KENCANA - CIMB Research keeps Kencana an Outperform

Stock Name: KENCANA
Company Name: KENCANA PETROLEUM BHD
Research House: CIMB

KUALA LUMPUR:'' CIMB Equities Research is positive on KENCANA PETROLEUM BHD []'s proposed buy-out of Mermaid's shares in three jointly owned drilling units for US$66.6 million.

It said on Tuesday, June 22 that one of the target units is MKR1, which owns drilling rig KM1.

'We take a positive view of the acquisitions because they will give Kencana total control of the drilling assets and provide an earnings boost. The deal is slated for completion in 1QFY1/11,' it said.

CIMB Research said imputing the new earnings stream, it raised its FY11-12 EPS forecasts by 11.3-14.0% while retaining its FY10 forecast.

'Our target price rises from RM1.90 to RM2.15, pegged to an unchanged target market P/E of 15x. Kencana remains an OUTPERFORM, with the potential share price triggers being 1) active order book replenishment, and 2) M&As,' it said.

EONCAP - OSK Research comments on Primus suit against certain EONCap directors, shareholders

Stock Name: EONCAP
Company Name: EON CAPITAL BHD
Research House: OSK

KUALA LUMPUR: OSK Research is maintaining its NEUTRAL recommendation on EON CAPITAL BHD [] and an unchanged RM7.30 target price to reflect the current offer price from Hong Leong Bank.

'Assuming that Primus Pacific Partners was successful in its legal suit and the offer from HLBank is reversed, we may revert back to our fundamental fair value of RM6.80 (1.25x FY10 PBV, 11% ROE, 3% growth rate),' it said in a research note issued on Tuesday, June 22.

On Monday, Primus filed a legal suit against a number of respondents including certain members of the board of directors of EONCap.

In the suit, Primus alleged that:-

1. The manner in which the offer is being implemented constitutes an arrangement that irrevocably severs the ties between the shareholders and EONCap

2. The appointment of the seven new directors to the Board of EONCap was not viewed as being in the best interest of the shareholders of EONCap, whereby the appointment of the new directors was essentially for the purpose of helping to revive and to force through the offer by HLBank to help certain groups of shareholders to realize their investment.

3. The actions of certain directors following their appointment were not consistent with the principals of the law, whereby they were deemed to have failed to exercise their fiduciary duties.

OSK Research said Primus has opted to file a full legal lawsuit with the hearing date being fixed for July 6. A certificate of urgency has also been filed, for which a decision from the court could be obtained by early August.

Although the board of EONCap had planned to convene the EGM for shareholders to decide on the offer from HLBank by mid-July, the research house believed that the board of EONCap could now make a decision at Tuesday's AGM to potentially delay the proposed EGM date to a later date pending the court's final decision as this would only be deemed fair in the eyes of minority shareholders.

'Primus will not be seeking a court injunction to stop the upcoming EGM as an injunction would only be temporary in nature while a swift legal suit that works in its favor would essentially serve to overturn the proposed resolution by the EONCap board to table the offer by HLBank to shareholders of EONCap, thus ensuring continuity in Primus' current role in EONCap,' it said.

OSK Research said given that legal matters and their implications are not within its area of expertise, it would not be fair for it to draw a conclusion on the outcome of the legal suit.

'That said, Primus may have a point with regard to the manner in which the sheer number of new directors were appointed to the board that may have had the effect of creating an unfair board majority to push through the HLBank offer to shareholders.

'However, as a mitigating factor, we also note that the new board line-up has been ultimately approved by Bank Negara Malaysia, which would have acted in the best interest of safeguarding standards of corporate governance,' it said.

SUNWAY - Chance for Sunway to expand in Sri Lanka

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

Sunway Holdings Bhd
(June 18, RM1.53)
Reiterate buy at RM1.53 with target price of RM2: Sunway announced last Thursday that they have entered into a memorandum of understanding (MoU) with Dasa Tourist to explore the possibility of forming a joint venture to construct and develop a 34 storey building comprising 71 commercial units and 176 residential units in Colombo city, Sri Lanka.

The proposed development is located on prime freehold land in the premium mixed-used zone of Bambalapitiya in District Colombo 4 with a potential to generate a total sellable area of 400,000 sq ft. Total gross development value (GDV) is estimated to be RM250 million. Sunway will undertake feasibility studies and market research within two months from the date of the MoU.

Colombo city is the trade capital of Sri Lanka and is located within the most highly populated Western Province. With political turmoil behind them, Sri Lanka has since experienced economic growth, with GDP rising 6.2% in the three months ended December 2009 from a year earlier after gaining 4.2% in the previous quarter.

Inflation remains low while the repurchase rate and reverse repurchase rate was maintained at 7.5% and 9.75% respectively, a five-year low. With US$1 billion (RM3.25 billion) pledged in infrastructure spending, the economy is headed for a boost while many multinational corporations have stepped up operations and investments.

While we acknowledge the risks involved in venturing into unchartered waters, the materialisation of this project would allow Sunway to test the Sri Lankan market on a smaller scale, in comparison with its other property development ventures abroad.

We are positive on this development as it offers an opportunity for geographical expansion as the group does not currently have a presence in Sri Lanka.

Sunway is our top buy for the construction sector. This is premised on (1) strong earnings growth of 46.4% in FY10, (2) undemanding forward P/E valuation of 7.7 times, (3) more land bank acquisition in the pipeline, and (4) strength in securing overseas construction contracts, in particular Abu Dhabi and India.

Our target price is unchanged at RM2 which is derived from 10 times P/E on FY10 EPS. This is further supported by sum-of-parts valuation of RM2.74. ' ECM Libra Research, June 18


This article appeared in The Edge Financial Daily, June 21, 2010.

AFG - AmResearch maintains buy call on AFG

Stock Name: AFG
Company Name: ALLIANCE FINANCIAL GROUP BHD
Research House: AMMB

Alliance Financial Group Bhd
(June 18, RM2.90)
Maintain buy at RM2.80 with fair value of RM3.30: Alliance Financial Group (AFG) announced that its subsidiary, Alliance Bank Malaysia Bhd, has appointed Sng Seow Wah as its new group CEO. Approval for the appointment was obtained from Bank Negara Malaysia last Thursday.

AFG said Sng is an experienced banker with more than 24 years of experience. He was executive vice-president and head of enterprise banking (EB) at OCBC Bank in Singapore where he led the successful transformation of the business into a sustainable, high-performing unit.

In the years under his leadership, the EB business produced consistently excellent results and high employee engagement ratings.

Prior to his stint with OCBC Bank in Singapore, Sng was with Citibank Singapore where he established and led the emerging local corporate (ELC), a business unit, which covered commercial banking.

His portfolio was later expanded with his appointment as managing director of the local corporate group. Before joining Citibank, Sng held senior commercial and corporate banking positions in Westpac Banking Corp and Banque Nationale De Paris.

Sng was the head of human resources, special projects and corporate communications at Fullerton Financial Holdings (International) Pte Ltd before his appointment as Alliance Bank Malaysia's group CEO. He is expected to commence his appointment in July 2010.

The news is not entirely a surprise given that the press had on May 18 reported on Sng's possible appointment. We view the news positively as this will allow the banking group to move ahead.

We maintain our buy call on AFG with fair value of RM3.30 per share. This is based on fair P/BV of 1.6 times, on unchanged ROE of 11.6% FY11F. Catalysts for the stock are higher-than-expected ROEs and loan growth.

The group is targeting loan growth in the low teen level for FY11F. Our sensitivity analysis shows that should loan growth come in stronger at around the 11% target FY11F (our forecast: 6.6%), we are looking at a further upgrade to fair value by 20 sen per to RM3.50. ' AmResearch Sdn Bhd, June 18


This article appeared in The Edge Financial Daily, June 21, 2010.

TGOFFS - Tanjung Offshore - A strategic partnership

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

Tanjung Offshore Bhd
(June 18, RM1.20)
Maintain buy at RM1.20 with lower target price of RM1.30 (from RM1.45): Ekuiti Nasional Bhd's (Ekuinas) entry into Tanjung Offshore (TOFF) is positive to the latter's financials and operations. We think Ekuinas will create value for TOFF, in terms of opening up new business opportunities, and could raise its stake beyond 20% in later years.

TOFF remains a buy but we have lowered our 2010-12 EPS forecasts by 7%-10% taking into account the enlarged share base effect. Corresponding to that, our target price is adjusted to RM1.30 with an unchanged seven times FY11 EPS.

Ekuinas, a government-linked private equity fund, will emerge as a new shareholder at TOFF following the completion of (i) the private placement exercise of 26 million new shares, and (ii) the purchase of 30.5 million shares from co-founder Haji Abdullah (18.5 million shares) and other existing major shareholders (12 million shares) at RM1.30 per share. Subsequently, Ekuinas will become TOFF's second largest shareholder with a 20% stake (ex-ESOS and warrants).

The private placement exercise is expected to be completed by 3Q2010, pending shareholders' approval at the next AGM. The purchase price is at a 8.3% premium to last Thursday's closing price but is deemed fair as it is transacted at 6-9 times FY10-12 EPS and 10% discount to our earlier target price.

The RM33.8 million proceeds from the private placement exercise will help TOFF lower its net borrowings and net gearing levels to RM532 million (-6%) and 148% (-29 percentage points) respectively.

Ekuinas' entry into TOFF is strategic and fulfils its investment criteria as it has a positive view of the oil & gas (O&G) sector, which we concur.

We think Ekuinas will be keen to open up new business opportunities for TOFF, locally and abroad and help consolidate small bumiputra-linked companies. In view of this, we do not rule out Ekuinas raising its stake in TOFF beyond 20%. ' Maybank IB Research, June 18


This article appeared in The Edge Financial Daily, June 21, 2010.

SPSETIA - S P Setia's sales performance a blowout

Stock Name: SPSETIA
Company Name: SP SETIA BHD
Research House: CIMB

S P Setia Bhd
(June 18, RM4)
Maintain outperform at RM4.03 with target price of RM5.51: S P Setia's interims largely met expectations even though annualised 1HFY10/10 net profit made up 88% of our full-year forecast and 91% of consensus estimates.

This is because 2H is traditionally stronger and should make up for lost ground. 1H physical sales were robust at RM1.2 billion, ahead of its RM2 billion full-year target. We make no changes to our earnings forecasts and outperform recommendation.

Our target price remains at RM5.51 as we continue to apply a 20% premium to its fully diluted RNAV of RM4.59, given S P Setia's position as the bellwether property stock. Potential rerating catalysts include 1) continued strong sales in FY10, and 2) S P Setia's renewed appetite for land banking, domestically and internationally.

1HFY10 core net profit was broadly in line with expectations, coming in at 44% of our full-year forecast and 46% of consensus estimates. We deem the results to be in line as 2H typically contributes 55%-60% of full-year profits. We expect future quarters to make up for the shortfall, given the robust sales so far.

April 2010's sales figure of RM271 million was the third highest since the company started disclosing monthly sales. S P Setia proposed an interim dividend of six sen per share, above 1HFY09's five sen and in line with our full-year forecast of 17 sen.

1HFY10 actual sales were strong at RM1.2 billion which is 130% higher than a year earlier. 2Q sales of RM595 million nearly matched 1Q's RM608 million and were 42% higher year-on-year.

The robust sales came primarily from the Klang Valley which made up 74% of total sales. The four townships in Johor contributed 24% of sales while Penang chipped in a mere 3%. The flagship Bandar Setia Alam township, which included the niche high-end Eco Park, contributed RM639 million sales or 53% of total group sales.

S P Setia's monthly sales are holding very firm despite the 5% real property gains tax which took effect on Jan 1, 2010. Its annualised 1H sales of RM2.4 billion are 20% above its target and a whopping 45% above last year's record RM1.65 billion sales.

The strong performance is a good indication of how the industry is faring. Other developers such as Mah Sing are also enjoying brisk sales. Mah Sing's 1QFY3/10 sales of RM601 million were also a record for the group and matched S P Setia's 2QFY10 sales. ' CIMB Research, June 18


This article appeared in The Edge Financial Daily, June 21, 2010.

PUNCAK - Puncak Niaga raised to 'market perform'

Stock Name: PUNCAK
Company Name: PUNCAK NIAGA HOLDINGS BHD
Research House: RHB

Puncak Niaga Holdings Bhd, a Malaysian water treatment operator, was upgraded at RHB Research Institute Sdn Bhd after the Edge Financial Daily newspaper reported that a deadlock in the proposed restructuring of Selangor state's water assets may be broken.

The company was raised to "market perform" from "underperform" and its fair value increased to 2.92 ringgit from 2.55 ringgit, RHB said in a report today. -- Bloomberg

MAXIS - Maxis cut to 'hold' at Maybank

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

Maxis Bhd was cut to "hold" from "buy" at Maybank Investment Bank Bhd, citing the prospects of slower-than-expected industry growth.

The share price estimate was reduced to RM5.78. Its previous target was RM6.20, according to Bloomberg data. -- Bloomberg

KPJ - KPJ Healthcare sees brighter prospects ahead

Stock Name: KPJ
Company Name: KPJ HEALTHCARE BHD
Research House: RHB

KPJ Healthcare Bhd
(June 17, RM3.34)
Maintain outperform at RM3.29 with higher fair value of RM4.25 (from RM3.50): For FY09, KPJ recorded a revenue growth of 14.9% year-on-year (y-o-y) largely due to higher contribution from all of its business segments.

Moving forward, we believe KPJ's revenue growth drivers include: the opening of at least two new hospitals per annum; expansion of its existing hospitals; enhancing its presence in medical tourism; and higher utilisation rate per patient.

We understand that KPJ is investing RM200 million to build three new hospitals, purchasing of new medical equipment and expanding its existing hospitals nationwide this year.

The construction works for its three new hospitals which are located in Bandar Baru Klang, Pasir Gudang and Muar have already started and are due for completion by end of 2011.

We believe this is in line with the management's targets to open at least two new hospitals per annum either through greenfield projects or acquisition of established hospitals which would likely be in East Malaysia, the East Coast or Iskandar region.

In FY09, over 15,000 foreigners received treatment at its hospitals and in the 1QFY10, KPJ received more than 5,000 foreigners of which 2,800 were Indonesians.

Although KPJ's focus is on positioning itself as a community healthcare provider, the company realises that there is sizeable growth potential in medical tourism.

However, management mentioned that any significant contribution from medical tourism would only come in three to five years. Currently, medical tourism accounts for less than 10% of total group revenue.

We have revised up our FY10-12 earnings forecasts by 9.7%-14.3% largely to reflect the upward change in our revenue assumptions, and lower effective tax rate and MI (minority interest) assumptions.

The risks to KPJ's earnings include lower-than-expected patient numbers which could be due to slower-than-expected economic recovery and serious disease outbreaks (such as SARS or swine flu) in Malaysia as well as slower-than-expected turnaround in loss-making hospitals.

Besides the earnings revision above, our indicative fair value has been raised to RM4.25 (from RM3.50) based on target FY11 PER of 16 times (10% discount to regional peers' average) as we roll forward our valuation year (from FY10).

We believe the M&A (merger and acquisition) activity in the healthcare sector recently supports our view that there is significant growth potential for the sector in the region.

We continue to like KPJ for its leading position and its expansion plans in Malaysia's growing healthcare market. We reiterate our outperform call on the stock. ' RHB Research, June 17


This article appeared in The Edge Financial Daily, June 18, 2010.

TGOFFS - OSK maintains 'sell' call on Tanjung Offshore

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

OSK Investment Research has maintained its 'sell' call on oil and gas services provider, Tanjung Offshore Bhd, despite the emergence of Ekuiti Nasional Bhd (Ekuinas) as substantial shareholder.

"We are keeping our call unchanged until we see strong earnings recovery from the company, which we believe would materialise especially after it turns around its CiTECH business," it said in an equity note here today.

Ekuinas, the government-linked private equity fund management company, yesterday agreed to buy 20 per cent stake in the company for RM73.4 million, or RM1.30 per share.

The proceeds from the placement will be used to reduce Tanjung Offshore's debt and pare down its gearing to about 1.5 times from 1.9 times currently, it said.
OSK said Ekuinas was also commercially-driven, with investments focused on strong Malaysian companies with high-growth potential.

"From its recent stake buy, we believe Tanjung Offshore qualifies for this category," it said. - BERNAMA