The acquisition will increase WCT's total outstanding land bank by 6% to 1,037.8 acres. There was no guidance given for GDV but assuming a plot ratio of 2x, ASP of RM500 psf and land efficiency of 70%, potential GDV is RM1.7bn.

WCT will be launching RM1bn worth of sales in FY12F (target RM700m). This is after a strong FY11 with RM457m sales (vs RM220m in FY12F). We remain confident WCT will achieve this given exposure to the resilient mid-end segment in matured locations such as Bandar Parklands and Klang (RM650m sales in FY12F) and 1 Medini (RM360m). 1 Medini is off to a good start with 80% take up of the RM150m launch from Phase 1.

We maintain our BUY rating and SOP-derived TP of RM3.70.

Source: HwangDBS Research 15 March 2012

WCT: Maintain Buy - Sizeable land banking in Klang Valley

Stock Name: WCT
Company Name: WCT BHD
Research House: MAYBANKPrice Call: BUYTarget Price: 3.15

Positive addition. WCT's proposed acquisition of a company holding a 57-acre land in Old Klang Road, KL will enhance its total land bank by 6%. However, as the land is located at the highly matured part of the Klang Valley, the development value is huge, projected at RM4b. This would lift the total outstanding GDV for its Malaysian projects by 70% to RM9.7b. We are positive on the development achieving good demand. Earnings contributions nonetheless are expected only from 2014. We retain our Buy call on WCT with an unchanged RM3.15 target price.

Maybank Research 15 March 2012

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Glomac: Upgrade to Buy - A small but sexy all-rounder

Stock Name: GLOMAC
Company Name: GLOMAC BHD
Research House: MAYBANKPrice Call: BUYTarget Price: 0.96

Upgrade to Buy. Glomac is on track to hit its RM500m sales target for FY12 with successes in the soft-launch of its Glomac Centro (40-70% booked) and Reflection Residences (90% booked) projects. The conversion of just half of these RM440m bookings into actual sales would boost its unbilled sales by 40%, lifting short-term earnings visibility. We raise our earnings forecasts by 2-6% and target price to RM0.96 (unchanged 40% discount to RNAV). The stock deserves a re-rating trading at just 6x current year earnings and 0.8x book.

Maybank Research 15 March 2012

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Sunway REIT: Maintain Buy - Sunway Putra Place, the next gem

Stock Name: SUNREIT
Research House: MAYBANKPrice Call: BUYTarget Price: 1.40

Restoring Sunway Putra Place (SPP) to its glory days. SunREIT unveiled detailed refurbishment plans for Sunway Putra Mall (SPM) yesterday. The RM200m enhancement works, which will be completed by mid-2014, is expected to boost SPP's capital value and double its net property income (NPI). We upgrade our earnings forecasts by 3-8%, and DCF-based TP by 2sen to RM1.40. SunREIT is our top pick for the Malaysian-REIT sector. Maintain Buy.

Maybank Research 15 March 2012

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Petronas Chemicals: Maintain Buy - On a high

Stock Name: PCHEM
Research House: MAYBANKPrice Call: BUYTarget Price: 7.50

Feb was fabulous. PCHEM's product margin in Feb 2012 was USD1,116/tonne (-0.6% YoY, +8.1% MoM), we estimate. Product prices are on a steady upward trend thanks to healthy manufacturing numbers, active restocking exercise, heavy buying ahead of a large number of factory maintenance shutdowns in March and also higher naphtha cost. Maintain BUY on PCHEM with an unchanged target price of RM7.50 based on 12x 2013 PER - industry historical mean PER.

Maybank Research 15 March 2012

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TRC (FV RM0.84 - TRADING BUY) Corporate News Flash: Scores Maiden Job For 2012

Stock Name: TRC
Research House: OSKPrice Call: TRADING BUYTarget Price: 0.84

Scores Maiden Job For2012

TRC Synergy announced that its wholly-owned subsidiary,Trans Resources Corporation SB, has received the Letter of Award from KompleksDayabumi SB for the construction and completion of the proposed alteration andaddition works to the existing Kompleks Dayabumi for a contract sum of RM36m.

Within expectations. This marks TRC's maiden contract for the year, and which we deem in line withour expectations, with our FY12 and FY13 orderbook replenishment targetremaining unchanged at RM500m per year. The deadline for this project was not disclosedbut we expect works to be  completed  within 18 months, judging from  the quantum involved.

More from KV MRT.With the burgeoning news flow on the  Klang Valley My Rapid Transit(KV MRT), we continue to see trading sentiment improve  as we head into 2QCY12 onthe potential award of more packages on the elevated portion of the Sungai Buloh-Kajang(SBK) line. We understand from sources that at least 3 more MRT contracts arelikely to be dished out by April, which we understand will be for the stretchescovering Semantan-Seksyen 17, Sg Buloh-Kota Damansara as well as Bandar TunHussein Onn-Saujana Impian. We continue to believe that TRC is a strong contenderfor the elevated works as it is the only contractor that has been prequalified forall categories in both the open and bumiputra portions. Also, its ongoinginvolvement in  the  Kelana LRT-A extension means that it hasalready procured the  required equipmentto carry out the job.

Revival of SCOREseems likely. On top of these, we expect to see a potential revival in theSarawak Corridor of Renewable Energy (SCORE). Although the flow of contracts inEast Malaysia has been sluggish, we believe it could finally gain traction,with SCORE in particular. Note that in late-Feb this year, the FederalGovernment allocated RM500m for the construction of a second port in Bintulu topropel Samalaju Industrial Park into a highly-developed and competitiveeconomic hub. Coincidentally, early this month, 2 South Korean companies havecommitted to invest a combined USD650m in the said industrial park. We understand that the approved investments inSCORE have now increased to RM32bn. All these developments jive in with ourview that there may be a turn in fortunes in the run-up to  the widely expected  general election as we see the current rulingBarisan Nasional coalition likely to win over Sabah and Sarawak voters via thecontracts, as the 2 states gave it a combined 54 parliamentary seats out of the140 the coalition secured nationwide.

TRADING BUY. Wemaintain our TRADING BUY call. Although we make no changes to our estimates atthis juncture, we are pegging a higher FY12 PER of 14x (from 12x previously) toour valuation in anticipation of a slew of contract flows for TRC over the next2-3 months in relation to the MRT packages as well as potential works in SCORE.Our new FV is RM0.84.

Source: OSK188

Axiata: More open to selling M1, Idea?

Stock Name: AXIATA
Research House: ECMLIBRAPrice Call: HOLDTarget Price: 5.19

Axiata Group Bhd (AXIATA MK, Hold, TP: RM5.19) sees its associate investments in India and Singapore as strategic holdings and has "no imminent plans to change the status quo", its group CFP James Maclaurin said. Axiata owns 29.2% of Singapore's third mobile operator M1 Ltd and 19.1% of Idea Cellular Ltd. "Obviously and in general, like most operators, Axiata would like to have a controlling stake in all our operations. However, there are exceptions. This is especially so in cases where we realise strategic benefits without management control," Maclaurin said. Nonetheless, Maclaurin reiterated that Axiata has a long term view on both India and Singapore which represent important and strategic stakes", stressing that the group is confident of its partners in the 2 countries. (Financial Daily)

Maybank (MAY MK, FV: RM9.60, Close: RM8.74)

Stock Name: MAYBANK
Research House: OSKPrice Call: BUYTarget Price: 9.60

Sweating Its Branches

Despite Maybank's  sizeable domesticbranch network,  its  productivity level remains significantlybelow its key competitors'. Efforts to raise productivity at its branches aregradually bearing fruit, including recent key operating parameters under itsCommunity Financial Service platform launched in 2010.  We  areoptimistic of the group's regional growth thrust and targets to regain itsdomestic consumer market leadership. We maintain our earnings assumptionsand  FV of RM9.60 (2.06x FY12 P/BV, 14.7%ROE).  The stock  is currently trading at an undemanding 1.8xFY12 P/BV, with a compelling gross dividend yield of 7.2%  'the highest among domestic banking stocks.Maintain BUY.

Community FinancialService platform gains traction. Maybank  only  launched its Community Financial ServicePlatform (CFS) in 2010 and yet the benefits arising from the rejuvenated organizationalstructure are already starting to filter through. This is reflected in thegroup's recent 6MFY11 24% annualized SME/business deposit growth and a growthof more than 70% over the past 18 months.

More scope forgrowth. The CFS initiative essentially strives to transform its branches intoa one-stop distribution network for both retail and SME/Business bankingservices. This will help drive incremental revenue growth and lower thecost-to-income ratio by maximizing shared resources across the branches. In thepast, potential SME/Business customers' contact points were previously  confined to the group's dedicated business centres in the major cities. This hadhampered the group's SME business growth in the past and allowed the likes ofPublic Bank to gain significant market share at Maybank's expense,  despite the latter's  superior branchnetwork. For example, shop house and non-residential property mortgagescontribute to a relatively significant 22% of Public Bank's total loancomposition, but Maybank's is a mere 1.8%.

Raising branchproductivity. Although Maybank is ranked third in terms of domestic loans per branch, the level ofproductivity is nearly 50% lower than that of industry leader  Public Bank.  This coupled with its significantly largerbranch network and Malaysia's relatively young population  demographics indicate that there issignificant room for  the group  to gain market share over the longer term,provided that management  can  successfully execute and  push through its CFS initiative, including focusing its efforts on growingits high net worth retail customer segment.

Source: OSK188

Sarawak Oil Palms (SOP MK, FV RM7.09, Close: RM6.23)

Stock Name: SOP
Research House: OSKPrice Call: BUYTarget Price: 7.09

4Q Hitch Unlikely toResurfac

After SOP's share price retreated by as much as 4.3%following its poorer than expected 4QFY11 performance, we took a closer look atits results and sought management's clarification. In 4QFY11, the company washit by a lumpy refining capacity backlog in Sarawak which led to delays in CPOshipments and revenue recognition. This should, however, work to SOP'sadvantage once its refinery comes on stream in 2Q. In 4Q, it also paid outhigher performance-based employee compensation after a record year. As theseissues should clear in 1QFY12, SOP remains our Top Malaysian Plantation Buycall.

Delving into thenumbers.  SOP's 4QFY11 earnings werebelow expectations. Although 4Q revenue fell by a lower than expected 3.8%q-o-q and was 47.5% higher yo-y, the company's costs of sales jumped 12.8%q-o-q and 82.4% y-o-y, dragging down its earnings to RM43.3m (-42.8% q-o-q,-10.8% y-o-y). As both the higher than expected revenue and costs were asurprise and admittedly puzzling (CPO production  -9.3% q-oq, realized CPO price -7.0%, butrevenue was just 3.8% lower), we took a closer look at the numbers and soughtclarification from management.

Higher revenue andcost as SOP seeks suppliers. In anticipation of SOP's maiden refinerycoming on stream in 2QFY12, the company has been buying CPO from vendors to  blend with its own CPO for shipment (whichnaturally  raises  revenue as well as costs). The company'srationale was this would allow it to secure CPO suppliers for its refinerybefore it commences operation, on the understanding that a supplier who sells itsCPO to another refinery is unlikely to return to SOP when the company'srefinery starts running. CPO trading could actually intensify in 1QFY12 as SOPbuilds up its CPO supplier base. We find comfort in learning that this move didnot give rise to trading losses (SOP  infact  made a negligible RM0.1m profitfrom it).  That said, the  1QFY12 earnings should not reflect muchimpact on an absolute basis although margins would naturally narrow as SOPprogresses down the value chain. Some 30% of the company's refining capacitywill be utilized by third party CPOs.

Refining capacitybacklog. SOP sold but was unable to ship 13,000 tonnes of CPO in December2011 due a backlog in refining capacity in Sarawak. Assuming the same 4QFY11realized CPO price of RM2,943 per tonne and a 20% net profit margin, successfulshipment would have added RM7.7m to its earnings. Such issues should be resolved  once SOP's refinery in Bintulu begins operation. While Peninsular Malaysian refinersrely partly on Indonesian CPO, refineries in Sarawak have ample local productionto cater to their capacity. Contrary to its peers on the other side of theSouth China Sea, capacity underutilization at  SOP's refinery is thusunlikely to be an issue even if Indonesia's more favourable export taxstructure is taken into consideration.

Source: OSK188

WCT (FV RM3.17- BUY) Corporate News Flash: Pays RM450m for KL Landbank

Stock Name: WCT
Company Name: WCT BHD
Research House: OSKPrice Call: BUYTarget Price: 3.17

WCT announced that its wholly-owned subsidiary, Iris GreenSB, has entered into a conditional share sale agreement with Eng LianEnterprise  SB, Shen & Sons  SB and AMC SB, for the acquisition of theentire equity interest in Timor Barat Properties SB for a total cashconsideration of RM450m. Timor Barat owns 3 parcels of land along Jalan AwanCina, Taman Yarl with totaling 57.6 acres.

Reasonably priced. We found from Google Map  that Jalan Awan Cina is some 12-15kmsouth-west from the Golden Triangle area. Accessibility to the city center isfairly decent through Old Klang road or the KESAS and MEX highways. Based oninformation provided by, anunofficial proxy to the  Property andValuation Services Department of Malaysia displaying transacted property pricesin Malaysia,  the last transacted landprice in  a  similar area was  going at an average of RM130 per sq ft in Nov 2010. Based on WCT's offer ofRM450m, this translates into approximately RM180 per sq ft, which we deem areasonable premium given the significant size of the plots involved.

Pending conversion ofland use. The acquisition offer is conditional upon conversion of land useon 2 of the 3 plots involved from nil to buildings with the conversion premiumof up to RM15 per sq ft, to be borne by Timor Barat's existing shareholders.All the 3 plots are largely vacant at this juncture.

An additional plotpossible. Meanwhile, WCT has also secured an option to purchase an additionalplot of land contiguous to one of the 3 plots involved should the alienation ofthe said parcel to Timor Barat take place before the acquisition is completed.Timor Barat had on 16 June 2011 submitted an application to Dewan BandarayaKuala Lumpur (DBKL) for the alienation of the said parcel of land contiguous toLand 3 as shown in Figure 2. The approval of the said application is stillpending. Although not disclosed in its Bursa announcement, we understand thatthe said plot is approximately 10 acres. Based on the agreed pricing of  RM150 per sq ft if freehold or RM135 per  sqft if leasehold, this could translate into an additional RM59m-RM65m on top ofWCT's existing offer of RM450m for the 3 existing plots.

Outstanding landbankto break 1,000-acre mark. Should the acquisition be completed, WCT'soutstanding landbank could hit 1,055 acres (or 1,065 acres cum the additionalplot). The acquisition would likely mark WCT's closest development to theGolden Triangle in KL (prior presence via the Paradigm in PJ, Bandar Bukit Tinggi, Klang as well as a sizeable468-acre plot in Rawang, Selangor). This move reaffirms our belief that WCT would likely enlarge  its property development footprint  going forward as part of its three-pronged approachon construction works, as well as property development and management.

RM804m cash hoardmay  come in handy. We see no issueswith WCT's financing for the proposed acquisition given its cash pile of overRM800m as of Dec 2011, and its net gearing of 0.42x. Assuming an all-cashdeal  at the maximum sum  of RM515m (cum the additional plot at RM65m),we expect its net gearing to close FY12 at a relatively unchanged 0.41x owingto its strong cash flow generation. Note that the group's bond covenant allowsa net gearing of up to 1.75x.

Mixed developmentlikely. From our brief checks on, Jalan Awan Cina mainly comprises medium-end condominiumsnamed O.G. Heights, which are selling for RM350 per sq ft in the secondarymarket, as well as some detached bungalows going for RM2m-RM5m each.  Taman Yarl itself is primarily a mixedresidential development comprising mass market apartments, terrace houses, aswell as semi- and fully detached residences. Judging from this mix  as theproposed land usage, we believe WCT would likely look at a mixed medium to highend condominiums development, with some potential commercial  units given the lack of commercial lots, family malls as well as hotels in thesaid area. Management confirmed that the group is looking at a target GDV ofRM4bn over a period of 8 to 10 years, with first launch targeted by 2014 shouldthe acquisition be completed on time.

BUY. All in, wedeem the acquisition reasonably priced and are encouraged by WCT's move tofurther expand its property development footprint  via its maiden venture  into KualaLumpur.  No changes to our earnings modelat this juncture.  Maintain BUY, at an unchangedFV of RM3.17, based on 14x FY12 PER.

Source: OSK188

AXIATA (FV RM5.80 - BUY) Corporate News Flash: Sizing Up XL Axiata

Stock Name: AXIATA
Research House: OSKPrice Call: BUYTarget Price: 5.80

While Etisalat's planned sale of its entire stake in XLAxiata (XL) is positive for XL's share liquidity, our checks reveal that Axiatais inclined towards raising its current 66.6% stake although management wouldhave to assess the potential regulatory issues from such a move and that itcould raise the ire of BAPEPAM. There are additional tax benefits for XLwith  an enhanced  stock liquidity, whichAxiata would also have to consider. We are keeping our BUY recommendation onAxiata, our top telecoms pick in Malaysia, based on SOP FV of RM5.80. 

Calling it quits. Etisalat's plan to dispose of its 13.3%stake in XL Axiata for USD600-700m (RM1.8-2.1bn) caught us by surprise, more sowhen media reports attributed the reason of the sale to a souring  relationship. We gather from Axiata that ithas had no issue with the management of Etisalat, which is represented by asingle board seat on XL, and which  hasbeen a silent partner since it bought into the telco in 2007 for USD438m.

The news  came on  the heels of  rumours that Qatar Telecom(QTel), another Middle Eastern telco, may also be disposing  of  its61% stake in Indonesia's No. 2 mobile operator, Indosat. At its recent 4QFY11results call, Indosat's management refuted speculation that QTel is exiting.Indonesia's biggest mobile operator, Telkomsel, was also mired in ashareholding tussle last year when its parent, Telkom, had wanted to buy outSingTel's 35% stake in the telco over policy disagreements.   

Axiata keen to up itsstake? From our checks, we gather that Axiata does not rule out thepossibility of taking up a portion of Etisalat's shares. However, the merits ofdoing so would have to be considered given that the group already has amajority stake and also full control over XL's board and policy matters. Someissues that need to be ironed out are: (i) additional returns on investmentsfrom funds that could otherwise be channeled for potentially lucrative M&Astargets in India and Indo-China, (ii) regulatory challenges in Indonesia, and(iii) XL's share liquidity. XL benefits from a further 5%  cut  inthe corporate tax rate of 25% should its current free float rise to 40% from20% (excluding the combined stakes of Axiata and Etisalat), which management islikely to consider.

Maintain BUY.Etisalat's sale of XL does not change our positive view on Axiata, which recently  gave  adividend surprise, and in our opinion could well surprise further on capitalmanagement in narrowing its dividend yield gap with its peers. We are keeping our BUY recommendation on AXIATA,based on a SOP FV of RM5.80. We continue to like the stock's  reasonable growth and  exposure to the more exciting mobile growth prospects overseas.

Source: OSK188 - Under attack

Stock Name: DIGI
Company Name: DIGI.COM BHD
Research House: CIMBPrice Call: SELLTarget Price: 3.75

Target RM3.75

We are more negative on DiGi in light of rising competition from Maxis in the migrant market and low likelihood of the 8.9 sen capital distribution we earlier anticipated for FY13. DiGi downplayed the threat from Maxis's latest prepaid plan during yesterday's luncheon.

WCT: Buys land in OUG for RM450m

Stock Name: WCT
Company Name: WCT BHD
Research House: ECMLIBRAPrice Call: BUYTarget Price: 3.07

WCT Bhd (WCT MK, Buy, TP: RM3.07) will pay RM450m cash to acquire the entire equity interest in Timor Barat Properties Sdn Bhd, which has 3 parcels of land totaling 23ha in the Overseas Union Garden (OUG) area of Kuala Lumpur. The firm said Iris Green Sdn Bhd, a wholly-owned subsidiary, had entered into conditional share sale agreement to acquire Timor Barat from Eng Lian Enterprise Sdn Bhd, Shen & Sons Sdn Bhd and AMC Sdn Bhd. The land situated in Taman Yarl, off Old Klang Road, will be used for a mixed development project. (Financial Daily)

Comments: The average purchase price for the 3 land parcels at Taman Yarl, OUG is RM180 psf. Including these land parcels, WCT's current outstanding landbank is 1,038 acres. Details of the mixed development project that the new land is earmarked for will be disclosed by management in due course. Additionally, Timor Barat has applied to Dewan Bandaraya Kuala Lumpur to alienate and obtain a piece of land contiguous to one of the 3 land parcels in the area. If approved, WCT will acquire the land for an additional consideration of RM150 or RM130 psf, depending or whether the land status is freehold or leasehold. We view the land acquisition positively as this is expected contribute to WCT's property bottomline in the future. Maintain BUY, TP: RM3.07 based on sum-of-parts valuation. (Benjamin Lee)

TM: HSBB service in economically viable areas soon

Stock Name: TM
Research House: ECMLIBRAPrice Call: HOLDTarget Price: 4.78

Telekom Malaysia Bhd (T MK, Hold, TP: RM4.78), which has been progressively rolling out high speed broadband (HSBB), will introduce the service to commercially-driven areas beyond 2012. TM Group CEO Datuk Seri Zamzamzairani Mohd Isa said its main priority now was to fulfill its obligation to provide 1.3m premises passes by year-end under its agreement with the Government. "Currently, we have 1.18m premises passed and 79 exchange areas. By end-2012, we will have 1.3m premises passed, completing the first phase of HSBB project rollout under the Public Private Partnership (PPP) agreement. Beyond 2012, we will introduce it to economically viable areas. State capital will be a natural choice," Zamzamzairani said. Under the agreement, TM will be providing the HSBB access and transmission services to REDtone. REDtone will be able to instantly access the 1.3m premises covered by the HSBB network. The agreement is for of 5 years. (StarBiz) 

Comments: This collaboration will allow REDtone International, the 4th service provider (after Maxis, Celcom and P1) to leverage on TM's HSBB platform in rolling out its differentiated valueadded services in the SMEs/SMIs segment. Although the value of this agreement has not been disclosed, we understand that there will be a small upfront fee involved, and thereafter, TM will earn wholesale revenue that will vary according to the number of subscribers that REDtone acquires for its SME segments. We maintain our Hold recommendation for TM with target price of RM4.78. (Desmond Chong)

March 14, 2012

Solid Earnings + Dividend Growth Potential

Stock Name: SKPRES
Research House: TAPrice Call: BUYTarget Price: 0.67

OSK maintains 'trading buy' for IJM Corp

Stock Name: IJM
Research House: OSKPrice Call: BUYTarget Price: 6.55

KUALA LUMPUR: OSK Research has maintained a "trading buy" call on IJM Corp Bhd with the fair value unchanged at RM6.55 following the company's proposal to acquire a 20 per cent stake in West Coast Expressway Sdn Bhd (WCE) for RM6.8 million.

"We deem the announcement within expectations as IJM had earlier hinted at the possibility of taking on a more active role in operating and managing West Coast Expressway," OSK said in a research note today.

WCE had earlier received approval from the Prime Minister's Department to undertake the RM7.1 billion West Coast Expressway project on a build-operate-transfer basis over a 60-year concession period.

IJM said with the proposed acquisition, the group's effective stake in WCE would work out to be a significant 38.1 per cent.

"We believe the announcement will pave the way for commencement of the long-awaited project as we understood earlier that the concession agreement could be inked as early as April this year," the research firm said.

OSK said this latest development would reaffirm its belief that the West Coast Expressway remains largely on track for implementation and should pick up traction in the upcoming months after the concession agreement is signed.

"Physical construction works, which may start as early as fourth quarter this year, should progress smoothly and benefit IJM in the near term as we are of the view that the group would at least bag half of the West Coast Expressway-related job," it added. -- BERNAMA

OSK188 - 14 Narch 2012: Daily Research Report (English Version)

On The Platter
PADINI (FV RM1.80 'BUY) Company Update ' Rising to The Occasion We had a follow up visit toPadini, which is one of our Top Buys in 2012. We continue to like this stockgiven its resilient performance amid a more turbulent operating environment.Despite the volatility in cotton prices and intense competition in the retail space,we are confident that it will still be able to do well thanks to its highinventory level and wider retail outlet coverage relative to its peers.Maintain BUY with a FV of RM1.80 based on 14x FY12 EPS.

REGIONAL TELECOM(OVERWEIGHT) Sector News Flash  'Lower 3G Reserve Price?

IJM (FV RM6.55  ' TRADING BUY) Corporate News Flash  ' Buys 20% of WCE Caretaker

Market Review
Cautiously optimistic. The FBM KLCI closed 0.73 pts  lower to 1,564.02 on continued concerns overthe slowdown in China's economy. Key corporate news today include: IJM Corporationto buy a 20% stake in West Coast Highway, TNB remains confident that the Governmentwill resolve the gas subsidy issue soon, Ramunia has secured a RM23.6m oil andgas contract, and MMC Corporation has asked for more time to complete the proposedlisting of Gas Malaysia Bhd.  On theglobal front,  the  Dow closed 217.97 pts higher on the back ofstronger-than-anticipated consumer data points and positive results reported bylarge US banks for their capital adequacy stress tests. We expect our local bourseto trade positively today amid an improvement in market sentiment globally.

Stocks record biggestgains of year; Dow up 218 pts
Bank stocks turbocharged a rally across the financialmarkets Tuesday, and all three major stock indexes posted their biggest gainsof the year. The Dow Jones industrial average rose 218 pts and closed at13,177.68, its highest level since the last day of 2007. The Nasdaq compositeclosed above 3,000 for the first time since Dec 2000, when dot-com stocks werecollapsing. There was already plenty of good news driving the market higherTuesday: Retail sales in Feb increased the most since Sept, and the FederalReserve said it expected the unemployment rate to keep falling. (Bloomberg)

MAS set for growth asIndia JV gets clearance for take-off
Malaysian Airlines System (MAS) expects further growthpotential through its involvement in the Indian aviation maintenance, repairand overhaul space through MAS GMR Aero Technic Ltd (MGAT)  ' a joint venture between MAS and GMR HyderabadInternational Airport Ltd. MAS senior vice president Khairuddin Hamzah saidMGAT received the approval of the European Aviation Safety Agency (EASA) lastweek, enabling it to service all aircraft leased from European by Indianoperators. (Malaysian Reserve)

Notion VTec buysRM17.5m land in Klang, acquires subsidiary
Notion Vtec subsidiary Notion Ventures SB (NVSB) has enteredinto a sale and purchase with Dulon Industries SB for the purchase of a land inKlang together with an industrial factory for RM17.5m. The proposed acquisitionwould allow NVSB to expand  itsmanufacturing operations. It is a cost effective measure contributing toenlarged economies of scale to expand and maintain the operations. (MalaysianReserve)

Nicorp to participatein Shell LPG business buy
Naim Indah Corp (Nicorp) has been invited to participate inthe purchase of Shell Malaysia liquefied petroleum gas (LPG) business andassets. Oman-based National Gas Company (NGC) recently won the bid to buy ShellMalaysia Trading SB's LPG business for an estimated RM275m. NGC in partnershipwith Aspire SB set up a 40-60 special purpose vehicle to undertake theproposal. (BT)

IJM buys 20% of WestCoast Expressway
IJM Corp is buying a 20% equity interest in West CoastExpressway SB (WCE) for RM6.75m. In an announcement to Bursa Malaysia, IJM saidits wholly-owned subsidiary Road Builder (M) Holdings SB has entered into ashare sale and purchase agreement with Prominent Xtreme SB for the 20% in WCE,consisting of 5.8m RM1 shares. In late January, WCE received an approval letterfrom the Public Private Partnership Unit of the Prime Minister's Department toundertake the proposed privatization of the construction of the West CoastExpressway. The approval was based on a build-operate-transfer basis.(Financial Daily)

South Korea:Unemployment rate rose to 3.7% in february
South Korea's unemployment rate unexpectedly jumped to thehighest level in almost a year as college graduates entered the labor marketand government job openings encouraged more people to seek work. The joblessrate rose to 3.7% in February from 3.2% the previous month, Statistics Koreasaid in Gwacheon today. The median estimate in a Bloomberg News survey of 11economists was for the rate to stay at 3.2%. Policy makers are grappling with aslowing economy by supporting the job market, accelerating spending and keepinginterest rates unchanged for a ninth month. The Bank of Korea said last weekthe economy appears not to be slowing further and will likely return to itslong-term growth track, although downside risks persist because of Europe'sdebt crisis and higher oil prices. (Bloomberg)

Australia: Consumerconfidence slumps 5%, most in three months
Australian consumer confidence fell the most in three monthsafter the nation's four biggest lenders raised mortgage rates even as thecentral bank left the benchmark borrowing cost unchanged, a private survey showed.The sentiment index for March dropped 5% to 96.1, the lowest level sinceDecember, Westpac Banking Corp. and Melbourne Institute survey taken 5-9 Marchof 1,200 consumers showed today in Sydney. (Bloomberg)

EU: German investorconfidence surges to a 21-month high
German investor confidence jumped to a 21-month high inMarch after the European Central Bank flooded financial markets with cash andthe sovereign debt crisis showed signs of abating. The ZEW Center for EuropeanEconomic Research in Mannheim said today its index of investor and analystexpectations, which aims to predict economic developments six months inadvance, advanced to 22.3 from 5.4 in February. That's the fourth straightincrease and the highest reading since June 2010. Economists forecast again  to 10, according to the median of36 estimates in a Bloomberg News survey. (Bloomberg)

US: Retail salesclimb by most in five months
Americans heartened by an improving labour market boostedspending at stores and malls by the most in five months, adding to signs thatthe world's largest economy is gaining strength. The 1.1% advance followed a 0.6%increase in January that was larger than previously estimated, according toCommerce Department data issued yesterday in Washington. Sales rose in 11 of 13categories, including auto dealers and clothing stores, showing gains in demandwere broad based. Stocks and bond yields rose as the report indicated that thebest six-month streak of employment growth since 2006 is bolstering spendingeven as gasoline costs rise. Job gains have not been large enough to satisfyFederal Reserve officials, who today reaffirmed a commitment to keep interestrates low. (Bloomberg)

US: Fed says labourmarket improves, leaves policy unchanged
Federal Reserve policy makers raised their assessment of theeconomy as the labour market gathers strength and refrained from new actions tolower borrowing costs. 'The unemployment rate has declined notably in recent monthsbut remains elevated,' the Federal Open Market Committee said in a statement atthe conclusion of a meeting yesterday in Washington. It also said, 'strains inglobal financial markets have eased, though they continue to pose significantdownside risks to the economic outlook'. (Bloomberg)

Source: OSK188

GAMUDA - Riding the gravy train

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: HWANGDBSPrice Call: BUYTarget Price: 4.80

Gamuda; Buy; RM3.70
Price Target: RM4.80; GAM MK

2QFY12F earnings to lead to a record year . Orderbook could increase 5-fold by mid-2012. Top sector pick at RM4.80 TP .

Source: HwangDBS Research 14 March 2012

Top Glove: Maintain Sell - Convergence of negatives

Stock Name: TOPGLOV
Research House: MAYBANKPrice Call: SELLTarget Price: 4.20

Maintain Sell. Top Glove's upcoming 2QFY12 core net profit is likely to overshoot our forecasts but be in line with consensus estimates. Despite our earnings upgrade (+9-11%), the stock is still trading at a pricey CY13 PER of 16x. We think rising latex costs, a weakening USD, minimum wage hikes and a high foreign shareholding of 35% will impinge on the stock's performance. Maintain Sell, but our TP is raised to RM4.20 (+24%) post our earnings upgrade and as we peg the stock at 14x CY13 PER (DCF previously).

Maybank Research 14 March 2012

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IJM Corporation: Maintain Hold - Taking a stake in WCE

Stock Name: IJM
Research House: MAYBANKPrice Call: HOLDTarget Price: 6.20

We are, at best, neutral on this development. IJM Corp's acquisition of a 20% stake in the WCE has lifted its effective stake to 38.2%. We are, at best, neutral on this acquisition with the WCE being a mix of green-and-brown field project and actual traffic volume, on tolling, may fall short of projections. Hence, the value proposition to IJM (apart from the construction works) is not visible, as at now. We maintain our Hold call on IJM with a RM6.20 RNAV TP which has not included the WCE.

Maybank Research 14 March 2012

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Padini (BUY, FV RM1.80, Last price RM1.45)

Stock Name: PADINI
Research House: OSKPrice Call: BUYTarget Price: 1.80

We recently had a follow-up visit to Padini, which is one ofour Top Buys for 2012. We continue to like the stock's resilient performanceamid an increasingly turbulent operating environment. Despite the volatility incotton prices and intense competition in the retail space, we remain confidentthat the company's high inventory and wider retail network relative to itspeers will hold it in good stead. Maintain BUY, with a FV of RM1.80, based on14x FY12 EPS.

Gaining prominence.After providing 3 Good reasons (Good track record, Good growth story and Goodpricing) why investors should like Padini in our previous report, the shareprice has rallied by a strong 13.3% to RM1.45 in just one month. Although the volatilityin cotton prices and entry of new competitors might affect garment retailers ingeneral, we continue to believe that Padini will stand strong amid the toughenvironment given its high inventory level and wide network of outlets versusits peers.

Unfazed by thechallenges ahead.  From a macroperspective, India's cotton export ban will definitely affect textile andgarment retailers but we believe Padini will be able to weather the storm inview of its high level of inventory and cash pile. The entry of big overseasretailers such as Top Shop, Zara, MNG, Cotton On and Uniqlo in recent years hascertainly raised the bar for local garment retailers. Another fashion retailer,Hennes & Mauritz's (H&M), will also open its first store in Malaysiathis year. We think that Padini's strong  retail network and widecustomer base will continue to support its growth, although the competition isbecoming tougher.

Spreading its wingsoverseas.  FJ Benjamin Holdings, anindustry leader in brand building and management, and the development of retailand distribution networks, has approached Padini  with the view to  franchising the 'Vincci' brand  (under the brand name of 'VNC') in Indonesia.The VNC franchise stores in Indonesia have been languishing  due topricing problems  relating to a  luxury tax on its  products. The discussions are still at theearly stage but if the deal goes through, it would see Padini making asignificant breakthrough in expanding overseas. Similarly, the group is also inthe midst of revamping its franchisee model in Thailand.

Maintain BUY.Going forward, the group aims to introduce apparel based on overseas styles andfashion at a faster pace to Malaysians by ramping up its efficiency and come upwith  new garments in 3 to  4 weeks. Maintain BUY, with  the stock's fair value unchanged at RM1.80.

Source: OSK188

NOTION (FV RM2.41 - TRADING BUY) Corporate News Flash: Acquires a Spate of Assets

Stock Name: NOTION
Research House: OSKPrice Call: TRADING BUYTarget Price: 2.41

Notion announced that it has entered into a Sale andPurchase Agreement (SPA) with Dulon Industries SB to purchase a land with anindustrial factory at Klang amounting to RM17.5m, where RM16.5m will befinanced via debt and the outstanding amount will be satisfied by internallygenerated funds.  Separately, Notion alsoannounced the acquisition of the remaining 10% equity interest in KaitenPrecision (M) SB from Mr Ee Meng Pin for RM1m.

Details of the property. The land being purchased has afreehold tenure with an area of 2.638ha in Klang, including buildings with atotal build up area of 136,208 sq ft. The buildings are currently rented byNotion for its operations where Notion has to service a monthly rental paymentof RM70k.

Income statementtakes a hit. Even though the acquisition will lead to rental savings,theadditional RM16.5m debt raised for buying the assets should lead to a netgearing  increase of 0.06x for FY12/FY13.In turn, FY12/FY13 core net profit is poised to marginally decrease 1.0%/1.3% to RM46.7m/RM46.2m factoring in our conservative financing rateof 7%. However, management deems the purchase to be necessary as it is lookingto expand and maintain Notion's manufacturing operations on the same premises.Despite the short-term detriment to its income statement, we think that the purchasewould be beneficial, especially in the long-run, with any future expansion inits business operations within a stone's throw away. This allows management to have better control and closeadministration of its facilities, which is coupled with the potential capitalappreciation in land value.

Consolidatingownership of Kaiten.  Kaiten'sprincipal business activity is to design, develop and mass producehigh-precision micro parts for the camera business segment as well asconduct  related research and developmentactivities. We  consider the valuationpaid for the remaining 10% equity interest in Kaiten  at 5x FY11 PER for the sum of RM1m as cheap,given that we peg Notion as a group at a higher earnings multiple of 8x. Eventhough there is no material monetary impact to its financial statements, Notionwill now have full control of Kaiten, allowing the former to make furtherinvestments and potential asset injections,  as well as  restructure the enlarged group with ease.

Maintain TRADING BUYat a revised FV of RM2.41.  All inall, we reiterate our TRADING BUY recommendation on Notion but with a revisedfair value of RM2.41/share ascribed to 8x CY12 PER (previously RM2.43/share),given the higher interest expense arising from the RM16.5m debt raised. Wecontinue to like the stock  following theinclusion of  three new Japanese HDDcustomers into its client base, which would, in turn, boost its profitability and give it a diversifiedproduct mix.

Source: OSK188