SIME - A noteworthy recovery at Sime Darby

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

Sime Darby Bhd
(Nov 29, RMxx)
Upgrade to buy with revised target price RM10.20 (from RM9): Sime Darby reported 1QFY11 earnings of RM654.7 million (-4% year-on-year; reversing from 4QFY10 loss) ' in line with our forecast on an annualised basis. Top line grew 14% to RM8.78 billion, driven by the motor, property, industrial, and utilities segments, thanks to robust demand for the group's products.

However, earnings before intrest and tax (Ebit) was affected by weaker plantations performance (due to lower volumes) and losses in engineering (due to a lack of new projects). We understand that Sime is currently bidding for three new fabrication projects. No dividends were declared for 1QFY11.

The group's oil palm harvesting in Indonesia suffered a one-off setback in 1QFY11 due to flooding in South Kalimantan, which has since receded.

Fresh fruit bunch (FFB) harvesting in Indonesia is on track to recover in subsequent quarters. However, Malaysian FFB yield will fall behind our initial expectations as the lagged impact brought on by the drought in early CY10 is worse than expected.

We reduce FY11F/13F plantations Ebit by 8% to 15% on cuts in overall yields. However, the motor segment Ebit contribution is raised by 65% to 67%, industrial (8% to 9%) and property (7%). Hence, CY11F/13F earnings are raised by 2% to 6% and target price lifted by 13% to RM10.20 (based on sum-of-parts).

Recovery in most of the group's businesses has exceeded our expectations.

We believe Sime deserves a second look as the current earnings growth momentum still has legs and the shares offer a 17% potential upside to our RM10.20 target price. ' HwangDBS-Vickers Research, Nov 29


This article appeared in The Edge Financial Daily, November 30, 2010.

TM - TM books maiden contribution from Unifi in 3QFY10

Stock Name: TM
Company Name: TELEKOM MALAYSIA BHD
Research House: ECMLIBRA

Telekom Malaysia Bhd
(Nov 29, RM3.39)
Maintain hold at RM3.35 with target price of RM3.54: Telekom Malaysia's 9MFY10 core net profit of RM324.5 million is in line with our expectations but below consensus, making up of 76.8% and 59.7% of full-year estimates respectively.

Despite launching Unifi in March, TM only started to bill its early customers in July, which explains the quarter-on-quarter (q-o-q) improvements in earnings before interest, tax, depreciation and amortisation (Ebitda) margins from 32% to 33.8%. TM also benefitted from lower outpayment cost from paying out lower interconnect rate of 5.0 sen/minute (from 8.5 sen per minute previously), although this was offset by content costs from its IPTV business.

Currently, TM has 21,000 Unifi subscribers, with another 8,000 firm orders. Positively, 30% of these subscribers are new TM customers, which is quite a high percentage. Management guided that as Unifi's coverage area improves, the take-up rate will also increase accordingly. It expects a 20% to 30% Unifi subscriber compound annual growth rate (CAGR) over the next two years. The year 2011 will be a ramp-up year for Unifi, while 2012 will see significant revenue contribution from Unifi.

For now, TM plans to stick to its dividend policy of paying RM700 million or 90% of net profit, whichever is higher. Any changes in its dividend policy will only be considered after the announcement of its last quarter results. During the quarter, TM received RM252.1 million in proceeds and booked RM141.7 million of gain from the disposal of its 60 million shares in Measat. This has helped to boost its cash pile to RM3.80 billion (from RM3.60 billion in 2QFY10). Net gearing has fallen to 0.34 time, from 0.40 time in 2QFY10. It still has 193 million Axiata shares which it has yet to monetise.

We maintain our 'hold' call with target price of RM3.54 using an unchanged dividend discount model (LT growth rate: 1.5%, WACC: 7%). ' ECM Libra Investment Research Nov 29


This article appeared in The Edge Financial Daily, November 30, 2010.

KINSTEL - Kinsteel's target price cut by OSK

Stock Name: KINSTEL
Company Name: KINSTEEL BHD
Research House: OSK



OSK says the surprise loss at Kinsteel's downstream operations and worse than expected loss from 37 per cent -owned Perwaja again let them down.

The loss was mainly attributed to the wide mismatch between higher raw materials costs vis-���-vis lower selling prices of steel products, OSK added.

As OSK expect the quantum of improvement anticipated for fourth quarter to be rather limited

It thus cuts estimates by 65.5 per cent for financial year 2010 and 13.2 per cent for financial year 2011. This translate into a lower target price of RM0.83 - Reuters

BSTEAD - HDBSVR: High conviction Buy on Boustead

Stock Name: BSTEAD
Company Name: BOUSTEAD HOLDINGS BHD
Research House: HWANGDBS

KUALA LUMPUR: Hwang DBS Vickers Research has a high conviction Buy on BOUSTEAD HOLDINGS BHD [] as the major rerating catalyst is in property.

The research house said on Tuesday, Nov 30 that Lembaga Tabung Angkatan Tentera (LTAT) is finalising two lucrative government land deals ' (i) 60 acres of Jalan Cochrane land, and (ii) 245-acre Batu Cantonment army base in Jalan Ipoh.

'We estimate these projects could add RM2.05/share, raising our SOP value to RM10.35. This excludes its recent rights to reclaim valuable land in Penang.

'The recent RM1bn MTN program suggests these land deals are imminent. Valuations remain a bargain at 8x FY11F PE and 1.1x P/NTA, coupled with 6.0% yield,' it said.

LITRAK - OSK keeps 'buy' call on Litrak

Stock Name: LITRAK
Company Name: LINGKARAN TRANS KOTA HOLDINGS
Research House: OSK



According to OSK, Litrak's first half earnings of RM57 million made up 56 per cent of the full-year estimates and this is in line given expectations of higher losses at SPRINT in the second against the first half.

Although no dividend was declared, OSK expects a full year amount of 18 sen, thus implying a 5.1 per cent yield.

OSK maintains a 'buy' call on the company with a higher target price of RM4.22, given the possibility of investors switching from PLUS to Litrak, as the former may soon be privatised. - Reuters

KLK - KL Kepong downgraded to 'hold'

Stock Name: KLK
Company Name: KUALA LUMPUR KEPONG BHD
Research House: HWANGDBS



Kuala Lumpur Kepong Bhd, a Malaysian palm oil producer, was downgraded to 'hold' from 'buy' at HwangDBS Vickers Research Sdn Bhd on the stock's limited upside.

The share price estimate was unchanged at RM21.00, HwangDBS wrote in a report today.

Kuala Lumpur Kepong Bhd, a Malaysian palm oil producer, rose the most in three weeks in Kuala Lumpur trading after announcing a 28 per cent gain in fourth-quarter net income.

Its shares climbed 1.1 per cent to RM20.20 at 9:05 a.m. local time, set for their biggest gain since Nov. 8. -- Bloomberg

RHBCAP - RHBCap a 'buy', says HwangDBS

Stock Name: RHBCAP
Company Name: RHB CAPITAL BHD
Research House: HWANGDBS



RHB Capital's (RHBCap) 15 per cent loan growth as at September 10 has met HwangDBS' financial year 2010 forecast.

Given the solid loan growth and lower provisions, it raised financial year 2010-2011(forecast) loan growth to 15-18 per cent from 12-15 per cent, HwangDBS said.

Our target price of RM10 assumes 5 per cent long term growth rate, 10.5 per cent cost of equity, and 16 per cent return on equity.

RHB Cap remains one of the cheapest large cap banks in Malaysia. - Reuters

PCHEM - OSK Research downgrades Petronas Chemicals to Neutral

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

KUALA LUMPUR: OSK Research said Petronas Chemicals Group Bhd's 1HFY11 results were within expectations.

It said on Tuesday, Nov 30 that overall, the numbers showed a year-to-date improvement, attributed to higher realised prices on increasing demand and higher volume sold following an improvement in plant utilisation.

'Nevertheless, we are downgrading our call from Subscribe to Neutral given that the share price has rallied and is nearing our target price of RM5.51, from its IPO price of RM5.20,' it said.

The institutional price was RM5.20 and for retailers, it was RM5.04.

PERWAJA - OSK Research slashes estimates for Perwaja after losses

Stock Name: PERWAJA
Company Name: PERWAJA HOLDINGS BERHAD
Research House: OSK

KUALA LUMPUR: OSK Research said it was once again disappointed with Perwaja's deeper than expected losses in 3Q due to the mismatch between expensive iron ore pellets and lower selling prices of billets and Direct Reduced Iron (DRI).

It said on Tuesday, Nov 30 that although it could see a ray of light in 4Q, it still expect limited profit as the prolonged high premium on pellets may squeeze the margins of DRI and indirectly, billets.

'We are slashing our estimates for the next two years by a hefty 96.7% for FY10 and 34% for FY11. The new earnings translate into a lower target price of 97 sen, which implies limited downside. We remain NEUTRAL on Perwaja,' it said.

QSR - CIMB Research downgrades QSR to Neutral

Stock Name: QSR
Company Name: QSR BRANDS BHD
Research House: CIMB

KUALA LUMPUR: CIMB Equities Research has downgraded QSR Brands to NEUTRAL.

The research house said on Tuesday, Nov 30, it likes QSR even without the takeover angle. As at end-September, the same-store sales growth was encouraging at 5% for Pizza Hut and 3% for KFC.

Also, average ticket prices remained at all-time highs of RM40 for Pizza Hut and RM20 for KFC for the second consecutive quarter in 2Q.

'However, the takeover offers have whipped up investor interest, sending QSR's share price to a record RM6.29 on Monday, which offers limited upside to our target price. We, therefore, downgrade our recommendation from outperform to NEUTRAL,' it said.

CIMB Research said this was its first downgrade since it became the first research house to initiate coverage on QSR at RM3.30 on Nov 20, 2007.

'Our EPS forecasts and target price of RM6.50, which factors in a 10% discount to the average valuation of bigger F&B producers, are intact. YTD, the share prices of QSR and KFCH have soared 89% and 113%, outperforming the FBM KLCI by 72% and 95%, respectively.

'Our top F&B pick is now CI Holdings, which is the exclusive franchise holder for Pepsi in Malaysia,' it said.