SUNWAY - Another good year ahead for Sunway

Stock Name: SUNWAY
Company Name: SUNWAY HOLDINGS BHD
Research House: ECMLIBRA

Sunway Holdings Bhd
(March 7, RM2.20)
Maintain buy at RM2.18 with target price of RM2.60: Sunway announced last Friday that it had on March 3, 2011, accepted the letter of award for a contract worth RM258 million from IDR Assets Sdn Bhd for the proposed construction and completion of package 4 ' facility construction for Legoland Malaysia Theme Park development in Iskandar Malaysia. The contract is targeted to be completed on June 2, 2012 with a construction period of 15 months.

This contract is Sunway's second contract secured in FY11. Year-to-date, the group has secured RM295 million order book replenishment which boosted outstanding construction order book to RM2.7 billion. No changes are required to our earnings estimate as this contract win falls within our annual order book replenishment of RM1.5 billion. As one of the local construction players with a strong brand name, we think the group is poised to benefit from the impending roll out of contracts in 2011 both from remnant 9MP projects as well as the much touted mass rapid transit (MRT) project. Furthermore, apart from the tunnelling portion, civil works for the MRT project will only be open to local contractors. The completion of the merger exercise with sister company Sunway City Bhd (SunCity) by 1HFY11 could also assist the group in participating in larger scale projects. Total construction tender book remains at about RM16 billion, including highway projects in India and Phase 2 of the Arzanah development in Abu Dhabi.

Sunway is our top buy for the construction sector. This is premised on (1) strong earnings growth of 17.8% for FY11; (2) undemanding forward P/E valuation of 7.1 times; (3) more landbank acquisition in the pipeline; and (4) strength in securing overseas construction contracts. Although our RNAV estimate stands at RM3.45, our target price is adjusted to reflect the offer price of RM2.60 in the proposed merger with SunCity. ' ECM Libra Research, March 7


This article appeared in The Edge Financial Daily, March 8, 2011.

PCHEM - Petrochemical sector re-rating imminent

Stock Name: PCHEM
Company Name: PETRONAS CHEMICALS GROUP BHD
Research House: MAYBANK

Petronas Chemicals Group Bhd
(March 4, RM6.33)
Maintain buy at RM6.29 with revised target price of RM8 (from RM6.70): We believe the fundamentals for the petrochemical industry have never been better, buoyed by recovery in demand, strong product margins and an increasing price divergence between natural products and synthetic alternatives.

Furthermore, high oil prices are beneficial as Petronas Chemicals' products generally track oil price increases. We raise our target price to RM8.00 (from RM6.70) based on 14.4 times 2011 ' which is the long-term industry mean price-earnings ratio.

The historical depiction of a super-cycle is when demand exceeds supply. This time however, the cycle will be driven by sustained strong demand from the emerging markets. Supply, however, will be prone to sporadic shortages due to feedstock scarcity and civil unrest at production facilities in the Middle East and North Africa. The rising oil price helps underpin higher petrochemical prices as they generally track each other with a 91% correlation factor.

Prices of many resource-based commodities have come close to or touched all-time highs.

The price-ratio relationship between natural commodities and synthetic alternatives has been diverging in favour of synthetics ' synthetics are getting cheaper. This will cause a fundamental shift in demand for synthetic products as consumers look to lower-cost alternatives.

We notice how the market is 'annualising' year-to-date figures to gauge full-year results. These figures are unreliable as the petrochemical industry is cyclical, and quarter-to-quarter earnings fluctuate widely due to price and volume instability. We believe 2011 numbers will be ahead of consensus.

We have re-tabulated our numbers to a December year-end (from March) as per a company announcement on March 2. We have upgraded our earnings by 14% for calendarised 2011, 7% for 2012 and 4% for 2013 to account for higher product margins, in line with the current market rates.

Petronas Chemicals will have two FYEs this year ' FY3/11 (12M, April 2010-March 2011), and FY12/11 (9M, April 2011-December 2011). ' Maybank IB Research, March 4


This article appeared in The Edge Financial Daily, March 7, 2011.

MAXIS - OSK keeps 'neutral' call on Maxis

Stock Name: MAXIS
Company Name: MAXIS BERHAD
Research House: OSK

OSK Research Sdn Bhd has maintained a "neutral" call on Maxis Bhd with an unchanged target price of RM5.20 as it lacks a share price catalyst with its recent dividend announcement being below expectations.

The assessment is also based on a weighted average cost of capital of nine per cent and terminal growth of 1.5 per cent, OSK said in reference to a report on Maxis being in the final leg of negotiations with Kuwait''s Baraka Telecom (Baraka), on a three-year Mobile Virtual Network Operator (MVNO).

"We see the impact from the potential tie-up as being negligible for Maxis given the niche focus of Baraka, whose target markets are Islamic mobile and data services, OSK said in a research note today.

Maxis' share price was down six sen to RM5.47 as at 12.30 pm.
Baraka, a unit of Reach Telecom Holding KSCC of Kuwait, plans to provide shariah-compliant telecommunications services in Malaysia.

OSK said the parties behind Baraka want to consider more options, including a revisit of its business model, in light of the extremely competitive mobile landscape in Malaysia and the challenges faced by MVNOs.

The decision to go along with Maxis is likely to have been encouraged by the close ties between the shareholders of Baraka and Saudi Telecom, a major shareholder of Maxis, OSK said. -- Bernama

SUNWAY - OSK Research maintains Buy on Sunway Holdings

Stock Name: SUNWAY
Company Name: SUNWAY HOLDINGS BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining a Buy on SUNWAY HOLDINGS BHD [] after it won a RM258m job for the CONSTRUCTION [] of the Legoland Theme Park (Package 4) in Iskandar, Johor. The project is scheduled for completion in June 2012.

The research house said on Monday, March 7 it was not surprised that Sunway won the job as it had been consistently highlighting this possibility since it'' initiated coverage on the stock in May 2010.

OSK Research said Sunway has a track record with two other theme parks, namely Sunway Lagoon and Tambun Lost World. Including this recent award, Sunway has secured RM295.4m worth of jobs year-to-date.

'This compares with our assumption of RM1bn for FY11 and management's guidance for RM1bn to RM1.5bn. Other potential jobs are: (i) LRT Package B and subcontract for Package A, (ii) road networks in Sarawak under SCORE, and (iii) building-type jobs for the private sector,' it said.

The research house said as the company's job wins YTD are still within its replenishment target, it is keeping its estimates unchanged.

'Our TP continues to be based on the Sunway-SunCity merger price of RM2.60, which also implies 9.3x and 8.3x FY11-12 earnings. The EGM to vote on the merger is expected to be held sometime in April. If the proposal goes through, the merged entity should be listed in July-August,' it said.

FAJAR - RHB Research maintains Fajarbaru FV at RM1.37 and Outperform call

Stock Name: FAJAR
Company Name: FAJARBARU BUILDER GRP BHD
Research House: RHB

KUALA LUMPUR: RHB Research said on Monday, March 7 it is maintaining a fair value of RM1.37 and Outperform call on Fajarbaru Builder Group Bhd after it was appointed by Syarikat Prasarana Negara Bhd as the nominated sub-contractor for the light rail transit (LRT) extension projects.

Fajarbaru has been appointed to carry out the CONSTRUCTION [] of Stations 1 & 2 of Ampang LRT line extension project (Package A) valued at RM62.7m and Stations 1, 2 & 3 of Kelana Jaya LRT line extension project (Package A) valued at RM87.4m.

'These contracts have boosted Fajarbaru's YTD new contracts secured to RM249m and outstanding construction orderbook by 30% from RM496m to RM646m.'' Assuming an EBIT margin of 8%, the two contracts will fetch RM12m EBIT over the construction periods of 21 months.

'Forecasts maintained as we have assumed Fajarbaru secures RM250m worth of new jobs p.a. in FY11-12. Maintain fair value of RM1.37 and Outperform call,' RHB Research said.

AIRPORT - RHB Research maintains MAHB fair value at RM7.67

Stock Name: AIRPORT
Company Name: MALAYSIA AIRPORT HOLDINGS BHD
Research House: RHB

KUALA LUMPUR: RHB Research is maintaining the fair value of Malaysia Airports at RM7.67 based on 'sum-of-parts'.

It said on Monday, March 7 that based on news reports, the Sarawak government has offered AirAsia land to construct a low-cost carrier terminal adjacent to the existing Kuching International Airport.

' We are more inclined to view the move as nothing more than a pressure tactic against MAHB to compel it to reduce the passenger service charge (PSC) of RM51 in KIA currently vis-''-vis RM25 in KLIA-LCCT,' it said.

RHB Research said AirAsia recently also refused to move to the new terminal at Kota Kinabalu International Airport despite agreeing initially.

'Assuming the PSC at KIA and KKIA is reduced by 20% and 50% to RM25.5 and RM41, MAHB's FY12 net profit would be eroded by 1.4% and 2.3%. In FY10, we estimate KIA and KKIA contributed 6.8% and 8.5% of MAHB's total passenger traffic.'''' Fair value is RM7.67 based on 'sum-of-parts',' it said.

DRBHCOM - Buy DRB-Hicom shares: HwangDBS

Stock Name: DRBHCOM
Company Name: DRB-HICOM BHD
Research House: HWANGDBS

HawangDBS says that it was reported in the media that DRB-Hicom Bhd is poised to receive a letter of award to supply 257 units of armoured personnel carriers (APCs) worth up to RM7.5 billion from the government this week.

We reaffirm our 'buy' rating and target price (TP) of RM3.55 based on a 20 per cent discount to our SOP value.

HwangDBS thinks the recent selldown is overdone and offers a opportunity to accumulate ahead of this news flow.

The third quarter of 2011 result also shows the company is well on its way towards a record year. - Reuters

SUNWAY - OSK sees Sunway Holdings a 'buy'

Stock Name: SUNWAY
Company Name: SUNWAY HOLDINGS BHD
Research House: OSK

OSK says Sunway Holdings Bhd announced that it had won a RM258 million job for the construction of the Legoland Theme Park (Package 4) in Iskandar, Johor.

Including this recent award, Sunway has secured RM295.4 million worth of jobs year to date. Thus, OSK sees Sunway a buy with a target price if RM2.60.

This compares with its assumption of RM1billion for FY 2011 and management’s guidance for RM1-1.5 billion.

Other potential jobs are: the LRT Package B and subcontract for Package A, road networks in Sarawak under SCORE, and building-type jobs for the private sector. - Reuters

LIONIND - OSK keeps 'neutral' call on Lion Industries

Stock Name: LIONIND
Company Name: LION INDUSTRIES CORPORATION
Research House: OSK

OSK Research is maintaining a "Neutral" call on Lion Industries Corporation Bhd (LICB) but has downgraded its target price to RM1.57 per share from RM2.07 per share, previously.

It said the neutral stand and downgrade was in view of
LICB's weaker-than-expected first half financial year 2011 results.

"We see limited downside from here despite our caution on the investment risk posed by the proposed blast furnace project," OSK said in a research note today.

LICB entered into a conditional share subscription agreement with Lion Diversified Holdings Bhd and Lion Forest Industries Bhd for a proposed joint venture to invest 29 per cent, 51 per cent and 20 per cent stakes, respectively, in Lion Blast Furnace SB.

The estimated total cost of the blast furnace project is RM3.23 billion, in which the joint venture partners will subscribe for the agreed capital of RM970 million according to their respective stakes in the venture.

"The share price may potentially spring back in the event this proposed investment is shot down by shareholders at the upcoming EGM as this will help to substantially ease our concern," OSK added. -- Bernama

TGOFFS - AmResearch reaffirms Sell on Tanjung Offshore

Stock Name: TGOFFS
Company Name: TANJUNG OFFSHORE BHD
Research House: AMMB

KUALA LUMPUR: AmResearch has reaffirmed its SELL rating on TANJUNG OFFSHORE BHD [] with an unchanged fair value of RM1.33 per share ' pegging fully diluted FY11F PE to 16 times.

Tanjung Offshore was reprimanded by Bursa Malaysia due to a 37% deviation in the reported net profit for FY09.'' Its earnings were RM3 million versus RM4.9 million initially reported during the release of 4QFY09 numbers.

The large deviation could be due to the over recognition of earnings which were related mostly to the insurance claims made by its associate company, Cendor Mopu Producer Ltd, and post acquisition profit in respect of its subsidiaries.

'We gather it was initially recommended by its auditors for the items to be included in FY09 earnings although somehow after an audit review, these items were not deemed to be appropriate for recognition in FY09. While it does not look good on the company, we view this as a one-off event.

'However, looking forward, while the oil and gas sector is very much positive given the expected strong pick-up in E&P works, we are not too positive about Tanjung Offshore,' it said.

AmResearch said while valuation is demanding ' currently trading at FY11F PE of 17 times, it was also cautious about the company's execution.

'Elsewhere, while it makes sense for Tanjung to bid for the right to develop the marginal fields'' ' it supplies MOPU and engineering equipments ' Tanjung's balance sheet is quite highly-leveraged with a current net gearing of 1.4 times,' it said.