PETGAS - OSK Research raises dividend forecast for Petgas to 70c

Stock Name: PETGAS
Company Name: PETRONAS GAS BHD
Research House: OSK

KUALA LUMPUR: OSK Investment Research maintained its buy call on Petronas Gas at RM9.88 with an unchanged discounted cash flow-based fair value of RM13.81 and said the company's FY10 results were within its and consensus forecasts despite a quarter-on-quarter (q-o-q) drop in profits given the rather conservative forecasts.

"As the q-o-q dip was due to the timing of its centralised utility facilities clients' maintenance activities as well as a one-off cost item at Gas Malaysia, we are largely maintaining our forecasts.

"We still see profits jumping by more than 37% year-on-year in FY11 on the new Gas Processing and Transmission Agreement terms and also raise our dividend forecast from 65 sen to 70 sen, or a 7.1% yield."

The research house said Petgas remains a good defensive buy given the current market volatility.

SUNWAY - Sunway is ECM's top construction pick

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

Sunway Holdings Bhd
(May 11, RM1.50)
Reiterate buy at RM1.49 with target price of RM2: Sunway had on May 6 entered into a memorandum of understanding (MoU) with XuanCheng municipal government for the purpose of developing an integrated city, consisting of an international-standard entertainment park, exhibition centre, hotels, shopping malls, offices and residential units on land to be acquired from XuanCheng municipal government.

XuanCheng is a prefecture-level city in southeastern Anhui province, China. It lies 260km to the west of Shanghai. Bordering the provinces of Jiangsu and Zhejiang, it covers an area of 12,340 sq km and has a population of 2.8 million.

The MoU sets out the intention and proposed collaboration between Sunway and the XuanCheng municipal government. Under the terms of the MoU, Sunway shall be the master developer and undertake a feasibility and market study on the proposed development. Sunway will also prepare a preliminary master plan within four months from the date of the MoU.

While details of the proposed venture are sketchy at this point in time, we are not bullish on this venture. In terms of economic development, Anhui province lags behind that of its neighbours, Jiangsu and Zhejiang. Furthermore, industrial activities in Anhui province are mainly concentrated in Maanshan and Wuhu, rather than XuanCheng.

We noted that gross domestic product (GDP) per capita of XuanCheng is RMB13,051 (RM6,134) as compared to Sunway's maiden property venture in Jiangyin, Jiangsu province which has GDP per capita of RMB91,538. Nevertheless, it is premature to jump into conclusion at this juncture as the proposed venture is still at the MoU stage.

Sunway is our top buy for the construction sector. This is premised on (1) strong earnings growth of 47.1% in FY10, (2) undemanding forward P/E (price-to-earnings) valuation of 7.5 times, (3) more landbank acquisition in the pipeline, and (4) strength in securing overseas construction contracts, in particular in Abu Dhabi and India.

Our target price is unchanged at RM2, which is derived from 10 times P/E on FY10 EPS (earnings per share). This is further supported by sum-of-parts (SOP) valuation of RM2.74. - ECM Libra Investment Research, May 11
This article appeared in The Edge Financial Daily, May 12, 2010.

GPACKET - OSK expects GPacket's Ebitda losses to halve

Stock Name: GPACKET
Company Name: GREEN PACKET BHD
Research House: OSK

Green Packet Bhd (GPacket)
(May 11, 93 sen)
Maintain buy at 94.5 sen with target price of RM1.30: GPacket will announce its 1QFY10 results tomorrow. We expect the WiMAX operator to kickstart the year on a high note with 1QFY10 revenue growth of over 14.5% quarter-on-quarter (q-o-q) on strong subs addition and stable ARPUs (average revenue per user). This would slash its earnings before interest, tax, depreciation and amortisation (Ebitda) losses by more than 49% q-o-q as subscriber acquisition cost (SAC) is expected to continue to trend down on manageable competition. Maintain buy.

The stock's rerating catalyst would be better earnings visibility over the next few quarters on sturdy net adds and as CPE (customer premise equipment) sales gain traction in tandem with mounting global WiMAX deployment.

We expect GPacket to kickstart 2010 on a high and unveil a good set of 1QFY10 numbers. We believe the strong top line in 4QFY09 spilled over to 1QFY10, translating into a +14.5% jump q-o-q, as the broadband net adds momentum snowballed, with more than 30,000 registered during the quarter in line with our expectations.

The encouraging more-than-20% year-on-year improvement in net adds is no coincidence as P1 repriced its W1GGY offerings in March and waived the RM60 registration fee for selected plans to get on par with its peers. Nonetheless, revenue is anticipated to come in below our expectation of 34.3% q-o-q growth. The underperformance could be attributed to the slow albeit recovering corporate voice wholesale and lower average selling prices for its modems. We are not overly concerned with the expected shortfall as the voice division, which typically commands Ebitda margin of 4%-5%, would pick up in tandem with Singapore's economic rebound.

On the flip side, operating costs are likely to be lower than our forecasts on decline in direct expenses whilst SAC is believed to have averaged RM350 per subscriber against our previous assumption of RM375/subscriber on lower modem costs. We expect SAC to ease progressively to RM300 towards end-FY10 after the introduction of WiMAX-equipped laptops in 2H10. Competition remains largely optimal within the WiMAX universe as our quick checks raise the possibility of further delays in Y-Max's launching. Meanwhile, CPE sales are expected to be on track to achieve our forecast of 900,000 units for FY10 as demand picks up ahead of more commercial rollouts in the region. All eyes will be on the upcoming broadband wireless access auction in India as Samsung is already in talks with local mobile operators to lobby for nationwide WiMAX implementation. As a whole, 1QFY10 Ebitda losses are likely to fall within RM31 million-RM32 million, in line with our forecast.

We reiterate our target price of RM1.30 based on eight times FY11 enterprise value/Ebitda. This translates into a lucrative upside of over 30% given the recent share price weakness. - OSK Research, May 11
This article appeared in The Edge Financial Daily, May 12, 2010.

SIME - RHB Research: Sime still an outperform

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

Sime Darby Bhd
(May 11, RM8.63)
Maintain outperform at RM8.60 with fair value of RM9.70: Sime Darby Motor Division Sdn Bhd has entered into a property sale agreement with Sapura Auto Sdn Bhd to acquire a 0.11-acre piece of freehold land on Jalan Tun Razak, Kuala Lumpur, together with the automobile showroom and related facilities for the provision of after-sales services for a cash consideration of RM49.05 million. The acquisition is to be completed by end-2010.

We are pleasantly surprised that this deal does not involve buying the company itself (which is loss-making) and only involves buying just the land and building. This means that Sime is not committed to buy any of Sapura's existing stock/inventory.

We believe this acquisition makes more sense for Sime, as it will be able to immediately utilise the existing showroom and the 4S centre for its BMW and MINI operations following the recent closure of its Bukit Bintang branch in December. Besides that, Sime would also have the opportunity to tap into Sapura's existing customer base, in line with its strategy of expanding in major cities like Kuala Lumpur.

Based on the market value of the property given by the valuer Henry Butcher of RM47 million, we would say this is a fair price to pay, given the prime location of the land.

Forecasts unchanged as this acquisition would only dent earnings by less than 2%. The risks to our view are: (1) the reversal in crude oil price trend resulting in a reversal of crude palm oil and other vegetable oils price trend; (2) weather abnormalities; (3) change in emphasis on implementing global biofuel mandates; and (4) slower-than-expected global economic recovery.

No change to our fair value of RM9.70 per share. Maintain outperform recommendation for Sime given its further potential upside from GLC reforms, additional merger synergies and yield improvements from its Indonesian plantations. - RHB Research Institute, May 11
This article appeared in The Edge Financial Daily, May 12, 2010.

LMCEMNT - 10MP likely catalyst for Lafarge

Stock Name: LMCEMNT
Company Name: LAFARGE MALAYAN CEMENT BHD
Research House: MAYBANK

Lafarge Malayan Cement Bhd
(May 11, RM6.53)
Maintain buy at RM6.68 with target price of RM7.40: Lafarge's share price fell 3% from its 12-month high in end-April. We have tweaked our 2010 forecasts downward by 3% on lower export contribution. Nevertheless, we remain buyers of Lafarge due to: (i) capital management being a recurring theme, with its strong free cash flow of 67 sen per share over 2010-11 (versus dividend per share of 38 sen per share); (ii) 10th Malaysia Plan (10MP) could be an event catalyst for a high beta stock like Lafarge.

Reiterate buy, with an unchanged target price of RM7.40 on 14 times 2011 earnings.

Lafarge's 1Q10 was affected by lower export average selling prices (ASPs). Results are set to be released on May 26. Earnings should be sequentially weaker due to seasonal factors - slower construction activities during Chinese New Year, lumpy maintenance charges. Year-on-year (y-o-y), though sales volume stayed flattish, we expect earnings to be weaker given: (i) heightened discounting activities (rebates have doubled y-o-y to RM28/mt); (ii) lower export contribution (20% of total production volume) due to lower ASP of US$35-38/tonne (-11% y-o-y) and the stronger ringgit (+7% y-o-y). Note that Lafarge is a net loser from a stronger ringgit as coal import accounts for 60% of export sales receipt.

Effective May 1, cement makers raised the gross ASP to RM300/tonne (+9%), justifiably passing on rising imported coal cost (+23% year to date).

Effective ASP (after rebates of RM25/tonne) is now around RM275/tonne (versus RM247 in 1Q10). While Lafarge's cheap coal inventory could run out in June 2010, we expect effective ASP to continue rising in 2H10 with government-led construction demand and cancel out cost inflation.

After adjusting for lower export ASP of US$38/tonne (-11%), we tweaked our 2010 forecasts downward by 3%. Lafarge is a high beta stock in search of a catalyst. If investors re-rate the construction sector further on higher government spending in the 10MP versus 9MP, and with the awarding of major infrastructure projects, Lafarge's share price could outperform traditional construction stocks. The cement sector's oligopolistic market structure is clearly superior to the competitive construction sector, in our view. - Maybank IB, May 11
This article appeared in The Edge Financial Daily, May 12, 2010.

HARTA - OSK Research raises Hartalega target price to RM9.89

Stock Name: HARTA
Company Name: HARTALEGA HOLDINGS BHD
Research House: OSK

KUALA LUMPUR: OSK Investment Research has maintained its buy call on Hartalega Holdings at RM7.79 with a higher target price of RM9.89 (from RM8.92), and said the company's 4QFY10 results scheduled to be announced Tuesday, May 11 would be in line with its own and consensus expectations.

"We see a better quarter-on-quarter performance, mainly contributed by 1) its timeliness in passing on the cost of higher latex price; 2) higher sales as a result of bigger production capacity, and 3) growing demand for nitrile gloves as the price difference with natural rubber gloves narrows due to the increase in natural rubber price.

"There is also the possibility of a bonus issue, following in the steps taken by its peers," it said in a note on Tuesday.

AIRPORT - OSK Research reiterates trading buy call on MAHB

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

KUALA LUMPUR: OSK Research reiterated its trading buy call on Malaysia Airports Holdings Bhd (MAHB) at RM4.95 with target price RM5.50, and said 1Q traffic statistics released by MAHB showed the robust trend in passenger and cargo figures in the past few quarters continued into 1Q.

Despite being lower quarter-on-quarter, this was purely due to seasonal weakness after 4Q's heavy holiday season, it said.

"We see a similar trend for the retail division, which has made headway since introducing its Retail Optimisation Plan (ROP).

"These factors, together with potential excitement from MAHB's fund raising via a new share placement, lead us to reiterate our trading buy call with a target price of RM5.50, derived from 16 times FY10 EPS," it said.

CIMB - CIMB downgraded to 'Hold'

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

CIMB Group Holdings Bhd. had its stock rating downgraded to "hold" from "buy" at AmResearch Sdn Bhd following recent gains in the company's share price.

AmResearch said it maintained the stock's fair value at RM15.10, based on its estimated return on equity ratio of 15.9 per cent for the full year. - Bloomberg

JOBST - Surprising rise in job postings on JobStreet

Stock Name: JOBST
Company Name: JOBSTREET CORPORATION BHD
Research House: HWANGDBS

JobStreet Corporation Bhd
(May 10, RM2)
Maintain buy at RM1.98 with target price of RM3.20: The number of job postings on the Malaysian portal surged to 17,000 at end-March, the highest in JobStreet's history, and compares to about 13,000 at end-February and a low of 7,000 in January 2009.

This was a surprise as 1Q is typically a quiet period. Hence, 1QFY10F earnings should show improvement year-on-year and quarter-on-quarter. There could be upside to our FY10F earnings as we assumed about 14,000 jobs per month for Malaysia. Also, DBS economist recently upgraded 2010 GDP forecast to 8% versus our current assumption of 5.7%. Historically, 1% GDP growth would increase JobStreet's revenue by 3%-5%.

JobStreet is in a win-win situation. It is operating in the right growing online industry while capitalising on strong job creation in the Asean market. The government's National Broadband Initiative is creating stronger awareness in the SME market, which JobStreet is trying to penetrate.

This could be a strong catalyst for the stock. In our view, this will create a sustainable structural shift from print to online advertising. In fact, classified sales for appointments had been declining in 2007-2009. Our sensitivity analysis indicates that every 10% migration of classified sales from The Star to JobStreet would enhance JobStreet's earnings by 3%. Furthermore, the growing adoption of gadgets such as the iPhone and iPad will boost accessibility to JobStreet's services.

The swift improvement in the job market supports our view that JobStreet is one of the best proxy to economic recovery in the Asean markets. With SEEK raising its stake to 22.4% now, we can expect more tangible synergies such as marketing ideas, new user interfaces, analytics and also new markets. Meanwhile, major shareholders SEEK Ltd and Fidelity remain firm with their investments in JobStreet, with Fidelity raising its stake from 11.5% to 11.7% on April 10.

Given JobStreet's strong cash flow generation ability, it is well-positioned to reap further acquisition and investment opportunities. We estimate it will generate RM23 million-RM41 million free cash flow (FCF) over FY10-FY12F, while its balance sheet is in net cash position of RM50 million (16 sen per share).

However, as JobStreet has met its target of 20% stake in 104 Corp this year, it is unlikely to raise its stake further for now. Hence, with the excess cash in hand, we do not discount the possibility of a higher dividend payout (currently 35%, implies 1.5% net yield).

We are retaining our buy rating, and RM3.20 price target based on one time price earnings-to-growth (PEG) (FY09-FY12 net profit compound annual growth rate of 25%). This implies 19.9 times fully diluted FY12F PE. - HwangDBS Vickers Research, May 10


This article appeared in The Edge Financial Daily, May 11, 2010.

GAB - GAB riding on Tiger's success

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

Guinness Anchor Bhd (GAB)
(May 10, RM7)
Maintain hold at RM6.91 with unchanged target price of RM7: Appropriately led by its Tiger brand, GAB continued to gain market share in the malt liquor market (MLM) in 3QFY10. The seasonality factor also translated into a strong net profit growth of 43% year-on-year (y-o-y) to RM47 million.

There are no changes to our forecasts as we expect a slower sequential quarter after the seasonality factor wears off. Maintain hold.

As expected, 3QFY10 turned out to be solid quarter. GAB's RM47 million 3QFY10 net profit (+43% y-o-y; +6% quarter-on-quarter) was within our and market expectations, making up 31% of our and consensus forecasts. The brewer's strong 3Q performance is not comparable y-o-y due to the earlier timing of Chinese New Year (CNY) in 2009, which resulted in some of the CNY festive sales captured in 2QFY09 instead of 3QFY09.

GAB's 12-month cumulative moving average (MA) turnover and pre-tax profit up to 3QFY10 reached new highs of RM1.33 billion (+5% y-o-y) and RM195 million (+9% y-o-y) respectively.

These are better indications of the continuing strong momentum GAB has built up, which suggests that it is likely to improve on its performance to date with the upcoming World Cup football tournament beginning June 11. We expect GAB's products - lager and stout - to continue gaining market share in the next 6-12 months.

With 39 sen per share net cash at end-3QFY10 and forecast to grow to 72 sen per share by end-FY12, we continue to like GAB for its deep dividend potential. GAB also offers steady growth potential with its ability to grow market share, whilst competing in an industry that has a high defensive quality of earnings.

We maintain our hold call and RM7 discounted cash flow-based (DCF) target price, which translates into a near 7% net dividend yield. - Maybank IB, May 10


This article appeared in The Edge Financial Daily, May 11, 2010.