GAB - World Cup 2010 to give Guinness Anchor a lift, says OSK Research

Stock Name: GAB
Company Name: GUINNESS ANCHOR BHD
Research House: OSK

KUALA LUMPUR: OSK Investment Research has maintained its buy call on GUINNESS ANCHOR BHD [] (GAB) at RM6.91 with target price RM7.35, and said the company's earnings were within expectations, with the bottom line figures to date accounting for 76.5% and 78.3% of OSK Research's and consensus estimates.

Moving into 4Q10 (April-June), it said sales would remain firm on intensified promotion activities in view of the 2010 World Cup Soccer season.

Since the Malaysian brewery industry rides on seasonal and event factors, the World Cup has been a positive factor for the industry every four years, it said.

The research house expects GAB to see robust numbers in the next quarter, although strong competition from its closest competitor means the risk of downside to earnings will persist.

"We see the stronger earnings on the 2010 World Cup soccer season lifting earnings in 4Q and meeting our earnings forecast.

"As we are making no changes to our earnings estimates or valuation parameters, we maintain our discounted cash flow-derived target price for GAB at RM7.35, with our buy recommendation intact," it said.

SUNCITY - Suncity jumps after ECM Libra ups target price

Stock Name: SUNCITY
Company Name: SUNWAY CITY BHD
Research House: ECMLIBRA

KUALA LUMPUR: SUNWAY CITY BHD [] rose in morning trade Monday, May 10 after ECM Libra Investment Research maintained its buy call and raised its target price for the stock to RM5 (from RM4.33 previously).

The research house said Suncity was one of its top picks for the sector.

"At current market capitalisation, investors are not only paying 21% discount for the net cash proceeds and 38.25% in Sunway REIT valued at RM2.2 billion but also get all its property development landbank for free.

"We raise our target price from RM4.33 to RM5 based on 14 times P/E which is one standard deviation higher than average forward P/E of 9.9 times," it said.

ECM Libra said this was justified given the 18.7% EPS CAGR over next three years, unlocking hidden value in investment PROPERTIES [] and potential upside from further expansion.

KNM - KNM's valuation 'attractive', a 'buy'

Stock Name: KNM
Company Name: KNM GROUP BHD
Research House: MAYBANK

KNM Group Bhd, a Malaysian oil and gas services provider, was upgraded at Maybank Investment Bank Bhd because the stock's valuation is "attractive" and its operations are improving.

The company's rating was raised to "buy" from "sell," Maybank Investment said in a report today.

Its share price estimate was unchanged at 68 sen. -- Bloomberg

MISC - Calmer seas ahead for MISC?

Stock Name: MISC
Company Name: MISC BHD
Research House: OSK

MISC Bhd
(May 7, RM8.85)
Maintain trading buy at RM8.82 with target price of RM10: MISC's FY10 results fell short of market expectations due to the still-heavy losses in liner and chemical shipping plus higher corporate taxes in 4Q. However, we remain excited over its recent cash call, which suggests a potential acquisition, in addition to a sentiment boost from MMHE's proposed listing. We expect a sharp upswing in its shipping business in FY11, particularly the liner business, and are thus keeping our original estimates and trading buy call. The RM10 fair value implies a valuation of 1.9 times book value and 27 times price-earnings ratio (PER) on FY11 numbers.

Excluding the disposal gain on ships, MISC's 4QFY10 core profit before tax (PBT) of RM279.1 million surged 45.6% quarter-on-quarter (q-o-q). Although this was encouraging, the FY10 core net profit of RM703.3 million was 20% and 27% short of our and market expectations respectively. The poor showing can be attributed to the still-heavy losses in liner and chemical shipping, while the petroleum shipping side posted a minor loss in 4Q.

Also, we suspect the higher corporate tax of RM52.5 million during the quarter was partly due to higher PBT contribution from MMHE.

While the bulk of the group's energy-related business is derived from long-term charters for liquefied natural gas (LNG) carriage that contribute consistent earnings, 4Q was a challenging quarter for the energy shipping division. The loss in chemical shipping widened to US$19.6 million (RM64.29 million) while petroleum shipping slipped into the red with a US$2.8 million loss in 4Q.

Lower spot cargo volume, escalating bunker costs and additional security arrangement fees also led to losses in the petroleum and chemical division. High expectations of the liner division mitigating the substantial loss did not materialise as it still incurred a huge loss of US$81.3 million.

Although the group pulled out of the loss-making Grand Alliance from Jan 1, 2010, the progressive return of chartered-in vessels was only completed at end-4Q. With the shipping industry seemingly bottoming, we see a sharp turnaround for MISC's businesses, especially the liner division, backed by good prospects for its Halal Express Services and much lower chartered-in cost.

MMHE's contribution surged in 4Q on higher revenue recognition. Apart from that, the offshore division also recorded a 31.7% improvement q-o-q but we think this was purely due to a one-off reversal in 3Q.

Despite the small disappointment in FY10 earnings, we are still excited over a potential M&A in the group, taking the cue from its recent cash call. The financial crisis resulted in many shippers needing to be bailed out, which opens up many acquisition opportunities. Also, the proposed listing of MMHE may give rise to positive market sentiment although we see little value creation. Therefore, we reiterate our trading buy call with our target price unchanged at RM10. - OSK Research, May 7


This article appeared in The Edge Financial Daily, May 10, 2010.

MEDIA - Stay tuned to Media Prima

Stock Name: MEDIA
Company Name: MEDIA PRIMA BHD
Research House: ECMLIBRA

Media Prima Bhd
(May 7, RM2.14)
Maintain buy at RM2.14 with higher target price of RM2.68: Media Prima Bhd (MP) is due to release its 1QFY10 results on May 18. We understand that MP will record 1Q net profit of circa RM20 million. This is a marked improvement from the 1QFY09 core net loss of RM9.9 million. Not only did 1Q TV advertising expenditure (adex) grow by double digits year-on-year, it grew by high single digits vis-à-vis a robust 1QFY08 (buoyed by the 12th general election then). The New Straits Times Press (NSTP) will also commence contributing to earnings in 1QFY10. We estimate that NSTP contributed circa RM10 million to MP's net profit in 1QFY10.

In tandem with healthy consumer sentiment (two-year high) driven by the recovering economy, total adex sentiment and growth have improved markedly. We understand that TV booking cycles have improved from two weeks to slightly over a month. Recall that TV booking cycles were approximately three months during the "heady" 2007 to 1H08 period. Therefore, despite potentially posting good 1Q10 results, there is a lot of room for improvement at MP.

We now assume 7.5% TV adex growth or 1.5 times real GDP growth for FY10 and 5% TV adex growth or one time real GDP growth thereafter (6% TV adex growth per annum previously). This is moderated by lower daily circulation of Berita Harian and New Straits Times as per the recent Audit Bureau Of Circulation 2009 Audit Report. The net impact is to leave our FY10 earnings estimates relatively unchanged but our FY11 and FY12 earnings estimates trimmed by 11% and 13% respectively.

We now ascribe a one-year forward PE of 18 times (average since listing in October 2003) to arrive at a revised target price of RM2.68 (RM2.17 previously on 13 times one-year forward PE).

Recall that MP was trading at 17 times to 21 times one-year forward PE during the 2007 to 1H08 period. Now that consumer and thus, adex sentiment has recovered to the levels witnessed during that period, we believe that MP should trade at those valuations.

Anyhow, as earnings are on the mend, MP should be trading close to historical average valuations anyway. We maintain our buy call on MP. It remains our top pick in the media sector for 25% upside potential. We will upgrade our estimates and target price should adex grow stronger than expected. - ECM Libra Investment Research, May 7


This article appeared in The Edge Financial Daily, May 10, 2010.

F&N - F&N's 1H results are pure enjoyment

Stock Name: F&N
Company Name: FRASER & NEAVE HOLDINGS BHD
Research House: MAYBANK

Fraser & Neave Holdings Bhd
(May 7, RM10.74)
Maintain buy at RM10.72 with target price of RM13.25: F&N thrashed consensus expectations in recording solid growth in all three core F&B divisions. Despite this, its CEO Tan Ang Meng is retiring early even as F&N readies for life after Coca-Cola in 18 months' time. We remain believers in F&N and though we are placing our forecasts under review pending an analysts' briefing last Friday, we maintain our buy call and RM13.25 target price.

RM85 million 2QFY10 net profit (+60% year-on-year; +10% quarter-on-quarter) was significantly beyond our and consensus expectations, coming in at 32.6% of our and 31.2% of market forecasts. This brought 1HFY10 recurring net profit to a record high RM163 million (+46% y-o-y) or 62.3% and 59.7% of our and consensus full-year forecasts.

Revenue from the soft drinks and glass divisions grew 19% and 14% y-o-y respectively as F&N posted RM1 billion in revenue (+10% y-o-y). In recurring operating profit terms, the dairies and soft drinks divisions were the stand-outs, growing by 31% and 18% as F&N benefited from higher festive sales volumes and lower raw material prices respectively to post a group-level 21% y-o-y growth to RM110 million in 2QFY10. Dairies further contributed to the outstanding 2QFY10 performance as its plant investment in Thailand lowered F&N's 2QFY10 effective tax rate to 19.4% (-4.1 percentage points y-o-y).

F&N declared interim dividends of 18 sen per share gross (less 25% tax) and three sen tax-exempt. This was 69% of 2QFY10's net profit and puts F&N on track to pay out at least 58.7 sen per share (gross) for the full year or another 27.5 sen per share in net dividends. F&N is thus maintaining its payout of at least 60% of net earnings annually in spite of its stellar growth.

We continue to like F&N for its ability to translate business growth in both soft drinks and dairies domestically and overseas into consistently strong earnings and dividend growth at group level. Our RM13.25 target price is based on 17 times CY11 PER, which is the high end of its average trading valuations over the last three years. - Maybank IB, May 7


This article appeared in The Edge Financial Daily, May 10, 2010.

CIMB - OSK Research raises target price for CIMB to RM15.75

Stock Name: CIMB
Company Name: CIMB GROUP HOLDINGS BERHAD
Research House: OSK

KUALA LUMPUR: OSK Investment Research has maintained its buy call on CIMB Group Holdings Bhd at RM14.22 and raised its target price to RM15.75 (from RM14.90) and said the banking group was on track to hit its return on equity (ROE) targets due to a robust capital market and steady net interest margins.

It said CIMB's ROE targets of 18% to 20% versus OSK Research's 15.7% and consensus' 16.4% implied that the market may not have factored in any capital management upside.

"The stock currently trades at an undemanding 12.7 times FY11 PER and 1.9 times FY11 PBV.

"We have raised our fair value from RM14.90 to RM15.75 on rolling forward our Gordon growth derived valuations to FY11 based on 2.20 times FY11 PBV and an estimated ROE of 15.7%," it said.

F&N - MIDF Research raises F&N target price to RM12

Stock Name: F&N
Company Name: FRASER & NEAVE HOLDINGS BHD
Research House: MIDF

KUALA LUMPUR: MIDF Research has upgraded Fraser & Neave Holdings Bhd (F&N) to a buy with a higher target price of RM12 (from RM10.60) and said the company's 1HFY10 net profit grew 56.4% year-on-year to RM162.9 million, accounting for 69% and 60% of MIDF's and consensus full year numbers.

Excluding the RM10 million charges recognised in 2QFY09 due to the closure of glass plant in Petaling Jaya, MIDF estimated that the earnings growth was about +43% y-o-y.

The commendable results were mainly due to the higher soft drinks sales, better-than-expected overall profit margin and lower minority interest, it said.

"We are rolling over our valuation into FY11 numbers but with a lower implied PER of 14.5 times as compared with 16 times previously. As such, we are upgrading our call for F&N to buy with a higher target price of RM12 (previously RM10.60), based on 14.5 times FY11 EPS.

"We believe the downside is fairly limited, cushioned by the 5.1% net dividend yield," it said.

POS - Transmile not included in valuation of Pos Malaysia

Stock Name: POS
Company Name: POS MALAYSIA BHD
Research House: AMMB

Pos Malaysia Bhd
(May 6, RM2.62)
Maintain buy call at RM2.73 with unchanged target price of RM3.80: Transmile Group Bhd (Transmile) said during its annual general meeting briefing that it was in the midst of restructuring its default debts by end-May. This follows a notice of Default Outstanding Amount (DOA) for outstanding debt it owes to parties, which are holding unsecured medium-term notes (MTN) issued by Transmile.

Malaysian Trustees Bhd, representing the Employees Provident Fund, OSK Group, Agrobank, AmBank Group and Meridian Asset Management Sdn Bhd - which are claiming RM106.1 million due (owed as at March 24, 2010) - issued the notice of DOA. It provided a dateline of April 14, 2010 before proceeding to serve a winding-up petition. Todate, Transmile has yet to receive further notice; however it is believed that Malaysian Trustees has already appointed receivers - with strong likelihood of liquidation.

Apart from the DOA, Transmile has another RM450 million in outstanding borrowings involving 20 banks - all borrowings are unsecured and in default for 30 months.

We feel that any progress in debt restructuring hinges on the sale of Transmile's four MD-11 aircraft ­ - with RM386 million valuation at book value. Management provides that a sale in the range of US$40 million (RM130.4 million) to US$50 million for each of four aircraft would be fair. Currently the wide-body planes are parked in a desert area abroad - at an annual cost of US$500,000 per annum each.

Pos Malaysia Bhd (POSM) stands to only receive RM3.3 million if Transmile is liquidated.

Transmile's market value is worth only 2.6 sen per share to POSM currently, and as of a report dated April 4, 2010, we have ceased evaluating Transmile into our fair value for POSM.

We maintain our buy call on POSM with unchanged fair value of RM3.80 per share, based on 20% discount to our discounted-cash-flow estimates (weighted-average-cost-of-capital of 9.5% and terminal price-to-earnings ratio of 14 times). At current level, POSM presents an opportunity to own a 7% yielding stock (conservative 40% payout) - a dividend giant compared to the telecommunications sector, which only yields 5% to 6%. - AmResearch, May 6


This article appeared in The Edge Financial Daily, May 7, 2010.

SIME - Bakun casts shadow again over Sime

Stock Name: SIME
Company Name: SIME DARBY BHD
Research House: CIMB

Sime Darby Bhd
(May 6, RM8.58)
Downgrade to neutral at RM8.63, with target price of RM9.70: We had a trading buy call on Sime Darby because we believe in the group's plan to unlock value by improving fresh-fruit-bunches yields at its oil palm estates and becoming more aggressive in realising the value of its strategic landbank in Malaysia.

We have seen some evidence of improvement in these two areas. But these positives are likely to be overshadowed by the Bakun issues and uninspiring earnings outlook, at least in the short term.

Sime's 1.3% share price loss yesterday wiped RM781 million from its market cap which is more than the likely losses. But more importantly, this issue raises questions about transparency, execution and earnings momentum and leads us to believe there are insufficient catalysts for the stock to outperform in the short term.

To account for the risk of write-downs and our dented confidence in Sime Darby, we are now applying a 10% discount to our sum-of-parts value, which reduces our target price from RM10.82 to RM9.70. Although the stock's P/E valuation may be more attractive than its peers, it is offset by earnings downside risks.

According to the press, Sime Darby has incurred more than RM1 billion in cost overruns from carrying out a civil work contract for the Bakun hydroelectric project. One estimate puts the total cost overruns at RM1.7 billion, which is almost the same size as Sime Darby's actual Bakun contract of RM1.8 billion.

The cost overrun discovery is believed to be among the findings of the special taskforce that the group set up late last year to probe into losses in its energy and utilities division.

Sources said specialists from external accounting, legal and engineering firms were assisting the taskforce. It was reported that the government has agreed to reimburse around RM700 million to Sime Darby, leaving the group with around RM1 billion to deal with.

When contacted by reporters, Sime Darby did not deny or confirm this. To recap, Sime Engineering, a unit of Sime Darby, was awarded the civil works for the Bakun project in September 2002 for a fixed lump sum price of RM1.8 billion. - CIMB Research, May 6


This article appeared in The Edge Financial Daily, May 7, 2010.