March 30, 2012

NOTION - Exciting times ahead

Stock Name: NOTION
Research House: HWANGDBSPrice Call: BUYTarget Price: 2.80

Notion VTec; Buy; RM2.07
Price Target: RM2.80; NVB MK

Growth of PC sales to support HDD sector. Strong upside potential for Notion. Maintain Buy and RM2.80 TP.

Source: HwangDBS Research 30 March 2012

MAYBANK - Maybank expects NIM compression

Stock Name: MAYBANK
Research House: HWANGDBSPrice Call: BUYTarget Price: 10.60

Maybank; Buy; RM8.80
Price Target: RM10.60; MAY MK

Maybank expects a contraction of 10 bps in the group's net interest margin (NIM) in 2012. It cited price competition between banks as the reason as new loans secured at lower pricing has narrowed NIM. This is in line with our expectation as we have imputed 10bps decline in NIM in our FY12 forecasts.

Separately, Maybank said that its exposure to the USD600m (c.RM1.8bn) unsecured funding facility on which Vietnam Shipbuilding Industry Group (Vinashin) has recently defaulted is minimal and insignificant. Maybank's total assets as at Dec-11 stood at RM451bn and it has a loan loss coverage ratio of 87%. Maybank remains our top pick among the large cap Malaysian banks. Its dividend yield is appealing at c.6%, assuming a sustainable 70% payout ratio. Apart from its improving domestic business, we believe that its long-term growth potential of its Indonesian operations remains a key re-rating catalyst. Maintain Buy and RM10.60 TP.

Source: HwangDBS Research 30 March 2012

Malaysia Marine and Heavy Engineering Holdings: Maintain Hold - Yard trip: Progress and prospects

Stock Name: MHB
Research House: MAYBANKPrice Call: HOLDTarget Price: 5.70

Maintain Hold; RM5.70 TP. Our recent visit to the yard confirmed that the Gumusut-Kakap FPS project is on schedule for delivery in 2Q 2013 and the Malikai TLP project could be the next deepwater project to be built there. Meanwhile, the takeover of Sime Darby (SD)'s yard is set to be completed by April and the exercise would now include the Kebabangan project. There is no change to our earnings forecasts and TP, based on 20x 2013E PER. Current valuations support a Hold call.

Maybank Research - 30 March 2012

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Stock Overview - KBB - 30 Mar 2012

Stock Name: KBB
Research House: JUPITERPrice Call: BUYTarget Price: 0.63

KBB ( 7182 : 0.58 ) : Targeting 0.63, 0.74

Food manufacturer

Resistance : 0.63 0.74
Support : 0.51

RSI of 69
RSI is slightly overbought

It is on an upswing


The current run up, is eyeing 0.63. Stop loss should be placed at 0.51

Trading Strategy
Buy. Stop loss is at 0.51

Source:Jupiter Securities Research 30 March 2012

Jaya Tiasa Holdings - Entering into a new plantation era; bonus bonanza HOLD

Stock Name: JTIASA
Research House: AMMBPrice Call: HOLDTarget Price: 8.24

- We downgrade Jaya Tiasa Holdings Bhd to HOLD, with  a slightly downward revised fair value ofRM8.24/share (vs. RM8.37/share previously), based a PE of 13x its annualised FY12Fcore EPS of 63.4 sen (vs. basic EPS of 64.4 sen previously).

- The stock has reached our previous fair value since lastweek after it announced a 2-for-1 bonus issue (est. total of 645mil bonusshares) and a 15% placement of new shares (est. 42mil shares that may raiseRM300mil, prior to bonus issue ' which will partly lower borrowings and keepgearing in check).

- Its proposed dividend of one treasury share for every 20 sharesheld will go ex- on 6 April 2012. We believe Jaya Tiasa's latest proposals areaggressive measures to spur trading liquidity of its shares and would go a longway towards enhancing the attractiveness of the stock.

- We welcome the proposals in the belief that management is signallingstrong intent in fiscal prudence (though gearing remains manageable), whilepreparing the group for its next phase of mid-cycle growth in the oil palmsector, with potential landbank acquisition ahead.   

- Our downward adjustment to FY12F earnings follow theresult for the three months to 31 January 2012, which came in slightly belowexpectations due to lower CPO prices (QoQ and YoY), and a decline in log pricesgiven the significant slowdown of exports to India in view of the weakeningRupee during the period.

- Its net profit of RM143mil (+54% YoY) for the nine monthsto 31 January accounted for 83% of our previous annualised FY12F net profit ofRM172mil. However, excluding an exceptional gain of RM27.6mil on the disposalof a subsidiary, the core net profit of RM115mil (+24.4% YoY) would bring that downto 67% (vs. 70% now given our revised annualised earnings to RM164mil).

- Log prices have improved in view of the strengtheningRupee in the recent months. Sarawak Timber Association this week said new ordersfrom Japan's plywood importers had continued to flow in since late last yearand that  Sarawak manufacturers wouldbenefit from anticipated stronger demand from Japan at the start of spring nextmonth.

- The oil palm division, which accounted for over 60% of itslatest quarterly earnings, is expected to continue to perform significantlybetter than the timber division given the current strong CPO prices. 

- Our target PE of 13x is conservative vis-''-vis its forwardPE mean of 20x, and well within 1+SD and -1SD of 9x and 31x, respectively.  

Carlsberg Brewery - Regional manufacturing hub in the brew BUY

- We re-affirm our BUY rating on Carlsberg Brewery Malaysia Bhd(Carlsberg) with a higher DCF-based fair value of RM11.50/share, vs. RM10.40/share previously (WACC: 9.2%). 

- Despite the stock's relative outperformance YTD, webelieve current share price has not fully reflected Carlsberg's full potential.We see long-term transformational earnings growth underpinned by the group'saspiration to become a regional manufacturing hub with a strong focus on importedlabels. Our LTG rate is tweaked upwards to 2.7% (+1ppt).

- Carlsberg is on schedule to add two more imported labels forin-house production in the next 3 to 6 months, in addition to locally brewed 'Asahi Super Dry'. The identified beersbeing 'Kronenbourg 1664' and 'Kronenbourg Blanc' originate from France, unlikeAsahi which has Asianorigins. 

- More importantly, local production of the labels yields higherprofitability given reduced transportation and logistics costs due to absenceof a RM5.00/litre import duty. Though cost savings is negligible at present, weexpect rising earnings contributions in tandem with higher beer volumes movingforward. As it is, draught production of 'Asahi Super Dry' for the mass marketis expected to commence soon over the next few weeks. Premium labels contributecirca 10% to group revenue.

- Given Carlsberg's idle brewing capacity and the stronger pricingpower imported labels command, we would not be surprised should the groupsecure rights for exports to other countries in the region, apart fromSingapore. As an indication, ASP for Asahi is ~10% higher than mainstream CarlsbergGreen Label, while Kronenbourg's is ~10% higher than Asahi's. 

- In the immediate term, the group may raise ASP by 3%-4% byend-1H to compensate for higher raw material costs which are up some 20% YoY.Fortunately, price of malting barley has been flattish and the group hassecured 2/3 of its raw ingredient requirements for FY12F. We also expect Carlsbergto intensify A&P in the coming months to leverage on 2012 Euro Cup, ofwhich the group is the official sponsor.

- Balance sheet is strong with net cash of RM50mil (FY11F) andfree cash flow yields of 6%-7%. Our conservative dividend payout assumption of70% p.a. implies an upside potential to our dividend yield of 5%-6%. Valuationsare also attractive at current levels, with the stock trading at only 6x P/B 'or at a 50% discount to peer Guinness Anchor Bhd (GUIN Mk Equity, Hold).   

Source: AmeSecurities 

RHB Research cuts Help target price

Stock Name: HELP
Research House: RHBPrice Call: HOLDTarget Price: 1.65

RHB Research revises its target price on Malaysian education firm Help International Corp Bhd down to RM1.65 per share from RM1.80 on lower net profit recorded in the first quarter.

"Net profit missed estimates, at only 8-9 percent of our and consensus estimates," the broker said in a research note on Friday.

Maintaining "market perform" on the counter, RHB Research also revised down its earnings per share estimates for Help's fiscal year ending Oct. 31 2012 (FY12) to FY14 by 5-10 percent after fine-tuning student growth assumptions and factoring in higher costs.

By 9.20am in Kuala Lumpur trading, Help dropped 3.03 percent, underperforming Malaysia's benchmark stock index, which rose 0.29 percent. -- Reuters

HAIO (FV RM1.99 - NEUTRAL) 9MFY12 Results Review: On a Healthy Growth Path

Stock Name: HAIO
Research House: OSKPrice Call: HOLDTarget Price: 1.99

Hai-O's  9MFY12results  were in line with  consensus but above  our forecasts. Revenue and net profitincreased by 3% and 21.7% respectively on the back of better performance  in  theMLM division. EBIT margin  improved from17.5% to 20.7%, thanks to better MLM sales and enhanced margins from thewholesale division. We raise our FY12 and FY13 estimates given the betterresults, which bump up our FV to RM1.99. Maintain NEUTRAL.

Stronger thanexpected. Hai-O's revenue and net profit came in stronger at RM170m andRM24.7m, registering a decent y-o-y growth of 3% and 21.7% respectively. The betterresults were largely underpinned by stronger performance  at  itsMLM division (revenue +4.9% y-o-y), coupled with lower R&D costs in thetechnology division. On q-oq basis, revenue stood at  RM62.8m, 11.7% higherversus  RM56.2m in the preceding quarter,while earnings improved from RM7.9m to RM9.1m (+15.2%).

MLM still the pillar.The MLM division's profit surged 18%, propelled by robust sales of its mainproducts  as well as new products,coupled with effective incentive trip campaigns for its MLM members. We believethe growth momentum  in  the MLM division, which contributes 56.1% oftotal revenue, should be sustainable moving forward in view of the company's enhanced  marketingstrategies and aggressive recruitment drive for members. The wholesaledivision's revenue trended lower by 8.5% but registered a PBT growth of 16% owingto its high margin products. The revenue and profit generated by the retaildivision were flattish as it rationalized its unprofitable outlets while at thesame time opened more new outlets.

EBIT margin expands.  The company's  EBIT margin  widened  3.2% from 17.5% to 20.7%, mainly driven byhigher sales from  the  MLM division, better margins from wholesaleproducts, higher rental income and lower R&D costs in other divisions. MaintainNEUTRAL. We revise up our FY12 and FY13 forecasts by 6.2% and 7.1% respectivelyin light of the better reported results. Our FV is raised to RM1.99 as we roll overour valuation from FY12 to FY13 based on 12x PER. Maintain NEUTRAL given the limitedupside in the share price.

Source: OSK188 

AmResearch ups Carlsberg fair value

Stock Name: CARLSBG
Research House: AMMBPrice Call: BUYTarget Price: 11.50

AmResarch revises its fair value on Carlsberg Brewery Malaysia up to RM11.50 per share from RM10.40, citing brighter long term growth prospects from the brewery's transformation strategy.

"Despite the stock's relative outperformance year to-date, we believe the current share price has not fully reflected Carlsberg's full potential," the broker said in a research note on Friday.

Maintaining "buy" on the counter, AmResearch said it foresees long-term transformational earnings growth underpinned by the group's aspiration to become a regional manufacturing hub with a strong focus on imported labels.

As of 9.35am in Kuala Lumpur trading, Carlsberg Brewery rose 0.59 percent, outperforming the Malaysian benchmark index, up 0.22 percent. -- Reuters

HIAPTEK (FV RM0.74 - TRADING BUY) 1HFY12 Results Review: Softer Showing as Expected

Stock Name: HIAPTEK
Research House: OSKPrice Call: TRADING BUYTarget Price: 0.74

Hiap Teck Venture's (HTVB) 2QFY12 results were below our andconsensus estimates. Net profit was weaker q-o-q at RM1.6m (1QFY12: RM8.1m) butstronger y-o-y,  while  1H net profit stood at  RM9.7m (1HFY11: RM3.3m).The weak results are no cause for alarm as we had expected  a soft performance in 2Q due to  the festive seasons. We think  the company may see a better  2HFY12 activities pick up. Although newson  the iron ore concession has beenquiet for some time, we don't think that will affect HTVB's core operationsas  this was supposed to be an unexpectedbonus anyway. We maintain our Trading BUY call,  with  a lower revised FV  of RM0.74, as we lower the iron ore concession  value-add factor to 10%from 20% in tandem with our house view.

Weaker asanticipated. HTVB reported a 2QFY12 net profit of RM1.6m (-80.3% q-o-q), whichis below our and street estimate estimates when annualized.  Having said that, we are not surprised as wehad earlier anticipated HTVB's 2Q numbers to fall in the months whichexperienced festive seasons (Nov, Dec and Jan), during which businessactivities generally slow down. The lower production in the manufacturingdivision resulted in a higher cost of production, which further dampened theGroup's performance. Nevertheless, its overall 1H performance still lookspromising as the reported earnings were three times that in the same periodlast year.

A  brighter 2HFY12 ahead. We believe  HTVB's future prospects  remain intact asthe local steel industry may see activities gather pace when more projectsunder the Tenth Malaysia Plan and Economic Transformation Programme are rolledout. Elsewhere, the continuous improvement in the  company's API steel pipes making  venture that fetches more robust  margins and which  exports 5CT pipes may seea  pick-up, with  orders expected to flow in after the festiveseasons. This further supports our view on a better 2H for HTVB.

Iron ore concessionmay materialize only  later.  It has been 3 months since Terengganu's MBannounced that an iron ore concession will be given to Eastern Steel during aground breaking ceremony in December last year. However, so far we have yet tosee the state government issue an official letter to this effect. Nonetheless,we are not too concerned about the delay in the concession awards because:  (i) the company's BF plant is still underconstruction, and (ii) we believe that HTVB already has  plans to source for iron ore to feed into itsBF plant and did not take into consideration the Bukit Besi concession when itventured into the BF plant project. As we mentioned earlier, the local iron oreconcession would be an unexpected bonus to Eastern Steel and/or HTVB.

Source: OSK188 

HELP (FV RM1.55 - NEUTRAL) 1QFY12 Results Review: Poor Score in 1Q

Stock Name: HELP
Research House: OSKPrice Call: HOLDTarget Price: 1.55

HELP's  1QFY12 resultswere below  our expectations. Coreearnings  came in at RM1.7m, at <10%of our full-year estimates due to higher personnel costs incurred on staffrecruitment.  We  are thus  revisiting  our model and tweaking our EPS forecastslower by some 9.2% for FY12 and 4.1% for FY13. This brings our FV  to RM1.55, taking into account its  target net cash per share of RM0.46 by Oct2012. Maintain NEUTRAL.

Not making the grade.HELP's 1QFY12 revenue of RM26.9m was down by a marginal 5.6% q-o-q onseasonality but up by a decent 10.5% y-o-y on higher student enrolment. Grossprofit, however, sank  more than  34%  both y-o-y  and q-o-q  to RM2.3m due to higher personnel costsincurred in recruiting lecturers with doctorate degrees as part of therequirements for its upgrade to full university status. Correspondingly, bothEBIT and PBT closed lower at RM3.5m and RM3.2m respectively.  All in, HELP's 1QFY12 core earnings dwindledto RM1.7m (-53.0% q-o-q; -38.2% y-o-y), exacerbated by a marginal increase ineffective tax rate.

Downgradingforecasts. Given the disappointing results, we revise upwards our opex assumptionsfor both FY12 and FY13, which translate into an earnings cut of some 9.2% forFY12 to RM17.3m, and 4.1% for FY13 to RM18.8m. On the other hand, we  are lowering  our capex estimates from RM50m to RM20m  for FY12 and from RM40m to RM30m for FY13 as we now expect a delay incompleting its proposed flagship Subang 2 campus in Sungai Buloh. From ourrecent conversation with management, there were some changes in the proposedarchitecture, with piling works now expected to start next month.  The first phase of the flagship campus, with an estimated capacity of 8k students,is expected to be completed by 2014. Subsequently, HELP's net cash balance isexpected to improve to more than RM60m over the next 2 years.

NEUTRAL. While wecontinue to like HELP's clean books, experienced management and its solidreputation, we remain wary of the potential equity dilution due to funding for itsproposed flagship Subang 2 campus, which we understand may involve an outlay ofRM150m-RM200m. We are also cautious on a  possible downside risk toearnings as management ramps up its headcount after obtaining universitystatus. Hence, we maintain our NEUTRAL recommendation for now, with our FV nowat RM1.55, based on an unchanged 9x FY12 PER, plus its target FY12 net cash pershare of RM0.46.   

Source: OSK188

Syarikat Takaful Malaysia (STMB MK, BUY, FV: RM4.42)

Stock Name: TAKAFUL
Research House: OSKPrice Call: BUYTarget Price: 4.42

An Undervalued GemUnearthed
Being the only pure takaful operator listed  on Bursa Malaysia,  Takaful Malaysia is trading at a cheap FY13PER of 7.1x. Thanks to the large regional Muslim population, low family takafulpenetration rate and its niche expertise, we expect the company to grow itsearnings consistently moving forward. We believe its Indonesian operations offerimmense potential as the family takaful penetration rate stands at only 1% ofthe population in a country with more than 213m Muslims. We are initiatingcoverage on Takaful Malaysia with a FV of RM4.42 pegged to 10x FY13 PER.

Undervalued.Takaful Malaysia is currently trading at 0.9x FY13 P/BV and 7.1x FY13 PER. Wethink that it deserves to trade at more than 10x forward earnings due to itsconsistent double-digit ROE and dividend payout. Based on our calculations, weestimate the group's FY13 net profit at 44.2 sen per share. Hence, we valueTakaful Malaysia at RM4.42 pegged to 10x FY13 EPS. Among some of theassumptions behind our earnings estimates are: (i) 20% growth in gross writtencontribution for both general and family takaful, (ii) stable overall claimsratio of 65-68% for both general and family takaful, and (iii) +15% growth per yearin investment income.

Only operatoroffering 15% no claim rebate. Presently,  Takaful Malaysia isthe only takaful operator which offers a 15% no claim rebate for all itsgeneral insurance products and selected family takaful products. Essentially,policyholders stand a chance to get back 15% of their premiums at the end ofeach year if the fund is profitable and if they make no claims. With the launchof its 'We Should Talk' campaign this year, we think that  Takaful Malaysia is poised to secure more newpremiums in the medium term. Positive macro outlook in Malaysia.  The takaful industry has been experiencingstrong growth in Malaysia during the last decade  on the back of various government initiativesto promote the country as a global Islamic financial centre. We see tremendouspotential in the life takaful business as demand for healthcare strengthens dueto demographic shifts, coupled with the fact that the family takafulpenetration rate was merely 10% of the population in 2010.

Initiate with BUY.  In view of the industry's positive macrooutlook, the large Muslim population in Malaysia and Indonesia as well as thecompany's cheap valuation, stable dividend payout and strong balance sheet, weare initiating coverage on Takaful Malaysia with a BUY  recommendation. Our FV of RM4.42 is based on10x FY13 PER. Key rerating catalysts include: (i) sharp improvement inunderwriting margins, (ii) higher-than-expected premium growth, and (iii)lower-than-expected management expenses.

Source: OSK188 

MMCCORP (FV RM3.70 - TRADING BUY) Corporate News Flash: The Pieces Come Together

Stock Name: MMCCORP
Research House: OSKPrice Call: TRADING BUYTarget Price: 3.70

Business Times reported that Penang Port SB (PPSB) has beenshown a letter from the Ministry of Finance and directed by the Government tocooperate with Seaport Terminal (Johore) SB, a company linked to Tan Sri SyedMokhtar Al-Bukhary. Nonetheless, PPSB has not been officially notified of atakeover.

Port users express concern. The paper also  quoted a news portal as  reporting that Syed Mokhtar's officials arealready running the port. When contacted by the paper, Penang FreightForwarders Association (PFFA) president Krishnan Chelliah said  the Governmentshould reconsider the sale and engage with port users 'before deciding on amove as drastic as this.'' He also said the takeover by Syed Mokhtar woulddowngrade Penang port to a feeder port.

Details on the port.Penang Port basically handles port and ferry services for Penang.

These include managing:
- Swettenham Pier Cruise Terminal
- Tanjong City Marina
- Pangkalan Raja Tun Uda Ferry Terminal
- North Butterworth Container Terminal
- Butterworth Wharves
- Vegetable Oil Tanker Pier
- Prai Bulk Cargo Terminal
- Pangkalan Sultan Abdul Halim Ferry Terminal
- Bagan dalam Dockyard
- Prai Wharf

Based on its 2010 Annual Report, Penang Port handled 1.1mTEUs and 28.8m tonnes of throughput, which puts it in roughly the same leagueas Johor Port. However, its PBT was only RM11.1m in 2010 vs Johor Port's PBT ofRM155.1m in the same year while its revenue was RM312.1m vs Johor Port's RM548m.We believe this was largely due to the loss making nature of ferry services.
Uncertain of exact plans for the port. If indeed this pieceof news is true, it remains to be seen what Syed Mokhtar plans to do withPenang Port given  that he also  controls both the Port of Tanjung Pelepas(PTP) and Johor Port. We believe it is likely that a takeover of Penang Port bySyed Mokhtar will eventually see the port being injected into his flagshipcompany, MMC, which is the current owner of Johor Port and PTP. The 3 ports maythen be brought under a single entity which could then proceed to an IPO afterJohor Port's container operations are transferred to PTP. This will bode well  for MMC as it should be able to unlock somevalue at both Johor Port and PTP as well as allow easier fund raising for thestill fast growing PTP.

A LogisticsMasterplan. We also see the control of Penang Port as part of a logisticsmasterplan by MMC, which is currently evaluating the takeover of Keretapi TanahMelayu Berhad (KTMB). With both the northern and southern ports in PeninsularMalaysia potentially becoming part of the group, MMC could perhaps derive someeconomies of scale from large scale logistics operations. In any case, if thetakeover of Penang Port and KTMB materializes, MMC would  be the only private company in Malaysia withsuch a diverse and strategic asset base, which makes it a direct proxy to thehealth of the Malaysian economy. While it is too preliminary at this junctureto estimate the bottomline impact (if any) to MMC from a potential takeover ofPenang Port, we note that the news flow on the company remains strong and MMCremains a Trading BUY call for us, with an unchanged SOP FV of RM3.70.  

Source: OSK188

Stock Overview - SMARTAG - 30 Mar 2012

Stock Name: SMARTAG
Research House: JUPITERPrice Call: BUYTarget Price: 0.28

SMARTAG ( 0169 : 0.225 ) : Targeting 0.28

Wireless technologies

Resistance : 0.28
Support : 0.20

RSI of 54
RSI is rising

It is on an upswing


The current recovery, is eyeing 0.28. Stop loss should be placed at 0.21

Trading Strategy
Buy. Stop loss is at 0.20

Source:Jupiter Securities Research 30 March 2012

Stock Overview - NICORP - 30 Mar 2012

Stock Name: NICORP
Research House: JUPITERPrice Call: BUYTarget Price: 0.58

NICORP ( 4464 : 0.48 ) : Targeting 0.58


Resistance : 0.58
Support : 0.42

RSI of 47
RSI has stabilised

It is oversold


The current correction from 0.74 is ending, due to the oversold technicals

Trading Strategy
Buy. Stop loss is at 0.42

Source:Jupiter Securities Research 30 March 2012

Stock Overview - BINTAI - 30 Mar 2012

Stock Name: BINTAI
Research House: JUPITERPrice Call: BUYTarget Price: 0.48

BINTAI ( 6998 : 0.38 ) : Targeting 0.48

Engineering services

Resistance : 0.48
Support : 0.35

RSI of 64
RSI is rising

It is oversold


The breakout yesterday, is heading for the 50% retracement of 0.48

Trading Strategy
Buy. Stop loss is at 0.35

Source:Jupiter Securities Research 30 March 2012

Maybank: License to expand

Malayan Banking Bhd (MAY MK, Hold, TP: RM8.25) is expected to receive a local incorporation license for its operations from the National Bank of Cambodia early next month to facilitate its ongoing expansion plans in Cambodia. "We remain focused on organic expansion plans in Cambodia," Maybank president and CEO Datuk Seri Abdul Wahid Omar said. He explained "As we expand, we felt there was a need to strengthen our commitment further with a local incorporation in Cambodia." It's been reported that over the 12 months to October 2011, Maybank Cambodia had registered a 75.2% growth in loans and advances, with 4% growth in customer deposits. (StarBiz)

Sime Darby: Property unit on track to achieve sales of RM2.4bn

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: ECMLIBRAPrice Call: HOLDTarget Price: 9.82

Sime Darby Property Bhd, a unit of Sime Darby (SIME MK, Hold, TP: RM9.82), is on track to achieve a gross sales value (GSV) of RM2.4bn in FYE 30 June 2012, said MD Datuk Wahab Maskan. He said the value would be mainly contributed by some 23 property projects under its Lifestyle Collection umbrella. "The promise that we gave to our parent company was to register a GSV of more than RM2bn. We are sure of reaching RM2.4bn," he told reporters. Wahab expects its profit to be sustained at between RM400m-RM500m for the current financial year. (Bernama)

Comment: Our FY12 forecast for Sime Darby's property segment is sales of RM2.1bn, which is slightly lower than their targeted sales of RM2.4bn, but our operating profit forecast of RM443m falls within their profit target of RM400-500m. Currently Sime has a balance landbank of 11,447 acres, where 2,700 acres are located in their existing townships and 8,747 acres are located in their future townships. Management has previously indicated they intend to launch 1 new township every 2 years. The property segment contributed 7% of Sime's earnings in FY11. We maintain our Hold call with a TP of RM9.82. (Aris Sharif)

Maybank: NIM to be compressed by another 10bps

Stock Name: MAYBANK
Research House: ECMLIBRAPrice Call: HOLDTarget Price: 8.25

Malayan Banking Bhd (MAY MK, Hold, TP: RM8.25) is expecting a contraction of 10 bps in the group's net interest margin (NIM) this year. The banking group said the financial services market in Malaysia continued to be competitive, resulting in thin margins for some financing products offered due to price competition between the banks. Its president and CEO Datuk Seri Abdul Wahid Omar said the group would assess the situation from time to time, in its efforts to manage the compression of NIMs of its financial products. (Financial Daily)

Comment: Our FY12 forecasts assume a smaller 5 basis point contraction in net interest margin, but our group loan growth assumption of 9% is also lower than management's KPI of 15.2%. We are maintaining our forecasts and valuation for Maybank. (Leong Hon Sze)

Bumi Armada (Company Update): Firing in all cylinders

Stock Name: ARMADA
Research House: ECMLIBRAPrice Call: BUYTarget Price: 5.10

Upgrade from HOLD to BUY; TP:RM5.10

Our recent meeting with Bumi Armada has strengthened our conviction on the company's prospects. Bumi Armada's growth potential of 32% net profit CAGR for FY12-FY14 is driven by expansion from all of its operating segments. FPSO is expected to contribute 45-50% to its EBIT from FY12 onwards, while the remaining would be from the OSV and T&I segments. Upgrade our HOLD call to BUY with RM5.10 TP, 27x PE pegged against FY12 EPS, representing +1SD of its historical PE in line with its strong growth. (refer to report for details)

Berjaya Corporation Berhad - 3QFY12 RESULTS - Gaming still holding the fort

Stock Name: BJCORP
Research House: CIMBPrice Call: HOLDTarget Price: 0.98

Palmotone MPT Line To Kick Off In 3Q 2012

Stock Name: JADI
Research House: TAPrice Call: HOLDTarget Price: 0.17

Earnings Within Expectation

Stock Name: UMCCA
Research House: TAPrice Call: HOLDTarget Price: 8.09

Stronger 3Q on better margins

Stock Name: NEXTNAT
Research House: TAPrice Call: BUYTarget Price: 0.13

March 29, 2012

CIMB Group - 2Q12 Tactical Trading Idea - 29 Mar 12

Stock Name: CIMB
Research House: KENANGAPrice Call: HOLDTarget Price: 7.90

We still believe that investors should buy CIMB on dips andto position for the next recovery cycle. Recent media reports have suggestedthat CIMB Group Berhad (CIMB) could acquire a 60% stake in Bank of Commerce inPhilippines at an undemanding valuation and 100% in RBS's Asia Assets at adiscount.  CIMB has made no officialcomment but we believe that it has started to position itself for the nextrecovery cycle.  While we are maintainingour MARKET PERFORM rating and our Target Price of RM7.90 at this juncture, westill believe investors should buy the stock on any dips to position for thenext recovery cycle.  We believe thatCIMB could potentially offer a low-risk trading opportunity over the next 2-3months on the back of its satisfactory FY11 result.

Rationale behind theacquisition:  CIMB has identified Philippinesas one of its priority markets and we believe it is considering acquiring astake in Bank of Commerce given (1) Philippines's importance in completing itsAsean aspiration; (2) for better growth opportunities here and (3) BOC'sfull-fledged banking business model is in line with its targeted strategy.Meanwhile, we believe CIMB may be interested in acquiring RBS's assets in Asia given(1) the leverage on a recovering local equity market; (2) giving its regionalambitions a shot in the arm and (3) the attractive discount price.

Risk of lower growthin CIMB Niaga.   Bank Indonesia has imposednew higher minimum LTVs on the industry here. Niaga's exposure in mortgage& auto loans account for 17.5% of its total loans, which in turn accountfor approximately 5% of the entire total loans for CIMB Group. Hence, theimpact could be minimal in terms of growth for the group for now. As for CIMBNiaga growth rate, we are currently forecasting high teens growth for its totalloan growth in 2012 as per the guidance of management (vs. FY11's 20%).  However, with the new rules imposed, weexpect its growth will now be slower. Currently, we are estimating 13% growthfor the entire group but should these rules lower Niaga's growth by 1%, the group's loan growth will be lower by29bps. 
Growth aside, we also believe that Niaga's interest marginsare expected to be under renewed pressure in FY12 through a combination of theCentral Bank policy action and as well as a heightened deposit and loancompetition.  We reckon that a 50bps-70bpsdecline in its NIMs (to 4.9%-5.1%) is not entirely impossible.  

Valuation and Rating.CIMB's share price has dropped by 22% since its peak on concerns over itsearnings slowing down. The stock is now trading at 12.3x FY12 EPS (with anestimated ROE of 16.4%) as compared to its 10-year historical mean of 16.5x andmarginally below its low in 2009 of 12.6x. At its current valuation, we believethe market could have priced in the risk of its slowing earnings growthalready.   

Source: Kenanga

Kenanga cuts MMHE target price

Stock Name: MHB
Research House: KENANGAPrice Call: SELLTarget Price: 4.04

Kenanga Research revises its target price on Malaysia Marine and Heavy Engineering Holdings (MMHE) down to RM4.04 per share from RM4.53, citing a poor execution track record.

"We remain cautious on the company until it can roll out key contracts on time and gain full access to its Sime Darby fabrication yard," the broker said in a research note on Thursday.

Maintaining its "underperform" call on the heavy engineering unit of Malaysia's state oil firm Petronas, Kenanga said it would revisit the stock when MMHE is able to address its project execution issues.

By 0134 GMT, MMHE shares rose 0.37 percent, outperforming the Malaysia benchmark index, which dropped 0.03 percent. -- Reuters

Affin lifts Gamuda to 'buy'

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: AFFINPrice Call: BUYTarget Price: 4.21

Affin Research upgraded its call on builder Gamuda Bhd to "buy" from "add" and maintained its target price at RM4.21 per share, citing more tunnelling jobs to come for the company.

"We expect the group to secure the respective project delivery partner and tunnelling contracts for the country's subsequent mass railway projects, which would extend construction and engineering profits all the way to 2020," the broker said in a research note on Thursday.

Gamuda, in a consortium with Malaysian builder MMC Corp Bhd , on March 20 won the tunneling package for the country's mass railway project with a bid of RM8.2 billion (US$2.69 billion).

By 0114 GMT, Gamuda's shares dropped 0.28 percent, underperforming Malaysia's benchmark stock index, which declined 0.11 percent. -- Reuters

Axis REIT - 120329 - 2Q12 Top Buy

Stock Name: AXREIT
Company Name: AXIS REITS
Research House: KENANGAPrice Call: BUYTarget Price: 2.82

Axis REIT (AXREIT) is our 2Q12 Top OUTPERFORM pick as we reiterateour OUTPERFORM with an unchanged TP of RM2.82, based on GGM (8.2% required rateof return, 2.5% terminal growth and FY12E NDPU of 16.1sen). Overall, weare  not worried about the office andindustrial segment as occupancy levels of AXREIT are at 97.2% due to themanagement's capability to secure and retain quality tenants even with the weakeroffice segment. We expect RM300m worth of properties acquisitions in FY12E,thus swelling the portfolio size to RM1.5b (23% increase) by year end assumingpossible finance by placement of 90.8m new units (RM221m new funds) and gearingof slightly less than 0.35x. Assuming all acquisitions are yield accretive, wereckon FY12E GDPU (after dilution) can increase by 5% (+0.3ppt) to 18.8sen(7.0% yield). If so, our TP will increase to RM2.94 from current RM2.82. Goingforward, AXREIT is also looking to realize its asset enhancement initiative viaproperty trading,  without significantlyaffecting income whilst rewarding unitholders with special dividends. Wemaintain our FY12-13E realised net income of RM81.2m-RM85.8m, which impliescorresponding GDPU of 17.9-19.0sen (6.6%-6.3%), which fits our 2Q12 strategy of'flight to safety'.

Not worried about theoffice/industrial segment, albeit weaker office segment dynamics with highincoming supply in the Klang Valley. AXREIT's good reputation providescomparative advantage with the ability of securing and retaining qualitytenants, like Konsortium Logistik Bhd and Tesco Stores (M) Bhd. Industrialportions of the portfolio are not a concern given the longer term leases andtenants in economic resilient businesses (e.g. logistics). We strongly believethe group will be able to maintain portfolio rates at current levels of 97.2%.Also, the weaker  office market provides plentyof bargain acquisition opportunities, particularly when AXREIT is trading atpremium NAV of 1.3x. 

Expect portfolio sizeto grow by 23% to RM1.5b by year end. AXREIT has a ready acquisitionpipeline of RM0.5b over the next two years, including the recently completedacquisitions of Logistic Warehouse @ Bayan Lepas (RM48.5m) and another one inPrai (RM59.0m). Including these two acquisitions, we believe the group canacquire up to a total of RM300m worth of properties in FY12, assuming placementof 90.8m new units (RM221m new funds) and gearing of slightly less than 0.35x.If all acquisitions are yield accretive, we reckon FY12E GDPU (after dilution)can increase by 5% (+0.3ppt) to 18.8sen (7.0% yield). If so, our  TP will increase to RM2.94 from currentRM2.82. 

Increasing NAV willpush valuations higher. BV/share will increase by 3% to RM2.14 postplacement and assuming peak valuations of 1.35x Fwd PBV, this implies a fairvaluation of RM2.89. The recent and potential listing of Pavilion REIT and IGBCorporation retail REIT, respectively, will lend strength to its overall M-REITvaluations, buoying AXREIT share price as it tends to command a more than10%-20% premium to M-REIT valuations. 

Ripe for a propertytrading portfolio. Axis REIT will be looking to realize its assetenhancement initiatives via disposals as some assets are at optimal levels. Thesheer number of properties enables the group to trade properties without havingoverly significant impact on its income. One can expect
special dividends on gains on disposal. We reckon the stockwill continue rerating itself because of its unique value proposition, whichother M-REITs may not be able to offer in the short to medium term. For now, wemaintain our FY12-13E realised net income of RM81.2m-RM85.8m, which implies correspondingGDPU of 17.9-19.0sen (6.6%-6.3%).

Source: Kenanga

AMWAY (M) Holdings - 2Q12 Top Buy - 29 Mar 12

Stock Name: AMWAY
Research House: KENANGAPrice Call: BUYTarget Price: 10.94

AMWAY (M) is our top pick for 2Q12 for the consumerretailsector with an OUTPERFORM recommendation at a TP of RM10.94. AMWAY has been a consistently profitable company, withits sales having grown at a CAGR of 6.8% since the last ten years and its netprofit at a CAGR of 5.6%. In effect, AMWAY's bottom line has grown 11.5% perannum on average since 2009 and we expect it to continue to rise to 11.1% thisyear and a smaller 6.5% in FY13. The drivers would be the number ofdistributors growth rate (5.1% and 5.0% forecast in FY12 and FY13) and acontinued rise in its revenue per distributor driven by the rise in privatespending (our in-house economist is projecting a 6.8% rise in private spendingfor both FY12 and FY13). 

We believe AMWAY deserves a fair value of RM10.94, based on18x PER on its FY12 EPS of RM0.608 (a slight premium with the average MLM andnon-MLM retail related stocks and the current average FBMKLCI PER  of 16.0x). This premium we believe iswarranted due to the company's strong track record in growing its sales consistentlyand the resiliency of its business profitability. More importantly, thisoutperformance is set to continue, in our view. Our current fair value offers atotal upside of 19.4% for the stock (capital upside of 12.7% and dividend yieldof 6.7%), which is much higher than that of our projected FBMKLCI's 1 yearforward estimated total return of 6.3%. Our conviction is hence quite clear 'Buy AMWAY up to RM10.94 at market.

Estimated 11% marketshare. The company is one of the largest MLMbased companies in Malaysiawith an estimated market share of 11% locally and its sales products arepredominantly sourced from US, ranging from segments such as nutrition &wellness, skin care & cosmetics, personal care, home care and home tech. Consistentperformer. In addition, AMWAY has been a consistent performer in terms of itsshare price performance on Bursa Malaysia, where the stock recorded an averagetotal return of 8% p.a. among the top four performers on the local exchange inthe last 8 years.      

Clean balance sheet.AMWAY also has a clean balance sheet filled with cash (net cash of RM123m) andthe company's ROE and ROA of 44.6% and 28.7% are the highest among its peers. 

A potential gooddividend paymaster.  Amway Malaysiahas never incurred any borrowings since its listing. With low capex andadvertising cost, the company is able to grow its cash pile, which in turn isused by the company to principally reward its shareholders handsomely viadividends.  

Immediate plans goingforward.  Amway plans to introduce 9new products going forward of which 6 are from its beauty line, which generallymakes up around 50% of the company's sales. The group also intends to sourcemore products for the Malay market, which currently contributes only 20% of thegroup's sales. Other than that, the group is also looking at converting more ofits RDCs into 'AMWAY shops,' with two being converted last year while another3-4 more conversions are expected this year. We are positive on thesestrategies, which should further improve the company's earnings growthboth  for the short and long term.

Source: Kenanga

Gamuda - Lacking near-term contract surprises HOLD

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: AMMBPrice Call: HOLDTarget Price: 3.79

- Maintain HOLD on Gamuda with our fair value tweaked slightlyupwards by 2% to RM3.79/share on an unchanged 5% discount to its revisedSum-Of-Parts (SOP) value, following better-than-expected 1HFY12 earnings.

- For the 1HFY12 reporting period, Gamuda reported a net profitof RM269mil on total turnover of RM1.4bil. Its results constituted circa 57% ofour previous full-year forecast, and 54% of consensus estimates.  

- The positive variance came from: (i) higher-than-expected constructionmargins which doubled to 12.4% in 1HFY12; (ii) higher-than-expectedcontributions from the water & expressways division and (iii)lower-than-expected effective tax rates (21% vs our previous forecast of 25%).

- Construction earnings jumped 89% YoY, as physical progressat the Ipoh-Padang Besar electrified double tracking project has reached 77%.Construction margins doubled to 12.4% against 6.2% in 1HFY11. 

- Gamuda's outstanding orderbook stands at ~RM5.8bil with theinclusion of the RM8.2bil tunnelling contract for the Sg.Buloh-Kajang (SBK) MRTline (Gamuda's 50% share:RM4.1bil). If the Project Delivery Partner (PDP) role awardedto the MMC-Gamuda JV is to be included, its orderbook would expand close to arecord RM12bil.

- Property pre-sales also doubled to RM870mil from a year ago.The encouraging response at Gamuda City (Hanoi: pre-sales: >RM120mil) wasmitigated by a sluggish debut for Celadon City (Ho Chi Minh City) despite thelatter booking in gains from the sale of land to AEON during the quarter.Unbilled sales stood at ~RM1.3bil.

- The MMC-Gamuda JV is awaiting a formal award from MRT Cofor the SBK tunnelling job ' real physical works should kick-off by March 2013.85% of the 90 works packages under this new line should be awarded by October2012.    

- We have raised FY12F-14F net profit forecast by 5%-6%. But,our HOLD call on Gamuda remains as the SBK MRT line project wins have largelybeen crystallized, with only the actual award of the tunnelling job pending. Wedo not expect a tangible decision on another two new MRT lines to materialiseanytime soon.
- The RM8bil Gemas-JB double tracking project appears to bethe only other near-term catalyst ' where the GamudaChina Railway ConstructionCo is reportedly among three consortiums being considered for the job.

- The water consolidation process in Selangor is still frustratinglyslow ' with no resolution in sight for now. SPLASH' receivables are growing~RM50mil every quarter

IGB Corporation - MidValley City the sequel in Johor Bahru BUY

Stock Name: IGB
Research House: AMMBPrice Call: BUYTarget Price: 3.50

- IGB and Selia Pantai ' developer of SouthKey ' yesterday signeda conditional MoU to establish a 70:30 jointventure to co-develop 3 parcels ofleasehold land measuring 36acres within the SouthKey development. This is not asurprise given that IGB has indicated it has been looking for pockets of landin Johor for development.

- Selia Pantai is a public-private partnership between SeliaGroup and the Johor State Government via its arm, Kumpulan Prasarana RakyatJohor (KPRJ).

- The JV intends to co-develop a megamall and possibly othercommercial/residential properties including hotel, serviced apartments andoffices. We note that the megamall would have an NLA of circa 1.5mil sf 'almost as big as MidValley MegaMall -with close to 7,000 parking bays. 

- To recap, SouthKey is a mixed commercial development spanningover 300 acres within Permas Jaya which enjoys frontage of Jalan Tebrau, JalanBakar Batu as well as the recently-completed Eastern Dispersal Link. It is locatedjust five minutes away from Sultan Iskandar Customs, Immigration and Quarantine(CIQ) complex.

- We view this positively because:- (1) we believe the mall wouldbe a success given the area's sizeable catchment population of more than120,000 and the lack of quality malls within it. 

- At present, the total NLA in Johor Bahru is estimated to beat 11.6 million sf with an average occupancy rate in excess of 80%.  In the pipeline includes a lifestyle mall (GFA:1mil sf) by Iskandar Investment Bhd located at Medini North and theredevelopment of Komtar retail mall (GFA: 0.4mil sf) in Johor Bahru CBD.

- (2) IGB is rebuilding its retail mall portfolio whichwould provide a new stream of income and is very much in-line with its businessmodel of developing and growing investment properties. 

- We estimate the mall would provide an additional NOI of RM50mil(or accounts for 14% of our NOI estimate for FY12F) p.a to IGB, assuming an NLAof 1.5mil sf, a conservative rental rate of RM5psf and occupancy rate of 70%.Plus assuming a 7% cap rate the mall would provide a decent 5% uplift to ourNAV estimate.

- We continue to like IGB Corp because the group is lookingat crystallising the deep value of its retail malls in Mid-Valley City 'triggered by high implied capital values. The group would likely to follow upwith an office  and hospitality REITsubsequently. Our fair value is maintained at RM3.50/share.

HwangDBS Research Highlights (GAMUDA, MHB) - 29 March 2012

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: HWANGDBSPrice Call: BUYTarget Price: 4.95

Stock Name: MHB
Research House: HWANGDBSPrice Call: SELLTarget Price: 4.75

Gamuda; Buy; RM3.59
Price Target: RM4.95; GAM MK
Stellar quarter, record year ahead

2Q trump expectations, 2H will be stronger. Raising earnings, election risk overblown. High conviction BUY, TP RM4.95.

Malaysia Marine & Heavy Engineering; Fully Valued; RM5.44
Price Target: RM4.75; MMHE MK
Slow orderbook replenishment
Pasir Gudang yard running at full utilisation. Lacks near-term catalyst; will focus on project execution. Maintain Fully Valued rating and RM4.75 TP.

UMW - Targeting 15% market share

Stock Name: UMW
Research House: HWANGDBSPrice Call: HOLDTarget Price: 7.30

UMW Holdings; Hold; RM7.26
Price Target: RM7.30; UMWH MK

According to a local media, UMW Toyota Motor is maintaining its sales target of 93k units (with 6k units of hybrid cars) of Toyota and Lexus cars this year, aiming to capture about 15% of Malaysian Automotive Association's (MAA) 2012 TIV target of 615k units this year. The comments were made during the launching of its new Lexus model ' Lexus GS ' which is expected to sell around 150 units this year. The Lexus GS is available in 5 variants with price tags ranging from RM366,200 to RM464,800.

UMW's sales target for Toyota is within our FY12F expectation of 93.7k unit sales, which are projected to contribute RM10.3bn (or 78.0%) to UMW's FY12F revenue of RM13.2bn. Toyota and Lexus have cummulatively sold 87,895 units in 2011, which was a drop of 4.4% y-o-y due to auto parts supply disruption from the natural disasters in Japan and Thailand.

Maintain Hold and RM7.30 TP (based on sum-of-parts valuations).

Source: HwangDBS Research - 29 March 2012

GAMUDA (BUY) - 2Q lifted by land sale

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: HLGPrice Call: BUYTarget Price: 4.41

2Q lifted by land sale
  • Reported 2HFY11 PATAMI grew by 47% to RM268.8m (13 sen/share). However,after adjusting for a one-off gain of ~RM18m from land sales to AEON, coreearnings grew by 37% to RM250.8m (12.1 sen/share), meeting both ours andconsensus estimates respectively.
  • QoQ, core earnings actually dipped due to lower property contributionand fluctuation in contributions from Gamuda Water and SMART. However, in termsof YoY, quarterly earnings grew by 26%, driven by margins expansion for theEDTP project and property activities in Bandar Botanic and Horizon Hills.
  • Gamuda has ~RM5.8bn order book, translating to 3.1x FY11's constructionrevenue and unbilled sales to RM1.3bn, translating to 1.8x FY11's propertyrevenue.
  • Maintain BUY with TP of RM4.41.
Source: HLIB Research - 29 March 2012

Gamuda - Not the end of the MRT story

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: CIMBPrice Call: BUYTarget Price: 4.55

Target RM4.55

Gamuda's market-beating 1HFY7/11 results were driven by unexpectedly high margins, which should be sustainable with the help of MRT underground works. We continue to believe that it may clinch the PDP and contractor roles for MRT 2 & 3. Annualised 1H core net profit was in line at 1% above our forecast but 14% ahead of consensus. EPS forecasts and target price (10% RNAV discount) are raised for a stronger 2H. Still a Trading Buy and one of our top sector picks. These strong results and project awards are key catalysts.

Gamuda: Maintain Buy - Another good quarter

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: MAYBANKPrice Call: BUYTarget Price: 4.10

Met our expectation. RM269m 1HFY12 net profit (+47% YoY), which included a partial gain from the sale of land in Celadon City, was 50% of our full-year forecast. The results however exceeded market expectation at 55% of consensus' FY12 forecast. 2H earnings are likely to be stronger HoH; we retain our FY12 forecast for now, which implies a 27% growth. There is also no change to our RM4.10 RNAV-based TP and Buy call. The stock offers value at 14% upside to our target and 12.4x FY12 earnings. The sale of LITRAK could be the next catalyst.

Maybank Research - 29 March 2012

Click here for full report

CENTURY (FV RM1.94 - NEUTRAL) Corporate News Flash: Looking for More Warehouses

Stock Name: CENTURY
Research House: OSKPrice Call: HOLDTarget Price: 1.94

Century Logistics (CLH) entered into a Sale & PurchaseAgreement (S&P) with Nakamichi SB yesterday to  buy  apiece of leasehold land in Klang, consisting of  a double-storey factory andoffice buildings for a total sum of RM19m.

Hungry for morewarehouses. We are not surprised with this acquisition since  CLH has been looking for warehouses  in  strategic locations  in its efforts  to expand its warehousing and contractlogistics business. As the group's present 7 warehouses with total capacity of840k sq ft space is 96% full, we think the price of this newly-purchased pieceof  26.93 sq ft  leasehold land (expiring in 30 June2105)  ' which  comes with a double-storey factory and officebuildings  - is fair and reasonable as itwill enable the group to take its contract logistics business a step further.With a strong clientele base comprising names like Celcom and F&N, we thinkthe group's contract logistics business should continue to see robust growth,which we  expect would chalk up a healthyy-o-y 8% growth in FY12.

No change inforecast;  CAPEX well within projections.As the acquisition is well within our CAPEX projection, we are maintaining ourforecast at this juncture. While we believe that CLH's contract logisticsbusiness will cruise through without a hitch, we are still  only cautiously optimistic on the group's core Oil & Gas logistics'  segment, which experienced an interruption in bunker fuel services in 4QFY11.During that quarter, CLH was asked by the Ministry of Transport's MarineDepartment to suspend the services of four out of eight of its floating andstorage units (FSUs) in Pasir Gudang from Sept-Nov 2011 due to  works on the RM5bn deepwater terminal by Dialog Group (BUY, FV RM3.07) inPengerang, Johor. As a result, the group's 4Q earnings slid 29% during the quarter.  Meanwhile, management  has guided that two of its FSUs have resumed operation in new locations,and  that it is also finalizing the strategic areas for  the remaining 2 FSUs. As such, we believe thegroup's 1QFY12 results would still bear the impact of weaker  performance in this division.  That said, we maintain our NUETRAL stance fornow, with an unchanged FV of RM1.94, based on 6x FY12 EPS.

Source: OSK188

Gamuda (GAM MK, BUY, FV: RM4.57, Last Price: RM3.59)

Stock Name: GAMUDA
Company Name: GAMUDA BHD
Research House: OSKPrice Call: BUYTarget Price: 4.57

Gamuda's 1HFY12 earnings of RM268.8m (+47.2% y-o-y) were inline with both our and consensus forecasts, making up 51.5% and 54.5% of therespective full-year estimates. Overall, we are encouraged by the progress inits execution of the KV MRT project after jointly clinching the tunnellingportion of the SBK line with MMC. We are now looking forward to more news onthe Gemas-Johor Bahru EDT in 3Q12 worth an estimated RM8bn. Maintain BUY, withour SOP-based FV unchanged at RM4.57.

On a roll.  Gamuda's 1HFY12 revenue  came in at a sturdy  RM1.41bn (+13.7% y-o-y) driven by itsproperty division, which saw revenue soar 68.6% during the period to RM520.9m. The group's core earnings surged bya stronger 47.2% to RM268.8m owing to margin expansion in its construction andproperty divisions, both of which witnessed a 620bps improvement in PBTmargins. We  attribute these improvementsto the recognition of better margins for its Electrified Double Tracking (EDT)project as it had been rather conservative for FY09-FY10, as well as sales of higher-end  property developmentslast year. On a quarterly basis, the 2QFY12 numbers improved markedly acrossthe board on a y-o-y and q-o-q comparison.

What's new on theMRT.  Management  said that 27 works packages  for  the Klang Valley My Rapid Transit (KV MRT) Sungai Buloh-Kajang (SBK) linehave been awardedout, while tenders and awards for the remaining 63 packagesare expected to be mostly completed by 4Q12. We understand that works on thetunnelling portion could start as soon as 3Q12, and the Government is currentlynegotiating with landowners on vacating the affected sites. The target date forcompletion is July 2017. Ten tunnel boring machines, each worth some RM150m,will be deployed at 4 launch shafts in core areas such as Semantan, Maluri andCochrane. 

Recognizing works onelevated portion. More interestingly, management highlighted that allpackages for the elevated portion of the SBK line will be recognized in itsbooks in view of its joint appointment with MMC as the Project Delivery Partner(PDP) for this portion. To put it simply, Gamuda's revenue going forward wouldinclude all works relating to the elevated portion, plus the 6% management feeit is entitled to, while its operating expenses would  comprise payments  made to  the respective contractors for the works involved. While this would no doubtdistort its margins going forward, we are not overly concerned as long as  there is proper execution to ensure the timely completion of the SBK line, whichwill in turn ensure that Gamuda pockets its 50% share of the RM720m managementfee due. We are making no changes to our revenue and opex forecasts for now,pending more clarity on the accounting policies involved, as well as furtherassurance on the progress of implementation.

Source: OSK188